<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 14-A, Ltd.
------------------------
(Name of the Issuer)
Jones Intercable, Inc. (File No. 0-8947),
Cable TV Fund 14-A, Ltd. (File No. 0-15378) and
Jones Communications of Maryland, Inc.
-------------------------------------------
(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
- --------------------- --------------------
$39,388,667 $7,878
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: $7,878
Form or Registration No.: Schedule 14A
Filing Party: Cable TV Fund 14-A, Ltd.
Commission File No. 0-15378
Date Filed: January 15, 1999
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INTRODUCTION
------------
This Rule 13e-3 Transaction Statement is being filed jointly by Cable TV
Fund 14-A, Ltd., a Colorado limited partnership, and by Jones Intercable, Inc.,
a Colorado corporation that is the general partner of Cable TV Fund 14-A, Ltd.,
and by Jones Communications of Maryland, Inc., an indirect wholly owned
subsidiary of Jones Intercable, Inc., in connection with the sale of assets of
Cable TV Fund 14-A, Ltd. to Jones Communications of Maryland, Inc. upon the
terms and subject to the conditions of a Purchase and Sale Agreement by and
between Cable TV Fund 14-A, Ltd. and Jones Communications of Maryland, Inc. The
sale may be a transaction subject to Rule 13e-3 because it will result in the
sale of certain assets of Cable TV Fund 14-A, Ltd. to Jones Communications of
Maryland, Inc.
The transaction also involves a vote of the limited partners of Cable TV
Fund 14-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.
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<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
14-A, Ltd.; Certain Information About the
Partnership and the General Partner.
(b)-(c)............... Vote of the Limited Partners of Cable TV Fund
14-A, Ltd.
(d)................... Special Factors, Prior Acquisitions and Prior and
Pending Sales.
(e)................... [Not applicable.]
(f)................... [Not applicable.]
2. Identity and Background.
(a)-(d)............... Vote of the Limited Partners of Cable TV Fund
14-A, Ltd.; Certain Information About the
Partnership and the General Partner.
(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.]
(g)................... Schedule 1.
</TABLE>
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<PAGE>
<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
14-A, Ltd.; Certain Information About the
Partnership and the General Partner.
(b)-(d)............... [Not applicable.]
(e)................... Special Factors, The General Partner's
Objectives.
(f)-(g)............... Vote of the Limited Partners of Cable TV Fund 14-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, Sales Price.
</TABLE>
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<PAGE>
<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)................... Proposed Sale of Assets, The Purchase and Sale
Agreement.
(d)................... [Not applicable.]
7. Purpose(s),
Alternatives,
Reasons and Effects.
(a)................... Special Factors, The Partnership's Investment
Objectives; Special Factors, The General Partner's
Objectives; Special Factors, Reasons for the
Timing of the Sale.
(b)................... Special Factors, 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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<PAGE>
<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 and State Income Tax Consequences.
8. Fairness of the
Transaction.
(a)-(b)............... Vote of the Limited Partners of Cable TV Fund
14-A, Ltd.; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets; Special Factors, The Appraisals.
(c)................... Vote of the Limited Partners of Cable TV Fund
14-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
14-A, Ltd.
</TABLE>
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<PAGE>
<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
14-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
14-A, Ltd.
(b)................... Vote of the Limited Partners of Cable TV Fund
14-A, Ltd.; Special Factors, Recommendation of the
General Partner and Fairness of the Proposed Sale
of Assets.
</TABLE>
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<PAGE>
<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 14-A, Ltd. for the fiscal years ended December
31, 1997 and 1996 are incorporated by reference
from Cable TV Fund 14-A, Ltd.'s Annual Report on
Form 10-K for the fiscal year ended December 31,
1997, which is 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 14-A, Ltd. for its first three 1998 fiscal
quarters are incorporated by reference from Cable
TV Fund 14-A, Ltd.'s Quarterly Reports on Form 10-Q
for the fiscal quarters ended March 31, 1998, June
30, 1998 and September 30, 1998, which are filed as
exhibits 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 14-A, Ltd.
</TABLE>
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<PAGE>
<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
14-A, Ltd.
(b)................... [None.]
16. Additional Special Factors, Relevant Provisions of the
Information. Partnership Agreement.
- -------------------------------------------------------------------------------
17. Materials
Filed as Exhibits:
(a)................... Jones Cable Holdings, Inc.'s Credit Facility.(1)
(b)(1)................ Appraisal of the Calvert County System by
Strategis Financial Consulting, Inc.
(b)(2)................ Appraisal of the Calvert County System by Waller
Capital Corporation
(b)(3)................ Appraisal of the Calvert County System by Bond &
Pecaro, Inc.
(c) [Not applicable.]
(d)(1)................ Preliminary Proxy Statement to be furnished to the
limited partners of Cable TV Fund 14-A, Ltd.
(d)(2)................ Cable TV Fund 14-A, Ltd.'s Annual Report on Form
10-K for the fiscal year ended December 31, 1997.
(d)(3)................ Cable TV Fund 14-A, Ltd.'s Quarterly Report on
Form 10-Q for the fiscal quarter ended March 31,
1998.
(d)(4)................ Cable TV Fund 14-A, Ltd.'s Quarterly Report on Form
10-Q for the fiscal quarter ended June 30,
1998.
(d)(5)................ Cable TV Fund 14-A, Ltd.'s Quarterly Report on Form
10-Q for the fiscal quarter ended September 30,
1998.
(e)................... [Not applicable.]
(f)................... [Not applicable.]
----------------
(1) Incorporated by reference from Jones Intercable, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1996.
</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 15, 1999 By: /s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
CABLE TV FUND 14-A, LTD.,
a Colorado limited partnership
By: Jones Intercable, Inc.,
a Colorado corporation,
as general partner
Dated: January 15, 1999 By: /s/ Elizabeth M. Steele
------------------------
Elizabeth M. Steele
Vice President
JONES COMMUNICATIONS OF
MARYLAND, INC., a
Colorado corporation
Dated: January 15, 1999 By: /s/ Elizabeth M. Steele
-----------------------
Elizabeth M. Steele
Vice President
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<PAGE>
Exhibit 99(b)(1)
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 14-A, LTD.
CALVERT COUNTY, MARYLAND
As of February 28, 1998
Prepared for:
Jones Intercable, Inc.
Englewood, Colorado
Prepared by:
Strategis Financial Consulting, Inc.
1130 Connecticut Avenue, N.W.
Suite 325
Washington, D.C. 20036
(202) 530-7500
May 1, 1998
COPYRIGHT 1998 STRATEGIS FINANCIAL CONSULTING, INC.
[LOGO OF THE STRATEGIS GROUP APPEARS HERE]
<PAGE>
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 14-A, LTD.
CALVERT COUNTY, MARYLAND
TABLE OF CONTENTS
-----------------
I. EXECUTIVE SUMMARY..........................................................1
A. Introduction, Purpose, and Methodology.................................1
B. Conclusions............................................................2
II. PURPOSE OF APPRAISAL......................................................3
III. INDUSTRY OVERVIEW........................................................4
A. Historical Background..................................................4
B. Industry Characteristics...............................................6
1. General Background.................................................6
2. Regulation.........................................................8
3. Financial/Economic.................................................9
4. Competition.......................................................11
IV. SYSTEM DESCRIPTION.......................................................13
A. History and Market....................................................13
B. Services..............................................................17
C. Rates.................................................................19
D. Subscribers...........................................................20
E. System Mileage........................................................21
F. Physical Plant........................................................22
G. Franchises............................................................24
H. Management............................................................24
I. Financial History.....................................................25
V. TOTAL SYSTEM VALUE........................................................26
A. Valuation Procedure and Methods.......................................26
B. Discounted Cash Flow Methodology......................................28
1. Net Cash Flow/Return on Equity....................................29
2. Net Cash Flow/Return On Investment................................30
3. Cash Flow Projections.............................................30
4. Residual Value....................................................32
5. Discount Rates....................................................33
<PAGE>
TABLE OF CONTENTS (continued)
-----------------------------
C. Direct Income Methodology.............................................34
D. Value Conclusions.....................................................35
VI. CONTINGENCIES AND LIMITING CONDITIONS....................................37
VII. STATEMENT OF VALUE......................................................39
VIII. QUALIFICATIONS.........................................................40
A. Qualifications of Strategis Financial Consulting, Inc.................40
B. Qualifications of Andrew R. Gefen.....................................41
C. Qualifications of Susan Donovan.......................................42
D. Qualifications of Elisabeth Boehler...................................43
EXHIBITS:
A. Valuation Methods and Summary of Values
B-1. Profit and Loss/Sources and Uses-Return on Equity - Low Value
B-2. Profit and Loss/Sources and Uses-Return on Equity - High Value
C-1. Debt Amortization-Return on Equity - Low Value
C-2. Debt Amortization-Return on Equity - High Value
D. Return on Investment
E. Cable Television Subscribers
F. Cable Television Service Rates
G. Cash Flow Projections
H. Capital Expenditures
I. Depreciation Schedule
J. Assumptions and Inputs
<PAGE>
APPRAISAL REPORT:
FAIR MARKET VALUATION
OF
CABLE TV FUND 14-A, LTD.
CALVERT COUNTY, MARYLAND
I. EXECUTIVE SUMMARY
A. INTRODUCTION, PURPOSE, AND METHODOLOGY
Strategis Financial Consulting, Inc. was retained by Jones Intercable, Inc.
("Jones") to conduct a fair market valuation as of February 28, 1998, of the
Cable TV Fund 14-A, Ltd. cable television system serving Calvert County,
Maryland (the "System") and several neighboring communities. This appraisal will
be used by Jones as an independent estimate of the fair market value of the
System as of February 28, 1998, with the resulting value to be used in
conjunction with the purchase of the System by Jones.
Fair market value is the cash price a willing buyer would give a willing
seller in an arm's length transaction in order to complete the sale. It is
assumed that both buyer and seller have been informed of all relevant facts and
neither is under any compulsion to conclude the transaction. Strategis Financial
Consulting also assumes that the tangible assets will remain in their present
location and will continue to be employed in their highest and best use, i.e.,
the delivery of cable television signals to subscribers.
Strategis Financial Consulting used five generally accepted cable
television valuation methods using the income approach to valuation in
establishing the range of total fair market values of the System as a going
concern. The first method used a multiple of the past year's operating income
derived from comparable asset values of privately-held and publicly-traded cable
companies. The second method used a lower multiple of the annualized current
month's operating income. The third method applied
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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 specific
to the System's assets. The fifth method was a discounted cash flow analysis
that measured the net present value of the pre-tax operating cash flows (less
capital expenditures, plus the residual value of the System) that represent the
return on total investment.
B. Conclusions
Strategis Financial Consulting's conclusions as to the range of values are
based upon information and data supplied by System management, an onsite
inspection by a representative of Strategis Financial Consulting of a
representative portion of the System and service area, and general cable
industry information. In Strategis Financial Consulting's opinion, the data
which support the valuations are reliable and sound. Our estimate of the overall
fair market value of the System as a business enterprise, free and clear of any
encumbrances, is $44,602,000.
2
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II. PURPOSE OF APPRAISAL
Strategis Financial Consulting, Inc. was retained by Jones Intercable, Inc.
("Jones") to conduct a fair market valuation as of February 28, 1998 of the
Cable TV Fund 14-A, Ltd. cable television system (the "System"), serving Calvert
County, Maryland and surrounding communities. This appraisal will be used by
Jones as an independent estimate of the fair market value of the System as of
February 28, 1998 in conjunction with the purchase of the System by Jones.
Fair market value is the cash price a willing buyer would give a willing
seller in an arm's length transaction in order to complete the sale. It is
assumed that both buyer and seller have been informed of all relevant facts and
neither is under any compulsion to conclude the transaction and that the
tangible assets will remain in their present location and will continue to be
employed in their highest and best use, i.e., the delivery of cable television
signals to subscribers.
3
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III. INDUSTRY OVERVIEW
A. Historical Background
Cable television was born in the late 1940s. The first systems were built
during the period 1948 to 1964. Most of these early systems were located in
rural areas where off-air television reception was limited and picture quality
was poor. The cable system basically provided a reception service, offering up
to 12 channels with no unique programming. Systems generally enjoyed high levels
of penetration, ranging from approximately 70% to 90% of homes passed.
During the period 1965 to 1972, cable systems were built in medium-sized
markets, importing distant television signals via terrestrial microwave. Rulings
by the Federal Communications Commission (FCC) in 1965 and 1966 initiated a
regulatory period that lasted two decades. FCC constraints were placed on
importing distant signals which inhibited the construction of systems in the
largest 100 markets. The U.S. Supreme Court affirmed the FCC's regulatory
authority over the cable television industry. The typical cable television
system generally remained a 12- to 24- channel reception service with some
additional program selections via imported signals. Programming unique to cable
television did not exist. Basic penetrations of between 50% and 60% of homes
passed were typical for newly-cabled markets.
In 1972, the FCC eased its restrictions on signal importation, thus making
it feasible for cable television operators to enter the nation's top 100 markets
with differentiated product. Satellite delivered premium television services
(HBO, Showtime) and Super Stations (WTBS) were introduced in 1975. Cable
exclusive networks, such as ESPN, CNN, USA, and others, soon followed. During
the mid- to late-1970's, new 24- to 36-channel cable television systems emerged
as a result of these communications satellite services. Significant increases in
programming options allowed cable systems to attract ample numbers of
subscribers to attain operational profitability even where off-air broadcast
reception and leisure-time options were above
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average. The smallest 50 of the top 100 markets were built first, followed by
the larger metropolitan areas. Premium, or pay, services were the primary force
behind basic penetration gains reaching 30% to 45% of homes passed in these new
markets.
During the period 1979 to 1983, the remaining major markets were
franchised. Cable channel options increased dramatically, both in pay services
(Disney, Cinemax, Bravo, Movie Channel) and basic services (MTV, Lifetime,
Nickelodeon, regional sports, CNN, and others). Systems with 54 and more
channels were built, offering an abundance of program alternatives. Cable system
operators instituted price increases for pay services and established elaborate
tiering structures to compensate for local constraints on basic service pricing.
In newer cable markets, basic penetrations of homes passed began to edge above
the 40% level.
In 1984, the U.S. Congress approved and President Reagan signed the Cable
Communications Policy Act, the first comprehensive cable legislation to be
enacted. The most significant feature of the legislation was the ultimate
removal of price controls on basic cable service in all but the very smallest
cable systems. Discretionary price increases of up to 5% were allowed in 1985
and 1986, and all price controls were removed in January 1987. During the period
1984 to 1992, the mix of cable offerings and pricing changed as growth in pay
subscriptions slowed down and local constraints on basic price increases were
removed. Basic penetrations continued to rise in major markets, and nationwide
penetration reached 60% of homes passed by cable. New revenue sources emerged in
the form of pay-per-view, advertising, and home shopping. The industry
emphasized programming quality and marketing in order to increase overall
penetration levels above the 60% level.
The Cable Television Consumer Protection and Competition Act of 1992 was
passed on October 5, 1992, which imposed significant new regulations,
particularly on subscriber rates and programming packaging. Generally,
programming packages were specifically segregated between the "basic tier" and
the "satellite programming tier(s)" since the level of regulation was different
for each of them. After the new regulations
5
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were implemented, the overall cable industry experienced a slight reduction in
revenues in 1993, but learned to cope with the new regulations in 1994 and
continued its overall growth due to added services, increased subscriber
penetrations and repackaging of programming services.
The Telecommunications Act of 1996, passed on February 8, 1996, revised the
Communications Act of 1934 and the Cable Act of 1992 in fundamental ways. It
highlighted competition in local loop telephone, video distribution, and long
distance telephone, and de-regulated cable rates beginning in 1999. The goal was
to create a competitive telecommunications marketplace. The FCC is in the
process of promulgating regulations to implement the law so its effect is still
uncertain.
B. INDUSTRY CHARACTERISTICS
1. General Background
Cable television is a capital intensive business. The right to operate a
cable system is authorized by the local government. Substantial up-front capital
is required in plant and equipment with second entrants facing even greater
capital construction costs due primarily to space limitations on utility poles.
A considerable percentage of total operating costs are fixed. Similar to
utilities, once cable television has exceeded its break-even requirements,
operating margins grow very rapidly and remain fairly predictable from year to
year.
Unlike most businesses, market analysis in cable is better pursued on the
basis of system type than generic geographic or demographic criteria. The
classification of a cable system in any individual market tends to reflect the
competitive characteristics and demand dynamics resident in that market. In
general, there are two primary categories of cable systems--classic and modern.
Classic cable systems are those built in locations where reception of over-the-
air television signals has historically been poor or limited. They were the
earliest systems built, usually serving communities with lower densities (40 to
90 homes per mile), higher subscriber penetrations (60% to 90% of homes
6
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passed), lower average revenues per subscriber ($14 to 20 per month), and higher
cash flow margins (45% to 65%) relative to modern systems. They usually were
built with fewer channels but may have been upgraded at a later time.
Expectations for additional growth in these markets tends to be lower than the
industry average. The downside risk of investing in these systems is relatively
low.
Modern cable systems have been constructed since the introduction of pay
and other cable-specific programming in the mid-1970's. They tend to serve urban
and suburban communities which have higher densities (70 to 120 and more homes
per mile), better quality off-air programming, and more extensive competition
for consumers' leisure time. These systems were built with broader channel
capacity (36 to 54 or more channels), individual subscriber addressability,
local programming capability, and the capacity for advertising sales. They tend
to have lower penetration (30% to 55%) than classic systems. More rapid growth
has been experienced in these systems than in classic systems because of higher
household growth rates, more potential for penetration gains, and greater
opportunities for ancillary revenues. They are also more risky because of
greater off-air competition and higher overall operating costs.
It is estimated that 32,255 communities are served throughout the United
States by approximately 13,000 operating cable systems. The industry is
structured into over 500 MSOs which manage these systems on a wholly-owned,
partially-owned, or management contract basis. Economic forces within the
industry are causing significant shifts in the ownership of these companies,
resulting in increasing consolidation of the industry into the hands of fewer,
larger operators.
Management characteristics in the industry vary considerably between the
MSO headquarters and system operating levels and between different categories of
systems. At the corporate level, nearly all of the mid-to-large sized MSOs have
a strong representation of professionally trained and field-seasoned management
among their ranks. Strong emphasis is placed on strategic, financial planning
and operating control functions at this level, and the staffing reflects those
requirements.
7
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System-level management requirements vary significantly with the category
of system under consideration. Classic cable operations primarily require
custodial management to oversee customer service and maintenance functions.
Strategic, marketing, and financial management tends to be handled at the
corporate level. Billing functions are processed through service bureaus
specializing in cable systems. Very little management complexity is left at the
system level, and the positions tend to be filled accordingly. Large-scale,
urban cable operations are much more dynamic and demanding. They require far
more sophisticated and versatile management capabilities. The physical plant,
budgets, and operating staffs in these systems are considerably larger. More of
the strategic, marketing, and financial planning functions are handled locally.
The political liaison requirements with the cities are far more complex. Not
surprisingly, the caliber of management found in these systems is substantially
higher than that found in classic systems, and tends to be professionally
trained, financially aware, and politically astute.
2. Regulation
Historically, the extent to which the cable television industry has been
regulated at the local, state and federal levels, has varied. Following the
deregulation of service prices in the 1984 Cable Communications Policy Act,
the next several years saw regulatory constraints on cable reduced at both the
local and federal levels. Subsequent public perception of the industry as
abusing its newly-won pricing freedom and additional consolidation in the
industry led to enactment of the Cable Television Consumer Protection and
Competition Act of 1992 on October 5, 1992, ushering in a new period of
extensive regulation. Many aspects of such regulation are currently the subject
of judicial, administrative or legislative proceedings or proposals. This law
required the FCC to regulate the operation of cable television systems in a
number of areas, including rates that may be charged by systems.
8
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On September 1, 1993, rate changes mandated by the FCC under the 1992 Act
went into effect for most systems. The FCC implemented a benchmark rate
structure that was intended to reduce the federally regulated portion of the
average cable subscriber's monthly bill by 10%. Most of the resulting reductions
in subscriber bills were attributable to the decline in equipment and additional
outlet charges. However, with the mandated reconfiguration of basic service and
the expanded basic tier, some subscribers' bills increased. For cable operators,
the effects of the rate change were estimated to reduce revenue by 3% to 5% on
an industrywide basis.
In February 1994, the FCC announced further rate reductions of 7% in order
to fully implement the 1992 Cable Act. As an alternative, cable systems were
permitted to file Cost of Service showings if implementation of the mandated
rate reductions was not feasible. By yearend 1995, widescale telecommunications
reform appeared imminent; although, the extent to which or even whether this
reform would entail relief from rate regulation was unclear. The likelihood that
providers of cable and telephony services would be allowed engage in both
businesses was a near certainty, however, the timetable for these changes was
uncertain.
The Telecommunications Act of 1996, passed on February 8, 1996, revised the
Communications Act of 1934 and the Cable Act of 1992 in fundamental ways. It
highlighted competition in local loop telephone, video distribution, and long
distance telephone, and de-regulated cable rates beginning in 1999. The goal was
to create a competitive telecommunications marketplace. The FCC is in the
process of promulgating regulations to implement the law so its effect is still
uncertain.
3. Financial/Economic
Cable's rapid financial growth and expectations for future growth have
drawn the attention of the capital markets and helped fuel consolidation within
the industry. With most cable markets already franchised and constructed,
growth-oriented MSOs turned to acquisitions as their primary method of
expansion. A flurry of acquisitions occurred
9
<PAGE>
during the period of 1986 through 1989, with the peak being reached in 1988.
Most of these acquisitions were made by companies already in the cable business
who were seeking national consolidation or regional clustering of cable
television systems to produce greater economies of scale and operating
efficiencies. The number of transactions decreased in 1990 due to federal
government restrictions on banks pertaining to highly leveraged transactions
(HLT), uncertainty about the regulatory environment, and other factors.
HLT restrictions caused less money to be available for the expansion,
upgrading, and trading of cable systems in 1990 and 1991. These restrictions
were subsequently removed in June 1992, and while the number of acquisitions
increased, they did not reach the same levels seen in the latter half of the
1980's. Passage of the Cable Television Consumer Protection and Competition Act
of 1992 and the resultant rate regulation decreased the overall attractiveness
of the cable industry to potential investors.
During the early- to mid-1990s, several of the largest MSOs formed or were
exploring alliances with both long distance and local telephone companies, as
both the cable and telephone industries were planning to enter one another's
primary lines of business. Simultaneously, a number of mid-sized MSOs were
developing exit strategies based on the belief that success in the evolving
cable industry would require a critical mass of subscribers and access to
substantial amounts of capital.
While the development of voice, video and data delivery technologies holds
the promise of substantial new services and revenues for the industry, the near-
term outlook based on established programming services continues to be positive.
Operators expect to continue to increase operating income by continuing to
attract more subscribers, exploit current and additional opportunities for
ancillary revenues, and improve operating efficiencies.
10
<PAGE>
4. Competition
During the next several years, the cable industry may face additional
competition which could emerge in the form of system overbuilds, the
introduction of new technologies, and entry into the video distribution business
by telephone companies.
The long-term viability of overbuilds in most cable markets is questionable
at best. An overbuilder splits up the subscriber base, incurring higher costs
per subscriber and lower margins overall. Many attempted overbuilders have been
bought out by the incumbent or have simply gone out of business. The likelihood
of a successful overbuild in all but a few markets is very small.
Cable television has begun to face increasing competition from new
distribution technologies including direct-broadcast satellite (DBS), satellite
master antenna television (SMATV), and multichannel multipoint distribution
service (MMDS). The ultimate success or failure of any of these television
delivery systems will depend largely on a combination of the three
interconnected factors of technology, regulation, and economics. Strategis
Financial Consulting anticipates that the threat to cable television by these
technologies in the next few years will not be material, although various
technologies are proving adept at providing services in certain niche markets.
MMDS and SMATV typically have little or no effect on mature cable systems,
except in large urban areas where a high percentage of homes passed are in
multiple dwelling units (MDUs). DBS presents a greater competitive threat. The
DBS industry, which is still very young, has thus far focused on building its
customer base in areas not wired for cable television. As of 1994, leaders in
the DBS industry predicted that between 10% and 20% of television households
nationwide would use their service within ten years. However, DBS is hampered by
the fact that it does not carry off-air broadcast signals.
Telephone companies have long shown an interest in expanding into video
distribution. For the most part, this competition has not materialized as a
result of existing regulatory restraints and technical limitations. By the end
of 1993, there was widespread recognition that technological developments would
force dramatic changes
11
<PAGE>
in such regulation, as the telecommunications industry entered a consolidation
period characterized by mergers, joint ventures, and acquisitions.
Fiber optics are increasingly being utilized as telephone and cable
companies begin experimenting with 'full service' networks with the capability
of delivering voice, video and data services to the home. Several of the largest
MSOs, in conjunction with telephone companies, have built these experimental
systems to determine their feasibility from both technological and marketing
perspectives.
As of the mid- to late-1990s, the telephone industry is in the experimental
stage with regard to using fiber optic cable to deliver services to the home.
Cable companies, for their part, are focusing on the delivery of digital program
and data services via hybrid fiber and coaxial cable networks. For
technological, financial, and regulatory reasons, the full convergence of
telecommunications services and service providers is most likely years away.
12
<PAGE>
IV. SYSTEM DESCRIPTION
A. History and Market
At the time of the appraisal, the System served 18,297 subscribers.
Approximately 84% of subscribers resided in Calvert County, while the remainder
resided in surrounding Anne Arundel, St. Mary's and Charles counties. The
provision of cable service was governed by three franchise agreements, one each
with Calvert, Anne Arundel and St. Mary's counties. Charles County does not
issue cable franchises; cable operators are only required to hold standard
business licenses to provide cable service. As of February 28, 1998, the
weighted average remaining life of the three franchise agreements was 1.6 years.
Calvert county is located on a peninsula in southern Maryland bounded to
the west by the Patuxent River and to the east by the Chesapeake Bay.
Approximately 45 miles southeast of Washington D.C., the northern portion of the
county has gained appeal as a bedroom community of Washington D.C., and is
characterized by larger, more expensive homes. The county is served by Maryland
Routes 2 and 4, which run parallel throughout the length of the county,
providing easy access to major thoroughfares and the Washington Metropolitan
Area. In 1995, about 56% of the county's workforce commuted outside the county
to work, according to the Maryland Department of Labor.
As of the appraisal date, Calvert County had evolved from an agricultural
and seafood economy to one more oriented to the service and trade industries.
The labor force was largely composed of white collar workers, including
technical, managerial and clerical workers. As of 1995, the major private
employers in Calvert County were: Baltimore Gas and Electric's nuclear power
plant, with 1,555 employees; Calvert Memorial Hospital, with 700 employees;
Calvert Nursing Center, with 168 employees; and Direct Mail Management (printing
and mailing), DynCorp (technological services), and Chesapeake Biological Lab
(research), with 150 employees each.
13
<PAGE>
The unemployment rates in Calvert, Anne Arundel and St. Mary's counties
were 4.4%, 4.0% and 4.1%, respectively, in February 1998. These rates were
lower than the statewide unemployment rate of 5.2% and national unemployment
rate of 5.0% during this period, according to the U.S. Bureau of Labor
Statistics.
Growth in the northern section of Calvert County was characterized by
upscale residential development and moderate growth in the retail, services and
industrial sectors. The central part of the county was influenced by government
and the development of the area into a retail hub. Growth in the southern
portion was generated primarily by tourism and recreation because of the area's
proximity to the Patuxent River and the Chesapeake Bay. Southern Calvert County
was also influenced by the activities of the U.S. Navy's Patuxent River Naval
Air Warfare Center in neighboring St. Mary's County.
At the time of the appraisal, the system faced emerging competition from
Direct Broadcast Satellite (DBS) providers, with DirecTV, Primestar, and
EchoStar all active in the market. According to System management, total DBS
penetration stood at 1.6% of homes in the service area, and was increasing. DBS
penetration was highest in areas of new home development. According to System
management, the System had increased its efforts to participate in joint-
trenching projects in development areas, in order to prevent any time between
when new homes are built and before cable is available to those homes, when
homeowners would be most likely to purchase DBS systems. At the time of the
appraisal, there were no Multichannel Multipoint Distribution Service (MMDS, or
wireless cable) systems operating in the area.
Table I presents demographic data published in Marketing Statistics'
Demographics USA 1997 for the Maryland counties of Calvert, Anne Arundel, and
St. Mary's. Data for population, households, and Effective Buying Income (EBI)
were estimated for 1996 and projected for 2001. Also presented, for comparison
purposes, are data for the state of Maryland and the nation as a whole.
14
<PAGE>
Calvert County, which had the vast majority of System subscribers, had a
population of approximately 67,900 in 1997 in approximately 22,500 households.
At the time of the appraisal, its population and households were forecast to
grow at annual rates of 3.02% and 3.25%, respectively, through 2002, which were
well above the anticipated statewide growth in population and households of
0.75% and 0.99%. More modest population growth rates were projected for Anne
Arundel and St. Mary's counties. Anne Arundel County, with a population of
467,400 in 1997, was forecast to grow by 1.17% annually through 2002 to 495,300.
St. Mary's County's 1997 population of 81,800 was forecast to increase by 0.75%
per year to 84,900 over the same period. Population in the U.S. as a whole was
forecast to grow by 0.84%.
Average household EBI in Calvert County was $47,749 in 1997. While this
figure was slightly lower than the statewide average household EBI for Maryland
of $47,833, it was significantly higher than the national figure of $42,191.
Growth in household EBI was forecast at 2.57% annually in Calvert County, and at
2.69% and 2.97% throughout Maryland and the U.S. as a whole, respectively. Anne
Arundel County's household EBI was higher than that of Calvert County, at
$50,489, and was projected to also grow at 2.57% annually through 2002.
Household EBI in St.Mary's County was more modest, at $45,105, also with a
projected growth rate of 2.57%. This information is presented in Table I.
15
<PAGE>
TABLE I
Annual
1996 2001 Growth Rate
Estimate Projection 1996-2001
-------- ---------- -----------
Calvert County, MD
- ------------------
Total Population 67,900 78,800 3.02%
Total Households 22,500 26,400 3.25%
Median Age 34.5 N/A
Effective Buying Income (EBI)
TOTAL EBI (000's) $ 1,074,355 $ 1,430,911 5.90%
Average Household EBI $ 47,749 $ 54,201 2.57%
Anne Arundel County, MD
- -----------------------
Total Population 467,400 495,300 1.17%
Total Households 163,900 176,400 1.48%
Median Age 34.8 N/A
Effective Buying Income (EBI)
Total EBI (000's) $ 8,275,097 $ 10,109,648 4.09%
Average Household EBI $ 50,489 $ 57,311 2.57%
St. Mary's County, MD
- ---------------------
Total Population 81,800 84,900 0.75%
Total Households 27,200 28,500 0.94%
Median Age 30.7 N/A
Effective Buying Income (EBI)
Total EBI (000's) $ 1,226,856 $ 1,459,194 3.53%
Average Household EBI $ 45,105 $ 51,200 2.57%
State of Maryland
- -----------------
Total Population 5,088,300 5,281,600 0.75%
Total Households 1,863,700 1,958,100 0.99%
Median Age 35.0 N/A
Effective Buying Income (EBI)
Total EBI (000's) $ 89,147,245 $ 106,931,915 3.71%
Average Household EBI $ 47,833 $ 54,610 2.69%
United States of America
- ------------------------
Total Population 267,540,600 279,027,700 0.84%
Total Households 98,635,500 103,870,800 1.04%
Median Age 34.9 N/A
Effective Buying Income (EBI)
Total EBI (000's) $4,161,512,384 $5,072,856,995 4.04%
Average Household EBI $ 42,191 $ 49,838 2.97%
16
<PAGE>
B. Services
Tables II presents programming services offered to System subscribers as of
the appraisal date. Limited basic service was comprised of 19 channels, 13 of
which were local off-air broadcast signals, two of which carried local access
programming, three of which were satellite delivered services, and one of which
was a microwave delivered service. Expanded basic service encompassed 22
satellite delivered services carried on channels 26-41, 43-45, 57, 61 and 99.
Premium services available included Cinemax, HBO, The Movie Channel, Showtime,
and The Disney Channel. Also offered were two general audience movie/event pay-
per-view (PPV) services as well as Playboy TV from 10 PM to 6 AM on channel 29.
TABLE II
Calvert County System
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Cable
(Off-Air) Name or
Channels Call Letters Source Description
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
2 (2) WMAR-TV Baltimore, MD ABC
- ----------------------------------------------------------------------------------------
3 C-SPAN Satellite US House Coverage
- ----------------------------------------------------------------------------------------
4 (4) WRC-TV Washington, DC NBC
- ----------------------------------------------------------------------------------------
5 (5) WTTG Washington, DC Fox
- ----------------------------------------------------------------------------------------
6 Public Access Local Local Programming
- ----------------------------------------------------------------------------------------
7 (7) WJLA-TV Washington, DC ABC
- ----------------------------------------------------------------------------------------
8 Newschannel 8 Microwave Regional News Coverage
- ----------------------------------------------------------------------------------------
9 (9) WUSA Washington, DC CBS
- ----------------------------------------------------------------------------------------
10 Gov't/Educational Access Local Local Programming
- ----------------------------------------------------------------------------------------
11 (11) WBAL-TV Baltimore, MD NBC
- ----------------------------------------------------------------------------------------
12 Knowledge TV Satellite Educational
- ----------------------------------------------------------------------------------------
13 (13) WJZ-TV Baltimore, MD CBS
- ----------------------------------------------------------------------------------------
14 (14) WTMW Arlington, VA Home Shopping Network
- ----------------------------------------------------------------------------------------
15 Showtime Satellite Pay Movies, Specials
- ----------------------------------------------------------------------------------------
16 (50) WBDC-TV Washington, DC Independent/WBN
- ----------------------------------------------------------------------------------------
17 WTBS Satellite Independent - Atlanta, GA
- ----------------------------------------------------------------------------------------
18 (26) WETA-TV Washington, DC PBS
- ----------------------------------------------------------------------------------------
19 (32) WHMM Washington, DC PBS
- ----------------------------------------------------------------------------------------
20 (20) WDCA Washington, DC Independent/UPN
- ----------------------------------------------------------------------------------------
21 The Movie Channel Satellite Pay Movies
- ----------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
TABLE II (Continued)
Calvert County System
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Cable
(Off-Air) Name or
Channels Call Letters Source Description
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------
22 (22) WMPT Annapolis, MD PBS
- -----------------------------------------------------------------------------------------
23 The Disney Channel Satellite Pay Movies, Family Shows
- -----------------------------------------------------------------------------------------
24 HBO Satellite Pay Movies, Specials
- -----------------------------------------------------------------------------------------
25 CINEMAX Satellite Pay Movies
- -----------------------------------------------------------------------------------------
26 The Family Channel Satellite Family Programming
- -----------------------------------------------------------------------------------------
27 The Discovery Channel Satellite Nature, Science, Technology
- -----------------------------------------------------------------------------------------
28 USA Network Satellite Entertainment, Movies, Sports
- -----------------------------------------------------------------------------------------
29 VH-l/ Satellite/ Music Videos, Variety/
The Playboy Channel Satellite Pay Adult Programming
- -----------------------------------------------------------------------------------------
30 Home Team Sports/ Satellite/ Regional Sports Coverage/
Great American Country Satellite Country Music Videos
- -----------------------------------------------------------------------------------------
31 ESPN Satellite 24-Hour Sports
- -----------------------------------------------------------------------------------------
32 TNT Satellite Movies, Sports, Variety
- -----------------------------------------------------------------------------------------
33 American Movie Classics Satellite Classic Movies
- -----------------------------------------------------------------------------------------
34 Lifetime Satellite Women's Interest, Variety
- -----------------------------------------------------------------------------------------
35 A&E Satellite Biographies, Movies, Specials
- -----------------------------------------------------------------------------------------
36 Nickelodeon Satellite Children's Programming
- -----------------------------------------------------------------------------------------
37 CNN Satellite 24-Hour News
- -----------------------------------------------------------------------------------------
38 Headline News Satellite 24-Hour News
- -----------------------------------------------------------------------------------------
39 BET Satellite Black Entertainment
- -----------------------------------------------------------------------------------------
40 TNN Satellite Country Music Videos
- -----------------------------------------------------------------------------------------
41 MTV Satellite Music Videos, Variety
- -----------------------------------------------------------------------------------------
42 Jones Home Theater Satellite Pay-Per-View
- -----------------------------------------------------------------------------------------
43 ESPN2 Satellite 24-Hour Sports
- -----------------------------------------------------------------------------------------
44 The History Channel Satellite Documentaries, Movies
- -----------------------------------------------------------------------------------------
45 Product Information Network Satellite Infomercials
- -----------------------------------------------------------------------------------------
57 Sneak Prevue Satellite Movie Previews
- -----------------------------------------------------------------------------------------
60 Jones Home Theater Satellite Pay-Per-View
- -----------------------------------------------------------------------------------------
61 * The Weather Channel Satellite 24-Hour Weather
- -----------------------------------------------------------------------------------------
99** The Weather Channel Satellite 24-Hour Weather
- -----------------------------------------------------------------------------------------
</TABLE>
*With converter box
** With cable ready TV
18
<PAGE>
C. RATES
The average monthly programming rates, equipment rental rates, and
installation charges to subscribers for the preceding services as of the date of
the appraisal, are outlined in Table III. Comparison data for basic service, pay
services, and monthly revenue per subscriber were taken from The Strategis Group
publication Cable Trends: 1997, which presents year end 1996 operating and
financial data, respectively.
As shown in Table III, subscribers paid $16.30 per month for limited basic
service and $29.75 for expanded basic service. This rate was higher than the
average combined basic and expanded basic rate for the nation, which was $25.84
as of 1996.
A la carte pay service rates in the System ranged from $10.00 for HBO,
Showtime, Cinemax, The Disney Channel and The Movie Channel to $12.00 for The
Playboy Channel. The System also offered pay packages at reduced rates. On a
nationwide basis, the average rate per pay unit was $7.77 in 1996, which was
higher than the average monthly revenue per pay unit of $6.68 generated by the
System. The charge for pay-per-view general audience movies was $3.95 and for
Adult movies the charge was $5.95.
Both addressable and non-addressable converter rentals were $1.29 per
month. The installation charge for new subscribers was $40.00 for underground
installations and $25.00 for aerial installations, the charge was also $25.00
for reconnection of service.
Average revenue per subscriber per month on a nationwide basis was $35.46
as of the end of 1996, according to The Strategis Group research. This figure
includes revenues from basic, pay, and PPV services, as well as local
advertising, equipment rental, and miscellaneous income. During the twelve
months prior to February 28, 1998, the System generated monthly average revenue
of $42.51 per subscriber, which was well above the nationwide average of $35.46
per subscriber for 1996.
19
<PAGE>
TABLE III
---------------------
United
System States/1/
---------------------
Basic Service $16.30 N/A
Expanded Basic 13.45 N/A
Combined Basic and Expanded Basic $29.75 $25.84
---------------------
Pay Services (a la carte) N/A
HBO $10.00
Showtime 10.00
Cinemax 10.00
The Disney Channel 10.00
The Movie Channel 10.00
Playboy 12.00
Monthly Revenue Per Pay Unit $ 6.68 $ 7.77
---------------------
Pay Per View Movies
General Audience $ 3.95
Adult $ 5.95 N/A
---------------------
Converters $ 1.29 N/A
---------------------
Installation Charges: N/A
Underground $40.00
Aerial 25.00
Reconnect 25.00
Monthly Revenue Per Subscriber $42.51 $35.46
---------------------
/1/Source: The Strategis Group's Cable Trends: 1997
D. SUBSCRIBERS
Table IV presents the number of homes passed, basic subscribers, expanded
basic subscribers, pay units, converter rentals, and addressable homes for the
System as of February 28, 1998. These figures are compared with similar figures
for the United States as a whole, taken from The Strategis Group's Cable Trends:
1997.
20
<PAGE>
At the time of the appraisal, the System's basic penetration rate, at 67.1%
of homes passed, was higher than the corresponding rate for the nation of 65.8%.
Pay penetration for the System stood at 92.8%, which was well above the national
rate of 76.4%. Addressable home penetration for the System, at 71.7%, was also
considerably higher than the national average of 48.1%.
TABLE IV
System United States/1/
-----------------------------------
Homes Passed 27,261 95,500,000
Basic Subscribers 18,297 62,800,000
% of Homes Passed 67.1% 65.8%
Expanded Basic Subscribers 17,113 N/A
% of Basic Subscribers 93.5% N/A
Total Pay Units 16,984 48,000,000
% of Basic Subscribers 92.8% 76.4%
Converters 24,388 N/A
% of Basic Subscribers 133.3% N/A
Addressable Homes 13,125 30,200,000
% of Basic Subscribers 71.7% 48.1%
-----------------------------------
/1/ Source: The Strategis Group's Cable Trends: 1997
E. SYSTEM MILEAGE
According to System management, mileage figures for the System are based on
estimates from System maps. Since a complete walk-out of the current System
would be prohibitively expensive, Strategis Financial Consulting used the
following approach to corroborate the plant mileage:
21
<PAGE>
1. Interviewed knowledgeable System personnel to ascertain the source and
reliability of the mileage estimates.
2. Noted the configuration of the System on area maps and the existence
and condition of plant in a representative portion of the area served
by the System.
3. Related average density of the System to general observations of
densities while inspecting the System and service area.
Table V presents management's best estimate of the number of route miles of
plant as represented by total strand and trench in the System as of the
appraisal date. Coaxial mileage was approximately 55.6% aerial and 44.4%
underground. Approximately 6.0% of total plant miles were fiber optic cable.
Based upon the above procedures and cost limitations, these estimates appear to
be reasonable.
TABLE V
Aerial Underground Total
------ ----------- -----
Coaxial Miles 409.0 367.0 776.0
Fiber Optic Miles 49.6 0 49.6
F. PHYSICAL PLANT
As of the valuation date, the System maintained its sales office, customer
service walk-in and call centers, technical operations, and a local access
production studio at 101 Skipjack Road, Prince Frederick, Maryland. Other
management and administrative personnel responsible for the System were based in
Crofton, Maryland. Senior technical management was based in Annapolis, Maryland.
The System operated with a single headend, located approximately one mile south
of Prince Frederick near Route 4/Old Solomon's Highway. Overall, the System
passed approximately 27,261 homes with an estimated 826 miles of plant, for an
overall density of 33 homes per mile.
22
<PAGE>
The System's franchise with Calvert County covered the entire county with
the exception of Chesapeake Beach, which had a separate franchise. The System
also served about 950 subscribers in Anne Arundel County, 1,300 subscribers in
St. Mary's County and 640 subscribers in Charles County.
At the headend, equipment from a variety of manufacturers was in use. Among
these items were Standard TVM 450 Modulators and IRD II Videociphers, General
Instruments (GI) DST 1500 Digiciphers and Videocipher II descramblers, and other
GI processors. Other items in use included Scientific Atlanta (S/A) 6350
modulators, Leaming MTS-2B BTSC stereo generators and DX DIR647 satellite
receivers. For local advertising on 16 channels, a SkyConnect digital ad
insertion system was used.
Seven off-air and two microwave antennas were mounted on a 210-foot guyed
tower. Five 4.5-meter S/A dishes were used for program reception, and emergency
power was provided by an Onan 30 GenSet propane generator.
As of the appraisal date, the System's distribution plant capacity was 350
MHz, and programming was available on 47 channels. The System had one microwave
distribution hub, located at Golden Beach in St. Mary's County, serving the
subscribers residing across the Patuxent River in St. Mary's County. The
distance between the headend and the microwave hub was about twelve and a half
miles. There were no plans to remove the hub as of the appraisal date. Fiber
optic trunk had been fully deployed throughout the System, reducing the longest
amplifier cascade in the System to 12 as of January 1998. Overall, the System's
plant generally appeared to be in fair condition.
Addressable homes totaled 13,125 in the System, and there were a total of
24,388 converters in the field. Converters provided to subscribers included
Jerrold DL4 and DPV7 addressable models, and a small number of S/A non-
addressable models.
23
<PAGE>
G. Franchises
As of February 28, 1998, the System operated under a total of three
franchise agreements with different local government authorities. Table VI
identifies each agreement and its expiration date. As of the appraisal date, the
weighted average remaining life of the franchise agreements was 1.6 years.
TABLE VI
Franchise Expiration
--------- ----------
Anne Arundel County July 21, 2000
Calvert County June 30, 1999
St. Mary's County March 2, 2002
Weighted Average Remaining Life in Years: 1.6
H. Management
At the time of the appraisal, the System operated with approximately 35
employees allocated to the System. The System manager and other management
personnel were responsible for multiple cable systems within Jones' Chesapeake
Bay group of systems, which included the Calvert County, Annapolis, Anne
Arundel, and Charles County cable systems. Their time was therefore allocated
based on their involvement with these systems. The largest group of employees at
the Calvert County System was in the technical department. Among the 15
employees in this group, 10 were installers/technicians, 3 were
manager/supervisors, and 2 provided technical support. The second largest group
comprised the customer service department with 8 employees. The direct sales and
marketing, local origination, and construction group each had two people, and
all other employees allocated to the System provided administrative supervision
or support.
24
<PAGE>
Strategis Financial Consulting's representatives met and spoke extensively
with the System's General Manager, Chief Operating Officer and Engineering
Manager to discuss the System's characteristics, including strengths and
weaknesses.
I. Financial History
Unaudited financial statements for the year ending December 31, 1997,
showed that the System earned revenues of $8,985,141. Operating expenses totaled
$4,619,745, which resulted in operating income of $4,365,396 and an operating
profit margin of 48.6%. Statements for the first two months of 1998 indicated
that operating profits of $732,902 were generated on revenues of $1,540,050 for
an operating margin of 47.6%. On an annualized basis, 1997 revenues would total
$9,240,300 and operating profits would be $4,397,412.
25
<PAGE>
V. Total System Value
Strategis Financial Consulting has estimated the fair market value for the
System as a business enterprise to be $44,602,000, as of February 28, 1998. Fair
market value is the cash price a willing buyer would give a willing seller in an
arm's length transaction in order to complete the sale. It is assumed that both
buyer and seller have been informed of all relevant facts and neither is under
any compulsion to conclude the transaction and that the tangible assets will
remain in their present location and will continue to be employed in their
highest and best use, i.e., the delivery of cable television signals to
subscribers.
A. Valuation Procedure and Methods
Strategis Financial Consulting used the following basic methodology to
determine the overall fair market value of the System:
1. Performed an onsite review to observe a representative portion of the
market and homes passed, reviewed the number of subscribers, and
determined the quality and attractiveness of the services provided.
2. Made inquiries of management to ascertain and/or verify items relevant
to the appraisal.
3. Estimated the availability of additional homes passed and the
probability of future growth.
4. Reviewed selected financial records and other documents to verify
certain financial data.
5. Estimated the expected changes in operations that a buyer most likely
would institute.
6. Applied generally accepted methods of estimating the fair market value
of the entity as a whole.
26
<PAGE>
A business valuation typically is performed using one or more of three
approaches: the cost approach, the market approach, and the income approach.
Since the System will be relying to a large degree on intangible assets to
generate income, the cost approach is not appropriate in this case. The market,
or comparable sales, approach has not been used because of the difficulty in
choosing sales that reflect the same profitability, size, and growth as the
System. Therefore, this valuation has been based on the income approach to
valuation. The income approach is the best approach to valuing the System
because it reflects the future earnings potential of the System.
There are various established methods of determining a business entity's
total fair market value using the income approach. The most commonly accepted
methods are as follows:
1. Capitalization of projected net cash flow.
2. Capitalization of single-year operating profit.
3. Dividend capitalization.
4. Market price-to-book equity.
5. Price-earnings multiple.
Of the methods listed above, Strategis Financial Consulting normally relies
primarily upon the capitalization of projected net cash flow, or "discounted
cash flow" approach, to estimate total value. Strategis Financial Consulting
generally favors discounted cash flow methodology because it considers the
broadest range of factors that will affect both the present and future income,
and therefore value, of a cable television system. Accordingly, Strategis
Financial Consulting usually gives greater consideration to the discounted cash
flow methods in its final judgment concerning the fair market value of a cable
television system.
Strategis Financial Consulting has prepared two discounted cash flow
valuations for the System, one which analyzes the projected return on equity and
one which analyzes the projected return on investment. Strategis Financial
Consulting also has
27
<PAGE>
considered the second general methodology listed above, i.e., capitalization of
operating profit, in conducting its valuation of the System. The methodologies
are described in Parts V-B and V-C of this report. The values for the overall
fair market value of the System are presented in Exhibit A.
The remaining methods listed above, although widely used in other
industries, generally are inappropriate for valuing cable television systems.
Dividend capitalization, based upon actual dividends or capacity, usually is
irrelevant since few publicly-traded cable companies pay dividends and earnings
(which should be reflective of a dividend capacity) are not reflective of the
capacity to generate operating income. A comparison of market price-to-book
equity also is not valid usually since book equity varies widely from one
company to another as to how much intangible and tangible value is reflected on
the books. Finally, an analysis of price-earnings multiples generally is not
appropriate because they also vary widely within the industry and are not
representative of the financial position of most cable systems.
B. Discounted Cash Flow Methodology
Strategis Financial Consulting has generated two discounted cash flow
models to arrive at a total System value. The return-on-equity model is based
upon a hypothetical purchase price that would achieve a target after-tax return
on equity based on the present value of the projected net cash flows. The
return-on-investment model measures the net present value of the projected pre-
tax operating cash flows, less capital expenditures, plus the residual value of
the System, that represent the return on total investment.
Both the return-on-equity and return-on-investment methods are dependent
upon projections of the System's future net cash flow and residual value and on
selection of an appropriate discount rate. Strategis Financial Consulting's
calculations are based on detailed projections of a variety of factors which
will affect future cash flow including housing growth, plant mileage, basic and
pay subscriber growth, subscriber rates, operating expenditures, and capital
expenditures. The projections and assumptions used
28
<PAGE>
in Strategis Financial Consulting's discounted cash flow models are set forth in
Exhibits E, F, G, and H. Exhibit E provides details of Strategis Financial
Consulting's projections for plant mileage, housing, and subscriber growth.
Exhibit F shows the rates subscribers were charged at the time of the appraisal
for various services and Strategis Financial Consulting's projections for future
growth. Exhibit G lists revenues and operating expenses for all years throughout
the projection period, and Exhibit H details capital expenditures anticipated
for the System. In addition, Exhibit J includes miscellaneous assumptions such
as the average remaining life of the franchises under which the System
operates, tax rates, the net fair market value of beginning tangible assets, the
breakdown between debt and equity and the interest rate anticipated on the debt,
and the multiples and discount rates used in the various appraisal methods.
Strategis Financial Consulting's determination and use of these factors is
discussed further below.
1. Net Cash Flow/Return on Equity
This method involves the use of multiple year projected operations for the
System and a predetermined target after-tax return on equity for a hypothetical
outside buyer. The seven-year projection period is based on the average
remaining franchise life of the System. A complete discussion of the selection
of the projection period is provided in Part V-B-3 of this report.
Based on the use of typical debt-to-equity ratios and debt services,
Strategis Financial Consulting has made certain assumptions concerning the
capital structure that a "typical, prudent outside buyer" might experience as
well as the probable interest rates that would be applicable in connection with
any debt financing that might be incurred, as shown in Exhibit J. To calculate
future cash flows, Strategis Financial Consulting has projected future
subscribers, revenues, operating expenses, and capital expenditures. Strategis
Financial Consulting has then tested various hypothetical purchase prices, i.e.,
potential fair market values, to determine a value that yields the desired
return on equity, as shown in Exhibits C-1 and C-2.
29
<PAGE>
Using the return-on-equity model, Strategis Financial Consulting has
generated low and high cash flow projections for the System shown in Exhibits B-
1 and B-2. The difference between the two projections reflects the range of
potential returns on equity that a buyer could reasonably expect to realize
depending upon the initial purchase price paid for the System.
2. Net Cash Flow/Return On Investment
This discounted cash flow method, similar to the preceding method, is used
to measure the net present value of the pre-tax operating cash flow, less
capital expenditures, plus the residual value of the System, that represent the
return on the total investment rather than that which could result from an
assumed purchase with a predetermined debt-to-equity ratio. To calculate future
cash flows, Strategis Financial Consulting has used the same projections for
future subscribers, revenues, operating expenses, and capital expenditures as in
the return-on-equity method. The projected cash flows for the System, plus the
last-year residual value of the System, less capital expenditures, are then
discounted to their present value using an acceptable discount factor based on
the weighted average cost of money, as shown in Exhibit J. Strategis Financial
Consulting has used the return on investment model, like the return on equity
model, to generate low and high values for the System. These values, shown in
Exhibit D, represent the present value of the future pre-tax operating cash
flows and reflect more conservative and more optimistic assumptions,
respectively, as to the likely return on investment that the System will
generate over time.
3. Cash Flow Projections
There are many factors that affect the projections of a specific cable
system's cash flow. With respect to the System, Strategis Financial Consulting
has analyzed the franchise area, the costs incurred to meet franchise
obligations, the length of the franchise period, the degree of competition, and
the historic results of the System's operations. Strategis Financial Consulting
also has examined factors that affect the
30
<PAGE>
industry, such as possibility of regulation, competitive threats, rapid
technical changes, and the development of additional programming services. These
factors have been incorporated into Strategis Financial Consulting's projections
of the System's future cash flows.
The most critical factors in the expected cash flow of a specific cable
system are the opportunities for growth in the territory in which it operates,
i.e., its franchise area and the duration of the franchise. In making its cash
flow projections, Strategis Financial Consulting has carefully reviewed the
demographics of counties represented in the service area. Demographic
information was gathered from direct observation during Strategis Financial
Consulting's onsite visit, discussion with System management, Marketing
Statistics' Demographics USA 1997, U.S. Census Bureau data, and information
obtained from the local Department of Economic Development.
Strategis Financial Consulting also has reviewed information pertaining to
the System's franchises in order to calculate their remaining life and made
inquiries of System management personnel to ascertain any relevant terms that
may affect the value of the System. Strategis Financial Consulting has
calculated a weighted average remaining life of 1.6 years for the franchises.
The projection period used for the cash flows normally is the weighted
average remaining life of the franchises, except when the weighted life of the
franchises falls below seven or exceeds ten years. When the franchise life falls
below seven years, Strategis Financial Consulting uses a seven-year projection
period, amortizing the franchises over fifteen years as mandated by the Internal
Revenue Service (IRS). When the franchise life exceeds ten years, a ten-year
projection period is used, with the franchises amortized over fifteen years.
Strategis Financial Consulting believes that the cash flows realized from a
projection period less than seven years generally are not reflective of the
value of a system than an investor would consider when utilizing discounted cash
flow methodology. Strategis Financial Consulting also believes that the
31
<PAGE>
operating income resulting from income and expense projections beyond ten years
is increasingly uncertain and might produce less accurate values for the System.
Strategis Financial Consulting's cash flow projections are also based in
part on historical operating data such as subscriber rates, the ratio of
subscribers to homes passed, and the age and condition of the System's
distribution plant. Strategis Financial Consulting also has relied on
information provided by System management personnel, discussions with System
personnel, and Strategis Financial Consulting's familiarity with typical
industry expenses and operating trends to project the future financial
performance of the System. As shown in Exhibits E through H, Strategis Financial
Consulting has projected increases in the number of basic and pay subscribers,
projected changes in service rates, and estimated expenditures for future
installation of cable plant and other future capital requirements.
4. Residual Value
Under both the return-on-equity and the return-on-investment approaches,
Strategis Financial Consulting has calculated a residual value for the System
following the seven-year projection period. The residual represents the
anticipated value of the System at the end of the projection period. This value
is added to the System's cash flow stream in the final year of the projection
period and then discounted back to present value.
The residual is calculated as a multiple of the projected annual net cash
flow in the final year of the discounted cash flow analysis. The multiple used
reflects the degree of likelihood that the System will have significant future
income, and therefore value, at the end of the projection period. If the
franchise is likely to be renewed on the same terms as the current franchise,
and if there is a realistic expectation of continued growth in income, a higher
multiple will be applied. On the other hand, if the franchise is not likely to
be renewed, or is renewed on terms and conditions significantly different from
32
<PAGE>
the current franchise, or if competitive or technological factors jeopardize the
operator's future income, a lower multiple is appropriate.
Based on its experience and familiarity with the cable industry, and its
analysis of the System, Strategis Financial Consulting has calculated the
System's residual value using seventh-year cash flow times a multiple of 9.0, as
shown in Exhibit J. This multiple reflects Strategis Financial Consulting's view
that the System is likely to have significant value in seven years, but that
certain unknowns and uncertainties must be factored into the multiple
nonetheless. Currently, the Cable Act of 1984 puts operators in a favorable
position in that cable franchises are generally likely to be renewed. However,
the 1984 Act provides no guarantee of renewal, and it is expected that the
negotiation process required to obtain a renewal will result in new franchises
that will be on terms significantly different and probably less favorable than
current franchises. In addition, concerns about how re-regulation of the cable
industry will affect the Act's renewal provisions could have the effect of
reducing or eliminating the operator's expectation of renewal.
5. Discount Rates
A critical component of both the return-on-equity and the return-on-
investment approaches is the selection of the rate at which future cash flows
are discounted to their present value. The discount rate represents the
investor's expected return on capital, i.e., the rate of return that reasonably
reflects the risk being undertaken by the investor.
Considering the relative risk associated with the cable industry in
comparison to other industries, and the risk associated with the System in
particular, Strategis Financial Consulting has adopted a range of discount rates
for its discounted cash flow methods. In the after-tax return-on-equity model,
Strategis Financial Consulting has applied a discount rate of 14.0% for its low
valuation, and a rate of 12.0% for its high valuation. In the pre-tax return-on-
investment model, the low valuation discount rate is 16.6%,
33
<PAGE>
while the high valuation rate is 15.1%. The discount rates used in the two
discounted cash flow methods are indicated on Exhibit A and summarized in
Exhibit J.
Strategis Financial Consulting has calculated the discount rate for the
return-on-equity model by first establishing a risk-free rate of return (the
current rate of return available on Treasury bills or Treasury bonds as of the
valuation date) and then adding the historical premium for risk that the market
has actually provided the holders of representative cable television stocks.
This assumes that using such historical data will provide a reasonable guide to
future return expectations after recognition for risk.
The discount rate incorporates systematic risk, which is the sensitivity of
the return on the subject investment to changes in the return for the market as
a whole. Strategis Financial Consulting also has considered in our selection of
the discount rates unsystematic risk, which is any risk premium directly
associated with the industry, particular company, or the subject system. Thus,
internal risk factors, such as the possibility of competition, municipal and
customer relations, rate structure, franchise stability, etc., have been
examined in our selection of the discount rates.
The discount rate used in the return-on-investment model is determined by
the "band of investment" method. The rate is based on an average of the rate
applicable to equity and the cost of debt weighted in the proportions that are
utilized for the particular system.
C. Direct Income Methodology
An alternative valuation method to the discounted cash flow method is the
direct income method, in which the estimate of the cable system's value is based
on current net operating income times a multiple selected by the appraiser.
Strategis Financial Consulting has applied several alternative versions of this
method to the System. In the first model, Strategis Financial Consulting used
the System's actual annual net operating income for the 12-month period
preceding the valuation date, whenever the appropriate data was available. When
data was insufficient to ascertain the actual net operating
34
<PAGE>
income for the past full year, Strategis Financial Consulting estimated the past
year's annual net operating income based on available financial information for
the past several months. In the second, the System's current cash flow as of the
appraisal date was annualized to create a "running rate" net operating income
projection. In the third model, Strategis Financial Consulting used the System's
projected net operating income for the twelve months following the appraisal
date. The results of these models are set forth in Exhibit A.
The multiples applied to each of these income figures are derived from a
variety of cable industry data. First, Strategis Financial Consulting has looked
at the income and stock value of several publicly traded cable companies as of
the appraisal date. From this analysis, Strategis Financial Consulting has
derived a range of multiples that it believes are applicable to privately held
cable systems, which includes adjustments for control and marketability. Taking
into account multiples derived from the sale of other cable television systems,
Strategis Financial Consulting has arrived at a composite figure for each model.
In the historical income model, Strategis Financial Consulting has applied a low
multiple of 10 and a high multiple of 11. The running rate and projected income
models use slightly lower multiples to account for the additional risk and
uncertainty of using projections rather than historical data. The multiples used
in each of the three direct income approaches are indicated in Exhibit A and
summarized again in Exhibit J.
D. Value Conclusions
The valuations yielded by each of the methods described above are shown in
Exhibit A. In arriving at a final System valuation, Strategis Financial
Consulting considered both discounted cash flow methods, i.e., the return-on-
equity and return-on-investment methods, and the direct income methods. Based
upon the foregoing analysis and a consideration of the various methods,
Strategis Financial Consulting concludes
35
<PAGE>
that the fair market value of the System as a business enterprise as of February
28, 1998, was $44,602,000.
36
<PAGE>
VI. Contingencies and Limiting Conditions
Our conclusions as to the value of the System are based upon the following,
which to the best of our knowledge and belief are reliable and sound:
1. Information and data obtained during an onsite inspection by
representatives of Strategis Financial Consulting of a representative
portion of the System and communities served.
2. Personal and telephone interviews with the System's employees.
3. Selected documents including:
a. Various operating data and maps.
b. Miscellaneous internal data and documents.
The following limiting conditions apply to the subject appraisal:
1. Strategis Financial Consulting is under no obligation to update the
appraisal to account for events or additional data subsequent to the
appraisal date. The appraisal is based on laws and regulations in
place as of February 28, 1998, and does not reflect subsequent
changes, if any, in the relevant laws and regulations.
2. Neither this report nor any portions thereof may be used for any
purpose other than as stated herein nor may it be reproduced or
excerpted without the prior written consent of Strategis Financial
Consulting.
3. No copies of this report will be furnished to entities other than the
client without the clienfs specific permission or direction unless
ordered by a court of competent jurisdiction.
4. The comments and judgments of Strategis Financial Consulting as to the
physical and terminal state of the cable system were made by
representatives who are expert in valuing cable television assets but
not by qualified cable television engineers. Consequently, readers
should
37
<PAGE>
not rely on any statement made herein for any purpose other than those
set forth in this appraisal.
5. Strategis Financial Consulting did not consider, or factor into the
appraisal, any impact on value that might be caused by the presence of
toxic waste or hazardous material including electromagnetic radiation
or other forms of radio frequency radiation.
38
<PAGE>
VII. Statement of Value
Strategis Financial Consulting certifies that a personal inspection of a
representative portion of the communities and System was made by a qualified
representative of this firm and that, to the best of our knowledge, the
statements contained in this appraisal are correct and that the opinions stated
are based on consideration of the relevant factors. In addition, neither
Strategis Financial Consulting nor any of its representatives have any current
interest or contemplated future interest in the entities appraised. In addition,
the fee paid for this report by Jones Intercable, Inc. is in no way dependent on
the values determined herein.
Based on the various analyses, computations, and considerations discussed
in this report, it is our professional judgment, subject to the assumptions and
limitations stated in this report, that the range of values as stated in this
report are true and correct. Therefore, it is the professional opinion of
Strategis Financial Consulting that the fair market value of the Cable TV Fund
14-A, Ltd. cable television system serving Calvert County, Maryland as a
business enterprise, as of February 28, 1998, free and clear of any
encumbrances, is $44,602,000.
STRATEGIS FINANCIAL CONSULTING, INC.
/s/Andrew R. Gefen
---------------------
By: Andrew R. Gefen
President
/s/Susan Donovan
---------------------
By: Susan Donovan
Senior Consultant
/s/Elisabeth Boebler
---------------------
By: Elisabeth Boebler
Consultant
May 1, 1998
39
<PAGE>
VIII. Qualifications
A. Qualifications of Strategis Financial Consulting, Inc.
Strategis Financial Consulting, Inc. and its corporate parent, The
Strategis Group (formerly Malarkey-Taylor Associates-EMCI), have served the
communications industry for nearly 30 years specializing in the field of cable,
cellular, paging, mobile radio, and broadcasting technologies. Our companies
have completed thousands of projects for clients in the communications industry
and in the financial and investment communities. Our organizations are composed
of a multi-disciplinary team of professionals who combine academic training in
accounting, finance, engineering, marketing, management, economics, and law with
many years of experience solving problems for hundreds of clients in both the
public and private sectors.
A large portion of our financial, engineering, and managerial
professionals' time is devoted to the appraisal of cable television systems,
cellular telephone systems, paging systems, and broadcast stations. Since 1964,
we have appraised hundreds of communications properties for purposes of
financing, ownership transfers, property tax assessments, and estate planning
and probating. Our appraisal experience has included independent fair market
valuations and purchase price allocations, including valuation of both tangible
assets and intangible assets such as franchises, licenses, subscriber lists,
leases, and contracts. Strategis Financial has supplied expert testimony on
cable, cellular, paging, and broadcast property values in court and other legal
hearings.
40
<PAGE>
B. Qualifications of Andrew R. Gefen
Andrew R. Gefen is the President of Strategis Financial Consulting, Inc. He
has provided valuation, financial, accounting and consulting services to
numerous cellular telephone, cable television, broadcasting, and paging
companies. Mr. Gefen is involved in the fair market valuation and asset
appraisal of publicly and privately held cellular telephone systems, cable
television systems, broadcast stations, paging systems, programming networks,
and Multichannel Multipoint Distribution Service (MMDS) systems. He has valued
over 100 cellular telephone systems and over 200 cable television systems with
an aggregate value of over $3 billion.
Mr. Gefen has provided expert testimony on the valuation of cellular
telephone systems, MMDS systems, cable television systems, and paging systems.
He has also assisted in the development of a statewide cellular telephone
network, and provided consulting services to professional sports leagues, cable
television programming networks, and U.S. Government agencies. His work has
included valuation and due diligence projects in several countries in Europe and
Latin America.
He has acquired an in-depth knowledge of the values of cellular systems,
cable television systems, broadcast stations, and paging systems, including
their market characteristics, growth prospects, construction costs, operating
cost structures, and other industry issues. Mr. Gefen has substantial experience
in the tax issues arising from the purchase and sale of cable and broadcast
properties. In addition, he has supported the taxpayer's values of tangible and
intangible assets during Internal Revenue Service reviews.
Mr. Gefen was previously with the communications consulting firm of
Frazier, Gross & Kadlec, Washington, D.C., as the Manager of the Appraisal Group
where he directed and participated in the asset appraisals of over 200
communications properties, primarily in the radio and television industry.
EXPERIENCE
President, Strategis Financial Consulting, Inc., Washington, D.C., 1988-present.
Business Analyst and Project Manager, American Management Systems, Arlington,
VA.
Planning Consultant, Panelvision Corporation, Pittsburgh, Pennsylvania.
Programmer and Chief Announcer, WBRU (FM), Providence, Rhode Island.
EDUCATION
M.S., Industrial Administration (M.B.A.), Carnegie-Mellon University,
Pittsburgh, Pennsylvania.
B.A., Economics, Brown University, Providence, Rhode Island.
41
<PAGE>
C. Qualifications of Susan Donovan
Susan Donovan is a Senior Consultant at Strategis Financial Consulting,
Inc. She provides research, valuation, financial, and consulting services to
cable television and wireless companies. Ms. Donovan is involved in the fair
market valuation and asset appraisal of publicly and privately held cable
television systems and paging systems. Ms. Donovan has also played a pivotal
role in the launch of publications analyzing the evolution of operating and
financial benchmarks for the cable television and wireless industries. She has
acquired an in-depth knowledge of the values of properties, including their
market characteristics, growth prospects, construction costs, operating cost
structures, and other issues for these industries.
Ms. Donovan was previously with the communications consulting firms of
Broadcast Investment Analysts, Inc. and Frazier, Gross & Kadlec, both of
Washington, D.C., where she participated in asset appraisal and fair market
valuations for numerous broadcast properties.
EXPERIENCE
Senior Financial Consultant, Financial Consulting, The Strategis Group, Inc.,
Washington, D.C., 1993-present.
Financial Analyst, Broadcast Investment Analysts, Inc., Washington, D.C., 1988-
1992.
Research Analyst, Frazier, Gross & Kadlec, Washington, D.C., 1986-1988.
Assistant Editor and Editorial Coordinator, TV Digest (presently Warren
Publishing), Washington, D.C., 1985-1986.
EDUCATION
M.B.A., George Mason University, Fairfax, Virginia.
B.A., Political Science, Trinity College, Washington, D.C.
42
<PAGE>
D. Qualifications of Elisabeth Boehler
Elisabeth Boehler joined Strategis Financial Consulting, Inc. as a
Consultant. She conducts financial analyses, financial modeling and research for
the telecommunications industry. Ms. Boehler was previously a consultant in the
telecommunications industry, providing marketing research and analysis to
Internet and satellite communications providers as well as regional bell
operating company and long distance carrier clients.
Ms. Boehler has significant experience in financial analysis. While an
analyst with the CBS Television Network in New York City, she prepared
consolidated network income statements, cash forecasts and budgets, and
performed variance and profitability analyses. While at GE Medical Systems
Europe she conducted a financial and process audit of their multi-national lease
portfolio.
EXPERIENCE
Analyst/Consultant, Weber and Associates, Sterling, VA, 1997.
Analyst, General Electric Medical Systems - Europe, Buc, France, 1994-1995.
Senior Financial Analyst, CBS Inc., New York, NY, 1991-1994.
Assistant Controller, Melhado, Flynn & Associates, New York, NY, 1990-1991.
EDUCATION
M.B.A., INSEAD, Fontainebleau, France.
B.S.M., Management, Tulane University, New Orleans, Louisiana
43
<PAGE>
EXHIBITS
<PAGE>
----------------------------
JONES CABLE TV FUND 14A LTD. EXHIBIT A
CALVERT COUNTY, MARYLAND ---------
AS OF FEBRUARY 28,1998
============================
Valuation Methods
- -----------------
LOW HIGH
--- ----
I. Multiple of Last Year's Operating Income
Operating Income, Per Books (2/28/98) $ 4,493,082 $ 4,493,082
Valuation Multiple 10.0 11.0
---- ----
Estimated Fair Market Value $44,930,820 $49,423,902
----------- -----------
II. Multiple of "Running Rate" Operating Income
Estimated Operating Income
Total Current Year's Revenue $ 9,683,418 $ 9,683,418
Operating Margin, Per Books (2/28/98) 49.1% 49.1%
---- ----
"Running Rate" Operating Income 4,758,305 4,758,305
Valuation Multiple 9.5 10.5
---- ----
Estimated Fair Market Value $45,203,898 $49,962,203
----------- -----------
III. Multiple of Next Year's Operating Income
Operating Income $ 4,854,952 $ 4,854,952
Valuation Multiple 9.0 10.0
---- ----
Estimated Fair Market Value $43,694,572 $48,549,524
----------- -----------
IV. Discounted Cash Flow Return of Equity
Target Return on Equity 14.0% 12.0%
Estimated Fair Market Value $41,418,273 $45,120,722
----------- -----------
V. Discounted Cash Flow Return on Investment
Target Return on Investment 16.6% 15.1%
Estimated Fair Market Value $41,255,147 $44,745,011
----------- -----------
Summary of Values
- -----------------
I. Multiple of Last Year's Operating Income $44,930,820 $49,423,902
II. Multiple of "Running Rate" Operating Income 45,203,898 49,962,203
III. Multiple of Next Year's Operating Income 43,694,572 48,549,524
IV. Discounted Cash Flow Return of Equity 41,418,273 45,120,722
V. Discounted Cash Flow Return on Investment 41,255,147 44,745,011
----------- -----------
Estimated Fair Market Value $42,568,000 $46,635,000
$44,602,000
-----------
<PAGE>
-------------------------------
JONES CABLE TV FUND 14-A, LTD. EXHIBIT B
CALVERT COUNTY, MARYLAND LOW ANALYSIS
AS OF FEBRUARY 28, 1998 ------------
===============================
Return on Equity Method
Profit and Loss - Low Value
- ----------------------------
<TABLE>
<CAPTION>
Year Ending February 28, 1999 2000 2001 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 9,991,496 $ 10,997,956 $ 12,058,765 $ 13,498,715 $ 15,091,210 $ 16,320,736 $ 17,561,310 $ 95,520,187
Operating Expenses 5,136,544 5,568,022 6,030,886 6,548,730 7,074,279 7,562,392 8,033,004 45,953,857
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Operating Income $ 4,854,952 $ 5,429,934 $ 6,027,878 $ 6,949,986 $ 8,016,932 $ 8,758,343 $ 9,528,305 $ 49,566,331
Operating Margin 0.49 0.49 0.50 0.51 0.53 0.54 0.54
Parent Svcs/Mgmt
Fee (5%) 499,575 549,898 602,938 674,936 754,561 816,037 878,065 4,776,009
Franchise
Amortization (15) 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 10,320,333
Subscriber List (8) 983,875 983,875 983,875 983,875 983,875 983,875 983,875 6,887,125
Non-Compete
Covenants (0) 0 0 0 0 0 0 0 0
Depreciation 2,044,526 3,795,550 3,841,250 4,411,471 4,806,171 4,873,500 4,404,265 28,176,735
Interest 2,069,112 2,069,112 2,407,299 2,637,010 2,780,387 2,623,296 2,268,110 16,854,326
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Pre-Tax Income ($2,216,469) ($3,442,834) ($3,281,817) ($3,231,639) ($2,782,396) ($2,012,699) ($480,344) ($17,448,198)
Income Tax
(Expense)/Benefit 753,599 1,170,564 1,115,818 1,098,757 946,014 684,318 163,317 5,932,367
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Net Income ($1,462,869) ($2,272,271) ($2,165,999) ($2,132,882) ($1,836,381) ($1,328,381) ($317,027) ($11,515,811)
Sources and Uses of Cash
- ------------------------
Sources of Cash -
Pre-Tax Income ($2,216,469) ($3,442,834) ($3,281,817) ($3,231,639) ($2,782,396) ($2,012,699) ($480,344) ($17,448,198)
Franchise
Amortization (15) 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 10,320,333
Subscriber List (8) 983,875 983,875 983,875 983,875 983,875 983,875 983,875 6,887,125
Non-Compete
Covenants (0) 0 0 0 0 0 0 0 0
Depreciation 2,044,526 3,795,55 3,841,250 4,411,471 4,806,171 4,873,500 4,404,265 28,176,735
Equity 20,691,119 20,691,119
Debt 20,691,119 0 3,381,869 3,595,382 2,861,874 0 0 30,530,244
Residual Value in
Year 7 85,754,747 85,754,747
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total Sources of
Cash $43,668,504 $ 2,810,924 $ 6,399,510 $ 7,233,422 $ 7,343,859 $ 5,319,010 $ 92,136,877 $164,912,106
Uses of Cash -
Purchase Price -
Current $41,418,273 $ 41,418,273
Capital
Expenditures 2,149,886 2,041,080 5,871,427 5,805,322 5,772,949 1,767,148 1,768,259 25,176,072
Debt Retirement 0 0 1,298,272 1,428,100 1,570,910 3,551,862 22,681,100 30,530,244
Taxes Paid on
Net Income 0 0 0 0 0 0 0 0
Taxes Paid on
Sale (Residual) 16,012,775 16,012,775
----------- ------------ ------------ ------------ ------------ ------------ ------------ ------------
Total Uses of Cash $43,568,159 $ 2,041,080 $ 7,169,700 $ 7,233,422 $ 7,343,859 $ 5,319,010 $ 40,462,134 $113,137,364
Annual Cash Increase/
(Decrease) $ 100,346 $ 769,844 ($770,190) $ 0 $ 0 $ 0 $ 51,674,742 $ 51,774,742
Cumulative Cash 100,346 870,190 100,000 100,000 100,000 100,000 51,774,742
</TABLE>
<PAGE>
------------------------------
JONES CABLE TV FUND 14-A, LTD. EXHIBIT B
CALVERT COUNTY, MARYLAND HIGH ANALYSIS
AS OF FEBRUARY 28, 1998 -------------
==============================
Return On Equity Method
Proft and Loss - High Value
- ---------------------------
<TABLE>
<CAPTION>
Year Ending February 28,
1999 2000 2001 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 9,991,496 $ 10,997,956 $ 12,058,765 $ 13,498,715 $ 15,091,210 $ 16,320,736 $17,561,310 $ 95,520,187
Operating Expenses 5,136,544 5,568,022 6,030,886 6,548,730 7,074,279 7,562,392 8,033,004 45,953,857
----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------
Operating Income $ 4,854,952 $ 5,429,934 $ 6,027,878 $ 6,949,986 $ 8,016,932 $ 8,758,343 $ 9,528,305 $ 49,566,331
Operating Margin 0.49 0.49 0.50 0.51 0.53 0.54 0.54
Parent Services/
Mgmt Fee (5%) 499,575 549,898 602,938 674,936 754,561 816,037 878,065 4,776,009
Franchise
Amortization (15) 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 10,320,333
Subscriber List (8) 983,875 983,875 983,875 983,875 983,875 983,675 983,875 6,887,125
Non-Compete
Covenants (0) 0 0 0 0 0 0 0 0
Depreciation 2,044,526 3,795,550 3,841,250 4,411,471 4,806,171 4,873,500 4,404,265 28,176,735
Interest 2,263,977 2,263,977 2,659,054 2,918,096 3,094,200 2,922,314 2,597,030 18,718,649
----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------
Pre-Tax Income ($2,411,334) ($3,637,700) ($3,533,572) ($3,512,726) ($3,096,208) ($2,311,717) ($809,264) ($19,312,521)
Income Tax
(Expense)/
Benefit 819,854 1,236,818 1,201,415 1,194,327 1,052,711 785,964 275,150 6,566,257
----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------
Net Income ($1,591,481) ($2,400,882) ($2,332,158) ($2,318,399) ($2,043,497) ($1,525,733) ($534,114) ($12,746,264)
<CAPTION>
Sources And Uses Of Cash
- ------------------------
Sources of Cash -
Pre-Tax Income ($2,411,334) ($3,637,700) ($3,533,572) ($3,512,726) ($3,096,208) ($2,311,717) ($809,264) ($19,312,521)
Franchise
Amortization (15) 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 1,474,333 10,320,333
Subscriber List (8) 983,875 983,875 983,875 983,875 983,875 983,875 983,875 6,887,125
Non-Compete
Covenants (0) 0 0 0 0 0 0 0 0
Depreciation 2,044,526 3,795,550 3,841,250 4,411,471 4,806,171 4,873,500 4,404,265 28,176,735
Equity 22,639,774 22,639,774
Debt 22,639,774 0 3,950,765 4,010,964 3,323,633 0 0 33,925,135
Residual Value
In Year 7 85,754,747 85,754,747
----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------
Total Sources
of Cash $47,370,948 $ 2,616,059 $ 6,716,651 $ 7,367,918 $ 7,491,804 $ 5,019,992 $91,807,957 $168,391,329
Uses of Cash -
Purchase Price -
Current $45,120,722 $ 45,120,722
Capital
Expenditures 2,149,886 2,041,080 5,871,427 5,805,322 5,772,949 1,767,148 1,768,259 25,176,072
Debt Retirement 0 0 1,420,542 1,562,596 1,718,855 3,252,844 25,970,298 33,925,135
Taxes Paid on
Net Income 0 0 0 0 0 0 0 0
Taxes Paid on
Sale (Residual) 14,120,073 14,120,073
----------- ------------ ------------ ------------ ------------ ------------ ----------- ------------
Total Uses of Cash $47,270,609 $ 2,041,080 $ 7,291,969 $ 7,367,918 $ 7,491,804 $ 5,019,992 $41,858,630 $118,342,002
Annual Cash
Increase/
(Decrease) $ 100,339 $ 574,979 ($575,318) $ 0 $ 0 $ 0 49,949,327 $ 50,049,327
Cumulative Cash 100,339 675,318 100,000 100,000 100,000 100,000 50,049,327
</TABLE>
<PAGE>
------------------------------
JONES CABLE TV FUND 14-A, LTD. EXHIBIT C
CALVERT COUNTY, MARYLAND LOW ANALYSIS
AS OF FEBRUARY 28, 1998 ------------
==============================
Return of Equity Method
<TABLE>
<CAPTION>
Debt Amortization - Low Value
- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Year 1 Cash
Requirements $41,382,239
Year 1 Debt
Requirements 20,691,119
Year 1 Equity
Requirements 20,691,119
Financing Available $29,205,033 $31,557,191 $35,294,571 $39,181,209 $45,174,907 $52,110,058 $56,929,231
Unused Leverage 8,513,914 10,866,071 12,519,856 14,239,211 18,941,944 29,428,958 44,164,195
Senior Debt: 1999 2000 2001 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
Beginning Debt $ 0 $20,691,119 $20,691,119 $19,392,847 $17,964,747 $16,393,838 $14,665,837
Debt Added 20,691,119 0 0 0 0 0 0 20,691,119
Total Annual Payments 2,069,112 2,069,112 3,367,384 3,367,384 3,367,384 3,367,384 3,367,384 20,975,146
Interest 2,069,112 2,069,112 2,069,112 1,939,285 1,796,475 1,639,384 1,466,584 13,049,063
Principal Repayment 0 0 1,298,272 1,428,100 1,570,910 1,728,001 1,900,801 7,926,083
Ending Balance 20,691,119 20,691,119 19,392,847 17,964,747 16,393,838 14,665,837 12,765,036
Line of Credit:
Beginning Debt $ 0 $ 0 $ 0 $ 3,381,869 $ 6,977,251 $ 9,839,125 $ 8,015,263 $ 0
Borrowings 0 0 3,381,869 3,595,382 2,861,874 0 0 9,839,125
Principal Payments 0 0 0 0 0 1,823,862 8,015,263 9,839,125
Interest 0 0 338,187 697,725 983,912 983,912 801,526 3,805,263
Senior Debt Coverage 4.3 3.8 3.2 2.6 2.0 1.7 1.3
Loc Debt Coverage 0.0 0.0 0.6 1.0 1.2 0.9 0.0
Total Debt Coverage 4.3 3.8 3.8 3.6 3.3 2.6 1.3
</TABLE>
<PAGE>
------------------------------
JONES CABLE TV FUND 14-A, LTD. EXHIBIT C
CALVERT COUNTY, MARYLAND HIGH ANALYSIS
AS OF FEBRUARY 28,1998 -------------
==============================
Return On Equity Method
<TABLE>
<CAPTION>
Debt Amortization - High Value
- ------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Year 1 Cash
Requirements $45,279,547
Year 1 Debt
Requirements 22,639,774
Year 1 Equity
Requirements 22,639,774
Financing Available $33,698,115 $36,412,143 $40,724,505 $45,209,087 $52,124,892 $60,126,990 $65,687,575
Unused Leverage 11,058,341 13,772,369 15,554,508 17,590,722 22,901,749 44,079,949 51,720,349
Senior: 1999 2000 2001 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
Beginning Debt $ 0 $22,639,774 $22,639,774 $21,219,232 $19,656,636 $17,937,781 $16,047,040
Debt Added 22,639,774 0 0 0 0 0 0 $22,639,774
Total Annual
Payments 2,263,977 2,263,977 3,684,519 3,684,519 3,684,519 3,684,519 3,684,519 22,950,549
Interest 2,263,977 2,263,977 2,263,977 2,121,923 1,965,664 1,793,778 1,604,704 14,278,001
Principal Repayment 0 0 1,420,542 1,562,596 1,718,855 1,890,741 2,079,815 8,672,548
Ending Balance 22,639,774 22,639,774 21,219,232 19,656,636 17,937,781 16,047,040 13,967,226
Line of Credit:
Beginning Debt $ 0 $ 0 $ 0 $ 3,950,765 $ 7,961,729 $11,285,362 $ 9,923,258 $ 0
Borrowings 0 0 3,950,765 4,010,964 3,323,633 0 0 11,285,362
Principal Payments 0 0 0 0 0 1,362,104 9,923,258 11,285,362
Interest 0 0 395,076 796,173 1,128,536 1,128,536 992,326 4,440,648
Senior Debt Coverage 4.7 4.2 3.5 2.8 2.2 1.8 1.5
Loc Debt Coverage 0.0 0.0 0.7 1.1 1.4 1.1 0.0
Total Debt Coverage 4.7 4.2 4.2 4.0 3.6 3.0 1.5
</TABLE>
<PAGE>
------------------------------
JONES CABLE TV FUND 14-A, LTD. EXHIBIT D
CALVERT COUNTY, MARYLAND ---------
AS OF FEBRUARY 28, 1998
==============================
Return On Investment Method
Profit And Loss
- ---------------
<TABLE>
<CAPTION>
Year Ending February 28, 1999 2000 2001 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 9,991,496 $10,997,956 $12,058,765 $13,498,715 $15,091,210 $16,320,736 $17,561,310 $ 95,520,187
Operating Expenses 5,136,544 5,568,022 6,030,886 6,548,730 7,074,279 7,562,392 8,033,004 45,953,857
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
Operating Income 4,854,952 5,429,934 6,027,878 6,949,986 8,016,932 8,758,343 9,528,305 49,566,331
Plus: Residual Value 85,754,747 85,754,747
Less: Capital Expenditures 2,149,886 2,041,080 5,871,427 5,805,322 5,772,949 1,767,148 1,768,259 25,176,072
------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
Total Cash Flow $ 2,705,066 $ 3,388,854 $ 156,451 $ 1,144,663 $ 2,243,983 $ 6,991,195 $93,514,793 $110,145,006
Net Present Value @ 16.6% $ 41,255,147
------------
Net Present Value @ 15.1% $ 44,745,011
------------
</TABLE>
<PAGE>
------------------------------
JONES CABLE TV FUND 14-A, LTD. EXHIBIT E
CALVERT COUNTY, MARYLAND ---------
AS OF FEBRUARY 28, 1998
==============================
Cable Television Subscribers
- ----------------------------
<TABLE>
<CAPTION>
Year Ending February 28, 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Beginning Miles 826.0
Miles Added 41.3 37.1 34.4 31.3 28.7 27.7 26.5
Cumulative Miles 867.3 904.4 938.8 970.2 998.9 1,026.6 1,053.1
Density of Additional Plant 33 35 35 35 35 35 35
Homes Passed - Beginning 27,261
New Homes and Extensions 1,363 1,288 1,196 1,089 998 963 922
Homes Passed - Ending 28,624 29,912 31,109 32,197 33,196 34,158 35,080
Growth in Homes 5.0% 4.5% 4.0% 3.5% 3.1% 2.9% 2.7%
Basic - Beginning Subscribers 18,297 19,498 20,525 21,502 22,415 23,193 23,951
Average Subscribers 18,898 20,012 21,013 21,958 22,804 23,572 24,318
Ending Subscribers 19,498 20,525 21,502 22,415 23,193 23,951 24,685
Penetration 66.1% 66.6% 69.1% 69.6% 69.9% 70.1% 70.4%
Expanded Basic - Beginning 17,113 18,236 19,197 20,110 20,965 21,692 22,401
Average Subscribers 17,675 18,717 19,654 20,537 21,328 22,047 22,745
Ending Subscribers 18,236 19,197 20,110 20,965 21,692 22,401 23,088
Penetration 93.5% 93.5% 93.5% 93.5% 93.5% 93.5% 93.5%
Pay TV - Beginning Units 16,984 17,904 18,642 19,314 20,022 20,601 21,154
Average Units 17,444 18,273 18,978 19,668 20,312 20,878 21,417
Ending Units 17,904 18,642 19,314 20,022 20,601 21,154 21,680
Penetration 91.8% 90.8% 89.8% 89.3% 88.8% 88.3% 87.8%
Pay Per View - Beginning
Units/Mo 3,227 3,629 4,175 4,723 5,291 5,861 6,455
Average Units 3,428 3,902 4,449 5,007 5,576 6,158 6,764
Ending Units 3,629 4,175 4,723 5,291 5,861 6,455 7,073
Average Buy Rate/Mo 25.6% 27.6% 29.6% 31.6% 33.6% 35.6% 37.6%
Converter Rentals - Beginning 24,388 25,989 27,255 28,444 29,541 30,450 31,325
Average Subscribers 25,188 26,622 27,850 28,993 29,995 30,888 31,744
Ending Subscribers 25,989 27,255 28,444 29,541 30,450 31,325 32,162
Penetration 133.3% 132.8% 132.3% 131.8% 131.3% 130.8% 130.3%
Addressable Homes 13,125 14,182 15,134 15,961 16,752 17,449 18,139
Average Homes 13,653 14,658 15,548 16,356 17,100 17,794 18,479
Ending Homes 14,182 15,134 15,961 16,752 17,449 18,139 18,818
Penetration 72.7% 73.7% 74.2% 74.7% 75.2% 75.7% 76.2%
Basic Churn Rate 20% 20% 20% 20% 20% 20% 20%
</TABLE>
<PAGE>
------------------------------
JONES CABLE TV FUND 14-A, LTD. EXHIBIT F
CALVERT COUNTY, MARYLAND ---------
AS OF FEBRUARY 28, 1998
==============================
Service Rates
- -------------
<TABLE>
<CAPTION>
Current Rates
- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Basic $16.30
Expanded Basic 13.45
Pay 6.68
Pay Per View 10.85
Converter Rentals 1.29
Installations - New 40.00
Installations - Churn 25.00
Year Ending February 28, 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ----
Percentage Rate Increases
- -------------------------
Basic 0% 5% 3% 3% 3% 3% 3%
Expanded Basic 0% 5% 8% 11% 8% 4% 3%
Pay 0% 1% 1% 1% 1% 1% 1%
Pay Per View 0% 3% 3% 3% 3% 3% 3%
Converter Rentals 0% 3% 3% 3% 3% 3% 3%
Installations - New 0% 3% 3% 3% 3% 3% 3%
Installations - Churn 0% 3% 3% 3% 3% 3% 3%
Average Rates
- -------------
Basic $16.37 $17.10 $17.62 $18.14 $18.69 $19.25 $19.83
Expanded Basic 13.50 14.11 15.17 16.85 18.27 18.96 19.53
Pay 6.68 6.74 6.81 6.88 6.95 7.02 7.09
Pay Per View 10.85 11.17 11.51 11.85 12.21 12.58 12.95
Converter Rentals 1.29 1.33 1.37 1.41 1.45 1.50 1.54
Installations - New 40.00 41.20 42.44 43.71 45.02 46.37 47.76
Installations - Churn 25.00 25.75 26.52 27.32 28.14 28.98 29.85
</TABLE>
<PAGE>
------------------------------
JONES CABLE TV FUND 14-A, LTD. EXHIBIT G
CALVERT COUNTY, MARYLAND ---------
AS OF FEBRUARY 28, 1998
==============================
<TABLE>
<CAPTION>
Year Ending February 28,
1999 2000 2001 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Basic $ 3,711,305 $ 4,106,945 $ 4,441,911 $ 4,780,930 $ 5,114,013 $ 5,444,814 $ 5,785,688 $33,385,606
Expanded Basic 2,862,885 3,168,080 3,578,106 4,153,818 4,676,493 5,017,064 5,331,158 28,787,603
Pay TV 1,397,384 1,478,417 1,550,799 1,623,273 1,693,163 1,757,763 1,821,206 11,322,004
Pay Per View 446,232 523,168 614,396 712,228 816,967 929,288 1,051,421 5,093,700
Converter Rentals 389,917 424,472 457,369 490,422 522,607 554,298 586,753 3,425,839
Installations 114,025 116,297 122,325 127,922 130,680 137,425 144,209 892,883
Commercial 100,879 103,906 107,023 110,233 113,540 116,947 120,455 772,983
Advertising 238,109 280,969 325,924 371,553 419,855 474,436 536,113 2,646,958
Miscellaneous 730,760 795,702 860,913 1,128,336 1,603,893 1,888,701 2,184,306 9,192,610
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Revenues $ 9,991,496 $10,997,956 $12,058,765 $13,498,715 $15,091,210 $16,320,736 $17,561,310 $95,520,187
Operating Expenses:
Operations $ 1,493,979 $ 1,618,587 $ 1,746,261 $1,887,217 $ 2,026,809 $ 2,154,777 $ 2,284,638 $13,212,288
General &
Administrative 865,596 928,100 990,394 1,056,525 1,123,339 1,187,214 1,252,818 7,403,986
Sales & Marketing 255,038 275,139 294,925 314,977 334,754 354,455 374,756 2,204,044
Programming 2,521,931 2,746,195 2,999,287 3,290,010 3,589,377 3,865,946 4,120,792 23,133,538
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Operating
Expenses $ 5,136,544 $ 5,568,022 $ 6,030,886 $ 6,548,730 $ 7,074,279 $ 7,562,392 $ 8,033,004 $45,953,857
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating Income $ 4,854,952 $ 5,429,934 $ 6,027,878 $ 6,949,986 $ 8,016,932 $ 8,768,343 $ 9,528,305 $49,566,331
Operating Margin 48.6% 49.4% 50.0% 51.5% 53.1% 53.7% 54.3%
Total Revenue/Basic
Sub/Month $ 44.06 $ 45.80 $ 47.82 $ 51.23 $ 55.15 $ 57.70 $ 60.18
Cash Flow/Basic
Sub/Month $ 21.41 $ 22.61 $ 23.90 $ 26.38 $ 29.30 $ 30.96 $ 32.65
Operations % of
Revenue 15% 15% 14% 14% 13% 13% 13%
G & A Percentage of
Revenue 9% 8% 8% 8% 7% 7% 7%
Sales & Marketing
% of Revenue 3% 3% 2% 2% 2% 2% 2%
Programming Percentage
of Revenue 25% 25% 25% 24% 24% 24% 23%
</TABLE>
<PAGE>
------------------------------
JONES CABLE TV FUND 14-A, LTD. EXHIBIT H
CALVERT COUNTY, MARYLAND ---------
AS OF FEBRUARY 28, 1998
==============================
Capital Expenditures
- --------------------
<TABLE>
<CAPTION>
Year Ending February 28, 1999 2000 2001 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assumptions and Inputs
- ----------------------
BV of Existing Plant $12,157,505
Additional Miles of
Plant 41.3 37.1 34.4 31.3 28.7 27.7 26.5
Aerial Plant Per Mile $ 23,940 $ 24,419 $ 24,907 $ 25,405 $ 25,913 $ 26,432 $ 26,960
Underground Plant Per
Mile $ 32,865 $ 33,522 $ 34,193 $ 34,877 $ 35,574 $ 36,286 $ 37,011
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 $ 110 $ 112 $ 114 $ 117 $ 119 $ 121 $ 124
Percentage Converter Use 133% 133% 132% 132% 131% 131%
Percentage Replacement 4% 4% 5% 5% 6% 6% 6%
Installation Cost Per
Subscriber $ 30 $ 31 $ 31 $ 32 $ 32 $ 33 $ 34
Misc. Capital Per
Subscriber $ 5 $ 5 $ 5 $ 5 $ 5 $ 6 $ 6
Inflation Factor For
Capitals 0% 2% 2% 2% 2% 2% 2% 113%
1.02 1.04 1.06 1.08 1.10 1.13
Annual Costs
- ------------
Plant Additions - Aerial $ 49,436 $ 45,269 $ 42,891 $ 39,811 $ 37,225 $ 36,621 $ 35,786 $ 287,040
- Underground 1,289,458 1,180,763 1,118,734 1,038,409 970,963 955,207 933,424 7,486,959
Plant Rebuild/Upgrade 287,280 293,026 4,138,667 4,138,667 4,138,667 125,000 125,000 13,246,306
Average Cost of New
Converters 176,102 153,0O9 147,847 140,541 121,597 120,402 118,529 978,026
Converter Replacement 107,307 116,201 155,372 165,392 210,241 221,042 231,942 1,207,497
Installation Costs 145,815 150,754 158,606 165,990 170,837 178,748 186,647 1,157,396
Misc. Capital
Expenditures 94,488 102,059 109,311 116,512 123,419 130,127 136,931 812,848
----------- ----------- ---------- ---------- ---------- ---------- ----------- -----------
Total Capital
Expenditures $ 2,149,886 $ 2,041,080 $5,871,427 $5,805,322 $5,772,949 $1,767,148 $ 1,768,259 $25,176,072
As a % of Operating
Income 44.3% 37.6% 97.4% 83.5% 72.0% 20.2% 18.6%
</TABLE>
<PAGE>
------------------------------
JONES CABLE TV FUND 14-A, LTD. EXHIBIT I
CALVERT COUNTY, MARYLAND ---------
AS OF FEBRUARY 28, 1998
==============================
Depreciation
- ------------
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
------ ------ ------ ------ ------ ------ ------
<S> <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. 1999 2000 2001 2002 2003 2004 2005 TOTAL
---- ---- ---- ---- ---- ---- ---- -----
Year 1 $ 2,044,526 $ 3,503,880 $2,502,363 $1,786,993 $1,277,650 $1,276,219 $1,277,650 $13,669,282
Year 2 291,670 499,861 356,985 254,931 182,268 182,064 11,767,780
Year 3 839,027 1,437,913 1,026,913 733,341 524,318 4,561,512
Year 4 829,581 1,421,723 1,015,351 725,085 3,991,740
Year 5 824,954 1,413,795 1,009,689 3,248,438
Year 6 252,525 432,775 685,300
Year 7 252,684 252,684
----------- ------------ ---------- ---------- ---------- ---------- ---------- -----------
Total Depreciation $ 2,044,526 $ 3,795,550 $3,841,250 $4,411,471 $4,806,171 $4,873,500 $4,404,265 $28,176,735
</TABLE>
<PAGE>
----------------------------
JONES CABLE TV FUND 14A LTD. EXHIBIT J
CALVERT COUNTY, MARYLAND ---------
AS OF FEBRUARY 28,1998
============================
Assumptions and Inputs
- ----------------------
Remaining Life of Franchises (Years) 1
Average Subscriber Life (Years) 8
Income Tax Rate 34%
Capital Gain Rate 34%
Net FMV of Existing Asset $12,157,505
Subscribers in Franchises 100%
Low High
Analysis Analysis
-------- --------
Debt Percentage 50% 50%
Equity Percentage 50% 50%
Residual Multiple (ROE & ROI) 9.0 9.0
Multiple of Last Year's Operating Income 10.0 11.0
Multiple of Current Year's Operating Income 9.5 10.5
Multiple of Next Year's Operating Income 9.0 10.0
Target Return on Equity 14.0% 12.0%
Target Return on Investment 16.6% 15.1%
<PAGE>
Exhibit 99(b)(2)
============
CONFIDENTIAL
============
JONES INTERCABLE, INC.
Valuation of Calvert County, MD System
May 8,1998
WALLER CAPITAL
--------------
CORPORATION
<PAGE>
- --------------------------------------------------------------------------------
JONES INTERCABLE, INC.
- --------------------------------------------------------------------------------
Table of Contents
INTRODUCTION...................................................................I
STATE OF THE CABLE MARKET.....................................................II
SYSTEM OVERVIEW..............................................................III
VALUATION ....................................................................IV
Scope and Approach
Methodology
DCF Analysis Summary
COMPARABLE TRANSACTION ANALYSIS................................................V
APPENDIX .....................................................................VI
DCF Valuation
Comparable Transaction Valuation
- --------------------------------------------------------------------------------
Waller Capital Corporation
<PAGE>
- --------------------------------------------------------------------------------
JONES INTERCABLE, INC.
- --------------------------------------------------------------------------------
INTRODUCTION
At the request of Jones Intercable, Inc. ("Jones" or the "Company"), Waller
Capital Corporation ("Waller Capital") has conducted an appraisal of the fair
market value of the cable television system serving the Calvert County area of
Maryland which is owned by Cable TV Fund 14A (the "System"). As of February 28,
1997, the System passed 26,331 homes and served 18,565 equivalent basic
subscribers for a penetration rate of 71%.
Neither Waller Capital nor any of their representatives have any active or
contemplated direct interest in Jones, the Cable TV Fund or any of its
affiliates, except for incidental shareholdings of Jones.
- --------------------------------------------------------------------------------
WALLER CAPITAL CORPORATION
-1-
<PAGE>
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STATEMENT OF APPRAISAL ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal has been prepared pursuant to the following general assumptions
and general limiting conditions:
1. We assume no responsibility for the legal description or matters including
legal or title considerations. Title to the subject assets, properties, and
business interests are assumed to be good and marketable unless otherwise
stated.
2. The subject assets, properties, and business interests are appraised free and
clear of any or all liabilities, liens and encumbrances unless otherwise
stated.
3. We assume responsible ownership and competent management with respect to the
subject assets, properties, or business interests.
4. The information furnished by others is believed to be reliable. However, we
issue no warranty or other form of assurance regarding its accuracy.
5. We assume that there is full compliance with all applicable Federal, state,
and local regulations and laws unless noncompliance is stated, defined, and
considered in the appraisal report.
6. We assume that all required licenses, certificates of occupancy, consents, or
legislative or administrative authority from any local, state or national
government, private entity or organization have been or can be obtained or
renewed for any use on which the valuation opinion contained in this report
is based.
7. Possession of this valuation opinion presentation, or a copy thereof, does
not carry with it the right of publication. It may not be used for any
purpose by any person other than the party to whom it is addressed
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without our written consent and, in any event, only with proper written
qualifications and only in its entirety.
8. We, by reason of this valuation, are not required to give testimony, or to
be in attendance in court with reference to the assets, properties, and
business interests in question unless arrangements have been previously
made.
9. No part of the contents of this presentation shall be disseminated to the
public through advertising, public relations, news, sales, or other media
without Waller Capital's prior written consent and approval.
10. We assume no responsibility for any financial reporting judgements which are
approximately those of management. Management accepts the responsibility for
any related financial reporting with respect to the assets, properties, and
business interests encompassed by this appraisal.
11. We have no responsibility to update this presentation for any changes
occurring subsequent to issuance.
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STATE OF THE CABLE MARKET
During 1994, the market for cable systems were dictated by regulatory matters.
RBOC interest early in the year created a near frenzy in the market. Moreover,
the FCC's announced alterations to current rate regulation schemes on February
22nd caused a serious market disruption. The market's bellwether transaction,
Bell Atlantic/TCI, collapsed, bringing the market for cable systems down.
Southwestern Bell's deal with Cox also unraveled. Other RBOCs were soon to
follow Bell Atlantic's lead and the demand for cable systems was greatly
reduced.
The transaction marketplace stalled until mid-summer 1994, as cable operators
once again worked to understand the impact of potential 17% basic rate rollbacks
and unclear cost-of-service guidelines. However, as in the prior year, cable
operators were willing to focus on acquisition opportunities once they
assimilated these changes. Perhaps the forces driving consolidation were now
even stronger as competition from telephone companies was more likely. The
necessity to amass capital and critical market mass to compete in voice and data
telecommunications was more evident.
Transaction activity picked up strongly in the second half of 1994 despite
generally weak capital markets. Commercial banks were supportive of the largest
MSOs, with commercial bank capital in short supply for many smaller and mid-
sized operators. The high yield debt market was weak, as rising short-term rates
limited demand
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among high yield buyers. Public equity markets were depressed due to the exodus
of RBOCs. However, many sellers were willing to accept securities from buyers,
the sale of Times Mirror, Summit Communications and Newhouse Broadcasting being
noteworthy.
Competitive forces increased their pressures upon the cable industry in late
1994 with two new digital DBS/DSS providers joining the four-year veteran
PrimeStar Partners ("PrimeStar") owned by GE American Communications. October
saw the launch of GM-Hughes Electronics' DirecTV ("DirecTV") and Hubbard
Broadcasting's United States Satellite Broadcasting ("USSB"), both using the
much-publicized 18-inch (Ku-band) digital satellite dish technology. The reduced
size of these antennae, coupled with broad channel offerings and digital-quality
audio, in large measure offset the initial high startup equipment price
associated with the new systems, and demand for the dishes was very brisk. While
most attractive to rural customers outside cable service areas, the DBS/DSS
systems are also very competitive inside cable service areas in the market for
premium and tier-level customers. The entry of DirecTV and USSB, along with
PrimeStar, has subjected cable MSOs in many areas to effective competition,
placing pressure on service rates. This pressure is likely to increase in the
future as DBS/DSS providers introduce interactivity to their product offerings.
By year-end 1994, the market for systems had stabilized. In addition, the fall
elections brought optimism on the regulatory front. Republican Senate Commerce
Committee chairman Larry Pressler introduced legislation that
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aimed to achieve sweeping cable/telecommunications deregulation and reform. The
market was enthusiastic that an approved bill would provide for the repeal of
the current federally controlled cable rate structure, and fully open the local
cable and telephony markets to both MSOs and telcos. In addition, the
legislation contemplated allowing the RBOCs to enter long-distance and telecom
equipment making markets, as well as relax the restrictive broadcast station
ownership rules currently in place.
1995 was a year of restructuring, mergers, acquisitions, strategic joint-
ventures, leveraging and the beginning of a what will prove to be a long battle
for the multimedia consumer dollar. Telcos, MSOs and long-distance carriers
("LDC"s) formed alliances in an attempt either to protect themselves from
unserved areas or to complement their current product offerings: i) Bell
Atlantic/NYNEX (wireless, video programming) ii) U.S. West/Pactel's Airtouch
Communications (wireless); iii) AT&T/McCaw Cellular (wireless); iv)
Disney/BellSouth/Ameritech/SBC Communications (programming); v) MCI/News Corp.
(DBS, Internet); vi) Sprint/TCI/Comcast/Cox (cable, wireline and wireless
telephony). Perhaps the last alliance is the most telling of what will be MSO's
preferred method of competing in an open playing field where consumers can
choose one provider for cable, telephony and long-distance. Senator Pressler's
pending telecommunications reform legislation reform has caused cellular
providers, MSOs and LDCs to rethink their growth and product strategies in an
open, competitive environment and without exclusive franchise areas or protected
products.
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Over $20 billion in mergers were announced or closed in the cable industry
during 1995, including Time Warner/Cablevision Industries, Intermedia/Viacom,
TCI/Viacom, Time Warner/Houston Industries (Paragon/KBLCOM), Comcast/E.W.
Scripps, Marcus/Sammons and Gannett/Multimedia. Through June 30, 1996, cable
systems serving 6.7 million subscribers were sold in deals valued at $13.7
billion, ahead of last years record of $10 billion over the same period. The
major deal of 1996 was US West Media's acquisition of Continental's cable
systems for $9.2 billion. MSOs faced the key operating decision of whether to
consolidate into strategic clusters or to sell to the highest bidder. Access to
capital was a key factor in this decision. The enormous expected costs to
upgrade cable plant using fiber so that voice and data transmission would be
possible prompted MSOs to look for scale economies by growing quickly via
acquisitions.
While the demand for capital remained strong throughout the year, the supply of
capital was also available through private and public debt markets to qualified
MSOs. In addition, an abundance of private equity was available to cable
companies as demonstrated by the following: i) Austin Ventures/B.T. Capital
extended $20 million to Classic Cable; ii) Calpers extended $250 million to
Comcast; iii) Goldman Sachs extended $180 million to Marcus Cable; iv) Hicks
Muse extended $115 million to Marcus; v) J.P. Morgan extended $125 million to
FrontierVision; vi) Kelso/Charterhouse extended $300 million to Charter
Communications; and vii) Spectrum Partners/Fleet Ventures/T.A. Associates
extended $50 million to Galaxy.
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Two significant events have occurred in the regulatory arena which have
essentially removed the burdens imposed by the 1992 Cable Act on small cable
operators. As a result, small cable operators will have substantial flexibility
to increase rates based more on business and market considerations than on
regulatory limits. In June, 1995, the Federal Communications Commission issued
an order (the "Small Systems Order") adopting new rules that reduce the
regulatory burdens of the 1992 Cable Act on small cable systems that own MSOs
serving fewer than 400,000 subscribers. Under the Small Systems Order, the
regulatory benefits accruing to small cable systems remain effective even if
such systems are later acquired by an MSO that serves in excess of 400,000
subscribers. More recently, Congress enacted the 1996 Telecom Act that provides
regulatory relief for companies serving fewer than 600,000 subscribers. These
two events have allowed qualified MSOs to begin raising cable rates. This bodes
well for future growth in the cable industry's revenue and cash flow figures.
DBS competition has grown into a credible threat to cable's subscriber base.
Primestar, DirecTV, USSB and Echostar have acquired subscribers at an
increasing rate. Due to several multi-million dollar marketing campaigns, DBS
has become a significant threat to the high-end cable customer. However, the
lack of local broadcast stations, the high cost of initial setup and certain
logistical problems have hampered wide-scale defections to DBS services.
RBOCs have also entered the video market by acquiring wireless cable operators,
or MDS/MMDS operators. The markets believe that RBOCs view wireless cable as a
short-term, stopgap measure to deliver video to the home,
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while they are developing a long-term, cost-effective, quality delivery method.
During 1997, the cable industry continued to exhibit attractive opportunities
for growth and appreciation to well positioned MSOs. Whereas the public equity
markets battered MSOs during 1996, 1997 was a boom year. From the reevaluation
within the public market to the funds from private equity firms to the lessened
costs of high yield financing, MSO's saw increased investment in their companies
and within the industry. Cable modems and other data services became more of a
reality with an increased focus, improved technologies and increased CAPITAL
EXPENDITURES. Additionally, with refined compression methods, MSOs have been
able to increase their channel offerings without extensive capital expenditures.
In an effort to achieve economies of scale, clustering and consolidation of
systems continued to be the major goals of MSOs.
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SYSTEM OVERVIEW
Overview
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The System has one headend and one hub site and serves Calvert County and
portions of Anne Arundel and St. Mary's Counties. As of February 28, 1997, the
System passed 26,331 homes with 818 miles of plant (32.2 homes per mile), and
served 18,565 equivalent basic subscribers, representing a 71% basic
penetration. Equivalent pay units totaled 16,988 representing a 92% pay
penetration. The overwhelming majority of the population commutes into either
Baltimore or Washington, D.C. Prominent businesses in the area include Baltimore
Gas and Electric, Direct Mail Management Inc., Calvert Memorial Hospital,
Chesapeake Biological Laboratories, Charles County Concrete, C&P Telephone, the
Southern Maryland Electrical Cooperative and Thomas J. Lipton, Inc.
Customer Service.
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The System is operated from one full-service office in Prince Frederick,
Maryland. The System employs eight Customer Service representatives.
Technical Profile
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The System has one headend and one hub site. In addition to the 768 miles of
coaxial plant, the system also has 50 miles of fiber plant. Currently, the
longest trunk amplifier cascade is 25 amps and the longest line extender cascade
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is 3. The System is operating at 349.25 MHz, providing 47 channels operating at
full capacity. Rebuild activity has been limited to replacement of damaged and
old cable.
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SCOPE AND APPROACH
The primary purpose of this valuation is to arrive at the fair market value of
the System. Fair market value is defined as the amount at which a property would
change hands between a willing buyer and a willing seller when neither is acting
under compulsion and when both have reasonable knowledge of all the relevant
facts. The valuation was determined on a cash-for-assets basis.
In arriving at our opinion as to the fair market value of Jones's cable
television System, we utilized audited and unaudited financial statements,
visited the System, met with the management of Jones to discuss its business,
current operations and prospects, analyzed published financial and operating
information considered by us to be comparable or related to the Company's cable
television System, and made other financial studies, analyses and investigations
as we deemed appropriate.
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POSITIVE AND NEGATIVE OBSERVATIONS
As outlined below, numerous elements, both quantitative and qualitative, were
factored into our valuation. We highlight below some of these elements that were
considered.
Positive Observations
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. Attractive Demographics: Average household income, as calculated by National
Decision Systems, is $63,285 significantly higher than the U.S. average
($55,449). In addition, the educational background of the population indicates
a potential demand for internet and other data services.
. High Growth: As calculated by National Decision Systems, the area has
experienced substantial growth in households from 1980 - 1990 (58.29%). The
area's households are expected to grow over 3.8% per year from 1998 to 2000.
Negative Observations
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. Technical Condition: The System is currently operating at full capacity at
349.25 MHz. A buyer would view this capacity as insufficient and would budget
an extensive rebuild.
. Economic Diversity: The local economy, while increasingly diversified, still
is heavily dependent on the economy of Washington, D.C. and its government
employers.
. Low Home Density: As noted previously, the homes per plant mile ratio within
the System is 32.5. The low density dictates additional capital expenditures
required to pass and service each additional home.
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. METHODOLOGY
The general methodology of the appraisal was to evaluate the Discounted Cash
Flow ("DCF") stream generated by the System over a ten-year period (fiscal 1998
to 2007), applying all relevant market and economic factors. The ten-year
projections were prepared by using Company projections as well as Waller
Capital's industry estimates. Developing projections required a general
understanding of the Company's current business and future plans. This
understanding was obtained through on-site due diligence, a review of i) the
1998 System operations budget prepared by the Company, ii) other operating and
subscriber data and projections; and iii) demographic data as it relates to the
System's service area.
A sale was assumed to occur in the tenth year (2007) of the DCF model. The cash
flow sales multiples selected reflect the long-term prospects for cash flow
growth and the cash flow quality of the System. The multiple selected also
accounted for the presumed technical condition of the System at the time of
sale. The multiple selected was applied against the full tenth-year System cash
flow.
This analysis utilized a discount rate of 13.9% derived from Waller Capital's
Weighted Average Cost of Capital ("WACC") model. The Discount rate was
commensurate with a probable buyer's capital structure, operating risk and other
factors associated with the operations of Jones. The discount rate used was
consistent with the WACCs
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for an average cable buyers, private or public, and adjusted for certain factors
such as size, liquidity, leverage and risk associated with a typically cable
System buyer.
Waller Capital's analysis was further supported by comparable System sales.
Waller Capital examined specific transactions to determine if an appropriate
multiple of cash flow could be derived from current market information. Waller
Capital examined multiples from announced and completed cable television
transactions for 1996, 1997 and 1998, relying upon data from transactions
executed by Waller Capital, from Paul Kagan Associates, Inc., and general
industry information. However, comparable sales data is difficult to generalize
from because of the variability of factors such as System size, growth
prospects, penetration, location, demographics, technical System condition and
franchise terms, which are often not publicly available. Given these
limitations, Waller Capital is of the opinion that comparable sales data offers
only an approximation of factors that help devise a fair market value and is
used as a reasonableness test of the DCF approach to value.
CONCLUSION
BASED ON THE INVESTIGATION AND ANALYSIS OUTLINED IN THIS REPORT, THE FAIR MARKET
VALUE OF THE SYSTEM, AS OF FEBRUARY 28, 1998, WAS $34,264,000.
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DISCOUNTED CASH FLOW METHODOLOGY
A discounted cash flow ("DCF") approach was utilized to value the System as DCF
measures the current value of an investment as the present value of its future
economic benefits such as earnings and proceeds from disposition.
A DCF model was developed for the System. While we considered and implemented
some of the projections of revenues and expenses developed by the Company for
1998, industry projections and demographic forecasts were also used in our DCF
model.
To arrive at System cash flow, operating expenses were deducted from projected
revenues. Corporate and regional management allocations were not deducted from
revenue because a potential buyer would not incur these costs when managing the
System. Cash flows recorded on the balance sheet (capital expenditures) were
subtracted from System cash flow to determine debt free net cash flow. In
addition, we incorporated our estimates of long-term growth, discount rate,
inflation and other factors. Our DCF analysis yielded the value of the System.
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INCOME STATEMENT SUMMARY
Homes Passed and Subscriber Revenues
HOMES PASSED:
Homes passed growth was projected based on a combination of management's
projections, trailing homes passed growth, economic variables, discussions with
management, future prospects and unserved areas reachable by existing plant.
This analysis resulted in homes passed growth of approximately 2.4% per annum
over the 10-year projection period.
BROADCAST/BASIC SUBSCRIBERS:
Broadcast and Basic services were combined, in order to easily evaluate these
rates. The Broadcast/Basic tier reflect the subscribers that utilize the most
highly penetrated service in the System's rate package. Subscriber growth
estimates was based on a combination of factors including management's
forecasts, the System's demographics, current penetration, historical trends,
availability of off-air signals, local competition, current rates, service
offerings, and the technical quality of the System plant.
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PAY SUBSCRIBERS:
Pay subscriber growth was based on a combination of factors including
management's projections, the System's demographics, current penetration,
historical trends, availability of off-air signals, other entertainment
alternatives, rates, service offerings, and the technical quality of the System
plant.
PPV MOVIES AND EVENTS:
PPV Movies and Events ("PPV") were combined and projected based on management
forecasts, discussions with management, economic variables, historical trends,
the availability of other entertainment alternatives and the technical quality
of the System's plant.
Revenues
BROADCAST/BASIC REVENUE:
For the purposes of this analysis, Broadcast, Basic and NPT rates were combined
and analyzed against the number of basic subscribers. Rate growth was projected
after considering current rates and a combination of factors including the
community's demographics, current penetration, historical trends, availability
of off-air signals, service offerings, and the technical quality of the System
plant. Rate increases were slowed substantially until after the projected
rebuild was completed.
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PAY REVENUE:
Pay Revenue was determined by considering current weighted rates and a
combination of factors including the System's demographics, current penetration,
historical trends, inflation rate, service offerings, and the technical quality
of the System plant.
PPV REVENUE:
PPV Revenue was determined by considering current rates and a combination of
factors including the System's demographics, current penetration, historical
trends, availability of off-air signals, service offerings, and the technical
quality of the System plant.
ADVERTISING REVENUE:
Advertising Revenues were projected based on management's projections, economic
variables, discussions with management and historical trends. Advertising
revenues were projected using varying growth rates which increased over the
10-year projection period.
OTHER REVENUES:
Other Revenues were projected based on management's projections, economic
variables, discussions with management, the technical quality of the System
plant, and historical trends, as well as, new services potentially
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offered with the completion of a rebuild. Other Revenues include but are not
limited to the following: connection charges, converter rental revenue, late
fees and home shopping revenues. Other revenues were projected over the 10-year
projection period using varying growth rates and are expected to increase as new
services, such as cable modems and telephony services become available.
Operating Expenses
The following expenses reduced revenues in order to determine System cash flow:
PERSONNEL RELATED EXPENSES:
Personnel Expenses were determined by growing the 1997 Expense by a factor that
reflects inflation and customary increases in wages.
SUBSCRIBER AND REVENUE RELATED EXPENSES:
Subscriber Related Expenses, which includes basic and tier programming costs and
customer billing, were determined by growing the 1997 Expense by a factor based
on discussions with management, increases in subscribers, the System's channel
line-up and the technical quality of the System plant.
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PAY-PER-VIEW EXPENSE:
Pay-Per-View Expense was determined by growing the 1997 expense by the inflation
rate over the 10-year projection period.
SYSTEM PLANT EXPENSES:
System Plant Expenses were determined by growing the 1997 Expense by a factor
based on historical trends as well as projected increases in subscribers and
plant extensions.
SYSTEM OFFICE RELATED EXPENSE:
System Office Related Expense was determined by growing the 1997 expense by the
inflation rate over the 10-year projection period.
MARKETING RELATED EXPENSES:
Marketing Expense were based on discussions with management and were driven by
such factors as marketing efforts to retain pay subscribers, the growth in local
business advertising and technical System upgrades that would provide new
products in need of promotion.
ADVERTISING:
Advertising Expense was determined by growing a projected 1998 expense by the
inflation rate over the 10-year projection period.
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CAPITAL EXPENDITURE SUMMARY
System cash flow was then reduced by capital expenditures to determine debt free
net cash flow.
As rebuild activity has been limited to replacement of damaged and old cable,
the System is in need of capital investment in the system plant. The System is
also currently operating at full capacity at 349.25 MHz. These facts would
require a potential purchaser to factor the cost of a system-wide rebuild. While
a 550 MHz capacity could be sufficient given the demographics and franchise
requirements, the incremental cost to upgrade to 750 MHz is quite small. In
addition, in the future to increase service rates and add new services needed to
compete with DBS, such as Internet access or digital services, a buyer will need
to rebuild its System to 750 MHz. The capital expenditures needed to rebuild the
System are assumed to occur in 1998 and 1999 at a weighted average cost of
$18,815 per mile. We have assumed a $35 per subscriber cost for maintenance
costs per year. THE COST OF THE REBUILD EQUATES TO A VALUE DIFFERENCE OF $764
PER SUBSCRIBER, OR 3.2X 1997 CASH FLOW.
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TERMINAL VALUE / DISCOUNT RATE
Terminal Value
The valuation model utilized an exit multiple (which was applied to the 10th
year's cash flow) thereby assuming a sale of the System at the end of the DCF
projection period. The exit multiple utilized was 8.0x. The exit multiple was
determined after analyzing current and projected demographics, System growth
prospects, the technical condition of the System at the time of sale and
projected financial performance. We also considered the logical buyers for
System, which is determined principally by the consolidation that has already
occurred in the System's general market, and the characteristics of the System
within the Company's market.
Discount Rate
The resultant debt-free net cash flow streams and terminal value were discounted
back to the present value at a 13.9% discount rate. This discount rate was based
on the risk-adjusted industry Weighted Average Cost of Capital ("WACC"). WACC is
estimates of the overall rate of return required for an investment by both
equity and debt owners. Determination of the weighted average cost of capital
required a separate analysis of the cost of equity and the cost of debt.
The equity component was determined by using the Capital Asset Pricing Model
("CAPM"). The CAPM
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incorporates estimates of the risk-free rate for the use of funds, an equity
risk premium, an industry premium (Beta), as well as the risks inherent with a
specific investment in the System. The debt component of the cost of capital was
determined by using the after-tax cost of debt appropriate for the Company.
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COMPARABLE TRANSACTION ANALYSIS
The System has approximately 18,565 subscribers serviced from a single headend
and one hub site. For a comparable System sales analysis, we utilized System of
similar size and characteristics of the System. Comparables were selected for a
variety of criteria including size, multiple locations, single headends and
similar demographics. The following is a summary of the comparable transactions
completed in 1997 and 1998. See the Appendix for the complete listing of
comparable transactions.
<TABLE>
<CAPTION>
Aggregate Basic Value/ Cash SCF
Value Subs Sub Flow Multiple
----- ---- --- ---- --------
($ million) (000) ($ millions)
<S> <C> <C> <C> <C> <C>
1997 Totals/Weighted Average $ 199 111 $1,798 $22 9.22 x
1998 Totals/Weighted Average $ 238 127 $1,927 $23 9.11 X
</TABLE>
SOURCE: Waller Capital Corp.; Paul Kagan Associates
The comparable System sales analysis yielded a value per subscriber from $1,798
to $1,927. This supports and validates Waller Capital's analysis that resulted
in an aggregate value for Jones System of $1,886 per subscriber.
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JONES INTERCABLE
CALVERT COUNTY
MSO STATISTICS
<TABLE>
<CAPTION>
Projected
FYE 12/31/,
Year -----------------------------------------------------------------------------------------
Operations Period % of 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Statistics 1997 Growth 1 2 3 4 5 6 7 8 9 10
- ---------- ------ ------ -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Homes Passed 26,572 27,184 28,000 29,940 29,705 30,447 31,208 31,833 32,469 32,956 33,286
% Growth N/A See years 2.3% 3.0% 3.0% 3.0% 2.5% 2.5% 2.0% 2.0% 1.5% 1.0%
Plant Miles 818 838 858 878 898 918 938 957 976 991 1,000
Homes Per Mile 32.5 32.4 32.6 32.8 33.1 33.2 33.3 33.3 33.3 33.3 33.3
Equivalent Basic
Units 18,166 See years 19,029 19,600 20,188 20,793 21,313 21,846 22,283 22,729 23,069 23,300
% Growth N/A 4.7% 3.0% 3.0% 3.0% 2.5% 2.5% 2.0% 2.O% 1.5% 1.0%
% Penetration 68.4% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0% 70.0%
Pay Units 16,918 17,488 17,938 18,195 18,376 18,560 18,746 18,933 19,123 19,314 19,507
% Growth N/A See years 3.4% 2.0% 2.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
% of Basic 93.1% 91.9% 91.0% 90.1% 88.4% 87.1% 85.8% 85.0% 84.1% 83.7% 83.7%
PPV 3,333 3,450 3,519 3,589 3,661 3,734 3,809 3,985 3,963 4,042 4,123
% Growth N/A See years 3.5% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
- ------------
Rate Summary
- ------------
Basic (1) $ 27.25 $ 28.00 $ 28.70 $ 31.00 $ 32.08 $ 33.20 $ 34.37 $ 35.57 $ 36.81 $ 38.10 $ 39.44
% Growth 2.7% 2.5% 8.0% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Pay $ 7.22 7.35 7.50 7.65 7.80 7.96 8.11 8.29 8.44 8.61 8.78
% Growth 1.8% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
PPV $ 7.35 7.60 7.90 8.22 8.55 8.89 9.25 9.62 10.00 10.40 10.82
% Growth 3.4% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
</TABLE>
N/A -Not available
N/M - Not meaningful
(1) THE BASIC RATE SHOWN ABOVE REFLECTS THE BASIC REVENUE DIVIDED BY EQUIVALENT
BASIC SUBSCRIBERS. 77HIS RATE DOES NOT DIRECTLY TIE TO THE BASIC RATE
CHARGED WITHIN THE SYSTEM.
<PAGE>
WALLER CAPITAL CORPORATION
JONES INTERCABLE
CALVERT COUNTY
<TABLE>
<CAPTION> PROJECTED
FYE 12/31
INCOME --------------------------------------------------------------------------
STATEMENT YEAR PERIOD 1998 1999 2000 2001 2002 2003 2004 2005
SUMMARY 1996 1997 % GROWTH 1 2 3 4 5 6 7 8
- --------- --------------- ---------- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Basic $5,312 $ 5,941 MSO Status $ 6,394 $ 6,750 $ 7,509 $ 8,005 $ 8,492 $ 9,009 $ 9,511 $10,041
% Growth N/A 11.9% 7.6% 5.6% 11.2% 6.6% 6.1% 6.1% 5.6% 5.6%
Pay 1,479 1,465 MSO Status 1,542 1,605 1,670 1,720 1,772 1,825 1,881 1,937
PPV 378 294 MSO Status 315 334 354 376 398 423 448 476
Advertising 455 187 Inflation 195 201 207 213 219 226 233 240
Other 1,080 1,098 varies 1,100 1,133 1,224 1,322 1,427 1,541 1,665 1,798
------ ------- ------- ------ ------- ------- ------- ------- ------- -------
TOTAL REVENUE $8,704 $ 8,985 $ 9,546 $10,023 $10,963 $11,635 $12,309 $13,025 $13,737 $14,491
% Growth N/A 3.2% 6.2% 5.0% 9.4% 6.1% 5.8% 5.8% 5.5% 5.5%
- -------------------------------------
Inflation Factor 3.00%
OPERTATING EXPENSES
Personal Expenses $ 845 $ 710 5% + Inflation 767 828 894 966 1,043 1,127 1,217 1,314
Subscriber and
Revenue Related
Expense 2,944 2,842 See Growth 2,984 3,133 3,290 3,455 3,627 3,809 3,999 4,199
% Growth N/A N/A 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Pay-Per View 160 206 Inflation 212 218 225 231 238 246 253 260
System Plant
Related Expenses 484 386 varies 398 417 438 460 483 507 533 559
System Office
Related Expenses 268 236 Inflation 243 251 258 266 274 282 291 299
Marketing Related
Expenses 322 239 varies 249 259 269 280 291 303 315 327
Advertising Related
Expenses 205 1 varies 100 103 106 109 113 116 119 123
Total Operating
Expenses $5,228 $ 4,620 $ 4,953 $ 5,210 $ 5,481 $ 5,767 $ 6,070 $ 6,389 $ 6,726 $ 7,083
% Growth N/A N/A 7.2% 5.2% 5.2% 5.2% 5.2% 5.3% 5.3% 5.3%
U.L. System Cash Flow
(EBITDA) $3,476 $ 4,366 $ 4,593 $ 4,813 $ 5,482 $ 5,868 $ 6,240 $ 6,636 $ 7,011 $ 7,409
% Marign 39.9% 48.6% 48.1% 48.0% 50.0% 50.4% 50.7% 50.9% 51.0% 51.1%
% Growth N/A 21.7% 5.2% 4.8% 13.9% 7.0% 6.3% 6.3% 5.7% 5.7%
Revenue/Subscriber/Month $ 41.22 $ 41.80 $ 42.61 $ 45.26 $ 46.63 $ 48.13 $ 49.68 $ 51.38 $ 53.13
SCF/Subscriber/Year $240.31 $241.39 $245.57 $271.57 $282.20 $292.76 $303.75 $314.64 $325.96
INCOME ---------------------
STATEMENT YEAR PERIOD 2006 2007
SUMMARY 1996 1997 % GROWTH 9 10
- --------- --------------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
REVENUES
Basic $5,312 $ 5,941 MSO Status $10,548 $11,026
% Growth N/A 11.9% 5.1% 4.5%
Pay 1,479 1,465 MSO Status 1,996 2,056
PPV 378 294 MSO Status 505 535
Advertising 455 187 Inflation 247 254
Other 1,080 1,098 varies 1,942 2,097
------ ------- ------- -------
TOTAL REVENUE $8,704 $ 8,985 $15,237 $15,969
% Growth N/A 3.2% 5.1% 4.8%
- -------------------------------------
Inflation Factor 3.00%
OPERTATING EXPENSES
Personal Expenses $ 845 $ 710 5% + Inflation 1,419 1,533
Subscriber and
Revenue Related
Expense 2,944 2,842 See Growth 4,409 4,630
% Growth N/A N/A 5.0% 5.0%
Pay-Per View 160 206 Inflation 268 276
System Plant
Related Expenses 484 386 varies 587 617
System Office
Related Expenses 268 236 Inflation 308 318
Marketing Related
Expenses 322 239 varies 340 354
Advertising Related
Expenses 205 1 varies 127 130
Total Operating
Expenses $5,228 $ 4,620 $ 7,459 $ 7,858
% Growth N/A N/A 5.3% 5.3%
U.L. System Cash Flow
(EBITDA) $3,476 $ 4,366 $ 7,778 $ 8,112
% Marign 39.9% 48.6% 51.0% 50.8%
% Growth N/A 21.7% 5.0% 4.3%
Revenue/Subscriber/Month $ 41.22 $ 55.04 $ 57.11
SCF/Subscriber/Year $240.31 $ 337.14 $ 348.14
</TABLE>
<PAGE>
WALLER CAPITAL CORPORATION
- --------------------------
JONES INTERCABLE
CALVERT COUNTY
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Projected
FYE 12/31,
-------------------------------------------------------------------------------------------------------
Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Period 1 2 3 4 5 6 7 8 9 10
-------------------------------------------------------------------------------------------------------
- --------------------------
Summary Valuation Analysis Terminal
- -------------------------- Value
-------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
System Cash Flow (EBITDA) $ 3,476 $ 4,366 $ 4,593 $ 4,813 $ 5,482 $ 5,868 $ 6,240 $ 6,636 $ 7,011 $ 7,409 $ 7,778 $ 8,112 $64,893
% Growth
Upgrade/Rebuild CapX $18.8K/ 7,883 7,883
Mile
Maintenance/New Build
CapX $35/Sub 666 686 707 728 746 765 780 795 807 816
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Capital Expenditures 0 8,549 8,569 707 728 746 765 780 795 819 844
% Of Revenue 0.0% 89.6% 85.5% 6.4% 6.3% 6.1% 5.9% 5.7% 5.5% 5.4% 5.3%
Capar/
Basic Sub $ 0.0 $ 449.3 $ 437.2 $ 35.0 $ 35.0 $ 35.0 $ 35.0 $ 35.0 $ 35.0 $ 35.5 $ 36.2
Unlevered Free Cash Flow $ 4,366 $(3,956)$(3,756)$ 4,776 $ 5,140 $ 5,494 $ 5,871 $ 6,231 $ 6,613 $ 6,958 $ 7,268
Present Value Interest
Factor 0.9370 0.8226 0.7223 0.6341 0.5567 0.4888 0.4291 0.3768 0.3308 0.2904 0.2904
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
Discounted Cash Flows $(3,707)$(3,090)$ 3,449 $ 3,259 $ 3,058 $ 2,870 $ 2,674 $ 2,492 $ 2,302 $ 2,111 $18,846
</TABLE>
---------------------------------
FMV $34,264
---------------------------------
- --------------------------------------------
Assumptions
- --------------------------------------------
Discount rate 13.90%
Inflation rate 3.0%
Exit Multiple (times EDITDA) 8.0
- --------------------------------------------
Value per Sub Multiple of 1997 Value per Sub Multiple of 1998
1997 Cash Flow 1998 Cash Flow
------------- ---------------- ------------- ----------------
$1,886 7.8 $1,801 7.5
<PAGE>
WALLER CAPITAL
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Waller Capital Corporation
- ------------------------------------------------------------------------------------------------------------------------------------
Comparable Industry Transactions: AnnouncedlProposed Cable System Sales and Trades
Announce Aggregate Basic Value/ Cash SCF
Date Seller Buyer Location Value Subs Sub Flow Multiple
-------- ------------------- ----------------- ------------------ ---------- ----- ------ ---------- --------
($000,000) (000) ($000,000)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1997 Booth Comm Helicon Corp Boone, NC 35 19 1,852 3.7 9.5
1997 Booth Comm Helicon Corp Anderson, SC 31 16 1,934 3.2 9.6
1997 Pegasus Avalon Ptrs. CT,NH 30 15 1,954 3.3 9.0
1997 Auburn Cable Harron Comm Auburn, NY 28 14 1,958 2.8 10.2
1997 TCA Cable CableOne Bartlesville, OK 28 17 1,679 3.1 8.9
1997 American Cable LP 5 Gans Multimedia St. Marys Co., MD 27 19 1,414 3.5 7.8
1997 American Cable LP 5 Rifkin Partners Shelbyville. TN 20 11 1,726 1.9 10.2
Iatermedia Northland Toccoa, GA 93 54 1,710 10.6 8.8
Marcus Comcast Maryland/Delaware 66 26 2,490 6.4 10.2
Time Warner Cablevision Lichtfield, CT 49 27 1,835 2.5 9.2
1998 Sandler Media Adelphia Handcock, MD 24 16 1,476 3.0 7.9
1998 King George Gans King George, VA 6 4 1,710 0.7 8.6
</TABLE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1997 Totals and Averages 7 Deals $199 111 $1,798 $22 9.22 x
1998 Totals and Averages 5 Deals $238 127 $1,927 $23 9.11 x
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Page 1 of 1
<PAGE>
Exhibit 99(b)(3)
CABLE TV FUND 14-A CABLE TELEVISION SYSTEM
CALVERT COUNTY, MARYLAND
APPRAISAL OF NON-CURRENT ASSETS AS OF
FEBRUARY 28,1998
Prepared for:
The Jones Group, Ltd.
May 6, 1998
[BOND & PECARO LOGO APPEARS HERE]
<PAGE>
CABLE TV FUND 14-A CABLE TELEVISION SYSTEM
CALVERT COUNTY, MARYLAND
APPRAISAL OF NON-CURRENT ASSETS AS OF FEBRUARY 28, 1998
TABLE OF CONTENTS
-----------------
Page
----
Introduction 1
System Summary 1
Industry Overview 2
Executive Summary 7
Valuation Method 7
Conclusion 10
The Cable TV Fund 14-A Cable Television System, Calvert County, Maryland
System Background 12
Demographic Profile 14
Media Overview 18
Subscriber Projections 19
Discounted Cash Flow Analysis 23
Comparable Sales Analysis 30
Conclusion 32
Exhibits
- --------
A. Qualifications of James R. Bond, Jr. and Julie A. Kroskin
<PAGE>
CABLE TV FUND 14-A CABLE TELEVISION SYSTEM
CALVERT COUNTY, MARYLAND
APPRAISAL OF NON-CURRENT ASSETS AS OF FEBRUARY 28,1998
INTRODUCTION
------------
Bond & Pecaro, Inc. has been retained to determine the fair market value of
the non-current assets of the Cable TV Fund 14-A cable television system in
Calvert County, Maryland, ("the Calvert County System") as of February 28, 1998.
Among these assets were towers, electronic equipment, office equipment,
vehicles, a cable television distribution plant, cable television franchises,
and a cable television subscriber base.
SYSTEM SUMMARY
- --------------
The Calvert County System serves portions of the Counties of Calvert, Anne
Arundel, Charles, and St. Mary's, Maryland. Most of the system's cable
distribution plant operates at a bandwidth of 430 mHz with a capacity of 44
channels. The channel capacity of the system is currently fully utilized; there
were no vacant channels available as of February 28, 1998.
The system is fully addressable and provides impulse pay-per-view services
to subscribers. As of February 28, 1998, the system had 364.9 miles of
underground cable distribution plant and 403.1 miles of aerial cable plant.
Additionally, the system had 49.6 miles of fiberoptic cable. Approximately
26,331 homes are passed by the system's cable distribution plant.
-1-
<PAGE>
As of February 28, 1998, the system had 18,297 basic subscribers,
representing a basic subscriber penetration of 69.5%. The system had
approximately 16,988 pay subscriptions, yielding a pay to basic ratio of
approximately 92.8%.
The Calvert County System operates under the provisions of three cable
television franchises/1/. The expiration dates associated with each of the
franchises are as follows:
Franchise Expiration Date
--------- ---------------
Calvert County January, 1999
St. Mary's County February, 2002
Anne Arundel County June, 2000
INDUSTRY OVERVIEW
- -----------------
The cable television industry developed in the late 1940s in order to
provide television service to communities in rural Pennsylvania that 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 Broadcasting & Cable Yearbook 1997, 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.
- ------------------------
/1/ Although portions of Charles County are served by the Calvert County System,
there is no formal franchise agreement in place.
-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, that 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 determined 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" services
such as local television signals, local origination programs, and some 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
subscribing 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%. Approximately 67% of all
households in the United States are currently served by cable television.
-4-
<PAGE>
The linkage between basic penetration, pay penetration, and customer
development is fundamental to the cable industry. Operators constantly seek to
provide programming 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, satellite program
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.
-5-
<PAGE>
It is in this marketplace, one defined by heavy capital investment, the
relationship between subscriber base size and revenues, and increasing
competition, that the Calvert County System operates.
To inspect the physical plant and gather relevant financial and market data
necessary to complete the appraisal, James R. Bond, Jr. of the firm visited the
office and technical facilities of the system on April 15, 1998.
In performing this analysis, various sources were employed. These include
1997 Broadcasting & Cable Yearbook; 1998 Television and Cable Factbook; Market
- ---------------------------------- ----------------------------------
Statistics Demographics USA 1997, County Edition; Paul Kagan Associates Cable TV
------------------------------------- --------
Investor; other industry publications; internal financial statements and reports
- --------
provided by the Calvert County System; and financial information and projections
supplied by Cable TV Fund 14-A. Additionally, the appraiser relied upon
information furnished by system management relative to the age, condition, and
adequacy of the system's physical plant. These materials are assumed to be
accurate with respect to factual matters.
-6-
<PAGE>
CABLE TV FUND 14-A CABLE TELEVISION SYSTEM
CALVERT COUNTY, MARYLAND
APPRAISAL OF NON-CURRENT ASSETS AS OF FEBRUARY 28, 1998
EXECUTIVE SUMMARY
-----------------
An analysis to determine the fair market value of the non-current assets of
the Calvert County System has been made. Fair market value is defined as the
price in cash or cash equivalents 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. The effective date of this analysis is February
28, 1998.
VALUATION METHOD
- ----------------
In order to determine the fair market value of the non-current assets of
the Calvert County System, a discounted cash flow projection was developed. This
income approach measures the expected economic benefits these assets bring to
their holder. The fair market value of the assets of the system may therefore be
expressed by discounting these future benefits.
It is generally accepted that the value of a telecommunications business
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
-7-
<PAGE>
an important factor in the valuation of such properties. A number of factors
contribute to going 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.
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.
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.
The capital expenditures provision reflects the amount of investment
required to expand and maintain a competitive cable television business in the
Calvert County, Maryland 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
-8-
<PAGE>
regarding market demographics, system basic and pay penetration, and operating
profit margins can be made with the highest degree of accuracy.
Over this ten year period, household growth in the Calvert County 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 aftertax 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
discount rate appropriate for the cable television industry. The discount rate
used is based upon an after-tax rate calculated for the cable television
industry.
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 was applied to the system's Year 10 operating cash
flow projection. The terminal value represents the hypothetical value of the
system at the end of the projection period. Taxes were deducted from the
indicated terminal value. The net terminal value was then discounted to present
value.
The results of these calculations are considered and given appropriate
weight in the consolidation portion of the analysis. In order to verify the
results of the discounted cash flow analysis, the appraiser also utilized a
comparable sales approach, relying upon an
-9-
<PAGE>
analysis of subscriber multiples. The results of this analysis support the
conclusion resulting from application of the income approach.
CONCLUSION
- ----------
Based upon the application of the income and market approaches, the
indicated fair market value of the non-current assets of the Calvert County
System as of February 28, 1998 is determined to be $39.3 million.
Recipients of this report agree that all of the information contained
herein is of a confidential nature. This report may not, in whole or in part, be
reproduced or distributed to others. Each recipient agrees to treat it in a
confidential manner, and will not, directly or indirectly, disclose or permit
its agents or affiliates to disclose any such information without the consent of
Bond & Pecaro, Inc.
This analysis is based upon a number of projections. Projections are
inherently subject to varying degrees of uncertainty. Their accuracy depends,
among other things, upon the reliability of the underlying assumptions and the
occurrence of events beyond the control of Bond & Pecaro, Inc.
Certain information and assumptions are based upon historical industry
data. Some of the assumptions set forth inevitably will prove not to have been
correct. Consequently, the results of operations will vary from those set forth
in the projections and such variations may be material.
-10-
<PAGE>
Bond & Pecaro, Inc. makes no representations or warranties as to the
accuracy or completeness of the information or projections and assumptions
contained herein, or otherwise furnished in connection with this analysis.
Neither Bond & Pecaro, Inc. nor its personnel assume any liability for damages,
direct or indirect, arising out of or related to this report, the information or
assumptions or projections contained herein, any omissions from this report, or
any information otherwise provided regarding this report.
Neither this firm nor any of its employees has any present or anticipated
economic interest in the Cable TV Fund 14-A cable television system or The Jones
Group, Ltd. The compensation received by the firm was in no way contingent upon
the values or the conclusions developed herein.
This appraisal was prepared for The Jones Group, Ltd. in connection with
internal management requirements. The report is not to be otherwise cited or
disseminated without the prior written consent of Bond & Pecaro, Inc.
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. BY ___________________________
1201 Connecticut Ave., N.W. James R. Bond, Jr.
Suite 450
Washington, D.C. 20036
(202) 775-8870
May 6, 1998 BY ___________________________
Julie A. Kroskin
-11-
<PAGE>
CABLE TV FUND 14-A CABLE TELEVISION SYSTEM
CALVERT COUNTY, MARYLAND
APPRAISAL OF NON-CURRENT ASSETS AS OF FEBRUARY 28, 1998
CALVERT COUNTY CABLE TELEVISION SYSTEM
--------------------------------------
System Background
- -----------------
The Calvert County System serves the Counties of Calvert, Anne Arundel,
Charles, and St. Mary's, Maryland.
The technical and business operations of the Calvert County System are
conducted at two sites. These consist of an office facility located at 101
Skipjack Road in Prince Frederick and a headend facility on Route 2, also in
Prince Frederick.
Calvert County Cable Television System Historical Performance
- -------------------------------------------------------------
System financial statements were provided for the years ending December 31,
1994, 1995, 1996, and 1997. As shown in Table 1, the system's net revenues
increased from approximately $7.3 million in 1994 to $9.0 million in 1997,
reflecting a compound annual growth rate of approximately 7.0%.
Operating cash flow at the Calvert County System increased at an average
annual rate of approximately 12.9% during the 1994 to 1997 period. The system's
operating profit margin fell from 41.3% in 1994 to 39.8% in 1995, but
subsequently grew to 48.6% in 1997.
-12-
<PAGE>
Table 1
-------
Historical Calvert County Cable Television System Financial Performance
(Dollar Amounts Shown in Thousands)
1997 1996 1995 1994
---- ---- ---- ----
System Net Revenue $8,985.1 $8,703.9 $7,968.8 $7,337.1
Total Operating Expenses 4,619.7 5,067.5 4,796.3 4,306.2
-------- -------- -------- --------
Operating Cash Flow $4,365.4 $3,636.4 $3,172.5 $3,030.9
Operating Cash Flow Margin 48.6% 41.8% 39.8% 41.3%
Source: Calvert System financial statements for years ending December 31, 1994,
1995, 1996, and 1997.
-13-
<PAGE>
DEMOGRAPHIC PROFILE
- -------------------
As the Calvert County System only covers small portions of Anne Arundel,
Charles, and St. Mary's Counties, an analysis of the population, income, retail
sales, employment composition, and other economic characteristics were limited
to Calvert County.
Population Growth
- -----------------
The current and projected populations of Calvert County are shown in Table
2. In 1996, the population of Calvert County was approximately 67.9 thousand.
The population of the area is projected to increase at an annual rate of 3.0%
through the year 2001, based upon forecasts contained in Market Statistics
Demographics USA 1997, County Edition. This is well above the 0.7% projected
annual rate of population growth for the State of Maryland, as well as the 0.8%
annual increase projected for the United States.
Income Growth
- -------------
Summary income data for Calvert County are also contained in Table 2.
Current income levels and projected growth rates for the market are compared
with averages for the State of Maryland and for the United States.
-14-
<PAGE>
Total Effective Buying Income ("EBI")/1/ in Calvert County during the 1996-
2001 period is projected to increase from approximately $1.1 billion to $1.4
billion. Per capita EBI is projected to increase from $15,823 to $18,159 over
the same period. EBI per household is approximately 0.2% lower than the average
for the State of Maryland and almost 13.2% higher than the national average.
The projected income growth rate for Calvert County is well above that of
the state and nation. However, the per capita and per household income growth
rates for Calvert County are lower than both state and national levels.
Retail Sales Growth
- -------------------
Retail sales data provide additional information regarding economic
activity in Calvert County. As reflected in Table 2, total, per capita, and per
household retail sales for the market are projected to grow at compound annual
rates of 7.4%, 4.3%, and 4.0%, respectively, during the 1996-2001 period.
Projected retail sales in the area are compared to those for the State of
Maryland and the United States. Using these measures, the total retail sales
growth in Calvert County greatly exceeds state and national averages. For
example, total retail sales growth during the 1996-2001 period is expected to
average 7.4% in Calvert County, compared to 3.2% in the State of Maryland and
4.0% in the United States as a whole. Retail sales per capita
- ---------------------------
/1/ EBI is defined by Market Statistics Demographics USA 1997, County Edition
-------------------------------------
as "personal income less personal tax and non-tax payments."
-15-
<PAGE>
of $6,824 in the market are well below the national average of $9,214 and also
below the Maryland average of $9,085.
Employment Composition
- ----------------------
Major employers in the Calvert County area include Baltimore Gas &
Electric, Calvert Memorial Hospital, Direct Mail Management, Southern Maryland
Electric Cooperative, and Bell Atlantic.
The estimated unemployment rate in Calvert County as of February 1998 was
4.4% representing an increase from a 3.1% level at the end of 1996./1/ The
current rate is lower than the 5.3% unemployment rate for the State of Maryland
and slightly below the 4.6% national average.
- -------------------------
/1/ Unemployment data from the Bureau of Labor Statistics.
-16-
<PAGE>
TABLE 2
-------
Demographic and Economic Projections for Calvert County,
the State of Maryland, and the United States
Annual
1996 2001 Change
---- ---- ------
Population
(Thousands) Calvert 67.9 78.8 3.0%
Maryland 5,088.3 5,281.6 0.7
U.S. 267,540.6 279,027.7 0.8
Households
(Thousands) Calvert 22.5 26.4 3.2%
Maryland 1,863.7 1,958.1 1.0
U.S. 98,635.5 103,870.8 1.0
Average Household Size
Calvert 3.0 3.0 0.0%
Maryland 2.7 2.7 0.0
U.S. 2.7 2.7 0.0
Total Effective Buying Income
(Millions) Calvert $ 1,074.4 $ 1,430.9 5.9%
Maryland 89,147.2 106,931.9 3.7
U.S. 4,161,512.4 5,072,857.0 4.0
EBI per Capita
Calvert $ 15,823 $ 18,159 2.8%
Maryland 17,520 20,246 2.9
U.S. 15,555 18,180 3.2
EBI per Household
Calvert $ 47,749 $ 54,201 2.6%
Maryland 47,833 54,610 2.7
U.S. 42,191 48,838 3.0
Total Retail Sales
(Millions) Calvert $ 463.4 $ 662.3 7.4%
Maryland 46,228.0 54,145.6 3.2
U.S. 2,465,147.1 3,004,997.9 4.0
Retail Sales per Capita
Calvert $ 6,824 $ 8,405 4.37%
Maryland 9,085 10,252 2.4
U.S. 9,214 10,770 3.2
Retail Sales per Household
Calvert $ 20,594 $ 25,088 4.0%
Maryland 24,804 27,652 2.2
U.S. 24,992 28,930 3.0
Source: Market Statistics Demographics USA 1997, County Edition.
-------------------------------------------------------
-17-
<PAGE>
MEDIA OVERVIEW
- --------------
The Calvert County System faces competition from area television stations,
local radio stations, newspapers, direct broadcast satellite (DBS), and
videocassette rental outlets for audience share and advertising revenues.
According to Broadcasting & Cable Yearbook 1998, the Calvert County System
is located within the Washington, D.C. DMA,/1/ which ranks 7th in the United
States.
There are eleven commercial television stations operating in the
Washington, D.C. market.
Call Letters Channel Affiliation
- ----------------------------------------------------------
WRC-TV 4 NBC
WTTG 5 Fox
WJLA-TV 7 ABC
WUSA 9 CBS
WTMW 14 Independent
WDCA 20 UPN
WHAG-TV 25 NBC
WBDC-TV 50 WBN
WSHE-TV 60 Fox
WVVI 66 Independent
WJAL 68 WBN
- --------------------------
/1/ Nielsen Media Research defines a DMA as a "group of counties in which
stations in the metro area receive the largest audience share. DMAs are non-
overlapping areas used for planning, buying, and evaluating television
audiences. Each county in the United States is assigned to only one DMA."
-18-
<PAGE>
Of the radio stations licensed to the Washington, D. C. market, 20 achieved
a measurable audience share in the last Arbitron rating period, as reported in
Duncan's American Radio, Fall 1997. These include four AM radio stations and 16
FM radio stations.
Cable operators adjacent to the Calvert County System include Jones
Intercable with approximately 97,375 subscribers and Western Shore Cable (Gans
Multimedia) with approximately 18,552 subscribers. Calvert County is seved by
the Calvert Independent, a weekly newspaper with a circulation of 8,714. The
major daily newspaper serving the area is The Washington Post, with a total
circulation of 734,746 daily and 1,122,276 on Sundays.
SUBSCRIBER PROJECTIONS
- ----------------------
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 passed by the Calvert
County System will increase at a rate equivalent to the average household growth
projected for the areas served by the system as a whole, or approximately 2.0%
per year. This rate is based
-19-
<PAGE>
upon management expectations for the portion of Calvert County which is served
by the System.
Basic and Expanded Basic Penetration
- ------------------------------------
Basic and expanded basic subscriber penetration at the system are currently
69.5% and 93.5% (expressed as a ratio of basic subscribers), respectively.
System basic penetration has shown modest but consistent growth during the past
three years. It is likely that basic penetration will continue to demonstrate
modest growth over the 10 year projection period.
For the purpose of this analysis, the appraiser has assumed that basic
subscriber penetration will gradually increase from its current level to
approximately 74.0% by Year 10, as shown in Table 3. Basic subscribers at the
system are projected to increase at an annual rate of 3.3% through Year 5 and
2.0% through Year 10. Expanded basic subscriber penetration has been projected
to remain at a 93.5% through Year 10. These rates are derived from the
historical and anticipated performance of the system, as reflected in management
projections, and expectations for the cable television industry in general.
Pay Penetration
- ---------------
As of February 28, 1998, pay penetration at the Calvert County System
attained a level of 92.8%. Pay penetration is projected to remain at this level
through Year 10, as indicated in Table 3. This estimate is reasonable in light
of the historical and anticipated
-20-
<PAGE>
performance of the system and the anticipated performance of the cable
television industry in general.
Rates
- -----
As of February 28, 1998, monthly service rates were $17.12 for basic
service, $31.24 for basic plus service, $10.00 to $12.00 for each pay service,
and $1.29 for each converter. Installation fees ranged from $10.00 to $40.00,
depending upon the type of installation service performed.
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. These assumptions
are consistent with industry expectations for service rate growth.
-21-
<PAGE>
<TABLE>
<CAPTION>
Table 3
-------
Calvert County Cable Television System Subscriber Projections
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
------ ------ ------ ------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Homes Passed 1/ 26,858 27,395 27,943 28,502 29,072 29,653 30,246 30,851 31,468 32,097
Basic Subscribers:
Beginning of Year 18,297 18,901 19,525 20,169 20,835 21,523 21,953 22,392 22,840 23,297
Net Additions 604 624 644 666 688 430 439 448 457 466
End of Year 18,901 19,525 20,169 20,835 21,523 21,953 22,392 22,840 23,297 23,763
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Average Basic Subscribers 2/ 18,599 19,213 19,847 20,502 21,179 21,738 22,173 22,616 23,069 23,530
Tier I Subscribers (EOY) 2/ 17,672 18,256 18,858 19,481 20,124 20,526 20,937 21,355 21,783 22,218
Premium Subscribers (EOY) 2/ 17,540 18,119 18,717 19,335 19,973 20,372 20,780 21,196 21,620 22,052
Basic Service Penetration 70.4% 71.3% 72.2% 73.1% 74.0% 74.0% 74.0% 74.0% 74.0% 74.0%
Tier I Penetration (% Subs.) 93.5% 93.5% 93.5% 93.5% 93.5% 93.5% 93.5% 93.5% 93.5% 93.5%
Premium Penetration (% Subs.) 92.8% 92.8% 92.8% 92.8% 92.8% 92.8% 92.8% 92.8% 92.8% 92.8%
</TABLE>
1/ Number of households in Calvert County are projected to increase at 2.0%
per year. See text.
2/ Basic, tier, and premium subscribers are projected to increase at 3.3%
through Year 5 and 2.0% through Year 10. See text.
-22-
<PAGE>
DISCOUNTED CASH FLOW ANALYSIS
- -----------------------------
System Revenue Projections
- --------------------------
Most of the revenue projections appearing in Table 4 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%, based upon management expectations for the system. Pay-per-view service
revenue is projected to increase at a 2.3% annual rate through Year 10,
consistent with management projections.
Commercial advertising revenue is projected to increase at a 14% annual
rate through Year 5, also consistent with management expectations. This growth
rate decreases after Year 5, to a level of 10%, based upon industry
projections. Equipment rental revenues are projected to grow at a compound
annual rate of 12% during the projection period. Installation revenue, as well
as other revenues, is projected to increase by 5% annually through Year 10.
As indicated in Table 4, total system revenues are projected to increase
from $10.4 million in Year 1 to $19.1 million in Year 10.
-23-
<PAGE>
<TABLE>
<CAPTION>
Table 4
-------
Calvert County Cable Television System Revenue Projections
(Dollar Amounts Shown in Thousands)
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10
--------- --------- --------- --------- --------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service Revenue
Basic Service Revenue $ 4,012.9 $ 4,352.9 $ 4,720.4 $ 5,119.8 $ 5,553.1 $ 5,984.0 $ 6,409.6 $ 6,863.5 $ 7,349.6 $ 7,872.2
Tier 1 Service Revenue 3,095.3 3,356.4 3,640.9 3,949.7 4,284.5 4,617.0 4,945.7 5,295.8 5,670.9 6,074.8
Commercial Basic &
Pay Revenue 1/ 102.8 107.9 113.3 119.0 125.0 131.3 137.9 144.8 152.0 159.6
Premium Service Revenue 1,481.3 1,529.8 1,580.3 1,632.4 1,686.3 1,730.8 1,765.4 1,800.8 1,836.8 1,873.5
Pay Per View Revenue 2/ 300.9 307.8 314.9 322.1 329.5 337.1 344.9 352.8 360.9 369.2
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Subtotal Service
Revenue $ 8,993.2 $ 9,654.8 $10,369.8 $11,143.0 $11,978.4 $12,800.2 $13,603.5 $14,457.7 $15,370.2 $16,349.3
Other Revenue
Advertising Revenue 3/ $ 212.7 $ 242.5 $ 276.5 $ 315.2 $ 359.3 $ 395.2 $ 434.7 $ 478.2 $ 526.0 $ 578.6
Installation 1/ 107.7 113.1 118.8 124.7 130.9 137.4 144.3 151.5 159.1 167.1
Equipment Rentals 4/ 392.1 439.2 491.9 550.9 617.0 691.0 773.9 866.8 970.8 1,087.3
Franchise Fees 5/ 402.4 415.6 429.3 443.5 458.2 467.3 476.7 486.2 495.9 505.8
FCC Pass Thru
Revenue 1/ 9.7 10.1 10.7 11.2 11.7 12.3 12.9 13.6 14.3 15.0
Other Revenue I/ 265.7 279.0 293.0 307.7 323.1 339.3 356.3 374.1 392.8 412.4
--------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
Subtotal Other
Revenue $ 1,390.2 $ 1,499.6 $ 1,620.2 $ 1,753.2 $ 1,900.2 $ 2,042.5 $ 2,198.8 $ 2,370.4 $ 2,558.9 $ 2,766.2
Total Revenue $10,383.4 $11,154.4 $11,990.0 $12,896.2 $13,878.6 $14,842.7 $15,802.3 $16,828.1 $17,929.1 $19,115.5
</TABLE>
1/ Commercial basic and pay, installation, FCC Pass Through, and other revenue
projected to increase at a 5% annual rate.
2/ Pay Per View revenue projected to increase at a 2.3% annual rate.
3/ Advertising revenue projected to increase at an annual rate of 14% through
Year 5, and 10% through Year 10.
4/ Equipment rental revenue projected to increase at a 12% annual rate.
5/ Franchise Fees projected to increase based upon a subscriber growth rate of
3.3% through Year 5, and 2% through Year 10.
-24-
<PAGE>
Operating Profit Margin
- -----------------------
Operating profit margins are based upon historical operating performance of
the Calvert County System. Operating profits are defined as profit before
interest, depreciation, tax, and corporate allocation charges. During the past
four years, system operating profit margins have been within the 39.8% to 48.6%
range. For the purposes of this analysis, the system's 1997 operating profit
margin of 48.6% has been used in the projection of future operating profits.
Depreciation
- ------------
Depreciation expense for each year has been determined using the MACRS
schedule for Five, Seven, 15, and 39 Year Property, based upon the reported cost
of fixed assets present at the system.
Federal, State, and Local Tax Rates
- -----------------------------------
An estimated tax rate of 39.6% 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 February 28, 1998.
Subsequent Capital Expenditures
- -------------------------------
Subsequent annual capital expenditures were estimated to approximate 10%
of the cost of the fixed assets at the Calvert County System as of February 28,
1998. A supplemental
-25-
<PAGE>
provision for upgrading the system's distribution plant was made in Years 4 and
5. 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. In addition, as the system matures, 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 expenses were
added back to net income to yield after-tax cash flow. From the after-tax cash
flow, the provision for subsequent capital expenditures was deducted to
calculate net after-tax cash flows.
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 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 Weighted Average Cost
of Capital ("WACC") model.
-26-
<PAGE>
Residual Cash Flow Multiple
- ---------------------------
The residual cash flow multiple refers to the factor used to estimate the
system's value at the end of the projection period. A multiplier of 12 was
applied to the Year 10 operating cash flow. Generally, multiples used in the
valuation of cable television systems of this type range from 8.0 to 14.0 times
operating cash flow, depending upon market conditions and profit potential.
Exceptional circumstances will warrant multiples outside of this range.
The selected multiple of 12 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 February 28, 1998, tempered by the economic
conditions of the system's service area, the necessity for certain capital
expenditures, and the uncertainty introduced by re-regulation of the cable
television industry and the prospects for increased competition from wireless
cable companies and DBS operators.
Present Value of Residual
- -------------------------
In the analysis, capital gains taxes were deducted from the terminal value
at a rate of 39.6%. This result was then discounted for present value using a
rate of 12%.
The results of the discounted cash flow analysis are summarized in Tables 5
and 6. Based upon the assumptions outlined above, the indicated fair market
value of the system's non-current assets is $39,273,800, or $39.3 million. This
value incorporates the cumulative present value of the net after-tax cash flows
of $15,474,500 and the discounted residual value of $23,799,300.
-27-
<PAGE>
Table 5
-------
Calvert County Cable Television System Discounted Cash Flow Analysis
(Dollar Amounts Shown in Thousands)
<TABLE>
<CAPTION>
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6
------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Projected System Revenues 1/ $10,383.4 $11,154.4 $11,990.0 $12,896.2 $13,878.6 $14,842.7
Operating Profit Margin 2/ 48.6% 48.6% 48.6% 48.6% 48.6% 48.6%
Operating Cash Flow $ 5,046.3 $ 5,421.0 $ 5,827.1 $ 6,267.6 $ 6,745.0 $ 7,213.6
Less: Depreciation 5,378.2 9,028.4 7,331.1 6,889.7 7,504.2 7,690.2
------- ------- -------- -------- ------- -------
Taxable Income $ (331.9) $(3,607.4) $(1,504.0) $ (622.1) $ (759.2) $ (476.6)
Taxes 0.0 0.0 0.0 0.0 0.0 0.0
------- ------- -------- -------- -------- -------
Net Income $ (331.9) $(3,607.4) $(1,504.0) $ (622.1) $ (759.2) $ (476.6)
Add Back: Depreciation 5,378.2 9,028.4 7,331.1 6,889.7 7,504.2 7,690.2
------- ------- -------- -------- ------- -------
After-Tax Cash Flow $ 5,046.3 $ 5,421.0 $ 5,827.1 $ 6,267.6 $ 6,745.0 $ 7,213.6
Capital Expenditures 2,851.1 2,851.1 2,851.1 7,851.1 7,851.1 2,851.1
------- ------- -------- -------- ------- -------
Net After-Tax Cash Flow $ 2,195.2 $ 2,569.9 $ 2,976.0 $(1,583.5) $(1,106.1) $ 4,362.5
Present Value Net After-Tax
Cash Flow $ 2,074.3 $ 2,168.1 $ 2,241.8 $(1,065.0) $ (664.2) $ 2,339.0
Cumulative Present Value
Net After-Tax Cash Flow $ 2,074.3 $ 4,242.4 $ 6,484.2 $ 5,419.2 $ 4,755.0 $ 7,094.0
Cumulative Present Value $15,474.5
Net After-Tax Cash Flow
</TABLE>
<TABLE>
<CAPTION>
Year 7 Year 8 Year 9 Year 10
------ ------ ------ ------
<S> <C> <C> <C> <C>
Projected System Revenues 1/ $15,802.3 $16,828.1 $17,929.1 $19,115.5
Operating Profit Margin 2/ 48.6% 48.6% 48.6% 48.6%
Operating Cash Flow $ 7,679.9 $ 8,178.5 $ 8,713.5 $ 9,290.1
Less: Depreciation 7,122.4 5,738.7 4,479.9 4,479.9
------- ------- ------- -------
Taxable Income $ 557.5 $ 2,439.8 $ 4,233.6 $ 4,810.2
Taxes 0.0 0.0 0.0 1,877.0
------- ------- ------- -------
Net Income $ 557.5 $ 2,439.8 $ 4,233.6 $ 2,933.2
Add Back: Depreciation 7,122.4 5,738.7 4,479.9 4,479.9
------- ------- ------- -------
After-Tax Cash Flow $ 7,679.9 $ 8,178.5 $ 8,713.5 $ 7,413.1
Capital Expenditures 2,851.1 2,851.1 2,851.1 2,851.1
------- ------- -------- -------
Net After-Tax Cash Flow $ 4,828.8 $ 5,327.4 $ 5,862.4 $ 4,562.0
Present Value Net After-Tax
Cash Flow $ 2,311.6 $ 2,277.1 $ 2,237.3 $ 1,554.5
Cumulative Present Value
Net After-Tax Cash Flow $ 9,405.6 $11,682.7 $13,920.0 $15,474.5
</TABLE>
1/ See Table 4.
2/ Based upon the System's 1997 operating profit margin. See text.
-28-
<PAGE>
Table 6
-------
Valuation of Calvert County Cable Television System (Income Approach)
(Dollar Amounts Shown in Thousands)
Year 10 Operating Cash Flow/1/ $9,290.1
12x Cash Flow Multiple/2/ $111,481.2
Less: Remaining Basis 16,622.0
Capital Gain $94,859.2
Capital Gains Tax @ 39.6%/2/ $37,564.2
----------------------
Future Residual Value $111,481.2
Less: Capital Gains Tax 37,564.2
After-Tax Terminal Value $73,917.0
Terminal Value Discounted to Present Value @ 12% $23,799.3
Plus: Cumulative Present Value After-Tax Income/1/ 15,474.5
----------
Valuation of Calvert County System (Income Approach) $39,273.8
==========
- ----------------------
/1/ See Table 5.
/2/ See text.
-29-
<PAGE>
COMPARABLE SALES ANALYSIS
- -------------------------
The value of $39.3 million yielded by the discounted cash flow analysis of
the Calvert County System corresponds to a 9.0 times multiple of the system's
1997 cash flow and a price per subscriber of $2,146. These multiples are within
the range of prices paid by purchasers of similar cable properties and are
consistent with the expectation of slightly increased revenues in the Calvert
County area and continued market growth.
In recent years, there have been many sales of cable television systems in
the United States. Table 7 identifies seven cable television system sales which
occurred within the past 13 months. These sales have been selected based upon
their comparability to the Calvert County System. The prices paid for these
comparable systems range from $31.0 million to $66.0 million.
As shown in Table 7, the price per subscriber has been computed for each of
these sales. 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 seven comparable cable television
system sales transactions listed in Table 7 is approximately $2,145.
-30-
<PAGE>
TABLE 7
-------
Cable Television System Comparable Sales
<TABLE>
<CAPTION>
Price Price
Date Location Seller Buyer (mil.) Per Subscriber
- ---- -------- ------ ----- ------ --------------
<S> <C> <C> <C> <C> <C>
Jan. 97 Palo Alto, CA Palo Alto Co-Op Sun Country Cable $ 54.1 $2,042
Jan. 97 Jonesboro, AR TCI TCA 41.0 2,000
July 97 Jackson Co., GA McDonald Investors Genesis Cable 45.0 2,035
Oct. 97 Boone, NC Booth Communications Helicon Corporation 35.0 1,852
Oct. 97 Anderson, NC Booth Communications Helicon Corporation 31.0 1,934
Nov. 97 Mountain Brook, AL McDonald Investors Marcus Cable 62.0 2,680
Dec. 97 Harrington, DE; MD Marcus Cable of DE & MD Comcast 66.0 2,472
------ ------
Average $ 47.7 $2,145
====== ======
</TABLE>
Source: Paul Kagan Associates Cable TV Investor.
------------------
Note: Price per subscriber calculations are rounded.
-31-
<PAGE>
CABLE TV FUND 14-A CABLE TELEVISION SYSTEM
CALVERT COUNTY, MARYLAND
APPRAISAL OF NON-CURRENT ASSETS AS OF FEBRUARY 28, 1998
CONCLUSION
----------
Based upon the application of the income approach, employing a discounted
cash flow analysis, the fair market value of the non-current assets of the Cable
TV Fund 14-A cable television system was determined to be $39.3 million.
Assumptions employed in this analysis include subscriber growth, system
revenue projections, and operating profit margins. These assumptions and the
results of the discounted cash flow analysis were confirmed through an analysis
of independent comparable sales transactions.
-32-
<PAGE>
EXHIBIT A
---------
QUALIFICATIONS OF JAMES R. BOND, JR. AND JULIE A. KROSKIN
<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. During this experience 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 2,500
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 past director of the Broadcast Cable Financial
Management Association (BCFM), and has served on that organization's Taxation
Advisory and Industry Education Committees. 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
------------------------------------------
JULIE A. KROSKIN
----------------
Julie A. Kroskin is an associate 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.
Ms. Kroskin received a Bachelor of Arts degree in Radio, Television and Film
from the University of Maryland at College Park.
Prior to her association with Bond & Pecaro, Inc., Ms. Kroskin worked as a
customer and technical support representative at American Cablecom in
Beltsville, Maryland.
<PAGE>
Exhibit 99(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 14-A, LTD.
To the Limited Partners of Cable TV Fund 14-A, Ltd.:
A special vote of the limited partners of Cable TV Fund 14-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
(the "General Partner"), for the purpose of obtaining limited partner approval
of the sale of the Partnership's cable television system serving Calvert
County, portions of Charles County and St. Mary's County and southern Anne
Arundel County, all in the State of Maryland (the "Calvert County System") for
$39,388,667 in cash, subject to customary working capital closing adjustments
that may have the effect of increasing or decreasing the sales price by a non-
material amount. The Calvert County System is proposed to be sold to Jones
Communications of Maryland, Inc., an indirect wholly owned subsidiary of the
General Partner. Information relating to this matter is set forth in the
accompanying Proxy Statement.
If the limited partners approve the proposed sale of the Calvert County
System and if the transaction is closed, the Partnership will repay
$19,695,000 outstanding on its revolving credit facility, pay certain fees and
expenses of the transaction and settle working capital adjustments, and then
the Partnership will distribute the approximately $19,500,000 of net sale
proceeds to its limited partners of record as of the closing date of the sale
of the Calvert County System, which is expected to be February 26, 1999. It is
therefore estimated that the limited partners will receive $122 for each $500
limited partnership interest, or $244 for each $1,000 invested in the
Partnership, from the sale of the Calvert County System. Distributions will be
net of Maryland non-resident withholding, if applicable, and distribution
checks will be issued to the limited partners' account registration or
pursuant to any special payment instruction of record. Once the distribution
of the net proceeds from the sale of the Calvert County System has been made,
limited partners will have received a total of $497 for each $500 limited
partnership interest, or $994 for each $1,000 invested in the Partnership,
taking into account the prior distributions to limited partners made in 1997
and 1998 and assuming that the distribution from the Calvert County System's
sale is made before distributions from the Partnership's two other pending
system sales have been made. Because the distribution to be made to the
limited partners from the sale of the Calvert County System, together with all
distributions that will have been made to the limited partners at the time of
the Calvert County System's sale (assuming that the Calvert County System's
sale closes before the Partnership's two other pending system sales close),
will not return to the limited partners 125 percent of the capital initially
contributed by the limited partners to the Partnership, the General Partner
will not receive a general partner distribution from the Calvert County
System's sale proceeds.
<PAGE>
In addition to the Calvert County System, the Partnership owns and operates
the cable television system serving areas in and around Buffalo, Minnesota
(the "Buffalo System") and the cable television system serving areas in and
around Naperville, Illinois (the "Naperville System"), both of which also are
in various stages of being sold. The General Partner currently anticipates
that the Buffalo System and the Naperville System will be sold after the
closing of the sale of the Calvert County System, but the actual order of the
various closings may change depending upon a variety of timing factors not in
the General Partner's absolute control. The Partnership also has owned the
cable television system serving areas in and around Turnersville, New Jersey
(the "Turnersville System") and cable television systems serving communities
in rural central Illinois (the "Central Illinois System"), both of which were
sold in 1997. The Partnership also has owned a 27 percent interest in the
Cable TV Fund 14-A/B Venture (the "Venture"). The Venture owned and operated
the cable television system serving certain areas in Broward County, Florida
(the "Broward System") until its sale in March 1998.
The Partnership has agreed to sell its Buffalo System to an unaffiliated
party for a sales price of $27,000,000, subject to customary closing
adjustments. The closing of the sale of the Buffalo System, which is expected
to occur in February 1999, also will be subject to several conditions,
including necessary governmental and other third party consents and the
approval of the holders of a majority of the limited partnership interests of
the Partnership in a separate proxy vote to be conducted by the General
Partner in the first quarter of 1999. Upon the sale of the Buffalo System,
which is expected to follow the sale of the Calvert County System and precede
the sale of the Naperville System, the Partnership expects to distribute the
net sale proceeds of $20,600,000 to the Partnership's partners of record as of
the closing date of the sale of the Buffalo System. Because the distribution
to the limited partners from the sale of the Buffalo System, together with the
distributions that have been or will have been made to the limited partners of
the Partnership from prior cable television system sales at the time that the
Buffalo System is sold, will return to the limited partners more than 125
percent of the capital they initially contributed to the Partnership, the
General Partner will receive a general partner distribution from the proceeds
of the sale of the Buffalo System. It is estimated that the limited partners,
as a group, will receive $20,567,000 from the sale of the Buffalo System and
that the General Partner will receive a general partner distribution of
$33,000 from the net sale proceeds. The limited partner distribution from the
sale of the Buffalo System will represent $129 for each $500 limited
partnership interest, or $258 for each $1,000 invested in the Partnership.
The Partnership has also agreed to sell its Naperville System to an
unaffiliated party for a sales price of $23,000,000, subject to customary
closing adjustments. The closing of the sale of the Naperville System, which
is expected to occur in March 1999, also will be subject to several
conditions, including necessary governmental and other third party consents.
The holders of a majority of the limited partnership interests of the
Partnership already have approved the sale of the Naperville System. Upon the
sale of the Naperville System, which is expected to follow the sale of the
Calvert County System and the sale of the Buffalo System, the Partnership
expects to distribute the net sale proceeds of $20,800,000 to the
Partnership's partners of record as of the closing date of the sale of the
Naperville System. Because at the time of the Naperville System's sale, the
distributions made to limited partners from prior sales of cable television
systems will have returned to the limited partners more than 125 percent of
the amounts originally contributed to the Partnership by the limited partners,
the net proceeds from the sale of the Naperville System will be allocated 75
percent to the limited partners ($15,600,000) and 25 percent to the General
Partner ($5,200,000). The limited partner distribution from the sale of the
Naperville System will represent $97.50 for each $500 limited partnership
interest, or $195 for each $1,000 invested in the Partnership.
Portions of the proceeds from the Buffalo System sale and the Naperville
System sale will be held in indemnity escrow accounts for varying periods in
1999 following the closings of the sales. After the distribution of the
amounts, if any, remaining in the indemnity escrow accounts, the Partnership
will be liquidated and dissolved, most likely in the fourth quarter of 1999.
Taking into account the distributions that have been or will have been made to
the limited partners of the Partnership from all prior and pending cable
television system sales (excluding escrowed proceeds), the General Partner
estimates that the limited partners of the Partnership will have received a
total return of $723 for each $500 limited partnership interest, or $1,446 for
each $1,000 invested in the Partnership, at the time that the Partnership is
liquidated and dissolved.
<PAGE>
In voting on the proposed sale of the Calvert County System, limited
partners should carefully review and consider the Special Factors set forth in
detail on pages 4 through 24 of the accompanying Proxy Statement. These
Special Factors include, but are not limited to, the following:
. It is proposed that the Calvert County System be sold to a subsidiary of
the General Partner on terms and conditions that were not subject to arm's-
length negotiation. The terms of the purchase and sale agreement and the
process by which such terms were negotiated should not be deemed to be free
of conflicts of interest because the Partnership does not have any
employees or management other than the employees and management of the
General Partner who represented both the buyer and the seller in the
proposed sale transaction. The employees and management of the General
Partner owe a fiduciary duty to both the Partnership and its limited
partners and to the shareholders of the General Partner.
. The General Partner has determined that its acquisition of the Calvert
County System is in the best interests of its shareholders and that the
Partnership's sale of the Calvert County System is in the best interests of
the Partnership's limited partners. The General Partner's recommendation
that the limited partners approve the transaction and the General Partner's
determination that the transaction is fair to the limited partners should
not be deemed to be free of conflicts of interest because the General
Partner owes a fiduciary duty to the Partnership and its limited partners
in analyzing the transaction as seller and it owes a fiduciary duty to its
own shareholders in analyzing the transaction as purchaser.
. The General Partner's determination that the Calvert County System would
not be marketed for sale to third party buyers, its decision not to
consider having the Partnership sell the Calvert County System to any cable
system operator other than the General Partner, its contracting with
independent appraisal firms to prepare appraisals of the fair market value
of the Calvert County System and its review and acceptance of the
appraisals should not be deemed to be free of conflicts of interest in
light of the General Partner's decision to acquire the Calvert County
System for its own account.
. The General Partner's determination that the Partnership's investment
objectives with respect to the Calvert County System have been achieved,
its consideration of the benefits and risks to the limited partners from a
longer holding period and its conclusion that now is the time for the
Calvert County System to be sold should not be deemed to be free of
conflicts of interest in light of the fact that the General Partner could
not purchase the Calvert County System unless it also determined that now
was the time for the Partnership to sell the Calvert County System.
. The members of the Board of Directors of the General Partner who are not
employees of the General Partner did not vote separately to approve the
transaction. Neither the Board of Directors as a whole nor the independent
directors retained an unaffiliated representative to act solely on behalf
of the limited partners for the purpose of negotiating the terms of the
proposed sale of the Calvert County System and/or preparing a report
concerning the fairness of the proposed sale.
. The proposed $39,388,667 sales price for the Calvert County System is based
on the average of three separate independent appraisals of the Calvert
County System as of February 28, 1998. It is possible that the Calvert
County System could be sold for a higher sales price if it were marketed
and sold to an unaffiliated cable system operator. Strategis Financial
Consulting, Inc. valued the Calvert County System at $44,602,000. Bond &
Pecaro, Inc. valued the Calvert County System at $39,300,000. Waller
Capital Corporation valued the Calvert County System at $34,264,000. Due to
the averaging process, one of the three appraisals valued the Calvert
County System at an amount greater than the proposed sales price.
Only limited partners of record at the close of business on January 15, 1999
are entitled to notice of, and to participate in, this vote of limited
partners. It is very important that all limited partners participate in the
voting. The Partnership's ability to complete the transaction discussed in the
Proxy Statement and the Partnership's ability to make a distribution to its
limited partners of the net proceeds of the sale of the Calvert County System
pursuant to the terms of the Partnership's limited partnership agreement (the
"Partnership Agreement") are dependent upon the approval of the transaction by
the holders of a majority of the Partnership's limited partnership interests.
<PAGE>
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 Calvert County 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. A properly executed proxy card
returned to the General Partner on which a limited partner does not mark a
vote will be counted as a vote for the proposed sale of the Calvert County
System. Because limited partners do not have dissenters' or appraisal rights
in connection with the proposed sale of the Calvert County System, if the
holders of a majority of the limited partnership interests approve the
proposal, all limited partners will receive a distribution of the net sale
proceeds in accordance with the procedures prescribed by the Partnership
Agreement regardless of how or whether they vote on the proposal.
Jones Intercable, Inc., as the general partner of the Partnership, urges you
to sign and return the enclosed proxy card as promptly as possible. The proxy
card should be returned in the enclosed envelope.
JONES INTERCABLE, INC.
General Partner
[SIGNATURE OF ELIZABETH M. STEELE]
Elizabeth M. Steele
Secretary
Dated: January 25, 1999
<PAGE>
[LOGO OF JONES INTERCABLE, INC.]
9697 East Mineral Avenue
Englewood, Colorado 80112
PROXY STATEMENT
VOTE OF THE LIMITED PARTNERS OF CABLE TV FUND 14-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 14-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 Partnership's
cable television system serving Calvert County, portions of Charles County and
St. Mary's County and southern Anne Arundel County, all in the State of
Maryland (the "Calvert County System") for $39,388,667 in cash, subject to
customary working capital closing adjustments that may have the effect of
increasing or decreasing the sales price by a non-material amount. The Calvert
County System is proposed to be sold to Jones Communications of Maryland,
Inc., an indirect wholly owned subsidiary of 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 February 25, 1999, unless extended, but the vote of the
Partnership's limited partners will be deemed to be concluded on the date, at
least 20 business days from the date the proxy materials are sent to limited
partners, that the General Partner, on behalf of the Partnership, is in
receipt of proxies executed by the holders of a majority of the limited
partnership interests either consenting to or disapproving of the proposed
transaction. The General Partner may extend the deadline for receipt of proxy
votes if a majority of the limited partners fail to express an opinion on the
transaction by February 25, 1999. If the General Partner extends the deadline
for receipt of proxy votes, the limited partners will be informed by mail of
the reason for the extension and the new deadline. The cost of the proxy
solicitation will be paid by the General Partner.
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.
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.
<PAGE>
As of January 15, 1999, the Partnership had 160,000 limited partnership
interests outstanding held by 11,277 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. During the past several years, CMG Partners,
LLC, Smithtown Bay, LLC and Madison Partnership Liquidity Investors 46, LLC,
three firms unaffiliated with the Partnership, the General Partner and each
other, have conducted tender offers for interests in the Partnership. As of
January 15, 1999, CMG Partners, LLC and its affiliates owned 1,307 limited
partnership interests, or 0.8 percent of the limited partnership interests. As
of such date, Smithtown Bay, LLC and its affiliates owned 1,275 limited
partnership interests, or 0.8 percent of the limited partnership interests. As
of such date, Madison Partnership Liquidity Investors 46, LLC and its
affiliates owned 7,921 limited partnership interests, or 4.95 percent of the
limited partnership interests. Pursuant to the terms of agreements between the
Partnership and the General Partner and such firms, all of the limited
partnership interests held by these firms will be voted in the same manner as
the majority of all other limited partners who vote on the sale of the Calvert
County System. Thus, for example, if the limited partnership interests voted
in favor of the transaction constitute a majority of all limited partnership
interests voted but not a majority of all limited partnership interests, these
firms will be required to vote their limited partnership interests in favor of
the transaction, and in such event the votes of these firms could be
sufficient to cause the transaction to be approved by a majority of all
limited partnership interests, which is the vote necessary to cause the
transaction to be approved. The General Partner owns 240 limited partnership
interests. The 240 limited partnership interests owned by the General Partner
will be voted in favor of the proposed transaction. Officers and directors of
the General Partner do not own any limited partnership interests. Only limited
partners of record at the close of business on January 15, 1999 will be
entitled to notice of, and to participate in, the vote.
Upon the consummation of the proposed sale of the Calvert County System, the
Partnership will repay $19,695,000 outstanding on its revolving credit
facility, pay certain fees and expenses of the transaction and settle working
capital adjustments, and then the Partnership will distribute the
approximately $19,500,000 of net sale proceeds to its limited partners of
record as of the closing date of the sale of the Calvert County System, which
is expected to be February 26, 1999. Limited partners thereby will receive
$122 for each $500 limited partnership interest, or $244 for each $1,000
invested in the Partnership, from the sale of the Calvert County System.
Distributions will be net of Maryland non-resident withholding, if applicable,
and distribution checks will be issued to the limited partners' account
registration or pursuant to any special payment instruction of record. Once
the Partnership has completed the distribution of the net proceeds from the
sale of the Calvert County System, limited partners of the Partnership will
have received a total of $497 for each $500 limited partnership interest, or
$994 for each $1,000 invested in the Partnership, taking into account the
prior distributions to limited partners made in 1997 and 1998 and assuming
that the distribution from the Calvert County System's sale is made before
distributions from the Partnership's two other pending system sales have been
made. Because the distribution to be made to the limited partners from the
sale of the Calvert County System, together with all distributions that will
have been made to the limited partners at the time of the Calvert County
System's sale (assuming that the Calvert County System's sale closes before
the Partnership's two other pending system sales close), will not return to
the limited partners 125 percent of the capital initially contributed by the
limited partners to the Partnership, the General Partner will not receive a
general partner distribution from the Calvert County System's sale proceeds.
In addition to the Calvert County System, the Partnership owns and operates
the cable television system serving areas in and around Buffalo, Minnesota
(the "Buffalo System") and the cable television system serving areas in and
around Naperville, Illinois (the "Naperville System"), both of which also are
in various stages of being sold. The General Partner currently anticipates
that the Buffalo System and the Naperville System will be sold after the
closing of the sale of the Calvert County System, but the actual order of the
various closings may change depending upon a variety of timing factors not in
the General Partner's absolute control. The Partnership also has owned the
cable television system serving areas in and around Turnersville, New Jersey
(the "Turnersville System") and cable television systems serving communities
in rural central Illinois (the "Central Illinois System"), both of which were
sold in 1997. The Partnership also has owned a 27 percent interest in the
Cable TV Fund 14-A/B Venture (the "Venture"). The Venture owned and operated
the cable television system serving certain areas in Broward County, Florida
(the "Broward System") until its sale in March 1998.
The Partnership has agreed to sell its Buffalo System to an unaffiliated
party for a sales price of $27,000,000, subject to customary closing
adjustments. The closing of the sale of the Buffalo System, which is
2
<PAGE>
expected to occur in February 1999, also will be subject to several
conditions, including necessary governmental and other third party consents
and the approval of the holders of a majority of the limited partnership
interests of the Partnership in a separate proxy vote to be conducted by the
General Partner in the first quarter of 1999. Upon the sale of the Buffalo
System, which is expected to follow the sale of the Calvert County System and
precede the sale of the Naperville System, the Partnership expects to
distribute the net sale proceeds of $20,600,000 to the Partnership's partners
of record as of the closing date of the sale of the Buffalo System. Because
the distribution to the limited partners from the sale of the Buffalo System,
together with the distributions that have been or will have been made to the
limited partners of the Partnership from prior cable television system sales
at the time that the Buffalo System is sold, will return to the limited
partners more than 125 percent of the capital they initially contributed to
the Partnership, the General Partner will receive a general partner
distribution from the proceeds of the sale of the Buffalo System. It is
estimated that the limited partners, as a group, will receive $20,567,000 from
the sale of the Buffalo System and that the General Partner will receive a
general partner distribution of $33,000 from the net sale proceeds. The
limited partner distribution from the sale of the Buffalo System will
represent $129 for each $500 limited partnership interest, or $258 for each
$1,000 invested in the Partnership.
The Partnership has also agreed to sell its Naperville System to an
unaffiliated party for a sales price of $23,000,000, subject to customary
closing adjustments. The closing of the sale of the Naperville System, which
is expected to occur in March 1999, also will be subject to several
conditions, including necessary governmental and other third party consents.
The holders of a majority of the limited partnership interests of the
Partnership already have approved the sale of the Naperville System. Upon the
sale of the Naperville System, which is expected to follow the sale of the
Calvert County System and the sale of the Buffalo System, the Partnership
expects to distribute the net sale proceeds of $20,800,000 to the
Partnership's partners of record as of the closing date of the sale of the
Naperville System. Because at the time of the Naperville System's sale, the
distributions made to limited partners from prior sales of cable television
systems will have returned to the limited partners more than 125 percent of
the amounts originally contributed to the Partnership by the limited partners,
the net proceeds from the sale of the Naperville System will be allocated 75
percent to the limited partners ($15,600,000) and 25 percent to the General
Partner ($5,200,000). The limited partner distribution from the sale of the
Naperville System will represent $97.50 for each $500 limited partnership
interest, or $195 for each $1,000 invested in the Partnership.
Portions of the proceeds from the Buffalo System sale and the Naperville
System sale will be held in indemnity escrow accounts for varying periods in
1999 following the closings of the sales. After the distribution of the
amounts, if any, remaining in the indemnity escrow accounts, the Partnership
will be liquidated and dissolved, most likely in the fourth quarter of 1999.
Taking into account the distributions that have been or will have been made to
the limited partners of the Partnership from all prior and pending cable
television system sales (excluding escrowed proceeds), the General Partner
estimates that the limited partners of the Partnership will have received a
total return of $723 for each $500 limited partnership interest, or $1,446 for
each $1,000 invested in the Partnership, at the time that the Partnership is
liquidated and dissolved.
The Partnership will continue to be a public entity subject to the
informational reporting requirements of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), until the Partnership is dissolved, which is
expected to occur before the end of 1999. See "Certain Information About the
Partnership and the General Partner."
Limited partners should note that there are certain federal and state income
tax consequences of the proposed sale of the Calvert County System, which are
outlined herein under the caption "Federal and State Income Tax Consequences."
The Board of Directors of the General Partner has approved the proposed sale
of the Calvert County 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 outlined in 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
3
<PAGE>
or to one of its affiliates if the price paid by the General Partner or such
affiliate is determined by the average of three separate, independent
appraisals of the fair market value of the system to be sold. Because the
purchase price to be paid to the Partnership is equal to the average of three
separate, independent appraisals of the fair market value of the Calvert
County System, the Board of Directors of the General Partner has concluded
that the consideration to be paid to the Partnership for the Calvert County
System is fair to all unaffiliated limited partners of the Partnership.
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 Calvert County 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. A properly executed proxy card
returned to the General Partner on which a limited partner does not mark a
vote will be counted as a vote for the proposed sale of the Calvert County
System. Because limited partners do not have dissenters' or appraisal rights
in connection with the proposed sale of the Calvert County 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.
The approximate date on which this Proxy Statement and Form of Proxy are
being sent to limited partners is January 25, 1999.
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
at such time as the General Partner determined that the Partnership's
investment objectives had substantially been achieved and 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 or one of its
affiliates could be the purchaser of the Partnership's cable television
properties.
Sales of the Partnership's limited partnership interests commenced on
December 3, 1986 and the Partnership was formed in February 1987 when
subscriptions for the minimum offering amount were received. Sales of limited
partnership interests closed on August 14, 1987 by which time the Partnership
had raised gross offering proceeds of $80,000,000. The Partnership acquired
the Calvert County System in September 1987.
Based upon the track record of prior public partnerships sponsored by the
General Partner that had liquidated or were in the process of liquidating
their assets during the period that limited partnership interests in the
Partnership were being sold and based upon disclosures made to prospective
investors about the Partnership's investment objectives in the Cable TV Fund
14 prospectus and accompanying sales brochure, investors in the Partnership
reasonably could have anticipated that the Partnership's investment objectives
would be achieved and its assets liquidated after a holding period of
approximately five to seven years. Due to the uncertain and then adverse
regulatory environment that developed in the early 1990s for the cable
television industry, the resultant decline in the prices for cable television
systems and the subsequent inactivity in the cable television system
marketplace, the General Partner determined that it would be prudent to delay
the sale of the Calvert County System until market conditions improved, and as
a result the Calvert County System has been held by the Partnership for more
than 11 years.
4
<PAGE>
The purpose of the sale of the Calvert County System, from the Partnership's
perspective, is to attain the Partnership's primary investment objective with
respect to the Calvert County System, i.e., to convert the Partnership's
capital appreciation in the Calvert County System to cash. The sale proceeds
will be used to repay Partnership debts, to pay certain fees and expenses of
the transaction and to settle working capital adjustments, and then the
remaining sale proceeds will be distributed to the limited partners of the
Partnership in accordance with the distribution procedures established by the
Partnership Agreement. The sale of the Calvert County System is thus the
necessary final step in the Partnership's accomplishment of its investment
objectives with respect to the Calvert County System.
All distributions of the Partnership from the proceeds of the sale of cable
television systems are to be distributed 100 percent to the limited partners
until the limited partners receive an amount equal to 125 percent of their
initial capital contributions, and thereafter all such distributions are to be
shared 75 percent to the limited partners and 25 percent to the General
Partner. Because the distributions to be made to the limited partners from the
sale of the Calvert County System, together with all distributions that will
have been made to the limited partners at the time of the Calvert County
System's sale (assuming that the Calvert County System's sale closes before
the pending sales of the Partnership's Buffalo System and Naperville System
close), will not return to the limited partners 125 percent of the capital
initially contributed by the limited partners to the Partnership, the General
Partner will not receive a general partner distribution from the Calvert
County System's sale proceeds. It is anticipated, however, that the General
Partner will be entitled to general partner distributions from the net
proceeds of the sales of the Buffalo System and the Naperville System. Should
either of these other cable television systems owned by the Partnership close
before the sale of the Calvert County System, however, the General Partner
would receive a general partner distribution from the net proceeds of the sale
of the Calvert County System because in such case the limited partners would
have received distributions equal to or in excess of 125 percent of the
capital initially contributed by the limited partners to the Partnership.
Regardless of the order of the closings of the Calvert County System, the
Buffalo System and the Naperville System sales, the General Partner is
expected to receive a total of only approximately $5,233,000 in general
partner distributions from the Partnership.
PRIOR ACQUISITIONS AND PRIOR AND PENDING SALES
The Partnership was formed in February 1987 as a Colorado limited
partnership in connection with a public offering of its limited partnership
interests. The Partnership has owned five cable television systems directly.
In addition to the Calvert County System, the Buffalo System and the
Naperville System, all of which are currently being sold, the Partnership
owned the Turnersville System and the Central Illinois System, both of which
were sold in 1997. In addition, in January 1988, the Partnership and Cable TV
Fund 14-B, Ltd. ("Fund 14-B"), another public partnership managed by the
General Partner, formed the Cable TV Fund 14-A/B Venture (the "Venture"). The
Partnership contributed $18,975,000 to the capital of the Venture for a 27
percent ownership interest and Fund 14-B contributed $51,025,000 to the
capital of the Venture for a 73 percent ownership interest. The Venture was
formed to pool the financial resources of Fund 14-B and the Partnership, two
public partnerships sponsored by the General Partner with identical investment
objectives, and to enable them to acquire a greater number of and/or larger
cable television systems than each of the partnerships could acquire on its
own. The Venture owned the Broward System, which was sold in March 1998.
Limited partners of the Partnership have received distributions from the
prior system sales totaling approximately $60,000,000. All distributions to
date have given the Partnership's limited partners an approximate return of
$375 for each $500 limited partnership interest, or $750 for each $1,000
invested in the Partnership. The Partnership intends to make a distribution of
approximately $19,500,000 to the limited partners, representing the net
proceeds of the sale of the Calvert County System. This distribution will give
the Partnership's limited partners an additional return of $122 for each $500
limited partnership interest, or $244 for each $1,000 invested in the
Partnership. The Partnership intends to make a distribution of approximately
$20,567,000 to the limited partners, representing the limited partners'
portion of the net proceeds of the sale of the Buffalo System, and the
Partnership intends to make a distribution of approximately $15,600,000 to the
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limited partners, representing the limited partners' portion of the net
proceeds of the sale of the Naperville System. Taking into account the
distributions from the sales of the Turnersville System, the Central Illinois
System, the Broward System, the Buffalo System, the Naperville System and the
Calvert County System (excluding escrowed proceeds), the limited partners of
the Partnership can expect to receive a total return of $723 for each $500
limited partnership interest, or $1,446 for each $1,000 invested in the
Partnership.
The General Partner's Objectives
The purpose of the Calvert County System's sale from the General Partner's
perspective is to enable the Partnership to sell the Calvert County System at
a fair price and to enable the General Partner (through an indirect wholly
owned subsidiary) to acquire a cable television system operating in a
marketplace in which the General Partner itself desires to own and operate a
cable television system. The General Partner currently is one of the largest
cable television system operators in the United States, with owned and managed
systems totaling in excess of one million basic subscribers. A key element of
the General Partner's strategy is to increase the number of owned subscribers
clustered in attractive demographic areas. The General Partner is making
progress in clustering its owned subscribers in two primary groups of cable
systems. The General Partner's Maryland/Virginia cluster is based primarily on
geography. The General Partner's suburban cluster is based on similar market
and operating characteristics, rather than geography. The General Partner
believes that its clustering strategy may allow it to obtain both economies of
scale and operating efficiencies, for example in areas such as marketing,
administration and capital expenditures. The Calvert County System is adjacent
to the General Partner's Maryland/Virginia cluster and the General Partner
desires to add the Calvert County System to its Maryland/Virginia cluster.
In contrast to the Partnership, which is a limited partnership with a finite
term and which sought cable television properties with high growth potential
during a holding period of approximately five to seven years, the General
Partner, a corporation with perpetual existence, is seeking to acquire cable
television systems that can generate a steady stream of income and may
appreciate in value over a longer holding period. The Calvert County System
satisfies this objective of the General Partner. The General Partner also may
be in a better position than the Partnership to access both debt and equity to
finance the long-term development of the Calvert County System. The General
Partner may be able to leverage the Calvert County System at a higher level
than the Partnership has done and, accordingly, the General Partner may be
able to generate a greater return on its investment in the Calvert County
System than the Partnership would be able to do within the same time. Because
the General Partner's investment horizon is much longer term than the
Partnership's investment horizon, and the General Partner will not need to
sell the Calvert County System to achieve its investment objectives, it can
better withstand the costs associated with meeting the competition and the
regulatory risks inherent in long-term holding and development of the Calvert
County System.
Relevant Provisions of the Partnership Agreement
Section 2.2(k) of the Partnership Agreement provides that the sale of all or
substantially all of the Partnership's assets is subject to the approval of
the holders of a majority of the Partnership's limited partnership interests.
Because the Calvert County System possibly could be the Partnership's sole
remaining asset at the time of its sale, the sale of the Calvert County System
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, or if 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 determined by 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 Calvert County System has been held by the Partnership for at least three
years and the purchase price to be paid to the Partnership is equal to the
average of three separate, independent appraisals of the fair market value of
the
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Calvert County System obtained at the General Partner's expense, these
requirements of the Partnership Agreement have been satisfied.
Reasons for the Timing of the Sale
The Partnership has a finite legal existence of 17 years, almost 12 of which
have passed. It was not intended or expected, however, that the Partnership
would hold its cable systems for 17 years. Although it was not possible at the
outset of the Partnership to determine precisely how quickly the investment
objectives with respect to any particular system would be achieved, investors
were informed that the General Partner's past experience with prior
partnerships had shown that five to seven years was the average length of time
from the acquisition of a cable system to its sale. Investors in the
Partnership also were able to examine the track record of the General
Partner's prior partnerships because such track record was set forth in the
prospectus delivered in connection with the Partnership's initial public
offering. At the time of the formation of the Partnership, the track record
showed that prior partnerships had rarely held their cable systems for any
longer than six years.
It is the General Partner's publicly announced policy that it intends to
liquidate all of its managed partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace. The General Partner has determined that, as part of this general
liquidation plan, it is in the best interests of the Partnership to sell the
Calvert County System. The General Partner's determination that the Calvert
County System should be sold should not be deemed to be free of conflicts of
interest, however, in light of the fact that the General Partner was a
potential purchaser of the Calvert County System. During the years that the
Partnership has owned and operated the Calvert County System, senior
management of the General Partner, including Glenn R. Jones, the General
Partner's Chief Executive Officer, James B. O'Brien, the General Partner's
President and Chief Operating Officer, and Kevin P. Coyle, the General
Partner's Vice President/Finance and Chief Financial Officer, has monitored
the performance of the Calvert County System. The General Partner has overseen
the Calvert County System's growth in the number of homes passed, the miles of
cable plant and the number of basic and premium subscribers. The General
Partner's management has regularly reviewed the Calvert County System's
budgets, it has examined the Calvert County System's liquidity and capital
needs and it has carefully monitored the Calvert County System's revenue and
cash flow growth to confirm that the Partnership's primary investment
objective, i.e., capital appreciation in the Calvert County System, was being
achieved.
The General Partner concluded in 1998 that, because the Calvert County
System met the General Partner's objective of acquiring cable systems adjacent
to its Maryland/Virginia cluster, the General Partner would proceed to acquire
the Calvert County System pursuant to the conditions of Section 2.3(b)(iv)(b)
of the Partnership Agreement. The General Partner accordingly did not market
the system for sale and did not solicit third party buyers for the Calvert
County System but instead contracted with independent appraisal firms to
prepare appraisals of the fair market value of the Calvert County System so
that the General Partner could determine the price it would offer to pay for
the Calvert County System. The three appraisals obtained by the General
Partner valued the Calvert County System at $44,602,000, $39,300,000 and
$34,264,000, respectively. The General Partner's Chief Financial Officer then
took the three appraised values and averaged them pursuant to the requirements
of Section 2.3(b)(iv)(b) of the Partnership Agreement, and thereby determined
that the price the General Partner would offer for the Calvert County System
would be $39,388,667. The General Partner's senior management also agreed that
this was a fair price and accepted it on behalf of the Partnership. See
"Special Factors, The Appraisals." The General Partner's decision to acquire
the Calvert County System for its own account, its determination that the
Partnership would not market the system for sale and not solicit third party
buyers for the system, its contracting with independent appraisal firms to
prepare appraisals of the fair market value of the Calvert County System and
its review and acceptance of the appraisals should not be deemed to be free of
conflicts of interest in light of the fact that the General Partner has
determined that it would be in the best interests of the General Partner and
its shareholders for the General Partner to acquire the Calvert County System.
No arm's-length negotiations of the terms of the purchase and sale agreement
were conducted because the Partnership does not have any employees or
management other than the employees and management of the
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General Partner. The General Partner prepared the standard purchase and sale
agreement that it uses for the acquisition of cable television systems from
its managed partnerships. This agreement was executed on June 29, 1998 by
officers of the General Partner both on behalf of Jones Communications of
Maryland, Inc. as buyer and on behalf of the Partnership as seller. The terms
of the purchase and sale agreement and the process by which such terms were
negotiated should not be deemed to be free of conflicts of interest in light
of the fact that management of the General Partner, which owes a fiduciary
duty to both the Partnership and its limited partners and to the shareholders
of the General Partner, represented all of the parties in the negotiation of
the purchase and sale agreement.
A written memorandum to the General Partner's Board of Directors from the
General Partner's management outlining the terms of the transaction, including
the means by which management had determined the sales price for the Calvert
County System, the results of the three appraisals, the operating and
financial statistics of the Calvert County System and the reasons why Jones
Communications of Maryland, Inc. should purchase the Calvert County System,
was submitted to the Board of Directors with a recommendation from management
that the Board of Directors approve the transaction, which the Board of
Directors did on June 16, 1998. The directors also were provided with copies
of the three appraisal reports that management had used in determining the
sales price and a copy of the draft purchase and sale agreement. As discussed
below, the Board of Directors unanimously concluded that the transaction was
fair to the unaffiliated limited partners of the Partnership. See "Special
Factors, Recommendation of the General Partner and Fairness of the Proposed
Sale of Assets."
When investing in the Partnership, by virtue of the provisions of Section
2.2(k) 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
Calvert County System was acquired by the Partnership in September 1987
because, in the opinion of the General Partner at the time of the Calvert
County 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 over 11 years that the Calvert County System has been held by the
Partnership, the Partnership's investment objectives with respect to the
Calvert County System have been achieved. The General Partner used no specific
benchmarks or measurement tools in determining that the Partnership's
investment objectives have been achieved. The General Partner conducted a
subjective evaluation of a variety of factors including the length of the
holding period, the prospect for future growth as compared to the potential
risks, the cash on cash return to investors and the amount of gain to be
recognized on the sale of assets. The General Partner's conclusion that the
Partnership's investment objectives with respect to the Calvert County System
have been achieved should not be deemed to be free of conflicts of interest in
light of the fact that the General Partner could not purchase the Calvert
County System unless it also determined that now was the time for the
Partnership to sell the Calvert County System.
The Calvert County System was acquired by the Partnership in September 1987
for an aggregate purchase price of approximately $12,198,000. At acquisition,
the Calvert County System consisted of 508 miles of cable plant passing 14,380
homes and serving 5,535 basic equivalent subscribers with 11,160 premium
units. The Calvert County System now consists of approximately 818 miles of
cable plant passing 26,330 homes and serving 18,565 basic equivalent
subscribers with 16,990 premium units. During the holding period, the
Partnership used approximately $17,680,000 in capital expenditures to expand
the cable plant of the Calvert County System. The increase in the value of the
Calvert County System during the holding period is demonstrated by the fact
that the Calvert County System was purchased for $12,198,000 and the Calvert
County System is proposed to be sold for $39,388,667, a difference of
$27,190,667.
In evaluating whether now was the time for the Partnership to sell the
Calvert County System, the General Partner generally considered the benefits
to the limited partners that might be derived by the Partnership's holding the
Calvert County System for an additional period of time. The General Partner
assumed that the Calvert County System might continue to appreciate in value
and, if so, the Calvert County System would be able to be sold for a greater
sales price in the future. The General Partner weighed these assumptions about
the Calvert County System's continuing growth against the risks to investors
from a longer holding period, i.e., the risks that regulatory, technology
and/or competitive developments could cause the Calvert County System to
decline in value, which would result in a lesser sales price in the future. A
longer holding period would expose
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investors to the risk that competition from direct broadcast satellite
companies, telephone companies and/or neighboring cable companies could
diminish the number of subscribers to the Calvert County System's basic and
premium services, thereby decreasing the value of the Calvert County System. A
longer holding period also would expose investors to the risk that changes in
the regulations promulgated by the governmental agencies that oversee cable
operations could make cable systems a less desirable investment, thereby
decreasing the value of the Calvert County System. The General Partner's
decision to sell the Calvert County System was greatly influenced by the fact
that the originally contemplated holding period had been exceeded. The General
Partner's consideration of the benefits and risks to the limited partners from
a longer holding period should not be deemed to be free of conflicts of
interest in light of the fact that the General Partner could not purchase the
Calvert County System unless it also determined that now was the time for the
Partnership to sell the Calvert County System.
The General Partner determined that it is in a better position than the
Partnership to bear the risks of investment in the Calvert County System. The
Partnership is limited in its ability to obtain additional equity financing,
in part because the limited partnership interests are non-assessable. The
Partnership Agreement also contains limits on the amounts that the Partnership
can borrow. The General Partner, on the other hand, is one of the nation's
largest cable television companies with longer term investment objectives. For
example, if significant competition to the Calvert County System were to
develop, the General Partner would be in a better position than the
Partnership to finance the marketing campaigns or technological improvements
necessary to meet such competition. This analysis too should not be deemed to
be free of the conflicts of interest of the General Partner.
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 Calvert County System to cash through the sale of
the Calvert County System.
Certain Effects of the Sale
Upon consummation of the sale of the Calvert County System, which is
expected to occur on February 26, 1999, the Partnership will repay debt, pay
certain fees and expenses of the transaction and settle working capital
adjustments, and then the Partnership will distribute the net sale proceeds
(approximately $19,500,000) to its limited partners of record as of the
closing date of the sale of the Calvert County System pursuant to the terms of
the Partnership Agreement. Limited partners thereby will receive $122 for each
$500 limited partnership interest, or $244 for each $1,000 invested in the
Partnership, from the sale of the Calvert County System. Once the distribution
of the net proceeds from the sale of the Calvert County System has been made,
limited partners will have received a total of $497 for each $500 limited
partnership interest, or $994 for each $1,000 invested in the Partnership,
taking into account the prior distributions to limited partners made in 1997
and 1998 and assuming that the distribution from the Calvert County System's
sale is made before the distributions from the sales of the Buffalo System and
the Naperville System have been made. The limited partners will be subject to
federal and state income tax on the income resulting from the sale of the
Calvert County System. See the detailed information below under the caption
"Federal and State Income Tax Consequences."
Another effect of the sale is that it will result in an indirect wholly
owned subsidiary of the General Partner acquiring the Calvert County System.
Thus, as a result of this transaction, the General Partner will make a
substantial equity investment in the Calvert County System and it will have a
greater equity ownership interest in the Calvert County System than it does
now as the general partner of the Partnership. The General Partner will have a
100 percent interest in any future capital appreciation of the Calvert County
System. The General Partner's acquisition of the Calvert County System will
advance its goal of increasing the number of owned subscribers in attractive
demographic areas and may allow the General Partner to obtain economies of
scale and operating efficiencies by adding the Calvert County System to its
Maryland/Virginia cluster of systems. The General Partner also will bear 100
percent of the risk of system losses and any diminution in system value. As
the general partner of the Partnership, the General Partner earns management
fees and receives reimbursement of its direct and indirect expenses allocable
to the operation of the Calvert County System. The General Partner's right to
receive such fees and reimbursements related to the Calvert County System will
terminate on the Partnership's sale of the Calvert County System.
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Neither Colorado law nor the Partnership Agreement afford dissenters' or
appraisal rights to limited partners in connection with the proposed sale of
the Calvert County 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.
All distributions to the limited partners of the Partnership from the
proceeds of the sale of the Calvert County System will be made to the
Partnership's limited partners of record as of the closing date of the sale of
the Calvert County System, which is expected to be February 26, 1999. Because
transferees of limited partnership interests following the closing date of the
sale of the Partnership's final cable television system would not be entitled
to any distributions from the Partnership, a transfer of limited partnership
interests following the closing date of the sale of the Partnership's final
cable television system would have no economic value. The General Partner
therefore has determined that, pursuant to the authority granted to it by
Section 3.5 of the Partnership Agreement, it will approve no transfers of
limited partnership interests following the closing of the sale of the
Partnership's final cable television system. Sales of limited partnership
interests pursuant to tender offers, in the secondary market or otherwise will
not be possible following the closing of the sale of the Partnership's final
cable television system.
Recommendation of the General Partner and Fairness of the Proposed Sale of
Assets
The General Partner believes that the proposed sale of the Calvert County
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's recommendation that the limited partners
approve the sale of the Calvert County System and its fairness determination
should not be deemed to be free from conflicts of interest, however, in light
of the fact that one of its subsidiaries is the proposed purchaser of the
Calvert County System. Because the purchaser of the Calvert County System
would benefit from a lower sales price, the General Partner 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 June 16, 1998
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 Calvert County System will provide limited partners with liquidity
and with the means to realize the appreciation in the value of the Calvert
County System;
(ii) the sales price represents a fair market valuation of the Calvert
County System as determined by the average of three separate appraisals of
the Calvert County System by qualified independent appraisers;
(iii) the Partnership has held the Calvert County System for over 11
years, a holding period beyond that originally anticipated;
(iv) the conditions and prospects of the cable television industry in
which the Partnership is engaged, including the developing threat of
competition from DBS services and telephone companies, and the working
capital and other financial needs of the Partnership if it were to continue
to own the Calvert County System;
(v) the terms and conditions of the purchase and sale agreement,
including the fact that the sales price will be paid in cash, the fact that
the Partnership was not required to make many of the representations and
warranties about the Calvert County 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 Partnership will pay no brokerage
fees upon the sale of the Calvert County System, which it likely would have
paid if the Calvert County System were being sold to an unaffiliated party;
and
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(vi) 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.
An officer of The Jones Group, Ltd., the cable brokerage subsidiary of the
General Partner, worked with each of the independent appraisers hired to
prepare fair market value appraisals of the Calvert County System, providing
them with current and historical profit and loss statements for the Calvert
County System and with current subscriber reports. Certain officers and all of
the 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 Bond & Pecaro, Inc., which valued the Littlerock System at
$39,300,000, because such firm's valuation procedures, assumptions and
methodologies 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 $39,300,000 value placed on the Calvert County System
by Bond & Pecaro, Inc., but the Board did consider the fact that the value
determined by this appraisal firm was the closest of the three appraisals to
the average of the three appraisals and concluded that this fact supported its
fairness determination. The General Partner did not conduct its own analysis
of the value of the Calvert County System.
In making its fairness determination, the General Partner's Board of
Directors did not consider that certain of the fair market valuations of the
Calvert County System exceed the sales price by significant amounts. Because
it was the methodology for determining the sales price mandated by the
Partnership Agreement, the General Partner's Board of Directors considered the
fact that the sales price to be paid to the Partnership for the Calvert County
System was determined by averaging three independent appraisals of the fair
market value of the Calvert County System to be very persuasive evidence of
the fairness of the proposed transaction. As provided in Section 2.3(b)(iv)(b)
of the Partnership Agreement, the General Partner may purchase a cable
television system from the Partnership if the price paid to the Partnership by
the General Partner is determined by the average of three separate,
independent appraisals of the cable television system to be sold. It does not
provide that the purchase price shall be determined by the highest of the
three appraisals. In light of this governing partnership agreement provision,
the General Partner's Board of Directors did not consider offering the
Partnership a sales price equal to the higher appraisal values. Whenever a sum
is to be determined by the average of three values, there will be, by
definition, values that are higher than and values that are lower than the
average. This implies to the General Partner that such a process, agreed by
all parties, is fair.
The General Partner considered the fact that the $39,388,667 purchase price
to be paid to the Partnership for the Calvert County System was determined by
the average of three independent appraisals of the fair market value of the
Calvert County System to be very persuasive evidence of the fairness of the
proposed transaction. The General Partner reviewed and considered the three
appraisals but it did not consider specific comparable transactions in
reaching its conclusions that the values for the Calvert County System
determined by the three appraisals are within the range of values seen in the
marketplace for comparable cable television systems in similar condition. The
General Partner is regularly engaged in the sale and/or purchase of cable
television systems in the marketplace both for its own account and for the
account of its various managed partnerships. It is the cumulative experience
of the General Partner's management and Board of Directors in such
transactions on which the fairness conclusions were based. The General Partner
considered that the fair market valuations of the Calvert County System were
done by respected industry appraisers using customary measures of value. 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 Calvert County 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 $39,388,667 purchase price represents the current fair market value of
the Calvert County System on a going concern basis. The $39,388,667 purchase
price for the Calvert County System also compares favorably to the $11,785,758
net book value of the Calvert County System at September 30, 1998. 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
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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 Calvert County 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 does 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 necessarily be indicative of the value of the
Partnership's cable television system assets. For these reasons, the General
Partner did not consider the historical or current market prices for the
limited partnership interests when reaching its fairness determination.
During the past several years, however, several limited partners of the
Partnership who are not in any other way affiliated with the Partnership or
with the General Partner conducted tender offers for interests in the
Partnership at prices ranging from $160 to $305 per $500 limited partnership
interest. The $122 per $500 limited partnership interest to be distributed to
limited partners from the net proceeds of the Calvert County System's sale
compares favorably to these tender offer prices, especially in light of the
fact that the tender offer prices theoretically reflected the distribution
made to limited partners from the Broward System sale ($159 per $500 limited
partnership interest), the distributions to be made to limited partners from
the Buffalo System and the Naperville System sales ($226.50 per $500 limited
partnership interest) and the distribution to be made to limited partners from
the sale of the Calvert County System.
The fact that the Partnership has held the Calvert County System for a
period beyond that originally anticipated was another important 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 limited partners. And the current state
of the cable television industry also was considered by the General Partner in
making its fairness determination because the General Partner believes that it
is fair to investors that someone other than the Partnership take on the
uncertainties and risks involved in continuing to own and operate the Calvert
County 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, which
generally are more favorable to the Partnership than reasonably could be
expected if the purchaser were not an affiliated company. There is no
financing contingency to closing. Because of the General Partner's existing
extensive knowledge about the Calvert County System, the Partnership has not
been required to make many of the representations and warranties about the
quality of the Calvert County System's tangible assets, the quantity of the
Calvert County System's subscribers or the validity of the Calvert County
System's intangible assets customarily found in cable television system
transactions. The Partnership likely would have been required to give such
representations and warranties to an unaffiliated party if the Calvert County
System were being sold to an unaffiliated party. In addition, the Partnership
is not required to indemnify the purchaser for defects discovered by the
purchaser after the closing. This frees the Partnership from having to reserve
a portion of the sale proceeds to cover typical indemnification obligations.
The Partnership also will pay no brokerage fee in connection with the sale of
the Calvert County System, which it likely would have paid if the Calvert
County System were being sold to an unaffiliated party. This will result in
more funds from the sale being available for distribution to the Partnership's
limited 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 $244 per $1,000 of limited partnership capital
invested in the Partnership, there are several potential negative consequences
of the transaction to limited
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partners. For example, the proposed sale will require the limited partners to
recognize, for federal income tax purposes, a gain resulting from the sale.
And although the three fair market valuations established by the independent
appraisals took into account the present value of the projected future growth
of the Calvert County System and the sales price (the average of the three
appraisals) thus takes into account the present value of the projected future
growth of the Calvert County System, the proposed sale will deprive the
limited partners of an opportunity to participate in the actual future growth
of the Calvert County System, if any. The General Partner nevertheless
concluded that the cash distributions to the limited partners of the
Partnership from the sale of the Calvert County System outweighed these
consequences.
As disclosed above, the proposed transaction is subject to various conflicts
of interest arising out of the Partnership's relationships with the General
Partner. Because the General Partner and its affiliates are engaged in the
ownership and operation of cable television systems, they are generally in the
market to purchase cable television systems for their own account. A 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 one of the Partnership's cable television
systems will be sold to the General Partner or one of its affiliates and not
to an unaffiliated third party. This 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 merit state securities
administrators focused on the 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
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 conflicts of interest inherent in any such transaction. The
fact that these procedures have been carried out in connection with the
Partnership's proposed sale of the Calvert County System, together with the
fact that the transaction also is conditioned upon receipt of the approval of
the holders of a majority of the Partnership's limited partnership interests,
enable the General Partner to conclude that the proposed transaction is both
procedurally and financially fair to all partners.
The directors of the General Partner who are not employees of the General
Partner did not vote separately to approve the transaction, nor did the
outside directors retain an unaffiliated representative to act solely on
behalf of the limited partners for the purposes of negotiating the terms of
the proposed sale of the Calvert County System and/or preparing a report
concerning the fairness of the proposed sale. While the directors of the
General Partner 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 Calvert County System's fair market value. The
members of the Board of Directors relied on Section 2.3(b)(iv)(b) of the
Partnership Agreement, which permits the General Partner to purchase the
Calvert County System. The members of the Board of Directors reviewed and
considered the appraisals and, based upon their general knowledge of cable
television system transactions undertaken by the General Partner and its
affiliates and by unaffiliated cable television companies, concluded that the
values for the Calvert County 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 June 16, 1998 meeting to
discuss and vote on the Partnership's sale of the Calvert County System to the
General Partner. Each of Messrs. Glenn R. Jones, James B. O'Brien, Josef J.
Fridman, Robert Kearney, Siim A. Vanaselja, James J. Krejci, William E.
Frenzel, Donald L. Jacobs, Howard O. Thrall, Robert E. Cole, Raphael M. Solot,
Sanford Zisman and Robert B. Zoellick voted to approve the transaction. No
director of the General Partner expressed any reservations about the fairness
of the transaction to the limited partners of the Partnership.
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The General Partner determined that the Calvert County System would not be
marketed for sale to third party buyers and the General Partner did not
consider having the Partnership sell the Calvert County System to any cable
system operator other than the General Partner (or one of its affiliates). It
is anticipated that if the proposed transaction is not consummated, the
General Partner's current management team will continue to manage the Calvert
County System on behalf of the Partnership until such time as the Calvert
County System could be sold. No other alternatives have been or are being
considered.
THE APPRAISALS
At regular intervals during the holding period, the General Partner obtained
appraisals of all of the Partnership's cable television systems so that the
General Partner could fulfill its obligation of reporting the Partnership's
asset values to trustees and custodians of qualified plans that own limited
partner interests in the Partnership. These appraised values also have been
reported to all investors in the quarterly and annual reports mailed to
limited partners with copies of the Partnership's periodic reports on Forms
10-Q and 10-K. The most recent appraisal of the Calvert County System done
prior to the General Partner's decision to buy the system from the Partnership
was done as of July 31, 1997 by Strategis Financial Consulting, Inc., which
valued the Calvert County System as of such date at $41,101,000. This old
appraisal was not used by the General Partner's management in determining the
sales price that the General Partner would offer for the Calvert County System
and it was not considered by the General Partner's Board of Directors in
making its fairness determinations.
In determining the price that the General Partner would offer for the
Calvert County System, in 1998 the General Partner retained Strategis
Financial Consulting, Inc., Bond & Pecaro, Inc. and Waller Capital Corporation
to prepare separate appraisals of the fair market value of the Calvert County
System as of February 28, 1998. Each of 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 Calvert County
System. Upon receipt of the three appraisal reports, management of the General
Partner examined each of them 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 each
of them to be fair and reasonable. The appraisal reports were then submitted
to the Board of Directors of the General Partner for review. As disclosed
above, the Board of Directors of the General Partner unanimously approved the
transaction based upon a price determined by averaging these three appraisals.
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. Copies of these three appraisals also have
been publicly filed with the Securities and Exchange Commission and may be
inspected at the Commission's public reference facilities and at its World
Wide Web site.
The General Partner provided each of the appraisers with the same current
and historical profit and loss statements for the Calvert County System and
with the same current subscriber reports. The appraisers also gathered
information about the Calvert County System's subscribers, channel line-up,
technology, cable plant, penetration rates and the local economy from
questionnaires that each individual appraisal firm prepared and provided to
the general manager of the Calvert County System and from conversations with
the Calvert County System's management team. From this information, the
appraisers used their independent analyses to project cash flow, determine
growth of homes passed, the Calvert County System's future penetration and
possible rate adjustments. The appraisals thus reflect the application of the
appraisers' expertise to the data about the Calvert County System supplied by
the General Partner.
The General Partner's $39,388,667 offer for the Calvert County System was
based on the three separate, independent appraisals of the Calvert County
System prepared by Strategis Financial Consulting, Inc., Bond &
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Pecaro, Inc. and Waller Capital Corporation as of February 28, 1998. Strategis
Financial Consulting, Inc. concluded that the Calvert County System's overall
fair market value as of February 28, 1998 was $44,602,000. Bond & Pecaro, Inc.
concluded that the Calvert County System's overall fair market value as of
February 28, 1998 was $39,300,000. Waller Capital Corporation concluded that
the Calvert County System's overall fair market value as of February 28, 1998
was $34,264,000.
The General Partner believes that the three appraisals were current as of
June 16, 1998, the date that the General Partner's Board of Directors made its
fairness determination, and as of June 29, 1998, the date on which the
purchase and sale agreement was executed. In the General Partner's view, the
assumptions regarding system operations and the cable television system
marketplace underlying the three appraisals have generally remained unchanged
since the date of the appraisals.
Strategis Financial Consulting, Inc., one of the independent appraisers
hired by the General Partner to determine the fair market value of the Calvert
County System, is one of the firms hired to appraise the Tampa, Florida,
Palmdale, California and Littlerock, California cable television systems
formerly owned by several partnerships of which the General Partner also is
general partner when they were proposed to be sold to subsidiaries of the
General Partner. Bond & Pecaro, Inc., another of the independent appraisers
hired by the General Partner to determine the fair market value of the Calvert
County System, is one of the firms hired to appraise the Palmdale system and
the Littlerock system when they were proposed to be sold to subsidiaries of
the General Partner. The sales of the Tampa system and the Palmdale system and
the Littlerock system are subjects of separate lawsuits challenging the sales
prices paid by subsidiaries of the General Partner for the Tampa system and
the Palmdale system and the Littlerock system. Strategis Financial Consulting,
Inc. and Bond & Pecaro, Inc. applied the same methodologies in valuing the
Calvert County System as they employed in valuing these other cable systems.
Bond & Pecaro, Inc. also serves as the General Partner's expert witness in the
Tampa lawsuit.
The Strategis Appraisal
Strategis Financial Consulting, Inc. ("Strategis") has served the
communications industry for nearly 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, mobile radio and broadcast stations. Strategis was selected by
the General Partner to render an opinion as to the fair market value of the
Calvert County System in light of such overall qualifications. No limitations
were imposed with respect to the appraisal to be rendered by Strategis. The
firm was selected by the General Partner to prepare an independent appraisal
of the Calvert County System because of the General Partner's familiarity with
the firm and its good reputation in the cable television industry. Strategis
has prepared independent appraisals of other cable television systems owned
and/or managed by the General Partner. The principals of Strategis are not
affiliated in any way with the General Partner.
Strategis used five generally accepted cable television valuation methods
using the income approach to valuation in establishing the range of fair
market values of the Calvert County System as a going concern. The first
method used a multiple of the prior year's operating income derived from
comparable asset values of privately held and publicly traded cable companies.
The second method used a lower multiple of the Calvert County System's
February 1998 operating income annualized. The third method applied a slightly
lower multiple of projected operating income from the period March 1998
through February 1999. 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 Calvert County 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 Calvert County System) that
represent the return on total investment. For each valuation method, Strategis
established a "high" and a "low" estimated fair market value.
The first valuation method used a multiple of the prior year's operating
income of the Calvert County System derived from comparable asset values of
certain cable companies. The cable companies used to generate
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baseline values for this methodology included Adelphia Communications
Corporation, Cablevision Systems Corporation, Century Communications Corp.,
Comcast Corporation, Cox Communications, C-TEC, EW Scripps, Grupo Televisa,
Knight-Ridder, Media General, TCA Cable TV, Inc., Telecommunications, Inc.,
Time Warner, United International Holdings, US West MediaOne Group, the
Washington Post and the General Partner. Strategis determined, based upon its
expertise and knowledge of the cable television industry, a "low" multiple of
10 and a "high" multiple of 11, concluding that a system comparable to the
Calvert County System would be unlikely to sell for less than 10 times its
past year's operating income and would be unlikely to sell for more than 11
times its past year's operating income. These operating income multiples were
determined based upon several factors. First, the "pre-determined target
returns on equity" developed in connection with the fourth valuation method
discussed below were examined for the implied capitalization rate. The
capitalization rate is the inverse of the valuation multiple. The basic
equation supporting a valuation multiple is a fraction, with one being the
numerator and the rate of return minus the growth rate being the denominator.
For the rates of return, Strategis refers to the "predetermined (pre-tax)
target returns on equity" calculated as follows:
12%/(l-.34) = 18.2%
14%/(l-.34) = 21.2%
For the rate of growth estimate, Strategis examined projected growth in the
Calvert County System's operating income over the projection term. The average
annual growth rate in operating cash flow is approximately 8 percent on
Strategis' model. The inverse of the capitalization rate implies multiples of:
<TABLE>
<S> <C> <C>
1
(18.2%-8.0%) = 9.8 high
1
(21.2%-8.0%) = 7.6 low
</TABLE>
These calculated multiples were then adjusted by Strategis based on its
experience in the cable television industry. According to Strategis, in its
judgment, the implied high and low multiples, if applied to trailing twelve
months operating cash flow, would not provide an adequate estimate of value
for a mature cable system such as the Calvert County System. The multiples
ultimately used by Strategis in its first valuation method, 10 and 11, as
adjusted from the capitalization rate approach, in Strategis' judgment
appropriately reflect the value of the Calvert County System. This method
resulted in an estimated fair market value ranging from a low of $44,930,820
to a high of $49,423,902 for the Calvert County System.
The second valuation method used a lower multiple of the Calvert County
System's February 1998 operating income annualized. Strategis determined,
again based on 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 Calvert County System would be unlikely to sell for less
than 9.5 times the dollar amount of its annualized current month's operating
income and would be unlikely to sell for more than 10.5 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. This method resulted in an estimated fair market value
ranging from a low of $45,203,898 to a high of $49,962,203 for the Calvert
County System.
The third valuation method applied a slightly lower multiple of projected
operating income from March 1998 through February 1999 of the Calvert County
System. For this valuation, Strategis first estimated, through its own
analyses of current financial and operating data provided by the General
Partner, operating income for the Calvert County System from March 1998
through February 1999. The projection of operating income for this third
valuation method is the sum derived by subtracting projected operating
expenses from projected revenues of the Calvert County System to be generated
during the first twelve months following the valuation date. Strategis
projected growth in revenue based on previously established or reasonably
foreseeable patterns of growth in the marketplace and plant facilities (homes
passed); the subscriber base; the amount of programming to be sold to
subscribers and the rates charged for programming, associated equipment
rentals and service installations. Operating expenses were projected by
Strategis based on the Calvert County System's actual
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<PAGE>
historical expenses and Strategis' familiarity with cable system operating
expenses typical for a system of the Calvert County System's size. Line item
expenses within the technical-operations, general and administrative, sales
and marketing, and programming departments were examined and projected based
on their relationship to the number of subscribers or plant miles, whichever
was appropriate, and included a general inflation component. Based on its
expertise and knowledge of the cable television industry, Strategis set a
"low" multiple of 9 and a "high" multiple of 10 concluding that a system
comparable to the Calvert County System would be unlikely to sell for less
than 9 times the system's projected operating income for the following year
and would be unlikely to sell for more than 10 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. This method resulted in an estimated fair market value
ranging from a low of $43,694,572 to a high of $48,549,524 for the Calvert
County 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 Calvert County System. This method involved the
use of projected operations for the Calvert County System and a pre-determined
target return on equity for a hypothetical buyer. Strategis used the Capital
Asset Pricing Model ("CAPM") as a guide in developing discount rates used in
the discounted cash flow model for the fourth valuation method. The CAPM was
developed to estimate the rate of return on equity that would be required by
investors to take on the risk of a given investment. Strategis used the CAPM
in conjunction with observations of actual market transactions and its
judgment. The following illustrates use of the CAPM and the support it
provided for the "pre-determined target return on equity" used to value the
Calvert County System.
To estimate a "pre-determined target return on equity" for the CAPM,
Strategis examined movements in stock prices over 1996 and 1997 of the same
cable television multiple system operators that it examined in determining the
multiples for the first valuation method discussed above. The movements in
individual stock prices were compared to movements in the stock market as a
whole, as indicated by the price of the Standard & Poor's 500 stock index. The
extent to which movements in a particular stock are related to movements in
the market overall is reflected in the stock's "beta." Strategis calculated
individual betas for the above-listed cable television multiple system
operators. Average and median betas for the entire group were then multiplied
by the "equity risk premium," which measures the additional return to equity
investors over and above the return to holders of non-equity investments. The
risk-free rate of investment is then added to determine the required equity
return of the investment. The equation is as follows:
Beta* (Equity Risk Premium) + Risk-Free Rate = Required Return on Equity
In doing this analysis, Strategis found that the average beta for the group
of companies it examined was 1.06 and that the median beta for this same group
of companies was 1.11. It determined that the equity risk premium was 12.7
percent based upon average annual premiums over 1988 to 1997 as calculated in
Ibbotson Associates' Stocks, Bonds, Bills and Inflation (SBBI) Yearbook 1998.
Strategis also found that the risk-free rate was 5.7 percent, which was the
yield on intermediate term government bonds as of February 1998. This
statistic was derived from the SBBI Yearbook 1998. The calculations are as
follows:
(1.06* 12.7%) + 5.7% = 19.2% Required Return on Equity
(1.11* 12.7%) + 5.7% = 19.8% Required Return on Equity
Strategis then multiplied these rates by 1 minus the tax rate to calculate
the after-tax required return on equity rates as follows:
19.2%* (1-.34) = 12.7%
19.8%* (1-.34) = 13.1%
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<PAGE>
Based on Strategis' professional judgment, in Strategis' opinion these
calculations provide reasonable support for the use of 12% as the high and 14%
as the low after-tax "pre-determined target returns on equity."
Based on system information made available to Strategis by the General
Partner and on information generally available to Strategis about the cable
television industry, the firm made assumptions and projections of a variety of
factors that will affect future cash flow including 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. Strategis 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. Strategis did a "high" and a "low" analysis.
In its "high" analysis, Strategis projected that the Calvert County System's
revenues would grow from $9,991,496 in 1999 to $17,561,310 in 2005; that the
Calvert County System's operating expenses would grow from $5,136,544 in 1999
to $8,033,004 in 2005; and that net loss of $1,591,481 in 1999 would decrease
to a net loss of $534,114 in 2005. In Strategis' "low" analysis, revenues and
operating expenses are projected to increase to the same levels by 2005, but
net loss of $1,462,869 in 1999 is projected to become net loss of $317,027 in
2005. Strategis projected that the Calvert County System would add cable plant
between 1999 and 2005, resulting in growth of the Calvert County System's
cable plant from 826 miles in 1999 to 1,053 miles in 2005. Strategis projected
that the number of homes passed by the Calvert County System would grow from
27,261 in 1999 to 35,080 in 2005. Strategis projected that basic subscribers
would grow from 18,300 in 1999 to 24,685 in 2005. Strategis projected basic
penetration of the Calvert County System increasing from 68.1 percent in 1999
to 70.4 percent in 2005. Strategis projected that premium television
subscriptions would grow from 16,984 in 1999 to 21,680 in 2005. Strategis
estimated that the Calvert County System would take moderate rate increases
between 1999 and 2005, with, for example, a 5 percent increase in basic rates
in 2000 and 3 percent increases in basic rates each year thereafter. Strategis
estimated that rate increases for pay television subscriptions would average 1
percent per year. Strategis estimated that rate increases for converter
rentals and installations would average 3 percent per year. These projections,
if true, would result in an increase in basic rates from $16.37 in 1999 to
$19.83 in 2005, and an increase in the rates for the expanded basic tier from
$13.50 in 1999 to $19.53 in 2005. As explained in the preceding paragraphs,
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 $41,418,273
to a high of $45,120,722 for the Calvert County 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 Calvert County 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 Calvert County System, plus the last-year residual value of
the Calvert County 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 15.1 percent target return on investment and the
"low" value was determined using a 16.6 percent target return on investment.
This method resulted in an estimated fair market value ranging from a low of
$41,255,147 to a high of $44,745,011 for the Calvert County System.
Strategis' valuation methodologies resulted in differing values for the
Calvert County System. The reason for this is grounded in the basic approach
that the firm takes. The five different methods allow five different views of
a 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 date of the
appraisal. 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, Strategis
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<PAGE>
generally prefers the discounted cash flow methods since they consider a
broader range of factors that represent all sources of value, present and
future. Strategis 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. Strategis' conclusions as to the range of
values were based upon information and data supplied by the General Partner,
Strategis' onsite inspection of the Calvert County System in early 1998,
interviews with the Calvert County System's onsite management team and general
cable television industry information. The fair market value appraisal of
$44,602,000 reached by Strategis was based on the various valuations generated
by it, and Strategis' general knowledge and expertise in the cable television
industry.
As compensation for rendering an opinion as to the fair market value of the
Calvert County System, the General Partner paid Strategis a fee of $12,500.
Such fee was not contingent upon the conclusion reached by Strategis 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,
Strategis has received fees and expense reimbursements totaling $328,800
during the two years ended December 31, 1998.
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 2,500
media properties. Bond & Pecaro was selected by the General Partner to render
an opinion as to the fair market value of the Calvert County System in light
of such overall qualifications and because of the firm's good reputation in
the industry. No limitations were imposed with respect to the appraisal to be
rendered by Bond & Pecaro. 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.
Bond & Pecaro used both the income and the market methodologies to determine
the fair market value of the Calvert County System as of February 28, 1998.
The firm developed a discounted cash flow analysis to determine the value of
the Calvert County System based upon its economic potential. Bond & Pecaro
noted that it is generally accepted that the value of a telecommunications
business such as a cable television system lies in the fact that it is a
"going concern." That is, a cable system's 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. Bond & Pecaro noted that a number of factors
contributed to going 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, the
establishment of a sales and marketing organization and the coordination of
all of these functions into a well-defined and efficient operating
organization. As described below, Bond & Pecaro's 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. The
capital expenditures provision reflects the amount of investment that Bond &
Pecaro projected will be required to expand and maintain a competitive cable
television business in the Calvert County, Maryland area. Bond & Pecaro's
discounted cash flow projection period of ten years was deemed by the firm to
be an appropriate time horizon for the firm's analysis because cable operators
and investors typically expect to recover their investments within a ten-year
period. Thus, it was over this period that projections regarding market
demographics, system basic and pay penetration, and operating profit margins
were made by Bond & Pecaro. Bond & Pecaro looked at the ten year period to
project household growth in the Calvert County area, anticipated market
penetration percentages and system operating performance expectations in order
to project the Calvert County System's operating profits during the next ten
years. The firm deducted income taxes from the projected operating profits to
determine after-tax net income. Depreciation and amortization expenses were
added back to the after-tax
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<PAGE>
income stream and projected capital expenditures were subtracted to calculate
the Calvert County System's net after-tax cash flow. Bond & Pecaro then
adjusted the stream of annual cash flow to present value using a discount rate
the firm deemed appropriate for the cable television industry. To determine
the Calvert County System's residual value at the end of the ten-year
projection period, Bond & Pecaro applied an operating cash flow multiple of 12
to the system's 2008 operating cash flow projection. In Bond & Pecaro's
opinion the terminal value represents the hypothetical value of the system at
the end of the projection period and the net terminal value was discounted to
present value. The results of Bond & Pecaro's analysis indicated to the firm
that the value of the Calvert County System as of February 28, 1998 was
$39,300,000. In order to verify the results of the discounted cash flow
analysis, as described below, 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 was based was 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 Calvert
County System's franchise area will increase at a rate equivalent to the
average household growth projected for the areas served by the system as a
whole, or approximately 2 percent per year. Bond & Pecaro concluded that the
basic penetration rate would grow gradually over the 10-year projected period
from the current 69.5 percent to approximately 74 percent by 2008. The firm
projected that pay penetration of the Calvert County System will remain at its
February 1998 level of 92.8 percent through 2008. 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 2.3 percent annual rate through 2008, that
commercial advertising revenue will increase at a 14 percent annual rate
through 2003 and at a 10 percent annual rate thereafter, and that annual
installation revenue would increase 5 percent annually during the projection
period. The firm concluded that equipment rental revenues should increase by
12 percent annually through 2008. Bond & Pecaro concluded that total system
revenues would increase from $10,400,000 in 1998 to $19,100,000 in 2008. For
purposes of its appraisal, Bond & Pecaro assumed that the Calvert County
System would maintain an operating profit margin of 48.6 percent, which was
the system's operating profit margin in 1997. Bond & Pecaro used an estimated
tax rate of 39.6 percent to project the taxable income of the Calvert County
System because the estimated rate reflects the combined federal, state and
local tax rates in effect on February 28, 1998. Depreciation expense for each
year was determined using the MACRS schedule for 5, 7, 15 and 39 year property
based upon the reported cost of fixed assets present at the Calvert County
System. Subsequent annual capital expenditures were estimated to approximate
10 percent of the cost of the fixed assets of the Calvert County System as of
February 28, 1998. Supplemental provisions were made to incorporate
projections of capital expenditures associated with upgrading the system's
distribution plant.
Bond & Pecaro then determined the net after-tax cash flow for the Calvert
County System. After taxes were subtracted from the system's taxable income,
non-cash depreciation expenses were added back to net income to yield after-
tax cash flow. From the after-tax cash flow, the provision for subsequent
capital expenditures was deducted to calculate the net after-tax cash flows.
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
Calvert County 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 12 to the Calvert County System's 2008
operating cash flow. Bond & Pecaro's appraisal noted that multiples used in
the valuation of cable television systems of a type similar to the Calvert
County System range from 8 to 14 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 12 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 February 28, 1998, tempered by the economic
conditions of the system's service area,
20
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the necessity for certain capital expenditures, the uncertainty introduced by
re-regulation of the cable television industry and the prospects for increased
competition from wireless cable companies and direct broadcast satellite
operators. The 10-year discounted cash flow projection of Bond & Pecaro
yielded a value of $39,300,000 for the Calvert County System.
In order to correlate this statistical valuation with the realities of the
marketplace, Bond & Pecaro analyzed the sale of seven comparable cable
television systems that took place in 1997. The sales examined by Bond &
Pecaro were selected based upon their comparability to the Calvert County
System. The four cable television system transactions examined by Bond &
Pecaro were: (i) the sale of the Jonesboro, Arkansas cable television system
by one unaffiliated cable television system operator to another for a sales
price of $41,000,000 or a price per subscriber of $2,000, (ii) the sale of the
Anderson, South Carolina cable television system by one unaffiliated cable
television system operator to another for a sales price of $31,000,000 or a
price per subscriber of $1,934,(iii) the sale of the Palo Alto, California
cable television system by one unaffiliated cable television system operator
to another for a sales price of $54,100,000 or a price per subscriber of
$2,042, (iv) the sale of the Jackson County, Georgia cable television system
by one unaffiliated cable television system operator to another for a sales
price of $45,000,000 or a price per subscriber of $2,035, (v) the sale of the
Boone, North Carolina cable television system by one unaffiliated cable
television system operator to another for a sales price of $35,000,000 or a
price per subscriber of $1,852, (vi) the sale of the Mountain Brook, Alabama
cable television system by one unaffiliated cable television system operator
to another for a sales price of $62,000,000 or a price per subscriber of
$2,680, and (vii) the sale of Harrington, Delaware cable television system by
one unaffiliated cable television system operator to another for a sales price
of $66,000,000 or a price per subscriber of $2,472. Bond & Pecaro determined
that the average price per subscriber paid for the seven comparable cable
television systems sales was approximately $2,145. As noted above, Bond &
Pecaro's discounted cash flow model concluded that the Calvert County System's
overall fair market value was $39,300,000. This $39,300,000 value reflects a
price of approximately $2,146 per subscriber, which Bond & Pecaro judged to be
consistent with prevailing subscriber multiples of comparable sales in 1997.
A representative of Bond & Pecaro visited the Calvert County System and
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, 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 Calvert County 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
Calvert County System, the General Partner paid Bond & Pecaro a fee of
$11,500. 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 totaling
$49,741 during the two years ended December 31, 1998.
The Waller Appraisal
Waller Capital Corporation ("Waller") is a firm specializing in financial
services and asset appraisals for the telecommunications industry. Waller was
selected by the General Partner to render an opinion as to the fair market
value of the Calvert County System in light of its overall qualifications and
because of the firm's good reputation in the cable television industry. No
limitations were imposed with respect to the appraisals to be rendered by
Waller. Waller has prepared independent appraisals of other cable television
systems owned and/or managed by the General Partner. Neither Waller nor any of
its representatives have any active or contemplated direct interest in the
General Partner, in any of its managed partnerships or in any of its
affiliates, except for incidental shareholdings in the General Partner, which
is a publicly traded company.
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In arriving at its opinion as to the fair market value of the Calvert County
System, Waller utilized audited and unaudited financial statements, visited
the Calvert County System, met with the management of the General Partner to
discuss the Calvert County System's business, current operations and
prospects, analyzed published financial and operating information considered
by Waller to be comparable or related to the Calvert County System, and made
other financial studies, analyses and investigations as Waller deemed
appropriate. Waller indicated in its report that the primary purpose of its
valuation was to arrive at the fair market value of the Calvert County System,
with fair market value defined as the amount at which a property would change
hands between a willing buyer and a willing seller when neither is acting
under compulsion and when both have reasonable knowledge of the relevant
facts. The valuation was determined on a cash-for-assets basis.
Numerous elements, both quantitative and qualitative, were factored into
Waller's valuation. Waller concluded that the Calvert County System has
attractive demographics with, for example, average household income in the
area served by the system being significantly higher than the national
average. The firm further noted that the Calvert County area has experienced
substantial growth in households, with the area's households expected to grow
over 3.8 percent per year from 1998 to 2000. On the negative side, Waller
noted the low housing density and the related high costs to build plant past
new homes. Waller also concluded that the technical condition of the system at
350 Mhz capacity is not adequate and that any buyer would view this capacity
as insufficient and would budget an extensive rebuild. Waller also noted that
the local economy, while increasingly diversified, still is heavily dependent
on the economy of Washington, D.C. and its government employers.
The general methodology of Waller's appraisal was to evaluate the discounted
cash flow stream generated by the Calvert County System over a ten-year period
(1998 to 2007), applying all relevant market and economic factors. Waller's
ten-year projections were prepared using information provided by the General
Partner together with Waller's industry estimates. Waller developed its
projections through on-sight due diligence, a review of the Calvert County
System's 1998 operating budget prepared by the General Partner, other
operating and subscriber data and projections and demographic data relating to
the Calvert County System's service area. A sale was assumed to occur in the
tenth year (2007) of the discounted cash flow model. The cash flow sales
multiple selected reflected the long-term prospects for cash flow growth and
the cash flow quality of the Calvert County System. The multiple selected also
accounted for the presumed technical condition of the Calvert County System at
2007. The multiple selected was applied against the full tenth year cash flow.
Waller's analysis utilized a discount rate of 13.9 percent derived from
Waller's weighted average cost of capital ("WACC") model. The discount rate
was commensurate with a probable buyer's capital structure, operating risk and
other factors associated with the operations of the Calvert County System. The
discount rate used was consistent with the WACCs for an average cable buyer,
private or public, and adjusted for certain factors such as size, liquidity,
leverage and risk associated with a typical cable system buyer. The cable
companies used to generate the WACC model were Adelphia Communications
Corporation, Comcast Corporation, Cox Communications, Century Communications
Corp., Cablevision Systems Corporation, TCA Cable TV, Inc.,
Telecommunications, Inc., Time Warner and US West MediaOne Group.
Like Strategis and Bond & Pecaro, Waller developed its discounted cash flow
model based upon its own assumptions about the Calvert County System. Waller
projected that homes passed growth would be approximately 2.4 percent per year
over the ten year projection period, growing from 27,184 homes passed in 1998
to 33,286 homes passed in 2007. Waller projected that system plant miles would
grow from 838 in 1998 to 1,000 in 2007. Waller concluded that subscriber
growth would range from 1 percent to 4.7 percent in any particular year and
that, as a result, subscribers would grow from 19,029 in 1998 to 23,300 in
2007. Waller projected growth in the number of pay units generally averaging
1 percent per year during the ten year projection period, with pay units
increasing from 17,488 in 1998 to 19,507 in 2007. Waller also examined growth
in rates charged to subscribers, concluding that basic service rates would
grow from $28.00 in 1998 to $39.44 in 2007. Waller concluded that rates for
pay programming would increase approximately 2 percent per year, with rates
increasing from $7.35 in 1998 to $8.78 in 2007. Waller concluded that total
system revenue would increase from $9,546,000 in 1998 to $15,969,000 in 2007,
with growth in basic service revenues the primary reason for such increase.
Waller also concluded that total operating expenses would grow from $4,953,000
in 1998 to $7,858,000 in 2007. Waller concluded that the Calvert County
System's cash flow would grow from $4,593,000 in 1998 to $8,112,000 in 2007.
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Waller's analysis was further supported by comparable system sales. Waller
examined specific transactions to determine if an appropriate multiple of cash
flow could be derived from current market information. Waller examined
multiples from announced and completed cable television transactions in 1997
and 1998, relying upon data from transactions executed by Waller, from Paul
Kagan & Associates, Inc. and from general industry information sources. Waller
acknowledged that comparable sales data is difficult to generalize from
because of the variability of factors such as system size, growth prospects,
penetration, location, demographics, technical system condition and franchise
terms, which information often is not publicly available. Given these
limitations, Waller is of the opinion that comparable sales data offers only
an approximation of factors that help devise a fair market value and is used
as a reasonableness test of the discounted cash flow approach to value.
For its comparable system sales analysis, Waller examined transactions
involving cable television systems of similar size and characteristics to the
Calvert County System. Waller examined five transactions planned for 1998 and
seven transactions that occurred in 1997. The five cable television system
transactions examined by Waller from 1998 were: (i) the sale of the Toccoa,
Georgia cable television system by one unaffiliated cable television system
operator to another for a sales price of $93,000,000 or a price per subscriber
of $1,710, (ii) the sale a Maryland/Delaware system by one unaffiliated cable
television system operator to another for a sales price of $66,000,000 or a
price per subscriber of $2,490, (iii) the sale of the Lichtfield, Connecticut
cable television system by one unaffiliated cable television system operator
to another for a sales price of $49,000,000 or a price per subscriber of
$1,835, (iv) the sale of the Handcock, Maryland cable television system by one
unaffiliated cable television system operator to another for a sales price of
$24,000,000 or a price per subscriber of $1,476, and (v) the sale of the King
George, Virginia cable television system by one cable television system
operator to another for a sales price of $6,000,000 or a price per subscriber
of $1,710. The seven 1997 cable television system transactions examined by
Waller were: (i) the sale of the Boone, North Carolina cable television system
by one unaffiliated cable television system operator to another for a sales
price of $35,000,000 or a price per subscriber of $1,852, (ii) the sale of the
Anderson, South Carolina cable television system by one unaffiliated cable
television system operator to another for a sales price of $31,000,000 or a
price per subscriber of $1,934, (iii) the sale of a Connecticut/New Hampshire
cable television system by one unaffiliated cable television system operator
to another for a sales price of $30,000,000 or a price per subscriber of
$1,954, (iv) the sale of the Auburn, New York cable television system by one
unaffiliated cable television system operator to another for a sales price of
$28,000,000 or a price per subscriber of $1,679, (v) the sale of a cable
television system serving Bartlesville, Oklahoma by one unaffiliated cable
television system operator to another for a sales price of $28,000,000 or a
price per subscriber of $1,679, (vi) the sale of the St. Mary's County,
Maryland cable system by one unaffiliated cable television system operator to
another for a sales price of $27,000,000 or a price per subscriber of $1,414
and (vii) the sale of the Shelbyville, Tennessee cable television system by
one unaffiliated cable television system operator to another for a sales price
of $20,000,000 or a price per subscriber of $1,726. Waller determined that the
average price per subscriber paid for the comparable cable television system
sales was approximately $1,798 to $1,927 and a cash flow multiple of 9.11 to
9.22. Waller concluded that this comparable sales analysis supported and
validated Waller's discounted cash flow analysis, which resulted in an
aggregate value for the Calvert County System of $1,886 per subscriber.
Based on its various analyses and investigations of the Calvert County
System, Waller concluded that the fair market value of the Calvert County
System as of February 28, 1998 was $34,264,000.
As compensation for rendering an opinion as to the fair market value of the
Calvert County System, the General Partner paid Waller a fee of $15,000. Such
fee was not contingent upon the conclusion reached by Waller 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, Waller
has received fees totaling $71,770 during the two years ended December 31,
1998.
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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 Calvert County
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 $ 7,878
Legal fees $10,000
Accounting fees $10,000
Appraisal fees $39,000
Printing costs $60,000
Postage and miscellaneous costs $20,000
</TABLE>
PROPOSED SALE OF ASSETS
The Purchase and Sale Agreement
Pursuant to the terms and conditions of a purchase and sale agreement dated
as of June 29, 1998 (the "Purchase and Sale Agreement") by and between the
Partnership as seller and Jones Communications of Maryland, Inc. as purchaser,
the Partnership agreed to sell the Calvert County System to Jones
Communications of Maryland, Inc., a Colorado corporation. Jones Communications
of Maryland, Inc. is a wholly owned subsidiary of Jones Cable Holdings, Inc.,
which in turn is a wholly owned subsidiary of the General Partner. The
purchaser intends to finance the acquisition of the Calvert County System
using cash on hand and borrowings available under credit facilities among
Jones Cable Holdings, Inc., as the borrower, and several lenders, including
The Bank of Nova Scotia, NationsBank of Texas, N.A. and Societe Generale as
the managing agents. The maximum amount available under the credit facilities
is $600 million. One $300 million facility reduces quarterly beginning March
31, 2000 through the final maturity date of December 31, 2005. In October
1998, the purchaser borrowed $300 million under the lenders' other $300
million facility. The $300 million term loan is payable in semi-annual
installments commencing June 30, 2001 with a final maturity date of December
31, 2005. Interest on amounts outstanding under the credit facilities varies
from the "base rate," which generally approximates the prime rate, to the base
rate plus 1/4 percent or LIBOR plus 1/2 percent to 1 1/4 percent depending on
certain financial covenants. The effective interest rate on the $270,000,000
outstanding at September 30, 1998 was 6.00 percent. The credit facilities are
secured by a pledge of the stock of all of the subsidiaries of the borrower.
Based upon amounts estimated as of September 30, 1998, the aggregate cost of
the acquisition of the Calvert County System to the purchaser, including
working capital adjustments, will be approximately $39,356,961. Amounts
borrowed by the purchaser to acquire the Calvert County System will be repaid
from cash generated by the operations of the Calvert County System and other
systems owned by Jones Cable Holdings, Inc. and from other sources of funds,
including possible future refinancings.
The closing of the sale will occur on a date upon which the Partnership and
the purchaser mutually agree. It is currently anticipated that the closing
will occur on February 26, 1999. Because the closing is conditioned upon the
approval of the limited partners of the Partnership, there can be no assurance
that the proposed sale will occur. If all conditions precedent to the
purchaser's obligation to close are not eventually satisfied or waived, the
purchaser's obligation to purchase the Calvert County System will terminate.
The Calvert County System
The assets to be acquired consist primarily of the real and personal,
tangible and intangible assets of the Partnership's Calvert County System. The
purchaser will purchase all of the tangible assets of the Calvert County
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 Calvert County System. The
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purchaser also will acquire certain of the intangible assets of the Calvert
County System, including, among other things, all of the franchises, leases,
agreements, permits, licenses and other contracts and contract rights of the
Calvert County System. Also included in the sale are any parcels of real
estate owned by the Calvert County System, the subscriber accounts receivable
of the Calvert County System and all of the Calvert County 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 Calvert County System's assets will be retained by
the Partnership, including cash or cash equivalents on hand and in banks,
certain insurance policies and rights and claims thereunder, and any federal
or state income tax refunds to which the Partnership may be entitled.
Sales Price
Subject to the customary working capital closing adjustments described
below, the sales price for the Calvert County System is $39,388,667. The sales
price will be reduced by any accounts payable and accrued expenses and vehicle
lease obligations existing on the closing date. The sales price will be
increased by any accounts receivable existing on the closing date. The sales
price for the Calvert County 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 Calvert County 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 purchaser and those prior to the closing date are for the
account of the seller. While these adjustments may have the effect of
increasing or decreasing the sales price, any adjustment is not expected to be
material. Please see Note 5 of the Notes to Unaudited Pro Forma Consolidated
Financial Statements for a detailed accounting of the estimated closing
adjustments.
Conditions to Closing
The purchaser's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the Partnership shall have obtained
all material consents and approvals from governmental authorities and third
parties with whom the Partnership has contracted that are necessary for the
transfer of the Calvert County System, (b) all representations and warranties
of the Partnership shall be true and correct in all material respects as of
the closing date and (c) termination or expiration of the statutory waiting
period applicable to the Purchase and Sale Agreement and the transactions
contemplated thereby under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act").
The Partnership's obligations under the Purchase and Sale Agreement are
subject to the following conditions: (a) the receipt of the purchase price for
the Calvert County System and (b) the limited partners of the Partnership
shall have approved the sale of the Calvert County System to the purchaser on
the terms and conditions of the Purchase and Sale Agreement.
FEDERAL AND STATE INCOME TAX CONSEQUENCES
The purpose of the following discussion of the income tax consequences of
the proposed transaction is to inform the limited partners of the Partnership
of the 1999 federal and state income tax consequences to the Partnership and
to its partners arising from the proposed 1999 sale of the Calvert County
System as well as from the proposed 1999 sales of the Buffalo System and the
Naperville System. These tax consequences are expected to be incurred in 1999,
the year in which the sales are expected to close. 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 and projected information
and should not be considered tax advice.
Partnership Allocation of Gain from Sale
Section 5.4 of the Partnership Agreement specifies that Partnership cash
distributions of cable television system net sale proceeds shall be allocated
100 percent to limited partners until they have received a return in an amount
equal to 125 percent of their initial capital contributions and thereafter
such distributions will be made 75 percent to the limited partners and 25
percent to the General Partner.
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The gain from the sales of the cable systems in 1999 will be allocated in
accordance with Section 5.3 of the Partnership Agreement. This allocation
methodology follows the underlying economic gain of the partners and hence
satisfies the "substantial economic effect" test enacted in Internal Revenue
Code ("IRC") Section 704(b) regarding special partnership allocations.
Application of the allocation provisions of Section 5.3 ensures that the
limited partners' net sum of allocable partnership loss and income during the
Partnership's life will equal the net economic gain or loss realized from
their investment in the Partnership. The estimated allocable limited partner
income from the sales reported below incorporates the application of the
special partnership allocation rules of Section 5.3.
Historical Partnership Losses and Tax Benefits
The Tax Reform Act of 1986 enacted a limitation on a limited partner's
ability to currently deduct allocable partnership losses, which were deemed to
be passive losses. The law phased in the disallowance of passive loss
deductions until 1994, when no passive losses were allowable except to the
extent of passive income or a disposition of the passive activity. To the
extent the losses were deductible under the passive loss limitation rules,
limited partners enjoyed an income tax benefit from annual partnership loss
allocations. By the expected date of the sales in 1999, most of 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, original limited partners of the Partnership will have
received $3,110,654 ($39 per $1,000 invested) of tax benefits from historical
Partnership losses.
Allocable Partnership losses which were not currently deductible because of
the passive loss limitation rules were carried forward to future years when
the Partnership or the limited partner incurred passive income. All historical
Partnership passive loss carryforwards should have been completely utilized in
1997 and 1998 when the Partnership's Turnersville System, Central Illinois
System and Broward County System were sold, respectively. Accordingly, the
General Partner does not anticipate that any Partnership-generated passive
loss carryforwards will be available to offset allocable income from the
proposed 1999 cable system sales.
Projected 1999 Tax Results
The sale of the three cable systems in 1999 will result in a gain
allocation to the limited partners of $62,925,830 ($786 per $1,000 invested).
The General Partner estimates that $53,079,708 ($663 per $1,000 invested) will
be characterized as ordinary income from IRC Section 1245 recapture of
depreciation and amortization on Partnership operating assets. The remainder
of the gain, $9,846,122 ($123 per $1,000 invested) will be treated as long
term capital gain under IRC Section 1231. The General Partner does not
anticipate that limited partners will have any Partnership generated passive
loss carryforwards to offset any of the 1999 allocable gains.
The separate gains originating from each cable system sale are detailed
below.
The Calvert County System Sale
The proposed February 1999 sale of the Calvert County System will generate
taxable gain that will be allocable to the limited partners in an amount
approximating $33,658,973 ($421 per $1,000 invested). The General Partner
estimates that $28,491,356 ($356 per $1,000 invested) will be characterized as
ordinary income from IRC Section 1245 recapture of depreciation and
amortization on Partnership operating assets. The remainder of the gain,
$5,167,617 ($65 per $1,000 invested), will be treated as long term capital
gain under IRC Section 1231.
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The Buffalo System Sale
The proposed February 1999 sale of the Buffalo System will generate taxable
gain that will be allocable to the limited partners in an amount approximating
$20,395,216 ($254 per $1,000 invested). The General Partner estimates that
$15,716,711 ($196 per $1,000 invested) will be characterized as ordinary
income from IRC Section 1245 recapture of depreciation and amortization on
Partnership operating assets. The remainder of the gain, $4,678,505 ($58 per
$1,000 invested), will be treated as long term capital gain under IRC Section
1231.
The Naperville System Sale
The proposed February 1999 sale of the Naperville System will generate
taxable gain that will be allocable to the limited partners in an amount
approximating $8,871,641 ($111 per $1,000 invested). The General Partner
estimates that all of the gain will be characterized as ordinary income from
IRC Section 1245 recapture of depreciation and amortization on Partnership
operating assets. It is not anticipated that any of the allocable gain will be
treated as long term capital gain under IRC Section 1231.
Syndication Costs
Syndication costs represent the sales commissions paid by limited partners
on their purchase of the limited partnership interests and other allocable
costs associated with forming the Partnership. These costs were capitalized on
the Partnership books and are reflected in the limited partners' capital
account balance. Upon liquidation of the Partnership in 1999, the syndication
costs can be deducted by the limited partners of the Partnership as a long
term capital loss under IRC Section 731. Limited partners will have a positive
ending capital balance on their final Form 1065, Schedule K-1 which represents
their allocable syndication costs. The Partnership has syndication costs of
$11,000,000 ($138 per $1,000 invested) that will be deductible by limited
partners on their 1999 income tax returns.
Secondary Market Purchasers
Limited partners that have recently acquired their partnership interests in
the limited partnership secondary market or through tender offers will have
allocable income from the cable system sales in the amounts reported above.
Because the Partnership does not have an IRC Section 754 election in effect,
the purchase of a limited partnership interest in the Partnership places the
new investor in the same position as the limited partner from whom the
interest was purchased. However, the new investor will not have the prior
investors' passive loss carryforwards (if any) or tax basis in the
Partnership.
Newer investors in the Partnership will likely have a greater reportable net
taxable income from the system sales than investors who have held their
partnership interests for a longer period of time. Also, recent investors will
not have their net tax basis in their partnership interests reflected on their
annual Schedule K-1. Such limited partners must track their tax basis by
adjusting their original cost by allocable income or loss and partnership
distributions. Their adjusted tax basis will be deductible as a long term
capital loss under IRC Section 731 in a manner similar to the Partnership
syndication costs discussed above.
Federal Tax Withholding on Sale Proceeds
Limited partners who are non-resident aliens or foreign corporations
("foreign persons") are subject to a federal withholding tax on their share of
the Partnership's income from the system sales. 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
persons will receive a credit on their 1999 U.S. tax return for the amount of
the tax withheld by the Partnership. The withheld tax will be treated as a
distribution to the foreign limited partners on their 1999 Schedule K-1.
State Tax Withholding on Sale Proceeds
The 1999 sale of the Buffalo System will require all limited partners to
report their Minnesota allocable taxable income to the State of Minnesota. The
state laws of Minnesota impose requirements on the General Partner to withhold
8.5 percent of each non-resident individual partner's allocable Minnesota
income without consideration of loss carryforwards. This withholding
requirement does not apply to tax exempt entities such as trusts and
Individual Retirement Accounts (IRAs).
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<PAGE>
The 1999 sale of the Calvert County System will require all limited partners
to report their Maryland allocable taxable income to the State of Maryland.
The state laws of Maryland impose requirements on the General Partner to
withhold 5 percent of each non-resident individual partner's allocable
Maryland income without consideration of loss carryforwards. This withholding
requirement does not apply to tax exempt entities such as trusts and
Individual Retirement Accounts (IRAs).
Limited partners are required to file non-resident state tax returns in the
above-referenced states to compute the appropriate state tax liability.
Documentation of withheld taxes will be reported on state specified forms to
limited partners in January 2000. The General Partner anticipates that most
partners will likely receive a partial refund from this reporting process. As
a service to limited partners, the General Partner will provide reporting
instructions and blank state income tax forms to affected limited partners
with the annual tax reporting package.
Federal Income Tax Reporting by Tax Exempt Entities
The 1999 Partnership cable system sales will generate Unrelated Business
Taxable Income (UBTI) to tax exempt entities, which will require the filing of
Form 990-T. Although many trust administrators complete the required tax
returns, responsibility for completion of the Form 990-T ultimately rests with
the beneficiaries of trusts, IRAs and other tax exempt entities. Because this
is an area in which there is a variance of policy among trust administrators,
each limited partner who is a beneficiary is advised to confirm with his or
her trust administrator that this filing requirement will be fulfilled.
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 larger cable television
system operators in the United States serving in excess of one 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 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
Commission also maintains a World Wide Web site that contains reports, proxy
statements and information statements of registrants (including the
Partnership) that file electronically with the Commission at
http://www.sec.gov. The Partnership's registration and reporting requirements
under the Exchange Act will be terminated upon the dissolution of the
Partnership, which is expected to occur before the end of 1999.
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 and at the
Commission's World Wide Web site. 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.
28
<PAGE>
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.
CERTAIN RELATED PARTY TRANSACTIONS
The General Partner and its affiliates engage in certain transactions with
the Partnership. The General Partner believes that the terms of such
transactions are generally as favorable as could be obtained by the
Partnership from unaffiliated parties. This determination has been made by the
General Partner in good faith, but none of the terms were or will be
negotiated at arm's-length and there can be no assurance that the terms of
such transactions have been or will be as favorable as those that could have
been obtained by the Partnership from unaffiliated parties.
The purchase price for the Calvert County System was determined in
accordance with the provisions of the Partnership Agreement but the proposed
sale of the Calvert County System by the Partnership to one of the General
Partner's subsidiaries was not negotiated at arm's-length and thus there can
be no assurance that the terms of such transaction have been or will be as
favorable as those that could have been obtained by the Partnership from an
unaffiliated purchaser.
The General Partner charges the Partnership a management fee relating to the
General Partner's management of the Partnership's cable television systems,
and the Partnership 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. 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 its subsidiaries and
all other systems owned by partnerships for which Jones Intercable, Inc. or
one of its subsidiaries 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.
The General Partner from time to time also advances funds to the Partnership
and charges interest on the balances payable by the Partnership. The interest
rate charged the Partnership approximates the General Partner's weighted
average cost of borrowing.
Knowledge TV, Inc. is an affiliate of the General Partner that owns and
operates Knowledge TV, a network that provides programming related to
computers and technology; business, careers and finance; health and wellness;
and global culture and languages. Knowledge TV, Inc. sells its programming to
the cable television systems owned by the Partnership.
Jones Computer Network, Ltd., an affiliate of the General Partner, operated
the television network Jones Computer Network. This network provided
programming focused primarily on computers and technology. Jones Computer
Network sold its programming to the cable television systems owned by the
Partnership. Jones Computer Network terminated its programming in April 1997.
29
<PAGE>
The Great American Country network provides country music video programming
to the cable television systems owned by the Partnership. This network is
owned and operated by Great American Country, Inc., a subsidiary of Jones
International Networks, Ltd., an affiliate of the General Partner.
Jones Galactic Radio, Inc. is a company owned by Jones International
Networks, Ltd., an affiliate of the General Partner, Superaudio, a joint
venture between Jones Galactic Radio, Inc. and an unaffiliated entity,
provides satellite programming to the cable television systems owned by the
Partnership.
The Product Information Network Venture (the "PIN Venture") is a venture
among a subsidiary of Jones International Networks, Ltd., an affiliate of the
General Partner, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60 percent of its
net advertising revenue to the cable systems that carry its programming. The
Partnership's systems carry PIN for all or part of each day. Revenues received
by the Partnership from the PIN Venture relating to the Partnership's owned
cable television systems totaled $49,935 for the nine months ended September
30, 1998 and $80,297 for the year ended December 31, 1997.
The programming fees paid by the Partnership to Knowledge TV, Inc., Jones
Computer Network, Ltd., Great American Country and Superaudio (collectively,
the "affiliated programming providers") are governed by the terms of the
various master programming agreements entered into by and between the General
Partner and each of the affiliated programming providers. Generally, with
respect to most video programming services, cable operators pay to programmers
a monthly license fee per subscriber that is based on a number of factors,
including the perceived value of the programming, the size of the cable
operator and the level of distribution of the programming service within the
cable operator's systems and the other terms and conditions under which the
programming is provided. The General Partner negotiates master programming
agreements with each programming network distributed on any of its owned or
managed cable systems. The Partnership pays the same per subscriber rate for
all of its programming, including the programming provided by affiliates of
the General Partner, as the General Partner pays for the programming it
provides on cable television systems that it owns itself, i.e., the General
Partner does not receive any markup for programming provided to the
Partnership under its master programming agreements. The master programming
agreements entered into by and between the General Partner and the affiliated
programming providers were negotiated by officers of the General Partner with
representatives of the affiliated programming providers.
The charges to the Partnership for related party transactions were as
follows for the periods indicated:
<TABLE>
<CAPTION>
For the
nine months
ended For the year ended
September 30, 1998 December 31,
------------------ -----------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C> <C>
Management fees............... 871,694 1,332,112 2,390,436 2,204,740
Allocation of expenses........ 1,024,098 1,526,293 3,162,115 3,170,917
Interest expense.............. 91,636 2,783 250,004 23,107
Amount of notes and advances
outstanding.................. 0 489,313 352,232 887,215
Highest amount of notes and
advances outstanding......... 489,313 489,313 3,453,993 887,215
Programming fees:
Knowledge TV, Inc. ......... 30,554 46,123 71,736 61,431
Jones Computer Network,
Ltd. ...................... 0 22,173 61,374 65,248
Great American Country...... 22,264 28,314 35,100 0
Superaudio.................. 28,387 40,647 63,513 54,644
</TABLE>
30
<PAGE>
USE OF PROCEEDS FROM CALVERT COUNTY SYSTEM SALE
The following is a brief summary of the Partnership's estimated use of the
proceeds from the sale of the Calvert County System. All of the following
selected financial information is based upon amounts as of September 30, 1998
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 Calvert County System is set forth below under the caption
"Unaudited Pro Forma Financial Information." All limited partners are
encouraged to review carefully the unaudited pro forma financial statements
and notes thereto.
If the holders of a majority of limited partnership interests of the
Partnership approve the proposed sale of the Calvert County System and the
transaction is closed, the Partnership will distribute the net sale proceeds
to its limited partners of record as of the closing date of the sale of the
Calvert County System. The estimated uses of the sale proceeds are as follows:
<TABLE>
<S> <C>
Contract Sales Price of the Calvert County System........... $ 39,388,667
Add:Cash on Hand............................................ 119,581
Less:Estimated Net Closing Adjustments...................... (31,706)
Outstanding Debt to Third Parties........................... (19,872,960)
General Partner Advances.................................... (103,582)
------------
Cash Available for Distribution by the Partnership..... $ 19,500,000
============
Limited Partners' Share (100%)......................... $ 19,500,000
============
Based upon financial information available at September 30, 1998, below is
an estimate of all cash distributions (excluding escrowed proceeds) that will
have been made to limited partners after the distributions of the proceeds
from the three pending system sales are completed.
Summary of Estimated Cash Distributions to Limited Partners:
Partial Return of 125 percent of the Limited Partners' Ini-
tial Capital on the 1997 Sale of the Partnership's
Turnersville, New Jersey System............................ $ 25,000,000
Partial Return of 125 percent of the Limited Partners' Ini-
tial Capital on the 1997 Sale of the Partnership's Central
Illinois System ........................................... 9,547,500
Partial Return of 125 percent of the Limited Partners' Ini-
tial Capital on the 1998 Sale of the Venture's Broward Sys-
tem ....................................................... 25,484,569
Partial Return of 125 percent of the Limited Partners' Ini-
tial Capital on the 1999 Sale of the Partnership's Calvert
County System ............................................. 19,500,000
Return of 125 percent of the Limited Partners' Initial
Capital on the 1999 Sale of the Partnership's Buffalo
System..................................................... 20,468,000
Limited Partners' Share of Residual Proceeds on the 1999
Sale of the Partnership's Buffalo System................... 99,000
Limited Partners' Share of Proceeds on the 1999 Sale of the
Naperville System.......................................... 15,600,000
------------
Total Estimated Cash Received by Limited Partners........... $115,699,069
============
Total Cash Received per $1,000 of Limited Partnership Capi-
tal........................................................ $ 1,446
============
Total Cash Received per $500 Limited Partnership Interest... $ 723
============
</TABLE>
31
<PAGE>
Based on financial information available at September 30, 1998, the following
table presents the estimated results of the Partnership when it has completed
the sale of the Calvert County System:
<TABLE>
<S> <C>
Dollar Amount Raised......................................... $ 80,000,000
Number of Cable Television Systems Purchased Directly........ Five
Number of Cable Television Systems Purchased Indirectly...... One
Date of Closing of Offering.................................. August 1987
Date of First Sale of Properties............................. January 1997
Tax and Distribution Data per $1,000 of Limited Partnership
Capital:
Federal Income Tax Results
Ordinary Income (Loss)
--from operations........................................ $ (1,236)
--from recapture......................................... $ 1,373
Capital Gain (Loss)...................................... $ 309
Cash Distributions to Investors
Source (on GAAP basis)
--investment income...................................... $ 446
--return of capital...................................... $ 1,000
Source (on cash basis)
--sales.................................................. $ 1,446
</TABLE>
32
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF CABLE TV FUND 14-A, LTD.
The following unaudited pro forma balance sheet assumes that as of September
30, 1998, the Partnership had sold the Calvert County System for $39,388,667,
the Buffalo System for $27,000,000 and the Naperville System for $23,000,000.
The funds available to the Partnership from the Calvert County System's sale,
adjusting for the estimated net closing adjustments of the Calvert County
System, are expected to total approximately $39,356,961. Such funds will be
used to repay debt, pay certain fees and expenses of the transaction and
settle working capital adjustments, and then the balance remaining will be
distributed to the Partnership's limited partners of record as of the closing
date of the sale of the Calvert County System. As a result of the sale of the
Calvert County System, the limited partners of the Partnership will receive
$122 for each $500 limited partnership interest, or $244 for each $1,000
invested in the Partnership. As a result of the sale of the Buffalo System,
the limited partners of the Partnership will receive $129 for each $500
limited partnership interest, or $258 for each $1,000 invested in the
Partnership. As a result of the sale of the Naperville System, the limited
partners of the Partnership will receive $97.50 for each $500 limited
partnership interest, or $195 for each $1,000 invested in the Partnership.
Taking into account the distributions to the limited partners of the
Partnership that have been made from all of the prior cable television system
sales by the Venture and the Partnership and the anticipated distribution to
limited partners from the pending sales of the Calvert County System, the
Buffalo System and the Naperville System (excluding escrowed proceeds), the
General Partner expects that the Partnership's limited partners will have
received a total return of $723 for each $500 limited partnership interest, or
$1,446 for each $1,000 invested in the Partnership, at the time the
Partnership is liquidated and dissolved.
The unaudited pro forma balance sheet should be read in conjunction with the
appropriate notes to the unaudited pro forma balance sheet.
ALL OF THE FOLLOWING UNAUDITED PRO FORMA FINANCIAL INFORMATION IS BASED UPON
AMOUNTS AS OF SEPTEMBER 30, 1998 AND CERTAIN ESTIMATES OF LIABILITIES AT
CLOSING. FINAL RESULTS MAY DIFFER FROM SUCH INFORMATION.
33
<PAGE>
CABLE TV FUND 14-A, LTD.
UNAUDITED PRO FORMA BALANCE SHEET
September 30, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
As Reported Adjustments Balance
----------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Cash and Cash Equivalents............... $ 329,891 $ 19,170,109 $19,500,000
Trade Receivables, net.................. 444,931 (444,931) --
Investment in Cable Television
Properties:
Property, plant and equipment, net.... 35,329,501 (35,329,501) --
Franchise costs and other intangibles,
net.................................. 1,771,163 (1,771,163) --
----------- ------------ -----------
Total investment in cable television
properties......................... 37,100,664 (37,100,664) --
Deposits, Prepaid Expenses and Deferred
Charges................................ 1,692,926 (1,692,926) --
----------- ------------ -----------
Total Assets............................ $39,568,412 $(20,068,412) $19,500,000
=========== ============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Debt.................................. $24,345,178 $(24,345,178) $ --
Trade accounts payable and accrued
liabilities.......................... 1,995,420 (1,995,420) --
Subscriber prepayments................ 123,154 (123,154) --
Accrued distribution to limited
partners............................. -- 19,500,000 19,500,000
----------- ------------ -----------
Total Liabilities................... 26,463,752 (6,963,752) 19,500,000
----------- ------------ -----------
Partners' Capital:
General Partner....................... (12,839) 12,839 --
Limited Partners...................... 13,117,499 (13,117,499) --
----------- ------------ -----------
Total Partners' Capital............. 13,104,660 (13,104,660) --
----------- ------------ -----------
Total Liabilities and Partners'
Capital.............................. $39,568,412 $(20,068,412) $19,500,000
=========== ============ ===========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited balance sheet.
34
<PAGE>
CABLE TV FUND 14-A, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Year Ended December 31, 1997
<TABLE>
<CAPTION>
Pro Forma Pro Forma
As Reported Adjustments Balance
----------- ------------ -----------
<S> <C> <C> <C>
REVENUES................................ $26,642,247 $(26,642,247) $ --
COSTS AND EXPENSES:
Operating expenses.................... 16,385,590 (16,385,590) --
Management fees and allocated overhead
from
the General Partner.................. 2,858,405 (2,858,405) --
Depreciation and amortization......... 10,111,635 (10,111,635) --
----------- ------------ -----------
OPERATING LOSS.......................... (2,713,383) 2,713,383 --
----------- ------------ -----------
OTHER INCOME (EXPENSE):
Interest expense...................... (1,923,226) 1,923,226 --
Gain on sale of cable television
systems.............................. 69,973,972 (69,973,972) --
Other, net............................ (1,976,233) 1,976,233 --
----------- ------------ -----------
Total other income (expense), net... 66,074,513 (66,074,513) --
----------- ------------ -----------
INCOME BEFORE EQUITY IN NET LOSS OF
CABLE TELEVISION JOINT VENTURE......... 63,361,130 (63,361,130) --
EQUITY IN NET LOSS OF CABLE TELEVISION
JOINT VENTURE.......................... (626,089) 626,089 --
----------- ------------ -----------
NET INCOME.............................. $62,735,041 $(62,735,041) $ --
=========== ============ ===========
NET INCOME PER LIMITED PARTNERSHIP
INTEREST............................... $ 387.70 $ --
=========== ===========
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
35
<PAGE>
CABLE TV FUND 14-A, LTD.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
As Reported Adjustments Balance
------------ ------------ ---------
<S> <C> <C> <C>
REVENUES................................. $17,433,880 $(17,433,880) $--
COSTS AND EXPENSES:
Operating expenses..................... 11,152,221 (11,152,221) --
Management fees and allocated overhead
from
the General Partner................... 1,895,792 (1,895,792) --
Depreciation and amortization.......... 6,354,958 (6,354,958) --
------------ ------------ -----
OPERATING LOSS........................... (1,969,091) 1,969,091 --
------------ ------------ -----
OTHER INCOME (EXPENSE): --
Interest expense....................... (1,250,737) 1,250,737 --
Other, net............................. 14,271 (14,271) --
------------ ------------ -----
Total other income (expense), net.... (1,236,466) 1,236,466 --
------------ ------------ -----
LOSS BEFORE EQUITY IN NET INCOME OF CABLE
TELEVISION JOINT VENTURE................ (3,205,557) 3,205,557 --
EQUITY IN NET INCOME OF CABLE TELEVISION
JOINT VENTURE........................... 22,599,271 (22,599,271) --
------------ ------------ -----
NET INCOME............................... $19,393,714 $(19,393,714) $--
============ ============ =====
NET INCOME PER LIMITED PARTNERSHIP
INTEREST................................ $ 120.84 $--
============ =====
</TABLE>
The accompanying notes to unaudited pro forma financial statements are an
integral part of this unaudited statement.
36
<PAGE>
CABLE TV FUND 14-A, LTD.
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1) The following calculations present the sale of the Calvert County System
and the resulting estimated proceeds expected to be received by the
Partnership.
2) The unaudited pro forma balance sheet of the Partnership assumes that the
Partnership had sold the Calvert County System, the Buffalo System and the
Naperville System as of September 30, 1998. The unaudited pro forma statements
of operations of the Partnership assume that the Venture had sold the Broward
System and the Partnership had sold the Central Illinois System, the
Turnersville System, the Calvert County System, the Buffalo System and the
Naperville System as of January 1, 1997.
3) The net proceeds from the sale of the Calvert County System will be
distributed 100 percent to the limited partners. The limited partners'
distribution of $19,500,000 represents $122 for each $500 limited partnership
interest, or $244 for each $1,000 invested in the Partnership.
4) The estimated gain recognized from the sale of the Calvert County System
and corresponding estimated distribution to limited partners as of September
30, 1998 has been computed as follows:
Gain on Sale of Assets:
<TABLE>
<S> <C>
Contract sales price.............................................. $39,388,667
Less: Net book value of investment in cable television properties
at September 30, 1998....................................... (11,785,758)
-----------
Gain on sale of assets............................................ $27,602,909
===========
Distribution to Partners:
Contract sales price.............................................. $39,388,667
Working Capital Adjustment:
Add:Trade receivables, net........................................ 187,731
Prepaid expenses.................................................. 119,850
Less:Accrued liabilities.......................................... (305,588)
Subscriber prepayments............................................ (33,699)
-----------
Adjusted cash received............................................ 39,356,961
Add: Cash on hand................................................. 119,581
Less:Outstanding debt to third parties............................ (19,872,960)
Repayment of General Partner Advances............................. (103,582)
-----------
Cash available from sale proceeds................................. 19,500,000
-----------
Cash available for distribution by the Partnership................ $19,500,000
===========
Limited partners' share (100%).................................... $19,500,000
===========
</TABLE>
37
<PAGE>
AVAILABLE INFORMATION
The Partnership's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 and the Partnership's Quarterly Reports on Form 10-Q for the
fiscal quarters ended March 31, 1998, June 30, 1998, and September 30, 1998
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 Calvert County System and copies of the Purchase and Sale
Agreement between the Partnership and the General Partner have been publicly
filed with the Securities and Exchange Commission and may be inspected at the
Commission's public reference facilities and at its World Wide Web site, and
such documents also 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. 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 General Partner with the Securities and Exchange
Commission. This document may be inspected at the Commission's public
reference facilities and at its World Wide Web site.
INCORPORATION BY REFERENCE
The following documents, which have been filed by the Partnership with the
Securities and Exchange Commission pursuant to the requirements of the
Exchange Act are hereby incorporated by reference: (i) the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997, (ii)
the Partnership's Current Report on Form 8-K dated April 8, 1998, (iii) the
Partnership's Current Report on Form 8-K dated June 29, 1998, (iv) the
Partnership's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998, (v) the Partnership's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1998 and (vi) the Partnership's Quarterly Report on
Form 10-Q for the fiscal quarter ended September 30, 1998.
38
<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. Fridman, Kearney and Vanaselja are citizens of the
United States. Messrs. Fridman, Kearney 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. He
Avenue Englewood, CO served as President of the General Partner from
80112 1984 to 1988. Mr. Jones has been involved in
the cable television business in various
capacities since 1961.
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.
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 finance department
80112 of the General Partner 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, DC. Until his retirement in January
1991, Mr. Frenzel served for twenty years in
the United States House of Representatives.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Aggregate Number
of Limited
Partnership Interests
Name and Address Occupation or Employment Beneficially Owned
---------------- ------------------------ ---------------------
<S> <C> <C>
Josef J. Fridman Mr. Fridman was appointed a director of the 0
c/o BCI Telecom Holding Inc. General Partner in February 1998. He is senior
1000 rue de la vice-president, law and corporate secretary of
Gauchetiere Bureau 1100 BCE Inc. Mr. Fridman joined Bell Canada, a
Montreal (PQ) wholly owned subsidiary of BCE Inc., in 1969,
Canada H3B 4Y8 and he has held increasingly senior positions
with Bell Canada and BCE Inc. since such time.
He has held his current position since 1991.
Donald L. Jacobs Mr. Jacobs was appointed a Director of the 0
60435 Tekampe Road General Partner in April 1995. Mr. Jacobs is a
Bend, OR 97702 retired executive officer of TRW. Prior to his
retirement in 1992, 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 finance department of the General Partner
80112 since 1984.
Robert Kearney Mr. Kearney was appointed a Director of the 0
c/o BCI Telecom Holding General Partner in July 1997. Mr. Kearney is a
Inc. retired executive officer of Bell Canada. Prior
1000 rue de la to his retirement in December 1993, Mr. Kearney
Gauchetiere was the President and Chief Executive Officer
Bureau 1100 of Bell Canada. He served as Chairman of BCE
Montreal (PQ) Canadian Telecom Group in 1994 and as Deputy
Canada H3B 4Y8 Chairman of BCI Management Limited in 1995.
James J. Krejci Mr. Krejci has been a Director of the General 0
3100 Arapahoe Avenue Partner since 1987. Mr. Krejci is President and
Boulder, CO 80303 CEO of Imagelink Technologies, Inc., a
privately financed company with leading
technology in the desktop or personal computer
videoconferencing market. Prior to joining
Imagelink Technologies in July 1996, he was the
President of the International Division of
International Gaming Technology headquartered
in Reno, Nevada. Prior to joining International
Gaming Technology in May 1994, Mr. Krejci had
been a Group Vice President of the General
Partner since 1987.
James B. O'Brien Mr. O'Brien has been President and a Director of 0
c/o Jones Intercable, the General Partner since 1989 and a member of
Inc. the Executive Committee of the General
9697 E. Mineral Avenue Partner's Board of Directors since 1993.
Englewood, CO 80112 Mr. O'Brien has been with the General Partner
since 1982 in various operational management
positions.
</TABLE>
S-2
<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
501 South Cherry Street General Partner in March 1996. Mr. Solot is an
Denver, CO 80222 attorney in private practice. He has practiced
law for 34 years with an emphasis on franchise,
corporate and partnership law and complex
litigation.
Cheryl M. Sprague Ms. Sprague joined the General Partner as Group 0
c/o Jones Intercable, Vice President/Human Resources in November
Inc. 1997. Prior to November 1997 and since December
9697 E. Mineral Avenue 1995, Ms. Sprague served as Director, Human
Englewood, CO 80112 Resources for Westmoreland Coal Company. From
October 1993 to December 1995, Ms. Sprague
served as President of Peak Executive
Resources. From April 1992 to October 1993, Ms.
Sprague was Vice President, Human Resources for
Penrose-St. Francis Healthcare System.
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 now a management and
international marketing consultant. 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 BCI Telecom Holding General Partner in August 1996. Mr. Vanaselja
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 Executive Vice
Canada H3B 4Y8 President and Chief Financial Officer of Bell
Canada International Inc. and Vice President of
BCI Telecom Holding Inc., BCE Inc.
subsidiaries. Prior to joining BCE Inc., Mr.
Vanaselja was a partner in the Toronto office
of KPMG Peat Marwick Thorne.
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>
S-3
<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
3773 Cherry Creek North Drive- General Partner in June 1996. Mr. Zisman is a
Denver, CO 80209 principal in the law firm Zisman & Ingraham,
P.C. of Denver, Colorado. He has practiced law
for 32 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 the John M. Olin Professor at the U.S. Naval
Washington, DC 20016 Academy for the 1997-1998 term. From 1993
through 1997, he was an Executive Vice
President at 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.
</TABLE>
S-4
<PAGE>
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 14-A, Ltd., a Colorado
limited partnership, hereby votes on the sale of the Partnership's Calvert
County, Maryland cable television system to Jones Communications of Maryland,
Inc., an indirect wholly owned subsidiary of Jones Intercable, Inc., for a
sales price of $39,388,667 in cash, subject to normal closing adjustments,
pursuant to the terms and conditions of that certain Purchase and Sale
Agreement dated as of June 29, 1998, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(You must sign on the reverse side of this proxy card for your vote to count.)
<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 on label.
DATED: ______________________, 1999
___________________________________
Beneficial Owner Signature
(Investor)
___________________________________
Authorized Trustee/Custodian
Signature
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 14-A, Ltd., a Colorado
limited partnership, hereby votes on the sale of the Partnership's Calvert
County, Maryland cable television system to Jones Communications of Maryland,
Inc., an indirect wholly owned subsidiary of Jones Intercable, Inc., for a
sales price of $39,388,667 in cash, subject to normal closing adjustments,
pursuant to the terms and conditions of that certain Purchase and Sale
Agreement dated as of June 29, 1998, as follows:
[_] CONSENTS [_] WITHHOLDS CONSENT [_] ABSTAINS
(You must sign on the reverse side of this proxy card for your vote to count.)
<PAGE>
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR THE PROPOSED SALE TRANSACTION.
All owners must sign exactly as
name(s) appear on label.
When limited partnership
interests are held by more than
one person, all owners must sign.
When signing as attorney, as
executor, administrator, trustee
or guardian, please give full
title as such. If a corpo-ration,
please sign in full corporation
name by autho-rized officer. If a
partnership, please sign in
partnership name by authorized
person.
DATED: ______________________, 1999
___________________________________
Signature - Investor 1
___________________________________
Signature - Investor 2
___________________________________
Signature - Investor 3
PLEASE SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 99(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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __________ to __________
Commission file number: 0-15378
CABLE TV FUND 14-A, LTD.
------------------------
(Exact name of registrant as specified in its charter)
Colorado 84-1024657
-------- ----------
(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 ((S)229.405) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. X
---
DOCUMENTS INCORPORATED BY REFERENCE: None
(33904)
<PAGE>
Certain information contained in this Form 10-K Report contains
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements, other than statements of
historical facts, included in this Form 10-K Report that address activities,
events or developments that the Partnership, the Venture or the General Partner
expects, believes or anticipates will or may occur in the future are forward-
looking statements. These forward-looking statements are based upon certain
assumptions and are subject to a number of risks and uncertainties. Actual
events or results may differ materially from those discussed in the forward-
looking statements as a result of various factors.
PART I.
-------
ITEM 1. BUSINESS
-----------------
THE PARTNERSHIP. Cable TV Fund 14-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 14 Limited Partnership
Program (the "Program"), which was sponsored by Jones Intercable, Inc. (the
"General Partner"). Cable TV Fund 14-B, Ltd. ("Fund 14-B") is the other
partnership that was formed pursuant to the Program. The Partnership and Fund
14-B formed a general partnership known as Cable TV Fund 14-A/B Venture (the
"Venture"), in which the Partnership owns a 27 percent interest and Fund 14-B
owns a 73 percent interest. The Partnership and the Venture were formed for the
purpose of acquiring and operating cable television systems.
The Partnership directly owns cable television systems serving the
areas in and around Buffalo, Minnesota (the "Buffalo System"), Naperville,
Illinois (the "Naperville System") and Calvert County, Maryland (the "Calvert
County System") The Venture owns the cable television system serving certain
areas in Broward County, Florida (the "Broward System"). See Item 2. The
Buffalo System, Naperville System, Calvert County System and Broward System may
collectively be referred to as the "Systems."
It is the General Partner's publicly announced policy that it intends
to liquidate its managed limited partnerships, including the Partnership, as
opportunities for sales of partnership cable television systems arise in the
marketplace. In accordance with this policy, the Partnership sold two of its
cable television systems in 1997, and the Venture expects to sell the Broward
System in March 1998. The General Partner continues to seek opportunities for
the sale of the remaining Systems. There is no assurance as to the timing or
terms of any sales.
DISPOSITIONS OF CABLE TELEVISION SYSTEMS.
Turnersville System. On January 10, 1997, the Partnership sold the
-------------------
cable television system serving the areas in and around Turnersville, New Jersey
(the "Turnersville System") to an unaffiliated party for a sales price of
$84,500,000. The Partnership distributed approximately $25,000,000 (or
approximately $313 per each $1,000 invested in the Partnership) of the sale
proceeds to its limited partners in January 1997, paid The Jones Group, Ltd.
("The Jones Group"), a subsidiary of the General Partner, a brokerage fee of
$2,112,500, representing 2.5 percent of the sales price, for acting as a broker
in this transaction and repaid $57,387,500 of the balance outstanding on its
credit facility (of which $52,500,000 was required to be repaid under the terms
of the Partnership's credit facility). Because the $25,000,000 distribution to
the limited partners did not return 125 percent of the capital initially
contributed to the Partnership by the limited partners, the General Partner did
not receive a general partner distribution from the proceeds of the sale of the
Turnersville System. Because the sale of the Turnersville System did not
represent a sale of all or substantially all of the Partnership's assets, no
vote of the limited partners of the Partnership was required to approve this
sale.
Central Illinois System. On June 30, 1997, the Partnership sold the
-----------------------
cable television system serving certain communities in Central Illinois (the
"Central Illinois System") to an unaffiliated party for a sales price of
$20,005,280. The Partnership distributed $9,547,500 (or approximately $119 per
each $1,000 invested in the Partnership) of the sale proceeds to its limited
partners in July 1997, paid a 2.5 percent brokerage fee of $502,500 to The Jones
Group for acting as a broker in this transaction and repaid $9,800,000 of the
balance outstanding on its credit facility. Because the distributions to the
limited partners from the sales of the Turnersville System and
2
<PAGE>
the Central Illinois System did not return 125 percent of the capital initially
contributed to the Partnership by the limited partners, the General Partner did
not receive a general partner distribution from the proceeds of the sale of the
Central Illinois System. Because the sale of the Central Illinois System did not
represent a sale of all or substantially all of the Partnership's assets, no
vote of the limited partners of the Partnership was required to approve this
sale.
PROPOSED DISPOSITION OF CABLE TELEVISION SYSTEM.
On October 3, 1997, the Venture entered into an agreement to sell the
Broward System to an unaffiliated party for $140,000,000, subject to closing
adjustments discussed below. Closing of this sale is scheduled for March 31,
1998, subject to several conditions, including necessary governmental and other
third-party consents. The General Partner expects that all material consents
will be obtained prior to the scheduled closing date. The closing adjustments
primarily relate to the number of equivalent basic subscribers at closing. If
the equivalent basic subscribers are less than 56,637, the sales price will be
reduced $2,462 multiplied by the number by which the Broward System's equivalent
basic subscribers are less than 56,637, up to a maximum adjustment of
$7,000,000. Because it is estimated that at March 31, 1998, the Broward System
will have 55,274 equivalent basic subscribers, as defined in the agreement,
there will be a sales price reduction at closing of approximately $3,369,000.
The General Partner expects, however, that when final closing adjustments are
done approximately sixty days after closing, additional equivalent basic
subscribers that were not able to be counted at closing because they were
relatively recent subscribers at March 31, 1998, will be counted as equivalent
basic subscribers when final closing adjustments are done and the sales price
will be adjusted accordingly. If the sales price is adjusted upward, the
Venture would make an additional distribution to the two constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture.
Upon closing, the Venture will repay all of its indebtedness, which
totaled $39,597,617 at December 31, 1997, and a brokerage fee of $3,500,000 to
The Jones Group and then the Venture will distribute the remaining net sale
proceeds, or approximately $94,039,000, to the two constituent partnerships of
the Venture in proportion to their ownership interests in the Venture.
Accordingly, the Partnership will receive 27 percent of such proceeds, estimated
to total $25,491,000. The Partnership will distribute this portion of the net
sale proceeds to its limited partners of record as of the closing date of the
sale of the Broward System. Such distribution represents approximately $159 for
each $500 limited partnership interest, or $318 for each $1,000 invested in the
Partnership. Because the distribution to the limited partners from the sales of
the Turnersville System and the Central Illinois System together with the
proposed distribution from the sale of the Broward System will not return 125
percent of the capital initially contributed to the Partnership by the limited
partners, the General Partner will not receive any general partner distribution
from the proceeds of the Broward System's sale. Because the proposed sale of
the Broward System does not constitute the sale of all or substantially all of
the Partnership's assets, no vote of the limited partners of the Partnership was
required to approve this sale. Because the Broward System represents the only
asset of the Venture, the Venture will be liquidated and dissolved upon
completion of the sale of the Broward System.
Taking into account the distributions made in 1997 from the sales of
the Turnersville System and the Central Illinois System and the proposed
distribution to be made from the sale of the Broward System, the limited
partners will have received $375 for each $500 limited partnership interest or
$750 for each $1,000 invested in the Partnership.
CABLE TELEVISION SERVICES. The Systems offer to their subscribers
various types of programming, which include basic service, tier service, premium
service, pay-per-view programs and packages including several of these services
at combined rates.
Basic cable television service usually consists of signals of all
national television networks broadcast by their local affiliates, 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
3
<PAGE>
programs of a public service or entertainment nature. FM radio signals are also
frequently distributed to subscribers as part of the basic service.
The Systems offer tier services on an optional basis to their
subscribers. A tier generally includes most of the cable networks such as
Entertainment and Sports Programming Network (ESPN), Cable News Network (CNN),
Turner Network Television (TNT), Family Channel, Discovery and others, and the
cable television operators buy tier programming from these networks. The
Systems also offer a package that includes the basic service channels and the
tier services.
The Systems also offer premium services to 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, Encore and others at
a cost based on the number of subscribers served by the cable operator. The per
service cost of premium service programming usually is significantly more
expensive than the basic service or tier service programming, and consequently
cable operators price premium service separately when sold to subscribers.
The Systems also offer to subscribers pay-per-view programming. Pay-
per-view is a service that allows subscribers to receive single programs,
frequently consisting of motion pictures that have recently completed their
theatrical exhibitions and major sporting events, and to pay for such service on
a program-by-program basis.
REVENUES. Monthly service fees for basic, tier and premium services
constitute the major source of revenue for the Systems. At December 31, 1997,
the Systems' monthly basic service rates ranged from $10.35 to $15.52, monthly
basic and tier ("basic plus") service rates ranged from $22.67 to $28.29. and
monthly premium services ranged from $3.00 to $10.95 per premium service. In
addition, the Partnership and the Venture earn revenues from the Systems' pay-
per-view programs and advertising fees. Related charges may include a
nonrecurring installation fee that ranges from $1.90 to $49.21; however, from
time to time the Systems have followed the common industry practice of reducing
or waiving the installation fee during promotional periods. Commercial
subscribers such as hotels, motels and hospitals are charged a nonrecurring
connection fee that usually covers the cost of installation. Except under the
terms of certain contracts with commercial subscribers and residential apartment
and condominium complexes, the subscribers are free to discontinue the service
at any time without penalty. For the year ended December 31, 1997, of the total
fees received by the Systems, basic service and tier service fees accounted for
approximately 67 percent of total revenues, premium service fees accounted for
approximately 14 percent of total revenues, pay-per-view fees were approximately
2 percent of total revenues, advertising fees were approximately 6 percent of
total revenues and the remaining 11 percent of total revenues came principally
from equipment rentals, installation fees and program guide sales. The
Partnership and the Venture are dependent upon the timely receipt of service
fees to provide for maintenance and replacement of plant and equipment, current
operating expenses and other costs of the Systems.
FRANCHISES. The Systems are constructed and operated under non-
exclusive, fixed-term franchises or other types of operating authorities
(referred to collectively herein as "franchises") granted by local governmental
authorities. These franchises typically contain many conditions, such as time
limitations on commencement and completion of construction, conditions of
service, including the number of channels, types of programming and the
provision of free service to schools and certain other public institutions, and
the maintenance of insurance and indemnity bonds. The provisions of local
franchises are subject to federal regulation.
The Partnership directly holds 38 franchises, and the Venture holds 9
franchises. These franchises provide for the payment of fees to the issuing
authorities and generally range from 3 percent to 5 percent of the gross
revenues of a cable television system. The 1984 Cable Act prohibits franchising
authorities from imposing annual franchise fees in excess of 5 percent of gross
revenues and also permits the cable television system operator to seek
renegotiation and modification of franchise requirements if warranted by changed
circumstances.
Neither the Partnership nor the Venture has ever had a franchise
revoked. The Partnership is currently negotiating the renewal of one franchise
that is operating under an extension, and the Venture has no franchises
4
<PAGE>
that will expire prior to December 31, 1998. The General Partner has no reason
to believe that such franchise will not be renewed in due course. The General
Partner has recently experienced lengthy negotiations with some franchising
authorities for the granting of franchise renewals. Some of the issues involved
in recent renewal negotiations include rate regulation, customer service
standards, cable plant upgrade or replacement and shorter terms of franchise
agreements.
COMPETITION. Cable television systems currently experience
competition from several sources.
Broadcast Television. Cable television systems have traditionally
---------------------
competed with broadcast television, which consists of television signals that
the viewer is able to receive directly on his television without charge using an
"off-air" antenna. The extent of such competition is dependent in part upon the
quality and quantity of signals available by such antenna reception as compared
to the services provided by the local cable system. Accordingly, it has
generally been less difficult for cable operators to obtain higher penetration
rates in rural areas where signals available off-air are limited, than in
metropolitan areas where numerous, high quality off-air signals are often
available without the aid of cable television systems.
Traditional Overbuild. Cable television franchises are not exclusive,
---------------------
so that more than one cable television system may be built in the same area
(known as an "overbuild"), with potential loss of revenues to the operator of
the original cable television system. The General Partner has experienced
overbuilds in connection with certain systems that it has owned or managed for
limited partnerships, and currently there are overbuilds in certain of the
systems owned or managed by the General Partner. Ameritech has overbuilt and is
in competition with the Partnership in the Naperville System. See Telephone and
Utilities below. Constructing and developing a cable television system is a
capital intensive process, and it is often difficult for a new cable system
operator to create a marketing edge over the existing system. Generally, an
overbuilder would be required to obtain franchises from the local governmental
authorities, although in some instances, the overbuilder could be the local
government itself. In any case, an overbuilder would be required to obtain
programming contracts from entertainment programmers and, in most cases, would
have to build a complete cable system, including headends, trunk lines and drops
to individual subscribers homes, throughout the franchise areas.
DBS. High-powered direct-to-home satellites have made possible the
---
wide-scale delivery of programming to individuals throughout the United States
using small roof-top or wall-mounted antennas. Several companies began offering
direct broadcast satellite ("DBS") service over the last few years. Companies
offering DBS service use video compression technology to increase channel
capacity of their systems to 100 or more channels and to provide packages of
movies, satellite network and other program services which are competitive to
those of cable television systems. DBS faces technical and legal obstacles to
offering its customers local broadcast programming, although at least one DBS
provider is now attempting to do so. In addition to emerging high-powered DBS
competition, cable television systems face competition from a major medium-
powered satellite distribution provider and several low-powered providers, whose
service requires use of much larger home satellite dishes. Not all subscribers
terminate cable television service upon acquiring a DBS system. The General
Partner has observed that there are DBS subscribers that also elect to subscribe
to cable television service in order to obtain the greatest variety of
programming on multiple television sets, including local programming not
available through DBS service. The ability of DBS service providers to compete
successfully with the cable television industry will depend on, among other
factors, the ability of DBS providers to overcome certain legal and technical
hurdles and the availability of equipment at reasonable prices.
Telephone and Utilities. Federal cross-ownership restrictions
-----------------------
historically limited entry by local telephone companies into the cable
television business. The 1996 Telecommunications Act (the "1996 Telecom Act")
eliminated this cross-ownership restriction, making it possible for companies
with considerable resources to overbuild existing cable operators and enter the
business. Several telephone companies have begun seeking cable television
franchises from local governmental authorities and constructing cable television
systems. Ameritech, one of the seven regional Bell Operating Companies
("BOCs"), which provides telephone service in a multi-state region including
Illinois, has been the most active BOC in seeking local cable franchises within
its service area. It has been begun cable service in competition with the
Partnership in Naperville, Illinois, and in competition with
5
<PAGE>
partnerships managed by the General Partner in Elgin and Glen Ellyn, Illinois.
Ameritech's overbuild of the Naperville System has resulted in the loss of a
substantial number of subscribers in the Naperville System, and it has had an
adverse effect on the Naperville System's revenues, cash flow and fair market
value. The General Partner expects that this competition will have a negative
impact on the price the Partnership will be able to obtain from the sale of the
Naperville System. The General Partner is taking prudent steps necessary to meet
this competition from Ameritech and, to the extent possible, to safeguard the
value of the Naperville System until a sale of the Naperville System can be
arranged. These steps include a judicial challenge to the terms on which a
franchise was issued to Ameritech. Litigation is currently pending in federal
court against both the City of Naperville and Ameritech and includes claims made
by the City of Naperville against the Partnership. See Item 3, Legal
Proceedings. The entry of telephone companies as direct competitors is likely to
continue over the next several years and could adversely affect the
profitability and market value of cable television systems. The entry of
electric utility companies into the cable television business, as now authorized
by the 1996 Telecom Act, could have a similar adverse effect. The local electric
utility in the Washington D.C. area recently announced plans to participate in
RCN, a planned video competitor.
Private Cable. Additional competition is provided by private cable
-------------
television systems, known as Satellite Master Antenna Television (SMATV),
serving multi-unit dwellings such as condominiums, apartment complexes, and
private residential communities. These private cable systems may enter into
exclusive agreements with apartment owners and homeowners associations, which
may preclude operators of franchised systems from serving residents of such
private complexes. Private cable systems that do not cross public rights of way
are free from the federal, state and local regulatory requirements imposed on
franchised cable television operators. In some cases, the Partnership and the
Venture have been unable to provide cable television service to buildings in
which private operators have secured exclusive contracts to provide video and
telephony services. The Partnership and the Venture are interested in providing
these same services, but expects that the market to install and provide these
services in multi-unit buildings will continue to be highly competitive.
MMDS. Cable television systems also compete with wireless program
----
distribution services such as multichannel, multipoint distribution service
("MMDS") systems, commonly called wireless cable, which are licensed to serve
specific areas. MMDS uses low-power microwave frequencies to transmit
television programming over-the-air to paying subscribers. The MMDS industry is
less capital intensive than the cable television industry, and it is therefore
more practical to construct MMDS systems in areas of lower subscriber
penetration. Wireless cable systems are now in direct competition with cable
television systems in several areas of the country, including the system in Pima
County, Arizona owned by the General Partner. Telephone companies have acquired
or invested in wireless companies, and may use MMDS systems to provide services
within their service areas in lieu of wired delivery systems. Enthusiasm for
MMDS has waned in recent months, however, as Bell Atlantic and NYNEX have
suspended their investment in two major MMDS companies. To date, neither the
Venture nor the Partnership has lost a significant number of subscribers, nor a
significant amount of revenue, to MMDS operators competing with the
Partnership's and the Venture's cable television systems. A series of actions
taken by the FCC, however, including reallocating certain frequencies to the
wireless services, are intended to facilitate the development of wireless cable
television systems as an alternative means of distributing video programming.
In addition, Local Multipoint Distribution Services ("LMDS"), could also pose a
significant threat to the cable television industry, if and when it becomes
established. The potential impact, however, of LMDS is difficult to assess due
to the newness of the technology and the absence of any current fully
operational LMDS systems.
Cable television systems are also in competition, in various degrees
with other communications and entertainment media, including motion pictures and
home video cassette recorders.
REGULATION AND LEGISLATION
- --------------------------
The operation of cable television systems is extensively regulated by
the FCC, some state governments and most local governments. The new 1996
Telecom Act alters the regulatory structure governing the nation's
telecommunications providers. It removes barriers to competition in both the
cable television market and the local telephone market. Among other things, it
also reduces the scope of cable rate regulation.
6
<PAGE>
The 1996 Telecom Act requires the FCC to undertake a host of
implementing rulemakings, the final outcome of which cannot yet be determined.
Moreover, Congress and the FCC have frequently revisited the subject of cable
regulation. Future legislative and regulatory changes could adversely affect
the Partnership's and the Venture's operations and there has been a recent
increase in calls to maintain or even tighten cable regulation in the absence of
widespread effective competition. This section briefly summarizes key laws and
regulations affecting the operation of the Partnership's and the Venture's cable
systems and does not purport to describe all present, proposed, or possible laws
and regulations affecting the Partnership and the Venture.
Cable Rate Regulation. The 1992 Cable Act imposed an extensive rate
---------------------
regulation regime on the cable television industry. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines "effective
competition" on a community-specific basis as requiring either low penetration
(less than 30 percent) by the incumbent cable operator, appreciable penetration
(more than 15 percent) by competing multichannel video providers ("MVPs"), or
the presence of a competing MVP affiliated with a local telephone company.
Although the FCC rules control, local government units (commonly
referred to as local franchising authorities or "LFAs") are primarily
responsible for administering the regulation of the lowest level of cable -- the
basic service tier ("BST"), which typically contains local broadcast stations
and public, educational, and government ("PEG") access channels. Before an LFA
begins BST rate regulation, it must certify to the FCC that it will follow
applicable federal rules, and many LFAs have voluntarily declined to exercise
this authority. LFAs also have primary responsibility for regulating cable
equipment rates. Under federal law, charges for various types of cable
equipment must be unbundled from each other and from monthly charges for
programming services. The 1996 Telecom Act allows operators to aggregate costs
for broad categories of equipment across geographic and functional lines. This
change should facilitate the introduction of new technology.
The FCC itself directly administers rate regulation of any cable
programming service tiers ("CPST"), which typically contain satellite-delivered
programming. Under the 1996 Telecom Act, the FCC can regulate CPST rates only
if an LFA first receives at least two rate complaints from local subscribers and
then files a formal complaint with the FCC. When new CPST rate complaints are
filed, the FCC now considers only whether the incremental increase is justified
and will not reduce the previously established CPST rate.
Under the FCC's rate regulations, most cable systems were required to
reduce their BST and CPST rates in 1993 and 1994, and have since had their rate
increases governed by a complicated price cap scheme that allows for the
recovery of inflation and certain increased costs, as well as providing some
incentive for expanding channel carriage. The FCC has modified its rate
adjustment regulations to allow for annual rate increases and to minimize
previous problems associated with regulatory lag. Operators also have the
opportunity of bypassing this "benchmark" regulatory scheme in favor of
traditional "cost-of-service" regulation in cases where the latter methodology
appears favorable. Premium cable services offered on a per-channel or per-
program basis remain unregulated, as do affirmatively marketed packages
consisting entirely of new programming product. Federal law requires that the
BST be offered to all cable subscribers, but limits the ability of operators to
require purchase of any CPST before purchasing premium services offered on a
per-channel or per-program basis.
The 1996 Telecom Act sunsets FCC regulation of CPST rates for all
systems (regardless of size) on March 31, 1999. Certain critics of the cable
television industry have called for a delay in the regulatory sunset and have
even urged more rigorous rate regulation in the interim, including a limit on
operators passing through to their customers increased programming costs. The
1996 Telecom Act also relaxes existing uniform rate requirements by specifying
that uniform rate requirements do not apply where the operator faces "effective
competition," and by exempting bulk discounts to multiple dwelling units,
although complaints about predatory pricing still may be made to the FCC.
Cable Entry Into Telecommunications. The 1996 Telecom Act provides
-----------------------------------
that no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. States are authorized, however, to impose
"competitively neutral" requirements
7
<PAGE>
regarding universal service, public safety and welfare, service quality, and
consumer protection. State and local governments also retain their authority to
manage the public rights-of-way and may require reasonable, competitively
neutral compensation for management of the public rights-of-way when cable
operators provide telecommunications service. The favorable pole attachment
rates afforded cable operators under federal law can be gradually increased by
utility companies owning the poles (beginning in 2001) if the operator provides
telecommunications service, as well as cable service, over its plant.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. In July 1997, the Eighth
Circuit Court of Appeals vacated certain aspects of the FCC's initial
interconnection order. That decision is now on appeal to the U.S. Supreme
Court.
Telephone Company Entry Into Cable Television. The 1996 Telecom Act
---------------------------------------------
allows telephone companies to compete directly with cable operators by repealing
the historic telephone company/cable cross-ownership ban. Local exchange
carriers ("LECs"), including the BOCs, can now compete with cable operators both
inside and outside their telephone service areas. Because of their resources,
LECs could be formidable competitors to traditional cable operators, and certain
LECs have begun offering cable service. As described above, the General Partner
is now witnessing the beginning of LEC competition in a few of its cable
communities.
Under the 1996 Telecom Act, an LEC providing video programming to
subscribers will be regulated as a traditional cable operator (subject to local
franchising and federal regulatory requirements), unless the LEC elects to
provide its programming via an "open video system" ("OVS"). To qualify for OVS
status, the LEC must reserve two-thirds of the system's activated channels for
unaffiliated entities. RCN and affiliates of local power companies recently
have been certified to provide OVS service in areas encompassing the General
Partner's cable systems in suburban Maryland and Virginia. This OVS potential
competition is not yet operational.
Although LECs and cable operators can now expand their offerings
across traditional service boundaries, the general prohibition remains on LEC
buyouts (i.e., any ownership interest exceeding 10 percent) of co-located cable
systems, cable operator buyouts of co-located LEC systems, and joint ventures
between cable operators and LECs in the same market. The 1996 Telecom Act
provides a few limited exceptions to this buyout prohibition, including a
carefully circumscribed "rural exemption." The 1996 Telecom Act also provides
the FCC with the limited authority to grant waivers of the buyout prohibition
(subject to LFA approval).
Electric Utility Entry Into Telecommunications/Cable Television. The
---------------------------------------------------------------
1996 Telecom Act provides that registered utility holding companies and
subsidiaries may provide telecommunications services (including cable
television) notwithstanding the Public Utilities Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Again, because of their resources, electric utilities could be formidable
competitors to traditional cable systems.
Additional Ownership Restrictions. The 1996 Telecom Act eliminates
---------------------------------
statutory restrictions on broadcast/cable cross-ownership (including broadcast
network/cable restrictions), but leaves in place existing FCC regulations
prohibiting local cross-ownership between co-located television stations and
cable systems. The 1996 Telecom Act also eliminates the three year holding
period required under the 1992 Cable Act's "anti-trafficking" provision. The
1996 Telecom Act leaves in place existing restrictions on cable cross-ownership
with SMATV and MMDS facilities, but lifts those restrictions where the cable
operator is subject to effective competition. In January 1995, however, the FCC
adopted regulations which permit cable operators to own and operate SMATV
systems within their franchise area, provided that such operation is consistent
with local cable franchise requirements.
Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a
cable system from devoting more than 40 percent of its activated channel
capacity to the carriage of affiliated national program services. A companion
rule establishing a nationwide ownership cap on any cable operator equal to 30
percent of all domestic
8
<PAGE>
cable subscribers has been stayed pending further judicial review, although the
FCC recently expressed an interest in reviewing and reimposing this limit.
There are no federal restrictions on non-U.S. entities having an
ownership interest in cable television systems or the FCC licenses commonly
employed by such systems. Section 310(b)(4) of the Communications Act does,
however, prohibit foreign ownership of FCC broadcast and telephone licenses,
unless the FCC concludes that such foreign ownership is consistent with the
public interest. The investment of BCI Telecom Holding Inc. ("BTH") in the
General Partner could, therefore, adversely affect any plan to acquire FCC
broadcast or common carrier licenses. The Partnership, however, does not
currently plan to acquire such licenses.
Must Carry/Retransmission Consent. The 1992 Cable Act contains
---------------------------------
broadcast signal carriage requirements that allow local commercial television
broadcast stations to elect once every three years between requiring a cable
system to carry the station ("must carry") or negotiating for payments for
granting permission to the cable operator to carry the station ("retransmission
consent"). Less popular stations typically elect "must carry," and more popular
stations typically elect "retransmission consent." Must carry requests can
dilute the appeal of a cable system's programming offerings, and retransmission
consent demands may require substantial payments or other concessions. Either
option has a potentially adverse affect on the Partnership's and the Venture's
business. Additionally, cable systems are required to obtain retransmission
consent for all "distant" commercial television stations (except for satellite-
delivered independent "superstations" such as WGN). The burden associated with
"must carry" may increase substantially if broadcasters proceed with planned
conversion to digital transmission and the FCC determines that cable systems
must carry all analogue and digital broadcasts in their entirety.
Access Channels. LFAs can include franchise provisions requiring
---------------
cable operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires cable systems to
designate a portion of their channel capacity (up to 15 percent in some cases)
for commercial leased access by unaffiliated third parties. The FCC has adopted
rules regulating the terms, conditions and maximum rates a cable operator may
charge for use of the designated channel capacity, but use of commercial leased
access channels has been relatively limited. The FCC released revised rules in
February 1997 mandating a modest rate reduction. The reduction sparked some
increase in part-time use, but did not make commercial leased access
substantially more attractive to third party programmers. Certain of those
programmers have now appealed the revised rules to the D.C. Court of Appeals.
Should the courts and the FCC ultimately determine that no additional reduction
in access rates is required, cable operators could lose programming control of a
substantial number of cable channels.
Access to Programming. To spur the development of independent cable
---------------------
programmers and competition to incumbent cable operators, the 1992 Cable Act
imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring cable operators over competitors and requires such programmers to sell
their programming to other multichannel video distributors. This provision
limits the ability of vertically integrated cable programmers to offer exclusive
programming arrangements to cable companies. There recently has been increased
interest in further restricting the marketing practices of cable programmers,
including subjecting programmers who are not affiliated with cable operators to
all of the existing program access requirements.
Inside Wiring. The FCC recently determined that an incumbent cable
-------------
operator can be required by the owner of a multiple dwelling unit ("MDU")
complex to remove, abandon or sell the "home run" wiring it initially provided.
In addition, the FCC is reviewing the enforceability of contracts to provide
exclusive video service within a MDU complex. The FCC has proposed abrogating
all such contracts held by incumbent cable operators, but allowing such
contracts when held by new entrants. These changes, and others now being
considered by the FCC, would, if implemented, make it easier for a MDU complex
owner to terminate service from an incumbent cable operator in favor of a new
entrant and leave the already competitive MDU sector even more challenging for
incumbent cable operators.
9
<PAGE>
Other FCC Regulations. In addition to the FCC regulations noted
---------------------
above, there are other FCC regulations covering such areas as equal employment
opportunity, subscriber privacy, programming practices (including, among other
things, syndicated program exclusivity, network program nonduplication, local
sports blackouts, indecent programming, lottery programming, political
programming, sponsorship identification, and children's programming
advertisements), registration of cable systems and facilities licensing,
maintenance of various records and public inspection files, frequency usage,
lockbox availability, antenna structure notification, tower marking and
lighting, consumer protection and customer service standards, technical
standards and consumer electronics equipment compatibility. Federal
requirements governing Emergency Alert Systems and Closed Captioning adopted in
1997 will impose additional costs on the operation of cable systems. The FCC is
currently considering whether cable customers must be allowed to purchase cable
converters from third party vendors. If the FCC concludes that such
distribution is required, and does not make appropriate allowances for signal
piracy concerns, it may become more difficult for cable operators to combat
theft of service. The FCC has the authority to enforce its regulations through
the imposition of substantial fines, the issuance of cease and desist orders
and/or the imposition of other administrative sanctions, such as the revocation
of FCC licenses needed to operate certain transmission facilities used in
connection with cable operations.
Internet Access. Many cable operators have begun offering high speed
---------------
internet service to their customers. At this time, there is no significant
federal or local regulation of this service. However, as internet services
develop, it is possible that new regulations could be imposed.
Copyright. Cable television systems are subject to federal copyright
---------
licensing covering carriage of television and radio broadcast signals. In
exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool (that varies depending on the size
of the system and the number of distant broadcast television signals carried),
cable operators can obtain blanket permission to retransmit copyrighted material
on broadcast signals. The possible modification or elimination of this
compulsory copyright license is the subject of continuing legislative review and
could adversely affect the Partnership's and the Venture's ability to obtain
desired broadcast programming. In addition, the cable industry pays music
licensing fees to BMI and is negotiating a similar arrangement with ASCAP.
Copyright clearances for nonbroadcast programming services are arranged through
private negotiations.
State and Local Regulation. Cable television systems generally are
--------------------------
operated pursuant to nonexclusive franchises granted by a municipality or other
state or local government entity in order to cross public rights-of-way.
Federal law now prohibits franchise authorities from granting exclusive
franchises or from unreasonably refusing to award additional franchises. Cable
franchises generally are granted for fixed terms and in many cases include
monetary penalties for non-compliance and may be terminable if the franchisee
fails to comply with material provisions.
The terms and conditions of franchises vary materially from
jurisdiction to jurisdiction. Each franchise generally contains provisions
governing cable operations, service rates, franchise fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states subject cable television systems to the jurisdiction of
centralized state governmental agencies, some of which impose regulation of a
character similar to that of a public utility. Although LFAs have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, LFAs cannot insist on franchise fees exceeding 5
percent of the system's gross revenues, cannot dictate the particular technology
used by the system, and cannot specify video programming other than identifying
broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the franchise authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and services or
increased franchise fees as a condition of renewal. Similarly, if a franchise
authority's consent is required for the purchase or sale of a cable system or
franchise, such authority may attempt to impose more burdensome or onerous
franchise requirements in connection with a request for consent. Historically,
franchises have been renewed for cable operators that have provided satisfactory
services and have complied with the terms of their franchises.
10
<PAGE>
GENERAL. The Partnership's and 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 Partnership's and the
Venture's business. The Systems have had some subscribers who later terminated
the service. Terminations occur primarily because people move to another home
or to another city. In other cases, people terminate on a seasonal basis or
because they no longer can afford or are dissatisfied with the service. The
amount of past due accounts in the Systems is not significant. The
Partnership's and the Venture's policy with regard to past due accounts is
basically one of disconnecting service before a past due account becomes
material.
The Partnership and the Venture do not depend to any material extent
on the availability of raw materials; they carry no significant amounts of
inventory and they have no material backlog of customer orders. Neither the
Partnership nor the Venture 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 Partnership's or the Venture's funds expended for such
research and development has never been material.
Compliance with federal, state and local provisions that have been
enacted or adopted regulating the discharge of materials into the environment or
otherwise relating to the protection of the environment has had no material
effect upon the capital expenditures, earnings or competitive position of the
Partnership or the Venture.
ITEM 2. PROPERTIES
-------------------
The cable television systems owned by the Partnership and the Venture
are described below:
<TABLE>
<CAPTION>
OWNERSHIP SYSTEM ACQUISITION DATE
--------- ------ ----------------
<S> <C> <C>
Cable TV Fund 14-A, Ltd. Buffalo System September 1987
Naperville System September 1987
Calvert County System September 1987
Cable TV Fund 14-A/B Venture Broward System March 1988
</TABLE>
The following sets forth (i) the monthly basic plus service rates
charged to subscribers and (ii) the number of basic subscribers for the Systems.
The monthly basic service rates set forth herein represent, with respect to
systems with multiple headends, the basic service rate charged to the majority
of the subscribers within the system. In cable television systems, basic
subscribers can subscribe to more than one pay TV service. Thus, the total
number of pay services subscribed to by basic subscribers are called pay units.
As of December 31, 1997, the Buffalo System operated cable plant passing
approximately 23,900 homes, with an approximate 57 percent penetration rate; the
Naperville System operated cable plant passing approximately 43,800 homes, with
an approximate 43 percent penetration rate; the Calvert County System operated
cable plant passing approximately 26,300 homes, with an approximate 68 percent
penetration rate and the Broward System operated cable plant passing
approximately 89,100 homes, with an approximate 57 percent penetration rate.
The Naperville System's low penetration rate reflects the competition from
Ameritech's overbuild. See Item 1, Competition. Figures for numbers of
subscribers and homes passed are compiled from the General Partner's records and
may be subject to adjustments.
11
<PAGE>
CABLE TV FUND 14-A, LTD.
- ------------------------
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
BUFFALO SYSTEM 1997 1996 1995
- -------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Monthly basic plus service rate $ 23.50 $ 22.50 $ 21.50
Basic subscribers 13,630 12,050 11,039
Pay units 7,298 7,984 7,313
</TABLE>
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
CALVERT COUNTY SYSTEM 1997 1996 1995
- --------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Monthly basic plus service rate $ 28.29 $ 26.70 $ 26.63
Basic subscribers 18,166 17,367 16,454
Pay units 17,622 17,509 17,893
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------
NAPERVILLE SYSTEM 1997 1996 1995
- ----------------- -------------------- -------------------- ------------------
<S> <C> <C> <C>
Monthly basic plus service rate $23.87 $ 23.87 $ 23.87
Basic subscribers * 27,523 27,464
Pay units * 14,413 17,360
</TABLE>
* There have been no rate increases and there have been significant
reductions in the numbers of basic subscribers and pay units because of
competition due to Ameritech's overbuild of the Naperville System. See
Item 1, Competition. Basic subscriber and pay unit information for 1997 is
not disclosed for competitive reasons.
CABLE TV FUND 14-A/B VENTURE
- ----------------------------
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
BROWARD SYSTEM 1997 1996 1995
- -------------------------------------------------- --------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Monthly basic plus service rate $ 27.25 $ 25.58 $ 24.16
Basic subscribers 51,032 50,957 49,654
Pay units 44,203 47,286 42,167
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
--------------------------
Cable TV Fund 14-A, Ltd. v. City of Naperville and Ameritech New Media,
-----------------------------------------------------------------------
Inc. and City of Naperville v. Cable TV Fund 14-A, Ltd., United States District
- -------------------------------------------------------
Court for the Northern District of Illinois, Eastern Division, Case No. 96C
5962. The Partnership is plaintiff and counter-defendant in a suit challenging
certain actions arising from the City of Naperville's grant of a franchise to
Ameritech New Media, Inc. ("Ameritech NMI"). Specifically, the Partnership
alleges that under Cable Act standards, the City should have modified the
Partnership's Naperville franchise, because certain provisions of the franchise
are unduly burdensome in a competitive environment. Further, the Partnership
alleges that the franchise granted by the City to Ameritech NMI is materially
more favorable than the franchise granted to the Partnership, that this is
contrary to Illinois law and that the Ameritech NMI franchise therefore is void.
This suit also challenges the City's assertion that the Partnership has breached
its franchise in various ways, particularly by withholding certain payments and
seeks to impose liquidated damages on the Partnership for such breach. On cross
motions to dismiss and for partial summary judgment, the Court issued a number
of rulings that sustained the Partnership's right to proceed on the majority of
its claims. Upon issuance of the Court's ruling on the issue of the appropriate
standard of review, discovery will begin. A trial date has not yet been set.
12
<PAGE>
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. During 1997, a limited partner of the Partnership conducted a
"limited tender offer" for interests in the Partnership at a price of $305 per
interest. As of February 16, 1998, the number of equity security holders in the
Partnership was 11,671.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- -------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31,
----------------------------------------------------------------------
Cable TV Fund 14-A, Ltd. 1997 1996 1995 1994 1993
- ------------------------ -------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $26,642,247 $47,808,719 $44,094,802 $40,442,268 $38,916,469
Depreciation and Amortization 10,111,635 14,627,726 14,459,479 14,826,256 15,197,677
Operating Loss (2,713,383) (397,890) (1,459,868) (3,323,006) (3,562,804)
Equity in Net Loss of
Cable Television Joint Venture (626,089) (815,252) (1,104,003) (1,468,218) (1,277,358)
Net Income (Loss) 62,735,041(a) (7,371,183) (8,536,167) (9,472,910) (8,608,115)
Net Income (Loss) per Limited
Partnership Unit 387.70(a) (45.61) (52.82) (58.61) (53.26)
Weighted Average Number of
Limited Partnership Units Outstanding 160,000 160,000 160,000 160,000 160,000
General Partner's
Deficit (72,389) (776,152) (702,440) (617,078) (522,349)
Limited Partners' Capital (Deficit) 19,267,904 (8,215,874) (918,403) 7,532,402 16,910,583
Total Assets 44,982,801 79,343,054 82,900,838 87,556,346 94,106,926
Debt 22,773,095 85,424,507 80,726,793 77,425,047 75,601,829
General Partner Advances 489,313 352,232 887,215 706,579 58,974
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------------
Cable TV Fund 14-A/B Venture 1997 1996 1995 1994 1993
- ---------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $27,504,735 $25,519,105 $23,469,505 $22,183,524 $22,068,952
Depreciation and Amortization 8,775,019 8,408,157 8,774,507 9,188,994 9,352,808
Operating Income (Loss) 567,514 (18,682) (753,422) (2,661,198) (2,324,939)
Net Loss (2,310,292) (3,008,309) (4,073,811) (5,417,779) (4,713,500)
Partners' Capital 12,671,551 14,981,843 17,990,152 22,063,963 27,481,742
Total Assets 54,156,017 58,277,058 62,447,556 66,597,460 72,315,816
Debt 39,597,617 41,262,561 40,530,652 42,271,921 43,461,730
Jones Intercable, Inc. Advances 446,115 268,256 2,206,959 354,179 57,920
</TABLE>
(a) Net income resulted primarily from the sales of the Turnersville System in
January 1997 and the Central Illinois System in June 1997 by Cable TV Fund
14-A, Ltd.
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
The following discussion of the financial condition and results of
operations of Cable TV Fund 14-A, Ltd. (the "Partnership") and Cable TV Fund 14-
A/B Venture (the "Venture") contains, in addition to historical information,
forward-looking statements that are based upon certain assumptions and are
subject to a number of risks and uncertainties. The Partnership's and Venture's
actual results may differ significantly from the results predicted in such
forward-looking statements.
FINANCIAL CONDITION
- -------------------
It is the General Partner's publicly announced policy that it intends to
liquidate its managed partnerships, including the Partnership, as opportunities
for sales of partnership cable television systems arise in the marketplace. In
accordance with this policy, the Partnership sold two of its systems in 1997 and
the Venture expects to sell the Broward System in March 1998. The General
Partner continues to seek opportunities for the sale of the remaining systems.
There is no assurance as to the timing or terms of any sales.
Cable TV Fund 14-A, Ltd.-
- ------------------------
On January 10, 1997, the Partnership sold the Turnersville System to an
unaffiliated party for a sales price of $84,500,000. The Partnership
distributed $25,000,000 (or approximately $313 per each $1,000 invested in the
Partnership) of the sale proceeds to its limited partners in January 1997, paid
The Jones Group a brokerage fee of $2,112,500, representing 2.5 percent of the
sales price, for acting as a broker in this transaction and repaid $57,387,500
of the balance outstanding on its credit facility (of which $52,500,000 was
required to be repaid under the terms of the Partnership's credit facility).
Because the $25,000,000 distribution to the limited partners did not return 125
percent of the capital initially contributed to the Partnership by the limited
partners, the General Partner did not receive a general partner distribution
from the proceeds of the sale of the Turnersville System. Because the sale of
the Turnersville System did not represent a sale of all or substantially all of
the Partnership's assets, no vote of the limited partners of the Partnership was
required to approve this sale.
On June 30, 1997, the Partnership sold the Central Illinois System to an
unaffiliated party for a sales price of $20,005,280. The Partnership
distributed $9,547,500 (or approximately $119 per each $1,000 invested in the
Partnership) of the sale proceeds to its limited partners in July 1997, paid a
2.5 percent brokerage fee of $502,500 to The Jones Group for acting as a broker
in this transaction and repaid $9,800,000 of the balance outstanding on its
credit facility. Because the distributions to the limited partners from the
sales of the Turnersville System and the Central Illinois System did not return
125 percent of the capital initially contributed to the Partnership by the
limited partners, the General Partner did not receive a general partner
distribution from the proceeds of the sale of the Central Illinois System.
Because the sale of the Central Illinois System did not represent a sale of all
or substantially all of the Partnership's assets, no vote of the limited
partners of the Partnership was required to approve this sale.
On October 3, 1997, the Venture entered into an asset purchase agreement
(the "Agreement") to sell the Broward System to an unaffiliated party for a
sales price of $140,000,000. Refer to Management's Discussion and Analysis of
Financial Condition of the Venture for information pertinent to the Partnership
with respect to the sale of the Broward System.
For the twelve months ended December 31, 1997, the Partnership generated
net cash from operating activities totaling $3,358,555, which is available to
fund a portion of capital expenditures and non-operating costs. Capital
expenditures totaled approximately $8,016,000 during 1997. Approximately 37
percent of the expenditures related to new plant construction associated with
new homes passed in all of the Partnership's systems. Approximately 33 percent
of the expenditures related to construction of service drops to subscriber's
homes. The remaining expenditures were used to maintain the value of the
Partnership's systems. These expenditures were funded by cash generated from
operations and borrowings under the Partnership's credit facility. Budgeted
capital expenditures for 1998 are approximately $6,160,000. Approximately 41
percent of the expenditures will be used for new plant construction associated
with new homes passed in all of the Partnership's systems. Approximately 33
percent will relate to construction of service drops to subscribers' homes. The
remainder of the anticipated expenditures is necessary to maintain the value of
the Partnership's remaining systems until they are sold. Funding for the
improvements is expected to come from cash on hand, cash generated from
operations and, if necessary, borrowings under its credit facility.
In March 1997, the Partnership entered into a $37,500,000 revolving credit
facility. The Partnership borrowed $32,300,000 under the revolving credit
facility to repay the outstanding balance on its previous credit facility. Upon
the sale of the Central Illinois System on June 30, 1997 and as required by the
terms of the revolving credit facility, the Partnership repaid $9,800,000 of the
then-outstanding balance, and the commitment amount was reduced to $27,700,000,
of which $22,300,000 was outstanding at December 31, 1997, leaving $5,400,000
available for future borrowings. The revolving credit facility expires on
September 30, 2000, at which time the then-outstanding balance is payable in
full. Interest on the revolving credit facility's
15
<PAGE>
outstanding balance is at the Partnership's option of the London Interbank
Offered Rate ("LIBOR") plus 1.125 percent, the Certificate of Deposit Rate (the
"CD Rate") plus 1.25 percent or the Base Rate plus .125 percent. The effective
interest rates on amounts outstanding as of December 31, 1997 and 1996 were 6.79
percent and 6.67 percent, respectively.
Ameritech, which provides telephone service in a multi-state region
including Illinois, is providing cable television service in Naperville,
Illinois, a community currently served by the Partnership's Naperville System.
This competition is having an adverse effect on the Naperville System's
revenues, cash flow and fair market value. The General Partner expects that
this competition will have a negative impact on the price the Partnership will
be able to obtain from the sale of the Naperville System. The General Partner
is taking prudent steps necessary to meet this competition from Ameritech and,
to the extent possible, to safeguard the value of the Naperville System until a
sale of the Naperville System can be arranged. These steps include a judicial
challenge to the terms on which a franchise was issued to Ameritech. Litigation
is currently pending in federal court against both the City of Naperville and
Ameritech and includes claims made by the City of Naperville against the
Partnership. See "Item 3, Legal Proceedings."
The General Partner believes that the Partnership has sufficient sources
of capital available from cash on hand, cash generated from operations and
borrowings available under its revolving credit facility to meet its anticipated
needs.
Cable TV Fund 14-A/B Venture-
- ----------------------------
In addition to those systems owned directly by it, the Partnership owns a
27 percent interest in the Venture. The Partnership's investment in the
Venture, accounted for under the equity method, decreased by $626,089 compared
to the December 31, 1996 balance. This decrease represents the Partnership's
proportionate share of losses generated by the Venture during 1997.
On October 3, 1997, the Venture entered into an agreement to sell the
Broward System to an unaffiliated third party for $140,000,000, subject to
closing adjustments discussed below. Closing of this sale is scheduled for
March 31, 1998, subject to several conditions, including necessary governmental
and other third party consents. The General Partner expects that all material
consents will be obtained prior to the scheduled closing date. The closing
adjustments primarily relate to the number of equivalent basic subscribers at
closing. If equivalent basic subscribers are less than 56,637, the sales price
will be reduced $2,472 multiplied by the number by which the Broward System's
equivalent basic subscribers are less than 56,637, up to a maximum adjustment of
$7,000,000. Because it is estimated that the Broward System will have 55,274
equivalent basic subscribers, as defined in the agreement, at March 31, 1998, at
closing there will be a sales price reduction of approximately $3,369,000. The
General Partner expects that when final closing adjustments are done
approximately sixty days after closing, additional equivalent basic subscribers
that were not able to be counted at closing because they were relatively recent
subscribers at March 31, 1998 will be counted as equivalent basic subscribers
when final closing adjustments are done and the sales price will be adjusted
accordingly. If the sales price is adjusted upward, the Venture would make an
additional distribution to the two constituent partnerships of the Venture in
proportion to their ownership interests in the Venture.
Upon closing, the Venture will repay all of its indebtedness, which totaled
$39,597,617 at December 31, 1997 and a brokerage fee of approximately $3,500,000
to The Jones Group and then the Venture will distribute the remaining net sales
proceeds, or approximately $94,039,000, to the two constituent partnerships of
the Venture in proportion to their ownership interests in the Venture.
Accordingly, the Partnership will receive 27 percent of the net sales proceeds,
or approximately $25,491,000. The Partnership will distribute its net sales
proceeds to its limited partners of record as of the closing date of the sale of
the Broward System. Such distribution represents approximately $159 for each
$500 limited partnership interest or $318 for each $1,000 invested in the
Partnership. Because the distribution to the limited partners from the sales of
the Turnersville System and the Central Illinois System together with the
proposed distribution from the sale of the Broward System will not return 125
percent of the capital initially contributed to the Partnership by the limited
partners, the General Partner will not receive any general partner distribution
from the proceeds of the Broward System's sale. Because the proposed sale of
the Broward System does not constitute the sale of all or substantially all of
the Partnership's assets, no vote of the limited partners of the Partnership was
required to approve this sale. Because the Broward System represents the only
asset of the Venture, the Venture will be liquidated and dissolved upon the
completion of the sale of the Broward System.
Taking into account the 1997 distributions made on the sales of the
Turnersville System and the Central Illinois System and the distribution
expected to be made in the second quarter 1998 from the sale of the Broward
System, the limited partners will have received a total of $750 for each $1,000
invested in the Partnership.
For the twelve months ended December 31, 1997, the Venture generated net
cash from operating activities totaling $5,486,763 which is available to fund
capital expenditures and non-operating costs. The Venture expended
approximately $3,812,000 on capital additions during 1997. The construction of
service drops to homes accounted for approximately 39 percent
16
<PAGE>
of the expenditures. Cable television plant extensions related to new homes
passed accounted for approximately 38 percent of these expenditures. The
remainder of these expenditures was to maintain the value of the Broward System.
These capital expenditures were funded primarily from cash on hand and cash
generated from operations. Because the closing of the sale of the Broward System
is scheduled for March 31, 1998, the only capital expenditures expected to be
made will be to maintain the value of the Broward System until it is sold. These
capital expenditures are expected to be funded from cash on hand, cash generated
from operations and borrowings under its credit facility.
The Venture has a reducing revolving credit facility with an available
commitment of $42,500,000. The entire $42,500,000 commitment is available
through December 31, 1998, at which time the commitment will begin to reduce
quarterly until December 31, 2003 when the amount available will be zero. At
December 31, 1997, the balance outstanding was $39,402,968, leaving $3,097,032
available for future borrowings. Interest is at the Venture's option of Prime
plus 1/4 percent, LIBOR plus 1-1/4 percent or the CD Rate plus 1-3/8 percent.
The effective interest rates on amounts outstanding as of December 31, 1997 and
1996 were 7.10 percent and 6.79 percent, respectively. This credit facility
will be paid in full upon the sale of the Broward System.
The General Partner believes that the Venture has sufficient sources of
capital from cash on hand, cash generated from operations and borrowings under
its credit facility to service its current needs for the next year.
Year 2000 Issue
- ---------------
The Year 2000 issue is the result of many computer programs being written
such that they will malfunction when reading a year of "00." This problem could
cause system failure or miscalculations causing disruptions of business
processes.
The General Partner has initiated an assessment of its computer
applications to determine the extent of the problem. Based on this assessment,
the General Partner has determined that the majority of its computer
applications supporting business processes, including accounting and billing,
are designed to handle the Year 2000 appropriately.
The General Partner is currently focusing its efforts on the impact of the
Year 2000 issue on service delivery. The General Partner has established an
internal team to address this issue. The General Partner is identifying and
testing all date-sensitive equipment involved in delivering service to the
Venture's and the Partnership's customers. In addition, the General Partner
will assess its options regarding repair or replacement of affected equipment
during this testing. The General Partner currently has no definitive estimate of
the cost or the extent of the impact, if any, this problem will have on service
delivery; however, the General Partner does not believe that the impact will be
material. The General Partner anticipates completion of its testing in 1998, at
which time it will determine the financial impact on the Venture and the
Partnership. The General Partner expects that the financial impact on the
Venture of the Year 2000 issue likely will not be material because the General
Partner anticipates that the Venture will be liquidated before the year 2000.
RESULTS OF OPERATIONS
- ---------------------
Cable TV Fund 14-A, Ltd. -
- ------------------------
1997 Compared to 1996-
Revenues of the Partnership decreased $21,166,472, or approximately 44
percent, to $26,642,247 in 1997 compared to $47,808,719 in 1996. This decrease
was primarily a result of the sales of the Turnersville System on January 10,
1997 and the Central Illinois System on June 30, 1997. Disregarding the effect
of the sales of the Turnersville System and the Central Illinois System,
revenues would have decreased $1,800,522, or approximately 7 percent, to
$23,273,961 in 1997 from $25,074,483 in 1996. This decrease in revenues was due
to the Naperville System's loss of subscribers due to competition from
Ameritech.
Operating expenses consist primarily of costs associated with the operation
and administration of the Partnership's cable television systems. 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 marketing expenses.
Operating expenses decreased $11,640,742, or approximately 42 percent, to
$16,385,590 in 1997 compared to $28,026,332 in 1996. This decrease was
primarily a result of the sales of the Turnersville System and the Central
Illinois System. Disregarding the effect of the Turnersville System and the
Central Illinois System sales, operating expenses would have decreased
$1,277,130, or approximately 8 percent, to $14,401,811 in 1997 from $15,678,941
in 1996. This decrease was primarily due to a decrease in subscriber related
expenses as a result of the Naperville System's loss of subscribers due to
competition from Ameritech. Operating expenses represented 62 percent and 63
percent, respectively, of revenues in 1997 and 1996.
17
<PAGE>
Management fees and allocated overhead from the General Partner decreased
$2,694,146, or approximately 49 percent, to $2,858,405 in 1997 compared to
$5,552,551 in 1996. This decrease was primarily a result of the sales of the
Turnersville System and the Central Illinois System. Disregarding the effect of
the Turnersville System and the Central Illinois System sales, management fees
and allocated overhead from the General Partner would have decreased $459,314,
or approximately 16 percent, to $2,500,729 in 1997 from $2,960,043 in 1996. This
decrease was due to the decrease in revenues, upon which such management fees
and allocations are based.
Depreciation and amortization expense decreased $4,516,091, or
approximately 31 percent, to $10,111,635 in 1997 compared to $14,627,726 in
1996. This decrease was a result of the sales of the Turnersville System and
the Central Illinois System. Disregarding the effect of the Turnersville System
and the Central Illinois System sales, depreciation and amortization expense
would have increased $1,161,639, or approximately 16 percent, to $8,242,821 in
1997 from $7,081,182 in 1996. This increase was a result of capital additions
to the Partnership's other systems during 1997.
Operating loss increased $2,315,493 to $2,713,383 in 1997 compared to
$397,890 in 1996. Disregarding the effect of the Turnersville System and the
Central Illinois System sales, operating loss increased $1,225,717 to $1,871,400
in 1997 from $645,683 in 1996. This increase was a result of the decrease in
revenues and the increase in depreciation and amortization expense exceeding the
decreases in operating expenses and management fees and allocated overhead from
the General Partner.
Interest expense decreased $4,026,632, or approximately 68 percent, to
$1,923,226 in 1997 compared to $5,949,858 in 1996. This decrease was primarily
due to lower outstanding balances on interest bearing obligations during 1997.
Portions of the proceeds from the sales of the Turnersville System and the
Central Illinois System were used to reduce the Partnership's debt.
The Partnership recognized a gain on the sale of the Turnersville System of
$62,923,951 and a gain on the sale of the Central Illinois System of $7,050,021
during 1997. No similar gains were recognized during 1996.
The Partnership reported income before equity in net loss of cable
television joint venture of $63,361,130 in 1997 compared to a loss before equity
in net loss of cable television joint venture of $6,555,931 in 1996. This
change was primarily a result of the gain on the sales of the Turnersville
System and the Central Illinois System.
1996 Compared to 1995-
Revenues of the Partnership increased $3,713,917, or approximately 8
percent, to $47,808,719 for 1996 compared to $44,094,802 in 1995. This increase
was primarily due to basic service rate increases and an increase in the number
of basic subscribers. Basic service rate increases accounted for approximately
51 percent of the increase in revenues. Increases in the number of basic
subscribers accounted for approximately 44 percent of the increase. The number
of basic subscribers increased by 3,167 subscribers, or approximately 3 percent,
to 109,037 at December 31, 1996 compared to 105,870 at December 31, 1995. No
other individual factor was significant to the increase in revenues.
Operating expenses increased $2,306,798, or approximately 9 percent, to
$28,026,332 for 1996 compared to $25,719,534 in 1995. Increases in programming
fees primarily accounted for the increase in operating expenses. The increases
in programming fees were due, in part, to the increase in the subscriber base.
No other individual factor was significant to the increase in revenues.
Operating expenses represented 59 percent of revenues in 1996 compared to 58
percent in 1995.
Management fees and allocated overhead from the General Partner increased
$176,894, or approximately 3 percent, to $5,552,551 for 1996 compared to
$5,375,657 in 1995. The increase was due to the increase in revenues, upon
which management fees are based.
Depreciation and amortization expense increased $168,247, or approximately
1 percent, to $14,627,726 for 1996 compared to $14,459,479 in 1995. This
increase was due to capital additions in 1996.
Operating loss decreased $1,061,978, or approximately 73 percent, to
$397,890 for 1996 compared to $1,459,868 in 1995. This decrease was due to the
increase in revenues exceeding the increases in operating expenses, depreciation
and amortization expense and management fees and allocated overhead from the
General Partner.
Interest expense decreased $51,639, or less than 1 percent, to $5,949,858
for 1996 compared to $6,001,497 in 1995. This decrease was due primarily to
lower effective interest rates on interest bearing obligations.
18
<PAGE>
Loss before equity in net loss of cable television joint venture decreased
$876,233, or approximately 12 percent, to $6,555,931 for 1996 compared to
$7,432,164 in 1995. This decrease was due to the factors discussed above.
Cable TV Fund 14-A/B Venture -
- ----------------------------
1997 Compared to 1996-
Revenues of the Venture's Broward County System increased $1,985,630, or
approximately 8 percent, to $27,504,735 in 1997 from $25,519,105 in 1996. Basic
service rate increases accounted for approximately 48 percent of the increase in
revenues. Increases in advertising sales accounted for approximately 20 percent
of the increase in revenues. No other individual factor significantly affected
the increase in revenues.
Operating expenses increased $1,036,786, or approximately 7 percent, to
$15,185,319 in 1997 from $14,148,533 in 1996. The increase in operating
expenses was due primarily to increases in programming fees and advertising
expenses. No other individual factor significantly affected the increase in
operating expenses. Operating expenses represented 55 percent of revenue for
both 1997 and 1996.
The cable television industry generally measures the financial performance
of a cable television system in terms of operating cash flow (revenues less
operating expenses). 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 cash flow increased
$948,844, or approximately 8 percent, to $12,319,416 in 1997 from $11,370,572 in
1996 due to the increase in revenues exceeding the increase in operating
expenses.
Management fees and allocated overhead from Jones Intercable, Inc.
decreased $4,214, or less than 1 percent, to $2,976,883 in 1997 from $2,981,097
in 1996. This decrease was due primarily to a decrease in allocated overhead
from Jones Intercable, Inc.
Depreciation and amortization expense increased $366,862, or approximately
4 percent, to $8,775,019 in 1997 from $8,408,157 in 1996. The increase in
depreciation and amortization expense was attributable to capital additions to
the Venture's asset base.
The Venture reported operating income of $567,514 in 1997 compared to an
operating loss of $18,682 in 1996. This change was due to the increase in cash
flow exceeding the increase in depreciation and amortization expense.
Interest expense decreased $129,510, or approximately 4 percent, to
$2,877,337 in 1997 from $3,006,847 in 1996 due to lower outstanding balances on
interest bearing obligations during 1997.
Net loss decreased $698,017, or approximately 23 percent, to $2,310,292 in
1997 from $3,008,309 in 1996. These losses were primarily the result of the
factors discussed above.
1996 Compared to 1995-
Revenues of the Venture's Broward County System increased $2,049,600, or
approximately 9 percent, to $25,519,105 in 1996 from $23,469,505 in 1995. Basic
service rate increases accounted for approximately 35 percent of the increase in
revenue. An increase in the number of basic subscribers accounted for
approximately 27 percent of the increases in revenue. The number of basic
subscribers totaled 50,957 at December 31, 1996 compared to 49,654 at December
31, 1995, an increase of 1,303, or approximately 3 percent. Increases in
premium service revenue accounted for approximately 16 percent of the increase
in revenue. No other individual factor significantly affected the increase in
revenues.
Operating expenses increased $1,528,324, or approximately 12 percent, to
$14,148,533 in 1996 from $12,620,209 in 1995. Operating expenses represented 55
percent of revenue in 1996, compared to 54 percent in 1995. The increase in
operating expenses was due primarily to increases in programming fees, which
were partially offset by decreases in personnel and marketing expenses. No
other individual factor significantly affected the increase in operating
expenses.
Operating cash flow increased $521,276, or approximately 5 percent, to
$11,370,572 in 1996 from $10,849,296 in 1995 due to the increase in revenues
exceeding the increase in operating expenses.
19
<PAGE>
Management fees and allocated overhead from Jones Intercable, Inc.
increased $152,886, or approximately 5 percent, to $2,981,097 in 1996 from
$2,828,211 in 1995. This increase was due primarily to the increase in revenues
upon which such management fees and allocations are based.
Depreciation and amortization expense decreased $366,350, or approximately
4 percent, to $8,408,157 in 1996 from $8,774,507 in 1995. The decrease in
depreciation and amortization expense was attributable to the maturation of a
portion of the Venture's asset base.
Operating loss decreased $734,740 to $18,682 in 1996 compared to $753,422
in 1995. This decrease was due to the increase in operating cash flow and the
decrease in depreciation and amortization.
Interest expense decreased $364,677, or approximately 11 percent, to
$3,006,847 in 1996 from $3,371,524 in 1995 due to lower outstanding balances and
lower effective interest rates on interest bearing obligations during 1996.
Net loss decreased $1,065,502, or approximately 26 percent, to $3,008,309
in 1996 from $4,073,811 in 1995. These losses were primarily the result of the
factors discussed above.
ITEM 8. FINANCIAL STATEMENTS
- -----------------------------
The audited financial statements of the Partnership and the Venture for the
year ended December 31, 1997 follow.
20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Cable TV Fund 14-A, Ltd.:
We have audited the accompanying balance sheets of CABLE TV FUND 14-A, LTD.
(a Colorado limited partnership) as of December 31, 1997 and 1996, and the
related statements of operations, partners' capital (deficit) and cash flows for
each of the three years in the period ended December 31, 1997. 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 14-A, Ltd. as
of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 13, 1998.
21
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
---------------------------
ASSETS 1997 1996
------ ------------ ------------
<S> <C> <C>
CASH $ 363,032 $ 1,257,022
TRADE RECEIVABLES, less allowance for doubtful receivables of
$85,436 and $255,399 at December 31, 1997 and 1996, respectively 931,372 1,142,329
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 86,431,357 137,237,866
Less- accumulated depreciation (50,186,043) (76,946,443)
------------ ------------
36,245,314 60,291,423
Franchise costs and other intangible assets, net of accumulated
amortization of $11,920,332 and $38,800,080 at
December 31, 1997 and 1996, respectively 2,461,042 11,788,190
Investment in cable television joint venture 3,337,731 3,963,820
------------ ------------
Total investment in cable television properties 42,044,087 76,043,433
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 1,644,310 900,270
------------ ------------
Total assets $ 44,982,801 $ 79,343,054
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
22
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
---------------------------
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1997 1996
------------------------------------------- ------------ ------------
<S> <C> <C>
LIABILITIES:
Debt $ 22,773,095 $ 85,424,507
General Partner advances 489,313 352,232
Trade accounts payable and accrued liabilities 2,440,724 2,412,088
Subscriber prepayments 84,154 146,253
------------ ------------
Total liabilities 25,787,286 88,335,080
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (73,389) (777,152)
------------ ------------
(72,389) (776,152)
------------ ------------
Limited Partners-
Net contributed capital (160,000 units outstanding at
December 31, 1997 and 1996) 68,722,000 68,722,000
Accumulated deficit (14,906,596) (76,937,874)
Distributions (34,547,500) -
------------ ------------
19,267,904 (8,215,874)
------------ ------------
Total liabilities and partners' capital (deficit) $ 44,982,801 $ 79,343,054
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
23
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $26,642,247 $47,808,719 $44,094,802
COSTS AND EXPENSES:
Operating expenses 16,385,590 28,026,332 25,719,534
Management fees and allocated overhead from
General Partner 2,858,405 5,552,551 5,375,657
Depreciation and amortization 10,111,635 14,627,726 14,459,479
----------- ----------- -----------
OPERATING LOSS (2,713,383) (397,890) (1,459,868)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (1,923,226) (5,949,858) (6,001,497)
Gain on sale of cable television systems 69,973,972 - -
Other, net (1,976,233) (208,183) 29,201
----------- ----------- -----------
Total other income (expense), net 66,074,513 (6,158,041) (5,972,296)
----------- ----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET LOSS OF
CABLE TELEVISION JOINT VENTURE 63,361,130 (6,555,931) (7,432,164)
EQUITY IN NET LOSS OF CABLE TELEVISION
JOINT VENTURE (626,089) (815,252) (1,104,003)
----------- ----------- -----------
NET INCOME (LOSS) $62,735,041 $(7,371,183) $(8,536,167)
=========== =========== ===========
ALLOCATION OF NET INCOME (LOSS):
General Partner $ 703,763 $ (73,712) $ (85,362)
=========== =========== ===========
Limited Partners $62,031,278 $(7,297,471) $(8,450,805)
=========== =========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $387.70 $(45.61) $(52.82)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF LIMITED
PARTNERSHIP UNITS OUTSTANDING 160,000 160,000 160,000
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
24
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
-----------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1997 1996 1995
------------ ----------- -----------
<S> <C> <C> <C>
GENERAL PARTNER:
Balance, beginning of year $ (776,152) $ (702,440) $ (617,078)
Net income (loss) for year 703,763 (73,712) (85,362)
------------ ----------- -----------
Balance, end of year $ (72,389) $ (776,152) $ (702,440)
============ =========== ===========
LIMITED PARTNERS:
Balance, beginning of year $ (8,215,874) $ (918,403) $ 7,532,402
Net income (loss) for year 62,031,278 (7,297,471) (8,450,805)
Distributions (34,547,500) - -
------------ ----------- -----------
Balance, end of year $ 19,267,904 $(8,215,874) $ (918,403)
============ =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
25
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 62,735,041 $ (7,371,183) $ (8,536,167)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 10,111,635 14,627,726 14,459,479
Equity in net loss of cable television joint venture 626,089 815,252 1,104,003
Gain on sale of cable television systems (69,973,972) - -
Amortization of interest rate protection contract - - 16,667
Decrease (increase) in trade receivables 210,957 186,386 (258,134)
Increase in deposits, prepaid expenses
and deferred charges (454,813) (726,606) (63,074)
Increase (decrease) in trade accounts payable and
accrued liabilities and subscriber prepayments (33,463) (349,332) 398,277
Increase (decrease) in General Partner advances 137,081 (534,983) 180,636
------------ ------------ ------------
Net cash provided by operating activities 3,358,555 6,647,260 7,301,687
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (8,016,393) (10,381,131) (10,737,233)
Proceeds from sale of cable television systems, net
of brokerage fees 100,962,760 - -
------------ ------------ ------------
Net cash provided by (used in)
investing activities 92,946,367 (10,381,131) (10,737,233)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 36,894,399 5,183,313 3,546,885
Repayment of debt (99,545,811) (485,599) (245,139)
Distributions to limited partners (34,547,500) - -
------------ ------------ ------------
Net cash provided by (used in)
financing activities (97,198,912) 4,697,714 3,301,746
------------ ------------ ------------
Increase (decrease) in cash (893,990) 963,843 (133,800)
Cash, beginning of year 1,257,022 293,179 426,979
------------ ------------ ------------
Cash, end of year $ 363,032 $ 1,257,022 $ 293,179
============ ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 2,375,177 $ 6,136,741 $ 5,740,361
============ ============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
26
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS
------------------------------------
Formation and Business
----------------------
Cable TV Fund 14-A, Ltd. (the "Partnership"), a Colorado limited
partnership, was formed on February 6, l987, under a public program sponsored by
Jones Intercable, Inc. ("Intercable"), a publicly held Colorado corporation.
The Partnership was formed to acquire, construct, develop and operate cable
television systems. Intercable is the "General Partner" and manager of the
Partnership. Intercable and its subsidiaries also own and operate cable
television systems. In addition, Intercable manages cable television systems
for other limited partnerships for which it is general partner and, also, for
other affiliated entities.
On January 8, 1988, the Partnership and Cable TV Fund 14-B, Ltd. ("Fund 14-
B") formed Cable TV Fund 14-A/B Venture (the "Venture"), to acquire the cable
television system serving areas in and around Broward County, Florida (the
"Broward System"). The Partnership contributed $18,975,000 to the capital of
the Venture for 27 percent ownership interest and Fund 14-B contributed
$51,025,000 to the capital of the Venture for 73 percent ownership interest.
Cable Television System Acquisitions
------------------------------------
The Partnership acquired the cable television systems serving certain areas
in and around the communities of Turnersville, New Jersey (the "Turnersville
System"); Buffalo, Minnesota; Naperville, Illinois; and Calvert County, Maryland
in 1987. In 1991, the Partnership purchased additional cable television systems
serving certain communities in Central Illinois (the "Central Illinois System").
As discussed below, the Partnership sold the Turnersville System on January 10,
1997 and the Central Illinois System on June 30, 1997.
Cable Television System Sales
-----------------------------
On January 10, 1997, the Partnership sold the Turnersville System to an
unaffiliated party for a sales price of $84,500,000. The Partnership
distributed $25,000,000 (or approximately $313 per each $1,000 invested in the
Partnership) of the sale proceeds to its limited partners in January 1997, paid
The Jones Group, Ltd. ("The Jones Group"), a subsidiary of the General Partner,
a brokerage fee of $2,112,500, representing 2.5 percent of the sales price, for
acting as a broker in this transaction and repaid $57,387,500 of the balance
outstanding on its credit facility (of which $52,500,000 was required to be
repaid under the terms of the Partnership's credit facility). Because the
$25,000,000 distribution to the limited partners did not return 125 percent of
the capital initially contributed to the Partnership by the limited partners,
the General Partner did not receive a general partner distribution from the
proceeds of the sale of the Turnersville System. Because the sale of the
Turnersville System did not represent a sale of all or substantially all of the
Partnership's assets, no vote of the limited partners of the Partnership was
required to approve this sale.
On June 30, 1997, the Partnership sold the Central Illinois System to an
unaffiliated party for a sales price of $20,005,280. The Partnership
distributed $9,547,500 (or approximately $119 per each $1,000 invested in the
Partnership) of the sale proceeds to its limited partners in July 1997, paid a
2.5 percent brokerage fee of $502,500 to The Jones Group for acting as a broker
in this transaction and repaid $9,800,000 of the balance outstanding on its
credit facility. Because the distributions to the limited partners from the
sales of the Turnersville System and the Central Illinois System did not return
125 percent of the capital initially contributed to the Partnership by the
limited partners, the General Partner did not receive a general partner
distribution from the proceeds of the sale of the Central Illinois System.
Because the sale of the Central Illinois System did not represent a sale of all
or substantially all of the Partnership's assets, no vote of the limited
partners of the Partnership was required to approve this sale.
27
<PAGE>
The pro forma effect of the sales of the Turnersville System and the
Central Illinois System on the results of the Partnership's operations for the
years ended December 31, 1997 and 1996, assuming the transaction had occurred at
the beginning of the year, is presented in the following unaudited tabulation:
<TABLE>
<CAPTION>
For the Year Ended December 31, 1997
-----------------------------------------
Unaudited
Pro Forma Unaudited
As Reported Adjustments Pro Forma
------------ ------------- ------------
<S> <C> <C> <C>
Revenues $26,642,247 $ (3,368,286) $23,273,961
=========== ============ ===========
Operating Loss $(2,713,383) $ 706,983 $(2,006,400)
=========== ============ ===========
Income (Loss) Before Equity in Net Loss of
Cable Television Joint Venture $63,361,130 $(67,467,656) $(4,106,526)
=========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996
----------------------------------------
Unaudited
Pro Forma Unaudited
As Reported Adjustments Pro Forma
----------- ------------ ------------
<S> <C> <C> <C>
Revenues $47,808,719 $(22,734,236) $25,074,483
=========== ============ ===========
Operating Loss $ (397,890) $ (247,793) $ (645,683)
=========== ============ ===========
Loss Before Equity in Net Loss of
Cable Television Joint Venture $(6,555,931) $ 4,506,698 $(2,049,233)
=========== ============ ===========
</TABLE>
On October 3, 1997, the Venture entered into an agreement to sell the
Broward System to an unaffiliated third party for $140,000,000, subject to
closing adjustments discussed below. Closing of this sale is scheduled for
March 31, 1998, subject to several conditions, including necessary governmental
and other third party consents. The General Partner expects that all material
consents will be obtained prior to the scheduled closing date. The closing
adjustments primarily relate to the number of equivalent basic subscribers at
closing. If equivalent basic subscribers are less than 56,637, the sales price
will be reduced $2,472 multiplied by the number by which the Broward System's
equivalent basic subscribers are less than 56,637, up to a maximum adjustment of
$7,000,000. Because it is estimated that the Broward System will have 55,274
equivalent basic subscribers, as defined in the agreement, at March 31, 1998, at
closing there will be a sales price reduction of approximately $3,369,000. The
General Partner expects that when final closing adjustments are done
approximately sixty days after closing, additional equivalent basic subscribers
that were not able to be counted at closing because they were relatively recent
subscribers at March 31, 1998 will be counted as equivalent basic subscribers
when final closing adjustments are done and the sales price will be adjusted
accordingly. If the sales price is adjusted upward, the Venture would make an
additional distribution to the two constituent partnerships of the Venture in
proportion to their ownership interests in the Venture.
Upon closing, the Venture will repay all of its indebtedness, which totaled
$39,597,617 at December 31, 1997 and a brokerage fee of approximately $3,500,000
to The Jones Group and then the Venture will distribute the remaining net sales
proceeds, or approximately $94,039,000, to the two constituent partnerships of
the Venture in proportion to their ownership interests in the Venture.
Accordingly, the Partnership will receive 27 percent of the net sales proceeds,
or approximately $25,491,000. The Partnership will distribute its net sales
proceeds to its limited partners of record as of the closing date of the sale of
the Broward System. Such distribution represents approximately $159 for each
$500 limited partnership interest or $318 for each $1,000 invested in the
Partnership. Because the distribution to the limited partners from the sales of
the Turnersville System and the Central Illinois System together with the
proposed distribution from the sale of the Broward System will not return 125
percent of the capital initially contributed to the Partnership by the limited
partners, the General Partner will not receive any general partner distribution
from the proceeds of the Broward System's sale. Because the proposed sale of
the Broward System does not constitute the sale of all or substantially all of
the Partnership's assets, no vote of the limited partners of the Partnership was
required to approve this sale. Because the Broward System represents the only
asset of the Venture, the Venture will be liquidated and dissolved upon the
completion of the sale of the Broward System.
28
<PAGE>
Taking into account the 1997 distributions made on the sales of the
Turnersville System and the Central Illinois System and the distribution
expected to be made in the second quarter 1998 from the sale of the Broward
System, the limited partners will have received a total of $750 for each $1,000
invested in the Partnership.
Contributed Capital, Commissions and Syndication Costs
------------------------------------------------------
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 will be allocated to
the partners based upon the formula set forth in the Partnership's agreement and
interest income earned prior to the first acquisition by the Partnership of a
cable television system, which was allocated 100 percent to the limited
partners.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting Records
------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
The Partnership's tax returns are also prepared on the accrual basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partner's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Purchase Price Allocation
-------------------------
The Partnership allocated the total contract purchase price of cable
television systems acquired as follows: first, to the fair value of net
tangible assets acquired; second, to the value of subscriber lists and a
noncompete agreement with previous owners; third, to franchise costs; and
fourth, to costs in excess of interests in net assets purchased. Other system
acquisition costs were capitalized and charged to distribution systems, except
for the Central Illinois System which were charged to intangible assets.
Investment in Cable Television Joint Venture
--------------------------------------------
In addition to its wholly owned systems, the Partnership owns a 27 percent
interest in the Venture through a capital contribution made in March 1988 of
$18,975,000. The Venture acquired the Broward System in March 1988. The
Venture incurred losses of $2,310,292, $3,008,309 and $4,073,811 in 1997, 1996
and 1995, respectively, of which $626,089, $815,252 and $1,104,003,
respectively, was allocated to the Partnership. The investment is accounted for
on the equity method. The operations of the Venture are significant to the
Partnership and should be reviewed in conjunction with these financial
statements.
Property, Plant and Equipment
-----------------------------
Depreciation of property, plant and equipment is provided primarily using
the straight-line method over the following estimated service lives:
<TABLE>
<CAPTION>
<S> <C>
Cable distribution systems 5 - 15 years
Equipment and tools 5 - 7 years
Office furniture and equipment 3 - 5 years
Buildings 30 years
Vehicles 3 - 4 years
</TABLE>
Replacements, renewals and improvements are capitalized and maintenance and
repairs are charged to expense as incurred.
Property, plant and equipment and the corresponding accumulated
depreciation are written off as certain assets become fully depreciated and are
no longer in service.
29
<PAGE>
Intangible Assets
-----------------
Costs assigned to intangible assets are being amortized using the straight-
line method over the following remaining estimated useful lives:
Franchise costs 2 - 6 years
Costs in excess of interests in
net assets purchased 30 years
Revenue Recognition
-------------------
Subscriber prepayments are initially deferred and recognized as revenue
when earned.
Reclassification
----------------
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
(3) TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
----------------------------------------------------
Management Fees, Distribution Ratios and Reimbursements
-------------------------------------------------------
Intercable manages the Partnership and receives a fee for its services
equal to 5 percent of the gross revenues of the Partnership, excluding revenues
from the sale of cable television systems or franchises. Management fees paid
to Intercable by the Partnership for the years ended December 31, 1997, 1996,
and 1995 (exclusive of the Partnership's 27 percent interest in the Venture)
were $1,332,112, $2,390,436 and $2,204,740, respectively.
Any distributions made from cash flow (defined as cash receipts derived
from routine operations, less debt principal and interest payments and cash
expenses) are allocated 99 percent to the limited partners and 1 percent to
Intercable. Any distributions other than interest income on limited partner
subscriptions earned prior to the acquisition of the Partnership's first cable
television system or from cash flow, such as from the sale or refinancing of a
system or upon dissolution of the Partnership, will be made as follows: first,
to the limited partners in an amount which, together with all prior
distributions, will equal 125 percent of 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.
The Partnership reimburses Intercable 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 related facilities costs. Such personnel provide engineering,
marketing, administrative, accounting, legal and investor relations services to
the Partnership. Such services, and their related costs, are necessary to the
operation of the Partnership and would have been incurred by the Partnership if
it was a stand alone entity. Allocations of personnel costs are based primarily
on 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. Reimbursements made to Intercable by the Partnership
for allocated overhead and administrative expenses (exclusive of the
Partnership's 27 percent interest in the Venture) were $1,526,293, $3,162,115
and $3,170,917 in 1997, 1996 and 1995, respectively.
The Partnership was charged interest during 1997 at an average interest
rate of 7.82 percent on the amounts due Intercable, which approximated
Intercable's weighted average cost of borrowing. Total interest charged to the
Partnership by Intercable was $2,783, $250,004 and $23,107 for the years ended
December 31, 1997, 1996 and 1995, respectively.
Payments to/from Affiliates for Programming Services
----------------------------------------------------
The Partnership receives or has received programming from Superaudio,
Knowledge TV, Inc., Jones Computer Network, Ltd., Great American Country, Inc.
and Product Information Network, all of which are affiliates of Intercable.
Payments to Superaudio totaled $40,647, $63,513 and $54,644 in 1997, 1996
and 1995, respectively. Payments to Knowledge TV, Inc. totaled $46,123, $71,736
and $61,431 in 1997, 1996 and 1995, respectively. Payments to Jones Computer
Network, Ltd., whose service was discontinued in April 1997, totaled $22,173,
$61,374 and $65,248 in 1997, 1996 and 1995,
30
<PAGE>
respectively. Payments to Great American Country, Inc., which initiated service
in 1996, totaled $28,314 and $35,100 in 1997 and 1996, respectively.
The Partnership receives a commission from Product Information Network
based on a percentage of advertising revenue and number of subscribers. Product
Information Network paid commissions to the Partnership totaling $87,685,
$90,304 and $77,790 in 1997, 1996 and 1995, respectively.
(4) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment as of December 31, 1997 and 1996, consisted
of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cable distribution systems $ 81,803,602 $126,936,005
Equipment and tools 2,572,960 4,124,407
Office furniture and equipment 743,694 1,714,390
Buildings 199,109 2,407,909
Vehicles 1,040,067 1,667,374
Land 71,925 387,781
------------ ------------
86,431,357 137,237,866
Less - accumulated depreciation (50,186,043) (76,946,443)
------------ ------------
$ 36,245,314 $ 60,291,423
============ ============
</TABLE>
(5) DEBT
----
<TABLE>
<CAPTION>
December 31,
---------------------------
Debt consists of the following: 1997 1996
------------ ------------
<S> <C> <C>
Lending institutions-
Revolving credit and term loan $ 22,300,000 $ 84,700,000
Capital lease obligations 473,095 724,507
------------ ------------
$ 22,773,095 $ 85,424,507
============ ============
</TABLE>
In March 1997, the Partnership entered into a $37,500,000 revolving credit
facility. The Partnership borrowed $32,300,000 under the revolving credit
facility to repay the outstanding balance on its previous credit facility. Upon
the sale of the Central Illinois System on June 30, 1997 and as required by the
terms of the revolving credit facility, the Partnership repaid $9,800,000 of the
then-outstanding balance, and the commitment amount was reduced to $27,700,000,
of which $22,300,000 was outstanding at December 31, 1997, leaving $5,400,000
available for future borrowings. The revolving credit facility expires on
September 30, 2000, at which time the then-outstanding balance is payable in
full. Interest on the revolving credit facility's outstanding balance is at the
Partnership's option of the London Interbank Offered Rate plus 1.125 percent,
the Certificate of Deposit Rate plus 1.25 percent or the Base Rate plus .125
percent. The effective interest rates on amounts outstanding as of December 31,
1997 and 1996 were 6.79 percent and 6.67 percent, respectively.
Installments due on debt principal for each of the five years in the period
ending December 31, 2002, and thereafter, respectively, are: $141,929, $141,929,
$22,441,927, $47,310, $-0- and $-0-. At December 31, 1997, substantially all of
the Partnership's property, plant and equipment secured the above indebtedness.
At December 31, 1997, the carrying amount of the Partnership's long-term
debt did not differ significantly from the estimated fair value of the financial
instruments. The fair value of the Partnership's long-term debt is estimated
based on the discounted amount of future debt service payments using rates of
borrowing for a liability of similar risk.
31
<PAGE>
(6) INCOME TAXES
------------
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners. The federal and state
income tax returns of the Partnership are prepared and filed by the General
Partner.
The Partnership's tax returns, the qualification of the Partnership as such
for tax purposes, and the amount of distributable partnership income or loss are
subject to examination by federal and state taxing authorities. If such
examinations result in changes with respect to the Partnership's qualification
as such, or in changes with respect to the Partnership's recorded income or
loss, the tax liability of the general and limited partners would likely be
changed accordingly.
Taxable loss reported to the partners is different from that reported in
the statements of operations due to the difference in depreciation recognized
under generally accepted accounting principles and the expense allowed for tax
purposes under the Modified Accelerated Cost Recovery System (MACRS). There are
no other significant differences between taxable loss and the net loss reported
in the statements of operations.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
The Partnership rents office and other facilities under various long-term
lease arrangements. Rent paid under such lease arrangements totaled $206,236,
$296,719 and $242,084, respectively, for the years ended December 31, 1997, 1996
and 1995. Minimum commitments under operating leases for the five years in the
period ending December 31, 2002, and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $215,258
1999 128,498
2000 1,250
2001 -
2002 -
Thereafter -
-------
$345,006
=======
</TABLE>
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
-----------------------------------------
Supplementary profit and loss information is presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
---------- ----------- -----------
<S> <C> <C> <C>
Maintenance and repairs $ 346,054 $ 633,182 $ 761,244
========== =========== ===========
Taxes, other than income and payroll taxes $ 158,832 $ 147,180 $ 213,244
========== =========== ===========
Advertising $ 420,665 $ 717,531 $ 694,205
========== =========== ===========
Depreciation of property, plant and equipment $7,626,491 $11,032,939 $10,706,143
========== =========== ===========
Amortization of intangible assets $2,485,144 $ 3,594,787 $ 3,753,336
========== =========== ===========
</TABLE>
32
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
To the Partners of Cable TV Fund 14-A/B Venture:
We have audited the accompanying balance sheets of CABLE TV FUND 14-A/B
VENTURE (a Colorado general partnership) as of December 31, 1997 and 1996, and
the related statements of operations, partners' capital and cash flows for each
of the three years in the period ended December 31, 1997. 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 14-A/B Venture
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
March 13, 1998.
33
<PAGE>
CABLE TV FUND 14-A/B VENTURE
----------------------------
(A General Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
---------------------------
ASSETS 1997 1996
------ ------------ ------------
<S> <C> <C>
CASH $ 499,861 $ 489,615
TRADE RECEIVABLES, less allowance for doubtful receivables of
$105,836 and $104,005 at December 31, 1997 and 1996, respectively 1,188,262 879,267
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 59,704,351 55,892,778
Less- accumulated depreciation (31,090,988) (27,437,977)
------------ ------------
28,613,363 28,454,801
Franchise costs and other intangible assets, net of accumulated
amortization of $57,752,957 and $52,915,541 at December 31, 1997
and 1996, respectively 23,234,009 28,071,425
------------ ------------
Total investment in cable television properties 51,847,372 56,526,226
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 620,522 381,950
------------ ------------
Total assets $ 54,156,017 $ 58,277,058
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
34
<PAGE>
CABLE TV FUND 14-A/B VENTURE
----------------------------
(A General Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
---------------------------
LIABILITIES AND PARTNERS' CAPITAL 1997 1996
--------------------------------- ------------ ------------
<S> <C> <C>
LIABILITIES:
Debt $ 39,597,617 $ 41,262,561
Jones Intercable, Inc. advances 446,115 268,256
Trade accounts payable and accrued liabilities 956,693 1,282,624
Subscriber prepayments 484,041 481,774
------------ ------------
Total liabilities 41,484,466 43,295,215
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' CAPITAL:
Contributed capital 70,000,000 70,000,000
Accumulated deficit (57,328,449) (55,018,157)
------------ ------------
12,671,551 14,981,843
------------ ------------
Total liabilities and partners' capital $ 54,156,017 $ 58,277,058
============ ============
</TABLE>
The accompanying notes to financial statements
are an integral part of these balance sheets.
35
<PAGE>
CABLE TV FUND 14-A/B VENTURE
----------------------------
(A General Partnership)
STATEMENTS OF OPERATIONS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $27,504,735 $25,519,105 $23,469,505
COSTS AND EXPENSES:
Operating expenses 15,185,319 14,148,533 12,620,209
Management fees and allocated overhead from
Jones Intercable, Inc. 2,976,883 2,981,097 2,828,211
Depreciation and amortization 8,775,019 8,408,157 8,774,507
----------- ----------- -----------
OPERATING INCOME (LOSS) 567,514 (18,682) (753,422)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (2,877,337) (3,006,847) (3,371,524)
Other, net (469) 17,220 51,135
----------- ----------- -----------
Total other income (expense) (2,877,806) (2,989,627) (3,320,389)
----------- ----------- -----------
NET LOSS $(2,310,292) $(3,008,309) $(4,073,811)
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
36
<PAGE>
CABLE TV FUND 14-A/B VENTURE
----------------------------
(A General Partnership)
STATEMENTS OF PARTNERS' CAPITAL
-------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CABLE TV FUND 14-A, LTD. (27%):
Balance, beginning of year $ 3,963,820 $ 4,779,072 $ 5,883,075
Net loss for year (626,089) (815,252) (1,104,003)
----------- ----------- -----------
Balance, end of year $ 3,337,731 $ 3,963,820 $ 4,779,072
=========== =========== ===========
CABLE TV FUND 14-B, LTD. (73%):
Balance, beginning of year $11,018,023 $13,211,080 $16,180,888
Net loss for year (1,684,203) (2,193,057) (2,969,808)
----------- ----------- -----------
Balance, end of year $ 9,333,820 $11,018,023 $13,211,080
=========== =========== ===========
TOTAL:
Balance, beginning of year $14,981,843 $17,990,152 $22,063,963
Net loss for year (2,310,292) (3,008,309) (4,073,811)
----------- ----------- -----------
Balance, end of year $12,671,551 $14,981,843 $17,990,152
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
37
<PAGE>
CABLE TV FUND 14-A/B VENTURE
----------------------------
(A General Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,310,292) $(3,008,309) $(4,073,811)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 8,775,019 8,408,157 8,774,507
Amortization of interest rate protection agreement - 793 82,085
Decrease (increase) in trade receivables (308,995) 214,700 (492,782)
Increase in deposits, prepaid expenses
and deferred charges (523,164) (455,610) (193,197)
Increase (decrease) in trade accounts payable and
accrued liabilities and subscriber prepayments (323,664) 44,605 (187,604)
Increase (decrease) in Jones Intercable, Inc. advances 177,859 (1,938,703) 1,852,780
----------- ----------- -----------
Net cash provided by operating activities 5,486,763 3,265,633 5,761,978
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (3,811,573) (3,879,797) (3,903,813)
----------- ----------- -----------
Net cash used in investing activities (3,811,573) (3,879,797) (3,903,813)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,419,267 3,612,576 108,593
Repayment of debt (3,084,211) (2,880,667) (1,849,862)
----------- ----------- -----------
Net cash provided by (used in)
financing activities (1,664,944) 731,909 (1,741,269)
----------- ----------- -----------
Increase in cash 10,246 117,745 116,896
Cash, beginning of year 489,615 371,870 254,974
----------- ----------- -----------
Cash, end of year $ 499,861 $ 489,615 $ 371,870
=========== =========== ===========
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 2,997,551 $ 2,929,302 $ 3,467,008
=========== =========== ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
38
<PAGE>
CABLE TV FUND 14-A/B VENTURE
----------------------------
(A General Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(1) ORGANIZATION AND PARTNERS' INTERESTS
------------------------------------
Formation and Business
----------------------
On January 8, 1988, Cable TV Fund 14-A, Ltd. ("Fund 14-A") and Cable TV
Fund 14-B, Ltd. ("Fund 14-B") (collectively, the "Venture Partners") formed a
Colorado general partnership known as Cable TV Fund 14-A/B Venture (the
"Venture") by contributing $18,975,000 and $51,025,000, respectively, for 27
percent and 73 percent ownership interests, respectively. The Venture was
formed for the purpose of acquiring the cable television system serving areas in
and around Broward County, Florida (the "Broward System").
Jones Intercable, Inc. ("Intercable") is the "General Partner" of each of
the Venture Partners and manages the Venture. Intercable and its subsidiaries
also own and operate cable television systems. In addition, Intercable manages
cable television systems for other limited partnerships for which it is general
partner and for other affiliated entities.
Contributed Capital
-------------------
The capitalization of the Venture is set forth in the accompanying
Statements of Partners' Capital.
All Venture distributions, including those made from cash flow, from the
sale or refinancing of Venture property and on dissolution of the Venture, shall
be made to the Venture Partners in proportion to their 27 and 73 percent
interests in the Venture.
Proposed Sale of a Cable Television System
------------------------------------------
On October 3, 1997, the Venture entered into an agreement to sell the
Broward System to an unaffiliated third party for $140,000,000, subject to
closing adjustments discussed below. Closing of this sale is scheduled for
March 31, 1998, subject to several conditions, including necessary governmental
and other third party consents. The General Partner expects that all material
consents will be obtained prior to the scheduled closing date. The closing
adjustments primarily relate to the number of equivalent basic subscribers at
closing. If equivalent basic subscribers are less than 56,637, the sales price
will be reduced $2,472 multiplied by the number by which the Broward System's
equivalent basic subscribers are less than 56,637, up to a maximum adjustment of
$7,000,000. Because it is estimated that the Broward System will have 55,274
equivalent basic subscribers, as defined in the agreement, at March 31, 1998, at
closing their will be a sales price reduction of approximately $3,369,000. The
General Partner expects that when final closing adjustments are done
approximately sixty days after closing, additional equivalent basic subscribers
that were not able to be counted at closing because they were relatively recent
subscribers at March 31, 1998 will be counted as equivalent basic subscribers
when final closing adjustments are done and the sales price will be adjusted
accordingly. If the sales price is adjusted upward, the Venture would make an
additional distribution to the two constituent partnerships of the Venture in
proportion to their ownership interests in the Venture.
Upon closing, the Venture will repay all of its indebtedness, which totaled
$39,597,617 at December 31, 1997 and a brokerage fee of approximately $3,500,000
to the Jones Group and then the Venture will distribute the remaining net sales
proceeds, or approximately $94,039,000, to the two constituent partnerships of
the Venture in proportion to their ownership interests in the Venture.
Accordingly, Fund 14-A will receive 27 percent of the net sales proceeds
(approximately $25,491,000, or $318 for each $1,000 invested in Fund 14-A) and
Fund 14-B will receive 73 percent of the net sales proceeds (approximately
$68,548,000, or $524 for each $1,000 invested in Fund 14-B).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
Accounting Records
------------------
The accompanying financial statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting principles.
The Venture's tax returns are also prepared on the accrual basis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires Intercable's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent
39
<PAGE>
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.
Purchase Price Allocation
-------------------------
The Broward System acquisition was accounted for as a purchase with the
purchase price allocated to tangible and intangible assets based upon an
independent appraisal. The method of allocation of purchase price was as
follows: first, to the fair value of net tangible assets acquired; second, to
the value of subscriber lists and noncompete agreements with previous owners;
third, to franchise costs; and fourth, to costs in excess of interests in net
assets purchased. Brokerage fees paid to an affiliate of Intercable and other
system acquisition costs were capitalized and included in the cost of intangible
assets.
Property, Plant and Equipment
-----------------------------
Depreciation is provided using the straight-line method over the following
estimated service lives:
<TABLE>
<CAPTION>
<S> <C>
Cable distribution systems 5 - 15 years
Equipment and tools 5 - 7 years
Office furniture and equipment 3 - 5 years
Buildings 30 years
Vehicles 3 - 4 years
</TABLE>
Replacements, renewals and improvements are capitalized and maintenance and
repairs are charged to expense as incurred.
Property, plant and equipment and the corresponding accumulated
depreciation are written off as certain assets become fully depreciated and are
no longer in service.
Intangible Assets
-----------------
Costs assigned to franchises, subscriber lists and costs in excess of
interests in net assets purchased are amortized using the straight-line method
over the following remaining estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Franchise costs 1 - 5 years
Subscriber lists 1 year
Costs in excess of interests in
net assets purchased 31 years
</TABLE>
Revenue Recognition
-------------------
Subscriber prepayments are initially deferred and recognized as revenue
when earned.
Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
(3) TRANSACTIONS WITH AFFILIATES
----------------------------
Management Fees and Reimbursements
----------------------------------
Intercable manages the Venture and receives a fee for its services equal to
5 percent of the gross revenues of the Venture, excluding revenues from the sale
of cable television systems or franchises. Management fees paid to Intercable
by the Venture for the years ended December 31, 1997, 1996 and 1995 were
$1,375,237, $1,275,955 and $1,173,475, respectively.
The Venture reimburses Intercable for 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, accounting,
administrative, legal, and investor relations services to the Venture. Such
services, and their related costs, are necessary to the operation of the Venture
and would have been incurred by the Venture if it was a stand alone entity.
Allocations of personnel costs are based primarily on actual time spent by
employees of Intercable with respect to each entity 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 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
40
<PAGE>
expenses. Intercable believes that the methodology used in allocating overhead
and administrative expenses is reasonable. Reimbursements made to Intercable by
the Venture for allocated overhead and administrative expenses during the years
ended December 31, 1997, 1996 and 1995 were $1,601,646, $1,705,142 and
$1,654,736, respectively.
The Venture was charged interest during 1997 at an average interest rate of
7.82 percent on the amounts due Intercable, which approximated Intercable's
weighted average cost of borrowing. Total interest charged to the Venture by
Intercable was $2,678, $122,224 and $155,659 for the years ended December 31,
1997, 1996 and 1995, respectively.
Payments to/from Affiliates for Programming Services
----------------------------------------------------
The Venture receives or has received programming from Superaudio, Knowledge
TV, Inc., Great American Country, Inc. and Product Information Network, all of
which are affiliates of Intercable.
Payments to Superaudio totaled $37,459, $34,421 and $30,171 in 1997, 1996
and 1995, respectively. Payments to Knowledge TV, Inc. totaled $41,668, $37,113
and $32,268 in 1997, 1996 and 1995, respectively. Payments to Great American
Country, Inc., which initiated service in 1996, totaled $79,127 in 1997 and
$47,590 in 1996.
The Venture receives a commission from Product Information Network based on
a percentage of advertising revenue and number of subscribers. Product
Information Network paid commissions to the Venture totaling $80,297, $49,973
and $23,430 in 1997, 1996 and 1995, respectively.
(4) PROPERTY, PLANT AND EQUIPMENT
-----------------------------
Property, plant and equipment as of December 31, 1997 and 1996, consisted
of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cable distribution systems $ 53,144,005 $ 49,591,013
Equipment and tools 2,074,443 1,899,148
Office furniture and equipment 1,191,559 1,149,554
Buildings 1,875,016 1,870,430
Vehicles 688,461 651,766
Land 730,867 730,867
------------ ------------
59,704,351 55,892,778
Less - accumulated depreciation (31,090,988) (27,437,977)
------------ ------------
$ 28,613,363 $ 28,454,801
============ ============
</TABLE>
(5) DEBT
----
<TABLE>
<CAPTION>
Debt consists of the following: December 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Lending institutions-
Reducing revolving credit facility $ 39,402,968 $ 41,102,968
Capital lease obligations 194,649 159,593
------------ ------------
$ 39,597,617 $ 41,262,561
============ ============
</TABLE>
The Venture has a reducing revolving credit facility with an available
commitment of $42,500,000. The entire $42,500,000 commitment is available
through December 31, 1998, at which time the commitment will begin to reduce
quarterly until December 31, 2003 when the amount available will be zero. At
December 31, 1997, the balance outstanding was $39,402,968, leaving $3,097,032
available for future borrowings. Interest is at the Venture's option of Prime
plus 1/4 percent, LIBOR plus 1-1/4 percent or the CD Rate plus 1-3/8 percent.
The effective interest rates on amounts outstanding as of
41
<PAGE>
December 31, 1997 and 1996 were 7.10 percent and 6.79 percent, respectively.
This credit facility will be paid in full upon the sale of the Venture's Broward
System.
Installments due on debt principal for each of the five years in the period
ending December 31, 2002 and thereafter, respectively, are: $58,394,
$3,761,363, $6,858,395, $8,519,465, $10,200,000 and $10,200,000. At December
31, 1997, substantially all of the Venture's property, plant and equipment
secured the above indebtedness.
At December 31, 1997, the carrying amount of the Venture's long-term debt
did not differ significantly from the estimated fair value of the financial
instruments. The fair value of the Venture's long-term debt is estimated based
on the discounted amount of future debt service payments using rates of
borrowing for a liability of similar risk.
(6) INCOME TAXES
------------
Income taxes have not been recorded in the accompanying financial
statements because they accrue directly to the partners of Fund 14-A and Fund
14-B.
The Venture's tax returns, the qualification of the Venture as such for tax
purposes, and the amount of distributable Venture income or loss are subject to
examination by federal and state taxing authorities. If such examinations
result in changes with respect to the Venture's qualification as such, or in
changes with respect to the Venture's recorded income or loss, the tax liability
of the Venture's general partners would likely be changed accordingly.
Taxable loss reported to the partners is different from that reported in
the statements of operations due to the difference in depreciation recognized
under generally accepted accounting principles and the expense allowed for tax
purposes under the Modified Accelerated Cost Recovery System (MACRS). There are
no other significant differences between taxable loss and the net loss reported
in the statements of operations.
(7) COMMITMENTS AND CONTINGENCIES
-----------------------------
Office and other facilities are rented under various long-term lease
arrangements. Rent paid under such lease arrangements totaled $49,301, $21,762
and $22,680, respectively for the years ended December 31, 1997, 1996 and 1995.
Minimum commitments under operating leases for each of the five years in the
period ending December 31, 2002 and thereafter are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 34,466
1999 33,300
2000 33,300
2001 33,300
2002 33,300
Thereafter 291,378
--------
$459,044
========
</TABLE>
42
<PAGE>
(8) SUPPLEMENTARY PROFIT AND LOSS INFORMATION
-----------------------------------------
Supplementary profit and loss information is presented below:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Maintenance and repairs $ 169,474 $ 163,219 $ 204,878
========== ========== ==========
Taxes, other than income and payroll taxes $ 491,297 $ 425,691 $ 268,757
========== ========== ==========
Advertising $ 168,056 $ 197,237 $ 152,727
========== ========== ==========
Depreciation of property, plant and equipment $3,849,922 $3,570,740 $3,429,925
========== ========== ==========
Amortization of intangible assets $4,925,097 $4,837,417 $5,344,582
========== ========== ==========
</TABLE>
43
<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. Directors of the General Partner serve until the next annual
meeting of the General Partner and until their successors shall be elected and
qualified.
<TABLE>
<C> <C> <S>
Glenn R. Jones 68 Chairman of the Board and Chief Executive Officer
James B. O'Brien 48 President and Director
Ruth E. Warren 48 Group Vice President/Operations
Kevin P. Coyle 46 Group Vice President/Finance
Christopher J. Bowick 42 Group Vice President/Technology
Cheryl M. Sprague 45 Group Vice President/Human Resources
Cynthia A. Winning 46 Group Vice President/Marketing
Elizabeth M. Steele 46 Vice President/General Counsel/Secretary
Larry W. Kaschinske 38 Vice President/Controller
Robert E. Cole 65 Director
William E. Frenzel 69 Director
Josef J. Fridman 52 Director
Donald L. Jacobs 59 Director
Robert Kearney 61 Director
James J. Krejci 56 Director
Raphael M. Solot 64 Director
Howard O. Thrall 50 Director
Siim A. Vanaselja 41 Director
Sanford Zisman 58 Director
Robert B. Zoellick 44 Director
</TABLE>
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, and he is a member of the Board of Directors and
of the Executive Committee of the National Cable Television Association. In
addition, Mr. Jones is a member of 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 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 President's Award
from the Cable Television Public Affairs Association in recognition of Jones
International's educational efforts through Mind Extension University (now
Knowledge TV); the Donald G. McGannon Award for the advancement of minorities
and women in cable from the United Church of Christ Office of Communications;
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
Cableforce 2000 Accolade awarded by Women in Cable in recognition of the General
Partner's innovative employee programs; the Most Outstanding Corporate
Individual Achievement Award from the International Distance Learning Conference
for his contributions to distance education; the Golden Plate Award from the
American Academy of Achievement for his advances in distance education; the Man
of the Year named
44
<PAGE>
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. 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 the
Chairman of the Board of Directors of the Cable Television Administration and
Marketing Association and as a director and a member of the Executive Committee
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 marketing manager,
director of marketing, assistant division manager, regional vice president 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. Prior 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. Bowick also has served
since 1995 as President of Jones Futurex, Inc., a wholly owned subsidiary of the
General Partner that manufactures and markets data encryption products.
Ms. Cheryl M. Sprague joined the General Partner in November 1997 as
Group Vice President/Human Resources. Prior to November 1997 and since December
1995, Ms. Sprague served as Director, Human Resources for Westmoreland Coal
Company, where she was responsible for human resources management for said
company and three of its subsidiaries. From October 1993 to December 1995, Ms.
Sprague served as President of Peak Executive Resources, where she provided
consulting services in organizational development and human resources to
businesses experiencing organizational transition. From April 1992 to October
1993, Ms. Sprague was Vice President, Human Resources for Penrose-St. Francis
Healthcare System, where she was responsible for management of all human
resources activities. Ms. Sprague serves as an adjunct instructor at Regis
University and has earned the professional designation as a Senior Professional
in Human Resources from the Society for Human Resource Management and its
affiliate, the Human Resources Certification Board. Ms. Sprague is a past
president of the Colorado Human Resource Association and was named by that
association as the Colorado Human Resources Administrator of the Year in 1986.
Ms. Sprague also serves as a director on the Area VI Board for the Society for
Human Resource Management.
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.
45
<PAGE>
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, named Controller in August 1994 and was elected
Vice President/Controller in June 1996.
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 in
April 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. Josef J. Fridman was appointed a Director of the General Partner in
February 1998. Mr. Fridman is currently senior vice-president, law and
corporate secretary of BCE Inc., Canada's largest telecommunications company.
Mr. Fridman joined Bell Canada, a wholly owned subsidiary of BCE Inc., in 1969,
and has held increasingly senior positions with Bell Canada and BCE Inc. since
such time. Mr. Fridman has held his current position since January 1991. Mr.
Fridman's directorships include Telesat Canada, TMI Communications, Inc.,
Telebec Itee, BCI Telecom Holding Inc. and BCE Corporate Services Inc. He is a
member of the Quebec Bar Association, the Canadian, American and International
Bar Associations and the Lord Reading Law Society. Mr. Fridman is a governor of
the Quebec Bar Association.
Mr. Donald L. Jacobs was appointed a Director of the General Partner in
April 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. Robert Kearney was appointed a director of the General Partner in July
1997. Mr. Kearney is a retired executive officer of Bell Canada. Prior to his
retirement in December 1993, Mr. Kearney was the President and Chief Executive
Officer of Bell Canada. He served as Chairman of BCE Canadian Telecom Group in
1994 and as Deputy Chairman of BCI Management Limited in 1995. During his
career, Mr. Kearney served in a variety of capacities in the Canadian, American
and International Standards organizations, and he has served on several
corporate, professional and civic boards.
Mr. James J. Krejci is President and CEO of Imagelink Technologies, Inc., a
privately financed company with leading technology in the desktop or personal
computer videoconferencing market. Prior to joining
46
<PAGE>
Imagelink Technologies in July 1996, Mr. Krejci was President of the
International Division of International Gaming Technology, the world's largest
gaming equipment manufacturer, with headquarters in Reno, Nevada. 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 subsidiaries of Jones International, Ltd. until leaving
the General Partner in May 1994. Mr. Krejci started his career as an electronics
research engineer with the Allen-Bradley Company, then moved to the 3M Company,
General Electric and Becton Dickinson until March 1985 when he joined Jones
International, Ltd. Mr. Krejci has been a director of the General Partner since
August 1987.
Mr. Raphael M. Solot was appointed a Director of the General Partner in
March 1996. Mr. Solot is an attorney and has practiced law for 34 years with an
emphasis on franchise, corporate and partnership law and complex litigation.
Mr. Howard O. Thrall was appointed a Director of the General Partner in
March 1996. Mr. Thrall had previously served as a Director of the General
Partner from December 1988 to December 1994. Mr. Thrall is a management and
international marketing consultant, having active assignments with First
National Net, Inc., LEP Technologies, Cheong Kang Associates (Korea), Aero
Investment Alliance, Inc. and Western Real Estate Partners, among others. From
September 1993 through July 1996, Mr. Thrall 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. Siim A. Vanaselja was appointed a Director of the General Partner in
August 1996. He is the Executive Vice President and Chief Financial Officer of
Bell Canada International Inc. and Vice President of BCI Telecom Holding Inc.
Mr. Vanaselja joined BCE Inc., Canada's largest telecommunications company, in
February 1994 as Assistant Vice-President, International Taxation. In June
1994, he was appointed Assistant Vice-President and Director of Taxation, and in
February 1995, Mr. Vanaselja was appointed Vice-President, Taxation. On August
1, 1996, Mr. Vanaselja was appointed the Executive Vice President and Chief
Financial Officer of Bell Canada International Inc., a subsidiary of BCE Inc.
Prior to joining BCE Inc. and since August 1989, Mr. Vanaselja was a partner in
the Toronto office of KPMG Peat Marwick Thorne. Mr. Vanaselja has been a member
of the Institute of Chartered Accountants of Ontario since 1982 and is a member
of the Canadian Tax Foundation, the Tax Executives Institute and the
International Fiscal Association.
Mr. Sanford Zisman was appointed a director of the General Partner in June
1996. Mr. Zisman is a principal in the law firm of Zisman & Ingraham, P.C. of
Denver, Colorado and he has practiced law for 32 years, specializing in the
areas of tax, business and estate planning and probate administration. Mr.
Zisman was a member of the Board of Directors of Saint Joseph Hospital, the
largest hospital in Colorado, serving at various times as Chairman of the Board,
Chairman of the Finance Committee and Chairman of the Strategic Planning
Committee. Since 1982, he has also served on the Board of Directors of Maxim
Series Fund, Inc., a subsidiary of Great-West Life Assurance Company.
Mr. Robert B. Zoellick was appointed a Director of the General Partner in
April 1995. Mr. Zoellick is the John M. Olin Professor at the U.S. Naval
Academy for the 1997-1998 term. From 1993 through 1997, he was an Executive
Vice President at 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 currently serves on the boards of Alliance Capital and
Said Holdings.
47
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
--------------------------------
The Partnership has no employees; however, various personnel are required
to operate the Systems. Such personnel are employed by the General Partner and,
the cost of such employment is charged by the General Partner to the Partnership
or the Venture as a direct reimbursement item. See Item 13.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGERS
----------------------------------------------------------------------
As of February 16, 1998, no person or entity owned more than 5 percent of
the limited partnership interests of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------------------------------------------------------
The General Partner and its affiliates engage in certain transactions with
the Partnership and the Venture. The General Partner believes that the terms of
such transactions are generally as favorable as could be obtained by the
Partnership and the Venture from unaffiliated parties. This determination has
been made by the General Partner in good faith, but none of the terms were or
will be negotiated at arm's-length and there can be no assurance that the terms
of such transactions have been or will be as favorable as those that could have
been obtained by the Partnership or the Venture from unaffiliated parties.
TRANSACTIONS WITH THE GENERAL PARTNER
The General Partner charges the Partnership and Venture a 5 percent
management fee, and the General Partner is reimbursed for certain allocated
overhead and administrative expenses. These expenses represent the salaries and
benefits paid to corporate personnel, rent, data processing services and other
corporate facilities costs. Such personnel provide engineering, marketing,
administrative, accounting, legal and investor relations services to the
Partnership and the Venture. Allocations of personnel costs are based primarily
on actual time spent by employees of the General Partner with respect to each
partnership managed. Remaining expenses are allocated based on the pro rata
relationship of the Partnership's and 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 from time to time also advances funds to the
Partnership and the Venture and charges interest on the balance payable. The
interest rate charged approximates the General Partner's weighted average cost
of borrowing.
TRANSACTIONS WITH AFFILIATES
Knowledge TV, Inc., a company owned 67 percent by Jones Education Group,
Ltd., 7 percent by Mr. Jones and 26 percent by the General Partner, operates the
television network JEC Knowledge TV. JEC Knowledge TV provides programming
related to computers and technology; business, careers and finance; health and
wellness; and global culture and languages. Knowledge TV. Inc. sells its
programming to the Systems.
Jones Computer Network, Ltd., a wholly owned subsidiary of Jones Education
Group, Ltd., a company owned 64 percent by Jones International, Ltd., 16 percent
by the General Partner, 12 percent by BTH and 8 percent by Mr. Jones, operated
the television network Jones Computer Network. This network provided
programming focused primarily on computers and technology. Jones Computer
Network sold its programming to the Systems. Jones Computer Network, Ltd.
terminated its programming in April 1997.
48
<PAGE>
The Great American Country network provides country music video programming
to the Systems. This network, owned and operated by Great American Country,
Inc., a subsidiary of Jones International Networks, Ltd., an affiliate of the
General Partner, commenced service in 1996 in the Systems.
Jones Galactic Radio, Inc. is a subsidiary of Jones International Networks,
Ltd., an affiliate of the General Partner. Superaudio, a joint venture between
Jones Galactic Radio, Inc. and an unaffiliated entity, provides audio
programming to the Systems.
The Product Information Network Venture (the "PIN Venture") is a venture
among a subsidiary of Jones International Networks, Ltd., an affiliate of the
General Partner, and two unaffiliated cable system operators. The PIN Venture
operates the Product Information Network ("PIN"), which is a 24-hour network
that airs long-form advertising generally known as "infomercials." The PIN
Venture generally makes incentive payments of approximately 60 percent of its
net advertising revenue to the cable systems that carry its programming. The
Partnership's and the Venture's systems carry PIN for all or part of each day.
Revenues received by the Partnership from the PIN Venture relating to the
Partnership's owned cable television systems totaled approximately $87,685 for
the year ended December 31, 1997. Revenues received by the Venture from the PIN
Venture relating the Venture's owned cable television systems totaled
approximately $80,297 for the year ended December 31, 1997.
The charges to the Partnership and to the Venture for related party
transactions are as follows for the periods indicated:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------
Cable TV Fund 14-A 1997 1996 1995
- ------------------ --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Management fees $1,332,112 $2,390,436 $2,204,740
Allocation of expenses 1,526,293 3,162,115 3,170,917
Interest expense 2,783 250,004 23,107
Amount of advances outstanding 489,313 352,232 887,215
Highest amount of advances outstanding 489,313 3,453,993 887,215
Programming fees:
Knowledge TV, Inc. 46,123 71,736 61,431
Jones Computer Network, Ltd. 22,173 61,374 65,248
Great American Country 28,314 35,100 0
Superaudio 40,647 63,513 54,644
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------------------------------------
Cable TV Fund 14-A/B Venture 1997 1996 1995
- ---------------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C>
Management fees $1,375,237 $1,275,955 $1,173,475
Allocation of expenses 1,601,646 1,705,142 1,654,736
Interest expense 2,678 122,224 155,659
Amount of advances outstanding 446,115 268,256 2,206,959
Highest amount of advances outstanding 446,115 2,206,959 2,206,959
Programming fees:
Knowledge TV, Inc. 41,668 37,113 32,268
Great American Country 79,127 47,590 0
Superaudio 37,459 34,421 30,171
</TABLE>
49
<PAGE>
PART IV.
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
-------------------------------------------------------------------------
<TABLE>
<CAPTION>
<C> <C> <S>
(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.
4.1 Limited Partnership Agreement for Cable TV Fund 14-A, Ltd.
(1)
4.2 Joint Venture Agreement of Cable TV Fund 14-A/B Venture,
dated as of January 8, 1988, between Cable TV Fund 14-A,
Ltd. and Cable TV Fund 14-B, Ltd. (1)
10.1.1 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Big
Cypress Seminole Indian Reservation, Florida (Fund 14-A/B).
(2)
10.1.2 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the
Brighton Seminole Indian Reservation, Florida (Fund 14-A/B).
(2)
10.1.3 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the
unincorporated portions of Broward County, Florida (Fund 14-
A/B). (3)
10.1.4 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for Cooper
City, Florida (Fund 14-A/B). (10)
10.1.5 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for Dania,
Florida (Fund 14-A/B). (3)
10.1.6 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for Davie,
Florida (Fund 14-A/B). (3)
10.1.7 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the
Hollywood Seminole Indian Reservation, Florida (Fund 14-
A/B). (2)
10.1.8 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the
Immokalee Seminole Indian Reservation, Florida (Fund 14-
A/B). (2)
10.1.9 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for Lauderdale
Lakes, Florida (Fund 14-A/B). (3)
10.1.3 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the County
of Calvert, Maryland (Fund 14-A). (1)
10.1.4 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for St. Mary's
County, Maryland (Fund 14-A). (5)
10.1.5 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for Southern
Anne Arundel County, Maryland (Fund 14-A). (1)
10.1.6 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City
of Albertville, Minnesota (Fund 14-A). (1)
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.1.7 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for City of Big
Lake, Minnesota (Fund 14-A). (1)
10.1.8 Copy of Ordinance No. 1200 dated 3/5/90 relating to the City of
Big Lake franchise (Fund 14-A). (5)
10.1.9 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Buffalo, Minnesota (Fund 14-A). (1)
10.1.10 Copy of Ordinance dated 4/16/90 relating to the Buffalo
franchise (Fund 14-A). (5)
10.1.11 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Cokato, Minnesota (Fund 14-A). (1)
10.1.12 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Dassel, Minnesota (Fund 14-A). (1)
10.1.13 Copy of Ordinance No. 10.044 dated 1/16/90 relating to the
Dassel franchise (Fund 14-A). (5)
10.1.14 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Dayton, Minnesota (Fund 14-A). (1)
10.1.15 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Delano, Minnesota (Fund 14-A). (1)
10.1.16 Copy of Ordinance No. 0-90-01 dated 3/20/90 relating to the
Delano franchise (Fund 14-A). (5)
10.1.17 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Elk River, Minnesota (Fund 14-A). (1)
10.1.18 Copy of Ordinance No. 90-3 dated 2/26/90 relating to the City
of Elk River franchise (Fund 14-A). (5)
10.1.19 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Township
of Hassan, Minnesota (Fund 14-A). (2)
10.1.20 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Maple Lake, Minnesota (Fund 14-A). (1)
10.1.21 Copy of Ordinance No. 38 dated 3/5/90 relating to the City of
Maple Lake franchise (Fund 14-A). (5)
10.1.22 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Monticello, Minnesota (Fund 14-A). (1)
10.1.23 Copy of Ordinance No. 183 dated 2/26/90 relating to the City of
Monticello franchise (Fund 14-A). (5)
10.1.24 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Township
of Monticello, Minnesota (Fund 14-A). (1)
</TABLE>
51
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.1.25 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Township
of Ostego, Minnesota (Fund 14-A). (1)
10.1.26 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Rockford, Minnesota (Fund 14-A). (1)
10.1.27 Resolutions 90-14 and 90-15 dated 4/10/90 relating to the City
of Rockford franchise (Fund 14-A). (5)
10.1.28 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the Town of
Rockford, Minnesota (Fund 14-A). (2)
10.1.29 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
St. Michael, Minnesota (Fund 14-A). (1)
10.1.30 Copy of a franchise and related documents thereto granting a
community antenna television system franchise for the City of
Watertown, Minnesota (Fund 14-A). (1)
10.2.1 Revolving Credit Agreement dated March 31, 1997 among Cable TV
Fund 14-A, Ltd. and Royal Bank of Canada.
10.2.2 Credit Agreement dated as of September 30, 1988 among Cable TV
Fund 14-A/B Venture and The Bank of Nova Scotia, as agent for
various lenders. (Fund 14-A/B) (6)
10.2.3 First Letter Amendment dated June 11, 1990 to Credit Agreement
dated as of September 30, 1988 among Cable TV Fund 14-A/B
Venture and The Bank of Nova Scotia, as agent for various
lenders. (Fund 14-A/B) (6)
10.2.4 Second Letter Amendment dated May 28, 1992 to Credit Agreement
dated as of September 30, 1988 among Cable TV Fund 14-A/B
Venture and The Bank of Nova Scotia, as agent for various
lenders. (Fund 14-A/B) (6)
10.2.5 Third Letter Amendment dated June 30, 1994 to Credit Agreement
dated as of September 30, 1988 among Cable TV Fund 14-A/B
Venture and The Bank of Nova Scotia, as agent for various
lenders. (Fund 14-A/B) (9)
10.2.6 Fourth Letter Amendment dated June 24, 1996 to Credit Agreement
dated as of September 30, 1988 among Cable TV Fund 14-A/B
Venture and The Bank of Nova Scotia, as agent for various
lenders. (Fund 14-A/B) (12)
10.3.1 Purchase and Sale Agreement dated as of March 31, 1988 by and
between Cable TV Fund 14-A/B Venture as Buyer and Jones
Intercable, Inc. as Seller. (Fund 14-A/B) (7)
10.3.2 Purchase and Sale Agreement dated as of May 30, 1991, by and
between Jones Intercable, Inc. and Fund 14-A. (Fund 14-A) (8)
10.3.3 Asset Purchase Agreement dated as of March 28, 1996, between
Cable TV Fund 14-A, Ltd. and Lenfest Atlantic, Inc. (11)
10.3.4 Asset Purchase Agreement dated March 12, 1997 between Cable TV
Fund 14-A, Ltd. and Triax Midwest Associates, L.P. (12)
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <S>
10.3.5 Asset Purchase Agreement dated as of October 3, 1997, among
Comcast Corporation, Cable TV Fund 14 A/B Venture, Jones
International, Ltd., Jones Intercable, Inc., Cable TV Fund 14-
A, Ltd. and Cable TV Fund 14-B, Ltd. (13)
27 Financial Data Schedule
__________
(1) Incorporated by reference from Registrant's Report on Form
10-K for fiscal year ended December 31, 1987 (Commission File
Nos. 0-15378 and 0-16200)
(2) Incorporated by reference from Registrant's Report on Form
10-K for fiscal year ended December 31, 1990 (Commission File
Nos. 0-15378 and 0-16200)
(3) Incorporated by reference from Registrant's Report on Form
10-K for fiscal year ended December 31, 1989 (Commission File
Nos. 0-15378 and 0-16200)
(4) Incorporated by reference from the Annual Report on Form 10-K
for fiscal year ended December 31, 1990 of Jones Intercable,
Inc. (Commission File No. 1-9953)
(5) Incorporated by reference from Registrant's Report on Form
10-K for fiscal year ended December 31, 1992.
(6) Incorporated by reference from Registrants' Reports on Form
8-K dated March 31, 1993 (Commission File Nos. 0-15378 and
0-16200)
(7) Incorporated by reference from Registrants' Reports on Form
8-K dated March 31, 1988 (Commission File Nos. 0-15378 and
0-16200)
(8) Incorporated by reference from Fund 14-A's Report on Form 8-K
dated June 12, 1991 (Commission File No. 0-15378).
(9) Incorporated by reference from the Annual Report on Form 10-K
for fiscal year ended December 31, 1994 of Jones Intercable,
Inc. (Commission File No. 1-9953)
(10) Incorporated by reference from Registrant's Report on Form
10-K for fiscal year ended December 31, 1994.
(11) Incorporated by reference from Registrant's Report on Form
10-K for fiscal year ended December 31, 1995.
(12) Incorporated by reference from Registrant's Report on Form
10-K for fiscal year ended December 31, 1996.
(13) Incorporated by reference from Registrant's Current Report
on Form 8-K dated October 15, 1997.
(b) Reports on Form 8-K
-------------------
Current Report on Form 8-K dated October 15, 1997, describing
the execution of an Asset Purchase Agreement dated October 3,
1997, to sell the Broward System.
</TABLE>
53
<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 14-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 23, 1998 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 23, 1998 (Principal Executive Officer)
By: /s/ Kevin P. Coyle
------------------
Kevin P. Coyle
Group Vice President/Finance
Dated: March 23, 1998 (Principal Financial Officer)
By: /s/ Larry Kaschinske
--------------------
Larry Kaschinske
Vice President/Controller
Dated: March 23, 1998 (Principal Accounting Officer)
By: /s/ James B. O'Brien
--------------------
James B. O'Brien
Dated: March 23, 1998 President and Director
By: /s/ Robert E. Cole
------------------
Robert E. Cole
Dated: March 23, 1998 Director
By: /s/ William E. Frenzel
----------------------
William E. Frenzel
Dated: March 23, 1998 Director
54
<PAGE>
By: --------------------------
Josef J. Fridman
Dated: March 23, 1998 Director
By: --------------------------
Donald L. Jacobs
Dated: March 23, 1998 Director
By: --------------------------
Robert Kearney
Dated: March 23, 1998 Director
By: /s/ James J. Krejci
--------------------------
James J. Krejci
Dated: March 23, 1998 Director
By: /s/ Raphael M. Solot
--------------------------
Raphael M. Solot
Dated: March 23, 1998 Director
By: /s/ Howard O. Thrall
--------------------------
Howard O. Thrall
Dated: March 23, 1998 Director
By: --------------------------
Siim A. Vanaselja
Dated: March 23, 1998 Director
By: /s/ Sanford Zisman
--------------------------
Sanford Zisman
Dated: March 23, 1998 Director
By: /s/ Robert B. Zoellick
--------------------------
Robert B. Zoellick
Dated: March 23, 1998 Director
55
<PAGE>
EXHIBIT 99(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 March 31, 1998.
--------------
or
[_] 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 0-15378
CABLE TV FUND 14-A, LTD.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado #84-1024657
- --------------------------------------------------------------------------------
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 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 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 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
------ ------------- -------------
<S> <C> <C>
CASH $ 167,649 $ 363,032
TRADE RECEIVABLES, less allowance for doubtful receivables of
$76,198 and $85,436 at March 31, 1998 and December 31, 1997,
respectively 1,180,061 931,372
DISTRIBUTION RECEIVABLE FROM JOINT VENTURE 25,484,569 -
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 87,433,172 86,431,357
Less- accumulated depreciation (51,860,389) (50,186,043)
------------ ------------
35,572,783 36,245,314
Franchise costs and other intangible assets, net of accumulated
amortization of $12,150,291 and $11,920,332 at March 31, 1998
and December 31, 1997, respectively 2,231,083 2,461,042
Investment in cable television joint venture - 3,337,731
------------ ------------
Total investment in cable television properties 37,803,866 42,044,087
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 1,599,732 1,644,310
------------ ------------
Total assets $ 66,235,877 $ 44,982,801
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
March 31, December 31,
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1998 1997
------------------------------------------ ------------- -------------
<S> <C> <C>
LIABILITIES:
Debt $ 23,488,050 $ 22,773,095
General Partner advances - 489,313
Accrued distributions to limited partners 25,484,569 -
Trade accounts payable and accrued liabilities 2,024,572 2,440,724
Subscriber prepayments 89,266 84,154
Loss in excess of investment in cable television joint venture 130,051 -
------------ ------------
Total liabilities 51,216,508 25,787,286
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (1,000) (73,389)
------------ ------------
- (72,389)
------------ ------------
Limited Partners-
Net contributed capital (160,000 units outstanding
at March 31, 1998 and December 31, 1997) 68,722,000 68,722,000
Accumulated earnings (deficit) 6,329,438 (14,906,596)
Distributions (60,032,069) (34,547,500)
------------ ------------
15,019,369 19,267,904
------------ ------------
Total liabilities and partners' capital (deficit) $ 66,235,877 $ 44,982,801
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
3
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-----------------------------
1998 1997
-------------- -------------
<S> <C> <C>
REVENUES $ 5,636,706 $ 7,770,411
COSTS AND EXPENSES:
Operating expenses 3,531,408 4,525,488
Management fees and allocated overhead from General Partner 608,211 915,785
Depreciation and amortization 1,957,957 2,822,180
----------- -----------
OPERATING LOSS (460,870) (493,042)
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (415,412) (617,003)
Gain on sale of cable television system - 62,923,951
Other, net 167,918 (1,205,647)
----------- -----------
Total other income (expense) (247,494) 61,101,301
----------- -----------
INCOME (LOSS) BEFORE EQUITY IN NET INCOME (LOSS)
OF CABLE TELEVISION JOINT VENTURE (708,364) 60,608,259
EQUITY IN NET INCOME (LOSS) OF CABLE TELEVISION
JOINT VENTURE 22,016,787 (161,132)
----------- -----------
NET INCOME $21,308,423 $60,447,127
=========== ===========
ALLOCATION OF NET INCOME:
General Partner $ 72,389 $ 751,384
=========== ===========
Limited Partners $21,236,034 $59,695,743
=========== ===========
NET INCOME PER LIMITED PARTNERSHIP UNIT $132.73 $373.10
=========== ===========
WEIGHTED AVERAGE NUMBER OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 160,000 160,000
=========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
4
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,308,423 $ 60,447,127
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization 1,957,957 2,822,180
Gain on sale of cable television system - (62,923,951)
Equity in net loss (income) of cable television joint venture (22,016,787) 161,132
Decrease (increase) in trade receivables (248,689) 603,452
Increase in deposits, prepaid expenses and deferred charges (9,074) (252,447)
Decrease in trade accounts payable and accrued liabilities and
subscriber prepayments (411,040) (903,674)
Decrease in General Partner advances (489,313) (352,232)
------------ ------------
Net cash provided by (used in) operating activities 91,477 (398,413)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (1,001,815) (1,116,691)
Proceeds from sale of cable television system, net of brokerage fee - 82,387,500
Increase in distribution receivable from Joint Venture (25,484,569) -
Distribution from Joint Venture 25,484,569 -
------------ ------------
Net cash provided by (used in) investing activities (1,001,815) 81,270,809
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 750,000 32,300,000
Repayment of debt (35,045) (84,922,157)
Distributions to limited partners (25,484,569) (25,000,000)
Increase in accrued distributions to limited partners 25,484,569 -
------------ ------------
Net cash provided by (used in) financing activities 714,955 (77,622,157)
------------ ------------
Increase (decrease) in cash (195,383) 3,250,239
Cash, beginning of period 363,032 1,257,022
------------ ------------
Cash, end of period $ 167,649 $ 4,507,261
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 404,407 $ 1,276,471
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
5
<PAGE>
CABLE TV FUND 14-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 complete 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 14-A, Ltd.
(the "Partnership") at March 31, 1998 and December 31, 1997 and its results of
operations and cash flows for the three month periods ended March 31, 1998 and
1997. Results of operations for these periods are not necessarily indicative of
results to be expected for the full year.
The Partnership owns and operates the cable television systems serving the
areas in and around Buffalo, Minnesota, Naperville, Illinois and Calvert County,
Maryland. In addition, the Partnership owns a 27 percent interest in the Cable
TV Fund 14-A/B Venture (the "Venture"). The Venture owned and operated the
cable television system serving certain areas in Broward County, Florida (the
"Broward System") until its sale on March 31, 1998. See Note 3.
(2) Jones Intercable, Inc., a publicly held Colorado corporation, is the
"General Partner" and manages the Partnership and receives a fee for its
services equal to 5 percent of the gross revenues of the Partnership, excluding
revenues from the sale of cable television systems or franchises. Management
fees for the three month periods ended March 31, 1998 and 1997 (excluding the
Partnership's interest in the Venture) were $281,835 and $388,521, respectively.
The Partnership reimburses the General Partner for certain allocated
overhead and administrative expenses. These expenses represent the salaries and
related benefits paid for corporate personnel, rent, data processing services
and other corporate related facilities costs. Such personnel provide
engineering, marketing, administrative, accounting, legal and investor relations
services to the Partnership. Such services, and their related costs, are
necessary to the operation of the Partnership and would have been incurred by
the Partnership if it was a stand alone entity. 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 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 made to the General Partner by the Partnership for
allocated overhead and administrative expenses for the three month periods ended
March 31, 1998 and 1997 (excluding the Partnership's interest in the Venture)
were $326,376 and $527,264, respectively.
(3) On March 31, 1998, the Venture sold the Broward System to an unaffiliated
third party for $136,808,648. The initial sales price of $140,000,000 was
reduced $2,472 for each of the Broward System's equivalent basic subscribers
less than 56,637 at closing. At March 31, 1998, the Broward System had 55,346
equivalent basic subscribers, which reduced the initial sales price by
$3,191,352. The General Partner expects that when final closing adjustments are
done approximately sixty days after closing, additional equivalent basic
subscribers that were not able to be counted at closing because they were
relatively recent subscribers at March 31, 1998 will be counted as equivalent
basic subscribers and the sales price will be adjusted upward. If the sales
price is adjusted upward, the Venture would make an additional distribution to
the two constituent partnerships of the Venture in proportion to their ownership
interests in the Venture.
From the proceeds of the Broward System sale, the Venture settled working
capital adjustments, repaid the outstanding balance on its credit facility,
which totaled $39,902,968 at March 31, 1998 and paid a 2.5 percent brokerage fee
of $3,420,216 to The Jones Group, Ltd., a subsidiary of the General Partner
("The Jones Group"), for acting as a broker in this transaction. The Venture
then distributed the remaining net sale proceeds, or $94,039,000, to the two
constituent partnerships of the Venture in proportion to their ownership
interests in the Venture. Accordingly, the Partnership received 27 percent of
the net sale proceeds, or $25,484,569. In April 1998, the Partnership
distributed its net sale proceeds to its limited partners of record as of March
31, 1998. Such distribution represented approximately $159 for each $500
limited partnership interest or $318 for each $1,000 invested in the
Partnership. Because the distribution to the limited partners from the sale of
the Broward System, together with all prior distributions, did not return 125
percent of the capital initially contributed to the Partnership by the limited
partners, the General Partner did not receive any
6
<PAGE>
general partner distribution from the Broward System's sale. Because the Broward
System represented the only asset of the Venture, the Venture will be liquidated
and dissolved before the end of 1998.
(4) On April 8, 1998, the Partnership signed a letter of intent to sell its
Naperville System to an unaffiliated party for a sales price of $23,000,000,
subject to customary closing adjustments. The sale of the Naperville System is
contingent upon the Partnership and the prospective buyer negotiating a
definitive asset purchase agreement. Closing of the sale, which is expected to
occur in the first quarter of 1999, will be subject to several conditions,
including necessary governmental and other third party consents. In addition,
because the Naperville System may constitute all or substantially all of the
assets of the Partnership at the time the Partnership enters into a definitive
asset purchase agreement, the sale may be subject to the approval of the owners
of a majority of the interests of the Partnership. Upon the proposed sale of the
Naperville System, the Partnership will repay a portion of its revolving credit
facility, pay a brokerage fee to The Jones Group totaling $575,000, representing
2.5 percent of the sales price, for acting as a broker in this transaction,
settle working capital adjustments, and then deposit $696,000 into an indemnity
escrow account. The remaining net sale proceeds of approximately $9,800,000 will
be distributed to the Partnership's limited partners of record as of the closing
date of the sale of the Naperville System. Because the distribution to the
limited partners from the sale of the Naperville System, together with all prior
distributions, will not return 125 percent of the capital initially contributed
to the Partnership by the limited partners, the General Partner will not receive
a general partner distribution from the sale of the Naperville System. Based
upon financial information as of March 31, 1998, this distribution will give the
Partnership's limited partners an approximate return of $61 for each $500
limited partnership interest, or $122 for each $1,000 invested in the
Partnership.
The $696,000 of the sale proceeds to be placed in the indemnity escrow
account will remain in escrow until the fourth quarter of 1999 as security for
the Partnership's agreement to indemnify the buyer under the asset purchase
agreement. The Partnership's primary exposure, if any, will relate to the
representations and warranties to be made about the Naperville System in the
asset purchase agreement. Any amounts remaining from this indemnity escrow
account and not claimed by the buyer at the end of the escrow period will be
distributed to the Partnership's limited partners. If the entire $696,000
escrow amount is available, the Partnership would then distribute the $696,000
to the limited partners, which would represent $4 for each $500 limited
partnership interest, or $8 for each $1,000 invested in the Partnership.
Taking into account the distribution from the sale of the Venture's
Broward System and the anticipated distribution from the proposed sale of the
Naperville System, together with all prior distributions, the General Partner
expects that limited partners of the Partnership will have received $441 for
each $500 limited partnership interest, or $882 for each $1,000 invested in the
Partnership, after the sale of the Naperville System.
7
<PAGE>
(5) Financial information regarding the Venture is presented below.
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
--------------- ------------------
ASSETS
------
<S> <C> <C>
Cash and accounts receivable $ 94,638,668 $ 1,688,123
Investment in cable television properties - 51,847,372
Other assets 24,430 620,522
------------ ------------
Total assets $ 94,663,098 $ 54,156,017
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ----------------------------------------------
Debt $ - $ 39,597,617
Payables and accrued liabilities 94,787,789 1,886,849
Partners' contributed capital 70,000,000 70,000,000
Distributions to joint venture partners (94,039,000) -
Accumulated capital (deficit) 23,914,309 (57,328,449)
------------ ------------
Total liabilities and partners' capital $ 94,663,098 $ 54,156,017
============ ============
</TABLE>
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
-----------------------------
<S> <C> <C>
1998 1997
------------- -------------
Revenues $ 7,064,891 $6,844,105
Operating expenses 3,981,015 3,833,754
Management fees and allocated overhead from General Partner 760,650 813,632
Depreciation and amortization 2,249,219 2,121,717
----------- ----------
Operating income 74,007 75,002
Interest expense (705,440) (703,657)
Gain on sale of cable television system 82,465,154 -
Other, net (590,963) 34,071
----------- ----------
Net income (loss) $81,242,758 $ (594,584)
=========== ==========
</TABLE>
8
<PAGE>
Management fees and reimbursements for overhead and administrative expenses
paid to Jones Intercable, Inc. by the Venture totaled $353,245 and $407,405,
respectively, for the three month period ended March 31, 1998, and $342,205 and
$471,427, respectively, for the three month period ended March 31, 1997.
9
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
It is the General Partner's publicly announced policy that it intends to
liquidate its managed partnerships, including the Partnership, as opportunities
for sales of partnership cable television systems arise in the marketplace. In
accordance with this policy, the Partnership sold two of its systems in 1997,
the Venture sold the Broward System in March 1998 and the Partnership has signed
a letter of intent to sell its Naperville System. The General Partner continues
to seek opportunities for the sale of the remaining systems. There is no
assurance as to the timing or terms of any sales.
The Partnership-
On March 31, 1998, the Venture sold the Broward System to an unaffiliated
party for a sales price of $136,808,648. The Partnership received 27 percent of
the net sale proceeds, or $25,484,569. The Partnership distributed its net sale
proceeds to its limited partners of record as of March 31, 1998. Such
distribution represented approximately $159 for each $500 limited partnership
interest or $318 for each $1,000 invested in the Partnership. Because the
distribution to the limited partners from the sale of the Broward System did not
return 125 percent of the capital initially contributed to the Partnership by
the limited partners, the General Partner did not receive any general partner
distribution from the Broward System's sale.
On April 8, 1998, the Partnership signed a letter of intent to sell its
Naperville System to an unaffiliated party for a sales price of $23,000,000,
subject to customary closing adjustments. The sale of the Naperville System is
contingent upon the Partnership and the prospective buyer negotiating a
definitive asset purchase agreement. Closing of the sale, which is expected to
occur in the first quarter of 1999, will be subject to several conditions,
including necessary governmental and other third party consents. In addition,
because the Naperville System may constitute all or substantially all of the
assets of the Partnership at the time the Partnership enters into a definitive
asset purchase agreement, the sale may be subject to the approval of the owners
of a majority of the interests of the Partnership. Upon the proposed sale of the
Naperville System, the Partnership will repay a portion of its revolving credit
facility, pay a brokerage fee to The Jones Group totaling $575,000, representing
2.5 percent of the sales price, for acting as a broker in this transaction,
settle working capital adjustments, and then deposit $696,000 into an indemnity
escrow account. The remaining net sale proceeds of approximately $9,800,000
will be distributed to the Partnership's limited partners of record as of the
closing date of the sale of the Naperville System. Because the distribution to
the limited partners from the sale of the Naperville System, together with all
prior distributions, will not return 125 percent of the capital initially
contributed to the Partnership by the limited partners, the General Partner will
not receive a general partner distribution from the sale of the Naperville
System. Based upon financial information as of March 31, 1998, this distribution
will give the Partnership's limited partners an approximate return of $61 for
each $500 limited partnership interest, or $122 for each $1,000 invested in the
Partnership.
The $696,000 of the sale proceeds to be placed in the indemnity escrow
account will remain in escrow until the fourth quarter of 1999 as security for
the Partnership's agreement to indemnify the buyer under the asset purchase
agreement. The Partnership's primary exposure, if any, will relate to the
representations and warranties to be made about the Naperville System in the
asset purchase agreement. Any amounts remaining from this indemnity escrow
account and not claimed by the buyer at the end of the escrow period will be
distributed to the Partnership's limited partners. If the entire $696,000
escrow amount is available, the Partnership would then distribute the $696,000
to the limited partners, which would represent $4 for each $500 limited
partnership interest, or $8 for each $1,000 invested in the Partnership.
Taking into account the distribution from the sale of the Venture's
Broward System and the anticipated distribution from the proposed sale of the
Naperville System, together with all prior distributions, the General Partner
expects that the limited partners of the Partnership will have received $441 for
each $500 limited partner interest, or $882 for each $1,000 invested in the
Partnership, after the sale of the Naperville System.
10
<PAGE>
For the three months ended March 31, 1998, capital expenditures totaled
approximately $1,002,000 for all of the Partnership's systems. Approximately 50
percent of the expenditures related to construction of service drops to
subscriber's homes. Approximately 38 percent of the expenditures related to new
plant construction associated with new homes passed in all of the Partnership's
systems. The remainder was for other expenditures to maintain the value of the
Partnership's systems. These expenditures were funded by cash generated from
operations, borrowings under the Partnership's credit facility and cash on hand.
Budgeted capital expenditures for all of the Partnership's systems for the
remainder of 1998 are approximately $5,126,000. Approximately 41 percent of the
expenditures will be used for new plant construction associated with new homes
passed in all of the Partnership's systems. Approximately 32 percent will relate
to construction of service drops to subscribers' homes. The remainder is for
other expenditures to maintain the value of the Partnership's remaining systems
until they are sold. Funding for the improvements is expected to come from cash
on hand, cash generated from operations and, if necessary, borrowings under its
credit facility.
The Partnership is a party to a $27,700,000 revolving credit facility, of
which $23,050,000 was outstanding at March 31, 1998, leaving $4,650,000
available for future borrowings. The revolving credit facility expires on
September 30, 2000, at which time the then-outstanding balance is payable in
full. The Partnership will repay approximately $11,500,000 upon the closing of
the sale of the Naperville System. Interest on the revolving credit facility's
outstanding balance is at the Partnership's option of the London Interbank
Offered Rate ("LIBOR") plus 1.125 percent, the Certificate of Deposit Rate (the
"CD Rate") plus 1.25 percent or the Base Rate plus .125 percent. The effective
interest rates on amounts outstanding as of March 31, 1998 and 1997 were 6.83
percent and 7.14 percent, respectively.
Ameritech, which provides telephone service in a multi-state region
including Illinois, is providing cable television service in Naperville,
Illinois, the community served by the Partnership's Naperville System. This
competition has had an adverse effect on the Naperville System's revenues and
cash flow. This competition had an adverse effect on the sales price that the
Partnership was able to obtain from the prospective buyer of the Naperville
System. The General Partner is taking prudent steps necessary to meet this
competition from Ameritech and, to the extent possible, to safeguard the value
of the Naperville System until it is sold. These steps include a judicial
challenge to the terms on which a franchise was issued to Ameritech. Litigation
is currently pending in federal court against both the City of Naperville and
Ameritech and includes claims made by the City of Naperville against the
Partnership.
The Partnership has sufficient sources of capital available from cash on
hand, cash generated from operations and borrowings available under its
revolving credit facility to meet its presently anticipated needs.
The Venture-
In addition to those systems owned directly by it, the Partnership owns a
27 percent interest in the Venture. The Partnership's investment in the Venture,
accounted for under the equity method, decreased by $3,467,782 compared to the
December 31, 1997 balance. This decrease represents the Partnership's
proportionate share of income generated by the Venture during the first quarter
of 1998 less the distribution from the sale of the Broward System.
On March 31, 1998, the Venture sold the Broward System to an unaffiliated
third party for $136,808,648. The initial sales price of $140,000,000 was
reduced $2,472 for each of the Broward System's equivalent basic subscribers
less than 56,637 at closing. At March 31, 1998, the Broward System had 55,346
equivalent basic subscribers, which reduced the initial sales price by
$3,191,352. The General Partner expects that when final closing adjustments are
done approximately sixty days after closing, additional equivalent basic
subscribers that were not able to be counted at closing because they were
relatively recent subscribers at March 31, 1998 will be counted as equivalent
basic subscribers and the sales price will be adjusted upward. If the sales
price is adjusted upward, the Venture would make an additional distribution to
the two constituent partnerships of the Venture in proportion to their ownership
interests in the Venture.
From the proceeds of the Broward System sale, the Venture settled working
capital adjustments, repaid the outstanding balance on its credit facility,
which totaled $39,902,968 at March 31, 1998 and paid a 2.5 percent brokerage fee
of $3,420,216 to The Jones Group. The Venture distributed the remaining net sale
proceeds, or $94,039,000, to the two constituent partnerships of the Venture in
proportion to their ownership interests in the Venture. Because the Broward
System represented the only asset of the Venture, the Venture will be liquidated
and dissolved before the end of 1998.
For the three months ended March 31, 1998, the Venture generated net cash
from operating activities totaling $1,284,584 which is available to fund capital
expenditures and non-operating costs. The Venture expended approximately
$937,000 on capital additions during the first quarter of 1998. The construction
of service drops to homes accounted for
11
<PAGE>
approximately 49 percent of the expenditures. Cable television plant extensions
related to new homes passed accounted for approximately 38 percent of these
expenditures. The remainder of these expenditures was to maintain the value of
the Broward System until it was sold on March 31, 1998. These capital
expenditures were funded primarily from cash on hand and cash generated from
operations.
RESULTS OF OPERATIONS
- ---------------------
The Partnership-
Revenues of the Partnership decreased $2,133,705, or approximately 27
percent, to $5,636,706 for the first quarter of 1998 from $7,770,411 for the
first quarter of 1997. This decrease was primarily a result of the sales of the
cable television systems serving the areas in and around the communities of
Turnersville, New Jersey (the "Turnersville System") and Central Illinois (the
"Central Illinois System") on January 10, 1997 and June 30, 1997, respectively.
Disregarding the effect of the sales of the Turnersville System and Central
Illinois System, revenues would have decreased $317,095, or approximately 5
percent, to $5,636,706 for the three months ended March 31, 1998 from $5,953,801
for the comparable 1997 period. This decrease in revenues was due to the
Naperville System's loss of subscribers due to competition from Ameritech.
Operating expenses consist primarily of costs associated with the
operation and administration of the Partnership's cable television systems. 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 marketing expenses.
Operating expenses decreased $994,080, or approximately 22 percent, to
$3,531,408 for the quarter ended March 31, 1998 from $4,525,488 for the quarter
ended March 31, 1997. This decrease was primarily a result of the sales of the
Turnersville System and Central Illinois System. Disregarding the effect of the
sales of the Turnersville System and Central Illinois System, operating expenses
would have decreased $52,501, or approximately 1 percent, to $3,531,408 for the
three months ended March 31, 1998 from $3,583,909 for the comparable 1997
period. Operating expenses represented 63 percent of revenue in the first
quarter of 1998 compared to 60 percent of revenue in the first quarter of 1997.
Management fees and allocated overhead from the General Partner decreased
$307,574, or approximately 34 percent, to $608,211 for the three month period
ended March 31, 1998 from $915,785 for the three month period ended March 31,
1997. This decrease was a result of the sales of the Turnersville System and
Central Illinois System. Disregarding the effect of the sales of the
Turnersville System and Central Illinois System, management fees and allocated
overhead from the General Partner would have decreased $100,983, or
approximately 14 percent, to $608,211 in 1998 from $709,194 in 1997. This
decrease was due to the decrease in revenues, upon which such management fees
and allocations are based, and a decrease in costs allocated from the General
Partner.
Depreciation and amortization expense decreased $864,223, or approximately
31 percent, to $1,957,957 for the three month period ended March 31, 1998 from
$2,822,180 for the three month period ended March 31, 1997. This decrease was a
result of the sales of the Turnersville System and Central Illinois System.
Disregarding the effect of the sales of the Turnersville System and Central
Illinois System, depreciation and amortization expense would have increased
$89,901, or approximately 5 percent, to $1,957,957 in 1998 from $1,868,056 in
1997. This increase was due to capital additions in the Partnership's remaining
systems.
Operating loss decreased $32,172, or approximately 7 percent, to $460,870
for the three month period ended March 31, 1998 from $493,042 for the three
month period ended March 31, 1997. Disregarding the effect of the sales of the
Turnersville System and Central Illinois System, operating loss would have
increased $253,512 to $460,870 in 1998 from $207,358 in 1997 primarily due to
the decrease in revenues exceeding the decreases in operating expenses and
management fees and allocated overhead from the General Partner.
Interest expense decreased $201,591, or approximately 33 percent, to
$415,412 for the three months ended March 31, 1998 from $617,003 for the
comparable 1997 period. This decrease was primarily due to lower outstanding
balances on interest bearing obligations in 1998. A portion of the proceeds
from the sale of the Turnersville System and the Central Illinois System was
used to reduce the Partnership's debt in 1997.
12
<PAGE>
The Partnership recognized a gain of $62,923,951 related to the sale of
the Turnersville System in January 1997. No similar gain was recognized in the
first quarter of 1998.
The Partnership reported loss before equity in net income of cable
television joint venture of $708,364 in 1998 compared to income of $60,608,259
in 1997. This change was primarily due to the gain on the sale of the
Turnersville System in the first quarter of 1997.
The Venture-
Revenues of the Venture's Broward County System increased $220,786, or
approximately 3 percent, to $7,064,891 for the three months ended March 31, 1998
from $6,844,105 for the comparable 1997 period. Basic service rate increases
accounted for approximately 84 percent of the increase in revenues. The number
of basic subscribers totaled 52,302 at March 31, 1998 compared to 52,042 at
March 31, 1997, an increase of 260 subscribers. This increase in basic
subscribers accounted for approximately 14 percent of the increase in revenues.
No other individual factor significantly affected the increase in revenues.
Operating expenses increased $147,261, or approximately 4 percent, to
$3,981,015 for the three months ended March 31, 1998 from $3,833,754 for the
comparable 1997 period. This increase in operating expenses was due primarily
to increases in programming fees. No other individual factor significantly
affected the increase in operating expenses. Operating expenses represented
approximately 56 percent of revenue for both 1998 and 1997.
The cable television industry generally measures the financial performance
of a cable television system in terms of operating cash flow (revenues less
operating expenses). 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 cash flow increased
$73,525, or approximately 2 percent, to $3,083,876 for the three months ended
March 31, 1998 from $3,010,351 for the comparable 1997 period due to the
increase in revenues exceeding the increase in operating expenses.
Management fees and allocated overhead from Jones Intercable, Inc.
decreased $52,982, or approximately 7 percent, to $760,650 for the three months
ended March 31, 1998 from $813,632 for the comparable 1997 period. This
decrease was primarily due to a decrease in allocated overhead from Jones
Intercable, Inc.
Depreciation and amortization expense increased $127,502, or approximately
6 percent, to $2,249,219 for the three months ended March 31, 1998 from
$2,121,717 for the comparable 1997 period. This increase was attributable to
capital additions to the Venture's asset base.
Operating income decreased $995, or approximately 1 percent, to $74,007
for the three months ended March 31, 1998 from $75,002 for the comparable 1997
period. This decrease was due to the increase in depreciation and amortization
exceeding the increase in operating cash flow.
Interest expense increased $1,783, or less than 1 percent, to $705,440 for
the three months ended March 31, 1998 from $703,657 for the comparable 1997
period due to higher effective interest rates on interest bearing obligations
during the period.
For the three months ended March 31, 1998, the Venture reported a gain
from the sale of the Broward System of $82,465,154. No similar gain was
reported for the comparable 1997 period.
The Venture reported net income of $81,242,758 for the three months ended
March 31, 1998 compared to a net loss of $594,584 for the comparable period in
1997. This change was due to the gain on the sale of the Broward System in
March 1998.
13
<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
Report on Form 8-K dated April 8, 1998, reported that on April
8, 1998, Jones Intercable, Inc., the general partner of the
Partnership, executed a letter of intent on behalf of the
Partnership to sell the Naperville System to an unaffiliated third
party.
14
<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 14-A, LTD.
BY: JONES INTERCABLE, INC., LTD.
General Partner
By: /S/ Kevin P. Coyle
----------------------------------
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: May 13, 1998
15
<PAGE>
Exhibit 99(d)(4)
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 June 30, 1998.
-------------
or
[ ] 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 0-15378
CABLE TV FUND 14-A, LTD.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado #84-1024657
- --------------------------------------------------------------------------------
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 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 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 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
------ ------------ ------------
<S> <C> <C>
CASH $ 158,328 $ 363,032
TRADE RECEIVABLES, less allowance for doubtful receivables of
$107,709 and $85,436 at June 30, 1998 and December 31, 1997,
respectively 851,142 931,372
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 89,190,257 86,431,357
Less- accumulated depreciation (53,730,065) (50,186,043)
------------ ------------
35,460,192 36,245,314
Franchise costs and other intangible assets, net of accumulated
amortization of $12,380,250 and $11,920,332 at June 30, 1998
and December 31, 1997, respectively 2,001,124 2,461,042
Investment in cable television joint venture 356,055 3,337,731
------------ ------------
Total investment in cable television properties 37,817,371 42,044,087
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 1,628,453 1,644,310
------------ ------------
Total assets $ 40,455,294 $ 44,982,801
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
June 30, December 31,
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1998 1997
------------------------------------------- ------------ ------------
<S> <C> <C>
LIABILITIES:
Debt $ 23,455,629 $ 22,773,095
General Partner advances 235,908 489,313
Trade accounts payable and accrued liabilities 2,206,623 2,440,724
Subscriber prepayments 168,575 84,154
------------ ------------
Total liabilities 26,066,735 25,787,286
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (1,000) (73,389)
------------ ------------
- (72,389)
------------ ------------
Limited Partners-
Net contributed capital (160,000 units outstanding
at June 30, 1998 and December 31, 1997) 68,722,000 68,722,000
Accumulated earnings (deficit) 5,698,628 (14,906,596)
Distributions (60,032,069) (34,547,500)
------------ ------------
14,388,559 19,267,904
------------ ------------
Total liabilities and partners' capital (deficit) $ 40,455,294 $ 44,982,801
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
3
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------- -------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 5,874,300 $ 7,422,692 $11,511,006 $15,193,103
COSTS AND EXPENSES:
Operating expenses 3,766,324 5,553,318 7,297,732 9,027,852
Management fees and allocated
overhead from General Partner 652,173 747,994 1,260,384 1,663,779
Depreciation and amortization 2,160,009 3,080,949 4,117,966 5,903,129
----------- ----------- ----------- -----------
OPERATING LOSS (704,206) (1,959,569) (1,165,076) (1,401,657)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (414,774) (557,834) (830,186) (1,174,837)
Gain on sale of cable television systems - 7,050,021 - 69,973,972
Other, net 2,064 895,444 169,982 (1,361,157)
----------- ----------- ----------- -----------
Total other income (expense), net (412,710) 7,387,631 (660,204) 67,437,978
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EQUITY IN
NET INCOME (LOSS) OF CABLE
TELEVISION JOINT VENTURE (1,116,916) 5,428,062 (1,825,280) 66,036,321
EQUITY IN NET INCOME (LOSS) OF
CABLE TELEVISION JOINT VENTURE 486,106 (155,767) 22,502,893 (316,899)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ (630,810) $ 5,272,295 $20,677,613 $65,719,422
=========== =========== =========== ===========
ALLOCATION OF NET INCOME
(LOSS):
General Partner $ - $ (17,778) $ 72,389 $ 733,606
=========== =========== =========== ===========
Limited Partners $ (630,810) $ 5,290,073 $20,605,224 $64,985,816
=========== =========== =========== ===========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ (3.94) $ 33.06 $ 128.79 $ 406.16
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 160,000 160,000 160,000 160,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
4
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,677,613 $ 65,719,422
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 4,117,966 5,903,129
Equity in net (income) loss of cable television joint venture (22,502,893) 316,899
Gain on sale of cable television systems - (69,973,972)
Decrease in trade receivables 80,230 534,277
Increase in deposits, prepaid expenses and
deferred charges (98,169) (1,463,760)
Decrease in trade accounts payable, accrued liabilities
and subscriber prepayments (149,680) (775,628)
Decrease in General Partner advances (253,405) (17,314)
------------ ------------
Net cash provided by operating activities 1,871,662 243,053
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (2,758,900) (3,246,139)
Proceeds from sale of cable television systems, net of
brokerage fees - 101,890,280
Distribution from Joint Venture 25,484,569 -
------------ ------------
Net cash provided by investing activities 22,725,669 98,644,141
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 750,000 32,291,728
Repayment of debt (67,466) (99,329,454)
Increase in accrued distribution to limited partners - 9,547,500
Distributions to limited partners (25,484,569) (34,547,500)
------------ ------------
Net cash used in financing activities (24,802,035) (92,037,726)
------------ ------------
Increase (decrease) in cash (204,704) 6,849,468
Cash, beginning of period 363,032 1,257,022
------------ ------------
Cash, end of period $ 158,328 $ 8,106,490
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 995,084 $ 1,234,566
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
5
<PAGE>
CABLE TV FUND 14-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 complete 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 14-A, Ltd.
(the "Partnership") at June 30, 1998 and December 31, 1997, its results of
operations for the three and six month periods ended June 30, 1998 and 1997 and
its cash flows for the six month periods ended June 30, 1998 and 1997. Results
of operations for these periods are not necessarily indicative of results to be
expected for the full year.
The Partnership owns and operates the cable television systems serving the
areas in and around Buffalo, Minnesota (the "Buffalo System"), Naperville,
Illinois (the "Naperville System") and Calvert County, Maryland (the "Calvert
County System"), all of which are in various stages of being sold. See Note 4.
In addition, the Partnership owns a 27 percent interest in Cable TV Fund 14-A/B
Venture (the "Venture"). The Venture owned and operated the cable television
system serving certain areas in Broward County, Florida (the "Broward System")
until its sale on March 31, 1998. See Note 3.
(2) Jones Intercable, Inc., a publicly held Colorado corporation, is the
"General Partner" and manages the Partnership and receives a fee for its
services equal to 5 percent of the gross revenues of the Partnership, excluding
revenues from the sale of cable television systems or franchises. Management
fees for the three and six month periods ended June 30, 1998 (excluding the
Partnership's interest in the Venture) were $293,715 and $575,550, respectively,
compared to $371,134 and $759,655, respectively, for the similar 1997 periods.
The Partnership reimburses the General Partner for certain allocated
overhead and administrative expenses. These expenses represent the salaries and
related benefits paid for corporate personnel, rent, data processing services
and other corporate related facilities costs. Such personnel provide
engineering, marketing, administrative, accounting, legal and investor relations
services to the Partnership. Such services, and their related costs, are
necessary to the operation of the Partnership and would have been incurred by
the Partnership if it was a stand alone entity. 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 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 made to the General Partner by the Partnership for
allocated overhead and administrative expenses for the three and six month
periods ended June 30, 1998 (excluding the Partnership's interest in the
Venture) were $358,458 and $684,834, respectively, compared to $376,860 and
$904,124, respectively, for the similar 1997 periods.
(3) On March 31, 1998, the Venture sold the Broward System to an unaffiliated
third party for $140,000,000. The agreement provided that the contract sales
price of $140,000,000 would be reduced $2,472 for each of the Broward System's
equivalent basic subscribers less than 56,637 at closing. At March 31, 1998, the
Broward System had 55,346 equivalent basic subscribers, which reduced the sales
price by $3,191,352. When final closing adjustments were completed on June 30,
1998, however, additional equivalent basic subscribers that were not able to be
counted as basic subscribers of the Broward System at the March 31, 1998 closing
(because they were relatively recent subscribers at such date) were able to be
counted as equivalent basic subscribers of the Broward System. These basic
subscribers brought the equivalent basic subscriber count up to 56,637 and the
sales price accordingly was adjusted upward by $3,191,352 to $140,000,000.
From the initial proceeds of the Broward System sale at initial closing,
the Venture settled working capital adjustments, repaid the outstanding balance
on its credit facility, which totaled $39,902,968 and paid a 2.5 percent
brokerage fee of $3,420,216 to The Jones Group, Ltd., a subsidiary of the
General Partner ("The Jones Group"), for acting as a broker in this transaction.
The Venture then distributed the remaining net sale proceeds, or $94,039,000, to
the two constituent partnerships of the Venture in proportion to their ownership
interests in the Venture. Accordingly, the Partnership received 27 percent of
the net sale proceeds, or $25,484,569. In April 1998, the Partnership
distributed its net
6
<PAGE>
sale proceeds to its limited partners of record as of March 31, 1998. Such
distribution represented approximately $159 for each $500 limited partnership
interest or $318 for each $1,000 invested in the Partnership.
From the additional proceeds of the Broward System sale at final closing,
the Venture settled final working capital adjustments and paid a 2.5 percent
brokerage fee of $79,784 to The Jones Group. The Venture then distributed the
remaining additional net sale proceeds, or $1,669,056, to the two constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture. Accordingly, the Partnership received 27 percent of the additional net
sale proceeds, or $452,433. The Partnership will retain the $452,433 for
working capital purposes. Because the distributions to the limited partners
from the sale of the Broward System, together with all prior distributions, did
not return to the limited partners 125 percent of the capital initially
contributed to the Partnership by the limited partners, the General Partner did
not receive any general partner distribution from the Broward System's sale.
Because the Broward System represented the only asset of the Venture, the
Venture will be liquidated and dissolved before the end of 1998.
(4) The Partnership is in various stages of selling its three remaining cable
television systems. These transactions are discussed below in the order of
anticipated sale closing date.
Calvert County System
---------------------
On June 29, 1998, the Partnership entered into a purchase and sale
agreement to sell the Calvert County System to Jones Communications of Maryland,
Inc., a Colorado corporation, which is a wholly owned subsidiary of Jones Cable
Holdings, Inc., which in turn is a wholly owned subsidiary of the General
Partner, for a sales price of $39,388,667, subject to customary closing
adjustments. The purchase price was determined by the average of three separate
independent appraisals of the fair market value of the Calvert County System.
Closing of the sale, which is expected to occur in the fourth quarter of 1998,
will be subject to several conditions, including necessary governmental and
other third party consents. Upon the proposed sale of the Calvert County
System, based upon financial information as of June 30, 1998, the Partnership
will repay $19,694,334 outstanding on its revolving credit facility, pay certain
fees and expenses of the transaction and distribute the remaining net sale
proceeds of approximately $19,300,000 to the Partnership's limited partners of
record as of the closing date of the sale of the Calvert County System. Because
the distribution to the limited partners from the sale of the Calvert County
System, together with all prior distributions, will not return to the limited
partners 125 percent of the capital initially contributed to the Partnership by
the limited partners, the General Partner will not receive a general partner
distribution from the sale of the Calvert County System. Based upon financial
information as of June 30, 1998, this distribution will give the Partnership's
limited partners an approximate return of $121 for each $500 limited partnership
interest, or $242 for each $1,000 invested in the Partnership.
Buffalo System
--------------
On April 13, 1998, the Partnership signed a letter of intent to sell its
Buffalo System to an unaffiliated party for a sales price of $27,000,000,
subject to customary closing adjustments. The sale of the Buffalo System is
contingent upon the Partnership and the prospective buyer negotiating a
definitive asset purchase agreement. Closing of the sale, which is expected to
occur in the first quarter of 1999, will be subject to several conditions,
including necessary governmental and other third party consents. Upon the
proposed sale of the Buffalo System, based upon financial information as of June
30, 1998, the Partnership will repay the balance outstanding on its revolving
credit facility, estimated to total $3,355,666, pay a brokerage fee to The Jones
Group totaling $675,000, representing 2.5 percent of the sales price, for acting
as a broker in this transaction, settle working capital adjustments and deposit
$1,200,000 into an indemnity escrow account. The remaining net sale proceeds of
approximately $21,600,000 will be distributed to the Partnership's partners of
record as of the closing date of the sale of the Buffalo System. Because the
distribution to the limited partners from the sale of the Buffalo System,
together with all prior distributions, will return to the limited partners more
than 125 percent of the capital initially contributed to the Partnership by the
limited partners, the General Partner will receive a general partner
distribution from the proceeds of the sale of the Buffalo System. It is
estimated that the limited partners, as a group, will receive $21,367,000, or
approximately $134 for each $500 limited partner interest, or $268 for each
$1,000 invested in the Partnership, and the General Partner will receive a
general partner distribution of $233,000 from the net sale proceeds.
For a period of 90 days following the closing date, $1,200,000 of the sale
proceeds will remain in escrow as security for the Partnership's agreement to
indemnify the purchaser under the asset purchase agreement. The Partnership's
primary exposure, if any, will relate to the representations and warranties made
about the Buffalo System in the asset purchase agreement. Any amounts remaining
from this indemnity escrow account that are not claimed by the purchaser at
7
<PAGE>
the end of the 90 day period will be distributed to the partners of the
Partnership at that time. If the entire $1,200,000 escrow amount is distributed
to the partners, of which there can be no assurance, the limited partners as a
group would receive 75 percent ($900,000) and the General Partner would receive
25 percent ($300,000) of the net escrow proceeds; thus, the limited partners
would receive approximately $6 for each $500 limited partnership interest, or
$12 for each $1,000 invested in the Partnership from this portion of the sale
proceeds.
Naperville System
-----------------
On August 7, 1998, the Partnership signed an asset purchase agreement to
sell its Naperville System to an unaffiliated party for a sales price of
$23,000,000, subject to customary closing adjustments. Closing of the sale,
which is expected to occur in the first quarter of 1999, will be subject to
several conditions, including necessary governmental and other third party
consents. Upon the proposed sale of the Naperville System, based upon financial
information as of June 30, 1998, the Partnership will pay a brokerage fee to The
Jones Group totaling $575,000, representing 2.5 percent of the sales price, for
acting as a broker in this transaction, settle working capital adjustments, and
then deposit $696,000 into an indemnity escrow account. The remaining net sale
proceeds of approximately $21,000,000 will be distributed to the Partnership's
partners of record as of the closing date of the sale of the Naperville System.
The limited partners, as a group, will receive 75 percent ($15,750,000), and the
General Partner will receive a 25 percent ($5,250,000) general partner
distribution from the net sale proceeds; thus, the limited partners would
receive approximately $98 for each $500 limited partnership interest, or $196
for each $1,000 invested in the Partnership from the sale of the Naperville
System.
The $696,000 of sale proceeds to be placed in the indemnity escrow account
will remain in escrow until November 15, 1999 as security for the Partnership's
agreement to indemnify the buyer under the asset purchase agreement. The
Partnership's primary exposure, if any, will relate to the representations and
warranties to be made about the Naperville System in the asset purchase
agreement. Any amounts remaining from this indemnity escrow account and not
claimed by the buyer at the end of the escrow period will be distributed to the
Partnership's partners. If the entire $696,000 escrow amount is distributed to
the partners, of which there can be no assurance, the limited partners as a
group would receive 75 percent ($522,000) and the General Partner would receive
25 percent ($174,000) of the net escrow proceeds; thus, the limited partners
would receive approximately $3 for each $500 limited partnership interest, or $6
for each $1,000 invested in the Partnership from this portion of the sale
proceeds.
The Partnership will continue in existence at least until any amounts
remaining from the indemnity escrow account have been distributed. Since the
Naperville System will represent the only asset of the Partnership at the time
of its sale, the Partnership will be liquidated and dissolved upon the final
distribution of any amounts remaining from the Naperville System's indemnity
escrow account. If any disputes with respect to indemnification arise, the
Partnership would not be dissolved until such disputes were resolved, which
could result in the Partnership continuing in existence beyond 1999.
Anticipated Total Distributions
-------------------------------
Taking into account the distribution of the Partnership's portion of the
net proceeds from the sale of the Venture's Broward System and the anticipated
distributions of the net proceeds from the proposed sales of the Partnership's
remaining systems (excluding escrowed proceeds), together with all prior
distributions, the General Partner expects that the limited partners of the
Partnership will have received approximately $728 for each $500 limited partner
interest, or $1,456 for each $1,000 invested in the Partnership.
8
<PAGE>
(5) Financial information regarding the Venture is presented below:
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
ASSETS
------
Cash and accounts receivable $ - $ 1,688,123
Investment in cable television properties - 51,847,372
Other assets 2,290,433 620,522
------------ ------------
Total assets $ 2,290,433 $ 54,156,017
============ ============
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Debt $ - $ 39,597,617
Payables and accrued liabilities 2,290,433 1,886,849
Partners' contributed capital 70,000,000 70,000,000
Distributions to joint venture partners (95,708,056) -
Accumulated capital (deficit) 25,708,056 (57,328,449)
------------ ------------
Total liabilities and partners' capital $ 2,290,433 $ 54,156,017
============ ============
</TABLE>
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ - $ 6,934,990 $ 7,064,891 $ 13,779,095
Operating expenses - 3,877,200 3,981,015 7,710,954
Management fees and allocated overhead
from General Partner - 720,372 760,650 1,534,004
Depreciation and amortization - 2,182,538 2,249,219 4,304,255
------------ ------------ ------------ ------------
Operating income - 154,880 74,007 229,882
Interest expense - (719,372) (705,440) (1,423,029)
Gain on sale of cable television system 3,111,568 - 85,576,722 -
Other, net (1,317,821) (10,295) (1,908,784) 23,776
------------ ------------ ------------ ------------
Net income (loss) $ 1,793,747 $ (574,787) $ 83,036,505 $ (1,169,371)
============ ============ ============ ============
</TABLE>
Management fees paid to the General Partner by the Venture totaled
$-0- and $353,245, respectively, for the three and six month periods ended
June 30, 1998, compared to $346,750 and $688,955, respectively, for the similar
1997
9
<PAGE>
periods. Reimbursements for overhead and administrative expenses paid to the
General Partner by the Venture totaled $-0- and $407,405, respectively, for the
three and six month periods ended June 30, 1998, compared to $373,622 and
$845,049 for the similar 1997 periods. Management fees paid by the Venture and
attributable to the Partnership totaled $-0- and $95,729, respectively, for the
three and six months ended June 30, 1998, compared to $93,969 and $186,706,
respectively, for the similar 1997 periods. Reimbursements paid by the Venture
and attributable to the Partnership totaled $-0- and $110,406, respectively, for
the three and six months ended June 30, 1998, compared to $101,251 and $229,000,
respectively, for the similar 1997 periods.
10
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
It is the General Partner's publicly announced policy that it intends to
liquidate its managed partnerships, including the Partnership. In accordance
with this policy, the Partnership sold two of its systems in 1997, the Venture
sold the Broward System in March 1998, the Partnership has entered into
agreements to sell its Calvert County System (closing expected in 1998) and its
Naperville System (closing expected in 1999) and the Partnership has signed a
letter of intent to sell its Buffalo System (closing expected in 1999). There
is no assurance as to the timing or terms of any sales.
On March 31, 1998, the Venture sold the Broward System to an unaffiliated
third party for $140,000,000. The agreement provided that the contract sales
price of $140,000,000 would be reduced $2,472 for each of the Broward System's
equivalent basic subscribers less than 56,637 at closing. At March 31, 1998, the
Broward System had 55,346 equivalent basic subscribers, which reduced the sales
price by $3,191,352. When final closing adjustments were completed on June 30,
1998, however, additional equivalent basic subscribers that were not able to be
counted as basic subscribers of the Broward System at the March 31, 1998 closing
(because they were relatively recent subscribers at such date) were able to be
counted as equivalent basic subscribers of the Broward System. These basic
subscribers brought the equivalent basic subscriber count up to 56,637 and the
sales price accordingly was adjusted upward by $3,191,352 to $140,000,000.
From the initial proceeds of the Broward System sale at initial closing,
the Venture settled working capital adjustments, repaid the outstanding balance
on its credit facility, which totaled $39,902,968 and paid a 2.5 percent
brokerage fee of $3,420,216 to The Jones Group. The Venture then distributed the
remaining net sale proceeds, or $94,039,000, to the two constituent partnerships
of the Venture in proportion to their ownership interests in the Venture.
Accordingly, the Partnership received 27 percent of the net sale proceeds, or
$25,484,569. In April 1998, the Partnership distributed its net sale proceeds to
its limited partners of record as of March 31, 1998. Such distribution
represented approximately $159 for each $500 limited partnership interest or
$318 for each $1,000 invested in the Partnership.
From the additional proceeds of the Broward System sale at final closing,
the Venture settled final working capital adjustments and paid a 2.5 percent
brokerage fee of $79,784 to The Jones Group. The Venture then distributed the
remaining additional net sale proceeds, or $1,669,056, to the two constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture. Accordingly, the Partnership received 27 percent of the additional net
sale proceeds, or $452,433. The Partnership will retain the $452,433 for working
capital purposes. Because the distributions to the limited partners from the
sale of the Broward System, together with all prior distributions, did not
return to the limited partners 125 percent of the capital initially contributed
to the Partnership by the limited partners, the General Partner did not receive
any general partner distribution from the Broward System's sale. Because the
Broward System represented the only asset of the Venture, the Venture will be
liquidated and dissolved before the end of 1998.
The Partnership is in various stages of selling its three remaining cable
television systems. These transactions are discussed below in the order of
anticipated sale closing date.
On June 29, 1998, the Partnership entered into a purchase and sale
agreement to sell the Calvert County System to Jones Communications of Maryland,
Inc., a Colorado corporation, which is a wholly owned subsidiary of Jones Cable
Holdings, Inc., which in turn is a wholly owned subsidiary of the General
Partner, for a sales price of $39,388,667, subject to customary closing
adjustments. The purchase price was determined by the average of three separate
independent appraisals of the fair market value of the Calvert County System.
Closing of the sale, which is expected to occur in the fourth quarter of 1998,
will be subject to several conditions, including necessary governmental and
other third party consents. Upon the proposed sale of the Calvert County
System, based upon financial information as of June 30, 1998, the Partnership
will repay $19,694,334 outstanding on its revolving credit facility, pay certain
fees and expenses of the transaction and distribute the remaining net sale
proceeds of approximately $19,300,000 to the Partnership's limited partners of
record as of the closing date of the sale of the Calvert County System. Because
the distribution to the limited partners from the sale of the Calvert County
System, together with all prior distributions, will not return to the limited
partners 125 percent of the capital initially contributed to the Partnership by
the limited partners, the General Partner will
11
<PAGE>
not receive a general partner distribution from the sale of the Calvert County
System. Based upon financial information as of June 30, 1998, this distribution
will give the Partnership's limited partners an approximate return of $121 for
each $500 limited partnership interest, or $242 for each $1,000 invested in the
Partnership.
On April 13, 1998, the Partnership signed a letter of intent to sell its
Buffalo System to an unaffiliated party for a sales price of $27,000,000,
subject to customary closing adjustments. The sale of the Buffalo System is
contingent upon the Partnership and the prospective buyer negotiating a
definitive asset purchase agreement. Closing of the sale, which is expected to
occur in the first quarter of 1999, will be subject to several conditions,
including necessary governmental and other third party consents. Upon the
proposed sale of the Buffalo System, based upon financial information as of June
30, 1998, the Partnership will repay the balance outstanding on its revolving
credit facility, estimated to total $3,355,666, pay a brokerage fee to The Jones
Group totaling $675,000, representing 2.5 percent of the sales price, for acting
as a broker in this transaction, settle working capital adjustments and deposit
$1,200,000 into an indemnity escrow account. The remaining net sale proceeds of
approximately $21,600,000 will be distributed to the Partnership's partners of
record as of the closing date of the sale of the Buffalo System. Because the
distribution to the limited partners from the sale of the Buffalo System,
together with all prior distributions, will return to the limited partners more
than 125 percent of the capital initially contributed to the Partnership by the
limited partners, the General Partner will receive a general partner
distribution from the proceeds of the sale of the Buffalo System. It is
estimated that the limited partners, as a group, will receive $21,367,000, or
approximately $134 for each $500 limited partner interest, or $268 for each
$1,000 invested in the Partnership, and the General Partner will receive a
general partner distribution of $233,000 from the net sale proceeds.
For a period of 90 days following the closing date, $1,200,000 of the sale
proceeds will remain in escrow as security for the Partnership's agreement to
indemnify the purchaser under the asset purchase agreement. The Partnership's
primary exposure, if any, will relate to the representations and warranties made
about the Buffalo System in the asset purchase agreement. Any amounts remaining
from this indemnity escrow account that are not claimed by the purchaser at the
end of the 90 day period will be distributed to the partners of the Partnership
at that time. If the entire $1,200,000 escrow amount is distributed to the
partners, of which there can be no assurance, the limited partners as a group
would receive 75 percent ($900,000) and the General Partner would receive 25
percent ($300,000) of the net escrow proceeds; thus, the limited partners would
receive approximately $6 for each $500 limited partnership interest, or $12 for
each $1,000 invested in the Partnership from this portion of the sale proceeds.
On August 7, 1998, the Partnership signed an asset purchase agreement to
sell its Naperville System to an unaffiliated party for a sales price of
$23,000,000, subject to customary closing adjustments. Closing of the sale,
which is expected to occur in the first quarter of 1999, will be subject to
several conditions, including necessary governmental and other third party
consents. Upon the proposed sale of the Naperville System, based upon financial
information as of June 30, 1998, the Partnership will pay a brokerage fee to The
Jones Group totaling $575,000, representing 2.5 percent of the sales price, for
acting as a broker in this transaction, settle working capital adjustments, and
then deposit $696,000 into an indemnity escrow account. The remaining net sale
proceeds of approximately $21,000,000 will be distributed to the Partnership's
partners of record as of the closing date of the sale of the Naperville System.
The limited partners, as a group, will receive 75 percent ($15,750,000), and the
General Partner will receive a 25 percent ($5,250,000) general partner
distribution from the net sale proceeds; thus, the limited partners would
receive approximately $98 for each $500 limited partnership interest, or $196
for each $1,000 invested in the Partnership from the sale of the Naperville
System.
The $696,000 of sale proceeds to be placed in the indemnity escrow account
will remain in escrow until November 15, 1999 as security for the Partnership's
agreement to indemnify the buyer under the asset purchase agreement. The
Partnership's primary exposure, if any, will relate to the representations and
warranties to be made about the Naperville System in the asset purchase
agreement. Any amounts remaining from this indemnity escrow account and not
claimed by the buyer at the end of the escrow period will be distributed to the
Partnership's partners. If the entire $696,000 escrow amount is distributed to
the partners, of which there can be no assurance, the limited partners as a
group would receive 75 percent ($522,000) and the General Partner would receive
25 percent ($174,000) of the net escrow proceeds; thus, the limited partners
would receive approximately $3 for each $500 limited partnership interest, or $6
for each $1,000 invested in the Partnership from this portion of the sale
proceeds.
The Partnership will continue in existence at least until any amounts
remaining from the indemnity escrow account have been distributed. Since the
Naperville System will represent the only asset of the Partnership at the time
of its sale, the Partnership will be liquidated and dissolved upon the final
distribution of any amounts remaining from the Naperville
12
<PAGE>
System's indemnity escrow account. If any disputes with respect to
indemnification arise, the Partnership would not be dissolved until such
disputes were resolved, which could result in the Partnership continuing in
existence beyond 1999.
Taking into account the distribution of the Partnership's portion of the
net proceeds from the sale of the Venture's Broward System and the anticipated
distributions of the net proceeds from the proposed sales of the Partnership's
remaining systems (excluding escrowed proceeds), together with all prior
distributions, the General Partner expects that the limited partners of the
Partnership will have received approximately $728 for each $500 limited partner
interest, or $1,456 for each $1,000 invested in the Partnership.
For the six month period ended June 30, 1998, the Partnership generated net
cash from operating activities totaling $1,871,662, which is available to fund
capital expenditures and non-operating costs. For the six months ended June 30,
1998, capital expenditures totaled approximately $2,759,000 for all of the
Partnership's systems. Approximately 44 percent of the expenditures related to
construction of service drops to subscriber's homes. Approximately 35 percent of
the expenditures related to new plant construction associated with new homes
passed in all of the Partnership's systems. The remainder was for other capital
expenditures to maintain the value of the Partnership's systems. These
expenditures were funded by cash generated from operations, borrowings under the
Partnership's credit facility and cash on hand. Budgeted capital expenditures
for all of the Partnership's systems for the remainder of 1998 are approximately
$3,400,000. Approximately 45 percent of the expenditures will be used for new
plant construction associated with new homes passed in all of the Partnership's
systems. Approximately 27 percent will relate to construction of service drops
to subscribers' homes. The remainder is for other capital expenditures to
maintain the value of the Partnership's remaining systems until they are sold.
Depending upon the timing of the closing of the sale of the Partnership's
Calvert County System, the Partnership will make only the portion of the 1998
budgeted capital expenditures scheduled to be made in that system during the
Partnership's continued ownership of the system. Funding for the improvements
is expected to come from cash on hand, cash generated from operations and, if
necessary, borrowings under its credit facility. The Partnership is obligated
to conduct its business in the ordinary course until its systems are sold.
The Partnership is a party to a $27,700,000 revolving credit facility, of
which $23,050,000 was outstanding at June 30, 1998, leaving $4,650,000 available
for future borrowings. The revolving credit facility expires on September 30,
2000, at which time the then-outstanding balance is payable in full. The
revolving credit facility requires that one-half of the proceeds from the next
Partnership system sale be used to reduce amounts outstanding and that the
credit facility be repaid in full on the second system sale. Based on the
current expected order of closing, the Partnership will repay approximately
$19,694,000 upon the closing of the sale of the Calvert County System, which is
expected to occur before the end of 1998, and the maximum amount of borrowings
available under the revolving credit facility will be reduced to $8,005,666.
The remaining balance will be payable upon the sale of the Buffalo System, which
is expected to occur in the first quarter of 1999. Interest on the revolving
credit facility's outstanding balance is at the Partnership's option of the
London Interbank Offered Rate plus 1.125 percent, the Certificate of Deposit
Rate plus 1.25 percent or the Base Rate plus .125 percent. The effective
interest rates on amounts outstanding as of June 30, 1998 and 1997 were 6.83
percent and 7.14 percent, respectively.
Ameritech, which provides telephone service in a multi-state region
including Illinois, is providing cable television service in Naperville,
Illinois, the community served by the Partnership's Naperville System. This
competition has had an adverse effect on the Naperville System's revenues and
cash flow. The General Partner is taking prudent steps necessary to meet this
competition from Ameritech and, to the extent possible, to safeguard the value
of the Naperville System until it is sold. These steps include a judicial
challenge to the terms on which a franchise was issued to Ameritech. The City
of Naperville has filed a countersuit against the Partnership declaring that the
Partnership has breached its franchise agreement by withholding franchise
payments and seeks to impose liquidated damages on the Partnership for such
breach. Litigation is currently pending in federal court against both the City
of Naperville and Ameritech and includes claims made by the City of Naperville
against the Partnership. A trial date has not yet been set.
The Partnership has sufficient sources of capital available from cash on
hand, cash generated from operations and borrowings available under its
revolving credit facility to meet its needs until its systems are sold.
The Year 2000 issue is the result of many computer programs being written
such that they will malfunction when reading a year of "00." This problem could
cause system failure or miscalculations causing disruptions of business
processes.
13
<PAGE>
The General Partner has initiated an assessment of its computer
applications to determine the extent of the problem. Based on this assessment,
the General Partner has determined that the majority of its computer
applications supporting business processes, including accounting and billing,
are designed to handle the Year 2000 appropriately.
The General Partner is currently focusing its efforts on the impact of the
Year 2000 issue on service delivery. The General Partner has established an
internal team to address this issue. The General Partner is identifying and
testing all date-sensitive equipment involved in delivering service to the
Partnership's customers. In addition, the General Partner will assess the
Partnership's options regarding repair or replacement of affected equipment
during this testing. The General Partner believes that the financial impact
will not be material.
RESULTS OF OPERATIONS
- ---------------------
The Partnership-
Revenues of the Partnership decreased $1,548,392, or approximately 21
percent, to $5,874,300 for the three month period ended June 30, 1998 compared
to $7,422,692 for the comparable 1997 period. Revenues decreased $3,682,097, or
approximately 24 percent, to $11,511,006 for the six months ended June 30, 1998
compared to $15,193,103 for the comparable 1997 period. These decreases were
primarily a result of the sales of the cable television systems serving the
areas in and around the communities of Turnersville, New Jersey (the
"Turnersville System") and Central Illinois (the "Central Illinois System") on
January 10, 1997 and June 30, 1997, respectively.
Operating expenses consist primarily of costs associated with the operation
and administration of the Partnership's cable television systems. 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 marketing expenses.
Operating expenses decreased $1,786,994, or approximately 32 percent, to
$3,766,324 for the three month period ended June 30, 1998 compared to $5,553,318
for the comparable 1997 period. Operating expenses decreased $1,730,120, or
approximately 19 percent, to $7,297,732 for the six months ended June 30, 1998
compared to $9,027,852 for the comparable 1997 period. These decreases were
primarily a result of the sales of the Turnersville System and Central Illinois
System.
Management fees and allocated overhead from the General Partner decreased
$95,821, or approximately 13 percent, to $652,173 for the three month period
ended June 30, 1998 compared to $747,994 for the comparable 1997 period.
Management fees and allocated overhead from the General Partner decreased
$403,395, or approximately 24 percent, to $1,260,384 for the six month period
ended June 30, 1998 compared to $1,663,779 for the comparable 1997 period.
These decreases were primarily a result of the sales of the Turnersville System
and Central Illinois System.
Depreciation and amortization expense decreased $920,940, or approximately
30 percent, to $2,160,009 for the three month period ended June 30, 1998
compared to $3,080,949 for the comparable 1997 period. Depreciation and
amortization expense decreased $1,785,163, or approximately 30 percent, to
$4,117,966 for the six months ended June 30, 1998 compared to $5,903,129 for the
comparable 1997 period. These decreases were a result of the sales of the
Turnersville System and Central Illinois System.
Operating loss decreased $1,255,363, or approximately 64 percent, to
$704,206 for the three month period ended June 30, 1998 compared to $1,959,569
for the comparable 1997 period. Operating loss decreased $236,581, or
approximately 17 percent, to $1,165,076 for the six month period ended June 30,
1998 compared to $1,401,657 for the comparable 1997 period. These decreases
were a result of the sales of the Turnersville System and Central Illinois
System.
Interest expense decreased $143,060, or approximately 26 percent, to
$414,774 for the three month period ended June 30, 1998 compared to $557,834 for
the comparable 1997 period. Interest expense decreased $344,651, or
approximately 29 percent, to $830,186 for the six months ended June 30, 1998
compared to $1,174,837 for the comparable 1997 period. These decreases were
primarily due to lower outstanding balances on interest bearing obligations
during 1998. A portion of the proceeds from the sales of the Turnersville
System and Central Illinois System was used to reduce the Partnership's debt.
14
<PAGE>
The Partnership recognized a gain on the sale of the Turnersville System of
$62,923,951 and a gain on the sale of the Central Illinois System of $7,050,021
during the six month period ended June 30, 1997. No similar gains were
recognized during the comparable 1998 period.
The Partnership reported a loss before equity in net income of cable
television joint venture of $1,116,916 at June 30, 1998 compared to income
before equity in net loss of cable television joint venture of $5,428,062 for
the comparable 1997 period. Loss before equity in net income of cable
television joint venture totaled $1,825,280 for the six month period ended June
30, 1998 compared to income before equity in net loss of cable television joint
venture of $66,036,321 for the comparable 1997 period. These changes were
primarily a result of the gains on the sale of the Turnersville System and
Central Illinois System.
The Venture-
The Venture's only asset was the Broward System which was sold on March 31,
1998. The Venture will be liquidated and dissolved before the end of 1998.
15
<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
Report on Form 8-K dated June 29, 1998, reported that on June 29,
1998, Cable TV Fund 14-A, Ltd., entered into a Purchase and Sale
Agreement to sell the Calvert County System to Jones Communications
of Maryland, Inc.
16
<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 14-A, LTD.
BY: JONES INTERCABLE, INC.
General Partner
By: /s/ Kevin P. Coyle
-----------------------------
Kevin P. Coyle
Group Vice President/Finance
(Principal Financial Officer)
Dated: August 14, 1998
17
<PAGE>
Exhibit 99(d)(5)
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, 1998.
------------------
or
[ ] 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 0-15378
CABLE TV FUND 14-A, LTD.
- --------------------------------------------------------------------------------
Exact name of registrant as specified in charter
Colorado #84-1024657
- --------------------------------------------------------------------------------
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 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 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 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1998 1997
------ ------------- ------------
<S> <C> <C>
CASH $ 329,891 $ 363,032
TRADE RECEIVABLES, less allowance for doubtful receivables of
$108,410 and $85,436 at September 30, 1998 and December 31, 1997,
respectively 444,931 931,372
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property, plant and equipment, at cost 90,996,162 86,431,357
Less- accumulated depreciation (55,666,661) (50,186,043)
------------- ------------
35,329,501 36,245,314
Franchise costs and other intangible assets, net of accumulated
amortization of $12,610,211 and $11,920,332 at September 30, 1998
and December 31, 1997, respectively 1,771,163 2,461,042
Investment in cable television joint venture - 3,337,731
------------- ------------
Total investment in cable television properties 37,100,664 42,044,087
DEPOSITS, PREPAID EXPENSES AND DEFERRED CHARGES 1,692,926 1,644,310
------------- ------------
Total assets $ 39,568,412 $ 44,982,801
============= ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
2
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
September 30, December 31,
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) 1998 1997
------------------------------------------- ------------- -------------
<S> <C> <C>
LIABILITIES:
Debt $ 24,345,178 $ 22,773,095
General Partner advances - 489,313
Trade accounts payable and accrued liabilities 1,995,420 2,440,724
Subscriber prepayments 123,154 84,154
------------ ------------
Total liabilities 26,463,752 25,787,286
------------ ------------
PARTNERS' CAPITAL (DEFICIT):
General Partner-
Contributed capital 1,000 1,000
Accumulated deficit (13,839) (73,389)
------------ ------------
(12,839) (72,389)
------------ ------------
Limited Partners-
Net contributed capital (160,000 units outstanding
at September 30, 1998 and December 31, 1997) 68,722,000 68,722,000
Accumulated earnings (deficit) 4,427,568 (14,906,596)
Distributions (60,032,069) (34,547,500)
------------ ------------
13,117,499 19,267,904
------------ ------------
Total liabilities and partners' capital (deficit) $ 39,568,412 $ 44,982,801
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited balance sheets.
3
<PAGE>
CABLE TV FUND 14-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,
---------------------------- ---------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 5,922,874 $ 5,819,961 $17,433,880 $21,013,064
COSTS AND EXPENSES:
Operating expenses 3,854,489 3,810,457 11,152,221 12,838,309
Management fees and allocated
overhead from General Partner 635,408 604,970 1,895,792 2,268,749
Depreciation and amortization 2,236,992 1,961,052 6,354,958 7,864,181
----------- ----------- ----------- -----------
OPERATING LOSS (804,015) (556,518) (1,969,091) (1,958,175)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (420,551) (371,624) (1,250,737) (1,546,461)
Gain on sale of cable television
systems - - - 69,973,972
Other, net (155,711) (217,924) 14,271 (1,579,081)
----------- ----------- ----------- -----------
Total other income (expense), net (576,262) (589,548) (1,236,466) 66,848,430
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE EQUITY IN
NET INCOME (LOSS) OF CABLE
TELEVISION JOINT VENTURE (1,380,277) (1,146,066) (3,205,557) 64,890,255
EQUITY IN NET INCOME (LOSS) OF
CABLE TELEVISION JOINT VENTURE - (146,037) 22,599,271 (462,936)
----------- ----------- ----------- -----------
NET INCOME (LOSS) $(1,380,277) $(1,292,103) $19,393,714 $64,427,319
=========== =========== =========== ===========
ALLOCATION OF NET INCOME (LOSS):
General Partner $ (13,803) $ (12,921) $ 59,550 $ 720,685
=========== =========== =========== ===========
Limited Partners $(1,366,474) $(1,279,182) $19,334,164 $63,706,634
=========== =========== =========== ===========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ (8.54) $ (7.99) $ 120.84 $ 398.17
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF LIMITED PARTNERSHIP
UNITS OUTSTANDING 160,000 160,000 160,000 160,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
4
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
UNAUDITED STATEMENTS OF CASH FLOWS
----------------------------------
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
----------------------------
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 19,393,714 $ 64,427,319
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,354,958 7,864,181
Equity in net (income) loss of cable television joint venture (22,599,271) 462,936
Gain on sale of cable television systems - (69,973,972)
Decrease in trade receivables 486,441 483,461
Increase in deposits, prepaid expenses and
deferred charges (233,077) (1,601,598)
Decrease in trade accounts payable, accrued liabilities
and subscriber prepayments (406,304) (546,380)
Decrease in General Partner advances (489,313) (184,412)
------------ ------------
Net cash provided by operating activities 2,507,148 931,535
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (4,564,805) (5,287,544)
Proceeds from sale of cable television systems, net
of brokerage fees - 101,890,280
Distribution from Joint Venture 25,937,002 -
------------ ------------
Net cash provided by investing activities 21,372,197 96,602,736
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings 1,673,264 35,849,621
Repayment of debt (101,181) (99,514,212)
Distributions to limited partners (25,484,569) (34,547,500)
------------ ------------
Net cash used in financing activities (23,912,486) (98,212,091)
------------ ------------
Decrease in cash (33,141) (677,820)
Cash, beginning of period 363,032 1,257,022
------------ ------------
Cash, end of period $ 329,891 $ 579,202
============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest paid $ 1,494,107 $ 2,126,279
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these unaudited statements.
5
<PAGE>
CABLE TV FUND 14-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 complete 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 14-A, Ltd.
(the "Partnership") at September 30, 1998 and December 31, 1997, its results of
operations for the three and nine month periods ended September 30, 1998 and
1997 and its cash flows for the nine month periods ended September 30, 1998 and
1997. Results of operations for these periods are not necessarily indicative of
results to be expected for the full year.
The Partnership owns and operates the cable television systems serving the
areas in and around Buffalo, Minnesota (the "Buffalo System"), Naperville,
Illinois (the "Naperville System") and Calvert County, Maryland (the "Calvert
County System"), all of which are in various stages of being sold. See Note 4.
In addition, the Partnership owned a 27 percent interest in Cable TV Fund 14-A/B
Venture (the "Venture") until it was liquidated and dissolved in October 1998.
The Venture owned and operated the cable television system serving certain areas
in Broward County, Florida (the "Broward System") until its sale on March 31,
1998. See Note 3.
(2) Jones Intercable, Inc., a publicly held Colorado corporation, is the
"General Partner" and manages the Partnership and receives a fee for its
services equal to 5 percent of the gross revenues of the Partnership, excluding
revenues from the sale of cable television systems or franchises. Management
fees for the three and nine month periods ended September 30, 1998 (excluding
the Partnership's interest in the Venture) were $296,144 and $871,694,
respectively, compared to $290,998 and $1,050,653, respectively, for the similar
1997 periods.
The Partnership reimburses the General Partner for certain allocated
overhead and administrative expenses. These expenses represent the salaries and
related benefits paid for corporate personnel, rent, data processing services
and other corporate related facilities costs. Such personnel provide
engineering, marketing, administrative, accounting, legal and investor relations
services to the Partnership. Such services, and their related costs, are
necessary to the operation of the Partnership and would have been incurred by
the Partnership if it was a stand alone entity. 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 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 made to the General Partner by the Partnership for
allocated overhead and administrative expenses for the three and nine month
periods ended September 30, 1998 (excluding the Partnership's interest in the
Venture) were $339,264 and $1,024,098, respectively, compared to $313,972 and
$1,218,096, respectively, for the similar 1997 periods.
(3) On March 31, 1998, the Venture sold the Broward System to an unaffiliated
third party for $140,000,000. The agreement provides that the contract sales
price of $140,000,000 would be reduced $2,472 for each of the Broward System's
equivalent basic subscribers less than 56,637 at closing. At March 31, 1998, the
Broward System had 55,346 equivalent basic subscribers, which reduced the sales
price by $3,191,352. When final closing adjustments were completed on June 30,
1998, however, additional equivalent basic subscribers that were not able to be
counted as basic subscribers of the Broward System at the March 31, 1998 closing
(because they were relatively recent subscribers at such date) were able to be
counted as equivalent basic subscribers of the Broward System. These basic
subscribers brought the equivalent basic subscriber count up to 56,637 and the
sales price accordingly was adjusted upward by $3,191,352 to $140,000,000.
From the initial proceeds of the Broward System sale at initial closing,
the Venture settled working capital adjustments, repaid the outstanding balance
on its credit facility, which totaled $39,902,968, and paid a 2.5 percent
brokerage fee of $3,420,216 to The Jones Group, Ltd., a subsidiary of the
General Partner ("The Jones Group"), for acting as a broker in this transaction.
The Venture then distributed the remaining net sale proceeds, or $94,039,000, to
the two constituent partnerships of the Venture in proportion to their ownership
interests in the Venture. Accordingly, the Partnership received 27 percent of
the net sale proceeds, or $25,484,569. In April 1998, the Partnership
distributed its net
6
<PAGE>
sale proceeds to its limited partners of record as of March 31, 1998. Such
distribution represented approximately $159 for each $500 limited partnership
interest, or $318 for each $1,000 invested in the Partnership.
From the additional proceeds of the Broward System sale at final closing,
the Venture settled final working capital adjustments and paid a 2.5 percent
brokerage fee of $79,784 to The Jones Group. The Venture then distributed the
remaining additional net sale proceeds, or $1,669,056, to the two constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture. Accordingly, the Partnership received 27 percent of the additional net
sale proceeds, or $452,433. The Partnership will retain the $452,433 for
working capital purposes. Because the distributions to the limited partners
from the sale of the Broward System, together with all prior distributions, did
not return to the limited partners 125 percent of the capital initially
contributed to the Partnership by the limited partners, the General Partner did
not receive any general partner distribution from the Broward System's sale.
Because the Broward System represented the only asset of the Venture, the
Venture was liquidated and dissolved in October 1998.
(4) The Partnership is in various stages of selling its three remaining cable
television systems. These transactions are discussed below in the order of
anticipated sale closing date.
Calvert County System
---------------------
On June 29, 1998, the Partnership entered into a purchase and sale
agreement to sell the Calvert County System to Jones Communications of Maryland,
Inc., a Colorado corporation, which is a wholly owned subsidiary of Jones Cable
Holdings, Inc., which in turn is a wholly owned subsidiary of the General
Partner, for a sales price of $39,388,667, subject to customary closing
adjustments. The purchase price was determined by the average of three separate
independent appraisals of the fair market value of the Calvert County System.
Closing of the sale, which is expected to occur in the first quarter of 1999,
will be subject to several conditions, including necessary governmental and
other third party consents and the approval of the holders of a majority of the
limited partnership interests in a vote to be conducted by the General Partner
in the first quarter of 1999. Upon the proposed sale of the Calvert County
System, based upon financial information as of September 30, 1998, the
Partnership will repay $19,695,000 outstanding on its revolving credit facility,
pay certain fees and expenses of the transaction and distribute the remaining
net sale proceeds of approximately $19,500,000 to the Partnership's limited
partners of record as of the closing date of the sale of the Calvert County
System. Based upon financial information as of September 30, 1998, this
distribution will give the Partnership's limited partners an approximate return
of $122 for each $500 limited partnership interest, or $244 for each $1,000
invested in the Partnership. Because the distribution to the limited partners
from the sale of the Calvert County System, together with all prior
distributions, will not return to the limited partners 125 percent of the
capital initially contributed to the Partnership by the limited partners, the
General Partner will not receive a general partner distribution from the sale of
the Calvert County System.
Buffalo System
--------------
On November 10, 1998, the Partnership entered into a purchase and sale
agreement to sell the Buffalo System to an unaffiliated party for a sales price
of $27,000,000, subject to customary closing adjustments. Closing of the sale,
which is expected to occur in the first quarter of 1999, will be subject to
several conditions, including necessary governmental and other third party
consents and the approval of the holders of a majority of the limited
partnership interests in a vote to be conducted by the General Partner in the
first quarter of 1999. Upon the proposed sale of the Buffalo System, based upon
financial information as of September 30, 1998, the Partnership will repay the
balance outstanding on its revolving credit facility, estimated to total
$4,255,000, pay a brokerage fee to The Jones Group totaling $675,000,
representing 2.5 percent of the sales price, for acting as a broker in this
transaction, settle working capital adjustments and deposit $1,200,000 into an
indemnity escrow account. The remaining net sale proceeds of approximately
$20,600,000 will be distributed to the Partnership's partners of record as of
the closing date of the sale of the Buffalo System. Because the distribution to
the limited partners from the sale of the Buffalo System, together with all
prior distributions, will return to the limited partners more than 125 percent
of the capital initially contributed to the Partnership by the limited partners,
the General Partner will receive a general partner distribution from the
proceeds of the sale of the Buffalo System. It is estimated that the limited
partners, as a group, will receive $20,567,000, or approximately $129 for each
$500 limited partnership interest, or $258 for each $1,000 invested in the
Partnership, and the General Partner will receive a general partner distribution
of $33,000 from the net sale proceeds.
For a period of 90 days following the closing date, $1,200,000 of the sale
proceeds will remain in escrow as security for the Partnership's agreement to
indemnify the purchaser under the asset purchase agreement. The Partnership's
7
<PAGE>
primary exposure, if any, will relate to the representations and warranties made
about the Buffalo System in the asset purchase agreement. Any amounts remaining
from this indemnity escrow account that are not claimed by the purchaser at the
end of the 90-day period will be distributed to the partners of the Partnership
at that time. If the entire $1,200,000 escrow amount is distributed to the
partners, of which there can be no assurance, the limited partners as a group
would receive 75 percent ($900,000) and the General Partner would receive 25
percent ($300,000) of the net escrow proceeds; thus, the limited partners would
receive approximately $6 for each $500 limited partnership interest, or $12 for
each $1,000 invested in the Partnership from this portion of the sale proceeds.
Naperville System
-----------------
On August 7, 1998, the Partnership signed an asset purchase agreement to
sell its Naperville System to an unaffiliated party for a sales price of
$23,000,000, subject to customary closing adjustments. Closing of the sale,
which is expected to occur in the first quarter of 1999, will be subject to
several conditions, including necessary governmental and other third party
consents and the approval of the holders of a majority of the limited
partnership interests in a vote being conducted by the General Partner in the
fourth quarter of 1998. Upon the proposed sale of the Naperville System, based
upon financial information as of September 30, 1998, the Partnership will pay a
brokerage fee to The Jones Group totaling $575,000, representing 2.5 percent of
the sales price, for acting as a broker in this transaction, settle working
capital adjustments, and then deposit $696,000 into an indemnity escrow account.
The remaining net sale proceeds of approximately $20,800,000 will be distributed
to the Partnership's partners of record as of the closing date of the sale of
the Naperville System. The limited partners, as a group, will receive 75
percent ($15,600,000), and the General Partner will receive a 25 percent
($5,200,000) general partner distribution from the net sale proceeds; thus, the
limited partners would receive approximately $97.50 for each $500 limited
partnership interest, or $195 for each $1,000 invested in the Partnership from
the sale of the Naperville System.
The $696,000 of sale proceeds to be placed in the indemnity escrow account
will remain in escrow from the closing date until November 15, 1999 as security
for the Partnership's agreement to indemnify the buyer under the asset purchase
agreement. The Partnership's primary exposure, if any, will relate to the
representations and warranties to be made about the Naperville System in the
asset purchase agreement. Any amounts remaining from this indemnity escrow
account and not claimed by the buyer at the end of the escrow period will be
distributed to the Partnership's partners. If the entire $696,000 escrow amount
is distributed to the partners, of which there can be no assurance, the limited
partners as a group would receive 75 percent ($522,000) and the General Partner
would receive 25 percent ($174,000) of the net escrow proceeds; thus, the
limited partners would receive approximately $3 for each $500 limited
partnership interest, or $6 for each $1,000 invested in the Partnership from
this portion of the sale proceeds.
The Partnership will continue in existence at least until any amounts
remaining from the indemnity escrow account have been distributed. Since the
Naperville System will represent the only asset of the Partnership at the time
of its sale, the Partnership will be liquidated and dissolved upon the final
distribution of any amounts remaining from the Naperville System's indemnity
escrow account. If any disputes with respect to indemnification arise, the
Partnership would not be dissolved until such disputes were resolved, which
could result in the Partnership continuing in existence beyond 1999.
Anticipated Total Distributions
-------------------------------
Taking into account the distribution of the Partnership's portion of the
net proceeds from the sale of the Venture's Broward System in April 1998 and the
anticipated distributions of the net proceeds from the proposed sales of the
Partnership's remaining systems (excluding escrowed proceeds) in 1999, together
with the distributions from system sales made in 1997, the General Partner
expects that the limited partners of the Partnership will have received
approximately $723 for each $500 limited partnership interest, or $1,446 for
each $1,000 invested in the Partnership.
8
<PAGE>
(5) Financial information regarding the Venture is presented below:
UNAUDITED BALANCE SHEETS
------------------------
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
ASSETS
------
Cash and accounts receivable $ - $ 1,688,123
Investment in cable television properties - 51,847,372
Other assets - 620,522
------------------ -----------------
Total assets $ - $ 54,156,017
================== =================
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Debt $ - $ 39,597,617
Payables and accrued liabilities - 1,886,849
Partners' contributed capital 70,000,000 70,000,000
Distributions to joint venture partners (95,708,056) -
Accumulated capital (deficit) 25,708,056 (57,328,449)
------------------ -----------------
Total liabilities and partners' capital $ - $ 54,156,017
================== =================
</TABLE>
UNAUDITED STATEMENTS OF OPERATIONS
----------------------------------
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
-------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ - $6,817,075 $ 7,064,891 $20,596,170
Operating expenses - 3,685,786 3,981,015 11,396,740
Management fees and allocated overhead
from General Partner - 716,563 760,650 2,250,567
Depreciation and amortization - 2,211,708 2,249,219 6,515,963
-------- ---------- ----------- -----------
Operating income - 203,018 74,007 432,900
Interest expense - (746,619) (705,440) (2,169,648)
Gain on sale of cable television system - - 85,576,722 -
Other, net - 4,722 (1,908,784) 28,498
-------- ---------- ----------- -----------
Net income (loss) $ - $ (538,879) $83,036,505 $(1,708,250)
======== ========== =========== ===========
</TABLE>
Management fees paid to the General Partner by the Venture totaled $-0- and
$353,245, respectively, for the three and nine month periods ended September 30,
1998, compared to $340,854 and $1,029,808, respectively, for the similar
9
<PAGE>
1997 periods. Reimbursements for overhead and administrative expenses paid to
the General Partner by the Venture totaled $-0- and $407,405, respectively, for
the three and nine month periods ended September 30, 1998, compared to $375,709
and $1,220,759 for the similar 1997 periods. Management fees paid by the Venture
and attributable to the Partnership totaled $-0- and $95,729, respectively, for
the three and nine months ended September 30, 1998, compared to $92,371 and
$279,078, respectively, for the similar 1997 periods. Reimbursements paid by the
Venture and attributable to the Partnership totaled $-0- and $110,406,
respectively, for the three and nine months ended September 30, 1998, compared
to $101,817 and $330,826, respectively, for the similar 1997 periods.
10
<PAGE>
CABLE TV FUND 14-A, LTD.
------------------------
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
---------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
FINANCIAL CONDITION
- -------------------
It is the General Partner's publicly announced policy that it intends to
liquidate its managed partnerships, including the Partnership. In accordance
with this policy, the Partnership sold two of its systems in 1997 and the
Venture sold the Broward System in March 1998. The Partnership also has entered
into agreements to sell its Calvert County System and its Naperville System and
the Partnership has signed a letter of intent to sell its Buffalo System, all of
which are expected to close in the first quarter of 1999. There is no assurance
as to the timing or terms of any sales.
On March 31, 1998, the Venture sold the Broward System to an unaffiliated
third party for $140,000,000. The agreement provides that the contract sales
price of $140,000,000 would be reduced $2,472 for each of the Broward System's
equivalent basic subscribers less than 56,637 at closing. At March 31, 1998,
the Broward System had 55,346 equivalent basic subscribers, which reduced the
sales price by $3,191,352. When final closing adjustments were completed on
June 30, 1998, however, additional equivalent basic subscribers that were not
able to be counted as basic subscribers of the Broward System at the March 31,
1998 closing (because they were relatively recent subscribers at such date) were
able to be counted as equivalent basic subscribers of the Broward System. These
basic subscribers brought the equivalent basic subscriber count up to 56,637 and
the sales price accordingly was adjusted upward by $3,191,352 to $140,000,000.
From the initial proceeds of the Broward System sale at initial closing,
the Venture settled working capital adjustments, repaid the outstanding balance
on its credit facility, which totaled $39,902,968, and paid a 2.5 percent
brokerage fee of $3,420,216 to The Jones Group. The Venture then distributed
the remaining net sale proceeds, or $94,039,000, to the two constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture. Accordingly, the Partnership received 27 percent of the net sale
proceeds, or $25,484,569. In April 1998, the Partnership distributed its net
sale proceeds to its limited partners of record as of March 31, 1998. Such
distribution represented approximately $159 for each $500 limited partnership
interest, or $318 for each $1,000 invested in the Partnership.
From the additional proceeds of the Broward System sale at final closing,
the Venture settled final working capital adjustments and paid a 2.5 percent
brokerage fee of $79,784 to The Jones Group. The Venture then distributed the
remaining additional net sale proceeds, or $1,669,056, to the two constituent
partnerships of the Venture in proportion to their ownership interests in the
Venture. Accordingly, the Partnership received 27 percent of the additional net
sale proceeds, or $452,433. The Partnership will retain the $452,433 for
working capital purposes. Because the distributions to the limited partners
from the sale of the Broward System, together with all prior distributions, did
not return to the limited partners 125 percent of the capital initially
contributed to the Partnership by the limited partners, the General Partner did
not receive any general partner distribution from the Broward System's sale.
Because the Broward System represented the only asset of the Venture, the
Venture was liquidated and dissolved in October 1998.
The Partnership is in various stages of selling its three remaining cable
television systems. These transactions are discussed below in the order of
anticipated sale closing date.
On June 29, 1998, the Partnership entered into a purchase and sale
agreement to sell the Calvert County System to Jones Communications of Maryland,
Inc., a Colorado corporation, which is a wholly owned subsidiary of Jones Cable
Holdings, Inc., which in turn is a wholly owned subsidiary of the General
Partner, for a sales price of $39,388,667, subject to customary closing
adjustments. The purchase price was determined by the average of three separate
independent appraisals of the fair market value of the Calvert County System.
Closing of the sale, which is expected to occur in the first quarter of 1999,
will be subject to several conditions, including necessary governmental and
other third party consents and the approval of the holders of a majority of the
limited partnership interests in a vote to be conducted by the General Partner
in the first quarter of 1999. Upon the proposed sale of the Calvert County
System, based upon financial information as of September 30, 1998, the
Partnership will repay $19,695,000 outstanding on its revolving credit facility,
pay certain fees and expenses of the transaction and distribute the remaining
net sale proceeds of approximately $19,500,000 to the Partnership's limited
partners of record as of the closing date of the sale of the Calvert County
System.
11
<PAGE>
Based upon financial information as of September 30, 1998, this distribution
will give the Partnership's limited partners an approximate return of $122 for
each $500 limited partnership interest, or $244 for each $1,000 invested in the
Partnership. Because the distribution to the limited partners from the sale of
the Calvert County System, together with all prior distributions, will not
return to the limited partners 125 percent of the capital initially contributed
to the Partnership by the limited partners, the General Partner will not receive
a general partner distribution from the sale of the Calvert County System.
On November 10, 1998, the Partnership entered into a purchase and sale
agreement to sell the Buffalo System to an unaffiliated party for a sales price
of $27,000,000, subject to customary closing adjustments. Closing of the sale,
which is expected to occur in the first quarter of 1999, will be subject to
several conditions, including necessary governmental and other third party
consents and the approval of the holders of a majority of the limited
partnership interests in a vote to be conducted by the General Partner in the
first quarter of 1999. Upon the proposed sale of the Buffalo System, based upon
financial information as of September 30, 1998, the Partnership will repay the
balance outstanding on its revolving credit facility, estimated to total
$4,255,000, pay a brokerage fee to The Jones Group totaling $675,000,
representing 2.5 percent of the sales price, for acting as a broker in this
transaction, settle working capital adjustments and deposit $1,200,000 into an
indemnity escrow account. The remaining net sale proceeds of approximately
$20,600,000 will be distributed to the Partnership's partners of record as of
the closing date of the sale of the Buffalo System. Because the distribution to
the limited partners from the sale of the Buffalo System, together with all
prior distributions, will return to the limited partners more than 125 percent
of the capital initially contributed to the Partnership by the limited partners,
the General Partner will receive a general partner distribution from the
proceeds of the sale of the Buffalo System. It is estimated that the limited
partners, as a group, will receive $20,567,000, or approximately $129 for each
$500 limited partnership interest, or $258 for each $1,000 invested in the
Partnership, and the General Partner will receive a general partner distribution
of $33,000 from the net sale proceeds.
For a period of 90 days following the closing date, $1,200,000 of the sale
proceeds will remain in escrow as security for the Partnership's agreement to
indemnify the purchaser under the asset purchase agreement. The Partnership's
primary exposure, if any, will relate to the representations and warranties made
about the Buffalo System in the asset purchase agreement. Any amounts remaining
from this indemnity escrow account that are not claimed by the purchaser at the
end of the 90-day period will be distributed to the partners of the Partnership
at that time. If the entire $1,200,000 escrow amount is distributed to the
partners, of which there can be no assurance, the limited partners as a group
would receive 75 percent ($900,000) and the General Partner would receive 25
percent ($300,000) of the net escrow proceeds; thus, the limited partners would
receive approximately $6 for each $500 limited partnership interest, or $12 for
each $1,000 invested in the Partnership from this portion of the sale proceeds.
On August 7, 1998, the Partnership signed an asset purchase agreement to
sell its Naperville System to an unaffiliated party for a sales price of
$23,000,000, subject to customary closing adjustments. Closing of the sale,
which is expected to occur in the first quarter of 1999, will be subject to
several conditions, including necessary governmental and other third party
consents and the approval of the holders of a majority of the limited
partnership interests in a vote being conducted by the General Partner in the
fourth quarter of 1998. Upon the proposed sale of the Naperville System, based
upon financial information as of September 30, 1998, the Partnership will pay a
brokerage fee to The Jones Group totaling $575,000, representing 2.5 percent of
the sales price, for acting as a broker in this transaction, settle working
capital adjustments, and then deposit $696,000 into an indemnity escrow account.
The remaining net sale proceeds of approximately $20,800,000 will be distributed
to the Partnership's partners of record as of the closing date of the sale of
the Naperville System. The limited partners, as a group, will receive 75
percent ($15,600,000), and the General Partner will receive a 25 percent
($5,200,000) general partner distribution from the net sale proceeds; thus, the
limited partners would receive approximately $97.50 for each $500 limited
partnership interest, or $195 for each $1,000 invested in the Partnership from
the sale of the Naperville System.
The $696,000 of sale proceeds to be placed in the indemnity escrow account
will remain in escrow from the closing date until November 15, 1999 as security
for the Partnership's agreement to indemnify the buyer under the asset purchase
agreement. The Partnership's primary exposure, if any, will relate to the
representations and warranties to be made about the Naperville System in the
asset purchase agreement. Any amounts remaining from this indemnity escrow
account and not claimed by the buyer at the end of the escrow period will be
distributed to the Partnership's partners. If the entire $696,000 escrow amount
is distributed to the partners, of which there can be no assurance, the limited
partners as a group would receive 75 percent ($522,000) and the General Partner
would receive 25 percent ($174,000) of the net escrow proceeds; thus, the
limited partners would receive approximately $3 for each $500 limited
partnership interest, or $6 for each $1,000 invested in the Partnership from
this portion of the sale proceeds.
12
<PAGE>
The Partnership will continue in existence at least until any amounts
remaining from the indemnity escrow account have been distributed. Since the
Naperville System will represent the only asset of the Partnership at the time
of its sale, the Partnership will be liquidated and dissolved upon the final
distribution of any amounts remaining from the Naperville System's indemnity
escrow account. If any disputes with respect to indemnification arise, the
Partnership would not be dissolved until such disputes were resolved, which
could result in the Partnership continuing in existence beyond 1999.
Taking into account the distribution of the Partnership's portion of the
net proceeds from the sale of the Venture's Broward System in April 1998 and the
anticipated distributions of the net proceeds from the proposed sales of the
Partnership's remaining systems (excluding escrowed proceeds) in 1999, together
with the prior distributions from system sales made in 1997, the General Partner
expects that the limited partners of the Partnership will have received
approximately $723 for each $500 limited partnership interest, or $1,446 for
each $1,000 invested in the Partnership.
For the nine month period ended September 30, 1998, the Partnership
generated net cash from operating activities totaling $2,507,148, which is
available to fund capital expenditures and non-operating costs. For the nine
months ended September 30, 1998, capital expenditures totaled approximately
$4,565,000 for all of the Partnership's systems. Approximately 39 percent of
the expenditures related to new plant construction associated with new homes
passed in all of the Partnership's systems. Approximately 35 percent of the
expenditures related to construction of service drops to subscriber's homes.
The remainder was for other capital expenditures to maintain the value of the
Partnership's systems. These expenditures were funded by cash generated from
operations, borrowings under the Partnership's credit facility and cash on hand.
Budgeted capital expenditures for all of the Partnership's systems for the
remainder of 1998 are approximately $1,690,000. Approximately 42 percent of the
expenditures will be used for new plant construction associated with new homes
passed in all of the Partnership's systems. Approximately 34 percent will
relate to construction of service drops to subscribers' homes. The remainder is
for other capital expenditures to maintain the value of the Partnership's
remaining systems until they are sold. Funding for the improvements is expected
to come from cash on hand, cash generated from operations and, if necessary,
borrowings under its credit facility. The Partnership is obligated to conduct
its business in the ordinary course until its systems are sold.
The Partnership is a party to a $27,700,000 revolving credit facility, of
which $23,950,000 was outstanding at September 30, 1998, leaving $3,750,000
available for future borrowings. The revolving credit facility expires on
September 30, 2000, at which time the then-outstanding balance is payable in
full. The revolving credit facility requires that one-half of the proceeds from
the next Partnership system sale be used to reduce amounts outstanding and that
the credit facility be repaid in full on the second system sale. Based on the
current expected order of system sale closings, the Partnership will repay
approximately $19,695,000 upon the closing of the sale of the Calvert County
System, which is expected to occur in the first quarter of 1999, and the maximum
amount of borrowings available under the revolving credit facility will be
reduced to $8,000,000. The remaining balance will be repaid upon the sale of
the Buffalo System, which also is expected to occur in the first quarter of
1999. Interest on the revolving credit facility's outstanding balance is at the
Partnership's option of the London Interbank Offered Rate plus 1.125 percent,
the Certificate of Deposit Rate plus 1.25 percent or the Base Rate plus .125
percent. The effective interest rates on amounts outstanding as of September
30, 1998 and 1997 were 6.67 percent and 7.15 percent, respectively.
Ameritech, which provides telephone service in a multi-state region
including Illinois, is providing cable television service in Naperville,
Illinois, the community served by the Partnership's Naperville System. This
competition has had an adverse effect on the Naperville System's revenues and
cash flow. The General Partner is taking prudent steps necessary to meet this
competition from Ameritech and, to the extent possible, to safeguard the value
of the Naperville System until it is sold. These steps include a judicial
challenge to the terms on which a franchise was issued to Ameritech. The City
of Naperville has filed a countersuit against the Partnership declaring that the
Partnership has breached its franchise agreement by withholding franchise
payments and seeks to impose liquidated damages on the Partnership for such
breach. Litigation is currently pending in federal court against both the City
of Naperville and Ameritech and includes claims made by the City of Naperville
against the Partnership. A trial date has not yet been set.
The Partnership has sufficient sources of capital available from cash on
hand, cash generated from operations and borrowings available under its
revolving credit facility to meet its needs until its systems are sold.
13
<PAGE>
RESULTS OF OPERATIONS
- ---------------------
As a result of the sales of the cable television systems serving the areas
in and around the communities of Turnersville, New Jersey (the "Turnersville
System") and Central Illinois (the "Central Illinois System") on January 10,
1997 and June 30, 1997, respectively, the following discussion of the
Partnership's results of operations, through operating loss, pertains only to
the results of operations of the Buffalo, Naperville and Calvert County Systems
for all periods discussed.
The Partnership-
Revenues of the Partnership increased $241,654, or approximately 4 percent,
to $5,922,874 for the three month period ended September 30, 1998 compared to
$5,681,220 for the comparable 1997 period. This increase was primarily due to
increases in the number of basic subscribers and basic rates in the
Partnership's Buffalo and Calvert County Systems. Revenues decreased $221,432,
or approximately 1 percent, to $17,433,880 for the nine months ended September
30, 1998 compared to $17,655,312 for the comparable 1997 period. This decrease
was primarily a result of the reduction in subscribers in the Naperville System
due to competition from Ameritech, which was partially offset by increases in
subscribers and rates in the Buffalo and Calvert County Systems.
Operating expenses consist primarily of costs associated with the operation
and administration of the Partnership's cable television systems. 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 marketing expenses.
Operating expenses increased $256,392, or approximately 7 percent, to
$3,854,489 for the three month period ended September 30, 1998 compared to
$3,598,097 for the comparable 1997 period. Operating expenses increased
$303,263, or approximately 3 percent, to $11,152,221 for the nine months ended
September 30, 1998 compared to $10,848,958 for the comparable 1997 period.
These increases were primarily a result of increases in programming costs.
Management fees and allocated overhead from the General Partner increased
$43,343, or approximately 7 percent, to $635,408 for the three month period
ended September 30, 1998 compared to $592,065 for the comparable 1997 period.
This increase was primarily due to the increase in revenues, upon which such
fees and allocations are based, and an increase in expenses allocated from the
General Partner. Management fees and allocated overhead from the General
Partner decreased $15,807, or approximately 1 percent, to $1,895,792 for the
nine month period ended September 30, 1998 compared to $1,911,599 for the
comparable 1997 period. This decrease was primarily a result of a decrease in
allocated costs from the General Partner.
Depreciation and amortization expense increased $276,525, or approximately
14 percent, to $2,236,992 for the three month period ended September 30, 1998
compared to $1,960,467 for the comparable 1997 period. Depreciation and
amortization expense increased $224,592, or approximately 4 percent, to
$6,354,958 for the nine months ended September 30, 1998 compared to $6,130,366
for the comparable 1997 period. These increases were due to capital additions
in 1998.
Operating loss increased $334,606, or approximately 71 percent, to $804,015
for the three month period ended September 30, 1998 compared to $469,409 for the
comparable 1997 period. This increase was due to the increases in operating
expenses, management fees and allocated overhead from the General Partner and
depreciation and amortization exceeding the increase in revenues. Operating
loss increased $733,480, or approximately 59 percent, to $1,969,091 for the nine
month period ended September 30, 1998 compared to $1,235,611 for the comparable
1997 period. This increase was a result of the decrease in revenues and the
increases in operating expenses and depreciation and amortization expense.
Interest expense increased $48,927, or approximately 13 percent, to
$420,551 for the three month period ended September 30, 1998 compared to
$371,624 for the comparable 1997 period. This increase was due to higher
outstanding balances on interest bearing obligations during the third quarter of
1998 compared to the similar 1997 period. Interest expense decreased $295,724,
or approximately 19 percent, to $1,250,737 for the nine months ended September
30, 1998 compared to $1,546,461 for the comparable 1997 period. This decrease
was primarily due to lower outstanding balances on interest bearing obligations
during the first six months of 1998. A portion of the proceeds from the sales
of the Turnersville System and Central Illinois System was used to reduce the
Partnership's debt.
14
<PAGE>
The Partnership recognized a gain on the sale of the Turnersville System of
$62,923,951 and a gain on the sale of the Central Illinois System of $7,050,021
during the nine month period ended September 30, 1997. No similar gains were
recognized during the comparable 1998 period.
The Partnership reported a loss before equity in net income of cable
television joint venture of $1,380,277 for the three month period ended
September 30, 1998 compared to loss before equity in net loss of cable
television joint venture of $1,146,066 for the comparable 1997 period. This
change was primarily a result of the factors discussed above. Loss before
equity in net income of cable television joint venture totaled $3,205,557 for
the nine month period ended September 30, 1998 compared to income before equity
in net loss of cable television joint venture of $64,890,255 for the comparable
1997 period. This change was primarily a result of the gains on the sale of the
Turnersville System and Central Illinois System.
Equity in net loss of cable television joint venture was $-0- for the three
months ended September 30, 1998 compared to $146,037 for the comparable 1997
period. This change was due to the sale of the Broward System in March 1998.
The Partnership reported equity in net income of cable television joint venture
of $22,599,271 for the nine months ended September 30, 1998 compared to equity
in net loss of cable television joint venture of $462,936 for the comparable
1997 period. This change was due to the gain on the sale of the Broward System
in March 1998.
The Partnership's net loss increased $88,174, or approximately 7 percent,
to $1,380,277 for the three months ended September 30, 1998 compared to
$1,292,103 for the comparable 1997 period. This increase was due to the factors
discussed above. The Partnership reported net income of $19,393,714 for the
nine months ended September 30, 1998 compared to $64,427,319 for the comparable
1997 period. This change was primarily due to the Venture's sale of the Broward
System in March 1998 and the Partnership's sale of the Turnersville System and
Central Illinois System in 1997.
The Venture-
The Venture's only asset was the Broward System which was sold on March 31,
1998. The Venture was liquidated and dissolved in October 1998.
15
<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
16
<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 14-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 13, 1998
17
