-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, hN+L9vkTzWRD/YgIrsUJf7Ao0N4DmCdva/sABorGsGiypcvf3kznWol5AzpL7eHv YLrx6BMSYWenX/E+KoCxgQ== 0000950109-95-000793.txt : 19950615 0000950109-95-000793.hdr.sgml : 19950615 ACCESSION NUMBER: 0000950109-95-000793 CONFORMED SUBMISSION TYPE: PRE13E3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19950320 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CABLE TV FUND 12-B LTD CENTRAL INDEX KEY: 0000774557 STANDARD INDUSTRIAL CLASSIFICATION: RADIO TELEPHONE COMMUNICATIONS [4812] IRS NUMBER: 840969999 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: PRE13E3 SEC ACT: 1934 Act SEC FILE NUMBER: 005-44177 FILM NUMBER: 95521958 BUSINESS ADDRESS: STREET 1: 9697 E MINERAL AVE CITY: ENGLEWOOD STATE: CO ZIP: 80155 BUSINESS PHONE: 3037923111 MAIL ADDRESS: STREET 1: P O BOX 3309 CITY: ENGLEWOOD STATE: CO ZIP: 80255-3309 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: PRE13E3 BUSINESS ADDRESS: STREET 1: PO BOX 3309 STREET 2: 9697 E. MINERAL AVE CITY: ENGLEWOOD STATE: CO ZIP: 80155-3309 BUSINESS PHONE: 3037923111 MAIL ADDRESS: STREET 2: PO BOX 3309 9697 E MINERAL AVE CITY: ENGLEWOOD STATE: CO ZIP: 8155-3309 PRE13E3 1 13E3 TRANSACT. STMT 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 12-B, Ltd. ------------------------ (Name of the Issuer) Jones Intercable, Inc. (File No. 0-8947) and Cable TV Fund 12-B, Ltd. (File No. 0-13807) ------------------------------------------- (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 - --------------------- -------------------- $141,718,000 $28,343.60 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: $28,343.60 Form or Registration No.: Preliminary proxy materials filed pursuant to Regulation 14A. Filing Party: Cable TV Fund 12-B, Ltd. Commission File No. 0-13807 Date Filed: Concurrently with this Rule 13e-3 Transaction Statement. *Pursuant to Rule 0-11(c)(2), the transaction valuation is based upon the $141,718,000 sales price to be paid to Cable TV Fund 12-B, Ltd. by Jones Intercable, Inc. in connection with the transaction that is the subject of the proxy solicitation. INTRODUCTION ------------ This Rule 13e-3 Transaction Statement is being filed jointly by Cable TV Fund 12-B, Ltd., a Colorado limited partnership, and by Jones Intercable, Inc., a Colorado corporation that is the general partner of Cable TV Fund 12-B, Ltd., in connection with the sale of assets of Cable TV Fund 12-B, Ltd. to Jones Intercable, Inc. upon the terms and subject to the conditions of a Purchase and Sale Agreement dated as of February 22, 1995 by and between Cable TV Fund 12-B, Ltd. and Jones Intercable, Inc. The sale may be a transaction subject to Rule 13e-3 because it will result in the sale of a substantial portion of the assets of Cable TV Fund 12-B, Ltd. to Jones Intercable, Inc. The transaction also involves a vote of the limited partners of Cable TV Fund 12-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 12-B, Ltd.; Certain Information About the Partnership and the General Partner. (b)-(c)............... Vote of the Limited Partners of Cable TV Fund 12-B, Ltd. (d)................... Special Factors, The Partnership's Investment Objectives. (e)................... [Not applicable.] (f)................... [Not applicable.] 2. Identity and Background. (a)-(d), (g).......... Vote of the Limited Partners of Cable TV Fund 12-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.]
-4-
Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------ --------------- 3. Past Contracts, Transactions or Negotiations. (a)(1)................ [Incorporated by reference pursuant to General Instruction D to Schedule 13E-3 from Item 8. Financial Statements and Item 13. Certain Relationships and Related Transactions from the Annual Reports on Form 10-K for the fiscal years ended December 31, 1994 and 1993 filed by Cable TV Fund 12-B, Ltd.] (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)-(g)............... [Not applicable.] 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.
-5-
Schedule 13E-3 Item Caption in the Number and Caption Proxy Statement ------------------- --------------- (b) Special Factors, The Appraisals; Special Factors, Costs of the Transaction. (c) Proposed Sale of Assets, The Purchase and Sale Agreement. (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, The Partnership's Investment Objectives; 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.
-6-
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 and State Income Tax Consequences. 8. Fairness of the Transaction. (a)-(b)............... Vote of the Limited Partners of Cable TV Fund 12-B, Ltd.; 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 12-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 12-B, Ltd.
-7-
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; Exhibit A; Exhibit B; Exhibit C. (c)................... [Not applicable because all appraisals are attached as exhibits to the proxy statement.] 10. Interest in Securities of the Issuer (a)................... Vote of the Limited Partners of Cable TV Fund 12-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 12-B, Ltd. (b)................... Vote of the Limited Partners of Cable TV Fund 12-B, Ltd.; Special Factors, Recommendation of the General Partner and Fairness of the Proposed Sale of Assets.
-8-
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 12-B, Ltd. for the fiscal years ended December 31, 1994 and 1993 are incorporated by reference from Cable TV Fund 12-B, Ltd.'s Annual Reports on Form 10-K for the fiscal years ended December 31, 1994 and December 31, 1993.] (a)(2)................ [Not applicable.] (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 12-B, Ltd.
-9-
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 12-B, Ltd. (b)................... [None.] 16. Additional Special Factors, Relevant Provisions of the Information. Partnership Agreement. - ------------------------------------------------------------------------------- 17. Materials Filed as Exhibits: (a)................... [None.] (b)(1)................ Appraisal of the Augusta System by Malarkey-Taylor Associates, Inc. (b)(2)................ Appraisal of the Augusta System by Kagan Media Appraisals, Inc. (b)(3)................ Appraisal of the Augusta System by Western Cablesystems, Inc. (c) [None.] (d)(1)................ Preliminary Proxy Statement to be furnished to the limited partners of Cable TV Fund 12-B, Ltd. (d)(2)................ Annual Report on Form 10-K for the fiscal year ended December 31, 1993 filed by Cable TV Fund 12-B, Ltd.
-10- (d)(3)................ Annual Report on Form 10-K for the fiscal year ended December 31, 1994 filed by Cable TV Fund 12-B, Ltd. (e)................... [Not applicable.] (f)................... [Not applicable.]
-11- 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: March 17, 1995 By:/s/ Elizabeth M. Steele ----------------------- Elizabeth M. Steele Vice President/General Counsel CABLE TV FUND 12-B, LTD., a Colorado limited partnership By: Jones Intercable, Inc., a Colorado corporation, as general partner Dated: March 17, 1995 By:/s/ Elizabeth M. Steele ----------------------- Elizabeth M. Steele Vice President/ General Counsel -12- EX-13.1 2 10-K 12-31-93 Exhibit (d)(2) FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended December 31, 1993 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: Cable TV Fund 12-A, Ltd.: 0-13193 Cable TV Fund 12-B, Ltd.: 0-13807 Cable TV Fund 12-C, Ltd.: 0-13964 Cable TV Fund 12-D, Ltd.: 0-14206 CABLE TV FUND 12-A, LTD. CABLE TV FUND 12-B, LTD. CABLE TV FUND 12-C, LTD. CABLE TV FUND 12-D, LTD. ------------------------ (Exact name of registrant as specified in its charter) Cable TV Fund 12-A, Ltd.: 84-0968104 Cable TV Fund 12-B, Ltd.: 84-0969999 Cable TV Fund 12-C, Ltd.: 84-0970000 Cable TV Fund 12-D, Ltd.: 84-1010423 ------------------------------------------ (IRS Employer Identification No.) Colorado -------- (State of Organization) P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111 - --------------------------------------------- -------------- (Address of principal executive office and Zip Code (Registrant's telephone no. including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests Indicate by check mark whether the registrant, (1) has filed all reports required to be filed by Section 13 or 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 --- --- Aggregate market value of the voting stock held by non-affiliates of the registrant: N/A Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K ((S)229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x - DOCUMENTS INCORPORATED BY REFERENCE: None PART I. ------- ITEM 1. BUSINESS ----------------- The Partnerships. Cable TV Fund 12-A, Ltd. ("Fund 12-A"), Cable TV Fund 12-B, Ltd. ("Fund 12-B"), Cable TV Fund 12-C, Ltd. ("Fund 12-C"), and Cable TV Fund 12-D, Ltd. ("Fund 12-D") (collectively, the "Partnerships") are Colorado limited partnerships that were formed during the public offering of limited partnership interests in the Cable TV Fund 12 Limited Partnership Program, which was sponsored by Jones Intercable, Inc., a Colorado corporation (the "General Partner"). The Partnerships are engaged in the acquisition, construction, development and operation of cable television systems in five states. Fund 12-A owns cable television systems serving the areas in and around Lake County, Orland Park and Park Forest, Illinois (the "Northern Illinois System") and Ft. Myers, Florida (the "Ft. Myers System"). Fund 12-B directly owns a cable television system serving Augusta, Georgia (the "Augusta System"). Fund 12-B, Fund 12-C and Fund 12-D formed a general partnership known as Cable TV Fund 12- BCD Venture (the "Venture"), in which Fund 12-B owns a 9 percent interest, Fund 12-C owns a 15 percent interest and Fund 12-D owns a 76 percent interest. The Venture owns the cable television systems serving Palmdale, Lancaster and Rancho Vista and the military installation of Edwards Airforce Base, all in California (the "Palmdale/Lancaster System"); Albuquerque, New Mexico (the "Albuquerque System") and Tampa, Florida (the "Tampa System"). See Item 2. The Northern Illinois System, Ft. Myers System, Augusta System, Palmdale/Lancaster System, Albuquerque System and Tampa System may collectively be referred to as the "Systems." 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 Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") contains new broadcast signal carriage requirements, and the Federal Communications Commission ("FCC") has adopted regulations implementing these statutory carriage requirements. These new rules allow local commercial broadcast television stations either to elect required carriage ("must carry") status or to require a cable system to negotiate for "retransmission consent rights." The deadline for the negotiation of agreements for retransmission consent was October 6, 1993. No broadcast stations carried on Partnership-owned cable television systems that elected retransmission consent have withheld consent to the retransmission of their signals. However, certain of these broadcast stations are being carried pursuant to temporary extensions of retransmission consent authority provided by the stations. Although there is no assurance that the General Partner will be able to conclude retransmission negotiations with all of these stations, the General Partner expects to reach agreements without having to terminate the carriage of any signal. If a broadcast station currently being carried pursuant to a temporary extension is dropped and if a significant number of a system's subscribers were to disconnect their service because of such action, there could be a negative impact on the system. However, because in most cases only one station in any market is being carried pursuant to an extension agreement, termination of one station's carriage would not be expected to have a material adverse effect on any system. In most systems, tier services are also offered on an optional basis to subscribers. Those channels generally include 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. The systems also offer a package that includes the basic service channels and the tier services. 2 Cable television 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. New cable television services have been introduced as the cable television industry has developed and increased its penetration level. One relatively new service currently being marketed by many cable television operators is 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. As of September 1, 1993, as a result of the requirements of the 1992 Cable Act, the Systems' rate structures for cable programming services and equipment were revised. As of December 31, 1993, the Systems' monthly basic service rates ranged from $7.95 to $14.25 and basic and tier ("basic plus") service rates ranged from $15.00 to $23.20 for residential subscribers. Charges for additional outlets were eliminated, and charges for remote controls and converters were "unbundled" from the programming service rates. The Systems' monthly rates for premium services range from $2.00 to $11.95 per premium service. In addition, the Partnerships earn revenues from the Systems' pay-per-view programs and advertising fees. Related charges may include a nonrecurring installation fee that ranges from $5.00 to $50.00; 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, 1993, of the total fees received by the Systems, basic service and tier service fees accounted for approximately 66% of total revenues, premium service fees accounted for approximately 16% of total revenues, pay-per-view fees were approximately 2% of total revenues, advertising fees were approximately 6% of total revenues and the remaining 10% of total revenues came principally from equipment rentals, installation fees and program guide sales. The Partnerships are dependent upon the timely receipt of service fees to provide for maintenance and replacement of plant and equipment, current operating expenses and other costs of the Systems. The Partnerships' business consists of providing cable television services to a large number of customers, the loss of any one of which would have no material effect on the Partnerships' 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. The Partnerships do not depend to any material extent on the availability of raw materials; they carry no significant amounts of inventory and they have no material backlog of customer orders. The Partnerships have 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 Partnerships' 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 Partnerships. 3 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. The Systems' franchises require that franchise fees ranging from 2% of basic revenues to 5% of gross revenues of the cable system be paid to the governmental authority that granted the franchise, that certain channels be dedicated to municipal use, that municipal facilities, hospitals and schools be provided cable service free of charge and that any new cable plant be substantially constructed within specific periods. (See Item 2. for a range of franchise expiration dates of the Systems.) The responsibility for franchising of cable television systems generally is left to state and local authorities. There are, however, several provisions in the Communications Act of 1934, as amended, that govern the terms and conditions under which cable television systems provide service, including the standards applicable to cable television operators seeking renewal of a cable television franchise. In addition, the Cable Television Consumer Protection and Competition Act of 1992 also makes several procedural changes to the process under which a cable operator seeks to enforce renewal rights. See Item 1. Regulation and Legislation. Generally, the franchising authority can decide not to renew a franchise only if it finds that the cable operator has not substantially complied with the material terms of the franchise, has not provided reasonable service in light of the community's needs, does not have the financial, legal and 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. The General Partner and its affiliates recently have experienced lengthy negotiations with some franchising authorities for the granting of franchise renewals and transfers. Some of the issues involved in recent renewal negotiations include rate reregulation, customer service standards, cable plant upgrade or replacement and shorter terms of franchise agreements. The inability of a Partnership to renew a franchise, or lengthy negotiations or litigation involving the renewal process could have an adverse impact on the business of a Partnership. The inability of a Partnership to transfer a franchise could have an adverse impact on the ability of a Partnership to accomplish its investment objectives. Competition. The Systems face competition from a variety of alternative entertainment media, such as: Multichannel Multipoint Distribution Service ("MMDS"), which is often called a "wireless cable service" and is a microwave service authorized to transmit television signals and other communications on a complement of channels, which when combined with instructional fixed television and other channels, is able to provide a complement of television signals potentially competitive with cable television systems; Satellite Master Antenna Television System ("SMATV"), commonly called a "private" cable television system, which is a system wherein one central antenna is used to receive signals and deliver them to, for example, an apartment complex; and Television Receive- Only Earth Stations ("TVRO"), which are satellite receiving antenna dishes that are used by "backyard users" to receive satellite delivered programming directly in their homes. Programming services sell their programming directly to owners of TVROs as well as through third parties. The competition from MMDS and TVRO potentially diminishes the pool of subscribers to the Systems because persons who subscribe to MMDS services or who own backyard satellite dishes are not likely to subscribe to all of the Systems' cable television services. In the near future, the Systems will also face competition from direct satellite to home transmission ("DBS"). DBS can provide to individuals on a wide-scale basis premium channel services and specialized programming through the use of high-powered DBS satellites that transmit such programming to a rooftop or side-mounted antenna. There are currently no DBS operators in the areas served by the Systems. DBS systems' ability to compete with the cable television industry will depend on, among other factors, the ability to obtain access to programming and the availability of reception equipment at reasonable prices. The first DBS satellite was recently launched, and it is anticipated that DBS services will become available throughout the United States during 1994. The Systems also face competition from video cassette rental outlets and movie theaters in the Systems' service areas. The General Partner believes the preponderance of video cassette recorder ("VCR") ownership in the Systems' service areas may be a positive rather than a negative factor because households that have VCRs are 4 attracted to non-commercial programming delivered by the Systems, such as movies and sporting events on cable television, that they can tape at their convenience. Cable television franchises are not exclusive, so that more than one cable television system may be built in the same area (known as an "overbuild"), with potential loss of revenues to the operator of the original cable television system. Other than as described below, the Systems currently face no direct competition from other cable television operators. Although the Partnerships have not yet encountered competition from a telephone company entering into the cable television business, the Partnerships' Systems could potentially face competition from telephone companies doing so. Bell Atlantic, a regional Bell operating company ("RBOC"), has announced its intention, if permitted by the courts, to build a cable television system in Alexandria, Virginia, and has won a lawsuit to obtain such authority. The case is on appeal. The General Partner currently owns and manages the cable television system in Alexandria, Virginia. Another RBOC, Ameritech, has also indicated its intention to build and operate a cable television system in Naperville, Illinois, a location where the General Partner manages a system on behalf of one of its managed limited partnerships. Other RBOCs have indicated their intention to enter the cable television market, and have filed lawsuits similar to the one being pursued by Bell Atlantic and Ameritech. Widespread competition through overbuilds by RBOCs could have a negative impact on companies like the General Partner that are already established cable television system operators. Competition for Subscribers in the Partnerships' Systems. Following is a summary of competition from MMDS, SMATV and TVRO operators in the Partnerships' franchise areas. Albuquerque System Two SMATV operators serve approximately 3,190 units in trailer parks and apartments. Augusta System Two SMATV operators serve two apartment complexes; one TVRO dealer principally operates in areas which are not serviced by cable. Ft. Myers System One MMDS operator provides negligible competition; five SMATV operators provide service to motels and an occasional apartment complex; and twelve TVRO dealers serve a customer base that is confined primarily to rural areas. Northern Illinois System The General Partner is not aware of any MMDS or TVRO satellite dish dealers in the system's service area. There are a limited number of SMATV operators in the system's service area, but they do not provide significant competition. Palmdale/Lancaster System No MMDS operators; numerous SMATV operators provide some competition in several apartment complexes, hotels, motels, trailer parks and two hospitals. There are numerous TVRO dealers in the service area. Approximately 2% of the homes in the service area have TVRO systems. Tampa System One MMDS operator provides minimal competition; ten SMATV operators provide moderate competition; thirty TVRO dealers provide minimal competition. Regulation and Legislation. The cable television industry is regulated through a combination of the Federal Communications Commission ("FCC"), some state governments, and most local governments. In addition, 5 the Copyright Act of 1976 imposes copyright liability on all cable television systems. Cable television operations are subject to local regulation insofar as systems operate under franchises granted by local authorities. Cable Television Consumer Protection and Competition Act of 1992. On ---------------------------------------------------------------- October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992. This legislation effected significant changes to the regulatory environment in which the cable television industry operates. The 1992 Cable Act generally allows for 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, are subject to rate regulation of basic cable services. In addition, the 1992 Cable Act allows 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 and ordered an interim freeze on these rates effective on April 15, 1993. The rate freeze recently was extended by the FCC until the earlier of May 15, 1994, or the date on which a cable system's basic service rate is regulated by a franchising authority. The FCC's rate regulations became effective on September 1, 1993. On February 22, 1994, the FCC announced a revision of its rate regulations which it believes will generally result in a further reduction of rates for basic and non-basic services. The 1992 Cable Act encourages competition with existing cable systems by allowing municipalities, which are otherwise legally qualified, to own and operate their own cable systems without having to obtain a franchise; prevents franchising authorities from granting exclusive franchises; or unreasonably refusing to award additional franchises covering an existing cable system's service area. The 1992 Cable Act also makes several procedural changes to the process under which a cable operator seeks to enforce renewal rights which could make it easier in some cases for a franchising authority to deny renewal. The 1992 Cable Act prohibits the common ownership of cable systems and co-located MMDS or SMATV systems, and absent certain exceptions, the sale or transfer of ownership of a cable system within 36 months after its acquisition or initial construction. The 1992 Cable Act also precludes video programmers affiliated with cable companies from favoring cable operators over competitors and requires such programmers to sell their programs to other multichannel video distributors. This provision may limit the ability of cable program suppliers to offer exclusive programming arrangements with cable companies and could affect the volume discounts that program suppliers currently offer to the General Partner in its capacity as a multiple system operator. The 1992 Cable Act has eliminated the latitude of operators to set rates for commercially leased access channels and requires that leased access rates be set according to a formula determined by the FCC. The 1992 Cable Act contains new broadcast signal carriage requirements, and the FCC has adopted regulations implementing the statutory requirements. These new rules allow a local commercial broadcast television station to elect whether to demand that a cable television system carry its signal, or to require the cable television system to negotiate with the station for "retransmission consent." A cable television system is generally required to devote up to one- third of its activated channel capacity for the mandatory carriage of local commercial broadcast television stations, and non-commercial television stations are also given mandatory carriage rights, although such stations are not given the option to negotiate retransmission consent for the carriage of their signals by cable television systems. Additionally, cable television systems also are required to obtain retransmission consent from all "distant" commercial television stations (except for commercial satellite-delivered independent "superstations"), commercial radio stations and certain low-power television stations carried by cable television systems. See Item 1. Cable Television Services. There have been several lawsuits filed by cable television operators and programmers in Federal court challenging various aspects of the 1992 Cable Act, including provisions relating to mandatory broadcast signal carriage, retransmission consent, access to cable programming, rate regulation, commercial leased channels and public access channels. On April 8, 1993, a three-judge Federal district court panel issued a decision upholding the constitutional validity of the mandatory signal carriage requirements of the 1992 Cable Act. That decision has been appealed directly to the United States Supreme Court. Appeals have been filed in the Federal appellate court challenging the validity of the FCC's retransmission consent rules. 6 Ownership and Market Structure. The FCC rules and federal law generally ------------------------------ prohibit the direct or indirect common ownership, operation, control or interest in a cable television system, on the one hand, and a local television broadcast station whose television signal reaches any portion of the community served by the cable television system, on the other hand. The FCC recently lifted its ban on the cross-ownership of cable television systems by broadcast networks. The FCC revised its regulations to permit broadcast networks to acquire cable television systems serving up to 10% of the homes passed in the nation, and up to 50% of the homes passed in a local market. Neither the Partnerships nor the General Partner has any direct or indirect ownership, operation, control or interest in a television broadcast station, or a telephone company, and they are thus presently unaffected by the cross-ownership rules. The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and FCC regulations generally prohibit the common operation of a cable television system and a telephone company within the same service area. Until recently, a provision of a Federal court antitrust consent decree also prohibited the regional Bell operating companies ("RBOCs") from engaging in cable television operations. This prohibition was recently removed when the court retaining jurisdiction over the consent decree ruled that the RBOCs could provide information services over their facilities. This decision permits the RBOCs to acquire or construct cable television systems outside of their own service areas. The 1984 Cable Act prohibited local exchange carriers, including the RBOCs, from providing video programming directly to subscribers within their local exchange telephone service areas, except in rural areas or by specific waiver of FCC rules. This statutory provision has recently been challenged on constitutional grounds by Bell Atlantic, one of the RBOCs. The court held that the 1984 Cable Act cross-ownership provision is unconstitutional, and it issued an order enjoining the United States Justice Department from enforcing the cross-ownership ban. The National Cable Television Association, an industry group of which the General Partner is a member, has appealed this landmark decision, and the case could ultimately be reviewed by the United States Supreme Court. This federal cross-ownership rule is particularly important to the cable industry since these telephone companies already own certain facilities needed for cable television operation, such as poles, ducts and associated rights-of- way. The FCC has conducted a comprehensive proceeding examining whether and under what circumstances telephone companies should be allowed to provide cable television services, including video programming, to their customers. The FCC has concluded that under the 1984 Cable Act interexchange carriers (such as AT&T, which provide long distance services) are not subject to the restrictions which bar the provision of cable television service by local exchange carriers. In addition, the FCC concluded that neither a local exchange carrier providing a video dialtone service nor its programming suppliers leasing the dialtone service are required to obtain a cable television franchise. This determination has been appealed. If video dialtone services become widespread in the future, cable television systems could be placed at a competitive disadvantage because cable television systems are required to obtain local franchises to provide cable television service and must comply with a variety of obligations under such franchises. The FCC has tentatively concluded that construction and operation of technologically advanced, integrated broadband networks by carriers for the purpose of providing video programming and other services would constitute good cause for waiver of the cable/telephone cross-ownership prohibitions. In July 1989, the FCC granted a California telephone company a waiver of the cross- ownership restrictions based on a showing of "good cause," but the FCC's decision was reversed on appeal, and as a result of this decision, the FCC may be required to follow a stricter policy in granting such waivers in the future. As part of the same proceeding, the FCC recommended that Congress amend the 1984 Cable Act to allow Local Exchange Carriers ("LECs") to provide their own video programming services over their facilities. The FCC recently decided to loosen ownership and affiliation restrictions currently applicable to telephone companies, and has proposed to increase the numerical limit on the population of areas qualifying as "rural" and in which LECs can provide cable service without a FCC waiver. 7 Legislation is pending in Congress which would permit the LECs to provide cable television service within their own operating areas conditioned on establishing separate video programming affiliates. The legislation would generally prohibit, however, telephone companies from acquiring cable systems within their own operating areas. The legislation would also enable cable television companies and others, subject to regulatory safeguards, to offer telephone services by eliminating state and local barriers to entry. ITEM 2. PROPERTIES ------------------ The cable television systems owned at December 31, 1993 by the Partnerships are described below. Fund System Acquisition Date ---- ------ ---------------- Cable TV Fund 12-A, Ltd. Northern Illinois System May 1985 Ft. Myers System May 1985 Cable TV Fund 12-B, Ltd. Augusta System August 1985 Cable TV Fund 12-B, Ltd., Cable Palmdale/Lancaster System April 1986 TV Fund 12-C, Ltd. and Cable TV Albuquerque System August 1986 Fund 12-D, Ltd. own a 9%, 15% Tampa System December 1986 and 76% interest, respectively, through their general partner interest in Cable TV Fund 12-BCD Venture The following tables set forth (i) the monthly basic plus service rates charged to subscribers, (ii) the number of basic subscribers and pay units, (iii) the number of homes passed by cable plant, (iv) the miles of cable plant and (v) the range of franchise expiration dates for the cable television systems owned and operated by the Partnerships. The monthly basic plus service rates set forth herein represent, with respect to systems with multiple headends, the basic plus service rate charged to the majority of the subscribers within the system. While the charge for basic plus service may have increased in some cases as a result of the FCC's rate regulations, overall revenues to the Partnerships may have decreased due to the elimination of charges for additional outlets and certain equipment. 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. Figures for numbers of subscribers, miles of cable plant and homes passed are compiled from the General Partner's records and may be subject to adjustments.
At December 31, --------------------------- Lake County, Illinois 1993 1992 1991 - --------------------- ---- ---- ---- Monthly basic plus service rate $22.13 $21.95 $19.95 Basic subscribers 15,216 14,179 13,267 Pay units 12,091 11,900 12,097
As of December 31, 1993, the number of homes passed and the miles of cable plant were 21,869 and 300, respectively. Franchise expiration dates range from March 1996 to June 2001.
At December 31, --------------------------- Orland Park, Illinois 1993 1992 1991 - --------------------- ---- ---- ---- Monthly basic plus service rate $22.51 $21.95 $19.95 Basic subscribers 11,395 10,592 9,929 Pay units 9,598 10,612 9,204
8 As of December 31, 1993, the number of homes passed and the miles of cable plant were 16,751 and 262, respectively. Franchise expiration date is August 1994. The renewal of this franchise is currently being negotiated.
At December 31, --------------------------- Park Forest, Illinois 1993 1992 1991 - --------------------- ---- ---- ---- Monthly basic plus service rate $22.51 $21.95 $19.95 Basic subscribers 5,480 5,494 5,375 Pay units 5,407 6,197 5,413
As of December 31, 1993, the number of homes passed and the miles of cable plant were 9,182 and 81, respectively. Franchise expiration date is November 1995.
At December 31, --------------------------- Ft. Myers, Florida 1993 1992 1991 - ------------------ ---- ---- ---- Monthly basic plus service rate $19.52 $17.95 $17.00 Basic subscribers 35,284 34,997 34,465 Pay units 22,303 23,273 18,952
As of December 31, 1993, the number of homes passed and the miles of cable plant were 64,507 and 664, respectively. Franchise expiration dates range from December 1999 to January 2002.
At December 31, --------------------------- Augusta, Georgia 1993 1992 1991 - ---------------- ---- ---- ---- Monthly basic plus service rate $21.77 $19.95 $17.95 Basic subscribers 64,173 62,730 60,428 Pay units 50,847 52,965 50,648
As of December 31, 1993, the number of homes passed and the miles of cable plant were 100,100 and 1,602, respectively. Franchise expiration dates range from December 1998 to October 2003.
At December 31, --------------------------- Palmdale/Lancaster, California 1993 1992 1991 - ------------------------------ ---- ---- ---- Monthly basic plus service rate $21.77 $20.00 $19.25 Basic subscribers 56,372 53,947 53,323 Pay units 39,928 38,753 33,825
As of December 31, 1993, the number of homes passed and the miles of cable plant were 85,768 and 937, respectively. Franchise expiration dates range from September 1994 to October 2005. Any franchises expiring in 1994 are in the process of franchise renewal negotiations.
At December 31, --------------------------- Albuquerque, New Mexico 1993 1992 1991 - ----------------------- ---- ---- ---- Monthly basic plus service rate $21.00 $20.00 $18.95 Basic subscribers 98,555 92,916 91,266 Pay units 67,462 62,919 63,819
As of December 31, 1993, the number of homes passed and the miles of cable plant were 200,500 and 2,202, respectively. Franchise expiration dates range from January 1999 to August 2001. 9
At December 31, --------------------------- Tampa, Florida 1993 1992 1991 - -------------- ---- ---- ---- Monthly basic plus service rate $21.63 $19.25 $19.25 Basic subscribers 58,145 58,711 57,315 Pay units 47,771 45,419 42,717
As of December 31, 1993, the number of homes passed and the miles of cable plant were 127,800 and 1,093, respectively. The Tampa franchise expires in December 1997. The City of Tampa has notified the Venture of its belief that the Venture is not in compliance with certain provisions of the franchise agreement. Specifically, the City has claimed that the Venture is not in compliance with local origination programming requirements, institutional network requirements, and other facilities, equipment and service obligations under the franchise. The Venture has responded to the claim with a detailed demonstration that many of the City's claims are erroneous and that the remaining unmet obligations should be modified. The City of Tampa and the Venture have reached an agreement in principle with respect to the settlement of the franchise dispute. A definitive settlement agreement is in the process of being negotiated. Programming Services - -------------------- Programming services provided by the Systems include local affiliates of the national broadcast networks, local independent broadcast channels, the traditional satellite services (e.g., American Movie Classics (AMC), Arts & Entertainment (ARTS), Black Entertainment Network (BET), C-SPAN, The Discovery Channel (DISC), Lifetime (LIFE), Entertainment Sports Network (ESPN), Home Shopping Network (HSN), Mind Extension University (MEU), Music Television (MTV), Nickelodeon (NICK), Turner Network Television (TNT), The Nashville Network (TNN), Video Hits One (VH-1), and superstations WOR, WGN and TBS. The Partnerships' Systems also provide a selection, which varies by system, of premium channel programming (e.g., Bravo (BRVO), Cinemax (CMAX), The Disney Channel (DISN), Encore (ENC), Home Box Office (HBO), Showtime (SHOW) and The Movie Channel (TMC)). ITEM 3. LEGAL PROCEEDINGS ------------------------- On July 15, 1992, the General Partner received a Civil Investigative Demand (the "CID") from the Department of Justice ("DOJ") in connection with an investigation to determine whether there is or has been a violation of Section 2 of the Sherman Act as a consequence of the General Partner's alleged refusal to carry a television broadcast station on cable television systems. The interrogatories and document requests included in the CID request information relating to systems owned or managed by the General Partner in Los Angeles County, and elsewhere, including the Palmdale/Lancaster System owned by the Venture. Specific reference is made in the CID to KHIZ, Channel 64. The General Partner has responded to a variety of requests for information and documents from the DOJ but has had no communication from the DOJ since March 1992. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ----------------------------------------------------------- None 10 PART II. -------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY ------- ----------------------------------------- AND RELATED STOCKHOLDER MATTERS ------------------------------- While the Partnerships are all 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 March 1, 1994, the approximate number of equity security holders was:
Fund Number of Record Holders ---- ------------------------ Fund 12-A 7,905 Fund 12-B 8,100 Fund 12-C 3,625 Fund 12-D 18,295
11 Item 6. Selected Financial Data - -------------------------------
For the Year Ended December 31, ------------------------------------------------------------------ Cable TV Fund 12-A 1993 1992 1991 1990 1989 - ------------------ ----------- ---------- ---------- ---------- ---------- Revenues $28,963,726 $26,693,028 $24,322,600 $21,610,617 $19,097,703 Depreciation and Amortization 7,840,193 7,528,805 9,042,280 8,051,904 8,527,441 Operating Income (Loss) 1,196,824 514,394 (1,263,012) 181,347 (1,789,762) Net Loss (409,726) (1,583,447) (3,898,842) (3,450,329) (5,682,387) Net Loss per Limited Partnership Unit (3.90) (15.07) (37.11) (32.84) (54.09) Weighted average number of Limited Partnership Units outstanding 104,000 104,000 104,000 104,000 104,000 General Partner's Deficit (367,208) (363,111) (347,277) (308,289) (273,786) Limited Partners' Capital 8,397,258 8,802,887 10,370,500 14,230,354 17,646,180 Total Assets 39,297,990 43,071,609 45,479,809 49,842,381 52,914,889 Debt 29,724,530 32,813,067 34,291,172 33,768,635 33,090,297 General Partner Advances 220,722 261,348 - 375,488 97,831
For the Year Ended December 31, ------------------------------------------------------------------ Cable TV Fund 12-B 1993 1992 1991 1990 1989 - ------------------ ---------- ---------- ---------- ---------- ---------- Revenues $26,975,209 $25,369,064 $22,434,854 $19,938,259 $17,388,523 Depreciation and Amortization 8,897,796 8,415,058 8,003,545 7,055,545 5,569,025 Operating Income 1,816,948 1,937,255 1,205,903 1,860,690 1,502,357 Equity in Net Loss of Cable Television Joint Venture (1,063,449) (1,336,385) (1,636,665) (1,970,017) (2,558,212) Net Loss (1,463,979) (2,300,652) (4,003,891) (4,556,190) (4,457,921) Net Loss per Limited Partnership Unit (13.05) (20.51) (35.70) (40.62) (39.75) Weighted average number of Limited Partnership Units outstanding 111,035 111,035 111,035 111,035 111,035 General Partner's Deficit (270,470) (255,830) (232,823) (192,784) (147,222) Limited Partners' Capital 21,008,435 22,457,774 24,735,419 28,699,271 33,209,899 Total Assets 66,085,025 70,507,101 74,521,239 77,924,307 73,092,006 Debt 43,831,074 46,797,508 48,725,591 45,232,743 37,555,788 General Partner Advances 163,266 289,033 215,769 2,067,861 131,641
12
For the Year Ended December 31, ------------------------------------------------------------------- Cable TV Fund 12-C* 1993 1992 1991 1990 1989 - ------------------- ----------- ----------- ----------- ----------- ----------- Revenues $ - $ - $ - $ - $ - Operating Income - - - - - Equity in Net loss of Cable television joint venture (1,769,867) (2,274,033) (2,723,854) (3,278,641) (4,258,113) Net Loss (1,769,867) (2,274,033) (2,723,854) (3,278,641) (4,258,113) Net Loss per Limited Partnership Unit (36.79) (47.27) (56.62) (68.15) (88.51) Weighted average number of Limited Partnership Units outstanding 47,626 47,626 47,626 47,626 47,626 General Partner's Deficit (216,340) (198,641) (175,901) (148,662) (115,876) Limited Partners' Capital (Deficit) (978,053) 774,115 3,025,408 5,722,023 8,967,878 Total Assets - - 3,008,644 5,732,498 9,011,139 Debt - - - - - General Partner Advances - - - - -
* Activity in Cable TV Fund 12-C is limited to its equity interest in Cable TV Fund 12-BCD Venture. 13
For the Year Ended December 31, ---------------------------------------------------------------------- Cable TV Fund 12-D** 1993 1992 1991 1990 1989 - -------------------- ---------- ---------- ---------- ---------- ---------- Revenues $ 89,131,530 $ 83,567,527 $ 78,049,505 $ 69,945,109 $ 60,262,644 Depreciation & Amortization 25,651,237 26,764,820 30,793,053 29,972,282 29,281,471 Operating Income (Loss) 900,949 (1,087,963) (4,930,588) (6,260,721) (13,113,663) Minority interest in consolidated loss 2,833,316 3,640,418 4,360,519 5,248,658 6,816,325 Net Loss (8,751,100) (11,243,947) (13,468,081) (16,211,227) (21,050,905) Net Loss per Limited Partnership Unit (36.50) (46.90) (56.18) (67.62) (87.81) Weighted average number of Limited Partnership Units outstanding 237,339 237,339 237,339 237,339 237,339 General Partner's Deficit (1,063,255) (975,744) (863,305) (728,624) (566,512) Limited Partners' Capital (Deficit) (3,008,911) 5,654,678 16,786,188 30,119,586 46,168,701 Total Assets 169,670,552 175,554,620 185,834,366 196,991,456 200,723,865 Debt 167,698,697 160,440,488 156,131,618 151,051,428 132,143,756 General Partner Advances 188,430 511,646 4,606,840 1,228,418 722,843
** The above financial information represents the consolidated operations of Cable TV Fund 12-BCD Venture, in which Cable TV Fund 12-D has an approximate 76 percent equity interest.
For the Year Ended December 31, ---------------------------------------------------------------------- Cable TV Fund 12-BCD 1993 1992 1991 1990 1989 - -------------------- ---------- ---------- ---------- ---------- ---------- Revenues $ 89,131,530 $ 83,567,527 $ 78,049,505 $ 69,945,109 $ 60,262,644 Depreciation & Amortization 25,651,237 26,764,820 30,793,053 29,972,282 29,281,471 Operating Income (Loss) 900,949 (1,087,963) (4,930,588) (6,260,721) (13,113,663) Net Loss (11,584,416) (14,884,365) (17,828,600) (21,459,885) (27,867,230) General Partners' Capital (Deficit) (5,729,509) 5,854,907 20,739,272 38,567,872 60,027,757 Total Assets 169,670,552 175,554,620 185,834,366 196,991,456 200,723,865 Debt 167,698,697 160,440,488 156,131,618 151,051,428 132,143,756 Jones Intercable, Inc. Advances 188,430 511,646 4,606,840 1,228,418 722,843
14 Item 7. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------- Results of Operations --------------------- CABLE TV FUND 12-A ------------------ Results of Operations - --------------------- 1993 Compared to 1992 - Revenues of Fund 12-A increased $2,270,698, or approximately 9 percent, from $26,693,028 in 1992 to $28,963,726 in 1993. During 1993, Fund 12-A added approximately 1,923 basic subscribers, an increase of 3 percent. This increase in basic subscribers accounted for approximately 28 percent of the increase in revenues. An increase in advertising revenues accounted for approximately 24 percent of the increase in revenues. Basic service rate adjustments implemented in all of Fund 12-A's systems accounted for approximately 17 percent of the increase in revenues. The increase in revenues would have been greater but for the reduction in basic rates due to new basic rate regulations issued by the FCC in May 1993 with which Fund 12-A complied effective September 1, 1993. In addition, on February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. No other individual factor was significant to the increase in revenues. Operating, general and administrative expense increased $991,718, or approximately 6 percent, from $15,492,913 in 1992 to $16,484,631 in 1993. Operating, general and administrative expense represented 57 percent of revenue in 1993 compared to 58 percent in 1992. Programming fees, advertising and plant related costs primarily accounted for the increase. These increases in were offset, in part, by a decrease in copyright fees. There were no other individual factors that contributed significantly to the increase. Management fees and allocated overhead from the General Partner increased $285,162, or approximately 9 percent, from $3,156,916 in 1992 to $3,442,078 in 1993. This increase was due to the increase in revenues, upon which such fees and allocations are based, and an increase in expenses allocated from the General Partner. Depreciation and amortization expense increased $311,388, or approximately 4 percent, from $7,528,805 in 1992 to $7,840,193 in 1993. This increase was due to additions in Fund 12-A's asset base. Operating income increased $682,430 to $1,196,824 in 1993 compared to $514,394 in 1992. This was due to the fact that revenue growth exceeded the increases in operating, general and administrative expense, management fees and allocated overhead from the General Partner and depreciation and amortization expense. Operating income before depreciation and amortization increased $993,818, or approximately 12 percent, from $8,043,199 in 1992 to $9,037,017 in 1993. The increase was due to the fact that revenue growth exceeded the increases in operating, general and administrative expense, management fees and allocated overhead from the General Partner. Interest expense decreased $302,642, or approximately 16 percent, from $1,864,954 in 1992 to $1,562,312 in 1993. This decrease was due primarily to lower effective interest rates and lower outstanding balances on interest bearing obligations. Other expense decreased $188,649 from $232,887 in 1992 to $44,238 in 1993. Such expense was primarily due to allocated depreciation from affiliated entities. Net loss decreased $1,173,721, or approximately 74 percent, from $1,583,447 in 1992 to $409,726 in 1993. This decrease is due to the factors discussed above. Fund 12-A's losses are expected to continue in the future. 1992 Compared to 1991 - Revenues of Fund 12-A increased $2,370,428, or approximately 10 percent, from $24,322,600 in 1991 to $26,693,028 in 1992. Basic service rate adjustments implemented in all of Fund 12-A's systems accounted for approximately 43 percent of the increase in revenues. During 1992, Fund 12-A added approximately 2,220 basic subscribers, an increase of 4 percent. This increase in basic subscribers accounted for approximately 39 percent of the increase. In addition, Fund 12-A added approximately 6,316 pay units which accounted for approximately 14 percent of the increase in revenues. Operating, general and administrative expense increased $1,650,299, or approximately 12 percent, from $13,842,614 in 1991 to $15,492,913 in 1992. Operating, general and administrative expense represented 58 percent of revenue in 1992 compared to 57 percent in 1991. Programming fees accounted for approximately 29 percent of the increase in expense and was due, in part, to the increases in the subscriber base. Personnel related expense accounted for approximately 32 percent of the increase. There were no other individual factors that contributed significantly to the 15 increase. Management fees and allocated overhead from the General Partner increased $456,198, or approximately 17 percent, from $2,700,718 in 1991 to $3,156,916 in 1992. This increase was due to the increase in revenues, upon which such fees and allocations are based, and an increase in expenses allocated from the General Partner. Depreciation and amortization expense decreased $1,513,475, or approximately 17 percent, from $9,042,280 in 1991 to $7,528,805 in 1992. This decrease is due to the maturation of Fund 12-A's asset base. Fund 12-A recorded operating income of $514,394 in 1992 compared to an operating loss of $1,263,012 in 1991. This was due to the fact that revenue growth exceeded the increases in operating, general and administrative expense and management fees and allocated overhead from the General Partner, as well as the decrease in depreciation and amortization expense. Operating income before depreciation and amortization increased $263,931, or approximately 3 percent, from $7,779,268 in 1991 to $8,043,199 in 1992. The increase was due to the fact that revenue growth exceeded the increases in operating, general and administrative expense and management fees and allocated overhead from the General Partner. Interest expense decreased $785,801, or approximately 30 percent, from $2,650,755 in 1991 to $1,864,954 in 1992. This decrease is due primarily to lower effective interest rates on interest bearing obligations. Other expense increased $247,812 from income of $14,925 in 1991 to expense of $232,887 in 1992 due primarily to the allocated depreciation from related entities that provide advertising sales, warehouse and converter repair services to Fund 12-A. Net loss decreased $2,315,395, or approximately 59 percent, from $3,898,842 in 1991 to $1,583,447 in 1992. These decreases in net losses are due to the factors discussed above. Financial Condition - ------------------- Capital expenditures totalled approximately $3,639,000 in 1993. Approximately 37 percent of these expenditures related to rebuild projects in all of Fund 12-A's systems. Approximately 31 percent of these expenditures related to plant extensions in all of Fund 12-A's systems. The remaining expenditures were used for various enhancements in all of Fund 12-A's systems. Funding for these expenditures was provided by cash generated from operations. Fund 12-A anticipates capital expenditures of approximately $5,189,000 in 1994. Plant extensions in all of Fund 12-A's systems are expected to account for approximately 34 percent of these expenditures, and service drops to homes are anticipated to account for approximately 20 percent. The remainder of the anticipated expenditures is for various enhancements in all of Fund 12-A's systems. The actual level of capital expenditures will depend, in part, upon the General Partner's determination as to the proper scope and timing of such expenditures in light of the FCC's announcement of a further rulemaking regarding the 1992 Cable Act on February 22, 1994 and Fund 12-A's liquidity position. Funding for these expenditures is expected to be provided by cash on hand and cash generated from operations. During March 1990, the General Partner renegotiated Fund 12-A's $35,000,000 credit facility, extending the revolving credit period to June 30, 1992, at which time the then-outstanding balance of $34,000,000 converted to a term loan. The term loan is payable in 20 consecutive quarterly installments that commenced on September 30, 1992. Payments in 1993 totaled $3,000,000. At December 31, 1993, $29,500,000 was outstanding under this term loan. Payments due in 1994 total $4,500,000. Fund 12-A intends to fund these payments with cash on hand and cash generated from operations. The General Partner is currently negotiating to reduce amortization payments in order to provide liquidity for capital expenditures. Generally, interest payable on amounts borrowed under the term loan is at Fund 12-A's option of prime plus 1/2 percent or a fixed rate defined as the CD rate plus 1-1/4 percent or the Euro-Rate plus 1-1/4 percent. On January 12, 1993, Fund 12-A entered into an interest rate cap agreement covering outstanding debt obligations of $15,000,000. The agreement protects Fund 12-A from interest rates that exceed 7 percent for three years from the date of the agreement. Subject to the regulatory matters discussed below and assuming successful renegotiation of Fund 12-A's credit facility, of which there can be no assurance, the General Partner believes that Fund 12-A has sufficient sources of capital from cash on hand and cash generated from operations to meet its presently anticipated needs. 16 Regulation and Legislation - -------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which became effective on December 4, 1992. This legislation has effected significant changes to the regulatory environment in which the cable television industry operates. The 1992 Cable Act generally allows for 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, are subject to rate regulation of basic cable services. In addition, the 1992 Cable Act allows 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. These regulations, with which Fund 12-A complied, became effective on September 1, 1993. See Item 1 for further discussion of the provisions of the 1992 Cable Act. Based on the General Partner's assessment of the FCC's rulemakings concerning rate regulation under the 1992 Cable Act, Fund 12-A reduced the rates it charged for certain regulated services. On an annualized basis, such rate reductions will result in an estimated reduction in Fund 12-A's revenue of approximately $1,800,000, or approximately 6 percent, and a decrease in operating income before depreciation and amortization of approximately $1,600,000, or approximately 12 percent. In addition, on February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. Based on the foregoing, the General Partner believes that the new rate regulations will have a negative effect on Fund 12-A's revenues and operating income before depreciation and amortization. The General Partner has undertaken actions to mitigate a portion of these reductions primarily through (a) new service offerings, (b) product re-marketing and re-packaging and (c) marketing directed at non-subscribers. To the extent such reductions are not mitigated, the values of Fund 12-A's cable television systems, which are calculated based on cash flow, could be adversely impacted. In addition, such reductions could adversely effect the General Partner's ability to renegotiate Fund 12-A's credit facility. The 1992 Cable Act contains new broadcast signal carriage requirements, and the FCC has adopted regulations implementing the statutory requirements. These new rules allow a local commercial broadcast television station to elect whether to demand that a cable system carry its signal or to require the cable system to negotiate with the station for "retransmission consent." Additionally, cable systems also are required to obtain retransmission consent from all "distant" commercial television stations (except for commercial satellite- delivered independent "superstations"), commercial radio stations and certain low-power television stations carried by cable systems. The retransmission consent rules went into effect on October 6, 1993. In the cable television systems owned by Fund 12-A, no broadcast stations withheld their consent to retransmission of their signal. Certain broadcast signals are being carried pursuant to extensions offered to the General Partner by broadcasters, including a one-year extension for carriage of the CBS station owned and operated by the CBS network in Chicago. The General Partner expects to conclude retransmission consent negotiations with those stations whose signals are being carried pursuant to extensions without having to terminate the distribution of any of those signals. However, there can be no assurance that such will occur. If any broadcast station currently being carried pursuant to an extension is dropped, there could be a negative effect on the system if a significant number of subscribers were to disconnect their service. 17 CABLE TV FUND 12-B ------------------ Results of Operations - --------------------- 1993 Compared to 1992 - Revenues in Cable TV Fund 12-B's ("Fund 12-B's") Augusta, Georgia system (the "Augusta System") increased $1,606,145, or approximately 6 percent, from $25,369,064 in 1992 to $26,975,209 in 1993. Basic service rate adjustments accounted for approximately 44 percent of the increase in revenues. An increase in the subscriber base accounted for approximately 42 percent of the increase in revenues. The Augusta System added approximately 1,500 basic subscribers between December 31, 1992 and 1993, an increase of 2 percent. An increase in advertising sales revenues accounted for approximately 10 percent of the increase in revenues. No other individual factor was significant to the increase in revenues. The increase in revenues would have been greater but for the reduction in basic rates due to new basic rate regulation issued by the FCC in May 1993 with which Fund 12-B complied effective September 1, 1993. In addition, on February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. Operating, general and administrative expense increased $1,002,314, or approximately 8 percent, from $12,052,351 in 1992 to $13,054,665 in 1993. Operating, general and administrative expense represented 48 percent of revenues in 1993 and 1992. Increases in programming fees, due in part to the increase in the subscriber base, accounted for approximately 55 of the increase in expenses. An increase in advertising sales related expense, due in part to the increase in advertising revenues, accounted for approximately 16 percent of the increase in expenses. No other individual factor contributed significantly to the increase in operating, general and administrative expenses. Management fees and allocated overhead from the General Partner increased $241,400, or approximately 8 percent, from $2,964,400 in 1992 to $3,205,800 in 1993. The increase was due to the increase in revenues, upon which such fees and allocations are based, and an increase in allocated expenses from the General Partner. Depreciation and amortization increased $482,738, or approximately 6 percent, from $8,415,058 in 1992 to $8,897,796 in 1993 due to capital additions during 1992 and 1993. Operating income decreased $120,307, or approximately 6 percent, from $1,937,255 in 1992 to $1,816,948 in 1993 due to the increases in operating, general and administrative expense, management fees and allocated overhead from the General Partner together with depreciation and amortization expense exceeding the increase in revenue. Operating income before depreciation and amortization increased $362,431, or approximately 4 percent, from $10,352,313 in 1992 to $10,714,744 in 1993 due to the increase in revenues exceeding the increases in operating, general and administrative expenses, management fees and allocated overhead from the General Partner. Interest expense decreased $546,251, or approximately 19 percent, from $2,889,857 in 1992 to $2,343,606 in 1993 due primarily to lower effective interest rates on interest bearing obligations and a lower outstanding balance on Fund 12-B's credit facility. Loss before equity in net loss of cable television joint venture decreased $533,737, or approximately 57 percent, from $934,267 in 1992 to $400,530 in 1993 primarily due to the decrease in interest expense and the increase in operating income. Such losses are the result of the factors discussed above and are expected to continue in the future. 1992 Compared to 1991 - Revenues in Fund 12-B's Augusta System increased $2,934,210, or approximately 13 percent, from $22,434,854 in 1991 to $25,369,064 in 1992. A basic service rate adjustment in the first quarter of 1992 accounted for approximately 59 percent of the increase in revenues. An increase in the subscriber base accounted for approximately 16 percent of the increase in revenues. The Augusta System added approximately 2,300 basic subscribers between December 31, 1991 and 1992, an increase of 4 percent. An increase in advertising sales revenues accounted for approximately 16 percent of the increase in revenues. No other individual factor was significant to the increase in revenues. Operating, general and administrative expense increased $1,344,008, approximately 13 percent, from $10,708,343 in 1991 to $12,052,351 in 1992. Operating, general and administrative expense represented 48 percent of revenues in 1992 and 1991. Increases in programming fees, personnel expenses and marketing expense, due in part to the increase in the subscriber base, accounted for approximately 23 percent, 30 percent and 11 percent, respectively, of the increase in expenses. An increase in advertising sales related expense, due in part to the increase in advertising revenues, accounted for approximately 14 percent of the increase in expenses. No other individual factor contributed significantly to 18 the increase in operating, general and administrative expenses. Management fees and allocated overhead from the General Partner increased $447,337, or approximately 18 percent, from $2,517,063 in 1991 to $2,964,400 in 1992. The increase was due to the increase in revenues, upon which such fees and allocations are based, and the increase in allocated expenses from the General Partner. Depreciation and amortization increased $411,513, or approximately 5 percent, from $8,003,545 in 1991 to $8,415,058 in 1992 due to capital additions during 1991. Operating income increased $731,352, or approximately 61 percent, from $1,205,903 in 1991 to $1,937,255 in 1992 due to the increase in revenue exceeding the increases in operating, general and administrative expenses, management fees and allocated overhead from the General Partner and depreciation and amortization expense. Operating income before depreciation and amortization increased $1,142,865, or approximately 12 percent, from $9,209,448 in 1991 to $10,352,313 in 1992 due to the increase in revenues exceeding the increase in operating, general and administrative expenses, management fees and allocated overhead from the General Partner. Interest expense decreased $697,252, or approximately 19 percent, from $3,587,109 in 1991 to $2,889,857 in 1992 due primarily to lower effective interest rates on interest bearing obligations and a lower outstanding balance on Fund 12-B's credit facility. Loss before equity in net loss of cable television joint venture decreased $1,432,959, or approximately 61 percent, from $2,367,226 in 1991 to $934,267 in 1992 primarily due to the decrease in interest expense and increase in operating income. Such losses are the result of the factors discussed above. Financial Condition - ------------------- During 1993, capital expenditures totaled approximately $4,097,000 in Fund 12-B's Augusta System. Approximately 34 percent of these expenditures related to the construction of service drops to subscribers' homes. Approximately 26 percent of these expenditures related to the construction of new cable plant. The remaining expenditures were used for various system enhancements. Funding for these expenditures was provided by cash generated from operations. During 1994, Fund 12-B plans to expend approximately $4,290,000 for capital additions. Approximately $1,182,000, or approximately 28 percent, will be used to construct new cable plant. Approximately $1,573,000, or approximately 33 percent, will be used for the construction of service drops to subscribers homes. The remainder of the anticipated expenditures is for various enhancements in the Augusta System. Funding for these expenditures is expected to provided by cash on hand and cash generated from operations. The balance outstanding on Fund 12-B's credit facility as of December 31, 1993 was $43,650,000. On December 31, 1991, the then outstanding principal balance of $48,500,000 was converted to a term loan payable in 12 consecutive quarterly installments beginning March 31, 1992. The Partnership paid $2,910,000 in such installments during 1993. The balance of $43,650,000 is due and payable in 1994. Because Fund 12-B does not have cash on hand and will not generate sufficient cash from operations to repay the loan, the General Partner expects to refinance the credit facility or sell assets to enable Fund 12-B to repay this loan. The ability of the General Partner to refinance may be adversely affected by recent rate regulation discussed below. Interest on this agreement is at Fund 12-B's option of the base rate plus 1/2 percent, where base rate is defined as the greater of the Prime Rate or the Federal Funds Rate plus 1/2 percent, or the CD rate plus 1-5/8 percent or the London Interbank Offered rate plus 1-1/2 percent. On July 13, 1987, Fund 12-B entered into an interest rate cap agreement covering outstanding debt obligations of $10,000,000. The agreement protected Fund 12-B for interest rates that exceed 9-1/2 percent for five years from the date of the agreement and expired July 13, 1992. Assuming successful renegotiation of Fund 12-B's credit facility, of which there can be no assurance, the General Partner believes that Fund 12-B has sufficient sources of capital to meet its presently anticipated future needs. In addition to the Augusta System, which is 100 percent owned, Fund 12-B owns an approximate 9 percent interest in the Venture. Fund 12-B's investment in the Venture, accounted for under the equity method, decreased by $1,063,449 in 1993 to a deficit of $622,087. This decrease represents Fund 12-B's proportionate share of losses generated by the Venture. These losses are expected to continue during the coming year. Regulation and Legislation - -------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which became effective on December 4, 1992. This legislation has effected significant changes to the regulatory environment in which the cable television industry operates. The 1992 Cable Act generally allows for a greater degree of regulation of the cable television industry. Under the 1992 Cable Act's definition of effective 19 competition, nearly all cable television systems in the United States, including those owned and managed by the General Partner, are subject to rate regulation of basic cable services. In addition, the 1992 Cable Act allows 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. These regulations, with which Fund 12-B complied, became effective on September 1, 1993. See Item 1 for further discussion of the provisions of the 1992 Cable Act. Based on the General Partner's assessment of the FCC's rulemakings concerning rate regulation under the 1992 Cable Act, Fund 12-B reduced the rates it charged for certain regulated services. On an annualized basis, such rate reductions will result in an estimated reduction in Fund 12-B's revenue of approximately $1,500,000, or approximately 5 percent, and a decrease in operating income before depreciation and amortization of approximately $1,500,000, or approximately 2 percent. In addition, on February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. Based on the foregoing, the General Partner believes that the new rate regulations will not have a negative effect on Fund 12-B's revenues and operating income before depreciation and amortization. The General Partner has undertaken actions to mitigate a portion of these reductions primarily through (a) new service offerings, (b) product re-marketing and re-packaging and (c) marketing efforts directed at non-subscribers. To the extent such reductions are not mitigated, the value of Fund 12-B's cable television system, which is calculated based on cash flow, could be adversely impacted. In addition, such reductions could adversely effect the General Partner's ability to refinance Fund 12-B's credit facility. CABLE TV FUND 12-C ------------------ Results of Operations - --------------------- All of Cable TV Fund 12-C's ("Fund 12-C's") operations are represented by its approximate 15 percent interest in Cable TV Fund 12-BCD Venture (the "Venture"). Thus, Management's Discussion and Analysis of the Venture should be consulted for pertinent comments regarding Fund 12-C's performance. Financial Condition - ------------------- Fund 12-C's investment in the Venture has decreased by $1,769,867 when compared to the December 31, 1992 balance, representing a deficit of $1,035,256. This deficit is due to Fund 12-C's Share of Venture losses, which are principally the result of depreciation and amortization charges being greater than equity invested. These losses are expected to be recovered upon liquidation of the Venture. CABLE TV FUND 12-D ------------------ Results of Operations - --------------------- All of Cable TV Fund 12-D's ("Fund 12-D's") operations are represented by its approximate 76 percent interest in Cable TV Fund 12-BCD Venture (the "Venture"). Thus, Management's Discussion and Analysis of the Venture should be consulted for pertinent comments regarding Partnership performance. Financial Condition - ------------------- Fund 12-D's investment in the Venture has decreased by $8,751,100 when compared to the December 31, 1992 balance representing a deficit of $4,072,166. This deficit is due to Fund 12-D's share of Venture losses, which are principally the result of deprecation and amortization charges being greater than equity invested. These losses are expected to be recovered upon liquidation of the Venture. 20 CABLE TV FUND 12-BCD VENTURE ---------------------------- Results of Operations - --------------------- 1993 Compared to 1992 --------------------- Revenues of Cable TV Fund 12-BCD Venture (the "Venture") increased $5,564,003, or approximately 7 percent, from $83,567,527 in 1992 to $89,131,530 in 1993. Between December 31, 1992 and 1993, the Venture added 7,498 basic subscribers, an increase of approximately 4 percent. This increase in basic subscribers accounted for approximately 32 percent of the increase in revenues. Basic service rate adjustments were responsible for approximately 38 percent of the increase in revenues. Advertising sales revenue accounted for approximately 12 percent of the increase in revenues. Increases in pay per view revenue accounted for approximately 14 percent of the increase. The increase in revenues would have been greater but for the reduction in basic rates due to new basic rate regulation issued by the FCC in May 1993 with which the Venture complied effective September 1, 1993. In addition, on February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. No other single factor significantly affected the increase in revenues. Operating, general and administrative expenses in the Venture's systems increased $3,941,804, or approximately 8 percent, from $48,132,180 in 1992 to $52,073,984 in 1993. Operating, general and administrative expense represented 58 percent of revenue in 1993 and in 1992. The increase in operating, general and administrative expense was due to increases in subscriber related costs, programming fees and marketing related costs. No other single factor significantly affected the increase in operating, general and administrative expenses. Management fees and allocated overhead from Jones Intercable, Inc. increased $746,870, or approximately 8 percent, from $9,758,490 in 1992 to $10,505,360 in 1993 due to the increase in revenues, upon which such fees and allocations are based, and an increase in allocated expenses. Depreciation and amortization expense decreased $1,113,583, or approximately 4 percent, from $26,764,820 in 1992 to $25,651,237 in 1993. The decrease is due to the maturation of the Venture's asset base. The Venture recorded operating income of $900,949 for 1993 compared to an operating loss of $1,087,963 for 1992. This change is the result of increases in revenue and the decreases in depreciation and amortization expenses exceeding the increases in operating, general and administrative expenses and management fees and allocated overhead from Jones Intercable Inc. Operating income before depreciation and amortization increased $875,329, or approximately 3 percent, from $25,676,857 in 1992 to $26,552,186 in 1993. This increase is due to the increase in revenues exceeding the increase in operating, general, and administrative expenses and administrative fees and allocated overhead from Jones Intercable, Inc. Interest expense decreased $33,744, or less than 1 percent, from $12,022,874 in 1992 to $11,989,130 in 1993 due to lower interest rates on interest bearing obligations, which were offset, in part, by higher balances on such obligations. The Venture recorded other expense of $556,309 in 1993 compared to other expense of $2,708,833 in 1992. The 1992 expense primarily represented the Sunbelt litigation settlement as discussed in Note 6 of notes to financial statements of the Venture. The settlement was accrued by the Venture in 1992 and paid by the Venture in March 1993. Net loss decreased $3,299,949, or approximately 22 percent, from $14,884,365 in 1992 to $11,584,416 in 1993 due to the factors discussed above. These losses are expected to continue in the future. 1992 Compared to 1991 --------------------- Revenues of the Venture increased $5,518,022, or approximately 7 percent, from $78,049,505 in 1991 to $83,567,527 in 1992. Between December 31, 1991 and 1992, the Venture added 3,670 basic subscribers, an increase of approximately 2 percent. This increase in basic subscribers accounted for approximately 17 percent of the increase in revenues. Basic service rate adjustments were responsible for approximately 46 percent of the increase in revenues. Advertising sales revenue accounted for approximately 14 percent of the increase in revenues. Increases in equipment rental revenue accounted for approximately 13 percent of the increase. No other single factor significantly affected the increase in revenues. 21 Operating, general and administrative expenses in the Venture's systems increased $4,487,834, or approximately 10 percent, from $43,644,346 in 1991 to $48,132,180 in 1992. Operating, general and administrative expense represented 58 percent of revenue in 1992 compared to 56 percent in 1991. The increase in operating, general and administrative expense was due to increases in personnel related costs, programming fees and property taxes, which were partially offset by decreases in marketing related costs and copyright fees. No other single factor significantly affected the increase in operating, general and administrative expenses. Management fees and allocated overhead from Jones Intercable, Inc. increased $1,215,796, or approximately 14 percent, from $8,542,694 in 1991 to $9,758,490 in 1992 due to the increase in revenues, upon which such fees and allocations are based, and an increase in allocated expenses from Jones Intercable, Inc. Depreciation and amortization expense decreased $4,028,233, or approximately 13 percent, from $30,793,053 in 1991 to $26,764,820 in 1992. The decrease is due to the maturation of the Venture's asset base. Operating loss decreased $3,842,625, or approximately 78 percent, from $4,930,588 in 1991 to $1,087,963 in 1992 as a result of the increase in revenues and the decreases in depreciation and amortization exceeding the increases in operating, general and administrative expenses and management fees and allocated overhead from Jones Intercable, Inc. Interest expense decreased $898,899, or approximately 7 percent, from $12,921,773 in 1991 to $12,022,874 in 1992 due primarily to lower interest rates on interest bearing obligations, despite higher balances on such obligations. The Venture recorded other expense of $2,708,833 in 1992 compared to other income of $23,761 in 1991. This increase was due to the Sunbelt litigation settlement as discussed above. This settlement was paid by the Venture in March 1993. Net loss decreased $2,944,235, or approximately 17 percent, from $17,828,600 in 1991 to $14,884,365 in 1992 due primarily to the reductions in operating loss and interest expense which were offset, in part, by the litigation settlement discussed above. These losses are the result of the factors discussed above and are expected to continue in the future. Financial Condition - ------------------- Capital expenditures for the Venture totaled approximately $18,711,600 during 1993. Service drops to homes accounted for approximately 29 percent of the capital expenditures. Approximately 18 percent of these capital expenditures related to plant extensions in all of the Venture's systems. The completion of a rebuild of the Venture's Palmdale, California system accounted for approximately 17 percent of capital expenditures. Approximately 12 percent of capital expenditures was for fiber upgrades. The remaining expenditures related to various system enhancements. These capital expenditures were funded primarily from cash generated from operations and borrowings under the Venture's credit facility. Expected capital expenditures for 1994 are approximately $25,914,000. The upgrade of the Albuquerque, New Mexico system is expected to account for approximately 31 percent. Plant extensions in all of the Venture's systems are expected to account for approximately 15 percent. Service drops to homes are anticipated to account for approximately 23 percent. The remainder of the expenditures are for various system enhancements in all of the Venture's systems. Funding for these expenditures is expected to be provided by cash on hand, cash generated from operations and borrowings from the Venture's credit facility. Subject to the regulatory matters discussed below and assuming successful renegotiation of its credit facility, the Venture has sufficient sources of capital available in its ability to generate cash from operations and to borrow under its credit facility to meet its presently anticipated needs. During the first quarter of 1992, the Venture renegotiated its debt arrangements, which increased the maximum amount of debt available to $183,000,000. Such new debt arrangements consist of $93,000,000 of Senior Notes placed with a group of institutional lenders and a renegotiated $90,000,000 revolving credit agreement with a group of commercial bank lenders. The Venture used the funds from the Senior Notes to repay approximately $88,000,000 of the $155,000,000 outstanding on its previous credit facility and to repay advances from Intercable. The Venture used borrowings under its new credit facility to repay the remaining balance on its previous credit facility. The Senior Notes have a fixed interest rate of 8.64 percent and a final maturity date of March 31, 2000. The Senior Notes call for interest only payments for the first four years, with interest and accelerating amortization of principal payments for the next four years. Interest is payable semi- annually. The Senior Notes carry a "make-whole" premium, which is a prepayment penalty, if they are prepaid prior to maturity. The make-whole premium protects the lenders in the event that the funds are reinvested at a rate below 8.64 percent, and is calculated per the note agreement. 22 The Venture's current revolving credit facility has a maximum amount available of $90,000,000. As of December 31, 1993, $73,800,000 was outstanding under the Venture's revolving credit agreement, leaving the Venture with $16,200,000 of available borrowing capacity until March 31, 1994. The revolving credit period will expire on March 31, 1994, at which time the principal balance converts to a term loan payable in quarterly installments with a final maturity date of March 31, 2000. The General Partner is negotiating to to extend the revolving credit period for one year. Interest is at the Venture's option of LIBOR plus 1.25 percent to 1.75 percent, the CD rate plus 1.375 percent to 1.875 percent or the Base Rate plus 0 percent to .50 percent. An annual commitment fee of .5 percent is required on the unused portion of the facility until it converts to a term loan. Both lending facilities are equal in standing with the other, and both are equally secured by the assets of the Venture. Regulation and Legislation - -------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which became effective on December 4, 1992. This legislation has effected significant changes to the regulatory environment in which the cable television industry operates. The 1992 Cable Act generally allows for 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, are subject to rate regulation of basic cable services. In addition, the 1992 Cable Act allows 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. These regulations, with which the Venture complied, became effective on September 1, 1993. See Item 1 for further discussion of the provisions of the 1992 Cable Act. Based on Intercable's assessment of the FCC's rulemakings concerning rate regulation under the 1992 Cable Act, the Venture reduced the rates it charged for certain regulated services. On an annualized basis, such rate reductions will result in an estimated reduction in the Venture's revenue of approximately $4,500,000, or approximately 5 percent, and a decrease in operating income before depreciation and amortization of approximately $4,300,000, or approximately 10 percent. In addition, on February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. Based on the foregoing, the General Partner believes that the new rate regulations will have a negative effect on the Venture's revenues and operating income before depreciation and amortization. The General Partner has undertaken actions to mitigate a portion of these reductions primarily through (a) new service offerings, (b) product re-marketing and re-packaging and (c)marketing efforts directed at non-subscribers. To the extent such reductions are not mitigated, the values of the Venture's cable television systems, which are calculated based on cash flow, could be adversely impacted. The 1992 Cable Act contains new broadcast signal carriage requirements, and the FCC has adopted regulations implementing the statutory requirements. These new rules allow a local commercial broadcast television station to elect whether to demand that a cable system carry its signal or to require the cable system to negotiate with the station for "retransmission consent." Additionally, cable systems also are required to obtain retransmission consent from all "distant" commercial television stations (except for commercial satellite- delivered independent "superstations"), commercial radio stations and certain low-power television stations carried by cable systems. The retransmission consent rules went into effect on October 6, 1993. In the cable television system owned by the Venture, no broadcast stations withheld their consent to retransmission of their signal. Certain broadcast signals are being carried pursuant to extensions offered to the General Partner by broadcasters, including a one-year extension for carriage of the CBS station owned and operated by the CBS network in Chicago. The General Partner expects to conclude retransmission consent negotiations with those stations whose signals are being carried pursuant to extensions, without having to terminate the distribution of any of those signals. However, there can be no assurance that such will occur. If any broadcast station currently being carried pursuant to an extension is dropped, there could be a negative effect on the system if a significant number of subscribers were to disconnect their service. 23 Item 8. Financial Statements - ----------------------------- CABLE TV FUND 12 ---------------- FINANCIAL STATEMENTS -------------------- AS OF DECEMBER 31, 1993 AND 1992 -------------------------------- INDEX -----
Page -------------------------------------- 12-A 12-B 12-C 12-D 12-BCD Venture ---- ---- ---- ---- -------------- Report of Independent Public Accountants 25 38 50 57 71 Balance Sheets 26 39 51 58 72 Statements of Operations 28 41 52 60 74 Statements of Partners' Capital (Deficit) 29 42 53 61 75 Statements of Cash Flow 30 43 54 62 76 Notes to Financial Statements 31 44 55 63 77 Schedule V 36 48 - 69 82 Schedule VI 37 49 - 70 83
24 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Partners of Cable TV Fund 12-A: We have audited the accompanying balance sheets of CABLE TV FUND 12-A (a Colorado limited partnership) as of December 31, 1993 and 1992, and the related statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1993. These financial statements and the schedules referred to below are the responsibility of the General Partner's management. Our responsibility is to express an opinion on these financial statements and schedules 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 12-A as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index of financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Denver, Colorado, March 11, 1994. 25 CABLE TV FUND 12-A ------------------ (A Limited Partnership) BALANCE SHEETS --------------
December 31, --------------------------- ASSETS 1993 1992 ------ ------------ ------------ CASH $ 1,610,187 $ 1,599,111 TRADE RECEIVABLES, less allowance for doubtful receivables of $49,157 and $39,644 at December 31, 1993 and 1992, respectively 492,896 182,187 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 67,276,230 63,637,550 Less- accumulated depreciation (35,137,424) (29,537,024) ----------- ----------- 32,138,806 34,100,526 Franchise costs, net of accumulated amortization of $19,132,967 and $17,837,622 at December 31, 1993 and 1992, respectively 4,219,155 5,514,500 Subscriber lists, net of accumulated amortization of $11,013,590 and $10,090,679 at December 31, 1993 and 1992, respectively 597,275 1,520,186 ----------- ----------- Total investment in cable television properties 36,955,236 41,135,212 DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 239,671 155,099 ----------- ----------- Total assets $ 39,297,990 $ 43,071,609 =========== ===========
The accompanying notes to financial statements are an integral part of these balance sheets. 26 CABLE TV FUND 12-A ------------------ (A Limited Partnership) BALANCE SHEETS --------------
December 31, --------------------------- LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1993 1992 - ------------------------------------------- ------------ ------------ LIABILITIES: Debt $ 29,724,530 $ 32,813,067 Accounts payable- Trade 36,877 277 General Partner 220,722 261,348 Accrued liabilities 1,109,852 1,327,722 Subscriber prepayments 175,959 229,419 ----------- ----------- Total liabilities 31,267,940 34,631,833 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 6) PARTNERS' CAPITAL (DEFICIT): General Partner- Contributed capital 1,000 1,000 Accumulated deficit (368,208) (364,111) ----------- ----------- (367,208) (363,111) ----------- ----------- Limited Partners- Net contributed capital (104,000 units outstanding at December 31, 1993 and 1992) 44,619,655 44,619,655 Accumulated deficit (36,222,397) (35,816,768) ----------- ----------- 8,397,258 8,802,887 ----------- ----------- Total liabilities and partners' capital (deficit) $ 39,297,990 $ 43,071,609 =========== ===========
The accompanying notes to financial statements are an integral part of these balance sheets. 27 CABLE TV FUND 12-A ------------------ (A Limited Partnership) STATEMENTS OF OPERATIONS ------------------------
Year Ended December 31, ------------------------------------------- 1993 1992 1991 ----------- ----------- ----------- REVENUES $28,963,726 $26,693,028 $24,322,600 COSTS AND EXPENSES: Operating, general and administrative 16,484,631 15,492,913 13,842,614 Management fees and allocated overhead from General Partner 3,442,078 3,156,916 2,700,718 Depreciation and amortization 7,840,193 7,528,805 9,042,280 ---------- ---------- ---------- OPERATING INCOME (LOSS) 1,196,824 514,394 (1,263,012) ---------- ---------- ---------- OTHER INCOME (EXPENSE): Interest expense (1,562,312) (1,864,954) (2,650,755) Other, net (44,238) (232,887) 14,925 ---------- ---------- ---------- Total other income (expense), net (1,606,550) (2,097,841) (2,635,830) ---------- ---------- ---------- NET LOSS $ (409,726) $(1,583,447) $(3,898,842) ========== ========== ========== ALLOCATION OF NET LOSS: General Partner $ (4,097) $ (15,834) $ (38,988) ========== ========== ========== Limited Partners $ (405,629) $(1,567,613) $(3,859,854) ========== ========== ========== NET LOSS PER LIMITED PARTNERSHIP UNIT $ (3.90) $ (15.07) $ (37.11) ========== ========== ========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 104,000 104,000 104,000 ========== ========== ==========
The accompanying notes to financial statements are an integral part of these statements. 28 CABLE TV FUND 12-A ------------------ (A Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) -----------------------------------------
Year Ended December 31, -------------------------------------- 1993 1992 1991 ----------- ------------ ----------- GENERAL PARTNER: Balance, beginning of period $ (363,111) $ (347,277) $ (308,289) Net loss for period (4,097) (15,834) (38,988) --------- ---------- ---------- Balance, end of period $ (367,208) $ (363,111) $ (347,277) ========= ========== ========== LIMITED PARTNERS: Balance, beginning of period $8,802,887 $10,370,500 $14,230,354 Net loss for period (405,629) (1,567,613) (3,859,854) --------- ---------- ---------- Balance, end of period $8,397,258 $ 8,802,887 $ 10,370,500 ========= ========== ==========
The accompanying notes to financial statements are an integral part of these statements. 29 CABLE TV FUND 12-A ------------------ (A Limited Partnership) STATEMENTS OF CASH FLOWS ------------------------
Year Ended December 31, ---------------------------------------- 1993 1992 1991 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (409,726) $(1,583,447) $(3,898,842) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 7,840,193 7,528,805 9,042,280 Amortization of interest rate protection contract 49,991 15,675 94,050 Decrease (increase) in trade receivables (310,709) (103,360) 136,713 Increase in deposits, prepaid expenses and deferred charges (6,100) (267,995) (240,174) Increase (decrease) in amount due General Partner (40,626) 261,348 (375,488) Increase (decrease) in trade accounts payable, accrued liabilities and subscriber prepayments (234,730) 392,004 (610,779) --------- --------- --------- Net cash provided by operating activities 6,888,293 6,243,030 4,147,760 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (3,638,680) (3,428,106) (4,842,342) --------- --------- --------- Net cash used in investing activities (3,638,680) (3,428,106) (4,842,342) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 46,448 606,894 1,343,608 Repayment of debt (3,134,985) (2,084,999) (821,071) Purchase of interest rate protection contract (150,000) - - --------- --------- --------- Net cash provided by (used in) financing activities (3,238,537) (1,478,105) 522,537 --------- --------- --------- Increase (decrease) in cash 11,076 1,336,819 (172,045) Cash, beginning of period 1,599,111 262,292 434,337 --------- --------- --------- Cash, end of period $ 1,610,187 $ 1,599,111 $ 262,292 ========= ========= ========= SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 1,583,758 $ 1,751,207 $ 3,224,793 ========= ========= =========
The accompanying notes to financial statements are an integral part of these statements. 30 CABLE TV FUND 12-A ------------------ (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) ORGANIZATION AND PARTNERS' INTERESTS ------------------------------------ Formation and Business ---------------------- Cable TV Fund 12-A ("Fund 12-A"), a Colorado limited partnership, was formed on January 2, 1985, under a public program sponsored by Jones Intercable, Inc. Fund 12-A was formed to acquire, construct, develop and operate cable television systems. Jones Intercable, Inc., a publicly held Colorado corporation, is the "General Partner" and manages Fund 12-A. The General Partner and its subsidiaries also own and operate cable television systems. In addition, the General Partner manages cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities. Contributed Capital ------------------- The capitalization of Fund 12-A is set forth in the accompanying statements of partners' capital (deficit). No limited partner is obligated to make any additional contributions to partnership capital. The General Partner purchased its interest in Fund 12-A by contributing $1,000 to partnership capital. All profits and losses of Fund 12-A are allocated 99 percent to the limited partners and 1 percent to the General Partner, except for income or gain from the sale or disposition of cable television properties, which will be allocated to the partners based upon the formula set forth in the Partnership Agreement, and interest income earned prior to the first acquisition by Fund 12-A 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. Fund 12-A's tax returns are also prepared on the accrual basis. Property, Plant and Equipment ----------------------------- Depreciation of property, plant and equipment is provided primarily using the straight-line method over the following estimated service lives: Distribution systems 5 - 15 years Buildings 20 years Equipment and tools 3 - 5 years Premium television service equipment 5 years Earth receive stations 5 - 15 years Vehicles 3 years Other property, plant and equipment 5 years Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred. 31 Intangible Assets ----------------- Costs assigned to franchises and subscriber lists are being amortized using the straight-line method over the following remaining estimated useful lives: Franchise costs 1-6 years Subscriber lists 1-3 years 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 1993 presentation. (3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES ---------------------------------------------------- Brokerage Fees -------------- An affiliate of the General Partner performed brokerage services for Fund 12-A. For brokering the acquisition of cable television systems for Fund 12-A, The Jones Group, Ltd. is paid a fee equal to 4.5 percent of the purchase prices. The Jones Group, Ltd. brokered the acquisition of a SMATV system for Fund 12-A in 1991 and earned a fee of $37,000, or 4 percent of the acquisition price. No brokerage fees were paid by Fund 12-A in 1992 and 1993. Management Fees, Distribution Ratios and Reimbursements ------------------------------------------------------- The General Partner manages Fund 12-A and receives a fee for its services equal to 5 percent of the gross revenues of Fund 12-A, excluding revenues from the sale of cable television systems or franchises. Management fees for the years ended December 31, 1993, 1992 and 1991 were $1,448,186, $1,334,651 and $1,216,130, respectively. Any 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 the General Partner. Any distributions other than from cash flow, such as from the sale or refinancing of a 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 the General Partner. Fund 12-A reimburses the General Partner for certain allocated overhead and administrative expenses. 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 Fund 12-A. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to each partnership managed. Remaining overhead costs are allocated based on revenues and/or the cost of assets managed for the partnership. 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. Reimbursements by Fund 12-A to the General Partner for allocated overhead and administrative expenses were $1,993,892, $1,822,265 and $1,484,588 in 1993, 1992 and 1991, respectively. Fund 12-A was charged interest during 1993 an average interest rate of 10.61 percent on the amounts due the General Partner, which approximated the General Partner's weighted average cost of borrowing. Total interest charged Fund 12-A by the General Partner was $1,029, $-0- and $1,071 in 1993, 1992 and 1991, respectively. 32 Payments to Affiliates for Programming Services ----------------------------------------------- The Partnership receives programming from Superaudio and The Mind Extension University, affiliates of the General Partner. Payments to Superaudio totaled $45,495, $44,605 and $39,588 in 1993, 1992 and 1991, respectively. Payments to The Mind Extension University totaled $26,411, $25,559 and $24,313 in 1993, 1992 and 1991, respectively. (4) DEBT ----
Debt consists of the following: December 31, ------------------------- 1993 1992 ---------- --------- Lending institutions- Revolving credit and term loan $29,500,000 $32,500,000 Capital lease obligations 224,530 313,067 ---------- ---------- $29,724,530 $32,813,067 ========== ==========
Fund 12-A's credit facility's revolving credit period expired on June 30, 1992. The credit facility has been converted to a term loan payable in 20 consecutive quarterly installments. Fund 12-A repaid $3,000,000 of the outstanding balance during 1993. Principal payments required in 1994 are $4,500,000. Generally, interest is at Fund 12-A's option of prime plus 1/2 percent or a fixed rate defined as the CD Rate plus 1-1/4 percent or the Euro- Rate plus 1-1/4 percent. The effective interest rates on outstanding obligations as of December 31, 1993 and 1992 were 4.83 percent and 5.13 percent, respectively. On January 12, 1993, Fund 12-A entered into an interest rate cap agreement covering outstanding debt obligations of $15,000,000. Fund 12-A paid an initial fee of $150,000. The agreement protects Fund 12-A for interest rates that exceed 7 percent for three years from the date of the agreement and will be charged to interest expense over the life of the agreement using the straight- line method. Installments due on all debt principal for each of the five years in the period ending December 31, 1998, respectively, are: $4,567,359, $6,067,359, $7,567,359, $11,522,453, and $-0-. At December 31, 1993, substantially all of Fund 12-A's property, plant and equipment secured the above indebtedness. (5) INCOME TAXES ------------ Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. The Federal and state income tax returns of Fund 12-A are prepared and filed by the General Partner. Fund 12-A'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 Fund 12-A's recorded income or loss, the tax liability of the general and limited partners would likely be changed accordingly. Taxable loss reported to the partners is different from that reported in the statements of operations due to the difference in depreciation recognized under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable loss and the net loss reported in the statements of operations. 33 (6) COMMITMENTS AND CONTINGENCIES ----------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation in the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. The General Partner plans to mitigate a portion of these reductions primarily through (a) new service offerings, (b) product re-marketing and re- packaging and (c) marketing efforts directed at non-subscribers. The 1992 Cable Act contains new broadcast signal carriage requirements, and the FCC has adopted regulations implementing the statutory requirements. These new rules allow a local commercial broadcast television station to elect whether to demand that a cable system carry its signal or to require the cable system to negotiate with the station for "retransmission consent." Additionally, cable systems also are required to obtain retransmission consent from all "distant" commercial television stations (except for commercial satellite-delivered independent "superstations"), commercial radio stations and certain low-power television stations carried by cable systems. The retransmission consent rules went into effect on October 6, 1993. In the cable television systems owned by Fund 12-A, no broadcast stations withheld their consent to retransmission of their signal. Certain broadcast signals are being carried pursuant to extensions offered to the General Partner by broadcasters, including a one-year extension for carriage of the CBS station owned and operated by the CBS network in Chicago. The General Partner expects to conclude retransmission consent negotiations with those stations whose signals are being carried pursuant to extensions without having to terminate the distribution of any of those signals. However, there can be no assurance that such will occur. If any broadcast station currently being carried pursuant to an extension is dropped, there could be a negative effect on the system if a significant number of subscribers were to disconnect their service. Fund 12-A rents office and other facilities under various long-term operating lease arrangements. Rent paid under such lease arrangements totaled $74,142, $81,669 and $35,060, respectively, for the years ended December 31, 1993, 1992 and 1991. Minimum commitments for each of the five years in the period ending December 31, 1998, and thereafter are as follows: 1994 $57,220 1995 57,220 1996 47,683 1997 - 1998 - Thereafter - ------- $162,123 =======
34 (7) SUPPLEMENTARY PROFIT AND LOSS INFORMATION ----------------------------------------- Supplementary profit and loss information for the respective years is presented below:
Year Ended December 31, ---------------------------------- 1993 1992 1991 ---------- ---------- ---------- Maintenance and repairs $ 299,578 $ 282,340 $ 327,165 ========= ========= ========= Taxes, other than income and payroll taxes $ 331,358 $ 295,517 $ 290,604 ========= ========= ========= Advertising $ 433,250 $ 494,175 $ 398,798 ========= ========= ========= Depreciation of property, plant and equipment $5,621,938 $5,310,550 $4,830,202 ========= ========= ========= Amortization of intangible assets $2,218,256 $2,218,255 $4,212,078 ========= ========= =========
35 CABLE TV FUND 12-A ------------------ SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT ------------------------------------------ FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 ----------------------------------------------------
Column A Column B Column C Column D Column E Column F Balance at Balance at Beginning of Additions Sales and Other End of Classification Period at Cost Retirements Changes Period - -------------- ------------ ------------ ------------ ------------ ------------ Year Ended December 31, 1993 - ---------------------------- Distribution systems $47,804,628 $2,630,073 $ - $ - $50,434,701 Earth receive stations 2,505,230 100,609 - 2,605,839 Premium service equipment 6,724,202 384,062 (16,694) - 7,091,570 Equipment and tools 3,225,575 224,669 - - 3,450,244 Buildings 1,403,984 174,003 - - 1,577,987 Land 422,295 2,069 - - 424,364 Vehicles 372,382 - (5,000) - 367,382 Leasehold improvements and office furniture and equipment 1,179,254 144,889 - - 1,324,143 ---------- --------- ------- ------ ---------- $63,637,550 $3,660,374 $(21,694) $ - $67,276,230 ========== ========= ======= ====== ========== Year Ended December 31, 1992 - ---------------------------- Distribution systems $45,432,384 $2,372,244 $ - $ - $47,804,628 Earth receive stations 2,373,785 177,355 (45,910) - 2,505,230 Premium service equipment 6,313,961 518,675 (108,434) - 6,724,202 Equipment and tools 2,878,088 347,487 - - 3,225,575 Buildings 1,395,072 8,912 - - 1,403,984 Land 422,295 - - - 422,295 Vehicles 378,776 21,006 (27,400) - 372,382 Leasehold improvements and office furniture and equipment 1,015,083 164,171 - - 1,179,254 ---------- --------- -------- ------ ---------- $60,209,444 $3,609,850 $(181,744) $ - $63,637,550 ========== ========= ======== ====== ========== Year Ended December 31, 1991 - ---------------------------- Distribution systems $42,015,264 $3,417,120 $ - $ - $45,432,384 Earth receive stations 2,314,699 59,086 - - 2,373,785 Premium service equipment 5,606,889 917,934 (210,862) - 6,313,961 Equipment and tools 2,511,326 366,762 - - 2,878,088 Buildings 1,393,561 1,511 - - 1,395,072 Land 422,295 - - - 422,295 Vehicles 365,666 42,084 (28,974) - 378,776 Leasehold improvements and office furniture and equipment 737,402 277,681 - - 1,015,083 ---------- --------- -------- ------ ---------- $55,367,102 $5,082,178 $(239,836) $ - $60,209,444 ========== ========= ======== ====== ==========
36 CABLE TV FUND 12-A ------------------ SCHEDULE VI - ACCUMULATED DEPRECIATION OF ----------------------------------------- PROPERTY, PLANT AND EQUIPMENT ----------------------------- FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 ----------------------------------------------------
Column A Column B Column C Column D Column E Column F Balance at Amounts Balance at Beginning of Charged to Sales and Other End of Classification Period Expense Retirements Changes Period - -------------- ------------ ------------ ------------ ------------ ------------ Year Ended December 31, 1993 - ---------------------------- Distribution systems $20,776,045 $3,491,184 $ - $ - $24,267,229 Earth receive stations 1,223,248 198,217 - - 1,421,465 Premium service equipment 4,361,141 912,866 (16,538) - 5,257,469 Equipment and tools 1,680,165 763,082 - - 2,443,247 Buildings 514,352 71,293 - - 585,645 Land - - - - - Vehicles 294,355 43,586 (5,000) - 332,941 Leasehold improvements and office furniture and equipment 687,718 141,710 - - 829,428 ---------- --------- ------- -------- ---------- $29,537,024 $5,621,938 $(21,538) $ - $35,137,424 ========== ========= ======= ======== ========== Year Ended December 31, 1992 - ---------------------------- Distribution systems $16,995,924 $3,780,121 $ - $ - $20,776,045 Earth receive stations 1,069,753 192,597 (39,102) - 1,223,248 Premium service equipment 3,692,370 777,205 (108,434) - 4,361,141 Equipment and tools 1,333,329 346,836 - - 1,680,165 Buildings 444,578 69,774 - - 514,352 Land - - - - - Vehicles 284,438 37,317 (27,400) - 294,355 Leasehold improvements and office furniture and equipment 581,018 106,700 - - 687,718 ---------- --------- ------- -------- ---------- $24,401,410 $5,310,550 $(174,936) $ - $29,537,024 ========== ========= ======= ======== ========== Year Ended December 31, 1991 - ---------------------------- Distribution systems $13,814,626 $3,181,298 $ - $ - $16,995,924 Earth receive stations 903,376 166,377 - - 1,069,753 Premium service equipment 2,978,638 924,594 (210,862) - 3,692,370 Equipment and tools 976,806 356,523 - - 1,333,329 Buildings 374,397 70,181 - - 444,578 Land - - - - - Vehicles 263,284 50,128 (28,974) - 284,438 Leasehold improvements and office furniture and equipment 499,917 81,101 - - 581,018 ---------- --------- ------- -------- ---------- $19,811,044 $4,830,202 $(239,836) $ - $24,401,410 ========== ========= ======= ======== ==========
37 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Partners of Cable TV Fund 12-B: We have audited the accompanying balance sheets of CABLE TV FUND 12-B (a Colorado limited partnership) as of December 31, 1993 and 1992, and the related statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1993. These financial statements and the schedules referred to below are the responsibility of the General Partner's management. Our responsibility is to express an opinion on these financial statements and schedules 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 12-B as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index of financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Denver, Colorado, March 11, 1994. 38 CABLE TV FUND 12-B ------------------ (A Limited Partnership) BALANCE SHEETS --------------
December 31, -------------------------- ASSETS 1993 1992 ------ ----------- ----------- CASH $ 4,856,992 $ 3,404,867 TRADE RECEIVABLES, less allowance for doubtful receivables of $90,839 and $64,865 at December 31, 1993 and 1992, respectively 1,011,740 901,964 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 74,468,377 70,371,515 Less- accumulated depreciation (30,740,891) (24,540,588) ----------- ----------- 43,727,486 45,830,927 Franchise costs, net of accumulated amortization of $22,377,932 and $19,692,440 at December 31, 1993 and 1992, respectively 16,736,840 19,422,332 Investment in (loss in excess of investment in) cable television joint venture (622,087) 441,362 ----------- ----------- Total investment in cable television properties 59,842,239 65,694,621 DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 374,054 505,649 ----------- ----------- Total assets $66,085,025 $70,507,101 =========== ===========
The accompanying notes to financial statements are an integral part of these balance sheets. 39 CABLE TV FUND 12-B ------------------ (A Limited Partnership) BALANCE SHEETS --------------
December 31, --------------------------- LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1993 1992 - ------------------------------------------- ------------ ------------ LIABILITIES: Debt $ 43,831,074 $ 46,797,508 Accounts payable- Trade 136,325 19,995 General Partner 163,266 289,033 Accrued liabilities 1,091,860 1,044,342 Subscriber prepayments 124,535 154,279 ---------- ---------- Total liabilities 45,347,060 48,305,157 ---------- ---------- COMMITMENTS AND CONTINGENCIES (Note 6) PARTNERS' CAPITAL (DEFICIT): General Partner- Contributed capital 1,000 1,000 Accumulated deficit (271,470) (256,830) ---------- ---------- (270,470) (255,830) ---------- ---------- Limited Partners- Net contributed capital (111,035 units outstanding at December 31, 1993 and 1992) 47,645,060 47,645,060 Accumulated deficit (26,636,625) (25,187,286) ---------- ---------- 21,008,435 22,457,774 ---------- ---------- Total liabilities and partners' capital (deficit) $66,085,025 $70,507,101 ========== ==========
The accompanying notes to financial statements are an integral part of these balance sheets. 40 CABLE TV FUND 12-B ------------------ (A Limited Partnership) STATEMENTS OF OPERATIONS ------------------------
Year Ended December 31, -------------------------------------------- 1993 1992 1991 ----------- ----------- ------------ REVENUES $26,975,209 $25,369,064 $22,434,854 COSTS AND EXPENSES: Operating, general and administrative 13,054,665 12,052,351 10,708,343 Management fees and allocated overhead from General Partner 3,205,800 2,964,400 2,517,063 Depreciation and amortization 8,897,796 8,415,058 8,003,545 ----------- ----------- ----------- OPERATING INCOME 1,816,948 1,937,255 1,205,903 ----------- ----------- ----------- OTHER INCOME (EXPENSE): Interest expense (2,343,606) (2,889,857) (3,587,109) Other, net 126,128 18,335 13,980 ----------- ----------- ----------- Total other income (expense), net (2,217,478) (2,871,522) (3,573,129) ----------- ----------- ----------- LOSS BEFORE EQUITY IN NET LOSS OF CABLE TELEVISION JOINT VENTURE (400,530) (934,267) (2,367,226) EQUITY IN NET LOSS OF CABLE TELEVISION JOINT VENTURE (1,063,449) (1,366,385) (1,636,665) ----------- ----------- ----------- NET LOSS $(1,463,979) $(2,300,652) $(4,003,891) =========== =========== =========== ALLOCATION OF NET LOSS: General Partner $ (14,640) $ (23,007) $ (40,039) =========== =========== =========== Limited Partners $(1,449,339) $(2,277,645) $(3,963,852) =========== =========== =========== NET LOSS PER LIMITED PARTNERSHIP UNIT $(13.05) $(20.51) $(35.70) =========== =========== =========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 111,035 111,035 111,035 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 41 CABLE TV FUND 12-B ------------------ (A Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
Year Ended December 31, -------------------------------------------- 1993 1992 1991 ----------- ----------- ------------ GENERAL PARTNER: Balance, beginning of period $ (255,830) $ (232,823) $ (192,784) Net loss for period (14,640) (23,007) (40,039) ----------- ----------- ------------ Balance, end of period $ (270,470) $ (255,830) $ (232,823) =========== =========== =========== LIMITED PARTNERS: Balance, beginning of period $22,457,774 $24,735,419 $28,699,271 Net loss for period (1,449,339) (2,277,645) (3,963,852) ----------- ----------- ------------ Balance, end of period $21,008,435 $22,457,774 $24,735,419 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 42 CABLE TV FUND 12-B ------------------ (A Limited Partnership) STATEMENTS OF CASH FLOW
Year Ended December 31, -------------------------------------------- 1993 1992 1991 ----------- ----------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,463,979) $(2,300,652) $(4,003,891) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 8,897,796 8,415,058 8,003,545 Amortization of interest rate protection contract - 33,963 62,700 Equity in net loss of cable television joint venture 1,063,449 1,366,385 1,636,665 Decrease (increase) in trade receivables (109,776) (302,528) 210,445 Decrease (increase) in deposits, prepaid expenses and deferred charges 119,594 (409,048) (270,987) Increase (decrease) in trade accounts payable, accrued liabilities and subscriber prepayments 134,104 141,333 (1,039,933) Increase (decrease) in amount due General Partner (125,767) 73,264 (1,852,092) ----------- ----------- ----------- Net cash provided by operating activities 8,515,421 7,017,775 2,746,452 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (4,096,862) (3,840,518) (4,477,596) ----------- ----------- ----------- Net cash used in investing activities (4,096,862) (3,840,518) (4,477,596) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 74,766 162,465 3,622,884 Repayment of debt (3,041,200) (2,090,548) (130,036) ----------- ----------- ----------- Net cash provided by (used in) financing activities (2,966,434) (1,928,083) 3,492,848 ----------- ----------- ----------- Increase in cash 1,452,125 1,249,174 1,761,704 Cash, beginning of period 3,404,867 2,155,693 393,989 ----------- ----------- ----------- Cash, end of period $ 4,856,992 $ 3,404,867 $ 2,155,693 =========== =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 2,374,601 $ 2,606,651 $ 4,372,785 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 43 CABLE TV FUND 12-B ------------------ (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) ORGANIZATION AND PARTNERS' INTERESTS ------------------------------------ Formation and Business ---------------------- Cable TV Fund 12-B ("Fund 12-B"), a Colorado limited partnership, was formed on June 5, 1985, under a public program sponsored by Jones Intercable, Inc. Fund 12-B was formed to acquire, construct, develop and operate cable television systems. Jones Intercable, Inc., a publicly held Colorado corporation, is the "General Partner" and manages Fund 12-B. The General Partner and its subsidiaries also own and operate cable television systems. In addition, the General Partner manages cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities. In addition to the Augusta, Georgia cable television system, which it directly owns, Fund 12-B owns an approximate 9 percent interest in Cable TV Fund 12-BCD Venture (the "Venture"), through a capital contribution made to the Venture in April 1986 of $12,437,500. The Venture acquired certain cable television systems in New Mexico, California and Florida during 1986. The Venture incurred losses of $11,584,416, $14,884,365 and $17,828,600 in 1993, 1992 and 1991, respectively, of which $1,063,449, $1,366,385 and $1,636,665 was allocated to Fund 12-B during 1993, 1992 and 1991, respectively. Contributed Capital ------------------- The capitalization of Fund 12-B is set forth in the accompanying statements of partners' capital (deficit). No limited partner is obligated to make any additional contributions to partnership capital. The General Partner purchased its interest in Fund 12-B by contributing $1,000 to partnership capital. All profits and losses of Fund 12-B are allocated 99 percent to the limited partners and 1 percent to the General Partner, except for income or gain from the sale or disposition of cable television properties, which will be allocated to the partners based upon the formula set forth in the partnership agreement, and interest income earned prior to the first acquisition by Fund 12-B 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. Fund 12-B's tax returns are also prepared on the accrual basis. Investment in Cable Television Joint Venture -------------------------------------------- Fund 12-B's investment in the Venture is accounted for under the equity method due to Fund 12-B's influence on the Venture as a General Partner. The operations of the Venture are significant to Fund 12-B and should be reviewed in conjunction with these financial statements. Reference is made to the accompanying financial statements of the Venture on pages 72 to 83. 44 Property, Plant and Equipment ----------------------------- Depreciation of property, plant and equipment is provided primarily using the straight-line method over the following estimated service lives: Distribution systems 12 years Buildings 20 years Equipment and tools 3 - 5 years Premium television service equipment 5 years Earth receive stations 5 - 8 years Vehicles 3 years Other property, plant and equipment 5 years Replacements, renewals and improvements are capitalized and maintenance and repairs are charged to expense as incurred. Intangible Assets ----------------- Cost assigned to franchises is being amortized using the straight-line method over the following remaining estimated useful lives: Franchise costs 5 - 10 years Revenue Recognition ------------------- Subscriber prepayments are initially deferred and recognized as revenue when earned. (3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES ---------------------------------------------------- Management Fees, Distribution Ratios and Reimbursements ------------------------------------------------------- The General Partner manages Fund 12-B and receives a fee for its services equal to 5 percent of the gross revenues of Fund 12-B, excluding revenues from the sale of cable television systems or franchises. Management fees for the years ended December 31, 1993, 1992 and 1991 (excluding Fund 12-B's nine percent interest in the Venture) were $1,348,760, $1,268,453 and $1,121,743, 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 the General Partner. Any distributions other than interest income on limited partnership subscriptions earned prior to the acquisition of the Fund 12-B's first cable television system or from cash flow, such as from the sale or refinancing of a system or upon dissolution of Fund 12-B, 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 by the limited partners; the balance, 75 percent to the limited partners and 25 percent to the General Partner. Fund 12-B reimburses 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 Fund 12-B. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to each partnership managed. Remaining overhead costs are allocated based on revenues and/or the cost of assets managed for the partnership. 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. Reimbursements by Fund 12-B to the General Partner for allocated overhead and administrative expenses (excluding Fund 12-B's nine percent interest in the Venture) were $1,857,040, $1,695,947, and $1,395,320 in 1993, 1992, and 1991, respectively. 45 Fund 12-B was charged interest during 1993 at an average interest rate of 10.61 percent on the amounts due the General Partner, which approximated the General Partner's weighted average cost of borrowing. Total interest charged Fund 12-B by the General Partner was $-0-, $29,205 and $205,339 in 1993, 1992 and 1991, respectively. Payments to Affiliates for Programming Services ----------------------------------------------- Fund 12-B receives programming from Superaudio and The Mind Extension University, affiliates of the General Partner. Payments to Superaudio totaled $40,882, $40,430 and $37,199 in 1993, 1992 and 1991, respectively. Payments to The Mind Extension University totaled $23,769, $23,165 and $22,831 in 1993, 1992 and 1991, respectively. (4) DEBT ----
Debt consists of the following: December 31, ------------------------- 1993 1992 ----------- ------------ Lending institutions- Revolving credit and term loan $43,650,000 $46,560,000 Capital lease obligations 181,074 237,508 ----------- ----------- $43,831,074 $46,797,508 =========== ===========
During August 1985, Fund 12-B entered into a revolving credit term loan with institutional lenders. In November 1991, the General Partner completed renegotiation of the agreement, which increased the maximum amount available to $50,000,000. On December 31, 1991, the then outstanding principal balance of $48,500,000 was converted to a term loan payable in 12 consecutive quarterly installments beginning March 31, 1992. The outstanding balance at December 31, 1993 was $43,650,000. This balance is due and payable in 1994. Because Fund 12-B does not have the cash on hand and will not generate sufficient cash from operations to repay the loan, the General Partner expects to refinance the credit facility or sell assets to enable Fund 12-B to repay this loan. Interest on this agreement is at Fund 12-B's option of the base rate plus 1/2 percent, where base rate is defined as the greater of the Prime Rate or the Federal Funds Rate plus 1/2 percent, or the CD rate plus 1-5/8 percent or the London Interbank offered rate plus 1-1/2 percent. The effective interest rates on outstanding obligations as of December 31, 1993 and 1992 were 4.98 percent and 5.28 percent, respectively. Installments due on debt principal for each of the five years in the period ending December 31, 1998, respectively, are: $43,704,322, $54,322, $54,322, $18,108 and $-0-. At December 31, 1993 substantially all of Fund 12-B's property, plant and equipment secured the above indebtedness. (5) INCOME TAXES ------------ Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners. The Federal and state income tax returns of Fund 12-B are prepared and filed by the General Partner. Fund 12-B'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 Fund 12-B's qualification as such, or in changes with respect to Fund 12-B's recorded income or loss, the tax liability of the general and limited partners would likely be changed accordingly. Taxable loss reported to the partners is different from that reported in the statements of operations due to the difference in depreciation recognized under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable loss and the net loss reported in the statements of operations. 46 (6) COMMITMENTS AND CONTINGENCIES ----------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation in the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. The General Partner plans to mitigate a portion of these reductions primarily through (a) new service offerings, (b) product re-marketing and re- packaging and (c) marketing efforts directed at non-subscribers. Fund 12-B rents office and other facilities under various long-term operating lease arrangements. Rent paid under such lease arrangements totaled $19,575, $19,351 and $16,377, respectively, for the years ended December 31, 1993, 1992 and 1991. Minimum commitments for each of the five years in the period ending December 31, 1998, and thereafter are as follows:
1994 $12,219 1995 6,019 1996 5,619 1997 3,600 1998 3,600 Thereafter 1,500 ------- $32,557 =======
(7) SUPPLEMENTARY PROFIT AND LOSS INFORMATION ----------------------------------------- Supplementary profit and loss information for the respective periods is presented below:
Year Ended December 31, ------------------------------------ 1993 1992 1991 ------------------------------------ Maintenance and repairs $ 151,258 $ 171,974 $ 190,821 ========== ========== ========== Taxes, other than income and payroll taxes $ 232,174 $ 224,415 $ 223,004 ========== ========== ========== Advertising $ 136,524 $ 165,447 $ 260,693 ========== ========== ========== Depreciation of property, plant and equipment $6,212,303 $5,729,566 $5,318,053 ========== ========== ========== Amortization of intangible assets $2,685,493 $2,685,492 $2,685,492 ========== ========== ==========
47 CABLE TV FUND 12-B ------------------ SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT ------------------------------------------ FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 ----------------------------------------------------
Column A Column B Column C Column D Column E Column F Balance at Balance at Beginning of Additions Sales and Other End of Classification Period at Cost Retirements Changes Period - -------------- ------------ --------- ----------- -------- ---------- Year Ended December 31, 1993 - ---------------------------- Distribution systems $65,563,791 $3,799,955 $ - $ - $69,363,746 Earth receive stations 1,753,994 57,481 - - 1,811,475 Premium service equipment 46,848 - - - 46,848 Equipment and tools 860,133 182,591 - - 1,042,724 Buildings 638,475 - - - 638,475 Land 129,000 - - - 129,000 Vehicles 450,397 31,854 (12,000) - 470,251 Leasehold improvements and office furniture and equipment 928,877 36,981 - - 965,858 ----------- ---------- -------- ----------- ----------- $70,371,515 $4,108,862 $(12,000) $ - $74,468,377 =========== ========== ======== =========== =========== Year Ended December 31, 1992 - ---------------------------- Distribution systems $62,010,677 $3,591,546 $(38,432) $ - $65,563,791 Earth receive stations 1,665,352 88,642 - - 1,753,994 Premium service equipment 46,848 - - - 46,848 Equipment and tools 801,932 58,201 - - 860,133 Buildings 638,475 - - - 638,475 Land 129,000 - - - 129,000 Vehicles 442,599 73,020 (65,222) - 450,397 Leasehold improvements and office furniture and equipment 796,114 132,763 - - 928,877 ----------- ---------- -------- ----------- ----------- $66,530,997 $3,944,172 $(103,654) $ - $70,371,515 =========== ========== ======== =========== =========== Year Ended December 31, 1991 - ---------------------------- Distribution systems $57,867,525 $4,230,333 $(87,181) $ - $62,010,677 Earth receive stations 1,644,740 20,612 - - 1,665,352 Premium service equipment 26,248 20,600 - - 46,848 Equipment and tools 682,998 118,934 - - 801,932 Buildings 580,475 58,000 - - 638,475 Land 129,000 - - - 129,000 Vehicles 423,476 45,123 (26,000) - 442,599 Leasehold improvements and office furniture and equipment 698,939 97,175 - - 796,114 ----------- ---------- -------- ----------- ----------- $62,053,401 $4,590,777 $(113,181) $ - $66,530,997 =========== ========== ======== =========== ===========
48 CABLE TV FUND 12-B ------------------ SCHEDULE VI - ACCUMULATED DEPRECIATION OF ----------------------------------------- PROPERTY, PLANT AND EQUIPMENT ----------------------------- FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 ----------------------------------------------------
Column A Column B Column C Column D Column E Column F Balance at Amounts Balance at Beginning of Charged to Sales and Other End of Classification Period Expense Retirements Changes Period - -------------- ------------ ---------- ----------- -------- ---------- Year Ended December 31, 1993 - ---------------------------- Distribution systems $21,763,735 $5,737,499 $ - $ - $27,501,234 Earth receive stations 1,037,445 173,833 - - 1,211,278 Premium service equipment 30,264 4,651 - - 34,915 Equipment and tools 632,112 95,248 - - 727,360 Buildings 157,983 34,970 - - 192,953 Land - - - - - Vehicles 337,868 52,969 (12,000) - 378,837 Leasehold improvements and office furniture and equipment 581,181 113,133 - - 694,314 ----------- ---------- -------- ----------- ----------- $24,540,588 $6,212,303 $(12,000) $ - $30,740,891 =========== ========== ======== =========== =========== Year Ended December 31, 1992 - ---------------------------- Distribution systems $16,549,175 $5,244,899 $(30,339) $ - $21,763,735 Earth receive stations 848,494 188,951 - - 1,037,445 Premium service equipment 25,487 4,777 - - 30,264 Equipment and tools 536,192 95,920 - - 632,112 Buildings 123,013 34,970 - - 157,983 Land - - - - - Vehicles 351,907 51,183 (65,222) - 337,868 Leasehold improvements and office furniture and equipment 472,315 108,866 - - 581,181 ----------- ---------- -------- ----------- ----------- $18,906,583 $5,729,566 $(95,561) $ - $24,540,588 =========== ========== ======== =========== =========== Year Ended December 31, 1991 - ---------------------------- Distribution systems $11,770,394 $4,829,957 $(51,176) $ - $16,549,175 Earth receive stations 635,460 213,034 - - 848,494 Premium service equipment 24,487 1,000 - - 25,487 Equipment and tools 429,887 106,305 - - 536,192 Buildings 90,700 32,313 - - 123,013 Land - - - - - Vehicles 337,098 40,809 (26,000) - 351,907 Leasehold improvements and office furniture and equipment 377,680 94,635 - - 472,315 ----------- ---------- -------- ----------- ----------- $13,665,706 $5,318,053 $(77,176) $ - $18,906,583 =========== ========== ======== =========== ===========
49 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Partners of Cable TV Fund 12-C: We have audited the accompanying balance sheets of CABLE TV FUND 12-C (a Colorado limited partnership) as of December 31, 1993 and 1992, and the related statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1993. 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 12-C as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN & CO. Denver, Colorado, March 11, 1994. 50 CABLE TV FUND 12-C ------------------ (A Limited Partnership) BALANCE SHEETS --------------
December 31, ---------------------------- 1993 1992 ------------ ------------ ASSETS $ - $ - ============ ============ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) ------------------------------------------- LIABILITIES: Loss in excess of investment in (investment in) cable television joint venture $ 1,035,256 $ (734,611) Accounts payable-affiliated entities 159,137 159,137 ------------ ------------ TOTAL LIABILITIES 1,194,393 (575,474) ------------ ------------ PARTNERS' CAPITAL (DEFICIT): General Partner- Contributed capital 1,000 1,000 Accumulated deficit (217,340) (199,641) ------------ ------------ (216,340) (198,641) ------------ ------------ Limited Partners- Net contributed capital (47,626 units outstanding at December 31, 1993 and 1992) 19,998,049 19,998,049 Accumulated deficit (20,976,102) (19,223,934) ------------ ------------ (978,053) 774,115 ------------ ------------ Total liabilities and partners' capital (deficit) $ - $ - ============ ============
The accompanying notes to financial statements are an integral part of these balance sheets. 51 CABLE TV FUND 12-C ------------------ (A Limited Partnership) STATEMENTS OF OPERATIONS ------------------------
For the Year Ended December 31, ---------------------------------------------- 1993 1992 1991 ------------ ------------ ----------- EQUITY IN NET LOSS OF CABLE TELEVISION JOINT VENTURE $(1,769,867) $(2,274,033) $(2,723,854) ----------- ----------- ----------- NET LOSS $(1,769,867) $(2,274,033) $(2,723,854) =========== ============ =========== ALLOCATION OF NET LOSS: General Partner $ (17,699) $ (22,740) $ (27,239) =========== ============ ============ Limited Partners $(1,752,168) $(2,251,293) $(2,696,615) =========== ============ =========== NET LOSS PER LIMITED PARTNERSHIP UNIT $(36.79) $(47.27) $ (56.62) =========== ============ =========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 47,626 47,626 47,626 =========== ============ ===========
The accompanying notes to financial statements are an integral part of these statements. 52 CABLE TV FUND 12-C ------------------ (A Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) -----------------------------------------
For the Year Ended December 31, ---------------------------------------------- 1993 1992 1991 ------------ ------------ ----------- GENERAL PARTNER: Balance, beginning of period $ (198,641) $ (175,901) $ (148,662) Net loss for period (17,699) (22,740) (27,239) ----------- ----------- ----------- Balance, end of period $ (216,340) $ (198,641) $ (175,901) =========== =========== =========== LIMITED PARTNERS: Balance, beginning of period $ 774,115 $ 3,025,408 $ 5,722,023 Net loss for period (1,752,168) (2,251,293) (2,696,615) ----------- ----------- ----------- Balance, end of period $ (978,053) $ 774,115 $ 3,025,408 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 53 CABLE TV FUND 12-C ------------------ (A Limited Partnership) STATEMENTS OF CASH FLOWS ------------------------
For the Year Ended December 31, ---------------------------------------------- 1993 1992 1991 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(1,769,867) $(2,274,033) $(2,723,854) Adjustments to reconcile net loss to net cash provided by operating activities: Equity in net loss of cable television joint venture 1,769,867 2,274,033 2,723,854 ----------- ----------- ----------- Net cash provided by operating activities - - - ----------- ----------- ----------- Decrease in cash - - - ----------- ----------- ----------- Cash, beginning of period - - - ----------- ----------- ----------- Cash, end of period $ - $ - $ - =========== =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ - $ - $ - =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 54 CABLE TV FUND 12-C ------------------ (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) ORGANIZATION AND PARTNERS' INTERESTS ------------------------------------ Formation and Business ---------------------- Cable TV Fund 12-C ("Fund 12-C"), a Colorado limited partnership, was formed on October 9, 1985, under a public program sponsored by Jones Intercable, Inc. Fund 12-C was formed to acquire, construct, develop and operate cable television systems. Jones Intercable, Inc. is the "General Partner" and manager of Fund 12-C. The General Partner and its subsidiaries also own and operate cable television systems. In addition, the General Partner manages cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities. Fund 12-C owns an interest of approximately 15 percent in Cable TV Fund 12-BCD Venture (the "Venture"), through capital contributions made in 1986 of $20,700,000. The Venture acquired certain cable television systems in New Mexico, California, and Florida during 1986. The Venture incurred losses of $11,584,416, $14,884,365 and $17,828,600 in 1993, 1992 and 1991, respectively, of which $1,769,867, $2,274,033 and $2,723,854, respectively, were allocated to Fund 12-C. Contributed Capital ------------------- The capitalization of Fund 12-C is set forth in the accompanying statements of partners' capital (deficit). No limited partner is obligated to make any additional contributions to partnership capital. The General Partner purchased its interest in Fund 12-C by contributing $1,000 to partnership capital. All profits and losses of Fund 12-C are allocated 99 percent to the limited partners and 1 percent to the General Partner, except for income or gain from the sale or disposition of cable television properties, which will be allocated to the partners based upon the formula set forth in the Partnership Agreement, and interest income earned prior to the first acquisition by Fund 12-C 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. Fund 12-C's tax returns are also prepared on the accrual basis. Investment in Cable Television Joint Venture -------------------------------------------- The investment in the Venture is accounted for under the equity method due to Fund 12-C's influence on the Venture as a general partner. The operations of the Venture are significant to Fund 12-C and should be reviewed in conjunction with these financial statements. Reference is made to the accompanying financial statements of the Venture on pages 72 to 83. Reclassification ---------------- Certain prior period amounts have been reclassified to conform with the 1993 presentation. 55 (3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES ---------------------------------------------------- Management Fees and Distribution Ratios --------------------------------------- The General Partner manages Fund 12-C and the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. 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 the General Partner. Any distributions other than interest income on limited partnership subscriptions earned prior to the acquisition of Fund 12- C's first cable television system or from cash flow, such as from the sale or refinancing of a system or upon dissolution of the Fund 12-C, 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 by the limited partners; the balance, 75 percent to the limited partners and 25 percent to the General Partner. (4) 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 Fund 12-C are prepared and filed by the General Partner. Fund 12-C'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 Fund 12-C's qualification as such, or in changes with respect to Fund 12-C's recorded income or loss, the tax liability of the general and limited partners would likely be changed accordingly. Taxable loss reported to the partners is different from that reported in the statements of operations due to the difference in depreciation recognized under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable loss and the net loss reported in the statements of operations. 56 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Partners of Cable TV Fund 12-D: We have audited the accompanying consolidated balance sheets of CABLE TV FUND 12-D (a Colorado limited partnership) and subsidiary as of December 31, 1993 and 1992, and the related consolidated statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1993. These financial statements and the schedules referred to below are the responsibility of the General Partner's management. Our responsibility is to express an opinion on these financial statements and schedules 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 12-D as of December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index of financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Denver, Colorado, March 11, 1994. 57 CABLE TV FUND 12-D ------------------ (A Limited Partnership) CONSOLIDATED BALANCE SHEETS ---------------------------
December 31, --------------------------- ASSETS 1993 1992 ------------- ------------ CASH $ 1,962,657 $ 1,368,051 RECEIVABLES: Trade receivables, less allowance for doubtful receivables of $265,542 and $336,466 at December 31, 1993 and 1992, respectively 2,954,487 2,807,201 Affiliated entity 159,137 159,137 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 251,810,225 233,098,586 Less- accumulated depreciation (117,498,465) (99,076,588) ------------ ----------- 134,311,760 134,021,998 Franchise costs, net of accumulated amortization of $43,008,846 and $37,205,093 at December 31, 1993 and 1992, respectively 23,539,797 29,343,550 Subscriber lists, net of accumulated amortization of $32,420,504 and $31,498,364 at December 31, 1993 and 1992, respectively 322,802 1,244,942 Cost in excess of interests in net assets purchased, net of accumulated amortization of $1,128,284 and $975,812 at December 31, 1993 and 1992, respectively 4,928,144 5,080,616 ----------- ----------- Total investment in cable television properties 163,102,503 169,691,106 DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 1,491,768 1,529,125 ----------- ----------- Total assets $169,670,552 $175,554,620 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 58 CABLE TV FUND 12-D ------------------ (A Limited Partnership) ----------------------- CONSOLIDATED BALANCE SHEETS ---------------------------
December 31, --------------------------- LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1993 1992 - ------------------------------------------- ------------ ------------ LIABILITIES: Debt $ 167,698,697 $160,440,488 Accounts payable- Trade 830,408 136,497 General Partner 188,430 511,646 Accrued liabilities 6,003,390 7,879,332 Subscriber prepayments 679,136 731,750 ----------- ----------- Total liabilities 175,400,061 169,699,713 =========== =========== COMMITMENTS AND CONTINGENCIES (Note 6) MINORITY INTEREST IN JOINT VENTURE (1,657,343) 1,175,973 ----------- ----------- PARTNERS' CAPITAL (DEFICIT): General Partner- Contributed capital 1,000 1,000 Accumulated deficit (1,064,255) (976,744) ----------- ----------- (1,063,255) (975,744) ----------- ----------- Limited Partners- Net contributed capital (237,339 units outstanding at December 31, 1993 and 1992) 102,198,175 102,198,175 Accumulated deficit (105,207,086) (96,543,497) ----------- ----------- (3,008,911) 5,654,678 ----------- ----------- Total liabilities and partners' capital (deficit) $ 169,670,552 $175,554,620 =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets. 59 CABLE TV FUND 12-D ------------------ (A Limited Partnership) CONSOLIDATED STATEMENTS OF OPERATIONS -------------------------------------
Year Ended December 31, ------------------------------------------------ 1993 1992 1991 ------------ ------------ ------------ REVENUES $ 89,131,530 $ 83,567,527 $ 78,049,505 COSTS AND EXPENSES: Operating, general and administrative 52,073,984 48,132,180 43,644,346 Management fees and allocated overhead from Jones Intercable, Inc. 10,505,360 9,758,490 8,542,694 Depreciation and amortization 25,651,237 26,764,820 30,793,053 ----------- ----------- ----------- OPERATING INCOME (LOSS) 900,949 (1,087,963) (4,930,588) ----------- ----------- ----------- OTHER INCOME (EXPENSE): Interest expense (11,989,130) (12,022,874) (12,921,773) Gain on sale of assets - 935,305 - Other, net (496,235) (2,708,833) 23,761 ----------- ----------- ----------- Total other income (expense), net (12,485,365) (13,796,402) (12,898,012) ----------- ----------- ----------- CONSOLIDATED LOSS (11,584,416) (14,884,365) (17,828,600) MINORITY INTEREST IN CONSOLIDATED LOSS 2,833,316 3,640,418 4,360,519 ----------- ----------- ----------- NET LOSS $ (8,751,100) $(11,243,947) $(13,468,081) =========== =========== =========== ALLOCATION OF NET LOSS: General Partner $ (87,511) $ (112,439) $ (134,681) =========== =========== =========== Limited Partners $ (8,663,589) (11,131,508) $(13,333,400) =========== =========== =========== NET LOSS PER LIMITED PARTNERSHIP UNIT $ (36.50) $ (46.90) $ (56.18) =========== =========== =========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 237,339 237,339 237,339 =========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 60 CABLE TV FUND 12-D ------------------ (A Limited Partnership) CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) ------------------------------------------------------
Year Ended December 31, - -------------------------------------------------------------------------------- 1993 1992 1991 ------------ ------------- ------------- GENERAL PARTNER: Balance, beginning of period $ (975,744) $ (863,305) $ (728,624) Net loss for period (87,511) (112,439) (134,681) ----------- ------------ ------------ Balance, end of period $(1,063,255) $ (975,744) $ (863,305) =========== ============ ============ LIMITED PARTNERS: Balance, beginning of period $ 5,654,678 $ 16,786,186 $ 30,119,586 Net loss for period (8,663,589) (11,131,508) (13,333,400) ----------- ------------ ------------ Balance, end of period $(3,008,911) $ 5,654,678 $ 16,786,186 =========== ============ ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 61 CABLE TV FUND 12-D ------------------ (A Limited Partnership) CONSOLIDATED STATEMENTS OF CASH FLOWS -------------------------------------
Year Ended December 31, ---------------------------------------------- 1993 1992 1991 ------------- -------------- ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (8,751,100) $ (11,243,947) $(13,468,081) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 25,651,237 26,764,820 30,793,053 Gain on sale of cable television system - (935,305) - Minority interest in consolidated net loss (2,833,316) (3,640,418) (4,360,519) Amortization of interest rate protection contract - 263,574 348,192 Amortization of loan fees 121,062 90,797 - Increase in trade receivables (147,286) (457,715) (72,133) Increase in deposits, prepaid expenses and deferred charges (434,700) (2,155,866) (209,151) Increase (decrease) in trade accounts payable, accrued liabilities and subscriber prepayments (1,234,645) 4,390,946 (1,787,102) Increase (decrease) in amount due General Partner (323,216) (4,095,194) 3,378,422 ------------ ------------- ------------ Net cash provided by operating activities 12,048,036 8,981,692 14,622,681 ------------ ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (18,711,639) (15,777,221) (19,972,510) Proceeds from the sale of cable television system - 2,620,000 - ------------ ------------- ------------ Net cash used in investing activities (18,711,639) (13,157,221) (19,972,510) ------------ ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 11,954,437 164,830,973 5,915,549 Repayment of debt (4,696,228) (160,522,104) (835,359) ------------ ------------- ------------ Net cash provided by financing activities 7,258,209 4,308,869 5,080,190 ------------ ------------- ------------ Increase (decrease) in cash 594,606 133,340 (269,639) Cash, beginning of period 1,368,051 1,234,711 1,504,350 ------------ ------------- ------------ Cash, end of period $ 1,962,657 $ 1,368,051 $ 1,234,711 ============ ============= ============ SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 12,141,838 $ 9,805,956 $ 14,952,117 ============ ============= ============
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements. 62 CABLE TV FUND 12-D ------------------ (A Limited Partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ (1) ORGANIZATION AND PARTNERS' INTERESTS ------------------------------------ Formation and Business ---------------------- Cable TV Fund 12-D ("Fund 12-D"), a Colorado limited partnership, was formed on February 5, 1986, under a public program sponsored by Jones Intercable, Inc. Fund 12-D was formed to acquire, construct, develop and operate cable television systems. Jones Intercable, Inc., is the "General Partner" and manager of Fund 12-D. The General Partner and its subsidiaries also own and operate cable television systems. In addition, the General Partner manages cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities. Contributed Capital ------------------- The capitalization of Fund 12-D is set forth in the accompanying consolidated statements of partners' capital (deficit). No limited partner is obligated to make any additional contributions to partnership capital. The General Partner purchased its interest in Fund 12-D by contributing $1,000 to partnership capital. All profits and losses of Fund 12-D are allocated 99 percent to the limited partners and 1 percent to the General Partner, except for income or gain from the sale or disposition of cable television properties, which will be allocated to the partners based upon the formula set forth in the Partnership Agreement, and interest income earned prior to the first acquisition by Fund 12- D of a cable television system, which was allocated 100 percent to the limited partners. Formation of Joint Venture and Venture Acquisitions and Sales ------------------------------------------------------------- On March 17, 1986, Funds 12-B, 12-C and 12-D formed Cable TV Fund 12- BCD Venture (the "Venture"). The Venture was formed for the purpose of acquiring certain cable television systems. The Venture owns and operates the cable television systems serving certain areas in and around Albuquerque, New Mexico; Palmdale, California; and Tampa, Florida. On September 20, 1991, the Venture entered into a purchase and sale agreement with an unaffiliated party to sell the cable television system serving the area in and around California City, California for $2,620,000. Closing on this transaction occurred on April 1, 1992. The proceeds were used to repay a portion of the amounts outstanding under the Venture's credit facility. The Venture's acquisitions were accounted for as purchases with the individual purchase prices allocated to tangible and intangible assets based upon an independent appraisal. The method of allocation of purchase price was as follows: first, to the fair value of the net tangible assets acquired; second, to the value of subscriber lists; third, to franchise costs; and fourth, to cost in excess of interests in net assets purchased. Brokerage fees paid to an affiliate of the General Partner and other system acquisition costs were capitalized and included in the cost of intangible assets. 63 (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ------------------------------------------ Accounting Records ------------------ The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in accordance with generally accepted accounting principles. Fund 12-D's tax returns are also prepared on the accrual basis. Principles of Consolidation --------------------------- The accompanying consolidated financial statements include 100 percent of the accounts of Fund 12-D and those of the Venture reduced by the approximate 24 percent minority interest in the Venture. All inter-partnership accounts and transactions have been eliminated. Property, Plant and Equipment ----------------------------- Depreciation is provided using the straight-line method over the following estimated service lives: Distribution systems 5 - 15 years Buildings 20 years Equipment and tools 3 - 5 years Premium television service equipment 5 years Earth receive stations 5 - 15 years Vehicles 3 years Other property, plant and equipment 5 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 and cost in excess of interests in net assets purchased are amortized using the straight-line method over the following remaining estimated useful lives: Franchise costs 3 years Subscriber lists 1 year Costs in excess of interests in net assets purchased 32 years Revenue Recognition ------------------- Subscriber prepayments are initially deferred and recognized as ---------- ----------- --- --------- -------- --- ---------- -- revenue when earned. - ------- ---- ------- (3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES ---------------------------------------------------- Brokerage Fees -------------- The Jones Group, Ltd., an affiliate of the General Partner, performs brokerage services for the Venture in connection with Venture acquisitions and sales. For brokering two acquisitions in the Tampa System for the Venture, The Jones Group, Ltd. was paid fees totaling $13,120, or 4 percent of the transaction prices, during 1992. Additionally,The Jones Group, Ltd. received $65,500, or 2 percent of the transaction price, during 1992 for brokering a sale in the Palmdale System. For brokering the acquisitions of two SMATV systems in the Tampa System for the Venture, The Jones Group, Ltd. was paid fees totaling $55,400, or 4 percent of the original purchase prices, during 1991. There were no brokerage fees paid during the year ended December 31, 1993. 64 Management Fees, Distribution Ratios and Reimbursements ------------------------------------------------------- The General Partner manages Fund 12-D and the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. Management fees paid to the General Partner by the Venture were $4,456,577, $4,178,376 and $3,902,475 during 1993, 1992 and 1991, 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 the General Partner. Any distributions other than interest income on limited partnership subscriptions earned prior to the acquisition of Fund 12-D's first cable television or from cash flow, such as from the sale or refinancing of a 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 by the limited partners; the balance, 75 percent to the limited partners and 25 percent to the General Partner. The Venture reimburses the General Partner 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 Venture. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to each entity managed. Remaining overhead costs are allocated based on total revenues and/or assets managed for the partnership. 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 is reasonable. Overhead and administrative expenses allocated to the Venture by the General Partner were $6,048,783, $5,580,114 and $4,640,219 in 1993, 1992 and 1991, respectively. The Venture was charged interest during 1993 at an average interest rate of 10.61 percent on the amounts due the General Partner, which approximated the General Partner's weighted average cost of borrowing. Total interest charged the Venture by the General Partner was $15,477, $126,073 and $171,942 in 1993, 1992 and 1991, respectively. Payments to Affiliates for Programming Services ----------------------------------------------- The Venture receives programming from Superaudio and The Mind Extension University, affiliates of the General Partner. Payments to Superaudio totaled $134,179, $132,091 and $120,851 in 1993, 1992 and 1991, respectively. Payments to The Mind Extension University totaled $79,002, $76,676, and $72,218 in 1993, 1992 and 1991, respectively. (4) DEBT ----
Debt consists of the following: December 31, --------------------------- 1993 1992 ------------ ------------ Lending institutions- Revolving credit and term loan $ 73,800,000 $ 66,400,000 Senior secured notes 93,000,000 93,000,000 Capital lease obligations 898,697 1,040,488 ------------ ------------ $167,698,697 $160,440,488
65 During the first quarter of 1992, the Venture renegotiated its debt arrangements, which increased the maximum amount of debt available to $183,000,000. The Venture's arrangements consist of $93,000,000 of Senior Notes placed with a group of institutional lenders and a $90,000,000 revolving credit agreement with a group of commercial bank lenders. The Senior Notes have a fixed interest rate of 8.64 percent and a final maturity date of March 31, 2000. The Senior Notes call for interest only payments for the first four years, with interest and accelerating amortization of principal payments for the next four years. Interest is payable semi-annually. The Senior Notes carry a "make-whole" premium, which is a prepayment penalty, if they are prepaid prior to maturity. The make-whole premium protects the lenders in the event that the funds are reinvested at a rate below 8.64 percent, and is calculated per the note agreement. The Venture's current revolving credit facility has a maximum amount available of $90,000,000. As of December 31, 1993, $73,800,000 was outstanding under the current revolving credit agreement, leaving the Venture with $16,200,000 of available borrowing capacity until March 31, 1994. The revolving credit period is scheduled to expire on March 31, 1994, at which time the principal balance will convert to a term loan payable in quarterly installments with a final maturity date of March 31, 2000. The General Partner is negotiating to extend the revolving credit period for one year. Interest is at the Venture's option of LIBOR plus 1.25 percent to 1.75 percent, the CD rate plus 1.375 percent to 1.875 percent or the Base Rate plus 0 percent to .50 percent. An annual commitment fee of .5 percent is required on the unused portion of the facility. The effective interest rates on amounts outstanding on the Venture's revolving credit facility as of December 31, 1993 and 1992 were 5.08 percent and 5.29 percent, respectively. Both lending facilities are equal in standing with the other, and both are equally secured by the assets of the Venture. During 1992, the Venture incurred costs associated with renegotiating its debt arrangements. These fees were capitalized and are being amortized over the life of the debt agreements. During 1988, the Venture entered into an interest rate cap agreement covering outstanding debt obligations of an additional $25,000,000. The Venture paid a fee of $957,500. The agreement protects the Venture from interest rates that exceed 10 percent for five years from the date of the agreement. The fee was charged to interest expense over the life of this agreement using the straight-line method. Installments due on debt principal for each of the five years in the period ending December 31, 1998 and thereafter, respectively, are: $2,262,209, $4,697,609, $7,945,609, $30,201,870, $36,681,000 and $85,910,400, respectively. (5) INCOME TAXES ------------ Income taxes have not been recorded in the accompanying consolidated financial statements because they accrue directly to the partners. The Federal and state income tax returns of Fund 12-D are prepared and filed by the General Partner. Fund 12-D'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 Fund 12-D's qualification as such, or in changes with respect to the Fund 12-D's recorded income or loss, the tax liability of the general and limited partners would likely be changed accordingly. 66 Taxable losses reported to the partners is different from that reported in the consolidated 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 losses reported in the consolidated statements of operations. (6) COMMITMENTS AND CONTINGENCIES ----------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation in the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. The General Partner plans to mitigate a portion of these reductions primarily through (a) new service offerings, (b) product re-marketing and re-packaging and (c) marketing efforts directed at non-subscribers. The 1992 Cable Act contains new broadcast signal carriage requirements, and the FCC has adopted regulations implementing the statutory requirements. These new rules allow a local commercial broadcast television station to elect whether to demand that a cable system carry its signal or to require the cable system to negotiate with the station for "retransmission consent." Additionally, cable systems also are required to obtain retransmission consent from all "distant" commercial television stations (except for commercial satellite-delivered independent "superstations"), commercial radio stations and certain low-power television stations carried by cable systems. The retransmission consent rules went into effect on October 6, 1993. In the cable television systems owned by the Venture, no broadcast stations withheld their consent to retransmission of their signal. Certain broadcast signals are being carried pursuant to extensions offered to the General Partner by broadcasters, including a one-year extension for carriage of the CBS station owned and operated by the CBS network in Chicago. The General Partner expects to conclude retransmission consent negotiations with those stations whose signals are being carried pursuant to extensions, without having to terminate the distribution of any of those signals. However, there can be no assurance that such will occur. If any broadcast station currently being carried pursuant to an extension is dropped, there could be a negative effect on the system if a significant number of subscribers were to disconnect their service. In February 1993, the General Partner entered into a settlement agreement related to litigation brought by Sunbelt Television, Inc. against the Venture in the amount of $2,850,000. As of December 31, 1992, the Venture had accrued $2,850,000, which was reflected as an increase in other expense in the 1992 statement of operations. This settlement was paid by the Venture in March 1993. Office and other facilities are rented under various long-term lease arrangements. Rent paid under such lease arrangements totaled $454,229, $450,295, $345,994, respectively, for the years ended December 31, 1993, 1992 and 1991. Minimum commitments under operating leases for the five years in the period ending December 31, 1998 and thereafter are as follows:
1994 $ 504,514 1995 463,103 1996 457,600 1997 460,542 1998 463,879 Thereafter 1,927,432 --------- $4,277,070 =========
67 (7) SUPPLEMENTARY PROFIT AND LOSS INFORMATION ----------------------------------------- Supplementary profit and loss information for the respective years is presented below:
Year Ended December 31, --------------------------------------- 1993 1992 1991 ------------ ----------- ------------ Maintenance and repairs $ 1,119,086 $ 1,146,319 $ 1,594,607 ========== ========== ========== Taxes, other than income and payroll taxes $ 1,470,476 $ 1,369,852 $ 956,021 ========== ========== ========== Advertising $ 1,022,289 $ 1,090,075 $ 1,628,016 ========== ========== ========== Depreciation of property, plant and equipment $18,772,872 $18,570,055 $21,023,337 ========== ========== ========== Amortization of intangible assets $ 6,878,365 $ 8,194,765 $ 9,769,716 ========== ========== ==========
68 CABLE TV FUND 12-D ------------------ SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT ------------------------------------------ FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 ----------------------------------------------------
Column A Column B Column C Column D Column E Column F Balance at Balance at Beginning of Additions Sales and Other End of Classification Period at cost Retirements Changes Period - --------------- ------------ --------- ----------- --------- ----------- Year Ended December 31, 1993 - ---------------------------- Cable distribution systems $189,435,971 $12,539,504 $(41,121) $ - $201,934,354 Buildings 3,371,225 3,034,287 - - 6,405,512 Land 950,970 - - - 950,970 Equipment and tools 6,275,189 1,113,443 (8,500) - 7,380,132 Premium service equipment 20,877,905 1,234,276 (178,920) - 21,933,261 Earth receive stations 8,812,762 817,322 - - 9,630,084 Vehicles 1,493,037 153,873 (124,738) - 1,522,172 Leasehold improvements and office furniture and equipment 1,881,527 172,213 - - 2,053,740 ----------- ---------- --------- ------ ----------- $233,098,586 $19,064,918 $(353,279) $ - $251,810,225 =========== ========== ========= ====== =========== Year Ended December 31, 1992 - ---------------------------- Cable distribution systems $177,877,168 $13,115,117 $(1,556,314) $ - $189,435,971 Buildings 2,914,286 456,939 - - 3,371,225 Land 947,191 3,779 - - 950,970 Equipment and tools 5,332,647 942,542 - - 6,275,189 Premium service equipment 19,840,474 2,162,551 (1,125,120) - 20,877,905 Earth receive stations 8,614,900 206,365 (8,503) - 8,812,762 Vehicles 1,608,840 138,020 (253,823) - 1,493,037 Leasehold improvements and office furniture and equipment 1,760,955 120,572 - - 1,881,527 ----------- ---------- ----------- ------ ----------- $218,896,461 $17,145,885 $(2,943,760)/1/ $ - $233,098,586 =========== ========== =========== ====== =========== Year Ended December 31, 1991 - ---------------------------- Cable distribution systems $159,934,019 $17,958,119 $ (14,970) $ - $177,877,168 Buildings 2,807,534 106,752 - - 2,914,286 Land 947,191 - - - 947,191 Equipment and tools 4,526,523 807,124 (1,000) - 5,332,647 Premium service equipment 19,443,407 397,067 - - 19,840,474 Earth receive stations 8,057,118 1,033,906 (476,124) - 8,614,900 Vehicles 1,589,605 153,235 (134,000) - 1,608,840 Leasehold improvements and office furniture and equipment 1,618,554 142,401 - - 1,760,955 ----------- ---------- ----------- ------ ----------- $198,923,951 $20,598,604 $ (626,094) $ - $218,896,461 =========== ========== =========== ====== ===========
/1/ Amount primarily represents the sale of the California City, California cable television system. 69 CABLE TV FUND 12-D ------------------ SCHEDULE VI - ACCUMULATED DEPRECIATION OF ----------------------------------------- PROPERTY, PLANT AND EQUIPMENT ----------------------------- FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 ----------------------------------------------------
Column A Column B Column C Column D Column E Column F Balance at Amounts Balance at Beginning of Charged to Sales and Other End of Classification Period Expense Retirements Changes Period - --------------- ------------ --------- ----------- --------- ----------- Year Ended December 31, 1993 - ---------------------------- Cable distribution systems $72,549,901 $14,946,872 $ (38,838) $ - $ 87,457,935 Buildings 824,315 182,593 - - 1,006,908 Land - - - - - Equipment and tools 3,596,758 889,966 (8,500) - 4,478,224 Premium service equipment 16,565,723 1,828,317 (178,920) - 18,215,120 Earth receive stations 2,847,094 617,343 - - 3,464,437 Vehicles 1,196,549 176,064 (124,737) - 1,247,876 Leasehold improvements and office furniture and equipment 1,496,248 131,717 - - 1,627,965 ----------- ---------- --------- ------ ----------- $99,076,588 $18,772,872 $(350,995) $ - $117,498,465 ========== ========== ======== ====== =========== Year Ended December 31, 1992 - ---------------------------- Cable distribution systems $58,787,289 $14,290,562 $(527,950) $ - $72,549,901 Buildings 675,849 148,466 - - 824,315 Land - - - - - Equipment and tools 2,789,084 807,674 - - 3,596,758 Premium service equipment 15,098,943 2,340,928 (874,148) - 16,565,723 Earth receive stations 2,241,552 608,565 (3,023) - 2,847,094 Vehicles 1,270,445 166,727 (240,623) - 1,196,549 Leasehold improvements and office furniture and equipment 1,289,115 207,133 - - 1,496,248 ----------- ----------- ---------- ------ ----------- $82,152,277 $18,570,055 $(1,645,744)/1/ $ - $99,076,588 ========== ========== ========== ====== ========== Year Ended December 31, 1991 Cable distribution systems $43,708,145 $15,094,114 $ (14,970) $ - $58,787,289 Buildings 534,179 141,670 - - 675,849 Land - - - - - Equipment and tools 1,908,874 881,219 (1,009) - 2,789,084 Premium service equipment 11,198,333 3,900,610 - - 15,098,943 Earth receive stations 1,805,466 568,573 (132,487) - 2,241,552 Vehicles 1,256,711 147,734 (134,000) - 1,270,445 Leasehold improvements and office furniture and equipment 999,698 289,417 - - 1,289,115 ----------- ----------- ---------- ------ ----------- $61,411,406 $21,023,337 $(282,466) $ - $ 82,152,277 ========== ========== ======== ====== ===========
/1/ Amount primarily represents the sale of the California City, California cable television system. 70 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Partners of Cable TV Fund 12-BCD Venture: We have audited the accompanying balance sheets of CABLE TV FUND 12- BCD VENTURE (a Colorado general partnership) as of December 31, 1993 and 1992, and the related statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1993. These financial statements and the schedules referred to below are the responsibility of the General Partners' management. Our responsibility is to express an opinion on these financial statements and schedules 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 12-BCD Venture as of December 31, 1993 and 1992, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the index of financial statements are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN & CO. Denver, Colorado, March 11, 1994. 71 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) BALANCE SHEETS --------------
December 31, ----------------------------- ASSETS 1993 1992 ------ ------------- ------------ CASH $ 1,962,657 $ 1,368,051 RECEIVABLES: Trade receivables, less allowance for doubtful receivables of $265,542 and $336,466 at December 31, 1993 and 1992, respectively 2,954,487 2,807,201 Affiliated entity 159,137 159,137 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 251,810,225 233,098,586 Less- accumulated depreciation (117,498,465) (99,076,588) ------------- ------------ 134,311,760 134,021,998 Franchise costs, net of accumulated amortization of $43,008,846 and $37,205,093 at December 31, 1993 and 1992, respectively 23,539,797 29,343,550 Subscriber lists, net of accumulated amortization of $32,420,504 and $31,498,364 at December 31, 1993 and 1992, respectively 322,802 1,244,942 Cost in excess of interests in net assets purchased, net of accumulated amortization of $1,128,284 and $975,812 at December 31, 1993 and 1992, respectively 4,928,144 5,080,616 ------------- ------------ Total investment in cable television properties 163,102,503 169,691,106 DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 1,491,768 1,529,125 ------------- ------------ Total assets $ 169,670,552 $175,554,620 ============= ============
The accompanying notes to financial statements are an integral part of these balance sheets. 72 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) BALANCE SHEETS --------------
December 31, ------------------------------ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1993 1992 - ------------------------------------------- ------------- -------------- LIABILITIES: Debt $ 167,698,697 $ 160,440,488 Accounts payable- Trade 830,408 136,497 Jones Intercable, Inc. 188,430 511,646 Accrued liabilities 6,003,390 7,879,332 Subscriber prepayments 679,136 731,750 ------------- ------------- Total liabilities 175,400,061 169,699,713 ------------- ------------- COMMITMENTS AND CONTINGENCIES (Note 6) PARTNERS' CAPITAL (DEFICIT): Contributed capital 135,490,944 135,490,944 Accumulated deficit (141,220,453) (129,636,037) ------------- ------------- (5,729,509) 5,854,907 ------------- ------------- Total liabilities and partners' capital (deficit) $ 169,670,552 $ 175,554,620 ============= =============
The accompanying notes to financial statements are an integral part of these balance sheets. 73 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) STATEMENTS OF OPERATIONS ------------------------
Year Ended December 31, ------------------------------------------- 1993 1992 1991 ------------ ------------ ------------- REVENUES $ 89,131,530 $ 83,567,527 $ 78,049,505 COSTS AND EXPENSES: Operating, general and administrative 52,073,984 48,132,180 43,644,346 Management fees and allocated overhead from Jones Intercable, Inc. 10,505,360 9,758,490 8,542,694 Depreciation and amortization 25,651,237 26,764,820 30,793,053 ------------ ------------ ------------ OPERATING INCOME (LOSS) 900,949 (1,087,963) (4,930,588) ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (11,989,130) (12,022,874) (12,921,773) Gain on sale of assets 60,074 935,305 - Other, net (556,309) (2,708,833) 23,761 ------------ ------------ ------------ Total other income (expense), net (12,485,365) (13,796,402) (12,898,012) ------------ ------------ ------------ NET LOSS $(11,584,416) $(14,884,365) $(17,828,600) ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. 74 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) -----------------------------------------
Year Ended December 31, --------------------------------------------- 1993 1992 1991 ------------ ------------ ------------ CABLE TV FUND 12-B (9%): Balance, beginning of period $ 441,362 $ 1,807,747 $ 3,444,412 Net loss for period (1,063,449) (1,366,385) (1,636,665) ------------ ------------ ------------ Balance, end of period $ (622,087) $ 441,362 $ 1,807,747 ============ ============ ============ CABLE TV FUND 12-C (15%): Balance, beginning of period $ 734,611 $ 3,008,644 $ 5,732,498 Net loss for period (1,769,867) (2,274,033) (2,723,854) ------------ ------------ ------------ Balance, end of period $ (1,035,256) $ 734,611 $ 3,008,644 ============ ============ ============ CABLE TV FUND 12-D (76%): Balance, beginning of period $ 4,678,934 $ 15,922,881 $ 29,390,962 Net loss for period (8,751,100) (11,243,947) (13,468,081) ------------ ------------ ------------ Balance, end of period $ (4,072,166) $ 4,678,934 $ 15,922,881 ============ ============ ============ TOTAL: Balance, beginning of period $ 5,854,907 $ 20,739,272 $ 38,567,872 Net loss for period (11,584,416) (14,884,365) (17,828,600) ------------ ------------ ------------ Balance, end of period $ (5,729,509) $ 5,854,907 $ 20,739,272 ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. 75 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) STATEMENTS OF CASH FLOWS ------------------------
Year Ended December 31, ----------------------------------------------------- 1993 1992 1991 -------------- -------------- -------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(11,584,416) $(14,884,365) $(17,828,600) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 25,651,237 26,764,820 30,793,053 Gain on sale of cable television system - (935,305) - Amortization of interest rate protection contract - 263,574 348,192 Amortization of loan fees 121,062 90,797 - Increase in trade receivables (147,286) (457,715) (72,133) Increase in deposits, prepaid expenses and deferred charges (434,700) (2,155,866) (209,151) Increase (decrease) in trade accounts payable, accrued liabilities and subscriber prepayments (1,234,645) 4,390,946 (1,787,102) Increase (decrease) in amount due Jones Intercable, Inc. (323,216) (4,095,194) 3,378,422 ------------ ------------ ------------ Net cash provided by operating activities 12,048,036 8,981,692 14,622,681 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (18,711,639) (15,777,221) (19,972,510) Proceeds from the sale of cable television system - 2,620,000 - ------------ ------------ ------------ Net cash used in investing activities (18,711,639) (13,157,221) (19,972,510) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 11,954,437 164,830,973 5,915,549 Repayment of debt (4,696,228) (160,522,104) (835,359) ------------ ------------ ------------ Net cash provided by financing activities 7,258,209 4,308,869 5,080,190 ------------ ------------ ------------ Increase (decrease) in cash 594,606 133,340 (269,639) Cash, beginning of period 1,368,051 1,234,711 1,504,350 ------------ ------------ ------------ Cash, end of period $ 1,962,657 $ 1,368,051 $ 1,234,711 ============ ============ ============ SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 12,141,838 $ 9,805,956 $ 14,952,117 ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. 76 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) ORGANIZATION AND PARTNERS' INTERESTS ------------------------------------ Formation and Business ---------------------- On March 17, 1986, Cable TV Funds 12-B, 12-C and 12-D (the "Venture Partners") formed Cable TV Fund 12-BCD Venture (the "Venture"). The Venture was formed for the purpose of acquiring certain cable television systems serving Tampa, Florida; Albuquerque, New Mexico; and Palmdale, California. Jones Intercable, Inc. ("Intercable"), the "General Partner" of each of the Venture Partners, manages the Venture. 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. Contributed Capital ------------------- The capitalization of the Venture is set forth in the accompanying statements of partners' capital. All Venture distributions, including those made from cash flow, from the sale or refinancing of Partnership property and on dissolution of the Venture, shall be made to the Venture Partners in proportion to their approximate respective interests in the Partnership as follows:
Cable TV Fund 12-B 9% Cable TV Fund 12-C 15% Cable TV Fund 12-D 76% ---- 100% ====
Venture Acquisitions and Sales ------------------------------ The Venture owns and operates the cable television systems serving certain areas in and around Albuquerque, New Mexico; Palmdale, California; and Tampa, Florida. On September 20, 1991, the Venture entered into a purchase and sale agreement with an unaffiliated party to sell the cable television system serving the area in and around California City, California for $2,620,000. Closing on this transaction occurred on April 1, 1992. The proceeds were used to repay a portion of the amounts outstanding under the Venture's credit facility. The Venture's acquisitions were accounted for as purchases with the individual purchase prices allocated to tangible and intangible assets based upon an independent appraisal. The method of allocation of purchase price was as follows: first, to the fair value of the net tangible assets acquired; second, to the value of subscriber lists; third, to franchise costs; and fourth, to cost in excess of interests in net assets purchased. Brokerage fees paid to an affiliate of Intercable and other system acquisition costs were capitalized and included in the cost of intangible assets. (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 Venture's tax returns are also prepared on the accrual basis. 77 Property, Plant and Equipment ----------------------------- Depreciation is provided using the straight-line method over the following estimated service lives:
Distribution systems 5 - 15 years Buildings 20 years Equipment and tools 3 - 5 years Premium television service equipment 5 years Earth receive stations 5 - 15 years Vehicles 3 years Other property, plant and equipment 5 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 and cost in excess of interests in net assets purchased are amortized using the straight-line method over the following remaining estimated useful lives:
Franchise costs 3 years Subscriber lists 1 year Cost in excess of interests in net assets purchased 32 years
Revenue Recognition ------------------- Subscriber prepayments are initially deferred and recognized as revenue when earned. (3) TRANSACTIONS WITH JONES INTERCABLE, INC. AND AFFILIATES ------------------------------------------------------- Brokerage Fees -------------- The Jones Group, Ltd., an affiliate of the General Partner, performs brokerage services for the Venture in connection with Venture acquisitions and sales. For brokering two acquisitions in the Tampa System for the Venture, The Jones Group, Ltd. was paid fees totaling $13,120, or 4 percent of the transaction prices, during 1992. Additionally, The Jones Group, Ltd. received $65,500, or 2.5 percent of the transaction price, during 1992 for brokering a sale in the Palmdale System. For brokering the acquisitions of two SMATV systems in the Tampa System for the Venture, The Jones Group, Ltd. was paid fees totaling $55,400, or 4 percent of the original purchase prices, during 1991. There were no brokerage fees paid during the year ended December 31, 1993. Management Fees and Reimbursements ---------------------------------- Intercable manages the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. Management fees paid to Intercable for the years ended December 31, 1993, 1992 and 1991 were $4,456,577, $4,178,376 and $3,902,475, respectively. The Venture 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 Venture. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to each entity managed. Remaining overhead costs are allocated based on total revenues and/or the cost of assets managed for the entity. 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 78 that the methodology used in allocating overhead and administrative expenses is reasonable. Overhead and administrative expenses allocated to the Venture by Intercable during the years ended December 31, 1993, 1992 and 1991 were $6,048,783, $5,580,114 and $4,640,219, respectively. The Venture was charged interest during 1993 at an average interest rate of 10.61 percent on the amounts due Intercable, which approximated Intercable's cost of borrowing. Total interest charged the Venture by Intercable was $15,477, $126,073 and $171,942 during 1993, 1992 and 1991, respectively. Payments to Affiliates for Programming Services ----------------------------------------------- The Venture receives programming from Superaudio and The Mind Extension University, affiliates of Intercable. Payments to Superaudio totaled $134,179, $132,091 and $120,851 in 1993, 1992, and 1991, respectively. Payments to The Mind Extension University totaled $79,002, $76,676 and $72,218 in 1993, 1992 and 1991, respectively. (4) DEBT ----
Debt consists of the following: December 31, --------------------------- 1993 1992 ------------ ------------ Lending institutions- Revolving credit and term loan $ 73,800,000 $ 66,400,000 Senior secured notes 93,000,000 93,000,000 Capital lease obligations 898,697 1,040,488 ------------ ------------ $167,698,697 $160,440,488 ============ ============
During the first quarter of 1992, the Venture renegotiated its debt arrangements, which increased the maximum amount of debt available to $183,000,000. The Venture's debt arrangements consist of $93,000,000 of Senior Notes placed with a group of institutional lenders and a $90,000,000 revolving credit agreement with a group of commercial bank lenders. The Senior Notes have a fixed interest rate of 8.64 percent and a final maturity date of March 31, 2000. The Senior Notes call for only interest payments for the first four years, with interest and accelerating amortization of principal payments for the next four years. Interest is payable semi-annually. The Senior Notes carry a "make-whole" premium, which is a prepayment penalty, if they are prepaid prior to maturity. The make-whole premium protects the lenders in the event that the funds are reinvested at a rate below 8.64 percent, and is calculated per the note agreement. The Venture's current revolving credit facility has a maximum amount available of $90,000,000. As of December 31, 1993, $73,800,000 was outstanding under the current revolving credit agreement, leaving the Venture with $16,200,000 of available borrowing capacity until March 31, 1994. The revolving credit period is scheduled to expire on March 31, 1994, at which time the principal balance will convert to a term loan payable in quarterly installments with a final maturity date of March 31, 2000. The General Partner is negotiating to extend the revolving credit period for one year. Interest is at the Venture's option of LIBOR plus 1.25 percent to 1.75 percent, the CD rate plus 1.375 percent to 1.875 percent or the Base Rate plus 0 percent to .50 percent. An annual commitment fee of .5 percent is required on the unused portion of the facility. The effective interest rates on amounts outstanding on the Venture's revolving credit facility as of December 31, 1993 and 1992 were 4.08 percent and 5.29 percent, respectively. Both lending facilities are equal in standing with the other, and both are equally secured by the assets of the Venture. 79 During 1992, the Venture incurred costs associated with renegotiating its debt arrangements. These fees were capitalized and are being amortized over the life of the debt agreements. During 1988, the Venture entered into an interest rate cap agreement covering outstanding debt obligations of an additional $25,000,000. The Venture paid a fee of $957,500. The agreement protects the Venture from interest rates that exceed 10 percent for five years from the date of the agreement. The fee was charged to interest expense over the life of this agreement using the straight-line method. Installments due on debt principal for each of the five years in the period ending December 31, 1998 and thereafter, respectively, are: $2,262,209, $4,697,609, $7,945,609, $30,201,870, $36,681,000 and $85,910,400, respectively. (5) INCOME TAXES ------ ----- Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners of Cable TV Funds 12-B, 12-C and 12-D. The Venture's tax returns, the qualification of the Venture 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 Venture's qualification as such, or in changes with respect to the Venture's recorded loss, the tax liability of the Venture's general partners would likely be changed accordingly. Taxable losses 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 losses reported in the statements of operations. (6) COMMITMENTS AND CONTINGENCIES ----------- --- ------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation in the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC announced a further rulemaking which, when implemented, could reduce rates further. The General Partner plans to mitigate a portion of these reductions primarily through (a) new service offerings, (b) product re-marketing and re-packaging and (c) marketing efforts directed at non-subscribers. The 1992 Cable Act contains new broadcast signal carriage requirements, and the FCC has adopted regulations implementing the statutory requirements. These new rules allow a local commercial broadcast television station to elect whether to demand that a cable system carry its signal or to require the cable system to negotiate with the station for "retransmission consent." Additionally, cable systems also are required to obtain retransmission consent from all "distant" commercial television stations (except for commercial satellite-delivered independent "superstations"), commercial radio stations and certain low-power television stations carried by cable systems. The retransmission consent rules went into effect on October 6, 1993. In the cable television systems owned by the Venture, no broadcast stations withheld their consent to retransmission of their signal. Certain broadcast signals are being carried pursuant to extensions offered to the General Partner by broadcasters, including a one-year extension for carriage of the CBS station owned and operated by the CBS network in Chicago. The General Partner expects to conclude retransmission consent negotiations with those stations whose signals are being carried pursuant to extensions, without having to terminate the distribution of any of those signals. However, there can be no assurance that such will occur. If any broadcast station currently being carried pursuant to an extension is dropped, there could be a negative effect on the system if a significant number of subscribers were to disconnect their service. 80 In February 1993, the General Partner entered into a settlement agreement related to litigation brought by Sunbelt Television, Inc. against the Venture in the amount of $2,850,000. As of December 31, 1992, the Venture had accrued $2,850,000, which was reflected as an increase in other expense in the 1992 statement of operations. This settlement was paid by the Venture in March 1993. Office and other facilities are rented under various long-term lease arrangements. Rent paid under such lease arrangements totaled $454,229, $450,295, $345,994, respectively, for the years ended December 31, 1993, 1992 and 1991. Minimum commitments under operating leases for the five years in the period ending December 31, 1998 and thereafter are as follows: 1994 $ 504,514 1995 463,103 1996 457,600 1997 460,542 1998 463,879 Thereafter 1,927,432 --------- $4,277,070 =========
(7) SUPPLEMENTARY PROFIT AND LOSS INFORMATION ----------------------------------------- Supplementary profit and loss information for the respective years is presented below:
Year Ended December 31, ------------------------------------- 1993 1992 1991 ----------- ----------- ----------- Maintenance and repairs $ 1,119,086 $ 1,146,319 $ 1,594,607 =========== =========== =========== Taxes, other than income and payroll taxes $ 1,470,476 $ 1,369,852 $ 956,021 =========== =========== =========== Advertising $ 1,022,289 $ 1,090,075 $ 1,628,016 =========== =========== =========== Depreciation of property, plant and equipment $18,772,872 $18,570,055 $21,023,337 =========== =========== =========== Amortization of intangible assets $ 6,878,365 $ 8,194,765 $ 9,769,716 =========== =========== ===========
81 CABLE TV FUND 12-BCD VENTURE ---------------------------- SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT ------------------------------------------ FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 ----------------------------------------------------
Column A Column B Column C Column D Column E Column F Balance at Balance at Beginning of Additions Sales and Other End of Classification Period at cost Retirements Changes Period - -------------- ------------ --------- ----------- -------- ---------- Year Ended December 31, 1993 - ---------------------------- Cable distribution systems $189,435,971 $ 12,539,504 $ (41,121) $ - $201,934,354 Buildings 3,371,225 3,034,287 - - 6,405,512 Land 950,970 - - - 950,970 Equipment and tools 6,275,189 1,113,443 (8,500) - 7,380,132 Premium service equipment 20,877,905 1,234,276 (178,920) - 21,933,261 Earth receive stations 8,812,762 817,322 - - 9,630,084 Vehicles 1,493,037 153,873 (124,738) - 1,522,172 Leasehold improvements and office furniture and equipment 1,881,527 172,213 - - 2,053,740 ------------ ------------ ----------- ---------- ------------ $233,098,586 $ 19,064,918 $ (353,279) $ - $251,810,225 ============ ============ =========== ========== ============ Year Ended December 31, 1992 - ---------------------------- Cable distribution systems $177,877,168 $ 13,115,117 $(1,556,314) $ - $189,435,971 Buildings 2,914,286 456,939 - - 3,371,225 Land 947,191 3,779 - - 950,970 Equipment and tools 5,332,647 942,542 - - 6,275,189 Premium service equipment 19,840,474 2,162,551 (1,125,120) - 20,877,905 Earth receive stations 8,614,900 206,365 (8,503) - 8,812,762 Vehicles 1,608,840 138,020 (253,823) - 1,493,037 Leasehold improvements and office furniture and equipment 1,760,955 120,572 - - 1,881,527 ------------ ------------ ----------- ---------- ------------ $218,896,461 $ 17,145,885 $(2,943,760)/1/ $ - $233,098,586 ============ ============ =========== ========== ============ Year Ended December 31, 1991 - ---------------------------- Cable distribution systems $159,934,019 $ 17,958,119 $ (14,970) $ - $177,877,168 Buildings 2,807,534 106,752 - - 2,914,286 Land 947,191 - - - 947,191 Equipment and tools 4,526,523 807,124 (1,000) - 5,332,647 Premium service equipment 19,443,407 397,067 - - 19,840,474 Earth receive stations 8,057,118 1,033,906 (476,124) - 8,614,900 Vehicles 1,589,605 153,235 (134,000) - 1,608,840 Leasehold improvements and office furniture and equipment 1,618,554 142,401 - - 1,760,955 ------------ ------------ ----------- ---------- ------------ $198,923,951 $ 20,598,604 $ (626,094) $ - $218,896,461 ============ ============ =========== ========== ============
/1/Amount primarily represents the sale of the California City, California cable television system. 82 CABLE TV FUND 12-BCD VENTURE ---------------------------- SCHEDULE VI - ACCUMULATED DEPRECIATION OF ----------------------------------------- PROPERTY, PLANT AND EQUIPMENT ----------------------------- FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 and 1991 ----------------------------------------------------
Column A Column B Column C Column D Column E Column F Balance at Amounts Balance at Beginning of Charged to Sales and Other End of Classification Period Expense Retirements Changes Period - -------------- ------------ ---------- ----------- -------- ---------- Year Ended December 31, 1993 - ---------------------------- Cable distribution systems $72,549,901 $14,946,872 $ (38,838) $ - $87,457,935 Buildings 824,315 182,593 - - 1,006,908 Land - - - - - Equipment and tools 3,596,758 889,966 (8,500) - 4,478,224 Premium service equipment 16,565,723 1,828,317 (178,920) - 18,215,120 Earth receive stations 2,847,094 617,343 - - 3,464,437 Vehicles 1,196,549 176,064 (124,737) - 1,247,876 Leasehold improvements and office furniture and equipment 1,496,248 131,717 - - 1,627,965 ----------- ----------- ----------- ------------ ------------ $99,076,588 $18,772,872 $ (350,995) $ - $117,498,465 =========== =========== =========== ============ ============ Year Ended December 31, 1992 - ---------------------------- Cable distribution systems $58,787,289 $14,290,562 $ (527,950) $ - $ 72,549,901 Buildings 675,849 148,466 - - 824,315 Land - - - - - Equipment and tools 2,789,084 807,674 - - 3,596,758 Premium service equipment 15,098,943 2,340,928 (874,148) - 16,565,723 Earth receive stations 2,241,552 608,565 (3,023) - 2,847,094 Vehicles 1,270,445 166,727 (240,623) - 1,196,549 Leasehold improvements and office furniture and equipment 1,289,115 207,133 - - 1,496,248 ----------- ----------- ----------- ------------ ------------ $82,152,277 $18,570,055 $(1,645,744)/1/ $ - $ 99,076,588 =========== =========== =========== ============ ============ Year Ended December 31, 1991 - ---------------------------- Cable distribution systems $43,708,145 $15,094,114 $ (14,970) $ - $ 58,787,289 Buildings 534,179 141,670 - - 675,849 Land - - - - - Equipment and tools 1,908,874 881,219 (1,009) - 2,789,084 Premium service equipment 11,198,333 3,900,610 - - 15,098,943 Earth receive stations 1,805,466 568,573 (132,487) - 2,241,552 Vehicles 1,256,711 147,734 (134,000) - 1,270,445 Leasehold improvements and office furniture and equipment 999,698 289,417 - - 1,289,115 ----------- ----------- ----------- ------------ ------------ $61,411,406 $21,023,337 $ (282,466) $ - $ 82,152,277 =========== =========== =========== ============ ============
/1/Amount primarily represents the sale of the California City, California cable television system. 83 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL STATEMENTS None PART III. --------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ------------------------------------------------------------ The Partnerships themselves have no officers or directors. Certain information concerning directors and executive officers of the General Partner is set forth below. Name Age Positions with the General Partner ---- --- ---------------------------------- Glenn R. Jones 63 Chairman of the Board and Chief Executive Officer James B. O'Brien 44 President, Chief Operating Officer and Director Ruth E. Warren 43 Group Vice President/Operations Kevin P. Coyle 42 Group Vice President/Finance Christopher J. Bowick 37 Group Vice President/Technology Timothy J. Burke 42 Group Vice President/Taxation, Administration Raymond L. Vigil 46 Group Vice President/Human Resources and Director James J. Krejci 51 Group Vice President and Director Elizabeth M. Steele 41 Vice President/General Counsel and Secretary Michael J. Bartolementi 34 Controller George J. Feltovich 52 Director Patrick J. Lombardi 45 Director Howard O. Thrall 46 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 was elected a member of the Executive Committee of the Board of Directors in April 1985. He is also Chairman of the Board of Directors and Chief Executive Officer of Jones Spacelink, Ltd., a publicly held cable television company that is a subsidiary of Jones International, Ltd. and the parent of the General Partner. 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 member of the Board of Directors of the National Cable Television Association and is a former member of its Executive Committee. 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; and the Women in Cable Accolade in 1990 in recognition of support of this organization. Mr. Jones is also a founding member of the James Madison Council of the Library of Congress, is on the Board of Governors of the American Society of Training and Development and is a director of the National Alliance of Business. Mr. James B. O'Brien, the General Partner's President, joined the General Partner in January 1982 as System Manager, Brighton, Colorado, and was later promoted to the position of General Manager, Gaston County, North Carolina. 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. 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 also President and a Director of Jones Cable Group, Ltd., Jones Global Funds, Inc., and Jones Global Management, Inc., all affiliates of the 84 General Partner. Mr. O'Brien is a board member of Cable Labs, Inc., the research arm of the 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. Ms. Ruth E. Warren joined the General Partner in August 1980 and served in various 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. Ms. Warren also serves as Vice President/Operations of Jones Spacelink, Ltd. 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 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. 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. He is also a member of the Board of Directors of Jones Spacelink, Ltd. Mr. Raymond L. Vigil joined the General Partner in April 1993 as Group Vice President/Human Resources and was elected a Director of the General Partner in November 1993. Previous to joining the General Partner, Mr. Vigil served as Executive Director of Learning with USWest from September 1989 to April 1993. Prior to that, Mr. Vigil worked in various human resources posts over a 14-year term with the IBM Corporation. Mr. James J. Krejci joined Jones International, Ltd. in March 1985 as Group Vice President. He was elected Group Vice President and Director of the General Partner in August 1987. He is also an officer of Jones Futurex, Inc., a subsidiary of Jones Spacelink, Ltd. engaged in manufacturing and marketing data encryption devices, Jones Information Management, 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 services. Prior to joining Jones International, Ltd., Mr. Krejci was employed by Becton Dickinson and Company, a medical products manufacturing firm. Ms. Elizabeth M. Steele joined the General Partner in August 1987 as Vice President/General Counsel and Secretary. Ms. Steele also is an officer of Jones Spacelink, Ltd. 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. Michael J. Bartolementi joined the General Partner in September 1984 as an accounting manager and was promoted to Assistant Controller in September 1985. He was named Controller in November 1990. Mr. George J. Feltovich was elected a Director of the General Partner in March 1993. Mr. Feltovich has been a private investor since 1978. Prior to 1978, Mr. Feltovich served as an administrative and legal consultant to various private and governmental housing programs. Mr. Feltovich was admitted to practice law in California, Pennsylvania and the District of Columbia and is a member of the California Bar Association. Mr. Patrick J. Lombardi has been a Director of the General Partner since February 1984 and has served as a member of the Audit Committee of the Board of Directors since February 1985. In September 1985, Mr. Lombardi was appointed Vice President of The Jones Group, Ltd., and in June 1989 was elected President of Jones Global Group, Inc., both affiliates of the General Partner. Mr. Lombardi is President and a director of Jones 85 Financial Group, Ltd., an affiliate of the General Partner, and Group Vice President/Finance and a director of Jones International, Ltd. Mr. Howard O. Thrall was elected a Director of the General Partner in December 1988 and serves as a member of the Audit Committee and the special Stock Option Committee, which was established in August of 1992. From 1984 until August 1993, Mr. Thrall was associated with Douglas Aircraft Company, an aircraft manufacturing firm, most recently as Regional Vice President Marketing. In September 1993, Mr. Thrall joined World Airways, Inc. as Vice President of Sales, Asian Region. 86 ITEM 11. EXECUTIVE COMPENSATION -------------------------------- The Partnerships have no employees; however, various personnel are required to operate the cable television systems owned by the Partnerships. Such personnel are employed by the General Partner and, pursuant to the terms of the limited partnership agreements of the Partnerships, the cost of such employment is charged by the General Partner to the Partnerships 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 in any of the Partnerships. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ------------------------------------------------------- The General Partner and its affiliates engage in certain transactions with the Partnerships as contemplated by the limited partnership agreements of the Partnerships and as disclosed in the prospectus for the Partnerships. The General Partner believes that the terms of such transactions, which are set forth in the Partnerships' limited partnership agreements, are generally as favorable as could be obtained by the Partnerships 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 Partnerships from unaffiliated parties. The General Partner charges the Partnerships for management fees, and the Partnerships reimburse the General Partner for certain allocated overhead and administrative expenses in accordance with the terms of the limited partnership agreements of the Partnerships. 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 Partnerships. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to each Partnership managed. Remaining overhead costs are allocated based on revenues and/or the cost of assets managed for the Partnerships. 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 from the Partnerships. The interest rate charged the Partnerships approximates the General Partner's weighted average cost of borrowing. Affiliates of the General Partner have received amounts from the Partnerships for performing brokerage services. 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, for a fee based upon the number of subscribers receiving the programming. These systems also receive educational video programming from Mind Extension University, Inc., an affiliate of the General Partner, for a fee based upon the number of subscribers receiving the programming. 87 The charges to the Partnerships for related transactions are as follows for the periods indicated:
Year Ended December 31, ----------------------- Cable TV Fund 12-A 1993 1992 1991 - ------------------ ---- ---- ---- Management fees $1,448,186 $1,334,651 $1,216,130 Brokerage fees -0- -0- 37,000 Allocation of expenses 1,993,892 1,822,265 1,484,588 Interest expense 1,029 -0- 1,071 Amount of notes and advances outstanding 188,223 261,348 -0- Highest amount of notes and advances outstanding 261,348 261,348 385,283 Programming fees: Superaudio 45,495 44,605 39,588 Mind Extension University 26,411 25,559 24,313
Year Ended December 31, ----------------------- Cable TV Fund 12-B 1993 1992 1991 - ------------------ ---- ---- ---- Management fees $1,348,760 $1,268,453 $1,121,743 Allocation of expenses 1,857,040 1,695,947 1,395,320 Interest expense -0- 29,205 205,339 Amount of notes and advances outstanding 163,266 289,033 215,769 Highest amount of notes and advances outstanding 289,033 289,033 2,607,894 Programming fees: Superaudio 40,882 40,430 37,199 Mind Extension University 23,769 23,165 22,831
The activities of Fund 12-C and Fund 12-D are limited to their equity ownership in the Venture. See the following related party disclosure for the Venture.
Year Ended December 31, ----------------------- Cable TV Fund 12-BCD 1993 1992 1991 - -------------------- ---- ---- ---- Management fees $4,456,577 $4,178,376 $3,902,475 Brokerage fees -0- 78,620 55,400 Allocation of expenses 6,048,783 5,580,114 4,640,219 Interest expense 15,477 126,073 171,942 Amount of notes and advances outstanding 188,430 511,646 4,606,840 Highest amount of notes and advances outstanding 511,646 5,660,955 4,606,840 Programming fees: Superaudio 134,179 132,091 120,851 Mind Extension University 79,002 76,676 72,218
88 PART IV. -------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ------------------------------------------------- AND REPORTS ON FORM 8-K ----------------------- (a)1. See index to financial statements at page 24 for list of financial statements and exhibits thereto filed as a part of this report. 2. Fund 12-A: Schedule V - Property, Plant and Equipment Schedule VI - Accumulated Depreciation of Property, Plant and Equipment Fund 12-B: Schedule V - Property, Plant and Equipment Schedule VI - Accumulated Depreciation of Property, Plant and Equipment Fund 12-D: Schedule V - Property, Plant and Equipment Schedule VI - Accumulated Depreciation of Property, Plant and Equipment 12-BCD Venture Schedule V - Property, Plant and Equipment Schedule VI - Accumulated Depreciation of Property, Plant and Equipment 3. The following exhibits are filed herewith. 4.1 Limited Partnership Agreements for Cable TV Funds 12-A, 12-B and 12-C. (1) 4.2 Limited Partnership Agreement of Cable TV Fund 12-D. (3) 4.3 Joint Venture Agreement of Cable TV Fund 12-BCD Venture dated as of March 17, 1986, among Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. (3) 10.1.1 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Edwards Air Force Base, California (Fund 12-BCD). (2) 10.1.2 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Lancaster, California (Fund 12-BCD). (2) 10.1.3 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Unincorporated portions of Los Angeles County, California (Fund 12-BCD). (2) 10.1.3.1 Copy of Los Angeles County Code regarding cable tv system franchises (Fund 12-BCD). (8) 10.1.3.2 Copy of Ordinance 90-0118F dated 10/29/90 granting a cable television franchise to Fund 12-BCD (Fund 12-BCD). (8) 10.1.4 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Green Valley/Elizabeth Lake/Leona Valley unincorporated areas of Los Angeles County, California (Fund 12-BCD). (3) 10.1.4.1 Ordinance 88-0166F dated 10/4/88 amending the franchise described in 10.1.5 (Fund 12-BCD). (8) 89 10.1.5 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Palmdale, California (Fund12-BCD). (8) 10.1.6 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Fort Myers, Florida (Fund 12-A). (1) 10.1.7 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Lee County, Florida (Fund 12-A). (1) 10.1.7.1 Renewal of Permit dated 3/4/92 (Fund 12-A). (8) 10.1.8 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Tampa, Florida (Fund 12-BCD). (1) 10.1.8.1 Resolution No. 1153 dated 10/2/86 authorizing consent to transfer of the franchise and amendment to the franchise agreement (Fund 12-BCD). (8) 10.1.8.2 Amendment to franchise agreement dated 10/6/86 (Fund 12-BCD). (8) 10.1.8.3 Franchise transfer, acceptance and consent to transfer dated 10/6/86 (Fund 12-BCD). (8) 10.1.9 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Augusta, Georgia (Fund 12-B). (1) 10.1.10 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Blythe, Georgia (Fund 12-B). (3) 10.1.11 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Burke, Georgia (Fund 12-B). (5) 10.1.12 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Unincorporated Area of Columbia County, Georgia (Fund 12-B). (8) 10.1.13 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Hephzibah, Georgia (Fund 12-B). (1) 10.1.14 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Unincorporated Area of Richmond County, Georgia (Fund 12-B). (1) 10.1.15 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Unincorporated portions of Cook County, Illinois (Fund 12-A). (3) 10.1.16 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Grayslake, Illinois (Fund 12-A). (1) 10.1.17 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Unincorporated Area of Lake County, Illinois (Fund 12-A). (1) 10.1.18 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Libertyville, Illinois (Fund 12-A). (1) 10.1.19 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Mundelein, Illinois (Fund 12-A). (1) 90 10.1.20 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Orland Park, Illinois (Fund 12-A). (1) 10.1.21 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Park Forest, Illinois (Fund 12-A). (1) 10.1.22 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Wauconda, Illinois (Fund 12-A). (1) 10.1.23 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Albuquerque, New Mexico (Fund 12-BCD). (2) 10.1.24 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Bernalillo, New Mexico (Fund 12-BCD). (2) 10.1.25 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Bernalillo, New Mexico (Fund 12-BCD). (2) 10.1.25.1 Resolution No. 12-14-87 dated 12/14/87 authorizing the assignment of the franchise to Fund 12-BCD. (8) 10.1.26 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Bosque Farms, New Mexico (Fund 12-BCD). (2) 10.1.27 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Corrales, New Mexico (Fund 12-BCD). (2) 10.1.28 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Kirtland Air Force Base, New Mexico (Fund 12-BCD). (8) 10.1.29 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Los Ranchos, New Mexico (Fund 12-BCD). (2) 10.1.30 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Sandoval, New Mexico (Fund 12-BCD). (2) 10.1.31 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Valencia, New Mexico (Fund 12-BCD). (2) 10.1.31.1 Resolution No. 88-23 dated 2/14/88 authorizing assignment of the franchise to Fund 12-BCD. (8) 10.2.1 Credit Agreement, dated as of July 15, 1992, between Cable TV Fund 12-A, Ltd. and Mellon Bank, N.A, for itself and as agent for various lenders. (8) 10.2.2 Loan and Security Agreement, dated August 29, 1985, between Cable TV Fund 12-B, Ltd. and The Philadelphia National Bank, individually and as agent for various lenders. (1) 10.2.2.1 Amendment No. 1 dated as of August 14, 1986, to Loan and Security Agreement, dated August 29, 1985, between Cable TV Fund 12-B, Ltd. and The Philadelphia National Bank, individually and as agent for various lenders. (8) 91 10.2.2.2 Amendment No. 2 dated March 31, 1988 to Loan and Security Agreement, dated August 29, 1985, between Cable TV Fund 12-B, Ltd. and The Philadelphia National Bank, individually and as agent for various lenders. (8) 10.2.2.3 Amendment No. 3 dated March 29, 1989 to Loan and Security Agreement, dated August 29, 1985, between Cable TV Fund 12-B, Ltd. and The Philadelphia National Bank, individually and as agent for various lenders. (8) 10.2.2.4 Amendment No. 4 dated November 29, 1991 to Loan and Security Agreement dated November 1991 between Cable TV Fund 12-B, Ltd. and Corestates Bank, N.A. (formerly The Philadelphia National Bank), individually and as agent for various lenders. (6) 10.2.3 Note Purchase Agreement dated as of March 31, 1992 among Fund 12-BCD Venture and various note purchasers. (8) 10.3.1 Purchase and Sale Agreement dated as of March 29, 1988 by and between Cable TV Fund 12-BCD Venture as Buyer and Video Company as Seller. (4) 10.3.2 Purchase and Sale Agreement dated 9/20/91 and amendments thereto between Cable TV Fund 12-BCD Venture as Seller and Falcon Classic Cable Income Properties, L.P. (Fund 12-BCD). (7) - ---------- (1) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1985 (Commission File Nos. 0-13192, 0-13807, 0-13964 and 0-14206). (2) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File Nos. 0-13192, 0-13807, 0-13964 and 0-14206). (3) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (Commission File Nos. 0-13192, 0-13807, 0-13964 and 0-14206). (4) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1988 (Commission File Nos. 0-13192, 0-13807, 0-13964 and 0-14206). (5) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File Nos. 0-13192, 0-13807, 0-13964 and 0-14206). (6) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1991 (Commission File Nos. 0-13192, 0-13807, 0-13964 and 0-14206). (7) Incorporated by reference from the Forms 8-K of Fund 12-B, Fund 12-C and Fund 12-D dated 4/6/92 (Commission File Nos. 0-13193, 0-13964 and 0-14206, respectively). (8) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992 (Commission File Nos. 0-13192, 0-13807, 0-13964 and 0-14206). (b) Reports on Form 8-K. None. 92 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 12-A, LTD. CABLE TV FUND 12-B, LTD. CABLE TV FUND 12-C, LTD. CABLE TV FUND 12-D, LTD. Colorado limited partnerships By: Jones Intercable, Inc., their general partner By: /s/ Glenn R. Jones ------------------------------- Glenn R. Jones Chairman of the Board and Chief Dated: March 25, 1994 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, 1994 (Principal Executive Officer) By: /s/ Kevin P. Coyle ------------------------------- Kevin P. Coyle Group Vice President/Finance and Treasurer Dated: March 25, 1994 (Principal Financial Officer) By: /s/ Michael J. Bartolementi ------------------------------- Michael J. Bartolementi Controller Dated: March 25, 1994 (Principal Accounting Officer) By: /s/ James B. O'Brien ------------------------------- James B. O'Brien Dated: March 25, 1994 President and Director By: /s/ James J. Krejci ------------------------------- James J. Krejci Group Vice President Dated: March 25, 1994 and Director 93 By: /s/ Patrick J. Lombardi ------------------------------- Patrick J. Lombardi Dated: March 25, 1994 Director By: /s/ Raymond L. Vigil ------------------------------- Raymond L. Vigil Dated: March 25, 1994 Director By: ------------------------------- George J. Feltovich Dated: Director By: ------------------------------------ Howard O. Thrall Dated: Director 94 EX-13.2 3 10-K 12-31-94 EXHIBIT (d)(3) FORM 10-K 405 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, 1994 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: 0-13807 CABLE TV FUND 12-B, LTD. ------------------------ (Exact name of registrant as specified in its charter) Colorado 84-0969999 -------- ---------- (State of Organization) (IRS Employer Identification No.) P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111 - --------------------------------------------- -------------- (Address of principal executive (Registrant's telephone no. office and Zip Code) 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 ((S)229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x --- DOCUMENTS INCORPORATED BY REFERENCE: None PART I. ------- ITEM 1. BUSINESS ----------------- The Partnership. Cable TV Fund 12-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 12 Limited Partnership Program (the "Program"), which was sponsored by Jones Intercable, Inc. (the "General Partner"). Cable TV Fund 12-A, Ltd. ("Fund 12-A"), Cable TV Fund 12-C, Ltd. ("Fund 12-C") and Cable TV Fund 12-D, Ltd. ("Fund 12-D") are the other partnerships that were formed pursuant to that Program. In 1986, the Partnership, Fund 12-C and Fund 12-D formed a general partnership known as Cable TV Fund 12-BCD Venture (the "Venture"), in which the Partnership owns a 9 percent interest, Fund 12-C owns a 15 percent interest and Fund 12-D owns a 76 percent interest. The Partnership and the Venture were formed for the purpose of acquiring and operating cable television systems. The Partnership directly owns a cable television system serving Augusta, Georgia (the "Augusta System"). The Venture owns the cable television systems serving Palmdale, Lancaster and Rancho Vista and the military installation of Edwards Airforce Base, all in California (the "Palmdale/Lancaster System"); Albuquerque, New Mexico (the "Albuquerque System") and Tampa, Florida (the "Tampa System"). See Item 2. The Augusta System, Palmdale/Lancaster System, Albuquerque System and Tampa System may collectively be referred to as the "Systems." On February 22, 1995, the General Partner entered into a Purchase and Sale Agreement (the "Agreement") with the Partnership providing for the sale by the Partnership to the General Partner of the Augusta System. The purchase price for the Augusta System is $141,718,000, subject to certain closing adjustments provided by the Agreement. The purchase price represents the average of three separate independent appraisals of the fair market value of the Augusta System. Closing of the sale is conditioned upon a number of conditions, including the approval of the transaction by the holders of a majority of the Partnership's limited partnership interests. Subject to the satisfaction of closing conditions, the transaction is expected to close during 1995. 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. 2 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. In addition, advertising sales are becoming a significant source of revenues for the Systems. As a result of the adoption by the FCC of new rules under the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), and several rate regulation orders, the Systems' rate structures for basic and tier programming services and equipment have been revised. See Regulation and Legislation. At December 31, 1994, the Systems' monthly basic service rates ranged from $7.95 to $14.25, monthly basic and tier ("basic plus") service rates ranged from $15.00 to $23.20 and monthly premium services ranged from $3.00 to $10.95 per premium service. Charges for additional outlets have been eliminated, and charges for remote controls and converters have been "unbundled" from the programming service rates. In addition, the Partnership earns revenues from the Systems' pay-per-view programs and advertising fees. Related charges may include a nonrecurring installation fee that ranges from $1.99 to $50.00; 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, 1994, of the total fees received by the Systems, basic service and tier service fees accounted for approximately 64% of total revenues, premium service fees accounted for approximately 17% of total revenues, pay-per-view fees were approximately 7% of total revenues, advertising fees were approximately 2% of total revenues and the remaining 10% of total revenues came principally from equipment rentals, installation fees and program guide sales. The Partnership is dependent upon the timely receipt of service fees to provide for maintenance and replacement of plant and equipment, current operating expenses and other costs of the Systems. The Partnership's business consists of providing cable television services to a large number of customers, the loss of any one of which would have no material effect on the Partnership's business. 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. The Partnership does not depend to any material extent on the availability of raw materials; it carries no significant amounts of inventory and it has no material backlog of customer orders. The Partnership 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 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. 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. The Systems' franchises require that franchise fees ranging from 2% of basic revenues to 5% of gross revenues of the cable system be paid to the governmental authority that granted the franchise, that certain channels be dedicated to municipal use, that municipal facilities, hospitals and schools be provided cable service free of charge and that any new cable plant be substantially constructed within specific periods. (See Item 2 for a range of franchise expiration dates of the Systems.) 3 The responsibility for franchising of cable television systems generally is left to state and local authorities. There are, however, several provisions in the Communications Act of 1934, as amended, that govern the terms and conditions under which cable television systems provide service, including the standards applicable to cable television operators seeking renewal of a cable television franchise. In addition, the 1992 Cable Act also made several procedural changes to the process under which a cable operator seeks to enforce its renewal rights which could make it easier in some cases for a franchising authority to deny 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 franchise, has not provided reasonable service in light of the community's needs, does not have the financial, legal and 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. The General Partner and its affiliates recently have experienced lengthy negotiations with some franchising authorities for the granting of franchise renewals and transfers. Some of the issues involved in recent renewal negotiations include rate reregulation, customer service standards, cable plant upgrade or replacement and shorter terms of franchise agreements. The inability of the Partnership to renew a franchise, or lengthy negotiations or litigation involving the renewal process, could have an adverse impact on the business of the Partnership. Competition. Cable television systems currently experience competition from several sources, but two technologies, Multichannel Multipoint Distribution Service ("MMDS") systems, commonly called wireless cable systems, and Direct Broadcast Satellite ("DBS") systems, which distribute programming to home satellite dishes, currently pose the greatest potential threat to the cable television industry. MMDS systems will likely focus on providing service to residents of rural areas that are not served by cable television systems, but providers of programming via MMDS systems will generally have the potential to compete directly with cable television systems in urban areas as well, and in some areas of the country, MMDS systems are now in direct competition with cable television systems. To date, the Partnership has not lost a significant number of subscribers, nor a significant amount of revenue, to MMDS operators competing with its cable television systems. DBS operators deliver premium channel services and specialized programming to subscribers by high-powered DBS satellites on a wide-scale basis, and two major companies began operations in 1994. Subscribers are able to receive DBS services virtually anywhere in the United States with a rooftop or wall-mounted antenna. In some instances, DBS systems may serve as a complement to cable television operations by enabling cable television operators to offer additional channels of programming without the construction of additional cable plant. DBS companies use video compression technology to increase the channel capacity of their satellite systems to provide a wide variety of program services that are competitive with those of cable television systems. Cable television systems also compete with broadcast television, private cable television systems known as Master Antenna Television ("MATV"), Satellite Master Antenna Television ("SMATV") and Television Receive-Only Earth Stations ("TVRO"). MATV and SMATV generally serve multi-unit dwellings such as condominiums, apartment complexes and private residential communities, and TVROs are satellite receiving antenna dishes that are used by "backyard users." There is also potential competition from an emerging technology, Local Multipoint Distribution Service ("LMDS"). When it is authorized for service, the LMDS, sometimes referred to as cellular television, could have the capability of delivering approximately 50 channels, or if two systems were combined 100 channels, of video programming to a subscriber's home, which capacity could be increased by using video compression technology. The General Partner believes that there are not any current fully operational LMDS systems. Although the Partnership's Systems have not yet encountered competition from a telephone company entering into the business of providing video services to subscribers, the Systems could potentially face competition from telephone companies doing so. A Federal cross-ownership restriction has historically limited 4 entry into the cable television business by potentially strong competitors such as telephone companies. This restriction, which is contained in the 1984 Cable Act, has generally prohibited telephone companies from owning or operating cable television systems within their own telephone service areas, but several recent court decisions have eliminated this restriction. In addition, the FCC is authorizing telephone companies to provide video dialtone service within their service areas. Legislation is also pending in Congress that would permit telephone companies to provide video programming thorough separate subsidiaries. The General Partner cannot predict at this time to what extent current restrictions will be modified to permit telephone companies to provide cable television services within their own service areas in competition with cable television systems. See Regulation and Legislation, Ownership and Market Structure for a description of the potential participation of the telephone industry in the delivery of cable television services. Entry into the market by telephone companies as direct competitors of the Systems could adversely impact the profitability of the Systems. If a telephone company were to become a direct competitor of the Partnership in an area served by a Partnership System, the Partnership could be at a competitive disadvantage because of the relative financial strength of a telephone company compared to the Partnership. Depending on a number of factors, such competition could also result in cable television systems providing the same types of services now provided by the telephone industry. The FCC has established a new wireless telecommunications service known as Personal Communications Service ("PCS"). It is envisioned that PCS would provide portable non-vehicular mobile communications services similar to that available from cellular telephone companies, but at a lower cost. PCS would be delivered by placing numerous microcells in a particular area to be covered, accessible to both residential and business customers. Because of the need to link the many microcells necessary to deliver this service economically, many parties are investigating integration of PCS with cable television operations. Several cable television multiple systems operators and others, including affiliates of the General Partner, hold or have requested experimental licenses from the FCC to test PCS technology. The FCC has established spectrum auctioning procedures for PCS licenses and the licenses are being auctioned in a series of auction events. Cable television franchises are not exclusive, so that more than one cable television system may be built in the same area (known as an "overbuild"), with potential loss of revenues to the operator of the original cable television system. The Systems currently face no direct competition from other cable television operators. Competition for Subscribers in the Partnership's Systems. Following is a summary of current competition from DBS, MMDS, SMATV and TVRO operators in the Systems' franchise areas: Augusta System There are no MMDS or SMATV operators in the system's service area. There are four TVRO operators that provide service mostly to areas not serviced by the system. DBS services provide minimal competition at this time. Albuquerque System There is one MMDS operator who has not as yet launched, but is believed to be in the position to launch, a 15 channel MMDS service in the system's service area. There are two SMATV operators that provide minimal competition. One operator serves about 2,000 residential and mobile home park units, and the second serves 3 apartment complexes of approximately 1,000 units. Albuquerque was a test market for DBS, and approximately 100 customers have been lost to DBS. 5 Palmdale/Lancaster System There are no MMDS operators in the system's service area. There are 6 SMATV operators that service 7,000 units and 8 TVRO operators that provide moderate competition. DBS marketing has begun in the Palmdale/Lancaster System's service area, but DBS provides minimal competition at this time. Tampa System There is one MMDS operator, a few SMATV operators that primarily serve multi-unit dwellings and several TVRO dealers in the Tampa System's service area. These operators provide minimal competition. DBS marketing has begun in the Tampa System's service area but provides minimal competition at this time. Regulation and Legislation. The cable television industry is regulated through a combination of the Federal Communications Commission ("FCC"), some state governments, and most local governments. In addition, the Copyright Act of 1976 imposes copyright liability on all cable television systems. Cable television operations are subject to local regulation insofar as systems operate under franchises granted by local authorities. Cable Television Consumer Protection and Competition Act of 1992. ---------------------------------------------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992. This legislation has caused significant changes to the regulatory environment in which the cable television industry operates. The 1992 Cable Act generally allows for 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, are subject to rate regulation of basic cable services. In addition, the 1992 Cable Act allows 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 reduced rates charged for certain regulated services effective September 1, 1993. These reductions resulted in some decrease in revenues and operating income before depreciation and amortization; however, the decrease was not as severe as originally anticipated. The General Partner has undertaken actions to mitigate a portion of these reductions primarily through (a) new service offerings in some systems, (b) product re-marketing and re-packaging and (c) marketing efforts directed at non-subscribers. 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 require rate reductions, absent a successful cost-of-service showing, of 17% of September 30, 1992 rates, adjusted for inflation, channel modifications, equipment costs, and increases in programming costs. However, the FCC held rate reductions in abeyance in certain systems. The new regulations became effective on May 15, 1994, but operators could elect to defer rate reductions to July 14, 1994, so long as they made no changes in their rates and did not restructure service offerings between May 15 and July 14. On February 22, 1994, the FCC also adopted interim cost-of-service regulations. Rate reductions will not be required where it is successfully demonstrated that rates for basic and other regulated programming services are justified and reasonable using cost-of-service standards. The FCC established an interim industry-wide 11.25% permitted rate of return, and requested comments on whether this standard and other interim cost-of-service standards should be made permanent. The FCC also established a presumption that acquisition costs above a system's book value should be excluded from the rate base, but the FCC will consider individual showings to rebut this presumption. The need for special rate relief will also be considered by the FCC 6 if an operator demonstrates that the rates set by a cost-of-service proceeding would constitute confiscation of investment, and that, absent a higher rate, the return necessary to operate and to attract investment could not be maintained. The FCC will establish a uniform system of accounts for operators that elect cost-of-service rate regulation, and the FCC has adopted affiliate transaction regulations. After a rate has been set pursuant to a cost-of-service showing, rate increases for regulated services will be indexed for inflation, and operators will also be permitted to increase rates in response to increases in costs beyond their control, such as taxes and increased programming costs. After analyzing the effects of the two methods of rate regulation, the Partnership and the Venture elected to file cost-of-service showings in all of their systems. The General Partner anticipates no further reduction in 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. Among other issues addressed by the FCC in its February rate orders was the treatment of packages of a la carte channels. The FCC in its rate regulations adopted April 1, 1993, exempted from rate regulation the price of packages of a la carte channels upon the fulfillment of certain conditions. On November 10, 1994, the FCC reversed its policy regarding rate regulation of packages of a la carte services. A la carte services that are offered in a package will now be subject to rate regulation by the FCC, although the FCC indicated that it cannot envision circumstances in which any price for a collective offering of premium channels that have traditionally been offered on a per-channel basis would be found to be unreasonable. 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, 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 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% 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% 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 this tier 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. There have been several lawsuits filed by cable operators and programmers in Federal court challenging various aspects of the 1992 Cable Act, including 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. The Supreme Court's majority determined that the must-carry rules were content neutral, but that it was not yet proven that the rules were needed to preserve the economic health of the broadcasting industry. In the interim, the must-carry rules will remain in place during the pendency of the proceedings in district court. In 1993, a Federal district court for the District of Columbia 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 7 operators and advance notice of free previews for certain programming services have been found unconstitutional. In November 1993, the United States Court of Appeals for the D.C. Circuit held that the FCC's regulations implemented pursuant to Section 10 of the 1992 Cable Act, which permit cable operators to ban indecent programming on public, educational or governmental access channels or leased access channels, were unconstitutional, but the court has agreed to reconsider its decision. All of these decisions construing provisions of the 1992 Cable Act and the FCC's implementing regulations have been or are expected to be appealed. Ownership and Market Structure. The FCC rules and Federal law generally ------------------------------ prohibit the direct or indirect common ownership, operation, control or interest in a cable television system, on the one hand, and a local television broadcast station whose television signal reaches any portion of the community served by the cable television system, on the other hand. The FCC recently lifted its ban on the cross-ownership of cable television systems by broadcast networks. The FCC revised its regulations to permit broadcast networks to acquire cable television systems serving up to 10% of the homes passed in the nation, and up to 50% of the homes passed in a local market. Neither the Partnership nor the General Partner has any direct or indirect ownership, operation, control or interest in a television broadcast station, or a telephone company, and they are thus presently unaffected by the cross-ownership rules. The Cable Communications Policy Act of 1984 (the "1984 Cable Act") and FCC regulations generally prohibit the common operation of a cable television system and a telephone company within the same service area. Until recently, a provision of a Federal court antitrust consent decree also prohibited the regional Bell operating companies ("RBOCs") from engaging in cable television operations. This prohibition was recently removed when the court retaining jurisdiction over the consent decree ruled that the RBOCs could provide information services over their facilities. This decision permits the RBOCs to acquire or construct cable television systems outside of their own service areas. The 1984 Cable Act prohibited local exchange carriers, including the RBOCs, from providing video programming directly to subscribers within their local exchange telephone service areas, except in rural areas or by specific waiver of FCC rules. Several Federal district courts have struck down the 1984 Cable Act's telco/cross-ownership provision as facially invalid and inconsistent with the First Amendment. The United States Courts of Appeals for the Fourth and the Ninth Circuits have upheld the appeals of two of these district court decisions, and the United States Justice Department is expected to request the United States Supreme Court to review these two decisions. This Federal cross-ownership rule is particularly important to the cable industry since these telephone companies already own certain facilities needed for cable television operation, such as poles, ducts and associated rights-of-way. The FCC amended its rules in 1992 to permit local telephone companies to offer "video dialtone" service for video programmers, including channel capacity for the carriage of video programming and certain noncommon carrier activities such as video processing, billing and collection and joint marketing arrangements. In its video dialtone order, which was part of a comprehensive proceeding examining whether and under what circumstances telephone companies should be allowed to provide cable television services, including video programming to their customers, the FCC concluded that neither the 1984 Cable Act nor its rules apply to prohibit the interexchange carriers (i.e., long distance telephone companies such as AT&T) from providing such services to their customers. Additionally, the FCC also concluded that where a local exchange carrier ("LEC") makes its facilities available on a common carrier basis for the provision of video programming to the public, the 1984 Cable Act does not require the LEC or its programmer customers to obtain a franchise to provide such service. This aspect of the FCC's video dialtone order was upheld on appeal by the United States Court of Appeals for the D.C. Circuit. The FCC recently issued an order reaffirming its initial decision, and this order has been appealed. Because cable operators are required to bear the costs of complying with local franchise requirements, including the payment of franchise fees, the FCC's decision could place cable operators at a competitive disadvantage vis-a- vis services offered on a common carrier basis over local telephone company provided facilities. In its Reconsideration Order, the FCC, among other actions, refused to require telephone companies to justify cost allocations prior to the construction of video dialtone facilities, and indicated that it would provide guidance on costs that must be included in proposed video dialtone tariffs. The FCC also established dual Federal/state jurisdiction over video dialtone services based on the origination point of the video dialtone programming service. 8 In a separate proceeding, the FCC has proposed to increase the numerical limit on the population of areas qualifying as "rural" and in which LECs can provide cable service without a FCC waiver. On January 12, 1995, the FCC adopted a Fourth Further Notice of Proposed --------------------------------- Rulemaking in its video dialtone docket. The FCC tentatively concluded that - ----------- it should not ban telephone companies from providing their own video programming over their video dialtone platforms in those areas in which the cable/telephone cross-ownership rules have been found unconstitutional. The FCC requested comments on this issue and on further refinements of its video dialtone regulatory framework concerning, among other issues, telephone programmer affiliation standards, the establishment of structural safeguards to prevent cross-subsidization of video dialtone and programming activities, and the continuation of the FCC's ban prohibiting telephone companies from acquiring cable systems within their telephone service areas for the provision of video dialtone services. The FCC will also consider whether a LEC offering video dialtone service must secure a local franchise if that LEC also engages in the provision of video programming carried on its video dialtone platform. The FCC has also proposed to broadly interpret its authority to waive the cable/telephone cross-ownership ban upon a showing by telephone companies that they comply with the safeguards which the FCC establishes as a condition of providing video programming. A number of bills that would have permitted telephone companies to provide cable television service within their own service areas were considered during the last Congress, but none were adopted. These bills would have permitted the provision of cable television service by telephone companies in their own service areas conditioned on the establishment of safeguards to prevent cross- subsidization between telephone and cable television operations and the provision of telecomunication services by cable television systems. Similar legislation is expected to be considered by Congress during its current session. The outcome of these FCC, legislative or court proceedings and proposals or the effect of such outcome on cable system operations cannot be predicted. ITEM 2. PROPERTIES ------------------- The cable television systems owned by the Partnership and the Venture at December 31, 1994 are described below: Fund System Acquisition Date ---- ------ ---------------- Cable TV Fund 12-B, Ltd. Augusta System August 1985 Cable TV Fund 12-B, Ltd., Cable TV Palmdale/Lancaster System April 1986 Fund 12-C, Ltd. and Cable TV Fund Albuquerque System August 1986 12-D, Ltd. own a 9%, 15% and 76% Tampa System December 1986 interest, respectively, through their interest in Cable TV Fund 12-BCD Venture The following sets forth (i) the monthly basic plus service rates charged to subscribers, (ii) the number of basic subscribers and pay units and (iii) the range of franchise expiration dates 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. While the charge for basic plus service may have increased in some cases in 1993 as a result of the FCC's rate regulations, overall revenues may have decreased due to the elimination of charges for additional outlets and certain equipment. 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, 1994, the Partnership's system operated approximately 1,600 miles of cable plant, passing approximately 102,000 homes, representing an approximate 68% penetration rate, and the Venture's systems operated approximately 4,400 miles of cable plant, passing approximately 424,000 homes, representing an approximate 55% penetration rate. Figures for numbers of 9 subscribers, miles of cable plant and homes passed are compiled from the General Partner's records and may be subject to adjustments.
At December 31, -------------------------- Augusta, Georgia 1994 1993 1992 - ---------------- ---- ---- ---- Monthly basic plus service rate $ 23.20 $ 23.20 $ 19.95 Basic subscribers 66,337 64,173 62,730 Pay units 50,200 50,847 57,965
Franchise expiration dates range from December 1998 to October 2009.
At December 31, -------------------------- Palmdale/Lancaster, California 1994 1993 1992 - ------------------------------ ---- ---- ---- Monthly basic plus service rate $ 21.77 $ 21.77 $ 20.00 Basic subscribers 59,702 56,372 53,947 Pay units 46,214 39,928 39,793
Franchise expiration dates range from February 1999 to October 2005.
At December 31, -------------------------- Albuquerque, New Mexico 1994 1993 1992 - ----------------------- ---- ---- ---- Monthly basic plus service rate $ 21.35 $ 21.00 $ 20.00 Basic subscribers 106,835 98,555 92,916 Pay units 58,838 67,462 62,919
Franchise expiration dates range from January 1999 to August 2001. * The decrease in pay units between 1993 and 1994 was primarily due to the conversion of The Disney Channel to a basic plus service.
At December 31, -------------------------- Tampa, Florida 1994 1993 1992 - -------------- ---- ---- ---- Monthly basic plus service rate $ 18.77 $ 21.63 $ 19.25 Basic subscribers 61,413 58,145 58,711 Pay units 50,123 47,771 45,419
The Tampa franchise expires in December 1997. In 1990, the City of Tampa notified the Venture of its belief that the Venture was not in compliance with certain provisions of the franchise agreement. In September 1994, the City of Tampa and the Venture entered into a Second Amendment to Franchise Agreement providing for modifications to the franchise agreement as full and satisfactory resolution of the outstanding issues. Programming Services - -------------------- Programming services provided by the Systems include local affiliates of the national broadcast networks, local independent broadcast channels, the traditional satellite services (e.g., American Movie Classics, Arts & Entertainment, Black Entertainment Network, C-SPAN, The Discovery Channel, Lifetime, Entertainment Sports Network, Home Shopping Network, Mind Extension University, Music Television, Nickelodeon, Turner Network Television, The Nashville Network, Video Hits One, and superstations WOR, WGN and TBS). The Partnership's Systems also provide a selection, which varies by system, of premium channel programming (e.g., Cinemax, Encore, Home Box Office, Showtime and The Movie Channel). 10 ITEM 3. LEGAL PROCEEDINGS -------------------------- None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ------------------------------------------------------------ None. PART II. -------- ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK ------------------------------------------------- AND RELATED SECURITY HOLDER MATTERS ----------------------------------- While the Partnership 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, 1995, the approximate number of equity security holders in the Partnership was 8,076. 11 Item 6. Selected Financial Data - --------------------------------
For the Year Ended December 31, ------------------------------------------------------------------------- Cable TV Fund 12-B 1994 1993 1992 1991 1990 - ------------------ ------------- ------------- ------------- ------------- ------------- Revenues $ 26,956,006 $ 26,975,209 $ 25,369,064 $ 22,434,854 $ 19,938,259 Depreciation and Amortization 9,380,877 8,897,796 8,415,058 8,003,545 7,055,545 Operating Income 249,558 1,816,948 1,937,255 1,205,903 1,860,690 Equity in Net Loss of Cable Television Joint Venture (1,182,039) (1,063,449) (1,336,385) (1,636,665) (1,970,017) Net Loss (3,368,245) (1,463,979) (2,300,652) (4,003,891) (4,556,190) Net Loss per Limited Partnership Unit (30.03) (13.05) (20.51) (35.70) (40.62) Weighted average number of Limited Partnership Units outstanding 111,035 111,035 111,035 111,035 111,035 General Partner's Deficit (304,152) (270,470) (255,830) (232,823) (192,784) Limited Partners' Capital 17,673,872 21,008,435 22,457,774 24,735,419 28,699,271 Total Assets 58,543,185 66,085,025 70,507,101 74,521,239 77,924,307 Debt 39,959,041 43,831,074 46,797,508 48,725,591 45,232,743 General Partner Advances 112,495 163,266 289,033 215,769 2,067,861 For the Year Ended December 31, ------------------------------------------------------------------------ Cable TV Fund 12-BCD 1994 1993 1992 1991 1990 - -------------------- ------------ ------------ ------------ ------------ ------------ Revenues $ 92,823,076 $ 89,131,530 $ 83,567,527 $ 78,049,505 $ 69,945,109 Depreciation & Amortization 24,658,274 25,651,237 26,764,820 30,793,053 29,972,282 Operating Income (Loss) 441,284 900,949 (1,087,963) (4,930,588) (6,260,721) Net Loss (12,876,242) (11,584,416) (14,884,365) (17,828,600) (21,459,885) General Partners' Capital (Deficit) (18,605,751) (5,729,509) 5,854,907 20,739,272 38,567,872 Total Assets 170,675,914 169,670,552 175,554,620 185,834,366 196,991,456 Debt 180,402,748 167,698,697 160,440,488 156,131,618 151,051,428 Jones Intercable, Inc. Advances 616,810 188,430 511,646 4,606,840 1,228,418
12 Item 7. Management's Discussion and Analysis of Financial Condition and Results - -------------------------------------------------------------------------------- of Operations - ------------- CABLE TV FUND 12-B ------------------ Results of Operations - --------------------- 1994 Compared to 1993 - Revenues in the Augusta System decreased $19,203, or less than 1 percent, from $26,975,209 in 1993 to $26,956,006 in 1994. This decrease was due to the system's compliance with basic rate regulations issued by the FCC in regard to the 1992 Cable Act that became effective September 1, 1993. The decrease in revenues would have been greater but for the addition of 2,164 basic subscribers. Basic subscribers totalled 64,173 and 66,337 at December 31, 1993 and 1994, respectively. No other individual factor was significant to the decrease in revenues. Operating, general and administrative expense increased $878,022, or approximately 7 percent, from $13,054,665 in 1993 to $13,932,687 in 1994. Operating, general and administrative expense represented 48 percent and 52 percent, respectively, of revenues in 1993 and 1994. Increases in programming fees, due in part to the increase in the subscriber base, accounted for approximately 47 percent of the increase in expenses. An increase in advertising sales related expense accounted for approximately 17 percent of the increase in expenses. No other individual factor contributed significantly to the increase in operating, general and administrative expenses. Management fees and allocated overhead from the General Partner increased $187,084, or approximately 6 percent, from $3,205,800 in 1993 to $3,392,884 in 1994. The increase was due to an increase in allocated expenses from the General Partner, although management fees decreased due to the decrease in revenues, upon which such fees are based. The General Partner has experienced increases in expenses, including personnel costs and reregulation costs. Depreciation and amortization increased $483,081, or approximately 5 percent, from $8,897,796 in 1993 to $9,380,877 in 1994 due to capital additions during 1993 and 1994. Operating income decreased $1,567,390, or approximately 86 percent, from $1,816,948 in 1993 to $249,558 in 1994 due to the decrease in revenues and the increases in operating, general and administrative expenses, allocated overhead from the General Partner and depreciation and amortization expense. Operating income before depreciation and amortization decreased $1,084,309, or approximately 10 percent, from $10,714,744 in 1993 to $9,630,435 in 1994 due to the decrease in revenues and the increases in operating, general and administrative expenses and allocated overhead from the General Partner. Interest expense increased $211,907, or approximately 9 percent, from $2,343,606 in 1993 to $2,555,513 in 1994 due to higher effective interest rates on interest bearing obligations despite lower balances on such outstanding obligations. Loss before equity in net loss of cable television joint venture increased $1,785,676, from $400,530 in 1993 to $2,186,206 in 1994, primarily due to the decrease in operating income and to the increase in interest expense. Such losses are the result of the factors discussed above. 1993 Compared to 1992 - Revenues in the Partnership's Augusta System increased $1,606,145, or approximately 6 percent, from $25,369,064 in 1992 to $26,975,209 in 1993. Basic service rate adjustments accounted for approximately 44 percent of the increase in revenues. An increase in the subscriber base accounted for approximately 42 percent of the increase in revenues. The Augusta System added approximately 1,500 basic subscribers between December 31, 1992 and 1993, an increase of 2 percent. An increase in advertising sales revenues accounted for approximately 10 percent of the increase in revenues. No other individual factor was significant to the increase in revenues. The increase in revenue would have been greater but for the reduction in basic rates due to the basic rate regulations issued by the FCC in May 1993 with which the Partnership complied effective September 1, 1993. Operating, general and administrative expense increased $1,002,314, or approximately 8 percent, from $12,052,351 in 1992 to $13,054,665 in 1993. Operating, general and administrative expense represented 48 percent of revenues in 1993 and 1992. Increases in programming fees, due in part to the increase in the subscriber base, accounted for approximately 55 percent of the increase in expenses. An increase in advertising sales related expense, due in part to the increase in advertising revenues, accounted for approximately 16 percent of the increase in expenses. No other individual factor contributed significantly to the increase in operating, general and administrative expenses. Management fees and allocated overhead from the General Partner increased $241,400, or approximately 8 percent, from $2,964,400 in 1992 to $3,205,800 in 1993. The increase was due to the increase in revenues, upon which such fees and allocations are 13 based, and an increase in allocated expenses from the General Partner. Depreciation and amortization increased $482,738, or approximately 6 percent, from $8,415,058 in 1992 to $8,897,796 in 1993 due to capital additions during 1992 and 1993. Operating income decreased $120,307, or approximately 6 percent, from $1,937,255 in 1992 to $1,816,948 in 1993 due to the increases in operating, general and administrative expense, management fees and allocated overhead from the General Partner together with depreciation and amortization expense exceeding the increase in revenue. Operating income before depreciation and amortization increased $362,431, or approximately 4 percent, from $10,352,313 in 1992 to $10,714,744 in 1993 due to the increase in revenues exceeding the increases in operating, general and administrative expenses, management fees and allocated overhead from the General Partner. Interest expense decreased $546,251, or approximately 19 percent, from $2,889,857 in 1992 to $2,343,606 in 1993 due primarily to lower effective interest rates on interest bearing obligations and a lower outstanding balance on the Partnership's credit facility. Loss before equity in net loss of cable television joint venture decreased $533,737, or approximately 57 percent, from $934,267 in 1992 to $400,530 in 1993 primarily due to the decrease in interest expense and increase in operating income. Such losses are the result of the factors discussed above. In addition to the Augusta System owned by it, the Partnership also owns an approximate 9 percent interest in Cable TV Fund 12-BCD Venture (the "Venture"). See Management's Discussion and Analysis of the Venture for details pertaining to its operations. Financial Condition - ------------------- On February 22, 1995, the General Partner entered into a Purchase and Sale Agreement (the "Agreement") with the Partnership, providing for the sale by the Partnership to the General Partner of the Augusta System. The purchase price for the Augusta System is $141,718,000, subject to certain closing adjustments provided by the Agreement. Closing of the sale is subject to a number of conditions, including the approval of the transaction by the holders of a majority of the Partnership's limited partnership interests. The purchase price represents the average of three separate independent appraisals of the fair market value of the Augusta System. Subject to the satisfaction of closing conditions, the transaction is expected to close during 1995. The Partnership will retain its interest in the Venture. During 1994, capital expenditures totaled approximately $4,035,000 in the Partnership's Augusta System. Approximately 40 percent of these expenditures related to the construction of service drops to subscribers' homes. Approximately 23 percent of these expenditures related to the construction of new cable plant. The remaining expenditures were for various system enhancements. Funding for these expenditures was provided by cash on hand and cash generated from operations. During 1995, the Partnership plans to expend approximately $4,484,000 for capital additions. Approximately $1,423,000, or approximately 32 percent, will be used for the construction of service drops to subscribers homes. Approximately $970,000, or approximately 22 percent, will be used to construct new cable plant. The remainder of the anticipated expenditures is for various enhancements in the Augusta System. Funding for these expenditures is expected to be provided by cash on hand and cash generated from operations. Depending upon the timing of the closing of the sale of the Augusta System to the General Partner discussed above, the Partnership likely will make only the portion of the budgeted capital expenditures scheduled to be made during the Partnership's continued ownership of the Augusta System. The balance outstanding on the Partnership's credit facility as of December 31, 1994 was $39,770,000. On December 31, 1991, the then outstanding principal balance of $48,500,000 was converted to a term loan payable in 12 consecutive quarterly installments beginning March 31, 1992 and ending December 31, 1994. The Partnership paid $3,880,000 in such installments during 1994. In December 1994, the General Partner refinanced the credit facility to extend the life of the term loan to December 31, 1999. The term loan will continue to be payable in consecutive quarterly installments. Interest on this agreement is at the Partnership's option of the base rate plus 1/2 percent, where base rate is defined as the greater of the Prime Rate or the Federal Funds Rate plus 1/2 percent, or the CD rate plus 1-5/8 percent or the London Interbank Offered Rate plus 1-1/2 percent. This loan is expected to be paid in full upon closing of the sale of the Augusta System to the General Partner as discussed above. 14 In addition to the Augusta System, which is 100 percent owned, the Partnership owns an approximate 9 percent interest in the Venture. The Partnership's investment in the Venture, accounted for under the equity method, decreased by $1,182,039 in 1994 to a deficit of $1,804,126. This decrease represents the Partnership's proportionate share of losses generated by the Venture. These losses are expected to continue during the coming year. Regulation and Legislation - -------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation of the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC adopted several additional rate orders including an order which revised its earlier-announced regulatory scheme with respect to rates. The Partnership has filed a cost-of-service showing for the Augusta System and thus anticipates no further reductions in rates. The cost-of-service showing has not yet received final approval from franchising authorities, however, and there can be no assurance that the Partnership's cost-of-service showing will prevent further rate reductions until such final approval is received. See Item 1 for further discussion of the provisions of the 1992 Cable Act and the FCC regulations promulgated thereunder. 15 CABLE TV FUND 12-BCD VENTURE ---------------------------- Results of Operations - --------------------- 1994 Compared to 1993 --------------------- Revenues of Cable TV Fund 12-BCD Venture (the "Venture") increased $3,691,546, or approximately 4 percent, from $89,131,530 in 1993 to $92,823,076 in 1994. Between December 31, 1993 and 1994, the Venture added 14,878 basic subscribers, an increase of approximately 7 percent. This increase in basic subscribers accounted for approximately 37 percent of the increase in revenues. Increases in advertising sales revenue accounted for approximately 28 percent of the increase in revenues. Increases in premium service and pay-per-view revenues accounted for approximately 27 percent of the increase. The increase in revenues would have been greater but for the reduction in basic rates due to new basic rate regulations issued by the FCC in May 1993 with which the Venture complied effective September 1, 1993. No other single factor significantly affected the increase in revenues. Operating, general and administrative expenses in the Venture's systems increased $4,057,270, or approximately 8 percent, from $52,073,984 in 1993 to $56,131,254 in 1994. Operating, general and administrative expense represented 58 percent and 60 percent of revenue in 1993 and in 1994, respectively. The increase in operating, general and administrative expense was due to increases in subscriber related costs, programming fees and marketing related costs. No other single factor significantly affected the increase in operating, general and administrative expenses. Management fees and allocated overhead from Jones Intercable, Inc. increased $1,086,904, or approximately 10 percent, from $10,505,360 in 1993 to $11,592,264 in 1994 due to the increase in revenues, upon which such fees and allocations are based, and an increase in allocated expenses from Jones Intercable, Inc. Depreciation and amortization expense decreased $992,963, or approximately 4 percent, from $25,651,237 in 1993 to $24,658,274 in 1994. The decrease is due to the maturation of the Venture's asset base. The Venture's operating income decreased $459,665 or approximately 51 percent, from $900,949 in 1993 to $441,284 in 1994. This decrease is the result of increases in operating, general and administrative expenses and management fees and allocated overhead from Jones Intercable, Inc. exceeding the increases in revenue and offset by the decreases in depreciation and amortization expenses. Operating income before depreciation and amortization decreased $1,452,628, or approximately 5 percent, from $26,552,186 in 1993 to $25,099,558 in 1994. This decrease is due to the increase in operating, general, and administrative expenses and management fees and allocated overhead from Jones Intercable, Inc. exceeding the increase in revenues. Interest expense increased $1,318,943, or 11 percent, from $11,989,130 in 1993 to $13,308,073 in 1994 due to higher interest rates and higher outstanding balances on interest bearing obligations. Net loss increased $1,291,826, or approximately 11 percent, from $11,584,416 in 1993 to $12,876,242 in 1994 due to the factors discussed above. 1993 Compared to 1992 --------------------- Revenues of the Venture increased $5,564,003, or approximately 7 percent, from $83,567,527 in 1992 to $89,131,530 in 1993. Between December 31, 1992 and 1993, the Venture added 7,498 basic subscribers, an increase of approximately 4 percent. This increase in basic subscribers accounted for approximately 32 percent of the increase in revenues. Basic service rate adjustments were responsible for approximately 38 percent of the increase in revenues. Increases in advertising sales revenue accounted for approximately 12 percent of the increase in revenues. Increases in pay-per-view revenue accounted for approximately 14 percent of the increase. The increase in revenues would have been greater but for the reduction in basic rates due to the basic rate regulations issued by the FCC in May 1993 with which the Venture complied effective September 1, 1993. No other single factor significantly affected the increase in revenues. Operating, general and administrative expenses in the Venture's systems increased $3,941,804, or approximately 8 percent, from $48,132,180 in 1992 to $52,073,984 in 1993. Operating, general and administrative expense represented 58 percent of revenue in 1993 and in 1992. The increase in operating, general and administrative expense was due to 16 increases in subscriber related costs, programming fees and marketing related costs. No other single factor significantly due to the increase in revenues, upon which such fees and allocations are based, and an increase in allocated expenses from Jones Intercable, Inc. Depreciation and amortization expense decreased $1,113,583, or approximately 4 percent, from $26,764,820 in 1992 to $25,651,237 in 1993. The decrease was due to the maturation of the Venture's asset base. The Venture recorded operating income of $900,949 for 1993 compared to an operating loss of $1,087,963 for 1992. This change is the result of increases in revenue and the decreases in depreciation and amortization expenses exceeding the increases in operating, general and administrative expenses and management fees and allocated overhead from Jones Intercable, Inc. Operating income before depreciation and amortization increased $875,329, or approximately 3 percent, from $25,676,857 in 1992 to $26,552,186 in 1993. This increase was due to the increase in revenues exceeding the increase in operating, general, and administrative expenses and administrative fees and allocated overhead from Jones Intercable, Inc. Interest expense decreased $33,744, or less than 1 percent, from $12,022,874 in 1992 to $11,989,130 in 1993 due to lower interest rates on interest bearing obligations, which were offset, in part, by higher balances on such obligations. The 1992 expense primarily represented the Sunbelt litigation settlement. The settlement was accrued by the Venture in 1992 and paid by the Venture in March 1993. Net loss decreased $3,299,949, or approximately 22 percent, from $14,884,365 in 1992 to $11,584,416 in 1993 due to the factors discussed above. These losses are expected to continue in the future. Financial Condition - ------------------- Capital expenditures for the Venture totaled approximately $21,000,000 during 1994. Service drops to homes accounted for approximately 30 percent of the capital expenditures. New plant construction accounted for approximately 19 percent of the capital expenditures. Approximately 7 percent of capital expenditures was for converters. The upgrade of the Venture's Albuquerque, New Mexico system accounted for approximately 5 percent of capital expenditures. The remaining expenditures related to various system enhancements. These capital expenditures were funded primarily from cash generated from operations and borrowings under the Venture's credit facility. Expected capital expenditures for 1995 are approximately $20,000,000. Service drops to homes are anticipated to account for approximately 32 percent. Approximately 23 percent of budgeted capital expenditures is for new plant construction. The remainder of the expenditures are for various system enhancements in all of the Venture's systems. Funding for these expenditures is expected to be provided by cash on hand, cash generated from operations and borrowings from the Venture's credit facility. The Venture has sufficient sources of capital available in its ability to generate cash from operations and to borrow under its credit facility to meet its presently anticipated needs. The Venture's debt arrangements consist of $93,000,000 of Senior Notes placed with a group of institutional lenders and a revolving credit agreement with a group of commercial bank lenders. The Senior Notes have a fixed interest rate of 8.64 percent and a final maturity date of March 31, 2000. The Senior Notes call for interest only payments for the first four years, with interest and accelerating amortization of principal payments for the next four years. Interest is payable semi- annually. The Senior Notes carry a "make-whole" premium, which is a prepayment penalty, if the notes are prepaid prior to maturity. The make-whole premium protects the lenders in the event that prepaid funds are reinvested at a rate below 8.64 percent, and is calculated per the note agreement. The revolving credit period on the Venture's $90,000,000 credit facility expired on March 31, 1994. The then-outstanding balance of $84,300,000 converted to a term loan payable in quarterly installments which began June 30, 1994. The Venture repaid $758,700 of this loan in the second quarter. In September 1994, however, the General Partner completed negotiations to extend the revolving credit period and revised the commitment to $87,000,000. The balance outstanding at December 31, 1994 was $86,541,300. Under the new terms of this credit facility, the loan will convert to a term loan on March 31, 1996 with quarterly installments beginning June 30, 1996 and a final payment due March 31, 2000. Interest is at the Venture's option of LIBOR plus 1.25 percent to 1.75 percent, the CD rate plus 1.375 percent to 1.875 percent or the Base Rate plus 0 percent to .50 percent. The effective interest rates on amounts outstanding on the Venture's term credit facility as of December 31, 1994 and 1993 were 7.26 percent and 5.08 percent, respectively. 17 Both lending facilities are equal in standing with the other, and both are equally secured by the assets of the Venture. Regulation and Legislation - -------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation in the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC adopted several additional rate orders including an order which revised its earlier-announced regulatory scheme with respect to rates. The Venture has filed cost-of-service showings for its systems and thus anticipates no further reductions in rates. The cost-of-service showings have not yet received final approval from franchising authorities, however, and there can be no assurance that the Partnership's cost-of-service showing will prevent further rate reductions until such final approval is received. See Item 1 for further discussion of the provisions of the 1992 Cable Act and the FCC regulations promulgated thereunder. 18 Item 8. Financial Statements - ----------------------------- CABLE TV FUND 12-B AND ---------------------- CABLE TV FUND 12-BCD VENTURE ---------------------------- FINANCIAL STATEMENTS -------------------- AS OF DECEMBER 31, 1994 AND 1993 -------------------------------- INDEX ----- Page --------------------------- 12-B 12-BCD ---- ------ Report of Independent Public Accountants 20 31 Balance Sheets 21 32 Statements of Operations 23 34 Statements of Partners' Capital (Deficit) 24 35 Statements of Cash Flows 25 36 Notes to Financial Statements 26 37 19 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Partners of Cable TV Fund 12-B: We have audited the accompanying balance sheets of CABLE TV FUND 12-B (a Colorado limited partnership) as of December 31, 1994 and 1993, and the related statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1994. 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 12-B as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, March 8, 1995. 20 CABLE TV FUND 12-B ------------------ (A Limited Partnership) BALANCE SHEETS --------------
December 31, ---------------------------- ASSETS 1994 1993 ------ ------------ ------------ CASH $ 3,782,989 $ 4,856,992 TRADE RECEIVABLES, less allowance for doubtful receivables of $79,128 and $90,839 at December 31, 1994 and 1993, respectively 860,247 1,011,740 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 78,503,036 74,468,377 Less-accumulated depreciation (37,429,022) (30,740,891) ------------ ------------ 41,074,014 43,727,486 Franchise costs, net of accumulated amortization of $25,063,424 and $22,377,932 at December 31, 1994 and 1993, respectively 14,051,348 16,736,840 Loss in excess of investment in cable television joint venture (1,804,126) (622,087) ------------ ------------ Total investment in cable television properties 53,321,236 59,842,239 DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 578,713 374,054 ------------ ------------ Total assets $ 58,543,185 $ 66,085,025 ============ ============
The accompanying notes to financial statements are an integral part of these balance sheets. 21 CABLE TV FUND 12-B ------------------ (A Limited Partnership) BALANCE SHEETS --------------
December 31, ---------------------------- LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1994 1993 - ------------------------------------------- ------------ ------------ LIABILITIES: Debt $ 39,959,041 $ 43,831,074 Accounts payable- Trade 63,438 136,325 General Partner 112,495 163,266 Accrued liabilities 924,648 1,091,860 Subscriber prepayments 113,843 124,535 ------------ ------------ Total liabilities 41,173,465 45,347,060 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 7) PARTNERS' CAPITAL (DEFICIT): General Partner- Contributed capital 1,000 1,000 Accumulated deficit (305,152) (271,470) ------------ ------------ (304,152) (270,470) ------------ ------------ Limited Partners- Net contributed capital (111,035 units outstanding at December 31, 1994 and 1993) 47,645,060 47,645,060 Accumulated deficit (29,971,188) (26,636,625) ------------ ------------ 17,673,872 21,008,435 ------------ ------------ Total liabilities and partners' capital (deficit) $ 58,543,185 $ 66,085,025 ============ ============
The accompanying notes to financial statements are an integral part of these balance sheets. 22 CABLE TV FUND 12-B ------------------ (A Limited Partnership) STATEMENTS OF OPERATIONS ------------------------
Year Ended December 31, ---------------------------------------------- 1994 1993 1992 ----------- ----------- ----------- REVENUES $26,956,006 $26,975,209 $25,369,064 COSTS AND EXPENSES: Operating, general and administrative 13,932,687 13,054,665 12,052,351 Management fees and allocated overhead from General Partner 3,392,884 3,205,800 2,964,400 Depreciation and amortization 9,380,877 8,897,796 8,415,058 ----------- ----------- ----------- OPERATING INCOME 249,558 1,816,948 1,937,255 ----------- ----------- ----------- OTHER INCOME (EXPENSE): Interest expense (2,555,513) (2,343,606) (2,889,857) Other, net 119,749 126,128 18,335 ----------- ----------- ----------- Total other income (expense) (2,435,764) (2,217,478) (2,871,522) ----------- ----------- ----------- LOSS BEFORE EQUITY IN NET LOSS OF CABLE TELEVISION JOINT VENTURE (2,186,206) (400,530) (934,267) EQUITY IN NET LOSS OF CABLE TELEVISION JOINT VENTURE (1,182,039) (1,063,449) (1,366,385) ----------- ----------- ----------- NET LOSS $(3,368,245) $(1,463,979) $(2,300,652) =========== =========== =========== ALLOCATION OF NET LOSS: General Partner $ (33,682) $ (14,640) $ (23,007) =========== =========== =========== Limited Partners $(3,334,563) $(1,449,339) $(2,277,645) =========== =========== =========== NET LOSS PER LIMITED PARTNERSHIP UNIT $(30.03) $(13.05) $(20.51) =========== =========== =========== WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 111,035 111,035 111,035 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 23 CABLE TV FUND 12-B ------------------ (A Limited Partnership) STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
Year Ended December 31, --------------------------------------- 1994 1993 1992 ----------- ----------- ----------- GENERAL PARTNER: Balance, beginning of period $ (270,470) $ (255,830) $ (232,823) Net loss for period (33,682) (14,640) (23,007) ----------- ----------- ----------- Balance, end of period $ (304,152) $ (270,470) $ (255,830) =========== =========== =========== LIMITED PARTNERS: Balance, beginning of period $21,008,435 $22,457,774 $24,735,419 Net loss for period (3,334,563) (1,449,339) (2,277,645) ----------- ----------- ----------- Balance, end of period $17,673,872 $21,008,435 $22,457,774 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 24 CABLE TV FUND 12-B ------------------ (A Limited Partnership) STATEMENTS OF CASH FLOW
Year Ended December 31, ---------------------------------------- 1994 1993 1992 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(3,368,245) $(1,463,979) $(2,300,652) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 9,380,877 8,897,796 8,415,058 Amortization of interest rate protection contract - - 33,963 Equity in net loss of cable television joint venture 1,182,039 1,063,449 1,366,385 Decrease (increase) in trade receivables 151,493 (109,776) (302,528) Decrease (increase) in deposits, prepaid expenses and deferred charges (211,913) 119,594 (409,048) Increase (decrease) in trade accounts payable, accrued liabilities and subscriber prepayments (250,791) 134,104 141,333 Increase (decrease) in amount due General Partner (50,771) (125,767) 73,264 ----------- ----------- ----------- Net cash provided by operating activities 6,832,689 8,515,421 7,017,775 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment (4,034,659) (4,096,862) (3,840,518) ----------- ----------- ----------- Net cash used in investing activities (4,034,659) (4,096,862) (3,840,518) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 124,133 74,766 162,465 Repayment of debt (3,996,166) (3,041,200) (2,090,548) ----------- ----------- ----------- Net cash used in financing activities (3,872,033) (2,966,434) (1,928,083) ----------- ----------- ----------- Increase (decrease) in cash (1,074,003) 1,452,125 1,249,174 Cash, beginning of period 4,856,992 3,404,867 2,155,693 ----------- ----------- ----------- Cash, end of period $ 3,782,989 $ 4,856,992 $ 3,404,867 =========== =========== =========== SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 2,806,739 $ 2,374,601 $ 2,606,651 =========== =========== ===========
The accompanying notes to financial statements are an integral part of these statements. 25 CABLE TV FUND 12-B ------------------ (A Limited Partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) ORGANIZATION AND PARTNERS' INTERESTS ------------------------------------ Formation and Business ---------------------- Cable TV Fund 12-B, Ltd. (the "Partnership"), a Colorado limited partnership, was formed on June 5, 1985, 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., a publicly held Colorado corporation, is the "General Partner" and manages the Partnership. The General Partner and its subsidiaries also own and operate cable television systems. In addition, the General Partner manages cable television systems for other limited partnerships for which it is general partner and, also, for affiliated entities. In addition to the Augusta, Georgia cable television system, which it directly owns, the Partnership owns an approximate 9 percent interest in Cable TV Fund 12-BCD Venture (the "Venture"), through a capital contribution made to the Venture in April 1986 of $12,437,500. The Venture acquired certain cable television systems in New Mexico, California and Florida during 1986. The Venture incurred losses of $12,876,242, $11,584,416 and $14,884,365 in 1994, 1993 and 1992, respectively, of which $1,182,039, $1,063,449 and $1,366,385 was allocated to the Partnership during 1994, 1993 and 1992, respectively. Contributed Capital -------------------- The capitalization of the Partnership is set forth in the accompanying statements of partners' capital (deficit). No limited partner is obligated to make any additional contributions to partnership capital. The General Partner purchased its 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 the General Partner, except for income or gain from the sale or disposition of cable television properties, which will be allocated to the partners based upon a 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. Investment in Cable Television Joint Venture -------------------------------------------- The Partnership's investment in the Venture is accounted for under the equity method due to the Partnership's influence on the Venture as a General Partner. The operations of the Venture are significant to the Partnership and should be reviewed in conjunction with these financial statements. Reference is made to the accompanying financial statements of the Venture on pages 31 to 41. 26 Property, Plant and Equipment ----------------------------- Depreciation of property, plant and equipment is provided primarily using the straight-line method over the following estimated service lives: Cable distribution systems 5 - 12 years Equipment and tools 3 - 5 years Office furniture and equipment 5 years Buildings 10 - 20 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 are being amortized using the straight- line method over the following remaining estimated useful lives: Franchise costs 4 - 9 years Revenue Recognition ------------------- Subscriber prepayments are initially deferred and recognized as revenue when earned. (3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES ---------------------------------------------------- Management Fees, Distribution Ratios and Reimbursements ------------------------------------------------------- The General Partner 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. Management fees for the years ended December 31, 1994, 1993 and 1992 (excluding the Partnership's nine percent interest in the Venture) were $1,347,800, $1,348,760 and $1,268,453, 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 the General Partner. Any distributions other than interest income on limited partnership 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 a 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 by the limited partners; the balance, 75 percent to the limited partners and 25 percent to the General Partner. The Partnership reimburses 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. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to each partnership managed. Remaining overhead costs are allocated based on revenues and/or the cost of assets managed for the partnership. Effective December 1, 1993, the allocation method was changed to be based only on revenue, which the General Partner believes provides a more accurate method of allocation. 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. Reimbursements by the Partnership to the General Partner for allocated overhead and administrative expenses (excluding the Partnership's nine percent interest in the Venture) were $2,045,084, $1,857,040, and $1,695,947 in 1994, 1993, and 1992, respectively. 27 The Partnership was charged interest on amounts due the General Partner at a rate which approximated the General Partner's weighted average cost of borrowing. Total interest charged the Partnership by the General Partner was $9,903, $-0- and $29,205 in 1994, 1993 and 1992, respectively. Payments to/from Affiliates for Programming Services ---------------------------------------------------- The Partnership receives programming from Superaudio, The Mind Extension University and Jones Computer Network, affiliates of the General Partner. Payments to Superaudio totaled $39,929, $40,882 and $40,430 in 1994, 1993 and 1992, respectively. Payments to The Mind Extension University totaled $36,178, $23,769 and $23,165 in 1994, 1993 and 1992, respectively. Payments to Jones Computer Network, which initiated service in 1994, totaled $5,373. The Partnership receives a commission from Product Information Network, an affiliate of Intercable, based on a percentage of advertising sales and number of subscribers. Product Information Network, which initiated service in 1994, paid commissions to the Partnership totalling $24,531. (4) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment as of December 31, 1994 and 1993, consisted of the following:
December 31, ---------------------------- 1994 1993 ------------- ------------- Cable distribution system $ 74,244,802 $ 70,454,984 Equipment and tools 1,124,216 1,042,724 Office furniture and equipment 996,451 967,465 Buildings 644,202 638,475 Vehicles 1,364,365 1,235,729 Land 129,000 129,000 ------------ ------------ 78,503,036 74,468,377 Less- Accumulated depreciation (37,429,022) (30,740,891) ------------ ------------ $ 41,074,014 $ 43,727,486 ============ ============
(5) DEBT ---- Debt consists of the following: December 31, --------------------------- 1994 1993 ------------- ------------ Lending institutions- Term loan $ 39,770,000 $ 43,650,000 Capital lease obligations 189,041 181,074 ------------ ------------ $ 39,959,041 $ 43,831,074 ============ ============
The balance outstanding on the Partnership's credit facility as of December 31, 1994 was $39,770,000. On December 31, 1991, the then outstanding principal balance of $48,500,000 was converted to a term loan payable in 12 consecutive quarterly installments beginning March 31, 1992 and ending December 31, 1994. The Partnership paid $3,880,000 in such installments during 1994. In December 1994, the General Partner refinanced the credit facility to extend the life of the term loan to December 31, 1999. The term loan will continue to be payable in consecutive quarterly installments. Interest on this agreement is at the Partnership's option of the base rate plus 1/2 percent, where base rate is defined as the greater of the Prime Rate or the Federal Funds Rate plus 1/2 percent, or the CD rate plus 1-5/8 percent or the London Interbank Offered Rate plus 1-1/2 percent. This loan is expected to be paid in full upon closing of the sale of the Augusta System to the General Partner as discussed in Note 8. 28 The effective interest rates on outstanding obligations as of December 31, 1994 and 1993 were 7.64 percent and 4.98 percent, respectively. Installments due on debt principal for each of the five years in the period ending December 31, 1999, respectively, are: $5,027,962, $7,016,462, $9,004,962, $8,967,155 and $9,942,500. At December 31, 1994, substantially all of the Partnership's property, plant and equipment secured the above indebtedness. (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 the General Partner. The Partnership'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 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 loss reported to the partners is different from that reported in the statements of operations due to the difference in depreciation recognized under generally accepted accounting principles and the expense allowed for tax purposes under the Modified Accelerated Cost Recovery System (MACRS). There are no other significant differences between taxable loss and the net loss reported in the statements of operations. (7) COMMITMENTS AND CONTINGENCIES ----------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation in the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. On February 22, 1994, the FCC adopted several additional rate orders including an order which revised its earlier-announced regulatory scheme with respect to rates. The Partnership has filed a cost-of-service showing in its Augusta System and anticipates no further reductions in rates. The cost-of-service showing has not received final approval from franchising authorities. The Partnership rents office and other facilities under various long- term operating lease arrangements. Rent paid under such lease arrangements totaled $19,907, $19,575 and $19,351, respectively, for the years ended December 31, 1994, 1993 and 1992. Minimum commitments for each of the five years in the period ending December 31, 1999, and thereafter are as follows: 1995 $21,219 1996 16,400 1997 14,400 1998 14,400 1999 7,400 Thereafter 200 ------- $74,019 =======
29 (8) SALE OF CABLE TELEVISION SYSTEM ------------------------------- On February 22, 1995, the General Partner entered into a Purchase and Sale Agreement (the "Agreement") with the Partnership, providing for the sale by the Partnership to the General Partner of the Augusta System. The purchase price for the Augusta System is $141,718,000, subject to certain closing adjustments provided by the Agreement. Closing of the sale is subject to a number of conditions, including the approval of the transaction by the holders of a majority of the Partnership's limited partnership interests. The purchase price represents the average of three separate independent appraisals of the fair market value of the Augusta System. Subject to the satisfaction of closing conditions, the transaction is expected to close during 1995. The Partnership will retain its interest in the Venture. (9) SUPPLEMENTARY PROFIT AND LOSS INFORMATION ----------------------------------------- Supplementary profit and loss information for the respective years are presented below:
Year Ended December 31, ------------------------------------ 1994 1993 1992 ---------- ---------- ---------- Maintenance and repairs $ 169,466 $ 151,258 $ 171,974 ========== ========== ========== Taxes, other than income and payroll taxes $ 232,068 $ 232,174 $ 224,415 ========== ========== ========== Advertising $ 212,018 $ 136,524 $ 165,447 ========== ========== ========== Depreciation of property, plant and equipment $6,695,385 $6,212,303 $5,729,566 ========== ========== ========== Amortization of intangible assets $2,685,492 $2,685,493 $2,685,492 ========== ========== ==========
30 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- To the Partners of Cable TV Fund 12-BCD Venture: We have audited the accompanying balance sheets of CABLE TV FUND 12-BCD VENTURE (a Colorado general partnership) as of December 31, 1994 and 1993, and the related statements of operations, partners' capital (deficit) and cash flows for each of the three years in the period ended December 31, 1994. 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 Fund 12-BCD Venture as of December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. ARTHUR ANDERSEN LLP Denver, Colorado, March 8, 1995. 31 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) BALANCE SHEETS --------------
December 31, ------------------------------- ASSETS 1994 1993 ------ ------------- ------------- CASH AND CASH EQUIVALENTS $ 4,391,602 $ 1,962,657 RECEIVABLES: Trade receivables, less allowance for doubtful receivables of $339,139 and $265,542 at December 31, 1994 and 1993, respectively 3,807,271 2,954,487 Affiliated entity 159,137 159,137 INVESTMENT IN CABLE TELEVISION PROPERTIES: Property, plant and equipment, at cost 272,998,315 251,810,225 Less-accumulated depreciation (135,711,082) (117,498,465) ------------- ------------- 137,287,233 134,311,760 Franchise costs, net of accumulated amortization of $48,828,848 and $43,008,846 at December 31, 1994 and 1993, respectively 18,219,795 23,539,797 Subscriber lists, net of accumulated amortization of $32,743,306 and $32,420,504 at December 31, 1994 and 1993, respectively - 322,802 Cost in excess of interests in net assets purchased, net of accumulated amortization of $1,280,756 and $1,128,284 at December 31, 1994 and 1993, respectively 4,775,672 4,928,144 ------------- ------------- Total investment in cable television properties 160,282,700 163,102,503 DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 2,035,204 1,491,768 ------------- ------------- Total assets $ 170,675,914 $ 169,670,552 ============= =============
The accompanying notes to financial statements are an integral part of these balance sheets. 32 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) BALANCE SHEETS --------------
December 31, ------------------------------ LIABILITIES AND PARTNERS' DEFICIT 1994 1993 --------------------------------- ------------- ------------- LIABILITIES: Debt $ 180,402,748 $ 167,698,697 Accounts payable- Trade 491,846 830,408 Jones Intercable, Inc. 616,810 188,430 Accrued liabilities 7,125,482 6,003,390 Subscriber prepayments 644,779 679,136 ------------- ------------- Total liabilities 189,281,665 175,400,061 ------------- ------------- COMMITMENTS AND CONTINGENCIES (Note 7) PARTNERS' DEFICIT: Contributed capital 135,490,944 135,490,944 Accumulated deficit (154,096,695) (141,220,453) ------------- ------------- (18,605,751) (5,729,509) ------------- ------------- Total liabilities and partners' deficit $ 170,675,914 $ 169,670,552 ============= =============
The accompanying notes to financial statements are an integral part of these balance sheets. 33 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) STATEMENTS OF OPERATIONS ------------------------
Year Ended December 31, ------------------------------------------- 1994 1993 1992 ------------ ------------ ------------ REVENUES $ 92,823,076 $ 89,131,530 $ 83,567,527 COSTS AND EXPENSES: Operating, general and administrative 56,131,254 52,073,984 48,132,180 Management fees and allocated overhead from Jones Intercable, Inc. 11,592,264 10,505,360 9,758,490 Depreciation and amortization 24,658,274 25,651,237 26,764,820 ------------ ------------ ------------ OPERATING INCOME (LOSS) 441,284 900,949 (1,087,963) ------------ ------------ ------------ OTHER INCOME (EXPENSE): Interest expense (13,308,073) (11,989,130) (12,022,874) Gain on sale of assets - - 935,305 Other, net (9,453) (496,235) (2,708,833) ------------ ------------ ------------ Total other income (expense) (13,317,526) (12,485,365) (13,796,402) ------------ ------------ ------------ NET LOSS $(12,876,242) $(11,584,416) $(14,884,365) ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. 34 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) STATEMENTS OF PARTNERS' CAPITAL (DEFICIT) -----------------------------------------
Year Ended December 31, ------------------------------------------- 1994 1993 1992 ------------ ------------ ------------ CABLE TV FUND 12-B (9%): Balance, beginning of year $ (622,087) $ 441,362 $ 1,807,747 Net loss for year (1,182,039) (1,063,449) (1,366,385) ------------ ------------ ------------ Balance, end of year $ (1,804,126) $ (622,087) $ 441,362 ============ ============ ============ CABLE TV FUND 12-C (15%): Balance, beginning of year $ (1,035,256) $ 734,611 $ 3,008,644 Net loss for year (1,967,232) (1,769,867) (2,274,033) ------------ ------------ ------------ Balance, end of year $ (3,002,488) $ (1,035,256) $ 734,611 ============ ============ ============ CABLE TV FUND 12-D (76%): Balance, beginning of year $ (4,072,166) $ 4,678,934 $ 15,922,881 Net loss for year (9,726,971) (8,751,100) (11,243,947) ------------ ------------ ------------ Balance, end of year $(13,799,137) $ (4,072,166) $ 4,678,934 ============ ============ ============ TOTAL: Balance, beginning of year $ (5,729,509) $ 5,854,907 $ 20,739,272 Net loss for year (12,876,242) (11,584,416) (14,884,365) ------------ ------------ ------------ Balance, end of year $(18,605,751) $ (5,729,509) $ 5,854,907 ============ ============ ============
The accompanying notes to financial statements are an integral part of these statements. 35 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) STATEMENTS OF CASH FLOWS ------------------------
Year Ended December 31, --------------------------------------------- 1994 1993 1992 ------------- ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(12,876,242) $(11,584,416) $ (14,884,365) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 24,658,274 25,651,237 26,764,820 Gain on sale of cable television system - - (935,305) Amortization of interest rate protection contract - - 263,574 Amortization of loan fees 151,380 121,062 90,797 Increase in trade receivables (852,784) (147,286) (457,715) Increase in deposits, prepaid expenses and deferred charges (694,816) (434,700) (2,155,866) Increase (decrease) in trade accounts payable, accrued liabilities and subscriber prepayments 749,173 (1,234,645) 4,390,946 Increase (decrease) in amount due Jones Intercable, Inc. 428,380 (323,216) (4,095,194) ------------ ------------ ------------- Net cash provided by operating activities 11,563,365 12,048,036 8,981,692 ------------ ------------ ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net (21,338,471) (18,711,639) (15,777,221) Proceeds from the sale of cable television system - - 2,620,000 Franchise settlement (500,000) - - ------------ ------------ ------------- Net cash used in investing activities (21,838,471) (18,711,639) (13,157,221) ------------ ------------ ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 16,268,610 11,954,437 164,830,973 Repayment of debt (3,564,559) (4,696,228) (160,522,104) ------------ ------------ ------------- Net cash provided by financing activities 12,704,051 7,258,209 4,308,869 ------------ ------------ ------------- Increase in cash and cash equivalents 2,428,945 594,606 133,340 Cash and cash equivalents, beginning of year 1,962,657 1,368,051 1,234,711 ------------ ------------ ------------- Cash and cash equivalents, end of year $ 4,391,602 $ 1,962,657 $ 1,368,051 ============ ============ ============= SUPPLEMENTAL CASH FLOW DISCLOSURE: Interest paid $ 12,450,869 $ 12,141,838 $ 9,805,956 ============ ============ =============
The accompanying notes to financial statements are an integral part of these statements. 36 CABLE TV FUND 12-BCD VENTURE ---------------------------- (A General Partnership) NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) ORGANIZATION AND PARTNERS' INTERESTS ------------------------------------ Formation and Business ---------------------- On March 17, 1986, Cable TV Funds 12-B, 12-C and 12-D (the "Venture Partners") formed Cable TV Fund 12-BCD Venture (the "Venture"). The Venture was formed for the purpose of acquiring certain cable television systems serving Tampa, Florida; Albuquerque, New Mexico; and Palmdale, California. Jones Intercable, Inc. ("Intercable"), the "General Partner" of each of the Venture Partners, manages the Venture. 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. Contributed Capital ------------------- The capitalization of the Venture is set forth in the accompanying statements of partners' capital (deficit). All Venture distributions, including those made from cash flow, from the sale or refinancing of Partnership property and on dissolution of the Venture, shall be made to the Venture Partners in proportion to their approximate respective interests in the Partnership as follows: Cable TV Fund 12-B 9% Cable TV Fund 12-C 15% Cable TV Fund 12-D 76% ---- 100% ---- Venture Acquisitions and Sales ------------------------------ The Venture owns and operates the cable television systems serving certain areas in and around Albuquerque, New Mexico; Palmdale, California; and Tampa, Florida. On September 20, 1991, the Venture entered into a purchase and sale agreement with an unaffiliated party to sell the cable television system serving the area in and around California City, California for $2,620,000. Closing on this transaction occurred on April 1, 1992. The proceeds were used to repay a portion of the amounts outstanding under the Venture's credit facility. The Venture's acquisitions were accounted for as purchases with the individual purchase prices allocated to tangible and intangible assets based upon an independent appraisal. The method of allocation of purchase price was as follows: first, to the fair value of the net tangible assets acquired; second, to the value of subscriber lists; third, to franchise costs; and fourth, to cost in excess of interests in net assets purchased. Brokerage fees paid to an affiliate of Intercable and other system acquisition costs were capitalized and included in the cost of intangible assets. (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 Venture's tax returns are also prepared on the accrual basis. 37 Property, Plant and Equipment ----------------------------- Depreciation 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 Office furniture and equipment 5 years Buildings 20 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 cost in excess of interests in net assets purchased are amortized using the straight-line method over the following remaining estimated useful lives: Franchise costs 2 - 10 years Cost in excess of interests in net assets purchased 31 years Revenue Recognition ------------------- Subscriber prepayments are initially deferred and recognized as revenue when earned. Cash and Cash Equivalents ------------------------- For purposes of the Statements of Cash Flows, the Venture considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Reclassifications ----------------- Certain prior year amounts have been reclassified to conform to the 1994 presentation. (3) TRANSACTIONS WITH JONES INTERCABLE, INC. AND AFFILIATES ------------------------------------------------------- Brokerage Fees -------------- The Jones Group, Ltd., an affiliate of Intercable, performs brokerage services for the Venture in connection with Venture acquisitions and sales. For brokering two acquisitions in the Tampa System for the Venture, The Jones Group, Ltd. was paid fees totaling $13,120, or 4 percent of the transaction prices, during 1992. Additionally, The Jones Group, Ltd. received $65,500, or 2.5 percent of the transaction price, during 1992 for brokering a sale in the Palmdale System. There were no brokerage fees paid during the years ended December 31, 1994 and 1993. Management Fees and Reimbursements ---------------------------------- Intercable manages the Venture and receives a fee for its services equal to 5 percent of the gross revenues of the Venture, excluding revenues from the sale of cable television systems or franchises. Management fees paid to Intercable for the years ended December 31, 1994, 1993 and 1992 were $4,641,154, $4,456,577 and $4,178,376, respectively. The Venture 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 Venture. Allocations of personnel costs are based primarily on actual time spent by employees of 38 Intercable with respect to each entity managed. Remaining overhead costs are allocated based on total revenues and/or the cost of assets managed for the entity. Effective December 1, 1993, the allocation method was changed to be based only on revenue, which Intercable believes provides a more accurate method of allocation. 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. Overhead and administrative expenses allocated to the Venture by Intercable during the years ended December 31, 1994, 1993 and 1992 were $6,951,110, $6,048,783 and $5,580,114, respectively. The Venture was charged interest during 1994 at an average interest rate of 10 percent on the amounts due Intercable, which approximated Intercable's cost of borrowing. Total interest charged the Venture by Intercable was $33,627, $15,477 and $126,073 during 1994, 1993 and 1992, respectively. Payments to Affiliates for Programming Services ----------------------------------------------- The Venture receives programming from Superaudio, The Mind Extension University and Jones Computer Network, affiliates of Intercable. Payments to Superaudio totaled $135,346, $134,179 and $132,091 in 1994, 1993 and 1992, respectively. Payments to The Mind Extension University totaled $124,043, $79,002 and $76,676 in 1994, 1993 and 1992, respectively. Payments to Jones Computer Network, which initiated service in 1994, totaled $71,961. (4) PROPERTY, PLANT AND EQUIPMENT ----------------------------- Property, plant and equipment as of December 31, 1994 and 1993, consisted of the following:
December 31, ------------------------------ 1994 1993 ------------- ------------- Cable distribution system $ 248,337,681 $ 230,055,817 Equipment and tools 7,721,861 6,943,636 Office furniture and equipment 3,014,125 2,490,235 Buildings 7,695,925 6,405,512 Vehicles 5,277,753 4,963,768 Land 950,970 951,257 ------------- ------------- 272,998,315 251,810,225 Less-Accumulated Depreciation (135,711,082) (117,498,465) ------------- ------------- $ 137,287,233 $ 134,311,760 ============= ============= (5) DEBT ---- Debt consists of the following: December 31, -------------------------- 1994 1993 ------------ ------------ Lending institutions- Revolving credit and term loan $ 86,541,300 $ 73,800,000 Senior secured notes 93,000,000 93,000,000 Capital lease obligations 861,448 898,697 ------------ ------------ $180,402,748 $167,698,697 ============ ============
The Venture's debt arrangements consist of $93,000,000 of Senior Notes placed with a group of institutional lenders and a revolving credit agreement with a group of commercial bank lenders. 39 The Senior Notes have a fixed interest rate of 8.64 percent and a final maturity date of March 31, 2000. The Senior Notes call for interest only payments for the first four years, with interest and accelerating amortization of principal payments for the next four years. Interest is payable semi- annually. The Senior Notes carry a "make-whole" premium, which is a prepayment penalty, if the notes are prepaid prior to maturity. The make-whole premium protects the lenders in the event that prepaid funds are reinvested at a rate below 8.64 percent, and is calculated per the note agreement. The revolving credit period on the Venture's $90,000,000 credit facility expired on March 31, 1994. The then-outstanding balance of $84,300,000 converted to a term loan payable in quarterly installments which began June 30, 1994. The Venture repaid $758,700 of this loan in the second quarter. In September 1994, however, the General Partner completed negotiations to extend the revolving credit period and revised the commitment to $87,000,000. The balance outstanding at December 31, 1994 was $86,541,300. Under the new terms of this credit facility, the loan will convert to a term loan on March 31, 1996 with quarterly installments beginning June 30, 1996 and a final payment due March 31, 2000. Interest is at the Venture's option of LIBOR plus 1.25 percent to 1.75 percent, the CD rate plus 1.375 percent to 1.875 percent or the Base Rate plus 0 percent to .50 percent. The effective interest rates on amounts outstanding on the Venture's term credit facility as of December 31, 1994 and 1993 were 7.26 percent and 5.08 percent, respectively. Both lending facilities are equal in standing with the other, and both are equally secured by the assets of the Venture. During 1992 and 1994, the Venture incurred costs associated with renegotiating its debt arrangements. These fees were capitalized and are being amortized over the life of the debt agreements. Installments due on debt principal for each of the five years in the period ending December 31, 1999 and thereafter, respectively, are: $258,434, $14,247,151, $18,716,325, $25,176,742, $31,723,304 and $90,280,792, respectively. (6) INCOME TAXES ------------ Income taxes have not been recorded in the accompanying financial statements because they accrue directly to the partners of Cable TV Funds 12-B, 12-C and 12-D. The Venture's tax returns, the qualification of the Venture 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 Venture's qualification as such, or in changes with respect to the Venture's recorded loss, the tax liability of the Venture's general partners would likely be changed accordingly. Taxable losses 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 losses reported in the statements of operations. 40 (7) COMMITMENTS AND CONTINGENCIES ----------------------------- On October 5, 1992, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") which became effective on December 4, 1992. The 1992 Cable Act generally allows for a greater degree of regulation in the cable television industry. In April 1993, the FCC adopted regulations governing rates for basic and non-basic services. These regulations became effective on September 1, 1993. Such regulations caused reductions in rates for certain regulated services. 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 Venture has filed cost-of-service showings in all of its systems and anticipates no further reductions in rates. The cost-of-service showings have not received final approval from franchising authorities. Offices and other facilities are rented under various long-term lease arrangements. Rent paid under such lease arrangements totaled $345,531, $454,229 and $450,295, respectively, for the years ended December 31, 1994, 1993 and 1992. Minimum commitments under operating leases for the five years in the period ending December 31, 1999 and thereafter are as follows: 1995 $ 475,957 1996 463,812 1997 461,839 1998 464,903 1999 341,973 Thereafter 1,585,751 ---------- $3,794,235 ==========
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION ----------------------------------------- Supplementary profit and loss information for the respective years is presented below:
Year Ended December 31, --------------------------------------- 1994 1993 1992 ----------- ----------- ----------- Maintenance and repairs $ 1,214,978 $ 1,119,086 $ 1,146,319 =========== =========== =========== Taxes, other than income and payroll taxes $ 1,380,350 $ 1,470,476 $ 1,369,852 =========== =========== =========== Advertising $ 1,275,772 $ 1,022,289 $ 1,090,075 =========== =========== =========== Depreciation of property, plant and equipment $18,362,998 $18,772,872 $18,570,055 =========== =========== =========== Amortization of intangible assets $ 6,295,276 $ 6,878,365 $ 8,194,765 =========== =========== ===========
41 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. Name Age Positions with the General Partner ---- --- ---------------------------------- Glenn R. Jones 65 Chairman of the Board and Chief Executive Officer Derek H. Burney 55 Vice Chairman of the Board James B. O'Brien 45 President, Chief Operating Officer and Director Ruth E. Warren 45 Group Vice President/Operations Kevin P. Coyle 43 Group Vice President/Finance Christopher J. Bowick 40 Group Vice President/Technology Timothy J. Burke 44 Group Vice President/Taxation/Administration Raymond L. Vigil 48 Group Vice President/Human Resources and Director Cynthia A. Winning 43 Group Vice President/Marketing Elizabeth M. Steele 43 Vice President/General Counsel/Secretary Larry W. Kaschinske 35 Controller James J. Krejci 53 Director Christine Jones Marocco 39 Director Daniel E. Somers 47 Director Robert S. Zinn 58 Director David K. Zonker 41 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 was elected a member of the Executive Committee of the Board of Directors in April 1985. 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 of the National Cable Television Association, and is a former member of its Executive Committee. 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; and the Women in Cable Accolade in 1990 in recognition of support of this organization. Mr. Jones is also a founding member of the James Madison Council of the Library of Congress and is on the Board of Governors of the American Society of Training and Development. Mr. Derek H. Burney was appointed a Director of the General Partner in December 1994 and Vice Chairman of the Board of Directors in January 1995. He is also a member of the Executive Committee of the Board of Directors. 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 42 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 also President and a Director of Jones Cable Group, Ltd., Jones Global Funds, Inc. and Jones Global Management, Inc., all affiliates of 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 any ethnic minority group 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. 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 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. 43 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. 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 a Group Vice President of the General Partner. Prior to May 1994, he also served as Group Vice President of Jones Futurex, Inc., an affiliate 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, which is engaged in the provision of telecommunications services. Mr. Krejci has been a Director of the General Partner since August 1987. Ms. Christine Jones Marocco was appointed a Director of the General Partner in December 1994. She is the daughter of Glenn R. Jones. Ms. Marocco is also a director of Jones International, Ltd. Mr. Daniel E. Somers was appointed a Director of the General Partner in December 1994 and also serves on the General Partner's Audit Committee. 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. 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. Robert S. Zinn was appointed a Director of the General Partner in December 1994. Mr. Zinn joined the General Partner in January 1991 and is a member of its Legal Department. He is also Vice President/Legal Affairs of Jones International, Ltd. Prior to joining the General Partner, Mr. Zinn was in private law practice in Denver, Colorado for over 25 years. Mr. David K. Zonker was appointed a Director of the General Partner in December 1994. Mr. Zonker has been the President of Jones International Securities, Ltd., a subsidiary of Jones International, Ltd. since January 1984 and he has been its Chief Executive Officer since January 1988. From October 1980 until joining Jones International Securities, Ltd. in January 1984, Mr. Zonker was employed by the General Partner. Mr. Zonker is a member of the Board of Directors of various affiliates of the General Partner, including Jones International Securities, Ltd. Mr. Zonker is licensed by the National Association of Securities Dealers, Inc. and he is a past chairman of the Investment Program Association, a trade organization based in Washington, D.C. that promotes direct investments. He is a member of the Board of Trustees of Graceland College, Lamoni, Iowa; the International Association of Financial Planners and the American and Colorado Institutes of Certified Public Accountants. ITEM 11. EXECUTIVE COMPENSATION -------------------------------- The Partnership has no employees; however, various personnel are required to operate the cable television systems owned by the Partnership. Such personnel are employed by the General Partner and, pursuant to the terms of the limited partnership agreement of the Partnership, the cost of such employment is charged by the General Partner to the Partnership as a direct reimbursement item. See Item 13. 44 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 as contemplated by the limited partnership agreement of the Partnership. The General Partner believes that the terms of such transactions are generally as favorable as could be obtained by the Partnership from unaffiliated parties. This determination has been made by the General Partner in good faith, but none of the terms were or will be negotiated at arm's-length and there can be no assurance that the terms of such transactions have been or will be as favorable as those that could have been obtained by the Partnership from unaffiliated parties. The General Partner charges the Partnership a management fee, and the Partnership reimburses the General Partner for certain allocated overhead and administrative expenses in accordance with the terms of the limited partnership agreement of the Partnership. 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. Allocations of personnel costs are based primarily on actual time spent by employees of the General Partner with respect to the Partnership managed. Remaining overhead costs are allocated based on revenues and/or the costs of assets managed for the Partnership. 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 from the Partnership. The interest rate charged the Partnership approximates the General Partner's weighted average cost of borrowing. From time to time, The Jones Group, Ltd., an affiliate of the General Partner, performs brokerage services for the Partnership and the Venture in connection with Partnership and Venture acquisitions and sales from or to unaffiliated entities. 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. Jones Infomercial Networks, Inc. ("Infomercial"), 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 two- thirds and one-third between Infomercial and the Partnership. During the year ended December 31, 1994, the Partnership received revenues from Infomercial of $24,531. The charges to the Partnership for related party transactions are as follows for the periods indicated: 45
At December 31, ---------------------------------- Cable TV Fund 12-B 1994 1993 1992 - ------------------ ---- ---- ---- Management fees $1,347,800 $1,348,760 $1,168,453 Allocation of expenses 2,045,084 1,857,040 1,695,947 Interest expense -0- -0- 29,205 Amount of notes and advances outstanding 112,495 163,266 289,033 Highest amount of notes and advances 163,266 289,033 289,033 outstanding Programming fees: Superaudio 39,929 40,882 40,430 Mind Extension University 36,178 23,769 23,165 Jones Computer Network 5,373 -0- -0- At December 31, ---------------------------------- Cable TV Fund 12-BCD 1994 1993 1992 - -------------------- ---- ---- ---- Management fees $4,641,154 $4,456,577 $4,178,376 Brokerage fees -0- -0- 78,620 Allocation of expenses 6,951,110 6,048,783 5,580,114 Interest expense 33,627 15,477 126,073 Amount of notes and advances outstanding 616,810 188,430 511,646 Highest amount of notes and advances 929,508 511,646 5,660,955 outstanding Programming fees: Superaudio 135,346 134,179 132,091 Mind Extension University 124,043 79,002 76,676 Jones Computer Network 71,961 -0- -0-
46 PART IV. ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES ------------------------------------------------- AND REPORTS ON FORM 8-K ----------------------- (a)1. See index to financial statements for list of financial statements and exhibits thereto filed as a part of this report. 3. The following exhibits are filed herewith. 4.1 Limited Partnership Agreement for Cable TV Fund 12-B. (1) 4.2 Joint Venture Agreement of Cable TV Fund 12-BCD Venture dated as of March 17, 1986, among Cable TV Fund 12-B, Ltd., Cable TV Fund 12-C, Ltd. and Cable TV Fund 12-D, Ltd. (2) 10.1.1 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Edwards Air Force Base, California (Fund 12-BCD). 10.1.2 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Lancaster, California (Fund 12-BCD). (3) 10.1.3 Copy of a franchise and related documents thereto granting a community antenna television system franchise for Unincorporated portions of Los Angeles County, California (Fund 12-BCD). (3) 10.1.4 Copy of Los Angeles County Code regarding cable tv system franchises (Fund 12-BCD). (4) 10.1.5 Copy of Ordinance 90-0118F dated 10/29/90 granting a cable television franchise to Fund 12-BCD (Fund 12-BCD). (4) 10.1.6 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Green Valley/Elizabeth Lake/Leona Valley unincorporated areas of Los Angeles County, California (Fund 12-BCD). (2) 10.1.7 Ordinance 88-0166F dated 10/4/88 amending the franchise described in 10.1.5 (Fund 12-BCD). (4) 10.1.8 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Palmdale, California (Fund 12-BCD). (4) 10.1.9 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Tampa, Florida (Fund 12-BCD). (1) 10.1.10 Resolution No. 1153 dated 10/2/86 authorizing consent to transfer of the Tampa franchise and amendment to the franchise agreement (Fund 12-BCD). (4) 10.1.11 Amendment to Tampa franchise agreement dated 10/6/86 (Fund 12- BCD). (4) 10.1.12 Tampa franchise transfer, acceptance and consent to transfer dated 10/6/86 (Fund 12-BCD). (4) 47 10.1.13 Second Amendment to Tampa Franchise Agreement dated September 1, 1994 (Fund 12-BCD). 10.1.14 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Augusta, Georgia (Fund 12-B). (1) 10.1.15 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Blythe, Georgia (Fund 12-B). (2) 10.1.16 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Burke, Georgia (Fund 12-B). (5) 10.1.17 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Unincorporated Area of Columbia County, Georgia (Fund 12-B). (4) 10.1.18 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Hephzibah, Georgia (Fund 12-B). (1) 10.1.19 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Unincorporated Area of Richmond County, Georgia (Fund 12-B). (1) 10.1.20 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the City of Albuquerque, New Mexico (Fund 12-BCD). (3) 10.1.21 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Bernalillo, New Mexico (Fund 12-BCD). (3) 10.1.22 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Town of Bernalillo, New Mexico (Fund 12-BCD). (3) 10.1.23 Resolution No. 12-14-87 dated 12/14/87 authorizing the assignment of the franchise to Fund 12-BCD. (4) 10.1.24 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Bosque Farms, New Mexico (Fund 12-BCD). (3) 10.1.25 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Corrales, New Mexico (Fund 12-BCD). (3) 10.1.26 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Kirtland Air Force Base, New Mexico (Fund 12-BCD). (4) 10.1.27 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the Village of Los Ranchos, New Mexico (Fund 12-BCD). (3) 48 10.1.28 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Sandoval, New Mexico (Fund 12-BCD). (3) 10.1.29 Copy of a franchise and related documents thereto granting a community antenna television system franchise for the County of Valencia, New Mexico (Fund 12-BCD). (3) 10.1.30 Resolution No. 88-23 dated 2/14/88 authorizing assignment of the franchise to Fund 12-BCD. (4) 10.2.1 Loan and Security Agreement, dated August 29, 1985, between Cable TV Fund 12-B, Ltd. and The Philadelphia National Bank, individually and as agent for various lenders. (1) 10.2.2 Amendment No. 1 dated as of August 14, 1986, to Loan and Security Agreement, dated August 29, 1985, between Cable TV Fund 12-B, Ltd. and The Philadelphia National Bank, individually and as agent for various lenders. (4) 10.2.3 Amendment No. 2 dated March 31, 1988 to Loan and Security Agreement, dated August 29, 1985, between Cable TV Fund 12-B, Ltd. and The Philadelphia National Bank, individually and as agent for various lenders. (4) 10.2.4 Amendment No. 3 dated March 29, 1989 to Loan and Security Agreement, dated August 29, 1985, between Cable TV Fund 12-B, Ltd. and The Philadelphia National Bank, individually and as agent for various lenders. (4) 10.2.5 Amendment No. 4 dated November 29, 1991 to Loan and Security Agreement dated November 1991 between Cable TV Fund 12-B, Ltd. and Corestates Bank, N.A. (formerly The Philadelphia National Bank), individually and as agent for various lenders. (6) 10.2.6 Amendment No. 5 dated December 23, 1994 to Loan and Security Agreement dated November 1991 between Cable TV Fund 12-B, Ltd. and Corestates Bank, N.A., individually and as agent for various lenders. 10.2.7 Credit Agreement dated as of March 31, 1992 among Fund 12-BCD Venture and Corestates Bank, N.A., individually and as agent for various lenders. (4) 10.2.8 Amendment No. 1 dated September 30, 1994 to Credit Agreement dated March 31, 1992 among Fund 12-BCD Venture and Corestates Bank, N.A., individually and as agent for various lenders. 10.3.1 Purchase and Sale Agreement dated as of March 29, 1988 by and between Cable TV Fund 12-BCD Venture as Buyer and Video Company as Seller. (7) 10.3.2 Purchase and Sale Agreement dated 9/20/91 and amendments thereto between Cable TV Fund 12-BCD Venture as Seller and Falcon Classic Cable Income Properties, L.P. (Fund 12-BCD). (8) 27 Financial Data Schedule __________ 49 (1) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1985 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (2) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1987 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (3) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (4) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1992 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (5) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (6) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1991 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (7) Incorporated by reference from Registrant's Report on Form 10-K for the fiscal year ended December 31, 1988 (Commission File Nos. 0-13193, 0-13807, 0-13964 and 0-14206). (8) Incorporated by reference from the Forms 8-K of Fund 12-B, Fund 12-C and Fund 12-D dated 4/6/92 (Commission File Nos. 0-13193, 0-13964 and 0-14206, respectively). (b) Reports on Form 8-K. A Current Report on Form 8-K (Commission File No. 0-13807), dated February 23, 1995, describing the execution of an agreement to sell the Augusta System was filed with the Securities and Exchange Commission on February 24, 1995. 50 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 12-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 7, 1995 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 7, 1995 (Principal Executive Officer) By: /s/ Kevin P. Coyle ------------------------------- Kevin P. Coyle Group Vice President/Finance Dated: March 7, 1995 (Principal Financial Officer) By: /s/ Larry Kaschinske ------------------------------- Larry Kaschinske Controller Dated: March 7, 1995 (Principal Accounting Officer) By: /s/ James B. O'Brien ------------------------------- James B. O'Brien Dated: March 7, 1995 President and Director By: /s/ Raymond L. Vigil ------------------------------- Raymond L. Vigil Dated: March 7, 1995 Group Vice President and Director By: /s/ Robert S. Zinn ------------------------------- Robert S. Zinn Dated: March 7, 1995 Director 51 By: /s/ David K. Zonker ------------------------------- David K. Zonker Dated: March 7, 1995 Director By: ------------------------------- Derek H. Burney Dated: Director By: ------------------------------- James J. Krejci Dated: Director By: ------------------------------- Christine Jones Marocco Dated: Director By: ------------------------------- Daniel E. Somers Dated: Director 52 EX-99.1 4 APPRAISAL MALARKEY EXHIBIT A [LETTERHEAD OF MALARKEY-TAYLOR ASSOCIATES APPEARS HERE] February 3, 1995 Mr. Timothy Burke Vice President - Taxation Jones Intercable, Inc. 9697 East Mineral Avenue Englewood, CO 80112 Dear Mr. Burke: PURPOSE OF APPRAISAL Malarkey-Taylor Associates, Inc., ("MTA") was retained by Jones Intercable, Inc. ("Jones") to update a fair market appraisal of the Cable TV Fund 12-B Ltd. cable television system (the "System") serving Augusta, Georgia as of December 31, 1994. This updated appraisal will be used by Jones as an independent estimate of the fair market value of the System with the resulting value to be used in conjunction with the acquisition of the System by Jones. FAIR MARKET VALUE MTA has determined the overall fair market value of the System to be $141,854,000 as of December 31, 1994. Fair market value is the cash price a willing buyer would give a willing seller in an arm's length transaction in order to complete the sale. It is assumed that both buyer and seller have been informed of all relevant facts and neither is under any compulsion to conclude the transaction. FAIR MARKET VALUE METHODOLOGY MTA used five generally accepted cable television valuation methods in establishing the range of total fair market values of the System as a going concern. The first method used a multiple of the past year's operating income derived from comparable asset values of privately-held and publicly-traded cable companies. The second method A-1 Mr. Timothy J. Burke February 3, 1995 Page 2 used a lower multiple of the annualized current month's operating income. The third method applied a slightly lower multiple of next year's projected operating income. The fourth method was a discounted net cash flow analysis to achieve a target after-tax return of equity, given particular operating and financing assumptions unique to the System's assets. The fifth method was a discounted cash flow method that measured the net present value of the projected pre-tax operating cash flows (less capital expenditures, plus the residual value of the System) that represent the return on the total investment. CONTINGENCIES AND LIMITING CONDITIONS Our conclusions as to the fair market value of the System are based upon the following, which to the best of our knowledge, are reliable and sound: 1. MTA's appraisal as of March 31, 1991 dated May 20, 1991, which included an onsite inspection of a representative portion of the System and communities served, and updated appraisals as of December 31, 1991 dated February 3, 1992, as of October 31, 1992 dated March 3, 1993, and as of October 31, 1993 dated January 14, 1994. 2. Unaudited financial statements for the 12-month periods ending December 31, 1993 and December 31, 1994. 3. Homes passed and subscriber data as of December 31, 1994, provided by Jones. 4. Miscellaneous management data as to the current subscriber rates, construction schedules, etc., as of the appraisal date. MTA did not revisit the System since the 1991 valuation. The amount of current information gathered and used in this update, in conjunction with management interviews and data collected for previous valuations, provides adequate support for this updated valuation. This data results in an accurate valuation given the preceding conditions. A-2 Mr. Timothy J. Burke February 3, 1995 Page 3 STATEMENT OF VALUE MTA certifies that, to the best of our knowledge, the statements contained in this appraisal are correct and that the opinions stated are based on a consideration of the relevant factors. Furthermore, neither MTA nor any of its representatives have any current interest or contemplated future interest in the assets appraised. Based on the various analyses, computations, and consideration discussed in this report, it is our professional judgment, subject to the assumptions and limitations stated herein, that the overall fair market value of the System is $141,854,000. Sincerely, /s/ Andrew R. Gefen Andrew R. Gefen Vice President, Financial Services /s/ Susan Donovan Susan Donovan Senior Financial Analyst SD/ban cc: Robert M. Jones A-3 ----------------------- CABLE TV FUND 12-B LTD. EXHIBIT A AUGUSTA, GEORGIA --------- AS OF DECEMBER 31, 1994 -----------------------
VALUATION METHODS - ----------------- LOW HIGH --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME OPERATING INCOME, PER BOOKS (12/31/94) $13,158,803 $13,158,803 VALUATION MULTIPLE 10.5 11.5 ---- ---- ESTIMATED FAIR MARKET VALUE $138,167,432 $151,326,235 ------------ ------------ II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME EST. OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $27,716,744 $27,716,744 OPERATING MARGIN, PER STMTS. (12/31/94) 48.8% 48.8% ----- ----- "RUNNING RATE" OPERATING INCOME $13,525,771 $13,525,771 VALUATION MULTIPLE 10.0 11.0 ---- ---- ESTIMATED FAIR MARKET VALUE $135,257,712 $148,783,483 ------------ ------------ III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $14,292,381 $14,292,381 VALUATION MULTIPLE 9.5 10.5 --- ---- ESTIMATED FAIR MARKET VALUE $135,777,624 $150,070,005 ------------ ------------ IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $137,113,082 $149,014,733 ------------ ------------ V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $133,758,710 $144,973,331 ------------ ------------ SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $138,167,432 $151,326,235 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 135,257,712 148,783,483 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 135,777,624 150,070,005 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 137,113,082 149,014,733 V. DISCOUNTED CASH FLOW RETURN ON INVSTMT 133,758,710 144,973,331 ------------ ------------ RANGE OF ESTIMATED FAIR MARKET VALUES $135,614,000 $148,094,000 ESTIMATED FAIR MARKET VALUE $141,854,000 ------------
[LOGO OF MTA APPEARS HERE] A-4 ----------------------- CABLE TV FUND 12-B LTD. EXHIBIT B AUGUSTA, GEORGIA HIGH ANALYSIS AS OF DECEMBER 31, 1994 ------------- -----------------------
RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ---------------------------- YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 ---- ---- ---- ---- REVENUES $29,196,202 $31,533,984 $34,040,902 $36,738,501 OPERATING EXPENSES 14,903,820 15,906,036 17,035,287 18,212,325 ---------- ---------- ---------- ---------- OPERATING INCOME $14,292,381 $15,627,948 $17,005,615 $18,526,176 OPERATING MARGIN 0.49 0.50 0.50 0.50 PARENT SERVICES/MGT FEE (5%) 1,459,810 1,576,699 1,702,045 1,836,925 FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867 SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 3,790,286 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 6,410,391 11,395,357 8,858,906 6,966,361 INTEREST 7,340,540 7,340,540 7,340,540 6,879,955 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($9,129,512) ($12,895,801) ($9,107,028) ($5,368,217) INCOME TAX (EXPENSE)/BENEFIT 3,104,034 4,384,572 3,096,390 1,825,194 ---------- ---------- ---------- ---------- NET INCOME ($6,025,478) ($8,511,229) ($6,010,639) ($3,543,023) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($9,129,512) ($12,895,801) ($9,107,028) ($5,368,217) FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867 SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 3,790,286 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 6,410,391 11,395,357 8,858,906 6,966,361 EQUITY 73,405,403 DEBT 73,405,403 0 0 0 RESIDUAL VALUE IN YEAR 8 ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $152,302,836 $6,710,708 $7,963,030 $9,809,296 USES OF CASH - PURCHASE PRICE - CURRENT $149,014,733 CAPITAL EXPENDITURES 3,186,044 2,864,375 2,180,073 2,299,212 DEBT RETIREMENT 0 0 4,605,851 5,066,436 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ---------- ---------- ---------- ---------- TOTAL USES OF CASH $152,200,777 $2,864,375 $6,785,924 $7,365,648 ANNUAL CASH INCREASE/(DECREASE) $102,059 $3,846,334 $1,177,106 $2,443,647 CUMULATIVE CASH 102,059 3,948,393 5,125,499 7,569,146 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ---------------------------- YEAR ENDING DECEMBER 31, 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ----- REVENUES $39,540,505 $42,485,793 $45,651,822 $49,055,082 $308,242,790 OPERATING EXPENSES 19,437,116 20,726,595 22,106,389 23,583,072 151,910,640 ---------- ---------- ----------- ---------- ----------- OPERATING INCOME $20,103,389 $21,759,198 $23,545,433 $25,472,010 $156,332,150 OPERATING MARGIN 0.51 0.51 0.52 0.52 PARENT SERVICES/MGT FEE (5%) 1,977,025 2,124,290 2,282,591 2,452,754 15,412,140 FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867 35,366,933 SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 0 26,532,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 5,649,952 5,876,472 6,153,603 4,435,804 55,746,845 INTEREST 6,373,312 5,816,004 5,202,965 4,528,622 50,822,478 ---------- ---------- ----------- ---------- ----------- PRE-TAX INCOME ($2,108,052) ($268,720) $1,695,122 $9,633,963 ($27,548,246) INCOME TAX (EXPENSE)/BENEFIT $716,738 $91,365 ($576,342) ($3,275,547) $9,366,404 ---------- ---------- ----------- ---------- ----------- NET INCOME ($1,391,314) ($177,355) $1,118,781 $6,358,416 ($18,181,842) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($2,108,052) ($268,720) $1,695,122 $9,633,963 ($27,548,246) FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867 35,366,933 SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 0 26,532,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 5,649,952 5,876,472 6,153,603 4,435,804 55,746,845 EQUITY 73,405,403 DEBT 0 0 0 0 73,405,403 RESIDUAL VALUE IN YEAR 8 229,248,086 229,248,086 ---------- ---------- ----------- ---------- ----------- TOTAL SOURCES OF CASH $11,753,052 $13,818,905 $16,059,877 $247,738,719 $466,156,424 USES OF CASH - PURCHASE PRICE - CURRENT 149,014,73 CAPITAL EXPENDITURES 2,392,484 2,511,498 2,636,833 2,768,834 20,839,353 DEBT RETIREMENT 5,573,080 6,130,388 6,743,426 45,286,222 73,405,403 TAXES PAID ON NET INCOME 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 50,827,121 50,827,121 ---------- ---------- ----------- ---------- ----------- TOTAL USES OF CASH $7,965,563 $8,641,886 $9,380,259 $98,882,176 $294,086,609 ANNUAL CASH INCREASE/(DECREASE) $3,787,489 $5,177,019 $6,679,618 $148,856,543 $172,069,814 CUMULATIVE CASH 11,356,635 16,533,653 23,213,271 172,069,814
[LOGO OF MTA APPEARS HERE] A-5 ----------------------- CABLE TV FUND 12-B LTD. EXHIBIT B AUGUSTA, GEORGIA LOW ANALYSIS AS OF DECEMBER 31, 1994 ----------------------- RETURN ON EQUITY METHOD
PROFIT AND LOSS - LOW VALUE - --------------------------- YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- REVENUES $29,196,202 $31,533,984 $34,040,902 $36,738,501 $39,540,505 OPERATING EXPENSES 14,903,820 15,906,036 17,035,287 18,212,325 19,437,116 ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $14,292,381 $15,627,948 $17,005,615 $18,526,176 $20,103,389 OPERATING MARGIN 0.49 0.50 0.50 0.50 0.51 PARENT SERVICES/MGT FEE (5%) 1,459,810 1,576,699 1,702,045 1,836,925 1,977,025 FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867 4,420,867 SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 3,790,286 3,790,286 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 6,410,391 11,395,357 8,858,906 6,966,361 5,649,952 INTEREST 6,714,085 6,714,085 6,714,085 6,292,807 5,829,401 ---------- ---------- ---------- ---------- ---------- PRE-TAX INCOME (8,503,057) (12,269,345) (8,480,573) (4,781,069) (1,564,142) INCOME TAX (EXPENSE)/BENEFIT 2,891,039 4,171,577 2,883,395 1,625,563 531,808 ---------- ---------- ---------- ---------- ---------- NET INCOME ($5,612,018) ($8,097,768) ($5,597,178) ($3,155,505) ($1,032,334) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($8,503,057) $12,269,345) ($8,480,573) ($4,781,069) ($1,564,142) FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 4,420,867 4,420,867 SUBSCRIBER LIST (7) 3,790,286 3,790,286 3,790,286 3,790,286 3,790,286 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 6,410,391 11,395,357 8,858,906 6,966,361 5,649,952 EQUITY 67,140,849 DEBT 67,140,849 0 0 0 0 RESIDUAL VALUE IN YEAR 8 ---------- ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $140,400,184 $7,337,164 $8,589,485 $10,396,444 $12,296,963 USES OF CASH - PURCHASE PRICE - CURRENT $137,113,082 CAPITAL EXPENDITURES 3,186,044 2,864,375 2,180,073 2,299,212 2,392,484 DEBT RETIREMENT 0 0 4,212,779 4,634,057 5,097,463 TAXES PAID ON NET INCOME 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ---------- ---------- ---------- ---------- ---------- TOTAL USES OF CASH $140,299,126 $2,864,375 $6,392,852 $6,933,269 $7,489,946 ANNUAL CASH INCREASE/(DECREASE) $101,057 $4,472,789 $2,196,633 $3,463,175 $4,807,016 CUMULATIVE CASH 101,057 4,573,846 6,770,479 10,233,654 15,040,670 PROFIT AND LOSS - LOW VALUE - --------------------------- YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $42,485,793 $45,651,822 $49,055,082 $308,242,790 OPERATING EXPENSES 20,726,595 22,106,389 23,583,072 151,910,640 ---------- ---------- ---------- ----------- OPERATING INCOME $21,759,198 $23,545,433 $25,472,010 $156,332,150 OPERATING MARGIN 0.51 0.52 0.52 PARENT SERVICES/MGT FEE (5%) 2,124,290 2,282,591 2,452,754 15,412,140 FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 35,366,933 SUBSCRIBER LIST (7) 3,790,286 3,790,286 0 26,532,000 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 5,876,472 6,153,603 4,435,804 55,746,845 INTEREST 5,319,655 4,758,934 4,142,141 46,485,193 ---------- ---------- ---------- ----------- PRE-TAX INCOME 227,629 2,139,153 10,020,444 (23,210,961) INCOME TAX (EXPENSE)/BENEFIT (77,394) (727,312) (3,406,951) 7,891,727 ---------- ---------- ---------- ----------- NET INCOME $150,235 $1,411,841 $6,613,493 ($15,319,234) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME $227,629 $2,139,153 $10,020,444 ($23,210,961) FRANCHISE AMORTIZATION (15) 4,420,867 4,420,867 4,420,867 35,366,933 SUBSCRIBER LIST (7) 3,790,286 3,790,286 0 26,532,000 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 5,876,472 6,153,603 4,435,804 55,746,845 EQUITY 67,140,849 DEBT 0 0 0 67,140,849 RESIDUAL VALUE IN YEAR 8 229,248,086 229,248,086 ---------- ---------- ---------- ----------- TOTAL SOURCES OF CASH $14,315,253 $16,503,908 $248,125,200 $457,964,601 USES OF CASH - PURCHASE PRICE - CURRENT $137,113,082 CAPITAL EXPENDITURES 2,511,498 2,636,833 2,768,834 20,839,353 DEBT RETIREMENT 5,607,209 6,167,930 41,421,411 67,140,849 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 56,348,359 56,348,359 ---------- ---------- ---------- ----------- TOTAL USES OF CASH $8,118,707 $8,804,763 $100,538,604 $281,441,643 ANNUAL CASH INCREASE/(DECREASE) $6,196,546 $7,699,145 $147,586,596 $176,522,958 CUMULATIVE CASH 21,237,216 28,936,361 176,522,958
[LOGO OF MTA APPEARS HERE] A-6 - -------------------------------- CABLE TV FUND 12-B LTD. EXHIBIT C AUGUSTA, GEORGIA HIGH ANALYSIS AS OF DECEMBER 31, 1994 ------------- - -------------------------------- RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $146,810,805 YEAR 1 DEBT REQUIREMENTS 73,405,403 YEAR 1 EQUITY REQUIREMENTS 73,405,403 FINANCING AVAILABLE $98,691,023 $107,192,861 $117,209,609 $127,542,114 $138,946,320 $150,775,418 UNUSED LEVERAGE 25,285,620 33,787,458 48,410,057 63,808,998 80,786,284 98,745,770
SENIOR: 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- BEGINNING DEBT $0 $73,405,403 $73,405,403 $68,799,552 $63,733,116 $58,160,036 DEBT ADDED 73,405,403 0 0 0 0 0 TOTAL ANNUAL PAYMENTS 7,340,540 7,340,540 11,946,391 11,946,391 11,946,391 11,946,391 INTEREST 7,340,540 7,340,540 7,340,540 6,879,955 6,373,312 5,816,004 PRINCIPAL REPAYMENT 0 0 4,605,851 5,066,436 5,573,080 6,130,388 ENDING BALANCE 73,405,403 73,405,403 68,799,552 63,733,116 58,160,036 52,029,648 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 $0 $0 BORROWINGS 0 0 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 0 0 INTEREST 0 0 0 0 0 0 SENIOR DEBT COVERAGE 5.1 4.7 4.0 3.4 2.9 2.4 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 5.1 4.7 4.0 3.4 2.9 2.4
FINANCING AVAILABLE $163,193,983 $176,590,749 UNUSED LEVERAGE 117,907,761 138,722,296
SENIOR: 2001 2002 TOTAL ---- ---- ----- BEGINNING DEBT $52,029,648 $45,286,222 DEBT ADDED 0 0 73,405,403 TOTAL ANNUAL PAYMENTS 11,946,391 11,946,391 86,359,428 INTEREST 5,202,965 4,528,622 50,822,478 PRINCIPAL REPAYMENT 6,743,426 7,417,769 35,536,950 ENDING BALANCE 45,286,222 37,868,453 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 BORROWINGS 0 0 0 PRINCIPAL PAYMENTS 0 0 0 INTEREST 0 0 0 SENIOR DEBT COVERAGE 1.9 1.5 LOC DEBT COVERAGE 0.0 0.0 TOTAL DEBT COVERAGE 1.9 1.5
[LOGO OF MTA APPEARS HERE] A-7 ----------------------- CABLE TV FUND 12-B LTD. AUGUSTA, GEORGIA EXHIBIT C AS OF DECEMBER 31, 1994 LOW ANALYSIS ----------------------- ------------
RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $134,281,697 YEAR 1 DEBT REQUIREMENTS 67,140,849 YEAR 1 EQUITY REQUIREMENTS 67,140,849 FINANCING AVAILABLE $85,532,220 $92,900,479 $101,581,661 $110,536,498 UNUSED LEVERAGE 18,391,371 25,759,631 38,653,591 52,242,486 SENIOR DEBT: 1995 1996 1997 1998 ---- ---- ---- ---- BEGINNING DEBT $0 $67,140,849 $67,140,849 $62,928,070 DEBT ADDED 67,140,849 0 0 0 TOTAL ANNUAL PAYMENTS 6,714,085 6,714,085 10,926,864 10,926,864 INTEREST 6,714,085 6,714,085 6,714,085 6,292,807 PRINCIPAL REPAYMENT 0 0 4,212,779 4,634,057 ENDING BALANCE 67,140,849 67,140,849 62,928,070 58,294,013 LINE OF CREDIT: BEGINNING DEBT 0 0 0 0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 4.7 4.3 3.7 3.1 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 4.7 4.3 3.7 3.1 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $120,420,144 $130,672,029 $141,434,785 $153,045,316 UNUSED LEVERAGE 67,223,594 83,082,688 100,013,374 118,408,628 SENIOR DEBT: 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ----- BEGINNING DEBT $58,294,013 $53,196,550 $47,589,341 $41,421,411 DEBT ADDED 0 0 0 0 67,140,849 TOTAL ANNUAL PAYMENTS 10,926,864 10,926,864 10,926,864 10,926,864 78,989,353 INTEREST 5,829,401 5,319,655 4,758,934 4,142,141 46,485,193 PRINCIPAL REPAYMENT 5,097,463 5,607,209 6,167,930 6,784,723 32,504,160 ENDING BALANCE 53,196,550 47,589,341 41,421,411 34,636,688 LINE OF CREDIT: BEGINNING DEBT 0 0 0 0 0 BORROWINGS 0 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 0 INTEREST 0 0 0 0 0 SENIOR DEBT COVERAGE 2.6 2.2 1.8 1.4 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.6 2.2 1.8 1.4
A-8 - ------------------------------ CABLE TV FUND 12-B LTD. EXHIBIT D AUGUSTA, GEORGIA --------- AS OF DECEMBER 31, 1994 - ------------------------------ RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- REVENUES $29,196,202 $31,533,984 $34,040,902 $36,738,501 $39,540,505 $42,485,793 OPERATING EXPENSES 14,903,820 15,906,036 17,035,287 18,212,325 19,437,116 20,726,595 ---------- ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $14,292,381 $15,627,948 $17,005,615 $18,526,176 $20,103,389 $21,759,198 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 3,186,044 2,864,375 2,180,073 2,299,212 2,392,484 2,511,498 --------- --------- --------- --------- --------- --------- TOTAL CASH FLOW $11,106,337 $12,763,573 $14,825,542 $16,226,964 $17,710,905 $19,247,700 NET PRESENT VALUE @ 16.6% $133,758,710 ----------- NET PRESENT VALUE @ 15.1% $144,973,331 -----------
YEAR ENDING DECEMBER 31, 2001 2002 TOTAL ---- ---- ----- REVENUES $45,651,822 $49,055,082 $308,242,790 OPERATING EXPENSES 22,106,389 23,583,072 151,910,640 ---------- ---------- ----------- OPERATING INCOME $23,545,433 $25,472,010 $156,332,150 PLUS: RESIDUAL VALUE 229,248,086 229,248,086 LESS: CAPITAL EXPENDITURES 2,636,833 2,768,834 20,839,353 --------- --------- ---------- TOTAL CASH FLOW $20,908,600 $251,951,262 $364,740,883
[LOGO OF MTA APPEARS HERE] A-9 - ---------------------------------------- CABLE TV FUND 12-B LTD. EXHIBIT E AUGUSTA, GEORGIA --------- AS OF DECEMBER 31, 1994 - ---------------------------------------- CABLE TELEVISION SUBSCRIBERS - ----------------------------
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 1,647.5 MILES ADDED 35.0 30.0 30.0 30.0 30.0 30.0 30.0 30.0 CUMULATIVE MILES 1,682.5 1,712.5 1,742.5 1,772.5 1,802.5 1,832.5 1,862.5 1,892.5 DENSITY OF ADDITIONAL PLANT 36 52 59 64 65 66 68 69 HOMES PASSED - BEGINNING 102,040 PROJ NEW HOMES & EXTENSIONS 1,276 1,550 1,783 1,920 1,954 1,989 2,025 2,062 HOMES PASSED - ENDING 103,316 104,865 106,648 108,568 110,522 112,511 114,536 116,598 GROWTH IN HOMES 1.3% 1.5% 1.7% 1.8% 1.8% 1.8% 1.8% 1.8% BASIC - BEGINNING SUBSCRIBERS 66,601 67,950 69,494 71,208 73,033 74,347 75,686 77,048 ENDING SUBSCRIBERS 67,950 69,494 71,208 73,033 74,347 75,686 77,048 78,435 AVERAGE SUBSCRIBERS 67,276 68,722 70,351 72,121 73,690 75,017 76,367 77,742 PENETRATION 65.8% 66.3% 66.8% 67.3% 67.3% 67.3% 67.3% 67.3% EXPANDED BASIC - BEGINNING 64,519 65,826 67,321 68,982 70,750 72,023 73,320 74,639 ENDING SUBSCRIBERS 65,826 67,321 68,982 70,750 72,023 73,320 74,639 75,983 AVERAGE SUBSCRIBERS 65,172 66,574 68,152 69,866 71,387 72,672 73,980 75,311 PENETRATION 96.9% 96.9% 96.9% 96.9% 96.9% 96.9% 96.9% 96.9% PAY TV - BEGINNING UNITS 52,990 53,724 54,597 55,588 56,647 57,666 58,704 59,761 ENDING UNITS 53,724 54,597 55,588 56,647 57,666 58,704 59,761 60,837 AVERAGE UNITS 53,357 54,160 55,092 56,117 57,157 58,185 59,233 60,299 PENETRATION 79.1% 78.6% 78.1% 77.6% 77.6% 77.6% 77.6% 77.6% PAY PER VIEW - BEGINNING UNITS/MO 2,794 4,262 7,050 10,761 14,680 19,060 23,592 28,281 ENDING UNITS 4,262 7,050 10,761 14,680 19,060 23,592 28,281 33,132 AVERAGE UNITS 3,528 5,656 8,906 12,721 16,870 21,326 25,937 30,707 PENETRATION 68.9% 63.0% 62.7% 62.6% 63.9% 64.8% 65.4% 65.9% ADDITIONAL SETS - BEGINNING 58,510 59,695 61,051 62,558 64,161 65,315 66,491 67,688 ENDING SUBSCRIBERS 59,695 61,051 62,558 64,161 65,315 66,491 67,688 68,906 AVERAGE SUBSCRIBERS 59,103 60,373 61,804 63,359 64,738 65,903 67,089 68,297 PENETRATION 87.9% 87.9% 87.9% 87.9% 87.9% 87.9% 87.9% 87.9% CONVERTER RENTALS - BEGINNING 235 5,676 10,322 15,561 21,072 26,656 32,433 38,411 ENDING SUBSCRIBERS 5,676 10,322 15,561 21,072 26,656 32,433 38,411 44,592 AVERAGE SUBSCRIBERS 2,955 7,999 12,941 18,317 23,864 29,545 35,422 41,502 PENETRATION 8.4% 14.9% 21.9% 28.9% 35.9% 42.9% 49.9% 56.9% ADDRESSABLE HOMES - BEGINNING 2,734 6,187 11,192 17,165 23,447 29,817 36,409 43,228 ENDING SUBSCRIBERS 6,187 11,192 17,165 23,447 29,817 36,409 43,228 50,281 AVERAGE SUBSCRIBERS 4,460 8,689 14,178 20,306 26,632 33,113 39,818 46,754 PENETRATION 9.1% 16.1% 24.1% 32.1% 40.1% 48.1% 56.1% 64.1%
[LOGO OF MTA APPEARS HERE] A-10 EXHIBIT F --------- - ------------------------- CABLE TV FUND 12-B LTD. AUGUSTA, GEORGIA AS OF DECEMBER 31, 1994 - -------------------------
SERVICE RATES - ------------- CURRENT RATES - ------------- BASIC $9.13 EXPANDED BASIC 14.07 PAY 8.18 PAY PER VIEW 6.05 ADDITIONAL OUTLETS 0.00 CONVERTER RENTALS 4.00 INSTALLATIONS-NEW 30.00 INSTALLATIONS-CHURN 20.00 YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 0% 4% 4% 4% 4% 4% 4% 4% EXPANDED BASIC 10% 5% 4% 4% 4% 4% 4% 4% PAY 0% 1% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 4% 4% 4% 4% 4% 4% 4% ADDITIONAL OUTLETS 0% 4% 4% 4% 4% 4% 4% 4% CONVERTER RENTALS 0% 4% 4% 4% 4% 4% 4% 4% INSTALLATIONS-NEW 0% 4% 4% 4% 4% 4% 4% 4% INSTALLATIONS-CHURN 0% 4% 4% 4% 4% 4% 4% 4% AVERAGE RATES - ------------- BASIC $9.13 $9.50 $9.88 $10.27 $10.68 $11.11 $11.55 $12.01 EXPANDED BASIC 15.45 16.15 16.79 17.47 18.16 18.89 19.65 20.43 PAY 8.18 8.26 8.34 8.43 8.51 8.60 8.68 8.77 PAY PER VIEW 6.05 6.29 6.54 6.81 7.08 7.36 7.66 7.96 ADDITIONAL OUTLETS 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 CONVERTER RENTALS 4.00 4.16 4.33 4.50 4.68 4.87 5.06 5.26 INSTALLATIONS-NEW 30.00 31.20 32.45 33.75 35.10 36.50 37.96 39.48 INSTALLATIONS-CHURN 20.00 20.80 21.63 22.50 23.40 24.33 25.31 26.32 BASIC CHURN RATE 30% 30% 30% 30% 30% 30% 30% 30%
[LOGO OF MTA APPEARS HERE] A-11 - --------------------------------- CABLE TV FUND 12-B LTD. EXHIBIT G AUGUSTA, GEORGIA --------- AS OF DECEMBER 31, 1994 - ---------------------------------
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- REVENUES: BASIC $7,370,709 $7,830,336 $8,336,598 $8,888,149 $9,444,849 $9,999,450 EXPANDED BASIC 12,079,063 12,900,787 13,734,874 14,643,576 15,560,761 16,474,489 PAY TV 5,237,505 5,369,519 5,516,536 5,675,375 5,838,299 6,002,822 PAY PER VIEW 256,149 427,068 699,315 1,038,849 1,432,806 1,883,697 ADDITIONAL SETS N/A N/A N/A N/A N/A N/A CONVERTER RENTALS 141,858 399,299 671,877 988,974 1,340,033 1,725,385 INSTALLATIONS - NEW BASIC 40,473 48,160 55,636 61,572 46,137 48,846 CHURN 410,112 435,686 463,855 494,543 525,518 556,377 COMMERCIAL 625,037 661,180 700,680 743,452 786,792 830,217 ADVERTISING 1,968,705 2,362,446 2,716,813 2,988,494 3,287,344 3,616,078 MISCELLANEOUS 1,066,591 1,099,504 1,144,717 1,215,515 1,277,966 1,348,431 --------- --------- --------- --------- --------- --------- TOTAL REVENUES $29,196,202 $31,533,984 $34,040,902 $36,738,501 $39,540,505 $42,485,793 OPERATING EXPENSES: OPERATIONS $4,454,890 $4,732,268 $5,029,664 $5,347,695 $5,677,185 $6,018,215 GENERAL & ADMINISTRATIVE 2,314,434 2,462,087 2,622,339 2,795,447 2,972,392 3,152,763 SALES & MARKETING 1,855,203 2,074,957 2,316,811 2,517,194 2,722,634 2,954,034 PROGRAMMING 6,279,293 6,636,724 7,066,472 7,551,988 8,064,906 8,601,582 --------- --------- --------- --------- --------- --------- TOTAL OPERATING EXPENSES $14,903,820 $15,906,036 $17,035,287 $18,212,325 $19,437,116 $20,726,595 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING INCOME $14,292,381 $15,627,948 $17,005,615 $18,526,176 $20,103,389 $21,759,198 OPERATING MARGIN 49.0% 49.6% 50.0% 50.4% 50.8% 51.2% TOTAL REVENUE/BASIC SUB/MONTH $36.16 $38.24 $40.32 $42.45 $44.71 $47.20 CASH FLOW/BASIC SUB/MONTH $17.70 $18.95 $20.14 $21.41 $22.73 $24.17 OPERATIONS % OF REVENUE 15% 15% 15% 15% 14% 14% G & A PERCENTAGE OF REVENUE 8% 8% 8% 8% 8% 7% SALES & MARKETING % OF REVENUE 6% 7% 7% 7% 7% 7% PROGRAMMING % OF REVENUE 22% 21% 21% 21% 20% 20%
YEAR ENDING DECEMBER 31, 2001 2002 TOTAL ---- ---- ----- REVENUES: BASIC $10,586,618 $11,208,264 $73,664,974 EXPANDED BASIC 17,441,871 18,466,058 121,301,480 PAY TV 6,171,982 6,345,908 46,157,947 PAY PER VIEW 2,382,601 2,933,601 11,054,087 ADDITIONAL SETS N/A N/A N/A CONVERTER RENTALS 2,151,371 2,621,436 10,040,233 INSTALLATIONS - NEW BASIC 51,714 54,751 407,288 CHURN 589,047 623,636 4,098,774 COMMERCIAL 876,082 924,525 6,147,965 ADVERTISING 3,977,686 4,375,454 25,293,020 MISCELLANEOUS 1,422,850 1,501,449 10,077,023 --------- --------- ---------- TOTAL REVENUES $45,651,822 $49,055,082 $308,242,790 OPERATING EXPENSES: OPERATIONS $6,379,397 $6,761,928 $44,401,242 GENERAL & ADMINISTRATIVE 3,344,462 3,548,218 23,212,144 SALES & MARKETING 3,206,279 3,481,325 21,128,438 PROGRAMMING 9,176,251 9,791,602 63,168,817 --------- --------- ---------- TOTAL OPERATING EXPENSES $22,106,389 $23,583,072 $151,910,640 ----------- ----------- ------------ OPERATING INCOME $23,545,433 $25,472,010 $156,332,150 OPERATING MARGIN 51.6% 51.9% TOTAL REVENUE/BASIC SUB/MONTH $49.82 $52.58 CASH FLOW/BASIC SUB/MONTH $25.69 $27.30 OPERATIONS % OF REVENUE 14% 14% G & A PERCENTAGE OF REVENUE 7% 7% SALES & MARKETING % OF REVENUE 7% 7% PROGRAMMING % OF REVENUE 20% 20%
[LOGO OF MTA APPEARS HERE] A-12 ----------------------- CABLE TV FUND 12-B LTD. EXHIBIT H AUGUSTA, GEORGIA --------- AS OF DECEMBER 31, 1994 ----------------------- CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- ASSUMPTIONS AND INPUTS: - ---------------------- BV OF EXISTING PLANT $41,673,236 ADD'L MILES OF PLANT 35 30 30 30 30 AERIAL PLANT PER MILE $20,325 $20,935 $21,563 $22,210 $22,876 UNDERGROUND PLANT PER MILE $32,875 $33,861 $34,877 $35,923 $37,001 PERCENTAGE OF PLANT AERIAL 35% 35% 35% 35% 35% PERCENTAGE OF PLANT UNDERGROUND 65% 65% 65% 65% 65% AVERAGE COST PER CONVERTER $107 $110 $114 $117 $120 PERCENTAGE CONVERTER USE 8% 15% 22% 29% 36% PERCENTAGE REPLACEMENT 1% 1% 1% 1% 2% INSTALLATION COST PER SUB $50 $52 $53 $55 $56 MISC CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $6 INFLATION FACTOR RE CAPITALS 0% 3% 3% 3% 3% ANNUAL COSTS: - ------------ PLANT ADDITIONS - AERIAL $248,981 $219,815 $226,409 $233,202 $240,198 - UNDERGROUND 747,906 660,294 680,103 700,506 721,521 PLANT REBUILD/UPGRADE 1,200,000 1,030,000 200,000 206,000 212,180 AVERAGE COST OF NEW CONVERTERS 582,162 512,038 594,741 644,359 672,432 CONVERTER REPLACEMENT 3,162 8,815 14,691 21,416 57,478 INSTALLATION COSTS 67,454 79,494 90,953 99,689 73,979 MISC CAPITAL EXPENDITURES 336,378 353,918 373,177 394,041 414,695 ------- ------- ------- ------- ------- TOTAL CAPITAL EXPENDITURES $3,186,044 $2,864,375 $2,180,073 $2,299,212 $2,392,484 AS A % OF OPERATING INCOME 22.3% 18.3% 12.8% 12.4% 11.9% CAPITAL EXPENDITURES - -------------------- YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ---------------------- BV OF EXISTING PLANT ADD'L MILES OF PLANT 30 30 30 AERIAL PLANT PER MILE $23,562 $24,269 $24,997 UNDERGROUND PLANT PER MILE $38,111 $39,254 $40,432 PERCENTAGE OF PLANT AERIAL 35% 35% 35% PERCENTAGE OF PLANT UNDERGROUND 65% 65% 65% AVERAGE COST PER CONVERTER $124 $128 $132 PERCENTAGE CONVERTER USE 43% 50% 57% PERCENTAGE REPLACEMENT 2% 2% 2% INSTALLATION COST PER SUB $58 $60 $61 MISC CAPITAL PER SUBSCRIBER $6 $6 $6 INFLATION FACTOR RE CAPITALS 3% 3% 3% 123% ANNUAL COSTS: - ------------ PLANT ADDITIONS - AERIAL $247,404 $254,826 $262,470 $1,933,304 - UNDERGROUND 743,167 765,462 788,426 5,807,387 PLANT REBUILD/UPGRADE 218,545 225,102 231,855 3,523,682 AVERAGE COST OF NEW CONVERTERS 716,692 763,665 813,508 5,299,597 CONVERTER REPLACEMENT 73,296 90,513 109,229 378,601 INSTALLATION COSTS 77,570 81,335 85,283 655,759 MISC CAPITAL EXPENDITURES 434,824 455,930 478,061 3,241,023 ------- ------- ------- --------- TOTAL CAPITAL EXPENDITURES $2,511,498 $2,636,833 $2,768,834 $20,839,353 AS A % OF OPERATING INCOME 11.5% 11.2% 10.9%
[LOGO OF MTA APPEARS HERE] A-13 - ---------------------------------- CABLE TV FUND 12-B LTD. EXHIBIT I AUGUSTA, GEORGIA --------- AS OF DECEMBER 31, 1994 - ---------------------------------- DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ------ ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% DEPRECIATION - BEG. & ADTNS. 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- YEAR 1 $6,410,391 $10,986,038 $7,845,888 $5,602,924 $4,005,934 YEAR 2 409,319 701,485 500,979 357,760 YEAR 3 311,532 533,900 381,295 YEAR 4 328,557 563,077 YEAR 5 341,886 YEAR 6 YEAR 7 YEAR 8 --------- ---------- --------- --------- --------- TOTAL DEPRECIATION $6,410,391 $11,395,357 $8,858,906 $6,966,361 $5,649,952
YEAR 6 YEAR 7 YEAR 8 ------ ------ ------ ESTIMATED DEPRECIATION RATES 8.9% 8.9% 4.5% DEPRECIATION - BEG. & ADTNS. 2000 2001 2002 TOTAL ---- ---- ---- ----- YEAR 1 $4,001,448 $4,005,934 $2,000,724 $44,859,280 YEAR 2 255,789 255,502 255,789 2,736,623 YEAR 3 272,291 194,681 194,463 1,888,161 YEAR 4 402,132 287,172 205,320 1,786,258 YEAR 5 585,919 418,445 298,821 1,645,072 YEAR 6 358,893 615,066 439,261 1,413,220 YEAR 7 376,803 645,760 1,022,564 YEAR 8 395,666 395,666 --------- --------- --------- ---------- TOTAL DEPRECIATION $5,876,472 $6,153,603 $4,435,804 $55,746,845
[LOGO OF MTA APPEARS HERE] A-14 ----------------------- CABLE TV FUND 12-B LTD. EXHIBIT J AUGUSTA, GEORGIA --------- AS OF DECEMBER 31, 1994 -----------------------
ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 8 AVERAGE SUBSCRIBER LIFE (YEARS) 7 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $41,673,236 SUBSCRIBERS IN FRANCHSES 100% LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YRS OP INC 10.5 11.5 MULT OF CUR YRS OP INC 10.0 11.0 MULT OF NEXT YR'S OP INCOME 9.5 10.5 TARGET RET ON EQTY (AFT TAX) 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
[LOGO OF MTA APPEARS HERE] A-15 EX-99.2 5 APPRAISAL KAGAN MEDIA EXHIBIT B APPRAISAL REPORT - ------------------------------------------------------------------------------- AUGUSTA, GEORGIA CABLE TV SYSTEM PREPARED BY: KAGAN MEDIA APPRAISALS, INC. 126 CLOCK TOWER PLACE CARMEL, CA 93923 (408) 624-1536 February 14, 1995 TABLE OF CONTENTS - ------------------------------------------------------------------------------- CERTIFICATE OF APPRAISAL ................................................ B-1 STATEMENT OF LIMITING CONDITIONS ........................................ B-3 RESTRICTIONS UPON DISCLOSURE AND USE .................................... B-6 QUALIFICATIONS OF THE APPRAISER ......................................... B-7 PURPOSE OF THE APPRAISAL ................................................ B-9 THE APPRAISAL PROCESS ................................................... B-10 COST APPROACH ...................................................... B-10 MARKET DATA (COMPARABILITY) APPROACH ............................... B-10 INCOME APPROACH .................................................... B-11 VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS .................... B-13 VALUATION OF JONES INTERCABLE CABLE TV SYSTEM ........................... B-16 DESCRIPTION OF SUBJECT MARKET ...................................... B-17 DESCRIPTION OF SUBJECT BUSINESS .................................... B-22 10-YEAR CASH FLOW PROJECTIONS ...................................... B-27 ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS .................. B-29 COMPARABLE ANALYSIS ................................................ B-33 CORRELATION AND FINAL ESTIMATE OF VALUE ............................ B-36 CERTIFICATE OF APPRAISAL - -------------------------------------------------------------------------------- The undersigned does hereby certify that, except as otherwise noted in this appraisal: l. We have inspected the financial statements and other operating and financial data of the subject business as furnished by the parties involved. 2. We hereby certify that we have no present or contemplated financial interest in the business that is the subject of this appraisal report, and that our employment and compensation are in no way contingent upon the value reported. 3. We have no personal interest or bias with respect to the subject matter of this appraisal report, nor are we connected in any way with the parties involved. 4. Pursuant to an investment policy adopted in 1974, Paul Kagan personally and Paul Kagan Associates, Inc., as a corporation, invest profits in publicly held media companies. Clients of Kagan Capital Management are also invested in publicly held media companies. As a result, portfolios owned and/or managed by Paul Kagan at present may maintain a long-term investment in stock of various KMA clients. Additionally, KMA clients may be subscribers to a number of Kagan information services and its executives from time to time may have enrolled at Kagan seminars or serve as panelists themselves. 5. To the best of our belief and knowledge, any statements of fact contained in this appraisal report, upon which the analyses, opinions and conclusions expressed herein are based, are true and correct. Information used to complete this report was obtained from sources considered reliable and is believed to be true and correct. We make no warranty as to the accuracy or reasonableness of such information furnished to us by others. - -------------------------------------------------------------------------------- JONES INTERCABLE B-1 KAGAN MEDIA APPRAISALS, INC. CERTIFICATE OF APPRAISAL (Continued) - -------------------------------------------------------------------------------- 6. This appraisal report sets forth all of the limiting conditions imposed by the terms of our assignment or by the undersigned, affecting the analyses, opinions and conclusions contained in this report. 7. The analyses, conclusions and opinions that are set forth in this appraisal report represent the work of the Kagan Media Appraisals, Inc. staff, including the undersigned. 8. The business that is the subject of this appraisal report, the Jones Intercable cable TV system of Augusta, Georgia, is valued at approximately $136.3 million as of December 31, 1994. - -------------- Signed: /s/ Robin V. Flynn ---------------------------------------------- Kagan Media Appraisals, Inc./Robin V. Flynn - -------------------------------------------------------------------------------- JONES INTERCABLE B-2 KAGAN MEDIA APPRAISALS, INC. STATEMENT OF LIMITING CONDITIONS - -------------------------------------------------------------------------------- The opinions, conclusions, projections and estimates of value presented in this report are based, in part, on assumptions and financial and operating data furnished to us by Jones Intercable which are assumed to be correct and current. We assume no responsibility for knowledge of matters legal in nature concerning Jones Intercable. We do not render any opinions as to the title of ownership of the subject property, which is assumed to be correct and good and free of liens or other financial or legal encumbrances. We have taken into consideration existing long-term liabilities that have been called to our attention by the parties involved, but do not guarantee that other liabilities, of a financial or legal nature, do not exist. We have appraised the subject property as if it was free and clear of debt and under responsible ownership and competent management. Completion of any scheduled capital improvements is assumed. Our assignment was to appraise the value of the subject property from the standpoint of a financial analysis of its ability to generate revenue, cash flow and profit. Utilizing accepted principles of appraisal methodology, Kagan Media Appraisals, Inc. has developed its own method of valuing media properties, which may differ in certain aspects from other methods. We conduct our research under the assumption that a fair market value can be established within the constraints of a financial analysis, supplemented by analysis of the markets in which the subject business operates and analysis of comparable businesses sold in the industry. We have, therefore, made no survey of the property, plant, and equipment of the subject business or of its management or marketing practices. Furthermore, no engineering survey of the business has been made or rendered by Kagan Media Appraisals, Inc. This appraisal assumes that the subject business' technical equipment is in good working order and appropriate for the conduct of a - -------------------------------------------------------------------------------- JONES INTERCABLE B-3 KAGAN MEDIA APPRAISALS, INC. STATEMENT OF LIMITING CONDITIONS (Continued) - -------------------------------------------------------------------------------- business of its type, and that it is operated by competent management, as more fully described within the body of this report. We have queried management regarding any specific circumstances concerning market conditions, and have taken its response into account in our evaluation. Possession of this report, or a copy thereof, does not carry with it the right of publication, nor may it be used for any purpose by any but the assignor without the prior written consent of the appraiser and in any event only with proper qualifications. This appraisal is not to be construed as an offer to sell the subject property or as a solicitation of an offer to buy said property. Neither is this appraisal intended for use as a business plan in connection with the securing of financing or the financial restructuring of the subject business. It is offered solely as an independent study of the fair market value of the subject property, combining the technical competence and the experienced judgement of the staff of Kagan Media Appraisals, Inc. The final estimate of value cited in this report is a result of our independent conclusions based on the assumptions, analyses and discussions contained in the following pages. Due to market fluctuations and circumstances beyond an appraiser's control, KMA does not warrant that a buyer will pay the appraised value of the property. - -------------------------------------------------------------------------------- JONES INTERCABLE B-4 KAGAN MEDIA APPRAISALS, INC. STATEMENT OF LIMITING CONDITIONS (Continued) - -------------------------------------------------------------------------------- Unless prior written arrangements have been made, neither Kagan Media Appraisals, Inc. nor any officer of Kagan Media Appraisals, Inc. is required to give testimony or attendance in court, pre-trial proceedings or arbitration by reason of having made, or participated in, this report. The reader is advised that this Statement of Limiting Conditions and the accompanying introductory pages are an integral part of the final report, which contains the details of our analyses and all necessary documentation to support valuation conclusions. Signed: /s/ Robin V. Flynn ------------------------------------------------ Kagan Media Appraisals, Inc./Robin V. Flynn - -------------------------------------------------------------------------------- JONES INTERCABLE B-5 KAGAN MEDIA APPRAISALS, INC. RESTRICTIONS UPON DISCLOSURE AND USE - -------------------------------------------------------------------------------- Neither all nor any part of the contents of this report, especially any conclusions as to value, or the identity of Kagan Media Appraisals, Inc. and its affiliates, shall be disseminated to the public through advertising media, public relations media, news media, sales media or any other public means of communications without the prior written consent and approval of the undersigned. Signed: /s/ Robin V. Flynn ---------------------------------------------- Kagan Media Appraisals, Inc./Robin V. Flynn - -------------------------------------------------------------------------------- JONES INTERCABLE B-6 KAGAN MEDIA APPRAISALS, INC. QUALIFICATIONS OF THE APPRAISER - -------------------------------------------------------------------------------- Paul F. Kagan is a financial analyst, consultant, investment manager and publisher of appraisal commentaries and analytical newsletters serving the communications and entertainment industries. He has been engaged in this business since February 1969, when he formed Paul Kagan Associates, Inc., in Rockville Centre, New York. Offices were moved to Carmel, CA, in 1978. The Kagan group of companies includes Paul Kagan Associates, Inc. (publishing), Kagan Seminars Inc. (seminars), Kagan Capital Management, Inc. (investment management) and Kagan Media Appraisals, Inc. (appraisals and strategic consulting). Prior to forming PKA, Paul Kagan was a security analyst specializing in broadcasting and cable TV for E.F. Hutton & Co. in New York. In the past he has also contributed numerous articles on investments and finance to such popular publications as Barron's, the Dow Jones financial weekly. -------- Earlier, he was employed in executive positions with CBS, Inc., and WOR-FM in New York. Mr. Kagan is a fellow of the Financial Analysts Federation, a member of the New York Society of Security Analysts and an associate member of the Broadcast Financial Management Association. PKA publishes 48 newsletters on various communications and media disciplines, including CABLE TV INVESTOR, BROADCAST INVESTOR, CABLE TV BANKER/BROKER and BROADCAST BANKER/BROKER. Since 1969, it has published CABLE TV INVESTOR, the only continuing publication analyzing the value of public and private cable TV companies. For 26 years, Mr. Kagan and his staff have appraised over $24 billion worth of media properties on contract assignment. In addition, the Kagan Newsletters have analyzed public and private companies, on at least a quarterly basis, totaling hundreds of billions of dollars. - -------------------------------------------------------------------------------- JONES INTERCABLE B-7 KAGAN MEDIA APPRAISALS, INC. QUALIFICATIONS OF THE APPRAISER (Continued) - -------------------------------------------------------------------------------- Mr. Kagan is a graduate of Hunter College of the City University of New York, where he majored in communications. He also studied accounting at the New York University Graduate School of Business Administration. Mr. Kagan and his analyst team have, for the past 20 years, conducted seminars for corporate executives and public officials on communications and media topics. Robin V. Flynn is Vice President of Kagan Media Appraisals, Inc. Prior to joining the firm, she was employed with the Overseas Private Investment Corporation (OPIC) in Washington, DC, where she analyzed the revenue-generating ability of proposed overseas investment projects. Earlier, she worked with Scudder, Stevens & Clark, an investment counsel firm in Boston, MA, in developing an international investment fund for Canadian institutional investors. Ms. Flynn holds a Bachelor of Arts degree from Duke University, a Certificate in Contemporary French Studies from the Sorbonne in Paris, and an MBA in Finance from the Monterey Institute of International Studies. - -------------------------------------------------------------------------------- JONES INTERCABLE B-8 KAGAN MEDIA APPRAISALS, INC. PURPOSE OF THE APPRAISAL - -------------------------------------------------------------------------------- The purpose of this appraisal is to estimate the current fair market value of the Augusta, Georgia cable TV system. Market value for purposes of this report is the definition recommended by the United States Internal Revenue Service: "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts." - -------------------------------------------------------------------------------- JONES INTERCABLE B-9 KAGAN MEDIA APPRAISALS, INC. THE APPRAISAL PROCESS - -------------------------------------------------------------------------------- The valuation of a business is generally done by use of one or more of the following three approaches: l. Cost approach 2. Market Data (comparability) approach 3. Income approach Under certain circumstances, it is not always possible to apply all of the aforementioned approaches to value, due to special purpose or use characteristics of a given business. COST APPROACH Under this method, value is derived by estimating the replacement cost of the equipment, building and other improvements owned by the subject business, based on current prices for labor and materials and latest construction techniques. To this total might be added a cost factor for obtaining the government licenses required to engage in the subject business. Kagan Media Appraisals, Inc. does not employ this approach in its fair market valuations unless specifically requested to do so. MARKET DATA (COMPARABILITY) APPROACH A value estimate by this method is derived by direct comparison of the subject business with other companies of similar size or type that are currently, or have been recently, offered for sale. - -------------------------------------------------------------------------------- JONES INTERCABLE B-10 KAGAN MEDIA APPRAISALS, INC. THE APPRAISAL PROCESS (Continued) - -------------------------------------------------------------------------------- INCOME APPROACH This technique relates the evaluation of a property to its ability to generate income over a specified investment period. The value to the owner of this "earning expectancy" must be compared with the value of other investments the owner might otherwise make. Because the value is expressed as a capitalized rate of income, the income stream of the subject business is of vital importance to the appraiser./1/ The value estimate under this approach is developed by first determining the current income level of the subject business, then projecting growth rates for the span of years in which the investment is expected to be returned, discounting future income by an imputed rate based on cost-of-money factors. Finally, the total valuation is yielded by the sum of present values to be generated in each of the years counted. This method of calculation is normally applied to "operating income," or, in the lexicon of many entrepreneurs in the marketplace, "cash flow." The latter term consists of operating revenue minus operating expense, and does not include deductions for depreciation, interest, or income taxes. - ------------------------- /1/ "In order to value the property, it is necessary to forecast its earnings expectancy. The past earnings expectancy of the subject property and/or of comparable properties, adjusted for such trends and circumstances as can be foreseen as of the valuation date, is projected into the future...The valuation of the investment property is based on the principle that, as of the valuation date, the value is equivalent to the series of future net returns. The present worth calculation is based on the principle that an investor, buying the subject property, expects 1) either to preserve the amount of his original investment or to recover the consumer portion therefore out of earnings and/or any terminal sale of assets and 2) to receive the equivalent of any annual remunerative yield rate being high enough to compensate him for the investment risk involved."-- Opinion of the College of Fellows, American Society of Appraisers, published in the June 1975 edition of VALUATION journal, p. 87. - -------------------------------------------------------------------------------- JONES INTERCABLE B-11 KAGAN MEDIA APPRAISALS, INC. THE APPRAISAL PROCESS (Continued) - -------------------------------------------------------------------------------- Our assignment was to evaluate the subject business on the basis of known market data and financial statements furnished by the owner of the business. We accepted the assignment on the basis that such evaluations are commonly conducted in the industry of the business being appraised, and that a fair market value estimate can be determined. We assume that the legal and physical status of the subject business is in good condition and operated by competent management. - -------------------------------------------------------------------------------- JONES INTERCABLE B-12 KAGAN MEDIA APPRAISALS, INC. VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS - -------------------------------------------------------------------------------- The time value of money means that a dollar one year from today is "worth" less than a dollar today. This is due, in part, to inflation, because the buying power of tomorrow's dollar will likely be less than it is today. Future dollars are worth less than present dollars, however, for another, perhaps more important reason: the existence of the interest rate, or cost-of- money factor, in the leveraging of a business enterprise. Put more simply: one dollar invested in a risk-free instrument, such as a savings bank or a government security, will earn a given amount of interest over a certain period of time. Thus, the same dollar invested in a business enterprise "loses" value over time unless the business "returns" dollars at a rate at least equal to that which would have been enjoyed in the alternate investment. Because the business likely will entail risk of considerable nature, the ultimate "rate of return" must be substantially better than that paid by the risk-free instrument. Suppose, for example, a person deposits $l,000 in a bank that pays 7% interest compounded quarterly, and both principal and interest are left in the account over 10 years. At the end of 10 years, the original $l,000 will have doubled, to $2,001. That's an effective annual rate of return of 7.2%. If, instead, the investor had placed his $l,000 in a more speculative account--say, by acquiring equity ownership of a cable TV system or radio station--the average annual rate of return would have to be considerably higher than 7.2% to warrant taking the risk. How long should the investment return period be, so that the average rate of return is desirable? - -------------------------------------------------------------------------------- JONES INTERCABLE B-13 KAGAN MEDIA APPRAISALS, INC. VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS (Continued) - -------------------------------------------------------------------------------- It is the appraiser's experience that media investors typically seek return-on-investment within approximately 10 years. Such rates of return enable them to obtain returns on equity of as much as 50% annually, through the use of leverage. The form of the return is at the heart of every buy-sell negotiation. For it is not the percentage of net profit to equity that concerns the media investor. Rather, it is the percentage of operating profit to equity. This operating profit is also called "cable cash flow" because it differs from true accounting cash flow. Cable cash flow is net income added back to depreciation and amortization, interest and income taxes. Entrepreneurs use this variation of cash flow to distinguish among properties because it tends to make one potential investment easier to compare to another. In the media, many properties are purchased on "terms," i.e., over a number of years with installment payments and varying interest rates, or other payment schedules with certain contingencies. And because individuals and corporations also have varying tax rates, the amount of taxes paid takes the media investor further away from reasonable comparisons. In addition, capitalizations of companies vary, yielding widely disparate financial operating characteristics. In order to determine how a business is really performing in its day-to- day operation, cable investors go directly to operating income (cable cash flow) to make their comparisons. It is this line that is expected to grow, and it is this line on the income statement that they look to for their return on investment. - -------------------------------------------------------------------------------- JONES INTERCABLE B-14 KAGAN MEDIA APPRAISALS, INC. VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS (Continued) - -------------------------------------------------------------------------------- In order to determine the cash flow potential of a (cable) system, the appraiser must perform the following functions: l. Compute a projected growth of absolute cash flow over a given investment payback period. 2. Compute a projected rate of inflation, to reduce future cash flows to present value. 3. Discount future cash flow utilizing present-value factors widely published in financial handbooks. The result of these steps is the accumulation over a set period of years of "discounted cash flow," the amount of real income that will be counted as the "return" against the investment. To say it another way, the value of the business is equal to the ----------------------------------------- cumulative discounted cash flow (future income stream) to be generated by the - ----------------------------------------------------------------------------- business over the desired investment payback period. - ---------------------------------------------------- - -------------------------------------------------------------------------------- JONES INTERCABLE B-15 KAGAN MEDIA APPRAISALS, INC. VALUATION OF JONES INTERCABLE CABLE TV SYSTEM AUGUSTA, GEORGIA - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- JONES INTERCABLE B-16 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT MARKET - -------------------------------------------------------------------------------- The Augusta market is the eighth largest metropolitan area in Georgia. As an increasingly diversified regional business center, it enjoyed strong growth in the decade of the 1980s. It did not entirely avoid the effects of the 1990- 91 recession, however. Although employment in non-construction jobs either stabilized or has increased since then, housing starts have only recently shown signs of rebounding. The subject system has been providing service in Augusta since 1969. It has been owned and operated as part of Jones Intercable since being acquired by the company in 1985. It serves the City of Augusta, Columbia County and Richmond County. Augusta is located in eastern Georgia on the Savannah River. It has no topographic barriers to the west and south, which include Columbia and Richmond counties respectively. Each year, it attracts the best golfers and thousands of spectators to the world famous Masters Golf Tournament. It is also home to three world class water sports events. The city also offers a 1,500-seat amphitheater for frequent outdoor concerts. While the city of Augusta itself experienced a slight decline in population of 6.1% from 1980 to 1990, the population of Columbia County increased 60.6%, and households, 72.6% during the same period. Likewise, the population in Richmond County increased 11.1% and households, 19.8%. A recent study suggests that the projected growth from 1994-99 will be in the following range:
County Total 5-Yr. Pop. Growth Total 5-Yr. HH Growth ------------------------------------------------------------------- Columbia 17.8% 19.5% Richmond 12.5% 16.3%
Source: Sales & Marketing Management, October 28, 1994 - -------------------------------------------------------------------------------- JONES INTERCABLE B-17 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT MARKET (Continued) - -------------------------------------------------------------------------------- The Augusta metropolitan area's employment base is strong and diversified. It exhibits a balance between the Wholesale/Retail Trade (22%), Manufacturing (23%) and Services (22%) sectors: [PIE CHART OF AUGUSTA MDS, DISTRIBUTION OF NONAGRICULTURAL EMPLOYMENT APPEARS HERE] Source: Augusta Economic Yearbook, 1993 Edition From 1984-91, nonagricultural employment increased at a compound annual rate of 4.0%. The highest rates of growth were in services (8.8%), construction (7.6%) and Wholesale/Retail Trade (4.8%). Despite a slight decline (-0.7%) in nonagricultural jobs in 1991, the Augusta area showed a rebound in 1992. During the first nine months, Augusta was creating jobs at an annual rate of 0.8%, about twice as fast as the state of Georgia as a whole. This resulted primarily from strong gains in the manufacturing sector. - -------------------------------------------------------------------------------- JONES INTERCABLE B-18 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT MARKET (Continued) - -------------------------------------------------------------------------------- Prior to 1985, the area's unemployment rate generally exceeded that of Georgia's as a whole. From 1985-89, it generally tracked the statewide rate. From 1990-92, it was lower than the rate for the state. The major employers in the tri-county area which includes Aiken County, South Carolina (across the river from Augusta), are:
Employer County Number Employed - -------------------------------------------------------------------------------- Westinghouse Savannah River Company Aiken 16,000 Medical College of Georgia Richmond 6,288 Fort Gordon (civilian) Richmond 4,981 Richmond County Schools Richmond 4,500 University Hospital Richmond 3,400 Graniteville Company Aiken 3,000 Aiken County Schools Aiken 2,500 Veterans Admin. Hospital Richmond 2,143 Eisenhower Medical Center Richmond 2,140 Gracewood State School and Hospital Richmond 1,500 Owens-Corning Fiberglass Aiken 1,500 Columbia Co. Schools Columbia 1,300 E-Z-GO Richmond 1,152 Kimberly Clark Aiken 1,100 Humana Hospital Richmond 1,100 Federal Paper Board Richmond 1,010
Source: Metro Augusta Chamber of Commerce According to local management, Fort Gordon is unaffected by the recent round of military cutbacks. In fact, the number of personnel at the base has expanded, as units have moved in from other bases which are being downsized. From 1980 to 1990, the population of the Augusta MSA shifted toward an older and slightly more racially diverse community. In 1990, more than 33% of the population was in the 25-44 age group, an increase of 35.1%. Likewise, the 45-54 age group increased 14.0%, while the 18-24 age group declined - -------------------------------------------------------------------------------- JONES INTERCABLE B-19 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT MARKET (Continued) - -------------------------------------------------------------------------------- 14.6%. In 1980, 67.5% of the population was white and 30.9%, black. In 1990, 66.7% was white; 31.1% black. But overall, by 1994, the 25-49 age group was still over 70% larger than the 50+ group. Total personal income has increased historically in line with the rate for the State of Georgia, in a range of 9.3-11.3% annually since 1970. Per capita income experienced a compound annual rate of growth of 6.9% from 1985-90, ahead of that for Georgia as a whole at 6.2%. In Columbia County, total income was projected to increase by 5.0% annually from 1990-95. In Richmond County, it was projected to increase by 2.6% annually. The growth rates for per capita income were projected to be 1.0% and 1.1% respectively. In 1990, over 48% of all households in Columbia County had income exceeding $35,000. In Richmond County, the figure was more than 33%. The projected percentages for 1995 were an increase to 50.4% in Columbia County and to 34.8% in Richmond County. Total effective buying income is forecasted to increase during the period 1993-98 by 41.6% in the Augusta-Aiken metropolitan area. In Columbia County, it is forecasted to increase by 44.6%, and in Richmond, by 40.8%. Total retail sales are forecasted to increase over the same period by 37.0% in the Augusta-Aiken metropolitan area, 54.7% in Columbia County and 31.3% in Richmond County. All these figures appear to be consistent with the balance and steady growth exhibited by the employment sector in the market. Augusta had a residential construction boom in the early 1980,s. The boom began to fade in 1986, and the market plummeted in 1987, when housing permits fell off 51.7%. Permits declined again in 1988 by 12.4%. Despite an uptick in permits authorized in 1989, permits declined again in 1990 by 21.4% There was a small increase in 1991 of 1.8% and a larger increase of 12% in 1992. The figures indicate a strong surge in single family home construction as mortgage rates declined. As previously noted, the Jones system serves the City of Augusta, Columbia County and Richmond County. The two counties, particularly Columbia County, have a good deal of "fill-in" housing - -------------------------------------------------------------------------------- JONES INTERCABLE B-20 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT MARKET (Continued) - -------------------------------------------------------------------------------- which is serviceable from existing facilities. In addition, as can be seen from the above figures, Columbia County is projected to have fairly strong growth in housing. In particular, the county has a large waterfront area on J. Strom Thurmond Lake less than 30 minutes from downtown Augusta that is attracting many new residents. In a far-sighted move, the system already serves this fast-growing area. Despite the construction fall-off in 1988-90, there is considerable room for expansion of housing in both Columbia and Richmond County. In light of the estimates for those counties, and the overall steady growth projected for the entire Augusta MSA, we project that the number of households served by the system could be expected to grow at rate of 1.5% in the early years of the forecast period, and 1.0% in the later years. - -------------------------------------------------------------------------------- JONES INTERCABLE B-21 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS - -------------------------------------------------------------------------------- The Augusta cable system consists of approximately 1,600 miles of plant, 300 of which is 400 MHZ and 1,300 of which is 550 MHZ. The entire system was rebuilt to 400 MHZ in 1985 after it was acquired by Jones. About 80% of the plant was rebuilt to 550 MHZ in 1991-2. The remaining 300 miles needs to be rebuilt to expand the system's channel offering. All 54 channels are presently being used, and those 300 miles act as a "bottleneck" for the remaining plant, which is capable of carrying more channels. Management estimates that rebuilding the remaining 300 miles to 550 MHZ will cost $1.9 million. The Augusta system consists of nine headends, one centrally located at the office and 8 throughout the service area. All headends have considerable back-up power for emergency outages. All hubs are interconnected via fiber optic cables. The system has planned for future expansion by laying 21 fiber strands between each hub, when only 6 are now being used. This excess capacity, combined with the redundant "fiber ring" architecture, which has been in place since 1992, will enable the system to continue leasing fiber capacity throughout the service area, as well as provide local area network services in the future. The Augusta system passes all of the estimated 102,040 homes in its franchise areas. As previously discussed, growth in housing is expected to average 1.5% per year in the first four years of the projection period, and 1.0% thereafter, reaching about 115,000 in 2004. The system is not presently threatened by competition. Management has seen no impact from direct broadcast satellite services. There is an MMDS license for the area, but it has never been activated. It is the opinion of management that the local terrain could pose a problem to the delivery of a quality MMDS signal. The local Regional Bell Holding Company, Bell South, has announced a plan to begin offering video dial tone services on an experimental basis in Chamblee, Georgia, a suburb of Atlanta, after regulatory approval, but this would not directly impact the Augusta cable system. - -------------------------------------------------------------------------------- JONES INTERCABLE B-22 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - -------------------------------------------------------------------------------- None of the franchising authorities have certified to regulate the 17-channel basic service tier. The City of Augusta filed its initial intention to regulate but never followed up with the necessary regulations or notification to the system operator. However, the City of Augusta did file a complaint with the F.C.C. about the monthly rate for the "Cable Programming Services" tier of 31 channels. In response, the company filed a cost-of- service showing under the F.C.C.'s interim rules. It is management's opinion that this showing justifies a monthly rate of more than $36.00, well in excess of the present rate. The increase scheduled for early 1995 would still be well within that rate. The F.C.C. has not acted on the City's complaint, which is part of a large backlog of such cases pending at the F.C.C. No other complaints on the CPS tier have been filed. With the uncertainties created by rate reregulation largely behind it, management will be refocusing on marketing. Direct sales were launched in 1994 with eight people who are local to the area. Management is presently recruiting a stronger marketing director to take charge of the effort. As subscriber confusion from FCC-mandated adjustments dissipates, and the more concentrated marketing effort kicks into gear, it is reasonable to expect the system to realize moderate near term increases in line with the gain achieved in 1994. A continuation of this effort could push penetration in this type of market into the 70-71% range in 7-10 years, from its current 65.3%. The monthly rate for full basic service (the "Basic Plus Package') stood at $23.20 in 1994. 96.9% of subscribers take the full basic service. With a rate increase of $1.50, the rate will be $24.70 effective in the first quarter of 1995. Given the current regulatory climate, the blended basic rate is assumed to grow at the rate of 5% per year to $37.41 by 2004. Installation rates are $20.00 for the first outlet in pre-wired homes, $30.00 in unwired homes and $10 for each additional outlet at the time of initial installation. The rate of churn has been fairly steady at 2.7% per month, or 32% annually. With increased marketing, we are projecting a slight increase to - -------------------------------------------------------------------------------- JONES INTERCABLE B-23 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - -------------------------------------------------------------------------------- 33% annually. But through the concerted efforts of management and no expectations for drastic changes in market demographics, annual churn is expected to stabilize at 33%. The Augusta system offers five premium channels: HBO, Showtime, The Movie Channel, Cinemax and Disney. The pay services are provided on an a la carte basis at $9.50 per month for the first pay on all but Disney, which is $7.95. A discount of $2.00 is offered on the second pay and $3.50 on the third pay, except for Disney. Total pay units increased from 50,647 to 52,985 in 1992, which increased the system's pay-to-basic ratio from 83.3% to 84%. However, it has declined gradually since then to just over 80%. The continued discounting, together with persistent marketing efforts should enable the system to stabilize the pay-to- basic penetration in the 75-80% range throughout the projection period. The system launched its pay-per-view movie service in 1991. From 1992 to 1994, the total number of buys more than doubled, from 14,196 to 29,552. In 1995 and beyond, this revenue stream should continue to increase because of growth of addressable subs. Heretofore, the addressable converters necessary to receive pay-per-view programming were sold to customers at a price of $107. Effective February of 1995, the system began making them available on a rental basis for $4.00 per month. The pricing for the programming will continue to be $3.95 for movies, $5.95 for adult programming and $19.95 and up for wrestling and other events. The new rental pricing for addressable converters, together with continued increases in the number of events offered, should enable the system to maintain a cumulative monthly buy rate in the range of 60-70%. Given that range, we think increases in the average price per buy of 3.5% annually are reasonable, so that the average reaches $9.36 in 2004. Local advertising has become a substantial source of revenue and is expected to thrive during the period of the projections as cable continues to prove it is a cost-effective medium for advertisers. - -------------------------------------------------------------------------------- JONES INTERCABLE B-24 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - -------------------------------------------------------------------------------- The system has seen increases in revenue per subscriber of 9.6-9.8% per year since 1992. Management is now revamping its advertising sales department by hiring a new manager and two additional account representatives. This increased effort should enable management to at least maintain that rate of growth at 9.0% in 1995. Thereafter, we project it will increase by $0.60 per subscriber per year, reaching $31.88 in 2004. Home Shopping revenue per subscriber in 1994 reached $1.30 per subscriber, in line with national averages. While the future of home shopping is predicted to be one of explosive growth by some, we have projected steady gains of 5% annually to $2.11 per subscriber in 2004. The system derives additional revenue from commercial accounts with hotels and other multiple-unit buildings. Late fees and converter sales also were major contributors to this revenue stream. "Other" revenue reached 7.8% of basic revenue in 1994. With the attractive monthly rental plan for converters, we believe this revenue will increase in 1995 to 8.1% of basic revenues. Thereafter, it is expected to decline gradually as a percentage of basic revenues as the basic subscriber count increases over the projection period. It reaches about $2.4 million in 2004 at 6.7% of basic revenues. Total cable revenue reached $34.61 per subscriber per month in 1994. With the increase of $1.50 in the monthly rate for the Basic Plus Package, combined with the other revenue increases previously discussed, we expect total cable revenue per subscriber to be $36.38 in 1995. The combination of expected household growth, steady gains in penetration, modest rate increases, and continued growth in pay-per-view, home shopping and advertising is projected to raise total cable revenue to $58.8 million in 2004, or $60.37 per subscriber per month. This is an average of about 5.8% annually over the ten-year period. - -------------------------------------------------------------------------------- JONES INTERCABLE B-25 KAGAN MEDIA APPRAISALS, INC. DESCRIPTION OF SUBJECT BUSINESS (Continued) - -------------------------------------------------------------------------------- The system leases excess fiber capacity to both city and county government. That revenue nearly doubled from 1992 to 1994, reaching $27,000. This was about 0.1% of total cable revenue. Management expects it to increase to $45,000 in 1995, for 0.15% of total cable revenue. Management is now working on interconnecting all the schools on the fiber "ring," as well as leasing capacity to local hospitals for telemedicine projects. Based on conversations with system management, we project that revenues from these sources and other local area network services over the fiber "ring" will increase gradually from 0.25% of total cable revenue in 1996 to 2.8% in 2004. - -------------------------------------------------------------------------------- JONES INTERCABLE B-26 KAGAN MEDIA APPRAISALS, INC. 10-YEAR CASH FLOW PROJECTIONS - -------------------------------------------------------------------------------------------------------------------------
AUGUSTA, GA 1992 1993 1994 1995 1996 1997 1998 1999 1 HOMES IN FRANCHISE AREA (000) 97.8 100.2 102.0 103.6 105.1 106.7 108.3 109.4 2 HOMES PASSED (000) 97.8 100.2 102.0 103.6 105.1 106.7 108.3 109.4 3 % HP IN FRANCHISE AREA 100% 100% 100% 100% 100% 100% 100% 100% 4 PCT PENETRATION 64.5% 64.5% 65.3% 65.7% 66.7% 67.7% 68.7% 69.2% 5 TOTAL BASIC SUBS (000) 63.1 64.6 66.6 68.0 70.1 72.2 74.4 75.7 6 AVERAGE BASIC SUBS (000) 61.7 63.8 64.8 67.3 69.1 71.2 73.3 75.0 7 AVG MONTHLY RATE $ 22.71 23.69 22.87 24.12 25.32 26.59 27.92 29.32 8 REVENUE/SUBSCRIBER $ 272.57 284.32 274.42 289.42 303.89 319.08 335.04 351.79 9 BASIC SERVICE REVENUE (000) $16,830 $18,149 $17,791 $19,484 $20,993 $22,711 $24,565 $26,401 10 11 NEW BASIC (000) 2.6 1.5 2.0 1.4 2.1 2.1 2.2 1.3 12 BASIC CHURN (000) 28.3 26.7 21.3 22.0 22.5 23.1 23.8 24.6 13 RATE OF CHURN 33.6% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 33.0% 14 TOTAL INSTALLS (000) 30.9 28.3 23.3 23.4 24.5 25.3 26.0 25.8 15 EFFECTIVE INSTALL RATE $ 17.98 19.04 27.58 30.14 31.64 33.23 34.89 36.63 16 INSTALL REVENUE (000) $555 $538 $643 $706 $776 $839 $907 $947 17 18 TOTAL BASIC REVENUE (000) $17,385 $18,687 $18,434 $20,190 $21,769 $23,551 $25,472 $27,348 19 20 PAY % AVG SUBS 83.9% 81.4% 80.1% 80.0% 79.0% 78.0% 77.0% 76.0% 21 AVERAGE SUBSCRIBERS (000) 51.8 51.9 51.9 53.9 54.6 55.5 56.5 57.0 22 MONTHLY RATE $ 8.32 8.31 8.39 8.35 8.65 8.95 9.26 9.59 23 REVENUE/SUBSCRIBER $ 100 100 101 100 104 107 111 115 24 PAY SERVICE REVENUE (000) $5,174 $5,180 $5,227 $5,399 $5,662 $5,962 $6,275 $6,561 25 26 AVG ADDRESSABLE SUBS (000) 0.7 1.4 2.3 6.1 15.2 21.3 27.6 33.9 27 % ADDRESSABLE SUBS 1.0% 2.1% 3.4% 9.0% 14.5% 20.0% 25.5% 31.0% 28 PPV CUME MO. BUY RATE 179.0% 138.4% 107.8% 70.2% 68.0% 67.0% 66.0% 65.0% 29 TOTAL PPV BUYS (000) 14.2 23.0 29.6 51.0 124.4 171.6 218.7 264.5 30 AVERAGE PRICE/BUY $ 8.91 7.53 7.28 6.87 7.11 7.36 7.62 7.88 31 TOTAL PPV REVENUE (000) $126 $173 $215 $350 $884 $1,263 $1,666 $2,085 32 PPV REV/SUB/MO $ 0.17 0.23 0.28 0.43 1.07 1.48 1.89 2.32 33 34 AD REVENUE/SUB/MO $ 1.68 1.84 2.02 2.21 2.26 2.31 2.36 2.41 35 AD REVENUE/SUB $ 20.19 22.12 24.29 26.48 27.08 27.68 28.28 28.88 36 TOTAL AD REVENUE (000) $1,246 $1,412 $1,575 $1,783 $2,050 $2,358 $2,711 $3,118 37 38 HOME SHOPPING REV/SUB/MO $ 0.12 0.10 0.11 0.11 0.12 0.12 0.13 0.14 39 HOME SHOPPING REV/SUB $ 1.45 1.19 1.30 1.36 1.43 1.50 1.57 1.65 40 TOTAL HOME SHOPPING REV (000) $90 $76 $84 $92 $99 $107 $115 $124 41 42 OTHER REVENUE (000) $1,334 $1,423 $1,394 $1,578 $1,657 $1,740 $1,827 $1,918 43 % BASIC REVENUE 7.9% 7.8% 7.8% 8.1% 7.9% 7.7% 7.4% 7.3% 44 45 TOTAL CABLE REVENUE (000) $25,355 $26,951 $26,929 $29,393 $32,122 $34,979 $38,067 $41,155 46 TOTAL REV/SUB/MONTH $ 34.22 35.18 34.61 36.38 38.75 40.95 43.27 45.70 47
- -----------------------------------------------------------------------------------------
AUGUSTA, GA 2000 2001 2002 2003 2004 1 HOMES IN FRANCHISE AREA (000) 110.5 111.6 112.7 113.8 115.0 2 HOMES PASSED (000) 110.5 111.6 112.7 113.8 115.0 3 % HP IN FRANCHISE AREA 100% 100% 100% 100% 100% 4 PCT PENETRATION 69.7% 70.2% 70.7% 71.0% 71.0% 5 TOTAL BASIC SUBS (000) 77.0 78.3 79.7 80.8 81.6 6 AVERAGE BASIC SUBS (000) 76.3 77.7 79.0 80.2 81.2 7 AVG MONTHLY RATE $ 30.78 32.32 33.94 35.63 37.41 8 REVENUE/SUBSCRIBER $ 369.38 387.85 407.24 427.60 448.98 9 BASIC SERVICE REVENUE (000) $28,201 $30,123 $32,174 $34,314 $36,466 10 11 NEW BASIC (000) 1.3 1.3 1.3 1.1 0.8 12 BASIC CHURN (000) 25.0 25.4 25.8 26.3 26.7 13 RATE OF CHURN 33.0% 33.0% 33.0% 33.0% 33.0% 14 TOTAL INSTALLS (000) 26.3 26.7 27.2 27.4 27.5 15 EFFECTIVE INSTALL RATE $ 38.46 40.39 42.41 44.53 46.75 16 INSTALL REVENUE (000) $1,011 $1,080 $1,153 $1,221 $1,285 17 18 TOTAL BASIC REVENUE (000) $29,213 $31,203 $33,327 $35,535 $37,751 19 20 PAY % AVG SUBS 75.0% 75.0% 75.0% 75.0% 75.0% 21 AVERAGE SUBSCRIBERS (000) 57.3 58.3 59.3 60.2 60.9 22 MONTHLY RATE $ 9.92 10.27 10.63 11.00 11.39 23 REVENUE/SUBSCRIBER $ 119 123 128 132 137 24 PAY SERVICE REVENUE (000) $6,818 $7,178 $7,557 $7,945 $8,323 25 26 AVG ADDRESSABLE SUBS (000) 39.8 45.7 49.6 53.5 57.5 27 % ADDRESSABLE SUBS 36.0% 41.0% 44.0% 47.0% 50.0% 28 PPV CUME MO. BUY RATE 64.0% 63.0% 62.0% 61.0% 60.0% 29 TOTAL PPV BUYS (000) 305.5 345.9 368.9 391.6 413.9 30 AVERAGE PRICE/BUY $ 8.16 8.44 8.74 9.05 9.36 31 TOTAL PPV REVENUE (000) $2,492 $2,921 $3,225 $3,543 $3,875 32 PPV REV/SUB/MO $ 2.72 3.13 3.40 3.68 3.98 33 34 AD REVENUE/SUB/MO $ 2.46 2.51 2.56 2.61 2.66 35 AD REVENUE/SUB $ 29.48 30.08 30.68 31.28 31.88 36 TOTAL AD REVENUE (000) $3,586 $4,124 $4,742 $5,453 $6,271 37 38 HOME SHOPPING REV/SUB/MO $ 0.14 0.15 0.16 0.17 0.18 39 HOME SHOPPING REV/SUB $ 1.74 1.82 1.91 2.01 2.11 40 TOTAL HOME SHOPPING REV (000) $133 $142 $151 $161 $171 41 42 OTHER REVENUE (000) $2,014 $2,115 $2,221 $2,332 $2,448 43 % BASIC REVENUE 7.1% 7.0% 6.9% 6.8% 6.7% 44 45 TOTAL CABLE REVENUE (000) $44,255 $47,682 $51,223 $54,969 $58,840 46 TOTAL REV/SUB/MONTH $ 48.30 51.16 54.03 57.08 60.37 47
10-YEAR CASH FLOW PROJECTIONS (Continued) - ------------------------------------------------------------------------------------------------------------------------
AUGUSTA, GA 1992 1993 1994 1995 1996 1997 1998 1999 48 LAN/NEW SERVICES REVENUE (000) $14 $24 $27 $45 $73 $161 $262 $381 49 50 TOTAL SYSTEM REVENUE (000) $25,369 $26,975 $26,956 $29,438 $32,195 $35,140 $38,329 $41,535 51 52 CASH FLOW (000) $13,522 $14,080 $13,159 $14,577 $16,779 $19,048 $21,003 $22,882 53 CF MARGIN 53.3% 52.2% 48.8% 49.5% 52.1% 54.2% 54.8% 55.1% CASH FLOW PERCENT INCREASE 4.1% -6.5% 10.8% 15.1% 13.5% 10.3% 9.0% DISCOUNT % 10% DISCOUNT FACTOR 1.10 1.21 1.33 1.46 1.61 PRESENT VALUE FACTOR 0.91 0.83 0.75 0.68 0.62 DISCOUNTED CASH FLOW (000) $13,252 $13,867 $14,311 $14,345 $14,208 CUMULATIVE DISC. CASH FLOW (000) $13,252 $27,119 $41,430 $55,775 $69,983 10 YEAR CUM. CASH FLOW (000) $137,998 9.5 X 95 CF EXTRAORDINARY CAP-EX (000) $1,900 DISCOUNT % 10% DISCOUNT FACTOR 1.10 PRESENT VALUE FACTOR 0.91 DISCOUNTED CASH FLOW (000) $1,727 CUMULATIVE DISC. CASH FLOW (000) $1,727 10 YEAR CUM. CASH FLOW (000) $136,271 9.3 X 95 CF $2,046 PER 66,601 SUBS ON 12/31/94
- -----------------------------------------------------------------------------------------
AUGUSTA, GA 2000 2001 2002 2003 2004 48 LAN/NEW SERVICES REVENUE (000) $617 $774 $954 $1,281 $1,649 49 50 TOTAL SYSTEM REVENUE (000) $44,872 $48,456 $52,177 $56,250 $60,489 51 52 CASH FLOW (000) $24,904 $26,979 $29,146 $31,551 $34,069 53 CF MARGIN 55.5% 55.7% 55.9% 56.1% 56.3% CASH FLOW PERCENT INCREASE 8.8% 8.3% 8.0% 8.3% 8.0% DISCOUNT % DISCOUNT FACTOR 1.77 1.95 2.14 2.36 2.59 PRESENT VALUE FACTOR 0.56 0.51 0.47 0.42 0.39 DISCOUNTED CASH FLOW (000) $14,058 $13,844 $13,597 $13,381 $13,135 CUMULATIVE DISC. CASH FLOW (000) $84,041 $97,885 $111,482 $124,863 $137,998 10 YEAR CUM. CASH FLOW (000) EXTRAORDINARY CAP-EX (000) DISCOUNT % DISCOUNT FACTOR PRESENT VALUE FACTOR DISCOUNTED CASH FLOW (000) CUMULATIVE DISC. CASH FLOW (000) 10 YEAR CUM. CASH FLOW (000)
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS - -------------------------------------------------------------------------------- 1. Household growth in the service area (City of Augusta, Columbia County and Richmond County) is assumed to average 1.5% per year in 1995-98 and 1.0% per year in 1999-04, based on historical trends and analysis of data from local management, the most recent edition of the Augusta Economic Yearbook, census data and Sales & Marketing Management. 2. According to system management, the system will pass all new home growth in the franchise areas. Therefore, homes passed as a percentage of homes in the franchise area is projected to remain at 100%. 3. Basic penetration is projected to increase by 0.4% to 65.7% by year end 1995 and by another 1.0% to 66.7% in 1996, in response to the continued direct sales effort guided by a new marketing director. With the projected influx of people in the 25-49 age bracket and increased per capita income in Columbia and Richmond counties, system penetration can be expected to grow by 1.0% annually through 1998, 0.5% annually from 1999-2002, until it reaches 71% in 2003. 4. Basic monthly rates were increased in March 1993 and then adjusted between tiers in September to take account of the F.C.C.'s new rate regulations, with the total price for the most popular tier, the Basic Plus Package, remaining the same. The rate for the 17-channel basic only service is $9.13, with the tier costing an additional $14.07, for a total of $23.20. Effective March 1, the rate for the tier will increased by $1.50 so that the total for the Basic Plus Package will be $24.70. 96.9% of subscribers take that package, and only 3.1% take the lower cost 17-channel service. The average - -------------------------------------------------------------------------------- JONES INTERCABLE B-29 KAGAN MEDIA APPRAISALS, INC. ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS (Continued) - -------------------------------------------------------------------------------- monthly rate for all of 1995 will be $24.12. In 1996 and for the remainder of the forecast period, this rate is assumed to increase at the modest rate of 5% annually. 5. Basic churn has remained constant at around 33% per year, and we have projected that it will hold steady at that rate. 6. Pay-to-basic reached 84% in 1992 but has declined gradually since then to 80.1%. With continued discounting of pay packages and the planned strong marketing efforts, we believe the ratio will stabilize in the range of 75-80% but have allowed for a gradual decline from 80% to 75% over the forecast period. 7. Pay rate increases are assumed to average only 3.5% per year, below increases in the Basic Plus Package, in order to maintain penetration. 8. The Augusta system introduced pay-per-view movie services in 1991 and events in 1992. The cumulative monthly buy rate as a percentage of addressable homes stood at 107.8% in 1994. With major increases forecasted in the number of addressable homes, particularly because of the new monthly converter rental program, we have allowed for some decline in the buy rate. The projections call for a gradual decrease to 60% as the number of addressable homes increases. Addressable homes as a percentage of basic subscribers was only 3.4% in 1994. As the attractive converter rental option becomes more widely marketed, we project this number to rise from its low 1994 base to 50% - -------------------------------------------------------------------------------- JONES INTERCABLE B-30 KAGAN MEDIA APPRAISALS, INC. ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS (Continued) - -------------------------------------------------------------------------------- by 2004. Given that we have not projected a rebuild for video-on-demand services, this level of pay-per-view penetration is justified. 9. The Augusta system's advertising revenue averaged $2.02 per subscriber per month in 1994, an increase of 9.8% over 1993. The increase in 1993 was 9.6% over 1992. With management's increased advertising sales effort and the growing market awareness of the cost-effectiveness of cable advertising, it is expected to increase again in 1995 at 9.0%. Thereafter, it is assumed to have steady increases of $0.05 per subscriber per month, reaching $31.88 per subscriber per year in 2004. 10. Home shopping revenue reached $1.30 per subscriber in 1994, an increase of 8.5% over 1993. The revenue per subscriber is assumed to increase at the rate of 5% per year in 1995 through the end of the forecast period, reaching $2.11 in 2004. 11. Other revenue consists primarily of commercial accounts, equipment sales (chiefly converters) and late fees. During 1992-94, it was fairly steady as a percentage of basic revenue, at 7.8-7.9%. With the launching of the attractive converter rental plan in 1995, it is anticipated that this category will increase to 8.1% of basic revenue and then gradually decline to less than 7.0% of basic revenue by 2004. 12. Revenues from leasing of fiber capacity doubled to 0.1% of total system revenue in 1994 from 1992. Based on conversations with system management, the well-planned amount of excess fiber capacity, and the redundant "ring" architecture, we can anticipate revenues in this category increasing - -------------------------------------------------------------------------------- JONES INTERCABLE B-31 KAGAN MEDIA APPRAISALS, INC. ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS (Continued) - -------------------------------------------------------------------------------- to 0.15% of total system revenue in 1995 and thereafter gradually rising from 0.25% in 1996 to 2.8% in 2004. This will likely be generated by increased needs from local governments and management's plans to interconnect the schools and extend services to major hospitals. 13. Increases in basic penetration, growth in ancillary revenues (e.g. pay- per-view, advertising and home shopping) and operating efficiencies associated with projected growth in subscribers are expected to boost operating margins over the next several years. The cash flow margin decreased from 53.3% to 48.8% from 1992 to 1994 because of the effects of rate regulation and the F.C.C.'s rate freeze. With the scheduled rate increase in early 1995, and the higher revenues in high-margin categories, it is reasonable to assume that operating margins would recover to their pre-regulation level in 1996. With the continued projected growth, those margins could gradually increase to the 56% range by 2002 and increase gradually for the balance of the forecast period. 14. Future cash flows are discounted by a risk-adjusted 10% factor, slightly above the Moody's Aaa corporate bond yield, which stood at 8.49% in January 1995. This rate is widely accepted in financial circles as a reliable indicator of future inflation and the cost of funds. 15. System management estimates that the capital costs required to rebuild the remaining 300 miles of 400 MHZ plant would total $1.9 million in 1995. - -------------------------------------------------------------------------------- JONES INTERCABLE B-32 KAGAN MEDIA APPRAISALS, INC. COMPARABLE ANALYSIS - -------------------------------------------------------------------------------- Comparison of a cable TV system to similar properties recently sold is an accepted appraisal methodology used to correlate the findings of the statistical Income method with the realities of the private marketplace. Analysis of historical cable system sales indicates that systems can be compared to one another on the basis of such variables as local demographics, system size, basic and pay penetration levels and revenue per subscriber. Like cable properties can often be compared to one another on a value-per- subscriber (VPS) basis. VPS is a short-form valuation yardstick that reflects a multiple of the cash flow a subscriber is expected to generate in the first or second year of ownership. Cable systems have historically sold most often in the range of 9-11 times projected first-year cash flow (although 11-13x was the norm in 1988-89) with the higher end of the range generally assigned to systems which are expected to achieve significant near-term increases in cash flow. Thus a cable subscriber forecasted to generate $170 of cash flow in the coming year and selling at 11x that cash flow would be valued at $1,870, or at $2,210 at 13x cash flow. The cloud of reregulation put a damper on system trading activity in 1993- 1994, as cable operators struggled to determine the long-term effects on system operations. This restrictive trading environment has limited the pool of comparable sales. Fewer deals occurred in 1994 than in any of the last 12 years, but at the same time, more subs have traded hands than ever before in several large deals. In order to accurately reflect the current private market environment in our analysis, we have only included as comparables sales that took place in June 1994 or later, although we considered the entire 1994 year in our analysis. The pool of available comparables is quite small, but our study of - -------------------------------------------------------------------------------- JONES INTERCABLE B-33 KAGAN MEDIA APPRAISALS, INC. COMPARABLE ANALYSIS (Continued) - -------------------------------------------------------------------------------- the deals yields an identifiable set of value benchmarks that can be applied to the Jones Augusta. This analysis, and individual comparable sales, are listed below: JONES AUGUSTA COMPARABLE SYSTEMS
BASIC Comp. Sale LOCATION BASICS PEN VPS Value Date - ------------------------------------------------------------------------------- ($million) AL-based MSO 28,744 63.3% $1,906 126.9 8/94 Baton Rouge, LA 96,500 60.3% $1,979 131.8 6/94 NC-based MSO 160,000 67.3% $2,109 140.5 9/94 Suburban Chicago 39,400 60.6% $2,056 136.9 8/94 Averages 81,161 62.9% $2,013 134.0 Jones Augusta 66,601 65.2% $2,046 136.3
(C) 1995 KAGAN MEDIA APPRAISALS, INC. The first comparable we considered was Comcast's purchase of the southern systems of CableSouth in August 1994 for $1,906/sub. Although a smaller group than Jones Augusta, the date of the sale and the location of the systems makes this sale an appropriate comparable. Jones Augusta, with its single cluster of subscribers in an urban area with strong cash flow potential could be expected to trade above this VPS level. Applying this VPS to Jones Augusta's 66,601 subscribers produces a possible comparable value of $126.9 million. -------------- The second comparable considered was TCI's purchase of the Baton Rouge, Louisiana system in June 1994 for $1,979/sub. Although this group of basic subscribers (96,500) is larger than the Augusta system, the geographical similarity and large cluster of subs makes this an appropriate comparable. Jones Augusta, with its relatively high cash flow margin, could be - -------------------------------------------------------------------------------- JONES INTERCABLE B-34 KAGAN MEDIA APPRAISALS, INC. COMPARABLE ANALYSIS (Continued) - -------------------------------------------------------------------------------- expected to trade above this VPS. Applying this VPS to Jones Augusta's 66,601 subscribers produces a possible comparable value of $131.8 million. -------------- The NC-based MSO deal involved Time Warner's purchase of Summit Communications in September 1994. Summit served 160,000 subscribers in three systems, with the largest located in Winston-Salem North Carolina. The systems are a key strategic fit for Time Warner, leading to a higher price, but were acquired in a stock+debt transaction, resulting in a lower price. These factors effectively cancel each other out. The system group represents a good comparable because of its location, and the recent date of the sale. Summit was sold for $2,109/sub . When applied to Jones Augusta's 66,601 subscribers the deal's VPS yields a comparable value of $140.5 mil. ------------ The final deal involved the purchase of the suburban Chicago systems from Multimedia by Tele-Communications, Inc. Although in a different region of the country, Augusta displays some of the same characteristics of a more suburban/rural nature with only fair off-air signal reception quality. This deal carried a value of $2,056/sub. Applying this comparable to the Jones Augusta system implies a comparable value of $136.9 million. The four comparable above carry an estimated average year-ahead cash flow multiple of 9.6x, slightly higher than Jones Augusta due to the more mature cash flow margin of the Augusta system. The average of the four comparable values listed above is $134.0 million. -------------- - -------------------------------------------------------------------------------- JONES INTERCABLE B-35 KAGAN MEDIA APPRAISALS, INC. CORRELATION AND FINAL ESTIMATE OF VALUE - -------------------------------------------------------------------------------- The discounted cash flow analysis yields a value for the Augusta cable system of approximately $136.3 million, while the analysis of comparable sales yields a value of approximately $134.1 million. The proximity of these values, within less than 2.0% of each other, arrived at through two independent appraisal methodologies, underscores the validity of the assumptions used to cast the 10-year cash flow projections and establishes a range within which the value of the Augusta cable system could be expected to fall. In arriving at a single estimate of value, the fact that this is a single well-clustered system in a semi-rural market showing signs of moderate growth potential, with modern plant facilities making excellent use of fiber optics technology for future expansion, with upside in advertising, home shopping and particularly pay-per- view revenues, leads us to value the system at the upper end of the range. Therefore, we conclude that the current fair market value of the Augusta cable television system is approximately $136.3 million. -------------- - -------------------------------------------------------------------------------- JONES INTERCABLE B-36 KAGAN MEDIA APPRAISALS, INC. EX-99.3 6 APPRAISAL WESTERN EXHIBIT C FAIR MARKET VALUE APPRAISAL FOR AUGUSTA, GEORGIA DECEMBER 31, 1994 PREPARED FOR JONES INTERCABLE PREPARED BY WESTERN CABLESYSTEMS, INC R. MICHAEL KRUGER, PRESIDENT CABLE TELEVISION MANAGEMENT, CONSULTING, AND APPRAISALS 513 WILCOX STREET, SUITE 230 CASTLE ROCK, CO 80104 PHONE: 303-688-4462 FAX: 303-688-5001 SUMMARY ------- The appraiser was asked by Jones to prepare an independent appraisal of the fair market value of the Augusta, Georgia cable television system. The appraisal is to be averaged with the values established by two other independent appraisers to establish the asking price for the sale of the Augusta system from one Jones- affiliated entity to another. Each of the entities will, of course, conduct its own due diligence and analysis with regard to the asking price, and neither is under any obligation to complete the transaction at the asking price. This appraisal report is issued for the use of Jones and the Jones controlled entities involved, and their partners, employees, agents, and advisors. Western understands and agrees that the report may be delivered to the Securities and Exchange Commission, and may be summarized in proxy materials prepared by Jones. The report is not intended for the use of other parties, including but not limited to lenders for buyer or seller. The appraisal is based on system data provided by Jones. The appraiser visited the system on January 20, 1995 for the purpose of inspecting the general market and system facilities, and obtaining system data. Western has appraised this property in prior years, and last visited in 1991. The system manager provided subscriber history and operating information upon which this appraisal is based. The home office provided income statements for the years ended 12/31/91 through 12/31/94. The work herein is based in part on data provided by others, and we assume no responsibility for the accuracy of such data. However, all such data provided to us appeared to be within industry norms, and nothing was observed which would cause us to question the material accuracy of the information provided. Western has used customary techniques and industry knowledge in preparing this report. Nonetheless, Western does not warrant or represent that the appraised value is that which would actually be obtained in an open market transaction, or that the value would be upheld in litigation or administrative proceeding. Accordingly, Western (including its officers, employees, and owners) does not indemnify or hold harmless any user of this report in any manner against any costs, losses, or damages arising out of the use of the conclusions herein. Based on the analysis herein, the appraised value of this system at December 31, 1994 is $147,000,000. This value calculates to $2,153 per equivalent subscriber or 9.86 x our estimate of first-year projected operating income. This valuation is subject to the analysis and qualifying remarks contained in this report. Augusta, Georgia, 12/31/94, Page C-2 SYSTEM DESCRIPTION ------------------ Key items regarding the system at 12/31/94 are:
Homes Passed 102,040 Basic residential subscribers 66,601 Est. residential bulk units 2,800 Total Units Served 69,401 Total market penetration 68% EBU's from bulk/commercial @ $24.70 1,664 Total EBU's including res. basic 68,265 Pay units 50,172 Penetration of total units served 72% Plant Mileage 1,600 (63 homes/mi) Channels used 53 Channel capacity (80% of plant) 78
COMMUNITY PROFILE ----------------- The system serves the community of Augusta, Georgia, and contiguous county areas. Augusta is located in the Savannah River valley, about 150 miles east of Atlanta. Augusta is the largest community for some distance in any direction. The community has a strong and diverse economic base. The largest employers include hospitals, paper products companies, fabric mills, industrial equipment manufacturers, two golf cart companies, furniture, and agricultural products. The federal Savannah River Project is located about 40 minutes southeast in South Carolina; Augusta is the closest town. This is the nation's largest atomic energy research and manufacturing facility. The facility has experienced small expansions since we last visited in 1991, and further limited growth is expected. Fort Gordon, a major Army Signal Corps training facility, is located near Augusta. It has enjoyed some modest expansion, including a new contingent of personnel redeployed from Europe during 1994. The base is not expected to be on the closure lists in the future, due to the national political strength enjoyed by Georgia. Unemployment is steady at approximately 5% to 6%. The most recent data, generally for 1990, shows median household income is around $25,200. The median age is about 29. The percentage of low income homes (under $15,000) is around 28%, which is higher than normal. About 10% of the population over 65. Augusta, Georgia, 12/31/94, Page C-3 Housing vacancies are normal, at around 8%. The average resale market price is about $105,000, somewhat lower than the Atlanta area. The market is strong, and listings sell quickly. While the economy has slowed somewhat from our last visit in 1991, the area still shows signs of economic well-being, and there are no apparent problems. PASSINGS AND HOUSING GROWTH --------------------------- Recent history indicates a slowing in the strong growth trends of the late 80's and early 90's. This reflects in part the fact that the system expanded rapidly into previously-unserved pockets prior to 1992. However, the economy has slowed somewhat, and the industrial and job base is not expanding as rapidly as a few years ago.
Passings Ending Growth -------- ------ ------ Year Added Passings Rate - ---- ----- -------- ---- 1992 3,467 97,829 3.7% 1993 2,336 100,165 2.4% 1994 1,875 102,040 1.9%
We saw a number of new smaller housing subdivisions (approximately 100 lots) during our drive, but did not see any major development of the scale seen in Atlanta or major metro areas, or even in Augusta several years ago. Recent expansion of key roads and highways will open up some additional areas for further development, but timing is unknown. The system does not have any remaining significant unbuilt areas since lines have been extended out to a point where the density is 10-12 homes per mile; this also limits growth rates. The manager indicated that the growth rate for the next several years should average around 1% to 1.5%. The 1995 budget forecasts total growth of 1,071 passings, or about 1.1%. We have based our first-year projections on passings growth of 1.5%. ACQUISITION OPPORTUNITIES ------------------------- Although we cannot directly include potential acquisitions in the calculations for this appraisal, the existence of such opportunties will increase market interest, and perhaps improve multiples. This system has a number of nearby candidates, and most could be connected by fiber to Augusta. A new owner could eventually have a single operation of more than 100,000 customers. Augusta, Georgia, 12/31/94, Page C-4 SUBSCRIBER RATES AND SERVICES ----------------------------- The system implemented a tier service on March 1, 1993, along with a rate increase of $1.25. Basic rates were previously increased by $2.00 on January 1, 1992. Rates were adjusted in September, 1993, in response to FCC rules, but there was no overall increase. Another increase of $1.50 on the tier has been planned and announced for February 1, 1995. The current and new rates are:
Current Feb '95 ------- ------- Basic 9.13 9.13 Tier 14.07 15.57 ----- ----- Total $23.20 $24.70 Premium channels 9.50 9.50 PPV Movies 3.95 3.95 Add'l Outlets 0 0 Converters n/a 4.00 Install-new 30.00 30.00 Reconnect 20.00 20.00
The system offers an 17-channel basic service which includes 7 offair, 6 satellite, and 4 local origination/bulletin board channels. The tier service includes 26 satellite channels. There are 5 premium channels, and 5 PPV channels. In total, there are 53 active channels. The lineups are very complete, and no material improvements could be made. HBO, Cinemax, and Showtime are offered at rates of $9.50 for the first, $7.50 for the second, and $7.00 for the third. Disney is offered at $7.95. Historically, the company has only sold converters, but plans to begin charging $4/month for addressable units starting in February. This should increase revenue by about $6,000/month for 1995. Franchise fees have not been passed on in the past. While this has been discussed, and could be done, it has not been included in the budget, so we have not used it in our analysis. This would make a good "next increase" after the market absorbs the February raise. Augusta, Georgia, 12/31/94, Page C-5 OTHER SOURCES OF INCOME ----------------------- Advertising - ----------- The company has a well-organized ad sales department. An extensive local origination studio (with multiple editing and production facilities) offers ad and program production. Ads are inserted on 7 satellite channels, and on local programming (which averages 8-10 hours of original shows per week.) Advertising sales has enjoyed strong growth:
Year Gross Growth ---- ----- ------- 1991 770,000 1992 1,246,000 n/a 1993 1,409,000 13% 1994 1,575,000 12%
The company is planning to install fiber links to other Jones headends in the next year or two. This will greatly expand the ad market. While much of the actual revenue increase will be allocated to these other companies, the overall rate per thousand homes should go up as the "reach" expands, and this will help Augusta advertising to continue to grow at 12%/year. Pay-Per-View - ------------ The system launched pay-per-view in November, 1991. The company presently offers five channels, including movies and special events, but wrestling remains the key profit center. After a slow start, the system realized 1992 revenues of $2.05 per total subscriber. For 1994, the revenue per subscriber increased to $3.23. This represents a growth rate of about 25%/year. Even with this growth rate, Augusta remains well below the $10 range that many other systems enjoy. We expect growth in per-subscriber revenues of 25%/year for quite some time. Fiber Optic Network Leases - -------------------------- The company has a 280-mile fiber optic backbone and institutional network, which will be expanded greatly in coming years. Fiber is leased to local governments and businesses for data transmission. The company had revenues from this source of $14,000 in 1992, and $27,000 in 1994. The budget for 1995, based on deals in progress, is $48,000. We expect this to continue to grow rapidly. Augusta, Georgia, 12/31/94, Page C-6 Other/Late Fees - --------------- The system increased late fees from $1.50 to $5.00 during 1992, and saw a substantial increase in fees collected. This area has continued to grow. Other items include FCC fee passthrough (new in 1995), home shopping, etc. Converter sales are included here, but have been only a small revenue source ($15,000). Sales of "basic" converters should not be impacted by the new charge for rental of addressable converters. SUBSCRIBER PENETRATION ---------------------- There are six offair signals available in the market. The CBS and ABC stations are VHF. The NBC affiliate, both PBS stations, and the Fox independent, are all UHF. Because of the hilly terrain, summer weather, and dense tree cover, reception can be fair or poor in some areas on some stations. The system is presently providing cable to about 68% of the market, and this has been fairly stable since 1992. Pay penetration is at 73%, and has declined from about 84% in 1992. For comparison purposes, we list below the reported basic and pay penetrations and rates in some nearby markets:
H/P Basic % Pay % Columbia, SC 81,000 96 40 Athens, Ga 32,000 62 65 Anderson, SC 20,000 63 35
All three communities are similarly situated between Atlanta and Raleigh-Durham, and have generally similar offair and demographics. By comparision, Augusta is on target with basic penetration, and above average for pay penetration. We nonetheless believe the flat penetration level leaves room for some growth, and have projected basic penetration gains of approximately 0.5% in our forecast. OTHER MATTERS ------------- There is no litigation. There are no labor unions or employee problems. There are no significant easement or access problems. Augusta, Georgia, 12/31/94, Page C-7 TECHNICAL DESCRIPTION --------------------- The system is a technological showpiece. It was originally started in 1972, and expanded slowly under the Fuqua company's ownership from 1972 until its sale to Jones in 1985. Fuqua was a solid operator, and the plant was well-built and well-run. Nonetheless, Jones undertook a major rebuild in 1989-91. All cable and electronics installed prior to 1986 were replaced. A 150-mile fiber backbone was installed to replace and expand the previous microwave hub system. The fiber net has been expanded by 25 miles, and plant upgrade work has continued at a low level. New build, of course, has been done as new homes have been built. As of December 31, 1994, the plant mileage can be summarized as:
New aerial, 550 mhz 1,088 New underground, 550 mhz 213 Old underground, 400 mhz 300 ----- Total 1,601 Fiber in place 175
The company has prepared a plan to complete the upgrade to 550 mhz, with an estimated cost of $1.9 million. Most of the work involves only electronics and respacing, with little actual cable replacement. All maps and technical records have been placed on a computer data base. Technicians are unusually well-equipped and trained. Some of the highlights are discussed below. Layout: one headend serving eight fiber hubsites (FM to distant fiber splits, then AM to local hubs) then conventional coaxial trunk/feeder to homes. Maximum cascade: 15 trunk stations, 2 line extenders. Headend: S-A equipment, 8 dishes, including 10-meter. Standby power Cable: Times and Comm/Scope 875, 750, 625, 500. No fused disk or selfsupport Electronics: S-A amps and line extenders, most standby power Passives: Magnavox Converters: Panasonic remote 60 channel standard, Zenith addressable Security: Negative and positive traps, addressability on PPV Other: Extensive satellite FM service. Institutional net Augusta, Georgia, 12/31/94, Page C-8 OPERATIONS ---------- The system operates principally from a company owned office and headend in central Augusta. The office is quite nice, and well-staffed. A second company- owned warehouse/office location is used for inventory and field staff activity. Field employees are well-equipped with bucket trucks, meters, a sweep system, and spectrum analyzer. There is no heavy construction gear. System pictures are good, and subscribers are apparently happy, since the annual service call load is only about 27% of customers. Typical work backlogs are 1-3 days for installation work, and less than a day for service calls. The system operates quite well. The system operates a 24-hour service policy. There is a weekend daytime crew, and two regular shifts (7AM - 11PM) during the week. Dispatchers work the remaining hours, and call out technicians as needed. As a result, the total staff is fairly high:
Administrative 28 Construction 7 Technical and dispatch 60 --- Operating Subtotal 95 Advertising sales 18 Cable sales 11 --- Sales Subtotal 29 Grand total 124
The operating staff ratio is approximately 1:705. This is very favorable, considering the extended-hour service coverage. Industry averages for single- shift operation are in the same range. Average direct wages are $25,700. While this is fairly high, it does reflect a high-quality staff, and shift differentials. The staff has been with the company for a very long time on average. The system maintains a public relations advertising effort, and does regular direct mail and door-to-door sales. A tap audit has not been done since 1991, but is planned for 1995. Augusta, Georgia, 12/31/94, Page C-9 COMPETITION ----------- There is no overbuild. There are no contiguous operators, although there are a few smaller systems about 20 miles away. No overbuild is expected. There is no existing or planned MMDS operation. To date, DBS has not been an issue. FRANCHISES, RATE REGULATION --------------------------- The system has franchises from Augusta, plus two other cities and two counties. The main Augusta franchise expires in 2001, and the others in 1998 through 2010. Work has been started on the 1998 renewal, and no problems are expected. Relations are very good. Fees are generally 3% of basic. There are no burdensome franchise provisions. The company is presently unregulated. Augusta did file for FCC certification to regulate, but has not subsequently adopted regulation procedures or made information requests of the company. There have not been any subscriber complaints to the FCC regarding tier rates, so no FCC regulation is pending. However, the potential for regulation remains, so any buyer (or appraiser) must be concerned with the possible impact of regulation. The system manager stated that the Form 1200 calculations indicate that the current total rate of $23.20 is about 16c higher than would be allowable under benchmark regulations; the 1995 increase of $1.50 would presumably also be in trouble. However, the total decrease could be offset by franchise fee passthrough, so the net reduction might amount to only about $1.00 AO charges were eliminated previously, so there is no problem in this area. If the system were to be regulated on a benchmark basis, forecasted annual revenues for 1995 might decline by about $800,000, or 3%. However, the system could seek higher rates under cost-of-service regulation. Management feels that the likely outcome of any such application would be in the range of $32 - $37, depending on how numerous issues are interpreted. Because of the good local political situation, and favorable trends at the national level, rate regulation is far from certain. If it were to happen, a 3% revenue reduction would not be catastrophic. Thus, the situation in Augusta is reasonably comparable to that faced by most other cable systems. We believe the current market price multiples fully reflect such situations, and see no reason to make further adjustment to either cashflow or multiples for Augusta. Augusta, Georgia, 12/31/94, Page C-10 PROJECTIONS OF OPERATING INCOME ------------------------------- The most direct and common method of appraising cable television systems involves calculation of historic and future operating income (commonly called "cashflow"). These projections reflect direct operating revenues and expenses, before capital expenditures, depreciation, and management fees. Projected operating income typically reflects any recent developments, current subscriber levels, and changes in income that which will be immediately realized by the buyer. Projection for 1995 - ------------------- A projection worksheet is attached. In the first four columns, we show the actual operating income for 1991 - 1994. The column indicated as the "Projected 1995" generally reflects projected subscriber growth and the planned rate increase. Items such as programming costs which are based on subscribers or revenue have adjusted to match the subscriber and revenue projections shown, using prior-year unit costs plus an allowance for increases. Overhead items, such as maintenance and property tax have been based on longer-term trends. Comments on key calculation assumptions are below. Basic Revenues: In making projections, we allowed for continued growth in passings and basic penetration as discussed earlier. Average basic revenue/subscriber should go up by $1.45 to reflect the tier rate increase of $1.50 (not all customers take the tier), and by $0.09 to reflect the new charge of $4.00 on 1,443 addressable converters. The average for 1994 is a very solid base, because no changes or adjustments were made during 1994. Pay Revenues: We did not assume any penetration increase, but did allow for a continuation of the trend of slow increases in revenue/unit, as the product mix changes. Other Revenue Items: Changes were based on historic trends, and on the discussions noted previously in this report. Salaries: System growth is 2% - 3%, depending on the measure used. Per- employee wages are at the high end of the scale, and staffing ratios are fairly normal. Wage costs were fairly stable from 1993 to 1994. Thus, we do not expect any major change in staff size or wages. Increase current office total payroll at 3%. Increase field payroll by 2%. Labor capitalized: The present capitalization rate is fairly high compared to the system's activity and construction level. We have Augusta, Georgia, 12/31/94, Page C-11 calculated a revised amount using the construction wages plus a 75% overhead allowance, and $205,000 for expected new drops in 1995. Taxes/Benefits: Use the 29% average of the past several years Vehicle expenses: Presently at about $270/truck/month, which is a normal level. Increase by 2%, reflecting recent trends. Basic Programming: This has been increasing by 12% - 14% for several years, reflecting program additions and rate increases, and was at $3.67 for 1994. Because of industry trends, and local capacity limits, we do not expect any further additions. Rate increases are also slowing somewhat. We have forecast only a 6% increase in per-sub costs. Billing Costs: The costs have been fairly stable, and are high. Make no changes. Franchise/Bad Debt/Copyright: Use average percentages for the past few years, all of which are reasonable: franchise fee, 1.6% of gross; copyright, 0,4% of basic, and bad debt 1.8% of gross. Bad debt is higher than industry norms, but it has been at this level for several years, so probably little can be done. Pay TV: Use the current cost of 51% for residential, 62% for commercial, and 45% for PPV. Power: costs have increased sharply since the system was expanded to fiber optic and 450-550 mhz operation. The cost per mile at present is $332/mile. This level has been declining, and we forecasted a very small drop. Insurance: Present costs are a reasonable $2.95/sub. There is no clear trend; use a 4-year average. Pole Rent: This works out to a fairly high per-mile cost, even with a stated rate of $6/pole; we think it should not be as high as it is and used a 4-year average. Other System Costs: Assume the 1994 jump is temporary, and use a 4-year average. Office Costs: Levels are stable Marketing Costs: In aggregate, these have been stable at about 2.6% of gross revenues. This is at industry norm, and we will use it. Ad Sales Costs: These have been fairly stable at about 53% of sales, and we will use this level. Augusta, Georgia, 12/31/94, Page C-12 Comparison of Summary Data for 1994/95 - -------------------------------------- Shown below is a summary of actual data for 1994, our 1995 forecast, and the system's 1995 budget (in millions)
1994 Actual Our 1995 95 Budget ----------- -------- --------- Revenues 27.0 29.3 29.5 Expenses 13.8 14.4 14.9 Operating Income 13.2 14.9 14.6
Our estimate was done independently of the budget, but the results are close, and give us confidence in our estimates. The biggest portion of the $1.6 million increase in operating income results directly from the rate increase, which yields $1.2 million revenue. Ten-Year Cashflow Projections - ----------------------------- An additional appraisal technique involves projection of free cashflow for an appropriate number of future years; this projected free cashflow is then discounted at the cost-of-capital rate as part of appraised value determination. Our projection for this system is shown on the two-page spreadsheet enclosed. We started with the data contained in the first-year projection spreadsheet, and developed the simplified model shown which uses a few key summary variables. The summary expense variables, and the items they include, are: Personnel: Salaries, Tax/benefit, T&E, Travel, Vehicle Per-Sub: Basic programming, LO,billing, Office, Professional Revenue-related: Franchise fee, copyright, bad debt, marketing, and advertising sales Premium Programming: Pay and pay-per-view Per-Mile: Equipment, power, Insurance, pole rent, property tax, system operation System Data: Longterm passing growth is assumed to be 2%/year, which is slightly above recent averages. We think the economic slow-down will not be permanent for such a well-positioned community. We used EBU's for our longterm projections, rather than subscriber and commercial numbers. The two are related, but the numbers are different. Total EBU "penetration" gains are estimated to be a conservative 0.5% per year. New drops are calculated at 105% of new subscribers, to allow for churn but reflecting the high total penetration. New plant miles are calculated using a likely "new plant" density of 100/mile. Rebuild: This system is in good condition. As a result of the total rebuild in 1989-91, the average age of about 80% of the plant is about 5 years. This part of the system should be able to operate Augusta, Georgia, 12/31/94, Page C-13 at its present level for the next 10 years without rebuild. We did allow for the manager's projection of $1.9 million to upgrade the remaining 20% to 550 mhz. If the system capacity or services (such as fiber optic) were to be expanded further, a plant upgrade program would be needed, but would also generate additional revenues. Since we cannot accurately forecast the nature of these upgrades, we have chosen to not include upgrade capital or revenue in our projection. Annual Assumptions: We first calculated initial unit revenues and expenses from the projected first-year average subscriber count and total revenues and expenses in each category. Basic regulated per-subscriber revenue was increased at 2.0% per year, which is our expectation of the future in a more competitive era. Other per-subscriber revenue was increased in varying amounts as shown; the increases are conservative and supportable by recent data from this system, and national trends. Revenues, Expenses, Capital Expenditures: With three exceptions, these were calculated from the per-subscriber and unit factors, and system data. Installation revenue was projected to increase from its present level at 3% per year, reflecting a trend toward increased transaction costs, and continued system growth. Personnel costs were increased at 5% per year, to reflect inflation plus some portion of system growth. Capital expenditures were calculated from the growth and rebuild data discussed above. The resultant annual free cashflow is shown in the spreadsheet. DETERMINATION OF APPRAISED VALUE -------------------------------- Methodology - ----------- Appraisal of income-producing property typically relies on one or more of three main approaches, which we discuss below. Replacement cost, which is the cost to assemble and put the property into operation, is not typically used in the cable television industry for determining market value of a company. While tangible assets can easily be appraised, cable television system sales include a very substantial intangible value for franchise, goodwill, and customer lists. These intangibles can be also valued separately, but more direct approaches to overall value are easier to use, and more appropriate. Market value as determined by comparable transactions is a very common approach. Transaction value is typically reported on the basis of either per-subscriber cost or operating income multiple. We consider both, but place more reliance on the income multiple. Augusta, Georgia, 12/31/94, Page C-14 The Income Approach is widely used in business valuation, and we also use this approach in our work. Our method involves determination of the discounted present value of free cashflow generated over ten years, plus an allowance for the terminal value after ten years. The enclosed worksheet shows our analysis. Market Value - ------------ The prices of cable system transactions are frequently evaluated to determine the ratio of operating income (income before depreciation, interest, and management fees) to purchase price; sales results are frequently reported in the trade press. We consider principally a multiple of first year projected cashflow, which reflects the relatively-certain changes made possible or otherwise incurred by new management. To select appropriate comparable sales and multiples, we compared this system to the overall market with respect to some key factors. The analysis is subjective, and based on our personal knowledge, but nonetheless helps to ensure that similar transactions are considered. Future growth: Augusta will have average (or a bit less) internal growth, but there are some possible acquisitions which would help. Demographics: As discussed above, demographics are reasonably favorable for cable, but not above-average. Competitive situation: The system has relatively little direct competition, as discussed above. System marketability: The system is of a very attractive size, and is in an area with a number of qualified buyers. Rates: The system has average prospects for rate changes. System Capacity/Quality: The system is above average in capacity and quality. We then reviewed available information on recent transactions and have listed a few below. Because of the rapid changes in the market, only the more recent transactions can be considered, and there are few of these. We have, therefore, included reported market averages on our list: Augusta, Georgia, 12/31/94, Page C-15 Comparable Transaction Data ---------------------------
System Date Subs $/Sub CF Mult - ------ ---- ---- ----- ------- Single larger systems Newport News, VA 11/94 48,000 2,542 9.0 Anaheim, CA 11/94 135,000 2,119 10.5 Ansonia, CT 6/94 32,000 2,667 11.7 Groupings of small systems MSO in GA, FL, MS 8/94 30,000 1,217 8.3 NJ MSO 10/94 74,000 1,351 8.0 Pennsylvania MSO 11/94 69,000 1,767 8.1 Major MSO transactions US West - Wometco 1994 466,000 2,575 11.1 Cox/Times-Mirror 1994 3,000,000 1,916 12.1 Comcast/McLean 1994 550,000 2,309 10.6 Continental/Colony 1994 750,000 1,870 11.3
The foregoing data has been taken from announcements in the trade press, information from brokers, and recent issues of the Cable TV Investor Newsletter, ---------------------------- published by Paul Kagan Associates. These reports of transactions, and general industry commentary, suggest that the "market" in 1994 for larger individual systems is generally 9 to 11, depending on growth, rate control, etc. Collections of larger systems, which have less net downside, are trading in the 10-11 range. Smaller systems (or collections of small systems) trade for 7-8 x, with a few exceptions for unusual circumstances. After considering all factors, Augusta should command an average multiple. A multiple of 10.0 is appropriate to use in valuing the system by this method. We calculate the potential value for Augusta using this method as:
Operating income $ 14,910,000 Multiple 10.0 System value $149,100,000 Current EBU's 68,265 Value per EBU $ 2,184
The resultant value per EBU is within the range of reported comparable transaction prices of $1,900 to $2,600. Augusta, Georgia, 12/31/94, Page C-16 Income Approach - --------------- Ten-year free cashflow was determined, as discussed previously. The annual free cashflow was discounted using an average cost of capital calculated as follows:
Senior debt, 55% @ 9.25% 5.09 Subordinated debt, 15% @ 12% 1.80 Equity, 30% @ 23% 6.90 ----- Blended cost of capital 13.79
The FCC cost-of-service rules will permit a rate of 11.25%, plus further upward tax adjustments. While direct comparison is difficult, this does give our calculation substantial support. We then added a discounted terminal value. The terminal value was calculated at 5.5 x year 10 cashflow. The industry will increasingly feel the effects of maturity, regulation and increased competition, Sale multiples may gradually decline as the opportunities for growth into new areas are realized or abandoned. Non-cable businesses currently trade in the 3-4 x cashflow range. Regulated telephone companies presently trade at around 5-7 x cashflow. Selection of 5.5x should reflect the industry's gradual maturity and transformation to a regulated and competitive industry. Using this approach as shown on the worksheet, we estimated a potential value of $140,808,000. Appraised Value - --------------- We place somewhat more reliance on the current multiple calculation because it involves somewhat fewer assumptions; we have selected an appraised value closer to it than to the DCF analysis. The appraised value of the Augusta, Georgia cable television system at December 31, 1994 is $147,000,000. Assuming neither party had any prior obligation to complete the transaction, a willing buyer would have paid this amount to a willing seller in a cash-for-assets transaction closed on December 31, 1994. Augusta, Georgia, 12/31/94, Page C-17 IMPACT OF FEDERAL CABLE REGULATIONS ----------------------------------- On October 3, 1992, the Congress adopted legislation affecting the cable television industry generally. Detailed implementing regulations have been issued by the FCC on a sporadic basis since that date. Further rules, and modifications, are quite likely. There is also an ongoing legal challenge to the rules. The Congress has indicated that, at most, it may overhaul the entire telecommunications regulatory system. At a minimum, clarification of the 1992 act has been discussed. In short, there is uncertainty. The appraisal value is based on regulations, system operations, and on the state of the cable television system sale market, as they exist on the appraisal date of December 31, 1994. The appraised value does not necessarily take into account any future events and circumstances. QUALIFICATIONS OF THE APPRAISER ------------------------------- The appraisal was prepared by R. Michael Kruger, owner and president of Western Cablesystems, Inc. Since 1979, he has appraised hundreds of systems for a variety of clients including major MSO's, independent operators, and clients outside the CATV industry. Kruger has extensive background as a CATV executive. From 1974 to 1979, he held various operating positions at ATC, one of the industry's largest operators. In 1979, he joined a small MSO, and until mid- 1986 was president of the 30,000 - subscriber company. There, in addition to his operating duties, Kruger prepared CATV system appraisals. Kruger formed Western Cablesystems, Inc. in 1986, and is its sole owner and principal. Western has been directly involved in all aspects of system operations and finance, including several acquisitions and sales, partnership formation, debt placement, franchising, and system construction and startup. Western presently operates four small cable systems, and is active in the acquisition marketplace. In addition to continuing appraisal work, Kruger has performed consulting engagements for a wide range of topics and clients, including the economic feasibility of international cable and restructuring of individual systems to achieve financial improvements. Kruger received a BS/MS in engineering from the Massachusetts Institute of Technology in 1967/68. In 1974, he received a Masters in Business Administration (MBA) from the Stanford University Graduate School of Business. Augusta, Georgia, 12/31/94, Page C-18
- -------------------------------------------------------------------------------------------------------------------------- AUGUSTA, GA OPERATING INCOME WORKSHEET Projected - -------------------------------------------------------------------------------------------------------------------------- 1991 Actual 1992 Actual 1993 Actual 1994 Actual 1995 - -------------------------------------------------------------------------------------------------------------------------- INDIVIDUAL SUBSCRIBER BASE - -------------------------------------------------------------------------------------------------------------------------- Ending Passings 94,362 97,829 100,165 102,040 103,570 - -------------------------------------------------------------------------------------------------------------------------- Ending Basic Subs 60,450 63,063 64,605 66,601 68,253 - -------------------------------------------------------------------------------------------------------------------------- Ending Pay Units 50,775 52,985 50,888 52,990 54,261 - -------------------------------------------------------------------------------------------------------------------------- Ending Basic Pen. 64.06% 64.46% 64.50% 65.27% 65.90% - -------------------------------------------------------------------------------------------------------------------------- Ending Pay Pen. 84.00% 84.02% 78.77% 79.56% 79.50% - -------------------------------------------------------------------------------------------------------------------------- Average Basic Subs 60,324 61,757 63,834 65,603 67,427 - -------------------------------------------------------------------------------------------------------------------------- Average Pay Units 51,926 51,880 51,937 51,939 53,625 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- REVENUE/SUBSCRIBER - -------------------------------------------------------------------------------------------------------------------------- Avg. Basic $/Sub $20.81 $22.71 $23.69 $22.60 $24.14 - -------------------------------------------------------------------------------------------------------------------------- Avg. Pay $/Unit $8.47 $8.09 $8.12 $8.18 $8.25 - -------------------------------------------------------------------------------------------------------------------------- Avg. PPV $/Basic $0.19 $2.05 $2.71 $3.28 $4.10 - -------------------------------------------------------------------------------------------------------------------------- Avg. Adv. $/Basic $12.77 $20.18 $22.12 $24.01 $26.16 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- OPERATING REVENUES - -------------------------------------------------------------------------------------------------------------------------- Basic, Tier,Ao, Con 15,063,281 18,829,942 18,148,977 17,792,170 19,532,200 - -------------------------------------------------------------------------------------------------------------------------- Commercial Basic 382,026 577,042 517,522 493,345 502,000 - -------------------------------------------------------------------------------------------------------------------------- Premium Service 5,276,159 5,034,474 5,058,245 5,099,968 5,308,917 - -------------------------------------------------------------------------------------------------------------------------- Comm'l Premium 162,491 139,146 121,993 126,730 130,000 - -------------------------------------------------------------------------------------------------------------------------- Pay Per View 11,190 126,478 173,135 214,990 276,450 - -------------------------------------------------------------------------------------------------------------------------- Installation 460,053 555,235 537,881 642,697 770,000 - -------------------------------------------------------------------------------------------------------------------------- Late/Other/Shop 273,450 732,893 817,042 823,095 848,000 - -------------------------------------------------------------------------------------------------------------------------- Lease Fiber 0 14,132 24,300 27,450 48,000 - -------------------------------------------------------------------------------------------------------------------------- Advertising Sales 770,611 1,246,337 1,411,875 1,574,964 1,764,000 - -------------------------------------------------------------------------------------------------------------------------- Hardware Sales 35,590 113,170 164,236 160,598 160,000 - -------------------------------------------------------------------------------------------------------------------------- Total Revenue 22,434,851 25,368,849 26,975,206 26,956,005 29,339,566 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- OPERATING EXPENSES - -------------------------------------------------------------------------------------------------------------------------- Salary-Admin 598,587 616,199 675,700 670,011 670,000 - -------------------------------------------------------------------------------------------------------------------------- Salary-LO 42,899 37,799 33,357 45,896 45,000 - -------------------------------------------------------------------------------------------------------------------------- Salary-Field 1,635,565 1,661,535 1,698,583 1,733,338 1,768,000 - -------------------------------------------------------------------------------------------------------------------------- Tax/Benefit 609,654 753,851 637,884 707,582 720,000 - -------------------------------------------------------------------------------------------------------------------------- T&E 30,818 38,160 29,970 50,143 37,000 - -------------------------------------------------------------------------------------------------------------------------- Vehicle 194,178 190,874 181,608 193,379 197,000 - -------------------------------------------------------------------------------------------------------------------------- Labor/OH Capitalize -675,951 -820,946 -799,772 -784,453 -539,000 - -------------------------------------------------------------------------------------------------------------------------- Basic Programming 2,065,669 2,388,174 2,808,318 3,222,911 3,503,497 - -------------------------------------------------------------------------------------------------------------------------- Local Orig. Expense 27,885 23,853 24,646 29,349 30,000 - -------------------------------------------------------------------------------------------------------------------------- Computer Billing 628,347 661,514 698,933 701,720 700,000 - -------------------------------------------------------------------------------------------------------------------------- Franchise Fees 305,663 389,472 461,440 480,396 469,433 - -------------------------------------------------------------------------------------------------------------------------- Copyright 127,471 143,145 93,124 66,856 78,129 - -------------------------------------------------------------------------------------------------------------------------- Bad Debt/Coll 431,708 353,080 556,890 485,741 528,112 - -------------------------------------------------------------------------------------------------------------------------- Premium Service 2,487,391 2,425,226 2,559,492 2,589,511 2,707,547 - -------------------------------------------------------------------------------------------------------------------------- Pay-Per-View Cost 3,206 64,020 84,162 90,606 124,402 - -------------------------------------------------------------------------------------------------------------------------- Premium-Com'l 99,719 93,259 66,781 79,538 80,600 - -------------------------------------------------------------------------------------------------------------------------- Cost of Eqpt Sold 7,775 96,321 94,440 242,593 144,000 - -------------------------------------------------------------------------------------------------------------------------- Power 580,977 589,973 546,111 532,796 525,000 - -------------------------------------------------------------------------------------------------------------------------- Insurance 160,528 139,732 231,238 195,276 182,000 - -------------------------------------------------------------------------------------------------------------------------- Pole Rent 153,096 194,304 197,085 219,539 197,000 - -------------------------------------------------------------------------------------------------------------------------- Property Tax 203,813 193,826 193,550 196,399 200,000 - -------------------------------------------------------------------------------------------------------------------------- System Operation 166,877 136,731 150,588 214,508 167,000 - -------------------------------------------------------------------------------------------------------------------------- Professional Service 5,137 6,822 3,136 3,595 3,000 - -------------------------------------------------------------------------------------------------------------------------- Office Costs 140,297 191,831 198,490 193,768 194,000 - -------------------------------------------------------------------------------------------------------------------------- Marketing 534,588 684,400 717,470 736,172 762,829 - -------------------------------------------------------------------------------------------------------------------------- Advert. Sales cost 402,112 594,124 752,209 900,032 934,920 - -------------------------------------------------------------------------------------------------------------------------- Total Expense 10,968,009 11,847,279 12,895,433 13,797,202 14,429,470 - -------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------- Op. Income 11,466,842 13,521,570 14,079,773 13,158,803 14,910,096 - -------------------------------------------------------------------------------------------------------------------------- Margin 51.11% 53.30% 52.20% 48.82% 50.82% - --------------------------------------------------------------------------------------------------------------------------
C-19 DISCOUNTED CASHFLOW MODEL DECEMBER 31, 1994 FOR APPRAISAL OF AUGUSTA, GA
Change Assumptions 1994 Actual Year 1 Year 2 Year 3 Year 4 Year 5 SYSTEM DATA Ending Passings 2.00% 102,040 103,570 105,641 107,754 109,909 112,107 Ending Basic EBU's 68,404 69,946 71,873 73,849 75,876 77,954 Ending Pay Units 52,990 54,261 55,756 57,289 58,861 60,473 Basic EBU Penetration 0.50% 67.04% 67.54% 68.04% 68.54% 69.04% 69.54% Pay Penetration 0.00% 77.47% 77.58% 77.58% 77.58% 77.58% 77.58% Average Basic EBU's 69,175 70,910 72,861 74,863 76,915 Average Pay Units 53,626 55,008 56,523 58,075 59,667 Ending Plant Miles 1,600 1,624 1,655 1,688 1,721 1,755 New Drops 1.05 1,619 2,023 2,075 2,128 2,182 New Miles 65 24 32 33 33 34 Rebuilt Miles 150 150 ANNUAL ASSUMPTIONS Basic Rev/Sub 3.00% 290 298 307 316 326 Pay Rev/Unit 2.00% 101 103 106 108 110 PPV Rev/Sub 15.00% 4 5 5 6 7 Shop/Other Rev/Sub 8.00% 15 16 18 19 21 Advertising Rev/Sub 8.00% 26 28 30 32 35 Per-Sub Expense 4.00% 64 67 69 72 75 % of Rev. Expense 9.94% 9.94% 9.94% 9.94% 9.94% Pay/PPV % Expense 50.95% 50.00% 50.00% 50.00% 50.00% Per-Mile Expense 4.00% 783 814 847 881 916 Capex per new drop 3.00% 60 62 64 66 68 Capex per new mile 3.00% 15,000 15,450 15,914 16,391 16,883 Capex per rib mile 3.00% 6,333 6,523 6,719 6,920 7,128 REVENUES Basic 20,034,000 21,152,443 22,386,672 23,691,646 25,071,366 Pay 5,439,000 5,690,856 5,964,438 6,250,837 6,550,643 Pay-Per-View 276,000 325,359 384,461 454,275 636,737 Installation 3.00% 770,000 793,100 816,893 841,400 866,642 Late/Other/Stop 1,056,000 1,169,078 1,297,355 1,439,631 1,597,425 Advertising 1,764,000 1,952,891 2,187,173 2,404,838 2,668,425 French, Fee Billed 0 0 0 0 0 Total Revenue 29,339,000 31,083,726 33,016,991 35,082,626 37,291,238 EXPENSES Personnel 5.00% 2,898,000 3,042,900 3,195,045 3,354,797 3,522,537 Per-Sub Costs 4,430,000 4,722,726 5,046,820 5,392,866 5,762,335 Per-Mile Costs 1,271,000 1,347,766 1,429,221 1,515,586 1,607,181 % of Revenue Costs 2,917,000 3,090,468 3,282,681 3,486,054 3,707,643 Pay & PPV Costs 2,912,000 3,008,107 3,174,450 3,352,556 3,543,690 Total Expenses 14,428,000 15,211,986 16,128,216 17,103,660 18,143,367 Operating Income 14,911,000 15,871,740 16,888,776 17,978,767 19,147,851 Operating Ratio 50.82% 51.06% 51.15% 51.25% 51.35% CAPITAL EXPENDITURES Drops 97,146 125,051 132,085 139,510 147,349 New Plant 353,077 492,356 517,269 543,443 570,941 Rebuild 1,000,000 900,000 0 0 0 Other 3.00% 40,000 41,200 42,436 43,709 45,020 Total Capex 1,490,223 1,558,607 691,790 726,662 763,310
Year 6 Year 7 Year 8 Year 9 Year 10 SYSTEM DATA Ending Passings 114,350 116,637 118,969 121,349 123,776 Ending Basic EBU's 60,085 82,270 84,510 86,607 69,162 Ending Pay Units 62,126 63,821 65,559 67,341 69,168 Basic EBU Penetration 70.04% 70.54% 71.04% 71.54% 72.04% Pay Penetration 77.58% 77.58% 77.58% 77.58% 77.58% Average Basic EBU's 79,019 81,177 83,390 85,658 87,984 Average Pay Units 61,300 62,974 64,690 66,450 68,254 Ending Plant Miles 1,789 1,625 1,860 1,697 1,934 New Drops 2,237 2,294 2,352 2,412 2,473 New Miles 34 35 36 37 37 Rebuilt Miles ANNUAL ASSUMPTIONS Basic Rev/Sub 336 346 356 367 378 Pay Rev/Unit 112 114 117 119 121 PPV Rev/Sub 8 9 11 12 14 Shop/Other Rev/Sub 22 24 26 28 31 Advertising Rev/Sub 37 40 44 47 51 Per-Sub Expense 78 81 84 88 91 % of Rev. Expense 9.94% 9.94% 9.94% 9.94% 9.94% Pay/PPV % Expense 50.00% 50.00% 50.00% 50.00% 50.00% Per-Mile Expense 952 991 1,030 1,071 1,114 Capex per new drop 70 72 74 76 78 Capex per new mile 17,389 17,911 18,446 19,002 19,572 Capex per rib mile 7,342 7,562 7,789 8,022 8,263 REVENUES Basic 26,530,055 26,072,171 29,702,423 31,425,782 33,247,495 Pay 6,864,470 7,192,963 7,536,794 7,896,666 9,273,315 Pay-Per-View 694,136 749,171 885,029 1,045,472 1,234,940 Installation 692,641 919,420 947,003 975,413 1,004,675 Late/Other/Stop 1,772,422 1,966,489 2,181,694 2,420,330 2,664,936 Advertising 2,960,750 3,284,930 3,644,421 4,043,051 4,485,064 French, Fee Billed 0 0 0 0 0 Total Revenue 39,654,474 42,185,144 44,897,364 47,806,714 60,930,425 EXPENSES Personnel 3,698,664 3,883,597 4,077,777 4,281,666 4,495,749 Per-Sub Costs 6,156,796 6,577,922 7,027,498 7,507,426 8,019,735 Per-Mile Costs 1,704,324 1,807,349 1,916,615 2,032,499 2,155,403 % of Revenue Costs 3,942,605 4,194,215 4,463,874 4,753,134 5,063,705 Pay & PPV Costs 3,749,303 3,971,067 4,210,911 4,471,069 4,754,128 Total Expenses 19,251,692 20,434,150 21,696,676 23,045,793 24,488,720 Operating Income 20,402,782 21,750,994 23,200,688 24,760,921 26,441,706 Operating Ratio 51.45% 51.56% 51.67% 51.79% 51.92% CAPITAL EXPENDITURES Drops 155,623 164,358 173,578 163,311 193,584 New Plant 599,831 630,182 662,069 695,570 730,766 Rebuild 0 0 0 0 0 Other 46,371 47,762 49,195 50,671 52,191 Total Capex 801,825 642,302 884,843 929,552 976,541
C-20 DISCOUNTED CASHFLOW MODEL FOR APPRAISAL OF AUGUSTA, GA DECEMBER 31, 1994
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 FREE CASHFLOW Operating income 14,911,000 15,871,740 16,868,776 17,978,767 19,147,851 20,402,782 21,750,994 23,200,686 24,760,921 Less Capex 1,490,223 1,558,607 691,790 726,662 763,310 601,825 842,302 684,843 929,552 Free Cashflow 13,420,777 14,313,133 16,196,966 17,252,105 18,384,541 19,600,956 20,906,691 22,315,845 23,831,369 Year 10 FREE CASHFLOW Operating income 26,441,706 Less Capex 976,541 Free Cashflow 25,465,165
Discount rate 13.35% Net Present Value of Free Cashflow 95,494,775
POTENTIAL MARKET VALUE NPV of Free Cashflow 95,494,775 NPV of Terminal Value 45,313,277 Potential Market Value 140,808,053 TERMINAL VALUE Year 10 Op. Income 26,441,706 Multiple 6.00 Terminal Value 158,650,235 Proportion Rate Equity 30.00% 22.00% Senior Debt 55.00% 9.00% Sub. Debt 15.00% 12.00% Blended 13.35% RATIOS Potential Market Value 140,808,053 Current EBU's 68,404 First Year Op. Income 14,911,000 Value Per EBU 2,058 Op Income Multiple 9.44
C-21 EX-99.4 7 PRE N&P SCHEDULE 14A INFORMATION PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934 Filed by the Registrant [X] Filed by a Party other than the Registrant [_] Check the appropriate box: [X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY RULE 14A-6(E)(2)) [_] Definitive Proxy Statement [_] Definitive Additional Materials [_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12 CABLE TV FUND 12-B, LTD. ----------------------------------------------------- (Name of Registrant as Specified In Its Charter) N/A ----------------------------------------------------- (Name of Person(s) Filing Proxy Statement, if other than the Registrant) Payment of Filing Fee (Check the appropriate box): [_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or Item 22(a)(2) of Schedule 14A. [_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a- 6(i)(3). [X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. (1) Title of each class of securities to which transaction applies: Limited Partnership Interests (2) Aggregate number of securities to which transaction applies: 111,035 (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): Pursuant to Rule 0-11(c)(2), the transaction valuation is based upon the $141,718,000 sales price to be paid to Cable TV Fund 12-B, Ltd. by Jones Intercable, Inc. in connection with the transaction that is the subject of the proxy solicitation. (4) Proposed maximum aggregate value of transaction: $141,718,000 (5) Total fee paid: $28,343.60 [_] Fee paid previously with preliminary materials. [_] Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. (1) Amount Previously Paid: (2) Form, Schedule or Registration Statement No.: (3) Filing Party: (4) Date Filed: Notes: PRELIMINARY COPY [LOGO OF JONES INTERCABLE, INC. APPEARS HERE] 9697 EAST MINERAL AVENUE ENGLEWOOD, COLORADO 80112 NOTICE OF VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-B, LTD. To the Limited Partners of Cable TV Fund 12-B, Ltd.: A special vote of the limited partners of Cable TV Fund 12-B, Ltd. (the "Partnership") is being conducted through the mails on behalf of the Partnership by Jones Intercable, Inc., the general partner of the Partnership, for the purpose of obtaining limited partner approval of the sale, to Jones Intercable, Inc. or one of its wholly owned subsidiaries, of the Augusta, Georgia cable television system (the "Augusta System") owned by the Partnership, for $141,718,000 in cash, subject to normal closing adjustments. Information relating to this matter is set forth in the accompanying Proxy Statement. If the limited partners approve the proposed sale of the Augusta System and if the transaction is closed, the Partnership nevertheless will continue to own a nine percent interest in the cable television systems serving Palmdale/Lancaster, California, Albuquerque, New Mexico and Tampa, Florida, through its investment in the Cable TV Fund 12-BCD Venture, until those systems also are sold, and the Partnership will continue in business as a public entity subject to the informational reporting requirements of the Securities Exchange Act of 1934. Only limited partners of record at the close of business on April 30, 1995 are entitled to notice of, and to participate in, this vote of limited partners. It is very important that all limited partners participate in the voting. The Partnership's ability to complete the transaction discussed in the Proxy Statement and the Partnership's ability to make a distribution to its partners of the net proceeds of the sale of the Augusta System pursuant to the terms of the Partnership's limited partnership agreement are dependent upon the approval of the transaction by the holders of a majority of the Partnership's limited partnership interests. Jones Intercable, Inc., as general partner of the Partnership, urges you to sign and return the enclosed proxy as promptly as possible and in any event by May 31, 1995. The proxy should be returned in the enclosed envelope. JONES INTERCABLE, INC. General Partner (SIGNATURE OF ELIZABETH M. STEELE APPEARS HERE) Elizabeth M. Steele Secretary Dated: May , 1995 PRELIMINARY COPY [LOGO OF JONES INTERCABLE, INC. APPEARS HERE] 9697 EAST MINERAL AVENUE ENGLEWOOD, COLORADO 80112 PROXY STATEMENT VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 12-B, LTD. This Proxy Statement is being furnished in connection with the solicitation of the written consents of the limited partners of Cable TV Fund 12-B, Ltd. (the "Partnership") by Jones Intercable, Inc., the general partner of the Partnership (the "General Partner"), on behalf of the Partnership, for the purpose of obtaining limited partner approval of the sale of the Augusta, Georgia cable television system (the "Augusta System") owned by the Partnership, for $141,718,000 in cash, subject to normal closing adjustments. The Augusta System is proposed to be sold to the General Partner or to one of its wholly owned subsidiaries. Proxies in the form enclosed, properly executed and duly returned, will be voted in accordance with the instructions thereon. 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 Partnership has only one class of limited partners and no limited partner has a right of priority over any other limited partner. The participation of the limited partners is divided into limited partnership interests and each limited partner owns one limited partnership interest for each $500 of capital contributed to the Partnership. As of February 28, 1995, the Partnership had 111,035 limited partnership interests outstanding held by approximately 8,075 persons. There is no established trading market for such interests. To the best of the General Partner's knowledge, no person or group of persons beneficially own more than five percent of the limited partnership interests. The General Partner owns no limited partnership interests. Officers and directors of the General Partner own a total of 45 limited partnership interests and all directors and officers of the General Partner, individually and as a group, own less than one percent of the limited partnership interests. To the best of the General Partner's knowledge, the 45 limited partnership interests owned by officers and directors of the General Partner will be voted in favor of the proposed transaction. Only limited partners of record at the close of business on April 30, 1995 will be entitled to notice of, and to participate in, the vote. THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. Upon the consummation of the proposed sale of the Augusta System, the Partnership will pay all of its indebtedness and then the Partnership will distribute the net sale proceeds to its partners. Once this anticipated distribution has been made, limited partners will have received $1,679 for each $1,000 invested in the Partnership. The Partnership has a nine percent ownership interest in the Cable TV Fund 12-BCD Venture (the "Venture"), a Colorado general partnership in which Cable TV Fund 12-C, Ltd. has a 15 percent ownership interest and Cable TV Fund 12-D, Ltd. has a 76 percent ownership interest. The Venture currently owns three cable television systems serving the areas in and around Palmdale/Lancaster, California, Albuquerque, New Mexico and Tampa, Florida (the "Venture Systems"). The Venture will continue to own and operate the Venture Systems until such time as the investment objectives of the Partnership and the Venture with respect to the Venture Systems have been met. There are no agreements yet in place with respect to the sale of any of the Venture Systems, and the General Partner cannot predict when the Partnership will be terminated and dissolved because it cannot be determined at this time when all of the Venture Systems ultimately will be sold. As of December 31, 1994, the Augusta System comprised 86 percent of the Partnership's assets and 76 percent of its revenues, while the Partnership's nine percent ownership interest in the Venture comprised 14 percent of the Partnership's assets and 24 percent of its revenues. After the sale of the Augusta System, the Partnership will continue to be a public entity subject to the informational reporting requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). Limited partners should note that there are certain income tax consequences of the proposed sale of the Augusta System, which are outlined herein under the caption "Federal and State Income Tax Consequences." The Board of Directors of the General Partner approved the proposed sale of the Augusta System and the General Partner recommends approval of the transaction by the holders of the Partnership's limited partnership interests. In determining the fairness of the proposed transaction, the General Partner followed the procedures required by Section 2.3(b)(iv)(b) of the Partnership's limited partnership agreement (the "Partnership Agreement"), which provides that the Partnership's cable television systems may be sold to the General Partner or to one of its affiliates if the price paid by the General Partner or such affiliate is not less than the average of three separate independent appraisals of the fair market value of the system to be sold. Because the purchase price to be paid by the General Partner is the average of three separate independent appraisals of the fair market value of the Augusta System, the Board of Directors of the General Partner has concluded that the consideration to be paid by the General Partner to the Partnership for the Augusta System is fair and reasonable. The proposal that is the subject of this proxy solicitation will be adopted only if approved by the holders of a majority of the limited partnership interests. Each limited partnership interest entitles the holder thereof to one vote on the proposal. The approximate date on which this Proxy Statement and Form of Proxy are being sent to limited partners is May , 1995. SPECIAL FACTORS THE PARTNERSHIP'S INVESTMENT OBJECTIVES The Partnership was formed to acquire, develop, operate and, ultimately, sell cable television systems in the United States. Throughout the life of the Partnership, the General Partner has sought to attain the Partnership's investment objectives. At formation, the primary objectives of the Partnership were to obtain capital appreciation in the value of the Partnership's cable television properties; to generate tax losses that could be used to offset taxable income of limited partners from other sources; and to obtain equity build-up through debt reduction. It has been contemplated from the outset of the Partnership's existence that capital appreciation in Partnership cable television properties would be converted to cash by a sale of such properties at such time as the General Partner determined that the Partnership's investment objectives had substantially been achieved. It also was contemplated from the outset of the Partnership's existence that the General Partner or one of its affiliates could be the purchaser of the Partnership's cable television properties. 2 The Partnership acquired the Augusta System from an unaffiliated party on August 30, 1985. Based upon the track record of prior public partnerships sponsored by the General Partner that had liquidated or were in the process of liquidating their assets during the period that limited partnership interests in the Partnership were being sold and based upon disclosures made to prospective investors about the Partnership's investment objectives in the Cable TV Fund 12 prospectus and accompanying sales brochure, investors in the Partnership reasonably could have anticipated that the Partnership's investment objectives would be achieved and its assets liquidated after a holding period of approximately five to seven years. Due to the uncertain and then adverse regulatory environment that developed in the early 1990s for the cable television industry, the resultant decline in the prices for cable television systems and the subsequent inactivity in the cable television system marketplace, the General Partner determined that it would be prudent to delay the sale of the Augusta System until market conditions improved, and as a result the Augusta System has been held by the Partnership for almost ten years. The purpose of the sale of the Augusta System, from the Partnership's perspective, is to attain the Partnership's primary investment objective, i.e., to convert the Partnership's capital appreciation in the Augusta System to cash. The sale proceeds will be used to repay all outstanding indebtedness of the Partnership, with the remaining sale proceeds to be distributed to the partners of the Partnership in accordance with the distribution procedures established by the Partnership Agreement. The sale of the Augusta System is thus the necessary final step in the Partnership's accomplishment of its investment objectives with respect to the Augusta System. The Partnership was formed in June 1985 as a Colorado limited partnership in connection with a public offering of its limited partnership interests. The Augusta System was acquired by the Partnership in August 1985. Since its acquisition, the Partnership has upgraded the technical quality and capability of the Augusta System, including a major fiber optic rebuild, and has expanded the area originally served by the Augusta System through construction of cable plant extensions. The Partnership has been successful in increasing the cable television service penetration in areas served by the Augusta System. The Partnership enhanced revenues of the Augusta System through adjustments in rates charged to subscribers and through the addition of new services, such as advertising sales and pay-per-view programming. A more detailed discussion of the Augusta System is set forth below under the captions "Special Factors, Reasons for the Timing of the Sale" and "Proposed Sale of Assets, The Augusta System." A sale of the Partnership's cable systems, the repayment of all of the Partnership's debt and the distribution of the net sale proceeds to partners were the means originally contemplated by the General Partner and the limited partners to accomplish the Partnership's investment objectives. The General Partner determined that a sale of the Augusta System for cash was the best means of providing limited partners with liquidity and the best way for the limited partners to realize the capital appreciation in the Augusta System. Upon the sale by the Venture of its cable television systems located in Houghton/Hancock, Michigan in August 1987 and California City, California in April 1992, the sale proceeds were used to reduce the Venture's indebtedness and none of the sale proceeds were distributed to the Partnership. The Partnership thus has made no prior distributions to its partners. THE GENERAL PARTNER'S OBJECTIVES Like many of the other major cable television system operators in the United States, the General Partner is seeking, through acquisitions and/or trades of cable television systems, to group the cable television systems that it owns and operates into geographical clusters. The purpose of the transaction, from the General Partner's perspective, is to acquire a valuable cable television system operating in a marketplace adjacent to the North Augusta, South Carolina cable television system already owned by the General Partner that currently serves approximately 15,475 basic subscribers and has approximately 9,690 premium channel subscriptions using approximately 517 miles of cable plant passing approximately 24,060 dwelling units (the "North Augusta System"). The Augusta System and the North Augusta System currently are managed as 3 one, and the General Partner intends to continue to manage the systems as one to realize the benefits of operating efficiencies and economies of scale. Acquisition of the Augusta System accomplishes the General Partner's geographical clustering goal because not only is it adjacent to the North Augusta System, but it is in relatively close proximity to other cable television systems owned and/or operated by the General Partner in the neighboring states of South Carolina and Florida. In contrast to the Partnership, which is a Colorado limited partnership with a finite term and which sought cable television properties with high growth potential during a holding period of approximately five to seven years, the General Partner, a Colorado corporation with perpetual existence, is seeking to acquire mature cable television systems that can generate a steady stream of income and that may appreciate in value over a longer holding period. The Augusta System satisfies this objective of the General Partner. The General Partner also may be in a better position than the Partnership to access both debt and equity to finance the long-term development of the Augusta System. The General Partner may be able to leverage the Augusta System at a higher level than the Partnership has done and, accordingly, the General Partner may be able to generate a greater return on its investment in the Augusta System than the Partnership would be able to do within the same time period. Because the General Partner's horizon is much longer term than the Partnership's, and the General Partner will not need to sell the Augusta System to achieve its objectives, it can better withstand the competition and regulatory risks inherent in long-term holding and development of the Augusta System. RELEVANT PROVISIONS OF THE PARTNERSHIP AGREEMENT Section 2.2(k) of the Partnership Agreement provides that the sale of all or substantially all of the Partnership's assets is subject to the approval of the holders of a majority of the Partnership's limited partnership interests. Because the Augusta System represents 86 percent of the Partnership's assets and 76 percent of its revenues, the sale of the Augusta System to the General Partner is being submitted for limited partner approval. Section 2.3(b)(iv)(b) of the Partnership Agreement permits the Partnership to sell any or all of its cable television systems directly to the General Partner or one or more of its affiliates if the system to be sold has been held by the Partnership for at least three years, unless it is part of, or related to, another system that has been held for three years, and provided that the price paid to the Partnership by the General Partner is not less than the average of three separate independent appraisals of the particular cable television system or systems being sold, and that the cost of such appraisals are not borne by the Partnership. Because the Augusta System has been held by the Partnership for at least three years and the purchase price to be paid by the General Partner is the average of three separate independent appraisals of the fair market value of the Augusta System obtained at the General Partner's expense, the requirements of Section 2.3(b)(iv)(b) of the Partnership Agreement have been satisfied. REASONS FOR THE TIMING OF THE SALE The decision to proceed with the sale of the Augusta System at this time was based upon the General Partner's determination that the Partnership has substantially achieved its investment objectives with respect to the Augusta System. The Augusta System has appreciated in value through the General Partner's operational expertise, general economic factors and certain other developments such as the favorable regulatory environment during the first half of the holding period and improvements in satellite technology generally benefiting the cable television industry. This appreciation can best be seen by the fact that the Augusta System was purchased for $57,850,000, $59,600,000 in capital expenditures have been made by the Partnership and the Augusta System is now proposed to be sold for $141,718,000, a difference of $24,268,000 between the amount invested in the Augusta System and the sales price. 4 The Partnership has a finite legal existence of 17 years, ten of which have passed. It was not intended, however, that the Partnership would hold its cable systems for the full 17-year period. Although it was not possible at the outset of the Partnership to determine precisely how quickly the investment objectives with respect to any particular system would be achieved, investors were informed that the General Partner's past experience had shown that five to seven years was the average length of time from the acquisition of a cable system to its sale. An investor in the Partnership also was able, of course, to examine the track record of the General Partner's prior public partnerships, which, at the time of the Partnership's formation, showed that prior partnerships had rarely held their cable systems for any longer than six years. When investing in the Partnership, by virtue of the provisions of the Partnership Agreement, the limited partners vested in the General Partner the right and responsibility to determine when the Partnership's investment objectives had been substantially achieved. The Augusta System was acquired because, in the opinion of the General Partner at the time of the Augusta System's acquisition, it had the potential for capital appreciation within a reasonable period of time. It is the General Partner's opinion that during the approximately ten years that the Augusta System has been held by the Partnership, the Partnership's investment objectives with respect to the Augusta System have been achieved. The Partnership's decision to sell the Augusta System at this time was greatly influenced by the fact that the contemplated holding period of five to seven years has been exceeded. The Augusta System was not sold earlier because of the uncertain and then adverse regulatory environment that developed in the early 1990s for the cable television industry. During the early 1990s, for example, prices for cable television systems were adversely affected by the fact that loans from commercial banks to cable television system operators became more difficult to obtain. The inability of potential purchasers of cable television systems to obtain loans to leverage the purchase of cable television systems on terms historically available to purchasers of cable television systems kept potential purchasers out of the cable television system marketplace. This reduced demand for systems adversely affected cable system resale values. The reluctance of commercial banks to make loans to cable television system operators on terms historically available was attributable to two factors that no longer exist: (i) the classification by federal banking regulators of loans to cable television system operators as highly leveraged transactions, and (ii) the uncertainty about the effects of rate reregulation on cable television systems' operating cash flow during the several year periods before and after the enactment in 1992 of the federal law reregulating the cable television industry. In the several years prior to the enactment of the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), the prices for cable television systems also were depressed by speculation in the industry about the provisions to be included in cable reregulation legislation pending before Congress. During the months leading up to the enactment of the 1992 Cable Act, industry appraisers were reluctant to appraise cable television systems because of their inability to predict the effects of rate reregulation while the pending legislation was constantly being revised and rewritten. The enactment of the 1992 Cable Act, which became effective on December 4, 1992, caused significant changes to the regulatory environment in which the cable television industry operates. The 1992 Cable Act generally mandates a greater degree of regulation of the cable television industry than existed previously. Under the 1992 Cable Act's definition of effective competition, nearly all cable systems in the United States, including the Augusta System, became subject to rate regulation of basic and tier cable services. In April 1993, the FCC adopted regulations governing rates for basic and tier services. In compliance with these rules, the Partnership reduced rates charged for certain regulated services provided by the Augusta System effective September 1, 1993. These initial rate reductions resulted in some decrease in revenues and operating income before depreciation and amortization; however, the decrease was not as severe as originally anticipated because the General Partner undertook actions to mitigate the rate reductions primarily through new service offerings, product remarketing and repackaging and marketing efforts directed at non-subscribers. 5 On February 22, 1994, however, the FCC adopted several additional rate orders, including an order that revised its earlier-announced regulatory scheme with respect to rates. The FCC's 1994 regulations generally required additional rate reductions, absent a successful cost-of-service showing, of 17 percent of September 30, 1992 rates, adjusted for inflation, channel modifications, equipment costs and increases in programming costs. On February 22, 1994, the FCC also adopted interim cost-of-service regulations. Under these interim guidelines, rate reductions are not required of cable systems that can successfully demonstrate that their rates for basic and other regulated programming services are justified and reasonable using cost-of-service standards. The FCC established an interim industry-wide 11.25 percent permitted rate of return, and requested comments on whether this standard and other interim cost-of-service standards should be made permanent. After analyzing the effects of the two methods of rate regulation, the General Partner concluded that the Partnership should file a cost-of-service showing for the Augusta System. The General Partner anticipates that no further reductions in basic and tier service rates will be required of the Augusta System and thus the General Partner believes that there will be no further reduction in the Augusta System's revenues or operating income resulting from the FCC's rate regulations. The cost-of-service showing for the Augusta System has not as yet received final approval from the system's franchising authorities, however, and there can be no assurance that the Partnership's cost-of-service showing will prevent further rate reductions until such final approval is received. The cable television system marketplace is finally emerging from the approximately five years of transactional sluggishness attributable to the foregoing regulatory uncertainties and developments. Because there is now some renewed activity in the cable television system marketplace, and because prices for certain cable television systems are approaching levels last seen during the late 1980s, the General Partner decided, on behalf of the Partnership, to proceed with the sale of the Augusta System at this time. Another reason for the timing of the sale of the Augusta System from the Partnership's perspective is the developing potential competition from Direct Broadcast Satellite ("DBS") systems. Two operators of wide-scale DBS systems began operations in 1994 and are able to distribute programming to subscribers with a roof top or wall-mounted antenna by high-powered DBS satellites to most areas of the United States. Potential competition from telephone companies that are expected to be allowed to compete directly with cable television systems in the near future also was a factor in the timing of the sale. The Partnership has limited access to the capital that may be required to make the technological improvements to the Augusta System, such as increasing channel capacity or further converting to fiber optic cable, that may be necessary for the Augusta System to compete successfully with providers of DBS or other wireless cable services or telephone companies that may enter some or all of the markets served by the Augusta System. The Partnership is limited in its ability to obtain additional equity financing, in part because the limited partnership interests are non-assessable. The Partnership Agreement also contains limits on the amounts that the Partnership can borrow. And, the Partnership directly owns only one asset, the Augusta System, to use as collateral for borrowings. The General Partner, on the other hand, has been a multiple system cable owner and operator for over twenty years and has longer term objectives. It can thus better withstand the risks of a longer holding period. For example, if significant competition to the Augusta System were to materialize, the General Partner would be in a better position than the Partnership to finance the marketing campaigns or technological improvements to the Augusta System necessary to meet such competition because of the General Partner's greater access to the debt and equity markets. The General Partner has a large pool of assets that can be used to collateralize borrowings from commercial banks or other sources of debt financing. The General Partner also has better access to the debt and equity securities marketplace to finance expenditures that may become necessary to meet future competition. In determining that now was the time for the Partnership to sell the Augusta System, the General Partner also took into account that because the limited partners have used 100 percent of their "at risk" basis in the Partnership, the limited partners likely will derive no significant tax benefits from a longer holding period. The General Partner's belief that tax benefits have been substantially realized is based on information 6 gathered by the General Partner and supplied annually to the limited partners on Schedule K-1, Form 1065, which reveals that the limited partners' "at risk" basis in the Partnership has been reduced to zero. The "at risk" basis of the limited partners is important because a limited partner cannot deduct his share of Partnership losses in excess of his basis. Although the deduction of Partnership losses may also be limited by the application of the passive loss rules, the passive loss rules allow deduction of losses to the extent of passive income. When, however, the limited partners' "at risk" basis is reduced to zero, they can no longer offset their taxable income with Partnership losses. From the General Partner's perspective, the timing of its decision to seek to purchase the Augusta System was also influenced by the fact that the General Partner completed several major transactions in 1994 that have given it the financial resources to acquire cable television systems from its managed limited partnerships and from unaffiliated sellers of cable television systems. The General Partner has had long-standing, publicly announced plans to acquire for its own account those cable television systems operated by the General Partner on behalf of its managed limited partnerships that meet the General Partner's objectives, including its geographical clustering objectives, when the partnerships holding such systems have accomplished their investment objectives with respect to such systems and when the General Partner has the financial resources to acquire such systems. On December 20, 1994, Bell Canada International Inc. ("BCI") purchased 7,414,300 newly issued shares of the General Partner's Class A Common Stock at $27.50 per share for approximately $204,000,000. This transaction followed the May 1994 purchase by BCI of 2,500,000 newly issued shares of the General Partner's Class A Common Stock at $22.00 per share for $55,000,000. These two transactions resulted in BCI acquiring an approximate 30 percent economic interest in the General Partner for a total consideration of approximately $259,000,000. BCI also has committed to invest up to an additional $141,000,000 to maintain its 30 percent economic interest in the event the General Partner offers additional shares of its Class A Common Stock. BCI also has the right to maintain or increase its ownership in the General Partner by investing amounts beyond the $400,000,000 commitment. Also on December 20, 1994, Jones International, Ltd. ("International"), which is wholly owned by Glenn R. Jones, the chairman and chief executive officer of the General Partner, as well as certain subsidiaries of International and Mr. Jones individually, granted BCI options to acquire 2,878,151 shares of the General Partner's Common Stock. Except in limited circumstances, the options will only be exerciseable during the eighth year after December 20, 1994. The exercise of such options would result in BCI holding a sufficient number of shares of the Common Stock of the General Partner to enable BCI to elect 75 percent of the General Partner's Board of Directors. BCI is a wholly owned subsidiary of BCE Inc., Canada's largest telecommunications company. Therefore, in light of all of the above factors, the General Partner has determined that now is the appropriate time for the Partnership to convert its capital appreciation in the Augusta System to cash through the sale to the General Partner. CERTAIN EFFECTS OF THE SALE Upon consummation of the sale of the Augusta System to the General Partner, the proceeds of the sale will be used to repay all indebtedness of the Partnership and then the Partnership will distribute the remaining net sale proceeds to the limited partners and to the General Partner pursuant to the terms of the Partnership Agreement. Investors first will receive their initial capital contributions to the Partnership, and the balance will be distributed 75 percent to the limited partners and 25 percent to the General Partner, in accordance with the terms of the Partnership Agreement. Based upon the pro forma financial information as of December 31, 1994, as a result of this distribution, the limited partners of the Partnership, as a group, will receive approximately $93,204,238 and the General Partner will receive approximately $12,562,246. Both the limited partners and the General Partner will be subject to federal income tax on the income resulting from the sale of the Augusta System. See the detailed information below under the caption "Federal and State Income Tax Consequences." 7 After the sale of the Augusta System, the Partnership will continue to own a nine percent interest in the Venture until such time as all of the Venture Systems also are sold. Another effect of the sale is that it will result in the General Partner owning and operating the Augusta System. Thus, as a result of the transaction, the General Partner will make a substantial equity investment in the Augusta System and it will have a greater equity ownership interest in the Augusta System than it does now as general partner of the Partnership. Instead of the residual 25 percent interest in the net proceeds from the sale of the Augusta System that the General Partner will receive, the General Partner will have a 100 percent interest in any future capital appreciation of the Augusta System. The General Partner also will bear the risks of system losses and any diminution in system value. As the general partner of the Partnership, the General Partner earns management fees and receives reimbursement of its direct and indirect expenses allocable to the operation of the Augusta System. The General Partner's right to receive such fees and reimbursements will terminate on the sale of the Augusta System. As a result of the sale of the Augusta System to the General Partner, the General Partner will acquire all of the tangible and intangible property of the Augusta System. For federal income tax purposes, the General Partner must allocate the $141,718,000 purchase price among the tangible and intangible assets that it acquires, and it will determine the appropriate amount of depreciation based upon this allocation of the purchase price. Neither Colorado law nor the Partnership Agreement afford dissenters or appraisal rights to limited partners in connection with the proposed sale of the Augusta System. If the proposed transaction is approved by the holders of a majority of limited partnership interests, all limited partners will receive a distribution in accordance with the procedures prescribed by the Partnership Agreement. RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF ASSETS The General Partner believes that the proposed sale of the Augusta System and the distribution of the net proceeds therefrom are fair and reasonable to all partners of the Partnership, and it recommends that the limited partners approve the transaction. The General Partner, because of its 25 percent share of the residual sale proceeds, has an economic interest parallel to the economic interest of the limited partners in seeing to it that the Augusta System is sold for a fair price. The General Partner's recommendation that the limited partners approve the sale of the Augusta System and its fairness determination should not be deemed to be free from conflicts of interest, however, in light of the fact that the General Partner or one of its wholly owned subsidiaries is the proposed purchaser of the Augusta System. Because the purchaser of the Augusta System would benefit from a lower sales price, the General Partner also has an economic interest in conflict with the economic interest of the limited partners. In determining the substantive and procedural fairness of the proposed transaction, the General Partner considered each of the following factors, all of which had a positive effect on its fairness determination. The factors are listed in descending order of importance, i.e., the first factor listed was given the most weight in the determination that the proposed transaction is fair, although, as a practical matter, this is an approximation of the weight given to each factor because the General Partner believes that each factor is relevant and the General Partner was not able to weigh each factor precisely: (i) The limited partnership interests are at present illiquid and the cash to be distributed to limited partners as a result of the proposed sale of the Augusta System will provide limited partners with liquidity and with the means to realize the appreciation in the value of the Augusta System; (ii) The purchase price represents the fair market valuation of the Augusta System as determined by the average of three separate appraisals of the Augusta System by qualified independent appraisers; 8 (iii) The sale will result in total distributions to limited partners of the Partnership of approximately $1,679 per $1,000 of limited partnership capital invested in the Partnership, which, assuming an average holding period of approximately ten years, equates to an after-tax internal rate of return of approximately 4.6 percent; (iv) The Partnership has held the Augusta System for approximately ten years, a holding period beyond that originally anticipated; (v) The conditions and prospects of the cable television industry in which the Partnership is engaged, including the current adverse regulatory environment, the developing threat of competition from DBS services and telephone companies, and the working capital and other financial needs of the Partnership if it were to continue to operate the Augusta System; (vi) The terms and conditions of the purchase and sale agreement by and between the Partnership and the General Partner, including the fact that the purchase price will be paid in cash, the fact that the General Partner will not require the Partnership to make many of the representations and warranties about the Augusta System or give indemnities that are customarily given in transactions of this nature, the fact that the General Partner's obligation to close is not contingent upon its ability to obtain financing, the fact that transfers of the Augusta System's franchises from the Partnership to the General Partner do not need regulatory approval, which might be required if the Augusta System were being sold to an unaffiliated party and the fact that the Partnership will pay no brokerage fees upon the sale of the Augusta System, which it likely would have paid if the Augusta System were being sold to an unaffiliated party; (vii) The tax benefits to the limited partners of the Partnership's investment in the Augusta System have been substantially realized because the limited partners' "at risk" basis has been reduced to zero; and (viii) The sale is being conducted in accordance with the terms of the Partnership Agreement, including the fact that the proposed transaction will not occur unless it is approved by the holders of at least a majority of the limited partnership interests (less than one percent of which are owned by affiliates of the General Partner). Certain officers of the General Partner worked with each of the three independent appraisers hired to prepare fair market value appraisals of the Augusta System, providing them with certain information about the Augusta System's operations and financial condition. The officers and directors of the General Partner received the final reports. The members of the Board of Directors of the General Partner adopted the analyses and conclusions of Malarkey-Taylor Associates, Inc., which valued the Augusta System at $141,854,000, because Malarkey-Taylor Associates, Inc.'s valuation procedures, assumptions and methodologies most closely approximate the valuation procedures, assumptions and methodologies used by the General Partner's management in evaluating cable television systems. The General Partner considered the fact that the $141,718,000 purchase price to be paid to the Partnership for the Augusta System represents the average of three independent appraisals of the current fair market value of the Augusta System to be very persuasive evidence of the fairness of the proposed transaction. The fair market valuations of the Augusta System were done by respected industry appraisers using customary measures of value, i.e., determining present value of projected cash flow, applying multiples to current and projected cash flow, and comparing the fair market valuation per subscriber to comparable cable television system sales. In the opinion of the General Partner, the fact that different valuation methods were used in preparing the three separate independent fair market value appraisals lends further support to its determination of fairness. Based upon the General Partner's knowledge of and experience in the cable television industry, and its review and consideration of the appraisals, it has concluded that the values for the Augusta System determined by the three appraisals are fair and within the range of values seen in the marketplace for comparable cable television systems in similar condition. The $141,718,000 purchase price represents the current fair market value of the Augusta System on a going concern basis. The $141,718,000 purchase price for the Augusta System also compares favorably to the 9 approximately $15,166,000 net book value of the Augusta System ($273 per $1,000 of limited partnership capital) at December 31, 1994. The liquidation value of a cable television system, i.e., the sale of the system on other than a going concern basis, is not usually considered to be an accurate indicator of the value of a cable television system, primarily because the assets of a cable television system typically are worth less when considered separately than when considered as a going concern. The assets of a cable television system consequently are not normally sold or purchased separately. A fair market valuation of a system should, in the General Partner's view, be a valuation of the system as a going concern. The liquidation value of the Augusta System therefore was not considered by the General Partner in reaching its determination of fairness. The fairness of the transaction is also demonstrated in an analysis of certain of the terms and conditions of the purchase and sale agreement between the Partnership and the General Partner, which favor the interests of the Partnership. There is no financing contingency to closing. Because of the General Partner's existing extensive knowledge about the Augusta System, the Partnership has not been required to make many of the representations and warranties about the quality of the Augusta System's tangible assets, the quantity of the Augusta System's subscribers or the validity of the Augusta System's intangible assets customarily found in cable television system transactions. The Partnership also has not been asked to give warranties about the Augusta System's rates as justified by the system's cost-of-service filing. In addition, the Partnership is not required to indemnify the purchaser for defects discovered by the purchaser after the closing. This frees the Partnership from having to reserve a portion of the sale proceeds to cover indemnification obligations. The transfer of the Augusta System's six cable television franchises from the Partnership to the General Partner or to one of its wholly owned subsidiaries will not require regulatory approval and thus regulatory approval of franchise transfers is not a condition to closing. This removes an obstacle to closing that might be present if the Augusta System were being sold to an unaffiliated party. The Partnership also will pay no brokerage fee in connection with the sale of the Augusta System. This will result in more funds from the sale being available for distribution to the partners. Because the Augusta System is being sold to the General Partner, the Partnership saved the time and considerable expense of seeking third party buyers and potentially protracted contract negotiations. The General Partner is aware and considered that although consummation of this transaction will result in aggregate distributions to the Partnership's limited partners of approximately $1,679 per $1,000 of limited partnership capital invested in the Partnership, the proposed sale will require the limited partners to recognize, for federal income tax purposes, a gain resulting from the sale. The proposed sale also will deprive the limited partners of an opportunity to participate in the future growth of the Augusta System, if any, and it will result in the General Partner or one of its wholly owned subsidiaries owning the Augusta System. The General Partner nevertheless concluded that the benefits to the limited partners of the Partnership from the sale of the Augusta System to the General Partner outweighed these consequences. As disclosed above, the proposed transaction is subject to various conflicts of interest arising out of the Partnership's relationships with the General Partner. Because the General Partner and its affiliates are engaged in the ownership and operation of cable television systems, they are generally in the market to purchase cable television systems for their own account. A potential conflict thus arises from the General Partner's fiduciary duty as general partner of the Partnership and its management's fiduciary duty to the General Partner's shareholders when it determines that Partnership cable television systems will be sold to the General Partner or one of its affiliates and not to an unaffiliated third party. This potential conflict of interest was disclosed to limited partners in the prospectus delivered to investors at the time of the public offering of interests in the Partnership. Prior to the Partnership's public offering, the General Partner entered into negotiations with certain state securities administrators as part of the process of clearing the offering in the "merit" states, i.e., those states that permit the sale of securities only if the state securities administrator deems the offering as a whole to be fair, just and equitable. Several of the state securities administrators focused on the potential conflicts of interest in the event that the Partnership were to sell one or more of its cable television systems to the General Partner or one of its affiliates. The General Partner agreed to include the provision in the Partnership Agreement that permits the Partnership to sell its cable television systems 10 directly to the General Partner or one of its affiliates only after a three- year holding period and only if the General Partner or such affiliate pays a purchase price not less than the average of three separate independent appraisals of the particular cable television system being sold. The General Partner has concluded that the mechanisms for determining the purchase price to be paid to the Partnership provide sufficient procedural safeguards to minimize the effects of the potential conflicts of interest inherent in any such transaction. The fact that these procedures have been carried out in connection with the Partnership's proposed sale of the Augusta System, together with the fact that the transaction is conditioned upon receipt of the approval of the holders of a majority of the limited partnership interests in the Partnership, of which affiliates of the General Partner own less than one percent, enable the General Partner to conclude that the proposed transaction is both procedurally and financially fair to all partners. The directors of the General Partner who are not employees of the General Partner did not vote separately to approve the transaction, nor did the outside directors retain an unaffiliated representative to act solely on behalf of the limited partners for the purposes of negotiating the terms of the proposed sale of the Augusta System to the General Partner and/or preparing a report concerning the fairness of the proposed sale. Of course, neither were they required to do so. While the directors of the General Partner participating in the approval of the sale recognized that the interests of the General Partner and the limited partners may not in all respects necessarily be the same, they recognized also that the purchase price was determined in accordance with the terms of the Partnership Agreement, that is, by averaging three separate independent appraisals of the Augusta System's fair market value. The seven directors of the General Partner who participated in the meeting to discuss the Partnership's sale of the Augusta System to the General Partner, Messrs. Jones, O'Brien, Krejci, Somers, Vigil, Zinn and Zonker, voted unanimously to approve the transaction. Two directors of the General Partner, Mr. Burney and Ms. Jones, were unable to attend the Board meeting at which the sale of the Augusta System was discussed and approved due to scheduling conflicts. It is anticipated that if the proposed transaction is not consummated, the General Partner's current management team will continue to manage the Augusta System on behalf of the Partnership until such time as the Augusta System could be sold. No other alternatives have been or currently are being considered. THE APPRAISALS In determining the price that the General Partner would offer for the Augusta System, the General Partner retained Malarkey-Taylor Associates, Inc., Kagan Media Appraisals Inc. and Western Cablesystems, Inc. to prepare separate appraisals of the fair market value of the Augusta System. The appraisers were asked to determine the cash price a willing buyer would give a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts, in an arm's-length transaction to acquire the Augusta System. These appraisals have been made available to the Partnership by their delivery to the General Partner. The officers and directors of the General Partner examined each of the appraisals and discussed among themselves the merits of the appraisals' assumptions, methodologies and conclusions, and, based on their experience in and knowledge of the cable television industry, they found them to be fair and reasonable. The complete texts of the written appraisal reports are attached as exhibits to this proxy statement and the following summary of the appraisal reports is qualified by reference to the full texts thereof as set forth in such exhibits. Malarkey-Taylor Associates, Inc. concluded that the Augusta System's overall fair market value as of December 31, 1994 was $141,854,000. Kagan Media Appraisals Inc. concluded that the Augusta System's overall fair market value as of December 31, 1994 was $136,300,000. Western Cablesystems, Inc. concluded that the Augusta System's overall fair market value as of December 31, 1994 was $147,000,000. The average of these three valuations is $141,718,000. The fair market valuations of the Augusta System were undertaken within the same general period of time and each of the appraisals was completed and delivered to the Partnership within one month of the date that the purchase price was settled in the Purchase and Sale Agreement. In the General Partner's view, the assumptions regarding system operations underlying the three appraisals have generally remained unchanged since December 31, 1994. 11 The General Partner provided the appraisers with certain financial data and operating information for their use in preparing their appraisals of the Augusta System. The appraisers were provided with current and historical profit and loss statements for the Augusta System and with current subscriber reports. From this information, the appraisers used their independent analyses to project cash flow, determine growth of homes passed, the Augusta System's future penetration and possible rate adjustments. The appraisals thus reflect the application of the appraisers' expertise to the data about the Augusta System supplied by the General Partner. Malarkey-Taylor Associates, Inc. ("Malarkey-Taylor") is the oldest consulting firm specializing in the field of cable television. Its team of financial, engineering and managerial professionals devotes a substantial portion of its time to the appraisal of cable television systems. Malarkey-Taylor was selected by the General Partner to render an opinion as to the fair market value of the Augusta System in light of such overall qualifications. No limitations were imposed with respect to the appraisal to be rendered by Malarkey-Taylor. The firm was selected by the General Partner to prepare an independent appraisal of the Augusta System because of the General Partner's familiarity with the firm, and its good reputation in the cable television industry. Malarkey-Taylor has prepared independent appraisals of other cable television systems owned and/or managed by the General Partner. The principals of Malarkey-Taylor are not affiliated in any way with the General Partner. Malarkey-Taylor used five generally accepted cable television valuation methods in establishing the range of total fair market values of the Augusta System as a going concern. The first method used a multiple of the past year's operating income derived from comparable asset values of privately held and publicly traded cable companies. The second method used a lower multiple of the annualized current month's operating income. The third method applied a slightly lower multiple of next year's projected operating income. The fourth method was a discounted net cash flow analysis to achieve a target after-tax return on equity, given particular operating and financing assumptions unique to the Augusta System's assets. The fifth method was a discounted cash flow method that measured the net present value of the projected pre-tax operating cash flows (less capital expenditures, plus the residual value of the Augusta System) that represent the return on the total investment. Malarkey-Taylor's valuation methodologies are set out in full in Exhibit A to this proxy statement. As compensation for rendering an opinion as to the fair market value of the Augusta System, the General Partner paid Malarkey-Taylor a fee of $3,500. Such fee was not contingent upon the conclusion reached by Malarkey-Taylor in its opinion. As compensation for rendering opinions as to the fair market value of other cable television systems owned and/or managed by the General Partner and its affiliates, and completing the analysis of the allocations of purchase prices between tangible and intangible assets for various cable television systems owned and/or managed by the General Partner and its affiliates, Malarkey-Taylor has received fees totalling $288,057 during the two years prior to the date hereof. Kagan Media Appraisals Inc. ("Kagan") has more than twenty-five years of experience in appraising communications properties. During that period, Kagan, according to its records, has appraised more than $24 billion worth of media properties, including more than $6.5 billion worth of cable television systems. Kagan was selected by the General Partner to render an opinion as to the fair market value of the Augusta System in light of such overall qualifications. No limitations were imposed with respect to the appraisal to be rendered by Kagan. The firm was selected by the General Partner to prepare an independent appraisal of the Augusta System because of the firm's reputation in the industry, and its relationship with one of the most notable analysts on the cable television industry. Kagan has prepared independent appraisals of other cable television systems owned and/or managed by the General Partner. Certain affiliates of Kagan generally invest in publicly held media companies pursuant to an investment policy adopted by them in 1974. As a result, portfolios owned and/or managed by affiliates of Kagan as of March 17, 1995 maintain a long-term investment in the General Partner. In addition, the General Partner subscribes to a number of information services provided by affiliates of Kagan and employees of the General Partner from time to time enroll in seminars or serve as panelists in seminars conducted by affiliates of Kagan. The General Partner believes that 12 Kagan's holdings in it are not material and do not compromise Kagan's status as an independent appraiser of the Augusta System's value. Kagan has certified to the General Partner in its appraisal report that it has no present or contemplated financial interest in the Augusta System and that its employment and compensation are in no way contingent upon the value reported. Kagan used two cable television system appraisal methodologies in reaching a conclusion as to the fair market value of the Augusta System, namely: (i) projected future cash flows discounted back to a cumulative present value, and (ii) correlation of those results with analysis of recent comparable cable television system sales. Kagan's valuation methodologies are set out in full in Exhibit B to this proxy statement. As compensation for rendering an opinion as to the fair market value of the Augusta System, the General Partner paid Kagan a fee of $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 $41,705 during the two years prior to the date hereof. R. Michael Kruger, the owner and president of Western Cablesystems, Inc. ("Western"), has since 1979 appraised hundreds of systems for a variety of clients including major multiple system cable operators, independent operators and clients outside the cable television industry, according to information provided by Western. In addition to appraising cable television systems, Western presently operates four small cable television systems and is currently active in the system acquisition marketplace. Western was selected by the General Partner to render an opinion as to the fair market value of the Augusta System in light of such overall qualifications. No limitations were imposed with respect to the appraisal to be rendered by Western. The firm was selected by the General Partner to prepare an independent appraisal of the Augusta System because of the General Partner's familiarity with the firm and Western's knowledge of the cable television industry. Western has prepared independent appraisals of other cable television systems owned and/or managed by the General Partner. The principals of Western are not affiliated in any way with the General Partner. Western used two appraisal methodologies in determining the fair market value of the Augusta System. It looked at the system's market value on the basis of both per-subscriber cost and operating income multiple, placing more reliance on the income multiple. It also used the income approach, which involved determining the discounted present value of free cash flow generated by the system over ten years, plus an allowance for the terminal value after ten years. Western's valuation methodologies are set out in full in Exhibit C to this proxy statement. As compensation for rendering an opinion as to the fair market value of the Augusta System, the General Partner paid Western a fee of $5,000. Such fee was not contingent upon the conclusion reached by Western in its opinion. As compensation for rendering opinions as to the fair market value of other cable television systems owned and/or managed by the General Partner and its affiliates, Western has received fees totalling $33,344 during the two years prior to the date hereof. COSTS OF THE TRANSACTION The following is a reasonably itemized estimate of all expenses incurred or to be incurred in connection with the proposed sale of the Augusta System, all of which will be paid by the General Partner, including without limitation the cost of soliciting the votes of the holders of limited partnership interests: Filing fees $28,344 Legal fees $10,000 Accounting fees $10,000 Appraisal fees $28,500 Printing costs $25,000 Postage and miscellaneous costs $ 5,000
13 PROPOSED SALE OF ASSETS THE PURCHASE AND SALE AGREEMENT Pursuant to the terms and conditions of a purchase and sale agreement dated as of February 22, 1995 (the "Purchase and Sale Agreement") by and between the Partnership and the General Partner, the Partnership has agreed to sell the Augusta System to the General Partner. Prior to closing, the General Partner may assign its rights as purchaser of the Augusta System under the Purchase and Sale Agreement to a wholly owned subsidiary of the General Partner. The General Partner intends to finance its acquisition of the Augusta System using a portion of the net proceeds of the General Partner's offering of $200,000,000 of 9 5/8 percent Senior Notes. The Senior Notes will mature on March 15, 2002. The Senior Notes will bear interest from the date of issuance at the rate of 9 5/8 percent per annum, payable semi-annually on March 15 and September 15 of each year, commencing September 15, 1995. The Senior Notes will not be redeemable prior to maturity and will not be subject to any mandatory redemption or sinking fund. The Senior Notes will be senior unsecured obligations of the General Partner ranking equally with all other senior unsecured obligations of the General Partner. Based upon amounts estimated as of December 31, 1994, the aggregate cost of the acquisition of the Augusta System to the General Partner, including the adjusted contract purchase price, will be approximately $142,118,469. The amount required to complete the purchase of the Augusta System will be repaid from the revenues generated by the Augusta System and the General Partner's other cable television systems, from the revenues generated by the General Partner's other business activities and from other sources of funds, including possible future financings. The closing of the sale will occur on a date upon which the Partnership and the General Partner mutually agree. It is anticipated that the closing will occur within a few weeks after receipt of the approval of the Partnership's limited partners. Because the closing is conditioned upon, among other things, the approval of the limited partners and the receipt of material third party consents necessary for the transfer of the Augusta System to the General Partner, there can be no assurance that the proposed sale will occur. If all conditions precedent to the General Partner's obligation to close are not eventually satisfied or waived, the General Partner's obligation to purchase the Augusta System will terminate. THE AUGUSTA SYSTEM The assets to be acquired by the General Partner consist primarily of the real and personal, tangible and intangible assets of the Partnership's Augusta System. The Augusta System was purchased by the Partnership from unaffiliated parties in August 1985 for an aggregate purchase price of $57,850,000. The Partnership also paid a brokerage fee of $2,603,250 to an affiliate of the General Partner. The Augusta System was purchased using the limited partner capital contributions to the Partnership, and amounts available under the Partnership's credit facility with a commercial bank. At the date of acquisition in 1985, the Augusta System served approximately 44,000 basic subscribers and had approximately 32,000 premium channel subscriptions, using approximately 1,000 miles of cable plant passing approximately 70,000 dwelling units. As of December 31, 1994, the Augusta System served approximately 66,600 basic subscribers and had approximately 50,200 premium channel subscriptions, using approximately 1,600 miles of cable plant passing approximately 102,000 dwelling units. The General Partner will purchase all of the tangible assets of the Augusta System, including, among other things, the headend equipment, underground and aboveground cable distribution systems, towers, earth satellite receive stations, and furniture and fixtures of the Augusta System. The General Partner also will acquire certain of the intangible assets of the Augusta System, including, among other things, all of the franchises, leases, agreements, permits, licenses and other contracts and contract rights of the Augusta 14 System. Also included in the sale are certain parcels of real estate owned by the Augusta System, the subscriber accounts receivable of the Augusta System and all of the Augusta System's engineering records, files, schematics, maps, reports, promotional graphics, marketing materials and reports filed with federal, state and local regulatory agencies. Certain of the Augusta System's assets will be retained by the Partnership, including cash or cash equivalents on hand and in banks, certain insurance policies and rights and claims thereunder, and any federal or state income tax refunds to which the Partnership may be entitled. PURCHASE PRICE Subject to the adjustments described below, the purchase price for the Augusta System is $141,718,000. The purchase price will be reduced by any accounts payable and accrued expenses and vehicle lease obligations existing on the closing date. The purchase price will be increased by any accounts receivable existing on the closing date. The purchase price for the Augusta System also will be adjusted as of the closing date with respect to all items of income and expense associated with the operation of the Augusta System. This adjustment will reflect, in accordance with generally accepted accounting principles, that all expenses and income attributable to the period on or after the closing date are for the account of the General Partner and those prior to the closing date are for the account of the Partnership. Please see Note 3 of the Notes to Unaudited Pro Forma Financial Statements for a detailed accounting of the estimated closing adjustments. CONDITIONS TO CLOSING The General Partner's obligations under the Purchase and Sale Agreement are subject to, among other things, the following conditions: (a) the Partnership shall have obtained all material consents and approvals from federal, state and local authorities and other third parties to the transfer of the Augusta System to the General Partner, (b) the holders of a majority of limited partnership interests of the Partnership shall have approved the transaction and (c) the statutory waiting period applicable to the Purchase and Sale Agreement and the transactions contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have terminated or shall have expired. In order to sell the Augusta System, the Partnership must obtain the approval of the Federal Communications Commission to the transfer of certain licenses and the consent of third parties with whom the Partnership has contracts related to the Augusta System, such as pole attachment agreements or other service agreements, to the transfer thereof. The General Partner does not anticipate that the Partnership will experience any difficulty in obtaining the necessary consents and approvals. If, however, the Partnership fails to obtain certain consents and approvals of third parties with whom the Augusta System has contracted, the General Partner may, in its sole discretion, waive this condition to closing. The General Partner likely would close without all consents only if the missing consents were deemed by the General Partner to be immaterial. In such circumstances, the General Partner would agree to indemnify the Partnership for any liabilities incurred in connection with a closing without prior receipt of all necessary consents. The Partnership's obligations under the Purchase and Sale Agreement are subject to, among other things: (a) approval of the transaction by the holders of a majority of the Partnership's limited partnership interests, (b) receipt of the purchase price for the Augusta System and (c) the expiration or termination of all waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. FEDERAL AND STATE INCOME TAX CONSEQUENCES The purpose of the following discussion of the income tax consequences of the proposed transaction is to inform the limited partners of the Partnership of the federal and state income tax consequences to the Partnership and to its partners arising from the sale of the Augusta System. The tax information included herein was prepared by the tax department of the General Partner and was reviewed by the Group Vice President/Taxation/Administration of the General Partner. The tax information is taken from tax data compiled by the General Partner in its role as the Partnership's tax administrator and is not based upon the 15 advice or formal opinion of counsel. The tax discussion that follows is merely intended to inform the limited partners of factual information and should not be considered tax advice. By the expected date of the Augusta System's sale, the limited partners will have received certain tax benefits from their investment in the Partnership. Assuming maximum federal income tax rates and no other sources of passive income, limited partners will have received $7,320,454 in tax benefits from Partnership losses ($132 per $1,000 invested). Application of the at risk rules and the passive activity loss limitation has limited deductible losses in prior years and created at risk and passive loss carryovers to the year of sale. The gain on sale incorporates all prior losses disallowed under the loss limitations that are presumed deductible in the year of sale. The sale of the Augusta System will result in a gain for federal income tax purposes. The amount of this gain allocated to limited partners is approximately $55,232,719. The General Partner estimates that $45,307,531 ($816 per $1,000 invested) of this total gain will be treated as ordinary income. This amount of ordinary income results from the recapture of depreciation on personal property under Section 1245. The General Partner estimates that the remainder of the gain, or approximately $9,925,188 ($179 per $1,000 invested), will be Section 1231 gain that will generally be treated as long term capital gain by the limited partners. Assuming the 31 percent rate applies to ordinary income and a 28 percent rate applies to long-term capital gain, as a result of the sale of the Augusta System, a limited partner will be subject to federal income taxes of $303 per $1,000 invested in the Partnership. The taxable income will be recognized in the year of the closing of the sale, which is expected to be 1995. Because the Augusta System is located in the State of Georgia, limited partners who are not resident in Georgia are required to report their allocable gain to Georgia on Form 500. Georgia law requires the Partnership to withhold 4 percent of a nonresident partner's distribution and to remit such amounts withheld to the Georgia Department of Revenue. The amount withheld will be separately stated on the stub of the distribution check and the General Partner will provide additional documentation of the amount of the withheld Georgia taxes by January 31 following the year of sale. The amount of tax withheld will be treated as a distribution to the limited partner. The withheld taxes will be allowed as a credit against any Georgia tax computed on Form 500. Limited partners may or may not have a tax refund after the filing of the required Georgia tax return. Limited partners who are non-resident aliens or foreign corporations ("foreign persons") are subject to a withholding tax on their share of the Partnership's income from the sale of the Augusta System. The withholding rates are 39.6 percent for individual partners and 35 percent for corporate partners. The tax withheld will be remitted to the Internal Revenue Service and the foreign person will receive a credit on their U.S. tax return for the amount of the tax withheld by the Partnership. The tax withheld will be treated as a distribution to the limited partner. CERTAIN INFORMATION ABOUT THE PARTNERSHIP AND THE GENERAL PARTNER The 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 16 and other matters. Reports and other information filed by the Partnership can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the following regional offices of the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048 and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Partnership is an Edgar filer. The Partnership will continue in existence and will continue to be subject to the informational reporting requirements of the Exchange Act after the sale of the Augusta System. The Partnership's registration and reporting requirements under the Exchange Act will not be terminated until dissolution of the Partnership. The General Partner also is subject to the informational filing requirements of the Exchange Act and, in accordance therewith, files periodic reports, proxy statements and other financial information with the Securities and Exchange Commission relating to its business, financial condition and other matters. Information, as of particular dates, concerning the General Partner's directors and officers, their compensation, options granted to them, the principal holders of the General Partner's securities and any material interest of such persons in transactions with the General Partner is required to be disclosed in certain documents filed with the Commission. Such reports, proxy statements and other information may be inspected at the above-listed public reference facilities maintained by the Commission. Copies of such materials may be obtained upon payment of the Commission's prescribed charges by writing to the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The General Partner also is an Edgar filer. The name, business address and principal occupation and employment for the past five years of each of the directors and executive officers of the General Partner are set forth in Schedule 1 to this Proxy Statement. To the best knowledge of any of the persons listed on Schedule 1 hereto, except as disclosed on such schedule, no persons listed on such schedule beneficially own any limited partnership interests in the Partnership. Except as disclosed herein, neither the General Partner nor, to the best of its knowledge, any of the persons listed on Schedule 1 hereto, has any contract, arrangement, understanding or relationship with any other person with respect to any limited partnership interest of the Partnership, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or the voting of any of such interests, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as disclosed herein and in the Partnership's Annual Reports on Form 10-K, neither the General Partner nor, to the best of its knowledge, any of the persons listed on Schedule 1 hereto, has had any material transaction or material business relationship with the Partnership since the commencement of the Partnership's second full fiscal year preceding the date hereof that would require disclosure under the rules and regulations of the Securities and Exchange Commission. USE OF PROCEEDS FROM AUGUSTA SYSTEM SALE The following is a brief summary of the Partnership's estimated use of the proceeds from the sale of the Augusta System. All of the following selected financial information is based upon amounts as of December 31, 1994 and certain estimates of liabilities at closing. Final results may differ from these estimates. A more detailed discussion of the financial consequences of the sale of the Augusta System is set forth below under the caption "Unaudited Pro Forma Financial Information." All limited partners are encouraged to review carefully the unaudited pro forma financial statements and notes thereto. If the holders of a majority of limited partnership interests of the Partnership approve the proposed sale of the Augusta System and the transaction is closed, the Partnership will pay all of its indebtedness and then 17 the Partnership will distribute the net sale proceeds pursuant to the terms of the Partnership Agreement. The estimated uses of the sale proceeds are as follows: Contract Sales Price of the Augusta System.................... $141,718,000 Add:Cash on Hand.............................................. 3,782,989 Less:Estimated Net Closing Adjustments........................ 224,536 Repayment of Debt......................................... (39,959,041) ------------ Cash Available for Distribution by the Partnership....... 105,766,484 Return of Limited Partners' Initial Capital.............. (55,517,500) ------------ Estimated Residual Proceeds.............................. $ 50,248,984 ============ Limited Partners' Share (75%)............................ $ 37,686,738 General Partner's Share (25%)............................ $ 12,562,246 Based upon financial information available at December 31, 1994, below is an estimate of all cash distributions that will have been made to limited partners after the distribution of the proceeds from the sale of the Augusta System is completed. Summary of Estimated Cash Distributions to Limited Partners: Return of Limited Partners' Initial Capital................. $55,517,500 Limited Partners' Share of Residual Proceeds on Sale of Augusta System............................................. 37,686,738 ------------ Total Estimated Cash Received by Limited Partners........... $93,204,238 ============ Total Cash Received per $1,000 of Limited Partnership Capital.................................................... $ 1,679 ============
Assuming an average holding period of approximately ten years, the estimated after-tax internal rate of return on an investment in the Partnership is approximately 4.6 percent. This internal rate of return includes only the distributions to be made on the sale of the Augusta System and does not reflect the expected additional future distributions to be made upon the sale of the Venture Systems. Based on financial information available at December 31, 1994, the following table presents the estimated results of the Partnership when it has completed the sale of the Augusta System: Dollar Amount Raised....................................... $55,517,500 Number of Cable Television Systems Purchased Directly...... One Number of Cable Television Systems Purchased Indirectly.... Five Date of Closing of Offering................................ September 1985 Date of First Sale of Properties........................... August 1987 Tax and Distribution Data per $1,000 of Limited Partnership Capital: Federal Income Tax Results Ordinary Income (Loss) --from operations...................................... $ (319) --from recapture....................................... $ 816 Capital Gain (Loss).................................... $ 179 Cash Distributions to Investors Source (on GAAP basis) --investment income.................................... $ 679 --return of capital.................................... $1,000 Source (on cash basis) --sales................................................ $1,679
18 UNAUDITED PRO FORMA FINANCIAL INFORMATION OF CABLE TV FUND 12-B, LTD. The following unaudited pro forma balance sheet assumes that as of December 31, 1994, the Partnership had sold the Augusta System for $141,718,000. The funds available to the Partnership, adjusting for the estimated net closing adjustments of the Augusta System, are expected to total approximately $142,118,469. Such funds will be used to repay indebtedness and the balance will be distributed pursuant to the terms of the Partnership Agreement, which generally will be first, to the limited partners in an amount that equals the amount initially contributed to the partnership capital by the limited partners; the balance, 75 percent to the limited partners and 25 percent to the General Partner. The unaudited pro forma balance sheet should be read in conjunction with the appropriate notes to the unaudited pro forma balance sheet. ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON AMOUNTS AS OF DECEMBER 31, 1994 AND CERTAIN ESTIMATES OF LIABILITIES AT CLOSING. FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION. 19 CABLE TV FUND 12-B, LTD. UNAUDITED PRO FORMA BALANCE SHEET DECEMBER 31, 1994
PRO FORMA PRO FORMA AS REPORTED ADJUSTMENTS BALANCE ----------- ------------ ------------ ASSETS Cash and Cash Equivalents............... $ 3,782,989 $101,983,495 $105,766,484 Trade Receivables, net.................. 860,247 (860,247) Investment in Cable Television Properties: Property, plant and equipment, net.... 41,074,014 (41,074,014) -- Franchise costs, net.................. 14,051,348 (14,051,348) -- Losses in excess of investment in cable television venture............. (1,804,126) -- (1,804,126) ----------- ------------ ------------ Total investment in cable television properties......................... 53,321,236 (55,125,362) (1,804,126) Deposits, Prepaid Expenses and Deferred Charges................................ 578,713 (578,713) -- ----------- ------------ ------------ Total Assets............................ $58,543,185 $ 45,419,173 $103,962,358 =========== ============ ============ LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Liabilities: Debt.................................. $39,959,041 $(39,959,041) $ -- Accounts payable...................... 175,933 (175,933) -- Accrued liabilities................... 924,648 (924,648) -- Subscriber prepayments................ 113,843 (113,843) -- Accrued Distribution to Limited Partners............................. -- 93,204,238 93,204,238 Accrued Distribution to General Partner.............................. -- 12,562,246 12,562,246 ----------- ------------ ------------ Total Liabilities................... 41,173,465 64,593,019 105,766,484 ----------- ------------ ------------ Partners' Capital (Deficit): General Partner....................... (304, 152) (146,880) (451,032) Limited Partners...................... 17,673,872 (19,026,966) (1,353,094) ----------- ------------ ------------ Total Partners' Capital (Deficit).....17,369,720 (19,173,846) (1,804,126) ----------- ------------ ------------ Total Liabilities and Partners' Capital (Deficit).....................$58,543,185. $ 45,419,173 $103,962,358 =========== ============ ============
The accompanying notes to unaudited pro forma financial statements are an integral part of this balance sheet. 20 CABLE TV FUND 12-B, LTD. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1994
PRO FORMA PRO FORMA AS REPORTED ADJUSTMENTS BALANCE ----------- ------------ ----------- REVENUES............................... $26,956,006 $(26,956,006) $ -- COSTS AND EXPENSES: Operating, general and administrative expense............................. 13,932,687 (13,932,687) -- Management fees and allocated overhead from General Partner..................... 3,392,884 (3,392,884) -- Depreciation and Amortization........ 9,380,877 (9,380,877) -- ----------- ------------ ----------- OPERATING INCOME....................... 249,558 (249,558) -- ----------- ------------ ----------- OTHER INCOME (EXPENSE): Interest expense..................... (2,555,513) 2,555,513 -- Other, net........................... 119,749 (119,749) -- ----------- ------------ ----------- Total other income (expense), net.. (2,435,764) 2,435,764 -- ----------- ------------ ----------- LOSS BEFORE EQUITY IN NET LOSS OF CABLE TELEVISION JOINT VENTURE.............. (2,186,206) 2,186,206 -- EQUITY IN NET LOSS OF CABLE TELEVISION JOINT VENTURE......................... (1,182,039) -- (1,182,039) ----------- ------------ ----------- NET LOSS............................... $(3,368,245) $ 2,186,206 $(1,182,039) =========== ============ ===========
The accompanying notes to unaudited pro forma financial statements are an integral part of this statement. 21 CABLE TV FUND 12-B, LTD. NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS 1) The following calculations present the sale of the Augusta System and the resulting estimated proceeds expected to be received by the Partnership. 2) The unaudited pro forma balance sheet assumes that the Partnership had sold the Augusta System for $141,718,000 as of December 31, 1994. The unaudited statement of operations assumes that the Partnership had sold the Augusta System as of January 1, 1994. 3) The estimated gain recognized from the sale of the Augusta System and corresponding estimated distribution to limited partners as of December 31, 1994 has been computed as follows: GAIN ON SALE OF ASSETS: Contract sales price............................................. $141,718,000 Less: Net book value of investment in cable television properties at December 31, 1994....................................... 55,125,362 ------------ Gain on sale of assets........................................... $ 86,592,638 ============ DISTRIBUTIONS TO PARTNERS: Contract sales price............................................. $141,718,000 Add:Trade receivables, net....................................... 860,247 Prepaid expenses................................................. 578,713 Less:Accrued liabilities assumed by the General Partner.......... (924,648) Subscriber prepayments........................................... (113,843) ------------ Adjusted cash received........................................... 142,118,469 Less:Outstanding debt to third parties........................... (39,959,041) Outstanding debt to General Partner.............................. (112,495) Accounts payable................................................. (63,438) Add:Cash on hand................................................. 3,782,989 ------------ Cash available for distribution.................................. 105,766,484 Return of limited partners' initial capital...................... (55,517,500) Residual proceeds................................................ $ 50,248,984 ============ Amount due Limited Partners (75%)................................ $ 37,686,738 ============ Amount due General Partner (25%)................................. $ 12,562,246 ============
22 AVAILABLE INFORMATION The Partnership's Annual Reports on Form 10-K for the fiscal years ended December 31, 1994 and December 31, 1993 previously have been mailed to the limited partners of the Partnership. Additional copies of the Partnership's Annual Reports on Form 10-K for the fiscal years ended December 31, 1994 and December 31, 1993 are available to each limited partner of the Partnership without charge upon written request to: Elizabeth M. Steele, Secretary, Jones Intercable, Inc., 9697 East Mineral Avenue, Englewood, Colorado 80112, (303) 792-3111. Copies of the Purchase and Sale Agreement between the Partnership and the General Partner also are available upon written request to Ms. Steele. A Rule 13e-3 Transaction Statement furnishing certain additional information with respect to the transaction described herein has been jointly filed by the Partnership and the General Partner with the Securities and Exchange Commission. INCORPORATION BY REFERENCE The Partnership's Annual Reports on Form 10-K for the fiscal years ended December 31, 1994 and December 31, 1993 are incorporated by reference in this Proxy Statement. The Partnership specifically incorporates by reference herein Item 1. Business, Item 2. Properties, Item 5. Market for the Registrant's Common Stock and Related Security Holder Matters, Item 6. Selected Financial Data, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations, Item 8. Financial Statements and Item 13. Certain Relationships and Related Transactions from the 1994 and 1993 Annual Reports on Form 10-K. 23 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 and Somers are citizens of the United States. Messrs. Burney and Somers are citizens of Canada.
AGGREGATE NUMBER OF LIMITED PARTNERSHIP INTERESTS NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED ---------------- ------------------------ --------------------- Glenn R. Jones Mr. Jones has served as Chairman of the Board of 0 c/o Jones Intercable, Directors and Chief Executive Officer of the Inc. 9697 E. Mineral General Partner since its formation in 1970. Avenue Englewood, CO 80112 Christopher J. Bowick Mr. Bowick is the General Partner's Group Vice 0 c/o Jones Intercable, President/Technology and its Chief Technical Inc. 9697 E. Mineral Officer. Prior to joining the General Partner Avenue Englewood, CO in 1991, Mr. Bowick worked as Vice President of 80112 Engineering of Scientific Atlanta's transmission systems business division. Timothy J. Burke Mr. Burke joined the General Partner in 1982 as 20 c/o Jones Intercable, corporate tax manager, and he has served as Inc. 9697 E. Mineral Group Vice President/Taxation/Administration Avenue Englewood, CO since 1990. 80112 Derek H. Burney Mr. Burney was appointed a Director of the 0 c/o Bell Canada General Partner in December 1994 and he became International Inc. Vice Chairman of the General Partner's Board in 1000 de la Gauchetiere January 1995. Mr. Burney joined BCE Inc., Bureau 1100 Canada's largest telecommunications company, in Montreal (PQ) Canada H3B January 1993, and he has been Chairman of Bell 4Y8 Canada International Inc., a subsidiary of BCE Inc., since that time and, in addition, he has been the subsidiary's Chief Executive Officer since July 1993. Prior to joining BCE Inc., Mr. Burney was Canada's ambassador to the United States from 1989 to 1992. Kevin P. Coyle Mr. Coyle, Group Vice President/Finance of the 0 c/o Jones Intercable, General Partner, has been the General Partner's Inc. 9697 E. Mineral Chief Financial Officer since 1990. Mr. Coyle Avenue Englewood, CO has been an associate of the General Partner 80112 since 1981. 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
24
AGGREGATE NUMBER OF LIMITED PARTNERSHIP INTERESTS NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED ---------------- ------------------------ --------------------- 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. Christine Jones Marocco Ms. Marocco was appointed a Director of the 0 c/o Jones Intercable, General Partner in December 1994. She is a Inc. homemaker and the daughter of Glenn R. Jones. 9697 E. Mineral Avenue Englewood, CO 80112 James B. O'Brien Mr. O'Brien has been President, Chief Operating 0 c/o Jones Intercable, Officer and a Director of the General Partner Inc. since 1989. Mr. O'Brien has been with the 9697 E. Mineral Avenue General Partner since 1982 in various Englewood, CO 80112 operational management positions. 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. Daniel E. Somers Mr. Somers was appointed a Director of the 0 c/o Bell Canada General Partner in December 1994. Mr. Somers is International Inc. the Executive Vice President and Chief 1000 de la Gauchetiere Financial Officer of Bell Canada International Bureau 1100 Inc. Prior to joining Bell Canada International Montreal (PQ) Canada H3B Inc. in January 1992, Mr. Somers had been the 4Y8 President and Chief Executive Officer of Radio Atlantic Holdings Limited since January 1989. Raymond L. Vigil Mr. Vigil has been Group Vice President/Human 0 c/o Jones Intercable, Resources of the General Partner since 1993. Inc. Mr. Vigil also is a Director of the General 9697 E. Mineral Avenue Partner. Previous to joining the General Englewood, CO 80112 Partner, Mr. Vigil served as Executive Director of Learning at US West. Prior to U.S. West, Mr. Vigil worked in various human resources posts over a 14-year term with the IBM Corporation. Ruth E. Warren Ms. Warren has been Group Vice 0 c/o Jones Intercable, President/Operations of the General Partner Inc. since 1990. Ms. Warren has been with the 9697 E. Mineral Avenue General Partner in various operational Englewood, CO 80112 management positions since 1980.
25
AGGREGATE NUMBER OF LIMITED PARTNERSHIP INTERESTS NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED ---------------- ------------------------ --------------------- Cynthia A. Winning Ms. Wining joined the General Partner as Group 0 c/o Jones Intercable, Vice President/Marketing in December 1994. Inc. Prior to joining the General Partner, Ms. 9697 E. Mineral Avenue Winning served in 1994 as the President of PRS Englewood, CO 80112 Inc., a Denver, Colorado sports and event marketing company. From 1979 to 1981 and from 1986 to 1994, Ms. Winning served as the Vice President and Director of Marketing for Citicorp Retail Services, Inc. Robert S. Zinn Mr. Zinn was appointed a Director of the General 0 c/o Jones Intercable, Partner in December 1994. Mr. Zinn has been a Inc. lawyer in the General Partner's law department 9697 E. Mineral Avenue since 1991. Prior to that time, Mr. Zinn was a Englewood, CO 80112 partner at Davis, Graham & Stubbs, a Denver, Colorado law firm that serves as counsel to the General Partner. David K. Zonker Mr. Zonker was appointed a Director of the 25 c/o Jones Intercable, General Partner in December 1994. Mr. Zonker Inc. has been the President of Jones International 9697 E. Mineral Avenue Securities, Ltd., an affiliate of the General Englewood, CO 80112 Partner that served as the dealer-manager of the Partnership's initial public offering, since 1984. Mr. Zonker joined the General Partner in 1980.
26 [LOGO OF JONES INTERCABLE APPEARS HERE] 9697 EAST MINERAL AVENUE ENGLEWOOD, COLORADO 80112 PROXY THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER The undersigned Limited Partner of Cable TV Fund 12-B, Ltd., a Colorado limited partnership, hereby votes on the sale of Cable TV Fund 12-B, Ltd.'s Augusta, Georgia cable television system pursuant to the terms and conditions of that certain Purchase and Sale Agreement dated as of February 22, 1995, as follows: [_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS (continued on other side) THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSED SALE TRANSACTION. PLEASE SIGN EXACTLY AS NAME APPEARS. ++++ ++++ When limited partnership inter- + + ests are held by joint tenants, + + both should sign. When signing as + + attorney, as executor, adminis- trator, trustee or guardian, please give full title as such. If a corporation, please sign in + + full corporation name by autho- + + rized officer. If a partnership, + + please sign in partnership name ++++ ++++ by authorized person. DATED: _____________________, 1995 __________________________________ Signature __________________________________ Signature if held jointly PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED ENVELOPE. -----END PRIVACY-ENHANCED MESSAGE-----