<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
RULE 13e-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the
Securities Exchange Act of 1934
and Rule 13e-3 thereunder)
Cable TV Fund 11-A, Ltd.
------------------------
(Name of the Issuer)
Jones Intercable, Inc. (File No. 0-8947)
and
Cable TV Fund 11-A, Ltd. (File No. 0-11910)
-------------------------------------------
(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.
<PAGE>
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
- --------------------- --------------------
$2,902,020 $580.
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: $580.
Form or Registration No.: Schedule 14A
Filing Party: Cable TV Fund 11-A, Ltd.
Commission File No. 0-11910
Date Filed: Concurrently with this Rule 13e-3 Transaction
Statement on Schedule 13E-3
*Pursuant to Rule 0-11(c)(2), the transaction valuation is based upon Cable TV
Fund 11-A, Ltd.'s 18 percent interest in the $16,122,333 sales price that is to
be paid to Cable TV Joint Fund 11 by Jones Intercable, Inc. in connection with
the transaction that is the subject of the proxy solicitation.
<PAGE>
INTRODUCTION
------------
This Rule 13e-3 Transaction Statement is being filed jointly by Cable TV
Fund 11-A, Ltd., a Colorado limited partnership, and by Jones Intercable, Inc.,
a Colorado corporation that is the general partner of Cable TV Fund 11-A, Ltd.,
in connection with the sale of assets of Cable TV Joint Fund 11 to Jones
Intercable, Inc. upon the terms and subject to the conditions of a Purchase and
Sale Agreement by and between Cable TV Joint Fund 11 and Jones Intercable, Inc.
The sale may be a transaction subject to Rule 13e-3 because it will result in
the sale of the assets of Cable TV Joint Fund 11 to Jones Intercable, Inc.
The transaction also involves a vote of the limited partners of Cable TV
Fund 11-A, 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-
<PAGE>
CROSS-REFERENCE SHEET
---------------------
(Pursuant to General Instruction F to Schedule 13E-3)
<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------ ---------------
<S> <C>
1. Issuer and Class of
Security Subject to
the Transaction.
(a)................... Vote of the Limited Partners of Cable TV Fund
11-A, Ltd.; Certain Information About the
Partnership and the General Partner.
(b)-(c)............... Vote of the Limited Partners of Cable TV Fund
11-A, Ltd.
(d)................... Special Factors, Prior Acquisitions and Sales.
(e)................... [Not applicable.]
(f)................... [Not applicable.]
2. Identity and Background.
(a)-(d), (g).......... Vote of the Limited Partners of Cable TV Fund
11-A, 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.]
</TABLE>
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<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------ ---------------
<S> <C>
3. Past Contracts,
Transactions or
Negotiations.
(a)(1)................ Certain Related Party Transactions.
(a)(2)................ [None.]
(b)................... [None.]
4. Terms of the
Transaction.
(a)................... Proposed Sale of Assets.
(b)................... [Not applicable.]
5. Plans or Proposals of
the Issuer or
Affiliate.
(a)................... Vote of the Limited Partners of Cable
TV Fund 11-A, Ltd.; Certain Information
About the Partnership and the General Partner.
(b)-(e)............... [Not applicable.]
(f)-(g)............... Vote of the Limited Partners of Cable
TV Fund 11-A, Ltd.; Certain Information
About the Partnership and the General Partner.
6. Source and Amounts of
Funds or Other
Consideration.
(a)................... Proposed Sale of Assets, The Purchase and Sale
Agreement; Proposed Sale of Assets, Purchase Price.
</TABLE>
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<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(b) Special Factors, The Appraisals; Special Factors,
Costs of the Transaction.
(c) [Not applicable.]
(d) [Not applicable.]
7. Purpose(s),
Alternatives,
Reasons and Effects.
(a)................... Special Factors, The Partnership's Investment
Objectives; Special Factors, The General Partner's
Objectives; Special Factors, Reasons for the
Timing of the Sale.
(b)................... Special Factors, Reasons for the Timing of the
Sale; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets.
(c)................... Special Factors, The Partnership's Investment
Objectives; Special Factors, Reasons for the
Timing of the Sale; Special Factors,
Recommendation of the General Partner and Fairness
of the Proposed Sale of Assets.
</TABLE>
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<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(d)................... Special Factors, Certain Effects of the Sale;
Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets; Federal Income Tax Consequences.
8. Fairness of the
Transaction.
(a)-(b)............... Vote of the Limited Partners of Cable TV Fund
11-A, Ltd.; Special Factors, Public Bidding
Process; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets; Special Factors, The Appraisals.
(c)................... Vote of the Limited Partners of Cable TV Fund
11-A, Ltd.; Special Factors, Relevant Provisions
of the Partnership Agreement; Proposed Sale of
Assets, Conditions to Closing.
(d)-(e)............... Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets.
(f)................... [Not applicable.]
9. Reports, Opinions,
Appraisals and Certain
Negotiations.
(a)................... Vote of the Limited Partners of Cable TV Fund
11-A, Ltd.
</TABLE>
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<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
(b)................... Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets; Special Factors, The Appraisals.
(c)................... Special Factors, The Appraisals; Available
Information.
10. Interest in Securities
of the Issuer
(a)................... Vote of the Limited Partners of Cable TV Fund
11-A, Ltd.; Schedule 1.
(b)................... [None.]
11. Contracts, [None.]
Arrangements or
Understandings with
Respect to the
Issuer's Securities.
12. Present Intention and
Recommendation of
Certain Persons with
Regard to the
Transaction.
(a)................... Vote of the Limited Partners of Cable TV Fund
11-A, Ltd.
(b)................... Vote of the Limited Partners of Cable TV Fund
11-A, Ltd.; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets.
</TABLE>
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<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
-------------------- ---------------
<S> <C>
13. Other Provisions of
the Transaction.
(a)................... Special Factors, Certain Effects of the Sale.
(b)................... [Not applicable.]
(c)................... [Not applicable.]
14. Financial Information.
(a)(1)................ [Pursuant to General Instruction D to Schedule
13E-3, the audited financial statements of Cable
TV Fund 11-A, Ltd. for the fiscal years ended
December 31, 1995 and 1994 will be incorporated by
reference from Cable TV Fund 11-A, Ltd.'s Annual
Report on Form 10-K for the fiscal year ended
December 31, 1995, which will be filed as an
exhibit to this Schedule 13E-3.]
(a)(2)................ [Pursuant to General Instruction D to Schedule
13E-3, the unaudited financial statements of
Cable TV Fund 11-A, Ltd. for the most recent fiscal
quarter will be incorporated by reference from
Cable TV Fund 11-A, Ltd.'s Quarterly Report on Form
10-Q for the fiscal quarter ended September 30,
1996, which will be filed as an exhibit to this
Schedule 13E-3.]
(a)(3)................ [Not applicable.]
(a)(4)................ Special Factors, Recommendation of the General
Partner and Fairness of the Proposed Sale of
Assets.
(b)................... Unaudited Pro Forma Financial Information of Cable
TV Fund 11-A, Ltd.
</TABLE>
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<TABLE>
<CAPTION>
Schedule 13E-3 Item Caption in the
Number and Caption Proxy Statement
------------------- ---------------
<S> <C>
15. Persons and Assets
Employed,
Retained or Utilized.
(a)................... Vote of the Limited Partners of Cable TV Fund
11-A, Ltd.
(b)................... [None.]
16. Additional Special Factors, Relevant Provisions of the
Information. Partnership Agreement.
- -------------------------------------------------------------------------------
17. Materials
Filed as Exhibits:
(a)................... [Not applicable.]
(b)(1)................ Appraisal of the Manitowoc System by Malarkey-Taylor
Associates, Inc.
(b)(2)................ Appraisal of the Manitowoc System by Kagan Media
Appraisals, Inc.
(b)(3)................ Appraisal of the Manitowoc System by Bond &
Pecaro, Inc.
(c) [Not applicable.]
(d)(1)................ Preliminary Proxy Statement to be furnished to the
limited partners of Cable TV Fund 11-A, Ltd.
(d)(2)................ Cable TV Fund 11-A, Ltd.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1995.
(d)(3)................ Cable TV Fund 11-A, Ltd.'s Quarterly Report on Form
10-Q for the fiscal quarter ended September 30,
1996.
(e)................... [Not applicable.]
(f)................... [Not applicable.]
</TABLE>
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<PAGE>
SIGNATURES
----------
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
JONES INTERCABLE, INC.,
a Colorado corporation
Dated: January 24, 1997 By: /s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
CABLE TV FUND 11-A, LTD.,
a Colorado limited partnership
By: Jones Intercable, Inc.,
a Colorado corporation,
as general partner
Dated: January 24, 1997 By: /s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
-11-
<PAGE>
Exhibit (b)(1)
[LOGO OF MTA-EMCI APPEARS HERE]
November 11, 1996
Mr. Timothy J. Burke
Jones Financial Group
9697 East Mineral Avenue
Englewood, CO 80112
Dear Mr. Burke:
PURPOSE OF APPRAISAL
Malarkey-Taylor Associates, Inc., ("MTA") was retained by Jones
Intercable, Inc. ("Jones") to update a fair market appraisal of the Cable TV
Joint Fund 11-ABCD cable television system (the "System") serving Manitowoc,
Wisconsin as of August 31, 1996. This updated appraisal will be used by Jones
as an independent estimate of the fair market value of the System with the
resulting value to be used in conjunction with the purchase of the System by
Jones.
FAIR MARKET VALUE
MTA has determined the overall fair market value of the System to be
$15,567,000 as of August 31, 1996. Fair market value is the cash price a
willing buyer would give a willing seller in an arm's length transaction in
order to complete the sale. It is assumed that both buyer and seller have been
informed of all relevant facts and neither is under any compulsion to conclude
the transaction.
FAIR MARKET VALUE METHODOLOGY
MTA used five generally accepted cable television valuation methods in
establishing the range of total fair market values of the System as a going
concern. The first method used a multiple of the past year's operating income
derived from comparable asset values of privately-held and publicly-traded cable
companies. The second method
<PAGE>
Mr. Timothy J. Burke
November 11, 1996
Page 2
used a lower multiple of the annualized current month's operating income. The
third method applied a slightly lower multiple of next year's projected
operating income. The fourth method was a discounted net cash flow analysis to
achieve a target after-tax return of equity, given particular operating and
financing assumptions unique to the System's assets. The fifth method was a
discounted cash flow method that measured the net present value of the projected
pre-tax operating cash flows (less capital expenditures, plus the residual value
of the System) that represent the return on the total investment.
CONTINGENCIES AND LIMITING CONDITIONS
Our conclusions as to the fair market value of the System are based
upon the following, which to the best of our knowledge, are reliable and sound:
1. MTA's appraisal as of April 30, 1995 dated July 11, 1995, which included an
onsite inspection of a representative portion of the System and communities
served.
2. Unaudited financial statements for the 12-month period ending December 31,
1995, and for the 8-month period ending August 31, 1996.
3. Homes passed and subscriber data as of August 31, 1996, provided by Jones.
4. Miscellaneous management data as to the current subscriber rates,
construction schedules, etc., as of the appraisal date.
MTA has not revisited the System since the 1995 valuation. The amount of
current information gathered and used in this update, in conjunction with
management interviews and data collected for previous valuations, provides
adequate support for this updated valuation. This data results in an accurate
valuation given the preceding conditions.
<PAGE>
Mr. Timothy J. Burke
November 11, 1996
Page 3
STATEMENT OF VALUE
MTA certifies that, to the best of our knowledge, the statements contained
in this appraisal are correct and that the opinions stated are based on a
consideration of the relevant factors. Furthermore, neither MTA nor any of its
representatives have any current interest or contemplated future interest in the
assets appraised.
Based on the various analyses, computations, and consideration discussed in
this report, it is our professional judgment, subject to the assumptions and
limitations stated herein, that the overall fair market value of the System is
$15,567,000.
Sincerely,
/s/ Andrew R. Gefen
Andrew R. Gefen
Vice President, Financial Services
ARG/ban
Enclosure
<PAGE>
<TABLE>
<CAPTION>
CABLE TV JOINT FUND 11-ABCD EXHIBIT A
MANITOWOC, WISCONSIN ---------
AS OF AUGUST 31, 1996
VALUATION METHODS
- -----------------
LOW HIGH
----------- -----------
<S> <C> <C>
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME
OPERATING INCOME, PER BOOKS (8/31/96, LESS CROWN ALLOCATION) $1,593,681 $1,593,681
VALUATION MULTIPLE 9.5 10.5
----------- -----------
ESTIMATED FAIR MARKET VALUE $15,139,970 $16,733,651
----------- -----------
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME
ESTIMATED OPERATING INCOME
TOTAL CURRENT YEAR'S REVENUE $3,963,860 $3,963,860
OPERATING MARGIN, PER BOOKS (8/31/96) 42.5% 42.5%
----------- -----------
"RUNNING RATE" OPERATING INCOME LESS CROWN ALLOCATION 1,617,927 1,617,927
VALUATION MULTIPLE 9.0 10.0
----------- -----------
ESTIMATED FAIR MARKET VALUE $14,561,343 $16,179,270
----------- -----------
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME
OPERATING INCOME $1,744,182 $1,744,182
VALUATION MULTIPLE 8.5 9.5
ESTIMATED FAIR MARKET VALUE $14,825,545 $16,569,726
----------- -----------
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY
TARGET RETURN ON EQUITY 14.0% 12.0%
ESTIMATED FAIR MARKET VALUE $15,018,836 $16,161,365
----------- -----------
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT
TARGET RETURN ON INVSTMT 16.5% 15.0%
ESTIMATED FAIR MARKET VALUE $14,941,776 $16,046,984
----------- -----------
SUMMARY OF VALUES
I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $15,139,970 $16,733,651
II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 14,561,343 16,179,270
III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 14,825,545 16,569,726
IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 15,018,836 16,161,365
V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 14,941,776 16,046,984
----------- -----------
RANGE OF ESTIMATED FAIR MARKET VALUES $14,894,000 $16,240,000
ESTIMATED FAIR MARKET VALUE $15,567,000
-----------
</TABLE>
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<TABLE>
<CAPTION>
CABLE TV JOINT FUND 11-ABCD EXHIBIT B
MANITOWOC, WISCONSIN LOW ANALYSIS
AS OF AUGUST 31, 1996 ------------
RETURN ON EQUITY METHOD
PROFIT AND LOSS - LOW VALUE
- ---------------------------
YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL
----------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $4,142,168 $4,415,090 $4,672,419 $4,950,666 $5,251,272 $5,575,182 $5,919,768 $34,926,564
OPERATING EXPENSES 2,397,986 2,533,523 2,675,738 2,829,678 2,996,236 3,175,756 3,366,640 19,975,557
----------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
OPERATING INCOME $1,744,182 $1,881,567 $1,996,681 $2,120,988 $2,255,036 $2,399,426 $2,553,128 $14,951,007
OPERATING MARGIN 0.42 0.43 0.43 0.43 0.43 0.43 0.43
PARENT SERVICES/MGT FEE (5%) 207,108 220,754 233,621 247,533 262,564 278,759 295,988 1,746,328
FRANCHISE AMORTIZATION (15) 673,800 673,800 673,800 673,800 673,800 673,800 673,800 4,716,600
SUBSCRIBER LIST (8) 269,625 269,625 269,625 269,625 269,625 269,625 269,625 1,887,375
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 385,249 699,818 580,610 498,139 443,040 476,378 511,564 3,594,797
INTEREST 708,278 708,278 708,278 663,301 613,939 559,764 500,307 4,462,143
----------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
PRE-TAX INCOME ($499,879) ($690,708) ($469,253) ($231,410) ($7,931) $141,100 $301,844 ($1,456,237)
INCOME TAX (EXPENSE)/BENEFIT 169,959 234,841 159,546 78,679 2,697 (47,974) (102,627) 495,121
----------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
NET INCOME ($329,920) ($455,868) ($309,707) ($152,731) ($5,235) $93,126 $199,217 ($961,117)
SOURCES AND USES OF CASH
SOURCES OF CASH -
PRE TAX INCOME ($499,879) ($690,708) ($469,253) ($231,410) ($7,931) $141,100 $301,844 ($1,456,237)
FRANCHISE AMORTIZATION (15) 673,800 673,800 673,800 673,800 673,800 673,800 673,800 4,716,600
SUBSCRIBER LIST (8) 269,625 269,625 269,625 269,625 269,625 269,625 269,625 1,887,375
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 385,249 699,818 580,610 498,139 443,040 476,378 511,564 3,594,797
EQUITY 7,264,385 7,264,385
DEBT 7,264,385 0 0 0 0 0 0 7,264,385
RESIDUAL VALUE IN YEAR 7 22,978,150 22,978,150
----------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL SOURCES OF CASH $15,357,567 $952,535 $1,054,782 $1,210,154 $1,378,534 $1,560,903 $24,734,982 $46,249,456
USES OF CASH -
PURCHASE PRICE - CURRENT $15,018,836 $15,018,836
CAPITAL EXPENDITURES 238,531 277,001 288,682 295,805 313,243 326,512 340,335 2,080,109
DEBT RETIREMENT 0 0 461,301 506,277 555,639 609,814 5,131,354 7,264,385
TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) 4,971,392 4,971,392
----------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL USES OF CASH $15,257,367 $277,001 $749,983 $802,082 $868,882 $936,326 $10,443,081 $29,334,722
ANNUAL CASH INCREASE/(DECREASE) $100,200 $675,534 $304,799 $408,072 $509,651 $624,577 $14,291,901 $16,914,734
CUMULATIVE CASH 100,200 775,734 1,080,533 1,488,605 1,998,256 2,622,833 16,914,734
</TABLE>
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<TABLE>
<CAPTION>
CABLE TV JOINT FUND 11-ABCD EXHIBIT B
MANITOWOC, WISCONSIN HIGH ANALYSIS
AS OF AUGUST 31, 1996 -------------
RETURN ON EQUITY METHOD
PROFIT AND LOSS - HIGH VALUE
- ----------------------------
YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $4,142,168 $4,415,090 $4,672,419 $4,950,666 $5,251,272 $5,575,182 $5,919,768 $34,926,564
OPERATING EXPENSES 2,397,986 2,533,523 2,675,738 2,829,678 2,996,236 3,175,756 3,366,640 19,975,557
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
OPERATING INCOME $1,744,182 $1,881,567 $1,996,681 $2,120,988 $2,255,036 $2,399,426 $2,553,128 $14,951,007
OPERATING MARGIN 0.42 0.43 0.43 0.43 0.43 0.43 0.43
PARENT SERVICES/MGT FEE (5%) 207,108 220,754 233,621 247,533 262,564 278,759 295,988 1,746,328
FRANCHISE AMORTIZATION (15) 673,800 673,800 673,800 673,800 673,800 673,800 673,800 4,716,600
SUBSCRIBER LIST (8) 269,625 269,625 269,625 269,625 269,625 269,625 269,625 1,887,375
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 385,249 699,818 580,610 498,139 443,040 476,378 511,564 3,594,797
INTEREST 766,831 766,831 766,831 718,136 664,693 606,039 541,667 4,831,026
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
PRE-TAX INCOME ($558,431) ($749,261) ($527,805) ($286,245) ($58,685) $94,825 $260,484 ($1,825,120)
INCOME TAX (EXPENSE)/BENEFIT 189,867 254,749 179,454 97,323 19,953 (32,240) (88,564) 620,541
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
NET INCOME ($368,565) ($494,513) ($348,352) ($188,921) ($38,732) $62,584 $171,919 ($1,204,579)
SOURCES AND USES OF CASH
SOURCES OF CASH -
PRE TAX INCOME ($558,431) ($749,261) ($527,805) ($286,245) ($58,685) $94,825 $260,484 ($1,825,120)
FRANCHISE AMORTIZATION (15) 673,800 673,800 673,800 673,800 673,800 673,800 673,800 4,716,600
SUBSCRIBER LIST (8) 269,625 269,625 269,625 269,625 269,625 269,625 269,625 1,887,375
NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0
DEPRECIATION 385,249 699,818 580,610 498,139 443,040 476,378 511,564 3,594,797
EQUITY 7,864,928 7,864,928
DEBT 7,864,928 0 0 0 0 0 0 7,864,928
RESIDUAL VALUE IN YEAR 7 22,978,150 22,978,150
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL SOURCES OF CASH $16,500,099 $893,982 $996,229 $1,155,319 $1,327,780 $1,514,628 $24,693,622 $47,081,659
USES OF CASH -
PURCHASE PRICE - CURRENT $16,161,365 $16,161,365
CAPITAL EXPENDITURES 238,531 277,001 288,682 295,805 313,243 326,512 340,335 2,080,109
DEBT RETIREMENT 0 0 499,436 548,131 601,574 660,227 5,555,560 7,864,928
TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0
TAXES PAID ON SALE (RESIDUAL) 4,457,511 4,457,511
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL USES OF CASH $16,399,896 $277,001 $788,118 $843,936 $914,817 $986,739 $10,353,407 $30,563,914
ANNUAL CASH INCREASE/(DECREASE) $100,203 $616,981 $208,111 $311,384 $412,963 $527,889 $14,340,215 $16,517,745
CUMULATIVE CASH 100,203 717,184 925,295 1,236,678 1,649,641 2,177,530 16,517,745
</TABLE>
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<TABLE>
<CAPTION>
CABLE TV JOINT FUND 11-ABCD EXHIBIT C
MANITOWOC, WISCONSIN LOW ANALYSIS
AS OF AUGUST 31, 1996 ------------
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE
- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL YEAR 1 CASH REQUIREMENTS $14,528,771
YEAR 1 DEBT REQUIREMENTS 7,264,385
YEAR 1 EQUITY REQUIREMENTS 7,264,385
FINANCING AVAILABLE $10,358,927 $11,337,181 $12,230,184 $12,978,423 $13,786,422 $14,657,733 $15,596,270
UNUSED LEVERAGE 3,094,541 4,072,796 5,427,099 6,681,616 8,045,253 9,526,379 11,134,187
SENIOR DEBT: 1997 1998 1999 2000 2001 2002 2003 TOTAL
----------- ---------- ---------- ---------- ---------- ---------- ---------- ---------
BEGINNING DEBT $0 $7,264,385 $7,264,385 $6,803,085 $6,296,808 $5,741,168 $5,131,354
DEBT ADDED 7,264,385 0 0 0 0 0 0 7,264,385
TOTAL ANNUAL PAYMENTS 708,278 708,278 1,169,578 1,169,578 1,169,578 1,169,578 1,169,578 7,264,446
INTEREST 708,278 708,278 708,278 663,301 613,939 559,764 500,307 4,462,143
PRINCIPAL REPAYMENT 0 0 461,301 506,277 555,639 609,814 669,271 2,802,302
ENDING BALANCE 7,264,385 7,264,385 6,803,085 6,296,808 5,741,168 5,131,354 4,462,083
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $0 $0 $0 $0 $0 $0
BORROWINGS 0 0 0 0 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0 0 0 0 0
INTEREST 0 0 0 0 0 0 0 0
SENIOR DEBT COVERAGE 4.2 3.9 3.4 3.0 2.5 2.1 1.7
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 4.2 3.9 3.4 3.0 2.5 2.1 1.7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CABLE TV JOINT FUND 11-ABCD EXHIBIT C
MANITOWOC, WISCONSIN HIGH ANALYSIS
AS OF AUGUST 31, 1996 -------------
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE
- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
TOTAL YEAR 1 CASH REQUIREMENTS $15,729,857
YEAR 1 DEBT REQUIREMENTS 7,864,928
YEAR 1 EQUITY REQUIREMENTS 7,864,928
FINANCING AVAILABLE $11,952,608 $13,081,363 $14,111,751 $14,975,104 $15,907,409 $16,912,769 $17,995,697
UNUSED LEVERAGE 4,087,679 5,216,434 6,746,259 8,157,742 9,691,622 11,357,209 13,164,736
<CAPTION>
SENIOR: 1997 1998 1999 2000 2001 2002 2003 TOTAL
--------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
BEGINNING DEBT $0 $7,864,928 $7,864,928 $7,365,492 $6,817,361 $6,215,788 $5,555,560
DEBT ADDED 7,864,928 0 0 0 0 0 0 $7,864,928
TOTAL ANNUAL PAYMENTS 766,831 766,831 1,266,266 1,266,266 1,266,266 1,266,266 1,266,266 7,864,993
INTEREST 766,831 766,831 766,831 718,136 664,693 606,039 541,667 4,831,026
PRINCIPAL REPAYMENT 0 0 499,436 548,131 601,574 660,227 724,599 3,033,967
ENDING BALANCE 7,864,928 7,864,928 7,365,492 6,817,361 6,215,788 5,555,560 4,830,961
LINE OF CREDIT:
BEGINNING DEBT $0 $0 $0 $0 $0 $0 $0 $0
BORROWINGS 0 0 0 0 0 0 0 0
PRINCIPAL PAYMENTS 0 0 0 0 0 0 0 0
INTEREST 0 0 0 0 0 0 0 0
SENIOR DEBT COVERAGE 4.5 4.2 3.7 3.2 2.8 2.3 1.9
LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0 0.0
TOTAL DEBT COVERAGE 4.5 4.2 3.7 3.2 2.8 2.3 1.9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CABLE TV JOINT FUND 11-ABCD EXHIBIT D
MANITOWOC, WISCONSIN ---------
AS OF AUGUST 31, 1996
RETURN ON INVESTMENT METHOD
PROFIT AND LOSS
- ---------------
YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES $4,142,168 $4,415,090 $4,672,419 $4,950,666 $5,251,272 $5,575,182 $5,919,768 $34,926,564
OPERATING EXPENSES 2,397,986 2,533,523 2,675,738 2,829,678 2,996,236 3,175,756 3,366,640 19,975,557
OPERATING INCOME 1,744,182 1,881,567 1,996,681 2,120,988 2,255,036 2,399,426 2,553,128 14,951,007
PLUS: RESIDUAL VALUE 22,978,150 22,978,150
LESS: CAPITAL EXPENDITURES 238,531 277,001 288,682 295,805 313,243 326,512 340,335 2,080,109
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL CASH FLOW $1,505,651 $1,604,566 $1,707,998 $1,825,183 $1,941,793 $2,072,915 $25,190,942 $35,849,047
NET PRESENT VALUE @ 16.5% $14,941,776
-----------
NET PRESENT VALUE @ 15.0% $16,046,984
-----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CABLE TV JOINT FUND 11-ABCD EXHIBIT E
MANITOWOC, WISCONSIN ---------
AS OF AUGUST 31, 1996
CABLE TELEVISION SUBSCRIBERS
- ----------------------------
YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING MILES 170.5
MILES ADDED 0.9 2.5 2.5 2.3 2.3 2.3 2.4
CUMULATIVE MILES 171.3 173.8 176.3 178.6 180.9 183.2 185.6
DENSITY OF ADDITIONAL PLANT
HOMES PASSED - BEGINNING 16,481
NEW HOMES & EXTENSIONS 165 183 185 170 172 174 175
HOMES PASSED - ENDING 16,646 16,829 17,014 17,184 17,356 17,530 17,705
GROWTH IN HOMES 1.0% 1.1% 1.1% 1.0% 1.0% 1.0% 1.0%
BASIC - BEGINNING SUBSCRIBERS 11,523 11,721 11,935 12,151 12,358 12,569 12,782
AVERAGE SUBSCRIBERS 11,622 11,828 12,043 12,255 12,464 12,675 12,890
ENDING SUBSCRIBERS 11,721 11,935 12,151 12,358 12,569 12,782 12,998
PENETRATION 70.4% 70.9% 71.4% 71.9% 72.4% 72.9% 73.4%
EXPANDED BASIC - BEGINNING 11,244 11,438 11,646 11,857 12,059 12,264 12,473
AVERAGE SUBSCRIBERS 11,341 11,542 11,751 11,958 12,162 12,368 12,578
ENDING SUBSCRIBERS 11,438 11,646 11,857 12,059 12,264 12,473 12,684
PENETRATION 97.6% 97.6% 97.6% 97.6% 97.6% 97.6% 97.6%
PAY TV - BEGINNING UNITS 7,337 7,463 7,599 7,737 7,869 8,003 8,139
AVERAGE UNITS 7,400 7,531 7,668 7,803 7,936 8,071 8,208
ENDING UNITS 7,463 7,599 7,737 7,869 8,003 8,139 8,276
PENETRATION 63.7% 63.7% 63.7% 63.7% 63.7% 63.7% 63.7%
PAY PER VIEW - BEGINING UNITS/ 396 597 816 1,124 1,444 1,861 2,317
AVERAGE UNITS 497 706 970 1,284 1,652 2,089 2,566
ENDING UNITS 597 816 1,124 1,444 1,861 2,317 2,815
AVERAGE BUY RATE/MO 11.7% 14.7% 18.7% 22.7% 27.7% 32.7% 37.7%
CONVERTER RENTALS - BEGINNING 2,440 2,716 3,005 3,302 3,606 3,918 4,240
AVERAGE SUBSCRIBERS 2,578 2,860 3,153 3,454 3,762 4,079 4,406
ENDING SUBSCRIBERS 2,716 3,005 3,302 3,606 3,918 4,240 4,572
PENETRATION 23.2% 25.2% 27.2% 29.2% 31.2% 33.2% 35.2%
ADDRESSABLE HOMES 4,539 5,086 5,537 6,001 6,351 6,711 7,080
AVERAGE HOMES 4,813 5,311 5,769 6,176 6,531 6,895 7,270
ENDING HOMES 5,086 5,537 6,001 6,351 6,711 7,080 7,460
PENETRATION 43.4% 46.4% 49.4% 51.4% 53.4% 55.4% 57.4%
BASIC CHURN RATE 24% 24% 24% 24% 24% 24% 24%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CABLE TV JOINT FUND 11-ABCD EXHIBIT F
MANITOWOC, WISCONSIN ---------
AS OF AUGUST 31, 1996
SERVICE RATES
- -------------
CURRENT RATES
- -------------
BASIC $11.08
EXPANDED BASIC 9.58
PAY 7.45
PAY PER VIEW 10.32
CONVERTER RENTALS 1.45
INSTALLATIONS-NEW 35.00
INSTALLATIONS-CHURN 17.50
YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
PERCENTAGE RATE INCREASES
- -------------------------
BASIC 3% 3% 3% 3% 3% 3% 3%
EXPANDED BASIC 7% 5% 3% 3% 3% 3% 3%
PAY 0% 1% 1% 1% 1% 1% 1%
PAY PER VIEW -6% -6% -6% 0% 3% 3% 3%
CONVERTER RENTALS 0% 3% 3% 3% 3% 3% 3%
INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% 3%
INSTALLATIONS-CHURN 0% 3% 3% 3% 3% 3% 3%
AVERAGE RATES
- -------------
BASIC $11.41 $11.81 $12.16 $12.53 $12.90 $13.29 $13.69
EXPANDED BASIC 10.25 10.75 11.07 11.41 11.75 12.10 12.46
PAY 7.45 7.53 7.60 7.68 7.75 7.83 7.91
PAY PER VIEW 9.70 9.12 8.57 8.57 8.83 9.09 9.36
CONVERTERS RENTALS 1.45 1.49 1.54 1.58 1.63 1.68 1.73
INSTALLATIONS-NEW 35.00 36.05 37.13 38.25 39.39 40.57 41.79
INSTALLATIONS-CHURN 17.50 18.03 18.57 19.12 19.70 20.29 20.90
</TABLE>
<PAGE>
CABLE TV JOINT FUND 11-ABCD EXHIBIT G
MANITOWOC, WISCONSIN ---------
AS OF AUGUST 31, 1996
<TABLE>
<CAPTION>
YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
BASIC $1,591,781 $1,676,018 $1,757,636 $1,842,219 $1,929,830 $2,021,512 $2,117,448 $12,936,444
EXPANDED BASIC 1,394,468 1,488,987 1,561,498 1,636,641 1,714,476 1,795,927 1,881,158 11,473,155
PAY TV 661,649 680,097 699,367 718,789 738,353 758,412 778,979 5,035,647
PAY PER VIEW 57,786 77,253 99,739 132,032 175,010 227,919 288,343 1,058,081
CONVERTER RENTALS 44,861 51,266 58,208 65,668 73,673 82,286 91,548 467,510
INSTALLATIONS 38,989 41,150 43,138 44,873 46,991 49,206 51,524 315,871
COMMERCIAL 55,002 56,652 58,352 60,102 61,905 63,762 65,675 421,451
ADVERTISING 238,140 281,005 328,776 381,380 438,587 499,990 564,988 2,732,867
MISCELLANEOUS 59,492 62,661 65,704 68,961 72,446 76,169 80,105 485,539
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL REVENUES $4,142,168 $4,415,090 $4,672,419 $4,950,666 $5,251,272 $5,575,182 $5,919,768 $34,926,564
OPERATING EXPENSES:
OPERATIONS $604,561 $638,050 $671,235 $706,218 $743,351 $782,808 $824,442 $4,970,665
GENERAL & ADMINISTRATIVE 587,429 613,584 640,306 668,239 697,437 728,101 760,207 4,695,303
SALES & MARKETING 217,562 244,577 274,362 306,798 341,920 379,486 419,185 2,183,890
PROGRAMMING 988,434 1,037,312 1,089,836 1,148,423 1,213,528 1,285,361 1,362,806 8,125,699
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
TOTAL OPERATING EXPENSES $2,397,986 $2,533,523 $2,675,738 $2,829,678 $2,996,236 $3,175,756 $3,366,640 $19,975,557
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
OPERATING INCOME $1,744,182 $1,881,567 $1,996,681 $2,120,988 $2,255,036 $2,399,426 $2,553,128 $14,951,007
OPERATING MARGIN 42.1% 42.6% 42.7% 42.8% 42.9% 43.0% 43.1%
TOTAL REVENUE/BASIC SUB/MONTH $29.70 $31.11 $32.33 $33.67 $35.11 $36.65 $38.27
CASH FLOW/BASIC SUB/MONTH $12.51 $13.26 $13.82 $14.42 $15.08 $15.77 $16.51
OPERATIONS % OF REVENUE 15% 14% 14% 14% 14% 14% 14%
G & A PERCENTAGE OF REVENUE 14% 14% 14% 13% 13% 13% 13%
SALES & MARKETING % OF REVENUE 5% 6% 6% 6% 7% 7% 7%
PROGRAMMING % OF REVENUE 24% 23% 23% 23% 23% 23% 23%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT H
CABLE TV JOINT FUND 11-ABCD ---------
MANITOWOC, WISCONSIN
AS OF AUGUST 31, 1996
CAPITAL EXPENDITURES
- --------------------
YEAR ENDING AUGUST 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSUMPTIONS AND INPUTS:
- ----------------------
BV OF EXISTING PLANT $2,457,405
ADDITIONAL MILES OF PLANT 0.9 2.5 2.5 2.3 2.3 2.3 2.4
AERIAL PLANT PER MILE $14,000 $14,280 $14,566 $14,857 $15,154 $15,457 $15,766
UNDERGROUND PLANT PER MILE $17,000 $17,340 $17,687 $18,041 $18,401 $18,769 $19,145
PERCENTAGE OF PLANT AERIAL 5% 5% 5% 5% 5% 5% 5%
PERCENTAGE OF PLANT UNDERGROUND 95% 95% 95% 95% 95% 95% 95%
AVERAGE COST PER CONVERTER $125 $128 $130 $133 $135 $138 $141
PERCENTAGE CONVERTER USE 23% 25% 27% 29% 31% 33% 35%
PERCENTAGE REPLACEMENT 5% 5% 5% 5% 6% 6% 6%
INSTALLATION COST PER SUBSCRIBER * $35 $36 $36 $37 $38 $39 $39
MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $6 $6
INFLATION FACTOR FOR CAPITALS 0% 2% 2% 2% 2% 2% 2% 113%
ANNUAL COSTS:
- ------------
PLANT ADDITIONS - AERIAL $597 $1,758 $1,813 $1,699 $1,751 $1,804 $1,858 $11,279
-UNDERGROUND 13,765 40,558 41,824 39,209 40,393 41,613 42,870 260,234
PLANT REBUILD/UPGRADE 40,000 40,800 41,616 42,448 43,297 44,163 45,046 297,371
AVERAGE COST OF NEW CONVERTERS 5,749 6,839 7,646 8,028 8,873 9,768 10,713 57,616
CONVERTER REPLACEMENT 16,690 18,812 21,089 23,513 31,277 34,527 37,975 183,883
INSTALLATION COSTS 103,618 107,911 112,048 115,884 120,196 124,664 129,291 813,612
MISC. CAPITAL EXPENDITURES 58,111 60,323 62,646 65,023 67,454 69,973 72,582 456,113
------ ------ ------ ------ ------ ------ ------ -------
TOTAL CAPITAL EXPENDITURES $238,531 $277,001 $288,682 $295,805 $313,243 $326,512 $340,335 $2,080,109
AS A % OF OPERATING INCOME 13.7% 14.7% 14.5% 13.9% 13.9% 13.6% 13.3%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CABLE TV JOINT FUND 11-ABCD EXHIBIT I
MANITOWOC, WISCONSIN ---------
AS OF AUGUST 31, 1996
DEPRECIATION
- ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9%
DEPRECIATION - BEG. & ADTNS. 1997 1998 1999 2000 2001 2002 2003 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
YEAR 1 $385,249 $660,235 $471,519 $336,722 $240,747 $240,477 $240,747 2,575,697
YEAR 2 39,583 67,838 48,448 34,597 24,736 24,709 239,911
YEAR 3 41,253 70,698 50,491 36,056 25,779 224,277
YEAR 4 42,270 72,443 51,736 36,946 203,395
YEAR 5 44,762 76,713 54,786 176,262
YEAR 6 46,659 79,963 126,621
YEAR 7 48,634 48,634
------ ------ ------ ------ ------ ------ ------ ------
TOTAL DEPRECIATION $385,249 $699,818 $580,610 $498,139 $443,040 $476,378 $511,564 $3,594,797
</TABLE>
<PAGE>
CABLE TV JOINT FUND 11-ABCD EXHIBIT J
MANITOWOC, WISCONSIN ---------
AS OF AUGUST 31, 1996
ASSUMPTIONS AND INPUTS
- ----------------------
REMAINING LIFE OF FRANCHISES (YEARS) 5
AVERAGE SUBSCRIBER LIFE (YEARS) 8
INCOME TAX RATE 34%
CAPITAL GAIN RATE 34%
NET FMV OF EXISTING ASSETS $2,457,405
SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH
ANALYSIS ANALYSIS
-------- --------
DEBT PERCENTAGE 50% 50%
EQUITY PERCENTAGE 50% 50%
RESIDUAL MULTIPLE (ROE & ROI) 9.0 9.0
MULT OF PAST YEAR'S OPERATING INCOME 9.5 10.5
MULT OF CURRENT YEAR'S OPERATING INCOME 9.0 10.0
MULT OF NEXT YEAR'S OPERATING INCOME 8.5 9.5
TARGET RETURN ON EQUITY 14.0% 12.0%
TARGET RETURN ON INVESTMENT 16.5% 15.0%
<PAGE>
Exhibit (b)(2)
[LOGO OF KAGAN MEDIA APPRAISALS INC. APPEARS HERE]
November 8, 1996
Mr. Kevin Coyle
Group Vice President/Finance
JONES INTERCABLE
9697 East Mineral Avenue
Englewood, CO 80112
Tel: (303) 792-3111
Fax: (303) 790-0533
Dear Mr. Coyle:
In accordance with your request, we have appraised the cable TV system in
Manitowoc, Wisconsin for the purpose of determining its fair market value.
We were not assigned to complete a tangible asset valuation of the property.
Rather, we were assigned to do a financial analysis of the property and its
future market potential. The limiting conditions of this appraisal are more
fully outlined in a statement included within this report.
We are qualified to complete this assignment by virtue of our 27 years of
experience in appraising communications properties. During that period, we have
appraised over $26 billion worth of media properties on contract assignment. In
addition, many more billions of dollars worth of such properties have been
valued by Paul Kagan Associates, Inc. in such newsletters as CABLE TV INVESTOR,
CABLE TV FINANCE, CABLE TV TECHNOLOGY and BROADCAST BANKER/BROKER.
We have based our analysis in part on financial data supplied to us by Jones
Intercable and in part on our personal knowledge of the communications industry
acquired over two decades. Our credentials are more fully outlined in the
enclosed appraisal report.
Included in this report is a description of the property and its market, a brief
explanation of key operating expectations related to the financial potential of
the business and the results of a comparable sale study for the property. Also
included is a 10-year discounted cash flow projection for the property, followed
by a list of the assumptions underlying the projections.
Based on the results of our analysis, more fully outlined within this report, we
conclude that in a willing buyer-willing seller, all cash transaction, the fair
market value of the Manitowoc, Wisconsin cable TV systems is approximately $16.1
-----
million.
- -------
<PAGE>
Mr. Kevin P. Coyle
JONES INTERCABLE
November 8, 1996
Page Two
It has been a pleasure to be of service to you in this matter. If you have any
further questions, please feel free to call.
Sincerely,
KAGAN MEDIA APPRAISALS, INC.
/s/ Robin V. Flynn
- ----------------------------
Robin V. Flynn
Vice President
RVF/jht
enclosures
<PAGE>
APPRAISAL REPORT
- --------------------------------------------------------------------------------
MANITOWOC, WISCONSIN
CABLE SYSTEM
PREPARED BY:
KAGAN MEDIA APPRAISALS, INC.
126 CLOCK TOWER PLACE
CARMEL, CA 93923
(408) 624-1536
NOVEMBER 8, 1996
<PAGE>
TABLE OF CONTENTS
- -------------------------------------------------------------
CERTIFICATE OF APPRAISAL................................... 1
STATEMENT OF LIMITING CONDITIONS........................... 3
RESTRICTIONS UPON DISCLOSURE AND USE....................... 5
QUALIFICATIONS OF THE APPRAISER............................ 6
PURPOSE OF THE APPRAISAL................................... 8
ASSET APPRAISAL METHODOLOGY................................ 9
COST APPROACH........................................ 9
MARKET DATA (COMPARABILITY) APPROACH................. 9
INCOME APPROACH..................................... 10
VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS...... 11
VALUATION OF MANITOWOC, WISCONSIN CABLE SYSTEM............ 14
DESCRIPTION OF SUBJECT MARKET....................... 15
DESCRIPTION OF SUBJECT BUSINESS..................... 20
10-YEAR CASH FLOW PROJECTIONS....................... 30
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS... 32
COMPARABLE ANALYSIS................................. 36
CORRELATION AND FINAL ESTIMATE OF VALUE............. 39
<PAGE>
CERTIFICATE OF APPRAISAL
- --------------------------------------------------------------------------------
The undersigned does hereby certify that, except as otherwise noted in this
appraisal report:
l. We have inspected the financial statements and other operating and
financial data of the subject business as furnished by Jones Intercable.
2. We hereby certify that we have no present or contemplated financial
interest in the cable system that is the subject of this appraisal report, and
that our employment and compensation are in no way contingent upon the value
reported.
3. We have no personal interest or bias with respect to the subject matter
of this appraisal report, nor are we connected in any way with the parties
involved.
4. Pursuant to an investment policy adopted in 1974, Paul Kagan personally
and Paul Kagan Associates, Inc., as a corporation, invest profits in publicly
held media companies. Clients of Kagan Capital Management are also invested in
publicly held media companies. As a result, portfolios owned and/or managed by
Paul Kagan at present may maintain a long-term investment in stock of various
KMA clients. Additionally, KMA clients may be subscribers to a number of Kagan
information services and its executives from time to time may have enrolled at
Kagan seminars or serve as panelists themselves.
5. To the best of our belief and knowledge, any statements of fact
contained in this appraisal report, upon which the analyses, opinions and
conclusions expressed herein are based, are true and correct. Information used
to complete this report was obtained from sources considered reliable and is
believed to be true and correct. We make no warranty as to the
accuracy or reasonableness of such information furnished to us by others.
- --------------------------------------------------------------------------------
PREPARED FOR: JONES INTERCABLE 1 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
CERTIFICATE OF APPRAISAL (CONTINUED)
- --------------------------------------------------------------------------------
6. This appraisal report sets forth all of the limiting conditions imposed
by the terms of our assignment or by the undersigned, affecting the analyses,
opinions and conclusions contained in this report.
7. The analyses, conclusions and opinions that are set forth in this
appraisal report represent the work of the Kagan Media Appraisals, Inc. team,
including the undersigned.
8. The business that is the subject of this appraisal report, the
Manitowoc, Wisconsin cable TV system is currently valued at approximately $16.1
-----
million.
- -------
Signed: /s/ Robin V. Flynn
__________________________________________
Kagan Media Appraisals Inc./Robin V. Flynn
- --------------------------------------------------------------------------------
PREPARED FOR: JONES INTERCABLE 2 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
STATEMENT OF LIMITING CONDITIONS
- --------------------------------------------------------------------------------
Financial and operating data concerning the subject system furnished us by
Jones Intercable are assumed to be correct and current. We assume no
responsibility for knowledge of matters legal in nature concerning Jones
Intercable. We do not render any opinions as to the title of ownership of the
subject property, which is assumed to be correct and good and free of liens or
other financial or legal encumbrances.
We have taken into consideration existing long-term liabilities that have
been called to our attention by the parties involved, but do not guarantee that
other liabilities, of a financial or legal nature, do not exist. We have
appraised the subject property as if it was free and clear of debt and under
responsible ownership and competent management. Completion of any scheduled
capital improvements is assumed.
Our assignment was to appraise the value of the subject property from the
standpoint of a financial analysis of its ability to generate revenue, cash flow
and profit. Utilizing accepted principles of appraisal methodology, Kagan Media
Appraisals, Inc. has developed its own method of valuing media properties, which
may differ in certain aspects from other methods. We conduct our research under
the assumption that a fair market value can be established within the
constraints of a financial analysis, supplemented by analysis of the markets in
which the subject business operates and analysis of comparable businesses sold
in the industry. We have therefore made no survey of the property, plant and
equipment of the subject business. Further, no technical engineering analysis
of the businesses has been made or rendered by Kagan Media Appraisals, Inc.
This appraisal assumes that the subject business' technical equipment is in good
working
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<PAGE>
STATEMENT OF LIMITING CONDITIONS (Continued)
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order and appropriate for the conduct of businesses of its type, and that it is
operated by competent management.
We have queried management regarding any specific circumstances concerning
market conditions, and have taken its response into account in our evaluation.
Possession of this report, or a copy thereof, does not carry with it the
right of publication, nor may it be used for any purpose by any but the assignor
without the previous written consent of the appraiser or the assignor and in any
event only with proper qualifications. This appraisal is not to be construed as
an offer to sell the subject property or as a solicitation of an offer to buy
said property. Neither is this appraisal intended for use as a business plan in
connection with the securing of financing or the financial restructuring of the
subject business. It is offered solely as an independent study of the fair
market value of the subject property, combining the technical competence and the
experienced judgement of the staff of Kagan Media Appraisals, Inc. The final
estimate of value cited in this report is a result of our independent
conclusions based on the assumptions, analyses and discussions contained in the
following pages.
Unless previous written arrangements have been made, neither Kagan Media
Appraisals, Inc., nor any officer of Kagan Media Appraisals, Inc. is required to
give testimony or attendance in court, pre-trial proceedings or arbitration by
reason of having made, or participated in, this report.
The reader is advised that this Statement of Limiting Conditions and the
accompanying introductory pages are an integral part of the final report, which
contains the details of our analyses and all necessary documentation to support
valuation conclusions.
Signed: /s/ Robin Flynn
____________________________________________
Kagan Media Appraisals, Inc. /Robin V. Flynn
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<PAGE>
RESTRICTIONS UPON DISCLOSURE AND USE
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Neither all nor any part of the contents of this report, especially any
conclusions as to value, or the identity of Kagan Media Appraisals, Inc. and its
affiliates, shall be disseminated to the public through advertising media,
public relations media, news media, sales media or any other public means of
communications without the prior written consent and approval of the
undersigned.
Signed: /s/ Robin Flynn
_____________________________________
Kagan Media Appraisals/Robin V. Flynn
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<PAGE>
QUALIFICATIONS OF THE APPRAISER
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PAUL F. KAGAN is a financial analyst, consultant, investment manager and
publisher of appraisal commentaries and analytical newsletters serving the
communications and entertainment industries.
He has been engaged in this business since February 1969, when he formed
Paul Kagan Associates, Inc., in Rockville Centre, New York. Offices were moved
to Carmel, CA, in 1978. The Kagan group of companies includes Paul Kagan
Associates, Inc. (publishing), Kagan Seminars Inc. (seminars), Kagan Capital
Management, Inc. (investment management) and Kagan Media Appraisals, Inc.
(appraisals and strategic consulting).
Prior to forming PKA, Paul Kagan was a security analyst specializing in
broadcasting and cable TV for E.F. Hutton & Co. in New York. In the past he has
also contributed numerous articles on investments and finance to such popular
publications as Barron's, the Dow Jones financial weekly.
--------
Earlier, he was employed in executive positions with CBS, Inc., and WOR-FM
in New York.
Mr. Kagan is a fellow of the Financial Analysts Federation, a member of the
New York Society of Security Analysts and an associate member of the Broadcast
Financial Management Association.
PKA publishes over 40 newsletters on various communications and media
disciplines, including CABLE TV INVESTOR, BROADCAST INVESTOR, CABLE TV
BANKER/BROKER and BROADCAST BANKER/BROKER. Since 1969, it has published CABLE
TV INVESTOR, the only continuing publication analyzing the value of public and
private cable TV companies.
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<PAGE>
QUALIFICATIONS OF APPRAISER (Continued)
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For 27 years, Mr. Kagan and his staff have appraised over $26 billion
worth of media properties on contract assignment. In addition, the Kagan
Newsletters have analyzed public and private companies, on at least a quarterly
basis, totaling hundreds of billions of dollars.
Mr. Kagan is a graduate of Hunter College of the City University of New
York, where he majored in communications. He also studied accounting at the New
York University Graduate School of Business Administration.
Mr. Kagan and his analyst team have, for the past 23 years, conducted
seminars for corporate executives and public officials on communications and
media topics.
ROBIN V. FLYNN is Vice President of Kagan Media Appraisals, Inc. Prior to
joining the firm in 1988, she was employed with the Overseas Private Investment
Corporation (OPIC) in Washington, DC, where she analyzed the revenue-generating
ability of proposed overseas investment projects. Earlier, she worked with
Scudder, Stevens & Clark, an investment counsel firm in Boston, MA, in
developing an international investment fund for Canadian institutional
investors.
Ms. Flynn holds a Bachelor of Arts degree from Duke University, a
Certificate in Contemporary French Studies from the Sorbonne in Paris, and an
MBA in Finance from the Monterey Institute of International Studies.
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<PAGE>
PURPOSE OF THE APPRAISAL
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The purpose of this appraisal is to estimate the current fair market value
of the Manitowoc, Wisconsin cable TV system.
Market value for purposes of this report is the definition recommended by
the United States Internal Revenue Service:
"The fair market value is the price at which the property would change
hands between a willing buyer and a willing seller, neither being under any
compulsion to buy or sell and both having reasonable knowledge of relevant
facts."
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<PAGE>
THE APPRAISAL PROCESS
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The valuation of a business is generally done by use of one or more of the
following three approaches:
l. Cost approach
2. Market Data (comparability) approach
3. Income approach
Under certain circumstances, it is not always possible to apply all of the
aforementioned approaches to value, due to special purpose or use
characteristics of a given business.
COST APPROACH
Under this method, value is derived by estimating the replacement cost of
the equipment, building and other improvements owned by the subject business,
based on current prices for labor and materials and latest construction
techniques. To this total might be added a cost factor for obtaining the
government licenses required to engage in the subject business. Kagan Media
Appraisals, Inc. does not employ this approach in its fair market valuations
unless specifically requested to do so.
MARKET DATA (COMPARABILITY) APPROACH
A value estimate by this method is derived by direct comparison of the
subject business with other companies of similar size or type that are
currently, or have been recently, offered for sale. Kagan Media Appraisals,
Inc. typically uses this methodology in its appraisals.
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<PAGE>
THE APPRAISAL PROCESS (Continued)
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INCOME APPROACH
This technique relates the evaluation of a property to its ability to
generate income over a specified investment period. The value to the owner of
this "earning expectancy" must be compared with the value of other investments
the owner might otherwise make. Because the value is expressed as a capitalized
rate of income, the income stream of the subject business is of vital importance
to the appraiser.(1)
The value estimate under this approach is developed by first determining
the current income level of the subject business, then projecting growth rates
for the span of years in which the investment is expected to be returned,
discounting future income by an imputed rate based on cost-of-money factors.
Finally, the total valuation is yielded by the sum of present values to be
generated in each of the years counted.
This method of calculation is normally applied to "operating income," or,
in the lexicon of many entrepreneurs in the marketplace, "cash flow." The
latter term consists of operating revenue minus operating expense, and does not
include deductions for depreciation, interest, or income taxes.
Kagan Media Appraisals, Inc. typically uses this methodology in its
appraisals, in the form of discounted cash flow projections.
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(1) "In order to value the property, it is necessary to forecast its
earnings expectancy. The past earnings expectancy of the subject property
and/or of comparable properties, adjusted for such trends and circumstances as
can be foreseen as of the valuation date, is projected into the future...The
valuation of the investment property is based on the principle that, as of the
valuation date, the value is equivalent to the series of future net returns.
The present worth calculation is based on the principle that an investor, buying
the subject property, expects 1) either to preserve the amount of his original
investment or to recover the consumer portion therefore out of earnings and/or
any terminal sale of assets and 2) to receive the equivalent of any annual
remunerative yield rate being high enough to compensate him for the investment
risk involved."
-- Opinion of the College of Fellows, American Society of
Appraisers, published in the June 1975 edition of VALUATION journal, p. 87.
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<PAGE>
VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS
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The time value of money means that a dollar one year from today is "worth"
less than a dollar today. This is due, in part, to inflation, because the
buying power of tomorrow's dollar will likely be less than it is today.
Future dollars are worth less than present dollars, however, for another,
perhaps more important reason: the existence of the interest rate, or cost-of-
money factor, in the leveraging of a business enterprise.
Put more simply: one dollar invested in a risk-free instrument, such as a
savings bank or a government security, will earn a given amount of interest over
a certain period of time. Thus, the same dollar invested in a business
enterprise "loses" value over time unless the business "returns" dollars at a
rate at least equal to that which would have been enjoyed in the alternate
investment.
Because the business likely will entail risk of considerable nature, the
ultimate "rate of return" must be substantially better than that paid by the
risk-free instrument.
Suppose, for example, a person deposits $1,000 in a bank that pays 7%
interest compounded quarterly, and both principal and interest are left in the
account over 10 years. At the end of 10 years, the original $1,000 will have
doubled, to $2,001. That's an effective annual rate of return of 7.2%.
If, instead, the investor had placed his $1,000 in a more speculative
account--say, by acquiring equity ownership of a cable TV system or radio
station--the average annual rate of return would have to be considerably higher
than 7.2% to warrant taking the risk. How long should the investment return
period be, so that the average rate of return is desirable?
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<PAGE>
VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS
(Continued)
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It is the appraiser's experience that media investors typically seek
return-on-investment within approximately 10 years. Such rates of return enable
them to obtain returns on equity of as much as 50% annually, through the use of
leverage.
The form of the return is at the heart of every buy-sell negotiation. For
it is not the percentage of net profit to equity that concerns the media
investor. Rather, it is the percentage of operating profit to equity. This
operating profit is also called "cable cash flow" because it differs from true
accounting cash flow. Cable cash flow is depreciation and amortization,
interest and income taxes added back to net income.
Entrepreneurs use this variation of cash flow to distinguish among
properties because it tends to make one potential investment easier to compare
to another.
In the media, many properties are purchased on "terms," i.e., over a number
of years with installment payments and varying interest rates, or other payment
schedules with certain contingencies. And because individuals and corporations
also have varying tax rates, the amount of taxes paid takes the media investor
further away from reasonable comparisons. In addition, capitalizations of
companies vary, yielding widely disparate financial operating characteristics.
In order to determine how a business is really performing in its day-to-day
operation, cable investors go directly to operating income (cable cash flow) to
make their comparisons. It is this line that is expected to grow, and it is
this line on the income statement that they look to for their return on
investment.
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<PAGE>
VALUATION THEORY USING DISCOUNTED CASH FLOW ANALYSIS
(Continued)
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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
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business over the desired investment payback period.
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<PAGE>
VALUATION OF MANITOWOC, WISCONSIN
CABLE TV SYSTEM
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<PAGE>
DESCRIPTION OF SUBJECT MARKET
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The City of Manitowoc is located in east central Wisconsin, 38 miles
southeast of Green Bay and 79 miles north of Milwaukee. It is located on Lake
Michigan, and has a small harbor which is used primarily for yachting and car
ferrying services across the lake between Wisconsin and Michigan. The City is a
regional manufacturing, transportation and retail center in that part of
Wisconsin. The City has been oriented historically toward maritime activities
stretching all the way back to the launching of wooden sailing ships on Lake
Michigan in 1847. 28 submarines were built here during World War II. Even
today, there is a small facility which produces Berger luxury yachts and a 250-
slip marina, which is popular with sport fishermen.
Manitowoc's population was on an upward trend during the 1970's and
then flattened. The Bay-Lake Regional Planning Commission 1992 Annual Report
stated that the eight-county region including Manitowoc grew at a rate equal to
the state's growth between 1950 and 1991 (43%), whereas Manitowoc County grew at
about half this rate (20%). One significant trend noted in the report was the
smaller size of the average household unit. Thus, even though population in
Manitowoc declined by 3.3% between 1980 and 1990, the number of households
increased by 3.6%. The population grew by an estimated 2.1% from 1990 through
1995, increasing from 32,520 to an estimated 33,208. The population is
estimated to have increased from 33,208 to 33,253 between 1995 and 1996. By
2000, the population is estimated by one source (Claritas, Inc.) to increase to
33,793. This would mean an increase of 1.8% over the next five years. Another
source estimates that the population will climb to 37,000 from an estimated 1995
population of 34,000 ("Manitowoc Public Utilities Water Demand Projections to
the Year 2015," July 1993). This higher projection was based on the ease of
expansion in the city, improved transportation and communications facilities and
the desirability of living in non-congested areas such as Manitowoc.
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<PAGE>
DESCRIPTION OF SUBJECT MARKET (CONTINUED)
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This higher projection would mean a total increase of 8.8% from 1995-2000, or a
compound growth rate of 1.71% annually.
Manufacturing is a major contributor to the economy. The major
employers are:
NAME OF EMPLOYER; NUMBER OF EMPLOYEES
------------------------------------------
Mirro 1,700
Holy Family MMC 1,000
Manitowoc County 996
Manitowoc Company 989
MTWC School 900
Dayco/Imperial Eastman 617
Goetze 574
City of Manitowoc/MPU 450
Lakeside Foods 340
ECK Industries 330
(C) 1996 Kagan Media Appraisals, Inc.
In Manitowoc County, the unemployment rate is 4.9% out of a total
labor force of 42,200. Among the 32,500 employed nonagricultural wage and
salary workers, 11,900 are in manufacturing and 20,600 are in non-manufacturing
activities. The City reports that unemployment declined by 200 from September,
1995 to August, 1996. This is a decline of 25% in this economic indicator.
While there are no apparent major expansions, management reports
numerous minor expansions by local businesses and in the community's industrial
park. The area is not dependent on any military installations.
According to the 1990 Census, the per capita income of Manitowoc was
$12,350. The city's average household income was $30,187, and its median family
income (family of four) was $31,709. This is significantly lower in all three
categories than the 1994 figures for the State of
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<PAGE>
DESCRIPTION OF SUBJECT MARKET (Continued)
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Wisconsin. Those were as follows: per capita income of $15,645, average
household income of $41,762, and median family income of $35,849.
One source projects that households will grow by 2.9% between 1995 and
2000 in Manitowoc, that per capita income will increase by 26.5%, average
household income by 23.5%, and median family income by 16.4%. Household income
and wealth is estimated to have changed as follows from 1995 to 1996:
CATEGORY 1995 1996
--------------------------------------
($) ($)
Average HH income 39,615 38,583
Median HH income 30,129 30,242
Avg. Family HH 49,061 48,010
Med. Family HH 39,624 40,094
Avg. HH wealth 123,734 125,466
Med. HH wealth 65,811 66,264
Source: Claritas, Inc. 1996 Household Trend Report
HOUSING GROWTH
Housing growth for the cable system's service area was projected using
a combination of actual housing growth from 1992 through August, 1996, the
housing growth estimates in the "Manitowoc Public Utilities Water Demand
Projections," and the household growth forecast from Claritas, Inc.
The system reported the homes in its franchise area as follows:
1991 1992 1993 1994 1995 AUG. 1996
---------------------------------------------------------------
15,241 15,553 15,567 16,190 16,269 16,481
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<PAGE>
DESCRIPTION OF SUBJECT MARKET (Continued)
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Therefore, during the more than 4.67-year period from 1991 to August,
1996, the system's franchise area experienced compounded average annual growth
in homes of 1.69%.
The Claritas, Inc. Household Trend Report for the City of Manitowoc
reports 13,144 households, based on the 1990 census. The report estimates 1996
households at 13,825. This represents an estimated compounded average annual
growth of 0.85%. For the year 2001, this Report forecasts 14,237 homes, for a
compound annual growth rate of 0.59% over the next five years.
The "Manitowoc Public Utilities" study estimated 1995 dwelling units
within the City at 14,225. This would imply a growth rate since 1990 of 1.59%
annually. That study projects 14,600 homes by the year 2000. This is a growth
rate of 0.52% per year. This is in line with the forecast by Claritas.
The estimated increase in households from 1995 to 1996 was from 13,560
to 13,825. (Source: Claritas, Inc.) This is an increase of 1.9%. In both its
1995 and 1996 estimates, Claritas continues to forecast growth in housing of
only 0.58% per year through 2001. Another source projects that households will
grow at an annual rate of 1.06% from 1995-2000 (Equifax National Decision
Systems, February 1996). Local management reports that homes passed grew from
16,300 in April, 1995 to 16,481 by August, 1996. This is a growth rate of
approximately 0.56%.
Both these estimates are well below the growth rate reported by system
management over the past four years and eight months. The major reason for this
could be that the system's service area includes five smaller towns in the
suburbs of Manitowoc, which are included in the figures reported by management.
Since these towns are not under the ownership of the company, and are to be
excluded from the appraisal, we find it prudent to rely on the lower projections
by both
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<PAGE>
DESCRIPTION OF SUBJECT MARKET (Continued)
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Claritas and the "Manitowoc Public Utilities" study, particularly since
the estimates by each are so close. In addition, one of the projections for the
next five years is virtually identical to the rate reported by local management
over the past 16 months. Therefore, we assume that housing in the area will grow
at an annual rate of 0.58%.
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<PAGE>
DESCRIPTION OF SUBJECT BUSINESS
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The Manitowoc cable system consists of approximately 208 miles of
plant, only about 20 miles of which is underground. The channel capacity is 400
MHZ throughout the plant. The system was originally constructed in 1980-81 and
purchased by Jones in the late 1980s. The five smaller franchises were added to
the system in the late 1980s.
CASH FLOW ALLOCATION
The five smaller franchises were sold to another company, Crown Media,
in late 1991. Crown then sold these systems to Marcus Cable in early 1995.
Management reports that Marcus obtained renewals of these franchises in late
1995.
The Manitowoc system was supposed to be part of the sale to Crown, but
the City refused to approve the transfer of the franchise, which led to the
company's litigation with the City. Therefore, at the present time, although
the five smaller franchises are operationally part of the Manitowoc system, they
are not owned by the company. Their results are included in all the financial
statements and budgets for the Manitowoc system. Since 1991, the company has
had an arrangement with the owner of these systems whereby the company is
reimbursed for all capital expenditures in those five towns, and the company
makes a monthly allocation of system operating income to these systems. These
five franchises account for about 698 subscribers. The operating income
allocation has been in the range of 3.62-4.13% of system operating income.
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<PAGE>
DESCRIPTION OF SUBJECT BUSINESS (Continued)
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FRANCHISE STATUS
Management obtained a one-year extension of the franchise at the end
of 1995, under a 1994 settlement of litigation begun in 1991. Management
reports that the City has tentatively agreed to a 5-year renewal to be approved
in mid-November. Management reports that it believes the franchises for the
five smaller systems were renewed by Marcus Cable.
PROGRAMMING ADDITIONS
All of the system's 52 channels are presently being used. As part of
the arrangement for franchise renewal, the City would turn back to the operator
three of the seven access channels presently allocated for the City's use. At
the same time, management plans to drop carriage of two of the Milwaukee
television stations to free up two more channels. These stations are duplicates
of network affiliates from Green Bay which are carried on the system.
Management intends then to add three popular satellite services. One
of these is Product Information Network, which remits a percentage of its
revenues from home shopping orders back to the system. Management plans to
preview other popular satellite services and let subscribers "vote" their
preference by calling an 800 number. However, management presently has no plans
to rebuild the system to add channel capacity.
TECHNICAL CONFIGURATION
The system consists of a single headend. It is located at the office,
which is owned by the company. The off-air signals are received on a 400-foot
tower located in the town of Newton about five miles from the office. Those
signals are then transmitted to the headend via supertrunk.
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DESCRIPTION OF SUBJECT BUSINESS (Continued)
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There are three active and two standby satellite receive-only antennas, all of
which are located at the office. The office building is concrete block and there
is ample space for expansion of the headend. The system has no fiber optic
cable deployed. Therefore, there is little likelihood of the system beginning
to lease fiber capacity to other users or to provide local area network
services in the future unless management to rebuild the system with fiber
optics. However, there is an extensive institutional network on a separate
cable which connects all the schools. The network is activated two-way with the
bandwidth being mid-split. The institutional cable is about 10 miles.
The system is fully addressable. However, of the five per-channel pay
services, only two use addressability (Cinemax and The Movie Channel). The
other three (HBO, Showtime and Disney) utilize positive and negative traps for
security. Management removed those channels from the addressability due to
complaints from owners of cable-ready television sets who did not think they
needed a converter. In addition, the Oak TC-56 converters are of an older
vintage. They are fairly large and not particularly attractive, which added to
complaints. Nevertheless, the addressability function is used for pay-per-view
services, though the base of addressable homes has shrunk with the shift to
trapping for the three major premium services.
COMPETITION
Management reports that the system passes all of the 16,481 homes in
the franchise area. As previously discussed, growth in homes passed is
expected to average about 0.58% per year during the projection period, reaching
17,500 in 2006. The system is not presently threatened by competition, although
management has seen some impact from direct broadcast satellite services (about
125 customer losses). DBS has been available in the area since August-September
of
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<PAGE>
DESCRIPTION OF SUBJECT BUSINESS (Continued)
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1994. There are MMDS services in Appleton and Green Bay, each offering about
15-20 channels. But, because of the distance from Manitowoc, their signals are
not a factor. The local telephone company, Ameritech, has made no moves to
apply for video dial tone service in the area, and management reports no
evidence of Ameritech's placing fiber in their local loop. The system's service
area has no other cable operator, and no other franchises have been granted in
the area, despite talk by the City during the franchise-related litigation about
overbuilding the system.
PENETRATION
With the uncertainties created by rate reregulation, along with the
negative press about the difficult franchise litigation with the City, largely
behind it, management is now focusing on remarketing its services. The system
has done well in raising basic penetration following the litigation. Television
broadcast signals from Milwaukee are marginal, due to the distance. But the
system is in the Green Bay-Appleton ADI, and the off-air signals are receivable
from Green Bay with a good rooftop antenna. Therefore, a focused marketing
effort is important. Because of this, management has used door-to-door sales
since 1994 with generally excellent results. It has had little or no success
with direct mail. It has also made occasional use of both radio and newspaper
advertising. The most successful promotion was a free installation and two
months for the price of one. This was launched with a simultaneous audit of
system subscribers, which was also successful. Management has also utilized an
"instant install" campaign with $10 worth of canned goods to be donated to a
local charity.
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<PAGE>
DESCRIPTION OF SUBJECT BUSINESS (Continued)
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The system has managed to maintain, and even improve upon, the
penetration gain it made in 1994. For 1995, basic penetration was 70.3%, up
from 68.9% in 1994. As of August, 1996, it had slipped negligibly to 69.9%.
There is no discounting of monthly rates. The only discounting is
free installation or free converters (after the first one) for senior citizens.
The penetration of pay services in this system, with its basic penetration in
the 70 percent range, is about average for such systems.
As subscriber confusion from FCC-mandated rate adjustments, and the
adverse press from the franchise litigation dissipates, it is reasonable to
expect that the system will be able to gradually increase its penetration
throughout the forecast period. The success of the 1994 marketing campaign in
increasing basic penetration from 63.2% to 68.9%, and management's ability in
1995-1996 to hold these gains, is evidence of this.
RATES
The City of Manitowoc certified to regulate the system's rates for the
25-channel basic service pursuant to the rules of the FCC. As a result, the
system restructured its rates but was not required to take the first rate
reduction required by the FCC's benchmarks in September, 1993. However, the
system was required to take the second round of FCC rate reductions in
September, 1994, and reduced the monthly rate by $2.09.
The City also filed a complaint at the FCC regarding the rates for the
system's cable programming services tier ("Satellite Tier Service"), so this
monthly rate is also regulated. Therefore, any increase in rates for either
tier of basic service, can only be made in accordance with FCC rules.
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DESCRIPTION OF SUBJECT BUSINESS (Continued)
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The monthly rate for the limited basic service of 25 channels is
$11.08 in the City of Manitowoc. For the 21-channel "Satellite Tier," the rate
is an additional $9.58, making the total for Full Basic Plus $20.66. The system
implemented a rate increase of $0.80 to cover inflation effective March 1,
1995. Management plans to implement a rate increase of $1.95 per month on March
1, 1997. The plan is to have the five new channels previously discussed added
before then. In addition, they will begin "passing through" the franchise fee
of 5%, rather than including it in the monthly rate. Given the current
regulatory climate, the average basic monthly rate is assumed to grow after 1997
at the rate of 5% per year to $33.95 by 2006.
Installation rates are $35.00 for the first outlet in homes with no
existing cable, and $13.10 for each additional outlet at the time of initial
installation. The rate of churn declined from 24.5% in 1992 to 14.9% in 1993,
but rebounded to 15.9% in 1994. It jumped from 15.9% in 1994 to 24.2% in 1995
but has declined somewhat to an annual rate of 21.2% in 1996. Given the stable
nature of the market, we are projecting that churn will remain fairly constant
for the projection period. Through the necessary efforts of management and no
expectations for drastic changes in the stable nature of this market, annual
churn is expected to stabilize at the 1996 level of 21.2%.
The reported installation revenue and total installs, however, show
that the effective installation rate dropped from $15.18 in 1994 to $10.77 in
1995. It rebounded somewhat to $11.66 through August, 1996. This indicates
that the installation rate is being discounted or dropped for promotional
purposes.
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PREPARED FOR: JONES INTERCABLE 25 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
DESCRIPTION OF SUBJECT BUSINESS (Continued)
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PAY SERVICES
The system offers five premium channels: HBO, Showtime, Cinemax, The
Movie Channel and Disney. The premium services are provided on an a la carte
basis at $9.95 per month for all but Disney, which is $7.95. There is
discounting for packages of premium services. The discounts range between
$2.00-6.00 for two services, $9.00 and higher for three services, $11.80 and
higher for four, and $12.75 for five.
Total pay units increased from 4,328 in 1992 to 7,726 in 1995. It had
declined somewhat to 7,337 by August, 1996. Even with the fairly sizable gain
in basic subscribers from 1992-1995, the system's pay-to-basic ratio also
increased from 46.3% to 68.4%. The continued success of the aggressive discount
packages and marketing efforts should enable the system to continue gradually
increasing its pay penetration levels. We forecast it to reach 75.0% by 2006.
PAY-PER-VIEW SERVICES
The system launched its pay-per-view service in 1990. Because the
system is addressable, it provides movies as well as wrestling and boxing
events. With the shift to traps for three of the premium services, addressable
homes declined from 5,184 in 1992 to 4,717 in 1995. It declined further to
4,539 in August, 1996. We believe, however, that with continued promotion of
pay-per-view events, along with more attractive offerings, there could be a
return to the system's earlier 1993 level of addressable homes. Therefore, we
forecast the percentage to climb back to 50% over the next four years and remain
at that level throughout the remainder of the projection period.
From 3,128 pay-per-view buys in 1992, the total number of buys
increased to 3,892 pay-per-view buys in 1993, but declined to 3,529 in 1994 and
remained flat at 3,507 in 1995. Through
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PREPARED FOR: JONES INTERCABLE 26 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
DESCRIPTION OF SUBJECT BUSINESS (Continued)
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August, 1996, it rebounded to 3,071, which is an annualized rate of 4,606. This
increase occurred despite the decline in the number of addressable homes.
Therefore, we expect continued steady gains in the number of buys by the end of
the forecast period. The pricing will continue to be in the range of $3.95 for
movies and $14.95-$35.00 for events. The continuation of popular events should
enable the system to gradually increase its monthly buy rate from the 1994 level
of 6.0% into the 28% range by 2006. Given these projected increases in the buy
rate, we believe that moderate increases in the average price per buy of 4.0%
annually are reasonable, so that the average reaches $14.92 in 2006.
ADVERTISING
Local advertising is a significant and increasing source of revenue.
It is expected to continue growing during the period of the projections as cable
continues to prove it is a cost-effective medium for advertisers. While the
monthly revenue per subscriber has declined slightly from $1.88 to $1.69 from
1992 to 1994, it climbed in 1995 to $2.12, well above its 1992 level. This may
be due in part to the elimination of the uncertainty and negative press
surrounding the franchise litigation with the City. The system does ad
insertion on 10 satellite channels, in addition to 37 live events per year,
including high school and college sports, for the past six years, on its local
origination channel. The live sporting events alone account for about $35,000
in annual advertising revenue. The system's mobile production van is connected
to the institutional network for these purposes. Since 1991, the system has had
a sales manager and two full-time account representatives.
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PREPARED FOR: JONES INTERCABLE 27 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
DESCRIPTION OF SUBJECT BUSINESS (Continued)
- --------------------------------------------------------------------------------
The continuation of the sales, promotion and local programming efforts
could well sustain further growth in advertising sales. There are no other
video outlets for advertisers who wish to concentrate on the Manitowoc market.
Therefore, we have projected modest increases in the monthly advertising revenue
per subscriber of 10% annually from its August 1996 level of $1.44. It reaches
$3.74 in 2006.
HOME SHOPPING
The system has carried a single home shopping channel, Home Shopping
Network, since 1988. Revenue from HSN remained fairly constant at $0.10-.11 per
subscriber per month in 1992-4. In 1995, it reached $0.15. We believe that,
despite the seasonal dip reflected in the numbers through August, 1996, this
revenue stream will increase gradually from its 1996 monthly rate of $0.10.
While the amount is uncertain, there should be additional revenue derived from
the Product Information Network which management will be adding to the system
once the City relinquishes three of its access channels. Therefore, we believe
it is justified to forecast modest increases of 5.0% per year, so that the
revenue reaches $0.16 per subscriber per month in 2006.
OTHER REVENUE
The system derives additional revenue from commercial accounts with
bars, restaurants, motels and other multiple-unit buildings. Late fees, remote
control sales and converter rentals were also major contributors to this
revenue stream. "Other" revenue has decreased slightly as a percentage of basic
revenue, with the significant increase in basic subscribers from 1992 to
August, 1996. It declined from 5.8% in 1992 to 5.0% in 1994 and 4.9% in 1995.
We expect this
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PREPARED FOR: JONES INTERCABLE 28 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
DESCRIPTION OF SUBJECT BUSINESS (Continued)
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revenue to increase at a modest rate of 5.0% annually, with the increases in
subscribers and basic revenue. This amount as a percentage of basic revenue will
decline very gradually over the remainder of the projection period. It reaches
about $233,000 in 2006.
Total cable revenue declined to $27.83 per subscriber per month in
1994. With the increase of $0.80 in the monthly rate for the full basic
service, combined with the other revenue increases previously discussed, total
cable revenue per subscriber increased slightly to $28.47 in 1995. It has
remained very close to that level through August, 1996. The combination of
expected growth in homes passed, steady gains in basic penetration, modest rate
increases, and some continued growth in pay-per-view, advertising sales and home
shopping, is projected to raise total cable revenue to nearly $7.8 million in
2006, or $50.42 per subscriber per month. This is an average gain of 5.9%
annually over the ten-year forecast period.
The system derives no revenues from leasing of fiber capacity because
of the lack of fiber deployment. Management has no plans to install fiber,
since there are no plans to rebuild the system. Therefore, we are projecting
no revenues from fiber leasing or any networking services.
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PREPARED FOR: JONES INTERCABLE 29 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
<TABLE>
<CAPTION>
10-YEAR CASH FLOW PROJECTIONS
- ------------------------------------------------------------------------------------------------------------------------------
Manitowoc, Wisconsin 1992 1993 1994 1995 08/96 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3 HOMES IN FRANCHISE AREA (000) 15.6 15.6 16.2 16.3 16.5 16.6 16.7 16.8
4 HOMES PASSED (000) 15.5 15.5 16.2 16.3 16.5 16.6 16.7 16.8
5 % HP IN FRANCHISE AREA 100% 100% 100% 100% 100% 100% 100% 100%
6 PCT PENETRATION 60.9% 63.2% 68.9% 70.3% 69.9% 71.0% 72.0% 73.0%
7 TOTAL BASIC SUBS (000) 9.4 9.8 11.1 11.4 11.5 11.8 12.0 12.2
8 AVERAGE BASIC SUBS (000) 9.4 9.6 10.5 11.3 11.5 11.7 11.9 12.1
9 AVG MONTHLY RATE $ 22.57 22.44 20.13 19.97 20.26 21.89 22.98 24.13
10 REVENUE/SUBSCRIBER $ 270.78 269.29 241.61 239.65 243.15 262.65 275.78 289.57
11 BASIC SERVICE REVENUE (000) $2,533.3 $2,594.3 $2,532.5 $2,705.6 $1,860.8 $3,061.6 $3,278.1 $3,510.4
12
13 NEW BASIC (000) 0.2 0.4 1.3 0.3 0.1 0.2 0.2 0.2
14 BASIC CHURN (000) 1.8 1.9 1.8 3.0 1.8 2.5 2.5 2.5
15 RATE OF CHURN 24.5% 14.9% 15.9% 24.2% 14.2% 21.2% 21.2% 21.2%
16 TOTAL INSTALLS (000) 2.0 2.3 3.1 3.3 1.9 2.7 2.7 2.8
17 EFFECTIVE INSTALL RATE $ 15.25 18.39 15.18 10.77 11.66 12.24 12.85 13.49
18 INSTALL REVENUE (000) $ 30.9 $ 41.5 $ 47.0 $ 35.5 $ 22.2 $ 33.0 $ 35.0 $ 38.0
19
20 TOTAL BASIC REVENUE (000) $ 2,564 $ 2,636 $ 2,580 $ 2,741 $ 1,883 $ 3,093 $ 3,313 $ 3,548
21
22 PAY % AVG SUBS 46.3% 55.4% 68.8% 68.4% 63.9% 66.0% 67.0% 68.0%
23 AVERAGE SUBSCRIBERS (000) 4.3 5.3 7.2 7.7 7.3 7.7 8.0 8.2
24 MONTHLY RATE $ 9.07 7.60 6.23 6.90 7.73 8.04 8.36 8.70
25 REVENUE/SUBSCRIBER $ 107 91 75 83 93 96 100 104
26 PAY SERVICE REVENUE (000) $ 471.3 $ 486.4 $ 539.0 $ 639.3 $ 453.8 $ 742.3 $ 799.3 $ 860.5
27
28 AVG ADDRESSABLE SUBS (000) 5.2 4.9 4.9 4.7 4.5 4.8 5.3 5.9
29 % ADDRESSABLE SUBS 54.9% 50.0% 44.2% 41.2% 39.4% 41.0% 44.0% 48.0%
30 PPV CUME MO. BUY RATE 5.0% 6.6% 6.0% 6.2% 8.5% 10.5% 12.5% 14.5%
31 TOTAL PPV BUYS (000) 3.1 3.9 3.5 3.5 3.1 6.1 7.9 10.2
32 AVERAGE PRICE/BUY $ 9.69 8.37 8.61 10.87 10.8 10.48 10.90 11.34
33 TOTAL PPV REVENUE (000) $ 30.3 $ 32.6 $ 30.4 $ 38.1 $ 31.0 $ 63.0 $ 86.0 $ 116.0
34 PPV REV/SUB/MO $ 0.27 0.28 0.24 0.28 0.34 0.45 0.60 0.79
35
36 AD REVENUE/SUB/MO $ 1.88 1.66 1.69 2.12 1.44 1.58 1.74 1.92
37 AD REVENUE/SUB $ 22.60 19.91 20.30 25.39 17.29 19.01 20.92 23.01
38 TOTAL AD REVENUE (000) $ 211.4 $ 191.8 $ 212.8 $ 286.6 $ 132.3 $ 222.0 $ 249.0 $ 279.0
39
40 HOME SHOPPING REV/SUB/MO $ 0.11 0.11 0.10 0.15 0.10 0.10 0.11 0.11
41 HOME SHOPPING REV/SUB $ 1.30 1.33 1.15 1.74 1.19 1.25 1.31 1.38
42 TOTAL HOME SHOPPING REV (000) $ 12.1 $ 12.8 $ 12.0 $ 19.7 $ 9.1 $ 15.0 $ 16.0 $ 17.0
43
44 OTHER REVENUE (000) $ 145.8 $ 141.4 $ 126.7 $ 132.4 $ 95.4 $ 150.0 $ 158.0 $ 166.0
45 % BASIC REVENUE 5.8% 5.4% 5.0% 4.9% 5.1% 4.9% 4.8% 4.7%
46
47 TOTAL CABLE REVENUE (000) $3,435.1 $3,500.8 $3,500.6 $3,857.2 $2,604.6 $4,286.0 $4,621.0 $4,986.0
48 TOTAL REV/SUB/MONTH $ 30.60 30.28 27.83 28.47 28.36 30.65 32.39 34.27
49
<CAPTION>
Manitowoc, Wisconsin 2000 2001 2002 2003 2004 2005 2006 GTH. RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
3 HOMES IN FRANCHISE AREA 16.9 17.0 17.1 17.2 17.3 17.4 17.5 0.6%
4 HOMES PASSED 16.9 17.0 17.1 17.2 17.3 17.4 17.5 0.6%
5 % HP IN FRANCHISE AREA 100% 100% 100% 100% 100% 100% 100% 0.0%
6 PCT PENETRATION 73.5% 74.0% 74.0% 74.0% 74.0% 74.0% 74.0% 0.6%
7 TOTAL BASIC SUBS 12.4 12.6 12.6 12.7 12.8 12.8 12.9 1.2%
8 AVERAGE BASIC SUBS 12.3 12.5 12.6 12.7 12.7 12.8 12.9 1.2%
9 AVG MONTHLY RATE 25.34 26.60 27.63 29.33 30.80 32.34 33.95 5.3%
10 REVENUE/SUBSCRIBER 304.05 319.25 335.21 351.97 369.57 388.05 407.45 5.3%
11 BASIC SERVICE REVENUE $3,745.6 $3,982.7 $4,220.3 $4,457.1 $4,707.1 $4,971.1 $5,249.9 6.6%
12
13 NEW BASIC 0.2 0.2 0.1 0.1 0.1 0.1 0.1 -3.4%
14 BASIC CHURN 2.6 2.6 2.7 2.7 2.7 2.7 2.7 1.2%
15 RATE OF CHURN 21.2% 21.2% 21.2% 21.2% 21.2% 21.2% 21.2% 0.0%
16 TOTAL INSTALLS 2.8 2.8 2.7 2.8 2.8 2.8 2.8 1.1%
17 EFFECTIVE INSTALL RATE 14.17 14.88 15.62 16.40 17.22 18.08 18.99 5.0%
18 INSTALL REVENUE 39.0 42.0 43.0 45.0 48.0 50.0 53.0 6.1%
19
20 TOTAL BASIC REVENUE $ 3,785 $ 4,024 $ 4,263 $ 4,502 $ 4,755 $ 5,021 $ 5,303 6.6%
21
22 PAY % AVG SUBS 69.0% 70.0% 71.0% 72.0% 73.0% 74.0% 75.0% 1.5%
23 AVERAGE SUBSCRIBERS 8.5 8.7 8.9 9.1 9.3 9.5 9.7 2.7%
24 MONTHLY RATE 9.04 9.41 9.78 10.17 10.58 11.00 11.44 4.0%
25 REVENUE/SUBSCRIBER 109 113 117 122 127 132 137 4.0%
26 PAY SERVICE REVENUE $ 922.8 $ 986.0 $1,050.0 $1,113.4 $1,180.8 $1,252.1 $1,327.4 6.8%
27
28 AVG ADDRESSABLE SUBS 6.2 6.3 6.3 6.3 6.4 6.4 6.5 3.9%
29 % ADDRESSABLE SUBS 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% 2.7%
30 PPV CUME MO. BUY RATE 16.5% 18.5% 20.5% 22.5% 24.5% 26.5% 28.5% 13.5%
31 TOTAL PPV BUYS 12.2 13.9 15.5 17.1 18.7 20.4 22.1 18.0%
32 AVERAGE PRICE/BUY 11.79 12.26 12.75 13.26 13.79 14.35 14.92 4.0%
33 TOTAL PPV REVENUE $ 144.0 $ 170.0 $ 198.0 $ 227.0 $ 259.0 $ 293.0 $ 329.0 22.7%
34 PPV REV/SUB/MO 0.98 1.14 1.31 1.49 1.69 1.9 2.13 21.2%
35
36 AD REVENUE/SUB/MO 2.11 2.32 2.55 2.81 3.09 3.40 3.74 10.0%
37 AD REVENUE/SUB 25.31 27.84 30.62 33.69 37.05 40.76 44.84 10.0%
38 TOTAL AD REVENUE $ 312.0 $ 347.0 $ 386.0 $ 427.0 $ 472.0 $ 522.0 $ 578.0 11.3%
39
40 HOME SHOPPING REV/SUB/MO 0.12 0.13 0.13 0.14 0.15 0.15 0.16 5.0%
41 HOME SHOPPING REV/SUB 1.45 1.52 1.60 1.67 1.76 1.85 1.94 5.0%
42 TOTAL HOME SHOPPING REV $ 18.0 $ 19.0 $ 20.0 $ 21.0 $ 22.0 $ 24.0 $ 25.0 6.3%
43
44 OTHER REVENUE $ 174.0 $ 183.0 $ 192.0 $ 201.0 $ 212.0 $ 222.0 $ 233.0 5.0%
45 % BASIC REVENUE 4.6% 4.6% 4.5% 4.5% 4.5% 4.5% 4.4% -1.5%
46
47 TOTAL CABLE REVENUE $5,355.0 $5,730.0 $6,108.0 $6,492.0 $6,900.0 $7,334.0 $7,796.0 7.2%
48 TOTAL REV/SUB/MONTH 36.23 38.27 40.43 42.72 45.15 47.71 50.42 5.9%
49
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PREPARED FOR: JONES INTERCABLE 30 KAGAN MEDIA APPRAISALS, INC.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
10-YEAR CASH FLOW PROJECTIONS (CONTINUED)
- -------------------------------------------------------------------------------------------------------------------------------
Manitowoc, Wisconsin 1992 1993 1994 1995 08/96 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
50 CASH FLOW (000) $1,574.0 $1,576.9 $1,469.6 $1,539.8 $1,108.2 $1,888.0 $2,105.0 $2,346.0
51 OPERATING MARGIN 45.8% 45.0% 42.0% 39.9% 42.5% 44.0% 45.5% 47.0%
52 CASH FLOW PERCENT INCREASE 0.2% -6.8% 4.8% 8.0% 13.3% 11.5% 11.4%
53 CASH FLOW PER AVERAGE SUB $ 168.24 $ 163.68 $ 140.20 $ 136.39 $ 144.81 $ 162.00 $ 177.06 $ 193.48
54 JONES/CROWN ALLOCATION % 3.71% 3.62% 3.83% 3.75% 4.13% 3.90% 3.90% 3.90%
55 JONES/CROWN CSH FLOW ALLOC. $ 58.36 $ 57.12 $ 56.26 $ 57.74 $ 45.74 $ 73.62 $ 82.08 $ 91.48
56 NET CASH FLOW FOR APPRAISAL $1,515.6 $1,519.8 $1,413.4 $1,482.1 $1,062.5 $1,814.1 $2,022.6 $2,254.1
57 DISCOUNT % 10%
58 DISCOUNT FACTOR 1.10 1.21 1.33
59 PRESENT VALUE FACTOR 0.91 0.83 0.75
60 DISCOUNTED CASH FLOW (000) $ 1,649 $ 1,672 $ 1,694
61 CUMULATIVE DISC CASH FLOW (000) $ 1,649 $ 3,321 $ 5,014
62 10 YEAR CUM. CASH FLOW (000) $ 16,386
63 EXTRAORDINARY CAP.EX. (000) $ 0 $ 0 $ 0
64 DISCOUNT % 0% 10% 10%
65 DISCOUNT FACTOR 1.10 1.21 1.33
66 PRESENT VALUE FACTOR 0.91 0.83 0.75
67 DISCOUNTED EXT. CAP. EX. (000) $ 0 $ 0 $ 0
68 CUMULATIVE DISC EXT CAP EX. (000) $ 0
69 10 YEAR CUM. NET CASH FLOW (000) $ 16,386 9.0 X 97 CF
70 $1,514 PER 10,825 SUBS ON 08/31/96
<CAPTION>
Manitowoc, Wisconsin 2000 2001 2002 2003 2004 2005 2006 GTH. RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 CASH FLOW $2,573.0 $2,810.3 $3,057.0 $3,314.0 $3,591.0 $3,854.0 4,135.0 9.8%
51 OPERATING MARGIN 48.0% 49.0% 50.0% 51.0% 52.0% 52.55 53.0%
52 CASH FLOW PERCENT INCREASE 9.7% 9.2% 8.8% 8.4% 8.4% 7.3% 7.3%
53 CASH FLOW PER AVERAGE SUB $ 208.87 $ 225.27 $ 242.80 $ 261.70 $ 281.97 $ 300.84 $ 320.95 8.4%
54 JONES/CROWN ALLOCATION 3.90% 3.90% 3.90% 3.90% 3.90% 3.90% 3.90%
55 JONES/CROWN CSH FLOW ALLOC. $ 100.35 $ 109.60 $ 119.22 $ 129.24 $ 140.06 $ 150.30 $ 161.28
56 NET CASH FLOW FOR APPRAISAL $2,472.8 $2,700.7 $2,937.7 $3,184.7 $3,451.3 $3,703.6 $3,974.1 9.8%
57 DISCOUNT %
58 DISCOUNT FACTOR 1.46 1.61 1.77 1.95 2.14 2.36 2.59
59 PRESENT VALUE FACTOR 0.68 0.62 0.56 0.51 0.47 0.42 0.39
60 DISCOUNTED CASH FLOW $ 1,689 $ 1,677 $ 1,658 $ 1,634 $ 1,610 $ 1,571 $ 1,532
61 CUMULATIVE DISC CASH FLOW $ 6,703 $ 8,380 $ 10,038 $ 11,673 $ 13,283 $ 14,853 $16,386
62 10 YEAR CUM. CASH FLOW
63 EXTRAORDINARY CAP.EX.
64 DISCOUNT %
65 DISCOUNT FACTOR
66 PRESENT VALUE FACTOR
67 DISCOUNTED EXT. CAP. EX.
68 CUMULATIVE DISC EXT CAP EX.
69 10 YEAR CUM. NET CASH FLOW
70
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PREPARED FOR: JONES INTERCABLE 31 1996 KAGAN MEDIA APPRAISALS, INC.
</TABLE>
<PAGE>
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS
- --------------------------------------------------------------------------------
1. HOMES IN FRANCHISE AREA. Household growth in the service area is assumed to
average 0.58% per year in 1997-2006, based on historical trends, census data,
information from local agencies and chambers of commerce, and Claritas, Inc.
2. HOMES PASSED. According to system management, the system will pass all new
home growth in the franchise areas. Therefore, homes passed as a percentage of
homes in the franchise areas is projected to remain at 100%.
3. BASIC PENETRATION. Basic penetration is presently at 70% because of the
service offerings and marketing programs of management. With a continuation of
these efforts, we expect that it can gradually increase to 74.0% in 2001 and
remain at that level through the remainder of the forecast period. This
increase is supportable because of management's plan for five new service
offerings by 1997, although we are assuming no system rebuild to add channel
capacity.
4. BASIC MONTHLY RATES. Basic monthly rates were restructured in September,
1993 to take account of the FCC's new rate regulations. The system took the
required rate rollback in September, 1994. Since the rate increase on March 1,
1995, the rate for the 25-channel Limited Basic has been $11.08, with the
"Satellite Tier Service" of an additional 21 channels costing an added $9.58,
for a total of $20.66 for 46 channels. The average monthly rate in 1994 was
$20.13. With the rate increase of $0.80 in 1995, the average rate for through
August, 1996 was $20.26. In 1997, it is assumed to increase by $1.95 in March,
for the remaining 10 months of the year. For the remainder of the forecast
period, this rate is assumed to increase at the modest rate of 5.0% annually,
since no rebuild is projected. Basic service revenue increased from $2,532,600
in 1994 to $2,705,500 in 1995. This is an increase of 6.8%. Our projection
shows annual increases of nearly the same level, at 6.6% for the 10-year
forecast period.
5. RATE OF CHURN. The rate of churn declined from 24.5% in 1992 to 21.2%
through August, 1996 (on an annualized basis). This is probably the result of
the management's marketing efforts. With a continuation of those efforts, we
are projecting that churn will stabilize at the 1996 level of 21.2%.
6. PAY PENETRATION. The system's pay-to-basic ratio increased dramatically
from 46.3% to 68.8% from 1992 through 1994. It held at 68.4% in 1995 but
declined slightly to 63.9% in August, 1996. The attractive discount package for
multiple premium services, combined with a continuation of the system's
successful marketing campaigns, should result in steady increases in pay
penetration from the August 1996 rate. Therefore, we project that the pay-to-
basic ratio will rise gradually to 75.0% by 2006.
7. PAY SERVICE RATES. The average monthly rate for premium services declined
steadily from $9.07 in 1992 to $6.90 in 1995. This was undoubtedly the result
of the aggressive discounting program for multiple pay services discussed
previously. However, through August, 1996, it rebounded to $7.73. We
anticipate that, with more than four years behind it, the discount package
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PREPARED FOR: JONES INTERCABLE 32 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS
(Continued)
- --------------------------------------------------------------------------------
program will stabilize as a percentage of the premium subscriber base.
Therefore, pay rates are projected to remain at the August year-to-date number
for all of 1996, and then begin increasing in 1997 at a moderate annual rate of
4.0%.
8. PAY-PER-VIEW REVENUES. The Manitowoc system introduced pay-per-view
services in 1990. The shifting of three major pay services to negative and
positive traps for security has reduced the base of addressable homes. But most
of the negative impact has already been felt, and the incentive being given to
add the two remaining pay services, which remain addressable, is probably
staunching the erosion of addressable homes. Therefore, we anticipate that the
percentage of addressable homes will remain at its August 1996 level of 39.3%
for the rest of the year. Because of continued marketing efforts and the
offering of more attractive programming previously discussed, we believe that
the percentage could return gradually over the next four years to its 1993 level
of 50.0%. We also believe that, with effective marketing, that level could at
least be sustained during the balance of the projection period. The cumulative
monthly buy rate as a percentage of addressable subscribers was 6.0% in 1994 and
6.2% in 1995. By August, 1996, it had climbed to 8.5%. Given the stabilization
in both the franchise situation (eliminating negative publicity) and the number
of addressable homes, combined with management's increased emphasis on
marketing, we expect the number of pay-per-view buys to remain at its August
1996 year-to-date rate for all of 1996, an increase of 2.3 percentage points
from 1995. We project that the system's buy rate should increase gradually by
2.0 percentage points annually throughout the remainder of the forecast period,
reaching the range of 28% by 2006. Given that we have not projected a rebuild
for video-on-demand services, this level of pay-per-view penetration is
justified. We also assume that the average price per buy will increase only
modestly at 4.0% per year, rising from $10.08 in 1996 to $14.92 in 2006.
9. ADVERTISING. The system's advertising revenue averaged $1.69 per subscriber
per month in 1994, a decline from 1992 ($1.88) and a slight increase from 1993
($1.66). This was probably due to all the negative publicity surrounding the
franchise litigation with the City which could easily have caused an adverse
reaction among advertisers. The settling of that lawsuit, dissipating the ill-
will, combined with the continuation of the three-person sales team, resulted in
an encouraging increase ad sales in 1995, reaching $2.12 per subscriber per
month. However, by August, 1996, it had declined to $1.44. As management
demonstrated in 1995, the absence of the negative factors previously mentioned,
along with the growing recognition among local advertisers of the cost
effectiveness of cable, could well mean modest growth in advertising sales,
particularly from the lower level of August 1996. From that level, we have
projected only modest increases in the advertising revenue per subscriber of 10%
annually, reaching $3.74 in 2006.
10. HOME SHOPPING. Home shopping revenue was in the range of $0.10-0.11 during
1992-1994. In 1995, it jumped to $0.15 but returned again to $0.10 for year-to-
date August 1996. As the noteworthy gains in basic subscribers continue to
expose more people to the convenience of home shopping via cable, we expect that
1995 will not be an aberration. In light of the 1995 results, we project that
the revenue per subscriber can gradually increase, especially from the lower
August 1996 level . As noted previously, the system will also be adding the
Product Information Network,
- --------------------------------------------------------------------------------
PREPARED FOR: JONES INTERCABLE 33 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS
(Continued)
- -------------------------------------------------------------------------------
which should result in more commission revenues for the system. Therefore, we
project that revenue will remain at $0.10 for all of 1996, and increase modestly
at a rate of 5.0% annually through 2006.
11. OTHER REVENUE. Other revenue consists primarily of commercial accounts,
converter rentals and sales, as well as late fees. In August, 1996, it stood at
5.1% of basic revenue, an slight decrease from its level of 5.8 % in 1992. We
project that this percentage will decline only slightly as the basic penetration
level continues to increase during the projection period. From its August 1996
level of about $143,000 (annualized), other revenue increases at 5.0% annually,
reaching about $233,000 per year in 2006.
12. FIBER LEASING AND ADVANCED SERVICES. The system has no fiber capacity and
has no plans to install it. Therefore, we have projected no revenues from this
source. Nor have we projected revenues from the provision of network services,
since there is no provision for deploying fiber at all, nor any plans to use
the two-way capacity of the 10-mile institutional network beyond its present
limited role of connecting the schools for educational programming.
13. OPERATING MARGIN. Continued modest growth in basic penetration, increases
in ancillary revenues (e.g. pay-per-view, advertising and home shopping) and
operating efficiencies associated with the projected growth in subscribers are
expected to increase operating margins somewhat over the next several years.
Historically, the system has operated at moderate margins in the range of 45%.
This is because it has slightly above average penetration in a well-clustered
territory served by a single headend and office. The margin decreased somewhat
from its high in 1992 of 45.8% to 39.9% in 1995 because of the effects of the
FCC's rate freeze, rate unbundling and the rate rollback. With those factors
behind it, and the "catch up" increase of $1.95 on March 1, 1997, we expect the
margin to improve to 44%, closer to its pre-regulation 1993 rate of 45.0%.
This is only somewhat above its rate of 42.5% through August, 1996. With the
continued modest basic rate increases, and increasing revenue in high-margin
categories, it is reasonable to assume that the operating margins would return
to their typically higher level of 45.5% in 1997, increasing 1.5 percentage
points in 1998 and 1.0 percentage points each year thereafter through 2006 to
53.0%.
14. JONES/CROWN ALLOCATION. The five smaller franchises, and the portion of
the system serving them, are not included in this appraisal, since they are not
owned by the company. However, all the revenue and cash flow projections are
for the entire system, so that they correlate to the financial statements for
the system which have been provided. To allow for the exclusion of these five
areas from the appraised value, we have adopted the method for allocating system
operating income used by the company since 1992. The "Jones/Crown Allocation"
has ranged from a low of 3.62% in 1993 to a high of 4.13% in the first eight
months of 1996. In 1995, it was somewhat lower, at 3.75%. Since it has been
higher in the more recent period of 1996 through August, we have calculated the
weighted average percentage allocation for the 20-month period. It is 3.90%.
This percentage is deducted each year from system cash flow to arrive at the
"Net Cash Flow for
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PREPARED FOR: JONES INTERCABLE 34 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
ASSUMPTIONS FOR THE 10-YEAR CASH FLOW PROJECTIONS
(Continued)
- --------------------------------------------------------------------------------
Appraisal" shown in the 10-year projections. It is this "Net Cash Flow for
Appraisal" that is then discounted in arriving at the valuation.
15. DISCOUNT FACTOR. Future cash flows are discounted by a risk-adjusted 10%
factor, slightly above the Moody's Aaa corporate bond yield, which stood at
8.04% as of August 30, 1996. This rate is widely accepted in financial circles
as a reliable indicator of future inflation and the cost of funds.
16. EXTRAORDINARY CAPITAL EXPENDITURES. System management has no plans to
rebuild the system to increase channel capacity to 550 MHZ or 750 MHZ.
Therefore, we have not included any capital expenditures for a system rebuild.
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PREPARED FOR: JONES INTERCABLE 35 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
COMPARABLE ANALYSIS
- --------------------------------------------------------------------------------
Comparison of a cable TV system to similar properties recently sold is
an accepted appraisal methodology used to correlate the findings of the
Statistical Income method with the realities of the private marketplace.
Analysis of historical cable system sales indicates that systems can be compared
to one another on the basis of such variables as local demographics, system
size, basic and pay penetration levels and revenue per subscriber.
Like cable properties can often be compared to one another on a value-
per-subscriber (VPS) or cash flow multiple basis. VPS is a short-form valuation
yardstick that reflects a multiple of the cash flow a subscriber is expected to
generate in the first or second year of ownership. Cable systems have
historically sold most often in the range of 9-11 times projected first-year
cash flow with the higher end of the range generally assigned to systems which
are expected to achieve significant near-term increases in cash flow. Thus a
cable subscriber forecasted to generate $170 of cash flow in the coming year and
selling at 11x that cash flow would be valued at $1,870, or at $2,210 at 13x
cash flow.
For Manitowoc , we studied comparable sales in 1996, focusing on sales
with between 5,000 and 20,000 subscribers, with basic penetration of 50-85%.
We emphasized stand-alone, similarly sized systems located in one primary area.
- --------------------------------------------------------------------------------
PREPARED FOR: JONES INTERCABLE 36 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
COMPARABLE ANALYSIS (Continued)
- --------------------------------------------------------------------------------
MANITOWOC COMPARABLE SYSTEMS
<TABLE>
<CAPTION>
BASIC BASIC COMP. ANN.
LOCATION SUBS PEN. % CFX VALUE DATE
------------------------------------------------------------------
(MIL.)
<S> <C> <C> <C> <C> <C>
Colombus, MS 15,700 65% 9.5 $17.2 2/96
San Fran. Bay Area 12,300 51% 8.8 $16.0 7/96
Kern Valley, CA 8,200 70% 7.6 $13.8 6/96
Moses Lake, WA 12,500 83% 9.5 $17.2 8/96
-------------------------------
Averages 12,200 67% 8.9x $16.1
Manitowoc, WI 10,825 70% 9.0x $16.4
</TABLE>
(C) 1996 Kagan Media Appraisals, Inc.
The above comparables as a group closely mirror the Manitowoc, WI system,
at 68% basic penetration and a similar subscriber base.
The first comparable we considered was the sale of Columbus Cable's
Columbus, MS system to Post-newsweek in February 1996. Like Manitowoc, the
system serves one distinct community. The system sold at a multiple of 9.5x
forward cash flow, a slightly higher multiple than Manitowoc due partially to a
larger sub base and lower basic penetration. Applying that multiple to
Manitowoc values the system at $17.2 mil.
We next analyzed TCI's buy of a system serving the San Francisco bay area
from Balkin Cable. TCI filled some holes in its bay area holdings by buying the
Balkin subs in an all-cash deal July 30. The multiple, at 8.8x, reflects
expenses necessary to upgrade the systems, as well as a limitation on
penetration upside. The system's 8.8x 1997 cash flow multiple yields a
comparable value of $16.0 mil. when applied to Manitowoc.
- --------------------------------------------------------------------------------
PREPARED FOR:JONES INTERCABLE 37 KAGAN MEDIA APPAISALS, INC.
<PAGE>
COMPARABLE ANALYSIS (Continued)
- --------------------------------------------------------------------------------
We then considered the system in Kern Valley, CA sold by PCI Sun Cable to
Helicon in June 1996. This system is smaller, and in a more spread out area,
which suggests a lower multiple and less potential for cash flow growth.
Applying this 7.6x multiple to Manitowoc yields a comparable value of $13.8 mil.
The last comparable we studied was the sale of Marcus Cable's Moses Lake,
WA system to Northland Comm. in August 1996. This is a stand-alone system with
a relatively high penetration of 83%, with a 9.5x sale multiple reflecting
growth opportunities. Applying this multiple to Manitowoc yields a comparable
value of $17.2 mil.
The average of the comparable sales listed above is $16.1 mil.
- --------------------------------------------------------------------------------
PREPARED FOR: JONES INTERCABLE 38 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
CORRELATION AND FINAL ESTIMATE OF VALUE
- --------------------------------------------------------------------------------
The discounted cash flow analysis yields a value for the Manitowoc cable
system of $16.4 mil., while the comparable analysis of comparable sales yields a
value of $16.1 mil. The proximity of these values, within 2% of each other,
arrived at through two independent appraisal methodologies, underscores the
validity of the assumptions used to cast the 10-year cash flow projections and
establishes a range within which the value of the Manitowoc cable system can be
expected to fall. In arriving at a single estimate of value, we note that while
the system has some upside in basic penetration, this is limited by satellite
competition and the fact that the system has no spare channel capacity to
increase offerings, making it that much more vulnerable to competition. In
addition, the system has only moderate upside in household growth. It does,
however, have proven upside in the operating margin and ancillary revenues,
which nevertheless will be constrained by the need to market effectively to meet
competition.
These factors lead us to value the system at the lower end of the range.
Therefore, we conclude that the value of the Manitowoc cable television system
is approximately $16.1 million.
-------------
- --------------------------------------------------------------------------------
PREPARED FOR: JONES INTERCABLE 39 KAGAN MEDIA APPRAISALS, INC.
<PAGE>
Exhibit (b)(3)
================================================================================
JONES INTERCABLE, INC. CABLE TV JOINT FUND 11
CABLE TELEVISION SYSTEM
MANITOWOC, WISCONSIN
APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996
================================================================================
<PAGE>
JONES INTERCABLE, INC. CABLE TV JOINT FUND 11
CABLE TELEVISION SYSTEM
MANITOWOC, WISCONSIN
APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
Number Item Number
- ------- ------------------ ------
<S> <C> <C>
I. Introduction 1
II. Executive Summary 10
III. Discounted Cash Flow Model
and Assumptions: 12
Manitowoc Market Overview 14
Homes Passed 15
Basic and Expanded Basic Penetration 16
Pay Penetration 16
Rates 17
Revenue Projections 17
Operating Profit Margins 18
Depreciation and Amortization 18
Federal, State, and Local Tax Rates 19
Capital Expenditures 19
Net After-Tax Cash Flow 19
Discount Rate 20
Residual Cash Flow Multiple 20
Present Value of Residual 21
Model Results 21
IV. Comparable Sales Analysis 26
</TABLE>
<PAGE>
TABLE OF CONTENTS
-----------------
(continued)
<TABLE>
<CAPTION>
Section Page
Number Item Number
- ------- --------------- ------
<S> <C> <C>
V. Consolidation 28
Exhibits
--------
A. Qualifications of James R. Bond, Jr. and Timothy S. Pecaro
</TABLE>
<PAGE>
JONES INTERCABLE, INC. CABLE TV JOINT FUND 11
CABLE TELEVISION SYSTEM
MANITOWOC, WISCONSIN
APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996
I. INTRODUCTION
---------------
Bond & Pecaro, Inc. has been retained to establish the fair market value of
the non-current assets of the Jones Intercable, Inc. Cable TV Joint Fund 11
cable television system in Manitowoc, Wisconsin (the "Manitowoc System") as of
August 31, 1996. Among these assets were towers, electronic equipment, office
equipment, vehicles, a cable television distribution plant, a cable television
franchise, and a cable television subscriber base.
The Manitowoc System serves the City of Manitowoc, Wisconsin. The system
also manages cable systems owned by Marcus Cable in the Village of Whitelaw and
the Towns of Manitowoc, Newton, Cato, and Manitowoc Rapids. The revenues and
expenses attributable to the Marcus Cable systems were excluded from this
analysis.
The Manitowoc System's cable distribution plant operates at 400 mHz with a
capacity of 52 channels. The channel capacity of the system is currently fully
utilized; there were no unused channels available as of August 31, 1996. The
system is fully addressable and provides impulse pay-per-view services to
subscribers. As of August 31, 1996, the system had 15.47 miles of underground
cable distribution plant and
-1-
<PAGE>
155 miles of aerial cable plant. Approximately 15,400 homes were passed by the
system's cable distribution plant.
As of August 31, 1996, the system had approximately 10,825 basic
subscribers, representing a basic subscriber penetration of 70.3%. The system
had approximately 6,842 pay subscriptions, yielding a pay to basic ratio of
approximately 63.2%.
On August 31, 1996, the technical operations of the Manitowoc System were
conducted from two sites. These consist of an office, headend, and studio
facility located at 1614 Washington Street in Manitowoc and an off-air reception
site on Silver Creek Road in Newton, Wisconsin.
INDUSTRY OVERVIEW
- -----------------
The cable television industry developed in the late 1940s in order to
provide television service to communities in rural Pennsylvania which were too
isolated to receive over-the-air broadcasts. Since that time, the industry has
grown and diversified to provide a broad range of educational, entertainment,
cultural, and sports programming to large urban areas and rural communities
alike.
According to the Broadcasting & Cable Yearbook 1996, the cable industry in
----------------------------------
the United States consists of approximately 11,800 operating systems serving
over 34,000 communities throughout the United States. Approximately 100
additional cable television franchises have been approved but have yet to be
constructed. Approximately 65.3% of all households in the United States are
currently served by cable television.
-2-
<PAGE>
Each system has been granted a franchise by its local municipal government.
Franchises are awarded competitively, and the winning bidder must generally
provide guarantees that expensive investments in local employment, local
programming, and system technical design will be made.
The construction of a cable television system is extremely capital
intensive. The cost of installing aerial cable often comprises the single
largest investment made by a cable television system operator. Underground cable
television installation is even more expensive, when considered on a per-mile
basis. Additionally, investments must be made in headend facilities, satellite
receiving equipment, office facilities, and subscriber equipment such as
converter units, which ultimately deliver cable television service to
households.
Numerous changes have occurred in the development of cable television
technology. Original systems used vacuum tube electronics and provided only a
few off-air channels to subscribers. By contrast, modern systems are capable of
providing over 100 channels of service, including satellite signals and locally-
originated programs. These systems use solid state amplifiers and addressable
converter equipment to control subscriber service levels.
Cable television systems provide entertainment, news, music, and other
forms of programming to the public. The cable operator must pay a fee, usually
calculated on a per-subscriber basis, to program suppliers. These fees may
either be on a fixed basis, or calculated as a percentage of system revenues.
-3-
<PAGE>
In order to cover the costs of operation, systems sell "basic" and "tier"
services which include local television signals, local origination programs, and
selected satellite services for a fixed monthly fee to all subscribers.
Customers also have the option to subscribe to additional "premium" or "pay"
services, such as Home Box Office and Showtime, which offer movies, sports,
entertainment, and cultural programming.
In some cases, cable systems generate additional revenues by selling
advertising time to local and national businesses, government agencies, and
political organizations which seek to deliver information to the general public.
Given the substantial fixed costs resulting from the capital requirements
of the business, as well as high programming costs, cable operators seek to
maximize system penetration. Two types of system penetration are of paramount
importance in the industry.
The first is basic penetration, which is a measure of the number of homes
sub scribing to cable television as a proportion of the homes which are passed
by cable; if 400 homes subscribed to cable service in a community of 1,000
homes, basic penetration would be 40%.
The second important measure is pay penetration, which gauges the
popularity of pay services among those households which subscribe to basic cable
service. If each of the 400 cable households in the example subscribed to two
pay services, pay penetration would be 200%.
The linkage between basic penetration, pay penetration, and customer
development is fundamental to the cable industry. Operators constantly seek to
provide programming
-4-
<PAGE>
and services that will develop the widest appeal among local households. The
more effectively the cable operator is able to meet the preferences of the
public, the larger the system's subscriber base will be. This relationship
between subscribers and revenues is axiomatic in the cable industry and is the
primary determinant of success or failure among system operators.
The cable industry has become increasingly competitive in recent years.
Overall financial performance of the industry has fallen short of expectations
that were developed in the early 1980s, when a large number of cable television
facilities were constructed. Traditional broadcast stations continue to be the
mainstay of television viewing in the United States. In recent years, the FCC
has issued many additional licenses for new independent television stations
throughout the country. Moreover, cable operators have come under increasing
competitive pressure from videocassette rental outlets, direct broadcast
satellite services, and other competing technologies.
In order to build the largest possible subscriber base, systems invest
heavily in tangible assets, such as distribution equipment and satellite
equipment, and intangible assets such as marketing systems and programming
agreements. Similarly, investments in equipment and intangible assets, such as
managerial talent, may be oriented toward controlling costs and increasing
profitability.
It is in this marketplace, one defined by heavy capital investment, the
relationship between subscriber base size and revenues, and increasing
competition, that the Manitowoc System operates.
-5-
<PAGE>
APPRAISAL METHODOLOGY
- ---------------------
To inspect the physical plant and gather relevant financial and market data
necessary for the appraisal, Timothy S. Pecaro of the firm visited the offices
and technical facilities of the system in Manitowoc, Wisconsin on June 2, 1995.
In addition, the appraiser received updated financial and system information as
of August 31, 1996 to assist in the preparation of this appraisal.
A number of specific tasks were necessary for the completion of this
project. These included:
1. Consultation with system management regarding market factors and
system-specific issues which have an impact on the value of the
property's tangible and intangible assets.
2. The completion of a discounted cash flow analysis to quantify the cash
flows attributable to the Manitowoc System.
3. The development of a comparable sales analysis to establish the prices
recently paid for similar cable television properties.
4. The consolidation of these analyses into an opinion of value.
Specific data provided by the system and Jones Intercable, Inc. Cable TV
Joint Fund 11 included historical audited financial statements for 1992 through
1996 year to date, operating statistic summaries, system technical data, market
demographic data, management's ten year financial projections, and related
materials. Other sources consulted in the preparation of this report include
industry factbooks, government publications, and
-6-
<PAGE>
similar reference materials. Additionally, the appraiser relied upon information
furnished by system management relative to the age, condition, and adequacy of
the system's physical plant.
In the valuation of such properties, the income approach is generally
judged to be the most appropriate methodology. The value of these assets is
defined by the benefit that they bring to the owner of the property. The fair
market value of the system's non-current assets can be expressed by discounting
these future benefits. "Fair market value" is defined as the cash price that
would be paid by a willing buyer to a willing seller in an arm's-length
transaction, in which neither party acts under any compulsion to buy or sell.
It is generally accepted that a telecommunications business' value lies in
the fact that it is a "going concern." That is, its value reflects the revenues
and, ultimately, the after-tax cash flow that the business may reasonably be
expected to generate over a period of years. The potential resale value of the
business at the end of that period is also an important factor in the valuation
of such properties.
The discounted cash flow model incorporates variables such as capital
expenditures, homes passed by the system, basic penetration, pay penetration,
system revenue projections, anticipated system operating expenses and profits,
and various discount rates. The variables used in the analysis reflect
historical system and market growth trends, as well as anticipated system
performance and market conditions.
-7-
<PAGE>
The capital expenditures provision reflects the amount of investment
required to expand and maintain a competitive cable television business in the
Manitowoc, Wisconsin operating area.
The discounted cash flow projection period of ten years was judged to be an
appropriate time horizon for the analysis. Cable operators and investors
typically expect to recover their investments within a ten year period. It is
over this period that projections regarding market demographics, system basic
and pay penetration, and operating profit margins can be made with the highest
degree of accuracy.
During this ten year period, household growth in the Manitowoc area,
anticipated market penetration percentages, and system operating performance
expectations were used to project the system's operating profits. Income taxes
were deducted from the projected operating profits to determine after-tax net
income. Depreciation and amortization expenses were added back to the after-tax
income stream and projected capital expenditures were subtracted to calculate
the system's net after-tax cash flow.
The stream of annual cash flows was adjusted to present value using a base
after-tax discount rate of 12.0%. The discount rate represents an after-tax
adjusted rate calculated for the cable television industry as of August 31,
1996.
Additionally, it was necessary to project the system's residual value at
the end of the ten year projection period. In order to determine this value, an
operating cash flow multiple of 10.75 was applied to the system's 2006 projected
operating cash flow. The
-8-
<PAGE>
indicated terminal value was then discounted to present value using a discount
rate of 12.0%. These calculations are described in detail in the body of this
report.
The market, or comparable sales, approach provides a useful means by which
assumptions made in the development of the discounted cash flow analysis can be
tested against marketplace transactions. Recent cable television system sales
transactions were analyzed to obtain pertinent comparable sales data.
The results of these approaches are considered and given appropriate weight
in the consolidation portion of the analysis.
-9-
<PAGE>
JONES INTERCABLE, INC. CABLE TV JOINT FUND 11
CABLE TELEVISION SYSTEM
MANITOWOC, WISCONSIN
APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996
II. EXECUTIVE SUMMARY
----------------------
The appraiser has quantified the value of the Manitowoc System using both
the income and market approaches as of August 31, 1996. The indicated fair
market value of the non-current assets of the system was approximately $16.7
million.
The appraiser developed a discounted cash flow analysis to determine the
value of the system, based upon its economic potential. The results of this
analysis indicate that the value of the Manitowoc System as of August 31, 1996
was $16,713,500. In order to verify the results of the discounted cash flow
analysis, the appraiser also utilized a comparable sales approach, relying upon
an analysis of subscriber multiples. The results of this analysis support the
conclusion resulting from application of the income approach.
The assets were valued based upon information provided by Jones Intercable,
Inc. Cable TV Joint Fund 11 and its affiliates. The appraiser can assume no
responsibility for hidden defects, liabilities, or errors in information
provided by the Manitowoc System, Jones Intercable, Inc. Cable TV Joint Fund 11,
or other sources utilized in the preparation of this report. The appraiser has
relied upon information furnished by system management and engineering personnel
regarding the operating characteristics of certain assets.
-10-
<PAGE>
Neither this firm nor any of its employees have any present or anticipated
economic interest in the Manitowoc System or Jones Intercable, Inc. Cable TV
Joint Fund 11. The compensation received by the firm was in no way contingent
upon the values or the conclusions developed herein.
This appraisal was prepared for Jones Intercable, Inc. in connection with
its planned acquisition of the Manitowoc System from Jones Intercable, Inc.
Cable TV Joint Fund 11.
All information and conclusions contained in this report are based upon the
best knowledge and belief of the undersigned, whose qualifications are attached
hereto.
BOND & PECARO, INC. BOND & PECARO, INC.
1201 Connecticut Ave, NW
Suite 450
Washington, D.C. 20036
(202) 775-8870
November 9, 1996 BY /s/ James R. Bond, Jr.
-----------------------------
James R. Bond, Jr.
BY /s/ Timothy S. Pecaro
-----------------------------
Timothy S. Pecaro
-11-
<PAGE>
JONES INTERCABLE, INC. CABLE TV JOINT FUND 11
CABLE TELEVISION SYSTEM
MANITOWOC, WISCONSIN
APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996
III. DISCOUNTED CASH FLOW MODEL AND ASSUMPTIONS
------------------------------------------------
The assumptions used in the discounted cash flow model reflect potential
system performance and trends in the Manitowoc, Wisconsin service area, as well
as the experience of the cable television industry in general.
As of August 31, 1996, Jones Intercable, Inc. Cable TV Joint Fund 11 owned
various assets associated with the operation of the system in Manitowoc,
Wisconsin. These assets include the system's tangible assets, subscriber base,
franchise operating rights, and miscellaneous other intangibles assets which are
essential to the lawful and efficient operation of the system.
Tangible assets in place at the Manitowoc System as of August 31, 1996
include a cable television distribution plant, cable television subscriber
drops, subscriber converters, towers, electronic equipment, office equipment,
vehicles, and miscellaneous other tangible assets.
As discussed in the introduction to this report, a critical element in the
success of a cable television operation is its ability to build a viable
subscriber base. The owner of a cable system that does not have a developed
subscriber base would be forced to incur
-12-
<PAGE>
substantial sales and marketing expenses in order to build subscriber revenues
sufficient to cover the system's fixed costs and contribute to profits. In
order to generate these subscribers, it would be necessary for the system to
conduct major promotions, undertake direct marketing campaigns, and place
advertisements in local media. There would also be substantial costs associated
with customer cable connection and administrative costs. The inherent value of
the Manitowoc System subscriber base is an important component of the system's
overall value.
In order to operate a cable television system within an area, a cable
system operator must be awarded a local area franchise. Obtaining this
franchise is a competitive process through which applicants submit bids which
include, among other things, proposed channel capacity, service area, technical
operating standards, and basic subscriber fees. The local government then
typically selects the successful applicant and negotiates a franchise agreement.
The Manitowoc System operates under the provisions of a single cable
television franchise. On November 3, 1980, the system was granted a cable
television franchise to serve the City of Manitowoc, Wisconsin. This franchise
expired on November 3, 1995. The City of Manitowoc has temporarily extended the
Jones Intercable, Inc. Cable TV Joint Fund 11 franchise to provide cable service
within the city limits for an increased franchise fee of 5%. A renewal of The
City of Manitowoc franchise is expected by December 1996.
Going concern value consists of the organization and procedures that were
in place at the Manitowoc System as of August 31, 1996. A number of factors
contribute to going
-13-
<PAGE>
concern value, including the formation of a business plan; the construction of
the system headend facility; the development of a functional general,
administrative, and technical organization; establishment of a sales and
marketing organization; and the coordination of all of these functions into a
well defined and efficient operating organization.
In order to determine the value of the Manitowoc System as of August 31,
1996, a discounted cash flow analysis was developed. This analysis reflects
assumptions regarding system revenues, operating expenses, and capital
expenditures.
MANITOWOC MARKET OVERVIEW
- -------------------------
The Manitowoc System serves subscribers in the City of Manitowoc.
According to the Wisconsin Public Service Corporation, the City of Manitowoc's
population reached 34,000 in 1996. Major employers in the community include the
Mirro Company, the Manitowoc Company, A. E. Goetze Corporation, and the Pullman
Company (Imperial Eastman Division). Manitowoc County, in which the City of
Manitowoc is located, had an unemployment rate below 3.0% in August 1996.
According to Broadcasting & Cable Yearbook 1996, the Manitowoc System area
----------------------------------
is located within the Green Bay - Appleton, Wisconsin television market, which
ranks 71st in the United States and contains approximately 375,000 households.
The Green Bay -Appleton DMA (Designated Market Area) consists of 15 Wisconsin
- - -
counties, including Brown, Winnebago, Outagamie, Fond Du Lac, and Manitowoc, and
one Michigan county, Menominee.
-14-
<PAGE>
There are currently six commercial television stations operating in the
Green Bay-Appleton market: WBAY-TV, Channel 2 (ABC); WFRV-TV, Channel 5 (CBS);
WLUK-TV, Channel 11 (Fox); WSCO, Channel 14; WGBA, Channel 26 (NBC); and WACY-
TV, Channel 32 (WBN).
In addition to competition from these local broadcast television stations,
the Manitowoc System vies with local radio stations, newspapers, MMDS, DBS, and
videocassette rental outlets for audience share and advertising revenues.
HOMES PASSED
- ------------
The initial parameter upon which the discounted cash flow projection is
based is homes passed, or "passings." Two factors affect the number of homes
passed, new plant construction and household growth. Plant expansion improves
system coverage by allowing the system to offer service to previously unserved
areas. Household growth is the result of new construction and occupancies in
areas that are already served by the system.
It has been assumed that the number of households in the Manitowoc System
franchise area will increase at a rate equivalent to the average growth
projected for the areas served by the system as a whole, or approximately 0.8%
per year.
-15-
<PAGE>
BASIC AND EXPANDED BASIC PENETRATION
- ------------------------------------
Basic and expanded basic subscriber penetration at the system are currently
69.4% and 97.1% (expressed as a ratio of basic subscribers), respectively.
System basic penetration has shown limited but consistent growth during the past
two years. It is likely that basic and expanded basic penetration will continue
to demonstrate a modest growth trend over the projected 10 year period.
For purposes of this analysis, the appraiser has assumed that basic
subscriber penetration will gradually increase from its current level to
approximately 85.0% by 2006, as shown in Table 1. Basic subscribers at the
Manitowoc System are projected to increase at an annual rate of 4.2% in 1996,
3.2% in 1997, 2.7% in 1998, and from 1.7% to 2.5% through the year 2006.
Expanded basic subscribers have been projected to remain at a 97.1% penetration
ratio of basic subscribers through 2006. These rates are derived from the
historical and anticipated performance of the system and the cable television
industry in general.
PAY PENETRATION
- ---------------
As of August 31, 1996, pay penetration at the Manitowoc System attained a
level of 63.2%. For the purposes of this analysis, the appraiser has assumed
that pay penetration will increase from this level to approximately 72.0% by
2006, as indicated in Table 1. This estimate is reasonable in light of the
historical performance of the Manitowoc System and the anticipated performance
of the cable television industry in general.
-16-
<PAGE>
RATES
- -----
System service rates are projected in Table 2. These are based upon
prevailing Manitowoc System rates with provisions for anticipated increases,
where appropriate.
As of August 31, 1996, monthly service rates were $11.08 for limited basic
service, $9.58 for expanded basic service, $7.95 to $9.95 for each pay service,
and $1.45 for each converter. There is also an average one-time charge of $9.00
for remote control unit purchases. Installation fees ranged from $13.25 to
$35.00, depending upon the type of installation service performed.
Due to regulatory and competitive limitations, service rates for basic and
expanded basic services are expected to grow with inflation, while premium
channel services are expected to remain relatively flat. These assumptions are
consistent with management expectations for service rate growth.
REVENUE PROJECTIONS
- -------------------
Most of the revenue projections appearing in Table 2 are calculated by
multiplying the number of subscribers to a particular level of service by the
projected rate.
Commercial service revenue is projected to increase at an annual rate of
5.0%, based upon management expectations for the Manitowoc System. Similarly,
pay-per-view service revenue is projected to increase at a 12.0% annual rate
through 2006, reflecting management's system performance projections.
-17-
<PAGE>
Commercial advertising is projected to increase at an 11.3% annual rate
through 1999 and at an 11.4% rate thereafter, consistent with management
expectations. Annual installation revenue was projected to grow at a compound
annual rate of 3.5% during the projection period. Equipment rental revenues, as
well as other revenues, are also projected to increase by 3.5% annually through
2006.
As indicated in Table 3, total system revenues are projected to increase
from $3.9 million in 1996 to approximately $7.2 million in 2006.
OPERATING PROFIT MARGINS
- ------------------------
Operating profit margins are based upon historical operating performance of
the Manitowoc System. Operating profits are defined as profit before interest,
depreciation, tax, and corporate allocation charges. For the purposes of this
analysis, the system's August 1996 operating profit margin of 42.5% has been
used. The Manitowoc System's operating profit margin was adjusted to exclude
revenues and expenses associated with the Marcus Cable systems managed by the
Jones Intercable, Inc. Cable TV Joint Fund 11.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization estimates have been based upon an estimated
tangible asset value of $2,820,000, the continuing annual capital expenditures
required to upgrade and maintain the system's plant and equipment, and the
system's estimated intangible asset value.
-18-
<PAGE>
Depreciation for tangible property in each year has been determined using
the MACRS schedule for 5, 7, 15, and 39 Year Property. Amortization of
intangible assets has been estimated using the straight-line method over 15
years.
FEDERAL, STATE, AND LOCAL TAX RATES
- -----------------------------------
An estimated tax rate of 40.1% was applied to the projected taxable income
of the system. This estimated rate reflects the effective combined federal,
state, and local tax rates in effect on August 31, 1996.
CAPITAL EXPENDITURES
- --------------------
Capital expenditures were projected at approximately 8% of the estimated
value of the tangible assets of the Manitowoc System as of August 31, 1996.
These expenditures are necessary in order to replace assets that become
irreparable, technically obsolete, or for other reasons are no longer useful to
the system. As the system physical plant ages and as changes in technology
occur, additional equipment and facilities will be necessary to improve and
expand its productive capacity.
NET AFTER-TAX CASH FLOW
- -----------------------
Net after-tax cash flow was determined in two steps. After taxes were
subtracted from the system's taxable income, non-cash depreciation and
amortization expense was added back to net income to yield after-tax cash flow.
From the after-tax cash flow, a
-19-
<PAGE>
provision for subsequent capital expenditures was deducted to calculate net
after-tax cash flow.
DISCOUNT RATE
- -------------
A discount rate of 12% was used to calculate the present value of the net
after-tax cash flows. In order to account for the risk associated with
investments in the cable television industry and the Manitowoc System in
particular, a premium was added to a base discount rate to develop the 12% rate
employed in this analysis. The base rate reflects application of the WACC
(Weighted Average Cost of Capital) model.
- - - -
RESIDUAL CASH FLOW MULTIPLE
- ---------------------------
The residual cash flow multiple refers to the multiplier used to estimate
the system's value at the end of the projection period. A multiplier of 10.75
was applied to the system's 2006 operating cash flow. Generally, multiples used
in the valuation of cable television systems of this type range from 9 to 12
times operating cash flow, depending upon market conditions and a system's
profit potential. Exceptional circumstances will warrant multiples outside of
this range.
The selected multiple of 10.75 was used to estimate the value of the system
at the end of the investment period. This multiple reflects the state of the
market for cable television systems as of August 31, 1996, tempered by the
economic conditions of the system's franchise service area, the necessity for a
system rebuild, and the uncertainty
-20-
<PAGE>
introduced by re-regulation of the cable television industry and competition
from telephone companies and direct broadcast satellite (DBS) operators.
-21-
<PAGE>
PRESENT VALUE OF RESIDUAL
- -------------------------
In the analysis, capital gains taxes were deducted from the discounted
terminal value at a rate of 40.1%. This result was then discounted for present
value. A rate of 12% was used in this calculation.
MODEL RESULTS
- -------------
The results of the discounted cash flow analysis are summarized in Table 4.
Based upon the assumptions outlined above, the indicated fair market value of
the system's non-current assets is $16,713,500. This value incorporates the
cumulative present value of the net after-tax cash flows of $9,750,400 and the
discounted residual value of $6,963,100, as shown in Table 4.
-22-
<PAGE>
TABLE 1
-------
MANITOWOC SYSTEM SUBSCRIBER PROJECTIONS
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Subscribers
- -----------
Homes Passed 15,468 15,592 15,716 15,842 15,969 16,096 16,225 16,355 16,486 16,618 16,751
Basic Subscribers:
Beginning of Year 10,647 11,094 11,449 11,758 12,017 12,221 12,527 12,840 13,161 13,490 13,827
Net Additions 447 355 309 259 204 306 313 321 329 337 346
End of Year 11,094 11,449 11,758 12,017 12,221 12,527 12,840 13,161 13,490 13,827 14,173
Average Basic Subscribers 10,871 11,272 11,604 11,888 12,119 12,374 12,684 13,001 13,326 13,659 14,000
Tier 1 Subscribers (EOY) 10,772 11,117 11,417 11,669 11,867 12,164 12,468 12,779 13,099 13,426 13,762
Premium Subscribers (EOY) 7,111 7,442 7,749 8,027 8,274 8,594 8,924 9,265 9,618 9,983 10,360
Basic Service Penetration 71.7% 73.4% 74.8% 75.9% 76.5% 77.8% 79.1% 80.5% 81.8% 83.2% 84.6%
Tier 1 Penetration (% Subs.) 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% 97.1% 97.1%
Premium Penetration (% Subs.) 64.1% 65.0% 65.9% 66.8% 67.7% 68.6% 69.5% 70.4% 71.3% 72.2% 73.1%
</TABLE>
-23-
<PAGE>
TABLE 2
-------
MANITOWOC SYSTEM REVENUE PROJECTIONS
(Dollar Amounts Shown in Thousands)
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service Revenue
- ---------------
Basic Service Revenue $1,496.2 $1,605.5 $1,711.3 $1,814.5 $1,915.3 $2,023.9 $2,147.6 $2,277.7 $2,416.2
Tier 1 Service Revenue 1,256.5 1,348.8 1,437.2 1,523.7 1,608.5 1,700.0 1,803.1 1,913.2 2,029.4
Basic Commercial & Pay Revenue 38.0 39.9 41.9 44.0 46.2 48.5 50.9 53.4 56.1
Premium Service Revenue 626.1 658.4 687.2 713.7 737.5 763.1 792.5 822.9 854.3
Pay Per View Revenue 39.7 44.5 49.8 55.8 62.5 70.0 78.4 87.8 98.3
-------- -------- -------- -------- -------- -------- -------- -------- --------
Subtotal Service Revenue $3,456.5 $3,697.1 $3,927.4 $4,151.7 $4,370.0 $4,605.5 $4,872.5 $5,155.0 $5,454.3
Other Revenue
- -------------
Advertising Revenue $ 297.0 $ 330.6 $ 368.0 $ 409.6 $ 455.9 $ 507.9 $ 565.8 $ 630.3 $ 702.2
Installation 34.2 35.4 36.6 37.9 39.2 40.6 42.0 43.5 45.0
Equipment Rentals 42.9 44.4 46.0 47.6 49.3 51.0 52.8 54.6 56.5
FCC Pass Thru Revenue 4.9 5.1 5.2 5.4 5.5 5.6 5.7 5.9 6.0
Other Revenue 61.4 63.5 65.7 68.0 70.4 72.9 75.5 78.1 80.8
-------- -------- -------- -------- -------- -------- -------- -------- --------
Subtotal Other Revenue $ 440.4 $ 479.0 $ 521.5 $ 568.5 $ 620.3 $ 678.0 $ 741.8 $ 812.4 $ 890.5
Total Revenue $3,896.9 $4,176.1 $4,448.9 $4,720.2 $4,990.3 $5,283.5 $5,614.3 $5,967.4 $6,344.8
<CAPTION>
2005 2006
---- ----
<S> <C> <C>
Service Revenue
- ---------------
Basic Service Revenue $2,563.4 $2,719.9
Tier 1 Service Revenue 2,153.3 2,283.8
Basic Commercial & Pay Revenue 58.9 61.8
Premium Service Revenue 886.7 920.3
Pay Per View Revenue 110.1 123.3
-------- --------
Subtotal Service Revenue $5,772.4 $6,109.1
Other Revenue
- -------------
Advertising Revenue $ 782.3 $ 871.5
Installation 46.6 48.2
Equipment Rentals 58.5 60.5
FCC Pass Thru Revenue 6.2 6.3
Other Revenue 83.6 86.5
-------- --------
Subtotal Other Revenue $ 977.2 $1,073.0
Total Revenue $6,749.6 $7,182.1
</TABLE>
-24-
<PAGE>
TABLE 3
-------
MANITOWOC SYSTEM FINANCIAL PROJECTIONS
(Dollar Amounts Shown in Thousands)
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000 2001 2002 2003 2004
---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Projected System Revenues $3,896.9 $4,176.1 $4,448.9 $4,720.2 $4,990.3 $5,283.5 $5,614.3 $5,967.4 $6,344.8
Operating Profit Margin 42.5% 42.5% 42.5% 42.5% 42.5% 42.5% 42.5% 42.5% 42.5%
Operating Cash Flow $1,656.2 $1,774.8 $1,890.8 $2,006.1 $2,120.9 $2,245.5 $2,386.1 $2,536.1 $2,696.5
Less: Depreciation 1,362.5 1,701.5 1,501.6 1,373.6 1,338.1 1,299.3 1,260.9 1,201.4 1,132.1
-------- -------- -------- -------- -------- -------- -------- -------- --------
Taxable Income $ 293.7 $ 73.3 $ 389.2 $ 632.5 $ 782.8 $ 946.2 $1,125.2 $1,334.7 $1,564.4
Taxes 117.8 29.4 156.1 253.6 313.9 379.4 451.2 535.2 627.3
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net Income $ 175.9 $ 43.9 $ 233.1 $ 378.9 $ 468.9 $ 566.8 $ 674.0 $ 799.5 $ 937.1
Add Back: Depreciation 1,362.5 1,701.5 1,501.6 1,373.6 1,338.1 1,299.3 1,260.9 1,201.4 1,132.1
-------- -------- -------- -------- -------- -------- -------- -------- --------
After-Tax Cash Flow $ 518.4 $1,745.4 $1,734.7 $1,752.5 $1,807.0 $1,866.1 $1,934.9 $2,000.9 $2,069.2
Capital Expenditures 76.0 225.6 225.6 225.6 225.6 225.6 225.6 225.6 225.6
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net After-Tax Cash Flow $ 442.4 $1,519.8 $1,509.1 $1,526.9 $1,581.4 $1,640.5 $1,709.3 $1,775.3 $1,843.6
Present Value Net After-Tax
Cash Flow $ 434.0 $1,382.3 $1,225.5 $1,107.1 $1,023.7 $ 948.2 $ 882.1 $ 818.0 $ 758.5
Cumulative Present Value
Net After-Tax Cash Flow $ 434.0 $1,816.3 $3,041.8 $4,148.9 $5,172.6 $6,120.8 $7,002.9 $7,820.9 $8,579.4
Cumulative Present Value
Net After-Tax Cash Flow $9,750.4
========
<CAPTION>
2005 2006
---- ----
<C> <C>
Projected System Revenues $6,749.6 $7,182.1
Operating Profit Margin 42.5% 42.5%
Operating Cash Flow $2,868.6 $3,052.4
Less: Depreciation 1,132.1 1,132.1
-------- --------
Taxable Income $1,736.5 $1,920.3
Taxes 696.3 770.0
-------- --------
Net Income $1,040.2 $1,150.3
Add Back: Depreciation 1,132.1 1,132.1
-------- --------
After-Tax Cash Flow $2,172.3 $1,513.2
Capital Expenditures 225.6 149.6
-------- --------
Net After-Tax Cash Flow $1,946.7 $1,363.6
Present Value Net After-Tax
Cash Flow $ 715.1 $ 455.9
Cumulative Present Value
Net After-Tax Cash Flow $9,294.5 $9,750.4
</TABLE>
Note: 1996 and 2006 after-tax cash flows and capital expenditures adjusted for
partial years.
-25-
<PAGE>
TABLE 4
-------
CALCULATION OF VALUE ATTRIBUTABLE TO MANITOWOC SYSTEM NON-CURRENT ASSETS
(Dollar Amounts Shown in Thousands)
<TABLE>
<S> <C>
2006 Operating Cash Flow 1/ $ 3,052.4
10.75x Cash Flow Multiple 2/ $32,813.3
Less: Remaining Basis 4,915.8
---------
Capital Gain $27,897.5
Capital Gains Tax @ 40.1% 2/ $11,186.9
___________________________
Terminal Value $32,813.3
Less: Capital Gains Tax 11,186.9
---------
After-Tax Terminal Value $21,626.4
After-Tax Terminal Value Discounted to
Present Value @ 12% 2/ $ 6,963.1
Plus: Cumulative Present Value After-Tax Cash Flow 1/ 9,750.4
---------
Indicated Fair Market Value: (Income Approach)
Non-Current Assets of the Manitowoc System $16,713.5
=========
</TABLE>
1/ See Table 3.
2/ See text.
-26-
<PAGE>
JONES INTERCABLE, INC. CABLE TV JOINT FUND 11
CABLE TELEVISION SYSTEM
MANITOWOC, WISCONSIN
APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996
IV. COMPARABLE SALES ANALYSIS
------------------------------
In recent years, there have been many sales of cable television systems in
the United States. Table 5 identifies ten cable television system sales which
occurred within the past year. These sales have been selected based upon their
comparability to the Manitowoc System.
Subscriber counts for the comparable cable television systems shown in
Table 5 are within 25% of the August 31, 1996 Manitowoc cable television system
subscriber level of 10,825. The prices paid for these comparable systems range
from $9.6 million to $20.0 million.
As shown in Table 5, the price per subscriber has been computed for each
comparable sale. This measure is calculated by dividing the reported purchase
price of the cable television system by the total number of basic subscribers.
The average price per subscriber paid for the ten comparable cable television
system sales listed in Table 5 is approximately $1,419.
-27-
<PAGE>
TABLE 5
-------
MANITOWOC CABLE TELEVISION SYSTEM COMPARABLE SALES
<TABLE>
<CAPTION>
Basic Price
Price Subs Per Sub
Date Location Seller Buyer (mil.) (000) (000)
- ---- -------- ------ ----- ------ ----- -----
<S> <C> <C> <C> <C> <C> <C>
Nov. 95 Emmaus, PA Lenfest Service Electric $15.2 9.1 $1,672
Mar. 96 Northern, MS TCI of Kansas Galaxy Telecom 15.4 10.0 1,537
Apr. 96 KS based system Cablevision of Texas Galaxy Telecom 9.6 9.0 1,066
Apr. 96 GA based system Falcon Holdings Teleview Inc. 15.0 9.5 1,579
Apr. 96 WA, OR and CA systems Apollo Comm. Cable Plus, Inc. 12.1 11.6 1,052
Jun. 96 Columbus, GA TCI Charter Communications 15.8 13.0 1,212
Jun. 96 Jasper, TN PCI Sun Cable Helicon 11.4 8.2 1,382
Jul. 96 San Francisco, CA area Balkin Cable TCI of Georgia 19.6 12.3 1,594
Jul. 96 GA and OH based systems Clear-Vu Cable Helicon 18.2 12.3 1,530
Aug. 96 Moses Lake, WA Marcus Cable Northland Comm. 20.0 12.5 1,568
----- ---- ------
Average $15.2 10.8 $1,419
===== ==== ======
</TABLE>
Source: Announced cable television sales data from Paul Kagan Associates Cable
-----
TV Investor.
- -----------
Note: Price per subscriber calculations may show slight rounding discrepancy.
-28-
<PAGE>
JONES INTERCABLE, INC. CABLE TV JOINT FUND 11
CABLE TELEVISION SYSTEM
MANITOWOC, WISCONSIN
APPRAISAL OF CERTAIN ASSETS AS OF AUGUST 31, 1996
V. CONSOLIDATION
-----------------
The results of the discounted cash flow analysis are summarized in Table 4.
Based upon the assumptions outlined above, the indicated value of the cable
system serving the Manitowoc franchise area is found to be approximately $16.7
million. This value incorporates the cumulative present value of the net after-
tax cash flows of $9,750,400 and the discounted residual value of $6,963,100.
To place this economic value in the context of current market conditions,
the appraiser sought to compare this value with prevailing subscriber multiples
for cable television systems in August 1996. The $16.7 million value reflects a
subscriber multiple of approximately $1,540 per subscriber. The indicated value
for the system appears to be quite consistent with prevailing subscriber
multiples, as shown in Table 5.
Giving appropriate weight to the discounted cash flow analysis and the
reported comparable sales transactions, the indicated value of the non-current
assets of the Manitowoc cable television system as of August 31, 1996 is found
to be $16.7 million.
-29-
<PAGE>
EXHIBIT A
QUALIFICATIONS OF JAMES R. BOND, JR. AND TIMOTHY S. PECARO
<PAGE>
PROFESSIONAL EXPERIENCE AND QUALIFICATIONS
------------------------------------------
JAMES R. BOND, JR.
------------------
James R. Bond, Jr. is a principal in the consulting firm of Bond & Pecaro, Inc.
In this capacity, he is routinely retained to examine and study economic issues
which affect media businesses.
Before the formation of Bond & Pecaro, Inc., Mr. Bond was a Vice President with
Frazier, Gross & Kadlec, Inc. Mr. Bond joined that firm in 1978, was appointed
Manager of Asset Appraisal Services in 1979, and in 1982 was named Vice
President. In this capacity he engaged in the development and preparation of
asset appraisal reports and economic analyses for owners of broadcast and cable
television properties.
Mr. Bond has been retained to appraise, for a fee, the assets of over 1,500
radio, television, radio common carrier, and cable television properties. He is
a member of the Society of Broadcast Engineers (SBE), the Cable Television Tax
Professionals Institute (CTTPI), and The Society of Cable Television Engineers
(SCTE). He is a member and director of the Broadcast and Cable Television
Financial Management Association (BCFM), and serves on that organization's
Taxation Advisory Committee. He also serves on the National Association of
Broadcasters (NAB) Tax Advisory Panel and Depreciation Task Force. Mr. Bond is
a Certified Senior Radio Broadcast Engineer (SBE), a Certified Senior Television
Broadcast Engineer (SBE), and holds an FCC First Class Radiotelephone Operator
License.
He has testified as an expert witness in connection with numerous
telecommunications valuation matters before federal, state, and local courts.
Mr. Bond received a Bachelor of Arts degree in Radio, Television and Motion
Pictures from the University of North Carolina at Chapel Hill in 1976. Mr. Bond
also holds a Masters Degree in Business Administration from the University of
Virginia in Charlottesville, Virginia.
<PAGE>
PROFESSIONAL EXPERIENCE AND QUALIFICATIONS
------------------------------------------
TIMOTHY S. PECARO
-----------------
Timothy S. Pecaro is a principal in the firm of Bond & Pecaro, Inc., a
Washington based consulting firm specializing in valuations, asset appraisals,
and related financial services for the communications industry. Before the
formation of Bond & Pecaro, Inc., Mr. Pecaro was a Vice President with Frazier,
Gross & Kadlec, Inc. Mr. Pecaro joined that firm in 1980 and was named Manager
of the firm's Asset Appraisal Services Division in 1982. He became Director of
Asset Appraisal Services in 1983 and Vice President of the firm in 1984.
Mr. Pecaro has actively participated in the development, research, and
preparation of asset appraisal reports for owners of radio, television,
newspaper, radio common carrier, and CATV properties. He has also developed
several research studies and has participated in special research at the FCC.
Mr. Pecaro has appraised the assets of more than 1,500 communications
facilities. He has also been retained to provide special market studies and
individual research projects for the management of broadcast properties and
related industries. He is a member of the Broadcast Cable Financial Management
Association, the NAB Tax Advisory Panel, and the NAB Depreciation Task Force.
Mr. Pecaro has testified as an expert witness in connection with
telecommunications valuation matters before federal and state courts. He has
also spoken on communications financial issues at the annual conferences of the
National Association of Broadcasters, the Broadcast Financial Management
Association, and Telocator.
Prior to his association with Frazier, Gross & Kadlec, Mr. Pecaro was employed
at WMAQ and WKQX(FM) in Chicago, Illinois, two of the NBC owned and operated
radio stations. Mr. Pecaro served as Program Research Director and Assistant
Music Director at WKQX.
Mr. Pecaro received a Bachelor of Arts degree in Radio/Television Communication
Arts from Monmouth College in 1976. He graduated Cum Laude with highest honors
in his major field of study.
<PAGE>
Exhibit (d)(1)
[LOGO OF JONES INTERCABLE APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
NOTICE OF VOTE OF THE LIMITED PARTNERS
OF CABLE TV FUND 11-A, LTD.
To the Limited Partners of Cable TV Fund 11-A, Ltd.:
A special vote of the limited partners of Cable TV Fund 11-A, Ltd. (the
"Partnership") is being conducted through the mails on behalf of the
Partnership by Jones Intercable, Inc., the general partner of the Partnership,
for the purpose of obtaining limited partner approval of the sale, to Jones
Intercable, Inc., of the Manitowoc, Wisconsin cable television system (the
"Manitowoc System") owned by Cable TV Joint Fund 11, a joint venture in which
the Partnership has an 18 percent ownership interest, for $16,122,333 in cash,
subject to normal closing adjustments. Information relating to this matter is
set forth in the accompanying Proxy Statement.
If the limited partners approve the proposed sale of the Manitowoc System
and if the transaction is closed, the net sale proceeds will be distributed to
the four constituent partnerships of Cable TV Joint Fund 11 in proportion to
their ownership interests. The Partnership accordingly will receive 18 percent
of such proceeds, estimated to total approximately $3,509,934, and the
Partnership will distribute this portion of the net sale proceeds to its
partners of record as of March 31, 1997. It is estimated that the limited
partners will receive $58 for each $500 limited partnership interest, or $115
for each $1,000 invested in the Partnership. The Partnership then will be
dissolved and liquidated.
Only limited partners of record at the close of business on January 31, 1997
are entitled to notice of, and to participate in, this vote of limited
partners.
It is very important that all limited partners participate in the voting.
Cable TV Joint Fund 11's ability to complete the transaction discussed in the
Proxy Statement and the Partnership's ability to make a distribution to its
partners of its portion of the net proceeds of the sale of the Manitowoc
System pursuant to the terms of the Partnership's limited partnership
agreement are dependent upon the approval of the transaction by the holders of
a majority of the Partnership's limited partnership interests.
Jones Intercable, Inc., as general partner of the Partnership, urges you to
sign and return the enclosed proxy as promptly as possible. The proxy should
be returned in the enclosed envelope.
JONES INTERCABLE, INC.
General Partner
/s/ Elizabeth M. Steele
Elizabeth M. Steele
Secretary
Dated: February 28, 1997
<PAGE>
[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 11-A, LTD.
This Proxy Statement is being furnished in connection with the solicitation
of the written consents of the limited partners of Cable TV Fund 11-A, Ltd.
(the "Partnership") by Jones Intercable, Inc., the general partner of the
Partnership (the "General Partner"), on behalf of the Partnership, for the
purpose of obtaining limited partner approval of the sale of the Manitowoc,
Wisconsin cable television system (the "Manitowoc System") owned by Cable TV
Joint Fund 11 (the "Venture"), a joint venture in which the Partnership has an
18 percent ownership interest, for $16,122,333 in cash, subject to normal
working capital closing adjustments. The Manitowoc System is proposed to be
sold to the General Partner.
Proxies in the form enclosed, properly executed and duly returned, will be
voted in accordance with the instructions thereon. Limited partners are urged
to sign and return the enclosed proxy as promptly as possible. Proxies cannot
be revoked except by delivery of a proxy dated as of a later date. Officers
and other employees of the General Partner may solicit proxies by mail, by
fax, by telephone or by personal interview. The deadline for the receipt of
proxy votes is April 15, 1997, unless extended, but the vote of the
Partnership's limited partners will be deemed to be concluded on the date that
the General Partner, on behalf of the Partnership, is in receipt of proxies
executed by the holders of a majority of the limited partnership interests
either consenting to or disapproving of the proposed transaction, as the case
may be.
The Partnership has only one class of limited partners and no limited
partner has a right of priority over any other limited partner. The
participation of the limited partners is divided into limited partnership
interests and each limited partner owns one limited partnership interest for
each $500 of capital contributed to the Partnership.
As of December 7, 1996, the Partnership had 46,725 limited partnership
interests outstanding held by approximately 3,794 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 60
limited partnership interests. Officers and directors of the General Partner
own no limited partnership interests.The 60 limited partnership interests
owned by the General Partner will be voted in favor of the proposed
transaction. Only limited partners of record at the close of business on
January 31, 1997 will be entitled to notice of, and to participate in, the
vote.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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As of the date of this proxy statement, the Partnership's only asset is its
18 percent ownership interest in the Venture. Cable TV Fund 11-B, Ltd. has an
8 percent ownership interest in the Venture, Cable TV Fund 11-C, Ltd. has a 27
percent ownership interest in the Venture and Cable TV Fund 11-D, Ltd. has a
47 percent ownership interest in the Venture. As of the date of this proxy
statement, the Venture's only asset is the Manitowoc System. Upon the
consummation of the proposed sale of the Manitowoc System, the Venture will
pay all of its indebtedness, which totalled approximately $4,775 at September
30, 1996, and then the net sale proceeds will be distributed to the four
constituent partnerships of the Venture in proportion to their ownership
interests in the Venture. The Partnership accordingly will receive 18 percent
of such proceeds, estimated to total approximately $3,520,715, the Partnership
will repay $10,781 owed to the General Partner from this amount, and the
Partnership will distribute the remainder of the net sale proceeds to its
partners of record as of March 31, 1997. Because limited partners have already
received distributions in an amount in excess of the capital initially
contributed to the Partnership by the limited partners, the Partnership's
portion of the net proceeds from the Manitowoc System's sale will be
distributed 75 percent to the limited partners and 25 percent to the General
Partner. Based upon pro forma financial information as of September 30, 1996,
as a result of the Manitowoc System's sale, the limited partners of the
Partnership, as a group, will receive approximately $2,689,304 and the General
Partner will receive approximately $820,630. Limited partners will receive $58
for each $500 limited partnership interest, or $115 for each $1,000 invested
in the Partnership, from the Partnership's portion of the net proceeds of the
Manitowoc System's sale. Once the Partnership has completed the distribution
of its portion of the net proceeds from the sale of the Manitowoc System,
limited partners of the Partnership will have received a total of $1,269 for
each $500 limited partnership interest, or $2,538 for each $1,000 invested in
the Partnership, taking into account the prior distributions to limited
partners made in 1988 and 1990.
After the Partnership distributes its portion of the proceeds from the sale
of the Manitowoc System to its partners, the Partnership will be dissolved and
liquidated. Thus, as a result of the sale of the Manitowoc System by the
Venture, the Partnership will cease to be a public entity subject to the
informational reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
Limited partners should note that there are certain income tax consequences
of the proposed sale of the Manitowoc System, which are outlined herein under
the caption "Federal Income Tax Consequences."
The Board of Directors of the General Partner has approved the proposed sale
of the Manitowoc System and the General Partner recommends approval of the
transaction by the holders of the Partnership's limited partnership interests.
In determining the fairness of the proposed transaction, the General Partner
followed the procedures mandated by Section 2.3(b)(iv)(b) of the Partnership's
limited partnership agreement (the "Partnership Agreement"), which provides
that the Partnership's cable television systems may be sold to the General
Partner or to one of its affiliates if the price paid by the General Partner
or such affiliate is higher than any other bid received in a public bidding
process and is not less than the average of three separate independent
appraisals of the fair market value of the system to be sold. Because the
Venture solicited bids in a public bidding process, which is now closed, the
General Partner was the only bidder and the purchase price to be paid by the
General Partner is equal to the average of three separate independent
appraisals of the fair market value of the Manitowoc System, the Board of
Directors of the General Partner has concluded that the consideration to be
paid to the Venture for the Manitowoc System is fair.
The proposal that is the subject of this proxy solicitation will be adopted
only if approved by the holders of a majority of the limited partnership
interests. Each limited partnership interest entitles the holder thereof to
one vote on the proposal. Because the Partnership Agreement requires that the
proposal to sell the Manitowoc System be approved by the holders of a majority
of the limited partnership interests, abstentions and non-votes will be
treated as votes against the proposal. Because limited partners do not have
dissenters' or appraisal rights in connection with the proposed sale of the
Manitowoc System, if the holders of a majority of the limited partnership
interests approve the proposal, all limited partners will receive a
distribution of the Partnership's portion of the net sale proceeds in
accordance with the procedures prescribed by the Partnership Agreement
regardless of how or whether they vote on the proposal.
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The General Partner has also prepared proxy statements that are being
delivered to the limited partners of Cable TV Fund 11-B, Ltd., Cable TV Fund
11-C, Ltd. and Cable TV Fund 11-D, Ltd. in connection with their votes to
approve the sale of the Manitowoc System by the Venture to the General
Partner. The closing of the sale of the Manitowoc System will occur only if
the transaction is approved by the holders of a majority of the limited
partnership interests of each of the four constituent partnerships of the
Venture. Copies of the proxy statements being delivered to the limited
partners of the Venture's other constituent partnerships have been filed with
the Securities and Exchange Commission and can be obtained either from the
public reference section of the Commission at prescribed rates or from the
General Partner without charge upon written request to Elizabeth M. Steele,
Secretary, Jones Intercable, Inc., 9697 East Mineral Avenue, Englewood,
Colorado 80112, (303) 792-3111.
The approximate date on which this Proxy Statement and Form of Proxy are
being sent to limited partners is February 28, 1997.
SPECIAL FACTORS
THE PARTNERSHIP'S INVESTMENT OBJECTIVES
The Partnership was formed to acquire, develop, operate and, ultimately,
sell cable television systems. The primary objectives of the Partnership have
been to obtain capital appreciation in the value of the Partnership's cable
television properties; to generate tax losses that could be used to offset
taxable income of limited partners from other sources; and to obtain equity
build-up through debt reduction. It was contemplated from the outset of the
Partnership's existence that capital appreciation in Partnership cable
television properties would be converted to cash by a sale of such properties
after a holding period of approximately five to seven years. It also was
contemplated from the outset of the Partnership's existence that the General
Partner could be the purchaser of the Partnership's cable television
properties. Due to the City of Manitowoc's refusal to consent to the transfer
of the Manitowoc System's franchise when the General Partner attempted to sell
the Manitowoc System in 1990, the resulting legal action against the City and
the protracted franchise renewal negotiations, the Manitowoc System has been
held by the Venture for almost 13 years.
The purpose of the sale of the Manitowoc System, from the Partnership's
perspective, is to attain the Partnership's primary investment objective with
respect to the Manitowoc System, i.e., to convert the Partnership's capital
appreciation in the Manitowoc System to cash, and to allow the Partnership to
be dissolved and liquidated. The sale proceeds will be used to repay all
outstanding indebtedness of the Venture, with the remaining sale proceeds to
be distributed to the four constituent partnerships of the Venture. The
Partnership in turn will distribute its portion of the net sale proceeds to
the partners of the Partnership in accordance with the distribution procedures
established by the Partnership Agreement. The sale of the Manitowoc System is
thus the necessary final step in the Partnership's accomplishment of its
investment objectives.
PRIOR ACQUISITIONS AND SALES
The Partnership was formed in March 1983 as a Colorado limited partnership
in connection with a public offering of its limited partnership interests. In
September 1983, the Partnership acquired a cable television system serving
portions of Anne Arundel County, Maryland, which was sold in June 1988. In
early 1984, the Partnership invested $8,200,000 of limited partner capital
contributions in the Venture, through which it acquired an 18 percent
ownership interest in the Venture. In April 1984, the Venture acquired the
cable television systems serving the communities of Cedarburg, Green Bay,
Hustisford, Janesville, Manitowoc, West Allis, Waupaca and their surrounding
areas, all in the State of Wisconsin. The Venture also acquired an interest in
the Kenosha, Wisconsin cable television franchise and subsequently constructed
the Kenosha system. Except for the Manitowoc System, which is still owned by
the Venture, all of these systems have been sold.
With the prior approval of the limited partners, and in order to convert the
Partnership's capital appreciation in its Maryland assets to cash, in June
1988, the Partnership sold its cable television system serving portions of
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Anne Arundel County, Maryland to the General Partner for a sales price of
$65,926,333, which price represented the highest bid of two received by the
Partnership in a public bidding process and the average of three separate
independent appraisals of the fair market value of the Partnership's Anne
Arundel County, Maryland system. Proceeds from the sale of the Anne Arundel
County, Maryland system, which totaled approximately $65,900,000, were used to
repay the Partnership's indebtedness in connection with that system and to
make a distribution in June 1988 to limited partners of $869 for each $500
limited partnership interest, or $1,738 for each $1,000 invested in the
Partnership.
In September 1989, Total TV of Kenosha, a Wisconsin limited partnership in
which the Venture had a 75 percent ownership interest as both the general
partner and a limited partner, sold its cable television system serving the
Kenosha, Wisconsin area to an affiliate of the General Partner. Proceeds to
the Venture from this sale, which totaled approximately $31,828,700, were used
to repay $30,600,000 of the Venture's outstanding obligations under its credit
facility. Certain minority investors in Total TV of Kenosha, which were not
affiliated with the Venture, the Partnership or the General Partner, received
approximately $5,171,100 from the sale. No distributions to the four
partnerships participating in the Venture were made from the proceeds of the
sale of the Kenosha, Wisconsin system.
In June 1990, the Venture sold its remaining Wisconsin cable television
systems, except for the Manitowoc System. These Wisconsin systems were sold to
an affiliate of the General Partner. Proceeds from that sale, which totaled
approximately $178,600,000, were used to repay all of the Venture's then
outstanding indebtedness in connection with its Wisconsin systems and to make
distributions in June 1990 to the four partnerships participating in the
Venture. The Partnership subsequently distributed its $21,322,000 share of the
sale proceeds to its partners. Limited partners of the Partnership received a
distribution of $342 per $500 limited partnership interest, or $684 per $1,000
invested in the Partnership, as a result of the June 1990 sale of these
Wisconsin systems.
The Manitowoc System was not sold in 1990 only because the City of Manitowoc
refused to consent to the transfer of the Manitowoc franchise on terms
acceptable to the then-proposed buyer. A dispute arose about a provision of
the Manitowoc franchise that the City claimed allowed the City to acquire the
Manitowoc System upon expiration of the franchise in 1995. In April 1991, the
Venture took legal action against the City seeking a declaration as to whether
the buy-out right was enforceable under federal law. In February 1993, the
court ruled in favor of the Venture and found that the buy-out right would not
be triggered upon the expiration of the franchise, assuming the franchise is
renewed. The court did not determine the question of whether the buy-out right
was enforceable per se under federal law. The City appealed the decision. In
October 1993, however, the City and the Venture settled the legal action and
the appeal was dismissed. In the settlement agreement, the City conceded that
its buy-out right was not applicable in the event the franchise is renewed and
represented to the Venture that the City knew of no reason for non-renewal of
the franchise. The original term of the Manitowoc franchise expired in 1995
and the Manitowoc System was operated through most of 1996 pursuant to
temporary franchise extensions. In November 1996, however, the City agreed to
renew the Manitowoc franchise for a period of five years beginning January 1,
1997 and, at the same time, the City approved the transfer of the franchise
from the Venture to the General Partner provided that the transfer occurs no
later than June 30, 1997.
The Partnership has made two prior distributions to its limited partners:
the June 1988 distribution of the net proceeds of the sale of the
Partnership's Anne Arundel County, Maryland system and the June 1990
distribution of the Partnership's portion of the net proceeds of the sale of
the Venture's Cedarburg, Green Bay, Hustisford, Janesville, West Allis and
Waupaca, Wisconsin systems. The Partnership intends to make a distribution of
the Partnership's portion of the net proceeds of the sale of the Venture's
Manitowoc System. Following this distribution, the Partnership will be
dissolved and liquidated.
THE GENERAL PARTNER'S OBJECTIVES
The purpose of the transaction, from the General Partner's perspective, is
to enable the Venture to sell the Manitowoc System at a fair price and to
enable the partnerships that comprise the Venture thereafter to be dissolved
and liquidated in accordance with their investment objectives. Since 1990,
when the original sale of the Manitowoc System was frustrated by the refusal
of the City of Manitowoc to consent to the transfer of the
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Manitowoc System on terms acceptable to the then-proposed buyer, the General
Partner has sought, on the Venture's behalf, through both negotiations and
litigation with the City, to resolve the dispute with the City about the
City's purported buy-out right and to obtain a franchise for the Manitowoc
System that contained commercially reasonable terms that in turn would enable
the Venture to find a buyer for the Manitowoc System at a fair price.
Following the settlement of the Venture's lawsuit against the City in
October 1993 and the subsequent commencement of franchise renewal
negotiations, in 1995 the General Partner identified Time Warner Entertainment
Company, L.P. ("Time Warner"), an unaffiliated cable television system
operator, as a potential purchaser of the Manitowoc System because of the
proximity of certain of Time Warner's cable television systems to the
Manitowoc System. In discussions between the General Partner and Time Warner
about the sale of the Manitowoc System, Time Warner indicated that it was
interested in acquiring the Manitowoc System from the Venture but Time Warner
informed the General Partner that it was not willing to purchase the Manitowoc
System for cash. Time Warner offered instead to trade a cable system it owned
for the Manitowoc System. Because a trade between the Venture and Time Warner
would not have enabled the Venture to accomplish its investment objective of
converting its capital appreciation in the Manitowoc System to cash, and would
have resulted in the Venture owning yet another cable system, the General
Partner determined that the Venture could not agree to trade the Manitowoc
System for a Time Warner system. To enable the Venture to convert its
investment in the Manitowoc System to cash, the General Partner agreed to
acquire the Manitowoc System from the Venture and then trade it for a Time
Warner system that the General Partner determined that it would like to own.
Because of the requirements of the Partnership Agreement, the General Partner
had the Manitowoc System appraised by three independent appraisers and
conducted a public bidding process so that the General Partner could enter
into an asset purchase agreement with the Venture for acquisition of the
Manitowoc System. On September 5, 1995, the Venture and the General Partner
entered into an asset purchase agreement providing for the sale of the
Manitowoc System to the General Partner for a sales price of $15,735,667, the
average of the original three appraisals. Because the City ultimately refused
to agree to the renewal and transfer of the Manitowoc franchise on terms
acceptable to the General Partner and Time Warner, the proposed purchase of
the Manitowoc System by the General Partner and the subsequent trade of the
Manitowoc System with Time Warner did not occur within the time period
prescribed by the General Partner's agreement with Time Warner.
Because the General Partner had not intended to acquire the Manitowoc System
for its own account and because the General Partner believed that the Venture
would be able to close a sale of the Manitowoc System to an unaffiliated cable
system operator more quickly than to the General Partner (the General Partner
assumed that a sale of the Manitowoc System to an unaffiliated cable system
operator would move through the limited partner approval processes more
expeditiously), in mid-1996 the General Partner, on the Venture's behalf,
began negotiating for the sale of the Manitowoc System to Marcus Cable, a
cable system operator like Time Warner with cable systems in the vicinity of
Manitowoc and thus the most likely unaffiliated purchaser of the Manitowoc
System other than Time Warner. Like Time Warner, however, Marcus Cable could
not come to agreement with the City on the terms for renewal and transfer of
the Manitowoc franchise and Marcus Cable declined to enter into an agreement
to purchase the Manitowoc System.
Upon the conclusion of the unsuccessful negotiations with Marcus Cable in
September 1996, the General Partner determined that it would go forward with
the acquisition of the Manitowoc System itself to enable the Venture to sell
the Manitowoc System at a fair price and to enable the partnerships that
comprise the Venture to be dissolved and liquidated in 1997. Given the passage
of time between September 5, 1995, the date when the General Partner agreed to
purchase the Manitowoc System from the Venture in order to trade it to Time
Warner, and the termination of negotiations with Marcus Cable in September
1996, i.e., approximately one year, the General Partner determined that it
would be in the best interests of the Venture to have the Manitowoc System's
appraisals updated from April 1995 to August 1996, to extend the General
Partner's obligation to purchase the Manitowoc System to a date no later than
June 30, 1997, to renew its efforts to reach agreement with the City on the
franchise's renewal and transfer, to seek limited partner approval of the sale
and then to proceed with its acquisition of the Manitowoc System so that the
Venture and its constituent partnerships could be liquidated and dissolved
during 1997. The General Partner has accomplished, or is in the process of
completing, each of these tasks.
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RELEVANT PROVISIONS OF THE PARTNERSHIP AGREEMENT
Section 2.2(k) of the Partnership Agreement provides that the sale of all or
substantially all of the Partnership's assets is subject to the approval of
the holders of a majority of the Partnership's limited partnership interests.
Because its investment in the Venture is the Partnership's sole remaining
asset, and because the Manitowoc System is the Venture's sole remaining asset,
the sale of the Manitowoc System to the Purchaser is being submitted for
limited partner approval.
Section 2.3(b)(iv)(b) of the Partnership Agreement permits the Partnership
to sell any or all of its cable television systems directly to the General
Partner or one or more of its affiliates if the system to be sold has been
held by the Partnership for at least three years, unless it is part of, or
related to, another system that has been held for three years, and provided
that the price paid to the Partnership by the General Partner or any such
affiliate is higher than any other bid received in a public bidding process
and is not less than the average of three separate independent appraisals of
the particular cable television system or systems being sold, and that the
cost of such appraisals is not borne by the Partnership. Because the Manitowoc
System has been held by the Venture for at least three years, the General
Partner submitted the only and, therefore, the highest bid received in a
public bidding process and the purchase price to be paid by the General
Partner is equal to the average of three separate independent appraisals of
the fair market value of the Manitowoc System obtained at the General
Partner's expense, the requirements of Section 2.3(b)(iv)(b) of the
Partnership Agreement have been satisfied.
PUBLIC BIDDING PROCESS
In the spring of 1995, the General Partner, on behalf of the Venture, put
the Manitowoc System up for public bid. The process established and announced
by the General Partner was the exclusive means of bidding on the Manitowoc
System during the bid period. In accordance with the requirements of Section
2.3(b)(iv)(b) of the Partnership Agreement, which requires that a public
bidding process be followed in the event that the General Partner or one or
more of its affiliates desires to purchase a cable television system owned by
the Partnership, The Jones Group, Ltd., a cable television brokerage
subsidiary of the General Partner, placed advertisements soliciting bids for
the Manitowoc System in The Denver Post and The Rocky Mountain News,
newspapers of general circulation, and in Cable World and Multichannel News,
cable television industry trade publications. The advertisement ran daily in
The Denver Post and The Rocky Mountain News from June 2 through June 18, 1995,
and it appeared in the June 5, June 12 and June 19, 1995 editions of the
weekly Cable World and Multichannel News.
The Venture, through The Jones Group, Ltd., specified that: all bids were
required to be in writing and submitted no later than the close of business on
July 7, 1995; all bids were required to state a purchase price that would be
paid in cash at closing; all bids were required to be accompanied by a
certification that the bidder was prepared to sign a purchase and sale
agreement in the form provided by the Venture as part of the bidding process;
all bids were required to be accompanied by current financial statements or
other evidence demonstrating that the bidder had the financial ability to
complete the transaction at the closing on the terms specified in the purchase
and sale agreement; and all bids were required to be accompanied by certified
or cashier's check in an amount equal to five percent of the purchase price
specified in the bid. It was disclosed to all bidders that the General Partner
and its affiliates reserved the right to submit a bid, and that the General
Partner or one of its affiliates intended to do so. All potential bidders also
were informed that The Jones Group, Ltd. would be reviewing all bids on behalf
of the Venture, and thus would be aware of the identities of all bidders and
the dollar amounts of all bids.
The Jones Group, Ltd. received seventeen inquiries about the Manitowoc
System and it mailed out eleven information packages, but no potential
purchasers asked to tour the Manitowoc System's facilities and no one other
than the General Partner submitted a bid for the Manitowoc System. The General
Partner complied with all of the bid requirements, including the submission of
a five percent deposit that currently is being held in escrow and will be
refunded if the Venture does not perform its obligations under the purchase
and sale agreement between it and the General Partner.
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REASONS FOR THE TIMING OF THE SALE
The decision to proceed with the sale of the Manitowoc System in 1995 was
based upon the status of the franchise renewal negotiations with the City of
Manitowoc, which the General Partner believed were nearing completion, and the
General Partner's perception that the City was willing to renew the franchise
on commercially reasonable terms and to transfer the franchise to a new system
operator. The General Partner had determined that the Partnership had achieved
its investment objectives with respect to the Manitowoc System in 1990 when it
attempted to sell the Manitowoc System at that time, and the General Partner
had been frustrated in its efforts to sell the Manitowoc System by the City's
refusal until 1995 to engage in serious negotiations to approve the renewal
and transfer the Manitowoc System's cable franchise. The City finally approved
the renewal and transfer of the Manitowoc System's cable franchise in November
1996 effective as of January 1, 1997.
When investing in the Partnership, by virtue of the provisions of the
Partnership Agreement, the limited partners vested in the General Partner the
right and responsibility to determine when the Partnership's investment
objectives had been substantially achieved. The Manitowoc System was acquired
by the Venture because, in the opinion of the General Partner at the time of
the Manitowoc System's acquisition, it had the potential for capital
appreciation within a reasonable period of time. It is the General Partner's
opinion that during the approximately 13 years that the Manitowoc System has
been held by the Venture, the Partnership's investment objectives with respect
to the Manitowoc System have been achieved.
The General Partner generally considered the benefits to the limited
partners that might be derived by holding the Manitowoc System for an
additional period of time. The General Partner assumed that the Manitowoc
System might continue to appreciate in value and, if so, the Manitowoc System
would be able to be sold for a greater sales price in the future. The General
Partner weighed these assumptions against the risks to investors from a longer
holding period, i.e., the risks that regulatory, technology and/or competitive
developments could cause the Manitowoc System to decline in value, which would
result in a lesser sales price in the future. The General Partner's decision
to sell the Manitowoc System was greatly influenced by the fact that the
contemplated holding period had been exceeded.
Therefore, in light of all of the above factors, the General Partner has
determined that now is the appropriate time for the Partnership to convert its
capital appreciation in the Manitowoc System to cash through the sale of the
Venture's Manitowoc System to the General Partner.
CERTAIN EFFECTS OF THE SALE
Upon consummation of the sale of the Manitowoc System, the proceeds of the
sale will be used to repay all indebtedness of the Venture and then the
Venture will distribute the remaining net sale proceeds to the four
constituent partnerships of the Venture in proportion to their ownership
interests in the Venture and then the Partnership will distribute its portion
of the net sale proceeds to its limited partners and to the General Partner
pursuant to the terms of the Partnership Agreement. Because limited partners
have already received distributions in an amount in excess of the capital
initially contributed to the Partnership by the limited partners, the net
proceeds from the Manitowoc System's sale will be distributed 75 percent to
the limited partners and 25 percent to the General Partner. Based upon the pro
forma financial information as of September 30, 1996, as a result of the
Manitowoc System's sale, the limited partners of the Partnership, as a group,
will receive approximately $2,689,304 and the General Partner will receive
approximately $820,630. Limited partners will receive $58 for each $500
limited partnership interest, or $115 for each $1,000 invested in the
Partnership, from the Partnership's portion of the net proceeds of the
Manitowoc System's sale. Once the distributions of the net proceeds from the
sale of the Manitowoc System have been made, limited partners will have
received a total of $1,269 for each $500 limited partnership interest, or
$2,538 for each $1,000 invested in the Partnership, taking into account the
prior distributions to limited partners made in 1988 and 1990. Both the
limited partners and the General Partner will be subject to federal income tax
on the income resulting from the sale of the Manitowoc System. See the
detailed information below under the caption "Federal Income Tax
Consequences."
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Another effect of the sale is that it will result in the General Partner
acquiring the Manitowoc System. As the general partner of the Partnership, the
General Partner earns management fees and receives reimbursement of its direct
and indirect expenses allocable to the operation of the Manitowoc System. The
General Partner's right to receive such fees and reimbursements will terminate
on the sale of the Manitowoc System.
Neither Colorado law nor the Partnership Agreement afford dissenters' or
appraisal rights to limited partners in connection with the proposed sale of
the Manitowoc System. If the proposed transaction is approved by the holders
of a majority of limited partnership interests, all limited partners will
receive a distribution in accordance with the procedures prescribed by the
Partnership Agreement regardless of how or whether they vote on the proposal.
RECOMMENDATION OF THE GENERAL PARTNER AND FAIRNESS OF THE PROPOSED SALE OF
ASSETS
The General Partner believes that the proposed sale of the Manitowoc System
and the distribution of the net proceeds therefrom are both procedurally and
substantively fair to all unaffiliated limited partners of the Partnership,
and it recommends that the limited partners approve the transaction. The
General Partner, because of its 25 percent share of the residual sale
proceeds, has an economic interest parallel to the economic interest of the
limited partners in seeing to it that the Manitowoc System is sold for a fair
price. The General Partner's recommendation that the limited partners approve
the sale of the Manitowoc System and its fairness determination should not be
deemed to be free from potential conflicts of interest, however, in light of
the fact that it is the proposed purchaser of the Manitowoc System. Because
the purchaser of the Manitowoc System will benefit from a lower sales price,
the General Partner also has an economic interest in conflict with the
economic interest of the limited partners.
In determining the substantive and procedural fairness of the proposed
transaction, the General Partner's Board of Directors on November 21, 1996
considered each of the following factors, all of which had a positive effect
on its fairness determination. The factors are listed in descending order of
importance, i.e., the first factor listed was given the most weight in the
determination that the proposed transaction is fair, although, as a practical
matter, this is an approximation of the weight given to each factor because
each factor is relevant and the General Partner's Board of Directors was not
able to weigh the relative importance of each factor precisely:
(i) The limited partnership interests are at present illiquid and the
cash to be distributed to limited partners as a result of the proposed sale
of the Manitowoc System will provide limited partners with liquidity and
with the means to realize the appreciation in the value of the Manitowoc
System;
(ii) The purchase price represents the fair market valuation of the
Manitowoc System as of August 31, 1996 as determined by the average of
three separate appraisals of the Manitowoc System by qualified independent
appraisers;
(iii) The purchase price was the highest bid received in a public bidding
process;
(iv) The Venture has held the Manitowoc System for almost 13 years, a
holding period beyond that originally anticipated;
(v) The conditions and prospects of the cable television industry in
which the Venture is engaged, including the developing threat of
competition from DBS services and telephone companies, and the working
capital and other financial needs of the Venture if it were to continue to
operate the Manitowoc System;
(vi) The terms and conditions of the purchase and sale agreement by and
between the Venture and the General Partner, including the fact that the
purchase price will be paid in cash, the fact that the Partnership was not
required to make many of the representations and warranties about the
Manitowoc System or give indemnities that are customarily given in
transactions of this nature, the fact that the purchaser's obligation to
close is not contingent upon its ability to obtain financing, and the fact
that the Venture will pay no brokerage fees upon the sale of the Manitowoc
System, which it likely would have paid if the Manitowoc System were being
sold to an unaffiliated party; and
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(vii) The sale is being conducted in accordance with the terms of the
Partnership Agreement, including the fact that the proposed transaction
will not occur unless it is approved by the holders of at least a majority
of the limited partnership interests.
Certain officers of the General Partner worked with each of the three
independent appraisers hired to prepare fair market value appraisals of the
Manitowoc System, providing them with current and historical profit and loss
statements for the Manitowoc System and with current subscriber reports. The
officers and directors of the General Partner received the final appraisal
reports. The members of the Board of Directors of the General Partner adopted
the analyses and conclusions of Malarkey-Taylor Associates, Inc., which valued
the Manitowoc System at $15,567,000, because Malarkey-Taylor Associates,
Inc.'s valuation procedures, assumptions and methodologies most closely
approximate the valuation procedures, assumptions and methodologies used by
the General Partner's management in evaluating cable television systems. The
General Partner's Board of Directors did not specifically adopt the
$15,567,000 value placed on the Manitowoc System by Malarkey-Taylor
Associates, Inc., but the Board did consider the fact that the value
determined by this appraisal firm was close to the average of the three
appraisals ($16,122,333) and concluded that this fact supported its fairness
determination.
The General Partner considered the fact that the $16,122,333 purchase price
to be paid to the Venture for the Manitowoc System represents the average of
three independent appraisals of the fair market value of the Manitowoc System
to be very persuasive evidence of the fairness of the proposed transaction.
The fair market valuations of the Manitowoc System were done by respected
industry appraisers using customary measures of value, i.e., determining
present value of projected cash flow, applying multiples to current and
projected cash flow, and comparing the fair market valuation per subscriber to
comparable cable television system sales. Based upon the General Partner's
knowledge of and experience in the cable television industry, and its review
and consideration of the appraisals, it has concluded that the values for the
Manitowoc System determined by the three appraisals are fair and within the
range of values seen in the marketplace for comparable cable television
systems in similar condition.
The $16,122,333 purchase price represents the current fair market value of
the Manitowoc System on a going concern basis. The $16,122,333 purchase price
for the Manitowoc System also compares favorably to the approximately
$2,443,945 net book value of the Manitowoc System at September 30, 1996. The
liquidation value of a cable television system, i.e., the sale of the system
on other than a going concern basis, is not usually considered to be an
accurate indicator of the value of a cable television system, primarily
because the assets of a cable television system typically are worth less when
considered separately than when considered as a going concern. The assets of a
cable television system consequently are not normally sold or purchased
separately. A fair market valuation of a system should, in the General
Partner's view, be a valuation of the system as a going concern. The
liquidation value of the Manitowoc System therefore was not considered by the
General Partner in reaching its determination of fairness.
Because there has never been an established trading market for the
Partnership's limited partnership interests, the General Partner did not have
access to any reliable, official information about the historical or current
market prices for the Partnership's limited partnership interests in the very
limited secondary market where such interests from time to time have been
sold. The General Partner believes that such secondary market deeply discounts
the underlying value of the limited partnership interests due to their highly
illiquid nature. Therefore, even if trading information were available, the
historical or current market prices for the Partnership's limited partnership
interests would not be indicative of the value of the Partnership's 18 percent
ownership of the Venture's cable television system assets. For these reasons,
the General Partner did not consider the historical or current market prices
for the limited partnership interests when reaching its fairness
determination.
The fact that the Venture has held the Manitowoc System for a period beyond
that originally anticipated was a critical factor in the General Partner's
fairness determination--the General Partner believes that the transaction is
fair because a sale at this time will convert an illiquid investment into a
liquid one for all partners.
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And the current state of the cable television industry also was considered by
the General Partner in making its fairness determination because the General
Partner believes that it is fair to investors that someone other than the
Partnership and the Venture take on the uncertainties and risks involved in
continuing to own and operate the Manitowoc System.
The fairness of the transaction is also demonstrated in an analysis of
certain of the terms and conditions of the purchase and sale agreement between
the Venture and the General Partner, which favor the interests of the Venture.
There is no financing contingency to closing. Because of the General Partner's
existing extensive knowledge about the Manitowoc System, the Venture has not
been required to make many of the representations and warranties about the
quality of the Manitowoc System's tangible assets, the quantity of the
Manitowoc System's subscribers or the validity of the Manitowoc System's
intangible assets customarily found in cable television system transactions.
The Venture likely would have been required to give such representations and
warranties to an unaffiliated party if the Manitowoc System were being sold to
an unaffiliated party. In addition, the Venture is not required to indemnify
the General Partner for defects discovered by the General Partner after the
closing. This frees the Venture from having to reserve a portion of the sale
proceeds to cover typical indemnification obligations. The Venture also will
pay no brokerage fee in connection with the sale of the Manitowoc System. This
will result in more funds from the sale being available for distribution to
the partners.
The General Partner is aware and considered that although consummation of
this transaction will result in a distribution to the Partnership's limited
partners of approximately $115 per $1,000 of limited partnership capital
invested in the Partnership, the proposed sale will require the limited
partners to recognize, for federal income tax purposes, a gain resulting from
the sale. The proposed sale also will deprive the limited partners of an
opportunity to participate in any future growth of the Manitowoc System. The
General Partner nevertheless concluded that the cash distributions to the
limited partners of the Partnership from the sale of the Manitowoc System
outweighed these consequences.
As disclosed above, the proposed transaction is subject to various potential
conflicts of interest arising out of the Partnership's relationships with the
General Partner. Because the General Partner and its affiliates are engaged in
the ownership and operation of cable television systems, they are generally in
the market to purchase cable television systems for their own account. A
potential conflict thus arises from the General Partner's fiduciary duty as
general partner of the Partnership and its management's fiduciary duty to the
General Partner's shareholders when it determines that Partnership cable
television systems will be sold to the General Partner or one of its
affiliates and not to an unaffiliated third party. This potential conflict of
interest was disclosed to limited partners in the prospectus delivered to
investors at the time of the public offering of interests in the Partnership.
Prior to the Partnership's public offering, the General Partner entered into
negotiations with certain state securities administrators as part of the
process of clearing the offering in the "merit" states, i.e., those states
that permit the sale of securities only if the state securities administrator
deems the offering as a whole to be fair, just and equitable. Several of the
state securities administrators focused on the potential conflicts of interest
in the event that the Partnership were to sell one or more of its cable
television systems to the General Partner or one of its affiliates. The
General Partner agreed to include the provision in the Partnership Agreement
that permits the Partnership to sell its cable television systems directly to
the General Partner or one of its affiliates only after a three-year holding
period and only if the General Partner or such affiliate pays a purchase price
that is higher than any other bid received in a public bidding process and is
not less than the average of three separate independent appraisals of the
particular cable television system being sold. The General Partner has
concluded that the mechanisms for determining the purchase price to be paid to
the Partnership provide sufficient procedural safeguards to minimize the
effects of the potential conflicts of interest inherent in any such
transaction. The fact that these procedures have been carried out in
connection with the Venture's proposed sale of the Manitowoc System, together
with the fact that the transaction is conditioned upon receipt of the approval
of the holders of a majority of the limited partnership interests in the
Partnership, enable the General Partner to conclude that the proposed
transaction is both procedurally and financially fair to all partners.
The directors of the General Partner who are not employees of the General
Partner did not vote separately to approve the transaction, nor did the
outside directors retain an unaffiliated representative to act solely on
behalf
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of the limited partners for the purposes of negotiating the terms of the
proposed sale of the Manitowoc System and/or preparing a report concerning the
fairness of the proposed sale. While the directors of the General Partner
participating in the approval of the sale recognized that the interests of the
General Partner and the limited partners may not in all respects necessarily
be the same, they recognized also that the purchase price was determined in
accordance with the terms of the Partnership Agreement, that is, by averaging
three separate independent appraisals of the Manitowoc System's fair market
value. The members of the Board of Directors relied on the specific right of
the General Partner under Section 2.3(b)(iv)(b) of the Partnership Agreement
to purchase the Manitowoc System. The members of the Board of Directors
reviewed and considered the appraisals and concluded that the values for the
Manitowoc System determined by the appraisers were fair and were within the
industry norms for comparable transactions. All 13 directors of the General
Partner participated in the November 21, 1996 meeting to discuss the
Partnership's sale of the Manitowoc System to the General Partner. Each of
Messrs. Jones, O'Brien, Krejci, Burney, Frenzel, Jacobs, MacDonald, Thrall,
Cole, Solot, Zisman, Vanaselja and Zoellick voted to approve the transaction.
It is anticipated that if the proposed transaction is not consummated, the
General Partner's current management team will continue to manage the
Manitowoc System on behalf of the Venture until such time as the Manitowoc
System could be sold. No other alternatives currently are being considered. At
this time the Venture does not have the option of selling the Manitowoc System
to the most likely unaffiliated cable television system operators, Time Warner
and Marcus Cable. As described above, both of these cable companies recently
declined to purchase the Manitowoc System because they were unwilling to
accept the franchise renewal terms proposed by the City. The General Partner
subsequently agreed to these renewal terms in November 1996 on the condition
that the City consent to the transfer of the Manitowoc franchise to the
General Partner, which consent is necessary in order for the Venture to
complete the sale of the Manitowoc System to the General Partner as proposed.
THE APPRAISALS
In determining the price that the General Partner would offer for the
Manitowoc System, the General Partner retained Malarkey-Taylor Associates,
Inc., Kagan Media Appraisals Inc. and Bond & Pecaro, Inc. to prepare separate
appraisals of the fair market value of the Manitowoc System. The appraisers
were asked to determine the cash price a willing buyer would give a willing
seller, neither being under any compulsion to buy or sell and both having
reasonable knowledge of relevant facts, in an arm's-length transaction to
acquire the Manitowoc System. The officers and directors of the General
Partner examined each of the appraisals and discussed among themselves the
merits of the appraisals' assumptions, methodologies and conclusions, and,
based on their experience in and knowledge of the cable television industry,
they found them to be fair and reasonable. The written appraisal reports are
available for inspection and copying at the offices of the General Partner
during regular business hours by any interested limited partner of the
Partnership or by his or her authorized representative. Copies of such
appraisals will be mailed by the General Partner to any interested limited
partner or to his or her authorized representative upon written request to the
General Partner at the expense of the requesting limited partner.
The ranges of values determined by each of the three separate independent
appraisals of the fair market value of the Manitowoc System are presented and
discussed on the following pages of this proxy statement. Investors should
note that the ranges of values on a per-$500 limited partnership interest
basis and on the basis of $1,000 invested in the Partnership disclosed herein
have been computed as follows: each value established by an appraiser has been
deemed to be the sales price for the Manitowoc System and then adjustments
have been made to add the Venture's cash on hand and the estimated net closing
adjustments and to subtract the $4,775 in estimated debt repayments, and to
split the Partnership's 18 percent share of this amount on the basis of 25
percent to the General Partner and 75 percent to the limited partners. These
ranges of values are presented in this manner so that limited partners can
compare their hypothetical return at each value with the anticipated return to
limited partners of $58 for each $500 limited partnership interest, or $115
for each $1,000 invested in the Partnership, given a sales price equal to the
average of the three separate independent appraisals.
The General Partner provided the appraisers with current and historical
profit and loss statements for the Manitowoc System and with current
subscriber reports. The appraisers also gathered information from
conversations with the Manitowoc System's management team. From this
information, the appraisers used their
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independent analyses to project cash flow, determine growth of homes passed,
the Manitowoc System's future penetration and possible rate adjustments. The
appraisals thus reflect the application of the appraisers' expertise to the
data about the Manitowoc System supplied by the General Partner.
Malarkey-Taylor Associates, Inc. concluded that the Manitowoc System's
overall fair market value as of August 31, 1996 was $15,567,000 ($56 for each
$500 limited partnership interest or $112 for each $1,000 invested in the
Partnership). Kagan Media Appraisals Inc. concluded that the Manitowoc
System's overall fair market value as of August 31, 1996 was $16,100,000 ($57
for each $500 limited partnership interest or $115 for each $1,000 invested in
the Partnership). Bond & Pecaro, Inc. concluded that the Manitowoc System's
overall fair market value as of August 31, 1996 was $16,700,000 ($59 for each
$500 limited partnership interest or $118 for each $1,000 invested in the
Partnership). The average of these three valuations was $16,122,333 ($58 for
each $500 limited partnership interest or $115 for each $1,000 invested in the
Partnership). In the General Partner's view, the assumptions regarding system
operations underlying the three appraisals have generally remained unchanged
since August 31, 1996.
The Malarkey-Taylor Appraisal
Malarkey-Taylor Associates, Inc. ("Malarkey-Taylor") has served the
communications industry for over 30 years. Its team of financial, engineering
and managerial professionals devotes a substantial portion of its time to the
appraisal of cable television systems, cellular telephone systems, paging
systems and broadcast stations. Malarkey-Taylor was selected by the General
Partner to render an opinion as to the fair market value of the Manitowoc
System in light of such overall qualifications. No limitations were imposed
with respect to the appraisal to be rendered by Malarkey-Taylor. The firm was
selected by the General Partner to prepare an independent appraisal of the
Manitowoc System because of the General Partner's familiarity with the firm
and its good reputation in the cable television industry. Malarkey-Taylor has
prepared independent appraisals of other cable television systems owned and/or
managed by the General Partner. The principals of Malarkey-Taylor are not
affiliated in any way with the General Partner.
Malarkey-Taylor used five generally accepted cable television valuation
methods using the income approach to valuation in establishing the range of
fair market values of the Manitowoc System as a going concern. The first
method used a multiple of the past year's operating income derived from
comparable asset values of privately held and publicly traded cable companies.
(The appraisal report did not disclose and the General Partner did not inquire
as to the identities of the companies Malarkey-Taylor used in determining the
multiple.) The second method used a lower multiple of the Manitowoc System's
annualized current month's operating income. The third method applied a
slightly lower multiple of next year's projected operating income. The fourth
method was a discounted net cash flow analysis in which a purchase price
(estimated fair market value) was calculated to achieve a target after-tax
return on equity, given particular operating and financing assumptions unique
to the Manitowoc System's assets. The fifth method was a discounted cash flow
analysis that measured the net present value of the pre-tax operating cash
flows (less capital expenditures, plus the residual value of the Manitowoc
System) that represent the return on the total investment. For each valuation
method, Malarkey-Taylor established a "high" and a "low" estimated fair market
value. The General Partner did not inquire as to the specific details of how
each high and low estimated fair market value for each valuation methodology
was determined because, given Malarkey-Taylor's expertise, the General Partner
concluded that it could rely upon Malarkey-Taylor's analyses and judgment.
The first valuation method used a multiple of the past year's operating
income of the Manitowoc System derived from comparable asset values of
privately held and publicly traded cable companies. Malarkey-Taylor
determined, based upon its expertise and knowledge of the cable television
industry, a "low" multiple of 9.5 and a "high" multiple of 10.5, concluding
that a system comparable to the Manitowoc System would be unlikely to sell for
less than 9.5 times its past year's operating income and would be unlikely to
sell for more than 10.5 times its past year's operating income. While the
appraisal report does not disclose the assumptions of the appraiser in
determining these multiples, the General Partner has no reason to believe that
they are not reasonable. This method resulted in an estimated fair market
value ranging from a low of $15,139,970 ($55 for
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each $500 limited partnership interest or $109 for each $1,000 invested in the
Partnership) to a high of $16,733,651 ($59 for each $500 limited partnership
interest or $119 for each $1,000 invested in the Partnership) for the
Manitowoc System.
The second valuation method used a lower multiple of the Manitowoc System's
annualized current month's operating income. Malarkey-Taylor determined, again
based on its expertise and knowledge of the cable television industry, a "low"
multiple of 9 and a "high" multiple of 10, concluding that a system comparable
to the Manitowoc System would be unlikely to sell for less than 9 times the
dollar amount of its annualized current month's operating income and would be
unlikely to sell for more than 10 times the dollar amount of its annualized
current month's operating income. These multiples are slightly lower than
those used in the previous methodology because of the increased risk and time
factors involved in using current as compared to historical information. While
the appraisal report does not disclose the assumptions of the appraiser in
determining these multiples, the General Partner has no reason to believe that
they are not reasonable. This method resulted in an estimated fair market
value ranging from a low of $14,561,343 ($53 for each $500 limited partnership
interest or $106 for each $1,000 invested in the Partnership) to a high of
$16,179,270 ($58 for each $500 limited partnership interest or $115 for each
$1,000 invested in the Partnership) for the Manitowoc System.
The third valuation method applied a slightly lower multiple of next year's
operating income of the Manitowoc System. For this valuation, Malarkey-Taylor
first estimated, through its own analyses of current financial and operating
data provided by the General Partner, next year's operating income for the
Manitowoc System and then, based on its expertise and knowledge of the cable
television industry, set a "low" multiple of 8.5 and a "high" multiple of 9.5,
concluding that a system comparable to the Manitowoc System would be unlikely
to sell for less than 8.5 times the system's projected operating income for
the following year and would be unlikely to sell for more than 9.5 times the
system's projected operating income for the following year. These multiples
are slightly lower than those used in the previous methodologies because of
the increased risk and time factors involved in using projected as compared to
historical and current information. While the appraisal report does not
disclose the assumptions of the appraiser in determining these multiples, the
General Partner has no reason to believe that they are not reasonable. This
method resulted in an estimated fair market value ranging from a low of
$14,825,545 ($54 for each $500 limited partnership interest or $108 for each
$1,000 invested in the Partnership) to a high of $16,569,726 ($59 for each
$500 limited partnership interest or $118 for each $1,000 invested in the
Partnership) for the Manitowoc System.
The fourth valuation method was a discounted net cash flow analysis in which
a purchase price (estimated fair market value) was calculated to achieve a
target after-tax return on equity given particular operating and financing
assumptions specific to the Manitowoc System. This method involved the use of
projected operations for the Manitowoc System and a pre-determined target
return on equity for a hypothetical buyer. Based on the firm's use of typical
debt-to-equity ratios and debt services, it tested various purchase prices,
i.e., potential fair market values, to determine a value that yielded the
desired return on equity. Based on system information made available to
Malarkey-Taylor by the General Partner and on information generally available
to Malarkey-Taylor about the cable television industry, the firm made
assumptions concerning the housing growth, plant mileage, growth in the number
of subscribers for basic and pay television, adjustments in subscriber rates,
increases in operating expenses and capital expenditures. Malarkey-Taylor also
made specific assumptions concerning the capital structure that a typical,
prudent buyer might experience, as well as the probable interest rates that
would be applicable in connection with any debt financing that might be
incurred. Malarkey-Taylor did a "high" and a "low" analysis. In its "high"
analysis, Malarkey-Taylor projected that the Manitowoc System's revenues would
grow from $4,142,168 in 1997 to $5,919,768 in 2003; that the Manitowoc
System's operating expenses would grow from $2,397,986 in 1997 to $3,366,640
in 2003; and that net income would grow from ($368,565) in 1997 to $171,919 in
2003. In Malarkey-Taylor's "low" analysis, revenues and operating expenses are
projected to increase to the same levels by 2003, but net income is projected
to increase from ($329,920) in 1997 to $199,217 by 2003. Malarkey-Taylor
projected that the Manitowoc System would add approximately 15 miles of cable
plant per year between 1997 and 2003, resulting in growth of the Manitowoc
System's cable plant from 170.5 miles in 1997 to 185.6 miles in 2003.
Malarkey-Taylor projected that the number of homes passed by the
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Manitowoc System would grow from 16,481 in 1997 to 17,705 in 2003. Malarkey-
Taylor projected that basic subscribers would grow from 11,523 in 1997 to
12,782 in 2003. Malarkey-Taylor projected penetration of the Manitowoc System
increasing from 70.4 percent in 1997 to 73.4 percent in 2003. Malarkey-Taylor
projected that premium television subscriptions would grow from 7,337 in 1997
to 8,139 in 2003. Malarkey-Taylor estimated that the Manitowoc System would
take relatively small rate increases between 1997 and 2003, with, for example,
3 percent increases in basic rates each year, a 7 percent increase in expanded
basic rates in 1997, a 5 percent increase in such rates in 1998 and a 3
percent increase in such rates through the rest of the period. Malarkey-Taylor
estimated that rate increases for pay television subscriptions would average 1
percent per year. Malarkey-Taylor estimated that rate increases for pay-per-
view showings, converter rentals and installations would average 3 percent per
year. These projections, if true, would result in an increase in basic rates
from $11.08 in 1996 to $13.69 in 2003, and an increase in the rates for the
expanded basic tier from $9.58 in 1996 to $12.46 in 2003. The "low" value was
determined using a 14 percent return on equity and the "high" value was
determined using a 12 percent return on equity. This method resulted in an
estimated fair market value ranging from a low of $15,018,836 ($54 for each
$500 limited partnership interest or $109 for each $1,000 invested in the
Partnership) to a high of $16,161,365 ($58 for each $500 limited partnership
interest or $115 for each $1,000 invested in the Partnership) for the
Manitowoc System.
The fifth valuation method was a discounted cash flow analysis that measured
the net present value of the pre-tax operating cash flows (less capital
expenditures, plus the residual value of the Manitowoc System) that represent
the return on the total investment rather than those that could result from an
assumed "purchase" with a pre-determined debt to equity ratio. The same set of
financial projections that the firm prepared and used in the fourth valuation
methodology were used for growth in subscribers, revenues, operating expenses
and capital expenditures. The projected pre-tax operating cash flows for the
Manitowoc System, plus the last-year residual value of the Manitowoc System
less capital expenditures, were discounted to the present time at an
acceptable current cost of money. This method indicated the present value of
the future pre-tax operating cash flows, using an acceptable discounted factor
based on the weighted average cost of money. The "high" value was determined
using a 15 percent target return on investment and the "low" value was
determined using a 16.5 percent target return on investment. This method
resulted in an estimated fair market value ranging from a low of $14,941,776
($54 for each $500 limited partnership interest or $108 for each $1,000
invested in the Partnership) to a high of $16,046,984 ($57 for each $500
limited partnership interest or $115 for each $1,000 invested in the
Partnership) for the Manitowoc System.
Malarkey-Taylor's valuation methodologies resulted in differing values for
the Manitowoc System. The reason for this is grounded in the basic approach
that the firm takes. The five different methods allow five different views of
the system's value. The first method looks at past performance, but allows
nothing for future performance. The second method looks at the system as it is
as of the date of the appraisal. The third method looks at the system's
projected operating income in the first year following the proposed sale. Both
discounted cash flow methods fully consider the future value of the system by
recognizing projected operating income and expenses, including capital
expenditures. Based upon all of the available information about a system being
appraised, the appraiser decides how to weight each of the five methods. The
final estimated fair market value is not a straight average of all of the
methods. Although the weighting is not shown in the appraisal report,
Malarkey-Taylor generally prefers the discounted cash flow methods since they
consider a broader range of factors that represent all sources of value,
present and future. Malarkey-Taylor accordingly generally gives greater
consideration to the discounted cash flow methods in its final judgment
concerning the fair market value of a cable television system. Malarkey-
Taylor's conclusions as to the range of values were based upon information and
data supplied by the General Partner, Malarkey-Taylor's onsite inspection of
the Manitowoc System in 1995, interviews with management and general cable
television industry information. The fair market value appraisal of
$15,567,000 ($56 for each $500 limited partnership interest or $112 for each
$1,000 invested in the Partnership) reached by Malarkey-Taylor was based on
the various valuations generated by it, and Malarkey-Taylor's general
knowledge and expertise in the cable television industry.
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As compensation for rendering an opinion as to the fair market value of the
Manitowoc System, the General Partner paid Malarkey-Taylor a fee of $4,536.
Such fee was not contingent upon the conclusion reached by Malarkey-Taylor in
its opinion. As compensation for rendering opinions as to the fair market
value of other cable television systems owned and/or managed by the General
Partner and its affiliates, and completing the analysis of the allocations of
purchase prices between tangible and intangible assets for various cable
television systems owned and/or managed by the General Partner and its
affiliates, Malarkey-Taylor has received fees totalling $338,419 during the
two years prior to the date hereof.
The Kagan Appraisal
Kagan Media Appraisals, Inc. ("Kagan") has more than twenty-seven years of
experience in appraising communications properties. During that period, Kagan,
according to its records, has appraised more than $26 billion worth of media
properties. Kagan was selected by the General Partner to render an opinion as
to the fair market value of the Manitowoc System in light of such overall
qualifications. No limitations were imposed with respect to the appraisal to
be rendered by Kagan. The firm was selected by the General Partner to prepare
an independent appraisal of the Manitowoc System because of the firm's
reputation in the industry, and its relationship with one of the most notable
analysts on the cable television industry. Kagan has prepared independent
appraisals of other cable television systems owned and/or managed by the
General Partner. Certain affiliates of Kagan generally invest in publicly held
media companies pursuant to an investment policy adopted by them in 1974. As a
result, portfolios owned and/or managed by affiliates of Kagan maintain a
long-term investment in the General Partner. In addition, the General Partner
subscribes to a number of information services provided by affiliates of Kagan
and employees of the General Partner from time to time enroll in seminars or
serve as panelists in seminars conducted by affiliates of Kagan. The General
Partner believes that Kagan's holdings in it are not material and do not
compromise Kagan's status as an independent appraiser of the Manitowoc
System's value. Kagan has certified to the General Partner in its appraisal
report that it has no present or contemplated financial interest in the
Manitowoc System and that its employment and compensation are in no way
contingent upon the value reported.
Kagan used two cable television system appraisal methodologies in reaching a
conclusion as to the fair market value of the Manitowoc System, namely: (i)
projected future cash flows discounted back to a cumulative present value, and
(ii) correlation of those results with analysis of recent comparable cable
television system sales.
With respect to the Manitowoc System, Kagan projected that household growth
in the system's service area will average 0.6 percent per year from 1997
through 2006. Kagan concluded that the Manitowoc System's penetration can be
expected to grow gradually from the current 70.3 percent to 74 percent in the
years 2001 through 2006. Kagan projected that for the remainder of the
forecast period basic rates would increase at approximately 5 percent
annually. Kagan concluded that the basic churn rate would remain constant
throughout the period at 21 percent per year. Kagan assumed that pay rate
increases would average 4 percent per year. Kagan also analyzed growth in pay-
per-view, advertising, home shopping and ancillary revenues. Kagan concluded
that the combination of expected household growth, steady gains in
penetration, modest rate increases and continued growth in pay-per-view, home
shopping and advertising revenues are projected to raise total system revenue
to $7,800,000 in 2006, or to $50.42 per subscriber per month. This is an
average growth rate of approximately 5.9 percent annually over the ten-year
forecast period. The ten-year discounted cash flow projections yielded a value
of approximately $16,400,000 ($58 for each $500 limited partnership interest
or $117 for each $1,000 invested in the Partnership) for the Manitowoc System.
In order to correlate this statistical valuation with the realities of the
marketplace, Kagan analyzed the sale of a number of comparable cable
television systems that took place in 1996. Comparison of a cable television
system to similar properties recently sold is an accepted appraisal
methodology used to correlated statistical findings with the realities of the
marketplace. Each of the comparables involved cable systems similar to the
Manitowoc System in size, area demographics, basic and pay penetration levels
and revenue per subscriber. Like cable properties can be compared to one
another on a value-per-subscriber or cash flow multiple basis. This test
15
<PAGE>
is a valuation yardstick that reflects a multiple of the cash flow a
subscriber is expected to generate in the first or second year of ownership.
Kagan reported that cable systems have historically sold most often in the
range of 9 to 11 times projected first-year cash flow with the higher end of
the range generally assigned to systems that are expected to achieve
significant near-term increases in cash flow. Thus, a cable subscriber
forecasted to generate $170 of cash flow in the coming year and selling at 11
times that cash flow would be valued at $1,870 and that same subscriber
selling at 13 times cash flow would be valued at $2,210. For the Manitowoc
System's comparable analysis, Kagan studied sales of cable television systems
serving between 5,000 and 20,000 subscribers, with basic penetration rates of
between 50 percent and 85 percent. Kagan emphasized stand-alone, similarly
sized systems located in one primary area.
The first comparable that Kagan considered was a February 1996 transaction
where a Mississippi system was sold for a cash flow multiple of 9.5. Applying
this cash flow multiple to the Manitowoc System produced a comparable value of
$17,200,000 ($61 for each $500 limited partnership interest or $121 for each
$1,000 invested in the Partnership). A second comparable considered was the
sale of a California system in July 1996 for a cash flow multiple of 8.8.
Applying this cash flow multiple to the Manitowoc System produced a comparable
value of $16,000,000 ($57 for each $500 limited partnership interest or $114
for each $1,000 invested in the Partnership). Kagan also looked at a
transaction that closed in June 1996 which involved the sale of a different
California system for a cash flow multiple of 7.6. If applied to the Manitowoc
System, that transaction's cash flow multiple would yield a comparable value
of $13,800,000 ($51 for each $500 limited partnership interest or $102 for
each $1,000 invested in the Partnership) for the Manitowoc System. The final
transaction examined by Kagan involved the sale of a Washington system for a
cash flow multiple of 9.5. Applying this comparable to the Manitowoc System
implies a comparable value of $17,200,000 ($61 for each $500 limited
partnership interest or $121 for each $1,000 invested in the Partnership) for
the Manitowoc System. The average of the four comparable values examined by
Kagan was $16,100,000 ($57 for each $500 limited partnership interest or $115
for each $1,000 invested in the Partnership).
Kagan finally correlated the values determined by the discounted cash flow
analysis and the comparable sales analysis. This correlation of values was a
highly subjective process undertaken by the independent appraiser. The
discounted cash flow analysis yielded a value for the Manitowoc System of
approximately $16,400,000 ($58 for each $500 limited partnership interest or
$117 for each $1,000 invested in the Partnership) while the analysis of
comparable sales yielded a value for the Manitowoc System of approximately
$16,100,000 ($57 for each $500 limited partnership interest or $115 for each
$1,000 invested in the Partnership). Kagan concluded that the proximity of
these values, within less than 2 percent of each other, arrived at through two
independent appraisal methodologies, underscored the validity of the
assumptions used to cast the ten-year cash flow projections and established a
range within which the value of the Manitowoc System could be expected to
fall. In arriving at a single estimate of value, Kagan considered the fact
that although the Manitowoc System has some upside in basic penetration, this
is limited by satellite competition and the fact that the system has no spare
channel capacity to increase offerings, making it that much more vulnerable to
competition. In addition, Kagan noted that the Manitowoc System has only
moderate upside in household growth. All of these factors led Kagan to value
the Manitowoc System at the lower end of the value range. Kagan concluded that
the fair market value of the Manitowoc System at August 31, 1996 was
approximately $16,100,000 ($57 for each $500 limited partnership interest or
$115 for each $1,000 invested in the Partnership). The analysis undertaken by
Kagan was based in part on financial statements and operating data of the
Manitowoc System furnished to Kagan by the General Partner.
As compensation for rendering an opinion as to the fair market value of the
Manitowoc System, the General Partner paid Kagan a fee of $20,000. Such fee
was not contingent upon the conclusion reached by Kagan in its opinion. As
compensation for rendering opinions as to the fair market value of other cable
television systems and related businesses owned and/or managed by the General
Partner and its affiliates, and completing the analysis of the allocations of
purchase prices between tangible and intangible assets for various cable
television systems owned and/or managed by the General Partner and its
affiliates, Kagan has received fees totalling $247,260 during the two years
prior to the date hereof.
16
<PAGE>
The Bond & Pecaro Appraisal
Bond & Pecaro, Inc. ("Bond & Pecaro") is a consulting firm specializing in
valuations, asset appraisals and related financial services for the
communications industry. The firm has appraised assets of more than 1,500
communications facilities. Bond & Pecaro was selected by the General Partner
to render an opinion as to the fair market value of the Manitowoc System in
light of such overall qualifications. No limitations were imposed with respect
to the appraisal to be rendered by Bond & Pecaro. The firm was selected by the
General Partner to prepare an independent appraisal of the Manitowoc System
because of the firm's reputation in the industry. Bond & Pecaro has prepared
independent appraisals of other cable television systems owned and/or managed
by the General Partner. The principals of Bond & Pecaro are not affiliated in
any way with the General Partner.
Like Kagan, Bond & Pecaro used both the income and the market methodologies
to determine the fair market value of the Manitowoc System as of August 31,
1996. The firm developed a discounted cash flow analysis to determine the
value of the Manitowoc System based upon its economic potential. The results
of this analysis indicated that the value of the Manitowoc System as of August
31, 1996 was $16,713,500 ($59 for each $500 limited partnership interest or
$119 for each $1,000 invested in the Partnership). In order to verify the
results of the discounted cash flow analysis, Bond & Pecaro also utilized a
comparable sales approach, relying upon an analysis of subscriber multiples.
The results of this analysis supported the firm's conclusions about valuation
resulting from application of the income approach.
Bond & Pecaro reported that the initial parameter upon which its discounted
cash flow projection is based is homes passed. Two factors affect the number
of homes passed: new plant construction and household growth. In preparing its
projection, Bond & Pecaro assumed that the number of households in the
Manitowoc System's franchise area will increase at a rate equivalent to the
average growth projected for the areas served by the system as a whole, or
approximately 0.8 percent per year. Bond & Pecaro concluded that the basic
penetration rate would grow modestly over the 10-year projected period from
the current 69.4 percent to approximately 85 percent by 2006. The firm
projected that pay penetration of the Manitowoc System will increase from a
level of 63.2 percent in 1996 to approximately 72 percent by 2006. Bond &
Pecaro concluded that due to regulatory and competitive restrictions, service
rates for basic and expanded basic services are expected to grow with
inflation while premium channel service rates are expected to remain
relatively flat throughout the 10-year projected period. Bond & Pecaro
estimated that pay-per-view service revenue will increase at a 12 percent
annual rate through 2006, that commercial advertising will increase at an 11.3
percent annual rate through 1999 and at an 11.4 percent rate thereafter
through the period and that annual installation revenue would grow at a
compound annual rate of 3.5 percent during the projection period. The firm
concluded that equipment rental revenues as well as other revenues also should
increase by 3.5 percent annually through 2006. Bond & Pecaro concluded that
total system revenues would increase from $3,900,000 in 1996 to approximately
$7,200,000 in 2006. For purposes of its appraisal, Bond & Pecaro assumed that
the Manitowoc System would maintain an operating profit margin of 42.5
percent, which was the system's operating profit margin in August 1996.
Depreciation and amortization estimates were based upon an estimated tangible
asset value of $2,820,000, the continuing annual capital expenditures required
to upgrade and maintain the system's plant and equipment and the system's
estimated intangible asset value. Bond & Pecaro used an estimated tax rate of
40.1 percent to project the taxable income of the Manitowoc System because the
estimated rate reflects the combined federal, state and local tax rates in
effect on August 31, 1996. Capital expenditures were projected at
approximately 8 percent of the estimated value of the tangible assets of the
Manitowoc System as of August 1996.
Bond & Pecaro then determined the net after-tax cash flow for the Manitowoc
System. After taxes were subtracted from the system's taxable income, non-cash
depreciation and amortization expense was added back to net income to yield
after-tax cash flow. From the after-tax cash flow, a provision for subsequent
capital expenditures was deducted to calculate the net after-tax cash flow.
Bond & Pecaro used a discount rate of 12 percent to calculate the present
value of the net after-tax cash flows. In order to account for the risks
associated with investments in the cable television industry and in the
Manitowoc System in particular, Bond & Pecaro added a premium to a base
discount rate to develop the 12 percent rate employed in its analysis. Bond &
Pecaro then applied a multiplier of 10.75 to the Manitowoc System's 2006
operating cash flow. Bond & Pecaro's
17
<PAGE>
appraisal noted that multiples used in the valuation of cable television
systems of a type similar to the Manitowoc System range from twelve to nine
times operating cash flow, depending on market conditions and a system's
profit potential. Bond & Pecaro noted also that exceptional circumstances will
warrant multiples outside of this range. The appraisal report indicated that
the selected multiple of 10.75 was used to estimate the value of the system at
the end of the investment period. According to Bond & Pecaro, this multiple
reflects the state of the market for cable television systems as of August 31,
1996, tempered by the economic conditions of the system's franchise service
area, the necessity for a system rebuild and the uncertainty introduced by re-
regulation of the cable television industry and competition from telephone
companies and direct broadcast satellite operators. The 10-year discounted
cash flow projection of Bond & Pecaro yielded a value of $16,713,500 ($59 for
each $500 limited partnership interest or $119 for each $1,000 invested in the
Partnership) for the Manitowoc System.
In order to correlate this statistical valuation with the realities of the
marketplace, Bond & Pecaro analyzed the sale of ten comparable cable
television systems that took place between November 1995 and August 1996. The
sales examined by Bond & Pecaro were selected based upon their comparability
to the Manitowoc System. Subscriber counts for the comparable cable television
systems were within 25 percent of the August 31, 1996 subscriber count for the
Manitowoc System. The prices paid for these comparable systems ranged from
$9.6 million to $20 million. With this analysis, Bond & Pecaro concluded that
the average price per subscriber paid for the ten comparable cable television
systems sales was approximately $1,419. Bond & Pecaro concluded that the
Manitowoc System's overall fair market value was $16,700,000 ($59 for each
$500 limited partnership interest or $118 for each $1,000 invested in the
Partnership). This $16,700,000 value reflects a subscriber multiple of
approximately $1,540 per subscriber, which is consistent with prevailing
subscriber multiples of comparable sales.
A representative of Bond & Pecaro visited the offices and technical
facilities of the Manitowoc System in June 1995 as part of its preparation of
the appraisal report. The firm's representative consulted with system
management regarding market factors and system-specific issues that impacted
the value of the system's tangible and intangible assets. Specific data
provided by the system and the General Partner included historical audited
financial statements for fiscal years 1992 through 1995, 1996 year to date
unaudited financial statements, operating statistical summaries, system
technical data, market demographic data and related materials. Other sources
consulted in the preparation of the appraisal included industry factbooks,
government publications and similar reference materials. Bond & Pecaro also
relied upon information furnished by the Manitowoc System's management
relating to the age, condition and adequacy of the system's physical plant.
As compensation for rendering an opinion as to the fair market value of the
Manitowoc System, the General Partner paid Bond & Pecaro a fee of $5,295. Such
fee was not contingent upon the conclusions reached by Bond & Pecaro in its
opinion. As compensation for rendering opinions as to the fair market value of
other cable television systems owned and/or managed by the General Partner and
its affiliates, Bond & Pecaro has received fees totalling $64,866 during the
two years prior to the date hereof.
COSTS OF THE TRANSACTION
The following is a reasonably itemized estimate of all expenses incurred or
to be incurred in connection with the proposed sale of the Manitowoc System,
all of which will be paid by the General Partner, including without limitation
the cost of soliciting the votes of the holders of limited partnership
interests:
<TABLE>
<S> <C>
Filing fees $ 580
Legal fees $10,000
Accounting fees $10,000
Appraisal fees $29,830
Printing costs $25,000
Postage and miscellaneous costs $10,000
</TABLE>
18
<PAGE>
PROPOSED SALE OF ASSETS
THE PURCHASE AND SALE AGREEMENT
Pursuant to the terms and conditions of a purchase and sale agreement dated
as of September 5, 1995, as amended September 30, 1996 (the "Purchase and Sale
Agreement") by and between the Venture and the General Partner, the Venture
has agreed to sell the Manitowoc System to the General Partner. The General
Partner intends to finance its acquisition of the Manitowoc System using cash
on hand and cash generated from operations. Based upon amounts estimated as of
September 30, 1996, the aggregate cost of the acquisition of the Manitowoc
System to the General Partner, including the adjusted contract purchase price,
will be approximately $15,841,995.
The closing of the sale will occur on a date upon which the Venture and the
General Partner mutually agree by June 30, 1997. It is anticipated that the
closing will occur within a few weeks after receipt of the approval of the
sale by the limited partners of the Venture's four constituent partnerships.
Because the closing is conditioned upon, among other things, the approval of
the limited partners of the Venture's four constituent partnerships and the
receipt of material third party consents necessary for the transfer of the
Manitowoc System to the General Partner, there can be no assurance that the
proposed sale will occur. If all conditions precedent to the General Partner's
obligation to close are not eventually satisfied or waived, the General
Partner's obligation to purchase the Manitowoc System will terminate on June
30, 1997.
THE MANITOWOC SYSTEM
The assets to be acquired by the General Partner consist primarily of the
real and personal, tangible and intangible assets of the Venture's Manitowoc
System. The General Partner will purchase all of the tangible assets of the
Manitowoc System, including, among other things, the headend equipment,
underground and aboveground cable distribution systems, towers, earth
satellite receive stations, and furniture and fixtures of the Manitowoc
System. The Purchaser also will acquire certain of the intangible assets of
the Manitowoc System, including, among other things, all of the franchises,
leases, agreements, permits, licenses and other contracts and contract rights
of the Manitowoc System. Also included in the sale are certain parcels of real
estate owned by the Manitowoc System, the subscriber accounts receivable of
the Manitowoc System and all of the Manitowoc System's engineering records,
files, schematics, maps, reports, promotional graphics, marketing materials
and reports filed with federal, state and local regulatory agencies. Certain
of the Manitowoc System's assets will be retained by the Venture, including
cash or cash equivalents on hand and in banks, certain insurance policies and
rights and claims thereunder, and any federal or state income tax refunds to
which the Venture may be entitled.
PURCHASE PRICE
Subject to the working capital adjustments described below, the purchase
price for the Manitowoc System is $16,122,333. The purchase price will be
reduced by any accounts payable and accrued expenses and vehicle lease
obligations existing on the closing date. The purchase price will be increased
by any accounts receivable existing on the closing date. The purchase price
for the Manitowoc System also will be adjusted as of the closing date with
respect to all items of income and expense associated with the operation of
the Manitowoc System. This adjustment will reflect, in accordance with
generally accepted accounting principles, that all expenses and income
attributable to the period on or after the closing date are for the account of
the General Partner and those prior to the closing date are for the account of
the Venture. Please see Note 3 of the Notes to Unaudited Pro Forma Financial
Statements for a detailed accounting of the estimated closing adjustments.
CONDITIONS TO CLOSING
The General Partner's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the Venture shall have obtained all
material consents and approvals from governmental authorities and other third
parties necessary to the transfer of the Manitowoc System to the General
Partner, and (b) all
19
<PAGE>
representations and warranties of the Venture shall be true and correct in all
material respects as of the closing date. The Venture has obtained the consent
of the City of Manitowoc, and the General Partner does not anticipate that the
Venture will experience any significant difficulty in obtaining the other
necessary consents and approvals to the currently proposed sale. If, however,
the Venture fails to obtain certain consents and approvals of third parties
with whom the Manitowoc System has contracted, the General Partner likely will
waive this condition to closing. In such circumstances, the General Partner
would agree to indemnify the Venture for any liabilities incurred in
connection with a closing without prior receipt of all necessary consents. The
Venture's obligations under the Purchase and Sale Agreement are subject to
receipt of the purchase price for the Manitowoc System.
FEDERAL INCOME TAX CONSEQUENCES
The purpose of the following discussion of the income tax consequences of
the proposed transaction is to inform the limited partners of the Partnership
of the federal income tax consequences to the Partnership and to its partners
arising from the sale of the Manitowoc System. The tax information included
herein was prepared by the tax department of the General Partner. The tax
information is taken from tax data compiled by the General Partner in its role
as the Partnership's tax administrator and is not based upon the advice or
formal opinion of counsel. The tax discussion that follows is merely intended
to inform the limited partners of factual information and should not be
considered tax advice.
By the expected date of the Manitowoc System's sale, the limited partners
will have received certain tax benefits from their investment in the
Partnership. Assuming maximum federal income tax rates and no other sources of
passive income, limited partners will have received $10,419,600 in tax
benefits from Partnership losses ($446 per $1,000 invested).
The sale of the Manitowoc System will result in a gain for federal income
tax purposes. The amount of this gain allocated to limited partners is
approximately $1,862,350. The General Partner estimates that $1,529,707 ($65
per $1,000 invested) of this gain will be treated as ordinary income. This
amount of ordinary income results from the recapture of depreciation on
personal property under Section 1245. The General Partner estimates that the
remainder of the gain, $332,643 ($14 per $1,000 invested), will be treated as
long term capital gain under Section 1231.
Assuming the 31 percent rate applies to ordinary income and the 28 percent
rate applies to long term capital gain income, as a result of the sale of the
Manitowoc System, a limited partner will be subject to federal income taxes of
$24 per $1,000 invested in the Partnership. The taxable income will be
recognized in the year of the closing of the sale, which is expected to be
1997.
The sale of the Manitowoc System will cause the liquidation of the
Partnership, which will result in an additional tax deduction for the limited
partners. The final capital account balance reported on the 1997 Schedule K-1
of each limited partner will reflect a positive ending capital account balance
that is projected to equal $130 per $1,000 invested. This amount represents
partnership syndication costs that may be deducted on the limited partners'
tax return as a long term capital loss under Section 731. The deduction of
long term capital losses may be limited depending on each partners' specific
income tax situation.
Limited partners who are non-resident aliens or foreign corporations
("foreign persons") are subject to a withholding tax on their share of the
Partnership's income from the sale of the Manitowoc System. The withholding
rates are 39.6 percent for individual partners and 35 percent for corporate
partners. The tax withheld will be remitted to the Internal Revenue Service
and the foreign person will receive a credit on their U.S. tax return for the
amount of the tax withheld by the Partnership. The tax withheld will be
treated as a distribution to the limited partner.
20
<PAGE>
CERTAIN INFORMATION ABOUT THE PARTNERSHIP
AND THE GENERAL PARTNER
The General Partner acquires, develops and operates cable television systems
for itself and for its managed limited partnerships. Based on the number of
basic subscribers served by the General Partner's owned and managed cable
television systems, the General Partner is one of the largest cable television
system operators in the United States. It owns and/or manages for affiliated
public limited partnerships 56 cable television systems in 23 states serving
approximately 1.4 million basic subscribers. The principal executive offices
of the Partnership and the General Partner are located at 9697 East Mineral
Avenue, Englewood, Colorado 80112, and their telephone number is (303) 792-
3111.
The limited partnership interests of the Partnership are registered pursuant
to Section 12(g) of the Exchange Act. As such, the Partnership currently is
subject to the informational reporting requirements of the Exchange Act and,
in accordance therewith, is obligated to file periodic reports, proxy
statements and other information with the Securities and Exchange Commission
relating to its business, financial condition and other matters. Reports and
other information filed by the Partnership can be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at the following regional offices
of the Commission: 7 World Trade Center, Suite 1300, New York, New York 10048
and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Partnership will be liquidated and dissolved after the
sale of the Manitowoc System. The Partnership's registration and reporting
requirements under the Exchange Act will be terminated upon dissolution of the
Partnership.
The General Partner also is subject to the informational filing requirements
of the Exchange Act and, in accordance therewith, files periodic reports,
proxy statements and other financial information with the Securities and
Exchange Commission relating to its business, financial condition and other
matters. Information, as of particular dates, concerning the General Partner's
directors and officers, their compensation, options granted to them, the
principal holders of the General Partner's securities and any material
interest of such persons in transactions with the General Partner is required
to be disclosed in certain documents filed with the Commission. Such reports,
proxy statements and other information may be inspected at the above-listed
public reference facilities maintained by the Commission. Copies of such
materials may be obtained upon payment of the Commission's prescribed charges
by writing to the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
The name, business address and principal occupation and employment for the
past five years of each of the directors and executive officers of the General
Partner are set forth in Schedule 1 to this Proxy Statement. To the 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.
21
<PAGE>
CERTAIN RELATED PARTY TRANSACTIONS
The General Partner and its affiliates engage in certain transactions with
the Venture as contemplated by the Partnership Agreement. The General Partner
believes that the terms of such transactions are generally as favorable as
could be obtained by the Venture from unaffiliated parties. This determination
has been made by the General Partner in good faith, but none of the terms were
or will be negotiated at arm's-length and there can be no assurance that the
terms of such transactions have been or will be as favorable as those that
could have been obtained by the Venture from unaffiliated parties.
The General Partner charges the Venture a management fee relating to its
cable television system, and the Venture reimburses the General Partner for
certain allocated overhead and administrative expenses in accordance with the
terms of the Partnership Agreement. These expenses consist primarily of
salaries and benefits paid to corporate personnel, rent, data processing
services and other facilities costs. Such personnel provide engineering,
marketing, administrative, accounting, legal and investor relations services
to the Partnership and the Venture. Allocations of personnel costs are based
primarily on actual time spent by employees of the General Partner with
respect to cable television systems managed. Systems owned by the General
Partner and all other systems owned by partnerships for which Jones
Intercable, Inc. is the general partner are also allocated a proportionate
share of these expenses. No duplicate management or other fees or
reimbursements are charged to the Partnership and the Partnership bears only
18 percent of the fees and reimbursements paid by the Venture, which is
attributable to the Partnership's 18 percent ownership interest in the
Venture.
The General Partner from time to time also advances funds to the Venture and
charges interest on the balances payable from the Venture. The interest rate
charged the Venture approximates the General Partner's weighted average cost
of borrowing.
The Manitowoc System receives stereo audio programming from Superaudio, a
joint venture owned 50 percent by an affiliate of the General Partner and 50
percent by an unaffiliated party, educational video programming from Mind
Extension University, Inc., an affiliate of the General Partner, and computer
video programming from Jones Computer Network, Ltd., an affiliate of the
General Partner, for fees based upon the number of subscribers receiving the
programming.
Jones Infomercial Networks, Inc. ("Infomercial"), an affiliate of the
General Partner, provides advertising time for third parties on the Manitowoc
System. In consideration, the revenues generated from the third parties are
shared two-thirds and one-third between Infomercial and the Venture. During
the year ended December 31, 1995 and the nine months ended September 30, 1996,
the Venture received revenues from Infomercial totalling $4,559 and $2,584,
respectively.
The charges to the Venture for related party transactions were as follows
for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE NINE DECEMBER 31,
MONTHS ENDED -------------------
SEPTEMBER 30, 1996 1995 1994
------------------ --------- ---------
<S> <C> <C> <C>
Management fees.................... $138,526 $ 181,634 $ 164,805
Allocation of expenses............. 193,989 282,057 272,753
Interest expense................... 1,344 6,848 13,306
Amount of notes and advances
outstanding....................... 0 45,258 72,764
Highest amount of notes and
advances outstanding.............. 77,215 77,215 72,764
Programming fees:
Superaudio....................... 5,240 6,318 6,105
Mind Extension University........ 5,750 6,759 5,532
Jones Computer Network........... 10,863 12,760 3,316
</TABLE>
22
<PAGE>
USE OF PROCEEDS FROM MANITOWOC SYSTEM SALE
The following is a brief summary of the Partnership's estimated use of the
proceeds from the sale of the Manitowoc System. All of the following selected
financial information is based upon amounts as of September 30, 1996 and
certain estimates of liabilities at closing. Final results may differ from
these estimates. A more detailed discussion of the financial consequences of
the sale of the Manitowoc System is set forth below under the caption
"Unaudited Pro Forma Financial Information." All limited partners are
encouraged to review carefully the unaudited pro forma financial statements
and notes thereto.
If the holders of a majority of limited partnership interests of the four
partnerships that comprise the Venture approve the proposed sale of the
Manitowoc System and the transaction is closed, the Venture will pay all of
its indebtedness and then the net sale proceeds will be distributed to the
four constituent partnerships of the Venture. The Partnership will receive 18
percent of such proceeds and the Partnership will distribute this portion of
the net sale proceeds pursuant to the terms of the Partnership Agreement. The
estimated uses of the sale proceeds are as follows:
<TABLE>
<S> <C>
Contract Sales Price of the Manitowoc System.................... $16,122,333
Add:Cash on Hand................................................ 3,483,777
Less:Estimated Net Closing Adjustments.......................... (280,338)
Repayment of Debt............................................ (4,775)
-----------
Cash Available for Distribution to Joint Venturers......... 19,320,997
Cash Distributed to Other Joint Venturers.................. (15,800,282)
-----------
Cash Distributed to the Partnership........................ 3,520,715
Less:Amount due General Partner................................. (10,781)
-----------
Cash Available for Distribution by the Partnership........... $ 3,509,934
===========
Limited Partners' Share ................................... $ 2,689,304
===========
General Partner's Share.................................... $ 820,630
===========
</TABLE>
Based upon financial information available at September 30, 1996, below is
an estimate of all cash distributions that will have been made to limited
partners after the distribution of the proceeds from the sale of the Manitowoc
System is completed.
<TABLE>
<S> <C>
Summary of Estimated Cash Distributions to Limited Partners:
Return of Limited Partners' Initial Capital on the 1988 Sale
of the Partnership's Maryland System......................... $23,362,500
Limited Partners' Share of Residual Proceeds on the 1988 Sale
of the Partnership's Maryland System......................... 17,245,189
Limited Partners' Share of Residual Proceeds on the 1990 Sale
of the Venture's Wisconsin Systems........................... 15,991,608
Limited Partners' Share of Residual Proceeds on the 1996 Sale
of the Venture's Manitowoc System............................ 2,689,304
-----------
Total Estimated Cash Received by Limited Partners............. $59,288,601
===========
Total Cash Received per $1,000 of Limited Partnership Capital. $ 2,538
===========
Total Cash Received per $500 Limited Partnership Interest .... $ 1,269
===========
</TABLE>
The estimated after-tax internal rate of return on an investment in the
Partnership is approximately 18.98 percent. This internal rate of return
includes the distribution to be made on the sale of the Manitowoc System and
the prior distribution of the net proceeds from the sale of the Partnership's
Anne Arundel County, Maryland System in June 1988 and the prior distribution
of the net proceeds from the sale of the Venture's Wisconsin systems in June
1990.
23
<PAGE>
Based on financial information available at September 30, 1996, the
following table presents the estimated results of the Partnership when the
Venture has completed the sale of the Manitowoc System:
<TABLE>
<S> <C>
Dollar Amount Raised.......................................... $23,362,500
Number of Cable Television Systems Purchased Directly......... One
Number of Cable Television Systems Purchased Indirectly....... Eight
Date of Closing of Offering................................... April 1983
Date of First Sale of Properties.............................. June 1988
Tax and Distribution Data per $1,000 of Limited Partnership
Capital:
Federal Income Tax Results
Ordinary Income (Loss)
--from operations......................................... $ (883)
--from recapture.......................................... $1,298
Capital Gain (Loss)....................................... $1,123
Cash Distributions to Investors
Source (on GAAP basis)
--investment income....................................... $1,538
--return of capital....................................... $1,000
Source (on cash basis)
--sales................................................... $2,538
</TABLE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF CABLE TV FUND 11-A, LTD.
The following unaudited pro forma financial statements assume that as of
September 30, 1996, the Venture had sold the Manitowoc System for $16,122,333.
The funds available to the Venture, adjusting for the estimated net closing
adjustments of the Manitowoc System, are expected to total approximately
$15,841,995. Such funds will be used to repay indebtedness and the balance
plus cash on hand will be distributed to the four constituent partnerships of
the Venture pursuant to the percentage ownership interests in the Venture of
each Partnership and then each partnership will distribute its share of the
net proceeds pursuant to the terms of their partnership agreements, which will
be 75 percent to the limited partners and 25 percent to the General Partner.
The unaudited pro forma financial statements should be read in conjunction
with the appropriate notes to the unaudited pro forma financial statements.
ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON
AMOUNTS AS OF SEPTEMBER 30, 1996 AND CERTAIN ESTIMATES OF LIABILITIES AT
CLOSING. FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
24
<PAGE>
CABLE TV FUND 11-A, LTD.
UNAUDITED PRO FORMA BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents................... $ -- $3,509,934 $3,509,934
Investment in cable television venture...... 1,394,777 (1,394,777) --
---------- ---------- ----------
Total Assets............................ $1,394,777 $2,115,157 $3,509,934
========== ========== ==========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Accounts payable--General Partner......... $ 10,781 $ (10,781) $ --
Accrued distribution to Limited Partners.. -- 2,689,304 2,689,304
Accrued distribution to General Partner... -- 820,630 820,630
---------- ---------- ----------
Total Liabilities....................... 10,781 3,499,153 3,509,934
---------- ---------- ----------
Partners' Capital (Deficit):
General Partner........................... (164,385) 164,385 --
Limited Partners.......................... 1,548,381 (1,548,381) --
---------- ---------- ----------
Total Partners' Capital (Deficit)....... 1,383,996 (1,383,996) --
---------- ---------- ----------
Total Liabilities and Partners' Capital
(Deficit)................................ $1,394,777 $2,115,157 $3,509,934
========== ========== ==========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited balance sheet.
25
<PAGE>
CABLE TV FUND 11-A, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- ---------
<S> <C> <C> <C>
EQUITY IN NET INCOME OF CABLE TELEVISION
JOINT VENTURE................................ $82,703 $(82,703) $ --
------- -------- -----
NET INCOME.................................... $82,703 $(82,703) $ --
======= ======== =====
NET INCOME PER LIMITED PARTNERSHIP UNIT....... $ 1.75 $ (1.75) $ --
======= ======== =====
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
26
<PAGE>
CABLE TV FUND 11-A, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS REPORTED ADJUSTMENTS BALANCE
----------- ----------- ---------
<S> <C> <C> <C>
EQUITY IN NET INCOME OF CABLE TELEVISION
JOINT VENTURE............................... $80,274 $(80,274) $ --
------- -------- -----
NET INCOME................................... $80,274 $(80,274) $ --
======= ======== =====
NET INCOME PER LIMITED PARTNERSHIP UNIT...... $ 1.70 $ (1.70) $ --
======= ======== =====
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement
27
<PAGE>
CABLE TV FUND 11-A, LTD.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1) The Partnership has an 18 percent ownership interest in the Venture
through capital contributions made during 1984 of $8,200,000. The following
calculations present the sale of the Manitowoc System and the resulting
estimated distributions to be received by the Partnership.
2) The unaudited pro forma balance sheet of the Partnership assumes that the
Venture had sold the Manitowoc System for $16,122,333 as of September 30,
1996. The unaudited statement of operations of the Partnership assumes that
the Venture had sold the Manitowoc System as of January 1, 1995.
3) The Venture had a cash balance of $3,483,777 at September 30, 1996. Of
this cash balance, approximately $1,300,000 represents cash generated from the
operations of the Manitowoc System and approximately $2,184,000 represents
residual proceeds from the sale of the Wisconsin systems in 1990. This cash
will be distributed with the net proceeds from the sale of the Manitowoc
System. The $1,300,000 generated from the operations of the Manitowoc System
will be distributed 99 percent to the limited partners and 1 percent to the
General Partner. The $2,184,000 of residual proceeds will be distributed 75
percent to the limited partners and 25 percent to the General Partner.
4) The estimated gain recognized from the sale of the Manitowoc System and
corresponding estimated distribution to limited partners as of September 30,
1996 has been computed as follows:
GAIN ON SALE OF ASSETS:
<TABLE>
<S> <C>
Contract sales price.............................................. $16,122,333
Less: Net book value of investment in cable television properties
at September 30, 1996....................................... (2,443,945)
Additional franchise costs................................... (1,850,000)
-----------
Gain on sale of assets............................................ $11,828,388
===========
Partnership's share of gain on sale of assets..................... $ 2,155,395
===========
DISTRIBUTIONS TO PARTNERS:
Contract sales price.............................................. $16,122,333
Add:Trade receivables, net........................................ 102,278
Prepaid expenses.................................................. 22,309
Less:Accrued liabilities assumed by the General Partner........... (380,553)
Subscriber prepayments............................................ (24,372)
-----------
Adjusted cash received............................................ 15,841,995
Less:Outstanding debt to third parties............................ (4,775)
Add:Cash on hand.................................................. 3,483,777
-----------
Cash available for distribution................................... 19,320,997
Cash distributed to other Joint Venturers......................... (15,800,282)
-----------
Cash distribution to the Partnership.............................. $ 3,520,715
Less:Amount due General Partner................................... (10,781)
-----------
Cash available for distribution by the Partnership................ $ 3,509,934
===========
Amount due Limited Partners....................................... $ 2,689,304
===========
Amount due General Partner........................................ $ 820,630
===========
</TABLE>
28
<PAGE>
AVAILABLE INFORMATION
The Partnership's Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1996 and the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 are being mailed to the limited partners
of the Partnership together with this Proxy Statement. Copies of the three
independent appraisals of the fair market value of the Manitowoc System and
copies of the Purchase and Sale Agreement between the Venture and the
Purchaser are available to each limited partner of the Partnership upon
written request to Elizabeth M. Steele, Secretary, Jones Intercable, Inc.,
9697 East Mineral Avenue, Englewood, Colorado 80112, (303) 792-3111. Copies of
these documents will be provided at the expense of the requesting limited
partner.
A Rule 13e-3 Transaction Statement furnishing certain additional information
with respect to the transaction described herein has been jointly filed by the
Partnership and the Purchaser with the Securities and Exchange Commission.
INCORPORATION BY REFERENCE
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995 and the Partnership's Quarterly Report on Form 10-Q for the
fiscal quarter ended September 30, 1996 are incorporated by reference in this
Proxy Statement. The Partnership specifically incorporates by reference herein
Item 1. Business, Item 2. Properties, Item 5. Market for the Registrant's
Common Stock and Related Security Holder Matters, Item 6. Selected Financial
Data, Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations and Item 8. Financial Statements from its 1995 Annual
Report on Form 10-K and the September 30, 1996 Quarterly Report on Form 10-Q
in its entirety.
29
<PAGE>
SCHEDULE 1
EXECUTIVE OFFICERS AND DIRECTORS OF THE GENERAL PARTNER
Set forth below is the name, residence or business address, present
principal occupation or employment and five-year employment history of the
executive officers and directors of the General Partner. Also set forth is the
aggregate number of limited partnership interests of the Partnership
beneficially owned by each such person. The present principal occupation of
each executive officer of the General Partner is as an executive officer of
the General Partner. The Partnership has no officers or employees. All persons
listed, except for Messrs. Burney, MacDonald and Vanaselja, are citizens of
the United States. Messrs. Burney, MacDonald and Vanaselja are citizens of
Canada.
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Glenn R. Jones Mr. Jones has served as Chairman of the Board of 0
c/o Jones Intercable, Directors and Chief Executive Officer of the
Inc. 9697 E. Mineral General Partner since its formation in 1970.
Avenue Englewood, CO
80112
Christopher J. Bowick Mr. Bowick is the General Partner's Group Vice 0
c/o Jones Intercable, President/Technology and its Chief Technical
Inc. 9697 E. Mineral Officer. Prior to joining the General Partner
Avenue Englewood, CO in 1991, Mr. Bowick worked as Vice President of
80112 Engineering of Scientific Atlanta's
transmission systems business division.
Derek H. Burney Mr. Burney was appointed a Director of the 0
c/o Bell Canada General Partner in December 1994 and he became
International Inc. Vice Chairman of the General Partner's Board in
1000 rue de la January 1995. Mr. Burney joined BCE Inc.,
Gauchetiere Bureau 1100 Canada's largest telecommunications company, in
Montreal (PQ) January 1993, and he has been Chairman of Bell
Canada H3B 4Y8 Canada International Inc., a subsidiary of BCE
Inc., since that time and, in addition, he has
been the subsidiary's Chief Executive Officer
since July 1993. Prior to joining BCE Inc., Mr.
Burney was Canada's ambassador to the United
States from 1989 to 1992.
Robert E. Cole Mr. Cole was appointed a director of the General 0
c/o Jones Intercable, Partner in March 1996. Mr. Cole is currently
Inc. self-employed as a partner of First Variable
9697 E. Mineral Avenue Insurance Marketing and is responsible for
Englewood, CO 80112 marketing to National Association of Securities
Dealers, Inc. firms in northern California,
Oregon, Washington and Alaska. From 1993 to
1995, Mr. Cole was the director of marketing
for Lamar Life Insurance Company; from 1992 to
1993, Mr. Cole was senior vice president of PMI
Inc., a third party lender serving the special
needs of corporate owned life insurance (COLI)
and from 1988 to 1992, Mr. Cole was the
principal of a specialty investment banking
firm that provided services to finance the
ownership and growth of emerging companies,
productive assets and real property.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Kevin P. Coyle Mr. Coyle, Group Vice President/Finance of the 0
c/o Jones Intercable, General Partner, has been the General Partner's
Inc. 9697 E. Mineral Chief Financial Officer since 1990. Mr. Coyle
Avenue Englewood, CO has been an associate of the General Partner
80112 since 1981.
William E. Frenzel Mr. Frenzel was appointed a Director of the 0
1775 Massachusetts General Partner in April 1995. He has been a
Avenue, NW Guest Scholar since 1991 with the Brookings
Washington, DC 20036 Institution, a research organization located in
Washington D.C. Until his retirement in January
1991, Mr. Frenzel served for twenty years in
the United States House of Representatives.
Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0
60435 Tekampe Road General Partner in April 1995. From 1983 to
Bend, OR 97702 1992, at which time Mr. Jacobs retired, Mr.
Jacobs was an executive officer of TRW. Prior
to his retirement, he was Vice President and
Deputy Manager of the Space and Defense Sector;
prior to that appointment, he was the Vice
President and General Manager of the Defense
Systems Group; and prior to that appointment,
he was President of ESL, Inc., a subsidiary of
TRW.
Larry Kaschinske Mr. Kaschinske has been the Controller and Chief 0
c/o Jones Intercable, Accounting Officer of the General Partner since
Inc. 9697 E. Mineral 1994. Mr. Kaschinske has been an associate of
Avenue Englewood, CO the General Partner since 1984.
80112
James J. Krejci Mr. Krejci has been a Director of the General 0
c/o Jones Intercable, Partner since 1987. He was the President of the
Inc. International Division of International Gaming
9697 E. Mineral Avenue Technology headquartered in Reno, Nevada from
Englewood, CO 80112 May 1994 until March 1995. Prior to joining
International Gaming Technology, Mr. Krejci had
been a Group Vice President of the General
Partner since 1987.
John A. MacDonald Mr. MacDonald was appointed a Director of the 0
c/o Bell Canada General Partner in November 1995. Mr. MacDonald
International Inc. is Executive Vice President-Business
1000 rue de la Development and Chief Technology Officer of
Gauchetiere Bell Canada. Prior to joining Bell Canada in
Bureau 1100 November 1994, he was President and Chief
Montreal (PQ) Executive Officer of The New Brunswick
Canada H3B 4Y8 Telephone Company, a post he had held since
March of that year. Mr. MacDonald began his
career with NBTel in 1977 and he held various
posts with that Company until his departure in
November 1994.
James B. O'Brien Mr. O'Brien has been President, Chief Operating 0
c/o Jones Intercable, Officer and a Director of the General Partner
Inc. since 1989. Mr. O'Brien has been with the
9697 E. Mineral Avenue General Partner since 1982 in various
Englewood, CO 80112 operational management positions.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Raphael M. Solot Mr. Solot was appointed a director of the 0
c/o Jones Intercable, General Partner in March 1996. Mr. Solot is an
Inc. attorney in private practice. He has practiced
9697 E. Mineral Avenue law for 31 years with an emphasis on franchise,
Englewood, CO 80112 corporate and partnership law and complex
litigation.
Elizabeth M. Steele Ms. Steele joined the General Partner in 1987 as 0
c/o Jones Intercable, Vice President/General Counsel and Secretary.
Inc. Prior to that time, Ms. Steele was a partner at
9697 E. Mineral Avenue Davis, Graham & Stubbs, a Denver, Colorado law
Englewood, CO 80112 firm that serves as counsel to the General
Partner.
Howard O. Thrall Mr. Thrall was appointed a director of the 0
c/o Jones Intercable, General Partner in March 1996 and he had
Inc. previously served as a director of the General
9697 E. Mineral Avenue Partner from December 1988 to December 1994.
Englewood, CO 80112 Mr. Thrall is senior vice president-corporate
development for First National Net, Inc., a
leading service provider for the mortgage
banking industry. From September 1993 through
July 1996, Mr. Thrall served as vice president
of sales, Asian region for World Airways, Inc.
From 1984 until August 1993, Mr. Thrall was
with the McDonnell Douglas Corporation, where
he was a regional vice president, commercial
marketing with the Douglas Aircraft Company
subsidiary.
Siim A. Vanaselja Mr. Vanaselja was appointed a director of the 0
c/o Bell Canada General Partner in August 1996. Mr. Vanaselja
International Inc. joined BCE, Inc., Canada's largest
1000 rue de la telecommunications company, in February 1994
Gauchetiere and he has served in various capacities with
Bureau 1100 that company and its subsidiaries since that
Montreal (PQ) time. He currently serves as Chief Financial
Canada H3B 4Y8 Officer of Bell Canada International Inc., a
BCE Inc. subsidiary. Prior to joining BCE Inc.
and since August 1989, Mr. Vanaselja was a
partner in the Toronto office of KPMG Peat
Marwick Thorne.
Raymond L. Vigil Mr. Vigil has been Group Vice President/Human 0
c/o Jones Intercable, Resources of the General Partner since 1993.
Inc. Previous to joining the General Partner, Mr.
9697 E. Mineral Avenue Vigil served as Executive Director of Learning
Englewood, CO 80112 at U S West. Prior to
U S West, Mr. Vigil worked in various human
resources posts over a 14-year term with the
IBM Corporation.
Ruth E. Warren Ms. Warren has been Group Vice 0
c/o Jones Intercable, President/Operations of the General Partner
Inc. since 1990. Ms. Warren has been with the
9697 E. Mineral Avenue General Partner in various operational
Englewood, CO 80112 management positions since 1980.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
AGGREGATE NUMBER
OF LIMITED
PARTNERSHIP INTERESTS
NAME AND ADDRESS OCCUPATION OR EMPLOYMENT BENEFICIALLY OWNED
---------------- ------------------------ ---------------------
<S> <C> <C>
Cynthia A. Winning Ms. Winning joined the General Partner as Group 0
c/o Jones Intercable, Vice President/Marketing in December 1994.
Inc. Prior to joining the General Partner, Ms.
9697 E. Mineral Avenue Winning served in 1994 as the President of PRS
Englewood, CO 80112 Inc., a Denver, Colorado sports and event
marketing company. From 1979 to 1981 and from
1986 to 1994, Ms. Winning served as the Vice
President and Director of Marketing for
Citicorp Retail Services, Inc.
Sanford Zisman Mr. Zisman was appointed a director of the 0
c/o Jones Intercable, General Partner in June 1996. Mr. Zisman is a
Inc. member of the law firm Zisman & Ingraham, P.C.
9697 E. Mineral Avenue of Denver, Colorado. He has practiced law for
Englewood, CO 80112 31 years, with an emphasis on tax, business and
estate planning and probate administration.
Robert L. Zoellick Mr. Zoellick was appointed a Director of the 0
3900 Wisconsin General Partner in April 1995. Mr. Zoellick is
Avenue, NW Executive Vice President, General Counsel and
Washington, DC 20016 Corporate Secretary of Fannie Mae, a federally
chartered and stockholder-owned corporation
that is the largest housing finance investor in
the United States. From August 1992 to January
1993, Mr. Zoellick served as Deputy Chief of
Staff of the White House and Assistant to the
President. From May 1991 to August 1992, Mr.
Zoellick served concurrently as the Under
Secretary of State for Economic and
Agricultural Affairs and as Counselor of the
Department of State. From 1985 to 1988, Mr.
Zoellick served at the Department of Treasury
in various capacities.
</TABLE>
33
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF JONES INTERCABLE, INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 11-A, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Joint Fund 11's
Manitowoc, Wisconsin cable television system to Jones Intercable, Inc. for a
sales price of $16,122,333 in cash, subject to normal closing adjustments,
pursuant to the terms and conditions of that certain Purchase and Sale
Agreement dated as of September 5, 1995, as amended September 30, 1996, as
follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(continued on other side)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS.
DATED: _____________________, 1997
__________________________________
Beneficial Owner Signature
(Investor)
__________________________________
Authorized Trustee/Custodian
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF JONES INTERCABLE, INC. APPEARS HERE]
9697 EAST MINERAL AVENUE
ENGLEWOOD, COLORADO 80112
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE PARTNERSHIP BY THE GENERAL PARTNER
The undersigned Limited Partner of Cable TV Fund 11-A, Ltd., a Colorado
limited partnership, hereby votes on the sale of Cable TV Joint Fund 11's
Manitowoc, Wisconsin cable television system to Jones Intercable, Inc. for a
sales price of $16,122,333 in cash, subject to normal closing adjustments,
pursuant to the terms and conditions of that certain Purchase and Sale
Agreement dated as of September 5, 1995, as amended September 30, 1996, as
follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(continued on other side)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSED SALE TRANSACTION.
PLEASE SIGN EXACTLY AS NAME
APPEARS.
When limited partnership inter-
ests are held by more than one
person, all owners should sign.
When signing as attorney, as ex-
ecutor, administrator, trustee or
guardian, please give full title
as such. If a corporation, please
sign in full corporation name by
authorized officer. If a partner-
ship, please sign in partnership
name by authorized person.
DATED: _____________________, 1997
__________________________________
Signature
__________________________________
Signature
__________________________________
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
Exhibit (d)(2)
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number: 0-11910
CABLE TV FUND 11-A, LTD.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0892990
- ----------------------- ---------------------------------
(State of Organization) (IRS Employer Identification No.)
P.O. Box 3309, Englewood, Colorado 80155-3309 (303) 792-3111
- --------------------------------------------- ------------------------
(Address of principal executive office and Zip Code) (Registrant's telephone
no. including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Limited
Partnership Interests
Indicate by check mark whether the registrants, (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days:
Yes X No
--- ---
Aggregate market value of the voting stock held by non-affiliates of the
registrant: N/A
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.
---
DOCUMENTS INCORPORATED BY REFERENCE: None
<PAGE>
PART I.
ITEM 1. BUSINESS
THE PARTNERSHIP. Cable TV Fund 11-A, Ltd. (the "Partnership") is a Colorado
limited partnership that was formed pursuant to the public offering of limited
partnership interests in the Cable TV Fund 11 Limited Partnership Program (the
"Program"), which was sponsored by Jones Intercable, Inc. (the "General
Partner"). Cable TV Fund 11-B, Ltd. ("Fund 11-B"), Cable TV Fund 11-C, Ltd.
("Fund 11-C") and Cable TV Fund 11-D, Ltd. ("Fund 11-D") are the other
partnerships that were formed pursuant to the Program. The Partnership, Fund
11-B, Fund 11-C and Fund 11-D formed a general partnership known as Cable TV
Joint Fund 11 (the "Venture") in which the Partnership owns an 18 percent
interest, Fund 11-B owns an 8 percent interest, Fund 11-C owns a 27 percent
interest and Fund 11-D owns a 47 percent interest. The Partnership and the
Venture were formed for the purpose of acquiring and operating cable television
systems.
The Partnership does not directly own any cable television systems. The
Partnership's only asset is its 18 percent ownership interest in the Venture,
and the Venture's only asset is the cable television system serving subscribers
in Manitowoc, Wisconsin (the "Manitowoc System").
PROPOSED DISPOSITION OF CABLE TELEVISION SYSTEM. On September 5, 1995, the
Venture entered into an asset purchase agreement pursuant to which it agreed to
sell the Manitowoc System to the General Partner for a sales price of
$15,735,667, subject to normal working capital closing adjustments. This sales
price represents the average of three separate independent appraisals of the
fair market value of the Manitowoc System obtained by the General Partner, and
it was the only bid tendered in a public bidding process for the Manitowoc
System. The General Partner has assigned its rights and obligations under the
asset purchase agreement to Jones Cable Holdings, Inc. ("JCH"), a wholly owned
subsidiary of the General Partner. The sale of the Manitowoc System is subject
to a number of conditions, including approval of the transaction by the
holders of a majority of the limited partnership interests in each of the four
partnerships that comprise the Venture and approvals from governmental
authorities and other third parties necessary to the transfer of the Manitowoc
System. If all conditions precedent to JCH's obligation to close are not
eventually satisfied or waived, JCH's obligation to purchase the Manitowoc
System will terminate on September 30, 1996.
In order to sell the Manitowoc System, the Venture must obtain the consent
of the City of Manitowoc and third parties with whom the Venture has contracts
related to the Manitowoc System, such as pole attachment agreements or other
service agreements, to the transfer thereof. The Venture was unsuccessful in its
efforts to sell the Manitowoc System in June 1990, at the time of the Venture's
sale of its remaining Wisconsin cable television systems, due to the refusal of
the City of Manitowoc to consent to the transfer of the system's franchise.
Negotiations with the City of Manitowoc with respect to the renewal and transfer
of the Manitowoc System's franchise are continuing, and the Manitowoc System
currently is being operated pursuant to a temporary extension of the franchise's
term. The General Partner hopes that the City ultimately will agree to the
renewal and transfer of the franchise and that the City will not take any action
that will prevent the closing of the sale of the Manitowoc System, but given
the current status of the Venture's negotiations with the City there can be no
assurance that the sale will occur as planned.
The General Partner intends to conduct votes of the limited partners of
each of the four partnerships that comprise the Venture to seek their approval
of the Manitowoc System's sale. Because the limited partners of each of the
four partnerships that comprise the Venture previously approved the sale of
the Manitowoc System in 1990 only to have such sale frustrated by the refusal
by the City of Manitowoc to consent to the transfer of the Manitowoc System's
franchise, the General Partner believes it prudent to conduct the votes of the
limited partners
2
<PAGE>
only after the City of Manitowoc consents to the transfer of the franchise. As
discussed above, there can be no assurance that the City will consent to the
transfer of the Manitowoc System's franchise.
If the proposed sale of the Manitowoc System is closed, the Venture will
pay all of its indebtedness, which totaled $55,175 at December 31, 1995,
including the $45,258 owed to the General Partner, and then the net sale
proceeds and the Venture's cash on hand, which total $18,420,800, will be
distributed to the four constituent partnerships of the Venture in proportion to
their ownership interests in the Venture. The Partnership accordingly will
receive 18 percent of such proceeds, estimated to total approximately
$3,356,700. From this amount, the Partnership will repay its $10,781 debt to the
General Partner and the Partnership will distribute the remaining $3,345,900 to
its partners. Because limited partners have already received distributions in an
amount in excess of the capital initially contributed to the Partnership by the
limited partners, the Partnership's portion of the net proceeds from the
Manitowoc System's sale will be distributed 75 percent to the limited partners
and 25 percent to the General Partner. Based upon pro forma financial
information as of December 31, 1995, as a result of the Manitowoc System's sale,
the limited partners of the Partnership, as a group, will receive approximately
$2,509,400 and the General Partner will receive approximately $836,500. Limited
partners will receive $54 for each $500 limited partnership interest, or $107
for each $1,000 invested in the Partnership, from the Partnership's portion of
the net proceeds of the Manitowoc System's sale. Once the Partnership has
completed the distribution of its portion of the net proceeds from the sale of
the Manitowoc System, limited partners of the Partnership will have received a
total of $1,265 for each $500 limited partnership interest, or $2,530 for each
$1,000 invested in the Partnership, taking into account the prior distributions
to limited partners made in 1988 and 1990. After the Partnership distributes its
portion of the proceeds from the sale of the Manitowoc System to its partners,
the Partnership will be dissolved and liquidated.
Although it previously was announced that the General Partner intended to
acquire and then transfer the Manitowoc System to Time Warner Entertainment
Company, L.P. ("Time Warner") as part of a larger exchange of cable television
systems between the General Partner and Time Warner, the General Partner and
Time Warner have agreed to exclude the Manitowoc System from that exchange.
CABLE TELEVISION SERVICES. The Manitowoc System offers to its 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 Manitowoc System offers tier services on an optional basis to its
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
Manitowoc System also offers a package that includes the basic service channels
and the tier services.
The Manitowoc System also offers premium services to its 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.
3
<PAGE>
The Manitowoc System also offers 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 Manitowoc System. At December 31,
1995, the Manitowoc System's monthly basic service rate was $11.08, the monthly
basic and tier ("basic plus") service rate was $20.66 and the monthly premium
services ranged from $4.97 to $9.95 per premium service. In addition, the
Venture earns revenues from pay-per-view programs and advertising fees. Related
charges may include a nonrecurring installation fee that ranges from $6.10 to
$35.00; however, from time to time the Manitowoc System has followed the common
industry practice of reducing or waiving the installation fee during promotional
periods. Commercial subscribers such as hotels, motels and hospitals are charged
a nonrecurring connection fee that usually covers the cost of installation.
Except under the terms of certain contracts with commercial subscribers and
residential apartment and condominium complexes, the subscribers are free to
discontinue the service at any time without penalty. For the year ended December
31, 1995, of the total fees received by the Manitowoc System, basic service and
tier service fees accounted for approximately 71% of total revenues, premium
service fees accounted for approximately 17% of total revenues, pay-per-view
fees were approximately 1% of total revenues, advertising fees were
approximately 7% of total revenues and the remaining 4% of total revenues came
principally from equipment rentals, installation fees and program guide sales.
The Venture 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 Manitowoc System.
FRANCHISES. The Venture holds one franchise for the City of Manitowoc,
which technically has expired. Negotiations between the Venture and the City of
Manitowoc with respect to the renewal of the Manitowoc System's franchise are
continuing, and the Manitowoc System currently is being operated pursuant to a
temporary extension of the franchise's term. The General Partner hopes that the
City soon will agree to the renewal of the franchise, but given the current
status of negotiations with the City, there can be no assurance of this. If the
current franchise is not renewed, the General Partner, on the Venture's behalf,
will avail itself of all remedies and recourse granted to cable operators under
federal and applicable state and local laws in order to preserve the Venture's
right to provide cable services in the City of Manitowoc. The Venture also would
seek the return of the $1,850,000, plus interest, that the Venture deposited
with the City of Manitowoc in connection with the settlement of the Venture's
lawsuit against the City. The settlement agreement provides for the return of
this amount to the Venture if the City fails to renew the franchise.
COMPETITION. Cable television systems currently experience competition from
several sources. A potential source of significant competition is Direct
Broadcast Satellite ("DBS") services that use video compression technology to
increase channel capacity and provide packages of movies, network and other
program services that are competitive with those of cable television systems.
Two companies offering DBS services began operations in 1994, and two other
companies offering DBS service recently began operations. In addition, a joint
venture has won the right to provide a DBS service through a FCC spectrum
auction. Not all subscribers terminate cable television service upon acquiring a
DBS system. The General Partner has observed that a number of DBS subscribers
also elect to subscribe to cable television service in order to obtain the
greatest variety of programming on multiple television sets, including local
video services programming not available through DBS service.
Although neither the Venture nor the General Partner has yet encountered
competition from a telephone company providing video services as a cable
operator or video dialtone operator, it is anticipated that the cable television
systems owned or managed by the General Partner will face such competition in
the near future. Legislation recently enacted into law will make it possible for
companies with considerable resources to enter the business. For example, in
February 1996, one of the regional Bell operating companies entered into an
agreement to acquire the nation's third largest cable television company. In
addition, several telephone companies have
4
<PAGE>
begun seeking cable television franchises from local governmental authorities as
a consequence of litigation that successfully challenged the constitutionality
of the cable television/telephone company cross-ownership rules. The General
Partner cannot predict at this time when and to what extent telephone companies
will provide cable television service within service areas in competition with
cable television systems owned or managed by the General Partner. The General
Partner is aware of the following imminent competition from telephone companies:
Ameritech, one of the seven regional Bell operating companies, which provides
telephone service in a multi-state region including Illinois, has just obtained
a franchise that will allow it to provide cable television service in
Naperville, Illinois, a community currently served by a cable system owned by
another one of the public limited partnerships managed by the General Partner.
Chesapeake and Potomac Telephone Company of Virginia and Bell Atlantic Video
Service Company, both subsidiaries of Bell Atlantic, another of the regional
Bell operating companies, have announced their intention to build a cable
television system in Alexandria, Virginia in competition with a cable television
system owned by the General Partner. Bell Atlantic is preparing for the
operation of a telecommunications and video business in northern Virginia,
including the Alexandria metropolitan area. The FCC has granted GTE Virginia's
application for authority to construct, operate, own and maintain video dialtone
facilities in northern Virginia, including in the service area of a cable
television system owned by the General Partner. To date, GTE has not begun
construction of a video distribution system. The entry of telephone companies as
direct competitors could adversely affect the profitability and market value of
the General Partner's owned and managed systems.
Additional competition is present from several sources, including the
following: Master Antenna Television and Satellite Master Antenna Television
systems that serve multi-unit dwellings such as condominiums, apartment
complexes, motels, hotels and private residential communities; private cable
television/telephonic companies that have secured exclusive contracts to provide
video and telephony services to multi-unit dwellings and similar complexes; and
multichannel, multipoint distribution service ("MMDS") systems, commonly called
wireless cable which generally focus on providing service to residents of rural
areas. In addition, the FCC has established a new wireless telecommunications
service known as Personal Communications Service ("PCS") that would provide
portable non-vehicular mobile communications services similar to that available
from cellular telephone companies, but at a lower cost. Several cable television
multiple system operators hold or have requested experimental licenses from the
FCC to test PCS technology.
REGULATION AND LEGISLATION. The cable industry is regulated under the
Telecommunications Act of 1996 (the "1996 Act"), the Cable Television Consumer
Protection and Competition Act of 1992 (the "1992 Cable Act") and the Cable
Communications Policy Act of 1984 (the "1984 Cable Act") and the regulations
implementing these statutes. The Federal Communications Commission (the "FCC")
has promulgated regulations covering such areas as the registration of cable
television systems and other communications businesses, carriage of television
broadcast programming, consumer education and lockbox enforcement, origination
cablecasting and sponsorship identification, children's programming, the
regulation of basic cable and cable programming service rates in areas where
cable television systems are not subject to effective competition, signal
leakage and frequency use, technical performance, maintenance of various
records, equal employment opportunity, and antenna structure notification,
marking and lighting. In addition, cable operators periodically are required to
file various informational reports with the FCC. The FCC has the authority to
enforce these regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of administrative
sanctions, such as the revocation of FCC licenses needed to operate certain
transmission facilities often used in connection with cable operations. State or
local franchising authorities, as applicable, also have the right to enforce
various regulations, impose fines or sanctions, issue orders or seek revocation
subject to the limitations imposed upon such franchising authorities by federal,
state and local laws and regulations. Several states have assumed regulatory
jurisdiction of the cable television industry, and it is anticipated that other
states will do so in the future. To the extent the cable television industry
begins providing telephone service, additional state regulations will be applied
to the cable television industry. Cable television operations are subject to
local regulation insofar as systems operate under franchises granted by local
authorities.
The following is a summary of federal laws and regulations materially
affecting the cable television industry, and a description of state and local
laws with which the cable industry must comply.
5
<PAGE>
Telecommunications Act of 1996. The 1996 Act, which became law on February
28, 1996, substantially revised the Communications Act of 1934, as amended,
including the 1984 Cable Act and the 1992 Cable Act, and has been described as
one of the most significant changes in communications regulation since the
original Communications Act of 1934. The 1996 Act is intended, in part, to
promote substantial competition in the telephone local exchange and in the
delivery of video and other services. As a result of the 1996 Act, local
telephone companies (also known as local exchange carriers or "LECs") and other
service providers are permitted to provide video programming, and cable
television operators are permitted entry into the telephone local exchange
market. The FCC is required to conduct rulemaking proceedings over the next
several months to implement various provisions of the 1996 Act.
Among other provisions, the 1996 Act modified the 1992 Cable Act by
deregulating the cable programming service tier of large cable operators
effective March 31, 1999 and the cable programming service tier of small cable
operators (those that provide service to 50,000 or fewer subscribers) effective
immediately. The 1996 Act also revised the procedures for filing a cable
programming service tier rate complaint and adds a new effective competition
test.
The most far-reaching changes in the communications business will result
from the telephony provisions of the 1996 Act. The statute expressly preempts
any legal barriers to competition in the local telephone business that
previously existed in state and local laws and regulations. Many of these
barriers had been lifted by state actions over the last few years, but the 1996
Act completes the task. The 1996 Act also establishes new requirements for
maintaining and enhancing universal telephone service and new obligations for
telecommunications providers to maintain privacy of customer information. The
1996 Act establishes uniform requirements and standards for entry, competitive
carrier interconnection and unbundling of LEC monopoly services.
The 1996 Act repealed the cable television/telephone cross-ownership ban
adopted in the 1984 Cable Act. The federal cross-ownership ban was particularly
important to the cable industry because telephone companies already own certain
facilities such as poles, ducts and associated rights of way. While this ban had
been overturned by several courts, formal removal of the ban ended the last
legal constraints on telephone company plans to enter the cable market. Under
the 1996 Act, telephone companies in their capacity as common carriers now may
lease capacity to others to provide cable television service. Telephone
companies have the option of providing video service as cable operators or
through "open video systems" ("OVS"), a regulatory regime that may provide more
flexibility than traditional cable service. The 1996 Act exempts OVS operators
from many of the regulatory obligations that currently apply to cable operators,
such as rate regulation and franchise fees, although other requirements are
still applicable. OVS operators, although not subject to franchise fees as
defined by the 1992 Cable Act, are subject to fees charged by local franchising
authorities or other governmental entities in lieu of franchise fees. (Under
certain circumstances, cable operators also will be able to offer service
through open video systems.) In addition, the 1996 Act eliminated the
requirement that telephone companies file Section 214 applications (applications
to provide video dialtone services) with the FCC before providing video service.
This limits the opportunity of cable operators to mount challenges at the FCC
regarding telephone company entry into the video market. The 1996 Act also
contains restrictions on buying out incumbent cable operators in a telephone
company's service area, especially in suburban and urban markets.
Other parts of the 1996 Act also will affect cable operators. Under the
1996 Act, the FCC is required to revise the current pole attachment rate
formula. This revision will result in an increase in the rates paid by entities,
including cable operators, that provide telecommunication services. The rates
will be phased in after a five-year period. (Cable operators that provide only
cable services will be unaffected.) Under the V-chip provisions of the 1996 Act,
cable operators and other video providers are required to pass along any program
rating information that programmers include in video signals. Cable operators
also are subject to new scrambling requirements for sexually explicit
programming, and cable operators that provide Internet access or other online
services are subject to the new indecency limitations for computer services. In
addition, cable operators that
6
<PAGE>
provide Internet access or other online services are subject to the new
indecency limitations for computer services, although these provisions already
have been challenged in court. These provisions already have been challenged,
and the courts have preliminarily enjoined the enforcement of these
content-based provisions.
Under the 1996 Act, a franchising authority may not require a cable
operator to provide telecommunications services or facilities, other than an
institutional network, as a condition to a grant, renewal or transfer of a cable
franchise, and franchising authorities are preempted from regulating
telecommunications services provided by cable operators and from requiring cable
operators to obtain a franchise to provide such services. The 1996 Act also
repealed the 1992 Cable Act's anti-trafficking provision, which generally
required the holding of cable television systems for three years.
It is premature to predict the specific effects of the 1996 Act on the
cable industry in general or the Partnership in particular. The FCC shortly will
be undertaking numerous rulemaking proceedings to interpret and implement the
1996 Act. It is not possible at this time to predict the outcome of those
proceedings or their effect on the Partnership.
Cable Television Consumer Protection and Competition Act of 1992. The 1992
Cable Act, which became effective on December 4, 1992, caused significant
changes to the regulatory environment in which the cable television industry
operates. The 1992 Cable Act generally mandated a greater degree of regulation
of the cable television industry. Under the 1992 Cable Act's definition of
effective competition, nearly all cable television systems in the United States,
including those owned and managed by the General Partner, became subject to rate
regulation of basic cable services. In addition, the 1992 Cable Act allowed the
FCC to regulate rates for non-basic service tiers other than premium services in
response to complaints filed by franchising authorities and/or cable
subscribers. In April 1993, the FCC adopted regulations governing rates for
basic and non-basic services. The FCC's rules became effective on September 1,
1993. In compliance with these rules, the General Partner on behalf of the
Venture reduced rates charged for certain regulated services in the Manitowoc
System effective September 1, 1993.
On February 22, 1994, however, the FCC adopted several additional rate
orders including an order which revised its earlier-announced regulatory scheme
with respect to rates. The FCC's new regulations generally required rate
reductions, absent a successful cost-of-service showing, of 17 percent of
September 30, 1992 rates, adjusted for inflation, channel modifications,
equipment costs, and increases in programming costs. Further rate reductions for
cable systems whose rates are below the revised benchmark levels, as well as
reductions that would require operators to reduce rates below benchmark levels
in order to achieve a 17 percent rate reduction, were held in abeyance pending
completion of cable system cost studies. The FCC recently requested some of
these "low price" systems to complete cost study questionnaires. After review of
these questionnaires, the FCC could decide to permanently defer any further rate
reductions, or require the additional 7 percent rate roll back for some or all
of these systems. The FCC has also adopted its proposed upgrade methodology by
which operators would be permitted to recover the costs of upgrading their
plant.
After analyzing the effects of the two methods of rate regulation, the
Venture complied with the new benchmark regulations and further reduced rates in
the Manitowoc System.
On November 10, 1994, the FCC also announced a revision to its regulations
governing the manner in which cable operators may charge subscribers for new
cable programming services. In addition to the present formula for calculating
the permissible rate for new services, the FCC instituted a three-year flat fee
mark-up plan for charges relating to new channels of cable programming services.
Commencing on January 1, 1995, cable system operators may charge for new
channels of cable programming services added after May 14, 1994 at a rate of up
to 20 cents per channel, but may not make adjustments to monthly rates totaling
more than $1.20 plus an additional 30 cents for programming license fees per
subscriber over the first two years of the three-year period for these new
services. Operators may charge an additional 20 cents in the third year only for
channels added in that year plus the costs for the programming. Operators
electing to use the 20 cent per channel adjustment may not also take a 7.5
percent mark-up on programming cost increases, which is permitted under the
FCC's current
7
<PAGE>
rate regulations. The FCC has requested further comment as to whether cable
operators should continue to receive the 7.5 percent mark-up on increases in
license fees on existing programming services.
The FCC also announced that it will permit operators to offer a "new
product tier" ("NPT"). Operators will be able to price the NPT as they elect so
long as, among other conditions, other channels that are subject to rate
regulation are priced in conformity with applicable regulations and operators do
not remove programming services from existing tiers and offer them on the NPT.
In September 1995, the FCC authorized a new, alternative method of
implementing rate adjustments which will allow cable operators to increase rates
for programming annually on the basis of projected increases in external costs
(inflation, costs for programming, franchise-related obligations and changes in
the number of regulated channels) rather than on the basis of cost increases
incurred in the preceding calendar quarter. Operators that elect not to recover
all of their accrued external costs and inflation pass-throughs each year may
recover them (with interest) in subsequent years.
In December 1995, the FCC adopted final cost-of-service rate regulations
requiring, among other things, cable operators to exclude 34 percent of system
acquisition costs related to intangible and tangible assets used to provide
regulated services. The FCC also reaffirmed the industry-wide 11.25 percent
after tax rate of return on an operator's allowable rate base, but initiated a
further rulemaking in which it proposes to use an operator's actual debt cost
and capital structure to determine an operator's cost of capital or rate of
return. After a rate has been set pursuant to a cost-of-service showing, rate
increases for regulated services are indexed for inflation, and operators are
permitted to increase rates in response to increases in costs beyond their
control, such as taxes and increased programming costs.
The United States Court of Appeals for the District of Columbia Circuit
recently upheld the FCC's rate regulations implemented pursuant to the 1992
Cable Act, but ruled that the FCC impermissibly failed to permit cable operators
to adjust rates for certain cost increases incurred during the period between
the date the 1992 Cable Act was passed through the initial date of rate
regulation. The FCC has not yet implemented the court's ruling.
There have been several lawsuits filed by cable operators and programmers
in federal court challenging various aspects of the 1992 Cable Act including its
provisions relating to mandatory broadcast signal carriage, retransmission
consent, access to cable programming, rate regulations, commercial leased
channels and public access channels. On April 8, 1993, a three-judge federal
district court panel issued a decision upholding the constitutionality of the
mandatory signal carriage requirements of the 1992 Cable Act. That decision was
appealed directly to the United States Supreme Court. The United States Supreme
Court vacated the lower court decision on June 27, 1994 and remanded the case to
the district court for further development of a factual record. On December 12,
1995, the three-judge federal district court again upheld the must-carry rules'
validity. This decision has been appealed to the United States Supreme Court.
In 1993, a federal district court upheld provisions of the 1992 Cable Act
concerning rate regulation, retransmission consent, restrictions on vertically
integrated cable television operators and programmers, mandatory carriage of
programming on commercial leased channels and public, educational and
governmental access channels and the exemption for municipalities from civil
damage liability arising out of local regulation of cable services. The 1992
Cable Act's provisions providing for multiple ownership limits for cable
operators and advance notice of free previews for certain programming services
have been found unconstitutional and these decisions have been appealed. The
FCC's regulations relating to the carriage of indecent programming, which were
recently upheld by the United States Court of Appeals for the District of
Columbia, have been appealed to the United States Supreme Court.
Franchising. The responsibility for franchising or other authorization of
cable television systems is left to state and local authorities. There are,
however, several provisions in the 1984 Cable Act that govern the terms and
conditions under which cable television systems provide service. These include
uniform standards and policies that are applicable to cable television operators
seeking renewal of a cable television franchise. The
8
<PAGE>
procedures established provide for a formal renewal process should the
franchising authority and the cable television operator decline to use an
informal procedure. A franchising authority unable to make a preliminary
determination to renew a franchise is required to hold a hearing in which the
operator has the right to participate. In the event a determination is made not
to renew the franchise at the conclusion of the hearing, the franchising
authority must provide the operator with a written decision stating the specific
reasons for non-renewal. Generally, the franchising authority can finally decide
not to renew a franchise only if it finds that the cable operator has not
substantially complied with the material terms of the present franchise, has not
provided reasonable service in light of the community's needs, does not have the
financial, legal or technical ability to provide the services being proposed for
the future, or has not presented a reasonable proposal for future service. A
final decision of non-renewal by the franchising authority is appealable in
court.
A provision of the 1996 Act preempts franchising authorities from
regulating telecommunications services provided by cable operators and from
requiring cable operators to obtain a franchise to provide such services. A
franchising authority may not require a cable operator to provide
telecommunications services or facilities, other than an institutional network,
as a condition to a grant, renewal or transfer of a cable franchise.
GENERAL. The Venture'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 Venture's business. The Manitowoc System 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 Manitowoc
System 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 Venture 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. Neither the Venture nor the Partnership has
any 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 Venture's funds
expended for such research and development has never been material.
Compliance with federal, state and local provisions that have been enacted
or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Venture.
ITEM 2. PROPERTIES
The Manitowoc System was acquired by the Venture in April 1984. The
following sets forth (i) the monthly basic plus service rate charged to
subscribers and (ii) the number of basic subscribers and pay units for the
Manitowoc System. The monthly basic service rate set forth herein represents the
basic service rate charged to the majority of the subscribers within the
Manitowoc System. In cable television systems, basic subscribers can subscribe
to more than one pay TV service. Thus, the total number of pay services
subscribed to by basic subscribers are called pay units. As of December 31,
1995, the Manitowoc System operated cable plant passing approximately 16,000
homes, representing an approximate 71% penetration rate. Figures for numbers of
subscribers and homes passed are compiled from the General Partner's records and
may be subject to adjustments.
<TABLE>
<CAPTION>
MANITOWOC SYSTEM At December 31,
- - ---------------- -----------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Monthly basic plus service rate $ 20.66 $ 19.86 $21.95
Basic subscribers 11,436 10,834 9,768
Pay units 7,726 7,091 5,296
</TABLE>
9
<PAGE>
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, 1996, the number of equity security holders in
the Partnership was 3,797.
10
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------------
Cable TV Fund 11-A, Ltd. 1995 1994 1993 1992 1991
- - ------------------------ ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $ - $ - $ - $ - $ -
Depreciation and
Amortization - - - - -
Operating Loss - - - - -
Net Income 82,703 67,994 44,919 59,315 83,085
Net Income per
Limited Partnership Unit 1.75 1.44 .95 1.26 1.76
Weighted Average
Number of Limited
Partnership Units
Outstanding 46,725 46,725 46,725 46,725 46,725
General Partner's
Deficit (165,188) (166,015) (166,695) (167,144) (167,737)
Limited Partners'
Capital 1,468,910 1,387,034 1,319,720 1,275,250 1,216,528
Total Assets 1,314,503 1,231,800 1,163,806 1,118,887 1,059,572
Debt - - - - -
General Partner Advances 10,781 10,781 10,781 10,781 10,781
</TABLE>
* Activity in Cable TV Fund 11-A, Ltd. is limited to its 18 percent equity
interest in Cable TV Joint Fund 11. See selected financial data for Cable
TV Joint Fund 11.
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------------
Cable TV Joint Fund 11 1995 1994 1993 1992 1991
- - ---------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Revenues $3,632,675 $3,296,103 $3,292,675 $3,244,023 $3,019,516
Depreciation and
Amortization 545,237 522,593 517,441 499,110 481,071
Operating Income 296,393 309,189 416,589 426,058 333,948
Net Income 453,912 373,181 246,536 325,547 457,909
Partners' Capital 7,051,757 6,597,845 6,224,664 5,978,128 5,652,581
Total Assets 7,504,046 7,099,110 6,610,142 6,723,916 6,137,193
Debt 9,917 26,385 20,129 29,188 28,738
Advances from
Jones Intercable, Inc. 45,258 72,764 32,825 52,745 227,810
</TABLE>
11
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
CABLE TV FUND 11-A, LTD.
RESULTS OF OPERATIONS
On June 30, 1988, Cable TV Fund 11-A, Ltd. (the "Partnership") sold
the cable television system serving portions of Anne Arundel County, Maryland.
This was the Partnership's only directly owned operating system and, as a
result, the Partnership has had no operations since this transaction. The
Partnership retains its 18 percent ownership interest in Cable TV Joint Fund 11
("Joint Fund 11"). Refer to Management's Discussion and Analysis of Financial
Condition and Results of Operations for Joint Fund 11 for details pertaining to
its operations.
FINANCIAL CONDITION
The Partnership's original investment in Joint Fund 11 was $8,200,000
and is accounted for using the equity method. When compared to the December
31, 1994 balance, this investment has increased by $82,703 to $1,314,503 at
December 31, 1995 from $1,231,800 at December 31, 1994. This increase
represents the Partnership's proportionate share of income generated by Joint
Fund 11. Refer to Management's Discussion and Analysis of Financial Condition
and Results of Operations for Joint Fund 11 for details pertaining to its
financial condition.
On September 5, 1995, Joint Fund 11 entered into an asset purchase
agreement pursuant to which it agreed to sell the Manitowoc System to the
General Partner for a sales price of $15,735,667, subject to normal working
capital closing adjustments. The closing of the sale of the Manitowoc System
is subject to a number of conditions, including the approval of the holders of
a majority of the limited partnership interests in each of the four
partnerships that comprise Joint Fund 11 in votes to be conducted in 1996 and
the successful renewal and transfer of the Manitowoc System's franchise.
If the proposed sale of the Manitowoc System is closed, Joint Fund 11
will pay all of its indebtedness, which totaled $55,175 at December 1995,
including $45,258 owed to the General Partner, and then the net sale proceeds
plus cash on hand will be distributed to the four constituent partnerships of
Joint Fund 11 in proportion to their ownership interests in Joint Fund 11.
The Partnership accordingly will receive 18 percent of such proceeds,
estimated to total approximately $3,356,700. Proceeds of approximately
$3,345,900 will be available for the Partnership to distribute, which is net
of $10,781 payable to the General Partner by the Partnership. Because limited
partners have already received distributions in an amount in excess of the
capital initially contributed to the Partnership by the limited partners, the
Partnership's portion of the net proceeds from the Manitowoc System's sale
will be distributed 75 percent to the limited partners and 25 percent to the
General Partner. Based upon pro forma financial information as of
December 31, 1995, as a result of the Manitowoc System's sale, the limited
partners of the Partnership, as a group, will receive approximately $2,509,400
and the General Partner will receive approximately $836,500. As a result, it
is anticipated that the limited partners will receive approximately $54 for
each $500 limited partnership interest, or approximately $107 for each $1,000
invested in the Partnership, from the Partnership's portion of the net
proceeds of the Manitowoc System's sale. After the Partnership distributes
its portion of the proceeds from the sale of the Manitowoc System to its
partners, the Partnership will be dissolved and liquidated.
CABLE TV JOINT FUND 11
RESULTS OF OPERATIONS
1995 compared to 1994
Revenues in Joint Fund 11's Manitowoc System totaled $3,632,675 in
1995 compared to $3,296,103 in 1994, an increase of $336,572, or approximately
10 percent. An increase in the subscriber base accounted for approximately 55
percent of the increase in revenues in 1995. The number of basic subscribers
increased by 602 subscribers, or approximately 6 percent, to 11,436 at December
31, 1995 from 10,834 at December 31, 1994. The number of premium subscribers
increased by 635 subscriptions, or approximately 9 percent, to 7,726 at
December 31, 1995 from 7,091 at December 31, 1994. Basic service rate
increases accounted for approximately 14 percent of the increase in revenues.
An increase in advertising sales activity accounted for approximately 22
percent of the increase in revenues. No other individual factor contributed
significantly to the increase in revenues.
12
<PAGE>
Operating expenses consist primarily of costs associated with the
administration of the Manitowoc System. The principal cost components are
salaries paid to system personnel, programming expenses, professional fees,
subscriber billing costs, rent for leased facilities, cable system maintenance
expenses and consumer marketing expenses.
Operating expenses in the Manitowoc System totaled $2,327,354 in 1995
compared to $2,026,763 in 1994, an increase of $300,591, or approximately 15
percent. Operating expenses represented approximately 64 percent of revenues
in 1995 compared to approximately 61 percent of revenues in 1994. The increase
in expenses was primarily due to an increase in programming fees, property tax
expense and advertising sales related expenses. The increase in advertising
sales related expenses was due, in part, to an increase in advertising sales
activity. No other individual factor significantly affected the increase in
operating expenses.
Management fees and allocated overhead from the General Partner
totaled $463,691 for 1995 compared to $437,558 in 1994, an increase of $26,133,
or approximately 6 percent. The increase was due to the increase in revenues,
upon which such fees and allocations are based, and increases in allocated
expenses from the General Partner.
Depreciation and amortization expense totaled $545,237 in 1995
compared to $522,593 in 1994, an increase of $22,644, or approximately 4
percent, due to capital additions in 1995 and 1994.
Operating income totaled $296,393 in 1995 compared to $309,189 in
1994, a decrease of $12,796, or approximately 4 percent. The decrease was due
to the increases in operating expenses, management fees and allocated overhead
from the General Partner and depreciation and amortization expense exceeding
the increase in revenues.
The cable television industry generally measures the performance of a
cable television system in terms of cash flow or operating income before
depreciation and amortization. The value of a cable television system is often
determined using multiples of cash flow. This measure is not intended to be a
substitute or improvement upon the items disclosed on the financial statements,
rather it is included because it is an industry standard. Operating income
before depreciation and amortization totaled $841,630 for 1995 compared to
$831,782 in 1994, an increase of $9,848, or approximately 1 percent. The
increase was due to the increase in revenues exceeding the increases in
operating expenses and management fees and allocated overhead from the General
Partner.
Interest income totaled $166,280 in 1995 compared to $87,134 in 1994,
an increase of $79,146, or approximately 91 percent. This increase was due to
higher cash balances and higher interest rates on interest-bearing accounts in
1995.
Interest expense totaled $10,003 in 1995 compared to $15,716 in 1994,
a decrease of $5,713, or approximately 36 percent. The decrease was due to
lower outstanding balances on interest bearing obligations in 1995.
Net income of Joint Fund 11 totaled $453,912 in 1995 compared to
$373,181 in 1994, an increase of $80,731, or approximately 22 percent. The
increase was due primarily to the increase in interest income.
1994 compared to 1993
Revenues in the Manitowoc System totaled $3,296,103 in 1994 compared
to $3,292,675 in 1993, an increase of $3,428, or less than 1 percent. An
increase in the subscriber base primarily accounted for the increase in
revenues. Basic service subscribers increased 1,066, or approximately 11
percent, to 10,834 at December 31, 1994 from 9,768 at December 31, 1993.
Premium service subscriptions increased 1,795, or approximately 34 percent, to
7,091 at December 31, 1994 from 5,296 at December 31, 1993. The increase in
revenues would have been greater but for reductions in basic service rates due
to basic service rate regulations issued by the FCC in May 1993 and February
1994. No other individual factor was significant to the increase in revenues.
Operating expenses in the Manitowoc System totaled $2,026,763 in 1994
compared to $1,947,068 in 1993, an increase of $79,695, or approximately 4
percent. The increase in operating expenses was due primarily to increases in
programming fees and marketing related costs due to increases in basic service
subscribers and premium service subscriptions. These increases were partially
offset by a decrease in copyright fees. No other individual factor contributed
significantly to the increase in operating expenses. Operating expenses
represented approximately 61 percent of revenues in 1994 compared to
approximately 59 percent of revenues in 1993.
13
<PAGE>
Management fees and allocated overhead from the General Partner
totaled $437,558 in 1994 compared to $411,577 in 1993, an increase of $25,981,
or approximately 6 percent. The increase was due to an increase in allocated
expenses from the General Partner. The General Partner experienced increases
in expenses in 1994.
Depreciation and amortization expense totaled $522,593 in 1994
compared to $517,441 in 1993, an increase of $5,152, or approximately 1
percent, due to capital additions in 1994 and 1993.
Operating income in the Manitowoc System totaled $309,189 in 1994
compared to $416,589 in 1993, a decrease of $107,400, or approximately 26
percent. The decrease was due to the increases in operating expenses,
allocated overhead from the General Partner and depreciation and amortization
expense exceeding the increase in revenues.
Interest expense for Joint Fund 11 totaled $15,716 in 1994 compared to
$22,912 in 1993, a decrease of $7,196, or approximately 31 percent, due to a
lower outstanding balance on interest bearing obligations. Other expense
totaled $7,426 in 1994 compared to $248,912 in 1993, primarily as a result of
Joint Fund 11 incurring costs associated with the litigation with the City of
Manitowoc during 1993. No such costs were incurred in 1994.
Net income for Joint Fund 11 totaled $373,181 in 1994 compared to
$246,536 in 1993, an increase of $126,645, or approximately 51 percent, due
primarily to the decrease in litigation costs discussed above.
FINANCIAL CONDITION
On September 5, 1995, Joint Fund 11 entered into an asset purchase
agreement pursuant to which it agreed to sell the Manitowoc System to the
General Partner for a sales price of $15,735,667, subject to normal working
capital closing adjustments. This sales price is the average of three separate
independent appraisals of the fair market value of the Manitowoc System and the
General Partner's offer was the only bid tendered in a public bidding process
for the Manitowoc System. The General Partner has assigned its rights and
obligations under the asset purchase agreement to Jones Cable Holdings, Inc.
("JCH"), a wholly owned subsidiary of the General Partner. The closing of the
sale will occur on a date upon which Joint Fund 11 and JCH mutually agree by
September 30, 1996. The sale of the Manitowoc System is subject to a number of
conditions, including approval of the transaction by the holders of a majority
of the Partnership's limited partnership interests and approvals from
governmental authorities and other third parties necessary to the transfer of
the Manitowoc System. If all conditions precedent to JCH's obligation to
close are not eventually satisfied or waived, JCH's obligation to purchase the
Manitowoc System will terminate on September 30, 1996.
In order to sell the Manitowoc System, Joint Fund 11 must obtain the
consent of the City of Manitowoc and third parties with whom Joint Fund 11 has
contracts related to the Manitowoc System, such as pole attachment agreements
or other service agreements, to the transfer thereof. Joint Fund 11 was
unsuccessful in its efforts to sell the Manitowoc System in June 1990, at the
time of Joint Fund 11's sale of its remaining Wisconsin cable television
systems, due to the refusal of the City of Manitowoc to consent to the transfer
of the system's franchise. Negotiations with the City of Manitowoc with
respect to the renewal and transfer of the Manitowoc System's franchise are
continuing, and the Manitowoc System currently is being operated pursuant to a
temporary extension of the franchise's term until March 29, 1996. The General
Partner hopes that the City ultimately will agree to the renewal and transfer
of the franchise and that the City will not take any action that will prevent
the closing of the sale of the Manitowoc System, but given the current status
of negotiations with the City there can be no assurance that the sale will
occur as planned.
If the proposed sale of the Manitowoc System is closed, Joint Fund 11
intends to distribute the sale proceeds, after the repayment of debt, to Cable
TV Fund 11-A, Ltd., Cable TV Fund 11-B, Ltd., Cable TV Fund 11-C, Ltd. and
Cable TV Fund 11-D, Ltd. Net sales proceeds plus Joint Fund 11's cash on hand,
which are expected to total approximately $18,420,800, will be distributed as
follows: Cable TV Fund 11-A, Ltd. will receive approximately $3,356,700; Cable
TV Fund 11-B, Ltd. will receive approximately $1,432,700; Cable TV Fund 11-C,
Ltd. will receive approximately $4,994,100 and Cable TV Fund 11-D, Ltd. will
receive approximately $8,637,300. After Joint Fund 11 distributes the proceeds
from the sale of the Manitowoc System to its partners, Joint Fund 11 will be
liquidated and dissolved.
Joint Fund 11 had no bank debt outstanding at December 31, 1995.
During 1995, Joint Fund 11 expended approximately $311,000 for capital
expenditures in the Manitowoc System. These expenditures were used for various
projects to maintain the value of the system. These expenditures were funded
from cash generated from operations.
14
<PAGE>
Capital expenditures in 1996 for the Manitowoc System will consist of
expenditures necessary to maintain the value of the Manitowoc System until it
is sold. Joint Fund 11 has sufficient liquidity and capital resources,
including cash on hand and its ability to generate cash from operations, to
meet its anticipated needs.
REGULATION AND LEGISLATION
The Telecommunications Act of 1996 (the "1996 Act"), which became law
on February 8, 1996, substantially revised the Communications Act of 1934, as
amended, including the 1984 Cable Act and the 1992 Cable Act, and has been
described as one of the most significant changes in communications regulation
since the original Communications Act of 1934. The 1996 Act is intended, in
part, to promote substantial competition in the telephone local exchange and in
the delivery of video and other services. As a result of the 1996 Act, local
telephone companies (also known as local exchange carriers or "LECs") and other
service providers are permitted to provide video programming, and cable
television operators are permitted entry into the telephone local exchange
market. The FCC is required to conduct rulemaking proceedings over the next
several months to implement various provisions of the 1996 Act.
Among other provisions, the 1996 Act modified the 1992 Cable Act by
deregulating the cable programming service tier of large cable operators
including Joint Fund 11 effective March 31, 1999 and the cable programming
service tier of "small" cable operators in systems providing service to 50,000
or fewer subscribers effective immediately. The 1996 Act also revised the
procedures for filing cable programming service tier rate complaints and adds a
new effective competition test.
It is premature to predict the specific effects of the 1996 Act on the
cable industry in general or Joint Fund 11 in particular. The FCC will be
undertaking numerous rulemaking proceedings to interpret and implement the 1996
Act. It is not possible at this time to predict the outcome of those
proceedings or their effect on Joint Fund 11. See Item 1.
15
<PAGE>
Financial Statements
CABLE TV FUND 11-A, LTD. AND
CABLE TV JOINT FUND 11
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
INDEX
<TABLE>
<CAPTION>
Page
--------------------------
<S> <C> <C>
11-A Joint Fund 11
---- -------------
Report of Independent Public Accountants 17 24
Balance Sheets 18 25
Statements of Operations 19 27
Statements of Partners' Capital (Deficit) 20 28
Statements of Cash Flows 21 29
Notes to Financial Statements 22 30
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Cable TV Fund 11-A, Ltd.:
We have audited the accompanying balance sheets of CABLE TV FUND 11-A,
LTD. (a Colorado limited partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' capital (deficit) and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the General Partner's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cable TV Fund 11-A,
Ltd. as of December 31, 1995 and 1994, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 8, 1996.
17
<PAGE>
CABLE TV FUND 11-A, LTD.
(A Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
ASSETS 1995 1994
------ ------------ ------------
<S> <C> <C>
INVESTMENT IN CABLE TELEVISION
JOINT VENTURE $ 1,314,503 $ 1,231,800
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
LIABILITIES:
Payable to General Partner $ 10,781 $ 10,781
------------ -------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Distributions (11,079,511) (11,079,511)
Accumulated earnings 10,913,323 10,912,496
------------ -------------
(165,188) (166,015)
------------ -------------
Limited Partners-
Net contributed capital
(46,725 units outstanding
at December 31, 1995 and 1994) 19,516,170 19,516,170
Distributions (56,599,297) (56,599,297)
Accumulated earnings 38,552,037 38,470,161
------------ ------------
1,468,910 1,387,034
------------ ------------
Total liabilities and partners'
capital (deficit) $ 1,314,503 $ 1,231,800
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
18
<PAGE>
CABLE TV FUND 11-A, LTD.
(A Limited Partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
EQUITY IN NET INCOME OF CABLE
TELEVISION JOINT VENTURE $82,703 $67,994 $44,919
======= ======= =======
NET INCOME $82,703 $67,994 $44,919
======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 827 $ 680 $ 449
======= ======= =======
Limited Partners $81,876 $67,314 $44,470
======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ 1.75 $ 1.44 $ .95
======= ======= =======
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 46,725 46,725 46,725
======= ======= =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
19
<PAGE>
CABLE TV FUND 11-A, LTD.
(A Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
GENERAL PARTNER:
Balance, beginning of year $ (166,015) $ (166,695) $ (167,144)
Net income for year 827 680 449
---------- ---------- -----------
Balance, end of year $ (165,188) $ (166,015) $ (166,695)
========== ========== ===========
LIMITED PARTNERS:
Balance, beginning of year $1,387,034 $1,319,720 $1,275,250
Net income for year 81,876 67,314 44,470
---------- ---------- ----------
Balance, end of year $1,468,910 $1,387,034 $1,319,720
========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
20
<PAGE>
CABLE TV FUND 11-A, LTD.
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 82,703 $ 67,994 $ 44,919
Adjustments to reconcile net income
to net cash provided by operating activities:
Equity in net income of cable
television joint venture (82,703) (67,994) (44,919)
-------- -------- --------
Net cash provided by operating activities - - -
-------- -------- --------
Increase in cash - - -
Cash, beginning of year - - -
-------- -------- --------
Cash, end of year $ - $ - $ -
======== ======== ========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
21
<PAGE>
CABLE TV FUND 11-A, LTD.
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND PARTNERS' INTERESTS
Formation and Business
Cable TV Fund 11-A, Ltd. (the "Partnership"), a Colorado limited
partnership, was formed on March 4, 1983, under a public program sponsored by
Jones Intercable, Inc. The Partnership was formed to acquire, construct,
develop and operate cable television systems. Jones Intercable, Inc.
("Intercable") is the "General Partner" and manager of the Partnership. The
General Partner 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. In June 1988, the Partnership sold its only remaining operating
system. The Partnership owns an 18 percent interest in Cable TV Joint Fund 11
("Joint Fund 11") through capital contributions made during 1984 of $8,200,000.
Joint Fund 11 owns and operates the cable television system serving areas in
and around the city of Manitowoc, Wisconsin (the "Manitowoc System").
Proposed Sale of Cable Television System
On September 5, 1995, Joint Fund 11 entered into an asset purchase
agreement pursuant to which it agreed to sell the Manitowoc System to the
General Partner for a sales price of $15,735,667, subject to normal working
capital closing adjustments. The closing of the sale of the Manitowoc System
is subject to a number of conditions, including the approval of the holders of
a majority of the limited partnership interests in each of the four
partnerships that comprise Joint Fund 11 in votes to be conducted in 1996 and
the successful renewal and transfer of the Manitowoc System's franchise.
If the proposed sale of the Manitowoc System is closed, Joint Fund 11
will pay all of its indebtedness, which totaled $55,175 at December 1995,
including $45,258 owed to the General Partner, and then the net sale proceeds
plus cash on hand will be distributed to the four constituent partnerships of
Joint Fund 11 in proportion to their ownership interests in Joint Fund 11.
The Partnership accordingly will receive 18 percent of such proceeds,
estimated to total approximately $3,356,700. Proceeds of approximately
$3,345,900 will be available for the Partnership to distribute, which is net
of $10,781 payable to the General Partner by the Partnership. Because limited
partners have already received distributions in an amount in excess of the
capital initially contributed to the Partnership by the limited partners, the
Partnership's portion of the net proceeds from the Manitowoc System's sale
will be distributed 75 percent to the limited partners and 25 percent to the
General Partner. Based upon pro forma financial information as of
December 31, 1995, as a result of the Manitowoc System's sale, the limited
partners of the Partnership, as a group, will receive approximately $2,509,400
and the General Partner will receive approximately $836,500. As a result, it
is anticipated that the limited partners will receive approximately $54 for
each $500 limited partnership interest, or approximately $107 for each $1,000
invested in the Partnership, from the Partnership's portion of the net
proceeds of the Manitowoc System's sale. After the Partnership distributes
its portion of the proceeds from the sale of the Manitowoc System to its
partners, the Partnership will be dissolved and liquidated.
Contributed Capital
The capitalization of the Partnership is set forth in the accompanying
statements of partners' capital (deficit). No limited partner is obligated to
make any additional contribution to partnership capital.
Intercable purchased its interest in the Partnership by contributing
$1,000 to partnership capital.
All profits and losses of the Partnership are allocated 99 percent to
the limited partners and 1 percent to Intercable, except for income or gain
from the sale or disposition of cable television properties, which were
allocated to the partners based upon the formula set forth in the Partnership
Agreement and interest income earned prior to the first acquisition by the
Partnership of a cable television system, which was allocated 100 percent to
the limited partners.
22
<PAGE>
(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 tax returns are also prepared on the accrual
basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner's management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Investment in Cable Television Joint Venture
The Partnership's investment in Joint Fund 11 is accounted for under
the equity method due to the Partnership's influence on Joint Fund 11 as a
General Partner. When compared to the December 31, 1994 balance, this
investment has increased by $82,703. This increase represents the
Partnership's proportionate share of income generated by Joint Fund 11 during
1995. The operations of Joint Fund 11 are significant to the Partnership and
should be reviewed in conjunction with these financial statements. Reference
is made to the accompanying financial statements of Joint Fund 11 on pages 25
to 33.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
Management Fees and Distribution Ratios
Intercable manages the Partnership and Joint Fund 11 and receives a
fee for its services equal to 5 percent of the gross revenues of Joint Fund 11,
excluding revenues from the sale of cable television systems or franchises.
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 Intercable. Any distributions other than interest income on limited partner
subscriptions earned prior to the acquisition of the Partnership's first cable
television system or from cash flow, such as from sale or refinancing of the
system or upon dissolution of the Partnership, are made as follows: first, to
the limited partners in an amount which, together with all prior distributions,
will equal the amount initially contributed to the partnership capital by the
limited partners; the balance, 75 percent to the limited partners and 25
percent to Intercable. During 1988, approximately $40,607,700 was distributed
to the limited partners as a result of the sale of the cable television system
serving the areas in and around Anne Arundel County, Maryland. This amount
included the return of initial contributed capital of $23,362,500. Also,
$5,748,975 was distributed to Intercable. In July 1990, a distribution of
$21,322,144 was made to partners from funds received from Joint Fund 11, of
which 75 percent ($15,991,608) was distributed to the limited partners and 25
percent ($5,330,536) was distributed to Intercable. Any future distributions
will be made 75 percent to the limited partners and 25 percent to Intercable.
(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 the Partnership are prepared and filed by Intercable.
The Partnership's tax returns, the qualification of the Partnership as
such for tax purposes, and the amount of distributable income or loss are
subject to examination by federal and state taxing authorities. If such
examinations result in changes with respect to the Partnership's qualification
as such, or in changes with respect to the Partnership's recorded income or
loss, the tax liability of the General and limited partners would likely be
changed accordingly.
Taxable income reported to the partners is different from that
reported in the statements of operations due to the difference in depreciation
allowed under generally accepted accounting principles and the expense allowed
for tax purposes under the Modified Accelerated Cost Recovery System (MACRS).
There are no other significant differences between taxable income or losses and
the net income or losses reported in the statements of operations.
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of Cable TV Joint Fund 11:
We have audited the accompanying balance sheets of CABLE TV JOINT FUND
11 (a Colorado general partnership) as of December 31, 1995 and 1994, and the
related statements of operations, partners' capital and cash flows for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the General Partners' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Cable TV Joint Fund
11 as of December 31, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1995,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 8, 1996.
24
<PAGE>
CABLE TV JOINT FUND 11
(A General Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------
ASSETS 1995 1994
------ ----------- -----------
<S> <C> <C>
CASH $ 2,984,284 $ 2,429,603
TRADE RECEIVABLES, less allowance for doubtful
receivables of $6,374 and $4,412 at
December 31, 1995 and 1994, respectively 133,491 92,110
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 7,957,720 7,646,689
Less- accumulated depreciation (5,441,063) (5,051,015)
----------- -----------
2,516,657 2,595,674
Franchise costs, net of accumulated amortization
of $1,396,225 and $1,287,891 at
December 31, 1995 and 1994, respectively - 108,334
Subscriber lists, net of accumulated amortization
of $257,775 and $237,741 at December 31, 1995
and 1994, respectively - 20,034
----------- -----------
Total investment in cable television
properties 2,516,657 2,724,042
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 1,869,614 1,853,355
----------- -----------
Total assets $ 7,504,046 $ 7,099,110
=========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
25
<PAGE>
CABLE TV JOINT FUND 11
(A General Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
LIABILITIES AND PARTNERS' CAPITAL 1995 1994
--------------------------------- ------------- --------------
<S> <C> <C>
LIABILITIES:
Capital lease obligations $ 9,917 $ 26,385
Accounts payable-
Trade 612 16,340
Jones Intercable, Inc. 45,258 72,764
Accrued liabilities 381,153 368,106
Subscriber prepayments 15,349 17,670
------------- --------------
Total liabilities 452,289 501,265
------------- --------------
PARTNERS' CAPITAL:
Contributed capital 45,000,000 45,000,000
Distributions (118,914,493) (118,914,493)
Accumulated earnings 80,966,250 80,512,338
------------- --------------
7,051,757 6,597,845
------------- --------------
Total liabilities and
partners' capital $ 7,504,046 $ 7,099,110
============= ==============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
26
<PAGE>
CABLE TV JOINT FUND 11
(A General Partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES $3,632,675 $3,296,103 $3,292,675
COSTS AND EXPENSES:
Operating expenses 2,327,354 2,026,763 1,947,068
Management fees and allocated
expenses from Jones Intercable, Inc. 463,691 437,558 411,577
Depreciation and amortization 545,237 522,593 517,441
---------- ---------- ---------
OPERATING INCOME 296,393 309,189 416,589
---------- ---------- ---------
OTHER INCOME (EXPENSE):
Interest expense (10,003) (15,716) (22,912)
Interest income 166,280 87,134 101,771
Other, net 1,242 (7,426) (248,912)
---------- ---------- ---------
Total other income (expense), net 157,519 63,992 (170,053)
---------- ---------- ---------
NET INCOME $ 453,912 $ 373,181 $ 246,536
========== ========== =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
27
<PAGE>
CABLE TV JOINT FUND 11
(A General Partnership)
STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
For the Year Ended December 31,
--------------------------------------------
1995 1994 1993
---------- ----------- ----------
<S> <C> <C> <C>
CABLE TV FUND 11-A, LTD. (18%):
Balance, beginning of year $1,231,800 $1,163,806 $1,118,887
Net income for year 82,703 67,994 44,919
---------- ---------- ----------
Balance, end of year $1,314,503 $1,231,800 $1,163,806
---------- ---------- ----------
CABLE TV FUND 11-B, LTD. (8%):
Balance, beginning of year $ 550,483 $ 521,450 $ 502,270
Net income for year 35,314 29,033 19,180
---------- ---------- ----------
Balance, end of year $ 585,797 $ 550,483 $ 521,450
---------- ---------- ----------
CABLE TV FUND 11-C, LTD. (27%):
Balance, beginning of year $2,316,337 $2,215,168 $2,148,332
Net income for year 123,056 101,169 66,836
---------- ---------- ----------
Balance, end of year $2,439,393 $2,316,337 $2,215,168
---------- ---------- ----------
CABLE TV FUND 11-D, LTD. (47%):
Balance, beginning of year $2,499,225 $2,324,240 $2,208,639
Net income for year 212,839 174,985 115,601
---------- ---------- ----------
Balance, end of year $2,712,064 $2,499,225 $2,324,240
---------- ---------- ----------
TOTAL:
Balance, beginning of year $6,597,845 $6,224,664 $5,978,128
Net income for year 453,912 373,181 246,536
---------- ---------- ----------
Balance, end of year $7,051,757 $6,597,845 $6,224,664
========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
28
<PAGE>
CABLE TV JOINT FUND 11
(A General Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------
1995 1994 1993
---------- ---------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 453,912 $ 373,181 $ 246,536
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 545,237 522,593 517,441
Increase in trade receivables (41,381) (41,640) (14,686)
Increase in deposits, prepaid
expenses and deferred charges (43,080) (1,372) (1,625)
Increase (decrease) in trade accounts
payable, accrued liabilities and
subscriber prepayments (5,002) 69,592 (331,331)
Increase (decrease) in amount due Jones
Intercable, Inc. (27,506) 39,939 (19,920)
---------- --------- -----------
Net cash provided by operating activities 882,180 962,293 396,415
---------- --------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (311,031) (379,930) (248,223)
Franchise renewal deposit - - (1,850,000)
---------- --------- -----------
Net cash used in investing activities (311,031) (379,930) (2,098,223)
---------- --------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings - 18,264 -
Repayment of debt (16,468) (12,008) (9,059)
---------- --------- -----------
Net cash provided by (used in)
financing activities (16,468) 6,256 (9,059)
---------- --------- -----------
Increase (decrease) in cash 554,681 588,619 (1,710,867)
Cash, beginning of year 2,429,603 1,840,984 3,551,851
---------- ---------- -----------
Cash, end of year $2,984,284 $2,429,603 $ 1,840,984
========== ========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 10,003 $ 15,716 $ 22,912
========== ========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
29
<PAGE>
CABLE TV JOINT FUND 11
(A General Partnership)
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND PARTNERS' INTERESTS
Formation and Business
Cable TV Joint Fund 11 ("Joint Fund 11"), a Colorado general
partnership, was formed on February 1, 1984, through a joint venture agreement
made by and among Cable TV Fund 11-A, Ltd. ("Fund 11-A"), Cable TV Fund 11-B,
Ltd. ("Fund 11-B"), Cable TV Fund 11-C, Ltd. ("Fund 11-C") and Cable TV Fund
11-D, Ltd ("Fund 11-D"), all Colorado limited partnerships (the "Joint Venture
Partners"). Joint Fund 11 was formed to acquire, construct, develop and
operate cable television systems. Joint Fund 11 owns and operates the cable
television system serving areas in and around the city of Manitowoc, Wisconsin
(the "Manitowoc System"). Jones Intercable, Inc. ("Intercable"), who is the
"General Partner" of each of the Joint Venture Partners, manages Joint Fund 11.
Intercable and its subsidiaries also own and operate other cable television
systems. In addition, Intercable manages cable television systems for other
limited partnerships for which it is general partner and, also, for affiliated
entities.
Proposed Sale of Cable Television System
On September 5, 1995, Joint Fund 11 entered into an asset purchase
agreement pursuant to which it agreed to sell the Manitowoc System to the
General Partner for a sales price of $15,735,667, subject to normal working
capital closing adjustments. This sales price is the average of three separate
independent appraisals of the fair market value of the Manitowoc System and the
General Partner's offer was the only bid tendered in a public bidding process
for the Manitowoc System. The General Partner assigned its rights and
obligations under the asset purchase agreement to Jones Cable Holdings, Inc.
("JCH"), a wholly owned subsidiary of the General Partner. The closing of the
sale will occur on a date upon which Joint Fund 11 and JCH mutually agree by
September 30, 1996. The sale of the Manitowoc System is subject to a number of
conditions, including approval of the transaction by the holders of a majority
of the Partnership's limited partnership interests and approvals from
governmental authorities and other third parties necessary to the transfer of
the Manitowoc System. If all conditions precedent to JCH's obligation to
close are not eventually satisfied or waived, JCH's obligation to purchase the
Manitowoc System will terminate on September 30, 1996.
In order to sell the Manitowoc System, Joint Fund 11 must obtain the
consent of the City of Manitowoc and third parties with whom Joint Fund 11 has
contracts related to the Manitowoc System, such as pole attachment agreements
or other service agreements, to the transfer thereof. Joint Fund 11 was
unsuccessful in its efforts to sell the Manitowoc System in June 1990, at the
time of Joint Fund 11's sale of its remaining Wisconsin cable television
systems, due to the refusal of the City of Manitowoc to consent to the transfer
of the system's franchise. Negotiations with the City of Manitowoc with
respect to the renewal and transfer of the Manitowoc System's franchise are
continuing, and the Manitowoc System currently is being operated pursuant to a
temporary extension of the franchise's term until March 29, 1996. The General
Partner hopes that the City ultimately will agree to the renewal and transfer
of the franchise and that the City will not take any action that will prevent
the closing of the sale of the Manitowoc System, but given the current status
of negotiations with the City there can be no assurance that the sale will
occur as planned.
If the proposed sale of the Manitowoc System is closed, Joint Fund 11
will pay all of its indebtedness, which totaled $55,175 at December 1995,
including $45,258 owed to the General Partner, and then the net sales proceeds
plus cash on hand will be distributed to the Joint Venture Partners in
proportion to their ownership interests in Joint Fund 11. The net sales
proceeds will be distributed as follows: Fund 11-A will receive approximately
$3,356,700; Fund 11-B will receive approximately $1,432,700; Fund 11-C will
receive approximately $4,994,100 and Fund 11-D will receive approximately
$8,637,300.
Contributed Capital, Sharing Ratios and Distribution
The capitalization of Joint Fund 11 is set forth in the accompanying
statements of partners' capital. Profits and losses of Joint Fund 11 are
allocated to the partners in proportion to their respective partnership
interests.
30
<PAGE>
All partnership distributions, including those made from cash flow
(defined as cash receipts derived from routine operations, less debt principal
and interest payments and cash expenses), from the sale or refinancing of
partnership property and on dissolution of Joint Fund 11, are made to the
partners also in proportion to their approximate respective interests in Joint
Fund 11 as follows:
<TABLE>
<S> <C>
Cable TV Fund 11-A, Ltd. 18%
Cable TV Fund 11-B, Ltd. 8%
Cable TV Fund 11-C, Ltd. 27%
Cable TV Fund 11-D, Ltd. 47%
---
100%
===
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Records
The accompanying financial statements have been prepared on the
accrual basis of accounting in accordance with generally accepted accounting
principles. Joint Fund 11's tax returns are also prepared on the accrual
basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner's management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Property, Plant and Equipment
Depreciation is determined using the straight-line method over the
following estimated service lives:
<TABLE>
<S> <C>
Cable distribution systems 5-15 years
Equipment and tools 3-5 years
Buildings 20 years
Office furniture and equipment 5 years
Vehicles 3 years
</TABLE>
Replacements, renewals and improvements are capitalized and
maintenance and repairs are charged to expense as incurred.
Intangible Assets
Costs assigned to franchises and subscriber lists were amortized using
the straight-line method over their estimated useful lives.
Revenue Recognition
Subscriber prepayments are initially deferred and recognized as
revenue when earned.
(3) TRANSACTIONS WITH JONES INTERCABLE, INC. AND AFFILIATES
Management Fees and Reimbursements
Intercable manages Joint Fund 11 and receives a fee for its services
equal to 5 percent of the gross revenues, excluding revenues from the sale of
the cable television systems or franchises. Management fees paid to Intercable
during 1995, 1994 and 1993 were $181,634, $164,805 and $164,634, respectively.
Intercable is reimbursed for certain allocated overhead and
administrative expenses. These expenses represent the salaries and related
benefits paid to corporate personnel, rent, data processing services and other
corporate facilities costs.
31
<PAGE>
Such personnel provide engineering, marketing, administrative, accounting,
legal and investor relations services to Joint Fund 11. Allocations of
personnel costs are primarily based upon actual time spent by employees of
Intercable with respect to each partnership managed. Remaining expenses are
allocated based on the pro rata relationship of the Partnership's revenues to
the total revenues of all systems owned or managed by Intercable and certain of
its subsidiaries. Systems owned by Intercable and all other systems owned by
partnerships for which Intercable is the general partner are also allocated a
proportionate share of these expenses. Intercable believes that the
methodology used in allocating overhead and administrative expenses is
reasonable. The amount of allocated overhead and administrative expenses
charged to Joint Fund 11 during 1995, 1994 and 1993 was $282,057, $272,753 and
$246,943, respectively.
Joint Fund 11 was charged interest during 1995 at an average interest
rate of 10.5 percent on the amounts due Intercable, which approximated
Intercable's weighted average cost of borrowings. Total interest charged
during 1995, 1994 and 1993 was $6,848, $13,306 and $21,071, respectively.
Payments to/from Affiliates for Programming Services
Joint Fund 11 receives programming from Superaudio, Mind Extension
University, Jones Computer Network and Product Information Network, all of
which are affiliates of Intercable.
Payments to Superaudio totaled $6,318, $6,105 and $6,040 in 1995, 1994
and 1993, respectively. Payments to Mind Extension University totaled $6,759,
$5,532 and $3,515 in 1995, 1994 and 1993, respectively. Payments to Jones
Computer Network, which initiated service in 1994, totaled $12,760 and $3,316
in 1995 and 1994, respectively.
Joint Fund 11 receives a commission from Product Information Network
based on a percentage of advertising revenue and number of subscribers. Product
Information Network, which initiated service in 1994, paid commissions to Joint
Fund 11 totaling $4,559 and $510 in 1995 and 1994, respectively.
(4) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment as of December 31, 1995 and 1994,
consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cable distribution systems $ 7,279,475 $ 6,957,103
Equipment and tools 259,414 249,348
Office furniture and equipment 147,163 146,463
Buildings 113,431 113,431
Vehicles 158,237 180,344
----------- -----------
7,957,720 7,646,689
Less - accumulated depreciation (5,441,063) (5,051,015)
----------- -----------
$ 2,516,657 $ 2,595,674
=========== ===========
</TABLE>
(5) DEBT
Debt consists of capital lease obligations with maturities of 1 to 4
years. Installments due on debt principal for the five years in the period
ending December 31, 2000, respectively, are: $2,776, $2,776, $2,776, $1,589,
and $-0-.
(6) INCOME TAXES
Income taxes have not been recorded in the accompanying financial
statements because they accrue to the partners of Funds 11-A, 11-B, 11-C and
11-D, which are general partners in Joint Fund 11.
Joint Fund 11's tax returns, the qualification of the Partnership as
such for tax purposes, and the amount of distributable partnership income or
loss are subject to examination by federal and state taxing authorities. If
such examinations result in changes with respect to Joint Fund 11's
qualification as such, or in changes with respect to Joint
32
<PAGE>
Fund 11's recorded income or loss, the tax liability of the general and
limited partners would likely be changed accordingly.
Taxable income reported to the partners is different from that
reported in the statements of operations due to the difference in depreciation
allowed under generally accepted accounting principles and the expense allowed
for tax purposes under the Modified Accelerated Cost Recovery System (MACRS).
There are no other significant differences between taxable income and the net
income reported in the statements of operations.
(7) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
Supplementary profit and loss information is presented below:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1995 1994 1993
-------- -------- ---------
<S> <C> <C> <C>
Maintenance and repairs $ 27,102 $ 41,329 $ 34,813
======== ======== ========
Taxes, other than income and
payroll taxes $124,403 $ 52,294 $ 57,152
======== ======== ========
Advertising $ 62,160 $ 81,763 $ 56,930
======== ======== ========
Depreciation of property,
plant and equipment $416,869 $379,817 $374,665
======== ======== ========
Amortization of intangible assets $128,368 $142,776 $142,776
======== ======== ========
</TABLE>
33
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership itself has no officers or directors. Certain information
concerning the directors and executive officers of the General Partner is set
forth below.
Glenn R. Jones 66 Chairman of the Board and Chief Executive Officer
Derek H. Burney 56 Vice Chairman of the Board
James B. O'Brien 46 President and Director
Ruth E. Warren 46 Group Vice President/Operations
Kevin P. Coyle 44 Group Vice President/Finance
Christopher J. Bowick 40 Group Vice President/Technology
George H. Newton 61 Group Vice President/Telecommunications
Timothy J. Burke 45 Group Vice President/Taxation/Administration
Raymond L. Vigil 49 Group Vice President/Human Resources and Director
Cynthia A. Winning 44 Group Vice President/Marketing
Elizabeth M. Steele 44 Vice President/General Counsel/Secretary
Larry W. Kaschinske 36 Controller
Robert E. Cole 63 Director
William E. Frenzel 67 Director
Donald L. Jacobs 57 Director
James J. Krejci 54 Director
John A. MacDonald 42 Director
Raphael M. Solot 62 Director
Daniel E. Somers 48 Director
Howard O. Thrall 48 Director
Robert B. Zoellick 42 Director
Mr. Glenn R. Jones has served as Chairman of the Board of Directors and
Chief Executive Officer of the General Partner since its formation in 1970, and
he was President from June 1984 until April 1988. Mr. Jones is the sole
shareholder, President and Chairman of the Board of Directors of Jones
International, Ltd. He is also Chairman of the Board of Directors of the
subsidiaries of the General Partner and of certain other affiliates of the
General Partner. Mr. Jones has been involved in the cable television business in
various capacities since 1961, is a past and present member of the Board of
Directors and the Executive Committee of the National Cable Television
Association. He also is on the Executive Committee of Cable in the Classroom, an
organization dedicated to education via cable. Additionally, in March 1991, Mr.
Jones was appointed to the Board of Governors for the American Society for
Training and Development, and in November 1992 to the Board of Education Council
of the National Alliance of Business. Mr. Jones is also a founding member of the
James Madison Council of the Library of Congress. Mr. Jones is a past director
and member of the Executive Committee of C-Span. Mr. Jones has been the
recipient of several awards including the Grand Tam Award in 1989, the highest
award from the Cable Television Administration and Marketing Society; the
Chairman's Award from the Investment Partnership Association, which is an
association of sponsors of public syndications; the cable television industry's
Public Affairs Association President's Award in 1990, the Donald G. McGannon
award for the advancement of minorities and women in cable; the STAR Award from
American Women in Radio and Television, Inc. for exhibition of a commitment to
the issues and concerns of women in television and radio; the Women in Cable
Accolade in 1990 in recognition of support of this organization; the Most
Outstanding Corporate Individual Achievement award from the International
Distance Learning Conference; the Golden Plate Award
34
<PAGE>
from the American Academy of Achievement for his advances in distance education;
the Man of the Year named by the Denver chapter of the Achievement Rewards for
College Scientists; and in 1994 Mr. Jones was inducted into Broadcasting and
Cable's Hall of Fame.
Mr. Derek H. Burney was appointed a Director of the General Partner on
December 20, 1994 and Vice Chairman of the Board of Directors on January 31,
1995. Mr. Burney joined BCE Inc., Canada's largest telecommunications company,
in January 1993 as Executive Vice President, International. He has been the
Chairman of Bell Canada International Inc., a subsidiary of BCE, since January
1993 and, in addition, has been Chief Executive Officer of BCI since July 1993.
Prior to joining BCE, Mr. Burney served as Canada's ambassador to the United
States from 1989 to 1992. Mr. Burney also served as chief of staff to the Prime
Minister of Canada from March 1987 to January 1989 where he was directly
involved with the negotiation of the U.S. - Canada Free Trade Agreement. In July
1993, he was named an Officer of the Order of Canada. Mr. Burney is chairman of
Bell Cablemedia plc. He is a director of Mercury Communications Limited,
Videotron Holdings plc, Tele-Direct (Publications) Inc., Teleglobe Inc., Bimcor
Inc., Maritime Telegraph and Telephone Company, Limited, Moore Corporation
Limited and Northbridge Programming Inc.
Mr. James B. O'Brien, the General Partner's President, joined the General
Partner in January 1982. Prior to being elected President and a Director of the
General Partner in December 1989, Mr. O'Brien served as a Division Manager,
Director of Operations Planning/Assistant to the CEO, Fund Vice President and
Group Vice President/Operations. Mr. O'Brien was appointed to the General
Partner's Executive Committee in August 1993. As President, he is responsible
for the day-to-day operations of the cable television systems managed and owned
by the General Partner. Mr. O'Brien is a board member of Cable Labs, Inc., the
research arm of the U.S. cable television industry. He also serves as a director
of the Cable Television Administration and Marketing Association and as a
director of the Walter Kaitz Foundation, a foundation that places people of
ethnic minority groups in positions with cable television systems, networks and
vendor companies.
Ms. Ruth E. Warren joined the General Partner in August 1980 and has
served in various operational capacities, including system manager and Fund
Vice President, since then. Ms. Warren was elected Group Vice
President/Operations of the General Partner in September 1990.
Mr. Kevin P. Coyle joined The Jones Group, Ltd. in July 1981 as Vice
President/Financial Services. In September 1985, he was appointed Senior Vice
President/Financial Services. He was elected Treasurer of the General Partner in
August 1987, Vice President/Treasurer in April 1988 and Group Vice
President/Finance and Chief Financial Officer in October 1990.
Mr. Christopher J. Bowick joined the General Partner in September 1991 as
Group Vice President/Technology and Chief Technical Officer. Previous to joining
the General Partner, Mr. Bowick worked for Scientific Atlanta's Transmission
Systems Business Division in various technical management capacities since 1981,
and as Vice President of Engineering since 1989.
Mr. George H. Newton joined the General Partner in January 1996 as Group
Vice President/Telecommunications. Prior to joining the General Partner, Mr.
Newton was President of his own consulting business, Clear Solutions, and since
1994 Mr. Newton has served as a Senior Advisor to Bell Canada International.
From 1990 to 1993, Mr. Newton served as the founding Chief Executive Officer and
Managing Director of Clear Communications, New Zealand, where he established an
alternative telephone company in New Zealand. From 1964 to 1990, Mr. Newton held
a wide variety of operational and business assignments with Bell Canada
International.
Mr. Timothy J. Burke joined the General Partner in August 1982 as corporate
tax manager, was elected Vice President/Taxation in November 1986 and Group Vice
President/Taxation/Administration in October 1990.
Mr. Raymond L. Vigil joined the General Partner in June 1993 as Group Vice
President/Human Resources. Previous to joining the General Partner, Mr. Vigil
served as Executive Director of Learning with
35
<PAGE>
USWest. Prior to USWest, Mr. Vigil worked in various human resources posts over
a 14-year term with the IBM Corporation.
Ms. Cynthia A. Winning joined the General Partner as Group Vice
President/Marketing in December 1994. Previous to joining the General Partner,
Ms. Winning served since 1994 as the President of PRS Inc., Denver, Colorado, a
sports and event marketing company. From 1979 to 1981 and from 1986 to 1994, Ms.
Winning served as the Vice President and Director of Marketing for Citicorp
Retail Services, Inc., a provider of private-label credit cards for ten national
retail department store chains. From 1981 to 1986, Ms. Winning was the Director
of Marketing Services for Daniels & Associates cable television operations, as
well as the Western Division Marketing Director for Capital Cities Cable. Ms.
Winning also serves as a board member of Cities in Schools, a dropout
intervention/prevention program.
Ms. Elizabeth M. Steele joined the General Partner in August 1987 as Vice
President/General Counsel and Secretary. From August 1980 until joining the
General Partner, Ms. Steele was an associate and then a partner at the Denver
law firm of Davis, Graham & Stubbs, which serves as counsel to the General
Partner.
Mr. Larry Kaschinske joined the General Partner in 1984 as a staff
accountant in the General Partner's former Wisconsin Division, was promoted to
Assistant Controller in 1990 and named Controller in August 1994.
Mr. Robert E. Cole was appointed a Director of the General Partner in March
1996. Mr. Cole is currently self-employed as a partner of First Variable
Insurance Marketing and is responsible for marketing to National Association of
Securities Dealers, Inc. firms in northern California, Oregon, Washington and
Alaska. From 1993 to 1995, Mr. Cole was the Director of Marketing for Lamar Life
Insurance Company; from 1992 to 1993, Mr. Cole was Senior Vice President of PMI
Inc., a third party lender serving the special needs of Corporate Owned Life
Insurance (COLI) and from 1988 to 1992, Mr. Cole was the principal and
co-founder of a specialty investment banking firm that provided services to
finance the ownership and growth of emerging companies, productive assets and
real property. Mr. Cole is a Certified Financial Planner and a former United
States Naval Aviator.
Mr. William E. Frenzel was appointed a Director of the General Partner on
April 11, 1995. Mr. Frenzel has been a Guest Scholar since 1991 with the
Brookings Institution, a research organization located in Washington D. C. Until
his retirement in January 1991, Mr. Frenzel served for twenty years in the
United States House of Representatives, representing the State of Minnesota,
where he was a member of the House Ways and Means Committee and its Trade
Subcommittee, the Congressional Representative to the General Agreement on
Tariffs and Trade (GATT), the Ranking Minority Member on the House Budget
Committee and a member of the National Economic Commission. Mr. Frenzel also
served in the Minnesota Legislature for eight years. He is a Distinguished
Fellow of the Tax Foundation, Vice Chairman of the Eurasia Foundation, a Board
Member of the U.S.-Japan Foundation, the Close-Up Foundation, Sit Mutual Funds
and Chairman of the Japan-America Society of Washington.
Mr. Donald L. Jacobs was appointed a Director of the General Partner on
April 11, 1995. Mr. Jacobs is a retired executive officer of TRW. Prior to his
retirement, he was Vice President and Deputy Manager of the Space and Defense
Sector; prior to that appointment, he was the Vice President and General Manager
of the Defense Systems Group and prior to his appointment as Group General
Manager, he was President of ESL, Inc., a wholly owned subsidiary of TRW. During
his career, Mr. Jacobs served on several corporate, professional and civic
boards.
Mr. James J. Krejci was President of the International Division of
International Gaming Technology, International headquartered in Reno, Nevada,
until March 1995. Prior to joining IGT in May 1994, Mr. Krejci was Group Vice
President of Jones International, Ltd. and was Group Vice President of the
General Partner. He also served as an officer of Jones Futurex, Inc., a
subsidiary of the General Partner engaged in manufacturing and marketing data
encryption devices, Jones Interactive, Inc., a subsidiary of Jones
International, Ltd. providing computer data and billing processing facilities
and Jones Lightwave, Ltd., a company owned by Jones International, Ltd. and Mr.
Jones, and several of its subsidiaries engaged in the provision of
telecommunications
36
<PAGE>
services until leaving the General Partner in May 1994. Mr. Krejci has been a
Director of the General Partner since August 1987.
Mr. John A. MacDonald was appointed a Director of the General Partner on
November 8, 1995. Mr. MacDonald is Executive Vice President of Business
Development and Chief Technology Officer of Bell Canada International Inc. Prior
to joining Bell Canada in November 1994, Mr. MacDonald was President and Chief
Executive Officer of The New Brunswick Telephone Company, Limited, a post he had
held since March of that year. Prior to March 1994, Mr. MacDonald was with NBTel
for 17 years serving in various capacities, including Market Planning Manager,
Corporate Planning Manager, Manager of Systems Planning and Development and
General Manager, Chief Engineer and General Manager of Engineering and
Information Systems and Vice President of Planning. Mr. MacDonald was the former
Chairman of the New Brunswick section of the Institute of Electrical and
Electronic Engineers and also served on the Federal Government's Information
Highway Advisory Council. Mr. MacDonald is Chairman of MediaLinx Interactive
Inc. and Stentor Canadian Network Management and is presently a Governor of the
Montreal Exchange. He also serves on the Board of Directors of Tele-Direct
(Publications) Inc., Bell-Northern Research, Ltd., SRCI, Bell Sygma, Canarie
Inc., and is a member of the University of New Brunswick Venture Campaign
Cabinet.
Mr. Raphael M. Solot was appointed a Director of the General Partner in
March 1996. Mr. Solot is an attorney licensed to practice law in the State of
Colorado. Mr. Solot has practiced law in the State of Colorado as a sole
practitioner since obtaining his Juris Doctor degree from the University of
Colorado in 1964.
Mr. Daniel E. Somers was initially appointed a Director of the General
Partner on December 20, 1994. Mr. Somers resigned as a Director on December
31, 1995, at the time he was elected Chief Executive Officer of Bell
Cablemedia. Mr. Somers was reinstated as a Director of the General Partner on
February 2, 1996. From January 1992 to January 1995, Mr. Somers worked as
senior Vice President and Chief Financial Officer of Bell Canada International
Inc. and was appointed Executive Vice President and Chief Financial Officer on
February 1, 1995. He is also a Director of certain of its affiliates. Mr.
Somers currently serves as Chief Executive Officer of Bell Cablemedia. Prior
to joining Bell Canada International Inc. and since January 1989, Mr. Somers
was a President and Chief Executive Officer of Radio Atlantic Holdings Limited.
Mr. Somers is a member of the North American Society of Corporate Planning,
the Financial Executives Institution and the Financial Analysts Federation.
Mr. Howard O. Thrall was appointed a Director of the General Partner on
March 6, 1996. Mr. Thrall had previously served as a Director of the General
Partner from December 1988 to December 1994. Since September 1993, Mr. Thrall
has served as Vice President of Sales, Asian Region, for World Airways, Inc.
headquartered at the Washington Dulles International Airport. From 1984 until
August 1993, Mr. Thrall was with the McDonnell Douglas Corporation, where he
concluded as a Regional Vice President, Commercial Marketing with the Douglas
Aircraft Company subsidiary. Mr. Thrall is also an active management and
international marketing consultant, having completed assignments with First
National net, Inc., Cheong Kang Associated (Korea), Aero Investment Alliance,
Inc. and Western Real Estate Partners, among others.
Mr. Robert B. Zoellick was appointed a Director of the General Partner on
April 11, 1995. Mr. Zoellick is Executive Vice President, General Counsel and
Corporate Secretary of Fannie Mae, a federally chartered and stockholder-owned
corporation that is the largest housing finance investor in the United States.
From August 1992 to January 1993, Mr. Zoellick served as Deputy Chief of Staff
of the White House and Assistant to the President. From May 1991 to August 1992,
Mr. Zoellick served concurrently as the Under Secretary of State for Economic
and Agricultural Affairs and as Counselor of the Department of State, a post he
assumed in March 1989. From 1985 to 1988, Mr. Zoellick served at the Department
of Treasury in a number of capacities, including Counselor to the Secretary. Mr.
Zoellick received the Alexander Hamilton and Distinguished Service Awards,
highest honors of the Departments of Treasury and State, respectively. The
German Government awarded him the Knight Commanders Cross for his work on
Germany unification. Mr. Zoellick currently serves on the boards of the Council
on Foreign Relations, the Congressional Institute, the German Marshall Fund of
the U.S., the European Institute, the National Bureau of Asian Research, the
American Council on Germany and the Overseas Development Council.
37
<PAGE>
Christopher J. Bowick, Cynthia A. Winning and Larry W. Kaschinske are
executive officers of the General Partner; Raymond L. Vigil is an executive
officer and a director of the General Partner; and Derek H. Burney, John A.
MacDonald and Daniel E. Somers are directors of the General Partner. Reports by
these persons with respect to the ownership of limited partnership interests in
the Partnership required by Section 16(a) of the Securities Exchange Act of
1934, as amended, were not filed within the required time. None of these
individuals own any limited partnership interests in the Partnership.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership has no employees; however, various personnel are required
to operate the Manitowoc System. Such personnel are employed by the General
Partner and, the cost of such employment is charged by the General Partner to
the Venture as a direct reimbursement item. See Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
No person or entity owns more than 5 percent of the limited partnership
interests of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partner and its affiliates engage in certain transactions with
the Venture. The General Partner believes that the terms of such transactions
are generally as favorable as could be obtained by the Venture from unaffiliated
parties. This determination has been made by the General Partner in good faith,
but none of the terms were or will be negotiated at arm's-length and there can
be no assurance that the terms of such transactions have been or will be as
favorable as those that could have been obtained by the Venture from
unaffiliated parties.
The General Partner charges a management fee, and the General Partner is
reimbursed for certain allocated overhead and administrative expenses. These
expenses represent the salaries and benefits paid to corporate personnel, rent,
data processing services and other corporate facilities costs. Such personnel
provide engineering, marketing, administrative, accounting, legal and investor
relations services to the Venture. Allocations of personnel costs are based
primarily on actual time spent by employees of the General Partner with respect
to each partnership managed. Remaining expenses are allocated based on the pro
rata relationship of the Partnership's revenues to the total revenues of all
systems owned or managed by the General Partner and certain of its subsidiaries.
Systems owned by the General Partner and all other systems owned by partnerships
for which Jones Intercable, Inc. is the general partner, are also allocated a
proportionate share of these expenses.
The General Partner also advances funds and charges interest on the balance
payable. The interest rate charged approximates the General Partner's weighted
average cost of borrowing.
The Manitowoc System receives stereo audio programming from Superaudio, a
joint venture owned 50% by an affiliate of the General Partner and 50% by an
unaffiliated party, educational video programming from Mind Extension
University, Inc., an affiliate of the General Partner, and computer video
programming from Jones Computer Network, Ltd., an affiliate of the General
Partner, for fees based upon the number of subscribers receiving the
programming.
Product Information Network ("PIN"), an affiliate of the General Partner,
provides advertising time for third parties on the Manitowoc System. In
consideration, the revenues generated from the third parties are shared between
PIN and the Venture. During the year ended December 31, 1995, the Venture
received revenues from PIN of $4,559.
38
<PAGE>
The charges to the Partnership and the Venture for related party
transactions are as follows for the periods indicated:
<TABLE>
<CAPTION>
At December 31,
----------------------------
Cable TV Fund 11-A 1995 1994 1993
- - ------------------ -------- -------- --------
<S> <C> <C> <C>
Amount of advances outstanding $ 10,781 $ 10,781 $ 10,781
Highest amount of advances outstanding 10,781 10,781 10,781
<CAPTION>
At December 31,
----------------------------
Cable TV Joint Fund 11 1995 1994 1993
- - ---------------------- -------- -------- --------
<S> <C> <C> <C>
Management fees $181,634 $164,805 $164,634
Allocation of expenses 282,057 272,753 246,943
Interest on advances paid to the General Partner 6,848 13,306 21,071
Amount of advances outstanding 45,258 72,764 32,825
Highest amount of advances outstanding 77,215 72,764 52,745
Programming fees:
Superaudio 6,318 6,105 6,040
Mind Extension University 6,759 5,532 3,515
Jones Computer Network 12,760 3,316 -0-
</TABLE>
39
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. See index to financial statements for the list of financial
statements and exhibits thereto filed as part of this report.
3. The following exhibits are filed herewith.
2.1 Asset Purchase Agreement dated September 5, 1995 between Cable
TV Joint Fund 11 and Jones Intercable, Inc. relating to the
Manitowoc System. (1)
4.1 Limited Partnership Agreements of Cable TV Fund 11-A, Ltd. (2)
10.1.1 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Manitowoc, Wisconsin. (Joint Fund 11) (2)
27 Financial Data Schedule
- - ----------
(1) Incorporated by reference from Registrant's Current Report on Form
8-K dated September 8, 1995.
(2) Incorporated by reference from Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1985.
(b) Reports on Form 8-K.
None.
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CABLE TV FUND 11-A, LTD.
a Colorado limited partnership
By: Jones Intercable, Inc.
By: /s/ Glenn R. Jones
-------------------------------
Glenn R. Jones
Chairman of the Board and Chief
Dated: March 25, 1996 Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Glenn R. Jones
---------------------------------
Glenn R. Jones
Chairman of the Board and Chief
Executive Officer
Dated: March 25, 1996 (Principal Executive Officer)
By: /s/ Kevin P. Coyle
---------------------------------
Kevin P. Coyle
Group Vice President/Finance
Dated: March 25, 1996 (Principal Financial Officer)
By: /s/ Larry Kaschinske
---------------------------------
Larry Kaschinske
Controller
Dated: March 25, 1996 (Principal Accounting Officer)
By: /s/ James B. O'Brien
---------------------------------
James B. O'Brien
Dated: March 25, 1996 President and Director
By: /s/ Raymond L. Vigil
---------------------------------
Raymond L. Vigil
Dated: March 25, 1996 Group Vice President and Director
By: /s/ Derek H. Burney
---------------------------------
Derek H. Burney
Dated: March 25, 1996 Director
41
<PAGE>
By:
---------------------------------
Robert E. Cole
Dated: Director
By: /s/ William E. Frenzel
---------------------------------
William E. Frenzel
Dated: March 25, 1996 Director
By: /s/ Donald L. Jacobs
---------------------------------
Donald L. Jacobs
Dated: March 25, 1996 Director
By: /s/ James J. Krejci
---------------------------------
James J. Krejci
Dated: March 25, 1996 Director
By: /s/ John A. MacDonald
---------------------------------
John A. MacDonald
Dated: March 25, 1996 Director
By:
---------------------------------
Raphael M. Solot
Dated: Director
By: /s/ Daniel E. Somers
---------------------------------
Daniel E. Somers
Dated: March 25, 1996 Director
By: /s/ Howard O. Thrall
---------------------------------
Howard O. Thrall
Dated: March 25, 1996 Director
By: /s/ Robert B. Zoellick
---------------------------------
Robert B. Zoellick
Dated: March 25, 1996 Director
42
<PAGE>
Exhibit Exhibit Index
Number Exhibit Description Page
- - ------- ------------------- ----
2.1 Asset Purchase Agreement dated September 5, 1995 between Cable
TV Joint Fund 11 and Jones Intercable, Inc. relating to the
Manitowoc System. (1)
4.1 Limited Partnership Agreements of Cable TV Fund 11-A, Ltd. (2)
10.1.1 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Manitowoc, Wisconsin. (Joint Fund 11) (2)
27 Financial Data Schedule
- - ---------
(1) Incorporated by reference from Registrant's Current Report on Form
8-K dated September 8, 1995.
(2) Incorporated by reference from Registrant's Report on Form 10-K for
the fiscal year ended December 31, 1985.
<PAGE>
Exhibit (d)(3)
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[x] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended September 30, 1996
------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------- -------------
Commission File Number: 0-11910
CABLE TV FUND 11-A, LTD.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado 84-0892990
- --------------------------------------------------------------------------------
State of organization I.R.S. employer I.D.#
9697 East Mineral Avenue, P. O. Box 3309, Englewood, Colorado 80155-3309
-------------------------------------------------------------------------
Address of principal executive office
(303) 792-3111
-----------------------------
Registrant's telephone number
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding l2 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------ -------
<PAGE>
CABLE TV FUND 11-A, LTD.
-----------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1996 1995
------ ---------------- ---------------
<S> <C> <C>
INVESTMENT IN CABLE TELEVISION JOINT VENTURE $ 1,394,777 $ 1,314,503
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
LIABILITIES:
Payable to General Partner $ 10,781 $ 10,781
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Distributions (11,079,511) (11,079,511)
Accumulated earnings 10,914,126 10,913,323
------------ ------------
(164,385) (165,188)
------------ ------------
Limited Partners-
Net contributed capital
(46,725 units outstanding at
September 30, 1996 and December 31, 1995) 19,516,170 19,516,170
Distributions (56,599,297) (56,599,297)
Accumulated earnings 38,631,508 38,552,037
------------ ------------
1,548,381 1,468,910
------------ ------------
Total liabilities and partners'
capital (deficit) $ 1,394,777 $ 1,314,503
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
<PAGE>
CABLE TV FUND 11-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
------- ------- ------- -------
EQUITY IN NET INCOME
OF CABLE TELEVISION
JOINT VENTURE $41,231 $30,215 $80,274 $56,148
------- ------- ------- -------
NET INCOME $41,231 $30,215 $80,274 $56,148
======= ======= ======= =======
ALLOCATION OF NET INCOME:
General Partner $ 413 $ 302 $ 803 $ 561
======= ======= ======= =======
Limited Partners $40,818 $29,913 $79,471 $55,587
======= ======= ======= =======
NET INCOME PER LIMITED
PARTNERSHIP UNIT $ .87 $ .64 $ 1.70 $ 1.19
======= ======= ======= =======
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 46,725 46,725 46,725 46,725
======= ======= ======= =======
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
3
<PAGE>
CABLE TV FUND 11-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------
<S> <C> <C>
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 80,274 $ 56,148
Adjustments to reconcile net income to
net cash provided by operating activities:
Equity in net income of cable
television joint venture (80,274) (56,148)
--------- ---------
Net cash provided by operating activities - -
--------- ---------
Cash, beginning of period - -
--------- ---------
Cash, end of period $ - $ -
========= =========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ - $ -
========= =========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
4
<PAGE>
CABLE TV FUND 11-A, LTD.
------------------------
(A Limited Partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
(1) This Form 10-Q is being filed in conformity with the SEC requirements for
unaudited financial statements and does not contain all of the necessary
footnote disclosures required for a fair presentation of the Balance Sheets and
Statements of Operations and Cash Flows in conformity with generally accepted
accounting principles. However, in the opinion of management, this data includes
all adjustments, consisting only of normal recurring accruals, necessary to
present fairly the financial position of Cable TV Fund 11-A, Ltd. (the
"Partnership") at September 30, 1996 and December 31, 1995, its Statements of
Operations for the three and nine month periods ended September 30, 1996 and
1995 and its Statements of Cash Flows for the nine month periods ended September
30, 1996 and 1995. Results of operations for these periods are not necessarily
indicative of results to be expected for the full year.
The Partnership is a Colorado limited partnership that was formed pursuant
to the public offering of limited partnership interests in the Cable TV Fund 11
Limited Partnership Program (the "Program"), which was sponsored by Jones
Intercable, Inc. (the "General Partner"), to acquire, own and operate cable
television systems in the United States. Cable TV Fund 11-B, Ltd. ("Fund 11-
B"), Cable TV Fund 11-C, Ltd. ("Fund 11-C") and Cable TV Fund 11-D, Ltd. ("Fund
11-D") are the other partnerships that were formed pursuant to the Program. The
Partnership, Fund 11-B, Fund 11-C and Fund 11-D formed a general partnership
known as Cable TV Joint Fund 11 (the "Venture") in which the Partnership owns an
18 percent interest. The Partnership does not directly own any cable television
systems. The Partnership's only asset is its 18 percent ownership interest in
the Venture, and the Venture's only asset is the cable television system serving
subscribers in Manitowoc, Wisconsin (the "Manitowoc System").
(2) The General Partner manages the Partnership and the Venture and receives a
fee for its services equal to 5 percent of the gross revenues of the Venture,
excluding revenues from the sale of cable television systems or franchises.
Management fees paid by the Venture and attributable to the Partnership for the
three and nine month periods ended September 30, 1996 (reflecting the
Partnership's 18 percent interest in the Venture) were $8,499 and $25,240,
respectively, compared to $8,469 and $24,451, respectively, for the similar 1995
periods.
The Venture 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
Venture. Allocations of personnel costs are primarily based on actual time
spent by employees of the General Partner with respect to each partnership
managed. Remaining expenses are allocated based on the pro rata relationship of
the Venture's revenues to the total revenues of all systems owned or managed by
the General Partner and certain of its subsidiaries. Systems owned by the
General Partner and all other systems owned by partnerships for which Jones
Intercable, Inc. is the general partner are also allocated a proportionate share
of these expenses. The General Partner believes that the methodology used in
allocating overhead and administrative expenses is reasonable. Reimbursements
to the General Partner paid by the Venture and attributable to the Partnership
for allocated overhead and administrative expenses for the three and nine month
periods ending September 30, 1996 (reflecting the Partnership's 18 percent
interest in the Venture) were $11,036 and $35,345, respectively, compared to
$12,542 and $37,395, respectively, for the similar 1995 periods.
(3) The Venture has entered into an asset purchase agreement to sell the
Manitowoc System to the General Partner. Because the City of Manitowoc had not
consented to the transfer of the franchise by the asset purchase agreement's
original expiration date of September 30, 1996, the Venture and the General
Partner amended the asset purchase agreement to extend the period in which to
close the sale of the Manitowoc System to June 30, 1997. The amendment also
provides for the purchase price to be the greater of (i) $15,735,667, which was
the average of three independent appraisals of the Manitowoc System obtained by
the Venture in 1995, and (ii) the average of three updated appraisals of the
Manitowoc System. The average of the three appraisals obtained by the Venture in
November 1996 was $16,122,333. Accordingly, under the terms of the asset
purchase agreement, as amended, the purchase price of the Manitowoc System will
be $16,122,333.
The closing of the sale of the Manitowoc System is subject to the approval
of the City of Manitowoc and the approval of the limited partners of each of the
partnerships that comprise the Venture. There can be no assurance that
5
<PAGE>
any such approvals will be obtained. In October 1996, the Venture and the
General Partner filed an updated request for the approval of the City of
Manitowoc to the transfer of the franchise. The General Partner, on behalf of
the partnerships that comprise the Venture, is in the process of preparing proxy
solicitation materials to seek the approval of the limited partners of the four
constituent partnerships of the Venture.
The original term of the franchise with the City of Manitowoc expired in
1995. The franchise has been extended by the Venture and the City of Manitowoc
periodically since that time. The current extension ends on December 31, 1996.
If the franchise is not renewed by such date, the General Partner will seek an
additional extension from the City in order to complete the renewal of the
franchise and to obtain the City's consent to the transfer of the franchise to
the General Partner.
(4) Financial information regarding the Venture is presented below.
UNAUDITED BALANCE SHEETS
------------------------
September 30, December 31,
1996 1995
------------- ------------
ASSETS
------
Cash and trade receivables $ 3,586,055 $ 3,117,775
Investment in cable television properties 2,443,945 2,516,657
Other assets 1,872,039 1,869,614
------------- ------------
Total assets $ 7,902,039 $ 7,504,046
============= ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Debt $ 4,775 $ 9,917
Payables and accrued liabilities 404,926 442,372
Partners' contributed capital 45,000,000 45,000,000
Distributions (118,914,493) (118,914,493)
Accumulated earnings 81,406,831 80,966,250
------------- ------------
Total liabilities and partners' capital $ 7,902,039 $ 7,504,046
============= ============
6
<PAGE>
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
-------- -------- ---------- ----------
Revenues $932,834 $929,672 $2,770,517 $2,684,022
Operating expenses 548,465 560,668 1,662,876 1,735,366
Management fees and allocated overhead
from Jones Intercable, Inc. 107,213 115,317 332,515 339,444
Depreciation and amortization 107,926 139,565 323,984 418,694
-------- -------- ---------- ----------
Operating income 169,230 114,122 451,142 190,518
Interest expense (646) (511) (7,916) (9,212)
Interest income 59,756 52,013 175,214 125,834
Other, net (2,045) 209 (177,859) 1,024
-------- -------- ---------- ----------
Net income $226,295 $165,833 $ 440,581 $ 308,164
======== ======== ========== ==========
</TABLE>
Management fees paid to the General Partner by the Venture totaled
$46,642 and $138,526 for the three and nine months ended September 30, 1996,
respectively, and $46,483 and $134,201 for the comparable 1995 periods.
Reimbursements for general and administrative expenses paid to the General
Partner by the Venture totaled $60,571 and $193,989 for the three and nine month
periods ended September 30, 1996, respectively, and $68,834 and $205,243 for the
comparable 1995 periods.
7
<PAGE>
CABLE TV FUND 11-A, LTD.
------------------------
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
Cable TV Fund 11-A, Ltd. (the "Partnership") owns an 18 percent interest in
Cable TV Joint Fund 11 (the "Venture"). The Venture owns and operates the cable
television system serving the areas in and around the City of Manitowoc,
Wisconsin (the "Manitowoc System"). The Partnership's investment in this
Venture, accounted for under the equity method, has increased by $80,274 to
$1,394,777 at September 30, 1996 from $1,314,503 at December 31, 1995. This
increase represents the Partnership's proportionate share of net income
generated by the Venture during the first nine months of 1996.
The Venture has entered into an asset purchase agreement to sell the
Manitowoc System to the General Partner. Because the City of Manitowoc had not
consented to the transfer of the franchise by the asset purchase agreement's
original expiration date of September 30, 1996, the Venture and the General
Partner amended the asset purchase agreement to extend the period in which to
close the sale of the Manitowoc System to June 30, 1997. The amendment also
provides for the purchase price to be the greater of (i) $15,735,667, which was
the average of three independent appraisals of the Manitowoc System obtained by
the Venture in 1995, and (ii) the average of three updated appraisals of the
Manitowoc System. The average of the three appraisals obtained by the Venture in
November 1996 was $16,122,333. Accordingly, under the terms of the asset
purchase agreement, as amended, the purchase price of the Manitowoc System will
be $16,122,333.
The closing of the sale of the Manitowoc System is subject to the approval
of the City of Manitowoc and the approval of the limited partners of each of the
partnerships that comprise the Venture. There can be no assurance that any such
approvals will be obtained. In October 1996, the Venture and the General Partner
filed an updated request for the approval of the City of Manitowoc to the
transfer of the franchise. The General Partner, on behalf of the partnerships
that comprise the Venture, is in the process of preparing proxy solicitation
materials to seek the approval of the limited partners of the four constituent
partnerships of the Venture.
The original term of the franchise with the City of Manitowoc expired in
1995. The franchise has been extended by the Venture and the City of Manitowoc
periodically since that time. The current extension ends on December 31, 1996.
If the franchise is not renewed by such date, the General Partner will seek an
additional extension from the City in order to complete the renewal of the
franchise and to obtain the City's consent to the transfer of the franchise to
the General Partner.
During the first nine months of 1996, the Venture expended approximately
$251,000 for capital additions in the Manitowoc System. These capital additions
were for various enhancements to maintain the value of the system until it is
sold and were funded from cash generated from operations.
The Venture had no bank debt outstanding at September 30, 1996.
The Venture has sufficient liquidity and capital resources, including cash
on hand and its ability to generate cash from operations, to meet its
anticipated needs.
RESULTS OF OPERATIONS
- ---------------------
All of the Partnership's operations are generated through its 18 percent
interest in the Venture. Revenues of the Venture increased $3,162, or less than
1 percent, to $932,834 for the three months ended September 30, 1996 compared to
$929,672 for the comparable 1995 period. Revenues of the Venture increased
$86,495, or approximately 3 percent, to $2,770,517 for the nine months ended
September 30, 1996 compared to $2,684,022 for the comparable 1995 period. An
increase in the number of basic subscribers primarily accounted for the increase
in revenues for the three and nine month periods ended September 30, 1996. The
number of basic subscribers increased by 422 subscribers, or approximately 4
percent, to 11,524 at September 30, 1996 from 11,102 at September 30, 1995. No
other individual factor contributed significantly to the increase in revenues.
8
<PAGE>
Operating expenses consist primarily of costs associated with the
administration of the Manitowoc System. The principal cost components are
salaries paid to system personnel, programming expenses, professional fees,
subscriber billing costs, rent for leased facilities, cable system maintenance
expenses and consumer marketing expenses.
Operating expenses in the Manitowoc System decreased $12,203, or
approximately 2 percent, to $548,465 for the three months ended September 30,
1996 compared to $560,668 for the comparable 1995 period. Operating expenses in
the Manitowoc System decreased $72,490, or approximately 4 percent, to
$1,662,876 for the nine months ended September 30, 1996 compared to $1,735,366
for the comparable 1995 period. Operating expenses represented approximately 59
percent and 60 percent, respectively, of revenues for the three and nine month
periods of 1996 and approximately 60 percent and 65 percent, respectively, for
the comparable 1995 periods. The decreases in operating expenses for the three
and nine month periods were due to a significant decrease in property taxes, as
a result of a change in the method used to assess the assets of the Manitowoc
System. No other individual factor significantly affected the decreases in
operating expenses.
Management fees and allocated overhead from the General Partner decreased
$8,104, or approximately 7 percent, to $107,213 for the three months ended
September 30, 1996 compared to $115,317 for the comparable 1995 period.
Management fees and allocated overhead from the General Partner decreased
$6,929, or approximately 2 percent, to $332,515 for the nine months ended
September 30, 1996 compared to $339,444 for the comparable 1995 period. The
decreases for the three and nine month periods were due to decreases in
allocated overhead from the General Partner.
Depreciation and amortization expense decreased $31,639, or approximately
23 percent, to $107,926 for the three months ended September 30, 1996 compared
to $139,565 for the comparable 1995 period. Depreciation and amortization
expense decreased $94,710, or approximately 23 percent, to $323,984 for the nine
months ended September 30, 1996 compared to $418,694 for the comparable 1995
period. The decreases for the three and nine month periods were due to the
maturation of the intangible asset base.
Operating income increased $55,108, or approximately 48 percent, to
$169,230 for the three months ended September 30, 1996 compared to $114,122 for
the comparable 1995 period. Operating income increased $260,624 to $451,142 for
the nine months ended September 30, 1996 compared to $190,518 for the comparable
1995 period. The increases for the three and nine month periods were due to the
increases in revenues and the decreases in operating expenses, depreciation and
amortization expense and management fees and allocated overhead from the General
Partner.
The cable television industry generally measures the financial performance
of a cable television system in terms of cash flow or operating income before
depreciation and amortization. The value of a cable television system is often
determined using multiples of cash flow. This measure is not intended to be a
substitute or improvement upon the items disclosed on the financial statements,
rather it is included because it is an industry standard. Operating income
before depreciation and amortization increased $23,469, or approximately 9
percent, to $277,156 for the three months ended September 30, 1996 compared to
$253,687 for the comparable 1995 period. Operating income before depreciation
and amortization increased $165,914, or approximately 27 percent, to $775,126
for the nine months ended September 30, 1996 compared to $609,212 for the
comparable 1995 period. The increases for the three and nine month periods were
due to the increases in revenues and the decreases in operating expenses and
management fees and allocated overhead from the General Partner.
Interest income increased $7,743, or approximately 15 percent, to $59,756
for the three months ended September 30, 1996 compared to $52,013 for the
comparable 1995 period. Interest income increased $49,380, or approximately 39
percent, to $175,214 for the nine month period ended September 30, 1996 compared
to $125,834 for the comparable 1995 period. The increases were due to higher
cash balances and higher interest rates on interest-bearing accounts in 1996.
Interest expense increased $135, or approximately 26 percent, to $646 for
the three months ended September 30, 1996 compared to $511 for the comparable
1995 period. Interest expense decreased $1,296, or approximately 14 percent, to
$7,916 for the nine months ended September 30, 1996 compared to $9,212 for the
comparable 1995 period. The decrease for the nine month period was due to lower
outstanding balances on interest bearing obligations.
Other expense totaled $177,859 for the nine month period ended September
30, 1996 compared to other income of $1,024 in 1995. This change was due
primarily to additional expenses incurred in 1996 from a sales and use tax
audit.
9
<PAGE>
Net income of the Venture increased $60,462, or approximately 36 percent,
to $226,295 for the three months ended September 30, 1996 compared to $165,833
for the comparable 1995 period. Net income of the Venture increased $132,417,
or approximately 43 percent, to $440,581 for the nine months ended September 30,
1996 compared to $308,164 for the comparable 1995 period. The increases were
due primarily to the increases in operating income and the increases in interest
income.
10
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27) Financial Data Schedule
b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CABLE TV FUND 11-A, LTD.
BY: JONES INTERCABLE, INC.
General Partner
By: /S/ Kevin P. Coyle
-------------------------------------------
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: November 11, 1996
12
