-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RqvEQBjIrL9RpDwkN6uIagu72MHBI+O3zTbtwVv+vrP7YhadxzJUVdEXJc4Ee/SQ /lpdijHfZ9vHVlnC+nOqcA== 0000927356-97-000056.txt : 19970127 0000927356-97-000056.hdr.sgml : 19970127 ACCESSION NUMBER: 0000927356-97-000056 CONFORMED SUBMISSION TYPE: SC 13E3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19970124 SROS: NASD SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CABLE TV FUND 11-B LTD CENTRAL INDEX KEY: 0000725684 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 840908730 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13E3 SEC ACT: 1934 Act SEC FILE NUMBER: 005-40592 FILM NUMBER: 97510262 BUSINESS ADDRESS: STREET 1: P.O.BOX 3309 STREET 2: 9697 EAST MINERAL AVENUE CITY: ENGLEWOOD STATE: CO ZIP: 80155-3309 BUSINESS PHONE: 3037923111 MAIL ADDRESS: STREET 1: 9697 E MINERAL AVE PO BOX 3309 STREET 2: C/O JONES INTERCABLE INC CITY: ENGLEWOOD STATE: CO ZIP: 80155-3309 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: JONES INTERCABLE INC CENTRAL INDEX KEY: 0000275605 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 840613514 STATE OF INCORPORATION: CO FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13E3 BUSINESS ADDRESS: STREET 1: PO BOX 3309 CITY: ENGLEWOOD STATE: CO ZIP: 80155 BUSINESS PHONE: 3037923111 SC 13E3 1 SCHEDULE 13E3 FOR CABLE TV FUND 11-B, LTD. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 RULE 13e-3 TRANSACTION STATEMENT (Pursuant to Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 thereunder) Cable TV Fund 11-B, Ltd. ------------------------ (Name of the Issuer) Jones Intercable, Inc. (File No. 0-8947) and Cable TV Fund 11-B, Ltd. (File No. 0-11911) ------------------------------------------- (Name of Person(s) Filing Statement) Limited Partnership Interests ----------------------------- (Title of Class of Securities) Elizabeth M. Steele, Esq. Vice President and General Counsel Jones Intercable, Inc. 9697 E. Mineral Avenue Englewood, Colorado 80112 (303) 784-8400 -------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of Person(s) Filing Statement) This statement is filed in connection with (check the appropriate box): a. X The filing of solicitation materials or an information statement _____ subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the Securities Exchange Act of 1934. b. _____ The filing of a registration statement under the Securities Act of 1933. c. _____ A tender offer. d. _____ None of the above. 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. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: X _____ Calculation of Filing Fee TRANSACTION VALUATION* AMOUNT OF FILING FEE - --------------------- -------------------- $1,289,787 $258 X Check box if any part of the fee is offset as provided by Rule 0- _____ 11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. Amount Previously Paid: $258 Form or Registration No.: Schedule 14A Filing Party: Cable TV Fund 11-B, Ltd. Commission File No. 0-11911 Date Filed: Concurrently with this Rule 13e-3 Transaction Statement on Schedule 13E-3 *Pursuant to Rule 0-11(c)(2), the transaction valuation is based upon Cable TV Fund 11-B, Ltd.'s 8 percent interest in the $16,122,333 sales price that is to be paid to Cable TV Joint Fund 11 by Jones Intercable, Inc. in connection with the transaction that is the subject of the proxy solicitation. INTRODUCTION ------------ This Rule 13e-3 Transaction Statement is being filed jointly by Cable TV Fund 11-B, Ltd., a Colorado limited partnership, and by Jones Intercable, Inc., a Colorado corporation that is the general partner of Cable TV Fund 11-B, Ltd., in connection with the sale of assets of Cable TV Joint Fund 11 to Jones Intercable, Inc. upon the terms and subject to the conditions of a Purchase and Sale Agreement by and between Cable TV Joint Fund 11 and Jones Intercable, Inc. The sale may be a transaction subject to Rule 13e-3 because it will result in the sale of the assets of Cable TV Joint Fund 11 to Jones Intercable, Inc. The transaction also involves a vote of the limited partners of Cable TV Fund 11-B, Ltd., which is subject to Regulation 14A of the Securities Exchange Act of 1934, and the information contained in the preliminary proxy statement filed pursuant thereto is incorporated by reference in answer to the items of this Rule 13e-3 Transaction Statement. Attached as an exhibit to this Rule 13e-3 Transaction Statement are the preliminary proxy solicitation materials that have been filed simultaneously herewith. The cross-reference sheet that follows shows the location in the preliminary proxy statement of the information incorporated by reference in response to the items of this Rule 13e-3 Transaction Statement, as permitted by General Instruction F to Schedule 13E-3. -3- CROSS-REFERENCE SHEET --------------------- (Pursuant to General Instruction F to Schedule 13E-3)
Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------ --------------- 1. Issuer and Class of Security Subject to the Transaction. (a)................... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd.; Certain Information About the Partnership and the General Partner. (b)-(c)............... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd. (d)................... Special Factors, Prior Acquisitions and Sales. (e)................... [Not applicable.] (f)................... [Not applicable.] 2. Identity and Background. (a)-(d), (g).......... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd.; Certain Information About the Partnership and the General Partner; Schedule 1. (e)-(f)............... [The answers to these items are in the negative; pursuant to the Instruction following Item 2(f), negative answers to Items 2(e) and 2(f) have not been furnished to limited partners in the proxy statement.]
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Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------ --------------- 3. Past Contracts, Transactions or Negotiations. (a)(1)................ Certain Related Party Transactions. (a)(2)................ [None.] (b)................... [None.] 4. Terms of the Transaction. (a)................... Proposed Sale of Assets. (b)................... [Not applicable.] 5. Plans or Proposals of the Issuer or Affiliate. (a)................... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd.; Certain Information About the Partnership and the General Partner. (b)-(e)............... [Not applicable.] (f)-(g)............... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd.; Certain Information About the Partnership and the General Partner. 6. Source and Amounts of Funds or Other Consideration. (a)................... Proposed Sale of Assets, The Purchase and Sale Agreement; Proposed Sale of Assets, Purchase Price.
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Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------- --------------- (b) Special Factors, The Appraisals; Special Factors, Costs of the Transaction. (c) [Not applicable.] (d) [Not applicable.] 7. Purpose(s), Alternatives, Reasons and Effects. (a)................... Special Factors, The Partnership's Investment Objectives; Special Factors, The General Partner's Objectives; Special Factors, Reasons for the Timing of the Sale. (b)................... Special Factors, Reasons for the Timing of the Sale; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets. (c)................... Special Factors, The Partnership's Investment Objectives; Special Factors, Reasons for the Timing of the Sale; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets.
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Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------- --------------- (d)................... Special Factors, Certain Effects of the Sale; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets; Federal Income Tax Consequences. 8. Fairness of the Transaction. (a)-(b)............... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd.; Special Factors, Public Bidding Process; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets; Special Factors, The Appraisals. (c)................... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd.; Special Factors, Relevant Provisions of the Partnership Agreement; Proposed Sale of Assets, Conditions to Closing. (d)-(e)............... Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets. (f)................... [Not applicable.] 9. Reports, Opinions, Appraisals and Certain Negotiations. (a)................... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd.
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Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------- --------------- (b)................... Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets; Special Factors, The Appraisals. (c)................... Special Factors, The Appraisals; Available Information. 10. Interest in Securities of the Issuer (a)................... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd.; Schedule 1. (b)................... [None.] 11. Contracts, [None.] Arrangements or Understandings with Respect to the Issuer's Securities. 12. Present Intention and Recommendation of Certain Persons with Regard to the Transaction. (a)................... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd. (b)................... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd.; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets.
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Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement -------------------- --------------- 13. Other Provisions of the Transaction. (a)................... Special Factors, Certain Effects of the Sale. (b)................... [Not applicable.] (c)................... [Not applicable.] 14. Financial Information. (a)(1)................ [Pursuant to General Instruction D to Schedule 13E-3, the audited financial statements of Cable TV Fund 11-B, Ltd. for the fiscal years ended December 31, 1995 and 1994 will be incorporated by reference from Cable TV Fund 11-B, Ltd.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1995, which will be filed as an exhibit to this Schedule 13E-3.] (a)(2)................ [Pursuant to General Instruction D to Schedule 13E- 3, the unaudited financial statements of Cable TV Fund 11-B, Ltd. for the most recent fiscal quarter will be incorporated by reference from Cable TV Fund 11-B, Ltd.'s Quarterly Report on Form 10-Q for the fiscal year ended September 30, 1996, which will be filed as an exhibit to this Schedule 13E-3.] (a)(3)................ [Not applicable.] (a)(4)................ Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets. (b)................... Unaudited Pro Forma Financial Information of Cable TV Fund 11-B, Ltd.
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Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------- --------------- 15. Persons and Assets Employed, Retained or Utilized. (a)................... Vote of the Limited Partners of Cable TV Fund 11-B, Ltd. (b)................... [None.] 16. Additional Special Factors, Relevant Provisions of the Information. Partnership Agreement. - ------------------------------------------------------------------------------- 17. Materials Filed as Exhibits: (a)................... [Not applicable.] (b)(1)................ Appraisal of the Manitowoc System by Malarkey-Taylor Associates, Inc. (b)(2)................ Appraisal of the Manitowoc System by Kagan Media Appraisals, Inc. (b)(3)................ Appraisal of the Manitowoc System by Bond & Pecaro, Inc. (c) [Not applicable.] (d)(1)................ Preliminary Proxy Statement to be furnished to the limited partners of Cable TV Fund 11-B, Ltd. (d)(2)................ Cable TV Fund 11-B, Ltd.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1995. (d)(3)................ Cable TV Fund 11-B, Ltd.'s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996. (e)................... [Not applicable.] (f)................... [Not applicable.]
-10- SIGNATURES ---------- After due inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. JONES INTERCABLE, INC., a Colorado corporation Dated: January 24, 1997 By:/s/ Elizabeth M. Steele ----------------------- Elizabeth M. Steele Vice President CABLE TV FUND 11-B, LTD., a Colorado limited partnership By: Jones Intercable, Inc., a Colorado corporation, as general partner Dated: January 24, 1997 By:/s/ Elizabeth M. Steele ----------------------- Elizabeth M. Steele Vice President -11- EX-99.(B)(1) 2 APPRAISAL BY MALARKEY-TAYLOR Exhibit (b)(1) [LOGO OF MTA-EMCI APPEARS HERE] November 11, 1996 Mr. Timothy J. Burke Jones Financial Group 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 Joint Fund 11-ABCD cable television system (the "System") serving Manitowoc, Wisconsin as of August 31, 1996. 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 purchase of the System by Jones. FAIR MARKET VALUE MTA has determined the overall fair market value of the System to be $15,567,000 as of August 31, 1996. 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 Mr. Timothy J. Burke November 11, 1996 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 April 30, 1995 dated July 11, 1995, which included an onsite inspection of a representative portion of the System and communities served. 2. Unaudited financial statements for the 12-month period ending December 31, 1995, and for the 8-month period ending August 31, 1996. 3. Homes passed and subscriber data as of August 31, 1996, provided by Jones. 4. Miscellaneous management data as to the current subscriber rates, construction schedules, etc., as of the appraisal date. MTA has not revisited the System since the 1995 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. Mr. Timothy J. Burke November 11, 1996 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 $15,567,000. Sincerely, /s/ Andrew R. Gefen Andrew R. Gefen Vice President, Financial Services ARG/ban Enclosure
CABLE TV JOINT FUND 11-ABCD EXHIBIT A MANITOWOC, WISCONSIN --------- AS OF AUGUST 31, 1996 VALUATION METHODS - ----------------- LOW HIGH ----------- ----------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME OPERATING INCOME, PER BOOKS (8/31/96, LESS CROWN ALLOCATION) $1,593,681 $1,593,681 VALUATION MULTIPLE 9.5 10.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $15,139,970 $16,733,651 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $3,963,860 $3,963,860 OPERATING MARGIN, PER BOOKS (8/31/96) 42.5% 42.5% ----------- ----------- "RUNNING RATE" OPERATING INCOME LESS CROWN ALLOCATION 1,617,927 1,617,927 VALUATION MULTIPLE 9.0 10.0 ----------- ----------- ESTIMATED FAIR MARKET VALUE $14,561,343 $16,179,270 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $1,744,182 $1,744,182 VALUATION MULTIPLE 8.5 9.5 ESTIMATED FAIR MARKET VALUE $14,825,545 $16,569,726 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $15,018,836 $16,161,365 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.5% 15.0% ESTIMATED FAIR MARKET VALUE $14,941,776 $16,046,984 ----------- ----------- SUMMARY OF VALUES I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $15,139,970 $16,733,651 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 14,561,343 16,179,270 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 14,825,545 16,569,726 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 15,018,836 16,161,365 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 14,941,776 16,046,984 ----------- ----------- RANGE OF ESTIMATED FAIR MARKET VALUES $14,894,000 $16,240,000 ESTIMATED FAIR MARKET VALUE $15,567,000 -----------
CABLE TV JOINT FUND 11-ABCD EXHIBIT B MANITOWOC, WISCONSIN LOW ANALYSIS AS OF AUGUST 31, 1996 ------------ RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - --------------------------- YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL ----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- REVENUES $4,142,168 $4,415,090 $4,672,419 $4,950,666 $5,251,272 $5,575,182 $5,919,768 $34,926,564 OPERATING EXPENSES 2,397,986 2,533,523 2,675,738 2,829,678 2,996,236 3,175,756 3,366,640 19,975,557 ----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- OPERATING INCOME $1,744,182 $1,881,567 $1,996,681 $2,120,988 $2,255,036 $2,399,426 $2,553,128 $14,951,007 OPERATING MARGIN 0.42 0.43 0.43 0.43 0.43 0.43 0.43 PARENT SERVICES/MGT FEE (5%) 207,108 220,754 233,621 247,533 262,564 278,759 295,988 1,746,328 FRANCHISE AMORTIZATION (15) 673,800 673,800 673,800 673,800 673,800 673,800 673,800 4,716,600 SUBSCRIBER LIST (8) 269,625 269,625 269,625 269,625 269,625 269,625 269,625 1,887,375 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 385,249 699,818 580,610 498,139 443,040 476,378 511,564 3,594,797 INTEREST 708,278 708,278 708,278 663,301 613,939 559,764 500,307 4,462,143 ----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- PRE-TAX INCOME ($499,879) ($690,708) ($469,253) ($231,410) ($7,931) $141,100 $301,844 ($1,456,237) INCOME TAX (EXPENSE)/BENEFIT 169,959 234,841 159,546 78,679 2,697 (47,974) (102,627) 495,121 ----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- NET INCOME ($329,920) ($455,868) ($309,707) ($152,731) ($5,235) $93,126 $199,217 ($961,117) SOURCES AND USES OF CASH SOURCES OF CASH - PRE TAX INCOME ($499,879) ($690,708) ($469,253) ($231,410) ($7,931) $141,100 $301,844 ($1,456,237) FRANCHISE AMORTIZATION (15) 673,800 673,800 673,800 673,800 673,800 673,800 673,800 4,716,600 SUBSCRIBER LIST (8) 269,625 269,625 269,625 269,625 269,625 269,625 269,625 1,887,375 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 385,249 699,818 580,610 498,139 443,040 476,378 511,564 3,594,797 EQUITY 7,264,385 7,264,385 DEBT 7,264,385 0 0 0 0 0 0 7,264,385 RESIDUAL VALUE IN YEAR 7 22,978,150 22,978,150 ----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL SOURCES OF CASH $15,357,567 $952,535 $1,054,782 $1,210,154 $1,378,534 $1,560,903 $24,734,982 $46,249,456 USES OF CASH - PURCHASE PRICE - CURRENT $15,018,836 $15,018,836 CAPITAL EXPENDITURES 238,531 277,001 288,682 295,805 313,243 326,512 340,335 2,080,109 DEBT RETIREMENT 0 0 461,301 506,277 555,639 609,814 5,131,354 7,264,385 TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 4,971,392 4,971,392 ----------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL USES OF CASH $15,257,367 $277,001 $749,983 $802,082 $868,882 $936,326 $10,443,081 $29,334,722 ANNUAL CASH INCREASE/(DECREASE) $100,200 $675,534 $304,799 $408,072 $509,651 $624,577 $14,291,901 $16,914,734 CUMULATIVE CASH 100,200 775,734 1,080,533 1,488,605 1,998,256 2,622,833 16,914,734
CABLE TV JOINT FUND 11-ABCD EXHIBIT B MANITOWOC, WISCONSIN HIGH ANALYSIS AS OF AUGUST 31, 1996 ------------- RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ---------------------------- YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- REVENUES $4,142,168 $4,415,090 $4,672,419 $4,950,666 $5,251,272 $5,575,182 $5,919,768 $34,926,564 OPERATING EXPENSES 2,397,986 2,533,523 2,675,738 2,829,678 2,996,236 3,175,756 3,366,640 19,975,557 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- OPERATING INCOME $1,744,182 $1,881,567 $1,996,681 $2,120,988 $2,255,036 $2,399,426 $2,553,128 $14,951,007 OPERATING MARGIN 0.42 0.43 0.43 0.43 0.43 0.43 0.43 PARENT SERVICES/MGT FEE (5%) 207,108 220,754 233,621 247,533 262,564 278,759 295,988 1,746,328 FRANCHISE AMORTIZATION (15) 673,800 673,800 673,800 673,800 673,800 673,800 673,800 4,716,600 SUBSCRIBER LIST (8) 269,625 269,625 269,625 269,625 269,625 269,625 269,625 1,887,375 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 385,249 699,818 580,610 498,139 443,040 476,378 511,564 3,594,797 INTEREST 766,831 766,831 766,831 718,136 664,693 606,039 541,667 4,831,026 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- PRE-TAX INCOME ($558,431) ($749,261) ($527,805) ($286,245) ($58,685) $94,825 $260,484 ($1,825,120) INCOME TAX (EXPENSE)/BENEFIT 189,867 254,749 179,454 97,323 19,953 (32,240) (88,564) 620,541 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- NET INCOME ($368,565) ($494,513) ($348,352) ($188,921) ($38,732) $62,584 $171,919 ($1,204,579) SOURCES AND USES OF CASH SOURCES OF CASH - PRE TAX INCOME ($558,431) ($749,261) ($527,805) ($286,245) ($58,685) $94,825 $260,484 ($1,825,120) FRANCHISE AMORTIZATION (15) 673,800 673,800 673,800 673,800 673,800 673,800 673,800 4,716,600 SUBSCRIBER LIST (8) 269,625 269,625 269,625 269,625 269,625 269,625 269,625 1,887,375 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 385,249 699,818 580,610 498,139 443,040 476,378 511,564 3,594,797 EQUITY 7,864,928 7,864,928 DEBT 7,864,928 0 0 0 0 0 0 7,864,928 RESIDUAL VALUE IN YEAR 7 22,978,150 22,978,150 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL SOURCES OF CASH $16,500,099 $893,982 $996,229 $1,155,319 $1,327,780 $1,514,628 $24,693,622 $47,081,659 USES OF CASH - PURCHASE PRICE - CURRENT $16,161,365 $16,161,365 CAPITAL EXPENDITURES 238,531 277,001 288,682 295,805 313,243 326,512 340,335 2,080,109 DEBT RETIREMENT 0 0 499,436 548,131 601,574 660,227 5,555,560 7,864,928 TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 4,457,511 4,457,511 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL USES OF CASH $16,399,896 $277,001 $788,118 $843,936 $914,817 $986,739 $10,353,407 $30,563,914 ANNUAL CASH INCREASE/(DECREASE) $100,203 $616,981 $208,111 $311,384 $412,963 $527,889 $14,340,215 $16,517,745 CUMULATIVE CASH 100,203 717,184 925,295 1,236,678 1,649,641 2,177,530 16,517,745
CABLE TV JOINT FUND 11-ABCD EXHIBIT C MANITOWOC, WISCONSIN LOW ANALYSIS AS OF AUGUST 31, 1996 ------------ RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $14,528,771 YEAR 1 DEBT REQUIREMENTS 7,264,385 YEAR 1 EQUITY REQUIREMENTS 7,264,385 FINANCING AVAILABLE $10,358,927 $11,337,181 $12,230,184 $12,978,423 $13,786,422 $14,657,733 $15,596,270 UNUSED LEVERAGE 3,094,541 4,072,796 5,427,099 6,681,616 8,045,253 9,526,379 11,134,187 SENIOR DEBT: 1997 1998 1999 2000 2001 2002 2003 TOTAL ----------- ---------- ---------- ---------- ---------- ---------- ---------- --------- BEGINNING DEBT $0 $7,264,385 $7,264,385 $6,803,085 $6,296,808 $5,741,168 $5,131,354 DEBT ADDED 7,264,385 0 0 0 0 0 0 7,264,385 TOTAL ANNUAL PAYMENTS 708,278 708,278 1,169,578 1,169,578 1,169,578 1,169,578 1,169,578 7,264,446 INTEREST 708,278 708,278 708,278 663,301 613,939 559,764 500,307 4,462,143 PRINCIPAL REPAYMENT 0 0 461,301 506,277 555,639 609,814 669,271 2,802,302 ENDING BALANCE 7,264,385 7,264,385 6,803,085 6,296,808 5,741,168 5,131,354 4,462,083 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 $0 $0 $0 $0 BORROWINGS 0 0 0 0 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 0 0 0 0 INTEREST 0 0 0 0 0 0 0 0 SENIOR DEBT COVERAGE 4.2 3.9 3.4 3.0 2.5 2.1 1.7 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 4.2 3.9 3.4 3.0 2.5 2.1 1.7
CABLE TV JOINT FUND 11-ABCD EXHIBIT C MANITOWOC, WISCONSIN HIGH ANALYSIS AS OF AUGUST 31, 1996 ------------- RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $15,729,857 YEAR 1 DEBT REQUIREMENTS 7,864,928 YEAR 1 EQUITY REQUIREMENTS 7,864,928 FINANCING AVAILABLE $11,952,608 $13,081,363 $14,111,751 $14,975,104 $15,907,409 $16,912,769 $17,995,697 UNUSED LEVERAGE 4,087,679 5,216,434 6,746,259 8,157,742 9,691,622 11,357,209 13,164,736 SENIOR: 1997 1998 1999 2000 2001 2002 2003 TOTAL --------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- BEGINNING DEBT $0 $7,864,928 $7,864,928 $7,365,492 $6,817,361 $6,215,788 $5,555,560 DEBT ADDED 7,864,928 0 0 0 0 0 0 $7,864,928 TOTAL ANNUAL PAYMENTS 766,831 766,831 1,266,266 1,266,266 1,266,266 1,266,266 1,266,266 7,864,993 INTEREST 766,831 766,831 766,831 718,136 664,693 606,039 541,667 4,831,026 PRINCIPAL REPAYMENT 0 0 499,436 548,131 601,574 660,227 724,599 3,033,967 ENDING BALANCE 7,864,928 7,864,928 7,365,492 6,817,361 6,215,788 5,555,560 4,830,961 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 $0 $0 $0 $0 BORROWINGS 0 0 0 0 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 0 0 0 0 INTEREST 0 0 0 0 0 0 0 0 SENIOR DEBT COVERAGE 4.5 4.2 3.7 3.2 2.8 2.3 1.9 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 4.5 4.2 3.7 3.2 2.8 2.3 1.9
CABLE TV JOINT FUND 11-ABCD EXHIBIT D MANITOWOC, WISCONSIN --------- AS OF AUGUST 31, 1996 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - --------------- YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- REVENUES $4,142,168 $4,415,090 $4,672,419 $4,950,666 $5,251,272 $5,575,182 $5,919,768 $34,926,564 OPERATING EXPENSES 2,397,986 2,533,523 2,675,738 2,829,678 2,996,236 3,175,756 3,366,640 19,975,557 OPERATING INCOME 1,744,182 1,881,567 1,996,681 2,120,988 2,255,036 2,399,426 2,553,128 14,951,007 PLUS: RESIDUAL VALUE 22,978,150 22,978,150 LESS: CAPITAL EXPENDITURES 238,531 277,001 288,682 295,805 313,243 326,512 340,335 2,080,109 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL CASH FLOW $1,505,651 $1,604,566 $1,707,998 $1,825,183 $1,941,793 $2,072,915 $25,190,942 $35,849,047 NET PRESENT VALUE @ 16.5% $14,941,776 ----------- NET PRESENT VALUE @ 15.0% $16,046,984 -----------
CABLE TV JOINT FUND 11-ABCD EXHIBIT E MANITOWOC, WISCONSIN --------- AS OF AUGUST 31, 1996 CABLE TELEVISION SUBSCRIBERS - ---------------------------- YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 170.5 MILES ADDED 0.9 2.5 2.5 2.3 2.3 2.3 2.4 CUMULATIVE MILES 171.3 173.8 176.3 178.6 180.9 183.2 185.6 DENSITY OF ADDITIONAL PLANT HOMES PASSED - BEGINNING 16,481 NEW HOMES & EXTENSIONS 165 183 185 170 172 174 175 HOMES PASSED - ENDING 16,646 16,829 17,014 17,184 17,356 17,530 17,705 GROWTH IN HOMES 1.0% 1.1% 1.1% 1.0% 1.0% 1.0% 1.0% BASIC - BEGINNING SUBSCRIBERS 11,523 11,721 11,935 12,151 12,358 12,569 12,782 AVERAGE SUBSCRIBERS 11,622 11,828 12,043 12,255 12,464 12,675 12,890 ENDING SUBSCRIBERS 11,721 11,935 12,151 12,358 12,569 12,782 12,998 PENETRATION 70.4% 70.9% 71.4% 71.9% 72.4% 72.9% 73.4% EXPANDED BASIC - BEGINNING 11,244 11,438 11,646 11,857 12,059 12,264 12,473 AVERAGE SUBSCRIBERS 11,341 11,542 11,751 11,958 12,162 12,368 12,578 ENDING SUBSCRIBERS 11,438 11,646 11,857 12,059 12,264 12,473 12,684 PENETRATION 97.6% 97.6% 97.6% 97.6% 97.6% 97.6% 97.6% PAY TV - BEGINNING UNITS 7,337 7,463 7,599 7,737 7,869 8,003 8,139 AVERAGE UNITS 7,400 7,531 7,668 7,803 7,936 8,071 8,208 ENDING UNITS 7,463 7,599 7,737 7,869 8,003 8,139 8,276 PENETRATION 63.7% 63.7% 63.7% 63.7% 63.7% 63.7% 63.7% PAY PER VIEW - BEGINING UNITS/ 396 597 816 1,124 1,444 1,861 2,317 AVERAGE UNITS 497 706 970 1,284 1,652 2,089 2,566 ENDING UNITS 597 816 1,124 1,444 1,861 2,317 2,815 AVERAGE BUY RATE/MO 11.7% 14.7% 18.7% 22.7% 27.7% 32.7% 37.7% CONVERTER RENTALS - BEGINNING 2,440 2,716 3,005 3,302 3,606 3,918 4,240 AVERAGE SUBSCRIBERS 2,578 2,860 3,153 3,454 3,762 4,079 4,406 ENDING SUBSCRIBERS 2,716 3,005 3,302 3,606 3,918 4,240 4,572 PENETRATION 23.2% 25.2% 27.2% 29.2% 31.2% 33.2% 35.2% ADDRESSABLE HOMES 4,539 5,086 5,537 6,001 6,351 6,711 7,080 AVERAGE HOMES 4,813 5,311 5,769 6,176 6,531 6,895 7,270 ENDING HOMES 5,086 5,537 6,001 6,351 6,711 7,080 7,460 PENETRATION 43.4% 46.4% 49.4% 51.4% 53.4% 55.4% 57.4% BASIC CHURN RATE 24% 24% 24% 24% 24% 24% 24%
CABLE TV JOINT FUND 11-ABCD EXHIBIT F MANITOWOC, WISCONSIN --------- AS OF AUGUST 31, 1996 SERVICE RATES - ------------- CURRENT RATES - ------------- BASIC $11.08 EXPANDED BASIC 9.58 PAY 7.45 PAY PER VIEW 10.32 CONVERTER RENTALS 1.45 INSTALLATIONS-NEW 35.00 INSTALLATIONS-CHURN 17.50 YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 3% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 7% 5% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW -6% -6% -6% 0% 3% 3% 3% CONVERTER RENTALS 0% 3% 3% 3% 3% 3% 3% INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% 3% INSTALLATIONS-CHURN 0% 3% 3% 3% 3% 3% 3% AVERAGE RATES - ------------- BASIC $11.41 $11.81 $12.16 $12.53 $12.90 $13.29 $13.69 EXPANDED BASIC 10.25 10.75 11.07 11.41 11.75 12.10 12.46 PAY 7.45 7.53 7.60 7.68 7.75 7.83 7.91 PAY PER VIEW 9.70 9.12 8.57 8.57 8.83 9.09 9.36 CONVERTERS RENTALS 1.45 1.49 1.54 1.58 1.63 1.68 1.73 INSTALLATIONS-NEW 35.00 36.05 37.13 38.25 39.39 40.57 41.79 INSTALLATIONS-CHURN 17.50 18.03 18.57 19.12 19.70 20.29 20.90
CABLE TV JOINT FUND 11-ABCD EXHIBIT G MANITOWOC, WISCONSIN --------- AS OF AUGUST 31, 1996
YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- REVENUES: BASIC $1,591,781 $1,676,018 $1,757,636 $1,842,219 $1,929,830 $2,021,512 $2,117,448 $12,936,444 EXPANDED BASIC 1,394,468 1,488,987 1,561,498 1,636,641 1,714,476 1,795,927 1,881,158 11,473,155 PAY TV 661,649 680,097 699,367 718,789 738,353 758,412 778,979 5,035,647 PAY PER VIEW 57,786 77,253 99,739 132,032 175,010 227,919 288,343 1,058,081 CONVERTER RENTALS 44,861 51,266 58,208 65,668 73,673 82,286 91,548 467,510 INSTALLATIONS 38,989 41,150 43,138 44,873 46,991 49,206 51,524 315,871 COMMERCIAL 55,002 56,652 58,352 60,102 61,905 63,762 65,675 421,451 ADVERTISING 238,140 281,005 328,776 381,380 438,587 499,990 564,988 2,732,867 MISCELLANEOUS 59,492 62,661 65,704 68,961 72,446 76,169 80,105 485,539 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL REVENUES $4,142,168 $4,415,090 $4,672,419 $4,950,666 $5,251,272 $5,575,182 $5,919,768 $34,926,564 OPERATING EXPENSES: OPERATIONS $604,561 $638,050 $671,235 $706,218 $743,351 $782,808 $824,442 $4,970,665 GENERAL & ADMINISTRATIVE 587,429 613,584 640,306 668,239 697,437 728,101 760,207 4,695,303 SALES & MARKETING 217,562 244,577 274,362 306,798 341,920 379,486 419,185 2,183,890 PROGRAMMING 988,434 1,037,312 1,089,836 1,148,423 1,213,528 1,285,361 1,362,806 8,125,699 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL OPERATING EXPENSES $2,397,986 $2,533,523 $2,675,738 $2,829,678 $2,996,236 $3,175,756 $3,366,640 $19,975,557 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- OPERATING INCOME $1,744,182 $1,881,567 $1,996,681 $2,120,988 $2,255,036 $2,399,426 $2,553,128 $14,951,007 OPERATING MARGIN 42.1% 42.6% 42.7% 42.8% 42.9% 43.0% 43.1% TOTAL REVENUE/BASIC SUB/MONTH $29.70 $31.11 $32.33 $33.67 $35.11 $36.65 $38.27 CASH FLOW/BASIC SUB/MONTH $12.51 $13.26 $13.82 $14.42 $15.08 $15.77 $16.51 OPERATIONS % OF REVENUE 15% 14% 14% 14% 14% 14% 14% G & A PERCENTAGE OF REVENUE 14% 14% 14% 13% 13% 13% 13% SALES & MARKETING % OF REVENUE 5% 6% 6% 6% 7% 7% 7% PROGRAMMING % OF REVENUE 24% 23% 23% 23% 23% 23% 23%
EXHIBIT H CABLE TV JOINT FUND 11-ABCD --------- MANITOWOC, WISCONSIN AS OF AUGUST 31, 1996 CAPITAL EXPENDITURES - -------------------- YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ---------------------- BV OF EXISTING PLANT $2,457,405 ADDITIONAL MILES OF PLANT 0.9 2.5 2.5 2.3 2.3 2.3 2.4 AERIAL PLANT PER MILE $14,000 $14,280 $14,566 $14,857 $15,154 $15,457 $15,766 UNDERGROUND PLANT PER MILE $17,000 $17,340 $17,687 $18,041 $18,401 $18,769 $19,145 PERCENTAGE OF PLANT AERIAL 5% 5% 5% 5% 5% 5% 5% PERCENTAGE OF PLANT UNDERGROUND 95% 95% 95% 95% 95% 95% 95% AVERAGE COST PER CONVERTER $125 $128 $130 $133 $135 $138 $141 PERCENTAGE CONVERTER USE 23% 25% 27% 29% 31% 33% 35% PERCENTAGE REPLACEMENT 5% 5% 5% 5% 6% 6% 6% INSTALLATION COST PER SUBSCRIBER * $35 $36 $36 $37 $38 $39 $39 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $6 $6 INFLATION FACTOR FOR CAPITALS 0% 2% 2% 2% 2% 2% 2% 113% ANNUAL COSTS: - ------------ PLANT ADDITIONS - AERIAL $597 $1,758 $1,813 $1,699 $1,751 $1,804 $1,858 $11,279 -UNDERGROUND 13,765 40,558 41,824 39,209 40,393 41,613 42,870 260,234 PLANT REBUILD/UPGRADE 40,000 40,800 41,616 42,448 43,297 44,163 45,046 297,371 AVERAGE COST OF NEW CONVERTERS 5,749 6,839 7,646 8,028 8,873 9,768 10,713 57,616 CONVERTER REPLACEMENT 16,690 18,812 21,089 23,513 31,277 34,527 37,975 183,883 INSTALLATION COSTS 103,618 107,911 112,048 115,884 120,196 124,664 129,291 813,612 MISC. CAPITAL EXPENDITURES 58,111 60,323 62,646 65,023 67,454 69,973 72,582 456,113 ------ ------ ------ ------ ------ ------ ------ ------- TOTAL CAPITAL EXPENDITURES $238,531 $277,001 $288,682 $295,805 $313,243 $326,512 $340,335 $2,080,109 AS A % OF OPERATING INCOME 13.7% 14.7% 14.5% 13.9% 13.9% 13.6% 13.3%
CABLE TV JOINT FUND 11-ABCD EXHIBIT I MANITOWOC, WISCONSIN --------- AS OF AUGUST 31, 1996 DEPRECIATION - ------------ YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 ------ ------ ------ ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9% DEPRECIATION - BEG. & ADTNS. 1997 1998 1999 2000 2001 2002 2003 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- YEAR 1 $385,249 $660,235 $471,519 $336,722 $240,747 $240,477 $240,747 2,575,697 YEAR 2 39,583 67,838 48,448 34,597 24,736 24,709 239,911 YEAR 3 41,253 70,698 50,491 36,056 25,779 224,277 YEAR 4 42,270 72,443 51,736 36,946 203,395 YEAR 5 44,762 76,713 54,786 176,262 YEAR 6 46,659 79,963 126,621 YEAR 7 48,634 48,634 ------ ------ ------ ------ ------ ------ ------ ------ TOTAL DEPRECIATION $385,249 $699,818 $580,610 $498,139 $443,040 $476,378 $511,564 $3,594,797
CABLE TV JOINT FUND 11-ABCD EXHIBIT J MANITOWOC, WISCONSIN --------- AS OF AUGUST 31, 1996 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 5 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $2,457,405 SUBSCRIBERS IN FRANCHISES 100% LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9.0 9.0 MULT OF PAST YEAR'S OPERATING INCOME 9.5 10.5 MULT OF CURRENT YEAR'S OPERATING INCOME 9.0 10.0 MULT OF NEXT YEAR'S OPERATING INCOME 8.5 9.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.5% 15.0% EX-99.(B)(2) 3 APPRAISAL BY KAGAN MEDIA Exhibit (b)(2) [LOGO OF KAGAN MEDIA APPRAISALS INC. APPEARS HERE] November 8, 1996 Mr. Kevin Coyle Group Vice President/Finance JONES INTERCABLE 9697 East Mineral Avenue Englewood, CO 80112 Tel: (303) 792-3111 Fax: (303) 790-0533 Dear Mr. Coyle: In accordance with your request, we have appraised the cable TV system in Manitowoc, Wisconsin for the purpose of determining its fair market value. We were not assigned to complete a tangible asset valuation of the property. Rather, we were assigned to do a financial analysis of the property and its future market potential. The limiting conditions of this appraisal are more fully outlined in a statement included within this report. We are qualified to complete this assignment by virtue of our 27 years of experience in appraising communications properties. During that period, we have appraised over $26 billion worth of media properties on contract assignment. In addition, many more billions of dollars worth of such properties have been valued by Paul Kagan Associates, Inc. in such newsletters as CABLE TV INVESTOR, CABLE TV FINANCE, CABLE TV TECHNOLOGY and BROADCAST BANKER/BROKER. We have based our analysis in part on financial data supplied to us by Jones Intercable and in part on our personal knowledge of the communications industry acquired over two decades. Our credentials are more fully outlined in the enclosed appraisal report. Included in this report is a description of the property and its market, a brief explanation of key operating expectations related to the financial potential of the business and the results of a comparable sale study for the property. Also included is a 10-year discounted cash flow projection for the property, followed by a list of the assumptions underlying the projections. Based on the results of our analysis, more fully outlined within this report, we conclude that in a willing buyer-willing seller, all cash transaction, the fair market value of the Manitowoc, Wisconsin cable TV systems is approximately $16.1 ----- million. - ------- Mr. Kevin P. Coyle JONES INTERCABLE November 8, 1996 Page Two It has been a pleasure to be of service to you in this matter. If you have any further questions, please feel free to call. Sincerely, KAGAN MEDIA APPRAISALS, INC. /s/ Robin V. Flynn - ---------------------------- Robin V. Flynn Vice President RVF/jht enclosures APPRAISAL REPORT - -------------------------------------------------------------------------------- MANITOWOC, WISCONSIN CABLE SYSTEM PREPARED BY: KAGAN MEDIA APPRAISALS, INC. 126 CLOCK TOWER PLACE CARMEL, CA 93923 (408) 624-1536 NOVEMBER 8, 1996 TABLE OF CONTENTS - ------------------------------------------------------------- CERTIFICATE OF APPRAISAL................................... 1 STATEMENT OF LIMITING CONDITIONS........................... 3 RESTRICTIONS UPON DISCLOSURE AND USE....................... 5 QUALIFICATIONS OF THE APPRAISER............................ 6 PURPOSE OF THE APPRAISAL................................... 8 ASSET APPRAISAL METHODOLOGY................................ 9 COST APPROACH........................................ 9 MARKET DATA (COMPARABILITY) APPROACH................. 9 INCOME APPROACH..................................... 10 VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS...... 11 VALUATION OF MANITOWOC, WISCONSIN CABLE SYSTEM............ 14 DESCRIPTION OF SUBJECT MARKET....................... 15 DESCRIPTION OF SUBJECT BUSINESS..................... 20 10-YEAR CASH FLOW PROJECTIONS....................... 30 ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS... 32 COMPARABLE ANALYSIS................................. 36 CORRELATION AND FINAL ESTIMATE OF VALUE............. 39 CERTIFICATE OF APPRAISAL - -------------------------------------------------------------------------------- The undersigned does hereby certify that, except as otherwise noted in this appraisal report: l. We have inspected the financial statements and other operating and financial data of the subject business as furnished by Jones Intercable. 2. We hereby certify that we have no present or contemplated financial interest in the cable system 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. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 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. team, including the undersigned. 8. The business that is the subject of this appraisal report, the Manitowoc, Wisconsin cable TV system is currently valued at approximately $16.1 ----- million. - ------- Signed: /s/ Robin V. Flynn __________________________________________ Kagan Media Appraisals Inc./Robin V. Flynn - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 2 KAGAN MEDIA APPRAISALS, INC. STATEMENT OF LIMITING CONDITIONS - -------------------------------------------------------------------------------- Financial and operating data concerning the subject system furnished us by Jones Intercable 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. Further, no technical engineering analysis of the businesses has been made or rendered by Kagan Media Appraisals, Inc. This appraisal assumes that the subject business' technical equipment is in good working - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 3 KAGAN MEDIA APPRAISALS, INC. STATEMENT OF LIMITING CONDITIONS (Continued) - -------------------------------------------------------------------------------- order and appropriate for the conduct of businesses of its type, and that it is operated by competent management. 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 previous written consent of the appraiser or the assignor 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. Unless previous 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 Flynn ____________________________________________ Kagan Media Appraisals, Inc. /Robin V. Flynn - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 4 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 Flynn _____________________________________ Kagan Media Appraisals/Robin V. Flynn - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 5 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 over 40 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. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 6 KAGAN MEDIA APPRAISALS, INC. QUALIFICATIONS OF APPRAISER (Continued) - -------------------------------------------------------------------------------- For 27 years, Mr. Kagan and his staff have appraised over $26 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. 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 23 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 in 1988, 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. - ------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 7 KAGAN MEDIA APPRAISALS, INC. PURPOSE OF THE APPRAISAL - -------------------------------------------------------------------------------- The purpose of this appraisal is to estimate the current fair market value of the Manitowoc, Wisconsin 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." - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 8 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. Kagan Media Appraisals, Inc. typically uses this methodology in its appraisals. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 9 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. Kagan Media Appraisals, Inc. typically uses this methodology in its appraisals, in the form of discounted cash flow projections. - ---------------------------------- (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. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 10 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 $1,000 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 $1,000 will have doubled, to $2,001. That's an effective annual rate of return of 7.2%. If, instead, the investor had placed his $1,000 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? - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 11 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 depreciation and amortization, interest and income taxes added back to net income. 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. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 12 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. - ---------------------------------------------------- - ------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 13 KAGAN MEDIA APPRAISALS, INC. VALUATION OF MANITOWOC, WISCONSIN CABLE TV SYSTEM - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 14 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT MARKET - -------------------------------------------------------------------------------- The City of Manitowoc is located in east central Wisconsin, 38 miles southeast of Green Bay and 79 miles north of Milwaukee. It is located on Lake Michigan, and has a small harbor which is used primarily for yachting and car ferrying services across the lake between Wisconsin and Michigan. The City is a regional manufacturing, transportation and retail center in that part of Wisconsin. The City has been oriented historically toward maritime activities stretching all the way back to the launching of wooden sailing ships on Lake Michigan in 1847. 28 submarines were built here during World War II. Even today, there is a small facility which produces Berger luxury yachts and a 250- slip marina, which is popular with sport fishermen. Manitowoc's population was on an upward trend during the 1970's and then flattened. The Bay-Lake Regional Planning Commission 1992 Annual Report stated that the eight-county region including Manitowoc grew at a rate equal to the state's growth between 1950 and 1991 (43%), whereas Manitowoc County grew at about half this rate (20%). One significant trend noted in the report was the smaller size of the average household unit. Thus, even though population in Manitowoc declined by 3.3% between 1980 and 1990, the number of households increased by 3.6%. The population grew by an estimated 2.1% from 1990 through 1995, increasing from 32,520 to an estimated 33,208. The population is estimated to have increased from 33,208 to 33,253 between 1995 and 1996. By 2000, the population is estimated by one source (Claritas, Inc.) to increase to 33,793. This would mean an increase of 1.8% over the next five years. Another source estimates that the population will climb to 37,000 from an estimated 1995 population of 34,000 ("Manitowoc Public Utilities Water Demand Projections to the Year 2015," July 1993). This higher projection was based on the ease of expansion in the city, improved transportation and communications facilities and the desirability of living in non-congested areas such as Manitowoc. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 15 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT MARKET (CONTINUED) - -------------------------------------------------------------------------------- This higher projection would mean a total increase of 8.8% from 1995-2000, or a compound growth rate of 1.71% annually. Manufacturing is a major contributor to the economy. The major employers are: NAME OF EMPLOYER; NUMBER OF EMPLOYEES ------------------------------------------ Mirro 1,700 Holy Family MMC 1,000 Manitowoc County 996 Manitowoc Company 989 MTWC School 900 Dayco/Imperial Eastman 617 Goetze 574 City of Manitowoc/MPU 450 Lakeside Foods 340 ECK Industries 330 (C) 1996 Kagan Media Appraisals, Inc. In Manitowoc County, the unemployment rate is 4.9% out of a total labor force of 42,200. Among the 32,500 employed nonagricultural wage and salary workers, 11,900 are in manufacturing and 20,600 are in non-manufacturing activities. The City reports that unemployment declined by 200 from September, 1995 to August, 1996. This is a decline of 25% in this economic indicator. While there are no apparent major expansions, management reports numerous minor expansions by local businesses and in the community's industrial park. The area is not dependent on any military installations. According to the 1990 Census, the per capita income of Manitowoc was $12,350. The city's average household income was $30,187, and its median family income (family of four) was $31,709. This is significantly lower in all three categories than the 1994 figures for the State of - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 16 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT MARKET (Continued) - -------------------------------------------------------------------------------- Wisconsin. Those were as follows: per capita income of $15,645, average household income of $41,762, and median family income of $35,849. One source projects that households will grow by 2.9% between 1995 and 2000 in Manitowoc, that per capita income will increase by 26.5%, average household income by 23.5%, and median family income by 16.4%. Household income and wealth is estimated to have changed as follows from 1995 to 1996: CATEGORY 1995 1996 -------------------------------------- ($) ($) Average HH income 39,615 38,583 Median HH income 30,129 30,242 Avg. Family HH 49,061 48,010 Med. Family HH 39,624 40,094 Avg. HH wealth 123,734 125,466 Med. HH wealth 65,811 66,264 Source: Claritas, Inc. 1996 Household Trend Report HOUSING GROWTH Housing growth for the cable system's service area was projected using a combination of actual housing growth from 1992 through August, 1996, the housing growth estimates in the "Manitowoc Public Utilities Water Demand Projections," and the household growth forecast from Claritas, Inc. The system reported the homes in its franchise area as follows: 1991 1992 1993 1994 1995 AUG. 1996 --------------------------------------------------------------- 15,241 15,553 15,567 16,190 16,269 16,481 - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 17 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT MARKET (Continued) - -------------------------------------------------------------------------------- Therefore, during the more than 4.67-year period from 1991 to August, 1996, the system's franchise area experienced compounded average annual growth in homes of 1.69%. The Claritas, Inc. Household Trend Report for the City of Manitowoc reports 13,144 households, based on the 1990 census. The report estimates 1996 households at 13,825. This represents an estimated compounded average annual growth of 0.85%. For the year 2001, this Report forecasts 14,237 homes, for a compound annual growth rate of 0.59% over the next five years. The "Manitowoc Public Utilities" study estimated 1995 dwelling units within the City at 14,225. This would imply a growth rate since 1990 of 1.59% annually. That study projects 14,600 homes by the year 2000. This is a growth rate of 0.52% per year. This is in line with the forecast by Claritas. The estimated increase in households from 1995 to 1996 was from 13,560 to 13,825. (Source: Claritas, Inc.) This is an increase of 1.9%. In both its 1995 and 1996 estimates, Claritas continues to forecast growth in housing of only 0.58% per year through 2001. Another source projects that households will grow at an annual rate of 1.06% from 1995-2000 (Equifax National Decision Systems, February 1996). Local management reports that homes passed grew from 16,300 in April, 1995 to 16,481 by August, 1996. This is a growth rate of approximately 0.56%. Both these estimates are well below the growth rate reported by system management over the past four years and eight months. The major reason for this could be that the system's service area includes five smaller towns in the suburbs of Manitowoc, which are included in the figures reported by management. Since these towns are not under the ownership of the company, and are to be excluded from the appraisal, we find it prudent to rely on the lower projections by both - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 18 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT MARKET (Continued) - -------------------------------------------------------------------------------- Claritas and the "Manitowoc Public Utilities" study, particularly since the estimates by each are so close. In addition, one of the projections for the next five years is virtually identical to the rate reported by local management over the past 16 months. Therefore, we assume that housing in the area will grow at an annual rate of 0.58%. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 19 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS - -------------------------------------------------------------------------------- The Manitowoc cable system consists of approximately 208 miles of plant, only about 20 miles of which is underground. The channel capacity is 400 MHZ throughout the plant. The system was originally constructed in 1980-81 and purchased by Jones in the late 1980s. The five smaller franchises were added to the system in the late 1980s. CASH FLOW ALLOCATION The five smaller franchises were sold to another company, Crown Media, in late 1991. Crown then sold these systems to Marcus Cable in early 1995. Management reports that Marcus obtained renewals of these franchises in late 1995. The Manitowoc system was supposed to be part of the sale to Crown, but the City refused to approve the transfer of the franchise, which led to the company's litigation with the City. Therefore, at the present time, although the five smaller franchises are operationally part of the Manitowoc system, they are not owned by the company. Their results are included in all the financial statements and budgets for the Manitowoc system. Since 1991, the company has had an arrangement with the owner of these systems whereby the company is reimbursed for all capital expenditures in those five towns, and the company makes a monthly allocation of system operating income to these systems. These five franchises account for about 698 subscribers. The operating income allocation has been in the range of 3.62-4.13% of system operating income. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 20 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - -------------------------------------------------------------------------------- FRANCHISE STATUS Management obtained a one-year extension of the franchise at the end of 1995, under a 1994 settlement of litigation begun in 1991. Management reports that the City has tentatively agreed to a 5-year renewal to be approved in mid-November. Management reports that it believes the franchises for the five smaller systems were renewed by Marcus Cable. PROGRAMMING ADDITIONS All of the system's 52 channels are presently being used. As part of the arrangement for franchise renewal, the City would turn back to the operator three of the seven access channels presently allocated for the City's use. At the same time, management plans to drop carriage of two of the Milwaukee television stations to free up two more channels. These stations are duplicates of network affiliates from Green Bay which are carried on the system. Management intends then to add three popular satellite services. One of these is Product Information Network, which remits a percentage of its revenues from home shopping orders back to the system. Management plans to preview other popular satellite services and let subscribers "vote" their preference by calling an 800 number. However, management presently has no plans to rebuild the system to add channel capacity. TECHNICAL CONFIGURATION The system consists of a single headend. It is located at the office, which is owned by the company. The off-air signals are received on a 400-foot tower located in the town of Newton about five miles from the office. Those signals are then transmitted to the headend via supertrunk. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 21 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - -------------------------------------------------------------------------------- There are three active and two standby satellite receive-only antennas, all of which are located at the office. The office building is concrete block and there is ample space for expansion of the headend. The system has no fiber optic cable deployed. Therefore, there is little likelihood of the system beginning to lease fiber capacity to other users or to provide local area network services in the future unless management to rebuild the system with fiber optics. However, there is an extensive institutional network on a separate cable which connects all the schools. The network is activated two-way with the bandwidth being mid-split. The institutional cable is about 10 miles. The system is fully addressable. However, of the five per-channel pay services, only two use addressability (Cinemax and The Movie Channel). The other three (HBO, Showtime and Disney) utilize positive and negative traps for security. Management removed those channels from the addressability due to complaints from owners of cable-ready television sets who did not think they needed a converter. In addition, the Oak TC-56 converters are of an older vintage. They are fairly large and not particularly attractive, which added to complaints. Nevertheless, the addressability function is used for pay-per-view services, though the base of addressable homes has shrunk with the shift to trapping for the three major premium services. COMPETITION Management reports that the system passes all of the 16,481 homes in the franchise area. As previously discussed, growth in homes passed is expected to average about 0.58% per year during the projection period, reaching 17,500 in 2006. The system is not presently threatened by competition, although management has seen some impact from direct broadcast satellite services (about 125 customer losses). DBS has been available in the area since August-September of - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 22 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - ------------------------------------------------------------------------------- 1994. There are MMDS services in Appleton and Green Bay, each offering about 15-20 channels. But, because of the distance from Manitowoc, their signals are not a factor. The local telephone company, Ameritech, has made no moves to apply for video dial tone service in the area, and management reports no evidence of Ameritech's placing fiber in their local loop. The system's service area has no other cable operator, and no other franchises have been granted in the area, despite talk by the City during the franchise-related litigation about overbuilding the system. PENETRATION With the uncertainties created by rate reregulation, along with the negative press about the difficult franchise litigation with the City, largely behind it, management is now focusing on remarketing its services. The system has done well in raising basic penetration following the litigation. Television broadcast signals from Milwaukee are marginal, due to the distance. But the system is in the Green Bay-Appleton ADI, and the off-air signals are receivable from Green Bay with a good rooftop antenna. Therefore, a focused marketing effort is important. Because of this, management has used door-to-door sales since 1994 with generally excellent results. It has had little or no success with direct mail. It has also made occasional use of both radio and newspaper advertising. The most successful promotion was a free installation and two months for the price of one. This was launched with a simultaneous audit of system subscribers, which was also successful. Management has also utilized an "instant install" campaign with $10 worth of canned goods to be donated to a local charity. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 23 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - ------------------------------------------------------------------------------- The system has managed to maintain, and even improve upon, the penetration gain it made in 1994. For 1995, basic penetration was 70.3%, up from 68.9% in 1994. As of August, 1996, it had slipped negligibly to 69.9%. There is no discounting of monthly rates. The only discounting is free installation or free converters (after the first one) for senior citizens. The penetration of pay services in this system, with its basic penetration in the 70 percent range, is about average for such systems. As subscriber confusion from FCC-mandated rate adjustments, and the adverse press from the franchise litigation dissipates, it is reasonable to expect that the system will be able to gradually increase its penetration throughout the forecast period. The success of the 1994 marketing campaign in increasing basic penetration from 63.2% to 68.9%, and management's ability in 1995-1996 to hold these gains, is evidence of this. RATES The City of Manitowoc certified to regulate the system's rates for the 25-channel basic service pursuant to the rules of the FCC. As a result, the system restructured its rates but was not required to take the first rate reduction required by the FCC's benchmarks in September, 1993. However, the system was required to take the second round of FCC rate reductions in September, 1994, and reduced the monthly rate by $2.09. The City also filed a complaint at the FCC regarding the rates for the system's cable programming services tier ("Satellite Tier Service"), so this monthly rate is also regulated. Therefore, any increase in rates for either tier of basic service, can only be made in accordance with FCC rules. - ------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 24 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - ------------------------------------------------------------------------------- The monthly rate for the limited basic service of 25 channels is $11.08 in the City of Manitowoc. For the 21-channel "Satellite Tier," the rate is an additional $9.58, making the total for Full Basic Plus $20.66. The system implemented a rate increase of $0.80 to cover inflation effective March 1, 1995. Management plans to implement a rate increase of $1.95 per month on March 1, 1997. The plan is to have the five new channels previously discussed added before then. In addition, they will begin "passing through" the franchise fee of 5%, rather than including it in the monthly rate. Given the current regulatory climate, the average basic monthly rate is assumed to grow after 1997 at the rate of 5% per year to $33.95 by 2006. Installation rates are $35.00 for the first outlet in homes with no existing cable, and $13.10 for each additional outlet at the time of initial installation. The rate of churn declined from 24.5% in 1992 to 14.9% in 1993, but rebounded to 15.9% in 1994. It jumped from 15.9% in 1994 to 24.2% in 1995 but has declined somewhat to an annual rate of 21.2% in 1996. Given the stable nature of the market, we are projecting that churn will remain fairly constant for the projection period. Through the necessary efforts of management and no expectations for drastic changes in the stable nature of this market, annual churn is expected to stabilize at the 1996 level of 21.2%. The reported installation revenue and total installs, however, show that the effective installation rate dropped from $15.18 in 1994 to $10.77 in 1995. It rebounded somewhat to $11.66 through August, 1996. This indicates that the installation rate is being discounted or dropped for promotional purposes. - ------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 25 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - ------------------------------------------------------------------------------- PAY SERVICES The system offers five premium channels: HBO, Showtime, Cinemax, The Movie Channel and Disney. The premium services are provided on an a la carte basis at $9.95 per month for all but Disney, which is $7.95. There is discounting for packages of premium services. The discounts range between $2.00-6.00 for two services, $9.00 and higher for three services, $11.80 and higher for four, and $12.75 for five. Total pay units increased from 4,328 in 1992 to 7,726 in 1995. It had declined somewhat to 7,337 by August, 1996. Even with the fairly sizable gain in basic subscribers from 1992-1995, the system's pay-to-basic ratio also increased from 46.3% to 68.4%. The continued success of the aggressive discount packages and marketing efforts should enable the system to continue gradually increasing its pay penetration levels. We forecast it to reach 75.0% by 2006. PAY-PER-VIEW SERVICES The system launched its pay-per-view service in 1990. Because the system is addressable, it provides movies as well as wrestling and boxing events. With the shift to traps for three of the premium services, addressable homes declined from 5,184 in 1992 to 4,717 in 1995. It declined further to 4,539 in August, 1996. We believe, however, that with continued promotion of pay-per-view events, along with more attractive offerings, there could be a return to the system's earlier 1993 level of addressable homes. Therefore, we forecast the percentage to climb back to 50% over the next four years and remain at that level throughout the remainder of the projection period. From 3,128 pay-per-view buys in 1992, the total number of buys increased to 3,892 pay-per-view buys in 1993, but declined to 3,529 in 1994 and remained flat at 3,507 in 1995. Through - ------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 26 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - -------------------------------------------------------------------------------- August, 1996, it rebounded to 3,071, which is an annualized rate of 4,606. This increase occurred despite the decline in the number of addressable homes. Therefore, we expect continued steady gains in the number of buys by the end of the forecast period. The pricing will continue to be in the range of $3.95 for movies and $14.95-$35.00 for events. The continuation of popular events should enable the system to gradually increase its monthly buy rate from the 1994 level of 6.0% into the 28% range by 2006. Given these projected increases in the buy rate, we believe that moderate increases in the average price per buy of 4.0% annually are reasonable, so that the average reaches $14.92 in 2006. ADVERTISING Local advertising is a significant and increasing source of revenue. It is expected to continue growing during the period of the projections as cable continues to prove it is a cost-effective medium for advertisers. While the monthly revenue per subscriber has declined slightly from $1.88 to $1.69 from 1992 to 1994, it climbed in 1995 to $2.12, well above its 1992 level. This may be due in part to the elimination of the uncertainty and negative press surrounding the franchise litigation with the City. The system does ad insertion on 10 satellite channels, in addition to 37 live events per year, including high school and college sports, for the past six years, on its local origination channel. The live sporting events alone account for about $35,000 in annual advertising revenue. The system's mobile production van is connected to the institutional network for these purposes. Since 1991, the system has had a sales manager and two full-time account representatives. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 27 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - -------------------------------------------------------------------------------- The continuation of the sales, promotion and local programming efforts could well sustain further growth in advertising sales. There are no other video outlets for advertisers who wish to concentrate on the Manitowoc market. Therefore, we have projected modest increases in the monthly advertising revenue per subscriber of 10% annually from its August 1996 level of $1.44. It reaches $3.74 in 2006. HOME SHOPPING The system has carried a single home shopping channel, Home Shopping Network, since 1988. Revenue from HSN remained fairly constant at $0.10-.11 per subscriber per month in 1992-4. In 1995, it reached $0.15. We believe that, despite the seasonal dip reflected in the numbers through August, 1996, this revenue stream will increase gradually from its 1996 monthly rate of $0.10. While the amount is uncertain, there should be additional revenue derived from the Product Information Network which management will be adding to the system once the City relinquishes three of its access channels. Therefore, we believe it is justified to forecast modest increases of 5.0% per year, so that the revenue reaches $0.16 per subscriber per month in 2006. OTHER REVENUE The system derives additional revenue from commercial accounts with bars, restaurants, motels and other multiple-unit buildings. Late fees, remote control sales and converter rentals were also major contributors to this revenue stream. "Other" revenue has decreased slightly as a percentage of basic revenue, with the significant increase in basic subscribers from 1992 to August, 1996. It declined from 5.8% in 1992 to 5.0% in 1994 and 4.9% in 1995. We expect this - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 28 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - ------------------------------------------------------------------------------- revenue to increase at a modest rate of 5.0% annually, with the increases in subscribers and basic revenue. This amount as a percentage of basic revenue will decline very gradually over the remainder of the projection period. It reaches about $233,000 in 2006. Total cable revenue declined to $27.83 per subscriber per month in 1994. With the increase of $0.80 in the monthly rate for the full basic service, combined with the other revenue increases previously discussed, total cable revenue per subscriber increased slightly to $28.47 in 1995. It has remained very close to that level through August, 1996. The combination of expected growth in homes passed, steady gains in basic penetration, modest rate increases, and some continued growth in pay-per-view, advertising sales and home shopping, is projected to raise total cable revenue to nearly $7.8 million in 2006, or $50.42 per subscriber per month. This is an average gain of 5.9% annually over the ten-year forecast period. The system derives no revenues from leasing of fiber capacity because of the lack of fiber deployment. Management has no plans to install fiber, since there are no plans to rebuild the system. Therefore, we are projecting no revenues from fiber leasing or any networking services. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 29 KAGAN MEDIA APPRAISALS, INC.
10-YEAR CASH FLOW PROJECTIONS - ------------------------------------------------------------------------------------------------------------------------------ Manitowoc, Wisconsin 1992 1993 1994 1995 08/96 1997 1998 1999 3 HOMES IN FRANCHISE AREA (000) 15.6 15.6 16.2 16.3 16.5 16.6 16.7 16.8 4 HOMES PASSED (000) 15.5 15.5 16.2 16.3 16.5 16.6 16.7 16.8 5 % HP IN FRANCHISE AREA 100% 100% 100% 100% 100% 100% 100% 100% 6 PCT PENETRATION 60.9% 63.2% 68.9% 70.3% 69.9% 71.0% 72.0% 73.0% 7 TOTAL BASIC SUBS (000) 9.4 9.8 11.1 11.4 11.5 11.8 12.0 12.2 8 AVERAGE BASIC SUBS (000) 9.4 9.6 10.5 11.3 11.5 11.7 11.9 12.1 9 AVG MONTHLY RATE $ 22.57 22.44 20.13 19.97 20.26 21.89 22.98 24.13 10 REVENUE/SUBSCRIBER $ 270.78 269.29 241.61 239.65 243.15 262.65 275.78 289.57 11 BASIC SERVICE REVENUE (000) $2,533.3 $2,594.3 $2,532.5 $2,705.6 $1,860.8 $3,061.6 $3,278.1 $3,510.4 12 13 NEW BASIC (000) 0.2 0.4 1.3 0.3 0.1 0.2 0.2 0.2 14 BASIC CHURN (000) 1.8 1.9 1.8 3.0 1.8 2.5 2.5 2.5 15 RATE OF CHURN 24.5% 14.9% 15.9% 24.2% 14.2% 21.2% 21.2% 21.2% 16 TOTAL INSTALLS (000) 2.0 2.3 3.1 3.3 1.9 2.7 2.7 2.8 17 EFFECTIVE INSTALL RATE $ 15.25 18.39 15.18 10.77 11.66 12.24 12.85 13.49 18 INSTALL REVENUE (000) $ 30.9 $ 41.5 $ 47.0 $ 35.5 $ 22.2 $ 33.0 $ 35.0 $ 38.0 19 20 TOTAL BASIC REVENUE (000) $ 2,564 $ 2,636 $ 2,580 $ 2,741 $ 1,883 $ 3,093 $ 3,313 $ 3,548 21 22 PAY % AVG SUBS 46.3% 55.4% 68.8% 68.4% 63.9% 66.0% 67.0% 68.0% 23 AVERAGE SUBSCRIBERS (000) 4.3 5.3 7.2 7.7 7.3 7.7 8.0 8.2 24 MONTHLY RATE $ 9.07 7.60 6.23 6.90 7.73 8.04 8.36 8.70 25 REVENUE/SUBSCRIBER $ 107 91 75 83 93 96 100 104 26 PAY SERVICE REVENUE (000) $ 471.3 $ 486.4 $ 539.0 $ 639.3 $ 453.8 $ 742.3 $ 799.3 $ 860.5 27 28 AVG ADDRESSABLE SUBS (000) 5.2 4.9 4.9 4.7 4.5 4.8 5.3 5.9 29 % ADDRESSABLE SUBS 54.9% 50.0% 44.2% 41.2% 39.4% 41.0% 44.0% 48.0% 30 PPV CUME MO. BUY RATE 5.0% 6.6% 6.0% 6.2% 8.5% 10.5% 12.5% 14.5% 31 TOTAL PPV BUYS (000) 3.1 3.9 3.5 3.5 3.1 6.1 7.9 10.2 32 AVERAGE PRICE/BUY $ 9.69 8.37 8.61 10.87 10.8 10.48 10.90 11.34 33 TOTAL PPV REVENUE (000) $ 30.3 $ 32.6 $ 30.4 $ 38.1 $ 31.0 $ 63.0 $ 86.0 $ 116.0 34 PPV REV/SUB/MO $ 0.27 0.28 0.24 0.28 0.34 0.45 0.60 0.79 35 36 AD REVENUE/SUB/MO $ 1.88 1.66 1.69 2.12 1.44 1.58 1.74 1.92 37 AD REVENUE/SUB $ 22.60 19.91 20.30 25.39 17.29 19.01 20.92 23.01 38 TOTAL AD REVENUE (000) $ 211.4 $ 191.8 $ 212.8 $ 286.6 $ 132.3 $ 222.0 $ 249.0 $ 279.0 39 40 HOME SHOPPING REV/SUB/MO $ 0.11 0.11 0.10 0.15 0.10 0.10 0.11 0.11 41 HOME SHOPPING REV/SUB $ 1.30 1.33 1.15 1.74 1.19 1.25 1.31 1.38 42 TOTAL HOME SHOPPING REV (000) $ 12.1 $ 12.8 $ 12.0 $ 19.7 $ 9.1 $ 15.0 $ 16.0 $ 17.0 43 44 OTHER REVENUE (000) $ 145.8 $ 141.4 $ 126.7 $ 132.4 $ 95.4 $ 150.0 $ 158.0 $ 166.0 45 % BASIC REVENUE 5.8% 5.4% 5.0% 4.9% 5.1% 4.9% 4.8% 4.7% 46 47 TOTAL CABLE REVENUE (000) $3,435.1 $3,500.8 $3,500.6 $3,857.2 $2,604.6 $4,286.0 $4,621.0 $4,986.0 48 TOTAL REV/SUB/MONTH $ 30.60 30.28 27.83 28.47 28.36 30.65 32.39 34.27 49 Manitowoc, Wisconsin 2000 2001 2002 2003 2004 2005 2006 GTH. RATE 3 HOMES IN FRANCHISE AREA 16.9 17.0 17.1 17.2 17.3 17.4 17.5 0.6% 4 HOMES PASSED 16.9 17.0 17.1 17.2 17.3 17.4 17.5 0.6% 5 % HP IN FRANCHISE AREA 100% 100% 100% 100% 100% 100% 100% 0.0% 6 PCT PENETRATION 73.5% 74.0% 74.0% 74.0% 74.0% 74.0% 74.0% 0.6% 7 TOTAL BASIC SUBS 12.4 12.6 12.6 12.7 12.8 12.8 12.9 1.2% 8 AVERAGE BASIC SUBS 12.3 12.5 12.6 12.7 12.7 12.8 12.9 1.2% 9 AVG MONTHLY RATE 25.34 26.60 27.63 29.33 30.80 32.34 33.95 5.3% 10 REVENUE/SUBSCRIBER 304.05 319.25 335.21 351.97 369.57 388.05 407.45 5.3% 11 BASIC SERVICE REVENUE $3,745.6 $3,982.7 $4,220.3 $4,457.1 $4,707.1 $4,971.1 $5,249.9 6.6% 12 13 NEW BASIC 0.2 0.2 0.1 0.1 0.1 0.1 0.1 -3.4% 14 BASIC CHURN 2.6 2.6 2.7 2.7 2.7 2.7 2.7 1.2% 15 RATE OF CHURN 21.2% 21.2% 21.2% 21.2% 21.2% 21.2% 21.2% 0.0% 16 TOTAL INSTALLS 2.8 2.8 2.7 2.8 2.8 2.8 2.8 1.1% 17 EFFECTIVE INSTALL RATE 14.17 14.88 15.62 16.40 17.22 18.08 18.99 5.0% 18 INSTALL REVENUE 39.0 42.0 43.0 45.0 48.0 50.0 53.0 6.1% 19 20 TOTAL BASIC REVENUE $ 3,785 $ 4,024 $ 4,263 $ 4,502 $ 4,755 $ 5,021 $ 5,303 6.6% 21 22 PAY % AVG SUBS 69.0% 70.0% 71.0% 72.0% 73.0% 74.0% 75.0% 1.5% 23 AVERAGE SUBSCRIBERS 8.5 8.7 8.9 9.1 9.3 9.5 9.7 2.7% 24 MONTHLY RATE 9.04 9.41 9.78 10.17 10.58 11.00 11.44 4.0% 25 REVENUE/SUBSCRIBER 109 113 117 122 127 132 137 4.0% 26 PAY SERVICE REVENUE $ 922.8 $ 986.0 $1,050.0 $1,113.4 $1,180.8 $1,252.1 $1,327.4 6.8% 27 28 AVG ADDRESSABLE SUBS 6.2 6.3 6.3 6.3 6.4 6.4 6.5 3.9% 29 % ADDRESSABLE SUBS 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 2.7% 30 PPV CUME MO. BUY RATE 16.5% 18.5% 20.5% 22.5% 24.5% 26.5% 28.5% 13.5% 31 TOTAL PPV BUYS 12.2 13.9 15.5 17.1 18.7 20.4 22.1 18.0% 32 AVERAGE PRICE/BUY 11.79 12.26 12.75 13.26 13.79 14.35 14.92 4.0% 33 TOTAL PPV REVENUE $ 144.0 $ 170.0 $ 198.0 $ 227.0 $ 259.0 $ 293.0 $ 329.0 22.7% 34 PPV REV/SUB/MO 0.98 1.14 1.31 1.49 1.69 1.9 2.13 21.2% 35 36 AD REVENUE/SUB/MO 2.11 2.32 2.55 2.81 3.09 3.40 3.74 10.0% 37 AD REVENUE/SUB 25.31 27.84 30.62 33.69 37.05 40.76 44.84 10.0% 38 TOTAL AD REVENUE $ 312.0 $ 347.0 $ 386.0 $ 427.0 $ 472.0 $ 522.0 $ 578.0 11.3% 39 40 HOME SHOPPING REV/SUB/MO 0.12 0.13 0.13 0.14 0.15 0.15 0.16 5.0% 41 HOME SHOPPING REV/SUB 1.45 1.52 1.60 1.67 1.76 1.85 1.94 5.0% 42 TOTAL HOME SHOPPING REV $ 18.0 $ 19.0 $ 20.0 $ 21.0 $ 22.0 $ 24.0 $ 25.0 6.3% 43 44 OTHER REVENUE $ 174.0 $ 183.0 $ 192.0 $ 201.0 $ 212.0 $ 222.0 $ 233.0 5.0% 45 % BASIC REVENUE 4.6% 4.6% 4.5% 4.5% 4.5% 4.5% 4.4% -1.5% 46 47 TOTAL CABLE REVENUE $5,355.0 $5,730.0 $6,108.0 $6,492.0 $6,900.0 $7,334.0 $7,796.0 7.2% 48 TOTAL REV/SUB/MONTH 36.23 38.27 40.43 42.72 45.15 47.71 50.42 5.9% 49 - ------------------------------------------------------------------------------------------------------------------ PREPARED FOR: JONES INTERCABLE 30 KAGAN MEDIA APPRAISALS, INC.
10-YEAR CASH FLOW PROJECTIONS (CONTINUED) - ------------------------------------------------------------------------------------------------------------------------------- Manitowoc, Wisconsin 1992 1993 1994 1995 08/96 1997 1998 1999 50 CASH FLOW (000) $1,574.0 $1,576.9 $1,469.6 $1,539.8 $1,108.2 $1,888.0 $2,105.0 $2,346.0 51 OPERATING MARGIN 45.8% 45.0% 42.0% 39.9% 42.5% 44.0% 45.5% 47.0% 52 CASH FLOW PERCENT INCREASE 0.2% -6.8% 4.8% 8.0% 13.3% 11.5% 11.4% 53 CASH FLOW PER AVERAGE SUB $ 168.24 $ 163.68 $ 140.20 $ 136.39 $ 144.81 $ 162.00 $ 177.06 $ 193.48 54 JONES/CROWN ALLOCATION % 3.71% 3.62% 3.83% 3.75% 4.13% 3.90% 3.90% 3.90% 55 JONES/CROWN CSH FLOW ALLOC. $ 58.36 $ 57.12 $ 56.26 $ 57.74 $ 45.74 $ 73.62 $ 82.08 $ 91.48 56 NET CASH FLOW FOR APPRAISAL $1,515.6 $1,519.8 $1,413.4 $1,482.1 $1,062.5 $1,814.1 $2,022.6 $2,254.1 57 DISCOUNT % 10% 58 DISCOUNT FACTOR 1.10 1.21 1.33 59 PRESENT VALUE FACTOR 0.91 0.83 0.75 60 DISCOUNTED CASH FLOW (000) $ 1,649 $ 1,672 $ 1,694 61 CUMULATIVE DISC CASH FLOW (000) $ 1,649 $ 3,321 $ 5,014 62 10 YEAR CUM. CASH FLOW (000) $ 16,386 63 EXTRAORDINARY CAP.EX. (000) $ 0 $ 0 $ 0 64 DISCOUNT % 0% 10% 10% 65 DISCOUNT FACTOR 1.10 1.21 1.33 66 PRESENT VALUE FACTOR 0.91 0.83 0.75 67 DISCOUNTED EXT. CAP. EX. (000) $ 0 $ 0 $ 0 68 CUMULATIVE DISC EXT CAP EX. (000) $ 0 69 10 YEAR CUM. NET CASH FLOW (000) $ 16,386 9.0 X 97 CF 70 $1,514 PER 10,825 SUBS ON 08/31/96 Manitowoc, Wisconsin 2000 2001 2002 2003 2004 2005 2006 GTH. RATE 50 CASH FLOW $2,573.0 $2,810.3 $3,057.0 $3,314.0 $3,591.0 $3,854.0 4,135.0 9.8% 51 OPERATING MARGIN 48.0% 49.0% 50.0% 51.0% 52.0% 52.55 53.0% 52 CASH FLOW PERCENT INCREASE 9.7% 9.2% 8.8% 8.4% 8.4% 7.3% 7.3% 53 CASH FLOW PER AVERAGE SUB $ 208.87 $ 225.27 $ 242.80 $ 261.70 $ 281.97 $ 300.84 $ 320.95 8.4% 54 JONES/CROWN ALLOCATION 3.90% 3.90% 3.90% 3.90% 3.90% 3.90% 3.90% 55 JONES/CROWN CSH FLOW ALLOC. $ 100.35 $ 109.60 $ 119.22 $ 129.24 $ 140.06 $ 150.30 $ 161.28 56 NET CASH FLOW FOR APPRAISAL $2,472.8 $2,700.7 $2,937.7 $3,184.7 $3,451.3 $3,703.6 $3,974.1 9.8% 57 DISCOUNT % 58 DISCOUNT FACTOR 1.46 1.61 1.77 1.95 2.14 2.36 2.59 59 PRESENT VALUE FACTOR 0.68 0.62 0.56 0.51 0.47 0.42 0.39 60 DISCOUNTED CASH FLOW $ 1,689 $ 1,677 $ 1,658 $ 1,634 $ 1,610 $ 1,571 $ 1,532 61 CUMULATIVE DISC CASH FLOW $ 6,703 $ 8,380 $ 10,038 $ 11,673 $ 13,283 $ 14,853 $16,386 62 10 YEAR CUM. CASH FLOW 63 EXTRAORDINARY CAP.EX. 64 DISCOUNT % 65 DISCOUNT FACTOR 66 PRESENT VALUE FACTOR 67 DISCOUNTED EXT. CAP. EX. 68 CUMULATIVE DISC EXT CAP EX. 69 10 YEAR CUM. NET CASH FLOW 70 - ------------------------------------------------------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 31 1996 KAGAN MEDIA APPRAISALS, INC.
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS - -------------------------------------------------------------------------------- 1. HOMES IN FRANCHISE AREA. Household growth in the service area is assumed to average 0.58% per year in 1997-2006, based on historical trends, census data, information from local agencies and chambers of commerce, and Claritas, Inc. 2. HOMES PASSED. 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 areas is projected to remain at 100%. 3. BASIC PENETRATION. Basic penetration is presently at 70% because of the service offerings and marketing programs of management. With a continuation of these efforts, we expect that it can gradually increase to 74.0% in 2001 and remain at that level through the remainder of the forecast period. This increase is supportable because of management's plan for five new service offerings by 1997, although we are assuming no system rebuild to add channel capacity. 4. BASIC MONTHLY RATES. Basic monthly rates were restructured in September, 1993 to take account of the FCC's new rate regulations. The system took the required rate rollback in September, 1994. Since the rate increase on March 1, 1995, the rate for the 25-channel Limited Basic has been $11.08, with the "Satellite Tier Service" of an additional 21 channels costing an added $9.58, for a total of $20.66 for 46 channels. The average monthly rate in 1994 was $20.13. With the rate increase of $0.80 in 1995, the average rate for through August, 1996 was $20.26. In 1997, it is assumed to increase by $1.95 in March, for the remaining 10 months of the year. For the remainder of the forecast period, this rate is assumed to increase at the modest rate of 5.0% annually, since no rebuild is projected. Basic service revenue increased from $2,532,600 in 1994 to $2,705,500 in 1995. This is an increase of 6.8%. Our projection shows annual increases of nearly the same level, at 6.6% for the 10-year forecast period. 5. RATE OF CHURN. The rate of churn declined from 24.5% in 1992 to 21.2% through August, 1996 (on an annualized basis). This is probably the result of the management's marketing efforts. With a continuation of those efforts, we are projecting that churn will stabilize at the 1996 level of 21.2%. 6. PAY PENETRATION. The system's pay-to-basic ratio increased dramatically from 46.3% to 68.8% from 1992 through 1994. It held at 68.4% in 1995 but declined slightly to 63.9% in August, 1996. The attractive discount package for multiple premium services, combined with a continuation of the system's successful marketing campaigns, should result in steady increases in pay penetration from the August 1996 rate. Therefore, we project that the pay-to- basic ratio will rise gradually to 75.0% by 2006. 7. PAY SERVICE RATES. The average monthly rate for premium services declined steadily from $9.07 in 1992 to $6.90 in 1995. This was undoubtedly the result of the aggressive discounting program for multiple pay services discussed previously. However, through August, 1996, it rebounded to $7.73. We anticipate that, with more than four years behind it, the discount package - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 32 KAGAN MEDIA APPRAISALS, INC. ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS (Continued) - -------------------------------------------------------------------------------- program will stabilize as a percentage of the premium subscriber base. Therefore, pay rates are projected to remain at the August year-to-date number for all of 1996, and then begin increasing in 1997 at a moderate annual rate of 4.0%. 8. PAY-PER-VIEW REVENUES. The Manitowoc system introduced pay-per-view services in 1990. The shifting of three major pay services to negative and positive traps for security has reduced the base of addressable homes. But most of the negative impact has already been felt, and the incentive being given to add the two remaining pay services, which remain addressable, is probably staunching the erosion of addressable homes. Therefore, we anticipate that the percentage of addressable homes will remain at its August 1996 level of 39.3% for the rest of the year. Because of continued marketing efforts and the offering of more attractive programming previously discussed, we believe that the percentage could return gradually over the next four years to its 1993 level of 50.0%. We also believe that, with effective marketing, that level could at least be sustained during the balance of the projection period. The cumulative monthly buy rate as a percentage of addressable subscribers was 6.0% in 1994 and 6.2% in 1995. By August, 1996, it had climbed to 8.5%. Given the stabilization in both the franchise situation (eliminating negative publicity) and the number of addressable homes, combined with management's increased emphasis on marketing, we expect the number of pay-per-view buys to remain at its August 1996 year-to-date rate for all of 1996, an increase of 2.3 percentage points from 1995. We project that the system's buy rate should increase gradually by 2.0 percentage points annually throughout the remainder of the forecast period, reaching the range of 28% by 2006. Given that we have not projected a rebuild for video-on-demand services, this level of pay-per-view penetration is justified. We also assume that the average price per buy will increase only modestly at 4.0% per year, rising from $10.08 in 1996 to $14.92 in 2006. 9. ADVERTISING. The system's advertising revenue averaged $1.69 per subscriber per month in 1994, a decline from 1992 ($1.88) and a slight increase from 1993 ($1.66). This was probably due to all the negative publicity surrounding the franchise litigation with the City which could easily have caused an adverse reaction among advertisers. The settling of that lawsuit, dissipating the ill- will, combined with the continuation of the three-person sales team, resulted in an encouraging increase ad sales in 1995, reaching $2.12 per subscriber per month. However, by August, 1996, it had declined to $1.44. As management demonstrated in 1995, the absence of the negative factors previously mentioned, along with the growing recognition among local advertisers of the cost effectiveness of cable, could well mean modest growth in advertising sales, particularly from the lower level of August 1996. From that level, we have projected only modest increases in the advertising revenue per subscriber of 10% annually, reaching $3.74 in 2006. 10. HOME SHOPPING. Home shopping revenue was in the range of $0.10-0.11 during 1992-1994. In 1995, it jumped to $0.15 but returned again to $0.10 for year-to- date August 1996. As the noteworthy gains in basic subscribers continue to expose more people to the convenience of home shopping via cable, we expect that 1995 will not be an aberration. In light of the 1995 results, we project that the revenue per subscriber can gradually increase, especially from the lower August 1996 level . As noted previously, the system will also be adding the Product Information Network, - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 33 KAGAN MEDIA APPRAISALS, INC. ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS (Continued) - ------------------------------------------------------------------------------- which should result in more commission revenues for the system. Therefore, we project that revenue will remain at $0.10 for all of 1996, and increase modestly at a rate of 5.0% annually through 2006. 11. OTHER REVENUE. Other revenue consists primarily of commercial accounts, converter rentals and sales, as well as late fees. In August, 1996, it stood at 5.1% of basic revenue, an slight decrease from its level of 5.8 % in 1992. We project that this percentage will decline only slightly as the basic penetration level continues to increase during the projection period. From its August 1996 level of about $143,000 (annualized), other revenue increases at 5.0% annually, reaching about $233,000 per year in 2006. 12. FIBER LEASING AND ADVANCED SERVICES. The system has no fiber capacity and has no plans to install it. Therefore, we have projected no revenues from this source. Nor have we projected revenues from the provision of network services, since there is no provision for deploying fiber at all, nor any plans to use the two-way capacity of the 10-mile institutional network beyond its present limited role of connecting the schools for educational programming. 13. OPERATING MARGIN. Continued modest growth in basic penetration, increases in ancillary revenues (e.g. pay-per-view, advertising and home shopping) and operating efficiencies associated with the projected growth in subscribers are expected to increase operating margins somewhat over the next several years. Historically, the system has operated at moderate margins in the range of 45%. This is because it has slightly above average penetration in a well-clustered territory served by a single headend and office. The margin decreased somewhat from its high in 1992 of 45.8% to 39.9% in 1995 because of the effects of the FCC's rate freeze, rate unbundling and the rate rollback. With those factors behind it, and the "catch up" increase of $1.95 on March 1, 1997, we expect the margin to improve to 44%, closer to its pre-regulation 1993 rate of 45.0%. This is only somewhat above its rate of 42.5% through August, 1996. With the continued modest basic rate increases, and increasing revenue in high-margin categories, it is reasonable to assume that the operating margins would return to their typically higher level of 45.5% in 1997, increasing 1.5 percentage points in 1998 and 1.0 percentage points each year thereafter through 2006 to 53.0%. 14. JONES/CROWN ALLOCATION. The five smaller franchises, and the portion of the system serving them, are not included in this appraisal, since they are not owned by the company. However, all the revenue and cash flow projections are for the entire system, so that they correlate to the financial statements for the system which have been provided. To allow for the exclusion of these five areas from the appraised value, we have adopted the method for allocating system operating income used by the company since 1992. The "Jones/Crown Allocation" has ranged from a low of 3.62% in 1993 to a high of 4.13% in the first eight months of 1996. In 1995, it was somewhat lower, at 3.75%. Since it has been higher in the more recent period of 1996 through August, we have calculated the weighted average percentage allocation for the 20-month period. It is 3.90%. This percentage is deducted each year from system cash flow to arrive at the "Net Cash Flow for - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 34 KAGAN MEDIA APPRAISALS, INC. ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS (Continued) - -------------------------------------------------------------------------------- Appraisal" shown in the 10-year projections. It is this "Net Cash Flow for Appraisal" that is then discounted in arriving at the valuation. 15. DISCOUNT FACTOR. Future cash flows are discounted by a risk-adjusted 10% factor, slightly above the Moody's Aaa corporate bond yield, which stood at 8.04% as of August 30, 1996. This rate is widely accepted in financial circles as a reliable indicator of future inflation and the cost of funds. 16. EXTRAORDINARY CAPITAL EXPENDITURES. System management has no plans to rebuild the system to increase channel capacity to 550 MHZ or 750 MHZ. Therefore, we have not included any capital expenditures for a system rebuild. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 35 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) or cash flow multiple 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 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. For Manitowoc , we studied comparable sales in 1996, focusing on sales with between 5,000 and 20,000 subscribers, with basic penetration of 50-85%. We emphasized stand-alone, similarly sized systems located in one primary area. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 36 KAGAN MEDIA APPRAISALS, INC. COMPARABLE ANALYSIS (Continued) - -------------------------------------------------------------------------------- MANITOWOC COMPARABLE SYSTEMS
BASIC BASIC COMP. ANN. LOCATION SUBS PEN. % CFX VALUE DATE ------------------------------------------------------------------ (MIL.) Colombus, MS 15,700 65% 9.5 $17.2 2/96 San Fran. Bay Area 12,300 51% 8.8 $16.0 7/96 Kern Valley, CA 8,200 70% 7.6 $13.8 6/96 Moses Lake, WA 12,500 83% 9.5 $17.2 8/96 ------------------------------- Averages 12,200 67% 8.9x $16.1 Manitowoc, WI 10,825 70% 9.0x $16.4
(C) 1996 Kagan Media Appraisals, Inc. The above comparables as a group closely mirror the Manitowoc, WI system, at 68% basic penetration and a similar subscriber base. The first comparable we considered was the sale of Columbus Cable's Columbus, MS system to Post-newsweek in February 1996. Like Manitowoc, the system serves one distinct community. The system sold at a multiple of 9.5x forward cash flow, a slightly higher multiple than Manitowoc due partially to a larger sub base and lower basic penetration. Applying that multiple to Manitowoc values the system at $17.2 mil. We next analyzed TCI's buy of a system serving the San Francisco bay area from Balkin Cable. TCI filled some holes in its bay area holdings by buying the Balkin subs in an all-cash deal July 30. The multiple, at 8.8x, reflects expenses necessary to upgrade the systems, as well as a limitation on penetration upside. The system's 8.8x 1997 cash flow multiple yields a comparable value of $16.0 mil. when applied to Manitowoc. - -------------------------------------------------------------------------------- PREPARED FOR:JONES INTERCABLE 37 KAGAN MEDIA APPAISALS, INC. COMPARABLE ANALYSIS (Continued) - -------------------------------------------------------------------------------- We then considered the system in Kern Valley, CA sold by PCI Sun Cable to Helicon in June 1996. This system is smaller, and in a more spread out area, which suggests a lower multiple and less potential for cash flow growth. Applying this 7.6x multiple to Manitowoc yields a comparable value of $13.8 mil. The last comparable we studied was the sale of Marcus Cable's Moses Lake, WA system to Northland Comm. in August 1996. This is a stand-alone system with a relatively high penetration of 83%, with a 9.5x sale multiple reflecting growth opportunities. Applying this multiple to Manitowoc yields a comparable value of $17.2 mil. The average of the comparable sales listed above is $16.1 mil. - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 38 KAGAN MEDIA APPRAISALS, INC. CORRELATION AND FINAL ESTIMATE OF VALUE - -------------------------------------------------------------------------------- The discounted cash flow analysis yields a value for the Manitowoc cable system of $16.4 mil., while the comparable analysis of comparable sales yields a value of $16.1 mil. The proximity of these values, within 2% 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 Manitowoc cable system can be expected to fall. In arriving at a single estimate of value, we note that while the system has some upside in basic penetration, this is limited by satellite competition and the fact that the system has no spare channel capacity to increase offerings, making it that much more vulnerable to competition. In addition, the system has only moderate upside in household growth. It does, however, have proven upside in the operating margin and ancillary revenues, which nevertheless will be constrained by the need to market effectively to meet competition. These factors lead us to value the system at the lower end of the range. Therefore, we conclude that the value of the Manitowoc cable television system is approximately $16.1 million. ------------- - -------------------------------------------------------------------------------- PREPARED FOR: JONES INTERCABLE 39 KAGAN MEDIA APPRAISALS, INC. EX-99.(B)(3) 4 APPRAISAL BY BOND & PECARO Exhibit (b)(3) ================================================================================ JONES INTERCABLE, INC. CABLE TV JOINT FUND 11 CABLE TELEVISION SYSTEM MANITOWOC, WISCONSIN APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996 ================================================================================ JONES INTERCABLE, INC. CABLE TV JOINT FUND 11 CABLE TELEVISION SYSTEM MANITOWOC, WISCONSIN APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996 TABLE OF CONTENTS -----------------
Section Page Number Item Number - ------- ------------------ ------ I. Introduction 1 II. Executive Summary 10 III. Discounted Cash Flow Model and Assumptions: 12 Manitowoc Market Overview 14 Homes Passed 15 Basic and Expanded Basic Penetration 16 Pay Penetration 16 Rates 17 Revenue Projections 17 Operating Profit Margins 18 Depreciation and Amortization 18 Federal, State, and Local Tax Rates 19 Capital Expenditures 19 Net After-Tax Cash Flow 19 Discount Rate 20 Residual Cash Flow Multiple 20 Present Value of Residual 21 Model Results 21 IV. Comparable Sales Analysis 26
TABLE OF CONTENTS ----------------- (continued)
Section Page Number Item Number - ------- --------------- ------ V. Consolidation 28 Exhibits -------- A. Qualifications of James R. Bond, Jr. and Timothy S. Pecaro
JONES INTERCABLE, INC. CABLE TV JOINT FUND 11 CABLE TELEVISION SYSTEM MANITOWOC, WISCONSIN APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996 I. INTRODUCTION --------------- Bond & Pecaro, Inc. has been retained to establish the fair market value of the non-current assets of the Jones Intercable, Inc. Cable TV Joint Fund 11 cable television system in Manitowoc, Wisconsin (the "Manitowoc System") as of August 31, 1996. Among these assets were towers, electronic equipment, office equipment, vehicles, a cable television distribution plant, a cable television franchise, and a cable television subscriber base. The Manitowoc System serves the City of Manitowoc, Wisconsin. The system also manages cable systems owned by Marcus Cable in the Village of Whitelaw and the Towns of Manitowoc, Newton, Cato, and Manitowoc Rapids. The revenues and expenses attributable to the Marcus Cable systems were excluded from this analysis. The Manitowoc System's cable distribution plant operates at 400 mHz with a capacity of 52 channels. The channel capacity of the system is currently fully utilized; there were no unused channels available as of August 31, 1996. The system is fully addressable and provides impulse pay-per-view services to subscribers. As of August 31, 1996, the system had 15.47 miles of underground cable distribution plant and -1- 155 miles of aerial cable plant. Approximately 15,400 homes were passed by the system's cable distribution plant. As of August 31, 1996, the system had approximately 10,825 basic subscribers, representing a basic subscriber penetration of 70.3%. The system had approximately 6,842 pay subscriptions, yielding a pay to basic ratio of approximately 63.2%. On August 31, 1996, the technical operations of the Manitowoc System were conducted from two sites. These consist of an office, headend, and studio facility located at 1614 Washington Street in Manitowoc and an off-air reception site on Silver Creek Road in Newton, Wisconsin. INDUSTRY OVERVIEW - ----------------- The cable television industry developed in the late 1940s in order to provide television service to communities in rural Pennsylvania which were too isolated to receive over-the-air broadcasts. Since that time, the industry has grown and diversified to provide a broad range of educational, entertainment, cultural, and sports programming to large urban areas and rural communities alike. According to the Broadcasting & Cable Yearbook 1996, the cable industry in ---------------------------------- the United States consists of approximately 11,800 operating systems serving over 34,000 communities throughout the United States. Approximately 100 additional cable television franchises have been approved but have yet to be constructed. Approximately 65.3% of all households in the United States are currently served by cable television. -2- Each system has been granted a franchise by its local municipal government. Franchises are awarded competitively, and the winning bidder must generally provide guarantees that expensive investments in local employment, local programming, and system technical design will be made. The construction of a cable television system is extremely capital intensive. The cost of installing aerial cable often comprises the single largest investment made by a cable television system operator. Underground cable television installation is even more expensive, when considered on a per-mile basis. Additionally, investments must be made in headend facilities, satellite receiving equipment, office facilities, and subscriber equipment such as converter units, which ultimately deliver cable television service to households. Numerous changes have occurred in the development of cable television technology. Original systems used vacuum tube electronics and provided only a few off-air channels to subscribers. By contrast, modern systems are capable of providing over 100 channels of service, including satellite signals and locally- originated programs. These systems use solid state amplifiers and addressable converter equipment to control subscriber service levels. Cable television systems provide entertainment, news, music, and other forms of programming to the public. The cable operator must pay a fee, usually calculated on a per-subscriber basis, to program suppliers. These fees may either be on a fixed basis, or calculated as a percentage of system revenues. -3- In order to cover the costs of operation, systems sell "basic" and "tier" services which include local television signals, local origination programs, and selected satellite services for a fixed monthly fee to all subscribers. Customers also have the option to subscribe to additional "premium" or "pay" services, such as Home Box Office and Showtime, which offer movies, sports, entertainment, and cultural programming. In some cases, cable systems generate additional revenues by selling advertising time to local and national businesses, government agencies, and political organizations which seek to deliver information to the general public. Given the substantial fixed costs resulting from the capital requirements of the business, as well as high programming costs, cable operators seek to maximize system penetration. Two types of system penetration are of paramount importance in the industry. The first is basic penetration, which is a measure of the number of homes sub scribing to cable television as a proportion of the homes which are passed by cable; if 400 homes subscribed to cable service in a community of 1,000 homes, basic penetration would be 40%. The second important measure is pay penetration, which gauges the popularity of pay services among those households which subscribe to basic cable service. If each of the 400 cable households in the example subscribed to two pay services, pay penetration would be 200%. The linkage between basic penetration, pay penetration, and customer development is fundamental to the cable industry. Operators constantly seek to provide programming -4- and services that will develop the widest appeal among local households. The more effectively the cable operator is able to meet the preferences of the public, the larger the system's subscriber base will be. This relationship between subscribers and revenues is axiomatic in the cable industry and is the primary determinant of success or failure among system operators. The cable industry has become increasingly competitive in recent years. Overall financial performance of the industry has fallen short of expectations that were developed in the early 1980s, when a large number of cable television facilities were constructed. Traditional broadcast stations continue to be the mainstay of television viewing in the United States. In recent years, the FCC has issued many additional licenses for new independent television stations throughout the country. Moreover, cable operators have come under increasing competitive pressure from videocassette rental outlets, direct broadcast satellite services, and other competing technologies. In order to build the largest possible subscriber base, systems invest heavily in tangible assets, such as distribution equipment and satellite equipment, and intangible assets such as marketing systems and programming agreements. Similarly, investments in equipment and intangible assets, such as managerial talent, may be oriented toward controlling costs and increasing profitability. It is in this marketplace, one defined by heavy capital investment, the relationship between subscriber base size and revenues, and increasing competition, that the Manitowoc System operates. -5- APPRAISAL METHODOLOGY - --------------------- To inspect the physical plant and gather relevant financial and market data necessary for the appraisal, Timothy S. Pecaro of the firm visited the offices and technical facilities of the system in Manitowoc, Wisconsin on June 2, 1995. In addition, the appraiser received updated financial and system information as of August 31, 1996 to assist in the preparation of this appraisal. A number of specific tasks were necessary for the completion of this project. These included: 1. Consultation with system management regarding market factors and system-specific issues which have an impact on the value of the property's tangible and intangible assets. 2. The completion of a discounted cash flow analysis to quantify the cash flows attributable to the Manitowoc System. 3. The development of a comparable sales analysis to establish the prices recently paid for similar cable television properties. 4. The consolidation of these analyses into an opinion of value. Specific data provided by the system and Jones Intercable, Inc. Cable TV Joint Fund 11 included historical audited financial statements for 1992 through 1996 year to date, operating statistic summaries, system technical data, market demographic data, management's ten year financial projections, and related materials. Other sources consulted in the preparation of this report include industry factbooks, government publications, and -6- similar reference materials. Additionally, the appraiser relied upon information furnished by system management relative to the age, condition, and adequacy of the system's physical plant. In the valuation of such properties, the income approach is generally judged to be the most appropriate methodology. The value of these assets is defined by the benefit that they bring to the owner of the property. The fair market value of the system's non-current assets can be expressed by discounting these future benefits. "Fair market value" is defined as the cash price that would be paid by a willing buyer to a willing seller in an arm's-length transaction, in which neither party acts under any compulsion to buy or sell. It is generally accepted that a telecommunications business' value lies in the fact that it is a "going concern." That is, its value reflects the revenues and, ultimately, the after-tax cash flow that the business may reasonably be expected to generate over a period of years. The potential resale value of the business at the end of that period is also an important factor in the valuation of such properties. The discounted cash flow model incorporates variables such as capital expenditures, homes passed by the system, basic penetration, pay penetration, system revenue projections, anticipated system operating expenses and profits, and various discount rates. The variables used in the analysis reflect historical system and market growth trends, as well as anticipated system performance and market conditions. -7- The capital expenditures provision reflects the amount of investment required to expand and maintain a competitive cable television business in the Manitowoc, Wisconsin operating area. The discounted cash flow projection period of ten years was judged to be an appropriate time horizon for the analysis. Cable operators and investors typically expect to recover their investments within a ten year period. It is over this period that projections regarding market demographics, system basic and pay penetration, and operating profit margins can be made with the highest degree of accuracy. During this ten year period, household growth in the Manitowoc area, anticipated market penetration percentages, and system operating performance expectations were used to project the system's operating profits. Income taxes were deducted from the projected operating profits to determine after-tax net income. Depreciation and amortization expenses were added back to the after-tax income stream and projected capital expenditures were subtracted to calculate the system's net after-tax cash flow. The stream of annual cash flows was adjusted to present value using a base after-tax discount rate of 12.0%. The discount rate represents an after-tax adjusted rate calculated for the cable television industry as of August 31, 1996. Additionally, it was necessary to project the system's residual value at the end of the ten year projection period. In order to determine this value, an operating cash flow multiple of 10.75 was applied to the system's 2006 projected operating cash flow. The -8- indicated terminal value was then discounted to present value using a discount rate of 12.0%. These calculations are described in detail in the body of this report. The market, or comparable sales, approach provides a useful means by which assumptions made in the development of the discounted cash flow analysis can be tested against marketplace transactions. Recent cable television system sales transactions were analyzed to obtain pertinent comparable sales data. The results of these approaches are considered and given appropriate weight in the consolidation portion of the analysis. -9- JONES INTERCABLE, INC. CABLE TV JOINT FUND 11 CABLE TELEVISION SYSTEM MANITOWOC, WISCONSIN APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996 II. EXECUTIVE SUMMARY ---------------------- The appraiser has quantified the value of the Manitowoc System using both the income and market approaches as of August 31, 1996. The indicated fair market value of the non-current assets of the system was approximately $16.7 million. The appraiser developed a discounted cash flow analysis to determine the value of the system, based upon its economic potential. The results of this analysis indicate that the value of the Manitowoc System as of August 31, 1996 was $16,713,500. In order to verify the results of the discounted cash flow analysis, the appraiser also utilized a comparable sales approach, relying upon an analysis of subscriber multiples. The results of this analysis support the conclusion resulting from application of the income approach. The assets were valued based upon information provided by Jones Intercable, Inc. Cable TV Joint Fund 11 and its affiliates. The appraiser can assume no responsibility for hidden defects, liabilities, or errors in information provided by the Manitowoc System, Jones Intercable, Inc. Cable TV Joint Fund 11, or other sources utilized in the preparation of this report. The appraiser has relied upon information furnished by system management and engineering personnel regarding the operating characteristics of certain assets. -10- Neither this firm nor any of its employees have any present or anticipated economic interest in the Manitowoc System or Jones Intercable, Inc. Cable TV Joint Fund 11. The compensation received by the firm was in no way contingent upon the values or the conclusions developed herein. This appraisal was prepared for Jones Intercable, Inc. in connection with its planned acquisition of the Manitowoc System from Jones Intercable, Inc. Cable TV Joint Fund 11. All information and conclusions contained in this report are based upon the best knowledge and belief of the undersigned, whose qualifications are attached hereto. BOND & PECARO, INC. BOND & PECARO, INC. 1201 Connecticut Ave, NW Suite 450 Washington, D.C. 20036 (202) 775-8870 November 9, 1996 BY /s/ James R. Bond, Jr. ----------------------------- James R. Bond, Jr. BY /s/ Timothy S. Pecaro ----------------------------- Timothy S. Pecaro -11- JONES INTERCABLE, INC. CABLE TV JOINT FUND 11 CABLE TELEVISION SYSTEM MANITOWOC, WISCONSIN APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996 III. DISCOUNTED CASH FLOW MODEL AND ASSUMPTIONS ------------------------------------------------ The assumptions used in the discounted cash flow model reflect potential system performance and trends in the Manitowoc, Wisconsin service area, as well as the experience of the cable television industry in general. As of August 31, 1996, Jones Intercable, Inc. Cable TV Joint Fund 11 owned various assets associated with the operation of the system in Manitowoc, Wisconsin. These assets include the system's tangible assets, subscriber base, franchise operating rights, and miscellaneous other intangibles assets which are essential to the lawful and efficient operation of the system. Tangible assets in place at the Manitowoc System as of August 31, 1996 include a cable television distribution plant, cable television subscriber drops, subscriber converters, towers, electronic equipment, office equipment, vehicles, and miscellaneous other tangible assets. As discussed in the introduction to this report, a critical element in the success of a cable television operation is its ability to build a viable subscriber base. The owner of a cable system that does not have a developed subscriber base would be forced to incur -12- substantial sales and marketing expenses in order to build subscriber revenues sufficient to cover the system's fixed costs and contribute to profits. In order to generate these subscribers, it would be necessary for the system to conduct major promotions, undertake direct marketing campaigns, and place advertisements in local media. There would also be substantial costs associated with customer cable connection and administrative costs. The inherent value of the Manitowoc System subscriber base is an important component of the system's overall value. In order to operate a cable television system within an area, a cable system operator must be awarded a local area franchise. Obtaining this franchise is a competitive process through which applicants submit bids which include, among other things, proposed channel capacity, service area, technical operating standards, and basic subscriber fees. The local government then typically selects the successful applicant and negotiates a franchise agreement. The Manitowoc System operates under the provisions of a single cable television franchise. On November 3, 1980, the system was granted a cable television franchise to serve the City of Manitowoc, Wisconsin. This franchise expired on November 3, 1995. The City of Manitowoc has temporarily extended the Jones Intercable, Inc. Cable TV Joint Fund 11 franchise to provide cable service within the city limits for an increased franchise fee of 5%. A renewal of The City of Manitowoc franchise is expected by December 1996. Going concern value consists of the organization and procedures that were in place at the Manitowoc System as of August 31, 1996. A number of factors contribute to going -13- concern value, including the formation of a business plan; the construction of the system headend facility; the development of a functional general, administrative, and technical organization; establishment of a sales and marketing organization; and the coordination of all of these functions into a well defined and efficient operating organization. In order to determine the value of the Manitowoc System as of August 31, 1996, a discounted cash flow analysis was developed. This analysis reflects assumptions regarding system revenues, operating expenses, and capital expenditures. MANITOWOC MARKET OVERVIEW - ------------------------- The Manitowoc System serves subscribers in the City of Manitowoc. According to the Wisconsin Public Service Corporation, the City of Manitowoc's population reached 34,000 in 1996. Major employers in the community include the Mirro Company, the Manitowoc Company, A. E. Goetze Corporation, and the Pullman Company (Imperial Eastman Division). Manitowoc County, in which the City of Manitowoc is located, had an unemployment rate below 3.0% in August 1996. According to Broadcasting & Cable Yearbook 1996, the Manitowoc System area ---------------------------------- is located within the Green Bay - Appleton, Wisconsin television market, which ranks 71st in the United States and contains approximately 375,000 households. The Green Bay -Appleton DMA (Designated Market Area) consists of 15 Wisconsin - - - counties, including Brown, Winnebago, Outagamie, Fond Du Lac, and Manitowoc, and one Michigan county, Menominee. -14- There are currently six commercial television stations operating in the Green Bay-Appleton market: WBAY-TV, Channel 2 (ABC); WFRV-TV, Channel 5 (CBS); WLUK-TV, Channel 11 (Fox); WSCO, Channel 14; WGBA, Channel 26 (NBC); and WACY- TV, Channel 32 (WBN). In addition to competition from these local broadcast television stations, the Manitowoc System vies with local radio stations, newspapers, MMDS, DBS, and videocassette rental outlets for audience share and advertising revenues. HOMES PASSED - ------------ The initial parameter upon which the discounted cash flow projection is based is homes passed, or "passings." Two factors affect the number of homes passed, new plant construction and household growth. Plant expansion improves system coverage by allowing the system to offer service to previously unserved areas. Household growth is the result of new construction and occupancies in areas that are already served by the system. It has been assumed that the number of households in the Manitowoc System franchise area will increase at a rate equivalent to the average growth projected for the areas served by the system as a whole, or approximately 0.8% per year. -15- BASIC AND EXPANDED BASIC PENETRATION - ------------------------------------ Basic and expanded basic subscriber penetration at the system are currently 69.4% and 97.1% (expressed as a ratio of basic subscribers), respectively. System basic penetration has shown limited but consistent growth during the past two years. It is likely that basic and expanded basic penetration will continue to demonstrate a modest growth trend over the projected 10 year period. For purposes of this analysis, the appraiser has assumed that basic subscriber penetration will gradually increase from its current level to approximately 85.0% by 2006, as shown in Table 1. Basic subscribers at the Manitowoc System are projected to increase at an annual rate of 4.2% in 1996, 3.2% in 1997, 2.7% in 1998, and from 1.7% to 2.5% through the year 2006. Expanded basic subscribers have been projected to remain at a 97.1% penetration ratio of basic subscribers through 2006. These rates are derived from the historical and anticipated performance of the system and the cable television industry in general. PAY PENETRATION - --------------- As of August 31, 1996, pay penetration at the Manitowoc System attained a level of 63.2%. For the purposes of this analysis, the appraiser has assumed that pay penetration will increase from this level to approximately 72.0% by 2006, as indicated in Table 1. This estimate is reasonable in light of the historical performance of the Manitowoc System and the anticipated performance of the cable television industry in general. -16- RATES - ----- System service rates are projected in Table 2. These are based upon prevailing Manitowoc System rates with provisions for anticipated increases, where appropriate. As of August 31, 1996, monthly service rates were $11.08 for limited basic service, $9.58 for expanded basic service, $7.95 to $9.95 for each pay service, and $1.45 for each converter. There is also an average one-time charge of $9.00 for remote control unit purchases. Installation fees ranged from $13.25 to $35.00, depending upon the type of installation service performed. Due to regulatory and competitive limitations, service rates for basic and expanded basic services are expected to grow with inflation, while premium channel services are expected to remain relatively flat. These assumptions are consistent with management expectations for service rate growth. REVENUE PROJECTIONS - ------------------- Most of the revenue projections appearing in Table 2 are calculated by multiplying the number of subscribers to a particular level of service by the projected rate. Commercial service revenue is projected to increase at an annual rate of 5.0%, based upon management expectations for the Manitowoc System. Similarly, pay-per-view service revenue is projected to increase at a 12.0% annual rate through 2006, reflecting management's system performance projections. -17- Commercial advertising is projected to increase at an 11.3% annual rate through 1999 and at an 11.4% rate thereafter, consistent with management expectations. Annual installation revenue was projected to grow at a compound annual rate of 3.5% during the projection period. Equipment rental revenues, as well as other revenues, are also projected to increase by 3.5% annually through 2006. As indicated in Table 3, total system revenues are projected to increase from $3.9 million in 1996 to approximately $7.2 million in 2006. OPERATING PROFIT MARGINS - ------------------------ Operating profit margins are based upon historical operating performance of the Manitowoc System. Operating profits are defined as profit before interest, depreciation, tax, and corporate allocation charges. For the purposes of this analysis, the system's August 1996 operating profit margin of 42.5% has been used. The Manitowoc System's operating profit margin was adjusted to exclude revenues and expenses associated with the Marcus Cable systems managed by the Jones Intercable, Inc. Cable TV Joint Fund 11. DEPRECIATION AND AMORTIZATION - ----------------------------- Depreciation and amortization estimates have been based upon an estimated tangible asset value of $2,820,000, the continuing annual capital expenditures required to upgrade and maintain the system's plant and equipment, and the system's estimated intangible asset value. -18- Depreciation for tangible property in each year has been determined using the MACRS schedule for 5, 7, 15, and 39 Year Property. Amortization of intangible assets has been estimated using the straight-line method over 15 years. FEDERAL, STATE, AND LOCAL TAX RATES - ----------------------------------- An estimated tax rate of 40.1% was applied to the projected taxable income of the system. This estimated rate reflects the effective combined federal, state, and local tax rates in effect on August 31, 1996. CAPITAL EXPENDITURES - -------------------- Capital expenditures were projected at approximately 8% of the estimated value of the tangible assets of the Manitowoc System as of August 31, 1996. These expenditures are necessary in order to replace assets that become irreparable, technically obsolete, or for other reasons are no longer useful to the system. As the system physical plant ages and as changes in technology occur, additional equipment and facilities will be necessary to improve and expand its productive capacity. NET AFTER-TAX CASH FLOW - ----------------------- Net after-tax cash flow was determined in two steps. After taxes were subtracted from the system's taxable income, non-cash depreciation and amortization expense was added back to net income to yield after-tax cash flow. From the after-tax cash flow, a -19- provision for subsequent capital expenditures was deducted to calculate net after-tax cash flow. DISCOUNT RATE - ------------- A discount rate of 12% was used to calculate the present value of the net after-tax cash flows. In order to account for the risk associated with investments in the cable television industry and the Manitowoc System in particular, a premium was added to a base discount rate to develop the 12% rate employed in this analysis. The base rate reflects application of the WACC (Weighted Average Cost of Capital) model. - - - - RESIDUAL CASH FLOW MULTIPLE - --------------------------- The residual cash flow multiple refers to the multiplier used to estimate the system's value at the end of the projection period. A multiplier of 10.75 was applied to the system's 2006 operating cash flow. Generally, multiples used in the valuation of cable television systems of this type range from 9 to 12 times operating cash flow, depending upon market conditions and a system's profit potential. Exceptional circumstances will warrant multiples outside of this range. The selected multiple of 10.75 was used to estimate the value of the system at the end of the investment period. This multiple reflects the state of the market for cable television systems as of August 31, 1996, tempered by the economic conditions of the system's franchise service area, the necessity for a system rebuild, and the uncertainty -20- introduced by re-regulation of the cable television industry and competition from telephone companies and direct broadcast satellite (DBS) operators. -21- PRESENT VALUE OF RESIDUAL - ------------------------- In the analysis, capital gains taxes were deducted from the discounted terminal value at a rate of 40.1%. This result was then discounted for present value. A rate of 12% was used in this calculation. MODEL RESULTS - ------------- The results of the discounted cash flow analysis are summarized in Table 4. Based upon the assumptions outlined above, the indicated fair market value of the system's non-current assets is $16,713,500. This value incorporates the cumulative present value of the net after-tax cash flows of $9,750,400 and the discounted residual value of $6,963,100, as shown in Table 4. -22- TABLE 1 ------- MANITOWOC SYSTEM SUBSCRIBER PROJECTIONS
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- Subscribers - ----------- Homes Passed 15,468 15,592 15,716 15,842 15,969 16,096 16,225 16,355 16,486 16,618 16,751 Basic Subscribers: Beginning of Year 10,647 11,094 11,449 11,758 12,017 12,221 12,527 12,840 13,161 13,490 13,827 Net Additions 447 355 309 259 204 306 313 321 329 337 346 End of Year 11,094 11,449 11,758 12,017 12,221 12,527 12,840 13,161 13,490 13,827 14,173 Average Basic Subscribers 10,871 11,272 11,604 11,888 12,119 12,374 12,684 13,001 13,326 13,659 14,000 Tier 1 Subscribers (EOY) 10,772 11,117 11,417 11,669 11,867 12,164 12,468 12,779 13,099 13,426 13,762 Premium Subscribers (EOY) 7,111 7,442 7,749 8,027 8,274 8,594 8,924 9,265 9,618 9,983 10,360 Basic Service Penetration 71.7% 73.4% 74.8% 75.9% 76.5% 77.8% 79.1% 80.5% 81.8% 83.2% 84.6% Tier 1 Penetration (% Subs.) 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% Premium Penetration (% Subs.) 64.1% 65.0% 65.9% 66.8% 67.7% 68.6% 69.5% 70.4% 71.3% 72.2% 73.1%
-23- TABLE 2 ------- MANITOWOC SYSTEM REVENUE PROJECTIONS (Dollar Amounts Shown in Thousands)
1996 1997 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- ---- ---- Service Revenue - --------------- Basic Service Revenue $1,496.2 $1,605.5 $1,711.3 $1,814.5 $1,915.3 $2,023.9 $2,147.6 $2,277.7 $2,416.2 Tier 1 Service Revenue 1,256.5 1,348.8 1,437.2 1,523.7 1,608.5 1,700.0 1,803.1 1,913.2 2,029.4 Basic Commercial & Pay Revenue 38.0 39.9 41.9 44.0 46.2 48.5 50.9 53.4 56.1 Premium Service Revenue 626.1 658.4 687.2 713.7 737.5 763.1 792.5 822.9 854.3 Pay Per View Revenue 39.7 44.5 49.8 55.8 62.5 70.0 78.4 87.8 98.3 -------- -------- -------- -------- -------- -------- -------- -------- -------- Subtotal Service Revenue $3,456.5 $3,697.1 $3,927.4 $4,151.7 $4,370.0 $4,605.5 $4,872.5 $5,155.0 $5,454.3 Other Revenue - ------------- Advertising Revenue $ 297.0 $ 330.6 $ 368.0 $ 409.6 $ 455.9 $ 507.9 $ 565.8 $ 630.3 $ 702.2 Installation 34.2 35.4 36.6 37.9 39.2 40.6 42.0 43.5 45.0 Equipment Rentals 42.9 44.4 46.0 47.6 49.3 51.0 52.8 54.6 56.5 FCC Pass Thru Revenue 4.9 5.1 5.2 5.4 5.5 5.6 5.7 5.9 6.0 Other Revenue 61.4 63.5 65.7 68.0 70.4 72.9 75.5 78.1 80.8 -------- -------- -------- -------- -------- -------- -------- -------- -------- Subtotal Other Revenue $ 440.4 $ 479.0 $ 521.5 $ 568.5 $ 620.3 $ 678.0 $ 741.8 $ 812.4 $ 890.5 Total Revenue $3,896.9 $4,176.1 $4,448.9 $4,720.2 $4,990.3 $5,283.5 $5,614.3 $5,967.4 $6,344.8 2005 2006 ---- ---- Service Revenue - --------------- Basic Service Revenue $2,563.4 $2,719.9 Tier 1 Service Revenue 2,153.3 2,283.8 Basic Commercial & Pay Revenue 58.9 61.8 Premium Service Revenue 886.7 920.3 Pay Per View Revenue 110.1 123.3 -------- -------- Subtotal Service Revenue $5,772.4 $6,109.1 Other Revenue - ------------- Advertising Revenue $ 782.3 $ 871.5 Installation 46.6 48.2 Equipment Rentals 58.5 60.5 FCC Pass Thru Revenue 6.2 6.3 Other Revenue 83.6 86.5 -------- -------- Subtotal Other Revenue $ 977.2 $1,073.0 Total Revenue $6,749.6 $7,182.1
-24- TABLE 3 ------- MANITOWOC SYSTEM FINANCIAL PROJECTIONS (Dollar Amounts Shown in Thousands)
1996 1997 1998 1999 2000 2001 2002 2003 2004 ---- ---- ---- ---- ---- ---- ---- ---- ---- Projected System Revenues $3,896.9 $4,176.1 $4,448.9 $4,720.2 $4,990.3 $5,283.5 $5,614.3 $5,967.4 $6,344.8 Operating Profit Margin 42.5% 42.5% 42.5% 42.5% 42.5% 42.5% 42.5% 42.5% 42.5% Operating Cash Flow $1,656.2 $1,774.8 $1,890.8 $2,006.1 $2,120.9 $2,245.5 $2,386.1 $2,536.1 $2,696.5 Less: Depreciation 1,362.5 1,701.5 1,501.6 1,373.6 1,338.1 1,299.3 1,260.9 1,201.4 1,132.1 -------- -------- -------- -------- -------- -------- -------- -------- -------- Taxable Income $ 293.7 $ 73.3 $ 389.2 $ 632.5 $ 782.8 $ 946.2 $1,125.2 $1,334.7 $1,564.4 Taxes 117.8 29.4 156.1 253.6 313.9 379.4 451.2 535.2 627.3 -------- -------- -------- -------- -------- -------- -------- -------- -------- Net Income $ 175.9 $ 43.9 $ 233.1 $ 378.9 $ 468.9 $ 566.8 $ 674.0 $ 799.5 $ 937.1 Add Back: Depreciation 1,362.5 1,701.5 1,501.6 1,373.6 1,338.1 1,299.3 1,260.9 1,201.4 1,132.1 -------- -------- -------- -------- -------- -------- -------- -------- -------- After-Tax Cash Flow $ 518.4 $1,745.4 $1,734.7 $1,752.5 $1,807.0 $1,866.1 $1,934.9 $2,000.9 $2,069.2 Capital Expenditures 76.0 225.6 225.6 225.6 225.6 225.6 225.6 225.6 225.6 -------- -------- -------- -------- -------- -------- -------- -------- -------- Net After-Tax Cash Flow $ 442.4 $1,519.8 $1,509.1 $1,526.9 $1,581.4 $1,640.5 $1,709.3 $1,775.3 $1,843.6 Present Value Net After-Tax Cash Flow $ 434.0 $1,382.3 $1,225.5 $1,107.1 $1,023.7 $ 948.2 $ 882.1 $ 818.0 $ 758.5 Cumulative Present Value Net After-Tax Cash Flow $ 434.0 $1,816.3 $3,041.8 $4,148.9 $5,172.6 $6,120.8 $7,002.9 $7,820.9 $8,579.4 Cumulative Present Value Net After-Tax Cash Flow $9,750.4 ======== 2005 2006 ---- ---- Projected System Revenues $6,749.6 $7,182.1 Operating Profit Margin 42.5% 42.5% Operating Cash Flow $2,868.6 $3,052.4 Less: Depreciation 1,132.1 1,132.1 -------- -------- Taxable Income $1,736.5 $1,920.3 Taxes 696.3 770.0 -------- -------- Net Income $1,040.2 $1,150.3 Add Back: Depreciation 1,132.1 1,132.1 -------- -------- After-Tax Cash Flow $2,172.3 $1,513.2 Capital Expenditures 225.6 149.6 -------- -------- Net After-Tax Cash Flow $1,946.7 $1,363.6 Present Value Net After-Tax Cash Flow $ 715.1 $ 455.9 Cumulative Present Value Net After-Tax Cash Flow $9,294.5 $9,750.4
Note: 1996 and 2006 after-tax cash flows and capital expenditures adjusted for partial years. -25- TABLE 4 ------- CALCULATION OF VALUE ATTRIBUTABLE TO MANITOWOC SYSTEM NON-CURRENT ASSETS (Dollar Amounts Shown in Thousands) 2006 Operating Cash Flow 1/ $ 3,052.4 10.75x Cash Flow Multiple 2/ $32,813.3 Less: Remaining Basis 4,915.8 --------- Capital Gain $27,897.5 Capital Gains Tax @ 40.1% 2/ $11,186.9 ___________________________ Terminal Value $32,813.3 Less: Capital Gains Tax 11,186.9 --------- After-Tax Terminal Value $21,626.4 After-Tax Terminal Value Discounted to Present Value @ 12% 2/ $ 6,963.1 Plus: Cumulative Present Value After-Tax Cash Flow 1/ 9,750.4 --------- Indicated Fair Market Value: (Income Approach) Non-Current Assets of the Manitowoc System $16,713.5 =========
1/ See Table 3. 2/ See text. -26- JONES INTERCABLE, INC. CABLE TV JOINT FUND 11 CABLE TELEVISION SYSTEM MANITOWOC, WISCONSIN APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996 IV. COMPARABLE SALES ANALYSIS ------------------------------ In recent years, there have been many sales of cable television systems in the United States. Table 5 identifies ten cable television system sales which occurred within the past year. These sales have been selected based upon their comparability to the Manitowoc System. Subscriber counts for the comparable cable television systems shown in Table 5 are within 25% of the August 31, 1996 Manitowoc cable television system subscriber level of 10,825. The prices paid for these comparable systems range from $9.6 million to $20.0 million. As shown in Table 5, the price per subscriber has been computed for each comparable sale. This measure is calculated by dividing the reported purchase price of the cable television system by the total number of basic subscribers. The average price per subscriber paid for the ten comparable cable television system sales listed in Table 5 is approximately $1,419. -27- TABLE 5 ------- MANITOWOC CABLE TELEVISION SYSTEM COMPARABLE SALES
Basic Price Price Subs Per Sub Date Location Seller Buyer (mil.) (000) (000) - ---- -------- ------ ----- ------ ----- ----- Nov. 95 Emmaus, PA Lenfest Service Electric $15.2 9.1 $1,672 Mar. 96 Northern, MS TCI of Kansas Galaxy Telecom 15.4 10.0 1,537 Apr. 96 KS based system Cablevision of Texas Galaxy Telecom 9.6 9.0 1,066 Apr. 96 GA based system Falcon Holdings Teleview Inc. 15.0 9.5 1,579 Apr. 96 WA, OR and CA systems Apollo Comm. Cable Plus, Inc. 12.1 11.6 1,052 Jun. 96 Columbus, GA TCI Charter Communications 15.8 13.0 1,212 Jun. 96 Jasper, TN PCI Sun Cable Helicon 11.4 8.2 1,382 Jul. 96 San Francisco, CA area Balkin Cable TCI of Georgia 19.6 12.3 1,594 Jul. 96 GA and OH based systems Clear-Vu Cable Helicon 18.2 12.3 1,530 Aug. 96 Moses Lake, WA Marcus Cable Northland Comm. 20.0 12.5 1,568 ----- ---- ------ Average $15.2 10.8 $1,419 ===== ==== ======
Source: Announced cable television sales data from Paul Kagan Associates Cable ----- TV Investor. - ----------- Note: Price per subscriber calculations may show slight rounding discrepancy. -28- JONES INTERCABLE, INC. CABLE TV JOINT FUND 11 CABLE TELEVISION SYSTEM MANITOWOC, WISCONSIN APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996 V. CONSOLIDATION ----------------- The results of the discounted cash flow analysis are summarized in Table 4. Based upon the assumptions outlined above, the indicated value of the cable system serving the Manitowoc franchise area is found to be approximately $16.7 million. This value incorporates the cumulative present value of the net after- tax cash flows of $9,750,400 and the discounted residual value of $6,963,100. To place this economic value in the context of current market conditions, the appraiser sought to compare this value with prevailing subscriber multiples for cable television systems in August 1996. The $16.7 million value reflects a subscriber multiple of approximately $1,540 per subscriber. The indicated value for the system appears to be quite consistent with prevailing subscriber multiples, as shown in Table 5. Giving appropriate weight to the discounted cash flow analysis and the reported comparable sales transactions, the indicated value of the non-current assets of the Manitowoc cable television system as of August 31, 1996 is found to be $16.7 million. -29- EXHIBIT A QUALIFICATIONS OF JAMES R. BOND, JR. AND TIMOTHY S. PECARO PROFESSIONAL EXPERIENCE AND QUALIFICATIONS ------------------------------------------ JAMES R. BOND, JR. ------------------ James R. Bond, Jr. is a principal in the consulting firm of Bond & Pecaro, Inc. In this capacity, he is routinely retained to examine and study economic issues which affect media businesses. Before the formation of Bond & Pecaro, Inc., Mr. Bond was a Vice President with Frazier, Gross & Kadlec, Inc. Mr. Bond joined that firm in 1978, was appointed Manager of Asset Appraisal Services in 1979, and in 1982 was named Vice President. In this capacity he engaged in the development and preparation of asset appraisal reports and economic analyses for owners of broadcast and cable television properties. Mr. Bond has been retained to appraise, for a fee, the assets of over 1,500 radio, television, radio common carrier, and cable television properties. He is a member of the Society of Broadcast Engineers (SBE), the Cable Television Tax Professionals Institute (CTTPI), and The Society of Cable Television Engineers (SCTE). He is a member and director of the Broadcast and Cable Television Financial Management Association (BCFM), and serves on that organization's Taxation Advisory Committee. He also serves on the National Association of Broadcasters (NAB) Tax Advisory Panel and Depreciation Task Force. Mr. Bond is a Certified Senior Radio Broadcast Engineer (SBE), a Certified Senior Television Broadcast Engineer (SBE), and holds an FCC First Class Radiotelephone Operator License. He has testified as an expert witness in connection with numerous telecommunications valuation matters before federal, state, and local courts. Mr. Bond received a Bachelor of Arts degree in Radio, Television and Motion Pictures from the University of North Carolina at Chapel Hill in 1976. Mr. Bond also holds a Masters Degree in Business Administration from the University of Virginia in Charlottesville, Virginia. PROFESSIONAL EXPERIENCE AND QUALIFICATIONS ------------------------------------------ TIMOTHY S. PECARO ----------------- Timothy S. Pecaro is a principal in the firm of Bond & Pecaro, Inc., a Washington based consulting firm specializing in valuations, asset appraisals, and related financial services for the communications industry. Before the formation of Bond & Pecaro, Inc., Mr. Pecaro was a Vice President with Frazier, Gross & Kadlec, Inc. Mr. Pecaro joined that firm in 1980 and was named Manager of the firm's Asset Appraisal Services Division in 1982. He became Director of Asset Appraisal Services in 1983 and Vice President of the firm in 1984. Mr. Pecaro has actively participated in the development, research, and preparation of asset appraisal reports for owners of radio, television, newspaper, radio common carrier, and CATV properties. He has also developed several research studies and has participated in special research at the FCC. Mr. Pecaro has appraised the assets of more than 1,500 communications facilities. He has also been retained to provide special market studies and individual research projects for the management of broadcast properties and related industries. He is a member of the Broadcast Cable Financial Management Association, the NAB Tax Advisory Panel, and the NAB Depreciation Task Force. Mr. Pecaro has testified as an expert witness in connection with telecommunications valuation matters before federal and state courts. He has also spoken on communications financial issues at the annual conferences of the National Association of Broadcasters, the Broadcast Financial Management Association, and Telocator. Prior to his association with Frazier, Gross & Kadlec, Mr. Pecaro was employed at WMAQ and WKQX(FM) in Chicago, Illinois, two of the NBC owned and operated radio stations. Mr. Pecaro served as Program Research Director and Assistant Music Director at WKQX. Mr. Pecaro received a Bachelor of Arts degree in Radio/Television Communication Arts from Monmouth College in 1976. He graduated Cum Laude with highest honors in his major field of study. EX-99.(D)(1) 5 PROXY FOR CABLE TV FUND 11-B Exhibit (d)(1) [LOGO OF JONES INTERCABLE APPEARS HERE] 9697 EAST MINERAL AVENUE ENGLEWOOD, COLORADO 80112 NOTICE OF VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 11-B, LTD. To the Limited Partners of Cable TV Fund 11-B, Ltd.: A special vote of the limited partners of Cable TV Fund 11-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., of the Manitowoc, Wisconsin cable television system (the "Manitowoc System") owned by Cable TV Joint Fund 11, a joint venture in which the Partnership has an 8 percent ownership interest, for $16,122,333 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 Manitowoc System and if the transaction is closed, the net sale proceeds will be distributed to the four constituent partnerships of Cable TV Joint Fund 11 in proportion to their ownership interests. The Partnership accordingly will receive 8 percent of such proceeds, estimated to total approximately $1,502,744, and the Partnership will distribute this portion of the net sale proceeds to its partners of record as of March 31, 1997. It is estimated that the limited partners will receive $31 for each $500 limited partnership interest, or $61 for each $1,000 invested in the Partnership. The Partnership then will be dissolved and liquidated. Only limited partners of record at the close of business on January 31, 1997 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. Cable TV Joint Fund 11's ability to complete the transaction discussed in the Proxy Statement and the Partnership's ability to make a distribution to its partners of its portion of the net proceeds of the sale of the Manitowoc 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 /s/ Elizabeth M. Steele Elizabeth M. Steele Secretary Dated: February 28, 1997 [LOGO OF JONES INTERCABLE APPEARS HERE] 9697 EAST MINERAL AVENUE ENGLEWOOD, COLORADO 80112 PROXY STATEMENT VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 11-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 11-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 Manitowoc, Wisconsin cable television system (the "Manitowoc System") owned by Cable TV Joint Fund 11 (the "Venture"), a joint venture in which the Partnership has an 8 percent ownership interest, for $16,122,333 in cash, subject to normal working capital closing adjustments. The Manitowoc System is proposed to be sold to the General Partner. 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 April 15, 1997, 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, as the case may be. 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 December 7, 1996, the Partnership had 38,026 limited partnership interests outstanding held by approximately 3,168 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 40 limited partnership interests. Officers and directors of the General Partner own no limited partnership interests.The 40 limited partnership interests owned by the General Partner will be voted in favor of the proposed transaction. Only limited partners of record at the close of business on January 31, 1997 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. As of the date of this proxy statement, the Partnership's only asset is its 8 percent ownership interest in the Venture. Cable TV Fund 11-A, Ltd. has an 18 percent ownership interest in the Venture, Cable TV Fund 11-C, Ltd. has a 27 percent ownership interest in the Venture and Cable TV Fund 11-D, Ltd. has a 47 percent ownership interest in the Venture. As of the date of this proxy statement, the Venture's only asset is the Manitowoc System. Upon the consummation of the proposed sale of the Manitowoc System, the Venture will pay all of its indebtedness, which totalled approximately $4,775 at September 30, 1996, and then the net sale proceeds will be distributed to the four constituent partnerships of the Venture in proportion to their ownership interests in the Venture. The Partnership accordingly will receive 8 percent of such proceeds, estimated to total approximately $1,502,744, and the Partnership will distribute its portion of the net sale proceeds to its partners of record as of March 31, 1997. Because limited partners will have already received distributions in an amount in excess of the capital initially contributed to the Partnership by the limited partners, the Partnership's portion of the net proceeds from the Manitowoc System's sale will be distributed 75 percent to the limited partners and 25 percent to the General Partner. Based upon pro forma financial information as of September 30, 1996, as a result of the Manitowoc System's sale, the limited partners of the Partnership, as a group, will receive approximately $1,159,858 and the General Partner will receive approximately $354,263. Limited partners will receive $31 for each $500 limited partnership interest, or $61 for each $1,000 invested in the Partnership, from the Partnership's portion of the net proceeds of the Manitowoc System's sale. Once the Partnership has completed the distribution of its portion of the net proceeds from the sale of the Manitowoc System, limited partners of the Partnership will have received a total of $1,636 for each $500 limited partnership interest, or $3,271 for each $1,000 invested in the Partnership, taking into account the prior distributions to limited partners made in 1990 and 1992 and 1996. After the Partnership distributes its portion of the proceeds from the sale of the Manitowoc System to its partners, the Partnership will be dissolved and liquidated. Thus, as a result of the sale of the Manitowoc System by the Venture, the Partnership will cease to be a public entity subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Limited partners should note that there are certain income tax consequences of the proposed sale of the Manitowoc System, which are outlined herein under the caption "Federal Income Tax Consequences." The Board of Directors of the General Partner has approved the proposed sale of the Manitowoc 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 mandated 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 higher than any other bid received in a public bidding process and is not less than the average of three separate independent appraisals of the fair market value of the system to be sold. Because the Venture solicited bids in a public bidding process, which is now closed, the General Partner was the only bidder and the purchase price to be paid by the General Partner is equal to the average of three separate independent appraisals of the fair market value of the Manitowoc System, the Board of Directors of the General Partner has concluded that the consideration to be paid to the Venture for the Manitowoc System is fair. 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 Manitowoc 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 Manitowoc System, if the holders of a majority of the limited partnership interests approve the proposal, all limited partners will receive a distribution of the Partnership's 2 portion 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 General Partner has also prepared proxy statements that are being delivered to the limited partners of Cable TV Fund 11-A, Ltd., Cable TV Fund 11-C, Ltd. and Cable TV Fund 11-D, Ltd. in connection with their votes to approve the sale of the Manitowoc System by the Venture to the General Partner. The closing of the sale of the Manitowoc System will occur only if the transaction is approved by the holders of a majority of the limited partnership interests of each of the four constituent partnerships of the Venture. Copies of the proxy statements being delivered to the limited partners of the Venture's other constituent partnerships have been filed with the Securities and Exchange Commission and can be obtained either from the public reference section of the Commission at prescribed rates or from the General Partner without charge upon written request to Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East Mineral Avenue, Englewood, Colorado 80112, (303) 792-3111. The approximate date on which this Proxy Statement and Form of Proxy are being sent to limited partners is February 28, 1997. SPECIAL FACTORS THE PARTNERSHIP'S INVESTMENT OBJECTIVES The Partnership was formed to acquire, develop, operate and, ultimately, sell cable television systems. The primary objectives of the Partnership have been 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 was 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 after a holding period of approximately five to seven years. It also was contemplated from the outset of the Partnership's existence that the General Partner could be the purchaser of the Partnership's cable television properties. Due to the City of Manitowoc's refusal to consent to the transfer of the Manitowoc System's franchise when the General Partner attempted to sell the Manitowoc System in 1990, the resulting legal action against the City and the protracted franchise renewal negotiations, the Manitowoc System has been held by the Venture almost 13 years. The purpose of the sale of the Manitowoc System, from the Partnership's perspective, is to attain the Partnership's primary investment objective with respect to the Manitowoc System, i.e., to convert the Partnership's capital appreciation in the Manitowoc System to cash, and to allow the Partnership to be dissolved and liquidated. The sale proceeds will be used to repay all outstanding indebtedness of the Venture, with the remaining sale proceeds to be distributed to the four constituent partnerships of the Venture. The Partnership in turn will distribute its portion of the net sale proceeds to the partners of the Partnership in accordance with the distribution procedures established by the Partnership Agreement. The sale of the Manitowoc System is thus the necessary final step in the Partnership's accomplishment of its investment objectives. PRIOR ACQUISITIONS AND SALES The Partnership was formed in May 1983 as a Colorado limited partnership in connection with a public offering of its limited partnership interests. In March 1984, the Partnership acquired cable television systems serving certain communities in upstate New York, a portion of which were sold in July 1992 and the balance of which are to be sold in March 1996. In April 1984, the Partnership invested $3,500,000 of limited partner capital contributions in the Venture, through which it acquired an 8 percent ownership interest in the Venture. In April 1984, the Venture acquired the cable television systems serving the communities of Cedarburg, Green Bay, Hustisford, Janesville, Manitowoc, West Allis, Waupaca and their surrounding areas, all in the State of Wisconsin. The Venture also acquired an interest in the Kenosha, Wisconsin cable television franchise and subsequently constructed the Kenosha system. Except for the Manitowoc System, which is still owned by the Venture, all of these Wisconsin systems have been sold. 3 In September 1989, Total TV of Kenosha, a Wisconsin limited partnership in which the Venture had a 75 percent ownership interest as both the general partner and a limited partner, sold its cable television system serving the Kenosha, Wisconsin area to an affiliate of the General Partner. Proceeds to the Venture from this sale, which totaled approximately $31,828,700, were used to repay $30,600,000 of the Venture's outstanding obligations under its credit facility. Certain minority investors in Total TV of Kenosha, which were not affiliated with the Venture, the Partnership or the General Partner, received approximately $5,171,100 from the sale. No distributions to the four partnerships participating in the Venture were made from the proceeds of the sale of the Kenosha, Wisconsin system. In June 1990, the Venture sold its remaining Wisconsin cable television systems, except for the Manitowoc System. These Wisconsin systems were sold to an affiliate of the General Partner. Proceeds from that sale, which totaled approximately $178,600,000, were used to repay all of the Venture's then outstanding indebtedness in connection with its Wisconsin systems and to make distributions in June 1990 to the four partnerships participating in the Venture. The Partnership subsequently distributed its $9,153,740 share of the sale proceeds to its limited partners. Limited partners of the Partnership received a distribution of $241 per $500 limited partnership interest, or $481 per $1,000 invested in the Partnership, as a result of the June 1990 sale of these Wisconsin systems. The Manitowoc System was not sold in 1990 only because the City of Manitowoc refused to consent to the transfer of the Manitowoc franchise on terms acceptable to the then-proposed buyer. A dispute arose about a provision of the Manitowoc franchise that the City claimed allowed the City to acquire the Manitowoc System upon expiration of the franchise in 1995. In April 1991, the Venture took legal action against the City seeking a declaration as to whether the buy-out right was enforceable under federal law. In February 1993, the court ruled in favor of the Venture and found that the buy-out right would not be triggered upon the expiration of the franchise, assuming the franchise is renewed. The court did not determine the question of whether the buy-out right was enforceable per se under federal law. The City appealed the decision. In October 1993, however, the City and the Venture settled the legal action and the appeal was dismissed. In the settlement agreement, the City conceded that its buy-out right was not applicable in the event the franchise is renewed and represented to the Venture that the City knew of no reason for non-renewal of the franchise. The original term of the Manitowoc franchise expired in 1995 and the Manitowoc System was operated through most of 1996 pursuant to temporary franchise extensions. In November 1996, however, the City agreed to renew the Manitowoc franchise for a period of five years beginning January 1, 1997 and, at the same time, the City approved the transfer of the franchise from the Venture to the General Partner provided that the transfer occurs no later than June 30, 1997. In July 1992, the Partnership sold the portion of its New York systems serving the municipality of Grand Island to an unaffiliated entity for a sales price of $14,500,000. Proceeds from the sale of this system were used to reduce Partnership debt and a distribution of the net sale proceeds equal to $259.50 per $500 limited partnership interest, or $519 per $1,000 invested in the Partnership, was made to the limited partners of the Partnership in July 1992. In 1996, the limited partners of the Partnership voted to approve the sale of the remainder of the Partnership's Lancaster, New York systems to an unaffiliated party for a sales price of $84,000,000, subject to normal working capital adjustments. Proceeds from the March 1996 sale of the Partnership's Lancaster, New York systems were used to repay all of the Partnership's indebtedness, which totaled $24,924,958 at April 1, 1996, a sales tax liability of $963,381, a brokerage fee of $2,100,000 to a subsidiary of the General Partner and then the Partnership distributed the approximately $56,025,000 remaining proceeds to its partners. The limited partners of the Partnership, as a group, received approximately $42,018,700 and the General Partner received approximately $14,006,300 in April 1996. Limited partners received $1,105 for each $500 limited partnership interest, or $2,210 for each $1,000 invested in the Partnership, from the net proceeds of the March 1996 sale of the Partnership's Lancaster, New York systems. The Partnership has made three prior distributions to its limited partners: the April 1996 distribution of the net proceeds of the sale of the Partnership's Lancaster, New York systems, the July 1992 distribution of the net proceeds of the sale of the Partnership's Grand Island, New York system and the June 1990 distribution of the Partnership's portion of the net proceeds of the sale of the Venture's Cedarburg, Green Bay, Hustisford, Janesville, West Allis and Waupaca, Wisconsin systems. The Partnership intends to make a distribution of the 4 Partnership's portion of the net proceeds of the sale of the Venture's Manitowoc System. Following this distribution, the Partnership will be dissolved and liquidated. THE GENERAL PARTNER'S OBJECTIVES The purpose of the transaction, from the General Partner's perspective, is to enable the Venture to sell the Manitowoc System at a fair price and to enable the partnerships that comprise the Venture thereafter to be dissolved and liquidated in accordance with their investment objectives. Since 1990, when the original sale of the Manitowoc System was frustrated by the refusal of the City of Manitowoc to consent to the transfer of the Manitowoc System on terms acceptable to the then-proposed buyer, the General Partner has sought, on the Venture's behalf, through both negotiations and litigation with the City, to resolve the dispute with the City about the City's purported buy-out right and to obtain a franchise for the Manitowoc System that contained commercially reasonable terms that in turn would enable the Venture to find a buyer for the Manitowoc System at a fair price. Following the settlement of the Venture's lawsuit against the City in October 1993 and the subsequent commencement of franchise renewal negotiations, in 1995 the General Partner identified Time Warner Entertainment Company, L.P. ("Time Warner"), an unaffiliated cable television system operator, as a potential purchaser of the Manitowoc System because of the proximity of certain of Time Warner's cable television systems to the Manitowoc System. In discussions between the General Partner and Time Warner about the sale of the Manitowoc System, Time Warner indicated that it was interested in acquiring the Manitowoc System from the Venture but Time Warner informed the General Partner that it was not willing to purchase the Manitowoc System for cash. Time Warner offered instead to trade a cable system it owned for the Manitowoc System. Because a trade between the Venture and Time Warner would not have enabled the Venture to accomplish its investment objective of converting its capital appreciation in the Manitowoc System to cash, and would have resulted in the Venture owning yet another cable system, the General Partner determined that the Venture could not agree to trade the Manitowoc System for a Time Warner system. To enable the Venture to convert its investment in the Manitowoc System to cash, the General Partner agreed to acquire the Manitowoc System from the Venture and then trade it for a Time Warner system that the General Partner determined that it would like to own. Because of the requirements of the Partnership Agreement, the General Partner had the Manitowoc System appraised by three independent appraisers and conducted a public bidding process so that the General Partner could enter into an asset purchase agreement with the Venture for acquisition of the Manitowoc System. On September 5, 1995, the Venture and the General Partner entered into an asset purchase agreement providing for the sale of the Manitowoc System to the General Partner for a sales price of $15,735,667, the average of the original three appraisals. Because the City ultimately refused to agree to the renewal and transfer of the Manitowoc franchise on terms acceptable to the General Partner and Time Warner, the proposed purchase of the Manitowoc System by the General Partner and the subsequent trade of the Manitowoc System with Time Warner did not occur within the time period prescribed by the General Partner's agreement with Time Warner. Because the General Partner had not intended to acquire the Manitowoc System for its own account and because the General Partner believed that the Venture would be able to close a sale of the Manitowoc System to an unaffiliated cable system operator more quickly than to the General Partner (the General Partner assumed that a sale of the Manitowoc System to an unaffiliated cable system operator would move through the limited partner approval processes more expeditiously), in mid-1996 the General Partner, on the Venture's behalf, began negotiating for the sale of the Manitowoc System to Marcus Cable, a cable system operator like Time Warner with cable systems in the vicinity of Manitowoc and thus the most likely unaffiliated purchaser of the Manitowoc System other than Time Warner. Like Time Warner, however, Marcus Cable could not come to agreement with the City on the terms for renewal and transfer of the Manitowoc franchise and Marcus Cable declined to enter into an agreement to purchase the Manitowoc System. 5 Upon the conclusion of the unsuccessful negotiations with Marcus Cable in September 1996, the General Partner determined that it would go forward with the acquisition of the Manitowoc System itself to enable the Venture to sell the Manitowoc System at a fair price and to enable the partnerships that comprise the Venture to be dissolved and liquidated in 1997. Given the passage of time between September 5, 1995, the date when the General Partner agreed to purchase the Manitowoc System from the Venture in order to trade it to Time Warner, and the termination of negotiations with Marcus Cable in September 1996, i.e. approximately one year, the General Partner determined that it would be in the best interests of the Venture to have the Manitowoc System's appraisals updated from April 1995 to August 1996, to extend the General Partner's obligation to purchase the Manitowoc System to a date no later than June 30, 1997, to renew its efforts to reach agreement with the City on the franchise's renewal and transfer, to seek limited partner approval of the sale and then to proceed with its acquisition of the Manitowoc System so that the Venture and its constituent partnerships could be liquidated and dissolved during 1997. The General Partner has accomplished, or is in the process of completing, each of these tasks. 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 its investment in the Venture will be the Partnership's sole remaining asset at the time of the Manitowoc System's sale, and because the Manitowoc System is the Venture's sole remaining asset, the sale of the Manitowoc System to the Purchaser 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 or any such affiliate is higher than any other bid received in a public bidding process and 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 is not borne by the Partnership. Because the Manitowoc System has been held by the Venture for at least three years, the General Partner submitted the only and, therefore, the highest bid received in a public bidding process and the purchase price to be paid by the General Partner is equal to the average of three separate independent appraisals of the fair market value of the Manitowoc System obtained at the General Partner's expense, the requirements of Section 2.3(b)(iv)(b) of the Partnership Agreement have been satisfied. PUBLIC BIDDING PROCESS In the spring of 1995, the General Partner, on behalf of the Venture, put the Manitowoc System up for public bid. The process established and announced by the General Partner was the exclusive means of bidding on the Manitowoc System during the bid period. In accordance with the requirements of Section 2.3(b)(iv)(b) of the Partnership Agreement, which requires that a public bidding process be followed in the event that the General Partner or one or more of its affiliates desires to purchase a cable television system owned by the Partnership, The Jones Group, Ltd., a cable television brokerage subsidiary of the General Partner, placed advertisements soliciting bids for the Manitowoc System in The Denver Post and The Rocky Mountain News, newspapers of general circulation, and in Cable World and Multichannel News, cable television industry trade publications. The advertisement ran daily in The Denver Post and The Rocky Mountain News from June 2 through June 18, 1995, and it appeared in the June 5, June 12 and June 19, 1995 editions of the weekly Cable World and Multichannel News. The Venture, through The Jones Group, Ltd., specified that: all bids were required to be in writing and submitted no later than the close of business on July 7, 1995; all bids were required to state a purchase price that would be paid in cash at closing; all bids were required to be accompanied by a certification that the bidder was prepared to sign a purchase and sale agreement in the form provided by the Venture as part of the bidding process; all bids were required to be accompanied by current financial statements or other evidence demonstrating that the bidder had the financial ability to complete the transaction at the closing on the terms 6 specified in the purchase and sale agreement; and all bids were required to be accompanied by certified or cashier's check in an amount equal to five percent of the purchase price specified in the bid. It was disclosed to all bidders that the General Partner and its affiliates reserved the right to submit a bid, and that the General Partner or one of its affiliates intended to do so. All potential bidders also were informed that The Jones Group, Ltd. would be reviewing all bids on behalf of the Venture, and thus would be aware of the identities of all bidders and the dollar amounts of all bids. The Jones Group, Ltd. received seventeen inquiries about the Manitowoc System and it mailed out eleven information packages, but no potential purchasers asked to tour the Manitowoc System's facilities and no one other than the General Partner submitted a bid for the Manitowoc System. The General Partner complied with all of the bid requirements, including the submission of a five percent deposit that currently is being held in escrow and will be refunded if the Venture does not perform its obligations under the purchase and sale agreement between it and the General Partner. REASONS FOR THE TIMING OF THE SALE The decision to proceed with the sale of the Manitowoc System in 1995 was based upon the status of the franchise renewal negotiations with the City of Manitowoc, which the General Partner believed were nearing completion, and the General Partner's perception that the City was willing to renew the franchise on commercially reasonable terms and to transfer the franchise to a new system operator. The General Partner had determined that the Partnership had achieved its investment objectives with respect to the Manitowoc System in 1990 when it attempted to sell the Manitowoc System at that time, and the General Partner had been frustrated in its efforts to sell the Manitowoc System by the City's refusal until 1995 to engage in serious negotiations to approve the renewal and transfer the Manitowoc System's cable franchise. The City finally approved the renewal and transfer of the Manitowoc System's cable franchise in November 1996 effective as of January 1, 1997. 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 Manitowoc System was acquired by the Venture because, in the opinion of the General Partner at the time of the Manitowoc 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 13 years that the Manitowoc System has been held by the Venture, the Partnership's investment objectives with respect to the Manitowoc System have been achieved. The General Partner generally considered the benefits to the limited partners that might be derived by holding the Manitowoc System for an additional period of time. The General Partner assumed that the Manitowoc System might continue to appreciate in value and, if so, the Manitowoc System would be able to be sold for a greater sales price in the future. The General Partner weighed these assumptions against the risks to investors from a longer holding period, i.e., the risks that regulatory, technology and/or competitive developments could cause the Manitowoc System to decline in value, which would result in a lesser sales price in the future. The General Partner's decision to sell the Manitowoc System was greatly influenced by the fact that the contemplated holding period had been exceeded. 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 Manitowoc System to cash through the sale of the Venture's Manitowoc System to the General Partner. CERTAIN EFFECTS OF THE SALE Upon consummation of the sale of the Manitowoc System, the proceeds of the sale will be used to repay all indebtedness of the Venture and then the Venture will distribute the remaining net sale proceeds to the four constituent partnerships of the Venture in proportion to their ownership interests in the Venture and then the Partnership will distribute its portion of the net sale proceeds to its limited partners and to the General Partner pursuant to the terms of the Partnership Agreement. Because limited partners will have already received distributions in an amount in excess of the capital initially contributed to the Partnership by the limited partners, 7 the net proceeds from the Manitowoc System's sale will be distributed 75 percent to the limited partners and 25 percent to the General Partner. Based upon the pro forma financial information as of September 30, 1996, as a result of the Manitowoc System's sale, the limited partners of the Partnership, as a group, will receive approximately $1,159,858 and the General Partner will receive approximately $354,263. Limited partners will receive $31 for each $500 limited partnership interest, or $61 for each $1,000 invested in the Partnership, from the Partnership's portion of the net proceeds of the Manitowoc System's sale. Once the distributions of the net proceeds from the sale of the Manitowoc System have been made, limited partners will have received a total of $1,636 for each $500 limited partnership interest, or $3,271 for each $1,000 invested in the Partnership, taking into account the prior distributions to limited partners made in 1990 and 1992 and the distribution to be made in April 1996 on the sale of the Partnership's remaining New York systems. Both the limited partners and the General Partner will be subject to federal income tax on the income resulting from the sale of the Manitowoc System. See the detailed information below under the caption "Federal Income Tax Consequences. Another effect of the sale is that it will result in the General Partner acquiring the Manitowoc System. 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 Manitowoc System. The General Partner's right to receive such fees and reimbursements will terminate on the sale of the Manitowoc System. Neither Colorado law nor the Partnership Agreement afford dissenters' or appraisal rights to limited partners in connection with the proposed sale of the Manitowoc 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 regardless of how or whether they vote on the proposal. RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF ASSETS The General Partner believes that the proposed sale of the Manitowoc 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 Manitowoc System is sold for a fair price. The General Partner's recommendation that the limited partners approve the sale of the Manitowoc System and its fairness determination should not be deemed to be free from potential conflicts of interest, however, in light of the fact that it is the proposed purchaser of the Manitowoc System. Because the purchaser of the Manitowoc System will 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's Board of Directors on November 21, 1996 considered each of the following factors, all of which had a positive effect on its fairness determination. The 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 each factor is relevant and the General Partner's Board of Directors was not able to weigh the relative importance of 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 Manitowoc System will provide limited partners with liquidity and with the means to realize the appreciation in the value of the Manitowoc System; (ii) The purchase price represents the fair market valuation of the Manitowoc System as of August 31, 1996 as determined by the average of three separate appraisals of the Manitowoc System by qualified independent appraisers; (iii) The purchase price was the highest bid received in a public bidding process; (iv) The Venture has held the Manitowoc System for almost 13 years, a holding period beyond that originally anticipated; 8 (v) The conditions and prospects of the cable television industry in which the Venture is engaged, including the developing threat of competition from DBS services and telephone companies, and the working capital and other financial needs of the Venture if it were to continue to operate the Manitowoc System; (vi) The terms and conditions of the purchase and sale agreement by and between the Venture and the General Partner, including the fact that the purchase price will be paid in cash, the fact that the Partnership was not required to make many of the representations and warranties about the Manitowoc System or give indemnities that are customarily given in transactions of this nature, the fact that the purchaser's obligation to close is not contingent upon its ability to obtain financing, and the fact that the Venture will pay no brokerage fees upon the sale of the Manitowoc System, which it likely would have paid if the Manitowoc System were being sold to an unaffiliated party; and (vii) 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. Certain officers of the General Partner worked with each of the three independent appraisers hired to prepare fair market value appraisals of the Manitowoc System, providing them with current and historical profit and loss statements for the Manitowoc 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 Manitowoc System at $15,567,000, 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 $15,567,000 value placed on the Manitowoc System by Malarkey-Taylor Associates, Inc., but the Board did consider the fact that the value determined by this appraisal firm was close to the average of the three appraisals ($16,122,333) and concluded that this fact supported its fairness determination. The General Partner considered the fact that the $16,122,333 purchase price to be paid to the Venture for the Manitowoc System represents the average of three independent appraisals of the fair market value of the Manitowoc System to be very persuasive evidence of the fairness of the proposed transaction. The fair market valuations of the Manitowoc 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. 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 Manitowoc 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 $16,122,333 purchase price represents the current fair market value of the Manitowoc System on a going concern basis. The $16,122,333 purchase price for the Manitowoc System also compares favorably to the approximately $2,443,945 net book value of the Manitowoc System at September 30, 1996. 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 Manitowoc 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 9 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 8 percent ownership of the Venture's cable television system assets. For these reasons, the General Partner did not consider the historical or current market prices for the limited partnership interests when reaching its fairness determination. The fact that the Venture has held the Manitowoc System for a period beyond that originally anticipated was a critical factor in the General Partner's fairness determination--the General Partner believes that the transaction is fair because a sale at this time will convert an illiquid investment into a liquid one for all partners. And the current state of the cable television industry also was considered by the General Partner in making its fairness determination because the General Partner believes that it is fair to investors that someone other than the Partnership and the Venture take on the uncertainties and risks involved in continuing to own and operate the Manitowoc System. 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 Venture and the General Partner, which favor the interests of the Venture. There is no financing contingency to closing. Because of the General Partner's existing extensive knowledge about the Manitowoc System, the Venture has not been required to make many of the representations and warranties about the quality of the Manitowoc System's tangible assets, the quantity of the Manitowoc System's subscribers or the validity of the Manitowoc System's intangible assets customarily found in cable television system transactions. The Venture likely would have been required to give such representations and warranties to an unaffiliated party if the Manitowoc System were being sold to an unaffiliated party. In addition, the Venture is not required to indemnify the General Partner for defects discovered by the General Partner after the closing. This frees the Venture from having to reserve a portion of the sale proceeds to cover typical indemnification obligations. The Venture also will pay no brokerage fee in connection with the sale of the Manitowoc System. This will result in more funds from the sale being available for distribution to the partners. The General Partner is aware and considered that although consummation of this transaction will result in a distribution to the Partnership's limited partners of approximately $61 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 any future growth of the Manitowoc System. The General Partner nevertheless concluded that the cash distributions to the limited partners of the Partnership from the sale of the Manitowoc System outweighed these consequences. As disclosed above, the proposed transaction is subject to various potential 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 that is higher 10 than any other bid received in a public bidding process and is 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 Venture's proposed sale of the Manitowoc 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, enable the General Partner to conclude that the proposed transaction is both procedurally and financially fair to all partners. 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 Manitowoc System 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 Manitowoc 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 Manitowoc System. The members of the Board of Directors reviewed and considered the appraisals and concluded that the values for the Manitowoc System determined by the appraisers were fair and were within the industry norms for comparable transactions. All 13 directors of the General Partner participated in the November 21, 1996 meeting to discuss the Partnership's sale of the Manitowoc System to the General Partner. Each of Messrs. Jones, O'Brien, Krejci, Burney, Frenzel, Jacobs, MacDonald, Thrall, Cole, Solot, Zisman, Vanaselja and Zoellick voted to approve the transaction. It is anticipated that if the proposed transaction is not consummated, the General Partner's current management team will continue to manage the Manitowoc System on behalf of the Venture until such time as the Manitowoc System could be sold. No other alternatives currently are being considered. At this time the Venture does not have the option of selling the Manitowoc System to the most likely unaffiliated cable television system operators, Time Warner and Marcus Cable. As described above, both of these cable companies recently declined to purchase the Manitowoc System because they were unwilling to accept the franchise renewal terms proposed by the City. The General Partner subsequently agreed to these renewal terms in November 1996 on the condition that the City consent to the transfer of the Manitowoc franchise to the General Partner, which consent is necessary in order for the Venture to complete the sale of the Manitowoc System to the General Partner as proposed. THE APPRAISALS In determining the price that the General Partner would offer for the Manitowoc System, the General Partner retained Malarkey-Taylor Associates, Inc., Kagan Media Appraisals Inc. and Bond & Pecaro, Inc. to prepare separate appraisals of the fair market value of the Manitowoc 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 Manitowoc System. 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 written appraisal reports are available for inspection and copying at the offices of the General Partner during regular business hours by any interested limited partner of the Partnership or by his or her authorized representative. Copies of such appraisals will be mailed by the General Partner to any interested limited partner or to his or her authorized representative upon written request to the General Partner at the expense of the requesting limited partner. The ranges of values determined by each of the three separate independent appraisals of the fair market value of the Manitowoc System are presented and discussed on the following pages of this proxy statement. Investors should note that the ranges of values on a per-$500 limited partnership interest basis and on the basis of $1,000 invested in the Partnership disclosed herein have been computed as follows: each value established by 11 an appraiser has been deemed to be the sales price for the Manitowoc System and then adjustments have been made to add the Venture's cash on hand and the estimated net closing adjustments and to subtract the $4,775 in estimated debt repayments, and to split the Partnership's 8 percent share of this amount on the basis of 25 percent to the General Partner and 75 percent to the limited partners. These ranges of values are presented in this manner so that limited partners can compare their hypothetical return at each value with the anticipated return to limited partners of $31 for each $500 limited partnership interest, or $61 for each $1,000 invested in the Partnership, given a sales price equal to the average of the three separate independent appraisals. The General Partner provided the appraisers with current and historical profit and loss statements for the Manitowoc System and with current subscriber reports. The appraisers also gathered information from conversations with the Manitowoc System's management team. From this information, the appraisers used their independent analyses to project cash flow, determine growth of homes passed, the Manitowoc System's future penetration and possible rate adjustments. The appraisals thus reflect the application of the appraisers' expertise to the data about the Manitowoc System supplied by the General Partner. Malarkey-Taylor Associates, Inc. concluded that the Manitowoc System's overall fair market value as of August 31, 1996 was $15,567,000 ($30 for each $500 limited partnership interest or $59 for each $1,000 invested in the Partnership). Kagan Media Appraisals Inc. concluded that the Manitowoc System's overall fair market value as of August 31, 1996 was $16,100,000 ($30 for each $500 limited partnership interest or $61 for each $1,000 invested in the Partnership). Bond & Pecaro, Inc. concluded that the Manitowoc System's overall fair market value as of August 31, 1996 was $16,700,000 ($31 for each $500 limited partnership interest or $63 for each $1,000 invested in the Partnership). The average of these three valuations was $16,122,333 ($31 for each $500 limited partnership interest or $61 for each $1,000 invested in the Partnership). In the General Partner's view, the assumptions regarding system operations underlying the three appraisals have generally remained unchanged since August 31, 1996. The Malarkey-Taylor Appraisal Malarkey-Taylor Associates, Inc. ("Malarkey-Taylor") has served the communications industry for over 30 years. Its team of financial, engineering and managerial professionals devotes a substantial portion of its time to the appraisal of cable television systems, cellular telephone systems, paging systems and broadcast stations. Malarkey-Taylor was selected by the General Partner to render an opinion as to the fair market value of the Manitowoc 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 Manitowoc 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 using the income approach to valuation in establishing the range of fair market values of the Manitowoc 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 appraisal report did not disclose and the General Partner did not inquire as to the identities of the companies Malarkey-Taylor used in determining the multiple.) The second method used a lower multiple of the Manitowoc System's annualized current month's operating income. The third method applied a slightly lower multiple of next year's projected operating income. The fourth method was a discounted net cash flow analysis in which a purchase price (estimated fair market value) was calculated to achieve a target after-tax return on equity, given particular operating and financing assumptions unique to the Manitowoc System's assets. The fifth method was a discounted cash flow analysis that measured the net present value of the pre-tax operating cash flows (less capital expenditures, plus the residual value of the Manitowoc System) that represent the return on the total investment. For each valuation method, Malarkey-Taylor established a "high" and a "low" estimated fair market value. The General Partner did not inquire as to the specific details of how each high and low estimated fair market value for each valuation methodology was 12 determined because, given Malarkey-Taylor's expertise, the General Partner concluded that it could rely upon Malarkey-Taylor's analyses and judgment. The first valuation method used a multiple of the past year's operating income of the Manitowoc System derived from comparable asset values of privately held and publicly traded cable companies. Malarkey-Taylor determined, based upon its expertise and knowledge of the cable television industry, a "low" multiple of 9.5 and a "high" multiple of 10.5, concluding that a system comparable to the Manitowoc System would be unlikely to sell for less than 9.5 times its past year's operating income and would be unlikely to sell for more than 10.5 times its past year's operating income. While the appraisal report does not disclose the assumptions of the appraiser in determining these multiples, the General Partner has no reason to believe that they are not reasonable. This method resulted in an estimated fair market value ranging from a low of $15,139,970 ($29 for each $500 limited partnership interest or $58 for each $1,000 invested in the Partnership) to a high of $16,733,651 ($31 for each $500 limited partnership interest or $63 for each $1,000 invested in the Partnership) for the Manitowoc System. The second valuation method used a lower multiple of the Manitowoc System's annualized current month's operating income. Malarkey-Taylor determined, again based on its expertise and knowledge of the cable television industry, a "low" multiple of 9 and a "high" multiple of 10, concluding that a system comparable to the Manitowoc System would be unlikely to sell for less than 9 times the dollar amount of its annualized current month's operating income and would be unlikely to sell for more than 10 times the dollar amount of its annualized current month's operating income. These multiples are slightly lower than those used in the previous methodology because of the increased risk and time factors involved in using current as compared to historical information. While the appraisal report does not disclose the assumptions of the appraiser in determining these multiples, the General Partner has no reason to believe that they are not reasonable. This method resulted in an estimated fair market value ranging from a low of $14,561,343 ($28 for each $500 limited partnership interest or $56 for each $1,000 invested in the Partnership) to a high of $16,179,270 ($31 for each $500 limited partnership interest or $61 for each $1,000 invested in the Partnership) for the Manitowoc System. The third valuation method applied a slightly lower multiple of next year's operating income of the Manitowoc System. For this valuation, Malarkey-Taylor first estimated, through its own analyses of current financial and operating data provided by the General Partner, next year's operating income for the Manitowoc System and then, based on its expertise and knowledge of the cable television industry, set a "low" multiple of 8.5 and a "high" multiple of 9.5, concluding that a system comparable to the Manitowoc System would be unlikely to sell for less than 8.5 times the system's projected operating income for the following year and would be unlikely to sell for more than 9.5 times the system's projected operating income for the following year. These multiples are slightly lower than those used in the previous methodologies because of the increased risk and time factors involved in using projected as compared to historical and current information. While the appraisal report does not disclose the assumptions of the appraiser in determining these multiples, the General Partner has no reason to believe that they are not reasonable. This method resulted in an estimated fair market value ranging from a low of $14,825,545 ($29 for each $500 limited partnership interest or $57 for each $1,000 invested in the Partnership) to a high of $16,569,726 ($31 for each $500 limited partnership interest or $62 for each $1,000 invested in the Partnership) for the Manitowoc System. The fourth valuation method was a discounted net cash flow analysis in which a purchase price (estimated fair market value) was calculated to achieve a target after-tax return on equity given particular operating and financing assumptions specific to the Manitowoc System. This method involved the use of projected operations for the Manitowoc System and a pre-determined target return on equity for a hypothetical buyer. Based on the firm's use of typical debt-to-equity ratios and debt services, it tested various purchase prices, i.e., potential fair market values, to determine a value that yielded the desired return on equity. Based on system information made available to Malarkey-Taylor by the General Partner and on information generally available to Malarkey-Taylor about the cable television industry, the firm made assumptions concerning the housing growth, plant mileage, growth in the number of subscribers for basic and pay television, adjustments in subscriber rates, increases in operating expenses and capital expenditures. Malarkey-Taylor also made specific assumptions concerning the 13 capital structure that a typical, prudent buyer might experience, as well as the probable interest rates that would be applicable in connection with any debt financing that might be incurred. Malarkey-Taylor did a "high" and a "low" analysis. In its "high" analysis, Malarkey-Taylor projected that the Manitowoc System's revenues would grow from $4,142,168 in 1997 to $5,919,768 in 2003; that the Manitowoc System's operating expenses would grow from $2,397,986 in 1997 to $3,366,640 in 2003; and that net income would grow from ($368,565) in 1997 to $171,919 in 2003. In Malarkey-Taylor's "low" analysis, revenues and operating expenses are projected to increase to the same levels by 2003, but net income is projected to increase from ($329,920) in 1997 to $199,217 by 2003. Malarkey-Taylor projected that the Manitowoc System would add approximately 15 miles of cable plant per year between 1997 and 2003, resulting in growth of the Manitowoc System's cable plant from 170.5 miles in 1997 to 185.6 miles in 2003. Malarkey-Taylor projected that the number of homes passed by the Manitowoc System would grow from 16,481 in 1997 to 17,705 in 2003. Malarkey-Taylor projected that basic subscribers would grow from 11,523 in 1997 to 12,782 in 2003. Malarkey-Taylor projected penetration of the Manitowoc System increasing from 70.4 percent in 1997 to 73.4 percent in 2003. Malarkey-Taylor projected that premium television subscriptions would grow from 7,337 in 1997 to 8,139 in 2003. Malarkey-Taylor estimated that the Manitowoc System would take relatively small rate increases between 1997 and 2003, with, for example, 3 percent increases in basic rates each year, a 7 percent increase in expanded basic rates in 1997, a 5 percent increase in such rates in 1998 and a 3 percent increase in such rates through the rest of the period. Malarkey-Taylor estimated that rate increases for pay television subscriptions would average 1 percent per year. Malarkey-Taylor estimated that rate increases for pay-per-view showings, converter rentals and installations would average 3 percent per year. These projections, if true, would result in an increase in basic rates from $11.08 in 1996 to $13.69 in 2003, and an increase in the rates for the expanded basic tier from $9.58 in 1996 to $12.46 in 2003. The "low" value was determined using a 14 percent return on equity and the "high" value was determined using a 12 percent return on equity. This method resulted in an estimated fair market value ranging from a low of $15,018,836 ($29 for each $500 limited partnership interest or $58 for each $1,000 invested in the Partnership) to a high of $16,161,365 ($31 for each $500 limited partnership interest or $61 for each $1,000 invested in the Partnership) for the Manitowoc System. The fifth valuation method was a discounted cash flow analysis that measured the net present value of the pre-tax operating cash flows (less capital expenditures, plus the residual value of the Manitowoc System) that represent the return on the total investment rather than those that could result from an assumed "purchase" with a pre-determined debt to equity ratio. The same set of financial projections that the firm prepared and used in the fourth valuation methodology were used for growth in subscribers, revenues, operating expenses and capital expenditures. The projected pre-tax operating cash flows for the Manitowoc System, plus the last-year residual value of the Manitowoc System less capital expenditures, were discounted to the present time at an acceptable current cost of money. This method indicated the present value of the future pre-tax operating cash flows, using an acceptable discounted factor based on the weighted average cost of money. The "high" value was determined using a 15 percent target return on investment and the "low" value was determined using a 16.5 percent target return on investment. This method resulted in an estimated fair market value ranging from a low of $14,941,776 ($29 for each $500 limited partnership interest or $57 for each $1,000 invested in the Partnership) to a high of $16,046,984 ($30 for each $500 limited partnership interest or $61 for each $1,000 invested in the Partnership) for the Manitowoc System. Malarkey-Taylor's valuation methodologies resulted in differing values for the Manitowoc System. The reason for this is grounded in the basic approach that the firm takes. The five different methods allow five different views of the system's value. The first method looks at past performance, but allows nothing for future performance. The second method looks at the system as it is as of the date of the appraisal. The third method looks at the system's projected operating income in the first year following the proposed sale. Both discounted cash flow methods fully consider the future value of the system by recognizing projected operating income and expenses, including capital expenditures. Based upon all of the available information about a system being appraised, the appraiser decides how to weight each of the five methods. The final estimated fair market value is not a straight average of all of the methods. Although the weighting is not shown in the appraisal report, Malarkey-Taylor generally prefers the discounted cash flow methods since they consider a broader range of 14 factors that represent all sources of value, present and future. Malarkey- Taylor accordingly generally gives greater consideration to the discounted cash flow methods in its final judgment concerning the fair market value of a cable television system. Malarkey-Taylor's conclusions as to the range of values were based upon information and data supplied by the General Partner, Malarkey-Taylor's onsite inspection of the Manitowoc System in 1995, interviews with management and general cable television industry information. The fair market value appraisal of $15,567,000 ($30 for each $500 limited partnership interest or $59 for each $1,000 invested in the Partnership) reached by Malarkey-Taylor was based on the various valuations generated by it, and Malarkey-Taylor's general knowledge and expertise in the cable television industry. As compensation for rendering an opinion as to the fair market value of the Manitowoc System, the General Partner paid Malarkey-Taylor a fee of $4,536. 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 $338,419 during the two years prior to the date hereof. The Kagan Appraisal Kagan Media Appraisals, Inc. ("Kagan") has more than twenty-seven years of experience in appraising communications properties. During that period, Kagan, according to its records, has appraised more than $26 billion worth of media properties. Kagan was selected by the General Partner to render an opinion as to the fair market value of the Manitowoc 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 Manitowoc 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 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 Manitowoc 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 Manitowoc System and that its employment and compensation are in no way contingent upon the value reported. Kagan used two cable television system appraisal methodologies in reaching a conclusion as to the fair market value of the Manitowoc 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. With respect to the Manitowoc System, Kagan projected that household growth in the system's service area will average 0.6 percent per year from 1997 through 2006. Kagan concluded that the Manitowoc System's penetration can be expected to grow gradually from the current 70.3 percent to 74 percent in the years 2001 through 2006. Kagan projected that for the remainder of the forecast period basic rates would increase at approximately 5 percent annually. Kagan concluded that the basic churn rate would remain constant throughout the period at 21 percent per year. Kagan assumed that pay rate increases would average 4 percent per year. Kagan also analyzed growth in pay- per-view, advertising, home shopping and ancillary revenues. Kagan concluded that the combination of expected household growth, steady gains in penetration, modest rate increases and continued growth in pay-per-view, home shopping and advertising revenues are projected to raise total system revenue to $7,800,000 in 2006, or to $50.42 per subscriber per month. This is an average growth rate of approximately 5.9 percent annually over the ten-year forecast period. The ten-year discounted cash flow projections yielded a value 15 of approximately $16,400,000 ($31 for each $500 limited partnership interest or $62 for each $1,000 invested in the Partnership) for the Manitowoc System. In order to correlate this statistical valuation with the realities of the marketplace, Kagan analyzed the sale of a number of comparable cable television systems that took place in 1996. Comparison of a cable television system to similar properties recently sold is an accepted appraisal methodology used to correlated statistical findings with the realities of the marketplace. Each of the comparables involved cable systems similar to the Manitowoc System in size, area demographics, basic and pay penetration levels and revenue per subscriber. Like cable properties can be compared to one another on a value-per-subscriber or cash flow multiple basis. This test is a valuation yardstick that reflects a multiple of the cash flow a subscriber is expected to generate in the first or second year of ownership. Kagan reported that cable systems have historically sold most often in the range of 9 to 11 times projected first-year cash flow with the higher end of the range generally assigned to systems that 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 11 times that cash flow would be valued at $1,870 and that same subscriber selling at 13 times cash flow would be valued at $2,210. For the Manitowoc System's comparable analysis, Kagan studied sales of cable television systems serving between 5,000 and 20,000 subscribers, with basic penetration rates of between 50 percent and 85 percent. Kagan emphasized stand-alone, similarly sized systems located in one primary area. The first comparable that Kagan considered was a February 1996 transaction where a Mississippi system was sold for a cash flow multiple of 9.5. Applying this cash flow multiple to the Manitowoc System produced a comparable value of $17,200,000 ($32 for each $500 limited partnership interest or $64 for each $1,000 invested in the Partnership). A second comparable considered was the sale of a California system in July 1996 for a cash flow multiple of 8.8. Applying this cash flow multiple to the Manitowoc System produced a comparable value of $16,000,000 ($30 for each $500 limited partnership interest or $61 for each $1,000 invested in the Partnership). Kagan also looked at a transaction that closed in June 1996 which involved the sale of a different California system for a cash flow multiple of 7.6. If applied to the Manitowoc System, that transaction's cash flow multiple would yield a comparable value of $13,800,000 ($27 for each $500 limited partnership interest or $54 for each $1,000 invested in the Partnership) for the Manitowoc System. The final transaction examined by Kagan involved the sale of a Washington system for a cash flow multiple of 9.5. Applying this comparable to the Manitowoc System implies a comparable value of $17,200,000 ($32 for each $500 limited partnership interest or $64 for each $1,000 invested in the Partnership) for the Manitowoc System. The average of the four comparable values examined by Kagan was $16,100,000 ($30 for each $500 limited partnership interest or $61 for each $1,000 invested in the Partnership). Kagan finally correlated the values determined by the discounted cash flow analysis and the comparable sales analysis. This correlation of values was a highly subjective process undertaken by the independent appraiser. The discounted cash flow analysis yielded a value for the Manitowoc System of approximately $16,400,000 ($31 for each $500 limited partnership interest or $62 for each $1,000 invested in the Partnership) while the analysis of comparable sales yielded a value for the Manitowoc System of approximately $16,100,000 ($30 for each $500 limited partnership interest or $61 for each $1,000 invested in the Partnership). Kagan concluded that the proximity of these values, within less than 2 percent of each other, arrived at through two independent appraisal methodologies, underscored the validity of the assumptions used to cast the ten-year cash flow projections and established a range within which the value of the Manitowoc System could be expected to fall. In arriving at a single estimate of value, Kagan considered the fact that although the Manitowoc System has some upside in basic penetration, this is limited by satellite competition and the fact that the system has no spare channel capacity to increase offerings, making it that much more vulnerable to competition. In addition, Kagan noted that the Manitowoc System has only moderate upside in household growth. All of these factors led Kagan to value the Manitowoc System at the lower end of the value range. Kagan concluded that the fair market value of the Manitowoc System at August 31, 1996 was approximately $16,100,000 ($30 for each $500 limited partnership interest or $61 for each $1,000 invested in the Partnership). The analysis undertaken by Kagan was based in part on financial statements and operating data of the Manitowoc System furnished to Kagan by the General Partner. 16 As compensation for rendering an opinion as to the fair market value of the Manitowoc System, the General Partner paid Kagan a fee of $20,000. 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 $247,260 during the two years prior to the date hereof. The Bond & Pecaro Appraisal Bond & Pecaro, Inc. ("Bond & Pecaro") is a consulting firm specializing in valuations, asset appraisals and related financial services for the communications industry. The firm has appraised assets of more than 1,500 communications facilities. Bond & Pecaro was selected by the General Partner to render an opinion as to the fair market value of the Manitowoc System in light of such overall qualifications. No limitations were imposed with respect to the appraisal to be rendered by Bond & Pecaro. The firm was selected by the General Partner to prepare an independent appraisal of the Manitowoc System because of the firm's reputation in the industry. Bond & Pecaro has prepared independent appraisals of other cable television systems owned and/or managed by the General Partner. The principals of Bond & Pecaro are not affiliated in any way with the General Partner. Like Kagan, Bond & Pecaro used both the income and the market methodologies to determine the fair market value of the Manitowoc System as of August 31, 1996. The firm developed a discounted cash flow analysis to determine the value of the Manitowoc System based upon its economic potential. The results of this analysis indicated that the value of the Manitowoc System as of August 31, 1996 was $16,713,500 ($31 for each $500 limited partnership interest or $63 for each $1,000 invested in the Partnership). In order to verify the results of the discounted cash flow analysis, Bond & Pecaro also utilized a comparable sales approach, relying upon an analysis of subscriber multiples. The results of this analysis supported the firm's conclusions about valuation resulting from application of the income approach. Bond & Pecaro reported that the initial parameter upon which its discounted cash flow projection is based is homes passed. Two factors affect the number of homes passed: new plant construction and household growth. In preparing its projection, Bond & Pecaro assumed that the number of households in the Manitowoc System's franchise area will increase at a rate equivalent to the average growth projected for the areas served by the system as a whole, or approximately 0.8 percent per year. Bond & Pecaro concluded that the basic penetration rate would grow modestly over the 10-year projected period from the current 69.4 percent to approximately 85 percent by 2006. The firm projected that pay penetration of the Manitowoc System will increase from a level of 63.2 percent in 1996 to approximately 72 percent by 2006. Bond & Pecaro concluded that due to regulatory and competitive restrictions, service rates for basic and expanded basic services are expected to grow with inflation while premium channel service rates are expected to remain relatively flat throughout the 10-year projected period. Bond & Pecaro estimated that pay-per-view service revenue will increase at a 12 percent annual rate through 2006, that commercial advertising will increase at an 11.3 percent annual rate through 1999 and at an 11.4 percent rate thereafter through the period and that annual installation revenue would grow at a compound annual rate of 3.5 percent during the projection period. The firm concluded that equipment rental revenues as well as other revenues also should increase by 3.5 percent annually through 2006. Bond & Pecaro concluded that total system revenues would increase from $3,900,000 in 1996 to approximately $7,200,000 in 2006. For purposes of its appraisal, Bond & Pecaro assumed that the Manitowoc System would maintain an operating profit margin of 42.5 percent, which was the system's operating profit margin in August 1996. Depreciation and amortization estimates were based upon an estimated tangible asset value of $2,820,000, the continuing annual capital expenditures required to upgrade and maintain the system's plant and equipment and the system's estimated intangible asset value. Bond & Pecaro used an estimated tax rate of 40.1 percent to project the taxable income of the Manitowoc System because the estimated rate reflects the combined federal, state and local tax rates in effect on August 31, 1996. Capital expenditures were projected at approximately 8 percent of the estimated value of the tangible assets of the Manitowoc System as of August 1996. 17 Bond & Pecaro then determined the net after-tax cash flow for the Manitowoc System. After taxes were subtracted from the system's taxable income, non-cash depreciation and amortization expense was added back to net income to yield after-tax cash flow. From the after-tax cash flow, a provision for subsequent capital expenditures was deducted to calculate the net after-tax cash flow. Bond & Pecaro used a discount rate of 12 percent to calculate the present value of the net after-tax cash flows. In order to account for the risks associated with investments in the cable television industry and in the Manitowoc System in particular, Bond & Pecaro added a premium to a base discount rate to develop the 12 percent rate employed in its analysis. Bond & Pecaro then applied a multiplier of 10.75 to the Manitowoc System's 2006 operating cash flow. Bond & Pecaro's appraisal noted that multiples used in the valuation of cable television systems of a type similar to the Manitowoc System range from twelve to nine times operating cash flow, depending on market conditions and a system's profit potential. Bond & Pecaro noted also that exceptional circumstances will warrant multiples outside of this range. The appraisal report indicated that the selected multiple of 10.75 was used to estimate the value of the system at the end of the investment period. According to Bond & Pecaro, this multiple reflects the state of the market for cable television systems as of August 31, 1996, tempered by the economic conditions of the system's franchise service area, the necessity for a system rebuild and the uncertainty introduced by re-regulation of the cable television industry and competition from telephone companies and direct broadcast satellite operators. The 10-year discounted cash flow projection of Bond & Pecaro yielded a value of $16,713,500 ($31 for each $500 limited partnership interest or $63 for each $1,000 invested in the Partnership) for the Manitowoc System. In order to correlate this statistical valuation with the realities of the marketplace, Bond & Pecaro analyzed the sale of ten comparable cable television systems that took place between November 1995 and August 1996. The sales examined by Bond & Pecaro were selected based upon their comparability to the Manitowoc System. Subscriber counts for the comparable cable television systems were within 25 percent of the August 31, 1996 subscriber count for the Manitowoc System. The prices paid for these comparable systems ranged from $9.6 million to $20 million. With this analysis, Bond & Pecaro concluded that the average price per subscriber paid for the ten comparable cable television systems sales was approximately $1,419. Bond & Pecaro concluded that the Manitowoc System's overall fair market value was $16,700,000 ($31 for each $500 limited partnership interest or $63 for each $1,000 invested in the Partnership). This $16,700,000 value reflects a subscriber multiple of approximately $1,540 per subscriber, which is consistent with prevailing subscriber multiples of comparable sales. A representative of Bond & Pecaro visited the offices and technical facilities of the Manitowoc System in June 1995 as part of its preparation of the appraisal report. The firm's representative consulted with system management regarding market factors and system-specific issues that impacted the value of the system's tangible and intangible assets. Specific data provided by the system and the General Partner included historical audited financial statements for fiscal years 1992 through 1995, 1996 year to date unaudited financial statements, operating statistical summaries, system technical data, market demographic data and related materials. Other sources consulted in the preparation of the appraisal included industry factbooks, government publications and similar reference materials. Bond & Pecaro also relied upon information furnished by the Manitowoc System's management relating to the age, condition and adequacy of the system's physical plant. As compensation for rendering an opinion as to the fair market value of the Manitowoc System, the General Partner paid Bond & Pecaro a fee of $5,295. Such fee was not contingent upon the conclusions reached by Bond & Pecaro 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, Bond & Pecaro has received fees totalling $64,866 during the two years prior to the date hereof. 18 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 Manitowoc 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 $ 258 Legal fees $10,000 Accounting fees $10,000 Appraisal fees $29,830 Printing costs $15,000 Postage and miscellaneous costs $10,000
PROPOSED SALE OF ASSETS THE PURCHASE AND SALE AGREEMENT Pursuant to the terms and conditions of a purchase and sale agreement dated as of September 5, 1995, as amended September 30, 1996 (the "Purchase and Sale Agreement") by and between the Venture and the General Partner, the Venture has agreed to sell the Manitowoc System to the General Partner. The General Partner intends to finance its acquisition of the Manitowoc System using cash on hand and cash generated from operations. Based upon amounts estimated as of September 30, 1996, the aggregate cost of the acquisition of the Manitowoc System to the General Partner, including the adjusted contract purchase price, will be approximately $15,841,995. The closing of the sale will occur on a date upon which the Venture and the General Partner mutually agree by June 30, 1997. It is anticipated that the closing will occur within a few weeks after receipt of the approval of the sale by the limited partners of the Venture's four constituent partnerships. Because the closing is conditioned upon, among other things, the approval of the limited partners of the Venture's four constituent partnerships and the receipt of material third party consents necessary for the transfer of the Manitowoc 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 Manitowoc System will terminate on June 30, 1997. THE MANITOWOC SYSTEM The assets to be acquired by the General Partner consist primarily of the real and personal, tangible and intangible assets of the Venture's Manitowoc System. The General Partner will purchase all of the tangible assets of the Manitowoc 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 Manitowoc System. The Purchaser also will acquire certain of the intangible assets of the Manitowoc System, including, among other things, all of the franchises, leases, agreements, permits, licenses and other contracts and contract rights of the Manitowoc System. Also included in the sale are certain parcels of real estate owned by the Manitowoc System, the subscriber accounts receivable of the Manitowoc System and all of the Manitowoc 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 Manitowoc System's assets will be retained by the Venture, 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 Venture may be entitled. PURCHASE PRICE Subject to the working capital adjustments described below, the purchase price for the Manitowoc System is $16,122,333. The purchase price will be reduced by any accounts payable and accrued expenses and vehicle 19 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 Manitowoc 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 Manitowoc 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 Venture. 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 Venture shall have obtained all material consents and approvals from governmental authorities and other third parties necessary to the transfer of the Manitowoc System to the General Partner, and (b) all representations and warranties of the Venture shall be true and correct in all material respects as of the closing date. The Venture has obtained the consent of the City of Manitowoc, and the General Partner does not anticipate that the Venture will experience any significant difficulty in obtaining the other necessary consents and approvals to the currently proposed sale. If, however, the Venture fails to obtain certain consents and approvals of third parties with whom the Manitowoc System has contracted, the General Partner likely will waive this condition to closing. In such circumstances, the General Partner would agree to indemnify the Venture for any liabilities incurred in connection with a closing without prior receipt of all necessary consents. The Venture's obligations under the Purchase and Sale Agreement are subject to the receipt of the purchase price for the Manitowoc System. FEDERAL 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 income tax consequences to the Partnership and to its partners arising from the sale of the Manitowoc System. The tax information included herein was prepared by the tax department 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 Manitowoc 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 $8,948,822 in tax benefits from Partnership losses ($471 per $1,000 invested). The sale of the Manitowoc System will result in a gain for federal income tax purposes. The amount of this gain allocated to limited partners is approximately $791,456. The General Partner estimates that $653,190 ($34 per $1,000 invested) of this 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, $138,266 ($7 per $1,000 invested), will be treated as long term capital gain under Section 1231. Assuming the 31 percent rate applies to ordinary income and the 28 percent rate applies to long term capital gain income, as a result of the sale of the Manitowoc System, a limited partner will be subject to federal income taxes of $13 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 1997. 20 The sale of the Manitowoc System will cause the liquidation of the Partnership, which will result in an additional tax deduction for the limited partners. The final capital account balance reported on the 1997 Schedule K-1 of each limited partner will reflect a positive ending capital account balance that is projected to equal $130 per $1,000 invested. This amount represents partnership syndication costs that may be deducted on the limited partners' tax return as a long term capital loss under Section 731. The deduction of long term capital losses may be limited depending on each partners' specific income tax situation. 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 Manitowoc 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 56 cable television systems in 23 states serving approximately 1.4 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. 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 will be liquidated and dissolved after the sale of the Manitowoc System. The Partnership's registration and reporting requirements under the Exchange Act will be terminated upon 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 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 21 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. CERTAIN RELATED PARTY TRANSACTIONS The General Partner and its affiliates engage in certain transactions with the Partnership and the Venture as contemplated by the Partnership Agreement. The General Partner believes that the terms of such transactions are generally as favorable as could be obtained by the Partnership and the Venture from unaffiliated parties. This determination has been made by the General Partner in good faith, but none of the terms were or will be negotiated at arm's- length and there can be no assurance that the terms of such transactions have been or will be as favorable as those that could have been obtained by the Partnership and the Venture from unaffiliated parties. The General Partner charges the Partnership and the Venture a management fee relating to their respective cable television systems, and the Partnership and the Venture reimburse the General Partner for certain allocated overhead and administrative expenses in accordance with the terms of the Partnership Agreement. These expenses consist primarily of salaries and benefits paid to corporate personnel, rent, data processing services and other facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Partnership and the Venture. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to cable television systems managed. Systems owned by the General Partner and all other systems owned by partnerships for which Jones Intercable, Inc. is the general partner are also allocated a proportionate share of these expenses. No duplicate management or other fees or reimbursements are charged to the Partnership and the Partnership bears only 8 percent of the fees and reimbursements paid by the Venture, which is attributable to the Partnership's 8 percent ownership interest in the Venture. The General Partner from time to time also advances funds to the Partnership and to the Venture and charges interest on the balances payable from the Partnership and the Venture. The interest rate charged the Partnership and the Venture approximates the General Partner's weighted average cost of borrowing. The cable television systems owned by the Partnership and the Venture receive stereo audio programming from Superaudio, a joint venture owned 50 percent by an affiliate of the General Partner and 50 percent by an unaffiliated party, educational video programming from Mind Extension University, Inc., an affiliate of the General Partner, and computer video programming from Jones Computer Network, Ltd., an affiliate of the General Partner, for fees based upon the number of subscribers receiving the programming. Jones Infomercial Networks, Inc. ("Infomercial"), an affiliate of the General Partner, provides advertising time for third parties on the cable television systems owned by the Partnership and the Venture. In consideration, the revenues generated from the third parties are shared two-thirds and one- third between Infomercial and the Partnership and the Venture. During the year ended December 31, 1995, the Partnership and the Venture received revenues from Infomercial totalling $38,629 and $4,559, respectively. During the nine months ended September 30, 1996, the Partnership and the Venture received revenues from Infomercial totalling $11,535 and $2,584, respectively. 22 The charges to the Partnership and the Venture for related party transactions were as follows for the periods indicated:
FOR THE YEAR ENDED FOR THE NINE DECEMBER 31, MONTHS ENDED --------------------- SEPTEMBER 30, 1996 1995 1994 ------------------ ---------- ---------- The Partnership Management fees.................. $185,465 $ 718,318 $ 639,592 Allocation of expenses........... 260,931 1,037,281 989,586 Interest expense................. 3,642 13,980 14,287 Amount of notes and advances outstanding..................... 0 0 1,305,421 Highest amount of notes and advances outstanding............ 0 109,264 1,305,421 Programming fees: Superaudio..................... 5,410 21,712 21,977 Mind Extension University...... 6,665 23,227 19,914 Jones Computer Network......... 13,326 46,392 0 FOR THE YEAR ENDED FOR THE NINE DECEMBER 31, MONTHS ENDED --------------------- SEPTEMBER 30, 1996 1995 1994 ------------------ ---------- ---------- The Venture Management fees.................. $138,526 $ 181,634 $ 164,805 Allocation of expenses........... 193,989 282,057 272,753 Interest expense................. 1,344 6,848 13,306 Amount of notes and advances outstanding..................... 0 45,258 72,764 Highest amount of notes and advances outstanding............ 77,215 77,215 72,764 Programming fees: Superaudio..................... 5,240 6,318 6,105 Mind Extension University...... 5,750 6,759 5,532 Jones Computer Network......... 10,863 12,760 3,316
USE OF PROCEEDS FROM MANITOWOC SYSTEM SALE The following is a brief summary of the Partnership's estimated use of the proceeds from the sale of the Manitowoc System. All of the following selected financial information is based upon amounts as of September 30, 1996 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 Manitowoc 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. If the holders of a majority of limited partnership interests of the four partnerships that comprise the Venture approve the proposed sale of the Manitowoc System and the transaction is closed, the Venture will pay all of its indebtedness and then the net sale proceeds will be distributed to the four constituent partnerships of the Venture. The Partnership will receive 8 percent of such proceeds and the Partnership will distribute this portion of 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 Manitowoc System................... $ 16,122,333 Add:Cash on Hand............................................... 3,483,777 Less:Estimated Net Closing Adjustments......................... (280,338) Repayment of Debt........................................... (4,775) ------------ Cash Available for Distribution to Joint Venturers........ 19,320,997 Cash Distributed to Other Joint Venturers................. (17,818,253) ------------
23 Cash Distributed to the Partnership......................... 1,502,744 Add: Cash on Hand........................................... 11,377 ---------- Cash Available for Distribution by the Partnership.......... $1,514,121 ========== Limited Partners' Share..................................... $1,159,858 ========== General Partner's Share..................................... $ 354,263 ==========
Based upon financial information available at September 30, 1996, 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 Manitowoc System is completed. Summary of Estimated Cash Distributions to Limited Partners: Return of Limited Partners' Initial Capital on the 1990 Sale of the Venture's Wisconsin Systems........................... $ 9,153,740 Return of Limited Partners' Initial Capital on the 1992 Sale of the Partnership's Grand Island System..................... 9,859,381 Limited Partners' Share of Residual Proceeds on the 1996 Sale of the Partnership's New York Systems........................ 41,849,809 Limited Partners' Share of Residual Proceeds on the 1996 Sale of the Venture's Manitowoc System............................ 1,159,858 ----------- Total Estimated Cash Received by Limited Partners............. $62,022,788 =========== Total Cash Received per $1,000 of Limited Partnership Capital. $ 3,262 =========== Total Cash Received per $500 Limited Partnership Interest .... $ 1,631 ===========
The estimated after-tax internal rate of return on an investment in the Partnership is approximately 12.53 percent. This internal rate of return includes the distributions to be made on the sale of the Manitowoc System and the prior distribution of the net proceeds from the sale of the Venture's Wisconsin systems in June 1990, the prior distribution of the net proceeds from the sale of the Partnership's Grand Island, New York system in July 1992 and the expected distribution of the net proceeds from the sale of the Partnership's New York systems in the first half of 1996. Based on financial information available at September 30, 1996, the following table presents the estimated results of the Partnership when the Venture has completed the sale of the Manitowoc System: Dollar Amount Raised....................................... $19,013,000 Number of Cable Television Systems Purchased Directly...... Two Number of Cable Television Systems Purchased Indirectly.... Eight Date of Closing of Offering................................ August 1983 Date of First Sale of Properties........................... September 1989 Tax and Distribution Data per $1,000 of Limited Partnership Capital: Federal Income Tax Results Ordinary Income (Loss) --from operations...................................... $(1,264) --from recapture....................................... $2,242 Capital Gain (Loss).................................... $1,283 Cash Distributions to Investors Source (on GAAP basis) --investment income.................................... $2,262 --return of capital.................................... $1,000 Source (on cash basis) --sales................................................ $3,262
24 UNAUDITED PRO FORMA FINANCIAL INFORMATION OF CABLE TV FUND 11-B, LTD. The following unaudited pro forma financial statements assume that as of September 30, 1996, the Venture had sold the Manitowoc System for $16,122,333. The funds available to the Venture, adjusting for the estimated net closing adjustments of the Manitowoc System, are expected to total approximately $15,841,995 Such funds will be used to repay indebtedness and the balance plus cash on hand will be distributed to the four constituent partnerships of the Venture pursuant to the percentage ownership interests in the Venture of each Partnership and then each partnership will distribute its share of the net proceeds pursuant to the terms of their partnership agreements, which will be 75 percent to the limited partners and 25 percent to the General Partner. The unaudited pro forma financial statements also reflect the sale of the Partnership's Lancaster, New York systems on April 1, 1996. The unaudited pro forma financial statements should be read in conjunction with the appropriate notes to the unaudited pro forma financial statements. ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON AMOUNTS AS OF SEPTEMBER 30, 1996 AND CERTAIN ESTIMATES OF LIABILITIES AT CLOSING. FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION. 25 CABLE TV FUND 11-B, LTD. UNAUDITED PRO FORMA BALANCE SHEET SEPTEMBER 30, 1996
PRO FORMA PRO FORMA AS REPORTED ADJUSTMENTS BALANCE ----------- ----------- ---------- ASSETS Cash and cash equivalents................. $ 11,377 $ 1,502,744 $1,514,121 Investment in cable television venture.... 620,074 (620,074) -- ----------- ----------- ---------- Total Assets.......................... $ 631,451 $ 882,670 $1,514,121 =========== =========== ========== LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Liabilities: Accrued distribution to Limited Partners............................... $ -- $ 1,159,858 $1,159,858 Accrued distribution to General Partner. -- 354,263 354,263 ----------- ----------- ---------- Total Liabilities..................... -- 1,514,121 1,514,121 ----------- ----------- ---------- Partners' Capital (Deficit): General Partner......................... (13,414,018) 13,414,018 -- Limited Partners........................ 14,045,469 (14,045,469) -- ----------- ----------- ---------- Total Partners' Capital (Deficit)..... 631,451 (631,451) -- ----------- ----------- ---------- Total Liabilities and Partners' Capital (Deficit).............................. $ 631,451 $ 882,670 $1,514,121 =========== =========== ==========
The accompanying notes to unaudited pro forma financial statements are an integral part of this unaudited balance sheet. 26 CABLE TV FUND 11-B, LTD. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1995
PRO FORMA PRO FORMA AS REPORTED ADJUSTMENTS BALANCE ----------- ------------ --------- REVENUES.................................. $14,366,359 $(14,366,359) $ -- COSTS AND EXPENSES: Operating, general and administrative expense................................ 8,123,450 (8,123,450) -- Management fees and allocated overhead from General Partner........................ 1,755,599 (1,755,599) -- Depreciation and Amortization........... 2,957,444 (2,957,444) -- ----------- ------------ ---- OPERATING INCOME.......................... 1,529,866 (1,529,866) -- ----------- ------------ ---- OTHER INCOME (EXPENSE): Interest expense........................ (1,773,876) 1,773,876 -- Other, net.............................. 49,831 (49,831) -- ----------- ------------ ---- Total other income (expense), net..... (1,724,045) 1,724,045 -- ----------- ------------ ---- LOSS BEFORE EQUITY IN NET LOSS OF CABLE TELEVISION JOINT VENTURE................. (194,179) 194,179 -- EQUITY IN NET INCOME OF CABLE TELEVISION JOINT VENTURE............................ 35,314 (35,314) -- ----------- ------------ ---- NET INCOME (LOSS)......................... $ (158,865) $ 158,865 $ -- =========== ============ ==== NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT..................................... $ (4.14) $ 4.14 $ -- =========== ============ ====
The accompanying notes to unaudited pro forma financial statements are an integral part of this unaudited statement. 27 CABLE TV FUND 11-B, LTD. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
PRO FORMA PRO FORMA AS REPORTED ADJUSTMENTS BALANCE ----------- ------------ --------- REVENUES.................................. $ 3,709,304 $ (3,709,304) $ -- COSTS AND EXPENSES: Operating............................... 2,481,210 (2,481,210) -- Management fees and allocated overhead from General Partner................... 446,396 (446,396) -- Depreciation and amortization........... 975,498 (975,498) -- ----------- ------------ ---- OPERATING LOSS............................ (193,800) 193,800 -- ----------- ------------ ---- OTHER INCOME (EXPENSE): Interest expense........................ (508,989) 508,989 -- Gain on sale of cable television system. 54,899,888 (54,899,888) -- Other, net.............................. (331,008) 331,008 -- ----------- ------------ ---- Total other income (expense), net..... 54,059,891 (54,059,891) -- ----------- ------------ ---- INCOME BEFORE EQUITY IN NET LOSS OF CABLE TELEVISION JOINT VENTURE................. 53,866,091 (53,866,091) -- EQUITY IN NET INCOME OF CABLE TELEVISION JOINT VENTURE............................ 34,277 (34,277) -- ----------- ------------ ---- NET INCOME ............................... $53,900,368 $(53,900,368) $ -- =========== ============ ==== NET INCOME PER LIMITED PARTNERSHIP UNIT... $ 1,403.29 $ (1,403.29) $ -- =========== ============ ====
The accompanying notes to unaudited pro forma financial statements are an integral part of this unaudited statement 28 CABLE TV FUND 11-B, LTD. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS 1) The Partnership has an 8 percent ownership interest in the Venture through capital contributions made during 1984 of $3,500,000. The following calculations present the sale of the Manitowoc System and the resulting estimated distributions to be received by the Partnership. 2) The unaudited pro forma balance sheet of the Partnership assumes that the Venture had sold the Manitowoc System for $16,122,333 and that the Partnership had sold the New York System as of September 30, 1996. The unaudited statement of operations of the Partnership assumes that the Venture had sold the Manitowoc System and that the Partnership had sold the New York System as of January 1, 1995. 3) The Venture had a cash balance of $3,483,777 at September 30, 1996. Of this cash balance, approximately $1,300,000 represents cash generated from the operations of the Manitowoc System and approximately $2,184,000 represents residual proceeds from the sale of the Wisconsin systems in 1990. This cash will be distributed with the net proceeds from the sale of the Manitowoc System. The $1,300,000 generated from the operations of the Manitowoc System will be distributed 99 percent to the limited partners and 1 percent to the General Partner. The $2,184,000 of residual proceeds will be distributed 75 percent to the limited partners and 25 percent to the General Partner. 4) The estimated gain recognized from the sale of the Manitowoc System and corresponding estimated distribution to limited partners as of September 30, 1996 has been computed as follows: GAIN ON SALE OF ASSETS: Contract sales price.............................................. $16,122,333 Less: Net book value of investment in cable television properties at September 30, 1996....................................... (2,443,945) Additional franchise costs........................................ (1,850,000) ----------- Gain on sale of assets............................................ $11,828,388 =========== Partnership's share of gain on sale of assets..................... $ 919,986 =========== DISTRIBUTIONS TO PARTNERS: Contract sales price.............................................. $16,122,333 Add:Trade receivables, net........................................ 102,278 Prepaid expenses.................................................. 22,309 Less:Accrued liabilities assumed by the General Partner........... (380,553) Subscriber prepayments............................................ (24,372) ----------- Adjusted cash received............................................ 15,841,995 Less:Outstanding debt to third parties............................ (4,775) Add:Cash on hand.................................................. 3,483,777 ----------- Cash available for distribution................................... 19,320,997 Cash distributed to other Joint Venturers......................... (17,818,253) ----------- Cash distributed to the Partnership............................... 1,502,744 Add: Cash on hand................................................. 11,377 ----------- Cash available for distribution by the Partnership................ $ 1,514,121 =========== Amount due Limited Partners....................................... $ 1,159,858 =========== Amount due General Partner........................................ $ 354,263 ===========
29 AVAILABLE INFORMATION The Partnership's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996 and the Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 are being mailed to the limited partners of the Partnership together with this Proxy Statement. Copies of the three independent appraisals of the fair market value of the Manitowoc System and copies of the Purchase and Sale Agreement between the Venture and the Purchaser are available to each limited partner of the Partnership upon written request to Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East Mineral Avenue, Englewood, Colorado 80112, (303) 792-3111. Copies of these documents will be provided at the expense of the requesting limited partner. 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 Purchaser with the Securities and Exchange Commission. INCORPORATION BY REFERENCE The Partnership's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and the Partnership's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1996 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 and Item 8. Financial Statements from its 1995 Annual Report on Form 10-K and the September 30, 1996 Quarterly Report on Form 10-Q in its entirety. 30 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, MacDonald and Vanaselja are citizens of the United States. Messrs. Burney, MacDonald and Vanaselja 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. 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 rue de la January 1995. Mr. Burney joined BCE Inc., Gauchetiere Bureau 1100 Canada's largest telecommunications company, in Montreal (PQ) January 1993, and he has been Chairman of Bell Canada H3B 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. Robert E. Cole Mr. Cole was appointed a director of the General 0 c/o Jones Intercable, Partner in March 1996. Mr. Cole is currently Inc. self-employed as a partner of First Variable 9697 E. Mineral Avenue Insurance Marketing and is responsible for Englewood, CO 80112 marketing to National Association of Securities Dealers, Inc. firms in northern California, Oregon, Washington and Alaska. From 1993 to 1995, Mr. Cole was the director of marketing for Lamar Life Insurance Company; from 1992 to 1993, Mr. Cole was senior vice president of PMI Inc., a third party lender serving the special needs of corporate owned life insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal of a specialty investment banking firm that provided services to finance the ownership and growth of emerging companies, productive assets and real property.
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AGGREGATE NUMBER OF LIMITED PARTNERSHIP INTERESTS NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED ---------------- ------------------------ --------------------- 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 1775 Massachusetts General Partner in April 1995. He has been a Avenue, NW Guest Scholar since 1991 with the Brookings Washington, DC 20036 Institution, a research organization located in Washington D.C. Until his retirement in January 1991, Mr. Frenzel served for twenty years in the United States House of Representatives. Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0 60435 Tekampe Road General Partner in April 1995. From 1983 to Bend, OR 97702 1992, at which time Mr. Jacobs retired, Mr. Jacobs was an executive officer of TRW. Prior 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. John A. MacDonald Mr. MacDonald was appointed a Director of the 0 c/o Bell Canada General Partner in November 1995. Mr. MacDonald International Inc. is Executive Vice President-Business 1000 rue de la Development and Chief Technology Officer of Gauchetiere Bell Canada. Prior to joining Bell Canada in Bureau 1100 November 1994, he was President and Chief Montreal (PQ) Executive Officer of The New Brunswick Canada H3B 4Y8 Telephone Company, a post he had held since March of that year. Mr. MacDonald began his career with NBTel in 1977 and he held various posts with that Company until his departure in November 1994. 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.
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AGGREGATE NUMBER OF LIMITED PARTNERSHIP INTERESTS NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED ---------------- ------------------------ --------------------- Raphael M. Solot Mr. Solot was appointed a director of the 0 c/o Jones Intercable, General Partner in March 1996. Mr. Solot is an Inc. attorney in private practice. He has practiced 9697 E. Mineral Avenue law for 31 years with an emphasis on franchise, Englewood, CO 80112 corporate and partnership law and complex litigation. 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. Howard O. Thrall Mr. Thrall was appointed a director of the 0 c/o Jones Intercable, General Partner in March 1996 and he had Inc. previously served as a director of the General 9697 E. Mineral Avenue Partner from December 1988 to December 1994. Englewood, CO 80112 Mr. Thrall is senior vice president-corporate development for First National Net, Inc., a leading service provider for the mortgage banking industry. From September 1993 through July 1996, Mr. Thrall served as vice president of sales, Asian region for World Airways, Inc. From 1984 until August 1993, Mr. Thrall was with the McDonnell Douglas Corporation, where he was a regional vice president, commercial marketing with the Douglas Aircraft Company subsidiary. Siim A. Vanaselja Mr. Vanaselja was appointed a director of the 0 c/o Bell Canada General Partner in August 1996. Mr. Vanaselja International Inc. joined BCE, Inc., Canada's largest 1000 rue de la telecommunications company, in February 1994 Gauchetiere and he has served in various capacities with Bureau 1100 that company and its subsidiaries since that Montreal (PQ) time. He currently serves as Chief Financial Canada H3B 4Y8 Officer of Bell Canada International Inc., a BCE Inc. subsidiary. Prior to joining BCE Inc. and since August 1989, Mr. Vanaselja was a partner in the Toronto office of KPMG Peat Marwick Thorne. Raymond L. Vigil Mr. Vigil has been Group Vice President/Human 0 c/o Jones Intercable, Resources of the General Partner since 1993. Inc. Previous to joining the General Partner, Mr. 9697 E. Mineral Avenue Vigil served as Executive Director of Learning Englewood, CO 80112 at U S 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.
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AGGREGATE NUMBER OF LIMITED PARTNERSHIP INTERESTS NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED ---------------- ------------------------ --------------------- Cynthia A. Winning Ms. Winning 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. Sanford Zisman Mr. Zisman was appointed a director of the 0 c/o Jones Intercable, General Partner in June 1996. Mr. Zisman is a Inc. member of the law firm Zisman & Ingraham, P.C. 9697 E. Mineral Avenue of Denver, Colorado. He has practiced law for Englewood, CO 80112 31 years, with an emphasis on tax, business and estate planning and probate administration. Robert L. Zoellick Mr. Zoellick was appointed a Director of the 0 3900 Wisconsin General Partner in April 1995. Mr. Zoellick is Avenue, NW Executive Vice President, General Counsel and Washington, DC 20016 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.
34 - -------------------------------------------------------------------------------- [LOGO OF JONES INTERCABLE, INC. 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 11-B, Ltd., a Colorado limited partnership, hereby votes on the sale of Cable TV Joint Fund 11's Manitowoc, Wisconsin cable television system to Jones Intercable, Inc. for a sale price of $16,122,333 in cash, subject to normal closing adjustments, pursuant to the terms and conditions of that certain Purchase and Sale Agreement dated as of September 5, 1995, as amended September 30, 1996, 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: _____________________, 1997 __________________________________ Beneficial Owner Signature (Investor) __________________________________ Authorized Trustee/Custodian Signature PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [LOGO OF JONES INTERCABLE, INC. 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 11-B, Ltd., a Colorado limited partnership, hereby votes on the sale of Cable TV Joint Fund 11's Manitowoc, Wisconsin cable television system to Jones Intercable, Inc. for a sales price of $16,122,333 in cash, subject to normal closing adjustments, pursuant to the terms and conditions of that certain Purchase and Sale Agreement dated as of September 5, 1995, as amended September 30, 1996, 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 more than one person, all owners should sign. When signing as attorney, as ex- ecutor, administrator, trustee or guardian, please give full title as such. If a corporation, please sign in full corporation name by authorized officer. If a partner- ship, please sign in partnership name by authorized person. DATED: _____________________, 1997 __________________________________ Signature __________________________________ Signature __________________________________ Signature PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. - -------------------------------------------------------------------------------- EX-99.(D)(2) 6 1995 10-K FOR CABLE TV FUND 11-B Exhibit (d)(2) FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from to ---------- ----------- Commission file number: 0-11911 CABLE TV FUND 11-B, LTD. ------------------------ (Exact name of registrant as specified in its charter)
Colorado 84-0908730 - - --------------------------------------------- --------------------------------- (State of Organization) (IRS Employer Identification No.) P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111 - - --------------------------------------------- --------------------------------- (Address of principal executive office and Zip Code) (Registrant's telephone no. including area code)
Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests Indicate by check mark whether the registrants, (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days: Yes x No ----- ----- Aggregate market value of the voting stock held by non-affiliates of the registrant: N/A Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. DOCUMENTS INCORPORATED BY REFERENCE: None PART I. ITEM 1. BUSINESS THE PARTNERSHIP. Cable TV Fund 11-B, Ltd. (the "Partnership") is a Colorado limited partnership that was formed pursuant to the public offering of limited partnership interests in the Cable TV Fund 11 Limited Partnership Program (the "Program"), which was sponsored by Jones Intercable, Inc. (the "General Partner"). Cable TV Fund 11-A, Ltd. ("Fund 11-A"), Cable TV Fund 11-C, Ltd. ("Fund 11-C") and Cable TV Fund 11-D, Ltd. ("Fund 11-D") are the other partnerships that were formed pursuant to the Program. The Partnership, Fund 11-A, Fund 11-C and Fund 11-D formed a general partnership known as Cable TV Joint Fund 11 (the "Venture") in which the Partnership owns an 8 percent interest, Fund 11-A owns an 18 percent interest, Fund 11-C owns a 27 percent interest and Fund 11-D owns a 47 percent interest. The Partnership and the Venture were formed for the purpose of acquiring and operating cable television systems. The Partnership directly owns cable television systems serving the communities of Lancaster, Lockport and Orchard Park, New York (the "New York System"), and the Venture operates a cable television system in Manitowoc, Wisconsin (the "Manitowoc System"). See Item 2. The New York System and the Manitowoc System may collectively hereinafter be referred to as the "Systems." PROPOSED DISPOSITIONS OF CABLE TELEVISION SYSTEMS. On October 6, 1995, the Partnership entered into an asset purchase agreement pursuant to which it agreed to sell the New York System to Global Acquisition Partners, L.P., an unaffiliated cable television system operator, for a sales price of $84,000,000 in cash, subject to normal working capital closing adjustments. The closing of the sale of the New York System is subject to a number of conditions, including approval of the transaction by the holders of a majority of the Partnership's limited partnership interests, which has been obtained, and the consent of the state and local franchising authorities to the transfer of the New York System's franchises, the approval of the Federal Communications Commission to the transfer of certain licenses and the consent of third parties with whom the Partnership has real property leases to the transfer thereof. The New York state cable authority has conditionally approved the sale of the New York System by the Partnership. Approvals of certain of the local franchising authorities to the transfer of certain of the New York System's franchises have been obtained. The remaining local government approvals are pending, and the General Partner expects that all such approvals will be obtained before the end of March 1996. The approvals of the Federal Communications Commission to the transfer of certain of the New York System's franchises also are pending and are expected to be received in the near future. Closing of this sale is expected to occur on or about April 1, 1996. Upon consummation of the proposed sale of the New York System, working capital closing adjustments will be determined, the Partnership will pay all of its indebtedness, which totaled approximately $23,808,000 at December 31, 1995, its sales tax liability of approximately $1,750,000 and a brokerage fee of $2,100,000 to The Jones Group, Ltd., a subsidiary of the General Partner, and then the Partnership will distribute the approximate $56,047,500 net proceeds to its partners of record as of February 29, 1996. Because limited partners have already received distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by the limited partners, the net proceeds from the New York System's sale will be distributed 75 percent to the limited partners and 25 percent to the General Partner. Based upon the pro forma financial information as of December 31, 1995, as a result of the New York System's sale, the limited partners of the Partnership, as a group, will receive approximately $42,035,600 and the General Partner will receive approximately $14,011,900. Limited partners will receive $1,105 for each $500 limited partnership interest, or $2,211 for each $1,000 invested in the Partnership, from the net proceeds of the New York System's sale. Once the distribution of the net proceeds from the sale of the New York System has been made, limited partners will have received a total of $1,605 for each $500 limited partnership interest, or $3,211 for each $1,000 invested in the Partnership, taking into account distributions to limited partners made in July 1990 and July 1992. The Partnership will continue to own its 8 percent interest in the Venture until the Manitowoc System also is sold, as discussed below. Upon the closing of the sale of the Partnership's New York System and the Venture's Manitowoc System, the Partnership will be liquidated and dissolved. 2 On September 5, 1995, the Venture entered into an asset purchase agreement pursuant to which it agreed to sell the Manitowoc System to the General Partner for a sales price of $15,735,667, subject to normal working capital closing adjustments. This sales price represents the average of three separate independent appraisals of the fair market value of the Manitowoc System obtained by the General Partner, and it was the only bid tendered in a public bidding process for the Manitowoc System. The General Partner has assigned its rights and obligations under the asset purchase agreement to Jones Cable Holdings, Inc. ("JCH"), a wholly owned subsidiary of the General Partner. The sale of the Manitowoc System is subject to a number of conditions, including approval of the transaction by the holders of a majority of the limited partnership interests in each of the four partnerships that comprise the Venture and approvals from governmental authorities and other third parties necessary to the transfer of the Manitowoc System. If all conditions precedent to JCH's obligation to close are not eventually satisfied or waived, JCH's obligation to purchase the Manitowoc System will terminate on September 30, 1996. In order to sell the Manitowoc System, the Venture must obtain the consent of the City of Manitowoc and third parties with whom the Venture has contracts related to the Manitowoc System, such as pole attachment agreements or other service agreements, to the transfer thereof. The Venture was unsuccessful in its efforts to sell the Manitowoc System in June 1990, at the time of the Venture's sale of its remaining Wisconsin cable television systems, due to the refusal of the City of Manitowoc to consent to the transfer of the system's franchise. Negotiations with the City of Manitowoc with respect to the renewal and transfer of the Manitowoc System's franchise are continuing, and the Manitowoc System currently is being operated pursuant to a temporary extension of the franchise's term. The General Partner hopes that the City ultimately will agree to the renewal and transfer of the franchise and that the City will not take any action that will prevent the closing of the sale of the Manitowoc System, but given the current status of the Venture's negotiations with the City there can be no assurance that the sale will occur as planned. The General Partner intends to conduct votes of the limited partners of each of the four partnerships that comprise the Venture to seek their approval of the Manitowoc System's sale. Because the limited partners of each of the four partnerships that comprise the Venture previously approved the sale of the Manitowoc System in 1990 only to have such sale frustrated by the refusal by the City of Manitowoc to consent to the transfer of the Manitowoc System's franchise, the General Partner believes it prudent to conduct the votes of the limited partners only after the City of Manitowoc consents to the transfer of the franchise. As discussed above, there can be no assurance that the City will consent to the transfer of the Manitowoc System's franchise. If the proposed sale of the Manitowoc System is closed, the Venture will pay all of its indebtedness, which totaled $55,175 at December 31, 1995, including the $45,258 owed to the General Partner, and then the net sale proceeds and the Venture's cash on hand, which total $18,420,800, will be distributed to the four constituent partnerships of the Venture in proportion to their ownership interests in the Venture. The Partnership accordingly will receive 8 percent of such proceeds, estimated to total approximately $1,432,700. Because limited partners will have already received distributions in an amount in excess of the capital initially contributed to the Partnership by the limited partners, the Partnership's portion of the net proceeds from the Manitowoc System's sale will be distributed 75 percent to the limited partners and 25 percent to the General Partner. Based upon pro forma financial information as of December 31, 1995, as a result of the Manitowoc System's sale, the limited partners of the Partnership, as a group, will receive approximately $1,074,500 and the General Partner will receive approximately $358,200. Limited partners will receive $28 for each $500 limited partnership interest, or $57 for each $1,000 invested in the Partnership, from the Partnership's portion of the net proceeds of the Manitowoc System's sale. Once the Partnership has completed the distribution of its portion of the net proceeds from the sale of the Manitowoc System, limited partners of the Partnership will have received a total of $1,634 for each $500 limited partnership interest, or $3,267 for each $1,000 invested in the Partnership, taking into account the prior distributions to limited partners made in 1990 and 1992, and the distribution to be made on the 3 sale of the Partnership's New York System in May 1996. After the Partnership distributes its portion of the proceeds from the sale of the Manitowoc System to its partners, the Partnership will be dissolved and liquidated. Although it previously was announced that the General Partner intended to acquire and then transfer the Manitowoc System to Time Warner Entertainment Company, L.P. ("Time Warner") as part of a larger exchange of cable television systems between the General Partner and Time Warner, the General Partner and Time Warner have agreed to exclude the Manitowoc System from that exchange. CABLE TELEVISION SERVICES. The Systems offer to their subscribers various types of programming, which include basic service, tier service, premium service, pay-per-view programs and packages including several of these services at combined rates. Basic cable television service usually consists of signals of all four national television networks, various independent and educational television stations (both VHF and UHF) and certain signals received from satellites. Basic service also usually includes programs originated locally by the system, which may consist of music, news, weather reports, stock market and financial information and live or videotaped programs of a public service or entertainment nature. FM radio signals are also frequently distributed to subscribers as part of the basic service. The Systems offer tier services on an optional basis to their subscribers. A tier generally includes most of the cable networks such as Entertainment and Sports Programming Network (ESPN), Cable News Network (CNN), Turner Network Television (TNT), Family Channel, Discovery and others, and the cable television operators buy tier programming from these networks. The Systems also offer a package that includes the basic service channels and the tier services. The Systems also offer premium services to their subscribers, which consist of feature films, sporting events and other special features that are presented without commercial interruption. The cable television operators buy premium programming from suppliers such as HBO, Showtime, Cinemax or others at a cost based on the number of subscribers the cable operator serves. Premium service programming usually is significantly more expensive than the basic service or tier service programming, and consequently cable operators price premium service separately when sold to subscribers. The Systems also offer to subscribers pay-per-view programming. Pay-per-view is a service that allows subscribers to receive single programs, frequently consisting of motion pictures that have recently completed their theatrical exhibitions and major sporting events, and to pay for such service on a program-by-program basis. REVENUES. Monthly service fees for basic, tier and premium services constitute the major source of revenue for the Systems. At December 31, 1995, the Systems' monthly basic service rates ranged from $5.00 to $11.08, monthly basic and tier ("basic plus") service rates ranged from $18.76 to $23.45, and monthly premium services ranged from $3.95 to $12.95 per premium service. In addition, the Partnership and the Venture earn revenues from the Systems' pay-per-view programs and advertising fees. Related charges may include a nonrecurring installation fee that ranges from $4.89 to $35.00; however, from time to time the Systems have followed the common industry practice of reducing or waiving the installation fee during promotional periods. Commercial subscribers such as hotels, motels and hospitals are charged a nonrecurring connection fee that usually covers the cost of installation. Except under the terms of certain contracts with commercial subscribers and residential apartment and condominium complexes, the subscribers are free to discontinue the service at any time without penalty. For the year ended December 31, 1995, of the total fees received by the Systems, basic service and tier service fees accounted for approximately 72% of total revenues, premium service fees accounted for approximately 14% of total revenues, pay-per-view fees were approximately 1% of total revenues, advertising fees were approximately 5% of total revenues and the remaining 8% of total revenues came principally from equipment rentals, installation fees and program guide sales. The Partnership and the Venture are dependent 4 upon the timely receipt of service fees to provide for maintenance and replacement of plant and equipment, current operating expenses and other costs of the Systems. FRANCHISES. The Systems are constructed and operated under non-exclusive, fixed-term franchises or other types of operating authorities (referred to collectively herein as "franchises") granted by local governmental authorities. These franchises typically contain many conditions, such as time limitations on commencement and completion of construction, conditions of services, including the number of channels, types of programming and the provision of free service to schools and certain other public institutions, and the maintenance of insurance and indemnity bonds. The provisions of local franchises are subject to federal regulation. The Partnership holds 10 franchises in connection with its ownership of the New York System, and the Venture holds one franchise issued by the City of Manitowoc, Wisconsin. These franchises provide for the payment of fees to the issuing authorities and generally range from 3% to 5% of the gross revenues of a cable television system. The 1984 Cable Act prohibits franchising authorities from imposing annual franchise fees in excess of 5% of gross revenues and also permits the cable television system operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances. Neither the Partnership nor the Venture has ever had a franchise revoked, although, as discussed below, the Venture has been unsuccessful in its attempts to renew its franchise from the City of Manitowoc. The Partnership's New York System franchise expiration dates range from May 1996 to June 2005. Because the Partnership intends to sell its New York System (see Item 1, Proposed Dispositions of Cable Television Systems), the Partnership does not intend to renew the Village of Lancaster and the Town of Lancaster franchises that will expire in 1996. The renewal of these franchises will be the responsibility of the new owner. The Venture holds one franchise for the City of Manitowoc, which technically has expired. Negotiations between the Venture and the City of Manitowoc with respect to the renewal of the Manitowoc System's franchise are continuing, and the Manitowoc System currently is being operated pursuant to a temporary extension of the franchise's term. The General Partner hopes that the City soon will agree to the renewal of the franchise, but given the current status of negotiations with the City, there can be no assurance of this. If the current franchise is not renewed, the General Partner, on the Venture's behalf, will avail itself of all remedies and recourse granted to cable operators under federal and applicable state and local laws in order to preserve the Venture's right to provide cable services in the City of Manitowoc. The Venture also would seek the return of the $1,850,000, plus interest, that the Venture deposited with the City of Manitowoc in connection with the settlement of the Venture's lawsuit against the City. The settlement agreement provides for the return of this amount to the Venture if the City fails to renew the franchise. COMPETITION. Cable television systems currently experience competition from several sources. A potential source of significant competition is Direct Broadcast Satellite ("DBS") services that use video compression technology to increase channel capacity and provide packages of movies, network and other program services that are competitive with those of cable television systems. Two companies offering DBS services began operations in 1994, and two other companies offering DBS service recently began operations. In addition, a joint venture has won the right to provide a DBS service through a FCC spectrum auction. Not all subscribers terminate cable television service upon acquiring a DBS system. The General Partner has observed that a number of DBS subscribers also elect to subscribe to cable television service in order to obtain the greatest variety of programming on multiple television sets, including local video services programming not available through DBS service. Although neither the Partnership, the Venture nor the General Partner has yet encountered competition from a telephone company providing video services as a cable operator or video dialtone operator, it is anticipated that the cable television systems owned or managed by the General Partner will face such competition in the near future. Legislation recently enacted into law will make it possible for companies with considerable resources to enter the business. For example, in February 1996, one of the regional Bell operating companies entered into an agreement to acquire the nation's third largest cable television company. In addition, several telephone companies 5 have begun seeking cable television franchises from local governmental authorities as a consequence of litigation that successfully challenged the constitutionality of the cable television/telephone company cross-ownership rules. The General Partner cannot predict at this time when and to what extent telephone companies will provide cable television service within service areas in competition with cable television systems owned or managed by the General Partner. The General Partner is aware of the following imminent competition from telephone companies: Ameritech, one of the seven regional Bell operating companies, which provides telephone service in a multi-state region including Illinois, has just obtained a franchise that will allow it to provide cable television service in Naperville, Illinois, a community currently served by a cable system owned by another one of the public limited partnerships managed by the General Partner. Chesapeake and Potomac Telephone Company of Virginia and Bell Atlantic Video Service Company, both subsidiaries of Bell Atlantic, another of the regional Bell operating companies, have announced their intention to build a cable television system in Alexandria, Virginia in competition with a cable television system owned by the General Partner. Bell Atlantic is preparing for the operation of a telecommunications and video business in northern Virginia, including the Alexandria metropolitan area. The FCC has granted GTE Virginia's application for authority to construct, operate, own and maintain video dialtone facilities in northern Virginia, including in the service area of a cable television system owned by the General Partner. To date, GTE has not begun construction of a video distribution system. The entry of telephone companies as direct competitors could adversely affect the profitability and market value of the General Partner's owned and managed systems. Additional competition is present from several sources, including the following: Master Antenna Television and Satellite Master Antenna Television systems that serve multi-unit dwellings such as condominiums, apartment complexes, motels, hotels and private residential communities; private cable television/telephonic companies that have secured exclusive contracts to provide video and telephony services to multi-unit dwellings and similar complexes; and multichannel, multipoint distribution service ("MMDS") systems, commonly called wireless cable which generally focus on providing service to residents of rural areas. In addition, the FCC has established a new wireless telecommunications service known as Personal Communications Service ("PCS") that would provide portable non-vehicular mobile communications services similar to that available from cellular telephone companies, but at a lower cost. Several cable television multiple system operators hold or have requested experimental licenses from the FCC to test PCS technology. REGULATION AND LEGISLATION. The cable industry is regulated under the Telecommunications Act of 1996 (the "1996 Act"), the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") and the Cable Communications Policy Act of 1984 (the "1984 Cable Act") and the regulations implementing these statutes. The Federal Communications Commission (the "FCC") has promulgated regulations covering such areas as the registration of cable television systems and other communications businesses, carriage of television broadcast programming, consumer education and lockbox enforcement, origination cablecasting and sponsorship identification, children's programming, the regulation of basic cable and cable programming service rates in areas where cable television systems are not subject to effective competition, signal leakage and frequency use, technical performance, maintenance of various records, equal employment opportunity, and antenna structure notification, marking and lighting. In addition, cable operators periodically are required to file various informational reports with the FCC. The FCC has the authority to enforce these regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities often used in connection with cable operations. State or local franchising authorities, as applicable, also have the right to enforce various regulations, impose fines or sanctions, issue orders or seek revocation subject to the limitations imposed upon such franchising authorities by federal, state and local laws and regulations. Several states have assumed regulatory jurisdiction of the cable television industry, and it is anticipated that other states will do so in the future. To the extent the cable television industry begins providing telephone service, additional state regulations will be applied to the cable television industry. Cable television operations are subject to local regulation insofar as systems operate under franchises granted by local authorities. The following is a summary of federal laws and regulations materially affecting the cable television industry, and a description of state and local laws with which the cable industry must comply. 6 Telecommunications Act of 1996. The 1996 Act, which became law on February 28, 1996, substantially revised the Communications Act of 1934, as amended, including the 1984 Cable Act and the 1992 Cable Act, and has been described as one of the most significant changes in communications regulation since the original Communications Act of 1934. The 1996 Act is intended, in part, to promote substantial competition in the telephone local exchange and in the delivery of video and other services. As a result of the 1996 Act, local telephone companies (also known as local exchange carriers or "LECs") and other service providers are permitted to provide video programming, and cable television operators are permitted entry into the telephone local exchange market. The FCC is required to conduct rulemaking proceedings over the next several months to implement various provisions of the 1996 Act. Among other provisions, the 1996 Act modified the 1992 Cable Act by deregulating the cable programming service tier of large cable operators effective March 31, 1999 and the cable programming service tier of small cable operators (those that provide service to 50,000 or fewer subscribers) effective immediately. The 1996 Act also revised the procedures for filing a cable programming service tier rate complaint and adds a new effective competition test. The most far-reaching changes in the communications business will result from the telephony provisions of the 1996 Act. The statute expressly preempts any legal barriers to competition in the local telephone business that previously existed in state and local laws and regulations. Many of these barriers had been lifted by state actions over the last few years, but the 1996 Act completes the task. The 1996 Act also establishes new requirements for maintaining and enhancing universal telephone service and new obligations for telecommunications providers to maintain privacy of customer information. The 1996 Act establishes uniform requirements and standards for entry, competitive carrier interconnection and unbundling of LEC monopoly services. The 1996 Act repealed the cable television/telephone cross-ownership ban adopted in the 1984 Cable Act. The federal cross-ownership ban was particularly important to the cable industry because telephone companies already own certain facilities such as poles, ducts and associated rights of way. While this ban had been overturned by several courts, formal removal of the ban ended the last legal constraints on telephone company plans to enter the cable market. Under the 1996 Act, telephone companies in their capacity as common carriers now may lease capacity to others to provide cable television service. Telephone companies have the option of providing video service as cable operators or through "open video systems" ("OVS"), a regulatory regime that may provide more flexibility than traditional cable service. The 1996 Act exempts OVS operators from many of the regulatory obligations that currently apply to cable operators, such as rate regulation and franchise fees, although other requirements are still applicable. OVS operators, although not subject to franchise fees as defined by the 1992 Cable Act, are subject to fees charged by local franchising authorities or other governmental entities in lieu of franchise fees. (Under certain circumstances, cable operators also will be able to offer service through open video systems.) In addition, the 1996 Act eliminated the requirement that telephone companies file Section 214 applications (applications to provide video dialtone services) with the FCC before providing video service. This limits the opportunity of cable operators to mount challenges at the FCC regarding telephone company entry into the video market. The 1996 Act also contains restrictions on buying out incumbent cable operators in a telephone company's service area, especially in suburban and urban markets. Other parts of the 1996 Act also will affect cable operators. Under the 1996 Act, the FCC is required to revise the current pole attachment rate formula. This revision will result in an increase in the rates paid by entities, including cable operators, that provide telecommunication services. The rates will be phased in after a five-year period. (Cable operators that provide only cable services will be unaffected.) Under the V-chip provisions of the 1996 Act, cable operators and other video providers are required to pass along any program rating information that programmers include in video signals. Cable operators also are subject to new scrambling requirements for sexually explicit programming, and cable operators that provide Internet access or other online services are subject to the new indecency limitations for computer services. In addition, cable operators that 7 provide Internet access or other online services are subject to the new indecency limitations for computer services, although these provisions already have been challenged in court. These provisions already have been challenged, and the courts have preliminarily enjoined the enforcement of these content-based provisions. Under the 1996 Act, a franchising authority may not require a cable operator to provide telecommunications services or facilities, other than an institutional network, as a condition to a grant, renewal or transfer of a cable franchise, and franchising authorities are preempted from regulating telecommunications services provided by cable operators and from requiring cable operators to obtain a franchise to provide such services. The 1996 Act also repealed the 1992 Cable Act's anti-trafficking provision, which generally required the holding of cable television systems for three years. It is premature to predict the specific effects of the 1996 Act on the cable industry in general or the Partnership in particular. The FCC shortly will be undertaking numerous rulemaking proceedings to interpret and implement the 1996 Act. It is not possible at this time to predict the outcome of those proceedings or their effect on the Partnership. Cable Television Consumer Protection and Competition Act of 1992. 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 mandated a greater degree of regulation of the cable television industry. Under the 1992 Cable Act's definition of effective competition, nearly all cable television systems in the United States, including those owned and managed by the General Partner, became subject to rate regulation of basic cable services. In addition, the 1992 Cable Act allowed the FCC to regulate rates for non-basic service tiers other than premium services in response to complaints filed by franchising authorities and/or cable subscribers. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. The FCC's rules became effective on September 1, 1993. In compliance with these rules, the General Partner on behalf of the Partnership and the Venture reduced rates charged for certain regulated services in the New York System and the Manitowoc System effective September 1, 1993. On February 22, 1994, however, the FCC adopted several additional rate orders including an order which revised its earlier-announced regulatory scheme with respect to rates. The FCC's new regulations generally required 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. Further rate reductions for cable systems whose rates are below the revised benchmark levels, as well as reductions that would require operators to reduce rates below benchmark levels in order to achieve a 17 percent rate reduction, were held in abeyance pending completion of cable system cost studies. The FCC recently requested some of these "low price" systems to complete cost study questionnaires. After review of these questionnaires, the FCC could decide to permanently defer any further rate reductions, or require the additional 7 percent rate roll back for some or all of these systems. The FCC has also adopted its proposed upgrade methodology by which operators would be permitted to recover the costs of upgrading their plant. After analyzing the effects of the two methods of rate regulation, the Partnership elected to file cost-of-service showings for the New York System. The General Partner anticipates no further reduction of revenues or operating income before depreciation and amortization resulting from the FCC's rate regulations. At this time, the regulatory authorities have not approved the cost-of-service showings, and there can be no assurance that the Partnership's cost-of-service showings will prevent further rate reductions until such final approval is received. The Venture complied with the new benchmark regulations and further reduced rates in its Manitowoc System. The Venture will continue its efforts to mitigate the effect of such rate reductions. On November 10, 1994, the FCC also announced a revision to its regulations governing the manner in which cable operators may charge subscribers for new cable programming services. In addition to the present formula for calculating the permissible rate for new services, the FCC instituted a three-year flat fee mark-up plan for charges relating to new channels of cable programming services. Commencing on January 1, 1995, cable system operators may charge for new channels of cable programming services added after May 14, 1994 at a rate of up to 20 cents per channel, but may not make adjustments to monthly rates totaling more than $1.20 plus an 8 additional 30 cents for programming license fees per subscriber over the first two years of the three-year period for these new services. Operators may charge an additional 20 cents in the third year only for channels added in that year plus the costs for the programming. Operators electing to use the 20 cent per channel adjustment may not also take a 7.5 percent mark-up on programming cost increases, which is permitted under the FCC's current rate regulations. The FCC has requested further comment as to whether cable operators should continue to receive the 7.5 percent mark-up on increases in license fees on existing programming services. The FCC also announced that it will permit operators to offer a "new product tier" ("NPT"). Operators will be able to price the NPT as they elect so long as, among other conditions, other channels that are subject to rate regulation are priced in conformity with applicable regulations and operators do not remove programming services from existing tiers and offer them on the NPT. In September 1995, the FCC authorized a new, alternative method of implementing rate adjustments which will allow cable operators to increase rates for programming annually on the basis of projected increases in external costs (inflation, costs for programming, franchise-related obligations and changes in the number of regulated channels) rather than on the basis of cost increases incurred in the preceding calendar quarter. Operators that elect not to recover all of their accrued external costs and inflation pass-throughs each year may recover them (with interest) in subsequent years. In December 1995, the FCC adopted final cost-of-service rate regulations requiring, among other things, cable operators to exclude 34 percent of system acquisition costs related to intangible and tangible assets used to provide regulated services. The FCC also reaffirmed the industry-wide 11.25 percent after tax rate of return on an operator's allowable rate base, but initiated a further rulemaking in which it proposes to use an operator's actual debt cost and capital structure to determine an operator's cost of capital or rate of return. After a rate has been set pursuant to a cost-of-service showing, rate increases for regulated services are indexed for inflation, and operators are permitted to increase rates in response to increases in costs beyond their control, such as taxes and increased programming costs. The United States Court of Appeals for the District of Columbia Circuit recently upheld the FCC's rate regulations implemented pursuant to the 1992 Cable Act, but ruled that the FCC impermissibly failed to permit cable operators to adjust rates for certain cost increases incurred during the period between the date the 1992 Cable Act was passed through the initial date of rate regulation. The FCC has not yet implemented the court's ruling. There have been several lawsuits filed by cable operators and programmers in federal court challenging various aspects of the 1992 Cable Act including its provisions relating to mandatory broadcast signal carriage, retransmission consent, access to cable programming, rate regulations, commercial leased channels and public access channels. On April 8, 1993, a three-judge federal district court panel issued a decision upholding the constitutionality of the mandatory signal carriage requirements of the 1992 Cable Act. That decision was appealed directly to the United States Supreme Court. The United States Supreme Court vacated the lower court decision on June 27, 1994 and remanded the case to the district court for further development of a factual record. On December 12, 1995, the three-judge federal district court again upheld the must-carry rules' validity. This decision has been appealed to the United States Supreme Court. In 1993, a federal district court upheld provisions of the 1992 Cable Act concerning rate regulation, retransmission consent, restrictions on vertically integrated cable television operators and programmers, mandatory carriage of programming on commercial leased channels and public, educational and governmental access channels and the exemption for municipalities from civil damage liability arising out of local regulation of cable services. The 1992 Cable Act's provisions providing for multiple ownership limits for cable operators and advance notice of free previews for certain programming services have been found unconstitutional and these decisions have been appealed. The FCC's regulations relating to the carriage of indecent programming, which were recently upheld by the United States Court of Appeals for the District of Columbia, have been appealed to the United States Supreme Court. 9 Franchising. The responsibility for franchising or other authorization of cable television systems is left to state and local authorities. There are, however, several provisions in the 1984 Cable Act that govern the terms and conditions under which cable television systems provide service. These include uniform standards and policies that are applicable to cable television operators seeking renewal of a cable television franchise. The procedures established provide for a formal renewal process should the franchising authority and the cable television operator decline to use an informal procedure. A franchising authority unable to make a preliminary determination to renew a franchise is required to hold a hearing in which the operator has the right to participate. In the event a determination is made not to renew the franchise at the conclusion of the hearing, the franchising authority must provide the operator with a written decision stating the specific reasons for non-renewal. Generally, the franchising authority can finally decide not to renew a franchise only if it finds that the cable operator has not substantially complied with the material terms of the present franchise, has not provided reasonable service in light of the community's needs, does not have the financial, legal or technical ability to provide the services being proposed for the future, or has not presented a reasonable proposal for future service. A final decision of non-renewal by the franchising authority is appealable in court. A provision of the 1996 Act preempts franchising authorities from regulating telecommunications services provided by cable operators and from requiring cable operators to obtain a franchise to provide such services. A franchising authority may not require a cable operator to provide telecommunications services or facilities, other than an institutional network, as a condition to a grant, renewal or transfer of a cable franchise. GENERAL. The Partnership's and the Venture's business consist of providing cable television services to a large number of customers, the loss of any one of which would have no material effect on the Partnership's or the Venture's business. Each of the Systems has had some subscribers who later terminated the service. Terminations occur primarily because people move to another home or to another city. In other cases, people terminate on a seasonal basis or because they no longer can afford or are dissatisfied with the service. The amount of past due accounts in the Systems is not significant. The General Partner's policy with regard to past due accounts is basically one of disconnecting service before a past due account becomes material. Neither the Partnership nor the Venture depends to any material extent on the availability of raw materials; it carries no significant amounts of inventory and it has no material backlog of customer orders. The Partnership has no employees because all properties are managed by employees of the General Partner. The General Partner has engaged in research and development activities relating to the provision of new services but the amount of the Partnership's or the Venture's funds expended for such research and development has never been material. Compliance with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment or otherwise relating to the protection of the environment has had no material effect upon the capital expenditures, earnings or competitive position of the Partnership or the Venture. ITEM 2. PROPERTIES The cable television systems owned by the Partnership and the Venture are described below: 10
FUND SYSTEM ACQUISITION DATE ------------------------ ---------------- ---------------- Cable TV Fund 11-B, Ltd. New York System January 1988 Cable TV Fund 11-A, Ltd., Cable Manitowoc System April 1984 TV Fund 11-B, Ltd., Cable TV Fund 11-C, Ltd. and Cable TV Fund 11-D, Ltd. own an 18%, 8%, 27% and 47% interest, respectively, through their general partner interest in Cable TV Joint Fund 11
The following sets forth (i) the monthly basic plus service rates charged to subscribers and (ii) the number of basic subscribers and pay units for the Systems. The monthly basic service rates set forth herein represent, with respect to systems with multiple headends, the basic service rate charged to the majority of the subscribers within the system. In cable television systems, basic subscribers can subscribe to more than one pay TV service. Thus, the total number of pay services subscribed to by basic subscribers are called pay units. As of December 31, 1995, the New York System's cable plant passed approximately 57,700 homes, representing an approximate 68% penetration rate, and the Manitowoc System's cable plant passed approximately 16,000 homes, representing an approximate 71% penetration rate. Figures for numbers of subscribers, miles of cable plant and homes passed are compiled from the General Partner's records and may be subject to adjustments. CABLE TV FUND 11-B, LTD. - - ------------------------
At December 31, ------------------------- NEW YORK SYSTEM 1995 1994 1993 - - --------------- ------- ------- ------- Monthly basic plus service rate $ 23.45 $ 21.95 $ 21.95 Basic subscribers 39,735 37,619 35,877 Pay units 22,275 22,755 21,502
CABLE TV JOINT FUND 11 - - ----------------------
At December 31, ------------------------ MANITOWOC SYSTEM 1995 1994 1993 - - ---------------- ------- ------- ------ Monthly basic plus service rate $ 20.66 $ 19.86 $21.95 Basic subscribers 11,436 10,834 9,768 Pay units 7,726 7,091 5,296
ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS In January and February 1996, a special vote of the limited partners of the Partnership was conducted through the mails on behalf of the Partnership by the General Partner for the purpose of obtaining limited partner approval of the sale to Global Acquisition Partners, L.P. of the New York System for $84,000,000 in cash, subject to normal working capital closing adjustments. Limited partners of record at the close of business on December 31, 1995 were entitled to notice of, and to participate in, this vote of limited partners. Of the 38,026 11 limited partnership interests entitled to vote, 26,333 interests, or 69.25 percent, voted to approve the transaction, 76 interests, or .20 percent, voted against the transaction, 210 interests, or .55 percent, abstained from voting and 11,407 interests, or 30 percent, did not vote on the proposal. It is anticipated that the sale of the New York System will occur on or about April 1, 1996. See Item 1, Business. PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS While the Partnership is publicly held, there is no public market for the limited partnership interests, and it is not expected that a market will develop in the future. As of February 15, 1996, the number of equity security holders in the Partnership was 3,164. 12 Item 6. Selected Financial Data
For the Year Ended December 31, ------------------------------------------------------------------------------ Cable TV Fund 11-B, Ltd. 1995 1994 1993 1992 1991 - - ------------------------ ----------- ----------- ----------- ----------- ----------- Revenues $14,366,359 $12,791,832 $11,922,307 $11,817,424 $11,434,838 Depreciation and Amortization 2,957,444 2,379,471 1,899,145 1,737,457 1,781,846 Operating Income 1,529,866 1,324,181 1,125,375 1,733,870 2,130,580 Net Income (Loss) (158,865) 136,953 480,661 12,900,586(a) 600,619 Net Income (Loss) per Limited Partnership Unit (4.14) 3.57 12.51 335.86(a) 15.64 Weighted Average Number of Limited Partnership Units Outstanding 38,026 38,026 38,026 38,026 38,026 General Partner's Capital (Deficit) 53,221 54,810 53,440 48,633 (80,373) Limited Partners' Capital (Deficit) 2,702,835 2,860,111 2,724,528 2,248,674 (663,525) Total Assets 28,153,665 26,514,695 22,298,044 14,496,416 14,672,979 Debt 23,807,849 20,228,189 18,089,150 10,624,649 13,585,067 General Partner Advances - 1,305,421 42,288 177,673 569,634
(a) Net income resulted primarily from the sale of the Grand Island System by Cable TV Fund 11-B, Ltd.
For the Year Ended December 31, ----------------------------------------------------------------------------- Cable TV Joint Fund 11 1995 1994 1993 1992 1991 - - ---------------------- ---------- ---------- ---------- ---------- ---------- Revenues $3,632,675 $3,296,103 $3,292,675 $3,244,023 $3,019,516 Depreciation and Amortization 545,237 522,593 517,441 499,110 481,071 Operating Income 296,393 309,189 416,589 426,058 333,948 Net Income 453,912 373,181 246,536 325,547 457,909 Partners' Capital 7,051,757 6,597,845 6,224,664 5,978,128 5,652,581 Total Assets 7,504,046 7,099,110 6,610,142 6,723,916 6,137,193 Debt 9,917 26,385 20,129 29,188 28,738 Advances from Jones Intercable, Inc. 45,258 72,764 32,825 52,745 227,810
13 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations CABLE TV FUND 11-B, LTD. RESULTS OF OPERATIONS 1995 compared to 1994 Revenues of Cable TV Fund 11-B, Ltd. (the "Partnership") totaled $14,366,359 in 1995 as compared to $12,791,832 in 1994, an increase of $1,574,527, or approximately 12 percent. Basic rate increases accounted for approximately 64 percent of the increase in revenues. An increase in the subscriber base accounted for approximately 33 percent of the increase in revenues. The number of basic subscribers increased 2,116, or approximately 6 percent, to 39,735 at December 31, 1995 from 37,619 at December 31, 1994. No other factors individually were significant to the increase in revenues. Operating expenses consist primarily of costs associated with the administration of the Partnership's cable television system. The principal cost components are salaries paid to system personnel, programming expenses, professional fees, subscriber billing costs, rent for leased facilities, cable system maintenance expenses and consumer marketing expenses. Operating expenses totaled $8,123,450 in 1995 compared to $7,459,002 in 1994, an increase of $664,448, or approximately 9 percent. Operating expenses represented approximately 57 percent of revenues in 1995 compared to approximately 58 percent of revenues in 1994. The increase in operating expenses was due to increases in programming fees and system maintenance costs, due, in part, to the increase in the subscriber base. These increases were offset, in part, by decreases in personnel related expense. No other factors individually were significant to the increase in the Partnership's operating expenses. Management fees and allocated overhead from the General Partner totaled $1,755,599 in 1995 compared to $1,629,178 in 1994, an increase of $126,421, or approximately 8 percent, due to the increase in revenues, upon which such fees and allocations are based. Depreciation and amortization expense totaled $2,957,444 in 1995 compared to $2,379,471 in 1994, an increase of $577,973, or approximately 24 percent, due to capital additions in 1995 and 1994. Operating income totaled $1,529,866 in 1995 compared to $1,324,181 in 1994, an increase of $205,685, or approximately 16 percent, due to the increase in revenues exceeding the increases in operating expenses, management fees and allocated overhead from the General Partner and depreciation and amortization expense. The cable television industry generally measures the performance of a cable television system in terms of cash flow or operating income before depreciation and amortization. The value of a cable television system is often determined using multiples of cash flow. This measure is not intended to be a substitute or improvement upon the items disclosed on the financial statements, rather it is included because it is an industry standard. Operating income before depreciation and amortization totaled $4,487,310 in 1995 compared to $3,703,652 in 1994, an increase of $783,658, or approximately 21 percent, due to the increase in revenues exceeding the increases in operating expenses and management fees and overhead from the General Partner. Interest expense totaled $1,773,876 in 1995 compared to $1,126,399 in 1994, an increase of $647,477, or approximately 57 percent, due to higher outstanding balances on interest bearing obligations and higher effective interest rates during 1995. The Partnership recognized net loss before equity in net income of cable television joint venture of $194,179 in 1995 compared to income before equity in net income of cable television joint venture of $107,920 in 1994, a decrease of $302,099, due primarily to the increase in interest expense. 14 1994 compared to 1993 Revenues of the Partnership totaled $12,791,832 in 1994 compared to $11,922,307 in 1993, an increase of $869,525, or approximately 7 percent. An increase in basic subscribers primarily accounted for the increase in revenues. The number of basic subscribers increased 1,742, or approximately 5 percent, to 37,619 at December 31, 1994 from 35,877 at December 31, 1993. The increase in revenues would have been greater but for the reduction in basic rates due to basic rate regulations issued by the FCC in April 1993 with which the Partnership complied effective September 1, 1993. No other factors individually were significant to the increase in revenues. Operating expenses totaled $7,459,002 in 1994 compared to $7,476,761 in 1993, a decrease of $17,759, or less than 1 percent. Operating expenses represented approximately 58 percent of revenues in 1994 compared to approximately 63 percent in 1993. The decrease in operating expenses was due primarily to decreases in personnel related and marketing related expenses. These decreases were partially offset by increases in programming fees and plant maintenance costs. No other factors individually were significant to the decrease in operating expenses. Management fees and allocated overhead from the General Partner totaled $1,629,178 in 1994 compared to $1,421,026 in 1993, an increase of $208,152, or approximately 15 percent, due to the increase in revenues, upon which such fees and allocations are based, and to an increase in expenses allocated from the General Partner. The General Partner experienced increases in expenses in 1994. Depreciation and amortization expense totaled $2,379,471 in 1994 compared to $1,899,145 in 1993, an increase of $480,326, or approximately 25 percent, due to capital additions in 1994 and 1993. Operating income totaled $1,324,181 in 1994 compared to $1,125,375 in 1993, an increase of $198,806, or approximately 18 percent, due to the increase in revenues exceeding the increases in operating expenses, management fees and allocated overhead from the General Partner and depreciation and amortization expense. Interest expense totaled $1,126,399 in 1994 compared to $636,263 in 1993, an increase of $490,136, or approximately 77 percent, due to higher outstanding balances on interest bearing obligations and higher effective interest rates. Income before equity in net income of cable television joint venture totaled $107,920 in 1994 compared to $461,481 in 1993, a decrease of $353,561, or approximately 77 percent, due to the increase in interest expense exceeding the increase in operating income. In addition to the New York System owned by it, the Partnership also owns an 8 percent interest in Cable TV Joint Fund 11 ("Joint Fund 11"). Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations for Joint Fund 11 for details pertaining to its operation. FINANCIAL CONDITION On October 6, 1995, the Partnership entered into an asset purchase agreement pursuant to which it agreed to sell the New York System to an unaffiliated cable television system operator for a sales price of $84,000,000. This transaction was approved by a majority of the Partnership's limited partnership interests in a vote conducted during the first quarter of 1996. The closing of the sale of the New York System is subject to the successful transfer of the New York System's franchises. Closing of this sale is expected to occur on or about April 1, 1996. Upon consummation of the proposed sale of the New York System, the Partnership will pay all of its indebtedness, which totaled approximately $23,808,000 at December 31, 1995, its sales tax liability of approximately $1,750,000 and a brokerage fee of $2,100,000 to The Jones Group, Ltd., a subsidiary of the General Partner, and then the Partnership will distribute the approximate $56,047,500 net proceeds to its partners of record as of February 29, 1996. Because limited partners have already received distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by the limited partners, the net proceeds from the New York System's sale will be distributed 75 percent to the limited partners and 25 percent to the General Partner. Based upon the pro forma financial information as of December 31, 1995, as a result of the New York System's sale, the limited partners of the Partnership, as a group, will receive approximately $42,035,600 and the General Partner will receive approximately $14,011,900. Limited partners will receive $1,105 for each $500 limited partnership interest, or $2,211 for each $1,000 invested in the 15 Partnership, from the net proceeds of the New York System's sale. Once the distribution of the net proceeds from the sale of the New York System has been made, limited partners will have received a total of $1,605 for each $500 limited partnership interest, or $3,211 for each $1,000 invested in the Partnership, taking into account distributions to limited partners made in July 1990 and July 1992. The Partnership will continue to own its 8 percent interest in the Venture until the Manitowoc System also is sold. Upon the closing of the sale of the Partnership's New York System and the Venture's Manitowoc System, the Partnership will be liquidated and dissolved. On September 5, 1995, Joint Fund 11 entered into an asset purchase agreement pursuant to which it agreed to sell the Manitowoc System to the General Partner for a sales price of $15,735,667, subject to normal working capital closing adjustments. The closing of the sale of the Manitowoc System is subject to a number of conditions, including the approval of the holders of a majority of the limited partnership interests in each of the four partnerships that comprise Joint Fund 11 in votes to be conducted in 1996 and the successful renewal and transfer of the Manitowoc System's franchise. If the proposed sale of the Manitowoc System is closed, Joint Fund 11 will pay all of its indebtedness, which totaled $55,175 at December 1995, including $45,258 owed to the General Partner, and then the net sales proceeds plus cash on hand will be distributed to Joint Fund 11's partners in proportion to their ownership interests in Joint Fund 11. The Partnership accordingly will receive 8 percent of such proceeds, estimated to total approximately $1,432,700. Because limited partners will have already received distributions in an amount in excess of the capital initially contributed to the Partnership by the limited partners, the Partnership's portion of the net proceeds from the Manitowoc System's sale will be distributed 75 percent to the limited partners and 25 percent to the General Partner. Based upon pro forma financial information as of December 31, 1995, as a result of the Manitowoc System's sale, the limited partners of the Partnership, as a group, will receive approximately $1,074,500 and the General Partner will receive approximately $358,200. As a result, it is anticipated that the limited partners will receive approximately $28 for each $500 limited partnership interest, or approximately $57 for each $1,000 invested in the Partnership, from the Partnership's portion of the net proceeds of the Manitowoc System's sale. After the Partnership distributes its portion of the proceeds from the sale of the Manitowoc System to its partners, the Partnership will be dissolved and liquidated. The Partnership expended approximately $4,143,000 on capital improvements during 1995. Of this total, approximately 34 percent related to the completion of the franchise required rebuild and upgrade of the New York System. Plant extensions and service drops to subscriber homes accounted for approximately 24 percent of the capital expenditures. Converters accounted for approximately 10 percent of the capital expenditures. The remainder of the expenditures were for various other enhancements in the New York System. Funding for these expenditures was provided primarily by cash generated from operations and borrowings under the Partnership's credit facility. Capital additions for 1996 will consist of expenditures necessary to maintain the value of the plant until the New York System is sold. Funding for these expenditures is expected to be provided by cash generated from operations and available borrowings from the Partnership's existing credit facility. On February 28, 1995, the Partnership entered into a $25,000,000 revolving credit and term loan agreement. The revolving credit period expires January 1, 1997, at which time the outstanding balance converts to a term loan payable in 24 consecutive quarterly installments commencing March 31, 1997. As of December 31, 1995, $23,600,000 was outstanding under this agreement, leaving $1,400,000 available for future needs of the Partnership. Interest payable on outstanding amounts is at the Partnership's option of the Base Rate plus 1/2 percent or the London InterBank Offered Rate plus 1-3/8 percent. This loan is expected to be paid in full upon closing of the sale of the New York System. The Partnership has sufficient sources of capital available to meet its presently anticipated needs from its ability to generate cash from operations and from borrowings available under its credit facility. In addition to the New York System owned by it, the Partnership owns an 8 percent interest in Joint Fund 11. This investment is accounted for under the equity method. When compared to the December 31, 1994 balance, this investment has increased by $35,314 from $550,483 at December 31, 1994 to $585,797 at December 31, 1995. This increase represents the Partnership's proportionate share of income generated by Joint Fund 11. Refer to Management's Discussion and Analysis of Financial Condition and Results of Operations for Joint Fund 11 for details pertaining to its financial condition. REGULATION AND LEGISLATION The Partnership has filed cost-of-service showings in response to rulemakings concerning the 1992 Cable Act for the New York System and thus anticipates no further reductions in rates in this system. The cost-of-service showings have 16 not yet received final approvals from regulatory authorities, however, and there can be no assurance that the Partnership's cost-of-service showings will prevent further rate reductions in this system until such final approvals are received. The Telecommunications Act of 1996 (the "1996 Act"), which became law on February 8, 1996, substantially revised the Communications Act of 1934, as amended, including the 1984 Cable Act and the 1992 Cable Act, and has been described as one of the most significant changes in communications regulation since the original Communications Act of 1934. The 1996 Act is intended, in part, to promote substantial competition in the telephone local exchange and in the delivery of video and other services. As a result of the 1996 Act, local telephone companies (also known as local exchange carriers or "LECs") and other service providers are permitted to provide video programming, and cable television operators are permitted entry into the telephone local exchange market. The FCC is required to conduct rulemaking proceedings over the next several months to implement various provisions of the 1996 Act. Among other provisions, the 1996 Act modified the 1992 Cable Act by deregulating the cable programming service tier of large cable operators including the Partnership effective March 31, 1999 and the cable programming service tier of "small" cable operators in systems providing service to 50,000 or fewer subscribers effective immediately. The 1996 Act also revised the procedures for filing cable programming service tier rate complaints and adds a new effective competition test. It is premature to predict the specific effects of the 1996 Act on the cable industry in general or the Partnership in particular. The FCC will be undertaking numerous rulemaking proceedings to interpret and implement the 1996 Act. It is not possible at this time to predict the outcome of those proceedings or their effect on the Partnership. See Item 1. CABLE TV JOINT FUND 11 RESULTS OF OPERATIONS 1995 compared to 1994 Revenues in Joint Fund 11's Manitowoc System totaled $3,632,675 in 1995 compared to $3,296,103 in 1994, an increase of $336,572, or approximately 10 percent. An increase in the subscriber base accounted for approximately 55 percent of the increase in revenues in 1995. The number of basic subscribers increased by 602 subscribers, or approximately 6 percent, to 11,436 at December 31, 1995 from 10,834 at December 31, 1994. The number of premium subscribers increased by 635 subscriptions, or approximately 9 percent, to 7,726 at December 31, 1995 from 7,091 at December 31, 1994. Basic service rate increases accounted for approximately 14 percent of the increase in revenues. An increase in advertising sales activity accounted for approximately 22 percent of the increase in revenues. No other individual factor contributed significantly to the increase in revenues. Operating expenses consist primarily of costs associated with the administration of the Manitowoc System. The principal cost components are salaries paid to system personnel, programming expenses, professional fees, subscriber billing costs, rent for leased facilities, cable system maintenance expenses and consumer marketing expenses. Operating expenses in the Manitowoc System totaled $2,327,354 in 1995 compared to $2,026,763 in 1994, an increase of $300,591, or approximately 15 percent. Operating expenses represented approximately 64 percent of revenues in 1995 compared to approximately 61 percent of revenues in 1994. The increase in expenses was primarily due to an increase in programming fees, property tax expense and advertising sales related expenses. The increase in advertising sales related expenses was due, in part, to an increase in advertising sales activity. No other individual factor significantly affected the increase in operating expenses. Management fees and allocated overhead from the General Partner totaled $463,691 for 1995 compared to $437,558 in 1994, an increase of $26,133, or approximately 6 percent. The increase was due to the increase in revenues, upon which such fees and allocations are based, and increases in allocated expenses from the General Partner. Depreciation and amortization expense totaled $545,237 in 1995 compared to $522,593 in 1994, an increase of $22,644, or approximately 4 percent, due to capital additions in 1995 and 1994. 17 Operating income totaled $296,393 in 1995 compared to $309,189 in 1994, a decrease of $12,796, or approximately 4 percent. The decrease was due to the increases in operating expenses, management fees and allocated overhead from the General Partner and depreciation and amortization expense exceeding the increase in revenues. The cable television industry generally measures the performance of a cable television system in terms of cash flow or operating income before depreciation and amortization. The value of a cable television system is often determined using multiples of cash flow. This measure is not intended to be a substitute or improvement upon the items disclosed on the financial statements, rather it is included because it is an industry standard. Operating income before depreciation and amortization totaled $841,630 for 1995 compared to $831,782 in 1994, an increase of $9,848, or approximately 1 percent. The increase was due to the increase in revenues exceeding the increases in operating expenses and management fees and allocated overhead from the General Partner. Interest income totaled $166,280 in 1995 compared to $87,134 in 1994, an increase of $79,146, or approximately 91 percent. This increase was due to higher cash balances and higher interest rates on interest-bearing accounts in 1995. Interest expense totaled $10,003 in 1995 compared to $15,716 in 1994, a decrease of $5,713, or approximately 36 percent. The decrease was due to lower outstanding balances on interest bearing obligations in 1995. Net income of Joint Fund 11 totaled $453,912 in 1995 compared to $373,181 in 1994, an increase of $80,731, or approximately 22 percent. The increase was due primarily to the increase in interest income. 1994 compared to 1993 Revenues in the Manitowoc System totaled $3,296,103 in 1994 compared to $3,292,675 in 1993, an increase of $3,428, or less than 1 percent. An increase in the subscriber base primarily accounted for the increase in revenues. Basic service subscribers increased 1,066, or approximately 11 percent, to 10,834 at December 31, 1994 from 9,768 at December 31, 1993. Premium service subscriptions increased 1,795, or approximately 34 percent, to 7,091 at December 31, 1994 from 5,296 at December 31, 1993. The increase in revenues would have been greater but for reductions in basic service rates due to basic service rate regulations issued by the FCC in May 1993 and February 1994. No other individual factor was significant to the increase in revenues. Operating expenses in the Manitowoc System totaled $2,026,763 in 1994 compared to $1,947,068 in 1993, an increase of $79,695, or approximately 4 percent. The increase in operating expenses was due primarily to increases in programming fees and marketing related costs due to increases in basic service subscribers and premium service subscriptions. These increases were partially offset by a decrease in copyright fees. No other individual factor contributed significantly to the increase in operating expenses. Operating expenses represented approximately 61 percent of revenues in 1994 compared to approximately 59 percent of revenues in 1993. Management fees and allocated overhead from the General Partner totaled $437,558 in 1994 compared to $411,577 in 1993, an increase of $25,981, or approximately 6 percent. The increase was due to an increase in allocated expenses from the General Partner. The General Partner experienced increases in expenses in 1994. Depreciation and amortization expense totaled $522,593 in 1994 compared to $517,441 in 1993, an increase of $5,152, or approximately 1 percent, due to capital additions in 1994 and 1993. Operating income in the Manitowoc System totaled $309,189 in 1994 compared to $416,589 in 1993, a decrease of $107,400, or approximately 26 percent. The decrease was due to the increases in operating expenses, allocated overhead from the General Partner and depreciation and amortization expense exceeding the increase in revenues. Interest expense for Joint Fund 11 totaled $15,716 in 1994 compared to $22,912 in 1993, a decrease of $7,196, or approximately 31 percent, due to a lower outstanding balance on interest bearing obligations. Other expense totaled $7,426 in 1994 compared to $248,912 in 1993, primarily as a result of Joint Fund 11 incurring costs associated with the litigation with the City of Manitowoc during 1993. No such costs were incurred in 1994. Net income for Joint Fund 11 totaled $373,181 in 1994 compared to $246,536 in 1993, an increase of $126,645, or approximately 51 percent, due primarily to the decrease in litigation costs discussed above. 18 FINANCIAL CONDITION On September 5, 1995, Joint Fund 11 entered into an asset purchase agreement pursuant to which it agreed to sell the Manitowoc System to the General Partner for a sales price of $15,735,667, subject to normal working capital closing adjustments. This sales price is the average of three separate independent appraisals of the fair market value of the Manitowoc System and the General Partner's offer was the only bid tendered in a public bidding process for the Manitowoc System. The General Partner assigned its rights and obligations under the asset purchase agreement to Jones Cable Holdings, Inc. ("JCH"), a wholly owned subsidiary of the General Partner. The closing of the sale will occur on a date upon which Joint Fund 11 and JCH mutually agree by September 30, 1996. The sale of the Manitowoc System is subject to a number of conditions, including approval of the transaction by the holders of a majority of the Partnership's limited partnership interests and approvals from governmental authorities and other third parties necessary to the transfer of the Manitowoc System. If all conditions precedent to JCH's obligation to close are not eventually satisfied or waived, JCH's obligation to purchase the Manitowoc System will terminate on September 30, 1996. In order to sell the Manitowoc System, Joint Fund 11 must obtain the consent of the City of Manitowoc and third parties with whom Joint Fund 11 has contracts related to the Manitowoc System, such as pole attachment agreements or other service agreements, to the transfer thereof. Joint Fund 11 was unsuccessful in its efforts to sell the Manitowoc System in June 1990, at the time of Joint Fund 11's sale of its remaining Wisconsin cable television systems, due to the refusal of the City of Manitowoc to consent to the transfer of the system's franchise. Negotiations with the City of Manitowoc with respect to the renewal and transfer of the Manitowoc System's franchise are continuing, and the Manitowoc System currently is being operated pursuant to a temporary extension of the franchise's term until March 29, 1996. The General Partner hopes that the City ultimately will agree to the renewal and transfer of the franchise and that the City will not take any action that will prevent the closing of the sale of the Manitowoc System, but given the current status of negotiations with the City there can be no assurance that the sale will occur as planned. If the proposed sale of the Manitowoc System is closed, Joint Fund 11 intends to distribute the sale proceeds, after the repayment of debt, to Cable TV Fund 11-A, Ltd., Cable TV Fund 11-B, Ltd., Cable TV Fund 11-C, Ltd. and Cable TV Fund 11-D, Ltd. Net sales proceeds plus Joint Fund 11's cash on hand, which are expected to total approximately $18,420,800, will be distributed as follows: Cable TV Fund 11-A, Ltd. will receive approximately $3,356,700; Cable TV Fund 11-B, Ltd. will receive approximately $1,432,700; Cable TV Fund 11-C, Ltd. will receive approximately $4,994,100 and Cable TV Fund 11-D, Ltd. will receive approximately $8,637,300. After Joint Fund 11 distributes the proceeds from the sale of the Manitowoc System to its partners, Joint Fund 11 will be liquidated and dissolved. Joint Fund 11 had no bank debt outstanding at December 31, 1995. During 1995, Joint Fund 11 expended approximately $311,000 for capital expenditures in the Manitowoc System. These expenditures were used for various projects to maintain the value of the system. These expenditures were funded from cash generated from operations. Capital expenditures in 1996 for the Manitowoc System will consist of expenditures necessary to maintain the value of the Manitowoc System until it is sold. It is expected that these capital expenditures will be funded from cash on hand and cash generated from operations. Joint Fund 11 has sufficient liquidity and capital resources, including cash on hand and its ability to generate cash from operations, to meet its anticipated needs. REGULATION AND LEGISLATION The Telecommunications Act of 1996 (the "1996 Act"), which became law on February 8, 1996, substantially revised the Communications Act of 1934, as amended, including the 1984 Cable Act and the 1992 Cable Act, and has been described as one of the most significant changes in communications regulation since the original Communications Act of 1934. The 1996 Act is intended, in part, to promote substantial competition in the telephone local exchange and in the delivery of video and other services. As a result of the 1996 Act, local telephone companies (also known as local exchange carriers or "LECs") and other service providers are permitted to provide video programming, and cable television operators are permitted entry into the telephone local exchange market. The FCC is required to conduct rulemaking proceedings over the next several months to implement various provisions of the 1996 Act. 19 Among other provisions, the 1996 Act modified the 1992 Cable Act by deregulating the cable programming service tier of large cable operators including Joint Fund 11 effective March 31, 1999 and the cable programming service tier of "small" cable operators in systems providing service to 50,000 or fewer subscribers effective immediately. The 1996 Act also revised the procedures for filing cable programming service tier rate complaints and adds a new effective competition test. It is premature to predict the specific effects of the 1996 Act on the cable industry in general or Joint Fund 11 in particular. The FCC will be undertaking numerous rulemaking proceedings to interpret and implement the 1996 Act. It is not possible at this time to predict the outcome of those proceedings or their effect on Joint Fund 11. See Item 1. 20 Item 8. Financial Statements CABLE TV FUND 11-B, LTD. AND CABLE TV JOINT FUND 11 FINANCIAL STATEMENTS AS OF DECEMBER 31, 1995 AND 1994 INDEX
Page ------------------------------- 11-B Joint Fund 11 ---- ------------- Report of Independent Public Accountants 22 34 Balance Sheets 23 35 Statements of Operations 25 37 Statements of Partners' Capital (Deficit) 26 38 Statements of Cash Flows 27 39 Notes to Financial Statements 28 40
21 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Cable TV Fund 11-B, Ltd.: We have audited the accompanying balance sheets of CABLE TV FUND 11-B, LTD. (a Colorado limited partnership) as of December 31, 1995 and 1994, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the General Partner's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cable TV Fund 11-B, Ltd. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, March 8, 1996. 22 CABLE TV FUND 11-B, LTD. (A Limited Partnership) BALANCE SHEETS
December 31, --------------------------------- ASSETS 1995 1994 ------ ------------ ------------ CASH $ 325,270 $ 139,532 TRADE RECEIVABLES, less allowance for doubtful receivables of $65,516 and $72,936 at December 31, 1995 and 1994, respectively 554,478 472,417 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 45,527,837 41,384,394 Less- accumulated depreciation (19,238,591) (16,361,119) ------------ ------------ 26,289,246 25,023,275 Investment in cable television joint venture 585,797 550,483 ------------ ------------ Total investment in cable television properties 26,875,043 25,573,758 DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 398,874 328,988 ------------ ------------ Total assets $ 28,153,665 $ 26,514,695 ============ ============
The accompanying notes to financial statements are an integral part of these balance sheets. 23 CABLE TV FUND 11-B, LTD. (A Limited Partnership) BALANCE SHEETS
December 31, --------------------------------- LIABILITIES AND PARTNERS' CAPITAL 1995 1994 --------------------------------- ------------ ------------ LIABILITIES: Debt $ 23,807,849 $ 20,228,189 Accounts payable- Trade 16,514 368,624 General Partner - 1,305,421 Accrued liabilities 1,521,748 1,647,247 Subscriber prepayments 51,498 50,293 ------------ ------------ Total liabilities 25,397,609 23,599,774 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 7) PARTNERS' CAPITAL: General Partner- Contributed capital 1,000 1,000 Accumulated earnings 52,221 53,810 ------------ ------------ 53,221 54,810 ------------ ------------ Limited Partners- Net contributed capital (38,026 units outstanding at December 31, 1995 and 1994) 15,661,049 15,661,049 Distributions (19,013,121) (19,013,121) Accumulated earnings 6,054,907 6,212,183 ------------ ------------ 2,702,835 2,860,111 ------------ ------------ Total liabilities and part capital $ 28,153,665 $ 26,514,695 ============ ============
The accompanying notes to financial statements are an integral part of these balance sheets. 24 CABLE TV FUND 11-B, LTD. (A Limited Partnership) STATEMENTS OF OPERATIONS
For the Year Ended December 31, ----------------------------------------------- 1995 1994 1993 ------------ ----------- ----------- REVENUES $14,366,359 $12,791,832 $11,922,307 COSTS AND EXPENSES: Operating expenses 8,123,450 7,459,002 7,476,761 Management fees and allocated overhead from General Partner 1,755,599 1,629,178 1,421,026 Depreciation and amortization 2,957,444 2,379,471 1,899,145 ----------- ----------- ----------- OPERATING INCOME 1,529,866 1,324,181 1,125,375 ----------- ----------- ----------- OTHER INCOME (EXPENSE): Interest expense (1,773,876) (1,126,399) (636,263) Other, net 49,831 (89,862) (27,631) ----------- ----------- ----------- Total other income (expense) (1,724,045) (1,216,261) (663,894) ----------- ----------- ----------- INCOME (LOSS) BEFORE EQUITY IN NET INCOME OF CABLE TELEVISION JOINT VENTURE (194,179) 107,920 461,481 EQUITY IN NET INCOME OF CABLE TELEVISION JOINT VENTURE 35,314 29,033 19,180 ----------- ----------- ----------- NET INCOME (LOSS) $ (158,865) $ 136,953 $ 480,661 =========== =========== =========== ALLOCATION OF NET INCOME (LOSS): General Partner $ (1,589) $ 1,370 $ 4,807 =========== =========== =========== Limited Partners $ (157,276) $ 135,583 $ 475,854 =========== =========== =========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ (4.14) $ 3.57 $ 12.51 =========== =========== =========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 38,026 38,026 38,026 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 25 CABLE TV FUND 11-B, LTD. (A Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL
For the Year Ended December 31, ---------------------------------------------- 1995 1994 1993 ---------- ---------- ---------- GENERAL PARTNER: Balance, beginning of year $ 54,810 $ 53,440 $ 48,633 Net income (loss) for year (1,589) 1,370 4,807 ---------- ---------- ---------- Balance, end of year $ 53,221 $ 54,810 $ 53,440 ========== ========== ========== LIMITED PARTNERS: Balance, beginning of year $2,860,111 $2,724,528 $2,248,674 Net income (loss) for year (157,276) 135,583 475,854 ---------- ---------- ---------- Balance, end of year $2,702,835 $2,860,111 $2,724,528 ========== ========== ==========
The accompanying notes to financial statements are an integral part of these statements. 26 CABLE TV FUND 11-B, LTD. (A Limited Partnership) STATEMENTS OF CASH FLOWS
For the Year Ended December 31, ---------------------------------------------- 1995 1994 1993 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ (158,865) $ 136,953 $ 480,661 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,957,444 2,379,471 1,899,145 Equity in net income of cable television joint venture (35,314) (29,033) (19,180) Increase in trade receivables (82,061) (80,298) (82,789) Increase in deposits, prepaid expenses and deferred charges (149,858) (148,507) (630,171) Increase (decrease) in trade accounts payable, accrued liabilities and subscriber prepayments (476,404) 115,186 (8,149) Increase (decrease) in amount due General Partner (1,305,421) 1,263,133 (135,385) ----------- ----------- ----------- Net cash provided by operating activities 749,521 3,636,905 1,504,132 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net (4,143,443) (7,370,516) (7,984,770) ----------- ----------- ----------- Net cash used in investing activities (4,143,443) (7,370,516) (7,984,770) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 23,978,762 2,815,472 7,544,156 Repayment of debt (20,399,102) (114,093) (79,655) ----------- ----------- ----------- Net cash provided by financing activities 3,579,660 2,701,379 7,464,501 ----------- ----------- ----------- Increase (decrease) in cash 185,738 (1,032,232) 983,863 Cash, beginning of year 139,532 1,171,764 187,901 ----------- ----------- ----------- Cash, end of year $ 325,270 $ 139,532 $ 1,171,764 =========== =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 1,828,878 $ 916,971 $ 693,276 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 27 CABLE TV FUND 11-B, LTD. (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS (1) ORGANIZATION AND PARTNERS' INTERESTS Formation and Business Cable TV Fund 11-B, Ltd. (the "Partnership"), a Colorado limited partnership, was formed on June 17, 1983, under a public program sponsored by Jones Intercable, Inc. The Partnership was formed to acquire, construct, develop and operate cable television systems. Jones Intercable, Inc. ("Intercable"), a publicly held Colorado corporation, is the "General Partner" and manager of the Partnership. Intercable and its subsidiaries also own and operate cable television systems. In addition, Intercable manages cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities. The Partnership owns and operates the cable television system serving the municipalities of Lancaster, Lockport and Orchard Park, New York (the "New York System"). In addition to the New York System, the Partnership owns an 8 percent interest in Cable TV Joint Fund 11 ("Joint Fund 11") through capital contributions made during 1984 of $3,500,000. Joint Fund 11 owns and operates the cable television system serving the city of Manitowoc, Wisconsin (the "Manitowoc System"). Proposed Sales of Cable Television Systems On October 6, 1995, the Partnership entered into an asset purchase agreement pursuant to which it agreed to sell the New York System to an unaffiliated cable television system operator for a sales price of $84,000,000. This transaction was approved by a majority of the Partnership's limited partnership interests in a vote conducted during the first quarter of 1996. The closing of the sale of the New York System is subject to the successful transfer of the New York System's franchises. Closing of this sale is expected to occur on or about April 1, 1996. Upon consummation of the proposed sale of the New York System, the Partnership will pay all of its indebtedness, which totaled approximately $23,808,000 at December 31, 1995, its sales tax liability of approximately $1,750,000 and a brokerage fee of $2,100,000 to The Jones Group, Ltd., a subsidiary of the General Partner, and then the Partnership will distribute the approximate $56,047,500 net proceeds to its partners of record as of February 29, 1996. Because limited partners have already received distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by the limited partners, the net proceeds from the New York System's sale will be distributed 75 percent to the limited partners and 25 percent to the General Partner. Based upon the pro forma financial information as of December 31, 1995, as a result of the New York System's sale, the limited partners of the Partnership, as a group, will receive approximately $42,035,600 and the General Partner will receive approximately $14,011,900. Limited partners will receive $1,105 for each $500 limited partnership interest, or $2,211 for each $1,000 invested in the Partnership, from the net proceeds of the New York System's sale. Once the distribution of the net proceeds from the sale of the New York System has been made, limited partners will have received a total of $1,605 for each $500 limited partnership interest, or $3,211 for each $1,000 invested in the Partnership, taking into account distributions to limited partners made in July 1990 and July 1992. The Partnership will continue to own its 8 percent interest in the Venture until the Manitowoc System also is sold. Upon the closing of the sale of the Partnership's New York System and the Venture's Manitowoc System, the Partnership will be liquidated and dissolved. On September 5, 1995, Joint Fund 11 entered into an asset purchase agreement pursuant to which it agreed to sell the Manitowoc System to the General Partner for a sales price of $15,735,667, subject to normal working capital closing adjustments. The closing of the sale of the Manitowoc System is subject to a number of conditions, including the approval of the holders of a majority of the limited partnership interests in each of the four partnerships that comprise Joint Fund 11 in votes to be conducted in 1996 and the successful renewal and transfer of the Manitowoc System's franchise. If the proposed sale of the Manitowoc System is closed, Joint Fund 11 will pay all of its indebtedness, which totaled $55,175 at December 1995, including $45,258 owed to the General Partner, and then the net sales proceeds plus cash on hand will be distributed to Joint Fund 11's partners in proportion to their ownership interests in Joint Fund 11. The Partnership 28 accordingly will receive 8 percent of such proceeds, estimated to total approximately $1,432,700. Because limited partners will have already received distributions in an amount in excess of the capital initially contributed to the Partnership by the limited partners, the Partnership's portion of the net proceeds from the Manitowoc System's sale will be distributed 75 percent to the limited partners and 25 percent to the General Partner. Based upon pro forma financial information as of December 31, 1995, as a result of the Manitowoc System's sale, the limited partners of the Partnership, as a group, will receive approximately $1,074,500 and the General Partner will receive approximately $358,200. As a result, it is anticipated that the limited partners will receive approximately $28 for each $500 limited partnership interest, or approximately $57 for each $1,000 invested in the Partnership, from the Partnership's portion of the net proceeds of the Manitowoc System's sale. After the Partnership distributes its portion of the proceeds from the sale of the Manitowoc System to its partners, the Partnership will be dissolved and liquidated. Contributed Capital The capitalization of the Partnership is set forth in the accompanying statements of partners' capital. No limited partner is obligated to make any additional contribution to partnership capital. Intercable purchased its interest in the Partnership by contributing $1,000 to partnership capital. All profits and losses of the Partnership are allocated 99 percent to the limited partners and 1 percent to Intercable, except for income or gain from the sale or disposition of cable television properties, which will be allocated to the partners based upon the formula set forth in the partnership agreement and interest income earned prior to the first acquisition by the Partnership of a cable television system, which was allocated 100 percent to the limited partners. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Records The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. The Partnership's tax returns are also prepared on the accrual basis. The preparation of financial statements in conformity with generally accepted accounting principles requires the General Partner's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investment in Cable Television Joint Venture The Partnership's investment in Joint Fund 11 is accounted for under the equity method due to the Partnership's influence on Joint Fund 11 as a general partner. When compared to the December 31, 1994 balance, this investment has increased by $35,314. This increase represents the Partnership's proportionate share of income generated by Joint Fund 11 during 1995. The operations of Joint Fund 11 are significant to the Partnership and should be reviewed in conjunction with these financial statements. Reference is made to the accompanying financial statements of Joint Fund 11 on pages 35 to 43. Property, Plant and Equipment Depreciation of property, plant and equipment is provided using the straight-line method over the following estimated service lives: Cable distribution systems 5-15 years Equipment and tools 3- 5 years Buildings 10-31 years Office furniture and equipment 5 years Vehicles 3 years
Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred. 29 Allocation of Cost of Purchased Cable Television Systems The Partnership allocated the total contract purchase price of cable television systems acquired as follows: first, to the fair value of net tangible assets acquired; second, to the value of subscriber lists; and third, to franchise costs. Brokerage fees paid to an affiliate of Intercable and other system acquisition costs were capitalized and charged to distribution systems. Revenue Recognition Subscriber prepayments are initially deferred and recognized as revenue when earned. Reclassification Certain prior year amounts have been reclassified to conform to the 1995 presentation. (3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES Management Fees, Distribution Ratios and Reimbursement Intercable manages the Partnership and receives a fee for its services equal to 5 percent of the gross revenues of the Partnership, excluding revenues from the sale of cable television systems or franchises. For the years ended December 31, 1995, 1994 and 1993 management fees paid to Intercable, excluding the Partnership's 8 percent interest in Joint Fund 11, were $718,318, $639,592, and $596,115, respectively. Any partnership distributions made from cash flow (defined as cash receipts derived from routine operations, less debt principal and interest payments and cash expenses) are allocated 99 percent to the limited partners and 1 percent to Intercable. Any distributions other than interest income on limited partner subscriptions earned prior to the acquisition of the Partnership's first cable television system or from cash flow, such as from the sale or refinancing of the system or upon dissolution of the Partnership, will be made as follows: first, to the limited partners in an amount which, together with all prior distributions, will equal the amount initially contributed to the Partnership capital by the limited partners; the balance, 75 percent to the limited partners and 25 percent to Intercable. In July 1990, $9,153,740 of the limited partners' initial capital contributions was distributed to the limited partners from funds received from Joint Fund 11. In July 1992, the remaining amount of limited partners' initial capital ($9,859,381) was distributed to the limited partners from funds received from the sale of the Grand Island System. Any future distributions will be made 75 percent to the limited partners and 25 percent to Intercable. The Partnership reimburses Intercable for certain allocated overhead and administrative expenses. These expenses represent the salaries and related benefits paid to corporate personnel, rent, data processing services and other corporate facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Partnership. These reimbursements are limited to 25 percent of the gross revenues of the Partnership. Allocations of personnel costs are primarily based upon actual time spent by employees of Intercable with respect to each partnership managed. Remaining expenses are allocated based on the pro rata relationship of the Partnership's revenues to the total revenues of all systems owned or managed by the General Partner and certain of its subsidiaries. Systems owned by Intercable and all other systems owned by partnerships for which Intercable is the general partner are also allocated a proportionate share of these expenses. The General Partner believes that the methodology used in allocating overhead and administrative expenses is reasonable. Reimbursements by the Partnership to the General Partner for allocated overhead and administrative expenses, excluding the Partnership's 8 percent interest in Joint Fund 11, were $1,037,281, $989,586 and $824,911 for the years ended December 31, 1995, 1994 and 1993, respectively. The Partnership was charged interest during 1995 at an average interest rate of 10.51 percent on amounts due Intercable, which approximated Intercable's weighted average cost of borrowings. Total interest charged by the General Partner to the Partnership was $13,980, $14,287 and $13,350 in 1995, 1994 and 1993, respectively. 30 Payments to/from Affiliates for Programming Services The Partnership receives programming from Superaudio, Mind Extension University, Jones Computer Network and Product Information Network, all of which are affiliates of Intercable. Payments to Superaudio totaled approximately $21,712, $21,977 and $21,590 in 1995, 1994 and 1993, respectively. Payments to Mind Extension University totaled approximately $23,227, $19,914 and $12,565 in 1995, 1994 and 1993, respectively. Payments to Jones Computer Network, which initiated service in 1994, totaled $46,392 and $-0- in 1995 and 1994, respectively. The Partnership receives a commission from Product Information Network based on a percentage of advertising revenue and number of subscribers. Product Information Network, which initiated service in 1994, paid commissions to the Partnership totaling $38,629 and $186 in 1995 and 1994, respectively. (4) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of December 31, 1995 and 1994, consisted of the following:
1995 1994 ------------ ------------ Cable distribution systems $ 38,743,119 $ 34,793,908 Equipment and tools 1,622,222 1,586,646 Office furniture and equipment 501,055 479,991 Buildings 3,612,257 3,441,156 Vehicles 954,764 988,273 Land 94,420 94,420 ------------ ------------ 45,527,837 41,384,394 Less - accumulated depreciation (19,238,591) (16,361,119) ------------ ------------ $ 26,289,246 $ 25,023,275 ============ ============
(5) DEBT Debt consists of the following:
December 31, ---------------------------- 1995 1994 ----------- ----------- Lending institutions- Revolving credit agreement $23,600,000 $20,000,000 Capital lease obligations 207,849 228,189 ----------- ----------- $23,807,849 $20,228,189 =========== ===========
On February 28, 1995, the Partnership entered into a $25,000,000 revolving credit and term loan agreement. The revolving credit period expires January 1, 1997, at which time the outstanding balance converts to a term loan payable in 24 consecutive quarterly installments commencing March 31, 1997. Proceeds from this credit facility were used to repay amounts outstanding under the Partnership's previous credit facility, repay amounts due the General Partner and fund capital expenditures. As of December 31, 1995, $23,600,000 was outstanding under this agreement, leaving $1,400,000 available for future needs of the Partnership. Interest payable on outstanding amounts is at the Partnership's option of the Base Rate plus 1/2 percent or the London InterBank Offered Rate plus 1-3/8 percent. The effective interest rates on outstanding obligations as of December 31, 1995 and 1994 were 7.03 percent and 6.77 percent, respectively. This loan is expected to be paid in full upon closing of the sale of the New York System. 31 Installments due on debt principal for each of the five years in the period ending December 31, 2000 and thereafter, $62,355, $2,894,355, $3,602,355, $3,796,784, $4,248,000 and $9,204,000. Substantially all of the Partnership's property, plant and equipment are pledged as security for the above indebtedness. At December 31, 1995, the carrying amount of the Partnership's long-term debt did not differ significantly from the estimated fair value of the financial instruments. The fair value of the Partnership's long-term debt is estimated based on the discounted amount of future debt service payments using rates of borrowing for a liability of similar risk. (6) INCOME TAXES Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. The Federal and state income tax returns of the Partnership are prepared and filed by Intercable. The Partnership's tax returns, the qualification of the Partnership as such for tax purposes, and the amount of distributable income or loss are subject to examination by Federal and state taxing authorities. If such examinations result in changes with respect to the Partnership's qualification as such, or in changes with respect to the Partnership's recorded income or loss, the tax liability of the general and limited partners would likely be changed accordingly. Taxable income reported to the partners is different from that reported in the statements of operations due to the difference in depreciation allowed under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable income or losses and the net income or losses reported in the statements of operations. (7) COMMITMENTS AND CONTINGENCIES The Partnership has filed cost-of-service showings in response to rulemakings concerning the 1992 Cable Act for the New York System and thus anticipates no further reductions in rates in this system. The cost-of-service showings have not yet received final approvals from regulatory authorities, however, and there can be no assurance that the Partnership's cost-of-service showings will prevent further rate reductions in this system until such final approvals are received. The Partnership rents office and other facilities under various long-term lease arrangements. Rent expense paid under such lease arrangements totaled $9,145, $16,093 and $31,480, respectively, for the years ended December 31, 1995, 1994 and 1993. Minimum commitments under operating leases for the five years in the period ending December 31, 2000 and thereafter are as follows: 1996 $7,640 1997 1,424 1998 - 1999 - 2000 - Thereafter - ------ $9,064 ======
32 (8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION Supplementary profit and loss information is presented below:
For the Year Ended December 31, --------------------------------------------- 1995 1994 1993 ---------- ---------- ---------- Maintenance and repairs $ 174,344 $ 169,070 $ 223,569 ========== ========== ========== Taxes, other than income and payroll taxes $ 228,187 $ 175,771 $ 137,070 ========== ========== ========== Advertising $ 98,473 $ 114,475 $ 208,035 ========== ========== ========== Depreciation of property, plant and equipment $2,957,444 $2,379,471 $1,899,145 ========== ========== ========== Amortization of intangible assets $ - $ - $ - ========== ========== ==========
33 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Partners of Cable TV Joint Fund 11: We have audited the accompanying balance sheets of CABLE TV JOINT FUND 11 (a Colorado general partnership) as of December 31, 1995 and 1994, and the related statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the General Partners' management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cable TV Joint Fund 11 as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, March 8, 1996. 34 CABLE TV JOINT FUND 11 (A General Partnership) BALANCE SHEETS
December 31, -------------------------------- ASSETS 1995 1994 ------ ----------- ----------- CASH $ 2,984,284 $ 2,429,603 TRADE RECEIVABLES, less allowance for doubtful receivables of $6,374 and $4,412 at December 31, 1995 and 1994, respectively 133,491 92,110 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 7,957,720 7,646,689 Less- accumulated depreciation (5,441,063) (5,051,015) ----------- ----------- 2,516,657 2,595,674 Franchise costs, net of accumulated amortization of $1,396,225 and $1,287,891 at December 31, 1995 and 1994, respectively - 108,334 Subscriber lists, net of accumulated amortization of $257,775 and $237,741 at December 31, 1995 and 1994, respectively - 20,034 ----------- ----------- Total investment in cable television properties 2,516,657 2,724,042 DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 1,869,614 1,853,355 ----------- ----------- Total assets $ 7,504,046 $ 7,099,110 =========== ===========
The accompanying notes to financial statements are an integral part of these balance sheets. 35 CABLE TV JOINT FUND 11 (A General Partnership) BALANCE SHEETS
December 31, ------------------------------------ LIABILITIES AND PARTNERS' CAPITAL 1995 1994 --------------------------------- -------------- -------------- LIABILITIES: Capital lease obligations $ 9,917 $ 26,385 Accounts payable- Trade 612 16,340 Jones Intercable, Inc. 45,258 72,764 Accrued liabilities 381,153 368,106 Subscriber prepayments 15,349 17,670 ------------- ------------- Total liabilities 452,289 501,265 ------------- ------------- PARTNERS' CAPITAL: Contributed capital 45,000,000 45,000,000 Distributions (118,914,493) (118,914,493) Accumulated earnings 80,966,250 80,512,338 ------------- ------------- 7,051,757 6,597,845 ------------- ------------- Total liabilities and partners' capital $ 7,504,046 $ 7,099,110 ============= =============
The accompanying notes to financial statements are an integral part of these balance sheets. 36 CABLE TV JOINT FUND 11 (A General Partnership) STATEMENTS OF OPERATIONS
For the Year Ended December 31, -------------------------------------------- 1995 1994 1993 ----------- ---------- ---------- REVENUES $3,632,675 $3,296,103 $3,292,675 COSTS AND EXPENSES: Operating expenses 2,327,354 2,026,763 1,947,068 Management fees and allocated expenses from Jones Intercable, Inc. 463,691 437,558 411,577 Depreciation and amortization 545,237 522,593 517,441 ---------- ---------- --------- OPERATING INCOME 296,393 309,189 416,589 ---------- ---------- --------- OTHER INCOME (EXPENSE): Interest expense (10,003) (15,716) (22,912) Interest income 166,280 87,134 101,771 Other, net 1,242 (7,426) (248,912) ---------- ---------- --------- Total other income (expense), net 157,519 63,992 (170,053) ---------- ---------- --------- NET INCOME $ 453,912 $ 373,181 $ 246,536 ========== ========== =========
The accompanying notes to financial statements are an integral part of these statements. 37 CABLE TV JOINT FUND 11 (A General Partnership) STATEMENTS OF PARTNERS' CAPITAL
For the Year Ended December 31, --------------------------------------------- 1995 1994 1993 ---------- --------- ---------- CABLE TV FUND 11-A, LTD. (18%): Balance, beginning of year $1,231,800 $1,163,806 $1,118,887 Net income for year 82,703 67,994 44,919 ---------- ---------- ---------- Balance, end of year $1,314,503 $1,231,800 $1,163,806 ---------- ---------- ---------- CABLE TV FUND 11-B, LTD. (8%): Balance, beginning of year $ 550,483 $ 521,450 $ 502,270 Net income for year 35,314 29,033 19,180 ---------- ---------- ---------- Balance, end of year $ 585,797 $ 550,483 $ 521,450 ---------- ---------- ---------- CABLE TV FUND 11-C, LTD. (27%): Balance, beginning of year $2,316,337 $2,215,168 $2,148,332 Net income for year 123,056 101,169 66,836 ---------- ---------- ---------- Balance, end of year $2,439,393 $2,316,337 $2,215,168 ---------- ---------- ---------- CABLE TV FUND 11-D, LTD. (47%): Balance, beginning of year $2,499,225 $2,324,240 $2,208,639 Net income for year 212,839 174,985 115,601 ---------- ---------- ---------- Balance, end of year $2,712,064 $2,499,225 $2,324,240 ---------- ---------- ---------- TOTAL: Balance, beginning of year $6,597,845 $6,224,664 $5,978,128 Net income for year 453,912 373,181 246,536 ---------- ---------- ---------- Balance, end of year $7,051,757 $6,597,845 $6,224,664 ========== ========== ==========
The accompanying notes to financial statements are an integral part of these statements. 38 CABLE TV JOINT FUND 11 (A General Partnership) STATEMENTS OF CASH FLOWS
For the Year Ended December 31, ---------------------------------------------- 1995 1994 1993 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 453,912 $ 373,181 $ 246,536 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 545,237 522,593 517,441 Increase in trade receivables (41,381) (41,640) (14,686) Increase in deposits, prepaid expenses and deferred charges (43,080) (1,372) (1,625) Increase (decrease) in trade accounts payable, accrued liabilities and subscriber prepayments (5,002) 69,592 (331,331) Increase (decrease) in amount due Jones Intercable, Inc. (27,506) 39,939 (19,920) ---------- ---------- ----------- Net cash provided by operating activities 882,180 962,293 396,415 ---------- ---------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net (311,031) (379,930) (248,223) Franchise renewal deposit - - (1,850,000) ---------- ---------- ----------- Net cash used in investing activities (311,031) (379,930) (2,098,223) ---------- ---------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings - 18,264 - Repayment of debt (16,468) (12,008) (9,059) ---------- ---------- ----------- Net cash provided by (used in) financing activities (16,468) 6,256 (9,059) ---------- ---------- ----------- Increase (decrease) in cash 554,681 588,619 (1,710,867) Cash, beginning of year 2,429,603 1,840,984 3,551,851 ---------- ---------- ----------- Cash, end of year $2,984,284 $2,429,603 $ 1,840,984 ========== ========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 10,003 $ 15,716 $ 22,912 ========== ========== ===========
The accompanying notes to financial statements are an integral part of these statements. 39 CABLE TV JOINT FUND 11 (A General Partnership) NOTES TO FINANCIAL STATEMENTS (1) ORGANIZATION AND PARTNERS' INTERESTS Formation and Business Cable TV Joint Fund 11 ("Joint Fund 11"), a Colorado general partnership, was formed on February 1, 1984, through a joint venture agreement made by and among Cable TV Fund 11-A, Ltd. ("Fund 11-A"), Cable TV Fund 11-B, Ltd. ("Fund 11-B"), Cable TV Fund 11-C, Ltd. ("Fund 11-C") and Cable TV Fund 11-D, Ltd ("Fund 11-D"), all Colorado limited partnerships (the "Joint Venture Partners"). Joint Fund 11 was formed to acquire, construct, develop and operate cable television systems. Joint Fund 11 owns and operates the cable television system serving the areas in and around the city of Manitowoc, Wisconsin (the "Manitowoc System"). Jones Intercable, Inc. ("Intercable"), who is the "General Partner" of each of the Joint Venture Partners, manages Joint Fund 11. Intercable and its subsidiaries also own and operate other cable television systems. In addition, Intercable manages cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities. Proposed Sale of Cable Television System On September 5, 1995, Joint Fund 11 entered into an asset purchase agreement pursuant to which it agreed to sell the Manitowoc System to the General Partner for a sales price of $15,735,667, subject to normal working capital closing adjustments. This sales price is the average of three separate independent appraisals of the fair market value of the Manitowoc System and the General Partner's offer was the only bid tendered in a public bidding process for the Manitowoc System. The General Partner assigned its rights and obligations under the asset purchase agreement to Jones Cable Holdings, Inc. ("JCH"), a wholly owned subsidiary of the General Partner. The closing of the sale will occur on a date upon which Joint Fund 11 and JCH mutually agree by September 30, 1996. The sale of the Manitowoc System is subject to a number of conditions, including approval of the transaction by the holders of a majority of the Partnership's limited partnership interests and approvals from governmental authorities and other third parties necessary to the transfer of the Manitowoc System. If all conditions precedent to JCH's obligation to close are not eventually satisfied or waived, JCH's obligation to purchase the Manitowoc System will terminate on September 30, 1996. In order to sell the Manitowoc System, Joint Fund 11 must obtain the consent of the City of Manitowoc and third parties with whom Joint Fund 11 has contracts related to the Manitowoc System, such as pole attachment agreements or other service agreements, to the transfer thereof. Joint Fund 11 was unsuccessful in its efforts to sell the Manitowoc System in June 1990, at the time of Joint Fund 11's sale of its remaining Wisconsin cable television systems, due to the refusal of the City of Manitowoc to consent to the transfer of the system's franchise. Negotiations with the City of Manitowoc with respect to the renewal and transfer of the Manitowoc System's franchise are continuing, and the Manitowoc System currently is being operated pursuant to a temporary extension of the franchise's term until March 29, 1996. The General Partner hopes that the City ultimately will agree to the renewal and transfer of the franchise and that the City will not take any action that will prevent the closing of the sale of the Manitowoc System, but given the current status of negotiations with the City there can be no assurance that the sale will occur as planned. If the proposed sale of the Manitowoc System is closed, Joint Fund 11 will pay all of its indebtedness, which totaled $55,175 at December 1995, including $45,258 owed to the General Partner, and then the net sales proceeds plus cash on hand will be distributed to the Joint Venture Partners in proportion to their ownership interests in Joint Fund 11. The net sales proceeds will be distributed as follows: Fund 11-A will receive approximately $3,356,700; Fund 11-B will receive approximately $1,432,700; Fund 11-C will receive approximately $4,994,100 and Fund 11-D will receive approximately $8,637,300. Contributed Capital, Sharing Ratios and Distribution The capitalization of Joint Fund 11 is set forth in the accompanying statements of partners' capital. Profits and losses of Joint Fund 11 are allocated to the partners in proportion to their respective partnership interests. 40 All partnership distributions, including those made from cash flow (defined as cash receipts derived from routine operations, less debt principal and interest payments and cash expenses), from the sale or refinancing of partnership property and on dissolution of Joint Fund 11, are made to the partners also in proportion to their approximate respective interests in Joint Fund 11 as follows: Cable TV Fund 11-A, Ltd. 18% Cable TV Fund 11-B, Ltd. 8% Cable TV Fund 11-C, Ltd. 27% Cable TV Fund 11-D, Ltd. 47% --- 100% ===
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Records The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Joint Fund 11's tax returns are also prepared on the accrual basis. The preparation of financial statements in conformity with generally accepted accounting principles requires the General Partner's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Property, Plant and Equipment Depreciation is determined using the straight-line method over the following estimated service lives: Cable distribution systems 5-15 years Equipment and tools 3-5 years Buildings 20 years Office furniture and equipment 5 years Vehicles 3 years
Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred. Intangible Assets Costs assigned to franchises and subscriber lists were amortized using the straight-line method over their estimated useful lives. Revenue Recognition Subscriber prepayments are initially deferred and recognized as revenue when earned. (3) TRANSACTIONS WITH JONES INTERCABLE, INC. AND AFFILIATES Management Fees and Reimbursements Intercable manages Joint Fund 11 and receives a fee for its services equal to 5 percent of the gross revenues, excluding revenues from the sale of the cable television systems or franchises. Management fees paid to Intercable during 1995, 1994 and 1993 were $181,634, $164,805 and $164,634, respectively. Intercable is reimbursed for certain allocated overhead and administrative expenses. These expenses represent the salaries and related benefits paid to corporate personnel, rent, data processing services and other corporate facilities costs. 41 Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to Joint Fund 11. Allocations of personnel costs are primarily based upon actual time spent by employees of Intercable with respect to each partnership managed. Remaining expenses are allocated based on the pro rata relationship of the Partnership's revenues to the total revenues of all systems owned or managed by Intercable and certain of its subsidiaries. Systems owned by Intercable and all other systems owned by partnerships for which Intercable is the general partner are also allocated a proportionate share of these expenses. Intercable believes that the methodology used in allocating overhead and administrative expenses is reasonable. The amount of allocated overhead and administrative expenses charged to Joint Fund 11 during 1995, 1994 and 1993 was $282,057, $272,753 and $246,943, respectively. Joint Fund 11 was charged interest during 1995 at an average interest rate of 10.5 percent on the amounts due Intercable, which approximated Intercable's weighted average cost of borrowings. Total interest charged during 1995, 1994 and 1993 was $6,848, $13,306 and $21,071, respectively. Payments to/from Affiliates for Programming Services Joint Fund 11 receives programming from Superaudio, Mind Extension University, Jones Computer Network and Product Information Network, all of which are affiliates of Intercable. Payments to Superaudio totaled $6,318, $6,105 and $6,040 in 1995, 1994 and 1993, respectively. Payments to Mind Extension University totaled $6,759, $5,532 and $3,515 in 1995, 1994 and 1993, respectively. Payments to Jones Computer Network, which initiated service in 1994, totaled $12,760 and $3,316 in 1995 and 1994, respectively. Joint Fund 11 receives a commission from Product Information Network based on a percentage of advertising revenue and number of subscribers. Product Information Network, which initiated service in 1994, paid commissions to Joint Fund 11 totaling $4,559 and $510 in 1995 and 1994, respectively. (4) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of December 31, 1995 and 1994, consisted of the following:
1995 1994 ----------- ------------ Cable distribution systems $ 7,279,475 $ 6,957,103 Equipment and tools 259,414 249,348 Office furniture and equipment 147,163 146,463 Buildings 113,431 113,431 Vehicles 158,237 180,344 ----------- ------------ 7,957,720 7,646,689 Less - accumulated depreciation (5,441,063) (5,051,015) ----------- ------------ $ 2,516,657 $ 2,595,674 =========== ============
(5) DEBT Debt consists of capital lease obligations with maturities of 1 to 4 years. Installments due on debt principal for the five years in the period ending December 31, 2000, respectively, are: $2,776, $2,776, $2,776, $1,589, and $-0-. (6) INCOME TAXES Income taxes have not been recorded in the accompanying financial statements because they accrue to the partners of Funds 11-A, 11-B, 11-C and 11-D, which are general partners in Joint Fund 11. Joint Fund 11's tax returns, the qualification of the Partnership as such for tax purposes, and the amount of distributable partnership income or loss are subject to examination by federal and state taxing authorities. If such examinations result in changes with respect to the Joint 42 Fund 11's qualification as such, or in changes with respect to Joint Fund 11's recorded income or loss, the tax liability of the general and limited partners would likely be changed accordingly. Taxable income reported to the partners is different from that reported in the statements of operations due to the difference in depreciation allowed under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable income and the net income reported in the statements of operations. (7) SUPPLEMENTARY PROFIT AND LOSS INFORMATION Supplementary profit and loss information is presented below:
Year Ended December 31, ----------------------------------------- 1995 1994 1993 -------- -------- -------- Maintenance and repairs $ 27,102 $ 41,329 $ 34,813 ======== ======== ======== Taxes, other than income and payroll taxes $124,403 $ 52,294 $ 57,152 ======== ======== ======== Advertising $ 62,160 $ 81,763 $ 56,930 ======== ======== ======== Depreciation of property, plant and equipment $416,869 $379,817 $374,665 ======== ======== ======== Amortization of intangible assets $128,368 $142,776 $142,776 ======== ======== ========
43 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership itself has no officers or directors. Certain information concerning the directors and executive officers of the General Partner is set forth below. Glenn R. Jones 66 Chairman of the Board and Chief Executive Officer Derek H. Burney 56 Vice Chairman of the Board James B. O'Brien 46 President and Director Ruth E. Warren 46 Group Vice President/Operations Kevin P. Coyle 44 Group Vice President/Finance Christopher J. Bowick 40 Group Vice President/Technology George H. Newton 61 Group Vice President/Telecommunications Timothy J. Burke 45 Group Vice President/Taxation/Administration Raymond L. Vigil 49 Group Vice President/Human Resources and Director Cynthia A. Winning 44 Group Vice President/Marketing Elizabeth M. Steele 44 Vice President/General Counsel/Secretary Larry W. Kaschinske 36 Controller Robert E. Cole 63 Director William E. Frenzel 67 Director Donald L. Jacobs 57 Director James J. Krejci 54 Director John A. MacDonald 42 Director William E. Frenzel 67 Director Raphael M. Solot 62 Director Daniel E. Somers 48 Director Howard O. Thrall 48 Director Robert B. Zoellick 42 Director Mr. Glenn R. Jones has served as Chairman of the Board of Directors and Chief Executive Officer of the General Partner since its formation in 1970, and he was President from June 1984 until April 1988. Mr. Jones is the sole shareholder, President and Chairman of the Board of Directors of Jones International, Ltd. He is also Chairman of the Board of Directors of the subsidiaries of the General Partner and of certain other affiliates of the General Partner. Mr. Jones has been involved in the cable television business in various capacities since 1961, is a past and present member of the Board of Directors and the Executive Committee of the National Cable Television Association. He also is on the Executive Committee of Cable in the Classroom, an organization dedicated to education via cable. Additionally, in March 1991, Mr. Jones was appointed to the Board of Governors for the American Society for Training and Development, and in November 1992 to the Board of Education Council of the National Alliance of Business. Mr. Jones is also a founding member of the James Madison Council of the Library of Congress. Mr. Jones is a past director and member of the Executive Committee of C-Span. Mr. Jones has been the recipient of several awards including the Grand Tam Award in 1989, the highest award from the Cable Television Administration and Marketing Society; the Chairman's Award from the Investment Partnership Association, which is an association of sponsors of public syndications; the cable television industry's Public Affairs Association President's Award in 1990, the Donald G. McGannon award for the advancement of minorities and women in cable; the STAR Award from American Women in Radio and Television, Inc. for exhibition of a commitment to the issues and concerns of women in television and radio; the Women in Cable Accolade in 1990 in recognition of support of this organization; the Most Outstanding Corporate 44 Individual Achievement award from the International Distance Learning Conference; the Golden Plate Award from the American Academy of Achievement for his advances in distance education; the Man of the Year named by the Denver chapter of the Achievement Rewards for College Scientists; and in 1994 Mr. Jones was inducted into Broadcasting and Cable's Hall of Fame. Mr. Derek H. Burney was appointed a Director of the General Partner on December 20, 1994 and Vice Chairman of the Board of Directors on January 31, 1995. Mr. Burney joined BCE Inc., Canada's largest telecommunications company, in January 1993 as Executive Vice President, International. He has been the Chairman of Bell Canada International Inc., a subsidiary of BCE, since January 1993 and, in addition, has been Chief Executive Officer of BCI since July 1993. Prior to joining BCE, Mr. Burney served as Canada's ambassador to the United States from 1989 to 1992. Mr. Burney also served as chief of staff to the Prime Minister of Canada from March 1987 to January 1989 where he was directly involved with the negotiation of the U.S. - Canada Free Trade Agreement. In July 1993, he was named an Officer of the Order of Canada. Mr. Burney is chairman of Bell Cablemedia plc. He is a director of Mercury Communications Limited, Videotron Holdings plc, Tele-Direct (Publications) Inc., Teleglobe Inc., Bimcor Inc., Maritime Telegraph and Telephone Company, Limited, Moore Corporation Limited and Northbridge Programming Inc. Mr. James B. O'Brien, the General Partner's President, joined the General Partner in January 1982. Prior to being elected President and a Director of the General Partner in December 1989, Mr. O'Brien served as a Division Manager, Director of Operations Planning/Assistant to the CEO, Fund Vice President and Group Vice President/Operations. Mr. O'Brien was appointed to the General Partner's Executive Committee in August 1993. As President, he is responsible for the day-to-day operations of the cable television systems managed and owned by the General Partner. Mr. O'Brien is a board member of Cable Labs, Inc., the research arm of the U.S. cable television industry. He also serves as a director of the Cable Television Administration and Marketing Association and as a director of the Walter Kaitz Foundation, a foundation that places people of ethnic minority groups in positions with cable television systems, networks and vendor companies. Ms. Ruth E. Warren joined the General Partner in August 1980 and has served in various operational capacities, including system manager and Fund Vice President, since then. Ms. Warren was elected Group Vice President/Operations of the General Partner in September 1990. Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice President/Financial Services. In September 1985, he was appointed Senior Vice President/Financial Services. He was elected Treasurer of the General Partner in August 1987, Vice President/Treasurer in April 1988 and Group Vice President/Finance and Chief Financial Officer in October 1990. Mr. Christopher J. Bowick joined the General Partner in September 1991 as Group Vice President/Technology and Chief Technical Officer. Previous to joining the General Partner, Mr. Bowick worked for Scientific Atlanta's Transmission Systems Business Division in various technical management capacities since 1981, and as Vice President of Engineering since 1989. Mr. George H. Newton joined the General Partner in January 1996 as Group Vice President/Telecommunications. Prior to joining the General Partner, Mr. Newton was President of his own consulting business, Clear Solutions, and since 1994 Mr. Newton has served as a Senior Advisor to Bell Canada International. From 1990 to 1993, Mr. Newton served as the founding Chief Executive Officer and Managing Director of Clear Communications, New Zealand, where he established an alternative telephone company in New Zealand. From 1964 to 1990, Mr. Newton held a wide variety of operational and business assignments with Bell Canada International. Mr. Timothy J. Burke joined the General Partner in August 1982 as corporate tax manager, was elected Vice President/Taxation in November 1986 and Group Vice President/Taxation/Administration in October 1990. Mr. Raymond L. Vigil joined the General Partner in June 1993 as Group Vice President/Human Resources. Previous to joining the General Partner, Mr. Vigil served as Executive Director of Learning with 45 USWest. Prior to USWest, Mr. Vigil worked in various human resources posts over a 14-year term with the IBM Corporation. Ms. Cynthia A. Winning joined the General Partner as Group Vice President/Marketing in December 1994. Previous to joining the General Partner, Ms. Winning served since 1994 as the President of PRS Inc., Denver, Colorado, a 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., a provider of private-label credit cards for ten national retail department store chains. From 1981 to 1986, Ms. Winning was the Director of Marketing Services for Daniels & Associates cable television operations, as well as the Western Division Marketing Director for Capital Cities Cable. Ms. Winning also serves as a board member of Cities in Schools, a dropout intervention/prevention program. Ms. Elizabeth M. Steele joined the General Partner in August 1987 as Vice President/General Counsel and Secretary. From August 1980 until joining the General Partner, Ms. Steele was an associate and then a partner at the Denver law firm of Davis, Graham & Stubbs, which serves as counsel to the General Partner. Mr. Larry Kaschinske joined the General Partner in 1984 as a staff accountant in the General Partner's former Wisconsin Division, was promoted to Assistant Controller in 1990 and named Controller in August 1994. Mr. Robert E. Cole was appointed a Director of the General Partner in March 1996. Mr. Cole is currently self-employed as a partner of First Variable Insurance Marketing and is responsible for marketing to National Association of Securities Dealers, Inc. firms in northern California, Oregon, Washington and Alaska. From 1993 to 1995, Mr. Cole was the Director of Marketing for Lamar Life Insurance Company; from 1992 to 1993, Mr. Cole was Senior Vice President of PMI Inc., a third party lender serving the special needs of Corporate Owned Life Insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal and co-founder of a specialty investment banking firm that provided services to finance the ownership and growth of emerging companies, productive assets and real property. Mr. Cole is a Certified Financial Planner and a former United States Naval Aviator. Mr. William E. Frenzel was appointed a Director of the General Partner on April 11, 1995. Mr. Frenzel has been a Guest Scholar since 1991 with the Brookings Institution, a research organization located in Washington D. C. Until his retirement in January 1991, Mr. Frenzel served for twenty years in the United States House of Representatives, representing the State of Minnesota, where he was a member of the House Ways and Means Committee and its Trade Subcommittee, the Congressional Representative to the General Agreement on Tariffs and Trade (GATT), the Ranking Minority Member on the House Budget Committee and a member of the National Economic Commission. Mr. Frenzel also served in the Minnesota Legislature for eight years. He is a Distinguished Fellow of the Tax Foundation, Vice Chairman of the Eurasia Foundation, a Board Member of the U.S.-Japan Foundation, the Close-Up Foundation, Sit Mutual Funds and Chairman of the Japan-America Society of Washington. Mr. Donald L. Jacobs was appointed a Director of the General Partner on April 11, 1995. Mr. Jacobs is a retired executive officer of TRW. Prior 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 his appointment as Group General Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW. During his career, Mr. Jacobs served on several corporate, professional and civic boards. Mr. James J. Krejci was President of the International Division of International Gaming Technology, International headquartered in Reno, Nevada, until March 1995. Prior to joining IGT in May 1994, Mr. Krejci was Group Vice President of Jones International, Ltd. and was Group Vice President of the General Partner. He also served as an officer of Jones Futurex, Inc., a subsidiary of the General Partner engaged in manufacturing and marketing data encryption devices, Jones Interactive, Inc., a subsidiary of Jones International, Ltd. providing computer data and billing processing facilities and Jones Lightwave, Ltd., a company owned by Jones International, Ltd. and Mr. Jones, and several of its subsidiaries engaged in the provision of telecommunications 46 services until leaving the General Partner in May 1994. Mr. Krejci has been a Director of the General Partner since August 1987. Mr. John A. MacDonald was appointed a Director of the General Partner on November 8, 1995. Mr. MacDonald is Executive Vice President of Business Development and Chief Technology Officer of Bell Canada International Inc. Prior to joining Bell Canada in November 1994, Mr. MacDonald was President and Chief Executive Officer of The New Brunswick Telephone Company, Limited, a post he had held since March of that year. Prior to March 1994, Mr. MacDonald was with NBTel for 17 years serving in various capacities, including Market Planning Manager, Corporate Planning Manager, Manager of Systems Planning and Development and General Manager, Chief Engineer and General Manager of Engineering and Information Systems and Vice President of Planning. Mr. MacDonald was the former Chairman of the New Brunswick section of the Institute of Electrical and Electronic Engineers and also served on the Federal Government's Information Highway Advisory Council. Mr. MacDonald is Chairman of MediaLinx Interactive Inc. and Stentor Canadian Network Management and is presently a Governor of the Montreal Exchange. He also serves on the Board of Directors of Tele-Direct (Publications) Inc., Bell-Northern Research, Ltd., SRCI, Bell Sygma, Canarie Inc., and is a member of the University of New Brunswick Venture Campaign Cabinet. Mr. Raphael M. Solot was appointed a Director of the General Partner in March 1996. Mr. Solot is an attorney licensed to practice law in the State of Colorado. Mr. Solot has practiced law in the State of Colorado as a sole practitioner since obtaining his Juris Doctor degree from the University of Colorado in 1964. Mr. Daniel E. Somers was initially appointed a Director of the General Partner on December 20, 1994. Mr. Somers resigned as a Director on December 31, 1995, at the time he was elected Chief Executive Officer of Bell Cablemedia. Mr. Somers was reinstated as a Director of the General Partner on February 2, 1996. From January 1992 to January 1995, Mr. Somers worked as senior Vice President and Chief Financial Officer of Bell Canada International Inc. and was appointed Executive Vice President and Chief Financial Officer on February 1, 1995. He is also a Director of certain of its affiliates. Mr. Somers currently serves as Chief Executive Officer of Bell Cablemedia. Prior to joining Bell Canada International Inc. and since January 1989, Mr. Somers was the President and Chief Executive Officer of Radio Atlantic Holdings Limited. Mr. Somers is a member of the North American Society of Corporate Planning, the Financial Executives Institution and the Financial Analysts Federation. Mr. Howard O. Thrall was appointed a Director of the General Partner on March 6, 1996. Mr. Thrall had previously served as a Director of the General Partner from December 1988 to December 1994. Since September 1993, Mr. Thrall has served as Vice President of Sales, Asian Region, for World Airways, Inc. From 1984 until August 1993, Mr. Thrall was with the McDonnell Douglas Corporation, where he concluded as a Regional Vice President, Commercial Marketing with the Douglas Aircraft Company subsidiary. Mr. Thrall is also a management and international marketing consultant, having completed assignments with First National Net, Inc., Cheong Kang Associated (Korea), Aero Investment Alliance, Inc. and Western Real Estate Partners. Mr. Robert B. Zoellick was appointed a Director of the General Partner on April 11, 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, a post he assumed in March 1989. From 1985 to 1988, Mr. Zoellick served at the Department of Treasury in a number of capacities, including Counselor to the Secretary. Mr. Zoellick received the Alexander Hamilton and Distinguished Service Awards, highest honors of the Departments of Treasury and State, respectively. The German Government awarded him the Knight Commanders Cross for his work on Germany unification. Mr. Zoellick currently serves on the boards of the Council on Foreign Relations, the Congressional Institute, the German Marshall Fund of the U.S., the European Institute, the National Bureau of Asian Research, the American Council on Germany and the Overseas Development Council. 47 Christopher J. Bowick, Cynthia A. Winning and Larry W. Kaschinske are executive officers of the General Partner; Raymond L. Vigil is an executive officer and a director of the General Partner; and Derek H. Burney, John A. MacDonald and Daniel E. Somers are directors of the General Partner. Reports by these persons with respect to the ownership of limited partnership interests in the Partnership required by Section 16(a) of the Securities Exchange Act of 1934, as amended, were not filed within the required time. None of these individuals own any limited partnership interests in the Partnership. ITEM 11. EXECUTIVE COMPENSATION The Partnership has no employees; however, various personnel are required to operate the cable television systems owned by the Partnership and the Venture. Such personnel are employed by the General Partner and, the cost of such employment is charged by the General Partner to the Partnership or the Venture as a direct reimbursement item. See Item 13. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS No person or entity owns more than 5 percent of the limited partnership interests of the Partnership. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The General Partner and its affiliates engage in certain transactions with the Partnership and the Venture. The General Partner believes that the terms of such transactions are generally as favorable as could be obtained by the Partnership or the Venture from unaffiliated parties. This determination has been made by the General Partner in good faith, but none of the terms were or will be negotiated at arm's-length and there can be no assurance that the terms of such transactions have been or will be as favorable as those that could have been obtained by the Partnership or the Venture from unaffiliated parties. The General Partner charges a management fee, and the General Partner is reimbursed for certain allocated overhead and administrative expenses. These expenses represent the salaries and benefits paid to corporate personnel, rent, data processing services and other corporate facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Partnership and the Venture. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to each partnership managed. Remaining expenses are allocated based on the pro rata relationship of the Partnership's revenues to the total revenues of all systems owned or managed by the General Partner and certain of its subsidiaries. Systems owned by the General Partner and all other systems owned by partnerships for which Jones Intercable, Inc. is the general partner, are also allocated a proportionate share of these expenses. The General Partner also advances funds and charges interest on the balance payable. The interest rate charged approximates the General Partner's weighted average cost of borrowing. The Systems receive stereo audio programming from Superaudio, a joint venture owned 50% by an affiliate of the General Partner and 50% by an unaffiliated party, educational video programming from Mind Extension University, Inc., an affiliate of the General Partner, and computer video programming from Jones Computer Network, Ltd., an affiliate of the General Partner, for fees based upon the number of subscribers receiving the programming. Product Information Network ("PIN"), an affiliate of the General Partner, provides advertising time for third parties on the Systems. In consideration, the revenues generated from the third parties are shared between PIN and the Partnership and the Venture. During the year ended December 31, 1995, the Partnership received revenues from PIN of $38,629, and the Venture received revenues from PIN of $4,559. 48 The charges to the Partnership and the Venture for related party transactions are as follows for the periods indicated:
At December 31, --------------- Cable TV Fund 11-B 1995 1994 1993 - - ------------------ ---------- ---------- ---------- Management fees $ 718,318 $ 639,592 $ 596,115 Allocation of expenses 1,037,281 989,586 824,911 Interest on advances paid to the General Partner 13,980 14,287 13,350 Amount of advances outstanding -0- 1,305,421 42,288 Highest amount of advances outstanding 109,264 1,305,421 177,673 Programming fees: Superaudio 21,712 21,977 21,590 Mind Extension University 23,227 19,914 12,565 Jones Computer Network 46,392 -0- -0-
At December 31, --------------- Cable TV Joint Fund 11 1995 1994 1993 - - ---------------------- ---------- ---------- ---------- Management fees $ 181,634 $ 164,805 $ 164,634 Allocation of expenses 282,057 272,753 246,943 Interest on advances paid to the General Partner 6,848 13,306 21,071 Amount of advances outstanding 45,258 72,764 32,825 Highest amount of advances outstanding 77,215 72,764 52,745 Programming fees: Superaudio 6,318 6,105 6,040 Mind Extension University 6,759 5,532 3,515 Jones Computer Network 12,760 3,316 -0-
49 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. See index to financial statements for the list of financial statements and exhibits thereto filed as part of this report. 3. The following exhibits are filed herewith. 2.1 Asset Purchase Agreement dated September 5, 1995 between Cable TV Joint Fund 11 and Jones Intercable, Inc. relating to the Manitowoc System. (1) 2.2 Purchase and Sale Agreement dated October 6, 1995 among Cable TV Fund 11-B, Ltd., Jones Intercable, Inc. and Global Acquisition Partners, L.P. 4.1 Limited Partnership Agreement of Cable TV Fund 11-B, Ltd. (2) 10.1.1 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Manitowoc, Wisconsin. (Joint Fund 11) (2) 10.1.2 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Barker, New York. (Fund 11-B) (3) 10.1.3 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Clarence, New York. (Fund 11-B) 10.1.4 Copy of order renewing franchise adopted 12/11/91. (Fund 11-B) (4) 10.1.5 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Cheektowaga, New York. (Fund 11-B) (5) 10.1.6 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Elma, New York. (Fund 11-B) (2) 10.1.7 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Lancaster, New York. (Fund 11-B) 10.1.8 Copy of renewal order adopted 12/11/91. (Fund 11-B) (4) 10.1.9 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Lancaster, New York. (Fund 11-B) (2) 10.1.10 Copy of renewal order adopted 5/4/88. (Fund 11-B) (4) 10.1.11 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Lockport, New York. (Fund 11-B) (4) 10.1.12 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Newfane, New York. (Fund 11-B) (2) 10.1.13 Copy of renewal order adopted 12/11/91. (Fund 11-B) (4) 50 51 10.1.14 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town and Village of Orchard Park, New York. (Fund 11-B) 10.1.15 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Somerset, New York. (Fund 11-B) (3) 10.2.1 Copy of Credit Agreement dated as of February 28, 1995 among the Registrant, various financial institutions as lenders and Shawmut Bank Connecticut, N.A., as agent for the lenders 27 Financial Data Schedule (1) Incorporated by reference from Registrant's Report on Form 8-K dated September 8, 1995. (2) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1985. (2) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989. (3) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992. (4) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990. (b) Reports on Form 8-K. None. 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CABLE TV FUND 11-B, LTD. a Colorado limited partnership By: Jones Intercable, Inc. By: /s/ Glenn R. Jones ------------------------------- Glenn R. Jones Chairman of the Board and Chief Dated: March 25, 1996 Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By: /s/ Glenn R. Jones ------------------------------- Glenn R. Jones Chairman of the Board and Chief Executive Officer Dated: March 25, 1996 (Principal Executive Officer) By: /s/ Kevin P. Coyle ------------------------------- Kevin P. Coyle Group Vice President/Finance Dated: March 25, 1996 (Principal Financial Officer) By: /s/ Larry Kaschinske ------------------------------- Larry Kaschinske Controller Dated: March 25, 1996 (Principal Accounting Officer) By: /s/ James B. O'Brien ------------------------------- James B. O'Brien Dated: March 25, 1996 President and Director By: /s/ Raymond L. Vigil ------------------------------- Raymond L. Vigil Dated: March 25, 1996 Group Vice President and Director By: /s/ Derek H. Burney --------------------------------- Derek H. Burney Dated: March 25, 1996 Director 52 By: --------------------------------- Robert E. Cole Dated: Director By: /s/ William E. Frenzel --------------------------------- William E. Frenzel Dated: March 25, 1996 Director By: /s/ Donald L. Jacobs --------------------------------- Donald L. Jacobs Dated: March 25, 1996 Director By: /s/ James J. Krejci --------------------------------- James J. Krejci Dated: March 25, 1996 Director By: /s/ John A. MacDonald --------------------------------- John A. MacDonald Dated: March 25, 1996 Director By: --------------------------------- Raphael M. Solot Dated: Director By: /s/ Daniel E. Somers --------------------------------- Daniel E. Somers Dated: March 25, 1996 Director By: /s/ Howard O. Thrall --------------------------------- Howard O. Thrall Dated: March 25, 1996 Director By: /s/ Robert B. Zoellick --------------------------------- Robert B. Zoellick Dated: March 25, 1996 Director 53 EXHIBIT INDEX Exhibit Number Exhibit Description Page - - ------- ------------------- ---- 2.1 Asset Purchase Agreement dated September 5, 1995 between Cable TV Joint Fund 11 and Jones Intercable, Inc. relating to the Manitowoc System. (1) 2.2 Purchase and Sale Agreement dated October 6, 1995 among Cable TV Fund 11-B, Ltd., Jones Intercable, Inc. and Global Acquisition Partners, L.P. 4.1 Limited Partnership Agreement of Cable TV Fund 11-B, Ltd. (2) 10.1.1 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Manitowoc, Wisconsin. (Joint Fund 11) (2) 10.1.2 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Barker, New York. (Fund 11-B) (3) 10.1.3 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Clarence, New York. (Fund 11-B) 10.1.4 Copy of order renewing franchise adopted 12/11/91. (Fund 11-B) (4) 10.1.5 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Cheektowaga, New York. (Fund 11-B) (5) 10.1.6 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Elma, New York. (Fund 11-B) (2) 10.1.7 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Lancaster, New York. (Fund 11-B) 10.1.8 Copy of renewal order adopted 12/11/91. (Fund 11-B) (4) 10.1.9 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Lancaster, New York. (Fund 11-B) (2) 10.1.10 Copy of renewal order adopted 5/4/88. (Fund 11-B) (4) 10.1.11 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Lockport, New York. (Fund 11-B) (4) 10.1.12 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Newfane, New York. (Fund 11-B) (2) 10.1.13 Copy of renewal order adopted 12/11/91. (Fund 11-B) (4) EXHIBIT INDEX Exhibit Number Exhibit Description Page - - ------- ------------------- ---- 10.1.14 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town and Village of Orchard Park, New York. (Fund 11-B) 10.1.15 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Somerset, New York. (Fund 11-B) (3) 10.2.1 Copy of Credit Agreement dated as of February 28, 1995 among the Registrant, various financial institutions as lenders and Shawmut Bank Connecticut, N.A., as agent for the lenders 27 Financial Data Schedule (1) Incorporated by reference from Registrant's Report on Form 8-K dated September 8, 1995. (2) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1985. (2) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1989. (3) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992. (4) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990. EX-99.(D)(3) 7 10-Q FOR CABLE TV FUND 11-B (SEPT. 30, 1996) Exhibit (d)(3) FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1996 ------------------ [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to ------ ------ Commission File Number: 0-11911 CABLE TV FUND 11-B, LTD. - -------------------------------------------------------------------------------- Exact name of registrant as specified in charter Colorado 84-0908730 - -------------------------------------------------------------------------------- State of organization I.R.S. employer I.D.# 9697 East Mineral Avenue, P.O. Box 3309, Englewood, Colorado 80155-3309 ------------------------------------------------------------------------- Address of principal executive office (303) 792-3111 ----------------------------------- Registrant's telephone number Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X NO ----- ----- CABLE TV FUND 11-B, LTD. ------------------------ (A Limited Partnership) UNAUDITED BALANCE SHEETS ------------------------
September 30, December 31, ASSETS 1996 1995 ------ ------------- ------------- CASH $ 11,377 $ 325,270 RECEIVABLES: Trade receivables, less allowance for doubtful receivables of $-0- and $65,516 at September 30, 1996 and December 31, 1995, respectively - 554,478 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost - 45,527,837 Less- accumulated depreciation - (19,238,591) -------- ------------ - 26,289,246 Investment in cable television joint venture 620,074 585,797 -------- ------------ Total investment in cable television properties 620,074 26,875,043 DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES - 398,874 -------- ------------ Total assets $631,451 $ 28,153,665 ======== ============
The accompanying notes to unaudited financial statements are an integral part of these unaudited balance sheets. 2 CABLE TV FUND 11-B, LTD. ------------------------ (A Limited Partnership) UNAUDITED BALANCE SHEETS ------------------------
September 30, December 31, LIABILITIES AND PARTNERS' CAPITAL 1996 1995 - ----------------------------------------------------- -------------- ------------- LIABILITIES: Debt $ - $ 23,807,849 Trade accounts payable and accrued liabilities - 1,538,262 Subscriber prepayments - 51,498 ------------ ------------ Total liabilities - 25,397,609 ------------ ------------ PARTNERS' CAPITAL: General Partner- Contributed capital 1,000 1,000 Distributions (14,006,243) - Accumulated earnings 591,225 52,221 ------------ ------------ (13,414,018) 53,221 ------------ ------------ Limited Partners- Net contributed capital (38,026 units outstanding at September 30, 1996 and December 31, 1995) 15,661,049 15,661,049 Distributions (61,031,851) (19,013,121) Accumulated earnings 59,416,271 6,054,907 ------------ ------------ 14,045,469 2,702,835 ------------ ------------ Total liabilities and partners' capital $ 631,451 $ 28,153,665 ============ ============
The accompanying notes to unaudited financial statements are an integral part of these unaudited balance sheets. 3 CABLE TV FUND 11-B, LTD. ------------------------ (A Limited Partnership) UNAUDITED STATEMENTS OF OPERATIONS ----------------------------------
For the Three Months Ended For the Nine Months Ended September 30, September 30, ---------------------------- --------------------------- 1996 1995 1996 1995 ------------ ----------- ------------ ------------ REVENUES $ - $3,616,482 $ 3,709,304 $10,592,184 COSTS AND EXPENSES: Operating expenses - 2,110,590 2,481,210 5,998,062 Management fees and allocated overhead from General Partner - 423,050 446,396 1,275,876 Depreciation and amortization - 732,393 975,498 2,197,401 --------- ---------- ----------- ----------- OPERATING INCOME (LOSS) - 350,449 (193,800) 1,120,845 --------- ---------- ----------- ----------- OTHER INCOME (EXPENSE): Interest expense - (463,205) (508,989) (1,350,904) Gain on sale of cable television system (963,391) - 54,899,888 - Other, net 267,896 53,878 (331,008) 123,072 --------- ---------- ----------- ----------- Total other income (expense), net (695,495) (409,327) 54,059,891 (1,227,832) --------- ---------- ----------- ----------- INCOME (LOSS) BEFORE EQUITY IN NET INCOME OF CABLE TELEVISION JOINT VENTURE (695,495) (58,878) 53,866,091 (106,987) EQUITY IN NET INCOME OF CABLE TELEVISION JOINT VENTURE 17,606 12,902 34,277 23,975 --------- ---------- ----------- ----------- NET INCOME (LOSS) $(677,889) $ (45,976) $53,900,368 $ (83,012) ========= ========== =========== =========== ALLOCATION OF NET INCOME (LOSS): General Partner $ (6,779) $ (460) $ 539,004 $ (830) ========= ========== =========== =========== Limited Partners $(671,110) $ (45,516) $53,361,364 $ (82,182) ========= ========== =========== =========== NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ (17.64) $ (1.20) $ 1,403.29 $ (2.16) ========= ========== =========== =========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 38,026 38,026 38,026 38,026 ========= ========== =========== ===========
The accompanying notes to unaudited financial statements are an integral part of these unaudited statements. 4 CABLE TV FUND 11-B, LTD. ------------------------ (A Limited Partnership) UNAUDITED STATEMENTS OF CASH FLOWS ----------------------------------
For the Nine Months Ended September 30, -------------------------- 1996 1995 ------------ ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 53,900,368 $ (83,012) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 975,498 2,197,401 Equity in net income of cable television joint venture (34,277) (23,975) Gain on sale of cable television system (54,899,888) - Decrease in receivables 554,478 58,957 Increase in deposits, prepaid expenses and deferred charges (746,388) (175,769) Decrease in trade accounts payable, accrued liabilities and subscriber prepayments (1,589,760) (985,156) ------------ ----------- Net cash provided by (used in) operating activities (1,839,969) 988,446 ------------ ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (541,102) (3,176,212) Proceeds from the sale of cable television system 81,900,000 - ------------ ----------- Net cash provided by (used in) investing activities 81,358,898 (3,176,212) ------------ ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment of debt (25,007,849) (370,447) Proceeds from borrowings 1,200,000 3,900,000 Distributions to partners (56,024,973) - Decrease in advances from General Partner - (1,305,421) ------------ ----------- Net cash provided by (used in) financing activities (79,832,822) 2,224,132 ------------ ----------- Increase (decrease) in cash (313,893) 36,366 Cash, beginning of period 325,270 139,532 ------------ ----------- Cash, end of period $ 11,377 $ 175,898 ============ =========== SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 726,197 $ 1,423,995 ============= ===========
The accompanying notes to unaudited financial statements are an integral part of these unaudited statements. 5 CABLE TV FUND 11-B, LTD. ------------------------ (A Limited Partnership) NOTES TO UNAUDITED FINANCIAL STATEMENTS --------------------------------------- (1) This Form 10-Q is being filed in conformity with the SEC requirements for unaudited financial statements and does not contain all of the necessary footnote disclosures required for a fair presentation of the Balance Sheets and Statements of Operations and Cash Flows in conformity with generally accepted accounting principles. However, in the opinion of management, this data includes all adjustments, consisting only of normal recurring accruals, necessary to present fairly the financial position of Cable TV Fund 11-B, Ltd. (the "Partnership") at September 30, 1996 and December 31, 1995, its Statements of Operations for the three and nine month periods ended September 30, 1996 and 1995 and its Statements of Cash Flows for the nine month periods ended September 30, 1996 and 1995. Results of operations for these periods are not necessarily indicative of results to be expected for the full year. (2) The Partnership is a Colorado limited partnership that was formed pursuant to the public offering of limited partnership interests in the Cable TV Fund 11 Limited Partnership Program (the "Program"), which was sponsored by Jones Intercable, Inc. (the "General Partner"), to acquire, own and operate cable television systems in the United States. Cable TV Fund 11-A, Ltd. ("Fund 11-A"), Cable TV Fund 11-C, Ltd. ("Fund 11-C") and Cable TV Fund 11-D, Ltd. ("Fund 11- D") are the other partnerships that were formed pursuant to the Program. The Partnership, Fund 11-A, Fund 11-C and Fund 11-D formed a general partnership known as Cable TV Joint Fund 11 (the "Venture") in which the Partnership owns an 8 percent interest. Until April 1, 1996, the Partnership directly owned the cable television system serving areas in and around Lancaster, New York (the "New York System"). The Venture owns the cable television system serving subscribers in Manitowoc, Wisconsin (the "Manitowoc System"). The General Partner manages the Partnership and the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Partnership and the Venture, excluding revenues from the sale of the cable television systems or franchises. Reflecting the Partnership's sale of the New York System on April 1, 1996, management fees for the three and nine month periods ended September 30, 1996 (excluding Fund 11-B's 8 percent interest in the Venture) were $-0- and $185,465, respectively, compared to $180,824 and $529,609, respectively, for the similar 1995 periods. The Partnership and the Venture reimburse the General Partner for certain allocated overhead and administrative expenses. These expenses represent the salaries and related benefits paid for corporate personnel, rent, data processing services and other corporate facilities costs. Such personnel provide engineering, marketing, administrative, accounting, legal and investor relations services to the Partnership and the Venture. Allocations of personnel costs are primarily based upon actual time spent by employees of the General Partner with respect to each partnership managed. Remaining expenses are allocated based on the pro rata relationship of the Partnership's revenues to the total revenues of all systems owned or managed by the General Partner and certain of its subsidiaries. Systems owned by the General Partner and all other systems owned by partnerships for which Jones Intercable, Inc. is the general partner are also allocated a proportionate share of these expenses. The General Partner believes that the methodology used in allocating overhead and administrative expenses is reasonable. Reflecting the Partnership's sale of the New York System on April 1, 1996, reimbursements to the General Partner by the Partnership for allocated overhead and administrative expenses for the three and nine month periods ending September 30, 1996 (excluding Fund 11-B's 8 percent interest in the Venture) were $-0- and $260,931, respectively, compared to $242,226 and $746,267, respectively, for the similar 1995 periods. (3) On April 1, 1996, the Partnership completed the sale of the New York System to an unaffiliated cable television system operator for a sales price of $84,000,000, subject to normal working capital closing adjustments. This transaction was approved by a majority of the Partnership's limited partnership interests in a vote conducted during the first quarter of 1996. Upon consummation of the sale of the New York System, the Partnership paid all of its indebtedness, which totaled $24,924,958 at April 1, 1996, a sales tax liability of $963,391, a brokerage fee of $2,100,000 to The Jones Group, Ltd., a subsidiary of the General Partner, and then the Partnership distributed the approximate $56,025,000 remaining proceeds to its partners of record as of February 29, 1996. Because limited partners had already received distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by the limited partners, the net proceeds from the New York System's sale were distributed 75 percent to the limited partners and 25 percent to the General Partner. The limited partners of the Partnership, as a group, received approximately $42,018,700 and the General Partner received approximately $14,006,300 in April 1996. Limited partners received $1,105 for each $500 limited partnership interest, or $2,210 for each $1,000 invested in the Partnership, from the net proceeds of the New York System's sale. The limited partners have received a total of $1,605 for each $500 limited partnership interest, or $3,210 for each $1,000 invested in 6 the Partnership, taking into account all distributions to limited partners. The Partnership will continue to own its 8 percent interest in the Venture until the Manitowoc System also is sold. Upon the closing of the sale of the Venture's Manitowoc System, the Partnership will be liquidated and dissolved. The Venture has entered into an asset purchase agreement to sell the Manitowoc System to the General Partner. Because the City of Manitowoc had not consented to the transfer of the franchise by the asset purchase agreement's original expiration date of September 30, 1996, the Venture and the General Partner amended the asset purchase agreement to extend the period in which to close the sale of the Manitowoc System to June 30, 1997. The amendment also provides for the purchase price to be the greater of (i) $15,735,667, which was the average of three independent appraisals of the Manitowoc System obtained by the Venture in 1995, and (ii) the average of three updated appraisals of the Manitowoc System. The average of the three appraisals obtained by the Venture in November 1996 was $16,122,333. Accordingly, under the terms of the asset purchase agreement, as amended, the purchase price of the Manitowoc System will be $16,122,333. The closing of the sale of the Manitowoc System is subject to the approval of the City of Manitowoc and the approval of the limited partners of each of the partnerships that comprise the Venture. There can be no assurance that any such approvals will be obtained. In October 1996, the Venture and the General Partner filed an updated request for the approval of the City of Manitowoc to the transfer of the franchise. The General Partner, on behalf of the partnerships that comprise the Venture, is in the process of preparing proxy solicitation materials to seek the approval of the limited partners of the four constituent partnerships of the Venture. The original term of the franchise with the City of Manitowoc expired in 1995. The franchise has been extended by the Venture and the City of Manitowoc periodically since that time. The current extension ends on December 31, 1996. If the franchise is not renewed by such date, the General Partner will seek an additional extension from the City in order to complete the renewal of the franchise and to obtain the City's consent to the transfer of the franchise to the General Partner. (4) Financial information regarding the Venture is presented below. UNAUDITED BALANCE SHEETS ------------------------
September 30, December 31, 1996 1995 ------------- ------------ ASSETS ------ Cash and trade receivables $ 3,586,055 $ 3,117,775 Investment in cable television properties 2,443,945 2,516,657 Other assets 1,872,039 1,869,614 ------------- ------------- Total assets $ 7,902,039 $ 7,504,046 ============= ============= LIABILITIES AND PARTNERS' CAPITAL --------------------------------- Debt $ 4,775 $ 9,917 Payables and accrued liabilities 404,926 442,372 Partners' contributed capital 45,000,000 45,000,000 Distributions (118,914,493) (118,914,493) Accumulated earnings 81,406,831 80,966,250 ------------- ------------- Total liabilities and partners' capital $ 7,902,039 $ 7,504,046 ============= =============
7 UNAUDITED STATEMENTS OF OPERATIONS ----------------------------------
For the Three Months Ended For the Nine Months Ended September 30, September 30, -------------------------- ------------------------- 1996 1995 1996 1995 ------------ ---------- ----------- ---------- Revenues $932,834 $929,672 $2,770,517 $2,684,022 Operating expenses 548,465 560,668 1,662,876 1,735,366 Management fees and allocated overhead from Jones Intercable, Inc. 107,213 115,317 332,515 339,444 Depreciation and amortization 107,926 139,565 323,984 418,694 ------------ ---------- ----------- ---------- Operating income 169,230 114,122 451,142 190,518 Interest expense (646) (511) (7,916) (9,212) Interest income 59,756 52,013 175,214 125,834 Other, net (2,045) 209 (177,859) 1,024 ------------ ---------- ----------- ---------- Net income $226,295 $165,833 $ 440,581 $ 308,164 ============ ========== =========== ==========
Management fees paid to the General Partner by the Venture totaled $46,642 and $138,526 for the three and nine months ended September 30, 1996, respectively, and $46,483 and $134,201 for the comparable 1995 periods. Reimbursements for general and administrative expenses paid to the General Partner by the Venture totaled $60,571 and $193,989 for the three and nine month periods ended September 30, 1996, respectively, and $68,834 and $205,243 for the comparable 1995 periods. Management fees paid to the General Partner by the Venture and attributable to the Partnership's interest totaled $3,628 and $10,777 for the three and nine month periods ended September 30, 1996, respectively, and $3,616 and $10,441 for the comparable 1995 periods. Reimbursements for overhead and administrative expense paid to the General Partner by the Venture and attributable to the Partnership's interest totaled $4,712 and $15,092 for the three and nine month periods ended September 30, 1996, respectively, and $5,355 and $15,968 for the comparable 1995 periods. (5) Certain prior year amounts have been reclassed to conform to the 1996 presentation. 8 CABLE TV FUND 11-B, LTD. ------------------------ (A Limited Partnership) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- FINANCIAL CONDITION - ------------------- On April 1, 1996, the Partnership completed the sale of the New York System to an unaffiliated cable television system operator for a sales price of $84,000,000, subject to normal working capital closing adjustments. This transaction was approved by a majority of the Partnership's limited partnership interests in a vote conducted during the first quarter of 1996. Upon consummation of the sale of the New York System, the Partnership paid all of its indebtedness, which totaled $24,924,958 at April 1, 1996, a sales tax liability of $963,391, a brokerage fee of $2,100,000 to The Jones Group, Ltd., a subsidiary of the General Partner, and then the Partnership distributed the approximate $56,025,000 remaining proceeds to its partners of record as of February 29, 1996. Because limited partners had already received distributions in an amount equal to 100 percent of the capital initially contributed to the Partnership by the limited partners, the net proceeds from the New York System's sale were distributed 75 percent to the limited partners and 25 percent to the General Partner. The limited partners of the Partnership, as a group, received approximately $42,018,700 and the General Partner received approximately $14,006,300 in April 1996. Limited partners received $1,105 for each $500 limited partnership interest, or $2,210 for each $1,000 invested in the Partnership, from the net proceeds of the New York System's sale. The limited partners have received a total of $1,605 for each $500 limited partnership interest, or $3,210 for each $1,000 invested in the Partnership, taking into account all distributions to limited partners. The Partnership will continue to own its 8 percent interest in the Venture until the Manitowoc System also is sold. Upon the closing of the sale of the Venture's Manitowoc System, the Partnership will be liquidated and dissolved. During the first three months of 1996, the Partnership expended approximately $541,000 for capital additions in the New York System. The capital additions were for various enhancements to maintain the value of the system until it was sold and were funded by cash generated from operations and the Partnership's credit facility. The Partnership owns an 8 percent interest in the Venture. The investment in this cable television joint venture is accounted for under the equity method. When compared to the December 31, 1995 balance, this investment increased by $34,277, to $620,074 at September 30, 1996 from $585,797 at December 31, 1995. This increase represents the Partnership's proportionate share of income generated by the Venture during the first nine months of 1996. The Venture has entered into an asset purchase agreement to sell the Manitowoc System to the General Partner. Because the City of Manitowoc had not consented to the transfer of the franchise by the asset purchase agreement's original expiration date of September 30, 1996, the Venture and the General Partner amended the asset purchase agreement to extend the period in which to close the sale of the Manitowoc System to June 30, 1997. The amendment also provides for the purchase price to be the greater of (i) $15,735,667, which was the average of three independent appraisals of the Manitowoc System obtained by the Venture in 1995, and (ii) the average of three updated appraisals of the Manitowoc System. The average of the three appraisals obtained by the Venture in November 1996 was $16,122,333. Accordingly, under the terms of the asset purchase agreement, as amended, the purchase price of the Manitowoc System will be $16,122,333. The closing of the sale of the Manitowoc System is subject to the approval of the City of Manitowoc and the approval of the limited partners of each of the partnerships that comprise the Venture. There can be no assurance that any such approvals will be obtained. In October 1996, the Venture and the General Partner filed an updated request for the approval of the City of Manitowoc to the transfer of the franchise. The General Partner, on behalf of the partnerships that comprise the Venture, is in the process of preparing proxy solicitation materials to seek the approval of the limited partners of the four constituent partnerships of the Venture. The original term of the franchise with the City of Manitowoc expired in 1995. The franchise has been extended by the Venture and the City of Manitowoc periodically since that time. The current extension ends on December 31, 1996. If the franchise is not renewed by such date, the General Partner will seek an additional extension from the City in order to complete the renewal of the franchise and to obtain the City's consent to the transfer of the franchise to the General Partner. 9 During the first nine months of 1996, the Venture expended approximately $251,000 for capital additions in the Manitowoc System. These capital additions were for various enhancements to maintain the value of the system until it was sold and were funded from cash generated from operations. The Venture had no bank debt outstanding at September 30, 1996. The Venture has sufficient liquidity and capital resources, including cash on hand and its ability to generate cash from operations, to meet its anticipated needs. RESULTS OF OPERATIONS - --------------------- As a result of the sale of the New York System, the results of operations for the Partnership are reflected solely through its 8 percent interest in the Venture. Revenues of the Venture increased $3,162, or less than 1 percent, to $932,834 for the three months ended September 30, 1996 compared to $929,672 for the comparable 1995 period. Revenues of the Venture increased $86,495, or approximately 3 percent, to $2,770,517 for the nine months ended September 30, 1996 compared to $2,684,022 for the comparable 1995 period. An increase in the number of basic subscribers primarily accounted for the increase in revenues for the three and nine month periods ended September 30, 1996. The number of basic subscribers increased by 422 subscribers, or approximately 4 percent, to 11,524 at September 30, 1996 from 11,102 at September 30, 1995. No other individual factor contributed significantly to the increase in revenues. Operating expenses consist primarily of costs associated with the administration of the Manitowoc System. The principal cost components are salaries paid to system personnel, programming expenses, professional fees, subscriber billing costs, rent for leased facilities, cable system maintenance expenses and consumer marketing expenses. Operating expenses in the Manitowoc System decreased $12,203, or approximately 2 percent, to $548,465 for the three months ended September 30, 1996 compared to $560,668 for the comparable 1995 period. Operating expenses in the Manitowoc System decreased $72,490, or approximately 4 percent, to $1,662,876 for the nine months ended September 30, 1996 compared to $1,735,366 for the comparable 1995 period. Operating expenses represented approximately 59 percent and 60 percent, respectively, of revenues for the three and nine month periods of 1996 and approximately 60 percent and 65 percent, respectively, for the comparable 1995 periods. The decreases in operating expenses for the three and nine month periods were due to a significant decrease in property taxes, as a result of a change in the method used to assess the assets of the Manitowoc System. No other individual factor significantly affected the decreases in operating expenses. Management fees and allocated overhead from the General Partner decreased $8,104, or approximately 7 percent, to $107,213 for the three months ended September 30, 1996 compared to $115,317 for the comparable 1995 period. Management fees and allocated overhead from the General Partner decreased $6,929, or approximately 2 percent, to $332,515 for the nine months ended September 30, 1996 compared to $339,444 for the comparable 1995 period. The decreases for the three and nine month periods were due to decreases in allocated overhead from the General Partner. Depreciation and amortization expense decreased $31,639, or approximately 23 percent, to $107,926 for the three months ended September 30, 1996 compared to $139,565 for the comparable 1995 period. Depreciation and amortization expense decreased $94,710, or approximately 23 percent, to $323,984 for the nine months ended September 30, 1996 compared to $418,694 for the comparable 1995 period. The decreases for the three and nine month periods were due to the maturation of the intangible asset base. Operating income increased $55,108, or approximately 48 percent, to $169,230 for the three months ended September 30, 1996 compared to $114,122 for the comparable 1995 period. Operating income increased $260,624 to $451,142 for the nine months ended September 30, 1996 compared to $190,518 for the comparable 1995 period. The increases for the three and nine month periods were due to the increases in revenues and the decreases in operating expenses, depreciation and amortization expense and management fees and allocated overhead from the General Partner. The cable television industry generally measures the financial performance of a cable television system in terms of cash flow or operating income before depreciation and amortization. The value of a cable television system is often determined using multiples of cash flow. This measure is not intended to be a substitute or improvement upon the items disclosed on the financial statements, rather it is included because it is an industry standard. Operating income before 10 depreciation and amortization increased $23,469, or approximately 9 percent, to $277,156 for the three months ended September 30, 1996 compared to $253,687 for the comparable 1995 period. Operating income before depreciation and amortization increased $165,914, or approximately 27 percent, to $775,126 for the nine months ended September 30, 1996 compared to $609,212 for the comparable 1995 period. The increases for the three and nine month periods were due to the increases in revenues and the decreases in operating expenses and management fees and allocated overhead from the General Partner. Interest income increased $7,743, or approximately 15 percent, to $59,756 for the three months ended September 30, 1996 compared to $52,013 for the comparable 1995 period. Interest income increased $49,380, or approximately 39 percent, to $175,214 for the nine month period ended September 30, 1996 compared to $125,834 for the comparable 1995 period. The increases were due to higher cash balances and higher interest rates on interest-bearing accounts in 1996. Interest expense increased $135, or approximately 26 percent, to $646 for the three months ended September 30, 1996 compared to $511 for the comparable 1995 period. Interest expense decreased $1,296, or approximately 14 percent, to $7,916 for the nine months ended September 30, 1996 compared to $9,212 for the comparable 1995 period. The decrease for the nine month period was due to lower outstanding balances on interest bearing obligations. Other expense totaled $177,859 for the nine month period ended September 30, 1996 compared to other income of $1,024 in 1995. This change was due primarily to additional expenses incurred in 1996 from a sales and use tax audit. Net income of the Venture increased $60,462, or approximately 36 percent, to $226,295 for the three months ended September 30, 1996 compared to $165,833 for the comparable 1995 period. Net income of the Venture increased $132,417, or approximately 43 percent, to $440,581 for the nine months ended September 30, 1996 compared to $308,164 for the comparable 1995 period. The increases were due primarily to the increases in operating income and the increases in interest income. 11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K. a) Exhibits 27) Financial Data Schedule b) Reports on Form 8-K None 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CABLE TV FUND 11-B, LTD. BY: JONES INTERCABLE, INC. General Partner By: /S/ Kevin P. Coyle -------------------------------------- Kevin P. Coyle Group Vice President/Finance (Principal Financial Officer) Dated: November 11, 1996 13 -----END PRIVACY-ENHANCED MESSAGE-----