SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement
[_] CONFIDENTIAL, FOR USE OF THE
[_] Definitive Proxy Statement COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
CABLE TV FUND 12-B, LTD.
-----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Limited
Partnership Interests
(2) Aggregate number of securities to which transaction applies: 111,035
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined): Pursuant to
Rule 0-11(c)(2), the transaction valuation is based upon the
$141,718,000 sales price to be paid to Cable TV Fund 12-B, Ltd. by Jones
Intercable, Inc. in connection with the transaction that is the subject
of the proxy solicitation.
(4) Proposed maximum aggregate value of transaction: $141,718,000
(5) Total fee paid: $28,343.60
[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
Notes:
REVISED PRELIMINARY COPY
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
NOTICE OF VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-B, LTD.
To the Limited Partners of Cable TV Fund 12-B, Ltd.:
A special vote of the limited partners of Cable TV Fund 12-B, Ltd. (the
"Partnership") is being conducted through the mails on behalf of the
Partnership by Jones Intercable, Inc., the general partner of the Partnership,
for the purpose of obtaining limited partner approval of the sale, to Jones
Intercable, Inc. or one of its wholly owned subsidiaries, of the Augusta,
Georgia cable television system (the "Augusta System") owned by the
Partnership, for $141,718,000 in cash, subject to normal closing adjustments.
Information relating to this matter is set forth in the accompanying Proxy
Statement.
If the limited partners approve the proposed sale of the Augusta System and
if the transaction is closed, the Partnership will distribute the net sale
proceeds to its partners and it is estimated that the limited partners will
receive $844 for each $500 limited partnership interest. The Partnership
nevertheless will continue to own a nine percent interest in the cable
television systems serving Palmdale/Lancaster, California, Albuquerque, New
Mexico and Tampa, Florida, through its investment in the Cable TV Fund 12-BCD
Venture, until those systems also are sold, and the Partnership will continue
in business as a public entity subject to the informational reporting
requirements of the Securities Exchange Act of 1934.
Only limited partners of record at the close of business on April 30, 1995
are entitled to notice of, and to participate in, this vote of limited
partners.
It is very important that all limited partners participate in the voting. The
Partnership's ability to complete the transaction discussed in the Proxy
Statement and the Partnership's ability to make a distribution to its partners
of the net proceeds of the sale of the Augusta System pursuant to the terms of
the Partnership's limited partnership agreement are dependent upon the approval
of the transaction by the holders of a majority of the Partnership's limited
partnership interests.
Jones Intercable, Inc., as general partner of the Partnership, urges you to
sign and return the enclosed proxy as promptly as possible. The proxy should be
returned in the enclosed envelope.
JONES INTERCABLE, INC.
General Partner
[SIGNATURE OF
ELIZABETH M. STEELE
APPEARS HERE]
Elizabeth M. Steele
Secretary
Dated: May 31, 1995
REVISED PRELIMINARY COPY
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY STATEMENT
VOTE OF THE LIMITED PARTNERS
OF CABLE TV FUND 12-B, LTD.
This Proxy Statement is being furnished in connection with the solicitation
of the written consents of the limited partners of Cable TV Fund 12-B, Ltd.
(the "Partnership") by Jones Intercable, Inc., the general partner of the
Partnership (the "General Partner"), on behalf of the Partnership, for the
purpose of obtaining limited partner approval of the sale of the Augusta,
Georgia cable television system (the "Augusta System") owned by the
Partnership, for $141,718,000 in cash, subject to normal closing adjustments.
The Augusta System is proposed to be sold to the General Partner or to one of
its wholly owned subsidiaries.
Proxies in the form enclosed, properly executed and duly returned, will be
voted in accordance with the instructions thereon. Limited partners are urged
to sign and return the enclosed proxy as promptly as possible. Proxies cannot
be revoked except by delivery of a proxy dated as of a later date. Officers and
other employees of the General Partner may solicit proxies by mail, by fax, by
telephone or by personal interview. The deadline for the receipt of proxy votes
is September 30, 1995, unless extended, but the vote of the Partnership's
limited partners will be deemed to be concluded on the date that the General
Partner, on behalf of the Partnership, is in receipt of proxies executed by the
holders of a majority of the limited partnership interests either consenting to
or disapproving of the proposed transaction.
The Partnership has only one class of limited partners and no limited partner
has a right of priority over any other limited partner. The participation of
the limited partners is divided into limited partnership interests and each
limited partner owns one limited partnership interest for each $500 of capital
contributed to the Partnership.
As of February 28, 1995, the Partnership had 111,035 limited partnership
interests outstanding held by approximately 8,075 persons. There is no
established trading market for such interests. To the best of the General
Partner's knowledge, no person or group of persons beneficially own more than
five percent of the limited partnership interests. The General Partner owns no
limited partnership interests. Officers and directors of the General Partner
own a total of 45 limited partnership interests and all directors and officers
of the General Partner, individually and as a group, own less than one percent
of the limited partnership interests. To the best of the General Partner's
knowledge, the 45 limited partnership interests owned by officers and directors
of the General Partner will be voted in favor of the proposed transaction. Only
limited partners of record at the close of business on April 30, 1995 will be
entitled to notice of, and to participate in, the vote.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Upon the consummation of the proposed sale of the Augusta System, the
Partnership will pay all of its indebtedness, which totalled approximately
$38,728,000 at March 31, 1995, including the approximately $44,000 owed to the
General Partner, and then the Partnership will distribute the net sale proceeds
to its partners. Once this anticipated distribution has been made, limited
partners will have received $844 for each $500 limited partnership interest, or
$1,689 for each $1,000 invested in the Partnership.
The Partnership has a nine percent ownership interest in the Cable TV Fund
12-BCD Venture (the "Venture"), a Colorado general partnership in which Cable
TV Fund 12-C, Ltd. has a 15 percent ownership interest and Cable TV Fund 12-D,
Ltd. has a 76 percent ownership interest. The Venture currently owns three
cable television systems serving the areas in and around Palmdale/Lancaster,
California, Albuquerque, New Mexico and Tampa, Florida (the "Venture Systems").
The Venture will continue to own and operate the Venture Systems until such
time as the investment objectives of the Partnership and the Venture with
respect to the Venture Systems have been met. There are no agreements yet in
place with respect to the sale of any of the Venture Systems, and the General
Partner cannot predict when the Partnership will be terminated and dissolved
because it cannot be determined at this time when all of the Venture Systems
ultimately will be sold. As of December 31, 1994, the Augusta System comprised
86 percent of the Partnership's assets and 76 percent of its revenues, while
the Partnership's nine percent ownership interest in the Venture comprised 14
percent of the Partnership's assets and 24 percent of its revenues. After the
sale of the Augusta System, the Partnership will continue to be a public entity
subject to the informational reporting requirements of the Securities Exchange
Act of 1934 (the "Exchange Act").
Limited partners should note that there are certain income tax consequences
of the proposed sale of the Augusta System, which are outlined herein under the
caption "Federal and State Income Tax Consequences."
The Board of Directors of the General Partner approved the proposed sale of
the Augusta System and the General Partner recommends approval of the
transaction by the holders of the Partnership's limited partnership interests.
In determining the fairness of the proposed transaction, the General Partner
followed the procedures required by Section 2.3(b)(iv)(b) of the Partnership's
limited partnership agreement (the "Partnership Agreement"), which provides
that the Partnership's cable television systems may be sold to the General
Partner or to one of its affiliates if the price paid by the General Partner or
such affiliate is not less than the average of three separate independent
appraisals of the fair market value of the system to be sold. Because the
purchase price to be paid by the General Partner is the average of three
separate independent appraisals of the fair market value of the Augusta System,
the Board of Directors of the General Partner has concluded that the
consideration to be paid by the General Partner to the Partnership for the
Augusta System is fair and reasonable.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to one
vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Augusta System be approved by the holders of a majority of
the limited partnership interests, abstentions and non-votes will be treated as
votes against the proposal. Because limited partners do not have dissenters' or
appraisal rights in connection with the proposed sale of the Augusta System, if
the holders of a majority of the limited partnership interests approve the
proposal, all limited partners will receive a distribution of the net sale
proceeds in accordance with the procedures prescribed by the Partnership
Agreement regardless of how or whether they vote on the proposal.
The approximate date on which this Proxy Statement and Form of Proxy are
being sent to limited partners is May 31, 1995.
2
SPECIAL FACTORS
THE PARTNERSHIP'S INVESTMENT OBJECTIVES
The Partnership was formed to acquire, develop, operate and, ultimately, sell
cable television systems in the United States. Throughout the life of the
Partnership, the General Partner has sought to attain the Partnership's
investment objectives. At formation, the primary objectives of the Partnership
were to obtain capital appreciation in the value of the Partnership's cable
television properties; to generate tax losses that could be used to offset
taxable income of limited partners from other sources; and to obtain equity
build-up through debt reduction. It has been contemplated from the outset of
the Partnership's existence that capital appreciation in Partnership cable
television properties would be converted to cash by a sale of such properties
at such time as the General Partner determined that the Partnership's
investment objectives had substantially been achieved. It also was contemplated
from the outset of the Partnership's existence that the General Partner or one
of its affiliates could be the purchaser of the Partnership's cable television
properties.
The Partnership acquired the Augusta System from an unaffiliated party on
August 30, 1985. Based upon the track record of prior public partnerships
sponsored by the General Partner that had liquidated or were in the process of
liquidating their assets during the period that limited partnership interests
in the Partnership were being sold and based upon disclosures made to
prospective investors about the Partnership's investment objectives in the
Cable TV Fund 12 prospectus and accompanying sales brochure, investors in the
Partnership reasonably could have anticipated that the Partnership's investment
objectives would be achieved and its assets liquidated after a holding period
of approximately five to seven years. Due to the uncertain and then adverse
regulatory environment that developed in the early 1990s for the cable
television industry, the resultant decline in the prices for cable television
systems and the subsequent inactivity in the cable television system
marketplace, the General Partner determined that it would be prudent to delay
the sale of the Augusta System until market conditions improved, and as a
result the Augusta System has been held by the Partnership for almost ten
years.
The purpose of the sale of the Augusta System, from the Partnership's
perspective, is to attain the Partnership's primary investment objective, i.e.,
to convert the Partnership's capital appreciation in the Augusta System to
cash. The sale proceeds will be used to repay all outstanding indebtedness of
the Partnership, with the remaining sale proceeds to be distributed to the
partners of the Partnership in accordance with the distribution procedures
established by the Partnership Agreement. The sale of the Augusta System is
thus the necessary final step in the Partnership's accomplishment of its
investment objectives with respect to the Augusta System.
The Partnership was formed in June 1985 as a Colorado limited partnership in
connection with a public offering of its limited partnership interests. The
Augusta System was acquired by the Partnership in August 1985. Since its
acquisition, the Partnership has upgraded the technical quality and capability
of the Augusta System, including a major fiber optic rebuild, and has expanded
the area originally served by the Augusta System through construction of cable
plant extensions. The Partnership has been successful in increasing the cable
television service penetration in areas served by the Augusta System. The
Partnership enhanced revenues of the Augusta System through adjustments in
rates charged to subscribers and through the addition of new services, such as
advertising sales and pay-per-view programming. A more detailed discussion of
the Augusta System is set forth below under the captions "Special Factors,
Reasons for the Timing of the Sale" and "Proposed Sale of Assets, The Augusta
System."
A sale of the Partnership's cable systems, the repayment of all of the
Partnership's debt and the distribution of the net sale proceeds to partners
were the means originally contemplated by the General Partner and the limited
partners to accomplish the Partnership's investment objectives. The General
Partner determined that a sale of the Augusta System for cash was the best
means of providing limited partners with liquidity and the best way for the
limited partners to realize the capital appreciation in the Augusta System.
3
Upon the sale by the Venture of its cable television systems located in
Houghton/Hancock, Michigan in August 1987 and California City, California in
April 1992, the sale proceeds were used to reduce the Venture's indebtedness
and none of the sale proceeds were distributed to the Partnership. The
Partnership thus has made no prior distributions to its partners.
THE GENERAL PARTNER'S OBJECTIVES
Like many of the other major cable television system operators in the United
States, the General Partner is seeking, through acquisitions and/or trades of
cable television systems, to group the cable television systems that it owns
and operates into geographical clusters. The purpose of the transaction, from
the General Partner's perspective, is to acquire a valuable cable television
system operating in a marketplace adjacent to the North Augusta, South Carolina
cable television system already owned by the General Partner that currently
serves approximately 15,475 basic subscribers and has approximately 9,690
premium channel subscriptions using approximately 517 miles of cable plant
passing approximately 24,060 dwelling units (the "North Augusta System"). The
Augusta System and the North Augusta System currently are managed as one, and
the General Partner intends to continue to manage the systems as one to realize
the benefits of operating efficiencies and economies of scale. Acquisition of
the Augusta System accomplishes the General Partner's geographical clustering
goal because not only is it adjacent to the North Augusta System, but it is in
relatively close proximity to other cable television systems owned and/or
operated by the General Partner in the neighboring states of South Carolina and
Florida.
In contrast to the Partnership, which is a Colorado limited partnership with
a finite term and which sought cable television properties with high growth
potential during a holding period of approximately five to seven years, the
General Partner, a Colorado corporation with perpetual existence, is seeking to
acquire mature cable television systems that can generate a steady stream of
income and that may appreciate in value over a longer holding period. The
Augusta System satisfies this objective of the General Partner.
The General Partner also may be in a better position than the Partnership to
access both debt and equity to finance the long-term development of the Augusta
System. The General Partner may be able to leverage the Augusta System at a
higher level than the Partnership has done and, accordingly, the General
Partner may be able to generate a greater return on its investment in the
Augusta System than the Partnership would be able to do within the same time
period. Because the General Partner's horizon is much longer term than the
Partnership's, and the General Partner will not need to sell the Augusta System
to achieve its objectives, it can better withstand the competition and
regulatory risks inherent in long-term holding and development of the Augusta
System.
RELEVANT PROVISIONS OF THE PARTNERSHIP AGREEMENT
Section 2.2(k) of the Partnership Agreement provides that the sale of all or
substantially all of the Partnership's assets is subject to the approval of the
holders of a majority of the Partnership's limited partnership interests.
Because the Augusta System represents 86 percent of the Partnership's assets
and 76 percent of its revenues, the sale of the Augusta System to the General
Partner is being submitted for limited partner approval.
Section 2.3(b)(iv)(b) of the Partnership Agreement permits the Partnership to
sell any or all of its cable television systems directly to the General Partner
or one or more of its affiliates if the system to be sold has been held by the
Partnership for at least three years, unless it is part of, or related to,
another system that has been held for three years, and provided that the price
paid to the Partnership by the General Partner is not less than the average of
three separate independent appraisals of the particular cable television system
or systems being sold, and that the cost of such appraisals are not borne by
the Partnership. Because the Augusta System has been held by the Partnership
for at least three years and the purchase price to be paid by the General
Partner is the average of three separate independent appraisals of the fair
market value of the Augusta System obtained at the General Partner's expense,
the requirements of Section 2.3(b)(iv)(b) of the Partnership Agreement have
been satisfied.
4
REASONS FOR THE TIMING OF THE SALE
The decision to proceed with the sale of the Augusta System at this time was
based upon the General Partner's determination that the Partnership has
substantially achieved its investment objectives with respect to the Augusta
System. The Augusta System has appreciated in value through the General
Partner's operational expertise, general economic factors and certain other
developments such as the favorable regulatory environment during the first half
of the holding period and improvements in satellite technology generally
benefiting the cable television industry. This appreciation can best be seen by
the fact that the Augusta System was purchased for $57,850,000, $60,500,000 in
capital expenditures have been made by the Partnership and the Augusta System
is now proposed to be sold for $141,718,000, a difference of $23,368,000
between the amount invested in the Augusta System and the sales price.
The Partnership has a finite legal existence of 17 years, ten of which have
passed. It was not intended, however, that the Partnership would hold its cable
systems for the full 17-year period. Although it was not possible at the outset
of the Partnership to determine precisely how quickly the investment objectives
with respect to any particular system would be achieved, investors were
informed that the General Partner's past experience had shown that five to
seven years was the average length of time from the acquisition of a cable
system to its sale. An investor in the Partnership also was able, of course, to
examine the track record of the General Partner's prior public partnerships,
which, at the time of the Partnership's formation, showed that prior
partnerships had rarely held their cable systems for any longer than six years.
When investing in the Partnership, by virtue of the provisions of the
Partnership Agreement, the limited partners vested in the General Partner the
right and responsibility to determine when the Partnership's investment
objectives had been substantially achieved. The Augusta System was acquired
because, in the opinion of the General Partner at the time of the Augusta
System's acquisition, it had the potential for capital appreciation within a
reasonable period of time. It is the General Partner's opinion that during the
approximately ten years that the Augusta System has been held by the
Partnership, the Partnership's investment objectives with respect to the
Augusta System have been achieved.
The General Partner generally considered the benefits to the Limited Partners
that might be derived by holding the Augusta System for an additional period of
time. The General Partner assumed that the Augusta System probably will
continue to appreciate in value and that as a result the Augusta System might
be able to be sold for a greater sale price in the future. The General Partner
weighed these assumptions against the potential risks to investors from a
longer holding period, i.e., the risk that regulatory and/or competitive
developments could cause the Augusta System to decline in value, which could
result in a lesser sale price in the future. Weighing all of these factors, the
General Partner concluded that now rather than later was the time to sell the
Augusta System.
The Partnership's decision to sell the Augusta System at this time was
greatly influenced by the fact that the contemplated holding period of five to
seven years has been exceeded. The Augusta System was not sold earlier because
of the uncertain and then adverse regulatory environment that developed in the
early 1990s for the cable television industry.
During the early 1990s, for example, prices for cable television systems were
adversely affected by the fact that loans from commercial banks to cable
television system operators became more difficult to obtain. The inability of
potential purchasers of cable television systems to obtain loans to leverage
the purchase of cable television systems on terms historically available to
purchasers of cable television systems kept potential purchasers out of the
cable television system marketplace. This reduced demand for systems adversely
affected cable system resale values. The reluctance of commercial banks to make
loans to cable television system operators on terms historically available was
attributable to two factors that no longer exist: (i) the classification by
federal banking regulators of loans to cable television system operators as
highly leveraged transactions, and (ii) the uncertainty about the effects of
rate reregulation on cable television systems' operating cash flow during the
several year periods before and after the enactment in 1992 of the federal law
reregulating the cable television industry.
5
In the several years prior to the enactment of the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act"), the prices for
cable television systems also were depressed by speculation in the industry
about the provisions to be included in cable reregulation legislation pending
before Congress. During the months leading up to the enactment of the 1992
Cable Act, industry appraisers were reluctant to appraise cable television
systems because of their inability to predict the effects of rate reregulation
while the pending legislation was constantly being revised and rewritten.
The enactment of the 1992 Cable Act, which became effective on December 4,
1992, caused significant changes to the regulatory environment in which the
cable television industry operates. The 1992 Cable Act generally mandates a
greater degree of regulation of the cable television industry than existed
previously. Under the 1992 Cable Act's definition of effective competition,
nearly all cable systems in the United States, including the Augusta System,
became subject to rate regulation of basic and tier cable services. In April
1993, the FCC adopted regulations governing rates for basic and tier services.
In compliance with these rules, the Partnership reduced rates charged for
certain regulated services provided by the Augusta System effective September
1, 1993. These initial rate reductions resulted in some decrease in revenues
and operating income before depreciation and amortization; however, the
decrease was not as severe as originally anticipated because the General
Partner undertook actions to mitigate the rate reductions primarily through new
service offerings, product remarketing and repackaging and marketing efforts
directed at non-subscribers.
On February 22, 1994, however, the FCC adopted several additional rate
orders, including an order that revised its earlier-announced regulatory scheme
with respect to rates. The FCC's 1994 regulations generally required additional
rate reductions, absent a successful cost-of-service showing, of 17 percent of
September 30, 1992 rates, adjusted for inflation, channel modifications,
equipment costs and increases in programming costs. On February 22, 1994, the
FCC also adopted interim cost-of-service regulations. Under these interim
guidelines, rate reductions are not required of cable systems that can
successfully demonstrate that their rates for basic and other regulated
programming services are justified and reasonable using cost-of-service
standards. The FCC established an interim industry-wide 11.25 percent permitted
rate of return, and requested comments on whether this standard and other
interim cost-of-service standards should be made permanent.
After analyzing the effects of the two methods of rate regulation, the
General Partner concluded that the Partnership should file a cost-of-service
showing for the Augusta System. The General Partner anticipates that no further
reductions in basic and tier service rates will be required of the Augusta
System and thus the General Partner believes that there will be no further
reduction in the Augusta System's revenues or operating income resulting from
the FCC's rate regulations. The cost-of-service showing for the Augusta System
has not as yet received final approval from the system's franchising
authorities, however, and there can be no assurance that the Partnership's
cost-of-service showing will prevent further rate reductions until such final
approval is received.
The cable television system marketplace is finally emerging from the
approximately five years of transactional sluggishness attributable to the
foregoing regulatory uncertainties and developments. Because there is now some
renewed activity in the cable television system marketplace, and because prices
for certain cable television systems are approaching levels last seen during
the late 1980s, the General Partner decided, on behalf of the Partnership, to
proceed with the sale of the Augusta System at this time.
Another reason for the timing of the sale of the Augusta System from the
Partnership's perspective is the developing potential competition from Direct
Broadcast Satellite ("DBS") systems. Two operators of wide-scale DBS systems
began operations in 1994 and are able to distribute programming to subscribers
with a roof top or wall-mounted antenna by high-powered DBS satellites to most
areas of the United States. Potential competition from telephone companies that
are expected to be allowed to compete directly with cable television systems in
the near future also was a factor in the timing of the sale. The Partnership
has limited access to the capital that may be required to make the
technological improvements to the Augusta System, such as increasing channel
capacity or further converting to fiber optic cable, that may be necessary for
the Augusta System to compete successfully with providers of DBS or other
wireless cable services or
6
telephone companies that may enter some or all of the markets served by the
Augusta System. The Partnership is limited in its ability to obtain additional
equity financing, in part because the limited partnership interests are non-
assessable. The Partnership Agreement also contains limits on the amounts that
the Partnership can borrow. And, the Partnership directly owns only one asset,
the Augusta System, to use as collateral for borrowings.
The General Partner, on the other hand, has been a multiple system cable
owner and operator for over twenty years and has longer term objectives. It can
thus better withstand the risks of a longer holding period. For example, if
significant competition to the Augusta System were to materialize, the General
Partner would be in a better position than the Partnership to finance the
marketing campaigns or technological improvements to the Augusta System
necessary to meet such competition because of the General Partner's greater
access to the debt and equity markets. The General Partner has a large pool of
assets that can be used to collateralize borrowings from commercial banks or
other sources of debt financing. The General Partner also has better access to
the debt and equity securities marketplace to finance expenditures that may
become necessary to meet future competition.
In determining that now was the time for the Partnership to sell the Augusta
System, the General Partner also took into account that because the limited
partners have used 100 percent of their "at risk" basis in the Partnership, the
limited partners likely will derive no significant tax benefits from a longer
holding period. The General Partner's belief that tax benefits have been
substantially realized is based on information gathered by the General Partner
and supplied annually to the limited partners on Schedule K-1, Form 1065, which
reveals that the limited partners' "at risk" basis in the Partnership has been
reduced to zero. The "at risk" basis of the limited partners is important
because a limited partner cannot deduct his share of Partnership losses in
excess of his basis. Although the deduction of Partnership losses may also be
limited by the application of the passive loss rules, the passive loss rules
allow deduction of losses to the extent of passive income. When, however, the
limited partners' "at risk" basis is reduced to zero, they can no longer offset
their taxable income with Partnership losses.
From the General Partner's perspective, the timing of its decision to seek to
purchase the Augusta System was influenced by the fact that the General Partner
completed several major transactions in 1994 that have given it the financial
resources to acquire cable television systems from its managed limited
partnerships and from unaffiliated sellers of cable television systems. The
General Partner has had long-standing, publicly announced plans to acquire for
its own account those cable television systems operated by the General Partner
on behalf of its managed limited partnerships that meet the General Partner's
objectives, including its geographical clustering objectives, when the
partnerships holding such systems have accomplished their investment objectives
with respect to such systems and when the General Partner has the financial
resources to acquire such systems.
On December 20, 1994, Bell Canada International Inc. ("BCI") purchased
7,414,300 newly issued shares of the General Partner's Class A Common Stock at
$27.50 per share for approximately $204,000,000. This transaction followed the
May 1994 purchase by BCI of 2,500,000 newly issued shares of the General
Partner's Class A Common Stock at $22.00 per share for $55,000,000. These two
transactions resulted in BCI acquiring an approximate 30 percent economic
interest in the General Partner for a total consideration of approximately
$259,000,000. BCI also has committed to invest up to an additional $141,000,000
to maintain its 30 percent economic interest in the event the General Partner
offers additional shares of its Class A Common Stock. BCI also has the right to
maintain or increase its ownership in the General Partner by investing amounts
beyond the $400,000,000 commitment.
Also on December 20, 1994, Jones International, Ltd. ("International"), which
is wholly owned by Glenn R. Jones, the chairman and chief executive officer of
the General Partner, as well as certain subsidiaries of International and Mr.
Jones individually, granted BCI options to acquire 2,878,151 shares of the
General Partner's Common Stock. Except in limited circumstances, the options
will only be exerciseable during the eighth year after December 20, 1994. The
exercise of such options would result in BCI holding a sufficient number of
shares of the Common Stock of the General Partner to enable BCI to elect 75
percent of the General Partner's Board of Directors. BCI is a wholly owned
subsidiary of BCE Inc., Canada's largest telecommunications company.
7
Therefore, in light of all of the above factors, the General Partner has
determined that now is the appropriate time for the Partnership to convert its
capital appreciation in the Augusta System to cash through the sale to the
General Partner.
CERTAIN EFFECTS OF THE SALE
Upon consummation of the sale of the Augusta System to the General Partner,
the proceeds of the sale will be used to repay all indebtedness of the
Partnership and then the Partnership will distribute the remaining net sale
proceeds to the limited partners and to the General Partner pursuant to the
terms of the Partnership Agreement. Investors first will receive their initial
capital contributions to the Partnership, and the balance will be distributed
75 percent to the limited partners and 25 percent to the General Partner, in
accordance with the terms of the Partnership Agreement. Based upon the pro
forma financial information as of March 31, 1995, as a result of this
distribution, the limited partners of the Partnership, as a group, will receive
approximately $93,797,873 and the General Partner will receive approximately
$12,760,124. Both the limited partners and the General Partner will be subject
to federal income tax on the income resulting from the sale of the Augusta
System. See the detailed information below under the caption "Federal and State
Income Tax Consequences."
After the sale of the Augusta System, the Partnership will continue to own a
nine percent interest in the Venture until such time as all of the Venture
Systems also are sold.
Another effect of the sale is that it will result in the General Partner
owning and operating the Augusta System. Thus, as a result of the transaction,
the General Partner will make a substantial equity investment in the Augusta
System and it will have a greater equity ownership interest in the Augusta
System than it does now as general partner of the Partnership. Instead of the
residual 25 percent interest in the net proceeds from the sale of the Augusta
System that the General Partner will receive, the General Partner will have a
100 percent interest in any future capital appreciation of the Augusta System.
The General Partner also will bear the risks of system losses and any
diminution in system value. As the general partner of the Partnership, the
General Partner earns management fees and receives reimbursement of its direct
and indirect expenses allocable to the operation of the Augusta System. The
General Partner's right to receive such fees and reimbursements will terminate
on the sale of the Augusta System.
As a result of the sale of the Augusta System to the General Partner, the
General Partner will acquire all of the tangible and intangible property of the
Augusta System. For federal income tax purposes, the General Partner must
allocate the $141,718,000 purchase price among the tangible and intangible
assets that it acquires, and it will determine the appropriate amount of
depreciation based upon this allocation of the purchase price.
Neither Colorado law nor the Partnership Agreement afford dissenters' or
appraisal rights to limited partners in connection with the proposed sale of
the Augusta System. If the proposed transaction is approved by the holders of a
majority of limited partnership interests, all limited partners will receive a
distribution in accordance with the procedures prescribed by the Partnership
Agreement.
RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF
ASSETS
The General Partner believes that the proposed sale of the Augusta System and
the distribution of the net proceeds therefrom are both procedurally and
substantively fair to all unaffiliated limited partners of the Partnership, and
it recommends that the limited partners approve the transaction. The General
Partner, because of its 25 percent share of the residual sale proceeds, has an
economic interest parallel to the economic interest of the limited partners in
seeing to it that the Augusta System is sold for a fair price.
The General Partner's recommendation that the limited partners approve the
sale of the Augusta System and its fairness determination should not be deemed
to be free from conflicts of interest, however, in light of the fact that the
General Partner or one of its wholly owned subsidiaries is the proposed
purchaser of the Augusta System. Because the purchaser of the Augusta System
would benefit from a lower sales price, the General Partner also has an
economic interest in conflict with the economic interest of the limited
partners.
In determining the substantive and procedural fairness of the proposed
transaction, the General Partner considered each of the following factors, all
of which had a positive effect on its fairness determination. The
8
factors are listed in descending order of importance, i.e., the first factor
listed was given the most weight in the determination that the proposed
transaction is fair, although, as a practical matter, this is an approximation
of the weight given to each factor because the General Partner believes that
each factor is relevant and the General Partner was not able to weigh each
factor precisely:
(i) The limited partnership interests are at present illiquid and the
cash to be distributed to limited partners as a result of the proposed sale
of the Augusta System will provide limited partners with liquidity and with
the means to realize the appreciation in the value of the Augusta System;
(ii) The purchase price represents the fair market valuation of the
Augusta System as determined by the average of three separate appraisals of
the Augusta System by qualified independent appraisers;
(iii) The sale will result in total distributions to limited partners of
the Partnership of approximately $1,689 per $1,000 of limited partnership
capital invested in the Partnership, which, assuming an average holding
period of approximately ten years, equates to an after-tax internal rate of
return of approximately 4.6 percent;
(iv) The Partnership has held the Augusta System for approximately ten
years, a holding period beyond that originally anticipated;
(v) The conditions and prospects of the cable television industry in
which the Partnership is engaged, including the current adverse regulatory
environment, the developing threat of competition from DBS services and
telephone companies, and the working capital and other financial needs of
the Partnership if it were to continue to operate the Augusta System;
(vi) The terms and conditions of the purchase and sale agreement by and
between the Partnership and the General Partner, including the fact that
the purchase price will be paid in cash, the fact that the General Partner
will not require the Partnership to make many of the representations and
warranties about the Augusta System or give indemnities that are
customarily given in transactions of this nature, the fact that the General
Partner's obligation to close is not contingent upon its ability to obtain
financing, the fact that transfers of the Augusta System's cable television
franchises from the Partnership to the General Partner do not need the
approval of local franchising authorities, which might be required if the
Augusta System were being sold to an unaffiliated party, and the fact that
the Partnership will pay no brokerage fees upon the sale of the Augusta
System, which it likely would have paid if the Augusta System were being
sold to an unaffiliated party;
(vii) The tax benefits to the limited partners of the Partnership's
investment in the Augusta System have been substantially realized because
the limited partners' "at risk" basis has been reduced to zero; and
(viii) The sale is being conducted in accordance with the terms of the
Partnership Agreement, including the fact that the proposed transaction
will not occur unless it is approved by the holders of at least a majority
of the limited partnership interests (less than one percent of which are
owned by affiliates of the General Partner).
Certain officers of the General Partner worked with each of the three
independent appraisers hired to prepare fair market value appraisals of the
Augusta System, providing them with current and historical profit and loss
statements for the Augusta System and with current subscriber reports. The
officers and directors of the General Partner received the final appraisal
reports. The members of the Board of Directors of the General Partner adopted
the analyses and conclusions of Malarkey-Taylor Associates, Inc., which valued
the Augusta System at $141,854,000, because Malarkey-Taylor Associates, Inc.'s
valuation procedures, assumptions and methodologies most closely approximate
the valuation procedures, assumptions and methodologies used by the General
Partner's management in evaluating cable television systems. The General
Partner's Board of Directors did not specifically adopt the $141,854,000 value
placed on the Augusta System by Malarkey-Taylor Associates, Inc., but the Board
did consider the fact that the value determined by this appraisal firm was very
close to the average of the three appraisals ($141,718,000) and concluded that
this fact supported its fairness determination.
9
The General Partner considered the fact that the $141,718,000 purchase price
to be paid to the Partnership for the Augusta System represents the average of
three independent appraisals of the current fair market value of the Augusta
System to be very persuasive evidence of the fairness of the proposed
transaction. The fair market valuations of the Augusta System were done by
respected industry appraisers using customary measures of value, i.e.,
determining present value of projected cash flow, applying multiples to current
and projected cash flow, and comparing the fair market valuation per subscriber
to comparable cable television system sales. In the opinion of the General
Partner, the fact that different valuation methods were used in preparing the
three separate independent fair market value appraisals lends further support
to its determination of fairness. Based upon the General Partner's experience
in analyzing appraisals of cable television system values, it was not surprised
that the three appraisal firms assigned different values to the Augusta System.
The General Partner has worked with these firms in the past and these firms
have not arrived at the same values in previous appraisals. The General Partner
believes it is usual and appropriate for appraisal firms to come to separate
and independent conclusions. Indeed, one of the reasons that the Partnership
Agreement requires the General Partner to obtain three separate independent
appraisals of value is to afford the Partnership and the unaffiliated limited
partners with the benefit of three separate valuation analyses. In light of the
foregoing, the General Partner believes that the fact that one firm appraised
the Augusta System at $147,000,000 no more detracts from its fairness
determination than the fact that one firm appraised the Augusta System at
$136,300,000 supports its fairness determination. Based upon the General
Partner's knowledge of and experience in the cable television industry, and its
review and consideration of the appraisals, it has concluded that the values
for the Augusta System determined by the three appraisals are fair and within
the range of values seen in the marketplace for comparable cable television
systems in similar condition.
The $141,718,000 purchase price represents the current fair market value of
the Augusta System on a going concern basis. The $141,718,000 purchase price
for the Augusta System also compares favorably to the approximately $14,851,000
net book value of the Augusta System ($268 per $1,000 of limited partnership
capital) at March 31, 1995. The liquidation value of a cable television system,
i.e., the sale of the system on other than a going concern basis, is not
usually considered to be an accurate indicator of the value of a cable
television system, primarily because the assets of a cable television system
typically are worth less when considered separately than when considered as a
going concern. The assets of a cable television system consequently are not
normally sold or purchased separately. A fair market valuation of a system
should, in the General Partner's view, be a valuation of the system as a going
concern. The liquidation value of the Augusta System therefore was not
considered by the General Partner in reaching its determination of fairness.
Because there has never been an established trading market for the
Partnership's limited partnership interests, the General Partner did not have
access to any reliable, official information about the historical or current
market prices for the Partnership's limited partnership interests in the very
limited secondary market where such interests from time to time have been sold.
The General Partner believes that such secondary market deeply discounts the
underlying value of the limited partnership interests due to their highly
illiquid nature. Therefore, even if trading information were available, the
historical or current market prices for the Partnership's limited partnership
interests would not be indicative of the value of the Partnership's cable
television system assets. For these reasons, the General Partner did not
consider the historical or current market prices for the partnership interests
when reaching its fairness determination.
The fairness of the transaction is also demonstrated in an analysis of
certain of the terms and conditions of the purchase and sale agreement between
the Partnership and the General Partner, which favor the interests of the
Partnership. There is no financing contingency to closing. Because of the
General Partner's existing extensive knowledge about the Augusta System, the
Partnership has not been required to make many of the representations and
warranties about the quality of the Augusta System's tangible assets, the
quantity of the Augusta System's subscribers or the validity of the Augusta
System's intangible assets customarily found in cable television system
transactions. The Partnership also has not been asked to give warranties about
the Augusta System's rates as justified by the system's cost-of-service filing.
In addition, the Partnership is not required to indemnify the purchaser for
defects discovered by the purchaser after the closing. This
10
frees the Partnership from having to reserve a portion of the sale proceeds to
cover indemnification obligations. The transfer of the Augusta System's six
cable television franchises from the Partnership to the General Partner or to
one of its wholly owned subsidiaries will not require regulatory approval and
thus regulatory approval of franchise transfers is not a condition to closing.
This removes an obstacle to closing that might be present if the Augusta
System were being sold to an unaffiliated party. The Partnership also will pay
no brokerage fee in connection with the sale of the Augusta System. This will
result in more funds from the sale being available for distribution to the
partners. Because the Augusta System is being sold to the General Partner, the
Partnership saved the time and considerable expense of seeking third party
buyers and potentially protracted contract negotiations.
The General Partner is aware and considered that although consummation of
this transaction will result in aggregate distributions to the Partnership's
limited partners of approximately $1,689 per $1,000 of limited partnership
capital invested in the Partnership, the proposed sale will require the
limited partners to recognize, for federal income tax purposes, a gain
resulting from the sale. The proposed sale also will deprive the limited
partners of an opportunity to participate in the future growth of the Augusta
System, if any, and it will result in the General Partner or one of its wholly
owned subsidiaries owning the Augusta System. The General Partner nevertheless
concluded that the cash distributions to the limited partners of the
Partnership from the sale of the Augusta System to the General Partner
outweighed these consequences.
As disclosed above, the proposed transaction is subject to various conflicts
of interest arising out of the Partnership's relationships with the General
Partner. Because the General Partner and its affiliates are engaged in the
ownership and operation of cable television systems, they are generally in the
market to purchase cable television systems for their own account. A potential
conflict thus arises from the General Partner's fiduciary duty as general
partner of the Partnership and its management's fiduciary duty to the General
Partner's shareholders when it determines that Partnership cable television
systems will be sold to the General Partner or one of its affiliates and not
to an unaffiliated third party. This potential conflict of interest was
disclosed to limited partners in the prospectus delivered to investors at the
time of the public offering of interests in the Partnership. Prior to the
Partnership's public offering, the General Partner entered into negotiations
with certain state securities administrators as part of the process of
clearing the offering in the "merit" states, i.e., those states that permit
the sale of securities only if the state securities administrator deems the
offering as a whole to be fair, just and equitable. Several of the state
securities administrators focused on the potential conflicts of interest in
the event that the Partnership were to sell one or more of its cable
television systems to the General Partner or one of its affiliates. The
General Partner agreed to include the provision in the Partnership Agreement
that permits the Partnership to sell its cable television systems directly to
the General Partner or one of its affiliates only after a three-year holding
period and only if the General Partner or such affiliate pays a purchase price
not less than the average of three separate independent appraisals of the
particular cable television system being sold. The General Partner has
concluded that the mechanisms for determining the purchase price to be paid to
the Partnership provide sufficient procedural safeguards to minimize the
effects of the potential conflicts of interest inherent in any such
transaction. The fact that these procedures have been carried out in
connection with the Partnership's proposed sale of the Augusta System,
together with the fact that the transaction is conditioned upon receipt of the
approval of the holders of a majority of the limited partnership interests in
the Partnership, of which affiliates of the General Partner own less than one
percent, enable the General Partner to conclude that the proposed transaction
is both procedurally and financially fair to all partners.
As disclosed above, the General Partner's decision to acquire the Augusta
System was motivated in part by the Augusta System's close proximity to the
North Augusta System, which already is owned by the General Partner. While no
specific premium was offered to the Partnership for this potential benefit to
the General Partner, in making its fairness determination the General Partner
was aware that a majority of cable television system acquisitions in recent
years have involved buyers seeking systems within close proximity to systems
already owned by the buyer in order to facilitate geographical clustering of
systems and to obtain the administrative and operational advantages that
clustering can provide. With this background and
11
knowledge of the marketplace, the General Partner realized that the appraisals
of the Augusta System's fair market value, to the extent that they reflected
the values of other cable television system purchases and sales in the
marketplace, impliedly factored in some premium due to the Augusta System's
proximity to the other system owned by the General Partner.
The directors of the General Partner who are not employees of the General
Partner did not vote separately to approve the transaction, nor did the outside
directors retain an unaffiliated representative to act solely on behalf of the
limited partners for the purposes of negotiating the terms of the proposed sale
of the Augusta System to the General Partner and/or preparing a report
concerning the fairness of the proposed sale. While the directors of the
General Partner participating in the approval of the sale recognized that the
interests of the General Partner and the limited partners may not in all
respects necessarily be the same, they recognized also that the purchase price
was determined in accordance with the terms of the Partnership Agreement, that
is, by averaging three separate independent appraisals of the Augusta System's
fair market value. The members of the Board of Directors relied on the specific
right of the General Partner under Section 2.3(b)(iv)(b) of the Partnership
Agreement to purchase the Augusta System, so long as the purchase price was
determined according to the three appraisal method, as it had been. No
suggestion was made that the Augusta System be offered to unaffiliated parties.
The members of the Board of Directors reviewed and considered the appraisals
and concluded that the values for the Augusta System determined by the
appraisers were fair and were within the industry norms for comparable
transactions. The seven directors of the General Partner who participated in
the March 17, 1995 meeting to discuss the Partnership's sale of the Augusta
System to the General Partner, Messrs. Jones, O'Brien, Krejci, Somers, Vigil,
Zinn and Zonker, voted unanimously to approve the transaction. Two directors of
the General Partner, Mr. Burney and Ms. Marocco, were unable to attend the
Board meeting at which the sale of the Augusta System was discussed and
approved due to scheduling conflicts.
It is anticipated that if the proposed transaction is not consummated, the
General Partner's current management team will continue to manage the Augusta
System on behalf of the Partnership until such time as the Augusta System could
be sold. No other alternatives have been or currently are being considered.
THE APPRAISALS
In determining the price that the General Partner would offer for the Augusta
System, the General Partner retained Malarkey-Taylor Associates, Inc., Kagan
Media Appraisals Inc. and Western Cablesystems, Inc. to prepare separate
appraisals of the fair market value of the Augusta System. The appraisers were
asked to determine the cash price a willing buyer would give a willing seller,
neither being under any compulsion to buy or sell and both having reasonable
knowledge of relevant facts, in an arm's-length transaction to acquire the
Augusta System. These appraisals have been made available to the Partnership by
their delivery to the General Partner. The officers and directors of the
General Partner examined each of the appraisals and discussed among themselves
the merits of the appraisals' assumptions, methodologies and conclusions, and,
based on their experience in and knowledge of the cable television industry,
they found them to be fair and reasonable. The complete texts of the written
appraisal reports are attached as exhibits to this proxy statement and the
following summary of the appraisal reports is qualified by reference to the
full texts thereof as set forth in such exhibits.
Malarkey-Taylor Associates, Inc. concluded that the Augusta System's overall
fair market value as of December 31, 1994 was $141,854,000. Kagan Media
Appraisals Inc. concluded that the Augusta System's overall fair market value
as of December 31, 1994 was $136,300,000. Western Cablesystems, Inc. concluded
that the Augusta System's overall fair market value as of December 31, 1994 was
$147,000,000. The average of these three valuations is $141,718,000. The fair
market valuations of the Augusta System were undertaken within the same general
period of time and each of the appraisals was completed and delivered to the
Partnership within one month of the date that the purchase price was settled in
the Purchase and Sale Agreement. In the General Partner's view, the assumptions
regarding system operations underlying the three appraisals have generally
remained unchanged since December 31, 1994.
The General Partner provided the appraisers with current and historical
profit and loss statements for the Augusta System and with current subscriber
reports. From this information, the appraisers used their
12
independent analyses to project cash flow, determine growth of homes passed,
the Augusta System's future penetration and possible rate adjustments. The
appraisals thus reflect the application of the appraisers' expertise to the
data about the Augusta System supplied by the General Partner.
Malarkey-Taylor Associates, Inc. ("Malarkey-Taylor") is the oldest consulting
firm specializing in the field of cable television. Its team of financial,
engineering and managerial professionals devotes a substantial portion of its
time to the appraisal of cable television systems. Malarkey-Taylor was selected
by the General Partner to render an opinion as to the fair market value of the
Augusta System in light of such overall qualifications. No limitations were
imposed with respect to the appraisal to be rendered by Malarkey-Taylor. The
firm was selected by the General Partner to prepare an independent appraisal of
the Augusta System because of the General Partner's familiarity with the firm,
and its good reputation in the cable television industry. Malarkey-Taylor has
prepared independent appraisals of other cable television systems owned and/or
managed by the General Partner. The principals of Malarkey-Taylor are not
affiliated in any way with the General Partner.
Malarkey-Taylor used five generally accepted cable television valuation
methods in establishing the range of total fair market values of the Augusta
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 net cash flow analysis to achieve a target after-tax
return on equity, given particular operating and financing assumptions unique
to the Augusta System's assets. The fifth method was a discounted cash flow
method that measured the net present value of the projected pre-tax operating
cash flows (less capital expenditures, plus the residual value of the Augusta
System) that represent the return on the total investment. Malarkey-Taylor's
valuation methodologies are set out in full in Exhibit A to this proxy
statement.
As compensation for rendering an opinion as to the fair market value of the
Augusta System, the General Partner paid Malarkey-Taylor a fee of $3,500. Such
fee was not contingent upon the conclusion reached by Malarkey-Taylor in its
opinion. As compensation for rendering opinions as to the fair market value of
other cable television systems owned and/or managed by the General Partner and
its affiliates, and completing the analysis of the allocations of purchase
prices between tangible and intangible assets for various cable television
systems owned and/or managed by the General Partner and its affiliates,
Malarkey-Taylor has received fees totalling $288,057 during the two years prior
to the date hereof.
Kagan Media Appraisals Inc. ("Kagan") has more than twenty-five years of
experience in appraising communications properties. During that period, Kagan,
according to its records, has appraised more than $24 billion worth of media
properties, including more than $6.5 billion worth of cable television systems.
Kagan was selected by the General Partner to render an opinion as to the fair
market value of the Augusta System in light of such overall qualifications. No
limitations were imposed with respect to the appraisal to be rendered by Kagan.
The firm was selected by the General Partner to prepare an independent
appraisal of the Augusta System because of the firm's reputation in the
industry, and its relationship with one of the most notable analysts on the
cable television industry. Kagan has prepared independent appraisals of other
cable television systems owned and/or managed by the General Partner. Certain
affiliates of Kagan generally invest in publicly held media companies pursuant
to an investment policy adopted by them in 1974. As a result, portfolios owned
and/or managed by affiliates of Kagan as of March 17, 1995 maintain a long-term
investment in the General Partner. In addition, the General Partner subscribes
to a number of information services provided by affiliates of Kagan and
employees of the General Partner from time to time enroll in seminars or serve
as panelists in seminars conducted by affiliates of Kagan. The General Partner
believes that Kagan's holdings in it are not material and do not compromise
Kagan's status as an independent appraiser of the Augusta System's value. Kagan
has certified to the General Partner in its appraisal report that it has no
present or contemplated financial interest in the Augusta System and that its
employment and compensation are in no way contingent upon the value reported.
13
Kagan used two cable television system appraisal methodologies in reaching a
conclusion as to the fair market value of the Augusta System, namely: (i)
projected future cash flows discounted back to a cumulative present value, and
(ii) correlation of those results with analysis of recent comparable cable
television system sales. Kagan's valuation methodologies are set out in full in
Exhibit B to this proxy statement.
As compensation for rendering an opinion as to the fair market value of the
Augusta System, the General Partner paid Kagan a fee of $25,000. Such fee was
not contingent upon the conclusion reached by Kagan in its opinion. As
compensation for rendering opinions as to the fair market value of other cable
television systems and related businesses owned and/or managed by the General
Partner and its affiliates, and completing the analysis of the allocations of
purchase prices between tangible and intangible assets for various cable
television systems owned and/or managed by the General Partner and its
affiliates, Kagan has received fees totalling $41,705 during the two years
prior to the date hereof.
R. Michael Kruger, the owner and president of Western Cablesystems, Inc.
("Western"), has since 1979 appraised hundreds of systems for a variety of
clients including major multiple system cable operators, independent operators
and clients outside the cable television industry, according to information
provided by Western. In addition to appraising cable television systems,
Western presently operates four small cable television systems and is currently
active in the system acquisition marketplace. Western was selected by the
General Partner to render an opinion as to the fair market value of the Augusta
System in light of such overall qualifications. No limitations were imposed
with respect to the appraisal to be rendered by Western. The firm was selected
by the General Partner to prepare an independent appraisal of the Augusta
System because of the General Partner's familiarity with the firm and Western's
knowledge of the cable television industry. Western has prepared independent
appraisals of other cable television systems owned and/or managed by the
General Partner. The principals of Western are not affiliated in any way with
the General Partner.
Western used two appraisal methodologies in determining the fair market value
of the Augusta System. It looked at the system's market value on the basis of
both per-subscriber cost and operating income multiple, placing more reliance
on the income multiple. It also used the income approach, which involved
determining the discounted present value of free cash flow generated by the
system over ten years, plus an allowance for the terminal value after ten
years. Western's valuation methodologies are set out in full in Exhibit C to
this proxy statement.
As compensation for rendering an opinion as to the fair market value of the
Augusta System, the General Partner paid Western a fee of $5,000. Such fee was
not contingent upon the conclusion reached by Western in its opinion. As
compensation for rendering opinions as to the fair market value of other cable
television systems owned and/or managed by the General Partner and its
affiliates, Western has received fees totalling $33,344 during the two years
prior to the date hereof.
COSTS OF THE TRANSACTION
The following is a reasonably itemized estimate of all expenses incurred or
to be incurred in connection with the proposed sale of the Augusta System, all
of which will be paid by the General Partner, including without limitation the
cost of soliciting the votes of the holders of limited partnership interests:
Filing fees $28,344
Legal fees $10,000
Accounting fees $10,000
Appraisal fees $33,500
Printing costs $25,000
Postage and miscellaneous costs $ 5,000
14
PROPOSED SALE OF ASSETS
THE PURCHASE AND SALE AGREEMENT
Pursuant to the terms and conditions of a purchase and sale agreement dated
as of February 22, 1995 (the "Purchase and Sale Agreement") by and between the
Partnership and the General Partner, the Partnership has agreed to sell the
Augusta System to the General Partner. Prior to closing, the General Partner
may assign its rights as purchaser of the Augusta System under the Purchase and
Sale Agreement to a wholly owned subsidiary of the General Partner. The sale of
the Augusta System will be accounted for using the purchase method of
accounting.
The General Partner intends to finance its acquisition of the Augusta System
using a portion of the $196,500,000 net proceeds of the General Partner's
offering of $200,000,000 of 9 5/8 percent Senior Notes. The Senior Notes
offering closed on March 23, 1995. The Senior Notes will mature on March 15,
2002. The Senior Notes bear interest from the date of issuance (March 23, 1995)
at the rate of 9 5/8 percent per annum, payable semi-annually on March 15 and
September 15 of each year, commencing September 15, 1995. The Senior Notes are
not redeemable prior to maturity and are not subject to any mandatory
redemption or sinking fund. The Senior Notes are senior unsecured obligations
of the General Partner ranking equally with all other senior unsecured
obligations of the General Partner.
Based upon amounts estimated as of March 31, 1995, the aggregate cost of the
acquisition of the Augusta System to the General Partner, including the
adjusted contract purchase price, will be approximately $142,037,062. The
amount required to complete the purchase of the Augusta System will be repaid
from the revenues generated by the Augusta System and the General Partner's
other cable television systems, from the revenues generated by the General
Partner's other business activities and from other sources of funds, including
possible future financings.
The closing of the sale will occur on a date upon which the Partnership and
the General Partner mutually agree. It is anticipated that the closing will
occur within a few weeks after receipt of the approval of the Partnership's
limited partners. Because the closing is conditioned upon, among other things,
the approval of the limited partners and the receipt of material third party
consents necessary for the transfer of the Augusta System to the General
Partner, there can be no assurance that the proposed sale will occur. If all
conditions precedent to the General Partner's obligation to close are not
eventually satisfied or waived, the General Partner's obligation to purchase
the Augusta System will terminate.
THE AUGUSTA SYSTEM
The assets to be acquired by the General Partner consist primarily of the
real and personal, tangible and intangible assets of the Partnership's Augusta
System. The Augusta System was purchased by the Partnership from unaffiliated
parties in August 1985 for an aggregate purchase price of $57,850,000. The
Partnership also paid a brokerage fee of $2,603,250 to an affiliate of the
General Partner. The Augusta System was purchased using the limited partner
capital contributions to the Partnership, and amounts available under the
Partnership's credit facility with a commercial bank.
At the date of acquisition in 1985, the Augusta System served approximately
44,000 basic subscribers and had approximately 32,000 premium channel
subscriptions, using approximately 1,000 miles of cable plant passing
approximately 70,000 dwelling units. As of December 31, 1994, the Augusta
System served approximately 66,600 basic subscribers and had approximately
50,200 premium channel subscriptions, using approximately 1,600 miles of cable
plant passing approximately 102,000 dwelling units.
The General Partner will purchase all of the tangible assets of the Augusta
System, including, among other things, the headend equipment, underground and
aboveground cable distribution systems, towers, earth satellite receive
stations, and furniture and fixtures of the Augusta System. The General Partner
also will
15
acquire certain of the intangible assets of the Augusta System, including,
among other things, all of the franchises, leases, agreements, permits,
licenses and other contracts and contract rights of the Augusta System. Also
included in the sale are certain parcels of real estate owned by the Augusta
System, the subscriber accounts receivable of the Augusta System and all of
the Augusta System's engineering records, files, schematics, maps, reports,
promotional graphics, marketing materials and reports filed with federal,
state and local regulatory agencies. Certain of the Augusta System's assets
will be retained by the Partnership, including cash or cash equivalents on
hand and in banks, certain insurance policies and rights and claims
thereunder, and any federal or state income tax refunds to which the
Partnership may be entitled.
PURCHASE PRICE
Subject to the adjustments described below, the purchase price for the
Augusta System is $141,718,000. The purchase price will be reduced by any
accounts payable and accrued expenses and vehicle lease obligations existing
on the closing date. The purchase price will be increased by any accounts
receivable existing on the closing date. The purchase price for the Augusta
System also will be adjusted as of the closing date with respect to all items
of income and expense associated with the operation of the Augusta System.
This adjustment will reflect, in accordance with generally accepted accounting
principles, that all expenses and income attributable to the period on or
after the closing date are for the account of the General Partner and those
prior to the closing date are for the account of the Partnership. Please see
Note 3 of the Notes to Unaudited Pro Forma Financial Statements for a detailed
accounting of the estimated closing adjustments.
CONDITIONS TO CLOSING
The General Partner's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the Partnership shall have obtained
all material consents and approvals from governmental authorities and other
third parties necessary to the transfer of the Augusta System to the General
Partner, (b) the holders of a majority of limited partnership interests of the
Partnership shall have approved the transaction and (c) the statutory waiting
period applicable to the Purchase and Sale Agreement and the transactions
contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, shall have terminated or shall have expired. In order to
sell the Augusta System, the Partnership must obtain the consent of third
parties with whom the Partnership has contracts related to the Augusta System,
such as pole attachment agreements or other service agreements, to the
transfer thereof. The General Partner does not anticipate that the Partnership
will experience any difficulty in obtaining the necessary consents and
approvals. If, however, the Partnership fails to obtain certain consents and
approvals of third parties with whom the Augusta System has contracted, the
General Partner may, in its sole discretion, waive this condition to closing.
The General Partner likely would close without all consents only if the
missing consents were deemed by the General Partner to be immaterial. In such
circumstances, the General Partner would agree to indemnify the Partnership
for any liabilities incurred in connection with a closing without prior
receipt of all necessary consents.
The Partnership's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) approval of the transaction by the
holders of a majority of the Partnership's limited partnership interests, (b)
receipt of the purchase price for the Augusta System and (c) the expiration or
termination of all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
On May 2, 1995, the General Partner and the Partnership received early
termination of their Hart-Scott-Rodino Antitrust Improvements Act of 1976
filings, thereby removing this as a condition to closing. No pre-closing
transfers of licenses will be required, so the consent of the Federal
Communications Commission to the proposed transaction will not be required as
a condition to closing.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The purpose of the following discussion of the income tax consequences of
the proposed transaction is to inform the limited partners of the Partnership
of the federal and state income tax consequences to the Partnership and to its
partners arising from the sale of the Augusta System. The tax information
included herein was prepared by the tax department of the General Partner and
was reviewed by the Group Vice
16
President/Taxation/Administration of the General Partner. The tax information
is taken from tax data compiled by the General Partner in its role as the
Partnership's tax administrator and is not based upon the advice or formal
opinion of counsel. The tax discussion that follows is merely intended to
inform the limited partners of factual information and should not be considered
tax advice.
By the expected date of the Augusta System's sale, the limited partners will
have received certain tax benefits from their investment in the Partnership.
Assuming maximum federal income tax rates and no other sources of passive
income, limited partners will have received $7,320,454 in tax benefits from
Partnership losses ($132 per $1,000 invested).
Application of the at risk rules and the passive activity loss limitation has
limited deductible losses in prior years and created at risk and passive loss
carryovers to the year of sale. The gain on sale incorporates all prior losses
disallowed under the loss limitations that are presumed deductible in the year
of sale.
The sale of the Augusta System will result in a gain for federal income tax
purposes. The amount of this gain allocated to limited partners is
approximately $55,219,242. The General Partner estimates that $45,307,531 ($816
per $1,000 invested) of this total gain will be treated as ordinary income.
This amount of ordinary income results from the recapture of depreciation on
personal property under Section 1245. The General Partner estimates that the
remainder of the gain, or approximately $9,911,711 ($179 per $1,000 invested),
will be Section 1231 gain that will generally be treated as long term capital
gain by the limited partners.
Assuming the 31 percent rate applies to ordinary income and a 28 percent rate
applies to long-term capital gain, as a result of the sale of the Augusta
System, a limited partner will be subject to federal income taxes of $303 per
$1,000 invested in the Partnership. The taxable income will be recognized in
the year of the closing of the sale, which is expected to be 1995.
Because the Augusta System is located in the State of Georgia, limited
partners who are not resident in Georgia are required to report their allocable
gain to Georgia on Form 500. Georgia law requires the Partnership to withhold 4
percent of a nonresident partner's distribution and to remit such amounts
withheld to the Georgia Department of Revenue. The amount withheld will be
separately stated on the stub of the distribution check and the General Partner
will provide additional documentation of the amount of the withheld Georgia
taxes by January 31 following the year of sale. The amount of tax withheld will
be treated as a distribution to the limited partner. The withheld taxes will be
allowed as a credit against any Georgia tax computed on Form 500. Limited
partners may or may not have a tax refund after the filing of the required
Georgia tax return.
Limited partners who are non-resident aliens or foreign corporations
("foreign persons") are subject to a withholding tax on their share of the
Partnership's income from the sale of the Augusta System. The withholding rates
are 39.6 percent for individual partners and 35 percent for corporate partners.
The tax withheld will be remitted to the Internal Revenue Service and the
foreign person will receive a credit on their U.S. tax return for the amount of
the tax withheld by the Partnership. The tax withheld will be treated as a
distribution to the limited partner.
CERTAIN INFORMATION ABOUT THE PARTNERSHIP
AND THE GENERAL PARTNER
The General Partner acquires, develops and operates cable television systems
for itself and for its managed limited partnerships. Based on the number of
basic subscribers served by the General Partner's owned and managed cable
television systems, the General Partner is one of the largest cable television
system operators in the United States. It owns and/or manages for affiliated
public limited partnerships 55 cable television systems in 23 states serving
approximately 1.3 million basic subscribers. The principal executive offices of
the Partnership and the General Partner are located at 9697 East Mineral
Avenue, Englewood, Colorado 80112, and their telephone number is (303) 792-
3111.
17
The limited partnership interests of the Partnership are registered pursuant
to Section 12(g) of the Exchange Act. As such, the Partnership currently is
subject to the informational reporting requirements of the Exchange Act and, in
accordance therewith, is obligated to file periodic reports, proxy statements
and other information with the Securities and Exchange Commission relating to
its business, financial condition and other matters. Reports and other
information filed by the Partnership can be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and
Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. The Partnership is an Edgar filer. The Partnership will continue in
existence and will continue to be subject to the informational reporting
requirements of the Exchange Act after the sale of the Augusta System. The
Partnership's registration and reporting requirements under the Exchange Act
will not be terminated until dissolution of the Partnership.
The General Partner also is subject to the informational filing requirements
of the Exchange Act and, in accordance therewith, files periodic reports, proxy
statements and other financial information with the Securities and Exchange
Commission relating to its business, financial condition and other matters.
Information, as of particular dates, concerning the General Partner's directors
and officers, their compensation, options granted to them, the principal
holders of the General Partner's securities and any material interest of such
persons in transactions with the General Partner is required to be disclosed in
certain documents filed with the Commission. Such reports, proxy statements and
other information may be inspected at the above-listed public reference
facilities maintained by the Commission. Copies of such materials may be
obtained upon payment of the Commission's prescribed charges by writing to the
Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. The General Partner also is an Edgar filer.
The name, business address and principal occupation and employment for the
past five years of each of the directors and executive officers of the General
Partner are set forth in Schedule 1 to this Proxy Statement. To the best
knowledge of any of the persons listed on Schedule 1 hereto, except as
disclosed on such schedule, no persons listed on such schedule beneficially own
any limited partnership interests in the Partnership.
Except as disclosed herein, neither the General Partner nor, to the best of
its knowledge, any of the persons listed on Schedule 1 hereto, has any
contract, arrangement, understanding or relationship with any other person with
respect to any limited partnership interest of the Partnership, including, but
not limited to, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any of such interests, joint ventures,
loan or option arrangements, puts or calls, guaranties of loans, guaranties
against loss or the giving or withholding of proxies. Except as disclosed
herein and in Item 13. of the Partnership's Annual Reports on Form 10-K, which
are incorporated herein by reference, neither the General Partner nor, to the
best of its knowledge, any of the persons listed on Schedule 1 hereto, has had
any material transaction or material business relationship with the Partnership
since the commencement of the Partnership's second full fiscal year preceding
the date hereof that would require disclosure under the rules and regulations
of the Securities and Exchange Commission.
USE OF PROCEEDS FROM AUGUSTA SYSTEM SALE
The following is a brief summary of the Partnership's estimated use of the
proceeds from the sale of the Augusta System. All of the following selected
financial information is based upon amounts as of March 31, 1995 and certain
estimates of liabilities at closing. Final results may differ from these
estimates. A more detailed discussion of the financial consequences of the sale
of the Augusta System is set forth below under the caption "Unaudited Pro Forma
Financial Information." All limited partners are encouraged to review carefully
the unaudited pro forma financial statements and notes thereto.
18
If the holders of a majority of limited partnership interests of the
Partnership approve the proposed sale of the Augusta System and the transaction
is closed, the Partnership will pay all of its indebtedness and then the
Partnership will distribute the net sale proceeds pursuant to the terms of the
Partnership Agreement. The estimated uses of the sale proceeds are as follows:
Contract Sales Price of the Augusta System.................... $141,718,000
Add:Cash on Hand.............................................. 3,248,945
Less:Estimated Net Closing Adjustments........................ 319,062
Repayment of Debt......................................... (38,728,010)
------------
Cash Available for Distribution by the Partnership....... 106,557,997
Return of Limited Partners' Initial Capital.............. (55,517,500)
------------
Estimated Residual Proceeds.............................. $ 51,040,497
============
Limited Partners' Share (75%)............................ $ 38,280,373
General Partner's Share (25%)............................ $ 12,760,124
============
Based upon financial information available at March 31, 1995, below is an
estimate of all cash distributions that will have been made to limited partners
after the distribution of the proceeds from the sale of the Augusta System is
completed.
Summary of Estimated Cash Distributions to Limited Partners:
Return of Limited Partners' Initial Capital................. $55,517,500
Limited Partners' Share of Residual Proceeds on Sale of
Augusta System............................................. 38,280,373
------------
Total Estimated Cash Received by Limited Partners........... $93,797,873
============
Total Cash Received per $1,000 of Limited Partnership
Capital.................................................... $ 1,689
============
Total Cash Received per $500 Limited Partnership Interest .. $ 844
============
Assuming an average holding period of approximately ten years, the estimated
after-tax internal rate of return on an investment in the Partnership is
approximately 4.6 percent. This internal rate of return includes only the
distributions to be made on the sale of the Augusta System and does not reflect
the expected additional future distributions to be made upon the sale of the
Venture Systems.
Based on financial information available at March 31, 1995, the following
table presents the estimated results of the Partnership when it has completed
the sale of the Augusta System:
Dollar Amount Raised....................................... $55,517,500
Number of Cable Television Systems Purchased Directly...... One
Number of Cable Television Systems Purchased Indirectly.... Five
Date of Closing of Offering................................ September 1985
Date of First Sale of Properties........................... August 1987
Tax and Distribution Data per $1,000 of Limited Partnership
Capital:
Federal Income Tax Results
Ordinary Income (Loss)
--from operations...................................... $ (319)
--from recapture....................................... $ 816
Capital Gain (Loss).................................... $ 179
Cash Distributions to Investors
Source (on GAAP basis)
--investment income.................................... $ 689
--return of capital.................................... $1,000
Source (on cash basis)
--sales................................................ $1,689
19
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF CABLE TV FUND 12-B, LTD.
The following unaudited pro forma balance sheet assumes that as of March 31,
1995, the Partnership had sold the Augusta System for $141,718,000. The funds
available to the Partnership, adjusting for the estimated net closing
adjustments of the Augusta System, are expected to total approximately
$142,037,067. Such funds will be used to repay indebtedness and the balance
will be distributed pursuant to the terms of the Partnership Agreement, which
generally will be first, to the limited partners in an amount that equals the
amount initially contributed to the partnership capital by the limited
partners; the balance, 75 percent to the limited partners and 25 percent to the
General Partner.
The unaudited pro forma balance sheet should be read in conjunction with the
appropriate notes to the unaudited pro forma balance sheet.
ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON
AMOUNTS AS OF MARCH 31, 1995 AND CERTAIN ESTIMATES OF LIABILITIES AT CLOSING.
FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
20
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1995
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ------------ ------------
ASSETS
Cash and Cash Equivalents............. $ 3,248,945 $103,309,052 $106,557,997
Trade Receivables, net................ 795,861 (795,861) --
Investment in Cable Television
Properties:
Property, plant and equipment, net.. 40,154,735 (40,154,735) --
Franchise costs, net................ 13,379,975 (13,379,975) --
Losses in excess of investment in
cable television venture........... (2,197,446) -- (2,197,446)
----------- ------------ ------------
Total investment in cable
television properties............ 51,337,264 (53,534,710) (2,197,446)
Deposits, Prepaid Expenses and
Deferred Charges..................... 504,597 (504,597) --
----------- ------------ ------------
Total Assets.......................... $55,886,667 $ 48,473,884 $104,360,551
=========== ============ ============
LIABILITIES AND PARTNERS' CAPITAL
(DEFICIT)
Liabilities:
Debt................................ $38,683,849 $(38,683,849) $ --
Accounts payable.................... 44,161 (44,161) --
Accrued liabilities................. 849,760 (849,760) --
Subscriber prepayments.............. 131,636 (131,636) --
Accrued Distribution to Limited
Partners........................... -- 93,797,873 93,797,873
Accrued Distribution to General
Partner............................ -- 12,760,124 12,760,124
----------- ------------ ------------
Total Liabilities................. 39,709,406 66,848,591 106,557,997
----------- ------------ ------------
Partners' Capital (Deficit):
General Partner..................... (316,076) (233,285) (549,361)
Limited Partners.................... 16,493,337 (18,141,422) (1,648,085)
----------- ------------ ------------
Total Partners' Capital (Deficit). 16,177,261 (18,374,707) (2,197,446)
----------- ------------ ------------
Total Liabilities and Partners'
Capital (Deficit).................. $55,886,667 $ 48,473,884 $104,360,551
=========== ============ ============
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited balance sheet.
21
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ------------ -----------
REVENUES............................... $26,956,006 $(26,956,006) $ --
COSTS AND EXPENSES:
Operating, general and administrative
expense............................. 13,932,687 (13,932,687) --
Management fees and allocated
overhead from
General Partner..................... 3,392,884 (3,392,884) --
Depreciation and Amortization........ 9,380,877 (9,380,877) --
----------- ------------ -----------
OPERATING INCOME....................... 249,558 (249,558) --
----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest expense..................... (2,555,513) 2,555,513 --
Other, net........................... 119,749 (119,749) --
----------- ------------ -----------
Total other income (expense), net.. (2,435,764) 2,435,764 --
----------- ------------ -----------
LOSS BEFORE EQUITY IN NET LOSS OF CABLE
TELEVISION JOINT VENTURE.............. (2,186,206) 2,186,206 --
EQUITY IN NET LOSS OF CABLE TELEVISION
JOINT VENTURE......................... (1,182,039) -- (1,182,039)
----------- ------------ -----------
NET LOSS............................... $(3,368,245) $ 2,186,206 $(1,182,039)
=========== ============ ===========
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
22
CABLE TV FUND 12-B, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- ---------
REVENUES.................................. $ 6,991,658 $(6,991,658) $ --
COSTS AND EXPENSES:
Operating............................... 3,700,432 (3,700,432) --
Management fees and allocated overhead
from General Partner................... 870,012 (870,012) --
Depreciation and amortization........... 2,488,109 (2,488,109) --
----------- ----------- ---------
OPERATING INCOME.......................... (66,895) 66,895 --
----------- ----------- ---------
OTHER INCOME (EXPENSE):
Interest expense........................ (786,044) 786,044 --
Other, net.............................. 53,800 (53,800) --
----------- ----------- ---------
Total other income (expense), net..... (732,244) 732,244 --
----------- ----------- ---------
LOSS BEFORE EQUITY IN NET LOSS OF CABLE
TELEVISION JOINT VENTURE................. (799,139) 799,139 --
EQUITY IN NET LOSS OF CABLE TELEVISION
JOINT VENTURE............................ (393,320) -- (393,320)
----------- ----------- ---------
NET LOSS.................................. $(1,192,459) $ 799,139 $(393,320)
=========== =========== =========
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement
23
CABLE TV FUND 12-B, LTD.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1) The following calculations present the sale of the Augusta System and the
resulting estimated proceeds expected to be received by the Partnership.
2) The unaudited pro forma balance sheet assumes that the Partnership had
sold the Augusta System for $141,718,000 as of March 31, 1995. The unaudited
statement of operations assumes that the Partnership had sold the Augusta
System as of January 1, 1994.
3) The estimated gain recognized from the sale of the Augusta System and
corresponding estimated distribution to limited partners as of March 31, 1995
has been computed as follows:
GAIN ON SALE OF ASSETS:
Contract sales price............................................. $141,718,000
Less: Net book value of investment in cable television properties
at March 31, 1995.......................................... 53,534,710
------------
Gain on sale of assets........................................... $ 88,183,290
============
DISTRIBUTIONS TO PARTNERS:
Contract sales price............................................. $141,718,000
Add:Trade receivables, net....................................... 795,861
Prepaid expenses................................................. 504,597
Less:Accrued liabilities assumed by the General Partner.......... (849,760)
Subscriber prepayments........................................... (131,636)
------------
Adjusted cash received........................................... 142,037,062
Less:Outstanding debt to third parties........................... (38,683,849)
Outstanding debt to General Partner.............................. (44,161)
Add:Cash on hand................................................. 3,248,945
------------
Cash available for distribution.................................. 106,557,997
Return of limited partners' initial capital...................... (55,517,500)
Residual proceeds................................................ $ 51,040,497
============
Amount due Limited Partners (75%)................................ $ 38,280,373
============
Amount due General Partner (25%)................................. $ 12,760,124
============
24
AVAILABLE INFORMATION
The Partnership's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1994 and December 31, 1993 and the Partnership's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1995 previously have been
mailed to the limited partners of the Partnership. Additional copies of the
Partnership's Annual Reports on Form 10-K for the fiscal years ended December
31, 1994 and December 31, 1993 and the Partnership's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1995 are available to each limited
partner of the Partnership without charge upon written request to: Elizabeth M.
Steele, Secretary, Jones Intercable, Inc., 9697 East Mineral Avenue, Englewood,
Colorado 80112, (303) 792-3111. Copies of the Purchase and Sale Agreement
between the Partnership and the General Partner also are available upon written
request to Ms. Steele.
A Rule 13e-3 Transaction Statement furnishing certain additional information
with respect to the transaction described herein has been jointly filed by the
Partnership and the General Partner with the Securities and Exchange
Commission.
INCORPORATION BY REFERENCE
The Partnership's Annual Reports on Form 10-K for the fiscal years ended
December 31, 1994 and December 31, 1993 and the Partnership's Quarterly Report
on Form 10-Q for the fiscal quarter ended March 31, 1995 are incorporated by
reference in this Proxy Statement. The Partnership specifically incorporates by
reference herein Item 1. Business, Item 2. Properties, Item 5. Market for the
Registrant's Common Stock and Related Security Holder Matters, Item 6. Selected
Financial Data, Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations, Item 8. Financial Statements and Item 13.
Certain Relationships and Related Transactions from the 1994 and 1993 Annual
Reports on Form 10-K and the March 31, 1995 Quarterly Report on Form 10-Q in
its entirety.
25
SCHEDULE 1
EXECUTIVE OFFICERS AND DIRECTORS OF THE GENERAL PARTNER
Set forth below is the name, residence or business address, present principal
occupation or employment and five-year employment history of the executive
officers and directors of the General Partner. Also set forth is the aggregate
number of limited partnership interests of the Partnership beneficially owned
by each such person. The present principal occupation of each executive officer
of the General Partner is as an executive officer of the General Partner. The
Partnership has no officers or employees. All persons listed except for Messrs.
Burney, Ladouceur and Somers are citizens of the United States. Messrs. Burney,
Ladouceur and Somers are citizens of Canada.
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
Glenn R. Jones Mr. Jones has served as Chairman of the Board of 0
c/o Jones Intercable, Directors and Chief Executive Officer of the
Inc. 9697 E. Mineral General Partner since its formation in 1970.
Avenue Englewood, CO
80112
Christopher J. Bowick Mr. Bowick is the General Partner's Group Vice 0
c/o Jones Intercable, President/Technology and its Chief Technical
Inc. 9697 E. Mineral Officer. Prior to joining the General Partner
Avenue Englewood, CO in 1991, Mr. Bowick worked as Vice President of
80112 Engineering of Scientific Atlanta's
transmission systems business division.
Timothy J. Burke Mr. Burke joined the General Partner in 1982 as 20
c/o Jones Intercable, corporate tax manager, and he has served as
Inc. 9697 E. Mineral Group Vice President/Taxation/Administration
Avenue Englewood, CO since 1990.
80112
Derek H. Burney Mr. Burney was appointed a Director of the 0
c/o Bell Canada General Partner in December 1994 and he became
International Inc. Vice Chairman of the General Partner's Board in
1000 de la Gauchetiere January 1995. Mr. Burney joined BCE Inc.,
Bureau 1100 Canada's largest telecommunications company, in
Montreal (PQ) Canada H3B January 1993, and he has been Chairman of Bell
4Y8 Canada International Inc., a subsidiary of BCE
Inc., since that time and, in addition, he has
been the subsidiary's Chief Executive Officer
since July 1993. Prior to joining BCE Inc., Mr.
Burney was Canada's ambassador to the United
States from 1989 to 1992.
Kevin P. Coyle Mr. Coyle, Group Vice President/Finance of the 0
c/o Jones Intercable, General Partner, has been the General Partner's
Inc. 9697 E. Mineral Chief Financial Officer since 1990. Mr. Coyle
Avenue Englewood, CO has been an associate of the General Partner
80112 since 1981.
William E. Frenzel Mr. Frenzel was appointed a Director of the 0
c/o Jones Intercable, General Partner in April 1995. He has been a
Inc. Guest Scholar since 1991 with the Brookings
9697 E. Mineral Avenue Institution, a research organization located in
Englewood, CO 80112 Washington D.C. Until his retirement in January
1991, Mr. Frenzel served for twenty years in
the United States House of Representatives.
26
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0
c/o Jones Intercable, General Partner in April 1995. From 1983 to
Inc. 1992, at which time Mr. Jacobs retired, Mr.
9697 E. Mineral Avenue Jacobs was an executive officer of TRW. Prior
Englewood, CO 80112 to his retirement, he was Vice President and
Deputy Manager of the Space and Defense Sector;
prior to that appointment, he was the Vice
President and General Manager of the Defense
Systems Group; and prior to that appointment,
he was President of ESL, Inc., a subsidiary of
TRW.
Larry Kaschinske Mr. Kaschinske has been the Controller and Chief 0
c/o Jones Intercable, Accounting Officer of the General Partner since
Inc. 9697 E. Mineral 1994. Mr. Kaschinske has been an associate of
Avenue Englewood, CO the General Partner since 1984.
80112
James J. Krejci Mr. Krejci has been a Director of the General 0
c/o Jones Intercable, Partner since 1987. He was the President of the
Inc. International Division of International Gaming
9697 E. Mineral Avenue Technology headquartered in Reno, Nevada from
Englewood, CO 80112 May 1994 until March 1995. Prior to joining
International Gaming Technology, Mr. Krejci had
been a Group Vice President of the General
Partner since 1987.
Philip R. Ladouceur Mr. Ladouceur was appointed a Director of the 0
c/o Bell Canada General Partner in April 1995. Mr. Ladouceur
International Inc. joined Bell Canada International Inc. as
1000 de la Gauchetiere Executive Vice President of Operations in March
Bureau 1100 1995. From 1993 to March 1995, Mr. Ladouceur
Montreal (PQ) Canada was President, Chief Executive Officer and a
H3B 4Y8 Director of ISM Information Systems Management
(Alberta) Corporation, a major information
management company based in Alberta, Canada.
From 1990 to 1992, Mr. Ladouceur was Executive
Vice President and a Director of Sharwood and
Company, a Toronto merchant bank and President
and Senior Partner of HDL Capital Corporation
in Toronto.
Christine Jones Marocco Ms. Marocco was appointed a Director of the 0
c/o Jones Intercable, General Partner in December 1994. She is a
Inc. homemaker and the daughter of Glenn R. Jones.
9697 E. Mineral Avenue
Englewood, CO 80112
James B. O'Brien Mr. O'Brien has been President, Chief Operating 0
c/o Jones Intercable, Officer and a Director of the General Partner
Inc. since 1989. Mr. O'Brien has been with the
9697 E. Mineral Avenue General Partner since 1982 in various
Englewood, CO 80112 operational management positions.
27
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
Daniel E. Somers Mr. Somers was appointed a Director of the 0
c/o Bell Canada General Partner in December 1994. Mr. Somers is
International Inc. the Executive Vice President and Chief
1000 de la Gauchetiere Financial Officer of Bell Canada International
Bureau 1100 Inc. Prior to joining Bell Canada International
Montreal (PQ) Canada H3B Inc. in January 1992, Mr. Somers had been the
4Y8 President and Chief Executive Officer of Radio
Atlantic Holdings Limited since January 1989.
Elizabeth M. Steele Ms. Steele joined the General Partner in 1987 as 0
c/o Jones Intercable, Vice President/General Counsel and Secretary.
Inc. Prior to that time, Ms. Steele was a partner at
9697 E. Mineral Avenue Davis, Graham & Stubbs, a Denver, Colorado law
Englewood, CO 80112 firm that serves as counsel to the General
Partner.
Raymond L. Vigil Mr. Vigil has been Group Vice President/Human 0
c/o Jones Intercable, Resources of the General Partner since 1993.
Inc. Mr. Vigil also is a Director of the General
9697 E. Mineral Avenue Partner. Previous to joining the General
Englewood, CO 80112 Partner, Mr. Vigil served as Executive Director
of Learning at US West. Prior to U.S. West, Mr.
Vigil worked in various human resources posts
over a 14-year term with the IBM Corporation.
Ruth E. Warren Ms. Warren has been Group Vice 0
c/o Jones Intercable, President/Operations of the General Partner
Inc. since 1990. Ms. Warren has been with the
9697 E. Mineral Avenue General Partner in various operational
Englewood, CO 80112 management positions since 1980.
Cynthia A. Winning Ms. Wining joined the General Partner as Group 0
c/o Jones Intercable, Vice President/Marketing in December 1994.
Inc. Prior to joining the General Partner, Ms.
9697 E. Mineral Avenue Winning served in 1994 as the President of PRS
Englewood, CO 80112 Inc., a Denver, Colorado sports and event
marketing company. From 1979 to 1981 and from
1986 to 1994, Ms. Winning served as the Vice
President and Director of Marketing for
Citicorp Retail Services, Inc.
Robert S. Zinn Mr. Zinn was appointed a Director of the General 0
c/o Jones Intercable, Partner in December 1994. Mr. Zinn has been a
Inc. lawyer in the General Partner's law department
9697 E. Mineral Avenue since 1991. Prior to that time, Mr. Zinn was a
Englewood, CO 80112 partner at Davis, Graham & Stubbs, a Denver,
Colorado law firm that serves as counsel to the
General Partner.
28
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
Robert L. Zoellick Mr. Zoellick was appointed a Director of the 0
General Partner in April 1995. Mr. Zoellick is
Executive Vice President, General Counsel and
Corporate Secretary of Fannie Mae, a federally
chartered and stockholder-owned corporation
that is the largest housing finance investor in
the United States. From August 1992 to January
1993, Mr. Zoellick served as Deputy Chief of
Staff of the White House and Assistant to the
President. From May 1991 to August 1992, Mr.
Zoellick served concurrently as the Under
Secretary of State for Economic and
Agricultural Affairs and as Counselor of the
Department of State. From 1985 to 1988, Mr.
Zoellick served at the Department of Treasury
in various capacities.
David K. Zonker Mr. Zonker was appointed a Director of the 25
c/o Jones Intercable, General Partner in December 1994. Mr. Zonker
Inc. has been the President of Jones International
9697 E. Mineral Avenue Securities, Ltd., an affiliate of the General
Englewood, CO 80112 Partner that served as the dealer-manager of
the Partnership's initial public offering,
since 1984. Mr. Zonker joined the General
Partner in 1980.
29
EXHIBIT A
[LETTERHEAD OF MALARKEY-TAYLOR ASSOCIATES APPEARS HERE]
February 3, 1995
Mr. Timothy Burke
Vice President - Taxation
Jones Intercable, Inc.
9697 East Mineral Avenue
Englewood, CO 80112
Dear Mr. Burke:
PURPOSE OF APPRAISAL
Malarkey-Taylor Associates, Inc., ("MTA") was retained by Jones Intercable,
Inc. ("Jones") to update a fair market appraisal of the Cable TV Fund 12-B Ltd.
cable television system (the "System") serving Augusta, Georgia as of December
31, 1994. This updated appraisal will be used by Jones as an independent
estimate of the fair market value of the System with the resulting value to be
used in conjunction with the acquisition of the System by Jones.
FAIR MARKET VALUE
MTA has determined the overall fair market value of the System to be
$141,854,000 as of December 31, 1994. 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.
FAIR MARKET VALUE METHODOLOGY
MTA used five generally accepted cable television valuation methods 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
A-1
Mr. Timothy J. Burke
February 3, 1995
Page 2
used a lower multiple of the annualized current month's operating income. The
third method applied a slightly lower multiple of next year's projected
operating income. The fourth method was a discounted net cash flow analysis to
achieve a target after-tax return of equity, given particular operating and
financing assumptions unique to the System's assets. The fifth method was a
discounted cash flow method that measured 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 the total investment.
CONTINGENCIES AND LIMITING CONDITIONS
Our conclusions as to the fair market value of the System are based upon
the following, which to the best of our knowledge, are reliable and sound:
1. MTA's appraisal as of March 31, 1991 dated May 20, 1991, which included an
onsite inspection of a representative portion of the System and communities
served, and updated appraisals as of December 31, 1991 dated February 3,
1992, as of October 31, 1992 dated March 3, 1993, and as of October 31, 1993
dated January 14, 1994.
2. Unaudited financial statements for the 12-month periods ending December 31,
1993 and December 31, 1994.
3. Homes passed and subscriber data as of December 31, 1994, provided by Jones.
4. Miscellaneous management data as to the current subscriber rates,
construction schedules, etc., as of the appraisal date.
MTA did not revisit the System since the 1991 valuation. The amount of
current information gathered and used in this update, in conjunction with
management interviews and data collected for previous valuations, provides
adequate support for this updated valuation. This data results in an accurate
valuation given the preceding conditions.
A-2
Mr. Timothy J. Burke
February 3, 1995
Page 3
STATEMENT OF VALUE
MTA certifies that, to the best of our knowledge, the statements contained
in this appraisal are correct and that the opinions stated are based on a
consideration of the relevant factors. Furthermore, neither MTA nor any of its
representatives have any current interest or contemplated future interest in the
assets appraised.
Based on the various analyses, computations, and consideration discussed in
this report, it is our professional judgment, subject to the assumptions and
limitations stated herein, that the overall fair market value of the System is
$141,854,000.
Sincerely,
/s/ Andrew R. Gefen
Andrew R. Gefen
Vice President, Financial Services
/s/ Susan Donovan
Susan Donovan
Senior Financial Analyst
SD/ban
cc: Robert M. Jones
A-3
-----------------------
CABLE TV FUND 12-B LTD. EXHIBIT A
AUGUSTA, GEORGIA ---------
AS OF DECEMBER 31, 1994
-----------------------
VALUATION METHODS
- ----------------- LOW HIGH
--- ----
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME
OPERATING INCOME, PER BOOKS (12/31/94) $13,158,803 $13,158,803
VALUATION MULTIPLE 10.5 11.5
---- ----
ESTIMATED FAIR MARKET VALUE $138,167,432 $151,326,235
------------ ------------
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME
EST. OPERATING INCOME
TOTAL CURRENT YEAR'S REVENUE $27,716,744 $27,716,744
OPERATING MARGIN, PER STMTS. (12/31/94) 48.8% 48.8%
----- -----
"RUNNING RATE" OPERATING INCOME $13,525,771 $13,525,771
VALUATION MULTIPLE 10.0 11.0
---- ----
ESTIMATED FAIR MARKET VALUE $135,257,712 $148,783,483
------------ ------------
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME
OPERATING INCOME $14,292,381 $14,292,381
VALUATION MULTIPLE 9.5 10.5
--- ----
ESTIMATED FAIR MARKET VALUE $135,777,624 $150,070,005
------------ ------------
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY
TARGET RETURN ON EQUITY 14.0% 12.0%
ESTIMATED FAIR MARKET VALUE $137,113,082 $149,014,733
------------ ------------
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT
TARGET RETURN ON INVSTMT 16.6% 15.1%
ESTIMATED FAIR MARKET VALUE $133,758,710 $144,973,331
------------ ------------
SUMMARY OF VALUES
- -----------------
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $138,167,432 $151,326,235
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 135,257,712 148,783,483
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 135,777,624 150,070,005
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 137,113,082 149,014,733
V. DISCOUNTED CASH FLOW RETURN ON INVSTMT 133,758,710 144,973,331
------------ ------------
RANGE OF ESTIMATED FAIR MARKET VALUES $135,614,000 $148,094,000
ESTIMATED FAIR MARKET VALUE $141,854,000
------------
[LOGO OF MTA APPEARS HERE]
A-4
-----------------------
CABLE TV FUND 12-B LTD. EXHIBIT B
AUGUSTA, GEORGIA HIGH ANALYSIS
AS OF DECEMBER 31, 1994 -------------
-----------------------
RETURN ON EQUITY METHOD
PROFIT AND LOSS - HIGH VALUE
- ----------------------------
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998
---- ---- ---- ----
REVENUES $29,196,202 $31,533,984 $34,040,902 $36,738,501
OPERATING EXPENSES 14,903,820 15,906,036 17,035,287 18,212,325
---------- ---------- ---------- ----------
OPERATING INCOME $14,292,381 $15,627,948 $17,005,615 $18,526,176
OPERATING MARGIN 0.49 0.50 0.50 0.50
PARENT SERVICES/MGT FEE (5%) 1,459,810 1,576,699 1,702,045 1,836,925
FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867
SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 3,790,286
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 6,410,391 11,395,357 8,858,906 6,966,361
INTEREST 7,340,540 7,340,540 7,340,540 6,879,955
---------- ---------- ---------- ----------
PRE-TAX INCOME ($9,129,512) ($12,895,801) ($9,107,028) ($5,368,217)
INCOME TAX (EXPENSE)/BENEFIT 3,104,034 4,384,572 3,096,390 1,825,194
---------- ---------- ---------- ----------
NET INCOME ($6,025,478) ($8,511,229) ($6,010,639) ($3,543,023)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE TAX INCOME ($9,129,512) ($12,895,801) ($9,107,028) ($5,368,217)
FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867
SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 3,790,286
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 6,410,391 11,395,357 8,858,906 6,966,361
EQUITY 73,405,403
DEBT 73,405,403 0 0 0
RESIDUAL VALUE IN YEAR 8
---------- ---------- ---------- ----------
TOTAL SOURCES OF CASH $152,302,836 $6,710,708 $7,963,030 $9,809,296
USES OF CASH -
PURCHASE PRICE - CURRENT $149,014,733
CAPITAL EXPENDITURES 3,186,044 2,864,375 2,180,073 2,299,212
DEBT RETIREMENT 0 0 4,605,851 5,066,436
TAXES PAID ON NET INCOME 0 0 0 0
TAXES PAID ON SALE (RESIDUAL)
---------- ---------- ---------- ----------
TOTAL USES OF CASH $152,200,777 $2,864,375 $6,785,924 $7,365,648
ANNUAL CASH INCREASE/(DECREASE) $102,059 $3,846,334 $1,177,106 $2,443,647
CUMULATIVE CASH 102,059 3,948,393 5,125,499 7,569,146
RETURN ON EQUITY METHOD
PROFIT AND LOSS - HIGH VALUE
- ----------------------------
YEAR ENDING DECEMBER 31, 1999 2000 2001 2002 TOTAL
---- ---- ---- ---- -----
REVENUES $39,540,505 $42,485,793 $45,651,822 $49,055,082 $308,242,790
OPERATING EXPENSES 19,437,116 20,726,595 22,106,389 23,583,072 151,910,640
---------- ---------- ----------- ---------- -----------
OPERATING INCOME $20,103,389 $21,759,198 $23,545,433 $25,472,010 $156,332,150
OPERATING MARGIN 0.51 0.51 0.52 0.52
PARENT SERVICES/MGT FEE (5%) 1,977,025 2,124,290 2,282,591 2,452,754 15,412,140
FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867 35,366,933
SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 0 26,532,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0
DEPRECIATION 5,649,952 5,876,472 6,153,603 4,435,804 55,746,845
INTEREST 6,373,312 5,816,004 5,202,965 4,528,622 50,822,478
---------- ---------- ----------- ---------- -----------
PRE-TAX INCOME ($2,108,052) ($268,720) $1,695,122 $9,633,963 ($27,548,246)
INCOME TAX (EXPENSE)/BENEFIT $716,738 $91,365 ($576,342) ($3,275,547) $9,366,404
---------- ---------- ----------- ---------- -----------
NET INCOME ($1,391,314) ($177,355) $1,118,781 $6,358,416 ($18,181,842)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE TAX INCOME ($2,108,052) ($268,720) $1,695,122 $9,633,963 ($27,548,246)
FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867 35,366,933
SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 0 26,532,000
NON-COMPETE COVENANTS (0) 0 0 0 0 0
DEPRECIATION 5,649,952 5,876,472 6,153,603 4,435,804 55,746,845
EQUITY 73,405,403
DEBT 0 0 0 0 73,405,403
RESIDUAL VALUE IN YEAR 8 229,248,086 229,248,086
---------- ---------- ----------- ---------- -----------
TOTAL SOURCES OF CASH $11,753,052 $13,818,905 $16,059,877 $247,738,719 $466,156,424
USES OF CASH -
PURCHASE PRICE - CURRENT 149,014,73
CAPITAL EXPENDITURES 2,392,484 2,511,498 2,636,833 2,768,834 20,839,353
DEBT RETIREMENT 5,573,080 6,130,388 6,743,426 45,286,222 73,405,403
TAXES PAID ON NET INCOME 0 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) 50,827,121 50,827,121
---------- ---------- ----------- ---------- -----------
TOTAL USES OF CASH $7,965,563 $8,641,886 $9,380,259 $98,882,176 $294,086,609
ANNUAL CASH INCREASE/(DECREASE) $3,787,489 $5,177,019 $6,679,618 $148,856,543 $172,069,814
CUMULATIVE CASH 11,356,635 16,533,653 23,213,271 172,069,814
[LOGO OF MTA APPEARS HERE]
A-5
-----------------------
CABLE TV FUND 12-B LTD. EXHIBIT B
AUGUSTA, GEORGIA LOW ANALYSIS
AS OF DECEMBER 31, 1994
-----------------------
RETURN ON EQUITY METHOD
PROFIT AND LOSS - LOW VALUE
- ---------------------------
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999
---- ---- ---- ---- ----
REVENUES $29,196,202 $31,533,984 $34,040,902 $36,738,501 $39,540,505
OPERATING EXPENSES 14,903,820 15,906,036 17,035,287 18,212,325 19,437,116
---------- ---------- ---------- ---------- ----------
OPERATING INCOME $14,292,381 $15,627,948 $17,005,615 $18,526,176 $20,103,389
OPERATING MARGIN 0.49 0.50 0.50 0.50 0.51
PARENT SERVICES/MGT FEE (5%) 1,459,810 1,576,699 1,702,045 1,836,925 1,977,025
FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867 4,420,867
SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 3,790,286 3,790,286
NON-COMPETE COVENANTS (0) 0 0 0 0 0
DEPRECIATION 6,410,391 11,395,357 8,858,906 6,966,361 5,649,952
INTEREST 6,714,085 6,714,085 6,714,085 6,292,807 5,829,401
---------- ---------- ---------- ---------- ----------
PRE-TAX INCOME (8,503,057) (12,269,345) (8,480,573) (4,781,069) (1,564,142)
INCOME TAX (EXPENSE)/BENEFIT 2,891,039 4,171,577 2,883,395 1,625,563 531,808
---------- ---------- ---------- ---------- ----------
NET INCOME ($5,612,018) ($8,097,768) ($5,597,178) ($3,155,505) ($1,032,334)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE TAX INCOME ($8,503,057) $12,269,345) ($8,480,573) ($4,781,069) ($1,564,142)
FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867 4,420,867
SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 3,790,286 3,790,286
NON-COMPETE COVENANTS (0) 0 0 0 0 0
DEPRECIATION 6,410,391 11,395,357 8,858,906 6,966,361 5,649,952
EQUITY 67,140,849
DEBT 67,140,849 0 0 0 0
RESIDUAL VALUE IN YEAR 8
---------- ---------- ---------- ---------- ----------
TOTAL SOURCES OF CASH $140,400,184 $7,337,164 $8,589,485 $10,396,444 $12,296,963
USES OF CASH -
PURCHASE PRICE - CURRENT $137,113,082
CAPITAL EXPENDITURES 3,186,044 2,864,375 2,180,073 2,299,212 2,392,484
DEBT RETIREMENT 0 0 4,212,779 4,634,057 5,097,463
TAXES PAID ON NET INCOME 0 0 0 0 0
TAXES PAID ON SALE (RESIDUAL)
---------- ---------- ---------- ---------- ----------
TOTAL USES OF CASH $140,299,126 $2,864,375 $6,392,852 $6,933,269 $7,489,946
ANNUAL CASH INCREASE/(DECREASE) $101,057 $4,472,789 $2,196,633 $3,463,175 $4,807,016
CUMULATIVE CASH 101,057 4,573,846 6,770,479 10,233,654 15,040,670
PROFIT AND LOSS - LOW VALUE
- ---------------------------
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL
---- ---- ---- -----
REVENUES $42,485,793 $45,651,822 $49,055,082 $308,242,790
OPERATING EXPENSES 20,726,595 22,106,389 23,583,072 151,910,640
---------- ---------- ---------- -----------
OPERATING INCOME $21,759,198 $23,545,433 $25,472,010 $156,332,150
OPERATING MARGIN 0.51 0.52 0.52
PARENT SERVICES/MGT FEE (5%) 2,124,290 2,282,591 2,452,754 15,412,140
FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 35,366,933
SUBSCRIBER LIST (7) 3,790,286 3,790,286 0 26,532,000
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 5,876,472 6,153,603 4,435,804 55,746,845
INTEREST 5,319,655 4,758,934 4,142,141 46,485,193
---------- ---------- ---------- -----------
PRE-TAX INCOME 227,629 2,139,153 10,020,444 (23,210,961)
INCOME TAX (EXPENSE)/BENEFIT (77,394) (727,312) (3,406,951) 7,891,727
---------- ---------- ---------- -----------
NET INCOME $150,235 $1,411,841 $6,613,493 ($15,319,234)
SOURCES AND USES OF CASH
- ------------------------
SOURCES OF CASH -
PRE TAX INCOME $227,629 $2,139,153 $10,020,444 ($23,210,961)
FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 35,366,933
SUBSCRIBER LIST (7) 3,790,286 3,790,286 0 26,532,000
NON-COMPETE COVENANTS (0) 0 0 0 0
DEPRECIATION 5,876,472 6,153,603 4,435,804 55,746,845
EQUITY 67,140,849
DEBT 0 0 0 67,140,849
RESIDUAL VALUE IN YEAR 8 229,248,086 229,248,086
---------- ---------- ---------- -----------
TOTAL SOURCES OF CASH $14,315,253 $16,503,908 $248,125,200 $457,964,601
USES OF CASH -
PURCHASE PRICE - CURRENT $137,113,082
CAPITAL EXPENDITURES 2,511,498 2,636,833 2,768,834 20,839,353
DEBT RETIREMENT 5,607,209 6,167,930 41,421,411 67,140,849
TAXES PAID ON NET INCOME 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) 56,348,359 56,348,359
---------- ---------- ---------- -----------
TOTAL USES OF CASH $8,118,707 $8,804,763 $100,538,604 $281,441,643
ANNUAL CASH INCREASE/(DECREASE) $6,196,546 $7,699,145 $147,586,596 $176,522,958
CUMULATIVE CASH 21,237,216 28,936,361 176,522,958
[LOGO OF MTA APPEARS HERE]
A-6
- --------------------------------
CABLE TV FUND 12-B LTD. EXHIBIT C
AUGUSTA, GEORGIA HIGH ANALYSIS
AS OF DECEMBER 31, 1994 -------------
- --------------------------------
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE
- ------------------------------
TOTAL YEAR 1 CASH REQUIREMENTS $146,810,805
YEAR 1 DEBT REQUIREMENTS 73,405,403
YEAR 1 EQUITY REQUIREMENTS 73,405,403
FINANCING AVAILABLE $98,691,023 $107,192,861 $117,209,609 $127,542,114 $138,946,320 $150,775,418
UNUSED LEVERAGE 25,285,620 33,787,458 48,410,057 63,808,998 80,786,284 98,745,770
SENIOR: 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
BEGINNING DEBT $0 $73,405,403 $73,405,403 $68,799,552 $63,733,116 $58,160,036
DEBT ADDED 73,405,403 0 0 0 0 0
TOTAL ANNUAL PAYMENTS 7,340,540 7,340,540 11,946,391 11,946,391 11,946,391 11,946,391
INTEREST 7,340,540 7,340,540 7,340,540 6,879,955 6,373,312 5,816,004
PRINCIPAL REPAYMENT 0 0 4,605,851 5,066,436 5,573,080 6,130,388
ENDING BALANCE 73,405,403 73,405,403 68,799,552 63,733,116 58,160,036 52,029,648
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $0 $0 $0 $0
BORROWINGS 0 0 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0 0 0
INTEREST 0 0 0 0 0 0
SENIOR DEBT COVERAGE 5.1 4.7 4.0 3.4 2.9 2.4
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 5.1 4.7 4.0 3.4 2.9 2.4
FINANCING AVAILABLE $163,193,983 $176,590,749
UNUSED LEVERAGE 117,907,761 138,722,296
SENIOR: 2001 2002 TOTAL
---- ---- -----
BEGINNING DEBT $52,029,648 $45,286,222
DEBT ADDED 0 0 73,405,403
TOTAL ANNUAL PAYMENTS 11,946,391 11,946,391 86,359,428
INTEREST 5,202,965 4,528,622 50,822,478
PRINCIPAL REPAYMENT 6,743,426 7,417,769 35,536,950
ENDING BALANCE 45,286,222 37,868,453
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $0
BORROWINGS 0 0 0
PRINCIPAL PAYMENTS 0 0 0
INTEREST 0 0 0
SENIOR DEBT COVERAGE 1.9 1.5
LOC DEBT COVERAGE 0.0 0.0
TOTAL DEBT COVERAGE 1.9 1.5
[LOGO OF MTA APPEARS HERE]
A-7
-----------------------
CABLE TV FUND 12-B LTD.
AUGUSTA, GEORGIA EXHIBIT C
AS OF DECEMBER 31, 1994 LOW ANALYSIS
----------------------- ------------
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE
- -----------------------------
TOTAL YEAR 1 CASH REQUIREMENTS $134,281,697
YEAR 1 DEBT REQUIREMENTS 67,140,849
YEAR 1 EQUITY REQUIREMENTS 67,140,849
FINANCING AVAILABLE $85,532,220 $92,900,479 $101,581,661 $110,536,498
UNUSED LEVERAGE 18,391,371 25,759,631 38,653,591 52,242,486
SENIOR DEBT: 1995 1996 1997 1998
---- ---- ---- ----
BEGINNING DEBT $0 $67,140,849 $67,140,849 $62,928,070
DEBT ADDED 67,140,849 0 0 0
TOTAL ANNUAL PAYMENTS 6,714,085 6,714,085 10,926,864 10,926,864
INTEREST 6,714,085 6,714,085 6,714,085 6,292,807
PRINCIPAL REPAYMENT 0 0 4,212,779 4,634,057
ENDING BALANCE 67,140,849 67,140,849 62,928,070 58,294,013
LINE OF CREDIT:
BEGINNING DEBT 0 0 0 0
BORROWINGS 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0
INTEREST 0 0 0 0
SENIOR DEBT COVERAGE 4.7 4.3 3.7 3.1
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 4.7 4.3 3.7 3.1
TOTAL YEAR 1 CASH REQUIREMENTS
YEAR 1 DEBT REQUIREMENTS
YEAR 1 EQUITY REQUIREMENTS
FINANCING AVAILABLE $120,420,144 $130,672,029 $141,434,785 $153,045,316
UNUSED LEVERAGE 67,223,594 83,082,688 100,013,374 118,408,628
SENIOR DEBT: 1999 2000 2001 2002 TOTAL
---- ---- ---- ---- -----
BEGINNING DEBT $58,294,013 $53,196,550 $47,589,341 $41,421,411
DEBT ADDED 0 0 0 0 67,140,849
TOTAL ANNUAL PAYMENTS 10,926,864 10,926,864 10,926,864 10,926,864 78,989,353
INTEREST 5,829,401 5,319,655 4,758,934 4,142,141 46,485,193
PRINCIPAL REPAYMENT 5,097,463 5,607,209 6,167,930 6,784,723 32,504,160
ENDING BALANCE 53,196,550 47,589,341 41,421,411 34,636,688
LINE OF CREDIT:
BEGINNING DEBT 0 0 0 0 0
BORROWINGS 0 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0 0
INTEREST 0 0 0 0 0
SENIOR DEBT COVERAGE 2.6 2.2 1.8 1.4
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 2.6 2.2 1.8 1.4
A-8
- ------------------------------
CABLE TV FUND 12-B LTD. EXHIBIT D
AUGUSTA, GEORGIA ---------
AS OF DECEMBER 31, 1994
- ------------------------------
RETURN ON INVESTMENT METHOD
PROFIT AND LOSS
- ---------------
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
REVENUES $29,196,202 $31,533,984 $34,040,902 $36,738,501 $39,540,505 $42,485,793
OPERATING EXPENSES 14,903,820 15,906,036 17,035,287 18,212,325 19,437,116 20,726,595
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME $14,292,381 $15,627,948 $17,005,615 $18,526,176 $20,103,389 $21,759,198
PLUS: RESIDUAL VALUE
LESS: CAPITAL EXPENDITURES 3,186,044 2,864,375 2,180,073 2,299,212 2,392,484 2,511,498
--------- --------- --------- --------- --------- ---------
TOTAL CASH FLOW $11,106,337 $12,763,573 $14,825,542 $16,226,964 $17,710,905 $19,247,700
NET PRESENT VALUE @ 16.6% $133,758,710
-----------
NET PRESENT VALUE @ 15.1% $144,973,331
-----------
YEAR ENDING DECEMBER 31, 2001 2002 TOTAL
---- ---- -----
REVENUES $45,651,822 $49,055,082 $308,242,790
OPERATING EXPENSES 22,106,389 23,583,072 151,910,640
---------- ---------- -----------
OPERATING INCOME $23,545,433 $25,472,010 $156,332,150
PLUS: RESIDUAL VALUE 229,248,086 229,248,086
LESS: CAPITAL EXPENDITURES 2,636,833 2,768,834 20,839,353
--------- --------- ----------
TOTAL CASH FLOW $20,908,600 $251,951,262 $364,740,883
[LOGO OF MTA APPEARS HERE]
A-9
- ----------------------------------------
CABLE TV FUND 12-B LTD. EXHIBIT E
AUGUSTA, GEORGIA ---------
AS OF DECEMBER 31, 1994
- ----------------------------------------
CABLE TELEVISION SUBSCRIBERS
- ----------------------------
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ---- ----
BEGINNING MILES 1,647.5
MILES ADDED 35.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0
CUMULATIVE MILES 1,682.5 1,712.5 1,742.5 1,772.5 1,802.5 1,832.5 1,862.5 1,892.5
DENSITY OF ADDITIONAL PLANT 36 52 59 64 65 66 68 69
HOMES PASSED - BEGINNING 102,040
PROJ NEW HOMES & EXTENSIONS 1,276 1,550 1,783 1,920 1,954 1,989 2,025 2,062
HOMES PASSED - ENDING 103,316 104,865 106,648 108,568 110,522 112,511 114,536 116,598
GROWTH IN HOMES 1.3% 1.5% 1.7% 1.8% 1.8% 1.8% 1.8% 1.8%
BASIC - BEGINNING SUBSCRIBERS 66,601 67,950 69,494 71,208 73,033 74,347 75,686 77,048
ENDING SUBSCRIBERS 67,950 69,494 71,208 73,033 74,347 75,686 77,048 78,435
AVERAGE SUBSCRIBERS 67,276 68,722 70,351 72,121 73,690 75,017 76,367 77,742
PENETRATION 65.8% 66.3% 66.8% 67.3% 67.3% 67.3% 67.3% 67.3%
EXPANDED BASIC - BEGINNING 64,519 65,826 67,321 68,982 70,750 72,023 73,320 74,639
ENDING SUBSCRIBERS 65,826 67,321 68,982 70,750 72,023 73,320 74,639 75,983
AVERAGE SUBSCRIBERS 65,172 66,574 68,152 69,866 71,387 72,672 73,980 75,311
PENETRATION 96.9% 96.9% 96.9% 96.9% 96.9% 96.9% 96.9% 96.9%
PAY TV - BEGINNING UNITS 52,990 53,724 54,597 55,588 56,647 57,666 58,704 59,761
ENDING UNITS 53,724 54,597 55,588 56,647 57,666 58,704 59,761 60,837
AVERAGE UNITS 53,357 54,160 55,092 56,117 57,157 58,185 59,233 60,299
PENETRATION 79.1% 78.6% 78.1% 77.6% 77.6% 77.6% 77.6% 77.6%
PAY PER VIEW - BEGINNING UNITS/MO 2,794 4,262 7,050 10,761 14,680 19,060 23,592 28,281
ENDING UNITS 4,262 7,050 10,761 14,680 19,060 23,592 28,281 33,132
AVERAGE UNITS 3,528 5,656 8,906 12,721 16,870 21,326 25,937 30,707
PENETRATION 68.9% 63.0% 62.7% 62.6% 63.9% 64.8% 65.4% 65.9%
ADDITIONAL SETS - BEGINNING 58,510 59,695 61,051 62,558 64,161 65,315 66,491 67,688
ENDING SUBSCRIBERS 59,695 61,051 62,558 64,161 65,315 66,491 67,688 68,906
AVERAGE SUBSCRIBERS 59,103 60,373 61,804 63,359 64,738 65,903 67,089 68,297
PENETRATION 87.9% 87.9% 87.9% 87.9% 87.9% 87.9% 87.9% 87.9%
CONVERTER RENTALS - BEGINNING 235 5,676 10,322 15,561 21,072 26,656 32,433 38,411
ENDING SUBSCRIBERS 5,676 10,322 15,561 21,072 26,656 32,433 38,411 44,592
AVERAGE SUBSCRIBERS 2,955 7,999 12,941 18,317 23,864 29,545 35,422 41,502
PENETRATION 8.4% 14.9% 21.9% 28.9% 35.9% 42.9% 49.9% 56.9%
ADDRESSABLE HOMES - BEGINNING 2,734 6,187 11,192 17,165 23,447 29,817 36,409 43,228
ENDING SUBSCRIBERS 6,187 11,192 17,165 23,447 29,817 36,409 43,228 50,281
AVERAGE SUBSCRIBERS 4,460 8,689 14,178 20,306 26,632 33,113 39,818 46,754
PENETRATION 9.1% 16.1% 24.1% 32.1% 40.1% 48.1% 56.1% 64.1%
[LOGO OF MTA APPEARS HERE]
A-10
EXHIBIT F
---------
- -------------------------
CABLE TV FUND 12-B LTD.
AUGUSTA, GEORGIA
AS OF DECEMBER 31, 1994
- -------------------------
SERVICE RATES
- -------------
CURRENT RATES
- -------------
BASIC $9.13
EXPANDED BASIC 14.07
PAY 8.18
PAY PER VIEW 6.05
ADDITIONAL OUTLETS 0.00
CONVERTER RENTALS 4.00
INSTALLATIONS-NEW 30.00
INSTALLATIONS-CHURN 20.00
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ---- ---- ----
PERCENTAGE RATE INCREASES
- -------------------------
BASIC 0% 4% 4% 4% 4% 4% 4% 4%
EXPANDED BASIC 10% 5% 4% 4% 4% 4% 4% 4%
PAY 0% 1% 1% 1% 1% 1% 1% 1%
PAY PER VIEW 0% 4% 4% 4% 4% 4% 4% 4%
ADDITIONAL OUTLETS 0% 4% 4% 4% 4% 4% 4% 4%
CONVERTER RENTALS 0% 4% 4% 4% 4% 4% 4% 4%
INSTALLATIONS-NEW 0% 4% 4% 4% 4% 4% 4% 4%
INSTALLATIONS-CHURN 0% 4% 4% 4% 4% 4% 4% 4%
AVERAGE RATES
- -------------
BASIC $9.13 $9.50 $9.88 $10.27 $10.68 $11.11 $11.55 $12.01
EXPANDED BASIC 15.45 16.15 16.79 17.47 18.16 18.89 19.65 20.43
PAY 8.18 8.26 8.34 8.43 8.51 8.60 8.68 8.77
PAY PER VIEW 6.05 6.29 6.54 6.81 7.08 7.36 7.66 7.96
ADDITIONAL OUTLETS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
CONVERTER RENTALS 4.00 4.16 4.33 4.50 4.68 4.87 5.06 5.26
INSTALLATIONS-NEW 30.00 31.20 32.45 33.75 35.10 36.50 37.96 39.48
INSTALLATIONS-CHURN 20.00 20.80 21.63 22.50 23.40 24.33 25.31 26.32
BASIC CHURN RATE 30% 30% 30% 30% 30% 30% 30% 30%
[LOGO OF MTA APPEARS HERE]
A-11
- ---------------------------------
CABLE TV FUND 12-B LTD. EXHIBIT G
AUGUSTA, GEORGIA ---------
AS OF DECEMBER 31, 1994
- ---------------------------------
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
REVENUES:
BASIC $7,370,709 $7,830,336 $8,336,598 $8,888,149 $9,444,849 $9,999,450
EXPANDED BASIC 12,079,063 12,900,787 13,734,874 14,643,576 15,560,761 16,474,489
PAY TV 5,237,505 5,369,519 5,516,536 5,675,375 5,838,299 6,002,822
PAY PER VIEW 256,149 427,068 699,315 1,038,849 1,432,806 1,883,697
ADDITIONAL SETS N/A N/A N/A N/A N/A N/A
CONVERTER RENTALS 141,858 399,299 671,877 988,974 1,340,033 1,725,385
INSTALLATIONS - NEW BASIC 40,473 48,160 55,636 61,572 46,137 48,846
CHURN 410,112 435,686 463,855 494,543 525,518 556,377
COMMERCIAL 625,037 661,180 700,680 743,452 786,792 830,217
ADVERTISING 1,968,705 2,362,446 2,716,813 2,988,494 3,287,344 3,616,078
MISCELLANEOUS 1,066,591 1,099,504 1,144,717 1,215,515 1,277,966 1,348,431
--------- --------- --------- --------- --------- ---------
TOTAL REVENUES $29,196,202 $31,533,984 $34,040,902 $36,738,501 $39,540,505 $42,485,793
OPERATING EXPENSES:
OPERATIONS $4,454,890 $4,732,268 $5,029,664 $5,347,695 $5,677,185 $6,018,215
GENERAL & ADMINISTRATIVE 2,314,434 2,462,087 2,622,339 2,795,447 2,972,392 3,152,763
SALES & MARKETING 1,855,203 2,074,957 2,316,811 2,517,194 2,722,634 2,954,034
PROGRAMMING 6,279,293 6,636,724 7,066,472 7,551,988 8,064,906 8,601,582
--------- --------- --------- --------- --------- ---------
TOTAL OPERATING EXPENSES $14,903,820 $15,906,036 $17,035,287 $18,212,325 $19,437,116 $20,726,595
----------- ----------- ----------- ----------- ----------- -----------
OPERATING INCOME $14,292,381 $15,627,948 $17,005,615 $18,526,176 $20,103,389 $21,759,198
OPERATING MARGIN 49.0% 49.6% 50.0% 50.4% 50.8% 51.2%
TOTAL REVENUE/BASIC SUB/MONTH $36.16 $38.24 $40.32 $42.45 $44.71 $47.20
CASH FLOW/BASIC SUB/MONTH $17.70 $18.95 $20.14 $21.41 $22.73 $24.17
OPERATIONS % OF REVENUE 15% 15% 15% 15% 14% 14%
G & A PERCENTAGE OF REVENUE 8% 8% 8% 8% 8% 7%
SALES & MARKETING % OF REVENUE 6% 7% 7% 7% 7% 7%
PROGRAMMING % OF REVENUE 22% 21% 21% 21% 20% 20%
YEAR ENDING DECEMBER 31, 2001 2002 TOTAL
---- ---- -----
REVENUES:
BASIC $10,586,618 $11,208,264 $73,664,974
EXPANDED BASIC 17,441,871 18,466,058 121,301,480
PAY TV 6,171,982 6,345,908 46,157,947
PAY PER VIEW 2,382,601 2,933,601 11,054,087
ADDITIONAL SETS N/A N/A N/A
CONVERTER RENTALS 2,151,371 2,621,436 10,040,233
INSTALLATIONS - NEW BASIC 51,714 54,751 407,288
CHURN 589,047 623,636 4,098,774
COMMERCIAL 876,082 924,525 6,147,965
ADVERTISING 3,977,686 4,375,454 25,293,020
MISCELLANEOUS 1,422,850 1,501,449 10,077,023
--------- --------- ----------
TOTAL REVENUES $45,651,822 $49,055,082 $308,242,790
OPERATING EXPENSES:
OPERATIONS $6,379,397 $6,761,928 $44,401,242
GENERAL & ADMINISTRATIVE 3,344,462 3,548,218 23,212,144
SALES & MARKETING 3,206,279 3,481,325 21,128,438
PROGRAMMING 9,176,251 9,791,602 63,168,817
--------- --------- ----------
TOTAL OPERATING EXPENSES $22,106,389 $23,583,072 $151,910,640
----------- ----------- ------------
OPERATING INCOME $23,545,433 $25,472,010 $156,332,150
OPERATING MARGIN 51.6% 51.9%
TOTAL REVENUE/BASIC SUB/MONTH $49.82 $52.58
CASH FLOW/BASIC SUB/MONTH $25.69 $27.30
OPERATIONS % OF REVENUE 14% 14%
G & A PERCENTAGE OF REVENUE 7% 7%
SALES & MARKETING % OF REVENUE 7% 7%
PROGRAMMING % OF REVENUE 20% 20%
[LOGO OF MTA APPEARS HERE]
A-12
-----------------------
CABLE TV FUND 12-B LTD. EXHIBIT H
AUGUSTA, GEORGIA ---------
AS OF DECEMBER 31, 1994
-----------------------
CAPITAL EXPENDITURES
- --------------------
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999
---- ---- ---- ---- ----
ASSUMPTIONS AND INPUTS:
- ----------------------
BV OF EXISTING PLANT $41,673,236
ADD'L MILES OF PLANT 35 30 30 30 30
AERIAL PLANT PER MILE $20,325 $20,935 $21,563 $22,210 $22,876
UNDERGROUND PLANT PER MILE $32,875 $33,861 $34,877 $35,923 $37,001
PERCENTAGE OF PLANT AERIAL 35% 35% 35% 35% 35%
PERCENTAGE OF PLANT UNDERGROUND 65% 65% 65% 65% 65%
AVERAGE COST PER CONVERTER $107 $110 $114 $117 $120
PERCENTAGE CONVERTER USE 8% 15% 22% 29% 36%
PERCENTAGE REPLACEMENT 1% 1% 1% 1% 2%
INSTALLATION COST PER SUB $50 $52 $53 $55 $56
MISC CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $6
INFLATION FACTOR RE CAPITALS 0% 3% 3% 3% 3%
ANNUAL COSTS:
- ------------
PLANT ADDITIONS - AERIAL $248,981 $219,815 $226,409 $233,202 $240,198
- UNDERGROUND 747,906 660,294 680,103 700,506 721,521
PLANT REBUILD/UPGRADE 1,200,000 1,030,000 200,000 206,000 212,180
AVERAGE COST OF NEW CONVERTERS 582,162 512,038 594,741 644,359 672,432
CONVERTER REPLACEMENT 3,162 8,815 14,691 21,416 57,478
INSTALLATION COSTS 67,454 79,494 90,953 99,689 73,979
MISC CAPITAL EXPENDITURES 336,378 353,918 373,177 394,041 414,695
------- ------- ------- ------- -------
TOTAL CAPITAL EXPENDITURES $3,186,044 $2,864,375 $2,180,073 $2,299,212 $2,392,484
AS A % OF OPERATING INCOME 22.3% 18.3% 12.8% 12.4% 11.9%
CAPITAL EXPENDITURES
- --------------------
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL
---- ---- ---- -----
ASSUMPTIONS AND INPUTS:
- ----------------------
BV OF EXISTING PLANT
ADD'L MILES OF PLANT 30 30 30
AERIAL PLANT PER MILE $23,562 $24,269 $24,997
UNDERGROUND PLANT PER MILE $38,111 $39,254 $40,432
PERCENTAGE OF PLANT AERIAL 35% 35% 35%
PERCENTAGE OF PLANT UNDERGROUND 65% 65% 65%
AVERAGE COST PER CONVERTER $124 $128 $132
PERCENTAGE CONVERTER USE 43% 50% 57%
PERCENTAGE REPLACEMENT 2% 2% 2%
INSTALLATION COST PER SUB $58 $60 $61
MISC CAPITAL PER SUBSCRIBER $6 $6 $6
INFLATION FACTOR RE CAPITALS 3% 3% 3% 123%
ANNUAL COSTS:
- ------------
PLANT ADDITIONS - AERIAL $247,404 $254,826 $262,470 $1,933,304
- UNDERGROUND 743,167 765,462 788,426 5,807,387
PLANT REBUILD/UPGRADE 218,545 225,102 231,855 3,523,682
AVERAGE COST OF NEW CONVERTERS 716,692 763,665 813,508 5,299,597
CONVERTER REPLACEMENT 73,296 90,513 109,229 378,601
INSTALLATION COSTS 77,570 81,335 85,283 655,759
MISC CAPITAL EXPENDITURES 434,824 455,930 478,061 3,241,023
------- ------- ------- ---------
TOTAL CAPITAL EXPENDITURES $2,511,498 $2,636,833 $2,768,834 $20,839,353
AS A % OF OPERATING INCOME 11.5% 11.2% 10.9%
[LOGO OF MTA APPEARS HERE]
A-13
- ----------------------------------
CABLE TV FUND 12-B LTD. EXHIBIT I
AUGUSTA, GEORGIA ---------
AS OF DECEMBER 31, 1994
- ----------------------------------
DEPRECIATION
- ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
------ ------ ------ ------ ------
ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9%
DEPRECIATION - BEG. & ADTNS. 1995 1996 1997 1998 1999
---- ---- ---- ---- ----
YEAR 1 $6,410,391 $10,986,038 $7,845,888 $5,602,924 $4,005,934
YEAR 2 409,319 701,485 500,979 357,760
YEAR 3 311,532 533,900 381,295
YEAR 4 328,557 563,077
YEAR 5 341,886
YEAR 6
YEAR 7
YEAR 8
--------- ---------- --------- --------- ---------
TOTAL DEPRECIATION $6,410,391 $11,395,357 $8,858,906 $6,966,361 $5,649,952
YEAR 6 YEAR 7 YEAR 8
------ ------ ------
ESTIMATED DEPRECIATION RATES 8.9% 8.9% 4.5%
DEPRECIATION - BEG. & ADTNS. 2000 2001 2002 TOTAL
---- ---- ---- -----
YEAR 1 $4,001,448 $4,005,934 $2,000,724 $44,859,280
YEAR 2 255,789 255,502 255,789 2,736,623
YEAR 3 272,291 194,681 194,463 1,888,161
YEAR 4 402,132 287,172 205,320 1,786,258
YEAR 5 585,919 418,445 298,821 1,645,072
YEAR 6 358,893 615,066 439,261 1,413,220
YEAR 7 376,803 645,760 1,022,564
YEAR 8 395,666 395,666
--------- --------- --------- ----------
TOTAL DEPRECIATION $5,876,472 $6,153,603 $4,435,804 $55,746,845
[LOGO OF MTA APPEARS HERE]
A-14
-----------------------
CABLE TV FUND 12-B LTD. EXHIBIT J
AUGUSTA, GEORGIA ---------
AS OF DECEMBER 31, 1994
-----------------------
ASSUMPTIONS AND INPUTS
- ----------------------
REMAINING LIFE OF FRANCHISES (YEARS) 8
AVERAGE SUBSCRIBER LIFE (YEARS) 7
INCOME TAX RATE 34%
CAPITAL GAIN RATE 34%
NET FMV OF EXISTING ASSETS $41,673,236
SUBSCRIBERS IN FRANCHSES 100%
LOW HIGH
ANALYSIS ANALYSIS
-------- --------
DEBT PERCENTAGE 50% 50%
EQUITY PERCENTAGE 50% 50%
RESIDUAL MULTIPLE (ROE & ROI) 9 9
MULT OF PAST YRS OP INC 10.5 11.5
MULT OF CUR YRS OP INC 10.0 11.0
MULT OF NEXT YR'S OP INCOME 9.5 10.5
TARGET RET ON EQTY (AFT TAX) 14.0% 12.0%
TARGET RETURN ON INVESTMENT 16.6% 15.1%
[LOGO OF MTA APPEARS HERE]
A-15
EXHIBIT B
APPRAISAL REPORT
- -------------------------------------------------------------------------------
AUGUSTA, GEORGIA
CABLE TV SYSTEM
PREPARED BY:
KAGAN MEDIA APPRAISALS, INC.
126 CLOCK TOWER PLACE
CARMEL, CA 93923
(408) 624-1536
February 14, 1995
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
CERTIFICATE OF APPRAISAL ................................................ B-1
STATEMENT OF LIMITING CONDITIONS ........................................ B-3
RESTRICTIONS UPON DISCLOSURE AND USE .................................... B-6
QUALIFICATIONS OF THE APPRAISER ......................................... B-7
PURPOSE OF THE APPRAISAL ................................................ B-9
THE APPRAISAL PROCESS ................................................... B-10
COST APPROACH ...................................................... B-10
MARKET DATA (COMPARABILITY) APPROACH ............................... B-10
INCOME APPROACH .................................................... B-11
VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS .................... B-13
VALUATION OF JONES INTERCABLE CABLE TV SYSTEM ........................... B-16
DESCRIPTION OF SUBJECT MARKET ...................................... B-17
DESCRIPTION OF SUBJECT BUSINESS .................................... B-22
10-YEAR CASH FLOW PROJECTIONS ...................................... B-27
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS .................. B-29
COMPARABLE ANALYSIS ................................................ B-33
CORRELATION AND FINAL ESTIMATE OF VALUE ............................ B-36
CERTIFICATE OF APPRAISAL
- --------------------------------------------------------------------------------
The undersigned does hereby certify that, except as otherwise noted in
this appraisal:
l. We have inspected the financial statements and other operating and
financial data of the subject business as furnished by the parties involved.
2. We hereby certify that we have no present or contemplated financial
interest in the business that is the subject of this appraisal report, and that
our employment and compensation are in no way contingent upon the value
reported.
3. We have no personal interest or bias with respect to the subject
matter of this appraisal report, nor are we connected in any way with the
parties involved.
4. Pursuant to an investment policy adopted in 1974, Paul Kagan
personally and Paul Kagan Associates, Inc., as a corporation, invest profits in
publicly held media companies. Clients of Kagan Capital Management are also
invested in publicly held media companies. As a result, portfolios owned
and/or managed by Paul Kagan at present may maintain a long-term investment in
stock of various KMA clients. Additionally, KMA clients may be subscribers to
a number of Kagan information services and its executives from time to time may
have enrolled at Kagan seminars or serve as panelists themselves.
5. To the best of our belief and knowledge, any statements of fact
contained in this appraisal report, upon which the analyses, opinions and
conclusions expressed herein are based, are true and correct. Information used
to complete this report was obtained from sources considered reliable and is
believed to be true and correct. We make no warranty as to the accuracy
or reasonableness of such information furnished to us by others.
- --------------------------------------------------------------------------------
JONES INTERCABLE B-1 KAGAN MEDIA APPRAISALS, INC.
CERTIFICATE OF APPRAISAL (Continued)
- --------------------------------------------------------------------------------
6. This appraisal report sets forth all of the limiting conditions
imposed by the terms of our assignment or by the undersigned, affecting the
analyses, opinions and conclusions contained in this report.
7. The analyses, conclusions and opinions that are set forth in this
appraisal report represent the work of the Kagan Media Appraisals, Inc. staff,
including the undersigned.
8. The business that is the subject of this appraisal report, the Jones
Intercable cable TV system of Augusta, Georgia, is valued at approximately
$136.3 million as of December 31, 1994.
- --------------
Signed: /s/ Robin V. Flynn
----------------------------------------------
Kagan Media Appraisals, Inc./Robin V. Flynn
- --------------------------------------------------------------------------------
JONES INTERCABLE B-2 KAGAN MEDIA APPRAISALS, INC.
STATEMENT OF LIMITING CONDITIONS
- --------------------------------------------------------------------------------
The opinions, conclusions, projections and estimates of value presented in
this report are based, in part, on assumptions and financial and operating data
furnished to us by Jones Intercable which are assumed to be correct and
current. We assume no responsibility for knowledge of matters legal in nature
concerning Jones Intercable. We do not render any opinions as to the title of
ownership of the subject property, which is assumed to be correct and good and
free of liens or other financial or legal encumbrances. We have taken into
consideration existing long-term liabilities that have been called to our
attention by the parties involved, but do not guarantee that other liabilities,
of a financial or legal nature, do not exist. We have appraised the subject
property as if it was free and clear of debt and under responsible ownership
and competent management. Completion of any scheduled capital improvements is
assumed.
Our assignment was to appraise the value of the subject property from the
standpoint of a financial analysis of its ability to generate revenue, cash
flow and profit. Utilizing accepted principles of appraisal methodology, Kagan
Media Appraisals, Inc. has developed its own method of valuing media
properties, which may differ in certain aspects from other methods. We conduct
our research under the assumption that a fair market value can be established
within the constraints of a financial analysis, supplemented by analysis of the
markets in which the subject business operates and analysis of comparable
businesses sold in the industry. We have, therefore, made no survey of the
property, plant, and equipment of the subject business or of its management or
marketing practices. Furthermore, no engineering survey of the business has
been made or rendered by Kagan Media Appraisals, Inc. This appraisal assumes
that the subject business' technical equipment is in good working order and
appropriate for the conduct of a
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JONES INTERCABLE B-3 KAGAN MEDIA APPRAISALS, INC.
STATEMENT OF LIMITING CONDITIONS (Continued)
- --------------------------------------------------------------------------------
business of its type, and that it is operated by competent management, as more
fully described within the body of this report.
We have queried management regarding any specific circumstances concerning
market conditions, and have taken its response into account in our evaluation.
Possession of this report, or a copy thereof, does not carry with it the
right of publication, nor may it be used for any purpose by any but the
assignor without the prior written consent of the appraiser and in any event
only with proper qualifications. This appraisal is not to be construed as an
offer to sell the subject property or as a solicitation of an offer to buy said
property. Neither is this appraisal intended for use as a business plan in
connection with the securing of financing or the financial restructuring of the
subject business. It is offered solely as an independent study of the fair
market value of the subject property, combining the technical competence and
the experienced judgement of the staff of Kagan Media Appraisals, Inc. The
final estimate of value cited in this report is a result of our independent
conclusions based on the assumptions, analyses and discussions contained in the
following pages. Due to market fluctuations and circumstances beyond an
appraiser's control, KMA does not warrant that a buyer will pay the appraised
value of the property.
- --------------------------------------------------------------------------------
JONES INTERCABLE B-4 KAGAN MEDIA APPRAISALS, INC.
STATEMENT OF LIMITING CONDITIONS (Continued)
- --------------------------------------------------------------------------------
Unless prior written arrangements have been made, neither Kagan Media
Appraisals, Inc. nor any officer of Kagan Media Appraisals, Inc. is required to
give testimony or attendance in court, pre-trial proceedings or arbitration by
reason of having made, or participated in, this report. The reader is advised
that this Statement of Limiting Conditions and the accompanying introductory
pages are an integral part of the final report, which contains the details of
our analyses and all necessary documentation to support valuation conclusions.
Signed: /s/ Robin V. Flynn
------------------------------------------------
Kagan Media Appraisals, Inc./Robin V. Flynn
- --------------------------------------------------------------------------------
JONES INTERCABLE B-5 KAGAN MEDIA APPRAISALS, INC.
RESTRICTIONS UPON DISCLOSURE AND USE
- --------------------------------------------------------------------------------
Neither all nor any part of the contents of this report, especially any
conclusions as to value, or the identity of Kagan Media Appraisals, Inc. and
its affiliates, shall be disseminated to the public through advertising media,
public relations media, news media, sales media or any other public means of
communications without the prior written consent and approval of the
undersigned.
Signed: /s/ Robin V. Flynn
----------------------------------------------
Kagan Media Appraisals, Inc./Robin V. Flynn
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JONES INTERCABLE B-6 KAGAN MEDIA APPRAISALS, INC.
QUALIFICATIONS OF THE APPRAISER
- --------------------------------------------------------------------------------
Paul F. Kagan is a financial analyst, consultant, investment manager and
publisher of appraisal commentaries and analytical newsletters serving the
communications and entertainment industries.
He has been engaged in this business since February 1969, when he formed
Paul Kagan Associates, Inc., in Rockville Centre, New York. Offices were moved
to Carmel, CA, in 1978. The Kagan group of companies includes Paul Kagan
Associates, Inc. (publishing), Kagan Seminars Inc. (seminars), Kagan Capital
Management, Inc. (investment management) and Kagan Media Appraisals, Inc.
(appraisals and strategic consulting).
Prior to forming PKA, Paul Kagan was a security analyst specializing in
broadcasting and cable TV for E.F. Hutton & Co. in New York. In the past he
has also contributed numerous articles on investments and finance to such
popular publications as Barron's, the Dow Jones financial weekly.
--------
Earlier, he was employed in executive positions with CBS, Inc., and WOR-FM
in New York.
Mr. Kagan is a fellow of the Financial Analysts Federation, a member of
the New York Society of Security Analysts and an associate member of the
Broadcast Financial Management Association.
PKA publishes 48 newsletters on various communications and media
disciplines, including CABLE TV INVESTOR, BROADCAST INVESTOR, CABLE TV
BANKER/BROKER and BROADCAST BANKER/BROKER. Since 1969, it has published CABLE
TV INVESTOR, the only continuing publication analyzing the value of public and
private cable TV companies.
For 26 years, Mr. Kagan and his staff have appraised over $24 billion
worth of media properties on contract assignment. In addition, the Kagan
Newsletters have analyzed public and private companies, on at least a quarterly
basis, totaling hundreds of billions of dollars.
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JONES INTERCABLE B-7 KAGAN MEDIA APPRAISALS, INC.
QUALIFICATIONS OF THE APPRAISER (Continued)
- --------------------------------------------------------------------------------
Mr. Kagan is a graduate of Hunter College of the City University of New
York, where he majored in communications. He also studied accounting at the
New York University Graduate School of Business Administration.
Mr. Kagan and his analyst team have, for the past 20 years, conducted
seminars for corporate executives and public officials on communications and
media topics.
Robin V. Flynn is Vice President of Kagan Media Appraisals, Inc. Prior to
joining the firm, she was employed with the Overseas Private Investment
Corporation (OPIC) in Washington, DC, where she analyzed the revenue-generating
ability of proposed overseas investment projects. Earlier, she worked with
Scudder, Stevens & Clark, an investment counsel firm in Boston, MA, in
developing an international investment fund for Canadian institutional
investors.
Ms. Flynn holds a Bachelor of Arts degree from Duke University, a
Certificate in Contemporary French Studies from the Sorbonne in Paris, and an
MBA in Finance from the Monterey Institute of International Studies.
- --------------------------------------------------------------------------------
JONES INTERCABLE B-8 KAGAN MEDIA APPRAISALS, INC.
PURPOSE OF THE APPRAISAL
- --------------------------------------------------------------------------------
The purpose of this appraisal is to estimate the current fair market value
of the Augusta, Georgia cable TV system.
Market value for purposes of this report is the definition recommended by
the United States Internal Revenue Service:
"The fair market value is the price at which the property would change
hands between a willing buyer and a willing seller, neither being under any
compulsion to buy or sell and both having reasonable knowledge of relevant
facts."
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JONES INTERCABLE B-9 KAGAN MEDIA APPRAISALS, INC.
THE APPRAISAL PROCESS
- --------------------------------------------------------------------------------
The valuation of a business is generally done by use of one or more of the
following three approaches:
l. Cost approach
2. Market Data (comparability) approach
3. Income approach
Under certain circumstances, it is not always possible to apply all of the
aforementioned approaches to value, due to special purpose or use
characteristics of a given business.
COST APPROACH
Under this method, value is derived by estimating the replacement cost of
the equipment, building and other improvements owned by the subject business,
based on current prices for labor and materials and latest construction
techniques. To this total might be added a cost factor for obtaining the
government licenses required to engage in the subject business. Kagan Media
Appraisals, Inc. does not employ this approach in its fair market valuations
unless specifically requested to do so.
MARKET DATA (COMPARABILITY) APPROACH
A value estimate by this method is derived by direct comparison of the
subject business with other companies of similar size or type that are
currently, or have been recently, offered for sale.
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JONES INTERCABLE B-10 KAGAN MEDIA APPRAISALS, INC.
THE APPRAISAL PROCESS (Continued)
- --------------------------------------------------------------------------------
INCOME APPROACH
This technique relates the evaluation of a property to its ability to
generate income over a specified investment period. The value to the owner of
this "earning expectancy" must be compared with the value of other investments
the owner might otherwise make. Because the value is expressed as a
capitalized rate of income, the income stream of the subject business is of
vital importance to the appraiser./1/
The value estimate under this approach is developed by first determining
the current income level of the subject business, then projecting growth rates
for the span of years in which the investment is expected to be returned,
discounting future income by an imputed rate based on cost-of-money factors.
Finally, the total valuation is yielded by the sum of present values to be
generated in each of the years counted.
This method of calculation is normally applied to "operating income," or,
in the lexicon of many entrepreneurs in the marketplace, "cash flow." The
latter term consists of operating revenue minus operating expense, and does not
include deductions for depreciation, interest, or income taxes.
- -------------------------
/1/ "In order to value the property, it is necessary to forecast its
earnings expectancy. The past earnings expectancy of the subject property
and/or of comparable properties, adjusted for such trends and circumstances
as can be foreseen as of the valuation date, is projected into the
future...The valuation of the investment property is based on the principle
that, as of the valuation date, the value is equivalent to the series of
future net returns. The present worth calculation is based on the principle
that an investor, buying the subject property, expects 1) either to preserve
the amount of his original investment or to recover the consumer portion
therefore out of earnings and/or any terminal sale of assets and 2) to
receive the equivalent of any annual remunerative yield rate being high
enough to compensate him for the investment risk involved."-- Opinion of the
College of Fellows, American Society of Appraisers, published in the June
1975 edition of VALUATION journal, p. 87.
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JONES INTERCABLE B-11 KAGAN MEDIA APPRAISALS, INC.
THE APPRAISAL PROCESS (Continued)
- --------------------------------------------------------------------------------
Our assignment was to evaluate the subject business on the basis of known
market data and financial statements furnished by the owner of the business.
We accepted the assignment on the basis that such evaluations are commonly
conducted in the industry of the business being appraised, and that a fair
market value estimate can be determined. We assume that the legal and physical
status of the subject business is in good condition and operated by competent
management.
- --------------------------------------------------------------------------------
JONES INTERCABLE B-12 KAGAN MEDIA APPRAISALS, INC.
VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS
- --------------------------------------------------------------------------------
The time value of money means that a dollar one year from today is "worth"
less than a dollar today. This is due, in part, to inflation, because the
buying power of tomorrow's dollar will likely be less than it is today.
Future dollars are worth less than present dollars, however, for another,
perhaps more important reason: the existence of the interest rate, or cost-of-
money factor, in the leveraging of a business enterprise.
Put more simply: one dollar invested in a risk-free instrument, such as a
savings bank or a government security, will earn a given amount of interest
over a certain period of time. Thus, the same dollar invested in a business
enterprise "loses" value over time unless the business "returns" dollars at a
rate at least equal to that which would have been enjoyed in the alternate
investment.
Because the business likely will entail risk of considerable nature, the
ultimate "rate of return" must be substantially better than that paid by the
risk-free instrument.
Suppose, for example, a person deposits $l,000 in a bank that pays 7%
interest compounded quarterly, and both principal and interest are left in the
account over 10 years. At the end of 10 years, the original $l,000 will have
doubled, to $2,001. That's an effective annual rate of return of 7.2%.
If, instead, the investor had placed his $l,000 in a more speculative
account--say, by acquiring equity ownership of a cable TV system or radio
station--the average annual rate of return would have to be considerably higher
than 7.2% to warrant taking the risk. How long should the investment return
period be, so that the average rate of return is desirable?
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JONES INTERCABLE B-13 KAGAN MEDIA APPRAISALS, INC.
VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS (Continued)
- --------------------------------------------------------------------------------
It is the appraiser's experience that media investors typically seek
return-on-investment within approximately 10 years. Such rates of return
enable them to obtain returns on equity of as much as 50% annually, through the
use of leverage.
The form of the return is at the heart of every buy-sell negotiation. For
it is not the percentage of net profit to equity that concerns the media
investor. Rather, it is the percentage of operating profit to equity. This
operating profit is also called "cable cash flow" because it differs from true
accounting cash flow. Cable cash flow is net income added back to depreciation
and amortization, interest and income taxes.
Entrepreneurs use this variation of cash flow to distinguish among
properties because it tends to make one potential investment easier to compare
to another.
In the media, many properties are purchased on "terms," i.e., over a
number of years with installment payments and varying interest rates, or other
payment schedules with certain contingencies. And because individuals and
corporations also have varying tax rates, the amount of taxes paid takes the
media investor further away from reasonable comparisons. In addition,
capitalizations of companies vary, yielding widely disparate financial
operating characteristics.
In order to determine how a business is really performing in its day-to-
day operation, cable investors go directly to operating income (cable cash
flow) to make their comparisons. It is this line that is expected to grow, and
it is this line on the income statement that they look to for their return on
investment.
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JONES INTERCABLE B-14 KAGAN MEDIA APPRAISALS, INC.
VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS (Continued)
- --------------------------------------------------------------------------------
In order to determine the cash flow potential of a (cable) system, the
appraiser must perform the following functions:
l. Compute a projected growth of absolute cash flow over a given
investment payback period.
2. Compute a projected rate of inflation, to reduce future cash
flows to present value.
3. Discount future cash flow utilizing present-value factors widely
published in financial handbooks.
The result of these steps is the accumulation over a set period of years
of "discounted cash flow," the amount of real income that will be counted as
the "return" against the investment.
To say it another way, the value of the business is equal to the
-----------------------------------------
cumulative discounted cash flow (future income stream) to be generated by the
- -----------------------------------------------------------------------------
business over the desired investment payback period.
- ----------------------------------------------------
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JONES INTERCABLE B-15 KAGAN MEDIA APPRAISALS, INC.
VALUATION OF JONES INTERCABLE CABLE TV SYSTEM
AUGUSTA, GEORGIA
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
JONES INTERCABLE B-16 KAGAN MEDIA APPRAISALS, INC.
DESCRIPTION OF SUBJECT MARKET
- --------------------------------------------------------------------------------
The Augusta market is the eighth largest metropolitan area in Georgia. As
an increasingly diversified regional business center, it enjoyed strong growth
in the decade of the 1980s. It did not entirely avoid the effects of the 1990-
91 recession, however. Although employment in non-construction jobs either
stabilized or has increased since then, housing starts have only recently shown
signs of rebounding.
The subject system has been providing service in Augusta since 1969. It
has been owned and operated as part of Jones Intercable since being acquired by
the company in 1985. It serves the City of Augusta, Columbia County and
Richmond County.
Augusta is located in eastern Georgia on the Savannah River. It has no
topographic barriers to the west and south, which include Columbia and Richmond
counties respectively. Each year, it attracts the best golfers and thousands
of spectators to the world famous Masters Golf Tournament. It is also home to
three world class water sports events. The city also offers a 1,500-seat
amphitheater for frequent outdoor concerts.
While the city of Augusta itself experienced a slight decline in
population of 6.1% from 1980 to 1990, the population of Columbia County
increased 60.6%, and households, 72.6% during the same period. Likewise, the
population in Richmond County increased 11.1% and households, 19.8%.
A recent study suggests that the projected growth from 1994-99 will be in
the following range:
County Total 5-Yr. Pop. Growth Total 5-Yr. HH Growth
-------------------------------------------------------------------
Columbia 17.8% 19.5%
Richmond 12.5% 16.3%
Source: Sales & Marketing Management, October 28, 1994
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JONES INTERCABLE B-17 KAGAN MEDIA APPRAISALS, INC.
DESCRIPTION OF SUBJECT MARKET (Continued)
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The Augusta metropolitan area's employment base is strong and diversified.
It exhibits a balance between the Wholesale/Retail Trade (22%), Manufacturing
(23%) and Services (22%) sectors:
[PIE CHART OF
AUGUSTA MDS, DISTRIBUTION OF NONAGRICULTURAL EMPLOYMENT
APPEARS HERE]
Source: Augusta Economic Yearbook, 1993 Edition
From 1984-91, nonagricultural employment increased at a compound annual
rate of 4.0%. The highest rates of growth were in services (8.8%),
construction (7.6%) and Wholesale/Retail Trade (4.8%). Despite a slight decline
(-0.7%) in nonagricultural jobs in 1991, the Augusta area showed a rebound in
1992. During the first nine months, Augusta was creating jobs at an annual
rate of 0.8%, about twice as fast as the state of Georgia as a whole. This
resulted primarily from strong gains in the manufacturing sector.
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JONES INTERCABLE B-18 KAGAN MEDIA APPRAISALS, INC.
DESCRIPTION OF SUBJECT MARKET (Continued)
- --------------------------------------------------------------------------------
Prior to 1985, the area's unemployment rate generally exceeded that of
Georgia's as a whole. From 1985-89, it generally tracked the statewide rate.
From 1990-92, it was lower than the rate for the state.
The major employers in the tri-county area which includes Aiken County,
South Carolina (across the river from Augusta), are:
Employer County Number Employed
- --------------------------------------------------------------------------------
Westinghouse Savannah River Company Aiken 16,000
Medical College of Georgia Richmond 6,288
Fort Gordon (civilian) Richmond 4,981
Richmond County Schools Richmond 4,500
University Hospital Richmond 3,400
Graniteville Company Aiken 3,000
Aiken County Schools Aiken 2,500
Veterans Admin. Hospital Richmond 2,143
Eisenhower Medical Center Richmond 2,140
Gracewood State School and Hospital Richmond 1,500
Owens-Corning Fiberglass Aiken 1,500
Columbia Co. Schools Columbia 1,300
E-Z-GO Richmond 1,152
Kimberly Clark Aiken 1,100
Humana Hospital Richmond 1,100
Federal Paper Board Richmond 1,010
Source: Metro Augusta Chamber of Commerce
According to local management, Fort Gordon is unaffected by the
recent round of military cutbacks. In fact, the number of personnel at the
base has expanded, as units have moved in from other bases which are being
downsized.
From 1980 to 1990, the population of the Augusta MSA shifted toward
an older and slightly more racially diverse community. In 1990, more than 33%
of the population was in the 25-44 age group, an increase of 35.1%. Likewise,
the 45-54 age group increased 14.0%, while the 18-24 age group declined
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JONES INTERCABLE B-19 KAGAN MEDIA APPRAISALS, INC.
DESCRIPTION OF SUBJECT MARKET (Continued)
- --------------------------------------------------------------------------------
14.6%. In 1980, 67.5% of the population was white and 30.9%, black. In 1990,
66.7% was white; 31.1% black. But overall, by 1994, the 25-49 age group was
still over 70% larger than the 50+ group.
Total personal income has increased historically in line with the
rate for the State of Georgia, in a range of 9.3-11.3% annually since 1970.
Per capita income experienced a compound annual rate of growth of 6.9% from
1985-90, ahead of that for Georgia as a whole at 6.2%. In Columbia County,
total income was projected to increase by 5.0% annually from 1990-95. In
Richmond County, it was projected to increase by 2.6% annually. The growth
rates for per capita income were projected to be 1.0% and 1.1% respectively.
In 1990, over 48% of all households in Columbia County had income exceeding
$35,000. In Richmond County, the figure was more than 33%. The projected
percentages for 1995 were an increase to 50.4% in Columbia County and to 34.8%
in Richmond County.
Total effective buying income is forecasted to increase during the
period 1993-98 by 41.6% in the Augusta-Aiken metropolitan area. In Columbia
County, it is forecasted to increase by 44.6%, and in Richmond, by 40.8%.
Total retail sales are forecasted to increase over the same period by 37.0% in
the Augusta-Aiken metropolitan area, 54.7% in Columbia County and 31.3% in
Richmond County.
All these figures appear to be consistent with the balance and steady
growth exhibited by the employment sector in the market.
Augusta had a residential construction boom in the early 1980,s. The
boom began to fade in 1986, and the market plummeted in 1987, when housing
permits fell off 51.7%. Permits declined again in 1988 by 12.4%. Despite an
uptick in permits authorized in 1989, permits declined again in 1990 by 21.4%
There was a small increase in 1991 of 1.8% and a larger increase of 12% in
1992. The figures indicate a strong surge in single family home construction
as mortgage rates declined.
As previously noted, the Jones system serves the City of Augusta,
Columbia County and Richmond County. The two counties, particularly Columbia
County, have a good deal of "fill-in" housing
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JONES INTERCABLE B-20 KAGAN MEDIA APPRAISALS, INC.
DESCRIPTION OF SUBJECT MARKET (Continued)
- --------------------------------------------------------------------------------
which is serviceable from existing facilities. In addition, as can be seen
from the above figures, Columbia County is projected to have fairly strong
growth in housing. In particular, the county has a large waterfront area on
J. Strom Thurmond Lake less than 30 minutes from downtown Augusta that is
attracting many new residents. In a far-sighted move, the system already
serves this fast-growing area.
Despite the construction fall-off in 1988-90, there is considerable
room for expansion of housing in both Columbia and Richmond County. In light
of the estimates for those counties, and the overall steady growth projected
for the entire Augusta MSA, we project that the number of households served by
the system could be expected to grow at rate of 1.5% in the early years of the
forecast period, and 1.0% in the later years.
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JONES INTERCABLE B-21 KAGAN MEDIA APPRAISALS, INC.
DESCRIPTION OF SUBJECT BUSINESS
- --------------------------------------------------------------------------------
The Augusta cable system consists of approximately 1,600 miles of plant,
300 of which is 400 MHZ and 1,300 of which is 550 MHZ. The entire system was
rebuilt to 400 MHZ in 1985 after it was acquired by Jones.
About 80% of the plant was rebuilt to 550 MHZ in 1991-2. The remaining
300 miles needs to be rebuilt to expand the system's channel offering. All 54
channels are presently being used, and those 300 miles act as a "bottleneck"
for the remaining plant, which is capable of carrying more channels. Management
estimates that rebuilding the remaining 300 miles to 550 MHZ will cost $1.9
million.
The Augusta system consists of nine headends, one centrally located at the
office and 8 throughout the service area. All headends have considerable
back-up power for emergency outages. All hubs are interconnected via fiber
optic cables. The system has planned for future expansion by laying 21 fiber
strands between each hub, when only 6 are now being used. This excess capacity,
combined with the redundant "fiber ring" architecture, which has been in place
since 1992, will enable the system to continue leasing fiber capacity throughout
the service area, as well as provide local area network services in the future.
The Augusta system passes all of the estimated 102,040 homes in its
franchise areas. As previously discussed, growth in housing is expected to
average 1.5% per year in the first four years of the projection period, and
1.0% thereafter, reaching about 115,000 in 2004. The system is not presently
threatened by competition. Management has seen no impact from direct broadcast
satellite services. There is an MMDS license for the area, but it has never
been activated. It is the opinion of management that the local terrain could
pose a problem to the delivery of a quality MMDS signal. The local Regional
Bell Holding Company, Bell South, has announced a plan to begin offering video
dial tone services on an experimental basis in Chamblee, Georgia, a suburb of
Atlanta, after regulatory approval, but this would not directly impact the
Augusta cable system.
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JONES INTERCABLE B-22 KAGAN MEDIA APPRAISALS, INC.
DESCRIPTION OF SUBJECT BUSINESS (Continued)
- --------------------------------------------------------------------------------
None of the franchising authorities have certified to regulate the
17-channel basic service tier. The City of Augusta filed its initial intention
to regulate but never followed up with the necessary regulations or
notification to the system operator. However, the City of Augusta did file a
complaint with the F.C.C. about the monthly rate for the "Cable Programming
Services" tier of 31 channels. In response, the company filed a cost-of-
service showing under the F.C.C.'s interim rules. It is management's opinion
that this showing justifies a monthly rate of more than $36.00, well in excess
of the present rate. The increase scheduled for early 1995 would still be well
within that rate.
The F.C.C. has not acted on the City's complaint, which is part of a large
backlog of such cases pending at the F.C.C. No other complaints on the CPS
tier have been filed.
With the uncertainties created by rate reregulation largely behind it,
management will be refocusing on marketing. Direct sales were launched in 1994
with eight people who are local to the area. Management is presently recruiting
a stronger marketing director to take charge of the effort. As subscriber
confusion from FCC-mandated adjustments dissipates, and the more concentrated
marketing effort kicks into gear, it is reasonable to expect the system to
realize moderate near term increases in line with the gain achieved in 1994. A
continuation of this effort could push penetration in this type of market into
the 70-71% range in 7-10 years, from its current 65.3%.
The monthly rate for full basic service (the "Basic Plus Package') stood
at $23.20 in 1994. 96.9% of subscribers take the full basic service. With a rate
increase of $1.50, the rate will be $24.70 effective in the first quarter of
1995. Given the current regulatory climate, the blended basic rate is assumed to
grow at the rate of 5% per year to $37.41 by 2004.
Installation rates are $20.00 for the first outlet in pre-wired homes,
$30.00 in unwired homes and $10 for each additional outlet at the time of
initial installation. The rate of churn has been fairly steady at 2.7% per
month, or 32% annually. With increased marketing, we are projecting a slight
increase to
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JONES INTERCABLE B-23 KAGAN MEDIA APPRAISALS, INC.
DESCRIPTION OF SUBJECT BUSINESS (Continued)
- --------------------------------------------------------------------------------
33% annually. But through the concerted efforts of management and no
expectations for drastic changes in market demographics, annual churn is
expected to stabilize at 33%.
The Augusta system offers five premium channels: HBO, Showtime, The Movie
Channel, Cinemax and Disney. The pay services are provided on an a la carte
basis at $9.50 per month for the first pay on all but Disney, which is $7.95. A
discount of $2.00 is offered on the second pay and $3.50 on the third pay,
except for Disney.
Total pay units increased from 50,647 to 52,985 in 1992, which increased
the system's pay-to-basic ratio from 83.3% to 84%. However, it has declined
gradually since then to just over 80%. The continued discounting, together with
persistent marketing efforts should enable the system to stabilize the pay-to-
basic penetration in the 75-80% range throughout the projection period.
The system launched its pay-per-view movie service in 1991. From 1992 to
1994, the total number of buys more than doubled, from 14,196 to 29,552. In 1995
and beyond, this revenue stream should continue to increase because of growth of
addressable subs. Heretofore, the addressable converters necessary to receive
pay-per-view programming were sold to customers at a price of $107. Effective
February of 1995, the system began making them available on a rental basis for
$4.00 per month. The pricing for the programming will continue to be $3.95 for
movies, $5.95 for adult programming and $19.95 and up for wrestling and other
events. The new rental pricing for addressable converters, together with
continued increases in the number of events offered, should enable the system to
maintain a cumulative monthly buy rate in the range of 60-70%. Given that range,
we think increases in the average price per buy of 3.5% annually are reasonable,
so that the average reaches $9.36 in 2004.
Local advertising has become a substantial source of revenue and is
expected to thrive during the period of the projections as cable continues to
prove it is a cost-effective medium for advertisers.
- --------------------------------------------------------------------------------
JONES INTERCABLE B-24 KAGAN MEDIA APPRAISALS, INC.
DESCRIPTION OF SUBJECT BUSINESS (Continued)
- --------------------------------------------------------------------------------
The system has seen increases in revenue per subscriber of 9.6-9.8% per year
since 1992. Management is now revamping its advertising sales department by
hiring a new manager and two additional account representatives. This
increased effort should enable management to at least maintain that rate of
growth at 9.0% in 1995. Thereafter, we project it will increase by $0.60 per
subscriber per year, reaching $31.88 in 2004.
Home Shopping revenue per subscriber in 1994 reached $1.30 per subscriber,
in line with national averages. While the future of home shopping is predicted
to be one of explosive growth by some, we have projected steady gains of 5%
annually to $2.11 per subscriber in 2004.
The system derives additional revenue from commercial accounts with hotels
and other multiple-unit buildings. Late fees and converter sales also were major
contributors to this revenue stream. "Other" revenue reached 7.8% of basic
revenue in 1994. With the attractive monthly rental plan for converters, we
believe this revenue will increase in 1995 to 8.1% of basic revenues.
Thereafter, it is expected to decline gradually as a percentage of basic
revenues as the basic subscriber count increases over the projection period. It
reaches about $2.4 million in 2004 at 6.7% of basic revenues.
Total cable revenue reached $34.61 per subscriber per month in 1994. With
the increase of $1.50 in the monthly rate for the Basic Plus Package, combined
with the other revenue increases previously discussed, we expect total cable
revenue per subscriber to be $36.38 in 1995. The combination of expected
household growth, steady gains in penetration, modest rate increases, and
continued growth in pay-per-view, home shopping and advertising is projected to
raise total cable revenue to $58.8 million in 2004, or $60.37 per subscriber per
month. This is an average of about 5.8% annually over the ten-year period.
- --------------------------------------------------------------------------------
JONES INTERCABLE B-25 KAGAN MEDIA APPRAISALS, INC.
DESCRIPTION OF SUBJECT BUSINESS (Continued)
- --------------------------------------------------------------------------------
The system leases excess fiber capacity to both city and county
government. That revenue nearly doubled from 1992 to 1994, reaching $27,000.
This was about 0.1% of total cable revenue. Management expects it to increase to
$45,000 in 1995, for 0.15% of total cable revenue. Management is now working on
interconnecting all the schools on the fiber "ring," as well as leasing capacity
to local hospitals for telemedicine projects. Based on conversations with system
management, we project that revenues from these sources and other local area
network services over the fiber "ring" will increase gradually from 0.25% of
total cable revenue in 1996 to 2.8% in 2004.
- --------------------------------------------------------------------------------
JONES INTERCABLE B-26 KAGAN MEDIA APPRAISALS, INC.
10-YEAR CASH FLOW PROJECTIONS
- -------------------------------------------------------------------------------------------------------------------------
AUGUSTA, GA 1992 1993 1994 1995 1996 1997 1998 1999
1 HOMES IN FRANCHISE AREA (000) 97.8 100.2 102.0 103.6 105.1 106.7 108.3 109.4
2 HOMES PASSED (000) 97.8 100.2 102.0 103.6 105.1 106.7 108.3 109.4
3 % HP IN FRANCHISE AREA 100% 100% 100% 100% 100% 100% 100% 100%
4 PCT PENETRATION 64.5% 64.5% 65.3% 65.7% 66.7% 67.7% 68.7% 69.2%
5 TOTAL BASIC SUBS (000) 63.1 64.6 66.6 68.0 70.1 72.2 74.4 75.7
6 AVERAGE BASIC SUBS (000) 61.7 63.8 64.8 67.3 69.1 71.2 73.3 75.0
7 AVG MONTHLY RATE $ 22.71 23.69 22.87 24.12 25.32 26.59 27.92 29.32
8 REVENUE/SUBSCRIBER $ 272.57 284.32 274.42 289.42 303.89 319.08 335.04 351.79
9 BASIC SERVICE REVENUE (000) $16,830 $18,149 $17,791 $19,484 $20,993 $22,711 $24,565 $26,401
10
11 NEW BASIC (000) 2.6 1.5 2.0 1.4 2.1 2.1 2.2 1.3
12 BASIC CHURN (000) 28.3 26.7 21.3 22.0 22.5 23.1 23.8 24.6
13 RATE OF CHURN 33.6% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0%
14 TOTAL INSTALLS (000) 30.9 28.3 23.3 23.4 24.5 25.3 26.0 25.8
15 EFFECTIVE INSTALL RATE $ 17.98 19.04 27.58 30.14 31.64 33.23 34.89 36.63
16 INSTALL REVENUE (000) $555 $538 $643 $706 $776 $839 $907 $947
17
18 TOTAL BASIC REVENUE (000) $17,385 $18,687 $18,434 $20,190 $21,769 $23,551 $25,472 $27,348
19
20 PAY % AVG SUBS 83.9% 81.4% 80.1% 80.0% 79.0% 78.0% 77.0% 76.0%
21 AVERAGE SUBSCRIBERS (000) 51.8 51.9 51.9 53.9 54.6 55.5 56.5 57.0
22 MONTHLY RATE $ 8.32 8.31 8.39 8.35 8.65 8.95 9.26 9.59
23 REVENUE/SUBSCRIBER $ 100 100 101 100 104 107 111 115
24 PAY SERVICE REVENUE (000) $5,174 $5,180 $5,227 $5,399 $5,662 $5,962 $6,275 $6,561
25
26 AVG ADDRESSABLE SUBS (000) 0.7 1.4 2.3 6.1 15.2 21.3 27.6 33.9
27 % ADDRESSABLE SUBS 1.0% 2.1% 3.4% 9.0% 14.5% 20.0% 25.5% 31.0%
28 PPV CUME MO. BUY RATE 179.0% 138.4% 107.8% 70.2% 68.0% 67.0% 66.0% 65.0%
29 TOTAL PPV BUYS (000) 14.2 23.0 29.6 51.0 124.4 171.6 218.7 264.5
30 AVERAGE PRICE/BUY $ 8.91 7.53 7.28 6.87 7.11 7.36 7.62 7.88
31 TOTAL PPV REVENUE (000) $126 $173 $215 $350 $884 $1,263 $1,666 $2,085
32 PPV REV/SUB/MO $ 0.17 0.23 0.28 0.43 1.07 1.48 1.89 2.32
33
34 AD REVENUE/SUB/MO $ 1.68 1.84 2.02 2.21 2.26 2.31 2.36 2.41
35 AD REVENUE/SUB $ 20.19 22.12 24.29 26.48 27.08 27.68 28.28 28.88
36 TOTAL AD REVENUE (000) $1,246 $1,412 $1,575 $1,783 $2,050 $2,358 $2,711 $3,118
37
38 HOME SHOPPING REV/SUB/MO $ 0.12 0.10 0.11 0.11 0.12 0.12 0.13 0.14
39 HOME SHOPPING REV/SUB $ 1.45 1.19 1.30 1.36 1.43 1.50 1.57 1.65
40 TOTAL HOME SHOPPING REV (000) $90 $76 $84 $92 $99 $107 $115 $124
41
42 OTHER REVENUE (000) $1,334 $1,423 $1,394 $1,578 $1,657 $1,740 $1,827 $1,918
43 % BASIC REVENUE 7.9% 7.8% 7.8% 8.1% 7.9% 7.7% 7.4% 7.3%
44
45 TOTAL CABLE REVENUE (000) $25,355 $26,951 $26,929 $29,393 $32,122 $34,979 $38,067 $41,155
46 TOTAL REV/SUB/MONTH $ 34.22 35.18 34.61 36.38 38.75 40.95 43.27 45.70
47
- -----------------------------------------------------------------------------------------
AUGUSTA, GA 2000 2001 2002 2003 2004
1 HOMES IN FRANCHISE AREA (000) 110.5 111.6 112.7 113.8 115.0
2 HOMES PASSED (000) 110.5 111.6 112.7 113.8 115.0
3 % HP IN FRANCHISE AREA 100% 100% 100% 100% 100%
4 PCT PENETRATION 69.7% 70.2% 70.7% 71.0% 71.0%
5 TOTAL BASIC SUBS (000) 77.0 78.3 79.7 80.8 81.6
6 AVERAGE BASIC SUBS (000) 76.3 77.7 79.0 80.2 81.2
7 AVG MONTHLY RATE $ 30.78 32.32 33.94 35.63 37.41
8 REVENUE/SUBSCRIBER $ 369.38 387.85 407.24 427.60 448.98
9 BASIC SERVICE REVENUE (000) $28,201 $30,123 $32,174 $34,314 $36,466
10
11 NEW BASIC (000) 1.3 1.3 1.3 1.1 0.8
12 BASIC CHURN (000) 25.0 25.4 25.8 26.3 26.7
13 RATE OF CHURN 33.0% 33.0% 33.0% 33.0% 33.0%
14 TOTAL INSTALLS (000) 26.3 26.7 27.2 27.4 27.5
15 EFFECTIVE INSTALL RATE $ 38.46 40.39 42.41 44.53 46.75
16 INSTALL REVENUE (000) $1,011 $1,080 $1,153 $1,221 $1,285
17
18 TOTAL BASIC REVENUE (000) $29,213 $31,203 $33,327 $35,535 $37,751
19
20 PAY % AVG SUBS 75.0% 75.0% 75.0% 75.0% 75.0%
21 AVERAGE SUBSCRIBERS (000) 57.3 58.3 59.3 60.2 60.9
22 MONTHLY RATE $ 9.92 10.27 10.63 11.00 11.39
23 REVENUE/SUBSCRIBER $ 119 123 128 132 137
24 PAY SERVICE REVENUE (000) $6,818 $7,178 $7,557 $7,945 $8,323
25
26 AVG ADDRESSABLE SUBS (000) 39.8 45.7 49.6 53.5 57.5
27 % ADDRESSABLE SUBS 36.0% 41.0% 44.0% 47.0% 50.0%
28 PPV CUME MO. BUY RATE 64.0% 63.0% 62.0% 61.0% 60.0%
29 TOTAL PPV BUYS (000) 305.5 345.9 368.9 391.6 413.9
30 AVERAGE PRICE/BUY $ 8.16 8.44 8.74 9.05 9.36
31 TOTAL PPV REVENUE (000) $2,492 $2,921 $3,225 $3,543 $3,875
32 PPV REV/SUB/MO $ 2.72 3.13 3.40 3.68 3.98
33
34 AD REVENUE/SUB/MO $ 2.46 2.51 2.56 2.61 2.66
35 AD REVENUE/SUB $ 29.48 30.08 30.68 31.28 31.88
36 TOTAL AD REVENUE (000) $3,586 $4,124 $4,742 $5,453 $6,271
37
38 HOME SHOPPING REV/SUB/MO $ 0.14 0.15 0.16 0.17 0.18
39 HOME SHOPPING REV/SUB $ 1.74 1.82 1.91 2.01 2.11
40 TOTAL HOME SHOPPING REV (000) $133 $142 $151 $161 $171
41
42 OTHER REVENUE (000) $2,014 $2,115 $2,221 $2,332 $2,448
43 % BASIC REVENUE 7.1% 7.0% 6.9% 6.8% 6.7%
44
45 TOTAL CABLE REVENUE (000) $44,255 $47,682 $51,223 $54,969 $58,840
46 TOTAL REV/SUB/MONTH $ 48.30 51.16 54.03 57.08 60.37
47
10-YEAR CASH FLOW PROJECTIONS (Continued)
- ------------------------------------------------------------------------------------------------------------------------
AUGUSTA, GA 1992 1993 1994 1995 1996 1997 1998 1999
48 LAN/NEW SERVICES REVENUE (000) $14 $24 $27 $45 $73 $161 $262 $381
49
50 TOTAL SYSTEM REVENUE (000) $25,369 $26,975 $26,956 $29,438 $32,195 $35,140 $38,329 $41,535
51
52 CASH FLOW (000) $13,522 $14,080 $13,159 $14,577 $16,779 $19,048 $21,003 $22,882
53 CF MARGIN 53.3% 52.2% 48.8% 49.5% 52.1% 54.2% 54.8% 55.1%
CASH FLOW PERCENT INCREASE 4.1% -6.5% 10.8% 15.1% 13.5% 10.3% 9.0%
DISCOUNT % 10%
DISCOUNT FACTOR 1.10 1.21 1.33 1.46 1.61
PRESENT VALUE FACTOR 0.91 0.83 0.75 0.68 0.62
DISCOUNTED CASH FLOW (000) $13,252 $13,867 $14,311 $14,345 $14,208
CUMULATIVE DISC. CASH FLOW (000) $13,252 $27,119 $41,430 $55,775 $69,983
10 YEAR CUM. CASH FLOW (000) $137,998 9.5 X 95 CF
EXTRAORDINARY CAP-EX (000) $1,900
DISCOUNT % 10%
DISCOUNT FACTOR 1.10
PRESENT VALUE FACTOR 0.91
DISCOUNTED CASH FLOW (000) $1,727
CUMULATIVE DISC. CASH FLOW (000) $1,727
10 YEAR CUM. CASH FLOW (000) $136,271 9.3 X 95 CF
$2,046 PER 66,601 SUBS ON 12/31/94
- -----------------------------------------------------------------------------------------
AUGUSTA, GA 2000 2001 2002 2003 2004
48 LAN/NEW SERVICES REVENUE (000) $617 $774 $954 $1,281 $1,649
49
50 TOTAL SYSTEM REVENUE (000) $44,872 $48,456 $52,177 $56,250 $60,489
51
52 CASH FLOW (000) $24,904 $26,979 $29,146 $31,551 $34,069
53 CF MARGIN 55.5% 55.7% 55.9% 56.1% 56.3%
CASH FLOW PERCENT INCREASE 8.8% 8.3% 8.0% 8.3% 8.0%
DISCOUNT %
DISCOUNT FACTOR 1.77 1.95 2.14 2.36 2.59
PRESENT VALUE FACTOR 0.56 0.51 0.47 0.42 0.39
DISCOUNTED CASH FLOW (000) $14,058 $13,844 $13,597 $13,381 $13,135
CUMULATIVE DISC. CASH FLOW (000) $84,041 $97,885 $111,482 $124,863 $137,998
10 YEAR CUM. CASH FLOW (000)
EXTRAORDINARY CAP-EX (000)
DISCOUNT %
DISCOUNT FACTOR
PRESENT VALUE FACTOR
DISCOUNTED CASH FLOW (000)
CUMULATIVE DISC. CASH FLOW (000)
10 YEAR CUM. CASH FLOW (000)
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS
- --------------------------------------------------------------------------------
1. Household growth in the service area (City of Augusta, Columbia County and
Richmond County) is assumed to average 1.5% per year in 1995-98 and 1.0% per
year in 1999-04, based on historical trends and analysis of data from local
management, the most recent edition of the Augusta Economic Yearbook, census
data and Sales & Marketing Management.
2. According to system management, the system will pass all new home growth
in the franchise areas. Therefore, homes passed as a percentage of homes in
the franchise area is projected to remain at 100%.
3. Basic penetration is projected to increase by 0.4% to 65.7% by year end
1995 and by another 1.0% to 66.7% in 1996, in response to the continued direct
sales effort guided by a new marketing director. With the projected influx of
people in the 25-49 age bracket and increased per capita income in Columbia and
Richmond counties, system penetration can be expected to grow by 1.0% annually
through 1998, 0.5% annually from 1999-2002, until it reaches 71% in 2003.
4. Basic monthly rates were increased in March 1993 and then adjusted between
tiers in September to take account of the F.C.C.'s new rate regulations, with
the total price for the most popular tier, the Basic Plus Package, remaining
the same. The rate for the 17-channel basic only service is $9.13, with the
tier costing an additional $14.07, for a total of $23.20. Effective March 1,
the rate for the tier will increased by $1.50 so that the total for the Basic
Plus Package will be $24.70. 96.9% of subscribers take that package, and only
3.1% take the lower cost 17-channel service. The average
- --------------------------------------------------------------------------------
JONES INTERCABLE B-29 KAGAN MEDIA APPRAISALS, INC.
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS (Continued)
- --------------------------------------------------------------------------------
monthly rate for all of 1995 will be $24.12. In 1996 and for the remainder of
the forecast period, this rate is assumed to increase at the modest rate of 5%
annually.
5. Basic churn has remained constant at around 33% per year, and we have
projected that it will hold steady at that rate.
6. Pay-to-basic reached 84% in 1992 but has declined gradually since then to
80.1%. With continued discounting of pay packages and the planned strong
marketing efforts, we believe the ratio will stabilize in the range of 75-80%
but have allowed for a gradual decline from 80% to 75% over the forecast
period.
7. Pay rate increases are assumed to average only 3.5% per year, below
increases in the Basic Plus Package, in order to maintain penetration.
8. The Augusta system introduced pay-per-view movie services in 1991 and
events in 1992. The cumulative monthly buy rate as a percentage of addressable
homes stood at 107.8% in 1994. With major increases forecasted in the number
of addressable homes, particularly because of the new monthly converter rental
program, we have allowed for some decline in the buy rate. The projections
call for a gradual decrease to 60% as the number of addressable homes
increases. Addressable homes as a percentage of basic subscribers was only
3.4% in 1994. As the attractive converter rental option becomes more widely
marketed, we project this number to rise from its low 1994 base to 50%
- --------------------------------------------------------------------------------
JONES INTERCABLE B-30 KAGAN MEDIA APPRAISALS, INC.
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS (Continued)
- --------------------------------------------------------------------------------
by 2004. Given that we have not projected a rebuild for video-on-demand
services, this level of pay-per-view penetration is justified.
9. The Augusta system's advertising revenue averaged $2.02 per subscriber per
month in 1994, an increase of 9.8% over 1993. The increase in 1993 was 9.6%
over 1992. With management's increased advertising sales effort and the
growing market awareness of the cost-effectiveness of cable advertising, it is
expected to increase again in 1995 at 9.0%. Thereafter, it is assumed to have
steady increases of $0.05 per subscriber per month, reaching $31.88 per
subscriber per year in 2004.
10. Home shopping revenue reached $1.30 per subscriber in 1994, an increase of
8.5% over 1993. The revenue per subscriber is assumed to increase at the rate
of 5% per year in 1995 through the end of the forecast period, reaching $2.11
in 2004.
11. Other revenue consists primarily of commercial accounts, equipment sales
(chiefly converters) and late fees. During 1992-94, it was fairly steady as a
percentage of basic revenue, at 7.8-7.9%. With the launching of the attractive
converter rental plan in 1995, it is anticipated that this category will
increase to 8.1% of basic revenue and then gradually decline to less than 7.0%
of basic revenue by 2004.
12. Revenues from leasing of fiber capacity doubled to 0.1% of total system
revenue in 1994 from 1992. Based on conversations with system management, the
well-planned amount of excess fiber capacity, and the redundant "ring"
architecture, we can anticipate revenues in this category increasing
- --------------------------------------------------------------------------------
JONES INTERCABLE B-31 KAGAN MEDIA APPRAISALS, INC.
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS (Continued)
- --------------------------------------------------------------------------------
to 0.15% of total system revenue in 1995 and thereafter gradually rising from
0.25% in 1996 to 2.8% in 2004. This will likely be generated by increased
needs from local governments and management's plans to interconnect the schools
and extend services to major hospitals.
13. Increases in basic penetration, growth in ancillary revenues (e.g. pay-
per-view, advertising and home shopping) and operating efficiencies associated
with projected growth in subscribers are expected to boost operating margins
over the next several years. The cash flow margin decreased from 53.3% to
48.8% from 1992 to 1994 because of the effects of rate regulation and the
F.C.C.'s rate freeze. With the scheduled rate increase in early 1995, and the
higher revenues in high-margin categories, it is reasonable to assume that
operating margins would recover to their pre-regulation level in 1996. With
the continued projected growth, those margins could gradually increase to the
56% range by 2002 and increase gradually for the balance of the forecast
period.
14. Future cash flows are discounted by a risk-adjusted 10% factor, slightly
above the Moody's Aaa corporate bond yield, which stood at 8.49% in January
1995. This rate is widely accepted in financial circles as a reliable
indicator of future inflation and the cost of funds.
15. System management estimates that the capital costs required to rebuild the
remaining 300 miles of 400 MHZ plant would total $1.9 million in 1995.
- --------------------------------------------------------------------------------
JONES INTERCABLE B-32 KAGAN MEDIA APPRAISALS, INC.
COMPARABLE ANALYSIS
- --------------------------------------------------------------------------------
Comparison of a cable TV system to similar properties recently sold is an
accepted appraisal methodology used to correlate the findings of the
statistical Income method with the realities of the private marketplace.
Analysis of historical cable system sales indicates that systems can be
compared to one another on the basis of such variables as local demographics,
system size, basic and pay penetration levels and revenue per subscriber.
Like cable properties can often be compared to one another on a value-per-
subscriber (VPS) basis. VPS is a short-form valuation yardstick that reflects
a multiple of the cash flow a subscriber is expected to generate in the first
or second year of ownership. Cable systems have historically sold most often
in the range of 9-11 times projected first-year cash flow (although 11-13x was
the norm in 1988-89) with the higher end of the range generally assigned to
systems which are expected to achieve significant near-term increases in cash
flow. Thus a cable subscriber forecasted to generate $170 of cash flow in the
coming year and selling at 11x that cash flow would be valued at $1,870, or at
$2,210 at 13x cash flow.
The cloud of reregulation put a damper on system trading activity in 1993-
1994, as cable operators struggled to determine the long-term effects on system
operations. This restrictive trading environment has limited the pool of
comparable sales. Fewer deals occurred in 1994 than in any of the last 12
years, but at the same time, more subs have traded hands than ever before in
several large deals.
In order to accurately reflect the current private market environment in
our analysis, we have only included as comparables sales that took place in
June 1994 or later, although we considered the entire 1994 year in our
analysis. The pool of available comparables is quite small, but our study of
- --------------------------------------------------------------------------------
JONES INTERCABLE B-33 KAGAN MEDIA APPRAISALS, INC.
COMPARABLE ANALYSIS (Continued)
- --------------------------------------------------------------------------------
the deals yields an identifiable set of value benchmarks that can be applied
to the Jones Augusta. This analysis, and individual comparable sales, are
listed below:
JONES AUGUSTA COMPARABLE SYSTEMS
BASIC Comp. Sale
LOCATION BASICS PEN VPS Value Date
- -------------------------------------------------------------------------------
($million)
AL-based MSO 28,744 63.3% $1,906 126.9 8/94
Baton Rouge, LA 96,500 60.3% $1,979 131.8 6/94
NC-based MSO 160,000 67.3% $2,109 140.5 9/94
Suburban Chicago 39,400 60.6% $2,056 136.9 8/94
Averages 81,161 62.9% $2,013 134.0
Jones Augusta 66,601 65.2% $2,046 136.3
(C) 1995 KAGAN MEDIA APPRAISALS, INC.
The first comparable we considered was Comcast's purchase of the southern
systems of CableSouth in August 1994 for $1,906/sub. Although a smaller group
than Jones Augusta, the date of the sale and the location of the systems makes
this sale an appropriate comparable. Jones Augusta, with its single cluster of
subscribers in an urban area with strong cash flow potential could be expected
to trade above this VPS level. Applying this VPS to Jones Augusta's 66,601
subscribers produces a possible comparable value of $126.9 million.
--------------
The second comparable considered was TCI's purchase of the Baton Rouge,
Louisiana system in June 1994 for $1,979/sub. Although this group of basic
subscribers (96,500) is larger than the Augusta system, the geographical
similarity and large cluster of subs makes this an appropriate comparable.
Jones Augusta, with its relatively high cash flow margin, could be
- --------------------------------------------------------------------------------
JONES INTERCABLE B-34 KAGAN MEDIA APPRAISALS, INC.
COMPARABLE ANALYSIS (Continued)
- --------------------------------------------------------------------------------
expected to trade above this VPS. Applying this VPS to Jones Augusta's 66,601
subscribers produces a possible comparable value of $131.8 million.
--------------
The NC-based MSO deal involved Time Warner's purchase of Summit
Communications in September 1994. Summit served 160,000 subscribers in three
systems, with the largest located in Winston-Salem North Carolina. The systems
are a key strategic fit for Time Warner, leading to a higher price, but were
acquired in a stock+debt transaction, resulting in a lower price. These
factors effectively cancel each other out. The system group represents a good
comparable because of its location, and the recent date of the sale. Summit
was sold for $2,109/sub . When applied to Jones Augusta's 66,601 subscribers
the deal's VPS yields a comparable value of $140.5 mil.
------------
The final deal involved the purchase of the suburban Chicago systems from
Multimedia by Tele-Communications, Inc. Although in a different region of the
country, Augusta displays some of the same characteristics of a more
suburban/rural nature with only fair off-air signal reception quality. This
deal carried a value of $2,056/sub. Applying this comparable to the Jones
Augusta system implies a comparable value of $136.9 million.
The four comparable above carry an estimated average year-ahead cash flow
multiple of 9.6x, slightly higher than Jones Augusta due to the more mature
cash flow margin of the Augusta system. The average of the four comparable
values listed above is $134.0 million.
--------------
- --------------------------------------------------------------------------------
JONES INTERCABLE B-35 KAGAN MEDIA APPRAISALS, INC.
CORRELATION AND FINAL ESTIMATE OF VALUE
- --------------------------------------------------------------------------------
The discounted cash flow analysis yields a value for the Augusta cable
system of approximately $136.3 million, while the analysis of comparable sales
yields a value of approximately $134.1 million. The proximity of these values,
within less than 2.0% of each other, arrived at through two independent
appraisal methodologies, underscores the validity of the assumptions used to
cast the 10-year cash flow projections and establishes a range within which the
value of the Augusta cable system could be expected to fall. In arriving at a
single estimate of value, the fact that this is a single well-clustered system
in a semi-rural market showing signs of moderate growth potential, with modern
plant facilities making excellent use of fiber optics technology for future
expansion, with upside in advertising, home shopping and particularly pay-per-
view revenues, leads us to value the system at the upper end of the range.
Therefore, we conclude that the current fair market value of the Augusta
cable television system is approximately $136.3 million.
--------------
- --------------------------------------------------------------------------------
JONES INTERCABLE B-36 KAGAN MEDIA APPRAISALS, INC.
EXHIBIT C
FAIR MARKET VALUE APPRAISAL FOR
AUGUSTA, GEORGIA
DECEMBER 31, 1994
PREPARED FOR
JONES INTERCABLE
PREPARED BY
WESTERN CABLESYSTEMS, INC
R. MICHAEL KRUGER, PRESIDENT
CABLE TELEVISION MANAGEMENT,
CONSULTING, AND APPRAISALS
513 WILCOX STREET, SUITE 230
CASTLE ROCK, CO 80104
PHONE: 303-688-4462
FAX: 303-688-5001
SUMMARY
-------
The appraiser was asked by Jones to prepare an independent appraisal of the fair
market value of the Augusta, Georgia cable television system. The appraisal is
to be averaged with the values established by two other independent appraisers
to establish the asking price for the sale of the Augusta system from one Jones-
affiliated entity to another. Each of the entities will, of course, conduct its
own due diligence and analysis with regard to the asking price, and neither is
under any obligation to complete the transaction at the asking price.
This appraisal report is issued for the use of Jones and the Jones controlled
entities involved, and their partners, employees, agents, and advisors. Western
understands and agrees that the report may be delivered to the Securities and
Exchange Commission, and may be summarized in proxy materials prepared by Jones.
The report is not intended for the use of other parties, including but not
limited to lenders for buyer or seller.
The appraisal is based on system data provided by Jones. The appraiser visited
the system on January 20, 1995 for the purpose of inspecting the general market
and system facilities, and obtaining system data. Western has appraised this
property in prior years, and last visited in 1991. The system manager provided
subscriber history and operating information upon which this appraisal is based.
The home office provided income statements for the years ended 12/31/91 through
12/31/94.
The work herein is based in part on data provided by others, and we assume no
responsibility for the accuracy of such data. However, all such data provided
to us appeared to be within industry norms, and nothing was observed which would
cause us to question the material accuracy of the information provided. Western
has used customary techniques and industry knowledge in preparing this report.
Nonetheless, Western does not warrant or represent that the appraised value is
that which would actually be obtained in an open market transaction, or that the
value would be upheld in litigation or administrative proceeding. Accordingly,
Western (including its officers, employees, and owners) does not indemnify or
hold harmless any user of this report in any manner against any costs, losses,
or damages arising out of the use of the conclusions herein.
Based on the analysis herein, the appraised value of this system at December 31,
1994 is $147,000,000. This value calculates to $2,153 per equivalent subscriber
or 9.86 x our estimate of first-year projected operating income. This valuation
is subject to the analysis and qualifying remarks contained in this report.
Augusta, Georgia, 12/31/94, Page C-2
SYSTEM DESCRIPTION
------------------
Key items regarding the system at 12/31/94 are:
Homes Passed 102,040
Basic residential subscribers 66,601
Est. residential bulk units 2,800
Total Units Served 69,401
Total market penetration 68%
EBU's from bulk/commercial @ $24.70 1,664
Total EBU's including res. basic 68,265
Pay units 50,172
Penetration of total units served 72%
Plant Mileage 1,600 (63 homes/mi)
Channels used 53
Channel capacity (80% of plant) 78
COMMUNITY PROFILE
-----------------
The system serves the community of Augusta, Georgia, and contiguous county
areas. Augusta is located in the Savannah River valley, about 150 miles east of
Atlanta. Augusta is the largest community for some distance in any direction.
The community has a strong and diverse economic base. The largest employers
include hospitals, paper products companies, fabric mills, industrial equipment
manufacturers, two golf cart companies, furniture, and agricultural products.
The federal Savannah River Project is located about 40 minutes southeast in
South Carolina; Augusta is the closest town. This is the nation's largest
atomic energy research and manufacturing facility. The facility has experienced
small expansions since we last visited in 1991, and further limited growth is
expected. Fort Gordon, a major Army Signal Corps training facility, is located
near Augusta. It has enjoyed some modest expansion, including a new contingent
of personnel redeployed from Europe during 1994. The base is not expected to be
on the closure lists in the future, due to the national political strength
enjoyed by Georgia.
Unemployment is steady at approximately 5% to 6%.
The most recent data, generally for 1990, shows median household income is
around $25,200. The median age is about 29. The percentage of low income homes
(under $15,000) is around 28%, which is higher than normal. About 10% of the
population over 65.
Augusta, Georgia, 12/31/94, Page C-3
Housing vacancies are normal, at around 8%. The average resale market price is
about $105,000, somewhat lower than the Atlanta area. The market is strong, and
listings sell quickly.
While the economy has slowed somewhat from our last visit in 1991, the area
still shows signs of economic well-being, and there are no apparent problems.
PASSINGS AND HOUSING GROWTH
---------------------------
Recent history indicates a slowing in the strong growth trends of the late 80's
and early 90's. This reflects in part the fact that the system expanded rapidly
into previously-unserved pockets prior to 1992. However, the economy has slowed
somewhat, and the industrial and job base is not expanding as rapidly as a few
years ago.
Passings Ending Growth
-------- ------ ------
Year Added Passings Rate
- ---- ----- -------- ----
1992 3,467 97,829 3.7%
1993 2,336 100,165 2.4%
1994 1,875 102,040 1.9%
We saw a number of new smaller housing subdivisions (approximately 100 lots)
during our drive, but did not see any major development of the scale seen in
Atlanta or major metro areas, or even in Augusta several years ago. Recent
expansion of key roads and highways will open up some additional areas for
further development, but timing is unknown. The system does not have any
remaining significant unbuilt areas since lines have been extended out to a
point where the density is 10-12 homes per mile; this also limits growth rates.
The manager indicated that the growth rate for the next several years should
average around 1% to 1.5%. The 1995 budget forecasts total growth of 1,071
passings, or about 1.1%. We have based our first-year projections on passings
growth of 1.5%.
ACQUISITION OPPORTUNITIES
-------------------------
Although we cannot directly include potential acquisitions in the calculations
for this appraisal, the existence of such opportunties will increase market
interest, and perhaps improve multiples. This system has a number of nearby
candidates, and most could be connected by fiber to Augusta. A new owner could
eventually have a single operation of more than 100,000 customers.
Augusta, Georgia, 12/31/94, Page C-4
SUBSCRIBER RATES AND SERVICES
-----------------------------
The system implemented a tier service on March 1, 1993, along with a rate
increase of $1.25. Basic rates were previously increased by $2.00 on January 1,
1992. Rates were adjusted in September, 1993, in response to FCC rules, but
there was no overall increase. Another increase of $1.50 on the tier has been
planned and announced for February 1, 1995. The current and new rates are:
Current Feb '95
------- -------
Basic 9.13 9.13
Tier 14.07 15.57
----- -----
Total $23.20 $24.70
Premium channels 9.50 9.50
PPV Movies 3.95 3.95
Add'l Outlets 0 0
Converters n/a 4.00
Install-new 30.00 30.00
Reconnect 20.00 20.00
The system offers an 17-channel basic service which includes 7 offair, 6
satellite, and 4 local origination/bulletin board channels. The tier service
includes 26 satellite channels. There are 5 premium channels, and 5 PPV
channels. In total, there are 53 active channels. The lineups are very
complete, and no material improvements could be made.
HBO, Cinemax, and Showtime are offered at rates of $9.50 for the first, $7.50
for the second, and $7.00 for the third. Disney is offered at $7.95.
Historically, the company has only sold converters, but plans to begin charging
$4/month for addressable units starting in February. This should increase
revenue by about $6,000/month for 1995.
Franchise fees have not been passed on in the past. While this has been
discussed, and could be done, it has not been included in the budget, so we have
not used it in our analysis. This would make a good "next increase" after the
market absorbs the February raise.
Augusta, Georgia, 12/31/94, Page C-5
OTHER SOURCES OF INCOME
-----------------------
Advertising
- -----------
The company has a well-organized ad sales department. An extensive local
origination studio (with multiple editing and production facilities) offers ad
and program production. Ads are inserted on 7 satellite channels, and on local
programming (which averages 8-10 hours of original shows per week.) Advertising
sales has enjoyed strong growth:
Year Gross Growth
---- ----- -------
1991 770,000
1992 1,246,000 n/a
1993 1,409,000 13%
1994 1,575,000 12%
The company is planning to install fiber links to other Jones headends in the
next year or two. This will greatly expand the ad market. While much of the
actual revenue increase will be allocated to these other companies, the overall
rate per thousand homes should go up as the "reach" expands, and this will help
Augusta advertising to continue to grow at 12%/year.
Pay-Per-View
- ------------
The system launched pay-per-view in November, 1991. The company presently
offers five channels, including movies and special events, but wrestling remains
the key profit center. After a slow start, the system realized 1992 revenues of
$2.05 per total subscriber. For 1994, the revenue per subscriber increased to
$3.23. This represents a growth rate of about 25%/year. Even with this growth
rate, Augusta remains well below the $10 range that many other systems enjoy.
We expect growth in per-subscriber revenues of 25%/year for quite some time.
Fiber Optic Network Leases
- --------------------------
The company has a 280-mile fiber optic backbone and institutional network, which
will be expanded greatly in coming years. Fiber is leased to local governments
and businesses for data transmission. The company had revenues from this
source of $14,000 in 1992, and $27,000 in 1994. The budget for 1995, based on
deals in progress, is $48,000. We expect this to continue to grow rapidly.
Augusta, Georgia, 12/31/94, Page C-6
Other/Late Fees
- ---------------
The system increased late fees from $1.50 to $5.00 during 1992, and saw a
substantial increase in fees collected. This area has continued to grow. Other
items include FCC fee passthrough (new in 1995), home shopping, etc. Converter
sales are included here, but have been only a small revenue source ($15,000).
Sales of "basic" converters should not be impacted by the new charge for rental
of addressable converters.
SUBSCRIBER PENETRATION
----------------------
There are six offair signals available in the market. The CBS and ABC stations
are VHF. The NBC affiliate, both PBS stations, and the Fox independent, are all
UHF. Because of the hilly terrain, summer weather, and dense tree cover,
reception can be fair or poor in some areas on some stations.
The system is presently providing cable to about 68% of the market, and this has
been fairly stable since 1992. Pay penetration is at 73%, and has declined from
about 84% in 1992.
For comparison purposes, we list below the reported basic and pay penetrations
and rates in some nearby markets:
H/P Basic % Pay %
Columbia, SC 81,000 96 40
Athens, Ga 32,000 62 65
Anderson, SC 20,000 63 35
All three communities are similarly situated between Atlanta and Raleigh-Durham,
and have generally similar offair and demographics.
By comparision, Augusta is on target with basic penetration, and above average
for pay penetration. We nonetheless believe the flat penetration level leaves
room for some growth, and have projected basic penetration gains of
approximately 0.5% in our forecast.
OTHER MATTERS
-------------
There is no litigation. There are no labor unions or employee problems. There
are no significant easement or access problems.
Augusta, Georgia, 12/31/94, Page C-7
TECHNICAL DESCRIPTION
---------------------
The system is a technological showpiece. It was originally started in 1972, and
expanded slowly under the Fuqua company's ownership from 1972 until its sale to
Jones in 1985. Fuqua was a solid operator, and the plant was well-built and
well-run. Nonetheless, Jones undertook a major rebuild in 1989-91. All cable
and electronics installed prior to 1986 were replaced. A 150-mile fiber
backbone was installed to replace and expand the previous microwave hub system.
The fiber net has been expanded by 25 miles, and plant upgrade work has
continued at a low level. New build, of course, has been done as new homes
have been built.
As of December 31, 1994, the plant mileage can be summarized as:
New aerial, 550 mhz 1,088
New underground, 550 mhz 213
Old underground, 400 mhz 300
-----
Total 1,601
Fiber in place 175
The company has prepared a plan to complete the upgrade to 550 mhz, with an
estimated cost of $1.9 million. Most of the work involves only electronics and
respacing, with little actual cable replacement.
All maps and technical records have been placed on a computer data base.
Technicians are unusually well-equipped and trained. Some of the highlights are
discussed below.
Layout: one headend serving eight fiber hubsites (FM to distant fiber splits,
then AM to local hubs) then conventional coaxial trunk/feeder to homes.
Maximum cascade: 15 trunk stations, 2 line extenders.
Headend: S-A equipment, 8 dishes, including 10-meter. Standby power
Cable: Times and Comm/Scope 875, 750, 625, 500. No fused disk or selfsupport
Electronics: S-A amps and line extenders, most standby power
Passives: Magnavox
Converters: Panasonic remote 60 channel standard, Zenith addressable
Security: Negative and positive traps, addressability on PPV
Other: Extensive satellite FM service. Institutional net
Augusta, Georgia, 12/31/94, Page C-8
OPERATIONS
----------
The system operates principally from a company owned office and headend in
central Augusta. The office is quite nice, and well-staffed. A second company-
owned warehouse/office location is used for inventory and field staff activity.
Field employees are well-equipped with bucket trucks, meters, a sweep system,
and spectrum analyzer. There is no heavy construction gear.
System pictures are good, and subscribers are apparently happy, since the annual
service call load is only about 27% of customers. Typical work backlogs are 1-3
days for installation work, and less than a day for service calls. The system
operates quite well.
The system operates a 24-hour service policy. There is a weekend daytime crew,
and two regular shifts (7AM - 11PM) during the week. Dispatchers work the
remaining hours, and call out technicians as needed. As a result, the total
staff is fairly high:
Administrative 28
Construction 7
Technical and dispatch 60
---
Operating Subtotal 95
Advertising sales 18
Cable sales 11
---
Sales Subtotal 29
Grand total 124
The operating staff ratio is approximately 1:705. This is very favorable,
considering the extended-hour service coverage. Industry averages for single-
shift operation are in the same range.
Average direct wages are $25,700. While this is fairly high, it does reflect a
high-quality staff, and shift differentials. The staff has been with the
company for a very long time on average.
The system maintains a public relations advertising effort, and does regular
direct mail and door-to-door sales. A tap audit has not been done since 1991,
but is planned for 1995.
Augusta, Georgia, 12/31/94, Page C-9
COMPETITION
-----------
There is no overbuild. There are no contiguous operators, although there are a
few smaller systems about 20 miles away. No overbuild is expected. There is no
existing or planned MMDS operation. To date, DBS has not been an issue.
FRANCHISES, RATE REGULATION
---------------------------
The system has franchises from Augusta, plus two other cities and two counties.
The main Augusta franchise expires in 2001, and the others in 1998 through 2010.
Work has been started on the 1998 renewal, and no problems are expected.
Relations are very good. Fees are generally 3% of basic. There are no
burdensome franchise provisions.
The company is presently unregulated. Augusta did file for FCC certification to
regulate, but has not subsequently adopted regulation procedures or made
information requests of the company.
There have not been any subscriber complaints to the FCC regarding tier rates,
so no FCC regulation is pending.
However, the potential for regulation remains, so any buyer (or appraiser) must
be concerned with the possible impact of regulation.
The system manager stated that the Form 1200 calculations indicate that the
current total rate of $23.20 is about 16c higher than would be allowable under
benchmark regulations; the 1995 increase of $1.50 would presumably also be in
trouble. However, the total decrease could be offset by franchise fee
passthrough, so the net reduction might amount to only about $1.00 AO charges
were eliminated previously, so there is no problem in this area. If the system
were to be regulated on a benchmark basis, forecasted annual revenues for 1995
might decline by about $800,000, or 3%.
However, the system could seek higher rates under cost-of-service regulation.
Management feels that the likely outcome of any such application would be in the
range of $32 - $37, depending on how numerous issues are interpreted.
Because of the good local political situation, and favorable trends at the
national level, rate regulation is far from certain. If it were to happen, a 3%
revenue reduction would not be catastrophic. Thus, the situation in Augusta is
reasonably comparable to that faced by most other cable systems. We believe the
current market price multiples fully reflect such situations, and see no reason
to make further adjustment to either cashflow or multiples for Augusta.
Augusta, Georgia, 12/31/94, Page C-10
PROJECTIONS OF OPERATING INCOME
-------------------------------
The most direct and common method of appraising cable television systems
involves calculation of historic and future operating income (commonly called
"cashflow"). These projections reflect direct operating revenues and expenses,
before capital expenditures, depreciation, and management fees. Projected
operating income typically reflects any recent developments, current subscriber
levels, and changes in income that which will be immediately realized by the
buyer.
Projection for 1995
- -------------------
A projection worksheet is attached. In the first four columns, we show the
actual operating income for 1991 - 1994. The column indicated as the "Projected
1995" generally reflects projected subscriber growth and the planned rate
increase. Items such as programming costs which are based on subscribers or
revenue have adjusted to match the subscriber and revenue projections shown,
using prior-year unit costs plus an allowance for increases. Overhead items,
such as maintenance and property tax have been based on longer-term trends.
Comments on key calculation assumptions are below.
Basic Revenues: In making projections, we allowed for continued growth in
passings and basic penetration as discussed earlier. Average basic
revenue/subscriber should go up by $1.45 to reflect the tier rate increase of
$1.50 (not all customers take the tier), and by $0.09 to reflect the new charge
of $4.00 on 1,443 addressable converters. The average for 1994 is a very solid
base, because no changes or adjustments were made during 1994.
Pay Revenues: We did not assume any penetration increase, but did allow for a
continuation of the trend of slow increases in revenue/unit, as the product mix
changes.
Other Revenue Items: Changes were based on historic trends, and on the
discussions noted previously in this report.
Salaries: System growth is 2% - 3%, depending on the measure used. Per-
employee wages are at the high end of the scale, and staffing ratios are fairly
normal. Wage costs were fairly stable from 1993 to 1994. Thus, we do not
expect any major change in staff size or wages. Increase current office total
payroll at 3%. Increase field payroll by 2%.
Labor capitalized: The present capitalization rate is fairly high compared to
the system's activity and construction level. We have
Augusta, Georgia, 12/31/94, Page C-11
calculated a revised amount using the construction wages plus a 75% overhead
allowance, and $205,000 for expected new drops in 1995.
Taxes/Benefits: Use the 29% average of the past several years
Vehicle expenses: Presently at about $270/truck/month, which is a normal level.
Increase by 2%, reflecting recent trends.
Basic Programming: This has been increasing by 12% - 14% for several years,
reflecting program additions and rate increases, and was at $3.67 for 1994.
Because of industry trends, and local capacity limits, we do not expect any
further additions. Rate increases are also slowing somewhat. We have forecast
only a 6% increase in per-sub costs.
Billing Costs: The costs have been fairly stable, and are high. Make no
changes.
Franchise/Bad Debt/Copyright: Use average percentages for the past few years,
all of which are reasonable: franchise fee, 1.6% of gross; copyright, 0,4% of
basic, and bad debt 1.8% of gross. Bad debt is higher than industry norms, but
it has been at this level for several years, so probably little can be done.
Pay TV: Use the current cost of 51% for residential, 62% for commercial, and
45% for PPV.
Power: costs have increased sharply since the system was expanded to fiber optic
and 450-550 mhz operation. The cost per mile at present is $332/mile. This
level has been declining, and we forecasted a very small drop.
Insurance: Present costs are a reasonable $2.95/sub. There is no clear trend;
use a 4-year average.
Pole Rent: This works out to a fairly high per-mile cost, even with a stated
rate of $6/pole; we think it should not be as high as it is and used a 4-year
average.
Other System Costs: Assume the 1994 jump is temporary, and use a 4-year average.
Office Costs: Levels are stable
Marketing Costs: In aggregate, these have been stable at about 2.6% of gross
revenues. This is at industry norm, and we will use it.
Ad Sales Costs: These have been fairly stable at about 53% of sales, and we
will use this level.
Augusta, Georgia, 12/31/94, Page C-12
Comparison of Summary Data for 1994/95
- --------------------------------------
Shown below is a summary of actual data for 1994, our 1995 forecast, and the
system's 1995 budget (in millions)
1994 Actual Our 1995 95 Budget
----------- -------- ---------
Revenues 27.0 29.3 29.5
Expenses 13.8 14.4 14.9
Operating Income 13.2 14.9 14.6
Our estimate was done independently of the budget, but the results are close,
and give us confidence in our estimates. The biggest portion of the $1.6
million increase in operating income results directly from the rate increase,
which yields $1.2 million revenue.
Ten-Year Cashflow Projections
- -----------------------------
An additional appraisal technique involves projection of free cashflow for an
appropriate number of future years; this projected free cashflow is then
discounted at the cost-of-capital rate as part of appraised value determination.
Our projection for this system is shown on the two-page spreadsheet enclosed.
We started with the data contained in the first-year projection spreadsheet, and
developed the simplified model shown which uses a few key summary variables.
The summary expense variables, and the items they include, are:
Personnel: Salaries, Tax/benefit, T&E, Travel, Vehicle
Per-Sub: Basic programming, LO,billing, Office, Professional
Revenue-related: Franchise fee, copyright, bad debt,
marketing, and advertising sales
Premium Programming: Pay and pay-per-view
Per-Mile: Equipment, power, Insurance, pole rent, property
tax, system operation
System Data: Longterm passing growth is assumed to be 2%/year, which is
slightly above recent averages. We think the economic slow-down will not be
permanent for such a well-positioned community.
We used EBU's for our longterm projections, rather than subscriber and
commercial numbers. The two are related, but the numbers are different. Total
EBU "penetration" gains are estimated to be a conservative 0.5% per year. New
drops are calculated at 105% of new subscribers, to allow for churn but
reflecting the high total penetration. New plant miles are calculated using a
likely "new plant" density of 100/mile.
Rebuild: This system is in good condition. As a result of the total rebuild in
1989-91, the average age of about 80% of the plant is about 5 years. This part
of the system should be able to operate
Augusta, Georgia, 12/31/94, Page C-13
at its present level for the next 10 years without rebuild. We did allow for the
manager's projection of $1.9 million to upgrade the remaining 20% to 550 mhz. If
the system capacity or services (such as fiber optic) were to be expanded
further, a plant upgrade program would be needed, but would also generate
additional revenues. Since we cannot accurately forecast the nature of these
upgrades, we have chosen to not include upgrade capital or revenue in our
projection.
Annual Assumptions: We first calculated initial unit revenues and expenses from
the projected first-year average subscriber count and total revenues and
expenses in each category. Basic regulated per-subscriber revenue was increased
at 2.0% per year, which is our expectation of the future in a more competitive
era. Other per-subscriber revenue was increased in varying amounts as shown;
the increases are conservative and supportable by recent data from this system,
and national trends.
Revenues, Expenses, Capital Expenditures: With three exceptions, these were
calculated from the per-subscriber and unit factors, and system data.
Installation revenue was projected to increase from its present level at 3% per
year, reflecting a trend toward increased transaction costs, and continued
system growth. Personnel costs were increased at 5% per year, to reflect
inflation plus some portion of system growth. Capital expenditures were
calculated from the growth and rebuild data discussed above.
The resultant annual free cashflow is shown in the spreadsheet.
DETERMINATION OF APPRAISED VALUE
--------------------------------
Methodology
- -----------
Appraisal of income-producing property typically relies on one or more of three
main approaches, which we discuss below.
Replacement cost, which is the cost to assemble and put the property into
operation, is not typically used in the cable television industry for
determining market value of a company. While tangible assets can easily be
appraised, cable television system sales include a very substantial intangible
value for franchise, goodwill, and customer lists. These intangibles can be
also valued separately, but more direct approaches to overall value are easier
to use, and more appropriate.
Market value as determined by comparable transactions is a very common approach.
Transaction value is typically reported on the basis of either per-subscriber
cost or operating income multiple. We consider both, but place more reliance on
the income multiple.
Augusta, Georgia, 12/31/94, Page C-14
The Income Approach is widely used in business valuation, and we also use this
approach in our work. Our method involves determination of the discounted
present value of free cashflow generated over ten years, plus an allowance for
the terminal value after ten years. The enclosed worksheet shows our analysis.
Market Value
- ------------
The prices of cable system transactions are frequently evaluated to determine
the ratio of operating income (income before depreciation, interest, and
management fees) to purchase price; sales results are frequently reported in the
trade press. We consider principally a multiple of first year projected
cashflow, which reflects the relatively-certain changes made possible or
otherwise incurred by new management. To select appropriate comparable sales and
multiples, we compared this system to the overall market with respect to some
key factors. The analysis is subjective, and based on our personal knowledge,
but nonetheless helps to ensure that similar transactions are considered.
Future growth: Augusta will have average (or a bit less) internal growth, but
there are some possible acquisitions which would help.
Demographics: As discussed above, demographics are reasonably favorable for
cable, but not above-average.
Competitive situation: The system has relatively little direct competition, as
discussed above.
System marketability: The system is of a very attractive size, and is in an
area with a number of qualified buyers.
Rates: The system has average prospects for rate changes.
System Capacity/Quality: The system is above average in capacity and quality.
We then reviewed available information on recent transactions and have listed a
few below. Because of the rapid changes in the market, only the more recent
transactions can be considered, and there are few of these. We have, therefore,
included reported market averages on our list:
Augusta, Georgia, 12/31/94, Page C-15
Comparable Transaction Data
---------------------------
System Date Subs $/Sub CF Mult
- ------ ---- ---- ----- -------
Single larger systems
Newport News, VA 11/94 48,000 2,542 9.0
Anaheim, CA 11/94 135,000 2,119 10.5
Ansonia, CT 6/94 32,000 2,667 11.7
Groupings of small systems
MSO in GA, FL, MS 8/94 30,000 1,217 8.3
NJ MSO 10/94 74,000 1,351 8.0
Pennsylvania MSO 11/94 69,000 1,767 8.1
Major MSO transactions
US West - Wometco 1994 466,000 2,575 11.1
Cox/Times-Mirror 1994 3,000,000 1,916 12.1
Comcast/McLean 1994 550,000 2,309 10.6
Continental/Colony 1994 750,000 1,870 11.3
The foregoing data has been taken from announcements in the trade press,
information from brokers, and recent issues of the Cable TV Investor Newsletter,
----------------------------
published by Paul Kagan Associates.
These reports of transactions, and general industry commentary, suggest that the
"market" in 1994 for larger individual systems is generally 9 to 11, depending
on growth, rate control, etc. Collections of larger systems, which have less net
downside, are trading in the 10-11 range. Smaller systems (or collections of
small systems) trade for 7-8 x, with a few exceptions for unusual circumstances.
After considering all factors, Augusta should command an average multiple. A
multiple of 10.0 is appropriate to use in valuing the system by this method.
We calculate the potential value for Augusta using this method as:
Operating income $ 14,910,000
Multiple 10.0
System value $149,100,000
Current EBU's 68,265
Value per EBU $ 2,184
The resultant value per EBU is within the range of reported comparable
transaction prices of $1,900 to $2,600.
Augusta, Georgia, 12/31/94, Page C-16
Income Approach
- ---------------
Ten-year free cashflow was determined, as discussed previously. The annual free
cashflow was discounted using an average cost of capital calculated as follows:
Senior debt, 55% @ 9.25% 5.09
Subordinated debt, 15% @ 12% 1.80
Equity, 30% @ 23% 6.90
-----
Blended cost of capital 13.79
The FCC cost-of-service rules will permit a rate of 11.25%, plus further upward
tax adjustments. While direct comparison is difficult, this does give our
calculation substantial support.
We then added a discounted terminal value. The terminal value was calculated at
5.5 x year 10 cashflow. The industry will increasingly feel the effects of
maturity, regulation and increased competition, Sale multiples may gradually
decline as the opportunities for growth into new areas are realized or
abandoned. Non-cable businesses currently trade in the 3-4 x cashflow range.
Regulated telephone companies presently trade at around 5-7 x cashflow.
Selection of 5.5x should reflect the industry's gradual maturity and
transformation to a regulated and competitive industry.
Using this approach as shown on the worksheet, we estimated a potential value of
$140,808,000.
Appraised Value
- ---------------
We place somewhat more reliance on the current multiple calculation because it
involves somewhat fewer assumptions; we have selected an appraised value closer
to it than to the DCF analysis. The appraised value of the Augusta, Georgia
cable television system at December 31, 1994 is $147,000,000. Assuming neither
party had any prior obligation to complete the transaction, a willing buyer
would have paid this amount to a willing seller in a cash-for-assets transaction
closed on December 31, 1994.
Augusta, Georgia, 12/31/94, Page C-17
IMPACT OF FEDERAL CABLE REGULATIONS
-----------------------------------
On October 3, 1992, the Congress adopted legislation affecting the cable
television industry generally. Detailed implementing regulations have been
issued by the FCC on a sporadic basis since that date. Further rules, and
modifications, are quite likely. There is also an ongoing legal challenge to
the rules. The Congress has indicated that, at most, it may overhaul the entire
telecommunications regulatory system. At a minimum, clarification of the 1992
act has been discussed. In short, there is uncertainty.
The appraisal value is based on regulations, system operations, and on the state
of the cable television system sale market, as they exist on the appraisal date
of December 31, 1994. The appraised value does not necessarily take into
account any future events and circumstances.
QUALIFICATIONS OF THE APPRAISER
-------------------------------
The appraisal was prepared by R. Michael Kruger, owner and president of Western
Cablesystems, Inc. Since 1979, he has appraised hundreds of systems for a
variety of clients including major MSO's, independent operators, and clients
outside the CATV industry. Kruger has extensive background as a CATV executive.
From 1974 to 1979, he held various operating positions at ATC, one of the
industry's largest operators. In 1979, he joined a small MSO, and until mid-
1986 was president of the 30,000 - subscriber company. There, in addition to
his operating duties, Kruger prepared CATV system appraisals.
Kruger formed Western Cablesystems, Inc. in 1986, and is its sole owner and
principal. Western has been directly involved in all aspects of system
operations and finance, including several acquisitions and sales, partnership
formation, debt placement, franchising, and system construction and startup.
Western presently operates four small cable systems, and is active in the
acquisition marketplace. In addition to continuing appraisal work, Kruger has
performed consulting engagements for a wide range of topics and clients,
including the economic feasibility of international cable and restructuring of
individual systems to achieve financial improvements.
Kruger received a BS/MS in engineering from the Massachusetts Institute of
Technology in 1967/68. In 1974, he received a Masters in Business
Administration (MBA) from the Stanford University Graduate School of Business.
Augusta, Georgia, 12/31/94, Page C-18
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AUGUSTA, GA OPERATING INCOME WORKSHEET Projected
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1991 Actual 1992 Actual 1993 Actual 1994 Actual 1995
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INDIVIDUAL SUBSCRIBER BASE
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Ending Passings 94,362 97,829 100,165 102,040 103,570
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Ending Basic Subs 60,450 63,063 64,605 66,601 68,253
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Ending Pay Units 50,775 52,985 50,888 52,990 54,261
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Ending Basic Pen. 64.06% 64.46% 64.50% 65.27% 65.90%
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Ending Pay Pen. 84.00% 84.02% 78.77% 79.56% 79.50%
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Average Basic Subs 60,324 61,757 63,834 65,603 67,427
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Average Pay Units 51,926 51,880 51,937 51,939 53,625
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REVENUE/SUBSCRIBER
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Avg. Basic $/Sub $20.81 $22.71 $23.69 $22.60 $24.14
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Avg. Pay $/Unit $8.47 $8.09 $8.12 $8.18 $8.25
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Avg. PPV $/Basic $0.19 $2.05 $2.71 $3.28 $4.10
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Avg. Adv. $/Basic $12.77 $20.18 $22.12 $24.01 $26.16
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OPERATING REVENUES
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Basic, Tier,Ao, Con 15,063,281 18,829,942 18,148,977 17,792,170 19,532,200
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Commercial Basic 382,026 577,042 517,522 493,345 502,000
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Premium Service 5,276,159 5,034,474 5,058,245 5,099,968 5,308,917
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Comm'l Premium 162,491 139,146 121,993 126,730 130,000
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Pay Per View 11,190 126,478 173,135 214,990 276,450
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Installation 460,053 555,235 537,881 642,697 770,000
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Late/Other/Shop 273,450 732,893 817,042 823,095 848,000
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Lease Fiber 0 14,132 24,300 27,450 48,000
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Advertising Sales 770,611 1,246,337 1,411,875 1,574,964 1,764,000
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Hardware Sales 35,590 113,170 164,236 160,598 160,000
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Total Revenue 22,434,851 25,368,849 26,975,206 26,956,005 29,339,566
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OPERATING EXPENSES
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Salary-Admin 598,587 616,199 675,700 670,011 670,000
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Salary-LO 42,899 37,799 33,357 45,896 45,000
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Salary-Field 1,635,565 1,661,535 1,698,583 1,733,338 1,768,000
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Tax/Benefit 609,654 753,851 637,884 707,582 720,000
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T&E 30,818 38,160 29,970 50,143 37,000
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Vehicle 194,178 190,874 181,608 193,379 197,000
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Labor/OH Capitalize -675,951 -820,946 -799,772 -784,453 -539,000
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Basic Programming 2,065,669 2,388,174 2,808,318 3,222,911 3,503,497
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Local Orig. Expense 27,885 23,853 24,646 29,349 30,000
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Computer Billing 628,347 661,514 698,933 701,720 700,000
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Franchise Fees 305,663 389,472 461,440 480,396 469,433
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Copyright 127,471 143,145 93,124 66,856 78,129
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Bad Debt/Coll 431,708 353,080 556,890 485,741 528,112
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Premium Service 2,487,391 2,425,226 2,559,492 2,589,511 2,707,547
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Pay-Per-View Cost 3,206 64,020 84,162 90,606 124,402
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Premium-Com'l 99,719 93,259 66,781 79,538 80,600
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Cost of Eqpt Sold 7,775 96,321 94,440 242,593 144,000
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Power 580,977 589,973 546,111 532,796 525,000
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Insurance 160,528 139,732 231,238 195,276 182,000
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Pole Rent 153,096 194,304 197,085 219,539 197,000
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Property Tax 203,813 193,826 193,550 196,399 200,000
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System Operation 166,877 136,731 150,588 214,508 167,000
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Professional Service 5,137 6,822 3,136 3,595 3,000
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Office Costs 140,297 191,831 198,490 193,768 194,000
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Marketing 534,588 684,400 717,470 736,172 762,829
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Advert. Sales cost 402,112 594,124 752,209 900,032 934,920
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Total Expense 10,968,009 11,847,279 12,895,433 13,797,202 14,429,470
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Op. Income 11,466,842 13,521,570 14,079,773 13,158,803 14,910,096
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Margin 51.11% 53.30% 52.20% 48.82% 50.82%
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C-19
DISCOUNTED CASHFLOW MODEL DECEMBER 31, 1994
FOR APPRAISAL OF AUGUSTA, GA
Change
Assumptions 1994 Actual Year 1 Year 2 Year 3 Year 4 Year 5
SYSTEM DATA
Ending Passings 2.00% 102,040 103,570 105,641 107,754 109,909 112,107
Ending Basic EBU's 68,404 69,946 71,873 73,849 75,876 77,954
Ending Pay Units 52,990 54,261 55,756 57,289 58,861 60,473
Basic EBU Penetration 0.50% 67.04% 67.54% 68.04% 68.54% 69.04% 69.54%
Pay Penetration 0.00% 77.47% 77.58% 77.58% 77.58% 77.58% 77.58%
Average Basic EBU's 69,175 70,910 72,861 74,863 76,915
Average Pay Units 53,626 55,008 56,523 58,075 59,667
Ending Plant Miles 1,600 1,624 1,655 1,688 1,721 1,755
New Drops 1.05 1,619 2,023 2,075 2,128 2,182
New Miles 65 24 32 33 33 34
Rebuilt Miles 150 150
ANNUAL ASSUMPTIONS
Basic Rev/Sub 3.00% 290 298 307 316 326
Pay Rev/Unit 2.00% 101 103 106 108 110
PPV Rev/Sub 15.00% 4 5 5 6 7
Shop/Other Rev/Sub 8.00% 15 16 18 19 21
Advertising Rev/Sub 8.00% 26 28 30 32 35
Per-Sub Expense 4.00% 64 67 69 72 75
% of Rev. Expense 9.94% 9.94% 9.94% 9.94% 9.94%
Pay/PPV % Expense 50.95% 50.00% 50.00% 50.00% 50.00%
Per-Mile Expense 4.00% 783 814 847 881 916
Capex per new drop 3.00% 60 62 64 66 68
Capex per new mile 3.00% 15,000 15,450 15,914 16,391 16,883
Capex per rib mile 3.00% 6,333 6,523 6,719 6,920 7,128
REVENUES
Basic 20,034,000 21,152,443 22,386,672 23,691,646 25,071,366
Pay 5,439,000 5,690,856 5,964,438 6,250,837 6,550,643
Pay-Per-View 276,000 325,359 384,461 454,275 636,737
Installation 3.00% 770,000 793,100 816,893 841,400 866,642
Late/Other/Stop 1,056,000 1,169,078 1,297,355 1,439,631 1,597,425
Advertising 1,764,000 1,952,891 2,187,173 2,404,838 2,668,425
French, Fee Billed 0 0 0 0 0
Total Revenue 29,339,000 31,083,726 33,016,991 35,082,626 37,291,238
EXPENSES
Personnel 5.00% 2,898,000 3,042,900 3,195,045 3,354,797 3,522,537
Per-Sub Costs 4,430,000 4,722,726 5,046,820 5,392,866 5,762,335
Per-Mile Costs 1,271,000 1,347,766 1,429,221 1,515,586 1,607,181
% of Revenue Costs 2,917,000 3,090,468 3,282,681 3,486,054 3,707,643
Pay & PPV Costs 2,912,000 3,008,107 3,174,450 3,352,556 3,543,690
Total Expenses 14,428,000 15,211,986 16,128,216 17,103,660 18,143,367
Operating Income 14,911,000 15,871,740 16,888,776 17,978,767 19,147,851
Operating Ratio 50.82% 51.06% 51.15% 51.25% 51.35%
CAPITAL EXPENDITURES
Drops 97,146 125,051 132,085 139,510 147,349
New Plant 353,077 492,356 517,269 543,443 570,941
Rebuild 1,000,000 900,000 0 0 0
Other 3.00% 40,000 41,200 42,436 43,709 45,020
Total Capex 1,490,223 1,558,607 691,790 726,662 763,310
Year 6 Year 7 Year 8 Year 9 Year 10
SYSTEM DATA
Ending Passings 114,350 116,637 118,969 121,349 123,776
Ending Basic EBU's 60,085 82,270 84,510 86,607 69,162
Ending Pay Units 62,126 63,821 65,559 67,341 69,168
Basic EBU Penetration 70.04% 70.54% 71.04% 71.54% 72.04%
Pay Penetration 77.58% 77.58% 77.58% 77.58% 77.58%
Average Basic EBU's 79,019 81,177 83,390 85,658 87,984
Average Pay Units 61,300 62,974 64,690 66,450 68,254
Ending Plant Miles 1,789 1,625 1,860 1,697 1,934
New Drops 2,237 2,294 2,352 2,412 2,473
New Miles 34 35 36 37 37
Rebuilt Miles
ANNUAL ASSUMPTIONS
Basic Rev/Sub 336 346 356 367 378
Pay Rev/Unit 112 114 117 119 121
PPV Rev/Sub 8 9 11 12 14
Shop/Other Rev/Sub 22 24 26 28 31
Advertising Rev/Sub 37 40 44 47 51
Per-Sub Expense 78 81 84 88 91
% of Rev. Expense 9.94% 9.94% 9.94% 9.94% 9.94%
Pay/PPV % Expense 50.00% 50.00% 50.00% 50.00% 50.00%
Per-Mile Expense 952 991 1,030 1,071 1,114
Capex per new drop 70 72 74 76 78
Capex per new mile 17,389 17,911 18,446 19,002 19,572
Capex per rib mile 7,342 7,562 7,789 8,022 8,263
REVENUES
Basic 26,530,055 26,072,171 29,702,423 31,425,782 33,247,495
Pay 6,864,470 7,192,963 7,536,794 7,896,666 9,273,315
Pay-Per-View 694,136 749,171 885,029 1,045,472 1,234,940
Installation 692,641 919,420 947,003 975,413 1,004,675
Late/Other/Stop 1,772,422 1,966,489 2,181,694 2,420,330 2,664,936
Advertising 2,960,750 3,284,930 3,644,421 4,043,051 4,485,064
French, Fee Billed 0 0 0 0 0
Total Revenue 39,654,474 42,185,144 44,897,364 47,806,714 60,930,425
EXPENSES
Personnel 3,698,664 3,883,597 4,077,777 4,281,666 4,495,749
Per-Sub Costs 6,156,796 6,577,922 7,027,498 7,507,426 8,019,735
Per-Mile Costs 1,704,324 1,807,349 1,916,615 2,032,499 2,155,403
% of Revenue Costs 3,942,605 4,194,215 4,463,874 4,753,134 5,063,705
Pay & PPV Costs 3,749,303 3,971,067 4,210,911 4,471,069 4,754,128
Total Expenses 19,251,692 20,434,150 21,696,676 23,045,793 24,488,720
Operating Income 20,402,782 21,750,994 23,200,688 24,760,921 26,441,706
Operating Ratio 51.45% 51.56% 51.67% 51.79% 51.92%
CAPITAL EXPENDITURES
Drops 155,623 164,358 173,578 163,311 193,584
New Plant 599,831 630,182 662,069 695,570 730,766
Rebuild 0 0 0 0 0
Other 46,371 47,762 49,195 50,671 52,191
Total Capex 801,825 642,302 884,843 929,552 976,541
C-20
DISCOUNTED CASHFLOW MODEL
FOR APPRAISAL OF AUGUSTA, GA
DECEMBER 31, 1994
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9
FREE CASHFLOW
Operating income 14,911,000 15,871,740 16,868,776 17,978,767 19,147,851 20,402,782 21,750,994 23,200,686 24,760,921
Less Capex 1,490,223 1,558,607 691,790 726,662 763,310 601,825 842,302 684,843 929,552
Free Cashflow 13,420,777 14,313,133 16,196,966 17,252,105 18,384,541 19,600,956 20,906,691 22,315,845 23,831,369
Year 10
FREE CASHFLOW
Operating income 26,441,706
Less Capex 976,541
Free Cashflow 25,465,165
Discount rate 13.35%
Net Present Value of Free Cashflow 95,494,775
POTENTIAL MARKET VALUE
NPV of Free Cashflow 95,494,775
NPV of Terminal Value 45,313,277
Potential Market Value 140,808,053
TERMINAL VALUE
Year 10 Op. Income 26,441,706
Multiple 6.00
Terminal Value 158,650,235
Proportion Rate
Equity 30.00% 22.00%
Senior Debt 55.00% 9.00%
Sub. Debt 15.00% 12.00%
Blended 13.35%
RATIOS
Potential Market Value 140,808,053
Current EBU's 68,404
First Year Op. Income 14,911,000
Value Per EBU 2,058
Op Income Multiple 9.44
C-21
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-B, Ltd.'s
Augusta, Georgia cable television system pursuant to the terms and conditions
of that certain Purchase and Sale Agreement dated as of February 22, 1995, as
follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(continued on other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS.
++++ ++++ When limited partnership inter-
+ + ests are held by joint tenants,
+ + both should sign. When signing as
+ + attorney, as executor, adminis-
trator, trustee or guardian,
please give full title as such.
If a corporation, please sign in
+ + full corporation name by autho-
+ + rized officer. If a partnership,
+ + please sign in partnership name
++++ ++++ by authorized person.
DATED: _____________________, 1995
__________________________________
Signature
__________________________________
Signature if held jointly
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 12-B, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Fund 12-B, Ltd.'s
Augusta, Georgia cable television system pursuant to the terms and conditions
of that certain Purchase and Sale Agreement dated as of February 22, 1995, as
follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(continued on other side)
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS.
++++ ++++
+ + DATED: _____________________, 1995
__________________________________
Beneficial Owner Signature
(Investor)
__________________________________
+ + Authorized Trustee/Custodian
++++ ++++ Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.