-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JQRYG5q1j0eqsZFNAEVp+VahQZ8E4n4iPOsiBL4PGHVqQ2V7L+0p5G+wSA44EQOU 7EvKjZy3B9La5cE4yvfl7w== 0000950148-96-001189.txt : 19960617 0000950148-96-001189.hdr.sgml : 19960617 ACCESSION NUMBER: 0000950148-96-001189 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960613 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960613 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FALCON CABLE SYSTEMS CO CENTRAL INDEX KEY: 0000783008 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 954108170 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09322 FILM NUMBER: 96580746 BUSINESS ADDRESS: STREET 1: 10900 WILSHIRE BLVD 15TH FL CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3108249990 MAIL ADDRESS: STREET 1: 10900 WILSHIRE BLVD CITY: LOS ANGELES STATE: CA ZIP: 90024 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 _________________ FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): June 13, 1996 - ------------------------------------------------------------------------------- Falcon Cable Systems Company, a California limited partnership - ------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) California - ------------------------------------------------------------------------------- (State or other jurisdiction of incorporation) 1-9332 95-4108170 - ------------------------------------------------------------------------------- (Commission File Number) (IRS Employer Identification No.) 10900 Wilshire Boulevard, 15th Floor, Los Angeles, CA 90024 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (310) 824-9990 - ------------------------------------------------------------------------------- (Registrant's Telephone Number) 2 ITEM 5. OTHER EVENTS. As previously disclosed, the Partnership Agreement of Falcon Cable Systems Company, a California limited partnership (the "Partnership") provides that Falcon Cable Investors Group, the Partnership's general partner (the "General Partner") shall use its best efforts to cause the Partnership to sell all of the Partnership's cable systems between December 31, 1991 and December 31, 1996, the "termination date" of the Partnership. In addition, the Partnership Agreement provides the General Partner or its affiliates the right to purchase for cash substantially all of the Partnership's cable systems at any time after December 31, 1991 without soliciting unaffiliated purchasers (the "Purchase Right"). Pursuant to the Partnership Agreement, the price at which the Purchase Right may be exercised is determined by reference to an "appraised value" determined pursuant to an appraisal process set forth in the Partnership Agreement (the "Appraisal Process"). The Partnership Agreement provides that the "appraised value" is determined by the average of three appraisal evaluations of the Partnership's cable systems and provides that one appraiser is selected by the General Partner; one appraiser is selected by a majority vote of the independent members of the Partnership's advisory committee; and one appraiser is selected by the two appraisers already so chosen. As previously disclosed, the General Partner, in its exploration of the possibility of exercising the Purchase Right, initiated the Appraisal Process. Also as previously disclosed, in accordance with the Appraisal Process, the appraiser to be selected by a majority vote of the independent members of the Partnership's advisory committee, the appraiser to be selected by the General Partner, and the appraiser selected by the two appraisers so chosen, were each selected earlier this year. The three appraisers are, respectively, Malarkey-Taylor Associates, Inc., Kane-Reece Associates, Inc., and Waller Capital Corporation (the "Appraisers"). On March 11, 1996, each of the Appraisers delivered summaries of the results of their appraisals which were filed as Exhibits 1, 2 and 3, respectively, to the Partnership's Current Report on Form 8-K/A dated March 11, 1996, and are incorporated herein by reference. The full report of each Ap- 3 praiser (together with the previously filed summaries, the "Appraisals") was subsequently delivered to the Partnership, and each is filed as an exhibit hereto, and incorporated herein by reference. Based upon the Appraisals, as of December 31, 1995, the "appraised value" (as defined in the Partnership Agreement) of all of the cable systems owned by the Partnership (the "Total Systems") is $247.40 million (the "Total Systems Appraised Value"). The Total Systems Appraised Value is calculated as the average of $283.23 million, $245.29 million, and $213.67 million, the appraised value as of December 31, 1995 of all of the cable systems owned by the Partnership, as set forth in the Appraisals delivered by each of Malarkey-Taylor Associates, Inc., Kane-Reece Associates, Inc., and Waller Capital Corporation, respectively. Based upon the Total Systems Appraised Value of $247.57 million, and assuming a hypothetical liquidation of the Partnership on March 31, 1996, the estimated cash distribution to unitholders would have been $9.17 per unit (the "Hypothetical Estimated Per Unit Distribution") (based upon 6,398,913 units outstanding). The Hypothetical Estimated Per Unit Distribution was calculated assuming (i) net liabilities on the balance sheet of the Partnership, excluding property, plant and equipment and intangible assets ("Net Liabilities") of approximately $181.51 million (as of March 31, 1996), (ii) a Sale Fee equal to approximately $6.19 million (2 1/2% of the Total Systems Appraised Value) and (iii) satisfaction of all other liabilities of the Partnership required to be satisfied in connection with the liquidation of the Partnership, each of which the Partnership Agreement would require be paid prior to the distribution of any remaining cash to unitholders. The Hypothetical Estimated Per Unit Distribution is presented for illustrative purposes only and does not necessarily represent amounts the Partnership could have distributed to unitholders on March 31, 1996 or any date thereafter. The Appraisals each set forth certain matters considered by the respective Appraisers. In connection with rendering their Appraisals, the Appraisers performed a variety of financial analyses which are summarized in the respective Appraisals. No limitations were imposed by the Partnership with respect to the investigations made or the procedures followed by the Appraisers in rendering their Appraisals. As described in the Appraisals, the Appraisals are based upon numerous sources of information including data supplied by Falcon, which included certain projections. The Partnership does not as a matter of course make public any forecasts as to its future financial performance. THE PROJECTIONS WERE PREPARED SOLELY FOR INTERNAL USE AND NOT WITH A VIEW TO PUBLIC DISCLOSURE OR COMPLIANCE WITH THE PUBLISHED GUIDELINES OF THE COMMISSION OR THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS REGARDING PROJECTIONS AND WERE NOT PREPARED WITH THE ASSISTANCE OF, OR REVIEWED BY, INDEPENDENT ACCOUNTANTS. SUCH PROJECTIONS WERE PROVIDED TO THE APPRAISERS SOLELY FOR THE PURPOSES OF THEIR APPRAISALS. NONE OF THE PARTNERSHIP OR ANY PARTY TO WHOM THE PROJECTIONS WERE PROVIDED ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF THE PROJECTIONS. WHILE PRESENTED WITH NUMERICAL SPECIFICITY, THE PROJECTIONS ARE BASED ON A VARIETY OF ASSUMPTIONS RELATING TO THE BUSINESSES OF THE PARTNERSHIP, INDUSTRY PERFORMANCE, GENERAL BUSINESS AND ECONOMIC CONDITIONS AND OTHER MATTERS WHICH ARE SUBJECT TO SIGNIFICANT UNCERTAIN- -2- 4 TIES AND CONTINGENCIES, MANY OF WHICH ARE BEYOND THE PARTNERSHIP'S CONTROL, AND, THEREFORE, SUCH PROJECTIONS ARE INHERENTLY IMPRECISE AND THERE CAN BE NO ASSURANCE THAT THEY WILL BE REALIZED. ALSO, ACTUAL FUTURE RESULTS MAY VARY MATERIALLY FROM THOSE SHOWN IN THE PROJECTIONS. THE PARTNERSHIP IS NOT UNDER ANY OBLIGATION TO UPDATE THE PROJECTIONS AT ANY FUTURE TIME. Each of the Appraisers is a nationally recognized cable system appraisal firm and is continually engaged in the valuation of cable systems. Each of the appraisers from time to time provides valuation services to the Partnership and its affiliates and receives customary compensation. As previously disclosed, certain affiliates (the "Affiliates") of the Partnership and its General Partner, including Marc B. Nathanson (the Chairman of the Board, Chief Executive Officer, President and a director of Falcon Holding Group, Inc., the General Partner's sole general partner) had made a preliminary proposal (the "Proposal") to the independent members of the Partnership's advisory committee with respect to an exchange transaction (the "Exchange"). Under the Proposal, the Exchange would have taken place immediately prior to the exercise by the General Partner or its affiliates of their right to purchase for cash substantially all of the Partnership's cable systems remaining after giving effect to the Exchange (the "Sale Systems"). In the Exchange, substantially all of the Falcon Units owned by the Affiliates would have been exchanged for a portion (by value) of the Partnership's cable systems (the "Exchange Systems") equal to the proportion of total outstanding Units exchanged by the Affiliates (the Affiliates would also have relieved Falcon of an equal proportion of its total debt). On June 13, 1996 the Affiliates informed the Partnership's advisory committee that they would not pursue the Exchange. In its Current Report on Form 8-K dated April 4, 1996, the Partnership disclosed that on April 4, 1996, the Partnership, the General Partner and certain of their affiliates (the "Falcon Defendants"), were served with a complaint entitled Frank O'Shea, IRA v. Waller Capital Corp., et. al., case no. BC147386 filed in the Superior Court of the State of California, County of Los Angeles on April 1, 1996 (the "Com- -3- 5 plaint"), which Complaint was filed as Exhibit 99.1 thereto, and is hereby incorporated herein by reference. On May 31, 1996, the Falcon Defendants filed an answer denying the material allegations of the Complaint. The answer is filed as Exhibit 5 hereto, and is hereby incorporated herein by reference. On June 13, 1996, Falcon Holding Group, L.P. ("FHGLP"), the general partner of the General Partner approved the exercise of the Purchase Right by the General Partner. On that same date, the General Partner caused the Partnership to enter into an Asset Purchase Agreement (the "Purchase Agreement") with an affiliate of the General Partner, Falcon Cable Systems Company II, L.P. ("New Falcon"), which is attached hereto as Exhibit 4 and is hereby incorporated herein by reference. The description of the Purchase Agreement in this Form 8-K is qualified in its entirety by the foregoing reference thereto. The Purchase Agreement provides that subject to the terms and conditions set forth in the Purchase Agreement, the Partnership will sell to New Falcon, and New Falcon will purchase all of the Partnership's right, title and interest in the Total Systems (the "Purchase"). Pursuant to the Purchase Agreement, New Falcon will pay the Partnership an amount equal -4- 6 to the Appraised Value of $247.40 million. Unless waived by the parties, the Purchase will not be consummated unless (i) any applicable waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") shall have expired or been terminated without the commencement or threat of any litigation to restrain the consummation of the Purchase; (ii) no order, stay, judgment or decree shall have been issued by any court and be in effect restraining or prohibiting the consummation of the Purchase in any material respect; (iii) all consents required to be obtained in connection with the Purchase shall have been obtained and remain in full force and effect and (iv) the parties' representations and warranties are true and correct on the date of the Purchase Agreement and the date the Purchase is consummated. In addition, the obligations of New Falcon to consummate the Purchase are subject to the receipt by New Falcon of financing in an amount necessary to satisfy New Falcon's obligations under the Purchase Agreement. New Falcon currently intends to obtain such financing through (i) the receipt of a capital contribution from partners in New Falcon, and (ii) borrowings under a financing facility (the "Facility") covering New Falcon and certain of its affiliates (together, the "Falcon Group"). The Falcon Group has received commitments from the lenders' agents under the Facility that would, under an amendment to the Facility (the "Amendment"), permit New Falcon to obtain the financing necessary to consummate the purchase of the Total Systems under the Purchase Agreement, and on June 13, 1996, FHGLP approved the entering into the Amendment by the members of the Falcon Group. However, the Falcon Group and the lenders under the Facility have not yet entered into the Amendment, and under the Facility, borrowing by members of the Falcon Group is subject to certain specified conditions. Therefore, while it is expected that the Amendment will be entered into, and as a result of the Amendment, New Falcon is expected to be able to obtain sufficient financing to consummate the Purchase, there can be no assurance that the Amendment will be entered into or that New Falcon will be able to obtain sufficient financing to consummate the Purchase. -5- 7 Pursuant to the Purchase Agreement, the Partnership and New Falcon have begun the process of obtaining regulatory approvals, including those required pursuant to certain cable television systems franchises, federal communications law, and the HSR Act. The Partnership Agreement provides that the Partnership shall be dissolved upon the occurrence of the sale or distribution of all or substantially all of the assets of the Company, which will occur upon consummation of the Purchase. The Partnership Agreement also provides that upon the dissolution of the Partnership, the General Partner shall take such actions as are necessary for the winding up of the affairs of the Partnership and the distribution of its assets to the Partners pursuant to the provisions of the Partnership Agreement. Accordingly, following the consummation of the Purchase, the General Partner will wind-up the affairs of the Partnership in accordance with the terms of the Partnership Agreement, including the liquidation of the assets of the Partnership, the discharge of all of the liabilities of the Partnership, and the distribution of the remaining assets of the Partnership to its partners as appropriate. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) Exhibits. Exhibit No. Description - ----------- ----------- 1 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Malarkey-Taylor Associates, Inc., dated April 29, 1996. 2 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Kane-Reece Associates, Inc., dated April 29, 1996. 3 System Appraisal of Falcon Cable Systems Com- -6- 8 pany, as of December 31, 1995, by Waller Capital Corporation. 4 Asset Purchase Agreement by and between the Partnership and New Falcon, dated as of June 13, 1996. 5 Answer in the case of Frank O'Shea, IRA v. Waller Capital Corp., et. al., case no. BC147386 filed in the Superior Court of the State of California, County of Los Angeles on May 31, 1996. -7- 9 SIGNATURE 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 hereunto duly authorized. Date: June 13, 1996 FALCON CABLE SYSTEMS COMPANY By: Falcon Cable Investors Group, Managing General Partner By: Falcon Holding Group, L.P. General Partner By: Falcon Holding Group, Inc. General Partner By: /s/ Michael K. Menerey ------------------------------ Michael K. Menerey, Secretary and Chief Financial Officer -8- 10 EXHIBIT INDEX
Exhibit No. Description Page No. ----------- ----------- -------- 1 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Malarkey-Taylor Associates, Inc., dated April 29, 1996. 2 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Kane- Reece Associates, Inc., dated April 29, 1996. 3 System Appraisal of Falcon Cable Systems Company, as of December 31, 1995, by Waller Capital Corporation. 4 Asset Purchase Agreement by and between the Partnership and New Falcon, dated as of June 13, 1996. 5 Answer in the case of Frank O'Shea, IRA v. Waller Capital Corp., et. al., case no. BC147386 filed in the Superior Court of the State of California, County of Los Angeles on May 31, 1996.
-1- EX-1 2 APPRAISAL BY MALARKEY-TAYLOR ASSOCIATES 1 EXHIBIT 1 APPRAISAL REPORT: FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY, L.P. PASADENA, CALIFORNIA As of December 31, 1995 Prepared for: FALCON CABLE SYSTEMS COMPANY, L.P./ADVISORY COMMITTEE Pasadena, CA Prepared by: MALARKEY-TAYLOR ASSOCIATES, INC. 1130 Connecticut Avenue, N.W. Suite 325 Washington, D.C. 20036 (202) 835-7800 April 29, 1996 (C) Copyright 1996 Malarkey-Taylor Associates, Inc. 2 APPRAISAL REPORT: FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY, L.P. PASADENA, CALIFORNIA TABLE OF CONTENTS I. EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 A. Introduction, Purpose, and Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 B. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 II. PURPOSE OF APPRAISAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 III. INDUSTRY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 A. Historical Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 B. Industry Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1. General Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2. Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 3. Financial/Economic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4. Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 IV. SYSTEM DESCRIPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 A. History and Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 1. Gilroy, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 2. Hesperia, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3. San Luis Obispo, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4. Tulare, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5. Central Region, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6. Coos Bay, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 7. Dallas, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 8. Florence, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 B. Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 1. Gilroy, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2. Hesperia, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 3. San Luis Obispo, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 4. Tulare, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5. Central Region, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 6. Coos Bay, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 7. Dallas, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 8. Florence, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
3 TABLE OF CONTENTS (continued) C. Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 D. Subscribers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 E. System Mileage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 F. Physical Plant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 1. Gilroy, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 2. Hesperia, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78 3. San Luis Obispo, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 4. Tulare, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 5. Central Oregon, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 6. Coos Bay, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 7. Dallas, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83 8. Florence, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 G. Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 H. Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 1. Gilroy, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 2. Hesperia, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 3. San Luis Obispo, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 4. Tulare, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 5. Central Region, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 6. Coos Bay, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 7. Dallas, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 8. Florence, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 I. Financial History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 1. Gilroy, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 2. Hesperia, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 3. San Luis Obispo, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 4. Tulare, CA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 5. Central Region, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 6. Coos Bay, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 7. Dallas, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 8. Florence, OR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92 V. TOTAL SYSTEM VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 A. Valuation Procedure and Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 B. Discounted Cash Flow Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95 1. Net Cash Flow/Return on Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 2. Net Cash Flow/Return On Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 3. Cash Flow Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 4. Residual Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99 5. Discount Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 C. Direct Income Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101 D. Value Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
4 TABLE OF CONTENTS (continued) VI. ALLOCATION OF VALUE TO SALE AND EXCHANGE CLUSTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 A. Purpose of Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 B. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103 C. Headend Value Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104 VII. CONTINGENCIES AND LIMITING CONDITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 VIII. STATEMENT OF VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108 IX. QUALIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 A. Qualifications of Malarkey-Taylor Associates, Inc. (MTA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110 B. Qualifications of Robert M. Jones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111 C. Qualifications of Susan Donovan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112 D. Qualifications of Keke Tan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
5 APPENDIX A - DCF Valuation Exhibits for Falcon Systems (the following set of Exhibits has been prepared for each of the eight Systems valued) A. Valuation Methods 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. Valuation Assumptions APPENDIX B - Allocation of System Fair Market Values to Sale and Exchange Clusters for Coos Bay, Dallas, and Florence APPENDIX C - Allocation of Sale and Exchange Cluster Values to Headends for Coos Bay, Dallas, and Florence 6 APPRAISAL REPORT: FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY PASADENA, CALIFORNIA I. EXECUTIVE SUMMARY A. INTRODUCTION, PURPOSE, AND METHODOLOGY Malarkey-Taylor Associates, Inc. (MTA) was retained to conduct a fair market valuation, as of December 31, 1995, of eight groups of cable systems (the Systems) owned by the limited partnership of Falcon Cable Systems Company, L.P. (Falcon). The Systems are located in California and Oregon, and are identified as: Gilroy, Hesperia, San Luis Obispo, and Tulare in the state of California, and Central Region, Coos Bay, Dallas, and Florence in the state of Oregon. In addition to estimating the individual fair market values of the Systems, MTA has allocated the System values for Coos Bay, Dallas, and Florence, among the operating headends in the particular Systems. MTA was chosen as one of three appraisers performing these tasks in preparation for a potential buyout by Falcon's General Partner of the interest of the Limited Partners or a sale of the company. MTA was retained specifically by the Advisory Committee for the potential transaction. The cable television Systems served approximately 135,000 subscribers throughout eighteen counties in California and Oregon, as of December 31, 1995. This independent appraisal will allow the Advisory Committee to confirm the fair market value of the Systems as a business enterprise, in consideration of alternatives attendant to the expiration of the limited partnership in December 1996. Fair market value is the cash price a willing buyer would give a willing seller in an arm's length transaction in order to complete the sale. It is assumed that both buyer 1 7 and seller have been informed of all relevant facts and neither is under any compulsion to conclude the transaction. MTA also assumes that the tangible assets will remain in their present locations and will continue to be employed in their highest and best use, i.e., the delivery of cable television signals to subscribers. For each System, MTA 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 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. To allocate a System's fair market value among its operating headends, MTA examined 1) the number of subscribers served by the headend, 2) the projected operating cash flows to be generated by each headend, and 3) the projected free cash flows to be generated by each headend after capital expenditures were considered. Allocation percentages were developed for these three criteria, which were then averaged to determine the final allocation value for each of the selected headends. B. CONCLUSIONS MTA's conclusions as to the range of System fair market values are based upon information and data supplied by Falcon and System management; onsite inspections by representatives of MTA of a representative portion of the Systems and service areas; and general cable industry information. In MTA's opinion, the data which support the 2 8 valuations are reliable and sound. Our estimates of each System's fair market value as a business enterprise are as follows: Gilroy, CA $76,000,000 Hesperia, CA 38,846,000 San Luis Obispo, CA 29,585,000 Tulare, CA 31,972,000 Central Region, OR 26,294,000 Coos Bay, OR 34,501,000 Dallas, OR 35,334,000 Florence, OR 10,696,000 COMBINED SYSTEMS $283,228,000
The allocations of the above values to the headends within Coos Bay, Dallas, and Florence are found in Appendix C to this report. A summary of the Sale properties is as follows:
Sale Coos Bay, OR $27,837,000 Dallas, OR 15,402,000 Florence, OR 271,000 Gilroy, CA 76,000,000 Tulare, CA 31,972,000 SLO, CA 29,585,000 Central, OR 26,294,000 ----------- TOTAL $207,361,000
A summary of the Exchange properties is as follows:
Exchange Coos Bay $ 6,664,000 Dallas 19,932,000 Hesperia 38,846,000 Florence 10,425,000 ----------- TOTAL $75,867,000
3 9 II. PURPOSE OF APPRAISAL Malarkey-Taylor Associates, Inc. (MTA) was retained to conduct a fair market valuation, as of December 31, 1995, of the eight groups of cable television systems (the Systems) owned by the limited partnership of Falcon Cable Systems Company, L.P. (Falcon). Additionally, for the Coos Bay, Dallas, and Florence Systems, MTA has allocated the System fair market value among the headends comprising the particular System. As of the appraisal date, the Systems served approximately 135,000 subscribers in California and Oregon. The partnership is slated to expire in December 1996, with a buyout by the General Partner of the interest of the Limited Partners or a sale of the company. MTA was retained by the Advisory Committee to this transaction, which will use this appraisal to confirm the fair market value of the Systems as a business enterprise, in consideration of alternatives attendant to the expiration of the limited partnership. 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 locations and will continue to be employed in their highest and best use, i.e., the delivery of cable television signals to subscribers. 4 10 III. INDUSTRY OVERVIEW A. HISTORICAL BACKGROUND Cable television was born in the late 1940's. 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 average. The smallest 50 of the top 100 markets were built first, followed by the larger metropolitan areas. Premium, or 5 11 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 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 6 12 growth due to added services, increased subscriber penetrations and repackaging of programming services. 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 passed), lower average revenues per subscriber, 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' 7 13 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 approximately 660 MSO's 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 MSO's 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. Even the more entrepreneurial MSO's are well-staffed with lawyers, accountants, and MBA's. System-level management requirements vary significantly with the category of system under consideration. Classic cable operations often 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. 8 14 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. 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 9 15 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. 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 MSO's turned to acquisitions as their primary method of expansion. A flurry of acquisitions occurred 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. By 1994, several of the largest MSO's had 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 MSO's were developing exit strategies based on 10 16 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. 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. Malarkey-Taylor 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 (MDU's). DBS presents a greater competitive threat. The DBS industry, which is still very young, has 11 17 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 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 MSO's, in conjunction with telephone companies, have built these experimental systems to determine their feasibility from both technological and marketing perspectives. As of the mid-1990's, the telephone industry still is in the experimental stage with regard to using fiber optic cable to deliver video services to the home. For technological and financial reasons, full use of fiber is probably years away. Additionally, federal legislation permitting telephone and cable companies to compete directly with one another will most likely incorporate a time delay before competition begins. 12 18 IV. SYSTEM DESCRIPTION A. HISTORY AND MARKET Tables I (A1) through (B4) present demographic data published in Marketing Statistics' Demographics USA 1995 for the counties comprising the regions served by the eight Systems in California and Oregon, respectively. In California, the counties of Santa Clara, Monterey, San Benito, and San Bernardino, or portions thereof, comprised the Gilroy System's service area. The Hesperia System served portions of San Bernardino and Kern Counties. Sections of San Luis Obispo and Santa Barbara Counties were located in the San Luis Obispo System's service area, while the Tulare System's service area included portions of Tulare and Fresno counties. Data for population, households, and Effective Buying Income (EBI) were estimated for 1994 and projected for 1999. Also presented, for comparison purposes, are statewide data for California and nationwide data. From 1994 through 1999, total U.S. population was projected to grow at 0.89% per year, and the annual growth rate of total households was forecasted at 1.05%. Over the same period, the State of California was projected to experience population growth of 0.70% per year and household growth of 0.45% per year. Nationwide, average household EBI of $45,937 in 1994 was projected to grow at 3.00% per year. The average household EBI in California in 1994 was $50,713, with an annual growth rate of 2.30% through 1999. 1. Gilroy, CA The counties (or portions thereof) of Santa Clara, Monterey, and San Benito, California comprised the Gilroy System's service area. As of December 1995, about 42% of Gilroy's subscribers resided in Santa Clara, 37% in Monterey, and 20% in San Benito. Subscribers ranged from low-income migrant farm workers to well-educated professionals, although the preponderance of subscribers were low income Hispanics. As of December 31, 1995, the Gilroy System served 33,078 subscribers. 13 19 Santa Clara County is home to the community of Gilroy. Prominent industries in this county include food processing, retail sales, tourism, services, the manufacturing of paper products, and seed production. Major employers include Gilroy Foods, Gilroy Canning (food processing), and Outlet Shopping Centers (discount retail). Major medical facilities include South Valley Hospital and Kaiser out-patient medical offices. There is a two-year community college, Gavilan College, in Gilroy. The economy of Santa Clara was adversely impacted by the 1993 closure of the military facility Fort Ord. However, as of December 31, 1995, Gilroy was beginning to grow in popularity as a bedroom community to Silicon Valley. Additionally, Abbott Labs was slated to move into the area, bringing an estimated 900 new jobs to the region. The economy of Monterey County is based on agriculture, services, retail trade, and manufacturing. Major employers include Basic Vegetable Products, Casey Newspapers/Casey Printing (printing and publishing), and Cal Compak Foods. Major medical facilities include Mee Memorial Hospital and SoMoCo Medical Group. There is one community college extension facility in King City. System subscribers in this county are frequently seasonal, signing on in May and off in November to correspond with the immigrant labor work schedule. However, the nature of the workplace is beginning to change as King City attracts more residents commuting to Salinas for employment. Industries present in San Benito County include agriculture, retail trade, manufacturing, and services. The primary medical facilities in San Benito County are Hazel Hawkins Memorial Hospital and San Benito Health Foundation and Clinic. Off-air reception of regional broadcast television signals was generally poor for residents of the Gilroy System's service area. MMDS providers had some presence in Greenfield (Monterey County), however, they did not present a real threat to the cable operator as of the appraisal date. Table I (A1) includes demographic data for the counties in the Gilroy System. As shown, Santa Clara was much larger, with a 1994 population of 1,574,700, than Monterey (356,700) and San Benito (41,600). However, with an annual projected 14 20 population growth rate of 2.82% through 1999, San Benito was forecasted to expand the most rapidly. Population in Santa Clara was projected to grow at 0.81% annually, while Monterey's population was forecasted to decline at a yearly rate of 2.04%. As with population, the number of households in Santa Clara in 1994, 531,600, was proportionately larger than either Monterey or San Benito. Projected household growth in San Benito was the highest of the three counties, at 2.69% per year. Household growth was projected to be 0.42% per year in Santa Clara, while in Monterey the number of households was projected to decline at an annual rate of 2.46% through 1999. Average EBI per household in Santa Clara in 1994 was estimated to be $63,372. The corresponding figures were $50,626 in Monterey and $45,062 in San Benito. Santa Clara also had a higher projected annual EBI growth rate of 2.63% than both Monterey (2.51%) and San Benito (0.36%). Household EBI figures were substantially higher in Santa Clara and moderately higher in Monterey than the national average of $45,937. The corresponding figure in San Benito was comparable to the national average, although the majority of the Gilroy System subscribers were low income. TABLE I (A1)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- GILROY SYSTEM Santa Clara County, CA - ---------------------- Total Population 1,574,700 1,639,400 0.81% Total Households 531,600 542,800 0.42% Median Age 33.05 N/A Effective Buying Income (EBI) Total EBI (000's) $33,688,736 $39,158,109 3.05% Average Household EBI $63,372 $72,141 2.63%
15 21 TABLE I (A1) (CONTINUED)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- GILROY SYSTEM Monterey County, CA - ------------------- Total Population 356,700 321,800 -2.04% Total Households 112,700 99,500 -2.46% Median Age 31.0 N/A Effective Buying Income (EBI) Total EBI (000's) $5,705,518 $5,701,382 -0.01% Average Household EBI $50,626 $57,300 2.51% San Benito County, CA - --------------------- Total Population 41,600 47,800 2.82% Total Households 12,700 14,500 2.69% Median Age 31.4 N/A Effective Buying Income (EBI) Total EBI (000's) $572,283 $665,112 3.05% Average Household EBI $45,062 $45,870 0.36% State of California - ------------------- Total Population 31,957,300 33,089,800 0.70% Total Households 10,886,200 11,130,600 0.45% Median Age 32.7 N/A Effective Buying Income (EBI) Total EBI (000's) $552,074,838 $632,548,630 2.76% Average Household EBI $50,713 $56,830 2.30% United States of America - ------------------------ Total Population 262,213,300 274,074,500 0.89% Total Households 96,571,000 101,749,100 1.05% Median Age 34.15 N/A Effective Buying Income (EBI) Total EBI (000's) $4,436,178,724 $5,418,070,332 4.08% Average Household EBI $45,937 $53,249 3.00%
16 22 2. Hesperia, CA As of December 31, 1995, the Hesperia System served portions of San Bernardino and Kern Counties. About 77% of System subscribers resided in San Bernardino, while the other 23% were in Kern County. Hesperia is primarily a residential town. The majority of local businesses are small, such as restaurants, motels, and shops. A substantial portion of the local population, approximately 30%, receives some form of state-sponsored financial aid. About 40% of residents in the neighboring community of Adelanto are welfare recipients. The 1993 closure of George Air Force Base, a military facility located in the region, was an important factor causing high unemployment in the region. Despite the high level of welfare recipients, as of the valuation date, Adelanto and Rosamond were growing more rapidly than other parts of the System's service area. These communities provided a source of affordable housing for families with modest income. The economy of Kern County is supported by services, agriculture, retail trade, and mineral extraction. Major employers include Sun World/Superior Farms, Grimmway Farms, and Giumarra Vineyards. Major medical facilities include Mercy Healthcare, San Joaquin, Kern Medical Memorial, Mercy Southwest, and Good Samaritan. The county is home to a branch campus of California State University, the Pacific School of Law, and one community college. San Bernardino County had a population of 1,605,900 in 1994, with a projected yearly growth rate of 0.61% through 1999, as shown in Table I (A2). Kern County had a smaller population of 617,900, but a higher growth rate of 1.56%. The number of households in San Bernardino was 516,000 in 1994 and was forecasted to grow at 0.39% per year through 1999. As with population, Kern County had fewer households, at 200,500, but a higher household growth rate of 1.47% per year, than San Bernadino. Estimated average EBI per household in San Bernardino in 1994 was $44,943, with an annual growth rate of 2.22%. Kern County had a lower EBI of $40,409, but a slightly higher EBI growth rate of 2.32% per year. Household EBI figures for Hesperia 17 23 service area were lower than the corresponding figures for the State of California and the U.S. as a whole. TABLE I (A2)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- HESPERIA SYSTEM San Bernardino County, CA ------------------------- Total Population 1,605,900 1,655,600 0.61% Total Households 516,000 526,200 0.39% Median Age 30.2 N/A Effective Buying Income (EBI) Total EBI (000's) $23,087,593 $26,279,762 2.62% Average Household EBI $44,743 $49,943 2.22% Kern County, CA --------------- Total Population 617,900 667,600 1.56% Total Households 200,500 215,700 1.47% Median Age 30.75 N/A Effective Buying Income (EBI) Total EBI (000's) $8,101,940 $9,775,806 3.83% Average Household EBI $40,409 $45,321 2.32%
3. San Luis Obispo, CA Sections of San Luis Obispo and Santa Barbara Counties comprised the San Luis Obispo System's service area. Generally, the communities served by the System are economically stable. Particularly large employers in the region contributing to the stability include the Pacific Gas and Electricity Company and California Polytech College. Other large private employers include Mid-State Bank, Hind Inc. (sportswear), and American Eagle Airline. The coast of San Luis Obispo is populated with tourists and supports numerous restaurants and hotels. The community of Atascadero, populated primarily by low-to-middle-income residents, is home to Atascadero State Hospital. 18 24 Almost 93% of System subscribers resided in San Luis Obispo County, which had a 1994 population of 229,900. The county was forecasted to grow at a rate of 0.58% per year through 1999, as shown in Table I (A3). The households in San Luis Obispo, totaling 84,500 in 1994, were projected to grow at a yearly rate of 0.61%. Estimated average household EBI in San Luis Obispo of $45,148 was forecasted to grow by 2.18% annually. Although lower than the California statewide household EBI figure, it was comparable to nationwide household EBI. TABLE I (A3)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- SAN LUIS OBISPO SYSTEM San Luis Obispo County, CA -------------------------- Total Population 229,900 236,700 0.58% Total Households 84,500 87,100 0.61% Median Age 34.6 N/A Effective Buying Income (EBI) Total EBI (000's) $3,815,008 $4,380,903 2.80% Average Household EBI $45,148 $50,297 2.18% Santa Barbara County, CA ------------------------ Total Population 338,400 398,100 3.30% Total Households 133,400 134,800 0.21% Median Age 33 N/A Effective Buying Income (EBI) Total EBI (000's) $7,021,150 $7,945,923 2.51% Average Household EBI $52,632 $58,946 2.29%
4. Tulare, CA The Tulare System serves portions of both Tulare County and Fresno County. However, subscribers in Fresno comprised only about 1% of total Tulare System subscribers. The vast majority resided in Tulare County. The service area's economy is agriculture-based, and, as of 1995 was still experiencing the negative effects of a 1991 19 25 crop-destroying freeze, which led to continuing high levels of unemployment. The largest employer in the area was Wal Mart Distribution Center. About 50% of the System's service area residents were Hispanic, many of whom were illegal residents. As of the appraisal date, Choice Wireless, an MMDS provider that entered the market in 1993, had an estimated 3,000 subscribers, many in the Tulare System's service area. As of December 1995, Choice Wireless offered fewer channels, but at a lower price than the comparable System package. Off-air reception of regional broadcast television stations from Fresno and Bakersfield was good. The three factors of low- income residents, easy access to off-air signals, and the presence of an aggressive competitor kept downward pressure on the System's subscriber levels. In 1994, Tulare County had a population of 351,000, with an annual growth rate of 1.63%, shown in Table I (A4). The number of households in the county was 107,800 in 1994, and was estimated to grow at 1.49% per year through 1999. In 1994, the average household EBI of $37,515 in Tulare was notably lower than the corresponding figures for the State of California and the U.S. as a whole. TABLE I (A4)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- TULARE SYSTEM Tulare County, CA ----------------- Total Population 351,000 380,500 1.63% Total Households 107,800 116,100 1.49% Median Age 30.2 N/A Effective Buying Income (EBI) Total EBI (000's) $4,044,102 $5,020,144 4.42% Average Household EBI $37,515 $43,240 2.88%
20 26 TABLE I (A4) (CONTINUED)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- TULARE SYSTEM Fresno County, CA ----------------- Total Population 755,800 812,500 1.46% Total Households 246,000 263,900 1.41% Median Age 30.25 N/A Effective Buying Income (EBI) Total EBI (000's) $9,658,848 $11,543,464 3.63% Average Household EBI $39,264 $43,742 2.18%
In Oregon, portions of the counties of Lane, Douglas, Linn and Josephine were served by the Central Region System. Portions of Coos and Douglas Counties were included in the Coos Bay System's service area. The Dallas System's service area covered the counties of Tillamook, Polk, Marion, and Clatsop, and the Florence System served portions of Lane County. Data for population, households, and Effective Buying Income (EBI) were estimated for 1994 and projected for 1999. Also presented, for comparison purposes, are statewide data for Oregon and nationwide data. From 1994 through 1999, the State of Oregon was projected to experience population growth of 1.66% per year and household growth of 1.79% per year. The average household EBI in Oregon in 1994 was estimated at $40,597, and it was projected to grow at 3.32% per year through 1999. 5. Central Region, OR Portions of the counties of Lane, Douglas, Josephine, and Linn comprised the Central Region System's service area. About 71% of the subscribers resided in Lane, 23% in Douglas, 3% in Josephine, while the remainder resided in Linn. The economy in Lane County is based on retail, lumber and wood, and tourism. Major medical facilities in Lane County are Sacred Heart General Hospital and 21 27 McKenzie Williamette Hospital. Higher education is available at the local campus of the University of Oregon. Lane Community College provides an additional education option. Douglas County is very similar to Lane County economically, with retail trade, lumber and wood, and services as its dominant industries. As of the appraisal date, an MMDS competitor, American Telecasting, had been in the Central Region System's service area for about two years. There were no SMATV operators in the market, which was most likely due to the limited numbers of MDU's in the area. Table I (B1) indicates that Lane County had a 1994 population of 300,900, which was forecasted to grow at a rate of 1.23% through 1999. Douglas County's smaller population of 98,800 was also forecasted to grow at a lower yearly rate of 0.86%. The number of Households in Lane was estimated at 118,000 in 1994, and was forecasted to grow annually by 1.45%. As with population, the number of households in Douglas was proportionately lower (37,400) than the corresponding figure in Lane. Projected household growth for Douglas was lower as well. Average household EBI in 1994 was estimated to be $37,290 in Lane and $32,121 in Douglas. Both EBI figures were notably lower than corresponding figures for the State of Oregon ($40,597) and the U.S. as a whole ($45,957). The annual EBI growth rates were projected at 3.28% in Lane and 2.55% in Douglas. TABLE I (B1)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- CENTRAL REGION SYSTEM Linn County, OR --------------- Total Population 98,700 106,900 1.61% Total Households 37,300 40,400 1.61% Median Age 36.2 N/A
22 28 TABLE I (B1) (CONTINUED)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- CENTRAL REGION SYSTEM Effective Buying Income (EBI) Total EBI (000's) $1,365,909 $1,754,617 5.14% Average Household EBI $36,620 $43,431 3.47% Josephine County, OR -------------------- Total Population 69,700 79,500 2.67% Total Households 28,100 32,600 3.02% Median Age 40.8 N/A Effective Buying Income (EBI) Total EBI (000's) $864,228 $1,153,979 5.95% Average Household EBI $30,755 $35,398 2.85% Lane County, OR --------------- Total Population 300,900 319,900 1.23% Total Households 118,000 126,800 1.45% Median Age 35.35 N/A Effective Buying Income (EBI) Total EBI (000's) $4,400,199 $5,557,458 4.78% Average Household EBI $37,290 $43,829 3.28% Douglas County, OR ------------------ Total Population 98,800 103,100 0.86% Total Households 37,400 39,400 1.05% Median Age 37.3 N/A Effective Buying Income (EBI) Total EBI (000's) $1,201,337 $1,435,185 3.62% Average Household EBI $32,121 $36,426 2.55% State of Oregon --------------- Total Population 3,120,400 3,387,800 1.66% Total Households 1,207,400 1,319,600 1.79% Median Age 35.8 N/A
23 29 TABLE I (B1) (CONTINUED)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- CENTRAL REGION SYSTEM Effective Buying Income (EBI) Total EBI (000's) $49,016,991 $63,085,455 5.18% Average Household EBI $40,597 $47,806 3.32% United States of America ------------------------ Total Population 262,213,300 274,074,500 0.89% Total Households 96,571,000 101,749,100 1.05% Median Age 34.15 N/A Effective Buying Income (EBI) Total EBI (000's) $4,436,178,724 $5,418,070,332 4.08% Average Household EBI $45,937 $53,249 3.00%
6. Coos Bay, OR The Coos Bay System served portions of Coos County and Douglas County. However, about 90% of the subscribers resided in Coos County. Industries that are predominant in Coos County include agriculture, commercial fishing, and forestry. Bay Area Hospital serves the county. As of the appraisal date, DBS competitors in the market included Direct TV and Primestar, although, the number of subscribers was limited and had yet to impact the System. SMATV operators also had a limited presence in the market. There were no MMDS competitors in the market. As shown in Table I (B2), Coos County had a population of 62,800, with a projected annual growth rate of 0.50% through 1999. The number of households was estimated at 25,200 in 1994, and was projected to grow at 0.78% per year. Average household EBI in 1994 was estimated to be $31,285 in Coos, and was forecasted to grow at an annual rate of 2.63%. Average EBI figures for the System's service area were significantly lower than both the Oregon statewide and nationwide averages. 24 30 TABLE I (B2)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- COOS BAY SYSTEM Coos County, OR --------------- Total Population 62,800 64,400 0.50% Total Households 25,200 26,200 0.78% Median Age 38.75 N/A Effective Buying Income (EBI) Total EBI (000's) $788,394 $933,095 3.43% Average Household EBI $31,285 $35,614 2.63% Douglas County, OR ------------------ Total Population 98,800 103,100 0.86% Total Households 37,400 39,400 1.05% Median Age 37.3 N/A Effective Buying Income (EBI) Total EBI (000's) $1,201,337 $1,435,185 3.62% Average Household EBI $32,121 $36,426 2.55%
7. Dallas, OR The counties of Polk, Tillamook, Marion, and Clatsop comprised the Dallas System's service area. Approximately 38% of System subscribers resided in Polk, 31% in Marion, 24% in Tillamook, while less than 7% were in Clatsop. The economy of the service area is based on lumber and wood products, agriculture, and manufacturing. Valley Community Hospital serves the area from the City of Dallas in Polk County. In terms of population, Marion was the largest county in the service area, with a population of 253,300. Population figures for Polk and Tillamook were 56,500 and 23,500, respectively. With an annual growth rate of 2.43%, Polk was projected to expand more rapidly than both Tillamook (1.96%) and Marion (1.84%). The number of households in Marion in 1994 was 91,700. Households totaled 20,600 in Polk and 9,700 25 31 in Tillamook. Projected household growth for Polk of 2.58%, was higher than growth in Tillamook (1.98%) and Marion (1.89%). Estimated average EBI per household of $40,200 in Marion was higher than EBI figures for Polk and Tillamook of $36,245 and $32,432, respectively. Marion also had a higher projected annual EBI growth rate at 3.45% than both Tillamook (3.17%) and Polk (1.79%). Household EBI figures in the Dallas System's service area were lower than EBI figures for both the State of Oregon and the U.S. as a whole. This information is presented in Table I (B3). TABLE I (B3)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- DALLAS SYSTEM Tillamook County, OR -------------------- Total Population 23,500 25,900 1.96% Total Households 9,700 10,700 1.98% Median Age 41.3 N/A Effective Buying Income (EBI) Total EBI (000's) $314,595 $405,556 5.21% Average Household EBI $32,432 $37,902 3.17% Clatsop County, OR ------------------ Total Population 35,400 37,700 1.27% Total Households 14,100 15,100 1.38% Median Age 37.05 N/A Effective Buying Income (EBI) Total EBI (000's) $465,808 $529,530 2.60% Average Household EBI $33,036 $35,068 1.20% Polk County, OR --------------- Total Population 56,500 63,700 2.43% Total Households 20,600 23,400 2.58% Median Age 35.5 N/A
26 32 TABLE I (B3) (CONTINUED)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- DALLAS SYSTEM Effective Buying Income (EBI) Total EBI (000's) $746,649 $926,837 4.42% Average Household EBI $36,245 $39,608 1.79% Marion County, OR ----------------- Total Population 253,300 277,500 1.84% Total Households 91,700 100,700 1.89% Median Age 35.05 N/A Effective Buying Income (EBI) Total EBI (000's) $3,686,300 $4,796,522 5.41% Average Household EBI $40,200 $47,632 3.45%
8. Florence, OR As of the appraisal date, the Florence System's subscribers resided in or near Lane County, Oregon. Lane County, served by the Central Region System, was discussed earlier in this report. Data is presented in Table I (B4). TABLE I (B4)
Annual 1994 1999 Growth Rate Estimate Projection 1994-1999 -------- ---------- --------- FLORENCE SYSTEM Lane County, OR --------------- Total Population 300,900 319,900 1.23% Total Households 118,000 126,800 1.45% Median Age 35.35 N/A Effective Buying Income (EBI) Total EBI (000's) $4,400,199 $5,557,458 4.78% Average Household EBI $37,290 $43,829 3.28%
27 33 B. SERVICES Tables II (A1) through (H2) present information on programming offered to subscribers in the eight Systems, as of the appraisal date. Given the use of multiple headends in each System and varying channel capacities, program line-ups available to subscribers differed within the individual Systems. The premium services are shown in boldface and tier services are indicated by =, +, ++ and +++ markings. 1. Gilroy, CA As of December 31, 1995, Gilroy subscribers were served by four headends. Table II (A1) presents the programming service offered by the Gilroy headend, which is microwaved to the counties of Santa Clara and San Benito. Subscribers receiving this programming service comprised about 60% of total System subscribers. Programming included a 21-channel basic service, two tier services, six premium channels, and one pay-per-view channel. Basic service included fourteen local broadcast TV stations, six satellite-delivered services, and one community access programming service. Premium services included Encore, The Movie Channel, The Disney Channel, Showtime, Cinemax and HBO. The single pay-per-view service offered was Request. Subscribers residing in Monterey and San Benito, which comprised about 19% of System subscribers, received the same service with one exception -- Encore was not available. In its place, C-SPAN was offered. Roughly 9% of subscribers received programming from the Soledad/Gonzales headend. The 35-channel lineup presented in Table II (A2) included a 16-channel basic service, a 7-channel tier service, a 6-channel tier service, five premium channels, and one pay-per-view service. About 8% of System subscribers received the programming shown in Table II (A3) from the King City headend, while less than 5% received the same programming from the Greenfield headend. These subscribers received a 24-channel basic service, a 3-channel tier, a 5-channel tier service, and three premium channels. 28 34 TABLE II (A1) GILROY HEADEND * 1 REQUEST - PAY PER VIEW 2 KTVU 2-Fox Oakland, CA 3 KICU-TV 36-IND San Jose, CA 4 KRON-TV 4-NBC San Francisco, CA 5 KCCN-TV 46-CBS Monterey, CA 6 KSBW 8-NBC Salinas-Monterey, CA 7 KGO-TV 7-ABC San Francisco, CA 8 KCBA 35-Fox Salinas-Monterey, CA 9 KQED 9-PBS San Francisco, CA 10 KPIX 5-CBS San Francisco, CA 11 KBHK-TV 44-Ind San Francisco, CA 12 KNTV 11-ABC San Jose, CA 13 KSMS-TV 67-Univsn Monterey, CA 14 KTEH 54-PBS San Jose, CA * 15 ENCORE * 16 THE MOVIE CHANNEL * 17 THE DISNEY CHANNEL * 18 SHOWTIME * 20 CINEMAX * 21 HBO + 22 The Family Channel + 23 USA Network + 24 The Discovery Channel + 25 TNT = 26 CNN = 27 The Nashville Network = 28 ESPN 29 Lifetime 30 QVC 31 Arts & Entertainment 32 Nickelodeon 33 WTBS 17-IND Atlanta, GA 34 Local - Community Access/PEG 35 KSTS 48-Telemundo San Jose, CA 36 MTV
29 35 TABLE II (A2) SOLEDAD/GONZALES * 1 REQUEST - PAY PER VIEW 2 KTVU 2-Fox Oakland, CA 3 WTBS 17-IND Atlanta, GA 4 KCCN-TV 46-CBS Monterey, CA 5 KCBA 35-Fox Salinas-Monterey, CA 6 KSBW 8-NBC Salinas-Monterey, CA 7 Local - Community Access/PEG 8 Local - Community Access/PEG + 9 USA Network 10 KNTV 11-ABC San Jose, CA 11 KQED 9-PBS San Francisco, CA 12 KICU-TV 36-IND San Jose, CA 13 KSMS-TV 67-Univsn Monterey, CA 14 QVC = 15 Lifetime = 16 The Family Channel = 17 ESPN = 18 The Nashville Network = 20 American Movie Classics = 21 Country Music TV = 22 Galavision + 23 CNN + 24 The Discovery Channel * 25 HBO * 26 CINEMAX * 28 SHOWTIME 29 Sneak Prevue * 30 THE MOVIE CHANNEL * 31 THE DISNEY CHANNEL + 32 Nickelodeon + 33 CNN Headline News 34 Arts & Entertainment + 35 Cartoon Network 36 MTV 37 Home Shopping Network
30 36 TABLE II (A3) KING CITY AND GREENFIELD HEADENDS * 2 THE MOVIE CHANNEL 3 KCBA 35-Fox Salinas-Monterey, CA 4 The Discovery Channel * 5 SHOWTIME 6 The Family Channel 7 Galavision 8 KTVU 2-Fox Oakland, CA 9 KQED 9-PBS San Francisco, CA 10 KSBW 8-NBC Salinas-Monterey, CA 11 KNTV 11-ABC San Jose, CA 12 KCCN-TV 46-CBS Monterey, CA 13 KSMS-TV 67-Univsn Monterey, CA * 14 THE DISNEY CHANNEL 15 Local - Monterey Co. Office Educational 16 Local - Community Access/PEG + 17 WTBS 17-IND Atlanta, GA + 18 WGN-TV + 20 TNT + 21 CNN + 22 CNN Headline News 23 QVC 24 The Nashville Network 25 USA Network 26 MTV 27 Nickelodeon 28 ESPN = 29 The Learning Channel = 30 The Weather Channel = 31 Arts & Entertainment 32 Bravo 33 American Movie Classics 34 Country Music TV 35 Sci-Fi Channel 36 Lifetime 37 Home Shopping Network
31 37 2. Hesperia, CA The Hesperia System operated with five headends as of the appraisal date. Table II (B1) presents the programming available to subscribers served by the Hesperia headend, who comprised 58% of total System subscribers. Programming included a 21-channel basic service, an 8-channel tier service, a 7-channel tier service, six premium channels, and one pay-per-view service. Basic service included nine local broadcast TV stations, 12 satellite-delivered services, and one local community programming channel. Premium services included HBO, Cinemax, Showtime, The Movie Channel, Encore, and The Disney Channel. Request pay-per-view service was also offered. About 19% of System subscribers received the programming shown in Table II (B2) from the Adelanto headend. This line-up was similar to the line-up available from the Hesperia headend. Minor differences included the packaging of Comedy Central and VH-1, and the inclusion of BET in place of Nostalgia. About 18% of subscribers had access to a 40-channel programming service from the Mojave/Rosamond headend shown in Table II (B3). Included were a 26-channel basic service (channel 29 was shared by Comedy Central and VH-1), a 5-channel tier service, a 4-channel tier, and five premium channels. About 4% of System subscribers received a 28-channel programming service from the Boron headend, while 1% received a 40-channel programming service from the North Edwards headend. These services are presented in Tables II (B4) and (B5), respectively. TABLE II (B1) HESPERIA HEADEND 2 KCBS-TV 2-CBS Los Angeles, CA = 3 ESPN 4 KNBC 4-NBC Los Angeles, CA 5 KTLA 5-Ind Los Angeles, CA 6 KCET 28-PBS Los Angeles, CA
32 38 TABLE II (B1) (CONTINUED) HESPERIA HEADEND 7 KABC-TV 7-ABC Los Angeles, CA 8 KHIZ 64-Ind Barstow, CA 9 KCAL 9-Ind Los Angeles, CA 10 Univision 11 KTTV 11-Fox Los Angeles, CA 12 WGN-TV 13 KCOP 13-Ind Los Angeles, CA 14 QVC 15 Local - Character Generated = 16 The Travel Channel = 17 Arts & Entertainment = 18 The Family Channel = 19 Country Music TV = 20 Lifetime = 21 The Nashville Network = 22 American Movie Classics + 23 CNN Headline News + 24 The Discovery Channel 25 The Learning Channel 26 C-SPAN + 27 Nickelodeon + 28 USA Network + 29 CNN 30 Comedy Central 30 VH-1 31 Nostalgia 32 MTV 33 TNT + 34 Prime Sports * 35 HBO 36 WTBS 17-Ind Atlanta, GA * 37 CINEMAX * 38 SHOWTIME * 39 THE MOVIE CHANNEL * 40 ENCORE * 41 THE DISNEY CHANNEL * 42 REQUEST - PAY PER VIEW 43 Home Shopping Network + 44 TV Food Network
33 39 TABLE II (B2) ADELANTO HEADEND 2 KCBS-TV 2-CBS Los Angeles, CA = 3 ESPN 4 KNBC 4-NBC Los Angeles, CA 5 KTLA 5-Ind Los Angeles, CA 6 KCET 28-PBS Los Angeles, CA 7 KABC-TV 7-ABC Los Angeles, CA 8 KHIZ 64-Ind Barstow, CA 9 KCAL 9-Ind Los Angeles, CA 10 Univision 11 KTTV 11-Fox Los Angeles, CA 12 WGN-TV 13 KCOP 13-Ind Los Angeles, CA 14 QVC 15 Local - Character Generated = 16 The Travel Channel = 17 Arts & Entertainment = 18 The Family Channel = 19 Country Music TV = 20 Lifetime = 21 The Nashville Network = 22 American Movie Classics + 23 CNN Headline News + 24 The Discovery Channel 25 The Learning Channel 26 C-SPAN + 27 Nickelodeon + 28 USA Network + 29 CNN = 30 Comedy Central = 30 VH-1 31 Black Entertainment TV 32 MTV 33 TNT + 34 Prime Sports * 35 HBO 36 WTBS 17-Ind Atlanta, GA * 37 CINEMAX
34 40 TABLE II (B2) (CONTINUED) ADELANTO HEADEND * 38 SHOWTIME * 39 THE MOVIE CHANNEL * 40 ENCORE * 41 THE DISNEY CHANNEL * 42 REQUEST - PAY PER VIEW 43 Home Shopping Network + 44 TV Food Network
35 41 TABLE II (B3) MOJAVE/ROSAMOND HEADEND 2 KCBS-TV 2-CBS Los Angeles, CA 3 KHIZ 64-Ind Barstow, CA 4 KNBC 4-NBC Los Angeles, CA 5 KTLA 5-Ind Los Angeles, CA 6 ESPN 7 KABC-TV 7-ABC Los Angeles, CA 8 KTBN-TV 40 Ind Los Angeles, CA 9 KCAL 9-Ind Los Angeles, CA 10 Spanish International Network 11 KTTV 11-Fox Los Angeles, CA 12 KCET 28-PBS Los Angeles, CA 13 KCOP 13-Ind Los Angeles, CA 14 The Family Channel + 15 TV Food Network + 16 ESPN 2 + 17 WTBS 17-Ind Atlanta, GA + 18 WGN-TV = 19 Lifetime = 20 CNN = 21 CNN Headline News = 22 The Discovery Channel = 23 American Movie Classics * 24 HBO * 25 CINEMAX * 26 SHOWTIME * 27 THE MOVIE CHANNEL 28 MTV 29 Comedy Central 29 VH-1 * 30 THE DISNEY CHANNEL 31 Local - Community Access/PEG 32 ACTS 33 CNBC 34 QVC 35 USA Network 36 Sci-Fi Channel 37 Bravo 38 E! - Entertainment 39 Home Shopping Network 40 The Nashville Network 41 Nickelodeon
36 42 TABLE II (B4) BORON HEADEND 2 KCBS-TV 2-CBS Los Angeles, CA + 3 WTBS 17-Ind Atlanta, GA 4 KNBC 4-NBC Los Angeles, CA 5 KTLA 5-Ind Los Angeles, CA * 6 SHOWTIME 7 KABC-TV 7-ABC Los Angeles, CA 8 KHIZ 64-Ind Barstow, CA 9 KCAL 9-Ind Los Angeles, CA + 10 The Discovery Channel 11 KTTV 11-Fox Los Angeles, CA 12 KBAK-TV 29-ABC Bakersfield, CA 13 KCOP 13-Ind Los Angeles, CA 14 MTV 15 KERO-TV 23-CBS Bakersfield, CA 16 Home Shopping Network * 17 THE MOVIE CHANNEL + 18 CNN 20 The Family Channel * 21 HBO * 22 THE DISNEY CHANNEL 23 ESPN 24 C-SPAN + 25 The Nashville Network 26 QVC + 27 TV Food Network 28 Nickelodeon = 29 American Movie Classics = 30 Lifetime
37 43 TABLE II (B5) NORTH EDWARDS HEADEND 2 KCBS-TV 2-CBS Los Angeles, CA 3 Arts & Entertainment 4 KNBC 4-NBC Los Angeles, CA 5 KTLA 5-Ind Los Angeles, CA 6 KCET 28-PBS Los Angeles, CA 7 KABC-TV 7-ABC Los Angeles, CA 8 KHIZ 64-Ind Barstow, CA 9 KCAL 9-Ind Los Angeles, CA 10 The Learning Channel 11 Fox Network 12 WGN-TV 13 KCOP 13-Ind Los Angeles, CA 14 QVC 15 KTBN-TV 40 Ind Los Angeles, CA 16 WTBS 17-Ind Atlanta, GA 17 C-SPAN + 18 CNN + 20 Nickelodeon + 21 CNN Headline News + 22 The Discovery Channel = 23 American Movie Classics = 24 The Family Channel = 25 Lifetime = 26 ESPN = 27 Sci-Fi Channel = 28 The Nashville Network = 29 Country Music TV 30 Comedy Central 30 VH-1 31 MTV 32 TNT + 33 Prime Sports * 34 HBO * 35 CINEMAX 36 The Travel Channel * 37 SHOWTIME * 38 THE MOVIE CHANNEL * 39 THE DISNEY CHANNEL + 40 USA Network 41 Home Shopping Network + 42 TV Food Network
38 44 3. San Luis Obispo, CA As of the appraisal date, the San Luis Obispo System had four headends. Table II (C1) presents the programming available to subscribers receiving service from the San Luis Obispo County headend. These subscribers comprised about 56% of total System subscribers. Programming included a 22-channel basic service, a 13-channel expanded basic service, a 6-channel tier service, two 4-channel tiers, six premium channels, and one pay-per-view service. Basic service included eight local broadcast TV stations, ten satellite-delivered services, and five local community access programming services. Premium services included The Disney Channel, Showtime, Cinemax, HBO, The Movie Channel, and Playboy. The pay-per-view service Request was also available. Due to limited capacity, channel sharing was employed for several channels, including two local community access programming services, VH-1, and Comedy Central. About 37% of subscribers were served by the Atascadero headend. These subscribers had access to the 36 channels of programming shown in Table II (C2). Basic service included one local community access programming channel, and the same local broadcast TV stations and satellite-delivered services available at the San Luis Obispo County headend. Premium and pay-per-view services also duplicated those at the San Luis Obispo County headend. About 5% of San Luis Obispo System subscribers were served by the Guadalupe headend, and less than 2% were served by the Los Alamos headend. Tables II (C3) and (C4) present the programming services received by those subscribers, respectively. 39 45 TABLE II (C1) SAN LUIS OBISPO HEADEND 2 KCOY-TV 12-CBS Santa Maria, CA 3 KEYT-TV 3-ABC Santa Barbara, CA 4 KSBY 6-NBC San Luis Obispo, CA 5 KTLA 5-Ind Los Angeles, CA 6 California Channel 7 The Family Channel 8 KCET 28-PBS Los Angeles, CA 9 KCAL 9-Ind Los Angeles, CA 10 C-SPAN 11 KTTV 11-Fox Los Angeles, CA 12 QVC 13 KADY-TV 63-Ind Oxnard, CA 14 WTBS 17-Ind Atlanta, GA 15 Arts & Entertainment 16 The Learning Channel * 17 THE DISNEY CHANNEL + 18 Prime Sports * 19 SHOWTIME * 20 CINEMAX * 21 HBO * 22 THE MOVIE CHANNEL + 23 Bravo * 24 REQUEST - PAY PER VIEW = 25 CNN = 26 The Nashville Network = 27 American Movie Classics = 28 Lifetime = 29 Comedy Central = 30 CNBC = 31 ESPN 32 Nickelodeon 33 USA Network + 34 The Discovery Channel 35 TNT 36 MTV = 37 Univision = 38 Prevue Guide = 39 Home Shopping Network = 40 Sneak Prevue = 41 TV Food Network = 42 ESPN 2 +++ 43 The History Channel +++ 45 Country Music TV
40 46 TABLE II (C1) (CONTINUED) SAN LUIS OBISPO HEADEND +++ 46 FXM - Fox Movies +++ 47 Eternal Word TV Network ++ 48 Cartoon Network ++ 50 E! - Entertainment TV ++ 51 Sci-Fi Channel ++ 52 Newstalk Television + 53 The Weather Channel + 54 CNN Headline News + 55 Home & Garden TV 59 Local - Government Access 60 Local - Educational Access 61 Local - Community Access/PEG * 80 PLAYBOY
41 47 TABLE II (C2) ATASCADERO HEADEND 2 KCOY-TV 12-CBS Santa Maria, CA 3 KEYT-TV 3-ABC Santa Barbara, CA 4 KSBY 6-NBC San Luis Obispo, CA 5 KTLA 5-Ind Los Angeles, CA 6 Local - Community Access/PEG 7 The Family Channel 8 KCET 28-PBS Los Angeles, CA 9 KCAL 9-Ind Los Angeles, CA 10 C-SPAN 11 KTTV 11-Fox Los Angeles, CA 12 QVC 13 KADY-TV 63-Ind Oxnard, CA 14 WTBS 17-Ind Atlanta, GA 15 Arts & Entertainment 16 The Learning Channel * 17 THE DISNEY CHANNEL + 18 Prime Sports * 19 SHOWTIME * 20 CINEMAX * 21 HBO * 22 THE MOVIE CHANNEL + 23 Bravo * 24 REQUEST - PAY PER VIEW = 25 CNN = 26 The Nashville Network = 27 American Movie Classics = 28 Lifetime = 29 Comedy Central = 29 VH-1 = 30 CNBC = 31 ESPN 32 Nickelodeon 33 USA Network + 34 The Discovery Channel 35 TNT 36 MTV * 80 PLAYBOY
42 48 TABLE II (C3) GUADALUPE HEADEND 2 KCOY-TV 12-CBS Santa Maria, CA 3 KEYT-TV 3-ABC Santa Barbara, CA 4 KSBY 6-NBC San Luis Obispo, CA 5 KTLA 5-Ind Los Angeles, CA 6 Local - Community Access/PEG 7 K07TA 7-LPTV Santa Maria, CA 8 KCET 28-PBS Los Angeles, CA 9 KCAL 9-Ind Los Angeles, CA 10 C-SPAN 11 KTTV 11-Fox Los Angeles, CA 12 QVC 13 KADY-TV 63-Ind Oxnard, CA 14 WTBS 17-Ind Atlanta, GA 15 Arts & Entertainment 16 The Learning Channel * 17 THE DISNEY CHANNEL + 18 Prime Sports * 19 SHOWTIME * 20 CINEMAX * 21 HBO * 22 THE MOVIE CHANNEL + 23 Bravo * 24 REQUEST - PAY PER VIEW = 25 CNN = 26 The Nashville Network = 27 American Movie Classics = 28 Lifetime = 29 Comedy Central = 29 VH-1 = 30 CNBC 31 ESPN 32 Nickelodeon 33 USA Network + 34 The Discovery Channel 35 TNT 36 MTV * 80 PLAYBOY
43 49 TABLE II (C4) LOS ALAMOS HEADEND 2 QVC 3 KEYT-TV 3-ABC Santa Barbara, CA 4 The Family Channel 5 Bravo 6 KSBY 6-NBC San Luis Obispo, CA * 7 HBO * 8 CINEMAX 9 The learning Channel 10 MTV 11 ESPN 12 KCOY-TV 12-CBS Santa Maria, CA 13 Local - Community Access = 14 USA Network = 15 Lifetime = 16 Country Music TV + 17 CNN + 18 WTBS 17-Ind Atlanta, GA + 19 The Discovery Channel + 20 CNN Headline News * 21 THE DISNEY CHANNEL * 22 GALAVISION
4. Tulare, CA As of the appraisal date, the Tulare System was served by three headends. About 98% of System subscribers received programming from the Porterville/Tulare headend. As shown in Table II (D1), the service consisted of a 21-channel basic service, two 6-channel tier services, five premium channels, and one pay-per-view channel. Basic service included 14 local broadcast TV stations, six satellite-delivered services, and one local community access programming service. Premium services offered were The Disney Channel, Cinemax, The Movie Channel, HBO, and Showtime. The pay-per-view service Request was also offered. 44 50 About 1% of the subscribers received a 12-channel program line-up from the California Hot Springs headend, and less than 1% subscribers received a 13-channel line-up from Jack Ranch/Posey headend. Tables II (D2) and (D3) present this information. TABLE II (D1) PORTERVILLE/TULARE HEADEND + 1 Country Music TV 2 KSEE 24-NBC Fresno, CA 3 KFSN-TV 30-ABC Fresno, CA 4 KVPT 18-PBS Fresno, CA 5 KTLA 5-Ind Los Angeles, CA 6 KMPH 26-Fox Visalia-Fresno, CA 7 KJEO 47-CBS Fresno, CA 8 KBAK-TV 29-ABC Bakersfield, CA 9 KFTV 21-Univsn Hanford, CA 10 KERO-TV 23-CBS Bakersfield, CA 11 KNXT 49-ETV Visalia, CA 12 Local-Character Generated 13 USA Network 14 WTBS 17-Ind Atlanta, GA + 15 C-SPAN + 15 Prime Sports + 16 TNT 17 KGET 17-NBC Bakersfield, CA = 18 The Discovery Channel = 19 The Weather Channel = 20 Lifetime = 21 ESPN = 22 CNBC 23 MTV + 24 CNN = 25 Nickelodeon + 26 The Nashville Network 27 Trinity Broadcast Network + 28 CNN Headline News 29 Arts & Entertainment * 30 THE DISNEY CHANNEL * 31 CINEMAX * 32 REQUEST - PAY PER VIEW * 33 THE MOVIE CHANNEL * 34 HBO * 35 SHOWTIME 36 QVC 37 KAIL 53-Ind Fresno, CA 38 KMSG-TV 59-Telemundo Sanger, CA 39 KKAG 61-Ind Porterville, CA
45 51 TABLE II (D2) CALIFORNIA HOT SPRINGS HEADEND 2 KSEE 24-NBC Fresno, CA 3 ESPN 4 KMPH 26-Fox Visalia-Fresno, CA * 5 SHOWTIME 6 KERO-TV 23-CBS Bakersfield, CA 7 KBAK-TV 29-ABC Bakersfield, CA 8 QVC 9 KVPT 18-PBS Fresno, CA 10 CNN 11 Arts & Entertainment 12 Sci-Fi Channel 13 The Discovery Channel
TABLE II (D3) JACK RANCH/POSEY HEADEND 2 KFSN-TV 30-ABC Fresno, CA 3 ESPN 4 KSEE 24-NBC Fresno, CA * 5 THE MOVIE CHANNEL 6 KMPH 26-Fox Visalia-Fresno, CA 7 KJEO 47-CBS Fresno, CA 8 KBAK-TV 29-ABC Bakersfield, CA 9 QVC 10 CNN 11 KVPT 18-PBS Fresno, CA 12 Sci-Fi Channel 13 The Discovery Channel 22 CNN Headline News
5. Central Region, OR As of the appraisal date, there were eight headends in the Central Region System. Table II (E1) presents the programming available to subscribers receiving service from the Bear Mountain headend. These subscribers, comprising about 45% of total System subscribers, had access to a 15-channel basic service, three tier services 46 52 with between four to six channels each, and five premium channels. The basic line-up included seven local broadcast TV stations, nine satellite-delivered services, one microwave-delivered service, and one local community access programming channel. Premium services included The Movie Channel, Showtime, HBO, Cinemax, and The Disney Channel. The same programming services were offered to subscribers served from the Drain/Yoncalla headend, which served less than 6% of System subscribers; and the Bear Mountain/Cottage Grove headend, which served only about 3% of subscribers. About 14% of System subscribers, served by the Sutherlin/Oakland headend, received programming services presented in Table II (E2). A 15-channel basic service was comprised of six local broadcast TV stations, eight satellite-delivered services, and one local community access programming service. Additionally, a 4-channel tier, a 5-channel tier, and four premium services were available to these subscribers. Table II (E3) presents the programming offered to the 13% of total System subscribers receiving service from the Cottage Grove headend. Programming available included a 29-channel basic service, a 4-channel tier service, and six premium channels. Basic service consisted of seven local broadcast TV stations, 18 satellite-delivered programming services, one microwave-delivered service, and three local community access programming channels. Approximately 10% of subscribers received the programming service shown in Table II (E4) from the Veneta headend. Basic service consisted of seven local broadcast TV stations, four satellite-delivered services, one microwave-delivered service, and one local community access programming channel. The subscribers could also receive a 4-channel tier, a 5-channel tier, and four premium services. The Cave Junction headend served less than 6% of System subscribers, while the Brownsville headend served less than 4% of System subscribers. The programming services available from those headends were presented in Tables II (E5) and (E6), respectively. 47 53 TABLE II (E1) BEAR MOUNTAIN AND BEAR MT./COTTAGE GROVE HEADENDS + 2 Nickelodeon + 3 Country Music TV 4 KEZI 9-ABC Eugene, OR 5 WGN-TV 6 KMTR 16-NBC Eugene, OR 7 KOAC-TV 7-PBS Corvallis, OR 8 KVAL-TV 13-CBS Eugene, OR 9 Local - Community Access/PEG 9 C-SPAN 10 WTBS 17-Ind Atlanta, GA 11 K25AS 25-Fox Eugene, OR 12 KEVU 34-Ind Eugene, OR 13 QVC * 14 THE MOVIE CHANNEL + 15 The Discovery Channel ++ 16 The Weather Channel * 17 SHOWTIME * 18 HBO + 19 The Family Channel 20 Prime Sports Northwest * 21 BLAZERCABLE ++ 22 Cinemax = 23 CNN Headline News = 24 ESPN = 25 CNN = 26 Lifetime = 27 Sci-Fi Channel + 28 The Nashville Network 29 MTV 30 VH-1 30 Comedy Central 31 Arts & Entertainment ++ 32 Cartoon Network * 33 THE DISNEY CHANNEL ++ 34 The Learning Channel 35 American Movie Classics + 36 USA Network
48 54 TABLE II (E2) SUTHERLIN/OAKLAND HEADEND * 2 HBO 3 KLSR-TV 29-Fox Winston, OR 4 KPIC 4-CBS Roseburg, OR 5 KOBI 5-NBC Medford, OR 6 ESPN 7 KOAC-TV 7-PBS Corvallis, OR 8 QVC 9 KEZI 9-ABC Eugene, OR 10 KMTR 16-NBC Eugene, OR 11 Local - Community Access/PEG * 12 THE MOVIE CHANNEL = 13 Country Music TV + 14 CNN Headline News + 15 CNN + 15 Blazercable + 16 TNT 17 The Family Channel 18 Nickelodeon 19 Arts & Entertainment * 20 THE DISNEY CHANNEL * 21 SHOWTIME 22 Lifetime 23 American Movie Classics 24 E! - Entertainment TV = 95 Sci-Fi Channel = 96 The Nashville Network = 97 USA Network + 98 WGN-TV + 99 WTBS 17-Ind Atlanta, GA
49 55 TABLE II (E3) COTTAGE GROVE HEADEND 2 KMTR 16-NBC Eugene, OR 3 C-SPAN 4 Local-Character Generated 5 KOBI 5-NBC Medford, OR 6 Local - Community Access/PEG 7 KOAC-TV 7-PBS Corvallis, OR 8 ESPN 9 KEZI 9-ABC Eugene, OR 10 Local - Community Access/PEG 11 K25AS 25-Fox Eugene, OR 12 KEVU 34-Ind Eugene, OR 13 KVAL-TV 13-CBS Eugene, OR 14 Arts & Entertainment 15 WGN-TV 16 WTBS 17-Ind Atlanta, GA + 17 WWOR-TV + 18 Nickelodeon 20 The Family Channel + 21 The Nashville Network + 22 Country Music TV * 23 THE DISNEY CHANNEL * 24 HBO * 25 CINEMAX * 26 SHOWTIME + 27 USA Network + 28 The Discovery Channel = 29 CNN 30 Blazercable = 30 CNN Headline News = 31 The Weather Channel 32 New Inspirational Network 33 Trinity Broadcast Network 34 MTV 35 Nostalgia 36 American Movie Classics 37 The Learning Channel * 38 THE MOVIE CHANNEL 39 Lifetime * 40 ENCORE 41 QVC = 42 Sci-Fi Channel 43 The Travel Channel 44 Bravo 45 fX 46 Home Shopping Network
50 56 TABLE II (E4) VENETA HEADEND 2 KATU 2-ABC Portland, OR = 3 ESPN * 4 HBO 5 The Family Channel 6 KOIN 6-CBS Portland, OR 7 KOAC-TV 7-PBS Corvallis, OR 8 KMTR 16-NBC Eugene, OR 9 MTV 10 KVAL-TV 13-CBS Eugene, OR 11 KEZI 9-ABC Eugene, OR 12 K25AS 25-Fox Eugene, OR 13 Local - Community Access/PEG + 14 CNN Headline News + 15 CNN = 16 Nickelodeon = 17 USA Network * 18 SHOWTIME * 19 THE DISNEY CHANNEL + 20 WTBS 17-Ind Atlanta, GA + 21 The Nashville Network + 22 The Discovery Channel * 23 THE MOVIE CHANNEL 24 Nostalgia 98 Blazercable 98 C-SPAN = 99 Sci-Fi Channel
51 57 TABLE II (E5) CAVE JUNCTION HEADEND 2 WTBS 17-Ind Atlanta, GA 3 The Family Channel * 4 HBO 5 KOBI 5-NBC Medford, OR 6 ESPN 7 KSYS 8-PBS Medford, OR 8 Blazercable = 8 CNN = 9 USA Network 10 KTVL-TV 10-CBS Medford, OR 11 Nickelodeon = 12 The Discovery Channel 13 KDRV 12-ABC Medford, OR + 14 American Movie Classics = 15 CNN Headline News + 16 TNT + 17 Country Music TV + 18 The Nashville Network 19 Arts & Entertainment 20 Lifetime 21 QVC * 22 CINEMAX * 23 THE DISNEY CHANNEL * 24 SHOWTIME 97 Trinity Broadcast Network = 98 Sci-Fi Channel 99 Fox Network
52 58 TABLE II (E6) BROWNSVILLE HEADEND 2 KATU 2-ABC Portland, OR 3 K25AS 25-Fox Eugene, OR 4 ESPN 5 WTBS 17-Ind Atlanta, GA 6 KOIN 6-CBS Portland, OR 7 KOAC-TV 7-PBS Corvallis, OR 8 KGW-TV 8-NBC Portland, OR 9 KEZI 9-ABC Eugene, OR 10 KMTR 16-NBC Eugene, OR 11 QVC 12 KPTV 12-Ind Portland, OR 13 KVAL-TV 13-CBS Eugene, OR 14 American Movie Classics = 15 Sci-Fi Channel 16 Blazercable 16 Trinity Broadcast Network * 17 SHOWTIME * 18 HBO * 19 THE DISNEY CHANNEL * 20 THE MOVIE CHANNEL + 21 Country Music TV + 22 The Nashville Network = 23 Arts & Entertainment = 24 Lifetime 25 The Family Channel 26 Nickelodeon + 27 TNT + 28 The Discovery Channel * 29 REQUEST - PAY PER VIEW + 30 CNN = 31 USA Network 32 Home Shopping Network 33 Home & Garden TV
6. Coos Bay, OR As of the appraisal date, Coos Bay was also served by eight headends. About 58% of total System subscribers were served by the Coos Bay headend. Programming shown in Table II (F1) included a 29-channel basic service, two 7-channel tier services, a 53 59 6-channel tier, six premium channels, and five pay-per-view services. Basic service consisted of seven local broadcast TV stations, 20 satellite-delivered services, and two local community access programming channels. Premium services were HBO, Cinemax, Showtime, The Movie Channel, The Disney Channel, and Encore. Pay-per-view services available included Action, Viewer's Choice, Spice, and several Request services. Subscribers served by the Hauser headend, comprising less than 3% of total System subscribers, received the same line-up as Coos Bay with one additional satellite-delivered channel, WGN-TV. Approximately 15% of System subscribers had available the 34-channel programming service shown in Table II (F2). The Reedsport headend line-up consisted of a 21-channel basic service, two 4-channel tiers, and five premium channels. Basic service included seven local broadcast TV stations, 12 satellite-delivered services, two local community access programming services. The Coquille headend served about 10% of System subscribers. As shown in Table II (F3), this headend offered a total of 34 channels of programming, including a 20-channel basic service, a 4-channel tier, a 6-channel tier, and four premium channels. Nearly 9% of System subscribers were served by the Bandon headend, and received the 33-channel program line-up shown in Table II (F4). The Myrtle Point headend served about 4% of subscribers, while the Powers and Gardiner headends each served roughly 1%. The programming services received by these subscribers are presented in Tables II (F5), (F6), and (F7), respectively. 54 60 TABLE II (F1) COOS BAY AND HAUSER HEADENDS 2 KLSR-TV 63-Fox Eugene, OR 3 Local - Falcon Cable Marketplace 4 KCBY-TV 11-CBS Coos Bay, OR 5 KOBI 5-NBC Medford, OR 6 KMTZ 23-NBC Coos Bay, OR 7 KOAC-TV 7-PBS Corvallis, OR 8 American Movie Classics 9 KEZI 9-ABC Eugene, OR 10 Arts & Entertainment 11 QVC 12 KPTV 12-Ind Portland, OR 13 Prevue Guide 14 Local - Community Access/PEG 15 Mind Extension University = 16 The Discovery Channel = 17 CNN Headline News = 18 ESPN = 19 Blazercable = 20 The Family Channel = 21 Nickelodeon = 22 CNN 23 Sneak Prevue 24 Lifetime 25 E! - Entertainment 26 fX ++ 27 WTBS 17-Ind Atlanta, GA ++ 28 The History Channel * 29 HBO * 30 CINEMAX * 31 SHOWTIME * 32 THE MOVIE CHANNEL * 33 THE DISNEY CHANNEL * 34 ENCORE + 35 The Nashville Network + 36 Comedy Central + 37 TNT + 38 USA Network + 39 Country Music TV + 40 Sci-Fi Channel + 41 Bravo 42 CNBC 43 Prime Sports Northwest 44 C-SPAN 2
55 61 TABLE II (F1) (CONTINUED) COOS BAY AND HAUSER HEADENDS 45 MTV 46 The Learning Channel 47 VH-1 48 The Weather Channel 49 Home Shopping Network 50 C-SPAN 51 The Travel Channel ++ 52 FXM-Fox Movies ++ 53 Newstalk Television ++ 54 Cartoon Network 55 Trinity Broadcast Network * 57 REQUEST - PAY PER VIEW * 58 ACTION - PAY PER VIEW * 59 REQUEST - PAY PER VIEW * 60 VIEW'S CHOICE - PPV * 61 SPICE - PAY PER VIEW ++ 63 ESPN 2
56 62 TABLE II (F2) REEDSPORT HEADEND 2 ESPN 3 KLSR-TV 63-Fox Eugene, OR 4 QVC 5 KOBI 5-NBC Medford, OR 6 KMTZ 23-NBC Coos Bay, OR 7 KOAC-TV 7-PBS Corvallis, OR 8 The Family Channel 9 KEZI 9-ABC Eugene, OR 10 Blazercable 10 Local - Community Access/PEG 11 KCBY-TV 11-CBS Coos Bay, OR 12 KPTV 12-Ind Portland, OR 13 CNN 14 USA Network = 15 Arts & Entertainment = 16 The Nashville Network = 17 Lifetime = 18 American Movie Classics + 19 TNT + 20 The Discovery Channel + 21 WGN-TV + 22 WTBS 17-Ind Atlanta, GA * 23 SHOWTIME * 24 THE DISNEY CHANNEL * 25 HBO * 26 CINEMAX * 27 THE MOVIE CHANNEL 28 CNN Headline News 29 C-SPAN 30 Bravo 31 E! - Entertainment 32 Sci-Fi Channel 33 Home Shopping Network 34 Home & Garden TV 35 Local - Community Access/PEG
57 63 TABLE II (F3) COQUILLE HEADEND 2 KLSR-TV 63-Fox Eugene, OR 3 QVC 4 ESPN 5 KOBI 5-NBC Medford, OR 6 KMTZ 23-NBC Coos Bay, OR * 7 SHOWTIME 8 KOAC-TV 7-PBS Corvallis, OR 9 KEZI 9-ABC Eugene, OR 10 The Family Channel 11 KCBY-TV 11-CBS Coos Bay, OR 12 KPTV 12-Ind Portland, OR 13 WTBS 17-Ind Atlanta, GA = 14 Lifetime = 15 USA Network = 16 Arts & Entertainment + 17 The learning Channel + 18 Country Music TV + 19 The Discovery Channel = 20 ESPN 2 + 21 The Nashville Network + 22 Sci-Fi Channel 23 CNN Headline News * 24 THE DISNEY CHANNEL * 25 THE MOVIE CHANNEL 26 CNN * 27 HBO 28 fX 29 Blazercable 30 Bravo + 31 C-SPAN 32 Home Shopping Network 33 E! - Entertainment TV 34 WGN-TV 35 Comedy Central
58 64 TABLE II (F4) BANDON HEADEND 2 KLSR-TV 63-Fox Eugene, OR 3 QVC 4 ESPN 5 KOBI 5-NBC Medford, OR 6 KMTZ 23-NBC Coos Bay, OR * 7 SHOWTIME 8 KOAC-TV 7-PBS Corvallis, OR 9 KEZI 9-ABC Eugene, OR 10 WGN-TV 11 KCBY-TV 11-CBS Coos Bay, OR 12 KPTV 12-Ind Portland, OR 13 The Family Channel = 14 Arts & Entertainment = 15 USA Network = 16 Lifetime + 17 ESPN 2 + 18 Country Music TV + 19 The Discovery Channel + 20 TNT + 21 The Nashville Network + 22 Sci-Fi Channel * 23 HBO 24 CNN Headline News * 25 THE MOVIE CHANNEL 26 CNN 27 Bravo * 28 THE DISNEY CHANNEL 29 Comedy Central 30 fX 31 Home Shopping Network 32 C-SPAN 33 WTBS 17-Ind Atlanta, GA 34 E! - Entertainment TV
59 65 TABLE II (F5) MYRTLE POINT HEADEND 2 KLSR-TV 63-Fox Eugene, OR 3 QVC 4 ESPN 5 KOBI 5-NBC Medford, OR 6 KMTZ 23-NBC Coos Bay, OR 7 Nickelodeon 8 KOAC-TV 7-PBS Corvallis, OR 9 KEZI 9-ABC Eugene, OR 10 The Family Channel 11 KCBY-TV 11-CBS Coos Bay, OR 12 KPTV 12-Ind Portland, OR 13 CNN Headline News 14 USA Network = 15 The Discovery Channel = 16 Sci-Fi Channel = 17 Lifetime = 18 VH-1 18 Comedy Central 18 Blazercable + 19 TNT + 20 WTBS 17-Ind Atlanta, GA + 21 The Nashville Network + 22 The Weather Channel * 23 CINEMAX * 24 THE DISNEY CHANNEL * 25 THE MOVIE CHANNEL * 26 SHOWTIME * 27 HBO 28 Arts & Entertainment 29 CNN 30 Bravo 31 C-SPAN 32 Home Shopping Network 33 E! - Entertainment TV 34 The Learning Channel 35 MTV
60 66 TABLE II (F6) POWERS HEADEND 2 KLSR-TV 63-Fox Eugene, OR 3 KOBI 5-NBC Medford, OR 4 KCBY-TV 11-CBS Coos Bay, OR 5 QVC 6 KMTZ 23-NBC Coos Bay, OR 7 ESPN 8 The Family Channel 9 KEZI 9-ABC Eugene, OR 10 Nickelodeon 11 The Learning Channel 12 CNN 13 KOAC-TV 7-PBS Corvallis, OR 14 The Discovery Channel = 15 The Nashville Network = 16 USA Network = 17 Arts & Entertainment * 18 THE DISNEY CHANNEL + 19 TNT + 20 WTBS 17-Ind Atlanta, GA + 21 WGN-TV * 22 HBO 23 C-SPAN 24 Bravo
61 67 TABLE II (F7) GARDINER HEADEND 2 CNN Headline News 3 KLSR-TV 63-Fox Eugene, OR 4 QVC 5 ESPN 6 KMTZ 23-NBC Coos Bay, OR 7 KOAC-TV 7-PBS Corvallis, OR 8 The Family Channel 9 KEZI 9-ABC Eugene, OR 10 Local - Community Access/PEG 11 KCBY-TV 11-CBS Coos Bay, OR 12 KPTV 12-Ind Portland, OR 13 CNN 16 The Nashville Network 17 WGN-TV 18 WTBS 17-Ind Atlanta, GA 20 The Discovery Channel 21 Home & Garden TV * 23 SHOWTIME * 24 THE DISNEY CHANNEL * 25 HBO * 26 CINEMAX * 27 THE MOVIE CHANNEL
7. Dallas, OR The Dallas System was served by seven headends. Tables II (G1) through (G6) present the programming services available from those headends. The Dallas headend, serving about 39% of total System subscribers, offered 39 channels of programming, including a 19-channel basic service, a 7-channel tier, a 5-channel tier, seven premium channels, and one pay-per-view channel. Basic service included ten local broadcast TV stations, seven satellite-delivered services, two local community access programming services, and one microwave-delivered service. Premium services available included The Movie Channel, Showtime, HBO, The Disney Channel, Playboy, Cinemax, and Encore. Request was the pay-per-view service offered by the Dallas headend. 62 68 The Nehalem headend served about 28% of System subscribers. Table II (G2) presents the 34-channel programming service offered at this headend, including a 33-channel basic service, a 7-channel tier service, a 5-channel tier, seven premium channels, and one pay-per-view channel. Basic service consisted of six local broadcast TV stations, six satellite-delivered services, one microwave-delivered channel, and one local community access programming channel. Table II (G3) presents the programming service available to the 15% of System subscribers served by the Tillamook headend. Those subscribers received a 17-channel basic service, a 5-channel tier service, a 2-channel tier, and five premium services. The Silverton headend served about 10% of System subscribers and offered a 37-channel programming service as shown in Table II (G4). Netarts/Oceanside served about 5% of subscribers, while Brickyard Road served about 3%. Both headends offered the same 18-channel programming service shown in Table II (G5). Less than 1% of the subscribers received the five-channel programming service offered from Wilson River headend, presented in Table II (G6). TABLE II (G1) DALLAS HEADEND 2 KATU 2-ABC Portland, OR 3 Local-Character Generator 4 Home & Garden TV 5 QVC 6 KOIN 6-CBS Portland, OR 7 KOAC-TV 7-PBS Corvallis, OR 8 KGW-TV 8-NBC Portland, OR 9 KEZI 9-ABC Eugene, OR 10 KPDX 49-Fox Vancouver, WA 11 KBSP-TV 22-HSN Salem, OR 12 KPTV 12-Ind Portland, OR 13 KVAL-TV 13-CBS Eugene, OR 14 WTBS 17-Ind Atlanta, GA 15 WGN-TV 17 Local - Community Access/PEG + 18 The Family Channel * 19 THE MOVIE CHANNEL
63 69 TABLE II (G1) (CONTINUED) DALLAS HEADEND * 20 SHOWTIME * 21 HBO * 22 THE DISNEY CHANNEL * 23 PLAYBOY * 24 CINEMAX + 25 CNN + 26 USA Network + 27 TNT + 28 The Discovery Channel 29 MTV 30 KEBN 32-Ind Salem, OR 31 Blazercable 31 C-SPAN 32 Arts & Entertainment = 33 ESPN = 34 Nickelodeon = 35 The Learning Channel = 36 CNN Headline News = 37 The Nashville Network = 38 Prime Sports Northwest = 39 Univision * 40 ENCORE * 41 REQUEST - PAY PER VIEW
64 70 TABLE II (G2) NEHALEM HEADEND 2 KATU 2-ABC Portland, OR 3 Local-Character Generator 4 Comedy Central 5 WTBS 17-Ind Atlanta, GA 6 KOIN 6-CBS Portland, OR 7 QVC 8 KGW-TV 8-NBC Portland, OR 9 WGN 10 KOPB-TV 10-PBS Portland, OR 11 C-SPAN 12 KPTV 12-Ind Portland, OR 13 KPDX 49-Fox Vancouver, OR 14 Blazercable = 15 The Family Channel * 17 THE MOVIE CHANNEL * 18 SHOWTIME * 19 HBO * 20 CINEMAX * 21 THE DISNEY CHANNEL * 22 PLAYBOY + 23 Nickelodeon + 24 The Nashville Network + 25 USA Network + 26 The Discovery Channel + 27 Country Music TV = 30 CNN = 31 CNN Headline News = 32 ESPN = 33 American Movie Classics = 34 Arts & Entertainment = 35 Lifetime * 40 ENCORE * 41 REQUEST - PAY PER VIEW
65 71 TABLE II (G3) TILLAMOOK HEADEND 2 KATU 2-ABC Portland, OR 3 American Movie Classics 4 Local-Character Generator 5 QVC 6 KOIN 6-CBS Portland, OR 7 USA Network 8 KGW-TV 8-NBC Portland, OR 9 TNT 10 KOPB-TV 10-PBS Portland, OR 11 ESPN 12 KPTV 12-Ind Portland, OR 13 KPDX 49-Fox Vancouver, OR 14 The Family Channel + 17 WTBS 17-Ind Atlanta, GA + 18 WGN-TV * 20 HBO * 21 SHOWTIME * 22 THE DISNEY CHANNEL * 23 CINEMAX 24 Blazercable 25 Trinity Broadcast Network 26 Bravo 27 Lifetime * 28 THE MOVIE CHANNEL = 29 Arts & Entertainment = 30 The Discovery Channel = 31 The Nashville Network = 32 CNN = 33 CNN Headline News
66 72 TABLE II (G4) SILVERTON HEADEND 2 KATU 2-ABC Portland, OR 3 Local-Character Generator 4 QVC 5 WTBS 17-Ind Atlanta, GA 6 KOIN 6-CBS Portland, OR 7 KOPB-TV 10-PBS Portland, OR 8 KGW-TV 8-NBC Portland, OR 9 C-SPAN 10 Local - Community Access/PEG 11 KBSP-TV 22-HSN Salem, OR 12 KPTV 12-Ind Portland, OR 13 KPDX 49-Fox Vancouver, OR 14 KEBN 32-Ind Salem, OR 15 ESPN 16 The Family Channel + 17 TNT + 18 USA Network + 19 The Discovery Channel + 20 The Nashville Network + 21 Country Music TV * 22 HBO * 23 CINEMAX * 24 SHOWTIME * 25 THE MOVIE CHANNEL * 26 THE DISNEY CHANNEL * 27 PPV- BLAZERCABLE 28 KNMT 24-TBN Portland, OR 29 Nickelodeon 30 Univision 31 Home & Garden TV 32 MTV = 33 American Movie Classics = 34 Lifetime = 35 CNN = 36 CNN Headline News = 37 Arts & Entertainment * 41 REQUEST - PAY PER VIEW
67 73 TABLE II (G5) NETARTS/OCEANSIDE AND BRICKYARD ROAD HEADENDS 2 KATU 2-ABC Portland, OR * 3 THE DISNEY CHANNEL * 4 HBO 5 The Nashville Network 6 KOIN 6-CBS Portland, OR 7 WTBS 17-Ind Atlanta, GA 8 KGW-TV 8-NBC Portland, OR 9 The Family Channel 10 KOPB-TV 10-PBS Portland, OR 11 ESPN 12 KPTV 12-Ind Portland, OR 13 KPDX 49-Fox Vancouver, OR 17 The Discovery Channel 18 CNN 19 Arts & Entertainment 20 TNT 21 USA Network 22 Blazercable
TABLE II (G6) WILSON RIVER HEADEND 2 KATU 2-ABC Portland, OR 6 KOIN 6-CBS Portland, OR 8 KGW-TV 8-NBC Portland, OR 10 KOPB-TV 10-PBS Portland, OR 12 KPTV 12-Ind Portland, OR
8. Florence, OR The Florence System was served by two headends in Florence and Mapleton. Table II (H1) presents the 56-channel programming service available to the 95% of System subscribers receiving service from the Florence headend. Programming included a 30-channel basic service, three tier services with between four and six channels each, six premium channels, and five pay-per-view channels. Basic service included six local broadcast TV stations, 22 satellite-delivered services, one microwave-delivered service, 68 74 and one local community access programming channel. Premium services consisted of HBO, Cinemax, Showtime, The Disney Channel, The Movie Channel, and Encore. Pay-per-view services included Request, Adam & Eve, Viewer's Choice, Action, and Spice. The remaining 5% of subscribers, served from the Mapleton headend, had access to the 17 channels of programming shown in Table II (H2). Basic service included six local broadcast TV stations and four satellite-delivered services. Two tiers offering a total of six channels were also available. Premium services consisted of HBO and The Disney Channel. TABLE II (H1) FLORENCE/DUNES CITY HEADENDS 2 WGN-TV 3 QVC 4 Prevue Guide 5 WTBS 17-Ind Atlanta, GA 6 KLSR-TV 6-Fox Eugene, OR 7 KOAC-TV 7-PBS Corvallis, OR 8 KMTR 16-NBC Eugene, OR 9 KEZI 9-ABC Eugene, OR 10 Local-Character Generated 11 Sneak Prevue 12 KPTV 12-Ind Portland, OR 13 KVAL-TV 13-CBS Eugene, OR 14 Nickelodeon = 15 CNN = 16 USA Network = 17 The Discovery Channel = 18 ESPN 19 The Family Channel 20 American Movie Classics 21 The Nashville Network 22 Lifetime 23 Arts & Entertainment 24 Blazercable * 25 HBO * 26 CINEMAX * 27 SHOWTIME * 28 THE DISNEY CHANNEL ++ 29 The Weather Channel * 30 THE MOVIE CHANNEL
69 75 TABLE II (H1) (CONTINUED) FLORENCE/DUNES CITY HEADENDS 31 Sci-Fi Channel 32 CNN Headline News 33 The Travel Channel + 34 TNT + 35 CNBC 36 E! - Entertainment TV 37 fX 38 Trinity Broadcast Network + 39 The Learning Channel + 40 Country Music TV + 41 Prime Sports Northwest 42 VH-1 * 43 ENCORE ++ 44 FXM - Fox Movies ++ 45 The History Channel ++ 46 Cartoon Network ++ 47 Fit TV 48 Downhome TV * 49 REQUEST - PAY PER VIEW * 50 ADAM & EVE PAY PER VIEW * 51 VIEWER'S CHOICE - PPV * 52 ACTION - PAY PER VIEW * 53 SPICE - PAY PER VIEW 54 Home Shopping Network 55 Home & Garden TV 56 C-SPAN + 57 Bravo
70 76 TABLE II (H2) MAPLETON HEADEND 2 KATU 2-ABC Portland, OR 3 QVC 4 ESPN 5 Sci-Fi Channel 6 KLSR-TV 6-Fox Eugene, OR 7 KOAC-TV 7-PBS Corvallis, OR 8 KMTR 16-NBC Eugene, OR 9 KEZI 9-ABC Eugene, OR 10 The Family Channel + 11 WGN-TV + 12 WTBS 17-Ind Atlanta, GA 13 KVAL-TV 13-CBS Eugene, OR = 17 USA Network = 18 Country Music TV = 19 The Discovery Channel * 20 HBO * 21 The Disney Channel
C. RATES The average monthly programming and equipment rental rates, and one-time installation charges to subscribers for the preceding services as of the appraisal date, are outlined in Tables III (A) and (B). Comparison data for the basic service, pay service, and monthly revenue per subscriber are published in MTA-EMCI's 1995 edition of Cable Trends 1980-2000, which uses yearend 1994 operating and financial data. Table III (A) presents information for the Systems operating in California. As shown, the basic monthly service rate for Gilroy of $20.07, was higher than the average rate of $18.50 for the nation. The corresponding rates for Hesperia, at $18.03; Tulare, at $16.23; and San Luis Obispo, at $15.79 were all lower than the national average. A la carte pay service rates were similar in Gilroy, Hesperia, and San Luis Obispo, where HBO cost $11.95, and Showtime, Cinemax, The Movie Channel, and The Disney Channel each cost $10.95. The a la carte pay rate was $10.45 for all services in the 71 77 Tulare System. The service rates charged by the System were somewhat higher than the average rate charged nationally of $9.25 per pay unit. Actual revenue generated by the California Systems per pay unit ranged from $6.15 in Tulare to $7.49 in San Luis Obispo. The non-addressable converter rental ranged from $0.51 in Gilroy to $2.04 in Hesperia, while the addressable converter rental varied from a low of $1.13 in Gilroy to a high of $4.49 in Hesperia. The installation charge was $45.00 per home plus materials throughout the California Systems. On a nationwide basis, average monthly revenue per subscriber was $30.32 as of the end of 1994, according to MTA-EMCI's research. The revenue figure includes basic cable revenue, premium revenue, PPV revenue, local advertising revenue, equipment rental revenue, and miscellaneous revenues. During 1995, average revenue per subscriber figures were $36.20 in Hesperia, $35.12 in Tulare, $33.67 in Gilroy, and $30.50 in San Luis Obispo -- all higher than the nationwide average for 1994. TABLE III (A)
GILROY HESPERIA SAN LUIS TULARE UNITED OBISPO STATES Basic Service (Average) $20.07 $18.03 $15.79 $16.23 $18.50 Expanded Basic Tier (Average) $5.03 $7.15 $7.54 $5.00 N/A Revenue Per Pay Unit $7.04 $6.60 $7.49 $6.15 N/A Pay Services (a la carte) $9.25 HBO $11.95 $11.95 $11.95 $10.45 Showtime $10.95 $10.95 $10.95 $10.45 Cinemax $10.95 $10.95 $10.95 $10.45 The Movie Channel $10.95 $10.95 $10.95 $10.45 The Disney Channel $10.95 $10.95 $10.95 $10.45 Playboy N/A N/A $10.95 $10.45 Encore $5.95 $5.95 N/A N/A Pay Per View (Movie) $3.95 $3.95 $3.95 $3.95 N/A
72 78 TABLE III (A) (CONTINUED)
GILROY HESPERIA SAN LUIS TULARE UNITED OBISPO STATES Converters N/A Addressable $1.13 $4.49 $2.38 $3.38 Non-addressable $0.51 $2.04 N/A N/A Installation Charges: N/A Hourly Rate * $45.00 $45.00 $45.00 $45.00 Revenue Per Subscriber Per Month $33.67 $36.20 $30.50 $35.12 $30.32
* Material additional Table III (B) presents service rate information for the Oregon Systems. As shown, the basic rate for Florence of $23.40 was the highest among the Oregon Systems, as well as being higher than the 1994 national average. Corresponding basic rates were $17.24 for Coos Bay, $16.60 for Dallas, and $15.98 for Central Region. The a la carte pay rates were $11.95 for HBO; $5.95 for Encore; and $10.95 for Showtime, Cinemax, The Movie Channel, and The Disney Channel. These rates were uniform throughout the Systems in Oregon. Addressable converter rentals ranged substantially from $0.49 in Central Region to $4.05 in Florence. Non-addressable converter rentals ranged from $0.25 in Dallas to $2.68 in Florence. The rentals on non-addressable converters were generally lower than the addressable rentals except in Central Region, where a higher non-addressable rental of $1.23 was charged. During 1995 monthly revenue per subscriber was $39.98 in Florence, $31.48 in Coos Bay, and $30.39 in Dallas. These figures were higher than the 1994 national average of $30.32, while the revenue figure of $29.33 in the Central Region System was lower. 73 79 TABLE III (B)
CENTRAL COOS DALLAS FLORENCE UNITED REGION BAY STATES Basic Service (Average) $15.98 $17.24 $16.47 $23.40 $18.50 Expanded Basic Tier (Average) $4.99 $3.78 $5.94 $3.79 N/A Revenue Per Pay Unit $7.93 $6.41 $6.96 $8.00 N/A Pay Services (a la carte) $9.25 HBO $11.95 $11.95 $11.95 $11.95 Showtime $10.95 $10.95 $10.95 $10.95 Cinemax $10.95 $10.95 $10.95 $10.95 The Movie Channel $10.95 $10.95 $10.95 $10.95 The Disney Channel $10.95 $10.95 $10.95 $10.95 Playboy N/A N/A $10.95 N/A Encore $5.95 $5.95 $5.95 $5.95 Pay Per View (Movie) $3.95 $3.95 $3.95 $3.95 N/A Converters N/A Addressable $0.49 $2.45 $0.72 $4.05 Non-addressable $1.23 $0.86 $0.25 $2.68 Installation Charges: N/A Hourly Rate * $45.00 $45.00 $45.00 $45.00 Revenue Per Subscriber Per Month $29.33 $31.48 $30.39 $39.98 $30.32
* Material additional D. SUBSCRIBERS Tables IV (A) and (B) present information on the number of homes passed, basic subscribers, expanded/tier subscribers, pay units, converters, and addressable homes for the Systems as of December 31, 1995. This information is compared with similar figures, where available, for the United States as a whole. In California, as shown in Table IV (A), at the time of the appraisal the Hesperia System had the highest basic penetration of 65.5%, which was slightly higher than the national rate of 64.6%. Basic penetration rates for San Luis Obispo, Gilroy, and Tulare 74 80 were 59.8%, 58.8%, and 37.1%, respectively. All were lower than the 64.6% penetration rate for the nation. Pay penetration for Tulare stood at 46.6%, higher than the corresponding rates for Hesperia (46.0%), Gilroy (40.4%), and San Luis Obispo (23.9%). However, pay penetration rates for the California Systems were all much lower than the national pay penetration rate of 73.1%. Addressable home penetration for Tulare of 51.3% was higher than the rates for Gilroy (39.1%), Hesperia (33.2%), and San Luis Obispo (31.7%). The national average of addressable home penetration was 40.3%. TABLE IV (A)
GILROY HESPERIA SAN LUIS TULARE UNITED OBISPO STATES Homes Passed 56,219 28,280 26,138 41,053 91,500,000 Basic Subscribers 33,078 18,513 15,635 15,249 59,100,000 % of Homes Passed 58.8% 65.5% 59.8% 37.1% 64.6% Expanded Basic Subscribers 30,391 17,593 13,605 14,787 N/A % of Basic Subscribers 91.9% 95.0% 87.0% 97.0% N/A Total Pay Units 13,465 8,507 3,733 7,110 43,200,000 % of Basic Subscribers 40.4% 46.0% 23.9% 46.6% 73.1% Converters 17,120 7,218 6,009 8,791 N/A % of Basic Subscribers 2.2% 3.7% 1.7% 57.6% N/A Addressable Homes 12,924 6,140 4,964 7,830 23,800,000 % of Basic Subscribers 39.1% 33.2% 31.7% 51.3% 40.3%
Among the Oregon Systems, as shown in Table IV (B), as of the appraisal date Coos Bay had the highest basic penetration of 75.6%. The corresponding rates for Dallas, Central Region, and Florence were 71.2%, 54.0%, and 50.4%, respectively. Basic penetration rates for Coos Bay and Dallas were higher than the national average, while rates for Central Region and Florence were lower. Pay penetration for Dallas of 43.6%, was higher than the rates for Coos Bay (39.2%), Central Region (38.8%), and Florence (26.7%). As with the California 75 81 Systems, the Oregon pay penetration rates were much lower than the national average of 73.1%. Addressable home penetration for Dallas of 40.2%, the highest among the Oregon Systems, was comparable to the national average of 40.3%. The corresponding rates for Central Region, Florence, and Coos Bay were 35.3%, 34.6%, and 31.3%, respectively, which were lower than the corresponding rate for the nation of 40.3%. TABLE IV (B)
CENTRAL COOS DALLAS FLORENCE UNITED REGION BAY STATES Homes Passed 26,355 23,663 23,770 7,826 91,500,000 Basic Subscribers 14,225 17,900 16,928 3,947 59,100,000 % of Homes Passed 54.0% 75.6% 71.2% 50.4% 64.6% Expanded Basic Subscribers 12,921 17,424 12,481 3,706 N/A % of Basic Subscribers 90.8% 97.3% 73.7% 93.9% N/A Total Pay Units 5,516 7,024 7,380 1,053 43,200,000 % of Basic Subscribers 38.8% 39.2% 43.6% 26.7% 73.1% Converters 6,016 8,268 7,977 1,910 N/A % of Basic Subscribers 42.3% 46.2% 47.1% 48.4% N/A Addressable Homes 4,762 5,611 6,810 1,366 23,800,000 % of Basic Subscribers 33.5% 31.3% 40.2% 34.6% 40.3%
E. SYSTEM MILEAGE According to System management, the mileage figures presented in Tables V (A) and (B) are based on System maps. Since a complete walk- out of the current Systems would be prohibitively expensive, MTA used the following approach to corroborate the plant mileage: 1. Interviewed knowledgeable System personnel to ascertain the source and reliability of the mileage estimates. 2. Noted the configuration of the Systems on area maps and the existence and condition of plant in a representative portion of the area served by the Systems. 76 82 3. Related the average density of the Systems to general observations of densities while inspecting the Systems and service areas. Tables V (A) and (B) present management's best estimate of the number of route miles of plant as represented by total strand and trench in each of the Systems as of the appraisal date. Based upon the above procedures and cost limitations, these estimates appear to be reasonable. Included in the mileage figures are fiber optic miles. TABLE V (A) - CALIFORNIA Plant Miles
Aerial Underground Total ------ ----------- ----- Gilroy 323.8 340.9 664.7 Hesperia 478.3 199.7 678.0 San Luis Obispo 341.1 67.8 408.9 Tulare 532.8 143.0 675.9
TABLE V (B) - OREGON Plant Miles
Aerial Underground Total ------ ----------- ----- Central Region 605.5 54.8 660.3 Coos Bay 384.0 60.8 444.8 Dallas 379.6 87.0 466.6 Florence 102.5 33.8 136.3
As of December 31, 1995, in California there were approximately 10 miles of fiber in Gilroy, 50 miles in Hesperia, 42 miles in San Luis Obispo, and 24 miles in Tulare. In Oregon there were about 5 miles of fiber in Coos Bay, 7 miles in Dallas, and .76 miles in Florence. As of the appraisal date, there was no fiber in the Central Oregon System. 77 83 F. PHYSICAL PLANT 1. Gilroy, CA As of the valuation date, Gilroy's central office facilities were located at 7640 Eigleberry Street in Gilroy. This office space was owned by the System. Payment offices were maintained in Soledad, King City, and Greenfield. In addition, four headends were maintained in Gilroy, Greenfield, King City, and Soledad/Gonzales. All of the headends were located on leased premises. Early construction of the plant took place at the Gilroy headend in 1970 and at Greenfield and King City in 1974. Gilroy was subsequently upgraded in 1983. The Soledad/Gonzales headend was upgraded to its December 1995 capacity in 1989. As of December 31, 1995, the System passed about 56,219 homes with an estimated 664.7 miles of plant, for an overall density of 84.6 homes per mile. As of the appraisal date, the System's feeder and trunk cable bandwidths were 300 MHz at Gilroy, Greenfield, and King City, and 400 MHz at Soledad/Gonzales. For programming, 35 channels were available throughout the System, all of which were in use. Trunk amplifiers and line extenders in the System were manufactured by Scientific Atlanta (S/A), Jerrold, and Magnavox. S/A addressable converter models 8500, 8550, and 8580 were installed in homes served from the Gilroy and Soledad/Gonzales headends. Non-addressable converter model S/A 6783 was installed in all portions of the System. The System's satellite antennas were manufactured by S/A, Comtech, Microdyne, and Saturn. Processor manufacturers included S/A and Jerrold. Stereo encoders and scramblers were manufactured by S/A. Advertising insertion equipment was manufactured by Channelmatic and Sony, and back-up power supplies were manufactured by Onan and Kohler. 2. Hesperia, CA As of the appraisal date, Hesperia's central office facilities were located at 9536 "C" Avenue in Hesperia. Separate office facilities were located in Mojave. The System 78 84 maintained five headends in Adelanto, Boron, Hesperia, Mojave/Rosamond, and North Edwards. Initial construction took place at Boron in 1967, at Hesperia and Adelanto in 1972, at Rosamond/Mojave in the early 1970's, and at North Edwards in 1990. Rebuilds were completed at Hesperia and Adelanto in 1988, a 60% rebuild took place at Boron in 1991. As of the appraisal date, the System passed about 28,280 homes with an estimated 678 miles of plant, for an overall density of 41.7 homes per mile. As of the appraisal date, feeder and trunk cable bandwidths throughout the System ranged from 270 MHz to 450 MHz. At Hesperia and Adelanto 43 channels were available and 100% of the capacity was utilized. At Mojave/Rosamond and North Edwards 42 channels were available and 40 were in use. Trunk amplifiers and line extenders throughout the System were manufactured by Magnavox and Thetacom. Addressable converters, installed in homes served from the Adelanto, Hesperia, and North Edwards headends, were manufactured by General Instrument (GI). Non-addressable converters were manufactured by Hamlin. The System's satellite antennas were manufactured by S/A, Prodelin, A.F.C., and Channelmaster. Processors were manufactured by GI and S/A. Advertising insertion equipment was manufactured by Ad-link and Channelmatic. Backup power supplies were manufactured by Winco. 3. San Luis Obispo, CA As of December 31, 1995, the San Luis Obispo System's central office facilities were located at 7555 San Luis Avenue in Atascadero. These facilities were shared by System personnel and the Western Division headquarters. The System maintained four headends in Atascadero, Guadalupe, SLO County, and Los Alamos. Initial construction of the plant took place at Atascadero in 1976 and at Los Alamos in 1985. A rebuild of Atascadero was accomplished in December 1995 just prior to the valuation date. As of December 31, 1995, the System passed about 26,138 79 85 homes with an estimated 408.9 miles of plant, for an overall density of 63.9 homes per mile. As of the appraisal date, fiber and feeder bandwidths were 750 MHz at Atascadero. The channel capacity of the System ranged from 37 to 95 at different headends. Throughout the System, trunk amplifiers and line extenders were manufactured by S/A. Addressable converters in use were S/A model 8580. Non-addressable converters in use were generally Regal RR-92s. Satellite antennas were manufactured by S/A and Comtech and processors were manufactured by S/A. Onan standby backup power supplies were installed in the System. 4. Tulare, CA As of the appraisal date, the Tulare System maintained central office facilities at 1152 W. Henderson in Porterville. There were three headends in the System at California Hot Springs, Jack Ranch/Posey, and Porterville. All were located at leased sites. Portions of the System in Hot Springs and Jack Ranch/Posey were initially constructed in 1963 and later upgraded in 1986. At the Porterville headend, initial construction took place in 1975, followed by a rebuild in 1981. A fiber trunk overlay upgrade took place in 1995. As of December 1995, the System passed about 41,503 homes with an estimated 690.3 miles of plant, for an overall density of 60.1 homes per mile. As of the appraisal date, feeder and trunk cable bandwidths were 270 MHz at Hot Springs and Jack Ranch/Posey. At Porterville, 50% of the plant's bandwidth was 400 MHz or more, 35% was 300 MHz, and 15% was less than 300 MHz. The Porterville headend provided a 42-channel capacity, about 90% of which (38 channels) was utilized as of the appraisal date. Twelve channels were in use at Hot Springs and 13 were in use at Jack Ranch/Posey. 80 86 Trunk amplifiers and line extenders throughout the System were manufactured by S/A, Magnavox, Century III, Jerrold Starline, and Vikoa. The System's addressable converters included S/A models 8580, 8550, and 8500. The System's satellite antennas were manufactured by S/A, Comtech, Anixter, Tru Focus, and Andrews. Processors were manufactured by S/A, General Instrument, Blonder Tongue, and PhaseCom. Receivers and scramblers were manufactured by S/A. Advertising insertion equipment included a series Sony VP 7000 unit. The backup power supply at Porterville was an Onan L634 generator. 5. Central Oregon, OR As of the appraisal date, the System's central office facilities were located at 4739 Main Street in Springfield. Additional office space was maintained in Cottage Grove. The System maintained eight headends at the following locations: Bear Mountain, Bear Mountain/Cottage Grove, Drain/Yoncalla, Brownsville, Cave Junction, Cottage Grove, Sutherlin/Oakland, and Veneta. Initial construction of the System's plant took place at Sutherlin in 1971, at Veneta in 1980, and at Bear Mountain in 1988. Upgrades were completed at Sutherlin in 1981, at Cottage Grove in 1988, at Bear Mountain in 1992 and 1995, and at Veneta in 1995. As of the appraisal date, the System passed about 26,355 homes with an estimated 660.3 miles of plant, for an overall density of 39.9 homes per mile. As of December 31, 1995, feeder and trunk cable bandwidths were 450 MHz at the Cave Junction, Cottage Grove and Veneta headends; 330 MHz at Brownsville; 216 MHz at Sutherlin; and 300 MHz to 450 MHz at Bear Mountain. The headends at Bear Mountain, Bear Mountain/Cottage Grove, Drain/Yoncalla, and Brownsville used 80% of the 40-channel capacity. Fifty-two channels were available at the Cottage Grove headend and 44 were in use. The Sutherlin/Oakland, Cave Junction, and Veneta headends provided 28, 26, and 25-channel capacities respectively, all of which were utilized fully. 81 87 Trunk amplifiers and line extenders throughout the System were manufactured by Magnavox, Coral, and Gamco. The manufacturers of addressable converters in use included S/A and Jerrold. Non-addressable converters were manufactured by Texscan, Jerrold, Hamlin, Panasonic, Eagle, and Arcom. The System's satellite antennas were manufactured by Comtech, S/A, Antenna Technology Corp., Simulsat, Global Image, Andrews, Wineguard, and Channelmaster. Processors were manufactured by S/A, Jerrold, and Cadco, while backup power supplies were manufactured by Onan. 6. Coos Bay, OR As of the appraisal date, the System maintained its central facilities at 1400 Newmark Avenue in Coos Bay. Offices were also kept in Reedsport. There were eight headends located in Bandon, Coos Bay, Hauser, Coquille, Myrtle Point, Powers, Gardiner, and Reedsport. The Reedsport and Coos Bay headend sites were owned by the System. The others were leased. Initial construction took place at Myrtle Point in 1970, at Reedsport in 1971, at Bandon and Powers in 1980, and at Coos Bay in 1993. Electronic upgrades were completed at Reedsport in 1985 and at Bandon in 1992. As of December 31, 1995, the System passed about 23,663 homes with an estimated 444.76 miles of plant, for an overall density of 53.2 homes per mile. As of the appraisal date, feeder and trunk cable bandwidths were 450 MHz at the Coos Bay, Bandon, and Coquille headends; 300 MHz at Myrtle Point and Powers; and 270 MHz at Reedsport. For programming, 61 channels were available at Bandon, Coos Bay, Hauser, and Coquille; 37 were available at Myrtle Point and Powers; and 32 were available at Gardiner and Reedsport. Addressable converters in use throughout the System were manufactured by S/A. Non-addressable converters were manufactured by Jerrold. The System's satellite antennas were manufactured by Andrews, Comtech, MA/Com, S/A, and Channel Master Wire Mesh. Processors were manufactured by 82 88 Jerrold, S/A, and Cadco. Advertising insertion equipment was made by Channelmatic Inc., and the System's backup power supply was manufactured by Onan. 7. Dallas, OR As of the appraisal date, the Dallas central office facilities were located at 1862 Godsey Road in Dallas. Additional office facilities were located in Garibaldi, Silverton, Nehalem, and Tillamook. Seven headends were maintained in Brickyard, Dallas, Nehalem, Netarts/Oceanside, Silverton, Tillamook, and Wilson River. The Tillamook and Nehalem headend sites were owned and the others were leased. Initial construction of the plant took place at Tillamook in 1958, at Netarts in the early 1960's, and at Dallas in 1987. Upgrades took place at Tillamook in 1983, at Nehalem in 1986, and at Dallas (including fiber) in 1995. As of the appraisal date, the System passed about 23,770 homes with an estimated 466.6 miles of plant, for an overall density of 50.9 homes per mile. As of the appraisal date, feeder and trunk cable bandwidths were 330 MHz at the Tillamook, Dallas, Nehalem, and Silverton headends; and 270 MHz at the Netarts and Brickyard. For programming, 39 channels were available at the Dallas headend, 37 were available at Silverton, 33 at Nehalem, 29 at Tillamook, and 5 at Wilson River. All of the channels available from these headends were in use. Both the Brickyard Road and Netarts/Oceanside headends provided 22 channels, 18 of which were in use. Trunk amplifiers and line extenders were manufactured by S/A, Magnavox, Jerrold, C-Cor, Sylvania, Triple Crown, Anaconda, and Century III. Addressable converters were installed in portions of the System served by the Dallas, Nehalem, and Silverton headends, and they were manufactured by S/A. Non-addressable converters were manufactured by Hamlin, Jerrold, and Oak. The System's satellite antennas were manufactured by S/A, Vertex, Comtech, and M/A-Com. Processors were manufactured by S/A, Jerrold, and Blonder Tongue. Backup power supplies were manufactured by Onan and Alpha. 83 89 8. Florence, OR As of the appraisal date, the System's central office facilities were located at 1234 Rhodadendron Drive in Florence. The System was served by headends in Florence/Dunes City and Mapleton. Initial construction of plant took place in 1956. Upgrades of headend equipment were done in 1962 and 1984. A gradual rebuild of distribution plant took place from 1991 to 1993. As of the appraisal date, the System passed about 7,826 homes with an estimated 136.29 miles of plant, for an overall density of 57.4 homes per mile. Feeder and trunk cable bandwidth throughout most of the System was 450 MHz. Channel capacity was 62 at the Florence/Dunes City headend, of which 56 were in use; and 17 (220 MHz) at Mapleton, all of which were in use. Trunk amplifiers and line extenders in the System were manufactured by S/A. Addressable converter models S/A 8600 and non-addressable models S/A 8511 were also in use. The System's satellite antennas were manufactured by Comtech and Prodelin, and processors were manufactured by S/A. Advertising insertion equipment was manufactured by AdCart. Backup power supplies were manufactured by Onan. G. FRANCHISES As of December 31, 1995, the eight Falcon Systems together held a total of 69 franchises. In California, Gilroy held 13 franchise agreements, Hesperia and San Luis Obispo held four agreements each, and Tulare held seven. For each System, the weighted average remaining life of its franchise agreements was calculated. As of December 31, 1995, the weighted average remaining lives of the franchise agreements, prior to renewals and extensions, were approximately 3.1 years for Gilroy, 9.5 years for Hesperia, 6.9 years for San Luis Obispo, and 2.1 years for Tulare. The individual agreements and their expiration dates are shown in Table VI (A) for the California Systems. 84 90 TABLE VI (A)
REGION/FRANCHISE EXPIRATION DATE GILROY, CA - City of Gilroy May 16, 1999 City of Gonzales July 1, 2002 City of Greenfield November 4, 2003 City of Hollister December 31, 1997 King City September 23, 2003 La Mesa Naval Post Graduate School March 3, 1994 Monterey County October 1, 1998 Monterey County August 1, 1997 City of Morgan Hill May 24, 1996 San Benito County December 31, 1994 City of San Juan Bautista August 16, 1995 Santa Clara County April 7, 2002 City of Soledad June 11, 2002 Weighted Average Remaining Life 3.1 (In Years) HESPERIA, CA - City of Adelanto N/A City of Hesperia June 7, 2006 Kern County January 31, 2007 San Bernardino County April 19, 2008 Weighted Average Remaining Life 9.5 (In Years) SAN LUIS OBISPO, CA - City of Atascadero July 14, 2001 City of Guadalupe August 12, 2006 San Luis Obispo County June 6, 2003 Santa Barbara County February 5, 1999 Weighted Average Remaining Life 6.9 (In Years)
85 91 TABLE VI (A) (CONTINUED)
REGION/FRANCHISE EXPIRATION DATE TULARE, CA - City of Exeter January 28, 1997 City of Farmersville January 24, 1997 City of Lindsay September 17, 1999 City of Orange Cove May 1, 2002 City of Porterville May 5, 1995 Tulare County February 1, 1998 City of Woodlake September 8, 2009 Weighted Average Remaining Life 2.1 (In Years)
In Oregon, the Central Region System held 14 franchise agreements, Coos Bay held eight, Dallas held 16, and Florence held three agreements. As of December 31, 1995, the weighted average remaining lives of the franchise agreements, prior to renewals and extensions, were approximately 8.1 years for Central Region, 4.4 years for Coos Bay, 4.3 years for Dallas, and 9.2 years for Florence. A summary of the Oregon Systems' agreements is presented in Table VI (B) on the following pages. 86 92 TABLE VI (B)
REGION/FRANCHISE EXPIRATION DATE CENTRAL OREGON, OR - City of Brownsville July 6, 2002 City of Cave Junction August 24, 2007 City of Coburg February 2, 2008 City of Cottage Grove November 7, 1998 City of Creswell November 7, 1995 City of Drain September 7, 2009 Lane County June 24, 2007 City of Lowell May 17, 1991 City of Oakland November 6, 1998 City of Oakridge June 30, 2005 City of Sutherlin November 1, 1997 City of Veneta November 24, 2006 City of West Fir June 30, 2005 City of Yoncalla November 10, 2007 No Franchise Required Weighted Average Remaining Life 8.1 (In Years) COOS BAY, OR - City of Bandon June 5, 1994 City of Coos Bay June 30, 2004 City of Coquille June 30, 1996 City of Lakeside December 31, 2004 City of Myrtle Point June 2, 2001 City of North Bend June 30, 2004 City of Powers March 1, 1996 City of Reedsport October 3, 1998 No Franchise Required Weighted Average Remaining Life 4.4 (In Years)
87 93 TABLE VI (B) (CONTINUED)
REGION/FRANCHISE EXPIRATION DATE DALLAS, OR - City of Bay City May 31, 2000 City of Cannon Beach July 7, 2002 City of Dallas October 8, 2002 City of Falls City March 7, 1999 City of Garibaldi September 14, 1997 City of Independence August 27, 2002 City of Jefferson January 14, 2003 City of Manzanita February , 1997 Marion County August 24, 1996 City of Monmouth August 4, 2002 City of Mt. Angel October 7, 1995 city of Nehalem October 8, 2001 City of Rockaway Beach December 8, 2002 City of Silverton January 1, 2000 City of Tillamook December 19, 1999 City of Wheeler November 16, 2013 No Franchise Required Weighted Average Remaining Life 4.3 (In Years) FLORENCE, OR - Dunes City September 22, 2003 City of Florence September 13, 2003 Lane County June 24, 2007 Weighted Average Remaining Life 9.2 (In Years)
H. MANAGEMENT During the site visits to the eight Falcon Systems, MTA's representatives met and spoke extensively with System General Managers. The amount of time that the GMs had been with their respective Systems varied from several months to several years, although all had years of experience in cable system management. 88 94 1. Gilroy, CA At the time of the appraisal, there were 16 people in the technical department, including a plant manager, seven technicians, a lead installer (responsible for quality control), five installers, and two dispatchers. The customer service group had 11 employees, including an operations manager and ten customer service representatives (CSRs). The System also employed a general manager, advertising sales people, and a direct sales staff. 2. Hesperia, CA At the time of the appraisal, Hesperia's technical department operated with a chief technician, a dispatcher, three installers, and three technicians. There were six CSRs in the Hesperia offices. Additionally, there were two technicians, two installers, and two CSRs operating out of the Mojave offices. Finally, there were the general manager and an advertising sales person for the System. 3. San Luis Obispo, CA As of the appraisal date, San Luis Obispo's technical department operated with a chief technician, two main technicians, one service technician, one install technician, two installers, one dispatcher, and one warehouse technician. The System periodically made use of contract installers. Managerial and administrative duties were handled by the general manager, an office manager, a lead customer service representative, and four customer representatives. There was one sales person in the advertising sales department. 4. Tulare, CA As of December 31, 1995, the technical department for Tulare operated with a chief engineer, four technicians, five installers, a converter manager, two dispatchers, and one construction person. The System had a general manager and an office manager/marketing manager. There were seven CSRs, two of whom were part-time 89 95 employees. The advertising department was run with two sales people, and direct sales were handled by contract sales people. 5. Central Region, OR As of the appraisal date, the technical department at the Central Region System was run with four technicians, three installers, and one dispatcher. Managerial and administrative duties were handled by the General Manager, an office manager, and three CSRs. 6. Coos Bay, OR As of December 31, 1995, the technical department operated with a chief technical manager, five technicians, four installers, and one dispatcher. General office and administrative functions were dealt with by an office manager and six CSRs. Additionally, there was a CSR at the Reedsport payment office. Advertising sales were handled by two employees at Coos Bay. All functions were overseen by the System's General Manager. 7. Dallas, OR As of the appraisal date, the technical department at the Dallas System operated with one dispatcher, four installers/technicians, and one part-time technician. Managerial and administrative duties were handled by an office manager and two customer service representatives. The System's General Manager oversaw all functions. 8. Florence, OR As of the appraisal date, Florence's technical department was run with one installer and one technician. Customer service was handled by two full-time CSRs and one part-time CSR. Advertising sales were handled by one employee. All aspects of the System's operations were supervised by the General Manager. 90 96 I. FINANCIAL HISTORY 1. Gilroy, CA Based on unaudited financial statements for the year ending December 31, 1994, revenues for Gilroy were $13,249,767. Operating expenses totaled $5,536,679, resulting in operating income of $7,713,088 with an operating profit margin of 58.2%. Unaudited financial statements for the full twelve months of 1995 indicate that operating profits of $7,650,850 were generated on revenues of $13,145,698, for an operating margin of 58.2%. 2. Hesperia, CA Unaudited financial statements for the year ending December 31, 1994 show revenues for Hesperia of $7,320,512. Operating expenses totaled $3,203,982, leaving operating income of $4,116,529 with an operating profit margin of 56.2%. Unaudited financial statements for 1995 indicate that operating profits of $4,216,820 were generated on revenues of $7,846,604, for an operating margin of 53.7%. 3. San Luis Obispo, CA Unaudited financial statements for the year ending December 31, 1994 outline revenues for San Luis Obispo of $6,134,452. Operating expenses over the same period totaled $2,966,706, resulting in operating income of $3,167,746 with an operating profit margin of 51.6%. Unaudited financial statements for 1995 indicate that operating profits of $2,548,832 were generated on revenues of $5,728,559, for an operating margin of 44.5%. 4. Tulare, CA Based on unaudited financial statements for the year ending December 31, 1994, revenues for Tulare reached $6,802,316. Operating expenses totaled $3,468,775, leaving operating income of $3,333,541 with an operating profit margin of 49.0%. Unaudited 91 97 financial statements for 1995 indicate that operating profits of $3,177,814 were generated on revenues of $6,506,018, for an operating margin of 48.8%. 5. Central Region, OR Unaudited financial statements for the year ending December 31, 1994 detail revenues for Central Region of $5,028,970. Operating expenses reached $2,217,403, resulting in operating income of $2,811,567 with an operating profit margin of 55.9%. Unaudited financial statements for 1995 indicate that operating profits of $2,712,460 were generated on revenues of $5,001,040, for an operating margin of 54.2%. 6. Coos Bay, OR Unaudited financial statements for the year ending December 31, 1994, show revenues for the System of $6,658,404. Operating expenses totaled $2,895,699, resulting in operating income of $3,762,705 with an operating profit margin of 56.5%. Unaudited financial statements for 1995 indicate that operating profits of $3,687,386 were generated on revenues of $6,775,525, for an operating margin of 54.4%. 7. Dallas, OR Based on unaudited financial statements for the year ending December 31, 1994, revenues for Dallas were $6,005,589. Over the same period, operating expenses totaled $2,394,019, resulting in operating income of $3,611,569 with an operating profit margin of 60.1%. Unaudited financial statements for 1995 indicate that operating profits of $3,664,003 were generated on revenues of $6,074,204, for an operating margin of 60.3%. 8. Florence, OR Unaudited financial statements for the year ending December 31, 1994 show revenues for Florence reached $1,604,711. Operating expenses totaled $638,989, resulting in operating income of $965,722 with an operating profit margin of 60.2%. Unaudited financial statements for 1995 indicate that operating profits of $888,628 were generated on revenues of $1,695,633, for an operating margin of 52.41%. 92 98 V. TOTAL SYSTEM VALUE MTA has estimated the sum of the fair market values for the Systems as a business enterprise to be $283,228,000 as of December 31, 1995. 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 MTA used the following basic methodology to determine the overall fair market value of the System(s): 1. Performed onsite reviews to observe a representative portion of the markets 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. 93 99 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, MTA normally relies primarily upon the capitalization of projected net cash flow, or "discounted cash flow" approach, to estimate total value. MTA 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, MTA usually gives greater consideration to the discounted cash flow methods in its final judgment concerning the fair market value of a cable television system. MTA 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. MTA also has considered the second general methodology listed above, i.e., capitalization of operating profit, in conducting its valuation of the System. 94 100 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 MTA 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. MTA'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 in MTA's discounted cash flow models are set forth in Exhibits E, F, G, and H. Exhibit E provides details of MTA'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 95 101 MTA'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. MTA'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 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, MTA 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, MTA has projected future subscribers, revenues, operating expenses, and capital expenditures. MTA 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. Using the return-on-equity model, MTA 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. 96 102 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, MTA 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 D. MTA 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, MTA 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. MTA also has examined factors that affect the industry, such as possibility of regulation, competitive threats, rapid technical changes, and the development of additional programming services. These factors have been incorporated into MTA'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, MTA has 97 103 carefully reviewed the demographics of counties represented in the service area. Demographic information was gathered from direct observation during MTA's onsite visit, discussion with System management, Marketing Statistic's Demographics USA 1995, U.S. Census Bureau data, and information obtained from the local Chamber of Commerce. MTA 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. MTA has calculated a weighted average remaining life of the franchises in each of the eight regions. 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, MTA 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. MTA 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. MTA also believes that the operating income resulting from income and expense projections beyond ten years is increasingly uncertain and might produce less accurate values for the System. MTA'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. MTA also has relied on information provided by System management personnel, discussions with System personnel, and MTA'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, MTA has projected increases in the number of basic and pay subscribers, projected changes in 98 104 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, MTA has calculated a residual value for the System following the 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 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, MTA has calculated the System's residual value using the last year's cash flow times a multiple of nine, as shown in Exhibit D. This multiple reflects MTA's view that the System is likely to have significant value in the last year of the projections, 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 99 105 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, MTA has adopted a range of discount rates for its discounted cash flow methods. In the after-tax return-on-equity model, MTA has applied an after-tax 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 pre-tax weighted average low valuation discount rate is 16.6%, while the high valuation rate is 15.1%. The discount rates used in the two discounted cash flow methods are indicated on Exhibit D and summarized in Exhibit A. MTA 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 presented to 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. MTA 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. 100 106 The discount rates used in the return-on-investment model is determined by the "band of investment" method. The rates are 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. MTA has applied several alternative versions of this method to the System. In the first model, MTA 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 income for the past full year, MTA 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, MTA used the System's projected net operating income for the twelve months following the appraisal date. The results are shown in Exhibit A. The multiples applied to each of these income figures are derived from a variety of cable industry data. First, MTA has looked at the income and stock value of several publicly traded cable companies near the appraisal date. From this analysis, MTA 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, MTA has arrived at a composite figure for each model. In the historical income model, MTA has applied a low multiple of 10.5 and a high multiple of 11.5. 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. 101 107 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, MTA 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, MTA concludes that the fair market values of the Systems as a business enterprise as of December 31, 1995, were as follows: Gilroy, CA $76,000,000 Hesperia, CA 38,846,000 San Luis Obispo, CA 29,585,000 Tulare, CA 31,972,000 Central Region, OR 26,294,000 Coos Bay, OR 34,501,000 Dallas, OR 35,334,000 Florence, OR 10,696,000 COMBINED SYSTEMS $283,228,000
Allocations of the above values to the headends within Coos Bay, Dallas, and Florence are found in Appendix C to this report. Allocation summaries for the identified Sale and Exchange properties are as follows:
Sale Coos Bay, OR $27,837,000 Dallas, OR 15,402,000 Florence, OR 271,000 Gilroy, CA 76,000,000 Tulare, CA 31,972,000 SLO, CA 29,585,000 Central, OR 26,294,000 ------------ TOTAL $207,361,000
Exchange Coos Bay $6,664,000 Dallas 19,932,000 Hesperia 38,846,000 Florence 10,425,000 ----------- TOTAL $75,867,000
102 108 VI. ALLOCATION OF VALUE TO SALE AND EXCHANGE CLUSTERS A. PURPOSE OF ALLOCATION Certain affiliates of Falcon Cable Systems Company, L.P. have made a preliminary proposal to the Advisory Committee to exchange their ownership interests for a portion of the cable systems that represent an equal value. After the exchange, the General Partner would exercise its right to acquire the ownership interests of the unaffiliated owners. The proposal was designed such that the unaffiliated owners would receive the same amount whether or not the systems are exchanged with the affiliated members or all the systems are sold as part of a sale and liquidation. Accordingly, it was necessary to compute the value of the systems that would be exchanged (Exchange Systems) and the remaining systems that would be sold (Sale Systems) in order to determine any adjustments in the list of systems that would ensure that the unaffiliated owners would receive the same amount whether or not the exchange took place. B. METHODOLOGY The fair market values assigned to certain Systems in the previous section have been allocated to the headend service areas (headends) within those Systems. Headend allocations have been calculated for Coos Bay, Dallas, and Florence. To allocate each System's fair market value among its operating headends, MTA examined 1) the number of subscribers served by the headend, 2) the projected operating cash flows to be generated by the headend, and 3) the projected free cash flows to be generated by the headend after capital expenditures have been considered. Allocation percentages were developed based on these three criteria and then averaged to determine a single allocation percentage. The allocation scheme based on the number of subscribers simply divides the subscribers served from the headend by the total number of subscribers served by the 103 109 System, resulting in the first allocation percentage. This allocation was conducted in an identical manner for all three Systems. The second and third allocation methods were preceded by a grouping of each System's headends into two separate operating clusters identified as Sale and Exchange clusters, based on Falcon's General Partner's identification of headends that would potentially be exchanged for the General Partner's limited partner equity interest. When the clusters within Coos Bay, Dallas, and Florence were identified, an allocation of each original System's value between the two groups was developed. Since each cluster's collective revenues, operating expenses, and the level of capital expenditures to be supported were not evenly dispersed among the headends, it was necessary to prepare DCF models for the clusters based on the same methodology used to estimate the original System value. Appropriate adjustments were made to mileage, homes passed, subscribers, rates, operating expenses, and capital expenditures. The single exception to this methodology involved the Mapleton headend in the Florence System, which was identified as a Sale cluster. However, this headend's value is best represented by the contribution it makes to the value of the Florence System. Accordingly, Mapleton's value is the difference between the original value for Florence and the Florence Exchange headend. After the allocation of original System values to Sale and Exchange clusters was accomplished, MTA's second allocation scheme using operating cash flow per headend was applied. C. HEADEND VALUE ALLOCATIONS To forecast operating cash flows per headend in the second allocation method, MTA began with revenue projections based on the number of subscribers to each service per headend and the weighted average rates for services in those specific communities. Certain revenue streams such as installation charges, advertising sales, and miscellaneous have been projected per headend according to a simple subscriber-based allocation of the corresponding (either Sale or Exchange) cluster's revenue projections. Accordingly, revenue streams were projected per headend for 1996. 104 110 An operating profit margin was applied to the revenue streams to forecast 1996 operating cash flow. The profit margin applied to the revenues for each headend was the cumulative profit margin, incorporating all revenues and cash flows, forecast in the corresponding cluster valuation. Headend cash flows were projected to grow at the same annual rate as cash flows for the corresponding cluster. Use of the cumulative margin and the cluster-wide cash flow growth captures the impact on cash flow from new services launched after the valuation date. Cumulative cash flows over the projection period for each headend were divided by cumulative cash flows for the corresponding cluster. In this manner, the second allocation percentage per headend was derived. The third allocation method based on the free cash flow per headend required an allocation of original System capital expenditures to each headend. At the System level, certain expenditures, including converters, installations, miscellaneous, and incremental upgrade/rebuild costs have been projected directly by MTA. Plant mileage projections were based on a combination of historical information, Falcon-provided projections, and the appraiser's judgment. These expenditures were allocated between the headends based on the appropriate statistic, either subscribers or plant miles. The specific rebuild/upgrade expenditures per headend were based on plans and financial projections prepared by Falcon and supplied to the appraisers. Cumulative capital expenditures have been subtracted from cumulative operating cash flows at the headend level and compared with the corresponding figure for the cluster to provide the third allocation percentage. The three allocation percentages were averaged to calculate a single percentage. The average percentage is applied to the original System value to determine an allocated value per headend. Where the sum of the allocated values did not precisely match the original System value, the allocated values were adjusted by the percentage difference between the two. This step results in the final allocated value per headend which yields the overall values for the Sale and Exchange properties. According to this methodology, the sum the identified Sale headends, as of December 31, 1995, is $207,361,000. The sum of the identified Exchange headends as of the same date is $75,867,000. 105 111 VII. CONTINGENCIES AND LIMITING CONDITIONS Our conclusions as to the value of the System's assets and asset allocations 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 MTA representatives of a representative portion of the System and communities served. 2. 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. MTA 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 December 31, 1995, 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 MTA. 3. No copies of this report will be furnished to entities other than the client without the client's specific permission or direction unless ordered by a court of competent jurisdiction. 4. The comments and judgments of MTA 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 not rely on any statement made herein for any purpose other than those set forth in this appraisal. 106 112 5. Separate appraisals of the System-owned land, buildings, improvements, and construction in progress were not conducted. Values for the System's land, buildings, and improvements were taken from the balance sheet, statements of assessed value for tax purposes, or System estimates based on tax assessments. 6. MTA 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 radiofrequency radiation. 107 113 VIII. STATEMENT OF VALUE MTA certifies that a personal inspection of a representative portion of the communities and Systems was made by qualified representatives 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. Neither MTA nor any of its representatives have any current interest or contemplated future interest in the entities appraised. The fee paid for this report was 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 values as stated in this report are true and correct. Therefore, it is the professional opinion of MTA that the fair market values of the Systems as a business enterprise as of December 31, 1995, are as stated below: Gilroy, CA $76,000,000 Hesperia, CA 38,846,000 San Luis Obispo, CA 29,585,000 Tulare, CA 31,972,000 Central Region, OR 26,294,000 Coos Bay, OR 34,501,000 Dallas, OR 35,334,000 Florence, OR 10,696,000 ----------- COMBINED SYSTEMS $283,228,000
108 114 Value allocation summaries for the identified Sale and Exchange properties, as of December 31, 1995, are as follows:
Sale Coos Bay, OR $27,837,000 Dallas, OR 15,402,000 Florence, OR 271,000 Gilroy, CA 76,000,000 Tulare, CA 31,972,000 SLO, CA 29,585,000 Central, OR 26,294,000 ----------- TOTAL $207,361,000
Exchange Coos Bay $6,664,000 Dallas 19,932,000 Hesperia 38,846,000 Florence 10,425,000 ----------- TOTAL $75,867,000
MALARKEY-TAYLOR ASSOCIATES, INC. /s/ ROBERT M. JONES --------------------------------- By: Robert M. Jones President, MTA /s/ SUSAN DONOVAN --------------------------------- By: Susan Donovan Senior Financial Analyst April 29, 1996 109 115 IX. QUALIFICATIONS A. QUALIFICATIONS OF MALARKEY-TAYLOR ASSOCIATES, INC. (MTA) MTA has served the communications industry for nearly 30 years specializing in the field of cable, cellular, paging, mobile radio, and broadcasting technologies. We have completed thousands of projects for clients in the communications industry and in the financial and investment communities. Our organization is 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. MTA has supplied expert testimony on cable, cellular, paging, and broadcast property values in court and other legal hearings. 110 116 B. QUALIFICATIONS OF ROBERT M. JONES Robert M. Jones is MTA-EMCI's President. He is responsible for the management of the financial aspects of all projects. During Mr. Jones years of experience in the cable industry, he has been involved in the analysis of hundreds of systems and is thoroughly familiar with the fiscal management features of all types of systems, from the smallest to the largest. He has the training, experience, and industry knowledge to analyze and interpret financial and operating statements, pro forma financial projections and related financial and management information systems involved in appraisals , rate regulation, valuations, management audits, feasibility studies, due diligence reviews, and franchise applications and renewals. He has testified before court and arbitration hearings concerning cable system values. EXPERIENCE Malarkey-Taylor Associates, Inc., Washington, D.C.; telecommunications consultants and appraisers, specializing in cable television; 1972-1975 and 1978-present; President and Chief Operating Officer; responsible for the financial aspects of all projects. U.S. Army Communications Command, Ft. Ritchie, MD; U.S. Government organization responsible for all non-tactical communications (e.g. telephone, microwave, cable TV, etc.) in the United States; 1977-1978. Chief of Internal Review; responsible for review and analysis of all financial and operational aspects of approximately 100 communications facilities throughout the United States. U.S. Renegotiation Board, Washington, D.C.; Review and oversight of defense contracts with the U.S. Government; 1975-1977; responsible for review, analysis and renegotiation of defense contracts. U.S. General Accounting Office, Washington, D.C.; Research and review of various aspects, especially financial, of projects and operating groups in the Department of Defense; 1968-1969 and 1971-1972. EDUCATION M.A. Degree, Accounting University of Missouri, Columbia, MO. B.B.A. Degree, Accounting, Texas Tech University, Lubbock, TX. CERTIFICATION AND ORGANIZATIONS Certified Public Accountant, Texas and Maryland Senior Member, American Society of Appraisers Member, American Institute of Certified Public Accountants Member, Texas Society of Certified Public Accountants 111 117 C. QUALIFICATIONS OF SUSAN DONOVAN Susan Donovan is a Senior Financial Analyst, in the Financial Services department at Malarkey-Taylor. She provides valuation, financial and consulting services to cable television and broadcasting companies. Ms. Donovan is involved in the fair market valuation and asset appraisal of publicly and privately held cable television systems and broadcast stations. She has acquired an in-depth knowledge of the values of cable television systems and broadcast stations, including their market characteristics, growth prospects, construction costs, operating cost structures, and other industry issues. 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 Analyst, Financial Services, Malarkey-Taylor Associates, 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. 112 118 D. QUALIFICATIONS OF KEKE TAN Keke Tan is a Financial Analyst in the Financial Services department at Malarkey-Taylor. She is involved in the fair market valuation and asset allocation of cable television systems. Ms. Tan has gained in-depth knowledge of the telecommunications industry from her previous work on various Management Information Systems (MIS) projects, as a graduate research assistant at George Mason University (GMU). While a student at GMU, Ms. Tan was responsible for the preparation of a comprehensive financial management case study addressing both domestic and international perspectives pertaining to the telecommunications industry. Additionally, she has worked as a financial analyst at LCI International, Inc., a business and residential long distance telephone service provider. EXPERIENCE Financial Analyst, Financial Services, Malarkey-Taylor Associates, Inc., Washington, D.C., October 1995-present. Graduate Research Assistant, George Mason University, Fairfax, VA, 1994-1995. Financial Analyst, LCI International, Inc., McLean, VA, 1995. Financial Associate, Commonwealth Capital, Inc., Alexandria, VA, 1994. EDUCATION M.B.A. (studies concentrating in Finance and MIS), George Mason University, Fairfax, Virginia. B.S., International Business Administration, Hunan University, Hunan, China. 113 119 APPENDIX A DCF Valuation Exhibits for Falcon Systems 120 Gilroy, CA 121 FALCON CABLE SYSTEMS CO. EXHIBIT A GILROY REGION - CALIFORNIA AS OF DECEMBER 31, 1995
VALUATION METHODS - ----------------- LOW HIGH ----------- ----------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME OPERATING INCOME, PER BOOKS (12/31/95) $7,650,850 $7,650,850 VALUATION MULTIPLE 10.5 11.5 ESTIMATED FAIR MARKET VALUE $80,333,925 $87,984,775 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $13,674,275 $13,674,275 OPERATING MARGIN, PER BOOKS (12/31/95) 58.2% 58.2% ----------- ----------- "RUNNING RATE" OPERATING INCOME 7,959,112 7,959,112 VALUATION MULTIPLE 10.0 11.0 ESTIMATED FAIR MARKET VALUE $79,591,116 $87,550,227 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $8,321,175 $8,321,175 VALUATION MULTIPLE 9.5 10.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $79,051,165 $87,372,340 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $68,767,468 $74,696,602 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $67,554,967 $73,075,065 ----------- ----------- SUMMARY OF VALUES I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $80,333,925 $87,984,775 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 79,591,116 87,550,227 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 79,051,165 87,372,340 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 68,767,468 74,696,602 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 67,554,967 73,075,065 ----------- ----------- RANGE OF ESTIMATED FAIR MARKET VALUES $72,662,000 $79,338,000
ESTIMATED FAIR MARKET VALUE $76,000,000 ----------- 122 FALCON CABLE SYSTEMS CO. EXHIBIT B GILROY REGION - CALIFORNIA LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
PROFIT AND LOSS - LOW VALUE - --------------------------- YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $14,041,526 $15,361,691 $16,991,254 $18,911,275 OPERATING EXPENSES 5,720,351 6,323,315 6,998,292 7,728,029 ----------- ----------- ----------- ------------ OPERATING INCOME $8,321,175 $9,038,377 $9,992,962 $11,183,246 OPERATING MARGIN 0.59 0.59 0.59 0.59 PARENT SERVICES/MGT FEE(5%) 702,076 768,085 849,563 945,564 FRANCHISE AMORTIZATION(15) 3,179,667 3,179,667 3,179,667 3,179,667 SUBSCRIBER LIST(8) 905,467 905,467 905,467 905,467 NON-COMPETE COVENANTS(0) 0 0 0 0 DEPRECIATION 1,640,173 3,820,456 4,786,445 5,555,825 INTEREST 3,306,134 3,539,424 3,962,766 4,135,473 ----------- ----------- ----------- ------------ PRE-TAX INCOME ($1,412,341) ($3,174,720) ($3,690,945) ($3,538,750) INCOME TAX (EXPENSE)/BENEFIT 480,196 1,079,405 1,254,921 1,203,175 ----------- ----------- ----------- ------------ NET INCOME ($932,145) ($2,095,315) ($2,436,024) ($2,335,575) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($1,412,341) ($3,174,720) ($3,690,945) ($3,538,750) FRANCHISE AMORTIZATION(15) 3,179,667 3,179,667 3,179,667 3,179,667 SUBSCRIBER LIST(8) 905,467 905,467 905,467 905,467 NON-COMPETE COVENANTS(0) 0 0 0 0 DEPRECIATION 1,640,173 3,820,456 4,786,445 5,555,825 EQUITY 33,061,336 DEBT 33,061,336 2,332,901 4,233,426 3,801,512 RESIDUAL VALUE IN YEAR 7 ----------- ----------- ----------- ------------ TOTAL SOURCES OF CASH $70,435,637 $7,063,769 $9,414,060 $9,903,722 USES OF CASH - PURCHASE PRICE - CURRENT $68,767,468 CAPITAL EXPENDITURES 1,567,208 7,064,729 7,339,613 7,621,830 DEBT RETIREMENT 0 0 2,074,447 2,281,891 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ----------- ----------- ----------- ------------ TOTAL USES OF CASH $70,334,677 $7,064,729 $9,414,060 $9,903,722 ANNUAL CASH INCREASE/(DECREASE) $100,960 ($960) ($0) $0 CUMULATIVE CASH 100,960 100,000 100,000 100,000 YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $20,810,824 $22,442,561 $23,934,099 $132,493,230 OPERATING EXPENSES 8,573,875 9,242,147 9,878,234 54,464,242 ----------- ----------- ----------- ------------- OPERATING INCOME $12,236,949 $13,200,414 $14,055,865 $78,028,988 OPERATING MARGIN 0.59 0.59 0.59 PARENT SERVICES/MGT FEE(5%) 1,040,541 1,122,128 1,196,705 6,624,661 FRANCHISE AMORTIZATION(15) 3,179,667 3,179,667 3,179,667 22,257,667 SUBSCRIBER LIST(8) 905,467 905,467 905,467 6,338,267 NON-COMPETE COVENANTS(0) 0 0 0 0 DEPRECIATION 5,307,702 4,590,197 4,277,742 29,978,539 INTEREST 3,907,284 3,353,366 2,660,833 24,865,280 ----------- ----------- ----------- ------------- PRE-TAX INCOME ($2,103,711) $49,589 $1,835,452 ($12,035,426) INCOME TAX (EXPENSE)/BENEFIT 715,262 (16,860) (624,054) 4,092,045 ----------- ----------- ----------- ------------- NET INCOME ($1,388,449) $32,729 $1,211,398 ($7,943,381) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH- PRE TAX INCOME ($2,103,711) $49,589 $1,835,452 ($12,035,426) FRANCHISE AMORTIZATION(5) 3,179,667 3,179,667 3,179,667 22,257,667 SUBSCRIBER LIST(8) 905,467 905,467 905,467 6,338,267 NON-COMPETE COVENANTS(0) 0 0 0 0 DEPRECIATION 5,307,702 4,590,197 4,277,742 29,978,539 EQUITY 33,061,336 DEBT 0 0 0 43,429,175 RESIDUAL VALUE IN YEAR 7 126,502,789 126,502,789 ----------- ----------- ------------ ------------ TOTAL SOURCES OF CASH $7,289,124 $8,724,919 $136,701,115 $249,532,346 USES OF CASH- PURCHASE PRICE - CURRENT $68,767,468 CAPITAL EXPENDITURES 1,749,949 1,799,592 1,878,395 29,021,317 DEBT RETIREMENT 5,539,175 6,925,327 26,608,335 43,429,175 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 25,586,037 25,586,037 ----------- ----------- ----------- ------------ TOTAL USES OF CASH $7,289,124 $8,724,919 $54,072,767 $166,803,997 ANNUAL CASH INCREASE/(DECREASE) $0 ($0) $82,628,349 $82,728,349 CUMULATIVE CASH 100,000 100,000 82,728,349
123 FALCON CABLE SYSTEMS CO. EXHIBIT B GILROY REGION - CALIFORNIA HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
PROFIT AND LOSS - HIGH VALUE - ---------------------------- YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $14,041,526 $15,361,691 $16,991,254 $18,911,275 OPERATING EXPENSES 5,720,351 6,323,315 6,998,292 7,728,029 ----------- ----------- ----------- ------------ OPERATING INCOME $8,321,175 $9,038,377 $9,992,962 $11,183,246 OPERATING MARGIN 0.59 0.59 0.59 0.59 PARENT SERVICES/MGT FEE(5%) 702,076 768,085 849,563 945,564 FRANCHISE AMORTIZATION(15) 3,179,667 3,179,667 3,179,667 3,179,667 SUBSCRIBER LIST(8) 905,467 905,467 905,467 905,467 NON-COMPETE COVENANTS(0) 0 0 0 0 DEPRECIATION 1,640,173 3,820,456 4,786,445 5,555,825 INTEREST 3,618,191 3,886,158 4,369,783 4,589,889 ----------- ----------- ----------- ------------ PRE-TAX INCOME ($1,724,399) ($3,521,455) ($4,097,962) ($3,993,166) INCOME TAX (EXPENSE)/BENEFIT 586,296 1,197,295 1,393,307 1,357,676 ----------- ----------- ----------- ------------ NET INCOME ($1,138,103) ($2,324,160) ($2,704,655) ($1,674,149) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($1,724,399) ($3,521,455) ($4,097,962) ($3,993,166) FRANCHISE AMORTIZATION(15) 3,179,667 3,179,667 3,179,667 3,179,667 SUBSCRIBER LIST(8) 905,467 905,467 905,467 905,467 NON-COMPETE COVENANTS(0) 0 0 0 0 DEPRECIATION 1,640,173 3,820,456 4,786,445 5,555,825 EQUITY 36,181,914 DEBT 36,181,914 2,679,671 4,836,245 4,471,311 RESIDUAL VALUE IN YEAR 7 ----------- ----------- ----------- ------------ TOTAL SOURCES OF CASH $76,364,735 $7,063,805 $9,609,861 $10,119,104 USES OF CASH - PURCHASE PRICE - CURRENT $74,696,602 CAPITAL EXPENDITURES 1,567,208 7,064,729 7,339,613 7,621,830 DEBT RETIREMENT 0 0 2,270,248 2,497,273 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ----------- ----------- ----------- ------------ TOTAL USES OF CASH $76,263,810 $7,064,729 $9,609,861 $10,119,104 ANNUAL CASH INCREASE/(DECREASE) $100,924 ($924) $0 $(0) CUMULATIVE CASH 100,924 100,000 100,000 100,000 YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $20,810,824 $22,442,561 $23,934,099 $132,493,230 OPERATING EXPENSES 8,573,875 9,242,147 9,878,234 54,464,242 ----------- ----------- ----------- ------------- OPERATING INCOME $12,236,949 $13,200,414 $14,055,865 $78,028,988 OPERATING MARGIN 0.59 0.59 0.59 PARENT SERVICES/MGT FEE(5%) 1,040,541 1,122,128 1,196,705 6,624,661 FRANCHISE AMORTIZATION(15) 3,179,667 3,179,667 3,179,667 22,257,667 SUBSCRIBER LIST(8) 905,467 905,467 905,467 6,338,267 NON-COMPETE COVENANTS(0) 0 0 0 0 DEPRECIATION 5,307,702 4,590,197 4,277,742 29,978,539 INTEREST 4,340,162 3,829,532 3,184,616 27,818,332 ----------- ----------- ----------- ------------- PRE-TAX INCOME ($2,536,589) ($426,577) $1,311,670 ($14,988,479) INCOME TAX (EXPENSE)/BENEFIT 862,440 145,036 (445,968) 5,096,083 ----------- ----------- ----------- ------------- NET INCOME ($1,674,149) ($281,541) $865,702 ($9,892,396) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH- PRE TAX INCOME ($2,536,589) $(426,577) $1,311,670 ($14,988,479) FRANCHISE AMORTIZATION(5) 3,179,667 3,179,667 3,179,667 22,257,667 SUBSCRIBER LIST(8) 905,467 905,467 905,467 6,338,267 NON-COMPETE COVENANTS(0) 0 0 0 0 DEPRECIATION 5,307,702 4,590,197 4,277,742 29,978,539 EQUITY 36,181,914 DEBT 0 0 0 48,169,141 RESIDUAL VALUE IN YEAR 7 126,502,789 126,502,789 ----------- ----------- ------------ ------------- TOTAL SOURCES OF CASH $6,856,246 $8,248,753 $136,177,333 $254,439,837 USES OF CASH- PURCHASE PRICE - CURRENT $74,696,602 CAPITAL EXPENDITURES 1,749,949 1,799,592 1,878,395 29,021,317 DEBT RETIREMENT 5,106,297 6,449,162 31,846,160 48,169,141 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 22,566,094 22,566,094 ----------- ----------- ----------- ------------ TOTAL USES OF CASH $6,856,246 $8,248,753 $56,290,649 $174,453,153 ANNUAL CASH INCREASE/(DECREASE) $0 $0 $79,886,684 $79,986,684 CUMULATIVE CASH 100,000 100,000 79,986,684
124 FALCON CABLE SYSTEMS CO. EXHIBIT C GILROY REGION - CALIFORNIA LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $66,122,671 YEAR 1 DEBT REQUIREMENTS 33,061,336 YEAR 1 EQUITY REQUIREMENTS 33,061,336 FINANCING AVAILABLE $49,730,525 $54,087,639 $58,749,450 $64,954,254 UNUSED LEVERAGE 16,669,189 18,693,403 21,196,234 25,881,417 SENIOR DEBT: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 33,061,336 $33,061,336 $30,986,889 DEBT ADDED 33,061,336 0 0 0 TOTAL ANNUAL PAYMENTS 3,306,134 3,306,134 5,380,580 5,380,580 INTEREST 3,306,134 3,306,134 3,306,134 3,098,689 PRINCIPAL REPAYMENT 0 0 2,074,447 2,281,891 ENDING BALANCE 33,061,336 33,061,336 30,986,889 28,704,998 LINE OF CREDIT: BEGINNING DEBT $0 $0 $2,332,901 $6,566,327 BORROWINGS 0 2,332,901 4,233,426 3,801,512 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 233,290 656,633 1,036,784 SENIOR DEBT COVERAGE 4.0 3.7 3.1 2.6 LOC DEBT COVERAGE 0.0 0.3 0.7 0.9 TOTAL DEBT COVERAGE 4.0 3.9 3.8 3.5 FINANCING AVAILABLE $72,691,097 $79,540,169 $85,802,688 UNUSED LEVERAGE 39,157,435 52,931,834 65,406,056 SENIOR DEBT: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $28,704,998 $26,194,918 $23,433,829 DEBT ADDED 0 0 0 33,061,336 TOTAL ANNUAL PAYMENTS 5,380,580 5,380,580 5,380,580 33,515,168 INTEREST 2,870,500 2,619,492 2,343,383 20,850,464 PRINCIPAL REPAYMENT 2,510,080 2,761,088 3,037,197 12,664,704 ENDING BALANCE 26,194,918 23,433,829 20,396,632 LINE OF CREDIT: BEGINNING DEBT $10,367,839 $7,338,744 $3,174,505 $0 BORROWINGS 0 0 0 10,367,839 PRINCIPAL PAYMENTS 3,029,095 4,164,239 3,174,505 10,367,839 INTEREST 1,036,784 733,874 317,451 4,014,816 SENIOR DEBT COVERAGE 2.1 1.8 1.5 LOC DEBT COVERAGE 0.6 0.2 0.0 TOTAL DEBT COVERAGE 2.7 2.0 1.5
125 FALCON CABLE SYSTEMS CO. EXHIBIT C GILROY REGION - CALIFORNIA HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $72,363,827 YEAR 1 DEBT REQUIREMENTS 36,181,914 YEAR 1 EQUITY REQUIREMENTS 36,181,914 FINANCING AVAILABLE $57,381,375 $62,408,814 $67,787,827 $74,947,216 UNUSED LEVERAGE 21,199,461 23,547,230 26,360,245 31,545,598 SENIOR: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $36,181,914 $36,181,914 $33,911,685 DEBT ADDED 36,181,914 0 0 0 TOTAL ANNUAL PAYMENTS 3,618,191 3,618,191 5,888,440 5,888,440 INTEREST 3,618,191 3,618,191 3,618,191 3,391,167 PRINCIPAL REPAYMENT 0 0 2,270,248 2,497,273 ENDING BALANCE 36,181,914 36,181,914 33,911,665 31,414,392 LINE OF CREDIT: BEGINNING DEBT $0 $0 $2,679,671 $7,515,916 BORROWINGS 0 2,679,671 4,836,245 4,471,311 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 267,967 751,592 1,198,723 SENIOR DEBT COVERAGE 4.3 4.0 3.4 2.8 LOC DEBT COVERAGE 0.0 0.3 0.8 1.1 TOTAL DEBT COVERAGE 4.3 4.3 4.1 3.9 FINANCING AVAILABLE $83,874,342 $91,777,118 $99,003,101 UNUSED LEVERAGE 45,579,020 66,131,427 76,681,282 SENIOR: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $31,414,392 $28,667,391 $25,645,690 DEBT ADDED 0 0 0 $36,181,914 TOTAL ANNUAL PAYMENTS 5,888,440 5,888,440 5,888,440 33,678,582 INTEREST 3,141,439 2,866,739 2,564,569 22,818,488 PRINCIPAL REPAYMENT 2,747,001 3,021,701 3,323,871 13,860,094 ENDING BALANCE 28,667,391 25,645,690 22,321,820 LINE OF CREDIT: BEGINNING DEBT $11,987,227 $9,627,931 $6,200,470 $0 BORROWINGS 0 0 0 11,987,227 PRINCIPAL PAYMENTS 2,359,296 3,427,461 6,200,470 11,987,227 INTEREST 1,198,723 962,793 620,047 4,999,844 SENIOR DEBT COVERAGE 2.3 1.9 1.6 LOC DEBT COVERAGE 0.8 0.5 0.0 TOTAL DEBT COVERAGE 3.1 2.4 1.6
126 FALCON CABLE SYSTEMS CO. EXHIBIT D GILROY REGION - CALIFORNIA AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD
PROFIT AND LOSS - --------------- YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $14,041,526 $15,361,691 $16,991,254 $18,911,275 OPERATING EXPENSES 5,720,351 6,323,315 6,998,292 7,728,029 ----------- ----------- ----------- ----------- OPERATING INCOME 8,321,175 9,038,377 9,992,962 11,183,246 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 1,567,208 7,064,729 7,339,613 7,621,830 ----------- ----------- ----------- ----------- TOTAL CASH FLOW $6,753,967 $1,973,647 $2,653,349 $3,561,415 NET PRESENT VALUE @ 16.6% $67,554,967 ----------- NET PRESENT VALUE @ 15.1% $73,075,065 ----------- YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $20,810,824 $22,442,561 $23,934,099 $132,493,230 OPERATING EXPENSES 8,573,875 9,242,147 9,878,234 54,464,242 ----------- ----------- ----------- ------------ OPERATING INCOME 12,236,949 13,200,414 14,055,865 78,028,988 PLUS: RESIDUAL VALUE 126,502,789 126,502,789 LESS: CAPITAL EXPENDITURES 1,749,949 1,799,592 1,878,395 29,021,317 ----------- ----------- ------------ ------------ TOTAL CASH FLOW $10,487,000 $11,400,822 $138,680,258 $175,510,459
127 FALCON CABLE SYSTEMS CO. EXHIBIT E GILROY REGION - CALIFORNIA AS OF DECEMBER 31, 1995
CABLE TELEVISION SUBSCRIBERS - ---------------------------- YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ------ ------ ------ ------ ------ ------ ------ BEGINNING MILES 664.7 MILES ADDED 20.5 18.1 17.1 15.9 14.6 13.6 13.6 CUMULATIVE MILES 685.2 703.3 720.4 736.3 751.0 764.5 778.1 DENSITY OF ADDITIONAL PLANT 89 88 87 86 85 85 84 HOMES PASSED - BEGINNING 56,219 NEW HOMES & EXTENSIONS 1,827 1,596 1,491 1,376 1,250 1,148 1,136 HOMES PASSED - ENDING 58,046 59,642 61,133 62,509 63,759 64,907 66,043 GROWTH IN HOMES 3.3% 2.8% 2.5% 2.3% 2.0% 1.8% 1.8% BASIC - BEGINNING SUBSCRIBERS 33,078 34,443 35,689 36,887 38,029 39,108 40,137 AVERAGE SUBSCRIBERS 33,761 35,066 36,288 37,458 38,569 39,623 40,653 ENDING SUBSCRIBERS 34,443 35,689 36,887 38,029 39,108 40,137 41,170 PENETRATION 59.3% 59.8% 60.3% 60.8% 61.3% 61.8% 62.3% EXPANDED BASIC - BEGINNING 30,391 31,645 32,790 33,890 34,940 35,932 36,876 AVERAGE SUBSCRIBERS 31,018 32,217 33,340 34,415 35,436 36,404 37,351 ENDING SUBSCRIBERS 31,645 32,790 33,890 34,940 35,932 36,876 37,825 PENETRATION 91.9% 91.9% 91.9% 91.9% 91.9% 91.9% 91.9% NEW PRODUCT TIER #1 - BEGINNING 13,992 15,086 17,951 18,554 19,129 19,672 20,189 AVERAGE SUBSCRIBERS 14,539 16,519 18,253 18,841 19,400 19,930 20,449 ENDING SUBSCRIBERS 15,086 17,951 18,554 19,129 19,672 20,189 20,708 PENETRATION 43.8% 50.3% 50.3% 50.3% 50.3% 50.3% 50.3% NEW PRODUCT TIER #2 - BEGINNING 0 0 928 3,836 8,785 12,045 12,362 AVERAGE SUBSCRIBERS 0 464 2,382 6,310 10,415 12,204 12,521 ENDING SUBSCRIBERS 0 928 3,836 8,785 12,045 12,362 12,680 PENETRATION 0.0% 2.6% 10.4% 23.1% 30.8% 30.8% 30.8% NEW PRODUCT TIER #3 - BEGINNING 0 0 928 3,836 8,785 12,045 12,362 AVERAGE SUBSCRIBERS 0 464 2,382 6,310 10,415 12,204 12,521 ENDING SUBSCRIBERS 0 928 3,836 8,785 12,045 12,362 12,680 PENETRATION 0.0% 2.6% 10.4% 23.1% 30.8% 30.8% 30.8% PAY TV - BEGINNING UNITS 13,465 13,332 14,171 15,200 16,241 17,093 17,543 AVERAGE UNITS 13,398 13,751 14,685 15,720 16,667 17,318 17,768 ENDING UNITS 13,332 14,171 15,200 16,241 17,093 17,543 17,994 PENETRATION 38.7% 39.7% 41.2% 42.7% 43.7% 43.7% 43.7% PAY PER VIEW - BEGINNING UNITS/MO 728 926 1,497 2,513 3,701 5,064 6,163 AVERAGE UNITS 827 1,212 2,005 3,107 4,382 5,613 6,774 ENDING UNITS 926 1,497 2,513 3,701 5,064 6,163 7,386 AVERAGE BUY RATE/MO 6.6% 9.6% 14.6% 19.6% 24.6% 27.6% 30.6% CONVERTER RENTALS - BEG. 17,120 18,343 20,077 21,858 23,676 24,934 26,192 AVERAGE SUBSCRIBERS 17,732 19,210 20,967 22,767 24,305 25,563 26,838 ENDING SUBSCRIBERS 18,343 20,077 21,858 23,676 24,934 26,192 27,483 PENETRATION 53.3% 56.3% 59.3% 62.3% 63.8% 65.3% 66.8% ADDRESSABLE HOMES 12,924 13,974 15,550 17,179 18,851 20,560 22,305 AVERAGE HOMES 13,449 14,762 16,364 18,015 19,706 21,432 23,209 ENDING HOMES 13,974 15,550 17,179 18,851 20,560 22,305 24,114 PENETRATION 40.6% 43.6% 46.6% 49.6% 52.6% 55.6% 58.6% BASIC CHURN RATE 36% 36% 36% 36% 36% 36% 36%
128 FALCON CABLE SYSTEMS CO. EXHIBIT F GILROY REGION - CALIFORNIA AS OF DECEMBER 31, 1995
SERVICE RATES - ------------- RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------- -------------- BASIC $20.07 $20.20 EXPANDED BASIC $5.03 $5.19 NEW PRODUCT TIER #1 $4.20 $4.54 NEW PRODUCT TIER #2 $4.00 $4.00 NEW PRODUCT TIER #3 $4.00 $4.00 PAY $7.04 $7.04 PAY PER VIEW $15.31 $12.25 CONVERTER RENTALS $1.02 $0.92 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ------ ------- ------- ------ ------- ------- -------- PERCENTAGE RATE INCREASES - ------------------------- BASIC 1% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 3% 10% 10% 9% 4% 3% 3% NEW PRODUCT TIER #1 8% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #3 0% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW -20% -10% -5% 3% 3% 3% 3% CONVERTER/REMOTE RENTALS -10% 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 $20.20 $20.80 $21.43 $22.07 $22.73 $23.42 $24.12 EXPANDED BASIC 5.19 5.71 6.26 6.84 7.12 7.33 7.55 NEW PRODUCT TIER #1 4.54 4.67 4.81 4.96 5.11 5.26 5.42 NEW PRODUCT TIER #2 4.00 4.12 4.24 4.37 4.50 4.64 4.78 NEW PRODUCT TIER #3 4.00 4.12 4.24 4.37 4.50 4.64 4.78 PAY 7.04 7.11 7.18 7.25 7.32 7.40 7.47 PAY PER VIEW 12.25 11.02 10.47 10.78 11.11 11.44 11.78 CONVERTERS RENTALS 0.92 0.95 0.97 1.00 1.03 1.06 1.10 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 59.70 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98 29.85
129 FALCON CABLE SYSTEMS CO. EXHIBIT G GILROY REGION - CALIFORNIA AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------ REVENUES: BASIC $8,183,005 $8,754,378 $9,331,147 $9,921,016 $10,521,714 $11,133,508 $11,765,772 $69,610,540 EXPANDED BASIC 1,931,897 2,207,654 2,505,254 2,822,923 3,027,418 3,203,449 3,385,371 19,083,966 NEW PRODUCT TIER #1 791,690 926,475 1,054,434 1,121,090 1,188,970 1,258,103 1,329,550 7,670,311 NEW PRODUCT TIER #2 0 22,938 121,302 330,989 562,667 679,081 717,646 2,434,623 NEW PRODUCT TIER #3 0 22,938 121,302 330,989 562,667 679,081 717,646 2,434,623 PAY TV 1,131,456 1,172,871 1,265,053 1,367,762 1,464,625 1,537,032 1,592,778 9,531,577 PAY PER VIEW 121,534 160,288 251,954 402,064 584,118 770,662 957,966 3,248,587 CONVERTER/REMOTE RENTALS 195,383 218,026 245,108 274,125 301,425 326,540 353,106 1,913,714 INSTALLATIONS 295,256 308,759 325,244 341,694 358,016 375,106 395,327 2,399,404 COMMERCIAL 132,885 136,872 140,978 145,207 149,563 154,050 158,672 1,018,226 ADVERTISING 385,810 491,908 614,885 753,234 903,881 1,062,060 1,221,369 5,433,146 MISCELLANEOUS 872,609 938,586 1,014,594 1,100,182 1,185,759 1,263,887 1,338,896 7,714,513 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------ TOTAL REVENUES $14,041,526 $15,361,691 $16,991,254 $18,911,275 $20,810,824 $22,442,561 $23,934,099 $132,493,230 OPERATING EXPENSES: OPERATIONS $ 2,064,345 $ 2,249,848 $ 2,412,998 $ 2,591,481 $ 2,769,969 $ 2,936,676 $ 3,099,788 $ 18,125,105 GENERAL & ADMINISTRATIVE 1,158,941 1,238,634 1,322,695 1,411,711 1,501,747 1,589,892 1,678,653 9,902,273 SALES & MARKETING 561,994 732,575 899,476 1,018,709 1,146,308 1,265,334 1,386,374 7,010,770 PROGRAMMING 1,935,071 2,102,257 2,363,122 2,706,128 3,155,850 3,450,245 3,713,419 19,426,094 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------ TOTAL OPERATING EXPENSES $ 5,720,351 $ 6,323,315 $ 6,998,292 $ 7,728,029 $ 8,573,875 $ 9,242,147 $ 9,878,234 $ 54,464,242 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ------------ OPERATING INCOME $ 8,321,175 $ 9,038,377 $ 9,992,962 $11,183,246 $12,236,949 $13,200,414 $14,055,865 $ 78,028,988 OPERATING MARGIN 59.3% 58.8% 58.8% 59.1% 58.8% 58.8% 58.7% TOTAL REVENUE/ BASIC SUB/MONTH $34.66 $36.51 $39.02 $42.07 $44.96 $47.20 $49.06 CASH FLOW/BASIC SUB/MONTH $20.54 $21.48 $22.95 $24.88 $26.44 $27.76 $28.81 OPERATIONS % OF REVENUE 15% 15% 14% 14% 13% 13% 13% G & A PERCENTAGE OF REVENUE 8% 8% 8% 7% 7% 7% 7% SALES & MARKETING % OF REVENUE 4% 5% 5% 5% 6% 6% 6% PROGRAMMING % OF REVENUE 14% 14% 14% 14% 15% 15% 16%
130 FALCON CABLE SYSTEMS CO. EXHIBIT H GILROY REGION - CALIFORNIA AS OF DECEMBER 31, 1995
CAPITAL EXPENDITURES - -------------------- YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- ASSUMPTIONS AND INPUTS: - ---------------------- BV OF EXISTING PLANT $9,910,561 ADDITIONAL MILES OF PLANT 20.5 18.1 17.1 15.9 14.6 13.6 13.6 AERIAL PLANT PER MILE $11,000 $11,220 $11,444 $11,673 $11,907 $12,145 $12,388 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 $19,484 $19,873 $20,271 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 53% 56% 59% 62% 64% 65% 67% PERCENTAGE REPLACEMENT 5% 5% 5% 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $63 $64 $65 $67 $68 $69 $71 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 2% 2% 2% 115% 1.02 1.04 1.06 1.08 1.10 1.13 1.15 ANNUAL COSTS: - ------------ 23,775 PLANT ADDITIONS - AERIAL $11,287 $10,164 $9,785 $9,302 $8,712 $8,240 $8,401 $65,890 - UNDERGROUND 350,921 316,007 304,219 289,206 270,849 256,174 261,198 2,048,573 PLANT REBUILD/ UPGRADE/INCL. HE 33,898 5,507,000 5,726,000 5,956,000 41,457 43,050 44,690 17,352,096 AVERAGE COST OF NEW CONVERTERS 79,980 78,609 81,235 83,029 81,939 81,511 85,393 571,697 CONVERTER REPLACEMENT 96,889 108,703 121,012 134,034 144,345 154,973 165,959 925,916 INSTALLATION COSTS 825,430 865,410 908,594 951,507 993,907 1,036,911 1,083,843 6,665,602 MISC. CAPITAL EXPENDITURES 168,803 178,836 188,768 198,753 208,740 218,733 228,911 1,391,544 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL CAPITAL EXPENDITURES $1,567,208 $7,064,729 $7,339,613 $7,621,830 $1,749,949 $1,799,592 $1,878,395 $29,021,317 AS A % OF OPERATING INCOME 18.8% 78.2% 73.4% 68.2% 14.3% 13.6% 13.4%
131 FALCON CABLE SYSTEMS CO. EXHIBIT I GILROY REGION - CALIFORNIA AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9%
DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 2001 2002 TOTAL ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- YEAR 1 $1,640,173 $2,810,906 $2,007,462 $1,433,573 $1,024,965 $1,023,817 $1,024,965 $10,965,861 YEAR 2 1,009,550 1,730,152 1,235,621 882,385 630,880 630,174 6,118,762 YEAR 3 1,048,831 1,797,471 1,283,698 916,718 655,427 5,702,145 YEAR 4 1,089,160 1,866,586 1,333,058 951,967 5,240,771 YEAR 5 250,068 428,562 306,066 984,696 YEAR 6 257,162 440,720 697,882 YEAR 7 268,423 268,423 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL DEPRECIATION $1,640,173 $3,820,456 $4,786,445 $5,555,825 $5,307,702 $4,590,197 $4,277,742 $29,978,539
132 FALCON CABLE SYSTEMS CO. EXHIBIT J GILROY REGION - CALIFORNIA AS OF DECEMBER 31, 1995 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 7 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $9,910,561 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS --------- --------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
133 HESPERIA, CA 134 FALCON CABLE SYSTEMS CO. EXHIBIT A HESPERIA REGION - CALIFORNIA AS OF DECEMBER 31, 1995 VALUATION METHODS - -----------------
LOW HIGH --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME OPERATING INCOME, PER BOOKS (12/31/95) $ 4,216,820 $ 4,216,820 VALUATION MULTIPLE 10.5 11.5 ESTIMATED FAIR MARKET VALUE $44,276,610 $48,493,430 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED. OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $ 8,028,258 $ 8,028,258 OPERATING MARGIN, PER BOOKS (12/31/95) 55.0% 55.0% "RUNNING RATE" OPERATING INCOME $4,414,338 $4,414,338 VALUATION MULTIPLE 10.0 11.0 ESTIMATED FAIR MARKET VALUE $44,143,375 $48,557,713 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $ 4,580,803 $ 4,580,803 VALUATION MULTIPLE 9.5 10.5 ESTIMATED FAIR MARKET VALUE $43,517,628 $48,098,431 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $32,599,933 $36,560,368 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVESTMENT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $31,670,116 $35,251,299 ----------- -----------
SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $44,276,610 $48,493,430 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 44,143,375 48,557,713 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 43,517,628 48,098,431 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 32,599,933 36,560,368 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 31,670,116 35,251,299 RANGE OF ESTIMATED FAIR MARKET VALUES $36,820,000 $40,872,000 ESTIMATED FAIR MARKET VALUE $38,846,000
135 FALCON CABLE SYSTEMS CO. EXHIBIT B HESPERIA REGION - CALIFORNIA LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 ----------- ----------- ----------- ----------- ----------- ----------- REVENUES $8,248,820 $8,847,099 $9,614,941 $10,465,621 $11,314,770 $12,082,783 OPERATING EXPENSES 3,668,017 3,948,555 4,313,107 4,630,815 4,964,157 5,275,992 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING INCOME $4,580,803 $4,898,544 $5,301,835 $5,834,806 $6,350,614 $6,806,792 OPERATING MARGIN 0.56 0.55 0.55 0.56 0.56 0.56 PARENT SERVICES/MGT FEE (5%) 412,441 442,355 480,747 523,281 565,739 604,139 FRANCHISE AMORTIZATION (15) 1,028,800 1,028,800 1,028,800 1,028,800 1,028,800 1,028,800 SUBSCRIBER LIST (8) 497,133 497,133 497,133 497,133 497,133 497,133 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 DEPRECIATION 1,997,324 4,405,394 5,149,922 4,831,032 3,722,372 3,297,420 INTEREST 1,544,438 1,984,723 2,571,658 2,474,751 2,283,396 2,030,501 ----------- ----------- ----------- ----------- ----------- ----------- PRE-TAX INCOME ($899,333) ($3,459,860) ($4,426,425) ($3,520,192) ($1,746,826) ($651,203) INCOME TAX (EXPENSE)/BENEFIT 305,773 1,176,353 1,504,985 1,196,865 593,921 221,409 ----------- ----------- ----------- ----------- ----------- ----------- NET INCOME ($593,560) ($2,283,508) ($2,921,441) ($2,323,327) ($1,152,905) ($429,794) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($899,333) ($3,459,860) ($4,426,425) ($3,520,192) ($1,746,826) ($651,203) FRANCHISE AMORTIZATION (15) 1,028,800 1,028,800 1,028,800 1,028,800 1,028,800 1,028,800 SUBSCRIBER LIST (8) 497,133 497,133 497,133 497,133 497,133 497,133 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 DEPRECIATION 1,997,324 4,405,394 5,149,922 4,831,032 3,722,372 3,297,420 EQUITY 15,444,381 DEBT 15,444,381 4,402,846 5,869,347 0 0 0 RESIDUAL VALUE IN YEAR 10 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL SOURCES OF CASH $33,512,687 $6,874,313 $8,118,778 $2,836,773 $3,501,479 $4,172,151 USES OF CASH - PURCHASE PRICE - CURRENT $32,599,933 CAPITAL EXPENDITURES 812,270 6,874,797 7,149,714 923,226 972,527 1,008,417 DEBT RETIREMENT 0 0 969,064 1,913,548 2,528,952 3,163,734 TAXES PAID ON NET INCOME 0 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ----------- ----------- ----------- ----------- ----------- ----------- TOTAL USES OF CASH $33,412,203 $6,874,797 $8,118,778 $2,836,773 $3,501,479 $4,172,151 ANNUAL CASH INCREASE/(DECREASE $100,484 ($484) ($0) $0 ($0) $0 CUMULATIVE CASH 100,484 100,000 100,000 100,000 100,000 100,000
YEAR ENDING DECEMBER 31, 2002 2003 2004 2005 TOTAL ----------- ----------- ----------- ----------- ------------ REVENUES $12,765,783 $13,466,484 $14,181,782 $14,925,345 $115,913,429 OPERATING EXPENSES 5,569,010 5,866,492 6,172,597 6,495,056 50,903,797 ----------- ----------- ----------- ----------- ------------ OPERATING INCOME $7,196,773 $7,599,992 $8,009,185 $8,430,289 $65,009,632 OPERATING MARGIN 0.56 0.56 0.56 0.56 PARENT SERVICES/MGT FEE (5%) 638,289 673,324 709,089 746,267 5,795,671 FRANCHISE AMORTIZATION (15) 1,028,800 1,028,800 1,028,800 1,028,800 10,288,000 SUBSCRIBER LIST (8) 497,133 497,133 497,133 497,133 4,971,333 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 3,183,294 2,672,563 1,860,526 1,355,114 32,474,961 INTEREST 1,714,128 1,335,411 887,077 625,071 17,451,154 ----------- ----------- ----------- ----------- ------------ PRE-TAX INCOME $135,129 $1,392,760 $3,026,560 $4,177,904 ($5,971,487) INCOME TAX (EXPENSE)/BENEFIT (45,944) (473,538) (1,029,030) (1,420,487) 2,030,306 ----------- ----------- ----------- ----------- ------------ NET INCOME $89,185 $919,222 $1,997,529 $2,757,416 ($3,941,182) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME $135,129 $1,392,760 $3,026,560 $4,177,904 ($5,971,487) FRANCHISE AMORTIZATION (15) 1,028,800 1,028,800 1,028,800 1,028,800 10,288,000 SUBSCRIBER LIST (8) 497,133 497,133 497,133 497,133 4,971,333 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 3,183,294 2,672,563 1,860,526 1,355,114 32,474,961 EQUITY 15,444,381 DEBT 0 0 0 0 25,716,575 RESIDUAL VALUE IN YEAR 10 75,872,604 75,872,604 ----------- ----------- ----------- ----------- ------------ TOTAL SOURCES OF CASH $4,844,356 $5,591,256 $6,413,019 $82,931,555 $158,796,367 USES OF CASH - PURCHASE PRICE - CURRENT $32,599,933 CAPITAL EXPENDITURES 1,057,191 1,107,912 1,148,080 1,189,715 22,243,848 DEBT RETIREMENT 3,787,165 4,483,345 2,620,061 6,250,707 25,716,575 TAXES PAID ON NET INCOME 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 21,349,154 21,349,154 ----------- ----------- ----------- ----------- ------------ TOTAL USES OF CASH $4,844,356 $5,591,256 $3,768,141 $28,789,576 $101,909,510 ANNUAL CASH INCREASE/(DECREASE ($0) $0 $2,644,878 $54,141,979 $56,886,857 CUMULATIVE CASH 100,000 100,000 2,744,878 56,886,857
136 FALCON CABLE SYSTEMS CO. EXHIBIT B HESPERIA REGION - CALIFORNIA HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 ----------- ----------- ---------- ----------- ----------- ----------- REVENUES $8,248,820 $8,847,099 $9,614,941 $10,465,621 $11,314,770 $12,082,783 OPERATING EXPENSES 3,668,017 3,948,555 4,313,107 4,630,815 4,964,157 5,275,992 ----------- ----------- ----------- ----------- ------------ ----------- OPERATING INCOME $4,580,803 $4,898,544 $5,301,835 $5,834,806 $6,350,614 $6,806,792 OPERATING MARGIN 0.56 0.55 0.55 0.56 0.56 0.56 PARENT SERVICES/MGT FEE (5%) 412,441 442,355 480,747 523,281 565,739 604,139 FRANCHISE AMORTIZATION (15) 1,028,800 1,028,800 1,028,800 1,028,800 1,028,800 1,028,800 SUBSCRIBER LIST (8) 497,133 497,133 497,133 497,133 497,133 497,133 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 DEPRECIATION 1,997,324 4,405,394 5,149,922 4,831,032 3,722,372 3,297,420 INTEREST 1,752,869 2,216,341 2,843,542 2,733,557 2,568,083 2,343,657 ----------- ----------- ----------- ----------- ------------ ----------- PRE-TAX INCOME ($1,107,764) ($3,691,478) ($4,698,309) ($3,778,999) ($2,031,513) ($964,358) INCOME TAX (EXPENSE)/BENEFIT 376,640 1,255,103 1,597,425 1,284,859 690,714 327,882 ----------- ----------- ----------- ----------- ------------ ----------- NET INCOME ($731,124) ($2,436,376) ($3,100,884) ($2,494,139) ($1,340,799) ($636,476) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($1,107,764) ($3,691,478) ($4,698,309) ($3,778,999) ($2,031,513) ($964,358) FRANCHISE AMORTIZATION (10) 1,028,800 1,028,800 1,028,800 1,028,800 1,028,800 1,028,800 SUBSCRIBER LIST (8) 497,133 497,133 497,133 497,133 497,133 497,133 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 DEPRECIATION 1,997,324 4,405,394 5,149,922 4,831,032 3,722,372 3,297,420 EQUITY 17,528,686 DEBT 17,528,686 4,634,721 6,272,012 0 0 0 RESIDUAL VALUE IN YEAR 10 ----------- ----------- ----------- ----------- ------------ ----------- TOTAL SOURCES OF CASH $37,472,864 $6,874,570 $8,249,558 $2,577,967 $3,216,792 $3,858,996 USES OF CASH - PURCHASE PRICE - CURRENT $36,560,368 CAPITAL EXPENDITURES 812,270 6,874,797 7,149,714 923,226 972,527 1,008,417 DEBT RETIREMENT 0 0 1,099,844 1,654,742 2,244,265 2,850,579 TAXES PAID ON NET INCOME 0 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ----------- ----------- ----------- ----------- ------------ ----------- TOTAL USES OF CASH $37,372,637 $6,874,797 $8,249,558 $2,577,967 $3,216,792 $3,858,996 ANNUAL CASH INCREASE/(DECREASE) $100,227 ($227) ($0) $0 ($0) $0 CUMULATIVE CASH 100,227 100,000 100,000 100,000 100,000 100,000
YEAR ENDING DECEMBER 31, 2002 2003 2004 2005 TOTAL ----------- ----------- ----------- ----------- ------------ REVENUES $12,765,783 $13,466,484 $14,181,782 $14,925,345 $115,913,429 OPERATING EXPENSES 5,569,010 5,866,492 6,172,597 6,495,056 50,903,797 ----------- ----------- ----------- ----------- ------------ OPERATING INCOME $7,196,773 $7,599,992 $8,009,185 $8,430,289 $65,009,632 OPERATING MARGIN 0.56 0.56 0.56 0.56 PARENT SERVICES/MGT FEE (5%) 638,289 673,324 709,089 746,267 5,795,671 FRANCHISE AMORTIZATION (15) 1,028,800 1,028,800 1,028,800 1,028,800 10,288,000 SUBSCRIBER LIST (8) 497,133 497,133 497,133 497,133 4,971,333 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 3,183,294 2,672,563 1,860,526 1,355,114 32,474,961 INTEREST 2,058,599 1,714,330 1,303,887 819,074 20,353,938 ----------- ----------- ----------- ----------- ------------ PRE-TAX INCOME ($209,342) $1,013,842 $2,609,749 $3,983,900 ($8,874,272) INCOME TAX (EXPENSE)/BENEFIT 71,176 (344,706) (887,315) (1,354,526) 3,017,252 ----------- ----------- ----------- ----------- ------------ NET INCOME ($138,166) $669,136 $1,722,435 $2,629,374 ($5,857,019) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($209,342) $1,013,842 $2,609,749 $3,983,900 ($8,874,272) FRANCHISE AMORTIZATION (10) 1,028,800 1,028,800 1,028,800 1,028,800 10,288,000 SUBSCRIBER LIST (8) 497,133 497,133 497,133 497,133 4,971,333 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 3,183,294 2,672,563 1,860,526 1,355,114 32,474,961 EQUITY 17,528,686 DEBT 0 0 0 0 28,435,419 RESIDUAL VALUE IN YEAR 10 75,872,604 75,872,604 ----------- ----------- ----------- ----------- ------------ TOTAL SOURCES OF CASH $4,499,885 $5,212,338 $5,996,209 $82,737,552 $160,696,731 USES OF CASH - PURCHASE PRICE - CURRENT $36,560,368 CAPITAL EXPENDITURES 1,057,191 1,107,912 1,148,080 1,189,715 22,243,848 DEBT RETIREMENT 3,442,694 4,104,426 4,848,129 8,190,741 28,435,419 TAXES PAID ON NET INCOME 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 19,015,660 19,015,660 ----------- ----------- ----------- ----------- ------------ TOTAL USES OF CASH $4,499,885 $5,212,338 $5,996,209 $28,396,115 $106,255,294 ANNUAL CASH INCREASE/(DECREASE) ($0) $0 $0 $54,341,437 $54,441,437 CUMULATIVE CASH 100,000 100,000 100,000 54,441,437
137 FALCON CABLE SYSTEMS CO. EXHIBIT C HESPERIA REGION - CALIFORNIA LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE TOTAL YEAR 1 CASH REQUIREMENTS $30,888,763 YEAR 1 DEBT REQUIREMENTS 15,444,381 YEAR 1 EQUITY REQUIREMENTS 15,444,381 FINANCING AVAILABLE $27,409,330 $29,775,219 $31,840,539 $34,461,927 $37,926,237 $41,278,990 UNUSED LEVERAGE 11,964,949 9,927,991 7,093,028 11,627,964 17,621,225 24,137,712
SENIOR DEBT: 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- BEGINNING DEBT $0 $15,444,381 $15,444,381 $14,475,318 $13,409,347 $12,236,780 DEBT ADDED 15,444,381 0 0 0 0 0 TOTAL ANNUAL PAYMENTS 1,544,438 1,544,438 2,513,502 2,513,502 2,513,502 2,513,502 INTEREST 1,544,438 1,544,438 1,544,438 1,447,532 1,340,935 1,223,678 PRINCIPAL REPAYMENT 0 0 969,064 1,065,970 1,172,567 1,289,824 ENDING BALANCE 15,444,381 15,444,381 14,475,318 13,409,347 12,236,780 10,946,956 LINE OF CREDIT: BEGINNING DEBT $0 $0 $4,402,846 $10,272,194 $9,424,616 $8,068,232 BORROWINGS 0 4,402,846 5,869,347 0 0 0 PRINCIPAL PAYMENTS 0 0 0 847,578 1,356,385 1,873,910 INTEREST 0 440,285 1,027,219 1,027,219 942,462 806,823 SENIOR DEBT COVERAGE 3.4 3.2 2.7 2.3 1.9 1.6 LOC DEBT COVERAGE 0.0 0.9 1.9 1.6 1.3 0.9 TOTAL DEBT COVERAGE 3.4 4.1 4.7 3.9 3.2 2.5 DEBT AMORTIZATION - LOW VALUE TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $44,244,145 $46,779,024 $49,399,947 $52,059,701 UNUSED LEVERAGE 30,890,032 37,908,256 43,149,240 47,697,425 SENIOR DEBT: 2002 2003 2004 2005 TOTAL ---- ---- ---- ---- ----- BEGINNING DEBT $10,946,956 $9,528,150 $7,967,463 $6,250,707 DEBT ADDED 0 0 0 0 15,444,381 TOTAL ANNUAL PAYMENTS 2,513,502 2,513,502 2,513,502 2,513,502 23,196,892 INTEREST 1,094,696 952,815 796,746 625,071 12,114,787 PRINCIPAL REPAYMENT 1,418,806 1,560,687 1,716,756 1,888,431 11,082,105 ENDING BALANCE 9,528,150 7,967,463 6,250,707 4,362,276 LINE OF CREDIT: BEGINNING DEBT $6,194,321 $3,825,963 $903,305 $0 $0 BORROWINGS 0 0 0 0 10,272,194 PRINCIPAL PAYMENTS 2,368,358 2,922,658 903,305 0 10,272,194 INTEREST 619,432 382,596 90,330 0 5,336,367 SENIOR DEBT COVERAGE 1.3 1.0 0.8 0.5 LOC DEBT COVERAGE 0.5 0.1 0.0 0.0 TOTAL DEBT COVERAGE 1.9 1.2 0.8 0.5
138 FALCON CABLE SYSTEMS CO. EXHIBIT C HESPERIA REGION - CALIFORNIA HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE TOTAL YEAR 1 CASH REQUIREMENTS $35,057,371 YEAR 1 DEBT REQUIREMENTS 17,528,686 YEAR 1 EQUITY REQUIREMENTS 17,528,686 FINANCING AVAILABLE $31,626,150 $34,356,022 $36,739,084 $39,763,762 $43,761,042 $47,629,604 UNUSED LEVERAGE 14,097,464 12,192,616 9,403,509 14,082,929 20,324,475 27,043,614
SENIOR: 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- BEGINNING DEBT $0 $17,528,686 $17,528,686 $16,428,841 $15,219,013 $13,888,201 DEBT ADDED 17,528,686 0 0 0 0 0 TOTAL ANNUAL PAYMENTS 1,752,869 1,752,869 2,852,713 2,852,713 2,852,713 2,852,713 INTEREST 1,752,869 1,752,869 1,752,869 1,642,884 1,521,901 1,388,820 PRINCIPAL REPAYMENT 0 0 1,099,844 1,209,829 1,330,812 1,463,893 ENDING BALANCE 17,528,686 17,528,686 16,428,841 15,219,013 13,888,201 12,424,308 LINE OF CREDIT: BEGINNING DEBT $0 $0 $4,634,721 $10,906,733 $10,461,820 $9,548,367 BORROWINGS 0 4,634,721 6,272,012 0 0 0 PRINCIPAL PAYMENTS 0 0 0 444,913 913,453 1,386,686 INTEREST 0 463,472 1,090,673 1,090,673 1,046,182 954,837 SENIOR DEBT COVERAGE 3.8 3.6 3.1 2.6 2.2 1.8 LOC DEBT COVERAGE 0.0 0.9 2.1 1.8 1.5 1.2 TOTAL DEBT COVERAGE 3.8 4.5 5.2 4.4 3.7 3.0 FINANCING AVAILABLE $51,050,937 $53,975,797 $56,999,939 $60,068,886 UNUSED LEVERAGE 33,907,641 40,936,927 48,809,198 55,117,897 SENIOR: 2002 2003 2004 2005 TOTAL ---- ---- ---- ---- ----- BEGINNING DEBT $12,424,308 $10,814,026 $9,042,716 $7,094,275 DEBT ADDED 0 0 0 0 $17,528,686 TOTAL ANNUAL PAYMENTS 2,852,713 2,852,713 2,852,713 2,852,713 26,327,440 INTEREST 1,242,431 1,081,403 904,272 709,427 13,749,744 PRINCIPAL REPAYMENT 1,610,282 1,771,310 1,948,441 2,143,285 12,577,696 ENDING BALANCE 10,814,026 9,042,716 7,094,275 4,950,989 LINE OF CREDIT: BEGINNING DEBT $8,161,681 $6,329,270 $3,996,153 $1,096,466 $0 BORROWINGS 0 0 0 0 10,906,733 PRINCIPAL PAYMENTS 1,832,412 2,333,116 2,899,688 1,096,466 10,906,733 INTEREST 816,168 632,927 399,615 109,647 6,604,194 SENIOR DEBT COVERAGE 1.5 1.2 0.9 0.6 LOC DEBT COVERAGE 0.9 0.5 0.1 0.0 TOTAL DEBT COVERAGE 2.4 1.7 1.0 0.6
139 FALCON CABLE SYSTEMS CO. EXHIBIT D HESPERIA REGION - CALIFORNIA AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 ----------- ----------- ----------- ----------- ----------- ----------- REVENUES $ 8,248,820 $ 8,847,099 $ 9,614,941 $10,465,621 $11,314,770 $12,082,783 OPERATING EXPENSES 3,668,017 3,948,555 4,313,107 4,630,815 4,964,157 5,275,992 ----------- ----------- ----------- ----------- ----------- ----------- OPERATING INCOME $ 4,580,803 $ 4,898,544 $ 5,301,835 $ 5,834,806 $ 6,350,614 $ 6,806,792 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 812,270 6,874,797 7,149,714 923,226 972,527 1,008,417 ----------- ----------- ----------- ----------- ----------- ----------- TOTAL CASH FLOW $ 3,768,533 ($1,976,252) ($1,847,879) $ 4,911,580 $ 5,378,087 $ 5,798,375 NET PRESENT VALUE @ 16.6% $31,670,116 ----------- NET PRESENT VALUE @ 15.1% $35,251,299 -----------
YEAR ENDING DECEMBER 31, 2002 2003 2004 2005 TOTAL ----------- ----------- ----------- ----------- ------------ REVENUES $12,765,783 $13,466,484 $14,181,782 $14,925,345 $115,913,429 OPERATING EXPENSES 5,569,010 5,866,492 6,172,597 6,495,056 50,903,797 ----------- ----------- ----------- ----------- ------------ OPERATING INCOME $ 7,196,773 $ 7,599,992 $ 8,009,185 $ 8,430,289 $ 65,009,632 PLUS: RESIDUAL VALUE 75,872,604 75,872,604 LESS: CAPITAL EXPENDITURES 1,057,191 1,107,912 1,148,080 1,189,715 22,243,848 ----------- ----------- ----------- ----------- ------------ TOTAL CASH FLOW $ 6,139,582 $ 6,492,080 $ 6,861,105 $83,113,178 $118,638,388 NET PRESENT VALUE @ 16.6% NET PRESENT VALUE @ 15.1%
140 FALCON CABLE SYSTEMS CO. EXHIBIT E HESPERIA REGION - CALIFORNIA AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- BEGINNING MILES 678.0 MILES ADDED 10.0 10.0 10.5 10.5 11.0 11.0 CUMULATIVE MILES 688.0 698.0 708.5 719.0 730.0 741.0 DENSITY OF ADDITIONAL PLANT 31 31 30 31 30 27 HOMES PASSED - BEGINNING 28,280 NEW HOMES & EXTENSIONS 311 315 318 321 325 299 HOMES PASSED - ENDING 28,591 28,906 29,224 29,545 29,870 30,169 GROWTH IN HOMES 1.1% 1.1% 1.1% 1.1% 1.1% 1.0% BASIC - BEGINNING SUBSCRIBERS 18,513 19,003 19,501 19,861 20,227 20,599 AVERAGE SUBSCRIBERS 18,758 19,252 19,681 20,044 20,413 20,778 ENDING SUBSCRIBERS 19,003 19,501 19,861 20,227 20,599 20,956 PENETRATION 66.5% 67.5% 68.0% 68.5% 69.0% 69.5% EXPANDED BASIC - BEGINNING 17,593 18,058 18,532 18,874 19,222 19,576 AVERAGE SUBSCRIBERS 17,826 18,295 18,703 19,048 19,399 19,745 ENDING SUBSCRIBERS 18,058 18,532 18,874 19,222 19,576 19,915 PENETRATION 95.0% 95.0% 95.0% 95.0% 95.0% 95.0% NEW PRODUCT TIER #1 - BEGINNING 8,712 9,227 9,762 9,942 10,126 10,312 AVERAGE SUBSCRIBERS 8,970 9,495 9,852 10,034 10,219 10,401 ENDING SUBSCRIBERS 9,227 9,762 9,942 10,126 10,312 10,490 PENETRATION 48.6% 50.1% 50.1% 50.1% 50.1% 50.1% NEW PRODUCT TIER #2 - BEGINNING 0 0 741 3,059 4,673 6,345 AVERAGE SUBSCRIBERS 0 371 1,900 3,866 5,509 6,400 ENDING SUBSCRIBERS 0 741 3,059 4,673 6,345 6,454 PENETRATION 0.0% 3.8% 15.4% 23.1% 30.8% 30.8% NEW PRODUCT TIER #3 - BEGINNING 0 0 741 3,059 4,673 6,345 AVERAGE SUBSCRIBERS 0 371 1,900 3,866 5,509 6,400 ENDING SUBSCRIBERS 0 741 3,059 4,673 6,345 6,454 PENETRATION 0.0% 3.8% 15.4% 23.1% 30.8% 30.8% PAY TV - BEGINNING UNITS 8,507 8,542 8,961 9,375 9,801 9,981 AVERAGE UNITS 8,524 8,751 9,168 9,588 9,891 10,067 ENDING UNITS 8,542 8,961 9,375 9,801 9,981 10,154 PENETRATION 45.0% 46.0% 47.2% 48.5% 48.5% 48.5% PAY PER VIEW - BEGINNING UNITS/ 678 805 1,120 1,639 2,238 2,725 AVERAGE UNITS 742 963 1,380 1,939 2,482 2,946 ENDING UNITS 805 1,120 1,639 2,238 2,725 3,167 AVERAGE BUY RATE/MO 12.1% 15.1% 20.1% 25.1% 28.1% 31.1% CONVERTER RENTALS - BEG. 7,218 7,789 8,578 9,730 10,921 12,151 AVERAGE SUBSCRIBERS 7,503 8,184 9,154 10,325 11,536 12,571 ENDING SUBSCRIBERS 7,789 8,578 9,730 10,921 12,151 12,990 PENETRATION 41.0% 44.0% 49.0% 54.0% 59.0% 62.0% ADDRESSABLE HOMES - BEGINNING 6,140 6,682 7,443 8,176 8,934 9,716 AVERAGE HOMES 6,411 7,063 7,809 8,555 9,325 9,957 ENDING HOMES 6,682 7,443 8,176 8,934 9,716 10,198 PENETRATION 35.2% 38.2% 41.2% 44.2% 47.2% 48.7% BASIC CHURN RATE 40% 40% 40% 40% 40% 40%
YEAR ENDING DECEMBER 31, 2002 2003 2004 2005 ---- ---- ---- ---- BEGINNING MILES MILES ADDED 11.5 12.0 12.0 12.0 CUMULATIVE MILES 752.5 764.5 776.5 788.5 DENSITY OF ADDITIONAL PLANT 26 25 26 26 HOMES PASSED - BEGINNING NEW HOMES & EXTENSIONS 302 305 308 311 HOMES PASSED - ENDING 30,470 30,775 31,083 31,394 GROWTH IN HOMES 1.0% 1.0% 1.0% 1.0% BASIC - BEGINNING SUBSCRIBERS 20,956 21,318 21,685 22,057 AVERAGE SUBSCRIBERS 21,137 21,502 21,871 22,246 ENDING SUBSCRIBERS 21,318 21,685 22,057 22,435 PENETRATION 70.0% 70.5% 71.0% 71.5% EXPANDED BASIC - BEGINNING 19,915 20,259 20,607 20,961 AVERAGE SUBSCRIBERS 20,087 20,433 20,784 21,141 ENDING SUBSCRIBERS 20,259 20,607 20,961 21,320 PENETRATION 95.0% 95.0% 95.0% 95.0% NEW PRODUCT TIER #1 - BEGINNING 10,490 10,672 10,855 11,042 AVERAGE SUBSCRIBERS 10,581 10,763 10,948 11,136 ENDING SUBSCRIBERS 10,672 10,855 11,042 11,231 PENETRATION 50.1% 50.1% 50.1% 50.1% NEW PRODUCT TIER #2 - BEGINNING 6,454 6,566 6,679 6,794 AVERAGE SUBSCRIBERS 6,510 6,622 6,736 6,852 ENDING SUBSCRIBERS 6,566 6,679 6,794 6,910 PENETRATION 30.8% 30.8% 30.8% 30.8% NEW PRODUCT TIER #3 - BEGINNING 6,454 6,566 6,679 6,794 AVERAGE SUBSCRIBERS 6,510 6,622 6,736 6,852 ENDING SUBSCRIBERS 6,566 6,679 6,794 6,910 PENETRATION 30.8% 30.8% 30.8% 30.8% PAY TV - BEGINNING UNITS 10,154 10,329 10,507 10,687 AVERAGE UNITS 10,241 10,418 10,597 10,779 ENDING UNITS 10,329 10,507 10,687 10,870 PENETRATION 48.5% 48.5% 48.5% 48.5% PAY PER VIEW - BEGINNING UNITS/ 3,167 3,481 3,815 4,169 AVERAGE UNITS 3,324 3,648 3,992 4,356 ENDING UNITS 3,481 3,815 4,169 4,544 AVERAGE BUY RATE/MO 32.6% 34.1% 35.6% 37.1% CONVERTER RENTALS - BEG. 12,990 13,854 14,743 15,327 AVERAGE SUBSCRIBERS 13,422 14,299 15,035 15,627 ENDING SUBSCRIBERS 13,854 14,743 15,327 15,926 PENETRATION 65.0% 68.0% 69.5% 71.0% ADDRESSABLE HOMES - BEGINNING 10,198 10,694 11,204 11,727 AVERAGE HOMES 10,446 10,949 11,465 11,996 ENDING HOMES 10,694 11,204 11,727 12,264 PENETRATION 50.2% 51.7% 53.2% 54.7% BASIC CHURN RATE 40% 40% 40% 40%
141 FALCON CABLE SYSTEMS CO. EXHIBIT F HESPERIA REGION - CALIFORNIA AS OF DECEMBER 31, 1995 SERVICE RATES - -------------
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------- -------- BASIC $18.03 $18.11 EXPANDED BASIC $7.15 $7.34 NEW PRODUCT TIER #1 $3.50 $3.96 NEW PRODUCT TIER #2 $4.00 $4.00 NEW PRODUCT TIER #3 $4.00 $4.00 PAY $6.60 $6.60 PAY PER VIEW $12.65 $12.65 CONVERTER RENTALS $3.87 $4.11 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 0% 3% 3% 3% 3% 3% EXPANDED BASIC 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 13% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% NEW PRODUCT TIER #3 0% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% PAY PER VIEW -15% -10% 3% 3% 3% 3% CONVERTER RENTALS 6% 3% 3% 3% 3% 3% INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% INSTALLATIONS-CHURN 0% 3% 3% 3% 3% 3% AVERAGE RATES - ------------- BASIC $18.11 $18.65 $19.21 $19.79 $20.38 $20.99 EXPANDED BASIC 7.34 7.56 7.79 8.02 8.26 8.51 NEW PRODUCT TIER #1 3.96 4.08 4.20 4.33 4.46 4.59 NEW PRODUCT TIER #2 4.00 4.12 4.24 4.37 4.50 4.64 NEW PRODUCT TIER #3 4.00 4.12 4.24 4.37 4.50 4.64 PAY 6.60 6.67 6.74 6.80 6.87 6.94 PAY PER VIEW 10.75 9.67 9.96 10.26 10.57 10.89 CONVERTER RENTALS 4.11 4.24 4.36 4.49 4.63 4.77 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98
YEAR ENDING DECEMBER 31, 2002 2003 2004 2005 ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 3% 3% 3% 3% EXPANDED BASIC 3% 3% 3% 3% NEW PRODUCT TIER #1 3% 3% 3% 3% NEW PRODUCT TIER #2 3% 3% 3% 3% NEW PRODUCT TIER #3 3% 3% 3% 3% PAY 1% 1% 1% 1% PAY PER VIEW 3% 3% 3% 3% CONVERTER RENTALS 3% 3% 3% 3% INSTALLATIONS-NEW 3% 3% 3% 3% INSTALLATIONS-CHURN 3% 3% 3% 3% AVERAGE RATES - ------------- BASIC $21.62 $22.27 $22.94 $23.62 EXPANDED BASIC 8.77 9.03 9.30 9.58 NEW PRODUCT TIER #1 4.73 4.87 5.02 5.17 NEW PRODUCT TIER #2 4.78 4.92 5.07 5.22 NEW PRODUCT TIER #3 4.78 4.92 5.07 5.22 PAY 7.01 7.08 7.15 7.22 PAY PER VIEW 11.21 11.55 11.90 12.25 CONVERTER RENTALS 4.91 5.06 5.21 5.37 INSTALLATIONS-NEW 59.70 61.49 63.34 65.24 INSTALLATIONS-CHURN 29.85 30.75 31.67 32.62
142 FALCON CABLE SYSTEMS CO. EXHIBIT G HESPERIA REGION - CALIFORNIA AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 ---------- ---------- ---------- ----------- ------------ ------------ REVENUES: BASIC $4,075,580 $4,308,360 $4,536,580 $ 4,758,959 $ 4,991,971 $ 5,233,501 EXPANDED BASIC 1,569,177 1,660,412 1,748,366 1,834,070 1,923,871 2,016,955 NEW PRODUCT TIER #1 426,219 464,695 496,656 521,001 546,511 572,953 NEW PRODUCT TIER #2 0 18,318 96,745 202,754 297,597 356,103 NEW PRODUCT TIER #3 0 18,318 96,745 202,754 297,597 356,103 PAY TV 675,596 700,515 741,188 782,882 815,694 838,556 PAY PER VIEW 95,684 111,749 164,964 238,740 314,780 384,895 CONVERTER 370,390 416,078 479,380 556,938 640,913 719,365 INSTALLATIONS 170,395 179,947 183,175 192,106 201,464 210,207 COMMERCIAL 270,174 278,279 286,628 295,227 304,083 313,206 ADVERTISING*** 247,920 322,295 393,200 463,976 538,213 613,562 MISCELLANEOUS 347,686 368,131 391,312 416,214 442,077 467,376 ---------- ---------- ---------- ----------- ------------ ------------ TOTAL REVENUES $8,248,820 $8,847,099 $9,614,941 $10,465,621 $11,314,770 $12,082,783 OPERATING EXPENSES: OPERATIONS $1,195,823 $1,263,736 $1,342,113 $ 1,425,647 $ 1,510,946 $ 1,593,362 GENERAL & ADMINISTRATIVE 715,703 756,194 799,433 843,657 889,148 934,183 SALES & MARKETING 362,065 458,712 583,462 636,164 691,421 747,915 PROGRAMMING 1,394,425 1,469,914 1,588,099 1,725,348 1,872,641 2,000,531 ---------- ---------- ---------- ----------- ------------ ------------ TOTAL OPERATING EXPENSES $3,668,017 $3,948,555 $4,313,107 $ 4,630,815 $ 4,964,157 $ 5,275,992 OPERATING INCOME $4,580,803 $4,898,544 $5,301,835 $ 5,834,806 $ 6,350,614 $ 6,806,792 OPERATING MARGIN 55.5% 55.4% 55.1% 55.8% 56.1% 56.3% TOTAL REVENUE/BASIC SUB/MONTH $36.65 $38.30 $40.71 $43.51 $46.19 $48.46 CASH FLOW/BASIC SUB/MONTH $20.35 $21.20 $22.45 $24.26 $25.93 $27.30 OPERATIONS % OF REVENUE 14% 14% 14% 14% 13% 13% G & A PERCENTAGE OF REVENUE 9% 9% 8% 8% 8% 8% SALES & MARKETING % OF REVENUE 4% 5% 6% 6% 6% 6% PROGRAMMING % OF REVENUE 17% 17% 17% 16% 17% 17%
YEAR ENDING DECEMBER 31, 2002 2003 2004 2005 TOTAL ----------- ----------- ----------- ----------- ------------ REVENUES: BASIC $ 5,483,741 $ 5,745,651 $ 6,019,765 $ 6,306,641 $ 51,460,750 EXPANDED BASIC 2,113,396 2,214,334 2,319,975 2,430,535 19,831,090 NEW PRODUCT TIER #1 600,349 629,023 659,032 690,439 5,606,879 NEW PRODUCT TIER #2 373,131 390,952 409,603 429,123 2,574,326 NEW PRODUCT TIER #3 373,131 390,952 409,603 429,123 2,574,326 PAY TV 861,590 885,212 909,435 934,274 8,144,942 PAY PER VIEW 447,291 505,637 569,913 640,610 3,474,263 CONVERTER 791,136 868,082 940,181 1,006,477 6,788,940 INSTALLATIONS 220,206 230,669 241,618 253,075 2,082,862 COMMERCIAL 322,602 332,280 342,249 352,516 3,097,244 ADVERTISING*** 687,190 755,909 816,382 881,692 5,720,340 MISCELLANEOUS 492,020 517,784 544,027 570,840 4,557,467 ----------- ----------- ----------- ----------- ------------ TOTAL REVENUES $12,765,783 $13,466,484 $14,181,782 $14,925,345 $115,913,429 OPERATING EXPENSES: OPERATIONS $ 1,673,505 $ 1,756,936 $ 1,843,131 $ 1,932,884 $ 15,538,082 GENERAL & ADMINISTRATIVE 978,714 1,024,997 1,073,039 1,123,161 9,138,231 SALES & MARKETING 804,403 859,620 912,053 967,873 7,023,688 PROGRAMMING 2,112,388 2,224,938 2,344,374 2,471,138 19,203,795 ----------- ----------- ----------- ----------- ------------ TOTAL OPERATING EXPENSES $ 5,569,010 $ 5,866,492 $ 6,172,597 $ 6,495,056 $ 50,903,797 OPERATING INCOME $ 7,196,773 $ 7,599,992 $ 8,009,185 $ 8,430,289 $ 65,009,632 OPERATING MARGIN 56.4% 56.4% 56.5% 56.5% TOTAL REVENUE/BASIC SUB/MONTH $50.33 $52.19 $54.04 $55.91 CASH FLOW/BASIC SUB/MONTH $28.37 $29.46 $30.52 $31.58 OPERATIONS % OF REVENUE 13% 13% 13% 13% G & A PERCENTAGE OF REVENUE 8% 8% 8% 8% SALES & MARKETING % OF REVENUE 6% 6% 6% 6% PROGRAMMING % OF REVENUE 17% 17% 17% 17%
143 FALCON CABLE SYSTEMS CO. EXHIBIT H HESPERIA REGION - CALIFORNIA AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 ----------- ---------- ---------- ----------- ----------- ------------ ASSUMPTIONS AND INPUTS: BV OF EXISTING PLANT $13,164,804 ADDITIONAL MILES OF PLANT 10.0 10.0 10.5 10.5 11.0 11.0 AERIAL PLANT PER MILE $11,000 $11,220 $11,444 $11,673 $11,907 $12,145 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 $19,484 $19,873 PERCENTAGE OF PLANT AERIAL 20% 20% 20% 20% 20% 20% PERCENTAGE OF PLANT UNDERGROUND 80% 80% 80% 80% 80% 80% AVERAGE COST PER CONVERTER $110 $112 $114 $117 $119 $121 PERCENTAGE CONVERTER USE 41% 44% 49% 54% 59% 62% PERCENTAGE REPLACEMENT 5% 5% 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $57 $58 $60 $61 $62 $63 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 2% 2% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $22,000 $22,440 $24,033 $24,514 $26,195 $26,719 - UNDERGROUND 144,000 146,880 157,308 160,455 171,457 174,886 PLANT REBUILD/UPGRADE 34,578 6,060,650 6,302,700 38,913 40,299 41,724 AVERAGE COST OF NEW CONVERTERS 22,073 24,583 20,218 23,079 26,118 26,864 CONVERTER REPLACEMENT 41,735 46,894 54,665 62,586 71,035 77,541 INSTALLATION COSTS 454,094 475,167 488,409 507,323 526,943 545,981 MISC. CAPITAL EXPENDITURES 93,789 98,183 102,380 106,356 110,481 114,701 -------- ---------- ---------- -------- -------- ---------- TOTAL CAPITAL EXPENDITURES $812,270 $6,874,797 $7,149,714 $923,226 $972,527 $1,008,417 AS A % OF OPERATING INCOME 17.7% 140.3% 134.9% 15.8% 15.3% 14.8%
CAPITAL EXPENDITURES
YEAR ENDING DECEMBER 31, 2002 2003 2004 2005 TOTAL ---------- ---------- ---------- ---------- ----------- ASSUMPTIONS AND INPUTS: BV OF EXISTING PLANT ADDITIONAL MILES OF PLANT 11.5 12.0 12.0 12.0 AERIAL PLANT PER MILE $ 12,388 $ 12,636 $ 12,888 $ 13,146 UNDERGROUND PLANT PER MILE $ 20,271 $ 20,676 $ 21,090 $ 21,512 PERCENTAGE OF PLANT AERIAL 20% 20% 20% 20% PERCENTAGE OF PLANT UNDERGROUND 80% 80% 80% 80% AVERAGE COST PER CONVERTER $ 124 $ 126 $ 129 $ 131 PERCENTAGE CONVERTER USE 65% 68% 69% 71% PERCENTAGE REPLACEMENT 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $ 64 $ 66 $ 67 $ 68 MISC. CAPITAL PER SUBSCRIBER $ 6 $ 6 $ 6 $ 6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 122% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $ 28,492 $ 30,325 $ 30,932 $ 31,550 $ 267,200 - UNDERGROUND 186,492 198,493 202,463 206,512 1,748,947 PLANT REBUILD/UPGRADE 43,219 44,787 46,399 48,059 12,701,329 AVERAGE COST OF NEW CONVERTERS 29,136 31,533 33,340 35,233 272,177 CONVERTER REPLACEMENT 84,356 91,569 97,105 102,922 730,407 INSTALLATION COSTS 566,476 587,712 609,713 632,507 5,394,325 MISC. CAPITAL EXPENDITURES 119,019 123,493 128,128 132,931 1,129,462 ---------- ---------- ---------- ---------- ----------- TOTAL CAPITAL EXPENDITURES $1,057,191 $1,107,912 $1,148,080 $1,189,715 $22,243,848 AS A % OF OPERATING INCOME 14.7% 14.6% 14.3% 14.1%
144 FALCON CABLE SYSTEMS CO. EXHIBIT I HESPERIA REGION - CALIFORNIA AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 ---------- ----------- ---------- ----------- ---------- ----------- ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 2001 ---------- ---------- ---------- ---------- ---------- ---------- YEAR 1 $1,997,324 $3,422,985 $2,444,590 $1,745,736 $1,248,153 $1,246,755 YEAR 2 982,408 1,683,638 1,202,402 858,662 613,919 YEAR 3 1,021,694 1,750,965 1,250,485 892,999 YEAR 4 131,929 226,098 161,472 YEAR 5 138,974 238,172 YEAR 6 144,103 YEAR 7 YEAR 8 YEAR 9 YEAR 10 ---------- ---------- ---------- ---------- ---------- ---------- TOTAL DEPRECIATION $1,997,324 $4,405,394 $5,149,922 $4,831,032 $3,722,372 $3,297,420
YEAR 7 YEAR 8 ------ ------ ESTIMATED DEPRECIATION RATES 8.9% 4.5% DEPRECIATION - BEG. & ADTNS. 2002 2003 2004 2005 TOTAL ---------- ---------- ---------- ---------- ----------- YEAR 1 $1,248,153 $ 623,377 $13,977,074 YEAR 2 613,232 613,919 306,616 6,874,797 YEAR 3 638,469 637,754 638,469 318,877 7,149,714 YEAR 4 115,311 82,444 82,352 82,444 882,050 YEAR 5 170,095 121,469 86,847 86,749 842,306 YEAR 6 246,961 176,372 125,951 90,052 2,133,786 YEAR 7 151,073 258,906 184,903 132,043 1,795,572 YEAR 8 158,321 271,328 193,774 623,422 YEAR 9 164,061 281,165 445,225 YEAR 10 170,010 170,010 ---------- ---------- ---------- ---------- ----------- TOTAL DEPRECIATION $3,183,294 $2,672,563 $1,860,526 $1,355,114 $32,474,961
145 FALCON CABLE SYSTEMS CO. EXHIBIT J HESPERIA REGION - CALIFORNIA AS OF DECEMBER 31, 1995
ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 9.85 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $13,164,804 SUBSCRIBERS IN FRANCHISES 100% LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
146 SAN LUIS OBISPO, CA 147 FALCON CABLE SYSTEMS CO. EXHIBIT A SAN LUIS OBISPO REGION - CALIF. AS OF DECEMBER 31, 1995 VALUATION METHODS
LOW HIGH --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME OPERATING INCOME, PER BOOKS (12/31/95) $2,548,832 $2,548,832 VALUATION MULTIPLE 10.5 11.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $26,762,736 $29,311,568 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $5,970,827 $5,970,827 OPERATING MARGIN, PER BOOKS (12/31/95) 48.1% 48.1% ----------- ----------- "RUNNING RATE" OPERATING INCOME 2,869,878 2,869,878 VALUATION MULTIPLE 10.0 11.0 ----------- ----------- ESTIMATED FAIR MARKET VALUE $28,698,781 $31,568,659 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $3,116,863 $3,116,863 VALUATION MULTIPLE 9.5 10.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $29,610,202 $32,727,066 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $27,919,331 $30,339,543 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $27,868,221 $30,068,209 ----------- -----------
SUMMARY OF VALUES I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $26,762,736 $29,311,568 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 28,698,781 31,568,659 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 29,610,202 32,727,066 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 27,919,331 30,339,543 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 27,868,221 30,068,209 ----------- ----------- RANGE OF ESTIMATED FAIR MARKET VALUES $28,301,000 $30,869,000 ESTIMATED FAIR MARKET VALUE $29,585,000
148 FALCON CABLE SYSTEMS CO. EXHIBIT B SAN LUIS OBISPO REGION - CALIF. LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD - ----------------------- PROFIT AND LOSS - LOW VALUE
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $6,314,102 $6,909,478 $7,657,824 $8,513,121 OPERATING EXPENSES 3,197,239 3,425,857 3,730,534 4,080,071 ---------- ---------- ---------- ---------- OPERATING INCOME $3,116,863 $3,483,621 $3,927,290 $4,433,050 OPERATING MARGIN 0.49 0.50 0.51 0.52 PARENT SERVICES/MGT FEE (5%) 315,705 345,474 382,891 425,656 FRANCHISE AMORTIZATION (15) 903,133 903,133 903,133 903,133 SUBSCRIBER LIST (8) 290,933 290,933 290,933 290,933 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,579,712 2,814,984 2,441,324 2,403,242 INTEREST 1,365,130 1,365,130 1,365,130 1,333,920 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($1,337,750) ($2,236,033) ($1,456,122) ($923,834) INCOME TAX (EXPENSE)/BENEFIT 454,835 760,251 495,081 314,104 ---------- ---------- ---------- ---------- NET INCOME ($882,915) ($1,475,782) ($961,041) ($609,730) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($1,337,750) ($2,236,033) ($1,456,122) ($923,834) FRANCHISE AMORTIZATION (15) 903,133 903,133 903,133 903,133 SUBSCRIBER LIST (8) 290,933 290,933 290,933 290,933 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,579,712 2,814,984 2,441,324 2,403,242 EQUITY 13,651,296 DEBT 13,651,296 0 0 544,461 RESIDUAL VALUE IN YEAR 7 TOTAL SOURCES OF CASH $28,738,621 $1,773,018 $2,179,269 $3,217,935 ----------- ---------- ---------- ---------- USES OF CASH - PURCHASE PRICE - CURRENT $27,919,331 CAPITAL EXPENDITURES 718,921 753,647 2,262,385 2,355,791 DEBT RETIREMENT 0 0 856,556 942,212 TAXES PAID ON NET INCOME 0 0 0 0 ----------- ---------- ---------- ---------- TAXES PAID ON SALE (RESIDUAL) TOTAL USES OF CASH $28,638,252 $753,647 $3,118,941 $3,298,003 ANNUAL CASH INCREASE/(DECREASE) $100,369 $1,019,371 ($939,673) ($80,068) CUMULATIVE CASH 100,369 1,119,740 180,068 100,000
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $9,342,916 $10,061,251 $10,726,262 $59,524,954 OPERATING EXPENSES 4,453,572 4,791,909 5,124,737 28,803,918 ----------- ---------- ---------- ---------- OPERATING INCOME $4,889,344 $5,269,342 $5,601,525 $30,721,035 OPERATING MARGIN 0.52 0.52 0.52 PARENT SERVICES/MGT FEE (5%) 467,146 503,063 536,313 2,976,248 FRANCHISE AMORTIZATION (15) 903,133 903,133 903,133 6,321,933 SUBSCRIBER LIST (8) 290,933 290,933 290,933 2,036,533 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 2,405,944 2,483,293 2,347,518 16,476,017 INTEREST 1,274,948 1,171,305 967,602 8,843,164 ----------- ---------- ---------- ---------- PRE-TAX INCOME ($452,761) ($82,385) $556,025 ($5,932,860) INCOME TAX (EXPENSE)/BENEFIT 153,939 28,011 (189,048) 2,017,173 ----------- ---------- ---------- ---------- NET INCOME ($298,822) ($54,374) $366,976 ($3,915,688) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($452,761) ($82,385) $556,025 ($5,932,860) FRANCHISE AMORTIZATION (15) 903,133 903,133 903,133 6,321,933 SUBSCRIBER LIST (8) 290,933 290,933 290,933 2,036,533 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 2,405,944 2,483,293 2,347,518 16,476,017 EQUITY 13,651,296 DEBT 352,493 0 0 14,548,250 RESIDUAL VALUE IN YEAR 7 50,413,722 50,413,722 ----------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $3,499,743 $3,594,975 $54,511,331 $97,514,891 USES OF CASH - PURCHASE PRICE - CURRENT $27,919,331 CAPITAL EXPENDITURES 2,463,310 924,086 977,606 10,455,747 DEBT RETIREMENT 1,036,433 2,037,030 9,676,020 14,548,250 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 10,519,691 10,519,691 ----------- ---------- ---------- ---------- TOTAL USES OF CASH $3,499,743 $2,961,116 $21,173,317 $63,443,019 ANNUAL CASH INCREASE/(DECREASE) ($0) $633,859 $33,338,014 $34,071,873 CUMULATIVE CASH 100,000 733,859 34,071,873
149 FALCON CABLE SYSTEMS CO. EXHIBIT B SAN LUIS OBISPO REGION - CALIF. HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD - ----------------------- PROFIT AND LOSS - HIGH VALUE
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $6,314,102 $6,909,478 $7,657,824 $8,513,121 OPERATING EXPENSES 3,197,239 3,425,857 3,730,534 4,080,071 ---------- ---------- ---------- ---------- OPERATING INCOME $3,116,863 $3,483,621 $3,927,290 $4,433,050 OPERATING MARGIN 0.49 0.50 0.51 0.52 PARENT SERVICES/MGT FEE (5%) 315,705 345,474 382,891 425,656 FRANCHISE AMORTIZATION (15) 903,133 903,133 903,133 903,133 SUBSCRIBER LIST (8) 290,933 290,933 290,933 290,933 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,579,712 2,814,984 2,441,324 2,403,242 INTEREST 1,492,508 1,492,508 1,520,801 1,516,672 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($1,465,129) ($2,363,412) ($1,611,793) ($1,106,586) INCOME TAX (EXPENSE)/BENEFIT 498,144 803,560 548,010 376,239 NET INCOME ($966,985) ($1,559,852) ($1,063,783) ($730,347) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($1,465,129) ($2,363,412) ($1,611,793) ($1,106,586) FRANCHISE AMORTIZATION (15) 903,133 903,133 903,133 903,133 SUBSCRIBER LIST (8) 290,933 290,933 290,933 290,933 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,579,712 2,814,984 2,441,324 2,403,242 EQUITY 14,925,083 DEBT 14,925,083 0 282,924 895,197 ---------- ---------- ---------- ---------- RESIDUAL VALUE IN YEAR 7 TOTAL SOURCES OF CASH $31,158,816 $1,645,639 $2,306,522 $3,385,919 USES OF CASH - PURCHASE PRICE - CURRENT $30,339,543 CAPITAL EXPENDITURES 718,921 753,647 2,262,385 2,355,791 DEBT RETIREMENT 0 0 936,480 1,030,128 TAXES PAID ON NET INCOME 0 0 0 0 ---------- ---------- ---------- ---------- TAXES PAID ON SALE (RESIDUAL) TOTAL USES OF CASH $31,058,464 $753,647 $3,198,866 $3,385,919 ANNUAL CASH INCREASE/(DECREASE) $100,352 $891,992 ($892,344) $0 CUMULATIVE CASH 100,352 992,344 100,000 100,000
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $9,342,916 $10,061,251 $10,726,262 $59,524,954 OPERATING EXPENSES 4,453,572 4,791,909 5,124,737 28,803,918 ---------- ---------- ---------- ---------- OPERATING INCOME $4,889,344 $5,269,342 $5,601,525 $30,721,035 OPERATING MARGIN 0.52 0.52 0.52 PARENT SERVICES/MGT FEE (5%) 467,146 503,063 536,313 2,976,248 FRANCHISE AMORTIZATION (15) 903,133 903,133 903,133 6,321,933 SUBSCRIBER LIST (8) 290,933 290,933 290,933 2,036,533 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 2,405,944 2,483,293 2,347,518 16,476,017 INTEREST 1,478,983 1,365,669 1,118,017 9,985,158 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($656,796) ($276,749) $405,610 ($7,074,855) INCOME TAX (EXPENSE)/BENEFIT 223,311 94,095 (137,908) 2,405,451 ---------- ---------- ---------- ---------- NET INCOME ($433,485) ($182,655) $267,703 ($4,669,404) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($656,796) ($276,749) $405,610 ($7,074,855) FRANCHISE AMORTIZATION (15) 903,133 903,133 903,133 6,321,933 SUBSCRIBER LIST (8) 290,933 290,933 290,933 2,036,533 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 2,405,944 2,483,293 2,347,518 16,476,017 EQUITY 14,925,083 DEBT 653,236 0 0 16,756,440 RESIDUAL VALUE IN YEAR 7 50,413,722 50,413,722 ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $3,596,451 $3,400,610 $54,360,916 $99,854,874 USES OF CASH - PURCHASE PRICE - CURRENT $30,339,543 CAPITAL EXPENDITURES 2,463,310 924,086 977,606 10,455,747 DEBT RETIREMENT 1,133,141 2,476,525 11,180,166 16,756,440 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 9,308,541 9,308,541 ---------- ---------- ---------- ---------- TOTAL USES OF CASH $3,596,451 $3,400,610 $21,466,313 $66,860,270 ANNUAL CASH INCREASE/(DECREASE) ($0) $0 $32,894,603 $32,994,603 CUMULATIVE CASH 100,000 100,000 32,994,603
150 FALCON CABLE SYSTEMS CO. EXHIBIT C SAN LUIS OBISPO REGION - CALIF. LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE TOTAL YEAR 1 CASH REQUIREMENTS $27,302,593 YEAR 1 DEBT REQUIREMENTS 13,651,296 YEAR 1 EQUITY REQUIREMENTS 13,651,296 FINANCING AVAILABLE $16,567,408 $20,259,612 $22,643,538 $25,527,383 UNUSED LEVERAGE 2,916,112 6,608,316 9,848,797 13,130,394
SENIOR DEBT: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $13,651,296 $13,651,296 $12,794,740 DEBT ADDED 13,651,296 0 0 0 TOTAL ANNUAL PAYMENTS 1,365,130 1,365,130 2,221,686 2,221,686 INTEREST 1,365,130 1,365,130 1,365,130 1,279,474 PRINCIPAL REPAYMENT 0 0 856,556 942,212 ENDING BALANCE 13,651,296 13,651,296 12,794,740 11,852,529 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 544,461 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 54,446 SENIOR DEBT COVERAGE 4.4 3.9 3.3 2.7 LOC DEBT COVERAGE 0.0 0.0 0.0 0.1 TOTAL DEBT COVERAGE 4.4 3.9 3.3 2.8
DEBT AMORTIZATION - LOW VALUE TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $28,814,828 $31,780,733 $34,250,723 UNUSED LEVERAGE 17,101,778 22,104,713 25,828,787
SENIOR DEBT: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $11,852,529 $10,816,096 $9,676,020 DEBT ADDED 0 0 0 13,651,296 TOTAL ANNUAL PAYMENTS 2,221,686 2,221,686 2,221,686 13,838,687 INTEREST 1,185,253 1,081,610 967,602 8,609,327 PRINCIPAL REPAYMENT 1,036,433 1,140,076 1,254,084 5,229,360 ENDING BALANCE 10,816,096 9,676,020 8,421,936 LINE OF CREDIT: BEGINNING DEBT $544,461 $896,954 $0 $0 BORROWINGS 352,493 0 0 896,954 PRINCIPAL PAYMENTS 0 896,954 0 896,954 INTEREST 89,695 89,695 0 233,837 SENIOR DEBT COVERAGE 2.2 1.8 1.5 LOC DEBT COVERAGE 0.2 0.0 0.0 TOTAL DEBT COVERAGE 2.4 1.8 1.5
151 FALCON CABLE SYSTEMS CO. EXHIBIT C SAN LUIS OBISPO REGION - CALIF. HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE TOTAL YEAR 1 CASH REQUIREMENTS $29,850,166 YEAR 1 DEBT REQUIREMENTS 14,925,083 YEAR 1 EQUITY REQUIREMENTS 14,925,083 FINANCING AVAILABLE $19,116,240 $23,376,475 $26,127,159 $29,454,673 UNUSED LEVERAGE 4,191,157 8,451,393 11,855,632 15,318,078
SENIOR: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $14,925,083 $14,925,083 $13,988,603 DEBT ADDED 14,925,083 0 0 0 TOTAL ANNUAL PAYMENTS 1,492,508 1,492,508 2,428,989 2,428,989 INTEREST 1,492,508 1,492,508 1,492,508 1,398,860 PRINCIPAL REPAYMENT 0 0 936,480 1,030,128 ENDING BALANCE 14,925,083 14,925,083 13,988,603 12,958,474 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $282,924 BORROWINGS 0 0 282,924 895,197 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 28,292 117,812 SENIOR DEBT COVERAGE 4.8 4.3 3.6 2.9 LOC DEBT COVERAGE 0.0 0.0 0.1 0.3 TOTAL DEBT COVERAGE 4.8 4.3 3.6 3.2
DEBT AMORTIZATION - HIGH VALUE TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $33,247,879 $36,670,077 $39,520,066 UNUSED LEVERAGE 19,591,188 26,091,199 30,312,288
SENIOR: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $12,958,474 $11,825,333 $10,578,878 DEBT ADDED 0 0 0 $14,925,083 TOTAL ANNUAL PAYMENTS 2,428,989 2,428,989 2,428,989 15,129,959 INTEREST 1,295,847 1,182,533 1,057,888 9,412,654 PRINCIPAL REPAYMENT 1,133,141 1,246,455 1,371,101 5,717,305 ENDING BALANCE 11,825,333 10,578,878 9,207,777 LINE OF CREDIT: BEGINNING DEBT $1,178,121 $1,831,357 $601,288 $0 BORROWINGS 653,236 0 0 1,831,357 PRINCIPAL PAYMENTS 0 1,230,069 601,288 1,831,357 INTEREST 183,136 183,136 60,129 572,505 SENIOR DEBT COVERAGE 2.4 2.0 1.6 LOC DEBT COVERAGE 0.4 0.1 0.0 TOTAL DEBT COVERAGE 2.8 2.1 1.6
152 FALCON CABLE SYSTEMS CO. EXHIBIT D SAN LUIS OBISPO REGION - CALIF. AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ----------- ---------- ---------- ---------- REVENUES $6,314,102 $6,909,478 $7,657,824 $8,513,121 OPERATING EXPENSES 3,197,239 3,425,857 3,730,534 4,080,071 ----------- ---------- ---------- ---------- OPERATING INCOME 3,116,863 3,483,621 3,927,290 4,433,050 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 718,921 753,647 2,262,385 2,355,791 ----------- ---------- ---------- ---------- TOTAL CASH FLOW $2,397,942 $2,729,975 $1,664,904 $2,077,259 NET PRESENT VALUE @ 16.6% $27,868,221 ----------- NET PRESENT VALUE @ 15.1% $30,068,209 -----------
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---------- ----------- ----------- ----------- REVENUES $9,342,916 $10,061,251 $10,726,262 $59,524,954 OPERATING EXPENSES 4,453,572 4,791,909 5,124,737 28,803,918 ---------- ----------- ----------- ----------- OPERATING INCOME 4,889,344 5,269,342 5,601,525 30,721,035 PLUS: RESIDUAL VALUE 50,413,722 50,413,722 LESS: CAPITAL EXPENDITURES 2,463,310 924,086 977,606 10,455,747 ---------- ----------- ----------- ----------- TOTAL CASH FLOW $2,426,034 $4,345,256 $55,037,640 $70,679,010 NET PRESENT VALUE @ 16.6% NET PRESENT VALUE @ 15.1%
153 FALCON CABLE SYSTEMS CO. EXHIBIT E SAN LUIS OBISPO REGION - CALIF. AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 408.9 MILES ADDED 20.0 20.0 21.0 21.0 22.0 22.0 23.0 CUMULATIVE MILES 428.9 448.9 469.9 490.9 512.9 534.9 557.9 DENSITY OF ADDITIONAL PLANT 24 24 23 24 22 22 21 HOMES PASSED - BEGINNING 26,138 NEW HOMES & EXTENSIONS 470 479 488 496 477 485 494 HOMES PASSED - ENDING 26,608 27,087 27,575 28,071 28,549 29,034 29,527 GROWTH IN HOMES 1.8% 1.8% 1.8% 1.8% 1.7% 1.7% 1.7% BASIC - BEGINNING SUBSCRIBERS 15,635 16,049 16,474 16,908 17,353 17,791 18,238 AVERAGE SUBSCRIBERS 15,842 16,262 16,691 17,131 17,572 18,014 18,467 ENDING SUBSCRIBERS 16,049 16,474 16,908 17,353 17,791 18,238 18,696 PENETRATION 60.3% 60.8% 61.3% 61.8% 62.3% 62.8% 63.3% EXPANDED BASIC - BEGINNING 13,605 13,966 14,335 14,713 15,100 15,481 15,870 AVERAGE SUBSCRIBERS 13,785 14,150 14,524 14,906 15,290 15,676 16,069 ENDING SUBSCRIBERS 13,966 14,335 14,713 15,100 15,481 15,870 16,269 PENETRATION 87.0% 87.0% 87.0% 87.0% 87.0% 87.0% 87.0% NEW PRODUCT TIER #1 - BEGINNING 4,466 4,825 6,600 8,465 8,688 8,907 9,131 AVERAGE SUBSCRIBERS 4,646 5,713 7,533 8,576 8,797 9,019 9,245 ENDING SUBSCRIBERS 4,825 6,600 8,465 8,688 8,907 9,131 9,360 PENETRATION 30.1% 40.1% 50.1% 50.1% 50.1% 50.1% 50.1% NEW PRODUCT TIER #2 - BEGINNING 0 899 1,845 3,449 5,553 6,618 6,785 AVERAGE SUBSCRIBERS 449 1,372 2,647 4,501 6,086 6,701 6,870 ENDING SUBSCRIBERS 899 1,845 3,449 5,553 6,618 6,785 6,955 PENETRATION 5.6% 11.2% 20.4% 32.0% 37.2% 37.2% 37.2% NEW PRODUCT TIER #3 - BEGINNING 0 899 1,845 3,449 5,553 6,618 6,785 AVERAGE SUBSCRIBERS 449 1,372 2,647 4,501 6,086 6,701 6,870 ENDING SUBSCRIBERS 899 1,845 3,449 5,553 6,618 6,785 6,955 PENETRATION 5.6% 11.2% 20.4% 32.0% 37.2% 37.2% 37.2% PAY TV - BEGINNING UNITS 3,733 3,511 3,686 4,037 4,447 4,870 4,993 AVERAGE UNITS 3,622 3,599 3,862 4,242 4,659 4,932 5,056 ENDING UNITS 3,511 3,686 4,037 4,447 4,870 4,993 5,118 PENETRATION 21.9% 22.4% 23.9% 25.6% 27.4% 27.4% 27.4% PAY PER VIEW - BEGINNING UNITS/MO 273 363 655 1,135 1,727 2,435 3,051 AVERAGE UNITS 318 509 895 1,431 2,081 2,743 3,344 ENDING UNITS 363 655 1,135 1,727 2,435 3,051 3,637 AVERAGE BUY RATE/MO 6.5% 10.0% 15.0% 20.0% 25.0% 28.0% 31.0% CONVERTER RENTALS - BEGINNING UNITS 6,009 6,971 7,979 9,035 9,793 10,574 11,387 AVERAGE SUBSCRIBERS 6,490 7,475 8,507 9,414 10,183 10,980 11,810 ENDING SUBSCRIBERS 6,971 7,979 9,035 9,793 10,574 11,387 12,233 PENETRATION 43.4% 48.4% 53.4% 56.4% 59.4% 62.4% 65.4% ADDRESSABLE HOMES 4,964 5,577 6,548 7,566 8,633 9,740 10,897 AVERAGE HOMES 5,271 6,063 7,057 8,100 9,187 10,319 11,314 ENDING HOMES 5,577 6,548 7,566 8,633 9,740 10,897 11,732 PENETRATION 34.7% 39.7% 44.7% 49.7% 54.7% 59.7% 62.7% BASIC CHURN RATE 34% 34% 34% 34% 34% 34% 34%
154 FALCON CABLE SYSTEMS CO. EXHIBIT F SAN LUIS OBISPO REGION - CALIF. AS OF DECEMBER 31, 1995 SERVICE RATES - ------------
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------- -------- BASIC $15.79 $16.20 EXPANDED BASIC $7.54 $8.09 NEW PRODUCT TIER #1 $3.38 $3.65 NEW PRODUCT TIER #2 $5.00 $5.00 NEW PRODUCT TIER #3 $5.00 $5.00 PAY $7.49 $7.49 PAY PER VIEW $9.10 $9.10 CONVERTER RENTALS $2.38 $2.82 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 3% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 7% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 8% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #3 0% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% CONVERTER RENTALS 19% 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 $16.20 $16.76 $17.26 $17.78 $18.31 $18.86 $19.42 EXPANDED BASIC 8.09 8.33 8.58 8.84 9.10 9.38 9.66 NEW PRODUCT TIER #1 3.65 3.76 3.87 3.99 4.11 4.23 4.36 NEW PRODUCT TIER #2 5.00 5.15 5.30 5.46 5.63 5.80 5.97 NEW PRODUCT TIER #3 5.00 5.15 5.30 5.46 5.63 5.80 5.97 PAY 7.49 7.57 7.64 7.72 7.79 7.87 7.95 PAY PER VIEW 9.10 9.38 9.66 9.95 10.25 10.55 10.87 CONVERTERS RENTALS 2.82 2.91 2.99 3.08 3.18 3.27 3.37 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 59.70 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98 29.85
155 FALCON CABLE SYSTEMS CO. EXHIBIT G SAN LUIS OBISPO REGION - CALIF. AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES: BASIC $3,079,127 $3,269,684 $3,456,696 $3,654,159 EXPANDED BASIC 1,337,964 1,414,586 1,495,495 1,580,925 NEW PRODUCT TIER #1 203,457 257,694 349,983 410,433 NEW PRODUCT TIER #2 26,963 84,785 168,503 295,109 NEW PRODUCT TIER #3 26,963 84,785 168,503 295,109 PAY TV 325,570 326,700 354,083 392,848 PAY PER VIEW 34,716 57,240 103,722 170,809 CONVERTER RENTAL 219,696 260,627 305,505 348,222 INSTALLATIONS 124,179 131,245 138,704 146,577 COMMERCIAL 107,754 110,987 114,317 117,746 ADVERTISING 275,977 320,134 364,952 412,396 MISCELLANEOUS 551,735 591,011 637,361 688,789 ---------- ---------- ---------- ---------- TOTAL REVENUES $6,314,102 $6,909,478 $7,657,824 $8,513,121 OPERATING EXPENSES: OPERATIONS $1,089,676 $1,174,505 $1,272,220 $1,378,892 GENERAL & ADMINISTRATIVE 605,114 641,163 681,346 724,888 SALES & MARKETING 378,166 414,790 464,546 517,849 PROGRAMMING 1,124,283 1,195,400 1,312,422 1,458,441 ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $3,197,239 $3,425,857 $3,730,534 $4,080,071 OPERATING INCOME $3,116,863 $3,483,621 $3,927,290 $4,433,050 OPERATING MARGIN 49.4% 50.4% 51.3% 52.1% TOTAL REVENUE/BASIC SUB/MONTH $33.21 $35.41 $38.23 $41.41 CASH FLOW/BASIC SUB/MONTH $16.40 $17.85 $19.61 $21.57 OPERATIONS % OF REVENUE 17% 17% 17% 16% G & A PERCENTAGE OF REVENUE 10% 9% 9% 9% SALES & MARKETING % OF REVENUE 6% 6% 6% 6% PROGRAMMING % OF REVENUE 18% 17% 17% 17%
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES: BASIC $3,860,726 $4,076,727 $4,304,538 $25,701,656 EXPANDED BASIC 1,670,293 1,763,743 1,862,302 11,125,308 NEW PRODUCT TIER #1 433,635 457,896 483,484 2,596,582 NEW PRODUCT TIER #2 410,959 466,124 492,171 1,944,613 NEW PRODUCT TIER #3 410,959 466,124 492,171 1,944,613 PAY TV 435,751 465,902 482,385 2,783,240 PAY PER VIEW 255,867 347,428 436,235 1,406,016 CONVERTER RENTAL 387,986 430,901 477,374 2,430,311 INSTALLATIONS 154,034 162,598 171,628 1,028,966 COMMERCIAL 121,279 124,917 128,664 825,665 ADVERTISING 461,884 512,691 563,960 2,911,993 MISCELLANEOUS 739,544 786,200 831,349 4,825,988 ---------- ---------- ---------- ----------- TOTAL REVENUES $9,342,916 $10,061,251 $10,726,262 $59,524,954 OPERATING EXPENSES: OPERATIONS $1,488,428 $1,594,512 $1,702,000 $9,700,232 GENERAL & ADMINISTRATIVE 769,189 812,710 856,817 5,091,227 SALES & MARKETING 574,353 619,666 666,234 3,635,604 PROGRAMMING 1,621,603 1,765,021 1,899,686 10,376,855 ---------- ---------- ---------- ----------- TOTAL OPERATING EXPENSES $4,453,572 $4,791,909 $5,124,737 $28,803,918 OPERATING INCOME $4,889,344 $5,269,342 $5,601,525 $30,721,035 OPERATING MARGIN 52.3% 52.4% 52.2% TOTAL REVENUE/BASIC SUB/MONTH $44.31 $46.54 $48.40 CASH FLOW/BASIC SUB/MONTH $23.19 $24.38 $25.28 OPERATIONS % OF REVENUE 16% 16% 16% G & A PERCENTAGE OF REVENUE 8% 8% 8% SALES & MARKETING % OF REVENUE 6% 6% 6% PROGRAMMING % OF REVENUE 17% 18% 18%
156 FALCON CABLE SYSTEMS CO. EXHIBIT H SAN LUIS OBISPO REGION - CALIF. AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- ASSUMPTIONS AND INPUTS: - ---------------------- BV OF EXISTING PLANT $10,335,746 ADDITIONAL MILES OF PLANT 20.0 20.0 21.0 21.0 AERIAL PLANT PER MILE $11,000 $11,220 $11,444 $11,673 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 PERCENTAGE OF PLANT AERIAL 90% 90% 90% 90% PERCENTAGE OF PLANT UNDERGROUND 10% 10% 10% 10% AVERAGE COST PER CONVERTER $110 $112 $114 $117 PERCENTAGE CONVERTER USE 43% 48% 53% 56% PERCENTAGE REPLACEMENT 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $57 $58 $60 $61 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% ANNUAL COSTS: - ------------- 22,596 PLANT ADDITIONS - AERIAL $198,000 $201,960 $216,299 $220,625 36,000 36,720 39,327 40,114 PLANT REBUILD/UPGRADE/INCL. HDND. 20,853 22,311 1,483,900 1,543,300 AVERAGE COST OF NEW CONVERTERS 19,802 23,059 26,564 29,295 CONVERTER REPLACEMENT 37,349 43,608 50,369 55,692 INSTALLATION COSTS 327,706 343,055 359,099 375,870 MISC. CAPITAL EXPENDITURES 79,211 82,934 86,827 90,895 -------- -------- ---------- ---------- TOTAL CAPITAL EXPENDITURES $718,921 $753,647 $2,262,385 $2,355,791 AS A % OF OPERATING INCOME 23.1% 21.6% 57.6% 53.1% CAPITAL EXPENDITURES - -------------------- YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT ADDITIONAL MILES OF PLANT 22.0 22.0 23.0 AERIAL PLANT PER MILE $11,907 $12,145 $12,388 UNDERGROUND PLANT PER MILE $19,484 $19,873 $20,271 PERCENTAGE OF PLANT AERIAL 90% 90% 90% PERCENTAGE OF PLANT UNDERGROUND 10% 10% 10% AVERAGE COST PER CONVERTER $119 $121 $124 PERCENTAGE CONVERTER USE 59% 62% 65% PERCENTAGE REPLACEMENT 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $62 $63 $64 MISC. CAPITAL PER SUBSCRIBER $5 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 115% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $235,754 $240,469 $256,427 $1,569,534 - UNDERGROUND 42,864 43,722 46,623 285,370 PLANT REBUILD/UPGRADE/INCL. HDND. 1,604,900 28,880 30,721 4,734,865 AVERAGE COST OF NEW CONVERTERS 30,977 33,940 37,099 200,736 CONVERTER REPLACEMENT 61,399 67,448 73,917 389,783 INSTALLATION COSTS 392,314 410,181 428,834 2,637,059 MISC. CAPITAL EXPENDITURES 95,101 99,447 103,985 638,401 ---------- -------- --------- ----------- TOTAL CAPITAL EXPENDITURES $2,463,310 $924,086 $977,606 $10,455,747 AS A % OF OPERATING INCOME 50.4% 17.5% 17.5%
157 FALCON CABLE SYSTEMS CO. EXHIBIT I SAN LUIS OBISPO REGION - CALIF. AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 ---- ---- ---- ---- YEAR 1 $1,579,712 $2,707,288 $1,933,461 $1,380,728 YEAR 2 107,696 184,568 131,813 YEAR 3 323,295 554,058 YEAR 4 336,643 YEAR 5 YEAR 6 YEAR 7 ---------- ---------- ---------- ---------- TOTAL DEPRECIATION $1,579,712 $2,814,984 $2,441,324 $2,403,242
YEAR 5 YEAR 6 YEAR 7 ------ ------ ------ ESTIMATED DEPRECIATION RATES 8.9% 8.9% 8.9% DEPRECIATION - BEG. & ADTNS. 2000 2001 2002 TOTAL ---- ---- ---- ----- YEAR 1 $987,182 $986,076 $987,182 $10,561,629 YEAR 2 94,130 67,301 67,225 652,733 YEAR 3 395,691 282,572 202,031 1,757,647 YEAR 4 576,933 412,028 294,238 1,619,842 YEAR 5 352,007 603,265 430,833 1,386,104 YEAR 6 132,052 226,309 358,360 YEAR 7 139,700 139,700 ---------- ---------- ---------- ----------- TOTAL DEPRECIATION $2,405,944 $2,483,293 $2,347,518 $16,476,017
158 FALCON CABLE SYSTEMS CO. EXHIBIT J SAN LUIS OBISPO REGION - CALIF. AS OF DECEMBER 31, 1995
ASSUMPTIONS AND INPUTS REMAINING LIFE OF FRANCHISES (YEARS) 7 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $10,335,746 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
159 TULARE, CA 160 FALCON CABLE SYSTEMS CO. EXHIBIT A TULARE REGION - CALIFORNIA AS OF DECEMBER 31, 1995 VALUATION METHODS - -----------------
LOW HIGH --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME OPERATING INCOME, PER BOOKS (12/31/95) $3,177,814 $3,177,814 VALUATION MULTIPLE 10.5 11.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $33,367,047 $36,544,861 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $6,512,501 $6,512,501 OPERATING MARGIN, PER BOOKS (12/31/95) 48.9% 48.9% ---------- ---------- "RUNNING RATE" OPERATING INCOME 3,186,241 3,186,241 VALUATION MULTIPLE 10.0 11.0 ----------- ----------- ESTIMATED FAIR MARKET VALUE $31,862,412 $35,048,654 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $3,329,175 $3,329,175 VALUATION MULTIPLE 9.5 10.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $31,627,158 $34,956,333 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $29,943,941 $32,317,838 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $29,567,487 $31,820,292 ----------- ----------- SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $33,367,047 $36,544,861 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 31,862,412 35,048,654 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 31,627,158 34,956,333 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 29,943,941 32,317,838 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 29,567,487 31,820,292 ----------- ----------- RANGE OF ESTIMATED FAIR MARKET VALUES $30,627,000 $33,317,000 ESTIMATED FAIR MARKET VALUE $31,972,000 -----------
161 FALCON CABLE SYSTEMS CO. EXHIBIT B TULARE REGION - CALIFORNIA LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $7,024,036 $7,507,378 $8,090,912 $8,763,382 OPERATING EXPENSES 3,694,862 3,916,217 4,184,220 4,497,296 ---------- ---------- ---------- ---------- OPERATING INCOME $3,329,175 $3,591,161 $3,906,692 $4,266,086 OPERATING MARGIN 0.47 0.48 0.48 0.49 PARENT SERVICES/MGT FEE (5%) 351,202 375,369 404,546 438,169 FRANCHISE AMORTIZATION (15) 999,467 999,467 999,467 999,467 SUBSCRIBER LIST (8) 345,200 345,200 345,200 345,200 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,593,755 2,846,354 2,265,099 1,856,452 INTEREST 1,465,442 1,465,442 1,465,442 1,373,492 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($1,425,891) ($2,440,670) ($1,573,061) ($746,693) INCOME TAX (EXPENSE)/BENEFIT 484,803 829,828 534,841 253,078 ---------- ---------- ---------- ---------- NET INCOME ($941,088) ($1,610,842) ($1,038,221) ($492,818) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($1,425,891) ($2,440,670) ($1,573,061) ($746,693) FRANCHISE AMORTIZATION (15) 999,467 999,467 999,467 999,467 SUBSCRIBER LIST (8) 345,200 345,200 345,200 345,200 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,593,755 2,846,354 2,265,099 1,856,452 EQUITY 14,654,415 DEBT 14,654,415 0 0 0 ---------- ---------- ---------- ---------- RESIDUAL VALUE IN YEAR 7 TOTAL SOURCES OF CASH $30,821,381 $1,750,351 $2,036,705 $2,454,425 USES OF CASH - PURCHASE PRICE - CURRENT $29,943,941 CAPITAL EXPENDITURES 777,146 804,754 821,315 850,650 DEBT RETIREMENT 0 0 919,497 1,011,447 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ---------- ---------- ---------- ---------- TOTAL USES OF CASH $30,721,087 $804,754 $1,740,812 $1,862,097 ANNUAL CASH INCREASE/(DECREASE) $100,274 $945,597 $295,893 $592,328 CUMULATIVE CASH 100,274 1,045,871 1,341,764 1,934,091
PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $9,492,062 $10,237,240 $11,002,417 $62,117,428 OPERATING EXPENSES 4,865,030 5,221,361 5,578,828 31,957,815 ---------- ---------- ---------- ----------- OPERATING INCOME $4,627,032 $5,015,879 $5,423,588 $30,159,613 OPERATING MARGIN 0.49 0.49 0.49 PARENT SERVICES/MGT FEE (5%) 474,603 511,862 550,121 3,105,871 FRANCHISE AMORTIZATION (15) 999,467 999,467 999,467 6,996,267 SUBSCRIBER LIST (8) 345,200 345,200 345,200 2,416,400 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,576,694 1,668,575 1,765,768 13,572,698 INTEREST 1,272,347 1,161,088 1,038,703 9,241,954 ---------- ---------- ---------- ----------- PRE-TAX INCOME ($41,279) $329,687 $724,330 ($5,173,578) INCOME TAX (EXPENSE)/BENEFIT 14,035 (112,094) (246,272) 1,759,016 ---------- ---------- ---------- ----------- NET INCOME ($27,244) $217,594 $478,058 ($3,414,561) SOURCES AND USES OF CASH SOURCES OF CASH - PRE TAX INCOME ($41,279) $329,687 $724,390 ($5,173,578) FRANCHISE AMORTIZATION (15) 999,467 999,467 999,467 6,996,267 SUBSCRIBER LIST (8) 345,200 345,200 345,200 2,416,400 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,576,694 1,668,575 1,765,768 13,572,698 EQUITY 14,654,415 DEBT 0 0 0 14,654,415 RESIDUAL VALUE IN YEAR 7 48,812,296 48,812,296 ---------- ---------- ---------- ----------- TOTAL SOURCES OF CASH $2,880,082 $3,342,929 $52,647,061 $95,932,914 USES OF CASH - PURCHASE PRICE - CURRENT $29,943,941 CAPITAL EXPENDITURES 897,487 914,713 961,883 6,027,949 DEBT RETIREMENT 1,112,591 1,223,851 10,387,029 14,654,415 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 10,421,746 10,421,746 ---------- ---------- ---------- ----------- TOTAL USES OF CASH $2,010,078 $2,138,564 $21,770,658 $81,048,051 ANNUAL CASH INCREASE/(DECREASE) $870,003 $1,204,365 $30,876,403 $34,884,883 CUMULATIVE CASH 2,804,095 4,008,460 34,884,863
162 FALCON CABLE SYSTEMS CO. EXHIBIT B TULARE REGION - CALIFORNIA HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $7,024,036 $7,507,378 $8,090,912 $8,763,382 OPERATING EXPENSES 3,694,862 3,916,217 4,184,220 4,497,296 ---------- ---------- ---------- ---------- OPERATING INCOME $3,329,175 $3,591,161 $3,906,692 $4,266,086 OPERATING MARGIN 0.47 0.48 0.48 0.49 PARENT SERVICES/MGT FEE (5%) 351,202 375,369 404,546 438,169 FRANCHISE AMORTIZATION (15) 999,467 999,467 999,467 999,467 SUBSCRIBER LIST (8) 345,200 345,200 345,200 345,200 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,593,755 2,846,354 2,265,099 1,856,452 INTEREST 1,590,393 1,590,393 1,590,393 1,490,603 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($1,550,842) ($2,565,622) ($1,698,013) ($863,805) INCOME TAX (EXPENSE)/BENEFIT 527,286 872,311 577,324 293,694 ---------- ---------- ---------- ---------- NET INCOME ($1,023,556) ($1,693,310) ($1,120,689) ($570,111) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($1,550,842) ($2,565,622) ($1,698,013) ($863,805) FRANCHISE AMORTIZATION (15) 999,467 999,467 999,467 999,467 SUBSCRIBER LIST (8) 345,200 345,200 345,200 345,200 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,593,755 2,846,354 2,265,099 1,856,452 EQUITY 15,903,931 DEBT 15,903,931 0 0 0 ---------- ---------- ---------- ---------- RESIDUAL VALUE IN YEAR 7 TOTAL SOURCES OF CASH $33,195,442 $1,625,399 $1,911,753 $2,337,313 USES OF CASH - PURCHASE PRICE - CURRENT $32,317,838 CAPITAL EXPENDITURES 777,146 804,754 821,315 850,650 DEBT RETIREMENT 0 0 997,898 1,097,688 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ---------- ---------- ---------- ---------- TOTAL USES OF CASH $33,094,984 $804,754 $1,819,213 $1,948,339 ANNUAL CASH INCREASE/(DECREASE) $100,458 $820,645 $92,540 $388,975 CUMULATIVE CASH 100,458 921,103 1,013,643 1,402,618
PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $9,492,062 $10,237,240 $11,002,417 $62,117,428 OPERATING EXPENSES 4,865,030 5,221,361 5,578,828 31,957,815 ---------- ---------- ---------- ---------- OPERATING INCOME $4,627,032 $5,015,879 $5,423,588 $30,159,613 OPERATING MARGIN 0.49 0.49 0.49 PARENT SERVICES/MGT FEE (5%) 474,603 511,862 550,121 3,105,871 FRANCHISE AMORTIZATION (15) 999,467 999,467 999,467 6,996,267 SUBSCRIBER LIST (8) 345,200 345,200 345,200 2,416,400 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,576,694 1,668,575 1,765,768 13,572,698 INTEREST 1,380,834 1,260,089 1,127,268 10,029,974 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($149,767) $230,687 $635,764 ($5,961,598) INCOME TAX (EXPENSE)/BENEFIT 50,921 (78,433) (216,160) 2,026,943 ---------- ---------- ---------- ---------- NET INCOME ($98,846) $152,253 $419,604 ($3,934,654) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($149,767) $230,687 $635,764 ($5,961,598) FRANCHISE AMORTIZATION (15) 999,467 999,467 999,467 6,996,267 SUBSCRIBER LIST (8) 345,200 345,200 345,200 2,416,400 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,576,694 1,668,575 1,765,768 13,572,698 EQUITY 15,903,931 DEBT 0 0 0 15,903,931 RESIDUAL VALUE IN YEAR 7 48,812,296 48,812,296 ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $2,771,595 $3,243,928 $52,558,496 $97,643,926 USES OF CASH - PURCHASE PRICE - CURRENT $32,317,838 CAPITAL EXPENDITURES 897,487 914,713 961,883 6,027,949 DEBT RETIREMENT 1,207,457 1,328,203 11,272,685 15,903,931 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 9,346,694 9,346,694 ---------- ---------- ---------- ---------- TOTAL USES OF CASH $2,104,944 $2,242,916 $21,581,262 $63,596,413 ANNUAL CASH INCREASE/(DECREASE) $666,650 $1,001,012 $30,977,233 $34,047,514 CUMULATIVE CASH 2,069,268 3,070,280 34,047,514
163 FALCON CABLE SYSTEMS CO. TULARE REGION - CALIFORNIA EXHIBIT C AS OF DECEMBER 31, 1995 LOW ANALYSIS RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $29,308,830 YEAR 1 DEBT REQUIREMENTS 14,654,415 YEAR 1 EQUITY REQUIREMENTS 14,654,415 FINANCING AVAILABLE $20,655,791 $21,639,635 $23,342,549 $25,393,496 $27,729,557 $30,075,709 $32,603,213 UNUSED LEVERAGE 6,001,376 6,985,219 9,607,631 12,670,025 16,118,677 19,688,680 23,562,420
SENIOR DEBT: 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- BEGINNING DEBT $0 $14,654,415 $14,654,415 $13,734,918 $12,723,471 $11,610,880 $10,387,029 DEBT ADDED 14,654,415 0 0 0 0 0 0 14,654,415 TOTAL ANNUAL PAYMENTS 1,465,442 1,465,442 2,384,939 2,384,939 2,384,939 2,384,939 2,384,939 14,855,576 INTEREST 1,465,442 1,465,442 1,465,442 1,373,492 1,272,347 1,161,088 1,038,703 9,241,954 PRINCIPAL REPAYMENT 0 0 919,497 1,011,447 1,112,591 1,223,851 1,346,236 5,613,622 ENDING BALANCE 14,654,415 14,654,415 13,734,918 12,723,471 11,610,880 10,387,029 9,040,794 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 $0 $0 $0 $0 BORROWINGS 0 0 0 0 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 0 0 0 0 INTEREST 0 0 0 0 0 0 0 0 SENIOR DEBT COVERAGE 4.4 4.1 3.5 3.0 2.5 2.1 1.7 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 4.4 4.1 3.5 3.0 2.5 2.1 1.7
164 FALCON CABLE SYSTEMS CO. EXHIBIT C TULARE REGION - CALIFORNIA HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $31,807,863 YEAR 1 DEBT REQUIREMENTS 15,903,931 YEAR 1 EQUITY REQUIREMENTS 15,903,931 FINANCING AVAILABLE $23,833,605 $24,968,809 $26,933,710 $29,300,188 UNUSED LEVERAGE 7,929,674 9,064,878 12,027,677 15,491,843
SENIOR: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $15,903,931 $15,903,931 $14,906,033 DEBT ADDED 15,903,931 0 0 0 TOTAL ANNUAL PAYMENTS 1,590,393 1,590,393 2,588,292 2,588,292 INTEREST 1,590,393 1,590,393 1,590,393 1,490,603 PRINCIPAL REPAYMENT 0 0 997,898 1,097,688 ENDING BALANCE 15,903,931 15,903,931 14,906,033 13,808,345 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 4.8 4.4 3.8 3.2 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 4.8 4.4 3.8 3.2
DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $31,995,643 $34,702,741 $37,619,092 UNUSED LEVERAGE 19,394,755 23,430,056 27,807,431
SENIOR: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $13,808,345 $12,600,888 $11,272,685 DEBT ADDED 0 0 0 $15,903,931 TOTAL ANNUAL PAYMENTS 2,588,292 2,588,292 2,588,292 16,122,244 INTEREST 1,380,834 1,260,089 1,127,268 10,029,974 PRINCIPAL REPAYMENT 1,207,457 1,328,203 1,461,023 6,092,270 ENDING BALANCE 12,600,888 11,272,685 9,811,662 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 2.7 2.2 1.8 LOC DEBT COVERAGE 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.7 2.2 1.8
165 FALCON CABLE SYSTEMS CO. EXHIBIT D TULARE REGION - CALIFORNIA AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- REVENUES $7,024,036 $7,507,378 $8,090,912 $8,763,382 $9,492,062 $10,237,240 $11,002,417 $62,117,428 OPERATING EXPENSES 3,694,862 3,916,217 4,184,220 4,497,296 4,865,030 5,221,361 5,578,828 31,957,815 ---------- --------- --------- ---------- --------- ---------- ----------- ----------- OPERATING INCOME 3,329,175 3,591,161 3,906,692 4,266,086 4,627,032 5,015,879 5,423,588 30,159,613 PLUS: RESIDUAL VALUE 48,812,296 48,812,296 LESS: CAPITAL EXPENDITURES 777,146 804,754 821,315 850,650 897,487 914,713 961,883 6,027,949 ---------- --------- --------- ---------- --------- ---------- ----------- ----------- TOTAL CASH FLOW $2,552,029 $2,786,407 $3,085,377 $3,415,435 $3,729,545 $4,101,166 $53,274,001 $72,943,960 NET PRESENT VALUE @ 16.6% $29,587,487 ----------- NET PRESENT VALUE @ 15.1% $31,820,292 -----------
166 FALCON CABLE SYSTEMS CO. EXHIBIT E TULARE REGION - CALIFORNIA AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 675.9 MILES ADDED 14.2 13.4 12.5 11.5 11.8 10.7 10.9 CUMULATIVE MILES 690.0 703.4 716.0 727.5 739.3 750.0 761.0 DENSITY OF ADDITIONAL PLANT 87 87 87 87 87 87 87 HOMES PASSED - BEGINNING 41,053 NEW HOMES & EXTENSIONS 1,232 1,163 1,086 1,002 1,025 931 950 HOMES PASSED - ENDING 42,285 43,447 44,534 45,536 46,560 47,491 48,441 GROWTH IN HOMES 3.0% 2.8% 2.5% 2.3% 2.3% 2.0% 2.0% BASIC - BEGINNING SUBSCRIBERS 15,249 15,706 16,247 16,765 17,369 17,993 18,590 AVERAGE SUBSCRIBERS 15,478 15,977 16,506 17,067 17,681 18,292 18,897 ENDING SUBSCRIBERS 15,706 16,247 16,765 17,369 17,993 18,590 19,204 PENETRATION 37.1% 37.4% 37.6% 38.1% 38.6% 39.1% 39.6% EXPANDED BASIC - BEGINNING 14,787 15,231 15,755 16,257 16,843 17,448 18,027 AVERAGE SUBSCRIBERS 15,009 15,493 16,006 16,550 17,146 17,737 18,325 ENDING SUBSCRIBERS 15,231 15,755 16,257 16,843 17,448 18,027 18,623 PENETRATION 97.0% 97.0% 97.0% 97.0% 97.0% 97.0% 97.0% NEW PRODUCT TIER #1 - BEGINNING 7,001 7,368 7,865 8,451 8,756 9,070 9,372 AVERAGE SUBSCRIBERS 7,185 7,617 8,158 8,604 8,913 9,221 9,526 ENDING SUBSCRIBERS 7,368 7,865 8,451 8,756 9,070 9,372 9,681 PENETRATION 46.9% 48.4% 50.4% 50.4% 50.4% 50.4% 50.4% NEW PRODUCT TIER #2 - BEGINNING 0 0 0 0 0 0 0 AVERAGE SUBSCRIBERS 0 0 0 0 0 0 0 ENDING SUBSCRIBERS 0 0 0 0 0 0 0 PENETRATION 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PAY TV - BEGINNING UNITS 7,110 7,009 7,332 7,817 8,403 9,019 9,319 AVERAGE UNITS 7,060 7,170 7,574 8,110 8,711 9,169 9,472 ENDING UNITS 7,009 7,332 7,817 8,403 9,019 9,319 9,626 PENETRATION 44.6% 45.1% 46.6% 48.4% 50.1% 50.1% 50.1% PAY PER VIEW - BEGINNING UNITS/MO 451 550 846 1,394 2,037 2,711 3,218 AVERAGE UNITS 501 698 1,120 1,716 2,374 2,964 3,495 ENDING UNITS 550 846 1,394 2,037 2,711 3,218 3,772 AVERAGE BUY RATE/MO 6.8% 9.8% 14.8% 19.8% 24.8% 27.8% 30.8% CONVERTER RENTALS - BEG. 8,791 9,133 9,610 10,168 10,795 11,452 12,112 AVERAGE SUBSCRIBERS 8,962 9,372 9,889 10,481 11,124 11,782 12,408 ENDING SUBSCRIBERS 9,133 9,610 10,168 10,795 11,452 12,112 12,704 PENETRATION 58.1% 59.1% 60.6% 62.1% 63.6% 65.1% 66.1% ADDRESSABLE HOMES 7,830 8,143 8,667 9,446 10,308 10,948 11,591 AVERAGE HOMES 7,987 8,405 9,057 9,877 10,628 11,269 11,926 ENDING HOMES 8,143 8,667 9,446 10,308 10,948 11,591 12,262 PENETRATION 51.8% 53.3% 56.3% 59.3% 60.8% 62.3% 63.8% BASIC CHURN RATE 38% 38% 38% 38% 38% 38% 38%
167 FALCON CABLE SYSTEMS CO. EXHIBIT F TULARE REGION - CALIFORNIA AS OF DECEMBER 31, 1995 SERVICE RATES - -------------
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- -------------- -------- BASIC $16.23 $17.56 EXPANDED BASIC $5.00 $5.84 NEW PRODUCT TIER #1 $5.95 $6.43 NEW PRODUCT TIER #2 N/A N/A PAY $6.15 $6.15 PAY PER VIEW $16.20 $12.96 CONVERTER RENTALS $3.38 $3.45 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 8% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 17% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 8% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW -20% -15% -10% 3% 3% 3% 3% CONVERTER RENTALS 2% 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 $17.56 $18.05 $18.59 $19.15 $19.72 $20.31 $20.92 EXPANDED BASIC 5.84 6.02 6.20 6.38 6.58 6.77 6.98 NEW PRODUCT TIER #1 6.43 6.62 6.82 7.02 7.23 7.45 7.67 NEW PRODUCT TIER #2 0.00 0.00 0.00 0.00 0.00 0.00 0.00 PAY 6.15 6.21 6.27 6.34 6.40 6.46 6.53 PAY PER VIEW 12.96 11.02 9.91 10.21 10.52 10.83 11.16 CONVERTERS RENTALS 3.45 3.55 3.66 3.77 3.88 4.00 4.12 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 59.70 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98 29.85
168 FALCON CABLE SYSTEMS CO. EXHIBIT G TULARE REGION - CALIFORNIA AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- BASIC $3,260,966 $3,460,351 $3,682,180 $3,921,595 EXPANDED BASIC 1,052,315 1,118,829 1,190,553 1,267,962 NEW PRODUCT TIER #1 554,015 604,962 667,414 724,965 NEW PRODUCT TIER #2 0 0 0 0 PAY TV 521,082 534,554 570,299 616,726 PAY PER VIEW 77,878 92,300 133,265 210,237 CONVERTER RENTALS 370,856 399,436 434,124 473,939 INSTALLATIONS 134,568 145,888 153,503 166,534 COMMERCIAL 85,197 90,386 98,767 111,163 ADVERTISING 300,695 353,316 406,314 463,198 MISCELLANEOUS 666,465 707,355 754,493 807,064 ---------- ---------- ---------- ---------- TOTAL REVENUES $7,024,036 $7,507,378 $8,090,912 $8,763,382 OPERATING EXPENSES: OPERATIONS $1,475,220 $1,557,894 $1,648,920 $1,747,264 GENERAL & ADMINISTRATIVE 620,727 657,442 698,255 743,088 SALES & MARKETING 404,874 450,171 496,661 546,832 PROGRAMMING 1,194,041 1,250,710 1,340,385 1,460,112 ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $3,694,862 $3,916,217 $4,184,220 $4,497,296 ---------- ---------- ---------- ---------- OPERATING INCOME $3,329,175 $3,591,161 $3,906,692 $4,266,086 OPERATING MARGIN 47.4% 47.8% 48.3% 48.7% TOTAL REVENUE/BASIC SUB/MONTH $37.82 $39.16 $40.85 $42.79 CASH FLOW/BASIC SUB/MONTH $17.92 $18.73 $19.72 $20.83 OPERATIONS % OF REVENUE 21% 21% 20% 20% G & A PERCENTAGE OF REVENUE 9% 9% 9% 8% SALES & MARKETING % OF REVENUE 6% 6% 6% 6% PROGRAMMING % OF REVENUE 17% 17% 17% 17%
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- BASIC $4,184,616 $ 4,458,968 $ 4,744,809 $27,713,484 EXPANDED BASIC 1,353,005 1,441,710 1,534,131 8,958,505 NEW PRODUCT TIER #1 773,588 824,306 877,149 5,026,400 NEW PRODUCT TIER #2 0 0 0 0 PAY TV 669,076 711,296 742,197 4,365,230 PAY PER VIEW 299,629 385,363 467,950 1,666,620 CONVERTER RENTALS 518,077 565,197 613,062 3,374,691 INSTALLATIONS 177,567 186,991 198,830 1,163,881 COMMERCIAL 128,869 153,876 189,248 857,507 ADVERTISING 523,413 586,223 650,708 3,283,867 MISCELLANEOUS 864,221 923,310 984,333 5,707,243 ---------- ----------- ----------- ----------- TOTAL REVENUES $9,492,062 $10,237,240 $11,002,417 $62,117,428 OPERATING EXPENSES: OPERATIONS $1,852,664 $1,959,850 $2,070,631 $12,312,443 GENERAL & ADMINISTRATIVE 791,897 842,437 894,806 5,248,652 SALES & MARKETING 612,695 669,397 727,991 3,908,620 PROGRAMMING 1,607,773 1,749,678 1,885,400 10,488,100 ---------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES $4,865,030 $ 5,221,361 $ 5,578,828 $31,957,815 ---------- ----------- ----------- ----------- OPERATING INCOME $4,627,032 $ 5,015,879 $ 5,423,588 $30,159,613 OPERATING MARGIN 48.7% 49.0% 49.3% TOTAL REVENUE/BASIC SUB/MONTH $44.74 $46.64 $48.52 CASH FLOW/BASIC SUB/MONTH $21.81 $22.85 $23.92 OPERATIONS % OF REVENUE 20% 19% 19% G & A PERCENTAGE OF REVENUE 8% 8% 8% SALES & MARKETING % OF REVENUE 6% 7% 7% PROGRAMMING % OF REVENUE 17% 17% 17%
169 FALCON CABLE SYSTEMS CO. EXHIBIT H TULARE REGION - CALIFORNIA AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT $10,375,794 ADDITIONAL MILES OF PLANT 14.2 13.4 12.5 11.5 AERIAL PLANT PER MILE $11,000 $11,220 $11,444 $11,673 UNDERGROUND PLANT PER MILE $16,000 $18,360 $18,727 $19,102 PERCENTAGE OF PLANT AERIAL 10% 10% 10% 10% PERCENTAGE OF PLANT UNDERGROUND 90% 90% 90% 90% AVERAGE COST PER CONVERTER $110 $112 $114 $117 PERCENTAGE CONVERTER USE 58% 59% 61% 62% PERCENTAGE REPLACEMENT 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $55 $56 $57 $59 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $15,612 $15,035 $14,325 $13,479 - UNDERGROUND 229,924 221,428 210,971 198,513 PLANT REBUILD/UPGRADE/INCL. HE 34,468 35,696 37,325 38,749 AVERAGE COST OF NEW CONVERTERS 29,262 35,874 35,920 43,863 CONVERTER REPLACEMENT 48,770 52,119 56,385 60,813 INSTALLATION COSTS 341,721 362,920 360,525 404,655 MISC. CAPITAL EXPENDITURES 77,389 81,481 85,883 90,558 -------- -------- -------- -------- TOTAL CAPITAL EXPENDITURES $777,146 $604,754 $621,315 $850,550 AS A % OF OPERATING INCOME 23.3% 22.4% 21.0% 19.9%
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT ADDITIONAL MILES OF PLANT 11.8 10.7 10.9 AERIAL PLANT PER MILE $11,907 $12,145 $12,388 UNDERGROUND PLANT PER MILE $19,484 $19,873 $20,271 PERCENTAGE OF PLANT AERIAL 10% 10% 10% PERCENTAGE OF PLANT UNDERGROUND 90% 90% 90% AVERAGE COST PER CONVERTER $119 $121 $124 PERCENTAGE CONVERTER USE 64% 65% 66% PERCENTAGE REPLACEMENT 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $60 $61 $62 MISC. CAPITAL PER SUBSCRIBER $5 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 115% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $14,058 $13,033 $13,559 $99,102 - UNDERGROUND 207,039 191,939 199,694 1,459,509 PLANT REBUILD/UPGRADE/INCL. HE 40,161 41,629 43,078 271,307 AVERAGE COST OF NEW CONVERTERS 47,261 47,262 50,315 289,778 CONVERTER REPLACEMENT 65,818 71,184 76,169 431,257 INSTALLATION COSTS 427,455 448,689 472,660 2,838,626 MISC. CAPITAL EXPENDITURES 95,694 100,977 106,407 638,369 -------- -------- -------- ---------- TOTAL CAPITAL EXPENDITURES $897,487 $914,713 $961,883 $6,027,949 AS A % OF OPERATING INCOME 19.4% 18.2% 17.7%
170 FALCON CABLE SYSTEMS CO. EXHIBIT I TULARE REGION - CALIFORNIA AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 ------ ------ ------ ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- YEAR 1 $1,593,755 $2,731,355 $1,950,649 $1,393,002 $995,958 $994,842 $995,956 $10,655,519 YEAR 2 114,999 197,084 140,751 100,514 71,665 71,784 696,998 YEAR 3 117,366 201,140 143,646 102,582 73,343 638,079 YEAR 4 121,558 208,324 148,779 106,246 684,907 YEAR 5 128,251 210,795 156,970 605,016 YEAR 6 130,712 224,013 354,726 YEAR 7 137,453 137,453 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL DEPRECIATION $1,593,755 $2,846,354 $2,265,099 $1,856,452 $1,576,694 $1,688,575 $1,765,768 $13,572,698
171 FALCON CABLE SYSTEMS CO. EXHIBIT J TULARE REGION - CALIFORNIA AS OF DECEMBER 31, 1995 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 7 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $10,375,794 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
172 CENTRAL REGION, OR 173 FALCON CABLE SYSTEMS CO. EXHIBIT A CENTRAL REGION - OREGON AS OF DECEMBER 31, 1995 VALUATION METHODS - -----------------
LOW HIGH ----------- ----------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME OPERATING INCOME, PER BOOKS (DECEMBER 31, 1995) $ 2,712,460 $ 2,712,460 VALUATION MULTIPLE 10.5 11.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $28,480,830 $31,193,290 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $ 4,980,876 $ 4,980,876 OPERATING MARGIN, PER BOOKS (DECEMBER 31, 1995) 55.1% 55.1% ----------- ----------- "RUNNING RATE" OPERATING INCOME 2,743,218 2,743,218 VALUATION MULTIPLE 10.0 11.0 ----------- ----------- ESTIMATED FAIR MARKET VALUE $27,432,177 $30,175,395 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $ 2,740,648 $ 2,740,648 VALUATION MULTIPLE 9.5 10.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $26,036,156 $28,776,804 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $24,125,971 $26,253,741 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVESTMENT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $23,806,704 $25,813,664 ----------- ----------- SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $28,480,830 $31,193,290 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 27,432,177 30,175,395 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 26,036,156 28,776,804 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 24,125,971 26,253,741 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 23,806,704 25,813,664 RANGE OF ESTIMATED FAIR MARKET VALUES $25,126,000 $27,462,000 ----------- ----------- ESTIMATED FAIR MARKET VALUE $26,294,000 -----------
174 FALCON CABLE SYSTEMS CO. EXHIBIT B CENTRAL REGION - OREGON LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- REVENUES $ 5,505,473 $ 5,911,255 $ 6,465,718 $7,109,814 $7,658,421 OPERATING EXPENSES 2,764,825 2,975,093 3,260,530 3,559,699 3,794,401 ----------- ----------- ----------- ---------- ---------- OPERATING INCOME $ 2,740,648 $ 2,936,162 $ 3,205,188 $3,550,115 $3,864,020 OPERATING MARGIN 0.50 0.50 0.50 0.50 0.50 PARENT SERVICES/MGT FEE (5%) 275,274 295,563 323,286 355,491 382,921 FRANCHISE AMORTIZATION (15) 808,333 808,333 808,333 808,333 808,333 SUBSCRIBER LIST (8) 287,000 287,000 287,000 287,000 287,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 1,290,879 2,286,181 1,934,104 1,693,492 1,388,241 INTEREST 1,171,388 1,171,388 1,171,388 1,097,889 1,017,040 ----------- ----------- ----------- ---------- ---------- PRE-TAX INCOME ($1,092,227) ($1,912,304) ($1,318,923) ($692,090) ($19,515) INCOME TAX (EXPENSE)/BENEFIT 371,357 650,183 448,434 235,311 6,635 ----------- ----------- ----------- ---------- ---------- NET INCOME ($720,870) ($1,262,120) ($870,489) ($456,779) ($12,880) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($1,092,227) ($1,912,304) ($1,318,923) ($692,090) ($19,515) FRANCHISE AMORTIZATION (15) 808,333 808,333 808,333 808,333 808,333 SUBSCRIBER LIST (8) 287,000 287,000 287,000 287,000 287,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 1,290,879 2,286,181 1,934,104 1,693,492 1,388,241 EQUITY 11,713,882 DEBT 11,713,882 0 0 0 0 RESIDUAL VALUE IN YEAR 8 ------------ ----------- ----------- ---------- ---------- TOTAL SOURCES OF CASH $24,721,751 $ 1,469,211 $ 1,710,514 $2,096,735 $2,464,059 USES OF CASH - PURCHASE PRICE - CURRENT $24,125,971 CAPITAL EXPENDITURES 495,521 517,076 1,592,176 593,800 651,350 DEBT RETIREMENT 0 0 734,992 808,491 889,341 TAXES PAID ON NET INCOME 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ------------ ----------- ----------- ---------- ---------- TOTAL USES OF CASH $24,621,492 $ 517,076 $ 2,327,168 $1,402,291 $1,540,690 ANNUAL CASH INCREASE/(DECREASE) $100,259 $ 952,134 ($616,654) $694,444 $923,369 CUMULATIVE CASH 100,259 1,052,393 435,739 1,130,183 2,053,552 YEAR ENDING DECEMBER 31, 2001 2002 2003 TOTAL ---- ---- ---- ----- REVENUES $8,161,506 $8,680,035 $ 9,218,457 $58,710,679 OPERATING EXPENSES 4,047,030 4,304,682 4,570,306 29,276,566 ---------- ---------- ----------- ----------- OPERATING INCOME $4,114,476 $4,375,353 $ 4,648,151 $29,434,112 OPERATING MARGIN 0.50 0.50 0.50 PARENT SERVICES/MGT FEE (5%) 408,075 434,002 460,923 2,935,534 FRANCHISE AMORTIZATION (15) 808,333 808,333 808,333 6,466,667 SUBSCRIBER LIST (8) 287,000 287,000 287,000 2,296,000 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,411,612 1,451,994 1,126,147 12,582,650 INTEREST 928,106 830,278 722,668 8,110,146 ---------- ---------- ----------- ----------- PRE-TAX INCOME $271,350 $563,745 $ 1,243,079 ($2,956,884) INCOME TAX (EXPENSE)/BENEFIT (92,259) (191,673) (422,647) 1,005,341 ---------- ---------- ----------- ----------- NET INCOME $179,091 $ 372,072 $ 820,432 ($1,951,543) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME $271,350 $ 563,745 $ 1,243,079 ($2,956,884) FRANCHISE AMORTIZATION (15) 808,333 808,333 808,333 6,466,667 SUBSCRIBER LIST (8) 287,000 287,000 287,000 2,296,000 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,411,612 1,451,994 1,126,147 12,582,650 EQUITY 11,713,882 DEBT 0 0 0 11,713,882 RESIDUAL VALUE IN YEAR 8 41,833,356 41,833,356 ---------- ----------- ------------ ----------- TOTAL SOURCES OF CASH $2,778,295 $ 3,111,073 $ 45,297,915 $83,649,553 USES OF CASH - PURCHASE PRICE - CURRENT $24,125,971 CAPITAL EXPENDITURES 681,735 713,504 746,718 5,991,879 DEBT RETIREMENT 978,275 1,076,102 7,226,682 11,713,882 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 10,235,339 10,235,339 ---------- ----------- ------------ ----------- TOTAL USES OF CASH $1,660,010 $ 1,789,606 $ 18,208,738 $52,067,071 ANNUAL CASH INCREASE/(DECREASE) $1,118,285 $ 1,321,467 $ 27,089,177 $31,582,482 CUMULATIVE CASH 3,171,838 4,493,305 31,582,482
175 FALCON CABLE SYSTEMS CO. EXHIBIT B CENTRAL REGION - OREGON HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
PROFIT AND LOSS - HIGH VALUE - ---------------------------- YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- REVENUES $5,505,473 $5,911,255 $6,465,718 $7,109,814 $7,658,421 OPERATING EXPENSES 2,764,825 2,975,093 3,260,530 3,559,699 3,794,401 ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $2,740,648 $2,936,162 $3,205,188 $3,550,115 $3,864,020 OPERATING MARGIN 0.50 0.50 0.50 0.50 0.50 PARENT SERVICES/MGT FEE(5%) 275,274 295,563 323,286 355,491 382,921 FRANCHISE AMORTIZATION(15) 808,333 808,333 808,333 808,333 808,333 SUBSCRIBER LIST (8) 287,000 287,000 287,000 287,000 287,000 NON-COMPETE COVENANTS(0) 0 0 0 0 0 DEPRECIATION 1,290,879 2,286,181 1,934,104 1,693,492 1,388,241 INTEREST 1,283,375 1,283,375 1,283,375 1,202,849 1,114,270 ---------- ---------- ---------- ---------- ---------- PRE-TAX INCOME ($1,204,213) ($2,024,290) ($1,430,909) ($797,050) ($116,745) INCOME TAX (EXPENSE)/BENEFIT 409,432 688,259 486,509 270,997 39,693 ----------- ----------- ----------- --------- --------- NET INCOME ($794,781) ($1,336,032) ($944,400) ($526,053) ($77,052) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($1,204,213) ($2,024,290) ($1,430,909) ($797,050) ($116,745) FRANCHISE AMORTIZATION(15) 808,333 808,333 808,333 808,333 808,333 SUBSCRIBER LIST (8) 287,000 287,000 287,000 287,000 287,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 1,290,879 2,286,181 1,934,104 1,693,492 1,388,241 EQUITY 12,833,747 DEBT 12,833,747 0 0 0 0 RESIDUAL VALUE IN YEAR 8 ----------- ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $26,849,494 $1,357,224 $1,598,527 $1,991,775 $2,366,829 USES OF CASH - PURCHASE PRICE - CURRENT $26,253,741 CAPITAL EXPENDITURES 495,521 517,076 1,592,176 593,800 651,350 DEBT RETIREMENT 0 0 805,259 885,784 974,363 TAXES PAID ON NET INCOME 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ----------- -------- ---------- ------- --------- TOTAL USES OF CASH $26,749,262 $517,076 $2,397,434 $1,479,584 $1,625,713 ANNUAL CASH INCREASE/(DECREASE) $100,232 $840,148 ($798,907) $512,191 $741,116 CUMULATIVE CASH 100,232 940,380 141,473 653,664 1,394,780
176 FALCON CABLE SYSTEMS CO. EXHIBIT B CENTRAL REGION - OREGON HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 2001 2002 2003 TOTAL ---- ---- ---- ----- REVENUES $8,161,506 $8,680,035 $9,218,457 $58,710,679 OPERATING EXPENSES 4,047,030 4,304,682 4,570,306 29,276,566 ---------- ---------- ---------- ----------- OPERATING INCOME $4,114,476 $4,375,353 $4,648,151 $29,434,112 OPERATING MARGIN 0.50 0.50 0.50 PARENT SERVICES/MGT FEE(5%) 408,075 434,002 460,923 2,935,534 FRANCHISE AMORTIZATION(15) 808,333 808,333 808,333 6,466,667 SUBSCRIBER LIST(8) 287,000 287,000 287,000 2,296,000 NON-COMPETE COVENANTS(0) 0 0 0 0 DEPRECIATION 1,411,612 1,451,994 1,126,147 12,582,650 INTEREST 1,016,834 909,654 791,756 8,885,488 ---------- ---------- ---------- ----------- PRE-TAX INCOME $182,621 $484,369 $1,173,991 ($3,732,226) INCOME TAX (EXPENSE)/BENEFIT (62,091) (164,685) (399,157) 1,268,957 ---------- ---------- ---------- ----------- NET INCOME $120,530 $319,684 $774,834 ($2,463,269) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME $182,621 $484,369 $1,173,991 ($3,732,226) FRANCHISE AMORTIZATION(15) 808,333 808,333 808,333 6,466,667 SUBSCRIBER LIST(8) 287,000 287,000 287,000 2,296,000 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,411,612 1,451,994 1,126,147 12,582,650 EQUITY 12,833,747 DEBT 0 0 0 12,833,747 RESIDUAL VALUE IN YEAR 8 41,833,356 41,833,356 ---------- ---------- ----------- ----------- TOTAL SOURCES OF CASH $2,689,567 $3,031,697 $45,228,827 $85,113,941 USES OF CASH - PURCHASE PRICE - CURRENT $26,253,741 CAPITAL EXPENDITURES 681,735 713,504 746,718 5,991,879 DEBT RETIREMENT 1,071,799 1,178,979 7,917,563 12,833,747 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 9,248,281 9,248,281 ---------- ---------- ----------- ----------- TOTAL USES OF CASH $1,753,534 $1,892,483 $17,912,562 $54,327,648 ANNUAL CASH INCREASE/(DECREASE) $936,033 $1,139,214 $27,316,266 $30,786,292 CUMULATIVE CASH 2,330,813 3,470,027 30,786,292
177 FALCON CABLE SYSTEMS CO. CENTRAL REGION - OREGON EXHIBIT C AS OF DECEMBER 31, 1995 LOW ANALYSIS RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $23,427,765 YEAR 1 DEBT REQUIREMENTS 11,713,882 YEAR 1 EQUITY REQUIREMENTS 11,713,882 FINANCING AVAILABLE $17,630,990 $17,814,212 $19,085,050 $20,833,723 $23,075,747 UNUSED LEVERAGE 5,917,108 6,100,329 8,106,160 10,663,324 13,794,689 SENIOR DEBT: 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- BEGINNING DEBT $0 $11,713,882 $11,713,882 $10,978,890 $10,170,399 DEBT ADDED 11,713,882 0 0 0 0 TOTAL ANNUAL PAYMENTS 1,171,388 1,171,388 1,906,380 1,906,380 1,906,380 INTEREST 1,171,388 1,171,388 1,171,388 1,097,889 1,017,040 PRINCIPAL REPAYMENT 0 0 734,992 808,491 889,341 ENDING BALANCE 11,713,882 11,713,882 10,978,890 10,170,399 9,281,058 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 $0 BORROWINGS 0 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 0 INTEREST 0 0 0 0 0 SENIOR DEBT COVERAGE 4.3 4.0 3.4 2.9 2.4 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 4.3 4.0 3.4 2.9 2.4 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $25,116,131 $26,744,095 $28,439,793 UNUSED LEVERAGE 16,813,348 19,517,413 22,396,824 SENIOR DEBT: 2001 2002 2003 TOTAL ---- ---- ---- ----- BEGINNING DEBT $9,281,058 $8,302,784 $7,226,682 DEBT ADDED 0 0 0 $11,713,882 TOTAL ANNUAL PAYMENTS 1,906,380 1,906,380 1,906,380 13,781,059 INTEREST 928,106 830,278 722,668 8,110,146 PRINCIPAL REPAYMENT 978,275 1,076,102 1,183,712 5,670,913 ENDING BALANCE 8,302,784 7,226,682 6,042,969 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 2.0 1.7 1.3 LOC DEBT COVERAGE 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.0 1.7 1.3
178 FALCON CABLE SYSTEMS CO. EXHIBIT C CENTRAL REGION - OREGON HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE TOTAL YEAR 1 CASH REQUIREMENTS $25,667,495 YEAR 1 DEBT REQUIREMENTS 12,833,747 YEAR 1 EQUITY REQUIREMENTS 12,833,747 FINANCING AVAILABLE $20,343,450 $20,554,860 $22,021,211 $24,038,911 $26,625,862 UNUSED LEVERAGE 7,509,703 7,721,113 9,992,723 12,896,206 16,457,521 SENIOR: 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- BEGINNING DEBT $0 $12,833,747 $12,833,747 $12,028,489 $11,142,704 DEBT ADDED 12,833,747 0 0 0 0 TOTAL ANNUAL PAYMENTS 1,283,375 1,283,375 2,088,633 2,088,633 2,088,633 INTEREST 1,283,375 1,283,375 1,283,375 1,202,849 1,114,270 PRINCIPAL REPAYMENT 0 0 805,259 885,784 974,363 ENDING BALANCE 12,833,747 12,833,747 12,028,489 11,142,704 10,168,342 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 $0 BORROWINGS 0 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 0 INTEREST 0 0 0 0 0 SENIOR DEBT COVERAGE 4.7 4.4 3.8 3.1 2.6 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 4.7 4.4 3.8 3.1 2.6 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $28,980,152 $30,858,571 $32,815,146 UNUSED LEVERAGE 19,883,609 22,941,007 26,194,459 SENIOR: 2001 2002 2003 TOTAL ---- ---- ---- ----- BEGINNING DEBT $10,168,342 $9,096,542 $7,917,563 DEBT ADDED 0 0 0 $12,833,747 TOTAL ANNUAL PAYMENTS 2,088,633 2,088,633 2,088,633 15,098,549 INTEREST 1,016,834 909,654 791,756 8,885,488 PRINCIPAL REPAYMENT 1,071,799 1,178,979 1,296,877 6,213,061 ENDING BALANCE 9,096,542 7,917,563 6,620,686 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 2.2 1.8 1.4 LOC DEBT COVERAGE 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.2 1.8 1.4
179 FALCON CABLE SYSTEMS CO. CENTRAL REGION - OREGON EXHIBIT D AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- REVENUES $5,505,473 $5,911,255 $6,465,718 $7,109,814 $7,658,421 OPERATING EXPENSES 2,764,825 2,975,093 3,260,530 3,559,699 3,794,401 OPERATING INCOME $2,740,648 $2,936,162 $3,205,188 $3,550,115 $3,864,020 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 495,521 517,076 1,592,176 593,800 651,350 TOTAL CASH FLOW $2,245,127 $2,419,085 $1,613,012 $2,956,315 $3,212,670 NET PRESENT VALUE @ 16.6% $23,806,704 NET PRESENT VALUE @ 15.1% $25,813,664
YEAR ENDING DECEMBER 31, 2001 2002 2003 TOTAL ---- ---- ---- ----- REVENUES $8,161,506 $8,680,035 $9,218,457 $58,710,679 OPERATING EXPENSES 4,047,030 4,304,682 4,570,306 29,276,566 OPERATING INCOME $4,114,476 $4,375,353 $4,648,151 $29,434,112 PLUS: RESIDUAL VALUE 41,833,356 41,833,356 LESS: CAPITAL EXPENDITURES 681,735 713,504 746,718 5,991,879 TOTAL CASH FLOW $3,432,741 $3,661,849 $45,734,789 $65,275,589
180 FALCON CABLE SYSTEMS CO. EXHIBIT E CENTRAL REGION - OREGON AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 660.3 MILES ADDED 7.9 8.0 9.7 9.8 11.6 11.8 11.9 12.1 CUMULATIVE MILES 668.2 676.2 685.9 695.7 707.3 719.1 731.0 743.1 DENSITY OF ADDITIONAL PLANT 33 33 33 33 33 33 33 33 HOMES PASSED - BEGINNING 26,355 NEW HOMES & EXTENSIONS 264 266 323 326 385 391 396 402 HOMES PASSED - ENDING 26,619 26,885 27,207 27,534 27,919 28,310 28,707 29,108 GROWTH IN HOMES 1.0% 1.0% 1.2% 1.2% 1.4% 1.4% 1.4% 1.4% BASIC - BEGINNING SUBSCRIBERS 14,225 14,500 14,780 15,093 15,412 15,767 16,130 16,499 AVERAGE SUBSCRIBERS 14,363 14,640 14,936 15,253 15,590 15,948 16,314 16,687 ENDING SUBSCRIBERS 14,500 14,780 15,093 15,412 15,767 16,130 16,499 16,875 PENETRATION 54.5% 55.0% 55.5% 56.0% 56.5% 57.0% 57.5% 58.0% EXPANDED BASIC - BEGINNING 12,921 13,171 13,425 13,710 13,999 14,322 14,651 14,987 AVERAGE SUBSCRIBERS 13,046 13,298 13,567 13,854 14,161 14,486 14,819 15,158 ENDING SUBSCRIBERS 13,171 13,425 13,710 13,999 14,322 14,651 14,987 15,329 PENETRATION 90.8% 90.8% 90.8% 90.8% 90.8% 90.8% 90.8% 90.8% NEW PRODUCT TIER #1 - BEGINNING 9,266 9,445 9,627 9,832 10,039 10,271 10,507 10,747 AVERAGE SUBSCRIBERS 9,356 9,536 9,729 10,155 10,389 10,627 10,870 ENDING SUBSCRIBERS 9,445 9,627 9,832 10,039 10,271 10,507 10,747 10,992 PENETRATION 65.1% 65.1% 65.1% 65.1% 65.1% 65.1% 65.1% 65.1% NEW PRODUCT TIER #2 - BEGINNING 0 1,015 2,069 3,849 5,240 5,361 5,484 5,610 AVERAGE SUBSCRIBERS 508 1,542 2,959 4,544 5,300 5,422 5,547 5,674 ENDING SUBSCRIBERS 1,015 2,069 3,849 5,240 5,361 5,484 5,610 5,738 PENETRATION 7.0% 14.0% 25.5% 34.0% 34.0% 34.0% 34.0% 34.0% NEW PRODUCT TIER #3 - BEGINNING 0 1,015 2,069 3,849 5,240 5,361 5,484 5,610 AVERAGE SUBSCRIBERS 508 1,542 2,959 4,544 5,300 5,422 5,547 5,674 ENDING SUBSCRIBERS 1,015 2,069 3,849 5,240 5,361 5,484 5,610 5,738 PENETRATION 7.0% 14.0% 25.5% 34.0% 34.0% 34.0% 34.0% 34.0% 40% PAY TV - BEGINNING UNITS 5,516 5,695 5,879 6,079 6,285 6,508 6,738 6,975 AVERAGE UNITS 5,606 5,787 5,979 6,182 6,396 6,623 6,857 7,097 ENDING UNITS 5,695 5,879 6,079 6,285 6,508 6,738 6,975 7,219 PENETRATION 39.3% 39.8% 40.3% 40.8% 41.3% 41.8% 42.3% 42.8% PAY PER VIEW - BEGINNING UNITS/MO 0 0 292 839 1,463 1,990 2,415 2,651 AVERAGE UNITS 0 146 565 1,151 1,727 2,202 2,533 2,777 ENDING UNITS 0 292 839 1,463 1,990 2,415 2,651 2,902 AVERAGE BUY RATE/MO 0.0% 5.0% 12.5% 20.0% 25.0% 28.0% 29.5% 31.0% CONVERTER RENTALS - BEGINNING 6,016 6,567 7,137 7,742 8,367 9,033 9,725 10,442 AVERAGE SUBSCRIBERS 6,292 6,852 7,439 8,054 8,700 9,379 10,084 10,815 ENDING SUBSCRIBERS 6,567 7,137 7,742 8,367 9,033 9,725 10,442 11,187 PENETRATION 45.3% 48.3% 51.3% 54.3% 57.3% 60.3% 63.3% 66.3% ADDRESSABLE HOMES 4,762 5,289 5,835 6,713 7,317 7,959 8,626 8,988 AVERAGE HOMES 5,026 5,562 6,274 7,015 7,638 8,292 8,807 9,175 ENDING HOMES 5,289 5,835 6,713 7,317 7,959 8,626 8,988 9,362 PENETRATION 36.5% 39.5% 44.5% 47.5% 50.5% 53.5% 54.5% 55.5% BASIC CHURN RATE 28% 28% 28% 28% 28% 28% 28% 28%
181 FALCON CABLE SYSTEMS CO. CENTRAL REGION - OREGON EXHIBIT F AS OF DECEMBER 31, 1995 SERVICE RATES - -------------
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------- -------- BASIC $15.98 $17.60 EXPANDED BASIC $4.99 $5.43 NEW PRODUCT TIER #1 $4.41 $5.13 NEW PRODUCT TIER #2 $4.00 $4.00 NEW PRODUCT TIER #3 $4.00 $4.00 PAY $7.93 $7.93 PAY PER VIEW N/A N/A CONVERTER RENTALS $0.55 $0.54 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 10% 3% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 9% 3% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 16% 3% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #3 0% 3% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% 3% CONVERTER RENTALS -2% 3% 3% 3% 3% 3% 3% 3% INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% 3% 3% INSTALLATIONS-CHURN 0% 3% 3% 3% 3% 3% 3% 3% AVERAGE RATES - ------------- BASIC $17.60 $18.13 $18.67 $19.23 $19.81 $20.40 $21.01 $21.64 EXPANDED BASIC 5.43 5.59 5.76 5.93 6.11 6.29 6.48 6.67 NEW PRODUCT TIER #1 5.13 5.28 5.44 5.60 5.77 5.94 6.12 6.30 NEW PRODUCT TIER #2 4.00 4.12 4.24 4.37 4.50 4.64 4.78 4.92 NEW PRODUCT TIER #3 4.00 4.12 4.24 4.37 4.50 4.64 4.78 4.92 PAY 7.93 8.01 8.09 8.17 8.25 8.33 8.42 8.50 PAY PER VIEW 7.50 7.73 7.96 8.20 8.44 8.69 8.96 9.22 CONVERTER RENTALS 0.54 0.56 0.57 0.59 0.61 0.63 0.65 0.67 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 59.70 61.49 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98 29.85 30.75
182 FALCON CABLE SYSTEMS CO. CENTRAL REGION - OREGON EXHIBIT G AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- REVENUES: BASIC $3,033,046 $3,184,371 $3,346,309 $3,519,639 $3,705,344 EXPANDED BASIC 849,445 891,826 937,178 985,722 1,037,731 NEW PRODUCT TIER #1 575,473 604,184 634,909 667,796 703,031 NEW PRODUCT TIER #2 24,361 76,241 150,680 238,358 286,355 NEW PRODUCT TIER #3 24,361 76,241 150,680 238,358 286,355 PAY TV 533,313 556,082 580,266 605,946 633,252 PAY-PER-VIEW 0 13,521 53,987 113,221 174,892 CONVERTER RENTALS 40,833 45,806 51,222 57,120 63,551 INSTALLATIONS 91,674 96,198 102,291 107,535 114,538 COMMERCIAL 104,155 107,279 110,498 113,813 117,227 ADVERTISING 5,125 25,623 102,492 204,984 266,479 MISCELLANEOUS 223,690 233,882 245,207 257,323 269,666 ---------- ---------- ---------- ---------- ---------- TOTAL REVENUES $5,505,473 $5,911,255 $6,465,718 $7,109,814 $7,658,421 OPERATING EXPENSES: OPERATIONS $1,119,791 $1,178,723 $1,249,858 $1,328,393 $1,404,541 GENERAL & ADMINISTRATIVE 542,197 569,390 600,434 634,404 668,217 SALES & MARKETING 188,772 245,183 334,379 408,360 428,358 PROGRAMMING 914,064 981,798 1,075,859 1,188,543 1,293,285 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $2,764,825 $2,975,093 $3,260,530 $3,559,699 $3,794,401 ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $2,740,648 $2,936,162 $3,205,188 $3,550,115 $3,864,020 OPERATING MARGIN 49.8% 49.7% 49.6% 49.9 50.5% TOTAL REVENUE/BASIC SUB/MONTH $31.94 $33.65 $36.07 $38.84 $40.94 CASH FLOW/BASIC SUB/MONTH $15.90 $16.71 $17.88 $19.40 $20.65 OPERATIONS % OF REVENUE 20% 20% 19% 19% 18% G & A PERCENTAGE OF REVENUE 10% 10% 9% 9% 9% SALES & MARKETING % OF REVENUE 3% 4% 5% 6% 6% PROGRAMMING % OF REVENUE 17% 17% 17% 17% 17%
YEAR ENDING DECEMBER 31, 2001 2002 2003 TOTAL ---- ---- ---- ----- REVENUES: BASIC $3,904,349 $4,113,723 $4,333,994 $29,140,774 EXPANDED BASIC 1,093,465 1,152,103 1,213,793 8,161,261 NEW PRODUCT TIER #1 740,789 780,514 822,307 5,529,003 NEW PRODUCT TIER #2 301,735 317,915 334,938 1,730,583 NEW PRODUCT TIER #3 301,735 317,915 334,938 1,730,583 PAY TV 662,279 692,483 723,906 4,987,527 PAY-PER-VIEW 229,788 272,241 307,363 1,165,013 CONVERTER RENTALS 70,564 78,141 86,321 493,557 INSTALLATIONS 120,632 127,041 133,781 893,691 COMMERCIAL 120,744 124,366 128,097 926,178 ADVERTISING 333,099 408,046 489,656 1,835,504 MISCELLANEOUS 282,328 295,546 309,364 2,117,005 ---------- ---------- ---------- ----------- TOTAL REVENUES $8,161,506 $8,680,035 $9,218,457 $58,710,679 OPERATING EXPENSES: OPERATIONS $1,480,125 $1,558,774 $1,640,861 $10,961,065 GENERAL & ADMINISTRATIVE 702,844 739,010 776,853 5,233,349 SALES & MARKETING 476,992 530,540 588,228 3,200,812 PROGRAMMING 1,387,069 1,476,358 1,564,364 9,881,340 ---------- ---------- ---------- ----------- TOTAL OPERATING EXPENSES $4,047,030 $4,304,682 $4,570,306 $29,276,566 ---------- ---------- ---------- ----------- OPERATING INCOME $4,114,476 $4,375,353 $4,648,151 $29,434,112 OPERATING MARGIN 50.4% 50.4% 50.4% TOTAL REVENUE/BASIC SUB/MONTH $42.65 $44.34 $46.04 CASH FLOW/BASIC SUB/MONTH $21.50 $22.35 $23.21 OPERATIONS % OF REVENUE 18% 18% 18% G & A PERCENTAGE OF REVENUE 9% 9% 8% SALES & MARKETING % OF REVENUE 6% 6% 6% PROGRAMMING % OF REVENUE 17% 17% 17%
183 FALCON CABLE SYSTEMS CO. EXHIBIT H CENTRAL REGION - OREGON AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT $8,537,924 ADDITIONAL MILES OF PLANT 7.9 8.0 9.7 9.8 11.6 AERIAL PLANT PER MILE $12,000 $12,240 $12,485 $12,734 $12,989 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 $19,484 PERCENTAGE OF PLANT AERIAL 50% 50% 50% 50% 50% PERCENTAGE OF PLANT UNDERGROUND 50% 50% 50% 50% 50% AVERAGE COST PER CONVERTER $110 $112 $114 $117 $119 PERCENTAGE CONVERTER USE 45% 48% 51% 54% 57% PERCENTAGE REPLACEMENT 5% 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $52 $53 $54 $55 $56 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 2% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $47,542 $48,977 $60,548 $62,500 $75,267 71,312 73,466 90,822 93,750 112,901 PLANT REBUILD/UPGRADE/INCL. HDND. 33,675 34,761 1,059,850 37,123 38,408 AVERAGE COST OF NEW CONVERTERS 13,718 15,140 18,396 20,204 24,241 CONVERTER REPLACEMENT 35,435 39,284 43,379 47,827 52,567 INSTALLATION COSTS 222,026 230,784 241,482 251,465 263,592 MISC. CAPITAL EXPENDITURES 71,813 74,664 77,700 80,931 84,374 -------- -------- ---------- -------- -------- TOTAL CAPITAL EXPENDITURES $495,521 $517,076 $1,592,176 $593,800 $651,350 AS A % OF OPERATING INCOME 18.1% 17.6% 49.7% 16.7 16.9%
YEAR ENDING DECEMBER 31, 2001 2002 2003 TOTAL ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT ADDITIONAL MILES OF PLANT 11.8 11.9 12.1 AERIAL PLANT PER MILE $13,249 $13,514 $13,784 UNDERGROUND PLANT PER MILE $19,873 $20,271 $20,676 PERCENTAGE OF PLANT AERIAL 50% 50% 50% PERCENTAGE OF PLANT UNDERGROUND 50% 50% 50% AVERAGE COST PER CONVERTER $121 $124 $126 PERCENTAGE CONVERTER USE 60% 63% 66% PERCENTAGE REPLACEMENT 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $57 $59 $60 MISC. CAPITAL PER SUBSCRIBER $6 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 117% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $77,847 $80,516 $83,276 $536,474 116,771 120,774 124,914 804,710 PLANT REBUILD/UPGRADE/INCL. HDND. 39,828 41,300 42,824 1,327,770 AVERAGE COST OF NEW CONVERTERS 26,528 28,958 31,539 178,726 CONVERTER REPLACEMENT 57,727 63,232 69,100 408,551 INSTALLATION COSTS 274,990 286,861 299,222 2,070,421 MISC. CAPITAL EXPENDITURES 88,042 91,863 95,842 665,228 -------- -------- -------- ---------- TOTAL CAPITAL EXPENDITURES $681,735 $713,504 $746,718 $5,991,879 AS A % OF OPERATING INCOME 16.6% 16.3% 16.1%
184 FALCON CABLE SYSTEMS CO. EXHIBIT I CENTRAL REGION - OREGON AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ------ ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- YEAR 1 $1,290,879 $2,212,291 $1,579,950 $1,128,277 $806,687 YEAR 2 73,890 126,632 90,437 64,583 YEAR 3 227,522 389,924 278,472 YEAR 4 84,854 145,422 YEAR 5 93,078 YEAR 6 YEAR 7 YEAR 8 ---------- ---------- ---------- ---------- ---------- TOTAL DEPRECIATION $1,290,879 $2,286,181 $1,934,104 $1,693,492 $1,388,241
YEAR 6 YEAR 7 YEAR 8 ------ ------ ------ ESTIMATED DEPRECIATION RATES 8.9% 8.9% 4.5% DEPRECIATION - BEG. & ADTNS. 2001 2002 2003 TOTAL YEAR 1 $805,783 $806,687 $402,892 $9,033,445 YEAR 2 46,175 46,123 46,175 494,015 YEAR 3 198,863 142,181 142,022 1,378,984 YEAR 4 103,856 74,166 53,026 461,323 YEAR 5 159,516 113,921 81,354 447,868 YEAR 6 97,420 166,957 119,235 383,612 YEAR 7 101,960 174,737 276,697 YEAR 8 106,706 106,706 ---------- ---------- ---------- ----------- TOTAL DEPRECIATION $1,411,612 $1,451,994 $1,126,147 $12,582,650
185 FALCON CABLE SYSTEMS CO. EXHIBIT J CENTRAL REGION - OREGON AS OF DECEMBER 31, 1995 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 8 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $8,537,924 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
186 COOS BAY, OR 187 FALCON CABLE SYSTEMS CO. EXHIBIT A COOS BAY REGION - OREGON AS OF DECEMBER 31, 1995 VALUATION METHODS - -----------------
LOW HIGH --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME ADJUSTED OPERATING INCOME, PER BOOKS (DECEMBER 31, 1995) $3,687,386 $3,687,386 VALUATION MULTIPLE 10.5 11.5 ---- ---- ESTIMATED FAIR MARKET VALUE $38,717,553 $42,404,939 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $7,110,616 $7,110,616 OPERATING MARGIN, PER BOOKS (DECEMBER 31, 1995) 55.5% 55.5% "RUNNING RATE" OPERATING INCOME 3,943,903 3,943,903 VALUATION MULTIPLE 10.0 11.0 ---- ---- ESTIMATED FAIR MARKET VALUE $39,439,031 $43,382,934 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $3,922,856 $3,922,856 VALUATION MULTIPLE 9.5 10.5 ---- ---- ESTIMATED FAIR MARKET VALUE $37,267,128 $41,189,983 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $29,654,142 $32,072,794 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $29,386,825 $31,656,216 ----------- ----------- SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $38,717,553 $42,404,939 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 39,439,031 43,382,934 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 37,267,128 41,189,983 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 29,654,142 32,072,794 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 29,386,825 31,656,216 ----------- ----------- RANGE OF ESTIMATED FAIR MARKET VALUES $33,017,000 $35,984,000 ESTIMATED FAIR MARKET VALUE $34,501,000 -----------
188 FALCON CABLE SYSTEMS CO. EXHIBIT B COOS BAY REGION - OREGON LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- REVENUES $7,499,836 $7,923,595 $8,444,768 $9,025,877 $9,574,462 $10,033,185 $10,483,111 $62,984,835 OPERATING EXPENSES 3,576,981 3,840,354 4,081,846 4,325,562 4,559,679 4,772,376 4,983,987 30,140,786 ----------- ----------- ---------- ---------- ---------- ---------- ----------- ----------- OPERATING INCOME $3,922,856 $4,083,241 $4,362,922 $4,700,314 $5,014,784 $5,260,808 $5,499,125 $32,844,049 OPERATING MARGIN 0.52 0.52 0.52 0.52 0.52 0.52 0.52 PARENT SERVICES/MGT FEE (5%) 374,992 396,180 422,238 451,294 478,723 501,659 524,156 3,149,242 FRANCHISE AMORTIZATION (15) 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 9,358,067 SUBSCRIBER LIST (8) 380,133 380,133 380,133 380,133 380,133 380,133 380,133 2,660,933 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 1,053,762 2,151,172 2,191,238 2,155,919 1,911,328 1,735,088 1,678,150 12,876,657 INTEREST 1,407,934 1,423,098 1,482,422 1,403,611 1,306,436 1,115,524 997,942 9,136,967 ----------- ----------- ---------- ---------- ---------- ---------- ----------- ----------- PRE-TAX INCOME ($630,832) ($1,604,209) ($1,449,977) ($1,027,510) ($398,703) $191,537 $581,877 ($4,337,816) INCOME TAX (EXPENSE)/ BENEFIT 214,483 545,431 492,992 349,353 135,559 (65,123) (197,838) 1,474,858 ----------- ----------- ---------- ---------- ---------- ---------- ----------- ----------- NET INCOME ($416,349) ($1,058,778) ($956,985) ($678,156) ($263,144) $126,414 $384,039 ($2,862,959) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($630,832) ($1,604,209) ($1,449,977) ($1,027,510) ($398,703) $191,537 $581,877 ($4,337,816) FRANCHISE AMORTIZATION (15) 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 9,358,067 SUBSCRIBER LIST (8) 380,133 380,133 380,133 380,133 380,133 380,133 380,133 2,660,933 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 1,053,762 2,151,172 2,191,238 2,155,919 1,911,328 1,735,088 1,678,150 12,876,657 EQUITY 14,079,342 14,079,342 DEBT 14,079,342 151,639 593,242 95,302 0 0 0 14,919,525 RESIDUAL VALUE IN YEAR 7 49,492,121 49,492,121 ----------- ----------- ---------- ---------- ---------- ---------- ----------- ----------- TOTAL SOURCES OF CASH $30,298,613 $2,415,602 $3,051,503 $2,940,711 $3,229,625 $3,643,625 $53,469,148 $99,048,828 USES OF CASH - PURCHASE PRICE - CURRENT $29,654,142 $29,654,142 CAPITAL EXPENDITURES 544,049 2,416,024 2,168,089 1,968,956 627,440 648,989 671,250 9,044,798 DEBT RETIREMENT 0 0 883,414 971,755 1,909,114 1,175,824 9,979,418 14,919,525 TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 10,659,347 10,659,347 ----------- ----------- ---------- ---------- ---------- ---------- ----------- ----------- TOTAL USES OF CASH $30,198,191 $2,416,024 $3,051,503 $2,940,711 $2,536,553 $1,824,813 $21,310,015 $64,277,812 ANNUAL CASH INCREASE/ (DECREASE) $100,422 ($422) $0 ($0) $693,072 $1,818,811 $32,159,133 $34,771,016 CUMULATIVE CASH 100,422 100,000 100,000 100,000 793,072 2,611,883 34,771,016
189 FALCON CABLE SYSTEMS CO. EXHIBIT B COOS BAY REGION - OREGON HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- REVENUES $7,499,836 $7,923,595 $8,444,768 $9,025,877 $9,574,462 $10,033,185 $10,483,111 $62,984,835 OPERATING EXPENSES 3,576,981 3,840,354 4,081,846 4,325,562 4,559,679 4,772,376 4,983,987 30,140,786 ----------- ----------- ----------- ----------- ---------- ----------- ----------- ------------ OPERATING INCOME $3,922,856 $4,083,241 $4,362,922 $4,700,314 $5,014,784 $5,260,808 $5,499,125 $32,844,049 OPERATING MARGIN 0.52 0.52 0.52 0.52 0.52 0.52 0.52 PARENT SERVICES/MGT FEE (5%) 374,992 396,180 422,238 451,294 478,723 501,659 524,156 3,149,242 FRANCHISE AMORTIZATION (15) 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 9,358,067 SUBSCRIBER LIST (8) 380,133 380,133 380,133 380,133 380,133 380,133 380,133 2,660,933 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 1,053,762 2,151,172 2,191,238 2,155,919 1,911,328 1,735,088 1,678,150 12,876,657 INTEREST 1,535,228 1,564,543 1,648,458 1,588,982 1,483,021 1,240,461 1,088,168 10,148,862 ----------- ----------- ----------- ----------- ---------- ----------- ----------- ------------ PRE-TAX INCOME ($758,127) ($1,745,654) ($1,616,013) ($1,212,881) ($575,288) $66,600 $491,652 ($5,349,711) INCOME TAX (EXPENSE)/ BENEFIT 257,763 593,522 549,444 412,380 195,598 (22,644) (167,162) 1,818,902 ----------- ----------- ----------- ----------- ---------- ----------- ----------- ------------ NET INCOME ($500,364) ($1,152,132) ($1,066,568) ($800,502) ($379,690) $43,956 $324,490 ($3,530,809) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($758,127) ($1,745,654) ($1,616,013) ($1,212,881) ($575,288) $66,600 $491,652 ($5,349,711) FRANCHISE AMORTIZATION (15) 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 1,336,867 9,358,067 SUBSCRIBER LIST (8) 380,133 380,133 380,133 380,133 380,133 380,133 380,133 2,660,933 NON-COMPETE COVENANTS (0) 0 0 0 0 0 0 0 0 DEPRECIATION 1,053,762 2,151,172 2,191,238 2,155,919 1,911,328 1,735,088 1,678,150 12,876,657 EQUITY 15,352,284 15,352,284 DEBT 15,352,284 293,145 839,149 368,532 0 0 0 16,853,110 RESIDUAL VALUE IN YEAR 7 49,492,121 49,492,121 ----------- ----------- ----------- ----------- ---------- ----------- ----------- ------------ TOTAL SOURCES OF CASH $32,717,204 $2,415,663 $3,131,375 $3,028,570 $3,053,039 $3,518,688 $53,378,922 $101,243,461 USES OF CASH - PURCHASE PRICE - CURRENT $32,072,794 $32,072,794 CAPITAL EXPENDITURES 544,049 2,416,024 2,168,089 1,968,956 627,440 648,989 671,250 9,044,798 DEBT RETIREMENT 0 0 963,285 1,059,614 2,425,600 1,522,933 10,881,678 16,853,110 TAXES PAID ON NET INCOME 0 0 0 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 9,492,961 9,492,961 ----------- ----------- ----------- ----------- ---------- ----------- ----------- ------------ TOTAL USES OF CASH $32,616,843 $2,416,024 $3,131,375 $3,028,570 $3,053,039 $2,171,923 $21,045,889 $67,463,663 ANNUAL CASH INCREASE/ (DECREASE) $100,361 ($361) $0 ($0) $0 $1,346,765 $32,333,033 $33,779,798 CUMULATIVE CASH 100,361 100,000 100,000 100,000 100,000 1,446,765 33,779,798
190 FALCON CABLE SYSTEMS CO. EXHIBIT C COOS BAY REGION - OREGON LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $28,158,684 YEAR 1 DEBT REQUIREMENTS 14,079,342 YEAR 1 EQUITY REQUIREMENTS 14,079,342 FINANCING AVAILABLE $23,968,009 $25,498,561 $26,541,066 $28,358,992 $30,552,044 $32,596,093 $34,195,253 UNUSED LEVERAGE 9,888,667 11,267,580 12,600,257 15,294,636 19,396,802 22,616,675 25,509,241
SENIOR DEBT: 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- BEGINNING DEBT $0 $14,079,342 $14,079,342 $13,195,928 $12,224,173 $11,155,242 $9,979,418 DEBT ADDED 14,079,342 0 0 0 0 0 0 14,079,342 TOTAL ANNUAL PAYMENTS 1,407,934 1,407,934 2,291,348 2,291,348 2,291,348 2,291,348 2,291,348 14,272,609 INTEREST 1,407,934 1,407,934 1,407,934 1,319,593 1,222,417 1,115,524 997,942 8,879,279 PRINCIPAL REPAYMENT 0 0 883,414 971,755 1,068,931 1,175,824 1,293,406 5,393,330 ENDING BALANCE 14,079,342 14,079,342 13,195,928 12,224,173 11,155,242 9,979,418 8,686,012 LINE OF CREDIT: BEGINNING DEBT $0 $0 $151,639 $744,881 $840,183 $0 $0 $0 BORROWINGS 0 151,639 593,242 95,302 0 0 0 840,183 PRINCIPAL PAYMENTS 0 0 0 0 840,183 0 0 840,183 INTEREST 0 15,164 74,488 84,018 84,018 0 0 257,689 SENIOR DEBT COVERAGE 3.6 3.4 3.0 2.6 2.2 1.9 1.6 LOC DEBT COVERAGE 0.0 0.0 0.2 0.2 0.0 0.0 0.0 TOTAL DEBT COVERAGE 3.6 3.5 3.2 2.8 2.2 1.9 1.6
191 FALCON CABLE SYSTEMS CO. EXHIBIT C COOS BAY REGION - OREGON HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $30,704,569 YEAR 1 DEBT REQUIREMENTS 15,352,284 YEAR 1 EQUITY REQUIREMENTS 15,352,284 FINANCING AVAILABLE $27,655,395 $29,421,417 $30,624,307 $32,721,914 $35,252,359 $37,610,877 $39,456,061 UNUSED LEVERAGE 12,303,111 13,775,987 15,103,014 17,891,703 22,847,747 26,729,199 29,984,729
SENIOR: 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- BEGINNING DEBT $0 $15,352,284 $15,352,284 $14,388,999 $13,329,386 $12,163,811 $10,881,678 DEBT ADDED 15,352,284 0 0 0 0 0 0 $15,352,284 TOTAL ANNUAL PAYMENTS 1,535,228 1,535,228 2,498,514 2,498,514 2,498,514 2,498,514 2,498,514 15,563,025 INTEREST 1,535,228 1,535,228 1,535,228 1,438,900 1,332,939 1,216,381 1,088,168 9,682,073 PRINCIPAL REPAYMENT 0 0 963,285 1,059,614 1,165,575 1,282,133 1,410,346 5,880,952 ENDING BALANCE 15,352,284 15,352,284 14,388,999 13,329,386 12,163,811 10,881,678 9,471,332 LINE OF CREDIT: BEGINNING DEBT $0 $0 $293,145 $1,132,294 $1,500,826 $240,801 $0 $0 BORROWINGS 0 293,145 839,149 368,532 0 0 0 1,500,826 PRINCIPAL PAYMENTS 0 0 0 0 1,260,025 240,801 0 1,500,826 INTEREST 0 29,314 113,229 150,083 150,083 24,080 0 466,789 SENIOR DEBT COVERAGE 3.9 3.8 3.3 2.8 2.4 2.1 1.7 LOC DEBT COVERAGE 0.0 0.1 0.3 0.3 0.0 0.0 0.0 TOTAL DEBT COVERAGE 3.9 3.8 3.6 3.2 2.5 2.1 1.7
192 FALCON CABLE SYSTEMS CO. EXHIBIT D COOS BAY REGION - OREGON AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- REVENUES $7,499,836 $7,923,595 $8,444,768 $9,025,877 $9,574,462 $10,033,185 $10,483,111 $62,984,835 OPERATING EXPENSES 3,576,981 3,840,354 4,081,846 4,325,562 4,559,679 4,772,376 4,983,987 30,140,786 ---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------- OPERATING INCOME 3,922,856 4,083,241 4,362,922 4,700,314 5,014,784 5,260,808 5,499,125 32,844,049 PLUS: RESIDUAL VALUE 49,492,121 49,492,121 LESS: CAPITAL EXPENDITURES 544,049 2,416,024 2,168,089 1,968,956 627,440 648,989 671,250 9,044,798 ---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------- TOTAL CASH FLOW $3,378,807 $1,667,217 $2,194,832 $2,731,358 $4,387,344 $4,611,819 $54,319,996 $73,291,372 NET PRESENT VALUE @ 16.6% $29,386,825 ----------- NET PRESENT VALUE @ 15.1% $31,656,216 -----------
193 FALCON CABLE SYSTEMS CO. EXHIBIT E COOS BAY REGION - OREGON AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 444.8 MILES ADDED 3.3 3.4 3.4 3.4 3.6 3.6 3.7 CUMULATIVE MILES 448.1 451.4 454.8 458.2 461.8 465.5 469.1 DENSITY OF ADDITIONAL PLANT 35 35 35 35 33 33 33 HOMES PASSED - BEGINNING 23,663 NEW HOMES & EXTENSIONS 118 119 120 120 121 121 122 HOMES PASSED - ENDING 23,781 23,900 24,020 24,140 24,261 24,382 24,504 GROWTH IN HOMES 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% 0.5% BASIC - BEGINNING SUBSCRIBERS 17,900 18,049 18,199 18,350 18,502 18,655 18,809 AVERAGE SUBSCRIBERS 17,974 18,124 18,274 18,426 18,579 18,732 18,887 ENDING SUBSCRIBERS 18,049 18,199 18,350 18,502 18,655 18,809 18,965 PENETRATION 75.9% 76.1% 76.4% 76.6% 76.9% 77.1% 77.4% EXPANDED BASIC - BEGINNING 17,424 17,569 17,715 17,862 18,010 18,159 18,309 AVERAGE SUBSCRIBERS 17,496 17,642 17,789 17,936 18,085 18,234 18,385 ENDING SUBSCRIBERS 17,569 17,715 17,862 18,010 18,159 18,309 18,460 PENETRATION 97.3% 97.3% 97.3% 97.3% 97.3% 97.3% 97.3% NEW PRODUCT TIER #1 - BEGINNING 12,143 12,244 12,346 12,448 12,551 12,655 12,760 AVERAGE SUBSCRIBERS 12,194 12,295 12,397 12,500 12,603 12,708 12,813 ENDING SUBSCRIBERS 12,244 12,346 12,448 12,551 12,655 12,760 12,865 PENETRATION 67.8% 67.8% 67.8% 67.8% 67.8% 67.8% 67.8% NEW PRODUCT TIER #2 - BEGINNING 1,779 2,335 3,629 5,127 7,019 7,078 7,136 AVERAGE SUBSCRIBERS 2,057 2,982 4,378 6,073 7,048 7,107 7,166 ENDING SUBSCRIBERS 2,335 3,629 5,127 7,019 7,078 7,136 7,195 PENETRATION 12.9% 19.9% 27.9% 37.9% 37.9% 37.9% 37.9% NEW PRODUCT TIER #3 - BEGINNING 0 0 364 734 1,943 2,612 2,633 AVERAGE SUBSCRIBERS 0 182 549 1,338 2,277 2,623 2,644 ENDING SUBSCRIBERS 0 364 734 1,943 2,612 2,633 2,655 PENETRATION 0.0% 2.0% 4.0% 10.5% 14.0% 14.0% 14.0% PAY TV - BEGINNING UNITS 7,024 6,902 7,141 7,384 7,445 7,507 7,569 AVERAGE UNITS 6,963 7,022 7,263 7,415 7,476 7,538 7,600 ENDING UNITS 6,902 7,141 7,384 7,445 7,507 7,569 7,631 PENETRATION 38.2% 39.2% 40.2% 40.2% 40.2% 40.2% 40.2% PAY PER VIEW - BEGINNING UNITS/MO 1,745 1,903 2,535 3,170 3,816 4,219 4,647 AVERAGE UNITS 1,824 2,219 2,852 3,493 4,017 4,433 4,812 ENDING UNITS 1,903 2,535 3,170 3,816 4,219 4,647 4,978 AVERAGE BUY RATE/MO 32.1% 34.1% 36.1% 37.6% 39.1% 40.6% 42.1% CONVERTER RENTALS - BEGINNING UNIT 8,268 8,517 9,134 9,760 10,396 11,042 11,698 AVERAGE SUBSCRIBERS 8,393 8,826 9,447 10,078 10,719 11,370 12,030 ENDING SUBSCRIBERS 8,517 9,134 9,760 10,396 11,042 11,698 12,363 PENETRATION 47.2% 50.2% 53.2% 56.2% 59.2% 62.2% 65.2% ADDRESSABLE HOMES 5,611 5,928 7,434 8,780 10,148 10,791 11,445 AVERAGE HOMES 5,770 6,681 8,107 9,464 10,470 11,118 11,634 ENDING HOMES 5,928 7,434 8,780 10,148 10,791 11,445 11,824 PENETRATION 32.8% 40.8% 47.8% 54.8% 57.8% 60.8% 62.3% BASIC CHURN RATE 32% 32% 32% 32% 32% 32% 32%
194 FALCON CABLE SYSTEMS CO. EXHIBIT F COOS BAY REGION - OREGON AS OF DECEMBER 31, 1995 SERVICE RATES
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------- ------------- BASIC $17.24 $18.15 EXPANDED BASIC $3.78 $4.33 NEW PRODUCT TIER #1 $4.37 $4.71 NEW PRODUCT TIER #2 $5.00 $5.00 NEW PRODUCT TIER #3 $4.00 $4.00 PAY $6.41 $6.41 PAY PER VIEW $5.35 $5.35 CONVERTER RENTALS $2.08 $1.94 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 5% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 15% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 8% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #3 0% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% CONVERTER/REMOTE RENTALS -7% 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 $18.15 $18.69 $19.25 $19.83 $20.42 $21.04 $21.67 EXPANDED BASIC 4.33 4.46 4.59 4.73 4.87 5.02 5.17 NEW PRODUCT TIER #1 4.71 4.85 5.00 5.15 5.30 5.46 5.63 NEW PRODUCT TIER #2 5.00 5.15 5.30 5.46 5.63 5.80 5.97 NEW PRODUCT TIER #3 4.00 4.12 4.24 4.37 4.50 4.64 4.78 PAY 6.41 6.47 6.54 6.60 6.67 6.74 6.80 PAY PER VIEW 5.35 5.51 5.67 5.84 6.02 6.20 6.39 CONVERTERS RENTALS 1.94 2.00 2.06 2.12 2.18 2.25 2.32 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 59.70 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98 29.85
195 FALCON CABLE SYSTEMS CO. EXHIBIT G COOS BAY REGION - OREGON AS OF DECEMBER 31, 1995 10.47 13.04 15.84 18.85 21.97 25.06 27.83 30.37 YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- REVENUES: BASIC $3,914,100 $4,065,049 $4,221,774 $4,384,494 $4,553,437 $4,728,839 $4,910,947 $30,778,640 EXPANDED BASIC 908,426 943,459 979,834 1,017,599 1,056,809 1,097,519 1,139,784 7,143,430 NEW PRODUCT TIER #1 689,424 716,012 743,617 772,278 802,036 832,931 865,007 5,421,304 NEW PRODUCT TIER #2 123,428 184,284 278,656 398,173 475,987 494,323 513,359 2,468,210 NEW PRODUCT TIER #3 0 8,998 27,956 70,198 123,026 145,931 151,551 527,660 PAY TV 535,549 545,460 569,828 587,571 598,362 609,346 620,524 4,066,640 PAY PER VIEW 117,054 146,669 194,181 244,910 290,174 329,793 368,744 1,691,527 CONVERTER RENTALS 195,298 211,536 233,225 256,271 280,743 306,717 334,273 1,818,063 INSTALLATIONS 120,276 124,906 129,713 134,704 139,886 145,265 150,850 945,601 COMMERCIAL 180,101 185,504 191,069 196,801 202,705 208,786 215,050 1,380,014 ADVERTISING 234,370 287,103 344,524 404,816 465,538 521,402 573,543 2,831,296 MISCELLANEOUS 481,812 504,615 530,390 558,062 585,759 612,332 639,480 3,912,450 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL REVENUES $7,499,836 $7,923,595 $8,444,768 $9,025,877 $9,574,462 $10,033,185 $10,483,111 $62,984,835 OPERATING EXPENSES: OPERATIONS $1,196,962 $1,249,151 $1,307,749 $1,370,303 $1,432,593 $1,491,797 $1,551,946 $9,600,500 GENERAL & ADMINISTRATIVE 698,451 726,694 757,355 789,832 822,602 854,733 887,618 5,537,283 SALES & MARKETING 326,286 438,458 493,157 537,082 581,692 624,202 665,232 3,666,110 PROGRAMMING 1,355,282 1,426,052 1,523,585 1,628,347 1,722,792 1,801,645 1,879,190 11,336,892 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL OPERATING EXPENSES $3,576,981 $3,840,354 $4,081,846 $4,325,562 $4,559,679 $4,772,376 $4,983,987 $30,140,786 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- OPERATING INCOME $3,922,856 $4,083,241 $4,362,922 $4,700,314 $5,014,784 $5,260,808 $5,499,125 $32,844,049 OPERATING MARGIN 52.3% 51.5% 51.7% 52.1% 52.4% 52.4% 52.5% TOTAL REVENUE/BASIC SUB/MONTH $34.77 $36.43 $38.51 $40.82 $42.95 $44.63 $46.25 CASH FLOW/BASIC SUB/MONTH $18.19 $18.77 $19.90 $21.26 $22.49 $23.40 $24.26 16% 16% 15% 15% 15% 15% 15% G & A PERCENTAGE OF REVENUE 9% 9% 9% 9% 9% 9% 8% SALES & MARKETING % OF REVENUE 4.4% 5.5% 5.8% 6.0% 6.1% 6.2% 6.3% PROGRAMMING % OF REVENUE 18% 18% 18% 18% 18% 18% 18%
196 FALCON CABLE SYSTEMS CO. EXHIBIT H COOS BAY REGION - OREGON AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT $6,830,072 ADDITIONAL MILES OF PLANT 3.3 3.4 3.4 3.4 3.6 3.6 3.7 AERIAL PLANT PER MILE $12,000 $12,240 $12,485 $12,734 $12,989 $13,249 $13,514 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 $19,484 $19,873 $20,271 PERCENTAGE OF PLANT AERIAL 20% 20% 20% 20% 20% 20% 20% PERCENTAGE OF PLANT UNDERGROUND 80% 80% 80% 80% 80% 80% 80% AVERAGE COST PER CONVERTER $110 $112 $114 $117 $119 $121 $124 PERCENTAGE CONVERTER USE 47.2% 50% 53% 56% 59% 62% 65% PERCENTAGE REPLACEMENT 5% 5% 5% 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $55 $56 $57 $58 $60 $61 $62 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 2% 2% 2% 115% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $8,006 $8,207 $8,413 $8,624 $9,430 $9,666 $9,909 $62,253 - UNDERGROUND 48,034 49,240 50,476 51,743 56,577 57,998 59,453 373,520 PLANT REBUILD/UPGRADE/INCL. HDND. 22,683 1,876,475 1,609,750 1,391,200 25,495 26,210 26,945 4,978,758 AVERAGE COST OF NEW CONVERTERS 7,732 8,447 9,194 9,977 10,794 11,649 12,542 70,335 CONVERTER REPLACEMENT 46,459 50,820 55,391 60,181 65,198 70,451 75,949 424,447 INSTALLATION COSTS 321,263 330,404 339,802 349,463 359,395 369,605 380,102 2,450,036 MISC. CAPITAL EXPENDITURES 89,872 92,432 95,064 97,769 100,551 103,410 106,350 685,449 TOTAL CAPITAL EXPENDITURES $544,049 $2,416,024 $2,168,089 $1,968,956 $627,440 $648,989 $671,250 $9,044,798 AS A % OF OPERATING INCOME 13.9% 59.2% 49.7% 41.9% 12.5% 12.3% 12.2%
197 FALCON CABLE SYSTEMS CO. EXHIBIT I COOS BAY REGION - OREGON AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 ------ ------ ------ ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9%
DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- YEAR 1 $1,053,762 $1,805,922 $1,289,734 $921,028 $658,509 $657,772 $658,509 $7,045,235 YEAR 2 345,250 591,684 422,563 301,761 215,751 215,509 2,092,519 YEAR 3 309,820 530,965 379,199 270,794 193,610 1,684,389 YEAR 4 281,364 482,197 344,370 245,923 1,353,854 YEAR 5 89,661 153,660 109,739 353,060 YEAR 6 92,741 158,938 251,678 YEAR 7 95,922 95,922 TOTAL DEPRECIATION $1,053,762 $2,151,172 $2,191,238 $2,155,919 $1,911,328 $1,735,088 $1,678,150 $12,876,657 ---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
198 FALCON CABLE SYSTEMS CO. EXHIBIT J COOS BAY REGION - OREGON AS OF DECEMBER 31, 1995 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 7 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $6,830,072 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
199 DALLAS, OR 200 FALCON CABLE SYSTEMS CO. EXHIBIT A DALLAS REGION - OREGON AS OF DECEMBER 31, 1995 VALUATION METHODS - -----------------
LOW HIGH ---------- ---------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME ADJUSTED OPERATING INCOME, PER BOOKS (DECEMBER 31, 1995) $ 3,664,003 $ 3,664,003 VALUATION MULTIPLE 10.5 11.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $38,472,032 $42,136,035 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $ 6,190,695 $ 6,190,695 OPERATING MARGIN, PER BOOKS (DECEMBER 31, 1995) 60.2% 60.2% ----------- ----------- "RUNNING RATE" OPERATING INCOME 3,728,656 3,728,656 VALUATION MULTIPLE 10.0 11.0 ----------- ----------- ESTIMATED FAIR MARKET VALUE $37,286,555 $41,015,211 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $ 3,962,160 $ 3,962,160 VALUATION MULTIPLE 9.5 10.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $37,640,524 $41,602,684 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $31,469,600 $34,160,482 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $31,009,915 $33,500,707 ----------- ----------- SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $38,472,032 $42,136,035 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 37,286,555 41,015,211 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 37,640,524 41,602,684 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 31,469,600 34,160,482 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 31,009,915 33,500,707 ----------- ----------- RANGE OF ESTIMATED FAIR MARKET VALUES $33,789,000 $36,878,000 ESTIMATED FAIR MARKET VALUE $35,334,000 -----------
201 FALCON CABLE SYSTEMS CO. EXHIBIT B DALLAS REGION - OREGON LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---------- ---------- ---------- ---------- REVENUES $6,671,920 $7,164,985 $7,802,502 $8,481,542 OPERATING EXPENSES 2,709,760 2,923,366 3,170,665 3,439,033 ---------- ---------- ---------- ---------- OPERATING INCOME $3,962,160 $4,241,619 $4,631,838 $5,042,508 OPERATING MARGIN 0.59 0.59 0.59 0.59 PARENT SERVICES/MGT FEE (5%) 333,596 358,249 390,125 424,077 FRANCHISE AMORTIZATION (15) 1,298,800 1,298,800 1,298,800 1,298,800 SUBSCRIBER LIST (8) 402,267 402,267 402,267 402,267 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,254,936 2,634,296 2,869,764 2,667,109 INTEREST 1,519,872 1,633,247 1,842,049 1,746,684 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($847,310) ($2,085,239) ($2,171,167) ($1,496,429) INCOME TAX (EXPENSE)/BENEFIT 288,085 708,981 738,197 508,786 ---------- ---------- ---------- ---------- NET INCOME ($559,225) ($1,376,258) ($1,432,970) ($987,643) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($847,310) ($2,085,239) ($2,171,167) ($1,496,429) FRANCHISE AMORTIZATION (15) 1,298,800 1,298,800 1,298,800 1,298,800 SUBSCRIBER LIST (8) 402,267 402,267 402,267 402,267 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,254,936 2,634,296 2,869,764 2,667,109 EQUITY 15,198,715 DEBT 15,198,715 1,133,754 2,088,021 0 RESIDUAL VALUE IN YEAR 7 ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $32,506,124 $3,383,877 $4,487,685 $2,871,747 USES OF CASH - PURCHASE PRICE - CURRENT $31,469,600 CAPITAL EXPENDITURES 936,193 3,384,208 3,534,035 789,812 DEBT RETIREMENT 0 0 953,649 2,081,935 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ---------- ---------- ---------- ---------- TOTAL USES OF CASH $32,405,792 $3,384,208 $4,487,685 $2,871,747 ANNUAL CASH INCREASE/(DECREASE) $100,331 ($331) $0 ($0) CUMULATIVE CASH 100,331 100,000 100,000 100,000
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---------- ---------- ---------- ---------- REVENUES $9,145,030 $9,786,141 $10,403,766 $59,455,887 OPERATING EXPENSES 3,706,819 3,973,497 4,242,635 24,165,775 ---------- ---------- ---------- ---------- OPERATING INCOME $5,438,211 $5,812,644 $6,161,131 $35,290,111 OPERATING MARGIN 0.59 0.59 0.59 PARENT SERVICES/MGT FEE (5%) 457,251 489,307 520,188 2,972,794 FRANCHISE AMORTIZATION (15) 1,298,800 1,298,800 1,298,800 9,091,600 SUBSCRIBER LIST (8) 402,267 402,267 402,267 2,815,867 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 2,138,850 1,998,349 1,998,476 15,561,781 INTEREST 1,538,491 1,278,505 1,077,283 10,636,130 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($397,448) $345,416 $864,117 ($5,788,060) INCOME TAX (EXPENSE)/BENEFIT 135,132 (117,441) (293,800) 1,967,941 ---------- ---------- ---------- ---------- NET INCOME ($262,316) $227,975 $570,317 ($3,820,120) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($397,448) $345,416 $864,117 ($5,788,060) FRANCHISE AMORTIZATION (15) 1,298,800 1,298,800 1,298,800 9,091,600 SUBSCRIBER LIST (8) 402,267 402,267 402,267 2,815,867 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 2,138,850 1,998,349 1,998,476 15,561,781 EQUITY 15,198,715 DEBT 0 0 0 18,420,490 RESIDUAL VALUE IN YEAR 7 55,450,179 55,450,179 ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $3,442,469 $4,044,832 $60,013,839 $110,750,571 USES OF CASH - PURCHASE PRICE - CURRENT $31,469,600 CAPITAL EXPENDITURES 842,613 888,014 932,782 11,307,657 DEBT RETIREMENT 2,599,856 2,012,221 10,772,828 18,420,490 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 11,680,397 11,680,397 ---------- ---------- ---------- ---------- TOTAL USES OF CASH $3,442,469 $2,900,235 $23,386,008 $72,878,144 ANNUAL CASH INCREASE/(DECREASE) $0 $1,144,597 $36,627,831 $37,872,428 CUMULATIVE CASH 100,000 1,244,597 37,872,428
202 FALCON CABLE SYSTEMS CO. EXHIBIT B DALLAS REGION - OREGON HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---------- ---------- ---------- ---------- REVENUES $6,671,920 $7,164,985 $7,802,502 $8,481,542 OPERATING EXPENSES 2,709,760 2,923,366 3,170,665 3,439,033 ---------- ---------- ---------- ---------- OPERATING INCOME $3,962,160 $4,241,619 $4,631,838 $5,042,508 OPERATING MARGIN 0.59 0.59 0.59 0.59 PARENT SERVICES/MGT FEE (5%) 333,596 358,249 390,125 424,077 FRANCHISE AMORTIZATION (15) 1,298,800 1,298,800 1,298,800 1,298,800 SUBSCRIBER LIST (8) 402,267 402,267 402,267 402,267 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,254,936 2,634,296 2,869,764 2,667,109 INTEREST 1,661,498 1,790,608 2,026,768 1,922,517 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($988,936) ($2,242,600) ($2,355,886) ($1,672,261) INCOME TAX (EXPENSE)/BENEFIT 336,238 762,484 801,001 568,569 ---------- ---------- ---------- ---------- NET INCOME ($652,698) ($1,480,116) ($1,554,885) ($1,103,693) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($988,936) ($2,242,600) ($2,355,886) ($1,672,261) FRANCHISE AMORTIZATION (15) 1,298,800 1,298,800 1,298,800 1,298,800 SUBSCRIBER LIST (8) 402,267 402,267 402,267 402,267 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,254,936 2,634,296 2,869,764 2,667,109 EQUITY 16,614,975 DEBT 16,614,975 1,291,103 2,361,604 0 RESIDUAL VALUE IN YEAR 7 ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $35,197,017 $3,383,865 $4,576,548 $2,695,914 USES OF CASH - PURCHASE PRICE - CURRENT $34,160,482 CAPITAL EXPENDITURES 936,193 3,384,208 3,534,035 789,812 DEBT RETIREMENT 0 0 1,042,513 1,906,102 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ---------- ---------- ---------- ---------- TOTAL USES OF CASH $35,096,674 $3,384,208 $4,576,548 $2,695,914 ANNUAL CASH INCREASE/(DECREASE) $100,343 ($343) $0 ($0) CUMULATIVE CASH 100,343 100,000 100,000 100,000
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---------- ---------- ---------- ---------- REVENUES $9,145,030 $9,786,141 $10,403,766 $59,455,887 OPERATING EXPENSES 3,706,819 3,973,497 4,242,635 24,165,775 ---------- ---------- ---------- ---------- OPERATING INCOME $5,438,211 $5,812,644 $6,161,131 $35,290,111 OPERATING MARGIN 0.59 0.59 0.59 PARENT SERVICES/MGT FEE (5%) 457,251 489,307 520,188 2,972,794 FRANCHISE AMORTIZATION (15) 1,298,800 1,298,800 1,298,800 9,091,600 SUBSCRIBER LIST (8) 402,267 402,267 402,267 2,815,867 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 2,138,850 1,998,349 1,998,476 15,561,781 INTEREST 1,731,907 1,491,263 1,196,857 11,821,416 ---------- ---------- ---------- ---------- PRE-TAX INCOME ($590,864) $132,658 $744,544 ($6,973,347) INCOME TAX (EXPENSE)/BENEFIT 200,894 (45,104) (253,145) 2,370,938 ---------- ---------- ---------- ---------- NET INCOME ($389,970) $87,554 $491,399 ($4,602,409) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($590,864) $132,658 $744,544 ($6,973,347) FRANCHISE AMORTIZATION (15) 1,298,800 1,298,800 1,298,800 9,091,600 SUBSCRIBER LIST (8) 402,267 402,267 402,267 2,815,867 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 2,138,850 1,998,349 1,998,476 15,561,781 EQUITY 16,614,975 DEBT 0 0 0 20,267,682 RESIDUAL VALUE IN YEAR 7 55,450,179 55,450,179 ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $3,249,053 $3,832,074 $59,894,265 $112,828,737 USES OF CASH - PURCHASE PRICE - CURRENT $34,160,482 CAPITAL EXPENDITURES 842,613 888,014 932,782 11,307,657 DEBT RETIREMENT 2,406,440 2,944,060 11,968,566 20,267,682 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 10,362,500 10,362,500 ---------- ---------- ---------- ---------- TOTAL USES OF CASH $3,249,053 $3,832,074 $23,263,849 $76,098,320 ANNUAL CASH INCREASE/(DECREASE) $0 $0 $36,630,416 $36,730,416 CUMULATIVE CASH 100,000 100,000 36,730,416
203 FALCON CABLE SYSTEMS CO. EXHIBIT C DALLAS REGION - OREGON LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $30,397,431 YEAR 1 DEBT REQUIREMENTS 15,198,715 YEAR 1 EQUITY REQUIREMENTS 15,198,715 FINANCING AVAILABLE $23,816,020 $25,754,042 $27,570,525 $30,106,944 UNUSED LEVERAGE 8,617,304 9,421,573 10,103,684 14,722,038 SENIOR DEBT: 1996 1997 1998 1999 ---------- ----------- ----------- ----------- BEGINNING DEBT $0 $15,198,715 $15,198,715 $14,245,066 DEBT ADDED 15,198,715 0 0 0 TOTAL ANNUAL PAYMENTS 1,519,872 1,519,872 2,473,521 2,473,521 INTEREST 1,519,872 1,519,872 1,519,872 1,424,507 PRINCIPAL REPAYMENT 0 0 953,649 1,049,014 ENDING BALANCE 15,198,715 15,198,715 14,245,066 13,196,052 LINE OF CREDIT: BEGINNING DEBT $0 $0 $1,133,754 $3,221,775 BORROWINGS 0 1,133,754 2,088,021 0 PRINCIPAL PAYMENTS 0 0 0 1,032,921 INTEREST 0 113,375 322,177 322,177 SENIOR DEBT COVERAGE 3.8 3.6 3.1 2.6 LOC DEBT COVERAGE 0.0 0.3 0.7 0.4 TOTAL DEBT COVERAGE 3.8 3.9 3.8 3.1 DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $32,776,305 $35,348,370 $37,782,186 UNUSED LEVERAGE 19,991,255 24,575,541 28,405,596 SENIOR DEBT: 2000 2001 2002 TOTAL ----------- ----------- ----------- ---------- BEGINNING DEBT $13,196,052 $12,042,136 $10,772,828 DEBT ADDED 0 0 0 15,198,715 TOTAL ANNUAL PAYMENTS 2,473,521 2,473,521 2,473,521 15,407,348 INTEREST 1,319,605 1,204,214 1,077,283 9,585,223 PRINCIPAL REPAYMENT 1,153,916 1,269,307 1,396,238 5,822,125 ENDING BALANCE 12,042,136 10,772,828 9,376,590 LINE OF CREDIT: BEGINNING DEBT $2,188,854 $742,914 $0 $0 BORROWINGS 0 0 0 3,221,775 PRINCIPAL PAYMENTS 1,445,940 742,914 0 3,221,775 INTEREST 218,885 74,291 0 1,050,907 SENIOR DEBT COVERAGE 2.2 1.9 1.5 LOC DEBT COVERAGE 0.1 0.0 0.0 TOTAL DEBT COVERAGE 2.4 1.9 1.5
204 FALCON CABLE SYSTEMS CO. EXHIBIT C DALLAS REGION - OREGON HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $33,229,950 YEAR 1 DEBT REQUIREMENTS 16,614,975 YEAR 1 EQUITY REQUIREMENTS 16,614,975 FINANCING AVAILABLE $27,480,023 $29,716,203 $31,812,144 $34,738,782 UNUSED LEVERAGE 10,865,047 11,810,125 12,586,976 17,419,715 SENIOR: 1996 1997 1998 1999 ---------- ----------- ----------- ----------- BEGINNING DEBT $0 $16,614,975 $16,614,975 $15,572,462 DEBT ADDED 16,614,975 0 0 0 TOTAL ANNUAL PAYMENTS 1,661,498 1,661,498 2,704,011 2,704,011 INTEREST 1,661,498 1,661,498 1,661,498 1,557,246 PRINCIPAL REPAYMENT 0 0 1,042,513 1,146,764 ENDING BALANCE 16,614,975 16,614,975 15,572,462 14,425,697 LINE OF CREDIT: BEGINNING DEBT $0 $0 $1,291,103 $3,652,707 BORROWINGS 0 1,291,103 2,361,604 0 PRINCIPAL PAYMENTS 0 0 0 759,338 INTEREST 0 129,110 365,271 365,271 SENIOR DEBT COVERAGE 4.2 3.9 3.4 2.9 LOC DEBT COVERAGE 0.0 0.3 0.8 0.6 TOTAL DEBT COVERAGE 4.2 4.2 4.2 3.4 DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $37,818,813 $40,786,580 $43,594,830 UNUSED LEVERAGE 22,906,186 29,009,909 33,344,502 SENIOR: 2000 2001 2002 TOTAL ----------- ----------- ----------- ----------- BEGINNING DEBT $14,425,697 $13,164,256 $11,776,671 DEBT ADDED 0 0 0 $16,614,975 TOTAL ANNUAL PAYMENTS 2,704,011 2,704,011 2,704,011 16,843,048 INTEREST 1,442,570 1,316,426 1,177,667 10,478,401 PRINCIPAL REPAYMENT 1,261,441 1,387,585 1,526,344 6,364,647 ENDING BALANCE 13,164,256 11,776,671 10,250,328 LINE OF CREDIT: BEGINNING DEBT $2,893,369 $1,748,370 $191,895 $0 BORROWINGS 0 0 0 3,652,707 PRINCIPAL PAYMENTS 1,144,999 1,556,475 191,895 3,652,707 INTEREST 289,337 174,837 19,189 1,343,015 SENIOR DEBT COVERAGE 2.4 2.0 1.7 LOC DEBT COVERAGE 0.3 0.0 0.0 TOTAL DEBT COVERAGE 2.7 2.1 1.7
205 FALCON CABLE SYSTEMS CO. EXHIBIT D DALLAS REGION - OREGON AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---------- ---------- ---------- ---------- REVENUES $6,671,920 $7,164,985 $7,802,502 $8,481,542 OPERATING EXPENSES 2,709,760 2,923,366 3,170,665 3,439,033 ---------- ---------- ---------- ---------- OPERATING INCOME 3,962,160 4,241,619 4,631,838 5,042,508 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 936,193 3,384,208 3,534,035 789,812 ---------- ---------- ---------- ---------- TOTAL CASH FLOW $3,025,968 $857,411 $1,097,802 $4,252,696 NET PRESENT VALUE @ 16.6% $31,009,915 ---------- NET PRESENT VALUE @ 15.1% $33,500,707 ---------- YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---------- ---------- ----------- ----------- REVENUES $9,145,030 $9,786,141 $10,403,766 $59,455,887 OPERATING EXPENSES 3,706,819 3,973,497 4,242,635 24,165,775 OPERATING INCOME 5,438,211 5,812,644 6,161,131 35,290,111 PLUS: RESIDUAL VALUE 55,450,179 55,450,179 LESS: CAPITAL EXPENDITURES 842,613 888,014 932,782 11,307,657 TOTAL CASH FLOW $4,595,598 $4,924,630 $60,678,528 $79,432,634 NET PRESENT VALUE @ 16.6% NET PRESENT VALUE @ 15.1%
206 FALCON CABLE SYSTEMS CO. EXHIBIT E DALLAS REGION - OREGON AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ------ ----- ----- ----- BEGINNING MILES 466.6 MILES ADDED 13.0 13.0 13.5 13.5 CUMULATIVE MILES 479.6 492.6 506.1 519.6 DENSITY OF ADDITIONAL PLANT 37 37 37 37 HOMES PASSED - BEGINNING 23,770 NEW HOMES & EXTENSIONS 475 485 495 504 HOMES PASSED - ENDING 24,245 24,730 25,225 25,729 GROWTH IN HOMES 2.0% 2.0% 2.0% 2.0% BASIC - BEGINNING SUBSCRIBERS 16,928 17,388 17,859 18,343 AVERAGE SUBSCRIBERS 17,158 17,623 18,101 18,558 ENDING SUBSCRIBERS 17,388 17,859 18,343 18,774 PENETRATION 71.7% 72.2% 72.7% 73.0% EXPANDED BASIC - BEGINNING 12,481 12,820 13,168 13,524 AVERAGE SUBSCRIBERS 12,651 12,994 13,346 13,683 ENDING SUBSCRIBERS 12,820 13,168 13,524 13,842 PENETRATION 73.7% 73.7% 73.7% 73.7% NEW PRODUCT TIER #1 - BEGINNING 7,458 7,834 8,493 9,182 AVERAGE SUBSCRIBERS 7,646 8,164 8,838 9,290 ENDING SUBSCRIBERS 7,834 8,493 9,182 9,398 PENETRATION 45.1% 47.6% 50.1% 50.1% NEW PRODUCT TIER #2 - BEGINNING 0 0 536 1,834 AVERAGE SUBSCRIBERS 0 268 1,185 2,325 ENDING SUBSCRIBERS 0 536 1,834 2,816 PENETRATION 0.0% 3.0% 10.0% 15.0% NEW PRODUCT TIER #3 - BEGINNING 0 0 536 1,834 AVERAGE SUBSCRIBERS 0 268 1,185 2,325 ENDING SUBSCRIBERS 0 536 1,834 2,816 PENETRATION 0.0% 3.0% 10.0% 15.0% PAY TV - BEGINNING UNITS 7,380 7,407 7,786 8,180 AVERAGE UNITS 7,393 7,596 7,983 8,276 ENDING UNITS 7,407 7,786 8,180 8,372 PENETRATION 42.6% 43.6% 44.6% 44.6% PAY PER VIEW - BEGINNING UNITS/MO 359 515 833 1,401 AVERAGE UNITS 437 674 1,117 1,716 ENDING UNITS 515 833 1,401 2,031 AVERAGE BUY RATE/MO 6.8% 9.8% 14.8% 19.8% CONVERTER RENTALS - BEG. 7,977 8,368 9,130 9,928 AVERAGE SUBSCRIBERS 8,172 8,749 9,529 10,326 ENDING SUBSCRIBERS 8,368 9,130 9,928 10,724 PENETRATION 48.1% 51.1% 54.1% 57.1% ADDRESSABLE HOMES 6,810 7,604 8,524 9,488 AVERAGE HOMES 7,207 8,064 9,006 9,882 ENDING HOMES 7,604 8,524 9,488 10,275 PENETRATION 43.7% 47.7% 51.7% 54.7% BASIC CHURN RATE 28% 28% 28% 28%
YEAR ENDING DECEMBER 31, 2000 2001 2002 ------ ----- ----- BEGINNING MILES MILES ADDED 14.5 15.0 15.5 CUMULATIVE MILES 534.1 549.1 564.6 DENSITY OF ADDITIONAL PLANT 35 35 35 HOMES PASSED - BEGINNING NEW HOMES & EXTENSIONS 515 525 535 HOMES PASSED - ENDING 26,244 26,769 27,304 GROWTH IN HOMES 2.0% 2.0% 2.0% BASIC - BEGINNING SUBSCRIBERS 18,774 19,215 19,666 AVERAGE SUBSCRIBERS 18,994 19,440 19,897 ENDING SUBSCRIBERS 19,215 19,666 20,128 PENETRATION 73.2% 73.5% 73.7% EXPANDED BASIC - BEGINNING 13,842 14,167 14,500 AVERAGE SUBSCRIBERS 14,004 14,333 14,670 ENDING SUBSCRIBERS 14,167 14,500 14,840 PENETRATION 73.7% 73.7% 73.7% NEW PRODUCT TIER #1 - BEGINNING 9,398 9,618 9,844 AVERAGE SUBSCRIBERS 9,508 9,731 9,960 ENDING SUBSCRIBERS 9,618 9,844 10,075 PENETRATION 50.1% 50.1% 50.1% NEW PRODUCT TIER #2 - BEGINNING 2,816 3,843 3,933 AVERAGE SUBSCRIBERS 3,330 3,888 3,979 ENDING SUBSCRIBERS 3,843 3,933 4,026 PENETRATION 20.0% 20.0% 20.0% NEW PRODUCT TIER #3 - BEGINNING 2,816 3,843 3,933 AVERAGE SUBSCRIBERS 3,330 3,888 3,979 ENDING SUBSCRIBERS 3,843 3,933 4,026 PENETRATION 20.0% 20.0% 20.0% PAY TV - BEGINNING UNITS 8,372 8,569 8,770 AVERAGE UNITS 8,471 8,670 8,873 ENDING UNITS 8,569 8,770 8,976 PENETRATION 44.6% 44.6% 44.6% PAY PER VIEW - BEGINNING UNITS/MO 2,031 2,581 3,171 AVERAGE UNITS 2,306 2,876 3,496 ENDING UNITS 2,581 3,171 3,822 AVERAGE BUY RATE/MO 23.3% 26.8% 30.3% CONVERTER RENTALS - BEG. 10,724 11,553 12,414 AVERAGE SUBSCRIBERS 11,138 11,983 12,710 ENDING SUBSCRIBERS 11,553 12,414 13,007 PENETRATION 60.1% 63.1% 64.6% ADDRESSABLE HOMES 10,275 11,093 11,845 AVERAGE HOMES 10,684 11,469 12,235 ENDING HOMES 11,093 11,845 12,626 PENETRATION 57.7% 60.2% 62.7% BASIC CHURN RATE 28% 28% 28%
207 FALCON CABLE SYSTEMS CO. EXHIBIT F DALLAS REGION - OREGON AS OF DECEMBER 31, 1995 SERVICE RATES - -------------
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------- ------------- BASIC $16.47 $17.15 EXPANDED BASIC $5.94 $6.82 NEW PRODUCT TIER #1 $4.35 $5.47 NEW PRODUCT TIER #2 $4.00 $4.00 NEW PRODUCT TIER #3 $4.00 $4.00 PAY $6.96 $6.96 PAY PER VIEW $9.99 $6.96 CONVERTER RENTALS $0.70 $0.96 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 4% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 15% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 26% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #3 0% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% CONVERTER/REMOTE RENTALS 37% 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 $17.15 $17.67 $18.20 $18.74 $19.31 $19.89 $20.48 EXPANDED BASIC 6.82 7.03 7.24 7.45 7.68 7.91 8.15 NEW PRODUCT TIER #1 5.47 5.63 5.80 5.97 6.15 6.34 6.53 NEW PRODUCT TIER #2 4.00 4.12 4.24 4.37 4.50 4.64 4.78 NEW PRODUCT TIER #3 4.00 4.12 4.24 4.37 4.50 4.64 4.78 PAY 6.96 7.03 7.10 7.17 7.24 7.31 7.39 PAY PER VIEW 9.99 10.29 10.59 10.91 11.24 11.58 11.92 CONVERTERS RENTALS 0.96 0.99 1.02 1.05 1.09 1.12 1.15 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 59.70 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98 29.85
208 FALCON CABLE SYSTEMS CO. EXHIBIT G DALLAS REGION - OREGON AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---------- ---------- ---------- ---------- REVENUES: BASIC $3,531,731 $3,736,395 $3,952,729 $4,174,155 EXPANDED BASIC 1,035,600 1,095,613 1,159,048 1,223,977 NEW PRODUCT TIER #1 501,690 551,725 615,168 666,039 NEW PRODUCT TIER #2 0 13,244 60,345 121,956 NEW PRODUCT TIER #3 0 13,244 60,345 121,956 PAY TV 617,483 640,781 680,140 712,172 PAY PER VIEW 52,349 83,168 142,029 224,763 CONVERTER RENTALS 94,583 104,294 116,999 130,588 INSTALLATIONS 113,515 120,058 126,972 131,273 COMMERCIAL 236,291 243,380 250,681 258,202 ADVERTISING 247,294 309,117 370,941 435,855 MISCELLANEOUS 241,384 253,965 267,105 280,605 ---------- ---------- ---------- ---------- TOTAL REVENUES $6,671,920 $7,164,985 $7,802,502 $8,481,542 OPERATING EXPENSES: OPERATIONS $811,276 $861,632 $919,592 $980,196 GENERAL & ADMINISTRATIVE 505,962 534,237 565,599 598,071 SALES & MARKETING 274,794 333,108 373,741 416,013 PROGRAMMING 1,117,728 1,194,390 1,311,733 1,444,754 ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $2,709,760 $2,923,366 $3,170,665 $3,439,033 ---------- ---------- ---------- ---------- OPERATING INCOME $3,962,160 $4,241,619 $4,631,838 $5,042,508 OPERATING MARGIN 59.4% 59.2% 59.4% 59.5% TOTAL REVENUE/BASIC SUB/MONTH $32.40 $33.88 $35.92 $38.09 CASH FLOW/BASIC SUB/MONTH $19.24 $20.06 $21.32 $22.64 OPERATIONS % OF REVENUE 12% 12% 12% 12% G & A PERCENTAGE OF REVENUE 8% 7% 7% 7% SALES & MARKETING % OF REVENUE 4.1% 4.6% 4.8% 4.9% PROGRAMMING % OF REVENUE 17% 17% 17% 17%
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---------- ---------- ---------- ----------- REVENUES: BASIC $4,400,419 $4,638,892 $4,890,233 $29,324,555 EXPANDED BASIC 1,290,323 1,360,250 1,433,950 8,598,762 NEW PRODUCT TIER #1 702,142 740,194 780,298 4,557,257 NEW PRODUCT TIER #2 179,874 216,352 228,075 819,847 NEW PRODUCT TIER #3 179,874 216,352 228,075 819,847 PAY TV 736,198 761,025 786,680 4,934,480 PAY PER VIEW 311,072 399,558 500,308 1,713,247 CONVERTER RENTALS 145,090 160,778 175,651 927,983 INSTALLATIONS 138,378 145,867 153,759 929,822 COMMERCIAL 265,948 273,926 282,144 1,810,573 ADVERTISING 501,234 563,888 620,277 3,048,605 MISCELLANEOUS 294,478 309,058 324,315 1,970,910 ---------- ---------- ---------- ----------- TOTAL REVENUES $9,145,030 $9,786,141 $10,403,766 $59,455,887 OPERATING EXPENSES: OPERATIONS $1,042,134 $1,105,440 $1,170,189 $6,890,459 GENERAL & ADMINISTRATIVE 630,870 664,596 699,298 4,198,633 SALES & MARKETING 458,855 500,970 540,669 2,898,148 PROGRAMMING 1,574,960 1,702,492 1,832,479 10,178,535 ---------- ---------- ---------- ----------- TOTAL OPERATING EXPENSES $3,706,819 $3,973,497 $4,242,635 $24,165,775 ---------- ---------- ---------- ----------- OPERATING INCOME $5,438,211 $5,812,644 $6,161,131 $35,290,111 OPERATING MARGIN 59.5% 59.4% 59.2% TOTAL REVENUE/BASIC SUB/MONTH $40.12 $41.95 $43.57 CASH FLOW/BASIC SUB/MONTH $23.86 $24.92 $25.80 OPERATIONS % OF REVENUE 11% 11% 11% G & A PERCENTAGE OF REVENUE 7% 7% 7% SALES & MARKETING % OF REVENUE 5.0% 5.1% 5.2% PROGRAMMING % OF REVENUE 17% 17% 18%
209 FALCON CABLE SYSTEMS CO. EXHIBIT H DALLAS REGION - OREGON AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---------- ------- ------- ------- ASSUMPTIONS AND INPUTS: BV OF EXISTING PLANT $7,845,728 ADDITIONAL MILES OF PLANT 13.0 13.0 13.5 13.5 AERIAL PLANT PER MILE $12,000 $12,240 $12,485 $12,734 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 PERCENTAGE OF PLANT AERIAL 5% 5% 5% 5% PERCENTAGE OF PLANT UNDERGROUND 95% 95% 95% 95% AVERAGE COST PER CONVERTER $110 $112 $114 $117 PERCENTAGE CONVERTER USE 48% 51% 54% 57% PERCENTAGE REPLACEMENT 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $55 $56 $57 $58 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 1.02 1.04 1.06 1.08 ANNUAL COSTS: PLANT ADDITIONS - AERIAL $7,800 $7,956 $8,427 $8,596 - 222,300 226,746 240,176 244,980 PLANT REBUILD/UPGRADE/INCL. HDND. 269,075 2,687,225 2,796,500 27,391 AVERAGE COST OF NEW CONVERTERS 24,339 27,040 29,936 28,751 CONVERTER REPLACEMENT 44,805 49,868 55,311 61,155 INSTALLATION COSTS 282,085 295,493 309,524 320,469 MISC. CAPITAL EXPENDITURES 85,789 89,880 94,161 98,470 ---------- ------- ------- ------- TOTAL CAPITAL EXPENDITURES $936,193 $3,384,208 $3,534,035 $789,812 AS A % OF OPERATING INCOME 23.6% 79.8% 76.3% 15.7%
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL -------- ------- ------- ------- ASSUMPTIONS AND INPUTS: BV OF EXISTING PLANT ADDITIONAL MILES OF PLANT 14.5 15.0 15.5 AERIAL PLANT PER MILE $12,989 $13,249 $13,514 UNDERGROUND PLANT PER MILE $19,484 $19,873 $20,271 PERCENTAGE OF PLANT AERIAL 5% 5% 5% PERCENTAGE OF PLANT UNDERGROUND 95% 95% 95% AVERAGE COST PER CONVERTER $119 $121 $124 PERCENTAGE CONVERTER USE 60% 63% 65% PERCENTAGE REPLACEMENT 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $59 $60 $62 MISC. CAPITAL PER SUBSCRIBER $5 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 115% ANNUAL COSTS: PLANT ADDITIONS - AERIAL $9,417 $9,937 $10,473 $62,606 - 268,389 283,197 298,489 1,784,277 PLANT REBUILD/UPGRADE/INCL. HDND. 28,684 30,074 31,537 5,870,486 AVERAGE COST OF NEW CONVERTERS 31,576 34,591 36,951 213,185 CONVERTER REPLACEMENT 67,198 73,652 78,717 430,705 INSTALLATION COSTS 334,549 349,244 364,579 2,255,943 MISC. CAPITAL EXPENDITURES 102,800 107,319 112,035 690,453 -------- -------- -------- ----------- TOTAL CAPITAL EXPENDITURES $842,613 $888,014 $932,782 $11,307,657 AS A % OF OPERATING INCOME 15.5% 15.3% 15.1%
210 FALCON CABLE SYSTEMS CO. EXHIBIT I DALLAS REGION - OREGON AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 YEAR 1 $1,254,936 $2,150,692 $1,535,958 $1,096,862 YEAR 2 483,603 828,792 591,898 YEAR 3 505,014 865,485 YEAR 4 112,864 YEAR 5 YEAR 6 YEAR 7 ---------- ---------- ---------- ---------- TOTAL DEPRECIATION $1,254,936 $2,634,296 $2,869,764 $2,667,109
YEAR 5 YEAR 6 YEAR 7 ------ ------ ------ ESTIMATED DEPRECIATION RATES 8.9% 8.9% 8.9% DEPRECIATION - BEG. & ADTNS. 2000 2001 2002 TOTAL ---------- ---------- ---------- ----------- YEAR 1 $784,226 $783,347 $784,226 $8,390,247 YEAR 2 422,688 302,210 301,871 2,931,062 YEAR 3 618,103 441,401 315,589 2,745,592 YEAR 4 193,425 138,138 98,648 543,075 YEAR 5 120,409 206,356 147,373 474,138 YEAR 6 126,897 217,475 344,372 YEAR 7 133,295 133,295 ---------- ---------- ---------- ----------- TOTAL DEPRECIATION $2,138,850 $1,998,349 $1,998,476 $15,561,781
211 FALCON CABLE SYSTEMS CO. EXHIBIT J DALLAS REGION - OREGON AS OF DECEMBER 31, 1995 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 7 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $7,845,728 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
212 FLORENCE, OR 213 FALCON CABLE SYSTEMS CO. EXHIBIT A FLORENCE REGION - OREGON AS OF DECEMBER 31, 1995
VALUATION METHODS LOW HIGH - ----------------- --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME OPERATING INCOME, PER BOOKS (DECEMBER 31, 1995) $1,059,119 $1,059,119 VALUATION MULTIPLE 10.5 11.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $11,120,750 $12,179,869 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $1,953,529 $1,953,529 OPERATING MARGIN, PER BOOKS (DECEMBER 31, 1995) 54.7% 54.7% ----------- ----------- "RUNNING RATE" OPERATING INCOME 1,068,873 1,068,873 VALUATION MULTIPLE 10.0 11.0 ----------- ----------- ESTIMATED FAIR MARKET VALUE $10,688,733 $11,757,606 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $1,140,159 $1,140,159 VALUATION MULTIPLE 9.5 10.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $10,831,514 $11,971,673 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $9,842,046 $10,835,349 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $9,707,817 $10,612,381 ----------- -----------
SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $11,120,750 $12,179,869 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 10,688,733 11,757,606 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 10,831,514 11,971,673 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 9,842,046 10,835,349 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 9,707,817 10,612,381 ----------- ----------- RANGE OF ESTIMATED FAIR MARKET VALUES $10,191,000 $11,201,000 ESTIMATED FAIR MARKET VALUE $10,696,000 -----------
214 FALCON CABLE SYSTEMS CO. EXHIBIT B FLORENCE REGION - OREGON LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ----------- ---------- ---------- ---------- ---------- REVENUES $2,090,507 $2,274,330 $2,478,712 $2,685,374 $2,885,397 OPERATING EXPENSES 950,348 1,029,443 1,109,804 1,196,081 1,283,845 ----------- ---------- ---------- ---------- ---------- OPERATING INCOME $1,140,159 $1,244,886 $1,368,907 $1,489,294 $1,601,552 OPERATING MARGIN 0.55 0.55 0.55 0.55 0.56 PARENT SERVICES/MGT FEE (5%) 104,525 113,716 123,936 134,269 144,270 FRANCHISE AMORTIZATION (15) 389,667 389,667 389,667 389,667 389,667 SUBSCRIBER LIST (8) 100,000 100,000 100,000 100,000 100,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 413,604 740,096 720,664 708,408 574,033 INTEREST 480,228 480,228 505,782 475,649 416,950 ----------- ---------- ---------- ---------- ---------- PRE-TAX INCOME ($347,865) ($578,821) ($471,140) ($318,700) ($23,367) INCOME TAX (EXPENSE)/BENEFIT 118,274 196,799 160,188 108,358 7,945 ----------- ---------- ---------- ---------- ---------- NET INCOME ($229,591) ($382,022) ($310,953) ($210,342) ($15,423) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($347,865) ($578,821) ($471,140) ($318,700) ($23,367) FRANCHISE AMORTIZATION (15) 389,667 389,667 389,667 389,667 389,667 SUBSCRIBER LIST (8) 100,000 100,000 100,000 100,000 100,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 413,604 740,096 720,664 708,408 574,033 EQUITY 4,802,279 DEBT 4,802,279 0 255,537 0 0 ----------- ---------- ---------- ---------- ---------- RESIDUAL VALUE IN YEAR 9 TOTAL SOURCES OF CASH $10,159,963 $650,942 $994,727 $879,376 $1,040,332 USES OF CASH - PURCHASE PRICE - CURRENT $9,842,046 CAPITAL EXPENDITURES 217,813 218,806 1,125,647 230,670 244,024 DEBT RETIREMENT 0 0 301,321 586,990 364,598 TAXES PAID ON NET INCOME 0 0 0 0 0 ----------- ---------- ---------- ---------- ---------- TAXES PAID ON SALE (RESIDUAL) TOTAL USES OF CASH $10,059,858 $218,806 $1,426,968 $817,660 $608,622 ANNUAL CASH INCREASE/(DECREASE) $100,105 $432,136 ($432,241) $61,716 $431,710 CUMULATIVE CASH 100,105 532,241 100,000 161,716 593,426
RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 TOTAL ---------- ---------- ---------- ---------- ----------- REVENUES $3,079,488 $3,274,528 $3,477,801 $3,693,943 $25,940,081 OPERATING EXPENSES 1,369,253 1,453,545 1,541,214 1,636,280 11,569,814 ---------- ---------- ---------- ---------- ----------- OPERATING INCOME $1,710,235 $1,820,983 $1,936,587 $2,057,663 $14,370,267 OPERATING MARGIN 0.56 0.56 0.56 0.56 PARENT SERVICES/MGT FEE (5%) 153,974 163,726 173,890 184,697 1,297,004 FRANCHISE AMORTIZATION (15) 389,667 389,667 389,667 389,667 3,507,000 SUBSCRIBER LIST (8) 100,000 100,000 100,000 100,000 900,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 554,072 547,168 314,342 322,851 4,895,239 INTEREST 380,491 340,385 296,268 247,740 3,623,722 ---------- ---------- ---------- ---------- ----------- PRE-TAX INCOME $132,031 $280,037 $662,420 $812,708 $147,302 INCOME TAX (EXPENSE)/BENEFIT (44,890) (95,212) (225,223) (276,321) (50,083) ---------- ---------- ---------- ---------- ----------- NET INCOME $87,140 $184,824 $437,197 $536,387 $97,220 SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME $132,031 $280,037 $662,420 $812,708 $147,302 FRANCHISE AMORTIZATION (15) 389,667 389,667 389,667 389,667 3,507,000 SUBSCRIBER LIST (8) 100,000 100,000 100,000 100,000 900,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 554,072 547,168 314,342 322,851 4,895,239 EQUITY 4,802,279 DEBT 0 0 0 0 5,057,815 RESIDUAL VALUE IN YEAR 9 18,518,963 18,518,963 ---------- ---------- ---------- ---------- ----------- TOTAL SOURCES OF CASH $1,175,770 $1,316,872 $1,466,429 $20,144,188 $37,828,599 USES OF CASH - PURCHASE PRICE - CURRENT $9,842,046 CAPITAL EXPENDITURES 249,526 252,380 264,995 278,230 3,082,090 DEBT RETIREMENT 401,058 441,164 485,280 2,477,404 5,057,815 TAXES PAID ON NET INCOME 0 0 0 50,083 50,083 TAXES PAID ON SALE (RESIDUAL) 5,065,003 5,065,003 ---------- ---------- ---------- ---------- ----------- TOTAL USES OF CASH $650,584 $693,544 $750,275 $7,870,720 $23,097,037 ANNUAL CASH INCREASE/(DECREASE) $525,186 $623,328 $716,153 $12,273,468 $14,731,562 CUMULATIVE CASH 1,118,612 1,741,940 2,458,094 14,731,562
215 FALCON CABLE SYSTEMS CO. EXHIBIT B FLORENCE REGION - OREGON HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- REVENUES $2,090,507 $2,274,330 $2,478,712 $2,685,374 $2,885,397 OPERATING EXPENSES 950,348 1,029,443 1,109,804 1,196,081 1,283,845 ----------- ----------- ----------- ----------- ----------- OPERATING INCOME $1,140,159 $1,244,886 $1,368,907 $1,489,294 $1,601,552 OPERATING MARGIN 0.55 0.55 0.55 0.55 0.56 PARENT SERVICES/MGT FEE (5%) 104,525 113,716 123,936 134,269 144,270 FRANCHISE AMORTIZATION (15) 389,667 389,667 389,667 389,667 389,667 SUBSCRIBER LIST (8) 100,000 100,000 100,000 100,000 100,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 413,604 740,096 720,664 708,408 574,033 INTEREST 532,509 532,509 573,322 539,909 481,465 ----------- ----------- ----------- ----------- ----------- PRE-TAX INCOME ($400,145) ($631,102) ($538,681) ($382,959) ($87,882) INCOME TAX (EXPENSE)/BENEFIT 136,049 214,575 183,151 130,206 29,880 ----------- ----------- ----------- ----------- ----------- NET INCOME ($264,096) ($416,527) ($355,529) ($252,753) ($58,002) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($400,145) ($631,102) ($538,681) ($382,959) ($87,882) FRANCHISE AMORTIZATION (15) 389,667 389,667 389,667 389,667 389,667 SUBSCRIBER LIST (8) 100,000 100,000 100,000 100,000 100,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 413,604 740,096 720,664 708,408 574,033 EQUITY 5,325,087 DEBT 5,325,087 0 408,130 0 0 ----------- ----------- ----------- ----------- ----------- RESIDUAL VALUE IN YEAR 9 TOTAL SOURCES OF CASH $11,153,298 $598,661 $1,079,780 $815,116 $975,818 USES OF CASH - PURCHASE PRICE - CURRENT $10,835,349 CAPITAL EXPENDITURES 217,813 218,806 1,125,647 230,670 244,024 DEBT RETIREMENT 0 0 334,125 584,446 595,512 TAXES PAID ON NET INCOME 0 0 0 0 0 ----------- ----------- ----------- ----------- ----------- TAXES PAID ON SALE (RESIDUAL) TOTAL USES OF CASH $11,053,162 $218,806 $1,459,772 $815,116 $839,536 ANNUAL CASH INCREASE/(DECREASE) $100,137 $379,855 ($379,992) ($0) $136,282 CUMULATIVE CASH 100,137 479,992 100,000 100,000 236,282
RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 TOTAL ----------- ----------- ----------- ----------- ----------- REVENUES $3,079,488 $3,274,528 $3,477,801 $3,693,943 $25,940,081 OPERATING EXPENSES 1,369,253 1,453,545 1,541,214 1,636,280 11,569,814 ----------- ----------- ----------- ----------- ----------- OPERATING INCOME $1,710,235 $1,820,983 $1,936,587 $2,057,663 $14,370,267 OPERATING MARGIN 0.56 0.56 0.56 0.56 PARENT SERVICES/MGT FEE (5%) 153,974 163,726 173,890 184,697 1,297,004 FRANCHISE AMORTIZATION (15) 389,667 389,667 389,667 389,667 3,507,000 SUBSCRIBER LIST (8) 100,000 100,000 100,000 100,000 900,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 554,072 547,168 314,342 322,851 4,895,239 INTEREST 421,913 377,441 328,522 274,711 4,062,301 ----------- ----------- ----------- ----------- ----------- PRE-TAX INCOME $90,608 $242,980 $630,166 $785,737 ($291,277) INCOME TAX (EXPENSE)/BENEFIT (30,807) (82,613) (214,256) (267,151) 99,034 ----------- ----------- ----------- ----------- ----------- NET INCOME $59,801 $160,367 $415,910 $518,586 ($192,243) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME $90,608 $242,980 $630,166 $785,737 ($291,277) FRANCHISE AMORTIZATION (15) 389,667 389,667 389,667 389,667 3,507,000 SUBSCRIBER LIST (8) 100,000 100,000 100,000 100,000 900,000 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 554,072 547,168 314,342 322,851 4,895,239 EQUITY 5,325,087 DEBT 0 0 0 0 5,733,217 RESIDUAL VALUE IN YEAR 9 18,518,963 18,518,963 ----------- ----------- ----------- ----------- ----------- TOTAL SOURCES OF CASH $1,134,347 $1,279,815 $1,434,175 $20,117,218 $38,588,228 USES OF CASH - PURCHASE PRICE - CURRENT $10,835,349 CAPITAL EXPENDITURES 249,526 252,380 264,995 278,230 3,082,090 DEBT RETIREMENT 444,720 489,192 538,111 2,747,111 5,733,217 TAXES PAID ON NET INCOME 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 4,628,245 4,628,245 ----------- ----------- ----------- ----------- ----------- TOTAL USES OF CASH $694,246 $741,572 $803,106 $7,653,586 $24,278,901 ANNUAL CASH INCREASE/(DECREASE) $440,101 $538,243 $631,069 $12,463,631 $14,309,327 CUMULATIVE CASH 676,384 1,214,627 1,845,696 14,309,327
216 FALCON CABLE SYSTEMS CO. EXHIBIT C FLORENCE REGION - OREGON LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $9,604,557 YEAR 1 DEBT REQUIREMENTS 4,802,279 YEAR 1 EQUITY REQUIREMENTS 4,802,279 FINANCING AVAILABLE $6,884,274 $7,411,036 $8,091,760 $8,897,899 $9,680,409 UNUSED LEVERAGE 2,081,995 2,608,757 3,335,266 4,728,394 5,875,503 SENIOR DEBT: 1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- BEGINNING DEBT $0 $4,802,279 $4,802,279 $4,500,958 $4,169,505 DEBT ADDED 4,802,279 0 0 0 0 TOTAL ANNUAL PAYMENTS 480,228 480,228 781,549 781,549 781,549 INTEREST 480,228 480,228 480,228 450,096 416,950 PRINCIPAL REPAYMENT 0 0 301,321 331,453 364,598 ENDING BALANCE 4,802,279 4,802,279 4,500,958 4,169,505 3,804,906 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $255,537 $0 BORROWINGS 0 0 255,537 0 0 PRINCIPAL PAYMENTS 0 0 0 255,537 0 INTEREST 0 0 25,554 25,554 0 SENIOR DEBT COVERAGE 4.2 3.9 3.3 2.8 2.4 LOC DEBT COVERAGE 0.0 0.0 0.2 0.0 0.0 TOTAL DEBT COVERAGE 4.2 3.9 3.5 2.8 2.4
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $10,410,091 $11,116,527 $11,836,390 $12,587,817 UNUSED LEVERAGE 7,006,242 8,153,843 9,358,986 10,644,221 SENIOR DEBT: 2001 2002 2003 2004 TOTAL ----------- ----------- ----------- ----------- ----------- BEGINNING DEBT $3,804,906 $3,403,848 $2,962,685 $2,477,404 DEBT ADDED 0 0 0 0 $4,802,279 TOTAL ANNUAL PAYMENTS 781,549 781,549 781,549 781,549 6,431,297 INTEREST 380,491 340,385 296,268 247,740 3,572,614 PRINCIPAL REPAYMENT 401,058 441,164 485,280 533,808 2,858,683 ENDING BALANCE 3,403,848 2,962,685 2,477,404 1,943,596 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 $0 BORROWINGS 0 0 0 0 255,537 PRINCIPAL PAYMENTS 0 0 0 0 255,537 INTEREST 0 0 0 0 51,107 SENIOR DEBT COVERAGE 2.0 1.6 1.3 0.9 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.0 1.6 1.3 0.9
217 FALCON CABLE SYSTEMS CO. EXHIBIT C FLORENCE REGION - OREGON HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $10,650,173 YEAR 1 DEBT REQUIREMENTS 5,325,087 YEAR 1 EQUITY REQUIREMENTS 5,325,087 FINANCING AVAILABLE $7,943,393 $8,551,195 $9,336,646 $10,266,806 $11,169,703 UNUSED LEVERAGE 2,618,306 3,226,109 3,937,554 5,452,160 6,950,569 SENIOR: 1996 1997 1998 1999 2000 ----------- ----------- ---------- ----------- ----------- BEGINNING DEBT $0 $5,325,087 $5,325,087 $4,990,962 $4,623,425 DEBT ADDED 5,325,087 0 0 0 0 TOTAL ANNUAL PAYMENTS 532,509 532,509 866,633 866,633 866,633 INTEREST 532,509 532,509 532,509 499,096 462,342 PRINCIPAL REPAYMENT 0 0 334,125 367,537 404,291 ENDING BALANCE 5,325,087 5,325,087 4,990,962 4,623,425 4,219,134 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $408,130 $191,221 BORROWINGS 0 0 408,130 0 0 PRINCIPAL PAYMENTS 0 0 0 216,909 191,221 INTEREST 0 0 40,813 40,813 19,122 SENIOR DEBT COVERAGE 4.7 4.3 3.6 3.1 2.6 LOC DEBT COVERAGE 0.0 0.0 0.3 0.1 0.0 TOTAL DEBT COVERAGE 4.7 4.3 3.9 3.2 2.6
RETURN ON EQUITY METHOD
DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $12,011,643 $12,826,762 $13,657,373 $14,524,404 UNUSED LEVERAGE 8,237,229 9,541,540 10,910,262 12,369,215 SENIOR: 2001 2002 2003 2004 TOTAL ----------- ----------- ----------- ----------- ----------- BEGINNING DEBT $4,219,134 $3,774,414 $3,285,222 $2,747,111 DEBT ADDED 0 0 0 0 $5,325,087 TOTAL ANNUAL PAYMENTS 866,633 866,633 866,633 866,633 7,131,450 INTEREST 421,913 377,441 328,522 274,711 3,961,553 PRINCIPAL REPAYMENT 444,720 489,192 538,111 591,922 3,169,898 ENDING BALANCE 3,774,414 3,285,222 2,747,111 2,155,189 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 $0 BORROWINGS 0 0 0 0 408,130 PRINCIPAL PAYMENTS 0 0 0 0 408,130 INTEREST 0 0 0 0 100,748 SENIOR DEBT COVERAGE 2.2 1.8 1.4 1.0 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.2 1.8 1.4 1.0
218 FALCON CABLE SYSTEMS CO. EXHIBIT D FLORENCE REGION - OREGON AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- REVENUES $2,090,507 $2,274,330 $2,478,712 $2,685,374 $2,885,397 OPERATING EXPENSES 950,348 1,029,443 1,109,804 1,196,081 1,283,845 ----------- ----------- ----------- ----------- ----------- OPERATING INCOME $1,140,159 $1,244,886 $1,368,907 $1,489,294 $1,601,552 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 217,813 218,806 1,125,647 230,670 244,024 ----------- ----------- ----------- ----------- ----------- TOTAL CASH FLOW $922,347 $1,026,080 $243,260 $1,258,624 $1,357,529 NET PRESENT VALUE @ 16.6% $9,707,817 ----------- NET PRESENT VALUE @ 15.1% $10,612,381 -----------
RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 TOTAL REVENUES $3,079,488 $3,274,528 $3,477,801 $3,693,943 $25,940,081 OPERATING EXPENSES 1,369,253 1,453,545 1,541,214 1,636,280 11,569,814 ----------- ----------- ----------- ----------- ----------- OPERATING INCOME $1,710,235 $1,820,983 $1,936,587 $2,057,663 $14,370,267 PLUS: RESIDUAL VALUE 18,518,963 18,518,963 LESS: CAPITAL EXPENDITURES 249,526 252,380 264,995 278,230 3,082,090 ----------- ----------- ----------- ----------- ----------- TOTAL CASH FLOW $1,460,709 $1,568,603 $1,671,592 $20,298,396 $29,807,140 NET PRESENT VALUE @ 16.6% NET PRESENT VALUE @ 15.1%
219 FALCON CABLE SYSTEMS CO. EXHIBIT E FLORENCE REGION - OREGON AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS - -----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ----- ----- ----- ----- ----- BEGINNING MILES 136.3 MILES ADDED 4.8 4.3 3.8 3.9 4.0 CUMULATIVE MILES 141.1 145.4 149.2 153.1 157.1 DENSITY OF ADDITIONAL PLANT 57 56 55 55 55 HOMES PASSED - BEGINNING 7,826 NEW HOMES & EXTENSIONS 274 243 209 214 219 HOMES PASSED - ENDING 8,100 8,343 8,551 8,765 8,984 GROWTH IN HOMES 3.5% 3.0% 2.5% 2.5% 2.5% BASIC - BEGINNING SUBSCRIBERS 3,947 4,126 4,291 4,441 4,596 AVERAGE SUBSCRIBERS 4,036 4,208 4,366 4,519 4,676 ENDING SUBSCRIBERS 4,126 4,291 4,441 4,596 4,756 PENETRATION 50.9% 51.4% 51.9% 52.4% 52.9% EXPANDED BASIC - BEGINNING 3,706 3,874 4,029 4,170 4,315 AVERAGE SUBSCRIBERS 3,790 3,951 4,100 4,243 4,390 ENDING SUBSCRIBERS 3,874 4,029 4,170 4,315 4,465 PENETRATION 93.9% 93.9% 93.9% 93.9% 93.9% NEW PRODUCT TIER #1 - BEGINNING 1,344 1,435 1,775 2,087 2,160 AVERAGE SUBSCRIBERS 1,390 1,605 1,931 2,124 2,197 ENDING SUBSCRIBERS 1,435 1,775 2,087 2,160 2,235 PENETRATION 37.1% 44.1% 50.1% 50.1% 50.1% NEW PRODUCT TIER #2 - BEGINNING 308 611 1,064 1,546 1,760 AVERAGE SUBSCRIBERS 459 838 1,305 1,653 1,791 ENDING SUBSCRIBERS 611 1,064 1,546 1,760 1,822 PENETRATION 14.8% 24.8% 34.8% 38.3% 38.3% PAY TV - BEGINNING UNITS 1,053 1,059 1,145 1,229 1,318 AVERAGE UNITS 1,056 1,102 1,187 1,274 1,341 ENDING UNITS 1,059 1,145 1,229 1,318 1,364 PENETRATION 25.7% 26.7% 27.7% 28.7% 28.7% PAY PER VIEW - BEGINNING UNITS/MO 300 342 411 538 688 AVERAGE UNITS 321 376 474 613 755 ENDING UNITS 342 411 538 688 823 AVERAGE BUY RATE/MO 23.0% 24.5% 27.5% 30.5% 32.0% CONVERTER RENTALS - BEGINNING 1,910 2,058 2,205 2,416 2,638 AVERAGE SUBSCRIBERS 1,984 2,132 2,310 2,527 2,755 ENDING SUBSCRIBERS 2,058 2,205 2,416 2,638 2,872 PENETRATION 49.9% 51.4% 54.4% 57.4% 60.4% ADDRESSABLE HOMES - BEGINNING 1,366 1,490 1,678 1,959 2,257 AVERAGE HOMES 1,428 1,584 1,819 2,108 2,415 ENDING HOMES 1,490 1,678 1,959 2,257 2,573 PENETRATION 36.1% 39.1% 44.1% 49.1% 54.1% BASIC CHURN RATE 35% 35% 35% 35% 35% YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 ----- ----- ----- ----- BEGINNING MILES MILES ADDED 3.8 3.4 3.5 3.6 CUMULATIVE MILES 160.9 164.4 167.9 171.4 DENSITY OF ADDITIONAL PLANT 53 53 53 53 HOMES PASSED - BEGINNING NEW HOMES & EXTENSIONS 202 184 187 191 HOMES PASSED - ENDING 9,187 9,370 9,558 9,749 GROWTH IN HOMES 2.3% 2.0% 2.0% 2.0% BASIC - BEGINNING SUBSCRIBERS 4,756 4,909 5,054 5,203 AVERAGE SUBSCRIBERS 4,832 4,981 5,128 5,279 ENDING SUBSCRIBERS 4,909 5,054 5,203 5,355 PENETRATION 53.4% 53.9% 54.4% 54.9% EXPANDED BASIC - BEGINNING 4,465 4,609 4,745 4,885 AVERAGE SUBSCRIBERS 4,537 4,677 4,815 4,957 ENDING SUBSCRIBERS 4,609 4,745 4,885 5,028 PENETRATION 93.9% 93.9% 93.9% 93.9% NEW PRODUCT TIER #1 - BEGINNING 2,235 2,307 2,375 2,445 AVERAGE SUBSCRIBERS 2,271 2,341 2,410 2,481 ENDING SUBSCRIBERS 2,307 2,375 2,445 2,517 PENETRATION 50.1% 50.1% 50.1% 50.1% NEW PRODUCT TIER #2 - BEGINNING 1,822 1,880 1,936 1,993 AVERAGE SUBSCRIBERS 1,851 1,908 1,964 2,022 ENDING SUBSCRIBERS 1,880 1,936 1,993 2,051 PENETRATION 38.3% 38.3% 38.3% 38.3% PAY TV - BEGINNING UNITS 1,364 1,408 1,449 1,492 AVERAGE UNITS 1,386 1,429 1,471 1,514 ENDING UNITS 1,408 1,449 1,492 1,536 PENETRATION 28.7% 28.7% 28.7% 28.7% PAY PER VIEW - BEGINNING UNITS/MO 823 924 1,006 1,094 AVERAGE UNITS 873 965 1,050 1,140 ENDING UNITS 924 1,006 1,094 1,187 AVERAGE BUY RATE/MO 33.0% 34.0% 35.0% 36.0% CONVERTER RENTALS - BEGINNING 2,872 3,038 3,204 3,376 AVERAGE SUBSCRIBERS 2,955 3,121 3,290 3,466 ENDING SUBSCRIBERS 3,038 3,204 3,376 3,556 PENETRATION 61.9% 63.4% 64.9% 66.4% ADDRESSABLE HOMES - BEGINNING 2,573 2,803 2,962 3,127 AVERAGE HOMES 2,688 2,883 3,045 3,213 ENDING HOMES 2,803 2,962 3,127 3,299 PENETRATION 57.1% 58.6% 60.1% 61.6% BASIC CHURN RATE 35% 35% 35% 35%
220 FALCON CABLE SYSTEMS CO. EXHIBIT F FLORENCE REGION - OREGON AS OF DECEMBER 31, 1995
SERVICE RATES - ------------- RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - -------------- ------------- --------------- BASIC $23.40 $24.91 EXPANDED BASIC $3.79 $4.24 NEW PRODUCT TIER #1 $3.20 $3.50 NEW PRODUCT TIER #2 $4.50 $4.50 PAY $8.00 $8.00 PAY PER VIEW $7.77 $7.77 CONVERTER RENTALS $3.92 $3.66 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 2003 2004 ------ ------ ------ ------ ------ ------ ------ ------ ------ PERCENTAGE RATE INCREASES - ------------------------- BASIC 6% 3% 3% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 12% 3% 3% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 9% 3% 3% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% 3% 3% CONVERTER/REMOTE RENTALS -7% 3% 3% 3% 3% 3% 3% 3% 3% INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% 3% 3% 3% INSTALLATIONS-CHURN 0% 3% 3% 3% 3% 3% 3% 3% 3% AVERAGE RATES - ------------- BASIC $24.91 $25.65 $26.42 $27.22 $28.03 $28.87 $29.74 $30.63 $31.55 EXPANDED BASIC 4.24 4.36 4.49 4.63 4.77 4.91 5.06 5.21 5.37 NEW PRODUCT TIER #1 3.50 3.61 3.71 3.83 3.94 4.06 4.18 4.31 4.43 NEW PRODUCT TIER #2 4.50 4.64 4.77 4.92 5.06 5.22 5.37 5.53 5.70 PAY 8.00 8.08 8.16 8.25 8.33 8.41 8.50 8.58 8.67 PAY PER VIEW 7.77 8.01 8.25 8.49 8.75 9.01 9.28 9.56 9.85 CONVERTER RENTALS 3.66 3.77 3.88 4.00 4.12 4.24 4.37 4.50 4.63 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 59.70 61.49 63.34 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98 29.85 30.75 31.67
221 FALCON CABLE SYSTEMS CO. EXHIBIT G FLORENCE REGION - OREGON AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- REVENUES: BASIC $1,206,428 $1,295,592 $1,384,485 $1,475,809 $1,573,014 EXPANDED BASIC 192,675 206,915 221,112 235,697 251,222 NEW PRODUCT TIER #1 58,381 69,454 86,065 97,485 103,905 NEW PRODUCT TIER #2 24,806 46,584 74,762 97,542 108,855 PAY TV 101,436 106,903 116,292 126,027 134,016 PAY PER VIEW 29,951 36,159 46,937 62,463 79,272 CONVERTER RENTALS 87,080 96,365 107,574 121,170 136,080 INSTALLATIONS 35,142 36,883 38,495 41,016 43,698 COMMERCIAL 130,053 133,955 137,973 142,112 146,376 ADVERTISING 131,002 147,378 162,115 178,327 196,159 MISCELLANEOUS 93,554 98,141 102,902 107,726 112,801 ----------- ----------- ----------- ----------- ----------- TOTAL REVENUES $2,090,507 $2,274,330 $2,478,712 $2,685,374 $2,885,397 OPERATING EXPENSES: OPERATIONS $360,049 $385,710 $412,326 $439,808 $467,879 GENERAL & ADMINISTRATIVE 183,167 194,126 205,312 216,778 228,727 SALES & MARKETING 106,693 123,141 134,102 147,380 161,926 PROGRAMMING 300,438 326,466 358,065 392,114 425,313 ----------- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES $950,348 $1,029,443 $1,109,804 $1,196,081 $1,283,845 OPERATING INCOME $1,140,159 $1,244,886 $1,368,907 $1,489,294 $1,601,552 OPERATING MARGIN 54.5% 54.7% 55.2% 55.5% 55.5% TOTAL REVENUE/BASIC SUB/MONTH $43.16 $45.04 $47.31 $49.52 $51.42 CASH FLOW/BASIC SUB/MONTH $23.54 $24.65 $26.13 $27.47 $28.54 OPERATIONS % OF REVENUE 17% 17% 17% 16% 16% G & A PERCENTAGE OF REVENUE 9% 9% 8% 8% 8% SALES & MARKETING % OF REVENUE 5% 5% 5% 5% 6% PROGRAMMING % OF REVENUE 14% 14% 14% 15% 15% YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 TOTAL ----------- ----------- ----------- ----------- ----------- REVENUES: BASIC $1,674,390 $1,777,793 $1,885,144 $1,998,807 $14,271,461 EXPANDED BASIC 267,412 283,926 301,071 319,224 2,279,256 NEW PRODUCT TIER #1 110,602 117,432 124,523 132,031 899,878 NEW PRODUCT TIER #2 115,870 123,026 130,455 138,320 860,221 PAY TV 139,883 145,637 151,433 157,446 1,179,072 PAY PER VIEW 94,437 107,487 120,423 134,706 711,835 CONVERTER RENTALS 150,348 163,546 177,573 192,682 1,232,419 INSTALLATIONS 45,947 48,182 51,069 54,126 394,557 COMMERCIAL 150,767 155,290 159,949 164,747 1,321,222 ADVERTISING 211,852 228,800 247,104 266,873 1,769,611 MISCELLANEOUS 117,980 123,409 129,056 134,980 1,020,549 ----------- ----------- ----------- ----------- ----------- TOTAL REVENUES $3,079,488 $3,274,528 $3,477,801 $3,693,943 $25,940,081 OPERATING EXPENSES: OPERATIONS $496,050 $524,412 $554,051 $585,380 $4,225,666 GENERAL & ADMINISTRATIVE 241,027 253,568 266,576 280,291 2,069,571 SALES & MARKETING 175,606 188,555 202,409 219,185 1,458,997 PROGRAMMING 456,571 487,010 518,177 551,424 3,815,579 ----------- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES $1,369,253 $1,453,545 $1,541,214 $1,636,280 $11,569,814 OPERATING INCOME $1,710,235 $1,820,983 $1,936,587 $2,057,663 $14,370,267 OPERATING MARGIN 55.5% 55.6% 55.7% 55.7% TOTAL REVENUE/BASIC SUB/MONTH $53.11 $54.78 $56.51 $58.31 CASH FLOW/BASIC SUB/MONTH $29.49 $30.46 $31.47 $32.48 OPERATIONS % OF REVENUE 16% 16% 16% 16% G & A PERCENTAGE OF REVENUE 8% 8% 8% 8% SALES & MARKETING % OF REVENUE 6% 6% 6% 6% PROGRAMMING % OF REVENUE 15% 15% 15% 15%
222 FALCON CABLE SYSTEMS CO. EXHIBIT H FLORENCE REGION - OREGON AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT $2,676,547 ADDITIONAL MILES OF PLANT 4.8 4.3 3.8 3.9 4.0 AERIAL PLANT PER MILE $12,000 $12,240 $12,485 $12,734 $12,989 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 $19,484 PERCENTAGE OF PLANT AERIAL 10% 10% 10% 10% 10% PERCENTAGE OF PLANT UNDERGROUND 90% 90% 90% 90% 90% AVERAGE COST PER CONVERTER $110 $112 $114 $117 $119 PERCENTAGE CONVERTER USE 50% 51% 54% 57% 60% PERCENTAGE REPLACEMENT 5% 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $56 $57 $59 $60 $61 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 2% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $5,724 $5,309 $4,762 $4,978 $5,205 - UNDERGROUND 77,276 71,674 64,282 67,206 70,264 PLANT REBUILD/UPGRADE/INCL. HDND. 6,951 7,338 915,325 8,076 8,453 AVERAGE COST OF NEW CONVERTERS 9,804 9,542 9,339 10,374 11,492 CONVERTER REPLACEMENT 10,831 11,894 13,356 14,877 16,524 INSTALLATION COSTS 87,045 91,585 95,871 101,183 106,779 MISC. CAPITAL EXPENDITURES 20,182 21,463 22,713 23,976 25,307 ----------- ----------- ----------- ----------- ----------- TOTAL CAPITAL EXPENDITURES $217,813 $218,806 $1,125,647 $230,670 $244,024 AS A % OF OPERATING INCOME 19.1% 17.6% 82.2% 15.5% 15.2% YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 TOTAL ----------- ----------- ----------- ----------- ----------- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT ADDITIONAL MILES OF PLANT 3.8 3.4 3.5 3.6 AERIAL PLANT PER MILE $13,249 $13,514 $13,784 $14,060 UNDERGROUND PLANT PER MILE $19,873 $20,271 $20,676 $21,090 PERCENTAGE OF PLANT AERIAL 10% 10% 10% 10% PERCENTAGE OF PLANT UNDERGROUND 90% 90% 90% 90% AVERAGE COST PER CONVERTER $121 $124 $126 $129 PERCENTAGE CONVERTER USE 62% 63% 65% 66% PERCENTAGE REPLACEMENT 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $62 $63 $65 $66 MISC. CAPITAL PER SUBSCRIBER $6 $6 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 120% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $5,014 $4,648 $4,836 $5,032 $45,508 - UNDERGROUND 67,689 62,752 65,288 67,925 614,358 PLANT REBUILD/UPGRADE/INCL. HDND. 8,848 9,242 9,628 10,030 983,890 AVERAGE COST OF NEW CONVERTERS 11,496 11,389 12,206 13,074 98,717 CONVERTER REPLACEMENT 17,874 19,274 20,719 22,259 147,607 INSTALLATION COSTS 111,929 117,026 122,864 128,983 963,265 MISC. CAPITAL EXPENDITURES 26,676 28,049 29,454 30,926 228,745 ----------- ----------- ----------- ----------- ----------- TOTAL CAPITAL EXPENDITURES $249,526 $252,380 $264,995 $278,230 $3,082,090 AS A % OF OPERATING INCOME 14.6% 13.9% 13.7% 13.5%
223 FALCON CABLE SYSTEMS CO. EXHIBIT I FLORENCE REGION - OREGON AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ----------- ----------- ----------- ----------- ----------- ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- YEAR 1 $413,604 $708,829 $506,223 $361,506 $258,466 YEAR 2 31,267 53,586 38,269 27,329 YEAR 3 160,855 275,671 196,876 YEAR 4 32,963 56,491 YEAR 5 34,871 YEAR 6 YEAR 7 YEAR 8 YEAR 9 -------- -------- -------- -------- -------- TOTAL DEPRECIATION $413,604 $740,096 $720,664 $708,408 $574,033 YEAR 6 YEAR 7 YEAR 8 ----------- ----------- ----------- ESTIMATED DEPRECIATION RATES 8.9% 8.9% 4.5% DEPRECIATION - BEG. & ADTNS. 2001 2002 2003 2004 TOTAL ----------- ----------- ----------- ----------- ----------- YEAR 1 $258,177 $258,466 $2,765,271 YEAR 2 19,539 19,518 19,539 209,047 YEAR 3 140,593 100,520 100,408 100,520 1,075,443 YEAR 4 40,344 28,811 20,599 20,576 199,783 YEAR 5 59,761 42,680 30,479 21,791 189,582 YEAR 6 35,657 61,109 43,642 31,166 171,574 YEAR 7 36,065 61,808 44,141 142,014 YEAR 8 37,868 64,897 102,765 YEAR 9 39,759 39,759 ----------- ----------- ----------- ----------- ----------- TOTAL DEPRECIATION $554,072 $547,168 $314,342 $322,851 $4,895,239
224 FALCON CABLE SYSTEMS CO. EXHIBIT J FLORENCE REGION - OREGON AS OF DECEMBER 31, 1995
ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 9 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $2,676,547 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS ----------- ----------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
225 APPENDIX B ALLOCATION OF SYSTEM FAIR MARKET VALUE TO EXCHANGE AND SALES CLUSTERS FOR COOS BAY, DALLAS, AND FLORENCE 226 COOS BAY - SALE 227 FALCON CABLE SYSTEMS CO. EXHIBIT A COOS BAY REGION - SALE AS OF DECEMBER 31, 1995 VALUATION METHODS - -----------------
LOW HIGH --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME ADJUSTED OPERATING INCOME, PER BOOKS (DECEMBER 31, 1995) $2,825,070 $2,825,070 VALUATION MULTIPLE 10.5 11.5 ---- ---- ESTIMATED FAIR MARKET VALUE $29,663,239 $32,488,309 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $5,624,448 $5,624,448 OPERATING MARGIN, PER BOOKS (DECEMBER 31, 1995) 54.4% 54.4% ----- ----- "RUNNING RATE" OPERATING INCOME 3,057,310 3,057,310 VALUATION MULTIPLE 10.0 11.0 ---- ---- ESTIMATED FAIR MARKET VALUE $30,573,102 $33,630,412 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $3,198,621 $3,198,621 VALUATION MULTIPLE 9.5 10.5 ---- ---- ESTIMATED FAIR MARKET VALUE $30,386,896 $33,585,517 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $24,325,213 $26,176,650 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $24,087,871 $25,882,068 ----------- ----------- SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $29,663,239 $32,488,309 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 30,573,102 33,630,412 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 30,386,896 33,585,517 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 24,325,213 26,176,650 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 24,087,871 25,882,068 ---------- ---------- RANGE OF ESTIMATED FAIR MARKET VALUES $26,670,000 $29,004,000 ESTIMATED FAIR MARKET VALUE $27,837,000 -----------
228 FALCON CABLE SYSTEMS CO. EXHIBIT B COOS BAY REGION - SALE LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $5,884,413 $6,177,231 $6,523,907 $6,899,841 OPERATING EXPENSES 2,685,792 2,861,645 3,018,664 3,173,709 --------- --------- --------- --------- OPERATING INCOME $3,198,621 $3,315,586 $3,505,243 $3,726,132 OPERATING MARGIN 0.54 0.54 0.54 0.54 PARENT SERVICES/MGT FEE (5%) 294,221 308,862 326,195 344,992 FRANCHISE AMORTIZATION (15) 1,155,600 1,155,600 1,155,600 1,155,600 SUBSCRIBER LIST (8) 297,333 297,333 297,333 297,333 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 693,989 1,243,896 1,226,319 1,413,092 INTEREST 1,152,115 1,152,115 1,152,115 1,079,825 --------- --------- --------- --------- PRE-TAX INCOME ($394,637) ($842,219) ($652,320) ($564,710) INCOME TAX (EXPENSE)/BENEFIT 134,177 286,355 221,789 192,001 --------- --------- --------- --------- NET INCOME ($260,461) ($555,865) ($430,531) ($372,709) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($394,637) ($842,219) ($652,320) ($564,710) FRANCHISE AMORTIZATION (15) 1,155,600 1,155,600 1,155,600 1,155,600 SUBSCRIBER LIST (8) 297,333 297,333 297,333 297,333 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 693,989 1,243,896 1,226,319 1,413,092 EQUITY 11,521,150 DEBT 11,521,150 0 0 0 RESIDUAL VALUE IN YEAR 7 --------- --------- --------- --------- TOTAL SOURCES OF CASH $24,794,586 $1,854,609 $2,026,933 $2,301,315 USES OF CASH - PURCHASE PRICE - CURRENT $24,325,213 CAPITAL EXPENDITURES 369,108 381,716 1,983,494 1,777,461 DEBT RETIREMENT 0 0 722,899 795,189 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) --------- --------- --------- --------- TOTAL USES OF CASH $24,694,321 $381,716 $2,706,394 $2,572,650 ANNUAL CASH INCREASE/(DECREASE) $100,265 $1,472,894 ($679,461) ($271,335) CUMULATIVE CASH 100,265 1,573,159 893,698 622,363 YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $7,257,273 $7,565,069 $7,864,354 $48,172,089 OPERATING EXPENSES 3,322,942 3,460,424 3,596,527 22,119,703 --------- --------- --------- ---------- OPERATING INCOME $3,934,331 $4,104,646 $4,267,827 $26,052,386 OPERATING MARGIN 0.54 0.54 0.54 PARENT SERVICES/MGT FEE (5%) 362,864 378,253 393,218 2,408,604 FRANCHISE AMORTIZATION (15) 1,155,600 1,155,600 1,155,600 8,089,200 SUBSCRIBER LIST (8) 297,333 297,333 297,333 2,081,333 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,324,827 1,193,767 1,114,174 8,210,064 INTEREST 1,000,306 912,835 816,618 7,265,929 --------- --------- --------- --------- PRE-TAX INCOME ($206,599) $166,856 $490,885 ($2,002,745) INCOME TAX (EXPENSE)/BENEFIT 70,244 (56,731) (166,901) 680,933 ------ ------- -------- ------- NET INCOME ($136,355) $110,125 $323,984 ($1,321,812) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($206,599) $166,856 $490,885 ($2,002,745) FRANCHISE AMORTIZATION (15) 1,155,600 1,155,600 1,155,600 8,089,200 SUBSCRIBER LIST (8) 297,333 297,333 297,333 2,081,333 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,324,827 1,193,767 1,114,174 8,210,064 EQUITY 11,521,150 DEBT 0 0 0 11,521,150 RESIDUAL VALUE IN YEAR 7 38,410,446 38,410,446 --------- --------- ---------- ---------- TOTAL SOURCES OF CASH $2,571,162 $2,813,557 $41,468,438 $77,830,599 USES OF CASH - PURCHASE PRICE - CURRENT $24,325,213 CAPITAL EXPENDITURES 428,657 440,091 451,794 5,832,321 DEBT RETIREMENT 874,708 962,179 8,166,176 11,521,150 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 8,374,460 8,374,460 --------- --------- --------- --------- TOTAL USES OF CASH $1,303,365 $1,402,270 $16,992,429 $50,053,144 ANNUAL CASH INCREASE/(DECREASE) $1,267,797 $1,411,287 $24,476,009 $27,777,455 CUMULATIVE CASH 1,890,159 3,301,446 27,777,455
229 FALCON CABLE SYSTEMS CO. EXHIBIT B COOS BAY REGION - SALE HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $5,884,413 $6,177,231 $6,523,907 $6,899,841 OPERATING EXPENSES 2,685,792 2,861,645 3,018,664 3,173,709 --------- --------- --------- --------- OPERATING INCOME $3,198,621 $3,315,586 $3,505,243 $3,726,132 OPERATING MARGIN 0.54 0.54 0.54 0.54 PARENT SERVICES/MGT FEE (5%) 294,221 308,862 326,195 344,992 FRANCHISE AMORTIZATION (15) 1,155,600 1,155,600 1,155,600 1,155,600 SUBSCRIBER LIST (8) 297,333 297,333 297,333 297,333 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 693,989 1,243,896 1,226,319 1,413,092 INTEREST 1,249,555 1,249,555 1,249,555 1,171,152 --------- --------- --------- --------- PRE-TAX INCOME ($492,078) ($939,660) ($749,760) ($656,037) INCOME TAX (EXPENSE)/BENEFIT 167,306 319,484 254,919 223,052 ------- ------- ------- ------- NET INCOME ($324,771) ($620,176) ($494,842) ($432,984) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($492,078) ($939,660) ($749,760) ($656,037) FRANCHISE AMORTIZATION (15) 1,155,600 1,155,600 1,155,600 1,155,600 SUBSCRIBER LIST (8) 297,333 297,333 297,333 297,333 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 693,989 1,243,896 1,226,319 1,413,092 EQUITY 12,495,555 DEBT 12,495,555 0 0 0 RESIDUAL VALUE IN YEAR 7 --------- --------- --------- --------- TOTAL SOURCES OF CASH $26,645,954 $1,757,169 $1,929,492 $2,209,988 USES OF CASH - PURCHASE PRICE - CURRENT $26,176,650 CAPITAL EXPENDITURES 369,108 381,716 1,983,494 1,777,461 DEBT RETIREMENT 0 0 784,039 862,442 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) --------- --------- --------- --------- TOTAL USES OF CASH $26,545,759 $381,716 $2,767,533 $2,639,903 ANNUAL CASH INCREASE/(DECREASE) $100,196 $1,375,453 ($838,041) ($429,915) CUMULATIVE CASH 100,196 1,475,649 637,608 207,693 YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $7,257,273 $7,565,069 $7,864,354 $48,172,089 OPERATING EXPENSES 3,322,942 3,460,424 3,596,527 22,119,703 --------- --------- --------- ---------- OPERATING INCOME $3,934,331 $4,104,646 $4,267,827 $26,052,386 OPERATING MARGIN 0.54 0.54 0.54 PARENT SERVICES/MGT FEE (5%) 362,864 378,253 393,218 2,408,604 FRANCHISE AMORTIZATION (15) 1,155,600 1,155,600 1,155,600 8,089,200 SUBSCRIBER LIST (8) 297,333 297,333 297,333 2,081,333 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,324,827 1,193,767 1,114,174 8,210,064 INTEREST 1,084,907 990,039 885,683 7,880,447 --------- ------- ------- --------- PRE-TAX INCOME ($291,200) $89,653 $421,819 ($2,617,263) INCOME TAX (EXPENSE)/BENEFIT 99,008 (30,482) (143,418) 889,869 ------ ------- -------- ------- NET INCOME ($192,192) $59,171 $278,401 ($1,727,394) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($291,200) $89,653 $421,819 ($2,617,263) FRANCHISE AMORTIZATION (15) 1,155,600 1,155,600 1,155,600 8,089,200 SUBSCRIBER LIST (8) 297,333 297,333 297,333 2,081,333 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,324,827 1,193,767 1,114,174 8,210,064 EQUITY 12,495,555 DEBT 0 0 0 12,495,555 RESIDUAL VALUE IN YEAR 7 38,410,446 38,410,446 --------- --------- ---------- ---------- TOTAL SOURCES OF CASH $2,486,560 $2,736,353 $41,399,373 $79,164,890 USES OF CASH - PURCHASE PRICE - CURRENT $26,176,650 CAPITAL EXPENDITURES 428,657 440,091 451,794 5,832,321 DEBT RETIREMENT 948,687 1,043,555 8,856,832 12,495,555 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 7,536,035 7,536,035 --------- --------- --------- --------- TOTAL USES OF CASH $1,377,344 $1,483,646 $16,844,661 $52,040,562 ANNUAL CASH INCREASE/(DECREASE) $1,109,217 $1,252,707 $24,554,712 $27,124,329 CUMULATIVE CASH 1,316,910 2,569,617 27,124,329
230 FALCON CABLE SYSTEMS CO. EXHIBIT C COOS BAY REGION - SALE LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $23,042,301 YEAR 1 DEBT REQUIREMENTS 11,521,150 YEAR 1 EQUITY REQUIREMENTS 11,521,150 FINANCING AVAILABLE $18,362,957 $20,791,034 $21,551,309 $22,784,080 UNUSED LEVERAGE 6,841,807 9,269,884 10,753,058 12,781,018 SENIOR DEBT: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $11,521,150 $11,521,150 $10,798,251 DEBT ADDED 11,521,150 0 0 0 TOTAL ANNUAL PAYMENTS 1,152,115 1,152,115 1,875,014 1,875,014 INTEREST 1,152,115 1,152,115 1,152,115 1,079,825 PRINCIPAL REPAYMENT 0 0 722,899 795,189 ENDING BALANCE 11,521,150 11,521,150 10,798,251 10,003,062 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 3.6 3.5 3.1 2.7 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 3.6 3.5 3.1 2.7 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $24,219,859 $25,573,155 $26,680,196 UNUSED LEVERAGE 15,091,504 17,406,979 19,572,417 SENIOR DEBT: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $10,003,062 $9,128,354 $8,166,176 DEBT ADDED 0 0 0 11,521,150 TOTAL ANNUAL PAYMENTS 1,875,014 1,875,014 1,875,014 11,679,301 INTEREST 1,000,306 912,835 816,618 7,265,929 PRINCIPAL REPAYMENT 874,708 962,179 1,058,397 4,413,371 ENDING BALANCE 9,128,354 8,166,176 7,107,779 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 2.3 2.0 1.7 LOC DEBT COVERAGE 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.3 2.0 1.7
231 FALCON CABLE SYSTEMS CO. EXHIBIT C COOS BAY REGION - SALE HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $24,991,110 YEAR 1 DEBT REQUIREMENTS 12,495,555 YEAR 1 EQUITY REQUIREMENTS 12,495,555 FINANCING AVAILABLE $21,188,028 $23,989,655 $24,866,895 $26,289,324 UNUSED LEVERAGE 8,692,473 11,494,100 13,155,379 15,440,250 SENIOR: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $12,495,555 $12,495,555 $11,711,516 DEBT ADDED 12,495,555 0 0 0 TOTAL ANNUAL PAYMENTS 1,249,555 1,249,555 2,033,594 2,033,594 INTEREST 1,249,555 1,249,555 1,249,555 1,171,152 PRINCIPAL REPAYMENT 0 0 784,039 862,442 ENDING BALANCE 12,495,555 12,495,555 11,711,516 10,849,074 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 3.9 3.8 3.3 2.9 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 3.9 3.8 3.3 2.9 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $27,945,991 $29,507,486 $30,784,842 UNUSED LEVERAGE 18,045,603 20,650,654 23,075,920 SENIOR: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $10,849,074 $9,900,387 $8,856,832 DEBT ADDED 0 0 0 $12,495,555 TOTAL ANNUAL PAYMENTS 2,033,594 2,033,594 2,033,594 12,667,081 INTEREST 1,084,907 990,039 885,683 7,880,447 PRINCIPAL REPAYMENT 948,687 1,043,555 1,147,911 4,786,634 ENDING BALANCE 9,900,387 8,856,832 7,708,921 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 2.5 2.2 1.8 LOC DEBT COVERAGE 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.5 2.2 1.8
232 FALCON CABLE SYSTEMS CO. EXHIBIT D COOS BAY REGION - SALE AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $5,884,413 $6,177,231 $6,523,907 $6,899,841 OPERATING EXPENSES 2,685,792 2,861,645 3,018,664 3,173,709 --------- --------- --------- --------- OPERATING INCOME 3,198,621 3,315,586 3,505,243 3,726,132 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 369,108 381,716 1,983,494 1,777,461 TOTAL CASH FLOW $2,829,512 $2,933,870 $1,521,749 $1,948,671 NET PRESENT VALUE @ 16.6% $24,087,871 ----------- NET PRESENT VALUE @ 15.1% $25,882,068 ----------- YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $7,257,273 $7,565,069 $7,864,354 $48,172,089 OPERATING EXPENSES 3,322,942 3,460,424 3,596,527 22,119,703 --------- --------- --------- ---------- OPERATING INCOME 3,934,331 4,104,646 4,267,827 26,052,386 PLUS: RESIDUAL VALUE 38,410,446 38,410,446 LESS: CAPITAL EXPENDITURES 428,657 440,091 451,794 5,832,321 TOTAL CASH FLOW $3,505,674 $3,664,554 $42,226,480 $58,630,511 NET PRESENT VALUE @ 16.6% NET PRESENT VALUE @ 15.1%
233 FALCON CABLE SYSTEMS CO. EXHIBIT E COOS BAY REGION - SALE AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 325.6 MILES ADDED 0.5 0.6 0.5 0.7 1.3 1.3 1.3 CUMULATIVE MILES 326.0 326.6 327.2 327.8 329.1 330.4 331.7 DENSITY OF ADDITIONAL PLANT 0 8 5 11 19 19 18 HOMES PASSED - BEGINNING 17,754 NEW HOMES & EXTENSIONS 0 4 3 7 25 24 23 HOMES PASSED - ENDING 17,754 17,759 17,761 17,769 17,794 17,818 17,842 GROWTH IN HOMES 0.0% 0.0% 0.0% 0.0% 0.1% 0.1% 0.1% BASIC - BEGINNING SUBSCRIBERS 13,578 13,622 13,670 13,717 13,767 13,831 13,894 AVERAGE SUBSCRIBERS 13,600 13,646 13,694 13,742 13,799 13,863 13,926 ENDING SUBSCRIBERS 13,622 13,670 13,717 13,767 13,831 13,894 13,957 PENETRATION 76.7% 77.0% 77.2% 77.5% 77.7% 78.0% 78.2% EXPANDED BASIC - BEGINNING 13,249 13,292 13,339 13,384 13,433 13,496 13,558 AVERAGE SUBSCRIBERS 13,271 13,316 13,362 13,409 13,465 13,527 13,588 ENDING SUBSCRIBERS 13,292 13,339 13,384 13,433 13,496 13,558 13,619 PENETRATION 97.6% 97.6% 97.6% 97.6% 97.6% 97.6% 97.6% NEW PRODUCT TIER #1 - BEGINNING 8,207 8,234 8,263 8,291 8,321 8,360 8,398 AVERAGE SUBSCRIBERS 8,220 8,248 8,277 8,306 8,341 8,379 8,417 ENDING SUBSCRIBERS 8,234 8,263 8,291 8,321 8,360 8,398 8,436 PENETRATION 60.4% 60.4% 60.4% 60.4% 60.4% 60.4% 60.4% NEW PRODUCT TIER #2 - BEGINNING 1,779 2,330 3,261 4,369 5,486 5,512 5,537 AVERAGE SUBSCRIBERS 2,054 2,795 3,815 4,928 5,499 5,525 5,550 ENDING SUBSCRIBERS 2,330 3,261 4,369 5,486 5,512 5,537 5,562 PENETRATION 17.1% 23.9% 31.9% 39.9% 39.9% 39.9% 39.9% NEW PRODUCT TIER #3 - BEGINNING 0 0 0 0 585 1,072 1,077 AVERAGE SUBSCRIBERS 0 0 0 293 828 1,074 1,079 ENDING SUBSCRIBERS 0 0 0 585 1,072 1,077 1,082 PENETRATION 0.0% 0.0% 0.0% 4.3% 7.8% 7.8% 7.8% PAY TV - BEGINNING UNITS 6,041 5,925 6,082 6,240 6,263 6,292 6,321 AVERAGE UNITS 5,983 6,003 6,161 6,251 6,277 6,306 6,335 ENDING UNITS 5,925 6,082 6,240 6,263 6,292 6,321 6,349 PENETRATION 43.5% 44.5% 45.5% 45.5% 45.5% 45.5% 45.5% PAY PER VIEW - BEGINING UNITS/MO 1,745 1,894 2,299 2,740 3,123 3,357 3,586 AVERAGE UNITS 1,820 2,097 2,519 2,931 3,240 3,472 3,690 ENDING UNITS 1,894 2,299 2,740 3,123 3,357 3,586 3,794 AVERAGE BUY RATE/MO 32.1% 34.1% 36.1% 37.6% 39.1% 40.6% 42.1% CONVERTER RENTALS - BEGINNING UNITS 7,412 7,573 7,907 8,139 8,376 8,622 8,870 AVERAGE SUBSCRIBERS 7,492 7,740 8,023 8,257 8,499 8,746 8,995 ENDING SUBSCRIBERS 7,573 7,907 8,139 8,376 8,622 8,870 9,119 PENETRATION 55.6% 57.8% 59.3% 60.8% 62.3% 63.8% 65.3% ADDRESSABLE HOMES 5,611 5,902 6,743 7,589 8,305 8,585 8,833 AVERAGE HOMES 5,756 6,322 7,166 7,947 8,445 8,709 8,923 ENDING HOMES 5,902 6,743 7,589 8,305 8,585 8,833 9,013 PENETRATION 43.3% 49.3% 55.3% 60.3% 62.1% 63.6% 64.6% BASIC CHURN RATE 32% 32% 32% 32% 32% 32% 32%
234 FALCON CABLE SYSTEMS CO. EXHIBIT F COOS BAY REGION - SALE AS OF DECEMBER 31, 1995 SERVICE RATES - -------------
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------- -------- BASIC $17.22 $18.18 EXPANDED BASIC $4.31 $4.78 NEW PRODUCT TIER #1 $5.14 $5.17 NEW PRODUCT TIER #2 $5.00 $5.00 NEW PRODUCT TIER #3 $4.00 $4.00 PAY $6.41 $6.41 PAY PER VIEW $5.35 $5.35 CONVERTER RENTALS $2.06 $2.06 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 6% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 11% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 1% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #3 0% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% CONVERTER/REMOTE 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 $18.18 $18.73 $19.29 $19.87 $20.46 $21.08 $21.71 EXPANDED BASIC 4.78 4.92 5.07 5.22 5.38 5.54 5.71 NEW PRODUCT TIER #1 5.17 5.33 5.48 5.65 5.82 5.99 6.17 NEW PRODUCT TIER #2 5.00 5.15 5.30 5.46 5.63 5.80 5.97 NEW PRODUCT TIER #3 4.00 4.12 4.24 4.37 4.50 4.64 4.78 PAY 6.41 6.47 6.54 6.60 6.67 6.74 6.80 PAY PER VIEW 5.35 5.51 5.67 5.84 6.02 6.20 6.39 CONVERTERS RENTALS 2.06 2.12 2.19 2.25 2.32 2.39 2.46 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 59.70 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98 29.85
235 FALCON CABLE SYSTEMS CO. EXHIBIT G COOS BAY REGION - SALE AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES: BASIC $2,967,172 $3,066,553 $3,169,466 $3,276,081 EXPANDED BASIC 761,174 786,668 813,069 840,419 NEW PRODUCT TIER #1 509,998 527,080 544,768 563,094 NEW PRODUCT TIER #2 123,262 172,742 242,831 323,082 NEW PRODUCT TIER #3 0 0 0 15,344 PAY TV 460,158 466,354 483,389 495,383 PAY PER VIEW 116,781 138,603 171,527 205,541 CONVERTER RENTALS 185,209 197,062 210,406 223,052 INSTALLATIONS 88,277 91,363 94,371 97,696 COMMERCIAL 122,288 125,957 129,736 133,628 ADVERTISING 177,334 216,173 258,161 301,906 MISCELLANEOUS 372,759 388,676 406,182 424,614 ------- ------- ------- ------- TOTAL REVENUES $5,884,413 $6,177,231 $6,523,907 $6,899,841 OPERATING EXPENSES: OPERATIONS $853,768 $886,134 $921,905 $959,674 GENERAL & ADMINISTRATIVE 529,381 548,303 568,580 589,839 SALES & MARKETING 226,278 302,622 338,746 367,186 PROGRAMMING 1,076,365 1,124,587 1,189,433 1,257,010 --------- --------- --------- --------- TOTAL OPERATING EXPENSES $2,685,792 $2,861,645 $3,018,664 $3,173,709 ---------- ---------- ---------- ---------- OPERATING INCOME $3,198,621 $3,315,586 $3,505,243 $3,726,132 OPERATING MARGIN 54.4% 53.7% 53.7% 54.0% TOTAL REVENUE/BASIC SUB/MONTH $36.06 $37.72 $39.70 $41.84 CASH FLOW/BASIC SUB/MONTH $19.60 $20.25 $21.33 $22.60 OPERATIONS % OF REVENUE 15% 14% 14% 14% G & A PERCENTAGE OF REVENUE 9% 9% 9% 9% SALES & MARKETING % OF REVENUE 4% 5% 5% 5% PROGRAMMING % OF REVENUE 18% 18% 18% 18% YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES: BASIC $3,388,377 $3,506,138 $3,627,777 $23,001,565 EXPANDED BASIC 869,227 899,436 930,640 5,900,634 NEW PRODUCT TIER #1 582,395 602,636 623,543 3,953,513 NEW PRODUCT TIER #2 371,362 384,269 397,600 2,015,149 NEW PRODUCT TIER #3 44,759 59,783 61,857 181,743 PAY TV 502,415 509,781 517,225 3,434,704 PAY PER VIEW 234,004 258,272 282,781 1,407,509 CONVERTER RENTALS 236,458 250,635 265,496 1,568,319 INSTALLATIONS 101,656 105,151 108,759 687,272 COMMERCIAL 137,637 141,766 146,019 937,030 ADVERTISING 345,770 385,858 422,884 2,108,086 MISCELLANEOUS 443,215 461,345 479,772 2,976,565 ------- ------- ------- TOTAL REVENUES $7,257,273 $7,565,069 $7,864,354 $48,172,089 OPERATING EXPENSES: OPERATIONS $998,051 $1,034,948 $1,072,176 $6,726,656 GENERAL & ADMINISTRATIVE 611,535 633,147 655,161 4,135,946 SALES & MARKETING 396,085 423,492 449,671 2,504,080 PROGRAMMING 1,317,270 1,368,836 1,419,519 8,753,021 --------- --------- --------- --------- TOTAL OPERATING EXPENSES $3,322,942 $3,460,424 $3,596,527 $22,119,703 ---------- ---------- ---------- ----------- OPERATING INCOME $3,934,331 $4,104,646 $4,267,827 $26,052,386 OPERATING MARGIN 54.2% 54.3% 54.3% 54.1% TOTAL REVENUE/BASIC SUB/MONTH $43.83 $45.48 $47.06 CASH FLOW/BASIC SUB/MONTH $23.76 $24.67 $25.54 OPERATIONS % OF REVENUE 14% 14% 14% G & A PERCENTAGE OF REVENUE 8% 8% 8% SALES & MARKETING % OF REVENUE 5% 6% 6% PROGRAMMING % OF REVENUE 18% 18% 18%
236 FALCON CABLE SYSTEMS CO. EXHIBIT H COOS BAY REGION - SALE AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT $4,487,357 ADDITIONAL MILES OF PLANT 0.5 0.6 0.5 0.7 1.3 1.3 1.3 AERIAL PLANT PER MILE $12,000 $12,240 $12,485 $12,734 $12,989 $13,249 $13,514 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 $19,484 $19,873 $20,271 PERCENTAGE OF PLANT AERIAL 20% 20% 20% 20% 20% 20% 20% PERCENTAGE OF PLANT UNDERGROUND 80% 80% 80% 80% 80% 80% 80% AVERAGE COST PER CONVERTER $110 $112 $114 $117 $119 $121 $124 PERCENTAGE CONVERTER USE 56% 58% 59% 61% 62% 64% 65% PERCENTAGE REPLACEMENT 5% 5% 5% 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $53 $54 $55 $57 $58 $59 $60 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 2% 2% 2% 115% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $1,140 $1,420 $1,359 $1,678 $3,420 $3,444 $3,467 $15,929 - UNDERGROUND 6,839 8,523 8,155 10,071 20,519 20,666 20,804 95,577 PLANT REBUILD/UPGRADE/INCL. HDND. 16,604 16,991 1,609,750 1,391,200 18,170 18,606 19,052 3,090,372 AVERAGE COST OF NEW CONVERTERS 2,720 3,100 3,162 3,563 4,747 4,918 5,091 27,302 CONVERTER REPLACEMENT 41,513 44,201 46,417 48,707 51,093 53,616 56,230 341,777 INSTALLATION COSTS 232,292 237,884 243,417 249,326 256,027 262,312 268,736 1,749,994 MISC. CAPITAL EXPENDITURES 68,001 69,596 71,234 72,915 74,682 76,528 78,414 511,370 ------- ------ ------ ------ ------ ------ ------ ------- TOTAL CAPITAL EXPENDITURES $369,108 $381,716 $1,983,494 $1,777,461 $428,657 $440,091 $451,794 $5,832,321 AS A % OF OPERATING INCOME 11.5% 11.5% 56.6% 47.7% 10.9% 10.7% 10.6%
237 FALCON CABLE SYSTEMS CO. EXHIBIT I COOS BAY REGION - SALE AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 ------ ------ ------ ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- YEAR 1 $693,989 $1,189,348 $849,396 $606,573 $433,682 $433,197 $433,682 $4,639,867 YEAR 2 54,547 93,482 66,762 47,676 34,087 34,049 330,604 YEAR 3 283,441 485,758 346,913 247,738 177,126 1,540,977 YEAR 4 253,999 435,300 310,878 222,005 1,222,182 YEAR 5 61,255 104,978 74,972 241,205 YEAR 6 62,889 107,778 170,667 YEAR 7 64,561 64,561 ------- ------- ------- ------- ------- ------- ------ ------ TOTAL DEPRECIATION $693,989 $1,243,896 $1,226,319 $1,413,092 $1,324,827 $1,193,767 $1,114,174 $8,210,064
238 FALCON CABLE SYSTEMS CO. EXHIBIT J COOS BAY REGION - SALE AS OF DECEMBER 31, 1995 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 7 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $4,487,357 SUBSCRIBERS IN FRANCHISES 100%
DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
239 COOS BAY - EXCHANGE 240 FALCON CABLE SYSTEMS CO. EXHIBIT A COOS BAY REGION - EXCHANGE AS OF DECEMBER 31, 1995 VALUATION METHODS - -----------------
LOW HIGH --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME ADJUSTED OPERATING INCOME, PER BOOKS (DECEMBER 31, 1995) $897,025 $897,025 VALUATION MULTIPLE 10.5 11.5 ---- ---- ESTIMATED FAIR MARKET VALUE $9,418,762 $10,315,787 ---------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $1,529,017 $1,529,017 OPERATING MARGIN, PER BOOKS (DECEMBER 31, 1995) 47.2% 47.2% ---- ---- "RUNNING RATE" OPERATING INCOME 721,003 721,003 VALUATION MULTIPLE 10.0 11.0 ---- ---- ESTIMATED FAIR MARKET VALUE $7,210,033 $7,931,037 ---------- ---------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $761,161 $761,161 VALUATION MULTIPLE 9.5 10.5 --- ---- ESTIMATED FAIR MARKET VALUE $7,231,027 $7,992,188 ---------- ---------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $5,628,480 $6,123,716 ---------- ---------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $5,586,058 $6,079,621 ---------- ---------- SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $9,418,762 $10,315,787 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 7,210,033 7,931,037 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 7,231,027 7,992,188 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 5,628,480 6,123,716 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 5,586,058 6,079,621 --------- --------- RANGE OF ESTIMATED FAIR MARKET VALUES $6,363,000 $6,965,000 ESTIMATED FAIR MARKET VALUE $6,664,000 ----------
241 FALCON CABLE SYSTEMS CO. EXHIBIT B COOS BAY REGION - EXCHANGE LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $1,614,178 $1,738,939 $1,904,487 $2,093,424 OPERATING EXPENSES 853,018 928,286 1,001,620 1,080,657 ------- ------- --------- --------- OPERATING INCOME $761,161 $810,653 $902,867 $1,012,766 OPERATING MARGIN 0.47 0.47 0.47 0.48 PARENT SERVICES/MGT FEE (5%) 80,709 86,947 95,224 104,671 FRANCHISE AMORTIZATION (15) 199,733 199,733 199,733 199,733 SUBSCRIBER LIST (8) 64,600 64,600 64,600 64,600 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 358,010 904,939 963,108 739,931 INTEREST 274,248 450,865 450,865 433,070 ------- ------- ------- ------- PRE-TAX INCOME ($216,139) ($896,432) ($870,664) ($529,239) INCOME TAX (EXPENSE)/BENEFIT 73,487 304,787 296,026 179,941 ------ ------- ------- ------- NET INCOME ($142,652) ($591,645) ($574,638) ($349,298) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($216,139) ($896,432) ($870,664) ($529,239) FRANCHISE AMORTIZATION (15) 199,733 199,733 199,733 199,733 SUBSCRIBER LIST (8) 64,600 64,600 64,600 64,600 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 358,010 904,939 963,108 739,931 EQUITY 2,742,477 DEBT 2,742,477 1,766,178 0 0 RESIDUAL VALUE IN YEAR 7 --------- --------- -------- -------- TOTAL SOURCES OF CASH $5,891,158 $2,039,019 $356,777 $475,025 USES OF CASH - PURCHASE PRICE - CURRENT $5,628,480 CAPITAL EXPENDITURES 162,603 2,039,094 178,824 186,040 DEBT RETIREMENT 0 0 177,953 288,985 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) --------- --------- -------- -------- TOTAL USES OF CASH $5,791,083 $2,039,094 $356,777 $475,025 ANNUAL CASH INCREASE/(DECREASE) $100,075 ($75) $0 $0 CUMULATIVE CASH 100,075 100,000 100,000 100,000 YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $2,274,318 $2,420,635 $2,561,842 $14,607,822 OPERATING EXPENSES 1,157,790 1,227,581 1,296,948 7,545,899 --------- --------- --------- --------- OPERATING INCOME $1,116,528 $1,193,054 $1,264,894 $7,061,923 OPERATING MARGIN 0.49 0.49 0.49 PARENT SERVICES/MGT FEE (5%) 113,716 121,032 128,092 730,391 FRANCHISE AMORTIZATION (15) 199,733 199,733 199,733 1,398,133 SUBSCRIBER LIST (8) 64,600 64,600 64,600 452,200 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 581,900 534,215 555,196 4,637,299 INTEREST 404,172 362,961 311,715 2,687,896 ------- ------- ------- --------- PRE-TAX INCOME ($247,594) ($89,487) $5,558 ($2,843,997) INCOME TAX (EXPENSE)/BENEFIT 84,182 30,426 (1,890) 966,959 ------ ------ ------ ------- NET INCOME ($163,412) ($59,061) $3,668 ($1,877,038) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($247,594) ($89,487) $5,558 ($2,843,997) FRANCHISE AMORTIZATION (15) 199,733 199,733 199,733 1,398,133 SUBSCRIBER LIST (8) 64,600 64,600 64,600 452,200 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 581,900 534,215 555,196 4,637,299 EQUITY 2,742,477 DEBT 0 0 0 4,508,655 RESIDUAL VALUE IN YEAR 7 11,384,046 11,384,046 --------- --------- ---------- ---------- TOTAL SOURCES OF CASH $598,640 $709,062 $12,209,133 $22,278,813 USES OF CASH - PURCHASE PRICE - CURRENT $5,628,480 CAPITAL EXPENDITURES 186,530 196,605 207,177 3,156,873 DEBT RETIREMENT 412,110 512,457 3,117,150 4,508,655 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 2,122,392 2,122,392 --------- --------- --------- --------- TOTAL USES OF CASH $598,640 $709,062 $5,446,719 $15,416,399 ANNUAL CASH INCREASE/(DECREASE) ($0) $0 $6,762,414 $6,862,414 CUMULATIVE CASH 100,000 100,000 6,862,414
242 FALCON CABLE SYSTEMS CO. EXHIBIT B COOS BAY REGION - EXCHANGE HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $1,614,178 $1,738,939 $1,904,487 $2,093,424 OPERATING EXPENSES 853,018 928,286 1,001,620 1,080,657 ------- ------- --------- --------- OPERATING INCOME $761,161 $810,653 $902,867 $1,012,766 OPERATING MARGIN 0.47 0.47 0.47 0.48 PARENT SERVICES/MGT FEE (5%) 80,709 86,947 95,224 104,671 FRANCHISE AMORTIZATION (15) 199,733 199,733 199,733 199,733 SUBSCRIBER LIST (8) 64,600 64,600 64,600 64,600 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 358,010 904,939 963,108 739,931 INTEREST 300,313 479,826 484,209 465,365 ------- ------- ------- ------- PRE-TAX INCOME ($242,205) ($925,392) ($904,007) ($561,534) INCOME TAX (EXPENSE)/BENEFIT 82,350 314,633 307,362 190,922 ------- ------- ------- ------- NET INCOME ($159,855) ($610,759) ($596,645) ($370,613) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($242,205) ($925,392) ($904,007) ($561,534) FRANCHISE AMORTIZATION (15) 199,733 199,733 199,733 199,733 SUBSCRIBER LIST (8) 64,600 64,600 64,600 64,600 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 358,010 904,939 963,108 739,931 EQUITY 3,003,132 DEBT 3,003,132 1,795,131 43,823 0 RESIDUAL VALUE IN YEAR 7 --------- --------- -------- -------- TOTAL SOURCES OF CASH $6,386,402 $2,039,011 $367,257 $442,730 USES OF CASH - PURCHASE PRICE - CURRENT $6,123,716 CAPITAL EXPENDITURES 162,603 2,039,094 178,824 186,040 DEBT RETIREMENT 0 0 188,433 256,690 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) --------- --------- -------- -------- TOTAL USES OF CASH $6,286,319 $2,039,094 $367,257 $442,730 ANNUAL CASH INCREASE/(DECREASE) $100,083 ($83) $0 $0 CUMULATIVE CASH 100,083 100,000 100,000 100,000 YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $2,274,318 $2,420,635 $2,561,842 $14,607,822 OPERATING EXPENSES 1,157,790 1,227,581 1,296,948 7,545,899 --------- --------- --------- --------- OPERATING INCOME $1,116,528 $1,193,054 $1,264,894 $7,061,923 OPERATING MARGIN 0.49 0.49 0.49 PARENT SERVICES/MGT FEE (5%) 113,716 121,032 128,092 730,391 FRANCHISE AMORTIZATION (15) 199,733 199,733 199,733 1,398,133 SUBSCRIBER LIST (8) 64,600 64,600 64,600 452,200 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 581,900 534,215 555,196 4,637,299 INTEREST 439,696 402,038 354,700 2,926,147 ------- ------- ------- --------- PRE-TAX INCOME ($283,118) ($128,564) ($37,427) ($3,082,247) INCOME TAX (EXPENSE)/BENEFIT 96,260 43,712 12,725 1,047,964 ------ ------ ------ --------- NET INCOME ($186,858) ($84,852) ($24,702) ($2,034,283) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($283,118) ($128,564) ($37,427) ($3,082,247) FRANCHISE AMORTIZATION (15) 199,733 199,733 199,733 1,398,133 SUBSCRIBER LIST (8) 64,600 64,600 64,600 452,200 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 581,900 534,215 555,196 4,637,299 EQUITY 3,003,132 DEBT 0 0 0 4,842,085 RESIDUAL VALUE IN YEAR 7 11,384,046 11,384,046 -------- -------- ---------- ---------- TOTAL SOURCES OF CASH $563,115 $669,985 $12,166,148 $22,634,648 USES OF CASH - PURCHASE PRICE - CURRENT $6,123,716 CAPITAL EXPENDITURES 186,530 196,605 207,177 3,156,873 DEBT RETIREMENT 376,585 473,380 3,546,998 4,842,085 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 1,873,006 1,873,006 -------- -------- --------- ---------- TOTAL USES OF CASH $563,115 $669,985 $5,627,181 $15,995,681 ANNUAL CASH INCREASE/(DECREASE) ($0) $0 $6,538,967 $6,638,967 CUMULATIVE CASH 100,000 100,000 6,638,967
243 FALCON CABLE SYSTEMS CO. EXHIBIT C COOS BAY REGION - EXCHANGE LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $5,484,953 YEAR 1 DEBT REQUIREMENTS 2,742,477 YEAR 1 EQUITY REQUIREMENTS 2,742,477 FINANCING AVAILABLE $5,830,662 $4,947,545 $5,269,245 $5,868,636 UNUSED LEVERAGE 3,088,186 438,890 938,543 1,826,919 SENIOR DEBT: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $2,742,477 $2,742,477 $2,570,399 DEBT ADDED 2,742,477 0 0 0 TOTAL ANNUAL PAYMENTS 274,248 274,248 446,325 446,325 INTEREST 274,248 274,248 274,248 257,040 PRINCIPAL REPAYMENT 0 0 172,078 189,286 ENDING BALANCE 2,742,477 2,742,477 2,570,399 2,381,113 LINE OF CREDIT: BEGINNING DEBT $0 $0 $1,766,178 $1,760,303 BORROWINGS 0 1,766,178 0 0 PRINCIPAL PAYMENTS 0 0 5,875 99,699 INTEREST 0 176,618 176,618 176,030 SENIOR DEBT COVERAGE 3.6 3.4 2.8 2.4 LOC DEBT COVERAGE 0.0 2.2 1.9 1.6 TOTAL DEBT COVERAGE 3.6 5.6 4.8 4.0 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $6,582,981 $7,257,430 $7,754,852 UNUSED LEVERAGE 2,953,374 4,140,279 6,062,927 SENIOR DEBT: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $2,381,113 $2,172,899 $1,943,864 DEBT ADDED 0 0 0 2,742,477 TOTAL ANNUAL PAYMENTS 446,325 446,325 446,325 2,780,123 INTEREST 238,111 217,290 194,386 1,729,571 PRINCIPAL REPAYMENT 208,214 229,036 251,939 1,050,552 ENDING BALANCE 2,172,899 1,943,864 1,691,925 LINE OF CREDIT: BEGINNING DEBT $1,660,604 $1,456,708 $1,173,287 $0 BORROWINGS 0 0 0 1,766,178 PRINCIPAL PAYMENTS 203,896 283,422 1,173,287 1,766,178 INTEREST 166,060 145,671 117,329 958,326 SENIOR DEBT COVERAGE 1.9 1.6 1.3 LOC DEBT COVERAGE 1.3 1.0 0.0 TOTAL DEBT COVERAGE 3.3 2.6 1.3
244 FALCON CABLE SYSTEMS CO. EXHIBIT C COOS BAY REGION - EXCHANGE HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $6,006,263 YEAR 1 DEBT REQUIREMENTS 3,003,132 YEAR 1 EQUITY REQUIREMENTS 3,003,132 FINANCING AVAILABLE $6,727,687 $5,708,705 $6,079,898 $6,771,503 UNUSED LEVERAGE 3,724,556 910,443 1,426,245 2,374,540 SENIOR: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $3,003,132 $3,003,132 $2,814,699 DEBT ADDED 3,003,132 0 0 0 TOTAL ANNUAL PAYMENTS 300,313 300,313 488,746 488,746 INTEREST 300,313 300,313 300,313 281,470 PRINCIPAL REPAYMENT 0 0 188,433 207,276 ENDING BALANCE 3,003,132 3,003,132 2,814,699 2,607,423 LINE OF CREDIT: BEGINNING DEBT $0 $0 $1,795,131 $1,838,954 BORROWINGS 0 1,795,131 43,823 0 PRINCIPAL PAYMENTS 0 0 0 49,414 INTEREST 0 179,513 183,895 183,895 SENIOR DEBT COVERAGE 3.9 3.7 3.1 2.6 LOC DEBT COVERAGE 0.0 2.2 2.0 1.8 TOTAL DEBT COVERAGE 3.9 5.9 5.2 4.3 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $7,595,747 $8,373,957 $8,947,906 UNUSED LEVERAGE 3,575,369 6,245,342 7,095,174 SENIOR: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $2,607,423 $2,379,419 $2,128,616 DEBT ADDED 0 0 0 $3,003,132 TOTAL ANNUAL PAYMENTS 488,746 488,746 488,746 3,044,355 INTEREST 260,742 237,942 212,862 1,893,955 PRINCIPAL REPAYMENT 228,004 250,804 275,884 1,150,400 ENDING BALANCE 2,379,419 2,128,616 1,852,731 LINE OF CREDIT: BEGINNING DEBT $1,789,540 $1,640,958 $1,418,382 $0 BORROWINGS 0 0 0 1,838,954 PRINCIPAL PAYMENTS 148,582 222,576 1,418,382 1,838,954 INTEREST 178,954 164,096 141,838 1,032,192 SENIOR DEBT COVERAGE 2.1 1.8 1.5 LOC DEBT COVERAGE 1.5 1.2 0.0 TOTAL DEBT COVERAGE 3.6 3.0 1.5
245 FALCON CABLE SYSTEMS CO. EXHIBIT D COOS BAY REGION - EXCHANGE AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $1,614,178 $1,738,939 $1,904,487 $2,093,424 OPERATING EXPENSES 853,018 928,286 1,001,620 1,080,657 ------- ------- --------- --------- OPERATING INCOME 761,161 810,653 902,867 1,012,766 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 162,603 2,039,094 178,824 186,040 ------- --------- ------- ------- TOTAL CASH FLOW $598,558 ($1,228,441) $724,043 $826,726 NET PRESENT VALUE @ 16.6% $5,586,058 ---------- NET PRESENT VALUE @ 15.1% $6,079,621 ---------- YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $2,274,318 $2,420,635 $2,561,842 $14,607,822 OPERATING EXPENSES 1,157,790 1,227,581 1,296,948 7,545,899 --------- --------- --------- --------- OPERATING INCOME 1,116,528 1,193,054 1,264,894 7,061,923 PLUS: RESIDUAL VALUE 11,384,046 11,384,046 LESS: CAPITAL EXPENDITURES 186,530 196,605 207,177 3,156,873 ------- ------- ------- --------- TOTAL CASH FLOW $929,997 $996,450 $12,441,763 $15,289,096 NET PRESENT VALUE @ 16.6% NET PRESENT VALUE @ 15.1%
246 FALCON CABLE SYSTEMS CO. EXHIBIT E COOS BAY REGION - EXCHANGE AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING MILES 119.2 MILES ADDED 2.9 2.8 2.8 2.7 CUMULATIVE MILES 122.1 124.8 127.7 130.4 DENSITY OF ADDITIONAL PLANT 41 41 41 41 HOMES PASSED - BEGINNING 5,909.0 NEW HOMES & EXTENSIONS 118 115 117 113 HOMES PASSED - ENDING 6,027 6,142 6,258 6,371 GROWTH IN HOMES 2.0% 1.9% 1.9% 1.8% BASIC - BEGINNING SUBSCRIBERS 4,322 4,424 4,523 4,624 AVERAGE SUBSCRIBERS 4,373 4,473 4,574 4,674 ENDING SUBSCRIBERS 4,424 4,523 4,624 4,724 PENETRATION 73.4% 73.6% 73.9% 74.1% EXPANDED BASIC - BEGINNING 4,175 4,273 4,369 4,467 AVERAGE SUBSCRIBERS 4,224 4,321 4,418 4,515 ENDING SUBSCRIBERS 4,273 4,369 4,467 4,563 PENETRATION 96.6% 96.6% 96.6% 96.6% NEW PRODUCT TIER #1 - BEGINNING 3,936 4,028 4,119 4,211 AVERAGE SUBSCRIBERS 3,982 4,074 4,165 4,257 ENDING SUBSCRIBERS 4,028 4,119 4,211 4,302 PENETRATION 91.1% 91.1% 91.1% 91.1% NEW PRODUCT TIER #2 - BEGINNING 0 0 362 740 AVERAGE SUBSCRIBERS 0 181 551 1,061 ENDING SUBSCRIBERS 0 362 740 1,382 PENETRATION 0.0% 8.0% 16.0% 29.3% NEW PRODUCT TIER #3 - BEGINNING 0 0 362 740 AVERAGE SUBSCRIBERS 0 181 551 1,061 ENDING SUBSCRIBERS 0 362 740 1,382 PENETRATION 0.0% 8.0% 16.0% 29.3% PAY TV - BEGINNING UNITS 983 962 1,029 1,098 AVERAGE UNITS 972 995 1,063 1,110 ENDING UNITS 962 1,029 1,098 1,122 PENETRATION 21.7% 22.7% 23.7% 23.7% PAY PER VIEW - BEGINNING UNITS/MO 0 0 237 421 AVERAGE UNITS 0 119 329 534 ENDING UNITS 0 237 421 646 AVERAGE BUY RATE/MO 0.0% 37.5% 35.0% 36.0% CONVERTER RENTALS - BEGINNING UNITS 856 920 1,224 1,575 AVERAGE SUBSCRIBERS 888 1,072 1,399 1,769 ENDING SUBSCRIBERS 920 1,224 1,575 1,963 PENETRATION 20.8% 27.1% 34.1% 41.6% ADDRESSABLE HOMES 0 0 633 1,202 AVERAGE HOMES 0 317 918 1,499 ENDING HOMES 0 633 1,202 1,795 PENETRATION 0.0% 14.0% 26.0% 38.0% BASIC CHURN RATE 32% 32% 32% 32%
YEAR ENDING DECEMBER 31, 2000 2001 2002 ---- ---- ---- BEGINNING MILES MILES ADDED 2.3 2.3 2.4 CUMULATIVE MILES 132.7 135.0 137.4 DENSITY OF ADDITIONAL PLANT 41 41 41 HOMES PASSED - BEGINNING NEW HOMES & EXTENSIONS 96 97 98 HOMES PASSED - ENDING 6,467 6,564 6,662 GROWTH IN HOMES 1.5% 1.5% 1.5% BASIC - BEGINNING SUBSCRIBERS 4,724 4,811 4,899 AVERAGE SUBSCRIBERS 4,767 4,855 4,944 ENDING SUBSCRIBERS 4,811 4,899 4,989 PENETRATION 74.4% 74.6% 74.9% EXPANDED BASIC - BEGINNING 4,563 4,647 4,733 AVERAGE SUBSCRIBERS 4,605 4,690 4,776 ENDING SUBSCRIBERS 4,647 4,733 4,820 PENETRATION 96.6% 96.6% 96.6% NEW PRODUCT TIER #1 - BEGINNING 4,302 4,381 4,462 AVERAGE SUBSCRIBERS 4,341 4,421 4,503 ENDING SUBSCRIBERS 4,381 4,462 4,544 PENETRATION 91.1% 91.1% 91.1% NEW PRODUCT TIER #2 - BEGINNING 1,382 1,556 1,585 AVERAGE SUBSCRIBERS 1,469 1,571 1,599 ENDING SUBSCRIBERS 1,556 1,585 1,614 PENETRATION 32.4% 32.4% 32.4% NEW PRODUCT TIER #3 - BEGINNING 1,382 1,556 1,585 AVERAGE SUBSCRIBERS 1,469 1,571 1,599 ENDING SUBSCRIBERS 1,556 1,585 1,614 PENETRATION 32.4% 32.4% 32.4% PAY TV - BEGINNING UNITS 1,122 1,142 1,163 AVERAGE UNITS 1,132 1,153 1,174 ENDING UNITS 1,142 1,163 1,185 PENETRATION 23.7% 23.7% 23.7% PAY PER VIEW - BEGINNING UNITS/MO 646 841 1,039 AVERAGE UNITS 744 940 1,117 ENDING UNITS 841 1,039 1,194 AVERAGE BUY RATE/MO 38.0% 40.0% 42.0% CONVERTER RENTALS - BEGINNING UNITS 1,963 2,360 2,771 AVERAGE SUBSCRIBERS 2,161 2,565 2,983 ENDING SUBSCRIBERS 2,360 2,771 3,196 PENETRATION 49.1% 56.6% 64.1% ADDRESSABLE HOMES 1,795 2,213 2,597 AVERAGE HOMES 2,004 2,405 2,720 ENDING HOMES 2,213 2,597 2,844 PENETRATION 46.0% 53.0% 57.0% BASIC CHURN RATE 32% 32% 32%
247 FALCON CABLE SYSTEMS CO. EXHIBIT F COOS BAY REGION - EXCHANGE AS OF DECEMBER 31, 1995 SERVICE RATES - -------------
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------- -------- BASIC $17.60 $18.05 EXPANDED BASIC $2.20 $2.91 NEW PRODUCT TIER #1 $3.51 $3.76 NEW PRODUCT TIER #2 $5.00 $5.00 NEW PRODUCT TIER #3 $4.00 $4.00 PAY $6.41 $6.41 PAY PER VIEW $5.35 $5.35 CONVERTER RENTALS $0.86 $0.86 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 3% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 32% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 7% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #3 0% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% CONVERTER/REMOTE 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 $18.05 $18.59 $19.15 $19.72 $20.32 $20.93 $21.55 EXPANDED BASIC 2.91 3.00 3.09 3.18 3.28 3.38 3.48 NEW PRODUCT TIER #1 3.76 3.87 3.99 4.11 4.23 4.36 4.49 NEW PRODUCT TIER #2 5.00 5.15 5.30 5.46 5.63 5.80 5.97 NEW PRODUCT TIER #3 4.00 4.12 4.24 4.37 4.50 4.64 4.78 PAY 6.41 6.47 6.54 6.60 6.67 6.74 6.80 PAY PER VIEW 5.35 5.51 5.67 5.84 6.02 6.20 6.39 CONVERTERS RENTALS 0.86 0.89 0.91 0.94 0.97 1.00 1.03 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 59.70 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98 29.85
248 FALCON CABLE SYSTEMS CO. EXHIBIT G COOS BAY REGION - EXCHANGE AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES: BASIC $947,168 $997,995 $1,051,027 $1,106,316 EXPANDED BASIC 147,612 155,533 163,798 172,414 NEW PRODUCT TIER #1 179,674 189,315 199,375 209,863 NEW PRODUCT TIER #2 0 11,181 35,065 69,550 NEW PRODUCT TIER #3 0 8,945 28,052 55,640 PAY TV 74,793 77,316 83,432 87,947 PAY PER VIEW 0 7,848 22,409 37,413 CONVERTER RENTALS 9,166 11,395 15,320 19,948 INSTALLATIONS 31,871 33,398 35,171 36,818 COMMERCIAL 57,812 59,547 61,333 63,173 ADVERTISING 57,017 70,861 86,227 102,688 MISCELLANEOUS 109,067 115,607 123,277 131,655 ------- ------- ------- ------- TOTAL REVENUES $1,614,178 $1,738,939 $1,904,487 $2,093,424 OPERATING EXPENSES: OPERATIONS $278,747 $295,400 $314,585 $335,177 GENERAL & ADMINISTRATIVE 223,063 233,529 244,982 257,150 SALES & MARKETING 72,891 99,334 110,250 121,838 PROGRAMMING 278,316 300,024 331,803 366,492 ------- ------- ------- ------- TOTAL OPERATING EXPENSES $853,018 $928,286 $1,001,620 $1,080,657 -------- -------- ---------- ---------- OPERATING INCOME $761,161 $810,653 $902,867 $1,012,766 OPERATING MARGIN 47.2% 46.6% 47.4% 48.4% TOTAL REVENUE/BASIC SUB/MONTH $30.76 $32.40 $34.70 $37.32 CASH FLOW/BASIC SUB/MONTH $14.51 $15.10 $16.45 $18.06 OPERATIONS % OF REVENUE 17% 17% 17% 16% G & A PERCENTAGE OF REVENUE 14% 13% 13% 12% SALES & MARKETING % OF REVENUE 5% 6% 6% 6% PROGRAMMING % OF REVENUE 17% 17% 17% 18% YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES: BASIC $1,162,201 $1,219,113 $1,278,798 $7,762,619 EXPANDED BASIC 181,123 189,993 199,294 1,209,766 NEW PRODUCT TIER #1 220,465 231,260 242,582 1,472,535 NEW PRODUCT TIER #2 99,200 109,244 114,592 438,832 NEW PRODUCT TIER #3 79,360 87,395 91,674 351,065 PAY TV 90,595 93,186 95,850 603,119 PAY PER VIEW 53,706 69,915 85,558 276,848 CONVERTER RENTALS 25,106 30,691 36,763 148,389 INSTALLATIONS 38,042 39,903 41,853 257,057 COMMERCIAL 65,068 67,020 69,031 442,985 ADVERTISING 119,454 135,135 150,143 721,524 MISCELLANEOUS 139,998 147,779 155,701 923,083 ------- ------- ------- TOTAL REVENUES $2,274,318 $2,420,635 $2,561,842 $14,607,822 OPERATING EXPENSES: OPERATIONS $355,196 $374,041 $393,220 $2,346,366 GENERAL & ADMINISTRATIVE 269,342 281,183 293,346 1,802,595 SALES & MARKETING 133,595 144,914 156,088 838,910 PROGRAMMING 399,657 427,443 454,293 2,558,028 ------- ------- ------- --------- TOTAL OPERATING EXPENSES $1,157,790 $1,227,581 $1,296,948 $7,545,899 ---------- ---------- ---------- ---------- OPERATING INCOME $1,116,528 $1,193,054 $1,264,894 $7,061,923 OPERATING MARGIN 49.1% 49.3% 49.4% 48.3% TOTAL REVENUE/BASIC SUB/MONTH $39.76 $41.55 $43.18 CASH FLOW/BASIC SUB/MONTH $19.52 $20.48 $21.32 OPERATIONS % OF REVENUE 16% 15% 15% G & A PERCENTAGE OF REVENUE 12% 12% 11% SALES & MARKETING % OF REVENUE 6% 6% 6% PROGRAMMING % OF REVENUE 18% 18% 18%
249 FALCON CABLE SYSTEMS CO. EXHIBIT H COOS BAY REGION - EXCHANGE AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT $2,342,715 ADDITIONAL MILES OF PLANT 2.9 2.8 2.8 2.7 2.3 2.3 2.4 AERIAL PLANT PER MILE $12,000 $12,240 $12,485 $12,734 $12,989 $13,249 $13,514 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 $19,484 $19,873 $20,271 PERCENTAGE OF PLANT AERIAL 20% 20% 20% 20% 20% 20% 20% PERCENTAGE OF PLANT UNDERGROUND 80% 80% 80% 80% 80% 80% 80% AVERAGE COST PER CONVERTER $110 $112 $114 $117 $119 $121 $124 PERCENTAGE CONVERTER USE 21% 27% 34% 42% 49% 57% 64% PERCENTAGE REPLACEMENT 5% 5% 5% 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $54 $55 $56 $57 $58 $59 $61 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 2% 2% 2% 115% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $6,866 $6,786 $7,053 $6,945 $6,010 $6,222 $6,442 $46,324 - UNDERGROUND 41,196 40,717 42,320 41,672 36,059 37,331 38,649 277,944 PLANT REBUILD/UPGRADE/INCL. HDND. 6,079 1,876,475 6,774 7,057 7,325 7,604 7,893 1,919,207 AVERAGE COST OF NEW CONVERTERS 2,323 3,017 3,959 4,811 5,083 6,083 7,153 32,430 CONVERTER REPLACEMENT 4,946 6,714 8,814 11,216 13,795 16,521 19,438 81,445 INSTALLATION COSTS 79,330 82,571 86,112 89,539 92,458 96,041 99,762 625,811 MISC. CAPITAL EXPENDITURES 21,864 22,813 23,792 24,801 25,801 26,801 27,841 173,713 ------ ------ ------ ------ ------ ------ ------ ------- TOTAL CAPITAL EXPENDITURES $162,603 $2,039,094 $178,824 $186,040 $186,530 $196,605 $207,177 $3,156,873 AS A % OF OPERATING INCOME 21.4% 251.5% 19.8% 18.4% 16.7% 16.5% 16.4%
250 FALCON CABLE SYSTEMS CO. EXHIBIT I COOS BAY REGION - EXCHANGE AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 ------ ------ ------ ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- YEAR 1 $358,010 $613,552 $438,180 $312,914 $223,725 $223,474 $223,725 $2,393,581 YEAR 2 291,386 499,374 356,637 254,683 182,091 181,887 1,766,059 YEAR 3 25,554 43,794 31,276 22,335 15,969 138,929 YEAR 4 26,585 45,561 32,538 23,236 127,921 YEAR 5 26,655 45,681 32,624 104,961 YEAR 6 28,095 48,148 76,243 YEAR 7 29,606 29,606 -------- -------- -------- -------- -------- -------- -------- ---------- TOTAL DEPRECIATION $358,010 $904,939 $963,108 $739,931 $581,900 $534,215 $555,196 $4,637,299
251 FALCON CABLE SYSTEMS CO. EXHIBIT J COOS BAY REGION - EXCHANGE AS OF DECEMBER 31, 1995 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 7 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $2,342,715 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
252 DALLAS - SALE 253 FALCON CABLE SYSTEMS CO. EXHIBIT A DALLAS REGION - SALE AS OF DECEMBER 31, 1995 VALUATION METHODS - -----------------
LOW HIGH --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME ADJUSTED OPERATING INCOME, PER BOOKS (DECEMBER 31, 1995) $1,424,832 $1,424,832 VALUATION MULTIPLE 10.5 11.5 ---- ---- ESTIMATED FAIR MARKET VALUE $14,960,738 $16,385,570 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $2,605,152 $2,605,152 OPERATING MARGIN, PER BOOKS (DECEMBER 31, 1995) 60.4% 60.4% ----- ----- "RUNNING RATE" OPERATING INCOME 1,574,523 1,574,523 VALUATION MULTIPLE 10.0 11.0 ---- ---- ESTIMATED FAIR MARKET VALUE $15,745,227 $17,319,750 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $1,660,673 $1,660,673 VALUATION MULTIPLE 9.5 10.5 --- ---- ESTIMATED FAIR MARKET VALUE $15,776,391 $17,437,064 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $14,334,131 $15,426,595 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $13,989,432 $15,032,075 ----------- ----------- SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $14,960,738 $16,385,570 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 15,745,227 17,319,750 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 15,776,391 17,437,064 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 14,334,131 15,426,595 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 13,989,432 15,032,075 ---------- ---------- RANGE OF ESTIMATED FAIR MARKET VALUES $14,762,000 $16,042,000 ESTIMATED FAIR MARKET VALUE $15,402,000 -----------
254 FALCON CABLE SYSTEMS CO. EXHIBIT B DALLAS REGION - SALE LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $2,747,693 $2,942,374 $3,165,196 $3,400,467 OPERATING EXPENSES 1,087,020 1,165,761 1,260,445 1,362,210 --------- --------- --------- --------- OPERATING INCOME $1,660,673 $1,776,612 $1,904,751 $2,038,257 OPERATING MARGIN 0.60 0.60 0.60 0.60 PARENT SERVICES/MGT FEE (5%) 137,385 147,119 158,260 170,023 FRANCHISE AMORTIZATION (15) 687,200 687,200 687,200 687,200 SUBSCRIBER LIST (8) 153,533 153,533 153,533 153,533 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 315,120 585,519 511,976 463,484 INTEREST 695,714 695,714 695,714 652,061 ------- ------- ------- ------- PRE-TAX INCOME ($328,279) ($492,473) ($301,932) ($88,045) INCOME TAX (EXPENSE)/BENEFIT 111,615 167,441 102,657 29,935 ------- ------- ------- ------ NET INCOME ($216,664) ($325,032) ($199,275) ($58,110) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($328,279) ($492,473) ($301,932) ($88,045) FRANCHISE AMORTIZATION (15) 687,200 687,200 687,200 687,200 SUBSCRIBER LIST (8) 153,533 153,533 153,533 153,533 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 315,120 585,519 511,976 463,484 EQUITY 6,957,142 DEBT 6,957,142 0 0 0 RESIDUAL VALUE IN YEAR 7 --------- -------- --------- --------- TOTAL SOURCES OF CASH $14,741,858 $933,780 $1,050,777 $1,216,173 USES OF CASH - PURCHASE PRICE - CURRENT $14,334,131 CAPITAL EXPENDITURES 307,630 318,205 338,434 346,544 DEBT RETIREMENT 0 0 436,529 480,181 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) ---------- -------- -------- -------- TOTAL USES OF CASH $14,641,761 $318,205 $774,963 $826,726 ANNUAL CASH INCREASE/(DECREASE) $100,097 $615,574 $275,814 $389,447 CUMULATIVE CASH 100,097 715,671 991,486 1,380,933
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $3,638,199 $3,883,772 $4,141,720 $23,919,421 OPERATING EXPENSES 1,464,268 1,568,874 1,679,019 9,587,597 --------- --------- --------- --------- OPERATING INCOME $2,173,932 $2,314,898 $2,462,701 $14,331,825 OPERATING MARGIN 0.60 0.60 0.59 PARENT SERVICES/MGT FEE (5%) 181,910 194,189 207,086 1,195,971 FRANCHISE AMORTIZATION (15) 687,200 687,200 687,200 4,810,400 SUBSCRIBER LIST (8) 153,533 153,533 153,533 1,074,733 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 434,596 477,319 522,691 3,310,705 INTEREST 604,043 551,223 493,121 4,387,592 ------- ------- ------- --------- PRE-TAX INCOME $112,650 $251,434 $399,069 ($447,576) INCOME TAX (EXPENSE)/BENEFIT (38,301) (85,488) (135,684) 152,176 ------- ------- -------- ------- NET INCOME $74,349 $165,946 $263,386 ($295,400) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME $112,650 $251,434 $399,069 ($447,576) FRANCHISE AMORTIZATION (15) 687,200 687,200 687,200 4,810,400 SUBSCRIBER LIST (8) 153,533 153,533 153,533 1,074,733 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 434,596 477,319 522,691 3,310,705 EQUITY 6,957,142 DEBT 0 0 0 6,957,142 RESIDUAL VALUE IN YEAR 7 22,164,309 22,164,309 --------- --------- ---------- ---------- TOTAL SOURCES OF CASH $1,387,979 $1,569,486 $23,926,802 $44,826,855 USES OF CASH - PURCHASE PRICE - CURRENT $14,334,131 CAPITAL EXPENDITURES 376,970 398,887 421,694 2,508,365 DEBT RETIREMENT 528,200 581,020 4,931,213 6,957,142 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 4,783,826 4,783,826 --------- --------- --------- --------- TOTAL USES OF CASH $905,169 $979,907 $10,136,733 $28,583,463 ANNUAL CASH INCREASE/(DECREASE) $482,809 $589,580 $13,790,070 $16,243,392 CUMULATIVE CASH 1,863,742 2,453,322 16,243,392
255 FALCON CABLE SYSTEMS CO. EXHIBIT B DALLAS REGION - SALE HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $2,747,693 $2,942,374 $3,165,196 $3,400,467 OPERATING EXPENSES 1,087,020 1,165,761 1,260,445 1,362,210 --------- --------- --------- --------- OPERATING INCOME $1,660,673 $1,776,612 $1,904,751 $2,038,257 OPERATING MARGIN 0.60 0.60 0.60 0.60 PARENT SERVICES/MGT FEE (5%) 137,385 147,119 158,260 170,023 FRANCHISE AMORTIZATION (15) 687,200 687,200 687,200 687,200 SUBSCRIBER LIST (8) 153,533 153,533 153,533 153,533 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 315,120 585,519 511,976 463,484 INTEREST 753,219 753,219 753,219 705,958 ------- ------- ------- ------- PRE-TAX INCOME ($385,784) ($549,978) ($359,437) ($141,942) INCOME TAX (EXPENSE)/BENEFIT 131,166 186,992 122,208 48,260 ------- ------- ------- ------ NET INCOME ($254,617) ($362,985) ($237,228) ($93,681) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($385,784) ($549,978) ($359,437) ($141,942) FRANCHISE AMORTIZATION (15) 687,200 687,200 687,200 687,200 SUBSCRIBER LIST (8) 153,533 153,533 153,533 153,533 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 315,120 585,519 511,976 463,484 EQUITY 7,532,189 DEBT 7,532,189 0 0 0 RESIDUAL VALUE IN YEAR 7 --------- --------- --------- --------- TOTAL SOURCES OF CASH $15,834,448 $876,275 $993,272 $1,162,276 USES OF CASH - PURCHASE PRICE - CURRENT $15,426,595 CAPITAL EXPENDITURES 307,630 318,205 338,434 346,544 DEBT RETIREMENT 0 0 472,610 519,871 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) --------- -------- -------- -------- TOTAL USES OF CASH $15,734,225 $318,205 $811,044 $866,415 ANNUAL CASH INCREASE/(DECREASE) $100,223 $558,070 $182,228 $295,861 CUMULATIVE CASH 100,223 658,292 840,520 1,136,381
YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $3,638,199 $3,883,772 $4,141,720 $23,919,421 OPERATING EXPENSES 1,464,268 1,568,874 1,679,019 9,587,597 --------- --------- --------- --------- OPERATING INCOME $2,173,932 $2,314,898 $2,462,701 $14,331,825 OPERATING MARGIN 0.60 0.60 0.59 PARENT SERVICES/MGT FEE (5%) 181,910 194,189 207,086 1,195,971 FRANCHISE AMORTIZATION (15) 687,200 687,200 687,200 4,810,400 SUBSCRIBER LIST (8) 153,533 153,533 153,533 1,074,733 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 434,596 477,319 522,691 3,310,705 INTEREST 653,971 596,785 533,881 4,750,251 ------- ------- ------- --------- PRE-TAX INCOME $62,722 $205,872 $358,310 ($810,236) INCOME TAX (EXPENSE)/BENEFIT (21,325) (69,997) (121,825) 275,480 ------- ------- -------- ------- NET INCOME $41,396 $135,876 $236,485 ($534,755) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME $62,722 $205,872 $358,310 ($810,236) FRANCHISE AMORTIZATION (15) 687,200 687,200 687,200 4,810,400 SUBSCRIBER LIST (8) 153,533 153,533 153,533 1,074,733 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 434,596 477,319 522,691 3,310,705 EQUITY 7,532,189 DEBT 0 0 0 7,532,189 RESIDUAL VALUE IN YEAR 7 22,164,309 22,164,309 --------- --------- ---------- ---------- TOTAL SOURCES OF CASH $1,338,051 $1,523,925 $23,886,043 $45,614,290 USES OF CASH - PURCHASE PRICE - CURRENT $15,426,595 CAPITAL EXPENDITURES 376,970 398,887 421,694 2,508,365 DEBT RETIREMENT 571,858 629,044 5,338,805 7,532,189 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 4,289,083 4,289,083 -------- --------- --------- --------- TOTAL USES OF CASH $948,828 $1,027,931 $10,049,583 $29,756,233 ANNUAL CASH INCREASE/(DECREASE) $389,223 $495,993 $13,836,460 $15,858,057 CUMULATIVE CASH 1,525,604 2,021,597 15,858,057
256 FALCON CABLE SYSTEMS CO. EXHIBIT C DALLAS REGION - SALE LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $13,914,284 YEAR 1 DEBT REQUIREMENTS 6,957,142 YEAR 1 EQUITY REQUIREMENTS 6,957,142 FINANCING AVAILABLE $9,261,409 $10,794,373 $11,547,981 $12,380,883 UNUSED LEVERAGE 2,304,267 3,837,231 5,027,367 6,340,451 SENIOR DEBT: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $6,957,142 $6,957,142 $6,520,613 DEBT ADDED 6,957,142 0 0 0 TOTAL ANNUAL PAYMENTS 695,714 695,714 1,132,243 1,132,243 INTEREST 695,714 695,714 695,714 652,061 PRINCIPAL REPAYMENT 0 0 436,529 480,181 ENDING BALANCE 6,957,142 6,957,142 6,520,613 6,040,432 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 4.2 3.9 3.4 3.0 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 4.2 3.9 3.4 3.0 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $13,248,672 $14,130,557 $15,046,838 UNUSED LEVERAGE 7,736,440 9,199,344 10,754,747 SENIOR DEBT: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $6,040,432 $5,512,232 $4,931,213 DEBT ADDED 0 0 0 6,957,142 TOTAL ANNUAL PAYMENTS 1,132,243 1,132,243 1,132,243 7,052,643 INTEREST 604,043 551,223 493,121 4,387,592 PRINCIPAL REPAYMENT 528,200 581,020 639,122 2,665,051 ENDING BALANCE 5,512,232 4,931,213 4,292,091 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 2.5 2.1 1.7 LOC DEBT COVERAGE 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.5 2.1 1.7
257 FALCON CABLE SYSTEMS CO. EXHIBIT C DALLAS REGION - SALE HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $15,064,379 YEAR 1 DEBT REQUIREMENTS 7,532,189 YEAR 1 EQUITY REQUIREMENTS 7,532,189 FINANCING AVAILABLE $10,686,241 $12,455,046 $13,324,593 $14,285,634 UNUSED LEVERAGE 3,154,052 4,922,856 6,265,014 7,745,926 SENIOR: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $7,532,189 $7,532,189 $7,059,579 DEBT ADDED 7,532,189 0 0 0 TOTAL ANNUAL PAYMENTS 753,219 753,219 1,225,829 1,225,829 INTEREST 753,219 753,219 753,219 705,958 PRINCIPAL REPAYMENT 0 0 472,610 519,871 ENDING BALANCE 7,532,189 7,532,189 7,059,579 6,539,708 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 4.5 4.2 3.7 3.2 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 4.5 4.2 3.7 3.2 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $15,286,930 $16,304,489 $17,361,737 UNUSED LEVERAGE 9,319,080 10,965,683 12,714,880 SENIOR: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $6,539,708 $5,967,850 $5,338,805 DEBT ADDED 0 0 0 $7,532,189 TOTAL ANNUAL PAYMENTS 1,225,829 1,225,829 1,225,829 7,635,584 INTEREST 653,971 596,785 533,881 4,750,251 PRINCIPAL REPAYMENT 571,858 629,044 691,949 2,885,332 ENDING BALANCE 5,967,850 5,338,805 4,646,857 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 BORROWINGS 0 0 0 0 PRINCIPAL PAYMENTS 0 0 0 0 INTEREST 0 0 0 0 SENIOR DEBT COVERAGE 2.7 2.3 1.9 LOC DEBT COVERAGE 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.7 2.3 1.9
258 FALCON CABLE SYSTEMS CO. EXHIBIT D DALLAS REGION - SALE AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $2,747,693 $2,942,374 $3,165,196 $3,400,467 OPERATING EXPENSES 1,087,020 1,165,761 1,260,445 1,362,210 --------- --------- --------- --------- OPERATING INCOME 1,660,673 1,776,612 1,904,751 2,038,257 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 307,630 318,205 338,434 346,544 TOTAL CASH FLOW $1,353,043 $1,458,407 $1,566,317 $1,691,713 NET PRESENT VALUE @ 16.6% $13,989,432 ----------- NET PRESENT VALUE @ 15.1% $15,032,075 ----------- YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $3,638,199 $3,883,772 $4,141,720 $23,919,421 OPERATING EXPENSES 1,464,268 1,568,874 1,679,019 9,587,597 --------- --------- --------- --------- OPERATING INCOME 2,173,932 2,314,898 2,462,701 14,331,825 PLUS: RESIDUAL VALUE 22,164,309 22,164,309 LESS: CAPITAL EXPENDITURES 376,970 398,887 421,694 2,508,365 TOTAL CASH FLOW $1,796,962 $1,916,011 $24,205,315 $33,987,768 NET PRESENT VALUE @ 16.6% NET PRESENT VALUE @ 15.1%
259 FALCON CABLE SYSTEMS CO. EXHIBIT E DALLAS REGION - SALE AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 162.7 MILES ADDED 6.1 6.0 6.3 6.2 7.1 7.5 7.8 CUMULATIVE MILES 168.8 174.8 181.1 187.3 194.4 201.9 209.7 DENSITY OF ADDITIONAL PLANT 36 38 36 38 34 33 32 HOMES PASSED - BEGINNING 9,209 NEW HOMES & EXTENSIONS 221 226 231 236 241 247 253 HOMES PASSED - ENDING 9,430 9,655 9,886 10,122 10,364 10,611 10,863 GROWTH IN HOMES 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% BASIC - BEGINNING SUBSCRIBERS 6,775 6,984 7,200 7,421 7,624 7,832 8,045 AVERAGE SUBSCRIBERS 6,880 7,092 7,311 7,523 7,728 7,938 8,154 ENDING SUBSCRIBERS 6,984 7,200 7,421 7,624 7,832 8,045 8,263 PENETRATION 74.1% 74.6% 75.1% 75.3% 75.6% 75.8% 76.1% EXPANDED BASIC - BEGINNING 5,403 5,570 5,742 5,918 6,080 6,246 6,416 AVERAGE SUBSCRIBERS 5,487 5,656 5,830 5,999 6,163 6,331 6,503 ENDING SUBSCRIBERS 5,570 5,742 5,918 6,080 6,246 6,416 6,590 PENETRATION 79.7% 79.7% 79.7% 79.7% 79.7% 79.7% 79.7% NEW PRODUCT TIER #1 - BEGINNING 3,834 3,953 4,074 4,200 4,314 4,432 4,553 AVERAGE SUBSCRIBERS 3,893 4,013 4,137 4,257 4,373 4,492 4,614 ENDING SUBSCRIBERS 3,953 4,074 4,200 4,314 4,432 4,553 4,676 PENETRATION 56.6% 56.6% 56.6% 56.6% 56.6% 56.6% 56.6% NEW PRODUCT TIER #2 - BEGINNING 0 0 0 0 0 0 0 AVERAGE SUBSCRIBERS 0 0 0 0 0 0 0 ENDING SUBSCRIBERS 0 0 0 0 0 0 0 PENETRATION 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% NEW PRODUCT TIER #3 - BEGINNING 0 0 0 0 0 0 0 AVERAGE SUBSCRIBERS 0 0 0 0 0 0 0 ENDING SUBSCRIBERS 0 0 0 0 0 0 0 PENETRATION 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PAY TV - BEGINNING UNITS 3,427 3,463 3,642 3,828 3,933 4,040 4,150 AVERAGE UNITS 3,445 3,552 3,735 3,880 3,986 4,095 4,206 ENDING UNITS 3,463 3,642 3,828 3,933 4,040 4,150 4,263 PENETRATION 49.6% 50.6% 51.6% 51.6% 51.6% 51.6% 51.6% PAY PER VIEW - BEGINNING UNITS/MO 212 288 438 700 985 1,209 1,450 AVERAGE UNITS 250 363 569 842 1,097 1,330 1,580 ENDING UNITS 288 438 700 985 1,209 1,450 1,709 AVERAGE BUY RATE/MO 6.8% 9.8% 14.8% 19.8% 23.3% 26.8% 30.3% CONVERTER RENTALS - BEGINNING UNITS 4,512 4,669 4,849 5,035 5,211 5,392 5,579 AVERAGE SUBSCRIBERS 4,590 4,759 4,942 5,123 5,301 5,485 5,675 ENDING SUBSCRIBERS 4,669 4,849 5,035 5,211 5,392 5,579 5,772 PENETRATION 66.8% 67.3% 67.8% 68.3% 68.8% 69.3% 69.8% ADDRESSABLE HOMES 4,020 4,249 4,488 4,737 4,981 5,195 5,417 AVERAGE HOMES 4,135 4,369 4,613 4,859 5,088 5,306 5,532 ENDING HOMES 4,249 4,488 4,737 4,981 5,195 5,417 5,647 PENETRATION 60.8% 62.3% 63.8% 65.3% 66.3% 67.3% 68.3% BASIC CHURN RATE 28% 28% 28% 28% 28% 28% 28%
260 FALCON CABLE SYSTEMS CO. EXHIBIT F DALLAS REGION - SALE AS OF DECEMBER 31, 1995 SERVICE RATES - -------------
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------- -------- BASIC $16.94 $17.19 EXPANDED BASIC $5.08 $5.85 NEW PRODUCT TIER #1 $5.87 $6.22 NEW PRODUCT TIER #2 $0.00 $4.00 NEW PRODUCT TIER #3 $0.00 $4.00 PAY $6.96 $6.96 PAY PER VIEW $9.98 $9.98 CONVERTER RENTALS $0.67 $0.99 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 1% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 15% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 6% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #3 0% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% CONVERTER/REMOTE RENTALS 48% 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 $17.19 $17.71 $18.24 $18.78 $19.35 $19.93 $20.53 EXPANDED BASIC $5.85 6.03 6.21 6.39 6.58 6.78 6.99 NEW PRODUCT TIER #1 $6.22 6.41 6.60 6.80 7.00 7.21 7.43 NEW PRODUCT TIER #2 $4.00 4.12 4.24 4.37 4.50 4.64 4.78 NEW PRODUCT TIER #3 $4.00 4.12 4.24 4.37 4.50 4.64 4.78 PAY $6.96 7.03 7.10 7.17 7.24 7.31 7.39 PAY PER VIEW $9.98 10.28 10.59 10.91 11.23 11.57 11.92 CONVERTERS RENTALS $0.99 1.02 1.05 1.08 1.11 1.15 1.18 INSTALLATIONS-NEW $50.00 51.50 53.05 54.64 56.28 57.96 59.70 INSTALLATIONS-CHURN $25.00 25.75 26.52 27.32 28.14 28.98 29.85
261 FALCON CABLE SYSTEMS CO. EXHIBIT G DALLAS REGION - SALE AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES: BASIC $1,419,150 $1,506,856 $1,599,871 $1,695,660 EXPANDED BASIC 385,151 408,954 434,198 460,195 NEW PRODUCT TIER #1 290,594 308,553 327,600 347,214 NEW PRODUCT TIER #2 0 0 0 0 NEW PRODUCT TIER #3 0 0 0 0 PAY TV 287,728 299,669 318,218 333,909 PAY PER VIEW 29,911 44,786 72,307 110,221 CONVERTER RENTALS 54,535 58,232 62,287 66,504 INSTALLATIONS 46,518 49,373 52,399 54,425 COMMERCIAL 41,115 42,348 43,619 44,927 ADVERTISING 99,156 124,396 149,816 176,676 MISCELLANEOUS 93,834 99,205 104,881 110,737 ------ ------ ------- ------- TOTAL REVENUES $2,747,693 $2,942,374 $3,165,196 $3,400,467 OPERATING EXPENSES: OPERATIONS $280,520 $298,960 $319,349 $340,533 GENERAL & ADMINISTRATIVE 251,307 264,537 278,709 293,381 SALES & MARKETING 81,561 95,770 109,842 124,605 PROGRAMMING 473,632 506,494 552,545 603,691 TOTAL OPERATING EXPENSES $1,087,020 $1,165,761 $1,260,445 $1,362,210 ---------- ---------- ---------- ---------- OPERATING INCOME $1,660,673 $1,776,612 $1,904,751 $2,038,257 OPERATING MARGIN 60.4% 60.4% 60.2% 59.9% TOTAL REVENUE/BASIC SUB/MONTH $33.28 $34.57 $36.08 $37.67 CASH FLOW/BASIC SUB/MONTH $20.12 $20.88 $21.71 $22.58 OPERATIONS % OF REVENUE 10% 10% 10% 10% G & A PERCENTAGE OF REVENUE 9% 9% 9% 9% SALES & MARKETING % OF REVENUE 3% 3% 3% 4% PROGRAMMING % OF REVENUE 17% 17% 17% 18% YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES: BASIC $1,794,159 $1,898,314 $2,008,447 $11,922,457 EXPANDED BASIC 486,927 515,194 545,084 3,235,704 NEW PRODUCT TIER #1 367,383 388,711 411,262 2,441,317 NEW PRODUCT TIER #2 0 0 0 0 NEW PRODUCT TIER #3 0 0 0 0 PAY TV 346,445 359,439 372,908 2,318,316 PAY PER VIEW 147,845 184,585 225,901 815,555 CONVERTER RENTALS 70,884 75,546 80,507 468,496 INSTALLATIONS 57,574 60,904 64,424 385,616 COMMERCIAL 46,275 47,663 49,093 315,040 ADVERTISING 203,926 230,257 254,204 1,238,431 MISCELLANEOUS 116,782 123,160 129,891 778,490 ------- ------- ------- ------- TOTAL REVENUES $3,638,199 $3,883,772 $4,141,720 $23,919,421 OPERATING EXPENSES: OPERATIONS $362,862 $386,440 $411,480 $2,400,144 GENERAL & ADMINISTRATIVE 308,417 324,165 340,717 2,061,231 SALES & MARKETING 139,657 154,431 168,260 874,126 PROGRAMMING 653,332 703,839 758,562 4,252,095 TOTAL OPERATING EXPENSES $1,464,268 $1,568,874 $1,679,019 $9,587,597 ---------- ---------- ---------- ---------- OPERATING INCOME $2,173,932 $2,314,898 $2,462,701 $14,331,825 OPERATING MARGIN 59.8% 59.6% 59.5% 59.9% TOTAL REVENUE/BASIC SUB/MONTH $39.23 $40.77 $42.33 CASH FLOW/BASIC SUB/MONTH $23.44 $24.30 $25.17 OPERATIONS % OF REVENUE 10% 10% 10% G & A PERCENTAGE OF REVENUE 8% 8% 8% SALES & MARKETING % OF REVENUE 4% 4% 4% PROGRAMMING % OF REVENUE 18% 18% 18%
262 FALCON CABLE SYSTEMS CO. EXHIBIT H DALLAS REGION - SALE AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT $1,897,545 ADDITIONAL MILES OF PLANT 6.1 6.0 6.3 6.2 AERIAL PLANT PER MILE $12,000 $12,240 $12,485 $12,734 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 PERCENTAGE OF PLANT AERIAL 5% 5% 5% 5% PERCENTAGE OF PLANT UNDERGROUND 95% 95% 95% 95% AVERAGE COST PER CONVERTER $110 $112 $114 $117 PERCENTAGE CONVERTER USE 67% 67% 68% 68% PERCENTAGE REPLACEMENT 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $56 $57 $58 $59 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $3,652 $3,651 $3,959 $3,958 104,075 104,046 112,833 112,816 PLANT REBUILD/UPGRADE/INCL. HE 8,298 8,780 9,272 9,801 AVERAGE COST OF NEW CONVERTERS 15,400 16,277 17,201 16,158 CONVERTER REPLACEMENT 24,909 26,389 27,953 29,605 INSTALLATION COSTS 116,898 122,893 129,187 134,290 MISC. CAPITAL EXPENDITURES 34,399 36,170 38,030 39,915 ------ ------ ------ ------ TOTAL CAPITAL EXPENDITURES $307,630 $318,205 $338,434 $346,544 AS A % OF OPERATING INCOME 18.5% 17.9% 17.8% 17.0% YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT ADDITIONAL MILES OF PLANT 7.1 7.5 7.8 AERIAL PLANT PER MILE $12,989 $13,249 $13,514 UNDERGROUND PLANT PER MILE $19,484 $19,873 $20,271 PERCENTAGE OF PLANT AERIAL 5% 5% 5% PERCENTAGE OF PLANT UNDERGROUND 95% 95% 95% AVERAGE COST PER CONVERTER $119 $121 $124 PERCENTAGE CONVERTER USE 69% 69% 70% PERCENTAGE REPLACEMENT 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $61 $62 $63 MISC. CAPITAL PER SUBSCRIBER $5 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 115% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $4,604 $4,942 $5,289 $30,055 131,223 140,839 150,743 856,576 PLANT REBUILD/UPGRADE/INCL. HE 10,340 10,946 11,594 69,032 AVERAGE COST OF NEW CONVERTERS 17,032 17,953 18,922 118,943 CONVERTER REPLACEMENT 31,249 32,980 34,804 207,888 INSTALLATION COSTS 140,697 147,405 154,428 945,797 MISC. CAPITAL EXPENDITURES 41,824 43,822 45,915 280,074 ------ ------ ------ ------- TOTAL CAPITAL EXPENDITURES $376,970 $398,887 $421,694 $2,508,365 AS A % OF OPERATING INCOME 17.3% 17.2% 17.1%
263 FALCON CABLE SYSTEMS CO. EXHIBIT I DALLAS REGION - SALE AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 ------ ------ ------ ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- YEAR 1 $315,120 $540,047 $385,685 $275,426 $196,922 $196,702 $196,922 $2,106,825 YEAR 2 45,472 77,928 55,654 39,744 28,416 28,384 275,598 YEAR 3 48,362 82,883 59,192 42,270 30,222 262,929 YEAR 4 49,521 84,869 60,611 43,283 238,284 YEAR 5 53,869 92,320 65,932 212,121 YEAR 6 57,001 97,687 154,688 YEAR 7 60,260 60,260 ------- ------- ------- ------- ------- ------- ------ ------ TOTAL DEPRECIATION $315,120 $585,519 $511,976 $463,484 $434,596 $477,319 $522,691 $3,310,705
264 FALCON CABLE SYSTEMS CO. EXHIBIT J DALLAS REGION - SALE AS OF DECEMBER 31, 1995 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 7 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $1,897,545 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
265 DALLAS - EXCHANGE 266 FALCON CABLE SYSTEMS CO. EXHIBIT A DALLAS REGION - EXCHANGE AS OF DECEMBER 31, 1995 VALUATION METHODS - -----------------
LOW HIGH --- ---- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME ADJUSTED OPERATING INCOME, PER BOOKS (DECEMBER 31, 1995) $2,228,584 $2,228,584 VALUATION MULTIPLE 10.5 11.5 ---- ---- ESTIMATED FAIR MARKET VALUE $23,400,128 $25,628,712 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $3,736,193 $3,736,193 OPERATING MARGIN, PER BOOKS (DECEMBER 31, 1995) 58.4% 58.4% ----- ----- "RUNNING RATE" OPERATING INCOME 2,181,383 2,181,383 VALUATION MULTIPLE 10.0 11.0 ---- ---- ESTIMATED FAIR MARKET VALUE $21,813,835 $23,995,218 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $2,290,039 $2,290,039 VALUATION MULTIPLE 9.5 10.5 --- ---- ESTIMATED FAIR MARKET VALUE $21,755,370 $24,045,409 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $17,231,814 $18,739,501 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $16,926,793 $18,370,153 ----------- ----------- SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $23,400,128 $25,628,712 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 21,813,835 23,995,218 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 21,755,370 24,045,409 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 17,231,814 18,739,501 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 16,926,793 18,370,153 ---------- ---------- RANGE OF ESTIMATED FAIR MARKET VALUES $19,041,000 $20,823,000 ESTIMATED FAIR MARKET VALUE $19,932,000 -----------
267 FALCON CABLE SYSTEMS CO. EXHIBIT B DALLAS REGION - EXCHANGE LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $3,922,294 $4,216,945 $4,627,442 $5,070,879 OPERATING EXPENSES 1,632,255 1,766,004 1,915,993 2,080,389 --------- --------- --------- --------- OPERATING INCOME $2,290,039 $2,450,941 $2,711,448 $2,990,490 OPERATING MARGIN 0.58 0.58 0.59 0.59 PARENT SERVICES/MGT FEE (5%) 196,115 210,847 231,372 253,544 FRANCHISE AMORTIZATION (15) 641,133 641,133 641,133 641,133 SUBSCRIBER LIST (8) 218,467 218,467 218,467 218,467 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 941,191 2,052,561 2,363,435 2,209,358 INTEREST 835,588 1,021,299 1,273,712 1,221,283 --------- --------- --------- --------- PRE-TAX INCOME ($542,454) ($1,693,366) ($2,016,671) ($1,553,295) INCOME TAX (EXPENSE)/BENEFIT 184,435 575,744 685,668 528,120 ------- ------- ------- ------- NET INCOME ($358,020) ($1,117,621) ($1,331,003) ($1,025,175) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($542,454) ($1,693,366) ($2,016,671) ($1,553,295) FRANCHISE AMORTIZATION (15) 641,133 641,133 641,133 641,133 SUBSCRIBER LIST (8) 218,467 218,467 218,467 218,467 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 941,191 2,052,561 2,363,435 2,209,358 EQUITY 8,355,879 DEBT 8,355,879 1,857,109 2,524,133 0 RESIDUAL VALUE IN YEAR 7 --------- --------- --------- --------- TOTAL SOURCES OF CASH $17,970,094 $3,075,904 $3,730,497 $1,515,663 USES OF CASH - PURCHASE PRICE - CURRENT $17,231,814 CAPITAL EXPENDITURES 638,177 3,076,008 3,206,204 444,565 DEBT RETIREMENT 0 0 524,293 1,071,098 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) --------- --------- --------- --------- TOTAL USES OF CASH $17,869,991 $3,076,008 $3,730,497 $1,515,663 ANNUAL CASH INCREASE/(DECREASE) $100,103 ($103) $0 $0 CUMULATIVE CASH 100,103 100,000 100,000 100,000 YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $5,497,440 $5,891,841 $6,249,084 $35,475,924 OPERATING EXPENSES 2,243,598 2,402,486 2,557,707 14,598,433 --------- --------- --------- ---------- OPERATING INCOME $3,253,842 $3,489,355 $3,691,376 $20,877,491 OPERATING MARGIN 0.59 0.59 0.59 PARENT SERVICES/MGT FEE (5%) 274,872 294,592 312,454 1,773,796 FRANCHISE AMORTIZATION (15) 641,133 641,133 641,133 4,487,933 SUBSCRIBER LIST (8) 218,467 218,467 218,467 1,529,267 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,708,709 1,524,712 1,479,078 12,279,044 INTEREST 1,114,173 974,379 801,311 7,241,745 --------- ------- ------- --------- PRE-TAX INCOME ($703,512) ($163,929) $238,933 ($6,434,294) INCOME TAX (EXPENSE)/BENEFIT 239,194 55,736 (81,237) 2,187,660 ------- ------ ------- --------- NET INCOME ($464,318) ($108,193) $157,696 ($4,246,634) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($703,512) ($163,929) $238,933 ($6,434,294) FRANCHISE AMORTIZATION (15) 641,133 641,133 641,133 4,487,933 SUBSCRIBER LIST (8) 218,467 218,467 218,467 1,529,267 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,708,709 1,524,712 1,479,078 12,279,044 EQUITY 8,355,879 DEBT 0 0 0 12,737,122 RESIDUAL VALUE IN YEAR 7 33,222,386 33,222,386 --------- --------- ---------- ---------- TOTAL SOURCES OF CASH $1,864,797 $2,220,383 $35,799,998 $66,177,336 USES OF CASH - PURCHASE PRICE - CURRENT $17,231,814 CAPITAL EXPENDITURES 466,861 489,698 511,651 8,833,164 DEBT RETIREMENT 1,397,936 1,730,685 8,013,109 12,737,122 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 6,466,582 6,466,582 --------- --------- --------- --------- TOTAL USES OF CASH $1,864,797 $2,220,383 $14,991,343 $45,268,681 ANNUAL CASH INCREASE/(DECREASE) ($0) ($0) $20,808,655 $20,908,655 CUMULATIVE CASH 100,000 100,000 20,908,655
268 FALCON CABLE SYSTEMS CO. EXHIBIT B DALLAS REGION - EXCHANGE HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $3,922,294 $4,216,945 $4,627,442 $5,070,879 OPERATING EXPENSES 1,632,255 1,766,004 1,915,993 2,080,389 --------- --------- --------- --------- OPERATING INCOME $2,290,039 $2,450,941 $2,711,448 $2,990,490 OPERATING MARGIN 0.58 0.58 0.59 0.59 PARENT SERVICES/MGT FEE (5%) 196,115 210,847 231,372 253,544 FRANCHISE AMORTIZATION (15) 641,133 641,133 641,133 641,133 SUBSCRIBER LIST (8) 218,467 218,467 218,467 218,467 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 941,191 2,052,561 2,363,435 2,209,358 INTEREST 914,947 1,109,461 1,377,202 1,319,794 --------- --------- --------- --------- PRE-TAX INCOME ($621,813) ($1,781,528) ($2,120,162) ($1,651,806) INCOME TAX (EXPENSE)/BENEFIT 211,417 605,719 720,855 561,614 ------- ------- ------- ------- NET INCOME ($410,397) ($1,175,808) ($1,399,307) ($1,090,192) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($621,813) ($1,781,528) ($2,120,162) ($1,651,806) FRANCHISE AMORTIZATION (15) 641,133 641,133 641,133 641,133 SUBSCRIBER LIST (8) 218,467 218,467 218,467 218,467 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 941,191 2,052,561 2,363,435 2,209,358 EQUITY 9,149,468 DEBT 9,149,468 1,945,140 2,677,418 0 RESIDUAL VALUE IN YEAR 7 --------- --------- --------- --------- TOTAL SOURCES OF CASH $19,477,913 $3,075,773 $3,780,291 $1,417,152 USES OF CASH - PURCHASE PRICE - CURRENT $18,739,501 CAPITAL EXPENDITURES 638,177 3,076,008 3,206,204 444,565 DEBT RETIREMENT 0 0 574,087 972,587 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) --------- --------- --------- --------- TOTAL USES OF CASH $19,377,678 $3,076,008 $3,780,291 $1,417,152 ANNUAL CASH INCREASE/(DECREASE) $100,235 ($235) $0 ($0) CUMULATIVE CASH 100,235 100,000 100,000 100,000 YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ---- REVENUES $5,497,440 $5,891,841 $6,249,084 $35,475,924 OPERATING EXPENSES 2,243,598 2,402,486 2,557,707 14,598,433 --------- --------- --------- ---------- OPERATING INCOME $3,253,842 $3,489,355 $3,691,376 $20,877,491 OPERATING MARGIN 0.59 0.59 0.59 PARENT SERVICES/MGT FEE (5%) 274,872 294,592 312,454 1,773,796 FRANCHISE AMORTIZATION (15) 641,133 641,133 641,133 4,487,933 SUBSCRIBER LIST (8) 218,467 218,467 218,467 1,529,267 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,708,709 1,524,712 1,479,078 12,279,044 INTEREST 1,222,535 1,093,578 932,429 7,969,946 --------- --------- ------- --------- PRE-TAX INCOME ($811,874) ($283,127) $107,815 ($7,162,495) INCOME TAX (EXPENSE)/BENEFIT 276,037 96,263 (36,657) 2,435,248 ------- ------ ------- --------- NET INCOME ($535,837) ($186,864) $71,158 ($4,727,246) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($811,874) ($283,127) $107,815 ($7,162,495) FRANCHISE AMORTIZATION (15) 641,133 641,133 641,133 4,487,933 SUBSCRIBER LIST (8) 218,467 218,467 218,467 1,529,267 NON-COMPETE COVENANTS (0) 0 0 0 0 DEPRECIATION 1,708,709 1,524,712 1,479,078 12,279,044 EQUITY 9,149,468 DEBT 0 0 0 13,772,025 RESIDUAL VALUE IN YEAR 7 33,222,386 33,222,386 --------- --------- ---------- ---------- TOTAL SOURCES OF CASH $1,756,435 $2,101,185 $35,668,880 $67,277,628 USES OF CASH - PURCHASE PRICE - CURRENT $18,739,501 CAPITAL EXPENDITURES 466,861 489,698 511,651 8,833,164 DEBT RETIREMENT 1,289,574 1,611,487 9,324,290 13,772,025 TAXES PAID ON NET INCOME 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 5,706,380 5,706,380 --------- --------- --------- --------- TOTAL USES OF CASH $1,756,435 $2,101,185 $15,542,321 $47,051,070 ANNUAL CASH INCREASE/(DECREASE) $0 ($0) $20,126,558 $20,226,558 CUMULATIVE CASH 100,000 100,000 20,226,558
269 FALCON CABLE SYSTEMS CO. EXHIBIT C DALLAS REGION - EXCHANGE LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $16,711,758 YEAR 1 DEBT REQUIREMENTS 8,355,879 YEAR 1 EQUITY REQUIREMENTS 8,355,879 FINANCING AVAILABLE $14,485,794 $14,885,253 $15,931,118 $17,624,413 UNUSED LEVERAGE 6,129,915 4,672,265 3,718,290 6,482,683 SENIOR DEBT: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $8,355,879 $8,355,879 $7,831,586 DEBT ADDED 8,355,879 0 0 0 TOTAL ANNUAL PAYMENTS 835,588 835,588 1,359,881 1,359,881 INTEREST 835,588 835,588 835,588 783,159 PRINCIPAL REPAYMENT 0 0 524,293 576,722 ENDING BALANCE 8,355,879 8,355,879 7,831,586 7,254,864 LINE OF CREDIT: BEGINNING DEBT $0 $0 $1,857,109 $4,381,243 BORROWINGS 0 1,857,109 2,524,133 0 PRINCIPAL PAYMENTS 0 0 0 494,376 INTEREST 0 185,711 438,124 438,124 SENIOR DEBT COVERAGE 3.6 3.4 2.9 2.4 LOC DEBT COVERAGE 0.0 0.8 1.6 1.3 TOTAL DEBT COVERAGE 3.6 4.2 4.5 3.7 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $19,438,183 $21,149,973 $22,680,804 UNUSED LEVERAGE 9,694,389 13,136,863 17,525,786 SENIOR DEBT: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $7,254,864 $6,620,469 $5,922,635 DEBT ADDED 0 0 0 8,355,879 TOTAL ANNUAL PAYMENTS 1,359,881 1,359,881 1,359,881 8,470,580 INTEREST 725,486 662,047 592,264 5,269,719 PRINCIPAL REPAYMENT 634,394 697,834 767,617 3,200,861 ENDING BALANCE 6,620,469 5,922,635 5,155,018 LINE OF CREDIT: BEGINNING DEBT $3,886,866 $3,123,325 $2,090,474 $0 BORROWINGS 0 0 0 4,381,243 PRINCIPAL PAYMENTS 763,541 1,032,851 2,090,474 4,381,243 INTEREST 388,687 312,333 209,047 1,972,026 SENIOR DEBT COVERAGE 2.0 1.7 1.4 LOC DEBT COVERAGE 1.0 0.6 0.0 TOTAL DEBT COVERAGE 3.0 2.3 1.4
270 FALCON CABLE SYSTEMS CO. EXHIBIT C DALLAS REGION - EXCHANGE HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $18,298,935 YEAR 1 DEBT REQUIREMENTS 9,149,468 YEAR 1 EQUITY REQUIREMENTS 9,149,468 FINANCING AVAILABLE $16,714,377 $17,175,292 $18,382,060 $20,335,861 UNUSED LEVERAGE 7,564,910 6,080,685 5,184,122 8,110,511 SENIOR: 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING DEBT $0 $9,149,468 $9,149,468 $8,575,381 DEBT ADDED 9,149,468 0 0 0 TOTAL ANNUAL PAYMENTS 914,947 914,947 1,489,034 1,489,034 INTEREST 914,947 914,947 914,947 857,538 PRINCIPAL REPAYMENT 0 0 574,087 631,496 ENDING BALANCE 9,149,468 9,149,468 8,575,381 7,943,885 LINE OF CREDIT: BEGINNING DEBT $0 $0 $1,945,140 $4,622,557 BORROWINGS 0 1,945,140 2,677,418 0 PRINCIPAL PAYMENTS 0 0 0 341,092 INTEREST 0 194,514 462,256 462,256 SENIOR DEBT COVERAGE 4.0 3.7 3.2 2.7 LOC DEBT COVERAGE 0.0 0.8 1.7 1.4 TOTAL DEBT COVERAGE 4.0 4.5 4.9 4.1 TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $22,428,673 $24,403,815 $26,170,159 UNUSED LEVERAGE 11,492,896 17,918,685 20,525,550 SENIOR: 2000 2001 2002 TOTAL ---- ---- ---- ----- BEGINNING DEBT $7,943,885 $7,249,240 $6,485,130 DEBT ADDED 0 0 0 $9,149,468 TOTAL ANNUAL PAYMENTS 1,489,034 1,489,034 1,489,034 9,275,062 INTEREST 794,389 724,924 648,513 5,770,204 PRINCIPAL REPAYMENT 694,645 764,110 840,521 3,504,858 ENDING BALANCE 7,249,240 6,485,130 5,644,609 LINE OF CREDIT: BEGINNING DEBT $4,281,465 $3,686,537 $2,839,160 $0 BORROWINGS 0 0 0 4,622,557 PRINCIPAL PAYMENTS 594,928 847,377 2,839,160 4,622,557 INTEREST 428,147 368,654 283,916 2,199,742 SENIOR DEBT COVERAGE 2.2 1.9 1.5 LOC DEBT COVERAGE 1.1 0.8 0.0 TOTAL DEBT COVERAGE 3.4 2.7 1.5
271 FALCON CABLE SYSTEMS CO. EXHIBIT D DALLAS REGION - EXCHANGE AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES $3,922,294 $4,216,945 $4,627,442 $5,070,879 OPERATING EXPENSES 1,632,255 1,766,004 1,915,993 2,080,389 --------- --------- --------- --------- OPERATING INCOME 2,290,039 2,450,941 2,711,448 2,990,490 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 638,177 3,076,008 3,206,204 444,565 ------- --------- --------- ------- TOTAL CASH FLOW $1,651,862 ($625,066) ($494,756) $2,545,925 NET PRESENT VALUE @ 16.6% $16,926,793 ----------- NET PRESENT VALUE @ 15.1% $18,370,153 ----------- YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- REVENUES $5,497,440 $5,891,841 $6,249,084 $35,475,924 OPERATING EXPENSES 2,243,598 2,402,486 2,557,707 14,598,433 --------- --------- --------- ---------- OPERATING INCOME 3,253,842 3,489,355 3,691,376 20,877,491 PLUS: RESIDUAL VALUE 33,222,386 33,222,386 LESS: CAPITAL EXPENDITURES 466,861 489,698 511,651 8,833,164 ------- ------- ------- --------- TOTAL CASH FLOW $2,786,981 $2,999,657 $36,402,111 $45,266,713 NET PRESENT VALUE @ 16.6% NET PRESENT VALUE @ 15.1%
272 FALCON CABLE SYSTEMS CO. EXHIBIT E DALLAS REGION - EXCHANGE AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- BEGINNING MILES 303.9 MILES ADDED 6.9 7.0 7.2 7.3 CUMULATIVE MILES 310.8 317.8 325.0 332.3 DENSITY OF ADDITIONAL PLANT 37 37 37 37 HOMES PASSED - BEGINNING 14,561.0 NEW HOMES & EXTENSIONS 255 259 264 268 HOMES PASSED - ENDING 14,816 15,075 15,339 15,607 GROWTH IN HOMES 1.8% 1.8% 1.8% 1.8% BASIC - BEGINNING SUBSCRIBERS 10,153.0 10,405 10,662 10,925 AVERAGE SUBSCRIBERS 10,279 10,533 10,794 11,041 ENDING SUBSCRIBERS 10,405 10,662 10,925 11,156 PENETRATION 70.2% 70.7% 71.2% 71.5% EXPANDED BASIC - BEGINNING 7,078.0 7,254 7,433 7,617 AVERAGE SUBSCRIBERS 7,166 7,343 7,525 7,697 ENDING SUBSCRIBERS 7,254 7,433 7,617 7,777 PENETRATION 69.7% 69.7% 69.7% 69.7% NEW PRODUCT TIER #1 - BEGINNING 3,624.0 3,880 4,414 4,970 AVERAGE SUBSCRIBERS 3,752 4,147 4,692 5,023 ENDING SUBSCRIBERS 3,880 4,414 4,970 5,075 PENETRATION 37.3% 41.4% 45.5% 45.5% NEW PRODUCT TIER #2 - BEGINNING 0 0 512 1,835 AVERAGE SUBSCRIBERS 0 256 1,174 2,329 ENDING SUBSCRIBERS 0 512 1,835 2,822 PENETRATION 0.0% 4.8% 16.8% 25.3% NEW PRODUCT TIER #3 - BEGINNING 0 0 512 1,835 AVERAGE SUBSCRIBERS 0 256 1,174 2,329 ENDING SUBSCRIBERS 0 512 1,835 2,822 PENETRATION 0.0% 4.8% 16.8% 25.3% PAY TV - BEGINNING UNITS 3,953.0 3,947 4,151 4,363 AVERAGE UNITS 3,950 4,049 4,257 4,409 ENDING UNITS 3,947 4,151 4,363 4,455 PENETRATION 37.9% 38.9% 39.9% 39.9% PAY PER VIEW - BEGINNING UNITS/MO 147 227 393 702 AVERAGE UNITS 187 310 547 874 ENDING UNITS 227 393 702 1,047 AVERAGE BUY RATE/MO 6.8% 9.8% 14.8% 19.8% CONVERTER RENTALS - BEGINNING UNITS 3,465 3,707 4,279 4,903 AVERAGE SUBSCRIBERS 3,586 3,993 4,591 5,211 ENDING SUBSCRIBERS 3,707 4,279 4,903 5,520 PENETRATION 35.6% 40.1% 44.9% 49.5% ADDRESSABLE HOMES 2,790.0 3,353 4,023 4,750 AVERAGE HOMES 3,072 3,688 4,387 5,024 ENDING HOMES 3,353 4,023 4,750 5,297 PENETRATION 32.2% 37.7% 43.5% 47.5% BASIC CHURN RATE 28% 28% 28% 28%
YEAR ENDING DECEMBER 31, 2000 2001 2002 ------ ------ ------ BEGINNING MILES MILES ADDED 7.4 7.5 7.7 CUMULATIVE MILES 339.7 347.2 354.9 DENSITY OF ADDITIONAL PLANT 37 37 37 HOMES PASSED - BEGINNING NEW HOMES & EXTENSIONS 273 278 283 HOMES PASSED - ENDING 15,880 16,158 16,441 GROWTH IN HOMES 1.8% 1.8% 1.8% BASIC - BEGINNING SUBSCRIBERS 11,156 11,391 11,626 AVERAGE SUBSCRIBERS 11,273 11,508 11,747 ENDING SUBSCRIBERS 11,391 11,626 11,867 PENETRATION 71.7% 72.0% 72.2% EXPANDED BASIC - BEGINNING 7,777 7,941 8,105 AVERAGE SUBSCRIBERS 7,859 8,023 8,189 ENDING SUBSCRIBERS 7,941 8,105 8,273 PENETRATION 69.7% 69.7% 69.7% NEW PRODUCT TIER #1 - BEGINNING 5,075 5,182 5,289 AVERAGE SUBSCRIBERS 5,129 5,236 5,344 ENDING SUBSCRIBERS 5,182 5,289 5,399 PENETRATION 45.5% 45.5% 45.5% NEW PRODUCT TIER #2 - BEGINNING 2,822 3,850 3,930 AVERAGE SUBSCRIBERS 3,336 3,890 3,970 ENDING SUBSCRIBERS 3,850 3,930 4,011 PENETRATION 33.8% 33.8% 33.8% NEW PRODUCT TIER #3 - BEGINNING 2,822 3,850 3,930 AVERAGE SUBSCRIBERS 3,336 3,890 3,970 ENDING SUBSCRIBERS 3,850 3,930 4,011 PENETRATION 33.8% 33.8% 33.8% PAY TV - BEGINNING UNITS 4,455 4,549 4,643 AVERAGE UNITS 4,502 4,596 4,691 ENDING UNITS 4,549 4,643 4,739 PENETRATION 39.9% 39.9% 39.9% PAY PER VIEW - BEGINNING UNITS/MO 1,047 1,372 1,721 AVERAGE UNITS 1,210 1,546 1,916 ENDING UNITS 1,372 1,721 2,111 AVERAGE BUY RATE/MO 23.3% 26.8% 30.3% CONVERTER RENTALS - BEGINNING UNITS 5,520 6,160 6,822 AVERAGE SUBSCRIBERS 5,840 6,491 7,026 ENDING SUBSCRIBERS 6,160 6,822 7,230 PENETRATION 54.1% 58.7% 60.9% ADDRESSABLE HOMES 5,297 5,898 6,427 AVERAGE HOMES 5,597 6,163 6,701 ENDING HOMES 5,898 6,427 6,975 PENETRATION 51.8% 55.3% 58.8% BASIC CHURN RATE 28% 28% 28%
273 FALCON CABLE SYSTEMS CO. EXHIBIT F DALLAS REGION - EXCHANGE AS OF DECEMBER 31, 1995 SERVICE RATES - -------------
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------- ------------- BASIC $16.81 $17.12 EXPANDED BASIC $6.60 $7.54 NEW PRODUCT TIER #1 $4.49 $4.69 NEW PRODUCT TIER #2 $0.00 $4.00 NEW PRODUCT TIER #3 $0.00 $4.00 PAY 6.96 $6.96 PAY PER VIEW 9.99 $9.99 CONVERTER RENTALS 0.63 $0.94 INSTALLATIONS-NEW 50.00 $50.00 INSTALLATIONS-CHURN 25.00 $25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 ---- ---- ---- ---- ---- ---- ---- PERCENTAGE RATE INCREASES - ------------------------- BASIC 2% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 14% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 4% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #3 0% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% CONVERTER/REMOTE RENTALS 49% 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 $17.12 $17.63 $18.16 $18.71 $19.27 $19.85 $20.44 EXPANDED BASIC $7.54 7.77 8.00 8.24 8.49 8.74 9.00 NEW PRODUCT TIER #1 $4.69 4.83 4.98 5.12 5.28 5.44 5.60 NEW PRODUCT TIER #2 $4.00 4.12 4.24 4.37 4.50 4.64 4.78 NEW PRODUCT TIER #3 $4.00 4.12 4.24 4.37 4.50 4.64 4.78 PAY $6.96 7.03 7.10 7.17 7.24 7.31 7.39 PAY PER VIEW $9.99 10.29 10.60 10.92 11.25 11.59 11.93 CONVERTERS RENTALS $0.94 0.97 1.00 1.03 1.06 1.09 1.12 INSTALLATIONS-NEW $50.00 51.50 53.05 54.64 56.28 57.96 59.70 INSTALLATIONS-CHURN $25.00 25.75 26.52 27.32 28.14 28.98 29.85
274 FALCON CABLE SYSTEMS CO. EXHIBIT G DALLAS REGION - EXCHANGE AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---- ---- ---- ---- REVENUES: BASIC $2,111,690 $2,228,916 $2,352,532 $2,478,500 EXPANDED BASIC 648,344 684,335 722,288 760,964 NEW PRODUCT TIER #1 211,171 240,390 280,145 308,895 NEW PRODUCT TIER #2 0 12,651 59,765 122,155 NEW PRODUCT TIER #3 0 12,651 59,765 122,155 PAY TV 329,901 341,562 362,701 379,394 PAY PER VIEW 22,430 38,297 69,639 114,590 CONVERTER RENTALS 40,448 46,387 54,936 64,232 INSTALLATIONS 67,056 70,757 74,658 76,947 COMMERCIAL 195,177 201,032 207,063 213,275 ADVERTISING 148,148 184,758 221,199 259,300 MISCELLANEOUS 147,928 155,209 162,751 170,472 ---------- ---------- ---------- ---------- TOTAL REVENUES $3,922,294 $4,216,945 $4,627,442 $5,070,879 OPERATING EXPENSES: OPERATIONS $492,002 $521,302 $555,951 $592,481 GENERAL & ADMINISTRATIVE 332,140 349,489 369,050 389,345 SALES & MARKETING 163,907 207,203 231,424 256,507 PROGRAMMING 644,206 688,010 759,569 842,056 ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $1,632,255 $1,766,004 $1,915,993 $2,080,389 ---------- ---------- ---------- ---------- OPERATING INCOME $2,290,039 $2,450,941 $2,711,448 $2,990,490 OPERATING MARGIN 58.4% 58.1% 58.6% 59.0% TOTAL REVENUE/BASIC SUB/MONTH $31.80 $33.36 $35.73 $38.27 CASH FLOW/BASIC SUB/MONTH $18.57 $19.39 $20.93 $22.57 OPERATIONS % OF REVENUE 13% 12% 12% 12% G & A PERCENTAGE OF REVENUE 8% 8% 8% 8% SALES & MARKETING % OF REVENUE 4.2% 4.9% 5.0% 5.1% PROGRAMMING % OF REVENUE 16% 16% 16% 17% YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL REVENUES: BASIC $2,606,631 $2,740,872 $2,881,499 $17,400,640 EXPANDED BASIC 800,304 841,519 884,695 5,342,449 NEW PRODUCT TIER #1 324,863 341,594 359,120 2,066,177 NEW PRODUCT TIER #2 180,237 216,452 227,558 818,819 NEW PRODUCT TIER #3 180,237 216,452 227,558 818,819 PAY TV 391,260 403,421 415,885 2,624,124 PAY PER VIEW 163,303 215,011 274,370 897,641 CONVERTER RENTALS 74,136 84,876 94,630 459,646 INSTALLATIONS 80,919 84,895 89,245 544,477 COMMERCIAL 219,673 226,263 233,051 1,495,533 ADVERTISING 297,485 333,815 366,196 1,810,900 MISCELLANEOUS 178,390 186,670 195,277 1,196,698 ---------- ---------- ---------- ----------- TOTAL REVENUES $5,497,440 $5,891,841 $6,249,084 $35,475,924 OPERATING EXPENSES: OPERATIONS $629,095 $665,589 $701,831 $4,158,251 GENERAL & ADMINISTRATIVE 409,697 430,273 451,036 2,731,029 SALES & MARKETING 281,811 306,527 329,667 1,777,047 PROGRAMMING 922,994 1,000,097 1,075,174 5,932,106 ---------- ---------- ---------- ----------- TOTAL OPERATING EXPENSES $2,243,598 $2,402,486 $2,557,707 $14,598,433 ---------- ---------- ---------- ---------- OPERATING INCOME $3,253,842 $3,489,355 $3,691,376 $20,877,491 OPERATING MARGIN 59.2% 59.2% 59.1% 58.8% TOTAL REVENUE/BASIC SUB/MONTH $40.64 $42.66 $44.33 CASH FLOW/BASIC SUB/MONTH $24.05 $25.27 $26.19 OPERATIONS % OF REVENUE 11% 11% 11% G & A PERCENTAGE OF REVENUE 7% 7% 7% SALES & MARKETING % OF REVENUE 5.1% 5.2% 5.3% PROGRAMMING % OF REVENUE 17% 17% 17%
275 FALCON CABLE SYSTEMS CO. EXHIBIT H DALLAS REGION - EXCHANGE AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 ---------- ---------- ---------- ---------- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT $5,948,183 ADDITIONAL MILES OF PLANT 6.9 7.0 7.2 7.3 AERIAL PLANT PER MILE $12,000 $12,240 $12,485 $12,734 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 PERCENTAGE OF PLANT AERIAL 5% 5% 5% 5% PERCENTAGE OF PLANT UNDERGROUND 95% 95% 95% 95% AVERAGE COST PER CONVERTER $110 $112 $114 $117 PERCENTAGE CONVERTER USE 36% 40% 45% 49% PERCENTAGE REPLACEMENT 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $54 $55 $56 $57 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $4,148 $4,305 $4,468 $4,637 118,225 122,700 127,344 132,164 PLANT REBUILD/UPGRADE/INCL. HE 269,075 2,687,225 2,796,500 17,590 AVERAGE COST OF NEW CONVERTERS 9,866 11,592 13,522 13,296 CONVERTER REPLACEMENT 19,895 23,423 27,381 31,551 INSTALLATION COSTS 165,573 173,042 180,840 186,744 MISC. CAPITAL EXPENDITURES 51,394 53,721 56,150 58,582 ---------- ---------- ---------- ---------- TOTAL CAPITAL EXPENDITURES $638,177 $3,076,008 $3,206,204 $444,565 AS A % OF OPERATING INCOME 27.9% 125.5% 118.2% 14.9% YEAR ENDING DECEMBER 31, 2000 2001 2002 TOTAL ---- ---- ---- ----- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT ADDITIONAL MILES OF PLANT 7.4 7.5 7.7 AERIAL PLANT PER MILE $12,989 $13,249 $13,514 UNDERGROUND PLANT PER MILE $19,484 $19,873 $20,271 PERCENTAGE OF PLANT AERIAL 5% 5% 5% PERCENTAGE OF PLANT UNDERGROUND 95% 95% 95% AVERAGE COST PER CONVERTER $119 $121 $124 PERCENTAGE CONVERTER USE 54% 59% 61% PERCENTAGE REPLACEMENT 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $58 $60 $61 MISC. CAPITAL PER SUBSCRIBER $5 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 115% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $4,813 $4,995 $5,184 $32,551 137,166 142,358 147,746 927,701 PLANT REBUILD/UPGRADE/INCL. HE 18,344 19,128 19,943 5,827,805 AVERAGE COST OF NEW CONVERTERS 15,127 16,796 18,148 98,348 CONVERTER REPLACEMENT 35,915 40,587 43,876 222,627 INSTALLATION COSTS 194,485 202,302 210,611 1,313,598 MISC. CAPITAL EXPENDITURES 61,012 63,531 66,143 410,533 ---------- ---------- ---------- ---------- TOTAL CAPITAL EXPENDITURES $466,861 $489,698 $511,651 $8,833,164 AS A % OF OPERATING INCOME 14.3% 14.0% 13.9%
276 FALCON CABLE SYSTEMS CO. EXHIBIT I DALLAS REGION - EXCHANGE AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7 ------ ------ ------ ------ ------ ------ ------ ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% 8.9% 8.9% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 2001 2002 TOTAL ---- ---- ---- ---- ---- ---- ---- ----- YEAR 1 $941,191 $1,612,999 $1,151,954 $822,636 $588,162 $587,503 $588,162 $6,292,608 YEAR 2 439,561 753,314 537,994 384,193 274,687 274,380 2,664,130 YEAR 3 458,167 785,199 560,765 400,455 286,314 2,490,900 YEAR 4 63,528 108,874 77,754 55,526 305,683 YEAR 5 66,714 114,334 81,654 262,703 YEAR 6 69,978 119,927 189,905 YEAR 7 73,115 73,115 -------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- TOTAL DEPRECIATION $941,191 $2,052,561 $2,363,435 $2,209,358 $1,708,709 $1,524,712 $1,479,078 $12,279,044
277 FALCON CABLE SYSTEMS CO. EXHIBIT J DALLAS REGION - EXCHANGE AS OF DECEMBER 31, 1995 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 7 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $5,948,183 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS -------- -------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
278 FLORENCE-EXCHANGE 279 FALCON CABLE SYSTEMS CO. EXHIBIT A FLORENCE REGION - EXCHANGE AS OF DECEMBER 31, 1995 VALUATION METHODS - -----------------
LOW HIGH I. MULTIPLE OF PAST YEAR'S OPERATING INCOME OPERATING INCOME, PER BOOKS (DECEMBER 31, 1995) $1,006,163 $1,006,163 ----------- ----------- VALUATION MULTIPLE 10.5 11.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $10,564,712 $11,570,875 ----------- ----------- II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME ESTIMATED OPERATING INCOME TOTAL CURRENT YEAR'S REVENUE $1,906,777 $1,906,777 OPERATING MARGIN, PER BOOKS (DECEMBER 31, 1995) 54.9% 54.9% ----------- ----------- "RUNNING RATE" OPERATING INCOME 1,047,246 1,047,246 VALUATION MULTIPLE 10.0 11.0 ----------- ----------- ESTIMATED FAIR MARKET VALUE $10,472,457 $11,519,703 ----------- ----------- III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME OPERATING INCOME $1,110,876 $1,110,876 VALUATION MULTIPLE 9.5 10.5 ----------- ----------- ESTIMATED FAIR MARKET VALUE $10,553,325 $11,664,201 ----------- ----------- IV. DISCOUNTED CASH FLOW RETURN ON EQUITY TARGET RETURN ON EQUITY 14.0% 12.0% ESTIMATED FAIR MARKET VALUE $9,603,311 $10,572,968 ----------- ----------- V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT TARGET RETURN ON INVSTMT 16.6% 15.1% ESTIMATED FAIR MARKET VALUE $9,470,275 $10,352,769 ----------- -----------
SUMMARY OF VALUES - ----------------- I. MULTIPLE OF PAST YEAR'S OPERATING INCOME $10,564,712 $11,570,875 II. MULTIPLE OF "RUNNING RATE" OPERATING INCOME 10,472,457 11,519,703 III. MULTIPLE OF NEXT YEAR'S OPERATING INCOME 10,553,325 11,664,201 IV. DISCOUNTED CASH FLOW RETURN ON EQUITY 9,603,311 10,572,968 V. DISCOUNTED CASH FLOW RETURN ON INVESTMENT 9,470,275 10,352,769 ----------- ----------- RANGE OF ESTIMATED FAIR MARKET VALUES $9,932,000 $10,917,000 ESTIMATED FAIR MARKET VALUE $10,425,000 -----------
280 FALCON CABLE SYSTEMS CO. EXHIBIT B FLORENCE REGION - EXCHANGE LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- REVENUES $2,022,632 $2,201,449 $2,400,299 $2,601,239 $2,795,196 OPERATING EXPENSES 911,756 987,811 1,065,251 1,148,434 1,232,960 ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $1,110,876 $1,213,638 $1,335,048 $1,452,804 $1,562,236 OPERATING MARGIN 0.55 0.55 0.56 0.56 0.56 PARENT SERVICES/MGT FEE (5%) 101,132 110,072 120,015 130,062 139,760 FRANCHISE AMORTIZATION (15) 377,467 377,467 377,467 377,467 377,467 SUBSCRIBER LIST (8) 97,800 97,800 97,800 97,800 97,800 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 407,282 727,908 709,299 697,547 563,297 INTEREST 468,526 468,526 494,993 465,595 406,791 ---------- ---------- ---------- ---------- ---------- PRE-TAX INCOME ($341,330) ($568,136) ($464,526) ($315,666) ($22,878) INCOME TAX (EXPENSE)/BENEFIT 116,052 193,166 157,939 107,327 7,779 ---------- ---------- ---------- ---------- ---------- NET INCOME ($225,278) ($374,970) ($306,587) ($208,340) ($15,100) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($341,330) ($568,136) ($464,526) ($315,666) ($22,878) FRANCHISE AMORTIZATION (15) 377,467 377,467 377,467 377,467 377,467 SUBSCRIBER LIST (8) 97,800 97,800 97,800 97,800 97,800 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 407,282 727,908 709,299 697,547 563,297 EQUITY 4,685,263 DEBT 4,685,263 0 264,665 0 0 ---------- ---------- ---------- ---------- ---------- RESIDUAL VALUE IN YEAR 9 TOTAL SOURCES OF CASH $9,911,745 $635,039 $984,705 $857,147 $1,015,685 USES OF CASH - PURCHASE PRICE - CURRENT $9,603,311 CAPITAL EXPENDITURES 208,367 209,335 1,116,497 220,604 233,268 DEBT RETIREMENT 0 0 293,979 588,042 355,714 TAXES PAID ON NET INCOME 0 0 0 0 0 ---------- ---------- ---------- ---------- ---------- TAXES PAID ON SALE (RESIDUAL) TOTAL USES OF CASH $9,811,678 $209,335 $1,410,476 $808,645 $588,982 ANNUAL CASH INCREASE/(DECREASE) $100,067 $425,704 ($425,771) $48,502 $426,703 CUMULATIVE CASH 100,067 525,771 100,000 148,502 575,205
RETURN ON EQUITY METHOD PROFIT AND LOSS - LOW VALUE - ---------------------------
YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 TOTAL ---------- ---------- ---------- ---------- ---------- REVENUES $2,983,410 $3,172,462 $3,368,978 $3,577,807 $25,123,472 OPERATING EXPENSES 1,315,210 1,396,366 1,480,650 1,571,979 11,110,419 ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $1,668,200 $1,776,095 $1,888,329 $2,005,828 $14,013,053 OPERATING MARGIN 0.56 0.56 0.56 0.56 PARENT SERVICES/MGT FEE (5%) 149,170 158,623 168,449 178,890 1,256,174 FRANCHISE AMORTIZATION (15) 377,467 377,467 377,467 377,467 3,397,200 SUBSCRIBER LIST (8) 97,800 97,800 97,800 97,800 880,200 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 542,173 534,127 304,076 312,137 4,797,846 INTEREST 371,219 332,091 289,049 241,704 3,538,495 ---------- ---------- ---------- ---------- ---------- PRE-TAX INCOME $130,370 $275,988 $651,488 $797,830 $143,139 INCOME TAX (EXPENSE)/BENEFIT (44,326) (93,836) (221,506) (271,262) (48,667) ---------- ---------- ---------- ---------- ---------- NET INCOME $86,044 $182,152 $429,982 $526,568 $94,472 SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME $130,370 $275,988 $651,488 $797,830 $143,139 FRANCHISE AMORTIZATION (15) 377,467 377,467 377,467 377,467 3,397,200 SUBSCRIBER LIST (8) 97,800 97,800 97,800 97,800 880,200 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 542,173 534,127 304,076 312,137 4,797,846 EQUITY 4,685,263 DEBT 0 0 0 0 4,949,928 RESIDUAL VALUE IN YEAR 9 18,052,449 18,052,449 ---------- ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $1,147,810 $1,285,381 $1,430,830 $19,637,682 $36,906,025 USES OF CASH - PURCHASE PRICE - CURRENT $9,603,311 CAPITAL EXPENDITURES 238,542 241,177 253,119 265,642 2,986,551 DEBT RETIREMENT 391,286 430,414 473,456 2,417,038 4,949,928 TAXES PAID ON NET INCOME 0 0 0 48,667 48,667 TAXES PAID ON SALE (RESIDUAL) 4,942,863 4,942,863 ---------- ---------- ---------- ---------- ---------- TOTAL USES OF CASH $629,827 $671,591 $726,575 $7,674,211 $22,531,321 ANNUAL CASH INCREASE/(DECREASE) $517,982 $613,790 $704,256 $11,963,471 $14,374,705 CUMULATIVE CASH 1,093,188 1,706,978 2,411,233 14,374,705
281 FALCON CABLE SYSTEMS CO. EXHIBIT B FLORENCE REGION - EXCHANGE HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- REVENUES $2,022,632 $2,201,449 $2,400,299 $2,601,239 $2,795,196 OPERATING EXPENSES 911,756 987,811 1,065,251 1,148,434 1,232,960 ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $1,110,876 $1,213,638 $1,335,048 $1,452,804 $1,562,236 OPERATING MARGIN 0.55 0.55 0.56 0.56 0.56 PARENT SERVICES/MGT FEE (5%) 101,132 110,072 120,015 130,062 139,760 FRANCHISE AMORTIZATION (15) 377,467 377,467 377,467 377,467 377,467 SUBSCRIBER LIST (8) 97,800 97,800 97,800 97,800 97,800 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 407,282 727,908 709,299 697,547 563,297 INTEREST 519,561 519,561 560,926 528,326 470,945 ---------- ---------- ---------- ---------- ---------- PRE-TAX INCOME ($392,365) ($619,170) ($530,460) ($378,398) ($87,032) INCOME TAX (EXPENSE)/BENEFIT 133,404 210,518 180,356 128,655 29,591 ---------- ---------- ---------- ---------- ---------- NET INCOME ($258,961) ($408,652) ($350,103) ($249,742) ($57,441) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME ($392,365) ($619,170) ($530,460) ($378,398) ($87,032) FRANCHISE AMORTIZATION (15) 377,467 377,467 377,467 377,467 377,467 SUBSCRIBER LIST (8) 97,800 97,800 97,800 97,800 97,800 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 407,282 727,908 709,299 697,547 563,297 EQUITY 5,195,609 DEBT 5,195,609 0 413,655 0 0 ---------- ---------- ---------- ---------- ---------- RESIDUAL VALUE IN YEAR 9 TOTAL SOURCES OF CASH $10,881,403 $584,004 $1,067,761 $794,416 $951,531 USES OF CASH - PURCHASE PRICE - CURRENT $10,572,968 CAPITAL EXPENDITURES 208,367 209,335 1,116,497 220,604 233,268 DEBT RETIREMENT 0 0 326,001 573,813 592,904 TAXES PAID ON NET INCOME 0 0 0 0 0 ---------- ---------- ---------- ---------- ---------- TAXES PAID ON SALE (RESIDUAL) TOTAL USES OF CASH $10,781,335 $209,335 $1,442,498 $794,416 $826,171 ANNUAL CASH INCREASE/(DECREASE) $100,067 $374,669 ($374,736) $0 $125,360 CUMULATIVE CASH 100,067 474,736 100,000 100,000 225,360
RETURN ON EQUITY METHOD PROFIT AND LOSS - HIGH VALUE - ----------------------------
YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 TOTAL ---------- ---------- ---------- ---------- ---------- REVENUES $2,983,410 $3,172,462 $3,368,978 $3,577,807 $25,123,472 OPERATING EXPENSES 1,315,210 1,396,366 1,480,650 1,571,979 11,110,419 ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $1,668,200 $1,776,095 $1,888,329 $2,005,828 $14,013,053 OPERATING MARGIN 0.56 0.56 0.56 0.56 PARENT SERVICES/MGT FEE (5%) 149,170 158,623 168,449 178,890 1,256,174 FRANCHISE AMORTIZATION (15) 377,467 377,467 377,467 377,467 3,397,200 SUBSCRIBER LIST (8) 97,800 97,800 97,800 97,800 880,200 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 542,173 534,127 304,076 312,137 4,797,846 INTEREST 411,655 368,264 320,534 268,032 3,967,805 ---------- ---------- ---------- ---------- ---------- PRE-TAX INCOME $89,934 $239,815 $620,003 $771,502 ($286,171) INCOME TAX (EXPENSE)/BENEFIT (30,578) (81,537) (210,801) (262,311) 97,298 ---------- ---------- ---------- ---------- ---------- NET INCOME $59,357 $158,278 $409,202 $509,192 ($188,873) SOURCES AND USES OF CASH - ------------------------ SOURCES OF CASH - PRE TAX INCOME $89,934 $239,815 $620,003 $771,502 ($286,171) FRANCHISE AMORTIZATION (15) 377,467 377,467 377,467 377,467 3,397,200 SUBSCRIBER LIST (8) 97,800 97,800 97,800 97,800 880,200 NON-COMPETE COVENANTS (0) 0 0 0 0 0 DEPRECIATION 542,173 534,127 304,076 312,137 4,797,846 EQUITY 5,195,609 DEBT 0 0 0 0 5,609,264 RESIDUAL VALUE IN YEAR 9 18,052,449 18,052,449 ---------- ---------- ---------- ---------- ---------- TOTAL SOURCES OF CASH $1,107,374 $1,249,208 $1,399,345 $19,611,354 $37,646,398 USES OF CASH - PURCHASE PRICE - CURRENT $10,572,968 CAPITAL EXPENDITURES 238,542 241,177 253,119 265,642 2,986,551 DEBT RETIREMENT 433,907 477,297 525,027 2,680,316 5,609,264 TAXES PAID ON NET INCOME 0 0 0 0 0 TAXES PAID ON SALE (RESIDUAL) 4,515,882 4,515,882 ---------- ---------- ---------- ---------- ---------- TOTAL USES OF CASH $672,448 $718,475 $778,146 $7,461,840 $23,684,665 ANNUAL CASH INCREASE/(DECREASE) $434,926 $530,733 $621,199 $12,149,514 $13,961,732 CUMULATIVE CASH 660,285 1,191,019 1,812,218 13,961,732
282 FALCON CABLE SYSTEMS CO. EXHIBIT C FLORENCE REGION - EXCHANGE LOW ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD
DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS $9,370,527 YEAR 1 DEBT REQUIREMENTS 4,685,263 YEAR 1 EQUITY REQUIREMENTS 4,685,263 FINANCING AVAILABLE $6,540,060 $7,220,696 $7,888,646 $8,677,812 $9,443,228 UNUSED LEVERAGE 1,854,796 2,535,432 3,232,697 4,609,904 5,731,034
SENIOR DEBT: 1996 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- BEGINNING DEBT $0 $4,685,263 $4,685,263 $4,391,285 $4,067,908 DEBT ADDED 4,685,263 0 0 0 0 TOTAL ANNUAL PAYMENTS 468,526 468,526 762,505 762,505 762,505 INTEREST 468,526 468,526 468,526 439,128 406,791 PRINCIPAL REPAYMENT 0 0 293,979 323,377 355,714 ENDING BALANCE 4,685,263 4,685,263 4,391,285 4,067,908 3,712,194 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $264,665 $0 BORROWINGS 0 0 264,665 0 0 PRINCIPAL PAYMENTS 0 0 0 264,665 0 INTEREST 0 0 26,466 26,466 0 SENIOR DEBT COVERAGE 4.2 3.9 3.3 2.8 2.4 LOC DEBT COVERAGE 0.0 0.0 0.2 0.0 0.0 TOTAL DEBT COVERAGE 4.2 3.9 3.5 2.8 2.4
RETURN ON EQUITY METHOD DEBT AMORTIZATION - LOW VALUE - ----------------------------- TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $10,154,533 $10,843,297 $11,544,619 $12,274,136 UNUSED LEVERAGE 6,833,625 7,952,803 9,127,580 10,377,899
SENIOR DEBT: 2001 2002 2003 2004 TOTAL ---------- ---------- ---------- ---------- ---------- BEGINNING DEBT $3,712,194 $3,320,908 $2,890,494 $2,417,038 DEBT ADDED 0 0 0 0 $4,685,263 TOTAL ANNUAL PAYMENTS 762,505 762,505 762,505 762,505 6,274,588 INTEREST 371,219 332,091 289,049 241,704 3,485,562 PRINCIPAL REPAYMENT 391,286 430,414 473,456 520,801 2,789,026 ENDING BALANCE 3,320,908 2,890,494 2,417,038 1,896,237 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 $0 BORROWINGS 0 0 0 0 264,665 PRINCIPAL PAYMENTS 0 0 0 0 264,665 INTEREST 0 0 0 0 52,933 SENIOR DEBT COVERAGE 2.0 1.6 1.3 0.9 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.0 1.6 1.3 0.9
283 FALCON CABLE SYSTEMS CO. EXHIBIT C FLORENCE REGION - EXCHANGE HIGH ANALYSIS AS OF DECEMBER 31, 1995 RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS $10,391,219 YEAR 1 DEBT REQUIREMENTS 5,195,609 YEAR 1 EQUITY REQUIREMENTS 5,195,609 FINANCING AVAILABLE $7,546,223 $8,331,572 $9,102,284 $10,012,860 $10,896,033 UNUSED LEVERAGE 2,350,613 3,135,963 3,819,021 5,303,408 6,779,485
SENIOR: 1996 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- BEGINNING DEBT $0 $5,195,609 $5,195,609 $4,869,609 $4,511,008 DEBT ADDED 5,195,609 0 0 0 0 TOTAL ANNUAL PAYMENTS 519,561 519,561 845,562 845,562 845,562 INTEREST 519,561 519,561 519,561 486,961 451,101 PRINCIPAL REPAYMENT 0 0 326,001 358,601 394,461 ENDING BALANCE 5,195,609 5,195,609 4,869,609 4,511,008 4,116,548 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $413,655 $198,443 BORROWINGS 0 0 413,655 0 0 PRINCIPAL PAYMENTS 0 0 0 215,212 198,443 INTEREST 0 0 41,365 41,365 19,844 SENIOR DEBT COVERAGE 4.7 4.3 3.6 3.1 2.6 LOC DEBT COVERAGE 0.0 0.0 0.3 0.1 0.0 TOTAL DEBT COVERAGE 4.7 4.3 4.0 3.2 2.6
RETURN ON EQUITY METHOD DEBT AMORTIZATION - HIGH VALUE - ------------------------------ TOTAL YEAR 1 CASH REQUIREMENTS YEAR 1 DEBT REQUIREMENTS YEAR 1 EQUITY REQUIREMENTS FINANCING AVAILABLE $11,716,769 $12,511,496 $13,320,714 $14,162,465 UNUSED LEVERAGE 8,034,128 9,306,153 10,640,398 12,059,679
SENIOR: 2001 2002 2003 2004 TOTAL ---------- ---------- ---------- ---------- ---------- BEGINNING DEBT $4,116,548 $3,682,641 $3,205,343 $2,680,316 DEBT ADDED 0 0 0 0 $5,195,609 TOTAL ANNUAL PAYMENTS 845,562 845,562 845,562 845,562 6,958,053 INTEREST 411,655 368,264 320,534 268,032 3,865,229 PRINCIPAL REPAYMENT 433,907 477,297 525,027 577,530 3,092,823 ENDING BALANCE 3,682,641 3,205,343 2,680,316 2,102,786 LINE OF CREDIT: BEGINNING DEBT $0 $0 $0 $0 $0 BORROWINGS 0 0 0 0 413,655 PRINCIPAL PAYMENTS 0 0 0 0 413,655 INTEREST 0 0 0 0 102,575 SENIOR DEBT COVERAGE 2.2 1.8 1.4 1.0 LOC DEBT COVERAGE 0.0 0.0 0.0 0.0 TOTAL DEBT COVERAGE 2.2 1.8 1.4 1.0
284 FALCON CABLE SYSTEMS CO. EXHIBIT D FLORENCE REGION - EXCHANGE AS OF DECEMBER 31, 1995 RETURN ON INVESTMENT METHOD PROFIT AND LOSS - ---------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- REVENUES $2,022,632 $2,201,449 $2,400,299 $2,601,239 $2,795,196 OPERATING EXPENSES 911,756 987,811 1,065,251 1,148,434 1,232,960 ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $1,110,876 $1,213,638 $1,335,048 $1,452,804 $1,562,236 PLUS: RESIDUAL VALUE LESS: CAPITAL EXPENDITURES 208,367 209,335 1,116,497 220,604 233,268 ---------- ---------- ---------- ---------- ---------- TOTAL CASH FLOW $902,509 $1,004,303 $218,551 $1,232,201 $1,328,968 NET PRESENT VALUE @ 16.6% $9,470,275 NET PRESENT VALUE @ 15.1% $10,352,769 YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 TOTAL ---------- ---------- ---------- ---------- ---------- REVENUES $2,983,410 $3,172,462 $3,368,978 $3,577,807 $25,123,472 OPERATING EXPENSES 1,315,210 1,396,366 1,480,650 1,571,979 11,110,419 ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $1,668,200 $1,776,095 $1,888,329 $2,005,828 $14,013,053 PLUS: RESIDUAL VALUE 18,052,449 18,052,449 LESS: CAPITAL EXPENDITURES 238,542 241,177 253,119 265,642 2,986,551 ---------- ---------- ---------- ---------- ---------- TOTAL CASH FLOW $1,429,658 $1,534,918 $1,635,210 $19,792,634 $29,078,951 NET PRESENT VALUE @ 16.6% NET PRESENT VALUE @ 15.1%
285 FALCON CABLE SYSTEMS CO. EXHIBIT E FLORENCE REGION - EXCHANGE AS OF DECEMBER 31, 1995 CABLE TELEVISION SUBSCRIBERS - ----------------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- BEGINNING MILES 129.8 MILES ADDED 4.5 4.1 3.6 3.7 3.8 CUMULATIVE MILES 134.3 138.5 142.1 145.8 149.6 DENSITY OF ADDITIONAL PLANT 58 56 55 55 55 HOMES PASSED - BEGINNING 7,483 NEW HOMES & EXTENSIONS 262 232 199 204 210 HOMES PASSED - ENDING 7,745 7,977 8,177 8,381 8,591 GROWTH IN HOMES 3.5% 3.0% 2.5% 2.5% 2.5% BASIC - BEGINNING SUBSCRIBERS 3,751 3,921 4,079 4,221 4,369 AVERAGE SUBSCRIBERS 3,836 4,000 4,150 4,295 4,445 ENDING SUBSCRIBERS 3,921 4,079 4,221 4,369 4,521 PENETRATION 50.6% 51.1% 51.6% 52.1% 52.6% EXPANDED BASIC - BEGINNING 3,517 3,676 3,824 3,958 4,096 AVERAGE SUBSCRIBERS 3,597 3,750 3,891 4,027 4,168 ENDING SUBSCRIBERS 3,676 3,824 3,958 4,096 4,239 PENETRATION 93.8% 93.8% 93.8% 93.8% 93.8% NEW PRODUCT TIER #1 - BEGINNING 1,170 1,263 1,592 1,900 1,966 AVERAGE SUBSCRIBERS 1,216 1,427 1,746 1,933 2,000 ENDING SUBSCRIBERS 1,263 1,592 1,900 1,966 2,034 PENETRATION 34.3% 41.6% 48.0% 48.0% 48.0% NEW PRODUCT TIER #2 - BEGINNING 308 610 1,063 1,543 1,759 AVERAGE SUBSCRIBERS 459 837 1,303 1,651 1,790 ENDING SUBSCRIBERS 610 1,063 1,543 1,759 1,820 PENETRATION 15.6% 26.1% 36.6% 40.3% 40.3% PAY TV - BEGINNING UNITS 992 998 1,079 1,159 1,243 AVERAGE UNITS 995 1,038 1,119 1,201 1,264 ENDING UNITS 998 1,079 1,159 1,243 1,286 PENETRATION 25.4% 26.4% 27.4% 28.4% 28.4% PAY PER VIEW - BEGINNING UNITS/MO 300 342 410 538 687 AVERAGE UNITS 321 376 474 612 755 ENDING UNITS 342 410 538 687 822 AVERAGE BUY RATE/MO 23.0% 24.5% 27.5% 30.5% 32.0% CONVERTER RENTALS - BEGINNING 1,897 2,036 2,179 2,371 2,585 AVERAGE SUBSCRIBERS 1,966 2,107 2,275 2,478 2,692 ENDING SUBSCRIBERS 2,036 2,179 2,371 2,585 2,800 PENETRATION 51.9% 53.4% 56.2% 59.2% 61.9% ADDRESSABLE HOMES - BEGINNING 1,366 1,491 1,677 1,957 2,255 AVERAGE HOMES 1,428 1,584 1,817 2,106 2,413 ENDING HOMES 1,491 1,677 1,957 2,255 2,571 PENETRATION 38.0% 41.1% 46.4% 51.6% 56.9% BASIC CHURN RATE 35% 35% 35% 35% 35%
YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 ---------- ---------- ---------- ---------- BEGINNING MILES MILES ADDED 3.6 3.3 3.3 3.4 CUMULATIVE MILES 153.2 156.5 159.9 163.3 DENSITY OF ADDITIONAL PLANT 54 54 54 54 HOMES PASSED - BEGINNING NEW HOMES & EXTENSIONS 193 176 179 183 HOMES PASSED - ENDING 8,784 8,960 9,139 9,322 GROWTH IN HOMES 2.3% 2.0% 2.0% 2.0% BASIC - BEGINNING SUBSCRIBERS 4,521 4,667 4,805 4,947 AVERAGE SUBSCRIBERS 4,594 4,736 4,876 5,019 ENDING SUBSCRIBERS 4,667 4,805 4,947 5,092 PENETRATION 53.1% 53.6% 54.1% 54.6% EXPANDED BASIC - BEGINNING 4,239 4,376 4,505 4,638 AVERAGE SUBSCRIBERS 4,307 4,440 4,571 4,706 ENDING SUBSCRIBERS 4,376 4,505 4,638 4,774 PENETRATION 93.8% 93.8% 93.8% 93.8% NEW PRODUCT TIER #1 - BEGINNING 2,034 2,100 2,162 2,226 AVERAGE SUBSCRIBERS 2,067 2,131 2,194 2,259 ENDING SUBSCRIBERS 2,100 2,162 2,226 2,291 PENETRATION 48.0% 48.0% 48.0% 48.0% NEW PRODUCT TIER #2 - BEGINNING 1,820 1,879 1,934 1,992 AVERAGE SUBSCRIBERS 1,850 1,907 1,963 2,021 ENDING SUBSCRIBERS 1,879 1,934 1,992 2,050 PENETRATION 40.3% 40.3% 40.3% 40.3% PAY TV - BEGINNING UNITS 1,286 1,327 1,367 1,407 AVERAGE UNITS 1,307 1,347 1,387 1,428 ENDING UNITS 1,327 1,367 1,407 1,449 PENETRATION 28.4% 28.4% 28.4% 28.4% PAY PER VIEW - BEGINNING UNITS/MO 822 925 1,007 1,093 AVERAGE UNITS 873 966 1,050 1,139 ENDING UNITS 925 1,007 1,093 1,185 AVERAGE BUY RATE/MO 33.0% 34.0% 35.0% 36.0% CONVERTER RENTALS - BEGINNING 2,800 2,960 3,107 3,261 AVERAGE SUBSCRIBERS 2,880 3,034 3,184 3,341 ENDING SUBSCRIBERS 2,960 3,107 3,261 3,421 PENETRATION 63.4% 64.7% 65.9% 67.2% ADDRESSABLE HOMES - BEGINNING 2,571 2,803 2,963 3,125 AVERAGE HOMES 2,687 2,883 3,044 3,209 ENDING HOMES 2,803 2,963 3,125 3,293 PENETRATION 60.1% 61.7% 63.2% 64.7% BASIC CHURN RATE 35% 35% 35% 35%
286 FALCON CABLE SYSTEMS CO. EXHIBIT F FLORENCE REGION - EXCHANGE AS OF DECEMBER 31, 1995 SERVICE RATES - -------------
RUNNING RATES AS OF AVERAGE RATES CURRENT RATES DECEMBER 1995 FOR 1996 - ------------- ------------------ ----------------- BASIC $24.32 $25.48 EXPANDED BASIC $3.93 $4.36 NEW PRODUCT TIER #1 $3.50 $3.50 NEW PRODUCT TIER #2 $4.50 $4.50 PAY $8.00 $8.00 PAY PER VIEW $7.77 $7.77 CONVERTER RENTALS $3.66 $3.66 INSTALLATIONS-NEW $50.00 $50.00 INSTALLATIONS-CHURN $25.00 25.00
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 2001 2002 2003 2004 ------ ------ ------ ------ ------ ------ ------ ------ ------ PERCENTAGE RATE INCREASES - ------------------------- BASIC 5% 3% 3% 3% 3% 3% 3% 3% 3% EXPANDED BASIC 11% 3% 3% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #1 0% 3% 3% 3% 3% 3% 3% 3% 3% NEW PRODUCT TIER #2 0% 3% 3% 3% 3% 3% 3% 3% 3% PAY 0% 1% 1% 1% 1% 1% 1% 1% 1% PAY PER VIEW 0% 3% 3% 3% 3% 3% 3% 3% 3% CONVERTER/REMOTE RENTALS 0% 3% 3% 3% 3% 3% 3% 3% 3% INSTALLATIONS-NEW 0% 3% 3% 3% 3% 3% 3% 3% 3% INSTALLATIONS-CHURN 0% 3% 3% 3% 3% 3% 3% 3% 3% AVERAGE RATES - -------------- BASIC $25.48 $26.24 $27.03 $27.84 $28.68 $29.54 $30.42 $31.34 $32.28 EXPANDED BASIC 4.36 4.49 4.62 4.76 4.91 5.05 5.20 5.36 5.52 NEW PRODUCT TIER #1 3.50 3.61 3.71 3.82 3.94 4.06 4.18 4.30 4.43 NEW PRODUCT TIER #2 4.50 4.64 4.77 4.92 5.06 5.22 5.37 5.53 5.70 PAY 8.00 8.08 8.16 8.25 8.33 8.41 8.50 8.58 8.67 PAY PER VIEW 7.77 8.01 8.25 8.49 8.75 9.01 9.28 9.56 9.85 CONVERTER RENTALS 3.66 3.77 3.88 4.00 4.12 4.24 4.37 4.50 4.64 INSTALLATIONS-NEW 50.00 51.50 53.05 54.64 56.28 57.96 59.70 61.49 63.34 INSTALLATIONS-CHURN 25.00 25.75 26.52 27.32 28.14 28.98 29.85 30.75 31.67
287 FALCON CABLE SYSTEMS CO. EXHIBIT G FLORENCE REGION - EXCHANGE AS OF DECEMBER 31, 1995
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- REVENUES: BASIC $1,172,900 $1,259,661 $1,346,167 $1,435,046 $1,529,652 EXPANDED BASIC 188,109 202,024 215,898 230,152 245,325 NEW PRODUCT TIER #1 51,083 61,753 77,797 88,700 94,548 NEW PRODUCT TIER #2 24,790 46,528 74,655 97,430 108,765 PAY TV 95,546 100,703 109,589 118,806 126,363 PAY PER VIEW 29,961 36,155 46,900 62,409 79,200 CONVERTER RENTALS 86,367 95,334 106,007 118,936 133,089 INSTALLATIONS 33,407 35,064 36,599 38,998 41,550 COMMERCIAL*** 126,672 130,472 134,386 138,417 142,570 ADVERTISING*** 124,501 140,072 154,088 169,506 186,468 MISCELLANEOUS *** 89,297 93,685 98,213 102,836 107,666 ---------- ---------- ---------- ---------- ---------- TOTAL REVENUES $2,022,632 $2,201,449 $2,400,299 $2,601,239 $2,795,196 OPERATING EXPENSES: OPERATIONS $346,213 $370,966 $396,663 $423,183 $450,229 GENERAL & ADMINISTRATIVE 177,629 188,185 198,964 210,013 221,518 SALES & MARKETING 101,859 117,569 128,041 140,728 154,625 PROGRAMMING 286,055 311,091 341,583 374,511 406,588 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $911,756 $987,811 $1,065,251 $1,148,434 $1,232,960 OPERATING INCOME $1,110,876 $1,213,638 $1,335,048 $1,452,804 $1,562,236 OPERATING MARGIN 54.9% 55.1% 55.6% 55.9% 55.9% TOTAL REVENUE/BASIC SUB/MONTH $43.94 $45.87 $48.20 $50.47 $52.40 CASH FLOW/BASIC SUB/MONTH $24.13 $25.29 $26.81 $28.19 $29.29 OPERATIONS % OF REVENUE 17% 17% 17% 16% 16% G & A PERCENTAGE OF REVENUE 9% 9% 8% 8% 8% SALES & MARKETING % OF REVENUE 5% 5% 5% 5% 6% PROGRAMMING % OF REVENUE 14% 14% 14% 14% 15% YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 TOTAL ---------- ---------- ---------- ---------- ---------- BASIC $1,628,323 $1,728,975 $1,833,475 $1,944,125 $13,878,325 EXPANDED BASIC 261,150 277,292 294,052 311,798 2,225,799 NEW PRODUCT TIER #1 100,647 106,868 113,327 120,166 814,889 NEW PRODUCT TIER #2 115,781 122,938 130,369 138,236 859,494 PAY TV 131,902 137,336 142,808 148,486 1,111,540 PAY PER VIEW 94,430 107,582 120,476 134,607 711,720 CONVERTER RENTALS 146,617 159,088 171,996 185,866 1,203,300 INSTALLATIONS 43,691 45,818 48,567 51,476 375,170 COMMERCIAL*** 146,847 151,252 155,790 160,464 1,286,870 ADVERTISING*** 201,396 217,519 234,934 253,741 1,682,225 MISCELLANEOUS *** 112,625 117,793 123,185 128,841 974,141 ---------- ---------- ---------- ---------- ---------- TOTAL REVENUES $2,983,410 $3,172,462 $3,368,978 $3,577,807 $25,123,472 OPERATING EXPENSES: OPERATIONS $477,364 $504,681 $533,199 $563,338 $4,065,834 GENERAL & ADMINISTRATIVE 233,360 245,434 257,954 271,150 2,004,207 SALES & MARKETING 167,698 180,074 193,315 209,347 1,393,257 PROGRAMMING 436,788 466,177 496,182 528,144 3,647,120 ---------- ---------- ---------- ---------- ---------- TOTAL OPERATING EXPENSES $1,315,210 $1,396,366 $1,480,650 $1,571,979 $11,110,419 OPERATING INCOME $1,668,200 $1,776,095 $1,888,329 $2,005,828 $14,013,053 OPERATING MARGIN 55.9% 56.0% 56.1% 56.1% TOTAL REVENUE/BASIC SUB/MONTH $54.12 $55.83 $57.58 $59.40 CASH FLOW/BASIC SUB/MONTH $30.26 $31.25 $32.27 $33.30 OPERATIONS % OF REVENUE 16% 16% 16% 16% G & A PERCENTAGE OF REVENUE 8% 8% 8% 8% SALES & MARKETING % OF REVENUE 6% 6% 6% 6% PROGRAMMING % OF REVENUE 15% 15% 15% 15%
288 FALCON CABLE SYSTEMS CO. EXHIBIT H FLORENCE REGION - EXCHANGE AS OF DECEMBER 31, 1995 CAPITAL EXPENDITURES - --------------------
YEAR ENDING DECEMBER 31, 1996 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- ASSUMPTIONS AND INPUTS: - ----------------------- 129.79 BV OF EXISTING PLANT $2,641,752 ADDITIONAL MILES OF PLANT 4.5 4.1 3.6 3.7 3.8 AERIAL PLANT PER MILE $12,000 $12,240 $12,485 $12,734 $12,989 UNDERGROUND PLANT PER MILE $18,000 $18,360 $18,727 $19,102 $19,484 PERCENTAGE OF PLANT AERIAL 10% 10% 10% 10% 10% PERCENTAGE OF PLANT UNDERGROUND 90% 90% 90% 90% 90% AVERAGE COST PER CONVERTER $110 $112 $114 $117 $119 PERCENTAGE CONVERTER USE 52% 53% 56% 59% 62% PERCENTAGE REPLACEMENT 5% 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $57 $58 $59 $60 $61 MISC. CAPITAL PER SUBSCRIBER $5 $5 $5 $5 $5 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 2% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $5,451 $5,056 $4,535 $4,741 $4,957 - UNDERGRO 73,591 68,256 61,216 64,001 66,913 PLANT REBUILD/UPGRADE/INCL. HDND. 6,619 6,988 915,325 7,690 8,050 AVERAGE COST OF NEW CONVERTERS 9,710 9,442 9,183 10,184 11,220 CONVERTER REPLACEMENT 10,712 11,751 13,110 14,579 16,106 INSTALLATION COSTS 83,103 87,443 91,541 96,617 101,966 MISC. CAPITAL EXPENDITURES 19,180 20,399 21,588 22,790 24,057 ---------- ---------- ---------- ---------- ---------- TOTAL CAPITAL EXPENDITURES $208,367 $209,335 $1,116,497 $220,604 $233,268 AS A % OF OPERATING INCOME 18.8% 17.2% 83.6% 15.2% 14.9% YEAR ENDING DECEMBER 31, 2001 2002 2003 2004 TOTAL ---------- ---------- ---------- ---------- ---------- ASSUMPTIONS AND INPUTS: - ----------------------- BV OF EXISTING PLANT ADDITIONAL MILES OF PLANT 3.6 3.3 3.3 3.4 AERIAL PLANT PER MILE $13,249 $13,514 $13,784 $14,060 UNDERGROUND PLANT PER MILE $19,873 $20,271 $20,676 $21,090 PERCENTAGE OF PLANT AERIAL 10% 10% 10% 10% PERCENTAGE OF PLANT UNDERGROUND 90% 90% 90% 90% AVERAGE COST PER CONVERTER $121 $124 $126 $129 PERCENTAGE CONVERTER USE 63% 65% 66% 67% PERCENTAGE REPLACEMENT 5% 5% 5% 5% INSTALLATION COST PER SUBSCRIBER $62 $64 $65 $66 MISC. CAPITAL PER SUBSCRIBER $6 $6 $6 $6 INFLATION FACTOR FOR CAPITALS 2% 2% 2% 2% 120% ANNUAL COSTS: - ------------- PLANT ADDITIONS - AERIAL $4,775 $4,427 $4,605 $4,792 $43,338 - UNDERGRO 64,461 59,760 62,174 64,686 585,058 PLANT REBUILD/UPGRADE/INCL. HDND. 8,426 8,801 9,169 9,552 980,620 AVERAGE COST OF NEW CONVERTERS 11,218 11,066 11,811 12,600 96,435 CONVERTER REPLACEMENT 17,412 18,694 20,011 21,412 143,787 INSTALLATION COSTS 106,890 111,764 117,346 123,196 919,867 MISC. CAPITAL EXPENDITURES 25,360 26,666 28,003 29,405 217,446 ---------- ---------- ---------- ---------- ---------- TOTAL CAPITAL EXPENDITURES $238,542 $241,177 $253,119 $265,642 $2,986,551 AS A % OF OPERATING INCOME 14.3% 13.6% 13.4% 13.2%
289 FALCON CABLE SYSTEMS CO. EXHIBIT I FLORENCE REGION - EXCHANGE AS OF DECEMBER 31, 1995 DEPRECIATION - ------------
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ---------- ---------- ---------- ---------- ---------- ESTIMATED DEPRECIATION RATES 14.3% 24.5% 17.5% 12.5% 8.9% DEPRECIATION - BEG. & ADTNS. 1996 1997 1998 1999 2000 ---------- ---------- ---------- ---------- ---------- YEAR 1 $407,282 $697,994 $498,486 $355,980 $254,516 YEAR 2 29,914 51,266 36,613 26,146 YEAR 3 159,547 273,430 195,275 YEAR 4 31,524 54,026 YEAR 5 33,334 YEAR 6 YEAR 7 YEAR 8 YEAR 9 ---------- ---------- ---------- ---------- ---------- TOTAL DEPRECIATION $407,282 $727,908 $709,299 $697,547 $563,297 YEAR 6 YEAR 7 YEAR 8 ---------- ---------- ---------- ESTIMATED DEPRECIATION RATES 8.9% 8.9% 4.5% DEPRECIATION - BEG. & ADTNS. 2001 2002 2003 2004 TOTAL ---------- ---------- ---------- ---------- ---------- YEAR 1 $254,231 $254,516 $2,723,004 YEAR 2 18,694 18,673 18,694 199,999 YEAR 3 139,450 99,703 99,592 99,703 1,066,701 YEAR 4 38,584 27,553 19,700 19,678 191,065 YEAR 5 57,127 40,799 29,135 20,831 181,226 YEAR 6 34,088 58,419 41,721 29,794 164,021 YEAR 7 34,464 59,064 42,182 135,710 YEAR 8 36,171 61,989 98,160 YEAR 9 37,960 37,960 ---------- ---------- ---------- ---------- ---------- TOTAL DEPRECIATION $542,173 $534,127 $304,076 $312,137 $4,797,846
290 FALCON CABLE SYSTEMS CO. EXHIBIT J FLORENCE REGION - EXCHANGE AS OF DECEMBER 31, 1995 ASSUMPTIONS AND INPUTS - ---------------------- REMAINING LIFE OF FRANCHISES (YEARS) 9 AVERAGE SUBSCRIBER LIFE (YEARS) 8 INCOME TAX RATE 34% CAPITAL GAIN RATE 34% NET FMV OF EXISTING ASSETS $2,641,752 SUBSCRIBERS IN FRANCHISES 100%
LOW HIGH ANALYSIS ANALYSIS ---------- ---------- DEBT PERCENTAGE 50% 50% EQUITY PERCENTAGE 50% 50% RESIDUAL MULTIPLE (ROE & ROI) 9 9 MULT OF PAST YEAR'S OPERATING INCOME 10.5 11.5 MULT OF CURRENT YEAR'S OPERATING INCOME 10.0 11.0 MULT OF NEXT YEAR'S OPERATING INCOME 9.5 10.5 TARGET RETURN ON EQUITY 14.0% 12.0% TARGET RETURN ON INVESTMENT 16.6% 15.1%
291 APPENDIX C ALLOCATION OF SALE AND EXCHANGE VALUES TO HEADENDS 292 ALLOCATION OF SALE AND EXCHANGE VALUES TO HEADENDS
Alloc. by Alloc. by Region/ Alloc. Cumulative Cumulative Average Allocated Headend by Subs. Cash Flow Free Cash Flow Alloc. Value - ------- -------- ---------- -------------- --------- --------- Coos Bay - Sale Coos Bay 76.5% 76.3% 79.7% 77.5% $21,736,981 Reedsport 19.1% 18.5% 14.3% 17.3% 4,850,816 Gardiner 0.8% 0.6% 0.6% 0.7% 183,751 Hauser 3.6% 3.6% 4.2% 3.8% 1,065,451 ---------- Total $27,837,000 Coos Bays - Exchange Myrtle Point 17.9% 18.5% 27.5% 21.3% $ 1,397,883 Powers 4.7% 4.3% 2.9% 4.0% 259,618 Coquille 41.6% 40.9% 38.3% 40.3% 2,644,535 Bandon 35.8% 37.9% 34.2% 36.0% 2,361,965 ---------- Total $ 6,664,000 Sum $34,501,000 Dallas - Sale Dallas 98.7% 97.2% 96.9% 97.6% $15,270,285 Wilson River 1.3% 0.5% 0.6% 0.8% 131,715 ---------- Total $15,402,000 Dallas - Exchange Silverton 17.3% 18.5% 27.6% 21.1% $4,221,179 Nehalem 45.4% 47.2% 47.6% 46.7% 9,350,470 Tillamook 24.4% 24.2% 12.7% 20.5% 4,093,022 Netarts 8.2% 6.2% 7.6% 7.3% 1,467,322 Brickyard Road 4.8% 3.5% 3.7% 4.0% 800,008 ---------- Total $19,932,000 Sum $35,334,000 Florence - Sale Mapleton -- -- -- -- $271,000 Florence - Exchange Florence -- -- -- -- $10,425,000 ---------- Sum $10,696,000
293 SUMMARY OF SALE AND EXCHANGE VALUES
Sale -------- Coos Bay $ 27,837,000 Dallas 15,402,000 Florence 271,000 Gilroy 76,000,000 Tulare 31,972,000 SLO 29,585,000 Central 26,294,000 ------------ Total $207,361,000 Exchange -------- Coos Bay $ 6,664,000 Dallas 19,932,000 Hesperia 38,846,000 Florence 10,425,000 ------------ Total $ 75,867,000 Sum of Sale and Exchange Properties $283,228,000
EX-2 3 APPRAISAL BY KANE-REECE ASSOCIATES 1 EXHIBIT 2 FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1995 Prepared for: Falcon Cable Investors Group Los Angeles, California 2 [LOGO] - KANE RE] April 29, 1996 Falcon Cable Investors Group 10900 Wilshire Boulevard Los Angeles, CA 90024 ATTN: Mr. Michael K. Menerey In accordance with your authorization, Kane Reece Associates, Inc. ("Kane Reece" or the "appraisers") has made an investigation and valuation of the cable television system assets of Falcon Cable Systems Company ("FCSC" or the "Partnership"), the Exchange Systems, as designated by the General Partner pursuant to a preliminary proposal to the independent members of the Partnership's advisory committee (the "Preliminary Proposal"); and the Systems, referred to as the Sale Systems, are those Partnership Systems not designated by the General Partner as Exchange Systems. This valuation study was conducted to determine the fair market value of 100% of the assets described above as of December 31, 1995. The appraisal was conducted pursuant to Section 3.14 of the FCSC Partnership Agreement as Amended and Restated and pursuant to the Preliminary Proposal. This is the sole purpose of this appraisal. Fair market value, as used herein, is defined as the price, in cash or equivalent, that a buyer could reasonably be expected to pay and a seller could reasonably be expected to accept, if the property were exposed for sale on the open market for a reasonable period of time, both buyer and seller being in possession of the pertinent facts, and neither being under compulsion to act, as of a certain date. Our methodology for determining the fair market value of any CATV property incorporates an assessment of the potential revenues and cash flows the property will generate over an appropriate investment term and the likely appreciation in value of the property over that term. We confirm this calculated economic valuation with an analysis of recent sales of comparable properties to the extent available and relevant. As part of the research required for our study, we were furnished materials on historical and prospective operations. We have also consulted recognized sources of financial and industry information; visited each Region to physically inspect facilities and the service area, and interview management. Kane Reece and this report comply with the appraisal standards set forth in the Uniform Standards of Professional Appraisal Practice and those promulgated by the American Society of Appraisers. Valuation, Management & Technical Consultants - ------------------------------------------------------------------------------- 399 Thornall Street o Metro Park, New Jersey 08837-2236 o (908) 494-3700 o Fax (908) 8798 o email: kanereec@ix.netcom.com 3 Falcon Cable Investors Group April 29, 1996 Page Two Based upon our investigation and valuation as described in the accompanying report and subject to the Limiting and General Service Conditions and the Appraisal Certificate contained in the report that follows, it is Kane Reece's opinion that the fair market values of 100% of FCSC's, the Exchange Systems, and the Sale Systems assets as of December 31, 1995 were: FCSC $ 245,290,000 ================= Exchange Systems $ 66,070,000 ================= Sale Systems $ 179,220,000 =================
Respectfully submitted, KANE REECE ASSOCIATES, INC. 4 LIMITING AND GENERAL SERVICE CONDITIONS 1) We were provided certain financial and operating data by management and we have relied on this information without independent analysis or verification by Kane Reece Associates, Inc. 2) Kane Reece Associates, Inc. is not responsible for the impact of economic events occurring after the date of this report and we have no obligation to update this report unless subsequently engaged to do so. 3) We have made no investigation of, and assume no responsibility for, the title to the assets appraised nor for any undisclosed liabilities of the subject company. 4) All statements in this appraisal are based on the best knowledge and belief of Kane Reece Associates, Inc. 5) Neither Kane Reece Associates, Inc. nor any of its employees has any present or contemplated financial interest in the appraised entity, and we certify the compensation received for this study is in no way contingent upon the valuation conclusions. 6) Kane Reece Associates, Inc. is not required to give testimony in court, or be in attendance during any hearings or depositions, with reference to the company being appraised, unless previous arrangements have been made. 7) This appraisal is valid only for the purpose(s) stated herein, and no one may rely on the report for any other purpose(s) and is valid only for the appraisal date or dates specified herein. You may show our report in its entirety to those third parties who need to review the information contained therein. You agree to hold Kane Reece Associates, Inc., harmless from any liability, including attorneys' fees, damages or cost which may result from any improper use or reliance by you or third parties. No reference to our name or our report, in whole or in part, in any document you prepare and/or distribute to third parties may be made without our prior written consent. We will maintain the confidentiality of all conversations, documents provided to us, and the contents of our reports, subject to legal or administrative process or proceedings. These conditions can be modified only by written documents executed by both parties. KANE REECE ASSOCIATES, INC. 399 Thornall Street Metro Park, NJ 08837-2236 (908)494-3700 5 FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1995 6 FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1995 TABLE OF CONTENTS TRANSMITTAL LETTER LIMITING AND GENERAL SERVICE CONDITIONS I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 II. INDUSTRY REVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 III. DESCRIPTION OF THE REGIONS' SERVICE AREAS AND SYSTEMS . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 IV. BUSINESS ENTERPRISE VALUATION . . . . . . . . . . . . . . . . . . . . . . . . . . 67 V. VALUATION OF EXCHANGE AND SALE SYSTEMS . . . . . . . . . . . . . . . . . . . . . . 78 APPRAISAL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 EXHIBIT A: Photographs EXHIBIT B: Region Operating Statistics EXHIBIT C: Region Cash Flow Statements EXHIBIT D Region Cash Flow Projection Assumptions EXHIBIT E Region Cash Flow Projections EXHIBIT F Exchange and Sale System Valuation QUALIFICATIONS OF THE APPRAISERS APPENDIX: Glossary of Cable TV Terms
7 FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1995 PART I - INTRODUCTION Falcon Cable Investors Group, the General Partner (the "General Partner") of Falcon Cable Systems Company, a California Limited Partnership ("FCSC" or the "Partnership") manages cable television systems located in seven (7) regional clusters in Oregon and California (the "Regions"). Kane Reece Associates, Inc. ("Kane Reece" or the "appraisers") of Metro Park, New Jersey was selected and retained by the General Partner to determine fair market value of 100% of the assets of FCSC and each Region as of December 31, 1995. Kane Reece was retained pursuant to Section 3.14 of the Partnership Agreement as Amended and Restated. The appraisers were also engaged to appraise the Exchange Systems, as designated by the General Partner pursuant to the preliminary proposal to the independent members of the Partnership's advisory committee (the "Preliminary Proposal"); and the Systems referred to as the Sale Systems, i.e., those FCSC Systems not designated by the General Partner as Exchange Systems. System(s) as used herein refers to cable television operating units, as defined by FCSC, which comprise a Region. These are the sole purposes of this report. Fair market value, as used herein, is defined as the price, in cash or equivalent, that a buyer could reasonably be expected to pay and a seller could reasonably be expected to accept, if the property were exposed for sale in the open market for a reasonable period of time, both buyer and seller being in possession of the pertinent facts, and neither being under compulsion to act, as of a certain date. -1- 8 The appraisers visited each Region and several System offices and service areas to interview management, inspect facilities, and to determine the growth potential of the service area. Pursuant to information requests, the appraisers was provided various documents. The appraisers were not denied any material information and all requests were handled in a timely manner. Documents provided included but were not limited to the following: . Management prepared financial statements at various time periods including the year ending December 31, 1995. . Management prepared operating statistics reports -- homes passed, basic subscribers, pay units, etc. for various dates including December 31, 1995. . 1996 operating budgets by Region. . Ten year FCSC financial projections. . Various SEC filings, i.e., 10K and 8K filings. . System channel charts and rate cards for various dates. The appraiser also relied on demographic data and other service area information provided by CACI and various Chambers of Commerce as well as cable industry trade publications and industry analysts' reports in forming the value conclusions contained herein. GENERAL APPRAISAL CONSIDERATIONS The following paragraphs discuss some of the pertinent variables which contribute to or detract from the value of a cable system, and provide commentary on how they are considered in this study. Remaining Life of the Franchise The terms under which franchises are issued can vary considerably. The term of the acquired franchise represents franchise life because the continued operation of the -2- 9 existing system will terminate at that point. In order to secure a franchise renewal the operator will be required to negotiate a new franchise. Typical system changes agreed to by the incumbent operator in this negotiation process include, but are not limited to, rebuilding the system, adding local origination facilities, adding more channels, and making rate concessions. There are numerous examples of onerous franchise provisions demanded by cities to grant a new franchise. These types of changes materially alter the economic environment for the cable system. Additionally, there are many examples of cities either denying a new franchise or allowing a second franchise when the incumbent operator resists new franchise provisions. Homes in the Franchise Area The number of homes and the future growth of households in the franchise area limit the maximum potential for expansion of revenues for a system. The demographics of the franchise area are also important factors. Other important demographics include household income, median age, and projected growth of the employment base. Net Plant Age and Channel Capacity A typical cable television system plant is generally believed to have a 10 to 12 year life. A new system plant is obviously more attractive for investment than one which is facing a very near-term major rebuild. The 10 to 12 year life can be longer or shorter depending on preventive maintenance, several environmental factors, e.g., proximity to salt water, and type and quality of initial construction. Old-fashioned 12-channel systems, or for that matter 36-channel systems, are obsolete when compared to the new or high capacity systems. The greater the channel capacity, the greater the possibility for offering additional pay services and other revenue enhancing services. -3- 10 Local Political Considerations Certain areas have been identified as politically difficult for the cable TV operators. In such cases, the anticipated market value or selling price for a cable system will be less than in areas with a cooperative political environment. Regulatory Environment In addition to franchises issued by local governmental units, the industry is regulated under the Cable Acts of 1984 and 1992, the Telecommunication Act of 1934 and the Telecommunication Act of 1996. The 1996 Act, the regulations have yet to codified, will have far reaching affects on the cable TV, communications, and broadcast industries. One of the major elements of the 1996 Act is the removal or lessening of barriers of entry for the provision of telephone and multichannel video services by would be competitors. The Industry Review section includes a discussion of the current regulatory environment. -4- 11 FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1995 PART II - INDUSTRY REVIEW The cable television ("CATV") industry is currently facing sweeping regulatory and technological changes which offer, on one hand, the potential for new services and growth opportunities and on the other, significant challenges. It is the purpose of this section to provide the reader with a brief historical backdrop and a discussion of various factors and issues that will impact the CATV industry. Early History The first cable television system was developed in Mahanoy, Pennsylvania in 1948 as a re-distributor of off-air television broadcast signals. Technical constraints and limited product confined industry growth to areas of limited or no off-air television reception through the mid- 1970s. By that time, 29% of television homes in the United States had cable television service available to them, and approximately 12% to 15% of television households subscribed. Home Box Office, and other satellite delivered cable exclusive programming, developed in the mid-1970s represented a major breakthrough in technology. The number of cable exclusive programming services grew exponentially through the mid-1980s giving consumers a reason to subscribe to cable other than just better television reception. Historic Growth and Forecasts During the late 1970s and the 1980s, the cable television industry was characterized by a period of rapid growth as a number of communities granted franchises, systems were built and wired, and subscribers were added. This growth was spawned by an easing of government regulations, the increased availability of capital, more cable-exclusive -5- 12 programming, and improved technology. Following this period of intensive construction, the industry's attention in the latter half of the 1980s turned to new programming, geographic consolidation ("clustering"), new sources of revenues, such as "pay-per-view", increased competition with broadcasters, the development of more dynamic consumer marketing, and improved customer service. From 1980 to 1994 the number of cable subscribers more than tripled from 18.1 million in 1980 to 59.7 million in 1994, representing a compound annual growth rate ("CAGR") of 8.9%. During the same time period, pay TV units grew from 9 million to 45 million representing a 12.1% CAGR. Basic cable TV is now in 65% of United States television households and is projected by Kagan1 to rise to nearly 70% by 2000. However, in our opinion, these projections of cable subscriber counts do not fully incorporate the impact of competitive delivery systems, e.g., DBS. As the industry further matures, basic subscribers will continue to grow both in absolute numbers and in percentage of total television households, but at a rate of growth slower than in the past. While basic cable units grew at a CAGR of 8.9% between 1980 - 1994, they are expected to grow only at a 1.2% rate between 1994 and 2004. Pay unit growth patterns exhibit an even more pronounced slowing. Between 1980 and 1994 pay units grew at a CAGR of 12.1%; however, between 1994 and 2004 the growth rate is expected to decline to 1.9%. The growth in pay services appears to have been dampened due to: . Home video - there are more VCR's than cable subscribers; . Increased competition from additional basic cable networks; . Pay-per-view; and . Technological advancements such as video-on-demand and direct broadcast satellite delivery systems. __________________________________ 1The Cable TV Financial Databook 1995, published by Paul Kagan Associates, Inc. -6- 13 Historical and projected subscriber growth rates and industry revenues are shown in Table 1A. Regulation The Cable Communications Policy Act of 1984 (the "1984 Act") had a major impact on the CATV industry, the most significant of which was the deregulation of basic cable rates. Effective December 29, 1986 cable operators were able to raise monthly subscription rates on basic service at their own discretion, rather than being limited to rate approval by local and state authorities. The 1984 Act also eased the franchise renewal process by establishing a specific and consistent process for renewal. This "deregulated" cable world came to an end with the passage of the "Cable Television Consumer Protection Act of 1992" (the "1992 Act"). The Congress authorized the FCC to promulgate and enforce the major elements of the 1992 Act. Some of the key elements and issues addressed by the 1992 Act were: . "Retransmission consent" whereby local TV stations were allowed to negotiate with cable operators for consent, for a fee, to retransmit their signals on cable, or local TV stations could opt for "must carry" which requires cable systems to carry the station for no fee. . The "anti-buythrough" provision requires cable operators to install expensive new addressable technology over the next ten years so subscribers would no longer be required to buy "full basic", or the "second tier", before being eligible to buy premium and pay-per-view services. . Rates of the lowest tier of local broadcast signals are subject to local regulation of most cable systems (97%) under guidelines developed by the FCC; expanded tiers of service may be subject to rate regulation if subscribers complain to the FCC and cable rates are found to be "unreasonable" on a case-by-case basis by the FCC. -7- 14 TABLE 1A CABLE TELEVISION INDUSTRY STATISTICS CABLE INDUSTRY GROWTH STATISTICS
Basic Cable Pay Cable Units --------------------------- ------------------------------------ TV Homes % of % of TV Homes Passed Subscribers* Homes Units Homes % of Yr End (Millions) (Millions) (Millions) Passed (Millions) Passed Basic - ------ ---------- ---------- ----------- ------ ---------- ------ ----- 1980 79.9 32.8 18.1 55.0% 9.1 27.9% 50.6% 1981 81.3 41.2 22.5 54.7% 15.5 37.5% 68.6% 1982 82.4** 49.1 27.2 55.5% 20.8 42.4% 76.4% 1983 83.3 55.9 31.4 56.1% 26.4 47.3% 84.2% 1984 84.9 60.5 34.2 56.6% 30.0 49.5% 87.5% 1985 86.5 64.7 36.7 56.6% 30.6 47.3% 83.5% 1986 87.7 69.4 39.7 57.2% 32.1 46.2% 80.8% 1987 89.2 73.1 42.6 58.3% 34.8 47.6% 81.6% 1988 90.9 77.2 45.7 59.2% 38.8 50.3% 85.0% 1989 91.6 82.8 49.3 59.5% 41.1 49.6% 83.3% 1990 91.1 86.0 51.7 60.2% 41.5 48.3% 80.2% 1991 92.1 88.4 53.4 60.4% 39.9 45.1% 74.7% 1992 93.1 89.7 55.2 61.5% 40.7 45.4% 73.7% 1993 94.0 90.6 57.2 63.1% 41.5 45.8% 72.6% 1994 94.9 91.6 59.7 65.2% 45.0 49.1% 75.4% 1995 (Est.) 95.9 92.7 61.7 66.6% 47.2 50.9% 76.5% 1999 (Est.) 100.0 97.0 66.1 68.2% 52.9 54.5% 80.0% 2004 (Est.) 105.4 102.8 67.1 65.3% 54.5 53.0% 81.2%
COMPOUND AVERAGE ANNUAL GROWTH RATES (CAGR) 1980-1994 1.2% 7.6% 8.9% 12.1% 1994-1999 1.1% 1.2% 2.1% 3.3% 1994-2004 1.1% 1.2% 1.2% 1.9%
*Prior to 1982, basic subscribers and homes passed reflect quantities in those systems offering pay TV. **Estimate (conflicting data in published reports). Sources: Paul Kagan Associates, Inc., The Cable TV Financial Databook, June 1995. Kane Reece Associates, Inc., Compound Average Annual Growth Rates. -8- 15 TABLE 1B CABLE TELEVISION INDUSTRY STATISTICS (CONTINUED) CABLE INDUSTRY REVENUES ($ Millions)
Act F/C F/C 1994-1999 Year 1994 1995 1999 CAGR ---- ---- ---- ---- Basic/Exp. Basic Cable Revenue $ 15,164 $ 16,803 $ 21,822 7.6% Pay/Mini-Pay Pay Cable Revenue 4,522 4,800 5,357 3.4% PPV Revenue: PPV Movie Revenue 269 323 642 PPV Event Revenue 215 260 519 ---------- ---------- ---------- Subtotal PPV Revenue 484 583 1,161 19.1% Other Video Revenue*: Advertising (Net) 1,077 1,281 2,169 Home Shopping 127 144 201 Misc. 1,412 585 1,071 ---------- ---------- ---------- Subtotal Other Video Rev 2,616 2,010 3,441 5.6% Digital Revenue**: 262 422 5,104 81.1% ---------- ---------- ---------- Total Video Revenues $ 23,048 $ 24,618 $ 36,885 9.9% ========== ========== ========== Video Revenue/Average Sub $ 32.86 $ 33.80 $ 46.71 7.3% ========== ========== ========== Competitive Access Provider Revenue $ n/a $ n/a $ 517 n/a Cable Telephony Revenue*** $ n/a $ n/a $ 2,453 n/a ---------- ---------- ---------- Total Video & Telephony Rev. $ 23,048 $ 24,619 $ 39,855 11.6% ========== ========== ========== Per Sub $ 32,86 $ 33.80 $ 50.47 9.0% ========== ========== ==========
Sources: Paul Kagan Associates, Inc., The Cable TV Financial Databook, June 1995. Kane Reece Associates, Inc. Growth Rate Calculations. *1994 from The Cable TV Financial Databook, June 1995. **Digital Revenue includes: Near video-on-demand/video-on-demand movie and non-movie, digital video tier, cable to business video, cable delivered video games, and on line high speed access revenues. ***Includes cablephone upgrade payments, cable operator share of cablephone revenues and cable to business telephony revenue. -9- 16 . New competition is "encouraged" by the bill from new cable operators, municipalities and alternate video distributors, and cable programmers are required to sell their creative products to competitors at justifiable prices. . An anti-trafficing provision prohibits cable operators from selling or transferring ownership in a cable system for at least three years after buying or building the system. . Other provisions affect channel positioning, customer service standards, and the number of channels that can be occupied by a programmer owned or backed by a cable operator, and the number of cable subscribers any one cable operator may serve. Some of the provisions of the 1992 Act are still being reviewed in the courts, legislature or at the FCC. It is clear that the ground rules have changed and industry cash flow has been impacted. Rate regulation became effective with the FCC initial benchmark on September 1, 1993, followed by revised benchmarks effective as of May 15, 1994. In general, the new regulations call for up to a maximum 17% reduction in basic cable service rates and a cost based approach to the pricing of installation and customer premise equipment such as remote control devices, converters and additional outlets. Estimates of the impact of rate regulation on individual companies have ranged from near-term negative impacts of 5% to 15% on revenue and 1% to 8% on margins. The first major overhaul of the Telecommunications Act of 1934 was passed by Congress in January 1996. The Telecommunications Act of 1996 (the "1996 Act") passed for several reasons including the following: . Congress was desperate to enact any bill. . Election year friendly/voter indifference. . Regain policy authority from the court. . Something for each industry. . Public Relations Spin: information highway jobs. -10- 17 The 1996 Act is made up of seven titles: Title I Telecommunications Services Title II Broadcast Services Title III Cable Services Title IV Regulation Reform Title V Broadcast Obscenity and Violence Title VI Effect on Other Laws Title VII Miscellaneous Provisions The 1996 Act is voluminous and complex, and as such, we will only deal with a sample of the more significant aspects of the bill as they relate to cable TV. The 1996 Act leaves in place, with certain modifications, most of the 1992 Act provisions. Rate Regulation . Upper tier regulations - Only a local franchising authority can file a complaint with the FCC -- the 1992 Act had provisions for individuals. - All tier rate regulation ends on March 31, 1999. - Small company relief broadened and better defined v. 1992 Act. Effective Competition - Local exchange carriers ("LEC's") added to test criteria. - Satisfaction of test criteria deregulates all rates. - Subscriber notice of rate changes are relaxed. - Customer premise equipment rules essentially same as 1992 Act - sunset when FCC determines true competition exists. . Must carry stays in place -- Nielsen DMA's ("designated market area") define broadcast market. . Telco's can enter cable TV business in their service area in three (3) ways: 1. As a cable system -- regulated under Title III. -11- 18 2. As a common carrier -- regulated under Title II only. 3. As an "open video system" -- cannot discriminate among programmers, do not require a local franchise but must comply with network non-duplication, syndicated exclusivity. . Telephone and Cable Buyouts - No LEC or affiliate can acquire more than 10% of a cable operator providing cable service within the carriers service area. - No cable operator or an affiliate can acquire more than 10% of a LEC providing telephone service within the cable system's service area. - Developing LEC's and cable operators cannot form joint ventures to offer cable or telephone service. - There are several exceptions to the above prohibitions which generally deal with small systems and markets. . Infrastructure Sharing - Requires telcos to provide information about their switched network to any "qualifying carrier". Potential competitors, including cable, need the information in order to connect their network with the telcos' network. . Direct Broadcast Satellite - Gives the FCC exclusive authority over direct-to-home satellite services ("DTH"), including direct broadcast satellite ("DBS"). The bill also bars local jurisdictions from taxing DTH satellite services but does not affect state taxes. - Bars local communities, including homeowner associations, from writing zoning laws that prohibit DBS dishes. The 1996 Act impact on the cable industry is mixed. The industry will benefit from telco competitive opportunities and eventual rate deregulations. However, the deregulatory windfall is discounted. Competitors are encouraged, telco takeover or investments restricted, and several 1992 Act regulations remain. According to Research Weekly (Prudential Securities, December 11, 1995) the cable industry has essentially learned to live with the new regulations. Further, it notes that strategically the most important issues are local telephone entry and revenue growth driven by new technologies and services. -12- 19 Consolidation The uncertainty of the impact of regulation, the timing and financing of the "information superhighway" and its associated potential new revenue sources, and the advent of a competitive environment have created a market for cable systems driven by a need for consolidation. This is evident in the unprecedented number of large cable operators who have put their cable systems up for sale in 1995, systems serving over 13 million subscribers, almost 20% of the industry. Once all these proposed deals close, the top 20 U.S. cable multiple system operators ("MSOs") will serve about 87% of an estimated 62.5 million cable customers and the top five MSOs will control 65% of the universe.2 The industry consensus is that consolidation is necessary in order to survive the impacts of convergence, regulation, and competition, and to provide operators with greater access to investment capital and greater leverage with suppliers of equipment and programming. Cable TV companies are also creating joint ventures with companies outside the cable industry. A good example of industry convergence is the Sprint/Cable Alliance. The major players include Sprint with a 40% equity interest in the venture, TCI with a 30% equity interest and Cox Communications and Comcast Corporation each with a 15% equity interest. The total costs have been estimated at around $8 billion. Each of the players in the alliance will bring something different to the table in an attempt to accomplish what is best described as a national digital wireless communications network based on broadband communications services. Sprint brings long-distance and local exchange authority, as well as a marketable and recognizable name. TCI offers a vast broadband wireline network. Comcast brings a wireline network and cellular service expertise to the venture and will look to develop a Sprint branded wireline service in __________________________________ 2Cable TV Investor, December 18, 1995. -13- 20 Baltimore and Detroit. Cox Communications will provide their wireline network and a wireless service in the large southern California/Las Vegas market.3 Cable Financing Regardless of the size of current transactions, the ability to complete a transaction requires the use of creative financing. The traditional financing vehicles, i.e., senior debt and mezzanine financing, have become limited as the investment community tries to analyze the potential impact of new telecommunications legislation, as well as the regulatory environment. New areas of financing include strategic alliances, recently increased junk bond activity; seller paper; major pension fund investors, e.g., CalPERs, and increased liquidity from non-traditional investors, e.g., US West's acquisition of the Bass Atlanta systems. Industry Trends Cable TV historically has provided competitively priced entertainment compared with movie theaters and other away-from-home leisure activities. Cable revenues continue to exhibit stability over the business cycle relative to many other discretionary consumer expenditures. The latter half of the nineties is expected to bring continued growth in both cable television subscriptions and revenues, albeit at a somewhat slower growth rate, reflecting a maturing of the traditional basic cable industry. The industry will focus on new programming and alternative viewing selections, such as staggered starting times on alternative channels for entertainment events, increased pay-per-view options, video on demand, etc. Technology will play a major role in the continued growth and profitability of the industry. The use of fiber optic technology for 750 MHz systems with 500-2,000 households per node is now standard for industry rebuilds in high density areas. This, __________________________________ 3Cablevision Magazine, November 13, 1995, "Sprinting Into Telecommunications". -14- 21 along with developments in digital television signal compression technologies, will allow cable systems to offer more channels by orders of magnitude at cost effective rates. Additionally, this distribution network architecture should position the cable operator to offer new interactive services in competition with other service providers as the new services approach viability. High speed cable modem services offering extremely rapid access to the internet and other data services, telecommunications, and information services, such as Personal Communications Networks, are expected to offer additional revenue sources. Programming and Services: The next five to ten years will see additional growth of CATV revenues from other revenue categories (other than basic and pay cable subscription revenue) such as advertising, pay-per-view ("PPV"), home shopping, digital audio, telephony, and potential new technology oriented services such as interactive games and computer related services. In 1994 other revenues (see Table 1B) were approximately $3.4 billion, or 14.6%, of the industry's $23.0 billion in revenues. As depicted in Table 1B, between 1994 and 1999 other revenues are projected to grow to $12.7 billion, representing 31.8% of total industry revenue and a CAGR of approximately 30%. Basic cable subscription revenue is expected to grow at a 7.6% CAGR and pay services revenue increasing by 3.4% CAGR. As of December 31, 1994, over 65% of United States TV households had basic cable television. In addition to providing broadcast stations, basic cable offers the availability of program alternatives in the form of basic cable networks. Each of the ten largest basic service networks (the top five being: Cable News Network, ESPN, TBS Superstation, USA Network, and The Discovery Channel) have over 60 million subscribers.4 Other widely distributed basic cable networks include The Learning Channel, Headline News, Lifetime, The Travel Channel, The Family Channel, C-Span, MTV, TNT, Arts & __________________________________ 4Cablevision Magazine, September 18, 1995. -15- 22 Entertainment, The Weather Channel, WWOR-TV, QVC, The Nashville Network, CNBC, and Comedy Channel. Pay television services include channels for which an optional additional fee is paid to the CATV operator. According to CableVision Magazine, September 18, 1995, the top five movie oriented pay channels served over 53 million subscribers. The top five movie entertainment services are Home Box Office (19.2 million subscribers), Disney Channel, Showtime, Cinemax, and Encore.5 In addition to these services, regional and local sport networks are sometimes offered as pay services. New programming services are anticipated as cable industry capacity constraints and regulatory "disincentives" are eased. New sources of competition are expected from the Regional Bell Operating Companies ("RBOCs") and Hollywood. Examples include the formation of Tele-TV in 1994 by Bell Atlantic, Nynex, and Pacific Telesis to develop programming content and distribution networks. Another video programming and interactive services venture will be known as Americast and includes Ameritech, BellSouth, SBC Communications and Disney, which has acquired Capital Cities/ABC.6 According to Veronis, Suhler & Associates Communications Industry Forecast, 1995 the three networks' audience levels, which were declining, have now stabilized, although their share of advertising dollars have continued to decline. In 1995, the three networks' portion of total TV advertising dollars are projected to be about 32.4%, compared with an estimated 44.7% in 1980. Much of this market share loss has come to cable television, which has offered advertisers both growing overall audiences and opportunities to reach niche audiences attracted by specialized programming. __________________________________ 5Cablevision Magazine, September 18, 1995. 6Standard & Poor's Telecommunications Industry Survey, December 7, 1995. -16- 23 This increase in cable viewership is summarized in the following report in the November 1995 Cable Avails: For the first three weeks of the 1995-1996 broadcast season that officially began on September 18, ad-supported cable posted significant gains in primetime viewership, while the four broadcast networks continued to lose audience despite heavy promotion of their fall program lineups. The average number of aggregate households watching primetime basic cable during the launch of the new season increased by more than 3 million -- up 26 percent from the same period last year. Cable's average collective primetime share jumped 26 percent (to 29 from 23) and average rating rose 21 percent (to 17.4 from 14). A growing number of viewers, on the other hand, continued to tune out ABC, CBS, NBC and Fox. The debut of their 1995-1996 primetime program schedules was met by an average collective loss of more than 2.7 million households, 6 share points and more than 3 rating points. These shifts in TV viewership seem to confirm that basic cable's audience is growing at the expense of broadcasters. Cable advertising revenues have begun to play a significant role in the industry's profitability. According to Veronis, Suhler & Associates Communications Industry Forecast, 1995, the audience share for all cable increased from 13.7% in 1984 to 30.1% in 1994. This has attracted the attention of both local and national advertisers. 1994 net national and local spot spending totalled $2.9 billion, a 14% increase over 1993, with 1995 advertising spending projected to be $3.3 billion, an increase of 13% over 1994. 1994 cable advertising represented 8.7% of total TV advertising. Cable advertising is forecasted to grow to $4.9 billion in 1999 which represents 11.0% of total forecasted TV advertising. Due to the niche nature of cable television programming, cable advertising offers an attractive, cost effective advertising medium to target specific consumer demographics. Additionally, cable advertising interconnects, serving broad metropolitan areas, have developed to facilitate the booking of advertising time at multiple cable systems time by national and regional advertisers. -17- 24 PPV, and in fact all pay services, have not achieved the levels of penetration and profitability that were anticipated in the mid-1980s. The flourishing home video business is a major factor in the lack of performance in this segment of the cable industry. Additionally, in recent years there were fewer big events, e.g., boxing, to draw viewers. Veronis, Suhler & Associates Communications Industry Forecast, 1995 summarizes the recent performances of and projection for PPV as follows, . A total of $269 million was spent on PPV movies in 1994. . Buy rates have been disappointing with only 2.9 movies per household bought by 21.7 million PPV households in 1994. By contrast the average VCR household rented nearly 1 movie per week. . Total spending on PPV movies will rise to $1.0 billion in 1999 representing a CAGR of 28.7% from 1994, based on the following assumptions: - Increased channel capacity will increase selection and allow multiplexing. - PPV cable buy rates will increase to 4.3 movies per year and PPV capable homes will increase to 29.0 million homes, 34% over 1994 levels. - PPV price will drop from an average of $4.25 in 1994 to $3.75 in 1999, narrowing the gap with video rentals. - PPV spending from DBS, backyard satellite dish and Telco video dial tone services will increase from virtually nothing presently to $581 million in 1999. In the future, PPV may become a significant source of revenues as the technology improves and the acquisition of movies and event programming becomes more aggressive, thereby improving their availability on cable relative to theatrical and videocassette releases. A number of the large MSOs as well as both cable and broadcast networks have recently shown significant interest in both acquiring and developing new programming. Examples include cable programmers purchase of the rights to numerous professional sporting events including football, baseball, basketball, hockey, and boxing. In addition, MSO's have purchased sports teams and venues, such as Comcast's purchase -18- 25 of the Philadelphia Flyers and 76ers, and the Spectrum Sports Arena. These purchases will lock-in cable television broadcast rights. PPV services can be looked at as event oriented and movie oriented. According to Kagan, 1994 PPV gross revenues were $484 million and are estimated to total $583 million in 1995, an increase of 20% from 1994. It is anticipated that events will continue to increase in number and create an increased audience for PPV, i.e., more homes with fully addressable converters, and improved subscriber awareness of events and available movies will greatly accelerate the growth of PPV revenue. Kagan estimates cable PPV gross revenues to be $1.2 billion in 1999, representing a CAGR of 19%. Another source of incremental revenues has been the growth of home shopping services on cable TV. Paul Kagan Associates reported these services to generate 1994 revenue for CATV operators of $127 million and projects these revenues to grow to $201 million by 1999 (a 9% CAGR). These services can be very profitable for cable system operators who generally receive 5%-10% of gross sales. Technology Developments New revenue sources will be dependent upon new delivery systems. Emerging technologies which will influence the new delivery systems are briefly described below. Interactive Digital Technology A major factor in the growth in cable video revenues and related service revenues such as telephony will be dependent upon the cable industry's implementation of interactive digital technology into their delivery system. These technical architectural changes include both digital and switched technologies. -19- 26 Fiber Optics: Optical fiber technology is rapidly being deployed in cable television systems and is projected to grow at an annual rate of 25% in the 1990s. It's use provides several advantages over traditional coaxial copper cable: . Cost effective upgrades of channel capacity by replacing "trunk" without the high cost of replacing all cable to each individual home, resulting in the "hybrid" fiber-coaxial system commonly in use today; . Improved reliability, by reducing the number of electronics required between the headend and the consumer; . The addition of two-way services for consumers or business at cost effective rates. . Reduced operating costs due to fewer electronics which need periodic "balancing" or fine-tuning; . Improved signal quality, due to fewer electronics and less possibility of static or electrical interference. HDTV: High Definition Television has been in development for over fifteen years, but has yet to prove itself as a cost-effective consumer option, though the technology has been successfully demonstrated on existing cable systems in the United States and Canada. Basically, the term HDTV represents a variety of technological approaches to improved clarity and quality. Recommendations regarding the technology have been made to the FCC, but the future of HDTV is yet to be determined. The current broadcast television transmission format was developed based upon engineering and technology available in the late 1940s and early 1950s. The FCC is in the process of "adopting a series of standards for HDTV transmission, designed by the Grand Alliance, a consortium of seven TV and cable equipment vendors."7 The original objective of HDTV was to achieve TV pictures that are more like movie screens than current TV sets. However, the capabilities that digital TV technology offers are beyond that originally contemplated and provide some issues to the television industry as outlined in the above referenced article. __________________________________ 7Cablevision Magazine, November 13, 1995, "The Digital TV Showdown". -20- 27 . Broadcasters would like to use the 6 MHz additional channel any way they want. For example, does HDTV programming have to be aired exclusively or could broadcasts, using digital compression, offer multiple programs and if so, do CATV systems have to carry all of them under the "must carry" rules? . The computer industry is making a case before the FCC to use progressive scanning versus current interlace scanning. Progressive scanning is more legible for computer applications. . Digital channel capacity could be used by broadcasters for new telecommunications services such as paging and personal communications services ("PCS"). The issue before the FCC, and possibly Congress, is whether the award of the additional bandwidth to broadcasters should be paid for, now or in the future in a manner analogous to auctions used for recent PCS licenses. Video Compression: The purpose of video compression is to achieve more efficient use of expensive bandwidth and power. Currently, each television channel on a cable system occupies 6 MHz of spectrum space which is the same amount of bandwidth as a broadcast television channel. Hence the number of channels that a cable system can deliver to subscribers at any one time is limited by the bandwidth of the system. For example, an operator may currently carry 60-channels in a 450 MHz system, and 76-channels in a 550 MHz system. The use of video compression permits a greater number of channels to be transmitted in a given bandwidth then an analog signal. Most satellite signals that are delivered to cable headends occupy one satellite transponder or channel each. This transmission is in the analog mode. By digitizing and compressing a television signal it is possible to carry several programs on one satellite transponder. This is exactly the method that direct broadcast satellites use to make more than one hundred channels available to their customers. Similar technologies can be applied to a cable system. For example, a cable operator might dedicate four standard TV channels (24 MHz of bandwidth) to services to be delivered in a compressed mode. The compression technology might accommodate 8 to 12 video signals in this bandwidth. Hence, viewers would have four to eight additional program choices available to them. The application of compression technology should -21- 28 make additional services available to some subscribers without being a burden to those not ordering such services. Digital Storage and Switching: One of the major elements of an interactive services delivery system will be the amount of digital storage and switching technology installed at or accessible to either a cable headend or a telephone switching office. Interactive services will require capabilities that are new to cable headends and telephone switching centers. Historically, cable headends do not have any significant switching requirements and telephone central offices do not handle television services. Digital technology is beginning to place increased demands on each of these facilities as the role of cable operators and telephone companies change. A major new element that is common to most interactive experiments is a file server, which can store gigabits of information. This information could include movies in a compressed video format, games that could be downloaded simultaneously by several customers of a service, or data bases for use by local subscribers. The emergence of digital technology threatens to revolutionize home entertainment, education, and business into the next century. Interactive or two-way cable television is likely to become increasingly commonplace as it proves to be increasingly cost efficient in linking schools for special courses like it does in Enfield, Connecticut, connecting hospitals for training and videoconferences as it does at Portland, Oregon, providing municipal fire, police, prison, and utilities with discreet video connections as it does in many communities or providing data transmission for businesses as it does in New York City; Dearborn, Michigan; Kansas City; and elsewhere. Competition These technological developments will, dramatically alter the way households, businesses, and schools "connect" with informational, educational, entertainment, -22- 29 telecommunications and transactional services. The cable television industry is well positioned to take advantage of the new competitive marketplace brought about by the 1996 Act. Future competition to cable operators is expected to come from three industries; direct broadcast satellite services, telephone companies, and wireless cable. It appears that all three competitors are adequately financed to compete with cable operators. Briefly, here are some of the strengths and weaknesses of the most frequently mentioned competitive threats to cable television in the years ahead. DBS: Direct Broadcast Satellite, is a satellite-to-home service by utilizing a "backyard dish" or receiver. Historically, most DBS customers have been in lightly populated rural areas which are not served by cable companies due to cable's self-imposed guidelines for "cost-effective" densities of 20-30 households per mile. In late June 1994, G. M. Hughes Electronics (DirecTV) and U.S. Satellite Broadcasting ("USSB") began offering a DBS system utilizing high-tech, high cost Ku-Band satellites for multichannel reception. The Hughes and USSB systems is currently available nationally, and had 1.4 million subscribers at the end of the first quarter 1996. PrimeStar, a direct satellite broadcast system owned by Time Warner, Comcast, TCI, Cox, and GE also began service in June 1994 with 70-channels in the first all digital television signal delivery system. At the end of the first quarter 1996, Primestar served approximately 1.0 million customers. Echo Star has successfully launched its DBS satellite in December 1995 and plans to begin service in early 1996. Advantages of DBS to consumers are the prospect of satellite signals at competitive monthly prices and additional program services. Disadvantages are requirements for an unimpeded line of sight for the antenna, a high initial cost to subscribers for DirecTV (approximately $500 for a single TV set, $700 for two, plus installation fees of up to -23- 30 $150), no carriage of local broadcast signals or locally originated programming, and currently the inability to provide practical interactive services. Cable systems in rural, low density areas with limited channel capacity (35 or less) and poor service, or areas without wired cable service are the most vulnerable to DBS competition. Telephone companies and cable operators themselves may also market DBS services as a entree to cable services. In fact, AT&T has made an investment in DirecTV and will begin marketing the service to its 95 million customers. According to Morgan Stanley's US Investment Research8 "direct-to-home satellites will become the largest competitors to the CATV industry with 12 - 12.5 million subscribers by the end of the decade." The forecast assumes that DBS reception equipment for a single TV set will decline to just under $500 within five years and that PPV movie buy rates will improve due to the growth in video store rental rates. Wireless: Wireless cable (officially referred to as multichannel multipoint distribution system, "MMDS") provides multichannel television service via a local microwave distribution system and microwave receive equipment at the consumer location. Wireless requires less capital than cable, is easier to construct, and provides service to an area faster than it takes to build a cable system. Disadvantages include line of sight requirements, a lack of interactivity and local content limitations, similar to those stated above for DBS. In addition there are current limitations to a maximum of 33-channels of capacity for an MMDS system. However, digital compression techniques will increase the number of programs delivered. Support for this technology is offered by recent acquisitions of MMDS providers by Pacific Telesis and Nynex. Bell Atlantic has also formed an alliance with Cellular Vision of New York which provides a similar wireless service but at an even higher frequency. __________________________________ 8Cable Television Metamorphism - The Arrival of DBS and RBOC Competition, September 15, 1995. -24- 31 Though a true competitive service to cable, the growth of wireless seems limited to an average of 2-3% of the marketplace. This is supported by Veronis, Suhler & Associates Communications Industry Forecast, 1995 which projects wireless cable subscribers increasing from 0.5 million in 1994 to 2.0 million in 1999 representing a 28% CAGR and 2.7% of the total subscription video subscribers. Telephone Companies: When talking about cable competition, "telephone" usually means RBOCs, GTE, Sprint, MCI, because their lobbying and public campaign for rights to provide video in their service areas has been highly visible. Telephone companies view cable as a great new source of revenue and a way to finance fiber optic cable throughout their areas. The RBOC's have the financial resources, technical expertise and consumer experience to be real competitive threats. However, serious barriers to their entry remain. They have been prohibited from offering video services by the court and the Cable Act of 1984; their drops to households would all need to be replaced and new coax/fiber plant built at a huge cost in order to provide a broadband video service comparable to what cable already has in place; Public Utility Commissions would be unlikely to tolerate any cross-ownership of subsidiaries by a regulated utility for an entry into a new, competitive field dominated by an experienced incumbent; telephone companies have little experience in providing video, much less in a complicated, multi-tiered, menu-driven post 1992 Act era. The 1996 Act creates a competitive marketplace for telephone and cable serves by allowing phone and cable companies to compete in each others businesses while prohibiting combinations of companies serving overlapping areas. This is the so-called "two (2) wire" model. This is a situation that cable is far better situated to take advantage of from both a technological and regulatory standpoint with its broadband network in place. The telephone companies would face heavier costs, and time delays. -25- 32 Many analysts give the competitive advantage to cable due to: . Cable's national broadband fiber/coaxial networks can be expanded for telephone services with an estimated cost of $20 billion while telephone's limited fiber/twisted pair network would require an investment of an estimated $400 billion to enable it to provide high capacity video services; . Cable companies are likely to react to market opportunities more quickly, having an opportunistic entrepreneurial history, rather than that of a large, bureaucratic, utility monopoly which has only recently ventured into competitive business; . Cable is expected to "out-market" telephone companies, having experienced some competition and several large cable companies having managed cable-telco combined systems in the U.K. for several years; and . Cable will probably have an initial window of opportunity in the "open marketplace" of 2-3 years due to the RBOC's focus on first entering the long distance market, as well as normal lapsed time required for telephone companies to work their way through Public Utility Commission ("PUC") and regulatory procedures. Standard & Poor's Telecommunications Industry Survey, December 7, 1995 provides a synopsis of the issues facing the CATV industry as it prepares to enter the telecommunications market: . Cable networks are generally one way and operators must upgrade their networks with appropriate switching capabilities. . The cable industry must overcome the reliability of its service. . The United Kingdom market provides some insight into the ability of U.K. cable companies to capture as much as 25% of the U.K. Telephony market. However, the telephony market in the U.K. does not provide the same level of reliability as in the U.S.; thus the analogy may not correlate. Summary In summary, the cable TV industry is well positioned to participate in the growth of the information highway. It has a broadband cable plant in place, is entrepreneurial in nature, has outstanding companies and management talent to compete with the entrenched telephone and broadcast players in the marketplace. Additional services and corresponding sources of revenue will continue to develop and the consolidation of -26- 33 players in the CATV industry and telecommunications industry, e.g., SBC's proposed purchase of Pacific Telesis and Bell Atlantic's proposed merger with NYNEX, will continue so that economies of scale and sufficient resources, both capital and management, are available. -27- 34 FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1995 PART III - DESCRIPTION OF THE REGIONS' SERVICE AREAS AND SYSTEMS Description of Service Areas FCSC is made up of seven (7) operating Regions as follows: 1. Gilroy, California 2. Hesperia, California 3. San Luis Obispo, California 4. Tulare, California 5. Central, Oregon 6. Dallas, Oregon 7. Coos Bay/Florence, Oregon Figures 1 - 7 are maps showing the location of each Region and certain systems, i.e., systems serving communities that are in the "Maplinx" database, within each Region. Exhibits A and B contain photographs and detailed operating statistics as of the valuation date respectively. Tables 2A through 2G depict various relevant demographic factors, available at the valuation date, for each Region's service areas. The reader should note that the demographic data in the Tables were compiled by postal zip codes. The zip codes served were provided by Falcon management. Also, the place names are associated with zip codes and will not necessarily be the same as the Region's franchise areas. However, Kane Reece's research indicates that the Tables' footprints reasonably match each Region's service area. The Tables contain population and household statistics, beginning with 1990 census data, show CACI projections for 1995 and 2000. Kane Reece computed the various compound annual growth rates ("CAGR"). Median ages are shown for 1990 and 1995. Median household income for 1995 and the -28- 35 FIGURE 1 GILROY REGION FALCON CABLE SYSTEMS COMPANY Map of Gilroy region showing the location of certain systems in the region. Gilroy Gonzales Soledad Greenfield King City 36 FIGURE 2 HESPERIA REGION FALCON CABLE SYSTEMS COMPANY Map of Hesperia region showing the location of certain systems in the region. Hesperia Adelanto Boron North Edwards Mojave Rosamond 37 FIGURE 3 SAN LUIS OBISPO REGION FALCON CABLE SYSTEMS COMPANY Map of San Luis Obispo region showing the location of certain systems in the region. Atascadero San Luis Obispo Guadalupe Los Alamos 38 FIGURE 4 TULARE REGION FALCON CABLE SYSTEMS COMPANY Map of Tulare region showing the location of certain systems in the region. Tulare Porterville California Hot Springs Posey 39 FIGURE 5 CENTRAL OREGON REGION FALCON CABLE SYSTEMS COMPANY Map of Central Oregon region showing the location of certain systems in the region. Brownsville Veneta Drain Cottage Grove Oakland Sutherlin Cave Junction 40 FIGURE 6 DALLAS REGION FALCON CABLE SYSTEMS COMPANY Map of Dallas region showing the location of certain systems in the region. Nehalem Tillamook Dallas Silverton 41 FIGURE 7 COOS BAY & FLORENCE REGIONS FALCON CABLE SYSTEMS COMPANY Map of Coos Bay and Florence region showing the location of certain systems in the region. Florence Mapleton Gardiner Reedsport Coos Bay Coquille Bandon Myrtle Point Powers 42 TABLE 2A GILROY, CA REGION DEMOGRAPHICS
Population ------------------------------------------------------ CAGR Zip Code Location 1990 1995 2000 90-95 95-00 - -------- -------- ------- ------- ------- ----- ----- 93908 Salinas 12,030 12,389 12,369 0.6% -0.0% 93925 Chualar 12 12 12 0.0% 0.0% 93926 Gonzales 12,842 11,941 11,858 -1.4% -0.1% 93927 Greenfield 8,728 8,555 8,457 -0.4% -0.2% 93930 King City 11,299 12,372 12,513 1.8% 0.2% 93940 Monterey 35,335 33,013 32,390 -1.4% -0.4% 93960 Soledad 9,046 9,464 9,478 0.9% 0.0% 95004 Aromas 2,713 2,930 3,086 1.6% 1.0% 95012 Castroville 7,168 7,088 7,015 -0.2% -0.2% 95020 Gilroy 39,878 42,638 44,921 1.3% 1.0% 95023 Hollister 31,212 36,096 40,678 3.0% 2.4% 95037 Morgan Hill 31,482 34,550 36,846 1.9% 1.3% 95039 N/A 95045 San Juan Bautista 3,688 4,093 4,516 2.1% 2.0% 95046 San Martin 5,477 5,750 6,005 1.0% 0.9% 95075 N/A 99396 N/A ------- ------- ------- Total/Avg 210,910 220,891 230,144 0.9% 0.8% Wtd. Avg. California 29,760,021 31,754,305 33,660,583 1.3% 1.2% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0% Households ----------------------------------------------------- CAGR Median Age Median HH National State Zip Code Location 1990 1995 2000 90-95 90-00 1990 1995 Income Centile Centile - -------- -------- ------- ------- ------- ----- ----- ----- ----- --------- -------- ------- 93908 Salinas 3,920 4,025 4,011 0.5% -0.1% 35.2 36 60,294 97% 93% 93925 Chualar 3 3 3 0.0% 0.0% 0 0 0 0% 0% 93926 Gonzales 1,578 1,529 1,505 -0.6% -0.3% 28.7 32.1 28,121 50% 29% 93927 Greenfield 2,105 2,053 2,023 -0.5% -0.3% 24.9 24.3 30,911 60% 39% 93930 King City 3,144 3,429 3,459 1.8% 0.2% 26.7 26.7 32,509 65% 44% 93940 Monterey 14,071 13,122 12,811 -1.4% -0.5% 32.3 34 38,025 79% 59% 93960 Soledad 2,186 2,269 2,265 0.7% -0.0% 25 25.6 30,483 59% 38% 95004 Aromas 872 938 987 1.5% 1.0% 30 30.3 38,863 81% 62% 95012 Castroville 1,919 1,888 1,864 -0.3% -0.3% 26.8 26.9 32,729 66% 45% 95020 Gilroy 11,926 12,708 13,373 1.3% 1.0% 29.3 30.4 45,687 89% 77% 95023 Hollister 9,636 11,058 12,425 2.8% 2.4% 29.8 30.2 38,900 81% 62% 95037 Morgan Hill 10,153 11,103 11,827 1.8% 1.3% 32.2 33.2 57,278 96% 91% 95039 N/A 95045 San Juan Bautista 1,152 1,273 1,404 2.0% 2.0% 33 33.3 39,234 81% 62% 95046 San Martin 1,587 1,658 1,729 0.9% 0.8% 32.7 33.5 56,046 96% 90% 95075 N/A 99396 N/A ------- ------- ------- Total/Avg 64,252 67,056 69,686 0.9% 0.8% 27.6 28.3 37,791 71% 57% Wtd. Avg. 30.2 31.1 43,494 California 10,381,206 10,995,431 11,624,997 1.2% 1.1% 31.5 32.6 38,099 15 * United States 91,947,410 97,069,804 102,201,641 1.1% 1.0% 32.9 34.0 33,610
*National Rank Source: The Sourcebook of Zip Code Demographics, 1995 -36- 43 TABLE 2B HESPERIA, CA REGION DEMOGRAPHICS
Population ------------------------------------------------------ CAGR Zip Code Location 1990 1995 2000 90-95 95-00 - -------- -------- ----------- ----------- ----------- ----- ----- 92301 Adelanto 7,479 12,436 16,197 10.7% 5.4% 92342 Helendale 3,612 4,032 4,417 2.2% 1.8% 92345 Hesperia 52,078 62,401 70,640 3.7% 2.5% ----------- ----------- ----------- Total/Avg 63,169 78,869 91,254 4.5% 3.0% =========== =========== =========== ===== ==== California 29,760,021 31,754,305 33,660,583 1.3% 1.2% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0% Households ------------------------------------------------------ CAGR Median Age Median HH National State Zip Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile - -------- -------- ----------- ----------- ----------- ----- ----- ---- ---- --------- -------- ------- 92301 Adelanto 2,671 4,406 5,720 10.5% 5.4% 26.7 23.7 $20,708 18% 7% 92342 Helendale 1,356 1,529 1,683 2.4% 1.9% 36.3 38.6 31,331 62% 41% 92345 Hesperia 17,046 20,270 22,876 3.5% 2.4% 30.7 31.3 33,205 67% 45% ----------- ----------- ----------- Total/Avg 21,073 26,205 30,279 4.5% 2.9% 31.2 31.2 28,415 49% 31% =========== =========== =========== ===== ==== ==== ==== ======= === === California 10,381,206 10,995,431 11,624,997 1.2% 1.1% 31.5 32.6 38,099 15 * United States 91,947,410 97,069,804 102,201,641 1.1% 1.0% 32.9 34.0 33,610
*National Rank Source: The Sourcebook of Zip Code Demographics, 1995 -37- 44 TABLE 2C SAN LUIS OBISPO, CA REGION DEMOGRAPHICS
Population ------------------------------------------------------- CAGR Zip Code Location 1990 1995 2000 90-95 95-00 - -------- -------- ------------ ----------- ----------- ----- ----- 93401 San Luis Obispo 24,451 24,181 24,434 -0.2% 0.2% 93402 Los Osos 14,648 14,448 14,587 -0.3% 0.2% 93422 Atascadero 27,722 28,730 29,692 0.7% 0.7% 93428 Cambria 5,607 5,915 6,167 1.1% 0.8% 93434 Guadalupe 6,064 6,598 6,978 1.7% 1.1% 93440 N/A 93446 Paso Robles 29,114 31,437 33,140 1.5% 1.1% 93453 Santa Margarita 1,187 1,242 1,289 0.9% 0.7% 93465 Templeton 5,793 6,084 6,330 1.0% 0.8% ------------ ----------- ----------- Total/Avg 114,586 118,635 122,617 0.7% 0.7% ============ =========== =========== ==== ==== California 29,760,021 31,754,305 33,660,583 1.3% 1.2% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0% Households ------------------------------------------------------ CAGR Median Age Median HH National State Zip Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile - -------- -------- ----------- ----------- ----------- ----- ----- ------------ --------- -------- ------- 93401 San Luis Obispo 10,380 10,221 10,319 -0.3% 0.2% 29.9 31.9 $28,708 53% 32% 93402 Los Osos 5,857 5,741 5,781 -0.4% 0.1% 36.5 38.1 37,980 79% 59% 93422 Atascadero 9,863 10,175 10,504 0.6% 0.6% 33 34.1 36,945 76% 55% 93428 Cambria 2,465 2,584 2,688 0.9% 0.8% 44.4 46.8 37,937 79% 58% 93434 Guadalupe 1,517 1,639 1,729 1.6% 1.1% 25.4 24.8 24,140 31% 16% 93440 N/A 93446 Paso Robles 10,359 11,113 11,689 1.4% 1.0% 31.9 32.3 33,952 69% 47% 93453 Santa Margarita 451 469 486 0.8% 0.7% 34.9 36 39,617 82% 64% 93465 Templeton 2,193 2,290 2,377 0.9% 0.7% 36.2 38.1 42,500 86% 70% ---------- ---------- ----------- Total/Avg 43,085 44,232 45,573 0.5% 0.6% 34.025 35.263 35,222 69% 50% ========== ========== =========== ==== ==== ====== ====== ====== === === California 10,381,206 10,995,431 11,624,997 1.2% 1.1% 31.5 32.6 38,099 15 * United States 91,947,410 97,069,804 102,201,641 1.1% 1.0% 32.9 34.0 33,610
*National Rank Source: The Sourcebook of Zip Code Demographics, 1995 -38- 45 TABLE 2D TULARE, CA TULARE DEMOGRAPHICS
Population ----------------------------------------------------- CAGR Zip Code Location 1990 1995 2000 90-95 95-00 - -------- -------- ----------- ----------- ----------- ----- ----- 93207 California Hot Sprin 149 163 178 1.8% 1.8% 93208 N/A 93209 N/A 93218 N/A 93219 Earlimart 11,963 13,426 14,824 2.3% 2.0% 93221 Exeter 10,919 12,397 13,744 2.6% 2.1% 93223 Farmersville 6,432 7,234 7,984 2.4% 2.0% 93235 Ivanhoe 3,326 3,592 3,889 1.6% 1.6% 93244 Lemon Cove 64 72 80 2.4% 2.1% 93247 Lindsay 12,983 13,965 15,085 1.5% 1.6% 93256 Pixley 4,768 5,137 5,554 1.5% 1.6% 93257 Porterville 53,982 60,020 65,936 2.1% 1.9% 93258 N/A 93260 Posey 243 266 290 1.8% 1.7% 93265 Springville 3,058 3,351 3,652 1.8% 1.7% 93267 Strathmore 4,774 5,228 5,697 1.8% 1.7% 93270 Terra Bella 5,066 5,728 6,339 2.5% 2.0% 93271 Three Rivers 2,166 2,446 2,705 2.5% 2.0% 93272 Tipton 2,365 2,725 3,043 2.9% 2.2% 93286 Woodlake 8,857 10,320 11,582 3.1% 2.3% 93291 Visalia 32,369 36,821 40,922 2.6% 2.1% 93292 Visalia 25,275 29,161 32,591 2.9% 2.2% 93615 Cutler 4,901 5,448 5,979 2.1% 1.9% 93646 Orange Cove 6,374 6,764 7,242 1.2% 1.4% 93647 Orosi 7,545 8,138 8,802 1.5% 1.6% 93666 N/A ----------- ----------- ----------- Total/Avg 207,579 232,402 256,118 2.3% 2.0% =========== =========== =========== ===== ===== California 29,760,021 31,754,305 33,660,583 1.3% 1.2% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0% Households ----------------------------------------------------- CAGR Median Age Median HH National State Zip Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile - -------- -------- ----------- ----------- ----------- ----- ----- ---- ---- --------- -------- ------- 93207 California Hot Sprin 61 67 72 1.9% 1.4% 38.5 39.5 $28,737 53% 32% 93208 N/A 93209 N/A 93218 N/A 93219 Earlimart 2,914 3,246 3,573 2.2% 1.9% 23.6 23 18,077 9% 3% 93221 Exeter 3,767 4,255 4,707 2.5% 2.0% 32.4 33.2 25,334 36% 19% 93223 Farmersville 1,745 1,948 2,144 2.2% 1.9% 25.5 24.2 20,376 17% 7% 93235 Ivanhoe 955 1,024 1,105 1.4% 1.5% 28.5 27.3 23,356 28% 14% 93244 Lemon Cove 22 25 28 2.6% 2.3% 40.4 40.4 29,167 54% 33% 93247 Lindsay 3,981 4,257 4,589 1.3% 1.5% 28 27.5 25,353 36% 20% 93256 Pixley 1,451 1,553 1,674 1.4% 1.5% 27.6 26 18,969 12% 4% 93257 Porterville 17,099 18,889 20,696 2.0% 1.8% 29.7 28.7 25,124 34% 19% 93258 N/A 93260 Posey 92 100 109 1.7% 1.7% 38.8 40.4 28,882 53% 32% 93265 Springville 1,291 1,408 1,533 1.8% 1.7% 38.7 40.1 28,816 53% 32% 93267 Strathmore 1,391 1,512 1,643 1.7% 1.7% 30.1 27.8 23,987 30% 16% 93270 Terra Bella 1,378 1,551 1,714 2.4% 2.0% 28.3 27.7 25,562 37% 20% 93271 Three Rivers 918 1,039 1,151 2.5% 2.1% 37.9 40.5 30,822 60% 39% 93272 Tipton 684 784 873 2.8% 2.2% 24.5 23.4 19,749 14% 6% 93286 Woodlake 2,534 2,935 3,285 3.0% 2.3% 28.6 28.3 22,232 24% 11% 93291 Visalia 9,435 10,803 12,042 2.7% 2.2% 27.5 27.7 26,028 40% 22% 93292 Visalia 8,286 9,538 10,652 2.9% 2.2% 29.7 30.5 30,357 59% 38% 93615 Cutler 1,033 1,145 1,256 2.1% 1.9% 22.8 23.4 20,207 16% 6% 93646 Orange Cove 1,547 1,631 1,741 1.1% 1.3% 24.4 24.3 17,675 8% 2% 93647 Orosi 1,930 2,069 2,233 1.4% 1.5% 26.4 26.4 21,484 21% 9% 93666 N/A ---------- ---------- ----------- Total/Avg 62,514 69,779 76,820 2.2% 1.9% 30.1 30.0 24,078 32% 18% ========== ========== =========== ===== ===== ==== ==== ======= === === California 10,381,206 10,995,431 11,624,997 1.2% 1.1% 31.5 32.6 38,099 15 * United States 91,947,410 97,069,804 102,201,641 1.1% 1.0% 32.9 34.0 33,610
*National Rank Source: The Sourcebook of Zip Code Demographics, 1995 -39- 46 TABLE 2E CENTRAL, OR REGION DEMOGRAPHICS
Population Households --------------------------------------------------- ------------------------------------------------- CAGR CAGR Zip Code Location 1990 1995 2000 90-95 95-00 1990 1995 2000 90-95 95-00 - -------- -------- ---- ---- ---- ----- ----- ---- ---- ---- ----- ----- 97327 Brownsville 3,249 3,620 3,946 2.2% 1.7% 1,176 1,303 1,419 2.1% 1.7% 97336 N/A 97377 Shedd 1,067 1,184 1,288 2.1% 1.7% 378 417 453 2.0% 1.7% 97386 Sweet Home 11,182 12,163 13,113 1.7% 1.5% 4,284 4,642 4,998 1.6% 1.5% 97401 Eugene 29,217 31,255 33,181 1.4% 1.2% 13227 14,115 14,995 1.3% 1.2% 97408 Eugene 6,997 7,630 8,181 1.7% 1.4% 2,717 2,952 3,161 1.7% 1.4% 97413 Blue River 1,090 1,138 1,195 0.9% 1.0% 451 469 491 0.8% 0.9% 97424 Cottage Grove 15,067 16,080 17,067 1.3% 1.2% 5,670 6,027 6,387 1.2% 1.2% 97426 Creswell 6,332 6,762 7,177 1.3% 1.2% 2,295 2,440 2,586 1.2% 1.2% 97431 Dexter 2,980 3,183 3,379 1.3% 1.2% 1,038 1,104 1,169 1.2% 1.2% 97435 Drain 2,337 2,411 2,498 0.6% 0.7% 857 881 911 0.6% 0.7% 97437 Elmira 2,424 2,576 2,729 1.2% 1.2% 869 919 971 1.1% 1.1% 97438 Fall Creek 1,570 1,684 1,792 1.4% 1.3% 563 601 638 1.3% 1.2% 97452 Lowell 793 851 905 1.4% 1.2% 274 293 311 1.3% 1.2% 97454 Marcola 1,442 1,551 1,652 1.5% 1.3% 527 564 600 1.4% 1.2% 97455 Pleasant Hill 2,218 2,347 2,480 1.1% 1.1% 752 792 836 1.0% 1.1% 97461 Noti 1,189 1,268 1,346 1.3% 1.2% 427 453 480 1.2% 1.2% 97462 Oakland 3,315 3,499 3,666 1.1% 0.9% 1,217 1,281 1,341 1.0% 0.9% 97463 Oakridge 3,992 4,155 4,356 0.8% 0.9% 1,596 1,654 1,730 0.7% 0.9% 97477 Springfield 32,447 34,410 36,433 1.2% 1.1% 13,208 13,980 14,797 1.1% 1.1% 97478 Springfield 27,521 30,088 32,320 1.8% 1.4% 9,905 10,775 11,550 1.7% 1.4% 97479 Sutherlin 7,304 8,002 8,529 1.8% 1.3% 2,753 3,005 3,198 1.8% 1.3% 97487 Veneta 6,004 6,376 6,750 1.2% 1.1% 2,115 2,237 2,365 1.1% 1.1% 97488 Vida 909 949 997 0.9% 1.0% 363 377 396 0.8% 1.0% 97489 Walterville 432 451 474 0.9% 1.0% 174 181 190 0.8% 1.0% 97492 West Fir 514 535 561 0.8% 1.0% 195 202 211 0.7% 0.9% 97499 Yoncalla 2,255 2,407 2,535 1.3% 1.0% 856 910 956 1.2% 1.0% 97523 Cave Junction 5,500 6,197 6,877 2.4% 2.1% 2,305 2,588 2,867 2.3% 2.1% 97531 Kerby 78 88 98 2.4% 2.2% 31 35 39 2.5% 2.2% 97534 O'Brien 247 278 309 2.4% 2.1% 93 104 116 2.3% 2.2% --- --- --- -- --- --- Total/Avg 179,672 193,138 205,834 1.5% 1.3% 70,316 75,301 80,162 1.4% 1.3% Wtd. Avg. 18,381 19,716 20,984 1.4% 1.3% 7,661 8,181 8,695 1.3% 1.2% Oregon 2,842,321 3,141,979 3,427,386 2.0% 1.8% 1,103,313 1,214,202 1,322,298 1.9% 1.7% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0% 91,947,410 97,069,804 102,201,641 1.1% 1.0%
Median Age Median HH National State Zip Code Location 1990 1995 Income Centile Centile - -------- -------- ---- ---- ------ ------- ------- 97327 Brownsville 35.9 37.4 $36,154 74% 76% 97336 N/A 97377 Shedd 33.8 35.1 34,121 69% 68% 97386 Sweet Home 35.7 36.2 26,041 40% 16% 97401 Eugene 30.9 32.5 28,157 50% 30% 97408 Eugene 37.9 39.8 41,570 85% 89% 97413 Blue River 39.7 42.1 37,959 79% 82% 97424 Cottage Grove 35.6 36.5 29,765 57% 44% 97426 Creswell 35 35.3 29,186 54% 38% 97431 Dexter 35.3 37.2 33,621 68% 66% 97435 Drain 36.7 37.8 25,892 39% 16% 97437 Elmira 36.6 39 35,209 71% 72% 97438 Fall Creek 33.9 36.1 32,616 65% 59% 97452 Lowell 34 36.1 32,630 65% 59% 97454 Marcola 37.8 40.4 38,379 80% 83% 97455 Pleasant Hill 38 40 35,359 72% 73% 97461 Noti 36.4 38.8 36,155 74% 77% 97462 Oakland 36.9 38 27,400 47% 23% 97463 Oakridge 36.3 37.2 25,027 34% 10% 97477 Springfield 32 32.1 27,250 46% 21% 97478 Springfield 32.3 33.7 33,116 66% 61% 97479 Sutherlin 35.5 36.2 25,646 38% 13% 97487 Veneta 34.1 35.8 29,973 57% 45% 97488 Vida 39.7 42.1 37,944 79% 82% 97489 Walterville 39.7 42.3 37,849 78% 81% 97492 West Fir 36.0 37.2 24,835 33% 9% 97499 Yoncalla 36.9 38 26,185 41% 18% 97523 Cave Junction 39.9 41.2 17,977 9% 1% 97531 Kerby 40.8 41.3 18,215 9% 2% 97534 O'Brien 39.3 41.0 18,022 9% 2% Total/Avg 36.3 37.8 30,423 55% 45% Wtd. Avg. 34.0 35.1 29,424 Oregon 34.5 35.6 35,077 21 * United States 32.9 34.0 33,610
*National Rank Source: The Sourcebook of Zip Code Demographics, 1995 -40- 47 TABLE 2F DALLAS, OR REGION DEMOGRAPHICS
Population Households --------------------------------------------------- ------------------------------------------------- CAGR CAGR Zip Code Location 1990 1995 2000 90-95 95-00 1990 1995 2000 90-95 95-00 - -------- -------- ---- ---- ---- ----- ----- ---- ---- ---- ----- ----- 97102 N/A 97107 Bay City 1,483 1,684 1,858 2.6% 2.0% 639 724 799 2.5% 2.0% 97110 N/A 97118 N/A 97130 N/A 97131 Nehalem 2,118 2,352 2,568 2.1% 1.8% 981 1,087 1,186 2.1% 1.8% 97134 N/A 97136 Rockaway 3,164 3,435 3,712 1.7% 1.6% 1,426 1,537 1,657 1.5% 1.5% 97141 Tillamook 11,010 12,043 13,052 1.8% 1.6% 4,245 4,638 5,027 1.8% 1.6% 97143 N/A 97145 Tolovana Park 1,114 1,168 1,227 1.0% 1.0% 495 516 542 0.8% 1.0% 97147 N/A 97338 Dallas 14,525 16,618 18,640 2.7% 2.3% 5,313 6,066 6,803 2.7% 2.3% 97344 Falls City 879 997 1,114 2.6% 2.2% 326 368 410 2.5% 2.2% 97351 Independence 5,944 6,680 7,429 2.4% 2.1% 2,007 2,251 2,503 2.3% 2.1% 97352 Jefferson 5,829 6,456 7,063 2.1% 1.8% 1,994 2,197 2,397 2.0% 1.8% 97361 Monmouth 8,082 9,061 10,050 2.3% 2.1% 2,794 3,167 3,538 2.5% 2.2% 97362 Mount Angel 4,747 5,084 5,477 1.4% 1.5% 1,329 1,447 1,570 1.7% 1.6% 97371 Rickreall 266 309 349 3.0% 2.5% 99 114 129 2.9% 2.5% 97381 Silverton 10,399 11,657 12,828 2.3% 1.9% 3,749 4,186 4,599 2.2% 1.9% ------ ------ ------ ----- ----- ----- Total/Avg 69,560 77,544 85,367 2.2% 1.9% 25,397 28,298 31,160 2.2% 1.9% Wtd. Avg. 8,860 9,981 11,071 2.4% 2.1% 3,215 3,616 4,010 2.4% 2.1% Oregon 2,842,321 3,141,979 3,427,386 2.0% 1.8% 1,103,313 1,214,202 1,322,298 1.9% 1.7% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0% 91,947,410 97,069,804 102,201,641 1.1% 1.0%
Median Age Median HH National State Zip Code Location 1990 1995 Income Centile Centile - -------- -------- ---- ---- ------ ------- ------- 97102 N/A 97107 Bay City 42.4 43.1 27,097 46% 21% 97110 N/A 97118 N/A 97130 N/A 97131 Nehalem 50.9 51.6 27,363 47% 23% 97134 N/A 97136 Rockaway 49.8 49.6 26,792 44% 20% 97141 Tillamook 36.7 38.1 29,018 54% 36% 97143 N/A 97145 Tolovana Park 40.2 42.2 30,422 59% 46% 97147 N/A 97338 Dallas 36.5 36.3 32,269 64% 57% 97344 Falls City 36.1 37.5 30,350 59% 46% 97351 Independence 31.1 31.7 29,692 56% 43% 97352 Jefferson 32.6 34.3 36,152 74% 76% 97361 Monmouth 24.6 25.2 25,717 38% 15% 97362 Mount Angel 31.5 31.8 33,479 67% 64% 97371 Rickreall 36.6 37.6 35,601 72% 74% 97381 Silverton 34.5 35.7 35,452 72% 74% Total/Avg 37.2 38.1 30,723 58% 46% Wtd. Avg. 34.9 35.6 30,969 Oregon 34.5 35.6 35,077 21 * United States 32.9 34.0 33,610
*National Rank Source: The Sourcebook of Zip Code Demographics, 1995 -41- 48 TABLE 2G COOS BAY/FLORENCE, OR REGION DEMOGRAPHICS
Population Households ---------------------------------------------------- ------------------------------------------------- CAGR CAGR Zip Code Location 1990 1995 2000 90-95 95-00 1990 1995 2000 90-95 95-00 - -------- -------- ---- ---- ---- ----- ----- ---- ---- ---- ----- ----- 97411 Bandon 4,852 5,051 5,255 0.8% 0.8% 2,098 2,175 2,261 0.7% 0.8% 97420 Coos Bay 24,330 25,146 26,077 0.7% 0.7% 9,929 10,211 10,577 0.6% 0.7% 97423 Coquille 8,374 8,959 9,436 1.4% 1.0% 3,267 3,483 3,668 1.3% 1.0% 97439 Florence 9,986 11,007 11,861 2.0% 1.5% 4,321 4,750 5,115 1.9% 1.5% 97441 Gardiner 14 14 15 0.0% 1.4% 5 5 5 0.0% 0.0% 97449 Lakeside 994 1,097 1,174 2.0% 1.4% 420 462 494 1.9% 1.3% 97453 Mapleton 1,052 1,088 1,137 0.7% 0.9% 415 427 446 0.6% 0.9% 97458 Myrtle Point 5,246 5,566 5,844 1.2% 1.0% 1,985 2,098 2,201 1.1% 1.0% 97459 North Bend 15,269 16,072 16,802 1.0% 0.9% 5,933 6,217 6,494 0.9% 0.9% 97466 Powers 953 1,012 1,062 1.2% 1.0% 412 436 457 1.1% 0.9% 97467 Reedsport 6,723 6,941 7,192 0.6% 0.7% 2,742 2,820 2,918 0.6% 0.7% 97493 Westlake 272 283 297 0.8% 1.0% 100 104 109 0.8% 0.9% --- --- --- --- --- --- Total/Avg 78,065 82,236 86,152 1.0% 0.9% 31,627 33,188 34,745 1.0% 0.9% Wtd. Avg. 14,017 14,595 15,199 0.8% 0.8% 5,676 5,884 6,125 0.7% 0.8% Oregon 2,842,321 3,141,979 3,427,386 2.0% 1.8% 1,103,313 1,214,202 1,322,298 1.9% 1.7% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0% 91,947,410 97,069,804 102,201,641 1.1% 1.0%
Median Age Median HH National State Zip Code Location 1990 1995 Income Centile Centile - -------- -------- ---- ---- ------ ------- ------- 97411 Bandon 44.0 44.7 $21,899 23% 4% 97420 Coos Bay 37.1 38.1 25,674 38% 14% 97423 Coquille 38 38.9 25,480 37% 12% 97439 Florence 44.9 45.7 25,218 35% 11% 97441 Gardiner n/a n/a n/a n/a n/a 97449 Lakeside 40 42 29,234 55% 39% 97453 Mapleton 35.5 37.7 28,075 50% 29% 97458 Myrtle Point 36.7 37.7 23,997 30% 7% 97459 North Bend 36.8 38.7 28,907 53% 36% 97466 Powers 36.6 37.6 24,075 30% 7% 97467 Reedsport 39.1 40.3 28,423 52% 33% 97493 Westlake 44.4 47.2 28,168 50% 31% Total/Avg 39.4 40.8 26,286 41% 20% Wtd. Avg. 38.7 40.0 26,138 Oregon 34.5 35.6 35,077 21 * United States 32.9 34.0 33,610
*National Rank Source: The Sourcebook of Zip Code Demographics, 1995 -42- 49 corresponding national income centiles are also included. Statistics for California or Oregon and the U.S. are included for comparative purposes. Area Description GILROY, CALIFORNIA - Table 2A depicts various relevant demographic statistics for the service area which encompasses several communities lying along Route 101 beginning to the south of San Jose (see Figure 1). Household growth between 1990 and 1995 of 0.9% was below that of the state and the nation. However, the northern portion of the service area which includes Morgan Hill, Hollister, and San Martin has experienced higher household growth rates and is expected to continue to experience growth rates higher than the State and the U.S. The northern portion benefits from being within commuting distance of Silicon Valley while the south depends upon agriculture which is becoming more mechanized, offering fewer jobs. Actual declines in households have occurred in the southern portion. The service area's median household income on a weighted average basis (weighted on households) exceeds California and the U.S. by 14% and 29% respectively. As with household growth, communities in the northern portion of the service area have higher income. The demographics of the northern portion (Salinas northward) are favorable for continued growth of the cable TV business, the southern portion is much less so. HESPERIA, CALIFORNIA - Table 2B depicts various relevant demographic statistics for the service area which consists of several communities lying 50 to 100 miles north of San Bernardino (see Figure 2). Annual household growth between 1990 and 1995 (4.5%) was almost four times that of the State and slightly more than four times higher than the U.S. The high growth rate is projected to decline somewhat through 2000 (2.8%) but is still almost triple the State and U.S. average. The service area's 1995 median household income is below the State and U.S. averages. According to Regional management, a significant portion (over 20%) of the subscriber base is unemployed. -43- 50 SAN LUIS OBISPO, CALIFORNIA - Table 2C depicts various relevant demographic statistics for the service area which consists of several communities along the California coast, north of Santa Barbara (see Figure 3). Annual household growth between 1990 and 1995 was slightly less than half (0.5%) that of the State and the U.S. This annual growth rate pattern (0.6%) is expected to continue between 1995 and 2000. The service area's 1995 median household income is slightly below the State (8%) and slightly above the U.S. average (5%). According to the San Luis Obispo Chamber of Commerce, County unemployment was 5.9% in 1994. The economy of the County is stabilized by virtue of the fact that approximately 21% of the work force are government employees. These include prisons, nuclear power plant, and university employees. TULARE, CALIFORNIA - Table 2D depicts various relevant demographic statistics for the service area which consists of numerous communities between Fresno and Bakersfield (see Figure 4). Annual household growth between 1990 and 1995 was 2.2% which is approximately 80% higher than that of the State and double the U.S. average. This annual growth rate is expected to moderate somewhat between 1995 and 2000 (1.9%) but it is still about double both State and U.S. projections. The service area's 1995 median household income is significantly below the State average (37%) and U.S. average (28%). The Region's economic base is largely agricultural with a growing manufacturing base. A number of poor weather years, particularly 1991 have adversely affected the area, reducing employment. In recent years, a number of distribution and manufacturing concerns have relocated or added additional facilities in the area. -44- 51 CENTRAL REGION, OREGON - Table 2E depicts various demographics for the service area which encompasses a number of communities around Eugene and running well to the south along Interstate 5 (see Figure 5). Household growth rates, both historical and projected, are slightly above the U.S. but below the State. Median age is above the U.S. and about equal to the State's. Median household income us well-below both the State and the U.S. On net the service area is below average. The area of the Region near Eugene benefits from a thriving economy which has attracted high-tech firms. Hyundai and Sony have located there and will employ approximately 2,200 people in computer chip manufacturing. In fact, this area has been referred to as the Silicon Forrest. The number of high-tech jobs has surpassed the number of jobs in the timber industry. DALLAS REGION, OREGON - The Dallas Region includes cable systems located around the city of Salem in Polk and Marion Counties and systems located along the coast in Tillamook County, which lies west of Portland (see Figure 6). These two areas within the Region are widely separated geographically and somewhat different demographically. The Region's coastal area is a resort/retirement area. The other portion of the Region is located on both sides of I5, a major interstate which runs north to Portland and south to Eugene. This area is largely suburban to rural. Table 2F depicts the demographics for the Region. Between 1990 and 1995 households grew at an annual compound rate of 2.4%, higher than the state and U.S. Between 1995 and 2000 the area's growth rate will moderate slightly, while households are projected to grow at a rate higher than the State and more than twice that of the U.S. -45- 52 Median household income is below that for the State and U.S. and the median age is above that of the State and the U.S. However, if the coastal systems are excluded both income and the median age will approximate that of the state. COOS BAY/FLORENCE, OREGON - The Region lies along the Oregon coast in Coos, Douglas and Lane counties (see Figure 7). Coos Bay, a port city, is industrial while the other communities in the Region are resort/retirement areas. Table 2G depicts the demographic statistics for the Region. Households have grown at a lower rate then the State and U.S. and are expected to grow at lower rates through 2000. Florence, which is the northern most community in the Region is the fastest growing area in the Region primarily due to an influx of retirees. As can be seen from the Table median age is higher than the State and U.S., while household income in much lower, again reflecting the large population of retirees. Older subscribers tend to subscribe to basic services only and not subscribe to pay TV and other services. Coos Bay is home to a Coast Guard base, commercial fishing, timber, and export operations. Timber is exported primarily to Japan; and Weyerhaeuser and Georgia Pacific both have a plant there. These plants produce plywood, linerboard, and wood chips for paper manufacturers. Multichannel video competition exists especially in Florence where the electric cooperative is selling DirecTV and TCI is selling Primestar from Eugene via an 800 number. The demographics of this Region are generally less favorable to growing a cable TV business than the average market. The following paragraphs describe the physical plant, revenue and cash flow generating capacity of the Regions. Tables 3A through 3G delineate the revenue per subscriber from various services on the 1994 and 1995 historical time periods, as well as budgeted 1996. These revenues per subscriber by revenue category have been used in our discounted cash -46- 53 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY TABLE 3A REVENUE ANALYSIS GILROY REGION, CALIFORNIA VALUATION DATE: DECEMBER 31, 1995 - -------------------------------------------------------------------------------
1996 BUDGET DEC MO 1995 ACTUAL 1995 ACTUAL 1994 ACTUAL ------------------ ------------------- ------------------ ------------------ ($000) /EBU/MO ($000) /EBU ($000) /EBU/MO ($000) /EBU/MO --------- ------- -------- ------- --------- ------- --------- ------- REVENUES: Primary / Commercial $8,272.2 $20.25 $672.4 $20.12 $7,827.0 $19.84 $8,859.4 $23.06 Expanded Tier 1,929.2 4.72 152.8 4.57 1,839.2 4.66 961.0 2.50 --------- ------ -------- ------ --------- ------ --------- ------ Total Reg. Prog. 10,201.5 24.98 825.2 24.69 9,666.2 24.50 9,820.3 25.57 --------- ------ -------- ------ --------- ------ --------- ------ Radio Services 44.5 0.11 3.6 0.11 48.1 0.12 51.2 0.13 Pay Cable 1,246.8 3.05 103.6 3.10 1,228.4 3.11 1,209.3 3.15 New Product Tier 788.2 1.93 58.8 1.76 655.1 1.66 603.7 1.57 Mini-Pay 17.6 0.04 1.1 0.03 14.2 0.04 16.0 0.04 Pay Per View 169.8 0.42 4.5 0.13 133.7 0.34 173.9 0.45 --------- ------ -------- ------ --------- ------ --------- ------ Total Unreg. Prog. 2,266.9 5.55 171.7 5.14 2,079.3 5.27 2,054.0 5.35 --------- ------ -------- ------ --------- ------ --------- ------ Remote Control 8.4 0.02 0.7 0.02 18.9 0.05 26.8 0.07 Converter Rental 193.2 0.47 17.5 0.52 205.6 0.52 230.3 0.60 Other - VCR 3.4 0.01 0.3 0.01 3.4 0.01 3.4 0.01 --------- ------ -------- ------ --------- ------ --------- ------ Total Equipment 205.0 0.50 18.4 0.55 227.9 0.58 260.5 0.68 --------- ------ -------- ------ --------- ------ --------- ------ Wire Maint. Agreements 49.9 0.12 4.1 0.12 41.1 0.10 24.6 0.06 Installation 195.2 0.48 12.3 0.37 191.9 0.49 201.9 0.53 --------- ------ -------- ------ --------- ------ --------- ------ Total Install / Service 245.1 0.60 16.4 0.49 233.0 0.59 226.5 0.59 --------- ------ -------- ------ --------- ------ --------- ------ Guide Revenue 6.2 0.02 0.3 0.01 3.8 0.01 3.3 0.01 Late Charges 202.5 0.50 14.7 0.44 194.7 0.49 179.5 0.47 Home Shopping 112.2 0.27 6.5 0.19 98.9 0.25 100.5 0.26 FCC User Fee Pass Thru 16.5 0.04 1.4 0.04 15.4 0.04 0.8 0.00 Franchise Pass Thru 323.1 0.79 28.5 0.85 308.8 0.78 310.7 0.81 Miscellaneous/Rent 21.16 0.05 1.7 0.05 20.9 0.05 42.3 0.11 --------- ------ -------- ------ --------- ------ --------- ------ Total Non-Service / Misc. 681.6 1.67 53.1 1.59 642.5 1.63 637.1 1.66 --------- ------ -------- ------ --------- ------ --------- ------ Advertising 390.0 0.95 26.1 0.78 296.8 0.75 252.0 0.66 --------- ------ -------- ------ --------- ------ --------- ------ Total Revenues $13,990.1 $34.25 $1,110.8 $33.23 $13,145.7 $33.32 $13,250.4 $34.50 ========= ====== ======== ====== ========= ====== ========= ====== % Change From Prior Yr. 6.4% 2.8% -0.8% -3.4% ========= ====== ========= ====== Revenue / Pay Unit / Mo. $7.81 $7.95 $7.37 $6.56 ====== ====== ====== ======
-47- 54 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY TABLE 3B REVENUE ANALYSIS HESPERIA REGION, CALIFORNIA VALUATION DATE: DECEMBER 31, 1995 - -------------------------------------------------------------------------------
1996 BUDGET DEC MO 1995 ACTUAL 1995 ACTUAL 1994 ACTUAL -------------------- ------------------- -------------------- ------------------- ($000S) EBU/MO ($000S) EBU/MO ($000S) EBU/MO ($000S) EBU/MO ------- ------ ------- ------ ------- ------ ------- ------ REVENUES: Primary / Commercial $4,278.6 $18.28 $353.9 $18.33 $4,166.4 $18.42 $4,608.4 $21.60 Expanded Tier 1,556.1 6.65 125.7 6.51 1,520.8 6.73 764.6 3.58 ------- ---- ----- ---- ------- ---- ----- ---- Total Regulated Programming 5,834.7 24.93 479.6 24.84 5,687.2 25.15 5,373.0 25.18 ------- ----- ----- ----- ------- ----- ------- ----- Radio Services 37.4 0.16 3.1 0.16 40.9 0.18 51.2 0.24 Pay Cable 709.0 3.03 59.7 3.09 710.6 3.14 616.6 2.89 New Product Tier 389.6 1.66 30.5 1.58 335.2 1.48 287.1 1.35 Mini-Pay 7.3 0.03 0.5 0.03 5.8 0.03 7.6 0.04 Pay Per View 131.1 0.56 3.7 0.19 102.9 0.46 105.5 0.49 ----- ---- --- ---- ----- ---- ----- ---- Total Unregulated Programming 1,274.4 5.45 97.5 5.05 1,195.4 5.29 1,068.0 5.00 ------- ---- ---- ---- ------- ---- ------- ---- Remote Control 22.6 0.10 4.0 0.21 42.4 0.19 37.3 0.17 Converter Rental 363.1 1.55 27.9 1.45 326.2 1.44 323.3 1.52 Other - VCR 0.0 0.00 0.1 0.01 0.0 0.00 2.0 0.01 --- ---- --- ---- --- ---- --- ---- Total Equipment 385.7 1.65 32.0 1.66 368.6 1.63 362.6 1.70 ----- ---- ---- ---- ----- ---- ----- ---- Wire Maintenance Agreements 55.4 0.24 4.5 0.23 52.6 0.23 34.2 0.16 Installation 168.8 0.72 9.3 0.48 158.2 0.70 148.7 0.70 ----- ---- --- ---- ----- ---- ----- ---- Total Installation / Service 224.2 0.96 13.8 0.71 210.8 0.93 182.9 0.86 ----- ---- ---- ---- ----- ---- ----- ---- Guide Revenue 3.4 0.01 0.0 0.00 0.0 0.00 0.0 0.00 Late Charges 65.7 0.28 5.8 0.30 63.2 0.28 58.8 0.28 Home Shopping 67.4 0.29 5.8 0.30 67.4 0.30 38.5 0.18 FCC User Fee Pass Thru 9.2 0.04 0.8 0.04 8.6 0.04 0.4 0.00 Franchise Pass Thru 68.5 0.29 5.5 0.28 65.5 0.29 63.2 0.30 Miscellaneous / Rent 9.1 0.04 0.9 0.05 9.1 0.04 8.6 0.04 --- ---- --- ---- --- ---- --- ---- Total Non-Service / Misc. 223.3 0.95 18.8 0.97 213.8 0.95 169.5 0.79 ----- ---- ---- ---- ----- ---- ----- ---- Advertising 239.6 1.02 16.8 0.87 170.8 0.76 164.5 0.77 ----- ---- ---- ---- ----- ---- ----- ---- Total Revenues $8,181.9 $34.96 $658.5 $34.11 $7,846.6 $34.70 $7,320.5 $34.31 ======== ====== ====== ====== ======== ====== ======== ====== % Change From Prior Year 4.27% 0.76% 7.19% 1.15% ==== ==== ==== ==== Revenue / Pay Unit / Month $6.99 $7.19 $6.86 $6.29 ===== ===== ===== =====
-48- 55 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY TABLE 3C REVENUE ANALYSIS SAN LUIS OBISPO REGION, CALIFORNIA VALUATION DATE: DECEMBER 31, 1995 - -------------------------------------------------------------------------------
1996 BUDGET DEC MO 1995 ACTUAL 1995 ACTUAL 1994 ACTUAL -------------------- ------------------- -------------------- ------------------- ($000S) EBU/MO ($000S) EBU/MO ($000S) EBU/MO ($000S) EBU/MO ------- ------ ------- ------ ------- ------ ------- ------ REVENUES: Primary / Commercial $3,235.2 $16.63 $254.5 $15.92 $2,974.1 $15.52 $3,803.4 $19.83 Expanded Tier 1,334.1 6.86 102.6 6.42 1,198.2 6.25 676.8 3.53 ------- ---- ----- ---- ------- ---- ----- ---- Total Regulated Programming 4,569.3 23.48 357.1 22.33 4,172.3 21.78 4,480.2 23.36 ------- ----- ----- ----- ------- ----- ----- ----- Radio Services 28.5 0.15 2.4 0.15 30.8 0.16 36.4 0.19 Pay Cable 375.4 1.93 32.1 2.01 415.7 2.17 395.1 2.06 New Product Tier 201.3 1.03 15.1 0.94 177.4 0.93 192.9 1.01 Mini-Pay 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Pay Per View 69.1 0.36 2.2 0.14 29.8 0.16 36.5 0.19 ---- ---- --- ---- ---- ---- ---- ---- Total Unregulated Programming 674.3 3.47 51.8 3.24 653.7 3.41 660.9 3.45 ----- ---- ---- ---- ----- ---- ----- ---- Remote Control 8.2 0.04 0.7 0.04 14.6 0.08 22.3 0.12 Converter Rental 187.8 0.97 14.3 0.89 215.9 1.13 300.7 1.57 Other - VCR 0.7 0.00 0.1 0.01 0.7 0.00 0.8 0.00 --- ---- --- ---- --- ---- --- ---- Total Equipment 196.7 1.01 15.1 0.94 231.2 1.21 323.8 1.69 ----- ---- ---- ---- ----- ---- ----- ---- Wire Maintenance Agreements 21.8 0.11 1.8 0.11 21.4 0.11 16.0 0.08 Installation 45.4 0.23 3.9 0.24 42.9 0.22 53.6 0.28 ---- ---- --- ---- ---- ---- ---- ---- Total Installation / Service 67.2 0.35 5.7 0.36 64.3 0.34 69.6 0.36 ---- ---- --- ---- ---- ---- ---- ---- Guide Revenue 3.0 0.02 0.0 0.00 0.1 0.00 0.1 0.00 Late Charges 51.4 0.26 3.9 0.24 49.5 0.26 42.1 0.22 Home Shopping 54.0 0.28 12.0 0.75 80.8 0.42 41.5 0.22 FCC User Fee Pass Thru 7.7 0.04 0.6 0.04 7.3 0.04 0.3 0.00 Franchise Pass Thru 256.4 1.32 19.6 1.23 235.4 1.23 251.9 1.31 Miscellaneous / Rent 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 --- ---- --- ---- --- ---- --- ---- Total Non-Service / Misc. 372.5 1.91 36.1 2.26 373.1 1.95 335.9 1.75 ----- ---- ---- ---- ----- ---- ----- ---- Advertising 271.6 1.40 23.8 1.49 233.9 1.22 264.1 1.38 ----- ---- ---- ---- ----- ---- ----- ---- Total Revenues $6,151.6 $31.62 $489.6 $30.62 $5,728.5 $29.90 $6,134.5 $31.99 ======== ====== ====== ====== ======== ====== ======== ====== % Change From Prior Year 7.39% 5.74% -6.62% -6.52% ==== ==== ===== ===== Revenue / Pay Unit / Month $8.25 $8.58 $7.74 $6.34 ===== ===== ===== =====
-49- 56 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY TABLE 3D REVENUE ANALYSIS TULARE REGION, CALIFORNIA VALUATION DATE: DECEMBER 31, 1995 - -------------------------------------------------------------------------------
1996 BUDGET DEC MO 1995 ACTUAL 1995 ACTUAL 1994 ACTUAL -------------------- ------------------- -------------------- ------------------- ($000S) EBU/MO ($000S) EBU/MO ($000S) EBU/MO ($000S) EBU/MO ------- ------ ------- ------ ------- ------ ------- ------ REVENUES: Primary / Commercial $3,223.6 $16.88 $254.3 $16.35 $3,151.2 $16.67 $3,707.8 $18.84 Expanded Tier 975.5 5.11 74.0 4.76 883.2 4.67 451.7 2.29 ----- ---- ---- ---- ----- ---- ----- ---- Total Regulated Programming 4,199.1 21.99 328.3 21.11 4,034.4 21.34 4,159.5 21.13 ------- ----- ----- ----- ------- ----- ------- ----- Radio Services 1.7 0.01 0.1 0.01 1.8 0.01 1.8 0.01 Pay Cable 601.8 3.15 48.6 3.12 603.1 3.19 695.0 3.53 New Product Tier 503.2 2.63 35.7 2.30 459.5 2.43 552.5 2.81 Mini-Pay 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Pay Per View 123.7 0.65 3.1 0.20 87.7 0.46 126.2 0.64 ----- ---- --- ---- ---- ---- ----- ---- Total Unregulated Programming 1,230.4 6.44 87.5 5.63 1,152.1 6.09 1,375.5 6.99 ------- ---- ---- ---- ------- ---- ------- ---- Remote Control 25.4 0.13 2.1 0.14 26.4 0.14 27.9 0.14 Converter Rental 361.9 1.89 29.2 1.88 368.4 1.95 400.2 2.03 Other - VCR 0.9 0.00 0.1 0.01 1.1 0.01 1.3 0.01 --- ---- --- ---- --- ---- --- ---- Total Equipment 388.2 2.03 31.4 2.02 395.9 2.09 429.4 2.18 ----- ---- ---- ---- ----- ---- ----- ---- Wire Maintenance Agreements 47.7 0.25 3.8 0.24 44.6 0.24 28.2 0.14 Installation 73.9 0.39 1.4 0.09 72.3 0.38 67.1 0.34 ---- ---- --- ---- ---- ---- ---- ---- Total Installation / Service 121.6 0.64 5.2 0.33 116.9 0.62 95.3 0.48 ----- ---- --- ---- ----- ---- ---- ---- Guide Revenue 91.0 0.48 4.0 0.26 53.0 0.28 70.8 0.36 Late Charges 227.2 1.19 18.0 1.16 218.5 1.16 193.1 0.98 Home Shopping 26.9 0.14 4.0 0.26 27.9 0.15 26.5 0.13 FCC User Fee Pass Thru 7.6 0.04 0.6 0.04 7.2 0.04 0.4 0.00 Franchise Pass Thru 254.4 1.33 19.6 1.26 242.3 1.28 254.8 1.29 Miscellaneous / Rent 6.6 0.03 0.7 0.05 7.2 0.04 5.5 0.03 --- ---- --- ---- --- ---- --- ---- Total Non-Service / Misc. 613.7 3.21 46.9 3.02 556.1 2.94 551.1 2.80 ----- ---- ---- ---- ----- ---- ----- ---- Advertising 282.0 1.48 22.0 1.41 250.6 1.33 191.5 0.97 ----- ---- ---- ---- ----- ---- ----- ---- Total Revenues $6,835.0 $35.79 $521.3 $33.51 $6,506.0 $34.42 $6,802.3 $34.56 ======== ====== ====== ====== ======== ====== ======== ====== % Change From Prior Year 5.06% 3.98% -4.36% -0.40% ==== ==== ===== ===== Revenue / Pay Unit / Month $6.89 $6.82 $6.15 $5.71 ===== ===== ===== =====
-50- 57 FALCON CABLE SYSTEMS COMPANY TABLE 3E REVENUE ANALYSIS CENTRAL REGION, OREGON VALUATION DATE: DECEMBER 31, 1995
1996 BUDGET DEC MO 1995 ACTUAL 1995 ACTUAL 1994 ACTUAL ----------------- ------------------ ----------------- ----------------- ($000) /EBU/MO ($000) /EBU ($000) /EBU/MO ($000) /EBU/MO ------ ------- ------ ---- ------ ------- ------ ------- REVENUES: Primary $2,941.4 $16.53 $235.6 $16.14 $2,822.6 $16.13 $3,212.3 $18.64 Expanded Tier 830.6 4.67 64.4 4.35 788.3 4.50 454.7 2.64 ----- ---- ---- ---- ----- ---- ----- ---- Total Reg. Prog. 3,772.0 21.20 300.0 20.48 3,610.9 20.63 3,666.9 21.28 ------- ----- ----- ----- ------- ----- ------- ----- Radio Services 0.9 0.00 0.1 0.00 0.8 0.00 0.9 0.01 Pay Cable 467.9 2.63 45.4 3.11 527.6 3.01 485.5 2.82 New Product Tier 585.0 3.29 40.8 2.80 468.1 2.67 443.7 2.57 Mini-Pay 1.2 0.01 0.1 0.00 0.7 0.00 0.6 0.00 Pay Per View 0.0 0.00 0.1 0.01 11.9 0.07 9.6 0.06 --- ---- --- ---- ---- ---- --- ---- Total Unreg. Prog. 1,054.9 5.93 86.4 5.92 1,009.0 5.77 940.3 5.46 ------- ---- ---- ---- ------- ---- ----- ---- Primary Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 2.7 0.02 Remote Control 7.9 0.04 1.4 0.09 20.3 0.12 29.8 0.17 Converter Rental 45.8 0.26 3.3 0.23 83.4 0.48 149.3 0.87 Other - VCR 0.8 0.00 0.1 0.00 0.8 0.00 0.5 0.00 --- ---- --- ---- --- ---- --- ---- Total Equipment 54.5 0.31 4.7 0.33 104.5 0.60 182.3 1.06 ---- ---- --- ---- ----- ---- ----- ---- Wire Maint. Agreements 41.3 0.23 3.4 0.23 36.8 0.21 23.0 0.13 Installation 95.7 0.54 5.4 0.37 90.8 0.52 71.2 0.41 ---- ---- --- ---- ---- ---- ---- ---- Total Install/Service 137.0 0.77 8.8 0.60 127.6 0.73 94.2 0.55 ----- ---- --- ---- ----- ---- ---- ---- Guide Revenue 2.7 0.01 0.0 0.00 0.1 0.00 0.0 0.00 Late Charges 78.6 0.44 6.0 0.41 75.6 0.43 91.4 0.53 Home Shopping 43.4 0.24 5.7 0.39 41.3 0.24 24.1 0.14 FCC User Fee Pass Thru 7.0 0.04 0.6 0.04 6.6 0.04 0.3 0.00 Franchise Pass Thru 21.4 0.12 1.9 0.13 20.9 0.12 21.6 0.13 Miscellaneous/Rent 2.6 0.01 0.0 0.00 1.8 0.01 4.1 0.02 --- ---- --- ---- --- ---- --- ---- Total Non-Service/Misc. 155.7 0.88 14.2 0.97 146.2 0.84 141.5 0.82 ----- ---- ---- ---- ----- ---- ----- ---- Advertising 0.0 0.00 0.0 0.00 2.8 0.02 3.8 0.02 --- ---- --- ---- --- ---- --- ---- Total Revenues $5,174.1 $29.08 $414.2 28.37 $5,001.0 $28.11 $5,029.0 $29.18 ======== ====== ====== ===== ======== ====== ======== ====== % Change From Prior Yr. 3.5% 3.5% -0.6% -3.7% ==== ==== ===== ===== Revenue/ Pay Unit/ Mo. $6.98 $8.26 $8.06 $7.56 ===== ===== ===== =====
-51- 58 FALCON CABLE SYSTEMS COMPANY TABLE 3F REVENUE ANALYSIS DALLAS REGION, OREGON VALUATION DATE: DECEMBER 31, 1995
1996 BUDGET DEC MO 1995 ACTUAL 1995 ACTUAL 1994 ACTUAL ----------------- ------------------ ----------------- ----------------- ($000) /EBU/MO ($000) /EBU ($000) /EBU/MO ($000) /EBU/MO ------ ------- ------ ---- ------ ------- ------ ------- REVENUES: Primary $3,622.0 $16.86 $295.8 $16.70 $3,497.9 $16.70 $3,955.0 $20.32 Expanded Tier 989.2 4.61 74.2 4.14 920.8 4.40 482.8 2.48 ----- ---- ---- ---- ----- ---- ----- ---- Total Reg. Prog. 4,611.2 21.47 369.9 20.85 4,418.6 21.10 4,437.7 22.80 ------- ----- ----- ----- ------- ----- ------- ----- Radio Services 24.7 0.12 2.1 0.12 25.8 0.12 29.0 0.15 Pay Cable 668.9 3.11 57.5 3.25 654.0 3.12 576.4 2.96 New Product Tier 441.8 2.06 32.4 1.83 349.0 1.67 314.6 1.62 Mini-Pay 12.0 0.06 0.7 0.04 8.9 0.04 9.7 0.05 Pay Per View 49.6 0.23 2.0 0.11 43.0 0.21 39.1 0.20 ---- ---- --- ---- ---- ---- ---- ---- Total Unreg. Prog. 1,197.0 5.57 94.8 5.35 1,080.7 5.16 968.8 4.98 ------- ---- ---- ---- ------- ---- ----- ---- Primary Add'l Outlet 0.0 0.00 0.1 0.00 0.6 0.00 0.7 0.00 Remote Control 5.3 0.02 0.4 0.02 6.5 0.03 10.2 0.05 Converter Rental 66.5 0.31 5.6 0.32 110.0 0.53 192.1 0.99 Other - VCR 1.6 0.01 0.1 0.01 1.5 0.01 1.7 0.01 --- ---- --- ---- --- ---- --- ---- Total Equipment 73.4 0.34 6.2 0.35 118.7 0.57 204.7 1.05 ---- ---- --- ---- ----- ---- ----- ---- Wire Maint. Agreements 39.5 0.18 3.3 0.19 29.9 0.14 21.4 0.11 Installation 85.4 0.40 2.6 0.15 78.6 0.38 74.8 0.38 ---- ---- --- ---- ---- ---- ---- ---- Total Install/Service 124.9 0.58 5.9 0.33 108.5 0.52 96.2 0.49 ----- ---- --- ---- ----- ---- ---- ---- Guide Revenue 3.2 0.01 0.0 0.00 0.0 0.00 0.0 0.00 Late Charges 116.5 0.54 9.8 0.56 112.1 0.53 103.5 0.53 Home Shopping 40.6 0.19 7.1 0.40 35.1 0.17 23.2 0.12 FCC User Fee Pass Thru 8.3 0.04 0.7 0.04 7.7 0.04 0.2 0.00 Franchise Pass Thru 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Miscellaneous/Rent 2.7 0.01 0.1 0.00 2.6 0.01 2.8 0.01 --- ---- --- ---- --- ---- --- ---- Total Non-Service/Misc. 171.3 0.80 17.7 1.00 157.4 0.75 129.7 0.67 ----- ---- ---- ---- ----- ---- ----- ---- Advertising 227.0 1.06 22.9 1.30 190.2 0.91 168.5 0.87 ----- ---- ---- ---- ----- ---- ----- ---- Total Revenues $6,404.8 $29.82 $517.3 $29.22 $6,074.2 $28.28 $6,005.6 $30.86 ======== ====== ====== ====== ======== ====== ======== ====== % Change From Prior Yr. 5.4% 5.4% 1.1% -8.4% ==== ==== ==== ===== Revenue/ Pay Unit/ Mo. $7.73 $8.18 $7.41 $6.65 ===== ===== ===== =====
-52- 59 FALCON CABLE SYSTEMS COMPANY TABLE 3G REVENUE ANALYSIS COOS BAY/FLORENCE REGION, OREGON VALUATION DATE: DECEMBER 31, 1995
1996 BUDGET DEC MO 1995 ACTUAL 1995 ACTUAL 1994 ACTUAL ----------------- ------------------ ----------------- ----------------- ($000) /EBU/MO ($000) /EBU ($000) /EBU/MO ($000) /EBU/MO ------ ------- ------ ---- ------ ------- ------ ------- REVENUES: Primary $5,267.3 $19.01 $423.9 $19.41 $5,044.9 $18.39 $5,313.9 $19.57 Expanded Tier 1,035.6 3.74 79.8 3.46 961.0 3.50 576.8 2.12 ------- ----- ----- ----- ------- ----- ------- ----- Total Reg. Prog. 6,302.9 22.75 503.8 22.87 6,005.9 21.89 5,890.7 21.69 ------- ----- ----- ----- ------- ----- ------- ----- Radio Services 11.4 0.04 0.9 0.04 12.3 0.04 13.6 0.05 Pay Cable 688.5 2.48 57.3 2.63 688.0 2.51 680.4 2.51 New Product Tier 761.1 2.75 57.4 2.63 548.5 2.00 477.2 1.76 Mini-Pay 15.8 0.06 0.8 0.04 13.2 0.05 15.6 0.06 Video Games 24.5 0.09 2.6 0.12 8.3 0.03 0.0 0.00 Pay Per View 172.5 0.62 10.9 0.50 140.0 0.51 126.6 0.47 ------- ---- ---- ---- ----- ---- ----- ---- Total Unreg. Prog. 1,673.7 6.04 130.0 5.95 1,410.2 5.14 1,313.3 4.84 ------- ---- ----- ---- ------- ---- ------- ---- Primary Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 3.3 0.01 Remote Control 20.4 0.07 1.8 0.08 20.6 0.08 19.5 0.07 Converter Rental 290.9 1.05 24.7 1.13 275.8 1.01 264.1 0.97 Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 --- ---- --- ---- --- ---- --- ---- Total Equipment 311.4 1.12 26.5 1.21 296.4 1.08 286.9 1.06 ----- ---- ---- ---- ----- ---- ----- ---- Wire Maint. Agreements 78.1 0.28 6.4 0.29 73.8 0.27 46.5 0.17 Installation 146.7 0.53 10.5 0.48 140.8 0.51 177.9 0.66 ----- ---- ---- ---- ----- ---- ----- ---- Total Install/Service 224.8 0.81 16.9 0.78 214.6 0.78 224.4 0.83 ----- ---- ---- ---- ----- ---- ----- ---- Guide Revenue 5.3 0.02 0.2 0.01 0.9 0.00 0.6 0.00 Late Charges 94.1 0.34 9.6 0.44 90.4 0.33 87.3 0.32 Home Shopping 96.7 0.35 12.7 0.58 124.8 0.45 57.4 0.21 FCC User Fee Pass Thru 10.7 0.04 0.9 0.04 10.2 0.04 0.3 0.00 Franchise Pass Thru 143.5 0.52 11.7 0.53 134.5 0.49 130.3 0.48 Video Game Activation 1.8 0.01 0.7 0.03 5.4 0.02 0.0 0.00 Miscellaneous/Rent 42.7 0.15 3.0 0.14 38.1 0.14 10.5 0.04 ---- ---- --- ---- ---- ---- ---- ---- Total Non-Service/Misc. 394.8 1.42 38.7 1.77 404.3 1.47 286.4 1.05 ----- ---- ---- ---- ----- ---- ----- ---- Advertising 330.4 1.19 37.0 1.69 301.4 1.10 352.2 1.30 ----- ---- ---- ---- ----- ---- ----- ---- Total Revenues $9,237.9 $33.34 $752.9 $34.48 $8,632.8 $31.47 $8,354.0 $30.76 ======== ====== ====== ====== ======== ====== ======== ====== % Change From Prior Yr. 7.0% 5.9% 3.3% 2.3% ==== ==== ==== ==== Revenue/ Pay Unit/ Mo. $7.32 $7.48 $6.75 $7.01 ===== ===== ===== =====
-53- 60 flow analysis methodology to determine each Region's fair market value at December 31, 1995. System Description GILROY, CALIFORNIA - The Gilroy Region serves subscribers from four (4) headends, namely: Gilroy, Soledad Peak (Gilroy 2), Greenfield, and King City. The current plant which dates back to the early 1980s is built to 300 MHz with the exception of a small portion of the plant served by the Soledad Peak headend which was rebuilt to 400 MHz in 1989. Certain areas of the plant are not meeting FCC specifications and the Company is installing fiber optics to reduce amplifier cascades to improve picture quality. According to management, a large portion of the plant, serving approximately 75% of subscribers, is scheduled for a complete rebuild in the 1997-2000 time frame. The rebuild corresponds to expiration dates of the key Gilroy franchise. In addition to the Gilroy office (see Exhibit A) the Region has customer service offices in King City (see Exhibit A) and part time offices in Greenfield and Soledad. Gilroy's operating statistics as of the valuation date follow;
December 31, 1995 ----------------- Homes passed 56,219 Equivalent Billing Units (EBU's) 33,427 Penetration % 59.5% Pay Units 13,070 Pay-to-EBU's % 39.1% Plant Miles: Aerial 324 Underground 341 --- Total 665 === Density (Homes/Miles) 84.6 ====
-54- 61 EBU and pay unit penetrations are well-below industry averages of 66.6% and 76.5% respectively. This is in spite of the areas relatively high median household income and the fact that certain portions of the service area have poor off-air reception. The planned plant rebuild coupled with increased marketing efforts should result in improved subscriber growth and revenues per subscriber particularly from ancillary revenue sources. The Region's average density of 84.6 homes/mile is below the industry average of 105 homes/mile. The higher the density the more efficient the use of capital, thus the higher the return on investment. Table 3A details the Gilroy's actual revenues for 1994 and the month of December and year 1995; and the budget for 1996. The Table shows the impact of FCC rate regulation and FCSC's efforts to minimize its impact. Primary/Commercial (Basic) revenue declined 14% on an EBU basis between 1994 and 1995 offset by retiering and increasing the rates for expanded basic service. Total 1995 revenue/EBU declined 3.4% and total revenues remained essentially flat as compared to 1994. Total 1996 budgeted revenues are expected to increase 6.4% while revenues/EBU are expected to increase 2.8%. The largest year-to-year increases are expected to come from non-regulated services such as pay-per-view and advertising. Exhibit C1 presents operating cash flow statements for time periods comparable to Table 3A. Cash flow margins after an allocation of corporate expenses were 54.5% of revenues for 1994 and 1995. The 1996 Budget reflect a margin increase to 57.6%. These margins are quite high based upon our experience and discussion with management. Factors which contribute to these high margins are very lean staffing, sometimes at the expense of customer service; low marketing and advertising expenses; and an aggressive in-house labor capitalization policy, i.e., moving labor costs to capital expenditures ("capex") -55- 62 accounts which increased cash flow margins. However, net cash flow, i.e., cash flow minus capex negates the effect of this expense capitalization policy. HESPERIA, CALIFORNIA - The Hesperia Region serves its subscribers from five headends that offer between 28 and 43 channels. The Hesperia and Adelanto plant was originally built in 1972 and rebuilt in 1988 to 330 MHz. The Boron plant was originally built in 1967 and 60% rebuilt in 1991 with 300 MHz trunk and 270 MHz feeder. North Edwards was built in 1990 at 450 MHz and the Rosamond/Mojave plant was built in the mid- 1970s at 300 MHz. All are addressable except for Boron and Rosamond/Mojave. According to Falcon management, the Hesperia and Adelanto plant will be rebuilt in the next few years. Hesperia's operating statistics as of the valuation date follow:
December 31, 1995 ----------------- Homes passed 28,280 EBU's 19,130 Penetration % 68.3% Pay Units 8,366 Pay-to-EBU's % 43.3% Plant Miles: Aerial 478.3 Underground 199.7 ----- Total 678.0 ===== Density (Homes/Miles) 41.7 ====
EBU penetration of 68.3% is approximately equal to the industry average of 66.6% while pay unit penetration of 43.3% is well-below the industry average of 76.5%. This is in part due to the relatively low median household income of the service area which ranks in -56- 63 the 31 centile in California. In addition, there is a large Hispanic population with a dearth of Spanish language programming, as well as an overall high unemployment rate. The Regions average density of 41.7 homes/mile is well-below the industry average of 105 homes/mile. Table 3B details Hesperia's actual revenues for 1994, and the month of December and year 1995, as well as the 1996 budget. The Table shows the impact of FCC rate regulation and FCSC's efforts to minimize its impact. Primary/Commercial (Basic) revenue declined almost 15% on an EBU basis between 1994 and 1995, offset by retiering and rate increase for expanded basic service. Total 1995 revenue/EBU rose by only 1% and total revenue increased by 7% as compared to 1994. Total budgeted 1996 revenues are expected to increase by only 4%, while revenue/EBU are expected to increase by less than 1%. Exhibit C2 presents operating cash flow statements for time periods comparable to Table 3B. Cash flow margins after allocated corporate expense (3.7% less than before allocated corporate expenses) were 52.5% in 1994 and 40.0% in 1995. The 1996 budget reflects a margin increase to 52.3%. These margins are on the high end based upon our experience. Factors which contribute to these high margins are very lean staffing, low marketing and administrative expenses, and an aggressive in-house labor capitalization policy. However, net cash flow, i.e., cash flow minus capex, negates the effect of this expense capitalization policy. SAN LUIS OBISPO, CALIFORNIA - The San Luis Obispo Region serves its subscribers from two separate headends (see Exhibit A) and three AML microwave hub sites that offer between 37 and 95 channels. The plant ranges from 330 MHz to 750 MHz in capacity. -57- 64 The County portion of San Luis Obispo that is served by Falcon was rebuilt in 1995 to 750 MHz. It is projected that the Atascadero area will be rebuilt in the next few years. Atascadero comprises approximately 204 miles or 50% of the total of 409 plant miles. San Luis Obispo operating statistics as of the valuation date follows:
December 31, 1995 ----------------- Homes Passed 26,138 EBU's 15,973 Penetration % 61.1% Pay Units 3,733 Pay-to-EBU's % 23.4% Plant Miles: Aerial 341.1 Underground 67.8 ------ Total 408.9 ===== Density (Homes/Mile) 63.9 ====
This area of California has suffered along with most of the State from a long and severe downtown in the economy, therefore keeping both basic and pay-to-EBU penetration below average. EBU and pay unit penetration of 61.1% and 23.4% respectively are below industry averages of 66.6% and 76.5% respectively. This is in spite of the areas relatively high median household income and the fact that most of the service area has poor off-air reception. The planned rebuild and the continued rebound in the California economy should result in improved subscriber growth and revenue per subscriber, particularly from pay and ancillary revenue sources. The Region's average density of 63.9 homes/miles is well-below the industry average of 105 homes/mile. The higher the density the more efficient the use of capital, thus the higher the return on investment. -58- 65 Table 3C details San Luis Obispo's actual revenues for 1994 and the month of December and year 1995, and the budget for 1996. The Table shows the impact of FCC rate regulation and FCSC's efforts to minimize its impact. Primary/Commercial (Basic) revenue declined almost 22% on an EBU basis between 1994 and 1995, partially offset by an retiering and increasing the rates for expanded basic service. Total 1995 revenue/EBU declined 6.5% and total revenues declined 6.6% as compared to 1994. Total 1996 budgeted revenues are expected to increase 7.4% while revenue/EBU are expected to increase 5.8%. The largest year-to-year increases are expected to come from regulated services. Exhibit C3 presents operating cash flow statements for time periods comparable to Table 3C. Cash flow margins after allocated corporate expenses (3.7% less than before allocated corporate expenses) were 47.9% in 1994 and 40.8% in 1995. The 1996 budget reflects a margin increase to 44.9% These margins are approximately at levels that other cable systems with these characteristics would exhibit. TULARE, CALIFORNIA - The Tulare Region serves its subscribers from three headends that offer between 32 and 42 channels. The plant ranges between 300 MHz to 400 MHz. Almost the entire Region is served from the Porterville headend. The Porterville plant was built in 1975 and rebuilt in 1981. Plant bandwidth ranges between 300 MHz and 400 MHz with a fiber overlay at 750 MHz put in place in 1995. The California Hot Springs and Posey/Jack Ranch areas were built in 1963 and upgraded in 1986 to 400 MHz. The Porterville area is the only one with addressable converters. The Region has been scheduled for a rebuild in the next few years. -59- 66 Tulare's operating statistics as of the valuation date follows:
December 31, 1995 ----------------- Homes Passed 41,053 EBU's 15,563 Penetration % 37.9% Pay Units 7,110 Pay-to-EBU's % 45.7% Plant Miles: Aerial 532.8 Underground 143.0 ------ Total 675.8 ===== Density (Homes/Mile) 60.7 ====
The Tulare Region has been losing both basic and pay units in recent years due to a poor economy caused mostly by bad weather which has affected the agricultural economy of the areas. An additional factor is a large Hispanic population, and a dearth of Spanish language programming. This has led to EBU and pay unit penetration of 37.9% and 45.7% respectively, well-below the industry average of 66.6% and 76.5% respectively. The planned rebuild combined with increased marketing and an improved economy should result in improved subscriber growth. The Region's average density of 60.7 homes/mile is well-below the industry average of 105 homes/mile. The higher the density the more efficient the use of capital, thus the higher the return on investment. Table 3D details Tulare's actual revenues for 1994 and the month of December and year 1995, and the budget for 1996. The Table shows the impact of FCC rate regulation and FCSC's efforts to minimize its impact. Primary/Commercial (Basic) revenue declined 11.5% on an EBU basis between 1994 and 1995, offset by retiering and increasing the -60- 67 rates for expanded basic service. Total 1995 revenue/EBU declined approximately 0.4% and total revenues declined 4.4% as compared to 1994. Total 1996 budgeted revenues are expected to increase 5.1% while revenues/EBU are expected to increase 4.0%. Exhibit C4 presents operating cash flow statements for time periods comparable to Table 3D. Cash flow margins after allocated corporate expense were 45.3% and 45.1% in 1994 and 1995 respectively after a reduction of 3.7% from before allocation margins. The 1996 budget reflects a margin of 44.9%, virtually, identical to 1995. These margins are high based upon our experience. Factors which contribute to these high margins are very lean staffing, low marketing and advertising expense and an aggressive in-house labor capitalization policy, which increases cash flow margin. However, net cash flow, i.e., cash flow minus capital expenditures, negates the effect of this expense capitalization policy. CENTRAL REGION, OREGON - The Central Region serves subscribers from six (6) headends; namely, Bear Mountain which feeds eight (8) areas via AML microwave, Veneta (see Exhibit A), Cottage Grove, Brownsville, Sutherlin and Cave Junction. The plant served by the Bear Mountain headend has a capacity ranging between 300 MHz and 450 MHz. The headend itself was built in 1988 and upgraded in 1992 and 1995. The Veneta area was built in 1980 and upgraded in 1995. The upgrade included the use of fiber to replace coax trunk. Cottage Grove and Cave Junction operate at 450 MHz while Brownsville operates at 300 MHz. The Sutherlin area has the oldest plant in the Region. Originally built in 1971 it was upgraded from 12 to 21-channels in 1981. The plant suffers from considerable physical, economic and functional obsolesence. Management plans to complete the rebuild of the -61- 68 system in 1998. Given the location of these properties, other than the Sutherlin rebuild, significant capital would not need to be expended for plant replacement. Also, as can be seen in Exhibit B5 the Region has a number of long lived franchises which should serve to lessen the pressure to upgrade the facilities. Central Region's operating statistics as of the valuation date follows:
December 31, 1995 ----------------- Homes Passed 26,355 EBU's 14,609 Penetration % 55.4% Pay Units 5,505 Pay-to-EBU's % 37.7% Plant Miles: Aerial 605 Underground 55 ---- Total 660 === Density (Homes/Mile) 39.9 ====
EBU and pay unit penetration are well-below industry averages of 66.6% and 76.5% respectively. Density of 39.9 homes/mile is extremely low. The Region is below average with respect to penetrations and density. Table 3E details Central's actual revenue for 1994 and the month of December and year 1995; and the 1996 budget. The Table shows the impact of FCC rate regulation and FCSC's response to it. Primary (Basic) revenue/EBU and total revenues/EBU declined 13% and near 4% respectively from 1994. FCSC responded by retiering. Total 1996 budgeted revenues/EBU are expected to be below 1994s. Total 1996 revenues are expected to be 2.9% higher than 1994. The appraisers believe advertising could represent an important new revenue source for the Region. Currently, there are no advertising revenues primarily due to technical difficulties associated with inserting spots at the Bear -62- 69 Mountain headend. We have included the capital in our projections to facilitate for ad insertion and have projected advertising revenues. Pay-per-view represents another opportunity and we have projected revenues beginning in year three of our projections. Exhibit B5 presents operating cash flow statements for time periods comparable to Table E. Cash flow margins after allocation of corporate expenses were 50.5% and 52.2% for 1995 and 1994 respectively. The capitalization of in-house labor and overhead increased margins by 2.2% and 3.9% in 1995 and 1994 respectively. This reflects a margin of 50.2% and we believe this to be reasonable. DALLAS REGION, OREGON - The Dallas Region serves subscribers from six (6) headends, namely: Dallas, Brickyard, Netarts, Tillamook (see Exhibit A), Silverton, and Nehalem. The plant with the exception of Dallas (330 MHz), which was built in 1987, is quite old and capacity ranges between 270 MHz and 330 MHz. Wilson River with 175 homes passed offers five off-air channels and while it has an off-air receive site it was not considered a headend. Exhibit B6 depicts various operating statistics. The plant suffers from functional and economic obsolescence as well as physical depreciation. Management plans to or has begun rebuilds of Brickyard, Nehalem, Netarts, and Tillamook and has added fiber to the Dallas plant during 1995. Dallas' operating statistics as of the valuation date follows:
December 31, 1995 ----------------- Homes Passed 23,770 EBU's 17,736 Penetration % 74.6% Pay Units 7,139 Pay-to-EBU's % 40.3%
-63- 70 Plant Miles: Aerial 380 Underground 87 ----- Total 467 === Density (Homes/Mile) 51 ==
EBU penetration is well-above industry average due in part to the classic nature of the Tillamook County systems, i.e., the coastal systems. The systems surrounding Salem have good to poor receptions of Portland and Eugene TV stations. This is a positive factor for the cable TV business. The pay-to-EBU ratio of 40.3% is well-below the industry. The Region's average density is less than one-half the industry's. However, the Region has a relatively high growth rate and home growth will likely occur behind existing plant. Therefore over time density should increase. Table 3F details Dallas' actual revenues for 1994; and the month of December and year 1995; and the 1996 budget. The Table shows the impact of FCC rate regulation and FCSC's response. Basic (Primary) revenue/EBU for 1995 declined nearly 18% and total revenue/EBU declined 8% for 1994. Budgeted 1996 basic revenue/EBU and total revenues/EBU have set to recover to 1994 levels. FCSC mitigated the impact of the regulation somewhat by retiering, raising rates of unregulated programming, and marketing unregulated ancillary services, e.g., advertising. Exhibit B6 presents operating cash flow statements for time periods comparable to Table 3F. Cash flow margins after the allocation of corporate expenses were 56.6% and 56.4% for 1995 and 1994 respectively. These margins are expected to decline to 52.2% in 1996. The 1994 and 1995 margins are high princially due to FCSC's aggressive capitalization policy. Capitalization of in-house labor and overhead added 7.5% and 5.9% to 1995 and 1994 margins. The appraiser adjusted the margins going forward reflecting a reduced in-house capitalization policy. -64- 71 COOS BAY/FLORENCE, OREGON - Subscribers are served from seven (7) headends located in Coos Bay, Coquille, Reedsport, Florence, Powers, Bandon and Mapleton. The Region has 576 miles of plant of which about 85% is aerial. Areas served by the Coos Bay headend were rebuilt with fiber- to-feeder architecture to 450 MHz in 1993. Florence was rebuilt to 450 MHz with fiber trunk between 1991 and 1993. Together these two areas make up about 62% of the Region's total plant. Complete rebuilds are projected by management in Powers and Coquille in 1997. A plant upgrade is projected in Coos Bay in 1998. Coos Bay/Florence operating statistics as of the valuation date follow:
December 31, 1995 ----------------- Homes Passed 31,489 EBU's 22,898 Penetration % 72.7% Pay Units 7,771 Pay-to-EBU's % 33.9% Plant Miles: Aerial 482 Underground 94 ----- Total 576 === Density (Homes/Mile) 54.7 ====
The EBU penetration rate of 72.7% is well-above the industry penetration rate of 66.6%. This reflects the near classic nature of the market. The area can get five channels off-air. There are stations from other cities, e.g., Eugene, which are received via translators. Reception because of the terrain and low power nature of the translators is quite spotty. The pay-to-EBU ratio of 33.9% is well-below the industry's 76.5%. -65- 72 Plant density is 54.7 home per mile which is about half the national average. The Region has many long dead runs, i.e., plant miles without homes to pass. The low density greatly reduces capital efficiency and increases plant maintenance on a per subscriber basis. Table 3G details the Regions actual revenues for 1994 and the month of December and year 1995; and the 1996 budget. Primary (basic) revenues/EBU for 1995 declined 6% from 1994 due to rate regulation. This decline was offset by an increase in expanded tier revenues/EBU. Total revenues grew by 3.3% in 1995 as compared to 1994. Management expects 1996 revenues to increase by 7% and revenues/EBU to increase nearly 6%. Thus, the vast majority of the revenue increase is due to rate changes and existing customers buying more services. The largest 1996 revenue increases are expected from the new product tier and pay-per-view revenues. Exhibit C7 presents operating cash flow statements for the same time periods as Table 3G. Cash flow margins after an allocation of headquarters services were 51.3% and 51.9% for 1995 and 1994 respectively. -66- 73 FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1995 PART IV - BUSINESS ENTERPRISE VALUATION The purpose of developing a business enterprise value ("BEV") is to determine the fair market value for a going concern entity. The business enterprise value includes the additional value that all the assets generate together as a going concern. This additional value is estimated from the returns achieved by the operating assets (both tangible and intangible) of FCSC. There are several possible approaches to value for any cable television system. The three classical approaches to value, based upon cost, market, and income, may all have relevance and validity in the valuation of a cable system. However, approaches that are based on cost would be the least meaningful and most subjective because a major element of value is the intangible assets, such as franchises, licenses, and subscriber relationships which permit a system to operate, and the cost of directly obtaining these assets usually bears little relation to the value of those intangible assets. Consequently, the best approaches to value are those which rely on estimates of future income to be realized from operating the system, and to a lesser extent, on market data from the sales of other systems. THE VALUATION OF FCSC We have utilized the two most commonly employed methods for valuing a CATV business namely: income approach and market approach. The cost approach was considered, but rejected as inappropriate. -67- 74 INCOME APPROACH There are several adaptions, or versions, of the income approach. The method most applicable to valuing properties like the subject is the Discounted Cash Flow Method ("DCF"). In this method, the anticipated future cash flows of the Region are discounted at a rate commensurate with the property's risk characteristics. The DCF approach is standard investor and appraisal industry practice. The appraiser determined system operating cash flow, defined as income before depreciation, amortization, debt retirement, interest on funds invested in the property, and taxes, in arriving at a value indicator for each Region. In determining each Region's operating cash flows, the appraiser derived average annual revenue per subscriber, number of homes passed, operating margin, and market penetration as a percent of homes passed. This data, along with historical financial statements and other information obtained from Region management and industry sources, are reflected in our projections as of the valuation date. Exhibit D details the assumptions made and methodology employed in developing the cash flow projections in Exhibit E. In using the DCF, value results from the sum of two sources: the present value of the annual cash flows of the projection period and the present value of the property's residual value at the end of the projection period. The reliability of this method rests directly with the accuracy of the revenue forecast, the income-expense relationship, and other assumptions required to produce the yearly cash flows. In any analysis of future cash flows, a critical factor is the selection of the discount rate which will be utilized in the calculation of the present value of these future values. The investment's discount rate, also referred to as a return requirement, is the overall return -68- 75 which an investor expects to achieve on an investment. The development of the discount rate starts with the determination of a weighted average cost of capital. The weighted average cost of capital is made up of two components: debt and equity.(9) The cost of equity is arrived at by using the widely accepted Capital Asset Pricing Model ("CAPM"). The derivation of the cost of equity and its formula are shown in Table 4 and are consistent with the general form of the CAPM. The derived equity rate represents the return expected on equity capital by an investor and is consistent with our experience with respect to equity investor expectations in today's CATV marketplace. Briefly, this method begins with the risk free rate of return, generally the rate on U.S. government debt instruments of appropriate duration, and then applies an equity risk premium, a small stock premium, and a unsystematic or company specific premium that an equity investor requires in order to invest. The appraiser considered various factors, such as competition, demographics, geography, clustering, etc. in arriving at FCSC's unsystematic risk of 5%. In addition to these factors, the unsystematic risk must consider the single system as opposed to the portfolio of systems implicit in the CAPM. To determine the total equity return requirement, these components are summed. __________________________________ (9) Stocks, Bonds, Bills and Inflation 1995 Yearbook, Ibbotson Associates Weighted Average Cost of Capital ________________________________ r = (re x we) + (rd x wd) _____________________ we + wd r = weighted average cost of capital re = expected rate or return on equity rd = expected rate of return on debt we = appropriate weight of equity wd = appropriate weight of debt Equity Cost of Capital ______________________ rs = rf + (B x rp) rs = the equity cost of capital rf = the current riskless rate B = the beta or market risk of the stock rp = the arithmetic equity risk (or market) premium sp = small stock premium is added if appropriate -69- 76 TABLE 4 WEIGHTED AVERAGE COST OF CAPITAL FALCON CABLE SYSTEMS COMPANY AS OF DECEMBER 31, 1995 Cost of Equity - -------------- Risk Free Rate (10-Year Treasury Securities Composite; December 27, 1995; Source: Value Line) 5.65% -------- Equity Risk Premium Intermediate-Term (Entire Market) 7.40% (Ibbotson Associates, 1995) Market Beta CATV Stocks x 1.40 ------ Adjusted Equity Risk Premium 10.36% -------- Small Stock Premium (Ibbotson Associates, 1995) 4.00% Unsystematic Risk - Company Specific 5.00% -------- Cost of Equity = 25.01% ======== Cost of Debt - ------------ Kagan High Yield Media Bonds 10.18% Less Tax Effect (at 35%) 3.56% -------- After Tax Cost of Debt 6.62% ========
Weighting
% % of Capital Weighted Cost Return Structure of Capital ------ --------- ---------- Equity 25.01% 40% 10.00% Debt 6.62% 60% 3.97% -------- Weighted Average Cost of Capital 13.97% ======== Rounded to 14.00% ========
-70- 77 The next step is to determine the cost of debt capital. This rate is principally affected by the credit worthiness of the borrower and the general risk associated with the industry. To estimate the cost of debt as of the valuation date, we looked to the cable television debt market. Paul Kagan, in his Cable TV Investor of December 18, 1995, reported a yield to maturity for high yield cable bonds of 10.18%. Cable TV Investor tracked 47 cable bonds providing a cable high-yield bond average. The appraiser then tax effected this cost of debt, taking into consideration statutory federal tax rates. The final step is to determine the mixture of debt and equity in the capital structure. The capital structure percentages were derived based upon a review of the industry lending practices as of the valuation date. Senior debt lending limits are typically discussed in terms of cash flow multiples. The debt-to-equity ratio is derived by comparing the debt lending limit multiples to the valuation cash flow multiples. The calculation for the weighted average cost of capital for FCSC is shown in Table 4. The weighted average cost of capital for FCSC was 14% (rounded). Beyond the projection horizon, the Regions will still have value. This residual value is based upon the theory that the investor would sell the property at the end of the projection period. The present value of this hypothetical sale (residual) is then added to the present value of annual cash flows to arrive at a value indication under this approach. The appraiser selected a residual multiple of 8.0 for all Regions except Gilroy. This 8.0 multiple was derived based on the appraisers opinion that due to increased risk over time, competition, and maturity of markets that the multiples ten years in the future generally should be equal to or lower, but not higher than today's multiple. For Gilroy a multiple of 9.0 was used, reflecting its more attractive long-term growth prospects. The value indications, under the income approach from Exhibit E, for 100% of the assets for each Region and FCSC as of December 31, 1995 were as follows: -71- 78 Gilroy $ 67,670,000 Hesperia 34,740,000 San Luis Obispo 22,480,000 Tulare 25,280,000 Central 25,080,000 Dallas 25,740,000 Coos Bay/Florence 41,550,000 ----------------- Total Income Approach Value Indication $ 242,540,000 =================
MARKET APPROACH Another approach to be considered in the valuation of CATV businesses is known as the market approach or comparable sales approach. The market approach requires the appraiser to collect and analyze recent comparable market transactions and then make value adjustments based on a comparative analysis between the market transactions and the subject property. It is important to use transactions which are on or about the valuation date and which, if possible, straddle that date. The application of the market approach is most commonly found in the appraisal of real estate. The market for real estate is characterized by frequent sales within a geographic area, reliably known sale prices, and readily discernable attributes of properties sold. This is not the case for sales of cable television businesses. The businesses are comprised of a number of types of tangible and intangible assets, and data on these transactions are available only through the press and trade publications. The quality of this reported data is suspect and quite incomplete. The appraiser's experience in the cable industry has been that the publicly available data is at best an approximation. The buyers and sellers in this market are under no obligation to report the information. -72- 79 The application of a classic market approach to cable television business would be extremely difficult and unreliable due to the lack of comparative data and the subjectivity of any comparative value adjustments. Due to the unique nature of each cable property, to complete a valid comparative analysis the following variables would needed to be collected and analyzed for each market transaction: - Homes in Franchise Area - Homes Passed by Cable - Subscriber Penetration - Revenues Per Subscriber - Current Cash Flow - Operating Margin - System/Size Configuration - Location - Service Area Demographics - Physical Plant Condition - Required Capital Expenditures - Regulatory Environment - Competition - Specific Buyer and Seller Motivations - Liabilities Assumed Even if all the necessary information was available, the quantification of value adjustments to reflect differences between market transaction comparative indicators and the subject property's comparative indicators would be extremely difficult. As such, the classic market approach was not given a great deal of weight in arriving at a value conclusion for each Region. Industry practice is to describe market transactions for cable systems in terms of subscriber (Price/Number of Subscribers) and cash flow multiples (Price/Cash Flow). The appraiser reviewed the cable television transaction market, as reported in Cable TV Investor (Paul Kagan Associates) and selected the transactions, between 10,000 and 50,000 subscribers, announced between August 31, 1995 and January 31, 1996 (Table 5). The weighted average multiples and standard deviations are as follows: -73- 80 TABLE 5 FALCON CABLE SYSTEMS COMPANY MARKET APPROACH VALUATION DATA 1995 ANNOUNCED/PROPOSED CABLE SYSTEM SALES (10K-50K SUBS) ANNOUNCED 8/31/95 - 1/31/96
PRICE BASIC HOMES % CASH PROJ LOCATION STATE SELLER BUYER ($MIL) SUBS PASSED PEN. VPS FLOW CFx - -------- ----- ------ ----- ------ ---- ------ ---- --- ---- --- (000s) (000s) ($000s) REEDLEY CA CONSOLIDATED CONTINENTAL $15.2 12.2 37.0 33.0% $1,252 $1,809.5 8.4 FT. COLLINS CO JOURNAL WORLD TCI 59.6 30.0 42.3 71.0% 1,986 5,843.1 10.2 MS BASED SYS AZ TIME WARNER POST-NEWSWEEK 70.0 41.0 51.3 80.0% 1,707 6,862.7 10.2 TEXARKANA AR/TX COX POST-NEWSWEEK 50.0 24.0 34.3 70.0% 2,083 4,065.0 12.3 ATLANTA GA PREMIERE CABLE CHARTER 36.0 18.0 25.7 70.0% 2,000 3,750.0 9.6 CA, IL BASED SYS POST-NEWSWEEK TCI 89.0 39.4 61.6 64.0% 2,258 8,396.2 10.6 NC, SC BASED SYS TCA (STAR) TW-AN 59.1 29.0 38.2 76.0% 2,038 5,851.5 10.1 ALEXANDRIA/PINEVILLE LA TW-AN TCA 61.0 29.0 38.2 76.0% 2,103 5,809.5 10.5 NC, SC-BASED SYSTEMS STAR CABLE TCA CABLE 59.1 29.0 38.2 76.0% 2,038 5,851.5 10.1 RI, EAST PROVIDENCE SUSQUEHANA COX 36.4 15.5 23.5 66.0% 2,346 3,956.5 9.2 TN, KNOXVILLE MID TENN. CATV E.W. SCRIPPS 62.5 34.0 42.5 80.0% 1,838 6,944.4 9.0 TX, OK MISSION CABLE CLASSIC CABLE 57.5 42.6 63.6 67.0% 1,351 7,666.7 7.5 TX, AR, NM, CO UNITED VIDEO CLASSIC CABLE 37.4 22.4 35.0 64.0% 1,672 4,250.0 8.8 SC-BASED SYS. PREMIERE CHARTER COMM. 36.0 21.3 38.0 56.0% 1,690 3,956.0 9.1 TRONA/RDGCRST/KERN BENCHMARK CVISION MEDIACOM, LLC 20.8 11.0 17.5 62.9% 1,891 2,773.3 7.5 IA, IL, KS, MO, NE DOUGLAS COMM. ANDERSON PAC. GRP. 17.1 16.0 28.9 55.4% 1,067 2,111.1 8.1 ---- ---- ---- ----- ----- ------- --- TOTALS / SIMPLE AVERAGES $766.7 414.4 615.5 66.7% $1,833 $79,897 9.5 ------ ----- ----- ----- ------ ------- --- WEIGHTED AVERAGES 67.3% $1,850 9.6 ----- ------ --- STANDARD DEVIATION $359 1.3 ---- --- SIMPLE AVERAGE RANGE WITHIN 1 STANDARD DEVIATION - HIGH $2,192 10.7 ------ ---- SIMPLE AVERAGE RANGE WITHIN 1 STANDARD DEVIATION - LOW $1,473 8.2 ------ ---
-74- 81
Std. Dev. --------- Price/Subscriber $1,850 $359 ====== ==== Price/Cash Flow 9.6 1.3 === ===
The standard deviations for the subscriber and cash flow multiples indicate that the multiples can vary between 19% and 14% respectively, above and below the mean. The subscriber multiple has greater variation and hence is less useful as a value indicator than the cash flow multiple. The weighted average multiples yield the following value indicators.
San Luis Coos Bay/ Multiple Base Gilroy Hesperia Obispo Tulare Central Dallas Florence - -------- ---- ------ -------- ------ ------ ------- ------ -------- ($000s) Price/EBU $1,850/EBU 12/31/95 EBU's 33,941 19,310 15,973 15,563 14,609 17,736 22,898 -------- -------- -------- -------- -------- -------- -------- Price/EBU Value Indicator $61,958 $35,724 $29,550 $28,792 $27,027 $32,812 $42,361 ======= ======= ======= ======= ======= ======= ======= Price/Cash Flow 9.6x 1996 or Year One Cash Flow $7,700 $4,267 $2,768 $3,082 $2,594 $3,332 $4,791 ------ ------ ------ ------ ------ ------ ------ Price/Cash Flow Value Indicator $73,916 $40,964 $26,575 $29,586 $24,902 $31,987 $45,996 ======= ======= ======= ======= ======= ======= =======
In arriving at the value indicator under the market approach the appraiser weighted the subscriber multiple value indication 25% and the cash flow value indication 75%. This weighting considers investors' preference for the cash flow multiple and the variability, as described above, of the subscriber multiple. Therefore, the value indicator for 100% of each Region's assets under the market approach as of December 31, 1995 was (rounded): -75- 82 Gilroy $ 70,927,000 Hesperia 39,654,000 San Luis Obispo 27,319,000 Tulare 29,388,000 Central 25,433,000 Dallas 32,193,000 Coos Bay/Florence 45,087,000 ----------------- Total Market Approach Value Indication $ 270,000,000 (Rounded) =================
CORRELATION AND CONCLUSION The valuation indicators, as of the valuation date, under the income and market approaches follow as of December 31, 1995:
San Luis Coos Bay/ Gilroy Hesperia Obispo Tulare Central Dallas Florence ------ -------- ------ ------ ------- ------ -------- Income $67,670,000 $34,740,000 $22,480,000 $25,280,000 $25,080,000 $25,740,000 $41,550,000 =========== =========== =========== =========== =========== =========== =========== Market $70,927,000 $39,654,000 $27,319,000 $29,388,000 $25,433,000 $32,193,000 $45,087,000 =========== =========== =========== =========== =========== =========== ===========
The appraiser considered the approaches used in light of the strengths and weaknesses inherent in each. The market approach is generally much weaker than the income approach for at least two reasons: 1. Our experience has shown that seasoned cable system investors only use the market approach to "get a feel for value" and rely heavily on the income approach before making system purchases. 2. In spite of the large number of transactions occurring around the valuation date, it is an almost impossible task to find "truly" comparable properties where all or most of the key parameters, such as date of sale, location, character, size, and situation are similar. General appraisal practice would hold that when reliable market or cost data is not available for like properties, greater emphasis falls on the capitalization of net income method of appraisal. -76- 83 The market approach, using market derived multiples, is a much less reliable method to value the System for the reasons stated above, and those discussed in the previous section of this report. However, the market approach does provide corroborative information. We have therefore weighted the market approach at 10% and the income approach at 90%. It is the appraiser's opinion that the fair market value of 100% of the assets of each of the Regions and FCSC as of December 31 1995 were (rounded): Gilroy $ 68,000,000 Hesperia 35,230,000 San Luis Obispo 22,960,000 Tulare 25,690,000 Central 25,120,000 Dallas 26,390,000 Coos Bay/Florence 41,900,000 ------------------ Total $ 245,290,000 ==================
-77- 84 FAIR MARKET VALUATION OF FALCON CABLE SYSTEMS COMPANY, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1995 PART V - VALUATION OF EXCHANGE AND SALE SYSTEMS This section briefly discusses the valuation of the Exchange and Sale Systems pursuant to the Preliminary Proposal as defined in the transmittal letter and Part I of this report. The attributes and valuation of these systems have been discussed in Parts III and IV, augmented by Exhibits A through E. Valuation methodology employed was also discussed. The methodology employed by the appraisers to value the Exchange Systems is consistent with the methodology employed to value the Regions. The appraisers analyzed revenue, operating statistics, capital expenditures, demographics and qualitative factors in arriving at input variables for the Exchange System projections. Exhibit F presents the detailed operating statistics and lists the Exchange Systems in the Dallas and Central Regions and includes the cash flow projections. The Hesperia Region, whose systems are all Exchange Systems, are valued in Part IV and are not repeated here. The appraisers' valuation conclusions for the Exchange and Sale Systems are presented, along with summarized operating statistics and financial projections, in Tables 6 and 7 respectively. It is Kane Reece's opinion that the fair market value of the Exchange and Sale Systems as of December 31, 1995 were: Exchange Systems $ 66,070,000 ============ Sale Systems $179,220,000 ============
-78- 85 TABLE 6 FALCON CABLE SYSTEMS COMPANY (EXCHANGE SYSTEMS) VALUATION SUMMARY VALUATION DATE: DECEMBER 31, 1995
($000 EXCEPT WHERE INDICATED) COOS BAY/ HESPERIA DALLAS FLORENCE TOTAL -------- -------- -------- -------- Homes Passed 28,280 14,561 13,392 56,233 EBU's 19,310 10,823 8,706 38,839 % 68.3% 74.3% 65.0% 69.1% Pay Units 8,366 3,871 1,937 14,174 Pay/EBU 43.3% 35.8% 22.2% 36.5% Plant Miles 678 304 249 1,231 Density 42 48 54 46 1996 Cash Flow $4,267 $2,027.6 $1,718.7 $8,013.4 Franchise Exp. 2006-8 99-2002 96-2004 n/a CapEx Total (10 yr) $18,187 $7,594 $3,743 $29,524 Per Home ($) $643 $522 $280 $525 Income Approach: $34,740 $14,710 $15,560 $65,010 Per EBU ($) $1,799 $1,359 $1,787 $1,674 CF Multiple 8.1 7.3 9.1 8.1 Market Approach: Sub Multiple: $1,850 $35,724 $20,023 $16,106 $71,852 CF Multiple: 9.6 40,964 19,465 16,500 76,929 Conclusions: Market Approach $39,654 $19,604 $16,401 $75,660 Income Approach $34,740 $14,710 $15,560 $65,010 CONCLUSION $35,231 $15,199 $15,644 $66,075 Rounded $35,230 $15,200 $15,640 $66,070 -------- -------- -------- -------- Per EBU ($) $1,824 $1,404 $1,796 $1,701 CF Multiple 8.3 7.5 9.1 8.2
-79- 86 TABLE 7 FALCON CABLE SYSTEMS COMPANY (SALE SYSTEMS) VALUATION SUMMARY VALUATION DATE: DECEMBER 31, 1995
($000 EXCEPT WHERE INDICATED) COOS BAY/ REGION: GILROY HESPERIA SLO TULARE CENTRAL DALLAS FLORENCE TOTAL ------- ------ -------- ------- ------- --------- ------- -------- ------- Homes Passed 56,219 26,138 41,053 26,355 9,209 18,097 177,071 EBU's 33,491 15,973 15,563 14,609 6,913 14,192 100,741 % 59.6% 61.1% 37.9% 55.4% 75.1% 78.4% 56.9% Pay Units 13,070 3,773 7,110 5,505 3,268 5,834 38,560 Pay/EBU 39.0% 23.6% 45.7% 37.7% 47.3% 41.1% 38.3% Plant Miles 664.7 409 676 660 163 327 2,900 Density 84.6 64 61 40 57 55 61 1996 Cash Flow $7,700 $2,768 $3,082 $2,594 $1,304 $3,072 $20,520 Franchise Exp. 97-98 99-2006 95-98 2005-2007 99-2002 2004 n/a CapEx Total (10 yr) $20,083 $8,995 $15,882 $6,233 $3,508 $5,529 $60,229 Per Home ($) $357 $344 $387 $236 $381 $306 $340 Income Approach: $67,670 $22,480 $25,280 $25,080 $11,030 $25,990 $177,530 Per EBU ($) $2,021 $1,407 $1,624 $1,717 $1,596 $1,831 $1,762 CF Multiple 8.8 8.1 8.2 9.7 8.5 8.5 8.7 Market Approach: Sub Multiple: $1,850 $61,958 $29,550 $28,792 $27,027 $12,789 $26,255 $186,371 CF Multiple: 9.6 73,916 26,575 29,586 24,902 12,522 29,496 196,996 Conclusions: Market Approach $70,927 $27,319 $29,388 $25,433 $12,589 $28,686 $194,340 Income Approach $67,670 $22,480 $25,280 $25,080 $11,030 $25,990 $177,530 CONCLUSION $67,996 $22,964 $25,691 $25,115 $11,186 $26,260 $179,211 Rounded $68,000 $22,960 $25,690 $25,120 $11,190 $26,260 $179,220 ------- ------- ------- -------- ------- ------- -------- Per EBU ($) $2,030 $1,437 $1,651 $1,719 $1,619 $1,850 $1,779 CF Multiple 8.8 8.3 8.3 9.7 8.6 8.5 8.7
-80- 87 APPRAISAL CERTIFICATE The determination of the fair market value of 100% of the assets of Falcon Cable Systems Company serving Regions in California and Oregon has been appraised by John E. Kane and Henry E. Sherman of Kane Reece Associates, Inc., Metro Park, New Jersey. The effective date of the appraisal is December 31, 1995. We certify that, to the best of our knowledge and belief: - The statements of fact contained in this report are true and correct. - The reported analysis, opinions, and conclusions, are limited only by the reported assumptions and limiting conditions and are our personal, unbiased professional analyses, opinions, and conclusions. - Neither Kane Reece Associates, Inc., nor we have any present or prospective interest in the property that is subject of this report, and we have no personal interest or bias with respect to the parties involved. - Kane Reece Associates, Inc.'s compensation is not contingent on an action or event resulting from the analyses, opinions, or conclusions in, or the use of, this report. - Our analyses, opinions, and conclusions were developed, and this report has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice. - No one provided significant professional assistance to the person(s) signing this report. The appraisers personally interviewed management and inspected the Regions' service areas between January 15 and 19, 1996. No investigation has been made of the title to or the liabilities against the assets which have been appraised. It is understood that this report is provided for the purpose(s) described in the transmittal letter and introduction of this report. It is not to be quoted in whole or in part or -81- 88 otherwise referred to or disseminated to any other person, entity or government agency without the prior written consent of Kane Reece Associates, Inc. KANE REECE ASSOCIATES, INC. /s/ JOHN E. KANE - ----------------------------------- John E. Kane Principal /s/ HENRY E. SHERMAN - ----------------------------------- Henry E. Sherman Vice President 399 Thornall Street Metro Park, NJ 08837-2236 April 29, 1996 -82- 89 EXHIBIT A PHOTOGRAPHS 90 [PHOTOGRAPH] Gilroy Regional Office [PHOTOGRAPH] Gilroy Region King City Office and Headend 91 [PHOTOGRAPH] Hesperia Region Hesperia AML Microwave Tower [PHOTOGRAPH] Hesperia Region Adelanto Earth Station Facilities 92 [PHOTOGRAPH] San Luis Obispo Region Atascadero Headend Receivers, Modulators, etc. [PHOTOGRAPH] Tulare Region Porterville AML Microwave Equipment 93 [PHOTOGRAPH] Central Region Veneta Earth Station Facilities and Headend Building [PHOTOGRAPH] Dallas Region Tillamook Headend 94 [PHOTOGRAPH] Coos Bay/Florence Region Coos Bay Office-Customer Service Representatives [PHOTOGRAPH] Coos Bay/Florence Region Bandon Headend Building and Earth Station Facilities 95 EXHIBIT B REGION OPERATING STATISTICS 96 EXHIBIT B1 FALCON CABLE SYSTEMS COMPANY OPERATING STATISICS GILROY, CALIFORNIA VALUATION DATE: DECEMBER 31, 1995
Homes Passed Basic Subscribers Pay Units ------------------------ ------------------------ 1995 EBU's EBU 1995 % Chg 1995 1994 % Chg. 1995 1994 % Chg. FCC Method Pene Pay Units Pay/EBUs v. 94 ---- ---- ------ ---- ---- ------ ---------- ---- --------- -------- ----- Soledad 2,531 2,475 2.3% 1,648 1,612 2.2% 1,676 66.2% 462 27.6% -11.7% Gonzales 1,804 1,752 3.0% 1,109 1,116 -0.6% 1,116 61.9% 292 26.2% -0.3% Monterey Cty. 55 60 -8.3% 20 19 5.3% 20 36.4% 1 5.0% -66.7% Gilroy 11,664 11,392 2.4% 7,157 6,881 4.0% 7,220 61.9% 3,147 43.6% -9.4% Hollister 10,434 9,631 8.3% 5,223 4,834 8.0% 5,243 50.3% 1,653 31.5% -7.1% Santa Clara Cty. (San Martin) 569 556 2.3% 258 231 11.7% 258 45.3% 135 52.3% -9.4% Morgan Hill 10,237 10,090 1.5% 6,765 6,260 8.1% 6,810 66.5% 3,262 47.9% -5.9% San Benito Cty. 1,231 1,203 2.3% 899 863 4.2% 899 73.0% 239 26.6% -27.8% San Juan Bautista 690 682 1.2% 386 385 0.3% 397 57.6% 156 39.3% -12.4% Monterey Cty. (Castorville) 2,094 2,066 1.4% 851 966 -11.9% 856 40.9% 305 35.6% -37.9% Monterey Cty. (Oak Hills) 610 614 -0.7% 471 489 -3.7% 476 78.1% 226 47.5% -16.3% Monterey Cty. (Salinas) 3,292 3,208 2.6% 2,031 2,048 -0.8% 2,031 61.7% 989 48.7% -11.5% Monterey Cty. (Los Lomas) 2,426 2,376 2.1% 970 1,016 -4.5% 975 40.2% 479 49.1% -22.9% Monterey Cty. (Chualar) 162 159 1.9% 28 24 16.7% 28 17.3% 6 21.4% -33.3% Monterey Cty. (Moss Landing) 117 115 1.7% 48 55 -12.7% 48 41.0% 19 39.6% -24.0% King City 2,972 2,847 4.4% 2,033 2,001 1.6% 2,102 70.7% 527 25.1% -8.7% Monterey Cty. (King City) 561 559 0.4% 469 473 -0.8% 469 83.6% 212 45.2% -11.7% Greenfield 2,660 2,621 1.5% 1,470 1,448 1.5% 1,483 55.7% 322 21.7% -15.5% Monterey Cty. (Greenfield) 28 27 3.7% 11 9 22.2% 11 39.3% 5 45.5% 25.0% Monterey Cty. (Laguna Seca) 491 481 2.1% 232 240 -3.3% 281 57.2% 161 57.3% -24.4% Monterey Cty. (Carmel High.) 474 464 2.2% 321 322 -0.3% 348 73.4% 180 51.7% -8.2% Monterey Cty. (R.T. Grande) 220 220 0.0% 175 176 -0.6% 175 79.5% 75 42.9% -15.7% La Mesa Navy Base 897 898 -0.1% 503 528 -4.7% 503 56.1% 217 43.1% -17.2% --- --- --- --- --- Total Gilroy 56,219 54,496 3.2% 33,078 31,996 3.4% 33,427 59.5% 13,070 39.1% -11.0% ------ ------ ---- ------ ------ ------ ----- ------ ----- ------
Plant Miles ------------------------------------------------ 1995 Channel Address- Aerial UG Total '95 1994 % Chg. Density Capacity able Rebuild* ------ -- --------- ---- ------ ------- -------- ---- -------- Soledad 11.79 7.32 19.11 18.51 3.2% 132.4 35 Yes Gonzales 7.00 6.52 13.52 13.52 0.0% 133.4 35 Yes Monterey Cty. 0.00 0.34 0.34 0.34 0.0% 161.8 35 Yes Gilroy (Two H/E) 32.44 80.28 112.72 110.38 2.1% 103.5 35 Yes 100%/97-99 Hollister 33.70 68.34 102.04 96.87 5.3% 102.3 35 Yes Santa Clara Cty. (San Martin) 7.30 2.19 9.49 9.49 0.0% 60.0 35 Yes Morgan Hill 27.47 76.78 104.25 102.45 1.8% 98.2 35 Yes San Benito Cty. 1.13 9.67 10.80 10.80 0.0% 114.0 35 Yes San Juan Bautista 7.50 1.25 8.75 8.75 0.0% 78.9 35 Yes Monterey Cty. (Castorville) 13.14 1.54 14.68 14.47 1.5% 142.6 35 Yes Monterey Cty. (Oak Hills) 0.00 7.54 7.54 7.54 0.0% 80.9 35 Yes Monterey Cty. (Salinas) 65.98 10.95 76.93 76.53 0.5% 42.8 35 Yes Monterey Cty. (Los Lomas) 28.25 2.02 30.27 29.39 3.0% 80.1 35 Yes Monterey Cty. (Chualar) 1.23 0.00 1.23 1.23 0.0% 131.7 35 Yes Monterey Cty. (Moss Landing) 2.57 0.00 2.57 2.57 0.0% 45.5 35 Yes King City 44.34 15.11 59.45 59.18 0.5% 50.0 35 No Monterey Cty. (King City) 1.60 1.54 3.14 3.14 -0.0% 178.7 35 No Greenfield 19.16 21.48 40.64 39.56 2.7% 65.5 35 No Monterey Cty. (Greenfield) 0.00 0.00 0.00 0.00 n/a n/a 35 No Monterey Cty. (Laguna Seca) 0.00 4.24 4.24 4.24 0.0% 115.8 35 Yes 100%/97-99 Monterey Cty. (Carmel High.) 12.40 0.70 13.10 13.10 -0.0% 36.2 35 Yes Monterey Cty. (R.T. Grande) 5.40 12.10 17.50 17.50 0.0% 12.6 35 Yes La Mesa Navy Base 1.36 11.00 12.36 12.36 0.0% 72.6 35 Yes ---- ----- ----- ----- Total Gilroy 323.76 340.91 664.67 651.92 2.0% 84.6 ------ ------ ------ ------ ---- ----
Franchise ------------------------------------- Fee Expiration Life (Yrs) --- ---------- ---------- Soledad 5% Jun-2002 6.4 Gonzales 5% Jul-2002 6.5 Monterey Cty. 3% Aug-97 1.6 Gilroy (Two H/E) 3% May-99 3.4 Hollister 5% Dec-97 2.0 Santa Clara Cty. (San Martin) 2% Apr-2002 6.3 Morgan Hill 3% sub+net May-96 0.4 San Benito Cty. 5% sub Dec-94 (1.0) San Juan Bautista 3% basic Aug-95 (0.4) Monterey Cty. (Castorville) 3% Aug-97 1.6 Monterey Cty. (Oak Hills) 3% Aug-97 1.6 Monterey Cty. (Salinas) 3% Aug-97 1.6 Monterey Cty. (Los Lomas) 3% Aug-97 1.6 Monterey Cty. (Chualar) 3% Aug-97 1.6 Monterey Cty. (Moss Landing) 3% Aug-97 1.6 King City 5% Mar-2003 7.2 Monterey Cty. (King City) 3% Oct-98 2.8 Greenfield 5% Nov-2003 7.8 Monterey Cty. (Greenfield) 3% Oct-98 2.8 Monterey Cty. (Laguna Seca) 3% Oct-98 2.8 Monterey Cty. (Carmel High.) 3% Oct-98 2.8 Monterey Cty. (R.T. Grande) 3% Oct-98 2.8 La Mesa Navy Base 0% Mar-94 (1.8) Total Gilroy
* Rebuild per FCSC 10 Yr. Plan. Portion of H/E service area to be rebuilt/ Yr.(s) of rebuild. -88- 97 FALCON CABLE SYSTEMS COMPANY EXHIBIT B2 HESPERIA, CALIFORNIA OPERATING STATISICS VALUATION DATE: DECEMBER 31, 1995
Homes Passed Basic Subscribers -------------------------- -------------------------- 1995 EBU's EBU 1995 1994 % Chg. 1995 1994 % Chg. FCC Method Pene ------ ------ ------ ------ ------ ------ ---------- ----- Hesperia 16,948 16,850 0.6% 10,708 10,188 5.1% 11,207 66.1% Adelanto 2,626 2,526 4.0% 2,264 2,023 11.9% 2,418 92.1% San Bernardino Cty. (Slvr Lk) 1,802 1,800 0.1% 1,251 1,197 4.5% 1,262 70.0% Kern Co. (Boron) 1,256 1,255 0.1% 704 714 -1.4% 738 58.7% Kern Co. (N. Edwards) 235 235 0.0% 212 227 -6.6% 219 93.0% Kern Co. (Rosamond) 4,313 4,265 1.1% 2,696 2,621 2.9% 2,761 64.0% Kern Co. (Mojave) 1,100 1,100 0.0% 678 641 5.8% 707 64.3% ------ ------ ---- ------ ------ ------ ----- Total Hesperia 28,280 28,031 0.9% 18,513 17,611 5.1% 19,310 68.3% ====== ====== ==== ====== ====== ====== ===== 1995 Pay Units Pay Units Pay/EBUs % Chg v. 94 --------- -------- ----------- Hesperia 4,999 44.6% -6.7% Adelanto 1,138 47.1% -6.0% San Bernardino Cty. (Slvr Lk) 478 37.9% 1.9% Kern Co. (Boron) 102 13.8% -13.6% Kern Co. (N. Edwards) 142 65.0% -5.3% Kern Co. (Rosamond) 1,119 40.5% -7.6% Kern Co. (Mojave) 388 54.9% -1.0% ----- ----- ------ Total Hesperia 8,366 43.3% -6.1% ===== ===== ======
Plant Miles ------------------------------------------- 1995 Channel Address- Aerial UG Total '95 1994 % Chg. Density Capacity able Rebuild ------- ------ --------- ------ ------ ------- -------- ------- --------- Hesperia 351.07 64.92 415.99 399.78 4.1% 40.7 43 Yes '97 - '98 Adelanto 28.66 33.63 62.29 56.19 10.9% 42.2 43 Yes '97 - '98 San Bernardino Cty. (Slvr Lk) 0.00 41.25 41.25 41.25 0.0% 43.7 35 Yes Kern Co. (Boron) 26.78 1.18 27.96 27.96 0.0% 44.9 28 No 1991 (60%) Kern Co. (N. Edwards) 7.00 0.00 7.00 7.00 0.0% 33.6 42 Yes Kern Co. (Rosamond) 27.80 47.21 75.01 69.82 7.4% 57.5 42 No Kern Co. (Mojave) 37.00 11.50 48.50 42.00 15.5% 22.7 42 No ------ ------ ------ ------ ----- ---- Total Hesperia 478.31 199.69 678.00 644.00 5.3% 41.7 ====== ====== ====== ====== ==== ==== Franchise ------------------------------- Fee Expiration Life (Yrs) ---- ---------- ---------- Hesperia 5% Jun-2006 10.4 Adelanto 3% n/a San Bernardino Cty. (Slvr Lk) 5% Apr-2008 12.3 Kern Co. (Boron) 5% Jan-2007 11.1 Kern Co. (N. Edwards) 5% Jan-2007 11.1 Kern Co. (Rosamond) 5% Jan-2007 11.1 Kern Co. (Mojave) 5% Jan-2007 11.1 ---- Total Hesperia
-89- 98 FALCON CABLE SYSTEMS COMPANY EXHIBIT B3 SAN LUIS OBISPO, CALIFORNIA OPERATING STATISICS VALUATION DATE: DECEMBER 31, 1995
Homes Passed Basic Subscribers ------------------------- -------------------------- 1995 EBU's EBU 1995 1994 % Chg. 1995 1994 % Chg. FCC Method Pene ------ ------ ------ ------ ------ ------ ---------- ----- Atascadero 10,214 10,145 0.7% 5,746 5,945 -3.3% 5,814 56.9% SLO County 13,676 13,332 2.6% 8,809 8,649 1.8% 9,054 66.2% Guadalupe 1,802 1,791 0.6% 823 813 1.2% 823 45.7% Los Alamos 446 431 3.5% 257 262 -1.9% 281 63.1% ------ ------ ---- ------ ------ ----- ------ ----- Total San Luis Obispo 26,138 25,699 1.7% 15,635 15,669 -0.2% 15,973 61.1% ====== ====== ==== ====== ====== ====== ===== 1995 Pay Units Pay Units Pay/EBUs % Chg v. 94 --------- -------- ----------- Atascadero 1,391 23.9% -32.4% SLO County 1,983 21.9% -27.0% Guadalupe 190 23.1% -20.2% Los Alamos 169 60.1% -20.7% ----- ----- ------ Total San Luis Obispo 3,733 23.4% -28.5% ===== ===== ======
Plant Miles ------------------------------------------------- 1995 Channel Address- Aerial UG Total '95 1994 % Chg. Density Capacity able Rebuild ------ ----- --------- ------ ------ ------- -------- -------- ---------- Atascadero 183.87 20.50 204.37 204.29 0.0% 50.0 37 Yes '98 - 2000 SLO County 144.00 42.00 186.00 175.71 5.9% 73.5 95 Yes 1995 Guadalupe 7.90 4.20 12.10 12.10 0.0% 148.9 37 Yes Los Alamos 5.34 1.08 6.42 6.38 0.6% 69.5 54 No ------ ----- ------ ------ ---- ----- Total San Luis Obispo 341.11 67.78 408.89 398.48 2.6% 63.9 ====== ===== ====== ====== ==== ===== Franchise ------------------------------- Fee Expiration Life (Yrs) --- ---------- ---------- Atascadero 5% Jul-2001 5.5 SLO County 5% Jun-2006 10.4 Guadalupe 5% Aug-2006 10.6 Los Alamos 5% Feb-99 3.1 Total San Luis Obispo
-90- 99 - ------------------------------------------------------------------------------------------------------------------------------------ FALCON CABLE SYSTEMS COMPANY EXHIBIT B4 OPERATING STATISICS TULARE, CALIFORNIA VALUATION DATE: DECEMBER 31, 1995 - ------------------------------------------------------------------------------------------------------------------------------------
Homes Passed Basic Subscribers ---------------------- ----------------------- 1995 EBU's EBU 1995 Pay Units 1995 1994 % Chg. 1995 1994 % Chg. FCC Method Pene Pay Units Pay/EBUs % Chg v. 94 ------ ------ ------ ------- ------- ------ ---------- ----- --------- -------- ----------- Tulare Cty. (Jack Ranch) 316 309 2.3% 119 130 -8.5% 129 40.9% 7 5.4% 75.0% Tulare Cty. (Springville) 1,386 1,344 3.1% 770 767 0.4% 782 56.4% 384 49.1% -13.1% Tulare Cty. (Cal. Hot Springs) 483 479 0.8% 161 188 -14.4% 161 33.3% 12 7.5% -45.5% Tulare Cty. (Camp Nelson) 539 527 2.3% 261 266 -1.9% 353 65.5% 93 26.3% 0.0% Tulare Cty. (Three Rivers) 1,349 1,333 1.2% 670 680 -1.5% 670 49.7% 315 47.0% -18.2% Woodlake 1,875 1,845 1.6% 799 763 4.7% 810 43.2% 249 30.8% -18.4% Tulare Cty. (Woodlake) 637 627 1.6% 276 285 -3.2% 276 43.3% 170 61.6% -19.0% Tulare Cty. (T. Bella / Ducor) 858 852 0.7% 110 126 -12.7% 110 12.8% 63 57.3% -27.6% Tulare Cty. (Woodville/Pop 1,164 1,152 1.0% 129 128 0.8% 129 11.1% 64 49.6% -21.0% Tulare Cty. (Strat/Plview) 1,254 1,250 0.3% 263 304 -13.5% 390 31.1% 112 28.7% -34.5% Porterville 11,090 10,718 3.5% 5,206 5,133 1.4% 5,217 47.0% 2,247 43.1% -21.8% Tulare Cty (Porterville) 6,910 6,809 1.5% 3,243 3,308 -2.0% 3,253 47.1% 1,367 42.0% -23.6% Tulare Cty (Tip/Pix/Earl) 1,982 1,723 15.0% 214 264 -18.9% 224 11.3% 172 76.7% -38.4% Exeter 2,533 2,419 4.7% 773 810 -4.6% 773 30.5% 492 63.6% -18.5% Farmersville 1,566 1,501 4.3% 294 326 -9.8% 294 18.8% 195 66.3% -30.1% Tulare Cty (Ivanhoe) 1,393 1,271 9.6% 295 315 -6.3% 295 21.2% 213 72.2% -23.9% Tulare Cty (Cutler/Orosi) 1,817 1,705 6.6% 306 396 -22.7% 306 16.8% 225 73.5% -42.2% Orange Cove 982 813 20.8% 246 224 9.8% 246 25.1% 217 88.2% 1.9% Tulare Cty (Oak Ranch) 173 172 0.6% 112 128 -12.5% 143 82.8% 71 49.6% -19.3% Lindsay 2,218 2,146 3.4% 778 856 -9.1% 778 35.1% 328 42.2% -34.4% Tulare Cty (Lindsay) 528 519 1.7% 224 231 -3.0% 224 42.4% 114 50.9% -13.6% ------ ------ ----- ------ ------ ------ ------ ----- ----- ----- ------ Total Tulare 41,053 39,514 3.9% 15,249 15,628 -2.4% 15,563 37.9% 7,110 45.7% -23.0% ====== ====== ===== ====== ====== ====== ====== ===== ===== ===== ======
Plant Miles Franchise -------------------------------------- 1995 Channel Address- -------------------------- Aerial UG Total '95 1994 % Chg. Density Capacity able Rebuild Fee Expiration Life (Yrs) ------ ----- --------- ----- ------ ------- -------- -------- --------- --- ---------- ---------- Tulare Cty. (Jack Ranch) 12.15 0.00 12.15 12.15 0.0% 26.0 32 No Assuming 5% Feb-98 2.1 Tulare Cty. (Springville) 34.82 2.72 37.54 37.54 0.0% 36.9 42 Yes a rebuild 5% Feb-98 2.1 Tulare Cty. (Cal. Hot Springs) 18.01 0.57 18.58 18.58 0.0% 26.0 32 No of entire 5% Feb-98 2.1 Tulare Cty. (Camp Nelson) 13.16 0.93 14.09 14.09 0.0% 38.3 42 Yes system @ 5% Feb-98 2.1 Tulare Cty. (Three Rivers) 38.71 5.63 44.34 44.34 0.0% 30.4 42 Yes 75% of 5% Feb-98 2.1 Woodlake 14.69 5.77 20.46 20.46 0.0% 91.6 42 Yes existing 5% Sep-2009 13.7 Tulare Cty. (Woodlake) 31.69 5.23 36.92 36.92 0.0% 17.3 42 Yes miles 5% Feb-98 2.1 Tulare Cty. (T. Bella / Ducor) 15.75 0.32 16.07 16.07 0.0% 53.4 42 Yes in '97-'98 5% Feb-98 2.1 Tulare Cty. (Woodville/Pop) 15.25 0.25 15.50 15.50 0.0% 75.1 42 Yes 5% Feb-98 2.1 Tulare Cty. (Strat/Plview) 14.64 1.15 15.79 15.79 0.0% 79.4 42 Yes 5% Feb-98 2.1 Porterville 78.20 56.44 134.64 130.79 2.9% 82.4 42 Yes Fiber OL ' 5% May-95 (0.7) Tulare Cty (Porterville) 52.89 11.85 64.74 61.13 5.9% 106.7 42 Yes 5% Feb-98 2.1 Tulare Cty (Tip/Pix/Earl) 17.40 4.27 21.67 21.28 1.8% 91.5 42 Yes 5% Feb-98 2.1 Exeter 32.65 10.28 42.93 42.95 -0.0% 59.0 42 Yes 5% Jan-97 1.1 Farmersville 21.80 5.21 27.01 26.80 0.8% 58.0 42 Yes 5% Jan-97 1.1 Tulare Cty (Ivanhoe) 37.56 9.85 47.41 44.01 7.7% 29.4 42 Yes 5% Feb-98 2.1 Tulare Cty (Cutler/Orosi) 25.96 5.79 31.75 31.19 1.8% 57.2 42 Yes 5% Feb-98 2.1 Orange Grove 21.74 3.08 24.82 24.32 2.1% 39.6 42 Yes 5% May-2002 6.3 Tulare Cty (Oak Ranch) 3.00 2.45 5.45 5.45 0.0% 31.7 42 Yes 5% Feb-98 2.1 Lindsay 25.12 8.89 34.01 33.36 1.9% 65.2 42 Yes 5% Sep-99 3.7 Tulare Cty (Lindsay) 7.65 2.33 9.98 9.98 0.0% 52.9 42 Yes 5% Feb-98 2.1 ------ ------ ------ ------ ----- ----- --- ----- Total Tulare 532.84 143.01 675.85 662.70 2.0% 60.7 ====== ====== ====== ====== ===== =====
-91- 100
- ----------------------------------------------------------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY EXHIBIT B5 OPERATING STATISICS CENTRAL REGION, OREGON VALUATION DATE: DECEMBER 31, 1995. - ----------------------------------------------------------------------------------------------------------------------------------- Homes Passed Basic Subscribers ----------------------- ---------------------- 1995 EBU's EBU 1995 Pay Units 1995 1994 % Chg. 1995 1994 Chg. FCC Method Pene Pay Units Pay/EBUs % Chg v. 94 ------ ------ ------ ----- ----- ----- ---------- ----- --------- -------- ----------- Creswell 1,195 1,195 0.0% 556 539 3.2% 578 48.4% 234 40.5% -8.6% Lane Cty. (Creswell) 564 564 0.0% 323 324 -0.3% 330 58.6% 151 45.7% 2.7% Drain 601 601 0.0% 328 330 -0.6% 335 55.8% 128 38.2% -10.5% Yoncalla 483 483 0.0% 289 267 8.2% 289 59.8% 109 37.7% 1.9% Douglas Cty. (Drain/Yoncalla) 320 320 0.0% 164 168 -2.4% 171 53.6% 53 30.9% -1.9% Lane Cty. 1,058 1,058 0.0% 431 431 0.0% 431 40.7% 199 46.2% -2.9% Brownsville 723 723 0.0% 386 392 -1.5% 400 55.3% 163 40.8% -6.3% Coburg 361 361 0.0% 145 148 -2.0% 160 44.3% 72 45.0% 4.3% Lane Cty. (Coburg) 304 304 0.0% 150 146 2.7% 165 54.4% 80 48.4% 0.0% Lowell 345 345 0.0% 224 201 11.4% 224 64.9% 77 34.4% 16.7% Lane Cty. (McKenzie) 4,026 4,026 0.0% 2,507 2,489 0.7% 2,522 62.6% 1,022 40.5% -0.7% Cave Junction 982 982 0.0% 469 478 -1.9% 477 48.5% 141 29.6% 2.2% Josephine Cty. (Kerby/CJ) 783 783 0.0% 346 367 -5.7% 369 47.1% 132 35.8% -1.5% Lane Cty. (Whitewater) 1,747 1,747 0.0% 954 952 0.2% 1,038 59.4% 329 31.7% -13.4% Oakridge 1,955 1,955 0.0% 1,100 1,080 1.9% 1,156 59.1% 412 35.6% 7.9% West Fir 243 243 0.0% 160 170 -5.9% 160 65.8% 57 35.6% 5.6% Lane Cty. (Oakridge/W. Fir) 374 374 0.0% 192 186 3.2% 192 51.3% 56 29.2% -8.2% Sutherlin 2,445 2,445 0.0% 1,502 1,531 -1.9% 1,556 63.6% 564 36.3% 5.2% Oakland 496 496 0.0% 259 279 -7.2% 259 52.2% 104 40.2% 9.5% Douglas Cty. (Sutherlin/Oklnd) 718 718 0.0% 262 273 -4.0% 270 37.6% 103 38.2% 14.4% Cottage Grove 3,046 3,046 0.0% 1,683 1,591 5.8% 1,723 56.6% 508 29.5% -2.9% Lane Cty. (Cottage Grove) 366 366 0.0% 198 214 -7.5% 198 54.1% 72 36.4% 1.4% Veneta 1,283 1,283 0.0% 661 646 2.3% 670 52.2% 318 47.5% 10.8% Lane Cty. (Veneta) 634 634 0.0% 360 381 -5.5% 360 56.8% 156 43.3% 2.6% Lane Cty. (Noti/Elmira) 863 863 0.0% 413 466 -11.4% 413 47.9% 184 44.6% -8.5% Linn Cty. (Brown./Craw.) 440 440 0.0% 163 149 9.4% 163 37.0% 81 49.7% 88.4% ------ ------ ------ ------ ------ ----- Total Central 26,355 26,355 0.0% 14,225 14,198 0.2% 14,609 55.4% 5,505 37.7% 0.5% ====== ====== ==== ====== ====== ==== ====== ===== ===== ===== ====
Plant Miles ---------------------------------------- 1995 Channel Address- Aerial UG Total '95 1994 % Chg. Density Capacity able Rebuild* ------- ---- --------- ------ ------ ------- -------- -------- ---------- Creswell 19.80 9.00 28.80 28.80 0.0% 41.5 40 Yes Lane Cty. (Creswell) 9.00 3.20 12.20 12.20 0.0% 46.2 40 Yes Drain 17.00 1.00 18.00 18.00 0.0% 33.4 40 Yes Yoncalla 7.00 2.00 9.00 9.00 0.0% 53.7 40 Yes Douglas Cty. (Drain/Yoncalla) 3.00 1.00 4.00 4.00 0.0% 80.0 40 Yes Lane Cty. 19.50 0.50 20.00 20.00 0.0% 52.9 40 Yes Brownsville 25.50 1.00 26.50 26.50 0.0% 27.3 40 Yes Coburg 19.00 1.00 20.00 20.00 0.0% 18.1 40 Yes Lane Cty. (Coburg) 10.00 2.00 12.00 12.00 0.0% 25.3 40 Yes Lowell 5.00 0.50 5.50 5.50 0.0% 62.7 40 Yes Lane Cty. (McKenzie) 110.00 9.40 119.40 119.40 0.0% 33.7 40 Yes Cave Junction 15.00 0.75 15.75 15.75 0.0% 62.3 26 No Josephine Cty. (Kerby/CJ) 10.50 0.25 10.75 10.75 0.0% 72.8 26 No Lane Cty. (Whitewater) 79.00 2.30 81.30 81.30 0.0% 21.5 40 Yes Oakridge 55.00 1.50 56.50 56.50 0.0% 34.6 40 Yes West Fir 4.00 0.25 4.25 4.25 0.0% 57.2 40 Yes Lane Cty. (Oakridge/W. Fir) 17.00 0.25 17.25 17.25 0.0% 21.7 40 Yes Sutherlin 35.00 2.50 37.50 37.50 0.0% 65.2 28 No 100%/98 Oakland 7.00 1.00 8.00 8.00 0.0% 62.0 28 No Douglas Cty. (Sutherlin/Oklnd) 6.00 0.50 6.50 6.50 0.0% 110.5 28 No Cottage Grove 38.00 7.00 45.00 45.00 0.0% 67.7 52 Yes Lane Cty. (Cottage Grove) 10.40 0.90 11.30 11.30 -0.0% 32.4 52 Yes Veneta 30.00 5.00 35.00 35.00 0.0% 36.7 25 No Lane Cty. (Veneta) 20.00 1.00 21.00 21.00 0.0% 30.2 25 No Lane Cty. (Noti/Elmira) 10.00 1.00 11.00 11.00 0.0% 78.5 25 No Linn Cty. (Brown./Craw.) 23.80 0.00 23.80 23.80 0.0% 18.5 40 Yes ------ ----- ------ ------ Total Central 605.50 54.80 660.30 660.30 0.0% 39.9 ====== ===== ====== ====== ===== ===== Franchise --------------------------------------- Fee Expiration Life (Yrs) ------------- ---------- ---------- Creswell 5% Nov-2005 9.9 Lane Cty. (Creswell) 5% Jun-2007 11.5 Drain 5% Sep-2009 13.7 Yoncalla 5% Nov-2007 11.9 Douglas Cty. (Drain/Yoncalla) Lane Cty. 5% Jun-2007 11.5 Brownsville 5% Jul-2002 6.5 Coburg 5% Feb-2008 12.1 Lane Cty. (Coburg) 5% Jun-2007 11.5 Lowell 3% May-91 (4.6) Lane Cty. (McKenzie) 5% Jun-2007 11.5 Cave Junction 3% Aug-2007 11.7 Josephine Cty. (Kerby/CJ) Lane Cty. (Whitewater) 5% Jun-2007 11.5 Oakridge 5%, net pay Jun-2005 9.5 West Fir 5%, net pay Jun-2005 9.5 Lane Cty. (Oakridge/W. Fir) 5% Jun-2007 11.5 Sutherlin 3%,-install Nov-99 3.8 Oakland 3% Nov-99 3.9 Douglas Cty. (Sutherlin/Oklnd) Cottage Grove 5% Nov-98 2.9 Lane Cty. (Cottage Grove) 5% Jun-2007 11.5 Veneta 3% Nov-2005 9.9 Lane Cty. (Veneta) 5% Jun-2007 11.5 Lane Cty. (Noti/Elmira) 5% Jun-2007 11.5 Linn Cty. (Brown./Craw.)
* Rebuild per FCSC 10 Yr. Plan. Portion of H/E service area to be rebuilt/ Yr.(s) of rebuild. -92- 101 - ----------------------------------------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY EXHIBIT B6 OPERATING STATISICS DALLAS REGION, OREGON VALUATION DATE: DECEMBER 31, 1995. - -----------------------------------------------------------------------------------------------------------------
Homes Passed Basic Subscribers 1995 EBU's EBU 1995 1994 % Chg. 1995 1994 % Chg. FCC Method Pene ------ ------ ------ ------ ------ ------ ----------- ------ Dallas 3,902 3,737 4.4% 2,728 2,608 4.6% 2,802 71.8% Polk Cty. (Dallas) 225 225 0.0% 135 140 -3.6% 135 60.0% Independence 1,798 1,744 3.1% 1,237 1,151 7.5% 1,249 69.5% Monmouth 1,782 1,700 4.8% 1,688 1,545 9.3% 1,725 96.8% Silverton 2,951 2,927 0.8% 1,434 1,327 8.1% 1,464 49.6% Mt. Angel 577 577 0.0% 276 270 2.2% 282 48.9% Marion Cty. (Sliverton) 286 286 0.0% 43 44 -2.3% 43 15.0% Jefferson 931 899 3.6% 511 478 6.9% 511 54.9% Marion Cty. (Jefferson) 46 46 0.0% 154 139 10.8% 154 334.8% Cannon Beach 1,221 1,221 0.0% 1,109 1,082 2.5% 1,305 106.9% Clatsop Cty. (Cannon Beach) 250 250 0.0% 254 244 4.1% 260 103.9% Bay City 584 558 4.7% 458 473 -3.2% 458 78.4% Garibaldi 573 573 0.0% 383 417 -8.2% 426 74.4% Rockaway Beach 1,352 1,352 0.0% 873 836 4.4% 998 73.8% Tillamook Cty. (Nehalem) 522 522 0.0% 307 311 -1.3% 325 62.3% Manzanita 916 898 2.0% 537 521 3.1% 572 62.5% Nehalem 300 292 2.7% 132 114 15.8% 132 44.0% Wheeler 219 207 5.8% 88 91 -3.3% 106 48.3% Tillamook Cty. (Nehalem) 260 260 0.0% 467 478 -2.3% 478 183.9% Falls City 310 310 0.0% 194 185 4.9% 194 62.6% Polk Cty. (Falls City) 40 40 0.0% 37 34 8.8% 37 92.5% Tillamook 1,425 1,425 0.0% 1,502 1,534 -2.1% 1,547 108.5% Tillamook Cty. (Tillamook) 1,800 1,800 0.0% 976 952 2.5% 987 54.8% Netarts/Oceanside 850 850 0.0% 830 829 0.1% 933 109.8% Brickyard Road 475 475 0.0% 484 480 0.8% 508 106.9% Wilson River 175 175 0.0% 91 97 -6.2% 105 59.8% ------ ------ ------ ------ ------ Total Dallas 23,770 23,349 1.8% 16,928 16,380 3.3% 17,736 74.6% ====== ====== ==== ====== ====== ===== ====== ====== Pay Units Pay Units Pay/EBUs % Chg v. 94 --------- -------- ----------- Dallas 1,306 46.6% -4.3% Polk Cty. (Dallas) 55 40.7% -22.5% Independence 650 52.0% 7.6% Monmouth 746 43.2% 5.2% Silverton 698 47.7% -7.5% Mt. Angel 158 56.0% 1.9% Marion Cty. (Sliverton) 45 104.7% 2.3% Jefferson 308 60.3% -2.2% Marion Cty. (Jefferson) 87 56.5% 14.5% Cannon Beach 433 33.2% -12.2% Clatsop Cty. (Cannon Beach) 53 20.4% 0.0% Bay City 184 40.2% -4.7% Garibaldi 168 39.4% -6.1% Rockaway Beach 390 39.1% -4.2% Tillamook Cty. (Nehalem) 125 38.5% 1.6% Manzanita 116 20.3% -12.8% Nehalem 51 38.6% 6.3% Wheeler 27 25.5% -46.0% Tillamook Cty. (Nehalem) 169 35.3% -9.6% Falls City 103 53.1% -8.8% Polk Cty. (Falls City) 13 35.1% 18.2% Tillamook 526 34.0% -20.4% Tillamook Cty. (Tillamook) 375 38.0% -12.0% Netarts/Oceanside 177 19.0% -10.2% Brickyard Road 176 34.7% -16.6% Wilson River 0 0.0% n/a ----- ----- ------ Total Dallas 7,139 40.3% -5.8% ===== ===== ======
Plant Miles -------------------------------------------------- 1995 Channel Address- Aerial UG Total '95 1994 % Chg. Density Capacity able Rebuild* ------- ----- --------- ------ ------ ------- -------- ------- ------------- Dallas 42.40 20.70 63.10 57.40 9.9% 62 40 Yes Polk Cty. (Dallas) 11.30 0.40 11.70 8.60 36.0% 19 40 Yes Independence 20.00 3.70 23.70 22.50 5.3% 76 40 Yes Monmouth 15.20 7.50 22.70 20.90 8.6% 79 40 Yes Silverton 20.60 9.60 30.20 29.00 4.1% 98 37 Yes Mt. Angel 6.50 1.50 8.00 8.00 0.0% 72 37 Yes Marion Cty. (Sliverton) 13.80 0.50 14.30 14.30 0.0% 20 37 Yes Jefferson 10.50 3.20 13.70 13.00 5.4% 68 40 Yes Marion Cty. (Jefferson) 2.30 0.00 2.30 2.30 0.0% 20 40 Yes Cannon Beach 10.20 5.50 15.70 15.70 0.0% 78 34 Yes Clatsop Cty. (Cannon Beach) 5.60 4.00 9.60 9.60 0.0% 26 34 Yes Bay City 11.30 0.50 11.80 11.30 4.4% 49 34 Yes Garibaldi 7.40 0.50 7.90 7.90 0.0% 73 34 Yes Rockaway Beach 16.00 4.30 20.30 20.30 0.0% 67 34 Yes Tillamook Cty. (Nehalem) 24.00 1.80 25.80 25.80 0.0% 20 34 Yes Manzanita 9.50 3.50 13.00 12.70 2.4% 70 34 Yes Nehalem 3.10 0.70 3.80 3.60 5.6% 79 34 Yes 50%,50%/97,98 Wheeler 4.00 0.70 4.70 4.50 4.4% 47 34 Yes Tillamook Cty. (Nehalem) 11.00 6.30 17.30 17.30 0.0% 15 34 Yes Falls City 16.00 0.00 16.00 16.00 0.0% 19 39 Yes Polk Cty. (Falls City) 2.50 2.00 4.50 4.50 0.0% 9 39 Yes Tillamook 21.70 1.50 23.20 23.20 0.0% 61 29 No 50%,50%/97,98 Tillamook Cty. (Tillamook) 50.70 5.60 56.30 56.30 0.0% 32 29 No Netarts/Oceanside 15.00 2.00 17.00 17.00 0.0% 50 22 No 75%,25%/95,96 Brickyard Road 24.00 1.00 25.00 25.00 0.0% 19 22 No 75%,25%/95,96 Wilson River 5.00 0.00 5.00 5.00 0.0% 35 5 No ------ ----- ------ ------ Total Dallas 379.60 87.00 466.60 451.70 3.3% 51 ====== ===== ====== ====== ==== == Franchise Fee Expiration Life (Yrs) --------- ---------- ---------- Dallas 5% Oct-2002 6.8 Polk Cty. (Dallas) Independence 5% Aug-2002 6.7 Monmouth 5% Aug-2002 6.6 Silverton 5% Jan-2000 4.0 Mt. Angel 3% Oct-95 (0.2) Marion Cty. (Sliverton) 5% Aug-96 0.6 Jefferson 5% Basic Jan-2002 6.0 Marion Cty. (Jefferson) 5% Aug-96 0.6 Cannon Beach 5% Jul-2002 6.5 Clatsop Cty. (Cannon Beach) Bay City 3% May-2000 4.4 Garibaldi 5% Sep-97 1.7 Rockaway Beach 5% Dec-2002 6.9 Tillamook Cty. (Nehalem) Manzanita 3% Feb-97 1.1 Nehalem 3% Basic Aug-2001 5.6 Wheeler 5% Nov-2013 17.9 Tillamook Cty. (Nehalem) Falls City 5% Mar-99 3.2 Polk Cty. (Falls City) Tillamook 5% Local Dec-99 4.0 Tillamook Cty. (Tillamook) Netarts/Oceanside Brickyard Road Wilson River Total Dallas
* Rebuild per FCSC 10 Yr. Plan. Portion of H/E service area to be rebuilt/ Yr.(s) of rebuild. -93- 102 - ----------------------------------------------------------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY EXHIBIT B7 OPERATING STATISICS COOS BAY/FLORENCE REGION, OREGON VALUATION DATE: DECEMBER 31, 1995. - -----------------------------------------------------------------------------------------------------------------------------------
Homes Passed Basic Subscribers Pay Units ---------------- ----------------- 1995 EBU's EBU % Chg 1995 1994 % Chg. 1995 1994 % Chg. FCC Method Pene Pay Units Pay/EBUs v. 94 ---- ---- ------ ---- ---- ------ ---------- ---- --------- -------- ----- Coos Bay 6,454 6,454 0.0% 4,665 4,638 0.6% 4,808 74.5% 2,177 45.3% -9.6% North Bend 3,640 3,640 0.0% 2,958 2,940 0.6% 3,025 83.1% 1,193 39.4% -13.5% Coos Cty. (Coos Bay/North Bend) 3,551 3,551 0.0% 2,762 2,774 -0.4% 2,853 80.4% 1,430 50.1% -11.5% Myrtle Point 1,108 1,108 0.0% 726 745 -2.6% 741 66.9% 123 16.6% -10.9% Coos Cty. (Myrtle Point) 48 48 0.0% 48 54 -11.1% 48 100.0% 8 16.7% -11.1% Powers 315 315 0.0% 201 212 -5.2% 209 66.5% 19 9.1% -36.7% Coos Cty. (Powers) 4 4 0.0% 2 2 0.0% 2 50.0% 1 50.0% 0.0% Reedsport 1,980 1,980 0.0% 1,687 1,729 -2.4% 1,732 87.5% 465 26.8% -8.3% Winchester Bay 325 325 0.0% 235 247 -4.9% 267 82.1% 86 32.2% 0.0% Douglas Cty. (Reedsport) 100 100 0.0% 70 70 0.0% 70 70.0% 18 25.7% -35.7% Coos Cty. (Lakeside) 300 300 0.0% 97 105 -7.6% 97 32.3% 18 18.6% -5.3% Lakeside 784 784 0.0% 511 526 -2.9% 524 66.8% 105 20.0% -7.1% Gardiner 145 145 0.0% 102 108 -5.6% 102 70.3% 42 41.2% -17.6% Coquille 1,301 1,301 0.0% 1,418 1,443 -1.7% 1,449 111.4% 291 20.1% -17.1% Coos Cty. (Coquille) 1,012 1,012 0.0% 378 391 -3.3% 378 37.4% 82 21.7% -12.8% Bandon 1,381 1,283 7.6% 1,099 1,044 5.3% 1,247 90.3% 359 28.8% 35.5% Coos Cty. (Brandon) 740 718 3.1% 450 455 -1.1% 465 62.8% 100 21.5% -21.3% Hauser 475 475 0.0% 491 489 0.4% 499 105.0% 239 47.9% -1.6% --- --- --- --- --- --- Total Coos Bay 23,663 23,543 0.5% 17,900 17,972 -0.4% 18,516 78.3% 6,756 36.5% -9.5% ------ ------ ---- ------ ------ ----- ------ ----- ----- ----- ----- Florence 4,286 4,113 4.2% 2,053 1,952 5.2% 2,253 52.6% 520 23.1% -6.8% Dunes City 843 818 3.1% 465 478 -2.7% 543 64.4% 139 25.6% -12.0% Mapleton 343 336 2.1% 196 194 1.0% 216 62.8% 61 28.3% -14.1% Lane Cty. (Florence) 2,354 2,268 3.8% 1,233 1,171 5.3% 1,370 58.2% 295 21.5% -20.9% ----- ----- ----- ----- ----- --- Total Florence 7,826 7,535 3.9% 3,947 3,795 4.0% 4,382 56.0% 1,015 23.2% -12.5% ----- ----- ---- ----- ----- ---- ----- ----- ----- ----- ------ Total Coos Bay/Florence 31,489 31,078 1.3% 21,847 21,767 0.4% 22,898 72.7% 7,771 33.9% -9.9% ------ ------ ---- ------ ------ ---- ------ ----- ----- ----- -----
Plant Miles ----------------------------------------- 1995 Channel Address- Aerial UG Total '95 1994 % Chg. Density Capacity able Rebuild* ------ -- --------- ---- ------ ------- -------- ---- -------- Coos Bay 67.75 7.17 74.92 74.80 0.2% 86.1 34 Yes 100%/95 North Bend 33.43 3.69 37.12 37.00 0.3% 98.1 34 Yes Coos Cty. (Coos Bay/North Bend) 104.56 11.57 116.13 116.13 0.0% 30.6 34 Yes Myrtle Point 13.81 2.08 15.89 15.89 0.0% 69.7 37 No Coos Cty. (Myrtle Point) 11.72 0.00 11.72 11.72 0.0% 4.1 37 No Powers 5.00 1.00 6.00 6.00 0.0% 52.5 37 No 100%/97 Coos Cty. (Powers) 0.53 0.00 0.53 0.53 0.0% 7.5 37 No Reedsport 17.20 3.50 20.70 20.70 0.0% 95.7 34 No 100%/99 Winchester Bay 6.25 3.18 9.43 9.30 1.4% 34.5 34 No Douglas Cty. (Reedsport) 12.50 0.00 12.50 12.50 0.0% 8.0 34 No Coos Cty. (Lakeside) 4.50 1.00 5.50 5.50 0.0% 54.5 34 No Lakeside 14.00 2.24 16.24 15.00 8.3% 48.3 34 No Gardiner 1.60 0.30 1.90 1.90 0.0% 76.3 0 No Coquille 23.79 1.50 25.29 25.29 0.0% 51.4 61 No 100%/97 Coos Cty. (Coquille) 19.51 0.00 19.51 19.51 0.0% 51.9 61 No Bandon 15.51 9.07 24.58 24.17 1.7% 56.2 61 No 100%/97 Coos Cty. (Brandon) 10.95 4.80 15.75 14.65 7.5% 47.0 61 No Hauser 16.36 9.70 26.06 26.06 0.0% 18.2 61 Yes ----- ---- ----- ----- Total Coos Bay 378.97 60.80 439.77 436.64 0.7% 53.8 ------ ----- ------ ------ ---- ---- Florence 29.70 18.95 48.65 48.65 0.0% 88.1 62 Yes Dunes City 25.30 4.00 29.30 29.20 0.3% 28.8 62 Yes Mapleton 6.50 0.00 6.50 6.50 0.0% 52.8 17 No Lane Cty. (Florence) 41.14 10.80 51.94 51.79 0.3% 45.3 62 Yes ----- ----- ----- ----- Total Florence 102.64 33.75 136.39 136.14 0.2% 57.4 ------ ----- ------ ------ ---- ---- Total Coos Bay/Florence 481.61 94.55 576.16 572.78 0.6% 54.7 ------ ----- ------ ------ ---- ---- Fiber Miles 84.33 0.98 85.31 n/a n/a ----- ---- ----- --- ---
Franchises --------------------------------- Fee Expiration Life (Yrs) --- ---------- ---------- Coos Bay 5% Jun-2004 8.5 North Bend 5% Jun-2004 8.5 Coos Cty. (Coos Bay/North Bend) Myrtle Point 5% Jun-2001 5.4 Coos Cty. (Myrtle Point) Powers 3% Mar-96 0.2 Coos Cty. (Powers) Reedsport 3% Oct-98 2.8 Winchester Bay Douglas Cty. (Reedsport) Coos Cty. (Lakeside) Lakeside 3% Dec-2004 9.0 Gardiner Coquille 5% Jun-96 0.5 Coos Cty. (Coquille) Bandon 3% Basic Jun-94 (1.6) Coos Cty. (Brandon) Hauser Total Coos Bay Florence 3% Sep-2003 7.7 Dunes City 5% Sep-2003 7.7 Mapleton Lane Cty. (Florence) 5% Jun-2007 11.5 Total Florence Total Coos Bay/Florence Fiber Miles
* Rebuild per FCSC 10 Yr. Plan. Portion of H/E service area to be rebuilt/ Yr.(s) of rebuild. -94- 103 EXHIBIT C REGION CASH FLOW STATEMENTS 104 FALCON CABLE SYSTEMS COMPANY EXHIBIT C1 GILROY REGION, CALIFORNIA OPERATING CASH FLOW: ACTUAL & BUDGET
1996 Budget Dec Mo 1995 Actual 1995 Actual 1994 Actual --------------------- ------------------ ------------------ ------------------ ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ------ --------- ------ --------- ------ --------- ------ --------- REVENUES: Primary 8,174.5 58.4% $664.0 59.8% $7,728.2 58.8% $8,762.5 66.1% Commercial 97.6 0.7% 8.3 0.7% 98.8 0.8% 96.1 0.7% Expanded Tier 1,929.2 13.8% 152.8 13.8% 1,839.2 14.0% 961.0 7.3% ------- ----- ----- ----- ------- ----- ----- ---- Total Reg. Prog. 10,201.4 72.9% 825.0 74.3% 9,666.2 73.5% 9,819.6 74.1% -------- ----- ----- ----- ------- ----- ------- ----- Radio Services 44.5 0.3% 3.6 0.3% 48.1 0.4% 51.2 0.4% Pay Cable - 1st Outlet 1,246.8 8.9% 96.6 8.7% 1,146.2 8.7% 1,129.2 8.5% Pay Cable - Add'l Outlet 4.2 0.4% 48.1 0.4% 45.6 0.3% New Product Tier 788.2 5.6% 58.8 5.3% 655.1 5.0% 603.7 4.6% Commercial Pay 2.8 0.3% 34.1 0.3% 34.5 0.3% Mini-Pay 17.6 0.1% 1.0 0.1% 13.4 0.1% 15.2 0.1% Mini-Pay - Add'l Outlet 0.1 0.0% 0.8 0.0% 0.8 0.0% Pay Per View 169.8 1.2% 4.5 0.4% 133.7 1.0% 173.9 1.3% ----- ---- --- ---- ----- ---- ----- ---- Total Unreg. Prog. 2,266.9 16.2% 171.7 15.5% 2,079.3 15.8% 2,054.0 15.5% ------- ----- ----- ----- ------- ----- ------- ----- Primary Add'l Outlet 0.0 0.0% 0.1 0.0% 0.7 0.0% Remote Control 8.4 0.1% 0.7 0.1% 18.9 0.1% 26.8 0.2% Converter Rental 193.2 1.4% 17.5 1.6% 205.6 1.6% 230.3 1.7% Other - VCR 3.4 0.0% 0.3 0.0% 3.4 0.0% 3.4 0.0% --- ---- --- ---- --- ---- --- ---- Total Equipment 205.0 1.5% 18.4 1.7% 227.9 1.7% 261.2 2.0% ----- ---- ---- ---- ----- ---- ----- ---- Wire Maint. Agreements 49.9 0.4% 4.1 0.4% 41.1 0.3% 24.6 0.2% New Cust. - Pay Installs 0.0 0.0% 0.0 0.0% 0.7 0.0% New Cust. - Basic Installs 195.2 1.4% 3.7 0.3% 41.2 0.3% 69.6 0.5% Install Mat'l Charge 0.0 0.0% 0.7 0.0% 0.0 0.0% Installs - Non New Cust. 8.6 0.8% 149.9 1.1% 131.6 1.0% --- ---- ----- ---- ----- ---- Total Install/Service 245.1 1.8% 16.4 1.5% 233.0 1.8% 226.5 1.7% ----- ---- ---- ---- ----- ---- ----- ---- Guide Revenue 6.2 0.0% 0.3 0.0% 3.8 0.0% 3.3 0.0% Late Charges 202.5 1.4% 14.7 1.3% 194.7 1.5% 179.5 1.4% Rent 21.2 0.2% 1.7 0.2% 20.9 0.2% 14.0 0.1% Franchise Pass Thru 323.1 2.3% 28.5 2.6% 308.8 2.3% 310.7 2.3% Miscellaneous 0.0 0.0% 0.0 0.0% 0.0 0.0% 28.3 0.2% Shopping Net Car. Fee 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% FCC User Fee Pass Thru 16.5 0.1% 1.4 0.1% 15.4 0.1% 0.8 0.0% QVC Monthly Comm. 84.1 0.6% 6.0 0.5% 89.4 0.7% 71.0 0.5% QVC Carriage Payment 16.6 0.1% 0.0 0.0% (1.5) -0.0% 29.5 0.2% HSN Monthly Comm. 5.3 0.0% 0.0 0.0% 4.8 0.0% 0.0 0.0% HSN Carriage Payment 6.2 0.0% 0.5 0.0% 6.2 0.0% 0.0 0.0% --- ---- --- ---- --- ---- --- ---- Total Non-Service/Misc. 681.6 4.9% 53.1 4.8% 642.4 4.9% 637.1 4.8% ----- ---- ---- ---- ----- ---- ----- ---- Advertising 390.0 2.8% 26.1 2.3% 296.8 2.3% 252.0 1.9% ----- ---- ----- ----- Total Revenues 13,990.1 100.0% 1,110.8 100.0% 13,145.7 100.0% 13,250.4 100.0% -------- ------ ------- ------ -------- ------ -------- ------ Operating Expenses: Technical Personnel 1,172.3 21.7 2.0% 474.7 3.6% 485.5 3.7% Other 79.3 7.1% 756.7 5.8% 608.8 4.6% Programming 1,966.8 169.5 15.3% 1,999.9 15.2% 1,989.2 15.0% Capitalized Labor & O/H (1.8) -0.2% (161.4) -1.2% (250.5) -1.9% ---- ----- ------ ----- ------ ----- Total Technical 3,139.1 22.44% 268.6 24.2% 3,069.9 23.4% 2,832.9 21.4% ------- ------ ----- ----- ------- ----- ------- ----- Ad Sales Personnel 5.4 0.5% 66.2 0.5% 50.8 0.4% Other 6.8 0.6% 23.0 0.2% 20.7 0.2% --- ---- ---- ---- ---- ---- Total Ad Sales 133.2 0.95% 12.1 1.1% 89.2 0.7% 71.5 0.5% ----- ----- ---- ---- ---- ---- ---- ---- Marketing Commissions 0.2 0.0% 5.2 0.0% 9.4 0.1% Other 19.1 1.7% 279.8 2.1% 370.5 2.8% ---- ---- ----- ---- ----- ---- Total Marketing 218.6 1.56% 19.3 1.7% 284.9 2.2% 379.9 2.9% ----- ----- ---- ---- ----- ---- ----- ---- 0.0% General & Administrative Personnel 26.3 2.4% 367.1 2.8% 359.2 2.7% Other 162.7 14.7% 1,683.8 12.8% 1,893.2 14.3% ----- ----- ------- ----- ------- ----- Total G & A 1,954.5 13.97% 189.0 17.0% 2,050.9 15.6% 2,252.4 17.0% ------- ------ ----- ----- ------- ----- ------- ----- Total Operating Expense Before Alloc. Corp. Exp. 5,445.4 38.92% 489.1 44.0% 5,494.8 41.8% 5,536.7 41.8% ------- ------ ----- ----- ------- ----- ------- ----- Total Oper. Cash Flow Before Alloc. Corp. Exp. 8,544.7 61.1% 621.7 56.0% 7,650.9 58.2% 7,713.7 58.2% ------- ----- ----- ----- ------- ----- ------- ----- Allocated Corporate Exp. Expenses 492.4 3.5% 40.8 3.7% 489.7 3.7% 496.1 3.7% ----- ---- ---- ---- ----- ---- ----- ---- Total Oper. Cash Flow After Alloc. Corp. Exp. $8,052.3 57.6% $580.9 52.3% $7,161.2 54.5% $7,217.6 54.5% -------- ----- ------ ----- -------- ----- -------- -----
-95- 105 FALCON CABLE SYSTEMS COMPANY EXHIBIT C2 HESPERIA REGION, CALIFORNIA OPERATING CASH FLOW: BUDGET & ACTUAL
1996 Budget Dec Mo 1995 Actual 1995 Actual 1994 Actual ------------------- ------------------ -------------------- ------------------ ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ------- --------- ------- --------- ------- --------- ------- --------- REVENUES: Primary / Commercial $4,278.6 52.29% $353.9 53.74% $4,166.4 53.10% $4,608.4 62.95% Expanded Tier 1,556.1 19.02% 125.7 19.09% 1,520.8 19.38% 764.6 10.44% ------- ------ ----- ------ ------- ------ ----- ------ Total Regulated Programming 5,834.7 71.31% 479.6 72.83% 5,687.2 72.48% 5,373.0 73.40% ------- ------ ----- ------ ------- ------ ------- ------ Radio Services 37.4 0.46% 3.1 0.47% 40.9 0.52% 51.2 0.70% Pay Cable 709.0 8.67% 59.7 9.07% 710.6 9.06% 616.6 8.42% New Product Tier 389.6 4.76% 30.5 4.63% 335.2 4.27% 287.1 3.92% Mini-Pay 7.3 0.09% 0.5 0.08% 5.8 0.07% 7.6 0.10% Pay Per View 131.1 1.60% 3.7 0.56% 102.9 1.31% 105.5 1.44% ----- ----- --- ----- ----- ----- ----- ----- Total Unregulated Programming 1,274.4 15.58% 97.5 14.81% 1,195.4 15.23% 1,068.0 14.59% ------- ------ ---- ------ ------- ------ ------- ------ Remote Control 22.6 0.28% 4.0 0.61% 42.4 0.54% 37.3 0.51% Converter Rental 363.1 4.44% 27.9 4.24% 326.2 4.16% 323.3 4.42% Other - VCR 0.0 0.00% 0.1 0.02% 0.0 0.00% 2.0 0.03% --- ----- --- ----- --- ----- --- ----- Total Equipment 385.7 4.71% 32.0 4.86% 368.6 4.70% 362.6 4.95% ----- ----- ---- ----- ----- ----- ----- ----- Wire Maintenance Agreements 55.4 0.68% 4.5 0.68% 52.6 0.67% 34.2 0.47% Installation 168.8 2.06% 9.3 1.41% 158.2 2.02% 148.7 2.03% ----- ----- --- ----- ----- ----- ----- ----- Total Installation / Service 224.2 2.74% 13.8 2.10% 210.8 2.69% 182.9 2.50% ----- ----- ---- ----- ----- ----- ----- ----- Guide Revenue 3.4 0.04% 0.0 0.00% 0.0 0.00% 0.0 0.00% Late Charges 65.7 0.80% 5.8 0.88% 63.2 0.81% 58.8 0.80% Home Shopping 67.4 0.82% 5.8 0.88% 67.4 0.86% 38.5 0.53% FCC User Fee Pass Thru 9.2 0.11% 0.8 0.12% 8.6 0.11% 0.4 0.01% Franchise Pass Thru 68.5 0.84% 5.5 0.84% 65.5 0.83% 63.2 0.86% Miscellaneous / Rent 9.1 0.11% 0.9 0.14% 9.1 0.12% 8.6 0.12% --- ----- --- ----- --- ----- --- ----- Total Non-Service / Misc. 223.3 2.73% 18.8 2.85% 213.8 2.72% 169.5 2.32% ----- ----- ---- ----- ----- ----- ----- ----- Advertising 239.6 2.93% 16.8 2.55% 170.8 2.18% 164.5 2.25% ----- ----- ---- ----- ----- ----- ----- ----- Total Revenues 8,181.9 100.00% 658.5 100.00% 7,846.6 100.00% 7,320.5 100.00% ------- ------- ----- ------- ------- ------- ------- ------- Operating Expenses: Technical Personnel 770.7 9.42% 18.4 2.79% 254.9 3.25% 242.7 3.32% Other 43.9 6.67% 469.7 5.99% 412.4 5.63% Programming 1,299.8 15.89% 113.2 17.19% 1,384.3 17.64% 1,202.3 16.42% ------- ------ Capitalized Labor & O/H (8.4) -1.28% (89.0) -1.13% (190.5) -2.60% ---- ------ ----- ------ ------ ------ Total Technical 2,070.5 25.31% 167.1 25.38% 2,019.9 25.74% 1,666.9 22.77% ------- ------ ----- ------ ------- ------ ------- ------ Ad Sales Personnel 7.1 1.08% 60.9 0.78% 50.1 0.68% Other 4.8 0.73% 12.3 0.16% 5.9 0.08% --- ----- ---- ----- ---- ----- Total Ad Sales 77.8 0.95% 11.9 1.81% 73.2 0.93% 56.0 0.76% ---- ----- ---- ----- ---- ----- ---- ----- Marketing Commissions 0.1 0.02% 2.3 0.03% 2.4 0.03% Other 14.9 2.26% 273.9 3.49% 234.7 3.21% ---- ----- ----- ----- ----- ----- Total Marketing 125.3 1.53% 15.0 2.28% 276.2 3.52% 237.1 3.24% ----- ----- ---- ----- ----- ----- ----- ----- General & Administrative Personnel 11.4 1.73% 233.7 2.98% 198.3 2.71% Other 86.7 13.17% 1,026.8 13.09% 1,045.7 14.28% ---- ------ ------- ------ ------- ------ Total G & A 1,330.5 16.26% 98.1 14.90% 1,260.5 16.06% 1,244.0 16.99% ------- ------ ---- ------ ------- ------ ------- ------ Total Operating Expense Before Alloc. Corp. Expenses* 3,604.1 44.05% 292.1 44.36% 3,629.8 46.26% 3,204.0 43.77% ------- ------ ----- ------ ------- ------ ------- ------ Total Oper. Cash Flow Before Alloc. Corp. Expenses* $4,577.8 55.95% $366.4 55.64% $4,216.8 53.74% $4,116.5 56.23% ======== ====== ====== ====== ======== ====== ======== ======
*Allocated Corporate Expenses are approximately 3.7%. -96- 106 - ---------------------------------------------------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY EXHIBIT C3 SAN LUIS OBISPO REGION, CALIFORNIA OPERATING CASH FLOW: BUDGET & ACTUAL - ----------------------------------------------------------------------------------------------------------------------------
1996 Budget Dec Mo 1995 Actual 1995 Actual 1994 Actual ------------------- ------------------- ------------------- ------------------- ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. -------- --------- -------- --------- -------- --------- -------- --------- REVENUES: Primary / Commercial $3,235.2 52.59% $254.5 51.98% $2,974.1 51.92% $3,803.4 62.00% Expanded Tier 1,334.1 21.69% 102.6 20.96% 1,198.2 20.92% 676.8 11.03% -------- --------- -------- --------- -------- --------- -------- --------- Total Regulated Programming 4,569.3 74.28% 357.1 72.94% 4,172.3 72.83% 4,480.2 73.03% -------- --------- -------- --------- -------- --------- -------- --------- Radio Services 28.5 0.46% 2.4 0.49% 30.8 0.54% 36.4 0.59% Pay Cable 375.4 6.10% 32.1 6.56% 415.7 7.26% 395.1 6.44% New Product Tier 201.3 3.27% 15.1 3.08% 177.4 3.10% 192.9 3.14% Mini-Pay 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% Pay Per View 69.1 1.12% 2.2 0.45% 29.8 0.52% 36.5 0.59% -------- --------- -------- --------- -------- --------- -------- --------- Total Unregulated Programming 674.3 10.96% 51.8 10.58% 653.7 11.41% 660.9 10.77% -------- --------- -------- --------- -------- --------- -------- --------- Remote Control 8.2 0.13% 0.7 0.14% 14.6 0.25% 22.3 0.36% Converter Rental 187.8 3.05% 14.3 2.92% 215.9 3.77% 300.7 4.90% Other - VCR 0.7 0.01% 0.1 0.02% 0.7 0.01% 0.8 0.01% -------- --------- -------- --------- -------- --------- -------- --------- Total Equipment 196.7 3.20% 15.1 3.08% 231.2 4.04% 323.8 5.28% -------- --------- -------- --------- -------- --------- -------- --------- Wire Maintenance Agreements 21.8 0.35% 1.8 0.37% 21.4 0.37% 16.0 0.26% Installation 45.4 0.74% 3.9 0.80% 42.9 0.75% 53.6 0.87% -------- --------- -------- --------- -------- --------- -------- --------- Total Installation / Service 67.2 1.09% 5.7 1.16% 64.3 1.12% 69.6 1.13% -------- --------- -------- --------- -------- --------- -------- --------- Guide Revenue 3.0 0.05% 0.0 0.00% 0.1 0.00% 0.1 0.00% Late Charges 51.4 0.84% 3.9 0.80% 49.5 0.86% 42.1 0.69% Home Shopping 54.0 0.88% 12.0 2.45% 80.8 1.41% 41.5 0.68% FCC User Fee Pass Thru 7.7 0.13% 0.6 0.12% 7.3 0.13% 0.3 0.00% Franchise Pass Thru 256.4 4.17% 19.6 4.00% 235.4 4.11% 251.9 4.11% Miscellaneous / Rent 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% -------- --------- -------- --------- -------- --------- -------- --------- Total Non-Service / Misc. 372.5 6.06% 36.1 7.37% 373.1 6.51% 335.9 5.48% -------- --------- -------- --------- -------- --------- -------- --------- Advertising 271.6 4.42% 23.8 4.86% 233.9 4.08% 264.1 4.31% -------- --------- -------- --------- -------- --------- -------- --------- Total Revenues 6,151.6 100.00% 489.6 100.00% 5,728.5 100.00% 6,134.5 100.00% -------- --------- -------- --------- -------- --------- -------- --------- Operating Expenses: Technical Personnel 787.3 12.80% 19.5 3.98% 262.5 4.58% 230.4 3.76% Other 17.2 3.51% 433.4 7.57% 437.3 7.13% Programming 1,046.8 17.02% 95.6 19.53% 1,138.1 19.87% 1,058.0 17.25% Capitalized Labor & O/H -------- --------- (5.8) -1.18% (68.6) -1.20% (90.3) -1.47% -------- --------- -------- --------- -------- --------- Total Technical 1,834.1 29.82% 126.5 25.84% 1,765.4 30.82% 1,635.4 26.66% -------- --------- -------- --------- -------- --------- -------- --------- Ad Sales Personnel 5.4 1.10% 51.8 0.90% 58.3 0.95% Other 6.3 1.29% 35.8 0.62% 17.8 0.29% -------- --------- -------- --------- -------- --------- Total Ad Sales 89.7 1.46% 11.7 2.39% 87.6 1.53% 76.1 1.24% -------- --------- -------- --------- -------- --------- -------- --------- Marketing Commissions 0.0 0.00% 0.0 0.00% 0.0 0.00% Other 38.4 7.84% 227.0 3.96% 198.8 3.24% -------- --------- -------- --------- -------- --------- Total Marketing 173.3 2.82% 38.4 7.84% 227.0 3.96% 198.8 3.24% -------- --------- -------- --------- -------- --------- -------- --------- General & Administrative Personnel 16.3 3.33% 193.5 3.38% 173.4 2.83% Other 110.5 22.57% 906.2 15.82% 883.0 14.39% -------- --------- -------- --------- -------- --------- Total G & A 1,068.0 17.36% 126.8 25.90% 1,099.7 19.20% 1,056.4 17.22% -------- --------- -------- --------- -------- --------- -------- --------- Total Operating Expense Before Alloc. Corp. Expenses* 3,165.1 51.45% 303.4 61.97% 3,179.7 55.51% 2,966.7 48.36% -------- --------- -------- --------- -------- --------- -------- --------- Total Oper. Cash Flow Before Alloc. Corp. Expenses* $2,986.5 48.55% $186.2 38.03% $2,548.8 44.49% $3,167.8 51.64% ======== ========= ======== ========= ======== ========= ======== =========
*Allocated Corporate Expenses are approximately 3.7%. -97- 107 FALCON CABLE SYSTEMS COMPANY EXHIBIT C4 TULARE REGION, CALIFORNIA OPERATING CASH FLOW: BUDGET & ACTUAL
1996 Budget Dec Mo 1995 Actual 1995 Actual 1994 Actual ----------- ------------------ ----------- ----------- ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ------- --------- ------- --------- ------- --------- ------- --------- REVENUES: Primary / Commercial $3,223.6 47.16% $254.3 48.78% $3,151.2 48.44% $3,707.8 54.51% Expanded Tier 975.5 14.27% 74.0 14.20% 883.2 13.58% 451.7 6.64% -------- ----- ------ ----- -------- ----- -------- ------ Total Regulated Programming 4,199.1 61.44% 328.3 62.98% 4,034.4 62.01% 4,159.5 61.15% -------- ----- ------ ----- -------- ----- -------- ------ Radio Services 1.7 0.02% 0.1 0.02% 1.8 0.03% 1.8 0.03% Pay Cable 601.8 8.80% 48.6 9.32% 603.1 9.27% 695.0 10.22% New Product Tier 503.2 7.36% 35.7 6.85% 459.5 7.06% 552.5 8.12% Mini-Pay 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% Pay Per View 123.7 1.81% 3.1 0.59% 87.7 1.35% 126.2 1.86% -------- ----- ------ ----- -------- ----- -------- ------ Total Unregulated Programming 1,230.4 18.00% 87.5 16.78% 1,152.1 17.71% 1,375.5 20.22% -------- ----- ------ ----- -------- ----- -------- ------ Remote Control 25.4 0.37% 2.1 0.40% 26.4 0.41% 27.9 0.41% Converter Rental 361.9 5.29% 29.2 5.60% 368.4 5.66% 400.2 5.88% Other - VCR 0.9 0.01% 0.1 0.02% 1.1 0.02% 1.3 0.02% -------- ----- ------ ----- -------- ----- -------- ------ Total Equipment 388.2 5.68% 31.4 6.02% 395.9 6.09% 429.4 6.31% -------- ----- ------ ----- -------- ----- -------- ------ Wire Maintenance Agreements 47.7 0.70% 3.8 0.73% 44.6 0.69% 28.2 0.41% Installation 73.9 1.08% 1.4 0.27% 72.3 1.11% 67.1 0.99% -------- ----- ------ ----- -------- ----- -------- ------ Total Installation / Service 121.6 1.78% 5.2 1.00% 116.9 1.80% 95.3 1.40% -------- ----- ------ ----- -------- ----- -------- ------ Guide Revenue 91.0 1.33% 4.0 0.77% 53.0 0.81% 70.8 1.04% Late Charges 227.2 3.32% 18.0 3.45% 218.5 3.36% 193.1 2.84% Home Shopping 26.9 0.39% 4.0 0.77% 27.9 0.43% 26.5 0.39% FCC User Fee Pass Thru 7.6 0.11% 0.6 0.12% 7.2 0.11% 0.4 0.01% Franchise Pass Thru 254.4 3.72% 19.6 3.76% 242.3 3.72% 254.8 3.75% Miscellaneous / Rent 6.6 0.10% 0.7 0.13% 7.2 0.11% 5.5 0.08% -------- ----- ------ ----- -------- ----- -------- ------ Total Non-Service / Misc. 613.7 8.98% 46.9 9.00% 556.1 8.55% 551.1 8.10% -------- ----- ------ ----- -------- ----- -------- ------ Advertising 282.0 4.13% 22.0 4.22% 250.6 3.85% 191.5 2.82% -------- ----- ------ ----- -------- ----- -------- ------ Total Revenues 6,835.0 100.00% 521.3 100.00% 6,506.0 100.00% 6,802.3 100.00% -------- ----- ------ ----- -------- ----- -------- ------ Operating Expenses: Technical Personnel 804.5 11.77% 23.1 4.43% 334.2 5.14% 309.0 4.54% Other 40.7 7.81% 505.1 7.76% 469.9 6.91% Programming 1,283.8 18.78% 100 19.18% 1,279.2 19.66% 1,320.7 19.42% -------- ----- ------ ----- -------- ----- -------- ----- Capitalized Labor & O/H (0.7) -0.13% (204.4 -3.14% (223.0) -3.28% ------ ----- -------- ----- -------- ----- Total Technical 2,088.3 30.55% 163.1 31.29% 1,914.1 29.42% 1,876.6 27.59% -------- ----- ------ ----- -------- ----- -------- ----- Ad Sales Personnel 8.5 1.63% 80.7 1.24% 72.8 1.07% Other 6.6 1.27% 41.8 0.64% 38.6 0.57% ------ ----- -------- ----- -------- ----- Total Ad Sales 121.2 1.77% 15.1 2.90% 122.5 1.88% 111.4 1.64% -------- ----- ------ ----- -------- ----- -------- ----- Marketing Commissions 0.0 0.00% 0.0 0.00% 0.0 0.00% Other 20.5 3.93% 184.3 2.83% 278.3 4.09% ------ ----- -------- ----- -------- ----- Total Marketing 150.4 2.20% 20.5 3.93% 184.3 2.83% 278.3 4.09% -------- ----- ------ ----- -------- ----- -------- ----- General & Administrative Personnel 16.2 3.11% 215.9 3.32% 195.8 2.88% Other 76.8 14.73% 891.4 13.70% 1,006.7 14.80% ------ ----- -------- ----- -------- ----- Total G & A 1,151.9 16.85% 93.0 17.84% 1,107.3 17.02% 1,202.5 17.68% -------- ----- ------ ----- -------- ----- -------- ----- Total Operating Expense Before Alloc. Corp. Expenses* 3,511.8 51.38% 291.7 55.96% 3,328.2 51.16% 3,468.8 50.99% -------- ----- ------ ----- -------- ----- -------- ----- Total Oper. Cash Flow Before Alloc. Corp. Expenses* $3,323.2 48.62% $229.6 44.04% $3,177.8 48.84% $3,333.5 49.01% ======== ===== ====== ===== ======== ===== ======== =====
*Allocated Corporate Expenses are approximately 3.7%. -98- 108 FALCON CABLE SYSTEMS COMPANY EXHIBIT C5 CENTRAL REGION, OREGON OPERATING CASH FLOW: ACTUAL & BUDGET
1996 Budget Dec Mo 1995 Actual 1995 Actual 1994 Actual ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. REVENUES: Primary 2,842.2 54.9% $227.4 54.9% $2,726.3 54.5% $3,118.0 62.0% Commercial 99.1 1.9% 8.2 2.0% 96.3 1.9% 94.3 1.9% Expanded Tier 830.6 16.1% 64.4 15.6% 788.3 15.8% 454.7 9.0% -------- ----- ------ ----- -------- ----- -------- ----- Total Reg. Prog. 3,772.0 72.9% 300.0 72.4% 3,610.9 72.2% 3,666.9 72.9% -------- ----- ------ ----- -------- ----- -------- ----- Radio Services 0.9 0.0% 0.1 0.0% 0.8 0.0% 0.9 0.0% Pay Cable - 1st Outlet 467.9 9.0% 43.9 10.6% 511.0 10.2% 467.3 9.3% Pay Cable - Add'l Outlet 1.1 0.3% 11.7 0.2% 8.8 0.2% New Product Tier 585.0 11.3% 40.8 9.9% 468.1 9.4% 443.7 8.8% Commercial Pay 0.4 0.1% 4.9 0.1% 9.4 0.2% Mini-Pay 1.2 0.0% 0.1 0.0% 0.7 0.0% 0.6 0.0% Mini-Pay - Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0% Pay Per View 0.0 0.0% 0.1 0.0% 11.9 0.2% 9.6 0.2% -------- ----- ------ ----- -------- ----- -------- ----- Total Unreg. Prog. 1,054.9 20.4% 86.4 20.9% 1,009.0 20.2% 940.3 18.7% -------- ----- ------ ----- -------- ----- -------- ----- Primary Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0% 2.7 0.1% Remote Control 7.9 0.2% 1.4 0.3% 20.3 0.4% 29.8 0.6% Converter Rental 45.8 0.9% 3.3 0.8% 83.4 1.7% 149.3 3.0% Other - VCR 0.8 0.0% 0.1 0.0% 0.8 0.0% 0.5 0.0% -------- ----- ------ ----- -------- ----- -------- ----- Total Equipment 54.5 1.1% 4.7 1.1% 104.5 2.1% 182.3 3.6% -------- ----- ------ ----- -------- ----- -------- ----- Wire Maint. Agreements 41.3 0.8% 3.4 0.8% 36.8 0.7% 23.0 0.5% New Cust. - Pay Installs 0.1 0.0% 0.2 0.0% 3.3 0.1% New Cust. - Basic Installs 95.7 1.8% 1.4 0.3% 38.1 0.8% 22.8 0.5% Install Mat'l Charge 0.5 0.1% 3.9 0.1% 0.0 0.0% Installs - Non New Cust. 3.3 0.8% 48.6 1.0% 45.1 0.9% ------ ---- -------- ---- -------- ---- Total Install/Service 137.0 2.6% 8.8 2.1% 127.6 2.6% 94.2 1.9% -------- ----- ------ ----- -------- ----- -------- ----- Guide Revenue 2.7 0.1% 0.0 0.0% 0.1 1.5% 0.0 0.0% Late Charges 78.6 1.5% 6.0 1.5% 75.6 0.0% 91.4 1.8% Rent 2.6 0.1% 0.0 0.0% 1.8 0.0% 4.1 0.1% Franchise Pass Thru 21.4 0.4% 1.9 0.5% 20.9 0.4% 21.6 0.4% Miscellaneous 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% Shopping Net Car. Fee 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% FCC User Fee Pass Thru 7.0 0.1% 0.6 0.1% 6.6 0.1% 0.3 0.0% QVC Monthly Comm. 26.3 0.5% 4.5 1.1% 27.3 0.5% 20.0 0.4% QVC Carriage Payment 3.1 0.1% 0.0 0.0% 1.1 0.0% 4.1 0.1% HSN Monthly Comm. 5.1 0.1% 0.5 0.1% 4.6 0.1% 0.0 0.0% HSN Carriage Payment 9.0 0.2% 0.7 0.2% 8.3 0.2% 0.0 0.0% -------- ----- ------ ----- -------- ----- -------- ----- Total Non-Service/Misc. 155.7 3.0% 14.2 3.4% 146.1 2.9% 141.5 2.8% -------- ----- ------ ----- -------- ----- -------- ----- Advertising 0.0 0.0% 0.0 0.0% 2.8 0.1% 3.8 0.1% -------- ----- ------ ----- -------- ----- -------- ----- Total Revenues 5,174.1 100.0% 414.2 100.0% 5,001.0 100.0% 5,029.0 100.0% -------- ----- ------ ----- -------- ----- -------- ----- Operating Expenses: Technical Personnel 624.1 35.9 8.7% 310.4 6.2% 277.3 5.5% Other 20.1 4.9% 244.8 4.9% 203.8 4.1% Programming 759.0 169.5 40.9% 868.0 17.4% 812.7 16.2% Capitalized Labor & O/H (4.2) -1.0% (111.8) -2.2% (197.8) -3.9% -------- ----- ------ ----- -------- ----- -------- ----- Total Technical 1,383.2 26.7% 221.3 53.4% 1,311.5 26.2% 1,096.0 21.8% -------- ----- ------ ----- -------- ----- -------- ----- Ad Sales Personnel 0.0 0.0% 0.0 0.0% 0.0 0.0% Other 0.0 0.0% 0.0 0.0% 0.0 0.0% -------- ----- ------ ----- -------- ----- -------- ----- Total Ad Sales 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% -------- ----- ------ ----- -------- ----- -------- ----- Marketing Commissions 0.0 0.0% 0.0 0.0% 0.0 0.0% Other 14.9 3.6% 120.3 2.4% 113.2 2.3% Total Marketing 101.1 2.0% 14.9 3.6% 120.3 2.4% 113.2 2.3% 0.0% General & Administrative Personnel 10.0 2.4% 141.4 2.8% 147.7 2.9% Other 61.1 14.7% 715.3 14.3% 860.6 17.1% -------- ----- ------ ----- -------- ----- -------- ----- Total G & A 911.0 17.6% 71.0 17.1% 856.8 17.1% 1,008.2 20.0% -------- ----- ------ ----- -------- ----- -------- ----- Total Operating Expense Before Alloc. Corp. Exp. 2,395.3 46.3% 307.3 74.2% 2,288.6 45.8% 2,217.4 44.1% -------- ----- ------ ----- -------- ----- -------- ----- Total Oper. Cash Flow Before Alloc. Corp. Exp. 2,778.8 53.7% 106.9 25.8% 2,712.4 54.2% 2,811.6 55.9% -------- ----- ------ ----- -------- ----- -------- ----- Reimbursable Allocated Corporate Expenses 182.1 3.5% 15.5 3.7% 186.3 3.7% 188.3 3.7% -------- ----- ------ ----- -------- ----- -------- ----- Total Oper. Cash Flow After Alloc. Corp. Exp. $2,596.7 50.2% $91.4 22.1% $2,526.1 50.5% $2,623.3 52.2% ======== ===== ====== ===== ======== ===== ======== =====
-99- 109 FALCON CABLE SYSTEMS COMPANY EXHIBIT C6 DALLAS REGION, OREGON OPERATING CASH FLOW: ACTUAL & BUDGET
1996 Budget Dec Mo 1995 Actual 1995 Actual 1994 Actual ------------------ ------------------ -------------------- ------------------ ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ------ --------- ------ --------- ------ --------- ------ --------- REVENUES: Primary 3,412.7 53.3% $278.9 53.9% $3,296.4 54.3% $3,761.1 62.6% Commercial 209.3 3.3% 16.9 3.3% 201.4 3.3% 193.9 3.2% Expanded Tier 989.2 15.4% 74.2 14.3% 920.8 15.2% 482.8 8.0% ----- ----- ---- ----- ----- ----- ----- ---- Total Reg. Prog. 4,611.2 72.0% 369.9 71.5% 4,418.6 72.7% 4,437.7 73.9% ------- ----- ----- ----- ------- ----- ------- ----- Radio Services 24.7 0.4% 2.1 0.4% 25.8 0.4% 29.0 0.5% Pay Cable - 1st Outlet 668.9 10.4% 53.9 10.4% 610.6 10.1% 535.6 8.9% Pay Cable - Add'l Outlet 1.5 0.3% 15.4 0.3% 12.5 0.2% New Product Tier 441.8 6.9% 32.4 6.3% 349.0 5.7% 314.6 5.2% Commercial Pay 2.1 0.4% 28.0 0.5% 28.4 0.5% Mini-Pay 12.0 0.2% 0.7 0.1% 8.6 0.1% 9.5 0.2% Mini-Pay - Add'l Outlet 0.0 0.0% 0.3 0.0% 0.2 0.0% Pay Per View 49.6 0.8% 2.0 0.4% 43.0 0.7% 39.1 0.7% ---- ---- --- ---- ---- ---- ---- ---- Total Unreg. Prog. 1,197.0 18.7% 94.8 18.3% 1,080.7 17.8% 968.8 16.1% ------- ----- ---- ----- ------- ----- ----- ----- Primary Add'l Outlet 0.0 0.0% 0.1 0.0% 0.6 0.0% 0.7 0.0% Remote Control 5.3 0.1% 0.4 0.1% 6.5 0.1% 10.2 0.2% Converter Rental 66.5 1.0% 5.6 1.1% 110.0 1.8% 192.1 3.2% Other - VCR 1.6 0.0% 0.1 0.0% 1.5 0.0% 1.7 0.0% --- ---- --- ---- --- ---- --- ---- Total Equipment 73.4 1.1% 6.2 1.2% 118.7 2.0% 204.7 3.4% ---- ---- --- ---- ----- ---- ----- ---- Wire Maint. Agreements 39.5 0.6% 3.3 0.6% 29.9 0.5% 21.4 0.4% New Cust. - Pay Installs 0.0 0.0% 0.5 0.0% 0.0 0.0% New Cust. - Basic Installs 85.4 1.3% 0.5 0.1% 17.2 0.3% 22.1 0.4% Install Mat'l Charge 0.0 0.0% 0.0 0.0% 0.0 0.0% Installs - Non New Cust. 2.1 0.4% 60.9 1.0% 52.7 0.9% ----- --- ---- ---- ---- ---- ---- Total Install/Service 124.9 2.0% 5.9 1.1% 108.5 1.8% 96.2 1.6% ----- ---- --- ---- ----- ---- ---- ---- Guide Revenue 3.2 0.0% 0.0 0.0% 0.0 1.8% 0.0 0.0% Late Charges 116.5 1.8% 9.8 1.9% 112.1 0.0% 103.5 1.7% Rent 2.7 0.0% 0.1 0.0% 2.6 0.0% 2.8 0.0% Franchise Pass Thru 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% Miscellaneous 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% Shopping Net Car. Fee 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% FCC User Fee Pass Thru 8.3 0.1% 0.7 0.1% 7.7 0.1% 0.2 0.0% QVC Monthly Comm. 24.4 0.4% 6.5 1.3% 27.3 0.4% 22.8 0.4% QVC Carriage Payment 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% HSN Monthly Comm. 7.0 0.1% 0.5 0.1% 6.4 0.1% 0.0 0.0% HSN Carriage Payment 9.2 0.1% 0.1 0.0% 1.5 0.0% 0.4 0.0% --- ---- --- ---- --- ---- --- ---- Total Non-Service/Misc. 171.3 2.7% 17.7 3.4% 157.4 2.6% 129.7 2.2% ----- ---- ---- ---- ----- ---- ----- ---- Advertising 227.0 3.5% 22.9 4.4% 190.2 3.1% 168.5 2.8% ----- ---- ---- ---- ----- ---- ----- ---- Total Revenues 6,404.8 100.0% 517.4 00.0% 6,074.2 00.0% 6,005.6 100.0% ------- ------ ----- ----- ------- ----- ------- ------ Operating Expenses: Technical Personnel 594.5 32.3 6.2% 338.7 5.6% 301.7 5.0% Other 29.9 1.7 0.3% 256.9 4.2% 184.3 3.1% Programming 989.2 91.5 17.7% 1,067.4 17.6% 1,033.0 17.2% Capitalized Labor & O/H (22.5) -4.3% (345.5) -5.7% (282.6 ) -4.7% ------- ----- ----- ----- ------- ----- ------- ----- Total Technical 1,613.6 25.2% 103.0 19.9% 1,317.6 21.7% 1,236.3 20.6% ------- ----- ----- ----- ------- ----- ------- ----- Ad Sales Personnel 4.5 0.9% 42.4 0.7% 36.7 0.6% Other 2.3 0.4% 30.2 0.5% 22.5 0.4% --- ---- ---- ---- ---- ---- Total Ad Sales 92.0 1.4% 6.8 1.3% 72.6 1.2% 59.2 1.0% ---- ---- --- ---- ---- ---- ---- ---- Marketing Commissions 0.1 0.0% 3.6 0.1% 0.1 0.0% Other 20.7 4.0% 84.3 1.4% 98.3 1.6% ---- ---- ---- ---- ---- ---- Total Marketing 92.9 1.5% 20.8 4.0% 87.9 1.4% 98.5 1.6% ---- ---- ---- ---- ---- ---- ---- ---- General & Administrative Personnel 16.2 3.1% 226.1 3.7% 210.9 3.5% Other 71.0 13.7% 813.4 13.4% 859.5 14.3% Capitalized Labor & O/H (12.7) -2.5% (107.4) -1.8% (70.8 ) -1.2% ----- ----- ------ ----- ----- ----- Total G & A 1,038.2 16.2% 74.6 14.4% 932.1 15.3% 999.5 16.6% ------- ----- ---- ----- ----- ----- ----- ----- Total Operating Expense Before Alloc. Corp. Exp. 2,836.7 44.3% 205.1 39.6% 2,410.2 39.7% 2,393.5 39.9% Total Oper. Cash Flow Before Alloc. Corp. Exp. 3,568.1 55.7% 312.3 60.4% 3,664.0 60.3% 3,612.0 60.1% ------- ----- ----- ----- ------- ----- ------- ----- Reimbursable Allocated Corporate Expenses 225.4 3.5% 18.9 3.6% 226.3 3.7% 224.9 3.7% ----- ---- ---- ---- ----- ---- ----- ---- Total Oper. Cash Flow After Alloc. Corp. Exp. $3,342.7 52.2% $293.4 56.7% $3,437.7 56.6% $3,387.1 56.4% -------- ----- ------ ----- -------- ----- -------- -----
-100- 110 FALCON CABLE SYSTEMS COMPANY EXHIBIT C7 COOS BAY/FLORENCE REGION, OREGON OPERATING CASH FLOW: ACTUAL & BUDGET
1996 Budget Dec Mo 1995 Actual 1995 Actual 1994 Actual ------------------ ------------------ -------------------- ------------------ ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ------ --------- ------ --------- ------ --------- ------ --------- REVENUES: Primary $4,958.6 53.7% $400.9 53.2% $4,771.0 55.3% $5,025.2 60.2% Commercial 308.8 3.3% 23.1 3.1% 273.9 3.2% 288.7 3.5% Expanded Tier 1,035.6 11.2% 79.8 10.6% 961.0 11.1% 576.8 6.9% ------- ----- ---- ----- ----- ----- ----- ---- Total Reg. Prog. 6,302.9 68.2% 503.8 66.9% 6,005.9 69.6% 5,890.7 70.5% ------- ----- ----- ----- ------- ----- ------- ----- Radio Services 11.4 0.1% 0.9 0.1% 12.3 0.1% 13.6 0.2% Pay Cable - 1st Outlet 688.5 7.5% 54.0 7.2% 647.2 7.5% 642.4 7.7% Pay Cable - Add'l Outlet 1.2 0.2% 13.6 0.2% 12.1 0.1% New Product Tier 761.1 8.2% 57.4 7.6% 548.5 6.4% 477.2 5.7% Commercial Pay 2.2 0.3% 27.2 0.3% 25.9 0.3% Mini-Pay 15.8 0.2% 0.8 0.1% 12.3 0.1% 14.7 0.2% Mini-Pay - Add'l Outlet 0.1 0.0% 0.9 0.0% 0.9 0.0% Video Games 24.5 0.3% 2.6 0.3% 8.3 0.1% 0.0 0.0% Pay Per View 172.5 1.9% 10.9 1.4% 140.0 1.6% 126.6 1.5% ------- ---- ---- ---- ----- ---- ----- ---- Total Unreg. Prog. 1,673.7 18.1% 130.0 17.3% 1,410.2 16.3% 1,313.3 15.7% ------- ----- ----- ----- ------- ----- ------- ----- Primary Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0% 3.3 0.0% Remote Control 20.4 0.2% 1.8 0.2% 20.6 0.2% 19.5 0.2% Converter Rental 290.9 3.1% 24.7 3.3% 275.8 3.2% 264.1 3.2% Other - VCR 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% --- ---- --- ---- --- ---- --- ---- Total Equipment 311.4 3.4% 26.5 3.5% 296.4 3.4% 286.9 3.4% ----- ---- ---- ---- ----- ---- ----- ---- Wire Maint. Agreements 78.1 0.8% 6.4 0.9% 73.8 0.9% 46.5 0.6% New Cust. - Pay Installs 0.0 0.0% 0.3 0.0% 6.0 0.1% New Cust. - Basic Installs 146.7 1.6% 3.7 0.5% 36.0 0.4% 94.4 1.1% Install Mat'l Charge 0.0 0.0% 0.1 0.0% 0.0 0.0% Installs - Non New Cust. 6.7 0.9% 104.5 1.2% 77.5 0.9% ----- --- ---- ----- ---- ---- ---- Total Install/Service 224.8 2.4% 16.9 2.2% 214.6 2.5% 224.4 2.7% ----- ---- ---- ---- ----- ---- ----- ---- Guide Revenue 5.3 0.1% 0.2 0.0% 0.9 1.0% 0.6 0.0% Late Charges 94.1 1.0% 9.6 1.3% 90.4 0.4% 87.3 1.0% Rent 42.4 0.5% 3.0 0.4% 37.8 0.4% 10.4 0.1% Franchise Pass Thru 143.5 1.6% 11.7 1.6% 134.5 1.6% 130.3 1.6% Miscellaneous 0.3 0.0% 0.0 0.0% 0.3 0.0% 0.2 0.0% Shopping Net Car. Fee 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% FCC User Fee Pass Thru 10.7 0.1% 0.9 0.1% 10.2 0.1% 0.3 0.0% Video Game Activation 1.8 0.0% 0.7 0.1% 5.4 0.1% 0.0 0.0% QVC Monthly Comm. 54.0 0.6% 10.0 1.3% 57.2 0.7% 53.0 0.6% QVC Carriage Payment 2.5 0.0% 0.0 0.0% 29.3 0.3% 4.4 0.1% HSN Monthly Comm. 21.3 0.2% 1.1 0.1% 19.3 0.2% 0.0 0.0% HSN Carriage Payment 19.0 0.2% 1.6 0.2% 19.0 0.2% 0.0 0.0% ---- ---- --- ---- ---- ---- --- ---- Total Non-Service/Misc. 394.8 4.3% 38.7 5.1% 404.3 4.7% 286.5 3.4% ----- ---- ---- ---- ----- ---- ----- ---- Advertising 330.4 3.6% 37.0 4.9% 301.4 3.5% 352.2 4.2% ----- ---- ---- ---- ----- ---- ----- ---- Total Revenues 9,237.9 100.0% 752.9 100.0% 8,632.8 100.0% 8,354.0 100.0% ------- ------ ----- ------ ------- ------ ------- ------ Operating Expenses: Technical Personnel 908.1 9.8% 47.4 6.3% 479.4 5.6% 416.5 5.0% Other 7.6 1.0% 376.1 4.4% 357.4 4.3% Programming 1,504.9 16.3% 140.4 18.7% 1,576.6 18.3% 1,378.5 16.5% Capitalized Labor & O/H (28.3) -3.8% (161.3 ) -1.9% (157.7) -1.9% ------- ----- ----- ----- ------- ----- ------- ----- Total Technical 2,413.0 26.1% 167.2 22.2% 2,270.8 26.3% 1,994.7 23.9% ------- ----- ----- ----- ------- ----- ------- ----- Ad Sales Personnel 9.6 1.3% 77.5 0.9% 80.3 1.0% Other 3.1 0.4% 32.6 0.4% 32.6 0.4% ---- ---- ---- ---- ---- ---- Total Ad Sales 135.4 1.5% 12.7 1.7% 110.1 1.3% 113.0 1.4% ----- ---- ---- ---- ----- ---- ----- ---- Marketing Commissions 0.1 0.0% 3.4 0.0% 2.5 0.0% Other 28.9 3.8% 228.1 2.6% 182.0 2.2% ---- ---- ----- ---- ----- ---- Total Marketing 174.6 1.9% 28.9 3.8% 231.6 2.7% 184.5 2.2% ----- ---- ---- ---- ----- ---- ----- ---- General & Administrative Personnel 17.5 2.3% 285.5 3.3% 312.4 3.7% Other 99.5 13.2% 1,032.7 12.0% 1,139.5 13.6% Capitalized Labor & O/H (2.8) -0.4% (44.1) -0.5% (41.3) -0.5% ----- ----- ------- ----- ------- ----- Total G & A 1,378.6 14.9% 114.2 15.2% 1,274.1 14.8% 1,410.6 16.9% ------- ----- ----- ----- ------- ----- ------- ----- Total Operating Expense Before Alloc. Corp. Exp. 4,101.7 44.4% 323.0 42.9% 3,886.6 45.0% 3,702.7 44.3% ------- ----- ----- ----- ------- ----- ------- ----- Total Oper. Cash Flow Before Alloc. Corp. Exp. 5,136.2 55.6% 429.9 57.1% 4,746.2 55.0% 4,651.3 55.7% ------- ----- ----- ----- ------- ----- ------- ----- Reimbursable Allocated Corporate Expenses 325.1 3.5% 26.8 3.6% 321.6 3.7% 312.8 3.7% ------- ----- ----- ----- ------- ----- ------- ----- Total Oper. Cash Flow After Alloc. Corp. Exp. $4,811.1 52.1% $403.1 53.5% $4,424.6 51.3% $4,338.5 51.9% ------- ----- ----- ----- ------- ----- ------- -----
-101- 111 EXHIBIT D REGION CASH FLOW PROJECTION ASSUMPTIONS 112 EXHIBIT D REGION CASH FLOW PROJECTION ASSUMPTIONS BEGINNING DECEMBER 31, 1995 INTRODUCTION A cash flow projection has been developed for each Region. These projections are shown in Exhibit E. HOMES PASSED Homes passed are based upon current passings and projection of growth provided by CACI (see Tables 2A-2G). According to CACI, households are projected to grow at the following annual rates during the projection period.
Years 1-5 Years 6-10 Annual Annual Region Growth Rate Growth Rate ------ ----------- ----------- Gilroy 2.00% 1.00% Hesperia 2.90% 1.45% San Luis Obispo 0.60% 0.30% Tulare 1.94% 0.97% Central 1.30% 0.65% Dallas 2.10% 1.05% Coos Bay/Florence 1.00% 0.50%
EBU PENETRATION Current penetrations are shown below. The national average basic penetration is 66.6%. Penetration is increased as shown in the table below. This growth considers the relatively poor off-air reception in the areas and increased System channel offerings after projected rebuilds.
Current Projected Projected Region Penetration Year 1 Penetration Year 10 Penetration ------ ----------- ------------------ ------------------- Gilroy 59.6% 59.5% 65.0% Hesperia 68.3% 68.6% 73.1% San Luis Obispo 61.1% 61.0% 65.5% Tulare 37.9% 38.4% 47.4% Central 55.4% 56.0% 65.0% Dallas 74.6% 74.7% 75.0% Coos Bay/Florence 72.7% 73.0% 78.0%
EBU'S This is the product of homes passed times EBU penetration. AVERAGE EBU REVENUE Tables 3A-3G analyze Regional revenues for 1994, 1995 and projected 1996. This analysis provides a baseline for the projections. The first page of Exhibit E shows the revenue projection assumptions by service. Many of these assumptions are compared to projections prepared by Paul Kagan Associates, Inc. and published in The Cable TV Financial Databook (1995). Revenues for digital and telephony services have not been -102- 113 EXHIBIT D (CONTINUED) projected as they were too speculative, nor were the capital expenditures needed to implement these services forecasted. TOTAL REVENUE This is the product of EBU's times average EBU revenue. Page 2 of Exhibit E-1 details the revenue projections by service. OPERATING CASH FLOW MARGIN (%) The operating margin is a function of the average revenue per EBU and the cost of providing services. The operating performance of each Region was reviewed for prior years and for 1995. The 1995 cash flow margin, before corporate expense allocation is shown below. Including the corporate expense allocation reduces the margins by approximately 3.75%. The appraiser understands that this allocation accounts for the System's use of corporate legal, finance and tax services. The appraisers believe it is appropriate to use the lower margin. Kane Reece assumed that the likely buyer would be a large MSO and the allocated services provided would require approximately an equivalent reduction in margin. The following table delineates the 1995 margin, the year one projected margin, the ultimate margin, and the year achieved.
Ultimate Margin --------------- 1995 Year One Year Region Actual Margin Margin % Achieved - ------ ------------- ------ - -------- Gilroy 54.5% 55.0% 52.0% 7 Hesperia 50.0% 52.2% 52.0% 5 San Luis Obispo 40.8% 45.0% 46.0% 3 Tulare 45.1% 45.0% 46.0% 3 Central 50.5% 50.0% 51.0% 4 Dallas 56.6% 52.0% 50.0% 5 Coos Bay/Florence 51.3% 52.0% 51.0% 3
Year one margin is based upon appraisers review of the FCSC management prepared 1996 budget. OPERATING CASH FLOW This is the computational result of Total Revenue times Operating Margin. CAPITAL EXPENDITURES Capital expenditures were incorporated into the projections based upon the appraisers physical inspection of each Region, the appraisers determination of various components of customer and replacement capital, and the FCSC management prepared ten year plan. For modelling purposes, capital expenditures were separated into two components; rebuild capital and recurring capital. Recurring capital includes subscriber capital (drops and converters), new build, both fill-in and line extension capital, pre and post wire of multiple dwelling units, headend equipment, furniture, vehicles, etc. The following table outlines the ten year projected capital expenditure requirements by Region ($000s). -103- 114 EXHIBIT D (CONTINUED)
Region Rebuild Recurring Total ------ ------- --------- ----- Gilroy $14,883 $5,201 $20,084 Hesperia 14,129 4,058 18,187 San Luis Obispo 5,831 3,165 8,996 Tulare 12,001 3,879 15,880 Central 2,845 3,385 6,230 Dallas 7,476 3,625 11,101 Coos Bay/Florence 5,766 3,506 9,272 -------- -------- -------- Total $62,931 $26,819 $89,750 ======= ======= =======
NET CASH FLOW This is the computational result of operating cash flow minus capital expenditures. PRESENT VALUE FACTOR A 14% mid-year convention. The reader is referred to the text for a discussion of the discount rate. PRESENT VALUE CASH FLOW This is the result of multiplying the net cash flow times the present value factor. The sum of the yearly "present valued" cash flows is shown as an element of the value indication. RESIDUAL VALUE A multiple of eight times (Gilroy at nine times) year 11 cash flow was used. The reader is referred to the text for a discussion of the residual multiple. Taxes, adjusted for an estimated remaining tax basis in the assets (calculations shown on the next page), are deducted and the after tax proceeds are then discounted to present value. The discounted residual is then added to the present value of the annual cash flows to yield the value indication. -104- 115 EXHIBIT D (CONTINUED)
San Luis Coos Bay/ Gilory Hesperia Obispo Tulare Central Dallas Florence ------ -------- ------ ------ ------- ------ -------- Estimated Tax Basis for Residual Calculation - -------------------------------------- Business Enterprise Value $67,670,000 $34,740,000 $22,480,000 $25,280,000 $25,080,000 $25,740,000 $41,550,000 Unamortized Basis: Tangible @ 25% life less than 10 yrs 0 0 0 0 0 0 0 Amortizable intangibles at 75% 16,900,583 8,676,315 5,614,380 6,313,680 6,263,730 6,428,565 10,377,113 Capital Expenditures 2,071,938 2,346,031 1,388,342 2,088,721 1,348,152 1,349,371 1,381,426 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Tax Basis 18,972,521 11,022,346 7,002,722 8,402,401 7,611,882 7,777,936 11,758,539 Year 10 "Sales Price" 136,017,704 72,092,529 41,907,660 56,929,729 45,409,400 50,026,717 71,542,268 Percent of "Sales Price" not Taxable 13.9% 15.3% 16.7% 14.8% 16.8% 15.5% 16.4% Net Capital Gains Tax 29.3% 28.8% 28.3% 29.0% 28.3% 28.7% 28.4% ===== ===== ===== ===== ===== ===== =====
-105- 116 EXHIBIT E REGION CASH FLOW PROJECTIONS 117 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. GILROY REGION, CALIFORNIA CATV SYSTEM VALUATION MODEL EXHIBIT E-1A VALUATION DATE: DECEMBER 31, 1995 - ------------------------------------------------------------------------------- Growth Rate in Homes Passed 2.0% Thru Yr 5 Homes Passed @ 12/31/95 56,219 Equivalent Billing Units @ 12/31/95 33,491 59.6% EBU's/HP Pay Units @ 12/31/95 13,070 39.0% Pay Units/EBU's Operating Margin for 95 Yr. 54.5% After reimbursable expenses. Operating Margin for 94 Yr. 54.5% After reimbursable expenses. Weighted average discount rate 14.0%
Year 1 2 3 4 5 6 7 8 9 10 ----- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Basic Rev/EBU (now $24.69) $24.98 $26.00 $27.00 $28.10 $29.20 $30.40 $31.60 $32.90 $34.20 $35.60 Growth rate 1.2% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Kagan Projection $24.58 $25.56 $26.57 $27.64 $28.74 $29.87 $31.07 $32.33 $33.62 n/a Growth rate 6.5% 4.0% 4.0% 4.0% 4.0% 3.9% 4.0% 4.1% 4.0% Pay Rev/Pay Unit (now $7.95) $7.81 $7.81 $8.04 $8.04 $8.29 $8.29 $8.53 $8.53 $8.79 $8.79 Growth rate -1.8% 0% 3% 0% 3% 0% 3% 0% 3% 0% Kagan Projection $8.20 $8.12 $8.04 $7.96 $7.88 $7.80 $7.80 $7.80 $7.80 n/a Growth rate -1.1% -1.0% -1.0% -1.0% -1.0% -1.0% 0.0% 0.0% 0.0% New Product Tier (now $1.66) $1.93 $2.03 $2.13 $2.23 $2.35 $2.46 $2.59 $2.72 $2.85 $2.99 Growth rate 16.3% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.03) $0.04 $0.05 $0.06 $0.08 $0.10 $0.12 $0.15 $0.19 $0.24 $0.30 Growth rate 33.3% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.34) $0.42 $0.53 $0.68 $0.82 $0.94 $1.08 $1.25 $1.37 $1.51 $1.66 Growth rate 23.5% 25.0% 30.0% 20.0% 15.0% 15.0% 15.0% 10.0% 10.0% 10.0% Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 $2.36 $2.81 $3.25 $3.66 n/a Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% 17.4% 19.1% 15.7% 12.6% Equipment/EBU (now $0.55) $0.50 $0.52 $0.53 $0.55 $0.56 $0.58 $0.60 $0.61 $0.63 $0.65 Growth rate -9.1% 3% 3% 3% 3% 3% 3% 3% 3% 3% Advertising/EBU (now $0.75) $0.95 $1.14 $1.37 $1.64 $1.89 $2.17 $2.39 $2.63 $2.89 $3.18 Growth rate 26.7% 20.0% 20.0% 20.0% 15.0% 15.0% 10.0% 10.0% 10.0% 10.0% Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 $3.47 $3.87 $4.28 $4.69 n/a Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% 12.7% 11.5% 10.6% 9.6% Home Shopping/EBU (now $0.25) $0.27 $0.34 $0.42 $0.53 $0.63 $0.76 $0.87 $1.00 $1.15 $1.33 Growth rate 8.0% 25% 25% 25% 20% 20% 15% 15% 15% 15% Install/Service/EBU (now $.59) $0.60 $0.63 $0.66 $0.69 $0.73 $0.77 $0.80 $0.84 $0.89 $0.93 Growth rate 1.7% 5% 5% 5% 5% 5% 5% 5% 5% 5% Franchise Fee Pass-thru/EBU (now $0.82) $0.83 $0.87 $1.11 $1.36 $1.63 $1.71 $1.79 $1.88 $1.97 $2.07 Growth rate n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.67) $0.69 $0.70 $0.72 $0.73 $0.75 $0.76 $0.78 $0.79 $0.81 $0.82 growth rate 3.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Pay-to-EBU (now 39.5%) 39.0% 40.0% 41.0% 42.0% 43.0% 44.0% 45.0% 46.0% 47.0% 48.0% Kagan Projection 77.5% 78.5% 79.5% 80.0% 80.3% 80.5% 80.8% 81.0% 81.3% n/a Total Annual EBU Rev $411.02 $431.01 $455.72 $481.30 $508.03 $533.54 $559.91 $586.38 $615.28 $645.01 monthly (now $33.32) $34.25 $35.92 $37.98 $40.11 $42.34 $44.46 $46.66 $48.86 $51.27 $53.75 Compound growth 5.1% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 $42.60 $44.74 $46.91 $49.15 Compound growth 4.8%
-106- 118 - ----------------------------------------------------------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY K A N E R E E C E A S S O C I A T E S, I N C. EXHIBIT E-1B GILROY REGION, CALIFORNIA CATV SYSTEM VALUATION MODEL - -----------------------------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- ----------- ----------- ----------- ----------- ----------- Homes Passed 57,215 58,359 59,526 60,717 61,931 EBU Penetration 59.5% 60.0% 60.5% 61.0% 62.5% Kagan Penetration Projection 67.5% 68.0% 68.3% 68.2% 67.7% Equivalent Billing Units 34,060 35,033 36,031 37,055 38,707 Basic Revenue/EBU $24.98 $26.00 $27.00 $28.10 $29.20 Basic Revenue 10,209,826 10,930,295 11,674,138 12,495,115 13,562,967 ----------- ----------- ----------- ----------- ----------- Pay-to-Basic Ratio 39.0% 40.0% 41.0% 42.0% 43.0% Pay Units 13,283 14,013 14,773 15,563 16,644 Pay Revenue/Pay Unit $7.81 $7.81 $8.04 $8.04 $8.29 Pay Revenue 1,244,920 1,313,317 1,426,045 1,502,351 1,654,877 ----------- ----------- ----------- ----------- ----------- New Product Tier/EBU $1.93 $2.03 $2.13 $2.23 $2.35 New Product Tier Revenue 788,830 851,932 920,019 993,480 1,089,648 ----------- ----------- ----------- ----------- ----------- Mini-Pay Revenue/EBU $0.04 $0.05 $0.06 $0.08 $0.10 Mini-Pay Revenue/EBU 16,349 21,020 27,023 34,740 45,360 ----------- ----------- ----------- ----------- ----------- Pay-Per-View Revenue/EBU $0.42 $0.53 $0.68 $0.82 $0.94 Pay-Per-View Revenue 171,662 220,708 295,096 364,181 437,475 ----------- ----------- ----------- ----------- ----------- Equipment Revenue/EBU $0.50 $0.52 $0.53 $0.55 $0.56 Equipment Revenue 204,360 216,504 229,354 242,949 261,391 ----------- ----------- ----------- ----------- ----------- Advertising Revenue/EBU $0.95 $1.14 $1.37 $1.64 $1.89 Advertising Revenue/EBU 388,284 479,251 591,490 729,964 876,874 ----------- ----------- ----------- ----------- ----------- Home Shopping/EBU $0.27 $0.34 $0.42 $0.53 $0.63 HomeShopping Revenue 110,354 141,884 182,408 234,492 293,932 ----------- ----------- ----------- ----------- ----------- Installation Revenue/EBU $0.60 $0.63 $0.66 $0.69 $0.73 Installation Revenue 245,232 264,849 286,016 308,854 338,751 ----------- ----------- ----------- ----------- ----------- Franchise Fee Pass-thru Revenue/EBU $0.83 $0.87 $1.11 $1.36 $1.63 Franchise Fee Pass-thru Revenue 337,447 363,970 478,259 603,110 756,328 ----------- ----------- ----------- ----------- ----------- Late Fees & Other Revenue/EBU $0.69 $0.70 $0.72 $0.73 $0.75 Late Fees & Other Revenue 282,017 295,875 310,392 325,599 346,914 ----------- ----------- ----------- ----------- ----------- Total Revenue $13,999,281 $15,099,605 $16,420,241 $17,834,835 $19,664,517 =========== =========== =========== =========== =========== Year 6 7 8 9 10 ---- ----------- ----------- ----------- ----------- ----------- Homes Passed 62,551 63,176 63,808 64,446 65,090 EBU Penetration 63.0% 63.5% 64.0% 64.5% 65.0% Kagan Penetration Projection 67.1% 66.5% 65.9% 65.3% Equivalent Billing Units 39,407 40,117 40,837 41,568 42,309 Basic Revenue/EBU $30.40 $31.60 $32.90 $34.20 $35.60 Basic Revenue 14,375,645 15,212,318 16,122,479 17,059,376 18,074,324 ----------- ----------- ----------- ----------- ----------- Pay-to-Basic Ratio 44.0% 45.0% 46.0% 47.0% 48.0% Pay Units 17,339 18,053 18,785 19,537 20,308 Pay Revenue/Pay Unit $8.29 $8.53 $8.53 $8.79 $8.79 Pay Revenue 1,723,979 1,848,773 1,923,785 2,060,795 2,142,167 ----------- ----------- ----------- ----------- ----------- New Product Tier/EBU $2.46 $2.59 $2.72 $2.85 $2.99 New Product Tier Revenue 1,164,817 1,245,092 1,330,817 1,422,357 1,520,103 ----------- ----------- ----------- ----------- ----------- Mini-Pay Revenue/EBU $0.12 $0.15 $0.19 $0.24 $0.30 Mini-Pay Revenue/EBU 57,725 73,456 93,469 118,926 151,308 ----------- ----------- ----------- ----------- ----------- Pay-Per-View Revenue/EBU $1.08 $1.25 $1.37 $1.51 $1.66 Pay-Per-View Revenue 512,193 599,633 671,438 751,796 841,720 ----------- ----------- ----------- ----------- ----------- Equipment Revenue/EBU $0.58 $0.60 $0.61 $0.63 $0.65 Equipment Revenue 274,101 287,410 301,347 315,940 331,220 ----------- ----------- ----------- ----------- ----------- Advertising Revenue/EBU $2.17 $2.39 $2.63 $2.89 $3.18 Advertising Revenue/EBU 1,026,637 1,149,646 1,287,314 1,441,379 1,613,786 ----------- ----------- ----------- ----------- ----------- Home Shopping/EBU $0.76 $0.87 $1.00 $1.15 $1.33 Home Shopping Revenue 359,096 420,400 492,139 576,085 674,310 ----------- ----------- ----------- ----------- ----------- Installation Revenue/EBU $0.77 $0.80 $0.84 $0.89 $0.93 Installation Revenue 362,119 387,075 413,725 442,184 472,571 ----------- ----------- ----------- ----------- ----------- Franchise Fee Pass-thru Revenue/EBU $1.71 $1.79 $1.88 $1.97 $2.07 Franchise Fee Pass-thru Revenue 808,662 863,915 920,997 983,684 1,049,607 ----------- ----------- ----------- ----------- ----------- Late Fees & Other Revenue/EBU $0.76 $0.78 $0.79 $0.81 $0.82 Late Fees & Other Revenue 360,250 374,075 388,406 403,262 418,661 ----------- ----------- ----------- ----------- ----------- Total Revenue $21,025,222 $22,461,792 $23,945,916 $25,575,785 $27,289,776 =========== =========== =========== =========== ===========
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Year 1 2 3 4 5 ---- ----------- ----------- ----------- ----------- ----------- Total Revenue $13,999,281 $15,099,605 $16,420,241 $17,834,835 $19,664,517 Margin % to Revenue 55.0% 54.0% 54.0% 53.0% 53.0% Operating Cash Flow 7,699,605 8,153,787 8,866,930 9,452,463 10,422,194 Captal Expenditures: - Rebuild/Extensions 759,000 5,764,000 6,226,000 384,000 399,000 - Recurring 682,000 464,000 479,000 495,000 613,000 ----------- ----------- ----------- ----------- ----------- Total 1,441,000 6,228,000 6,705,000 879,000 1,012,000 =========== =========== =========== =========== =========== Net Cash Flow 6,258,605 1,925,787 2,161,930 8,573,463 9,410,194 Present Value Factor @ 14.0% 0.93659 0.82157 0.72067 0.63217 0.55453 PV Net Cash Flow 5,861,720 1,582,162 1,558,043 5,419,875 5,218,272 =========== =========== =========== =========== ===========
Year 6 7 8 9 10 ---- ----------- ----------- ----------- ----------- ----------- Total Revenue $21,025,222 $22,461,792 $23,945,916 $25,575,785 $27,289,776 Margin % to Revenue 53.0% 52.0% 52.0% 52.0% 52.0% Operating Cash Flow 11,143,368 11,680,132 12,451,876 13,299,408 14,190,684 Captal Expenditures: - Rebuild/Extensions 257,000 263,000 270,000 277,000 284,000 - Recurring 467,000 480,000 493,000 507,000 521,000 ----------- ----------- ----------- ----------- ----------- Total 724,000 743,000 763,000 784,000 805,000 =========== =========== =========== =========== =========== 0 Net Cash Flow 10,419,368 10,937,132 11,688,876 12,515,408 13,385,684 Present Value Factor @ 14.0% 0.48643 0.42670 0.37429 0.32833 0.28801 PV Net Cash Flow 5,068,328 4,666,829 4,375,084 4,109,167 3,855,178 =========== =========== =========== =========== ===========
Present Value of Net Cash Flows $41,714,659 Present Value of Residual 25,955,381 ----------- Value Indication under Income Approach $67,670,040 =========== Value Indication (Rounded) $67,670,000 =========== Value Indication/EBU $2,021 ====== Cash Flow Multiple - Projected 8.8 === Residual Value ---------------------------------------------------- 9x's Yr 11 Operating Cash Flow $136,017,704 Less: Taxes (see Schedule) @ 29.3% 39,795,362 ------------ After Tax Proceeds (end of year 10) 96,222,342 ------------ Present Value @ 14.0% $25,955,381 ============
-108- 120 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. HESPERIA REGION, CALIFORNIA CATV SYSTEM VALUATION MODEL EXHIBIT E-2A VALUATION DATE: DECEMBER 31, 1995 - ------------------------------------------------------------------------------- Growth Rate in Homes Passed 2.90% Thru Yr 5 Homes Passed @ 12/31/95 28,280 Equivalent Billing Units @ 12/31/95 19,310 68.3% EBU's/HP Pay Units @ 12/31/95 8,366 43.3% Pay Units/EBU's Operating Margin for 95 Yr. 50.0% After reimbursable expenses. Operating Margin for 94 Yr. 52.5% After reimbursable expenses. Weighted average discount rate 14.0%
Year 1 2 3 4 5 6 7 8 9 10 ---- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Basic Rev/EBU (now $25.15) $24.93 $25.90 $26.90 $28.00 $29.10 $30.30 $31.50 $32.80 $34.10 $35.50 Growth rate -0.9% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Kagan Projection $24.58 $25.56 $26.57 $27.64 $28.74 $29.87 $31.07 $32.33 $33.62 n/a Growth rate 6.5% 4.0% 4.0% 4.0% 4.0% 3.9% 4.0% 4.1% 4.0% Pay Rev/Pay Unit (now $6.86) $6.99 $6.99 $7.20 $7.20 $7.42 $7.42 $7.42 $7.42 $7.42 $7.42 Growth rate 1.9% 0% 3% 0% 3% 0% 0% 0% 0% 0% Kagan Projection $8.20 $8.12 $8.04 $7.96 $7.88 $7.80 $7.80 $7.80 $7.80 n/a Growth rate -1.1% -1.0% -1.0% -1.0% -1.0% -1.0% 0.0% 0.0% 0.0% New Product Tier (now $1.48) $1.66 $1.74 $1.83 $1.92 $2.02 $2.12 $2.22 $2.34 $2.45 $2.58 Growth rate 12.2% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.03) $0.03 $0.04 $0.05 $0.06 $0.07 $0.09 $0.11 $0.14 $0.18 $0.22 Growth rate 0.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.46) $0.56 $0.70 $0.91 $1.09 $1.26 $1.44 $1.66 $1.83 $2.01 $2.21 Growth rate 21.7% 25.0% 30.0% 20.0% 15.0% 15.0% 15.0% 10.0% 10.0% 10.0% Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 $2.36 $2.81 $3.25 $3.66 n/a Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% 17.4% 19.1% 15.7% 12.6% Equipment/EBU (now $1.63) $1.65 $1.70 $1.75 $1.80 $1.86 $1.91 $1.97 $2.03 $2.09 $2.15 Growth rate 1.2% 3% 3% 3% 3% 3% 3% 3% 3% 3% Advertising/EBU (now $0.76) $1.02 $1.12 $1.23 $1.33 $1.44 $1.55 $1.66 $1.79 $1.92 $2.07 Growth rate 34.2% 10.0% 10.0% 8.0% 8.0% 7.5% 7.5% 7.5% 7.5% 7.5% Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 $3.47 $3.87 $4.28 $4.69 n/a Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% 12.7% 11.5% 10.6% 9.6% Home Shopping/EBU (now $0.30) $0.29 $0.36 $0.45 $0.57 $0.68 $0.82 $0.94 $1.08 $1.24 $1.43 Growth rate -3.3% 25% 25% 25% 20% 20% 15% 15% 15% 15% Install/Service/EBU (now $.93) $0.96 $1.01 $1.06 $1.11 $1.17 $1.23 $1.29 $1.35 $1.42 $1.49 Growth rate 3.2% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Franchise Fee Pass-thru/EBU (now $0.29) $0.29 $0.45 $0.67 $0.90 $1.15 $1.42 $1.71 $1.91 $2.00 $2.09 Growth rate n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.54) $0.53 $0.56 $0.58 $0.61 $0.64 $0.68 $0.71 $0.75 $0.78 $0.82 growth rate -1.9% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 43.3%) 43.0% 44.0% 45.0% 46.0% 47.0% 48.0% 49.0% 50.0% 51.0% 52.0% Kagan Projection 77.5% 78.5% 79.5% 80.0% 80.3% 80.5% 80.8% 81.0% 81.3% n/a Total Annual EBU Rev $419.11 $439.89 $464.07 $488.48 $514.40 $541.34 $568.99 $596.62 $623.72 $652.99 monthly (now $34.11) $34.93 $36.66 $38.67 $40.71 $42.87 $45.11 $47.42 $49.72 $51.98 $54.42 Compound growth 5.1% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 $42.60 $44.74 $46.91 $49.15 Compound growth 4.8%
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Year 1 2 3 4 5 ---- ---------- ---------- ---------- ----------- ----------- Homes Passed 28,440 29,265 30,113 30,987 31,885 EBU Penetration 68.6% 69.1% 69.6% 70.1% 70.6% Kagan Penetration Projection 67.5% 68.0% 68.3% 68.2% 67.7% Equivalent Billing Units 19,501 20,213 20,950 21,712 22,501 Basic Revenue/EBU $24.93 $25.90 $26.90 $28.00 $29.10 Basic Revenue 5,833,919 6,282,155 6,762,529 7,295,254 7,857,398 ---------- ---------- ---------- ----------- ----------- Pay-to-Basic Ratio 43.0% 44.0% 45.0% 46.0% 47.0% Pay Units 8,385 8,894 9,427 9,988 10,576 Pay Revenue/Pay Unit $6.99 $6.99 $7.20 $7.20 $7.42 Pay Revenue 703,370 746,000 814,486 862,888 941,099 ---------- ---------- ---------- ----------- ----------- New Product Tier/EBU $1.66 $1.74 $1.83 $1.92 $2.02 New Product Tier Revenue 388,460 422,772 460,091 500,678 544,818 ---------- ---------- ---------- ----------- ----------- Mini-Pay Revenue/EBU $0.03 $0.04 $0.05 $0.06 $0.07 Mini-Pay Revenue/EBU 7,020 9,096 11,784 15,266 19,776 Pay-Per-View Revenue/EBU $0.56 $0.70 $0.91 $1.09 $1.26 Pay-Per-View Revenue 131,047 169,788 228,770 284,515 339,083 ---------- ---------- ---------- ----------- ----------- Equipment Revenue/ EBU $1.65 $1.70 $1.75 $1.80 $1.86 Equipment Revenue 386,120 412,221 440,063 469,762 501,440 ---------- ---------- ---------- ----------- ----------- Advertising Revenue/EBU $1.02 $1.12 $1.23 $1.33 $1.44 Advertising Revenue/EBU 238,692 272,146 310,272 347,290 388,704 ---------- ---------- ---------- ----------- ----------- Home Shopping/EBU $0.29 $0.36 $0.45 $0.57 $0.68 Home Shopping Revenue 67,863 87,926 113,913 147,574 183,525 ---------- ---------- ---------- ----------- ----------- Installation Revenue/EBU $0.96 $1.01 $1.06 $1.11 $1.17 Installation Revenue 224,652 244,495 266,077 289,549 315,075 ---------- ---------- ---------- ----------- ----------- Franchise Fee Pass-thru Revenue/ $0.29 $0.45 $0.67 $0.90 $1.15 Franchise Fee Pass-thru Revenue 67,863 109,770 167,210 233,384 309,784 ---------- ---------- ---------- ----------- ----------- Late Fees & Other Revenue/EBU $0.53 $0.56 $0.58 $0.61 $0.64 Late Fees & Other Revenue 124,026 134,981 146,896 159,855 173,948 ---------- ---------- ---------- ----------- ----------- Total Revenue $8,173,033 $8,891,349 $9,722,091 $10,606,015 $11,574,650 ========== ========== ========== =========== =========== Year 6 7 8 9 10 ---- ----------- ----------- ----------- ----------- ----------- Homes Passed 32,348 32,817 33,293 33,775 34,265 EBU Penetration 71.1% 71.6% 72.1% 72.6% 73.1% Kagan Penetration Projection 67.1% 66.5% 65.9% 65.3% Equivalent Billing Units 22,989 23,487 23,994 24,510 25,037 Basic Revenue/EBU $30.30 $31.50 $32.80 $34.10 $35.50 Basic Revenue 8,358,854 8,877,924 9,443,877 10,029,645 10,665,804 ----------- ----------- ----------- ----------- ----------- Pay-to-Basic Ratio 48.0% 49.0% 50.0% 51.0% 52.0% Pay Units 11,035 11,508 11,997 12,500 13,019 Pay Revenue/Pay Unit $7.42 $7.42 $7.42 $7.42 $7.42 Pay Revenue 981,967 1,024,115 1,067,574 1,112,380 1,158,565 ----------- ----------- ----------- ----------- ----------- New Product Tier/EBU $2.12 $2.22 $2.34 $2.45 $2.58 New Product Tier Revenue 584,465 626,967 672,527 721,363 773,708 ----------- ----------- ----------- ----------- ----------- Mini-Pay Revenue/EBU $0.09 $0.11 $0.14 $0.18 $0.22 Mini-Pay Revenue/EBU 25,257 32,254 41,188 52,594 67,155 ----------- ----------- ----------- ----------- ----------- Pay-Per-View Revenue/EBU $1.44 $1.66 $1.83 $2.01 $2.21 Pay-Per-View Revenue 398,403 468,077 526,000 591,062 664,140 ----------- ----------- ----------- ----------- ----------- Equipment Revenue/ EBU $1.91 $1.97 $2.03 $2.09 $2.15 Equipment Revenue 527,684 555,275 584,280 614,770 646,821 ----------- ----------- ----------- ----------- ----------- Advertising Revenue/EBU $1.55 $1.66 $1.79 $1.92 $2.07 Advertising Revenue/EBU 426,919 468,868 514,914 565,455 620,927 ----------- ----------- ----------- ----------- ----------- Home Shopping/EBU $0.82 $0.94 $1.08 $1.24 $1.43 Home Shopping Revenue 225,006 264,356 310,572 364,851 428,595 ----------- ----------- ----------- ----------- ----------- Installation Revenue/EBU $1.23 $1.29 $1.35 $1.42 $1.49 Installation Revenue 338,004 362,583 388,931 417,174 447,446 ----------- ----------- ----------- ----------- ----------- Franchise Fee Pass-thru Revenue/ $1.42 $1.71 $1.91 $2.00 $2.09 Franchise Fee Pass-thru Revenue 391,728 483,022 550,583 587,984 628,808 ----------- ----------- ----------- ----------- ----------- Late Fees & Other Revenue/EBU $0.68 $0.71 $0.75 $0.78 $0.82 Late Fees & Other Revenue 186,606 200,176 214,722 230,315 247,027 ----------- ----------- ----------- ----------- ----------- Total Revenue $12,444,893 $13,363,618 $14,315,169 $15,287,591 $16,348,995 =========== =========== =========== =========== ===========
-110- 122 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. EXHIBIT E-2C HESPERIA REGION, CALIFORNIA CATV SYSTEM VALUATION MODEL - -------------------------------------------------------------------------------
Year 1 2 3 4 5 6 ---- - - - - - - Total Revenue $8,173,033 $8,891,349 $9,722,091 $10,606,015 $11,574,650 $12,444,893 Margin % to Revenue 52.2% 52.5% 53.0% 53.0% 52.0% 52.0% Operating Cash Flow 4,267,140 4,667,958 5,152,708 5,621,188 6,018,818 6,471,344 Captal Expenditures: - Rebuild/Extensions 384,000 2,102,000 3,876,000 3,898,000 2,168,000 320,000 - Recurring 548,000 375,000 386,000 399,000 412,000 369,000 ------- ------- ------- ------- ------- ------- Total 932,000 2,477,000 4,262,000 4,297,000 2,580,000 689,000 ------- ------- ------- ------- ------- ------- Net Cash Flow 3,335,140 2,190,958 890,708 1,324,188 3,438,818 5,782,344 Present Value Factor @ 14.0% 0.93659 0.82157 0.72067 0.63217 0.55453 0.48643 PV Net Cash Flow 3,123,645 1,800,018 641,909 837,110 1,906,941 2,812,725 ========= ========= ======= ======= ========= =========
7 8 9 10 - - - -- Total Revenue $13,363,618 $14,315,169 $15,287,591 $16,348,995 Margin % to Revenue 52.0% 52.0% 52.0% 52.0% Operating Cash Flow 6,949,081 7,443,888 7,949,547 8,501,477 Captal Expenditures: - Rebuild/Extensions 329,000 340,000 350,000 362,000 - Recurring 378,000 387,000 397,000 407,000 ------- ------- ------- ------- Total 707,000 727,000 747,000 769,000 ------- ------- ------- ------- Net Cash Flow 6,242,081 6,716,888 7,202,547 7,732,477 Present Value Factor @ 14.0% 0.42670 0.37429 0.32833 0.28801 PV Net Cash Flow 2,663,471 2,514,095 2,364,803 2,227,012 ========= ========= ========= =========
Residual Value ------------------------------------------------------- Present Value of Net Cash Flows $20,891,729 Present Value of Residual 13,845,590 ---------- 8x's Yr 11 Operating Cash Flow $72,092,529 Value Indication under Income Approach $34,737,319 Less: Taxes (see Schedule) 28.8% 20,763,862 ----------- ---------- Value Indication (Rounded) $34,740,000 After Tax Proceeds (end of year 10) 51,328,667 ----------- ---------- Value Indication/EBU $1,799 Present Value @ 14.0% $13,845,590 ------ ----------- Cash Flow Multiple - Project 8.1 ---
-111- 123 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. SAN LUIS OBISPO REGION, CALIFORNIA CATV SYSTEM VALUATION MODEL EXHIBIT E-3A VALUATION DATE: DECEMBER 31, 1995 - ------------------------------------------------------------------------------- Growth Rate in Homes Passed 0.60% Thru Yr 5 Homes Passed @ 12/31/95 26,138 Equivalent Billing Units @ 12/31/95 15,973 61.1% EBU's/HP Pay Units @ 12/31/95 3,733 23.4% Pay Units/EBU's Operating Margin for 95 Yr. 40.8% After reimbursable expenses. Operating Margin for 94 Yr. 47.9% After reimbursable expenses. Weighted average discount rate 14.0%
Year 1 2 3 4 5 6 7 8 9 10 ---- - - - - - - - - - -- Basic Rev/EBU (now $22.33) $23.48 $24.40 $25.40 $26.40 $27.50 $28.60 $29.70 $30.90 $32.10 $33.40 Growth rate 5.2% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Kagan Projection $24.58 $25.56 $26.57 $27.64 $28.74 $29.87 $31.07 $32.33 $33.62 n/a Growth rate 6.5% 4.0% 4.0% 4.0% 4.0% 3.9% 4.0% 4.1% 4.0% Pay Rev/Pay Unit (now $7.74) $8.25 $8.25 $8.25 $8.25 $8.25 $8.25 $8.25 $8.25 $8.25 $8.25 Growth rate 6.6% 0% 0% 0% 0% 0% 0% 0% 0% 0% Kagan Projection $8.20 $8.12 $8.04 $7.96 $7.88 $7.80 $7.80 $7.80 $7.80 n/a Growth rate -1.1% -1.0% -1.0% -1.0% -1.0% -1.0% 0.0% 0.0% 0.0% New Product Tier (now $0.93) $1.03 $1.08 $1.30 $1.56 $1.87 $2.15 $2.36 $2.54 $2.67 $2.80 Growth rate 10.8% 5.0% 20.0% 20.0% 20.0% 15.0% 10.0% 7.5% 5.0% 5.0% Mini-Pay/EBU (now $0.00) $0.00 $0.05 $0.06 $0.08 $0.10 $0.12 $0.15 $0.19 $0.24 $0.30 Growth rate 0.0% n/a 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.16) $0.36 $0.45 $0.59 $0.70 $0.81 $0.93 $1.07 $1.17 $1.29 $1.42 Growth rate 125.0% 25.0% 30.0% 20.0% 15.0% 15.0% 15.0% 10.0% 10.0% 10.0% Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 $2.36 $2.81 $3.25 $3.66 n/a Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% 17.4% 19.1% 15.7% 12.6% Equipment/ EBU (now $0.94) $1.01 $1.04 $1.07 $1.10 $1.14 $1.17 $1.21 $1.24 $1.28 $1.32 Growth rate 7.4% 3% 3% 3% 3% 3% 3% 3% 3% 3% Advertising/EBU (now $1.22) $1.40 $1.54 $1.69 $1.83 $1.98 $2.12 $2.28 $2.45 $2.64 $2.84 Growth rate 14.8% 10.0% 10.0% 8.0% 8.0% 7.5% 7.5% 7.5% 7.5% 7.5% Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 $3.47 $3.87 $4.28 $4.69 n/a Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% 12.7% 11.5% 10.6% 9.6% Home Shopping /EBU (now $0.42) $0.28 $0.35 $0.44 $0.55 $0.66 $0.79 $0.91 $1.04 $1.20 $1.38 Growth rate -33.3% 25% 25% 25% 20% 20% 15% 15% 15% 15% Install/Service/EBU (now $.34) $0.35 $0.37 $0.39 $0.41 $0.43 $0.45 $0.47 $0.49 $0.52 $0.54 Growth rate 2.9% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Franchise Fee Pass-thru/EBU (now $1.23) $1.26 $1.32 $1.39 $1.47 $1.55 $1.63 $1.71 $1.79 $1.87 $1.96 Growth rate n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.46) $0.47 $0.49 $0.52 $0.54 $0.57 $0.60 $0.63 $0.66 $0.69 $0.73 growth rate 2.2% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 23.4%) 24.0% 25.0% 26.0% 27.0% 28.0% 29.0% 30.0% 31.0% 32.0% 33.0% Kagan Projection 77.5% 78.5% 79.5% 80.0% 80.3% 80.5% 80.8% 81.0% 81.3% n/a Total Annual EBU Rev $379.40 $397.84 $419.86 $442.32 $466.75 $491.39 $515.53 $540.56 $565.68 $592.94 monthly (now $29.90) $31.62 $33.15 $34.99 $36.86 $38.90 $40.95 $42.96 $45.05 $47.14 $49.41 Compound growth 5.1% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 $42.60 $44.74 $46.91 $49.15 Compound growth 4.8%
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Year 1 2 3 4 5 ---- ----------- ----------- ----------- ----------- ----------- Homes Passed 26,588 26,900 27,062 27,224 27,388 EBU Penetration 61.0% 61.5% 62.0% 62.5% 63.0% Kagan Penetration Projection 67.5% 68.0% 68.3% 68.2% 67.7% Equivalent Billing Units 16,214 16,539 16,774 17,010 17,249 Basic Revenue/EBU $23.48 $24.40 $25.40 $26.40 $27.50 Basic Revenue 4,568,457 4,842,630 5,112,587 5,388,876 5,692,283 ----------- ----------- ----------- ----------- ----------- Pay-to-Basic Ratio 24.0% 25.0% 26.0% 27.0% 28.0% Pay Units 3,891 4,135 4,361 4,593 4,830 Pay Revenue/Pay Unit $8.25 $8.25 $8.25 $8.25 $8.25 Pay Revenue 385,245 409,341 431,752 454,686 478,152 ----------- ----------- ----------- ----------- ----------- New Product Tier/EBU $1.03 $1.08 $1.30 $1.56 $1.87 New Product Tier Revenue 200,405 214,644 261,225 317,895 386,833 ----------- ----------- ----------- ----------- ----------- Mini-Pay Revenue/EBU $0.00 $0.05 $0.06 $0.08 $0.10 Mini-Pay Revenue/EBU 0 9,923 12,580 15,947 20,214 ----------- ----------- ----------- ----------- ----------- Pay-Per-View Revenue/EBU $0.36 $0.45 $0.59 $0.70 $0.81 Pay-Per-View Revenue 70,044 89,311 117,751 143,295 167,105 ----------- ----------- ----------- ----------- ----------- Equipment Revenue/EBU $1.01 $1.04 $1.07 $1.10 $1.14 Equipment Revenue 196,514 206,467 215,676 225,282 235,301 ----------- ----------- ----------- ----------- ----------- Advertising Revenue/EBU $1.40 $1.54 $1.69 $1.83 $1.98 Advertising Revenue/EBU 272,395 305,641 340,973 373,449 408,992 ----------- ----------- ----------- ----------- ----------- Home Shopping/EBU $0.28 $0.35 $0.44 $0.55 $0.66 Home Shopping Revenue 54,479 69,464 88,061 111,630 135,839 ----------- ----------- ----------- ----------- ----------- Installation Revenue/EBU $0.35 $0.37 $0.39 $0.41 $0.43 Installation Revenue 68,099 72,937 77,670 82,705 88,060 ----------- ----------- ----------- ----------- ----------- Franchise Fee Pass-thru Revenue/EBU $1.26 $1.32 $1.39 $1.47 $1.55 Franchise Fee Pass-thru Revenue 244,553 261,578 279,971 299,108 320,065 ----------- ----------- ----------- ----------- ----------- Late Fees & Other Revenue/EBU $0.47 $0.49 $0.52 $0.54 $0.57 Late Fees & Other Revenue 91,447 97,944 104,300 111,061 118,252 ----------- ----------- ----------- ----------- ----------- Total Revenue $6,151,638 $6,579,880 $7,042,546 $7,523,935 $8,051,095 =========== =========== =========== =========== =========== Year 6 7 8 9 10 ---- ----------- ----------- ----------- ----------- ----------- Homes Passed 27,470 27,552 27,635 27,718 27,801 EBU Penetration 63.5% 64.0% 64.5% 65.0% 65.5% Kagan Penetration Projection 67.1% 66.5% 65.9% 65.3% Equivalent Billing Units 17,438 17,629 17,820 18,012 18,205 Basic Revenue/EBU $28.60 $29.70 $30.90 $32.10 $33.40 Basic Revenue 5,984,872 6,282,802 6,607,498 6,938,076 7,296,428 ----------- ----------- ----------- ----------- ----------- Pay-to-Basic Ratio 29.0% 30.0% 31.0% 32.0% 33.0% Pay Units 5,057 5,289 5,524 5,764 6,008 Pay Revenue/Pay Unit $8.25 $8.25 $8.25 $8.25 $8.25 Pay Revenue 500,658 523,567 546,883 570,608 594,746 ----------- ----------- ----------- ----------- ----------- New Product Tier/EBU $2.15 $2.36 $2.54 $2.67 $2.80 New Product Tier Revenue 449,735 500,101 543,435 576,757 612,085 ----------- ----------- ----------- ----------- ----------- Mini-Pay Revenue/EBU $0.12 $0.15 $0.19 $0.24 $0.30 Mini-Pay Revenue/EBU 25,545 32,279 40,786 51,532 65,105 ----------- ----------- ----------- ----------- ----------- Pay-Per-View Revenue/EBU $0.93 $1.07 $1.17 $1.29 $1.42 Pay-Per-View Revenue 194,277 225,854 251,132 279,222 310,436 ----------- ----------- ----------- ----------- ----------- Equipment Revenue/ EBU $1.17 $1.21 $1.24 $1.28 $1.32 Equipment Revenue 245,017 255,118 265,620 276,537 287,886 ----------- ----------- ----------- ----------- ----------- Advertising Revenue/EBU $2.12 $2.28 $2.45 $2.64 $2.84 Advertising Revenue/EBU 444,486 483,031 524,886 570,333 619,679 ----------- ----------- ----------- ----------- ----------- Home Shopping/EBU $0.79 $0.91 $1.04 $1.20 $1.38 Home Shopping Revenue 164,793 191,578 222,702 258,868 300,889 ----------- ----------- ----------- ----------- ----------- Installation Revenue/EBU $0.45 $0.47 $0.49 $0.52 $0.54 Installation Revenue 93,477 99,220 105,311 111,768 118,614 ----------- ----------- ----------- ----------- ----------- Franchise Fee Pass-thru Revenue/EBU $1.63 $1.71 $1.79 $1.87 $1.96 Franchise Fee Pass-thru Revenue 340,655 361,289 382,936 405,049 429,117 ----------- ----------- ----------- ----------- ----------- Late Fees & Other Revenue/EBU $0.60 $0.63 $0.66 $0.69 $0.73 Late Fees & Other Revenue 125,526 133,239 141,417 150,088 159,282 ----------- ----------- ----------- ----------- ----------- Total Revenue $8,569,041 $9,088,078 $9,632,605 $10,188,838 $10,794,266 =========== =========== =========== =========== ===========
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Year 1 2 3 4 5 ---- ---------- ---------- ---------- ----------- ----------- Total Revenue $6,151,638 $6,579,880 $7,042,546 $7,523,935 $8,051,095 Margin % to Revenue 45.0% 45.5% 46.0% 46.0% 46.0% Operating Cash Flow 2,768,237 2,993,845 3,239,571 3,461,010 3,703,504 Capital Expenditures: - Rebuild/Extensions 747,000 88,000 1,396,000 1,451,000 1,509,000 - Recurring 436,000 304,000 294,000 298,000 303,000 ---------- ---------- ---------- ----------- ----------- Total 1,183,000 392,000 1,690,000 1,749,000 1,812,000 ---------- ---------- ---------- ----------- ----------- Net Cash Flow 1,585,237 2,601,845 1,549,571 1,712,010 1,891,504 Present Value Factor @ 14.0% 0.93659 0.82157 0.72067 0.63217 0.55453 PV Net Cash Flow 1,484,710 2,137,589 1,116,733 1,082,279 1,048,903 ---------- ---------- ---------- ----------- ----------- Year 6 7 8 9 10 ---- ---------- ---------- ---------- ----------- ----------- Total Revenue $8,569,041 $9,088,078 $9,632,605 $10,188,838 $10,794,266 Margin % to Revenue 46.0% 46.0% 46.0% 46.0% 46.0% Operating Cash Flow 3,941,759 4,180,516 4,430,998 4,686,865 4,965,363 Capital Expenditures: - Rebuild/Extensions 126,000 127,000 128,000 129,000 130,000 - Recurring 298,000 302,000 306,000 310,000 314,000 ---------- ---------- ---------- ----------- ----------- Total 424,000 429,000 434,000 439,000 444,000 ---------- ---------- ---------- ----------- ----------- Net Cash Flow 3,517,759 3,751,516 3,996,998 4,247,865 4,521,363 Present Value Factor @ 14.0% 0.48643 0.42670 0.37429 0.32833 0.28801 PV Net Cash Flow 1,711,155 1,600,756 1,496,055 1,394,696 1,302,187 ---------- ---------- ---------- ----------- ----------- Present Value of Net Cash Flows $14,375,064 Present Value of Residual 8,103,099 ----------- Value Indication under Income Approach $22,478,163 ----------- Value Indication (Rounded) $22,480,000 ----------- Value Indication/EBU $1,407 ----------- Cash Flow Multiple - Projected 8.1 ----------- Residual Value -------------- 8x's Yr 11 Operating Cash Flow $41,907,660 Less: Taxes (see Schedule) @ 28.3% 11,867,679 ----------- After Tax Proceeds (end of year 10) 30,039,981 ----------- Present Value @ 14.0% $8,103,099 -----------
-114- 126 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. TULARE REGION, CALIFORNIA CATV SYSTEM VALUATION MODEL EXHIBIT E-4A VALUATION DATE: DECEMBER 31, 1995 - -------------------------------------------------------------------------------- Growth Rate in Homes Passed 1.94% Thru Yr 5 Homes Passed @ 12/31/95 41,053 Equivalent Billing Units @ 12/31/95 15,563 37.9% EBU's/HP Pay Units @ 12/31/95 7,110 45.7% Pay Units/EBU's Operating Margin for 95 Yr. 45.1% After reimbursable expenses. Operating Margin for 94 Yr. 45.3% After reimbursable expenses. Weighted average discount rate 14.0%
Year 1 2 3 4 5 6 7 8 9 10 ---- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------- Basic Rev/EBU (now $21.34) $21.99 $22.90 $23.80 $24.80 $25.80 $26.80 $27.90 $29.00 $30.20 $31.40 Growth rate 3.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Kagan Projection $24.58 $25.56 $26.57 $27.64 $28.74 $29.87 $31.07 $32.33 $33.62 n/a Growth rate 6.5% 4.0% 4.0% 4.0% 4.0% 3.9% 4.0% 4.1% 4.0% Pay Rev/Pay Unit (now $6.82) $6.89 $6.89 $7.10 $7.10 $7.31 $7.31 $7.31 $7.31 $7.31 $7.31 Growth rate 1.0% 0% 3% 0% 3% 0% 0% 0% 0% 0% Kagan Projection $8.20 $8.12 $8.04 $7.96 $7.88 $7.80 $7.80 $7.80 $7.80 n/a Growth rate -1.1% -1.0% -1.0% -1.0% -1.0% -1.0% 0.0% 0.0% 0.0% New Product Tier (now $2.43) $2.63 $2.76 $2.90 $3.04 $3.20 $3.36 $3.52 $3.70 $3.89 $4.08 Growth rate 8.2% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.00) $0.00 $0.05 $0.06 $0.08 $0.10 $0.12 $0.15 $0.19 $0.24 $0.30 Growth rate n/a n/a 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.46) $0.65 $0.81 $1.06 $1.27 $1.46 $1.68 $1.93 $2.12 $2.33 $2.57 Growth rate 41.3% 25.0% 30.0% 20.0% 15.0% 15.0% 15.0% 10.0% 10.0% 10.0% Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 $2.36 $2.81 $3.25 $3.66 n/a Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% 17.4% 19.1% 15.7% 12.6% Equipment/EBU (now $2.09) $2.03 $2.09 $2.15 $2.22 $2.28 $2.35 $2.42 $2.50 $2.57 $2.65 Growth rate -2.9% 3% 3% 3% 3% 3% 3% 3% 3% 3% Advertising/EBU (now $1.33) $1.48 $1.63 $1.79 $1.93 $2.09 $2.25 $2.41 $2.59 $2.79 $3.00 Growth rate 11.3% 10.0% 10.0% 8.0% 8.0% 7.5% 7.5% 7.5% 7.5% 7.5% Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 $3.47 $3.87 $4.28 $4.69 n/a Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% 12.7% 11.5% 10.6% 9.6% Home Shopping/EBU (now $0.15) $0.14 $0.18 $0.22 $0.27 $0.33 $0.39 $0.45 $0.52 $0.60 $0.69 Growth rate -6.7% 25% 25% 25% 20% 20% 15% 15% 15% 15% Install/Service/EBU (now $.62) $0.64 $0.67 $0.71 $0.74 $0.78 $0.82 $0.86 $0.90 $0.95 $0.99 Growth rate 3.2% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Franchise Fee Pass-thru/EBU (now $1.28) $1.38 $1.45 $1.52 $1.59 $1.67 $1.75 $1.83 $1.91 $1.99 $2.08 Growth rate n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $1.53) $1.75 $1.84 $1.93 $2.03 $2.13 $2.23 $2.35 $2.46 $2.59 $2.71 growth rate 14.4% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 45.7%) 46.0% 47.0% 48.0% 49.0% 50.0% 50.0% 50.0% 50.0% 50.0% 50.0% Kagan Projection 77.5% 78.5% 79.5% 80.0% 80.3% 80.5% 80.8% 81.0% 81.3% n/a Total Annual EBU Rev $430.30 $451.35 $474.53 $497.45 $521.83 $544.78 $569.75 $594.57 $621.53 $649.49 monthly (now $34.42) $35.86 $37.61 $39.54 $41.45 $43.49 $45.40 $47.48 $49.55 $51.79 $54.12 Compound growth 4.7% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 $42.60 $44.74 $46.91 $49.15 Compound growth 4.8%
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Year 1 2 3 4 5 ---- ---------- ---------- ---------- ---------- ---------- Homes Passed 41,405 42,208 43,027 43,862 44,713 EBU Penetration 38.4% 39.4% 40.4% 41.4% 42.4% Kagan Penetration Projection 67.5% 68.0% 68.3% 68.2% 67.7% Equivalent Billing Units 15,916 16,647 17,400 18,176 18,976 Basic Revenue/EBU $21.99 $22.90 $23.80 $24.80 $25.80 Basic Revenue 4,199,914 4,574,555 4,969,461 5,409,253 5,874,969 ---------- ---------- ---------- ---------- ---------- Pay-to-Basic Ratio 46.0% 47.0% 48.0% 49.0% 50.0% Pay Units 7,321 7,824 8,352 8,906 9,488 Pay Revenue/Pay Unit $6.89 $6.89 $7.10 $7.10 $7.31 Pay Revenue 605,330 646,890 711,263 758,469 832,242 ---------- ---------- ---------- ---------- ---------- New Product Tier/EBU $2.63 $2.76 $2.90 $3.04 $3.20 New Product Tier Revenue 502,309 551,643 605,434 664,063 727,945 ---------- ---------- ---------- ---------- ---------- Mini-Pay Revenue/EBU $0.00 $0.05 $0.06 $0.08 $0.10 Mini-Pay Revenue/EBU 0 9,988 13,050 17,040 22,237 Pay-Per-View Revenue/EBU $0.65 $0.81 $1.06 $1.27 $1.46 Pay-Per-View Revenue 124,145 162,307 220,546 276,461 331,919 ---------- ---------- ---------- ---------- ---------- Equipment Revenue/ EBU $2.03 $2.09 $2.15 $2.22 $2.28 Equipment Revenue 387,714 417,683 449,679 483,831 520,272 ---------- ---------- ---------- ---------- ---------- Advertising Revenue/EBU $1.48 $1.63 $1.79 $1.93 $2.09 Advertising Revenue/EBU 282,668 325,213 373,921 421,848 475,642 ---------- ---------- ---------- ---------- ---------- Home Shopping/EBU $0.14 $0.18 $0.22 $0.27 $0.33 Home Shopping Revenue 26,739 34,958 45,675 59,641 74,718 ---------- ---------- ---------- ---------- ---------- Installation Revenue/EBU $0.64 $0.67 $0.71 $0.74 $0.78 Installation Revenue 122,235 134,240 147,330 161,597 177,143 ---------- ---------- ---------- ---------- ---------- Franchise Fee Pass-thru Revenue/EBU $1.38 $1.45 $1.52 $1.59 $1.67 Franchise Fee Pass-thru Revenue 263,412 288,982 317,569 347,763 380,859 ---------- ---------- ---------- ---------- ---------- Late Fees & Other Revenue/EBU $1.75 $1.84 $1.93 $2.03 $2.13 Late Fees & Other Revenue 334,236 367,063 402,855 441,867 484,374 ---------- ---------- ---------- ---------- ---------- Total Revenue $6,848,701 $7,513,523 $8,256,782 $9,041,833 $9,902,321 ========== ========== ========== ========== ========== Year 6 7 8 9 10 ---- ----------- ---------- ---------- ----------- ----------- Homes Passed 45,146 45,584 46,027 46,473 46,924 EBU Penetration 43.4% 44.4% 45.4% 46.4% 47.4% Kagan Penetration Projection 67.1% 66.5% 65.9% 65.3% Equivalent Billing Units 19,612 20,258 20,914 21,582 22,261 Basic Revenue/EBU $26.80 $27.90 $29.00 $30.20 $31.40 Basic Revenue 6,307,068 6,782,247 7,278,201 7,821,306 8,387,776 ----------- ----------- ----------- ----------- ----------- Pay-to-Basic Ratio 50.0% 50.0% 50.0% 50.0% 50.0% Pay Units 9,806 10,129 10,457 10,791 11,130 Pay Revenue/Pay Unit $7.31 $7.31 $7.31 $7.31 $7.31 Pay Revenue 860,115 888,450 917,254 946,534 976,295 ----------- ----------- ----------- ----------- ----------- New Product Tier/EBU $3.36 $3.52 $3.70 $3.89 $4.08 New Product Tier Revenue 789,942 856,763 928,767 1,006,335 1,089,875 ----------- ----------- ----------- ----------- ----------- Mini-Pay Revenue/EBU $0.12 $0.15 $0.19 $0.24 $0.30 Mini-Pay Revenue/EBU 28,728 37,093 47,869 61,747 79,610 ----------- ----------- ----------- ----------- ----------- Pay-Per-View Revenue/EBU $1.68 $1.93 $2.12 $2.33 $2.57 Pay-Per-View Revenue 394,490 468,609 532,182 604,087 685,388 ----------- ----------- ----------- ----------- ----------- Equipment Revenue/ EBU $2.35 $2.42 $2.50 $2.57 $2.65 Equipment Revenue 553,828 589,235 626,589 665,988 707,536 ----------- ----------- ----------- ----------- ----------- Advertising Revenue/EBU $2.25 $2.41 $2.59 $2.79 $3.00 Advertising Revenue/EBU 528,440 586,788 651,247 722,438 801,040 ----------- ----------- ----------- ----------- ----------- Home Shopping/EBU $0.39 $0.45 $0.52 $0.60 $0.69 Home Shopping Revenue 92,664 110,075 130,690 155,091 183,962 ----------- ----------- ----------- ----------- ----------- Installation Revenue/EBU $0.82 $0.86 $0.90 $0.95 $0.99 Installation Revenue 192,229 208,490 226,012 244,888 265,217 ----------- ----------- ----------- ----------- ----------- Franchise Fee Pass-thru Revenue/EBU $1.75 $1.83 $1.91 $1.99 $2.08 Franchise Fee Pass-thru Revenue 410,925 443,914 478,273 515,921 556,076 ----------- ----------- ----------- ----------- ----------- Late Fees & Other Revenue/EBU $2.23 $2.35 $2.46 $2.59 $2.71 Late Fees & Other Revenue 525,627 570,090 618,001 669,614 725,202 =========== =========== =========== =========== =========== Total Revenue $10,684,057 $11,541,753 $12,435,085 $13,413,947 $14,457,977
-116- 128 - ----------------------------------------------------------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY K A N E R E E C E A S S O C I A T E S, I N C. EXHIBIT E-4c TULARE REGION, CALIFORNIA CATV SYSTEM VALUATION MODEL - -----------------------------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- ----------- ----------- ----------- ----------- ----------- Total Revenue $6,848,701 $7,513,523 $8,256,782 $9,041,833 $9,902,321 Margin % to Revenue 45.0% 45.5% 46.0% 46.0% 46.0% Operating Cash Flow 3,081,916 3,418,653 3,798,120 4,159,243 4,555,068 Capital Expenditures: - Rebuild/Extensions 196,000 1,824,000 3,433,000 3,445,000 1,860,000 - Recurring 337,000 366,000 377,000 388,000 401,000 ----------- ----------- ----------- ----------- ----------- Total 533,000 2,190,000 3,810,000 3,833,000 2,261,000 ----------- ----------- ----------- ----------- ----------- Net Cash Flow 2,548,916 1,228,653 (11,880) 326,243 2,294,068 Present Value Factor @ 14.0% 0.93659 0.82157 0.72067 0.63217 0.55453 PV Net Cash Flow 2,387,278 1,009,420 (8,562) 206,241 1,272,139 =========== =========== =========== =========== =========== Year 6 7 8 9 10 ---- ----------- ----------- ----------- ----------- ----------- Total Revenue $10,684,057 $11,541,753 $12,435,085 $13,413,947 $14,457,977 Margin % to Revenue 46.0% 46.0% 46.0% 46.0% 46.0% Operating Cash Flow 4,914,666 5,309,206 5,720,139 6,170,416 6,650,669 Capital Expenditures: - Rebuild/Extensions 237,000 243,000 248,000 254,000 261,000 - Recurring 381,000 391,000 402,000 412,000 424,000 ----------- ----------- ----------- ----------- ----------- Total 618,000 634,000 650,000 666,000 685,000 ----------- ----------- ----------- ----------- ----------- Net Cash Flow 4,296,666 4,675,206 5,070,139 5,504,416 5,965,669 Present Value Factor @ 14.0% 0.48643 0.42670 0.37429 0.32833 0.28801 PV Net Cash Flow 2,090,042 1,994,891 1,897,726 1,807,257 1,718,158 =========== =========== =========== =========== ===========
Present Value of Net Cash Flows $14,374,590 Residual Value Present Value of Residual 10,905,860 -------------- ----------- 8x's Yr 11 Operating Cash Flow $56,929,729 Value Indication under Income Approach $25,280,450 Less: Taxes (see Schedule) @ 29.0% 16,499,292 ----------- ----------- Value Indication (Rounded) $25,280,000 After Tax Proceeds (end of year 10) 40,430,437 ----------- ----------- Value Indication/EBU $1,624 Present Value @ 14.0% $10,905,860 ------ ----------- Cash Flow Multiple - Projected 8.2 ---
-117- 129 - ----------------------------------------------------------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY K A N E R E E C E A S S O C I A T E S, I N C. CENTRAL REGION, OREGON CATV SYSTEM VALUATION MODEL EXHIBIT E-5A VALUATION DATE: DECEMBER 31, 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Growth Rate in Homes Passed 1.3% Thru Yr 5 Homes Passed @ 12/31/95 26,355 Equivalent Billing Units @ 12/31/95 14,609 55.4% EBU's/HP Pay Units @ 12/31/95 5,505 37.7% Pay Units/EBU's Operating Margin for 95 Yr. 50.5% After reimbursable expenses. Operating Margin for 94 Yr. 52.2% After reimbursable expenses. Weighted average discount rate 14.0%
Year 1 2 3 4 5 6 7 8 9 10 ---- - - - - - - - - - -- Basic Rev/EBU (now $20.63) $21.20 $22.00 $22.90 $23.80 $24.80 $25.80 $26.80 $27.90 $29.00 $30.20 Growth rate 2.8% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Kagan Projection $24.58 $25.56 $26.57 $27.64 $28.74 $29.87 $31.07 $32.33 $33.62 n/a Growth rate 6.5% 4.0% 4.0% 4.0% 4.0% 3.9% 4.0% 4.1% 4.0% Pay Rev/Pay Unit (now $8.06) $6.98 $6.98 $7.19 $7.19 $7.41 $7.41 $7.63 $7.63 $7.86 $7.86 Growth rate -12.2% 0% 3% 0% 3% 0% 3% 0% 3% 0% Kagan Projection $8.20 $8.12 $8.04 $7.96 $7.88 $7.80 $7.80 $7.80 $7.80 n/a Growth rate -1.1% -1.0% -1.0% -1.0% -1.0% -1.0% 0.0% 0.0% 0.0% New Product Tier (now $2.75) $3.29 $3.45 $3.63 $3.81 $4.00 $4.20 $4.41 $4.63 $4.86 $5.10 Growth rate 19.6% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.00) $0.01 $0.01 $0.02 $0.02 $0.02 $0.03 $0.04 $0.05 $0.06 $0.07 Growth rate n/a 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.01) $0.00 $0.00 $0.20 $0.24 $0.28 $0.32 $0.37 $0.42 $0.48 $0.56 Growth rate n/a n/a n/a 20.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 $2.36 $2.81 $3.25 $3.66 n/a Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% 17.4% 19.1% 15.7% 12.6% Equipment/ EBU (now $0.32) $0.31 $0.32 $0.33 $0.34 $0.35 $0.36 $0.37 $0.38 $0.39 $0.40 Growth rate -3.1% 3% 3% 3% 3% 3% 3% 3% 3% 3% Advertising/EBU (now $0.0) $0.00 $0.00 $0.00 $0.50 $0.63 $0.78 $0.98 $1.22 $1.53 $1.91 Growth rate n/a n/a n/a n/a 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 $3.47 $3.87 $4.28 $4.69 n/a Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% 12.7% 11.5% 10.6% 9.6% Home Shopping /EBU (now $0.24) $0.24 $0.30 $0.38 $0.47 $0.56 $0.68 $0.78 $0.89 $1.03 $1.18 Growth rate 0.0% 25% 25% 25% 20% 20% 15% 15% 15% 15% Install/Service/EBU (now $.73) $0.77 $0.81 $0.85 $0.89 $0.94 $0.98 $1.03 $1.08 $1.14 $1.19 Growth rate 5.5% 5% 5% 5% 5% 5% 5% 5% 5% 5% Franchise Fee Pass-thru/EBU (now $0.16) $0.16 $0.21 $0.32 $0.67 $1.23 $1.29 $1.36 $1.42 $1.50 $1.57 Growth rate n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.44) $0.46 $0.47 $0.48 $0.49 $0.50 $0.51 $0.52 $0.53 $0.54 $0.55 growth rate 4.5% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Pay-to-EBU (now 37.7%) 39.0% 40.0% 41.0% 42.0% 43.0% 44.0% 45.0% 46.0% 47.0% 48.0% Kagan Projection 77.5% 78.5% 79.5% 80.0% 80.3% 80.5% 80.8% 81.0% 81.3% n/a Total Annual EBU Rev $349.94 $364.41 $384.47 $410.95 $437.85 $458.44 $480.87 $504.40 $530.55 $558.17 monthly (now $28.11) $29.16 $30.37 $32.04 $34.25 $36.49 $38.20 $40.07 $42.03 $44.21 $46.51 Compound growth 5.3% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 $42.60 $44.74 $46.91 $49.15 Compound growth 4.8%
-118- 130 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. EXHIBIT E-5b CENTRAL REGION, OREGON CATV SYSTEM VALUATION MODEL - -------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- ---------- ---------- ---------- ---------- ---------- Homes Passed 26,482 26,826 27,175 27,528 27,886 EBU Penetration 56.0% 56.5% 57.0% 57.5% 62.5% Kagan Penetration Projection 67.5% 68.0% 68.3% 68.2% 67.7% Equivalent Billing Units 14,825 15,152 15,485 15,824 17,429 Basic Revenue/EBU $21.20 $22.00 $22.90 $23.80 $24.80 Basic Revenue 3,771,480 4,000,090 4,255,197 4,519,234 5,186,824 ---------- ---------- ---------- ---------- ---------- Pay-to-Basic Ratio 39.0% 40.0% 41.0% 42.0% 43.0% Pay Units 5,782 6,061 6,349 6,646 7,494 Pay Revenue/Pay Unit $6.98 $6.98 $7.19 $7.19 $7.41 Pay Revenue 484,279 507,648 547,723 573,363 665,960 ---------- ---------- ---------- ---------- ---------- New Product Tier/EBU $3.29 $3.45 $3.63 $3.81 $4.00 New Product Tier Revenue 585,291 628,105 673,998 723,189 836,379 ---------- ---------- ---------- ---------- ---------- Mini-Pay Revenue/EBU $0.01 $0.01 $0.02 $0.02 $0.02 Mini-Pay Revenue/EBU 1,779 2,273 2,903 3,709 5,106 ---------- ---------- ---------- ---------- ---------- Pay-Per-View Revenue/EBU $0.00 $0.00 $0.20 $0.24 $0.28 Pay-Per-View Revenue 0 0 37,163 45,572 57,724 ---------- ---------- ---------- ---------- ---------- Equipment Revenue/ EBU $0.31 $0.32 $0.33 $0.34 $0.35 Equipment Revenue 55,149 58,056 61,111 64,322 72,973 ---------- ---------- ---------- ---------- ---------- Advertising Revenue/EBU $0.00 $0.00 $0.00 $0.50 $0.63 Advertising Revenue/EBU 0 0 0 94,942 130,716 ---------- ---------- ---------- ---------- ---------- Home Shopping/EBU $0.24 $0.30 $0.38 $0.47 $0.56 Home Shopping Revenue 42,696 54,547 69,681 89,008 117,645 ---------- ---------- ---------- ---------- ---------- Installation Revenue/EBU $0.77 $0.81 $0.85 $0.89 $0.94 Installation Revenue 136,983 147,003 157,744 169,257 195,748 ---------- ---------- ---------- ---------- ---------- Franchise Fee Pass-thru Revenue/EBU $0.16 $0.21 $0.32 $0.67 $1.23 Franchise Fee Pass-thru Revenue 28,377 38,381 58,944 127,506 258,062 ---------- ---------- ---------- ---------- ---------- Late Fees & Other Revenue/EBU $0.46 $0.47 $0.48 $0.49 $0.50 Late Fees & Other Revenue 81,834 85,311 88,929 92,693 104,138 ---------- ---------- ---------- ---------- ---------- Total Revenue $5,187,869 $5,521,414 $5,953,394 $6,502,794 $7,631,275 ---------- ---------- ---------- ---------- ---------- 6 7 8 9 10 ---------- ---------- ---------- ---------- ---------- Homes Passed 28,067 28,250 28,433 28,618 28,804 EBU Penetration 63.0% 63.5% 64.0% 64.5% 65.0% Kagan Penetration Projection 67.1% 66.5% 65.9% 65.3% Equivalent Billing Units 17,682 17,939 18,197 18,459 18,723 Basic Revenue/EBU $25.80 $26.80 $27.90 $29.00 $30.20 Basic Revenue 5,474,492 5,769,071 6,092,497 6,423,661 6,785,143 ---------- ---------- ---------- ---------- ---------- Pay-to-Basic Ratio 44.0% 45.0% 46.0% 47.0% 48.0% Pay Units 7,780 8,072 8,371 8,676 8,987 Pay Revenue/Pay Unit $7.41 $7.63 $7.63 $7.86 $7.86 Pay Revenue 691,364 738,841 766,154 817,875 847,223 ---------- ---------- ---------- ---------- ---------- New Product Tier/EBU $4.20 $4.41 $4.63 $4.86 $5.10 New Product Tier Revenue 890,977 949,080 1,010,909 1,076,701 1,146,705 ---------- ---------- ---------- ---------- ---------- Mini-Pay Revenue/EBU $0.03 $0.04 $0.05 $0.06 $0.07 Mini-Pay Revenue/EBU 6,476 8,212 10,413 13,203 16,739 ---------- ---------- ---------- ---------- ---------- Pay-Per-View Revenue/EBU $0.32 $0.37 $0.42 $0.48 $0.56 Pay-Per-View Revenue 67,349 78,573 91,663 106,926 124,724 ---------- ---------- ---------- ---------- ---------- Equipment Revenue/ EBU $0.36 $0.37 $0.38 $0.39 $0.40 Equipment Revenue 76,256 79,681 83,256 86,985 90,876 ---------- ---------- ---------- ---------- ---------- Advertising Revenue/EBU $0.78 $0.98 $1.22 $1.53 $1.91 Advertising Revenue/EBU 165,773 210,219 266,564 337,991 428,531 ---------- ---------- ---------- ---------- ---------- Home Shopping/EBU $0.68 $0.78 $0.89 $1.03 $1.18 Home Shopping Revenue 143,228 167,099 194,935 227,396 265,245 ---------- ---------- ---------- ---------- ---------- Installation Revenue/EBU $0.98 $1.03 $1.08 $1.14 $1.19 Installation Revenue 208,527 222,125 236,596 251,994 268,378 ---------- ---------- ---------- ---------- ---------- Franchise Fee Pass-thru Revenue/EBU $1.29 $1.36 $1.42 $1.50 $1.57 Franchise Fee Pass-thru Revenue 274,127 291,704 310,393 331,174 353,398 ---------- ---------- ---------- ---------- ---------- Late Fees & Other Revenue/EBU $0.51 $0.52 $0.53 $0.54 $0.55 Late Fees & Other Revenue 107,766 111,514 115,385 119,383 123,513 ---------- ---------- ---------- ---------- ---------- Total Revenue $8,106,335 $8,626,119 $9,178,764 $9,793,288 $10,450,474 ---------- ---------- ---------- ---------- ----------
-119- 131 FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. EXHIBIT E-5c CENTRAL REGION, OREGON CATV SYSTEM VALUATION MODEL
Year 1 2 3 4 5 ---- - - - - - Total Revenue $5,187,869 $5,521,414 $5,953,394 $6,502,794 $7,631,275 Margin % to Revenue 50.0% 50.0% 50.0% 51.0% 51.0% Operating Cash Flow 2,593,934 2,760,707 2,976,697 3,316,425 3,891,950 Capital Expenditures: - Rebuild/Extensions 113,000 145,000 1,102,000 258,000 265,000 - Recurring 396,000 250,000 305,000 460,000 477,000 --------- --------- --------- --------- --------- Total 509,000 395,000 1,407,000 718,000 742,000 Net Cash Flow 2,084,934 2,365,707 1,569,697 2,598,425 3,149,950 Present Value Factor @ 14.0% 0.93659 0.82157 0.72067 0.63217 0.55453 PV Net Cash Flow 1,952,720 1,943,586 1,131,237 1,642,643 1,746,755 --------- --------- --------- --------- ---------
Year 6 7 8 9 10 ---- - - - - -- Total Revenue $8,106,335 $8,626,119 $9,178,764 $9,793,288 $10,450,474 Margin % to Revenue 51.0% 51.0% 51.0% 51.0% 51.0% Operating Cash Flow 4,134,231 4,399,321 4,681,170 4,994,577 5,329,742 Capital Expenditures: - Rebuild/Extensions 186,000 189,000 192,000 196,000 199,000 - Recurring 310,000 264,000 319,000 274,000 330,000 --------- --------- --------- --------- --------- Total 496,000 453,000 511,000 470,000 529,000 --------- --------- --------- --------- --------- Net Cash Flow 3,638,231 3,946,321 4,170,170 4,524,577 4,800,742 Present Value Factor @ 14.0% 0.48643 0.42670 0.37429 0.32833 0.28801 PV Net Cash Flow 1,769,757 1,683,879 1,560,872 1,485,548 1,382,650 --------- --------- --------- --------- ---------
Present Value of Net Cash Flows $16,299,646 Residual Value Present Value of Residual 8,782,385 ------------------------------------------------------ ----------- 8x's Yr 11 Operating Cash Flow $45,409,400 Value Indication under Income Approach $25,082,031 Less: Taxes (see Schedule) @ 28.3% 12,851,156 ----------- ---------- Value Indication (Rounded) $25,080,000 After Tax Proceeds (end of year 10) 32,558,244 ----------- ---------- Value Indication/EBU $1,717 Present Value @ 14.0% $8,782,385 ------ ---------- Cash Flow Multiple - Projected 9.7 ---
-120- 132 FALCON CABLE SYSTEMS COMPANY K A N E R E E C E A S S O C I A T E S, I N C. DALLAS REGION, OREGON CATV SYSTEM VALUATION MODEL EXHIBIT E-6a VALUATION DATE: DECEMBER 31, 1995
Growth Rate in Homes Passed 2.1% Thru Yr 5 Homes Passed @ 12/31/95 23,770 Equivalent Billing Units @ 12/31/95 17,736 74.6% EBU's/HP Pay Units @ 12/31/95 7,139 40.3% Pay Units/EBU's Operating Margin for 95 Yr. 52.1% After reimbursable expenses & capitalization adjustments. Operating Margin for 94 Yr. 53.5% After reimbursable expenses & capitalization adjustments. Weighted average discount rate 14.0%
Year 1 2 3 4 5 6 7 8 9 10 ---- - - - - - - - - - -- Basic Rev/EBU (now $21.10) $21.47 $22.30 $23.20 $24.10 $25.10 $26.10 $27.10 $28.20 $29.30 $30.50 Growth rate 1.8% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Kagan Projection $24.58 $25.56 $26.57 $27.64 $28.74 $29.87 $31.07 $32.33 $33.62 n/a Growth rate 6.5% 4.0% 4.0% 4.0% 4.0% 3.9% 4.0% 4.1% 4.0% Pay Rev/Pay Unit (now $7.41) $7.73 $7.73 $7.96 $7.96 $8.20 $8.20 $8.20 $8.20 $8.20 $8.20 Growth rate 4.3% 0% 3% 0% 3% 0% 0% 0% 0% 0% Kagan Projection $8.20 $8.12 $8.04 $7.96 $7.88 $7.80 $7.80 $7.80 $7.80 n/a Growth rate -1.1% -1.0% -1.0% -1.0% -1.0% -1.0% 0.0% 0.0% 0.0% New Product Tier (now $1.83) $2.06 $2.16 $2.27 $2.38 $2.50 $2.63 $2.76 $2.90 $3.04 $3.20 Growth rate 12.6% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.04) $0.06 $0.08 $0.09 $0.12 $0.15 $0.18 $0.23 $0.29 $0.36 $0.45 Growth rate n/a 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.21) $0.23 $0.28 $0.33 $0.40 $0.46 $0.53 $0.60 $0.70 $0.80 $0.92 Growth rate 9.5% 20.0% 20.0% 20.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 $2.36 $2.81 $3.25 $3.66 n/a Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% 17.4% 19.1% 15.7% 12.6% Equipment/EBU (now $0.35) $0.34 $0.35 $0.36 $0.37 $0.38 $0.39 $0.41 $0.42 $0.43 $0.44 Growth rate -2.9% 3% 3% 3% 3% 3% 3% 3% 3% 3% Advertising/EBU (now $.91) $1.06 $1.33 $1.66 $1.90 $2.19 $2.52 $2.77 $3.05 $3.35 $3.69 Growth rate 16.5% 25.0% 25.0% 15.0% 15.0% 15.0% 10.0% 10.0% 10.0% 10.0% Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 $3.47 $3.87 $4.28 $4.69 n/a Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% 12.7% 11.5% 10.6% 9.6% Home Shopping/EBU (now $0.17) $0.19 $0.24 $0.30 $0.37 $0.45 $0.53 $0.61 $0.71 $0.81 $0.93 Growth rate 11.8% 25% 25% 25% 20% 20% 15% 15% 15% 15% Install/Service/EBU (now $.52) $0.58 $0.61 $0.64 $0.67 $0.70 $0.74 $0.78 $0.82 $0.86 $0.90 Growth rate 11.5% 5% 5% 5% 5% 5% 5% 5% 5% 5% Franchise Fee Pass-thru/EBU (now $.04) $0.04 $0.26 $0.37 $0.73 $1.31 $1.37 $1.43 $1.50 $1.57 $1.65 Growth rate n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.65) $0.67 $0.68 $0.70 $0.71 $0.73 $0.74 $0.75 $0.77 $0.79 $0.80 growth rate 3.1% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Pay-to-EBU (now 40.3%) 40.5% 41.5% 42.5% 43.5% 44.5% 45.5% 46.5% 47.5% 48.5% 49.5% Kagan Projection 77.5% 78.5% 79.5% 80.0% 80.3% 80.5% 80.8% 81.0% 81.3% n/a Total Annual EBU Rev $357.97 $377.83 $399.59 $422.67 $451.39 $473.64 $495.17 $518.81 $543.43 $570.41 monthly (now $28.11) $29.83 $31.49 $33.30 $35.22 $37.62 $39.47 $41.26 $43.23 $45.29 $47.53 Compound growth 5.3% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 $42.60 $44.74 $46.91 $49.15 Compound growth 4.8%
-121- 133 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. EXHIBIT E-6b DALLAS REGION, OREGON CATV SYSTEM VALUATION MODEL - --------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- ---------- ---------- ---------- ---------- ---------- Homes Passed 23,975 24,478 24,993 25,517 26,053 EBU Penetration 74.7% 75.0% 75.0% 75.0% 75.0% Kagan Penetration Projection 67.5% 68.0% 68.3% 68.2% 67.7% Equivalent Billing Units 17,900 18,359 18,744 19,138 19,540 Basic Revenue/EBU $21.47 $22.30 $23.20 $24.10 $25.10 Basic Revenue 4,611,756 4,912,830 5,218,439 5,534,717 5,885,425 ---------- ---------- ---------- ---------- ---------- Pay-to-Basic Ratio 40.5% 41.5% 42.5% 43.5% 44.5% Pay Units 7,250 7,619 7,966 8,325 8,695 Pay Revenue/Pay Unit $7.73 $7.73 $7.96 $7.96 $8.20 Pay Revenue 672,464 706,732 761,129 795,398 855,693 ---------- ---------- ---------- ---------- ---------- New Product Tier/EBU $2.06 $2.16 $2.27 $2.38 $2.50 New Product Tier Revenue 442,488 476,522 510,856 547,663 587,122 ---------- ---------- ---------- ---------- ---------- Mini-Pay Revenue/EBU $0.06 $0.08 $0.09 $0.12 $0.15 Mini-Pay Revenue 12,888 16,523 21,087 26,913 34,348 ---------- ---------- ---------- ---------- ---------- Pay-Per-View Revenue/EBU $0.23 $0.28 $0.33 $0.40 $0.46 Pay-Per-View Revenue 49,404 60,805 74,498 91,275 107,170 ---------- ---------- ---------- ---------- ---------- Equipment Revenue/ EBU $0.34 $0.35 $0.36 $0.37 $0.38 Equipment Revenue 73,032 77,151 81,135 85,324 89,729 ---------- ---------- ---------- ---------- ---------- Advertising Revenue/EBU $1.06 $1.33 $1.66 $1.90 $2.19 Advertising Revenue 227,688 291,906 372,545 437,423 513,601 ---------- ---------- ---------- ---------- ---------- Home Shopping/EBU $0.19 $0.24 $0.30 $0.37 $0.45 Home Shopping Revenue 40,812 52,323 66,777 85,224 104,416 ---------- ---------- ---------- ---------- ---------- Installation Revenue/EBU $0.58 $0.61 $0.64 $0.67 $0.70 Installation Revenue 124,584 134,167 143,833 154,196 165,306 ---------- ---------- ---------- ---------- ---------- Franchise Fee Pass-thru Revenue/EBU $0.04 $0.26 $0.37 $0.73 $1.31 Franchise Fee Pass-thru Revenue 8,592 56,969 83,068 167,615 307,329 ---------- ---------- ---------- ---------- ---------- Late Fees & Other Revenue/EBU $0.67 $0.68 $0.70 $0.71 $0.73 Late Fees & Other Revenue 143,916 150,557 156,793 163,288 170,051 ---------- ---------- ---------- ---------- ---------- Total Revenue $6,407,624 $6,936,484 $7,490,160 $8,089,035 $8,820,190 ---------- ---------- ---------- ---------- ----------
6 7 8 9 10 ---------- ---------- ---------- ---------- ---------- Homes Passed 26,327 26,603 26,883 27,165 27,450 EBU Penetration 75.0% 75.0% 75.0% 75.0% 75.0% Kagan Penetration Projection 67.1% 66.5% 65.9% 65.3% Equivalent Billing Units 19,745 19,952 20,162 20,374 20,588 Basic Revenue/EBU $26.10 $27.10 $28.20 $29.30 $30.50 Basic Revenue 6,184,163 6,488,526 6,822,792 7,163,363 7,535,039 ---------- ---------- ---------- ---------- ---------- Pay-to-Basic Ratio 45.5% 46.5% 47.5% 48.5% 49.5% Pay Units 8,984 9,278 9,577 9,881 10,191 Pay Revenue/Pay Unit $8.20 $8.20 $8.20 $8.20 $8.20 Pay Revenue 884,109 913,027 942,455 972,400 1,002,870 ---------- ---------- ---------- ---------- ---------- New Product Tier/EBU $2.63 $2.76 $2.90 $3.04 $3.20 New Product Tier Revenue 622,951 660,967 701,302 744,099 789,508 ---------- ---------- ---------- ---------- ---------- Mini-Pay Revenue/EBU $0.18 $0.23 $0.29 $0.36 $0.45 Mini-Pay Revenue 43,385 54,801 69,220 87,434 110,440 ---------- ---------- ---------- ---------- ---------- Pay-Per-View Revenue/EBU $0.53 $0.60 $0.70 $0.80 $0.92 Pay-Per-View Revenue 124,540 144,724 168,181 195,439 227,114 ---------- ---------- ---------- ---------- ---------- Equipment Revenue/ EBU $0.39 $0.41 $0.42 $0.43 $0.44 Equipment Revenue 93,391 97,203 101,170 105,299 109,597 ---------- ---------- ---------- ---------- ---------- Advertising Revenue/EBU $2.52 $2.77 $3.05 $3.35 $3.69 Advertising Revenue 596,843 663,420 737,425 819,685 911,121 ---------- ---------- ---------- ---------- ---------- Home Shopping/EBU $0.53 $0.61 $0.71 $0.81 $0.93 Home Shopping Revenue 126,615 147,137 170,984 198,696 230,900 ---------- ---------- ---------- ---------- ---------- Installation Revenue/EBU $0.74 $0.78 $0.82 $0.86 $0.90 Installation Revenue 175,394 186,097 197,454 209,504 222,289 ---------- ---------- ---------- ---------- ---------- Franchise Fee Pass-thru Revenue/EBU $1.37 $1.43 $1.50 $1.57 $1.65 Franchise Fee Pass-thru Revenue 325,411 343,357 363,079 383,854 406,666 ---------- ---------- ---------- ---------- ---------- Late Fees & Other Revenue/EBU $0.74 $0.75 $0.77 $0.79 $0.80 Late Fees & Other Revenue 175,273 180,656 186,204 191,922 197,816 ---------- ---------- ---------- ---------- ---------- Total Revenue $9,352,075 $9,879,915 $10,460,267 $11,071,696 $11,743,361 ---------- ---------- ----------- ----------- -----------
-122- 134 FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. EXHIBIT E-6c DALLAS REGION, OREGON CATV SYSTEM VALUATION MODEL
Year 1 2 3 4 5 Total Revenue $6,407,624 $6,936,484 $7,490,160 $8,089,035 $8,820,190 Margin % to Revenue 52.0% 52.0% 51.0% 51.0 % 50.0% Operating Cash Flow 3,331,964 3,606,972 3,819,982 4,125,408 4,410,095 Capital Expenditures: - Rebuild/Extensions 930,000 2,441,000 2,542,000 271,000 280,000 - Recurring 759,000 281,000 324,000 481,000 288,000 ---------- ---------- ---------- ---------- ---------- Total 1,689,000 2,722,000 2,866,000 752,000 568,000 ---------- ---------- ---------- ---------- ---------- Net Cash Flow 1,642,964 884,972 953,982 3,373,408 3,842,095 Present Value Factor @ 14.0% 0.93659 0.82157 0.72067 0.63217 0.55453 PV Net Cash Flow 1,538,777 727,063 687,508 2,132,563 2,130,572 ---------- ---------- ---------- ---------- ----------
6 7 8 9 10 Total Revenue $9,352,075 $9,879,915 $10,460,267 $11,071,696 $11,743,361 Margin % to Revenue 50.0% 50.0% 50.0% 50.0% 50.0% Operating Cash Flow 4,676,038 4,939,958 5,230,134 5,535,848 5,871,680 Capital Expenditures: - Rebuild/Extensions 194,000 198,000 202,000 207,000 211,000 - Recurring 309,000 264,000 318,000 273,000 328,000 ---------- ---------- ----------- ----------- ----------- Total 503,000 462,000 520,000 480,000 539,000 ---------- ---------- ----------- ----------- ----------- Net Cash Flow 4,173,038 4,477,958 4,710,134 5,055,848 5,332,680 Present Value Factor @ 14.0% 0.48643 0.42670 0.37429 0.32833 0.28801 PV Net Cash Flow 2,029,905 1,910,726 1,762,978 1,659,980 1,535,852 ---------- ---------- ----------- ----------- -----------
Present Value of Net Cash Flows $16,115,924 Residual Value Present Value of Residual 9,619,639 ------------------------------------------------------- ----------- 8x's Yr 11 Operating Cash Flow $50,026,717 Value Indication under Income Approach $25,735,563 Less: Taxes (see Schedule) @ 28.7% 14,364,586 ----------- ----------- Value Indication (Rounded) $25,740,000 After Tax Proceeds (end of year 10) 35,662,132 ----------- ---------- Value Indication/EBU $1,451 Present Value @ 14.0% $9,619,639 ------ ---------- Cash Flow Multiple - Projected 7.7 ---
-123- 135 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. COOS BAY/FLORENCE REGION, OREGON CATV SYSTEM VALUATION MODEL EXHIBIT E-7a VALUATION DATE: DECEMBER 31, 1995 - -------------------------------------------------------------------------------- Growth Rate in Homes Passed 1.0% Thru Yr 5 Homes Passed @ 12/31/95 31,489 Equivalent Billing Units @ 12/31/95 22,898 72.7% EBU's/HP Pay Units @ 12/31/95 7,771 33.9% Pay Units/EBU's Operating Margin for 95 Yr. 51.3% After reimbursable expenses. Operating Margin for 94 Yr. 51.9% After reimbursable expenses. Weighted average discount rate 14.0%
Year 1 2 3 4 5 6 7 8 9 10 ---- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- Basic Rev/EBU (now $21.89) $22.75 $23.70 $24.60 $25.60 $26.60 $27.70 $28.80 $30.00 $31.20 $32.40 Growth rate 3.9% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Kagan Projection $24.58 $25.56 $26.57 $27.64 $28.74 $29.87 $31.07 $32.33 $33.62 n/a Growth rate 6.5% 4.0% 4.0% 4.0% 4.0% 3.9% 4.0% 4.1% 4.0% Pay Rev/Pay Unit (now $6.75) $7.32 $7.54 $7.54 $7.77 $7.77 $8.00 $8.00 $8.00 $8.00 $8.00 Growth rate 8.4% 3.0% 0% 3% 0% 3% 0% 0% 0% 0% Kagan Projection $8.20 $8.12 $8.04 $7.96 $7.88 $7.80 $7.80 $7.80 $7.80 n/a Growth rate -1.1% -1.0% -1.0% -1.0% -1.0% -1.0% 0.0% 0.0% 0.0% New Product Tier (now $2.63) $2.75 $2.89 $3.03 $3.18 $3.34 $3.51 $3.69 $3.87 $4.06 $4.27 Growth rate 4.6% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.05) $0.06 $0.08 $0.09 $0.12 $0.15 $0.18 $0.23 $0.29 $0.36 $0.45 Growth rate 0 0 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% 25.0% Video Games & Activ./EBU (now $0.05) $0.10 $0.15 $0.19 $0.23 $0.29 $0.37 $0.46 $0.57 $0.72 $0.89 Growth rate 1 1 0 0 0 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.51) $0.62 $0.74 $0.89 $1.07 $1.23 $1.42 $1.63 $1.87 $2.15 $2.48 Growth rate 21.6% 20.0% 20.0% 20.0% 15.0% 15.0% 15.0% 15.0% 15.0% 15.0% Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 $2.36 $2.81 $3.25 $3.66 n/a Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% 17.4% 19.1% 15.7% 12.6% Equipment/EBU (now $1.08) $1.12 $1.15 $1.19 $1.22 $1.26 $1.30 $1.34 $1.38 $1.42 $1.46 Growth rate 3.7% 3% 3% 3% 3% 3% 3% 3% 3% 3% Advertising/EBU (now $1.10) $1.19 $1.37 $1.57 $1.81 $1.99 $2.19 $2.41 $2.65 $2.91 $3.21 Growth rate 8.2% 15.0% 15.0% 15.0% 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 $3.47 $3.87 $4.28 $4.69 n/a Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% 12.7% 11.5% 10.6% 9.6% Home Shopping/EBU (now $0.45) $0.35 $0.44 $0.55 $0.68 $0.82 $0.98 $1.13 $1.30 $1.50 $1.72 Growth rate -22.2% 25% 25% 25% 20% 20% 15% 15% 15% 15% Install/Service/EBU (now $.78) $0.81 $0.85 $0.89 $0.94 $0.98 $1.03 $1.09 $1.14 $1.20 $1.26 Growth rate 3.8% 5% 5% 5% 5% 5% 5% 5% 5% 5% Franchise Fee Pass-thru/EBU (now $0.49) $0.56 $0.73 $0.77 $0.81 $0.84 $0.89 $0.93 $0.98 $1.03 $1.08 Growth rate n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.67) $0.55 $0.56 $0.57 $0.58 $0.60 $0.61 $0.62 $0.63 $0.64 $0.66 growth rate -17.9% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Pay-to-EBU (now 33.9%) 34.0% 35.0% 36.0% 37.0% 38.0% 39.0% 40.0% 41.0% 42.0% 43.0% Kagan Projection 77.5% 78.5% 79.5% 80.0% 80.3% 80.5% 80.8% 81.0% 81.3% n/a Total Annual EBU Rev $400.24 $423.57 $444.72 $469.50 $492.73 $519.57 $546.19 $575.54 $606.63 $639.75 monthly (now $31.47) $33.35 $35.30 $37.06 $39.12 $41.06 $43.30 $45.52 $47.96 $50.55 $53.31 Compound growth 5.3% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 $42.60 $44.74 $46.91 $49.15 Compound growth 4.8%
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FALCON CABLE SYSTEMS COMPANY K A N E R E E C E A S S O C I A T E S, I N C. EXHIBIT E-7b COOS BAY/FLORENCE REGION, OREGON CATV SYSTEM VALUATION MODEL Year 1 2 3 4 5 Homes Passed 31,657 31,974 32,293 32,616 32,942 BU Penetration 73% 74% 74% 75% 75% Kagan Penetration Projection 68% 68% 68% 68% 68% Equivalent Billing Units 23,090 23,501 23,897 24,299 24,707 Basic Revenue/EBU $22.75 $23.70 $24.60 $25.60 $26.60 Basic Revenue 6,303,570 6,683,563 7,054,408 7,464,683 7,886,411 Pay-to-Basic Ratio 34.0% 35.0% 36.0% 37.0% 38.0% Pay Units 7,851 8,225 8,603 8,991 9,389 Pay Revenue/Pay Unit $7.32 $7.54 $7.54 $7.77 $7.77 Pay Revenue 689,597 744,177 778,352 837,835 874,917 New Product Tier/EBU $2.75 $2.89 $3.03 $3.18 $3.34 New Product Tier Revenue 761,970 814,295 869,434 928,265 991,032 Mini-Pay Revenue/EBU $0.06 $0.08 $0.09 $0.12 $0.15 Mini-Pay Revenue/EBU 16,625 21,151 26,884 34,171 43,430 Pay-Per-View Revenue/EBU $0.62 $0.74 $0.89 $1.07 $1.23 Pay-Per-View Revenue 171,790 209,813 256,023 312,397 365,284 Equipment Revenue/ EBU $1.12 $1.15 $1.19 $1.22 $1.26 Equipment Revenue 310,330 325,323 340,736 356,863 373,736 Advertising Revenue/EBU $1.19 $1.37 $1.57 $1.81 $1.99 Advertising Revenue/EBU 329,725 385,926 451,303 527,730 590,243 Home Shopping/EBU $0.35 $0.44 $0.55 $0.68 $0.82 Home Shopping Revenue 96,978 123,378 156,824 199,329 243,208 Installation Revenue/EBU $0.81 $0.85 $0.89 $0.94 $0.98 Installation Revenue 224,435 239,847 256,088 273,416 291,904 Franchise Fee Pass-thru Revenue/EBU $0.56 $0.73 $0.77 $0.81 $0.84 Franchise Fee Pass-thru Revenue 156,445 206,240 219,629 235,128 250,330 Late Fees & Other Revenue/EBU $0.55 $0.56 $0.57 $0.58 $0.60 Late Fees & Other Revenue 152,394 158,206 164,092 170,190 176,507 Total Revenue $9,213,858 $9,911,919 $10,573,775 $11,340,006 $12,087,001 ---------- ---------- ----------- ----------- -----------
Year 6 7 8 9 10 Homes Passed 33,107 33,273 33,439 33,606 33,774 EBU Penetration 76% 76% 77% 77% 78% Kagan Penetration Projection 67% 67% 66% 65% Equivalent Billing Units 24,996 25,287 25,581 25,877 26,175 Basic Revenue/EBU $27.70 $28.80 $30.00 $31.20 $32.40 Basic Revenue 8,308,627 8,739,261 9,209,104 9,688,266 10,176,853 Pay-to-Basic Ratio 39.0% 40.0% 41.0% 42.0% 43.0% Pay Units 9,748 10,115 10,488 10,868 11,255 Pay Revenue/Pay Unit $8.00 $8.00 $8.00 $8.00 $8.00 Pay Revenue 935,701 970,879 1,006,706 1,043,190 1,080,338 New Product Tier/EBU $3.51 $3.69 $3.87 $4.06 $4.27 New Product Tier Revenue 1,052,758 1,118,280 1,187,829 1,261,649 1,340,000 Mini-Pay Revenue/EBU $0.18 $0.23 $0.29 $0.36 $0.45 Mini-Pay Revenue/EBU 54,923 69,453 87,825 111,051 140,414 Pay-Per-View Revenue/EBU $1.42 $1.63 $1.87 $2.15 $2.48 Pay-Per-View Revenue 424,992 494,437 575,205 669,139 778,379 Equipment Revenue/ EBU $1.30 $1.34 $1.38 $1.42 $1.46 Equipment Revenue 389,452 405,811 422,839 440,562 459,009 Advertising Revenue/EBU $2.19 $2.41 $2.65 $2.91 $3.21 Advertising Revenue/EBU 656,864 730,972 813,406 905,098 1,007,083 Home Shopping/EBU $0.98 $1.13 $1.30 $1.50 $1.72 Home Shopping Revenue 295,264 343,511 399,625 464,885 540,780 Installation Revenue/EBU $1.03 $1.09 $1.14 $1.20 $1.26 Installation Revenue 310,085 329,384 349,870 371,613 394,691 Franchise Fee Pass-thru Revenue/EBU $0.89 $0.93 $0.98 $1.03 $1.08 Franchise Fee Pass-thru Revenue 266,411 282,715 300,719 319,974 340,661 Late Fees & Other Revenue/EBU $0.61 $0.62 $0.63 $0.64 $0.66 Late Fees & Other Revenue 182,143 187,952 193,937 200,104 206,458 Total Revenue $12,877,219 $13,672,655 $14,547,064 $15,475,531 $16,464,666 ----------- ----------- ----------- ----------- -----------
-125- 137 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. EXHIBIT E-7c COOS BAY/FLORENCE REGION, OREGON CATV SYSTEM VALUATION MODEL - --------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- ---------- ---------- ----------- ----------- ----------- Total Revenue $9,213,858 $9,911,919 $10,573,775 $11,340,006 $12,087,001 Margin % to Revenue 52.0% 52.0% 51.0% 51.0% 51.0% Operating Cash Flow 4,791,206 5,154,198 5,392,625 5,783,403 6,164,371 Capital Expenditures: - Rebuild/Extensions 198,000 1,694,000 1,471,000 1,389,000 209,000 - Recurring 385,000 291,000 344,000 501,000 308,000 ---------- ---------- ----------- ----------- ----------- Total 583,000 1,985,000 1,815,000 1,890,000 517,000 Net Cash Flow 4,208,206 3,169,198 3,577,625 3,893,403 5,647,371 Present Value Factor @ 14.0% 0.9366 0.8216 0.7207 0.6322 0.5545 PV Net Cash Flow 3,941,346 2,603,707 2,578,296 2,461,288 3,131,659 ---------- ---------- ----------- ----------- -----------
Year 6 7 8 9 10 ---- ----------- ----------- --------- --------- ----------- Total Revenue $12,877,219 $13,672,655 $14,547,064 $15,475,531 $16,464,666 Margin % to Revenue 51.0% 51.0% 51.0% 51.0% 51.0% Operating Cash Flow 6,567,382 6,973,054 7,419,002 7,892,521 8,396,980 Capital Expenditures: - Rebuild/Extensions 157,000 159,000 161,000 163,000 165,000 - Recurring 343,000 299,000 355,000 312,000 368,000 ----------- ----------- ----------- ----------- ----------- Total 500,000 458,000 516,000 475,000 533,000 Net Cash Flow 6,067,382 6,515,054 6,903,002 7,417,521 7,863,980 Present Value Factor @ 14.0% 0.4864 0.4267 0.3743 0.3283 0.2880 PV Net Cash Flow 2,951,377 2,779,947 2,583,757 2,435,384 2,264,886 ----------- ----------- ----------- ----------- -----------
Present Value of Net Cash Flows $27,731,646 Residual Value Present Value of Residual 13,815,145 --------------------------------------------------- ----------- 8x's Yr 11 Operating Cash Flow $71,542,268 Value Indication under Income Approach $41,546,791 Less: Taxes (see Schedule) @ 28.4% 20,326,468 ----------- ----------- Value Indication (Rounded) $41,550,000 After Tax Proceeds (end of year 10) 51,215,800 ----------- ----------- Value Indication/EBU $1,815 Present Value @ 14.0% $13,815,145 ------ ----------- Cash Flow Multiple - Projected 8.7 ---
-126- 138 EXHIBIT F REGION EXCHANGE AND SALE SYSTEM VALUATION 139 FALCON CABLE SYSTEMS COMPANY OPERATING STATISICS EXHIBIT F-1a DALLAS REGION, OREGON (EXCHANGE SYSTEMS) VALUATION DATE: DECEMBER 31, 1995.
Homes Passed Basic Subscribers --------------------------------------------- 1995 EBU's EBU Pay Units 1995 1994 % Chg. 1995 1994 % Chg. FCC Method Pene Pay Units Pay/EBUs % Chg v. 94 ---- ---- ------ ---- ---- ------ ---------- ---- --------- -------- ----------- Silverton 2,951 2,927 0.8% 1,434 1,327 8.1% 1,464 49.6% 698 47.7% -7.5% Mt. Angel 577 577 0.0% 276 270 2.2% 282 48.9% 158 56.0% 1.9% Marion Cty. (Silverton) 286 286 0.0% 43 44 -2.3% 43 15.0% 45 104.7% 2.3% ------ ------ ----- ------ ------ ----- Subtotal 3,814 3,790 0.6% 1,753 1,641 6.8% 1,789 46.9% 901 50.4% -5.6% Cannon Beach 1,221 1,221 0.0% 1,109 1,082 2.5% 1,305 106.9% 433 33.2% -12.2% Clatsop Cty. (Cannon Beach) 250 250 0.0% 254 244 4.1% 260 103.9% 53 20.4% 0.0% Bay City 584 558 4.7% 458 473 -3.2% 458 78.4% 184 40.2% -4.7% Garibaldi 573 573 0.0% 383 417 -8.2% 426 74.4% 168 39.4% -6.1% Rockaway Beach 1,352 1,352 0.0% 873 836 4.4% 998 73.8% 390 39.1% -4.2% Tillamook Cty. (Nehalem) 522 522 0.0% 307 311 -1.3% 325 62.3% 125 38.5% 1.6% Manzanita 916 898 2.0% 537 521 3.1% 572 62.5% 116 20.3% -12.8% Nehalem 300 292 2.7% 132 114 15.8% 132 44.0% 51 38.6% 6.3% Wheeler 219 207 5.8% 88 91 -3.3% 106 48.3% 27 25.5% -46.0% Tillamook Cty. (Nehalem) 260 260 0.0% 467 478 -2.3% 478 183.9% 169 35.3% -9.6% ------ ------ ----- ------ ------ ----- Subtotal 6,197 6,133 1.0% 4,608 4,567 0.9% 5,060 81.6% 1,716 33.9% -8.0% Tillamook 1,425 1,425 0.0% 1,502 1,534 -2.1% 1,547 108.5% 526 34.0% -20.4% Tillamook Cty. (Tillamook) 1,800 1,800 0.0% 976 952 2.5% 987 54.8% 375 38.0% -12.0% Subtotal 3,225 3,225 0.0% 2,478 2,486 -0.3% 2,534 78.6% 901 35.6% -17.1% Netarts/Oceanside 850 850 0.0% 830 829 0.1% 933 109.8% 177 19.0% -10.2% Brickyard Road 475 475 0.0% 484 480 0.8% 508 106.9% 176 34.7% -16.6% ------ ------ ----- ------ ------ ----- Total Dallas Exchange 14,561 14,473 0.6% 10,153 10,003 1.5% 10,823 74.3% 3,871 35.8% -10.3% ------ ------ ----- ------ ------ -----
Plan Miles Franchise -------------------------------------- 1995 Channel Address- ----------------------------- Aerial UG Total '95 1994 % Chg. Density Capacity able Rebuild* Fee Expiration Life (Yrs) ------ -- --------- ---- ------ ------- -------- -------- -------- --- ---------- ---------- Silverton 20.60 9.60 30.20 29.00 4.1% 98 37 Yes 5% Jan-2000 4.0 Mt. Angel 6.50 1.50 8.00 8.00 0.0% 72 37 Yes 3% Oct-95 (0.2) Marion Cty. (Silverton) 13.80 0.50 14.30 14.30 0.0% 20 37 Yes 5% Aug-96 0.6 ----- ---- ----- ----- Subtotal 40.9 11.6 52.5 51.3 2.3% 73 Cannon Beach 10.20 5.50 15.70 15.70 0.0% 78 34 Yes 5% Jul-2002 6.5 Clatsop Cty. (Cannon Beach) 5.60 4.00 9.60 9.60 0.0% 26 34 Yes Bay City 11.30 0.50 11.80 11.30 4.4% 49 34 Yes 3% May-2000 4.4 Garibaldi 7.40 0.50 7.90 7.90 0.0% 73 34 Yes 5% Sep-97 1.7 Rockaway Beach 16.00 4.30 20.30 20.30 0.0% 67 34 Yes 5% Dec-2002 6.9 Tillamook Cty. (Nehalem) 24.00 1.80 25.80 25.80 0.0% 20 34 Yes Manzanita 9.50 3.50 13.00 12.70 2.4% 70 34 Yes 3% Feb-97 1.1 Nehalem 3.10 0.70 3.80 3.60 5.6% 79 34 Yes 50%,50%/ 3% Basic Aug-2001 5.6 97,98 Wheeler 4.00 0.70 4.70 4.50 4.4% 47 34 Yes 5% Nov-2013 17.9 Tillamook Cty. (Nehalem) 11.00 6.30 17.30 17.30 0.0% 15 34 Yes ----- ---- ----- ----- Subtotal 102.1 27.8 129.9 128.7 0.9% 48 Tillamook 21.70 1.50 23.20 23.20 0.0% 61 29 No 50%,50% 5% Local Dec-99 4.0 97,98 Tillamook Cty. (Tillamook) 50.70 5.60 56.30 56.30 0.0% 32 29 No ----- ---- ----- ----- Subtotal 72.40 7.10 79.50 79.50 0.0% 41 Netarts/Oceanside 15.00 2.00 17.00 17.00 0.0% 50 22 No 75%,25%/ 95,96 Brickyard Road 24.00 1.00 25.00 25.00 0.0% 19 22 No 75%,25%/ ----- ---- ----- ----- 95,96 Total Dallas Exchange 254.4 49.5 303.9 301.5 0.8% 48 ----- ---- ----- -----
-127- 140 - ------------------------------------------------------------------------------------------------------------------------------------ FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. DALLAS REGION, OREGON (EXCHANGE SYSTEMS) CATV SYSTEM VALUATION MODEL EXHIBIT F-1b VALUATION DATE: DECEMBER 31, 1995 - ------------------------------------------------------------------------------------------------------------------------------------
Growth Rate in Homes Passed 2.1% Thru Yr 5 Homes Passed @ 12/31/95 14,561 Equivalent Billing Units @ 12/31/95 10,823 74.3% EBU's/HP Pay Units @ 12/31/95 3,871 35.8% Pay Units/EBU's Operating Margin for 95 Yr. 52.1% After reimbursable expenses & capitalization adjustments. Operating Margin for 94 Yr. 53.5% After reimbursable expenses & capitalization adjustments. Weighted average discount rate 14.0%
Year 1 2 3 4 5 ---- ------- ------- ------- ------- ------- Basic Rev/EBU (now $21.10) $21.47 $22.30 $23.20 $24.10 $25.10 Growth rate 1.8% 4.0% 4.0% 4.0% 4.0% Kagan Projection $24.58 $25.56 $26.57 $27.64 $28.74 Growth rate 6.5% 4.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $7.41) $7.73 $7.73 $7.96 $7.96 $8.20 Growth rate 4.3% 0% 3% 0% 3% Kagan Projection $8.20 $8.12 $8.04 $7.96 $7.88 Growth rate -1.1% -1.0% -1.0% -1.0% -1.0% New Product Tier (now $1.83) $2.06 $2.16 $2.27 $2.38 $2.50 Growth rate 12.6% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.04) $0.06 $0.08 $0.09 $0.12 $0.15 Growth rate n/a 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.21) $0.23 $0.28 $0.33 $0.40 $0.46 Growth rate 9.5% 20.0% 20.0% 20.0% 15.0% Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% Equipment/EBU (now $0.35) $0.34 $0.35 $0.36 $0.37 $0.38 Growth rate -2.9% 3% 3% 3% 3% Advertising/EBU (now $.91) $1.06 $1.33 $1.66 $1.90 $2.19 Growth rate 16.5% 25.0% 25.0% 15.0% 15.0% Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% Home Shopping/EBU (now $0.17) $0.19 $0.24 $0.30 $0.37 $0.45 Growth rate 11.8% 25% 25% 25% 20% Install/Service/EBU (now $.52) $0.58 $0.61 $0.64 $0.67 $0.70 Growth rate 11.5% 5% 5% 5% 5% Franchise Fee Pass-thru/EBU (now $.04) $0.04 $0.26 $0.37 $0.72 $1.30 Growth rate n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.65) $0.67 $0.68 $0.70 $0.71 $0.73 growth rate 3.1% 2.0% 2.0% 2.0% 2.0% Pay-to-EBU (now 35.8%) 36.0% 37.0% 38.0% 39.0% 40.0% Kagan Projection 77.5% 78.5% 79.5% 80.0% 80.3% Total Annual EBU Rev $353.79 $373.62 $395.25 $418.28 $446.81 monthly (now $28.11) $29.48 $31.14 $32.94 $34.86 $37.23 Compound growth 5.4% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 Compound growth 4.8% Year 6 7 8 9 10 ---- ------- ------- ------- ------- ------- Basic Rev/EBU (now $21.10) $26.10 $27.10 $28.20 $29.30 $30.50 Growth rate 4.0% 4.0% 4.0% 4.0% 4.0% Kagan Projection $29.87 $31.07 $32.33 $33.62 n/a Growth rate 3.9% 4.0% 4.1% 4.0% Pay Rev/Pay Unit (now $7.41) $8.20 $8.20 $8.20 $8.20 $8.20 Growth rate 0% 0% 0% 0% 0% Kagan Projection $7.80 $7.80 $7.80 $7.80 n/a Growth rate -1.0% 0.0% 0.0% 0.0% New Product Tier (now $1.83) $2.63 $2.76 $2.90 $3.04 $3.20 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.04) $0.18 $0.23 $0.29 $0.36 $0.45 Growth rate 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.21) $0.53 $0.60 $0.70 $0.80 $0.92 Growth rate 15.0% 15.0% 15.0% 15.0% 15.0% Kagan Projection $2.36 $2.81 $3.25 $3.66 n/a Growth rate 17.4% 19.1% 15.7% 12.6% Equipment/EBU (now $0.35) $0.39 $0.41 $0.42 $0.43 $0.44 Growth rate 3% 3% 3% 3% 3% Advertising/EBU (now $.91) $2.52 $2.77 $3.05 $3.35 $3.69 Growth rate 15.0% 10.0% 10.0% 10.0% 10.0% Kagan Projection $3.47 $3.87 $4.28 $4.69 n/a Growth rate 12.7% 11.5% 10.6% 9.6% Home Shopping/EBU (now $0.17) $0.53 $0.61 $0.71 $0.81 $0.93 Growth rate 20% 15% 15% 15% 15% Install/Service/EBU (now $.52) $0.74 $0.78 $0.82 $0.86 $0.90 Growth rate 5% 5% 5% 5% 5% Franchise Fee Pass-thru/EBU (now $.04) $1.36 $1.42 $1.49 $1.56 $1.63 Growth rate n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.65) $0.74 $0.75 $0.77 $0.79 $0.80 growth rate 2.0% 2.0% 2.0% 2.0% 2.0% Pay-to-EBU (now 35.8%) 41.0% 42.0% 43.0% 44.0% 45.0% Kagan Projection 80.5% 80.8% 81.0% 81.3% n/a Total Annual EBU Rev $469.06 $490.59 $514.23 $538.85 $565.83 monthly (now $28.11) $39.09 $40.88 $42.85 $44.90 $47.15 Compound growth Kagan Projection $42.60 $44.74 $46.91 $49.15 Compound growth
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Year 1 2 3 4 5 ---- ---------- ---------- ---------- ---------- ---------- Homes Passed 14,695 15,004 15,319 15,640 15,969 EBU Penetration 75.0% 75.0% 75.0% 75.0% 75.0% Kagan Penetration Projection 67.5% 68.0% 68.3% 68.2% 67.7% Equivalent Billing Units 11,021 11,253 11,489 11,730 11,977 Basic Revenue/EBU $21.47 $22.30 $23.20 $24.10 $25.10 Basic Revenue 2,839,515 3,011,222 3,198,538 3,392,395 3,607,354 ---------- ---------- ---------- ---------- ---------- Pay-to-Basic Ratio 36.0% 37.0% 38.0% 39.0% 40.0% Pay Units 3,968 4,163 4,366 4,575 4,791 Pay Revenue/Pay Unit $7.73 $7.73 $7.96 $7.96 $8.20 Pay Revenue 368,039 386,206 417,123 437,090 471,443 ---------- ---------- ---------- ---------- ---------- New Product Tier/EBU $2.06 $2.16 $2.27 $2.38 $2.50 New Product Tier Revenue 272,445 292,075 313,119 335,679 359,865 ---------- ---------- ---------- ---------- ---------- Mini-Pay Revenue/EBU $0.06 $0.08 $0.09 $0.12 $0.15 Mini-Pay Revenue 7,935 10,127 12,925 16,496 21,053 ---------- ---------- ---------- ---------- ---------- Pay-Per-View Revenue/EBU $0.23 $0.28 $0.33 $0.40 $0.46 Pay-Per-View Revenue 30,419 37,269 45,662 55,945 65,688 ---------- ---------- ---------- ---------- ---------- Equipment Revenue/ EBU $0.34 $0.35 $0.36 $0.37 $0.38 Equipment Revenue 44,967 47,288 49,730 52,297 54,997 ---------- ---------- ---------- ---------- ---------- Advertising Revenue/EBU $1.06 $1.33 $1.66 $1.90 $2.19 Advertising Revenue 140,190 178,918 228,344 268,110 314,801 ---------- ---------- ---------- ---------- ---------- Home Shopping/EBU $0.19 $0.24 $0.30 $0.37 $0.45 Home Shopping Revenue 25,128 32,070 40,930 52,236 64,000 ---------- ---------- ---------- ---------- ---------- Installation Revenue/EBU $0.58 $0.61 $0.64 $0.67 $0.70 Installation Revenue 76,708 82,235 88,160 94,512 101,321 ---------- ---------- ---------- ---------- ---------- Franchise Fee Pass-thru Revenue/EBU $0.04 $0.26 $0.37 $0.72 $1.30 Franchise Fee Pass-thru Revenue 5,290 34,589 50,421 101,727 186,515 ---------- ---------- ---------- ---------- ---------- Late Fees & Other Revenue/EBU $0.67 $0.68 $0.70 $0.71 $0.73 Late Fees & Other Revenue 88,611 92,281 96,103 100,084 104,229 ---------- ---------- ---------- ---------- ---------- Total Revenue $3,899,248 $4,204,280 $4,541,055 $4,906,571 $5,351,267 ---------- ---------- ---------- ---------- ---------- Year 6 7 8 9 10 ---- ---------- ---------- ---------- ---------- ---------- Homes Passed 16,136 16,306 16,477 16,650 16,825 EBU Penetration 75.0% 75.0% 75.0% 75.0% 75.0% Kagan Penetration Projection 67.1% 66.5% 65.9% 65.3% Equivalent Billing Units 12,102 12,229 12,358 12,488 12,619 Basic Revenue/EBU $26.10 $27.10 $28.20 $29.30 $30.50 Basic Revenue 3,790,460 3,977,013 4,181,895 4,390,641 4,618,453 ---------- ---------- ---------- ---------- ---------- Pay-to-Basic Ratio 41.0% 42.0% 43.0% 44.0% 45.0% Pay Units 4,962 5,136 5,314 5,495 5,678 Pay Revenue/Pay Unit $8.20 $8.20 $8.20 $8.20 $8.20 Pay Revenue 488,303 505,465 522,933 540,713 558,809 ---------- ---------- ---------- ---------- ---------- New Product Tier/EBU $2.63 $2.76 $2.90 $3.04 $3.20 New Product Tier Revenue 381,826 405,127 429,849 456,081 483,913 ---------- ---------- ---------- ---------- ---------- Mini-Pay Revenue/EBU $0.18 $0.23 $0.29 $0.36 $0.45 Mini-Pay Revenue 26,592 33,589 42,427 53,591 67,692 ---------- ---------- ---------- ---------- ---------- Pay-Per-View Revenue/EBU $0.53 $0.60 $0.70 $0.80 $0.92 Pay-Per-View Revenue 76,334 88,706 103,083 119,790 139,205 ---------- ---------- ---------- ---------- ---------- Equipment Revenue/ EBU $0.39 $0.41 $0.42 $0.43 $0.44 Equipment Revenue 57,242 59,579 62,010 64,541 67,175 ---------- ---------- ---------- ---------- ---------- Advertising Revenue/EBU $2.52 $2.77 $3.05 $3.35 $3.69 Advertising Revenue 365,823 406,630 451,990 502,409 558,453 ---------- ---------- ---------- ---------- ---------- Home Shopping/EBU $0.53 $0.61 $0.71 $0.81 $0.93 Home Shopping Revenue 77,606 90,184 104,801 121,787 141,525 ---------- ---------- ---------- ---------- ---------- Installation Revenue/EBU $0.74 $0.78 $0.82 $0.86 $0.90 Installation Revenue 107,504 114,065 121,026 128,411 136,247 ---------- ---------- ---------- ---------- ---------- Franchise Fee Pass-thru Revenue/EBU $1.36 $1.42 $1.49 $1.56 $1.63 Franchise Fee Pass-thru Revenue 197,578 208,558 220,627 233,340 247,302 ---------- ---------- ---------- ---------- ---------- Late Fees & Other Revenue/EBU $0.74 $0.75 $0.77 $0.79 $0.80 Late Fees & Other Revenue 107,430 110,730 114,130 117,635 121,248 ---------- ---------- ---------- ---------- ---------- Total Revenue $5,676,699 $5,999,645 $6,354,772 $6,728,940 $7,140,023 ---------- ---------- ---------- ---------- ----------
-129- 142 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. EXHIBIT F-1d DALLAS REGION, OREGON CATV SYSTEM VALUATION MODEL (EXCHANGE SYSTEMS) - --------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- ---------- ---------- ---------- ---------- ---------- Total Revenue $3,899,248 $4,204,280 $4,541,055 $4,906,571 $5,351,267 Margin % to Revenue 52.0% 52.0% 51.0% 51.0% 50.0% Operating Cash Flow 2,027,609 2,186,226 2,315,938 2,502,351 2,675,633 Capital Expenditures: - Rebuild/Extensions 500,000 2,352,000 2,448,000 72,000 76,000 - Recurring 400,000 173,000 151,000 255,000 159,000 ---------- ---------- ---------- ---------- ---------- Total 900,000 2,525,000 2,599,000 327,000 235,000 ---------- ---------- ---------- ---------- ---------- Net Cash Flow 1,127,609 (338,774) (283,062) 2,175,351 2,440,633 Present Value Factor @ 14.0% 0.93659 0.82157 0.72067 0.63217 0.55453 PV Net Cash Flow 1,056,102 (278,326) (203,995) 1,375,189 1,353,414 ---------- ---------- ---------- ---------- ----------
Year 6 7 8 9 10 ---- ---------- ---------- ---------- ---------- ---------- Total Revenue $5,676,699 $5,999,645 $6,354,772 $6,728,940 $7,140,023 Margin % to Revenue 50.0% 50.0% 50.0% 50.0% 50.0% Operating Cash Flow 2,838,349 2,999,823 3,177,386 3,364,470 3,570,012 Capital Expenditures: - Rebuild/Extensions 40,000 41,000 43,000 45,000 47,000 - Recurring 167,000 145,000 151,000 151,000 179,000 ---------- ---------- ---------- ---------- ---------- Total 207,000 186,000 194,000 196,000 226,000 ---------- ---------- ---------- ---------- ---------- Net Cash Flow 2,631,349 2,813,823 2,983,386 3,168,470 3,344,012 Present Value Factor @ 14.0% 0.48643 0.42670 0.37429 0.32833 0.28801 PV Net Cash Flow 1,279,976 1,200,647 1,116,665 1,040,299 963,101 ---------- ---------- ---------- ---------- ----------
Present Value of Net Cash Flows $ 8,903,073 Residual Value Present Value of Residual 5,802,352 -------------------------------------------------- ----------- 8x's Yr 11 Operating Cash Flow $30,416,498 Value Indication under Income Approach $14,705,426 Less: Taxes (see Schedule) @ 29.3% 8,905,894 ----------- ----------- Value Indication (Rounded) $14,710,000 After Tax Proceeds (end of year 10) 21,510,605 ----------- ----------- Value Indication/EBU $1,359 Present Value @ 14.0% $5,802,352 ------ ---------- Cash Flow Multiple - Projected 7.3 ---
-130- 143
FALCON CABLE SYSTEMS COMPANY EXHIBIT F-2 COOS BAY/FLORENCE, OREGON (EXCHANGE SYSTEMS) OPERATING STATISICS VALUATION DATE: DECEMBER 31, 1995
Homes Passed Basic Subscribers Pay Units --------------- ----------------- 1995 EBU's EBU % Chg 1995 1994 % Chg. 1995 1994 % Chg. FCC Method Pene Pay Units Pay/EBUs v. 94 ---- ---- ------ ---- ---- ------ ---------- ---- --------- -------- ----- Myrtle Point 1,108 1,108 0.0% 726 745 -2.6% 741 66.9% 123 16.6% -10.9% Coos Cty. (Myrtle Point) 48 48 0.0% 48 54 -11.1% 48 100.0% 8 16.7% -11.1% Powers 315 315 0.0% 201 212 -5.2% 209 66.5% 19 9.1% -36.7% Coos Cty. (Powers) 4 4 0.0% 2 2 0.0% 2 50.0% 1 50.0% 0.0% Coquille 1,301 1,301 0.0% 1,418 1,443 -1.7% 1,449 111.4% 291 20.1% -17.1% Coos Cty. (Coquille) 1,012 1,012 0.0% 378 391 -3.3% 378 37.4% 82 21.7% -12.8% Bandon 1,381 1,283 7.6% 1,099 1,044 5.3% 1,247 90.3% 359 28.8% 35.5% Coos Cty. (Bandon) 740 718 3.1% 450 455 -1.1% 465 62.8% 100 21.5% -21.3% ------ ------ ----- ----- ----- ----- Total Coos Bay 5,909 5,789 2.1% 4,322 4,346 -0.6% 4,539 76.8% 983 21.7% -3.2% Florence 4,286 4,113 4.2% 2,053 1,952 5.2% 2,253 52.6% 520 23.1% -6.8% Dunes City 843 818 3.1% 465 478 -2.7% 543 64.4% 139 25.6% -12.0% Lane Cty. (Florence) 2,354 2,268 3.8% 1,233 1,171 5.3% 1,370 58.2% 295 21.5% -20.9% ------ ------ ----- ----- ----- Total Florence 7,483 7,199 3.9% 3,751 3,601 4.2% 4,166 55.7% 954 22.9% -12.4% Total Coos Bay/Flor Exchange 13,392 12,988 3.1% 8,073 7,947 1.6% 8,706 65.0% 1,937 22.2% -7.9% ------ ------ ---- ----- ----- ---- ----- ----- ----- ----- -----
Plant Miles ----------------------------------------- 1995 Channel Address- Aerial UG Total '95 1994 % Chg. Density Capacity able Rebuild* ------ -- --------- ---- ------ ------- -------- ---- -------- Myrtle Point 13.81 2.08 15.89 15.89 0.0% 269.7 37 No Coos Cty. (Myrtle Point) 11.72 0.00 11.72 11.72 0.0% 4.1 37 No Powers 5.00 1.00 6.00 6.00 0.0% 52.5 37 No 100%/97 Coos Cty. (Powers) 0.53 0.00 0.53 0.53 0.0% 7.5 37 No Coquille 23.79 1.50 25.29 25.29 0.0% 51.4 61 No 100%/97 Coos Cty. (Coquille) 19.51 0.00 19.51 19.51 0.0% 51.9 61 No Bandon 15.51 9.07 24.58 24.17 1.7% 56.2 61 No 100%/97 Coos Cty. (Brandon) 10.95 4.80 15.75 14.65 7.5% 47.0 61 No ------ ------ ------- ------- ---- Total Coos Bay 100.82 18.445 119.265 117.757 1.3% 49.5 Florence 29.70 18.95 48.65 48.65 0.0% 88.1 62 Yes Dunes City 25.30 4.00 29.30 29.20 0.3% 28.8 62 Yes Lane Cty. (Florence) 41.14 10.80 51.94 51.79 0.3% 45.3 62 Yes ------ ------ ------- ------- Total Florence 96.14 33.75 129.89 129.64 0.2% 57.6 Total Coos Bay/Flor Exchange 196.96 52.195 249.155 247.397 0.7% 53.7 ------ ------ ------- -------
Franchises ------------------------------ Fee Expiration Life (Yrs) --- ---------- ---------- Myrtle Point 5% Jun-2001 5.4 Coos Cty. (Myrtle Point) Powers 3% Mar-96 0.2 Coos Cty. (Powers) Coquille 5% Jun-96 0.5 Coos Cty. (Coquille) Bandon 3% Basic Jun-94 (1.6) Coos Cty. (Brandon) Total Coos Bay Florence 3% Sep-2003 7.7 Dunes City 5% Sep-2003 7.7 Lane Cty. (Florence) 5% Jun-2007 11.5 Total Florence Total Coos Bay/Flor Exchange
-131- 144 - ------------------------------------------------------------------------------------------------------------------------------------ FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. COOS BAY/FLORENCE, OREGON (EXCHANGE SYSTEMS) CATV SYSTEM VALUATION MODEL EXHIBIT F-2b VALUATION DATE: DECEMBER 31, 1995 - ------------------------------------------------------------------------------------------------------------------------------------
Growth Rate in Homes Passed 1.1% Thru Yr 5 Homes Passed @ 12/31/95 13,392 Equivalent Billing Units @ 12/31/95 8,706 65.0% EBU's/HP Pay Units @ 12/31/95 1,937 22.2% Pay Units/EBU's Operating Margin for 95 Yr. 51.3% After reimbursable expenses. Operating Margin for 94 Yr. 51.9% After reimbursable expenses. Weighted average discount rate 14.0%
Year 1 2 3 4 5 ---- ------- ------- ------- ------- ------- Basic Rev/EBU (now $22.56) $23.43 $24.40 $25.40 $26.40 $27.50 Growth rate 3.9% 4.0% 4.0% 4.0% 4.0% Kagan Projection $24.58 $25.56 $26.57 $27.64 $28.74 Growth rate 6.5% 4.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $8.38) $8.00 $7.40 $7.40 $7.03 $7.03 Growth rate -4.5% -7.5% 0% -5% 0% Kagan Projection $8.20 $8.12 $8.04 $7.96 $7.88 Growth rate -1.1% -1.0% -1.0% -1.0% -1.0% New Product Tier (now $2.05) $2.15 $2.26 $2.37 $2.49 $2.61 Growth rate 4.9% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.00) $0.00 $0.05 $0.06 $0.08 $0.10 Growth rate n/a n/a 25.0% 25.0% 25.0% Video Games & Activ./EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.25 Growth rate n/a n/a n/a n/a n/a Pay-Per-View Rev/EBU (now $0.27) $0.30 $0.36 $0.43 $0.52 $0.60 Growth rate 11.1% 20.0% 20.0% 20.0% 15.0% Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% Equipment/EBU (now $0.33) $0.34 $0.35 $0.36 $0.54 $0.82 Growth rate 3.7% 3% 3% 50% 50% Advertising/EBU (now $1.10) $1.19 $1.37 $1.57 $1.81 $1.99 Growth rate 7.4% 15.0% 15.0% 15.0% 10.0% Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% Home Shopping/EBU (now $0.45) $0.35 $0.44 $0.55 $0.68 $0.82 Growth rate -22.2% 25% 25% 25% 20% Install/Service/EBU (now $.63) $0.81 $0.85 $0.89 $0.94 $0.98 Growth rate 3.8% 5% 5% 5% 5% Franchise Fee Pass-thru/EBU (now $0.04) $0.04 $0.20 $0.21 $0.40 $0.81 Growth rate n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.53) $0.54 $0.55 $0.56 $0.57 $0.58 growth rate 1.9% 2.0% 2.0% 2.0% 2.0% Pay-to-EBU (now 22.2%) 23.0% 24.0% 25.0% 26.0% 30.0% Kagan Projection 77.5% 78.5% 79.5% 80.0% 80.3% Total Annual EBU Rev $371.91 $391.26 $411.16 $435.13 $470.05 monthly (now $29.76) $30.99 $32.61 $34.26 $36.26 $39.17 Compound growth 5.6% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 Compound growth 4.8% Year 6 7 8 9 10 ---- ------- ------- ------- ------- ------- Basic Rev/EBU (now $22.56) $28.60 $29.70 $30.90 $32.10 $33.40 Growth rate 4.0% 4.0% 4.0% 4.0% 4.0% Kagan Projection $29.87 $31.07 $32.33 $33.62 n/a Growth rate 3.9% 4.0% 4.1% 4.0% Pay Rev/Pay Unit (now $8.38) $7.24 $7.24 $7.24 $7.24 $7.24 Growth rate 3% 0% 0% 0% 0% Kagan Projection $7.80 $7.80 $7.80 $7.80 n/a Growth rate -1.0% 0.0% 0.0% 0.0% New Product Tier (now $2.05) $2.74 $2.88 $3.03 $3.18 $3.34 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.00) $0.12 $0.15 $0.19 $0.24 $0.30 Growth rate 25.0% 25.0% 25.0% 25.0% 25.0% Video Games & Activ./EBU (now $0.00) $0.31 $0.39 $0.49 $0.61 $0.76 Growth rate 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.27) $0.69 $0.79 $0.91 $1.04 $1.20 Growth rate 15.0% 15.0% 15.0% 15.0% 15.0% Kagan Projection $2.36 $2.81 $3.25 $3.66 n/a Growth rate 17.4% 19.1% 15.7% 12.6% Equipment/EBU (now $0.33) $1.23 $1.26 $1.30 $1.34 $1.38 Growth rate 50% 3% 3% 3% 3% Advertising/EBU (now $1.10) $2.19 $2.41 $2.65 $2.91 $3.21 Growth rate 10.0% 10.0% 10.0% 10.0% 10.0% Kagan Projection $3.47 $3.87 $4.28 $4.69 n/a Growth rate 12.7% 11.5% 10.6% 9.6% Home Shopping/EBU (now $0.45) $0.98 $1.13 $1.30 $1.50 $1.72 Growth rate 20% 15% 15% 15% 15% Install/Service/EBU (now $.63) $1.03 $1.09 $1.14 $1.20 $1.26 Growth rate 5% 5% 5% 5% 5% Franchise Fee Pass-thru/EBU (now $0.04) $0.85 $0.89 $0.94 $0.98 $1.03 Growth rate n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.53) $0.60 $0.61 $0.62 $0.63 $0.65 growth rate 2.0% 2.0% 2.0% 2.0% 2.0% Pay-to-EBU (now 22.2%) 31.0% 32.0% 33.0% 34.0% 35.0% Kagan Projection 80.5% 80.8% 81.0% 81.3% n/a Total Annual EBU Rev $499.12 $523.45 $550.20 $578.33 $609.28 monthly (now $29.76) $41.59 $43.62 $45.85 $48.19 $50.77 Compound growth Kagan Projection $42.60 $44.74 $46.91 $49.15 Compound growth
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FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. EXHIBIT F-2c COOS BAY/FLORENCE, OREGON (EXCHANGE SYSTEMS) CATV SYSTEM VALUATION MODEL VALUATION DATE: DECEMBER 31, 1995
Year 1 2 3 4 5 ---- - - - - -- Homes Passed 13,466 13,614 13,764 13,915 14,068 EBU Penetration 66% 67% 68% 69% 70% Kagan Penetration Projection 68% 68% 68% 68% 68% Equivalent Billing Units 8,887 9,121 9,359 9,601 9,848 Basic Revenue/EBU $23.43 $24.40 $25.40 $26.40 $27.50 Basic Revenue 2,498,763 2,670,697 2,852,684 3,041,692 3,249,706 Pay-to-Basic Ratio 23.0% 24.0% 25.0% 26.0% 30.0% Pay Units 2,044 2,189 2,340 2,496 2,954 Pay Revenue/Pay Unit $8.00 $7.40 $7.40 $7.03 $7.03 Pay Revenue 196,232 194,392 207,774 210,591 249,223 New Product Tier/EBU $2.15 $2.26 $2.37 $2.49 $2.61 New Product Tier Revenue 229,293 247,094 266,218 286,759 308,821 Mini-Pay Revenue/EBU $0.00 $0.05 $0.06 $0.08 $0.10 Mini-Pay Revenue/EBU 0 5,473 7,019 9,001 11,540 Pay-Per-View Revenue/EBU $0.30 $0.36 $0.43 $0.52 $0.60 Pay-Per-View Revenue 31,994 39,404 48,518 59,728 70,449 Equipment Revenue/ EBU $0.34 $0.35 $0.36 $0.54 $0.82 Equipment Revenue 36,495 38,579 40,773 62,742 96,527 Advertising Revenue/EBU $1.19 $1.37 $1.57 $1.81 $1.99 Advertising Revenue/EBU 126,911 149,789 176,751 208,522 235,258 Home Shopping/EBU $0.35 $0.44 $0.55 $0.68 $0.82 Home Shopping Revenue 37,327 47,886 61,420 78,761 96,937 Installation Revenue/EBU $0.81 $0.85 $0.89 $0.94 $0.98 Installation Revenue 86,385 93,091 100,296 108,035 116,347 Franchise Fee Pass-thru Revenue/EBU $0.04 $0.20 $0.21 $0.40 $0.81 Franchise Fee Pass-thru Revenue 4,266 22,112 23,615 45,927 95,395 Late Fees & Other Revenue/EBU $0.54 $0.55 $0.56 $0.57 $0.58 Late Fees & Other Revenue 57,590 60,288 63,098 66,025 69,073 ---------- ---------- ---------- ---------- ---------- Total Revenue $3,305,256 $3,568,804 $3,848,167 $4,177,783 $4,599,276 ---------- ---------- ---------- ---------- ----------
Year 6 7 8 9 10 ---- - - - - -- Homes Passed 14,145 14,223 14,301 14,380 14,459 EBU Penetration 71% 72% 73% 74% 75% Kagan Penetration Projection 67% 67% 66% 65% Equivalent Billing Units 10,043 10,241 10,440 10,641 10,844 Basic Revenue/EBU $28.60 $29.70 $30.90 $32.10 $33.40 Basic Revenue 3,446,830 3,649,778 3,871,158 4,099,005 4,346,418 Pay-to-Basic Ratio 31.0% 32.0% 33.0% 34.0% 35.0% Pay Units 3,113 3,277 3,445 3,618 3,796 Pay Revenue/Pay Unit $7.24 $7.24 $7.24 $7.24 $7.24 Pay Revenue 270,525 284,743 299,357 314,373 329,796 New Product Tier/EBU $2.74 $2.88 $3.03 $3.18 $3.34 New Product Tier Revenue 330,703 354,066 379,006 405,626 434,037 Mini-Pay Revenue/EBU $0.12 $0.15 $0.19 $0.24 $0.30 Mini-Pay Revenue/EBU 14,712 18,751 23,895 30,445 38,782 Pay-Per-View Revenue/EBU $0.69 $0.79 $0.91 $1.04 $1.20 Pay-Per-View Revenue 82,626 96,888 113,590 133,146 156,040 Equipment Revenue/ EBU $1.23 $1.26 $1.30 $1.34 $1.38 Equipment Revenue 147,667 155,087 162,849 170,967 179,458 Advertising Revenue/EBU $2.19 $2.41 $2.65 $2.91 $3.21 Advertising Revenue/EBU 263,924 296,025 331,966 372,201 417,236 Home Shopping/EBU $0.98 $1.13 $1.30 $1.50 $1.72 Home Shopping Revenue 118,635 139,113 163,094 191,173 224,046 Installation Revenue/EBU $1.03 $1.09 $1.14 $1.20 $1.26 Installation Revenue 124,591 133,392 142,788 152,817 163,521 Franchise Fee Pass-thru Revenue/EBU $0.85 $0.89 $0.94 $0.98 $1.03 Franchise Fee Pass-thru Revenue 103,015 109,927 117,543 125,677 134,657 Late Fees & Other Revenue/EBU $0.60 $0.61 $0.62 $0.63 $0.65 Late Fees & Other Revenue 71,854 74,732 77,710 80,792 83,981 ---------- ---------- ---------- ---------- ---------- Total Revenue $4,975,082 $5,312,502 $5,682,957 $6,076,223 $6,507,973 ---------- ---------- ---------- ---------- ----------
-133- 146 FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC. COOS BAY/FLORENCE, OREGON (EXCHANGE SYSTEMS) EXHIBIT F-2d CATV SYSTEM VALUATION MODEL VALUATION DATE: DECEMBER 31, 1995
Year 1 2 3 4 5 ---- - - - - - Total Revenue $3,305,256 $3,568,804 $3,848,167 $4,177,783 $4,599,276 Margin % to Revenue 52.0% 52.0% 51.0% 51.0% 51.0% Operating Cash Flow 1,718,733 1,855,778 1,962,565 2,130,669 2,345,631 Capital Expenditures: - Rebuild/Extensions 73,000 1,653,000 58,000 60,000 63,000 - Recurring 140,000 141,000 169,000 246,000 150,000 ---------- ---------- ---------- ---------- ---------- Total 213,000 1,794,000 227,000 306,000 213,000 Net Cash Flow 1,505,733 61,778 1,735,565 1,824,669 2,132,631 Present Value Factor @ 14.0% 0.9366 0.8216 0.7207 0.6322 0.5545 PV Net Cash Flow 1,410,248 50,755 1,250,774 1,153,499 1,182,616 ---------- ---------- ---------- ---------- ----------
Year 6 7 8 9 10 Total Revenue $4,975,082 $5,312,502 $5,682,957 $6,076,223 $6,507,973 Margin % to Revenue 51.0% 51.0% 51.0% 51.0% 51.0% Operating Cash Flow 2,537,292 2,709,376 2,898,308 3,098,874 3,319,066 Capital Expenditures: - Rebuild/Extensions 33,000 34,000 35,000 36,000 38,000 - Recurring 168,000 146,000 173,000 151,000 179,000 ---------- ---------- ---------- ---------- ---------- Total 201,000 180,000 208,000 187,000 217,000 Net Cash FLow 2,336,292 2,529,376 2,690,308 2,911,874 3,102,066 Present Value Factor @ 14.0% 0.4864 0.4267 0.3743 0.3283 0.2880 PV Net Cash Flow 1,136,450 1,079,274 1,006,968 956,052 893,419 ---------- ---------- ---------- ---------- ----------
Present Value of Net Cash Flows $10,120,055 Residual Value Present Value of Residual 5,439,880 ------------------------------------------------ ----------- 8x's Yr 11 Operating Cash Flow $28,278,445 Value Indication under Income Approach $15,559,935 Less: Taxes (see Schedule) @ 28.7% 8,111,605 ----------- ----------- Value Indication (Rounded) $15,560,000 After Tax Proceeds (end of year 10) 20,166,840 ----------- ----------- Value Indication/EBU $1,787 Present Value @ 14.0% $ 5,439,880 ------ ----------- Cash Flow Multiple - Projected 9.1 ---
-134- 147 QUALIFICATIONS OF THE APPRAISERS 148 STATEMENT OF BACKGROUND AND EXPERIENCE JOHN E. KANE CFA, ASA John E. (Jack) Kane is a Principal and President of Kane Reece Associates, Inc., a Firm he co-founded in 1986. Mr. Kane has personally conducted valuation and appraisal studies of real and personal property and intangible assets of media/communications businesses with aggregate values over $40 billion. He has served as a valuation and communications industry expert, providing advice, management consulting, testimony, and litigation support. The clients he serves number among the largest in the industry. Mr. Kane has been accepted as an expert in the media/communication industry in Federal Courts, U.S. Bankruptcy Courts, various trial courts, various administrative hearing boards, and the American Arbitration Association. He has spoken on valuation, industry, and tax issues at meetings of the National Cable Television Association, the Broadcast Cable Financial Management Association, the Cable Television Tax Professionals Institute, and the American Society of Appraisers. Prior to his current position, Mr. Kane was Chief Operating Officer of Frazier, Gross & Kadlec, Inc., a Washington, DC communications consultancy and was Executive Vice President of Valuation Research Corporation in Princeton, New Jersey. While at these firms, he was responsible for all media/communications clients. Mr. Kane has been actively involved in the communications industry for eighteen years, gaining experience as a Vice President of Group W Cable (formerly one of the largest cable television companies) where he was involved with acquisitions, divestitures, strategic planning, and capital investments. In that position, Mr. Kane was responsible for the analysis, approval, and monitoring of approximately $100 million of annual capital expenditures. Prior to Group W, Mr. Kane was Director of Financial Analysis for the RCA Corporation and later, Director of Corporate Planning for the RCA Communications Group. While at RCA, Mr. Kane was intimately involved in the start-up of RCA's domestic satellite communications business (RCA American Communications). He received an undergraduate degree from Upsala College and an M.B.A. in Finance from St. Johns University where he was elected to the National Business Honor Society, Beta Gamma Sigma and the National Economics Honor Society, Omicron Delta Epsilon. Mr. Kane is a member of the Institute of Chartered Financial Analysts (CFA), as well as the New York Society of Security Analysts and the Association for Investment Management and Research. He or his Firm is also a member of the American Economic Association, National Cable Television Association, the Cable Television Tax Professionals Institute, National Association of Broadcasters, the Broadcast Cable Financial Management Association, the Personal Communications Industry Association, and International Licensing Industry Merchandisers' Association. He is an Accredited Senior Appraiser - Business Valuation of the American Society of Appraisers (ASA) and the Firm's representative to the ASA's Affiliate Firm Committee. Mr. Kane and his Firm received the 1993 Presidents Award from the Cable Television Tax Professionals Institute. Mr. Kane serves on the Executive Board of the Watchung Area Council of the Boy Scouts of America. KANE REECE PROVIDES VALUATION, MANAGEMENT AND TECHNICAL CONSULTING TO THE MEDIA AND COMMUNICATIONS INDUSTRIES. 149 STATEMENT OF BACKGROUND AND EXPERIENCE HENRY E. SHERMAN CFA, CPA Henry E. Sherman is a Vice President of Kane Reece Associates, Inc. Mr. Sherman joined the Firm in June 1988. Mr. Sherman is responsible for the analysis and evaluation of business operations for determining fair market value of closely held and thinly- traded public corporations, purchase price allocations, due diligence support, and solvency and fairness opinions. Mr. Sherman is experienced in valuing business interests and intangible and tangible assets in media oriented businesses such as cable television, broadcast radio and television, publishing, and telecommunications. Prior to his current position, Mr. Sherman was a Senior Consultant of Standard Research Consultants in New York City. While at Standard Research, he was responsible for all solvency letters and fairness opinions. Previous to employment at Standard Research, Mr. Sherman was a Supervising Appraiser of Valuation Research Corporation where he had responsibility for clients in a broad range of industries. Mr. Sherman has been involved in the industry for over sixteen years, beginning as Manager of Business Analysis of Group W Cable where he had responsibility in the areas of acquisitions, divestitures, and capital expenditure analysis. Mr. Sherman is also experienced in developing and implementing business and strategic plans. Mr. Sherman received an undergraduate degree from Johnston College of the University of Redlands and an M.B.A. from the Bernard Baruch College of the City University of New York. Mr. Sherman is a member of The Institute of Chartered Financial Analysts (CFA), a Certified Public Accountant (CPA), a member of The American Institute of Certified Public Accountants, The New York State Society of Certified Public Accountants, a member of The New York Society of Security Analysts, a member of The American Bankruptcy Institute, and a candidate for Senior Member - Business Valuation of the American Society of Appraisers (ASA). KANE REECE PROVIDES VALUATION, MANAGEMENT AND TECHNICAL CONSULTING TO THE MEDIA AND COMMUNICATIONS INDUSTRIES. 150 APPENDIX GLOSSARY OF CABLE TV TERMS 151 GLOSSARY OF CABLE TELEVISION TERMS ACCESS CHANNELS - Channels set aside by the cable operator for use by the public, educational institutions, municipal government, or for lease on a non-discriminatory basis. ACCESS TIME - Total time required to locate, recover and display data on-screen after initiating command to do so, in other words, the time it takes to get from point A to point B in getting data from a computer. ACTIVATED CHANNEL - A cable channel that is technically equipped to carry and deliver video programming. ADDRESSABILITY (Addressable Converter) - The capability of transmitting video, audio, and/or data to specific locations or "addresses" on the cable system. This requires an addressable converter which permits the cable operator to authorize the reception of programs according to subscribers' orders. ADDRESSABLE - Control of customers' home receiving equipment from the headend. AERIAL PLANT - Cable that is suspended in the air on telephone or electric utility poles. ALPHANUMERIC KEYBOARD - Keyboard which allows communications with a computer in letters and numbers. ALTERNATIVE ACCESS PROVIDER - A telecommunications provider, other than the local telephone company that provides a connection, between a customer's premises (usually a large business customer) to the point of presence of the long distance carrier, or portions thereof. AML SYSTEM - A microwave system that is used to distribute the signals of a cable system from the central headend to receive locations in the service area where the signals are placed on the coaxial distribution system. The frequency of operation is licensed by the FCC. AMPLIFIER - A device that boosts the strength of an electrical signal. In a cable system, amplifiers are spaced at regular intervals throughout the system to keep signals picture-perfect no matter where you live. ANTENNA - A device designed to receive radio frequency signals. ANTI-ALIASING - A manipulation of software that make combinations of diagonal or curved lines appear consistent in computer generated images. -A1- 152 ASCERTAINMENT - A survey of a community to determine local concerns, needs, and interests, especially in regard to cable programming. AUTOMATED CHANNEL/ PROGRAMMING - A channel programmed with text or graphics utilizing a character generator. Typical information includes news, weather, program guides, and bulletin boards. BANDWIDTH - Frequency spectrum used to transmit pictures, sounds or both. The average television station uses a bandwidth of six million cycles per second (6 megahertz). BASIC SERVICE - The channels and services subscribers for their minimum monthly fee. Basic fare normally includes broadcast stations, plus satellite signals (e.g. superstations) and access channels. BAUD - The measure of data rates via modems. Common BAUD rates are 2400, 9600, and 14,000. At 2,400 BAUD, a modem is transferred 2,400 bits per second. It takes 10 bits to represent a BTYE in communications situations, so 2,400 BAUD represents 240 bytes per second. BIRD - Colloquial for any communications satellite. BIT - The smallest unit of data in a computer, either a zero or a one. BIT MAP - The representation of a graphic image in terms of dots or pixels that create the image. BROADBAND COMMUNICATIONS SYSTEM - Frequently used as a synonym for cable television. It can describe any system capable of delivering "wideband" channels and services. BURST - In color TV terms, a reference point that appears in the vertical blanking interval; in computer terms, a program encoded in a digital audio tone. BUS INTERFACE - Refers to a connection between a circuit or group of circuits providing an electronic pathway for two central processing input/output units. BYTE - 8 bits make a byte. A byte is the standard unit of memory and processing in most personal computers. CABLECASTING - Production of programming on a private communications system, using coaxial cable as the means of transmission to paying subscribers. -A2- 153 CABLE READY TELEVISION SET - A television set or a VCR that has the following attributes: an improved tuner that is more resistant to interference than traditional tuners, the ability to tune cable channels according to an FCC approved channel plan, and a special connector known as a "decoder interface connector" that allows the seamless connection of cable service to the cable ready set without the use of a traditional set-top box. If a device has all three of the above, it may be marketed as a "Cable Ready" device. CABLE SYSTEM - A communication system that distributes broadcast television signals, satellite signals, original programming, and other services by means of coaxial cable. Also known as cable communications or Community Antenna Television (CATV). CABLE TELEVISION - Communications system that distributes broadcast and non-broadcast signals, as well as multiplicity of satellite signals, original programming and other signals by means of a coaxial cable and/or optical fiber. CARS (Cable Television Relay Services) - Terrestrial microwave frequency band used to relay television, FM radio, cablecasting and other band signals from the original reception site to the headend terminal for distribution over cable. CASH FLOW - Cash flow is operating income minus interest expense; and it basically indicates the amount of cash available before taxes, capital expenditures and debt retirement. Due to its capital- intensive nature, the cable industry is considered a "cash flow" business since the depreciation allowance acceptable for tax purposes is a non-cash expenditure, and thus can generate funds available for use by the system. CAV - Constant Angular Velocity; a videodisc playback mode in which a given disc rotates at a persistent speed, notwithstanding the position of the reading head or stylus. CD-ROM XA - Compact disc read-only memory extender architecture; a more sophisticated form of CD-ROM, permitting interleaving of sound and data for animation and sound synchronization. CENTRAL OFFICE - A telecommunications facility where calls are switched. It generally represents a 10,000-line service area. CG (Character Generator)- Device which electronically displays letters and numbers on the television screen. -A3- 154 CHANNEL - A designated portion of the electromagnetic spectrum, 6 MHz wide, which carries a television signals. (Audio and data signals occupy far less spectrum space.) CHANNEL CAPACITY - Maximum number of channels that a cable system can carry simultaneously. CHARACTER GENERATOR - A device which electronically displays letters and numerals on the TV screen. CHERRY PICKING - Overbuilding economically desirable portions of a franchised community. CHROMINANCE - The color portion of a video signal that defines the luminance and hue of an on-screen image. CIRC - Cross Interleaved Reed-Solomon Code; method of error detection and correction for CD audio discs. CLI - Cumulative Leakage Index is defined as the basic signal leakage performance criteria as per FCC 76.611 with measurements (in microvolts/meter) made over a large percentage of the system. CLOCK RATE - The clock speed that synchronizes internal operations of a central processing chip. Clock rates range from 8 million cycles per second (in the original IBM-AT) up to 166 million cycles per second (in the latest Intel processors). CLV - Constant Lineary Velocity; alternate format for video discs, allowing twice the playing time per side, although it can be read in linear playing time alone. COAXIAL CABLE - Actual line of transmission for carrying television signals. Its principal conductor is either a pure copper or copper-coated wire, surrounded by insulation and then encased in aluminum. COLLOCATION - The circumstance whereby competitors to local telephone companies locate facilities at or close to the local telephone company central offices to facilitate their offering of an alternative means of delivering local telecommunications services. A form of collocation, known as "virtual collocation", permits the achievement much of the functionality of physical collocation by technical means. This technique can be used where telephone companies decline to make physical collocation available. COLOR DEPTH - The number of colors displayed at any given pixel. If the color is one bit deep, then the pixel can be black or white; if the color is 8 bits deep, then 64 -A4- 155 colors can be displayed. So called "True Color" is 32 bits deep and represent over 16 million colors at any given pixel. COMMON CARRIER - An entity that provides communication services to the public, at rates approved by state or federal authority, on a non-discriminatory basis, and exercises no control over the message content. COMMUNICATIONS COMMON CARRIER - General name for any medium which carries messages prepared by others for a fee and is required by law to offer its services on a non-discriminatory basis. Common carriers are regulated by federal and state agencies and excercise no control over the message content carried. COMMUNITY ANTENNA TELEVISION - A system comprised of antennas, coaxial cables or other electrical conductors, and other electronic equipment used to receive and distribute radio and/or television signals, directly or indirectly, off-the-air, to subscribers for a fee. COMPETITIVE ACCESS PROVIDER - A telecommunications entity engaged in providing competitive access service. CONDUIT - Metal or plastic tubing that protects coaxial cable in underground installations and makes it possible to install additional cables for transmitting information. CONVERTER - Device that is attached between the television set and the cable system that can increase the number of channels available on the TV set, enabling it to accommodate the multiplicity of channels offered by cable TV. CPU - Central processing unit; the "brain" that facilitates the functions of any computer. CRAWL - The movement of a printed message from right to left or bottom to top of a television screen, usually while a picture is on screen. CROSS-OWNERSHIP - Legal term for ownership of two or more kinds of communication outlets (radio, TV, newspaper) by the same individual or company in the same market. The FCC prohibits companies from owning certain combinations of media within given markets to avoid monopoly situations. CRT - Cathode Ray Tube (television/computer screen). -A5- 156 CYCLE TIME - Refers to time required for performance of particular functions; in the context of video games, refers to the relative responsiveness of a particular system or platform. DATA PATH - The number of data bits simultaneously processed internally in a central processor. A 32-bit CPU has a data path that is twice as wide as a 16-bit CPU. DATA RATES - Data rates are a key concern in communications applications and CD-ROM applications. Telephone engineers refer to bit rates and calculate the number of bits per second that can be transferred; so an ISDN "B-Channel" has a data rate of 64 kbps - which means 64 thousand bits per second. A computer engineer might refer to this as 64 kilo-BAUD. The opportunity for confusion is great when talking about bit rates off a CD-ROM drive, which is often written as 150 kbps. While this looks like bits per second, it is actually Bytes per second! The bit rate off a CD-ROM drive is about 1.2 megabits per second! The usual convention is to refer to bits with a "b" and bytes with a "B", but this is not always rigorously followed. DBS (Direct Broadcasting Satellite) - System in which signals are transmitted directly from a satellite to a home rooftop receiving dish (antenna). DEDICATED CHANNEL - A cable channel designated exclusively for a specific purpose or type of programming. Examples include public access, educational use, or business data. DEMOGRAPHICS - Breakdown of television viewers by such factors as age, sex, income levels, education and race. These figures are used in selling advertising time. DESCRAMBLER - Electronic circuit that restores a scrambled video signal to its standard form. DIALING PARITY - The offering to all telecommunications providers the capability to provide service that includes the dialing by their customers of the same number of digits to complete calls. DIGITAL COMPRESSION - An engineering technique for converting a cable television signal into a digital format (in which it can easily be stored and manipulated) which may then be processed so as to require a smaller portion of spectrum for its transmission. It could allow many channels to be carried in the capacity currently needed for one signal. -A6- 157 DIRECT BROADCASTING BY SATELLITE - A distribution system in which programming is transmitted directly via satellite to a receiving dish on an apartment building (multiple subscribers) or to an individual residence. DISTANT SIGNALS - Television channel from another market imported and carried locally by a cable television system. DISTRIBUTION CABLE - Cable branching off the trunk line and passing residences that may subscribe to cable services. DISTRIBUTION SYSTEM - Part of a cable system consisting of trunk and feeder cables used to carry signals from headend to customer terminals. DONGLE - Yes, it's a real part of multimedia jargon; it's a electronic device that controls access to a range of licensed applications. DOWNLINK - Reception of video and audio programming from satellites in orbit using dish antennas and electronic equipment. DOWNSTREAM - Flow of signals from the cable system headend through the distribution network to the customer. DRIVE BAY - The opening in a computer unit to hold a floppy drive, a hard drive, a tape drive or other device. DROP CABLE - The last piece of cable that connects the customer's home to the cable system. DUAL CABLE - Two independent distribution systems operating side-by side providing double the channel capacity of a single cable. DVI - Digital Video Interaction; enables compressing, decompressing and displaying digital graphics and full motion video with audio; works with CD-ROM, CD-I and hard or floppy discs. EARTH STATION - Structure, referred to as a "dish", used for receiving and/or transmitting those electromagnetic signals coming from or going to a satellite. EDC/ECC - Stands for Error Detection Code/Error Correction Code; effective and complex means of discerning errors and correcting CD-ROM discs. EDITING - The process of combining various segments of master videotape into a new or altered program. -A7- 158 EDUCATIONAL ACCESS CHANNEL - A channel on a cable system which is designated for exclusive use by educational entities. EEPROM - A read-only memory program that can be erased electronically or a type of PROM, programmable read-only memory that can be erased with electric current. EMERGENCY OVERRIDE - The capability to interrupt all channels of a cable system with an emergency message to subscribers. EQUAL ACCESS - The offering of access to local exchange facilities on a nondiscriminatory basis. EXCLUSIVITY - Contractual right to be the sole exhibition of a program in a particular area during a particular time. FAT - Nothing to do with dieting; stands for File Allocation Table; it's that part of a DOS system that keeps record of just where all those files are on a given disk. FCC - Federal Communications Commission; the federal government's policy, licensing, and regulatory agency which governs communications within its jurisdiction. FEEDER CABLE (or BRANCH) - An intermediate cable distribution line that connects housedrops to the main trunk line. FEEDER LINE - Cable distribution lines that connect the main trunk line or cable to the smaller drop cable. FIBER OPTICS - Very thin and pliable tubes of glass or plastic used to carry wide bands of frequencies. FILTER - A circuit which allows signals of desired channels to pass through but blocks others. Used in trunk and feeder lines for special cable services, such as two-way operation and also as a method to secure service. FM CABLE SERVICE - FM radio signals offered by a cable system (the cable must be connected to the customer's FM stereo receiver). FM SERVICE - CABLE RADIO - Audio services provided by attaching cable to an FM converter. Audio services can include radio stations, satellite audio, simulcasting of broadcast, satellite, or pay services, and special programs for the visually impaired such as radio reading services. -A8- 159 FOOTPRINT - Term used to describe the geographic area which receives sufficient satellite signal strength for reception. FORBEARANCE - The practice whereby a regulatory agency, although possessing jurisdiction to regulate, declines to regulate, either entirely or to the extent permitted by law. Forbearance has usually been based upon the conclusion that the presence of competition limits a regulated company's market power. FRANCHISE - Contractual agreement between a cable operator and a governmental body which defines the rights and responsibilities of each in the construction and operation of a cable system within a specified geographic area. Under the Cable Act, a cable operation may not provide cable service without a franchise. FRANCHISE FEE - Annual fee collected from cable operator by franchising authority. Generally based on 2 to 5 percent of cable operator's gross revenues. Limited to 5% by Cable Act of 1984. FRANCHISING AUTHORITY - Governmental body responsible for awarding a franchise, specifying the terms of a franchise, and regulating its operation. While the franchise authority is usually a local city of county body, some areas are regulated exclusively on the state level. FREQUENCY - A measure of the number of times an electromagnetic signal repeats an identical cycle within a unit of time. One hertz (Hz) is one cycle per second. A Kilohertz (KHz) is 1,000 cycles per second, a megahertz (MHz) is one million cycles per second, and a gigahertz (GHz) is one billion cycles per second. GATEWAY - A computer system that can transfer data between two normally incompatible applications or networks. A gateway reformats data so that it is readable by the other network or applications. In a functional sense, a gateway might convert data carried over a cable TV network to a format readable by the worldwide telephone network, or translate between data on an Ethernet local area network and the Internet. GLASS MASTER - Part of the disc making process; a highly polished glass disc, coated with photoresist and imprinted with the use of a laser beam. GOVERNMENT ACCESS CHANNEL - A channel on a cable system dedicated for use by local government. -A9- 160 GOVERNMENTAL CABLECASTING - An opportunity for government officials to disseminate information to their constituents via cable television. This can be achieved for example, by the official periodically submitting 3/4 inch videocassettes to the cable operator, sending abridged newsletters for display on a system's alphanumeric channel or participating in interview programs on access channels. GROSS RECEIPTS - Total revenue (as defined in the governing franchise agreement) derived from programming and services on a cable system. HARDWARE - Equipment involved in production, storage, distribution, or reception of electronic signals, such as the headend, the coaxial cable network, amplifiers, the television receiver and production equipment like cameras and videotape recorders. HDTV - A television signal with greater detail and fidelity than the current TV systems used. The USA currently uses a system called NTSC; HDTV would provide a picture with twice the visual resolution as NTSC as well as CD-quality audio. HEADEND - Electronic control center of the cable system. This is the site of the receiving antenna and the signal processing equipment essential to proper functioning of a cable system. HIGH BAND - Television broadcast channels seven through thirteen. HIGH DEFINITION TELEVISION (HDTV) - Television transmission which increases the number of lines on the television screen so as to enhance picture resolution. Standards are currently under evaluation by the FCC. HOMES PASSED - The total number of homes which have the potential for being hooked up to the cable system. HOUSEDROP - The cable which connects the subscriber's set to the feeder (or branch) line of the cable system. Also referred to as drop cable. HUBS - Local distribution centers where signals are taken from a master feed, and transmitted over cable to customers. HYPERMEDIA - Refers to incorporation of other media in hypertext or the promotional pump-priming preceding every new wrinkle in media these days. -A10- 161 HYPERTEXT - The format for the great interactive American novel; writing in non-linear style intended to allow the reader to select and arrange segments to determine plot. INDEPENDENT - Individually owned and operated cable television system, not affiliated with an MSO. INSTITUTIONAL NETWORK - A network which is operated in conjunction with a cable TV system, which is designed to satisfy the needs of schools, businesses, or government. INTERACTIVE CABLE - A cable system that can carry information both to and from subscribers. Examples of uses include opinion polling, requests for pay-per-view, information retrieval, and video games. (See also TWO-WAY SYSTEM.) INTERCONNECT - Connection of two or more cable systems by microwave, fiber, coaxial cable, or satellite, so that programming or advertising may be exchanged, shared, or simultaneously viewed. INTERCONNECTION - The practice of linking cable systems, usually with microwave, so that users of different cable systems can receive the same services simultaneously. INTERDICTION - A method of receiving TV signals by jamming unauthorized signals but having all other signals received in the clear. Because the jamming is accomplished outside the home and does not require a set-top terminal in the home, interdiction is receiving more operator interest, especially in light of recent FCC actions encouraging more consumer friendly approaches. INTEREXCHANGE CARRIER - A long distance carrier between serving areas of LATAs. INTERLACED DISPLAY - A raster display is "interlaced" when the display screen skips every other line the first time through and then comes back to scan the alternate lines. Television screens are interlaced. In computer applications, interlaced displays are thought to contribute to image flicker. INTER-LATA - The provision of telecommunications services between LATAs. Pursuant to the AT&T Consent Decree, the RBOC's are prohibited from providing telecommunications services between LATAs. INTRA-LATA - The area within a LATA in which, pursuant to the AT&T Consent Decree, the RBOCs are permitted to offer local telephone service. -A11- 162 ISDN - Integrated Service Digital Network; a universal digital telecommunications standard developed to facilitate simultaneous transmission of high-bandwidth data, video and audio signals. ITFS (Instructional Television Fixed Service) - An instructional broadcasting system where signals are distributed on a special microwave band to one or more fixed receiving points. JANUS DISC - Incidental allusion to the Roman god; CD-ROM that possess god-like capacity to incorporate data in two or more otherwise incompatible formats. LASER ROT - Degeneration of a laser disc resulting from contamination of raw material or improper process control. LATA - Local Access and Transport Area. LAYERED ECC - Layered Error Correction Code; means of preserving integrity of CD-ROM material; term refers to the fact that it is used on top of the CIRC error correction of CD audio discs. LEASED CHANNELS - Any channels made available by the operator to potential programmers for a fee. LINE EXTENSION AREA - Area outside the initial service area of a cable system where service will be provided after the area reaches a certain density. LOCAL AREA NETWORK - Network within a building of office complex. LOCAL EXCHANGE CARRIER (LEC) - A local telephone company within a serving area or LATA. LOCAL LOOP - The set of facilities used by a telephone company to transport signals between a central office, roughly similar to a cable TV headend, and a customer location. The LOCAL LOOP using twisted pair copper wire typically stretches a maximum of 18,000 feet between CO and customer premises. LOCAL ORIGINATION CHANNEL - A channel that carries programming produced by a cable system for the community it serves. Unlike access channels, it is under the operator's exclusive control and may carry advertising. LOCAL ORIGINATION PROGRAMMING - Programming developed by an individual cable television system specifically for the community it serves. -A12- 163 LOCAL PROGRAMMING - All programming on a cable system that is originated locally. LOCKOUT DEVICE OR LOCKBOX - A mechanism designed to prevent the reception of specific programs. Usually used to prevent reception of pay cable movies. LOOP - A dedicated local information distribution service, using phone lines, cable or other technologies, usually between business machines or locations of an institution. LOW BAND - Television broadcast channels two through six. MAGNETO OPTICAL - An information storage format magnetically sensitive at high temperatures only; a magneto optical disc can be erased or recorded over. MATV (Master Antenna Television System) - A system that serves a concentration of television sets such as an apartment building, hotel, etc., utilizing one antenna to pick up broadcast signals. MICROWAVE - One method of interconnecting a cable system with a series of high frequency receive and transmit antennas mounted on towers spaced up to 50 miles apart. MIDBAND - The part of the electromagnetic spectrum that lies between television channels 6 and 7, allocated by the FCC for aeronautical, maritime, and land mobile radio. These frequencies can be used on cable systems with appropriate waivers, and may require converters for reception on home TV sets. MMDS (Multichannel Multipoint Distribution Service) - Private service utilizing a very high frequency (2 GHz) to transmit multiple television signals (also called wireless cable). MODULATOR An electronic device that adjusts the level and frequency of TV channels to that desired. MONITOR - A device used to display a video signal. MPEG - Motion Picture Experts Group; the working committee operating under the auspices of the International Standards Organization to set standards for digital compression and decompression of motion video/audio. MSO (Multiple System Operator) - Company that owns and operates more than one cable television system. -A13- 164 MULTIMEDIA - Literally, more than one medium simultaneously. In popular usage, typically refers to graphics (with or without animation) accompanied by sound. Some computer-based encyclopedias claim to be multimedia because they use both text and still pictures, although this seems a weaker definition of the word. MULTIPLEXING - The potential transmission of several feeds of the same cable network with the same programming available at different times of the day. This is seen as one possible use of the additional channel capacity that may be made available by digital compression. Multiplexing is also used by some cable networks to mean transmitting several slightly different versions of the network, for example several MTV channels carrying different genres of music. MUST-CARRY CHANNEL - Local broadcast signals that are required to be carried over a cable system by the FCC. NARROWCASTING - Delivery of programming that address a specific need or highly focused audience. NCTA (National Cable Television Association) - The major trade association for the cable television industry. NEAR VIDEO ON DEMAND (a.k.a. Near Movie on Demand) - An entertainment and information service that "broadcasts" a common set of programs to customers on a scheduled basis. At least initially, NVOD services are expected to focus on delivery of movies and other video entertainment. NVOD typically features a schedule of popular movies and events, offered on a staggered-start basis (every 15 to 30 minutes, for example). See VIDEO ON DEMAND. NON-DUPLICATION RULES - Restrictions placed on cable television systems prohibiting them from importing distant programming that is simultaneously available locally. NON-INTERLACED DISPLAY - Whenever a line on a raster display is scanned in order, the display is "non-interlaced". This presents a steadier, sharper image. NONPROFIT ACCESS CORPORATION - A corporation formed exclusively for the purpose of facilitating program production on access channels. May be responsible for setting policies, administering grants, and/or promoting use of access facilities. -A14- 165 NUMBER PORTABILITY - A capability that permits telecommunications users to maintain the same telephone access number as they change telecommunications suppliers. OFF-AIR - Reception of a television signal that has been broadcast through the air. OLE - Object linking and embedding; a specification enabling developers to readily integrate information drawn from different applications by extending graphical connections under Microsoft Windows, OS/2 Presentation Manager and Apple Macintosh System 7.0. OOP - Object-Oriented Programming; a programming method where each element is self-contained, including all data and instructions related to a particular object. ORDINANCE - Enabling legislation passed by a local government to establish guidelines for the franchising process. ORIGINATION EQUIPMENT - A category of television equipment which includes, but is not limited to, cameras, film chains, videotape recorders, lighting, and remote location equipment. OROM - Optical Read-Only Memory; a laser-encoded optical memory storage format for digital data storage. PAY-CABLE - Pay-TV delivered over cable, where subscribers pay an additional fee for programs such as first- run movies or sports events. PAY-PER-VIEW - Cable programming for which customers pay on a one-time basis (e.g., for prize fights, Broadway shows and movie premieres). PAY PROGRAMMING - Movies, sports, and made-for-cable specials that are available to the cable customer for a charge in addition to the basic fee. PEL - Abbreviation for a "Picture Element", used by television engineers to refer to the smallest display point on a screen. PENETRATION - Ratio of the number of cable customers (or pay-TV customers) to the total number of households passed by the system. PERFORMANCE STANDARDS - Minimum technical criteria that a cable system must meet as defined by the FCC and/or a local ordinance. PERSONAL COMMUNICATIONS SERVICES - A new wireless communications service that allows users to communicate through the use of miniature -A15- 166 hand held devices transmitted over radio waves. The technology uses a network of transmission towers or "mini-cells" to relay the signal from one point to another. PIRATING - Illegal tapping of pay TV or cable TV signals. PIXEL - Abbreviation for a "Picture Element", used by computer scientists. A pixel is the smallest dot on the screen that is managed by a screen display program. A VGA screen with 640 x 480 resolution displays over 300,000 pixels. PLANT - The hardware, buildings, and distribution system of a cable system. POINT OF PRESENCE - The place at which, pursuant to the AT&T consent decree, a long distance carrier interconnects with a local telephone company. POLE ATTACHMENT - Cable television hook-ups to telephone or electric utility poles. POLE REARRANGEMENTS - The process of spacing utility lines and cable on a pole in a sequence regulated by the Public Utilities Commission or the utility. This rearrangement often involves adding cross-arms or replacing the pole. POLE RENTAL - A fee paid to a utility company for the right to use its poles. POLLING/OPINION POLLING - Using an interactive converter, the process whereby a cable subscriber may register a response to a request or a question posed on a cable program. PULSE CODE MODULATION - Means of changing analog audio to a digital format by use of successive samples of materials to be copied. PREMIUM SERVICES - Optional services that have charges above basic cable. Can include pay cable for special types of programming, video games, text and/or interactive services. PROGRAMMER - Individual, organization, or company providing programs to cable systems. PUBLIC ACCESS CHANNEL - A channel designated for use by the general public or nonprofit entities within a community on a nondiscriminatory basis, with no charges for channel time. RAM - Random Access Memory; that portion of a computer's memory that read and writes data, representing the day-to-day capacity enabling most -A16- 167 computer tasks, expressed in video game terms as VRAM (Video Random Access Memory). RASTER DISPLAY - The standard television display in which the screen is scanned horizontally in interlaced lines from upper left to lower right. The standard television display is 525 lines. REBUILD - The systematic replacement of old cable plant -- to improve signal quality or increase channel capacity. RESOLUTION - The amount of detail in a picture. RIEF - Resource Interchange File Format; a multimedia specification, not tied to a particular platform, which permits assorted audio and video elements to be stored in common formats. RISC - Reduced Instruction Set Computing; RISC differs from CISC (Complex Instruction Set Computing) in that complex operations are defined in terms of a sequence of smaller, simpler operations. The computer hardware in a RISC computer is designed to optimize the speed at which the simplest operations are performed and thus achieve overall high performance levels. Direct comparisons between RISC and CISC based hardware are not easy to make, but each has its proponents and detractors. SATELLITE (Domestic Communications) - Device located in geostationary orbit above the earth which receives transmissions from separate points and retransmits them to cable systems, DBS and others over a wide area. SATELLITE MASTER ANTENNA TELEVISION SYSTEM (SMATV) - Systems that serve a concentration of TV sets such as an apartment building, hotel, etc., utilizing one central antenna to pick up broadcast and/or satellite signals. SATELLITE SERVICE - Any channel delivered to cable systems by a communications satellite. SATURATED SYSTEM - Any cable system carrying up to its existing channel capacity. SCRAMBLING - A signal security technique for rendering a TV picture unviewable, while permitting full restoration with a properly authorized decoder or descrambler. SCSI - Small Computer Systems Interface, a standard way to connect external systems to a computer. In general, CD-ROM drives are connected to computers
-A17- 168 through an SCSI (pronounced "scuzzy") interface card. SECURITY SYSTEMS - General term encompassing fire alarms, smoke detectors, burglary devices, and other services aimed at protecting the welfare and property of subscribers and users. Some use cable system from subscriber's home to police or fire departments. SERVICE/TEST EQUIPMENT - A category of equipment which includes, but is not limited to, oscilloscopes, field strength meters, spectrum analyzers, and cable testing equipment. SERVO Electronic/mechanical machine using feedback to make precise starts and stops of the optical head; focuses the laser beam. SET TOP BOX - Any of several different electronic devices that may be used in a customer's home to enable services to be on that customer's television set. If the "set top" device is for extended tuning of channels only, it is called a CONVERTER. It restores scrambled or otherwise protected signals, it is a DESCRAMBLER. SHOP-AT-HOME - Programs allowing customers to view products and/or order them by cable television, inlcuding catalogues, shopping shows, etc. SIGNAL COMPRESSION A method of combining television signals so that a larger number of channels than usual can be transmitted over a fixed bandwidth. A device to "expand" the wanted signal a the receive location is also required. SIGNAL-TO-NOISE-RATIO - The ratio of the desired signal to the amount of noise (interference or degradation) in a picture. The higher the S/N ratio, the better. SMATV - Satellite master antenna television. Satellite dishes and aerial antennae erected on apartment buildings and multi-unit dwellings to receive and re-transmit satellite and off-the-air television signals to occupants of such buildings or dwellings. SOFTWARE - Materials used in programming such as films, slides, video tapes, or video discs, and the information they carry. Also languages and formats used in computer programming. Compare to hardware. SPECIAL-EFFECTS GENERATOR - A device used in the production of television programs that facilities transitions from one scene to another. -A18- 169 SPIN UP - Getting up to speed, referring to the rotation rate of a CD-ROM that must be reached for the disc to be readable. SPRITE - A graphic element defined on a plane in front of the background plane. Video games are optimized to use sprites; computer displays are optimized around bit-maps. STOPWORD - A word in the data base that is not included in the index. STV (Subscription Television) - Pay-TV delivered by UHF over-the-air. Signals are scrambled and decoded at the subscriber's set by special receiver. SUBSCRIBER - Customer paying a monthly fee to cable system operators for the capability of receiving a diversity or programs and services. SUPERSTATIONS - Broadcast stations whose signals are transmitted over satellite and available nationwide for distribution over cable systems. Examples include WGN-Chicago, WTBS-Atlanta, and WWOR-New York. SUPERTRUNK - Cable that carries several video signals between facilities of a cable system. SYNDICATED EXCLUSIVITY - Requirement by which cable systems must blackout significant portions of their distant signals in order to protect syndicated programming which local television broadcasters had under an exclusive contract. The FCC eliminated this requirement in 1980 and reimposed it in 1990. TAP - The connection from the feeder cable to the subscriber housedrop. TELECONFERENCING - A term for simultaneous sound hookup that allows individuals in two or more locations to meet with one another in a long-distance "conference" mode. Video conferencing includes pictures and sound. Can be video one-way, audio two-way or two-way video. TELETEXT - One-way system of storing and displaying printed and graphic material on the home television screen. TERMINAL - Device that serves as interface between user and communication system, e.g. computer keyboard or a Fax machine. TIERED PROGRAMMING - A group of programs for which the customer is charged a fee. For example, most cable systems offer a satellite programming tier. -A19- 170 TIERS - Levels of programming or services offered in packages or singly to cable subscribers. Usually progressive in price, quality and quantity of programs. Compare to basic service. TIME BASE CORRECTOR - An electronic device that corrects and stabilizes the video image during editing and/or cablecasting. Local cable channels which are not equipped with time base correctors usually produce inferior picture quality. TRANSLATOR - Relay system that picks up distant television signals, converts the signals to another channel to avoid interference, and retransmits them into areas the original television station could not reach. TRANSPONDER - The part of a satellite that receives and transmits a signal. TRUNKING - Transporting signals from one point (an antenna site for instance) to another point (such as a headend), usually without serving customers directly. Trunking can be accomplished by using coaxial cable, fiber optics or microwave radio. TRUNK LINE - The major distribution cable used in cable television systems. TWO-WAY SYSTEM - A cable system which can carry signals in both directions, from the headend to the subscriber and back to the headend. TVRO - A television receive-only earth station which receives signals from satellites in geosynchronous orbit. TV TRANSLATOR - A relay system that picks up distant broadcast television signals, converts the signals to another channel to avoid interference, and re-transmits them into areas the original station could not reach. UNBUNDLING - The separation and discrete offering of the components of the local telephone service. UNBUNDLING of network components facilitates the provision of "pieces" of the local network, such as local switching and transport, by telephone company competitors. UNDERGROUND INSTALLATION - Method of installing cable underground as opposed to aerial suspension of cable on poles. -A20- 171 UPGRADE (or SYSTEM UPGRADE) - Modification of cable plant or home terminal equipment (converters) to improve quality and/or increase channel capacity. UPLINK - A satellite dish antenna and transmitter designed to send programming to a satellite for distribution. UPSTREAM - Flow of any information from the customer, through the cable system, to the headend. UPWARD COMPATIBLE - The high-tech equipment of upwardly mobile; an entity that can be incorporated in a larger, or more sophisticated environment, such as software that can run on computer systems of expanded capacity. VCR (Video Cassette Recorder) - A machine used to record and playback images on magnetic tape, packaged in a cassette for storage, convenience and longevity. VAPORWARE - Word that connotes any multimedia product that is real only in the mind of its creator; related slang includes hyperware, indicating hardware that has not yet been delivered and slideware, something that only exits in slide presentations. VIDEO DIALTONE - A means by which telephone companies may provide transmission facilities and for on-telco video programming as well as certain enhanced services to third party programmers. VIDEO ON DEMAND - An entertainment and information service that allows customers to order programs from library of material at any time they desire. WORD - Typically 2 or 4 bytes make up a "word". Word is not often used today, but in use it would refer to the size of the instruction a CPU is required to process. WORM - Write Once Read Many; a permanent optical storage that permits the user to record information on a blank disc. YELLOW BOOK - The physical specification for any form of laser encoded optical memory storage medium (CD-ROM disc). -A21- EX-3 4 APPRAISAL BY WALLER CAPITAL CORP. 1 EXHIBIT 3 FALCON CABLE SYSTEMS COMPANY Fair Market Value As of December 31, 1995 W A L L E R C A P I T A L --------------------------- CORPORATION 2 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- TABLE OF CONTENTS SECTION I INTRODUCTION Preamble...................................................... I - 1 Statement of Appraisal and Limiting Conditions................ I - 3 Summary and Conclusion........................................ I - 5 General Economic Outlook and the Specific Industry Outlook.... I - 7 SECTION II THE SYSTEMS Gilroy Region................................................. II - 1 Hesperia Region............................................... II - 10 San Louis Obispo Region....................................... II - 19 Tulare Region................................................. II - 28 Central Oregon Region......................................... II - 37 Dallas Region................................................. II - 45 Coos Bay Region............................................... II - 55 SECTION III DISCOUNTED CASH FLOW ANALYSIS Introduction.................................................. III - 1 Income Statement Summary...................................... III - 1 Capital Expenditure Summary................................... III - 6 Terminal Value................................................ III - 7 Comparable System Sales....................................... III - 7 Discount Rate................................................. III - 8 Conclusion.................................................... III - 9 SECTION IV APPENDIX A. Discounted Cash Flow Analysis by Region B. Summary Appraisal of Exchange Systems
- -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION 3 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION I. PREAMBLE At the request of Falcon Cable Systems Company ("Falcon" or the "Company"), a California Limited Partnership, Waller Capital Corporation ("Waller Capital") has conducted an appraisal of the fair market value of the assets of Falcon. The Company operates cable television systems that serve approximately 135,000 subscribers located in California and Oregon (the "Systems"). Neither Waller Capital nor any of their representatives have any active or contemplated direct interest in Falcon or any affiliates of Falcon. The purpose of this appraisal is to determine the value a buyer would assign to the Company on a going concern basis if a willing seller, under no undue pressure to sell, placed the Company for sale. The valuation is determined as of December 31, 1995, on a cash-for-assets basis. As directed by Falcon, the Systems were divided into seven regions; Gilroy Region, Tulare Region, Hesperia Region, San Luis Obispo Region, Coos Bay Region, Dallas Region and Central Oregon Region (the "Regions"). The general methodology of the appraisal was to evaluate the Discounted Cash Flow ("DCF") stream generated by each Region over a ten-year period (fiscal 1996 to 2005) and apply relevant market and economic factors. Ten-year projections have been prepared by Waller Capital as part of the DCF analysis. Developing projections required a general understanding of each Region's current business and future plans. This understanding was obtained through: i) discussions with management concerning business operations and future prospects; ii) a review of each Region's December 31, 1995 fiscal year end unaudited financial statements; iii) a review of Falcon's 1993 and 1994 unaudited regional and audited consolidated financial statements; iv) a review of other operating and subscriber data; v) an analysis of demographic data as it relates to the service areas of each Region; and (vi) on-site due diligence of the Systems. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 1 4 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION Projections for the years 1996 to 2005 were made by Waller Capital based upon each Region's 1995 unaudited financial statements which we believe to be generally reasonable. The general expense structure of the Systems was projected according to market and inflationary factors as it was judged to be efficient. In addition, specific adjustment was made for partnership expenses, as determined by Waller Capital, which were not allocated back to each Region. A sale is assumed to occur in the tenth year (2005) of the DCF model. The cash flow sales multiples selected for each Region reflect the long-term prospects for cash flow growth and the cash flow quality. The multiples selected also account for the presumed technical condition of each Region at the time of sale. The multiples were applied against the full tenth-year of each Region's cash flow. This analysis utilized a discount rate derived from Waller Capital's Weighted Average Cost of Capital ("WACC") model. This discount rate is consistent with the WACC for an average cable buyer, private or public, utilizing a mix of debt and equity to capitalize operations. 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 the twelve months preceding December 31, 1995, relying upon data from Paul Kagan Associates, Inc., transactions executed by Waller Capital 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 determine a fair market value. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 2 5 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION II. STATEMENT OF APPRAISAL ASSUMPTIONS AND LIMITING CONDITIONS This appraisal has been prepared pursuant to the following general assumptions and general limiting conditions: 1. Waller Capital assumes 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 and all liens or encumbrances unless otherwise stated. 3. Waller Capital assumes 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 generally reliable. However, Waller Capital issues no warranty or other form of assurance regarding its accuracy. 5. Waller Capital assumes 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. Waller Capital assumes that all required licenses, certificates of occupancy, rights of entry or easement, 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. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 3 6 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION 7. Possession of this valuation report, 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 without Waller Capital's prior written consent and, in any event, only with proper written qualifications and only in its entirety. 8. Waller Capital, by reason of this valuation, is not required to furnish a complete valuation report, or to give testimony, or to be in attendance in a court of law or other arbitration 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 report (especially any conclusions of value, the identity of the appraisers, or the firm with which the appraisers are associated) 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. Waller Capital assumes no responsibility for any financial reporting judgements which are appropriately 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. Waller Capital has no responsibility to update this report for any changes occurring subsequent to the issuance of this report, except as Waller Capital may be retained to do so in the future under a separate contract and agreement. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 4 7 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION III. SUMMARY AND CONCLUSION Based on the investigation and analyses discussed in this report, it is Waller Capital Corporation's opinion that the fair market value of Falcon Cable Systems Company, as of December 31, 1995, was $213,672,442. On a per region basis the value was determined as follows: Gilroy $ 57,640,720 Hesperia 28,865,947 San Luis Obispo 21,988,550 Tulare 22,269,159 Coos Bay 35,486,280 Dallas 27,257,132 Central 20,164,654 ------------ TOTAL VALUE $213,672,442
This value was based on the Discounted Cash Flow analysis and was supported by our comparable system sales analysis. Falcon Cable Systems Company serves 135,470 subscribers in 35 systems which are grouped into seven regions. The systems are spread over 800 miles from southern California to northern Oregon. There is an average of 3,871 subscribers per headend with an average technical capacity of 41 channels. After four years of a lack of liquidity and capital scarcity, the Systems are generally in need of upgrades and rebuilds. Two of the Company's regions have lost basic subscribers in the last three years, however, during the period from FYE 1993 through FYE 1995 overall basic subscribers have increased at a 2.2% annual rate. Pay subscription has fallen 11% over the same period. From FY 1993 to FY 1995 revenue has dropped by over $800 thousand or -1.5% and cash flow has dropped by $2.8 million, or 8.9%. On a pre-management fee and partnership expense basis five of the seven regions had operating margins in excess of 50%. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 5 8 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION The California regions are all located within areas adjacent to the operations of a number of different MSOs, however, all of the regions in Oregon are surrounded by either TCI or other Falcon owned systems. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 6 9 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION IV. GENERAL ECONOMIC OUTLOOK AND THE SPECIFIC INDUSTRY OUTLOOK GENERAL ECONOMY 1995 was a blockbuster year for almost all U.S. equity markets. The Dow Jones Industrials and the S&P 500 returned 36.8 % and 37.5%, respectively. The U.S. bond market fared equally well, with 30-year Treasury yields dropping from 7.85% to 6.25% and providing a total return of over 25%. Real GDP growth ended the year at 3.3%, with an inflation rate (CPI, which includes the volatile energy and food components) of 2.9%. The average unemployment rate held steady at 5.6%. Most economists feel that the Federal Reserve orchestrated a "soft-landing", quelling runaway inflation fears, while not stifling economic output and future capital spending plans. Public companies showed overpowering strength in the equity markets, benefiting from decreasing interest rates, low and stable inflation, increasing productivity, lower operating costs, restructurings and a tremendous increase in liquidity due to substantial mutual fund inflows. Companies with international sales exposure benefitted from the weaker U.S. dollar. The technology sector fared best as companies not only increased actual capital spending dollars, but also increased the percentage of technology spending as a percent of total capital spending to approximately 50% -- up dramatically from years past. The merger and acquisition market was also highly active, with media, cable, technology, defense and health care companies leading the charge. A record $442 billion in merger and acquisition deals were recorded by Securities Data Co., a leading database for merger and acquisition activity. The prognosis for 1996 appears less optimistic than 1995, yet moderately strong, for the financial markets. In early December, the Federal Reserve lowered the discount rate from 5.50% to 5.25% as a preemptive strike against a stagnating economy. Inflation is expected to edge up slightly to 3.2% and GDP growth is expected to decrease moderately to 2.8%. Bond yields are expected to primarily maintain their current historical low levels, which bodes well for residential construction activity. Finally, with U.S. equities at record levels, companies are finding that acquisitions are a faster and - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 7 10 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION more cost effective way to grow revenues in a marketplace where raising prices is not an option. Corporate capital spending is expected to remain healthy and companies are projecting moderate growth with controlled costs. Consumer spending is showing signs of flattening, as consumer debt begins to approach the saturation point. On the legislative front, Congress also aims to complete a tax-reform bill and pass a balanced-budget bill during 1996. Labor cost control improvements, technology, inventory management and manufacturing efficiencies appear to have built a solid foundation for long-term, sustainable, non-inflationary economic growth in 1996. HISTORY OF THE CABLE MARKET The robust merger and acquisition market for cable television systems witnessed from 1986 to middle of 1989 was driven by the very positive outlook for the fundamentals of the cable industry and readily available credit. With the prior arrival of basic rate deregulation, rising penetration of services and growing ancillary revenues, the cable television industry utilized its natural operating leverage to produce strong cash flow growth. Simultaneously, the high yield debt market and commercial banks made enormous amounts of capital available at ever increasing multiples of cash flow. In late 1989, the market for cable systems reversed, with price multiples falling approximately 20% on average and the volume of sales greatly reduced. The principle cause of this reversal was a severe constriction of credit. The high yield market virtually collapsed in conjunction with Drexel Burnham Lambert's failure. Commercial banks virtually ceased providing new credit to cable television in response to the implementation of Highly Leveraged Transactions ("HLT") reporting requirements by the Comptroller of the Currency, and banks' overall need to improve capital ratios. The cable television market experienced some improvements beginning in late 1991. Waller Capital experienced a renewed interest in transactions, with increased numbers of interested buyers and bidders. Commercial banks slowly returned to the market, albeit at reduced debt/cash flow multiples. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 8 11 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION Large Multiple System Operators ("MSOs") accessed long-term fixed-rate debt at attractive terms. Also, many new equity investors successfully sought entry into the market, including: Hallmark, Meredith Corp., Kohlberg, Kravis and Roberts & Co. and Warburg, Pincus. In addition, low interest rates aided buyers in the market. While the overall consensus for cable television's future prospects were attractive in this period, many cable operators were experiencing a decline in their fundamentals. The economic recession and other factors lead to reduced basic unit growth and pay unit declines. Basic rate growth was flattening. Simultaneously, expense pressures from programming suppliers and customer service requirements were rising. The overall impact of these forces would limit cash flow growth from traditional video services in many markets. In 1992 and 1993, enthusiasm grew among cable operators and the investment community for cable television's prospects for generating revenue from the distribution of data and voice, in addition to expanded video services. Spurred by improved economics of fiber optic deployment and prospects for video compression, financial expectations for large MSOs in large markets rose. On October 5, 1992, Congress voted to override a presidential veto and enacted the 1992 Cable Act. On April 1, 1993, the FCC disclosed the methodology by which it began to regulate cable television. The 1992 Cable Act allows for a greater degree of regulation of the cable industry with respect to, among other things: (1) cable system rates for both basic and certain nonbasic services; (2) programming access and exclusivity arrangements; (3) access to cable channels by unaffiliated programming services; (4) leased access terms and conditions; (5) horizontal and vertical ownership of cable systems; (6) customer service requirements; (7) franchise renewals; (8) television broadcast signal carriage and payments for retransmission consent; (9) technical standards; (10) subscriber privacy; (11) consumer protection issues; (12) cable equipment compatibility; (13) obscene or indecent programming; and (14) prohibiting cable operators from requiring subscribers to subscribe to tiers of service other than basic service as a condition of purchasing premium services. Additionally, the legislation encourages competition with existing cable systems by: (1) allowing - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 9 12 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION municipalities to own and operate their own cable systems without having to obtain a franchise; (2) preventing franchising authorities from granting exclusive franchises or unreasonably refusing to award additional franchises covering an existing cable system's service area; and (3) prohibiting the common ownership of cable systems and co-located MMDS or SMATV systems. The disclosure of the benchmarks imposed by the FCC in April 1993 had a negative impact on the market for cable television systems. Rate freezes through the summer limited cash flow growth. More importantly, many systems faced basic rate rollbacks with future cash flow growth limited by inflation related increases. The uncertainty lend to reduced commercial bank lending, a critical aspect of the marketplace. However, as the September 1, 1993, compliance date for benchmark pricing approached, increasing rumors of Regional Bell Operating Company ("RBOC") acquisition interest following the Southwestern Bell acquisition of Hauser Communications, combined with a clear incentive for cable MSOs to consolidate to access capital and compete in voice and data telecommunications, pushed system market values higher. During late September, Paul Kagan's Cable TV Finance newsletter noted Southwestern Bell, BellSouth and NYNEX as interested in acquiring Viacom Cable. Clearly, confidence in cable capital markets and valuations were on an upswing. Regulatory matters dictated the market for cable systems again in 1994. RBOC interest early in the year created a near frenzy in the market. Moreover, the FCCs announced alterations to current rate regulation schemes on February 22nd once again caused a serious market disruption. The market's bellwether transaction, Bell Atlantic/TCI, collapsed, bringing the market for cable systems down. 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 - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 10 13 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION 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 among high yield buyers. Public equity markets were depressed by 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. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 11 14 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION 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 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 restructurings, 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 Corp./Ameritech Corp./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. Over $20 billion in mergers occured 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. MSOs faced the key operating decision of whether to consolidate into strategic clusters or to sell-out to the highest bidder. Access - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 12 15 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION 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. DBS competition also grew into a credible threat to cable's subscriber base. Primestar, DirecTV, USSB and Echostar began to acquire subscribers at an increasing rate. Due to several multi-million dollar marketing campaigns, DBS has now 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, stop-gap measure to deliver video to the home, while they are developing a long-term, cost-effective, quality delivery method. Among some of the more salient deals are NYNEX & Bell Atlantic/CAI Wireless ($668), CS Wireless/Bakersfield, CA ($186 MM)/Cleveland and Dayton, OH and Dallas, TX ($502 MM), CAWS/ACS Entertainment ($248 MM), Pacific Telesis/S.A. Cross Country ($175 MM). - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 13 16 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- INTRODUCTION In conclusion, the major themes for cable television in 1995 were consolidation, capital formation, competition and deregulation legislation. The cable industry continues to exhibit attractive opportunities for growth and appreciation to well positioned MSOs. In the long- term, cable television will play an integral part in the dynamic reshaping of the larger media and telecommunications industry. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION I - 14 17 II. THE SYSTEMS 18 GILROY REGION 19 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- GILROY REGION INTRODUCTION The Gilroy Region ("Gilroy" or the "Region") is composed of four cable television systems (the "Systems") which serve communities in Monterey County and San Benito County in Northern California. The Systems are served by four headends located in Gilroy, Soledad Peak, Greenfield and King City. The following map highlights the location of the Systems within the state of California. [Map of Region] - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 1 20 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- GILROY REGION [CHART 1]
- ------------------------------------------------------------------------------- TABLE 1: HISTORICAL SUBSCRIBER SUMMARY (Fiscal Years Ended December 31) 1993 1994 1995 ------ ------ ------ HOMES PASSED 54,557 54,496 56,219 BASIC SUBSCRIBERS 31,338 31,996 33,078 % PENETRATION 57.4% 58.7% 58.8% PAY UNITS 16,011 14,693 13,070 % PENETRATION 51.1% 45.9% 39.5% - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 2 21 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- GILROY REGION [CHART 2]
- ------------------------------------------------------------------------------- TABLE 1: HISTORICAL FINANCIAL SUMMARY (Fiscal Years Ended December 31) ($ IN THOUSANDS) 1993 1994 1995 ---- ---- ---- REVENUES $13,602 $13,249 $13,146 EXPENSES 4,763 5,537 5,512 SYSTEM CASH FLOW $ 8,839 $ 7,713 $7,633 % MARGIN 64.9% 58.2% 58.1% - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 3 22 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- GILROY REGION As of December 31, 1995, the Systems passed 56,219 homes with 664 miles of plant (84 homes per mile) and served 33,078 basic subscribers (58.8% basic penetration) and 13,070 pay units (39.5% pay penetration). The charts and tables on the preceding pages demonstrate the historical operating and financial performance of the Systems. The Gilroy Region generated homes passed growth of 1.5% annually since 1993 and subscriber growth of 2.7% annually over the same period. This subscriber growth resulted in a small increase in basic penetration from 57.4% in 1993 to 58.8% in 1995. Pay subscription eroded over time from 15,573 (51.1% penetration) to 13,070 (39.5% penetration) over the same period. Gilroy has had a relatively flat revenue history with an actual $456 thousand decline in revenue from FY 1993 through FY 1995. This decline was attributable to revenue losses sustained as a result of reregulation and pay subscription losses. System cash flow has declined from a high of $8.8 million in 1993 to $7.6 million in 1995, which is flat from the previous year. The operating margin has been flat at 58% for the last two years. MARKET OVERVIEW The communities served by the Gilroy Region are situated in the heart of the fertile Santa Clara Valley, just 15 miles from the Pacific Ocean in the surrounding rolling hills and farmland. Gilroy is approximately one-half hour from the center of the nations computer industry in San Jose/Silicon Valley and the beautiful and diverse recreational areas on the Monterey Peninsula. The communities are also strategically located at the junction of two of California's most important highways, Interstate 101 between San Francisco and Los Angeles, and US 152 linking 101 and Interstate 5 which serves California's Central Valley. The demographics of the Gilroy Region vary from the rapidly expanding companies of Silicon Valley to the north, to a migrant worker component in King City to the south. Gilroy is the self-proclaimed Garlic Capital of the World, and since 1979, home to the Gilroy Garlic - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 4 23 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- GILROY REGION Festival. Surrounding the Region is an important agricultural center which provides enormous quantities of broccoli, cauliflower and other staples. The city is a regional shopping hub with over 130 stores in 517,500 square feet of retail space. King City and Soledad Peak are small communities that support the surrounding farmland and serve as a base for the large migrant work force. The largest employers in the Region are highlighted below:
- ---------------------------------------------------------------------------------------------- COMPANY EMPLOYEES PRODUCT/SERVICE - ------- --------- ----------------- Gilroy Foods, Inc. 1,100* Food Processing Outlet Shopping Centers 1,000+ Discount Retail Gilroy Unified School District 865** Education A&D Christopher 574* Grower, Processor Nob Hill Foods/Corp. Offices 418 Supermarket Chain South Valley Hospital 310 General Hospital Gilroy Auto Dealers 303 Sales Hecker Pass, A Family Adventure 300* Theme Park WalMart 240 Discount Retail City of Gilroy 225 City Government * Seasonal peak employment ** Contract basis - ----------------------------------------------------------------------------------------------
The communities within the Gilroy Region have enjoyed historically strong growth. However, the Region has suffered as of late along with the rest of the California economy. The closure of the nearby Fort Ord military base in 1993 also adversly impacted the local economy. TECHNICAL OVERVIEW The Gilroy Region is served by four headends identified as Gilroy, Greenfield, Soledad Peak and King City. The system serving the city of Gilroy is the largest in the region. The system was originally constructed in 1970 and upgraded in 1983 to 300 MHz . The headend is primarily Scientific Atlanta components with a mix of Regal and Scientific Atlanta electronics in the plant. The Gilroy headend is located several miles west of Gilroy in the mountains to improve off-air reception and improve sight - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 5 24 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- GILROY REGION paths for microwave links. The headend microwaves signal to receive sites in the City of Gilroy, Morgan Hill, Hollister and Spring Hill. Spring Hill is a repeater which feeds Aromos, Las Lomas, Oak Hill/Castorville, San Juan Bautista and Prunedale. The Spring Hill site also feeds Laguana Seca which further feeds La Mesa and Carmel Highlands. The Greenfield system passes 2,621 homes with 40 miles of plant. The system is operating at 300 MHz. The headend is a mix of Scientific Atlanta, Standard, Jerrold, Blonder Tongue and ISS components with a mix of Magnavox and Scientific Atlanta electronics in the plant. The headend located on Soledad Peak is located just west of Highway 101 in the mountains. The headend uses microwave to deliver signal to the Soledad and Gonzalez systems. The Gonzalez receive site is fiber connected to the Chualar system. The systems are primarily 400 MHz with Scientific Atlanta components in the headend and plant. The King City system passes 2,847 homes with 60 miles of plant. The system is operating at 300 MHz. The headend is a mix of Scientific Atlanta, Standard, Jerrold, Blonder Tongue and ISS components with a mix of Regal, Magnavox and Scientific Atlanta electronics in the plant. RATES/CHANNELS The Systems' rate and channel line-ups vary slightly by system due to technical capacity, franchise and retransmission/must-carry issues, but generally offer a basic service, a tier and a satellite package. The following highlights the basic rates, tier rates and the total number of channels. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 6 25 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- GILROY REGION
- ----------------------------------------------------------------------------------------------------------------------- SERVICE RATE SUMMARY BASIC TIER TOTAL FRANCHISE RATE RATE CHANNELS - --------- ---- ---- -------- Gilroy, CA $20.76 $5.57 35 Hollister, CA 21.03 5.82 35 Morgan Hill, CA 21.72 5.55 35 San Benito County, CA 22.76 5.86 35 Santa Clara County, CA 21.83 5.21 35 King City, CA 20.18 1.66 35 Monterey County, CA 20.97 1.23 35 Gonzales, CA 11.74 7.95 35 Monterey County, CA 12.68 8.34 35 Soledad, CA 11.85 7.95 35 Monterey County, CA 21.99 4.05 35 San Juan Bautista, CA 19.44 5.21 35 La Mesa Naval Post Grad School, CA 19.21 1.29 35 Monterey County (Lag Seca/RTG), CA 22.45 4.05 35 Greenfield, CA 19.75 1.82 35 Monterey County, CA 20.22 0.70 35 - -----------------------------------------------------------------------------------------------------------------------
Gilroy has approximately 12,600 addressable subscribers which generated an average 5.6% buy rate in 1995. OPERATIONS OVERVIEW The Gilroy Region systems are operated from a centrally located facility in Gilroy, two satellite offices in King City and Soledad and a part time office in Greenfield. The Gilroy facility serves as the office, warehouse and technical center for the entire Region. The two other offices are walk-in payment centers. The Region utilizes a PC-based CSG billing system under master contract through Falcon. The Region is operated by a total of 27 staff members including: a System Manager, an Office Manager, a Plant Manager, 7 Technicians, 1 Lead Installer, 5 Installers / Dispatchers, 7 Customer Service Representatives ("CSRs") and an Advertising Salesperson. There are also 2 CSRs in King City and 1 CSR in Soledad. None of the employees are covered by collective bargaining agreements, nor has there been any organized effort to unionize. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 7 26 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- GILROY REGION The Region operates under the authority of 13 franchises. Approximately 80% of the subscribers are in franchises that are within 3 years of renewal or in some cases have not been renewed and are still being negotiated. MANAGEMENT FEES Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of total revenues. For the purposes of this appraisal, system cash flow was determined prior to the Management Fee. Each region was then charged a reimbursement of partnership expenses of 5.73% of total revenues. This charge is comprised of reimbursed partnership expenses and miscellaneous charges. The reimbursed partnership expense was calculated as 3.73% of total revenues. In FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues of $52.9 million) as Reimbursed Expense under Partnership Expense which discussions with Falcon management confirmed represented expenses of the entire Company and should be allocated accordingly. An additional 2% of revenues was added to each Region's Unallocated Partnership expense to account for miscellaneous services and support provided by the general partner of Falcon Cable Systems Company including management, financial, programming, billing, marketing, legal, programming and other services and discounts. COMPETITION AND POTENTIAL ACQUIRORS The Systems are not currently overbuilt by any other franchised cable operator. There is an MMDS operator which delivers signal in Greenfield which has caused a small subscriber loss. Within the immediate surrounding area are the following operators: Tele-Communications, Inc., Intermedia Partners and Post Newsweek Cable. SUMMARY The Gilroy region has the widest range of demographics of the Falcon systems. The systems to the north including Gilroy have excellent growth prospects as Silicon Valley continues to expand, - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 8 27 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- GILROY REGION however King City to the south is at the lower end of the demographic scale. The franchising environment in the Systems appears difficult as many of the franchising authorities have filed to prevent Falcon's bid for the small system exclusion following the lead of the Naval Postgraduate School. In addition, approximately 80% of subscribers are in franchises that have either expired or expire within the next three years. Homes passed growth is projected to be relatively robust at 1.7% versus an historical 1.5% with continual improvement in subscriber penetration. Revenue and cash flow are projected to increase, reversing the historical trend, due to rate increases, subscriber gains and continued generation of revenue from other sources. The plant will require a rebuild in the next three years to eliminate channel lock, permit revenue gains, eliminate multiple microwave connections, improve system signal integrity, reduce cost of operation, and to aid the franchise renewal process for those areas due to expire in the next three years. In the event of a sale the most likely buyer is TCI/Intermedia, and possibly Post Newsweek. However, TCI is the dominant player in the northern California markets. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 9 28 HESPERIA REGION 29 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- HESPERIA REGION INTRODUCTION The Hesperia region ("Hesperia" or the "Region") is composed of five cable television systems (the "Systems") which serve the communities of Adelanto, Rosamond/Mojave, North Edwards, Boron and Hesperia in the state of California. The following map highlights the location of the Systems in the state of California. [MAP OF REGION] - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 10 30 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- HESPERIA REGION [CHART 1] TABLE 1: HISTORICAL SUBSCRIBER SUMMARY (Fiscal Years Ended December 31)
1993 1994 1995 ---- ---- ---- HOMES PASSED 27,332 28,031 28,312 BASIC SUBSCRIBERS 16,420 17,611 18,513 % PENETRATION 60.1% 62.8% 65.4% PAY UNITS 7,438 8,907 8,366 % PENETRATION 45.3% 50.6% 45.2%
- -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 11 31 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- HESPERIA REGION [CHART 2] TABLE 1: HISTORICAL FINANCIAL SUMMARY (Fiscal Years Ended December 31)
($ in thousands) 1993 1994 1995 ---- ---- ---- REVENUES $7,085 $7,321 $7,847 EXPENSES 2,956 3,204 3,645 SYSTEM CASH FLOW $4,129 $4,117 $4,202 % MARGIN 58.3% 56.2% 53.5%
- -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 12 32 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- HESPERIA REGION As of December 31, 1995, the Systems passed 28,312 homes with 678 miles of plant (42 homes per mile) and served 18,513 basic subscribers (65.4% basic penetration) who subscribed to 8,366 pay units (45.2% pay penetration). Revenue and cash flow for the fiscal year ended December 31, 1995 were $7.847 million and $4.202 million respectively (53.5% operating margin). The charts and tables on the preceding pages demonstrate the historical operating and financial performance of the Systems. The historical subscriber summary indicates that the Hesperia Region generated homes passed growth of 1.8% annually since 1993 and subscriber growth of 6.2% over the same period. Homes passed growth slowed in 1995 to 1.0% versus 2.6% in 1994. Basic subscribers continued to climb with penetration reaching 65% in 1995 from 60% in 1993. Pay subscribers declined from 8,907 at FYE 1994 to 8,366 at FYE 1995, a loss of 6.1%. In the Hesperia Region, revenue has climbed over the preceding three years at a compound growth rate of 5.2% fueled by subscriber gains which offset revenue losses as a result of reregulation. However, the operating margin declined over the period from 58.3% in 1993 to 53.5% in 1995 resulting in a flat actual cash flow over the three year period. MARKET OVERVIEW Hesperia is the largest community in the Hesperia Region. Hesperia is located approximately 20 miles north of the City of San Bernardino along Interstate 15 and approximately 80 miles north and east of Los Angeles. The area is an extreme outer bedroom community for Los Angeles and for San Bernardino. The closing of George Air Force Base, a large area employer, approximately three years ago, had a severe negative effect on the economy. System management estimated that a large portion of the population was on welfare and the area suffered from high unemployment. The City of Adelanto was founded in 1915 by inventor E.H. Richardson. Richardson built the - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 13 33 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- HESPERIA REGION community with money received from the sale of his patent for what was later developed as the Hotpoint Electric Iron. Adelanto was developed as one of the first master planned communities in Southern California. The city is located approximately 95 miles northeast of Los Angeles on State Highway 395 in the California High Desert and 35 miles north of San Bernardino via Interstate 15. Major employers in Adelanto include:
EMPLOYER EMPLOYEES - -------- --------- Roadway Express, Inc. 1,000 Adelanto School District 272 Iron Horse Trucking 200
Adelanto, like Hesperia, suffers from unemployment and a large percentage of welfare recipients. However, the city has constructed several industrial parks to encourage the influx of new business and has developed a Fast Track process to minimize the time it takes to gain building permits and other authorizations required to begin business operations in the city. Boron is located approximately 35 miles to the north of Adelanto and is an abandoned boron mining town. The mine has been closed and the community is slowly shrinking. The Rosamond/Mojave system is located approximately 60 miles from Adelanto and approximately 20 miles west of Boron. The communities are composed of small tract homes and are outer bedroom communities for Los Angeles and other cities in Los Angeles and San Bernardino counties. North Edwards is adjacent to Edwards Air Force base and approximately 10 miles west of Boron. Edwards is a major U.S. base and is the West Coast home and landing site for the NASA Space Shuttle. TECHNICAL OVERVIEW The system serving Hesperia passes 16,948 homes with 415 miles of plant. The system was originally constructed in 1972 and rebuilt in 1988 to 330 MHz. The plant is technically sound and there is a nearly complete fiber project which will replace significant portions of the trunk in order to reduce - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 14 34 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- HESPERIA REGION amplifier cascades. Management indicated that the area was built out and that future growth was occurring primarily under existing plant. The system has a microwave receive site at the office/headend which receives microwave signals from Los Angeles off-air networks at a site on Blue Ridge Mountain. The Blue Ridge site is also used to send the off-air signals to Adelanto. The Adelanto system passes 2,600 homes with 62 miles of plant. The system was constructed in 1972 and rebuilt in 1988 to 330 MHz. Adelanto acts as a microwave distribution source for the community of Silver Lake, a small retirement community with 1,802 homes passed by 41 miles of plant located outside of Adelanto. The Rosamond/Mojave system is linked together via a fiber run which permitted the elimination of a headend. The system was originally built in 1974 and is currently operating at 300 MHz. The Boron system passes 1,256 homes with 27 miles of plant. The system was originally constructed in 1967 and 60% rebuilt in 1991. The system is operating at 270 MHz. The North Edwards system passes 235 homes with 7 miles of plant. The system was constructed in 1990 and is operating at 450 MHz. OPERATIONS OVERVIEW The Hesperia Region has a main office located in Hesperia and a satellite office in Mojave. The Hesperia office is open for walk-in payments customer service and subscriber inquires. The Region uses a CSG-based billing system under a master contract through Falcon. The Hesperia Region is operated by 21 employees including, a System Manager, an Office Manager, a Chief Technician, 3 Technicians, 3 Installers, 1 Dispatch Supervisor and 6 Customer Service Representatives ("CSRs"). The Mojave office has 2 CSRs and 3 Technicians. None of the employees are covered by collective bargaining agreements, nor has there been any organized effort to unionize. The Hesperia Region operates under the authority of four franchises. The earliest franchise expiration - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 15 35 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- HESPERIA REGION is in 2006. RATES/CHANNELS The Systems rate and channel line-ups vary slightly by system due to franchise and retransmission/must-carry issues but generally offer a basic package composed of a variety of Los Angeles off-air signals, a tier package, a satellite package, premium networks, and pay-per-view channels. The following highlights the basic rates, tier rates and the number of channels available in each franchise area: SERVICE RATES SUMMARY
FRANCHISE BASIC RATE TIER RATE TOTAL CHANNELS - --------- ---------- --------- -------------- Hesperia, CA $19.43 $7.95 44 Kern County, CA 15.66 4.90 41 Adelanto, CA 18.36 7.78 43 San Bern. Co. (Silver Lake), CA 17.85 9.25 44 Kern County, CA 16.54 6.07 41 Kern County, CA 15.39 1.70 28
Hesperia has approximately 6,000 addressable subscribers which generated an average buy rate of 11% in 1995. MANAGEMENT FEES Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of total revenues. For the purposes of this appraisal, system cash flow was determined prior to the Management Fee. Each region was then charged a reimbursement of partnership expenses of 5.73% of total revenues. This charge is comprised of reimbursed partnership expenses and miscellaneous charges. The reimbursed partnership expense was calculated as 3.73% of total revenues. In FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues of $52.9 million) as Reimbursed Expense under Partnership Expense which discussions with Falcon management confirmed - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 16 36 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- HESPERIA REGION represented expenses of the entire Company and should be allocated accordingly. An additional 2% of revenues was added to each Region's Unallocated Partnership expense to account for miscellaneous services and support provided by the general partner of Falcon Cable Systems Company including management, financial, programming, billing, marketing, legal, programming and other services and discounts. COMPETITION & POTENTIAL ACQUIRORS The systems are not currently overbuilt by any other franchised cable system. Within the immediate surrounding area are Booth American Company, Century Communications, Comcast Corp. and Tele-Communications, Inc. SUMMARY The Hesperia Region has had strong growth over the preceding three years, however, the economy of the communities served by the Systems continues to suffer. Homes passed growth based on information from management and other sources is projected to decrease to .8% per annum, however, basic penetration is projected to continue to rise. The Systems were originally constructed in the early 1970s. They are operated at 330 MHz and are channel locked. The Systems will require a rebuild over the next few years in order to raise rates and fend off competition. In the event of a sale, the most likely buyers include Century, Tele-Communications, Inc. and Mediacom, which recently announced the purchase of 11,000 subscribers in Ridgecrest, CA for $120.8 million ($1,890 per subscriber), or 7.5x cash flow. (This transaction will not close until early 1996). The Systems would command a premium market price due to the historical growth in subscribers and revenues. However, at 65% basic penetration, continual subscriber growth will be more difficult to maintain and the market demographics present a difficult economic outlook. In - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 17 37 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- HESPERIA REGION addition, the purchase price would be discounted for the cost of rebuilding all of the Systems. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 18 38 SAN LUIS OBISPO REGION 39 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- SAN LUIS OBISPO REGION INTRODUCTION The San Luis Obispo Region ("SLO" or the "Region") is composed of two cable television systems (the "Systems") which serve the communities of Atascadero, Los Alamos, Guadeloupe, Los Osos, Cambria and portions of San Luis Obispo County in the state of California. The following map highlights the location of the Systems within the state of California. [MAP OF REGION] - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 19 40 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- SAN LUIS OBISPO REGION [GRAPHIC OMITTED] TABLE 1: HISTORICAL SUBSCRIBER SUMMARY (Fiscal Years Ended December 31)
1993 1994 1995 ---- ---- ---- HOMES PASSED 25,399 25,699 26,138 BASIC SUBSCRIBERS 15,717 15,669 15,635 % PENETRATION 61.9% 61.0% 59.8% PAY UNITS 5,161 5,224 3,733 % PENETRATION 32.8% 33.3% 23.9%
- -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 20 41 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- SAN LUIS OBISPO REGION [GRAPHIC OMITTED] TABLE 1: HISTORICAL FINANCIAL SUMMARY (Fiscal Years Ended December 31)
($ IN THOUSANDS) 1993 1994 1995 ---- ---- ---- REVENUES $6,486 $6,134 $5,729 EXPENSES 2,734 2,967 3,194 SYSTEM CASH FLOW $3,751 $3,168 $2,535 % MARGIN 57.8% 51.6% 44.2%
- -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 21 42 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- SAN LUIS OBISPO REGION As of December 31, 1995, the Systems passed 26,138 homes with 409 miles of plant (64 homes per mile) and served 15,635 basic subscribers (59.8% basic penetration) who subscribed to 3,733 pay units (23.9% pay penetration). Revenue and cash flow for the fiscal year ended December 31, 1995 were $5.729 million and $2.535 million respectively (44.2% operating margin). The charts and tables on the preceding pages demonstrate the historical operating and financial performance of the Systems. The SLO Region experienced homes passed growth of approximately 1.4% annually over the period from 1993 through 1995. Over the same period, basic subscribers dropped resulting in a three year net subscriber loss of 82 subscribers. This resulted in basic penetration declining from 61.9% in 1993 to 59.8% in 1995. Pay subscription also declined precipitously from 5,161 to 3,733 (32.8% pay penetration to 23.9%) over the period. The SLO Region's revenues have fallen by $757 thousand over the period from 1993 through 1995. This decline was attributable to regulation which decreased rates, and the falling number of pay subscribers. Over the period, the Region had incremental expense increases which caused system cash flow to decline from $3.8 million to $2.5 million, a decline of 34%, resulting in a margin decrease from 57.8% to 44.2%. MARKET OVERVIEW The communities served by SLO are located in the heart of California's Central Coast, approximately 210 miles south of San Francisco, 210 miles north of Los Angeles, and 17 miles inland from the Pacific Ocean, in the San Lucia Mountains. Atascadero, with a population of over 25,000, and the largest city served in the SLO region, is the second largest community in San Luis Obispo County. Following the general trend in California, the economy in San Luis Obispo County has suffered over the last few years, however, the 1996 San Luis Obispo County Economic Outlook prepared by the - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 22 43 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- SAN LUIS OBISPO REGION Regents of the University of California indicates that a recovery is in progress. The report concluded that labor markets have demonstrated clear improvement, retail gains are underway and that incomes have begun to modestly rise again. The report also points to new residential development, positive net in-migration and estimates that 2,775 people will relocate to the county in 1996. In the near term the report predicts population growth of 1.4% per annum through 2004. The employment environment of SLO County remains relatively stable as one-fourth of all residents work for some level of government. The county is also increasing its tourism base which serves the Hearst Castle, the local vineyards and the beaches along California's scenic Route 1. The city of Atascadero was founded in 1913 as a planned utopian colony by Edward Gardner Lewis, a successful magazine publisher from the East. Many of Mr. Gardner's principles have survived through to the present as a result of Atascadero's city charter, which calls for the preservation of open space and the protection of trees and hillsides. The population of Atascadero is 25,225. Growth from 1980 through 1990 was 43%, and since 1980 the city has averaged 700 new residents per year. The major employer in the area is the Atascadero State Hospital which has over 1,500 employees. Cambria is a small community to the northwest of Atascadero along Route 1, and just south of San Simeon State Park. The community is comprised primarily of retirees, artists and individuals who serve the tourist trade. Los Osos is to the southwest of Atascadero and just south of Morro Bay. The community is a small bedroom community for the City of San Luis Obispo as well as home to employees of Pacific Gas & Electric's Diablo Canyon Nuclear Facility. Los Osos also has a significant retirement component. Guadeloupe is the southern most system located approximately 30 miles to the south of Atascadero just outside of Santa Maria. The following chart highlights the population and economic growth of San Luis Obispo County: - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 23 44 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- SAN LUIS OBISPO REGION
1990 1992 1994 1995 ---- ---- ---- ---- County Population 221,843 221,902 231,549 236,038 Growth N/A .03% 4.3% 1.9% Taxable Retail Sales (000s) $1,260,520 $1,914,174 $1,246,975 N/A
The following chart highlights the demographic and economic growth of the City of Atascadero:
(DOLLAR VALUES IN MILLIONS) 1990 1991 1993 1995 ---- ---- ---- ---- Population in the County 217,162 221,340 228,380 236,038 Taxable Retail Sales - - County $1,730.5 $1,662.5 $1,679.0(1) 1,654.0(1) Populations in City Limits - - Atascadero 23,138 23,382 24,091 25,225 Taxable Retail Sales - - City $132.0 $187.0 $185.0 $151.0(1) Total Number of Dwellings - - City 8,875 8,973 9,127 9,273 Total School Enrollment - -Atascadero 5,275 5,436 5,686 5,924
TECHNICAL OVERVIEW The SLO Region is served by two headends located in Atascadero and Los Alamos. Atascadero serves the city of Atascadero and surrounding areas of San Louis Obispo County, and microwaves signal to Cambria, Los Osos and Guadeloupe. Los Alamos is a stand-alone system. The Atascadero headend is located on the grounds of the Atascadero State Hospital. The system uses a receive site located on Cuesta Peak to receive off-air signals which are then fibered to the Atascadero headend and microwaved to the other receive sites. All satellite signals are received at the Atascadero headend and fibered to Cuesta Peak for transmission to the other systems. Los Angeles off-air networks are received via a microwave signal from a vendor. - ----------- (1) Results from previous years. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 24 45 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- SAN LUIS OBISPO REGION The SLO Region, with the exception of the city of Atascadero, Guadeloupe and Los Alamos, have been rebuilt (approximately 50% of the Region's plant miles) within the last year to 750 MHz fiber-to-the-node technology at an estimated cost of $5.5 million. The fiber project also included the installation of a new headend in Atascadero and a fiber connection between Atascadero and Cuesta Peak. This has significantly increased signal quality and reduced outages. Atascadero is slated to be rebuilt in the next few years as part of the refranchising effort (franchise expiration for Atascadero is 2001). Los Alamos is a small community that was built in 1985 to 450 MHz with a 40-channel capacity. OPERATIONS OVERVIEW The Region is served by one office located in Atascadero. The Atascadero office also shares space with the Falcon Western Region Division Office. The office is open for walk-in payments, customer service and subscriber inquires. The Region uses a CSG-based billing system under a master contract through Falcon. The SLO Region is operated by 17 employees including, a System Manager, an Office Manager, a Chief Technician, 2 Maintenance Technicians, 1 Service Technician, 1 Installer/Technician, 2 Installers, 1 Dispatch Supervisor, 1 Warehouse Supervisor, 5 Customer Service Representatives and 1 Advertising Sales Manager. None of the employees are covered by collective bargaining agreements, nor has there been any organized effort to unionize. RATES/CHANNELS The Systems' rate and channel line-ups vary slightly by system due to franchise and retransmission/must-carry issues but generally offer a basic line-up composed of a variety of Oxnard, Los Angeles, Santa Maria, Santa Barbara and San Luis Obispo, California off-air signals, a tier package, a satellite package, premium networks, and pay-per-view channels. The following highlights the basic rates, tier rates and the total number of channels available by franchise area: - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 25 46 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- SAN LUIS OBISPO REGION SERVICE RATE SUMMARY
BASIC TIER TOTAL FRANCHISE RATE RATE CHANNELS - --------- ---- ---- -------- Atascadero, CA $16.56 $7.66 37 Guadalupe, CA 17.42 6.10 37 Los Alamos, CA 15.60 2.18 21 San Luis Obispo, CA 15.83 7.03 58
At FYE 1995, the Systems had 5,019 addressable subscribers and an average buy rate of 5.5%. MANAGEMENT FEES Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of total revenues. For the purposes of this appraisal, system cash flow was determined prior to the Management Fee. Each region was then charged a reimbursement of partnership expenses of 5.73% of total revenues. This charge is comprised of reimbursed partnership expenses and miscellaneous charges. The reimbursed partnership expense was calculated as 3.73% of total revenues. In FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues of $52.9 million) as Reimbursed Expense under Partnership Expense which discussions with Falcon management confirmed represented expenses of the entire Company and should be allocated accordingly. An additional 2% of revenues was added to each Region's Unallocated Partnership expense to account for miscellaneous services and support provided by the general partner of Falcon Cable Systems Company including management, financial, programming, billing, marketing, legal, programming and other services and discounts. COMPETITION & POTENTIAL ACQUIRORs The Systems are not currently overbuilt by any other franchised cable system. Within the immediate surrounding area are Sonic Communications, Time Warner Cable and Comcast Corp. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 26 47 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- SAN LUIS OBISPO REGION SUMMARY The SLO Region serves attractive, stable, economically improving markets. Falcon completed a portion of the rebuild of the Systems that was required, however, a large portion of the plant, located in the city of Atascadero, must be rebuilt within the next few years, not only to assure a franchise renewal, but also to ensure the reversal of subscriber erosion already sustained. The revenue losses sustained since 1993 should be reversed as the advent of deregulation permits the service rates to rise. The state of the economy and a refranchising environment will not permit a large recapture, but rate increases in the 4% range are sustainable. The completion of the rebuild will also improve signal quality, reduce outages and lead to basic subscriber gains as well as permit growth of other revenue sources and the retention of pay subscribers. Homes passed growth of 1.7% is projected and penetration increases are projected to increase the number of basic subscribers by approximately 2.4% per annum. In the event of a sale of SLO, likely acquirors include Comcast, Time Warner and possibly TCI/Intermedia as they continue to consolidate much of Northern California. The Systems would command an average price in the market based on growth potential and demographics, but would be discounted by the cost of rebuilding Atascadero, and for the negative trend of historical operating and financial results. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 27 48 TULARE REGION 49 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- TULARE REGION INTRODUCTION The Tulare Region ("Tulare"or the "Region") is composed of three cable systems (the "Systems") which serve the communities of Posey, Springville, California Hot Springs, Camp Nelson, Three Rivers, Woodlake, Lemon Cove, Terra Bella, Woodville, Strathmore, Porterville, Pet, Exeter, Farmersville, Ivanhoe, Cutler, Orosi, Orange Cove, Oak Ranch and Lindsay. These communities are all located in and around Tulare County, California. The following map indicates the location of the Tulare Region within the state of California. [Map of Region] - ------------------------------------------------------------------------------- Waller Capital Corporation II-28 50 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- TULARE REGION [CHART 1 OMITTED]
- ----------------------------------------------------------------------------------------------------------------------- TABLE 1: HISTORICAL SUBSCRIBER SUMMARY (Fiscal Years Ended December 31) 1993 1994 1995 ---- ---- ---- Homes Passed 38,340 39,514 41,053 Basic Subscribers 16,552 15,562 15,249 % Penetration 43.2% 39.4% 37.1% Pay Units 11,064 9,316 7,110 % Penetration 66.8% 59.9% 46.6% - -----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- Waller Capital Corporation II - 29 51 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- TULARE REGION [CHART 2 OMITTED]
- ------------------------------------------------------------------------------------------------------------------------ TABLE 1: ISTORICAL FINANCIAL SUMMARY (Fiscal Years Ended December 31) ($ in thousands) 1993 1994 1995 - ---------------- ---- ---- ---- Revenues $7,493 $6,802 $6,506 Expenses $3,787 $3,469 $3,338 System Cash Flow $3,706 $3,334 $3,169 % Margin 49.5% 49.0% 48.7% - -----------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- Waller Capital Corporation II - 30 52 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- TULARE REGION As of December 31, 1995, the Systems passed 41,053 homes with 675 miles of plant (60 homes per mile) and served 15,249 basic subscribers (37.1% basic penetration) who subscribed to 7,110 pay units (46.6% pay penetration). Revenue and system cash flow for the fiscal year ended December 31, 1995 were $6,506,018 and $3,168,517 respectively (48.7% operating margin). The charts and tables on the preceding pages demonstrate the operating and financial perfomance of the Systems over the last three years. As the historical results indicate, the Systems have been losing subscribers over the last three years despite a 7% increase in homes passed over the period. Subscribers have fallen from 16,552 in 1993 to 15,249 in 1995, a 7.7% decline, and penetration has fallen from 43.2% in 1993 to 37.1% in 1995. The Tulare Region revenues and cash flow have also been decreasing over the last three years from $7.4 million in revenues in 1993 to $6.5 million in 1995, a 12% decline, and from $3.7 million to $3.2 million in cash flow for the same period, a 14% decline. The declines were attributable to subscriber losses as well as reregulation related rate decreases and other incremental expense increases. MARKET OVERVIEW The communities served by the Tulare Region systems are located approximately 180 miles north of Los Angeles, 230 miles south of San Francisco and Sacremento and 45 miles south of Fresno. There are three systems in the Region, Porterville, Posey/Jack Ranch and California Hot Springs. Porterville is the largest with approximately 98% of the Region's total subscribers. Porterville is located in Tulare County which is the heart of California's agri-business region. Tulare County's agri-business' produce over 46 products which yield over $1,000,000 in annual sales including almonds, cotton, citrus and grapes. In the county, approximately 32,000, or 25% of the employment base is employed in agriculture. The area was hit with a disaterous freeze in the early 1990s which destroyed a large number of the citrus and other trees. Replanted trees are just beginning to mature and output - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 31 53 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- TULARE REGION is again begining to surge. Posey/Jack Ranch and California Hot Springs are east of the Porterville system, in or near the mountains. Posey/Jack Ranch is a retirement community drawing retirees from as far away as Los Angeles who, in a search for cheaper housing and a quieter lifestyle, will commute or semi-retire to the area. There is also a sprinkling of logging and cattle ranching in the communities and surrounding areas. The following chart highlights the major employers in Tulare County:
- ------------------------------------------------------------------------------------------------------------- EMPLOYER EMPLOYEES DESCRIPTION - -------- --------- ----------- Dairyman's Coop. Creamery Assoc. 650 Dairy Products Tulare City School District 640 Education Tulare Joint Union H.S. District 450 Education Tulare District Hospital 435 Medical Facilities Haagen-Dazs 300 Ice Cream Kraft General Foods 300 Cheese & Dairy Products City of Tulare 250 Municipality Southern Cal. Edison 250 Utility Services Grumman/Olsen Ind., Inc. 200 Truck Bodies PSI Tronix 175 Electronics Kings County Truck Lines 150 Transportation Services Kraft U.S.A. South 130 Cheese & Dairy Products Stella Cheese 120 Cheese & Dairy Products J.D. Heiskell 100 Grain Processor - -------------------------------------------------------------------------------------------------------------
The following chart highlights the demographic trends in Tulare County over the last 10 years: - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 32 54 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- TULARE REGION
- ------------------------------------------------------------------------------------------------------------------------ 1985 1988 1990 1993 ---- ---- ---- ---- Population-County 260,300 295,000 319,600 340,000 Taxable Sales-County(in $1,000's) $1,549,525 $1,793,916 $2,148,811 $2,243,541 Population City of Tulare (area 225,000) 26,356 28,040 33,249 39,314 Taxable Sales City of Tulare(in 1,000's) $177,463 $218,719 $266,637 $283,997 Housholds City of Tulare 9,550 10,500 11,900 13,500 K-12 School Enrollment 8,029 8,744 9,364 10,512 - ------------------------------------------------------------------------------------------------------------------------
TECHNICAL OVERVIEW The Tulare Region is served by three headends located in Porterville, Posey/Jack Ranch and California Hot Springs. The Tulare Systems have a total of 675 miles of plant (79% aerial and 21% underground). The Porterville headend serves as a microwave distribution site for 16 sub-systems in the surrounding area. Porterville microwaves signal to Blue Ridge, Rich Grove, Pixley (which distributes via microwave to Earlimont), Tipton, Lindsay and Venus Hills. Blue Ridge is a secondary site which distributes to Springville, Camp Nelson and Three Rivers. Venus Hills is also a secondary distibution site which transmits to Woodlake, Lin Cove, Farmerville, Pat Tract and Orosi. Headend hardware is primarily Scientific Atlanta components and the system is a mixture of various manufactures. Presently the system is configured to a mixture of between 300 MHz to 750 MHz with a 24-mile fiber trunk overlay completed in 1995 (estimated cost of $196,000) which is engineered to 750 MHz. The California Hot Springs system is composed of 18 miles of plant serving 161 basic subscribers. The system was built in 1963 and upgraded in 1986 to 400 MHz. The headend is primarily Scientific Atlanta equipment with a mixture of Jerrold and Scientific Atlanta equipment in the system. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 33 55 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- TULARE REGION The Posey/Jack Ranch system is composed of 12 miles of plant serving 126 basic subscribers. The system was built in 1963 and upgraded in 1986 to 400 MHz. The headend is primarily Scientific Atlanta equipment with a mixture of Jerrold and Scientific Atlanta equipment in the system. RATES/CHANNELS The Systems' rate and channel line-ups vary slightly by system due to franchise and retransmission/must-carry issues but generally offer a basic composed of a variety of Fresno, Los Angeles, Bakersfield, Hanford and Visalia, California off-air signals, a tier, a satellite package, 5 premium networks, and 1 channel of pay-per-view (Request 1). The following highlights the basic rates, tier rates and the number of channels available by franchise area:
- ------------------------------------------------------------------------------------------------------------------------ SERVICE RATE SUMMARY BASIC TIER TOTAL FRANCHISE RATE RATE CHANNELS - --------- ---- ---- -------- Exeter, CA $18.69 4.97 40 Farmersville, CA 18.36 4.79 40 Lindsay, CA 17.25 5.32 40 Orange Cove, CA 14.92 3.90 40 Porterville, CA 15.90 5.80 40 Tulare County, CA 18.48 4.88 40 Woodlake, CA 15.86 5.95 40 Tulare County, CA 19.72 0.00 13 - ------------------------------------------------------------------------------------------------------------------------
There are 7,857 addressable subscribers in the Systems which generated a 5.8% average buy rate. OPERATIONS OVERVIEW The Tulare Region is operated from a centrally located facility in Porterville. The Porterville facility serves as the office, warehouse and technical center for the entire Region. The office is open for walk in payments, customer service and inquiries. The office utilizes a PC-based CSG billing system under a master contract through Falcon. The Tulare Region is operated by a total of 25 staff members - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 34 56 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- TULARE REGION including: a System Manager, an Office Manager, a Chief Technician, 4 Technicians, 5 Installers, 1 converter repair/warehouse/inventory, 2 Dispatchers, 1 Construction/Engineering Supervisor, 7 Customer Service Representatives and 2 Advertising Salepersons. None of the employees are covered by collective bargaining agreements, nor has there been any organized effort to unionize. The Region operates under the authority of 7 franchises, of which 5 expire within the next 3 years, including Tulare County, the largest in terms of subscribers. MANAGEMENT FEES Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of total revenues. For the purposes of this appraisal, system cash flow was determined prior to the Management Fee. Each region was then charged a reimbursement of partnership expenses of 5.73% of total revenues. This charge is comprised of reimbursed partnership expenses and miscellaneous charges. The reimbursed partnership expense was calculated as 3.73% of total revenues. In FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues of $52.9 million) as Reimbursed Expense under Partnership Expense which discussions with Falcon management confirmed represented expenses of the entire Company and should be allocated accordingly. An additional 2% of revenues was added to each Region's Unallocated Partnership expense to account for miscellaneous services and support provided by the general partner of Falcon Cable Systems Company including management, financial, programming, billing, marketing, legal, programming and other services and discounts. COMPETITION & POTENTIAL ACQUIORs The Systems are not currently overbuilt by any other franchised cable system, however, a Fresno based MMDS operator currently has approximately 3,000 subscribers within the zip codes of areas served by the Systems. The MMDS provider does not have a comparable channel line-up but is competing for the more price sensitive subscribers. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 35 57 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- TULARE REGION Within the immediate surrounding area are Continental Cablevision and Northland Communications. SUMMARY The Tulare Region is suffering from the severe effects of the general California economic slump, the aftershocks of the damage done to its citrus crops and the effect of cable reregulation. The introduction of competition to the market has also hurt subscriber growth and retention, and increased the price awareness of the subscribers. Homes passed growth was projected to continue at historic levels in the short term, and subscriber losses should be stemmed and begin to grow as the economy improves. The Systems are in need of a rebuild from the current 270/330/400 MHz capacity in order to encourage subscriber growth, permit rate increases, fend off competition and to ensure orderly franchise renewals. The introduction of digital MMDS will vastly increase the competitivness of MMDS and reduce its dependence on price comparisons. In the event of a sale, there are several operators in the region including Continental and Northland. The purchase price for the Region, however, would be depressed by the recent historical subscriber, revenue and cash flow trends, by the presence of a viable, operating competitor and by the cost of the rebuild of the Systems. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 36 58 CENTRAL OREGON REGION 59 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- CENTRAL OREGON REGION INTRODUCTION The Central Oregon Region ("Central Oregon" or the "Region) is composed of six cable television systems (the "Systems") in areas surrounding Eugene, Oregon and one system near the border of California. The Systems were operated from headends located in Brownsville, Veneta/Noti, Cottage Grove, Sutherlin, Cave Junction and one located atop Bear Mountain which services nine hub sites via microwave. The following map indicates the location of the Systems within the state of Oregon. [MAP OF REGION] - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 37 60 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- CENTRAL OREGON REGION [GRAPHIC OMITTED] TABLE 1: HISTORICAL SUBSCRIBER SUMMARY (Fiscal Years Ended December 31)
1993 1994 1995 ---- ---- ---- HOMES PASSED 26,355 26,355 26,355 BASIC SUBSCRIBERS 13,808 14,198 14,225 % PENETRATION 52.4% 53.9% 54.0% PAY UNITS 5,293 5,477 5,505 % PENETRATION 38.3% 38.6% 38.7%
- -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 38 61 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- CENTRAL OREGON REGION [GRAPHIC OMITTED] TABLE 2: HISTORICAL FINANCIAL SUMMARY (Fiscal Years Ended December 31)
($ IN THOUSANDS) 1993 1994 1995 ---- ---- ---- REVENUES $5,228 $5,029 $5,001 EXPENSES 2,180 2,217 2,289 SYSTEM CASH FLOW $3,048 $2,812 $2,712 % MARGIN 58.3% 55.9% 54.2%
- -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 39 62 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- CENTRAL OREGON REGION As of December 31, 1995, the Systems passed 26,355 homes with 660.3 miles of plant (39.9 homes per mile) and served 14,225 basic subscribers (54.0% basic penetration) who subscribed to 5,505 pay units (38.7% pay penetration). Revenue and system cash flow for the fiscal year ended December 31, 1995 were $5,001,040 and $2,712,460, respectively (54.2% margin). The charts and tables on the preceding pages, depict the operating and financial performance of the Systems over the last three years. The Central Oregon Region has not experienced any homes passed growth in the last three years. Basic subscribers in the Region have increased at a compound annual growth rate of 1.5% since 1993 and only .2% between 1994 and 1995. Pay penetration has remained flat at between 38.3% and 38.7%. In terms of revenue and cash flow, the Region generated a compound annual growth rate of 3.3% and 1.8%, respectively, over the period from 1993 through 1995. The Region's operating margin is extremly high at 55% especially when considering the geographic spread of the Systems and the average system size. MARKET OVERVIEW The Central Oregon Region has been evolving from a logging based economy towards high tech industries, recently being labeled the "Silicon Forest". Two large international manufacturers, Sony and Hyundai, have opened plants just outside Eugene. The Sony plant employs 600 people and produces CD ROM discs, and the Hyundai plant staffs over 1,600 people. Cottage Grove is experiencing growth in trailer parks and retirees. McKinsey River is growing and is already a highly cable saturated area. Coburg, Creswell, Marcola and Brownsville, the suburbs of Eugene, are undergoing subdivision growth as the population moves outside the larger city. The caves in Cottage Grove have also been instrumental in luring tourist dollars to the area. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 40 63 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- CENTRAL OREGON REGION TECHNICAL OVERVIEW The Central Oregon Region is operated from headends in Cave Junction, Sutherlin, Brownsville, Cottage Grove,Veneta and Bear Mountain. The Region passes 26,355 homes with 660 miles of plant, of which 605 (92%) is of aerial contruction and 54 (8%) is underground construction. The Bear Mountain headend uses AML microwave to feed nine additional systems in Drain, Oak Ridge/Westford, Rural Cottage Grove, Creswell, Coburg, Marcola/Walterville, Vida/Nimord, Blue River/McKinsey Ridge and Pleasant Hill/Dexter/Lowell, over an eight hub split. The Veneta and Cave Junction systems were rebuilt in 1995. Management plans to increase channel offerings in early 1996. RATES/CHANNEL The Systems offer various amounts of programming from 28 channels of service in Oakland, Sutherlin and the outlying Douglas County areas of Oakland and Sutherlin, to 44 channels of service in the Cottage Grove and Lane County (Cottage Grove) franchises. The Systems rate and channel line-ups vary slightly by system due to technical capacities and franchise and retransmission/must-carry issues. They generally offer a basic service composed of a variety of Eugene, Roseburg, Medford, Corvallis and Winston off-air signals, a tier package, up to two satellite packages and up to six pay services (pay services available include Cinemax, The Disney Channel, HBO, The Movie Channel, Showtime and Encore). There are no pay-per-view services in any of the addressable systems. Rates vary from $14.01 to $25.87 for basic, $1.46 to $5.80 for the tier package, $2.17 to $6.00 for satellite package 1 and $4.50 or $5.00 for satellite package 2. The relations with the franchising authorities are good, and only Florence and Dunes City have certified with the FCC. The following table lists rates for the three packages of service and the number of basic and pay channels being offered. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 41 64 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- CENTRAL OREGON REGION SERVICE RATE SUMMARY
BASIC TIER SATELLITE 1 SATELLITE 2 TOTAL PAY FRANCHISE RATE RATE RATE RATE CHANNELS CHANNELS - --------- ---- ---- ---- ---- -------- -------- Brownsville $20.06 $5.57 $3.85 N/A 33 4 Cave Junction 17.27 9.83 2.95 N/A 34 4 Coburg 15.98 7.39 5.00 $4.00 38 5 Cottage Grove 20.46 1.18 7.19 N/A 45 6 Creswell 15.95 7.39 5.00 4.00 38 5 Douglas Co. (Drain/Yoncalla) 15.08 6.95 5.00 4.00 38 5 Douglas Co. (Sutherlin/Oakland) 19.04 3.15 4.55 N/A 29 4 Drain 15.84 6.95 5.00 4.00 38 5 Josephine County 17.51 10.09 2.95 N/A 34 4 Lane Co. (Bear Mtn.) 16.15 7.76 5.00 4.00 38 5 Lane Co. (Cottage Grove) 20.43 0.78 7.19 N/A 45 6 Lane Co. (Cott. Grv./Bear Mtn.) 18.48 7.07 5.00 4.00 38 5 Lane Co. (Veneta) 15.90 4.92 5.90 N/A 31 4 Linn Co. (Brownsville) 23.95 2.40 3.84 N/A 33 4 Lowell 15.57 7.39 5.00 4.00 38 5 Oakland 19.45 2.80 4.55 N/A 28 4 Oakridge 14.34 7.39 5.00 4.00 38 5 Sutherlin 19.48 2.89 4.55 N/A 29 4 Veneta 15.51 4.89 5.90 N/A 31 4 West Fir 14.37 6.36 5.00 4.00 38 5 Yoncalla 15.21 6.95 5.00 4.00 38 5
OPERATIONS OVERVIEW The regional office for Central Oregon is located in Springfield due to its location in the center of the sprawling Bear Mountain system. Springfield is not serviced by Falcon. Additional offices include a leased office site in Cottage Grove and a part-time leased office site in Oak Ridge. The Springfield office is staffed by an Office Manager, 4 Customer Service Representatives ("CSRs"), 4 Technicians, 3 Installers and a Dispatcher, in addition to the Regional Manager and Chief Technician. The other offices are both staffed with a single CSR. Additionally, the Region operates two tech centers, in Sutherlin and Cave Junction, each staffing one Technician. Although nearly all of the systems in the Region are addressable, channel capacity limitations have restricted the option of pay-per-view services. There are no ad insertions in the Central Oregon - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 42 65 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- CENTRAL OREGON REGION Region as well. MANAGEMENT FEES Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of total revenues. For the purposes of this appraisal, system cash flow was determined prior to the Management Fee. Each region was then charged a reimbursement of partnership expenses of 5.73% of total revenues. This charge is comprised of reimbursed partnership expenses and miscellaneous charges. The reimbursed partnership expense was calculated as 3.73% of total revenues. In FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues of $52.9 million) as Reimbursed Expense under Partnership Expense which discussions with Falcon management confirmed represented expenses of the entire Company and should be allocated accordingly. An additional 2% of revenues was added to each Region's Unallocated Partnership expense to account for miscellaneous services and support provided by the general partner of Falcon Cable Systems Company including management, financial, programming, billing, marketing, legal, programming and other services and discounts. COMPETITION & POTENTIAL ACQUIRORS OVERVIEW The Systems are beginning to see a smattering of DBS dishes in the area, although the impact to date has been insignificant. They are not currently overbuilt by any other franchised cable operator. American Telecasting has announced plans to begin MMDS service within two years. There are some SMATV operators but they are largely unsuccessful due to the inability to receive off-air channels without microwave. Franchise relations with all of the authorities have been excellent to date. The Systems are surrounded by either TCI systems or other Falcon partnerships, with very minimal local, single system operators. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 43 66 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- CENTRAL OREGON REGION SUMMARY The Central Oregon region is composed of small (average of 2,300 subscribers per system) cable systems in the heart of northern Oregon. The Region has maintained steady growth as the Systems have been built out and have increased revenue and cash flow on a marginal basis every year. This growth is expected to continue, however, at a slower pace into the future. The Systems with the exception of Veneta and Cave Junction, are in need of a rebuild including the unwieldy 8 hub AML microwave distrution site. In the event of a sale, the Systems would command a below average price due to the small system size, the announced intent of American Telecasting, the low historical subscriber growth and the cost of rebuild. In addition, the Systems are surrounded by TCI and Falcon systems thus limiting the pool of likely acquirers and minimizing the possible bidders. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 44 67 DALLAS REGION 68 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DALLAS REGION INTRODUCTION The Dallas Region ("Dallas" or the "Region") is composed of seven cable systems (the "Systems") including five which serve communities along the northern coast of Oregon approximately 75 miles west of Portland (the "Tillamook Systems") and two others located 75 miles south of Portland (the "Dallas Systems"). The Systems are located in Tillamook, Netarts, Nehalem, Brickyard Road and Wilson River on the coast and in Dallas and Silverton in the interior of the state. The following map indicates the location of the Dallas Region within the state of Oregon. [Map of Region] - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 45 69 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DALLAS REGION [CHART 1 OMITTED]
- ----------------------------------------------------------------------------- TABLE 1: HISTORICAL SUBSCRIBER SUMMARY (Fiscal Years Ended December 31) 1993 1994 1995 ---- ---- ---- Homes Passed 21,514 23,349 23,770 Basic Subscribers 14,466 16,380 16,928 % Penetration 67.2% 70.2% 71.2% Pay Units 6,868 7,578 7,139 % Penetration 47.5% 46.3% 42.2% - -----------------------------------------------------------------------------
- -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 46 70 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DALLAS REGION [CHART 2 OMITTED]
- ------------------------------------------------------------------- TABLE 2: HISTORICAL FINANCIAL SUMMARY (Fiscal Years Ended December 31) ($ in thousands) 1993 1994 1995 ---- ---- ---- Revenues $5,750 $6,006 $6,074 Expenses 2,273 2,394 2,410 System Cash Flow $3,477 $3,612 $3,664 % Margin 60.5% 60.1% 60.3% - -------------------------------------------------------------------
- -------------------------------------------------------------------------------- Waller Capital Corporation II - 47 71 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- DALLAS REGION As of December 31, 1995, the Systems passed 23,770 homes with 467 miles of plant (51 homes per mile) and served 16,928 basic subscribers (71.2% basic penetration) who subscribed to 7,139 pay units (42.2% pay penetration). Revenue and system cash flow for the fiscal year ended December 31, 1995 were $6,074,204 and $3,664,003 respectively (60.3% margin). The charts and tables on the preceding pages demonstrate the operating and financial performance of the Dallas Region over the last three years. The Dallas Region has been increasing homes passed at a compound annual growth rate of 5.1% since 1993. The area is benefitting from infill new home construction as well as new subdivision growth. The growth peaked in 1994 at 8.5% annual growth and declined to 1.8% in 1995. Basic subscriber growth has been continuous with a compound annual rate of 8.1%, however, like homes passed growth, this was primarily in 1994 and dropped to 3.3% in 1995 on a year-to-year basis. Basic penetration is 71.2% which would indicate that the market is well saturated. The Systems' revenues and cash flows have grown steadily over the past three years. Total revenue and cash flow have grown at a compound annual rate of 2.8%, which lags subscriber growth due to rate adjustments resulting from reregulation. The Systems' operating margin of over 60% is well in excess of industry norms. MARKET OVERVIEW The Systems experienced steady historical growth in the past and this is projected to continue into the future. The Oregon coastal area in and around the Tillamook Systems is growing rapidly from the expanding tourist trade as well as the existing fishing industry. Many of the communities comprising the Tillamook Systems are becoming second homes for Portland and northern California residents, and many of the franchise areas are witnessing the development of a number of new subdivisions. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 48 72 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- DALLAS REGION The Dallas and Silverton systems serving the communities of Monmouth, Independence, Silverton, Dallas and Falls City are undergoing growth from the immigration of residents from Salem and Portland. These towns offer a higher quality of life and a small town atmosphere within easy commuting distance. Major businesses in the Dallas area include Pregitser Computer Chips, Boise Cascade, a new WalMart, Caterpillar and Western Oregon State College in addition to a large scale logging industry. The area is experiencing strong housing growth and Falcon is building nearly 20 miles of new plant each year and benefitting from continuous infill growth. TECHNICAL SUMMARY The Systems currently operate from 7 headend sites located in Nehalem, Tillamook, Netarts, Brickyard, Wilson River, Dallas and Silverton. The Systems pass 23,700 homes with 467 miles of plant of which 382 (82%) is underground construction and 84 (18%) is of aerial construction. Tillamook Systems The five headends comprising the Tillamook Systems serve the communities of Bay City, Brickyard Road, Cannon Beach, Garibaldi, Manzanita, Nehalem, Netarts, Oceanside, Rockaway Beach, Tillamook, Wheeler and Wilson River. The headend in Nehalem microwaves to a site on Angora Peak and then down to Cannon Beach, Nehalem and Garibaldi. The other four headends, in Tillamook, Netarts, Brickyard Road and Wilson River, service their own towns and neighboring communities. The largest of the Tillamook Systems' headends is located in Nehalem. The Nehalem system passes 6,197 homes with 129.9 plant miles (47.7 homes per mile) of which 102.1 miles (78.6%) are aerial and 27.8 miles (21.4%) are underground. Nehalem provides service to 4,608 customers or 27.2% of the Systems' total subscribers. Nehalem was rebuilt in 1986 and currently is designed to 330 MHz capacity. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 49 73 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- DALLAS REGION Netarts, Brickyard Road and Wilson River were all built in the 1960's and operate at 270 MHz capacity. The Tillamook headend was built in 1958 and given an electronics upgrade in 1983. It is operating at 330 MHz channel capacity. A complete rebuild was begun in October of 1995 to consolidate and upgrade the five headends comprising the Tillamook Systems into one central headend to be located in Tillamook. The rebuild will be completed by the end of 1996. The rebuild is being engineered at 750 MHz using a fiber to feeder design. The majority of the new plant will be underground at a cost of $22,500 per mile and any aerial additions will cost $16,500 per mile. All of the rebuilt areas will become addressable. The rebuild will be instrumental in allowing Falcon to increase rates while offering additional services and increasing penetrations. It will also correct the leakage problems dominant in the Tillamook systems. The completed Tillamook system will be built to 500 homes per node. Nehalem will be interconnected by March 1996 and Wilson River by May 1996. Dallas Systems The headend in Dallas feeds Monmouth via a seven mile fiber run, and Falls City and Jefferson through fiber to microwave hops. The Dallas system is the Region's largest providing service to 6,684 customers or 39.5% of the Systems' total subscriber base. The headend was built in 1987 and upgraded in 1995 with 750 MHz fiber plant. The coaxial plant is currently operating at 330 MHz. The Dallas system passes 9,034 homes with 157.7 miles of plant (57.3 homes per mile) of which 120.2 miles (76.2%) are aerial and 37.5 miles (23.8%) are underground. The Dallas and Silverton systems are building line extensions at 330 MHz at a cost of $10,500 per mile for aerial and $18,500 per mile for underground with the majority built in conduit. CLI testing is ongoing in all of the Systems, and all systems have passed the FCC proof of performance tests. A complete audit of the Systems was conducted three years ago. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 50 74 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DALLAS REGION RATES/CHANNELS The Systems offer various amounts of programming from a five channel basic package in Wilson River to 40 channels of service in all of the Dallas Systems' franchises. The Systems rate and channel line-ups vary slightly by system due to technical capacities and franchise and retransmission/must- carry issues. They generally offer a basic service composed of a variety of Portland and Vancouver, Washington off-air signals, a tier package, a satellite package, up to seven pay services (pay services available include Cinemax, The Disney Channel, HBO, The Movie Channel, Showtime, Playboy and Encore), and one channel of pay-per-view (Request 1) in all of the addressable systems. The following table lists rates for the three packages of service and the number of basic and pay channels being offered.
- -------------------------------------------------------------------------------------------------------- SERVICE RATE SUMMARY BASIC TIER SATELLITE TOTAL PAY FRANCHISE RATE RATE RATE CHANNELS CHANNELS - --------- ---- ---- ---- -------- -------- Bay City $14.58 $7.56 $5.18 34 7 Brickyard Road 17.23 0.00 0.00 18 2 Cannon Beach 13.91 8.39 5.18 34 7 Clatsop County 15.68 10.97 5.18 40 10 Dallas 17.00 5.70 6.40 40 7 Falls City 16.59 5.24 5.94 40 7 Garibaldi 14.43 7.71 5.18 34 7 Independence 16.76 5.22 6.40 40 7 Jefferson 17.99 4.38 5.93 40 7 Manzanita 14.60 8.57 5.18 34 7 Marion County 18.39 3.91 5.94 40 7 Monmouth 16.87 5.20 6.40 40 7 Mt. Angel 18.14 4.97 6.40 37 7 Nehalem 15.85 8.26 5.18 34 7 Netarts/Oceanside 17.23 0.00 0.00 18 2 Polk County 18.01 5.64 5.93 40 7 Rockaway Beach 14.43 7.49 5.18 34 7 Silverton 18.70 5.06 6.40 37 7 Tillamook 19.04 5.47 2.42 29 5 Tillamook Co. (Tillamook) 20.16 4.45 2.42 29 5 Tillamook Co. (Nehalem) 15.24 9.07 5.18 34 7 Wheeler 15.85 7.15 5.18 34 7 Wilson River 10.00 0.00 0.00 5 0 - --------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 51 75 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- DALLAS REGION Rates vary from $10.00 to $20.16 for basic, $3.91 to $9.07 for the tier package and $2.30 to 5.95 for the satellite package. Only the franchising authorities in Dallas, Monmouth, Independence and Silverton have certified. The Systems have 6,768 addressable subscribers and generated a 5.3% average buy rate in 1995. OPERATIONS OVERVIEW The Dallas Region is operated from a Company-owned and centrally located facility in Dallas. The Dallas facility serves as the office, warehouse and technical center for the entire Region. The office is open for walk-in payments, customer service and inquiries. The office utilizes a PC-based CSG billing system under a master contract through Falcon. The Dallas office is staffed by a total of 11 workers including: a System Manager, an Office Manager, an Engineer, a Lead Technician, 1 Technician, 2 Installers, 1 Dispatcher, 2 Customer Service Representatives ("CSRs") and 1 Advertising Salesperson. Additional full-time offices are located in Tillamook, Nehalem and Silverton and one part-time office is located in Garibaldi. The Tillamook office is operated under an Office Manager, a Technical Supervisor, 2 CSRs and 4 Installer/Technicians. Each of the Nehalem and Garibaldi offices are run by a CSR, while the Silverton office is staffed by 2 CSRs. The Tillamook Systems' customers can receive service by calling an 800 telephone number which rings in Tillamook. None of the employees are covered by collective bargaining agreements, nor has there been any organized effort to unionize. MANAGEMENT FEES Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of total revenues. For the purposes of this appraisal, system cash flow was determined prior to the Management Fee. Each region was then charged a reimbursement of partnership expenses of 5.73% of total revenues. This charge is comprised of reimbursed partnership expenses and miscellaneous charges. The reimbursed partnership expense was calculated as 3.73% of total revenues. In FY1995 the Gilroy - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 52 76 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- DALLAS REGION Region was charged $1,980,591 (3.73% of Partnership Revenues of $52.9 million) as Reimbursed Expense under Partnership Expense which discussions with Falcon management confirmed represented expenses of the entire Company and should be allocated accordingly. An additional 2% of revenues was added to each Region's Unallocated Partnership expense to account for miscellaneous services and support provided by the general partner of Falcon Cable Systems Company including management, financial, programming, billing, marketing, legal, programming and other services and discounts. COMPETITION & POTENTIAL ACQUIRORS The Systems are not currently overbuilt by any other franchised cable operator, nor are there any nearby MMDS or SMATV operators. The Systems have experienced minimal DBS subscriber erosion and non-cable customers can only receive off-airs from Eugene or Portland. Franchise relations with all of the authorities have been excellent to date. The Systems are surrounded by either TCI systems or other Falcon partnerships. Opportunities do exist to tie the northern Tillamook area into Falcon's Astoria system, and the southern Tillamook area into Falcon's Lincoln City System. SUMMARY The Dallas Region experienced strong growth over the last three years, but this growth appears to have slowed down in 1995. Homes passed growth fell to 1.8% in 1995 and basic subscriber growth was 3.3%. The Region has built plant in all existing locations where economically feasible and basic penetration has climbed to an above average 71%. This growth is projected to slow down, especially penetration growth, as the market is saturated. The Tillamook portion of the plant will undergo a rebuild in 1996 to 750 MHz and the remainder of the Dallas systems will require a rebuild in the near future to compete effectively and to relieve - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 53 77 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- DALLAS REGION channel lock. In the event of a sale, the likely acquirers of the Systems would be either Falcon or TCI. An analysis of the neighboring operators indicates that Falcon and TCI are the only operators close enough to permit any consolidation opportunity and economies of scale. This would severely hamper any marketing effort. In addition, the Systems are comprised of two clusters over 75 miles apart effectively diluting a purchase price premium that could be generated from selling a 17,000 subscriber cluster. The Region's operating margin of over 60% while impressive, is well in excess of industry averages and would most likely be discounted by a potential acquior. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 54 78 COOS BAY REGION 79 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- COOS BAY REGION INTRODUCTION The Coos Bay Region ("Coos Bay" or the "Region") is composed of eight cable television systems (the "Systems") along the central Oregon coast just southwest of Eugene in the communities of Mapleton and Florence (the "Florence Systems"), and Reedsport, Coos Bay, Coquille, Myrtle Point, Bandon and Powers (the "Coos Bay Systems"). The Systems are serviced through a regional office in Coos Bay and smaller offices in outlying areas. The following map indicates the location of the Coos Bay Region within the state of Oregon. [Map of Region] - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 55 80 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- COOS BAY REGION [CHART 1 Omitted]
- ------------------------------------------------------------------------------- TABLE 1: HISTORICAL SUBSCRIBER SUMMARY (Fiscal Years Ended December 31) 1993 1994 1995 ---- ---- ---- Homes Passed 30,526 31,078 31,489 Basic Subscribers 21,439 21,767 21,847 % Penetration 70.2% 70.0% 69.4% Pay Units 7,551 8,624 7,771 % Penetration 35.2% 39.6% 35.6% - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- Waller Capital Corporation II - 56 81 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- COOS BAY REGION [CHART 2 Omitted]
- ------------------------------------------------------------------------------- TABLE 2: HISTORICAL FINANCIAL SUMMARY (Fiscal Years Ended December 31) ($ in thousands) 1993 1994 1995 ---- ---- ---- Revenues $8,090 $8,354 $8,633 Expenses 3,508 3,703 3,886 System Cash Flow $4,591 $4,651 $4,747 % Margin 56.7% 55.7% 55.0% - -------------------------------------------------------------------------------
- ------------------------------------------------------------------------------- Waller Capital Corporation II - 57 82 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- COOS BAY REGION As of December 31, 1995, the Systems passed 31,489 homes with 580 miles of plant (54 homes per mile) and served 21,847 basic subscribers (69.4% basic penetration) who subscribed to 7,771 pay units (35.6% pay penetration). Revenue and system cash flow for the fiscal year ended December 31, 1995 were $8,632,868 and $4,746,505, respectively (55.0% margin). The charts and tables on the preceding pages, depict the operating and financial performance of the Systems over the last three years. The Systems have been increasing homes passed at a 1.6% compound annual growth rate over the period from 1993 to 1995. Over the same period, basic subscribers increased at a 1% compound annual rate and basic penetration hovered at 70% indicating the market reached saturation. Pay subscription spiked to 39% in 1994, from 35% in 1993, but retreated to 35% in 1995. Revenue and cash flow increased at a 3.3% and 1.6% compound annual growth rate, respectively, between 1993 and 1995. The slow cash flow growth resulted in the operating margin declining from 56% in 1993 to 55% in 1995. MARKET OVERVIEW Coos Bay's port has helped the city to become a major exporter of lumber and to develop a strong fishing industry. The city has numerous businesses and is also a common retirement area. Nearby Bandon conducts a strong tourist trade. Bandon has a large cranberry industry and is also home to many retirees. Coquille is the county seat and is home to many Coos Bay commuters. It has a modest lumber industry and some retirees. These three towns are all experiencing slow growth. TECHNICAL SUMMARY The Coos Bay Region's eight cable systems consist of 580 miles of plant, consisting of 485 (84%) miles are of aerial construction and 95 (16%) are underground construction. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 58 83 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- COOS BAY REGION The largest system in Coos Bay recently underwent a complete rebuild, including electronics and drops, in 1993 to 450 MHz using a fiber to feeder design. To date, a total of 235 miles of plant have been rebuilt. The rebuild included a 16 node fiber run to Hauser which previously operated as a stand-alone headend. There is an ongoing plan to replace old drops in the Coos Bay Region. Coos Bay represents the majority of the Region's total customers. The remaining headends comprising the Coos Bay Systems are Reedsport, Coquille, Myrtle Point, Bandon and Powers. Reedsport was constructed in 1971 to 270 MHz and last underwent an electronics upgrade in 1985. A former stand alone headend in Gardiner was fiber connected to Reedsport in 1993. The Coquille headend underwent a complete coax rebuild in 1992 to 61 channels and 450 MHz capacity. Myrtle Point was constructed in 1970 as a 300 MHz system. Myrtle Point shares its headend site with Coquille as well as some of its electronics. Myrtle Point is tied into the headends with fiber. Powers is a 300 MHz system built in 1980. Bandon, originally constructed in 1980, underwent an electronics upgrade in 1992 and now is designed to 450 MHz. There are plans underway to tie the Bandon headend into the Coos Bay system with AML microwave or fiber, and then Coquille via a 25 mile fiber run. Myrtle Point and Reedsport also are potential interconnect candidates to the Coos Bay system, however, both will need to be rebuilt to handle the additional channel capacity. The Reedsport system is only a six mile fiber run from Hauser in the Coos Bay system and Myrtle Point is already partially connected to the Coquille system. A rebuild of the Florence system was completed in 1993. It included a new headend and the replacement of all drops, trunks and feeder. The system was originally operating at 450 MHz and the rebuild was spaced at 450 MHz but could be upgraded to 550 MHz with a module changeout. All rebuild completed in the last 9 months was spaced to 750 MHz. Currently the system has 1,500 addressable converters in the field. Florence, due to its channel capacity and other revenue generating sources, has the highest revenue per subscriber in the Company. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 59 84 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- COOS BAY REGION Mapleton is a small headend that completes the Florence Systems and operates at 300 MHz capacity. The Florence Systems previously operated autonomously, but joined the Coos Bay Region on January 1, 1996. The five channels of pay-per-view available from the Coos Bay and Florence headends, have been very successful in the addressable homes with over half of the region's subscribers having addressable converters. Buy rates for the addressable customers in 1995 averaged 31% in Coos Bay and 22% in Florence. The addressable converters are also required for the premium channels and the satellite packages. OPERATIONS OVERVIEW The Coos Bay Region is operated out of a regional office in Coos Bay, an office in Florence, and a satellite office in Reedsport. The offices are owned and also house the headends for those systems. The office in Coos Bay is staffed by a System Manager, an Office Manager, a Chief Technician, 4 Technicians, 4 Installers, 6 Customer Service Representatives ("CSRs"), and 2 Advertising Executives. The Florence office employs a Lead Technician, a Technician, an Installer, 2 CSRs, and 1 part-time CSR. The Reedsport office staffs 1 CSR and 1 technician. The Coos Bay office utilizes a PC-based CSG billing system that is received via satellite under a master contract through Falcon. Advertising revenue is growing from the ad insertions underway on five channels in the Coos Bay Systems and 6 channels in Florence. The Coos Bay service area has the option of subscribing to the Sega Channel, an additional source of revenue for the Company. Marketing takes the form of telemarketing and twice yearly non-subscriber promotions. Door-to- door sales are contracted out of house. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 60 85 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- COOS BAY REGION RATES/CHANNELS The Systems offer various amounts of programming from 20 channels in the Lane County (Mapleton) franchise to 61 channels of service in the Coos Bay, North Bend and Hauser franchises. The Systems' rate and channel line-ups vary slightly by system due to technical capacities and franchise and retransmission/must-carry issues. The following table lists rates for the three packages of service and the number of basic and pay channels being offered.
- ----------------------------------------------------------------------------------------------------------------------- SERVICE RATE SUMMARY BASIC TIER SATELLITE 1 SATELLITE 2 TOTAL PAY FRANCHISE RATE RATE RATE RATE CHANNELS CHANNELS - --------- ---- ---- ---- ---- -------- -------- Bandon $17.61 $2.74 $3.96 N/A 37 4 Coos Bay 17.42 5.80 6.00 $5.00 61 7 Coos Co. (Bandon) 19.95 3.89 3.96 N/A 37 4 Coos Co. (Coos Bay/N. Bend) 17.32 5.60 6.00 5.00 61 7 Coos Co. (Coquille) 17.48 3.98 3.55 N/A 37 4 Coos Co. (Myrtle Point) 20.19 1.54 4.41 N/A 36 5 Coos Co. (Powers) 15.18 3.89 3.30 N/A 23 2 Coos Co. (Winchester Bay) 23.44 1.85 3.33 N/A 35 5 Coquille 17.38 3.97 3.55 N/A 37 4 Dunes City 25.87 5.02 3.50 4.50 56 6 Florence 25.87 4.99 3.50 4.50 56 6 Gardiner 23.20 1.46 3.33 N/A 35 5 Hauser 18.89 4.48 6.00 5.00 61 7 Lakeside 22.95 2.25 3.33 N/A 35 5 Lane Co. (Florence) 25.87 3.45 3.50 4.50 56 6 Lane Co. (Mapleton) 14.01 1.73 2.17 N/A 17 2 Myrtle Point 20.19 1.54 4.41 N/A 36 5 North Bend 17.62 5.64 6.00 5.00 61 7 Powers 17.00 2.45 3.30 N/A 23 2 Reedsport 23.20 2.44 3.33 N/A 35 5 - -----------------------------------------------------------------------------------------------------------------------
The Systems generally offer a basic service composed of a variety of Eugene, Coos Bay, Portland, Medford and Corvallis off-air signals, a tier package, up to two satellite packages, up to seven pay services (pay services available include Cinemax, The Disney Channel, HBO, The Movie Channel, Showtime, Playboy, Encore and Sega), and five channels of pay-per-view (Request 1 and 4, Spice, - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 61 86 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- COOS BAY REGION Action and Viewer's Choice) in all of the addressable systems. Rates vary from $14.01 to $25.87 for basic, $1.46 to $5.80 for the tier package, $2.17 to 6.00 for the satellite package 1 and $4.50 or $5.00 for satellite package 2. The relations with the franchising authorities are good. MANAGEMENT FEES Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of total revenues. For the purposes of this appraisal, system cash flow was determined prior to the Management Fee. Each region was then charged a reimbursement of partnership expenses of 5.73% of total revenues. This charge is comprised of reimbursed partnership expenses and miscellaneous charges. The reimbursed partnership expense was calculated as 3.73% of total revenues. In FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues of $52.9 million) as Reimbursed Expense under Partnership Expense which discussions with Falcon management confirmed represented expenses of the entire Company and should be allocated accordingly. An additional 2% of revenues was added to each Region's Unallocated Partnership expense to account for miscellaneous services and support provided by the general partner of Falcon Cable Systems Company including management, financial, programming, billing, marketing, legal, programming and other services and discounts. COMPETITION & POTENTIAL ACQUIRORS OVERVIEW The Systems are beginning to see a strong influx of DBS, C-Band, Primestar and DirecTV satellite dishes in the area. They are not currently overbuilt by any other franchised cable operator, nor are there any MMDS or SMATV operators. Non-cable customers can receive off-airs from locally originated NBC and CBS stations in Coos Bay, and Eugene based FOX and ABC stations from translators in Coos Bay. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 62 87 - ------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------- COOS BAY REGION The Systems are surrounded by either TCI systems or other Falcon partnerships, with very minimal local, single system operators. An opportunity exists to acquire a nearby 130 subscriber system in Green Acres. SUMMARY The Coos Bay Region is composed of extremely attractive cable systems. Homes passed growth is expected to continue at rates fairly consistent with historical trends, and subscriber growth will be fueled by homes passed growth and modest increases in penetration above the current 69%. The majority of the Systems have been rebuilt and headends have been interconnected via fiber trunk, which has also been used to reduce cascades in the last few years. The exceptions are Reedsport and Gardiner which need to be rebuilt immediately. To date, the rebuilds have been to 450 MHz limiting channel availability in the future and requiring updating to compete with digital mega-channel capacity competitors. As noted above, the only nearby operators are Falcon and TCI. The entire Region hugs the Oregon coastline and is fairly remote from other major population centers. The opportunity for a buyer to acquire the Coos Bay Region would not include the opportunity to build a significant cluster in the Region and would reduce the pool of likely buyers which would be reflected in the sales price for the Region. - ------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION II - 63 88 DISCOUNTED CASH FLOW ANALYSIS BY REGION 89 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS INTRODUCTION A discounted cash flow ("DCF") approach was utilized to value Falcon because the DCF measures the current value of an investment as the present value of its future economic benefits such as earnings, cost savings, and proceeds from disposition. DCF models were developed for each of the regions (the "Regions") to value Falcon. To arrive at system cash flow, operating expenses were deducted from projected revenues. 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 and other factors. Our DCF analysis yielded the value of Falcon's aggregate assets, as of December 31, 1995. INCOME STATEMENT SUMMARY Homes Passed and Subscriber Revenues HOMES PASSED: Homes passed growth was projected on a by-Region basis based on a combination of trailing homes passed growth, economic variables, future prospects and unserved areas reachable by existing plant. This analysis resulted in homes passed growth ranging from .8% to 1.7% per annum depending on the Region. BASIC/EXPANDED TIER: Basic and expanded basic service were combined, in order to evaluate these rates. Basic/Expanded Tier reflects the subscribers for the most penetrated service in the region's rate package. Subscriber growth was based on a combination of factors including the region's demographics, current - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION III - 1 90 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS penetration, historical trends, availability of off-air signals, current rates, service offerings, and technical quality of the system plant. NEW PRODUCT TIER: The New Product Tier was projected according to historical trends, system demographics, quality of service and overall penetration. There can be no assurance that the Regions' will continue to offer a New Product Tier Service, however, it is assumed that if the service is canceled it would be rolled into a different package in a revenue neutral manner. PAY SUBSCRIBERS: Subscriber growth was based on a combination of factors including the Regions' demographics, current penetration, historical trends, availability of off-air signals, other entertainment alternatives, rates, service offerings, and technical quality of the system plant. Pay subscription for the Systems has been tending downward. This was projected to stabilize then grow slightly over time as the Systems were rebuilt and were able to expand channel options and offer multi-plexing. MINI-PAY: Mini Pay subscribers were projected according to historical trends, system demographics, quality of service and overall penetration. There can be no assurance that the Regions will continue to offer a Mini-Pay, however it is assumed that if the service is canceled it would be rolled into a different package in a revenue neutral manner. Service Rates BASIC REVENUE & TIER/SUB/MONTH: For the purposes of this analysis, the basic and tier revenue were combined and analyzed against the number of basic subscribers. Basic revenue includes Primary 1st Outlet, Primary Commercial, - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION III - 2 91 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS Expanded Tier and Al Tier as defined in Falcon's unaudited financial presentation. This method was used because there were over 80 separate channel line-ups and rates cards utilized by the Company with wide discrepancies within regions. Rate growth was projected after considering current rates and a combination of factors including the region's demographics, current penetration, historical trends, availability of off-air signals, service offerings, and technical quality of the system plant. NPT REVENUE/SUB/MONTH: NPT Revenue/Sub/Month was determined by averaging total NPT Revenue over total NPT subscribers in a given Region. However, each Region had differences within its various systems in rates and offerings. Growth in averaged revenue was determined by considering current rates and a combination of factors including the Region's demographics, current penetration, historical trends, service offerings, and technical quality of the system plant. PAY REVENUE/SUB/MONTH: Pay Revenue/Sub/Month was determined be averaging total Pay Revenue over total Pay Subscribers in a given Region. Each Region had differences within its various systems in rates and offerings. Growth in average rates was determined by considering current rates and a combination of factors including the Region's demographics, current penetration, historical trends, service offerings, and technical quality of the system plant. MINI-PAY REVENUE/SUB/MONTH: Mini-Pay Revenue/Sub/Month was determined be averaging total Mini-Pay Revenue over total Mini-Pay subscribers in a given Region. Each Region had differences within its various systems in rates and offerings. Growth in average revenue was determined by considering current rates and a combination of factors including the Region's demographics, current penetration, historical trends, availability of off-air signals, service offerings, and technical quality of the system plant. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION III - 3 92 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS PPV REV/SUB/MONTH: PPV Rev/Sub/Month was determined by dividing PPV Revenue by Basic Subscribers and allocating the revenue on a per subscriber (whether or not addressable) basis. Each Region was composed of varying demographics which were averaged over the ten year projections It is assumed that significant capital would be allocated to rebuilding the Systems over the term creating the subsequent availability of PPV to all subscribers. Therefore, the allocation of revenue over the entire subscriber base would reflect the average revenue generated by PPV over the term of the projections. Each of the Regions was individually analyzed and factors including demographics, and other services was considered when determining the revenue growth. OTHER REVENUE/SUB/MONTH: Other Revenue/Sub/Month was determined by dividing total other revenues by the number of basic subscribers. Other Revenue includes Radio Services, Primary Additional Outlet, Remote Control, Converter Rental, Other-VCR, Maintenance Contracts, New Customer-Pay Installs, New Customer Basic Installs, Installs-Non New Customers, Guide Revenues, Other-Late Charges, Other-Franchise Pass Thru, FCC User Fees Pass Through, QVC Monthly Commission, QVC Carriage Payment, Classified Ads and Ad Insertions Sales as allocated in Falcon's unaudited financial presentation. Operating Expenses Revenues were reduced by the following expenses in order to determine system cash flow: TECHNICAL: Technical Expenses were determined by dividing 1995 Technical Expense by the number of Basic Subscribers in the Region to determine Technical Expenses per Basic Subscribers. This number was then increased by an inflation factor and multiplied by year-end subscribers in the Region. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION III - 4 93 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS PRODUCTION AND LOCAL ORIGINATION: Production and Local Origination expense was allocated only in the Coos Bay and Dallas Regions. This expense was projected based on its 1995 percentage of revenue, and applied throughout the projection period. ADVERTISING: Advertising Expense was determined by applying 1995's Advertising Expenses as a percentage of total revenues. This percentage was utilized throughout the projection period. MARKETING: Marketing Expense was determined by dividing 1995 Marketing Expense by Region by the number of Basic Subscribers in the Region to determine a marketing coefficient which was then increased by an inflation factor and multiplied by year-end subscribers in the Region. GENERAL AND ADMINISTRATIVE: General and Administrative Expenses were determined by dividing 1995 General and Administrative Expense by Region by the number of Basic Subscribers in the Region to determine a general and administrative coefficient which was then increased by an inflation factor and multiplied by year-end subscribers in the Region. PROGRAMMING: Programming Expenses was determined by calculating the programming operating margin as a percent of total "service only" revenues. That margin was then applied to programming revenue in the applicable year. UNALLOCATED PARTNERSHIP: Unallocated Partnership Expenses were calculated as 5.073% of total revenues. This percent was - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION III - 5 94 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS calculated by allocating the Partnership Expenses which accrue in the Gilroy Region financial presentation ($1.9 million) prepared by Falcon, which Falcon management confirmed represented expenses of the entire Company. This line item represented 3.073% of total revenue. This expense was allocated to each Region. An additional 2.0% was added to each Region's Unallocated Partnership expense to account for miscellaneous services provided by the General Partner which are not allocated including management, financial, programming, billing, marketing, legal, programming and other services and discounts. CAPITAL EXPENDITURE SUMMARY System cash flow was then reduced by capital expenditures to determine debt free net cash flow. Capital Expenditures can be segregated into three categories; maintenance, growth and rebuild. Maintenance capital is defined as normal and ordinary capital expenditures required to maintain the cable plant and headend in normal working condition. Capital expenditures are also required in order to expand the size of existing plant to pass new homes. The Falcon systems also need significant capital to rebuild and upgrade existing plant. On average the Falcon systems have 41 channels of capacity which is nearly fully allocated. In order to increase service rates or add new services Falcon will have to rebuild the majority of its systems. Over the period from 1993 through 1995, the Partnership delayed a number of rebuild and upgrade projects because of uncertainty related to the reregulation of the cable industry and in addition the Partnership's limited access to capital. The result of these delays was that the Systems are less technically advanced than many comparable cable systems. The Systems are in need of a major capital influx to upgrade its facilities so as to renew franchises, remain competitive against overbuilds, MMDS and DTH providers and to implement of services which will add incremental revenues. In addition, the technical deficiencies of the plant have limited channel capacity and hampered rate - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION III - 6 95 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS increases. The DCF analysis assumed a buyer with sufficient liquidity would begin a program of rebuilds and upgrades, focusing on the most deficient systems and then moving to upgrade the higher technical quality systems in later years. 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 Systems at the end of the DCF projection period. The exit multiple utilized for all of the Regions' was 9.0x with the exception of Central Oregon for which an 8.75x multiple was applied. The exit multiple was determined after analyzing current and projected demographics, growth prospects, the technical condition of the Systems at the time of sale and projected operating margins. This was then offset against the number of logical buyers for Systems with the above characteristics, the amount of consolidation that has already occurred in the Regions' general market and comparable system sales in the previous twelve months. COMPARABLE SYSTEMS SALES The Falcon systems have 135,000 subscribers operating as seven regions with an average of 19,300 subscribers per region. The Regions are all located on the west coast, from southern California to northern Oregon. While a 135,000 subscriber company is attractive, the geographic spread (approximately 850 miles) of the Systems would reduce their attractiveness to any one buyer and would most likely be packaged for sale by Region. For a comparable system sale analysis, systems of similar size both for the whole company and for the Regions were incorporated. Comparables were selected for a variety of criteria including size, multiple locations and ex-urban demographics. The following is a selected list of comparable transactions completed in 1995. - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION III - 7 96 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS
SELLER BUYER VALUE SUBS VPS CF CF MULT. - ------ ----- ----- ---- --- -- -------- ($000,000) (000) ($000,000) US Cable V Cable $219.0 252.5 $ 867 $34.2 6.4 Leadership/Ist Carol Adelphia/Olympus 177.9 108.0 1,647 22.0 8.1 Clear Channels Adelphia 122.3 69.2 1,767 15.1 8.1 United Video FrontierVision 120.0 88.0 1,364 13.0 9.2 Donrey Media Group TCA Cable Prtnrs 101.6 60.0 1,693 10.4 9.8 TCI Post-Newsweek 89.0 63.0 1,413 10.9 8.2 Century Rock Associates 84.0 47.0 1,787 8.7 9.7 Douglas Cable Comm. Galaxy Telecom LP 65.5 60.0 1,092 7.8 8.4 WK Communications Classic Cable 65.1 31.0 2,100 6.6 9.8 Mission Cable Classic 57.5 42.6 1,350 7.0 8.3 C-4 Media FrontierVision 44.7 40.4 1,106 5.3 8.5 United Video Classic Cable 37.0 22.4 1,652 3.9 9.5 Friendship Cable Galaxy Telecom 21.0 18.0 1,167 3.0 7.0 Fanch Comm. Leonard Comm. 17.2 12.1 1,421 2.0 8.4 Doulgas Comm. Anderson Pac. Corp. 17.1 16.0 1,069 2.1 8.1 Cable Vid. Enterprises Universal Cab. Comm. 16.0 12.2 1,311 1.9 8.5 American Cable Ent. Classic Cable 13.3 9.8 1,357 1.6 8.5 ------ ----- ------ ----- --- TOTALS/WEIGHTED AVERAGES $1,332 8.2
The comparable system sales analysis yielded an average sales price of $1,322 per subscriber and 8.2x cash flow. This supports and validates the Waller Capital's analysis which resulted in $1,577 per subscriber and 8.33x operating cash flow for Falcon Cable Systems Company. DISCOUNT RATE The resultant debt-free net cash flow streams and terminal value were discounted to present value at 13.5%. The discount rate was based on the risk-adjusted industry Weighted Average Cost of Capital ("WACC"). WACC is an estimate 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 incorporates estimates of the risk-free rate for the use of funds, an equity risk premium, an - -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION III - 8 97 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- DISCOUNTED CASH FLOW ANALYSIS industry premium (Beta), as well as the risks inherent with a specific investment in the Systems. The debt component of the cost of capital was determined by using the after-tax cost of debt appropriate for the Company. CONCLUSION Based on the investigation and analysis outlined in this report, the fair market value of Falcon's seven regional systems, as of December 31, 1995, were as follows: Gilroy $ 57,640,720 Hesperia 28,865,947 San Louis Obispo 21,988,550 Tulare 22,269,159 Coos Bay 35,486,280 Dallas 27,257,132 Central 20,164,654 ---------- TOTAL VALUE $213,672,442
- -------------------------------------------------------------------------------- WALLER CAPITAL CORPORATION III - 9 98 IV. APPENDIX 99 - ---------------------------------------------------------------------------- W A L L E R C A P I T A L C O R P O R A T I O N - ---------------------------------------------------------------------------- Falcon Cable TV - Gilroy, California Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected) --------------------------------------- Year 1995 1996 1997 1998 Period 0 1 2 3 ---------- --------------------------------------- Operations Statistics - -------------------------------------- % Growth -------- Homes Passed: 56,219 57,231 58,175 59,135 % Growth 1.8% 1.7% 1.7% Basic/Expanded Tier 33,073 33,652 34,323 35,008 % Penetration 58.8% 58.8% 59.0% 59.2% % Growth - - 1.8% 2.0% 2.0% New Product Tier (NPT 1) 13,992 14,235 14,519 14,913 % Penetration 42.3% 42.3% 42.3% 42.6% % Growth - - 1.7% 2.0% 2.7% Pay 13,010 13,192 13,626 14,073 % Penetration 39.3% 39.2% 39.7% 40.2% % Growth - - 1.4% 3.3% 3.3% Mini-Pay 403 404 412 420 % Penetration 1.2% 1.2% 1.2% % Growth - - 0.2% 2.0% 2.0% Basic Revenue& Tier/Sub/Month $ 24.36 $ 25.09 $ 25.84 $ 26.61 % Growth - - 3.0% 3.0% 3.0% 3.0% NPT 1 Revenue/Sub/Month $ 3.90 $ 4.02 $ 4.14 $ 4.26 % Growth - - 3.0% 3.0% 3.0% 3.0% Pay Revenue/Sub/Month $ 7.87 $ 8.00 $ 8.14 $ 8.28 % Growth - - 1.7% 1.7% 1.7% 1.7% Mini-Pay Revenue/Sub/Month $ 2.94 $ 2.99 $ 3.05 $ 3.12 % Growth - - 2.0% 2.0% 2.0% 2.0% PPV Rev/Sub/Month $ 0.34 $ 0.35 $ 0.36 $ 0.37 % Growth 3.0% 3.0% 3.0% Other Revenue/Sub/Month $ 3.65 $ 3.76 $ 3.87 $ 3.99 % Growth - - 3.0% 3.0% 3.0% 3.0%
FYE 12/31, (Projected) ------------------------------------------------------------------------------------------ 1999 2000 2001 2002 2003 2004 2005 4 5 6 7 8 9 10 ------------------------------------------------------------------------------------------ Operations Statistics - -------------------------------- Homes Passed: 60,111 61,103 62,111 63,136 64,177 65,236 66,313 % Growth 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% Basic/Expanded Tier 35,706 36,417 37,142 37,881 38,635 39,403 40,186 % Penetration 59.4% 59.6% 59.8% 60.0% 60.2% 60.4% 60.6% % Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% New Product Tier (NPT 1) 15,318 15,732 16,157 16,592 17,038 17,495 17,963 % Penetration 42.9% 43.2% 43.5% 43.8% 44.1% 44.4% 44.7% % Growth 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% Pay 14,532 15,004 15,488 15,986 16,497 17,022 17,561 % Penetration 40.7% 41.2% 41.7% 42.2% 42.7% 43.2% 43.7% % Growth 3.3% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% Mini-Pay 428 437 446 455 464 473 482 % Penetration 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% % Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Basic Revenue& Tier/Sub/Month $ 27.41 $ 28.24 $ 29.08 $ 29.95 $ 30.85 $ 31.78 $ 32.73 % Growth 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% NPT 1 Revenue/Sub/Month $ 4.39 $ 4.52 $ 4.66 $ 4.80 $ 4.94 $ 5.09 $ 5.24 % Growth 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Pay Revenue/Sub/Month $ 8.42 $ 8.56 $ 8.71 $ 8.85 $ 9.00 $ 9.16 $ 9.31 % Growth 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% Mini-Pay Revenue/Sub/Month $ 3.18 $ 3.24 $ 3.31 $ 3.37 $ 3.44 $ 3.51 $ 3.58 % Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% PPV Rev/Sub/Month $ 0.38 $ 0.39 $ 0.40 $ 0.41 $ 0.43 $ 0.44 $ 0.45 % Growth 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Other Revenue/Sub/Month $ 4.15 $ 4.31 $ 4.48 $ 4.66 $ 4.85 $ 5.05 $ 5.25 % Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
100 - ------------------------------------------------------------------------- W A L L E R C A P I T A L C O R P O R A T I O N - ------------------------------------------------------------------------- Falcon Cable TV - Gilroy, California Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected) -------- --------------------------------------------------------------- Year 1995 1996 1997 1998 1999 Period 0 1 2 3 4 -------- --------------------------------------------------------------- Income Statement Summary - ------------------------ Revenues Basic & Tier $ 9,666,283 $10,130,511 $10,642,671 $11,180,596 $11,745,576 NPT 1 655,057 686,412 721,115 762,936 807,133 Pay 1,228,380 1,266,691 1,330,694 1,397,693 1,467,821 Mini-Pay 14,197 14,510 15,096 15,705 16,339 PPV 133,654 140,073 147,154 154,592 162,404 Other 1,448,122 1,517,669 1,594,396 1,674,984 1,776,708 ---------- ----------- ----------- ----------- ----------- Total Revenue 13,145,693 $13,755,867 $14,451,127 $15,186,505 $15,975,980 % Growth -- 4.6% 5.1% 5.1% 5.2% Expenses: Adjusted Technical $ 1,069,936 $ 1,126,764 $ 1,189,475 $ 1,255,662 $ 1,325,516 Production and Local Origination 0 0 0 0 0 Advertising 89,174 93,313 98,029 103,018 108,373 Marketing 284,931 300,065 316,765 334,391 352,994 General and Administrative 2,050,887 2,159,816 2,280,022 2,406,892 2,540,792 Programming 1,999,921 2,092,310 2,198,057 2,310,013 2,427,605 Partnership Expenses 753,248 788,211 828,050 870,187 915,424 ---------- ----------- ----------- ----------- ----------- Total Operating Expenses $ 6,248,097 $ 6,560,478 $ 6,910,398 $ 7,280,162 $ 7,670,704 % Growth -- 5.0% 5.3% 5.4% 5.4% * 1995 Adjusted for Partnership Expenses U.L.System Cash Flow (EBITDA) $ 6,897,596 $ 7,195,389 $ 7,540,729 $ 7,906,343 $ 8,305,276 % Margin 52.5% 52.3% 52.2% 52.1% 52.0% % Growth -- 4.3% 4.8% 4.8% 5.0% Revenue / Subscriber / Month $ 33.12 $ 34.06 $ 35.09 $ 36.15 $ 37.29 SCF / Subscriber / Year $ 208.6 $ 213.8 $ 219.7 $ 225.8 $ 232.6
-------------------------------------------------------------------------------------- 2000 2001 2002 2003 2004 2005 Income Statement Summary 5 6 7 8 9 10 - ------------------------------- -------------------------------------------------------------------------------------- Revenues Basic & Tier $12,338,965 $12,962,186 $13,616,733 $14,304,174 $15,026,154 $15,784,402 NPT 1 853,839 903,194 955,345 1,010,450 1,068,671 1,130,184 Pay 1,541,218 1,618,029 1,698,404 1,782,502 1,870,487 1,962,530 Mini-Pay 16,997 17,682 18,395 19,136 19,907 20,708 PPV 170,609 179,226 188,276 197,781 207,764 218,248 Other 1,884,589 1,998,997 2,120,328 2,248,998 2,385,449 2,530,152 ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $16,806,216 $17,679,314 $18,597,482 $19,563,041 $20,578,432 $21,646,224 % Growth 5.2% 5.2% 5.2% 5.2% 5.2% 5.2% Expenses: Technical $ 1,399,241 $ 1,477,050 $ 1,559,169 $ 1,645,834 $ 1,737,298 $ 1,833,824 Production and Local Origination 0 0 0 0 0 0 Advertising 114,005 119,928 126,156 132,706 139,594 146,837 Marketing 372,627 393,348 415,217 438,296 462,654 488,359 General and Administrative 2,682,110 2,831,257 2,988,664 3,154,787 3,330,107 3,515,132 Programming 2,551,114 2,680,835 2,817,079 2,960,171 3,110,453 3,268,283 Partnership Expenses 962,996 1,013,025 1,065,636 1,120,962 1,179,144 1,240,329 ----------- ----------- ----------- ----------- ----------- ----------- Total Operating Expenses $ 8,082,094 $ 8,515,443 $ 8,971,920 $ 9,452,757 $ 9,959,250 $10,492,765 % Growth 5.4% 5.4% 5.4% 5.4% 5.4% 5.4% * 1995 Adjusted for Partnership Expenses U.L.System Cash Flow (EBITDA) $ 8,724,122 $ 9,163,871 $ 9,625,562 $10,110,284 $10,619,183 $11,153,459 % Margin 51.9% 51.8% 51.8% 51.7% 51.6% 51.5% % Growth 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Revenue / Subscriber / Month $ 38.46 $ 39.67 $ 40.91 $ 42.20 $ 43.52 $ 44.89 SCF / Subscriber / Year $ 239.6 $ 246.7 $ 254.1 $ 261.7 $ 269.5 $ 277.5
101 - -------------------------------------------------------------------------- W A L L E R C A P I T A L C O R P O R A T I O N - -------------------------------------------------------------------------- Falcon Cable TV - Gilroy, California Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected) -------- ------------------------------------------------------ Year 1995 1996 1997 1998 Period 0 1 2 3 ------------------------------------------------------ Capital Expenditure Analysis - ------------------------------------------------ System Cash Flow $ 6,897,596 $ 7,195,389 $ 7,540,729 $ 7,906,343 % Growth 4.3% 4.8% 4.8% Total Capital Expenditures 4,826,776 4,841,563 4,871,729 % of Revenue 35.1% 33.5% 32.1% Total Capex / Basic Sub $ 143.4 $ 141.1 $ 139.2 - ----------------------------------------------------------------------------------------------------------------------------- Debt Free Cash Flow $ 2,368,613 $ 2,699,166 $ 3,034,614 - -----------------------------------------------------------------------------------------------------------------------------
FYE 12/31, (Projected) -------------------------------------------------------------------------- 1999 2000 2001 2002 4 5 6 7 -------------------------------------------------------------------------- System Cash Flow $ 8,305,276 $ 8,724,122 $ 9,163,871 $ 9,625,562 % Growth 5.0% 5.0% 5.0% 5.0% Total Capital Expenditures 1,602,472 1,633,801 1,665,727 1,698,263 % of Revenue 10.0% 9.7% 9.4% 9.1% Total Capex / Basic Sub $ 44.9 $ 44.9 $ 44.8 $ 44.8 - --------------------------------------------------------------------------------------------------------------------------------- Debt Free Cash Flow $ 6,702,804 $ 7,090,321 $ 7,498,144 $ 7,927,299 - ---------------------------------------------------------------------------------------------------------------------------------
FYE 12/31, (Projected) ------------------------------------------------------ 2003 2004 2005 8 9 10 ------------------------------------------------------ System Cash Flow $ 10,110,284 $ 10,619,183 $ 11,153,459 % Growth 5.0% 5.0% 5.0% Total Capital Expenditures 1,731,418 1,765,206 1,799,637 % of Revenue 8.9% 8.6% 8.3% Total Capex / Basic Sub $ 44.8 $ 44.8 $ 44.8 - ----------------------------------------------------------------------------------------------------------- Debt Free Cash Flow $ 8,378,866 $ 8,853,977 $ 9,353,823 - -----------------------------------------------------------------------------------------------------------
Aggregate Value Value per 1995 Subscriber Multiple of 1995 SCF - ----------------------------------------------------------------------------------------------------------- FAIR MARKET VALUE $57,640,720 $1,743 8.4 - -----------------------------------------------------------------------------------------------------------
102 - -------------------------------------------------------------------------------- W A L L E R C A P I T A L C O R P O R A T I O N - -------------------------------------------------------------------------------- FALCON CABLE TV - HESPERIA, CALIFORNIA DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (PROJECTED) ---------- ---------------------------------------------- YEAR 1995 1996 1997 1998 1999 2000 PERIOD 0 1 2 3 4 5 - -------------------------------------------------------- ---------- ---------------------------------------------- OPERATIONS STATISTICS - -------------------------------------------------------- % GROWTH ------------- Homes Passed: 28,280 28,492 28,731 28,973 29,216 29,462 % Growth 0.8% 0.8% 0.8% 0.8% 0.8% Basic/Expanded Tier 18,513 18,737 18,995 19,256 19,520 19,787 % Penetration 65.5% 65.8% 66.1% 66.5% 66.8% 67.2% % Growth -- 1.2% 1.4% 1.4% 1.4% 1.4% New Product Tier (NPT 1) 8,712 8,825 8,966 9,108 9,253 9,399 % Penetration 47.1% 47.1% 47.2% 47.3% 47.4% 47.5% % Growth -- 1.3% 1.6% 1.6% 1.6% 1.6% Pay 8,366 8,469 8,586 8,704 8,921 9,142 % Penetration 45.2% 45.2% 45.2% 45.2% 45.7% 46.2% % Growth -- 1.2% 1.4% 1.4% 2.5% 2.5% Mini-Pay 141 150 152 154 351 554 % Penetration 0.8% 0.8% 0.8% 0.8% 1.8% 2.8% % Growth -- 6.3% 1.4% 1.4% 1.4% 1.4% Basic Revenue& Tier/Sub/Month $25.60 $26.37 $27.16 $27.97 $28.81 $29.68 % Growth -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% NPT 1 Revenue/Sub/Month $3.21 $3.33 $3.47 $3.61 $3.75 $3.90 % Growth -- 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Pay Revenue/Sub/Month $7.08 $7.22 $7.36 $7.51 $7.66 $7.81 % Growth -- 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Mini-Pay Revenue/Sub/Month $3.44 $3.51 $3.58 $3.65 $3.73 $3.80 % Growth -- 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% PPV Rev/Sub/Month $0.46 $0.48 $0.49 $0.51 $0.54 $0.57 % Growth 3.0% 3.0% 3.0% 6.0% 6.0% Other Revenue/Sub/Month $4.52 $4.70 $4.89 $5.09 $5.29 $5.50 % Growth -- 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% FYE 12/31, (PROJECTED) ------------------------------ YEAR 2001 2002 2003 PERIOD 6 7 8 - -------------------------------------------------------- ------------------------------ OPERATIONS STATISTICS - -------------------------------------------------------- Homes Passed: 29,709 29,959 30,210 % Growth 0.8% 0.8% 0.8% Basic/Expanded Tier 20,058 20,331 20,607 % Penetration 67.5% 67.9% 68.2% % Growth 1.4% 1.4% 1.4% New Product Tier (NPT 1) 9,547 9,698 9,850 % Penetration 47.6% 47.7% 47.8% % Growth 1.6% 1.6% 1.6% Pay 9,367 9,596 9,830 % Penetration 46.7% 47.2% 47.7% % Growth 2.5% 2.4% 2.4% Mini-Pay 762 976 1,195 % Penetration 3.8% 4.8% 5.8% % Growth 1.4% 1.4% 1.4% Basic Revenue& Tier/Sub/Month $30.57 $31.49 $32.43 % Growth 3.0% 3.0% 3.0% NPT 1 Revenue/Sub/Month $4.06 $4.22 $4.39 % Growth 4.0% 4.0% 4.0% Pay Revenue/Sub/Month $7.97 $8.13 $8.29 % Growth 2.0% 2.0% 2.0% Mini-Pay Revenue/Sub/Month $3.88 $3.96 $4.04 % Growth 2.0% 2.0% 2.0% PPV Rev/Sub/Month $0.60 $0.64 $0.68 % Growth 6.0% 6.0% 6.0% Other Revenue/Sub/Month $5.72 $5.95 $6.19 % Growth 4.0% 4.0% 4.0% FYE 12/31, (PROJECTED) ------------------- YEAR 2004 2005 PERIOD 9 10 - -------------------------------------------------------- ------------------- OPERATIONS STATISTICS - -------------------------------------------------------- Homes Passed: 30,464 30,720 % Growth 0.8% 0.8% Basic/Expanded Tier 20,887 21,170 % Penetration 68.6% 68.9% % Growth 1.4% 1.4% New Product Tier (NPT 1) 10,005 10,162 % Penetration 47.9% 48.0% % Growth 1.6% 1.6% Pay 10,068 10,310 % Penetration 48.2% 48.7% % Growth 2.4% 2.4% Mini-Pay 1,420 1,651 % Penetration 6.8% 7.8% % Growth 1.4% 1.4% Basic Revenue& Tier/Sub/Month $33.40 $34.40 % Growth 3.0% 3.0% NPT 1 Revenue/Sub/Month $4.56 $4.75 % Growth 4.0% 4.0% Pay Revenue/Sub/Month $8.46 $8.63 % Growth 2.0% 2.0% Mini-Pay Revenue/Sub/Month $4.12 $4.20 % Growth 2.0% 2.0% PPV Rev/Sub/Month $0.72 $0.76 % Growth 6.0% 6.0% Other Revenue/Sub/Month $6.44 $6.69 % Growth 4.0% 4.0%
103 - -------------------------------------------------- W A L L E R C A P I T A L C O R P O R A T I O N - -------------------------------------------------- FALCON CABLE TV - HESPERIA, CALIFORNIA DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (PROJECTED) ---------- ------------------------------------------------------ Year 1995 1996 1997 1998 1999 Period 0 1 2 3 4 ------ ---------- ------------------------------------------------------ INCOME STATEMENT SUMMARY - ------------------------------------- REVENUES Basic & Tier $5,687,270 $5,928,869 $6,190,805 $6,464,133 $6,749,341 NPT 1 335,208 353,149 373,122 394,211 416,479 Pay 710,582 733,741 758,719 784,525 820,160 Mini-Pay 5,827 6,319 6,534 6,756 15,718 PPV 102,952 107,325 112,067 117,015 125,736 Other 1,004,759 1,057,611 1,115,058 1,175,592 1,239,378 --------- --------- --------- --------- --------- TOTAL REVENUE 7,846,598 $8,187,014 $8,556,304 $8,942,232 $9,366,812 % Growth -- 4.3% 4.5% 4.5% 4.7% EXPENSES: Adjusted Technical $ 635,589 $ 665,806 $ 698,596 $ 732,980 $769,035 Production and Local Origination 0 0 0 0 0 Advertising 73,173 76,348 79,791 83,390 87,350 Marketing 276,177 289,307 303,555 318,495 334,162 General and Administrative 1,260,508 1,320,434 1,385,464 1,453,655 1,525,161 Programming 1,384,338 1,442,512 1,505,599 1,571,427 1,643,751 Partnership Expenses 449,610 469,116 490,276 512,390 536,718 ------- ------- ------- ------- ------- Total Operating Expenses $4,079,395 $4,263,522 $4,463,281 $4,672,338 $4,896,178 % Growth -- 4.5% 4.7% 4.7% 4.8% * Adjusted for Partnership Expenses U.L.SYSTEM CASH FLOW (EBITDA) $3,767,203 $3,923,491 $4,093,024 $4,269,895 $4,470,635 % Margin 48.0% 47.9% 47.8% 47.7% 47.7% % Growth -- 4.1% 4.3% 4.3% 4.7% Revenue / Subscriber / Month $ 35.32 $ 36.41 $ 37.54 $ 38.70 $ 39.99 SCF / Subscriber / Year $ 203.5 $ 209.4 $ 215.5 $ 221.7 $ 229.0 FYE 12/31, (PROJECTED) -------------------------------------------------------- 2000 2001 2002 2003 5 6 7 8 -------------------------------------------------------- INCOME STATEMENT SUMMARY - ------------------------------------- REVENUES Basic & Tier $7,046,939 $7,357,460 $7,681,457 $8,019,508 NPT 1 439,991 464,816 491,026 518,697 Pay 857,288 895,966 936,258 978,226 Mini-Pay 25,280 35,472 46,326 57,873 PPV 135,104 145,166 155,973 167,580 Other 1,306,589 1,377,408 1,452,026 1,530,646 --------- --------- --------- --------- TOTAL REVENUE $9,811,191 $10,276,288 $10,763,066 $11,272,530 % Growth 4.7% 4.7% 4.7% 4.7% EXPENSES: Technical $ 806,842 $ 846,485 $ 888,051 $ 931,634 Production and Local Origination 0 0 0 0 Advertising 91,494 95,831 100,370 105,121 Marketing 350,590 367,816 385,877 404,815 General and Administrative 1,600,140 1,678,759 1,761,194 1,847,628 Programming 1,719,307 1,798,235 1,880,682 1,966,805 Partnership Expenses 562,181 588,831 616,724 645,916 ------- ------- ------- ------- Total Operating Expenses $5,130,554 $ 5,375,957 $ 5,632,899 $ 5,901,918 % Growth 4.8% 4.8% 4.8% 4.8% * Adjusted for Partnership Expenses U.L.SYSTEM CASH FLOW (EBITDA) $4,680,637 $ 4,900,332 $ 5,130,167 $ 5,370,612 % Margin 47.7% 47.7% 47.7% 47.6% % Growth 4.7% 4.7% 4.7% 4.7% Revenue / Subscriber / Month $ 41.32 $ 42.70 $ 44.12 $ 45.58 SCF / Subscriber / Year $ 236.5 $ 244.3 $ 252.3 $ 260.6 FYE 12/31, (PROJECTED) -------------------------- 2004 2005 9 10 -------------------------- INCOME STATEMENT SUMMARY - ------------------------------------- REVENUES Basic & Tier $ 8,372,217 $ 8,740,210 NPT 1 547,912 578,754 Pay 1,021,935 1,067,455 Mini-Pay 70,148 83,185 PPV 180,046 193,434 Other 1,613,480 1,700,752 --------- --------- TOTAL REVENUE $11,805,737 $12,363,790 % Growth 4.7% 4.7% EXPENSES: Technical $ 977,330 $ 1,025,240 Production and Local Origination 0 0 Advertising 110,094 115,298 Marketing 424,671 445,489 General and Administrative 1,938,252 2,033,269 Programming 2,056,762 2,150,722 Partnership Expenses 676,469 708,445 ------- ------- Total Operating Expenses $ 6,183,577 $ 6,478,463 % Growth 4.8% 4.8% * Adjusted for Partnership Expenses U.L.SYSTEM CASH FLOW (EBITDA) $ 5,622,160 $ 5,885,327 % Margin 47.6% 47.6% % Growth 4.7% 4.7% Revenue / Subscriber / Month $ 47.10 $ 48.67 SCF / Subscriber / Year $ 269.2 $ 278.0
104 - ------------------------------------------------------------------------------- W A L L E R C A P I T A L C O R P O R A T I O N - ------------------------------------------------------------------------------- FALCON CABLE TV - HESPERIA, CALIFORNIA DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (PROJECTED) ----------- --------------------------------------------------- Year 1995 1996 1997 1998 1999 Period 0 1 2 3 4 ----------- --------------------------------------------------- - -------------------------------------------------------------- CAPITAL EXPENDITURE ANALYSIS - -------------------------------------------------------------- System Cash Flow $3,767,203 $3,923,491 $4,093,024 $4,269,895 $4,470,635 % Growth 4.1% 4.3% 4.3% 4.7% Total Capital Expenditures 823,481 3,743,300 3,754,439 3,765,707 % of Revenue 10.1% 43.7% 42.0% 40.2% Total Capex / Basic Sub $43.9 $197.1 $195.0 $192.9 ------------------------------------------------------------------------------------------------------------------------------ DEBT FREE CASH FLOW $3,100,010 $349,724 $515,455 $704,928 ========== ======== ======== ======== ------------------------------------------------------------------------------------------------------------------------------ FYE 12/31, (PROJECTED) ------------------------------------- 2000 2001 2002 5 6 7 ------------------------------------- - ------------------------------------------------------ CAPITAL EXPENDITURE ANALYSIS - ------------------------------------------------------ System Cash Flow $4,680,637 $4,900,332 $5,130,167 % Growth 4.7% 4.7% 4.7% Total Capital Expenditures 877,104 888,631 900,289 % of Revenue 8.9% 8.6% 8.4% Total Capex / Basic Sub $44.3 $44.3 $44.3 ------------------------------------------------------------------------------------------ DEBT FREE CASH FLOW $3,803,534 $4,011,701 $4,229,877 ========== ========== ========== ------------------------------------------------------------------------------------------ FYE 12/31, (PROJECTED) -------------------------------------- 2003 2004 2005 8 9 10 -------------------------------------- - ------------------------------------------------------ CAPITAL EXPENDITURE ANALYSIS - ------------------------------------------------------ System Cash Flow $5,370,612 $5,622,160 $5,885,327 % Growth 4.7% 4.7% 4.7% Total Capital Expenditures 912,081 924,008 936,070 % of Revenue 8.1% 7.8% 7.6% Total Capex / Basic Sub $44.3 $44.2 $44.2 ------------------------------------------------------------------------------------------- DEBT FREE CASH FLOW $4,458,531 $4,698,153 $4,949,257 ========== ========== ========== -------------------------------------------------------------------------------------------
AGGREGATE VALUE VALUE PER 1995 SUBSCRIBER MULTIPLE OF 1995 SCF - ----------------------------------------------------------------------------------------------------------------------------- FAIR MARKET VALUE $28,865,947 $1,559 7.7 - -----------------------------------------------------------------------------------------------------------------------------
105 W A L L E R C A P I T A L C O R P O R A T I O N FALCON CABLE TV - SAN LOUIS OBISPO, CALIFORNIA DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (Projected) -------- ------------------------------- Year 1995 1996 1997 1998 1999 Period 0 1 2 3 4 ------ -------- ------------------------------- Operations Statistics % Growth - --------------------- -------- Homes Passed: 26,138 26,582 27,034 27,494 27,961 % Growth 1.7% 1.7% 1.7% 1.7% Basic/Expanded Tier 15,635 16,003 16,418 16,843 17,277 % Penetration 59.8% 60.2% 60.7% 61.3% 61.8% % Growth -- 2.4% 2.6% 2.6% 2.6% New Product Tier (NPT 1) 4,466 4,561 4,728 4,901 5,080 % Penetration 28.6% 28.5% 28.8% 29.1% 29.4% % Growth -- 2.1% 3.7% 3.7% 3.6% Pay 3,733 3,873 4,104 4,345 4,596 % Penetration 23.9% 24.2% 25.0% 25.8% 26.6% % Growth -- 3.7% 6.0% 5.9% 5.8% Mini-Pay 0 0 0 0 0 % Penetration 0.0% 0.0% 0.0% 0.0% % Growth -- -- -- -- -- Basic Revenue & Tier/ Sub/Month $22.24 $23.22 $24.24 $25.30 $26.42 % Growth -- 4.4% 4.4% 4.4% 4.4% 4.4% NPT 1 Revenue/Sub/Month $ 3.31 $ 3.44 $ 3.58 $ 3.72 $ 3.87 % Growth -- 4.0% 4.0% 4.0% 4.0% 4.0% Pay Revenue/Sub/Month $ 9.28 $ 9.47 $ 9.66 $ 9.85 $10.05 % Growth -- 2.0% 2.0% 2.0% 2.0% 2.0% Mini-Pay Revenue/Sub/Month -- -- -- -- -- % Growth -- -- -- -- -- -- PPV Rev/Sub/Month $ 0.16 $ 0.16 $ 0.17 $ 0.18 $ 0.20 % Growth 3.0% 3.0% 8.0% 8.0% Other Revenue/Sub/Month $ 4.97 $ 5.17 $ 5.38 $ 5.60 $ 5.82 % Growth -- 4.0% 4.0% 4.0% 4.0% 4.0% FYE 12/31, (Projected) ----------------------------------------------- 2000 2001 2002 2003 2004 2005 5 6 7 8 9 10 ----------------------------------------------- Operations Statistics - --------------------- Homes Passed: 28,437 28,920 29,412 29,912 30,420 30,937 % Growth 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% Basic/Expanded Tier 17,722 18,176 18,641 19,117 19,603 20,100 % Penetration 62.3% 62.9% 63.4% 63.9% 64.4% 65.0% % Growth 2.6% 2.6% 2.6% 2.6% 2.5% 2.5% New Product Tier (NPT 1) 5,263 5,453 5,648 5,850 6,057 6,271 % Penetration 29.7% 30.0% 30.3% 30.6% 30.9% 31.2% % Growth 3.6% 3.6% 3.6% 3.6% 3.5% 3.5% Pay 4,856 5,126 5,406 5,697 5,998 6,311 % Penetration 27.4% 28.2% 29.0% 29.8% 30.6% 31.4% % Growth 5.7% 5.6% 5.5% 5.4% 5.3% 5.2% Mini-Pay 0 0 0 0 0 0 % Penetration 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% % Growth -- -- -- -- -- -- Basic Revenue & Tier/ Sub/Month $27.58 $28.79 $30.06 $31.38 $32.76 $34.21 % Growth 4.4% 4.4% 4.4% 4.4% 4.4% 4.4% NPT 1 Revenue/Sub/Month $ 4.03 $ 4.19 $ 4.36 $ 4.53 $ 4.71 $ 4.90 % Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Pay Revenue/Sub/Month $10.25 $10.45 $10.66 $10.87 $11.09 $11.31 % Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Mini-Pay Revenue/Sub/Month -- -- -- -- -- -- % Growth -- -- -- -- -- -- PPV Rev/Sub/Month $ 0.21 $ 0.23 $ 0.25 $ 0.27 $ 0.29 $ 0.31 % Growth 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% Other Revenue/Sub/Month $ 6.05 $ 6.29 $ 6.55 $ 6.81 $ 7.08 $ 7.36 % Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
106 W A L L E R C A P I T A L C O R P O R A T I O N FALCON CABLE TV - SAN LOUIS OBISPO, CALIFORNIA DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (Projected) --------- --------------------------------------------------------------- Year 1995 1996 1997 1998 1999 2000 Period 0 1 2 3 4 5 ------ --------- --------------------------------------------------------------- Income Statement Summary - ------------------------ Revenues Basic & Tier $4,172,358 $4,458,348 $4,775,317 $5,114,432 $5,477,218 $5,865,307 NPT 1 177,400 188,410 203,148 218,998 236,042 254,368 Pay 415,739 439,914 475,577 513,565 554,012 597,061 Mini-Pay 0 0 0 0 0 0 PPV 29,828 31,445 33,229 36,816 40,787 45,183 Other 933,229 993,376 1,059,924 1,130,844 1,206,419 1,286,950 --------- --------- --------- --------- --------- --------- Total Revenue $5,728,554 $6,111,493 $6,547,194 $7,014,654 $7,514,479 $8,048,869 % Growth -- 6.7% 7.1% 7.1% 7.1% 7.1% Expenses: Adjusted Technical $627,259 $664,476 $705,582 $749,173 $795,399 $844,414 Production and Local Origination 0 0 0 0 0 0 Advertising 87,515 93,365 100,021 107,163 114,799 122,962 Marketing 226,985 240,453 255,327 271,102 287,829 305,566 General and Administrative 1,099,901 1,165,161 1,237,240 1,313,678 1,394,734 1,480,683 Programming 1,138,066 1,214,767 1,302,500 1,396,342 1,496,711 1,604,049 Partnership Expenses 328,246 350,189 375,154 401,940 430,580 461,200 --------- --------- --------- --------- --------- --------- Total Operating Expenses $3,507,972 $3,728,410 $3,975,824 $4,239,398 $4,520,051 $4,818,874 % Growth -- 6.3% 6.6% 6.6% 6.6% 6.6% * Adjusted for Partnership Expenses U.L.System Cash Flow (EBITDA) $2,220,582 $2,383,083 $2,571,370 $2,775,256 $2,994,428 $3,229,995 % Margin 38.8% 39.0% 39.3% 39.6% 39.8% 40.1% % Growth -- 7.3% 7.9% 7.9% 7.9% 7.9% Revenue / Subscriber / Month $30.53 $31.83 $33.23 $34.71 $36.24 $37.85 SCF / Subscriber / Year $142.0 $148.9 $156.6 $164.8 $173.3 $182.3 FYE 12/31, (Projected) ------------------------------------------------------------------ Year 2001 2002 2003 2004 2005 Period 6 7 8 9 10 ------ ------------------------------------------------------------------ Income Statement Summary - ------------------------ Revenues Basic & Tier $6,280,439 $6,724,476 $7,199,403 $7,707,342 $8,250,560 NPT 1 274,069 295,245 318,003 342,460 368,738 Pay 642,860 691,565 743,343 798,366 856,819 Mini-Pay 0 0 0 0 0 PPV 50,049 55,436 61,398 67,996 75,298 Other 1,372,757 1,464,182 1,561,586 1,665,355 1,775,900 --------- --------- --------- ---------- ---------- Total Revenue $8,620,175 $9,230,903 $9,883,733 $10,581,519 $11,327,314 % Growth 7.1% 7.1% 7.1% 7.1% 7.0% Expenses: Technical $896,385 $951,487 $1,009,905 $1,071,837 $1,137,489 Production and Local Origination 0 0 0 0 0 Advertising 131,690 141,020 150,994 161,654 173,047 Marketing 324,373 344,313 365,452 387,863 411,621 General and Administrative 1,571,814 1,668,435 1,770,873 1,879,470 1,994,591 Programming 1,718,830 1,841,561 1,972,780 2,113,064 2,263,026 Partnership Expenses 493,936 528,931 566,338 606,321 649,055 --------- --------- --------- --------- --------- Total Operating Expenses $5,137,028 $5,475,747 $5,836,342 $6,220,208 $6,628,830 % Growth 6.6% 6.6% 6.6% 6.6% 6.6% * Adjusted for Partnership Expenses U.L.System Cash Flow (EBITDA) $3,483,146 $3,755,157 $4,047,391 $4,361,311 $4,698,484 % Margin 40.4% 40.7% 41.0% 41.2% 41.5% % Growth 7.8% 7.8% 7.8% 7.8% 7.7% Revenue / Subscriber / Month $39.52 $41.27 $43.09 $44.98 $46.96 SCF / Subscriber / Year $191.6 $201.4 $211.7 $222.5 $231.8
107 W A L L E R C A P I T A L C O R P O R A T I O N FALCON CABLE TV - SAN LOUIS OBISPO, CALIFORNIA DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (Projected) --------- ------------------------------------------------------------- Year 1995 1996 1997 1998 1999 2000 Period 0 1 2 3 4 5 ------ --------- ------------------------------------------------------------- Capital Expenditure Analysis - ---------------------------- System Cash Flow $2,220,582 $2,383,083 $2,571,370 $2,775,256 $2,994,428 $3,229,995 % Growth 7.3% 7.9% 7.9% 7.9% 7.9% Total Capital Expenditures 745,900 2,464,311 2,483,133 802,374 822,043 % of Revenue 12.2% 37.6% 35.4% 10.7% 10.2% Total Capex / Basic Sub $46.6 $150.1 $147.4 $46.4 $46.4 - ----------------------------------------------------------------------------------------------------------------------------------- Debt Free Cash Flow $1,637,183 $107,059 $292,123 $2,192,054 $2,407,952 - -----------------------------------------------------------------------------------------------------------------------------------
Aggregate Value Value per 1995 Subscriber - ----------------------------------------------------------------------------------------------------------------------------------- FAIR MARKET VALUE $21,988,550 $1,406 - -----------------------------------------------------------------------------------------------------------------------------------
FYE 12/31, (Projected) ------------------------------------------------------------------- Year 2001 2002 2003 2004 2005 Period 6 7 8 9 10 ------ ------------------------------------------------------------------- Capital Expenditure Analysis - ---------------------------- System Cash Flow $3,483,146 $3,755,157 $4,047,391 $4,361,311 $4,698,484 % Growth 7.8% 7.8% 7.8% 7.8% 7.7% Total Capital Expenditures 842,149 862,701 883,708 905,180 927,127 % of Revenue 9.8% 9.3% 8.9% 8.6% 8.2% Total Capex / Basic Sub $46.3 $46.3 $46.2 $46.2 $46.1 - -------------------------------------------------------------------------------------------------------------------- Debt Free Cash Flow $2,640,998 $2,892,456 $3,163,683 $3,456,131 $3,771,357 - --------------------------------------------------------------------------------------------------------------------
Multiple of 1995 SCF - -------------------------------------------------------------------------------------------------------------------- FAIR MARKET VALUE 9.9 - --------------------------------------------------------------------------------------------------------------------
108 W A L L E R C A P I T A L C O R P O R A T I O N Falcon Cable TV - Tulare, California Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected) -------- ----------------------------------------------- Year 1995 1996 1997 1998 1999 2000 Period 0 1 2 3 4 5 ------ -------- ----------------------------------------------- Operations Statistics % Growth - --------------------- -------- Homes Passed: 41,053 41,464 41,878 42,297 42,720 43,147 % Growth 1.0% 1.0% 1.0% 1.0% 1.0% Basic/Expanded Tier 15,249 15,466 15,788 16,115 16,490 16,871 % Penetration 37.1% 37.3% 37.7% 38.1% 38.6% 39.1% % Growth -- 1.4% 2.1% 2.1% 2.3% 2.3% New Product Tier (NPT 1) 7,001 7,099 7,247 7,429 7,635 7,845 % Penetration 45.9% 45.9% 45.9% 46.1% 46.3% 46.5% % Growth -- 1.4% 2.1% 2.5% 2.8% 2.8% Pay 7,110 7,207 7,389 7,574 7,783 7,997 % Penetration 46.6% 46.6% 46.8% 47.0% 47.2% 47.4% % Growth -- 1.4% 2.5% 2.5% 2.8% 2.7% Mini-Pay 0 0 0 0 0 0 % Penetration 0.0% 0.0% 0.0% 0.0% 0.0% % Growth -- -- -- -- -- -- Basic Revenue& Tier/Sub/Month $22.05 $22.98 $23.96 $24.98 $26.04 $27.15 % Growth -- 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% NPT 1 Revenue/Sub/Month $5.47 $ 5.63 $ 5.80 $ 5.98 $ 6.16 $ 6.34 % Growth -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Pay Revenue/Sub/Month $7.07 $ 7.28 $ 7.50 $ 7.72 $ 7.96 $ 8.19 % Growth -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Mini-Pay Revenue/Sub/Month $0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 % Growth -- 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PPV Rev/Sub/Month $0.48 $ 0.49 $ 0.51 $ 0.52 $ 0.54 $ 0.56 % Growth 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% Other Revenue/Sub/Month $7.22 $ 7.44 $ 7.66 $ 7.89 $ 8.13 $ 8.37 % Growth -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% ----------------------------------------------- 2001 2002 2003 2004 2005 6 7 8 9 10 ----------------------------------------------- Operations Statistics - --------------------- Homes Passed: 43,579 44,014 44,455 44,899 45,348 % Growth 1.0% 1.0% 1.0% 1.0% 1.0% Basic/Expanded Tier 17,257 17,650 18,049 18,454 18,865 % Penetration 39.6% 40.1% 40.6% 41.1% 41.6% % Growth 2.3% 2.3% 2.3% 2.2% 2.2% New Product Tier (NPT 1) 8,059 8,278 8,501 8,729 8,961 % Penetration 46.7% 46.9% 47.1% 47.3% 47.5% % Growth 2.7% 2.7% 2.7% 2.7% 2.7% Pay 8,214 8,437 8,663 8,895 9,131 % Penetration 47.6% 47.8% 48.0% 48.2% 48.4% % Growth 2.7% 2.7% 2.7% 2.7% 2.7% Mini-Pay 0 0 0 0 0 % Penetration 0.0% 0.0% 0.0% 0.0% 0.0% % Growth -- -- -- -- -- Basic Revenue& Tier/Sub/Month $28.30 $29.50 $30.76 $32.07 $33.43 % Growth 4.3% 4.3% 4.3% 4.3% 4.3% NPT 1 Revenue/Sub/Month $ 6.53 $ 6.73 $ 6.93 $ 7.14 $ 7.35 % Growth 3.0% 3.0% 3.0% 3.0% 3.0% Pay Revenue/Sub/Month $ 8.44 $ 8.69 $ 8.95 $ 9.22 $ 9.50 % Growth 3.0% 3.0% 3.0% 3.0% 3.0% Mini-Pay Revenue/Sub/Month $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 % Growth 0.0% 0.0% 0.0% 0.0% 0.0% PPV Rev/Sub/Month $ 0.57 $ 0.59 $ 0.61 $ 0.63 $ 0.64 % Growth 3.0% 3.0% 3.0% 3.0% 3.0% Other Revenue/Sub/Month $ 8.62 $ 8.88 $ 9.15 $ 9.42 $ 9.70 % Growth 3.0% 3.0% 3.0% 3.0% 3.0%
109 WALLER CAPITAL CORPORATION FALCON CABLE TV - TULARE, CALIFORNIA DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
-------- --------------------------------------------------------- 12/31/95 FYE 12/31, (PROJECTED) -------- --------------------------------------------------------- Year 1995 1996 1997 1998 1999 Income Statement Summary Period 0 1 2 3 4 - ---------------------------------------------------------- --------------------------------------------------------- Revenues Basic & Tier $4,034,444 $4,265,731 $4,539,661 $4,830,638 $5,153,049 NPT 1 459,527 479,928 504,623 532,841 564,025 Pay 603,044 629,619 664,858 701,977 742,999 Mini-Pay 0 0 0 0 0 PPV 87,677 91,592 96,305 101,249 106,711 Other 1,321,320 1,380,317 1,451,343 1,525,852 1,608,175 --------- ---------- ---------- ---------- ---------- Total Revenue $6,506,012 $6,847,187 $7,256,790 $7,692,557 $8,174,959 % Growth - - 5.2% 6.0% 6.0% 6.3% Expenses: Adjusted Technical $634,621 $666,175 $703,854 $743,581 $787,503 Production and Local Origination 0 0 0 0 0 Advertising 122,569 128,997 136,713 144,923 154,011 Marketing 184,260 193,422 204,362 215,896 228,649 General and Administrative 1,116,860 1,172,392 1,238,703 1,308,617 1,385,915 Programming 1,279,191 1,349,026 1,432,816 1,522,239 1,621,276 Partnership Expenses 372,794 392,344 415,814 440,783 468,425 ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $3,710,295 $3,902,356 $4,132,262 $4,376,039 $4,645,778 % Growth - - 5.2% 5.9% 5.9% 6.2% * Adjusted for Partnership Expenses U.L.System Cash Flow (EBITDA) $2,795,717 $2,944,832 $3,124,528 $3,316,518 $3,529,181 % Margin 43.0% 43.0% 43.1% 43.1% 43.2% % Growth - - 5.3% 6.1% 6.1% 6.4% Revenue / Subscriber / Month $35.55 $36.89 $38.30 $39.78 $41.31 SCF / Subscriber / Year $183.3 $190.4 $197.9 $205.8 $214.0 ----------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------- 2000 2001 2002 2003 2004 2005 Income Statement Summary 5 6 7 8 9 10 - ---------------------------------------------------------------------------------------------------------------------------------- Revenues Basic & Tier $5,496,056 $5,860,937 $6,249,045 $6,661,818 $7,100,779 $7,567,544 NPT 1 596,923 631,625 668,226 706,824 747,526 790,440 Pay 786,271 831,913 880,049 930,809 984,330 1,040,756 Mini-Pay 0 0 0 0 0 0 PPV 112,450 118,478 124,808 131,457 138,439 145,770 Other 1,694,655 1,785,494 1,880,902 1,981,100 2,086,319 2,196,802 ---------- ---------- ---------- ----------- ----------- ----------- Total Revenue $8,686,356 $9,228,447 $9,803,030 $10,412,008 $11,057,392 $11,741,311 % Growth 6.3% 6.2% 6.2% 6.2% 6.2% 6.2% Expenses: Technical $833,880 $882,843 $934,533 $989,095 $1,046,683 $1,107,461 Production and Local Origination 0 0 0 0 0 0 Advertising 163,645 173,858 184,683 196,155 208,314 221,199 Marketing 242,114 256,330 271,338 287,180 303,901 321,548 General and Administrative 1,467,532 1,553,702 1,644,670 1,740,693 1,842,042 1,949,004 Programming 1,726,476 1,838,214 1,956,883 2,082,902 2,216,714 2,358,789 Partnership Expenses 497,728 528,790 561,714 596,608 633,589 672,777 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $4,931,376 $5,233,737 $5,553,820 $5,892,633 $6,251,243 $6,630,778 % Growth 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% * Adjusted for Partnership Expenses U.L.System Cash Flow (EBITDA) $3,754,980 $3,994,709 $4,249,210 $4,519,375 $4,806,149 $5,110,533 % Margin 43.2% 43.3% 43.3% 43.4% 43.5% 43.5% % Growth 6.4% 6.4% 6.4% 6.4% 6.3% 6.3% Revenue / Subscriber / Month $42.91 $44.56 $46.28 $48.07 $49.93 $51.87 SCF / Subscriber / Year $222.6 $231.5 $240.8 $250.4 $260.4 $270.9
110 W A L L E R C A P I T A L C O R P O R A T I O N Falcon Cable TV - Tulare, California Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected) --------- --------------------------------------------------------------- Year 1995 1996 1997 1998 1999 2000 Capital Expenditure Analysis Period 0 1 2 3 4 5 - ---------------------------- ------ --------- --------------------------------------------------------------- System Cash Flow $2,795,717 $2,944,832 $3,124,528 $3,316,518 $3,529,181 $3,754,980 % Growth 5.3% 6.1% 6.1% 6.4% 6.4% Total Capital Expenditures 798,598 3,614,122 3,629,877 3,647,787 865,973 % of Revenue 11.7% 49.8% 47.2% 44.6% 10.0% Total Capex / Basic Sub $51.6 $228.9 $225.2 $221.2 $51.3 Debt Free Cash Flow $2,146,234 $(489,594 ) $(313,359 ) $(118,606 ) $2,889,007 -------------------------------------------------------------- 2001 2002 2003 2004 2005 Capital Expenditure Analysis 6 7 8 9 10 - ------------------------------ -------------------------------------------------------------- System Cash Flow $3,994,709 $4,249,210 $4,519,375 $4,806,149 $5,110,533 % Growth 6.4% 6.4% 6.4% 6.3% 6.3% Total Capital Expenditures 884,438 903,186 922,220 941,544 961,163 % of Revenue 9.6% 9.2% 8.9% 8.5% 8.2% Total Capex / Basic Sub $51.3 $51.2 $51.1 $51.0 $51.0 Debt Free Cash Flow $3,110,271 $3,346,024 $3,597,155 $3,864,605 $4,149,370 Aggregate Value Value per 1995 Subscriber Multiple of 1995 SCF - ----------------------------------------------------------------------------------------------------------------- FAIR MARKET VALUE $22,269,159 1,460 8.0 - -----------------------------------------------------------------------------------------------------------------
111 W A L L E R C A P I T A L C O R P O R A T I O N FALCON CABLE TV - CENTRAL OREGON Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 -------- Year 1995 Period 0 Operations Statistics -------- - --------------------- % Growth -------- Homes Passed: 26,355 % Growth Basic/Expanded Tier 14,225 % Penetration 54.0% % Growth -- New Product Tier (NPT 1) 9,266 % Penetration 65.1% % Growth -- Pay 5,505 % Penetration 38.7% % Growth -- Mini-Pay 11 % Penetration 0.1% % Growth -- Basic Revenue& Tier/Sub/Month $21.16 % Growth -- 4.3% NPT 1 Revenue/Sub/Month $ 4.19 % Growth -- 4.0% Pay Revenue/Sub/Month $ 7.96 % Growth -- 2.0% Mini-Pay Revenue/Sub/Month $ 5.53 % Growth -- 2.0% PPV Rev/Sub/Month $ 0.08 % Growth Other Revenue/Sub/Month $ 2.26 % Growth -- 4.0% FYE 12/31, (Projected) ---------------------------------------------------------------------------------------- Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Period 1 2 3 4 5 6 7 8 9 10 Operations Statistics ---------------------------------------------------------------------------------------- - --------------------- Homes Passed: 26,487 26,672 26,859 27,047 27,236 27,427 27,619 27,812 28,007 28,203 % Growth 0.5% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% Basic/Expanded Tier 14,455 14,690 14,927 15,166 15,409 15,654 15,901 16,152 16,405 16,661 % Penetration 54.6% 55.1% 55.6% 56.1% 56.6% 57.1% 57.6% 58.1% 58.6% 59.1% % Growth 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% New Product Tier (NPT 1) 9,560 9,862 10,171 10,486 10,808 11,136 11,471 11,813 12,162 12,519 % Penetration 66.1% 67.1% 68.1% 69.1% 70.1% 71.1% 72.1% 73.1% 74.1% 75.1% % Growth 3.2% 3.2% 3.1% 3.1% 3.1% 3.0% 3.0% 3.0% 3.0% 2.9% Pay 5,594 5,685 5,851 6,021 6,194 6,371 6,551 6,735 6,923 7,114 % Penetration 38.7% 38.7% 39.2% 39.7% 40.2% 40.7% 41.2% 41.7% 42.2% 42.7% % Growth 1.6% 1.6% 2.9% 2.9% 2.9% 2.9% 2.8% 2.8% 2.8% 2.8% Mini-Pay 14 15 15 15 15 16 16 16 16 17 % Penetration 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% % Growth 31.4% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% Basic Revenue & Tier/Sub/Month $22.06 $23.00 $23.97 $24.99 $26.05 $27.16 $28.32 $29.52 $30.77 $32.08 % Growth 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% NPT 1 Revenue/Sub/Month $4.36 $4.53 $4.71 $4.90 $5.10 $5.30 $5.52 $5.74 $5.97 $6.20 % Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Pay Revenue/Sub/Month $8.12 $8.28 $8.45 $8.62 $8.79 $8.97 $9.15 $9.33 $9.52 $9.71 % Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% Mini-Pay Revenue/Sub/Month $5.64 $5.75 $5.87 $5.98 $6.10 $6.23 $6.35 $6.48 $6.61 $6.74 % Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% PPV Rev/Sub/Month $0.08 $0.08 $0.08 $0.09 $0.09 $0.10 $0.10 $0.11 $0.12 $0.12 % Growth 3.0% 3.0% 3.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% Other Revenue/Sub/Month $2.35 $2.45 $2.55 $2.70 $2.86 $3.03 $3.21 $3.41 $3.61 $3.83 % Growth 4.0% 4.0% 4.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
112 W A L L E R C A P I T A L C O R P O R A T I O N FALCON CABLE TV - CENTRAL OREGON Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected) -------- ---------------------------------- Year 1995 1996 1997 1998 Period 0 1 2 3 Income Statement Summary ---------------------------------- - ------------------------ Revenues Basic & Tier $3,611,860 $3,826,258 $4,053,597 $4,294,089 NPT 1 466,060 500,103 536,538 575,452 Pay 526,042 545,247 565,176 593,354 Mini-Pay 730 978 1,014 1,051 PPV 12,829 13,428 14,055 14,710 Other 386,283 408,231 431,450 455,951 ---------- ---------- ---------- ---------- Total Revenue $5,003,805 $5,294,245 $5,601,829 $5,934,606 % Growth -- 5.8% 5.8% 5.9% Expenses: Adjusted Technical $443,453 $466,396 $490,553 $515,918 Production and Local Origination 0 0 0 0 Advertising 0 0 0 0 Marketing 120,328 126,554 133,108 139,991 General and Administrative 856,767 901,094 947,765 996,772 Programming 868,032 918,533 972,020 1,030,010 Partnership Expenses 286,718 303,360 320,985 340,053 --------- --------- --------- --------- Total Operating Expenses $2,575,298 $2,715,937 $2,864,432 $3,022,743 % Growth -- 5.5% 5.5% 5.5% U.L.System Cash Flow (EBITDA) $2,428,507 $2,578,308 $2,737,397 $2,911,863 % Margin 48.5% 48.7% 48.9% 49.1% % Growth -- 6.2% 6.2% 6.4% Revenue / Subscriber / Month $29.31 $30.52 $31.78 $33.13 SCF / Subscriber / Year $170.7 $178.4 $186.3 $195.1 FYE 12/31, (Projected) -------------------------------------------------------------------------------------- Year 1999 2000 2001 2002 2003 2004 2005 Period 4 5 6 7 8 9 10 Income Statement Summary -------------------------------------------------------------------------------------- - ------------------------ Revenues Basic & Tier $4,548,482 $4,817,562 $5,102,162 $5,403,160 $5,721,483 $6,058,112 $6,414,078 NPT 1 617,005 661,368 708,722 759,257 813,179 870,702 932,057 Pay 622,784 653,519 685,611 719,114 754,088 790,589 828,681 Mini-Pay 1,089 1,129 1,170 1,212 1,256 1,301 1,347 PPV 15,843 17,062 18,374 19,784 21,301 22,933 24,688 Other 491,070 528,851 569,496 613,216 660,244 710,825 765,226 ---------- --------- ---------- ---------- ---------- ---------- ---------- Total Revenue $6,296,273 $6,679,491 $7,085,533 $7,515,744 $7,971,550 $8,454,462 $8,966,079 % Growth 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% Expenses: Technical $ 542,551 $ 570,513 $ 599,869 $ 630,688 $ 663,040 $ 697,000 $ 732,645 Production and Local Origination 0 0 0 0 0 0 0 Advertising 0 0 0 0 0 0 0 Marketing 147,217 154,805 162,770 171,133 179,911 189,126 198,798 General and Administrative 1,048,227 1,102,251 1,158,969 1,218,511 1,281,016 1,346,628 1,415,497 Programming 1,091,354 1,156,243 1,224,877 1,297,468 1,374,241 1,455,432 1,541,291 Partnership Expenses 360,776 382,735 406,001 430,652 456,770 484,441 513,756 --------- --------- --------- --------- --------- --------- --------- Total Operating Expenses $3,190,126 $3,366,546 $3,552,486 $3,748,452 $3,954,979 $4,172,627 $4,401,988 % Growth 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% U.L.System Cash Flow (EBITDA) $3,106,147 $3,312,945 $3,533,047 $3,767,292 $4,016,572 $4,281,836 $4,564,091 % Margin 49.3% 49.6% 49.9% 50.1% 50.4% 50.6% 50.9% % Growth 6.7% 6.7% 6.6% 6.6% 6.6% 6.6% 6.6% Revenue / Subscriber / Month $34.60 $36.12 $37.72 $39.39 $41.13 $42.95 $44.85 SCF / Subscriber / Year $204.8 $215.0 $225.7 $236.9 $248.7 $261.0 $273.9
113 W A L L E R C A P I T A L C O R P O R A T I O N FALCON CABLE TV - CENTRAL OREGON Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected) -------- --------------------------------------- Year 1995 1996 1997 1998 Period 0 1 2 3 -------- --------------------------------------- Capital Expenditure Analysis - ---------------------------- System Cash Flow $2,428,507 $2,578,308 $2,737,397 $2,911,863 % Growth 6.2% 6.2% 6.4% Total Capital Expenditures 701,160 2,632,342 2,643,512 % of Revenue 13.2% 47.0% 44.5% Total Capex / Basic Sub $48.5 $179.2 $177.1 Debt Free Cash Flow $1,877,148 $105,055 $268,351 FYE 12/31, (Projected) ---------------------------------------------------------------------------------- Year 1999 2000 2001 2002 2003 2004 2005 Period 4 5 6 7 8 9 10 ---------------------------------------------------------------------------------- Capital Expenditure Analysis - ---------------------------- System Cash Flow $3,106,147 $3,312,945 $3,533,047 $3,767,292 $4,016,572 $4,281,836 $4,564,091 % Growth 6.7% 6.7% 6.6% 6.6% 6.6% 6.6% 6.6% Total Capital Expenditures 3,454,802 766,214 777,748 789,407 801,190 813,100 825,138 % of Revenue 54.9% 11.5% 11.0% 10.5% 10.1% 9.6% 9.2% Total Capex / Basic Sub $227.8 $49.7 $49.7 $49.6 $49.6 $49.6 $49.5 Debt Free Cash Flow $(348,655) $2,546,732 $2,755,298 $2,977,885 $3,215,382 $3,468,736 $3,738,953
Aggregate Value Value per 1995 Subscriber Multiple of 1995 SCF FAIR MARKET VALUE $20,164,654 $1,418 8.3
114 W A L L E R C A P I T A L C O R P O R A T I O N FALCON CABLE TV - DALLAS, OREGON DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (Projected) -------- -------------------------------------------------------------------- Year 1995 1996 1997 1998 1999 2000 2001 2002 Period 0 1 2 3 4 5 6 7 - -------------------------------------- -------- -------------------------------------------------------------------- Operations Statistics - -------------------------------------- % Growth -------- Homes Passed: 23,770 24,174 24,585 25,003 25,428 25,860 26,300 26,747 % Growth 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% Basic/Expanded Tier 16,928 17,212 17,505 17,802 18,105 18,413 18,726 19,044 % Penetration 71.2% 71.2% 71.2% 71.2% 71.2% 71.2% 71.2% 71.2% % Growth -- 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% New Product Tier (NPT 1) 7,458 7,635 7,817 8,003 8,194 8,388 8,587 8,790 % Penetration 44.1% 44.4% 44.7% 45.0% 45.3% 45.6% 45.9% 46.2% % Growth -- 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% Pay 7,139 7,310 7,487 7,668 7,853 8,041 8,234 8,431 % Penetration 42.2% 42.5% 42.8% 43.1% 43.4% 43.7% 44.0% 44.3% % Growth -- 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% Mini-Pay 241 241 245 249 253 258 262 267 % Penetration 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% % Growth -- -0.0% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% Basic Revenue& Tier/Sub/Month $21.74 $22.61 $23.52 $24.46 $25.44 $26.45 $27.51 $28.61 % Growth -- 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% NPT 1 Revenue/Sub/Month $3.86 $4.01 $4.17 $4.34 $4.51 $4.69 $4.88 5.08 % Growth -- 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Pay Revenue/Sub/Month $7.60 $7.67 $7.75 $7.83 $7.90 $7.98 $8.06 $8.14 % Growth -- 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Mini-Pay Revenue/Sub/Month $3.08 $3.15 $3.21 $3.27 $3.34 $3.41 $3.47 $3.54 % Growth -- 2.0% $2.0% $2.0% $2.0% $2.0% $2.0% $2.0% $2.0% PPV Rev/Sub/Month $0.22 $0.23 $0.24 $0.25 $0.26 $0.27 $0.28 $0.29 % Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Other Revenue/Sub/Month $2.93 $3.02 $3.11 $3.20 $3.30 $3.40 $3.50 $3.61 % Growth -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 12/31/95 FYE 12/31, (Projected) -------- Year 1995 2003 2004 2005 Period 0 8 9 10 - -------------------------------------- -------- ------------------------ Operations Statistics - -------------------------------------- ------------------------ Homes Passed: 27,202 27,664 28,134 % Growth 1.7% 1.7% 1.7% Basic/Expanded Tier 19,368 19,697 20,032 % Penetration 71.2% 71.2% 71.2% % Growth 1.7% 1.7% 1.7% New Product Tier (NPT 1) 8,998 9,210 9,426 % Penetration 46.5% 46.8% 47.1% % Growth 2.4% 2.4% 2.4% Pay 8,633 8,839 9,049 % Penetration 44.6% 44.9% 45.2% % Growth 2.4% 2.4% 2.4% Mini-Pay 271 276 280 % Penetration 1.4% 1.4% 1.4% % Growth 1.7% 1.7% 1.7% Basic Revenue& Tier/Sub/Month $29.76 $30.95 $32.18 % Growth 4.0% 4.0% 4.0% NPT 1 Revenue/Sub/Month $5.28 $5.49 $5.71 % Growth 4.0% 4.0% 4.0% Pay Revenue/Sub/Month $8.22 $8.31 $8.39 % Growth 1.0% 1.0% 1.0% Mini-Pay Revenue/Sub/Month $3.61 $3.69 $3.76 % Growth 2.0% 2.0% 2.0% PPV Rev/Sub/Month $0.30 $0.31 $0.33 % Growth 4.0% 4.0% 4.0% Other Revenue/Sub/Month $3.71 $3.83 $3.94 % Growth 3.0% 3.0% 3.0%
115 - ------------------------------------------------------------------------------- W A L L E R C A P I T A L C O R P O R A T I O N - ------------------------------------------------------------------------------- FALCON CABLE TV - DALLAS, OREGON DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (PROJECTED) ------------------------------------- Year 1995 1996 1997 1998 Period 0 1 2 3 - ---------------------------------------------------------------------- ---------- ------------------------------------- INCOME STATEMENT SUMMARY - ---------------------------------------------------------------------- REVENUES Basic & Tier $4,416,771 $4,670,493 $4,939,887 $5,224,820 NPT 1 345,351 367,677 391,514 416,879 Pay 650,659 672,942 696,108 720,036 Mini-Pay 8,919 9,096 9,436 9,788 PPV 44,723 47,292 50,020 52,905 Other 595,570 623,727 653,360 684,401 ------- ------- ------- ------- TOTAL REVENUE $6,061,993 $6,391,227 $6,740,325 $7,108,829 % Growth - - 5.4% 5.5% 5.5% EXPENSES: Adjusted Technical $237,985 $250,446 $263,618 $277,483 Production and Local Origination 12,181 12,843 13,544 14,285 Advertising 72,619 76,563 80,745 85,159 Marketing 87,885 92,487 97,351 102,471 General and Administrative 932,115 980,922 1,032,513 1,086,818 Programming 1,067,415 1,126,185 1,188,543 1,254,414 Partnership Expenses 347,352 366,217 386,221 407,336 ------- ------- ------- ------- Total Operating Expenses $2,757,552 $2,905,662 $3,062,536 $3,227,967 % Growth - - 5.4% 5.4% 5.4% * Adjusted for Partnership Expenses U.L.System Cash Flow (EBITDA) $3,304,441 $3,485,565 $3,677,789 $3,880,862 % Margin 54.5% 54.5% 54.6% 54.6% % Growth - - 5.5% 5.5% 5.5% Revenue / Subscriber / Month $29.84 $30.94 $32.09 $33.28 SCF / Subscriber / Year $195.2 $202.5 $210.1 $218.0 12/31/95 FYE 12/31, (PROJECTED) --------------------------------------------- Year 1995 1999 2000 2001 2002 Period 0 4 5 6 7 ---------- --------------------------------------------- - ---------------------------------------------------------------------- INCOME STATEMENT SUMMARY - ---------------------------------------------------------------------- REVENUES Basic & Tier $4,416,771 $5,526,187 $5,844,938 $6,182,074 $6,538,656 NPT 1 345,351 443,867 472,581 503,131 535,633 Pay 650,659 744,751 770,277 796,640 823,868 Mini-Pay 8,919 10,154 10,533 10,926 11,334 PPV 44,723 55,957 59,184 62,598 66,208 Other 595,570 716,917 750,978 786,657 824,031 ------- ------- ------- ------- ------- TOTAL REVENUE 6,061,993 $7,497,832 $7,908,491 $8,342,026 $8,799,730 % Growth - - 5.5% 5.5% 5.5% 5.5% EXPENSES: Adjusted Technical $237,985 $292,078 $307,439 $323,609 $340,629 Production and Local Origination 12,181 15,066 15,891 16,763 17,682 Advertising 72,619 89,819 94,739 99,932 105,415 Marketing 87,885 107,861 113,534 119,505 125,790 General and Administrative 932,115 1,143,979 1,204,147 1,267,479 1,334,142 Programming 1,067,415 1,323,998 1,397,507 1,475,164 1,557,207 Partnership Expenses 347,352 429,626 453,157 477,998 504,225 ------- ------- ------- ------- ------- Total Operating Expenses $2,757,552 $3,402,428 $3,586,414 $3,780,450 $3,985,091 % Growth - - 5.4% 5.4% 5.4% 5.4% * Adjusted for Partnership Expenses U.L.System Cash Flow (EBITDA) $3,304,441 $4,095,405 $4,322,077 $4,561,576 $4,814,639 % Margin 54.5% 54.6% 54.7% 54.7% 54.7% % Growth - - 5.5% 5.5% 5.5% 5.5% Revenue / Subscriber / Month $29.84 $34.51 $35.79 $37.12 $38.51 SCF / Subscriber / Year $195.2 $226.2 $234.7 $243.6 $252.8 12/31/95 FYE 12/31, (PROJECTED) ------------------------------------- Year 1995 2003 2004 2005 Period 0 8 9 10 ---------- ------------------------------------- - ---------------------------------------------------------------------- INCOME STATEMENT SUMMARY - ---------------------------------------------------------------------- REVENUES Basic & Tier $4,416,771 $6,915,806 $7,314,709 $7,736,622 NPT 1 345,351 570,210 606,995 646,125 Pay 650,659 851,987 881,025 911,013 Mini-Pay 8,919 11,758 12,197 12,652 PPV 44,723 70,027 74,067 78,339 Other 595,570 863,181 904,190 947,148 ------- ------- ------- ------- TOTAL REVENUE $6,061,993 $9,282,968 $9,793,182 $10,331,899 % Growth - - 5.5% 5.5% 5.5% EXPENSES: Adjusted Technical $237,985 $358,545 $377,403 $397,252 Production and Local Origination 12,181 18,653 19,678 20,761 Advertising 72,619 111,204 117,316 123,770 Marketing 87,885 132,406 139,370 146,700 General and Administrative 932,115 1,404,311 1,478,171 1,555,916 Programming 1,067,415 1,643,886 1,735,467 1,832,230 Partnership Expenses 347,352 531,914 561,149 592,018 ------- ------- ------- ------- Total Operating Expenses $2,757,552 $4,200,921 $4,428,556 $4,668,647 % Growth - - 5.4% 5.4% 5.4% * Adjusted for Partnership Expenses U.L.SYSTEM CASH FLOW (EBITDA) $3,304,441 $5,082,047 $5,364,627 $5,663,252 % Margin 54.5% 54.7% 54.8% 54.8% % Growth - - 5.6% 5.6% 5.6% Revenue / Subscriber / Month $29.84 $39.94 $41.43 $42.98 SCF / Subscriber / Year $195.2 $262.4 $272.4 $282.7
116 - ------------------------------------------------------------------------------- W A L L E R C A P I T A L C O R P O R A T I O N - ------------------------------------------------------------------------------- FALCON CABLE TV - DALLAS, OREGON DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (PROJECTED) -------------------------------------- Year 1995 1996 1997 1998 Period 0 1 2 3 ------------- -------------------------------------- - ---------------------------------------------------------------------- CAPITAL EXPENDITURE ANALYSIS - ---------------------------------------------------------------------- System Cash Flow $3,304,441 $3,485,565 $3,677,789 $3,880,862 % Growth 5.5% 5.5% 5.5% Total Capital Expenditures 2,893,388 2,908,575 2,924,021 % of Revenue 45.3% 43.2% 41.1% Total Capex/Basic Sub $168.1 $166.2 $164.3 -------------------------------------------------------------------------------------------------------------------------- DEBT FREE CASH FLOW $592,177 $769,214 $956,841 ======== ======== ======== -------------------------------------------------------------------------------------------------------------------------- FYE 12/31, (PROJECTED) ----------------------------------- 1999 2000 2001 4 5 6 ----------------------------------- - ------------------------------------------------------- CAPITAL EXPENDITURE ANALYSIS - ------------------------------------------------------- System Cash Flow $4,095,405 $4,322,077 $4,561,576 % Growth 5.5% 5.5% 5.5% Total Capital Expenditures 939,730 955,705 971,952 % of Revenue 12.5% 12.1% 11.7% Total Capex/Basic Sub $51.9 $51.9 $51.9 ---------------------------------------------------- ---------------------------------------- DEBT FREE CASH FLOW $3,155,675 $3,366,372 $3,589,624 ========== ========== ========== ---------------------------------------------------- ---------------------------------------- FYE 12/31, (PROJECTED) ----------------------------------------------- 2002 2003 2004 2005 7 8 9 10 ----------------------------------------------- - ------------------------------------------------------- CAPITAL EXPENDITURE ANALYSIS - ------------------------------------------------------- System Cash Flow $4,814,639 $5,082,017 $5,364,627 $5,663,252 % Growth 5.5% 5.6% 5.6% 5.6% Total Capital Expenditures 988,475 1,005,279 1,022,369 1,039,749 % of Revenue 11.2% 10.8% 10.4% 10.1% Total Capex/Basic Sub $51.9 $51.9 $51.9 $51.9 -------------------------------------------------------------------------------------------------------------------------------- DEBT FREE CASH FLOW $3,826,164 $4,076,768 $4,342,258 $4,623,503 ========== ========== ========== ========== -------------------------------------------------------------------------------------------------------------------------------
AGGREGATE VALUE VALUE PER 1995 SUBSCRIBER MULTIPLE OF 1995 SCF - --------------------------------------------------------------------------------------------------------------------------------- FAIR MARKET VALUE $27,257,132 $1,610 8.2 - ---------------------------------------------------------------------------------------------------------------------------------
117 WALLER CAPITAL CORPORATION FALCON CABLE TV - COOS BAY, OREGON DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
-------- ------------------------------------ 12/31/95 FYE 12/31, (PROJECTED) -------- ------------------------------------ Year 1995 1996 1997 1998 1999 Period 0 1 2 3 4 - ---------------------------------------------------------------------- ------------------------------------- Operations Statistics % Growth Homes Passed: 31,489 31,804 32,122 32,443 32,768 % Growth 1.0% 1.0% 1.0% 1.0% Basic/Expanded Tier 21,847 22,097 22,350 22,606 22,865 % Penetration 69.4% 69.5% 69.6% 69.7% 69.8% % Growth - - 1.1% 1.1% 1.1% 1.1% New Product Tier (NPT 1) 13,487 13,686 13,865 14,046 14,230 % Penetration 61.7% 61.9% 62.0% 62.1% 62.2% % Growth - - 1.5% 1.3% 1.3% 1.3% Pay 7,771 7,971 8,174 8,380 8,590 % Penetration 35.6% 36.1% 36.6% 37.1% 37.6% % Growth - - 2.6% 2.5% 2.5% 2.5% Mini-Pay 306 309 313 316 320 % Penetration 1.4% 1.4% 1.4% 1.4% 1.4% % Growth - - 1.1% 1.1% 1.1% 1.1% Basic Revenue& Tier/Sub/Month $22.91 $23.77 $24.66 $25.58 $26.54 % Growth - - 3.8% 3.8% 3.8% 3.8% 3.8% NPT 1 Revenue/Sub/Month $3.39 $3.52 $3.67 $3.81 $3.96 % Growth - - 4.0% 4.0% 4.0% 4.0% 4.0% Pay Revenue/Sub/Month $7.38 $7.45 $7.53 $7.60 $7.68 % Growth - - 1.0% 1.0% 1.0% 1.0% 1.0% Mini-Pay Revenue/Sub/Month $3.60 $3.67 $3.74 $3.82 $3.89 % Growth - - 2.0% 2.0% 2.0% 2.0% 2.0% PPV Rev/Sub/Month $0.53 $0.56 $0.58 $0.60 $0.62 % Growth 4.0% 4.0% 4.0% 4.0% 4.0% Other Revenue/Sub/Month $4.72 $4.86 $5.01 $5.16 $5.31 % Growth - - 3.0% 3.0% 3.0% 3.0% 3.0% FYE 12/31, (PROJECTED) --------------------------------------------------------- 2000 2001 2002 2003 2004 2005 5 6 7 8 9 10 - -------------------------------------------------- --------------------------------------------------------- Operations Statistics Homes Passed: % Growth 33,095 33,426 33,760 34,098 34,439 34,783 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Basic/Expanded Tier % Penetration 23,127 23,392 23,659 23,930 24,204 24,481 % Growth 69.9% 70.0% 70.1% 70.2% 70.3% 70.4% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% New Product Tier (NPT 1) % Penetration 14,416 14,604 14,795 14,988 15,184 15,382 % Growth 62.3% 62.4% 62.5% 62.6% 62.7% 62.8% 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% Pay % Penetration 8,712 8,835 8,960 9,086 9,214 9,344 % Growth 37.7% 37.8% 37.9% 38.0% 38.1% 38.2% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% Mini-Pay % Penetration 324 327 331 335 339 343 % Growth 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.1% 1.1% 1.1% 1.1% 1.1% 1.1% Basic Revenue& Tier/Sub/Month % Growth $27.54 $28.57 $29.64 $30.75 $31.91 $33.10 3.8% 3.8% 3.8% 3.8% 3.8% 3.8% NPT 1 Revenue/Sub/Month % Growth $4.12 $4.29 $4.46 $4.64 $4.82 $5.02 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Pay Revenue/Sub/Month % Growth $7.75 $7.83 $7.91 $7.99 $8.07 $8.15 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Mini-Pay Revenue/Sub/Month % Growth $3.97 $4.05 $4.13 $4.21 $4.30 $4.38 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% PPV Rev/Sub/Month % Growth $0.65 $0.68 $0.70 $0.73 $0.76 $0.79 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Other Revenue/Sub/Month % Growth $5.47 $5.64 $5.80 $5.98 $6.16 $6.34 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
118 WALLER CAPITAL CORPORATION FALCON CABLE TV - COOS BAY, OREGON DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
-------- ------------------------------------------------------- 12/31/95 FYE 12/31, (PROJECTED) -------- ------------------------------------------------------- Year 1995 1996 1997 1998 1999 Period 0 1 2 3 4 - --------------------------------------------------------- ------------------------------------------------------- Income Statement Summary Revenues Basic & Tier $6,005,889 $6,302,492 $6,613,729 $6,940,322 $7,283,027 NPT 1 548,476 578,819 609,849 642,541 676,981 Pay 687,957 712,675 738,139 764,367 791,382 Mini-Pay 13,209 13,621 14,053 14,498 14,957 PPV 139,973 147,240 154,883 162,923 171,380 Other 1,237,351 1,289,072 1,342,951 1,399,080 1,457,552 --------- ---------- ---------- ---------- ----------- Total Revenue 8,632,855 $9,043,918 $9,473,604 $9,923,730 $10,395,279 % Growth - - 4.8% 4.8% 4.8% 4.8% Expenses: Adjusted Technical $683,125 $715,134 $748,641 $783,717 $820,434 Production and Local Origination 10,937 11,458 12,002 12,572 13,170 Advertising 110,004 115,242 120,717 126,453 132,462 Marketing 231,570 242,421 253,779 265,669 278,116 General and Administrative 1,274,150 1,333,852 1,396,350 1,461,772 1,530,256 Programming 1,576,577 1,653,081 1,733,080 1,816,946 1,904,867 Partnership Expenses 494,663 518,217 542,838 568,630 595,649 ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $4,381,026 $4,589,404 $4,807,407 $5,035,759 $5,274,954 % Growth - - 4.8% 4.8% 4.8% 4.7% * Adjusted for Partnership Expenses U.L.System Cash Flow (EBITDA) $4,251,829 $4,454,514 $4,666,197 $4,887,971 $5,120,324 % Margin 49.3% 49.3% 49.3% 49.3% 49.3% % Growth - - 4.8% 4.8% 4.8% 4.8% Revenue / Subscriber / Month $32.93 $34.11 $35.32 $36.58 $37.89 SCF / Subscriber / Year $194.6 $201.6 $208.8 $216.2 $223.9 FYE 12/31, (PROJECTED) ---------------------------------------------------------------------------------- 2000 2001 2002 2003 2004 2005 5 6 7 8 9 10 ---------------------------------------------------------------------------------- Income Statement Summary Revenues Basic & Tier $7,642,638 $8,019,990 $8,415,956 $8,831,454 $9,267,447 $9,724,943 NPT 1 713,264 751,488 791,758 834,181 878,873 925,955 Pay 810,598 830,272 850,417 871,042 892,159 913,781 Mini-Pay 15,431 15,920 16,424 16,944 17,481 18,034 PPV 180,275 189,632 199,474 209,827 220,716 232,170 Other 1,518,464 1,581,919 1,648,022 1,716,883 1,788,619 1,863,348 ----------- ----------- ----------- ----------- ----------- ----------- Total Revenue $10,880,671 $11,389,221 $11,922,050 $12,480,331 $13,065,294 $13,678,231 % Growth 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% Expenses: Technical $858,870 $899,105 $941,222 $985,310 $1,031,462 $1,079,773 Production and Local Origination 13,785 14,429 15,104 15,811 16,552 17,329 Advertising 138,647 145,127 151,917 159,030 166,484 174,295 Marketing 291,145 304,784 319,061 334,007 349,651 366,028 General and Administrative 1,601,946 1,676,990 1,755,547 1,837,780 1,923,860 2,013,969 Programming 1,995,171 2,089,854 2,189,131 2,293,229 2,402,384 2,516,844 Partnership Expenses 623,462 652,602 683,133 715,123 748,641 783,763 ---------- ---------- ---------- ---------- ---------- ---------- Total Operating Expenses $5,523,025 $5,782,891 $6,055,116 $6,340,291 $6,639,036 $6,952,000 % Growth 4.7% 4.7% 4.7% 4.7% 4.7% 4.7% * Adjusted for Partnership Expenses U.L.System Cash Flow (EBITDA) $5,357,645 $5,606,330 $5,866,935 $6,140,040 $6,426,259 $6,726,231 % Margin 49.2% 49.2% 49.2% 49.2% 49.2% 49.2% % Growth 4.6% 4.6% 4.6% 4.7% 4.7% 4.7% Revenue / Subscriber / Month $39.21 $40.57 $41.99 $43.46 $44.98 $46.56 SCF / Subscriber / Year $231.7 $239.7 $248.0 $256.6 $265.5 $274.8
119 WALLER CAPITAL CORPORATION FALCON CABLE TV - COOS BAY, OREGON DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
-------- ------------------------------------------------- 12/31/95 FYE 12/31, (PROJECTED) -------- ------------------------------------------------- Year 1995 1996 1997 1998 1999 Period 0 1 2 3 4 - ------------------------------------------------------------ --------------------------------------------------- Capital Expenditure Analysis System Cash Flow $4,251,829 $4,454,514 $4,666,197 $4,887,971 $5,120,324 % Growth 4.8% 4.8% 4.8% 4.8% Total Capital Expenditures 1,184,920 1,648,376 1,661,982 2,725,740 % of Revenue 13.1% 17.4% 16.7% 26.2% Total Capex / Basic Sub $53.6 $73.8 $73.5 $119.2 - -------------------------------------------------------------------------------------------------------------------- Debt Free Cash Flow $3,269,594 $3,017,822 $3,225,990 $2,394,585 - -------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------- FYE 12/31, (PROJECTED) ---------------------------------------------------------------------------- 2000 2001 2002 2003 2004 2005 5 6 7 8 9 10 - ----------------------------------------- ---------------------------------------------------------------------------- Capital Expenditure Analysis System Cash Flow $5,357,645 $5,606,330 $5,866,935 $6,140,040 $6,426,259 $6,726,231 % Growth 4.6% 4.6% 4.6% 4.7% 4.7% 4.7% Total Capital Expenditures 2,739,652 2,753,720 1,267,945 1,282,329 1,296,875 1,311,583 % of Revenue 25.2% 24.2% 10.6% 10.3% 9.9% 9.6% Total Capex / Basic Sub $118.5 $117.7 $53.6 $53.6 $53.6 $53.6 - ----------------------------------------- --------------------------------------------------------------------------- Debt Free Cash Flow $2,617,993 $2,852,611 $4,598,990 $4,857,711 $5,129,384 $5,414,648 - ----------------------------------------- ---------------------------------------------------------------------------
Aggregate Value Value per 1995 Subscriber Multiple of 1995 SCF - ---------------------------------------------------------------------------------------------- FAIR MARKET VALUE $35,486,280 $1,624 8.3 - ----------------------------------------------------------------------------------------------
120 SUMMARY APPRAISAL OF EXCHANGE SYSTEMS 121 - ------------------------------------------------------------------------------ FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------ SUMMARY APPRAISAL OF EXCHANGE SYSTEMS As part of the appraisal (the "Appraisal") process Waller Capital determined that appraised value of certain cable systems (the "Systems") which could be subject to Section 3.14 of the Falcon Cable Systems Company partnership agreement's plan of liquidation. Falcon Holdings Group, L.P. provided the following list of Systems which separated those Systems which would be allocated (the "Allocation") to Marc Nathanson (the "Proposed Exchange Systems") and the remaining cable systems (the "Remaining Systems"). PROPOSED EXCHANGE SYSTEMS REMAINING SYSTEMS Bandon (System) Gilroy (Region) Coquille (System) San Luis Obispo (Region) Myrtle Point (System) Central Oregon (Region) Powers (System) Tulare (Region) Nehalem (System) Coos Bay (System) Netarts (System) Dallas (System) Tillamook (System) Gardiner (System) Brickyard Road (System) Hauser (System) Silverton (System) Reedsport (System) Florence (System) Mapleton (System) Hesperia (Region) Wilson River (System) In the Allocation, if a Region was left intact, the value determined in the Appraisal was incorporated, however, if a Region's systems were split between the Proposed Exchange Systems and the Remaining Systems, the valuation on a per system basis was subject to the methodology described below. METHODOLOGY The appraisal analysis of the Proposed Exchange Systems and the Remaining Systems was consistent with the analysis performed to provide the appraisal of all of Falcon Cable Systems Company. In - -------------------------------------------------------------------------- WALLER CAPITAL CORPORATION 122 - ------------------------------------------------------------------------------ FALCON CABLE SYSTEMS COMPANY - ------------------------------------------------------------------------------ SUMMARY APPRAISAL OF EXCHANGE SYSTEMS addition, certain assumptions were required including but not limited to; (a) the use of a one month annualized billing statement prepared on a per headend basis to allocate regional revenue on a per headend basis; (b) capital expenditures were allocated on a per headend basis versus across a Region as in the Appraisal; (c) capital expenditures were not increased to create headends for those systems that would be separated from a signal origination source due to the allocation; (d) the assumed operating margin was the margin achieved by the Region in which the headend is located as it was determined to be unreasonable to derive a margin on a per headend basis (due to among other things a wide disparity in channel line-ups, rates and operating expenses), and (e) the exit multiple and the weighted average cost of capital remained consistent with the assumptions in the Appraisal's Discounted Cash Flow Analysis made for each applicable Region. EXCHANGE SYSTEM'S VALUE The following table summarizes the values assigned on a per headend basis (or in the case of Hesperia, the entire Region) for those assigned for distribution subject to the Section 3.14 sale, a plan of liquidation: PROPOSED EXCHANGE SYSTEMS
SYSTEM SUBSCRIBERS VALUATION - ------ ----------- ----------- Bandon 1,549 $ 2,015,229 Coquille 1,796 2,279,242 Myrtle Point 774 996,374 Powers 203 216,457 Nehalem 4,608 7,314,278 Netarts 830 948,909 Tillamook 2,478 4,053,336 Brickyard Road 484 502,530 Silverton 1,753 2,734,442 Florence 3,751 7,300,686 Hesperia (Region) 18,513 28,865,947 ----------- ---------- TOTAL 36,739 $57,227,430
- --------------------------------------------------------------------------- WALLER CAPITAL CORPORATION 123 - -------------------------------------------------------------------------------- FALCON CABLE SYSTEMS COMPANY - -------------------------------------------------------------------------------- SUMMARY APPRAISAL OF EXCHANGE SYSTEMS The Remaining Systems and appraised values are as follows:
REMAINING SYSTEMS ----------------- SYSTEM SUBSCRIBERS VALUATION - ------ ----------- ----------- Gilroy (Region) 33,073 $57,640,720 San Louis Obispo (Region) 15,635 21,988,550 Central Oregon (Region) 14,225 20,164,654 Tulare (Region) 15,249 22,269,159 Coos Bay (System) 10,385 17,981,662 Dallas (System) 6,684 11,670,175 Gardiner (System) 102 87,396 Hauser (System) 491 606,994 Reedsport (System) 2,600 3,834,126 Mapleton (System) 196 168,124 Wilson River (System) 91 33,453 ----------- ------------ TOTAL 98,731 $156,445,013
I have included this analysis as an Appendix to our formal appraisal because of the inter-related nature of the information. The analysis and conclusions are subject to the caveats and other limitations discussed herein. - ----------------------------------------------------------------------------- WALLER CAPITAL CORPORATION EX-4 5 ASSET PURCHASE AGREEMENT BETWEEN PART. & FALCON 1 EXHIBIT 4 ASSET PURCHASE AGREEMENT BY AND BETWEEN FALCON CABLE SYSTEMS COMPANY II, L.P. AND FALCON CABLE SYSTEMS COMPANY, A CALIFORNIA LIMITED PARTNERSHIP DATED AS OF JUNE 13, 1996 2 ASSET PURCHASE AGREEMENT ASSET PURCHASE AGREEMENT, dated as of June 13, 1996 (this "Agreement") by and between Falcon Cable Systems Company, L.P., a California limited partnership ("FCSC"), and Falcon Cable Systems Company II, L.P., a California limited partnership ("New Falcon"). WHEREAS, pursuant to the Amended and Restated Agreement of Limited Partnership of FCSC, dated as of December 15, 1986, amended on June 15, 1987 and January 23, 1990 (as so amended, the "Partnership Agreement") (capitalized terms used in this Agreement and not otherwise defined herein shall have the meaning ascribed thereto in the Partnership Agreement), from and after the sixth year after the closing of the sale to the underwriters in the initial public offering of the Units (the "IPO"), the General Partner may cause the sale of all or substantially all of the Cable Systems to the General Partner or to any Affiliate of the General Partner for cash so long as the purchase price (without deduction for any Disposition Fee or other brokerage fees) is equal to or greater than the Appraised Value of the Cable Systems being sold; and WHEREAS, as of the date hereof, it is in excess of six years following the IPO; and WHEREAS, New Falcon is an Affiliate of the General Partner, as the General Partner is Falcon Cable Investors Group, a California limited partnership ("FCIG"), and Falcon Holding Group, L.P., a Delaware limited partnership ("FHGLP") is the general partner of FCIG, and FHGLP is a general partner of New Falcon; and WHEREAS, as determined in accordance with the terms of the Partnership Agreement, the Appraised Value of all of the Cable Systems owned by FCSC is $247,396,814; and WHEREAS, New Falcon desires to purchase all of the Cable Systems of FCSC at their Appraised Value and FCIG desires to cause FCSC to sell all of the Cable Systems to New Falcon at their Appraised Value; NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to 3 be legally bound hereby, the parties hereto hereby agree as follows: ARTICLE I. DEFINITIONS SECTION 1.1. DEFINED TERMS. The following terms, as used in this Agreement, shall have the following meanings (and such meanings shall be equally applicable to both the singular and plural forms of the terms defined herein): "Bill of Sale" shall mean such bills of sale, instruments of conveyance and assignment and assumption as may be necessary to effect the Sale of the Cable Systems. "Cable Systems" shall mean all right, title and interest of FCSC in all assets, rights, privileges, interests, claims and properties, whether tangible or intangible, owned, used or held by FCSC for use in connection with the provision of cable television services. "Cable System Contracts" shall mean all contracts, purchase orders and other agreements of FCSC to the extent relating to the construction, operation or maintenance of the Cable Systems. Cable System Contracts shall not include any Local Authorization or FCC License. "Closing" shall mean the consummation of the Sale. "Communications Act" shall mean the Communications Act of 1934, as amended. "FCC" shall mean the Federal Communications Commission. "FCC Consents" shall mean consents of the FCC to the transfer of the FCC Licenses to New Falcon in connection with the Sale. -2- 4 "FCC Licenses" shall mean the licenses and permits of the FCC held by FCSC in connection with the operation of the Cable Systems. "Franchise Areas" shall mean the areas in which FCSC is authorized to provide cable television service under the Local Authorizations and the areas served by any of the Cable Systems in which FCSC provides cable television service without a Local Authorization. "Governmental Authority" shall mean any federal, state, municipal or local governmental authority or political subdivision thereof. "HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. "Legal Requirement" shall mean the requirements of any law, ordinance, statute, rule, regulation, code, order, judgment, decree, injunction, franchise, determination, approval, permit, license, authorization or other requirement of any Governmental Authority. "Lien" shall mean, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset. "Local Authority" shall mean any Governmental Authority having jurisdiction to grant a cable television franchise with respect to all or a portion of any System. "Local Authority Consent" shall mean any approval, authorization or consent of a Local Authority necessary for a change in control of a Local Authorization or otherwise in connection with the consummation of the Sale. "Local Authorizations" shall mean all authorizations, approvals, franchises, licenses and permits of Local Authorities granted to the Company which permit the operation of the Systems as amended, modified or supplemented. -3- 5 "Material Adverse Effect" shall mean a material adverse effect on the business, financial condition or results of operations of the business of FCSC or any of the Cable Systems. "Permitted Liens" shall mean (i) Liens for Taxes not yet due and payable; (ii) any carrier's, warehousemen's, mechanic's, materialmen's, repairmen's, employees' or other like Lien arising in the ordinary course of business; (iii) easements, rights-of-way, restrictions, encroachments and other similar encumbrances which do not materially interfere with the use of the Cable Systems as presently used; and (iv) rights of first refusal in favor of, and restrictions imposed by, Governmental Authorities. "Person" shall mean and include an individual, a corporation, a partnership (general, limited or limited liability), a joint venture, a limited liability company, an association, a trust or any other organization or entity, including a Governmental Authority. "Purchase Price" shall mean $247,396,814. "Right of First Refusal" shall mean any right of first refusal of a Local Authority in regard to or arising as a result of the Sale. "Taxes" shall mean all taxes, fees, duties, imposts, levies, withholdings, tax deficiencies, assessments, and charges, including, without limitation, all net income, gross income, gross receipts, sales, use, value-added, ad valorem, transfer, franchise, profits, license, withholding, payroll, employment, excise, estimated, severance, stamp, occupation, property or other taxes and customs duties of any kind whatsoever, together with any interest and any penalties, additions to tax or additional amounts relating thereto, imposed by any Governmental Authority (domestic or foreign). "Unapproved FCC Assets" shall mean all equipment relating -4- 6 to Unapproved FCC Licenses. "Unapproved FCC License" shall mean an FCC License as to which all FCC Consents have not been obtained or do not remain in full force and effect immediately prior to the Closing Date. "Unapproved Franchise Areas" shall mean Franchise Areas covered by Unapproved Local Authorizations. "Unapproved Franchise Assets" shall mean, with respect to all Unapproved Franchise Areas, all Unapproved Local Authorizations and all related real property and equipment. "Unapproved Local Authorizations" shall mean a Local Authorization (other than Right of First Refusal Local Authorizations) as to which all Local Authority Consents have not been obtained or do not remain in full force and effect immediately prior to the Closing Date. ARTICLE II. PURCHASE AND SALE SECTION 2.1. PURCHASE AND SALE. (a) Subject to the satisfaction or waiver in writing of the conditions set forth herein and to the other terms, conditions and provisions hereof, on a date as soon as practicable following the satisfaction or waiver of the conditions set forth herein (the "Closing Date"), FCSC shall execute and deliver to New Falcon the Bill of Sale pursuant to which FCSC shall sell, convey, assign, transfer and deliver to New Falcon, and New Falcon shall purchase, acquire, accept and pay for, all of FCSC's right, title and interest in all Cable Systems owned by FCSC, including, subject to Section 2.2, FCSC's rights under the Cable System Contracts and New Falcon shall execute and deliver the Bill of Sale and thereby assume and agree to perform in accordance with their terms the Cable System Contracts, FCC Licenses and Local Authorizations (the "Sale"). -5- 7 SECTION 2.2. LACK OF CONSENTS. If the Sale requires the consent of another Person under any Cable System Contract and such consent has not been obtained prior to the Closing Date or does not remain in full force and effect at the Closing Date, such failure to obtain such consent or failure of such consent to be in full force and effect shall not itself constitute a breach of any provision hereof. FCSC shall, with respect to each such Cable System Contract, use its reasonable commercial efforts (at the expense of New Falcon and at no out-of-pocket expense to FCSC, but without New Falcon being required to provide any consideration therefor) to: (i) keep each such Cable System Contract in effect and obtain such consent; (ii) provide to New Falcon the benefits of each such Cable System Contract through subcontract or otherwise; (iii) cooperate in any reasonable arrangement designed to provide such benefits to New Falcon; and (iv) enforce, at the request and sole expense of New Falcon, any rights of New Falcon included in the Cable Systems under or with respect to any such Cable System Contract against all other Persons (including termination of the foregoing in accordance with the terms thereof upon the election of New Falcon), in each case of clauses (i)-(iv) to the extent that New Falcon performs all obligations of FCSC under such Cable System Contract. If all such consents under any such Cable System Contract are obtained after the Closing Date, FCSC shall promptly assign such Cable System Contract to New Falcon and New Falcon shall assume all obligations under such Cable System Contract with respect to periods following such assignment, in each case without the payment of additional consideration by New Falcon or FCSC. SECTION 2.3. LACK OF REGULATORY APPROVALS. (a) If immediately prior to the Closing Date any Local Authority Consent or FCC Consent has not been obtained or does not remain in full force and effect immediately prior to the Closing Date, such failure to obtain such Local Authority Consent or FCC Consent or such failure of such Local Authority Consents or FCC Consent to be in full force and effect shall not itself constitute a breach of any provision hereof. (b) If at any time following the Closing Date, FCSC -6- 8 is able to transfer to New Falcon (or a designee of New Falcon) an Unapproved Local Authorization or an Unapproved FCC License, FCSC shall promptly transfer to New Falcon (or such designee of New Falcon) such Unapproved Local Authorization and all related Unapproved Franchise Assets and such Unapproved FCC License and all related Unapproved FCC Assets, as the case may be. New Falcon (or such designee of New Falcon), as the case may be, shall assume, pay, perform and discharge the obligations arising after the Closing Date under or in respect of any such Unapproved Local Authorization or Unapproved FCC License so transferred. SECTION 2.4. RECEIPT OF CONSENTS. It is the intent of the parties that the arrangements described in Sections 2.2 and 2.3 continue for the shortest possible time, and to this end they agree to use reasonable commercial efforts to obtain all consents (including Local Authority Consents) to the Sale referred to in said Sections as promptly as practicable following the Closing Date. New Falcon shall coordinate the efforts to obtain such consents, and New Falcon shall be responsible for all costs, expenses, liabilities, obligations and burdens with respect to such consents. SECTION 2.5. NO ASSUMPTION OF LIABILITIES. FCSC shall retain, shall continue to be responsible after the Closing for, shall pay, perform and discharge, and shall indemnify and hold New Falcon and each of its Affiliates harmless from and against all liabilities and obligations (whether incurred, accrued, arising or known prior to, at or after the Closing, whether or not known, suspected, asserted or claimed at the Closing or at any time theretofore or thereafter, whether or not reflected or provided for, or required to be reflected or provided for, in any balance sheet of FCSC and whether fixed, liquidated, unliquidated, absolute, contingent or otherwise) which relate to or arise out of the business, assets or operations of FCSC as heretofore, currently or hereafter conducted through the Closing Date, any of the Cable Systems or the past operation, condition or use of any of the Cable System, including those related to: (i) product liability, (ii) general tort liability, (iii) any other activity undertaken by FCSC or relating to the Cable Systems, any (iv) any obligation or li- -7- 9 ability of FCSC to any of its partners or in respect of any management fee or sales fee; other, however, than obligations under the Cable System Contracts, FCC Licenses and Local Authorizations specifically assumed by New Falcon. ARTICLE III. REPRESENTATIONS AND WARRANTIES OF FCSC FCSC represents and warrants to New Falcon that: SECTION 3.1. EXISTENCE AND POWER. FCSC (i) is a limited partnership duly organized, validly existing and in good standing under the laws of the State of California, (ii) is authorized to transact business and is in good standing in each state in which its ownership of assets or conduct of business requires such qualification, and (iii) has all partnership powers required to carry on its business as conducted on the date hereof, with such exceptions to clauses (i), (ii) and (iii) as would not have a Material Adverse Effect or materially and adversely affect the ability of New Falcon to consummate the Sale. SECTION 3.2. AUTHORIZATION. FCSC has the partnership power to own and operate the Cable Systems. FCSC has the partnership power to enter into this Agreement and to consummate the Sale. The execution and delivery by FCSC of this Agreement and the consummation by FCSC of the Sale has been duly authorized by all necessary partnership action. SECTION 3.3. GOVERNMENTAL AUTHORIZATION. The execution and delivery of this Agreement by FCSC, and the performance by FCSC of this Agreement, and the consummation by FCSC of the Sale, require no material action by or in respect of, or material filing with, any Governmental Authority other than compliance with any applicable requirements of the HSR Act, and the Local Authorizations. SECTION 3.4. CONSENTS. Except as set out in Schedule -8- 10 3.4, no material consent by any Person under any Cable System Contract is required or necessary for the execution and delivery of this Agreement by FCSC, or the performance by FCSC of this Agreement, or the consummation of the Sale contemplated to be consummated by it pursuant hereto, except as would not have a Material Adverse Effect. SECTION 3.5. NON-CONTRAVENTION. (a) The execution, delivery and performance of this Agreement by FCSC, and the consummation by FCSC of the Sale, do not or on or before the Closing Date will not, (x) contravene the Partnership Agreement or (y) subject to obtaining the consents described in Schedules 3.3 and subject to obtaining, taking or making the actions and filings described in Section 3.4, result in the imposition of any Lien upon any assets of FCSC pursuant to, or constitute a breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under or give rise to a right of termination, cancellation, first refusal or acceleration under any applicable Legal Requirement or any judgment, injunction, order, decree, contract, license, lease, indenture, mortgage, loan agreement, note or other agreement or instrument as to which FCSC is a party or by which any of its properties may be bound, the effect of which would be to materially impair the ability of FCSC to perform its obligations under this Agreement. (b) FCSC is not in breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under any Cable System Contract or contract by which any of its assets may be bound, the effect of which would be to impair the ability of FCSC in any material respect to operate any Cable System as presently operated. SECTION 3.6. BINDING EFFECT. This Agreement has been duly executed and delivered by FCSC, and when executed by the parties hereto, this Agreement constitutes a valid and binding obligation of FCSC, enforceable against FCSC in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar -9- 11 laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies. SECTION 3.7. SYSTEMS; AUTHORIZATIONS; LICENSES. (a) Schedule 3.7 sets forth a complete list for each of the Cable Systems of the Local Authorizations and FCC Licenses (other than any such authorization, approval, certification, franchise, license or permit which is not material to the ownership or operation of a System) in effect as of the date hereof and indicates those Local Authorizations and FCC Licenses requiring the consent of the Local Authority or the FCC, respectively, for consummation of the Sale. (b) Each Local Authorization (x) is in all material respects validly held by FCSC in accordance with and as required by the terms thereof and according to all material applicable Legal Requirements and (y) is in all material respects in full force and effect and has not been revoked or canceled and FCSC is in material compliance therewith. To the knowledge of FCSC and except as set forth on Schedule 3.7, no proceeding to revoke, cancel or modify in any manner any such Local Authorization has been initiated or threatened in writing. (c) Each FCC Licenses (x) is in all material respects validly held by FCSC in accordance with and as required by the terms thereof and according to all material applicable Legal Requirements and (y) is in all material respects in full force and effect and has not been revoked or canceled and FCSC is in material compliance therewith. To the knowledge of FCSC and except as set forth on Schedule 3.7, no proceeding to revoke, cancel or modify in any manner any such FCC License has been initiated or threatened in writing. SECTION 3.8. ASSETS. FCSC has good and marketable title to, or a valid leasehold or license interest in, all assets purported to be owned, leased or licensed by FCSC which constitute the Cable Systems, free and clear of all Liens other than Permitted Liens and other than any Liens which shall be fully satisfied, discharged and released effective as of the Closing. The Bill of Sale is sufficient to transfer to FCSC -10- 12 good and, subject to Permitted Liens, marketable title to the Cable Systems. SECTION 3.9. INTELLECTUAL PROPERTY. To the knowledge of FCSC, the conduct of its business does not infringe upon the patents, trademarks, trade names or other intellectual property rights of any Person, with such exceptions as would not result in a Material Adverse Effect. SECTION 3.10. CABLE SYSTEM CONTRACTS. (a) Schedule 3.10 lists all Cable System Contracts in effect on the date hereof. (b) Except as disclosed in Schedule 3.10, FCSC is not in material default or breach of any Cable System Contract and, to the knowledge of FCSC, (i) there exists no state of facts which after notice or lapse of time or both would constitute such a material default or breach and (ii) no other party to such Cable System Contract is in default or breach thereunder. (c) Except as set forth on Schedule 3.10, the real property and personal property which are the subject of leases that constitute Cable System Contracts are currently used in the construction, operation or maintenance of the FCSC business. SECTION 3.11. LITIGATION. Except as set out in Schedule 3.11, there are no actions, suits or proceedings pending and, to the knowledge of FCSC, there are no claims, grievances, governmental investigations, actions, suits or proceedings threatened, against or affecting FCSC with respect to its business at law or in equity or before or by any Governmental Authority, or before or by an arbitrator or arbitration board which would have a Material Adverse Effect or materially delay the Closing. Except as set out in Schedule 3.11, there are no judgments, decrees or orders outstanding against FCSC with respect to its business or any of the Cable Systems or the Sale. SECTION 3.12. COMPLIANCE WITH LEGAL REQUIREMENTS. Except as set forth on Schedule 3.12, (i) FCSC is in compliance with all applicable Legal Requirements and (ii) FCSC's business -11- 13 is being conducted in compliance with all applicable Legal Requirements, with such exceptions to clauses (i) and (ii) as would not have a Material Adverse Effect or materially delay the Closing. SECTION 3.13. REPORTS AND FINANCIAL STATEMENTS. FCSC has filed all reports (including without limitation proxy statements) required to be filed with the Securities Exchange Commission ("SEC") since January 1, 1993 (collectively, the "FCSC SEC Reports"), and has previously furnished or made available to New Falcon true and complete copies of all the FCSC SEC Reports. None of the FCSC SEC Reports, as of their respective dates (as amended through the date hereof), contained any untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. Each of the balance sheets (including the related notes) included in the FCSC SEC Reports presents fairly, in all material respects, the consolidated financial position of FCSC as of the respective dates thereof, and the other related statements (including the related notes) included therein present fairly, in all material respects, the results of operations and the changes in financial position of FCSC for the respective periods or as of the respective dates set forth therein, all in conformity with generally accepted accounting principles consistently applied during the periods involved, except as otherwise noted therein and subject, in the case of the unaudited interim financial statements, to normal year-end adjustments and any other adjustments described therein. All of the FCSC SEC Reports, as of their respective dates (as amended through the date hereof), complied in all material respects with the requirements of the Securities Exchange Act of 1934 and the applicable rules and regulations thereunder. SECTION 3.14. FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of FCSC who might be entitled to any fee or commission from FCSC in connection with the execution, delivery or performance of this Agreement or -12- 14 the Sale, other than the General Partner as provided for in the Partnership Agreement. ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF NEW FALCON New Falcon represents and warrants to FCSC that: SECTION 4.1. EXISTENCE AND POWER. New Falcon is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Delaware and has conducted no operations other than in connection with the Sale. SECTION 4.2. AUTHORIZATION. New Falcon has the partnership power to enter into this Agreement and to consummate the Sale. The execution and delivery by New Falcon of this Agreement and the consummation by New Falcon of the Sale has been duly authorized by all necessary partnership action. SECTION 4.3. GOVERNMENTAL AUTHORIZATION. The execution and delivery of this Agreement by New Falcon, and the performance by New Falcon of this Agreement, and the consummation by New Falcon of the Sale, require no material action by or in respect of, or material filing with, any Governmental Authority other than compliance with any applicable requirements of the HSR Act, and the Local Authorizations. SECTION 4.4. NON-CONTRAVENTION. The execution, delivery and performance of this Agreement by New Falcon, and the consummation by New Falcon of the Sale, do not or on or before the Closing Date will not, (a) contravene the partnership agreement of New Falcon or (b) subject to obtaining the consents described in Schedules 4.4 constitute a breach or default (including any event that, with the passage of time or giving of notice, or both, would become a breach or default) under or give rise to a right of termination, cancellation, first refusal or acceleration under any applicable Legal Requirement or any judgment, injunction, order, decree, contract, license, lease, -13- 15 indenture, mortgage, loan agreement, note or other agreement or instrument as to which New Falcon is a party or by which any of its properties may be bound, the effect of which would be to materially impair the ability of New Falcon to perform its obligations under this Agreement. SECTION 4.5. BINDING EFFECT. This Agreement has been duly executed and delivered by New Falcon, and when executed by the parties hereto, this Agreement constitutes a valid and binding obligation of New Falcon, enforceable against New Falcon in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors' rights generally or by the principles governing the availability of equitable remedies. SECTION 4.6. LITIGATION. Except as set out in Schedule 4.6, there are no actions, suits or proceedings pending and, to the knowledge of New Falcon, there are no claims, grievances, governmental investigations, actions, suits or proceedings threatened, against or affecting New Falcon at law or in equity or before or by any Governmental Authority, or before or by an arbitrator or arbitration board which would materially delay the Closing. Except as set out in Schedule 4.6, there are no judgments, decrees or orders outstanding against New Falcon with respect to the Sale. SECTION 4.7. COMPLIANCE WITH LEGAL REQUIREMENTS. New Falcon is in compliance with all applicable Legal Requirements, except as would not materially delay the Closing. SECTION 4.8. QUALIFICATION OF NEW FALCON. New Falcon is and pending Closing will be legally, technically, financially and otherwise qualified under the Communications Act to acquire and operate the Cable Systems. To the knowledge of New Falcon, there are no facts or proceedings which would reasonably be expected to disqualify New Falcon under the Communications Act from acquiring or operating the Cable Systems or would cause the FCC to not approve the transfer of control of the FCC Licenses to New Falcon. New Falcon has no knowledge of any fact or -14- 16 circumstance relating to New Falcon or its Affiliates that would reasonably be expected to (i) cause the filing of any material objection to the FCC application for transfer of control of the FCC Licenses as provided for in this Agreement, or (ii) cause the FCC to deny the FCC application for transfer of control of the FCC Licenses as provided for in this Agreement, or (iii) lead to a delay in the processing of the FCC application for transfer of control of the FCC Licenses as provided for in this Agreement. No waiver of any FCC rule or policy is necessary to be obtained by New Falcon and/or its Affiliates for the grant of the FCC Consents as provided for in this Agreement, nor will processing pursuant to any exception to a rule of general applicability be requested or required in connection with the consummation by New Falcon of the transactions contemplated hereby. SECTION 4.9. FINDERS' FEES. There is no investment banker, broker, finder or other intermediary which has been retained by or is authorized to act on behalf of New Falcon who might be entitled to any fee or commission from New Falcon in connection with the execution, delivery or performance of this Agreement or the Sale, other than the General Partner as provided for in the Partnership Agreement. ARTICLE V. CONDITIONS SECTION 5.1. MUTUAL CONDITIONS. The obligations of FCSC and New Falcon to take the actions required to be taken by them pursuant to Article II shall be subject to the satisfaction of each of the following conditions, each of which may be waived by FCSC or New Falcon: (a) Any applicable waiting period (and any extension thereof) under the HSR Act shall have expired or been terminated without the commencement or threat of any litigation by a Governmental Authority of competent jurisdiction to restrain the consummation of the Sale contemplated by this Agreement in any -15- 17 material respect. (b) No order, stay, judgment or decree shall have been issued by any court and be in effect restraining or prohibiting the consummation of the Sale in any material respect. (c) All consents required to be obtained in connection with the Sale shall have been obtained and remain in full force and effect. SECTION 5.2 ACCURACY OF REPRESENTATIONS AND WARRANTIES. (a) The obligations of FCSC to take the actions required to be taken by it pursuant to Article II shall be subject to the satisfaction of the following condition, which may be waived by FCSC: the representations and warranties of New Falcon set forth in Article IV shall be true and correct as of the date of this Agreement and as of the Closing except as would not have a material adverse affect on the ability of New Falcon to consummate the transactions contemplated hereby. (b) The obligations of New Falcon to take the actions required to be taken by it pursuant to Article II shall be subject to the satisfaction of the following condition, which may be waived by New Falcon: the representations and warranties of FCSC set forth in Article III shall be true and correct as of the date of this Agreement and as of the Closing except as would not have a material adverse affect on (i) the ability of New Falcon to consummate the transactions contemplated hereby or (ii) the business, operations, financial condition or results of operation of FCSC. SECTION 5.3. ADDITIONAL CONDITION TO THE OBLIGATIONS OF NEW FALCON. The obligations of New Falcon to take the action required to be taken by it pursuant to Article II shall be subject to the receipt by New Falcon of financing in an amount necessary to satisfy New Falcon's obligations under Article II. ARTICLE VI. COVENANTS SECTION 6.1. PRESERVATION OF BUSINESS. Except as contemplated by this Agreement, FCSC will use its best efforts to preserve its business organization intact, to keep available to New Falcon the services of its present employees, and to preserve for New Falcon the goodwill of the suppliers, customers and others having business relations with FCSC. SECTION 6.2. CONSUMMATION OF THE SALE. Each of the parties hereto agrees that it shall, prior to, on and after the Closing, take or cause to be taken and cause their respective affiliates to take or cause to be taken such actions, and execute, deliver and file or cause to be executed, delivered and filed, such certificates, documents and instruments, and obtain such consents, as may be necessary or reasonably requested in connection with the consummation of the Sale contemplated by this Agreement or in order to fully effectuate the purposes, terms and conditions of this Agreement. -16- 18 ARTICLE VII. MISCELLANEOUS SECTION 7.1. TERMINATION. This Agreement may be terminated at any time prior to the Closing by either FCSC or New Falcon if the Sale shall not have been consummated on or before December 31, 1996, unless the failure to consummate the Sale is the result of a willful and material breach of this Agreement by the party seeking to terminate this Agreement. SECTION 7.2. EXPENSES. Except as expressly set forth herein, the fees and expenses (including the fees of any lawyers, accountants, investment bankers or others engaged by such party) in connection with this Agreement and the transactions contemplated hereby whether or not the Sale is consummated will be paid by New Falcon. SECTION 7.3. HEADINGS. The section headings herein are for convenience of reference only, do not constitute part of this Agreement and will not be deemed to limit or otherwise affect any of the provisions hereof. References to Sections, Schedules and Exhibits, unless otherwise indicated, are references to Sections, Schedules and Exhibits hereof. SECTION 7.4. ASSIGNMENT. This Agreement and all provisions hereof will be binding upon and inure to the benefit of the parties hereto and their respective successors, however, neither this Agreement nor any right, interest, or obligation hereunder may be assigned by FCSC (other than by operation of law) without the prior written consent of New Falcon, and any such assignment or purported assignment without such consent shall be void. SECTION 7.5. ENTIRE AGREEMENT. This Agreement embody the entire agreement and understanding of the parties with respect to the transactions contemplated hereby and supersede all prior written or oral commitments, arrangements or understandings with respect thereto. -17- 19 SECTION 7.6. AMENDMENT; WAIVER. (a) This Agreement may only be amended or modified in writing signed by the party against whom enforcement of any such amendment or modification is sought. (b) Any party hereto may, by an instrument in writing, waive compliance with any term or provision of this Agreement on the part of such other party hereto. The waiver by any party hereto of a breach of any term or provision of this Agreement will not be construed as a waiver of any subsequent breach. SECTION 7.7. COUNTERPARTS. This Agreement may be executed in two or more counterparts, all of which will be considered one and the same agreement and each of which will be deemed an original. All signatures need not be on one counterpart. SECTION 7.8. GOVERNING LAW. THIS AGREEMENT WILL BE GOVERNED BY THE LAWS OF THE STATE OF CALIFORNIA (REGARDLESS OF THE LAWS THAT MIGHT BE APPLICABLE UNDER PRINCIPLES OF CONFLICTS OF LAW) AS TO ALL MATTERS, INCLUDING BUT NOT LIMITED TO MATTERS OF VALIDITY, CONSTRUCTION, EFFECT AND PERFORMANCE. SECTION 7.9. SEVERABILITY. If any one or more of the provisions of this Agreement is held to be invalid, illegal or unenforceable, the validity, legality or enforceability of the remaining provisions of this Agreement will not be affected thereby, and New Falcon and FCSC will use their reasonable efforts to substitute one or more valid, legal and enforceable provisions which insofar as practicable implement the purposes and intent hereof. To the extent permitted by applicable law, each party waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect. SECTION 7.10. THIRD PERSON BENEFICIARIES. This Agreement is not intended and shall not be construed to confer upon any Person (other than FCSC and New Falcon) any rights or remedies whatever. -18- 20 SECTION 7.11. SPECIFIC PERFORMANCE. New Falcon and FCSC recognize that any breach of any covenant or agreement contained in this Agreement may give rise to irreparable harm for which money damages would not be an adequate remedy, and accordingly agree that, in addition to other remedies, any non-breaching party will be entitled to enforce the agreements and covenants contained herein of New Falcon and FCSC, as the case may be, by a decree of specific performance without the necessity of proving the inadequacy as a remedy of money damages. -19- 21 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. FALCON CABLE SYSTEMS COMPANY, L.P. By: Falcon Cable Investors Group Managing General Partner By: Falcon Holding Group, L.P. General Partner By: Falcon Holding Group, Inc. General Partner By: /s/ Michael K. Menerey --------------------------------- Michael K. Menerey, Secretary and Chief Financial Officer FALCON CABLE SYSTEMS COMPANY II, L.P. By: Falcon Cable Investors Group Managing General Partner By: Falcon Holding Group, L.P. General Partner By: /s/ Michael K. Menerey --------------------------------- Michael K. Menerey, Secretary and Chief Financial Officer -20- EX-5 6 ANSWER IN CASE OF O'SHEA VS. WALLER CAP. CORP. 1 EXHIBIT 5 IRELL & MANELLA LLP David Siegel (State Bar No. 101355) Daniel P. Lefler (State Bar No. 151253) Craig Varnen (State Bar No. 170263) [STAMP] 1800 Avenue of the Stars, Suite 900 Los Angeles, California 90067-4276 (310) 277-1010 WACHTELL, LIPTON, ROSEN & KATZ Paul K. Rowe 51 West 52nd Street New York, New York 10019 (212) 403-1000 Attorneys for Defendants Marc Nathanson, Falcon Cable Systems Company, Falcon Cable Investors Group and Falcon Holding Group, Inc. SUPERIOR COURT OF THE STATE OF CALIFORNIA FOR THE COUNTY OF LOS ANGELES FRANK O'SHEA, IRA, on behalf of himself and) CASE NO. BC147386 all others similarly situated, ) ) CLASS ACTION Plaintiffs, ) ) ANSWER TO UNVERIFIED COMPLAINT vs. ) ) Hearing: None WALLER CAPITAL CORP., MARK NATHANSON, ) Department: 59 FALCON CABLE SYSTEMS COMPANY, FALCON ) Trial date: None CABLE INVESTORS GROUP and FALCON ) HOLDING GROUP, INC., ) ) Defendants. ) ___________________________________________) Pursuant to Section 431.30(d) of the California Code of Civil Procedure, defendants Marc Nathanson, Falcon Cable Systems Company, Falcon Cable Investors Group and Falcon Holding Group, Inc. (collectively, the "Falcon Defendants"), answer the unverified complaint (the "Complaint") of plaintiff Frank O'Shea, IRA, on behalf of himself and all others similarly situated (the 2 "Plaintiff"), by making a general denial of each and every material allegation of the Complaint and of each and every cause of action contained therein, and by denying that Plaintiff is entitled to the injunctive, declaratory and monetary relief sought therein. AFFIRMATIVE DEFENSES TO COMPLAINT Without admitting any of the allegations set forth in the Complaint, the Falcon Defendants allege as follows: FIRST AFFIRMATIVE DEFENSE (Failure to State a Cause of Action) 1. The allegations set forth in the Complaint do not state facts sufficient to constitute a cause of action against the Falcon Defendants. SECOND AFFIRMATIVE DEFENSE (Adequacy of Monetary Damages) 2. Any harm suffered by Plaintiff, if any, is adequately remedied through the imposition of monetary damages, and thus injunctive relief is improper. THIRD AFFIRMATIVE DEFENSE (Absence of Harm Caused by the Falcon Defendants) 3. Plaintiff did not suffer any harm as a result of any acts or omissions of the Falcon Defendants as alleged in the Complaint, and any harm alleged therein is attributable to unrelated or independent causes other than any alleged acts or omissions of the Falcon Defendants. -2- 3 FOURTH AFFIRMATIVE DEFENSE (Full Performance) 4. The parties' respective rights and obligations are set forth in the Amended and Restated Agreement of Limited Partnership of Falcon Cable Systems Company (the "Agreement"). The Falcon Defendants have fully complied with and fully performed each and every applicable provision and obligation of the Agreement. FIFTH AFFIRMATIVE DEFENSE (Lack of Reliance) 5. The Plaintiff did not rely upon any representations or reasonably rely on any representations of the Falcon Defendants. SIXTH AFFIRMATIVE DEFENSE (Public Policy) 6. Failure to enforce the express provisions of the Agreement would be contrary to public policy and the Plaintiff is consequently barred from obtaining the relief requested in the Complaint. SEVENTH AFFIRMATIVE DEFENSE (Statute of Frauds) 7. To the extent that Plaintiff's claims, or any of them, are in whole or in part based upon any alleged oral agreements or understandings not contained in the Agreement, the same are barred by the Statute of Frauds, California Civil Code Section 1624. EIGHTH AFFIRMATIVE DEFENSE (Failure to Mitigate Damages) 8. The Plaintiff has failed to mitigate damages, if any, and is therefore barred from recovery of any such damages. -3- 4 NINTH AFFIRMATIVE DEFENSE (Accord and Satisfaction and/or Novation) 9. Any duty of performance or further performance by the Falcon Defendants was excused by an accord and satisfaction or novation effective between the Falcon Defendants and Plaintiff. TENTH AFFIRMATIVE DEFENSE (Modification, Termination and/or Rescission) 10. Any duty of performance or further performance owed by the Falcon Defendants was excused by an agreement between the parties modifying, amending, terminating, abrogating, rescinding, or abandoning the Agreement. ELEVENTH AFFIRMATIVE DEFENSE (Unclean Hands) 11. Plaintiff is guilty of having unclean hands herein and should be barred from any recovery against the Falcon Defendants. TWELFTH AFFIRMATIVE DEFENSE (Justification and Privilege) 12. The Falcon Defendants' conduct with respect to Plaintiff was justified, privileged, fair, and effected in good faith, without malice, spite or conscious, reckless or negligent disregard of any purported rights of Plaintiffs, or with improper purpose or ill-will of any kind and without the employment of any improper, wrongful or illegal methods. Consistent with the foregoing, the Falcon Defendants did not directly or indirectly perform or fail to perform any act that constitutes a violation of any purported rights of Plaintiff or a violation of any duties or obligations purportedly owed to Plaintiff. At all times the -4- 5 Falcon Defendants acted in good faith and in justifiable reliance on independent advisors. The Falcon Defendants expressly adopt, accept and join in each and every affirmative defense proffered by codefendant Waller Capital Corporation in its response to the Complaint. Moreover, the Falcon Defendants reserve the right to allege additional affirmative defenses as they become known through the course of discovery. WHEREFORE, the Falcon Defendants pray for judgment as follows: 1. For a judgment and order that the Falcon Defendants are not liable to Plaintiff on any cause of action alleged in the Complaint and that Plaintiff is not entitled to any relief by virtue of any of the causes of action alleged therein; 2. For attorneys' fees and costs incurred herein; and 3. For such other and further relief as the Court may deem just and proper. Dated: May 31, 1996 IRELL & MANELLA LLP David Siegel Daniel P. Lefler Craig Varnen WACHTELL, LIPTON, ROSEN & KATZ Paul K. Rowe By: /s/ CRAIG VARNEN ------------------------------------ Craig Varnen Attorneys for Defendants Marc Nathanson, Falcon Cable Systems Company, Falcon Cable Investors Group and Falcon Holding Group, Inc. -5- 6 PROOF OF SERVICE I am employed in the County of Los Angeles, State of California. I am over the age of 18 and not a party to the within action. My business address is 1800 Avenue of the Stars, Suite 900, Los Angeles, California 90067. On May 31, 1996, I served the foregoing document described as ANSWER TO UNVERIFIED COMPLAINT on all interested parties in this action as stated on the attached service list. (BY MAIL) I placed true copies of the foregoing document in sealed envelopes addressed as stated on the attached service list. I placed each such envelope, with postage thereon fully prepaid, for collection and mailing at Irell & Manella LLP, Los Angeles, California. I am readily familiar with Irell & Manella LLP's practice for collection and processing of correspondence for mailing with the United States Postal Service. Under that practice, the correspondence would be deposited in the United States Postal Service on that same day in the ordinary course of business. Executed on May 31, 1996, at Los Angeles, California. I declare under penalty of perjury under the laws of the State of California that the foregoing is true and correct. V. E. HOLB /s/ V. E. HOLB - ---------------------------------- ------------------------------------- Name Signature -6- 7 SERVICE LIST Alan Schulman, Esq. Steven W. Pepich, Esq. Milberg Weiss Bershad Hynes & Lerach LLP 600 West Broadway, Suite 1800 San Diego, CA 92101 Stephen Lowey, Esq. Thomas Skelton, Esq. Lowey Dannenberg Bemporad & Selinger, P.C. 747 Third Avenue New York, NY 10017 John Wilson Spiegel, Esq. Munger Tolles & Olson 355 South Grand Avenue, 35th Floor Los Angeles, CA 90071-1560 Charles Bachman, Esq. O'Sullivan Graev & Karabell 30 Rockefeller Plaza, 41st Floor New York, NY 10112 -7- -----END PRIVACY-ENHANCED MESSAGE-----