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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ________ to ________
Commission file number: 0-18133
IDS/JONES GROWTH PARTNERS II, L.P.
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(Exact name of registrant as specified in its charter)
Colorado 84-1060548
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State of Organization (IRS Employer
Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
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(Address of principal executive office and (Registrant's telephone
Zip Code no. including area code)
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: Limited Partnership
Interests
Indicate by check mark whether the registrant, (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
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State the aggregate market value of the voting stock held by non-affiliates of
the registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S)229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
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DOCUMENTS INCORPORATED BY REFERENCE: None
(27869)
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Information contained in this Form 10-K Report contains "forward-
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. All statements, other than statements of historical facts,
included in this Form 10-K Report that address activities, events or
developments that the Partnership, the Venture or the Managing General Partner
expects, believes or anticipates will or may occur in the future are forward-
looking statements. These forward-looking statements are based upon certain
assumptions and are subject to a number of risks and uncertainties. Actual
results could differ materially from the results predicted by these forward-
looking statements.
PART I.
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ITEM 1. BUSINESS
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THE PARTNERSHIP. IDS/Jones Growth Partners II, L.P. (the
"Partnership") is a Colorado limited partnership that was formed to acquire, own
and operate cable television systems in the United States. Jones Cable
Corporation, a Colorado corporation, is the managing general partner (the
"Managing General Partner") and IDS Cable II Corporation, a Minnesota
corporation, is the supervising general partner (the "Supervising General
Partner") of the Partnership. The Managing General Partner is a wholly owned
subsidiary of Jones Intercable, Inc. ("Intercable"), which is also a Colorado
corporation and one of the largest cable television system operators in the
nation. The Supervising General Partner is a wholly owned subsidiary of IDS
Management Corporation, a Minnesota corporation, which in turn is a wholly owned
subsidiary of American Express Financial Corporation, a Delaware corporation.
The Partnership and IDS/Jones Growth Partners 89-B, Ltd., an
affiliated Colorado limited partnership ("Growth Partners 89-B"), formed a
Colorado general partnership known as IDS/Jones Joint Venture Partners (the
"Venture") for the purpose of acquiring cable television systems. IDS Cable
Corporation, a wholly owned subsidiary of IDS Management Corporation, which is a
wholly owned subsidiary of American Express Financial Corporation, acts as
supervising general partner of Growth Partners 89-B. IDS Management Corporation
and Intercable each have an approximate 5 percent equity interest in the
Venture, the Partnership has a 66 percent interest in the Venture, and Growth
Partners 89-B has a 24 percent interest in the Venture.
The Partnership does not directly own any cable television system.
The Venture owns the cable television systems serving the communities of Aurora,
North Aurora, Montgomery, Plano, Oswego, Sandwich, Yorkville and certain
unincorporated areas of Kendall and Kane Counties, all in the State of Illinois
(the "Aurora System"). See Item 2.
It is Intercable's publicly announced policy that it intends to
liquidate its managed limited partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace over the next several years. In accordance with Intercable's policy,
the Aurora System, along with other Chicago-area systems owned or managed by
Intercable and its affiliates, were marketed for sale in 1996. The deadline set
by Intercable for receipt of indications of interest for such systems from
prospective buyers was October 15, 1996. Intercable did not receive any offer
for the Aurora System. Intercable will continue to explore other alternatives
for sale. There is no assurance as to the timing or terms of any sales.
CABLE TELEVISION SERVICES. The Aurora System offers to its
subscribers various types of programming, which include basic service, tier
service, premium service, pay-per-view programs and packages including several
of these services at combined rates.
Basic cable television service usually consists of signals of all four
national television networks, various independent and educational television
stations (both VHF and UHF) and certain signals received from satellites. Basic
service also usually includes programs originated locally by the system, which
may consist of music, news, weather reports, stock market and financial
information and live or videotaped programs of a public service or entertainment
nature. FM radio signals are also frequently distributed to subscribers as part
of the basic service.
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The Aurora System offers tier services on an optional basis to its
subscribers. A tier generally includes most of the cable networks such as
Entertainment and Sports Programming Network (ESPN), Cable News Network (CNN),
Turner Network Television (TNT), Family Channel, Discovery and others, and the
cable television operators buy tier programming from these networks. The Aurora
System also offers a package that includes the basic service channels and the
tier services.
The Aurora System also offers premium services to its subscribers,
which consist of feature films, sporting events and other special features that
are presented without commercial interruption. The cable television operators
buy premium programming from suppliers such as HBO, Showtime, Cinemax or others
at a cost based on the number of subscribers the cable operator serves. Premium
service programming usually is significantly more expensive than the basic
service or tier service programming, and consequently cable operators price
premium service separately when sold to subscribers.
The Aurora System also offers to subscribers pay-per-view programming.
Pay-per-view is a service that allows subscribers to receive single programs,
frequently consisting of motion pictures that have recently completed their
theatrical exhibitions and major sporting events, and to pay for such service on
a program-by-program basis.
REVENUES. Monthly service fees for basic, tier and premium services
constitute the major source of revenue for the Aurora System. At December 31,
1996, the Aurora System's monthly basic service rates ranged from $10.54 to
$11.17, monthly basic and tier ("basic plus") service rates ranged from $23.44
to $23.99, and monthly premium services ranged from $4.95 to $12.95 per premium
service. In addition, the Aurora System's pay-per-view programs and advertising
fees generate revenues. Related charges may include a nonrecurring installation
fee that ranges from $1.99 to $42.45; however, from time to time the Aurora
System has followed the common industry practice of reducing or waiving the
installation fee during promotional periods. Commercial subscribers such as
hotels, motels and hospitals are charged a nonrecurring connection fee that
usually covers the cost of installation. Except under the terms of certain
contracts with commercial subscribers and residential apartment and condominium
complexes, the subscribers are free to discontinue the service at any time
without penalty. For the year ended December 31, 1996 of the total fees
received by the Aurora System, basic service and tier service fees accounted for
approximately 68% of total revenues, premium service fees accounted for
approximately 14% of total revenues, pay-per-view fees were approximately 3% of
total revenues, advertising fees were approximately 6% of total revenues and the
remaining 9% of total revenues came principally from equipment rentals,
installation fees and program guide sales. The Aurora System is dependent upon
the timely receipt of service fees to provide for maintenance and replacement of
plant and equipment, current operating expenses and other costs.
FRANCHISES. The Aurora System is constructed and operated under non-
exclusive, fixed-term franchises or other types of operating authorities
(referred to collectively herein as "franchises") granted by local governmental
authorities. These franchises typically contain many conditions, such as time
limitations on commencement and completion of construction, conditions of
service, including the number of channels, types of programming and the
provision of free service to schools and certain other public institutions, and
the maintenance of insurance and indemnity bonds. The provisions of local
franchises are subject to federal regulation.
The Venture holds 9 franchises for the Aurora System. These
franchises provide for the payment of fees to the issuing authorities and
generally range from 3% to 5% of the gross revenues of a cable television
system. The 1984 Cable Act prohibits franchising authorities from imposing
annual franchise fees in excess of 5% of gross revenues and also permits the
cable television system operator to seek renegotiation and modification of
franchise requirements if warranted by changed circumstances.
The Venture has never had a franchise revoked. The Venture is
currently negotiating the renewal of one franchise that will expire prior to
December 31, 1997. The Managing General Partner has no reason to believe
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that such franchise will not be renewed in due course. Intercable recently has
experienced lengthy negotiations with some franchising authorities for the
granting of franchise renewals. Some of the issues involved in recent renewal
negotiations include rate regulation, customer service standards, cable plant
upgrade or replacement and shorter terms of franchise agreements.
COMPETITION. Cable television systems currently experience
competition from several sources.
Broadcast Television. Cable television systems have traditionally
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competed with broadcast television, which consists of television signals that
the viewer is able to receive directly on his television without charge using an
"off-air" antenna. The extent of such competition is dependent in part upon the
quality and quantity of signals available by such antenna reception as compared
to the services provided by the local cable system. Accordingly, it has
generally been less difficult for cable operators to obtain higher penetration
rates in rural areas where signals available off-air are limited, than in
metropolitan areas where numerous, high quality off-air signals are often
available without the aid of cable television systems.
Traditional Overbuild. Cable television franchises are not exclusive,
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so that more than one cable television system may be built in the same area
(known as an "overbuild"), with potential loss of revenues to the operator of
the original cable television system. Intercable has experienced overbuilds in
connection with certain systems that it has owned or managed for limited
partnerships, and currently there are overbuilds in the systems owned or managed
by Intercable. Constructing and developing a cable television system is a
capital intensive process, and it is often difficult for a new cable system
operator to create a marketing edge over the existing system. Generally, an
overbuilder would be required to obtain franchises from the local governmental
authorities, although in some instances, the overbuilder could be the local
government itself. In any case, an overbuilder would be required to obtain
programming contracts from entertainment programmers and, in most cases, would
have to build a complete cable system, including headends, trunk lines and drops
to individual subscribers homes, throughout the franchise areas.
DBS. High-powered direct-to-home satellites have made possible the
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wide-scale delivery of programming to individuals throughout the United States
using small roof-top or wall-mounted antennas. Several companies began offering
direct broadcast satellite ("DBS") service over the last few years and
additional entrants are expected. Companies offering DBS service use video
compression technology to increase channel capacity of their systems to 100 or
more channels and to provide packages of movies, satellite network and other
program services which are competitive to those of cable television systems.
DBS cannot currently offer its subscribers local programming, although at least
one future DBS entrant is attempting to offer customers regional delivery of
local broadcast signals. In addition to emerging high-powered DBS competition,
cable television systems face competition from a major medium-powered satellite
distribution provider and several low-powered providers, whose service requires
use of much larger home satellite dishes. Not all subscribers terminate cable
television service upon acquiring a DBS system. The Managing General Partner
has observed that there are DBS subscribers that also elect to subscribe to
cable television service in order to obtain the greatest variety of programming
on multiple television sets, including local programming not available through
DBS service. The ability of DBS service providers to compete successfully with
the cable television industry will depend on, among other factors, the ability
of DBS providers to overcome certain legal and technical hurdles and the
availability of equipment at reasonable prices.
Telephone. Federal cross-ownership restrictions historically limited
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entry by local telephone companies into the cable television business. The 1996
Telecommunications Act (the "1996 Telecom Act") eliminated this cross-ownership
restriction, making it possible for companies with considerable resources to
overbuild existing cable operators and enter the business. Several telephone
companies have begun seeking cable television franchises from local governmental
authorities and constructing cable television systems. Ameritech, one of the
seven regional Bell Operating Companies ("BOCs"), which provides telephone
service in a multi-state region including Illinois, has been the most active BOC
in seeking local cable franchises within its service area. It has already begun
cable service in Naperville, Illinois and has also obtained franchises for Glen
Ellyn and Vernon Hills, Illinois, all of which are currently served by cable
systems owned by three partnerships managed by
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Intercable. The Managing General Partner cannot predict at this time the extent
of telephone company competition that will emerge to owned or managed cable
television systems. The entry of telephone companies as direct competitors,
however, is likely to continue over the next several years and could adversely
affect the profitability and market value of Intercable's owned and managed
systems. The entry of electric utility companies into the cable television
business, as now authorized by the 1996 Telecom Act, could have a similar
adverse effect.
Private Cable. Additional competition is provided by private cable
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television systems, known as Satellite Master Antenna Television (SMATV),
serving multi-unit dwellings such as condominiums, apartment complexes, and
private residential communities. These private cable systems may enter into
exclusive agreements with apartment owners and homeowners associations, which
may preclude operators of franchised systems from serving residents of such
private complexes. Private cable systems that do not cross public rights of way
are free from the federal, state and local regulatory requirements imposed on
franchised cable television operators. In some cases, the Venture has been
unable to provide cable television service to buildings in which private
operators have secured exclusive contracts to provide video and telephony
services. The Venture is interested in providing these same services, but
expects that the market to install and provide these services in multi-unit
buildings will continue to be highly competitive.
MMDS. Cable television systems also compete with wireless program
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distribution services such as multichannel, multipoint distribution service
("MMDS") systems, commonly called wireless cable, which are licensed to serve
specific areas. MMDS uses low-power microwave frequencies to transmit
television programming over-the-air to paying subscribers. The MMDS industry is
less capital intensive than the cable television industry, and it is therefore
more practical to construct MMDS systems in areas of lower subscriber
penetration. Wireless cable systems are now in direct competition with cable
television systems in several areas of the country, including the system in Pima
County, Arizona owned by Intercable. Telephone companies have recently acquired
or invested in wireless companies, and may use MMDS systems to provide services
within their service areas in lieu of wired delivery systems. Enthusiasm for
MMDS has waned in recent months, however, as Bell Atlantic and NYNEX have
suspended their investment in two major MMDS companies. To date, the Venture
has not lost a significant number of subscribers, nor a significant amount of
revenue, to MMDS operators competing with the Venture's cable television
systems. A series of actions taken by the FCC, however, including reallocating
certain frequencies to the wireless services, are intended to facilitate the
development of wireless cable television systems as an alternative means of
distributing video programming. The FCC recently held auctions for spectrum
that will be used by wireless operators to provide additional channels of
programming over larger distances. In addition, an emerging technology, Local
Multipoint Distribution services ("LMDS"), could also pose a significant threat
to the cable television industry, if and when it becomes established. LMDS,
sometimes referred to as cellular television, could have the capability of
delivering more than 100 channels of video programming to a subscriber's home.
The potential impact, however, of LMDS is difficult to assess due to the newness
of the technology and the absence of any current fully operational LMDS systems.
Cable television systems are also in competition, in various degrees
with other communications and entertainment media, including motion pictures and
home video cassette recorders.
REGULATION AND LEGISLATION
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The operation of cable television systems is extensively regulated by
the FCC, some state governments and most local governments. The new 1996
Telecom Act alters the regulatory structure governing the nation's
telecommunications providers. It removes barriers to competition in both the
cable television market and the local telephone market. Among other things, it
also reduces the scope of cable rate regulation.
The 1996 Telecom Act requires the FCC to undertake a host of
implementing rulemakings, the final outcome of which cannot yet be determined.
Moreover, Congress and the FCC have frequently revisited the
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subject of cable regulation. Future legislative and regulatory changes could
adversely affect the Venture's operations. This section briefly summarizes key
laws and regulations affecting the operation of the Venture's cable systems and
does not purport to describe all present, proposed, or possible laws and
regulations affecting the Venture.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
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regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines "effective
competition" on a community-specific basis as requiring either low penetration
(less than 30%) by the incumbent cable operator, appreciable penetration (more
than 15%) by competing multichannel video providers ("MVPs"), or the presence of
a competing MVP affiliated with a local telephone company.
Although the FCC rules control, local government units (commonly
referred to as local franchising authorities or "LFAs") are primarily
responsible for administering the regulation of the lowest level of cable -- the
basic service tier ("BST"), which typically contains local broadcast stations
and public, educational, and government ("PEG") access channels. Before an LFA
begins BST rate regulation, it must certify to the FCC that it will follow
applicable federal rules, and many LFAs have voluntarily declined to exercise
this authority. LFAs also have primary responsibility for regulating cable
equipment rates. Under federal law, charges for various types of cable
equipment must be unbundled from each other and from monthly charges for
programming services. The 1996 Telecom Act allows operators to aggregate costs
for broad categories of equipment across geographic and functional lines. This
change should facilitate the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only
if an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or per-
program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. It also relaxes existing
uniform rate requirements by specifying that uniform rate requirements do not
apply where the operator faces "effective competition," and by exempting bulk
discounts to multiple dwelling units, although complaints about predatory
pricing still may be made to the FCC.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides
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that no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way and
may require reasonable, competitively neutral compensation for management of the
public rights-of-way when cable operators provide telecommunications service.
The favorable pole attachment rates afforded cable operators under federal law
can be gradually increased by utility companies owning the poles (beginning in
2001) if the operator provides telecommunications service, as well as cable
service, over its plant.
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Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. Review of the FCC's
initial interconnection order is now pending before the Eighth Circuit Court of
Appeals.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act
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allows telephone companies to compete directly with cable operators by repealing
the historic telephone company/cable cross-ownership ban. Local exchange
carriers ("LECs"), including the BOCs, can now compete with cable operators both
inside and outside their telephone service areas. Because of their resources,
LECs could be formidable competitors to traditional cable operators, and certain
LECs have begun offering cable service. As described above, Intercable is now
witnessing the beginning of LEC competition in a few of its cable communities.
Under the 1996 Telecom Act, a LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities.
Although LECs and cable operators can now expand their offerings
across traditional service boundaries, the general prohibition remains on LEC
buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable
systems, cable operator buyouts of co-located LEC systems, and joint ventures
between cable operators and LECs in the same market. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition, including a
carefully circumscribed "rural exemption." The 1996 Telecom Act also provides
the FCC with the limited authority to grant waivers of the buyout prohibition
(subject to LFA approval).
Electric Utility Entry Into Telecommunications/Cable Television. The
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1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
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statutory restrictions on broadcast/cable cross-ownership (including broadcast
network/cable restrictions), but leaves in place existing FCC regulations
prohibiting local cross-ownership between co-located television stations and
cable systems. The 1996 Telecom Act also eliminates the three year holding
period required under the 1992 Cable Act's "anti-trafficking" provision. The
1996 Telecom Act leaves in place existing restrictions on cable cross-ownership
with SMATV and MMDS facilities, but lifts those restrictions where the cable
operator is subject to effective competition. In January 1995, however, the FCC
adopted regulations which permit cable operators to own and operate SMATV
systems within their franchise area, provided that such operation is consistent
with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a
cable system from devoting more than 40% of its activated channel capacity to
the carriage of affiliated national program services. A companion rule
establishing a nationwide ownership cap on any cable operator equal to 30% of
all domestic cable subscribers has been stayed pending further judicial review.
There are no federal restrictions on non-U.S. entities having an
ownership interest in cable television systems or the FCC licenses commonly
employed by such systems. Section 310(b)(4) of the Communications Act does,
however, prohibit foreign ownership of FCC broadcast and telephone licenses,
unless the FCC concludes that such foreign ownership is consistent with the
public interest. BCI's investment in Intercable could, therefore,
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adversely affect any plan to acquire FCC broadcast or common carrier licenses.
The Partnership, however, does not currently plan to acquire such licenses.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
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broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a cable
system to carry the station ("must carry") or negotiating for payments for
granting permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect "must carry," and more popular
stations typically elect "retransmission consent." Must carry requests can
dilute the appeal of a cable system's programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Venture's business.
Additionally, cable systems are required to obtain retransmission consent for
all "distant" commercial television stations (except for satellite-delivered
independent "superstations" such as WTBS). The constitutionality of the must
carry requirements has been challenged and is awaiting a decision from the U.S.
Supreme Court.
Access Channels. LFAs can include franchise provisions requiring
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cable operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires cable systems to
designate a portion of their channel capacity (up to 15% in some cases) for
commercial leased access by unaffiliated third parties. The FCC has adopted
rules regulating the terms, conditions and maximum rates a cable operator may
charge for use of the designated channel capacity, but use of commercial leased
access channels has been relatively limited. The FCC released revised rules in
February 1997 which mandate a modest rate reduction and could make commercial
leased access a more attractive option to third party programmers.
Access to Programming. To spur the development of independent cable
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programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors. This provision
limits the ability of vertically integrated cable programmers to offer exclusive
programming arrangements to cable companies.
Other FCC Regulations. In addition to the FCC regulations noted
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above, there are other FCC regulations covering such areas as equal employment
opportunity, subscriber privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards, and consumer electronics equipment compatibility. The FCC is
expected to impose new Emergency Alert System requirements on cable operators
this year. The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations.
Two pending FCC proceedings of particular competitive concern involve
inside wiring and navigational devices. The former rulemaking is considering
ownership of cable wiring located inside multiple dwelling unit complexes. If
the FCC concludes that such wiring belongs to, or can be unilaterally acquired
by the complex owner, it will become easier for complex owners to terminate
service from the incumbent cable operator in favor of a new entrant. The latter
rulemaking is considering whether cable customers must be allowed to purchase
cable converters from third party vendors. If the FCC concludes that such
distribution is required, and does not make appropriate allowances for signal
piracy concerns, it may become more difficult for cable operators to combat
theft of service.
Copyright. Cable television systems are subject to federal copyright
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licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
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revenues to a federal copyright royalty pool (that varies depending on the size
of the system and the number of distant broadcast television signals carried),
cable operators can obtain blanket permission to retransmit copyrighted material
on broadcast signals. The possible modification or elimination of this
compulsory copyright license is the subject of continuing legislative review and
could adversely affect the Venture's ability to obtain desired broadcast
programming. In addition, the cable industry pays music licensing fees to BMI
and is negotiating a similar arrangement with ASCAP. Copyright clearances for
nonbroadcast programming services are arranged through private negotiations.
State and Local Regulation. Cable television systems generally are
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operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity in order to cross public rights-of-way.
Federal law now prohibits franchise authorities from granting exclusive
franchises or from unreasonably refusing to award additional franchises. Cable
franchises generally are granted for fixed terms and in many cases include
monetary penalties for non-compliance and may be terminable if the franchisee
fails to comply with material provisions.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5% of
the system's gross revenues, cannot dictate the particular technology used by
the system, and cannot specify video programming other than identifying broad
categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises.
GENERAL. The Venture's business consists of providing cable
television services to a large number of customers, the loss of any one of which
would have no material effect on the Venture's business. The Aurora System has
had some subscribers who later terminated the service. Terminations occur
primarily because people move to another home or to another city. In other
cases, people terminate on a seasonal basis or because they no longer can afford
or are dissatisfied with the service. The amount of past due accounts in the
Aurora System is not significant. The Venture's policy with regard to past due
accounts is basically one of disconnecting service before a past due account
becomes material.
The Venture does not depend to any material extent on the availability
of raw materials; it carries no significant amounts of inventory and it has no
material backlog of customer orders. Neither the Venture nor the Partnership
has any employees because all properties are managed by employees of the
Managing General Partner. Intercable has engaged in research and development
activities relating to the provision of new services but the amount of the
Venture's funds expended for such research and development has never been
material.
Compliance with federal, state and local provisions that have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Venture.
9
<PAGE>
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,
1996, the Aurora System operated cable plant, passing approximately 74,529
homes, with an approximate 63% 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 1996 1995 1994
- ------------- -------- ------- -------
Monthly basic plus service rate $ 23.99 $ 22.58 $ 21.08
Basic subscribers 47,018 43,982 40,666
Pay units 26,002 25,938 27,856
ITEM 3. LEGAL PROCEEDINGS
--------------------------
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
None.
PART II.
--------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK
-------------------------------------------------
AND RELATED SECURITY HOLDER MATTERS
-----------------------------------
While the Partnership is publicly held, there is no public market for
the limited partnership interests, and it is not expected that a market will
develop in the future. During 1996, several 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 14, 1997, the number of
equity security holders in the Partnership was 6,850.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL
- --------------------------
DATA
----
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $18,394,451 $16,860,900 $15,388,489 $15,196,068 $14,486,583
Depreciation and Amortization 9,926,847 10,317,694 10,601,501 10,883,845 10,507,110
Operating Loss (4,493,064) (5,411,813) (5,888,186) (5,816,179) (5,481,821)
Minority Interest in Net Loss 2,882,115 3,154,893 3,061,563 2,836,367 2,827,893
Net Loss (5,496,125) (6,016,306) (5,838,329) (5,408,884) (5,392,724)
Net Loss per Limited
Partnership Unit (31.21) (34.16) (33.15) (30.71) (30.62)
Weighted Average Number of Limited
Partnership Units Outstanding 174,343 174,343 174,343 174,343 174,343
General Partners' Deficit (410,945) (355,984) (295,821) (237,438) (183,349)
Limited Partners' Capital (Deficit) (3,140,394) 2,300,770 8,256,913 14,036,859 19,391,654
Total Assets 46,258,004 51,448,914 57,752,046 64,595,970 73,796,057
Debt 48,693,134 45,909,122 43,566,064 41,604,580 43,678,543
Managing General Partner Advances 398,507 331,185 933,949 1,056,828 345,839
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 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. The
Partnership's interest in the Venture decreased $5,496,125 to a deficit of
$3,551,339 at December 31, 1996. This decrease represents the Partnership's
proportionate share of losses generated by the Venture in 1996. 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 limited partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace over the next several years. 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"), along with other Chicago-area systems owned or managed by Intercable
and its affiliates, were marketed for sale in 1996. The deadline set by
Intercable for receipt of indications of interest for such systems from
prospective buyers was October 15, 1996. Intercable did not receive any offer
for the Aurora System. Intercable will continue to explore other alternatives
for sale. There is no assurance as to the timing or terms of any sales.
For the year ended December 31, 1996, the Venture generated net cash from
operating activities totaling $1,850,720, which is available to fund capital
expenditures and non-operating costs. During 1996, the Venture expended
approximately $4,602,000 on capital expenditures. Approximately 46 percent of
the expenditures related to plant extensions. Approximately 43 percent of the
expenditures related to construction of service drops to subscriber homes. 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 under the Venture's credit facility. Budgeted capital
expenditures for 1997 are approximately $4,090,000. Approximately 38 percent of
the expenditures is for plant extensions. Approximately 36 percent of the
expenditures is for service drops. These capital expenditures are necessary to
maintain the value of the Aurora System. Funding for the expenditures is
expected to be provided by cash generated from operations and, if available,
borrowings from the Venture's credit facility.
11
<PAGE>
On December 5, 1991, IDS Management Corporation made a $1,800,000 loan to
the Venture, which had been repaid at December 31, 1996. Also on December 5,
1991, Intercable made a $1,800,000 loan to the Venture of which $1,200,000 had
been repaid at December 31, 1996. Any amounts not repaid to Intercable are
convertible into equity in the Venture. 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 an
additional loan of $1,000,000 to the Venture to fund principal repayments due at
the end of March 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 loans, 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 over time with cash
generated from operations and borrowings from the Venture's revolving credit and
term loan. 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 revolving credit and term loan agreement with
two commercial banks. In the fourth quarter of 1996, the General Partner amended
the credit facility to extend the revolving credit period and increase the
commitment to $47,000,000. The amended 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, 1996,
$45,600,000 was outstanding under this agreement, leaving $1,400,000 available
for future needs of the Venture, subject to certain financial covenants that may
limit borrowing. 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,
1996 and 1995 were 7.38 percent and 7.83 percent, respectively.
On December 5, 1991, Intercable made an equity investment in the Venture in
the amount of $2,872,000. Also on December 5, 1991, IDS Management Corporation
made an equity investment in the Venture of $2,872,000. As a result of their
equity contributions to the Venture, IDS Management Corporation and Intercable
each have a 5 percent equity interest in the Venture, the Partnership has a 66
percent interest and IDS/Jones Growth Partners 89-B, Ltd. has a 24 percent
interest.
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 for
details pertaining to its operations.
IDS/Jones Joint Venture Partners -
- --------------------------------
Revenues of the Venture's Aurora System 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 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 $924,679, or approximately 9 percent, to
$10,733,857 in 1996 compared to $9,809,178 for the comparable 1995 period.
Operating expenses represented approximately 58 percent of revenues in 1996 and
1995, respectively. Increases in programming fees, due in part to the increase
in the subscriber base, primarily accounted for the increase in operating
expenses. No other individual factors contributed significantly to the
increase.
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.
12
<PAGE>
Depreciation and amortization expense decreased $390,847, or approximately
4 percent, to $9,926,847 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 $918,749, or approximately 17 percent, to
$4,493,064 in 1996 compared to $5,411,813 in 1995. The decrease was due to the
increase in revenues and the decrease in depreciation and amortization expense
exceeding the increase in operating expenses and management and supervision fees
and allocated overhead from the General Partners.
The cable television industry generally measures the financial performance
of a cable television system in terms of operating income before depreciation
and amortization. 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 income before
depreciation and amortization expense increased $527,902, or approximately 11
percent, to $5,433,783 in 1996 compared to $4,905,881 in 1995. The increase was
due to the increase in revenues exceeding the increases in operating expenses
and management and supervision fees and allocated overhead from the General
Partners.
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.
Consolidated 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. Such losses are expected to continue.
1995 Compared to 1994
---------------------
Revenues of the Venture increased $1,472,411, or approximately 10 percent,
to $16,860,900 in 1995 compared to $15,388,489 in 1994. An increase in the
number of basic subscribers accounted for approximately 57 percent of the
increase in revenues. The number of basic subscribers increased 3,316, or
approximately 8 percent, to 43,982 at December 31, 1995 compared to 40,666 at
December 31, 1994. Basic service rate increases accounted for approximately 40
percent of the increase in revenues. The increase in revenues was partially
offset by a decrease in premium service subscriptions. The number of premium
service subscriptions decreased 1,918, or approximately 7 percent, to 25,938 at
December 31, 1995 from 27,856 at December 31, 1994. No other individual factor
was significant to the increase in revenues.
Operating expenses increased $1,154,174, or approximately 13 percent, to
$9,809,178 in 1995 compared to $8,655,004 in 1994. Operating expenses
represented 58 percent of revenues in 1995 and 56 percent of revenues in 1994.
Increases in programming fees, personnel expenses and office related expenses
primarily accounted for the increase in operating expenses in 1995. No other
individual factor contributed significantly to the increase.
Management and supervision fees and allocated overhead from the General
Partners increased $125,671, or approximately 6 percent, to $2,145,841 in 1995
compared to $2,020,170 in 1994. The increase was primarily due to the increase
in revenues, upon which such management and supervision fees are based.
Depreciation and amortization expense decreased $283,807, or approximately
3 percent, to $10,317,694 in 1995 compared to $10,601,501 in 1994. The decrease
was due to the maturation of a portion of the tangible asset base.
Operating loss decreased $476,373, or approximately 8 percent, to
$5,411,813 in 1995 compared to $5,888,186 in 1994. The decrease was due to the
increase in revenues and the decrease in depreciation and amortization expense
exceeding the increases in operating expenses and management and supervision
fees and allocated overhead from the General Partners.
Operating income before depreciation and amortization increased $192,566,
or approximately 4 percent, to $4,905,881 in 1995 compared to $4,713,315 in
1994. The increase was due to the increase in revenues exceeding the increases
in operating expenses and management and supervision fees and allocated overhead
from the General Partners.
Interest expense increased $910,698, or approximately 32 percent, to
$3,767,376 in 1995 compared to $2,856,678 in 1994. The increase was due to
higher effective interest rates and higher outstanding balances on interest
bearing obligations.
Consolidated loss increased $271,307, or approximately 3 percent, to
$9,171,199 in 1995 compared to $8,899,892 in 1994. This increase was due to the
factors discussed above.
13
<PAGE>
Item 8. Financial Statements
-----------------------------
IDS/JONES GROWTH PARTNERS II
----------------------------
CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
AS OF DECEMBER 31, 1996 and 1995
--------------------------------
INDEX
-----
Page
-----
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants 15
Consolidated Balance Sheets 16
Consolidated Statements of Operations 18
Consolidated Statements of Partners' Capital (Deficit) 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21
</TABLE>
14
<PAGE>
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, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 7, 1997.
15
<PAGE>
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------
ASSETS 1996 1995
------ ------------- -------------
<S> <C> <C>
CASH $ 39,236 $ 6,803
TRADE RECEIVABLES, less allowance for
doubtful receivables of $183,205 and $49,993 at
December 31, 1996 and 1995, respectively 486,278 463,098
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 42,616,023 38,380,661
Less- accumulated depreciation (20,360,651) (17,672,119)
------------ ------------
22,255,372 20,708,542
Franchise costs and other intangible assets, net of
accumulated amortization of $50,617,891 and $43,830,221
at December 31, 1996 and 1995, respectively 23,080,104 29,867,774
------------ ------------
Total investment in cable television properties 45,335,476 50,576,316
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 397,014 402,697
------------ -----------
Total assets $ 46,258,004 $ 51,448,914
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
16
<PAGE>
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
CONSOLIDATED BALANCE SHEETS
---------------------------
<TABLE>
<CAPTION>
December 31,
----------------------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1996 1995
- ------------------------------------------- ------------- -------------
<S> <C> <C>
LIABILITIES:
Debt $ 48,693,134 $ 45,909,122
Accounts payable-Managing General Partner 398,507 331,185
Trade accounts payable and accrued liabilities 2,649,331 2,315,455
Subscriber prepayments 64,694 62,574
------------ ------------
Total liabilities 51,805,666 48,618,336
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
MINORITY INTEREST IN JOINT VENTURE (1,996,323) 885,792
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partners-
Contributed capital 500 500
Accumulated deficit (411,445) (356,484)
------------ ------------
(410,945) (355,984)
------------ ------------
Limited Partners-
Net contributed capital (174,343 units
outstanding at December 31, 1996 and 1995) 37,256,546 37,256,546
Accumulated deficit (40,396,940) (34,955,776)
------------ ------------
(3,140,394) 2,300,770
------------ ------------
Total liabilities and partners'
capital (deficit) $ 46,258,004 $ 51,448,914
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
17
<PAGE>
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES $18,394,451 $16,860,900 $15,388,489
COSTS AND EXPENSES:
Operating expenses 10,733,857 9,809,178 8,655,004
Management and supervision
fees and allocated overhead
from General Partners 2,226,811 2,145,841 2,020,170
Depreciation and amortization 9,926,847 10,317,694 10,601,501
----------- ----------- -----------
OPERATING LOSS (4,493,064) (5,411,813) (5,888,186)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (3,757,477) (3,767,376) (2,856,678)
Other, net (127,699) 7,990 (155,028)
----------- ----------- -----------
Total other income (expense) (3,885,176) (3,759,386) (3,011,706)
----------- ----------- -----------
CONSOLIDATED LOSS (8,378,240) (9,171,199) (8,899,892)
MINORITY INTEREST IN CONSOLIDATED
LOSS 2,882,115 3,154,893 3,061,563
----------- ----------- -----------
NET LOSS $(5,496,125) $(6,016,306) $(5,838,329)
=========== =========== ===========
ALLOCATION OF NET LOSS:
General Partners $ (54,961) $ (60,163) $ (58,383)
=========== =========== ===========
Limited Partners $(5,441,164) $(5,956,143) $(5,779,946)
=========== =========== ===========
</TABLE>
NET LOSS PER LIMITED PARTNERSHIP
UNIT $ (31.21) $ (34.16) $ (33.15)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 174,343 174,343 174,343
=========== =========== ===========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
18
<PAGE>
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
GENERAL PARTNERS:
Jones Cable Corporation
Balance, beginning of year $ (177,992) $ (147,911) $ (118,719)
Net loss for year (27,480) (30,081) (29,192)
----------- ----------- -----------
Balance, end of year $ (205,472) $ (177,992) $ (147,911)
=========== =========== ===========
IDS Cable II Corporation
Balance, beginning of year $ (177,992) $ (147,910) $ (118,719)
Net loss for year (27,481) (30,082) (29,191)
----------- ----------- -----------
Balance, end of year $ (205,473) $ (177,992) $ (147,910)
=========== =========== ===========
Total
Balance, beginning of year $ (355,984) $ (295,821) $ (237,438)
Net loss for year (54,961) (60,163) (58,383)
----------- ----------- -----------
Balance, end of year $ (410,945) $ (355,984) $ (295,821)
=========== =========== ===========
LIMITED PARTNERS:
Balance, beginning of year $ 2,300,770 $ 8,256,913 $14,036,859
Net loss for year (5,441,164) (5,956,143) (5,779,946)
----------- ----------- -----------
Balance, end of year $(3,140,394) $ 2,300,770 $ 8,256,913
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
19
<PAGE>
IDS/JONES GROWTH PARTNERS II, L.P.
----------------------------------
(A Limited Partnership)
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1996 1995 1994
------------ ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,496,125) $(6,016,306) $ (5,838,329)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,926,847 10,317,694 10,601,501
Minority interest in consolidated loss (2,882,115) (3,154,893) (3,061,563)
Amortization of interest rate protection contract 52,500 52,500 -
Increase in trade receivables (23,180) (59,670) (37,919)
Increase in deposits, prepaid expenses and
deferred charges (130,525) (81,080) (156,732)
Increase in trade accounts payable and accrued
liabilities and subscriber prepayments 335,996 1,127,773 217,363
Increase (decrease) in advances from
Managing General Partner 67,322 (602,764) (122,879)
----------- ----------- ------------
Net cash provided by
operating activities 1,850,720 1,583,254 1,601,442
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (4,602,299) (3,871,793) (3,587,639)
----------- ----------- ------------
Net cash used in investing activities (4,602,299) (3,871,793) (3,587,639)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 7,829,712 3,016,410 40,900,085
Repayment of debt (5,045,700) (673,352) (38,938,601)
Purchase of interest rate protection contract - (105,000) -
----------- ----------- ------------
Net cash provided by financing activities 2,784,012 2,238,058 1,961,484
----------- ----------- ------------
Increase (decrease) in cash 32,433 (50,481) (24,713)
Cash, beginning of year 6,803 57,284 81,997
----------- ----------- ------------
Cash, end of year $ 39,236 $ 6,803 $ 57,284
=========== =========== ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 3,434,691 $ 2,974,550 $ 2,516,358
=========== =========== ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
20
<PAGE>
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 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 IDS/Jones 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. In addition, on December
5, 1991, Intercable and IDS Management Corporation made subordinated loans to
the Venture each in the principal amount of $1,800,000. See Note 5 for further
information about the status of such loans. As a result of their equity
contributions to the Venture described above, ownership percentages of the
Venture are detailed below:
The Partnership 66%
IDS/Jones 89-B 24%
Intercable 5%
IDS Management Corporation 5%
----
100%
If the remaining portion of Intercable's December 5, 1991 loan discussed
in Note 5 is 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").
21
<PAGE>
(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 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 years
Office furniture and equipment 5 years
Buildings 10 - 20 years
Vehicles 3 years
Replacements, renewals and improvements are capitalized and maintenance and
repairs are charged to expense as incurred.
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, subscriber lists and costs in excess of
interests in net assets purchased will be amortized using the straight-line
method over their remaining estimated useful lives.
Franchise costs 4 years
Subscriber lists 1 year
Costs in excess of interests in
net assets purchased 34 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 1996
presentation.
22
<PAGE>
(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, 1996, 1995 and 1994 were
$919,723, $843,045 and $769,424, respectively.
The Supervising General Partner participates in certain management
decisions of the Venture and receives a fee for its 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, 1996,
1995 and 1994 were $91,972, $84,305 and $76,942, 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, 1996, 1995 and 1994 were $1,215,116, $1,218,491 and
$1,173,804, 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, 1996, 1995 and 1994.
During 1996, the Venture was charged interest by Intercable at an
average interest rate of 8.58 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, 1996, 1995 and 1994 was $382,725, $481,211
and $386,257, respectively.
The Venture was charged interest on the subordinated loans from IDS
Management Corporation at an average interest rate of 6.08 percent, which
approximated IDS Management Corporation's cost of borrowing. Total interest
charged to the Venture by IDS Management Corporation during 1996, 1995 and 1994
was $111,741, $120,970 and $113,458, 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 Superaudio, Jones Education
Company and Product Information Network, all of which are affiliates of
Intercable.
Payments to Superaudio totaled $27,973, $23,928 and $23,558, respectively,
in 1996, 1995 and 1994. Payments to Jones Education Company totaled $90,418,
$76,741 and $33,768, respectively, in 1996, 1995 and 1994.
23
<PAGE>
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 $46,841, $29,347
and $11,442 in 1996, 1995 and 1994, respectively.
(4) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment as of December 31, 1996 and 1995, consisted
of the following:
1996 1995
------------- -------------
Cable distribution systems $ 41,144,449 $ 36,726,927
Equipment and tools 686,650 661,881
Office furniture and equipment 318,341 290,671
Vehicles 387,298 622,722
Buildings 79,285 78,460
------------ ------------
42,616,023 38,380,661
Less- accumulated depreciation (20,360,651) (17,672,119)
------------ ------------
$ 22,255,372 $ 20,708,542
============ ============
(5) DEBT
----
Debt consists of the following: December 31,
---------------------------
1996 1995
------------ ------------
Lending institutions-
Revolving credit agreement $ 45,600,000 $ 40,800,000
Affiliated entities-
Subordinated loans:
Intercable 2,006,647 3,206,647
IDS Management Corporation 1,000,000 1,800,000
Capital lease obligations 86,487 102,475
------------ ------------
$ 48,693,134 $ 45,909,122
============ ============
On December 5, 1991, IDS Management Corporation made a $1,800,000 loan to
the Venture, which had been repaid at December 31, 1996. Also on December 5,
1991, Intercable made a $1,800,000 loan to the Venture of which $1,200,000 had
been repaid at December 31, 1996. Any amounts not repaid to Intecable are
convertible into equity in the Venture. 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 an
additional loan of $1,000,000 to the Venture to fund principal repayments due at
the end of March 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 loans, 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 over time with cash
generated from operations and borrowings from the Venture's revolving credit and
term loan. 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 revolving credit and term loan agreement with
two commercial banks. In the fourth quarter of 1996, the General Partner amended
the credit facility to extend the revolving credit period and increase the
commitment to $47,000,000. The amended 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, 1996,
$45,600,000 was outstanding under this agreement, leaving $1,400,000 available
for future needs of the Venture, subject to certain financial covenants that may
limit borrowing. 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,
1996 and 1995 were 7.38 percent and 7.83 percent, respectively.
24
<PAGE>
On December 5, 1991, Intercable made an equity investment in the Venture in
the amount of $2,872,000. Also on December 5, 1991, IDS Management Corporation
made an equity investment in the Venture of $2,872,000. As a result of their
equity contributions to the Venture, IDS Management Corporation and Intercable
each have a 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 the remaining
portion of Intercable's December 5, 1991 loan is converted to equity, the
ownership percentages will be adjusted accordingly.
In January 1995, the Venture entered into an interest rate protection
contract covering outstanding debt obligations of $25,000,000. The Venture paid
a fee of $105,000. The agreement protects the Venture from LIBOR interest rates
that exceed 9 percent for two years from the date of the agreement. The fee is
being 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, 2001 and thereafter, respectively, are: $3,032,593,
$25,946, $45,625,946, $8,649, $-0- and $-0-.
At December 31, 1996, 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 $106,722,
$105,400 and $60,313, respectively, for the years ended December 31, 1996, 1995
and 1994. Minimum commitments under operating leases for each of the five years
in the period ending December 31, 2001, and thereafter are as follows:
1997 $56,267
1998 48,432
1999 38,126
2000 1,394
2001 -
Thereafter -
--------
$144,219
========
25
<PAGE>
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
-----------------------------------------
Supplementary profit and loss information for the respective years is
presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Maintenance and repairs $ 141,422 $ 152,338 $ 133,849
========== ========== ==========
Taxes, other than income and payroll taxes $ 25,399 $ 23,470 $ 11,949
========== ========== ==========
Advertising $ 249,828 $ 374,340 $ 423,866
========== ========== ==========
Depreciation of property, plant and equipment $3,054,661 $3,491,637 $3,810,089
========== ========== ==========
Amortization of intangible assets $6,872,186 $6,826,057 $6,791,412
========== ========== ==========
</TABLE>
26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III.
---------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
------------------------------------------------------------
The Partnership itself has no officers or directors. Certain
information concerning the directors and executive officers of the Managing
General Partner is set forth below. Directors of the Managing General Partner
serve until the next annual meeting of the Managing General Partner and until
their successors shall be elected and qualified.
Name Age Positions with the Managing General Partner
- --------------------- --- -------------------------------------------------
Glenn R. Jones 67 Chairman of the Board and Chief Executive Officer
James B. O'Brien 47 President
Kevin P. Coyle 45 Vice President of Finance
Elizabeth M. Steele 45 Vice President and Secretary
Mr. Glenn R. Jones has been Chairman of the Board of the Managing
General Partner since its formation in October 1986. Mr. Jones served as
President of the Managing General Partner until September of 1990 at which time
he was elected Chief Executive Officer. Mr. 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,
is a member of the Board of Directors and the Executive Committee of the
National Cable Television Association. Additionally, Mr. Jones is a member of
the Board of Governors for the American Society for Training and Development,
and 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. 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 Vice Chairman
and a director of the Cable Television Administration and Marketing Association
and as a director and member of the Executive Committee of the Walter Kaitz
Foundation, a
27
<PAGE>
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. From August 1980 until joining Jones Intercable, Inc.,
Ms. Steele was an associate and then a partner at the Denver law firm of Davis,
Graham & Stubbs, which serves as counsel to Jones Intercable, Inc.
Certain information concerning directors and executive officers of the
Supervising General Partner is set forth below:
Name Age Positions with the Supervising General Partner
- --------------------- --- ----------------------------------------------
Lori J. Larson 38 President and Director
Morris Goodwin, Jr. 45 Vice President, Treasurer and Director
Bradley C. Nelson 32 Vice President and Director
Ronald W. Powell 52 Vice President
John M. Knight 44 Vice President
Ms. Lori J. Larson has been employed by American Express Financial
Corporation since 1981 and currently holds the title of 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. 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.
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.
Mr. 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
28
<PAGE>
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.
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The Partnership has no employees; however, various personnel are
required to operate cable television systems owned by the Venture. Such
personnel are employed by Intercable and, pursuant to the terms of the
Partnership's limited partnership agreement, the cost of such employment is
charged by the Managing General Partner to the Partnership as a direct
reimbursement item. See Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
----------------------------------------------------------------------
As of March 4, 1997, no person or entity owned more than 5 percent of
the limited partnership interests of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The Managing General Partner and its affiliates engage in certain
transactions with the Partnership as contemplated by the limited partnership
agreement of the Partnership. The Managing General Partner believes that the
terms of such transactions are generally as favorable as could be obtained by
the Partnership from unaffiliated parties. This determination has been made by
the Managing General Partner in good faith, but none of the terms were or will
be negotiated at arm's-length and there can be no assurance that the terms of
such transactions have been or will be as favorable as those that could have
been obtained by the Partnership from unaffiliated parties.
The Supervising General Partner and its affiliates engage in certain
transactions with the Partnership as contemplated by the limited partnership
agreement of the Partnership. The Supervising General Partner believes that the
terms of such transactions, which are set forth in the Partnership's limited
partnership agreement, are generally as favorable as could be obtained by the
Partnership from unaffiliated parties. This determination has been made by the
Supervising General Partner in good faith, but none of the terms were or will be
negotiated at arm's-length and there can be no assurance that the terms of such
transactions have been or will be as favorable as those that could have been
obtained by the Partnership from unaffiliated parties.
TRANSACTIONS WITH THE MANAGING GENERAL PARTNER AND THE SUPERVISING GENERAL
PARTNER
The Managing General Partner charges the Partnership a 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 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, also advances
funds and charges interest on the balance payable. The interest rate charged
approximates Intercable's weighted average cost of borrowing.
29
<PAGE>
TRANSACTIONS WITH AFFILIATES
Jones Education Company ("JEC") is owned 63% by Jones International,
Ltd. ("International"), an affiliate of the General Partner, 9% by Glenn R.
Jones, 12% by Bell Canada International Inc. ("BCI") and 16% by the General
Partner. JEC operates two television networks, JEC Knowledge TV and Jones
Computer Network. JEC Knowledge TV provides programming related to computers
and technology; business, careers and finance; health and wellness; and global
culture and languages. Jones Computer Network provides programming focused
primarily on computers and technology. JEC sells its programming to certain
cable television systems owned or managed by Intercable.
The Great American Country network provides country music video
programming to certain cable television systems owned or managed by Intercable.
This network is owned and operated by Great American Country, Inc., a subsidiary
of Jones International Networks, Ltd., an affiliate of International.
Jones Galactic Radio, Inc. is a company now owned by Jones
International Networks, Ltd., an affiliate of International. Superaudio, a
joint venture between Jones Galactic Radio, Inc. and an unaffiliated entity,
provides satellite programming to certain cable television systems owned or
managed by Intercable.
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% 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 $46,841 for the year ended December 31, 1996.
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:
<TABLE>
<CAPTION>
IDS/Jones Joint Venture Partners For the Year Ended December 31,
- ---------------------------------------- ----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Management fees $ 919,723 $ 843,045 $ 769,424
Supervision fees 91,972 84,305 76,942
Allocation of expenses 1,215,116 1,218,491 1,173,804
Interest expense on advances and loans
from the Managing General Partner and Intercable 382,725 481,211 386,257
Interest expense on loan from IDS
Management Corporation 111,741 120,970 113,458
Amount of notes and advances outstanding 398,507 331,185 933,949
Highest amount of notes and advances
outstanding 1,556,731 331,185 1,040,406
Programming fees:
Jones Education Company 90,418 76,741 33,768
Superaudio 27,973 23,928 23,558
</TABLE>
30
<PAGE>
PART IV.
--------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
(a)1. See index to financial statements for list of financial
statements and exhibits thereto filed as part of this report.
3. The following exhibits are filed herewith:
4.1 Limited Partnership Agreement for IDS/Jones Growth Partners II,
L.P. (1)
10.1.1 Copy of franchise and related documents granting a cable
television system franchise for the City of Aurora, Illinois
(IDS/Jones Joint Venture Partners). (1)
10.1.2 Copy of franchise and related documents granting a cable
television system franchise for Kane County, Illinois
(IDS/Jones Joint Venture Partners). (2)
10.1.3 Resolution No. 91-49 dated March 12, 1991 of Kane County
extending the term of the franchise. (2)
10.1.4 Franchise Extension Agreement dated March 29, 1991 of Kane
County extending the term of the franchise. (2)
10.1.5 Resolution No. 92-54 dated March 12, 1991 of Kane County
extending the term of the franchise. (2)
10.1.6 Ordinance No. 92-133 dated June 9, 1992 of Kane
County renewing the franchise. (2)
10.1.7 Copy of franchise and related documents granting a cable
television system franchise for Kendall County, Illinois
(IDS/Jones Joint Venture Partners). (1)
10.1.8 Copy of franchise and related documents granting a cable
television system franchise for the Village of Montgomery,
Illinois (IDS/Jones Joint Venture Partners). (1)
10.1.9 Copy of franchise and related documents granting a
cable television system franchise for the Village of North
Aurora, Illinois (IDS/Jones Joint Venture Partners). (1)
10.1.10 Copy of franchise and related documents granting a cable
television system franchise for the Village of Oswego, Illinois
(IDS/Jones Joint Venture Partners). (1)
10.1.11 Copy of franchise and related documents granting a cable
television system franchise for the City of Plano, Illinois
(IDS/Jones Joint Venture Partners). (1)
10.1.12 Copy of franchise and related documents granting a cable
television system franchise for the City of Sandwich, Illinois
(IDS/Jones Joint Venture Partners). (1)
10.1.13 Copy of franchise and related documents granting a cable
television system franchise for the Village of Yorkville,
Illinois (IDS/Jones Joint Venture Partners). (1)
10.2.1 Credit Agreement dated as of November 3, 1994 among the Venture,
IDS/Jones 89-B, Growth Partners II and Shawmut Bank Connecticut,
N.A., as agent for various lenders. (5)
10.2.2 Second Amendment Agreement dated as of December 27, 1996 among
the Venture and Shawmut Bank Connecticut, N.A., as agent for
various lenders.
31
<PAGE>
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.
(5) 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.
(b) Reports on Form 8-K
-------------------
None.
32
<PAGE>
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: ___________________________________
Glenn R. Jones
Chairman of the Board and
Dated: March 24, 1997 Chief Executive Officer
By IDS Cable II Corporation,
their Supervising General Partner
By: ___________________________________
Lori J. Larson
Dated: March 24, 1997 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: ___________________________________
Glenn R. Jones
Chairman of the Board and
Chief Executive Officer
Dated: March 24, 1997 (Principal Executive Officer)
By: ___________________________________
Kevin P. Coyle
Vice President/Finance
(Principal Financial and
Dated: March 24, 1997 Accounting Officer)
33
<PAGE>
OFFICERS AND DIRECTORS OF IDS CABLE II CORPORATION:
By: ___________________________________
Lori J. Larson
President and Director
Dated: March 24, 1997 (Principal Executive Officer)
By: ___________________________________
Morris Goodwin, Jr.
Vice President, Treasurer and
Director (Principal Financial and
Dated: March 24, 1997 Accounting Officer)
By: ___________________________________
Bradley C. Nelson
Dated: March 24, 1997 Vice President and Director
34
<PAGE>
SECOND AMENDMENT AGREEMENT
--------------------------
SECOND AMENDMENT AGREEMENT (this "Agreement") dated as of December 27, 1996
by and among (1) IDS/Jones Joint Venture Partners (the "Borrower"), (2) Fleet
National Bank, formerly known as Shawmut Bank Connecticut, N.A. ("Fleet") and
Societe Generale as lenders (collectively, the "Lenders" and individually, a
"Lender"), and (3) Fleet as agent (the "Agent") for the Lenders, with respect to
a certain Credit Agreement dated as of November 3, 1994, by and among the
Borrower, the Lenders and the Agent as amended by a letter agreement dated
January 25, 1995 and by an Amendment and Waiver Agreement dated as of February
16, 1995 (as amended, the "Credit Agreement").
W I T N E S S E T H:
WHEREAS, the Borrower has requested that the Lenders and the Agent amend
certain provisions of the Credit Agreement and the Notes; and
WHEREAS, the Lenders and Agent are willing to amend the Credit Agreement
and Notes in accordance with the terms hereof.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
(S)1. Definitions. Capitalized terms used herein without definition that
-----------
are defined in the Credit Agreement shall have the same meanings herein as
therein.
(S)2. Ratification of Existing Agreements. All of the Borrower's
-----------------------------------
obligations and liabilities to the Lenders and the Agent as evidenced by or
otherwise arising under the Credit Agreement, the Notes and the other Loan
Documents, are, by the Borrower's execution of this Agreement, ratified and
confirmed in all respects. In addition, by the Borrower's execution of this
Agreement, the Borrower represents and warrants that no counterclaim, right of
set-off or defense of any kind exists or is outstanding with respect to such
obligations and liabilities. The Borrower acknowledges and agrees that this
Agreement shall be included in the definition of Loan Documents under the Credit
Agreement.
(S)3. Representations and Warranties. All of the representations and
------------------------------
warranties made by the Borrower in the Credit Agreement, the Notes and the other
Loan Documents are true and correct on the date hereof as if made on and as of
the date hereof, except that any of such representations and warranties relate
expressly to an earlier date and are true and correct as of such earlier date.
<PAGE>
-2-
(S)4. Amendments to the Credit Agreement.
----------------------------------
(S)4.1. Amendments to (S)1.1.
--------------------
(a) The definition of "Applicable Margin" appearing in Section 1.1
of the Credit Agreement is hereby amended in its entirety to read as follows:
"Applicable Margin" means, at any time during which the Borrower's
Leverage Ratio falls within the ranges set forth below, the amounts set
forth below opposite such ranges for each type of Loans:
Applicable Margin
<TABLE>
<CAPTION>
Base Rate
Leverage Ratio Loans LIBO Rate Loans CD Rate Loans
-------------- ----- --------------- -------------
<S> <C> <C> <C>
5.50:1 or greater 0.75% 1.75% 1.875%
5.00:1 or greater 0.625% 1.625% 1.750%
but less than
5.50:1
4.50:1 or greater 0.50% 1.50% 1.625%
but less than
5.00:1
4.00:1 or greater 0.25% 1.25% 1.375%
but less than
4.50:1
less than 4.00:1 0.00% 1.00% 1.125%"
</TABLE>
(b) The definition of "Commitment Amount" appearing in Section 1.1
of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Commitment Amount" means an amount equal to $42,000,000 plus the
Excess Commitment Amount, as such amount may be reduced from time to time
pursuant to Section 2.2."
(c) The definition of "Commitment Termination Date" appearing in
Section 1.1 of the Credit Agreement is hereby amended in its entirety to read
as follows:
"Commitment Termination Date" means the earliest of
<PAGE>
-3-
(a) the date on which the Commitment Amount is terminated in
full or reduced to zero pursuant to Section 2.2; and
-----------
(b) the date on which any Commitment Termination Event occurs.
Upon the occurrence of any event described in clause (a) or (b), the
Commitments shall terminate automatically and without any further action."
(d) The definition of "Conversion Date" appearing in Section 1.1 of
the Credit Agreement is hereby amended in its entirety to read as follows:
"Conversion Date" Intentionally Omitted."
(e) The definition of "Conversion Date Amount" appearing in Section
1.1 of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Conversion Date Amount" Intentionally Omitted."
(f) The definition of "Loan" appearing in Section 1.1 of the Credit
Agreement is hereby amended in its entirety to read as follows:
"Loan" means, as the context may require, a Revolving Loan of any
type."
(g) The definition of "Loan Document" appearing in Section 1.1 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"Loan Documents" means this Agreement, the Notes, the Security
Agreement, the Subordination Agreements, the Mortgage, the Fee Letter, the
Lender Fee Letter, each agreement evidencing Hedging Obligations of the
Borrower, and each other agreement, document or instrument delivered in
connection with this Agreement."
(h) The definition of "Notes" appearing in Section 1.1 of the Credit
Agreement is hereby amended in its entirety to read as follows:
"Notes" means a promissory note of the Borrower payable to the order
of any Lender, in the form of Exhibit A hereto (as such promissory note may be
---------
amended, endorsed or otherwise modified from time to time), evidencing the
aggregate Indebtedness of the Borrower to such Lender resulting from outstanding
Revolving Loans."
(i) The definition of "Stated Maturity Date" appearing in Section 1.1
of the Credit Agreement is hereby amended in its entirety to read as follows:
<PAGE>
-4-
"Stated Maturity Date" means December 31, 1999."
(j) The definition of "Term Loan" appearing in Section 1.1 of the
Credit Agreement is hereby amended in its entirety to read as follows:
"Term Loan" Intentionally Omitted."
(k) The following new definition is hereby added to Section 1.1 of the
Credit Agreement:
"Lender Fee Letter" means that certain fee letter, dated December 27,
1996 from the Borrower to the Agent relating to the payment of fees to the
Lenders in connection with the Second Amendment Agreement by and among the
Borrower, the Lenders and the Agent dated as of December 27, 1996."
(S)4.2. Amendment to Section 3.1. Section 3.1 of the Credit Agreement
------------------------
is hereby amended in its entirety to read as follows:
"SECTION 3.1. Mandatory Reduction of Commitment Amount. On
each of the dates set forth in the table below (each such date being
hereinafter referred to as a "Commitment Reduction Date"), the
Commitment Amount shall be automatically reduced by an amount equal to
the product of (a) the original Commitment Amount in effect as of
December 27, 1996 ($47,000,000) times (b) the percentage (the
"Commitment Reduction Percentage") set forth opposite such Commitment
Reduction Date in such table so that the cumulative percentage
reduction of the Commitment Amount on such date shall be as set forth
in the table below:
<TABLE>
<CAPTION>
Commitment
Date Reduction Percentage Cumulative Reduction
- ---- -------------------- --------------------
<S> <C> <C>
December 27, 1996
through June 29, 1999 0% 0%
June 30, 1999 2.1276596% 2.1276596%
September 30, 1999 2.1276596% 4.2553192%
</TABLE>
Upon the occurrence of a Commitment Reduction Date as contemplated by this
(S)3.1, the Commitments of the Lenders shall be reduced pro rata in accordance
--- ----
with their respective Percentages of the amount of such reduction of the
Commitment Amount. If on any Commitment Reduction Date the sum of the aggregate
principal amount of the Revolving Loans outstanding exceeds the Commitment
Amount then in effect, then the Borrower shall immediately pay the
<PAGE>
-5-
amount of such excess to the Agent for the respective accounts of the Lenders
for application to the Revolving Loans.
The remaining unpaid principal amount of all Revolving Loans shall be
repaid by the Borrower on the Stated Maturity Date.
Prior to the Stated Maturity Date, the Borrower
(a) may, from time to time on any Business Day, make a voluntary
prepayment, in whole or in part, of the outstanding principal amount of any
Revolving Loans; provided, however, that:
-------- -------
(i) any such prepayment shall be made pro rata among Loans of the
--- ----
same type and, if applicable, having the same Interest Period of all
Lenders;
(ii) no such prepayment of any Fixed Rate Loan may be made on any
day other than the last day of the Interest Period for such Loan;
(iii) all such voluntary prepayments shall require at least
three but no more than five Business Days' prior notice to the Agent
in the case of Fixed Rate Loans, and at least one but no more than
five Business Days' prior notice to the Agent in the case of Base Rate
Loans; and
(iv) all such voluntary partial prepayments shall be in an
aggregate minimum amount of $500,000 and an integral multiple of
$100,000.
(b) shall, on each date when any reduction in the Commitment Amount
shall become effective, including pursuant to Section 2.2, make a mandatory
-----------
prepayment of all Revolving Loans equal to the excess, if any, of the
aggregate outstanding principal amount of all Revolving Loans over the
Commitment Amount as so reduced; and
(c) shall, immediately upon any acceleration of the Stated Maturity
Date of any Loans pursuant to Section 8.2 or Section 8.3, repay all Loans,
--------------------------
unless, pursuant to Section 8.3, only a portion of all Loans is so
-----------
accelerated.
Each prepayment of any Revolving Loans made pursuant to this Section shall
be (i) without premium or penalty and (ii) made together with any amounts
required to be paid under Section 4.4. No voluntary prepayment of principal of
-----------
any Revolving Loans shall cause a reduction in the Commitment Amount."
(S)4.3. Amendment to Section 3.2. Section 3.2 of the Credit Agreement
------------------------
is hereby amended in its entirety to read as follows:
<PAGE>
-6-
"SECTION 3.2 Excess Cash Flow Recapture. In addition to any and
all required reductions of the Commitment Amount set forth in Section
3.1 above, the Commitment Amount shall be reduced on May 1 of each
calendar year, commencing on May 1, 1997, in an amount equal to
seventy-five percent (75%) of Excess Cash Flow of the Borrower for the
immediately preceding Fiscal Year. Such reduction shall be applied to
automatically reduce, pro rata, the Commitment Amount as in effect
from time to time."
(S)4.4. Amendment to Section 3.3.3. Section 3.3.3. of the Credit
--------------------------
Agreement is hereby amended in its entirety to read as follows:
"SECTION 3.3.3. Payment Dates. Interest accrued on each Revolving
Loan shall be payable without duplication:
(a) on the date of any optional or required payment or prepayment, in
whole or in part, of principal outstanding on such Loan;
(b) with respect to Base Rate Loans, on each Quarterly Payment Date
occurring after the Effective Date;
(c) with respect to CD Rate Loans, on the last day of each applicable
Interest Period (and, if such Interest Period shall exceed 90 days, on the
90th day of such Interest Period and each 90th day thereafter during such
Interest Period);
(d) with respect to any LIBO Rate Loans, on the last day of each
applicable Interest Period (and, if such Interest Period shall exceed 3
months, on the last calendar day of the 3rd month of such Interest Period
and the last calendar day of each subsequent 3rd month of such Interest
Period thereafter);
(e) with respect to any Base Rate Loans converted into Fixed Rate
Loans on a day when interest would not otherwise have been payable pursuant
to clause (c), on the date of such conversion; and
(f) on that portion of any Revolving Loans the Stated Maturity Date of
which is accelerated pursuant to Section 8.2 or Section 8.3 immediately
----------- -----------
upon such acceleration.
Interest accrued on Loans or other monetary Obligations arising under this
Agreement or any other Loan Document after the date such amount is due and
payable (whether on the Stated Maturity Date, in connection with any mandatory
reduction of the Commitment Amount or mandatory prepayment hereunder, upon
acceleration or otherwise) shall be payable upon demand."
<PAGE>
-7-
(S)4.5. Amendment to Section 3.4. Section 3.4 of the Credit Agreement
------------------------
is hereby amended by adding a new Section 3.4.3. to the end of such Section to
read as follows:
"SECTION 3.4.3 Lenders Fee. The Borrower agrees to timely pay to
-----------
the Agent, for the benefit of the Lenders, the fees provided for in
the Lender Fee Letter."
(S)4.6. Amendment to Section 7.2.4(a). Section 7.2.4.(a) of the Credit
----------------
Agreement is hereby amended in its entirety to read as follows:
"(a) its Leverage Ratio at any time during the periods set forth
below to be greater than the ratio set forth opposite such periods:
<TABLE>
<CAPTION>
Period Maximum Leverage Ratio
------ ----------------------
<S> <C>
1/1/96 - 12/30/96 5.50:1
12/31/96 - 3/31/97 5.75:1
4/1/97 - 9/30/97 5.25:1
10/1/97 - 3/31/98 5.00:1
4/1/98 - 9/30/98 4.75:1
10/1/98 - 3/31/99 4.50:1
4/1/99 - 6/30/99 4.25:1
7/1/99 and thereafter 4.00:1"
</TABLE>
(S)4.7. Amendment to Section. 7.2.4.(c). Section 7.2.4.(c) of the
-------------------------------
Credit Agreement is hereby amended in its entirety to read as follows:
"(c) Intentionally Omitted."
(S)4.8. Amendment to Section. 7.2.7. Section 7.2.7. of the Credit
---------------------------
Agreement is hereby amended in its entirety to read as follows:
"SECTION 7.2.7. Management Fees, Allocated Overhead and
---------------------------------------
General Partner Advances. The Borrower will not, and will not permit
------------------------
any of its Subsidiaries to, pay any amounts with respect to (a) the 1996
Fiscal Year, Management Fees or Allocated Expenses if either before or
after giving effect to such payments, a Default shall have occurred and be
continuing, or if such payments violate the terms of any Subordination
Agreement, (b) the 1996 Fiscal Year, net General Partner Advances in an
amount in excess of $2,700,000 in the aggregate and if either before or
after giving effect to such payments, a Default shall have occurred and be
continuing, or if such payments violate the terms of any Subordination
Agreement, (c) from January 1, 1997 through and including December 31,
1998, Management Fees or Allocated Expenses if either before or after
giving effect to such payments, a Default shall have occurred and be
continuing, or if such payments violate the terms of any Subordination
Agreement, (d) during the period beginning on
<PAGE>
-8-
January 1, 1999 and continuing until all of the Obligations are paid in
full, Management Fees or Allocated Overhead, and (e) during the period
beginning on January 1, 1997 and continuing until all of the Obligations
are paid in full, General Partner Advances; provided, that, notwithstanding
--------
the foregoing, from and after the January 1, 1997, the Borrower may repay
General Partner Advances of the type described in clause (iii) of the
definition of General Partner Advances, together with interest thereon, so
long as either before or after giving effect to any such payments, no
Default shall have occurred and be continuing, and so long as such payment
does not violate the terms of any Subordination Agreement. All such amounts
may be accrued and paid by the Borrower to the Person to which they are
owed upon the payment in full by the Borrower of all of the Obligations."
(S)4.9. Amendment to Section 10.11.1. Section 10.11.1. of the Credit
----------------------------
Agreement is hereby amended by deleting the number "$45,000,000" from the tenth
and twelfth lines thereof and substituting "$47,000,000" therefor.
(S)5. Conditions Precedent. The effectiveness of the amendments
---------------------
contemplated hereby shall be subject to the satisfaction on or before the date
hereof of each of the following conditions precedent:
(a) All of the representations and warranties made by the Borrower
herein, whether directly or incorporated by reference, shall be true and
correct on the date hereof, except as provided in (S)3 hereof.
(b) The Borrower shall have performed and complied in all material
respects with all terms and conditions herein required to be performed or
complied with by it prior to or at the time hereof, and there shall exist
no Event of Default or condition which, with either or both the giving of
notice of the lapse of time, would result in an Event of Default upon the
execution and delivery of this Agreement.
(c) All requisite partnership action necessary for the valid
execution, delivery and performance by the Borrower of this Agreement and
all other instruments and documents delivered by the Borrower in connection
therewith shall have been duly and effectively taken.
(d) The parties hereto shall have executed and delivered this
Agreement in form and substance satisfactory to the Agent and Lenders.
(e) All proceedings in connection with the transactions contemplated
by this Agreement shall be satisfactory in substance and form to the Agent
and Lenders and the Agent shall have received all information and such
counterpart originals or certified or other copies of such documents as it
may request.
<PAGE>
-9-
(f) The Borrower shall have paid all fees and expenses incurred by the
Agent and Lenders in connection with this Agreement, the Credit Agreement or the
other Loan Documents on or prior to the date hereof. In addition, the Borrower
shall have paid to the Agent, for the account of each Lender, all of the fees
then due and owing under the Lender Fee Letter.
(g) The Agent shall have received from counsel to the Borrower, a favorable
opinion addressed to the Agent and Lenders and dated the date hereof in form and
substance satisfactory to the Agent and Lenders.
(h) The Agent shall have received the results of UCC searches with
respect to the Collateral (as defined in the Security Agreement) indicating no
other liens other than liens already permitted under the Credit Agreement and
otherwise in form and substance satisfactory to the Agent.
(i) The Borrower shall have executed and delivered a Second
Amendment and Restated Promissory Note in the original principal amount of
$31,333,333.33 in favor of Fleet and an Amended and Restated Promissory
Note in the original principal amount of $15,666,666.67 in favor of Societe
Generale.
6. Miscellaneous Provisions.
------------------------
(a) Effective as of the date of this Agreement, the Percentage of each of
the Lenders is hereby reaffirmed as set forth opposite its signature hereto.
(b) Except as otherwise expressly provided by this Agreement, all of the
respective terms, conditions and provisions of the Credit Agreement, the Notes
and the other Loan Documents shall remain the same. It is declared and agreed by
each of the parties hereto that the Credit Agreement, the Notes and the other
Loan Documents, each as amended hereby, shall continue in full force and effect,
and that this Agreement and the Credit Agreement, the Notes and the other Loan
Documents, as applicable, shall be read and construed as one instrument.
(c) This Agreement is intended to take effect under, and shall be construed
according to and governed by, the laws of the State of Connecticut.
(d) This Agreement may be executed in any number of counterparts, but all
such counterparts shall together constitute but one instrument. In making proof
of this Agreement it shall not be necessary to produce or account for more than
one counterpart signed by each party hereto by and against which enforcement
hereof is sought.
<PAGE>
- 10 -
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed in its name and behalf by its duly authorized officer as of the
date first written above.
IDS/JONES JOINT VENTURE PARTNERS
By: IDS/Jones Growth Partners II, L.P.,
Its Managing General Partner
By: Jones Cable Corporation,
Its Managing General Partner
By: /s/ J. Roy Pottle
-------------------------
Name: J. Roy Pottle
Title: Treasurer
Percentage FLEET NATIONAL BANK
Individually and as Agent
66 2/3%
By: /s/ Michael Cerullo
--------------------------------------
Name: Michael Cerullo
Title: Vice President
Address: 175 Water Street
New York, New York 10038
Facsimile: 212-602-2663
Percentage SOCIETE GENERALE
33 1/3%
By: /s/ Mark Vigil
-------------------------------------
Name: Mark Vigil
Title: Vice President
Address: 1221 Avenue of the Americas
New York, New York 10020
Facsimile: 212-278-6240
<PAGE>
- 11 -
Each of the undersigned acknowledges and accepts the foregoing and ratifies and
confirms in all respects its respective obligations under the Subordination
Agreements:
JONES INTERCABLE, INC.
By: /s/ J. Roy Pottle
-----------------------------
Its: VP/Treasurer
IDS MANAGEMENT CORPORATION
By: /s/ John Knight
---------------------------------
John Knight
Its: Vice President
IDS/JONES GROWTH PARTNERS 89-B, LTD.
By: Jones Cable Corporation,
Its Managing General Partner
By: /s/ J. Roy Pottle
------------------------
Name: J. Roy Pottle
Title: Treasurer
IDS/JONES GROWTH PARTNERS II, L.P.
By: Jones Cable Corporation,
Its Managing General Partner
By: /s/ J. Roy Pottle
------------------------
Name: J. Roy Pottle
Title: Treasurer
<PAGE>
- 12 -
JONES CABLE CORPORATION
By: /s/ J. Roy Pottle
---------------------------------
Its: Treasurer
IDS CABLE CORPORATION
By: /s/ John Knight
---------------------------------
John Knight
Its: Vice President
IDS CABLE II CORPORATION
By: /s/ John Knight
---------------------------------
John Knight
Its: Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 39,236
<SECURITIES> 0
<RECEIVABLES> 486,278
<ALLOWANCES> (183,205)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 42,616,023
<DEPRECIATION> (20,360,651)
<TOTAL-ASSETS> 46,258,004
<CURRENT-LIABILITIES> 3,112,532
<BONDS> 48,693,134
0
0
<COMMON> 0
<OTHER-SE> (5,547,662)
<TOTAL-LIABILITY-AND-EQUITY> 46,258,004
<SALES> 0
<TOTAL-REVENUES> 18,394,451
<CGS> 0
<TOTAL-COSTS> 22,887,515
<OTHER-EXPENSES> 127,699
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,757,477
<INCOME-PRETAX> (5,496,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,496,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,496,125)
<EPS-PRIMARY> (31.21)
<EPS-DILUTED> (31.21)
</TABLE>
