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Asset Value Analysis

Chris Argyrople, CFA

Concentric

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TCI Ventures (TCIVA) 11/10/97PUBLIC:

TINTA 97.95 MM shs @ $16 3/8 $1,604TCGI 49.79 MM shs @ $47 1/8 $2,346UVSGA 14.5 MM shs @ $27 1/2 $399@HOME 46.46 MM shs @ $22 1/4 $1,034ANTC 6 MM shs @ $15 $90 Total public value $5,473 Shares Outstanding 224 Per share: 24.43$

PRIVATE: BEARISH BULLISHHITS, NATL DIGITAL TV CTR $200 - $300Sprint Spectrum (30%) $800 - $1,000Other $100 $200 Total private $1,100 - $1,500 Per share: 4.91$ - 6.70$

Total value: $6,573 - $6,973

Value per share: 29.34$ - 31.13$

CURRENT SHARE PRICE 23.00$ DISCOUNT 21.6% - 26.1%

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TCI Ventures (TCIVA) 4/6/98

PUBLIC:

TINTA 97.95 MM shs @ $20 1/3 $1,990TCGI 49.79 MM shs @ $58 1/2 $2,913UVSGA 14.5 MM shs @ $42 5/8 $618ATHM 46.46 MM shs @ $33 4/5 $1,571ANTC 6 MM shs @ $15 4/9 $93 Total public value $7,184 Shares Outstanding 460 Per share: 15.62$

PRIVATE: BEARISH BULLISHHITS, NATL DIGITAL TV CTR $200 - $300Sprint Spectrum (30%) $800 - $1,000Other $100 $200 Total private $1,100 - $1,500 Per share: 4.91$ - 6.70$

Total value: $8,284 - $8,684

Value per share: 18.01$ - 18.88$

CURRENT SHARE PRICE 16.69$ DISCOUNT 7.3% - 11.6%

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Is there Arbitrage in TCIVA?

• Publicly traded securities are worth $24.43 and the stock is trading at $23

• PLUS, the value of the other stakes• TCIVA has no debt and some cash• Bull Case: there is arbitrage and the

discount will narrow• Bear Case: holding company structures

deserve to trade at a discount due to their inefficiency

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What about the Tax Issue?

• This analysis is not complete without knowing TCIVA’s cost basis in these firms.

• The real value per share is the after tax equivalent, not the pre-tax.

• Does the tax issue invalidate the analysis? Probably not, because John Malone is famous for not paying taxes.

• TCIVA probably could obtain a tax free spinoff in all these entities, realizing the arbitrage value.

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There is still Risk, Discount or Not

TCIVA SENSITIVITY TO:

$1/sh price chg 10% price chgTINTA 0.44$ $0.72TCGI 0.22$ $1.05 Largest ExposureUVSGA 0.06$ $0.18@HOME 0.21$ $0.46ANTC 0.03$ $0.04

Totals 0.96$ 2.44$

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“Stub” trades

• “Stub” trades isolate the arbitrage opportunity by shorting out the publicly traded stakes in the proper share proportions.

• For TCIVA, you could short all 5 publicly traded stocks to isolate the 20+% discount.

• Note that shorting out the stocks is not risk free either because the discount could widen or you can lose the borrow.

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Stub Trades, Review

• TCIVA (parent) shares 460• TCGI shares 49.79• 49.79/460 = 0.11 ratio

• Current Prices 4/13/98:RN $29

• NA $51.75 Stub = - $4.38• YOU GET THE TOBACCO FIRM FOR

NEG. $4.38 !!!

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Benjamin Graham Trades

• Legendary Ben Graham said that you should try to buy stocks that are trading at less than net working capital.

• Purchasing a company less than liquidation value means you get the company for free.

• Since the market is picked over, there are not too many of these out there nowadays.

• Key: Positive Free Cash Flow (or not neg.)

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Harding Lawson (HRDG) Apr. 96

• HRDG was an E&C (Engineering & Construction) firm trading at a discount to Current Assets - All Liabilities

• Was there a catch?• The firm had thrown off free cash flow,

historically at least.• A call to the company indicated a significant

downturn in business, and a few quarters of slightly negative FCF was likely

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HRDG Balance SheetHarding Lawson Assoc (HRDG) May-95 Aug-95 Nov-95 Feb-96Balance Sheet 4Q95 1Q96 2Q96 3Q96Cash & Equivalents 12.6 12.3 13.8 17.4Accounts Receivable (Net) 28.3 27.9 31.7 24.9Unbilled Work In Progress 6.9 7.5 5.4 4.6Less: Allowances (1.6) (1.5) (1.6) (1.5)Prepaid Expenses 0.9 1.6 1.5Deferred Taxes 2.2 2.2 1.2 0.8 Total Current Assets 49.5 50.0 51.9 46.2Net PP&E 4.4 4.4 4.5 4.3PLUG BEC #s DONT ADD 1.8Deposits & Other(mostly Goodwill) 6.8 6.8 6.8 6.7 Total Assets 60.8 61.2 63.2 59.0

Accounts Payable 3.4 4.1 5.0 2.0Accrued Expenses 5.6 4.8 4.5 4.7Accrued Compensation 6.5 4.5 5.7 4.5Taxes Payable 0.6 1.2 0.3Current Debt Total Current Liabilities 16.2 14.6 15.6 11.3Long Term DebtOther Liabilities 1.7 2.1 2.0 2.1 Total Liabilities 17.9 16.6 17.6 13.4Common Stock & Paid in Capital 17.5 18.2 18.2 18.2Retained Earnings 25.2 26.1 27.1 27.2Minority Interest 0.2 0.2 0.3 0.3PLUG 0.0 0.0 0.0 0.0 Total, Liabilities & Equity 60.8 61.2 63.2 59.0

Net Liquid Assets (CA - total Liab) 33.3 34.4 32.9Equity Value @ $6 / share 29.2Enterprise Value @ $6 / share 11.8

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HRDG sells < Liquidation Value

• April 1996, HRDG was selling for less than liquidation value.

• CAVEATS:• The carrying amounts on the balance sheet

may be flawed, or maybe some of the cash is restricted etc.

• Maybe you can’t collect all the recievables, or maybe the inventory needs to be written down.

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Rules of Thumb (some at least)

• Ben Graham stocks are awesome if Free Cash Flow is Positive

• If the company is burning cash, then the asset value is not a valuation floor.

• NOTE: CASH BURN IS NOT THE SAME AS FREE CASH FLOW.

• Cash burn is the net cash receipts less net cash outlays. Companies burning cash have deteriorating balance sheets.

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Weaknesses of Traditional Measures

• HRDG is an example of where Enterprise Value is not the best valuation metric. It is better to compare the value of the stock to Current Assets - All Liabilities.

• HRDG is also an example of where Free Cash Flow could be misleading. Big CAPEX projects could eat into the $17 million cash they have on the balance sheet. REMEMBER, EXPANSION CAPEX MATTERS TOO.

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Historically HRDG Positive FCF

• Check out the differences between Free Cash calculation and Cash Flow pre-Financing -- Acquisitions can be large

Harding Lawson (HRDG) Aug-93 Nov-93 Feb-94 May-94 Aug-94 Nov-94 Feb-95 May-95 Aug-95 Nov-95 Feb-96Funds Flow 1Q94 2Q94 3Q94 4Q94 1Q95 2Q95 3Q95 4Q95 1Q96 2Q96 3Q96Net Income 0.9 0.6 0.3 (0.8) 0.9 0.9 0.4 0.8 0.9 1.0 0.1 Depreciation & Amort. 0.9 0.9 0.9 1.3 0.8 0.8 0.8 0.8 0.6 0.6 0.6 Interest (Net) (0.0) (0.1) (0.1) (0.1) (0.0) (0.1) (0.1) (0.2) (0.2) (0.2) (0.2) Taxes (incl. not payable) 0.6 0.4 0.2 (0.5) 0.6 0.6 0.2 0.5 0.6 0.6 0.0EBITDA 2.4 1.8 1.3 (0.1) 2.3 2.2 1.4 1.9 2.0 2.0 0.5 Capital Expenditures (1.0) 0.0 (0.4) (0.5) (0.2) (0.4) (0.2) (0.7) (0.5) (0.6) (0.3)Free Cash Flow 1.9 2.1 1.0 (1.3) 2.7 2.4 1.4 1.6 1.9 1.8 (0.1)

Totals 15.5Cash Flow Statement

Cash Flow from Operations 1.8 1.4 (0.7) 0.1 (2.2) 3.6 3.3 4.0 0.1 2.2 3.9Cash Flow, Investments (1.0) (0.4) (0.6) (1.7) (0.2) (2.1) (0.2) (0.7) (0.5) (0.6) (0.3)

Cash Flow, Financing 0.0 (1.2) (0.3) (0.7) (1.0) (0.9) (0.0) 0.1 0.0 0.0 0.0Cash Flow, Pre-Financing 0.8 1.0 (1.3) (1.6) (2.4) 1.5 3.1 3.3 (0.4) 1.6 3.6

Totals 9.3

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Gantos (GTOS) Another Value Play

• Like HRDG, GTOS was selling below balance sheet liquidation value

• As of 5/3/97, Working Capital - Net Debt was $2.50 per share. The stock got as low as $2 offered during summer 1997.

• Was this stock cheap?• New Mgt that said the old management

stunk (5 straight years of same store sales declines).

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Was GTOS cheap?

• Under the “lousy” management:– 7.6 million shares– 12 million debt– EBITDA $11 million– FCF $4 to 5 million easy at $11 million EBITDA– lots of NOLs -- not a taxpayer– this company could have minimal CAPEX.

• OVER $0.50 OF FREE CASH FLOW, THIS

•LOOKED CHEAP, BUT, WITHOUT A SAME

•STORE TURNAROUND, IT GOES TO ZERO

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GTOS Balance SheetBalance Sheet 4Q96 1Q97ACash & Equivalents 4.3 2.7Accounts Receivable 22.0 21.6Allowances (0.6)Inventories 22.4 27.2Prepaid Expenses 3.2 3.3Deferred Tax Asset Total Current Assets 51.9 54.3PP&E Leaseholds 30.2 28.9 Furniture 32.2 29.3 Other PP&E 0.1 0.6Less: Accum. Depr. (48.4) (45.0)Other Assets Total Assets 65.9 68.1

Accounts Payable 10.7 14.6Accrued Expenses 10.3 9.5Provision for Facil. Closings 1.6 1.0Current Debt Total Current Liabilities 22.6 25.2LOC BorrowingsLT Debt, 12.75% Rate 11.9 10.1Other Liabilities Total Liabilities 34.6 35.3Preferred StockCommon Stock & Paid in Capital 40.9 40.9Retained Earnings (9.6) (8.1)CTA Total, Liabilities & Equity 65.9 68.1

Working Capital 29.2 29.2Inventory % of WCapital 77% 93%

Working Capital - Debt 17.3 19.0 (WC - Debt) / Share 2.3 2.5

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GTOS Same Store SalesReported Including

Revenue Reported Stores Open Calendar Number($mils) y-o-y Same Store Both Periods Shift of Stores

1995 Jan 10.4 0% 3% N/A 113 1995 Feb 13.3 5% 8% N/A 113 1995 Mar 17.8 -7% -4% N/A 113 1995 Apr 18.0 4% 6% N/A 113 1995 May 16.1 1% -1% N/A 113 1995 Jun 17.1 -4% -3% N/A 113 1995 Jul 12.3 0% 0% N/A 113 1995 Aug 11.6 -4% -4% N/A 113 1995 Sep 17.0 -2% -2% N/A 113 1995 Oct 13.5 -4% -3% N/A 113 1995 Nov 15.4 -10% -9% N/A 113 1995 Dec 28.4 -7% -6% N/A 113 1996 Jan 12.2 17% 18% -6% N/A 113 1996 Feb 12.8 -4% -4% -3% -4% 113 1996 Mar 19.8 11% 11% 11% N/A 114 1996 Apr 17.8 -1% -1% -3% N/A 114 1996 May 14.5 -10% -8% -8% -3% 114 1996 Jun 15.9 -7% -8% -8% -7% 114 1996 Jul 11.3 -8% -8% -9% -7% 114 1996 Aug 11.1 -4% -5% -5% -5% 114 1996 Sep 17.9 5% 5% 5% 1% 114 1996 Oct 12.7 -6% -6% -3% -3% 114 1996 Nov 15.7 2% 2% 2% N/A 114 1996 Dec 25.5 -10% -11% -11% -2% 114 1997 Jan 9.2 -25% -4% -5% -6% 114 1997 Feb 11.3 -12% -12% -12% N/A 114 1997 Mar 18.3 -8% -7% -7% -4% 114 1997 Apr 15.9 -11% -11% -11% N/A 115 1997 May 12.9 -11% -13% -13% N/A 115 1997 Jun 14.1 -11% -12% -12% N/A 115 1997 Jul 8.8 -22% -22% -23% N/A 116 1997 Aug 8.7 -22% -22% -22% N/A 116

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Gantos Update 4/6/98

• Current Assets $50.6

• Current Liab $16.2

• Debt $27.4

• Net $ 7.0

• Shares 7.6 million

• Ben Graham Value $0.92 / share

• Price a few days ago = $0.32 (today = 0.50)

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Gantos Lesson

• Lousy Management

• Same Store Declines

• Asset Value

• CASH BURN RULES OVER ASSET VALUE

• No bargain unless a turnaround (then the stock would be up huge)