Exhibit (b)(4)
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV JOINT FUND 11-ABCD
MANITOWOC, WISCONSIN
TABLE OF CONTENTS
-----------------
I. EXECUTIVE SUMMARY..................................................... 1
A. Introduction, Purpose, and Methodology........................... 1
B. Conclusions...................................................... 2
II. PURPOSE OF APPRAISAL................................................. 3
III. INDUSTRY OVERVIEW................................................... 4
A. Historical Background............................................ 4
B. Industry Characteristics......................................... 6
1. General Background........................................... 6
2. Regulation................................................... 8
3. Financial/Economic........................................... 9
4. Competition.................................................. 10
IV. SYSTEM DESCRIPTION................................................... 13
A. History and Market............................................... 13
B. Services......................................................... 15
C. Rates............................................................ 17
D. Subscribers...................................................... 18
E. System Mileage................................................... 19
F. Physical Plant................................................... 20
G. Franchises....................................................... 21
H. Management....................................................... 22
I. Financial History................................................ 22
V. TOTAL SYSTEM VALUE.................................................... 23
A. Valuation Procedure and Methods.................................. 23
B. Discounted Cash Flow Methodology................................. 25
1. Net Cash Flow/Return on Equity............................... 26
2. Net Cash Flow/Return On Investment........................... 27
3. Cash Flow Projections........................................ 27
4. Residual Value............................................... 29
5. Discount Rate................................................ 30
C. Direct Income Methodology........................................ 31
D. Value Conclusions................................................ 32
VI. CONTINGENCIES AND LIMITING CONDITIONS................................ 34
VII. STATEMENT OF VALUE.................................................. 36
VIII. QUALIFICATIONS..................................................... 37
A. Qualifications of Malarkey-Taylor Associates, Inc................ 37
B. Qualifications of Andrew R. Gefen................................ 38
C. Qualifications of Susan Donovan.................................. 39
EXHIBITS:
A. Valuation Methods and Summary of Values
B-I. Profit and Loss/Sources and Uses-Return on Equity - Low Value
B-2. Profit and Loss/Sources and Uses-Return on Equity - High Value
C-1. Debt Amortization-Return on Equity - Low Value
C-2. Debt Amortization-Return on Equity - High Value
D. Return on Investment
E. Cable Television Subscribers
F. Cable Television Service Rates
G. Cash Flow Projections
H. Capital Expenditures
I. Depreciation Schedule
J. Assumptions and Inputs
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV JOINT FUND 11-ABCD
MANITOWOC, WISCONSIN
I. EXECUTIVE SUMMARY
A. Introduction, Purpose, and Methodology
Malarkey-Taylor Associates, Inc. (MTA) was retained by Jones
Intercable, Inc. (Jones) to conduct a fair market valuation as of April 30,
1995, of the Cable TV Joint Fund 11-ABCD cable television system in Manitowoc,
Wisconsin (the System). The System serves the City of Manitowoc as well as the
towns of Manitowoc, Manitowoc Rapids, Newton, and Whitelaw. All of the
communities are located in Manitowoc County. Subscribers to the System outside
of the City of Manitowoc are managed by Jones but belong to Crown Media, Inc.
The value of the System has been adjusted to account for cash distributions made
to Crown Media, Inc.
This independent appraisal will be used by Jones as an independent
estimate of the fair market value of the System as of April 30, 1995 with the
resulting value to be used in conjunction with the bid for the System by Jones.
Fair market value is the cash price a willing buyer would give a willing seller
in an arm's length transaction in order to complete the sale. It is assumed that
both buyer and seller have been informed of all relevant facts and neither is
under any compulsion to conclude the transaction. MTA also assumes that the
tangible assets will remain in their present location and will continue to be
employed in their highest and best use, i.e., the delivery of cable television
signals to subscribers.
MTA used five generally accepted cable television valuation methods
using the income approach to valuation in establishing the range of total fair
market values
1
of the System as a going concern. The first method used a multiple of the past
year's operating income derived from comparable asset values of privately-held
and publicly-traded cable companies. This multiple has been adjusted when
appropriate to account for changes in service rates, as mandated by the Cable
Television Consumer Protection and Competition Act of 1992. The second method
used a lower multiple of the annualized current month's operating income. The
third method applied a slightly lower multiple of next year's projected
operating income. The fourth method was a discounted net cash flow analysis in
which a purchase price (estimated fair market value) was calculated to achieve a
target after-tax return on equity, given particular operating and financing
assumptions specific to the System's assets. The fifth method was a discounted
cash flow analysis that measured the net present value of the pre-tax operating
cash flows (less capital expenditures, plus the residual value of the System)
that represent the return on total investment.
B. Conclusions
MTA's conclusions as to the range of values are based upon information
and data supplied by Jones and System management, a recent onsite inspection by
a representative of MTA of a representative portion of the System and service
area, and general cable industry information. In MTA's opinion, the data which
support the valuations are reliable and sound. Our estimate of the overall fair
market value of the System as a business enterprise, free and clear of any
encumbrances, is $15,507,000.
2
II. PURPOSE OF APPRAISAL
Malarkey-Taylor Associates, Inc. (MTA) was retained by Jones
Intercable, Inc. (Jones) to conduct a fair market valuation as of April 30, 1995
of the Cable TV Joint Fund 11-ABCD cable television system (the System),
serving Manitowoc, Wisconsin. This independent appraisal will be used as an
independent estimate of the fair market value of the System as of April 30, 1995
with the resulting value to be used in conjunction with the bid for the System
by Jones.
Fair market value is the cash price a willing buyer would give a
willing seller in an arm's length transaction in order to complete the sale. It
is assumed that both buyer and seller have been informed of all relevant facts
and neither is under any compulsion to conclude the transaction and that the
tangible assets will remain in their present location and will continue to be
employed in their highest and best use, i.e., the delivery of cable television
signals to subscribers.
3
III. INDUSTRY OVERVIEW
A. Historical Background
Cable television was born in the late 1940's. The first systems were
built during the period 1948 to 1964. Most of these early systems were located
in rural areas where off-air television reception was limited and picture
quality was poor. The cable system basically provided a reception service,
offering up to 12 channels with no unique programming. Systems generally enjoyed
high levels of penetration, ranging from approximately 70% to 90% of homes
passed.
During the period 1965 to 1972, cable systems were built in
medium-sized markets, importing distant television signals via terrestrial
microwave. Rulings by the Federal Communications Commission (FCC) in 1965 and
1966 initiated a regulatory period that lasted two decades. FCC constraints were
placed on importing distant signals which inhibited the construction of systems
in the largest 100 markets. The U.S. Supreme Court affirmed the FCC's regulatory
authority over the cable television industry. The typical cable television
system generally remained a 12- to 24-channel reception service with some
additional program selections via imported signals. Programming unique to cable
television did not exist. Basic penetrations of between 50% and 60% of homes
passed were typical for newly-cabled markets.
In 1972, the FCC eased its restrictions on signal importation, thus
making it feasible for cable television operators to enter the nation's top 100
markets with differentiated product. Satellite delivered premium television
services (HBO, Showtime) and Super Stations (WTBS) were introduced in 1975.
Cable exclusive networks, such as ESPN, CNN, USA, and others, soon followed.
During the mid- to late-1970's, new 24- to 36-channel cable television systems
emerged as a result of these communications satellite services. Significant
increases in programming options allowed cable systems to attract ample numbers
of subscribers to attain operational profitability even where off-air broadcast
reception and leisure-time options were above average. The smallest 50 of the
top 100 markets were built first,
4
followed by the larger metropolitan areas. Premium, or pay, services were the
primary force behind basic penetration gains reaching 30% to 45% of homes passed
in these new markets.
During the period 1979 to 1983, the remaining major markets were
franchised. Cable channel options increased dramatically, both in pay services
(Disney, Cinemax, Bravo, Movie Channel) and basic services (MTV, Lifetime,
Nickelodeon, regional sports, CNN, and others). Systems with 54 and more
channels were built, offering an abundance of program alternatives. Cable system
operators instituted price increases for pay services and established elaborate
tiering structures to compensate for local constraints on basic service
pricing. In newer cable markets, basic penetrations of homes passed began to
edge above the 40% level.
In 1984, the U.S. Congress approved and President Reagan signed the
Cable Communications Policy Act, the first comprehensive cable legislation to be
enacted. The most significant feature of the legislation was the ultimate
removal of price controls on basic cable service in all but the very smallest
cable systems. Discretionary price increases of up to 5% were allowed in 1985
and 1986, and all price controls were removed in January 1987. During the period
1984 to 1993, the mix of cable offerings and pricing changed as growth in pay
subscriptions slowed down and local constraints on basic price increases were
removed. Basic penetrations continued to rise in major markets, and nationwide
penetration reached 60% of homes passed by cable. New revenue sources emerged in
the form of pay-per-view, advertising, and home shopping. The industry
emphasized programming quality and marketing in order to increase overall
penetration levels above the 60% level.
5
B. Industry Characteristics
1. General Background
Cable television is a capital intensive business. The right to operate
a cable system is authorized by the local government. Substantial up-front
capital is required in plant and equipment with second entrants facing even
greater capital construction costs due primarily to space limitations on utility
poles. A considerable percentage of total operating costs are fixed. Similar to
utilities, once cable television has exceeded its break-even requirements,
operating margins grow very rapidly and remain fairly predictable from year to
year.
Unlike most businesses, market analysis in cable is better pursued on
the basis of system type than generic geographic or demographic criteria. The
classification of a cable system in any individual market tends to reflect the
competitive characteristics and demand dynamics resident in that market. In
general, there are two primary categories of cable systems--classic and modern.
Classic cable systems are those built in locations where reception of over-the-
air television signals has historically been poor or limited. They were the
earliest systems built, usually serving communities with lower densities (40 to
90 homes per mile), higher subscriber penetrations (60% to 90% of homes passed),
lower average revenues per subscriber ($14 to 20 per month), and higher cash
flow margins (45% to 65%) relative to modern systems. They usually were built
with fewer channels but may have been upgraded at a later time. Expectations for
additional growth in these markets tends to be lower than the industry average.
The downside risk of investing in these systems is relatively low.
Modern cable systems have been constructed since the introduction of
pay and other cable-specific programming in the mid-1970's. They tend to serve
urban and suburban communities which have higher densities (70 to 120 and more
homes per mile), better quality off-air programming, and more extensive
competition for
6
consumers' leisure time. These systems were built with broader channel capacity
(36 to 54 or more channels), individual subscriber addressability, local
programming capability, and the capacity for advertising sales. They tend to
have lower penetration (30% to 55%) than classic systems. More rapid growth has
been experienced in these systems than in classic systems because of higher
household growth rates, more potential for penetration gains, and greater
opportunities for ancillary revenues. They are also more risky because of
greater off-air competition and higher overall operating costs.
It is estimated that 32,255 communities are served throughout the
United States by approximately 11,196 operating cable systems. The industry is
structured into approximately 660 MSO's which manage these systems on a
wholly-owned, partially-owned, or management contract basis. Economic forces
within the industry are causing significant shifts in the ownership of these
companies, resulting in increasing consolidation of the industry into the hands
of fewer, larger operators.
Management characteristics in the industry vary considerably between
the MSO headquarters and system operating levels and between different
categories of systems. At the corporate level, nearly all of the mid-to-large
sized MSO's have a strong representation of professionally trained and
field-seasoned management among their ranks. Strong emphasis is placed on
strategic, financial planning and operating control functions at this level, and
the staffing reflects those requirements. Even the more entrepreneurial MSOs are
well-staffed with lawyers, accountants, and MBA's from top institutions.
System-level management requirements vary significantly with the
category of system under consideration. Classic cable operations primarily
require custodial management to oversee customer service and maintenance
functions. Strategic, marketing, and financial management tends to be handled at
the corporate level. Billing functions are processed through service bureaus
specializing in cable systems. Very little management complexity is left at the
system level, and the
7
positions tend to be filled accordingly. Large-scale, urban cable operations are
much more dynamic and demanding. They require far more sophisticated and
versatile management capabilities. The physical plant, budgets, and operating
staffs in these systems are considerably larger. More of the strategic,
marketing, and financial planning functions are handled locally. The political
liaison requirements with the cities are far more complex. Not surprisingly, the
caliber of management found in these systems is substantially higher than that
found in classic systems, and tends to be professionally trained, financially
aware, and politically astute.
2. Regulation
Historically, the extent to which the cable television industry has
been regulated at the local, state and federal levels, has varied. Following the
deregulation of service prices in the 1984 Cable Communications Policy Act, the
next several years saw regulatory constraints on cable reduced at both the local
and federal levels. Subsequent public perception of the industry as abusing its
newly-won pricing freedom and additional consolidation in the industry led to
enactment of the Cable Television Consumer Protection and Competition Act of
1992 on October 5, 1992, ushering in a new period of extensive regulation. Many
aspects of such regulation are currently the subject of judicial, administrative
or legislative proceedings or proposals. This law required the FCC to regulate
the operation of cable television systems in a number of areas, including rates
that may be charged by systems.
On September 1, 1993, rate changes mandated by the FCC under the 1992
Act went into effect for most systems. The FCC implemented a benchmark rate
structure that was intended to reduce the federally regulated portion of the
average cable subscriber's monthly bill by 10%. Most of the resulting reductions
in subscriber bills were attributable to the decline in equipment and additional
outlet charges. However, with the mandated reconfiguration of basic service and
the expanded basic tier, some subscribers' bills increased. For cable operators,
the
8
effects of the rate change were estimated to reduce revenue by 3% to 5% on an
industrywide basis.
In February 1994, the FCC announced further rate reductions of 7% in
order to fully implement the 1992 Cable Act. As an alternative, cable systems
were permitted to file Cost of Service showings if implementation of the
mandated rate reductions was not feasible. The full impact on cable television
systems as a result of the passage of this law have yet to be felt. The
possibility for many systems to be adversely affected by changes in governmental
regulation, competitive forces and technology was significant.
3. Financial/Economic
Cable's rapid financial growth and expectations for future growth have
drawn the attention of the capital markets and helped fuel consolidation within
the industry. With most cable markets already franchised and constructed,
growth-oriented MSO's turned to acquisitions as their primary method of
expansion. A flurry of acquisitions occurred during the period of 1986 through
1989, with the peak being reached in 1988. Most of these acquisitions were made
by companies already in the cable business who were seeking national
consolidation or regional clustering of cable television systems to produce
greater economies of scale and operating efficiencies. The number of
transactions decreased in 1990 due to federal government restrictions on banks
pertaining to highly leveraged transactions (HLT), uncertainty about the
regulatory environment, and other factors.
HLT restrictions caused less money to be available for the expansion,
upgrading, and trading of cable systems in 1990 and 1991. These restrictions
were subsequently removed in June 1992, and while the number of acquisitions
increased, they did not reach the same levels seen in the latter half of the
1980's. Passage of the Cable Television Consumer Protection and Competition Act
of 1992 and the
9
resultant rate regulation decreased the overall attractiveness of the cable
industry to potential investors.
By 1994, several of the largest MSO's had formed or were exploring
alliances with both long distance and local telephone companies, as both the
cable and telephone industries were planning to enter one another's primary
lines of business. Simultaneously, a number of mid-sized MSO's were developing
exit strategies based on the belief that success in the evolving cable industry
would require a critical mass of subscribers and access to substantial amounts
of capital.
While the development of voice, video and data delivery technologies
holds the promise of substantial new services and revenues for the industry,
the near-term outlook based on established programming services continues to be
positive. Operators expect to continue to increase operating income by
continuing to attract more subscribers, exploit current and additional
opportunities for ancillary revenues, and improve operating efficiencies.
4. Competition
During the next several years, the cable industry may face additional
competition which could emerge in the form of system overbuilds, the
introduction of new technologies, and entry into the video distribution business
by telephone companies.
The long-term viability of overbuilds in most cable markets is
questionable at best. An overbuilder splits up the subscriber base, incurring
higher costs per subscriber and lower margins overall. Many attempted
overbuilders have been bought out by the incumbent or have simply gone out of
business. The likelihood of a successful overbuild in all but a few markets is
very small.
Cable television does face increasing competition from new distribution
technologies including direct-broadcast satellite (DBS), satellite master
antenna television (SMATV), and multichannel multipoint distribution service
(MMDS).
10
The ultimate success or failure of any of these television delivery systems will
depend largely on a combination of the three interconnected factors of
technology, regulation, and economics. Malarkey-Taylor anticipates that the
threat to cable television by these technologies in the next few years will not
be substantial, although various technologies are proving adept at providing
services in certain niche markets. MMDS and SMATV typically have little or no
effect on mature cable systems, except in large urban areas where a high
percentage of homes passed are in multiple dwelling units (MDU's). DBS presents
a greater competitive threat. The DBS industry, which is still very young, has
thus far focused on building its customer base in areas not wired for cable
television. As of 1994, leaders in the DBS industry predicted that between 10%
and 20% of television households nationwide would use their service within ten
years. However, DBS is hampered by the fact that it does not carry off-air
broadcast signals.
Telephone companies have long shown an interest in expanding into video
distribution. For the most part, this competition has not materialized as a
result of existing regulatory restraints and technical limitations. By the end
of 1993, there was widespread recognition that technological developments would
force dramatic changes in such regulation, as the telecommunications industry
entered a consolidation period characterized by mergers, joint ventures, and
acquisitions.
Fiber optics are increasingly being utilized as telephone and cable
companies begin experimenting with 'full service' networks with the capability
of delivering voice, video and data services to the home. Several of the largest
MSO's, in conjunction with telephone companies, have built these experimental
systems to determine their feasibility from both technological and marketing
perspectives.
As of the mid-1990's, the telephone industry still is in the
experimental stage with regard to using fiber optic cable to deliver services to
the home. For technological and financial reasons, full use of fiber is probably
years away. Additionally, federal legislation permitting telephone and cable
companies to
11
compete directly with one another will most likely incorporate a time delay
before competition begins. Nevertheless, cooperation between the two industries
has begun and will likely continue on a large-scale basis.
12
IV. SYSTEM DESCRIPTION
A. History and Market
At the time of the appraisal, the System served several communities in
Wisconsin, including Manitowoc City and the towns of Manitowoc, Manitowoc
Rapids, Newton, and Whitelaw. Although operated as part of the System,
franchises for the latter four communities were owned by Crown Media, Inc.
However, as of April 30, 1995, they were contracted to be sold to Marcus Cable
Partners L.P. Marcus was the single largest MSO in the state of Wisconsin. The
number of subscribers residing within these Crown-owned franchises comprised
approximately 4.6% of the System's total subscriber base.
At the time of the appraisal, growth in the Manitowoc area had been
slowing for several years. Workers in the area were primarily blue-collar. The
largest employers included Mirro/Foley (aluminum cookware), The Manitowoc
Company (heavy machinery, refrigeration units), and Budweiser (brewers).
Unemployment in Manitowoc stood at 4.8%, which was somewhat below unemployment
nationwide.
As of the appraisal date, the System received six off-air broadcast
signals licensed to Green Bay, located approximately 25 miles northwest of
Manitowoc, and four licensed to Milwaukee, roughly 60 miles south of the System.
Off-air reception of the Green Bay broadcast signals in Manitowoc required a
roof-top antenna. Despite the use of a roof-top antenna, signal quality
deteriorated towards the southern end of the city. Off-air reception of
television signals from Milwaukee was extremely difficult in Manitowoc. The
function of cable television service for most cable service subscribers was to
both improve or provide reception, and provide a greater number and variety
of program services.
At the time of the appraisal, the principal competing sources of
entertainment in the immediate vicinity of the service area were video tape
rental stores, movies, and sports activities. Two multichannel multipoint
distribution service (MMDS), or 'wireless' cable, companies were operating out
of Green Bay, although neither had
13
established a competitive presence in Manitowoc. Hughes' direct broadcast
satellite (DBS) service DirecTV had recently launched its service nationwide.
Simultaneously, several other operators in this brand new industry began
conducting substantial nationwide advertising campaigns to introduce DBS service
to the general public. Nevertheless, the impact of DBS as a competitor in
Manitowoc had not been significant.
Table I, taken from data published in Market Statistics' Demographics
USA 1994, presents demographic information for the beginning of years 1994 and
1999 for Manitowoc County, the State of Wisconsin, and the United States.
Projected growth trends are presented for population, total households, and
effective buying income (EBI).
With respect to population, Manitowoc County is forecast to grow at
approximately half the rate of Wisconsin as a whole. County population figures
are projected to grow from 81,400 in 1994 to 82,900 in 1999, at an annual rate
of 0.37%. Statewide population is projected to increase by 0.80% annually over
the same period. The nation as a whole is forecast to experience population
growth at an even higher rate of 0.98% per year through 1999.
The projected household growth rate for Manitowoc County, as with
population, is lower than growth for both Wisconsin and the nation. County
households are projected grow at 0.89% annually over the next five years, while
state projections increase at 1.27% and nationwide household projections
increase at 1.28%. Average household EBI figures indicate that the economic
status of Manitowoc County households is comparable to the status of Wisconsin
households. The economic status of both is slightly below the average status of
households on a national basis. Average household EBI in 1994 for Manitowoc
County is estimated at $40,681. Corresponding figures for Wisconsin and the
nation as a whole are $41,752 and $43,484, respectively. These data are
presented in the following table.
14
TABLE I
Annual
1994 1999 Growth Rate
Estimate Projection 1994-1999
-------- ---------- ---------
Manitowoc County, WI
- --------------------
Total Population 81,400 82,900 0.37%
Total Households 30,900 32,300 0.89%
Median Age 35.7 N/A
Effective Buying Income (EBI)
Total EBI (000's) $1,257,032 $1,615,288 5.14%
Average Household EBI $40,681 $50,009 4.22%
State of Wisconsin
- ------------------
Total Population 5,056,300 5,262,500 0.80%
Total Households 1,894,700 2,018,000 1.27%
Median Age 33.9 N/A
Effective Buying Income (EBI)
Total EBI (000's) $79,107,961 $103,852,828 5.59%
Average Household EBI $41,752 $51,463 4.27%
United States of America
- ------------------------
Total Population 259,574,200 272,548,500 0.98%
Total Households 95,891,900 102,163,100 1.28%
Median Age 33.8 N/A
Effective Buying Income (EBI)
Total EBI (000's) $4,169,724,052 $5,508,031,025 5.73%
Average Household EBI $43,484 $53,914 4.39%
Source: Market Statistics' Demographics USA 1994.
B. Services
Programming services provided to the System's subscribers as of the
appraisal date were as presented in Table II on the following page. Premium
services are shown in bold. Management reported that the channel line-up had
been offered since September 1994 when the Jones Computer Network channel was
added, replacing the Time/Weather information channel. As of the appraisal date,
the System had no additional channel capacity.
15
TABLE II
Manitowoc
- -------------------------------------------------------------------------------------------------
Cable
(Off-Air) Name or
Channels Call Letters Source Description
- -------------------------------------------------------------------------------------------------
2 (2) WBAY-TV Green Bay WI ABC
- -------------------------------------------------------------------------------------------------
3 C-SPAN Satellite U.S. House of Representatives
- -------------------------------------------------------------------------------------------------
4 (4) WTMJ-TV Milwaukee WI NBC
- -------------------------------------------------------------------------------------------------
5 (5) WFRV-TV Green Bay, WI CBS
- -------------------------------------------------------------------------------------------------
6 (6) WITI-TV Milwaukee WI Fox
- -------------------------------------------------------------------------------------------------
7 Mind Extension University Satellite Educational
- -------------------------------------------------------------------------------------------------
8 Public Access Local Local Affairs
- -------------------------------------------------------------------------------------------------
9 WGN-TV Satellite Independent - Chicago, IL
- -------------------------------------------------------------------------------------------------
10 (10) WMVS Milwaukee, WI PBS
- -------------------------------------------------------------------------------------------------
11 (11) WLUK-TV Green Bay, WI NBC
- -------------------------------------------------------------------------------------------------
12 (12) WISN-TV Milwaukee WI ABC
- -------------------------------------------------------------------------------------------------
13 Communitv Bulletin Board Local Local Affairs
- -------------------------------------------------------------------------------------------------
14 Showtime Satellite Pay Movies
- -------------------------------------------------------------------------------------------------
15 Public School Bulletin Board Local Local Affairs
- -------------------------------------------------------------------------------------------------
16 Parochial School Access Local Local Affairs
- -------------------------------------------------------------------------------------------------
17 WTBS Satellite Independent - Atlanta, GA
- -------------------------------------------------------------------------------------------------
18 (38) WPNE Green Bay , WI PBS
- -------------------------------------------------------------------------------------------------
19 Prevue Guide Satellite Program Listings
- -------------------------------------------------------------------------------------------------
20 Local Access Local Local Affairs
- -------------------------------------------------------------------------------------------------
21 Public School Access Local Local Affairs
- -------------------------------------------------------------------------------------------------
22 HBO Satellite Pay Movies
- -------------------------------------------------------------------------------------------------
23 The Disney Channel Satellite Pay Movies, Familv Shows
- -------------------------------------------------------------------------------------------------
24 The Movie Channel Satellite Pay Movies
- -------------------------------------------------------------------------------------------------
25 Cinemax Satellite Pay Movies
- -------------------------------------------------------------------------------------------------
26 (26) WGBA Green Bay, WI Fox
- -------------------------------------------------------------------------------------------------
27 Jones Computer Network Satellite Computer Information
- -------------------------------------------------------------------------------------------------
28 Govemment Access Local Local Affairs
- -------------------------------------------------------------------------------------------------
29 Request Guide Satellite PPV Program Previews
- -------------------------------------------------------------------------------------------------
30 Request PPV Satellite Pay Per View Movies
- -------------------------------------------------------------------------------------------------
31 Lake Shore Technical College Local Educational
- -------------------------------------------------------------------------------------------------
32 (32) WXGZ Appleton, WI Independent
- -------------------------------------------------------------------------------------------------
33 MTV Satellite Music Videos
- -------------------------------------------------------------------------------------------------
34 VH-1 Satellite Music Videos
- -------------------------------------------------------------------------------------------------
35 The Nashville Network Satellite Country Music Videos
- -------------------------------------------------------------------------------------------------
36 Country Music TV Satellite Country Music Videos
- -------------------------------------------------------------------------------------------------
37 ESPN Satellite 24-Hour Sports
- -------------------------------------------------------------------------------------------------
38 Headline News Satellite 24-Hour News
- -------------------------------------------------------------------------------------------------
39 CNN Satellite 24-Hour News
- -------------------------------------------------------------------------------------------------
16
TABLE II (continued)
Manitowoc
- -------------------------------------------------------------------------------------------------
Cable
(Off-Air) Name or
Channels Call Letters Source Description
- -------------------------------------------------------------------------------------------------
40 CNBC Satellite Consumer, Business News
- -------------------------------------------------------------------------------------------------
41 American Movie Classics Satellite Classic Movies
- -------------------------------------------------------------------------------------------------
42 The Family Channel Satellite Family Programming
- -------------------------------------------------------------------------------------------------
43 Nickelodeon Satellite Children's Programming
- -------------------------------------------------------------------------------------------------
44 Comedy Central Satellite Comedy Programming
- -------------------------------------------------------------------------------------------------
45 Turner Network Television Satellite Variety, Movies
- -------------------------------------------------------------------------------------------------
46 USA Network Satellite Sports, Entertainment
- -------------------------------------------------------------------------------------------------
47 Lifetime Satellite Women's Programming
- -------------------------------------------------------------------------------------------------
48 The Discovery Channel Satellite Science, Nature
- -------------------------------------------------------------------------------------------------
49 Arts & Entertainment Satellite Music, Dance, Theater
- -------------------------------------------------------------------------------------------------
50 The Weather Channel Satellite 24-Hour Weather
- -------------------------------------------------------------------------------------------------
51 Eternal Word Network Satellite Religious
- -------------------------------------------------------------------------------------------------
52 Trinity Broadcast Network Satellite Religious
- -------------------------------------------------------------------------------------------------
53 HSN Satellite Home Shopping
- -------------------------------------------------------------------------------------------------
The System's limited basic service consisted of programming on channels
2-32, with the exception of the pay and pay per view services on channels 14,
22-25, and 30. Expanded basic service began on channel 33 and continued through
channel 53.
C. Rates
The monthly basic, expanded basic, premium rates, and installation
charges to subscribers for the preceding services on the date of the appraisal
were as outlined in Table III. These rates were implemented on March 1, 1995.
The basic service comparison data for the State of Wisconsin and the
United States typically included the services offered by the System on its basic
service and expanded basic tier. The comparison data were collected at the end
of 1991 prior to rate re-regulation, and are the most recent such data
available.
17
TABLE III
----------------------------------------------
State of United
Manitowoc Wisconsin/1/ States/1/
----------------------------------------------
Basic Service $11.08 $19.57 $18.61
----------------------------------------------
Expanded Basic Tier $9.58 -- --
----------------------------------------------
Pay Services (a la carte) $9.78 $10.11
HBO $9.95
Showtime $9.95
Cinemax $9.95
The Disney Channel $7.95
----------------------------------------------
Pay Per View (Average) $10.31 N/A N/A
----------------------------------------------
Converters $1.45 N/A N/A
----------------------------------------------
Installation Charges: N/A N/A
New Subscriber $35.00
Reconnect $17.50
----------------------------------------------
/1/ Source: The Kagan 1992 Census of Cable and Pay TV (Carmel: Paul Kagan
Associates, Inc., 1991). These data are representative of a point in
time prior to the appraisal date and should be used for general
comparison purposes only.
On March 1, 1995, the System increased the rate for basic service by
$0.30 and the rate for the expanded basic service by $0.50. Converter rental
rates and installation charges have not changed since June 29, 1994. The System
also provides discounts to customers who subscribe to multiple premium channels.
D. Subscribers
Table IV presents the number of homes passed, basic subscribers,
expanded basic subscribers, pay units, and converter rentals for the System as
of April 30, 1995. These figures include subscribers managed by Jones, and are
compared with similar figures for the State of Wisconsin and the United States
as a whole.
18
TABLE IV
---------------------------------------------
State of
Manitowoc Wisconsin/1/ United States/1/
---------------------------------------------
Homes Passed 16,303 1,507,024 88,386,676
---------------------------------------------
Basic Subscribers 11,083 926,308 53,355,040
% of Homes Passed 68.0% 61.5% 60.4%
---------------------------------------------
Expanded Basic Subscribers 10,778 N/A 13,618,888
% of Basic Subscribers 97.2% N/A N/A
---------------------------------------------
Total Pay Units 7,706 1,011,304 42,415,363
% of Basic Subscribers 69.5% 109.2% 79.5%
---------------------------------------------
Converter Rentals 2,619 N/A N/A
% of Basic Subscribers 23.6% N/A N/A
---------------------------------------------
/1/Source: The Kagan 1992 Census of Cable and Pay TV (Carmel: Paul Kagan
Associates, Inc., 1991). These data are representative of a point in
time prior to the appraisal date and should be used for general
comparison purposes only.
At the time of the appraisal, the basic penetration of the System, at
68.0% of homes passed, was higher than basic penetration rates for both
Wisconsin and the nation. These rates stood at 61.5% and 60.4%, respectively, at
the end of 1991. In addition, the System offered an expanded basic tier service
with a penetration rate of 97.2%. The pay unit penetration of the System as of
April 30, 1995 was 69.5%, which was much lower than pay penetration for
Wisconsin which stood at 109.2%. The nation as a whole had a pay penetration of
79.5% by the end of 1991.
E. System Mileage
According to System management, the mileage figures are based on
as-built maps. Since a complete walk-out of the current System would be
prohibitively expensive, MTA used the following approach to corroborate the
plant mileage:
1. Interviewed knowledgeable System personnel to ascertain the
source and reliability of the mileage estimates.
19
2. Noted the configuration of the System on area maps and the
existence and condition of plant in a representative portion
of the area served by the System.
3. Related the average density of the System to general
observations of densities while inspecting the System and
service area.
Table V presents management's best estimate of the number of route
miles of plant as represented by total strand and trench in the System as of the
appraisal date only within the City of Manitowoc.
TABLE V
Aerial Underground Total
------ ----------- -----
Total Plant Miles 155.0 13.6 168.6
Based upon the above procedures and cost limitations, these estimates
appear to be reasonable. The System had no fiber optic cable as of April 30,
1995.
F. Physical Plant
As of the valuation date, the System maintained its administrative
headquarters, headed, and warehouse facilities at a single location at 1614
Washington Street in Manitowoc. The System also maintained a tower site,
primarily for reception of off-air signals from the Green Bay and Milwaukee
television markets. The tower, located at 3636 County Trunk Highway, also
received a microwave feed from Lake Shore Technical College. The System passed
16,303 homes, for an average density of approximately 77 homes per plant mile.
The System's distribution plant capacity was 400 MHz, and programming
was available on 52 channels. Although there was no room for additional
channels, management was considering channel sharing for certain off-air
stations with duplicate programming to allow the addition of a satellite program
to the line-up.
20
Addressable homes totaled approximately 4,900 in the System. Converters in the
field were primarily the remote capable Oak TC-56 model. However, in an effort
to increase pay unit levels, the System reverted to the use of traps for HBO,
Showtime, and most recently, Disney. As of the valuation date, the System was
generally in good condition. There were no plans for any substantial upgrade or
re-build in 1995.
G. Franchises
The System held a franchise agreement with Manitowoc City. Although the
communities of the town of Manitowoc, Manitowoc Rapids, Newton, and Whitelaw
were serviced as part of the Manitowoc System, these franchises were owned by
Crown Media, Inc. As of the valuation date, these franchises were contracted to
be sold to Marcus Cable Partners L.P., the single largest MSO in the state of
Wisconsin.
The franchise owned by Jones for the City of Manitowoc, with
approximately 95% of the System's subscribers, was scheduled to expire on
November 3, 1995. At the time of the appraisal, negotiations for a 12-year
renewal term had almost been finalized. An important change in the franchise
agreement will be an increase in the franchise fee from 3% to 5% of gross
revenues.
As of April 30, 1995, the remaining life of the System's franchise was
approximately 12 years assuming that the current franchise negotiations will be
finalized, as shown in Table VI. The City of Manitowoc was authorized to
regulate basic rates.
TABLE VI
FRANCHISE COMMUNITY EXPIRATION DATE
------------------- ---------------
City of Manitowoc November 3, 2007
21
H. Management
At the time of the appraisal, the System operated with 21 full-time and
four part-time employees. In addition to department managers and other
administrative staff, the operations department worked with six technicians and
one dispatcher, while the customer service department operated with
approximately four customer service representatives (CSR). Marketing and
advertising management duties were handled by one individual. The advertising
staff consisted of six full-time employees, including two account executives and
three part-time people.
MTA's representative met and spoke extensively with the System's
General Manager and Technical Supervisor. The management team is comprised of
professionals in the cable television industry and appeared to be well-versed on
the System's characteristics, both its strengths and weaknesses. As individuals,
each possesses considerable experience and a record of success in the industry.
I. Financial History
Based on unaudited financial statements for the year ending December
31, 1994, revenues for the System were $3,500,587. Operating expenses totaled
$2,030,971, resulting in operating income of $1,469,616 before the allocation to
Crown Media. Unaudited financial statements for the first four months of 1995
indicate that operating profits of $450,475 before the allocation to Crown Media
were generated on revenues of $1,224,405, for an operating margin of 36.8%. On
an annualized basis, operating profits for 1995 before the Crown Media
allocation total $1,351,425.
22
V. TOTAL SYSTEM VALUE
MTA has estimated the fair market value for the System as a business
enterprise to be $15,507,000 as of April 30, 1995. Fair market value is the
cash price a willing buyer would give a willing seller in an arm's length
transaction in order to complete the sale. It is assumed that both buyer and
seller have been informed of all relevant facts and neither is under any
compulsion to conclude the transaction and that the tangible assets will remain
in their present location and will continue to be employed in their highest and
best use, i.e., the delivery of cable television signals to subscribers.
A. Valuation Procedure and Methods
MTA used the following basic methodology to determine the overall fair
market value of the System:
1. Performed an onsite review to observe a representative portion
of the market and homes passed, reviewed the number of
subscribers, and determined the quality and attractiveness of
the services provided.
2. Made inquiries of management to ascertain and/or verify items
relevant to the appraisal.
3. Estimated the availability of additional homes passed and the
probability of future growth.
4. Reviewed selected financial records and other documents to
verify certain financial data.
5. Estimated the expected changes in operations that a buyer most
likely would institute.
6. Applied generally accepted methods of estimating the fair
market value of the entity as a whole.
23
A business valuation typically is performed using one or more of three
approaches: the cost approach, the market approach, and the income approach.
Since the System will be relying to a large degree on intangible assets to
generate income, the cost approach is not appropriate in this case. The market,
or comparable sales, approach has not been used because of the difficulty in
choosing sales that reflect the same profitability, size, and growth as the
System. Therefore, this valuation has been based on the income approach to
valuation. The income approach is the best approach to valuing the System
because it reflects the future earnings potential of the System.
There are various established methods of determining a business
entity's total fair market value using the income approach. The most commonly
accepted methods are as follows:
1. Capitalization of projected net cash flow.
2. Capitalization of single-year operating profit.
3. Dividend capitalization.
4. Market price-to-book equity.
5. Price-earnings multiple.
Of the methods listed above, MTA normally relies primarily upon the
capitalization of projected net cash flow, or "discounted cash flow" approach,
to estimate total value. MTA generally favors discounted cash flow methodology
because it considers the broadest range of factors that will affect both the
present and future income, and therefore value, of a cable television system.
Accordingly, MTA usually gives greater consideration to the discounted cash flow
methods in its final judgment concerning the fair market value of a cable
television system.
MTA has prepared two discounted cash flow valuations for the System,
one which analyzes the projected return on equity and one which analyzes the
projected return on investment. MTA also has considered the second general
methodology
24
listed above, i.e., capitalization of operating profit, in conducting its
valuation of the System. The methodologies are described in Parts V-B and V-C of
this report. The values for the overall fair market value of the System are
presented in Exhibit A.
The remaining methods listed above, although widely used in other
industries, generally are inappropriate for valuing cable television systems.
Dividend capitalization, based upon actual dividends or capacity, usually is
irrelevant since few publicly-traded cable companies pay dividends and earnings
(which should be reflective of a dividend capacity) are not reflective of the
capacity to generate operating income. A comparison of market price to-book
equity also is not valid usually since book equity varies widely from one
company to another as to how much intangible and tangible value is reflected on
the books. Finally, an analysis of price-earnings multiples generally is not
appropriate because they also vary widely within the industry and are not
representative of the financial position of most cable systems.
B. Discounted Cash Flow Methodology
MTA has generated two discounted cash flow models to arrive at a total
System value. The return-on-equity model is based upon a hypothetical purchase
price that would achieve a target after-tax return on equity based on the
present value of the projected net cash flows. The return-on-investment model
measures the net present value of the projected pre-tax operating cash flows,
less capital expenditures, plus the residual value of the System, that represent
the return on total investment.
Both the return-on-equity and return-on-investment methods are
dependent upon projections of the System's future net cash flow and residual
value and on selection of an appropriate discount rate. MTA's calculations are
based on detailed projections of a variety of factors which will affect future
cash flow including housing growth, plant mileage, basic and pay subscriber
growth, subscriber rates, operating expenditures, and capital expenditures. The
projections and assumptions
25
used in MTA's discounted cash flow models are set forth in Exhibits E, F, G, and
H. Exhibit E provides details of MTA's projections for plant mileage, housing,
and subscriber growth. Exhibit F shows the rates subscribers were charged at the
time of the appraisal for various services and MTA's projections for future
growth. Exhibit G lists revenues and operating expenses for all years throughout
the projection period, and Exhibit H details capital expenditures anticipated
for the System. The allocation to Crown Media has been treated as an operating
expense in these projections. In addition, Exhibit J includes miscellaneous
assumptions such as the average remaining life of the franchises under which the
System operates, tax rates, the net fair market value of beginning tangible
assets, the breakdown between debt and equity and the interest rate anticipated
on the debt, and the multiples and discount rates used in the various appraisal
methods. MTA's determination and use of these factors is discussed further
below.
1. Net Cash Flow/Return on Equity
This method involves the use of multiple year projected operations for
the System and a predetermined target after-tax return on equity for a
hypothetical outside buyer. The ten-year projection period is based on the
average remaining franchise life of the System including the renewal of the
franchise. A complete discussion of the selection of the projection period is
provided in Part V-B-3 of this report.
Based on the use of typical debt-to-equity ratios and debt services,
MTA has made certain assumptions concerning the capital structure that a
"typical, prudent outside buyer" might experience as well as the probable
interest rates that would be applicable in connection with any debt financing
that might be incurred, as shown in Exhibit J. To calculate future cash flows,
MTA has projected future subscribers, revenues, operating expenses, and capital
expenditures. MTA has then tested various
26
hypothetical purchase prices, i.e., potential fair market values, to determine a
value that yields the desired return on equity, as shown in Exhibits C-1 and C-
2.
Using the return-on-equity model, MTA has generated low and high cash
flow projections for the System shown in Exhibits B-1 and B-2. The difference
between the two projections reflects the range of potential returns on equity
that a buyer could reasonably expect to realize depending upon the initial
purchase price paid for the System.
2. Net Cash Flow/Return On Investment
This discounted cash flow method, similar to the preceding method, is
used to measure the net present value of the pre-tax operating cash flow, less
capital expenditures, plus the residual value of the System, that represent the
return on the total investment rather than that which could result from an
assumed purchase with a predetermined debt-to-equity ratio. To calculate future
cash flows, MTA has used the same projections for future subscribers, revenues,
operating expenses, and capital expenditures as in the return-on-equity method.
The projected cash flows for the System, plus the last-year residual value of
the System, less capital expenditures, are then discounted to their present
value using an acceptable discount factor based on the weighted average cost of
money, as shown in Exhibit J. MTA has used the return on investment model, like
the return on equity model, to generate low and high values for the System.
These values, shown in Exhibit D, represent the present value of the future
pre-tax operating cash flows and reflect more conservative and more optimistic
assumptions, respectively, as to the likely return on investment that the System
will generate over time.
3. Cash Flow Projections
There are many factors that affect the projections of a specific cable
system's cash flow. With respect to the System, MTA has analyzed the franchise
area, the costs incurred to meet franchise obligations, the length of the
franchise period, the
27
degree of competition, and the historic results of the System's operations. MTA
also has examined factors that affect the industry, such as possibility of
regulatory changes, competitive threats, rapid technical changes, and the
development of additional programming services. These factors have been
incorporated into MTA's projections of the System's future cash flows.
The most critical factors in the expected cash flow of a specific cable
system are the opportunities for growth in the territory in which it operates,
i.e., its franchise area and the duration of the franchise. In making its cash
flow projections, MTA has carefully reviewed the demographics of counties
represented in the service area. Demographic information was gathered from
direct observation during MTA's onsite visit, discussion with System management,
Marketing Statistic's Demographics USA 1994, U.S. Census Bureau data, and
information obtained from the local Chamber of Commerce.
MTA also has reviewed information pertaining to the System's franchise
in order to calculate their remaining life and made inquiries of System
management personnel to ascertain any relevant terms that may affect the value
of the System. MTA has calculated a weighted average remaining life for the
franchise of 12 years based on the number of the System's subscribers residing
in the single franchise area and the assumed renewal of the franchise.
The projection period used for the cash flows normally is the weighted
average remaining life of the franchise, except when the weighted life of the
franchises falls below seven or exceeds ten years. When the franchise life falls
below seven years, MTA uses a seven-year projection period, amortizing the
franchises over fifteen years as mandated by the Internal Revenue Service (IRS).
When the franchise life exceeds ten years, a ten-year projection period is used,
with the franchises amortized over fifteen years. MTA believes that the cash
flows realized from a projection period less than seven years generally are not
reflective of the value of a system than an investor would consider when
utilizing discounted cash
28
flow methodology. MTA also believes that the operating income resulting from
income and expense projections beyond ten years is increasingly uncertain and
might produce less accurate values for the System.
MTA's cash flow projections are also based in part on historical
operating data such as subscriber rates, the ratio of subscribers to homes
passed, and the age and condition of the System's distribution plant. MTA also
has relied on information provided by System management personnel, discussions
with System personnel, and MTA's familiarity with typical industry expenses and
operating trends to project the future financial performance of the System. As
shown in Exhibits E through H, MTA has projected increases in the number of
basic and pay subscribers, projected changes in service rates, and estimated
expenditures for future installation of cable plant and other future capital
requirements.
4. Residual Value
Under both the return-on-equity and the return-on-investment
approaches, MTA has calculated a residual value for the System following the
ten-year projection period. The residual represents the anticipated value of the
System at the end of the projection period. This value is added to the System's
cash flow stream in the final year of the projection period and then discounted
back to present value.
The residual is calculated as a multiple of the projected annual net
cash flow in the final year of the discounted cash flow analysis. The multiple
used reflects the degree of likelihood that the System will have significant
future income, and therefore value, at the end of the projection period. If the
franchise is likely to be renewed on the same terms as the current franchise,
and if there is a realistic expectation of continued growth in income, a higher
multiple will be applied. On the other hand, if the franchise is not likely to
be renewed, or is renewed on terms and conditions significantly different from
the current franchise, or if competitive or
29
technological factors jeopardize the operator's future income, a lower multiple
is appropriate.
Based on its experience and familiarity with the cable industry, and
its analysis of the System, MTA has calculated the System's residual value using
tenth-year cash flow times a multiple of nine, as shown in Exhibit J. This
multiple reflects MTA's view that the System is likely to have significant value
in ten years, but that certain unknowns and uncertainties must be factored into
the multiple nonetheless. Currently, the Cable Act of 1984 puts operators in a
favorable position in that cable franchises are generally likely to be renewed.
However, the 1984 Act provides no guarantee of renewal, and it is expected that
the negotiation process required to obtain a renewal will result in new
franchises that will be on terms significantly different and probably less
favorable than current franchises. In addition, concerns about how re-regulation
of the cable industry will affect the Act's renewal provisions could have the
effect of reducing or eliminating the operator's expectation of renewal.
5. Discount Rate
A critical component of both the return-on-equity and the return-on
investment approaches is the selection of the rate at which future cash flows
are discounted to their present value. The discount rate represents the
investor's expected return on capital, i.e., the rate of return that reasonably
reflects the risk being undertaken by the investor.
Considering the relative risk associated with the cable industry in
comparison to other industries, and the risk associated with the System in
particular, MTA has adopted a range of discount rates for its discounted cash
flow methods. In the after-tax return-on-equity model, MTA has applied a
discount rate of 14.0% for its low valuation, and a rate of 12.0% for its high
valuation. In the pre-tax return-on-investment model, the low valuation discount
rate is 16.9%, while the high valuation
30
rate is 15.3%. The discount rates used in the two discounted cash flow methods
are indicated on Exhibit A and summarized in Exhibit J.
MTA has calculated the discount rate for the return-on-equity model by
first establishing a risk-free rate of return (the current rate of return
available on Treasury bills or Treasury bonds as of the valuation date) and then
adding the historical premium for risk that the market has actually provided the
holders of representative cable television stocks. This assumes that using such
historical data will provide a reasonable guide to future return expectations
after recognition for risk.
The discount rate incorporates systematic risk, which is the
sensitivity of the return on the subject investment to changes in the return for
the market as a whole. MTA also has incorporated into the discount rate
unsystematic risk, which is any risk premium directly associated with the
industry, particular company, or the subject system. Thus, internal risk
factors, such as the possibility of competition, municipal and customer
relations, rate structure, franchise stability, etc., have been factored into
the discount rate.
The discount rate used in the return-on-investment model is determined
by the "band of investment" method. The rate is based on an average of the rate
applicable to equity and the cost of debt weighted in the proportions that are
utilized for the particular system.
C. Direct Income Methodology
An alternative valuation method to the discounted cash flow method is
the direct income method, in which the estimate of the cable system's value is
based on current net operating income times a multiple selected by the
appraiser. MTA has applied several alternative versions of this method to the
System. In the first model, MTA used the System's actual annual net operating
income for the 12-month period preceding the valuation date, whenever the
appropriate data was available. When data was insufficient to ascertain the
actual net operating income for the past full
31
year, MTA estimated the past year's annual net operating income based on
available financial information for the past several months. In the second, the
System's current cash flow as of the appraisal date was annualized to create a
"running rate" net operating income projection. In the third model, MTA used the
System's projected net operating income for the twelve months following the
appraisal date. For each of these models, the actual or projected amount of the
allocation to Crown Media has been deducted from the operating income. The
results of these models are set forth in Exhibit A.
The multiples applied to each of these income figures are derived from
a variety of cable industry data. First, MTA has looked at the income and stock
value of several publicly traded cable companies as of the appraisal date. From
this analysis, MTA has derived a range of multiples that it believes are
applicable to privately held cable systems, which includes adjustments for
control and marketability. Taking into account multiples derived from the sale
of other cable television systems, MTA has arrived at a composite figure for
each model. In the historical income model, MTA has applied a low multiple of
10.5 and a high multiple of 11.5. This multiple has been adjusted when
appropriate to account for changes in service rates, as mandated by the Cable
Television Consumer Protection and Competition Act of 1992. The running rate and
projected income models use slightly lower multiples to account for the
additional risk and uncertainty of using projections rather than historical
data. The multiples used in each of the three direct income approaches are
indicated in Exhibit A and summarized again in Exhibit J.
D. Value Conclusions
The valuations yielded by each of the methods described above are shown
in Exhibit A. In arriving at a final System valuation, MTA considered both
discounted cash flow methods, i.e., the return-on-equity and return-on-
investment methods, and the direct income methods. Based upon the foregoing
analysis and a consideration of
32
the various methods, MTA concludes that the fair market value of the System as a
business enterprise as of April 30, 1995, was $15,507,000.
33
VI. CONTINGENCIES AND LIMITING CONDITIONS
Our conclusions as to the value of the System are based upon the
following, which to the best of our knowledge and belief are reliable and sound:
1. Information and data obtained during a recent onsite
inspection by a representative of MTA of a representative
portion of the System and communities served.
2. Personal and telephone interviews with the System's employees.
3. Selected documents including:
a. Various operating data and maps.
b. Miscellaneous internal data and documents.
The following limiting conditions apply to the subject appraisal:
1. MTA is under no obligation to update the appraisal to account
for events or additional data subsequent to the appraisal
date.
2. Neither this report nor any portions thereof may be used for
any purpose other than as stated herein nor may it be
reproduced or excerpted without the prior written consent of
MTA.
3. No copies of this report will be furnished to entities other
than the client without the client's specific permission or
direction unless ordered by a court of competent jurisdiction.
4. The comments and judgments of MTA as to the physical and
terminal state of the cable system were made by
representatives who are expert in valuing cable television
assets but not by qualified cable television engineers.
Consequently, readers should not rely on any statement made
herein for any purpose other than those set forth in this
appraisal.
5. MTA did not consider, or factor into the appraisal, any impact
on value that might be caused by the presence of toxic waste
or
34
hazardous material including electromagnetic radiation or
other forms of radio frequency radiation.
35
VII. STATEMENT 0F VALUE
MTA certifies that a personal inspection of a representative portion of
the communities and System was made by a qualified representative of this firm
and that, to the best of our knowledge, the statements contained in this
appraisal are correct and that the opinions stated are based on consideration of
the relevant factors. In addition, neither MTA nor any of its representatives
have any current interest or contemplated future interest in the entities
appraised. In addition, the fee paid for this report by Jones Intercable, Inc.
is in no way dependent on the values determined herein.
Based on the various analyses, computations, and considerations
discussed in this report, it is our professional judgment, subject to the
assumptions and limitations stated in this report, that the range of values as
stated in this report are true and correct. Therefore, it is the professional
opinion of MTA that the fair market value of the Cable TV Joint Fund 1 1-ABCD
cable television system serving Manitowoc, Wisconsin, as a business enterprise
as of April 30, 1995, free and clear of any encumbrances, is $15,507,000.
MALARKEY-TAYLOR ASSOCIATES, INC.
/s/ Andrew R. Gefen
--------------------------------------
By: Andrew R. Gefen
Vice President, Financial Services
July 11,1995
36
VIII. QUALIFICATIONS
A. Qualifications of Malarkey-Taylor Associates, Inc.
Malarkey-Taylor Associates, Inc. has served the communications industry
for nearly 30 years specializing in the field of cable, cellular, paging, mobile
radio, and broadcasting technologies. We have completed thousands of projects
for clients in the communications industry and in the financial and investment
communities. Our organization is composed of a multi-disciplinary team of
professionals who combine academic training in accounting, finance, engineering,
marketing, management, economics, and law with many years of experience solving
problems for hundreds of clients in both the public and private sectors.
A large portion of our financial, engineering, and managerial
professionals' time is devoted to the appraisal of cable television systems,
cellular telephone systems, paging systems, and broadcast stations. Since 1964,
we have appraised hundreds of communications properties for purposes of
financing, ownership transfers, property tax assessments, and estate planning
and probating. Our appraisal experience has included independent fair market
valuations and purchase price allocations, including valuation of both tangible
assets and intangible assets such as franchises, licenses, subscriber lists,
leases, and contracts. MTA has supplied expert testimony on cable, cellular,
paging, and broadcast property values in court and other legal hearings.
37
B. Qualifications of Andrew R. Gefen
Andrew R. Gefen is Vice President, Financial Services for
Malarkey-Taylor. He has provided valuation, financial, accounting and consulting
services to numerous cellular telephone, cable television, broadcasting, and
paging companies. Mr. Gefen is involved in the fair market valuation and asset
appraisal of publicly and privately held cellular telephone systems, cable
television systems, broadcast stations, paging systems, programming networks,
and Multichannel Multipoint Distribution Service (MMDS) systems. He has valued
over 100 cellular telephone systems and over 200 cable television systems with
an aggregate value of over $3 billion.
Mr. Gefen has provided expert testimony on the valuation of cellular
telephone systems, MMDS systems, cable television systems, and paging systems.
He has also assisted in the development of a statewide cellular telephone
network, and provided consulting services to professional sports leagues, cable
television programming networks, and U.S. Government agencies. His work has
included valuation and due diligence projects in several countries in Europe and
Latin America.
He has acquired an in-depth knowledge of the values of cellular
systems, cable television systems, broadcast stations, and paging systems,
including their market characteristics, growth prospects, construction costs,
operating cost structures, and other industry issues. Mr. Gefen has substantial
experience in the tax issues arising from the purchase and sale of cable and
broadcast properties. In addition, he has supported the taxpayer's values of
tangible and intangible assets during Internal Revenue Service reviews.
Mr. Gefen was previously with the communications consulting firm of
Frazier, Gross & Kadlec, Washington, D.C., as the Manager of the Appraisal Group
where he directed and participated in the asset appraisals of over 200
communications properties, primarily in the radio and television industry.
EXPERIENCE
Vice President, Financial Services, Malarkey-Taylor Associates, Inc.,
Washington, D.C., 1988-present.
Business Analyst and Project Manager, American Management Systems, Arlington,
VA.
Planning Consultant, Panelvision Corporation, Pittsburgh, Pennsylvania.
Programmer and Chief Announcer, WBRU (FM), Providence, Rhode Island.
EDUCATION
M.S., Industrial Administration (M.B.A.), Carnegie-Mellon University,
Pittsburgh, Pennsylvania.
B.A., Economics, Brown University, Providence, Rhode Island.
38
C. Qualifications of Susan Donovan
Susan Donovan is a Senior Financial Analyst in the Financial Services
department at Malarkey-Taylor. She provides valuation, financial and consulting
services to cable television and broadcasting companies. Ms. Donovan is involved
in the fair market valuation and asset appraisal of publicly and privately held
cable television systems and broadcast stations. She has an in-depth knowledge
of the values of cable television systems and broadcast stations, including
their market characteristics, growth prospects, construction costs, operating
cost structures, and other industry issues.
Ms. Donovan was previously with the communications consulting firms of
Broadcast Investment Analysts, Inc. and Frazier, Gross & Kadlec, both of
Washington, D.C., where she participated in asset appraisal and fair market
valuations for numerous broadcast properties.
EXPERIENCE
Senior Financial Analyst, Financial Services, Malarkey-Taylor Associates, Inc.,
Washington, D.C., 1993-present.
Financial Analyst, Broadcast Investment Analysts, Inc., Washington, D.C., 1988-
1992.
Research Analyst, Frazier, Gross & Kadlec, Washington, D.C., 1986-1988.
Assistant Editor and Editorial Coordinator, TV Digest (presently Warren
Publishing), Washington, D.C., 1985-1986.
EDUCATION
M.B.A., George Mason University, Fairfax, Virginia.
B.A., Political Science, Trinity College, Washington, D.C.
39
- ---------------------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT A
MANITOWOC, WISCONSIN ---------
AS OF APRIL 30, 1995
- ---------------------------------------
VALUATION METHODS
- -----------------
LOW HIGH
--- ----
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME
OPERATING INCOME, PER BOOKS (4/30/95) LESS ALLOCATION $1,382,843 $1,382,843
VALUATION MULTIPLE 10.5 11.5
---- ----
ESTIMATED FAIR MARKET VALUE $14,519,852 $15,902,695
----------- -----------
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME
ESTIMATED. OPERATING INCOME
TOTAL CURRENT YEAR'S REVENUE $3,887,601 $3,887,601
OPERATING MARGIN, PER BOOKS (4/30/95) 39.7% 39.7%
----- -----
"RUNNING RATE" OPERATING INCOME LESS ALLOCATION $1,503,076 $1,503,076
VALUATION MULTIPLE 10.0 11.0
---- ----
ESTIMATED FAIR MARKET VALUE $15,030,756 $16,533,832
----------- -----------
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME
OPERATING INCOME $1,672,344 $1,672,344
VALUATION MULTIPLE 9.5 10.5
--- ----
ESTIMATED FAIR MARKET VALUE $15,887,270 $17,559,614
----------- -----------
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY
TARGET RETURN ON EQUITY 14.0% 12.0%
ESTIMATED FAIR MARKET VALUE $14,441,844 $15,865,920
----------- -----------
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT
TARGET RETURN ON INVESTMENT 16.9% 15.3%
ESTIMATED FAIR MARKET VALUE $14,236,013 $15,581,656
----------- -----------
SUMMARY OF VALUES
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $14,519,852 $15,902,695
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 15,030,756 16,533,832
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 15,887,270 17,559,614
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 14,441,844 15,865,920
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 14,236,013 15,581,656
----------- ----------
RANGE OF ESTIMATED FAIR MARKET VALUES $14,776,000 $16,237,000
ESTIMATED FAIR MARKET VALUE $15,507,000
===========
- -----------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT E
MANITOWOC, WISCONSIN LOW ANALYSIS
AS Of APRIL 30,1995 ------------
- ------------------------------
RETURN ON EQUITY METHOD
PROFIT AND LOSS - LOW VALUE
- ---------------------------
YEAR ENDING APRIL 30, 1996 1997 1998 1999
---- ---- ---- ----
REVENUES $4,085,786 $4,475,074 $4,834,780 $5,198,549
OPERATING EXPENSES 2,413,441 2,677,139 2,889,090 3,104,205
---------- ---------- ---------- ----------
OPERATING INCOME $1,672,344 $1,797,935 $1,945,690 $2,094,343
OPERATING MARGIN 0.41 0.40 0.40 0.40
PARENT SERVICES/MGT FEE (5%) 204,289 223,754 241,739 259,927
FRANCHISE AMORTIZATION (15) 658,067 658,067 658,067 658,067
SUBSCRIBER LIST (8) 248,250 248,250 248,250 248,250
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 401,446 724,877 594,122 506,297
INTEREST 738,362 738,362 738,362 693,132
---------- ---------- ---------- ----------
PRE-TAX INCOME ($578,070) ($795,375) ($534,850) ($271,330)
INCOME TAX (EXPENSE)/ BENEFIT 196,544 270,428 181,849 92,252
---------- ---------- ---------- ----------
NET INCOME ($381,526) ($524,948) ($353,001) ($179,078)
SOURCES AND USES OF CASH
- ------------------------
SOURCES Of CASH -
PRE TAX INCOME ($578,070) ($795,375) ($534,850) ($271,330)
FRANCHISE AMORTIZATION (15) 658,067 658,067 658,067 658,067
SUBSCRIBER LIST (8) 248,250 248,250 248,250 248,250
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 401,446 724,877 594,122 506,297
EQUITY 7,032,023
DEBT 7,032,023 0 0 0
RESIDUAL VALUE IN YEAR 10
---------- ---------- ---------- ----------
TOTAL SOURCES OF CASH $14,793,738 $ 835,819 $ 965,589 $ 1,141,284
USES Of CASH -
PURCHASE PRICE - CURRENT $14,441,844
CAPITAL EXPENDITURES 251,658 258,123 276,875 297,175
DEBT RETIREMENT 0 0 430,763 475,993
TAXES PAID ON NET INCOME 0 0 0 0
TAXES PAID ON SALE (RESIDUAL)
---------- ---------- ---------- ----------
TOTAL USES OF CASH $14,693,502 $ 258,123 $ 707,638 $ 773,168
ANNUAL CASH INCREASE/(DECREASE) $ 100,236 $ 577,696 $ 257,951 $ 368,116
CUMULATIVE CASH 100,236 677,932 935,883 1,303,998
YEAR ENDING APRIL 30, 2000 2001 2002 2003
---- ---- ---- ----
REVENUES $5,549,879 $5,891,917 $ 6,242,832 $6,612,177
OPERATING EXPENSES 3,315,000 3,521,457 3,732,423 3,954,175
---------- ---------- ----------- ----------
OPERATING INCOME $2,234,878 $2,370,460 $ 2,510,409 $2,658,002
OPERATING MARGIN 0.40 0.40 0.40 0.40
PARENT SERVICES/MGT FEE (5%) 277,494 294.596 312,142 330,609
FRANCHISE AMORTIZATION (15) 658,067 658,067 658,067 658,067
SUBSCRIBER LIST (8) 248,250 248,250 248,250 248,250
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 446,266 477,724 512,613 422,310
INTEREST 643,153 587,926 526,900 459,466
---------- ---------- ----------- ----------
PRE-TAX INCOME ($38,351) $103,897 $ 252,437 $539,299
INCOME TAX (EXPENSE)/ BENEFIT 13,039 (35,325) (85,829) (183,362)
---------- ---------- ----------- ----------
NET INCOME ($25,312) $68,572 $ 166,609 $355,938
SOURCES AND USES OF CASH
- ------------------------
SOURCES Of CASH -
PRE TAX INCOME ($38,351) $103,897 $ 252,437 $539,299
FRANCHISE AMORTIZATION (15) 658,067 658,067 658,067 658,067
SUBSCRIBER LIST (8) 248,250 248,250 248,250 248,250
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 446,266 477,724 512,613 422,310
EQUITY
DEBT 0 0 0 0
RESIDUAL VALUE IN YEAR 10
---------- ---------- ----------- ----------
TOTAL SOURCES OF CASH $1,314,231 $1,487,938 $ 1,671,367 $1,867,926
USES Of CASH -
PURCHASE PRICE - CURRENT
CAPITAL EXPENDITURES 293,591 319,304 331,222 343,592
DEBT RETIREMENT 525,972 581,199 642,225 709,659
TAXES PAID ON NET INCOME 0 0 0 0
TAXES PAID ON SALE (RESIDUAL)
---------- ---------- ----------- ----------
TOTAL USES OF CASH $819,563 $900,503 $ 973,447 $1,053,250
ANNUAL CASH INCREASE/(DECREASE) $494,668 $587,435 $ 697,920 $814,676
CUMULATIVE CASH 1,798,667 2,386,102 3,084,022 3,898,698
YEAR ENDING APRIL 30, 2004 2005 TOTAL
---- ---- ------
REVENUES $6,990,321 $7,393,713 $ 57,275,026
OPERATING EXPENSES 4,179,533 4,420,323 34,206,787
---------- ---------- ------------
OPERATING INCOME $2,810,788 $2,973,389 $ 23,068,239
OPERATING MARGIN 0.40 0.40
PARENT SERVICES/MGT FEE (5%) 349,516 369,686 2,863,751
FRANCHISE AMORTIZATION (15) 658,067 658,067 6,580,667
SUBSCRIBER LIST (8) 0 0 1,986,000
NON-COMPETE COVENANTS (0) 0 0 0
DEPRECIATION 321,854 335,179 4,742,689
INTEREST 384,952 302,614 5,813,231
---------- ---------- ------------
PRE-TAX INCOME $1,096,399 $1,307,844 $ 1,081,901
INCOME TAX (EXPENSE)/ BENEFIT (372,776) (444,687) (367,846)
---------- ---------- ------------
NET INCOME $723,624 $863,177 $ 714,055
SOURCES AND USES OF CASH
- ------------------------
SOURCES Of CASH -
PRE TAX INCOME $1,096,399 $1,307,844 $ 1,061,901
FRANCHISE AMORTIZATION (15) 658,067 658,067 6,580,667
SUBSCRIBER LIST (8) 0 0 1,986,000
NON-COMPETE COVENANTS (0) 0 0 0
DEPRECIATION 321,854 335,179 4,742,689
EQUITY 7,032,023
DEBT 0 0 7,032,023
RESIDUAL VALUE IN YEAR 10 26,760,503 26,760,503
---------- ---------- ------------
TOTAL SOURCES OF CASH $2,076,320 $29,061,593 $ 55,215,806
USES Of CASH -
PURCHASE PRICE - CURRENT $ 14,441,844
CAPITAL EXPENDITURES 356,429 369,751 3,097,719
DEBT RETIREMENT 784,173 2.882,038 7,032,023
TAXES PAID ON NET INCOME 0 367,846 367,846
TAXES PAID ON SALE (RESIDUAL) 7,660,301 7,660,301
---------- ---------- ------------
TOTAL USES OF CASH $1,140,602 $11,279,936 $ 32,599,733
ANNUAL CASH INCREASE/(DECREASE) $935,718 $17,781,657 $ 22,616,073
CUMULATIVE CASH 4,834,416 22,616,073
- ----------------------------
CABLE TV JOINT FUND l1-ABCD
MANITOWOC, WISCONSIN EXHIBIT B
AS 0F APRIL 30,1995 HIGH ANALYSIS
- ---------------------------- -------------
RETURN ON EQUITY METHOD
PROFIT AND LOSS - HIGH VALUE
- ----------------------------
YEAR ENDING APRIL 30, 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
REVENUES $ 4,085,786 $ 4,475,074 $4,834,780 $ 5,198,549 $5,549,879 $5,891,917
OPERATING EXPENSES 2,413,441 2,677,139 2,889,090 3,104,205 3,315,000 3,521,457
------------ ----------- ---------- ----------- ------------ -------------
OPERATING INCOME $ 1,672,344 $ 1,797,935 $1,945,690 $ 2,094,343 $2,234,878 $2,370,460
OPERATING MARGIN 0.41 0.40 0.40 0.40 0.40 0.40
PARENT SERVICES/MGT FEE (5%) 204,289 223,754 241,739 259,927 277,494 294,596
FRANCHISE AMORTIZATION (15) 658,067 658,067 658,067 658,067 658,067 658,067
SUBSCRIBER LIST (8) 248,250 248,250 248,250 248,250 248,250 248,250
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0
DEPRECIATION 401,446 724,877 594,122 506,297 446,266 477,724
INTEREST 817,268 817,268 817,268 767,204 711,884 650,755
------------ ----------- ---------- ----------- ------------ -------------
PRE-TAX INCOME ($656,975) ($874,281) ($613,755) ($345,402) ($107,082) $41,068
INCOME TAX (EXPENSE)/BENEFIT 223,372 297,255 208,677 117,437 36,408 (13,963)
------------ ----------- ---------- ----------- ------------ -------------
NET INCOME ($433,604) ($577,025) ($405,079) ($227,965) ($70,674) $27,105
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE-TAX INCOME ($656,975) ($874,281) ($613,755) ($345,402) ($107,082) $41,068
FRANCHISE AMORTIZATION (10) 658,067 658,067 658,067 658,067 658,067 658,067
SUBSCRIBER LIST (8) 248,250 248,250 248,250 248,250 248,250 248,250
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0
DEPRECIATION 401,446 724,877 594,122 506,297 446,266 477,724
EQUITY 7,783,503
DEBT 7,783,503 0 0 0 0 0
RESIDUAL VALUE IN YEAR 10 ------- ------- ------- ------- ------- -------
TOTAL SOURCES OF CASH $ 16,217,793 $ 756,914 $886,683 $ 1,067,212 $1,245,501 $1,425,109
USES OF CASH -
PURCHASE PRICE - CURRENT $ 15,865,920
CAPITAL EXPENDITURES 251,658 258,123 276,875 297,175 293,591 319,304
DEBT RETIREMENT 0 0 476,797 526,860 582,180 643,309
TAXES PAID ON NET INCOME 0 0 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) ------- ------- ------- -------- ------- -------
TOTAL USES OF CASH $ 16,117,578 $ 258,123 $ 753,672 $ 824,035 $875,772 $962,613
ANNUAL CASH INCREASE/(DECREASE) $ 100,215 $ 498,791 $ 133,012 $ 243,177 $369,729 $462,496
CUMULATIVE CASH 100,215 599,006 732,018 975,194 1,344,923 1,807,420
PROFIT AND LOSS - HIGH VALUE
- ----------------------------
YEAR ENDING APRIL 30, 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- -----
REVENUES $ 6,242,832 $6,612,177 $6,990,321 $7,393,713 $ 57,275,026
OPERATING EXPENSES 3,732,423 3,954,175 4,179,533 4,420,323 34,206,787
----------- ------------- -------------- ------------- ------------
OPERATING INCOME $ 2,510,409 $2,658,002 $2,810,788 $2,973,389 $ 23,068,239
OPERATING MARGIN 0.40 0.40 0.40 0.40
PARENT SERVICES/MGT FEE (5%) 312,142 330,609 349,516 369,686 2,863,751
FRANCHISE AMORTIZATION (15) 658,067 658,067 658,067 658,067 6,580,667
SUBSCRIBER LIST (8) 248,250 248,250 0 0 1,986,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0
DEPRECIATION 512,613 422,310 321,854 335,179 4,742,689
INTEREST 583,207 508,567 426,090 334,953 6,434,464
----------- ------------- -------------- ------------- ------------
PRE-TAX INCOME $ 196,130 $490,198 $1,055,261 $1,275,505 $ 460,668
INCOME TAX (EXPENSE)/BENEFIT (66,684) (166,667) (358,789) (433,672) (156,627)
----------- ------------- -------------- ------------- ------------
NET INCOME $ 129,446 $323,531 $696,472 $841,833 $ 304,041
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE-TAX INCOME $ 196,130 $490,198 $1,055,261 $1,275,505 $ 460,668
FRANCHISE AMORTIZATION (10) 658,067 658,067 658,067 658,067 6,580,667
SUBSCRIBER LIST (8) 248,250 248,250 0 0 1,988,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0
DEPRECIATION 512,613 422,310 321,854 335,179 4,742,689
EQUITY 7,783,503
DEBT 0 0 0 0 7,783,503
RESIDUAL VALUE IN YEAR 10 26,760,503 26,760,503
----------- ------------- -------------- ------------- ------------
TOTAL SOURCES OF CASH $ 1,615,060 $1,818,825 $2,035,182 $29,029,254 $ 56,097,533
USES OF CASH -
PURCHASE PRICE - CURRENT $ 15,865,920
CAPITAL EXPENDITURES 331,222 343,592 356,429 369,751 3,097,719
DEBT RETIREMENT 710,857 785,497 867,974 3,190,028 7,783,503
TAXES PAID ON NET INCOME 0 0 0 156,627 156,627
TAXES PAID ON SALE (RESIDUAL) ----------- ------------- -------------- 7,176,115 7,176,115
TOTAL USES OF CASH $ 1,042,079 $1,129,088 $1,224,403 $10,892,521 $ 34,079,884
ANNUAL CASH INCREASE/(DECREASE) $ 572,981 $689,737 $810,779 $18,136,733 $ 22,017,649
CUMULATIVE CASH 2,380,400 3,070,137 3,880,916 22,017,649
- ---------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT C
MANITOWOC, WISCONSIN LOW ANALYSES
AS OF APRIL 30, 1995 ------------
- ---------------------------
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE
- -----------------------------
TOTAL YEAR 1 CASH REQUIREMENTS $14,064,046
YEAR 1 DEBT REQUIREMENTS 7,032,023
YEAR 1 EQUITY REQUIREMENTS 7,032,023
FINANCING AVAILABLE $8,988,480 $10,870,237 $11,686,579 $12,646,987 $13,613,232 $14,526,710
UNUSED LEVERAGE 1,956,457 3,838,214 5,085,319 6,521,720 8,013,937 9,506,614
SENIOR DEBT: 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
BEGINNING DEBT $0 $7,032,023 $7,032,023 $6,601,260 $6,125,267 $5,599,295
DEBT ADDED 7,032,023 0 0 0 0 0
TOTAL ANNUAL PAYMENTS 738,362 738,362 1,169,125 1,169,125 1,169,125 1,169,125
INTEREST 738,362 738,362 738,362 693,132 643,153 587,926
PRINCIPAL REPAYMENT 0 0 430,763 475,993 525,972 581,199
ENDING BALANCE 7,032,023 7,032,023 6,601,260 6,125,267 5,599,295 5,018,095
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $0 $0 $0 $0
BORROWINGS 0 0 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0 0 0
INTEREST 0 0 0 0 0 0
SENIOR DEBT COVERAGE 4.2 3.9 3.4 2.9 2.5 2.1
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 4.2 3.9 3.4 2.9 2.5 2.1
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE
- -----------------------------
TOTAL YEAR 1 CASH REQUIREMENTS
YEAR 1 DEBT REQUIREMENTS
YEAR 1 EQUITY REQUIREMENTS
FINANCING AVAILABLE $15,407,991 $16,317,656 $17,277,010 $18,270,123
UNUSED LEVERAGE 11,032,121 12,651,445 14,394,972 16,254,597
SENIOR DEBT: 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- -----
BEGINNING DEBT $5,018,095 $4,375,870 $3,666,211 $2,882,038
DEBT ADDED 0 0 0 0 7,032,023
TOTAL ANNUAL PAYMENTS 1,169,125 1,169,125 1,169,125 1,169,125 10,829,727
INTEREST 526,900 459,466 384,952 302,614 5,813,231
PRINCIPAL REPAYMENT 642,225 709,659 784,173 866,511 5,016,496
ENDING BALANCE 4,375,870 3,666,211 2,882,038 2,015,527
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $0 $0 $0
BORROWINGS 0 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0 0
INTEREST 0 0 0 0 0
SENIOR DEBT COVERAGE 1.7 1.4 1.0 0.7
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 1.7 1.4 1.0 0.7
- -------------------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT C
MANITOWOC, WISCONSIN HIGH ANALYSIS
AS OF APRIL 3O, 1995 -------------
- -------------------------------------
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE
- ------------------------------
TOTAL YEAR 1 CASH REQUIREMENTS $15,567,006
YEAR 1 DEBT REQUIREMENTS 7,783,503
YEAR 1 EQUITY REQUIREMENTS 7,783,503
FINANCING AVAILABLE $10,371,323 $12,542,581 $13,484,514 $14,592,677 $15,707,575 $16,761,588
UNUSED LEVERAGE 2,587,820 4,759,078 6,177,807 7,812,831 9,509,909 11,207,232
SENIOR: 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
BEGINNING DEBT $0 $ 7,783,503 $7,783,503 $7,306,706 $6,779,846 $6,197,666
DEBT ADDED 7,783,503 0 0 0 0 0
TOTAL ANNUAL PAYMENTS 817,268 817,268 1,294,064 1,294,064 1,294,064 1,294,064
INTEREST 817,268 817,268 817,268 767,204 711,884 650,755
PRINCIPAL REPAYMENT 0 0 476,797 526,860 582,180 643,309
ENDING BALANCE 7,783,503 7,783,503 7,306,706 6,779,848 6,197,666 5,554,356
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $0 $0 $0 $0
BORROWINGS 0 0 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0 0 0
INTEREST 0 0 0 0 0 0
SENIOR DEBT COVERAGE 4.7 4.3 3.8 3.2 2.8 2.3
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 4.7 4.3 3.8 3.2 2.8 2.3
FINANCING AVAILABLE $17,778,451 $18,828,065 $19,935,012 $21,060,912
UNUSED LEVERAGE 12,934,952 14,770,062 16,744,984 18,849,995
SENIOR: 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- -----
BEGINNING DEBT $5,554,356 $4,843,499 $4,058,002 $3,190,028
DEBT ADDED 0 0 0 0 $7,783,503
TOTAL ANNUAL PAYMENTS 1,294,064 1,294,064 1,294,064 1,294,064 11,987,050
INTEREST 583,207 508,567 426,090 334,953 6,434,464
PRINCIPAL REPAYMENT 710,857 785,497 867,974 959,111 5,552,586
ENDING BALANCE 4,843,499 4,056,002 3,190,028 2,230,917
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $0 $0 $0
BORROWINGS 0 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0 0
INTEREST 0 0 0 0 0
SENIOR DEBT COVERAGE 1.9 1.5 1.1 0.8
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 1.9 1.5 1.1 0.8
- ------------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT D
MANITOWOC, WISCONSIN ---------
AS OF APRIL 30, 1995
- ------------------------------
RETURN ON INVESTMENT METHOD
PROFIT AND LOSS
- ---------------
YEAR ENDING APRIL 30, 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
REVENUES $ 4,085,786 $ 4,475,074 $4,834,780 $ 5,198,549 $5,549,879 $5,891,917
OPERATING EXPENSES 2,413,441 2,677,139 2,889,990 3,104,205 3,315,000 3,521,457
------------ ----------- ---------- ----------- ------------- -------------
OPERATING INCOME $ 1,672,344 $ 1,797,935 $1,945,690 $ 2,094,343 $2,234,878 $2,370,460
PLUS: RESIDUAL VALUE
LESS: CAPITAL EXPENDITURES 251,658 256,123 276,875 297,175 293,591 319,304
------------ ----------- ---------- ----------- ------------- -------------
TOTAL CASH FLOW $ 1,420,686 $ 1,539,812 $1,668,815 $ 1,797,168 $1,941,287 $2,051,157
YEAR ENDING APRIL 30, 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- -----
REVENUES $ 6,242,832 $6,612,177 $6,990,321 $7,393,713 $ 57,275,026
OPERATING EXPENSES 3,732,423 3,954,175 4,179,533 4,420,323 34,206,787
----------- ------------- -------------- ------------- ------------
OPERATING INCOME $ 2,510,409 $2,858,002 $2,810,788 $ 2,973,389 $ 23,068,239
PLUS: RESIDUAL VALUE 26,760,503 26,760,503
LESS: CAPITAL EXPENDITURES 3,31222 343,592 356,429 369,751 3,097,719
----------- ------------- -------------- ------------- ------------
TOTAL CASH FLOW $ 2,179,186 $2,314,410 $2,454,360 $29,364,142 $ 46,731,024
NET PRESENT VALUE @ 16.9% $ 14,236,013
------------
NET PRESENT VALUE @ 15.3% $ 15,581,656
------------
[LOGO OF MTA (MALARKEY-TAYLOR ASSOCIATES) EMCI APPEARS HERE]
COMMUNICATIONS CONSULTANTS
- -----------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT E
MANITOWOC, WISCONSIN ---------
AS OF APRIL 30, 1995
- -----------------------------
CABLE TELEVISION SUBSCRIBERS
- ----------------------------
YEAR ENDING APRIL 30, 1996 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ---- ----
BEGINNING MILES 168.6
MILES ADDED 1.0 1.0 1.8 2.3 1.8 1.8 1.8 1.8
CUMULATIVE MILES 169.6 170.5 172.3 174.6 176.4 178.2 180.0 181.9
DENSITY OF ADDITIONAL PLANT 242 242 121 97 97 97 97 97
HOMES PASSED - BEGINNING 16,303
NEW HOMES & EXTENSIONS 245 232 218 221 172 174 176 177
HOMES PASSED - ENDING 16,548 16,779 16,997 17,218 17,390 17,564 17,740 17,917
GROWTH IN HOMES 1.5% 1.4% 1.3% 1.3% 1.0% 1.0% 1.0% 1.0%
BASIC - BEGINNING SUBSCRIBERS 11,083 11,580 11,994 12,320 12,652 12,866 13,082 13,302
AVERAGE SUBSCRIBERS 11,332 11,787 12,157 12,486 12,759 12,974 13,192 13,413
ENDING SUBSCRIBERS 11,580 11,994 12,320 12,652 12,886 13,082 13,302 13,524
PENETRATION 70.0% 71.5% 72.5% 73.5% 74.0% 74.5% 75.0% 75.5%
EXPANDED BASIC - BEGINNING 10,778 11,262 11,664 11,981 12,304 12,512 12,722 12,936
AVERAGE SUBSCRIBERS 11,020 11,463 11,822 12,142 12,408 12,617 12,829 13,044
ENDING SUBSCRIBERS 11,262 11,664 11,981 12,304 12,512 12,722 12,936 13,152
PENETRATION 97.2% 97.2% 97.2% 97.2% 97.2% 97.2% 97.2% 97.2%
PAY TV - BEGINNING UNITS 7,706 8,110 8,459 8,751 9,050 9,267 9,423 9,581
AVERAGE UNITS 7,908 8,284 8,605 8,900 9,159 9,345 9,502 9,661
ENDING UNITS 8,110 8,459 8,751 9,050 9,267 9,423 9,581 9,742
PENETRATION 70.0% 70.5% 71.0% 71.5% 72.0% 72.0% 72.0% 72.0%
PAY PER VIEW- BEGINNING UNITS/MO 372 929 1,265 1,639 2,062 2,438 2,803 3,195
AVERAGE UNITS 651 1,097 1,452 1,851 2,250 2,620 2,999 3,406
ENDING UNITS 929 1,265 1,639 2,062 2,438 2,803 3,195 3,616
AVERAGE BUY RATE/MO 17.0% 21.0% 25.0% 29.0% 32.0% 35.0% 38.0% 41.0%
CONVERTER RENTALS - BEGINNING 2,619 3,084 3,554 3,897 4,255 4,455 4,661 4,873
AVERAGE SUBSCRIBERS 2,851 3,319 3,725 4,076 4,355 4,558 4,767 4,981
ENDING SUBSCRIBERS 3,084 3,554 3,897 4,255 4,455 4,661 4,873 5,089
PENETRATION 26.6% 29.6% 31.8% 33.6% 34.6% 35.6% 36.6% 37.6%
ADDRESSABLE HOMES - BEGINNING 4,900 5,467 6,022 6,556 7,112 7,618 8,008 8,408
AVERAGE HOMES 5,184 5,745 6,289 6,834 7,365 7,813 8,208 8,614
ENDING HOMES 5,467 6,022 6,556 7,112 7,618 8,008 8,408 8,819
PENETRATION 47.2% 50.2% 53.2% 56.2% 59.2% 61.2% 63.2% 65.2%
BASIC CHURN RATE 15% 15% 15% 15% 15% 15% 15% 15%
YEAR ENDING APRIL 30, 2004 2005
---- ----
BEGINNING MILES
MILES ADDED 1.9 1.9
CUMULATIVE MILES 183.7 185.6
DENSITY OF ADDITIONAL PLANT 97 97
HOMES PASSED - BEGINNING
NEW HOMES & EXTENSIONS 179 181
HOMES PASSED - ENDING 18,097 18,278
GROWTH IN HOMES 1.0% 1.0%
BASIC - BEGINNING SUBSCRIBERS 13,524 13,750
AVERAGE SUBSCRIBERS 13,637 13,864
ENDING SUBSCRIBERS 13,750 13,979
PENETRATION 76.0% 76.5%
EXPANDED BASIC - BEGINNING 13,152 13,372
AVERAGE SUBSCRIBERS 13,262 13,483
ENDING SUBSCRIBERS 13,372 13,594
PENETRATION 97.2% 97.2%
PAY TV - BEGINNING UNITS 9,742 9,904
AVERAGE UNITS 9,823 9,987
ENDING UNITS 9,904 10,069
PENETRATION 72.0% 72.0%
PAY PER VIEW- BEGINNING UNITS/MO 3,616 4,068
AVERAGE UNITS 3,841 4,307
ENDING UNITS 4,066 4,547
AVERAGE BUY RATE/MO 44.0% 47.0%
CONVERTER RENTALS - BEGINNING 5,089 5,312
AVERAGE SUBSCRIBERS 5,201 5,426
ENDING SUBSCRIBERS 5,312 5,540
PENETRATION 38.6% 39.6%
ADDRESSABLE HOMES - BEGINNING 8,819 9,242
AVERAGE HOMES 9,031 9,458
ENDING HOMES 9,242 9,675
PENETRATION 67.2% 69.2%
BASIC CHURN RATE 15% 15%
- ----------------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT F
MANITOWOC, WISCONSIN
AS OF APRIL 30,1995
- ----------------------------------
SERVICE RATES
- -------------
CURRENT RATES
- -------------
BASIC $11.08
EXPANDED BASIC 9.58
PAY 7.22
PAY PER VIEW 10.31
CONVERTER RENTALS 1.45
INSTALLATIONS-NEW 35.00
INSTALLATIONS-CHURN 17.50
YEAR ENDING APRIL 30, 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
PERCENTAGE RATE INCREASES
- -------------------------
BASIC 2% 3% 3% 3% 3% 3% 3% 3% 3% 3%
EXPANDED BASIC 6% 4% 3% 3% 3% 3% 3% 3% 3% 3%
PAY 1% 1% 1% 1% 1% 1% 1% 1% 1% 1%
PAY PER VIEW -40% 3% 3% 3% 3% 3% 3% 3% 3% 3%
CONVERTER RENTALS 1% 3% 3% 3% 3% 3% 3% 3% 3% 3%
INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% 3% 3% 3% 3%
INSTALLATION-CHURN 0% 3% 3% 3% 3% 3% 3% 3% 3% 3%
AVERAGE RATES
- -------------
BASIC $11.28 $11.62 $11.97 $12.33 $12.70 $13.08 $13.47 $13.88 $14.29 $14.72
EXPANDED BASIC 10.16 10.56 10.88 11.20 11.54 11.88 12.24 12.61 12.99 13.38
PAY 7.31 7.39 7.46 7.54 7.61 7.69 7.76 7.84 7.92 8.00
PAY PER VIEW 6.19 6.37 6.56 6.76 6.96 7.17 7.39 7.61 7.84 8.07
CONVERTER RENTALS 1.47 1.51 1.56 1.61 1.65 1.70 1.75 1.81 1.86 1.92
INSTALLATION-NEW 35.00 36.05 37.13 38.25 39.39 40.57 41.79 43.05 44.34 45.67
INSTALLATION-CHURN 17.50 18.03 18.57 19.12 19.70 20.29 20.90 21.52 22.17 22.83
- ----------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT G
MANITOWOC, WISCONSIN ---------
AS OF APRIL 30, 1995
- ----------------------------
YEAR ENDING APRIL 30, 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
REVENUES:
BASIC $1,534,271 $1,643,824 $1,746,265 $1,847,347 $1,944,356 $2,036,431
EXPANDED BASIC 1,342,951 1,452,384 1,542,895 1,632,205 1,717,917 1,799,268
PAY TV 694,052 734,384 770,432 804,848 836,476 862,042
PAY PER VIEW 48,304 83,881 114,334 150,121 187,996 225,487
CONVERTER RENTALS 50,277 60,275 69,687 78,531 86,430 93,175
INSTALLATIONS 46,751 46,362 45,505 48,048 45,603 47,738
COMMERCIAL 36,225 37,312 38,431 39,584 40,772 41,995
ADVERTISING 273,000 354,900 443,625 532,350 622,850 716,277
MISCELLANEOUS 59,955 61,754 63,606 65,514 67,480 69,504
------ ------ ------ ------ ------ ------
TOTAL REVENUES $4,085,786 $4,475,074 $4,834,780 $5,198,549 $5,549,879 $5,891,917
OPERATING EXPENSES:
OPERATIONS $665,600 $740,296 $786,549 $834,069 $879,945 $925,015
GENERAL & ADMINISTRATIVE 549,941 583,607 615,522 647,436 678,517 708,676
SALES & MARKETING 290,667 350,393 413,975 478,100 542,207 608,728
PROGRAMMING 907,233 1,002,843 1,073,045 1,144,600 1,214,331 1,279,037
------- --------- --------- --------- --------- ---------
TOTAL OPERATING EXPENSES $2,413,441 $2,677,139 $2,889,090 $3,104,205 $3,315,000 $3,521,457
OPERATING INCOME $1,672,344 $1,797,935 $1,945,690 $2,094,343 $2,234,878 $2,370,460
OPERATING MARGIN 40.9% 40.2% 40.2% 40.3% 40.3% 40.2%
TOTAL REVENUE/BASIC SUB/MONTH $30.05 $31.64 $33.14 $34.70 $36.25 $37.84
CASH FLOW/BASIC SUB/MONTH $12.30 $12.71 $13.34 $13.98 $14.60 $15.23
OPERATIONS % OF REVENUE 16% 17% 16% 16% 16% 16%
G & A PERCENTAGE OF REVENUE 13% 13% 13% 12% 12% 12%
SALES & MARKETING % OF REVENUE 7% 8% 9% 9% 10% 10%
PROGRAMMING % OF REVENUE 22% 22% 22% 22% 22% 22%
YEAR ENDING APRIL 30, 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- -----
REVENUES:
BASIC $2,132,768 $2,233,563 $2,339,018 $2,449,346 $19,907,189
EXPANDED BASIC 1,884,386 1,973,442 2,066,616 2,164,095 17,576,160
PAY TV 885,292 909,129 933,566 958,618 8,388,837
PAY PER VIEW 265,817 310,914 361,203 417,140 2,165,196
CONVERTER RENTALS 100,360 108,012 116,157 124,826 887,730
INSTALLATIONS 49,972 52,308 54,751 57,306 494,343
COMMERCIAL 43,255 44,552 45,889 47,265 415,279
ADVERTISING 809,393 906,520 997,172 1,096,889 6,752,976
MISCELLANEOUS 71,589 73,737 75,949 78,228 687,317
------ ------ ------ ------ -------
TOTAL REVENUES $6,242,832 $6,612,177 $6,990,321 $7,393,713 $57,275,026
OPERATING EXPENSES:
OPERATIONS $971,564 $1,020,343 $1,070,749 $1,123,930 $9,018,061
GENERAL & ADMINISTRATIVE 739,990 772,693 806,635 842,193 6,945,211
SALES & MARKETING 675,347 744,851 810,522 882,353 5,797,142
PROGRAMMING 1,345,523 1,416,288 1,491,626 1,571,847 12,446,373
--------- --------- --------- --------- ----------
TOTAL OPERATING EXPENSES $3,732,423 $3,954,175 $4,179,533 $4,420,323 $34,206,787
OPERATING INCOME $2,510,409 $2,658,002 $2,810,788 $2,973,389 $23,068,239
OPERATING MARGIN 40.2% 40.2% 40.2% 40.2%
TOTAL REVENUE/BASIC SUB/MONTH $39.44 $41.08 $42.72 $44.44
CASH FLOW/BASIC SUB/MONTH $15.86 $16.51 $17.18 $17.87
OPERATIONS % OF REVENUE 16% 15% 15% 15%
G & A PERCENTAGE OF REVENUE 12% 12% 12% 11%
SALES & MARKETING % OF REVENUE 11% 11% 12% 12%
PROGRAMMING % OF REVENUE 22% 21% 21% 21%
- -----------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT H
MANITOWOC, WISCONSIN ---------
AS OF APRIL 30,1995
- -----------------------------
CAPITAL EXPENDITURES
- --------------------
YEAR ENDING APRIL 30, 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
ASSUMPTIONS AND INPUTS:
- ----------------------
BV OF EXISTING PLANT $ 2,557,618
ADDITIONAL MILES OF PLANT 1.0 1.0 1.8 2.3 1.8 1.8
AERIAL PLANT PER MILE $13,000 $13,260 $13,525 $13,796 $14,072 $14,353
UNDERGROUND PLANT PER MILE $16,000 $16,320 $16,646 $16,979 $17,319 $17,665
PERCENTAGE OF PLANT AERIAL 5% 5% 5% 5% 5% 5%
PERCENTAGE OF PLANT UNDERGROUND 95% 95% 95% 95% 95% 95%
AVERAGE COST PER CONVERTER $100 $102 $104 $106 $108 $110
PERCENTAGE CONVERTER USE 27% 30% 32% 34% 35% 36%
PERCENTAGE REPLACEMENT 3% 3% 3% 3% 4% 7%
INSTALLATION COST PER SUBSCRIBER $50 $51 $52 $53 $54 $55
MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $8
INFLATION FACTOR FOR CAPITALS 0% 2% 2% 2% 2% 2%
ANNUAL COSTS:
- ------------
PLANT ADDITIONS-AERIAL $657 $635 $1,220 $1,576 $1,253 $1,290
-UNDERGROUND 15,374 14,855 28,534 36,854 29,292 30,177
PLANT REBUILD/UPGRADE 50,000 51,000 52,020 53,060 54,122 55,204
AVERAGE COST OF NEW CONVERTERS 13,241 12,507 10,725 11,861 8,002 8,516
CONVERTER REPLACEMENT 8,854 10,500 11,841 13,191 18,971 35,429
INSTALLATION COSTS 106,874 108,512 109,294 114,382 112,898 117,066
MISC. CAPITAL EXPENDITURES 56,658 60,114 63,240 66,252 69,054 71,621
------------ ----------- ---------- ----------- -------- --------
TOTAL CAPITAL EXPENDITURES $251,658 $258,123 $276,875 $297,175 $293,591 $319,304
AS A % OF OPERATING INCOME 15.0% 14.4% 14.2% 14.2% 13.1% 13.5%
CAPITAL EXPENDITURES
- --------------------
YEAR ENDING APRIL 30, 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- -----
ASSUMPTIONS AND INPUTS:
- ----------------------
0V 0F EXISTING PLANT
ADDITIONAL MILES OF PLANT 1.8 1.8 1.9 1.9
AERIAL PLANT PER MILE $14,640 $14,933 $15,232 $15,536
UNDERGROUND PLANT PER MILE $18,019 $18,379 $18,747 $19,121
PERCENTAGE 0F PLANT AERIAL 5% 5% 5% 5%
PERCENTAGE 0F PLANT UNDERGROUND 95% 95% 95% 95%
AVERAGE COST PER CONVERTER $113 $115 $117 $120
PERCENTAGE CONVERTER USE 37% 38% 39% 40%
PERCENTAGE REPLACEMENT 7% 7% 7% 7%
INSTALLATION COST PER SUBSCRIBER $56 $57 $59 $60
MISC. CAPITAL PER SUBSCRIBER $6 $6 $6 $6
INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 120%
ANNUAL COSTS:
PLANT ADDITIONS-AERIAL $1,329 $1,370 $1,411 $1,454 $12,195
-UNDERGROUND 31,086 32,027 32,994 33,990 265,184
PLANT REBUILDIUPGRADE 56,308 57,434 58,583 59,755 547,486
AVERAGECOSTOFNEWCONVERTERS 9,056 9,622 10,217 10,841 104,587
CONVERTER REPLACEMENT 37,777 40,249 42,850 45,587 265,248
INSTALLATION COSTS 121,383 125,653 130,483 135,276 1,182,024
MISC. CAPITAL EXPENDITURES 74,281 77,037 79,891 82,847 700,995
----------- ------------- -------------- ------------- ------------
TOTAL CAPITAL EXPENDITURES $331,222 $343,592 $356,429 $369,751 $3,097,719
AS A % OF OPERATING INCOME 13.2% 12.9% 12.7% 12.4%
- -------------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT I
MANITOWOC, WISCONSIN ---------
AS OF APRIL 30, 1995
- -------------------------------
DEPRECIATION
- ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6
------ ------ ------ ------ ------ ------
ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9%
DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 2001
---- ---- ---- ---- ---- ----
YEAR 1 $401,446 $687,992 $491,342 $350,879 $250,868 $250,587
YEAR 2 36,886 63,214 45,146 32,240 23,050
YEAR 3 39,565 67,807 48,425 34,582
YEAR 4 42,466 72,778 51,976
YEAR 5 41,954 71,900
YEAR 6 45,628
YEAR 7
YEAR 8
YEAR 9
YEAR 10
-------- -------- -------- -------- -------- --------
TOTAL DEPRECIATION $401,446 $724,877 $594,122 $506,297 $446,266 $477,724
YEAR 7 YEAR 8
------ ------
ESTIMATED DEPRECIATION RATES 8.9% 4.5%
DEPRECIATION - BEG. & ADTNS. 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- -----
YEAR 1 $250,868 $125,294 $2,809,276
YEAR 2 23,025 23,050 11,512 258,123
YEAR 3 24,725 24,697 24,725 12,349 276,875
YEAR 4 37,117 26,538 26,508 26,538 283,921
YEAR 5 51,349 36,670 26,218 26,188 254,279
YEAR 6 78,197 55,846 39,881 28,514 669,154
YEAR 7 47,332 81,116 57,931 41,370 559,310
YEAR 8 49,099 84,146 60,094 193,339
YEAR 9 50,934 87,289 138,223
YEAR 10 52,837 52,837
-------- -------- -------- -------- ----------
TOTAL DEPRECIATION $512,613 $422,310 $321,854 $335,179 $4,742,689
---------------------------------
CABLE TV JOINT FUND 11-ABCD EXHIBIT J
MANITOWOC, WISCONSIN ---------
AS 0F APRIL 30, 1995
---------------------------------
ASSUMPTIONS AND INPUTS
- ----------------------
REMAINING LIFE OF FRANCHISES (YEARS) 12
AVERAGE SUBSCRIBER LIFE (YEARS) 8
INCOME TAX RATE 34%
CAPITAL GAIN RATE 34%
NET FMV OF EXISTING ASSETS $2,557,618
SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH
ANALYSIS ANALYSIS
-------- --------
DEBT PERCENTAGE 50% 50%
EQUITY PERCENTAGE 50% 50%
RESIDUAL MULTIPLE (ROE & ROI) 9 9
MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5
MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0
MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5
TARGET RETURN ON EQUITY 14.0% 12.0%
TARGET RETURN ON INVESTMENT 16.9% 15.3%