EXHIBIT 99(b)(1)
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 12-BCD VENTURE
ALBUQUERQUE, NEW MEXICO
As of April 30, 1997
Prepared for:
JONES INTERCABLE, INC.
Englewood, Colorado
Prepared by:
THE STRATEGIS GROUP, INC.
1130 Connecticut Avenue, N.W.
Suite 325
Washington, D.C. 20036
(202) 530-7500
May 27, 1997
(C) Copyright 1997 The Strategis Group, Inc.
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 12-BCD VENTURE
ALBUQUERQUE, NEW MEXICO
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......................................................... 16
C. Rates............................................................ 22
D. Subscribers...................................................... 24
E. System Mileage................................................... 25
F. Physical Plant................................................... 25
G. Franchises....................................................... 27
H. Management....................................................... 27
I. Financial History................................................ 28
V. TOTAL SYSTEM VALUE.................................................. 29
A. Valuation Procedure and Methods.................................. 29
B. Discounted Cash Flow Methodology................................. 31
1. Net Cash Flow/Return on Equity................................ 32
2. Net Cash Flow/Return On Investment............................ 33
3. Cash Flow Projections......................................... 33
4. Residual Value................................................ 35
5. Discount Rates................................................ 36
C. Direct Income Methodology........................................ 37
D. Value Conclusions................................................ 38
TABLE OF CONTENTS
-----------------
VI. CONTINGENCIES AND LIMITING CONDITIONS............................... 39
VII. STATEMENT OF VALUE.................................................. 41
VIII. QUALIFICATIONS...................................................... 42
A. Qualifications of The Strategis Group, Inc. ..................... 42
B. Qualifications of Andrew R. Gefen................................ 43
C. Qualifications of Susan Donovan.................................. 44
EXHIBITS:
A. Valuation Methods and Summary of Values
B-1. 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 FUND 12-BCD VENTURE
ALBUQUERQUE, NEW MEXICO
I. EXECUTIVE SUMMARY
A. INTRODUCTION, PURPOSE, AND METHODOLOGY
The Strategis Group, Inc. was retained by Jones Intercable, Inc. ("Jones")
to conduct a fair market valuation as of April 30, 1997, of the Cable TV Fund
12-BCD Venture cable television system serving Albuquerque, New Mexico (the
"System"). This appraisal will be used by Jones as an independent estimate of
the fair market value of the System as of April 30, 1997, with the resulting
value to be used in conjunction with the purchase of 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. The Strategis
Group 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.
The Strategis Group used five generally accepted cable television valuation
methods using the income approach to valuation in establishing the range of
total fair market values 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. 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
1
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
The Strategis Group's conclusions as to the range of values are based upon
information and data supplied by System management, an onsite inspection by a
representative of The Strategis Group of a representative portion of the System
and service area, and general cable industry information. In The Strategis
Group'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 $233,440,000.
2
II. PURPOSE OF APPRAISAL
The Strategis Group, Inc. was retained by Jones Intercable, Inc. ("Jones")
to conduct a fair market valuation as of April 30, 1997 of the Cable TV Fund 12-
BCD Venture cable television system (the "System"), serving Albuquerque, New
Mexico. This appraisal will be used by Jones as an independent estimate of the
fair market value of the System as of April 30, 1997.
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 1940s. 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
4
top 100 markets were built first, 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 1992, 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.
The Cable Television Consumer Protection and Competition Act of 1992 was
passed on October 5, 1992, which imposed significant new regulations,
particularly on subscriber rates and programming packaging. Generally,
programming packages were specifically segregated between the "basic tier" and
the "satellite programming tier(s)" since the level of regulation was different
for each of them. After the new regulations
5
were implemented, the overall cable industry experienced a slight reduction in
revenues in 1993, but learned to cope with the new regulations in 1994 and
continued its overall growth due to added services, increased subscriber
penetrations and repackaging of programming services.
The Telecommunications Act of 1996, passed on February 8, 1996, revised the
Communications Act of 1934 and the Cable Act of 1992 in fundamental ways. It
highlighted competition in local loop telephone, video distribution, and long
distance telephone, and de-regulated cable rates beginning in 1999. The goal
was to create a competitive telecommunications marketplace. The FCC is in the
process of promulgating regulations to implement the law so its effect is still
uncertain.
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
6
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 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 13,000 operating cable systems. The industry is
structured into over 500 MSOs 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 MSOs 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.
7
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 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
8
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 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. By yearend 1995, widescale telecommunications
reform appeared imminent; although, the extent to which or even whether this
reform would entail relief from rate regulation was unclear. The likelihood
that providers of cable and telephony services would be allowed engage in both
businesses was a near certainty, however, the timetable for these changes was
uncertain.
The Telecommunications Act of 1996, passed on February 8, 1996, revised the
Communications Act of 1934 and the Cable Act of 1992 in fundamental ways. It
highlighted competition in local loop telephone, video distribution, and long
distance telephone, and de-regulated cable rates beginning in 1999. The goal
was to create a competitive telecommunications marketplace. The FCC is in the
process of promulgating regulations to implement the law so its effect is still
uncertain.
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 MSOs 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
9
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 resultant rate regulation decreased the overall attractiveness
of the cable industry to potential investors.
During the early- to mid-1990s, several of the largest MSOs 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 MSOs 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.
10
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 has begun to face increasing competition from new
distribution technologies including direct-broadcast satellite (DBS), satellite
master antenna television (SMATV), and multichannel multipoint distribution
service (MMDS). 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. The Strategis
Group anticipates that the threat to cable television by these technologies in
the next few years will not be material, 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 (MDUs). 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,
11
video and data services to the home. Several of the largest MSOs, in
conjunction with telephone companies, have built these experimental systems to
determine their feasibility from both technological and marketing perspectives.
As of the mid- to late-1990s, the telephone industry is in the experimental
stage with regard to using fiber optic cable to deliver services to the home.
Cable companies, for their part, are focusing on the delivery of digital program
and data services via hybrid fiber and coaxial cable networks. For
technological, financial, and regulatory reasons, the full convergence of
telecommunications services and service providers is most likely years away.
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IV. SYSTEM DESCRIPTION
A. HISTORY AND MARKET
At the time of the appraisal, the System served 112,613 subscribers.
Approximately 85% of subscribers resided in the City of Albuquerque, while the
remainder resided in surrounding areas of Bernalillo, Sandoval, and Valencia
counties. The provision of cable service was governed by nine franchise
agreements held with local authorities. As of April 30, 1997, the weighted
average remaining life of the nine franchise agreements was 3.4 years.
Albuquerque is located in the north central part of New Mexico,
approximately 125 miles south of Colorado and 200 miles west of Texas. Much of
the land in the region, as throughout the state, is uninhabited desert or has
been reserved for the use of Native American tribes. The City of Albuquerque is
spread out geographically and its population is roughly 350,000. The nearest
community of substantial size in the same region is Santa Fe, with a population
of about 100,000, approximately 55 miles to the northeast of Albuquerque.
System management indicates that demographic and economic growth in the
service area has been steady in the past several years and is projected to
continue at a comparable pace. The workforce is comprised of approximately 65%
white collar, 20% blue collar, and 15% service-related workers, and an estimated
40% of the population is Hispanic. The metropolitan area's largest employers
include: the public school system, with about 11,000 employees; Kirtland Air
Force Base (AFB), with 6,000 military and 7,000 civilian employees; the
University of New Mexico, with 6,000 employees; and the city government with
6,000 employees. Private sector employers include Sandia National Laboratories
(energy and environmental research), with 7,500 employees; Intel
(microprocessors), with 4,200 employees; and Motorola (ceramic production), with
2,300 employees. The unemployment rate in the Albuquerque Metropolitan
Statistical Area (MSA) was 4.1% in March 1997. This rate compares favorably
with statewide
13
unemployment of 6.6% and national unemployment of 5.5% during this period,
according to the U.S. Bureau of Labor Statistics.
At the time of the appraisal, Direct Broadcast Satellite (DBS) service had
been available in Albuquerque for nearly three years, with Direct TV having
launched service in the summer of 1994. As of the appraisal date, Echostar and
PrimeStar were also active in the market. System management estimated that, as
of April 30, 1997, the three DBS operators had a combined penetration of almost
3% of homes in the service area. A survey conducted several months prior to the
valuation date of System subscribers who had disconnected their cable service,
revealed that 10% of these former customers had purchased equipment to receive
DBS service.
Other providers of video services in Albuquerque included Sierra Cable, a
regional multichannel multipoint Distribution Service (MMDS, or wireless cable)
operator with subscribers generally outside the System's service area, and
several `shared tenant' service providers. ICS and New Mexico Lightwave offered
video, security, and telephone services in multiple dwelling units. System
management indicated that one of the two companies was reportedly experiencing
difficulty with service delivery. On a combined basis, the two companies had
very few customers.
Table I presents demographic data published in Marketing Statistics'
Demographics USA 1996 for the New Mexico counties of Bernalillo, Sandoval, and
Valencia. Data for population, households, and Effective Buying Income (EBI)
were estimated for 1995 and projected for 2000. Also presented, for comparison
purposes, are data for the state of New Mexico and the nation as a whole.
Bernalillo County, which encompassed Albuquerque and the overwhelming
majority of System subscribers, had a population of approximately 526,100 in
1995. At the time of the appraisal, its population was forecast to grow at an
annual rate of 1.12% through 2000, which was somewhat lower than anticipated
statewide growth in population of 1.59%. Population in the U.S. as a whole was
forecast to grow by 0.83%. Higher population growth rates were projected for
Sandoval and Valencia counties.
14
Sandoval County, with a population of 81,500 in 1995, was forecast to grow by
3.50% annually through 2000 to 96,800. Valencia County's 1995 population of
58,000 was forecast to increase by 3.47% per year to 68,800 over the same
period.
Average household EBI in Bernalillo County was $38,734 in 1995. While this
figure was lower than the national average household EBI of $40,598, it was
notably higher than the statewide figure for New Mexico of $34,067. Growth in
household EBI was forecast at 4.04% annually in Bernalillo County, and at 3.64%
and 2.97% throughout New Mexico and the U.S. as a whole, respectively. Sandoval
County's household EBI was comparable, at $38,596, to Bernalillo's household
EBI, although it was projected to grow at a more rapid pace of 5.18% per year
through 2000. Household EBI in Valencia County was somewhat more modest, at
$32,820, with a projected growth rate of 3.16%. This information is presented
in Table I.
TABLE I
Annual
1995 2000 Growth Rate
Estimate Projection 1995-2000
---------- ----------- ---------
Bernalillo County, NM
- ---------------------
Total Population 526,100 556,300 1.12%
Total Households 203,700 218,500 1.41%
Median Age 33.7 N/A
Effective Buying Income (EBI)
Total EBI (000's) $7,890,216 $10,315,727 5.51%
Average Household EBI $ 38,734 $ 47,212 4.04%
Sandoval County, NM
- -------------------
Total Population 81,500 96,800 3.50%
Total Households 27,200 32,900 3.88%
Median Age 31.9 N/A
Effective Buying Income (EBI)
Total EBI (000's) $1,049,815 $ 1,634,854 9.26%
Average Household EBI $ 38,596 $ 49,692 5.18%
15
TABLE I (CONTINUED)
Annual
1995 2000 Growth Rate
Estimate Projection 1995-2000
-------------- -------------- ---------
Valencia County, NM
- -------------------
Total Population 58,000 68,800 3.47%
Total Households 19,300 23,300 3.84%
Median Age 33.0 N/A
Effective Buying Income (EBI)
Total EBI (000's) $ 633,420 $ 893,328 7.12%
Average Household EBI $ 32,820 $ 38,340 3.16%
State of New Mexico
- -------------------
Total Population 1,700,400 1,840,200 1.59%
Total Households 609,200 668,300 1.87%
Median Age 32.7 N/A
Effective Buying Income (EBI)
Total EBI (000's) $ 20,753,479 $ 27,222,357 5.58%
Average Household EBI $ 34,067 $ 40,734 3.64%
United States of America
- ------------------------
Total Population 264,900,900 276,107,000 0.83%
Total Households 97,647,400 102,813,100 1.04%
Median Age 34.5 N/A
Effective Buying Income (EBI)
Total EBI (000's) $3,964,285,118 $4,832,437,673 4.04%
Average Household EBI $ 40,598 $ 47,002 2.97%
B. SERVICES
Tables II (A)-(C) present programming services offered to System
subscribers as of the appraisal date. The majority of subscribers, roughly
110,000, were able to receive the 58 channel program line-up shown in Table II
(A). Limited basic service was comprised of 19 channels, ten of which were
local off-air broadcast signals, two of which carried local access programming,
and seven of which were satellite delivered services. Expanded basic service
encompassed 31 satellite delivered services carried on channels 8-10, 17-18, and
29-56. Premium services available included Cinemax, HBO,
16
The Movie Channel, and Showtime. The Encore 1 PLEX channel was available on an
a la carte basis to limited basic subscribers. Also offered were two general
audience movie/event pay-per-view (PPV) services and Spice for adults.
TABLE II (A)
ALBUQUERQUE
- ------------------------------------------------------------------------------------------------------
CABLE
(OFF-AIR) NAME OR
CHANNELS CALL LETTERS SOURCE DESCRIPTION
- ------------------------------------------------------------------------------------------------------
2 (2) KASA Albuquerque, NM Fox
- ------------------------------------------------------------------------------------------------------
3 CINEMAX SATELLITE PAY MOVIES
- ------------------------------------------------------------------------------------------------------
4 (4) KOB-TV Albuquerque, NM NBC
- ------------------------------------------------------------------------------------------------------
5 (5) KNME-TV Albuquerque, NM PBS
- ------------------------------------------------------------------------------------------------------
6 Knowledge TV Satellite Educational
- ------------------------------------------------------------------------------------------------------
7 (7) KOAT-TV Albuquerque, NM ABC
- ------------------------------------------------------------------------------------------------------
8 ESPN Satellite 24-Hour Sports
- ------------------------------------------------------------------------------------------------------
9 CNN Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
10 CNN Headline News Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
11 (11) KCHF Santa Fe, NM Independent
- ------------------------------------------------------------------------------------------------------
12 WTBS Satellite Independent - Atlanta, GA
- ------------------------------------------------------------------------------------------------------
13 (13) KRQE Albuquerque, NM CBS
- ------------------------------------------------------------------------------------------------------
14 Government Access Local Local Government
- ------------------------------------------------------------------------------------------------------
15 (41) KLUZ-TV Albuquerque, NM Univision
- ------------------------------------------------------------------------------------------------------
16 WGN-TV Satellite Independent - Chicago, IL
- ------------------------------------------------------------------------------------------------------
17 TNT Satellite Movies, Sports, Variety
- ------------------------------------------------------------------------------------------------------
18 USA Network Satellite Sports, Variety
- ------------------------------------------------------------------------------------------------------
19 Teach and Learn Network Satellite Educational
- ------------------------------------------------------------------------------------------------------
20 Prevue Channel Satellite Channel Guide
- ------------------------------------------------------------------------------------------------------
21 HBO SATELLITE PAY MOVIES, SPECIALS
- ------------------------------------------------------------------------------------------------------
22 (32) KAZQ Albuquerque, NM Educational
- ------------------------------------------------------------------------------------------------------
23 (23) KNAT Albuquerque, NM Religious Programming
- ------------------------------------------------------------------------------------------------------
24 Jones Computer Network Satellite Computer Users' Programming
- ------------------------------------------------------------------------------------------------------
25 Galavision Satellite Spanish Programming
- ------------------------------------------------------------------------------------------------------
26 Court TV/ Satellite/ Trial Coverage/
EWTN Satellite Religious Programming
- ------------------------------------------------------------------------------------------------------
27 Public Access Satellite Local Interest
- ------------------------------------------------------------------------------------------------------
28 (50) KASY-TV Albuquerque, NM Independent
- ------------------------------------------------------------------------------------------------------
29 Encore 1 PLEX Satellite Movies
- ------------------------------------------------------------------------------------------------------
30 MTV Satellite Music Videos
- ------------------------------------------------------------------------------------------------------
17
TABLE II (A) (CONTINUED)
ALBUQUERQUE
- -----------------------------------------------------------------------------------------------------
CABLE
(OFF-AIR) NAME OR
CHANNELS CALL LETTERS SOURCE DESCRIPTION
- -----------------------------------------------------------------------------------------------------
31 A&E Satellite Biographies, Mysteries, Specials
- -----------------------------------------------------------------------------------------------------
32 ESPN II Satellite 24-Hour Sports
- -----------------------------------------------------------------------------------------------------
33 Discovery Channel Satellite Science, Nature
- -----------------------------------------------------------------------------------------------------
34 Lifetime Satellite Women's Programming
- -----------------------------------------------------------------------------------------------------
35 The Family Channel Satellite Family Programming
- -----------------------------------------------------------------------------------------------------
36 Nickelodeon Satellite Childrens' Programming
- -----------------------------------------------------------------------------------------------------
37 The Disney Channel Satellite Movies, Family Shows
- -----------------------------------------------------------------------------------------------------
38 The Weather Channel Satellite 24-Hour Weather
- -----------------------------------------------------------------------------------------------------
39 HSN Satellite Home Shopping
- -----------------------------------------------------------------------------------------------------
40 American Movie Classics Satellite Classic Movies
- -----------------------------------------------------------------------------------------------------
41 CNBC Satellite Consumer, Business News
- -----------------------------------------------------------------------------------------------------
42 VH-1 Satellite Music Videos
- -----------------------------------------------------------------------------------------------------
43 The Nashville Network Satellite Country Music Videos
- -----------------------------------------------------------------------------------------------------
44 Great American Country Satellite Country Music Videos
- -----------------------------------------------------------------------------------------------------
45 C-SPAN Satellite U.S. House Coverage
- -----------------------------------------------------------------------------------------------------
46 E! Television Satellite Entertainment Information
- -----------------------------------------------------------------------------------------------------
47 C-SPAN 2 Satellite U.S. Senate Coverage
- -----------------------------------------------------------------------------------------------------
48 MSNBC Satellite News, Computer Information
- -----------------------------------------------------------------------------------------------------
49 Product Information Network Satellite Infomercial Service
- -----------------------------------------------------------------------------------------------------
52 Comedy Central Satellite Comedy Programming
- -----------------------------------------------------------------------------------------------------
53 Sci-Fi Channel Satellite Science Fiction
- -----------------------------------------------------------------------------------------------------
54 The History Channel Satellite Documentaries, Movies
- -----------------------------------------------------------------------------------------------------
55 fX Satellite Variety, Movies
- -----------------------------------------------------------------------------------------------------
56 Leased Access Local Variety
- -----------------------------------------------------------------------------------------------------
95 THE MOVIE CHANNEL SATELLITE PAY MOVIES
- -----------------------------------------------------------------------------------------------------
96 SHOWTIME SATELLITE PAY MOVIES, SPECIALS
- -----------------------------------------------------------------------------------------------------
97 REQUEST 1 SATELLITE PAY-PER-VIEW
- -----------------------------------------------------------------------------------------------------
98 REQUEST 4 SATELLITE PAY-PER-VIEW
- -----------------------------------------------------------------------------------------------------
99 SPICE SATELLITE ADULT PAY-PER-VIEW
- -----------------------------------------------------------------------------------------------------
Table II (B) presents the programming available to the approximately 1,000
subscribers served from the Bernalillo headend in the northern part of the
System. Limited basic service included ten local broadcast stations and five
satellite-delivered services. The System's expanded basic service was comprised
of 23 satellite-delivered
18
services, while available premium services included HBO, Showtime, The Movie
Channel, and Cinemax. Pay-per-view channels included two general audience
movie/event services.
TABLE II (B)
BERNALILLO
- ------------------------------------------------------------------------------------------------------
CABLE
(OFF-AIR) NAME OR
CHANNELS CALL LETTERS SOURCE DESCRIPTION
- ------------------------------------------------------------------------------------------------------
2 (2) KASA Albuquerque, NM Fox
- ------------------------------------------------------------------------------------------------------
3 CINEMAX SATELLITE PAY MOVIES
- ------------------------------------------------------------------------------------------------------
4 (4) KOB-TV Albuquerque, NM NBC
- ------------------------------------------------------------------------------------------------------
5 (5) KNME-TV Albuquerque, NM PBS
- ------------------------------------------------------------------------------------------------------
6 Knowledge TV Satellite Educational
- ------------------------------------------------------------------------------------------------------
7 (7) KOAT-TV Albuquerque, NM ABC
- ------------------------------------------------------------------------------------------------------
8 ESPN Satellite 24-Hour Sports
- ------------------------------------------------------------------------------------------------------
9 CNN Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
10 CNN Headline News Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
11 (11) KCHF Santa Fe, NM Independent
- ------------------------------------------------------------------------------------------------------
12 WTBS Satellite Independent - Atlanta, GA
- ------------------------------------------------------------------------------------------------------
13 (13) KRQE Albuquerque, NM CBS
- ------------------------------------------------------------------------------------------------------
14 Jones Computer Network Satellite Computer Users' Programming
- ------------------------------------------------------------------------------------------------------
15 (41) KLUZ-TV Albuquerque, NM Univision
- ------------------------------------------------------------------------------------------------------
16 THE MOVIE CHANNEL SATELLITE PAY MOVIES
- ------------------------------------------------------------------------------------------------------
17 TNT Satellite Movies, Sports, Variety
- ------------------------------------------------------------------------------------------------------
18 USA Network Satellite Sports, Variety
- ------------------------------------------------------------------------------------------------------
19 Prevue Channel Satellite Channel Guide
- ------------------------------------------------------------------------------------------------------
20 SHOWTIME SATELLITE PAY MOVIES, SPECIALS
- ------------------------------------------------------------------------------------------------------
21 HBO SATELLITE PAY MOVIES, SPECIALS
- ------------------------------------------------------------------------------------------------------
22 (32) KAZQ Albuquerque, NM Educational
- ------------------------------------------------------------------------------------------------------
23 (23) KNAT Albuquerque, NM Religious Programming
- ------------------------------------------------------------------------------------------------------
24 WGN-TV Satellite Independent - Chicago, IL
- ------------------------------------------------------------------------------------------------------
25 Galavision Satellite Spanish Programming
- ------------------------------------------------------------------------------------------------------
28 (50) KASY-TV Albuquerque, NM Independent
- ------------------------------------------------------------------------------------------------------
29 Encore 1 PLEX Satellite Movies
- ------------------------------------------------------------------------------------------------------
30 MTV Satellite Music Videos
- ------------------------------------------------------------------------------------------------------
31 A&E Satellite Biographies, Mysteries, Specials
- ------------------------------------------------------------------------------------------------------
32 ESPN II Satellite 24-Hour Sports
- ------------------------------------------------------------------------------------------------------
33 Discovery Channel Satellite Science, Nature
- ------------------------------------------------------------------------------------------------------
34 Lifetime Satellite Women's Programming
- ------------------------------------------------------------------------------------------------------
35 The Family Channel Satellite Family Programming
- ------------------------------------------------------------------------------------------------------
19
TABLE II (B) (CONTINUED)
BERNALILLO
- -----------------------------------------------------------------------------------------------------
CABLE
(OFF-AIR) NAME OR
CHANNELS CALL LETTERS SOURCE DESCRIPTION
- -----------------------------------------------------------------------------------------------------
36 Nickelodeon Satellite Childrens' Programming
- -----------------------------------------------------------------------------------------------------
37 The Disney Channel Satellite Pay Movies, Family Shows
- -----------------------------------------------------------------------------------------------------
38 The Weather Channel Satellite 24-Hour Weather
- -----------------------------------------------------------------------------------------------------
39 American Movie Classics Satellite Classic Movies
- -----------------------------------------------------------------------------------------------------
40 Comedy Central Satellite Comedy Programming
- -----------------------------------------------------------------------------------------------------
41 Great American Country Satellite Country Music Videos
- -----------------------------------------------------------------------------------------------------
42 The Nashville Network Satellite Country Music Videos
- -----------------------------------------------------------------------------------------------------
43 Product Information Network Satellite Infomercial Service
- -----------------------------------------------------------------------------------------------------
44 The History Channel Satellite Documentaries, Movies
- -----------------------------------------------------------------------------------------------------
45 Sci-Fi Channel Satellite Science Fiction
- -----------------------------------------------------------------------------------------------------
46 fX Satellite Variety, Movies
- -----------------------------------------------------------------------------------------------------
97 REQUEST 1 SATELLITE PAY-PER-VIEW
- -----------------------------------------------------------------------------------------------------
98 REQUEST 4 SATELLITE PAY-PER-VIEW
- -----------------------------------------------------------------------------------------------------
Table II (C) presents programming available to the remaining subscribers
served from the Bosque Farms headend, located in the southern part of the
System. The program line-up is similar to the Bernalillo service. Limited
basic included the same ten local broadcast stations and six satellite services,
while expanded basic included 20 satellite-delivered services. Premium channels
included HBO and Cinemax, and pay-per-view services included two general
audience movie/event channels and Spice for adults. This information is
presented in the following table.
20
TABLE II (C)
BOSQUE FARMS
- ------------------------------------------------------------------------------------------------------
CABLE
(Off-Air) NAME OR
CHANNELS CALL LETTERS SOURCE DESCRIPTION
- ------------------------------------------------------------------------------------------------------
2 (2) KASA Albuquerque, NM Fox
- ------------------------------------------------------------------------------------------------------
3 Cinemax SATELLITE PAY MOVIES
- ------------------------------------------------------------------------------------------------------
4 (4) KOB-TV Albuquerque, NM NBC
- ------------------------------------------------------------------------------------------------------
5 (5) KNME-TV Albuquerque, NM PBS
- ------------------------------------------------------------------------------------------------------
6 Knowledge TV Satellite Educational
- ------------------------------------------------------------------------------------------------------
7 (7) KOAT-TV Albuquerque, NM ABC
- ------------------------------------------------------------------------------------------------------
8 ESPN Satellite 24-Hour Sports
- ------------------------------------------------------------------------------------------------------
9 CNN Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
10 CNN Headline News Satellite 24-Hour News
- ------------------------------------------------------------------------------------------------------
11 (11) KCHF Santa Fe, NM Independent
- ------------------------------------------------------------------------------------------------------
12 WTBS Satellite Independent - Atlanta, GA
- ------------------------------------------------------------------------------------------------------
13 (13) KRQE Albuquerque, NM CBS
- ------------------------------------------------------------------------------------------------------
14 C-SPAN Satellite U.S. House Coverage
- ------------------------------------------------------------------------------------------------------
15 (41) KLUZ-TV Albuquerque, NM Univision
- ------------------------------------------------------------------------------------------------------
16 C-SPAN 2 Satellite U.S. Senate Coverage
- ------------------------------------------------------------------------------------------------------
17 TNT Satellite Movies, Sports, Variety
- ------------------------------------------------------------------------------------------------------
18 USA Network Satellite Sports, Variety
- ------------------------------------------------------------------------------------------------------
19 Time/Local Messages Local Local Information
- ------------------------------------------------------------------------------------------------------
20 KASY-TV Albuquerque, NM Independent
- ------------------------------------------------------------------------------------------------------
21 HBO SATELLITE PAY MOVIES, SPECIALS
- ------------------------------------------------------------------------------------------------------
22 (32) KAZQ Albuquerque, NM Educational
- ------------------------------------------------------------------------------------------------------
23 (23) KNAT Albuquerque, NM Religious Programming
- ------------------------------------------------------------------------------------------------------
24 WGN-TV Satellite Independent - Chicago, IL
- ------------------------------------------------------------------------------------------------------
25 The Nashville Network Satellite Country Music Videos
- ------------------------------------------------------------------------------------------------------
26 MTV Satellite Music Videos
- ------------------------------------------------------------------------------------------------------
27 The Weather Channel Satellite 24-Hour Weather
- ------------------------------------------------------------------------------------------------------
28 American Movie Classics Satellite Classic Movies
- ------------------------------------------------------------------------------------------------------
29 Lifetime Satellite Women's Programming
- ------------------------------------------------------------------------------------------------------
30 Comedy Central Satellite Comedy Programming
- ------------------------------------------------------------------------------------------------------
31 A&E Satellite Biographies, Mysteries, Specials
- ------------------------------------------------------------------------------------------------------
32 ESPN II Satellite 24-Hour Sports
- ------------------------------------------------------------------------------------------------------
33 Discovery Channel Satellite Science, Nature
- ------------------------------------------------------------------------------------------------------
34 Cartoon Network Satellite Cartoons
- ------------------------------------------------------------------------------------------------------
35 The Family Channel Satellite Family Programming
- ------------------------------------------------------------------------------------------------------
36 Nickelodeon Satellite Childrens' Programming
- ------------------------------------------------------------------------------------------------------
37 The Disney Channel Satellite Movies, Family Shows
- ------------------------------------------------------------------------------------------------------
38 Great American Country Satellite Country Music Videos
- ------------------------------------------------------------------------------------------------------
39 HSN Satellite Home Shopping
- ------------------------------------------------------------------------------------------------------
97 REQUEST 1 SATELLITE PAY-PER-VIEW
- ------------------------------------------------------------------------------------------------------
98 REQUEST 4 SATELLITE PAY-PER-VIEW
- ------------------------------------------------------------------------------------------------------
99 SPICE SATELLITE ADULT PAY-PER-VIEW
- ------------------------------------------------------------------------------------------------------
21
C. RATES
The average monthly programming rates, equipment rental rates, and
installation charges to subscribers for the preceding services as of the date of
the appraisal, are outlined in Table III. Comparison data for basic service,
pay services, and monthly revenue per subscriber were taken from The Strategis
Group publications Cable Trends: 1996 and 1997, which present year end 1995 and
1996 operating and financial data, respectively.
As shown in Table III, subscribers paid between $8.77 and $10.49 per month
for limited basic service and between $11.97 and $16.13 for expanded basic
service. The majority of subscribers to the System were served from the
Albuquerque headend and paid a combined basic and expanded basic rate that was
higher, at $26.62, than the average combined basic and expanded basic rate for
the nation, which was $19.90 as of 1995.
A la carte pay service rates in Albuquerque ranged from $6.88 for Showtime
and The Movie Channel to $11.50 for HBO. In Bernalillo a la carte rates were
uniform at $10.45 with the exception of Cinemax, while in Bosque Farms HBO was
$11.49 and Cinemax was $10.45. Subscribers at Kirtland AFB paid a la carte
rates ranging from $5.95 for Showtime to $9.95 for HBO. Packages of multiple
premium services were available at reduced rates. On a nationwide basis, the
average rate per pay unit was $9.70 in 1995, which fell within the range of a la
carte rates for pay services charged by the System.
Pay-per-view general audience movies were $4.15 throughout the System, with
the exception of Kirtland AFB where the rate was $3.95. Adult movies were $6.25
in Albuquerque and Bosque Farms and $5.95 on Kirtland AFB.
Addressable converter rentals were $3.57 per month except on Kirtland AFB
where they were $3.40 per month. Non-addressable converter monthly rental rates
were $1.05 except on Kirtland AFB where they were $1.00. Installation charges
were $18.21
22
for subscribers in pre-wired homes, $26.48 in unwired homes, and $31.50 for
reconnection of service. Corresponding installation fees for subscribers on
Kirtland AFB were $17.34, $25.22, and $30.00.
Average revenue per subscriber per month on a nationwide basis was $34.90
as of the end of 1996, according to The Strategis Group research. This figure
includes revenues from basic, pay, and PPV services, as well as local
advertising, equipment rental, and miscellaneous income. During the twelve
months prior to April 30, 1997, the System generated monthly average revenue of
$38.25 per subscriber, which was somewhat higher than the nationwide average for
1996.
TABLE III
---------------------------------------------------------------------------
BOSQUE KIRTLAND UNITED
ALBUQUERQUE BERNALILLO FARMS AFB STATES/1/
---------------------------------------------------------------------------
Basic Service $10.49 $ 8.77 $ 8.98 $ 9.61 $19.90
---------------------------------------------------------------------------
Expanded Basic $16.13 $12.98 $11.97 $14.66 N/A
---------------------------------------------------------------------------
Pay Services (a la carte): $ 9.70
HBO $11.50 $10.45 $11.49 $ 9.95
Cinemax $10.45 $ 6.88 $10.45 $ 9.25
Encore PLEX $ 7.30 N/A N/A N/A
Showtime $ 6.88 $10.45 N/A $ 5.95
The Movie Channel $ 6.88 $10.45 N/A $ 6.55
---------------------------------------------------------------------------
Pay Per View:
Movie $ 4.15 $ 4.15 $ 4.15 $ 3.95
Adult Movie $ 6.25 N/A $ 6.25 $ 5.95 N/A
---------------------------------------------------------------------------
Converters:
Non-Addressable $ 1.05 $ 1.05 $ 1.05 $ 1.00
Addressable $ 3.57 $ 3.57 $ 3.57 $ 3.40 N/A
---------------------------------------------------------------------------
Installation Charges: N/A
Pre-Wired $18.21 $18.21 $18.21 $17.34
Unwired $26.48 $26.48 $26.48 $25.22
Reconnect $31.50 $31.50 $31.50 $30.00
---------------------------------------------------------------------------
Revenue/Subscriber/Month $38.25 $34.90
---------------------------------------------------------------------------
/1/Source: The Strategis Group's Cable Trends: 1996 and 1997
23
D. SUBSCRIBERS
Table IV presents the number of homes passed, basic subscribers, expanded
basic subscribers, pay units, converter rentals, and addressable homes for the
System as of April 30, 1997. These figures are compared with similar figures
for the United States as a whole, taken from The Strategis Group's Cable Trends:
1997.
At the time of the appraisal, the System's basic penetration rate, at 48.1%
of homes passed, was lower than the corresponding rate for the nation of 65.8%.
Pay penetration for the System stood at 54.1%, which was well below the national
rate of 76.4%. Addressable home penetration for the System, at 20.5%, was also
lower than the national average of 48.1%.
TABLE IV
---------------------------------------
SYSTEM United States/1/
---------------------------------------
Homes Passed 234,101 95,500,000
---------------------------------------
Basic Subscribers 112,613 62,800,000
% of Homes Passed 48.1% 65.8%
---------------------------------------
Expanded Basic Subscribers 108,992 N/A
% of Basic Subscribers 96.8% N/A
---------------------------------------
Total Pay Units 60,912 48,000,000
% of Basic Subscribers 54.1% 76.4%
---------------------------------------
Converters 42,728 N/A
% of Basic Subscribers 37.9% N/A
---------------------------------------
Addressable Homes 23,096 30,200,000
% of Basic Subscribers 20.5% 48.1%
---------------------------------------
/1/Source: The Strategis Group's Cable Trends: 1997
24
E. SYSTEM MILEAGE
According to System management, mileage figures for the System are based on
estimates from System maps. Since a complete walk-out of the current System
would be prohibitively expensive, The Strategis Group used the following
approach to corroborate the plant mileage:
1. Interviewed knowledgeable System personnel to ascertain the source and
reliability of the mileage estimates.
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 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. Coaxial mileage was approximately 37.9% aerial and 62.1%
underground. Approximately 3.8% of total plant miles were fiber optic cable.
Based upon the above procedures and cost limitations, these estimates appear to
be reasonable.
TABLE V
Aerial Underground Sub-Total
----------- ----------------- --------------
Coaxial Plant 970.7 1,590.4 2,561.1
Fiber Optic Plant 64.2 13.9 78.1
TOTAL MILEAGE 2,639.2
F. PHYSICAL PLANT
As of the valuation date, the System's administrative offices were
maintained at 4611 Montbel Place, Northeast, Albuquerque. The System's
advertising sales department was located in separate office facilities at 1700A
Louisiana Street,
25
Albuquerque. Subscribers received signals processed at one of three headends.
The main headend, serving roughly 110,000 subscribers, was located at 2633
Tennessee Street, Northeast, Albuquerque. Also maintained at this site were
advertising sales and local access production facilities and bench technician
repair facilities. In the north portion of the System, a headend serving
roughly 1,000 subscribers was maintained at 1429 Camino del Pueblo in
Bernalillo. In the southern part of the System a third headend, serving the
remaining subscribers, was maintained in Bosque Farms. The System also
maintained microwave equipment to transmit signals to subscribers residing west
of the Rio Grande River. Overall, the System passed approximately 233,798 homes
with an estimated 2,639.2 miles of plant, for an overall density of 89 homes per
mile.
At the main headend equipment from a variety of manufacturers was in use,
however, items made by Scientific-Atlanta (S/A) and General Instruments (GI)
were predominant. Among these items were S/A 6150 signal processors, 6350
modulators, and Power Vu digital satellite receivers. GI equipment included
M/A-Com Videocipher II's, DSR-4400 MPEG digital satellite receivers, DSR-4500
NTSC satellite receivers, and 1500S satellite receivers. Other items in use
included Barco Pulsar TV modulators and Standard Agile IRD-II Videocipher RS
units.
For the fiber optic portion of the distribution plant, the System used an
Antec Laser Link II Plus transmitter and an AT&T LGX distribution frame. For
local advertising on 19 channels, a SeaChange Technology Digital Advertising
Insertion System and Sony PVW-2800 Betacam equipment was used.
Off-air antennas were mounted on a 160-foot self-supporting tower. Three
4.5-meter S/A dishes and one 5-meter Simulsat dish were used for program
reception, and emergency power was provided by an Onan 45 kVa propane generator.
The coaxial portion of the System's distribution plant fed from the main
headend, totaled approximately 2,400 miles. Of this mileage, about 88% was
built at a capacity of 450-MHz, while the remainder was built to 750-MHz
specifications. Plant fed from the Bernalillo headend, at approximately 90
miles, had a 400-MHz capacity.
26
The 65 miles of plant served from Bosque Farms had approximately 30% built to a
330-MHz capacity and 70% to a 450-MHz capacity. Overall, the System's plant was
generally in good condition, with the exception of approximately 340 miles of
plant located in the North/South Valley of Albuquerque, which will require a
complete rebuild in the near future.
Addressable homes totaled 23,096 in the System, and there were a total of
42,728 converters in the field. Converters provided to subscribers included S/A
and Panasonic standard set-top models, and Jerrold CFT-2000 addressable models.
G. FRANCHISES
As of April 30, 1997, the System operated under a total of nine franchise
agreements with different local government authorities. Table VI identifies
each agreement and its expiration date. As of the appraisal date, the weighted
average remaining life of the franchise agreements was 3.4 years.
TABLE VI
Franchise Expiration
- --------- ----------
City of Albuquerque September 1, 1999
Kirtland AFB August 28, 1999
Bosque Farms September 13, 1999
Bernalillo County August 5, 2011
Sandoval County March 3, 2002
Bernalillo August 17, 2001
Los Ranchos de Albuquerque May 14, 2011
Valencia County January 21, 2000
Corrales April 21, 2006
Weighted Average Remaining Life 3.4 Years
H. MANAGEMENT
At the time of the appraisal, the System operated with approximately 252
employees. The largest group of employees were in the technical department.
Among the 96 employees in this group, 27 were installers/technicians, 12 were
service
27
technicians, and 10 were responsible for maintenance. The second largest group
comprised the construction department with 42 employees. Customer service
representatives (CSRs) at the System totaled 37, for an average of approximately
3,000 subscribers per CSR. Residential and commercial sales and marketing
duties were handled by a staff of 27, including 13 salespersons. Administrative
employees, including management, numbered 25 and advertising sales at the System
were handled by a staff of 18, including eight account executives. The
advertising production staff had seven members, four of which were production
technicians.
The Strategis Group's representative met and spoke extensively with the
System's General Manager and acting Engineering Manager. Both were experienced
industry professionals and appeared to be well-versed on the System's
characteristics, including strengths and weaknesses.
I. FINANCIAL HISTORY
Unaudited financial statements for the year ending December 31, 1996,
showed that the System earned revenues of $49,487,925. Operating expenses
totaled $28,558,232, which resulted in operating income of $20,929,693 and an
operating profit margin of 42.3%. Statements for the first four months of 1997
indicated that operating profits of $7,252,729 were generated on revenues of
$17,214,712 for an operating margin of 42.1%. On an annualized basis, 1997
revenues would total $51,644,136 and operating profits would be $21,758,187.
28
V. TOTAL SYSTEM VALUE
The Strategis Group has estimated the fair market value for the System as a
business enterprise to be $233,440,000, as of April 30, 1997. 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
The Strategis Group 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.
29
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, The Strategis Group normally relies primarily
upon the capitalization of projected net cash flow, or "discounted cash flow"
approach, to estimate total value. The Strategis Group 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, The Strategis Group usually
gives greater consideration to the discounted cash flow methods in its final
judgment concerning the fair market value of a cable television system.
The Strategis Group 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. The Strategis Group also has
considered the second
30
general methodology 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
The Strategis Group 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. The Strategis Group'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 used in The
31
Strategis Group's discounted cash flow models are set forth in Exhibits E, F, G,
and H. Exhibit E provides details of The Strategis Group'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 The Strategis
Group'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. 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. The Strategis Group'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 seven-year projection period is based on the average
remaining franchise life of the System. 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, The
Strategis Group 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,
The Strategis Group has projected future subscribers, revenues, operating
expenses, and capital expenditures. The Strategis Group has then tested various
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.
32
Using the return-on-equity model, The Strategis Group 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, The Strategis Group 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. The Strategis Group
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, The Strategis Group has
analyzed the franchise area, the costs incurred to meet franchise obligations,
the length of the franchise period, the degree of competition, and the historic
results of the System's operations. The Strategis Group also has examined
factors that affect the industry, such as possibility of
33
regulation, competitive threats, rapid technical changes, and the development of
additional programming services. These factors have been incorporated into The
Strategis Group'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, The Strategis Group has carefully reviewed the demographics of
counties represented in the service area. Demographic information was gathered
from direct observation during The Strategis Group's onsite visit, discussion
with System management, Marketing Statistics' Demographics USA 1996, U.S. Census
Bureau data, and information obtained from the local Chamber of Commerce.
The Strategis Group also has reviewed information pertaining to the
System's franchises 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. The Strategis Group has calculated a
weighted average remaining life of 3.4 years for the franchises.
The projection period used for the cash flows normally is the weighted
average remaining life of the franchises, except when the weighted life of the
franchises falls below seven or exceeds ten years. When the franchise life
falls below seven years, The Strategis Group 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.
The Strategis Group 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 flow
methodology. The Strategis Group 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.
34
The Strategis Group'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. The
Strategis Group also has relied on information provided by System management
personnel, discussions with System personnel, and The Strategis Group'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,
The Strategis Group 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,
The Strategis Group has calculated a residual value for the System following the
seven-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 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, The Strategis Group has calculated the System's residual
value using seventh-year cash flow times a multiple of nine, as shown in Exhibit
J. This multiple reflects The Strategis Group's view that the System is likely
to have significant value in
35
seven 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 Rates
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, The Strategis Group has adopted a range of discount rates for its
discounted cash flow methods. In the after-tax return-on-equity model, The
Strategis Group 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 16.6%, while the high valuation rate
is 15.1%. The discount rates used in the two discounted cash flow methods are
indicated on Exhibit A and summarized in Exhibit J.
The Strategis Group 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.
36
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. The Strategis Group also has considered in our selection of the
discount rates 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 examined in our
selection of the discount rates.
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. The
Strategis Group has applied several alternative versions of this method to the
System. In the first model, The Strategis Group 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 year, The Strategis
Group 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, The Strategis Group
used the System's projected net operating income for the twelve months following
the appraisal date. 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, The Strategis Group has looked at the
income and stock
37
value of several publicly traded cable companies as of the appraisal date. From
this analysis, The Strategis Group 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, The Strategis Group has arrived
at a composite figure for each model. In the historical income model, The
Strategis Group has applied a low multiple of 10.5 and a high multiple of 11.5.
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, The Strategis Group
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 the various methods, The Strategis
Group concludes that the fair market value of the System as a business
enterprise as of April 30, 1997, was $233,440,000.
38
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 an onsite inspection by a
representative of The Strategis Group 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. The Strategis Group is under no obligation to update the appraisal to
account for events or additional data subsequent to the appraisal
date. The appraisal is based on laws and regulations in place as of
April 30, 1997, and does not reflect subsequent changes, if any, in
the relevant laws and regulations.
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 The Strategis Group.
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 The Strategis Group 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
39
statement made herein for any purpose other than those set forth in
this appraisal.
5. The Strategis Group did not consider, or factor into the appraisal,
any impact on value that might be caused by the presence of toxic
waste or hazardous material including electromagnetic radiation or
other forms of radio frequency radiation.
40
VII. STATEMENT OF VALUE
The Strategis Group 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 The
Strategis Group 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 The
Strategis Group that the fair market value of the Cable TV Fund 12-BCD Venture
cable television system serving Albuquerque, New Mexico as a business
enterprise, as of April 30, 1997, free and clear of any encumbrances, is
$233,440,000.
THE STRATEGIS GROUP, INC.
/S/ ANDREW R. GEFEN
------------------------------------
By: Andrew R. Gefen
Vice President, Financial Consulting
/S/ SUSAN DONOVAN
------------------------------------
By: Susan Donovan
Senior Financial Consultant
May 27, 1997
41
VIII. QUALIFICATIONS
A. QUALIFICATIONS OF THE STRATEGIS GROUP, INC.
The Strategis Group (formerly Malarkey-Taylor Associates-EMCI) 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. The Strategis Group has supplied expert testimony on
cable, cellular, paging, and broadcast property values in court and other legal
hearings.
42
B. QUALIFICATIONS OF ANDREW R. GEFEN
Andrew R. Gefen is Vice President, Financial Consulting for The Strategis
Group. 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 Consulting, The Strategis Group, 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.
43
C. QUALIFICATIONS OF SUSAN DONOVAN
Susan Donovan is a Senior Financial Consultant, in Financial Consulting
at The Strategis Group. She provides valuation, financial and consulting
services to cable television, broadcasting, and wireless companies. Ms. Donovan
is involved in the fair market valuation and asset appraisal of publicly and
privately held cable television systems, broadcast stations, and paging systems.
She has acquired an in-depth knowledge of the values of these properties,
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 Consultant, Financial Consulting, The Strategis Group, 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.
44
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT A
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
VALUATION METHODS
- -----------------
LOW HIGH
--- ----
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME
OPERATING INCOME, PER BOOKS (4/30/97) $21,205,858 $21,205,858
VALUATION MULTIPLE 10.5 11.5
---- ----
ESTIMATED FAIR MARKET VALUE $222,661,506 $243,867,363
------------ ------------
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME
ESTIMATED OPERATING INCOME
TOTAL CURRENT YEAR'S REVENUE $53,564,425 $53,564,425
OPERATING MARGIN, PER BOOKS (4/30/97) 42.3% 42.3%
----- -----
"RUNNING RATE" OPERATING INCOME 22,657,752 22,657,752
VALUATION MULTIPLE 10.0 11.0
---- ----
ESTIMATED FAIR MARKET VALUE $226,577,517 $249,235,269
------------ ------------
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME
OPERATING INCOME $24,148,194 $24,148,194
VALUATION MULTIPLE 9.5 10.5
--- ----
ESTIMATED FAIR MARKET VALUE $229,407,846 $253,556,040
------------ ------------
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY
TARGET RETURN ON EQUITY 14.0% 12.0%
ESTIMATED FAIR MARKET VALUE $220,489,882 $240,054,504
------------ ------------
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT
TARGET RETURN ON INVSTMT 16.6% 15.1%
ESTIMATED FAIR MARKET VALUE $219,992,327 $238,088,179
------------ ------------
SUMMARY OF VALUES
- -----------------
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $222,661,506 $243,867,363
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 226,577,517 249,235,269
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 229,407,846 253,556,040
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 220,489,882 240,054,504
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 219,992,327 238,088,179
----------- -----------
RANGE OF ESTIMATED FAIR MARKET VALUES $223,146,000 $243,733,000
ESTIMATED FAIR MARKET VALUE $233,440,000
============
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT B
ALBUQUERQUE, NEW MEXICO LOW ANALYSIS
AS OF APRIL 30, 1997 ------------
----------------------------
RETURN ON EQUITY METHOD
PROFIT AND LOSS - LOW VALUE
- ---------------------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116
OPERATING EXPENSES 30,923,572 33,411,086 36,429,726 40,753,252 44,474,887 48,088,372 51,702,980 285,783,875
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
OPERATING INCOME $24,148,194 $27,437,385 $30,410,381 $34,789,805 $39,951,944 $43,514,810 $47,073,723 $247,326,241
OPERATING MARGIN 0.44 0.45 0.45 0.46 0.47 0.48 0.48
PARENT SERVICES/MGT FEE (5%) 2,753,588 3,042,424 3,342,005 3,777,153 4,221,342 4,580,159 4,938,835 26,655,506
FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533
SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325
INTEREST 10,909,398 10,943,908 12,280,395 12,706,767 11,953,801 10,768,646 9,172,451 78,735,367
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
PRE-TAX INCOME ($13,574,982)($20,220,878)($18,093,321)($15,165,219) ($8,782,748) ($4,257,797) $890,455 ($79,204,490)
INCOME TAX (EXPENSE)/
BENEFIT 4,615,494 6,875,099 6,151,729 5,156,175 2,986,134 1,447,651 (302,755) 26,929,526
--------- --------- --------- --------- --------- --------- -------- ----------
NET INCOME ($8,959,488)($13,345,780)($11,941,592)($10,009,045) ($5,796,614) ($2,810,146) $587,701 ($52,274,963)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE TAX INCOME ($13,574,982)($20,220,878)($18,093,321)($15,165,219) ($8,782,748) ($4,257,797) $890,455 ($79,204,490)
FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533
SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325
EQUITY 109,093,984 109,093,984
DEBT 109,093,984 345,096 13,364,875 11,108,859 0 0 0 133,912,814
RESIDUAL VALUE IN YEAR 7 423,663,505 423,663,505
----------- ---------- ---------- ---------- ---------- ---------- ----------- -----------
TOTAL SOURCES OF CASH $228,673,175 $13,796,149 $28,152,855 $29,414,744 $23,776,802 $28,166,004 $456,625,942 $808,605,671
USES OF CASH -
PURCHASE PRICE - CURRENT $220,489,882 $220,489,882
CAPITAL EXPENDITURES 8,080,224 13,799,218 21,307,710 21,885,084 11,925,256 12,204,051 7,591,559 96,793,102
DEBT RETIREMENT 0 0 6,845,145 7,529,660 11,851,546 15,961,953 91,724,510 133,912,814
TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) 84,427,402 84,427,402
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL USES OF CASH $228,570,106 $13,799,218 $28,152,855 $29,414,744 $23,776,802 $28,166,004 $183,743,471 $535,623,200
ANNUAL CASH INCREASE/
(DECREASE) $103,069 ($3,069) $0 $0 $0 $0 $272,882,471 $272,982,471
CUMULATIVE CASH 103,069 100,000 100,000 100,000 100,000 100,000 272,982,471
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT B
ALBUQUERQUE, NEW MEXICO HIGH ANALYSIS
AS OF APRIL 30, 1997 -------------
----------------------------
RETURN ON EQUITY METHOD
PROFIT AND LOSS - HIGH VALUE
- ----------------------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116
OPERATING EXPENSES 30,923,572 33,411,086 36,429,726 40,753,252 44,474,887 48,088,372 51,702,980 285,783,875
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
OPERATING INCOME $24,148,194 $27,437,385 $30,410,381 $34,789,805 $39,951,944 $43,514,810 $47,073,723 $247,326,241
OPERATING MARGIN 0.44 0.45 0.45 0.46 0.47 0.48 0.48
PARENT SERVICES/MGT FEE (5%) 2,753,588 3,042,424 3,342,005 3,777,153 4,221,342 4,580,159 4,938,835 26,655,506
FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533
SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325
INTEREST 11,939,111 12,088,043 13,623,445 14,206,223 13,382,186 12,339,870 10,900,797 88,479,673
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
PRE-TAX INCOME ($14,604,695)($21,365,013)($19,436,370)($16,664,675)($10,211,133) ($5,829,020) ($837,890) ($88,948,796)
INCOME TAX (EXPENSE)/
BENEFIT 4,965,596 7,264,104 6,608,366 5,665,989 3,471,785 1,981,867 284,883 30,242,591
--------- --------- --------- --------- --------- --------- ------- ----------
NET INCOME ($9,639,099)($14,100,908)($12,828,004)($10,998,685) ($6,739,348) ($3,847,153) ($553,008) ($58,706,205)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE TAX INCOME ($14,604,695)($21,365,013)($19,436,370)($16,664,675)($10,211,133) ($5,829,020) ($837,890) ($88,948,796)
FRANCHISE AMORTIZATION (15) 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 6,826,933 47,788,533
SUBSCRIBER LIST (8) 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 6,530,000 45,710,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 10,703,257 20,314,998 19,524,367 20,114,171 19,202,616 19,066,868 18,715,048 127,641,325
EQUITY 119,391,108 119,391,108
DEBT 119,391,108 1,489,318 15,354,021 13,319,021 0 0 0 149,553,468
RESIDUAL VALUE IN YEAR 7 423,663,505 423,663,505
----------- --------- ---------- ---------- ---------- ---------- ----------- -----------
TOTAL SOURCES OF CASH $248,237,711 $13,796,236 $28,798,952 $30,125,450 $22,348,417 $26,594,781 $454,897,596 $824,799,142
USES OF CASH -
PURCHASE PRICE - CURRENT $240,054,504 $240,054,504
CAPITAL EXPENDITURES 8,080,224 13,799,218 21,307,710 21,885,084 11,925,256 12,204,051 7,591,559 96,793,102
DEBT RETIREMENT 0 0 7,491,242 8,240,366 10,423,161 14,390,730 109,007,969 149,553,468
TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) 74,462,367 74,462,367
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
TOTAL USES OF CASH $248,134,728 $13,799,218 $28,798,952 $30,125,450 $22,348,417 $26,594,781 $191,061,894 $560,863,441
ANNUAL CASH INCREASE/
(DECREASE) $102,982 ($2,982) $0 $0 $0 $0 $263,835,702 $263,935,702
CUMULATIVE CASH 102,982 100,000 100,000 100,000 100,000 100,000 263,935,702
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT C
ALBUQUERQUE, NEW MEXICO LOW ANALYSIS
AS OF APRIL 30, 1997 ------------
----------------------------
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE
- -----------------------------
TOTAL YEAR 1 CASH
REQUIREMENTS $218,187,967
YEAR 1 DEBT
REQUIREMENTS 109,093,984
YEAR 1 EQUITY
REQUIREMENTS 109,093,984
FINANCING AVAILABLE $137,838,075 $156,963,263 $178,343,001 $197,667,475 $226,133,730 $259,687,636 $282,846,262
UNUSED LEVERAGE 28,744,091 47,524,183 62,384,192 78,129,466 118,447,267 167,963,126 215,542,574
SENIOR DEBT: 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
BEGINNING DEBT $0 $109,093,984 $109,093,984 $102,248,839 $94,719,179 $86,436,553 $77,325,665
DEBT ADDED 109,093,984 0 0 0 0 0 0 109,093,984
TOTAL ANNUAL PAYMENTS 10,909,398 10,909,398 17,754,543 17,754,543 17,754,543 17,754,543 17,754,543 110,591,514
INTEREST 10,909,398 10,909,398 10,909,398 10,224,884 9,471,918 8,643,655 7,732,567 68,801,219
PRINCIPAL REPAYMENT 0 0 6,845,145 7,529,660 8,282,626 9,110,888 10,021,977 41,790,295
ENDING BALANCE 109,093,984 109,093,984 102,248,839 94,719,179 86,436,553 77,325,665 67,303,688
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $345,096 $13,709,971 $24,818,830 $21,249,910 $14,398,845 $0
BORROWINGS 0 345,096 13,364,875 11,108,859 0 0 0 24,818,830
PRINCIPAL PAYMENTS 0 0 0 0 3,568,920 6,851,065 14,398,845 24,818,830
INTEREST 0 34,510 1,370,997 2,481,883 2,481,883 2,124,991 1,439,884 9,934,148
SENIOR DEBT COVERAGE 4.5 4.0 3.4 2.7 2.2 1.8 1.4
LOC DEBT COVERAGE 0.0 0.0 0.5 0.7 0.5 0.3 0.0
TOTAL DEBT COVERAGE 4.5 4.0 3.8 3.4 2.7 2.1 1.4
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT C
ALBUQUERQUE, NEW MEXICO HIGH ANALYSIS
AS OF APRIL 30, 1997 -------------
----------------------------
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE
- ------------------------------
TOTAL YEAR 1 CASH
REQUIREMENTS $238,782,215
YEAR 1 DEBT
REQUIREMENTS 119,391,108
YEAR 1 EQUITY
REQUIREMENTS 119,391,108
FINANCING AVAILABLE $159,043,933 $181,111,457 $205,780,386 $228,077,856 $260,923,534 $299,639,580 $326,361,072
UNUSED LEVERAGE 39,652,825 60,231,032 77,037,182 94,255,997 137,524,836 215,015,327 252,704,747
SENIOR: 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
BEGINNING DEBT $0 $119,391,108 $119,391,108 $111,899,865 $103,659,499 $94,595,096 $84,624,253
DEBT ADDED 119,391,108 0 0 0 0 0 0 $119,391,108
TOTAL ANNUAL PAYMENTS 11,939,111 11,939,111 19,430,353 19,430,353 19,430,353 19,430,353 19,430,353 121,029,986
INTEREST 11,939,111 11,939,111 11,939,111 11,189,987 10,365,950 9,459,510 8,462,425 75,295,204
PRINCIPAL REPAYMENT 0 0 7,491,242 8,240,366 9,064,403 9,970,843 10,967,928 45,734,783
ENDING BALANCE 119,391,108 119,391,108 111,899,865 103,659,499 94,595,096 84,624,253 73,656,325
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $1,489,318 $16,843,339 $30,162,360 $28,803,602 $24,383,716 $0
BORROWINGS 0 1,489,318 15,354,021 13,319,021 0 0 0 30,162,360
PRINCIPAL PAYMENTS 0 0 0 0 1,358,758 4,419,886 24,383,716 30,162,360
INTEREST 0 148,932 1,684,334 3,016,236 3,016,236 2,880,360 2,438,372 13,184,470
SENIOR DEBT COVERAGE 4.9 4.4 3.7 3.0 2.4 1.9 1.6
LOC DEBT COVERAGE 0.0 0.1 0.6 0.9 0.7 0.6 0.0
TOTAL DEBT COVERAGE 4.9 4.4 4.2 3.8 3.1 2.5 1.6
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT D
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
RETURN ON INVESTMENT METHOD
PROFIT AND LOSS
- ---------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116
OPERATING EXPENSES 30,923,572 33,411,086 36,429,726 40,753,252 44,474,887 48,088,372 51,702,980 285,783,875
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
OPERATING INCOME 24,148,194 27,437,385 30,410,381 34,789,805 39,951,944 43,514,810 47,073,723 247,326,241
PLUS: RESIDUAL VALUE 423,663,505 423,663,505
LESS: CAPITAL
EXPENDITURES 8,080,224 13,799,218 21,307,710 21,885,084 11,925,256 12,204,051 7,591,559 96,793,102
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
TOTAL CASH FLOW $16,067,970 $13,638,166 $9,102,671 $12,904,721 $28,026,688 $31,310,759 $463,145,669 $574,196,644
NET PRESENT
VALUE @ 16.6% $219,992,327
------------
NET PRESENT
VALUE @ 15.1% $238,088,179
------------
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT E
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
CABLE TELEVISION SUBSCRIBERS
- ----------------------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
BEGINNING MILES 2,639.2
MILES ADDED 99.0 101.4 95.7 97.9 91.4 93.3 95.3
CUMULATIVE MILES 2,738.2 2,839.7 2,935.3 3,033.2 3,124.6 3,217.9 3,313.2
DENSITY OF ADDITIONAL PLANT 59 59 59 59 59 59 59
HOMES PASSED - BEGINNING 233,798
NEW HOMES & EXTENSIONS 5,845 5,991 5,650 5,780 5,398 5,512 5,627
HOMES PASSED - ENDING 239,643 245,634 251,284 257,063 262,461 267,973 273,601
GROWTH IN HOMES 2.5% 2.5% 2.3% 2.3% 2.1% 2.1% 2.1%
BASIC - BEGINNING SUBSCRIBERS 112,613 116,627 123,227 129,830 136,672 143,479 149,172
AVERAGE SUBSCRIBERS 114,620 119,927 126,528 133,251 140,076 146,326 152,106
ENDING SUBSCRIBERS 116,627 123,227 129,830 136,672 143,479 149,172 155,041
PENETRATION 48.7% 50.2% 51.7% 53.2% 54.7% 55.7% 56.7%
EXPANDED BASIC - BEGINNING 108,992 112,876 119,264 125,656 132,278 138,866 144,376
AVERAGE SUBSCRIBERS 110,934 116,070 122,460 128,967 135,572 141,621 147,215
ENDING SUBSCRIBERS 112,876 119,264 125,656 132,278 138,866 144,376 150,055
PENETRATION 96.8% 96.8% 96.8% 96.8% 96.8% 96.8% 96.8%
PAY TV - BEGINNING UNITS 60,912 64,249 69,117 73,470 76,659 79,760 82,178
AVERAGE UNITS 62,581 66,683 71,294 75,065 78,209 80,969 83,407
ENDING UNITS 64,249 69,117 73,470 76,659 79,760 82,178 84,636
PENETRATION 55.1% 56.1% 56.6% 56.1% 55.6% 55.1% 54.6%
PAY PER VIEW - BEGINING UNITS/MO 16,747 20,155 26,352 33,503 42,110 51,820 59,673
AVERAGE UNITS 18,451 23,253 29,927 37,807 46,965 55,746 63,230
ENDING UNITS 20,155 26,352 33,503 42,110 51,820 59,673 66,788
AVERAGE BUY RATE/MO 73.5% 75.0% 77.0% 80.0% 83.0% 86.0% 87.0%
CONVERTER RENTALS - BEGINNING 42,728 46,583 52,916 60,945 69,624 77,396 84,942
AVERAGE SUBSCRIBERS 44,656 49,750 56,931 65,285 73,510 81,169 88,939
ENDING SUBSCRIBERS 46,583 52,916 60,945 69,624 77,396 84,942 92,935
PENETRATION 39.9% 42.9% 46.9% 50.9% 53.9% 56.9% 59.9%
ADDRESSABLE HOMES 23,096 27,418 35,131 43,505 52,631 62,427 69,379
AVERAGE HOMES 25,257 31,274 39,318 48,068 57,529 65,903 73,069
ENDING HOMES 27,418 35,131 43,505 52,631 62,427 69,379 76,759
PENETRATION 23.5% 28.5% 33.5% 38.5% 43.5% 46.5% 49.5%
BASIC CHURN RATE 32% 32% 32% 32% 32% 32% 32%
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT F
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
SERVICE RATES
- -------------
CURRENT RATES
- -------------
BASIC $9.91
EXPANDED BASIC 15.14
PAY 8.78
PAY PER VIEW 8.50
CONVERTER RENTALS 2.66
INSTALLATIONS-NEW 18.21
INSTALLATIONS-CHURN 31.50
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ----
PERCENTAGE RATE INCREASES
- -------------------------
BASIC 1% 5% 3% 3% 3% 3% 3%
EXPANDED BASIC 2% 6% 3% 10% 9% 3% 3%
PAY 0% 1% 1% 1% 1% 1% 1%
PAY PER VIEW 0% 3% 3% 3% 3% 3% 3%
CONVERTER RENTALS 0% 3% 3% 3% 3% 3% 3%
INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% 3%
INSTALLATIONS-CHURN 0% 3% 3% 3% 3% 3% 3%
AVERAGE RATES
- -------------
BASIC $10.03 $10.49 $10.80 $11.12 $11.46 $11.80 $12.16
EXPANDED BASIC 15.39 16.26 16.75 18.40 20.05 20.65 21.27
PAY 8.78 8.87 8.95 9.04 9.13 9.23 9.32
PAY PER VIEW 8.50 8.76 9.02 9.29 9.57 9.85 10.15
CONVERTERS RENTALS 2.66 2.74 2.82 2.91 3.00 3.09 3.18
INSTALLATIONS-NEW 18.21 18.76 19.32 19.90 20.50 21.11 21.74
INSTALLATIONS-CHURN 31.50 32.45 33.42 34.42 35.45 36.52 37.61
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT G
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
REVENUES:
BASIC $13,799,632 $15,090,557 $16,398,913 $17,788,333 $19,260,354 $20,723,306 $22,188,256 $125,249,351
EXPANDED BASIC 20,488,254 22,650,098 24,613,868 28,475,200 32,617,894 35,095,440 37,576,370 201,517,125
PAY TV 6,592,052 7,094,464 7,660,842 8,146,688 8,572,846 8,964,102 9,326,384 56,357,378
PAY PER VIEW 1,881,994 2,442,993 3,238,505 4,213,874 5,391,711 6,591,797 7,701,050 31,461,924
CONVERTER RENTALS 1,426,030 1,636,370 1,928,743 2,278,111 2,642,090 3,004,891 3,391,293 16,307,528
INSTALLATIONS 683,593 761,467 823,661 892,218 961,706 1,018,290 1,089,687 6,230,621
COMMERCIAL 1,498,068 1,543,010 1,589,300 1,636,979 1,686,089 1,736,671 1,788,772 11,478,889
ADVERTISING 4,776,221 5,349,367 5,937,798 6,590,955 7,250,051 7,975,056 8,772,561 46,652,009
MISCELLANEOUS 3,925,922 4,280,145 4,648,477 5,520,698 6,044,090 6,493,629 6,942,329 37,855,290
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
TOTAL REVENUES $55,071,766 $60,848,471 $66,840,107 $75,543,056 $84,426,831 $91,603,182 $98,776,702 $533,110,116
OPERATING EXPENSES:
OPERATIONS $8,459,119 $9,143,026 $9,883,296 $10,757,092 $11,671,879 $12,517,825 $13,376,378 $75,808,614
GENERAL & ADMINISTRATIVE 5,174,038 5,544,762 5,960,387 6,456,533 6,972,778 7,447,847 7,924,625 45,480,971
SALES & MARKETING 4,095,245 4,367,893 4,788,564 5,250,166 5,721,397 6,205,869 6,738,518 37,167,652
PROGRAMMING 13,195,170 14,355,405 15,797,479 18,289,461 20,108,833 21,916,831 23,663,460 127,326,638
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
TOTAL OPERATING EXPENSES $30,923,572 $33,411,086 $36,429,726 $40,753,252 $44,474,887 $48,088,372 $51,702,980 $285,783,875
----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------
OPERATING INCOME $24,148,194 $27,437,385 $30,410,381 $34,789,805 $39,951,944 $43,514,810 $47,073,723 $247,326,241
OPERATING MARGIN 43.8% 45.1% 45.5% 46.1% 47.3% 47.5% 47.7%
TOTAL REVENUE/BASIC SUB/MONTH $40.04 $42.28 $44.02 $47.24 $50.23 $52.17 $54.12
CASH FLOW/BASIC SUB/MONTH $17.56 $19.07 $20.03 $21.76 $23.77 $24.78 $25.79
OPERATIONS % OF REVENUE 15% 15% 15% 14% 14% 14% 14%
G & A PERCENTAGE OF REVENUE 9% 9% 9% 9% 8% 8% 8%
SALES & MARKETING % OF REVENUE 7% 7% 7% 7% 7% 7% 7%
PROGRAMMING % OF REVENUE 24% 24% 24% 24% 24% 24% 24%
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT H
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
CAPITAL EXPENDITURES
- --------------------
YEAR ENDING APRIL 30, 1998 1999 2000 2001 2002 2003 2004 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
ASSUMPTIONS AND INPUTS:
- -----------------------
BV OF EXISTING PLANT $66,820,102
ADDITIONAL MILES OF PLANT 99.0 101.4 95.7 97.9 91.4 93.3 95.3
AERIAL PLANT PER MILE $26,000 $26,520 $27,050 $27,591 $28,143 $28,706 $29,280
UNDERGROUND PLANT PER MILE $33,500 $34,170 $34,853 $35,550 $36,261 $36,987 $37,726
PERCENTAGE OF PLANT AERIAL 15% 15% 15% 15% 15% 15% 15%
PERCENTAGE OF PLANT UNDERGROUND 85% 85% 85% 85% 85% 85% 85%
AVERAGE COST PER CONVERTER $125 $128 $130 $133 $135 $138 $141
PERCENTAGE CONVERTER USE 40% 43% 47% 51% 54% 57% 60%
PERCENTAGE REPLACEMENT 3% 3% 3% 5% 5% 5% 5%
INSTALLATION COST PER SUBSCRIBER $35 $36 $36 $37 $38 $39 $39
MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $6 $6
INFLATION FACTOR FOR CAPITALS 0% 2% 2% 2% 2% 2% 2% 113%
ANNUAL COSTS:
- -------------
PLANT ADDITIONS - AERIAL $385,989 $403,551 $388,160 $405,029 $385,881 $401,865 $418,510 $2,788,985
- UNDERGROUD 2,818,213 2,946,442 2,834,065 2,957,233 2,817,428 2,934,126 3,055,658 20,363,166
PLANT REBUILD/UPGRADE 2,516,354 7,700,044 15,104,164 15,098,245 5,032,748 5,032,748 0 50,484,304
AVERAGE COST OF NEW CONVERTERS 200,388 361,369 403,132 462,354 496,820 447,375 495,200 2,866,638
CONVERTER REPLACEMENT 168,676 191,564 225,684 438,667 498,759 563,774 629,364 2,716,489
INSTALLATION COSTS 1,417,505 1,584,622 1,694,304 1,816,518 1,935,507 2,016,386 2,136,345 12,601,187
MISC. CAPITAL EXPENDITURES 573,099 611,626 658,201 707,036 758,112 807,777 856,482 4,972,333
---------- ----------- ----------- ----------- ----------- ----------- ---------- -----------
TOTAL CAPITAL EXPENDITURES $8,080,224 $13,799,218 $21,307,710 $21,885,084 $11,925,256 $12,204,051 $7,591,559 $96,793,102
AS A % OF OPERATING INCOME 33.5% 50.3% 70.1% 62.9% 29.8% 28.0% 16.1%
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT I
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
DEPRECIATION
- ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
------ ------ ------ ------ ------ ------ ------
ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9%
DEPRECIATION - BEG. & ADTNS. 1998 1999 2000 2001 2002 2003 2004 TOTAL
------ ------ ------ ------ ------ ------ ------ -------
YEAR 1 $10,703,257 $18,343,090 $13,100,067 $9,355,051 $6,688,599 $6,681,109 $6,688,599 $71,559,772
YEAR 2 1,971,908 3,379,429 2,413,483 1,723,522 1,232,270 1,230,890 11,951,503
YEAR 3 3,044,872 5,218,258 3,726,718 2,661,333 1,902,778 16,553,960
YEAR 4 3,127,379 5,359,657 3,827,701 2,733,447 15,048,184
YEAR 5 1,704,119 2,920,495 2,085,727 6,710,342
YEAR 6 1,743,959 2,988,772 4,732,731
YEAR 7 1,084,834 1,084,834
----------- ----------- ----------- --------- ---------- ---------- ---------- ------------
TOTAL DEPRECIATION $10,703,257 $20,314,998 $19,524,367 $20,114,171 $19,202,616 $19,066,868 $18,715,048 $127,641,325
----------------------------
CABLE TV FUND 12-BCD VENTURE EXHIBIT J
ALBUQUERQUE, NEW MEXICO ---------
AS OF APRIL 30, 1997
----------------------------
ASSUMPTIONS AND INPUTS
- ----------------------
REMAINING LIFE OF FRANCHISES (YEARS) 3
AVERAGE SUBSCRIBER LIFE (YEARS) 8
INCOME TAX RATE 34%
CAPITAL GAIN RATE 34%
NET FMV OF EXISTING ASSETS $66,820,102
SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH
ANALYSIS ANALYSIS
-------- --------
DEBT PERCENTAGE 50% 50%
EQUITY PERCENTAGE 50% 50%
RESIDUAL MULTIPLE (ROE & ROI) 9.0 9.0
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 16.6% 15.1%