-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LbbIuPpRsf33Jz58Umo8UuOfi+P6W4lVvrKMSHUe+ktXUeEZefJrRPxHbwdDTNvI 2EwGCePTDnx9Q0g+8IRzxA== 0000927356-98-000430.txt : 19980327 0000927356-98-000430.hdr.sgml : 19980327 ACCESSION NUMBER: 0000927356-98-000430 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980326 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: JONES GROWTH PARTNERS II L P CENTRAL INDEX KEY: 0000857548 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 841126141 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-19259 FILM NUMBER: 98574721 BUSINESS ADDRESS: STREET 1: 9697 E MINERAL AVE STREET 2: P O BOX 3309 CITY: ENGLEWOOD STATE: CO ZIP: 80155 BUSINESS PHONE: 3037929191 MAIL ADDRESS: STREET 1: C/O JONES INTERCABLE INC STREET 2: 9697 E MINERAL AVE PO BOX 3309 CITY: ENGLEWOOD STATE: CO ZIP: 80155-3309 10-K405 1 FORM 10-K FOR PERIOD ENDING DECEMBER 31, 1997 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from ________ to ________ Commission file number: 0-19259 JONES GROWTH PARTNERS II L.P. ----------------------------- (Exact name of registrant as specified in its charter) Colorado 84-1126141 -------- ---------- State of Organization (IRS Employer Identification No.) P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111 - --------------------------------------------- -------------- (Address of principal executive office and Zip Code (Registrant's telephone no. including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ --- 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 --- DOCUMENTS INCORPORATED BY REFERENCE: None Certain information contained in this Form 10-K Report contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, included in this Form 10-K Report that address activities, events or developments that the Partnership or the General Partner expects, believes or anticipates will or may occur in the future are forward-looking statements. These forward-looking statements are based upon certain assumptions and are subject to a number of risks and uncertainties. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors. PART I. ------- ITEM 1. BUSINESS ------------------ THE PARTNERSHIP. 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 Spacelink Cable Corporation, a Colorado corporation, is the general partner (the "General Partner") of the Partnership. The General Partner is a wholly-owned subsidiary of Jones Intercable, Inc. ("Intercable"). Intercable is a Colorado corporation engaged in the business of owning and operating cable television systems. The Partnership owns the cable television systems serving Yorba Linda and certain portions of Anaheim Hills, all in the State of California (the "Yorba Linda System"). See Item 2. PROPOSED DISPOSITION OF THE YORBA LINDA SYSTEM. On August 16, 1996, the Partnership entered into an asset purchase agreement providing for the sale of the Yorba Linda System by the Partnership to an unaffiliated party (the "Purchaser") for a sales price of $36,000,000, subject to normal closing adjustments. The sale has been approved by the holders of a majority of the limited partnership interests in the Partnership. Closing was originally expected to occur prior to June 30, 1997; however, the Purchaser was unable to obtain by that date the approval from the City of Yorba Linda to the transfer of the Yorba Linda cable television franchise. The asset purchase agreement was amended to permit the Purchaser additional time to obtain the approval of the City of Yorba Linda. The City of Yorba Linda finally approved the the transfer of the Yorba Linda cable television system franchise to the Purchaser in March 1998, and closing of the sale now is anticipated to occur during the second quarter of 1998. Closing is subject to the satisfaction of a remaining condition, however, i.e., the termination or expiration of the statutory waiting period applicable to the asset purchase agreement and the transactions contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Given the length of time from the date of contract to the closing, the Partnership and the Purchaser are required to refile under the Hart-Scott-Rodino Act of 1976, as amended. Upon the consummation of the proposed sale of the Yorba Linda System, the Partnership will repay its outstanding indebtedness, which totaled $12,150,500 at December 31, 1997, and then the Partnership will distribute the sale proceeds, net of closing adjustments, to its limited partners. Because limited partners will not receive distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by the limited partners plus an amount equal to 8 percent per annum, cumulative and noncompounded, on an amount equal to their initial capital contributions, the General Partner will not receive any general partner distribution from the sale proceeds if the Yorba Linda System is sold. Based upon financial information as of December 31, 1997, the distribution from the sale of the Yorba Linda System will provide the limited partners of the Partnership, as a group, an estimated $24,232,417 or from $1,172 to $1,281 for each $1,000 limited partnership interest from the net proceeds of the Yorba Linda System's sale. The specific amount of a limited partner's distribution will be dependent upon a limited partner's date of investment. The Partnership will be liquidated and dissolved upon the completion of the distribution from the sale of the Yorba Linda System. CABLE TELEVISION SERVICES. The Yorba Linda 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. 2 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. The Yorba Linda 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 Yorba Linda System also offers a package that includes the basic service channels and the tier services. The Yorba Linda 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 Yorba Linda 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 Yorba Linda System. At December 31, 1997, the Yorba Linda System's monthly basic service rates ranged from $15.20 to $15.50, monthly basic and tier ("basic plus") service rate was $27.75 and monthly premium services ranged from $4.70 to $11.95 per premium service. In addition, the Partnership earns revenues from the Yorba Linda System's pay- per-view programs and advertising fees. Related charges may include a nonrecurring installation fee that ranges from $10.00 to $20.00; however, from time to time the Yorba Linda System has followed the common industry practice of reducing or waiving the installation fee during promotional periods. Commercial subscribers such as hotels, motels and hospitals are charged a nonrecurring connection fee that usually covers the cost of installation. Except under the terms of certain contracts with commercial subscribers and residential apartment and condominium complexes, the subscribers are free to discontinue the service at any time without penalty. For the year ended December 31, 1997, of the total fees received by the Yorba Linda System, basic service and tier service fees accounted for approximately 67 percent of total revenues, premium service fees accounted for approximately 11 percent of total revenues, pay-per-view fees were approximately 2 percent of total revenues, advertising fees were approximately 6 percent of total revenues and the remaining 14 percent of total revenues came principally from equipment rentals, installation fees and program guide sales. The Partnership is dependent upon the timely receipt of service fees to provide for maintenance and replacement of plant and equipment, current operating expenses and other costs of the Yorba Linda System. FRANCHISES. The Yorba Linda 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. The Yorba Linda System's franchises require that franchise fees generally based on gross revenues of the cable system be paid to the governmental authority that granted the franchise, that certain channels be dedicated to municipal use, that municipal facilities, hospitals and schools be provided cable service free of charge and that any new cable plant be substantially constructed within specific periods. The Partnership holds three franchises for the Yorba Linda System. The 1984 Cable Act prohibits franchising authorities from imposing annual franchise fees in excess of 5 percent of gross revenues and also permits the cable television system operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances. 3 The Partnership has never had a franchise revoked. The Partnership does not have any franchises that will expire prior to December 31, 1998. COMPETITION. Cable television systems currently experience competition from several sources. Broadcast Television. Cable television systems have traditionally --------------------- 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, --------------------- so that more than one cable television system may be built in the same area (known as an "overbuild"), with potential loss of revenues to the operator of the original cable television system. Intercable has experienced overbuilds in connection with certain systems that it has owned or managed for limited partnerships, and currently there are overbuilds in certain of the systems owned or managed by Intercable. 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 --- wide-scale delivery of programming to individuals throughout the United States using small roof-top or wall-mounted antennas. Several companies began offering direct broadcast satellite ("DBS") service over the last few years. Companies offering DBS service use video compression technology to increase channel capacity of their systems to 100 or more channels and to provide packages of movies, satellite network and other program services which are competitive to those of cable television systems. DBS faces technical and legal obstacles to offering its customers local broadcast programming, although at least one DBS provider is attempting to do so. In addition to emerging high-powered DBS competition, cable television systems face competition from a major medium- powered satellite distribution provider and several low-powered providers, whose service requires use of much larger home satellite dishes. Not all subscribers terminate cable television service upon acquiring a DBS system. The General Partner has observed that there are DBS subscribers that also elect to subscribe to cable television service in order to obtain the greatest variety of programming on multiple television sets, including local programming not available through DBS service. The ability of DBS service providers to compete successfully with the cable television industry will depend on, among other factors, the ability of DBS providers to overcome certain legal and technical hurdles and the availability of equipment at reasonable prices. Telephone and Utilities. Federal cross-ownership restrictions ----------------------- historically limited entry by local telephone companies into the cable television business. The 1996 Telecommunications Act (the "1996 Telecom Act") eliminated this cross-ownership restriction, making it possible for companies with considerable resources to overbuild existing cable operators and enter the business. Several telephone companies have begun seeking cable television franchises from local governmental authorities and constructing cable television systems. The General Partner cannot predict at this time the extent of telephone company competition that will emerge. The entry of telephone companies as direct competitors, however, is likely to continue over the next several years and could adversely affect the profitability and market value of cable television systems. The entry of electric utility companies into the cable television business, as now authorized by the 1996 Telecom Act, could have a similar adverse effect. The local electric utility in the Washington D.C. area recently announced plans to participate in RCN, a planned video competitor. 4 Private Cable. Additional competition is provided by private cable ------------- 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 Partnership 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 Partnership 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 ---- distribution services such as multichannel, multipoint distribution service ("MMDS") systems, commonly called wireless cable, which are licensed to serve specific areas. MMDS uses low-power microwave frequencies to transmit television programming over-the-air to paying subscribers. The MMDS industry is less capital intensive than the cable television industry, and it is therefore more practical to construct MMDS systems in areas of lower subscriber penetration. Wireless cable systems are now in direct competition with cable television systems in several areas of the country, including the system in Pima County, Arizona owned by Intercable. Telephone companies have acquired or invested in wireless companies, and may use MMDS systems to provide services within their service areas in lieu of wired delivery systems. Enthusiasm for MMDS has waned in recent months, however, as Bell Atlantic and NYNEX have suspended their investment in two major MMDS companies. To date, the Partnership has not lost a significant number of subscribers, nor a significant amount of revenue, to MMDS operators competing with the Yorba Linda System. A series of actions taken by the FCC, however, including reallocating certain frequencies to the wireless services, are intended to facilitate the development of wireless cable television systems as an alternative means of distributing video programming. In addition, Local Multipoint Distribution Services ("LMDS"), could also pose a significant threat to the cable television industry, if and when it becomes established. The potential impact, however, of LMDS is difficult to assess due to the newness of the technology and the absence of any current fully operational LMDS systems. Cable television systems are also in competition, in various degrees with other communications and entertainment media, including motion pictures and home video cassette recorders. REGULATION AND LEGISLATION - -------------------------- The operation of cable television systems is extensively regulated by the FCC, some state governments and most local governments. The new 1996 Telecom Act alters the regulatory structure governing the nation's telecommunications providers. It removes barriers to competition in both the cable television market and the local telephone market. Among other things, it also reduces the scope of cable rate regulation. The 1996 Telecom Act requires the FCC to undertake a host of implementing rulemakings, the final outcome of which cannot yet be determined. Moreover, Congress and the FCC have frequently revisited the subject of cable regulation. Future legislative and regulatory changes could adversely affect the Partnership's operations, and there has been a recent increase in calls to maintain or even tighten cable regulation in the absence of widespread effective competition. This section briefly summarizes key laws and regulations affecting the operation of the Partnership's Yorba Linda System and does not purport to describe all present, proposed, or possible laws and regulations affecting the Partnership. Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate --------------------- 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 percent) by the incumbent cable operator, appreciable penetration (more than 15 percent) by competing multichannel video providers ("MVPs"), or the presence of a competing MVP affiliated with a local telephone company. 5 Although the FCC rules control, local government units (commonly referred to as local franchising authorities or "LFAs") are primarily responsible for administering the regulation of the lowest level of cable -- the basic service tier ("BST"), which typically contains local broadcast stations and public, educational, and government ("PEG") access channels. Before an LFA begins BST rate regulation, it must certify to the FCC that it will follow applicable federal rules, and many LFAs have voluntarily declined to exercise this authority. LFAs also have primary responsibility for regulating cable equipment rates. Under federal law, charges for various types of cable equipment must be unbundled from each other and from monthly charges for programming services. The 1996 Telecom Act allows operators to aggregate costs for broad categories of equipment across geographic and functional lines. This change should facilitate the introduction of new technology. The FCC itself directly administers rate regulation of any cable programming service tiers ("CPST"), which typically contain satellite-delivered programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only if an LFA first receives at least two rate complaints from local subscribers and then files a formal complaint with the FCC. When new CPST rate complaints are filed, the FCC now considers only whether the incremental increase is justified and will not reduce the previously established CPST rate. Under the FCC's rate regulations, most cable systems were required to reduce their BST and CPST rates in 1993 and 1994, and have since had their rate increases governed by a complicated price cap scheme that allows for the recovery of inflation and certain increased costs, as well as providing some incentive for expanding channel carriage. The FCC has modified its rate adjustment regulations to allow for annual rate increases and to minimize previous problems associated with regulatory lag. Operators also have the opportunity of bypassing this "benchmark" regulatory scheme in favor of traditional "cost-of-service" regulation in cases where the latter methodology appears favorable. Premium cable services offered on a per-channel or per- program basis remain unregulated, as do affirmatively marketed packages consisting entirely of new programming product. Federal law requires that the BST be offered to all cable subscribers, but limits the ability of operators to require purchase of any CPST before purchasing premium services offered on a per-channel or per-program basis. The 1996 Telecom Act sunsets FCC regulation of CPST rates for all systems (regardless of size) on March 31, 1999. Certain critics of the cable television industry have called for a delay in the regulatory sunset and some have even urged more rigorous rate regulation in the interim, including a limit on operators passing through to their customers increased programming costs. The 1996 Telecom Act also relaxes existing uniform rate requirements by specifying that uniform rate requirements do not apply where the operator faces "effective competition," and by exempting bulk discounts to multiple dwelling units, although complaints about predatory pricing still may be made to the FCC. Cable Entry Into Telecommunications. The 1996 Telecom Act provides ----------------------------------- that no state or local laws or regulations may prohibit or have the effect of prohibiting any entity from providing any interstate or intrastate telecommunications service. States are authorized, however, to impose "competitively neutral" requirements regarding universal service, public safety and welfare, service quality, and consumer protection. State and local governments also retain their authority to manage the public rights-of-way and may require reasonable, competitively neutral compensation for management of the public rights-of-way when cable operators provide telecommunications service. The favorable pole attachment rates afforded cable operators under federal law can be gradually increased by utility companies owning the poles (beginning in 2001) if the operator provides telecommunications service, as well as cable service, over its plant. Cable entry into telecommunications will be affected by the regulatory landscape now being fashioned by the FCC and state regulators. One critical component of the 1996 Telecom Act to facilitate the entry of new telecommunications providers (including cable operators) is the interconnection obligation imposed on all telecommunications carriers. In July 1997, the Eighth Circuit Court of Appeals vacated certain aspects of the FCC's initial interconnection order. That decision is now on appeal to the U.S. Supreme Court. Telephone Company Entry Into Cable Television. The 1996 Telecom Act --------------------------------------------- allows telephone companies to compete directly with cable operators by repealing the historic telephone company/cable cross-ownership ban. 6 Local exchange carriers ("LECs"), including the BOCs, can now compete with cable operators both inside and outside their telephone service areas. Because of their resources, LECs could be formidable competitors to traditional cable operators, and certain LECs have begun offering cable service. As described above, Intercable is now witnessing the beginning of LEC competition in a few of its cable communities. Under the 1996 Telecom Act, an LEC providing video programming to subscribers will be regulated as a traditional cable operator (subject to local franchising and federal regulatory requirements), unless the LEC elects to provide its programming via an "open video system" ("OVS"). To qualify for OVS status, the LEC must reserve two-thirds of the system's activated channels for unaffiliated entities. RCN and affiliates of local power companies recently have been certified to provide OVS service in areas encompassing Intercable's cable systems in Maryland and Virginia. This OVS potential competition is not yet operational. Although LECs and cable operators can now expand their offerings across traditional service boundaries, the general prohibition remains on LEC buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable systems, cable operator buyouts of co-located LEC systems, and joint ventures between cable operators and LECs in the same market. The 1996 Telecom Act provides a few limited exceptions to this buyout prohibition, including a carefully circumscribed "rural exemption." The 1996 Telecom Act also provides the FCC with the limited authority to grant waivers of the buyout prohibition (subject to LFA approval). Electric Utility Entry Into Telecommunications/Cable Television. The --------------------------------------------------------------- 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 --------------------------------- statutory restrictions on broadcast/cable cross-ownership (including broadcast network/cable restrictions), but leaves in place existing FCC regulations prohibiting local cross-ownership between co-located television stations and cable systems. The 1996 Telecom Act also eliminates the three year holding period required under the 1992 Cable Act's "anti-trafficking" provision. The 1996 Telecom Act leaves in place existing restrictions on cable cross-ownership with SMATV and MMDS facilities, but lifts those restrictions where the cable operator is subject to effective competition. In January 1995, however, the FCC adopted regulations which permit cable operators to own and operate SMATV systems within their franchise area, provided that such operation is consistent with local cable franchise requirements. Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable system from devoting more than 40 percent of its activated channel capacity to the carriage of affiliated national program services. A companion rule establishing a nationwide ownership cap on any cable operator equal to 30 percent of all domestic cable subscribers has been stayed pending further judicial review, although the FCC recently expressed an interest in reviewing and reimposing this limit. There are no federal restrictions on non-U.S. entities having an ownership interest in cable television systems or the FCC licenses commonly employed by such systems. Section 310(b)(4) of the Communications Act does, however, prohibit foreign ownership of FCC broadcast and telephone licenses, unless the FCC concludes that such foreign ownership is consistent with the public interest. The investment of BCI Telecom Holding Inc. ("BTH") in Intercable could, therefore, adversely affect any plan to acquire FCC broadcast or common carrier licenses. The Partnership, however, does not currently plan to acquire such licenses. Must Carry/Retransmission Consent. The 1992 Cable Act contains --------------------------------- 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 7 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 Partnership's business. Additionally, cable systems are required to obtain retransmission consent for all "distant" commercial television stations (except for satellite-delivered independent "superstations" such as WGN). The burden associated with "must carry" may increase substantially if broadcasters proceed with planned conversion to digital transmission and the FCC determines that cable systems must carry all analogue and digital broadcasts in their entirety. Access Channels. LFAs can include franchise provisions requiring --------------- cable operators to set aside certain channels for public, educational and governmental access programming. Federal law also requires cable systems to designate a portion of their channel capacity (up to 15 percent in some cases) for commercial leased access by unaffiliated third parties. The FCC has adopted rules regulating the terms, conditions and maximum rates a cable operator may charge for use of the designated channel capacity, but use of commercial leased access channels has been relatively limited. The FCC released revised rules in February 1997 mandating a modest rate reduction. The reduction sparked some increase in part-time use, but did not make commercial leased access substantially more attractive to third party programmers. Certain of those programmers have now appealed the revised rules to the D.C. Court of Appeals. Should the courts and the FCC ultimately determine that an additional reduction in access rates is required, cable operators could lose programming control of a substantial number of cable channels. Access to Programming. To spur the development of independent cable --------------------- programmers and competition to incumbent cable operators, the 1992 Cable Act imposed restrictions on the dealings between cable operators and cable programmers. Of special significance from a competitive business posture, the 1992 Cable Act precludes video programmers affiliated with cable companies from favoring cable operators over competitors and requires such programmers to sell their programming to other multichannel video distributors. This provision limits the ability of vertically integrated cable programmers to offer exclusive programming arrangements to cable companies. There recently has been increased interest in further restricting the marketing practices of cable programmers, including subjecting programmers who are not affiliated with cable operators to all of the existing program access requirements. Other FCC Regulations. In addition to the FCC regulations noted --------------------- above, there are other FCC regulations covering such areas as equal employment opportunity, subscriber privacy, programming practices (including, among other things, syndicated program exclusivity, network program nonduplication, local sports blackouts, indecent programming, lottery programming, political programming, sponsorship identification, and children's programming advertisements), registration of cable systems and facilities licensing, maintenance of various records and public inspection files, frequency usage, lockbox availability, antenna structure notification, tower marking and lighting, consumer protection and customer service standards, technical standards, and consumer electronics equipment compatibility. Federal requirements governing Emergency Alert Systems and Closed Captioning adopted in 1997 will impose additional costs on the operation of cable systems. The FCC is currently considering whether cable customers must be allowed to purchase cable converters from third party vendors. If the FCC concludes that such distribution is required, and does not make appropriate allowances for signal piracy concerns, it may become more difficult for cable operators to combat theft of service. The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities used in connection with cable operations. Internet Access. Many cable operators have begun offering high speed --------------- internet service to their customers. At this time, there is no significant federal or local regulation of this service. However, as internet services develop, it is possible that new regulations could be imposed. Copyright. Cable television systems are subject to federal copyright --------- licensing covering carriage of television and radio broadcast signals. In exchange for filing certain reports and contributing a percentage of their 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 8 license is the subject of continuing legislative review and could adversely affect the Partnership'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 -------------------------- operated pursuant to nonexclusive franchises granted by a municipality or other state or local government entity in order to cross public rights-of-way. Federal law now prohibits franchise authorities from granting exclusive franchises or from unreasonably refusing to award additional franchises. Cable franchises generally are granted for fixed terms and in many cases include monetary penalties for non-compliance and may be terminable if the franchisee fails to comply with material provisions. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction. Each franchise generally contains provisions governing cable operations, service rates, franchise fees, system construction and maintenance obligations, system channel capacity, design and technical performance, customer service standards, and indemnification protections. A number of states subject cable television systems to the jurisdiction of centralized state governmental agencies, some of which impose regulation of a character similar to that of a public utility. Although LFAs have considerable discretion in establishing franchise terms, there are certain federal limitations. For example, LFAs cannot insist on franchise fees exceeding 5 percent of the system's gross revenues, cannot dictate the particular technology used by the system, and cannot specify video programming other than identifying broad categories of programming. Federal law contains renewal procedures designed to protect incumbent franchisees against arbitrary denials of renewal. Even if a franchise is renewed, the franchise authority may seek to impose new and more onerous requirements such as significant upgrades in facilities and services or increased franchise fees as a condition of renewal. Similarly, if a franchise authority's consent is required for the purchase or sale of a cable system or franchise, such authority may attempt to impose more burdensome or onerous franchise requirements in connection with a request for consent. Historically, franchises have been renewed for cable operators that have provided satisfactory services and have complied with the terms of their franchises. GENERAL. The Partnership'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 Partnership's business. The Yorba Linda 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 Yorba Linda System is not significant. The Partnership's policy with regard to past due accounts is basically one of disconnecting service before a past due account becomes material. The Partnership does not depend to any material extent on the availability of raw materials; it carries no significant amounts of inventory and it has no material backlog of customer orders. The Partnership does not have any employees because all properties are managed by employees of Intercable. Intercable has engaged in research and development activities relating to the provision of new services but the amount of the Partnership's funds expended for such research and development has never been material. Compliance with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has had no material effect upon the capital expenditures, earnings or competitive position of the Partnership. ITEM 2. PROPERTIES ------------------- The Partnership acquired the Yorba Linda System in April 1992. The following sets forth (i) the monthly basic plus service rates charged to subscribers and (ii) the number of basic subscribers and pay units for 9 the Yorba Linda 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 Yorba Linda System. In cable television systems, basic subscribers can subscribe to more than one pay TV service. Thus, the total number of pay services subscribed to by basic subscribers are called pay units. As of December 31, 1997, the Yorba Linda System operated cable plant passing approximately 23,300 homes, with an approximate 75 percent penetration rate. Figures for numbers of subscribers, miles of cable plant and homes passed are compiled from the General Partner's records and may be subject to adjustments. At December 31, ----------------------------- YORBA LINDA SYSTEM 1997 1996 1995 - ------------------ ------- ------- ------- Monthly basic plus service rate $ 27.75 $ 26.50 $ 24.77 Basic subscribers 17,530 17,173 16,611 Pay units 11,057 10,960 10,295 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's interests are publicly held, there is no established public market for the interests, and it is not expected that such a market will develop in the future. As of February 16, 1998, the number of equity security holders in the Partnership was 2,302. 10 ITEM 6. SELECTED FINANCIAL DATA - -------------------------------
For the Year Ended December 31, -------------------------------------------------------------------- 1997 1996 1995 1994 1993 ------------ ------------ ------------ ------------ ------------ Revenues $ 8,217,768 $ 7,696,684 $ 6,903,528 $ 6,345,871 $ 6,198,092 Depreciation and Amortization 3,707,100 3,948,250 3,654,998 3,444,027 3,287,050 Operating Loss (710,060) (1,450,569) (1,596,455) (1,538,783) (1,316,141) Net Loss (656,827) (2,371,593) (2,553,640) (2,264,142) (1,912,873) Net Loss per Limited Partnership Unit (32.87) (118.67) (127.78) (113.29) (95.72) Weighted Average Number of Limited Partner Units Outstanding 19,785 19,785 19,785 19,785 19,785 General Partner's Deficit (108,633) (102,065) (78,349) (52,813) (30,172) Limited Partners' Capital 6,225,944 6,876,203 9,224,080 11,752,184 13,993,685 Total Assets 19,023,585 20,463,992 22,683,846 23,964,837 26,502,620 Credit Facility and Other Debt 12,150,500 12,821,077 12,754,960 11,247,350 11,547,919 General Partner Advances - - - 71,270 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------- ----------------------------------------------------------------------- OF OPERATIONS ------------- The following discussion of Jones Growth Partners II L.P.'s (the "Partnership") financial condition and results of operations 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 actual results may differ significantly from the results predicted in such forward-looking statements. FINANCIAL CONDITION - ------------------- On August 16, 1996, the Partnership entered into an asset purchase agreement providing for the sale of the Yorba Linda System by the Partnership to an unaffiliated party (the "Purchaser") for a sales price of $36,000,000, subject to normal closing adjustments. The sale has been approved by the holders of a majority of the limited partnership interests in the Partnership. Closing was originally expected to occur prior to June 30, 1997; however, the Purchaser was unable to obtain by that date the approval from the City of Yorba Linda to the transfer of the Yorba Linda cable television franchise. The asset purchase agreement was amended to permit the Purchaser additional time to obtain the approval of the City of Yorba Linda. The City of Yorba Linda finally approved the transfer of the Yorba Linda cable television franchise to the Purchaser in March 1998, and closing of the sale is anticipated to occur during the second quarter of 1998. Closing is subject to the satisfaction of a remaining condition, however, i.e., the termination or expiration of the statutory waiting period applicable to the asset purchase agreement and the transactions contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Given the length of time from the date of contract to the closing, the Partnership and the Purchaser are required to refile under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended. Upon the consummation of the proposed sale of the Yorba Linda System, the Partnership will repay its outstanding indebtedness, which totaled $12,150,500 at December 31, 1997, and then the Partnership will distribute the sale proceeds, net of closing adjustments, to its limited partners. Because limited partners will not receive distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by the limited partners plus an amount equal to 8 percent per annum, cumulative and noncompounded, on an amount equal to their initial capital contributions, the General Partner will not receive a General Partner distribution from the sale proceeds if the Yorba Linda System is sold. Based upon financial information as of December 31, 1997, the distribution from the sale of the Yorba Linda System will provide the limited partners of the Partnership, as a group, an estimated $24,232,417 or from $1,172 to $1,281 for each $1,000 limited partnership interest from the net proceeds of the Yorba Linda System's sale. The specific amount of a limited partner's distribution will be dependent upon a limited partner's date of investment. The Partnership will be liquidated and dissolved upon the completion of the distribution from the sale of the Yorba Linda System. 11 For the year ended December 31, 1997, the Partnership generated net cash from operating activities totaling $2,868,668 which is available to fund capital expenditures and non-operating costs. The Partnership's capital expenditures for 1997 totaled approximately $1,713,000. Approximately 35 percent of these expenditures was for the construction of service drops to subscribers homes. Approximately 17 percent of these expenditures was for new plant construction related to new homes passed and approximately 12 percent of these expenditures was for the purchase of converters. The remainder of the expenditures was used to maintain the value of the Yorba Linda System. Such expenditures were funded from cash generated from operations. Budgeted capital expenditures for 1998 are expected to be approximately $768,400 and will be financed principally from cash on hand and cash generated from operations. As a result of the pending sale of the Yorba Linda System, capital expenditures for 1998 will be only for various enhancements necessary to maintain the value of the Yorba Linda System until it is sold. Depending upon the timing of the closing of the sale of the Yorba Linda System, the Partnership likely will make only the portion of budgeted capital expenditures scheduled to be made during the Partnership's continued ownership of the Yorba Linda System. As of December 31, 1997, $12,150,500 was outstanding under the Partnership's term loan agreement, which is payable in 24 consecutive quarterly installments that began on March 31, 1997 with a final maturity date of December 31, 2002. A total of $639,500 in principal payments was paid as of December 31, 1997 and were funded primarily from cash generated from operations. A total of $1,279,000 in principal payments is due in 1998 and will be funded primarily from cash generated from operations. The loan will be repaid in full when the Yorba Linda System is sold. Generally, the interest on the outstanding principal balance is at the Partnership's option of the Prime rate plus 1/4 percent to 1/2 percent, or the Eurodollar option plus 1-1/4 percent to 1-1/2 percent, depending upon the ratio of the partnership debt to operating cash flow. The effective interest rates on amounts outstanding as of December 31, 1997 and 1996 were 7.16 percent and 6.75 percent, respectively. The Partnership will rely on cash on hand, cash generated from operations and, if necessary, and in its discretion, advances from the General Partner to fund capital expenditures and other liquidity needs of the Partnership for the next year. Year 2000 Issue - --------------- The Year 2000 issue is the result of many computer programs being written such that they will malfunction when reading a year of "00." This problem could cause system failure or miscalculations causing disruptions of business processes. The General Partner has initiated an assessment of its computer applications to determine the extent of the problem. Based on this assessment, the General Partner has determined that the majority of its computer applications supporting business processes, including accounting and billing, are designed to handle the Year 2000 appropriately. The General Partner is currently focusing its efforts on the impact of the Year 2000 issue on service delivery. The General Partner has established an internal team to address this issue. The General Partner is identifying and testing all date-sensitive equipment involved in delivering service to the Partnership's customers. In addition, the General Partner will assess its options regarding repair or replacement of affected equipment during this testing. The General Partner currently has no definitive estimate of the cost or the extent of the impact, if any, this problem will have on service delivery; however, the General Partner does not believe that the impact will be material. The General Partner anticipates completion of its testing in 1998, at which time it will determine the financial impact on the Partnership. The General Partner expects that the financial impact on the Partnership of the Year 2000 issue likely will not be material because the General Partner anticipates that the Partnership will be liquidated before the year 2000. RESULTS OF OPERATIONS - --------------------- 1997 Compared to 1996- Revenues of the Partnership increased $521,084, or approximately 7 percent, to $8,217,768 in 1997 compared to $7,696,684 in 1996. The increase in revenues was primarily due to basic service rate increases and an increase in the number of basic subscribers. Basic service rate increases accounted for approximately 35 percent of the increase in revenues and an increase in the number of basic subscribers accounted for approximately 26 percent of the increase in revenues for the year ended December 31, 1997. The number of basic subscribers increased 357, or approximately 2 percent, to 17,530 subscribers at December 31, 1997 from 17,173 subscribers at December 31, 1996. An increase in 12 converter and cable remote rental revenues accounted for approximately 15 percent of the increase in revenues. No other individual factor was significant to the increase in revenues. Operating expenses consist primarily of costs associated with the administration of the Partnership's cable television systems. 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 $10,810, or less than 1 percent, to $4,295,745 in 1997 from $4,284,935 in 1996. Operating expenses represented approximately 52 percent and 56 percent of revenues in 1997 and 1996, respectively. The cable television industry generally measures the financial performance of a cable television system in terms of operating cash flow (revenues less operating expenses). This measure is not intended to be a substitute or improvement upon the items disclosed on the financial statements, rather it is included because it is an industry standard. Operating cash flow increased $510,274, or approximately 15 percent, to $3,922,023 in 1997 from $3,411,749 in 1996. The increase was due to the increase in revenues exceeding the increase in operating expenses. Management fees and allocated overhead from the General Partner increased $10,915, or approximately 1 percent, to $924,983 in 1997 from $914,068 in 1996. This increase was primarily a result of the increase in revenues, upon which such management fees are based, which was partially offset by a decrease in allocated overhead from the General Partner. Depreciation and amortization expense decreased $241,150, or approximately 6 percent, to $3,707,100 in 1997 from $3,948,250 in 1996. This decrease in depreciation and amortization expense was due to the maturation of a portion of the Partnership's depreciable asset base. Operating loss decreased $740,509, or approximately 51 percent, to $710,060 in 1997 from $1,450,569 in 1996. This decrease was due to the increase in operating cash flow and the decrease in depreciation and amortization expense. Interest expense decreased $51,165, or approximately 6 percent, to $853,502 in 1997 from $904,667 in 1996. The decrease was primarily due to lower outstanding balances on interest bearing obligations during 1997. The Partnership reported other income of $906,735 in 1997 compared to other expense of $16,357 in 1996. This change was a result of a property tax refund received in 1997. Net loss decreased $1,714,766, or approximately 72 percent, to $656,827 in 1997 from $2,371,593 in 1996. This change was a result of the factors discussed above. 1996 Compared to 1995- Revenues of the Partnership increased $793,156, or approximately 11 percent, to $7,696,684 in 1996 compared to $6,903,528 in 1995. The increase in revenues was primarily due to basic service rate increases and an increase in the number of basic subscribers. Basic service rate increases accounted for approximately 35 percent of the increase in revenues and an increase in the number of basic subscribers accounted for approximately 21 percent of the increase in revenues for the year ended December 31, 1996. The number of basic subscribers increased 562, or approximately 3 percent, to 17,173 subscribers at December 31, 1996 from 16,611 subscribers at December 31, 1995. An increase in converter and cable remote rental revenues accounted for approximately 19 percent of the increase in revenues. No other individual factor was significant to the increase in revenues. Operating expenses increased $276,768, or approximately 7 percent, to $4,284,935 in 1996 from $4,008,167 in 1995. Operating expenses represented approximately 56 percent and 58 percent of revenues in 1996 and 1995, respectively. The increase in operating expenses was primarily due to increases in programming costs. No other individual factor significantly affected the increase in operating expenses. Operating cash flow increased $516,388, or approximately 18 percent, to $3,411,749 in 1996 from $2,895,361 in 1995. The increase was due to the increase in revenues exceeding the increase in operating expenses. 13 Management fees and allocated administrative costs from the General Partner increased $77,250, or approximately 9 percent, to $914,068 in 1996 from $836,818 in 1995. This increase was primarily a result of the increase in revenues, upon which such management fees and allocated administrative costs are based. Depreciation and amortization expense increased $293,252, or approximately 8 percent, to $3,948,250 in 1996 from $3,654,998 in 1995. This increase in depreciation and amortization expense was attributable to additions to the Partnership's depreciable asset base. Operating loss decreased $145,886, or approximately 9 percent, to $1,450,569 in 1996 from $1,596,455 in 1995. This decrease was due to the increase in operating cash flow exceeding the increases in depreciation and amortization expense. Interest expense decreased $54,617, or approximately 6 percent, to $904,667 in 1996 from $959,284 in 1995. The decrease was primarily due to lower effective interest rates on outstanding obligations during 1996. Net loss decreased $182,047, or approximately 7 percent, to $2,371,593 in 1996 from $2,553,640 in 1995. The decrease was a result of the factors discussed above. ITEM 8. FINANCIAL STATEMENTS - ----------------------------- The audited financial statements for the Partnership for the year ended December 31, 1997 follow. 14 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Partners of Jones Growth Partners II L.P.: We have audited the accompanying balance sheets of Jones Growth Partners II L.P. (a Colorado limited partnership) as of December 31, 1997 and 1996, and the related statements of operations, partners' capital (deficit) and cash flows for the three years in the period ended December 31, 1997. These financial statements are the responsibility of the 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 Jones Growth Partners II L.P. as of December 31, 1997 and 1996, and the results of its operations and its cash flows for the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, March 13, 1998. 15 JONES GROWTH PARTNERS II L.P. ----------------------------- (A Limited Partnership) BALANCE SHEETS --------------
December 31, -------------------------- ASSETS 1997 1996 ------ ------------ ------------ CASH $ 692,589 $ 210,331 TRADE RECEIVABLES, less allowance for doubtful receivables of $14,081 and $32,132 at December 31, 1997 and 1996, respectively 179,261 180,326 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 19,916,370 18,203,037 Less - accumulated depreciation (8,649,910) (6,660,530) ----------- ----------- 11,266,460 11,542,507 Franchise costs and other intangible assets, net of accumulated amortization of $11,212,324 and $9,587,058 at December 31, 1997 and 1996, respectively 6,678,064 8,300,830 ----------- ----------- Total investment in cable television properties 17,944,524 19,843,337 DEBT PLACEMENT COSTS, net of accumulated amortization of $213,332 and $175,960 at December 31, 1997 and 1996, respectively 70,073 107,445 DEPOSITS, PREPAID EXPENSES AND OTHER 137,138 122,553 ----------- ----------- Total assets $19,023,585 $20,463,992 =========== ===========
The accompanying notes to financial statements are an integral part of these balance sheets. 16 JONES GROWTH PARTNERS II L.P. ----------------------------- (A Limited Partnership) BALANCE SHEETS --------------
December 31, -------------------------- LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1997 1996 ------------ ----------- LIABILITIES: Credit facility and other debt $ 12,150,500 $12,821,077 Trade accounts payable and accrued liabilities 488,610 546,347 Subscriber prepayments and deposits 267,164 322,430 ------------ ----------- Total liabilities 12,906,274 13,689,854 ------------ ----------- COMMITMENTS AND CONTINGENCIES (NOTE 7) PARTNERS' CAPITAL (DEFICIT): General Partner- Contributed capital 1,000 1,000 Accumulated deficit (109,633) (103,065) ------------ ----------- (108,633) (102,065) ------------ ----------- Limited Partners- Contributed capital, net of related commissions, syndication costs and interest distribution (19,785 units outstanding at December 31, 1997 and 1996, respectively) 16,746,882 16,746,882 Accumulated deficit (10,520,938) (9,870,679) ------------ ----------- 6,225,944 6,876,203 ------------ ----------- Total partners' capital (deficit) 6,117,311 6,774,138 ------------ ----------- Total liabilities and partners' capital (deficit) $ 19,023,585 $20,463,992 ============ ===========
The accompanying notes to financial statements are an integral part of these balance sheets. 17 JONES GROWTH PARTNERS II L.P. ----------------------------- (A Limited Partnership) STATEMENTS OF OPERATIONS ------------------------
For the Year Ended December 31, -------------------------------------- 1997 1996 1995 ---------- ----------- ----------- REVENUES $8,217,768 $ 7,696,684 $ 6,903,528 COSTS AND EXPENSES: Operating expenses 4,295,745 4,284,935 4,008,167 Management fees to the General Partner and allocated overhead from Jones Intercable, Inc. 924,983 914,068 836,818 Depreciation and amortization 3,707,100 3,948,250 3,654,998 ---------- ----------- ----------- OPERATING LOSS (710,060) (1,450,569) (1,596,455) OTHER INCOME (EXPENSE): Interest expense (853,502) (904,667) (959,284) Other, net 906,735 (16,357) 2,099 ---------- ----------- ----------- Total other income (expense) 53,233 (921,024) (957,185) ---------- ----------- ----------- NET LOSS $ (656,827) $(2,371,593) $(2,553,640) ========== =========== =========== ALLOCATION OF NET LOSS: General Partner $ (6,568) $ (23,716) $ (25,536) ========== =========== =========== Limited Partners $ (650,259) $(2,347,877) $(2,528,104) ========== =========== =========== NET LOSS PER LIMITED PARTNERSHIP UNIT $ (32.87) $(118.67) $(127.78) ========== =========== =========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 19,785 19,785 19,785 ========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 18 JONES GROWTH PARTNERS II L.P. ----------------------------- (A Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) -----------------------------------------
For the Year Ended December 31, -------------------------------------- 1997 1996 1995 ---------- ----------- ----------- GENERAL PARTNER: Balance, beginning of year $ (102,065) $ (78,349) $ (52,813) Net loss for the year (6,568) (23,716) (25,536) ---------- ----------- ----------- Balance, end of year $ (108,633) $ (102,065) $ (78,349) ========== =========== =========== LIMITED PARTNERS: Balance, beginning of year $6,876,203 $ 9,224,080 $11,752,184 Net loss for the year (650,259) (2,347,877) (2,528,104) ---------- ----------- ----------- Balance, end of year $6,225,944 $ 6,876,203 $ 9,224,080 ========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 19 JONES GROWTH PARTNERS II L.P. ----------------------------- (A Limited Partnership) STATEMENTS OF CASH FLOWS ------------------------
For the Year Ended December 31, --------------------------------------- 1997 1996 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (656,827) $(2,371,593) $(2,553,640) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 3,707,100 3,948,250 3,654,998 Amortization of interest rate protection contract - - 22,628 Decrease in trade accounts receivable 1,065 55,641 102,924 Decrease (increase) in deposits, prepaid expenses and other (69,667) 61,028 (3,773) Increase (decrease) in trade accounts payable and accrued liabilities and subscriber prepayments and deposits (113,003) 85,622 (234,961) ----------- ----------- ----------- Net cash provided by operating activities 2,868,668 1,778,948 988,176 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Franchise renewal costs (2,500) - - Purchase of plant and equipment, net (1,713,333) (1,694,997) (2,496,654) ----------- ----------- ----------- Net cash used in investing activities (1,715,833) (1,694,997) (2,496,654) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 24,559 199,517 2,196,455 Repayment of borrowings (695,136) (133,400) (688,845) ----------- ----------- ----------- Net cash provided by (used in) financing activities (670,577) 66,117 1,507,610 ----------- ----------- ----------- INCREASE (DECREASE) IN CASH 482,258 150,068 (868) CASH, BEGINNING OF YEAR 210,331 60,263 61,131 ----------- ----------- ----------- CASH, END OF YEAR $ 692,589 $ 210,331 $ 60,263 =========== =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 944,736 $ 953,526 $ 927,817 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 20 JONES GROWTH PARTNERS II L.P. ----------------------------- (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) ORGANIZATION AND PARTNERS' INTERESTS: ------------------------------------ Formation and Business ---------------------- Jones Growth Partners II L.P. (the "Partnership"), a Colorado limited partnership, was formed on March 27, 1991, pursuant to a public offering of limited partnership interests sponsored by Jones Spacelink Cable Corporation (the "General Partner"). The Partnership was formed to acquire, construct, develop and operate cable television systems. The General Partner is a wholly owned subsidiary of Jones Intercable, Inc. ("Intercable"), a Colorado corporation. The General Partner and certain of its affiliates also own and operate cable television systems for their own account and for the account of other managed limited partnerships. Contributed Capital ------------------- The capitalization of the Partnership is set forth in the accompanying statements of partners' capital (deficit). No limited partner is obligated to make any additional contributions to Partnership capital. The General Partner purchased its general partner interest in the Partnership by contributing $1,000 to Partnership capital. Cable Television System Acquisition ----------------------------------- On April 17, 1992, the Partnership purchased the cable television system serving the areas in and around the communities of Yorba Linda, certain portions of Anaheim Hills, and certain portions of unincorporated Orange County, all in the State of California (the "Yorba Linda System"). All profits and losses of the Partnership are allocated 99 percent to the limited partners and 1 percent to the 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's 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. Cable Television System Sale ---------------------------- On August 16, 1996, the Partnership entered into an asset purchase agreement providing for the sale of the Yorba Linda System by the Partnership to an unaffiliated party (the "Purchaser") for a sales price of $36,000,000, subject to normal closing adjustments. The sale has been approved by the holders of a majority of the limited partnership interests in the Partnership. Closing was originally expected to occur prior to June 30, 1997; however, the Purchaser was unable to obtain by that date the approval from the City of Yorba Linda to the transfer of the Yorba Linda cable television franchise. The asset purchase agreement was amended to permit the Purchaser additional time to obtain the approval of the City of Yorba Linda. The City of Yorba Linda finally approved the transfer of the Yorba Linda cable television franchise to the Purchaser in March 1998, and closing of the sale is anticipated to occur during the second quarter of 1998. Closing is subject to the satisfaction of a remaining condition, however, i.e., the termination or expiration of the statutory waiting period applicable to the asset purchase agreement and the transactions contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. Given the length of time from the date of contract to the closing, the Partnership and the Purchaser are required to refile under the Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended. Upon the consummation of the proposed sale of the Yorba Linda System, the Partnership will repay its outstanding indebtedness, which totaled $12,150,500 at December 31, 1997, and then the Partnership will distribute the sale proceeds, net of closing adjustments, to its limited partners. Because limited partners will not receive distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by the limited partners plus an amount equal to 8 percent per annum, cumulative and noncompounded, on an amount equal to their initial capital contributions, the General Partner will not receive a General Partner distribution from the sale proceeds if the Yorba Linda System is sold. Based upon financial information as of December 31, 1997, the distribution from the sale of the Yorba Linda System will 21 provide the limited partners of the Partnership, as a group, an estimated $24,232,417 or from $1,172 to $1,281 for each $1,000 limited partnership interest from the net proceeds of the Yorba Linda System's sale. The specific amount of a limited partner's distribution will be dependent upon a limited partner's date of investment. The Partnership will be liquidated and dissolved upon the completion of the distribution from the sale of the Yorba Linda System. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: ------------------------------------------ Accounting Records ------------------ The accompanying 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. Cash and Cash Equivalents ------------------------- Cash and cash equivalents include cash on hand, amounts held in banks and highly liquid investments with a maturity at purchase of three months or less. Property, Plant and Equipment ----------------------------- Depreciation of property, plant and equipment is provided using the straight-line method over the following estimated service lives: Cable distribution systems 5 - 15 years Equipment and tools 5 - 7 years Office furniture and equipment 3 - 5 years Buildings 30 years Vehicles 3 - 4 years Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred. Property, plant and equipment and the corresponding accumulated depreciation are written off as certain assets become fully depreciated and are no longer in service. Allocation of Cost of Purchased Cable Television Systems -------------------------------------------------------- Based on an independent appraisal, the Partnership allocated the total purchase price of the Yorba Linda System acquired as follows: first, to the fair value of net tangible assets acquired; second, to franchise costs in an amount equal to the estimated value of franchise agreements; third, to subscriber lists; fourth, to the noncompete agreement; and fifth, to costs in excess of interests in net assets purchased. The brokerage fee paid to an affiliate of the General Partner upon acquisition of the Yorba Linda System and other acquisition costs were capitalized and charged to investment in cable television properties in the accompanying balance sheets. Intangible Assets ----------------- Costs assigned to intangible assets are being amortized using the straight-line method over the following remaining estimated useful lives: Franchise costs 2 - 5 years Subscriber lists 1 year Costs in excess of interests in net assets purchased 34 years 22 Revenue Recognition ------------------- Subscriber prepayments are initially deferred and recognized as revenue when earned. Reclassifications ----------------- Certain prior year amounts have been reclassified to conform to the 1997 presentation. (3) TRANSACTIONS WITH THE GENERAL PARTNER AND CERTAIN OF ITS AFFILIATES: ------------------------------------------------------------------- Management Fees, Distribution Ratios and Reimbursements ------------------------------------------------------- The General Partner manages the Partnership and receives a fee for its services equal to five percent of the gross revenues of the Partnership, excluding revenues from the sale of cable television systems or franchises. Management fees paid to the General Partner by the Partnership for the years ended December 31, 1997, 1996 and 1995 were $410,888, $384,834 and $345,176, 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 generally allocated 99 percent to the limited partners and one percent to the General Partner. Any distributions other than from cash flow are generally made as follows: first, to the limited partners in an amount which, together with all prior distributions made from sources other than cash flow, will equal the amount initially contributed to partnership capital by the limited partners; second, to the limited partners an amount equal to eight percent per annum, cumulative and noncompounded, on an amount equal to their initial capital contributions (less any portion of such initial capital contributions returned by the distribution to limited partners from prior sale or refinancing proceeds) provided, however, that the eight percent return will be reduced by all prior distributions of cash flow from the partnership and prior distributions of proceeds of sales or refinancings that exceed an amount equal to the limited partner's initial capital contributions; third, any remaining distribution shall be allocated 80 percent to the limited partners and 20 percent to the General Partner until the limited partners have received 250 percent of their initial capital contribution, after which any remaining distribution shall be allocated 75 percent to the limited partners and 25 percent to the General Partner. The Partnership reimburses the General Partner and certain of its affiliates for certain allocated general and administrative costs. These expenses represent the salaries and related benefits paid for corporate personnel, office rent and related facilities expense. Such personnel provide engineering, marketing, administrative, accounting, legal, and investor relations services to the Partnership. Such services, and their related costs, are necessary to the operation of the Partnership and would have been incurred by the Partnership, if it was a stand alone entity. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner and certain of its affiliates with respect to each partnership managed. Remaining expenses are allocated based upon the pro rata relationship of the Partnership's revenues to the total revenues of all cable television systems owned or managed by the General Partner and certain of its affiliates. Systems owned by Intercable and all other systems owned by partnerships for which Intercable is the general partner are also allocated a proportionate share of these expenses. The General Partner believes that the methodology used in allocating general and administrative costs is reasonable. Reimbursements by the Partnership to the General Partner for allocated general and administrative costs for the years ended December 31, 1997, 1996 and 1995 were $514,095, $529,234 and $491,642, respectively. The Partnership is charged interest at a rate which approximates the General Partner's weighted average cost of borrowing on any amounts due the General Partner. No interest was charged to the Partnership by the General Partner in 1997 and 1996. Interest charged to the Partnership by the General Partner totaled $10,802 during 1995. Payments to/from Affiliates for Programming Services ---------------------------------------------------- The Partnership receives or has received programming from Knowledge TV, Inc., Jones Computer Networks, Ltd., Great American Country, Inc. and Product Information Network, all of which are affiliates of Intercable. Payments to Knowledge TV, Inc. for the years ended December 31, 1997, 1996 and 1995 totaled $12,730, $11,408 and $10,072, respectively. Payments to Jones Computer Networks, Ltd., whose service was discontinued in April 1997, for the years ended December 31, 1997, 1996 and 1995 totaled $8,430, $22,704 and $20,037, respectively. Payments to Great American Country, Inc., which initiated service in 1996, totaled $13,460 and $14,534 in 1997 and 1996, respectively. 23 The Partnership 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 Partnership totaling $25,117, $17,958 and $14,601 for the years ended December 31, 1997, 1996 and 1995, respectively. (4) PROPERTY, PLANT AND EQUIPMENT: ----------------------------- Property, plant and equipment as of December 31, 1997 and 1996, consisted of the following: 1997 1996 ----------- ----------- Cable distribution system $18,075,204 $16,754,013 Equipment and tools 901,956 882,404 Office furniture and equipment 572,536 231,780 Buildings 9,568 7,093 Vehicles 357,106 327,747 ----------- ----------- 19,916,370 18,203,037 Less: accumulated depreciation (8,649,910) (6,660,530) ----------- ----------- $11,266,460 $11,542,507 =========== =========== (5) 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 General Partner. The Partnership's tax returns, the qualification of the Partnership as such for tax purposes, and the amount of distributable 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 Partner and limited partners would likely be changed accordingly. Taxable income or loss to 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 income or loss and the net income or loss reported in the statements of operations. (6) DEBT: ---- As of December 31, 1997, $12,150,500 was outstanding under the Partnership's term loan agreement, which is payable in 24 consecutive quarterly installments that began on March 31, 1997 with a final maturity date of December 31, 2002. A total of $639,500 in principal payments was paid as of December 31, 1997 and were funded primarily from cash generated from operations. A total of $1,279,000 in principal payments is due in 1998 and will be funded primarily from cash generated from operations. The loan will be repaid in full when the Yorba Linda System is sold. Generally, the interest on the outstanding principal balance is at the Partnership's option of the Prime rate plus 1/4 percent to 1/2 percent, or the Eurodollar option plus 1-1/4 percent to 1-1/2 percent, depending upon the ratio of the partnership debt to operating cash flow. The effective interest rates on amounts outstanding as of December 31, 1997 and 1996 were 7.16 percent and 6.75 percent, respectively. 24 The Partnership's debt consists of the following: December 31, ------------------------ 1997 1996 ----------- ----------- Lending institutions- Term loan facility $12,150,500 $12,790,000 Capitalized lease obligations - 31,077 ----------- ----------- $12,150,500 $12,821,077 =========== =========== Maturities of the revolving credit and term loan facility and capital lease obligations for each of the five years in the period ended December 31, 2002 and thereafter are as follows: 1998 $1,279,000 1999 1,918,500 2000 2,558,000 2001 3,197,500 2002 3,197,500 Thereafter - ---------- $12,150,500 =========== At December 31, 1997, the carrying amount of the Partnership's long- term debt did not differ significantly from the estimated fair value of the financial instruments. The fair value of the Partnership'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. (7) COMMITMENTS AND CONTINGENCIES: ----------------------------- The Partnership rents office and other facilities under various long- term lease arrangements. Rent paid under such lease arrangements totaled $79,528, $91,128 and $67,319 for the years ended December 31, 1997, 1996 and 1995, respectively. Future minimum lease payments, as of December 31, 1997, under noncancelable operating leases for each of the five years in the period ending December 31, 2002, and thereafter are as follows: 1998 $ 2,683 1999 2,683 2000 2,683 2001 2,138 2002 500 Thereafter 500 ------- Total future minimum lease payments $11,187 ======= 25 (8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION: ----------------------------------------- Supplementary profit and loss information is presented below: Year Ended December 31, ---------------------------------- 1997 1996 1995 ---------- ---------- ---------- Maintenance and repairs $ 57,498 $ 54,488 $ 56,020 ========== ========== ========== Taxes, other than income and payroll taxes $ 166,731 $ 243,492 $ 377,866 ========== ========== ========== Advertising costs $ 35,695 $ 56,369 $ 65,335 ========== ========== ========== Depreciation of property, plant and equipment $2,039,518 $1,975,441 $1,549,530 ========== ========== ========== Amortization of intangible assets $1,667,582 $1,972,809 $2,105,468 ========== ========== ========== 26 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 General Partner is set forth below. Directors of the General Partner serve until the next annual meeting of the General Partner and until their successors shall be elected and qualified.
Name Age Positions with the General Partner ---- --- ---------------------------------- Glenn R. Jones 68 Chairman of the Board and Chief Executive Officer James B. O'Brien 48 President Ruth E. Warren 48 Vice President/Operations Elizabeth M. Steele 46 Vice President and Secretary Kevin P. Coyle 46 Vice President/Finance Larry W. Kaschinske 38 Controller
Mr. Glenn R. Jones has served as Chief Executive Officer of the General Partner since its inception in November 1988. 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 the subsidiaries of Jones Intercable, Inc. and of certain other affiliates of Jones Intercable, Inc.. Mr. Jones has been involved in the cable television business in various capacities since 1961, is a member of the Board of Directors and the Executive Committee of the National Cable Television Association. In addition, Mr. Jones is a member of the Board of 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 the General Partner'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 appointed President of the General Partner in January 1995. Mr. O'Brien joined Jones Intercable, Inc. in January 1982. Prior to being elected President and a Director of Jones Intercable, Inc. in December 1989, Mr. O'Brien served as a division manager, director of operations planning/assistant to the CEO, Fund Vice President and Group Vice President/Operations. Mr. O'Brien was appointed to Jones Intercable, Inc.'s Executive Committee in August 1993. As President, he is responsible for the day-to-day operations of the cable television systems managed and owned by Jones Intercable, Inc. Mr. O'Brien is a board member of Cable Labs, Inc., the research arm of the U.S. cable television industry. He also serves as Chairman 27 of the Board of Directors of the Cable Television Administration and Marketing Association and as a director and member of the Executive Committee of the Walter Kaitz Foundation, a foundation that places people of ethnic minority groups in positions with cable television systems, networks and vendor companies. Ms. Ruth E. Warren, the General Partner's Vice President/Operations, joined Jones Intercable, Inc. in August 1980 and has served in various operational capacities, including system manager and Fund Vice President, since then. Ms. Warren was elected Group Vice President/Operations of Jones Intercable, Inc. in September 1990. Ms. Elizabeth M. Steele, the General Partner's Vice President and Secretary, 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.. Mr. Kevin P. Coyle was appointed Vice President/Finance of the General Partner in March 1995. Mr. Coyle joined The Jones Group, Ltd. in July 1981 as Vice President/Financial Services. In September 1985, he was appointed Senior 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 and Chief Financial Officer in October 1990. Mr. Larry Kaschinske was appointed Controller of the General Partner in March 1995. Mr. Kaschinske joined Jones Intercable, Inc. in 1984 as a staff accountant in Jones Intercable, Inc.'s former Wisconsin Division; was promoted to Assistant Controller in 1990 and named Controller in August 1994. ITEM 11. EXECUTIVE COMPENSATION -------------------------------- The Partnership has no employees; however, various personnel are required to operate the Yorba Linda System. Such personnel are employed by Intercable and, pursuant to the terms of the limited partnership agreement of the Partnership, the cost of such employment is charged by Intercable to the Partnership as a direct reimbursement item. See Item 13. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS ---------------------------------------------------------------------- As of February 16, 1998, no person or entity owned more than 5 percent of the limited partnership interests of the Partnership, except for the Naomi Ruth Wilden Trust, which owned 1,000 units of limited partnership interests, representing 5.05 percent of the outstanding limited partnership interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -------------------------------------------------------- The General Partner and its affiliates engage in certain transactions with the Partnership as contemplated by the limited partnership agreement of the Partnership. The 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 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 GENERAL PARTNER The General Partner charges a 5 percent management fee, and the Partnership reimburses Intercable, the parent of the 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 corporate facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor 28 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. Intercable also advances funds to the Partnership from time to time and charges interest on the balance payable. The interest rate charged approximates Intercable's weighted average cost of borrowing. TRANSACTIONS WITH AFFILIATES Knowledge TV, Inc., a company owned 67 percent by Jones Education Group, Ltd., 7 percent by Mr. Jones and 26 percent by Intercable, operates the television network JEC Knowledge TV. JEC Knowledge TV provides programming related to computers and technology; business, careers and finance; health and wellness; and global culture and languages. Knowledge TV, Inc. sells its programming to the Yorba Linda System. Jones Computer Network, Ltd., a wholly owned subsidiary of Jones Education Group, Ltd., a company owned 64 percent by Jones International, Ltd., 16 percent by Intercable, 12 percent by BTH and 8 percent by Mr. Jones, operated the television network, Jones Computer Network. This network provided programming focused primarily on computers and technology. Jones Computer Network sold its programming to the Yorba Linda System. Jones Computer Network, Ltd. terminated its programming in April 1997. The Great American Country network provides country music video programming to certain cable television systems owned or managed by Intercable. This network, owned and operated by Great American Country, Inc., a subsidiary of Jones International Networks, Ltd., an affiliate of International, commenced service in 1996 in the Yorba Linda System. The Product Information Network Venture (the "PIN Venture") is a venture among a subsidiary of Jones International Networks, Ltd., an affiliate of International, and two unaffiliated cable system operators. The PIN Venture operates the Product Information Network ("PIN"), which is a 24-hour network that airs long-form advertising generally known as "infomercials." The PIN Venture generally makes incentive payments of approximately 60 percent of its net advertising revenue to the cable systems that carry its programming. Most of Intercable's owned and managed systems carry PIN for all or part of each day. Revenues received by the Partnership from the PIN Venture relating to the Yorba Linda System totaled approximately $25,117 for the year ended December 31, 1997. The charges to the Partnership for related party transactions are as follows for the periods indicated:
For the Year Ended December 31, ---------------------------------- 1997 1996 1995 -------- -------- -------- Management fees $410,888 $384,834 $345,176 Allocation of expenses 514,095 529,234 491,642 Amount of advances outstanding 0 0 0 Highest amount of advances outstanding 0 0 266,281 Programming fees: Knowledge TV, Inc. 12,730 11,408 10,072 Jones Computer Network, Ltd. 8,430 22,704 20,037 Great American Country 13,460 14,534 0
29 PART IV. -------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K ------------------------------------------------------------------------- (a) 1. See index to financial statements for the list of financial statements and exhibits thereto filed as part of this report. 3. The following exhibits are filed herewith. 4.1 Agreement of Limited Partnership of Jones Growth Partners II L.P. (1) 10.1.1 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Anaheim, California. (3) 10.1.2 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Orange, California. (3) 10.1.3 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Yorba Linda, California. (3) 10.2.1 Credit and Security Agreement dated as of April 15, 1992 among the Partnership and Credit Lyonnais New York Branch, as agent for various lenders. (3) 10.2.2 Amendment No. 1 dated as of September 30, 1994 to the Credit and Security Agreement dated as of April 15, 1992 among Jones Growth Partners II L.P. and Credit Lyonnais New York Branch, as agent for various lenders. (4) 10.3.1 Purchase and Sale Agreement dated August 24, 1990, by and among Empire Partners, a California general partnership, Empire Cable Television, Inc., a California corporation, Yorba Linda Television Co., Inc., a California corporation, and Crown Valley Cable Television, Inc., a California corporation, as sellers, and Jones Spacelink, Ltd., a Colorado corporation, as buyer. (2) 10.3.2 Letter Agreement dated October 16, 1990, amending Purchase and Sale Agreement. (2) 10.3.3 Second Amendment to Purchase and Sale Agreement dated May 31, 1991. (2) 10.3.4 Third Amendment to Purchase and Sale Agreement dated June 14, 1991. (2) 10.3.5 Fourth Amendment to Purchase and Sale Agreement dated August 9, 1991. (2) 10.3.6 Asset Purchase Agreement dated August 16, 1996 among Jones Intercable, Inc., Jones Growth Partners II L.P. and Century Communications Corp. (5) 27 Financial Data Schedule. __________ (1) Incorporated by reference from the Form 8-A Registration Statement of Jones Growth Partners II L.P. filed with the Securities and Exchange Commission on May 6, 1991 (Commission File No. 0-19259). 30 (2) Incorporated by reference from the Form S-1 Registration Statement of Jones Growth Partners II L.P. filed with the Securities and Exchange Commission (Registration No. 33-32169). (3) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992. (4) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1994. (5) Incorporated by reference from Registrant's Report on Form 8-K dated August 28, 1996. (b) Reports on Form 8-K ------------------- None. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. JONES GROWTH PARTNERS II L.P. a Colorado limited partnership By: Jones Spacelink Cable Corporation By: /s/ Glenn R. Jones ------------------ Glenn R. Jones Chairman of the Board and Chief Dated: March 23, 1998 Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Glenn R. Jones ---------------------------------- Glenn R. Jones Chairman of the Board and Chief Executive Officer Dated: March 23, 1998 (Principal Executive Officer) By: /s/ Kevin P. Coyle ---------------------------------- Kevin P. Coyle Vice President/Finance Dated: March 23, 1998 (Principal Financial Officer) By: /s/ Larry Kaschinske ---------------------------------- Larry Kaschinske Controller Dated: March 23, 1998 (Principal Accounting Officer) 32 EX-27 2 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 692,589 0 179,261 (14,081) 0 0 19,916,370 (8,649,910) 19,023,585 755,774 12,150,500 0 0 0 6,117,311 19,023,585 0 8,217,768 0 8,927,828 (906,735) 0 853,502 (656,827) 0 (656,827) 0 0 0 (656,827) (32.87) (32.87)
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