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. Jones Cable Corporation also serves as the Managing General Partner of Growth Partners 89-B. IDS Cable Corporation, a wholly owned subsidiary of IDS Management Corporation, which is a wholly owned subsidiary of American Express Financial Corporation, acts as supervising general partner of Growth Partners 89-B. IDS Management Corporation and Intercable each have an approximate 5 percent equity interest in the Venture, the Partnership has a 66 percent interest in the Venture, and Growth Partners 89-B has a 24 percent interest in the Venture.
The Partnership does not directly own any cable television system. The Venture owns the cable television systems serving the communities of Aurora, North Aurora, Montgomery, Plano, Oswego, Sandwich, Yorkville and certain unincorporated areas of Kendall and Kane Counties, all in the State of Illinois (the "Aurora System"). See Item 2.
ITEM 2. PROPERTIES -------------------
The Aurora System was acquired by the Venture in May 1990. The following sets forth (i) the monthly basic plus service rates charged to subscribers, (ii) the number of basic subscribers and pay units and (iii) the range of franchise expiration dates for the Aurora System. The monthly basic service rates set forth herein represent, with respect to systems with multiple headends, the basic service rate charged to the majority of the subscribers within the system. In cable television systems, basic subscribers can subscribe to more than one pay TV service. Thus, the total number of pay services subscribed to by basic subscribers are called pay units. As of December 31, 1997, the Aurora System operated cable plant passing approximately 76,900 homes, with an approximate 64 percent penetration rate. Figures for numbers of subscribers, miles of cable plant and homes passed are compiled from the Managing General Partner's records and may be subject to adjustments.
At December 31, ---------------------------- AURORA SYSTEM 1997 1996 1995 - --------------------------------- ---------- ------- -------
Monthly basic plus service rate $ 24.21 $ 23.99 $ 22.58 Basic subscribers 49,429 47,018 43,982 Pay units 25,513 26,002 25,938
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS --------------------------
None.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------
None.
PART II. --------
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK ------------------------------------------------- AND RELATED SECURITY HOLDER MATTERS -----------------------------------
While the Partnership is publicly held, there is no public market for the limited partnership interests, and it is not expected that a market will develop in the future. During 1997, limited partners of the Partnership conducted "limited tender offers" for interests in the Partnership at prices ranging from $50 to $55 per interest. As of February 16, 1998, the number of equity security holders in the Partnership was 6,701.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA - -------------------------------
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION - ------- --------------------------------------------------------------- RESULTS OF OPERATIONS ---------------------
The following discussion of the financial condition and results of operations of IDS/Jones Growth Partners II, L.P. (the "Partnership") and IDS/Jones Joint Venture Partners (the "Venture") contains, in addition to historical information, forward-looking statements that are based upon certain assumptions and are subject to a number of risks and uncertainties. The Partnership's and Venture's actual results may differ significantly from the results predicted in such forward-looking statements.
FINANCIAL CONDITION - -------------------
IDS/Jones Growth Partners II, L.P. - - ----------------------------------
The Partnership owns a 66 percent interest in the Venture. During 1997, the Partnership's interest in the Venture decreased $4,021,003 to a deficit of $7,572,342 at December 31, 1997. This decrease represents the Partnership's proportionate share of losses generated by the Venture in 1997. Such losses are anticipated to continue. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations for the Venture for details pertaining to its financial condition.
IDS/Jones Joint Venture Partners - - --------------------------------
It is Intercable's publicly announced policy that it intends to liquidate its managed partnerships, including the Partnership, as opportunities for sales of partnership cable television systems arise in the marketplace. In accordance with Intercable's policy, the cable television system serving the communities of Aurora, North Aurora, Montgomery, Plano, Oswego, Sandwich, Yorkville and certain unincorporated areas of Kendall and Kane Counties, all in the State of Illinois (the "Aurora System") has been marketed for sale and Intercable is continuing to seek out opportunities to sell the Aurora System. There is no assurance as to the timing or terms of any sales.
For the year ended December 31, 1997, the Venture generated net cash from operating activities totaling $3,148,913, which is available to fund capital expenditures and non-operating costs. During 1997, the Venture expended approximately $4,464,000 on capital expenditures. Approximately 40 percent of the expenditures related to construction of service drops to subscriber homes. Approximately 36 percent of the expenditures related to plant extensions to new homes passed. The remainder of the expenditures was used for various enhancements in the Aurora System. Funding for these expenditures was provided by cash generated from operations and borrowings from the Venture's credit facility. Budgeted capital expenditures for 1998 are approximately $4,310,000. Approximately 42 percent of the expenditures is for plant extensions to new homes passed. Approximately 36 percent of the expenditures is for service drops. The remainder of anticipated capital expenditures is necessary to maintain the value of the Aurora System until it is sold. Funding for the expenditures is expected to be provided by cash generated from operations and, if necessary and in its discretion, borrowings from the Managing General Partner.
On December 5, 1991, Intercable made a $1,800,000 loan to the Venture, of which $1,200,000 had been repaid as of December 31, 1997. Any amounts not repaid to Intercable are convertible into equity in the Venture at Intercable's option. In the first quarter of 1994, Intercable agreed to subordinate to all other Venture debt its $1,406,647 advance to the Venture outstanding at March 31, 1994 and IDS Management Corporation made a loan of $1,000,000 to the Venture to fund principal repayments due on March 31, 1994 on the Venture's then- outstanding term loan. The interest rates on the respective loans, which will vary from time to time, with respect to IDS Management Corporation's loan, are at its cost of borrowing, and, with respect to Intercable's loans, are at its weighted average cost of borrowing. It is anticipated that the remaining loans will be repaid from a portion of the sale proceeds to be received on the eventual sale of the Aurora System. The related parties' notes will be repaid including accrued interest in the following order: first, to Intercable the remaining $600,000 of the $1,800,000 note dated December 5, 1991; second, to IDS Management Corporation the $1,000,000 note dated March 30, 1994; and third, to Intercable the $1,406,647 subordinated advance.
The Venture is a party to a $47,000,000 revolving credit and term loan agreement with commercial banks. The agreement allows for a reducing revolving commitment that will begin to reduce quarterly on June 30, 1999 until December 31, 1999, at which time the commitment will reduce to zero and all principal and interest amounts will be due and payable in full. At December 31, 1997, all $47,000,000 was outstanding under this agreement. Interest on the credit facility is at the Venture's option of the Prime Rate plus .625 percent, the London Interbank Offered Rate plus 1.625 percent or the Certificate of Deposit Rate plus 1.75 percent. The effective interest rates on outstanding obligations to non-affiliates as of December 31, 1997 and 1996 were 7.52 percent and 7.38 percent, respectively.
The Venture has sufficient sources of capital available through its ability to generate cash from operations and, if necessary and in its discretion, borrowings from the Managing General Partner to meet its current needs.
Year 2000 Issue - ---------------
The Year 2000 issue is the result of many computer programs being written such that they will malfunction when reading a year of "00." This problem could cause system failure or miscalculations causing disruptions of business processes.
The General Partner has initiated an assessment of its computer applications to determine the extent of the problem. Based on this assessment, the General Partner has determined that the majority of its computer applications supporting business processes, including accounting and billing, are designed to handle the Year 2000 appropriately.
The General Partner is currently focusing its efforts on the impact of the Year 2000 issue on service delivery. The General Partner has established an internal team to address this issue. The General Partner is identifying and testing all date-sensitive equipment involved in delivering service to the Partnership's customers. In addition, the General Partner will assess its options regarding repair or replacement of affected equipment during this testing. The General Partner currently has no definitive estimate of the cost or the extent of the impact, if any, this problem will have on service delivery; however, the General Partner does not believe that the impact will be material. The General Partner anticipates completion of its testing in 1998, at which time it will determine the financial impact on the Partnership. The General Partner expects that the financial impact on the Partnership of the Year 2000 issue likely will not be material because the General Partner anticipates that the Partnership will be liquidated before the year 2000.
RESULTS OF OPERATIONS - ---------------------
IDS/Jones Growth Partners II, L.P. - - ----------------------------------
All of the operations of the Partnership are represented exclusively by its 66 percent interest in the Venture. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations for the Venture immediately below for details pertaining to its operations.
IDS/Jones Joint Venture Partners - - --------------------------------
Revenues of the Venture's Aurora System increased $1,319,337, or approximately 7 percent, to $19,713,788 in 1997 compared to $18,394,451 in 1996. Increases in basic service revenues primarily accounted for the increase in revenues. Basic service rate increases accounted for approximately 49 percent of the increase in revenues. An increase in the number of basic service subscribers accounted for approximately 51 percent of the increase in revenues. The number of basic subscribers increased 2,411, or approximately 5 percent, to 49,429 at December 31, 1997 compared to 47,018 at December 31, 1996.
Operating expenses consist primarily of costs associated with the operation and administration of the Aurora System. The principal cost components are salaries paid to system personnel, programming expenses, professional fees, subscriber billing costs, rent for leased facilities, cable system maintenance expenses and marketing expenses.
Operating expenses increased $103,869, or approximately 1 percent, to $10,837,726 in 1997 compared to $10,733,857 for the comparable 1996 period. Increases in programming fees primarily accounted for the increase in operating expenses. No other individual factors contributed significantly to the increase. Operating expenses represented approximately 55 percent and 58 percent of revenues in 1997 and 1996, respectively.
The cable television industry generally measures the financial performance of a cable television system in terms of operating cash flow (revenues less operating expenses). This measure is not intended to be a substitute or improvement upon the items disclosed on the financial statements, rather it is included because it is an industry standard. Operating cash flow increased $1,215,468, or approximately 16 percent, to $8,876,062 in 1997 compared to $7,660,594 in 1996. The increase was due to the increase in revenues exceeding the increase in operating expenses.
Management and supervision fees and allocated overhead from the General Partners decreased $43,444, or approximately 2 percent, to $2,183,367 in 1997 compared to $2,226,811 in 1996. This decrease was the result of a decrease in expenses allocated from the Managing General Partner.
Depreciation and amortization expenses decreased $919,321, or approximately 9 percent, to $9,071,373 in 1997 compared to $9,990,694 in 1996. The decrease was due to the maturation of a portion of the intangible asset base.
Operating loss decreased $2,178,233, or approximately 48 percent, to $2,378,678 in 1997 compared to $4,556,911 in 1996. The decrease was due to the increase in operating cash flow and the decrease in depreciation and amortization expense.
Interest expense increased $1,794, or less than 1 percent, to $3,759,271 in 1997 compared to $3,757,477 in 1996.
Net loss decreased $2,248,662, or approximately 27 percent, to $6,129,578 in 1997 compared to $8,378,240 in 1996. The decrease was due to the factors discussed above and is expected to continue in future periods.
1996 Compared to 1995 - ---------------------
Revenues of the Venture increased $1,533,551, or approximately 9 percent, to $18,394,451 in 1996 compared to $16,860,900 in 1995. The increase in revenues was primarily due to an increase in the number of basic subscribers and basic service rate increases. An increase in the number of basic service subscribers accounted for approximately 50 percent of the increase in revenues. The number of basic service subscribers increased 3,036, or approximately 7 percent, to 47,018 at December 31, 1996 compared to 43,982 at December 31, 1995. Basic service rate increases accounted for approximately 45 percent of the increase in revenues. No other individual factor was significant to the increases in revenues.
Operating expenses increased $924,679, or approximately 9 percent, to $10,733,857 in 1996 compared to $9,809,178 for the comparable 1995 period. Increases in programming fees primarily accounted for the increase in operating expenses. No other individual factors contributed significantly to the increase. Operating expenses represented approximately 58 percent of revenues in 1996 and 1995, respectively.
Operating cash flow increased $608,872, or approximately 9 percent, to $7,660,594 in 1996 compared to $7,051,722 in 1995. The increase was due to the increase in revenues exceeding the increase in operating expenses.
Management and supervision fees and allocated overhead from the General Partners increased $80,970, or approximately 4 percent, to $2,226,811 in 1996 compared to $2,145,841 in 1995. The increase was due to the increase in revenues, upon which management and supervision fees are based.
Depreciation and amortization expense decreased $327,000, or approximately 3 percent, to $9,990,694 in 1996 compared to $10,317,694 in 1995. The decrease was due to the maturation of a portion of the tangible asset base.
Operating loss decreased $854,902, or approximately 16 percent, to $4,556,911 in 1996 compared to $5,411,813 in 1995. The decrease was due to the increase in operating cash flow and the decrease in depreciation and amortization expense.
Interest expense decreased $9,899, or less than one percent, to $3,757,477 in 1996 compared to $3,767,376 in 1995. This decrease was due to lower effective interest rates on interest bearing obligations during 1996.
Net loss decreased $792,959, or approximately 9 percent, to $8,378,240 in 1996 compared to $9,171,199 in 1995. This decrease was due to the factors discussed above.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS - -----------------------------
The audited financial statements of the Partnership for the year ended December 31, 1997 follow.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ----------------------------------------
To the Partners of IDS/Jones Growth Partners II, L.P.:
We have audited the accompanying consolidated balance sheets of IDS/JONES GROWTH PARTNERS II, L.P. (a Colorado limited partnership) as of December 31, 1997 and 1996, and the related consolidated statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Managing General Partner's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IDS/Jones Growth Partners II, L.P. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado, March 13, 1998.
IDS/JONES GROWTH PARTNERS II, L.P. ---------------------------------- (A Limited Partnership)
CONSOLIDATED BALANCE SHEETS ---------------------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets.
IDS/JONES GROWTH PARTNERS II, L.P. ---------------------------------- (A Limited Partnership)
CONSOLIDATED BALANCE SHEETS ---------------------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets.
IDS/JONES GROWTH PARTNERS II, L.P. ---------------------------------- (A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
IDS/JONES GROWTH PARTNERS II, L.P. ---------------------------------- (A Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) ------------------------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
IDS/JONES GROWTH PARTNERS II, L.P. ---------------------------------- (A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
IDS/JONES GROWTH PARTNERS II, L.P. ---------------------------------- (A Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS ------------------------------------
Formation and Business ----------------------
IDS/Jones Growth Partners II, L.P. (the "Partnership"), a Colorado limited partnership, was formed on November 9, 1989, pursuant to a public offering. The Partnership was formed to acquire, develop and operate cable television systems. Jones Cable Corporation, a Colorado corporation, is the "Managing General Partner" and manager of the Partnership. IDS Cable II Corporation, a Minnesota corporation, is the "Supervising General Partner" of the Partnership. IDS Cable Corporation is the supervising general partner of IDS/Jones Growth Partners 89-B, Ltd. ("Growth Partners 89-B") and Jones Cable Corporation is the Managing General Partner of Growth Partners 89-B. Jones Intercable, Inc. ("Intercable"), the parent of Jones Cable Corporation, manages the cable television system purchased by IDS/Jones Joint Venture Partners (the "Venture"). Intercable and its subsidiaries also own and operate cable television systems as well as manage cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities. The Managing General Partner and the Supervising General Partner are referred to as the "General Partners."
Contributed Capital, Commissions and Syndication Costs ------------------------------------------------------
The capitalization of the Partnership is set forth in the accompanying Consolidated Statements of Partners' Capital (Deficit). No limited partner is obligated to make any additional contributions to partnership capital.
The Managing General Partner and the Supervising General Partner purchased their interests in the Partnership by contributing $250 each to partnership capital.
All profits and losses of the Partnership are allocated 99 percent to the limited partners, 1/2 percent to the Managing General Partner and 1/2 percent to the Supervising General Partner, except for income or gain from the sale or disposition of cable television properties, which will be allocated to the partners based upon the formula set forth in the partnership agreement and interest income earned prior to the first acquisition by the Partnership of a cable television system, which was allocated 100 percent to the limited partners.
Formation of Joint Venture --------------------------
On May 30, 1990, the Partnership and Growth Partners 89-B formed the Venture. The Partnership's offering closed on September 30, 1991 with limited partner subscriptions totaling $43,585,750, of which $37,592,709 was contributed to the Venture. In the fourth quarter of 1991, due to the necessity for additional funding for the Venture, Intercable and IDS Management Corporation each made equity investments of $2,872,000 in the Venture under the joint venture agreement between the joint venture partners. Profits, losses, and distributions of the Venture will be shared in proportion to total capital contributions made by the individual venture partners. As a result of their equity contributions to the Venture described above, ownership percentages of the Venture are detailed below:
The Partnership 66% Growth Partners 89-B 24% Intercable 5% IDS Management Corporation 5% ---- 100%
The Venture was formed for the purpose of acquiring the cable television system serving the communities of Aurora, North Aurora, Montgomery, Plano, Oswego, Sandwich, Yorkville and certain unincorporated areas of Kendall and Kane Counties, all in the state of Illinois (the "Aurora System").
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------
Accounting Records ------------------
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. The Partnership's tax returns are also prepared on the accrual basis.
The preparation of financial statements in conformity with generally accepted accounting principles requires the Managing General Partner's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation ---------------------------
The accompanying consolidated financial statements include 100 percent of the accounts of the Partnership and those of the Venture, reduced by the minority interest in the Venture. All inter-partnership accounts and transactions have been eliminated.
Allocation of Cost of Purchased Cable Television Systems --------------------------------------------------------
The total purchase price of the Aurora System purchased by the Venture was allocated as follows: first, to the fair value of net tangible assets acquired; second, to the value of subscriber lists; third, to franchise costs; and fourth, to costs in excess of interests in net assets purchased. Acquisition fees paid to affiliates of the General Partners and other acquisition costs were capitalized and charged to intangible assets.
Property, Plant and Equipment -----------------------------
Depreciation of property, plant and equipment is provided primarily using the straight-line method over the following estimated service lives:
Cable distribution systems 5 - 15 years Equipment and tools 5 - 7 years Office furniture and equipment 3 - 5 years Buildings 30 years Vehicles 3 - 4 years
Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred.
Property, plant and equipment and the corresponding accumulated depreciation are written off as certain assets become fully depreciated and are no longer in service.
Intangible Assets -----------------
Costs assigned to franchises and costs in excess of interests in net assets purchased are amortized using the straight-line method over the following remaining estimated useful lives:
Franchise costs 3 years Costs in excess of interests in net assets purchased 33 years
Revenue Recognition -------------------
Subscriber prepayments will be initially deferred and recognized as revenue when earned.
Reclassification ----------------
Certain prior year amounts have been reclassified to conform to the 1997 presentation.
(3) TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES -----------------------------------------------------
Management Fees, Supervision Fees, Distribution Ratios and ---------------------------------------------------------- Reimbursements --------------
Intercable manages the Aurora System on behalf of the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. Management fees paid by the Venture to Intercable during the years ended December 31, 1997, 1996 and 1995 were $985,689, $919,723 and $843,045, respectively.
The Supervising General Partners participate in certain management decisions of the Venture and receive a fee for their services equal to 1/2 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. Supervision fees paid by the Venture to the Supervising General Partners during the years ended December 31, 1997, 1996 and 1995 were $98,569, $91,972 and $84,305, respectively.
The Venture reimburses Intercable for certain allocated overhead and administrative expenses. These expenses represent the salaries and related benefits paid for corporate personnel, rent, data processing services and other corporate facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Venture. Such services, and their related costs, are necessary to the operations of the Venture and would have been incurred by the Venture if it was a stand alone entity. Allocations of personnel costs are based on actual time spent by employees of Intercable with respect to each partnership managed. Remaining expenses are allocated based on the pro rata relationship of the Venture's revenues to the total revenues of all systems owned or managed by Intercable and certain of its affiliates. Systems owned by Intercable and all other systems owned by partnerships for which Intercable or affiliates are the general partners are also allocated a proportionate share of these expenses. Intercable believes that the methodology used in allocating overhead and administrative expenses is reasonable. Reimbursements made to Intercable by the Venture for allocated overhead and administrative expenses during the years ended December 31, 1997, 1996 and 1995 were $1,099,109, $1,215,116 and $1,218,491, respectively.
The Supervising General Partners may also be reimbursed for certain expenses incurred on behalf of the Venture. There were no reimbursements made to the Supervising General Partners by the Venture for allocated overhead and administrative expenses during the years ended December 31, 1997, 1996 and 1995.
During 1997, the Venture was charged interest by Intercable at an average interest rate of 7.82 percent on amounts due Intercable and on the subordinated loans from Intercable, which approximated Intercable's weighted average cost of borrowing. Total interest charged to the Venture by Intercable during the years ended December 31, 1997, 1996 and 1995 was $241,938, $382,725 and $481,211, respectively.
The Venture was charged interest on the subordinated loans from IDS Management Corporation at an average interest rate of 6.27 percent, which approximated IDS Management Corporation's cost of borrowing. Total interest charged to the Venture by IDS Management Corporation during 1997, 1996 and 1995 was $62,737, $111,741 and $120,970, respectively.
Any Partnership distributions made from cash flow (defined as cash receipts derived from routine operations, less debt principal and interest payments and cash expenses) are allocated 99 percent to the limited partners, 1/2 percent to the Managing General Partner and 1/2 percent to the Supervising General Partner. Any distributions other than interest income on limited partner subscriptions earned prior to the acquisition of the Partnership's first cable television system or from cash flow, such as from the sale or refinancing of a system or upon dissolution of the Partnership, will be made as follows: first, to the limited partners in an amount which, together with all prior distributions, will equal 100 percent of the amount initially contributed to the Partnership by the limited partners; second, to the General Partners in an amount which, together with all prior distributions, will equal the amount contributed to the capital of the partnership by the General Partners; third, to the limited partners in an amount which, together with all prior distributions, will equal a 6 percent per annum cumulative and noncompounded return on the capital contributions of the limited partners; the balance, 75 percent to the limited partners, 12-1/2 percent to the Managing General Partner and 12-1/2 percent to the Supervising General Partner.
Payments to/from Affiliates for Programming Services ----------------------------------------------------
The Venture receives or has received programming from Superaudio, Knowledge TV, Inc., Jones Computer Network, Ltd., Great American Country, Inc. and Product Information Network, all of which are affiliates of Intercable.
Payments to Superaudio totaled $31,413, $27,973 and $23,928, respectively, in 1997, 1996 and 1995. Payments to Knowledge TV, Inc. totaled $34,932, $30,139 and $25,603, respectively, in 1997, 1996 and 1995. Payments to Jones Computer
Network, Ltd., whose service was discontinued in April 1997, totaled $22,875, $60,279 and $51,138, respectively, in 1997, 1996 and 1995. Payments to Great American Country, Inc., which initiated service in 1997, totaled $35,504.
The Venture receives a commission from Product Information Network based on a percentage of advertising revenue and number of subscribers. Product Information Network paid commissions to the Venture totaling $71,847, $46,841 and $29,347 in 1997, 1996 and 1995, respectively.
(4) PROPERTY, PLANT AND EQUIPMENT -----------------------------
Property, plant and equipment as of December 31, 1997 and 1996, consisted of the following:
1997 1996 ------------- -------------
Cable distribution systems $ 45,270,244 $ 41,144,449 Equipment and tools 982,821 686,650 Office furniture and equipment 331,660 318,341 Vehicles 416,054 387,298 Buildings 79,285 79,285 ------------ ------------
47,080,064 42,616,023
Less- accumulated depreciation (23,938,318) (20,360,651) ------------ ------------
$ 23,141,746 $ 22,255,372 ============ ============
(5) DEBT ----
Debt consists of the following: December 31, ------------ 1997 1996 ------------ ------------ Lending institutions- Revolving credit agreement $ 47,000,000 $ 45,600,000 Affiliated entities- Subordinated loans: Intercable 2,006,647 2,006,647 IDS Management Corporation 1,000,000 1,000,000 Capital lease obligations 87,145 86,487 ------------ ------------
$ 50,093,792 $ 48,693,134 ============ ============
On December 5, 1991, Intercable made a $1,800,000 loan to the Venture, of which $1,200,000 had been repaid as of December 31, 1997. Any amounts not repaid to Intercable are convertible into equity in the Venture at Intercable's option. In the first quarter of 1994, Intercable agreed to subordinate to all other Venture debt its $1,406,647 advance to the Venture outstanding at March 31, 1994 and IDS Management Corporation made a loan of $1,000,000 to the Venture to fund principal repayments due on March 31, 1994 on the Venture's then- outstanding term loan. The interest rates on the respective loans, which will vary from time to time, with respect to IDS Management Corporation's loan, are at its cost of borrowing, and, with respect to Intercable's loans, are at its weighted average cost of borrowing. It is anticipated that the remaining loans will be repaid from a portion of the sale proceeds to be received on the eventual sale of the Aurora System. The related parties' notes will be repaid including accrued interest in the following order: first, to Intercable the remaining $600,000 of the $1,800,000 note dated December 5, 1991; second, to IDS Management Corporation the $1,000,000 note dated March 30, 1994; and third, to Intercable the $1,406,647 subordinated advance.
The Venture is a party to a $47,000,000 revolving credit and term loan agreement with commercial banks. The agreement allows for a reducing revolving commitment that will begin to reduce quarterly on June 30, 1999 until December 31, 1999, at which time the commitment will reduce to zero and all principal and interest amounts will be due and payable in full. At December 31, 1997, all $47,000,000 was outstanding under this agreement. Interest on the credit facility is at the Venture's option of the Prime Rate plus .625 percent, the London Interbank Offered Rate plus 1.625 percent or the Certificate of Deposit Rate plus 1.75 percent. The effective interest rates on outstanding obligations to non-affiliates as of December 31, 1997 and 1996 were 7.52 percent and 7.38 percent, respectively.
Installments due on debt principal for each of the five years in the period ending December 31, 2002 and thereafter, respectively, are: $3,032,791, $47,026,144, $26,144, $8,713, $-0- and $-0-.
At December 31, 1997, the carrying amount of the Venture's long-term debt did not differ significantly from the estimated fair value of the financial instruments. The fair value of the Venture's long-term debt is estimated based on the discounted amount of future debt service payments using rates of borrowing for a liability of similar risk.
(6) INCOME TAXES ------------
Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. The federal and state income tax returns of the Partnership are prepared and filed by the Managing General Partner.
The Partnership's tax returns, the qualification of the Partnership as such for tax purposes, and the amount of distributable Partnership income or loss are subject to examination by federal and state taxing authorities. If such examinations result in changes with respect to the Partnership's qualification as such, or in changes with respect to the Partnership's recorded income or loss, the tax liability of the general and limited partners would likely be changed accordingly.
Taxable income or loss reported by the partners is different from that reported in the statements of operations due to the difference in depreciation recognized under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable loss and the net loss reported in the statements of operations.
(7) COMMITMENTS AND CONTINGENCIES -----------------------------
The Venture rents office and other facilities under various long-term lease arrangements. Rent paid under such lease arrangements totaled $90,931, $106,722 and $105,400, respectively, for the years ended December 31, 1997, 1996 and 1995. Minimum commitments under operating leases for each of the five years in the period ending December 31, 2002, and thereafter are as follows:
1998 $ 99,954 1999 80,668 2000 1,394 2001 - 2002 - Thereafter - ---------
$ 182,016 =========
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION -----------------------------------------
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON --------------------------------------------------------- ACCOUNTING AND FINANCIAL DISCLOSURE -----------------------------------
None.
PART III. ---------
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------------------------------
The Partnership itself has no officers or directors. Certain information concerning the directors and executive officers of the Managing General Partner is set forth below. Directors of the Managing General Partner serve until the next annual meeting of the Managing General Partner and until their successors shall be elected and qualified.
Mr. Glenn R. Jones has served as Chairman of the Board of the Managing General Partner since its formation in October 1986. Mr. Jones served as President of the Managing General Partner until September of 1990 at which time he was elected Chief Executive Officer. Mr. Jones has served as Chairman of the Board of Directors and Chief Executive Officer of Jones Intercable, Inc. since its formation in 1970, and he was President from June 1984 until April 1988. Mr. Jones is the sole shareholder, President and Chairman of the Board of Directors of Jones International, Ltd. He is also Chairman of the Board of Directors of several affiliates of the Managing General Partner. Mr. Jones has been involved in the cable television business in various capacities since 1961, and he is a member of the Board of Directors and the Executive Committee of the National Cable Television Association. In addition, Mr. Jones is a member of the Board of Education Council of the National Alliance of Business. Mr. Jones is also a founding member of the James Madison Council of the Library of Congress. Mr. Jones has been the recipient of several awards including the Grand Tam Award in 1989, the highest award from the Cable Television Administration and Marketing Society; the President's Award from the Cable Television Public Affairs Association in recognition of Jones International's educational efforts through Mind Extension University (now Knowledge TV); the Donald G. McGannon Award for the advancement of minorities and women in cable from the United Church of Christ Office of Communications; the STAR Award from American Women in Radio and Television, Inc. for exhibition of a commitment to the issues and concerns of women in television and radio; the Cableforce 2000 Accolade awarded by Women in Cable in recognition of Jones Intercable, Inc.'s innovative employee programs; the Most Outstanding Corporate Individual Achievement Award from the International Distance Learning Conference for his contributions to distance education; the Golden Plate Award from the American Academy of Achievement for his advances in distance education; the Man of the Year named by the Denver chapter of the Achievement Rewards for College Scientists; and in 1994 Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame.
Mr. James B. O'Brien was elected President of the Managing General Partner in September of 1990. Mr. O'Brien joined Jones Intercable, Inc. in January 1982. Mr. O'Brien was elected President and a Director of Jones Intercable, Inc. in December 1989. Prior to being elected President and a Director of Jones Intercable, Inc., Mr. O'Brien served as a division manager, director of operations planning/assistant to the CEO, Fund Vice President and Group Vice President/Operations. Mr. O'Brien was appointed to Jones Intercable, Inc.'s Executive Committee in August 1993. As President, he is responsible for the day-to-day operations of the cable television systems managed and owned by Jones Intercable, Inc. Mr. O'Brien is a board member of Cable Labs, Inc., the research arm of the cable television industry. He also serves as Chairman of the Board of Directors of the Cable Television Administration and Marketing Association and as a director and member of the Executive Committee
of the Walter Kaitz Foundation, a foundation that places people of ethnic minority groups in positions with cable television systems, networks and vendor companies.
Mr. Kevin P. Coyle was elected Vice President of Finance of the Managing General Partner in February 1989. Mr. Coyle is the principal financial and accounting officer of the Managing General Partner. Mr. Coyle joined The Jones Group, Ltd. in July 1981 as Vice President/Financial Services. He was elected Treasurer of Jones Intercable, Inc. in August 1987, Vice President/Treasurer in April 1988 and Group Vice President/Finance in October 1990.
Ms. Elizabeth M. Steele has served as Secretary of the Managing General Partner since August 1987 and Vice President since February 1989. Ms. Steele joined Jones Intercable, Inc. in August 1987 as Vice President/General Counsel and Secretary. From August 1980 until joining Jones Intercable, Inc., Ms. Steele was an associate and then a partner at the Denver law firm of Davis, Graham & Stubbs, which serves as counsel to Jones Intercable, Inc.
Certain information concerning directors and executive officers of the Supervising General Partner is set forth below:
Mr. Peter J. Slattery is the Director of Non-Proprietary Products for American Express Financial Advisors' Variable Assets division. During his tenure he has led the transition to multiple classes for the IDS mutual fund line, developed five new retail funds and let the creation of the flagship Flexible Portfolio Annuity. He currently is responsible for all non-proprietary relationships involving products sold through AEFA's various distribution channels.
Mr. John M. Knight joined American Express Financial Corporation in July 1975. He is currently Controller-Variable Assets and charged with the overall finance responsibilities for Mutual Funds, Limited Partnerships, Variable Annuities and Wealth Management Services. From 1981 to March 1994, he held a number of positions in the IDS Certificate Company, leading to Controller of that organization.
Mr. Jeffrey S. Horton joined American Express Financial Corporation in July 1987. He was named Vice President - Corporate Treasurer in December 1997. Prior to December 1997, Mr. Horton has served in various capacities with American Express Financial Corporation including the Director of Finance (Marketing and Products), Controller for Information Technology and Vice President Controller for Information Technology.
Mr. Bradley C. Nelson joined American Express Financial Corporation in 1991 as an Investment Department analyst following his graduation from Cornell University's Johnson Graduate School of Management where he earned an MBA with a concentration in finance.
Mr. Ronald W. Powell has held the position of Vice President and Assistant General Counsel with American Express Financial Corporation since November 1985. He has been a member of the American Express Financial Corporation law department since 1975.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION --------------------------------
The Partnership has no employees; however, various personnel are required to operate cable television systems owned by the Venture. Such personnel are employed by Intercable and, pursuant to the terms of the Partnership's limited partnership agreement, the cost of such employment is charged by the Managing General Partner to the Partnership as a direct reimbursement item. See Item 13.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS ----------------------------------------------------------------------
As of February 16, 1998, no person or entity owned more than 5 percent of the limited partnership interests of the Partnership.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS --------------------------------------------------------
The Managing General Partner and its affiliates engage in certain transactions with the Partnership as contemplated by the limited partnership agreement of the Partnership. The Managing General Partner believes that the terms of such transactions are generally as favorable as could be obtained by the Partnership from unaffiliated parties. This determination has been made by the Managing General Partner in good faith, but none of the terms were or will be negotiated at arm's-length and there can be no assurance that the terms of such transactions have been or will be as favorable as those that could have been obtained by the Partnership from unaffiliated parties.
The Supervising General Partner and its affiliates engage in certain transactions with the Partnership as contemplated by the limited partnership agreement of the Partnership. The Supervising General Partner believes that the terms of such transactions, which are set forth in the Partnership's limited partnership agreement, are generally as favorable as could be obtained by the Partnership from unaffiliated parties. This determination has been made by the Supervising General Partner in good faith, but none of the terms were or will be negotiated at arm's-length and there can be no assurance that the terms of such transactions have been or will be as favorable as those that could have been obtained by the Partnership from unaffiliated parties.
TRANSACTIONS WITH THE MANAGING GENERAL PARTNER AND THE SUPERVISING GENERAL PARTNER
The Managing General Partner charges the Venture a 5 percent management fee, and the Partnership reimburses Intercable, the parent of the Managing General Partner, for certain allocated overhead and administrative expenses. These expenses represent the salaries and benefits paid to corporate personnel, rent, data processing services and other facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Partnership. Allocations of personnel costs are based primarily on actual time spent by employees with respect to each partnership managed. Remaining expenses are allocated based on the pro rata relationship of the Partnership's revenues to the total revenues of all systems owned or managed by Intercable or its affiliates. Systems owned by Intercable and all other systems owned by partnerships for which Intercable serves as general partner are also allocated a proportionate share of these expenses. The Supervising General Partner, IDS Cable II Corporation, charges the Partnership for supervision fees in accordance with the limited partnership agreement of the Partnership.
Intercable, the parent of the Managing General Partner, from time to time also advances funds to the Venture and charges interest on the balance payable. The interest rate charged approximates Intercable's weighted average cost of borrowing.
TRANSACTIONS WITH AFFILIATES
Knowledge TV, Inc., a company owned 67 percent by Jones Education Group, Ltd., 7 percent by Mr. Jones and 26 percent by Intercable, operates the television network JEC Knowledge TV. JEC Knowledge TV provides programming related to computers and technology; business, careers and finance; health and wellness; and global culture and languages. Knowledge TV, Inc. sells its programming to the Aurora System.
Jones Computer Network, Ltd., a wholly owned subsidiary of Jones Education Group, Ltd., a company owned 64 percent by Jones International, Ltd., 16 percent by Intercable, 12 percent by BCI and 8 percent by Mr. Jones, operated the television network Jones Computer Network. This network provided programming focused primarily on computers and technology. Jones Computer Network sold its programming to the Aurora System. Jones Computer Network, Ltd. terminated its programming in April 1997.
The Great American Country network provides country music video programming to the Aurora System. This network, owned and operated by Great American Country, Inc., a subsidiary of Jones International Networks, Ltd., an affiliate of Intercable, commenced service in 1997 in the Aurora System.
Jones Galactic Radio, Inc. is a susidiary of Jones International Networks, Ltd., an affiliate of Intercable. Superaudio, a joint venture between Jones Galactic Radio, Inc. and an unaffiliated entity, provides satellite programming to the Aurora System.
The Product Information Network Venture (the "PIN Venture") is a venture among a subsidiary of Jones International Networks, Ltd., an affiliate of International, and two unaffiliated cable system operators. The PIN Venture operates the Product Information Network ("PIN"), which is a 24-hour network that airs long-form advertising generally known as "infomercials." The PIN Venture generally makes incentive payments of approximately 60 percent of its net advertising revenue to the cable systems that carry its programming. Most of Intercable's owned and managed systems carry PIN for all or part of each day. Revenues received by the Venture from the PIN Venture relating to the Aurora System totaled approximately $71,847 for the year ended December 31, 1997.
The activities of the Partnership are limited to its equity ownership in the Venture. The charges to the Venture for related party transactions are as follows for the periods indicated:
PART IV. --------
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K -------------------------------------------------------------------------
(a)1. See index to financial statements for list of financial statements and exhibits thereto filed as part of this report.
3. The following exhibits are filed herewith:
4.1 Limited Partnership Agreement for IDS/Jones Growth Partners II, L.P. (1)
10.1.1 Copy of franchise and related documents granting a cable television system franchise for the City of Aurora, Illinois (IDS/Jones Joint Venture Partners). (1)
10.1.2 Copy of franchise and related documents granting a cable television system franchise for Kane County, Illinois (IDS/Jones Joint Venture Partners). (2)
10.1.3 Resolution No. 91-49 dated March 12, 1991 of Kane County extending the term of the franchise. (2)
10.1.4 Franchise Extension Agreement dated March 29, 1991 of Kane County extending the term of the franchise. (2)
10.1.5 Resolution No. 92-54 dated March 12, 1991 of Kane County extending the term of the franchise. (2)
10.1.6 Ordinance No. 92-133 dated June 9, 1992 of Kane County renewing the franchise. (2)
10.1.7 Copy of franchise and related documents granting a cable television system franchise for Kendall County, Illinois (IDS/Jones Joint Venture Partners). (1)
10.1.8 Copy of franchise and related documents granting a cable television system franchise for the Village of Montgomery, Illinois (IDS/Jones Joint Venture Partners). (1)
10.1.9 Copy of franchise and related documents granting a cable television system franchise for the Village of North Aurora, Illinois (IDS/Jones Joint Venture Partners). (1)
10.1.10 Copy of franchise and related documents granting a cable television system franchise for the Village of Oswego, Illinois (IDS/Jones Joint Venture Partners). (1)
10.1.11 Copy of franchise and related documents granting a cable television system franchise for the City of Plano, Illinois (IDS/Jones Joint Venture Partners). (1)
10.1.12 Copy of franchise and related documents granting a cable television system franchise for the City of Sandwich, Illinois (IDS/Jones Joint Venture Partners). (1)
10.1.13 Copy of franchise and related documents granting a cable television system franchise for the Village of Yorkville, Illinois (IDS/Jones Joint Venture Partners). (1)
10.2.1 Credit Agreement dated as of November 3, 1994 among the Venture, IDS/Jones 89-B, Growth Partners II and Shawmut Bank Connecticut, N.A., as agent for various lenders. (5)
10.2.2 Second Amendment Agreement dated as of December 27, 1996 among the Venture and Shawmut Bank Connecticut, N.A., as agent for various lenders. (5)
10.2.3 Two Promissory Notes both dated December 5, 1991, each in the principal amount of $1,800,000 from the Venture, payable to the order, respectively, of IDS Management Corporation and Jones Intercable, Inc. (3)
27 Financial Data Schedule
__________
(1) Incorporated by reference from the Annual Report on Form 10-K of IDS/Jones Growth Partners II (Commission File No. 0-18133) for fiscal year ended December 31, 1990.
(2) Incorporated by reference from the Annual Report on Form 10-K of IDS/Jones Growth Partners II (Commission File No. 0-18133) for fiscal year ended December 31, 1992.
(3) Incorporated by reference from the Annual Report on Form 10-K of IDS/Jones Growth Partners II (Commission File No. 0-18133) for fiscal year ended December 31, 1991.
(4) Incorporated by reference from the Annual Report on Form 10-K of IDS/Jones Growth Partners II, L.P. (Commission File No. 0-18133) for fiscal year ended December 31, 1994.
(5) Incorporated by reference from the Annual Report on Form 10-K of IDS/Jones Growth Partners II (Commission File No. 0-18133) for fiscal year ended December 31, 1996.
(b) Reports on Form 8-K ------------------- None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IDS/JONES GROWTH PARTNERS, L.P. a Colorado limited partnership
By Jones Cable Corporation, its Managing General Partner
By:/s/ Glenn R. Jones ------------------ Glenn R. Jones Chairman of the Board and Dated: March 23, 1998 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
OFFICERS AND DIRECTORS OF JONES CABLE CORPORATION:
By:/s/ Glenn R. Jones ------------------ Glenn R. Jones Chairman of the Board and Chief Executive Officer Dated: March 23, 1998 (Principal Executive Officer)
By:/s/ Kevin P. Coyle ------------------ Kevin P. Coyle Vice President/Finance (Principal Financial and Dated: March 23, 1998 Accounting Officer)