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.
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.
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).
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. As of February 15, 1995, the approximate number of equity security holders in the Partnership was 6,950.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
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.
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.
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.
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.
Item 8.
Item 8. Financial Statements
IDS/JONES GROWTH PARTNERS II
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994 and 1993
INDEX
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.
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
Theaccompanying 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. ("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:
If any of the December 5, 1991 loans discussed in Note 5 are converted to equity, the ownership percentages will be adjusted accordingly.
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:
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.
Revenue Recognition
Subscriber prepayments will be initially deferred and recognized as revenue when earned.
(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.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1994 and 1993, consisted of the following:
(5) DEBT
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
$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:
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
Supplementary profit and loss information for the respective years is presented below:
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.
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.
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:
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.
ITEM 11.
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.
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.
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
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:
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). (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)
27 Financial Data Schedule
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(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.
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)
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
EXHIBIT INDEX