-----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, Ot/TB5RIjxaFWIla9uL/w0AllzWMbUU1dNbGkWEuB5pVWB+jd7/2O/unSVg808NO aYE7AXfw2PSWD01Tr8ez5Q== 0000950148-97-000642.txt : 19970327 0000950148-97-000642.hdr.sgml : 19970327 ACCESSION NUMBER: 0000950148-97-000642 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970326 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FALCON CLASSIC CABLE INCOME PROPERTIES LP CENTRAL INDEX KEY: 0000846811 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 954200409 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-18266 FILM NUMBER: 97563056 BUSINESS ADDRESS: STREET 1: 10990 WILSHIRE BLVD 15TH FL CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3108249990 10-K405 1 FORM 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______ to ______ Commission File Number: 0-18266 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. (Exact name of Registrant as specified in its charter) CALIFORNIA 95-4200409 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 10900 WILSHIRE BOULEVARD - 15TH FLOOR LOS ANGELES, CALIFORNIA 90024 - --------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (310) 824-9990 -------------- Securities registered pursuant to Section 12 (b) of the Act: NONE Securities registered pursuant to Section 12 (g) of the Act: Name of each exchange Title of each Class on which registered ------------------- ------------------- UNITS OF LIMITED PARTNERSHIP INTEREST NONE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] State the aggregate market value of the voting equity securities held by non-affiliates of the registrant: all of the registrant's 71,879 Units of limited partnership interests, its only class of equity securities, are held by non-affiliates. There is no public trading market for the Units and transfers of Units are subject to certain restrictions; accordingly, the registrant is unable to state the market value of the Units held by non-affiliates. ================================================================================ The Exhibit Index is located at Page E-1 2 PART I ITEM 1. BUSINESS INTRODUCTION Falcon Classic Cable Income Properties, L.P. (the "Partnership") is a California limited partnership engaged in the ownership, operation and development of non-urban cable television systems in small to medium sized communities and suburban and rural areas (the "Systems"). Such cable television systems generally are located in areas that do not receive a wide variety of clear broadcast television reception because of distance from broadcasters or interference by mountains or other geographic features. The Partnership offers cable service in five regions in Oregon, North Carolina, Kentucky, California and Maryland. The Oregon region centers around Redmond, Oregon, serving customers in central Oregon. The North Carolina region provides service to Burke County and other communities in central North Carolina. The Kentucky region provides service to Somerset, Kentucky and surrounding communities, the California region provides service to California City, California, and the Maryland region is based in Centreville, Maryland, and provides service to customers on the Upper Eastern Shore of Chesapeake Bay. As of December 31, 1996, the Partnership had approximately 67,500 Subscribers(1) and served approximately 47,600 homes subscribing to cable service in 56 communities located in these five states. See "Description of the Partnership's Systems." A cable television system receives television, radio and data signals at the system's "headend" site by means of over-the-air antennas, microwave relay systems and satellite earth stations. These signals are then modulated, amplified and distributed, primarily through coaxial and fiber optic distribution systems, to customers who pay a fee for this service. Cable television systems may also originate their own television programming and other information services for distribution through the system. Cable television systems generally are constructed and operated pursuant to non-exclusive franchises or similar licenses granted by local governmental authorities for a specified term of years. The Systems offer customers various levels (or "tiers") of cable services consisting of broadcast television signals of local network, independent and educational stations, a limited number of television signals from so-called "super stations" originating from distant cities (such as WTBS and WGN), various satellite-delivered, non-broadcast channels (such as Cable News Network ("CNN"), MTV: Music Television ("MTV"), the USA Network ("USA"), ESPN, Turner Network Television ("TNT") and The Disney Channel), programming originated locally by the cable television system (such as public, educational and governmental access programs) and informational displays featuring news, weather, stock market and financial reports and public service announcements. A number of the satellite services are also offered in certain packages. For an extra monthly charge, the Systems offer "premium" television services to their customers. These services (such as Home Box Office ("HBO"), Showtime and selected regional sports networks) are satellite channels that consist principally of feature films, live sporting events, concerts and other special entertainment features, usually presented without commercial interruption. See "Legislation and Regulation." - -------------------- (1) The Partnership reports subscribers for the Systems on an equivalent subscriber basis and, unless otherwise indicated, the term "SUBSCRIBERS" means equivalent subscribers, calculated by dividing aggregate basic service revenues by the average basic service rate within an operating entity, adjusted to reflect the impact of regulation. Basic service revenues include charges for basic programming, bulk and commercial accounts and certain specialized "packaged programming" services, including the appropriate components of new product tier revenue, and excluding premium television and non-subscription services. Consistent with past practices, Subscribers is an analytically derived number which is reported in order to provide a basis of comparison to previously reported data. The computation of Subscribers has been impacted by changes in service offerings made in response to the 1992 Cable Act. See "Description of the Partnership's Systems" for additional information about Subscribers and homes subscribing to cable service. -2- 3 A customer generally pays an initial installation charge and fixed monthly fees for basic, expanded basic, other tiers of satellite services and premium programming services. Such monthly service fees constitute the primary source of revenues for the Systems. In addition to customer revenues, the Systems receive revenue from additional fees paid by customers for pay-per-view programming of movies and special events and from the sale of available advertising spots on advertiser-supported programming. The Systems also offer to their customers home shopping services, which pay the Partnership a share of revenues from sales of products in the System's service areas, in addition to paying the system a separate fee in return for carrying their shopping service. Certain other new channels have also recently offered the Systems fees in return for carrying their service. Due to a lack of channel capacity available for adding new channels, the Systems' management cannot predict the impact of such potential payments on the Partnership's business. See Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." The Partnership was formed on February 17, 1989, began offering Units of limited partnership interests ("Units") for sale on May 15, 1989, and continued the offering through May 8, 1990. The Partnership sold a total of 71,879 Units. Prior to March 1993, the general partner of the General Partner was Falcon Holding Group, Inc., a California corporation ("FHGI"). In March 1993, a newly-formed entity, Falcon Holding Group, L.P. ("FHGLP"), was organized to effect the consolidation of the ownership of various cable television businesses previously operated by FHGI. In such consolidation, FHGLP became the general partner of the Partnership's sole general partner, Falcon Classic Cable Investors, L.P., (the "General Partner"), succeeding FHGI in that role. The management of FHGLP is substantially the same as that of FHGI. See Item 13., "Certain Relationships and Related Transactions." The General Partner receives a management fee from the Partnership for managing the Partnership's cable television operations. See Item 11., "Executive Compensation." For more detailed information, see the Amended and Restated Agreement of Limited Partnership of the Partnership dated as of May 15, 1989, as amended by the first amendment thereto (hereinafter collectively referred to as the "Partnership Agreement"), which are exhibits to this Annual Report on Form 10-K. Led by Chairman of the Board and Chief Executive Officer, Marc B. Nathanson, and President and Chief Operating Officer, Frank J. Intiso, the Partnership's senior management has on average over eighteen years of experience in the industry and has worked together for over a decade. Mr. Nathanson, a 27-year veteran of the cable business, is a member of the Executive Committee of the Board of Directors of the National Cable Television Association and a past winner of the prestigious Vanguard Award from the National Cable Television Association for outstanding contributions to the growth and development of the cable television industry. Mr. Intiso is an 18-year veteran of the cable industry. He is also Chairman of the California Cable Television Association and is active in various industry boards including the Board of the Community Antenna Television Association ("CATA"). The principal executive offices of the Partnership, and its general partner, FHGLP, are located at 10900 Wilshire Boulevard, 15th Floor, Los Angeles, California 90024, and their telephone number is (310) 824-9990. RECENT DEVELOPMENTS As previously disclosed in prior filings with the Securities and Exchange Commission (the "Commission"), the Partnership may, in the sole discretion of its General Partner, sell individual Systems and may also sell all or substantially all of the Partnership's assets to the General Partner or its affiliates. The Partnership Agreement provides that any such sale of Partnership assets to the General Partner or any of its affiliates must be made in cash pursuant to the "Appraisal Process." As previously reported, the Partnership commenced the Appraisal Process in August 1996 and received the results of the related appraisals in February 1997. As of the date of this Report, the General Partner has not made a decision as to whether or not it will further pursue the acquisition of any Partnership assets at this time. These matters are discussed more fully under the caption Item 13., "Certain Relationships and Related Transactions -- Appraisal Process" and -3- 4 in the Partnership's Current Reports on Form 8-K dated August 27, 1996, October 17, 1996 and February 6, 1997. Unitholders are urged to review the referenced materials carefully. BUSINESS STRATEGY The Partnership's business strategy has focused on serving small to medium-sized communities that have favorable demographic characteristics. The Partnership believes that given a similar technical profile, its cable television systems generally involve less risk of increased competition than systems in large urban cities. Cable television service is necessary in many of the Partnership's markets to receive a wide variety of broadcast and other television signals. In addition, these markets typically offer fewer competing entertainment alternatives than large cities. As a result, the Partnership's cable television systems generally have a more stable customer base than systems in large cities. Nonetheless, the Partnership believes that all cable operators will face increased competition in the future from alternative providers of multi-channel video programming services. See "- Competition." Adoption of rules implementing certain provisions of the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") by the Federal Communications Commission (the "FCC") has had a negative impact on the Partnership's revenues and cash flow. These rules are subject to further amendment to give effect to the Telecommunications Act of 1996 (the "1996 Telecom Act"). See "Legislation and Regulation" and Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations." Clustering The Partnership has sought to acquire cable television operations in communities that are proximate to other owned or affiliated systems in order to achieve the economies of scale and operating efficiencies associated with regional "clusters." The Partnership believes clustering can reduce marketing and personnel costs and can also reduce capital expenditures in cases where cable service can be delivered through a central headend reception facility. Capital Expenditures The Partnership has invested in the rebuilding and upgrading of its Systems through prudent capital expenditure programs, to the extent financing and regulatory conditions have permitted. These rebuilds and upgrades have consisted primarily of replacing low capacity cable plant with new higher capacity fiber-optic trunk and feeder lines, adding headend electronics to increase channel capacity and addressable converters to permit system addressability, and reducing the number of headends in various regions through microwave network transmission links, fiber optic super trunk and improved reception equipment. However, as noted in "Description of the Partnership's Systems," many of the regions have almost no available channel capacity with which to add new channels or to further expand their use of pay-per-view offerings to customers. As a result, significant amounts of capital for future upgrades will be required in order to increase available channel capacity, improve quality of service and facilitate the expansion of new services such as advertising, pay-per-view, new unregulated tiers of satellite-delivered services and home shopping, so that the Systems remain competitive within the industry. As discussed in prior reports, the Partnership postponed a number of rebuild and upgrade projects that were planned for 1994, 1995 and 1996 because of the uncertainty related to implementation of the 1992 Cable Act and the negative impact thereof on the Partnership's business and access to capital. The Partnership is also constrained in a material respect by the limitation on aggregate borrowing imposed by the Partnership Agreement. As a result of these factors, the Partnership's Systems are presently significantly less technically advanced than had been expected prior to the implementation of re-regulation. The Partnership believes that the delays in upgrading many of its Systems will, under present market conditions, most likely have -4- 5 an adverse effect on the value of those Systems compared to systems that have been rebuilt to a higher technical standard. Currently the Partnership's Systems have an average channel capacity of 46 channels, (substantially all of which is presently utilized), and approximately 62% of its customers are served by Systems that utilize addressable technology. The Partnership's management has selected a technical standard that incorporates a 750 MHz fiber to the feeder architecture for the majority of all its Systems that are to be rebuilt. A system built to a 750 MHz standard can provide approximately 95 channels of analog service. Such a system will also permit the introduction of high speed data transmission and telephony services in the future after incurring incremental capital expenditures related to these services. As currently structured, however, the Partnership does not have access to the capital required to engage in any significant rebuild program. See "Technological Developments," "Legislation and Regulation" and Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations." Decentralized Management The Partnership's five regions are managed on a decentralized basis. The Partnership believes that its decentralized management structure, by enhancing management presence at the system level, increases its sensitivity to the needs of its customers, enhances the effectiveness of its customer service efforts, eliminates the need for maintaining a large centralized corporate staff and facilitates the maintenance of good relations with local governmental authorities. Marketing The Partnership has made substantial changes in the way in which it packages and sells its services and equipment in the course of its implementation of the FCC's rate regulations promulgated under the 1992 Cable Act. Historically, the Partnership had offered four programming packages in its upgraded addressable systems. These packages combined services at a lower rate than the aggregate rates for such services purchased individually on an "a la carte" basis. The new rules require that charges for cable-related equipment (e.g., converter boxes and remote control devices) and installation services be unbundled from the provision of cable service and based upon actual costs plus a reasonable profit. On November 10, 1994, the FCC announced the adoption of further significant amendments to its rules. One amendment allows cable operators to create new tiers of program services which the FCC has chosen to exclude from rate regulation, so long as the programming is new to the system. However, in applying this new policy to packages such as those already offered by the Partnership and numerous other cable operators, the FCC decided that where only a few services were moved from regulated tiers to a non-premium "new product tier" package, the package will be treated as if it were a tier of new program services as discussed above. Substantially all of the new product tier packages offered by the Partnership have received this desirable treatment. In addition, the FCC decided that discounted packages of non-premium programming services will be subject to rate regulation in the future. These amendments to the FCC's rules have allowed the Partnership to resume its core marketing strategy and reintroduce programmed service packaging. As a result, in addition to the basic service package, customers in substantially all of the Systems may purchase an expanded group of regulated services, additional unregulated packages of satellite-delivered services and premium services on either an a la carte or a discounted packaged basis. See "Legislation and Regulation." The Partnership has employed a variety of targeted marketing techniques to attract new customers by focusing on delivering value, choice, convenience and quality. The Partnership employs direct mail, radio and local newspaper advertising, telemarketing and door-to- door selling utilizing demographic "cluster codes" to target specific messages to target audiences. In many Systems, the Partnership offers discounts to customers who purchase premium services on a limited trial basis in order to encourage a higher level of service subscription. The Partnership also has a coordinated strategy for retaining customers that includes televised retention advertising that reinforces the value associated with the initial decision to subscribe and that encourages customers to purchase higher service levels. -5- 6 Customer Service and Community Relations The Partnership places a strong emphasis on customer service and community relations and believes that success in these areas is critical to its business. The Partnership has developed and implemented a wide range of monthly internal training programs for its employees, including its regional managers, that focus on the Partnership's operations and employee interaction with customers. The effectiveness of the Partnership's training program as it relates to the employees' interaction with customers is monitored on an on-going basis, and a portion of the regional managers' compensation is tied to achieving customer service targets. The Partnership also conducts an extensive customer survey on a periodic basis and uses the information in its efforts to enhance service and better address the needs of its customers. In addition, the Partnership is participating in the industry's Customer Service Initiative which emphasizes an on-time guarantee program for service and installation appointments. The Partnership's corporate executives and regional managers lead the Partnership's involvement in a number of programs benefiting the communities the Partnership serves, including, among others, Cable in the Classroom, Drug Awareness, Holiday Toy Drive and the Cystic Fibrosis Foundation. Cable in the Classroom is the cable television industry's public service initiative to enrich education through the use of commercial-free cable programming. In addition, a monthly publication, Cable in the Classroom magazine provides educational program listings by curriculum area, as well as feature articles on how teachers across the country use the programs. -6- 7 DESCRIPTION OF THE PARTNERSHIP'S SYSTEMS The Partnership's Systems are located as follows: Redmond, Oregon; Burke County, North Carolina; Somerset, Kentucky; Centreville, Maryland; and California City, California. The table below sets forth certain operating statistics as of December 31, 1996:
Average Monthly Revenue Homes Per Home Subscribing Premium Subscribing Homes to Cable Basic Service Premium to Cable Region Passed1 Service Penetration2 Units3 Penetration4 Service5 Subscribers6 - ------ ------ ------- ----------- ----- ----------- ------- ----------- Redmond, OR 7,252 3,516 48.5% 706 20.1% $ 35.42 5,604 Burke County, NC 18,986 10,516 55.4% 4,614 43.9% $ 39.50 15,615 Somerset, KY 22,060 19,296 87.5% 3,914 20.3% $ 30.68 26,119 Centreville, MD 23,857 12,325 51.7% 7,440 60.4% $ 36.77 18,197 California City, CA 2,858 1,922 67.2% 839 43.7% $ 31.24 2,004 ------ ------ ------ ------ Total 75,013 47,575 63.4% 17,513 36.8% $ 34.59 67,539 ====== ====== ====== ======
1 Homes passed refers to estimates by the Partnership of the approximate number of dwelling units in a particular community that can be connected to the distribution system without any further extension of principal transmission lines. Such estimates are based upon a variety of sources, including billing records, house counts, city directories and other local sources. 2 Homes subscribing to cable service as a percentage of homes passed by cable. 3 Premium service units include only single channel services offered for a monthly fee per channel and do not include tiers of channels offered as a package for a single monthly fee. Prior to July 1, 1996, The Disney Channel was offered as a premium service. Effective July 1, 1996, it was offered as part of an unregulated tier of services. As a result, the number of reported premium service units was artificially reduced by this service offering change. The number of Disney Channel premium service units at June 30, 1996 was 1,688. 4 Premium service units as a percentage of homes subscribing to cable service. A customer may purchase more than one premium service, each of which is counted as a separate premium service unit. This ratio may be greater than 100% if the average customer subscribes for more than one premium service. 5 Average monthly revenue per home subscribing to cable service has been computed based on revenue for the year ended December 31, 1996. 6 The Partnership reports subscribers for the Systems on an equivalent subscriber basis and, unless otherwise indicated, the term "SUBSCRIBERS" means equivalent subscribers, calculated by dividing aggregate basic service revenues by the average basic service rate within an operating entity, adjusted to reflect the impact of regulation. Basic service revenues include charges for basic programming, bulk and commercial accounts and certain specialized "packaged programming" services, including the appropriate components of new product tier revenue, and excluding premium television and non-subscription services. Consistent with past practices, Subscribers is an analytically derived number which is reported in order to provide a basis of comparison to previously reported data. The computation of Subscribers has been impacted by changes in service offerings made in response to the 1992 Cable Act. REDMOND, OREGON The Redmond system serves the communities of Redmond and Terrebonne in Central Oregon and is the hub of the three cities in the tri-county region including Bend, Princeville and Madras, Oregon. The basic industries in the area include wood products, manufacturing, agriculture, tourism and recreation. Mt. Bachelor, a highly acclaimed ski resort, is located just outside of Bend. The trade area of the Redmond market district includes approximately 15,000 people. Expansion of the Redmond airport terminal was completed during 1993 and Wal-Mart opened a new facility in the community in August 1994. Ten thousand people live within the Redmond city limits and 96,000 live within the tri- county region. During 1995 and 1996, 26 and 24 miles, -7- 8 respectively, of cable plant were built in the region. During 1997, the Partnership intends to build 29 miles of new cable plant in this region. The growth in homes subscribing to cable service from the construction of plant passing new homes has, however, been offset by the loss of homes subscribing to cable service due to competition, primarily from a multi-channel multipoint distribution system, resulting in a net decrease in homes subscribing to cable service in 1995 and 1996. See " - Competition." At December 31, 1996, the Redmond system had 3,516 homes subscribing to cable service and addressable technology was available to 100% of the customers of this region. The System offers 32 channels of programming which is 100% of capacity. BURKE COUNTY, NORTH CAROLINA The Burke system's service area extends along the Interstate 40 corridor of central North Carolina, approximately 70 miles northwest of Charlotte and 40 miles east of Asheville. The areas served by this system include unincorporated Burke County and the towns of Connelly Springs, Drexel, Glen Alpine, Rutherford College and Valdese. Certain portions of the System's service area are overbuilt with two other cable operators, giving rise to a highly competitive market. The primary industries in the area are furniture manufacturing and textiles, with other industries providing a diversified economic base. In 1993, 24 hour pay-per-view was implemented in the Burke County system and local ad insertion capability was increased to four channels. In 1994, four more local ad insertion channels were added. In 1993, the System and the Burke County franchise authority joined forces and created a new informative program about the county to air on the Community Channel. In February 1994, taping of the program increased from two times a month to weekly. At December 31, 1996, the Burke County System had 10,516 homes subscribing to cable service. This region is fed from one headend, and addressable technology is available to all customers. The System offers 43 channels of programming which are 100% utilized. During each of 1995 and 1996, three miles of cable plant were built in the region. The Partnership intends to add eight additional miles of cable plant in this region in 1997. A fiber optic overlay project was completed in Burke County during 1995. This investment has improved picture quality and decreased service interruptions from power outages. Additional technical improvements have been made in plant electronics and converter reliability. SOMERSET, KENTUCKY The Somerset region serves the communities of Somerset, Burnside, Columbia, Eubank, McKinney, Ferguson, Science Hill and Laurel County, Kentucky. The adjacent communities of Somerset and Burnside, in Pulaski County, are considered to be the hub of commerce, industry, transportation and recreation in the region. The Kentucky office of tourism boasts the Lake Cumberland and Big South Fork National Recreation areas as a "water wonderland of vacation and fun." In addition to the local recreation and resort industry, many other industries located in the area provide for a well diversified economic base. They include pressed glassware, wood working, food processing, clothing manufacturing, compressor/air conditioning, charcoal briquettes manufacturing and boat manufacturing. Somerset is also home to the newly- opened Rural Development Center complex, associated with the University of Kentucky, which coordinates numerous activities, promotes linkages for local businesses to world-wide markets and provides a community cultural gathering place. At December 31, 1996, the Somerset System had 19,296 homes subscribing to cable service and addressable technology was available to approximately 71% of the customers of this region. Approximately 20% of this System utilized approximately 72% of their available channel capacity; the remaining operations have fully utilized all of their channel capacity. -8- 9 Fiber overlay projects have been completed in Columbia, Somerset and Burnside. The Somerset and Burnside operations have been tied together with fiber, thereby eliminating the Burnside head-end. CENTREVILLE, MARYLAND The Centreville, Maryland System serves Kent, Queen Anne's and Talbot Counties, located on the Upper Eastern Shore region of Chesapeake Bay. This region, known for its seafood and fishing industry, is also the ocean gateway to nearby resorts such as the Delaware beaches and Ocean City, Maryland. New residents continue to be attracted to this area by the peaceful setting and the many recreational activities the area has to offer. Many of these residents commute to nearby Annapolis or Baltimore, Maryland and Washington, D.C. During 1995, the regional office was relocated from Centreville to Grasonville, a community approximately 10 miles away. This new location offers the System greater access to its customers. The cable system serving this area was built in 1982 and upgraded during 1990 and 1991. The System has one headend, six microwave sites, 650 miles of cable plant and 12,325 homes subscribing to cable service. Channel capacity is approximately 61 channels, and the System offers 46 channels, including five premium channels. Addressable technology is not presently available to the customers of this region. The Partnership added an additional six miles of new cable plant in 1995 and 11 miles in 1996. During 1997, the Partnership intends to build five miles of new cable plant in this region. Fiber overlay projects have been completed in Kent and Queen Annes County. CALIFORNIA CITY, CALIFORNIA The California City System is located 30 miles from the cities of Palmdale and Lancaster in the high desert of Southern California. The region is managed and operated by an affiliated company and is serviced out of the affiliate's satellite office located 15 miles from the System in the city of Mojave. At December 31, 1996, the System had 1,922 homes subscribing to cable service. The Partnership added 10 miles of new cable plant during 1993, an additional 11 miles of plant in 1994, five miles of plant in 1995 and plans to add two miles of plant in 1997. In July of 1993, the Partnership completed a twelve mile fiber optic interconnect from the nearby North Edwards System (owned by the affiliated entity) to eliminate the previous California City headend. After the completion of the fiber optic interconnect, 20 channels were added and addressability was introduced to the region. The System offers 41 channels of programming which is 100% of capacity. During 1994, previously purchased studio equipment was activated to bring live city council meetings as well as other government information to the customers of the community. OTHER ACTIVITIES The Partnership is engaged primarily in the business of owning, operating and developing cable television systems. The Partnership did not participate in any other activities in 1994, 1995 or 1996 and, based on its limited access to capital and the beginning of the Appraisal Process, does not anticipate undertaking any such activities in the foreseeable future. See "Legislation and Regulation" and Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations." CUSTOMER RATES AND SERVICES The Partnership's Systems offer customers packages of services that include the local area network, independent and educational television stations, a limited number of television signals from distant cities, numerous satellite-delivered, non-broadcast channels (such as CNN, MTV, USA, ESPN, TNT and The -9- 10 Disney Channel) and certain information and public access channels. For an extra monthly charge, the Systems provide certain premium television services, such as HBO, Showtime and regional sports networks. The Partnership also offers other cable television services to its customers, including pay-per-view programming and, in certain test markets, the Sega Channel. For additional charges, in most of the Systems, the Partnership also rents remote control devices and VCR compatible devices (devices that make it easier for a customer to tape a program from one channel while watching a program on another). The service options offered by the Partnership vary from System to System, depending upon a System's channel capacity and viewer interests. Rates for services also vary from market to market and according to the type of services selected. Prior to the adoption of the 1992 Cable Act, the Systems generally were not subject to any rate regulation, i.e., they were adjudged to be subject to effective competition under then-effective FCC regulations. The 1992 Cable Act, however, substantially changed the statutory and FCC rate regulation standards. Under the definition of effective competition provided for in the 1992 Cable Act, nearly all cable television systems in the United States have become subject to local rate regulation of basic service. The 1996 Telecom Act expanded the definition of effective competition to include situations in which a local telephone company, or anyone using its facilities, offers comparable video service by any means except direct broadcast satellite. In addition, the 1992 Cable Act eliminated the 5% annual basic rate increases previously allowed by the 1984 Cable Act without local approval; allows the FCC to review rates for nonbasic service tiers other than premium services in response to complaints filed by franchising authorities and/or cable customers; prohibits cable television systems from requiring customers to purchase service tiers above basic service in order to purchase premium services if the system is technically capable of doing so; and adopted regulations to establish, on the basis of actual costs, the price for installation of cable television service, remote controls, converter boxes and additional outlets. The FCC implemented these rate regulation provisions on September 1, 1993, affecting all of the Partnership's Systems not deemed to be subject to effective competition under the FCC's definition. The FCC substantially amended its rate regulation rules on February 22, 1994 and again on November 10, 1994. The FCC will have to conduct a number of additional rule making proceedings in order to implement many of the provisions of the 1996 Telecom Act. See "Legislation and Regulation." At December 31, 1996, the Partnership's monthly rates for basic cable service for residential customers of the Systems, excluding special senior citizen discount rates, ranged from $15.80 to $22.97 and premium service rates ranged from $10.95 to $11.95, excluding special promotions offered periodically in conjunction with the Partnership's marketing programs. A one-time installation fee, which the Partnership may wholly or partially waive during a promotional period, is usually charged to new customers. Prior to September 1, 1993, the Partnership generally charged monthly fees for additional outlets, converters, program guides and descrambling and remote control tuning devices. As described above, these charges have either been eliminated or altered by the implementation of rate regulation. Substantially all the Partnership's customers received a decrease in their monthly charges in July 1994 upon implementation of the FCC's amended rules. Commercial customers, such as hotels, motels and hospitals, are charged a negotiated, non-recurring fee for installation of service and monthly fees based upon a standard discounting procedure. Most multi-unit dwellings are offered a negotiated bulk rate in exchange for single-point billing and basic service to all units. These rates are also subject to regulation. EMPLOYEES At February 7, 1997, the Partnership had 89 full-time employees and 6 part-time employees, all of whom work in the regional offices. The Partnership believes that its relations with its employees are good. -10- 11 TECHNOLOGICAL DEVELOPMENTS As part of its commitment to customer service, the Partnership emphasizes high technical standards and prudently seeks to apply technological advances in the cable television industry to its Systems on the basis of cost effectiveness, capital availability, enhancement of product quality and service delivery, and industry wide acceptance. Currently, the Partnership's Systems have an average channel capacity of 46, and many of the Systems have fully used their present capacity. The Partnership believes that system upgrades would enable it to provide customers with greater programming diversity, better picture quality and alternative communications delivery systems made possible by the introduction of fiber optic technology and by the possible future application of digital compression. However, as previously discussed, the Partnership remains significantly limited in the number of Systems that can be rebuilt or upgraded due to, among other things, the adverse impact of the 1992 Cable Act on the Partnership's business and its access to capital. As a result, the Partnership expects to incur additional delays in the implementation of its technological development plan on a wide scale. See "Business Strategy - Capital Expenditures," "Legislation and Regulation" and Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations." The use of fiber optic cable as an alternative to coaxial cable is playing a major role in expanding channel capacity and improving the performance of cable television systems. Fiber optic cable is capable of carrying hundreds of video, data and voice channels and, accordingly, its utilization is essential to the enhancement of a cable television system's technical capabilities. The Partnership's current policy is to utilize fiber optic technology in substantially all rebuild projects which it undertakes. The benefits of fiber optic technology over traditional coaxial cable distribution plant include lower per mile rebuild costs due to a reduction in the number of required amplifiers, the elimination of headends, lower ongoing maintenance and power costs and improved picture quality and reliability. As of December 31, 1996, approximately 62% of the Partnership's customers were served by Systems that utilize addressable technology. Addressable technology permits the cable operator to activate from a central control point the cable television services to be delivered to a customer if that customer has also been supplied with an addressable converter box. To date, the Partnership has supplied addressable converter boxes to customers of the Systems utilizing addressable technology who subscribe to one or more premium services and, in selected regions, to customers who subscribe to certain new product tiers. As a result, if the System utilizes addressable technology and the customer has been supplied with an addressable converter box, the Partnership can upgrade or downgrade services immediately, without the delay or expense associated with dispatching a technician to the home. Addressable technology also reduces pay service theft, is an effective enforcement tool in collecting delinquent payments and allows the Partnership to offer pay-per-view services. DIGITAL COMPRESSION The Partnership has been closely monitoring developments in the area of digital compression, a technology which is expected to enable cable operators to increase the channel capacity of cable television systems by permitting a significantly increased number of video signals to fit in a cable television system's existing bandwidth. The Partnership believes that the utilization of digital compression technology in the future could enable the Partnership to increase channel capacity in certain Systems in a manner that could be more cost efficient than rebuilding such Systems with higher capacity distribution plant. The use of digital compression in the Systems also could expand the number and types of services these Systems offer and enhance the development of current and future revenue sources in these Systems. Equipment vendors are beginning to market products to provide this technology, but the Partnership's management has no plans to install it at this time based on the current technological profile of its Systems and its present understanding of the costs as compared to the benefits of the digital equipment currently available. This issue is under frequent management review. -11- 12 PROGRAMMING The Partnership has various contracts to obtain basic and premium programming for its Systems from program suppliers whose compensation is generally based on a fixed fee per customer or a percentage of the gross receipts for the particular service. Some program suppliers provide volume discount pricing structures or offer marketing support to the Partnership. Certain other new channels have also recently offered the Partnership's Systems fees in return for carrying their service. Due to a lack of channel capacity available for adding new channels, the Partnership's management cannot predict the impact of such potential payments on its business. The Partnership's programming contracts are generally for a fixed period of time and are subject to negotiated renewal. The Partnership does not have long-term programming contracts for the supply of a substantial amount of its programming. Accordingly, no assurance can be given that the Partnership's programming costs will not increase substantially, or that other materially adverse terms will not be added to the Partnership's programming contracts. Management believes, however, that the Partnership's relations with its programming suppliers generally are good. The Partnership's cable programming costs have increased in recent years and are expected to continue to increase due to additional programming being provided to basic customers, the requirements to carry channels under retransmission carriage agreements entered into with certain programming sources, increased costs to produce or purchase cable programming generally, inflationary increases and other factors. The 1996 retransmission carriage agreement negotiations resulted in the Partnership agreeing to carry one new service in its Somerset System, for which it will receive reimbursement of certain costs related to launching the service. All other negotiations were completed with essentially no change to the previous agreements. Under the FCC rate regulations, increases in programming costs for regulated cable services occurring after the earlier of March 1, 1994, or the date a system's basic cable service became regulated, may be passed through to customers. See "Legislation and Regulation - Federal Regulation - Carriage of Broadcast Television Signals." Generally, programming costs are charged among systems on a per customer basis. FRANCHISES Cable television systems are generally constructed and operated under non-exclusive franchises granted by local governmental authorities. These franchises typically contain many conditions, such as time limitations on commencement and completion of construction; conditions of service, including number of channels, types of programming and the provision of free service to schools and certain other public institutions; and the maintenance of insurance and indemnity bonds. The provisions of local franchises are subject to federal regulation under the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act. See "Legislation and Regulation." As of December 31, 1996, the Partnership held 36 franchises. These franchises, all of which are non-exclusive, provide for the payment of fees to the issuing authority. Annual franchise fees imposed on the Partnership's systems range up to 5% of the gross revenues generated by a system. The 1984 Cable Act prohibits franchising authorities from imposing franchise fees in excess of 5% of gross revenues and also permits the cable system operator to seek renegotiation and modification of franchise requirements if warranted by changed circumstances. -12- 13 The following table groups the franchises of the Partnership's Systems by date of expiration and presents the number of franchises for each group of franchises and the approximate number and percentage of homes subscribing to cable service for each group as of December 31, 1996.
Number of Percentage Homes of Homes Year of Number of Subscribing to Subscribing to Franchise Expiration Franchises Cable Service Cable Service -------------------- ----------- ------------- ------------- Prior to 1998 4 10,848 22.8% 1998-2002 13 21,889 46.0% 2003 and after 19 13,642 28.7% -- ------ ---- Total 36 46,379 97.5% == ====== ====
The Partnership operates cable television systems which serve multiple communities and, in some circumstances, portions of such Systems extend into jurisdictions for which the Partnership believes no franchise is necessary. In the aggregate, approximately 1,196 homes subscribing to cable service, comprising approximately 2.5% of the Partnership's customers, are served by unfranchised portions of such Systems. In general, the Partnership does not believe that the loss of any single franchise would cause a substantial reduction in the economies of scale discussed above. In certain instances, however, where a single franchise comprises a large percentage of the customers in an operating region, the loss of such franchise could decrease the economies of scale achieved by the Partnership's clustering strategy. The Partnership believes that it has satisfactory relationships with substantially all of its franchising authorities. The Partnership has never had a franchise revoked for any of its Systems and believes that it has satisfactory relationships with substantially all of its franchising authorities. The 1984 Cable Act provides, among other things, for an orderly franchise renewal process in which franchise renewal will not be unreasonably withheld or, if renewal is withheld, the franchise authority must pay the operator the "fair market value" for the system covered by such franchise. In addition, the 1984 Cable Act establishes comprehensive renewal procedures which require that an incumbent franchisee's renewal application be assessed on its own merit and not as part of a comparative process with competing applications. See "Legislation and Regulation." COMPETITION Cable television systems compete with other communications and entertainment media, including over the air television broadcast signals which a viewer is able to receive directly using the viewer's own television set and antenna. The extent to which a cable system competes with over-the-air broadcasting depends upon the quality and quantity of the broadcast signals available by direct antenna reception compared to the quality and quantity of such signals and alternative services offered by a cable system. In many areas, television signals which constitute a substantial part of basic service can be received by viewers who use their own antennas. Local television reception for residents of apartment buildings or other multi-unit dwelling complexes may be aided by use of private master antenna services. Cable systems also face competition from alternative methods of distributing and receiving television signals and from other sources of entertainment such as live sporting events, movie theaters and home video products, including videotape recorders and videodisk players. In recent years, the FCC has adopted policies providing for authorization of new technologies and a more favorable operating environment for certain existing technologies that provide, or may provide, substantial additional competition for cable television systems. The extent to which cable television service is competitive depends in significant part upon the cable television system's ability to provide an even greater variety of programming than that available over the air or through competitive -13- 14 alternative delivery sources. In addition, certain provisions of the 1992 Cable Act and the 1996 Telecom Act are expected to increase competition significantly in the cable industry. See "Legislation and Regulation." Individuals presently have the option to purchase earth stations, which allow the direct reception of satellite-delivered program services formerly available only to cable television subscribers. Most satellite-distributed program signals are being electronically scrambled to permit reception only with authorized decoding equipment for which the consumer must pay a fee. From time to time, legislation has been introduced in Congress which, if enacted into law, would prohibit the scrambling of certain satellite-distributed programs or would make satellite services available to private earth stations on terms comparable to those offered to cable systems. Broadcast television signals are being made available to owners of earth stations under the Satellite Home Viewer Copyright Act of 1988, which became effective January 1, 1989 for an initial six-year period. This Act establishes a statutory compulsory license for certain transmissions made by satellite owners to home satellite dishes, for which carriers are required to pay a royalty fee to the Copyright Office. This Act has been extended by Congress until December 31, 1999. The 1992 Cable Act enhances the right of cable competitors to purchase nonbroadcast satellite-delivered programming. See "Legislation and Regulation-Federal Regulation." Television programming is now also being delivered to individuals by high-powered direct broadcast satellites ("DBS") utilizing video compression technology. This technology has the capability of providing more than 100 channels of programming over a single high-powered DBS satellite with significantly higher capacity available if multiple satellites are placed in the same orbital position. Video compression technology may also be used by cable operators in the future to similarly increase their channel capacity. DBS service can be received virtually anywhere in the United States through the installation of a small rooftop or side-mounted antenna, and it is more accessible than cable television service where cable plant has not been constructed or where it is not cost effective to construct cable television facilities. DBS service is being heavily marketed on a nationwide basis by several service providers. Multichannel multipoint distribution systems ("MMDS") deliver programming services over microwave channels licensed by the FCC received by subscribers with special antennas. MMDS systems are less capital intensive, are not required to obtain local franchises or to pay franchise fees, and are subject to fewer regulatory requirements than cable television systems. To date, the ability of these so-called "wireless" cable services to compete with cable television systems has been limited by channel capacity constraints and the need for unobstructed line-of-sight over-the-air transmission. Although relatively few MMDS systems in the United States are currently in operation or under construction, virtually all markets have been licensed or tentatively licensed. The FCC has taken a series of actions intended to facilitate the development of MMDS and other wireless cable systems as alternative means of distributing video programming, including reallocating certain frequencies to these services and expanding the permissible use and eligibility requirements for certain channels reserved for educational purposes. The FCC's actions enable a single entity to develop an MMDS system with a potential of up to 35 channels that could compete effectively with cable television. MMDS systems qualify for the statutory compulsory copyright license for the retransmission of television and radio broadcast stations. Several of the Regional Bell Operating Companies have begun to enter the MMDS business as a way of breaking into video programming delivery. Additional competition may come from private cable television systems servicing condominiums, apartment complexes and certain other multiple unit residential developments. The operators of these private systems, known as satellite master antenna television ("SMATV") systems, often enter into exclusive agreements with apartment building owners or homeowners' associations which preclude franchised cable television operators from serving residents of such private complexes. However, the 1984 Cable Act gives franchised cable operators the right to use existing compatible easements within their franchise areas upon nondiscriminatory terms and conditions. Accordingly, where there are preexisting compatible easements, cable operators may not be unfairly denied access or discriminated against with respect to the terms and conditions of access to those easements. There have been conflicting judicial decisions interpreting the scope of the access -14- 15 right granted by the 1984 Cable Act, particularly with respect to easements located entirely on private property. Further, while a franchised cable television system typically is obligated to extend service to all areas of a community regardless of population density or economic risk, a SMATV system may confine its operation to small areas that are easy to serve and more likely to be profitable. Under the 1996 Telecom Act, SMATV systems can interconnect non-commonly owned buildings without having to comply with local, state and federal regulatory requirements that are imposed upon cable systems providing similar services, as long as they do not use public rights-of-way. In some cases, SMATV operators may be able to charge a lower price than could a cable system providing comparable services and the FCC's regulations implementing the 1992 Cable Act limit a cable operator's ability to reduce its rates to meet this competition. Furthermore, the U.S. Copyright Office has tentatively concluded that SMATV systems are "cable systems" for purposes of qualifying for the compulsory copyright license established for cable systems by federal law. The FCC has authorized a new interactive television service which will permit non-video transmission of information between an individual's home and entertainment and information service providers. This service will provide an alternative means for DBS systems and other video programming distributors, including television stations, to initiate the new interactive television services. This service may also be used by the cable television industry. The FCC also has initiated a new rulemaking proceeding looking toward the allocation of frequencies in the 28 Ghz range for a new multi-channel wireless video service which could make 98 video channels available in a single market. It cannot be predicted at this time whether competitors will emerge utilizing such frequencies or whether such competition would have a material impact on the operations of cable television systems. The 1996 Telecom Act eliminates the restriction against ownership and operation of cable systems by local telephone companies within their local exchange service areas. Telephone companies are now free to enter the retail video distribution business through any means, such as DBS, MMDS, SMATV or as traditional franchised cable system operators. Alternatively, the 1996 Telecom Act authorizes local telephone companies to operate "open video systems" without obtaining a local cable franchise, although telephone companies operating such systems can be required to make payments to local governmental bodies in lieu of cable franchise fees. Up to two-thirds of the channel capacity on an "open video system" must be available to programmers unaffiliated with the local telephone company. The open video system concept replaces the FCC's video dialtone rules. The 1996 Telecom Act also includes numerous provisions designed to make it easier for cable operators and others to compete directly with local exchange telephone carriers. With certain limited exceptions, neither a local exchange carrier nor a cable operator can acquire more than 10% of the other entity operating within its own service area. Advances in communications technology, as well as changes in the marketplace and the regulatory and legislative environment, are constantly occurring. Thus, it is not possible to predict the effect that ongoing or future developments might have on the cable industry. The ability of cable systems to compete with present, emerging and future distribution media will depend to a great extent on obtaining attractive programming. The availability and exclusive use of a sufficient amount of quality programming may in turn be affected by developments in regulation or copyright law. See "Legislation and Regulation." The cable television industry competes with radio, television and print media for advertising revenues. As the cable television industry continues to develop programming designed specifically for distribution by cable, advertising revenues may increase. Premium programming provided by cable systems is subject to the same competitive factors which exist for other programming discussed above. The continued profitability of premium services may depend largely upon the continued availability of attractive programming at competitive prices. -15- 16 LEGISLATION AND REGULATION The cable television industry is regulated by the FCC, some state governments and substantially all local governments. In addition, various legislative and regulatory proposals under consideration from time to time by the Congress and various federal agencies have in the past, and may in the future, materially affect the Partnership and the cable television industry. The following is a summary of federal laws and regulations affecting the growth and operation of the cable television industry and a description of certain state and local laws. The Partnership believes that the regulation of its industry remains a matter of interest to Congress, the FCC and other regulatory authorities. There can be no assurance as to what, if any, future actions such legislative and regulatory authorities may take or the effect thereof on the Partnership. CABLE COMMUNICATIONS POLICY ACT OF 1984 The 1984 Cable Act became effective on December 29, 1984. This federal statute, which amended the Communications Act of 1934 (the "Communications Act"), created uniform national standards and guidelines for the regulation of cable television systems. Violations by a cable television system operator of provisions of the Communications Act, as well as of FCC regulations, can subject the operator to substantial monetary penalties and other sanctions. Among other things, the 1984 Cable Act affirmed the right of franchising authorities (state or local, depending on the practice in individual states) to award one or more franchises within their jurisdictions. It also prohibited non-grandfathered cable television systems from operating without a franchise in such jurisdictions. In connection with new franchises, the 1984 Cable Act provides that in granting or renewing franchises, franchising authorities may establish requirements for cable- related facilities and equipment, but may not establish or enforce requirements for video programming or information services other than in broad categories. The 1984 Cable Act grandfathered, for the remaining term of existing franchises, many but not all of the provisions in existing franchises which would not be permitted in franchises entered into or renewed after the effective date of the 1984 Cable Act. CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992 On October 5, 1992, Congress enacted the 1992 Cable Act. This legislation has effected significant changes to the legislative and regulatory environment in which the cable industry operates. It amends the 1984 Cable Act in many respects. The 1992 Cable Act became effective on December 4, 1992, although certain provisions, most notably those dealing with rate regulation and retransmission consent, became effective at later dates. The legislation required the FCC to conduct a number of rulemaking proceedings to implement various provisions of the statute. The 1992 Cable Act allows for a greater degree of regulation of the cable industry with respect to, among other things: (i) cable system rates for both basic and certain nonbasic services; (ii) programming access and exclusivity arrangements; (iii) access to cable channels by unaffiliated programming services; (iv) leased access terms and conditions; (v) horizontal and vertical ownership of cable systems; (vi) customer service requirements; (vii) franchise renewals; (viii) television broadcast signal carriage and retransmission consent; (ix) technical standards; (x) customer privacy; (xi) consumer protection issues; (xii) cable equipment compatibility; (xiii) obscene or indecent programming; and (xiv) 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 television systems by allowing municipalities to own and operate their own cable television systems without having to obtain a franchise; preventing franchising authorities from granting exclusive franchises or unreasonably refusing to award additional franchises covering an existing cable system's service area; and prohibiting the common ownership of cable systems and co-located MMDS or SMATV systems. The 1992 Cable Act also precludes video programmers affiliated with cable television companies from favoring cable operators over competitors and requires such programmers to sell their programming to other multichannel video distributors. -16- 17 A constitutional challenge to the must-carry provisions of the 1992 Cable Act is still ongoing. On April 8, 1993, a three- judge district court panel granted summary judgment for the government upholding the must-carry provisions. That decision was appealed directly to the U.S. Supreme Court which remanded the case back to the district court to determine whether there was adequate evidence that the provisions were needed and whether the restrictions chosen were the least intrusive. On December 12, 1995, the district court again upheld the must-carry provisions. The Supreme Court is reviewing the district court's decision. On September 16, 1993, a constitutional challenge to the balance of the 1992 Cable Act provisions was rejected by the U.S. District Court in the District of Columbia which upheld the constitutionality of all but three provisions of the statute (multiple ownership limits for cable operators, advance notice of free previews for certain programming services and channel set-asides for DBS operators). On August 30, 1996, the U.S. Court of Appeals for the District of Columbia Circuit sustained the constitutionality of all provisions except for the multiple ownership limits and the limits on the number of channels which can be occupied by programmers affiliated with the cable operator, both of which are being challenged in a separate appeal. TELECOMMUNICATIONS ACT OF 1996 On February 8, 1996, the President signed the 1996 Telecom Act into law. This statute substantially amended the Communications Act by, among other things, removing barriers to competition in the cable television and telephone markets and reducing the regulation of cable television rates. As it pertains to cable television, the 1996 Telecom Act, among other things, (i) ends the regulation of certain nonbasic programming services in 1999; (ii) expands the definition of effective competition, the existence of which displaces rate regulation; (iii) eliminates the restriction against the ownership and operation of cable systems by telephone companies within their local exchange service areas; and (iv) liberalizes certain of the FCC's cross-ownership restrictions. The FCC is in the process of conducting a number of additional rulemaking proceedings in order to implement many of the provisions of the 1996 Telecom Act. See "Business - Competition" and "Federal Regulation-Rate Regulation." FEDERAL REGULATION The FCC, the principal federal regulatory agency with jurisdiction over cable television, has heretofore promulgated regulations covering such areas as the registration of cable television systems, cross-ownership between cable television systems and other communications businesses, carriage of television broadcast programming, consumer education and lockbox enforcement, origination cablecasting and sponsorship identification, children's programming, the regulation of basic cable service rates in areas where cable television systems are not subject to effective competition, signal leakage and frequency use, technical performance, maintenance of various records, equal employment opportunity, and antenna structure notification, marking and lighting. The FCC has the authority to enforce these regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities often used in connection with cable operations. The 1992 Cable Act required the FCC to adopt additional regulations covering, among other things, cable rates, signal carriage, consumer protection and customer service, leased access, indecent programming, programmer access to cable television systems, programming agreements, technical standards, consumer electronics equipment compatibility, ownership of home wiring, program exclusivity, equal employment opportunity, and various aspects of direct broadcast satellite system ownership and operation. The 1996 Telecom Act requires certain changes to various of these regulations. A brief summary of certain of these federal regulations as adopted to date follows. -17- 18 RATE REGULATION The 1984 Cable Act codified existing FCC preemption of rate regulation for premium channels and optional nonbasic program tiers. The 1984 Cable Act also deregulated basic cable rates for cable television systems determined by the FCC to be subject to effective competition. The 1992 Cable Act substantially changed the previous statutory and FCC rate regulation standards. The 1992 Cable Act replaced the FCC's old standard for determining effective competition, under which most cable systems were not subject to local rate regulation, with a statutory provision that resulted in nearly all cable television systems becoming subject to local rate regulation of basic service. The 1996 Telecom Act expands the definition of effective competition to cover situations where a local telephone company or its affiliate, or any multichannel video provider using telephone company facilities, offers comparable video service by any means except DBS. Satisfaction of this test deregulates both basic and nonbasic tiers. Additionally, the 1992 Cable Act required the FCC to adopt a formula, for franchising authorities to enforce, to assure that basic cable rates are reasonable; allowed the FCC to review rates for nonbasic service tiers (other than per-channel or per-program services) in response to complaints filed by franchising authorities and/or cable customers; prohibited cable television systems from requiring subscribers to purchase service tiers above basic service in order to purchase premium services if the system is technically capable of doing so; required the FCC to adopt regulations to establish, on the basis of actual costs, the price for installation of cable service, remote controls, converter boxes and additional outlets; and allows the FCC to impose restrictions on the retiering and rearrangement of cable services under certain limited circumstances. The 1996 Telecom Act limits the class of complainants regarding nonbasic tier rates to franchising authorities only and ends FCC regulation of nonbasic tier rates on March 31, 1999. The FCC adopted rules designed to implement the 1992 Cable Act's rate regulation provisions on April 1, 1993, and then significantly amended them on February 22 and November 10, 1994. The FCC's regulations contain standards for the regulation of basic and nonbasic cable service rates (other than per-channel or per-program services). The rules have been further amended several times. Local franchising authorities and/or the FCC are empowered to order a reduction of existing rates which exceed the maximum permitted level for either basic and/or nonbasic cable services and associated equipment, and refunds can be required. The rate regulations adopt a benchmark price cap system for measuring the reasonableness of existing basic and nonbasic service rates. Alternatively, cable operators have the opportunity to make cost-of-service showings which, in some cases, may justify rates above the applicable benchmarks. The rules also require that charges for cable-related equipment (e.g., converter boxes and remote control devices) and installation services be unbundled from the provision of cable service and based upon actual costs plus a reasonable profit. The regulations also provide that future rate increases may not exceed an inflation-indexed amount, plus increases in certain costs beyond the cable operator's control, such as taxes, franchise fees and increased programming costs. Cost-based adjustments to these capped rates can also be made in the event a cable operator adds or deletes channels. In addition, new product tiers consisting of services new to the cable system can be created free of rate regulation as long as certain conditions are met such as not moving services from existing tiers to the new tier. These provisions currently provide limited benefit to the Partnership's systems due to the lack of channel capacity previously discussed. There is also a streamlined cost-of-service methodology available to justify a rate increase on basic and regulated nonbasic tiers for "significant" system rebuilds or upgrades. Franchising authorities have become certified by the FCC to regulate the rates charged by the Partnership for basic cable service and for associated basic cable service equipment. In addition, three of the Partnership's franchising authorities have filed complaints with the FCC regarding the rates charged for nonbasic cable service. The Partnership has adjusted its regulated programming service rates and related equipment and installation charges in substantially all of its systems so as to bring these rates and charges into compliance with the applicable benchmark or equipment and installation cost levels. The Partnership also -18- 19 implemented a program in substantially all of its systems under which a number of the Partnership's satellite-delivered and premium services are now offered individually on a per channel (i.e., a la carte) basis, or as a group at a discounted price. A la carte services were not subject to the FCC's rate regulations under the rules originally issued to implement the 1992 Cable Act. The FCC, in its reconsideration of the original rate regulations, stated that it was going to take a harder look at the regulatory treatment of such a la carte packages on an ad hoc basis. Such packages which are determined to be evasions of rate regulation rather than true enhancements of subscriber choice will be treated as regulated tiers and, therefore, subject to rate regulation. There have been no FCC rulings related to systems owned by the Partnership. There have been three rulings, however, on such packages offered by affiliated partnerships managed by FHGLP. In one case, the FCC's Cable Services Bureau ruled that a nine-channel a la carte package was an evasion of rate regulation and ordered this package to be treated as a regulated tier. In the second case, a seven-channel a la carte package was ordered to be treated as a regulated tier. In the third case, a six-channel package was held not to be an evasion, but rather is to be considered an unregulated new product tier under the FCC's November 10, 1994 rule amendments. The deciding factor in all of the FCC's decisions related to a la carte tiers appears to be the number of channels moved from regulated tiers, with six or fewer channels being deemed not to be an evasion. Almost all of the Partnership's systems moved six or fewer channels to a la carte packages. Under the November 10, 1994 amendments, any new a la carte package created after that date will be treated as a regulated tier, except for packages involving traditional premium services (e.g., HBO). On March 11, 1993, the FCC adopted regulations pursuant to the 1992 Act which require cable systems to permit customers to purchase video programming on a per channel or a per program basis without the necessity of subscribing to any tier of service, other than the basic service tier, unless the cable system is technically incapable of doing so. Generally, this exemption from compliance with the statute for cable systems that do not have such technical capability is available until a cable system obtains the capability, but not later than December 2002. CARRIAGE OF BROADCAST TELEVISION SIGNALS The 1992 Cable Act contained new signal carriage requirements. These rules allow commercial television broadcast stations which are "local" to a cable system, i.e., the system is located in the station's Area of Dominant Influence, to elect every three years whether to require the cable system to carry the station, subject to certain exceptions, or whether the cable system will have to negotiate for "retransmission consent" to carry the station. Local non-commercial television stations are also given mandatory carriage rights, subject to certain exceptions, within the larger of: (i) a 50 mile radius from the station's city of license; or (ii) the station's Grade B contour (a measure of signal strength). Unlike commercial stations, noncommercial stations are not given the option to negotiate retransmission consent for the carriage of their signal. In addition, cable systems will have to obtain retransmission consent for the carriage of all "distant" commercial broadcast stations, except for certain "superstations," i.e., commercial satellite-delivered independent stations such as WTBS. The Partnership has thus far not been required to pay cash compensation to broadcasters for retransmission consent or been required by broadcasters to remove broadcast stations from the cable television channel line-ups. The Partnership has, however, agreed to carry some services in specified markets pursuant to retransmission consent arrangements which it believes are comparable to those entered into by most other large cable operators, and for which it pays monthly fees to the service providers, as it does with other satellite providers. The second election between must-carry and retransmission consent for local commercial television broadcast stations was October 1, 1996, and the Partnership has agreed to carry one new service in its Somerset System pursuant to these retransmission consent arrangements. The next election between must- carry and retransmission consent for local commercial television broadcast stations will be October 1, 1999. -19- 20 NONDUPLICATION OF NETWORK PROGRAMMING Cable television systems that have 1,000 or more customers must, upon the appropriate request of a local television station, delete the simultaneous or nonsimultaneous network programming of a distant station when such programming has also been contracted for by the local station on an exclusive basis. DELETION OF SYNDICATED PROGRAMMING FCC regulations enable television broadcast stations that have obtained exclusive distribution rights for syndicated programming in their market to require a cable system to delete or "black out" such programming from other television stations which are carried by the cable system. The extent of such deletions will vary from market to market and cannot be predicted with certainty. However, it is possible that such deletions could be substantial and could lead the cable operator to drop a distant signal in its entirety. The FCC also has commenced a proceeding to determine whether to relax or abolish the geographic limitations on program exclusivity contained in its rules, which would allow parties to set the geographic scope of exclusive distribution rights entirely by contract, and to determine whether such exclusivity rights should be extended to noncommercial educational stations. It is possible that the outcome of these proceedings will increase the amount of programming that cable operators are requested to black out. Finally, the FCC has declined to impose equivalent syndicated exclusivity rules on satellite carriers who provide services to the owners of home satellite dishes similar to those provided by cable systems. FRANCHISE FEES Although franchising authorities may impose franchise fees under the 1984 Cable Act, such payments cannot exceed 5% of a cable system's annual gross revenues. Under the 1996 Telecom Act, franchising authorities may not exact franchise fees from revenues derived from telecommunications services. Franchising authorities are also empowered in awarding new franchises or renewing existing franchises to require cable operators to provide cable-related facilities and equipment and to enforce compliance with voluntary commitments. In the case of franchises in effect prior to the effective date of the 1984 Cable Act, franchising authorities may enforce requirements contained in the franchise relating to facilities, equipment and services, whether or not cable-related. The 1984 Cable Act, under certain limited circumstances, permits a cable operator to obtain modifications of franchise obligations. RENEWAL OF FRANCHISES The 1984 Cable Act established renewal procedures and criteria designed to protect incumbent franchisees against arbitrary denials of renewal. While these formal procedures are not mandatory unless timely invoked by either the cable operator or the franchising authority, they can provide substantial protection to incumbent franchisees. Even after the formal renewal procedures are invoked, franchising authorities and cable operators remain free to negotiate a renewal outside the formal process. Nevertheless, renewal is by no means assured, as the franchisee must meet certain statutory standards. Even if a franchise is renewed, a franchising authority may impose new and more onerous requirements such as upgrading facilities and equipment, although the municipality must take into account the cost of meeting such requirements. The 1992 Cable Act makes several changes to the process under which a cable operator seeks to enforce his renewal rights which could make it easier in some cases for a franchising authority to deny renewal. While a cable operator must still submit its request to commence renewal proceedings within thirty to thirty-six months prior to franchise expiration to invoke the formal renewal process, the request must be in writing and the franchising authority must commence renewal proceedings not later than six months after receipt of such notice. The four-month period for the franchising authority to grant or deny the renewal now runs from the submission of the renewal proposal, not the completion of the public proceeding. Franchising authorities may consider the "level" of programming service provided by a cable operator in deciding whether -20- 21 to renew. For alleged franchise violations occurring after December 29, 1984, franchising authorities are no longer precluded from denying renewal based on failure to substantially comply with the material terms of the franchise where the franchising authority has "effectively acquiesced" to such past violations. Rather, the franchising authority is estopped if, after giving the cable operator notice and opportunity to cure, it fails to respond to a written notice from the cable operator of its failure or inability to cure. Courts may not reverse a denial of renewal based on procedural violations found to be "harmless error." CHANNEL SET-ASIDES The 1984 Cable Act permits local franchising authorities to require cable operators to set aside certain channels for public, educational and governmental access programming. The 1984 Cable Act further requires cable television systems with thirty-six or more activated channels to designate a portion of their channel capacity for commercial leased access by unaffiliated third parties. While the 1984 Cable Act allowed cable operators substantial latitude in setting leased access rates, the 1992 Cable Act requires leased access rates to be set according to a formula determined by the FCC. COMPETING FRANCHISES Questions concerning the ability of municipalities to award a single cable television franchise and to impose certain franchise restrictions upon cable television companies have been considered in several recent federal appellate and district court decisions. These decisions have been somewhat inconsistent and, until the U.S. Supreme Court rules definitively on the scope of cable television's First Amendment protections, the legality of the franchising process and of various specific franchise requirements is likely to be uncertain. It is not possible at the present time to predict the constitutionally permissible bounds of cable franchising and particular franchise requirements. However, the 1992 Cable Act, among other things, prohibits franchising authorities from unreasonably refusing to grant franchises to competing cable television systems and permits franchising authorities to operate their own cable television systems without franchises. OWNERSHIP The 1996 Telecom Act repealed the 1984 Cable Act's prohibition against local exchange telephone companies ("LECs") providing video programming directly to customers within their local telephone exchange service areas. However, with certain limited exceptions, a LEC may not acquire more than a 10% equity interest in an existing cable system operating within the LEC's service area. The 1996 Telecom Act also authorized LECs and others to operate "open video systems" without obtaining a local cable franchise. See "Competition." The 1984 Cable Act and the FCC's rules prohibit the common ownership, operation, control or interest in a cable system and a local television broadcast station whose predicted grade B contour (a measure of a television station's signal strength as defined by the FCC's rules) covers any portion of the community served by the cable system. The 1996 Telecom Act eliminates the statutory ban and directs the FCC to review its rule within two years. Common ownership or control has historically also been prohibited by the FCC (but not by the 1984 Cable Act) between a cable system and a national television network. The 1996 Telecom Act eliminated this prohibition. Finally, in order to encourage competition in the provision of video programming, the FCC adopted a rule prohibiting the common ownership, affiliation, control or interest in cable television systems and MMDS facilities having overlapping service areas, except in very limited circumstances. The 1992 Cable Act codified this restriction and extended it to co-located SMATV systems. Permitted arrangements in effect as of October 5, 1992 are grandfathered. The 1996 Telecom Act exempts cable systems facing effective competition from the MMDS and SMATV restriction. In addition, a cable operator can purchase a SMATV system serving the same area and technically integrate it into the cable system. The 1992 Cable Act permits states or local franchising authorities to adopt certain additional restrictions on the ownership of cable television systems. -21- 22 Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number of cable systems which a single cable operator can own. In general, no cable operator can have an attributable interest in cable systems which pass more than 30% of all homes nationwide. Attributable interests for these purposes include voting interests of 5% or more (unless there is another single holder of more than 50% of the voting stock), officerships, directorships and general partnership interests. The FCC has stayed the effectiveness of these rules pending the outcome of the appeal from the U.S. District Court decision holding the multiple ownership limit provision of the 1992 Cable Act unconstitutional. The FCC has also adopted rules which limit the number of channels on a cable system which can be occupied by programming in which the entity which owns the cable system has an attributable interest. The limit is 40% of the first 75 activated channels. EEO The 1984 Cable Act includes provisions to ensure that minorities and women are provided equal employment opportunities within the cable television industry. The statute requires the FCC to adopt reporting and certification rules that apply to all cable system operators with more than five full-time employees. Pursuant to the requirements of the 1992 Cable Act, the FCC has imposed more detailed annual EEO reporting requirements on cable operators and has expanded those requirements to all multichannel video service distributors. Failure to comply with the EEO requirements can result in the imposition of fines and/or other administrative sanctions, or may, in certain circumstances, be cited by a franchising authority as a reason for denying a franchisee's renewal request. PRIVACY The 1984 Cable Act imposes a number of restrictions on the manner in which cable system operators can collect and disclose data about individual system customers. The statute also requires that the system operator periodically provide all customers with written information about its policies regarding the collection and handling of data about customers, their privacy rights under federal law and their enforcement rights. In the event that a cable operator is found to have violated the customer privacy provisions of the 1984 Cable Act, it could be required to pay damages, attorneys' fees and other costs. Under the 1992 Cable Act, the privacy requirements are strengthened to require that cable operators take such actions as are necessary to prevent unauthorized access to personally identifiable information. FRANCHISE TRANSFERS The 1992 Cable Act requires franchising authorities to act on any franchise transfer request submitted after December 4, 1992 within 120 days after receipt of all information required by FCC regulations and by the franchising authority. Approval is deemed to be granted if the franchising authority fails to act within such period. REGISTRATION PROCEDURE AND REPORTING REQUIREMENTS Prior to commencing operation in a particular community, all cable television systems must file a registration statement with the FCC listing the broadcast signals they will carry and certain other information. Additionally, cable operators periodically are required to file various informational reports with the FCC. TECHNICAL REQUIREMENTS Historically, the FCC has imposed technical standards applicable to the cable channels on which broadcast stations are carried, and has prohibited franchising authorities from adopting standards which -22- 23 were in conflict with or more restrictive than those established by the FCC. The FCC has revised such standards and made them applicable to all classes of channels which carry downstream National Television System Committee (NTSC) video programming. The FCC also has adopted additional standards applicable to cable television systems using frequencies in the 108-137 Mhz and 225-400 Mhz bands in order to prevent harmful interference with aeronautical navigation and safety radio services and has also established limits on cable system signal leakage. Periodic testing by cable operators for compliance with the technical standards and signal leakage limits is required and an annual filing of the results of these measurements is required. The 1992 Cable Act requires the FCC to periodically update its technical standards to take into account changes in technology. Under the 1996 Telecom Act, local franchising authorities may not prohibit, condition or restrict a cable system's use of any type of subscriber equipment or transmission technology. The FCC has adopted regulations to implement the requirements of the 1992 Cable Act designed to improve the compatibility of cable systems and consumer electronics equipment. These regulations, inter alia, generally prohibit cable operators from scrambling their basic service tier and from changing the infrared codes used in their existing customer premises equipment. This latter requirement could make it more difficult or costly for cable operators to upgrade their customer premises equipment and the FCC has been asked to reconsider its regulations. The 1996 Telecom Act directs the FCC to set only minimal standards to assure compatibility between television sets, VCRs and cable systems, and to rely on the marketplace. The FCC must adopt rules to assure the competitive availability to consumers of customer premises equipment, such as converters, used to access the services offered by cable systems and other multichannel video programming distributors. POLE ATTACHMENTS The FCC currently regulates the rates and conditions imposed by certain public utilities for use of their poles unless state public service commissions are able to demonstrate that they regulate the rates, terms and conditions of cable television pole attachments. A number of states and the District of Columbia have certified to the FCC that they regulate the rates, terms and conditions for pole attachments. In the absence of state regulation, the FCC administers such pole attachment rates through use of a formula which it has devised. The 1996 Telecom Act directs the FCC to adopt a new rate formula for any attaching party, including cable systems, which offer telecommunications services. This new formula will result in significantly higher attachment rates for cable systems which choose to offer such services. OTHER MATTERS FCC regulation pursuant to the Communications Act, as amended, also includes matters regarding a cable system's carriage of local sports programming; restrictions on origination and cablecasting by cable system operators; application of the fairness doctrine and rules governing political broadcasts; customer service; obscenity and indecency; home wiring and limitations on advertising contained in nonbroadcast children's programming. The 1996 Telecom Act establishes a process for the creation and implementation of a "voluntary" system of ratings for video programming containing sexual, violent or other "indecent" material and directs the FCC to adopt rules requiring most television sets manufactured in the United States or shipped in interstate commerce to be technologically capable of blocking the display of programs with a common rating. The 1996 Telecom Act also requires video programming distributors to employ technology to restrict the reception of programming by persons not subscribing to those channels. In the case of channels primarily dedicated to sexually-oriented programming, the distributor must fully block reception of the audio and video portion of the channels; a distributor that is unable to comply with this requirement may only provide such programming during a "safe harbor" period when children are not likely to be in the audience, as determined by the FCC. This provision has been temporarily stayed while certain programmers seek Supreme Court review on constitutional grounds. With respect to other kinds of channels, the 1996 Telecom Act only -23- 24 requires that the audio and video portions of the channel be fully blocked, at no charge, upon request of the person not subscribing to the channel. COPYRIGHT Cable television systems are subject to federal copyright licensing covering carriage of broadcast signals. In exchange for making semi-annual payments to a federal copyright royalty pool and meeting certain other obligations, cable operators obtain a statutory license to retransmit broadcast signals. The amount of this royalty payment varies, depending on the amount of system revenues from certain sources, the number of distant signals carried, and the location of the cable system with respect to over-the-air television stations. Any future adjustment to the copyright royalty rates will be done through an arbitration process supervised by the U.S. Copyright Office. Cable operators are liable for interest on underpaid and unpaid royalty fees, but are not entitled to collect interest on refunds received for overpayment of copyright fees. The Copyright Office has commenced a proceeding aimed at examining its policies governing the consolidated reporting of commonly owned and contiguous cable television systems. The present policies governing the consolidated reporting of certain cable television systems have often led to substantial increases in the amount of copyright fees owed by the systems affected. These situations have most frequently arisen in the context of cable television system mergers and acquisitions. While it is not possible to predict the outcome of this proceeding, any changes adopted by the Copyright Office in its current policies may have the effect of reducing the copyright impact of certain transactions involving cable company mergers and cable television system acquisitions. Various bills have been introduced into Congress over the past several years that would eliminate or modify the cable television compulsory license. Without the compulsory license, cable operators would have to negotiate rights from the copyright owners for all of the programming on the broadcast stations carried by cable systems. Such negotiated agreements would likely increase the cost to cable operators of carrying broadcast signals. The 1992 Cable Act's retransmission consent provisions expressly provide that retransmission consent agreements between television broadcast stations and cable operators do not obviate the need for cable operators to obtain a copyright license for the programming carried on each broadcaster's signal. Copyrighted music performed in programming supplied to cable television systems by pay cable networks (such as HBO) and basic cable networks (such as USA Network) is licensed by the networks through private agreements with the American Society of Composers and Publishers ("ASCAP") and BMI, Inc. ("BMI"), the two major performing rights organizations in the United States. As a result of extensive litigation, both ASCAP and BMI now offer "through to the viewer" licenses to the cable networks which cover the retransmission of the cable networks' programming by cable systems to their customers. Copyrighted music performed by cable systems themselves on local origination channels, in advertisements inserted locally on cable networks, et cetera, must also be licensed. A blanket license is available from BMI. Cable industry negotiations with ASCAP are still in progress. STATE AND LOCAL REGULATION Because a cable television system uses local streets and rights-of-way, cable television systems are subject to state and local regulation, typically imposed through the franchising process. State and/or local officials are usually involved in franchise selection, system design and construction, safety, service rates, consumer relations, billing practices and community related programming and services. -24- 25 Cable television systems generally are operated pursuant to nonexclusive franchises, permits or licenses granted by a municipality or other state or local government entity. Franchises generally are granted for fixed terms and in many cases are terminable if the franchise operator fails to comply with material provisions. Although the 1984 Cable Act provides for certain procedural protections, there can be no assurance that renewals will be granted or that renewals will be made on similar terms and conditions. Franchises usually call for the payment of fees, often based on a percentage of the system's gross customer revenues, to the granting authority. Upon receipt of a franchise, the cable system owner usually is subject to a broad range of obligations to the issuing authority directly affecting the business of the system. The terms and conditions of franchises vary materially from jurisdiction to jurisdiction, and even from city to city within the same state, historically ranging from reasonable to highly restrictive or burdensome. The 1984 Cable Act places certain limitations on a franchising authority's ability to control the operation of a cable system operator and the courts have from time to time reviewed the constitutionality of several general franchise requirements, including franchise fees and access channel requirements, often with inconsistent results. On the other hand, the 1992 Cable Act prohibits exclusive franchises, and allows franchising authorities to exercise greater control over the operation of franchised cable television systems, especially in the area of customer service and rate regulation. The 1992 Cable Act also allows franchising authorities to operate their own multichannel video distribution system without having to obtain a franchise and permits states or local franchising authorities to adopt certain restrictions on the ownership of cable television systems. Moreover, franchising authorities are immunized from monetary damage awards arising from regulation of cable television systems or decisions made on franchise grants, renewals, transfers and amendments. The specific terms and conditions of a franchise and the laws and regulations under which it was granted directly affect the profitability of the cable television system. Cable franchises generally contain provisions governing charges for basic cable television services, fees to be paid to the franchising authority, length of the franchise term, renewal, sale or transfer of the franchise, territory of the franchise, design and technical performance of the system, use and occupancy of public streets and number and types of cable services provided. The 1996 Telecom Act prohibits a franchising authority from either requiring or limiting a cable operator's provision of telecommunications services. Various proposals have been introduced at the state and local levels with regard to the regulation of cable television systems, and a number of states have adopted legislation subjecting cable television systems to the jurisdiction of centralized state governmental agencies, some of which impose regulation of a character similar to that of a public utility. The foregoing does not purport to describe all present and proposed federal, state and local regulations and legislation relating to the cable television industry. Other existing federal regulations, copyright licensing and, in many jurisdictions, state and local franchise requirements, currently are the subject of a variety of judicial proceedings, legislative hearings and administrative and legislative proposals which could change, in varying degrees, the manner in which cable television systems operate. Neither the outcome of these proceedings nor their impact upon the cable television industry can be predicted at this time. -25- 26 ITEM 2. PROPERTIES The Partnership owns substantially all of the assets related to its cable television operations, including its program production equipment, headend equipment (towers, antennae, electronic equipment and satellite earth stations), cable plant (distribution equipment, amplifiers, customer drops and hardware), converters, test equipment, tools and maintenance equipment and vehicles. The Partnership generally leases the real estate on which its business offices, microwave receiving antennae, microwave towers, warehouses, headend facilities and other related equipment are located. Management believes that the Partnership's leased properties are suitable for such purposes. The Partnership paid approximately $91,000 pursuant to all such leases for the year ended December 31, 1996, which leases expire at various dates through 2008. ITEM 3. LEGAL PROCEEDINGS The Partnership is a party to various legal proceedings. Such legal proceedings are ordinary and routine litigation proceedings that are incidental to the Partnership's business and management believes that the outcome of all pending legal proceedings will not, in the aggregate, have a material adverse effect on the financial condition of the Partnership. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. -26- 27 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The following summarizes certain provisions of the Partnership Agreement. All statements made below and elsewhere in this Report on Form 10-K with respect to the Partnership Agreement are qualified in their entirety by reference to the Partnership Agreement, a copy of which is filed as an exhibit hereto. Capitalized terms that are not otherwise defined are used as defined in the Partnership Agreement. LIQUIDITY While the Partnership's equity securities, which consist of Units of limited partnership interests, are publicly held, there is no established trading market for the Units and it is not expected that such a market will develop. The approximate number of equity security holders of record was 6,206 as of February 1, 1997. In addition to restrictions on the transferability of Units contained in the Partnership Agreement, the transferability of Units is affected by restrictions on resales imposed by federal or state law. DISTRIBUTIONS The Partnership will distribute all Cash Available for Distributions, if any, within 45 days after the end of each calendar month. The limited partners will receive 99% and the General Partner will receive 1% of all Cash Available for Distributions. "Cash Available for Distributions" means for any month (i) the sum of Gross Revenues for such month, (ii) less the sum of all expenses for such month (prior to the deduction of interest and depreciation and amortization expenses but including management fees and general partner expenses) calculated in accordance with generally accepted accounting principles, (iii) less any reasonable increase in amounts reserved (or plus any decrease in amounts reserved) for payment by the General Partner for capital expenditures of the Partnership, (iv) less amounts accrued by the General Partner for such month for interest on borrowings of the Partnership and (v) less increases in reserves (or plus decreases in reserves) established by the General Partner in such month for principal payments on borrowings of for obligations or other contingent liabilities of the Partnership. No such distributions have been made since April 15, 1994. See Item 7., "Management's Discussion and Analysis of Financial Condition and Results of Operations." Distributions of Other Distributable Funds, if any, will be made 45 days after the end of each calendar month for which there are Other Distributable Funds. Distributions of Other Distributable Funds will be made 99% to limited partners who own Units which have been issued and outstanding for at least one year and 1% to the General Partner. Such distributions to limited partners will be made pro rata based on the number of such Units held by each limited partner. "Other Distributable Funds" for any month means any borrowings designated by the General Partner to fund cash distributions to Partners for such month. The average distributions to Unitholders amounted to $99.09 per Unit in 1991, $100.28 per Unit in 1992, $84.86 per Unit in 1993 and $11.31 per Unit in 1994. The distributions made during 1993 consisted of approximately $5.7 million of Cash Available for Distributions (described above) and $476,000 from borrowings. There were no borrowings required to fund any portion of the distributions paid in 1994. Cash Available for Distributions differs from cash provided by operating activities due to increases and decreases, over the prior year, of receivables, payables, and other assets and liabilities. The limited partners will receive 99% and the General Partner will receive 1% of distributions of Available Sale Proceeds until the limited partners have received Payback. After the limited partners have received Payback, the limited partners will receive 75% and the General Partner will receive 25% of Available Sale Proceeds. The term "Available Sales Proceeds" means all cash receipts of the Partnership, net of any repayments of outstanding indebtedness, from any sale or refinancing of Partnership assets less such amounts -27- 28 deemed necessary by the General Partner for payments of or reserves for any expenses, contingencies, obligations or capital expenditures of the Partnership and less any proceeds reinvested pursuant to the terms of the Partnership Agreement. "Payback" means, with respect to any limited partner, aggregate cash distributions to the limited partner equal to such limited partner's capital contributions plus the 11% Preferred Return per year computed on such limited partner's Adjusted Capital Contribution. The term "11% Preferred Return" means an 11% per annum (cumulative but not compounded) cash return based on each limited partner's Adjusted Capital Contribution and calculated with respect to any Units from the date of the closing in which such Units were first issued by the Partnership. The "Adjusted Capital Contribution" of a limited partner on which the Payback and the 11% Preferred Return are calculated is the limited partner's capital contribution reduced by the aggregate of cash distributions distributed to the limited partners which is in excess of the amount required to satisfy any 11% Preferred Return. To the extent the Partnership generates cash in excess of the 11% Preferred Return, which is not presently expected, the General Partner intends to apply such excess to retirement of debt. With respect to any limited partner, the 11% Preferred Return will be calculated from the date of the closing of the sale of Units in which such limited partner's Units were first issued by the Partnership. The Partnership Agreement limits borrowings incurred to make distributions to partners to not more than 10% of Gross Proceeds (as defined) from the public offering of the Units (approximately $7.2 million). As of December 31, 1996, the Partnership had incurred an aggregate of approximately $5.4 million in borrowings to make distributions to partners. As noted above, the Partnership suspended distributions subsequent to the April 15, 1994 payment. -28- 29 ITEM 6. SELECTED FINANCIAL DATA Set forth below is selected financial data of the Partnership for the five years ended December 31, 1996. This data should be read in conjunction with the Partnership's financial statements included in Item 8 hereof and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in Item 7.
Year ended December 31, ------------------------------------------------------------------- OPERATIONS STATEMENT DATA 1992 1993 1994 1995 1996 ------- ------- ------- -------- -------- Revenues $14,496 $16,785 $17,382 $ 18,363 $ 19,826 Costs and expenses (7,923) (9,578) (9,497) (10,100) (10,316) Depreciation and amortization (7,942) (8,404) (8,924) (8,526) (7,712) ------- ------- ------- -------- -------- Operating income (loss) (1,369) (1,197) (1,039) (263) 1,798 Interest expense, net (1,026) (1,519) (1,776) (2,010) (1,813) Other expense - - 4 - - ------- ------- ------- -------- -------- Net loss $(2,395) $(2,716) $(2,811) $ (2,273) $ (15) ======= ======= ======= ======== ======== Distributions to partners $ 7,281 $ 6,163 $ 821 $ - $ - ======== ======= ======= ======= ======== PER UNIT OF LIMITED PARTNERSHIP INTEREST: Net loss $ (32.98) $(37.41) $(38.71) $(31.30) $ (0.21) ======== ======= ======= ======= ======== Distributions $100.28 $ 84.86 $ 11.31 $ - $ - ======== ======= ======= ======= ======== OTHER OPERATING DATA Net cash provided by operating activities $5,822 $ 6,169 $ 6,090 $ 6,486 $ 6,747 EBITDA(1) 6,573 7,207 7,885 8,263 9,510 EBITDA to revenues 45.3% 42.9% 45.4% 45.0% 48.0% Total debt to EBITDA 2.7x 3.1x 2.9x 3.3x 2.6x Capital expenditures $5,115 $ 3,889 $ 3,982 $ 5,713 $ 3,033
As of December 31, ------------------------------------------------------------------------ BALANCE SHEET DATA 1992 1993 1994 1995 1996 ------------------------------------------------------------------------ Total assets $67,936 $63,807 $60,060 $62,959 $59,334 Total long-term debt 18,000 22,300 22,500 27,000 24,300 Total liabilities 22,344 27,062 26,939 32,111 28,501 Partners' equity 45,592 36,745 33,121 30,848 30,833
- ----------------- (1) Operating income before depreciation and amortization. The Partnership measures its financial performance by its EBITDA, among other items. Based on its experience in the cable television industry, the Partnership believes that EBITDA and related measures of cash flow serve as important financial analysis tools for measuring and comparing cable television companies in several areas, such as liquidity, operating performance and leverage. This is evidenced by the covenants in the primary debt instruments of the Partnership, in which EBITDA-derived calculations are used as a measure of financial performance. EBITDA should not be considered by the reader as an alternative to net income as an indicator of the Partnership's financial performance or as an alternative to cash flows as a measure of liquidity. -29- 30 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION On February 8, 1996, President Clinton signed into law the 1996 Telecom Act. This statute substantially changed the competitive and regulatory environment for telecommunications providers by significantly amending the Communications Act, including certain of the rate regulation provisions previously imposed by the 1992 Cable Act. Compliance with those rate regulations has had a negative impact on the Partnership's revenues and cash flow. However, in accordance with the FCC's regulations, the Partnership will be able to increase regulated service rates in the future in response to inflation and specified historical and anticipated cost increases, although certain costs may continue to rise at a rate in excess of that which the Partnership will be permitted to pass on to its customers. The 1996 Telecom Act provides that certain of the rate regulations will be phased-out altogether in 1999. Further, the regulatory environment will continue to change pending, among other things, the outcome of legal challenges and FCC rulemaking and enforcement activity in respect of the 1992 Cable Act and the 1996 Telecom Act. There can be no assurance as to what, if any, future action may be taken by the FCC, Congress or any other regulatory authority or court, or the effect thereof on the Partnership's business. Accordingly, the Partnership's historical financial results as described below are not necessarily indicative of future performance. See "Legislation and Regulation" and "- Liquidity and Capital Resources." This Report includes certain forward looking statements regarding, among other things, future results of operations, regulatory requirements, competition, capital needs, the possible sale of assets by the Partnership and general business conditions applicable to the Partnership. Such forward looking statements involve risks and uncertainties including, without limitation, the uncertainty of legislative and regulatory changes and the rapid developments in the competitive environment facing cable television operators such as the Partnership, as discussed more fully elsewhere in this Report. RECENT DEVELOPMENTS As previously reported, the Partnership commenced the Appraisal Process in August 1996 and received the results of the related appraisals in February 1997. As of the date of this Report, the General Partner has not made a decision as to whether or not it will further pursue the acquisition of any Partnership assets at this time. These matters are discussed more fully under the caption Item 13., "Certain Relationships and Related Transactions -- Appraisal Process" and in the Partnership's Current Reports on Form 8-K dated August 27, 1997, October 17, 1997 and February 6, 1997. Unitholders are urged to review the referenced materials carefully. RESULTS OF OPERATIONS 1996 COMPARED TO 1995 The Partnership's revenue increased from $18.4 million to $19.8 million, or by 8.0%, during 1996 compared to 1995. Of the $1.4 million increase, approximately $1.2 million was due to increases in regulated service rates implemented in the second quarter of 1995 and throughout 1996, $215,000 was due to the restructuring of The Disney Channel from a premium channel to a tier channel on July 1, 1996, $219,000 was due to programmer incentives and $93,000 was due to increases in advertising sales. These increases were partially offset by revenue decreases of $264,000, primarily due to reductions in the number of subscriptions for premium cable services. As of December 31, 1996, the Partnership had approximately 47,580 homes subscribing to cable service and 17,510 premium service units. The decrease of 5,400 premium units from December 31, 1995 was due in part to approximately 1,700 Disney premium units that became tier subscriptions under the restructuring discussed above. -30- 31 Service costs remained relatively unchanged at approximately $6 million during 1996 compared to 1995. Service costs represent costs directly attributable to providing cable services to customers. General and administrative expenses increased from $2.6 million to $2.7 million, or by 4.9%, during 1996 compared with 1995. Of the $128,000 increase, $51,000 was due to increases in insurance cost, $30,000 was due to increases in compliance costs associated with re- regulation by the FCC and $47,000 was due to increases in other expenses. General Partner management fees and reimbursed expenses remained constant as a percent of revenue at 8.0%, and increased from $1.5 million to $1.6 million during 1996 compared with 1995. Depreciation an amortization expenses decreased from $8.5 million to $7.7 million, or by 9.5%, during 1996 compared with 1995. The $814,000 decrease was due primarily to certain assets becoming fully amortized in 1996. An operating loss of $263,000 for 1995 became operating income of $1.8 million for 1996. The $2.1 million increase in operating income during 1996 compared with 1995 was due primarily to increased revenues and decreases in depreciation an amortization expense. Net interest expense, including the effects of interest rate hedging agreements, decreased from $2 million to $1.8 million, or by 9.8%, during 1996 compared to 1995. The $197,000 decrease was due primarily to interest income earned on higher cash balances offset by an increase in interest expense due to higher average debt balances (because the $5.6 million borrowed on December 29, 1995 was not outstanding during 1995). The hedging agreements resulted in higher interest expense of $19,000 and $117,000 for the years ended December 31, 1995 and 1996, respectively. Due to the factors described above, the Partnership's net loss decreased from $2.3 million to $15,000 during 1996 compared to 1995. 1995 COMPARED TO 1994 The Partnership's revenues increased from $17.4 million to $18.4 million, or by 5.6%, during 1995 compared to 1994. Of the $981,000 increase, approximately $691,000 was due to increases in the number of subscriptions for services, $414,000 was due to an increase in regulated service rates implemented during April 1995, $73,000 was due to an increase in premium service rates implemented during December 1994, $38,000 was due to increases in advertising sales and $28,000 was due to commissions earned from the Home Shopping Network. These increases were partially offset by rate decreases implemented in 1994 to comply with the 1992 Cable Act, estimated by the Partnership to be approximately $279,000. As of December 31, 1995, the Partnership had approximately 47,960 homes subscribing to cable service and 22,920 premium service units. Service costs increased from $5.3 million to $6 million, or by 14.4%, during 1995 compared to 1994. Service costs represent costs directly attributable to providing cable services to customers. The $761,000 increase in service costs was primarily related to an increase of $529,000 in programming (including primary satellite fees), an increase of $156,000 in property taxes, an increase of $49,000 in copyright fees and an increase of $42,000 in franchise fees. The increase in programming expense was due to a combination of higher rates charged by program suppliers and expanded programming usage relating to channel line-up restructuring and retransmission consent arrangements implemented to comply with the 1992 Cable Act. General and administrative expenses decreased from $2.8 million to $2.6 million, or by 8.4%, during 1995 compared with 1994. The $236,000 decrease was primarily related to decreases of $121,000 in costs associated with marketing activities, decreases of $54,000 in costs associated with advertising sales and decreases of $50,000 in bad debts. -31- 32 General Partner management fees and reimbursed expenses remained constant as a percent of revenue (8%), and increased from $1.4 million to $1.5 million during 1995 compared with 1994. Depreciation and amortization expenses decreased from $8.9 million to $8.5 million, or by 4.5%, during 1995 compared with 1994. The $398,000 decrease was primarily due to the acceleration of depreciation on certain assets retired in 1994. Operating loss decreased from $1.0 million to $263,000, or by 74.7%, during 1995 compared with 1994. The $776,000 decrease was due primarily to increased revenues and to decreases in costs associated with marketing activities and in reduced depreciation and amortization expenses, partially offset by increases in programming fees and property taxes. Net interest expense, including the effects of interest rate hedging agreements, increased from $1.8 million to $2 million, or by 13.2%, during 1995 compared to 1994. The $234,000 increase was due primarily to higher interest rates. The hedging agreements resulted in additional interest expense of $82,000 and $19,000 for the years ended December 31, 1994 and 1995, respectively. Due to the factors described above, the Partnership's net loss decreased from $2.8 million to $2.3 million during 1995 compared to 1994. LIQUIDITY AND CAPITAL RESOURCES The Partnership's primary objective, having invested its net offering proceeds in cable systems, is to distribute to its partners all available cash flow generated from operations and proceeds from the sale of cable systems, if any, after providing for expenses, debt service and capital requirements relating to possible improvement and upgrade of its Systems. The Partnership relies upon the availability of cash generated from operations and possible borrowings to fund its ongoing capital requirements. In general, these requirements involve expansion, improvement and upgrade of the Partnership's existing Systems. The Partnership has encountered liquidity difficulties due in part to the adverse effects of the 1992 Cable Act and new competitive pressures resulting from both technological advances as well as from the 1996 Telecom Act which will require that material amounts of capital be invested in the Partnership's Systems. As previously reported, in response to the FCC's amended rate regulation rules, distributions to Unitholders were discontinued subsequent to the April 15, 1994 payment in order to preserve cash resources. The Partnership also delayed the majority of its rebuild and upgrade capital expenditure programs that had been scheduled for 1994, 1995 and 1996 in order to preserve liquidity. See "Legislation and Regulation." The Partnership's access to capital remains severely constrained primarily due to the limitations imposed by the Partnership Agreement. This limitation on indebtedness, which is discussed below, is at odds with the need to increase leverage and to spend approximately $35 million to rebuild and upgrade the Partnership's Systems (of which approximately $650,000 is mandated by franchise agreements). The Partnership spent an aggregate of approximately $3 million in 1996 for all capital expenditures, including approximately $220,000 to begin the upgrade of a portion of one System, which represented the minimum level of expenditures that management believes were necessary in 1996 to comply with franchise authority and FCC technical requirements. As a result, the Partnership's Systems are significantly less technically advanced than had been expected prior to the implementation of re-regulation. The Partnership believes that the delays in upgrading many of its systems will, under present market conditions, most likely have an adverse affect on the value of those systems compared to systems that have been rebuilt to a higher technical standard. On December 29, 1995, the Partnership borrowed $5.6 million under its Bank Credit Agreement because the revolving credit portion of that facility was scheduled to convert to a term loan on December 31, 1995. The Partnership's management believes that the Partnership's anticipated cash resources and cash flow -32- 33 from operations in 1997 will be sufficient to fund its capital expenditure plans (as adjusted) and the required principal payments on its debt of $4.1 million scheduled for 1997. As of December 31, 1996, the amount outstanding under the Partnership's amended Bank Credit Agreement was $24.3 million. As discussed above, the Partnership had no additional borrowings available to it. At December 31, 1996, such borrowings bore interest at an average rate of 7.8% (including the effect of interest rate swap transactions). The Bank Credit Agreement also contains various restrictions relating to, among other things, mergers and acquisitions, investments, capital expenditures, a change in control and the incurrence of additional indebtedness and also requires compliance with certain financial covenants. Management believes that the Partnership was in compliance with all such requirements as of December 31, 1996. The Bank Credit Agreement requires principal repayments of $4.1 million in 1997 and $5.4 million in 1998. The Partnership Agreement provides that without the approval of a majority of interests of limited partners, the Partnership may not incur any borrowings unless the amount of such borrowings together with all outstanding borrowings does not exceed 30% of the greater of the aggregate cost or current fair market value of the Partnership's assets as determined by the General Partner. As discussed above, in order to spend the appropriate amount of capital to rebuild and upgrade the Partnership's systems, this provision of the Partnership Agreement would need to be amended to significantly increase the Partnership's leverage because the Partnership's management does not believe that it will be able to fund future rebuild requirements entirely from cash resources and operating cash flow. The Partnership's management agreement with the General Partner requires deferral of the payment of up to 50% of the management fees, without interest, unless Adjusted Operating Cash (as defined) for such month exceeds a 10% annualized return calculated with respect to outstanding Partnership Units. To the extent that Adjusted Operating Cash exceeds such amount, the General Partner may recover previously deferred fees, without interest. In compliance with these provisions, the General Partner received its standard management fee for 1996 and recovered $900,000 in previously deferred management fees. The Partnership presently anticipates that Adjusted Operating Cash in the first quarter of 1997 will exceed the 10% requirement thereby permitting the Partnership to pay the remaining $276,000 deferred fees to the General Partner. The Partnership Agreement also limits borrowings incurred to make distributions to partners to not more than 10% of Gross Proceeds from the public offering of the Units (approximately $7.2 million). As of December 31, 1996, the Partnership had incurred an aggregate of approximately $5.4 million in borrowings to make distributions to partners. The Partnership discontinued distributions subsequent to the April 15, 1994 payments. 1996 VS 1995 Cash provided by operating activities increased from $6.5 million to $6.7 million, or by $261,000, for the year ended December 31, 1996 compared to 1995. The increase resulted from a decrease in the net loss of $2.3 million, $814,000 of which resulted from a decrease in non-cash depreciation and amortization; and from a decrease of $1.2 million in other operating items (receivables, prepaid expenses and other assets, cable materials, equipment and supplies, payables, accrued expenses and customer deposits and prepayments), which includes the $900,000 decrease in deferred management fees discussed above. Cash used in investing activities decreased by $2.8 million during 1996 compared to 1995, primarily due to a decrease in capital expenditures. Cash used by financing activities increased $7.2 million because of increased net repayment of debt of $2.7 million during 1996 compared to net borrowings of $4.5 million during 1995. Operating income before depreciation and amortization (EBITDA) as a percentage of revenues increased from 45.0% to 48.0% during 1996 compared to 1995. The increase was primarily caused by increased -33- 34 revenues, as described above. EBITDA increased from $8.3 million to $9.5 million, or by 15.1%, during 1996 compared to 1995. 1995 VS. 1994 Cash provided by operating activities increased from $6.1 million to $6.5 million, or by $396,000, for the year ended December 31, 1995 compared to 1994. The increase resulted from an increase of $248,000 in other operating items (receivables, prepaid assets, cable materials, equipment and supplies, payables, accrued expenses and customer deposits and prepayments) and a decrease of $538,000 in the net loss partially reduced by a decrease in non-cash depreciation and amortization charges of $390,000. Cash used in investing activities increased by $1.9 million during 1995 compared to 1994, due to a $1.7 million increase in capital expenditures and a $132,000 increase in intangible assets. Cash provided by financing activities increased $6 million due to a $4.3 million increase in net borrowings and the absence of any distributions paid to partners in 1995 versus the $1.7 million paid in 1994. Operating income before depreciation and amortization (EBITDA) as a percentage of revenues decreased from 45.4% to 45.0% during 1995 compared to 1994. The decrease was primarily caused by increases in programming costs and other expenses in excess of increased revenues, as described above. EBITDA increased from $7.9 million to $8.3 million during 1995 compared to 1994. RECENT ACCOUNTING PRONOUNCEMENTS In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. In such cases, impairment losses are to be recorded, based on estimated fair value, which would generally approximate discounted cash flows. Statement 121 also addresses the accounting for long-lived assets that are expected to be disposed of. The Partnership adopted Statement 121 in the first quarter of 1996, the effects of which were not material. INFLATION Certain of the Partnership's expenses, such as those for wages and benefits, equipment repair and replacement, and billing and marketing generally increase with inflation. However, the Partnership does not believe that its financial results have been, or will be, adversely affected by inflation in a material way, provided that it is able to increase its service rates periodically, of which there can be no assurance. See "Legislation and Regulation." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA The financial statements and related financial information required to be filed hereunder are indexed on Page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. -34- 35 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The Partnership Agreement provides that the General Partner shall manage the business and affairs of the Partnership. The business and affairs of the General Partner are managed by its general partner, FHGLP. FHGI serves as the sole general partner of FHGLP. As such, FGHI is responsible for the management of the business and operations of the Partnership. The officers and directors are subject to certain conflicts of interest relating to time and services devoted to the Partnership. See Item 13., "Certain Relationships and Related Transactions - Conflicts of Interest." EXECUTIVE OFFICERS AND DIRECTORS The directors and executive officers of FHGI and Falcon Cable Group, the operating division of FHGLP, are:
Name Age Position - ----------------- --- ----------------------------------------------------------- Marc B. Nathanson 51 Chairman of the Board, Chief Executive Officer and Director of FHGI Frank J. Intiso 50 President and Chief Operating Officer Stanley S. Itskowitch 58 Executive Vice President, General Counsel and Director of FHGI Michael K. Menerey 45 Chief Financial Officer and Secretary Joe A. Johnson 52 Executive Vice President - Operations Jon W. Lunsford 37 Vice President - Finance and Corporate Development
The following sets forth certain biographical information with respect to the directors and executive officers of FHGI and Falcon Cable Group: MARC B. NATHANSON, 51, has been Chairman of the Board and Chief Executive Officer of FHGI and its predecessors since 1975, and prior to September 19, 1995 also served as President. Prior to 1975, Mr. Nathanson was Vice President of Marketing for Teleprompter Corporation, then the largest MSO in the United States. He also held executive positions with Warner Cable and Cypress Communications Corporation. He is a former President of the California Cable Television Association and a member of Cable Pioneers. He is currently a Director of the National Cable Television Association ("NCTA") and serves on its Executive Committee. At the 1986 NCTA convention, Mr. Nathanson was honored by being named the recipient of the Vanguard Award for outstanding contributions to the growth and development of the cable television industry. Mr. Nathanson is a 27-year veteran of the cable television industry. He is a founder of the Cable Television Administration and Marketing Society ("CTAM") and the Southern California Cable Television Association. Mr. Nathanson has also served as Chairman of the Board, Chief Executive Officer and President of Enstar Communications Corporation ("Enstar") since October 1988. Mr. Nathanson is also a Director of T.V. Por Cable Nacional, S.A. de C.V. and Chairman of the Board and Chief Executive Officer of Falcon International Communications, LLC ("FIC"), a separately capitalized affiliated company whose members and management also include certain limited partners and management of FHGLP. Mr. Nathanson was appointed by President Clinton and confirmed by the U.S. Senate for a three year term on the Board of Governors of International Broadcasting of the United States Information Agency. -35- 36 FRANK J. INTISO, 50, was appointed President and Chief Operating Officer of FHGI in September 1995, and between 1982 and that date held the positions of Executive Vice President and Chief Operating Officer. Mr. Intiso is responsible for the day-to-day operations of all cable television systems under the management of Falcon Cable Group, and has served as President and Chief Operating Officer of Falcon Cable Group since its inception, and has also served as Executive Vice President and as a Director of Enstar since October 1988. Mr. Intiso has a Masters Degree in Business Administration from the University of California, Los Angeles and is a Certified Public Accountant. He serves as Chair of the California Cable Television Association and is on the boards of the Cable Advertising Bureau, Cable in the Classroom, Community Antenna Television Association and California Cable Television Association. He is a member of the American Institute of Certified Public Accountants, the American Marketing Association, the American Management Association and the Southern California Cable Television Association. STANLEY S. ITSKOWITCH, 58, has been a Director of FHGI and its predecessors since 1975, and Senior Vice President and General Counsel from 1987 to 1990 and has been Executive Vice President and General Counsel since February 1990. He has been President and Chief Executive Officer of F.C. Funding, Inc. (formerly Fallek Chemical Company), which is a marketer of chemical products, since 1980. He is a Certified Public Accountant and a former tax partner in the New York office of Touche Ross & Co. (now Deloitte & Touche LLP). He has a J.D. Degree and an L.L.M. Degree in Tax from New York University School of Law. Mr. Itskowitch has also served as Senior Vice President or Executive Vice President and as a Director of Enstar since October 1988. Mr. Itskowitch is also Executive Vice President and General Counsel of FIC. MICHAEL K. MENEREY, 45, has been Chief Financial Officer and Secretary of FHGI and its predecessors since 1984 and has been Chief Financial Officer and Secretary of Falcon Cable Group since its inception. Mr. Menerey is a Certified Public Accountant and is a member of the American Institute of Certified Public Accountants and the California Society of Certified Public Accountants, and he was formerly associated with BDO Seidman. Mr. Menerey has also served as Chief Financial Officer, Secretary and as a Director of Enstar since October 1988. JOE A. JOHNSON, 52, has been Executive Vice President of Operations of FHGI since September 1995, and between January 1992 and that date was a Senior Vice President of Falcon Cable Group. He was a Divisional Vice President of FHGI between 1989 and 1992 and a Divisional Vice President of Falcon Cable Group from its inception until 1992. From 1982 to 1989, he held the positions of Vice President and Director of Operations for Sacramento Cable Television, Group W Cable of Chicago and Warner Amex. From 1975 to 1982, Mr. Johnson held Cable System and Regional Manager positions with Warner Amex and Teleprompter. JON W. LUNSFORD, 37, has been Vice President - Finance and Corporate Development of FHGI since September 1994. From 1991 to 1994, he served as Director of Corporate Finance at Continental Cablevision, Inc. Prior to 1991, Mr. Lunsford was a Vice President with Crestar Bank. OTHER OFFICERS OF FALCON The following sets forth, as of December 31, 1995, certain biographical information with respect to additional members of the management of Falcon Cable Group: LYNNE A. BUENING, 43, has been Vice President of Programming of Falcon Cable Group since November 1993. From 1989 to 1993, she served as Director of Programming for Viacom Cable, a division of Viacom International Inc. Prior to that, Ms. Buening held programming and marketing positions in the cable, broadcast and newspaper industries. OVANDO COWLES, 43, has been Vice President of Advertising Sales and Production of Falcon Cable Group since January 1992. From 1988 to 1991, he served as a Director of Advertising Sales and Production at Cencom Cable Television in Pasadena, California. He was an Advertising Sales Account Executive at Choice -36- 37 Television from 1985 to 1988. From 1983 to 1985, Mr. Cowles served in various sales and advertising positions. ABEL CRESPO, 37, has been Controller of Falcon Cable Group since January 1997. Mr. Crespo joined Falcon in December 1984 and has held various accounting positions during that time, most recently that of Senior Assistant Controller. Mr. Crespo holds a Bachelor of Science degree in Business Administration from California State University, Los Angeles. HOWARD J. GAN, 50, has been Vice President of Regulatory Affairs of FHGI and its predecessors since 1988 and Vice President of Regulatory Affairs of Falcon Cable Group since its inception. He was General Counsel at Malarkey-Taylor Associates, a Washington, D.C.-based telecommunications consulting firm, from 1986 to 1988. Mr. Gan was Vice President and General Counsel at the Cable Television Information Center from 1978 to 1983. In addition, he was an attorney and an acting Branch Chief of the Federal Communications Commission's Cable Television Bureau from 1975 to 1978. R.W. ("SKIP") HARRIS, 49, has been Vice President of Marketing of Falcon Cable Group since June 1991. He is a member of the CTAM Premium Television Committee. Mr. Harris was National Director of Affiliate Marketing for the Disney Channel from 1985 to 1991. He was also a sales manager, regional marketing manager and director of marketing for Cox Cable Communications from 1978 to 1985. JOAN SCULLY, 61, has been Vice President of Human Resources of FHGI and its predecessors since May 1988 and Vice President of Human Resources Falcon Cable Group since its inception. From 1987 to May 1988, she was self-employed as a Management Consultant to cable and transportation companies. She served as Director of Human Resources of a Los Angeles based cable company from 1985 through 1987. Prior to that time, she served as a human resource executive in the entertainment and aerospace industries. Ms. Scully holds a Masters Degree in Human Resources Management from Pepperdine University. MICHAEL D. SINGPIEL, 49, was appointed Vice President of Operations of Falcon Cable Group in March 1996. Mr. Singpiel joined Falcon in October 1992 as Divisional Vice President of Falcon's Eastern Division. From 1990 to 1992, Mr. Singpiel was Vice President of C-Tec Cable Systems in Michigan. Mr. Singpiel held various positions with Comcast in New Jersey and Michigan from 1980 to 1990. RAYMOND J. TYNDALL, 49, has been Vice President of Engineering of Falcon Cable Group since October 1989. From 1975 to September 1989, he held various technical positions with Choice TV and its predecessors. From 1967 to 1975, he held various technical positions with Sammons Communications. He is a certified National Association of Radio and Television Engineering ("NARTE") engineer in lightwave, microwave, satellite and broadband. In addition, Falcon Cable Group has six Divisional Vice Presidents who are based in the field. They are Ron L. Hall, Michael E. Kemph, Nicholas A. Nocchi, Larry L. Ott, Robert S. Smith and Victor A. Wible. ADVISORY COMMITTEE AND CONFLICTS COMMITTEE The General Partner has formed an eight member Advisory Committee, members of which are non-employees. Members of the Advisory Committee are appointed by the General Partner and can be removed only by a vote of a majority of the Advisory Committee. Members meet periodically to review the operations of the Partnership and to advise management. The unaffiliated members of the Advisory Committee constitute the Conflicts Committee and may be called upon from time to time to review activities, policies and practices of the Partnership dealing with all matters about which conflicts of interest may arise. -37- 38 The following individuals have been appointed to the Advisory Committee: Marc B. Nathanson. Mr. Nathanson has been Chairman of the Board and Chief Executive Officer of FHGI or its predecessors since 1975, and prior to September 19, 1995 also served as President. Frank J. Intiso. Mr. Intiso was appointed President and Chief Operating Officer of FHGI in 1995 and between 1982 and that date he held the positions of Executive Vice President and Chief Operating Officer of FHGI or its predecessors. Burt I. Harris. Mr. Harris is President and Chief Executive Officer of Harriscope Corporation, which controls the ownership and operations of KWHY-TV, Los Angeles, California. He is a former President and Chairman of Harris Cable Corporation and a former Vice- Chairman of Warner Cable. He has been a member of the National Cable Television Association (NCTA) for over 25 years and was Chairman of the NCTA from 1976 to 1977. In 1979, he was presented with "The Vanguard Award," the highest recognition of an individual in the cable television industry. He is also a director of various corporations and, prior to its dissolution in August 1996, was also a member of the Advisory Committee for Falcon Cable Systems Company. Henry Winkler. Mr. Winkler is a principal of Winkler/Daniels Productions, as well as an actor and a director. Mr. Winkler earned popular and critical acclaim for his portrayal of "The Fonz" on ABC-TV's "Happy Days" for ten seasons (1974-84). Since 1979, he has been involved with several different entities, including Winkler/Daniels, which produces feature films and television programming, including the hit series "Sightings." Additionally, Mr. Winkler has been honorary chairman of United Friends of the Children and national chairman of the annual Toys for Tots campaign. He holds a Bachelor of Arts degree from Emerson College and a Master of Fine Arts degree from the Yale School of Drama. Peter L. S. Currie. Mr. Currie is Senior Vice President and Chief Financial Officer of Netscape Communications Corporation. Prior to joining Netscape, Mr. Currie served as Executive Vice President and Chief Financial Officer of McCaw Cellular Communications, a leading provider of wireless communications services. Before that, he was a principal in the Investment Banking Division of Morgan Stanley & Co., Incorporated. Mark E. Buchman. Mr. Buchman, a business consultant, was President and Chief Executive Officer of Liberty Bank, Honolulu, Hawaii, until July 1994. Previously he was President and Chief Executive Officer of the Bank of Los Angeles. Mr. Buchman was appointed President and Chief Executive Officer of the Government National Mortgage Association by President Reagan and served in this capacity from 1988 to 1989. Mr. Buchman served as Executive Vice President/Division Manager, Corporate Banking for Union Bank from 1982 to 1988. Mr. Buchman was associated with Manufacturers Hanover Bank for twenty years, the majority of which he spent in the International Division in the Asian/Pacific area. While at Manufacturers Hanover, Mr. Buchman's positions included serving as the bank's Far Eastern Representative in Tokyo and the Asian Banking Group's Senior Vice President and Division Manager. Mr. Buchman is a graduate of the University of Pennsylvania and completed the Advanced Management Program at the Harvard Graduate School of Business Administration. John K. Van de Kamp. Mr. Van de Kamp is of counsel in the Los Angeles office of the Law Firm of Dewey Ballantine and is a member of the California Bar. He is also President of the Thoroughbred Owners of California. From 1983 to 1991, Mr. Van de Kamp served as the California Attorney General. From 1975 to 1983, Mr. Van de Kamp served as Los Angeles County District Attorney. From 1971 to 1975, Mr. Van de Kamp served as first Federal Public Defender, Central District of California, Los Angeles. In 1970, Mr. Van de Kamp served as Special Assistant to the President's Commission on Campus Unrest (the Scranton Commission). From 1966 to 1967, Mr. Van de Kamp served as United States Attorney, Central District of California, Los Angeles. From 1960 to 1966, Mr. Van de Kamp served as Assistant United States Attorney, Chief of the Criminal Division, Chief Assistant U.S. Attorney, Los Angeles. Mr. Van de Kamp is a graduate of Dartmouth College. Mr. Van de Kamp received a J. D. degree from the Stanford University School of Law. -38- 39 Ned S. Robertson. Mr. Robertson has been an attorney since 1971 and is currently a partner in the law firm of Aronberg Goldgehn Davis & Garmisa in Chicago, Illinois. Mr. Robertson received a bachelor of arts degree from Hobart College in 1967, majoring in political science, and his Juris doctorate from IIT Chicago-Kent College of Law in 1971. He has published several articles on estate planning and family business issues and has lectured on these subjects. He is a past chairman of the Medical Research Institute Council, an organization that raised substantial funds for research at Michael Reese Hospital and Medical Center, Chicago, Illinois. Mr. Robertson is a member of the Illinois State Bar Association, the Chicago Bar Association and the Chicago Estate Planning Council. He is also Chairman of Division 1 of the Trust Law Committee of the Chicago Bar Association and a member of the Franchise Advisory Board to the Illinois Attorney General. Mr. Robertson's law firm has provided legal counsel to affiliates of Falcon. The Partnership Agreement provides that members of the Advisory Committee will not be liable to the Partnership or the Limited Partners for certain acts or omissions. See Item 13., "Certain Relationships and Related Transactions-Fiduciary Responsibility and Indemnification of the General Partner." Non-employee members of the Advisory Committee are paid $5,000 per annum, plus reimbursement of expenses. ITEM 11. EXECUTIVE COMPENSATION The following summarizes compensation, fees and distributions that may or will be paid by the Partnership to the General Partner and FHGLP. For more detailed information, see the Partnership Agreement. MANAGEMENT FEE FHGLP, pursuant to the Partnership Agreement, manages all aspects of daily operations of the Partnership's systems, including engineering, maintenance, programming, advertising, marketing and sales programs, preparation of financial reports, budgets and reports to governmental and regulatory agencies and liaison with federal, state and local government officials. FHGLP is entitled to receive a management fee (the "Management Fee") equal to 5% of the Partnership's Gross Operating Revenues. "Gross Operating Revenues" means the total revenues derived by the Partnership but does not include interest income or Available Sale Proceeds. However, during any month commencing after 18 months from the initial closing of the sale of Units, up to 50% of the Management Fee will not be paid currently unless Adjusted Operating Cash for the month exceeds the Subordination Amount for that month. "Adjusted Operating Cash" means for any month (i) the sum of gross revenues for such month, (ii) less the sum of all expenses of the Partnership for such month (other than depreciation and amortization expenses, the Management Fee and interest expense) calculated in accordance with generally accepted accounting principles, (iii) less, for any month beginning with the first full calendar month commencing 42 months after the initial closing of the sale of Units, interest accrued by the General Partner for such month for all interest on borrowings of the Partnership and (iv) less 50% of the Management Fee attributable to such month. "Subordination Amount" means for any month, a 10% annualized return, calculated with respect to Units in each month by determining 0.833% of the Adjusted Capital Contribution attributable to each Unit on the last day of such month, but calculated only with respect to Units issued and outstanding for more than 12 months. To the extent Adjusted Operating Cash for any month exceeds the Subordination Amount for that month, FHGLP will be entitled to recover deferred Management Fees, if any. In addition, if Payback is achieved (which is not presently expected), then the Partnership may pay the unpaid balance of Management Fees for all prior periods. If Payback is not achieved, the Partnership will not be required to pay the unpaid Management Fees. For the year ended December 31, 1996, the management fees and reimbursed expenses totaled $1.6 million, all of which was paid currently in cash in accordance with the Partnership Agreement. In addition, in accordance with the Partnership Agreement the Partnership also paid $900,000 of fees to the General Partner that had been deferred in prior years to give effect to the amount of Adjusted Operating Cash realized. -39- 40 PARTICIPATION IN DISTRIBUTIONS The General Partner is entitled to share in distributions from, and profits and losses in, the Partnership. See Item 5, "Market for Registrant's Common Equity and Related Stockholder Matters." DISPOSITION FEES AND EXPENSES A disposition fee equal to 1% of the sale price received by the Partnership for the sale of cable systems to unaffiliated third parties is payable to FHGLP provided that no such fee shall be paid unless and until the Limited Partners have received a return of their total capital contributions and a cumulative (but not compounded) six percent annual return on their Adjusted Capital Contributions. The Partnership will reimburse the General Partner and FHGLP for certain disposition expenses whether or not a cable system is, in fact, disposed of and regardless of the limit on General Partner Expenses, except that certain expenses of the General Partner itself may be subject to limitations on reimbursement. In case of cable systems disposed of by the Partnership in exchange for other cable systems and cash, the disposition fee will be paid only with respect to the cash (or cash equivalents such as promissory notes) portion of the sale price. No disposition fee will be paid on sales of cable systems to the General Partner or any of its affiliates. ACQUISITION FEES AND EXPENSES An acquisition fee equal to 1% of the purchase price paid to sellers of cable systems acquired by the Partnership from unaffiliated third parties is payable to FHGLP. The Partnership will reimburse the General Partner and FHGLP for acquisition expenses incurred in connection with the investigation and analysis of acquisitions whether or not a cable system is, in fact, acquired and regardless of any limit on General Partner Expenses. No acquisition fee will be paid with respect to acquisitions made with reinvested Available Sale Proceeds. "Available Sales Proceeds" means all cash receipts of the Partnership, net of any repayments of outstanding indebtedness, from any sale or refinancing of partnership assets less such amounts deemed necessary by the General Partner for payments of or reserves for any expenses, contingencies, obligations or capital expenditures of the Partnership and less any proceeds reinvested pursuant to the terms of the Partnership Agreement. In the case of cable systems acquired by the Partnership in exchange for other cable systems and cash, the acquisition fee will be paid only with respect to the cash (or cash equivalents such as Partnership promissory notes) portion of the purchase price. GENERAL PARTNER EXPENSES AND MANAGEMENT EXPENSES The Partnership will reimburse the General Partner and FHGLP for certain direct and indirect expenses incurred on behalf of the Partnership in connection with the administration of the Partnership and management of the Partnership's cable systems in an amount up to 3% of Gross Operating Revenues. The foregoing cumulative limitation on General Partner Expenses and Management Expenses does not apply to Acquisition Expenses or Disposition Expenses. The expenses subject to reimbursement include all direct and indirect expenses (including legal and accounting fees, overhead and travel and communication expenses) incurred by FHGLP in connection with the management of the cable systems of the Partnership, or any successor manager of such systems. "Acquisition Expenses" means expenses, including any brokerage fees or commissions, legal fees or expenses, the cost of any credit reports, appraisals, consulting fees or miscellaneous expenses (including travel and communications expenses) incurred by the General Partner or FHGLP in connection with services rendered in acquiring cable systems, whether or not acquired, pursuant to the Partnership Agreement or the Management Agreement. "Disposition Expenses" means any brokerage fees or commissions, legal fees or expenses, the cost of any credit reports, appraisals, consulting fees or miscellaneous expenses (including travel and communications expenses) incurred by the General Partner or FHGLP in connection with services rendered in disposing of or refinancing cable systems pursuant to the Partnership Agreement. General Partner Expenses and Management Expenses reimbursed by the Partnership will be usual and customary expenses for services provided. -40- 41 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 3, 1997, the common stock of FHGI was owned as follows: 78.5% by Falcon Cable Trust, a grantor trust of which Marc B. Nathanson is trustee and he and members of his family are beneficiaries; 20% by Greg A. Nathanson; and 1.5% by Stanley S. Itskowitch. In 1989, FHGI issued to Hellman & Friedman Capital Partners, A California Limited Partnership ("H&F"), a $1,293,357 convertible debenture due 1999 convertible under certain circumstances into ten percent of the common stock of FHGI and entitling H&F to elect one director to the board of directors of FHGI. H&F elected Marc B. Nathanson pursuant to such right. In 1991 FHGI issued to Hellman & Friedman Capital Partners II, A California Limited Partnership ("H&FII"), additional convertible debentures due 1999 in the aggregate amount of $2,006,198 convertible under certain circumstances into approximately 6.3% of the common stock of FHGI and entitling H&FII to elect one director to the board of directors of FHGI. As of March 3, 1997, H&FII had not exercised this right. FHGLP also held 12.1% of the interests in the General Partner, and Falcon Cable Trust, Frank Intiso and H&FII held 58.9%, 12.1% and 16.3% of the General Partner, respectively. Such interests entitle the holders thereof to an allocable share of cash distributions and profits and losses of the General Partner in proportion to their ownership. Greg A. Nathanson is Marc B. Nathanson's brother. As of March 3, 1997, Marc B. Nathanson and members of his family owned, directly or indirectly, outstanding partnership interests (comprising both general partner interests and limited partner interests) aggregating approximately 2.58% of Falcon Video Communications and representing 0.46% of the Partnership. In accordance with the respective partnership agreements of these partnerships, after the return of capital to and the receipt of certain preferred returns by the limited partners of such partnerships, FHGLP and certain of its officers and directors had rights to future profits greater than their ownership interests of capital in such partnerships. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CERTAIN TRANSACTIONS FHGLP and its affiliates, including Marc B. Nathanson and other members of the senior management team, currently own varying interests in and operate additional cable television systems, currently manage additional cable television systems for the accounts of others, and, subject to the terms of the Partnership Agreement, may form, jointly or separately, other limited partnerships or entities to acquire, develop and operate other cable television systems. The current management activities of FHGLP's senior management are primarily on behalf of certain affiliated cable television partnerships, for which FHGLP receives management fees. As a result of such relationships, however, conflicts of interest may arise at various stages with respect to the allocation of time, personnel and other resources of FHGLP and such other affiliates and members of senior management. FHGLP has leased certain office space for its corporate financial center (located in Pasadena, California) from a partnership owned by Marc B. Nathanson and his wife. The lease commenced on October 1, 1990 and has been extended through September 30, 2005. The rent is currently approximately $33,000 per month and is indexed for inflation. The terms of the current lease have been negotiated on an arm's length basis. It is expected that any future modifications to the leasing agreement will be approved by the members of the Board of Representatives of FHGLP other than Marc B. Nathanson. APPRAISAL PROCESS As previously disclosed in prior filings with the Commission, the Partnership may, in the sole discretion of its General Partner, sell individual cable Systems and may also sell all or substantially all of the Partnership's assets to the General Partner or its affiliates, which include FHGLP. Any such sale would be -41- 42 subject to certain terms and conditions set forth in the Partnership Agreement and summarized below and in prior filings with the Commission. The Partnership has stated in its prior filings with the Commission that the General Partner and its affiliates may consider and otherwise investigate the exercise of the purchase rights provided to them under the Partnership Agreement from time to time at their discretion. The Partnership Agreement provides that any sale of Partnership assets to the General Partner or any of its affiliates must be made in cash pursuant to the "Appraisal Process." "Appraisal Process" is defined in the Partnership Agreement as an appraisal undertaken by three independent nationally recognized experts in the cable television field to determine the fair market value of the cable systems to be appraised. One such appraiser must be appointed by the General Partner, one by the Partnership's Conflicts Committee and the third by the first two appraisers acting jointly. The Partnership Agreement specifies that the Conflicts Committee be comprised of the independent members of the Advisory Committee (i.e., the members of the Advisory Committee that are not affiliates of, or otherwise have certain material business or professional relationships with, the General Partner or its affiliates). The appraised value pursuant to the Appraisal Process will be deemed to be the median of the three appraised values and, if any appraised value is expressed as a range, then in calculating the median, the mean amount of the range of such appraised value shall be used. No appraisals arising in affiliated transactions may be conducted at the Partnership's expense. Appraisers selected pursuant to the Appraisal Process may not have any interest in, nor any material business or professional relationship with, the Partnership, the General Partner or any of its affiliates. For the purposes of determining whether or not the business or professional relationship or joint investment is material, the gross revenue derived by the appraiser from the Partnership, the General Partner or any affiliate shall not exceed 5% of the annual gross revenue derived by the appraiser from all sources. Except under certain circumstances, sales of assets by the Partnership to the General Partner or its affiliates prior to January 1, 1997 would have required an affirmative vote of a majority of limited partner interests outstanding and not owned by the General Partner or its affiliates. No such vote is required or will be sought in the future. If the limited partners propose to sell Partnership assets without the approval of the General Partner, the General Partner has a right of first refusal to purchase such assets on the same terms and conditions as agreed to by the prospective purchaser. The General Partner also has a right to purchase Partnership assets without a vote of the limited partners if the General Partner is removed without cause. Though the General Partner is not required to purchase the Partnership's cable systems, it or one of its affiliates may determine to do so subject to the foregoing restrictions. Limited partners will not be entitled to share in any profits of the General Partner or its affiliates from the operation or sale of any cable systems subsequent to the sale of such systems to the General Partner or any of its affiliates. As previously disclosed, in a meeting held in Los Angeles on August 27, 1996, the General Partner formally advised the Partnership's Advisory Committee and Conflicts Committee that it desired to explore on a preliminary basis the possibility of exercising the purchase rights contained in the Partnership Agreement and summarized above. Accordingly, the General Partner requested that the Appraisal Process be commenced and that, in compliance therewith, the Conflicts Committee select an independent nationally recognized expert in the cable television field to determine the fair market value of each of the Partnership's cable Systems. Pursuant to the Partnership Agreement, the sole obligation of the Conflicts Committee in connection with the Appraisal Process is to select one of the three appraisers. The Conflicts Committee selected Arthur Andersen, LLP; the General Partner selected Kane Reece Associates, Inc.; and those two appraisers selected Communications Equity Associates (the "Appraisers"). 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, other than Arthur Andersen LLP, has from time to time provided valuation services to the Partnership and its affiliates for which they have received customary compensation. -42- 43 On February 6, 1997, each of the Appraisers delivered summaries of the results of their appraisals (the "Appraisals"), and subsequently delivered their reports to the Partnership. The reports are filed as exhibits to this Annual Report on Form 10-K. These Appraisals address the value of the appraised Partnership assets and do not give effect to any debt or other liabilities of the Partnership. As noted elsewhere in the Report, the Partnership has significant amounts of debt outstanding under its Bank Credit Agreement. Based solely upon the Appraisals, as of December 31, 1996, the Partnership understands the appraised values of the five cable Systems owned by the Partnership to be as follows (dollars in thousands):
Communications Equity Kane Reece Arthur Associates, Inc. ---------------- Associates, Inc. Andersen LLP (MEDIAN) ---------------- ------------ -------- Redmond, OR $ 7,680 $ 5,882 $ 6,200 Burke County, NC 20,570 17,685 19,000 Somerset, KY 33,590 30,277 31,000 Centreville, MD 23,980 20,445 23,000 California City, CA 3,500 2,791 2,800 --------- Total $82,000 =======
As noted above, the Appraisal Process dictates that the appraised value of an asset to be appraised shall be the median Appraisal for such asset. The reports related to each Appraisal 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. The General Partner is under no obligation to exercise its purchase right in full or in part, nor can there be any assurance that the Partnership would otherwise be able to sell all or any portion of its assets at prices consistent with the Appraisals. Actual sales in the marketplace could be at valuations materially above or below those reflected by the Appraisals. Such Appraisals should accordingly not be assumed to be a representation as to the implied value of limited partnership interests in the Partnership, nor as to the proceeds that might be realized by the Partnership in connection with a sale or other disposition of all or any portion of the assets of the Partnership, whether to the General Partner, an affiliate or otherwise. The Appraisals, by their respective terms, are based upon numerous sources of information including data supplied by the General Partner, which included certain projections regarding 1997 operating results for the Partnership prepared in the ordinary course of its business. The Partnership does not as a matter of course make public any forecasts as to its future financial performance. The 1997 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 1997 projections were provided to the Appraisers solely for the purposes of their Appraisals. NONE OF THE GENERAL PARTNER, THE PARTNERSHIP, ANY AFFILIATE OR ANY PARTY TO WHOM THE PROJECTIONS WERE PROVIDED ASSUMES ANY RESPONSIBILITY FOR THE VALIDITY, REASONABLENESS, ACCURACY OR COMPLETENESS OF THE 1997 PROJECTIONS. While presented with numerical specificity, the 1997 projections were 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 uncertainties and contingencies, many of which are beyond the Partnership's control, and, therefore, such 1997 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 -43- 44 1997 projections. The Partnership is not under any obligation to update the 1997 projections at any future time. Based upon the aggregate of the median Appraisals of the Partnership's cable Systems (the "Aggregate Appraised Valuation") and assuming a hypothetical liquidation of the Partnership on December 31, 1996 involving the sale of those Systems on that date for an amount equal to the Aggregate Appraised Valuation, the estimated cash distribution to unitholders would have been approximately $851 per limited partnership unit (the "Hypothetical Estimated Per Unit Distribution") (based upon 71,879 units outstanding). The Hypothetical Estimated Per Unit Distribution was calculated assuming net liabilities on the balance sheet of the Partnership, excluding property, plant and equipment and intangible assets ("Net Liabilities"), of approximately $20.2 million (as of December 31, 1996). The Hypothetical Estimated Per Unit Distribution assumes that the Net Liabilities as of December 31, 1996 represent the only payments, other than certain reserved expenses, that would have been required to be made by the Partnership prior to the distribution of cash to the unitholders. This assumption will likely prove to be invalid. Specifically, this method assumes all of the cable systems are sold in a single transaction. If the Partnership sells the assets over time in separate transactions, for example, it could incur significant transaction costs and there would be a significant delay in the distribution of funds to limited partners. Further, even if sold in a single transaction to the General Partner, the transfer of the related franchises would require certain approvals of local franchise authorities that may require a significant period of time to be obtained. Accordingly, 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 December 31, 1996 or any date thereafter. In the event any of the Partnership's cable systems are sold, the actual timing and amount of any related distribution to partners cannot be predicted at this time. The General Partner has made no decision whether to purchase any or all of the Partnership's five cable television Systems. Any decision by the General Partner will, as permitted by the Partnership Agreement, be made on a System-by-System basis. Any decision by the General Partner or its affiliates to acquire any of the Partnership's Systems will further be subject to, among other things, (i) the availability of the necessary financing on terms acceptable to the acquiring affiliate; (ii) the relative attractiveness of available alternative and investment opportunities; (iii) the receipt of any necessary regulatory approvals and consents; and (iv) other future developments relating to the Partnership and the cable television industry, general economic conditions and other future developments. Although the foregoing reflects activities which the General Partner and certain of its affiliates are currently exploring with respect to the Partnership, the foregoing is subject to change at any time. Accordingly, there can be no assurance that the sale of the cable television Systems of the Partnership in accordance with the rights of the General Partner and its affiliates under the terms of the Partnership Agreement as described above or otherwise will be pursued, or if pursued, when and if any of them will be successfully consummated. The foregoing description of the Appraisal Process and the resulting appraisal values is qualified by reference to the more complete information and the related qualifications provided or referred to in the Partnership's Current Reports on Form 8-K dated August 27, 1996, October 17, 1996 and February 6, 1997, and the full text of the Partnership Agreement and related Appraisals filed as exhibits hereto. Forward-looking statements in this Report including, in particular, the statements made above under the caption "Appraisal Process," are made pursuant to the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Investors are cautioned that such forward-looking statements involve risks and uncertainties including, without limitation, the effects of legislative and regulatory changes; the potential of increased levels of competition for the Partnership; technological changes; the Partnership's dependence upon third-party programming; the potential exercise of the purchase right as described above; the absence of Unitholder participation in the governance and management of the Partnership; limitations on borrowings by the Partnership contained in the Partnership Agreement; the management fees payable to the General Partner; the exoneration and indemnification provisions contained in the Partnership Agreement -44- 45 relating to the General Partner and other; potential conflicts of interest involving that General Partner and its affiliates; the potential liability of Unitholders to creditors of the partnership to the extent of any distribution made to such Unitholder if, immediately after such distribution (whether or not the Partnership continues to exist), the remaining assets of the Partnership are not sufficient to pay its then outstanding liabilities of the Partnership; and other risks detailed from time to time in the Partnership's periodic reports filed with the Commission. CONFLICTS OF INTEREST In March 1993, FHGLP, a new entity, assumed the management services operations of FHGI. Effective March 29, 1993, FHGLP began receiving management fees and reimbursed expenses which had previously been paid by the Partnership, as well as certain other affiliated entities, to FHGI. The management of FHGLP is substantially the same as that of FHGI. FHGLP also manages domestic and international cable operations owned by it as well as the operations of the Partnership, Falcon Video Communications and, through its management of the operation of Falcon Cablevision (a subsidiary of FHGLP), the partnerships of which Enstar Communications Corporation is the corporate general partner. On September 30, 1988, Falcon Cablevision acquired all of the outstanding stock of Enstar Communications Corporation. Certain members of management of the General Partner have also been involved in the management of other cable ventures, including recent international cable ventures that FHGLP has entered into or been associated with. FHGLP contemplates entering into other cable ventures, including ventures similar to the Partnership. These affiliations subject FHGI, FHGLP and the General Partner and their management and affiliates to certain conflicts of interest. Such conflicts of interest relate to the time and services management will devote to the Partnership's affairs and to the acquisition and disposition of cable television systems. Management or its affiliates may establish and manage other entities which could impose additional conflicts of interest. Conflicts of interest involving acquisitions and dispositions of cable television systems could adversely affect Unitholders. For instance, the economic interests of management in other affiliated partnerships are different from those in the Partnership and this may create conflicts relating to which acquisition or disposition opportunities are preserved for which partnerships. The Partnership has entered into a management agreement with FHGLP and may enter into future agreements, including joint ventures and agreements relating to programming services with the General Partner, FHGLP or their respective affiliates. Thus, a conflict of interest could arise among the General Partner, FHGLP or their respective affiliates and the Partnership. Although any such agreements will not be negotiated at arm's length, the General Partner will cause the terms of all such transactions among the Partnership and the General Partner, FHGLP and their respective affiliates to be no less favorable to the Partnership than those which could be obtained by the Partnership from independent third parties. Substantial fees are payable to the General Partner and FHGLP in connection with the Partnership. See Item 11., "Executive Compensation." The Partnership may also enter into joint ventures with FHGLP or its affiliates, provided that (i) such joint venturer has substantially identical investment objectives as the Partnership, (ii) there are no duplicate fees, (iii) the compensation to the sponsor of such joint venturer is substantially identical, (iv) each joint venturer has a right of first refusal as to the other's interest in the joint venture and (v) the investment of each joint venturer is on substantially the same terms and conditions. -45- 46 FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION OF THE GENERAL PARTNER A general partner is accountable to a limited partnership as a fiduciary and consequently must exercise good faith and integrity in handling partnership affairs. Where the question has arisen, some courts have held that a limited partner may institute legal action on his own behalf and on behalf of all other similarly situated limited partners (a class action) to recover damages for a breach of fiduciary duty by a general partner, or on behalf of the partnership (a partnership derivative action) to recover damages from third parties. Section 15701 of the California Corporations Code provides that any limited partner may bring a class action on behalf of all or a class of limited partners to enforce any claim common to those limited partners against a limited partnership or any or all of its general partners, without regard to the number of those limited partners, and such action shall be governed by the law governing class actions generally. Section 15702 of the California Corporations Code also allows a partner to maintain a partnership derivative action if certain conditions are met. Certain cases decided by federal courts have recognized the right of a limited partner to bring such actions under the Securities and Exchange Commission's Rule 10b-5 for recovery of damages resulting from a breach of fiduciary duty by a general partner involving fraud, deception or manipulation in connection with the limited partner's purchase or sale of partnership Units. The Partnership Agreement provides that the General Partner and its affiliates will not be liable to the Partnership or its limited partners for, and shall be indemnified by the Partnership for any act or omission of the General Partner or its officers, directors or affiliates in good faith on behalf of the Partnership and in a manner reasonably believed by such Person to be within the scope of the authority granted to the General Partner by the Partnership Agreement and in the best interests of the Partnership, except for acts or omissions constituting negligence, misconduct or breach of fiduciary duty. Therefore, limited partners will have a more limited right of action than they would have absent the limitations in the Partnership Agreement. In addition, the Partnership Agreement provides that the members of the Advisory Committee who are not affiliated with the General Partner will not be liable to the Partnership or its limited partners, and shall be indemnified by the Partnership for any liability they incur on account of, any act performed or omitted by such indemnitee in good faith and if the indemnitee's conduct did not amount to gross negligence or fraud. Affiliated members will be subject to the same liability and indemnification standards as other affiliates of the General Partner. In addition, the Partnership maintains insurance on behalf of the General Partner, members of the Advisory Committee and such other persons as the General Partner shall determine against any liability that may be asserted against or expense that may be incurred by such person and against which the Partnership would be entitled to indemnify such person pursuant to the Partnership Agreement. To the extent that the exculpatory provisions purport to include indemnification for liabilities arising under the Securities Act of 1933, it is the opinion of the Securities and Exchange Commission that such indemnification is contrary to public policy and therefore unenforceable. The foregoing summary describes in general terms the remedies available under state and federal law to limited partners for breach of fiduciary duty by a general partner and is based on statutes, rules and decisions as of the date of this Report on Form 10-K. As this is a rapidly developing and changing area of the law, limited partners who believe that a breach of fiduciary duty by the General Partner has occurred should consult their own counsel as to the evaluation of the status of the law at such time. -46- 47 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) 1. Financial Statements Reference is made to the Index to Financial Statements and Schedules on page F-1. (a) 2. Financial Statement Schedules Reference is made to the Index to Financial Statements and Schedules on page F-1. (a) 3. Exhibits Reference is made to the Index to Exhibits on Page E-1. (b) Reports on Form 8-K 1. October 17, 1996 (Selection of Appraisers) 2. October 24, 1996 (JJJ Group Tender) -47- 48 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 25th day of March 1997. FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. By Falcon Classic Cable Investors, L.P. 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 Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 25th day of March 1997.
Signature Title - --------- ----- Director of Falcon Holding Group, Inc. and Chief Executive Officer of the Registrant /s/ Marc B. Nathanson (Principal Executive Officer) - ----------------------------- Marc B. Nathanson Chief Financial Officer and Secretary of the Registrant /s/ Michael K. Menerey (Principal Financial and Accounting Officer) - ----------------------------- Michael K. Menerey /s/ Stanley S. Itskowitch Director of Falcon Holding Group, Inc. - ----------------------------- Stanley S. Itskowitch
-48- 49 INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page ---- Report of Independent Auditors F-2 Balance Sheets - December 31, 1995 and 1996 F-3 Financial Statements for each of the three years in the period ended December 31, 1996: Statements of Operations F-4 Statements of Partners' Equity F-5 Statements of Cash Flows F-6 Notes to Financial Statements F-7 Schedule II - Valuation and Qualifying Accounts F-17
All other schedules have been omitted because they are either not required, not applicable or the information has otherwise been supplied. F-1 50 REPORT OF INDEPENDENT AUDITORS Partners Falcon Classic Cable Income Properties, L.P. We have audited the accompanying balance sheets of Falcon Classic Cable Income Properties, L.P. (a California limited partnership) as of December 31, 1995 and 1996, and the related statements of operations, partners' equity, and cash flows for each of the three years in the period ended December 31, 1996. Our audits also included the financial statement schedule listed in the index at Item 14(a)2. These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Falcon Classic Cable Income Properties, L.P. at December 31, 1995 and 1996, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Los Angeles, California February 21, 1997 F-2 51 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. BALANCE SHEETS ============================================
December 31, --------------------- 1995 1996 ------- ------- (Dollars in Thousands) ASSETS: Cash and cash equivalents $6,137 $7,126 Receivables, less allowance of $40,000 and $31,000 for possible losses 657 660 Prepaid expenses and other 713 463 Cable materials, equipment and supplies 740 1,053 Property, plant and equipment, less accumulated depreciation and amortization 31,986 30,655 Franchise cost and goodwill, less accumulated amortization of $12,358,000 and $15,029,000 20,056 17,409 Customer lists and other intangible costs, less accumulated amortization of $5,928,000 and $2,684,000 2,670 1,968 ------- ------- $62,959 $59,334 ======= ======= LIABILITIES AND PARTNERS' EQUITY -------------------------------- LIABILITIES: Notes payable $27,000 $24,300 Accounts payable 499 542 Accrued expenses 3,062 2,509 Payable to general partner 1,401 1,006 Customer deposits and prepayments 149 144 ------- ------- TOTAL LIABILITIES 32,111 28,501 ------- ------- COMMITMENTS AND CONTINGENCIES PARTNERS' EQUITY: General partner 401 401 Limited partners 30,669 30,654 Notes receivable from general partner (222) (222) ------- ------- TOTAL PARTNERS' EQUITY 30,848 30,833 ------- ------- $62,959 $59,334 ======= =======
See accompanying notes to financial statements. F-3 52 FALCON CLASSIC INCOME PROPERTIES, L.P. STATEMENTS OF OPERATIONS --------------------------------------
Year ended December 31, ---------------------------------------- 1994 1995 1996 -------- -------- -------- (Dollars in thousands, except net loss per limited partnership units) REVENUES $17,382 $18,363 $19,826 -------- -------- -------- EXPENSES: Service costs 5,281 6,042 6,013 General and administrative expenses 2,825 2,589 2,717 Management fees and reimbursed expenses 1,391 1,469 1,586 Depreciation and amortization 8,924 8,526 7,712 -------- -------- -------- Total expenses 18,421 18,626 18,028 -------- -------- -------- Operating income (loss) (1,039) (263) 1,798 OTHER INCOME (EXPENSE) Interest income 20 41 314 Interest expense (1,796) (2,051) (2,127) Other income 4 - - -------- -------- -------- NET LOSS $(2,811) $(2,273) $ (15) ======== ======== ======== NET LOSS PER LIMITED PARTNERSHIP UNIT $(38.71) $(31.30) $ (0.21) ======== ======== ======== WEIGHTED AVERAGE LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD 71,879 71,879 $71,879 ======== ======== ========
See accompanying notes to financial statements. F-4 53 FALCON CLASSIC INCOME PROPERTIES, L.P. STATEMENTS OF PARTNERS' EQUITY --------------------------------------
Notes Receivable from General Limited General Partner Partners Partner Total ------------------------------------------------------------------------------- (Dollars In Thousands) PARTNERS' EQUITY, January 1, 1994, $ 460 $ 36,515 $ (230) $ 36,745 Payments on notes - - 8 8 Distributions to partners (8) (813) - (821) Net loss for year (28) (2,783) - (2,811) ----------- ------------ ------------- ------------ PARTNERS' EQUITY, December 31, 1994 424 32,919 (222) 33,121 Net loss for year (23) (2,250) - (2,273) ----------- ------------ ------------- ------------ PARTNERS' EQUITY, December 31, 1995 401 30,669 (222) 30,848 Net loss for year - (15) - (15) ----------- ------------ ------------- ------------ PARTNERS' EQUITY, December 31, 1996 $ 401 $ 30,654 $ (222) $ 30,833 =========== ============ ============= ============
See accompanying notes to financial statements. F-5 54 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. STATEMENTS OF CASH FLOWS ---------------------------------------------
Year ended in December 31, ---------------------------------------------- 1994 1995 1996 ---------------------------------------------- (Dollars in Thousands) Cash flows from operating activities: Net loss $ (2,811) $ (2,273) $ (15) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 8,924 8,526 7,712 Gain on retirement of assets (4) - - Provision for losses on receivables 281 234 171 Amortization of deferred loan cost - 4 27 Increase (decrease) from changes in: Receivables (667) (98) (175) Prepaid expenses and other assets (159) (254) 250 Cable materials, equipment and supplies - (324) (313) Accounts payable and other liabilities 526 671 (910) --------- ---------- ------------ Net cash provided by operating activities $ 6,090 $ 6,486 $ 6,747 --------- ---------- ------------ Cash flows from investing activities: Capital expenditures (3,982) (5,713) (3,033) Increase in intangible assets (35) (167) (25) --------- ---------- ------------ Net cash used in investing activities $ (4,017) $ (5,880) $ (3,058) --------- ---------- ------------ Cash flows from financing activities: Repayments of notes payable $ (1,300) $ (18,000) $ (2,700) Borrowings under notes payable 1,500 22,500 - Distributions to partners (1,671) - - Capital contributions 8 - - --------- ---------- ------------ Net cash provided by (used in) financing activities (1,463) 4,500 (2,700) --------- ---------- ------------ Net increase in cash and cash equivalents 610 5,106 989 Cash and cash equivalents, at beginning of year 421 1,031 6,137 --------- ---------- ------------ Cash and cash equivalents, at end of year $ 1,031 $ 6,137 $ 7,126 ========= ========== ============
See accompanying notes to financial statements. F-6 55 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -------------------------------------------- NOTE 1 - SUMMARY OF ACCOUNTING POLICIES Falcon Classic Cable Income Properties, L.P. (the "Partnership") was formed in 1989 to acquire, own, operate and otherwise invest principally in existing cable television systems in suburban and rural areas located in California, Kentucky, Maryland, North Carolina and Oregon. The General Partner of the Partnership is Falcon Classic Cable Investors, L.P., a California limited partnership ("General Partner"). The general partner of the General Partner is Falcon Holding Group, L.P., a Delaware limited partnership ("FHGLP"). The general partner of FHGLP is Falcon Holding Group, Inc., a California corporation ("FHGI"). The financial statements do not give effect to any assets that the partners may have outside their interest in the Partnership, nor to any obligations, including income taxes, of the partners. CASH EQUIVALENTS For purposes of the statements of cash flows, the Partnership considers all highly liquid debt instruments purchased with an initial maturity of three months or less to be cash equivalents. Cash equivalents at December 31, 1996 include $6,000,000 of short-term investments in commercial paper. PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION Property, plant and equipment are stated at cost. Direct costs associated with installations in homes not previously served by cable are capitalized as part of the distribution system, and reconnects are expensed as incurred. For financial reporting, depreciation and amortization is computed using the straight-line method over the following estimated useful lives: CABLE TELEVISION SYSTEMS: Headend buildings and equipment 7-16 years Trunk and distribution 5-15 years Microwave equipment 7-15 years OTHER: Furniture and office equipment 5-7 years Vehicles and construction equipment 3-10 years Leasehold improvements Life of lease Buildings 15 years FRANCHISE COST AND GOODWILL The excess of cost over the fair value of tangible assets and customer lists of cable television systems acquired represents the cost of franchises and goodwill. In addition, franchise cost includes capitalized costs incurred in obtaining new franchises. These costs (primarily legal fees) are direct and incremental to the acquisition of the franchise and are amortized using the straight-line method over the lives of the franchises, ranging up to 12 years. Costs relating to unsuccessful franchise applications are charged to expense when it is determined that the efforts to obtain the franchise will not be successful. F-7 56 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) -------------------------------------------- NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED) CUSTOMER LISTS AND OTHER INTANGIBLE COSTS Customer lists and other intangible costs include customer lists and organization costs which are amortized using the straight-line method over five years and covenants not to compete which are amortized over the life of the covenant. DEFERRED LOAN COSTS Costs related to borrowings are capitalized and amortized to interest expense over the life of the related loan. RECOVERABILITY OF ASSETS The Partnership assesses on an on-going basis the recoverability of intangible assets, including goodwill, and capitalized plant assets based on estimates of future undiscounted cash flows compared to net book value. If the future undiscounted cash flow estimate were less than net book value, net book value would then be reduced to estimated fair value, which generally approximates discounted cash flows. The Partnership also evaluates the amortization periods of assets, including goodwill and other intangible assets, to determine whether events or circumstances warrant revised estimates of useful lives. REVENUE RECOGNITION Revenues from cable services are recognized as the services are provided. DERIVATIVE FINANCIAL INSTRUMENTS As part of the Partnership's management of financial market risk, the Partnership enters into various transactions that involve contracts and financial instruments with off-balance-sheet risk, including interest rate swap and interest rate cap agreements. The Partnership enters into these agreements in order to manage the interest-rate sensitivity associated with its variable-rate indebtedness. The differential to be paid or received in connection with interest rate swap and interest rate cap agreements is recognized as interest rates change and is charged or credited to interest expense over the life of the agreements. Gains or losses for early termination of those contracts are recognized as an adjustment to interest expense over the remaining portion of the original life of the terminated contract. INCOME TAXES The Partnership pays no income taxes as an entity. All of the income, gains, losses, deductions and credits of the Partnership are passed through to the partners. The basis in the Partnership's assets and liabilities differs for financial and tax reporting purposes. At December 31, 1996, the book basis of the Partnership's net assets exceeds its tax basis by $19.1 million. F-8 57 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------ NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONCLUDED) EARNINGS AND LOSSES PER LIMITED PARTNERSHIP UNIT Earnings and losses are allocated 99% to the limited partners and one percent to the General Partner. Earnings and losses per limited partnership Unit is based on the weighted average limited partnership Units outstanding during the period. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NOTE 2 - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of:
December 31, ---------------------------- 1995 1996 ---------------------------- (Dollars in Thousands) Cable television systems $ 44,871 $ 47,158 Furniture and equipment 973 1,033 Vehicles 654 746 Land, buildings and improvements 845 846 ---------- -------- 47,343 49,783 Less accumulated depreciation and amortization (15,357) (19,128) ---------- -------- $ 31,986 $ 30,655 ========== ========
F-9 58 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------- NOTE 3 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents The carrying amount approximates fair value due to the short maturity of those instruments. Notes Payable The carrying amount approximates fair value due to the variable rate nature of the notes payable. Interest Rate Hedging Agreements The fair value of interest rate hedging agreements is estimated by obtaining quotes from brokers as to the amount either party would be required to pay or receive in order to terminate the agreement. The following table depicts the fair value of each class of financial instruments for which it is practicable to estimate that value as of December 31:
1995 1996 ----------------------------------------------------------------------- Carrying Fair Carrying Fair Value (1) Value Value (1) Value ----------------------------------------------------------------------- (Dollars in Thousands) Cash and cash equivalents $ 6,137 $ 6,137 $ 7,126 $ 7,126 Note Payable (Note 4) (2) $ 27,000 $ 27,000 $ 24,300 $ 24,300
Notional Fair Notional Fair Amount Value(4) Amount(3) Value(4) ----------------------------------------------------------------------- Interest Rate Hedging Agreements (Note 4): Interest rate swaps $ 20,000 $ (347) $ 20,000 $ (36) Interest rate caps 5,000 - - - - ----------------
(1) Carrying amounts represent cost basis. (2) Due to the variable rate nature of the indebtedness, the fair value is assumed to approximate the carrying value. (3) The amount on which the interest was computed in 1995 was $15 million for swaps and $5 million for caps. The amount in 1996 was $20 million for swaps. (4) The amount that the Partnership estimates it would receive (pay) to terminate the hedging agreements. This amount is not recognized in the financial statements. F-10 59 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------- NOTE 4 - NOTES PAYABLE In September 1992, the Partnership entered into a $34 million credit agreement with four banks (the "Bank Credit Agreement"). The Bank Credit Agreement provides for annual interest rates ranging from prime plus 0.5% to prime plus 2.5% or LIBOR plus 2.25% to LIBOR plus 4.25%. At December 31, 1996, the weighted average interest on the outstanding balance (including the effects of interest rate swap transactions) was 7.8% per annum. On April 10, 1995, the Partnership executed an amendment to the Bank Credit Agreement (the "Amendment") which, among other things, reduced the total facility from $34 million to $29 million. On December 31, 1995, the outstanding principal balance of $27 million converted to a term loan with required quarterly payments commencing March 31, 1996 through June 30, 2000, the maturity date of the term loan. The present scheduled repayments of the term loan are as follows: $4.1 million in 1997; $5.4 million in 1998; $6.8 million in 1999 and $8 million thereafter. The Bank Credit Agreement also contains restrictions relating to, among other things, additional borrowings, guarantees, mergers and distributions to partners. The debt is collateralized by a security interest in substantially all of the assets of the Partnership. Management believes that the Partnership was in compliance with such covenants at December 31, 1996. The Partnership Agreement provides that without the approval of a majority of interests of limited partners, the Partnership may not incur any borrowings unless the amount of such borrowings together with all outstanding borrowings does not exceed 30% of the greater of the aggregate cost or current fair market value of the Partnership's assets as determined by the General Partner. The Partnership Agreement also limits borrowings incurred to fund distributions to partners to not more than 10% of Gross Proceeds from the public offering of the Units (approximately $7.2 million). As of December 31, 1996, the Partnership had incurred an aggregate of approximately $5.4 million in borrowings to make distributions to partners. The Partnership utilizes interest rate hedging agreements to establish long-term fixed interest rates on a portion of its variable rate debt in order to manage the interest rate sensitivity on its borrowings. At December 31, 1996, the Partnership participated in interest rate swap contracts with aggregate notional principal of $20 million under which the Partnership pays interest at fixed rates ranging from 5.75% to 6.51% (weighted average rate of 6.12%), and receives interest at variable LIBOR-based rates. These contracts expire in 1997, 1998 and 1999. The hedging agreements resulted in additional interest expense of $82,000, $19,000 and $117,000 for the years ended December 31, 1994, 1995 and 1996, respectively. The Partnership does not believe that it has any significant risk of exposure to non-performance by any of its counterparties. NOTE 5 - NOTES RECEIVABLE FROM GENERAL PARTNER In accordance with the Partnership's Limited Partnership Agreement, capital contributions of the General Partner were contributed one-half in cash and one-half in non-interest bearing notes payable on demand. Additionally, according to the Limited Partnership Agreement, a minimum of 50% of all distributions received by the General Partner are to be returned to the Partnership to reduce the notes receivable balance. F-11 60 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------- NOTE 6 - MANAGEMENT COMPENSATION The Partnership is obligated to pay FHGLP a 5% management fee based on the gross operating revenues of the Partnership. In addition, FHGLP is entitled to reimbursement from the Partnership for certain expenses relating to the performance of management functions as described in the management agreement. Such reimbursable expenses are limited to 3% of gross operating revenues. Management fees and reimbursed expenses amounted to approximately $1.4 million, $1.5 million and $1.6 million for the years ended December 31, 1994, 1995 and 1996, respectively. Beginning in 1991, up to 50% of management fees have not been paid currently unless adjusted operating cash, as defined, for a particular month exceeded a 10% annualized return, calculated with respect to outstanding partnership Units. To the extent that adjusted operating cash for any month exceeds the 10% annualized return, FHGLP may recover previously deferred fees, without interest. In compliance with these provisions, FHGLP received its standard management fee for 1996 and recovered $900,000 in previously deferred management fees. As a result, at December 31, 1995 and 1996, deferred management fees amounted to $1.2 million and $276,000, respectively. At December 31, 1996, the Partnership's management anticipates that adjusted operating cash in the first quarter of 1997 will exceed the 10% requirement, thereby permitting the Partnership to pay the remaining deferred fees to FHGLP. In March 1993, FHGLP assumed the operations of FHGI. As successor to the management service operations of FHGI, FHGLP is due management fees and reimbursed expenses which had previously been payable to FHGI. NOTE 7 - PARTNERSHIP MATTERS The Partnership sold Units of limited partnership interest during 1989 and 1990 resulting in an aggregate of 71,879 Units sold with the Partnership receiving net proceeds amounting to approximately $62.7 million (net of $9.2 million offering costs). Distributions are based on the Partnership's definition of cash available for distributions. All partners admitted to the Partnership for a period of one year received distributions from available Partnership funds yielding at least a 10% annual rate of return on their original investment through June 1993, after which they received a 7% annual rate of return on their original investment, until the Partnership discontinued distributions subsequent to the April 15, 1994 payment. Income and losses of the Partnership are allocated 99% to the limited partners and one percent to the General Partner. Cash Available for Distributions, as defined in the Partnership agreement, are allocated 99% to the limited partners and one percent to the General Partner. Distributions of Other Distributable Funds (as defined) are allocated 99% to limited partners who own Units which have been issued and outstanding for at least one year and one percent to the General Partner. Such distributions to limited partners will be made pro-rata based on the number of such Units held by each limited partner. The limited partners will receive 99% and the General Partner will receive one percent of distributions of Available Sale Proceeds (as defined) until the limited partners have received Payback. After the limited partners have received Payback, the limited partners will receive 75% and the General Partner will receive 25% of Available Sale Proceeds. F-12 61 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------- NOTE 7 - PARTNERSHIP MATTERS (CONTINUED) APPRAISAL PROCESS The Partnership may, in the sole discretion of its General Partner, sell individual cable systems and may also sell all or substantially all of the Partnership's assets to the General Partner or its affiliates, which include FHGLP. Any such sale would be subject to certain terms and conditions set forth in the Partnership Agreement and summarized below. The Partnership Agreement provides that any sale of Partnership assets to the General Partner or any of its affiliates must be made in cash pursuant to the "Appraisal Process." "Appraisal Process" is defined in the Partnership Agreement as an appraisal undertaken by three independent nationally recognized experts in the cable television field to determine the fair market value of the cable systems to be appraised. One such appraiser must be appointed by the General Partner, one by the Partnership's Conflicts Committee and the third by the first two appraisers acting jointly. The appraised value pursuant to the Appraisal Process will be deemed to be the median of the three appraised values. No appraisals arising in affiliated transactions may be conducted at the Partnership's expense. Except under certain circumstances, sales of assets by the Partnership to the General Partner or its affiliates prior to January 1, 1997 would have required an affirmative vote of a majority of limited partner interests outstanding and not owned by the General Partner or its affiliates. No such vote is required or will be sought in the future. In a meeting held in Los Angeles on August 27, 1996, the General Partner formally advised the Partnership's Advisory Committee and Conflicts Committee that it desired to explore on a preliminary basis the possibility of exercising the purchase rights contained in the Partnership Agreement and summarized above. Accordingly, the General Partner requested that the Appraisal Process be commenced and that, in compliance therewith, the Conflicts Committee select an independent nationally recognized expert in the cable television field to determine the fair market value of each of the Partnership's cable systems. The Conflicts Committee selected Arthur Andersen, LLP; the General Partner selected Kane Reece Associates, Inc.; and those two appraisers selected Communications Equity Associates (the "Appraisers"). On February 6, 1997, each of the Appraisers delivered summaries of the results of their appraisals (the "Appraisals"), and subsequently delivered their reports to the Partnership. These Appraisals address the value of the appraised Partnership assets and do not give effect to any debt or other liabilities of the Partnership. Based solely upon the Appraisals, as of December 31, 1996, the Partnership understands the appraised values of the five cable systems owned by the Partnership to be as follows (dollars in thousands):
Communications Equity Associates, Inc. Kane Reece Arthur ---------------- Associates, Inc. Andersen LLP (MEDIAN) ---------------- ------------ -------- Redmond, OR $ 7,680 $ 5,882 $ 6,200 Burke County, NC 20,570 17,685 19,000 Somerset, KY 33,590 30,277 31,000 Centreville, MD 23,980 20,445 23,000 California City, CA 3,500 2,791 2,800 --------- Total $82,000 =======
F-13 62 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------- NOTE 7 - PARTNERSHIP MATTERS (CONCLUDED) As noted above, the Appraisal Process dictates that the appraised value of an asset to be appraised shall be the median Appraisal for such asset. The General Partner has made no decision whether to purchase any or all of the Partnership's five cable television Systems. Any decision by the General Partner will, as permitted by the Partnership Agreement, be made on a system-by-system basis. Any decision by the General Partner or its affiliates to acquire any of the Partnership's systems will further be subject to, among other things, (i) the availability of the necessary financing on terms acceptable to the acquiring affiliate; (ii) the relative attractiveness of available alternative and investment opportunities; (iii) the receipt of any necessary regulatory approvals and consents; and (iv) other future developments relating to the Partnership and the cable television industry, general economic conditions and other future developments. Although the foregoing reflects activities which the General Partner and certain of its affiliates are currently exploring with respect to the Partnership, the foregoing is subject to change at any time. Accordingly, there can be no assurance that the sale of the cable television Systems of the Partnership in accordance with the rights of the General Partner and its affiliates under the terms of the Partnership Agreement as described above or otherwise will be pursued, or if pursued, when and if any of them will be successfully consummated. NOTE 8 - COMMITMENTS AND CONTINGENCIES The Partnership leases office space and equipment under operating leases expiring at various dates through the year 2008. Pole attachment fees are excluded from the following schedule since those contracts may be canceled with notice. Future minimum rentals for operating leases at December 31, 1996 are as follows:
Year Total ---- ----- (Dollars in Thousands) 1997 $ 75 1998 70 1999 70 2000 58 2001 40 Thereafter 119 ------ $ 432 ======
In most cases, management expects that, in the normal course of business, these leases will be renewed or replaced by other leases. Rent expense for the years ended December 31, 1994, 1995 and 1996 for all facilities amounted to $83,000, $86,000 and $91,000, respectively. In addition, the Partnership rents line space on utility poles in some of the franchise areas it serves. These rentals amounted to $265,000, $290,000 and $341,000 for the years ended December 31, 1994, 1995 and 1996, respectively. Generally such pole rental agreements are short-term, but the Partnership expects such rentals to continue in the future. F-14 63 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ------------------------------------------- NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONCLUDED) Other commitments include approximately $650,000 at December 31, 1996 to upgrade certain portions of the Burke County, North Carolina cable system over the next five years as required by the applicable franchise agreements. However, provided it has the necessary liquidity, the Partnership intends to rebuild the entire Burke County system during the next five years at an estimated total cost of approximately $10 million. As discussed in Note 4, the Partnership Agreement limits the Partnership's ability to increase its borrowings. While the Partnership believes that anticipated cash flow from operations will be sufficient to fund its minimum capital expenditure plans in 1997, the Partnership's management does not believe that the Partnership will be able to fund its future rebuild plans entirely from operating cash flow. The Partnership is subject to regulation by various federal, state and local government entities. The Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act"), provides for, among other things, federal and local regulation of rates charged for basic cable service, cable programming services and equipment and installation services. Regulations issued in 1993 and significantly amended in 1994 by the Federal Communications Commission (the "FCC") have resulted in changes in the rates charged for the Partnership's cable services. The Partnership believes that compliance with the 1992 Cable Act has had a negative impact on its operations and cash flow. It also presently believes than any potential future liabilities for refund claims or other related actions would not be material. The Telecommunications Act of 1996 (the "1996 Telecom Act") was signed into law on February 8, 1996. This statute contains a significant overhaul of the federal regulatory structure. As it pertains to cable television, the 1996 Telecom Act, among other things, (i) ends the regulation of certain nonbasic programming services in 1999; (ii) expands the definition of effective competition, the existence of which displaces rate regulation; (iii) eliminates the restriction against the ownership and operation of cable systems by telephone companies within their local exchange service areas; and (iv) liberalizes certain of the FCC's cross-ownership restrictions. The FCC is in the process of conducting a number of additional rulemaking proceedings in order to implement many of the provisions of the 1996 Telecom Act. The Partnership has various contracts to obtain basic and premium programming for its systems from program suppliers whose compensation is generally based on a fixed fee per customer or a percentage of the gross receipts for the particular service. Some program suppliers provide volume discount pricing structures or offer marketing support to the Partnership. The Partnership's programming contracts are generally for a fixed period of time and are subject to negotiated renewal. The Partnership does not have long-term programming contracts for the supply of a substantial amount of its programming. Accordingly, no assurance can be given that the Partnership's programming costs will not increase substantially or that other materially adverse terms will not be added to the Partnership's programming contracts. Management believes, however, that the Partnership's relations with its programming suppliers generally are good. NOTE 9 - EMPLOYEE BENEFIT PLANS The Partnership maintains a Key Executive Equity Program (the "Program") for certain key employees designated by the Partnership. Participants become vested over six years from the date of admission into the Program. Under the terms of the Program, participants derive benefits, as defined, in the Program based on achieving a specified operating margin percentage in conjunction with a specific percentage increase in cash flow in relation to the immediately preceding year. The effect of certain events and transactions, such as system F-15 64 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED) ------------------------------------------- NOTE 9 - EMPLOYEE BENEFIT PLANS (CONCLUDED) acquisitions and dispositions, are adjusted on a pro forma basis in the determination of benefits. There were no expenses incurred in 1994, 1995 and 1996. On February 14, 1995, the Board of Representatives of the General Partner approved the termination of the Program. All current participants will continue to vest in their contributions, but there will be no new participants or future contributions. The Partnership also has a cash or deferred profit sharing plan (the "Profit Sharing Plan") covering substantially all of its employees. The Profit Sharing Plan provides that each participant may elect to make a contribution in an amount up to 15% of the participant's annual compensation which otherwise would have been payable to the participant as salary. The Partnership's contribution to the Profit Sharing Plan, as determined by management, is discretionary but may not exceed 15% of the annual aggregate compensation (as defined) paid to all participating employees. There were no contributions charged against operations of the Partnership for the Profit Sharing Plan in 1994, 1995 or 1996. NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION During the years ended December 31, 1994, 1995 and 1996, the Partnership paid cash interest amounting to $1.7 million, $2.1 million and $2.2 million, respectively. F-16 65 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Additions Balance at charged to Balance at beginning costs and end of Description of period expenses Deductions(a) period ----------- ---------- ---------- ------------- ---------- (Dollars in Thousands) Allowance for possible losses on receivables Year ended December 31, 1994 $ 48 $ 281 $ (302) $ 27 1995 $ 27 $ 234 $ (221) $ 40 1996 $ 40 $ 171 $ (180) $ 31
(a) Write-off uncollectible accounts F-17 66 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 3.1 Certificate of Limited Partnership of the Registrant filed with the California Secretary of State on February 17, 1989.(1) 3.2 Agreement of Limited Partnership of the Registrant dated as of February 21, 1989.(1) 3.3 Certificate of Limited Partnership of Falcon Classic Cable Investors, L.P. filed with the California Secretary of State on February 21, 1989.(1) 3.4 Agreement of Limited Partnership of Falcon Classic Cable Investors, L.P. dated as of February 17, 1989 among Falcon Holding Group, Inc., Marc B. Nathanson, Stanley S. Itskowitch, Frank J. Intiso, and Michael K. Menerey.(1) 3.5 Articles of Incorporation of Falcon Holding Group, Inc.(1) 3.6 Bylaws of Falcon Holding Group, Inc.(1) 3.7 Amended and Restated Agreement of Limited Partnership of the Registrant dated as of April 14, 1989.(1) 3.8 Amended and Restated Agreement of Limited Partnership of Falcon Classic Cable Investors, L.P. dated as of April 1989 among Falcon Holding Group, Inc., Marc B. Nathanson, Stanley S. Itskowitch, Frank J. Intiso, and Michael K. Menerey.(1) 3.9 Amended and Restated Agreement of Limited Partnership of the Registrant dated as of May 11, 1989.(1) 3.10 Amended and Restated Agreement of Limited Partnership of Falcon Classic Cable Investors, L.P. dated as of May 10, 1989 among Falcon Holding Group, Inc., Marc B. Nathanson, Stanley S. Itskowitch, Frank J. Intiso, and Michael K. Menerey.(1) 3.11 Amended and Restated Agreement of Limited Partnership of the Registrant dated as of May 15, 1989.(1) 3.12 First Amendment to Amended and Restated Agreement of Limited Partnership of the Registrant dated as of July 24, 1989(3) 4.1 Subscription Documents(1) 10.1 Management Agreement between the Registrant and Falcon Holding Group, Inc. dated as of May 15, 1989.(1) 10.2 Asset Purchase and Sale Agreement dated as of July 14, 1989 by and among Jack Kent Cooke Incorporated, Cooke Media Group Inc., Cooke Cablevision of Cottage Grove, Inc., Cooke Cablevision, Inc., and Pacific Telatronics, Inc., on one part, and Falcon Holding Group, Inc., on another part.(1) 10.3 Assignment and Assumption of Purchase Agreement dated October 12, 1989 by and between Falcon Holding Group, Inc. and the Registrant.(1) 10.4 Assignment and Assumption of Purchase Agreement dated October 12, 1989 by and between Falcon Holding Group, Inc. and the Registrant.(1)
E-1 67 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 10.5 Ordinance No. 568 of the City of Redmond, Oregon, granting a non-exclusive franchise to McCaw Communications of Redmond to operate and maintain a cable communications system within the City limits of Redmond, Oregon passed and adopted by the City Council on November 21, 1989.(3) 10.6 Ordinance No. 600 of the City of Redmond, Oregon dated November 8, 1984, approving the transfer and assignment of the rights to construct, operate and maintain a community antenna television system in the City of Redmond, Oregon.(3) 10.7 Ordinance No. 87-05 of the City of Redmond, Oregon dated February 24, 1987, approving the transfer and assignment of the rights to construct, operate and maintain a community antenna television system in the City of Redmond, Oregon.(3) 10.8 Ordinance No. 89-15 of the City of Redmond, Oregon dated November 21, 1989, approving the transfer and assignment to operate a cable television system in the City of Redmond, Oregon.(3) 10.9 Franchise Ordinance and related documents thereto granting a non-exclusive community antenna television franchise for Burke County, North Carolina.(7) 10.10 Assignment of Cable Television Franchise for Laurel County, Kentucky.(7) 10.11 Franchise Ordinance and related documents thereto granting a non-exclusive community antenna television franchise for Pulaski County, Kentucky, dated June 6, 1979.(7) 10.12 Franchise Ordinance and related documents thereto granting a non-exclusive community antenna television franchise for Pulaski County, Kentucky, dated October 26, 1988.(7) 10.13 Franchise Ordinance and related documents thereto granting a non-exclusive community antenna television franchise for the City of Somerset, Kentucky.(7) 10.14 Franchise Ordinance and related documents thereto granting a non-exclusive community antenna television franchise for Queen Anne's County, Maryland.(7) 10.15 Franchise Ordinance and related documents thereto granting a non-exclusive community antenna television franchise for Talbot County, Maryland.(7) 10.16 Asset Purchase Agreement dated as of July 20, 1991 by and between Burke Cable Company Ltd. and the Registrant.(4) 10.17 Asset Purchase Agreement dated as of April 24, 1991 by and between Cumberland Valley Cable TV Company and the Registrant.(5) 10.18 Asset Purchase Agreement dated as of May 1, 1991 by and between Simmons Communications Company, LP and the Registrant.(6) 10.19 Asset Purchase Agreement dated as of September 20, 1991 by and between CABLE TV FUND XII-BCB VENTURE and the Registrant.(8) 10.20 Ordinance No. 7-70-71 of the City of California City granting to Desert Video, Inc. a franchise to construct, operate and maintain a cable television system. Passed and adopted January 31, 1974.(8) 10.21 Resolution No. 4-86-1208 of the Council of the City of California City approving the transfer of a CATV Franchise from Antelope Valley Cablevision to Jones Intercable, Inc. Passed, approved and adopted April 1, 1986.(8) 10.22 Ordinance No. 86-373 of the City of California City approved of the transfer of the above cable television franchise from Desert Video, Inc. to Jones Intercable, Inc. a Colorado Corporation. Passed and adopted May 6, 1986.(8)
E-2 68 EXHIBIT INDEX
Exhibit Number Description - ------ ----------- 10.23 Resolution No. 3-88-1301 of the City of California City approved of the transfer of the above the above cable television franchise from Jones Intercable, Inc., a Colorado Corporation, to Cable TV Fund 12-BCD Venture. Passed and adopted March 15, 1988.(8) 10.24 Resolution No. 3-92-1463 of the City of California City granting the transfer of the above cable company franchise from Cable TV Fund 12-BCD Venture to Falcon Classic Cable Income Properties, L.P. Passed and approved March 3, 1992.(8) 10.25 Credit Agreement by and among Falcon Classic Cable Income Properties, L.P., The Bank of California, N.A., as Agent, Societe Generale, NationsBank of Texas, N.A., The Connecticut National Bank, N.A. and The Bank of California, N.A., as banks dated as of September 10, 1992.(10) 10.26 Bill of Sale and Assignment whereby Falcon Holding Group, Inc. assigned its interest in the Classic Management Agreement to Falcon Holding Group, L.P. (10) 10.27 First amendment to the Credit Agreement by and among Falcon Classic Cable Income Properties, L.P., The Bank of California, N.A., as Agent, Societe Generale, NationsBank of Texas, N.A., The Connecticut National Bank, N.A. and The Bank of California, N.A., as banks, dated as of April 10, 1995.(12) 10.28 Franchise Ordinance No. 450.2 and related documents granting non-exclusive franchises to erect, construct, maintain and operate community antenna television service facilities in Laurel County, Kentucky. (12) 10.29 Franchise Agreement between the Town of Valdese, North Carolina, and Falcon Classic Cable Income Properties, L.P., dated June 5, 1995.(14) 10.30 Fair Market Valuation Report for Falcon Classic Cable Income Properties, L.P., as of December 31, 1996, dated February 20, 1997, prepared by Arthur Andersen LLP. 10.31 Valuation Analysis for Falcon Classic Cable Income Properties, L.P., as of December 31, 1996, dated March 3, 1997, prepared by Communications Equity Associates. 10.32 Fair Market Valuation Report for Falcon Classic Cable Income Properties, L.P., as of December 31, 1996, dated March 10, 1997, prepared by Kane Reece Assocates, Inc. 21.1 Subsidiaries: None 28.1 Prospectus Supplement dated November 6, 1989 to the Registrant's Prospectus dated May 15, 1989.(2) 28.2 Prospectus Supplement dated April 17, 1990 to the Registrant's Prospectus dated May 15, 1989 and the Prospectus Supplement dated November 6, 1989.(3) 99.1 Memorandum to Unitholders dated August 13, 1993 relating to distribution policy of the Partnership.(9) 99.2 Memorandum to Unitholders dated April 29, 1994 relating to distribution policy of the Partnership.(11) 99.3 Memorandum to Unitholders dated October 24, 1996 relating to JJJ tender offer.(15)
E-3 69 FOOTNOTE REFERENCES (1) Incorporated by reference to the exhibits to the Registrant's Registration Statement on Form S-1, Registration No. 33-27215. (2) Incorporated by reference to the exhibits to the Registrant's Annual Report on Form 10-K, File No. 0-18266 for the fiscal year ended December 31, 1989. (3) Incorporated by reference to the exhibits to the Registrant's Annual Report on Form 10-K, File No. 0-18266 for the fiscal year ended December 31, 1990. (4) Incorporated by reference to the exhibits to the Registrant's Current Report on Form 8-K, File No. 0-18266 dated March 21, 1991. (5) Incorporated by reference to the exhibits to the Registrant's Current Report on Form 8-K, File No. 0-18266 dated May 2, 1991. (6) Incorporated by reference to the exhibits to the Registrant's Current Report on Form 8-K, File No. 0-18266 dated October 3, 1991. (7) Incorporated by reference to the exhibits to the Registrant's Annual Report on Form 10-K, File No. 0-18266 for the fiscal year ended December 31, 1991. (8) Incorporated by reference to the exhibits to the Registrant's Annual Report on Form 10-K, File No. 0-18266 for the fiscal year ended December 31, 1992. (9) Incorporated by reference to the exhibits to the Registrant's Quarterly Report on Form 10-Q, File No. 0-18266 for the quarter ended June 30, 1993. (10) Incorporated by reference to the exhibits to the Registrant's Annual Report on Form 10-K, File No. 0-18266 for the fiscal year ended December 31, 1993. (11) Incorporated by reference to the exhibits to the Registrant's Current Report on Form 8-K, File No. 0-18266 dated April 29, 1994. (12) Incorporated by reference to the exhibits to the Registrant's Annual Report on Form 10-K, File No. 0-18266 for the fiscal year ended December 31, 1994. (13) Incorporated by reference to the exhibits to the Registrant's Quarterly Report on Form 10-Q, File No. 0-18266 for the quarter ended June 30, 1995. (14) Incorporated by reference to the exhibits to the Registrant's Annual Report on Form 10-K, File No. 0-18266 for the fiscal year ended December 31, 1995. (15) Incorporated by reference to the exhibits to the Registrant's Current Report on Form 8-K, File No. 0-18266 dated October 24, 1996. E-4 EX-10.30 2 EXHIBIT 10.30 1 EXHIBIT 10.30 ARTHUR ANDERSEN LLP FAIR MARKET VALUATION REPORT: FALCON CLASSIC CABLE INCOME PROPERTIES BURKE, NC CALIFORNIA CITY, CA CENTREVILLE, MD REDMOND, OR SOMERSET, KY February 20, 1997 2 [ARTHUR ANDERSEN LETTERHEAD] February 20, 1997 Mr. Burt Harris Harriscope Corporation Conflicts Committee of Falcon Classic Cable Income Properties, L.P. 10960 Wilshire Boulevard Los Angeles, CA 90024 Dear Mr. Harris: You retained Arthur Andersen LLP to render an opinion as to the fair market value of the cable television systems owned by Falcon Classic Cable Income Properties, LP ("Classic") as of December 31, 1996. Classic offers cable service in five areas: Burke County, NC, California City, CA, Centreville, MD, Redmond, OR, and Somerset, KY. The scope of our engagement was to value each cluster of cable television systems operating as a single going concern. The purpose of our report is to assist in a possible partnership buyout involving Falcon Holdings Group L.P. (or its affiliates) and Classic's partners. We were not engaged to make specific purchase, sale or lending recommendations. This report is not a fairness opinion. The Burke County, NC system serves the towns of Connelly Springs, Drexel, Glen Alpine, Rutherford College and Valdese, as well as certain unincorporated areas of Burke County, NC. The California City, CA system serves California City as well as certain unincorporated areas of Kern County, CA. The Centreville, MD system serves the towns of Barclay, Betterton, Centreville, Chestertown, Church Hill, Millington, Oxford, Queenstown, Rock Hall, St. Michaels, Sudlersville, Templeville and Trappe as well as certain unincorporated areas of Kent, Talbot and Queen Anne's Counties. The Redmond, OR system serves Redmond and certain unincorporated areas of Deschutes County, OR. The Somerset, KY systems serve the cities of Burnside, Columbia, Eubank, Ferguson, McKinney and Somerset, as well as certain unincorporated areas of Adair, Pulaski, Laurel and Lincoln Counties. For purposes of this report, fair market value is defined as the amount at which the subject properties would change hands, in a free and clear arm's length transaction, between a willing buyer and willing seller when neither is acting under any compulsion to complete the transaction, and when both have reasonable knowledge of the relevant facts. No consideration is given to minority holdings or ownership interests. This concept of value is supported by numerous court decisions dealing with fair market value. Further, it is assumed that all assets will remain in place and be employed in the delivery of cable television to subscribers, which is assumed to be the highest and best use of those assets. 3 [LOGO - ARTHUR ANDERSEN] Mr. Burt Harris Page 2 February 20, 1997 Our investigation included interviews with management, a review of financial and other documents, and an on-site review of a representative portion of the cable systems and the areas served. We relied upon the information provided by management as accurately representing the financial, technical and operational status of the companies. Based on our investigation and analysis as described in the report, and subject to the assumptions and limiting conditions specified in this report, it is our opinion that the fair market value of the subject properties, free and clear of all liens and encumbrances, as of December 31, 1996 is as follows: Burke County, NC Cluster $17,685,000 California City, CA Cluster $2,791,000 Centreville, MD Cluster $20,445,000 Redmond, OR Cluster $5,882,000 Somerset, KY Cluster $30,277,000 ----------- Total $77,080,000 -----------
Very truly yours, /S/Arthur Andersen LLP ARTHUR ANDERSEN LLP 4 [LOGO - ARTHUR ANDERSEN] FAIR MARKET VALUATION REPORT: FALCON CLASSIC CABLE INCOME PROPERTIES BURKE, NC CALIFORNIA CITY, CA CENTREVILLE, MD REDMOND, OR SOMERSET, KY . As of December 31, 1996 Prepared For: Conflicts Committee of Falcon Classic Cable Income Properties, L.P. Prepared By: Arthur Andersen LLP Washington, D.C. February 20, 1997 Copyright 1997-All Rights Reserved Arthur Andersen LLP 5 [LOGO - ARTHUR ANDERSEN] FAIR MARKET VALUATION REPORT: FALCON CLASSIC CABLE INCOME PROPERTIES BURKE, NC CALIFORNIA CITY, CA CENTREVILLE, MD REDMOND, OR SOMERSET, KY TABLE OF CONTENTS A. EXECUTIVE SUMMARY........................................................1 1. Introduction and Purpose of Report..............................1 2. Fair Market Value Conclusion....................................2 B. ECONOMIC PERSPECTIVE.....................................................3 1. The U.S. Economy................................................3 a. General Overview.......................................3 b. Implications for the Cable Television Industry.........6 2. Industry Overview...............................................6 a. History................................................6 b. Future.................................................9 C. PROPERTY DESCRIPTION.....................................................11 1. Operating Market................................................11 2. Physical Plant..................................................12 3. Operations Review...............................................15 4. Homes Passed and Subscribers....................................16 5. Franchise Agreements............................................18 6. Channel Line-Up and Rate Card...................................20 7. Financial History...............................................21 8. Management......................................................22 D. VALUATION METHODOLOGY....................................................23 1. Purpose.........................................................23 2. Definition of Fair Market Value.................................23 3. Three Approaches to Value.......................................24 4. Overall Valuation Procedure.....................................24 5. Operating Income Capitalization Method..........................26 6. Discounted Cash Flow Methodology................................26 7. Residual Value..................................................28 8. Analysis of Future Projections..................................29 9. Comparable Sales Methodology....................................30 E. CONCLUSIONS..............................................................32 F. GENERAL ASSUMPTIONS AND LIMITING CONDITIONS..............................33 G. CERTIFICATION............................................................36 6 [LOGO - ARTHUR ANDERSEN] EXHIBITS A. Cable Television Miles, Homes and Subscribers B. Service Rates C. Revenue, Expenses, Operating Income D. Capital Expenditures E. Discounted Cash Flow Valuation F. Valuation Matrix ADDENDUM 1 Channel Line-Ups and Rate Cards ADDENDUM 2 Capital Asset Pricing Model & Weighted Average Cost of Capital ADDENDUM 3 Financial History ADDENDUM 4 Demographics 7 [LOGO - ARTHUR ANDERSEN] FAIR MARKET VALUATION REPORT: FALCON CLASSIC CABLE INCOME PROPERTIES BURKE, NC CALIFORNIA CITY, CA CENTREVILLE, MD REDMOND, OR SOMERSET, KY A. EXECUTIVE SUMMARY 1. Introduction and Purpose of Report You retained Arthur Andersen LLP to render an opinion as to the fair market value of the cable television systems owned by Falcon Classic Cable Income Properties, LP ("Classic") as of December 31, 1996. Classic offers cable service in five areas: Burke County, NC, California City, CA, Centreville, MD, Redmond, OR, and Somerset, KY. The scope of our engagement was to value each cluster of cable television systems operating as a single going concern. The purpose of our report is to assist in a possible partnership buyout involving Falcon Holdings Group L.P. (or its affiliates) and Classic's partners. We were not engaged to make specific purchase, sale or lending recommendations. This report is not a fairness opinion. The Burke County, NC system serves the towns of Connelly Springs, Drexel, Glen Alpine, Rutherford College and Valdese, as well as certain unincorporated areas of Burke County, NC. The California City, CA system serves California City as well as certain unincorporated areas of Kern County, CA. The Centreville, MD system serves the towns of Barclay, Betterton, Centreville, Chestertown, Church Hill, Millington, Oxford, Queenstown, Rock Hall, St. Michaels, Sudlersville, Templeville and Trappe as well as certain unincorporated areas of Kent, Talbot and Queen Anne's Counties. The Redmond, OR system serves Redmond and certain unincorporated areas of Deschutes County, OR. The Somerset, KY systems serve the cities of Burnside, Columbia, 1 8 [LOGO - ARTHUR ANDERSEN] Eubank, Ferguson, McKinney and Somerset, as well as certain unincorporated areas of Adair, Pulaski, Laurel and Lincoln Counties. For purposes of this report, fair market value is defined as the amount at which the subject properties would change hands, in a free and clear arm's length transaction, between a willing buyer and willing seller when neither is acting under any compulsion to complete the transaction, and when both have reasonable knowledge of the relevant facts. No consideration is given to minority holdings or ownership interests. This concept of value is supported by numerous court decisions dealing with fair market value. Further, it is assumed that all assets will remain in place and be employed in the delivery of cable television to subscribers, which is assumed to be the highest and best use of those assets. As of the valuation date, the Burke County system passed 18,986 homes and served 10,516 customers via 731.1 miles of cable television plant. The California City system passed 2,858 homes and served 1,922 customers via 90.1 miles of cable television plant. The Centreville system passed 23,857 homes and served 12,325 customers via 649.8 miles of cable television plant. The Redmond system passed 7,252 homes and served 3,516 customers via 170 miles of cable television plant. The Somerset system passed 22,060 homes and served 19,296 customers via 834.5 miles of cable television plant. 2. Fair Market Value Conclusion Our opinion of the fair market value is based on information and data supplied by the System's management, our on-site inspection of representative portions of the Systems and the areas served and cable television industry information. Based on our analysis and investigation of the Systems, it is our opinion that the fair market value of the subject properties as of December 31, 1996 is as follows: Burke County, NC Cluster $17,685,000 California City, CA Cluster $2,791,000 Centreville, MD Cluster $20,445,000 Redmond, OR Cluster $5,882,000 Somerset, KY Cluster $30,277,000
2 9 [LOGO - ARTHUR ANDERSEN] B. ECONOMIC PERSPECTIVE 1. The U.S. Economy a. General Overview Economic growth accelerated in the first half of 1996. According to preliminary estimates, real gross domestic product increased at an annual rate of 3.4 percent in the first two quarters compared to 2.0 percent in 1995. On a quarterly basis, Gross Domestic Product ("GDP") increased 0.5 percent during the first quarter and 1.2 percent during the second quarter. The substantial growth in the second quarter of 1996 was widespread, with the largest increases in personal consumption expenditures and in government. During the second quarter of 1996, consumption expenditures grew by an annual rate of 3.4 percent. The largest increase was in durable goods, which increased at an annual rate of 11.3 percent. Spending on durables offset some weakening in spending on nondurable goods, as the growth rate of nondurables fell to an annual growth rate of 1.6 percent in the second quarter versus 3.6 percent for the first quarter of 1996. An increase in government expenditures and investment was another major factor in the increase of the economic growth rate. National defense expenditures and investment increased at an annual rate of 7.6 percent in the first half of 1996 compared to a decline throughout 1995. Additionally, state and local expenditures and investment increased at an annual rate of 6.6 percent during the second quarter of 1996. 3 10 [LOGO - ARTHUR ANDERSEN] Inflation remained low, but increased compared to 1995. The consumer price index for urban consumers ("CPI-U") increased by 3.5 percent, seasonally adjusted annual rate, in the first seven months of 1996, compared with a 2.5 percent increase for all of 1995. The increase in the CPI-U during the first seven months of 1996 was due to an acceleration in both food and energy costs. The food index rose at an annual rate of 4.1 percent for the first seven months after rising 2.1 percent in all of 1995. Energy costs increased at a 9.6 percent annual rate after declining in 1995. Petroleum prices led the increase with an annual rate of 15.7 percent for the first seven months of 1996. Core inflation, as measured by the CPI-U excluding food and energy, increased at an annual rate of 3.0 percent in the first seven months of 1996. The unemployment rate remained relatively steady in the first seven months of 1996, closing in July at 5.4 percent. The rate had fluctuated in a narrow band around 5.6 percent during 1995, as increases in the number of jobs fully absorbed increases in the labor force. An acceleration in total employment throughout 1996 had increased the labor force by 1.9 million for the first seven months of 1996. Total employment grew by only 400,000 during all of 1995. Income growth during the first two quarters of 1996 increased slightly compared to 1995. Personal income increased 1.6 percent in the second quarter of 1996 compared to average quarterly increases of 1.25 percent for the previous four quarters. The largest sector responsible for this increase was manufacturing, which increased 2.6 percent in the second quarter compared to a 1.7 percent increase from the first quarter of 1995 to the first quarter of 1996. FINANCIAL MARKETS The prime rate, the rate which major commercial banks charge their best customers, fluctuated from a low of 6 percent in 1993 to a high of 12.04 percent in 1984. The prime rate, which is considered a key economic and financial 4 11 [LOGO - ARTHUR ANDERSEN] barometer, averaged 8.29 percent in the first half of 1996 and stood at 8.25 percent as of the valuation date. A visible mechanism utilized by the Federal Reserve Bank to increase capital expenditures during the most recent recession was a dramatic decrease in the discount rate. The discount rate in 1984 was 8.8 percent, and declined throughout the decade to a low of 3.0 percent during 1993. During the first seven months of 1996, yields on three-month Treasury bills ranged from 5.02 percent in January to 5.17 percent in July. During the same period, yields on Moody's AAA corporate bonds ranged from 6.8 percent in January to a low of 7.65 percent in July. FUTURE OUTLOOK Most of the available evidence supports the conventional wisdom that the economy's productive capacity is expanding approximately 2.3 percent annually. Growth in the productivity of American workers seems to have increased slightly in recent years, to about 1.25 percent annually. Overall, the growth of the economy appears to be nearly what it has been for the last two decades, with productivity trends offsetting workforce population declines. Advance estimates for the GDP indicate that the economy is continuing to expand. Since the Federal Reserve can be expected to continue influencing economic growth and inflation through adjustments in the federal funds rate, analysts expect a 2.5 percent growth in the U.S. economy for all of 1996. In addition, long-run projections suggest that if the Clinton Administration's current policy proposals are enacted and the anticipated slowdowns in Medicare and Medicaid spending persist, the deficit should improve over the next ten years. After the year 2000, the amount of the deficit is expected to remain stable, but become a smaller percentage of GDP as GDP increases are realized. Over the longer run, changing demographics will put upward pressure on the deficit as the baby-boom generation retires. Social Security and Federal medical spending are expected to increase as more of the population reaches the age of 65. 5 12 [LOGO - ARTHUR ANDERSEN] b. Implications for the Cable Television Industry Traditionally, the cable television industry has been relatively recession-proof. Although cable television is an optional service, during periods of economic downturns, when unemployment rises and household income declines, it is generally considered an entertainment bargain. For a modest amount of money per month, a family can purchase many hours of in-home entertainment. As a consequence, the decline in customers taking the basic service is minimal. Similarly, little or no decline is seen in revenues associated with the basic service. Subscribers are more likely to drop premium services, or elect to watch fewer pay-per-view offerings, when the economy turns down. Thus premium and pay-per-view revenues may decline or show less pronounced growth. Conversely, cable customers generally subscribe more frequently to premium services and watch more elective pay-per-view offerings when unemployment decreases and household income rises. 2. Industry Overview a. History Cable television was born of necessity. In rural America, during the late 1940s and early 1950s, the first cable television systems were constructed to allow clear reception of broadcast television signals. These rural communities were either too far away from broadcast stations to receive viewable signals, or were surrounded by mountains or other terrain conditions not conducive to good reception. The first systems were of simple design. An antennae, usually a household rooftop unit, was placed on top of the signal blocking obstruction and from there wires were run into the community to the homes. While these early systems generally provided no more than 6 to 12 channels, they did provide clear pictures. 6 13 [LOGO - ARTHUR ANDERSEN] From the late 1950s through the early 1970s construction of cable television systems continued at a moderate pace. Systems were being constructed in more densely populated areas with more channels (12 to 24) and new programming services were being introduced. These new services were imported by way of microwave. However, mid-way through this period, the Federal Communications Commission ("FCC") placed restrictions on the importation of distant broadcast signals. The effect of these restrictions was to slow or stop construction of systems in major markets. The FCC eased distant signal importation restrictions in 1972. This allowed operators to introduce more varied programming and to expand into larger markets. The beginning of cable television, as it is thought of today, began in 1974-1975 with the introduction of satellite delivered television programming. The efficiency of the delivery system, and the variety of programming that would soon become available helped move systems beyond 24 channels to 36 channels and more. The period between 1972 and 1984 saw the rapid development and expansion of cable television throughout all markets. In 1984 the Cable Communications Policy Act was approved by Congress. Viewed in hindsight, the most controversial feature of the act was the removal of price controls on programming services to the subscriber. The release of price controls was phased in over 1985 and 1986 with all controls coming off in 1987. Between 1987 and 1991 the cost of basic programming to the subscriber rose dramatically. Cable operators argued that the increases were a result of an artificially restricted market and prices were now reaching equilibrium as program offerings increased and technical facilities were improved. Consumer advocates argued that cable operators were taking advantage of an unrestricted situation in which the operators held unregulated monopolies. 7 14 [LOGO - ARTHUR ANDERSEN] In response to recent history, Congress proposed several re-regulation bills over a period of three years. Finally, on October 5, 1992, the House and Senate enacted into law the controversial Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") over the veto of President Bush. Many of the provisions of the new law took effect 60 days after passage of the bill, on December 4, 1992, but a number of key provisions took effect on dates ranging from 120 days to 18 months from the date of passage. Among the most critical issues affected by the 1992 Cable Act are direct rate regulation, "must-carry," and re-transmission consent. Provisions of the new law relating to direct rate regulation allow most local franchising authorities to take steps to ensure that basic service rates are reasonable, i.e., not greater than would be the case if the system was subject to effective competition. The FCC is required to establish and adopt regulations to be followed by the local authorities who choose to regulate. Rates may be regulated on other, non-basic services only in cases of "bad actor" complaints. In April 1993, the FCC announced preliminary guidelines for rate regulation which are based on benchmarks derived from a national price survey of systems subject to competition. The FCC expected most systems would be required to roll back rates approximately ten percent or more. Operators may elect to prove the reasonableness of their rates by means of a cost of service showing. The long expected rules for the cost of service showing were announced by the FCC by February, 1994. At the same time, the FCC revised benchmark rates and issued new methodology for operators to use in determining which benchmark rates apply to their systems. The FCC expects the new benchmarks will result in an additional rollback of rates for regulated services in the average magnitude of about 7 percent . The new rules also are intended to encourage the development of new, unregulated services. Under the 1992 Cable Act broadcasters are given broad "must carry" and channel position rights. Requirements are established for cable television operators to carry local television stations. Prior to enactment of the new law, cable systems were not required to carry broadcast stations. 8 15 [LOGO - ARTHUR ANDERSEN] Cable operators also did not have to request permission to use broadcast signals prior to enactment of the 1992 Cable Act, nor did they have to pay a carriage fee to the broadcasters. As a result of the re-transmission consent provisions of the 1992 law, cable systems are barred from retransmitting broadcast signals without a station's consent. The cable operator must negotiate with local broadcasters to obtain their consent for retransmission. As a result of the negotiation process, the cable operator might be charged a fee for carriage of the broadcaster's signals. It is important to remember that much of the viewing on cable television is still done on the three major broadcast networks. b. Future Despite re-regulation, cable operators' total revenues continue to increase. Subscribers increased 4 percent to 63 million in 1995, basic service revenues expanded 11 percent, premium service revenue grew 6 percent, and advertising revenue rose 16 percent. There are some difficulties in projecting cable revenues more than five years out because of inevitable technological changes on the horizon (such as interactive media). It is anticipated that growth will not pass into the double digits in the 1990's as in the 1980's. However, cable household penetration should reach 70% and advertising revenues should increase in the near future. Overall, total cable revenues are expected to increase 5 to 7 percent per year over the next 5 years, until certain technological change alters the competitive situation. The future also holds the potential for competition. The two primary sources of competition are widely considered to be the regional bell operating companies ("RBOCs") and direct broadcast satellites. 9 16 [LOGO - ARTHUR ANDERSEN] The economics of competition and the possible reconstruction of entire subscriber networks represents an investment that may not be economically feasible for the RBOCs. Recent developments in copper transmission technology, specifically, asymmetrical digital subscriber lines, have given the RBOCs some hope of using their existing subscriber networks to transmit full motion video. Many analysts view the RBOCs as possible joint venture candidates or purchasers of cable systems. Indeed, a number of actions support this view, including US West's investment in Time Warner, Bell Atlantic's bid to acquire Tele-Communications, Inc., Southwestern Bell's acquisition of Hauser Communications, USWest's acquisition of Continental Cable and rumors of discussions between other RBOCs and large cable operators. The other source of competition is from direct broadcast satellites ("DBS"). DBS is a high power satellite which broadcasts programs directly to the subscriber's home utilizing an 18" receive dish. Several companies now offer the service. The first commercial launch was in December of 1993. Initially, DBS was widely viewed as a complementary service to cable. However, in many areas DBS has eroded cable subscriber bases. Technological restrictions prevent DBS from offering as many local channels as cable, and the enormous expense of the venture has kept the price to the subscriber in line with that of cable. Further, DBS is fighting for market share against an already well established cable service infrastructure. As of this writing, all DBS providers serve approximately 4,400,000 subscribers. In February of 1996, President Clinton signed into law the Telecommunications Act of 1996. Among the numerous provisions, the Act deregulates small cable systems of under 50,000 subscribers, and allows for the entry of cable companies into the telephone industry. Additionally, it lifts the barriers for entry into the cable television industry for local exchange carriers (LEC's) as well as other entities. Most analysts expect numerous legal challenges to the Act. 10 17 [LOGO - ARTHUR ANDERSEN] C. PROPERTY DESCRIPTION 1. Operating Market Falcon Classic Cable Income Properties, LP offers cable service in five areas: Burke County, NC, California City, CA, Centreville MD, Redmond, OR, and Somerset KY. The Burke County, NC system serves the towns of Connelly Springs, Drexel, Glen Alpine, Rutherford College and Valdese, as well as certain unincorporated areas of Burke County, NC. The California City, CA system serves California City as well as certain unincorporated areas of Kern County, CA. The Centreville, MD system serves the towns of Barclay, Betterton, Centreville, Chestertown, Church Hill, Millington, Oxford, Queenstown, Rock Hall, St. Michaels, Sudlersville, Templeville and Trappe as well as certain unincorporated areas of Kent, Talbot and Queen Anne's Counties. The Redmond, OR system serves Redmond and certain unincorporated areas of Deschutes County, OR. The Somerset, KY systems serve the cities of Burnside, Columbia, Eubank, Ferguson, McKinney and Somerset, as well as certain unincorporated areas of Adair, Pulaski, Laurel and Lincoln Counties. Residents in the areas served by the Burke County, North Carolina system are employed in industries that include textiles, poultry processing, building materials and structural products, timber processing and furniture manufacturing. Major employers include Lowe's Companies, Gardner Mirror, Carolina Mirror and ITT Corporation. Residents in the areas served by the California City, California system generally commute to the Los Angeles area for employment. Residents in the areas served by the Centreville, Maryland system rely heavily upon the Chesapeake Bay for their economy. This industry includes commercial fishing, crabbing and processing. Portions of the area's workforce are also employed in the farming and tourism industries. Additionally, a number of area residents commute to Annapolis, Baltimore and Washington, D.C. 11 18 [LOGO - ARTHUR ANDERSEN] Residents in the areas served by the Redmond, Oregon system are employed in a variety of industries such as timber, tourism, trade, service and agriculture. Major employers include Eagle Crest Resort and the Redmond Airport. Residents in the areas served by the Somerset, Kentucky system are employed in industries such as glassware, dairy, gas and oil and forestry. Major employers include General Electric, Southern Belle Dairy and Palm Beach Clothing. The data presented in Addendum 4, taken from Sales and Marketing Management's Demographics USA 1996, shows the January 1, 1996, population, households, median age and average household effective buying income ("EBI") for the counties in which the entire service area is located. If available, projections for January 1, 2001, also are included for each category along with the compounded annual change for the five year period. The average annual rate of growth for each category represents a general indicator of overall growth levels in the areas in which the Systems operate. The growth of the area as a whole may not be indicative of the level of growth expected and achievable in the Systems due to a variety of reasons, including (a) the lag between statistical reporting and the current state of affairs, (b) the fact that certain portions of a particular county may experience robust growth while other areas face slow or even negative growth, and (c) the cable system may be preparing to offer the cable service in areas previously unserved by the cable. As of the valuation date, reception of off-air signals to service area residents without the cable television service was poor to excellent depending on which areas of the Systems. The main sources of competition for the cable service were MMDS, DBS, satellite dishes and video rental stores. 2. Physical Plant Burke County, North Carolina The Burke, North Carolina plant included one headend located on High Peak Mountain. As of the valuation date, the System included 468.7 miles of aerial plant and 262.4 miles of underground plant. Plant bandwidth capacity was at 330 MHz. 12 19 [LOGO - ARTHUR ANDERSEN] The distribution plant contained .860 and .750-inch trunk and .500-inch feeder cable. Additionally, the system utilized fiber optic cable to shorten cascades. The majority of the active electronics consisted of Magnavox and Scientific Atlanta trunk amplifiers and line extenders. Subscriber drops consisted of RG-6 messengered cable. The longest trunk cascade was 20 amplifiers and the longest line extender cascade was 4 line extenders. Manufacturers of the headend electronics included General Instruments, Avantek, Olson, Catel, Cadco and Scientific Atlanta. Fiber optic electronics were manufactured by Scientific Atlanta and Synchronous. Off-air signals were received via antennas mounted on a 100-foot self-supporting tower located at the headend. Satellite signals were received by earth stations ranging in size from 2.8 to 7.0 meters. Pay and tier security was accomplished through addressability. Converters in the field consisted of Scientific Atlanta 8550 and 8580 addressable models. California City, California The California City, California plant included one headend located in the town of North Edwards. As of the valuation date, the System included 79 miles of aerial plant and 11.1 miles of underground plant. Plant bandwidth capacity was at 330 MHz. The distribution plant contained .750-inch trunk and .500-inch feeder cable. Active electronics consisted of Magnavox trunk amplifiers and line extenders. The longest trunk cascade was 16 amplifiers and the longest line extender cascade was 3 line extenders. Manufacturers of headend electronics included Scientific Atlanta, M/A-Com, Standard Communications and Jerrold. Off-air signals were received via antennas mounted on a 250-foot tower. Satellite signals were received by earth stations ranging in size from 4.2 to 5.0 meters in diameter. Pay and tier security was accomplished through a combination of the use of traps and addressability. Converters in the field consisted of Jerrold DPV7 addressable models. 13 20 [LOGO - ARTHUR ANDERSEN] Centreville, Maryland The Centreville, Maryland plant included one headend located in the town of Wye Mills. As of the valuation date, the System included 460.2 miles of aerial plant and 189.60 miles of underground plant. Plant bandwidth capacity was at 450 MHz. The distribution plant contained .750-inch trunk and .500 and .412-inch feeder cable. Additionally, the signal was microwaved from the headend to two sites in Talbot County, two sites in Queen Anne County and two sites in Kent County. Fiber was utilized throughout the system both from the headend and from microwave receive sites. Active electronics consisted of Magnavox trunk amplifiers and line extenders. Subscriber drops consisted of RG-6, RG-59, and RG-11 cable. The longest trunk run was 19 amplifiers and the longest line extender cascade was 5 line extenders. Manufacturers of headend electronics included Scientific Atlanta, General Instruments, Drake, Cadco, M/A-Com and Olson. Fiber optic electronics were manufactured by Antec and Phillips. Off-air signals were received via antennas mounted on a 300-foot guyed tower at the headend. Satellite signals were received by earth stations ranging in size from 2.8 to 5.0 meters in diameter. Pay and tier security was accomplished through the use of traps. Converters in the field consisted of Jerrold DRZ-3 models. Redmond, Oregon The Redmond, Oregon plant included one headend located in the town of Redmond. As of the valuation date, the System included 116 miles of aerial plant and 54 miles of underground plant. Plant bandwidth capacity was at 270 MHz. The distribution plant contained .750 and .500-inch trunk and .500 and .412-inch feeder cable. Active electronics consisted of Magnavox and Century trunk amplifiers and line extenders. Subscriber drops consisted of RG-6, RG-59, and RG-11 cable. The longest trunk cascade was 32 amplifiers and the longest line extender cascade was 5 line extenders. 14 21 [LOGO - ARTHUR ANDERSEN] Manufacturers of the headend electronics included General Instruments, Pico and Scientific Atlanta. Satellite signals were received by earth stations manufactured by Comtech and Scientific Atlanta. Pay security was accomplished through the combination of traps and addressability. Converters in the field were manufactured by Jerrold. Somerset, Kentucky The Somerset, Kentucky plant included five headends located in the towns of Burnside, Columbia, Eubank, London, and McKinney. As of the valuation date, the Systems included 816.5 miles of aerial plant and 18 miles of underground plant. Plant bandwidth capacity ranged from 270 to 400 MHz. The distribution plant contained .860, .750 and .500-inch trunk and .500 and .412-inch feeder cable. Active electronics consisted of Scientific Atlanta, Tocom, Sylvania and Jerrold trunk amplifiers and line extenders. Subscriber drops consisted of RG-6 and RG-59 cable. The longest trunk run was 33 amplifiers and the longest line extender cascade was 8 line extenders. Manufacturers of headend electronics included General Instruments, Scientific Atlanta, Microdyne, Blonder Tongue, Triple Crown, Catel and Olson. Fiber optic electronics were manufactured by Antec and Scientific Atlanta. Off-air signals were received via antennas mounted on towers either at the headend or near the headend on a mountaintop site. Satellite signals were received by earth stations ranging in size from 3.0 to 5.0 meters in diameter. Pay security was accomplished through a combination of traps and addressability. Converters in the field consisted of Scientific Atlanta 8501, 8510, 8511, and 8600 non-addressable and addressable models. 3. Operations Review The Burke County, California City, Centreville, and Redmond systems each conducted operations from one centrally located business office. The Somerset systems had three business offices located at strategic points throughout the service areas. 15 22 [LOGO - ARTHUR ANDERSEN] Our visual inspection of the Systems included on-site inspections of the Burke County, NC system, the Centreville, MD system and the Somerset, KY systems. These systems represented nearly 90% of the subscribers within the five areas. Numerous new build areas were observed throughout the Systems. Our inspection of the active distribution plant showed the cable and strand to be in fair to good condition with very little signs of broken lashing wire. The headends observed during the on-site observations appeared to be very well organized and well maintained. Headend electronics consisted of a mixed batch of low to high quality brand name equipment and appeared to be in fair to excellent condition in each of the Systems. 4. Homes Passed and Subscribers Systems management's best estimate of the number of homes passed and subscribers as of the valuation date is as follows:
Burke County, North Carolina Penetration - ---------------------------- ----------- Homes Passed: 18,986 N/A Basic Subscribers: 10,516 55.4% Expanded Basic: 9,097 86.5% Pay Units: 4,840 46.0% Converters: 15,346 145.9% Remotes: 10,922 103.8%
16 23 [LOGO - ARTHUR ANDERSEN]
California City, California Penetration - --------------------------- ----------- Homes Passed: 2,858 N/A Basic Subscribers: 1,922 67.2% Expanded Basic: 1,820 94.7% Pay Units: 839 43.7% Converters: 931 48.4% Remotes: 802 41.7% Centreville, Maryland Penetration - --------------------- ----------- Homes Passed: 23,857 N/A Basic Subscribers: 12,325 51.7% Expanded Basic: 11,863 96.3% Pay Units: 7,440 60.4% Converters: 1,838 14.9% Remotes: 681 5.5% Redmond, Oregon Penetration - --------------- ----------- Homes Passed: 7,252 N/A Basic Subscribers: 3,516 48.5% Expanded Basic: 2,847 81.0% Pay Units: 777 22.1% Converters: 1,050 29.9% Remotes: 933 24.7% Somerset, Kentucky Penetration - ------------------ ----------- Homes Passed: 22,060 N/A Basic Subscribers: 19,296 87.5% Expanded Basic: 18,823 97.5% Pay Units: 3,914 20.3% Converters: 5,119 26.5% Remotes: 4,622 24.0%
Management's estimate of homes passed were drawn from System information and based on a combination of billing records, previous audits and the System's maps. 17 24 [LOGO - ARTHUR ANDERSEN] 5. Franchise Agreements The following chart details the active franchises and agreements for the Systems and provides term expiration.
Franchise Area Expiration Date -------------- --------------- Burke County, North Carolina - ---------------------------- Burke County June 3, 1998 Connelly Springs October 7, 1999 Drexel February 2, 2005 Glen Alpine October 31, 1998 Rutherford College October 10, 2001 Valdese June 20, 2007 California City, California - --------------------------- California City April 1, 2001 Centreville, Maryland - --------------------- Barclay March 13, 2009 Betterton June 13, 2004 Centreville October 7, 1997 Chestertown March 29, 1998 Church Hill February 2, 2009 Kent County May 17, 2003 Millington February 21, 2004 Oxford August 27, 2006 Queen Anne's County September 1, 1997 Queenstown June 16, 1998 Rock Hall December 26, 2001 St. Michaels December 31, 1996 Sudlersville September 22, 2008 Talbot County May 29, 2006 Templeville May 3, 2008 Trappe September 23, 2006
18 25 [LOGO - ARTHUR ANDERSEN]
Franchise Area Expiration Date -------------- --------------- Redmond, Oregon - --------------- Redmond February 23, 2002 Somerset, Kentucky - ------------------ Adair County May 8, 2005 Burnside June 2, 2000 Columbia August 27, 2011 Eubank September 6, 1998 Ferguson November 7, 2008 Laurel County May 27, 2009 Lincoln County (a) April 5, 1998 Lincoln County (b) May 5, 2007 Pulaski County (a) June 1, 1999 Pulaski County (b) October 26, 2008 Somerset December 31, 1996
The weighted average remaining life per basic subscriber of the franchises for the Burke County System is 2.08 years. The weighted average remaining life per basic subscriber of the franchises for the California City System is 4.25 years. The weighted average remaining life per basic subscriber of the franchises for the Centreville System is 3.36 years. The weighted average remaining life per basic subscriber of the franchises for the Redmond System is 5.15 years. The weighted average remaining life per basic subscriber of the franchises for the Somerset System is 6.24 years. 19 26 [LOGO - ARTHUR ANDERSEN] 6. Channel Line-Up and Rate Card As of the valuation date, the following average rates were charged to subscribers.
Burke County, North Carolina - ---------------------------- Basic: $16.96 Expanded Basic: 6.20 Pay: 7.51 Converters: 2.50 Remotes: 0.03 Installation: 45.00 Reconnect: 45.00 California City, California - --------------------------- Basic: $15.77 Expanded Basic: 6.00 Pay: 8.14 Converters: 4.46 Remotes: 0.34 Installation: 45.00 Reconnect: 45.00 Centreville, Maryland - --------------------- Basic: $20.60 Expanded Basic: 3.52 Pay: 8.54 Converters: 1.99 Remotes: .68 Installation: 45.00 Reconnect: 45.00 Redmond, Oregon - --------------- Basic: $22.23 Expanded Basic: 2.05 Pay: 6.16 Converters: 2.57 Remotes: 0.22 Installation: 45.00 Reconnect: 45.00
20 27 [LOGO - ARTHUR ANDERSEN]
Somerset, Kentucky - ------------------ Basic: 19.24 Expanded Basic: 2.37 Pay: 8.71 Converters: 1.58 Remotes: 0.33 Installation: 45.00 Reconnect: 45.00
Detailed channel line-up and rate information is included in Addendum 1. 7. Financial History For purposes of our investigation, we were furnished for review financial statements for each of the Systems for the years ending December 31, 1993, 1994, 1995 and 1996. We have accepted such information, without audit or investigation on our part, as correctly reflecting the business and financial operations and conditions it was purported to reflect but made such adjustments as we deemed appropriate for valuation purposes. Recent financial operating history is discussed below, and summary income statements, including notations pertaining to adjustments, are presented in Addendum 3. In the Burke County system, total revenues for the twelve months ended December, 1996 were $5,077,787 and operating expenses totaled $2,023,543, resulting in operating income of $3,054,244 and an operating margin of 60.15%. This represents an increase in operating income of 3.5% over the previous year from $2,951,419 reported for the year ended December 31, 1995. In the California City system, total revenues for the twelve months ended December, 1996 were $753,244 and operating expenses totaled $318,288, resulting in operating income of $434,956 and an operating margin of 57.74%. This represents an increase in operating income of 5.2% over the previous year from $413,393 reported for the year ended December 31, 1995. 21 28 [LOGO - ARTHUR ANDERSEN] In the Centreville system, total revenues for the twelve months ended December, 1996 were $5,342,637 and operating expenses totaled $2,623,275, resulting in operating income of $2,719,362 and an operating margin of 50.90%. This represents an increase in operating income of 31% over the previous year from $2,075,645 reported for the year ended December 31, 1995. In the Redmond system, total revenues for the twelve months ended December, 1996 were $1,561,593 and operating expenses totaled $632,632, resulting in operating income of $928,961 and an operating margin of 59.49%. This represents an increase in operating income of 5% over the previous year from $885,188 reported for the year ended December 31, 1995. In the Somerset systems, total revenues for the twelve months ended December, 1996 were $7,090,865 and operating expenses totaled $3,102,395, resulting in operating income of $3,988,470 and an operating margin of 56.25%. This represents an increase in operating income of 16.1% over the previous year from $3,436,148 reported for the year ended December 31, 1995. 8. Management Our representative met and interviewed several members of management during the on-site review of the Systems. The management team in place at the time of the valuation was comprised of professionals in the cable television industry and demonstrated substantial knowledge about all aspects of the Systems' operation. 22 29 [LOGO - ARTHUR ANDERSEN] D. VALUATION METHODOLOGY 1. Purpose We were engaged to render an opinion as to the fair market value of the cable television systems owned by Falcon Classic Cable Income Properties, LP ("Classic" or the "Systems") as of December 31, 1996. Classic offers cable service in five areas: Burke County, NC, California City, CA, Centreville, MD, Redmond, OR and Somerset, KY. The scope of our engagement was to value each cluster of cable television systems operating as a single going concern. The purpose of our report is to assist in a possible partnership buyout involving Falcon Holdings Group L.P. (or its affiliates) and Classic's partners. We were not engaged to make specific purchase, sale or lending recommendations. This report is not a fairness opinion. The Burke County, NC system serves the towns of Connelly Springs, Drexel, Glen Alpine, Rutherford College and Valdese, as well as certain unincorporated areas of Burke County, NC. The California City, CA system serves California City as well as certain unincorporated areas of Kern County, CA. The Centreville, MD system serves the towns of Barclay, Betterton, Centreville, Chestertown, Church Hill, Millington, Oxford, Queenstown, Rock Hall, St. Michaels, Sudlersville, Templeville and Trappe as well as certain unincorporated areas of Kent, Talbot and Queen Anne's Counties. The Redmond, OR system serves Redmond and certain unincorporated areas of Deschutes County, OR. The Somerset, KY systems serve the cities of Burnside, Columbia, Eubank, Ferguson, McKinney and Somerset, as well as certain unincorporated areas of Adair, Pulaski, Laurel and Lincoln Counties. 2. Definition of Fair Market Value For purposes of this report, fair market value is defined as the estimated cash or cash equivalent price at which the subject properties would change hands between a willing buyer and a willing seller, in an arm's length transaction, in which both buyer and seller have been informed of all relevant facts and neither is under compulsion to complete the transaction. This concept of value is supported by numerous court decisions dealing 23 30 [LOGO - ARTHUR ANDERSEN] with fair market value. Further, it is assumed that all assets will remain in place and be employed in the delivery of cable television signals to subscribers, which is assumed to be the highest and best use of those assets. 3. Three Approaches to Value Traditionally, the development of a fair market value opinion is based on the consideration of three basic approaches to value: the Cost Approach, the Market Approach and the Income Approach. The cost approach measures the value of an asset by the cost to reconstruct or replace it with another of like utility. The income approach measures the value of an asset by the present value of its future economic benefits. The market approach measures the value of an asset through an analysis of recent sales or offerings of comparable property. Value indications derived through one or more of these approaches are then analyzed in order to formulate an objective opinion as to the market value of the Systems under valuation. We considered these three generally accepted valuation methods in determining the Systems' fair market value. In considering the income approach, two methodologies were used: an operating income capitalization method and a discounted cash flow calculation. The capitalization method is presented in part D-5 of this report, and the discounted cash flow methodology is described in sections D-6 through D-8. We considered the market approach as presented in part D-9 of the report. The cost approach was considered but not used because it does not adequately capture the value attributable to the continued operation of the business. 4. Overall Valuation Procedure We employed the following steps in determining the fair market value of the Systems: a. Performed an on-site inspection of a representative portion of the Systems' headends, earth stations, towers, antennas, distribution plant, customer service and technical offices to determine technical and/or physical condition. 24 31 [LOGO - ARTHUR ANDERSEN] b. Performed an on-site review of a representative portion of the Systems' service area to confirm economic and demographic data and information collected from the Systems' management, local governmental jurisdictions and independent sources. c. Examined financial statements and other information. d. Examined historic subscriber records and monthly reports. e. Reviewed historic service rate records. f. Reviewed franchises and other agreements. g. Interviewed management and staff on a variety of financial, operational, technical, marketing and programming issues. h. Applied the most likely changes, in our opinion, in operations and finance that a reasonable, prudent, "outside" buyer would institute. i. Applied or considered an operating income capitalization method, a discounted cash flow method and a comparable sales methodology. j. Derived an estimated fair market value which considered the results of the various valuation methods, giving greater weight to the discounted cash flow and projected income capitalization methods, since they reflect future factors, as well as past and current, affecting overall systems value. We conducted an on-site inspection of a representative portion of the cable systems to determine physical condition and satisfactory function of fixed assets currently in place. We assessed the reasonableness of management's 1997 budget regarding homes, subscribers, miles, rates, revenues, operating expenses, and capital expenditures. We used essentially the same estimates for future growth in miles and homes in our analysis in the assumption that a typical outside buyer would plan to achieve the same level of 25 32 [LOGO - ARTHUR ANDERSEN] growth. The annual capital expenditure assumptions for both new construction, rebuilds and ongoing maintenance used in our analysis are similar to or slightly less than those projected by management. 5. Operating Income Capitalization Method We considered three variations of the operating income capitalization method. In the first variation, we applied a baseline multiplier to the Systems' adjusted 1996 12-month operating income based on historical financial information presented in Addendum 3. The baseline multiplier was derived from a variety of cable industry data including public and private transactions, public stock data, industry trends and other information. The second variation of this method utilized a slightly lower multiplier applied to the Systems' current operating income. Current operating income is defined as the annualized estimate of the Systems' current monthly operating income based on the number of subscribers and the service rates charged on the date of the valuation. A lower multiplier was used to recognize the risk and uncertainty of using operating income estimated by annualization rather than historic data. We applied an even lower multiplier to the Systems' estimated future operating income in the third variation of the operating income capitalization method. We used the lower multiple to recognize the greater risk and uncertainty of using future estimates of operating income rather than historic achievements. The results of the three income capitalization methods are presented in Exhibits F. 6. Discounted Cash Flow Methodology The discounted cash flow methodology measured the net present value of the Systems' estimated future pre-tax operating income, less capital expenditures, plus the residual value of the Systems. This methodology relied on estimates of future operating income which were derived from data supplied by the Systems' management and certain assumptions based on experience and professional judgment. The revenue estimates were based on data provided by management regarding homes passed, subscribers, special services, rates, and penetration levels. The expense estimates, based on many of the same factors as the revenue estimates, also were overlaid with inflation factors specific to the expense categories. In all cases, our work 26 33 [LOGO - ARTHUR ANDERSEN] was based on management's 1997 budget and our experience with comparable cable systems. Capital expenditures were based on anticipated new miles of plant, plant rebuild, converter replacement, system upgrades, and other expense factors that generally vary from system to system. A residual value was added to the operating income stream in the final year of the period analyzed. The residual value was discounted to the present at the same rate as the operating income. The residual analysis estimated the present value of the Systems at the end of the horizon period. We calculated the residual as a multiple of operating income in the final year of the operating income analysis. The residual multiple was lower than the multiple used in the operating income capitalization method to account for the uncertainty of regulation, competition and technological changes. An important component of the discounted cash flow methodology is the selection of the discount rate for overall capital or total investment. We combined two basic components, i.e., the anticipated return on investors' equity and the cost of debt, to create the discount rate. As the equity return rate, we used the expected rate of return available on alternative investment opportunities with comparable risk. The equity return rate was developed using the capital asset pricing model ("CAPM"), as outlined in Addendum 2. CAPM, which is part of a larger theory known as the capital market theory, is based on the fact that investors in risky assets require an additional return above the risk free market rate as compensation for investing in the particular asset. In determining the risk component of the equity portion of capital we analyzed the systematic and unsystematic risks associated with the subject properties. Systematic risk is a measure of the uncertainty of future returns due to the sensitivity of the return on the subject investment to movements in the return for the market as a whole. Systematic risk is measured in CAPM by a factor called beta. Beta is a function of the relationship between the return on an individual security and the return on the market as measured by the return on a standard market index. Unsystematic risk is a measurement of the risk directly related to the characteristics of a specific industry, the cable system itself, community/municipal relationships, competition, regulation, and management ability. 27 34 [LOGO - ARTHUR ANDERSEN] The discount rate was determined by combining the cost of equity (as determined above) and the cost of debt in weighted proportions (weighted average cost of capital) that would have been typical for the Systems, or a comparable system, and which were representative of the industry as of the valuation date (see Addendum 2). The cost of debt was based on the benchmark prime lending rate as listed in The Wall Street Journal. The prime lending rate is one customarily used as a basis for the cable television industry. Points over prime were assigned to the debt structure based on the anticipated risk involved in the loan and prevailing bank industry standards. The discounted cash flow model is presented in Exhibits E. 7. Residual Value The residual value of the cable property represents the best estimate, as of the valuation date, of the fair market value of the property in the final year considered in our analysis. The residual is calculated via a valuation multiplier similar to the multipliers used in the operating income capitalization method. Once calculated, the residual value is added to the operating income stream. The premise upon which the use of a residual value is based is the fact that significant value will be returned to the owner of a property at the end of its holding period. Alternatively, the owner will continue to hold the property and realize operating profit well into the future. The residual multiplier captures both aspects of value. For most well operated cable television systems the residual multiplier is the same, given the same valuation date. However, a number of factors can be cause for adjustment to the multiplier. For instance, a cable system without a likely prospect for franchise renewal would have little or no value at the end of the franchise term. In this example, a lower than average, or possibly zero multiplier would be used. If, for instance, a system had a significant number of years remaining on the current franchise plus a renewal already assured it might garner a higher than average multiplier. Franchise life, terms and conditions represent only a single consideration that is made when determining the multiplier. Other significant considerations include rate regulation, competition, expanded services, market maturity, and operating trends. Based on the aforementioned considerations, we have selected a residual multiple of 8.5 (eight and one half) for the Somerset system, (eight) for the Centreville system, 7.5 28 35 [LOGO - ARTHUR ANDERSEN] (seven and one half) for the Burke County system, and 7 (seven) for the Redmond and California City systems. The residual multiple is applied to operating income in the final year of our operating income analysis. As a result, the residual value of the property is calculated to be $30,052,136 for the Burke County system, $3,800,438 for the California City system, $36,593,516 for the Centreville system, $9,001,414 for the Redmond system and $48,434,673 for the Somerset system, as shown in Exhibits E. 8. Analysis of Future Projections A key factor in determining the fair market value of a cable television property is the ability to accurately assess the Systems' future operating characteristics and the resulting operating income and cash flow. Operating income and cash flow are the primary drivers of overall fair market value. Operating analyses generally take into consideration a number of system specific characteristics as well as industry characteristics. System specific considerations include homes passed and homes growth, subscriber penetration (all services) and system maturity, economic and demographic composition of the market, marketing and administration, and programming. We examine the historic growth and composition of all these areas as well as management's forecast of growth. Industry characteristics include subscriber trends for the various programming services, program ratings and offerings, marketing trends, and industry developed consumer mandates for service and accessibility. Additionally, a great deal of attention is given to the age, condition and functionality of the Systems' physical plant as this impacts the estimate of future capital expenditures. We rely on management's best estimate of planned capital expenses for near term projections (generally five years). We corroborate management's forecast with our observations of the Systems' physical plant. Adjustments are then made to management estimates, when deemed necessary. We considered all of these factors when analyzing the operational and financial future of the Systems. The major items that we analyzed included homes passed, miles of plant, basic subscribers, pay service units (HBO, Showtime, etc.), additional outlets (more than one television in a home with service), and remote control or converter units. 29 36 [LOGO - ARTHUR ANDERSEN] Additionally, we analyzed future rates (for all services) that might be charged to the subscribers, revenue by specific category (basic, pay, pay-per-view, advertising, etc.), expenses by category (programming, operations, etc.) and capital expenditures. We considered in our analyses regulations in effect at the time of the valuation or likely to take effect soon after the valuation date. We then used the results of our detailed analyses in determining the value of the properties as a whole. Our calculations also were based, in part, on the historical financial and operational performance of the Systems and other systems of similar configuration. The operating horizon period was determined by the weighted average remaining life of the franchises. The analysis pertaining to the Systems' future operations as described above is presented in Exhibits A, B, C, and D. 9. Comparable Sales Methodology We utilized a market approach, or comparable sales method, in analyzing the subject properties. Under this method, sales of properties of similar size and construction were compared to the subject properties. It should be noted that the market approach is the least reliable of the valuation methodologies considered. Because detailed financial, technical and operating information is not generally available regarding cable television transactions, it is impossible to relate these prices to the operating performance of any particular property or to make a direct comparison with the subject properties. This method is used to generally validate the overall market and to confirm the range of values developed with the economic methods as reasonable. 30 37 [LOGO - ARTHUR ANDERSEN]
Recent Transactions/ Announced Sales Price Price/Subscriber Multiple(1) --------------- ----- ---------------- --------- Kern Valley, CA $11,000,000 $1,571 8.8 Loudon City, TN $1,700,000 $1,164 7.0 IL and IA $9,400,000 $1,237 7.5 Las Vegas, NV $7,100,000 $1,309 8.3 Genoa, NE $1,700,000 $1,296 8.9 Burke County $17,685,000 $1,682(2) 6.2 California City $2,791,000 $1,452(3) 7.2 Centreville $20,445,000 $1,659(4) 7.3 Redmond $5,882,000 $1,673(5) 7.1 Somerset $30,277,000 $1,569(6) 8.1
(1) Multiple of next year's projected operating income. (2) $1,682 per beginning subscriber; $1,690 per average year 1 subscriber. (3) $1,452 per beginning subscriber; $1,433 per average year 1 subscriber. (4) $1,659 per beginning subscriber; $1,633 per average year 1 subscriber. (5) $1,673 per beginning subscriber; $1,514 per average year 1 subscriber. (6) $1,569 per beginning subscriber; $1,566 per average year 1 subscriber. Although the range of values presented above is too wide from which to derive any conclusive supporting evidence, the values of Burke, California City, Centreville, Redmond, and Somerset at $17,685,000, $2,791,000, $20,455,000, $5,882,000 and $30,277,000, respectively, appear to be reasonable. 31 38 [LOGO - ARTHUR ANDERSEN] E. CONCLUSIONS Based on our analysis and investigation of the Systems, and its service areas, it is our opinion that the fair market value of the subject properties, as a going concern, free and clear of all liens and encumbrances, as of December 31, 1996, is $17,685,000 for Burke County, $2,791,000 for California City, $20,455,000 for Centreville, $5,882,000 for Redmond and $30,277,000 for Somerset. Our opinion is based on information and data supplied by the Systems' management, our on-site inspection of the Systems and the areas served and cable television industry information. This valuation is expressly subject to the General Assumptions and Limiting Conditions as defined in this report. 32 39 [LOGO - ARTHUR ANDERSEN] F. GENERAL ASSUMPTIONS AND LIMITING CONDITIONS This appraisal report is subject to the following general assumptions and limiting conditions: 1. No investigation has been made of, and no responsibility is assumed for, the legal description of the properties being valued or legal matters, including title or encumbrances. Title to the properties is assumed to be good and marketable unless otherwise stated. The properties are assumed to be free and clear of any liens, easements or encumbrances unless otherwise stated. 2. Information furnished by others, upon which all or portions of this report is based, is believed to be reliable, but has not been verified in all cases. No warranty is given as to the accuracy of such information. 3. This report has been made only for the purpose stated and shall not be used for any other purpose. Neither this report nor any portions thereof (including without limitation any conclusions as to value, the identity of Arthur Andersen LLP or any individuals signing or associated with this report, or the professional associations or organizations with which they affiliated) shall be disseminated to third parties except federal and state taxing authorities by any means without the prior written consent and approval of Arthur Andersen LLP. 4. Neither Arthur Andersen LLP nor any individuals signing or associated with this report shall be required by reason of this report to give further consultation, to provide testimony, or appear in court or other legal proceedings unless specific arrangements therefor have been made. 5. This appraisal has been made in conformance with, and is subject to, the requirements of the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers and the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation. 33 40 [LOGO - ARTHUR ANDERSEN] 6. No responsibility is taken for changes in market conditions and no obligation is assumed to revise this report to reflect events or conditions which occur subsequent to the valuation date hereof. 7. The date of value to which the conclusions and opinions expressed in this report apply is set forth in this opinion letter. Our value opinion is based on the purchasing power of the United States' dollar as of this date. 8. It is assumed that all required licenses, certificates of occupancy, consents, or other legislative or administrative authority from any local, state, or national government or private entity or organization have been, or can readily be, obtained or renewed for any use on which the value estimates provided in this report are based. 9. Full compliance with all applicable federal, state and local zoning use, environmental and similar laws and regulations is assumed, unless otherwise stated. 10. Responsible ownership and competent property management are assumed. 11. The opinion of value is predicated on the financial structure prevailing as of the date of this valuation. 12. We were not engaged nor are we qualified to detect the existence of toxic or hazardous material or the presence of radio frequency radiation which may or may not be present on or near the properties of the appraised entity (the "Company"). The presence of radio frequency radiation or potentially toxic or hazardous substances such as asbestos, urea-formaldehyde foam insulation, industrial wastes, etc. may affect the value of the Company. The value estimates herein are predicted on the assumption that there is no such radiation or material on, in, or near the Company's properties that would cause a loss in value. No responsibility is assumed for any such conditions or for any expertise or engineering knowledge required to discover them. Falcon Classic Cable Income Properties, L.P., Falcon Cable TV, Falcon Holdings Group, L.P. should retain an expert in this field if further information is desired. 34 41 [LOGO - ARTHUR ANDERSEN] 13.a. Falcon Classic Cable Income Properties, L.P., Falcon Cable TV, Falcon Holdings Group, L.P. shall indemnify and hold harmless Arthur Andersen LLP, its affiliates, partners, agents and employees from and against any losses, claims, damages or liabilities (or actions in respect thereof) that may be asserted by Conflicts Committee of Falcon Classic Cable Income Properties, L.P., or any person or entity who may receive our report, except to the extent of any losses, claims, damages or liabilities (or actions in respect thereof) arising by reason of gross negligence or willful misconduct of Arthur Andersen LLP in preparing the report, and will reimburse Arthur Andersen LLP for all expenses (including counsel fees) as they are incurred by Arthur Andersen LLP in connection with investigating, preparing or defending any such action or claim. b. In any circumstance in which the foregoing indemnification is held by a court to be unavailable to Arthur Andersen LLP, Falcon Classic Cable Income Properties, L.P., Falcon Cable TV, Falcon Holdings Group, L.P. and Arthur Andersen LLP shall contribute to any aggregate losses, claims, damages or liabilities (including the related fees and expenses) to which Falcon Classic Cable Income Properties, L.P., Falcon Cable TV, Falcon Holdings Group, L.P. and Arthur Andersen LLP may be subject in such proportion that Arthur Andersen LLP shall be responsible only for that portion represented by the percentage that the fees paid to Arthur Andersen LLP for the portion of its services or work product giving rise to the liabilities bears to the value of the transaction giving rise to such liability. 14. This report is not a fairness opinion. 35 42 [LOGO - ARTHUR ANDERSEN] G. CERTIFICATION The undersigned hereby certifies that we have no present or contemplated future interest in the properties that are the subject of this report and have no personal interest or bias with respect to the parties involved; neither our employment nor our compensation in connection with this report is in any way contingent upon the conclusions reached or values estimated; the values and conclusions contained herein, limited only by the reported assumptions and limiting conditions, reflect our personal, unbiased professional judgment; this appraisal has been prepared in conformance with the "Uniform Standards of Professional Appraisal Practice"; no person other than the undersigned or those acknowledged in this report prepared the analysis, values or conclusions set forth in this report; and to the best of our knowledge and belief, the statements of fact contained in this report are true and correct. /S/Anthony P. Kern -------------------------- Anthony P. Kern Contributing Analysts: John F. Lisciandro Vance L. Wilson 36 43 [LOGO - ARTHUR ANDERSEN] EXHIBITS A. Cable Television Miles, Homes and Subscribers B. Service Rates C. Revenue, Expenses, Operating Income D. Capital Expenditures E. Discounted Cash Flow Valuation F. Valuation Matrix 37 44 EXHIBIT A-1 - --------------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. BURKE COUNTY, NC AS OF DECEMBER 31, 1996 - --------------------------------------------------- - --------------------------------------------------- CABLE TELEVISION MILES, HOMES PASSED, SUBSCRIBERS - ---------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 731.1 NEW MILES 8.0 8.0 8.0 8.0 8.0 8.0 8.0 TOTAL 739.1 747.1 755.1 763.1 771.1 779.1 787.1 PERCENT GROWTH 1.09% 1.08% 1.07% 1.06% 1.05% 1.04% 1.03% BEGINNING HOMES 18,986 NEW HOMES 150 150 150 150 150 150 150 AVERAGE HOMES 19,061 19,211 19,361 19,511 19,661 19,811 19,961 TOTAL 19,136 19,286 19,436 19,586 19,736 19,886 20,036 PERCENT GROWTH 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% NEW BUILD DENSITY 19 19 19 19 19 19 19 AVERAGE DENSITY 26 26 26 26 26 26 25 BEGINNING BASIC 10,516 10,408 10,393 10,377 10,750 11,030 11,213 NEW BASIC (108) (15) (16) 374 280 183 85 AVERAGE BASIC 10,462 10,400 10,385 10,563 10,890 11,122 11,256 TOTAL 10,408 10,393 10,377 10,750 11,030 11,213 11,298 PENETRATION 54.4% 53.9% 53.4% 54.9% 55.9% 56.4% 56.4% EXPANDED BASIC 9,097 8,951 8,939 8,924 9,246 9,487 9,644 NEW EXPANDED (146) (13) (14) 322 241 158 73 AVERAGE EXPANDED 9,024 8,945 8,931 9,085 9,366 9,565 9,681 TOTAL 8,951 8,939 8,924 9,246 9,487 9,644 9,717 PENETRATION 86.0% 86.0% 86.0% 86.0% 86.0% 86.0% 86.0% BEGINNING PAY 4,840 4,686 4,627 4,620 4,787 4,911 4,993 NEW PAY (154) (59) (7) 166 125 82 38 AVERAGE PAY 4,763 4,657 4,624 4,703 4,849 4,952 5,012 TOTAL 4,686 4,627 4,620 4,787 4,911 4,993 5,030 PENETRATION 45.0% 44.5% 44.5% 44.5% 44.5% 44.5% 44.5% BEGINNING CONVERTERS 15,346 15,188 15,166 15,142 15,688 16,096 16,364 NEW CONVERTERS (158) (22) (24) 546 408 267 123 AVERAGE CONVERTERS 15,267 15,177 15,154 15,415 15,892 16,230 16,425 TOTAL 15,188 15,166 15,142 15,688 16,096 16,364 16,487 PENETRATION 145.9% 145.9% 145.9% 145.9% 145.9% 145.9% 145.9% BEGINNING REMOTES 10,922 10,810 10,794 10,777 11,165 11,456 11,646 NEW REMOTES (112) (15) (17) 388 290 190 88 AVERAGE REMOTES 10,866 10,802 10,786 10,971 11,311 11,551 11,690 TOTAL 10,810 10,794 10,777 11,165 11,456 11,646 11,734 PENETRATION 103.9% 103.9% 103.9% 103.9% 103.9% 103.9% 103.9% ARTHUR ANDERSEN LLP
45 EXHIBIT A-2 - ------------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CALIFORNIA CITY, CALIFORNIA AS OF DECEMBER 31, 1996 - ------------------------------------------------- - ------------------------------------------------- CABLE TELEVISION MILES, HOMES PASSED, SUBSCRIBERS - -------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 90.1 NEW MILES 2.0 1.0 1.0 1.0 1.0 1.0 1.0 TOTAL 92.1 93.1 94.1 95.1 96.1 97.1 98.1 PERCENT GROWTH 2.22% 1.09% 1.07% 1.06% 1.05% 1.04% 1.03% BEGINNING HOMES 2,858 NEW HOMES 80 40 40 40 40 40 40 AVERAGE HOMES 2,898 2,958 2,998 3,038 3,078 3,118 3,158 TOTAL 2,938 2,978 3,018 3,058 3,098 3,138 3,178 PERCENT GROWTH 2.8% 1.4% 1.3% 1.3% 1.3% 1.3% 1.3% NEW BUILD DENSITY 40 40 40 40 40 40 40 AVERAGE DENSITY 32 32 32 32 32 32 32 BEGINNING BASIC 1,922 1,973 2,000 2,027 2,053 2,080 2,107 NEW BASIC 51 27 27 27 27 27 27 AVERAGE BASIC 1,947 1,986 2,013 2,040 2,067 2,094 2,121 TOTAL 1,973 2,000 2,027 2,053 2,080 2,107 2,134 PENETRATION 67.1% 67.1% 67.1% 67.1% 67.1% 67.1% 67.1% EXPANDED BASIC 1,820 1,866 1,892 1,917 1,942 1,968 1,993 NEW EXPANDED 46 25 25 25 25 25 25 AVERAGE EXPANDED 1,843 1,879 1,904 1,930 1,955 1,981 2,006 TOTAL 1,866 1,892 1,917 1,942 1,968 1,993 2,019 PENETRATION 94.6% 94.6% 94.6% 94.6% 94.6% 94.6% 94.6% BEGINNING PAY 839 851 863 875 886 898 909 NEW PAY 12 12 12 12 12 12 12 AVERAGE PAY 845 857 869 880 892 903 915 TOTAL 851 863 875 886 898 909 921 PENETRATION 43.2% 43.2% 43.2% 43.2% 43.2% 43.2% 43.2% BEGINNING CONVERTERS 931 956 969 982 995 1,008 1,021 NEW CONVERTERS 25 13 13 13 13 13 13 AVERAGE CONVERTERS 943 962 975 988 1,001 1,014 1,027 TOTAL 956 969 982 995 1,008 1,021 1,034 PENETRATION 48.4% 48.4% 48.4% 48.4% 48.4% 48.4% 48.4% BEGINNING REMOTES 802 823 834 846 857 868 879 NEW REMOTES 21 11 11 11 11 11 11 AVERAGE REMOTES 813 829 840 851 862 874 885 TOTAL 823 834 846 857 868 879 890 PENETRATION 41.7% 41.7% 41.7% 41.7% 41.7% 41.7% 41.7% ARTHUR ANDERSEN LLP
46 EXHIBIT A-3 - --------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CENTREVILLE, MARYLAND AS OF DECEMBER 31, 1996 - --------------------------------------------- - --------------------------------------------- CABLE TELEVISION MILES, HOMES PASSED, SUBSCRIBERS - ---------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 649.8 NEW MILES 5.0 5.0 5.0 5.0 5.0 5.0 5.0 TOTAL 654.8 659.8 664.8 669.8 674.8 679.8 684.8 PERCENT GROWTH 0.77% 0.76% 0.76% 0.75% 0.75% 0.74% 0.74% BEGINNING HOMES 23,857 NEW HOMES 300 300 300 300 300 300 300 AVERAGE HOMES 24,007 24,307 24,607 24,907 25,207 25,507 25,807 TOTAL 24,157 24,457 24,757 25,057 25,357 25,657 25,957 PERCENT GROWTH 1.3% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% NEW BUILD DENSITY 60 60 60 60 60 60 60 AVERAGE DENSITY 37 37 37 37 38 38 38 BEGINNING BASIC 12,325 12,722 13,002 13,409 13,822 14,621 15,051 NEW BASIC 397 280 407 413 799 430 306 AVERAGE BASIC 12,523 12,862 13,205 13,615 14,222 14,836 15,204 TOTAL 12,722 13,002 13,409 13,822 14,621 15,051 15,357 PENETRATION 52.7% 53.2% 54.2% 55.2% 57.7% 58.7% 59.2% EXPANDED BASIC 11,863 12,245 12,514 12,906 13,304 14,073 14,487 NEW EXPANDED 382 270 392 398 769 413 294 AVERAGE EXPANDED 12,054 12,380 12,710 13,105 13,689 14,280 14,634 TOTAL 12,245 12,514 12,906 13,304 14,073 14,487 14,781 PENETRATION 96.3% 96.3% 96.3% 96.3% 96.3% 96.3% 96.3% BEGINNING PAY 7,440 7,552 7,719 7,960 8,205 8,680 8,935 NEW PAY 112 166 242 245 475 255 182 AVERAGE PAY 7,496 7,635 7,839 8,083 8,443 8,807 9,026 TOTAL 7,552 7,719 7,960 8,205 8,680 8,935 9,117 PENETRATION 59.4% 59.4% 59.4% 59.4% 59.4% 59.4% 59.4% BEGINNING CONVERTERS 1,838 1,897 1,939 2,000 2,061 2,180 2,245 NEW CONVERTERS 59 42 61 62 119 64 46 AVERAGE CONVERTERS 1,868 1,918 1,969 2,030 2,121 2,212 2,267 TOTAL 1,897 1,939 2,000 2,061 2,180 2,245 2,290 PENETRATION 14.9% 14.9% 14.9% 14.9% 14.9% 14.9% 14.9% BEGINNING REMOTES 681 703 718 741 764 808 832 NEW REMOTES 22 15 22 23 44 24 17 AVERAGE REMOTES 692 711 730 752 786 820 840 TOTAL 703 718 741 764 808 832 849 PENETRATION 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% ARTHUR ANDERSEN LLP
47 EXHIBIT A-4 - -------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. REDMOND, OREGON AS OF DECEMBER 31, 1996 - -------------------------------------- - -------------------------------------- CABLE TELEVISION MILES, HOMES PASSED, SUBSCRIBERS - --------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 170.0 NEW MILES 29.0 6.0 6.0 6.0 6.0 6.0 6.0 TOTAL 199.0 205.0 211.0 217.0 223.0 229.0 235.0 PERCENT GROWTH 17.06% 3.02% 2.93% 2.84% 2.76% 2.69% 2.62% BEGINNING HOMES 7,252 NEW HOMES 2,310 300 300 300 300 300 300 AVERAGE HOMES 8,407 9,712 10,012 10,312 10,612 10,912 11,212 TOTAL 9,562 9,862 10,162 10,462 10,762 11,062 11,362 PERCENT GROWTH 31.9% 3.1% 3.0% 3.0% 2.9% 2.8% 2.7% NEW BUILD DENSITY 80 50 50 50 50 50 50 AVERAGE DENSITY 48 48 48 48 48 48 48 BEGINNING BASIC 3,516 4,253 4,190 4,216 4,288 4,411 4,534 NEW BASIC 737 (64) 26 72 123 123 123 AVERAGE BASIC 3,885 4,222 4,203 4,252 4,349 4,472 4,595 TOTAL 4,253 4,190 4,216 4,288 4,411 4,534 4,657 PENETRATION 44.5% 42.5% 41.5% 41.0% 41.0% 41.0% 41.0% EXPANDED BASIC 2,847 3,380 3,288 3,287 3,343 3,439 3,535 NEW EXPANDED 533 (93) (1) 56 96 96 96 AVERAGE EXPANDED 3,114 3,334 3,287 3,315 3,391 3,487 3,583 TOTAL 3,380 3,288 3,287 3,343 3,439 3,535 3,631 PENETRATION 79.5% 78.5% 78.0% 78.0% 78.0% 78.0% 78.0% BEGINNING PAY 777 897 863 868 883 909 934 NEW PAY 120 (34) 5 15 25 25 25 AVERAGE PAY 837 880 866 876 896 921 947 TOTAL 897 863 868 883 909 934 959 PENETRATION 21.1% 20.6% 20.6% 20.6% 20.6% 20.6% 20.6% BEGINNING CONVERTERS 1,050 1,270 1,251 1,259 1,280 1,317 1,354 NEW CONVERTERS 220 (19) 8 22 37 37 37 AVERAGE CONVERTERS 1,160 1,261 1,255 1,270 1,299 1,336 1,372 TOTAL 1,270 1,251 1,259 1,280 1,317 1,354 1,391 PENETRATION 29.9% 29.9% 29.9% 29.9% 29.9% 29.9% 29.9% BEGINNING REMOTES 870 1,052 1,037 1,043 1,061 1,091 1,122 NEW REMOTES 182 (16) 6 18 30 30 30 AVERAGE REMOTES 961 1,045 1,040 1,052 1,076 1,107 1,137 TOTAL 1,052 1,037 1,043 1,061 1,091 1,122 1,152 PENETRATION 24.7% 24.7% 24.7% 24.7% 24.7% 24.7% 24.7% ARTHUR ANDERSEN LLP
48 EXHIBIT A-5 - ------------------------------------------------------------------ FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SOMERSET, KY AS OF DECEMBER 31, 1996 - ------------------------------------------------------------------ - ------------------------------------------------------------------ CABLE TELEVISION MILES, HOMES PASSED, SUBSCRIBERS - ------------------------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- BEGINNING MILES 834.5 NEW MILES 1.9 8.5 8.5 8.5 8.5 8.5 8.5 TOTAL 836.4 844.9 853.4 861.9 870.4 878.9 887.5 PERCENT GROWTH 0.23% 1.02% 1.01% 1.00% 0.99% 0.98% 0.97% BEGINNING HOMES 22,060 NEW HOMES 50 225 225 225 225 225 225 AVERAGE HOMES 22,085 22,223 22,448 22,673 22,898 23,123 23,348 TOTAL 22,110 22,335 22,560 22,785 23,010 23,235 23,460 PERCENT GROWTH 0.2% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% NEW BUILD DENSITY 26 26 26 26 26 26 26 AVERAGE DENSITY 26 26 26 26 26 26 26 BEGINNING BASIC 19,296 19,384 19,626 19,869 20,135 20,449 20,696 NEW BASIC 88 242 243 267 314 246 200 AVERAGE BASIC 19,340 19,505 19,747 20,002 20,292 20,572 20,796 TOTAL 19,384 19,626 19,869 20,135 20,449 20,696 20,896 PENETRATION 87.7% 87.9% 88.1% 88.4% 88.9% 89.1% 89.1% EXPANDED BASIC 18,823 18,870 19,106 19,342 19,601 19,907 20,147 NEW EXPANDED 47 236 236 259 306 240 195 AVERAGE EXPANDED 18,847 18,988 19,224 19,472 19,754 20,027 20,244 TOTAL 18,870 19,106 19,342 19,601 19,907 20,147 20,342 PENETRATION 97.3% 97.3% 97.3% 97.3% 97.3% 97.3% 97.3% BEGINNING PAY 3,914 3,874 3,922 3,971 4,084 4,209 4,281 NEW PAY (40) 48 49 114 125 71 41 AVERAGE PAY 3,894 3,898 3,946 4,027 4,147 4,245 4,301 TOTAL 3,874 3,922 3,971 4,084 4,209 4,281 4,322 PENETRATION 20.0% 20.0% 20.0% 20.3% 20.6% 20.7% 20.7% BEGINNING CONVERTERS 5,119 5,142 5,207 5,271 7,355 8,492 9,629 NEW CONVERTERS 23 64 64 2,084 1,137 1,137 1,138 AVERAGE CONVERTERS 5,131 5,174 5,239 6,313 7,924 9,061 10,198 TOTAL 5,142 5,207 5,271 7,355 8,492 9,629 10,767 PENETRATION 26.5% 26.5% 26.5% 36.5% 41.5% 46.5% 51.5% BEGINNING REMOTES 4,622 4,643 4,701 4,759 6,837 7,966 9,096 NEW REMOTES 21 58 58 2077 1129 1131 1133 AVERAGE REMOTES 4,633 4,672 4,730 5,798 7,401 8,531 9,663 TOTAL 4,643 4,701 4,759 6,837 7,966 9,096 10,229 PENETRATION 24.0% 24.0% 24.0% 34.0% 39.0% 44.0% 49.0% ARTHUR ANDERSEN LLP
49 EXHIBIT B-1 - ------------------------------------------------------------ FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. BURKE COUNTY, NC AS OF DECEMBER 31, 1996 - ------------------------------------------------------------
- ------------------------------------------------------------ SERVICE RATES - ------------------------------------------------------------ CURRENT RATES BASIC (AVG.) $16.96 EXPANDED BASIC (AVG.) $6.20 PAY (AVG) $7.51 CONVERTERS $2.50 REMOTES $0.03 INSTALLATION $45.00 RECONNECT $45.00 YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- RATE INCREASES BASIC 0.0% 4.0% 4.0% 4.0% 6.0% 4.0% 4.0% EXPANDED BASIC 0.0% 4.0% 4.0% 4.0% 6.0% 4.0% 4.0% PAY 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% CONVERTERS 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% REMOTES 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% INSTALLATION 0.0% 4.0% 0.0% 4.0% 0.0% 4.0% 0.0% RECONNECT 0.0% 4.0% 0.0% 4.0% 0.0% 4.0% 0.0% AVERAGE RATES BASIC $16.96 $17.64 $18.35 $19.08 $20.23 $21.04 $21.88 EXPANDED BASIC $6.20 $6.45 $6.70 $6.97 $7.39 $7.69 $7.99 PAY $7.51 $7.51 $7.51 $7.51 $7.51 $7.51 $7.51 CONVERTERS $2.50 $2.60 $2.70 $2.81 $2.92 $3.04 $3.16 REMOTES $0.03 $0.03 $0.03 $0.04 $0.04 $0.04 $0.04 INSTALLATION $45.00 $46.80 $46.80 $48.67 $48.67 $50.62 $50.62 RECONNECT $45.00 $46.80 $46.80 $48.67 $48.67 $50.62 $50.62 BASIC CHURN RATE (EST) 36% 36% 36% 36% 36% 36% 36% ARTHUR ANDERSEN LLP
50 EXHIBIT B-2 - ------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CALIFORNIA CITY, CALIFORNIA AS OF DECEMBER 31, 1996 - -------------------------------------------
- ------------------------------------------- SERVICE RATES - ------------------------------------------- CURRENT RATES BASIC (AVG.) $15.77 EXPANDED BASIC (AVG.) $6.00 PAY (AVG.) $8.14 CONVERTERS $4.46 REMOTES $0.34 INSTALLATION $45.00 RECONNECT $45.00 YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- RATE INCREASES BASIC 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% EXPANDED BASIC 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PAY 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% CONVERTERS 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% REMOTES 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% INSTALLATION 0.0% 4.0% 0.0% 4.0% 0.0% 4.0% 0.0% RECONNECT 0.0% 4.0% 0.0% 4.0% 0.0% 4.0% 0.0% AVERAGE RATES BASIC $15.77 $16.40 $17.05 $17.74 $18.45 $19.18 $19.95 EXPANDED BASIC $6.00 $6.24 $6.49 $6.75 $7.02 $7.30 $7.60 PAY $8.14 $8.14 $8.14 $8.14 $8.14 $8.14 $8.14 CONVERTERS $4.46 $4.64 $4.83 $5.02 $5.22 $5.43 $5.65 REMOTES $0.34 $0.35 $0.37 $0.38 $0.40 $0.41 $0.43 INSTALLATION $45.00 $46.80 $46.80 $48.67 $48.67 $50.62 $50.62 RECONNECT $45.00 $46.80 $46.80 $48.67 $48.67 $50.62 $50.62 BASIC CHURN RATE (EST) 24% 24% 24% 24% 24% 24% 24% ARTHUR ANDERSEN LLP
51 EXHIBIT B-3 - ------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CENTREVILLE, MARYLAND AS OF DECEMBER 31, 1996 - -------------------------------------------
- ------------------------------------------- SERVICE RATES - ------------------------------------------- CURRENT RATES BASIC (AVG.) $20.60 EXPANDED BASIC (AVG.) $3.52 PAY (AVG.) $8.54 CONVERTERS $1.99 REMOTES $0.68 INSTALLATION $45.00 RECONNECT $45.00 YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- RATE INCREASES BASIC 0.0% 4.0% 4.0% 5.0% 7.0% 4.0% 4.0% EXPANDED BASIC 0.0% 4.0% 4.0% 5.0% 7.0% 4.0% 4.0% PAY 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% CONVERTERS 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% REMOTES 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% INSTALLATION 0.0% 4.0% 0.0% 4.0% 0.0% 4.0% 0.0% RECONNECT 0.0% 4.0% 0.0% 4.0% 0.0% 4.0% 0.0% AVERAGE RATES BASIC $20.60 $21.43 $22.29 $23.40 $25.04 $26.04 $27.08 EXPANDED BASIC $3.52 $3.67 $3.81 $4.00 $4.28 $4.45 $4.63 PAY $8.54 $8.54 $8.54 $8.54 $8.54 $8.54 $8.54 CONVERTERS $1.99 $2.07 $2.16 $2.24 $2.33 $2.43 $2.52 REMOTES $0.68 $0.71 $0.73 $0.76 $0.79 $0.83 $0.86 INSTALLATION $45.00 $46.80 $46.80 $48.67 $48.67 $50.62 $50.62 RECONNECT $45.00 $46.80 $46.80 $48.67 $48.67 $50.62 $50.62 BASIC CHURN RATE (EST) 32% 32% 32% 32% 32% 32% 32% ARTHUR ANDERSEN LLP
52 EXHIBIT B-4 - ------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. REDMOND, OREGON AS OF DECEMBER 31, 1996 - -------------------------------------------
- ------------------------------------------- SERVICE RATES - ------------------------------------------- CURRENT RATES BASIC (AVG.) $22.23 EXPANDED BASIC (AVG.) $2.05 PAY (AVG.) $6.16 CONVERTERS $2.57 REMOTES $0.22 INSTALLATION $45.00 RECONNECT $45.00 YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- RATE INCREASES BASIC 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% EXPANDED BASIC 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PAY 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% CONVERTERS 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% REMOTES 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% INSTALLATION 0.0% 4.0% 0.0% 4.0% 0.0% 4.0% 0.0% RECONNECT 0.0% 4.0% 0.0% 4.0% 0.0% 4.0% 0.0% AVERAGE RATES BASIC $22.23 $23.12 $24.04 $25.00 $26.00 $27.04 $28.12 EXPANDED BASIC $2.05 $2.14 $2.22 $2.31 $2.40 $2.50 $2.60 PAY $6.16 $6.16 $6.16 $6.16 $6.16 $6.16 $6.16 CONVERTERS $2.57 $2.67 $2.78 $2.89 $3.00 $3.13 $3.25 REMOTES $0.22 $0.23 $0.24 $0.25 $0.26 $0.27 $0.28 INSTALLATION $45.00 $46.80 $46.80 $48.67 $48.67 $50.62 $50.62 RECONNECT $45.00 $46.80 $46.80 $48.67 $48.67 $50.62 $50.62 BASIC CHURN RATE (EST) 31% 31% 31% 31% 31% 31% 31% ARTHUR ANDERSEN LLP
53 EXHIBIT B-5 - ------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SOMERSET, KY AS OF DECEMBER 31, 1996 - -------------------------------------------
- ------------------------------------------- SERVICE RATES - ------------------------------------------- CURRENT RATES BASIC (AVG.) $19.24 EXPANDED BASIC (AVG.) $2.37 PAY (AVG.) $8.71 CONVERTERS $1.58 REMOTES $0.33 INSTALLATION $45.00 RECONNECT $45.00 YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---- ---- ---- ---- ---- ---- ---- RATE INCREASES BASIC 0.0% 4.0% 4.0% 4.0% 7.0% 4.0% 4.0% EXPANDED BASIC 0.0% 4.0% 4.0% 4.0% 7.0% 4.0% 4.0% PAY 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% CONVERTERS 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% REMOTES 0.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% INSTALLATION 0.0% 4.0% 0.0% 4.0% 0.0% 4.0% 0.0% RECONNECT 0.0% 4.0% 0.0% 4.0% 0.0% 4.0% 0.0% AVERAGE RATES BASIC $19.24 $20.01 $20.81 $21.64 $23.16 $24.08 $25.05 EXPANDED BASIC $2.37 $2.46 $2.56 $2.66 $2.85 $2.96 $3.08 PAY $8.71 $8.71 $8.71 $8.71 $8.71 $8.71 $8.71 CONVERTERS $1.58 $1.65 $1.71 $1.78 $1.85 $1.93 $2.00 REMOTES $0.33 $0.35 $0.36 $0.38 $0.39 $0.41 $0.42 INSTALLATION $45.00 $46.80 $46.80 $48.67 $48.67 $50.62 $50.62 RECONNECT $45.00 $46.80 $46.80 $48.67 $48.67 $50.62 $50.62 BASIC CHURN RATE (EST) 26% 26% 26% 26% 26% 26% 26% ARTHUR ANDERSEN LLP
54 EXHIBIT C-1 - ------------------------------------------------------ FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. BURKE COUNTY, NC AS OF DECEMBER 31, 1996 - ------------------------------------------------------ - ------------------------------------------------------ REVENUE, EXPENSE, OPERATING INCOME - ------------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 ----------- ----------- ----------- ----------- REVENUE BASIC $ 2,129,647 $ 2,201,800 $ 2,286,438 $ 2,418,828 EXPANDED BASIC 671,189 691,908 718,505 760,108 PAY 429,170 419,594 416,623 423,795 CONVERTERS 457,592 473,095 491,281 519,728 REMOTES 4,155 4,295 4,460 4,719 INSTALLATIONS 4,708 4,867 4,860 18,197 RECONNECT 84,741 87,612 87,481 92,546 ADDITIONAL TIER 988,460 1,027,999 1,069,119 1,111,883 ADVERTISING 175,000 201,250 231,438 277,725 PAY PER VIEW 110,000 115,500 121,275 133,403 MISCELLANEOUS 212,296 219,573 228,122 241,959 ----------- ----------- ----------- ----------- TOTAL $ 5,266,958 $ 5,447,493 $ 5,659,602 $ 6,002,891 REVENUE GROWTH 0 3.31% 3.75% 5.72% REVENUE PER SUB./MONTH $ 41.95 $ 43.65 $ 45.42 $ 47.36 EXPENSES TECHNICAL & OPERATIONS 1,003,124 1,039,779 1,079,648 1,129,499 GENERAL & ADMINISTRATIVE 487,195 500,191 515,451 539,743 SALES & MARKETING 95,157 103,364 112,879 127,738 PROGRAMMING 841,520 852,083 869,333 907,390 ----------- ----------- ----------- ----------- TOTAL EXPENSE $ 2,426,995 $ 2,495,417 $ 2,577,311 $ 2,704,371 OPERATING INCOME $ 2,839,963 $ 2,952,076 $ 3,082,291 $ 3,298,520 OPERATING MARGIN 53.9% 54.2% 54.5% 54.9 % OPERTAING INCOME GROWTH 0 3.80% 4.22% 6.56% OPERATING INCOME/SUB./MONTH $ 22.62 $ 23.65 $ 24.73 $ 26.02 YEAR ENDING DECEMBER 31, 2001 2002 2003 TOTAL ----------- ----------- ----------- ----------- REVENUE BASIC $ 2,643,275 $ 2,807,437 $ 2,954,892 $17,442,318 EXPANDED BASIC 830,640 882,227 928,564 5,483,141 PAY 436,905 446,192 451,565 3,023,844 CONVERTERS 557,238 591,845 622,931 3,713,710 REMOTES 5,059 5,373 5,656 33,717 INSTALLATIONS 13,613 9,277 4,281 59,804 RECONNECT 95,409 101,334 102,555 651,678 ADDITIONAL TIER 1,156,359 1,202,613 1,250,717 7,807,150 ADVERTISING 347,156 373,193 391,853 1,997,614 PAY PER VIEW 146,743 157,748 165,636 950,305 MISCELLANEOUS 261,761 276,244 288,903 1,728,858 ----------- ----------- ----------- ----------- TOTAL $ 6,494,157 $ 6,853,484 $ 7,167,554 $42,892,138 REVENUE GROWTH 7.56% 5.24% 4.38% REVENUE PER SUB./MONTH $ 49.69 $ 51.35 $ 53.07 EXPENSES TECHNICAL & OPERATIONS 1,189,540 1,244,034 1,296,342 $ 7,981,965 GENERAL & ADMINISTRATIVE 572,314 600,444 625,154 3,840,493 SALES & MARKETING 149,682 159,606 167,135 915,562 PROGRAMMING 989,323 1,035,074 1,071,970 6,566,693 ----------- ----------- ----------- ----------- TOTAL EXPENSE $ 2,900,859 $ 3,039,158 $ 3,160,602 $19,304,713 OPERATING INCOME $ 3,593,298 $ 3,814,326 $ 4,006,951 $23,587,425 OPERATING MARGIN 55.3% 55.7% 55.9% OPERTAING INCOME GROWTH 8.20% 5.79% 4.81% OPERATING INCOME/SUB./MONTH $ 27.50 $ 28.58 $ 29.67 ARTHUR ANDERSEN LLP
55 EXHIBIT C-2 - -------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CALIFORNIA CITY, CALIFORNIA AS OF DECEMBER 31, 1996 - -------------------------------------------- - -------------------------------------------- REVENUE, EXPENSE, OPERATING INCOME - --------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 ---------- ---------- ---------- ---------- REVENUE BASIC $ 368,460 $ 390,845 $ 411,975 $ 434,171 EXPANDED BASIC 132,776 140,769 148,379 156,373 PAY 82,514 83,682 84,814 85,946 CONVERTERS 50,520 53,589 56,486 59,529 REMOTES 3,307 3,508 3,698 3,897 INSTALLATIONS 2,289 1,257 1,257 1,307 RECONNECT 14,912 15,818 16,032 16,895 ADDITIONAL TIER 62,494 65,878 69,434 73,168 ADVERTISING 0 0 0 0 FCC USER FEE PASS THROUGH 995 1,055 1,112 1,172 MISCELLANEOUS 35,913 37,820 39,659 41,623 ---------- ---------- ---------- ---------- TOTAL $ 754,179 $ 794,221 $ 832,846 $ 874,082 REVENUE GROWTH 0 5.04% 4.64% 4.72% REVENUE PER SUB./MONTH $ 32.27 $ 33.32 $ 34.48 $ 35.71 EXPENSES TECHNICAL & OPERATIONS 129,495 135,213 140,972 146,981 GENERAL & ADMINISTRATIVE 84,317 88,017 91,527 95,182 SALES & MARKETING 16,465 17,297 18,057 18,847 PROGRAMMING 138,272 143,761 148,803 154,023 ---------- ---------- ---------- ---------- TOTAL EXPENSE $ 368,549 $ 384,288 $ 399,359 $ 415,034 OPERATING INCOME $ 385,630 $ 409,933 $ 433,487 $ 459,048 OPERATING MARGIN 51.1% 51.6% 52.0% 52.5% OPERATING INCOME GROWTH 0 5.93% 5.43% 5.57% OPERATING INCOME/SUB./MONTH $ 16.50 $ 17.20 $ 17.94 $ 18.75 YEAR ENDING DECEMBER 31, 2001 2002 2003 TOTAL ---------- ---------- ---------- ---------- REVENUE BASIC $ 457,483 $ 481,965 $ 507,674 $3,052,572 EXPANDED BASIC 164,770 173,587 182,847 1,099,501 PAY 87,077 88,209 89,340 601,583 CONVERTERS 62,726 66,083 69,607 418,540 REMOTES 4,106 4,326 4,557 27,399 INSTALLATIONS 1,307 1,360 1,360 10,137 RECONNECT 17,118 18,034 18,265 117,073 ADDITIONAL TIER 77,090 81,209 85,534 514,807 ADVERTISING 0 0 0 0 FCC USER FEE PASS THROUGH 1,235 1,301 1,371 8,242 MISCELLANEOUS 43,646 45,804 48,028 292,493 ---------- ---------- ---------- ---------- TOTAL $ 916,557 $ 961,877 $1,008,582 $6,142,345 REVENUE GROWTH 4.63% 4.71% 4.63% REVENUE PER SUB./MONTH $ 36.95 $ 38.28 $ 39.63 EXPENSES TECHNICAL & OPERATIONS 153,211 159,711 166,450 $1,032,031 GENERAL & ADMINISTRATIVE 98,968 102,911 106,993 667,915 SALES & MARKETING 19,668 20,521 21,408 132,264 PROGRAMMING 159,427 165,020 170,811 1,080,118 ---------- ---------- ---------- ---------- TOTAL EXPENSE $ 431,273 $ 448,163 $ 465,663 $2,912,329 OPERATING INCOME $ 485,284 $ 513,714 $ 542,920 $3,230,016 OPERATING MARGIN 52.9% 53.4% 53.8% OPERATING INCOME GROWTH 5.41% 5.53% 5.38% OPERATING INCOME/SUB./MONTH $ 19.57 $ 20.45 $ 21.34 ARTHUR ANDERSEN LLP
56 EXHIBIT C-3 - -------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CENTREVILLE, MARYLAND AS OF DECEMBER 31, 1996 - -------------------------------------------- - -------------------------------------------- REVENUE, EXPENSE, OPERATING INCOME - --------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 ----------- ----------- ----------- ----------- REVENUE BASIC $ 3,096,364 $ 3,307,238 $ 3,531,431 $ 3,823,145 EXPANDED BASIC 509,840 544,562 581,477 629,510 PAY 768,518 782,797 803,713 828,670 CONVERTERS 44,700 47,744 50,980 54,666 REMOTES 5,633 6,017 6,425 6,889 INSTALLATIONS 17,845 13,117 19,050 20,104 RECONNECT 53,966 57,642 59,182 63,460 ADDITIONAL TIER 771,011 811,809 854,638 908,244 ADVERTISING 140,000 154,000 169,400 186,340 FRANCHISE PASS THROUGH 117,662 125,675 134,194 145,279 MISCELLANEOUS 298,379 315,932 335,367 359,981 ----------- ----------- ----------- ----------- TOTAL $ 5,823,918 $ 6,166,532 $ 6,545,857 $ 7,026,289 REVENUE GROWTH 0 5.56% 5.79% 6.84% REVENUE PER SUB./MONTH $ 38.75 $ 39.95 $ 41.31 $ 43.00 EXPENSES TECHNICAL & OPERATIONS 1,197,944 1,252,330 1,310,016 1,374,835 GENERAL & ADMINISTRATIVE 410,748 432,759 456,072 482,920 SALES & MARKETING 177,010 186,807 196,759 212,479 PROGRAMMING 1,231,498 1,287,019 1,348,501 1,447,919 ----------- ----------- ----------- ----------- TOTAL EXPENSE $ 3,017,200 $ 3,158,916 $ 3,311,348 $ 3,518,153 OPERATING INCOME $ 2,806,718 $ 3,007,617 $ 3,234,510 $ 3,508,136 OPERATING MARGIN 48.2% 48.8% 49.4% 49.9% OPERATING INCOME GROWTH 0 6.68% 7.01% 7.80% OPERATING INCOME/SUB./MONTH $ 18.68 $ 19.49 $ 20.41 $ 21.47 YEAR ENDING DECEMBER 31, 2001 2002 2003 TOTAL ----------- ----------- ----------- ----------- REVENUE BASIC $ 4,272,908 $ 4,635,832 $ 4,940,744 $27,607,661 EXPANDED BASIC 703,567 763,325 813,531 4,545,814 PAY 865,567 902,966 925,343 5,877,573 CONVERTERS 59,384 64,428 68,666 390,568 REMOTES 7,484 8,119 8,653 49,220 INSTALLATIONS 38,909 21,744 15,478 146,247 RECONNECT 66,286 71,916 73,698 446,150 ADDITIONAL TIER 992,648 1,044,568 1,099,053 6,481,971 ADVERTISING 204,974 225,471 242,382 1,322,567 FRANCHISE PASS THROUGH 162,371 176,162 187,748 1,049,091 MISCELLANEOUS 398,201 427,385 452,266 2,587,510 ----------- ----------- ----------- ----------- TOTAL $ 7,772,298 $ 8,341,915 $ 8,827,562 $50,504,372 REVENUE GROWTH 9.60% 6.83% 5.50% REVENUE PER SUB./MONTH $ 45.54 $ 46.86 $ 48.38 EXPENSES TECHNICAL & OPERATIONS 1,456,425 1,532,216 1,601,974 $ 9,725,741 GENERAL & ADMINISTRATIVE 518,524 553,812 582,879 3,437,714 SALES & MARKETING 244,390 250,737 262,115 1,530,297 PROGRAMMING 1,618,577 1,725,068 1,806,404 10,464,988 ----------- ----------- ----------- ----------- TOTAL EXPENSE $ 3,837,916 $ 4,061,834 $ 4,253,372 $25,158,739 OPERATING INCOME $ 3,934,382 $ 4,280,081 $ 4,574,189 $25,345,633 OPERATING MARGIN 50.6% 51.3% 51.8% OPERATING INCOME GROWTH 10.83% 8.08% 6.43% OPERATING INCOME/SUB./MONTH $ 23.05 $ 24.04 $ 25.07 ARTHUR ANDERSEN LLP
57 EXHIBIT C-4 - -------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. REDMOND, OREGON AS OF DECEMBER 31, 1996 - -------------------------------------------- - -------------------------------------------- REVENUE, EXPENSE, OPERATING INCOME - --------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 REVENUE BASIC $ 1,036,152 $ 1,171,036 $ 1,212,402 $ 1,275,595 EXPANDED BASIC 76,710 85,425 87,598 91,870 PAY 61,857 65,036 63,961 64,707 CONVERTERS 35,758 40,413 41,841 44,021 REMOTES 2,546 2,877 2,979 3,134 INSTALLATIONS 8,297 1,976 1,967 2,069 RECONNECT 8,038 9,085 9,044 9,515 ADDITIONAL TIER 301,290 324,739 348,002 372,607 ADVERTISING 70,000 73,500 77,175 81,034 FCC USER FEE PASS THROUGH 2,072 2,342 2,425 2,551 MISCELLANEOUS 80,136 88,821 92,370 97,355 ----------- ----------- ----------- ----------- TOTAL $ 1,682,856 $ 1,865,250 $ 1,939,763 $ 2,044,458 REVENUE GROWTH 0 9.78% 3.84% 5.12% REVENUE PER SUB./MONTH $ 36.10 $ 36.82 $ 38.46 $ 40.07 EXPENSES TECHNICAL & OPERATIONS 296,082 321,208 336,230 354,236 GENERAL & ADMINISTRATIVE 224,348 245,971 252,943 263,286 SALES & MARKETING 125,315 135,900 140,977 147,454 PROGRAMMING 212,954 235,609 239,801 248,602 ----------- ----------- ----------- ----------- TOTAL EXPENSE $ 858,699 $ 938,687 $ 969,951 $ 1,013,578 OPERATING INCOME $ 824,157 $ 926,563 $ 969,812 $ 1,030,880 OPERATING MARGIN 49.0% 49.7% 50.0% 50.4% OPERTAING INCOME GROWTH 0 11.05% 4.46% 5.92% OPERATING INCOME/SUB./MONTH $ 17.68 $ 18.29 $ 19.23 $ 20.21 YEAR ENDING DECEMBER 31, 2001 2002 2003 TOTAL ----------- ----------- ----------- REVENUE BASIC $ 1,357,055 $ 1,451,236 $ 1,550,780 $ 9,054,256 EXPANDED BASIC 97,737 104,520 111,689 655,547 PAY 66,191 68,062 69,934 459,748 CONVERTERS 46,833 50,083 53,518 312,467 REMOTES 3,334 3,565 3,810 22,245 INSTALLATIONS 4,488 4,668 4,668 28,132 RECONNECT 9,733 10,409 10,695 66,520 ADDITIONAL TIER 398,623 426,125 455,188 2,626,575 ADVERTISING 85,085 89,340 93,807 569,941 FCC USER FEE PASS THROUGH 2,714 2,902 3,102 18,109 MISCELLANEOUS 103,590 110,545 117,859 690,677 ----------- ----------- ----------- ----------- TOTAL $ 2,175,384 $ 2,321,455 $ 2,475,049 $14,504,216 REVENUE GROWTH 6.02% 6.29% 6.21% REVENUE PER SUB./MONTH $ 41.68 $ 43.26 $ 44.89 EXPENSES TECHNICAL & OPERATIONS 374,801 397,166 420,556 $ 2,500,279 GENERAL & ADMINISTRATIVE 276,384 291,258 306,789 1,860,979 SALES & MARKETING 155,097 163,568 172,438 1,040,749 PROGRAMMING 260,634 274,704 289,350 1,761,653 ----------- ----------- ----------- ----------- TOTAL EXPENSE $ 1,066,915 $ 1,126,696 $ 1,189,133 $ 7,163,660 OPERATING INCOME $ 1,108,469 $ 1,194,759 $ 1,285,916 $ 7,340,556 OPERATING MARGIN 51.0% 51.5% 52.0% OPERTAING INCOME GROWTH 7.00% 7.22% 7.09% OPERATING INCOME/SUB./MONTH $ 21.24 $ 22.26 $ 23.32 ARTHUR ANDERSEN LLP
58 EXHIBIT C-5 - -------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SOMERSET, KY AS OF DECEMBER 31, 1996 - -------------------------------------------- - -------------------------------------------- REVENUE, EXPENSE, OPERATING INCOME - --------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 ----------- ----------- ----------- ----------- REVENUE BASIC $ 4,465,358 $ 4,683,579 $ 4,931,450 $ 5,194,851 EXPANDED BASIC 534,919 560,486 590,149 621,671 PAY 406,842 407,262 412,323 420,796 CONVERTERS 97,518 102,283 107,697 134,974 REMOTES 18,570 19,478 20,509 26,144 INSTALLATIONS 3,958 11,322 11,364 12,972 RECONNECT 100,394 105,300 106,609 112,303 ADDITIONAL TIER 1,199,773 1,260,462 1,324,086 1,390,783 ADVERTISING 385,000 442,750 487,025 535,728 PAY PER VIEW 12,000 13,200 19,800 29,700 MISCELLANEOUS 270,912 285,230 300,413 317,997 ----------- ----------- ----------- ----------- TOTAL $ 7,495,245 $ 7,891,352 $ 8,311,425 $ 8,797,917 REVENUE GROWTH 0 5.02% 5.05% 5.53% REVENUE PER SUB./MONTH $ 32.30 $ 33.72 $ 35.07 $ 36.65 EXPENSES TECHNICAL & OPERATIONS 1,672,516 1,743,696 1,819,082 1,899,684 GENERAL & ADMINISTRATIVE 637,808 663,156 691,353 721,641 SALES & MARKETING 264,171 291,758 314,502 339,302 PROGRAMMING 1,201,237 1,239,936 1,289,726 1,345,591 ----------- ----------- ----------- ----------- TOTAL EXPENSE $ 3,775,732 $ 3,938,547 $ 4,114,663 $ 4,306,218 OPERATING INCOME $ 3,719,513 $ 3,952,805 $ 4,196,762 $ 4,491,700 OPERATING MARGIN 49.6% 50.1% 50.5% 51.1% OPERATING INCOME GROWTH 0 5.90% 5.81% 6.57% OPERATING INCOME/SUB./MONTH $ 16.03 $ 16.89 $ 17.71 $ 18.71 YEAR ENDING DECEMBER 31, 2001 2002 2003 TOTAL ----------- ----------- ----------- REVENUE BASIC $ 5,639,136 $ 5,945,670 $ 6,250,651 $37,110,694 EXPANDED BASIC 674,838 711,522 748,019 4,441,604 PAY 433,265 443,527 449,424 2,973,439 CONVERTERS 176,186 209,529 245,269 1,073,456 REMOTES 34,708 41,607 49,012 210,026 INSTALLATIONS 15,277 12,474 10,144 77,512 RECONNECT 113,933 120,126 121,430 780,096 ADDITIONAL TIER 1,502,833 1,578,230 1,657,253 9,913,421 ADVERTISING 575,907 604,702 634,938 3,666,050 PAY PER VIEW 103,950 166,320 216,216 561,186 MISCELLANEOUS 347,626 368,764 389,338 2,280,281 ----------- ----------- ----------- ----------- TOTAL $ 9,617,660 $10,202,471 $10,771,694 $63,087,764 REVENUE GROWTH 8.52% 5.73% 5.28% REVENUE PER SUB./MONTH $ 39.50 $ 41.33 $ 43.16 EXPENSES TECHNICAL & OPERATIONS 1,995,945 2,084,512 2,174,136 $13,389,572 GENERAL & ADMINISTRATIVE 758,533 792,716 826,171 5,091,378 SALES & MARKETING 361,073 378,387 396,130 2,345,324 PROGRAMMING 1,499,642 1,593,786 1,677,059 9,846,978 ----------- ----------- ----------- ----------- TOTAL EXPENSE $ 4,615,192 $ 4,849,402 $ 5,073,497 $30,673,252 OPERATING INCOME $ 5,002,468 $ 5,353,069 $ 5,698,197 $32,414,512 OPERATING MARGIN 52.0% 52.5% 52.9% OPERATING INCOME GROWTH 10.21% 6.55% 6.06% OPERATING INCOME/SUB./MONTH $ 20.54 $ 21.68 $ 22.83 ARTHUR ANDERSEN LLP
59 EXHIBIT D-1 - ------------------------------------------------------ FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. BURKE COUNTY, NC AS OF DECEMBER 31, 1996 - ------------------------------------------------------
- ------------------------------------------------------ CAPITAL EXPENDITURES - ------------------------------------------------------ YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---------- ---------- ---------- ---------- -------- -------- -------- CAPITAL ASSUMPTIONS NEW PLANT MILES 8.0 8.0 8.0 8.0 8.0 8.0 8.0 PLANT-AERIAL $16,000 $16,480 $16,974 $17,484 $18,008 $18,548 $19,105 PLANT-U/G $28,000 $28,840 $29,705 $30,596 $31,514 $32,460 $33,433 AERIAL PERCENTAGE 20% 20% 20% 20% 20% 20% 20% UNDERGROUND PERCENTAGE 80% 80% 80% 80% 80% 80% 80% AVERAGE COST PER CONVERTER $110 $113 $117 $120 $124 $128 $131 CONVERTER USE PERCENTAGE 89% 89% 89% 89% 89% 89% 89% CONVERTER REPLACEMENT PERCENTAGE 3% 4% 5% 5% 6% 6% 6% INSTALLATION COST/SUBSCRIBER $80 $82 $85 $87 $90 $93 $96 MISCELLANEOUS EXPENSE/SUBSCRIBER $40 $20 $21 $21 $22 $23 $23 INFLATION 0% 3% 3% 3% 3% 3% 3% ANNUAL EXPENSE PROJECTION TOTAL NEW PLANT - AERIAL $25,600 $26,368 $27,159 $27,974 $28,813 $29,677 $30,568 $196,159 NEW PLANT - UNDERGROUND 179,200 184,576 190,113 195,817 201,691 207,742 213,974 1,373,113 PLANT REBUILD AND UPGRADE 450,000 2,400,000 3,000,000 4,200,000 0 0 0 10,050,000 NEW CONVERTER EXPENSE 0 0 0 65,580 50,532 34,103 16,212 166,428 CONVERTER REPLACEMENT EXPENSE 50,642 68,832 88,495 91,006 116,537 123,155 128,958 667,624 INSTALLATION EXPENSE 8,369 8,570 8,814 32,683 25,184 16,996 8,080 108,696 MISCELLANEOUS CAPITAL EXPENSE 418,474 208,006 213,925 224,136 238,001 250,352 260,968 1,813,862 ---------- ---------- ---------- ---------- -------- -------- -------- ----------- TOTAL $1,132,286 $2,896,352 $3,528,506 $4,837,196 $660,758 $662,026 $658,759 $14,375,882 PERCENT OF REVENUE 21.5% 53.2% 62.3% 80.6% 10.2% 9.7% 9.2% ARTHUR ANDERSEN LLP
60 EXHIBIT D-2 - ----------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CALIFORNIA CITY, CALIFORNIA AS OF DECEMBER 31, 1996 - -----------------------------------------------
- ----------------------------------------------- CAPITAL EXPENDITURES - ----------------------------------------------- YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 -------- -------- -------- -------- -------- -------- -------- CAPITAL ASSUMPTIONS NEW PLANT MILES 2.0 1.0 1.0 1.0 1.0 1.0 1.0 PLANT-AERIAL $ 16,000 $ 16,480 $ 16,974 $ 17,484 $ 18,008 $ 18,548 $ 19,105 PLANT-U/G $ 28,100 $ 28,943 $ 29,811 $ 30,706 $ 31,627 $ 32,576 $ 33,553 AERIAL PERCENTAGE 50% 50% 50% 50% 50% 50% 50% UNDERGROUND PERCENTAGE 50% 50% 50% 50% 50% 50% 50% AVERAGE COST PER CONVERTER $ 85 $ 88 $ 90 $ 93 $ 96 $ 99 $ 101 CONVERTER USE PERCENTAGE 26% 26% 26% 26% 26% 26% 26% CONVERTER REPLACEMENT PERCENTAGE 10% 10% 10% 10% 10% 8% 6% INSTALLATION COST/SUBSCRIBER $ 70 $ 72 $ 74 $ 76 $ 79 $ 81 $ 84 MISCELLANEOUS EXPENSE/SUBSCRIBER $ 50 $ 45 $ 46 $ 48 $ 49 $ 51 $ 52 INFLATION 0% 3% 3% 3% 3% 3% 3% ANNUAL EXPENSE PROJECTION TOTAL NEW PLANT - AERIAL $ 16,000 $ 8,240 $ 8,487 $ 8,742 $ 9,004 $ 9,274 $ 9,552 $ 69,300 NEW PLANT - UNDERGROUND 28,100 14,472 14,906 15,353 15,813 16,288 16,776 121,708 PLANT REBUILD AND UPGRADE 0 0 0 0 0 0 0 0 NEW CONVERTER EXPENSE 2,094 1,139 1,173 1,208 1,245 1,282 1,321 9,462 CONVERTER REPLACEMENT EXPENSE 7,914 8,367 8,735 9,118 9,516 7,944 6,216 57,808 INSTALLATION EXPENSE 3,560 1,937 1,995 2,055 2,116 2,180 2,245 16,087 MISCELLANEOUS CAPITAL EXPENSE 97,372 89,383 93,310 97,391 101,634 106,043 110,626 695,758 -------- -------- -------- -------- -------- -------- -------- -------- TOTAL $155,040 $123,537 $128,605 $133,867 $139,328 $143,010 $146,736 $970,122 PERCENT OF REVENUE 20.6% 15.6% 15.4% 15.3% 15.2% 14.9% 14.5% ARTHUR ANDERSEN LLP
61 EXHIBIT D-3 - ----------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CENTREVILLE, MARYLAND AS OF DECEMBER 31, 1996 - -----------------------------------------------
- ----------------------------------------------- CAPITAL EXPENDITURES - ----------------------------------------------- YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 ---------- ---------- ---------- ---------- --------- -------- -------- CAPITAL ASSUMPTIONS NEW PLANT MILES 5.0 5.0 5.0 5.0 5.0 5.0 5.0 PLANT-AERIAL $ 16,000 $ 16,480 $ 16,974 $ 17,484 $ 18,008 $ 18,548 $ 19,105 PLANT-U/G $ 28,100 $ 28,943 $ 29,811 $ 30,706 $ 31,627 $ 32,576 $ 33,553 AERIAL PERCENTAGE 0% 0% 0% 0% 0% 0% 0% UNDERGROUND PERCENTAGE 100% 100% 100% 100% 100% 100% 100% AVERAGE COST PER CONVERTER $ 60 $ 62 $ 64 $ 65 $ 67 $ 69 $ 72 CONVERTER USE PERCENTAGE 9% 9% 9% 9% 9% 9% 9% CONVERTER REPLACEMENT PERCENTAGE 10% 10% 10% 10% 10% 10% 10% INSTALLATION COST/SUBSCRIBER $ 85 $ 88 $ 90 $ 93 $ 96 $ 99 $ 101 MISCELLANEOUS EXPENSE/SUBSCRIBER $ 25 $ 15 $ 15 $ 16 $ 16 $ 17 $ 17 INFLATION 0% 3% 3% 3% 3% 3% 3% ANNUAL EXPENSE PROJECTION TOTAL NEW PLANT - AERIAL $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 NEW PLANT - UNDERGROUND 140,500 144,715 149,056 153,528 158,134 162,878 167,764 1,076,576 PLANT REBUILD AND UPGRADE 1,375,000 2,500,000 4,500,000 3,000,000 0 0 0 11,375,000 NEW CONVERTER EXPENSE 3,542 2,578 3,857 4,031 8,036 4,448 3,261 29,753 CONVERTER REPLACEMENT EXPENSE 11,008 11,703 12,320 13,087 13,895 15,139 16,051 93,203 INSTALLATION EXPENSE 33,707 24,538 36,707 38,365 76,478 42,328 31,034 283,157 MISCELLANEOUS CAPITAL EXPENSE 313,082 192,925 204,023 216,669 233,106 250,473 264,380 1,674,658 ---------- ---------- ---------- ---------- --------- -------- -------- ----------- TOTAL $1,876,839 $2,876,460 $4,905,963 $3,425,680 $ 489,649 $475,265 $482,491 $14,532,347 PERCENT OF REVENUE 32.2% 46.6% 74.9% 48.8% 6.3% 5.7% 5.5% ARTHUR ANDERSEN LLP
62 EXHIBIT D-4 - ----------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. REDMOND, OREGON AS OF DECEMBER 31, 1996 - -----------------------------------------------
- ----------------------------------------------- CAPITAL EXPENDITURES - ----------------------------------------------- YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 -------- -------- -------- -------- -------- -------- -------- CAPITAL ASSUMPTIONS NEW PLANT MILES 29.0 6.0 6.0 6.0 6.0 6.0 6.0 PLANT-AERIAL $16,000 $16,480 $16,974 $17,484 $18,008 $18,548 $19,105 PLANT-U/G $28,100 $28,943 $29,811 $30,706 $31,627 $32,576 $33,553 AERIAL PERCENTAGE 20% 20% 20% 20% 20% 20% 20% UNDERGROUND PERCENTAGE 80% 80% 80% 80% 80% 80% 80% AVERAGE COST PER CONVERTER $110 $113 $117 $120 $124 $128 $131 CONVERTER USE PERCENTAGE 16% 16% 16% 16% 16% 16% 16% CONVERTER REPLACEMENT PERCENTAGE 15% 10% 10% 10% 10% 10% 10% INSTALLATION COST/SUBSCRIBER $60 $62 $64 $66 $68 $70 $72 MISCELLANEOUS EXPENSE/SUBSCRIBER $40 $20 $21 $21 $22 $23 $23 INFLATION 0% 3% 3% 3% 3% 3% 3% ANNUAL EXPENSE PROJECTION TOTAL NEW PLANT - AERIAL $92,800 $19,776 $20,369 $20,980 $21,610 $22,258 $22,926 $220,719 NEW PLANT - UNDERGROUND 651,920 138,926 143,094 147,387 151,809 156,363 161,054 1,550,553 PLANT REBUILD AND UPGRADE 0 0 0 0 0 0 0 0 NEW CONVERTER EXPENSE 24,226 0 900 2,590 4,546 4,682 4,823 41,766 CONVERTER REPLACEMENT EXPENSE 17,325 14,392 14,601 15,132 15,853 16,796 17,783 111,882 INSTALLATION EXPENSE 44,249 2,609 1,644 4,730 8,303 8,552 8,808 78,895 MISCELLANEOUS CAPITAL EXPENSE 155,390 84,432 86,574 90,210 95,048 100,667 106,538 718,859 -------- -------- -------- -------- -------- -------- -------- ---------- TOTAL $985,910 $260,135 $267,183 $281,029 $297,168 $309,319 $321,931 $2,722,674 PERCENT OF REVENUE 58.6% 13.9% 13.8% 13.7% 13.7% 13.3% 13.0% ARTHUR ANDERSEN LLP
63 EXHIBIT D-5 - ----------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SOMERSET, KY AS OF DECEMBER 31, 1996 - -----------------------------------------------
- ----------------------------------------------- CAPITAL EXPENDITURES - ----------------------------------------------- YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 -------- ---------- ---------- ---------- -------- -------- -------- CAPITAL ASSUMPTIONS NEW PLANT MILES 1.9 8.5 8.5 8.5 8.5 8.5 8.5 PLANT-AERIAL $18,500 $19,055 $19,627 $20,215 $20,822 $21,447 $22,090 PLANT-U/G $21,500 $22,145 $22,809 $23,494 $24,198 $24,924 $25,672 AERIAL PERCENTAGE 25% 25% 25% 25% 25% 25% 25% UNDERGROUND PERCENTAGE 75% 75% 75% 75% 75% 75% 75% AVERAGE COST PER CONVERTER $65 $67 $69 $90 $92 $95 $98 CONVERTER USE PERCENTAGE 21% 21% 21% 31% 36% 41% 46% CONVERTER REPLACEMENT PERCENTAGE 8% 8% 8% 8% 8% 8% 8% INSTALLATION COST/SUBSCRIBER $60 $62 $64 $66 $68 $70 $72 MISCELLANEOUS EXPENSE/SUBSCRIBER $15 $10 $10 $11 $11 $11 $12 INFLATION 0% 3% 3% 3% 3% 3% 3% ANNUAL EXPENSE PROJECTION TOTAL NEW PLANT - AERIAL $8,748 $40,546 $41,763 $43,016 $44,306 $45,635 $47,004 $271,019 NEW PLANT - UNDERGROUND 30,499 141,364 145,605 149,974 154,473 159,107 163,880 944,903 PLANT REBUILD AND UPGRADE 500,000 1,000,000 2,000,000 6,500,000 0 0 0 10,000,000 NEW CONVERTER EXPENSE 1,517 4,297 4,442 186,843 104,996 108,146 111,481 521,722 CONVERTER REPLACEMENT EXPENSE 26,619 27,542 28,723 37,801 54,331 64,613 75,463 315,092 INSTALLATION EXPENSE 5,277 14,951 15,457 17,474 21,197 17,141 14,358 105,854 MISCELLANEOUS CAPITAL EXPENSE 290,100 195,049 203,397 212,201 221,738 231,543 241,080 1,595,108 -------- ---------- ---------- ---------- -------- -------- -------- ----------- TOTAL $862,760 $1,423,751 $2,439,387 $7,147,308 $601,041 $626,185 $653,266 $13,753,698 PERCENT OF REVENUE 11.5% 18.0% 29.3% 81.2% 6.2% 6.1% 6.1% ARTHUR ANDERSEN LLP
64 EXHIBIT E-1 - ---------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. BURKE COUNTY, NC AS OF DECEMBER 31, 1996 - ----------------------------------------------
- ---------------------------------------------- DISCOUNTED CASH FLOW VALUATION - ---------------------------------------------- YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL --------- --------- --------- --------- --------- --------- --------- ---------- REVENUE $5,266,958 $5,447,493 $5,659,602 $6,002,891 $6,494,157 $6,853,484 $7,167,554 $42,892,138 EXPENSES 2,426,995 2,495,417 2,577,311 2,704,371 2,900,859 3,039,158 3,160,602 19,304,713 --------- --------- --------- --------- --------- --------- --------- ---------- OPERATING INCOME $2,839,963 $2,952,076 $3,082,291 $3,298,520 $3,593,298 $3,814,326 $4,006,951 $23,587,425 LESS: CAPITAL EXPENDITURES 1,132,286 2,896,352 3,528,506 4,837,196 660,758 662,026 658,759 14,375,882 PLUS: RESIDUAL VALUE 0 0 0 0 0 0 30,052,136 30,052,136 FREE CASH FLOW 1,707,677 55,724 (446,215) (1,538,676) 2,932,541 3,152,300 33,400,328 39,263,679 DISCOUNT RATE 15.03% DISCOUNTED CASH FLOW VALUE $15,706,719 ARTHUR ANDERSEN LLP
65 EXHIBIT E-2 - -------------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CALIFORNIA CITY, CALIFORNIA AS OF DECEMBER 31, 1996 - --------------------------------------------------
- -------------------------------------------------- DISCOUNTED CASH FLOW VALUATION - -------------------------------------------------- YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- REVENUE $ 754,179 $ 794,221 $ 832,846 $ 874,082 $ 916,557 $ 961,877 $1,008,582 $6,142,345 EXPENSES 368,549 384,288 399,359 415,034 431,273 448,163 465,663 2,912,329 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- OPERATING INCOME $ 385,630 $ 409,933 $ 433,487 $ 459,048 $ 485,284 $ 513,714 $ 542,920 $3,230,016 LESS: CAPITAL EXPENDITURES 155,040 123,537 128,605 133,867 139,328 143,010 146,736 970,122 PLUS: RESIDUAL VALUE 0 0 0 0 0 0 3,800,438 3,800,438 FREE CASH FLOW 230,590 286,396 304,882 325,182 345,956 370,703 4,196,622 6,060,332 DISCOUNT RATE 15.03% DISCOUNTED CASH FLOW VALUE $2,709,780 ARTHUR ANDERSEN LLP
66 EXHIBIT E-3 - ------------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CENTREVILLE, MARYLAND AS OF DECEMBER 31, 1996 - -------------------------------------------------
- ------------------------------------------------- DISCOUNTED CASH FLOW VALUATION - ------------------------------------------------- YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- REVENUE $5,823,918 $6,166,532 $6,545,857 $7,026,289 $7,772,298 $8,341,915 $8,827,562 $50,504,372 EXPENSES 3,017,200 3,158,916 3,311,348 3,518,153 3,837,916 4,061,834 4,253,372 25,158,739 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- OPERATING INCOME $2,806,718 $3,007,617 $3,234,510 $3,508,136 $3,934,382 $4,280,081 $4,574,189 $25,345,633 LESS: CAPITAL EXPENDITURES 1,876,839 2,876,460 4,905,963 3,425,680 489,649 475,265 482,491 14,532,347 PLUS: RESIDUAL VALUE 0 0 0 0 0 0 36,593,516 36,593,516 FREE CASH FLOW 929,878 131,157 (1,671,453) 82,455 3,444,733 3,804,816 40,685,214 47,406,801 DISCOUNT RATE 14.23% DISCOUNTED CASH FLOW VALUE $19,359,143 ARTHUR ANDERSEN LLP
67 EXHIBIT E-4 - ------------------------------------------------ FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. REDMOND, OREGON AS OF DECEMBER 31, 1996 - ------------------------------------------------
- ------------------------------------------------ DISCOUNTED CASH FLOW VALUATION - ------------------------------------------------ YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- REVENUE $1,682,856 $1,865,250 $1,939,763 $2,044,458 $2,175,384 $2,321,455 $2,475,049 $14,504,216 EXPENSES 858,699 938,687 969,951 1,013,578 1,066,915 1,126,696 1,189,133 7,163,660 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------- OPERATING INCOME $824,157 $926,563 $969,812 $1,030,880 $1,108,469 $1,194,759 $1,285,916 $7,340,556 LESS: CAPITAL EXPENDITURES 985,910 260,135 267,183 281,029 297,168 309,319 321,931 2,722,674 PLUS: RESIDUAL VALUE 0 0 0 0 0 0 9,001,414 9,001,414 FREE CASH FLOW (161,752) 666,428 702,629 749,851 811,301 885,440 9,965,398 13,619,295 DISCOUNT RATE 15.03% DISCOUNTED CASH FLOW VALUE $5,778,109 ARTHUR ANDERSEN LLP
68 EXHIBIT E-5 - ------------------------------------------------ FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SOMERSET, KY AS OF DECEMBER 31, 1996 - ------------------------------------------------
- ------------------------------------------------ DISCOUNTED CASH FLOW VALUATION - ------------------------------------------------ YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL ---------- ---------- ---------- ---------- ---------- ----------- ----------- REVENUE $7,495,245 $7,891,352 $8,311,425 $8,797,917 $9,617,660 $10,202,471 $10,771,694 $63,087,764 EXPENSES 3,775,732 3,938,547 4,114,663 4,306,218 4,615,192 4,849,402 5,073,497 30,673,252 ---------- ---------- ---------- ---------- ---------- ----------- ----------- ----------- OPERATING INCOME $3,719,513 $3,952,805 $4,196,762 $4,491,700 $5,002,468 $5,353,069 $5,698,197 $32,414,512 LESS: CAPITAL EXPENDITURES 862,760 1,423,751 2,439,387 7,147,308 601,041 626,185 653,266 13,753,698 PLUS: RESIDUAL VALUE 0 0 0 0 0 0 48,434,673 48,434,673 FREE CASH FLOW 2,856,753 2,529,055 1,757,374 (2,655,608) 4,401,427 4,726,883 53,479,604 67,095,488 DISCOUNT RATE 14.23% DISCOUNTED CASH FLOW VALUE $29,525,152 ARTHUR ANDERSEN LLP
69 EXHIBIT F-1 - ------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. BURKE COUNTY, NC AS OF DECEMBER 31, 1996 - ------------------------------------------- - ------------------------------------------- VALUATION MATRIX - ------------------------------------------- VALUATION MATRIX
MULTIPLE OF PAST YEAR'S OPERATING INCOME 1996 ADJUSTED REVENUE $5,077,787 1996 ADJUSTED EXPENSES 2,260,515 1996 ADJUSTED OPERATING INCOME $2,817,272 VALUATION MULTIPLE 8.5 ESTIMATED FAIR MARKET VALUE - $23,946,812 =========== MULTIPLE OF CURRENT OPERATING INCOME REVENUE $5,292,721 IMPUTED EXPENSES 2,419,832 --------- OPERATING INCOME 2,872,889 VALUATION MULTIPLE 8.00 ESTIMATED FAIR MARKET VALUE - $22,983,111 =========== MULTIPLE OF PROJECTED OPERATING INCOME PROJECTED REVENUE $5,266,958 PROJECTED EXPENSES 2,426,995 ----------- PROJECTED OPERATING INCOME $2,839,963 VALUATION MULTIPLE 7.50 ESTIMATED FAIR MARKET VALUE - $21,299,720 =========== PRE-TAX DISCOUNTED CASH FLOW VALUATION DISCOUNT RATE 15.0% ESTIMATED FAIR MARKET VALUE - $15,706,719 ===========
VALUE SUMMARY WEIGHTING PAST YEAR'S METHOD $23,946,812 5% CURRENT METHOD $22,983,111 10% PROJECTED METHOD $21,299,720 15% DISCOUNTED CASH FLOW METHOD $15,706,719 70% ------------ --- ESTIMATED FAIR MARKET VALUE $17,685,000 100% ============ ====
INFORMATIONAL ITEMS LOW HIGH VALUE RANGE $15,706,719 $23,946,812 AVERAGE $19,826,766
PAST YEAR'S CURRENT YEAR'S NEXT YEAR'S MULTIPLE OF CASH FLOW 6.28 6.16 6.23 VALUE PER BEGINNING YEAR 1 SUBSCRIBER $1,682 VALUE PER AVERAGE YEAR 1 SUBSCRIBER $1,690 ARTHUR ANDERSEN LLP
70 EXHIBIT F-2 - ---------------------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CALIFORNIA CITY, CALIFORNIA AS OF DECEMBER 31, 1996 - ------------------------------------------- - ------------------------------------------- VALUATION MATRIX - ------------------------------------------- VALUATION MATRIX
MULTIPLE OF PAST YEAR'S OPERATING INCOME 1996 ADJUSTED REVENUE $753,244 1996 ADJUSTED EXPENSES 334,515 ------- 1996 ADJUSTED OPERATING INCOME $418,729 VALUATION MULTIPLE 8.0 ESTIMATED FAIR MARKET VALUE - $3,349,832 ========== MULTIPLE OF CURRENT OPERATING INCOME REVENUE $746,398 IMPUTED EXPENSES 317,145 ------- OPERATING INCOME 429,254 VALUATION MULTIPLE 7.50 ESTIMATED FAIR MARKET VALUE - $3,219,402 ========== MULTIPLE OF PROJECTED OPERATING INCOME PROJECTED REVENUE $754,179 PROJECTED EXPENSES 368,549 ------- PROJECTED OPERATING INCOME $385,630 VALUATION MULTIPLE 7.00 ESTIMATED FAIR MARKET VALUE - $2,699,409 ========== PRE-TAX DISCOUNTED CASH FLOW VALUATION DISCOUNT RATE 15.0% ESTIMATED FAIR MARKET VALUE - $2,709,780 ==========
VALUE SUMMARY WEIGHTING PAST YEAR'S METHOD $3,349,832 5% CURRENT METHOD $3,219,402 10% PROJECTED METHOD $2,699,409 15% DISCOUNTED CASH FLOW METHOD $2,709,780 70% ----------- --- ESTIMATED FAIR MARKET VALUE $2,791,000 100% =========== ====
INFORMATIONAL ITEMS LOW HIGH VALUE RANGE $2,699,409 $3,349,832 AVERAGE $3,024,620
PAST YEAR'S CURRENT YEAR'S NEXT YEAR'S MULTIPLE OF CASH FLOW 6.67 6.50 7.24 VALUE PER BEGINNING YEAR 1 SUBSCRIBER $1,452 VALUE PER AVERAGE YEAR 1 SUBSCRIBER $1,433 ARTHUR ANDERSEN LLP
71 EXHIBIT F-3 - ---------------------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CENTREVILLE, MARYLAND AS OF DECEMBER 31, 1996 - ------------------------------------------- - ------------------------------------------- VALUATION MATRIX - -------------------------------------------
VALUATION MATRIX MULTIPLE OF PAST YEAR'S OPERATING INCOME 1996 ADJUSTED REVENUE $5,342,637 1996 ADJUSTED EXPENSES 2,847,160 --------- 1996 ADJUSTED OPERATING INCOME $2,495,477 VALUATION MULTIPLE 9.0 ESTIMATED FAIR MARKET VALUE - $22,459,293 =========== MULTIPLE OF CURRENT OPERATING INCOME REVENUE $5,760,275 IMPUTED EXPENSES 2,933,132 --------- OPERATING INCOME 2,827,143 VALUATION MULTIPLE 8.50 ESTIMATED FAIR MARKET VALUE - $24,030,716 =========== MULTIPLE OF PROJECTED OPERATING INCOME PROJECTED REVENUE $5,823,918 PROJECTED EXPENSES 3,017,200 ----------- PROJECTED OPERATING INCOME $2,806,718 VALUATION MULTIPLE 8.00 ESTIMATED FAIR MARKET VALUE - $22,453,742 =========== PRE-TAX DISCOUNTED CASH FLOW VALUATION DISCOUNT RATE 14.2% ESTIMATED FAIR MARKET VALUE - $19,359,143 ===========
VALUE SUMMARY WEIGHTING PAST YEAR'S METHOD $22,459,293 5% CURRENT METHOD $24,030,716 10% PROJECTED METHOD $22,453,742 15% DISCOUNTED CASH FLOW METHOD $19,359,143 70% ------------ --- ESTIMATED FAIR MARKET VALUE $20,445,000 100% ============ ====
INFORMATIONAL ITEMS LOW HIGH VALUE RANGE $19,359,143 $24,030,716 AVERAGE $21,694,930
PAST YEAR'S CURRENT YEAR'S NEXT YEAR'S MULTIPLE OF CASH FLOW 8.19 7.23 7.28 VALUE PER BEGINNING YEAR 1 SUBSCRIBER $1,659 VALUE PER AVERAGE YEAR 1 SUBSCRIBER $1,633 ARTHUR ANDERSEN LLP
72 EXHIBIT F-4 - ------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. REDMOND, OREGON AS OF DECEMBER 31, 1996 - ------------------------------------------- - ------------------------------------------- VALUATION MATRIX - ------------------------------------------- VALUATION MATRIX
MULTIPLE OF PAST YEAR'S OPERATING INCOME 1996 ADJUSTED REVENUE $1,561,593 1996 ADJUSTED EXPENSES 721,472 ---------- 1996 ADJUSTED OPERATING INCOME $840,121 VALUATION MULTIPLE 8.0 ESTIMATED FAIR MARKET VALUE - $6,720,968 ========== MULTIPLE OF CURRENT OPERATING INCOME REVENUE $1,569,849 IMPUTED EXPENSES 722,445 ---------- OPERATING INCOME 847,405 VALUATION MULTIPLE 7.50 ESTIMATED FAIR MARKET VALUE - $6,355,535 ========== MULTIPLE OF PROJECTED OPERATING INCOME PROJECTED REVENUE $1,682,856 PROJECTED EXPENSES 858,699 ---------- PROJECTED OPERATING INCOME $824,157 VALUATION MULTIPLE 7.00 ESTIMATED FAIR MARKET VALUE - $5,769,101 ========== PRE-TAX DISCOUNTED CASH FLOW VALUATION DISCOUNT RATE 15.0% ESTIMATED FAIR MARKET VALUE - $5,778,109 ==========
VALUE SUMMARY WEIGHTING PAST YEAR'S METHOD $6,720,968 5% CURRENT METHOD $6,355,535 10% PROJECTED METHOD $5,769,101 15% DISCOUNTED CASH FLOW METHOD $5,778,109 70% ---------- --- ESTIMATED FAIR MARKET VALUE $5,882,000 100% ---------- ----
INFORMATIONAL ITEMS LOW HIGH VALUE RANGE $5,769,101 $6,720,968 AVERAGE $6,245,034
PAST YEAR'S CURRENT YEAR'S NEXT YEAR'S MULTIPLE OF CASH FLOW 7.00 6.94 7.14 VALUE PER BEGINNING YEAR 1 SUBSCRIBER $1,673 VALUE PER AVERAGE YEAR 1 SUBSCRIBER $1,514
73 EXHIBIT F-5 - ------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SOMERSET, KY AS OF DECEMBER 31, 1996 - ------------------------------------------- - ------------------------------------------- VALUATION MATRIX - ------------------------------------------- VALUATION MATRIX
MULTIPLE OF PAST YEAR'S OPERATING INCOME 1996 ADJUSTED REVENUE $7,090,865 1996 ADJUSTED EXPENSES 3,401,985 ---------- 1996 ADJUSTED OPERATING INCOME $3,688,880 VALUATION MULTIPLE 9.5 ESTIMATED FAIR MARKET VALUE - $35,044,360 =========== MULTIPLE OF CURRENT OPERATING INCOME REVENUE $7,486,266 IMPUTED EXPENSES 4,025,365 --------- OPERATING INCOME 3,460,901 VALUATION MULTIPLE 9.00 ESTIMATED FAIR MARKET VALUE - $31,148,107 =========== MULTIPLE OF PROJECTED OPERATING INCOME PROJECTED REVENUE $7,495,245 PROJECTED EXPENSES 3,775,732 ---------- PROJECTED OPERATING INCOME $3,719,513 VALUATION MULTIPLE 8.50 ESTIMATED FAIR MARKET VALUE - $31,615,860 =========== PRE-TAX DISCOUNTED CASH FLOW VALUATION DISCOUNT RATE 14.2% ESTIMATED FAIR MARKET VALUE - $29,525,152 ===========
VALUE SUMMARY WEIGHTING PAST YEAR'S METHOD $35,044,360 5% CURRENT METHOD $31,148,107 10% PROJECTED METHOD $31,615,860 15% DISCOUNTED CASH FLOW METHOD $29,525,152 70% ------------ --- ESTIMATED FAIR MARKET VALUE $30,277,000 100% ============ ====
INFORMATIONAL ITEMS LOW HIGH VALUE RANGE $29,525,152 $35,044,360 AVERAGE $32,284,756
PAST YEAR'S CURRENT YEAR'S NEXT YEAR'S MULTIPLE OF CASH FLOW 8.21 8.75 8.14 VALUE PER BEGINNING YEAR 1 SUBSCRIBER $1,569 VALUE PER AVERAGE YEAR 1 SUBSCRIBER $1,566 ARTHUR ANDERSEN LLP
74 [LOGO - ARTHUR ANDERSEN LLP] ADDENDUM 1 Channel Line-Ups and Rate Cards 75 FALCON CABLE TV - BURKE COUNTY, NC (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 LOCAL - COMMUNITY ACCESS/PEG 3 WBTV 3-CBS CHARLOTTE, NC 4 WYFF-TV 4-NBC GREENVILLE, SC 5 WUNE-TV 17-PBS LINVILLE, NC 6 WCNC-TV 36-NBC CHARLOTTE,NC 7 WSPA-TV 7-CBS SPARTANBURG, SC 8 QVC 9 WSOC-TV 9-ABC CHARLOTTE, NC 10 WCCB 18-FOX CHARLOTTE, NC 11 WHKY-TV 14-IND HICKORY, NC 12 MTV 13 WLOS 13-ABC ASHEVILLE, NC 14 WJZY 46-IND/UPN BELMONT, NC 15 C-SPAN * 16 REQUEST - PAY PER VIEW * 17 HBO * 18 CINEMAX * 19 THE MOVIE CHANNEL * 20 SHOWTIME * 21 ENCORE + 22 THE DISNEY CHANNEL 23 NICKELODEON = 24 WTBS 17-IND ATLANTA, GA + 25 THE NASHVILLE NETWORK + 26 THE DISCOVERY CHANNEL + 27 THE FAMILY CHANNEL + 28 COUNTRY MUSIC TV + 29 THE WEATHER CHANNEL + 30 TNT = 31 THE LEARNING CHANNEL = 32 CNN = 33 CNN HEADLINE NEWS 34 NOSTALGIA = 35 ESPN 36 PREVUE GUIDE 37 CNBC 38 COMEDY CENTRAL 38 VH-1 39 LIFETIME = 40 SPORTSOUTH NETWORK 41 NEW INSPIRATIONAL NETWORK = 42 USA NETWORK 43 WHNS 21-FOX ASHEVILLE, NC 44 WFVT-TV 55-IND ROCK HILL, SC RATES___________________________________________________________________________ BASIC $17.54 TIER (=) 6.36 SATELLITE PACKAGE 1 (+) 10.44 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.03 ADDRESSABLE CONVERTER 2.51 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 250.00 DAMAGED CONVERTER EQUIPMENT 105.00 DISCONNECT HOLD FEE 2.00 UPGRADE 2.00 NON PAY RECONNECT FEE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 ENCORE 5.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations can only be received via cable through a converter box, which is available at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 76 FALCON CABLE TV - CHURCH HILL, MD (Effective: 10/1/96) CHANNEL LINE-UP --------------------------------------------------------------- 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC *6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD *15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKLEODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E!-ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.44 TIER (=) 3.42 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 5% of your total bill. Any such amounts will be itemized on your bill. 77 FALCON CABLE TV - Kent County, ND (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL - COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E! - ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.63 TIER (=) 3.48 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 3% of your basic rate. Any such amounts will be itemized on your bill. 78 FALCON CABLE TV - CONNELLY SPRINGS, NC (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 LOCAL - COMMUNITY ACCESS/PEG 3 WBTV 3-CBS CHARLOTTE, NC 4 WYFF-TV 4-NBC GREENVILLE, SC 5 WUNE-TV 17-PBS LINVILLE, NC 6 WCNC-TV 36-NBC CHARLOTTE, NC 7 WSPA-TV 7-CBS SPARTANBURG, SC 8 QVC 9 WSOC-TV 9-ABC CHARLOTTE, NC 10 WCCB 18-FOX CHARLOTTE, NC 11 WHKY-TV 14-IND HICKORY, NC 12 MTV 13 WLOS 13-ABC ASHEVILLE, NC 14 WJZY 46-IND/UPN BELMONT, NC 15 C-SPAN * 16 REQUEST - PAY PER VIEW * 17 HBO * 18 CINEMAX * 19 THE MOVIE CHANNEL * 20 SHOWTIME * 21 ENCORE + 22 THE DISNEY CHANNEL 23 NICKELODEON = 24 WTBS 17-IND ATLANTA, GA + 25 THE NASHVILLE NETWORK + 26 THE DISCOVERY CHANNEL + 27 THE FAMILY CHANNEL + 28 COUNTRY MUSIC TV + 29 THE WEATHER CHANNEL + 30 TNT = 31 THE LEARNING CHANNEL = 32 CNN = 33 CNN HEADLINE NEWS 34 NOSTALGIA = 35 ESPN 36 PREVUE GUIDE 37 CNBC 38 COMEDY CENTRAL 38 VH-1 39 LIFETIME = 40 SPORTSOUTH NETWORK 41 NEW INSPIRATIONAL NETWORK = 42 USA NETWORK 43 WHNS 21-FOX ASHEVILLE, NC 44 WFVT-TV 55-IND ROCK HILL, SC RATES___________________________________________________________________________ BASIC $17.37 TIER (=) 6.31 SATELLITE PACKAGE 1 (+) 10.44 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.03 ADDRESSABLE CONVERTER 2.51 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 250.00 DAMAGED CONVERTER EQUIPMENT 105.00 DISCONNECT HOLD FEE 2.00 UPGRADE 2.00 NON PAY RECONNECT FEE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 ENCORE 5.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations can only be received via cable through a converter box, which is available at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 79 FALCON CABLE TV - DREXEL, NC (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 LOCAL - COMMUNITY ACCESS/PEG 3 WBTV 3-CBS CHARLOTTE, NC 4 WYFF-TV 4-NBC GREENVILLE, SC 5 WUNE-TV 17-PBS LINVILLE, NC 6 WCNC-TV 36-NBC CHARLOTTE, NC 7 WSPA-TV 7-CBS SPARTANBURG, SC 8 QVC 9 WSOC-TV 9-ABC CHARLOTTE, NC 10 WCCB 18-FOX CHARLOTTE, NC 11 WHKY-TV 14-IND HICKORY, NC 12 MTV 13 WLOS 13-ABC ASHEVILLE, NC 14 WJZY 46-IND/UPN BELMONT, NC 15 C-SPAN * 16 REQUEST - PAY PER VIEW * 17 HBO * 18 CINEMAX * 19 THE MOVIE CHANNEL * 20 SHOWTIME * 21 ENCORE + 22 THE DISNEY CHANNEL 23 NICKELODEON = 24 WTBS 17-IND ATLANTA, GA + 25 THE NASHVILLE NETWORK + 26 THE DISCOVERY CHANNEL + 27 THE FAMILY CHANNEL + 28 COUNTRY MUSIC TV + 29 THE WEATHER CHANNEL + 30 TNT = 31 THE LEARNING CHANNEL = 32 CNN = 33 CNN HEADLINE NEWS 34 NOSTALGIA = 35 ESPN 36 PREVUE GUIDE 37 CNBC 38 COMEDY CENTRAL 38 VH-1 39 LIFETIME = 40 SPORTSOUTH NETWORK 41 NEW INSPIRATIONAL NETWORK = 42 USA NETWORK 43 WHNS 21-FOX ASHEVILLE, NC 44 WFVT-TV 55-IND ROCK HILL, SC RATES___________________________________________________________________________ BASIC $17.26 TIER (=) 6.50 SATELLITE PACKAGE 1 (+) 10.45 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.03 ADDRESSABLE CONVERTER 2.51 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 250.00 DAMAGED CONVERTER EQUIPMENT 105.00 DISCONNECT HOLD FEE 2.00 UPGRADE 2.00 NON PAY RECONNECT FEE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 ENCORE 5.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations can only be received via cable through a converter box, which is available at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 80 FALCON CABLE TV - GLEN ALPINE, NC (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 LOCAL - COMMUNITY ACCESS/PEG 3 WBTV 3-CBS CHARLOTTE, NC 4 WYFF-TV 4-NBC GREENVILLE, SC 5 WUNE-TV 17-PBS LINVILLE, NC 6 WCNC-TV 36-NBC CHARLOTTE,NC 7 WSPA-TV 7-CBS SPARTANBURG, SC 8 QVC 9 WSOC-TV 9-ABC CHARLOTTE, NC 10 WCCB 18-FOX CHARLOTTE, NC 11 WHKY-TV 14-IND HICKORY, NC 12 MTV 13 WLOS 13-ABC ASHEVILLE, NC 14 WJZY 46-IND/UPN BELMONT, NC 15 C-SPAN * 16 REQUEST - PAY PER VIEW * 17 HBO * 18 CINEMAX * 19 THE MOVIE CHANNEL * 20 SHOWTIME * 21 ENCORE + 22 THE DISNEY CHANNEL 23 NICKELODEON = 24 WTBS 17-IN ATLANTA, GA + 25 THE NASHVILLE NETWORK + 26 THE DISCOVERY CHANNEL + 27 THE FAMILY CHANNEL + 28 COUNTRY MUSIC TV + 29 THE WEATHER CHANNEL + 30 TNT = 31 THE LEARNING CHANNEL = 32 CNN = 33 CNN HEADLINE NEWS 34 NOSTALGIA = 35 ESPN 36 PREVUE GUIDE 37 CNBC 38 COMEDY CENTRAL 38 VH-1 39 LIFETIME = 40 SPORTSOUTH NETWORK 41 NEW INSPIRATIONAL NETWORK = 42 USA NETWORK 43 WHNS 21-FOX ASHEVILLE, NC 44 WFVT-TV 55-IND ROCK HILL, SC RATES___________________________________________________________________________ BASIC $17.18 TIER (=) 6.36 SATELLITE PACKAGE 1 (+) 10.44 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.03 ADDRESSABLE CONVERTER 2.51 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 250.00 DAMAGED CONVERTER EQUIPMENT 105.00 DISCONNECT HOLD FEE 2.00 UPGRADE 2.00 NON PAY RECONNECT FEE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 ENCORE 5.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations can only be received via cable through a converter box, which is available at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 81 FALCON CABLE TV - RUTHERFORD COLLEGE, NC (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 LOCAL - COMMUNITY ACCESS/PEG 3 WBTV 3-CBS CHARLOTTE, NC 4 WYFF-TV 4-NBC GREENVILLE, SC 5 WUNE-TV 17-PBS LINVILLE, NC 6 WCNC-TV 36-NBC CHARLOTTE,NC 7 WSPA-TV 7-CBS SPARTANBURG, SC 8 QVC 9 WSOC-TV 9-ABC CHARLOTTE, NC 10 WCCB 18-FOX CHARLOTTE, NC 11 WHKY-TV 14-IND HICKORY, NC 12 MTV 13 WLOS 13-ABC ASHEVILLE, NC 14 WJZY 46-IND/UPN BELMONT, NC 15 C-SPAN * 16 REQUEST - PAY PER VIEW * 17 HBO * 18 CINEMAX * 19 THE MOVIE CHANNEL * 20 SHOWTIME * 21 ENCORE + 22 THE DISNEY CHANNEL 23 NICKELODEON = 24 WTBS 17-IN ATLANTA, GA + 25 THE NASHVILLE NETWORK + 26 THE DISCOVERY CHANNEL + 27 THE FAMILY CHANNEL + 28 COUNTRY MUSIC TV + 29 THE WEATHER CHANNEL + 30 TNT = 31 THE LEARNING CHANNEL = 32 CNN = 33 CNN HEADLINE NEWS 34 NOSTALGIA = 35 ESPN 36 PREVUE GUIDE 37 CNBC 38 COMEDY CENTRAL 38 VH-1 39 LIFETIME = 40 SPORTSOUTH NETWORK 41 NEW INSPIRATIONAL NETWORK = 42 USA NETWORK 43 WHNS 21-FOX ASHEVILLE, NC 44 WFVT-TV 55-IND ROCK HILL, SC RATES___________________________________________________________________________ BASIC $17.59 TIER (=) 6.52 SATELLITE PACKAGE 1 (+) 10.45 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.03 ADDRESSABLE CONVERTER 2.51 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 250.00 DAMAGED CONVERTER EQUIPMENT 105.00 DISCONNECT HOLD FEE 2.00 UPGRADE 2.00 NON PAY RECONNECT FEE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 ENCORE 5.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations can only be received via cable through a converter box, which is available at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 82 FALCON CABLE TV - VALDESE COUNTY, NC (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 LOCAL - COMMUNITY ACCESS/PEG 3 WBTV 3-CBS CHARLOTTE, NC 4 WYFF-TV 4-NBC GREENVILLE, SC 5 WUNE-TV 17-PBS LINVILLE, NC 6 WCNC-TV 36-NBC CHARLOTTE, NC 7 WSPA-TV 7-CBS SPARTANBURG, SC 8 QVC 9 WSOC-TV 9-ABC CHARLOTTE, NC 10 WCCB 18-FOX CHARLOTTE, NC 11 WHKY-TV 14-IND HICKORY, NC 12 MTV 13 WLOS 13-ABC ASHEVILLE, NC 14 WJZY 46-IND/UPN BELMONT, NC 15 C-SPAN * 16 REQUEST - PAY PER VIEW * 17 HBO * 18 CINEMAX * 19 THE MOVIE CHANNEL * 20 SHOWTIME * 21 ENCORE + 22 THE DISNEY CHANNEL 23 NICKELODEON = 24 WTBS 17-IND ATLANTA, GA + 25 THE NASHVILLE NETWORK + 26 THE DISCOVERY CHANNEL + 27 THE FAMILY CHANNEL + 28 COUNTRY MUSIC TV + 29 THE WEATHER CHANNEL + 30 TNT = 31 THE LEARNING CHANNEL = 32 CNN = 33 CNN HEADLINE NEWS 34 NOSTALGIA = 35 ESPN 36 PREVUE GUIDE 37 CNBC 38 COMEDY CENTRAL 38 VH-1 39 LIFETIME = 40 SPORTSOUTH NETWORK 41 NEW INSPIRATIONAL NETWORK = 42 USA NETWORK 43 WHNS 21-FOX ASHEVILLE, NC 44 WFVT-TV 55-IND ROCK HILL, SC RATES___________________________________________________________________________ BASIC $17.14 TIER (=) 6.34 SATELLITE PACKAGE 1(+) 10.44 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.03 ADDRESSABLE CONVERTER 2.51 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 250.00 DAMAGED CONVERTER EQUIPMENT 105.00 DISCONNECT HOLD FEE 2.00 UPGRADE 2.00 NON PAY RECONNECT FEE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 ENCORE 5.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations can only be received via cable through a converter box, which is available at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 83 FALCON CABLE TV - BARCLAY, MD (Effective: 10/1/96) CHANNEL LINE-UP --------------------------------------------------------------- 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTV 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKLEODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E!-ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.86 TIER (=) 3.55 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 84 FALCON CABLE TV - BETTERTON, MD (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL - COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E! - ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.80 TIER (=) 3.89 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 3% of your total bill. Any such amounts will be itemized on your bill. 85 FALCON CABLE TV - CENTREVILLE, MD (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL - COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCASTING NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E! - ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.32 TIER (=) 3.77 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 3% of your total bill. Any such amounts will be itemized on your bill. 86 FALCON CABLE TV - CHESTERTOWN, MD (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL-COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E!-ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $21.08 TIER (=) 2.91 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 4% of your total bill. Any such amounts will be itemized on your bill. 87 FALCON CABLE TV - MILLINGTON, MD (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTV 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E!-ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.90 TIER (=) 3.25 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 4% of your total bill. Any such amounts will be itemized on your bill. 88 FALCON CABLE TV - TRAPPE, MD (Effective 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E!-ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.08 TIER (=) 4.07 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) at cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 89 FALCON CABLE TV - OXFORD, MD (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E!-ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.12 TIER (=) 4.26 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 are available for rent can only be received via cable through a converter box, unless you have a cable-ready TV set converter boxes at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 90 FALCON CABLE TV - QUEEN ANNE'S COUNTY, MD (Effective: 10/1/96) CHANNEL LINE-UP --------------------------------------------------------------- 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E! - ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.31 TIER (=) 3.72 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 3% of your total bill. Any such amounts will be itemized on your bill. 91 FALCON CABLE TV - QUEENSTOWN, MD (Effective: 10/1/96) CHANNEL LINE-UP --------------------------------------------------------------- 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E! - ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.67 TIER (=) 3.33 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 3% of your total bill. Any such amounts will be itemized on your bill. 92 FALCON CABLE TV - ROCK HALL, MD (Effective: 10/1/96) CHANNEL LINE-UP --------------------------------------------------------------- 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E! - ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.35 TIER (=) 3.82 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 5% of your basic rate. Any such amounts will be itemized on your bill. 93 FALCON CABLE TV - ST. MICHAELS, MD (Effective: 10/1/96) CHANNEL LINE-UP --------------------------------------------------------------- 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E! - ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.84 TIER (=) 3.36 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 3% of your total bill. Any such amounts will be itemized on your bill. 94 FALCON CABLE TV - SUDLERSVILLE, MD (Effective: 10/1/96) CHANNEL LINE-UP --------------------------------------------------------------- 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV 24-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E! - ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $20.66 TIER (=) 3.58 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 3% of your total bill. Any such amounts will be itemized on your bill. 95 FALCON CABLE TV - TALBOT COUNTY, MD (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTG 5-FOX WASHINGTON, DC * 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E!-ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $21.78 TIER (=) 3.66 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 96 FALCON CABLE TV - TEMPLEVILLE, MD (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WMAR-TV 2-ABC BALTIMORE, MD 3 LOCAL-COMMUNITY ACCESS/PEG 4 QVC 5 WTTV 5-FOX WASHINGTON, DC 6 CINEMAX 7 WJLA-TV 7-ABC WASHINGTON, DC 8 ESPN 9 WUSA 9-CBS WASHINGTON, DC 10 WBFF 45-FOX BALTIMORE, MD 11 WBAL-TV 11-NBC BALTIMORE, MD 12 WETA-TV 26-PBS WASHINGTON, DC 12 MOR MUSIC TV 13 WJZ-TV 13-CBS BALTIMORE, MD 14 WNUV-TV 54-IND/UPN BALTIMORE, MD * 15 SHOWTIME 16 WBOC-TV 16-CBS SALISBURY, MD 17 HOME TEAM SPORTS 18 WDCA 20-IND/UPN WASHINGTON, DC 19 LOCAL - COMMUNITY ACCESS/PEG * 20 HBO * 21 THE MOVIE CHANNEL 22 WMPT 22-PBS ANNAPOLIS, MD + 23 THE DISCOVERY CHANNEL + 24 THE FAMILY CHANNEL + 25 WTBS 17-IND ATLANTA, GA 26 WHSW-TV-HSN BALTIMORE, MD 27 CNN = 28 USA NETWORK = 29 ARTS & ENTERTAINMENT = 30 SCI-FI CHANNEL = 31 THE WEATHER CHANNEL = 32 THE NASHVILLE NETWORK 33 NICKELODEON 34 TNT 35 LIFETIME 36 FX 37 C-SPAN 38 CNN HEADLINE NEWS 39 AMERICAN MOVIE CLASSICS 40 TRINITY BROADCAST NETWORK 41 THE LEARNING CHANNEL 42 CNBC 43 COUNTRY MUSIC TV + 44 THE DISNEY CHANNEL 45 BLACK ENTERTAINMENT TV 46 BRAVO 47 E!-ENTERTAINMENT TV 48 MTV 49 HOME & GARDEN TV 50 VH-1 + 51 ESPN 2 = 52 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $21.05 TIER (=) 3.04 SATELLITE PACKAGE 1 (+) 5.72 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.69 NON-ADDRESSABLE CONVERTER 2.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 20.00 LOST/STOLEN CONVERTER EQUIP 200.00 DAMAGED CONVERTER EQUIPMENT 200.00 LOST/STOLEN REMOTE 15.00 DAMAGED REMOTE 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 SEGA CHANNEL 12.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 97 FALCON CABLE TV - CALIFORNIA CITY, CA (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 KCBS-TV 2-CBS LOS ANGELES, CA 3 ARTS & ENTERTAINMENT 4 KNBC 4-NBC LOS ANGELES, CA 5 KTLA 5-IND/WBN 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/UPN LOS ANGELES, CA 14 QVC 15 KERO-TV 23-CBS/ABC BAKERSFIELD, CA 16 WTBS 17-IND ATLANTA, GA 17 C-SPAN + 18 CNN 19 THE WEATHER CHANNEL 19 LOCAL - GOVERNMENT ACCESS + 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 KBAK-TV 29-ABC/CBS BAKERSFIELD, CA * 37 SHOWTIME * 38 THE MOVIE CHANNEL + 39 THE DISNEY CHANNEL + 40 USA NETWORK 41 HOME SHOPPING NETWORK + 42 TV FOOD NETWORK RATES___________________________________________________________________________ BASIC $15.80 TIER (=) 6.00 SATELLITE PACKAGE 1(+) 6.70 BASIC ON ADDITIONAL OUTLET 0.00 ADDL SATELLITE PACKAGE 50% of 1st Outlet INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.34 ADDRESSABLE CONVERTER 4.49 NON-ADDRESSABLE CONVERTER 2.04 RADIO SERVICE 1.95 VIDEO CONTROL CENTER 0.89 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 25.00 CONVERTER EQUIPMENT DEPOSIT 25.00 LOST/STOLEN CONVERTER EQUIP 250.00 FIELD COLLECTION 15.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 PREMIUM ON ADDL OUTLET 5.20 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 98 FALCON CABLE TV - REDMOND, OR (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 KATU 2-ABC PORTLAND, OR 3 BLAZERCABLE 3 LOCAL - GOVERNMENT ACCESS 4 QVC 5 KTVZ 21-NBC BEND, OR 6 KOIN 6-CBS PORTLAND, OR 7 KOAB-TV 3-PBS BEND, OR 8 THE DISCOVERY CHANNEL 9 KEZI 9-ABC EUGENE, OR 10 ESPN 11 ARTS & ENTERTAINMENT 12 KPTV 12-IND/UPN PORTLAND, OR 13 KPDX 49-FOX VANCOUVER, WA 14 NOSTALGIA 15 THE WEATHER CHANNEL 16 LIFETIME 17 NICKELODEON 18 BRAVO * 19 SHOWTIME * 20 HBO * 21 THE MOVIE CHANNEL * 22 ENCORE + 23 THE NASHVILLE NETWORK + 24 WTBS 17-IND ATLANTA, GA + 25 TNT + 26 CNN + 27 THE FAMILY CHANNEL + 28 THE DISNEY CHANNEL = 29 USA NETWORK = 30 SCI-FI CHANNEL = 31 VH-1 60 COMEDY CENTRAL 61 HOME & GARDEN TV RATES___________________________________________________________________________ BASIC $22.66 TIER (=) 2.08 SATELLITE PACKAGE 1 (+) 7.83 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.22 ADDRESSABLE CONVERTER 3.72 NON-ADDRESSABLE CONVERTER 1.49 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 LOST/STOLEN CONVERTER EQUIP 150.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 ENCORE 5.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 99 FALCON CABLE TV - DESCHUTES COUNTY, OR (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 KATU 2-ABC PORTLAND, OR 3 BLAZERCABLE 3 LOCAL - GOVERNMENT ACCESS 4 QVC 5 KTVZ 21-NBC BEND, OR 6 KOIN 6-CBS PORTLAND, OR 7 KOAB-TV 3-PBS BEND, OR 8 THE DISCOVERY CHANNEL 9 KEZI 9-ABC EUGENE, OR 10 ESPN 11 ARTS & ENTERTAINMENT 12 KPTV 12-IND/UPN PORTLAND, OR 13 KPDX 49-FOX VANCOUVER, WA 14 NOSTALGIA 15 THE WEATHER CHANNEL 16 LIFETIME 17 NICKELODEON 18 BRAVO * 19 SHOWTIME * 20 HBO * 21 THE MOVIE CHANNEL * 22 ENCORE + 23 THE NASHVILLE NETWORK + 24 WTBS 17-IND ATLANTA, GA + 25 TNT + 26 CNN + 27 THE FAMILY CHANNEL + 28 THE DISNEY CHANNEL = 29 USA NETWORK = 30 SCI-FI CHANNEL = 31 VH-1 60 COMEDY CENTRAL 61 HOME & GARDEN TV RATES___________________________________________________________________________ BASIC $22.97 TIER (=) 2.09 SATELLITE PACKAGE 1 (+) 7.83 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.22 ADDRESSABLE CONVERTER 3.72 NON-ADDRESSABLE CONVERTER 1.49 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 LOST/STOLEN CONVERTER EQUIP 150.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 ENCORE 5.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 100 FALCON CABLE TV - ADAIR COUNTY, KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 WTBS 17-IND ATLANTA, GA 4 ESPN 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WKYT-TV 27-CBS LEXINGTON, KY 7 WDKY-TV 56-FOX DANVILLE, KY 8 LOCAL-COMMUNITY ACCESS/PEG 9 WDRB-TV 41-FOX LOUISVILLE, KY 10 WLKY-TV 32-CBS LOUISVILLE, KY 11 WHAS-TV 11-ABC LOUISVILLE, KY 12 WGRB 34-FOX CAMPBELLSVILLE, KY 13 WBKO 13-ABC BOWLING GREEN, KY * 14 HBO * 15 CINEMAX 16 WGN-TV * 17 SHOWTIME * 18 THE MOVIE CHANNEL 19 QVC 20 ARTS & ENTERTAINMENT 21 WNBC 4-NBC NEW YORK, NY 22 WWOR-TV 23 CNN = 24 THE DISNEY CHANNEL = 25 ESPN 2 = 26 USA NETWORK = 27 THE FAMILY CHANNEL = 28 THE WEATHER CHANNEL = 29 TNT = 30 THE NASHVILLE NETWORK 31 THE DISCOVERY CHANNEL 32 CNN HEADLINE NEWS 33 COUNTRY MUSIC TV 34 VH-1 35 SCI-FI CHANNEL 36 MTV 37 C-SPAN 38 FX 39 HOME SHOPPING NETWORK 40 NICKELODEON RATES___________________________________________________________________________ BASIC $18.94 TIER (=) 5.48 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.87 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 101 FALCON CABLE TV - COLUMBIA, KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 WTBS 17-IND ATLANTA, GA 4 ESPN 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WKYT-TV 27-CBS LEXINGTON, KY 7 WDKY-TV 56-FOX DANVILLE, KY 8 LOCAL - COMMUNITY ACCESS/PEG 9 WDRB-TV 41-FOX LOUISVILLE, KY 10 WLKY-TV 32-CBS LOUISVILLE, KY 11 WHAS-TV 11-ABC LOUISVILLE, KY 12 WGRB 34-FOX CAMPBELLSVILLE, KY 13 WBKO 13-ABC BOWLING GREEN, KY * 14 HBO * 15 CINEMAX 16 WGN-TV * 17 SHOWTIME * 18 THE MOVIE CHANNEL 19 QVC 20 ARTS & ENTERTAINMENT 21 WNBC 4-NBC NEW YORK, NY 22 WWOR-TV 23 CNN = 24 THE DISNEY CHANNEL = 25 ESPN 2 = 26 USA NETWORK = 27 THE FAMILY CHANNEL = 28 THE WEATHER CHANNEL = 29 TNT = 30 THE NASHVILLE NETWORK 31 THE DISCOVERY CHANNEL 32 CNN HEADLINE NEWS 33 COUNTRY MUSIC TV 34 VH-1 35 SCI-FI CHANNEL 36 MTV 37 C-SPAN 38 FX 39 HOME SHOPPING NETWORK 40 NICKELODEON RATES___________________________________________________________________________ BASIC $18.54 TIER (=) 5.85 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.87 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 SHOWTIME 10.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 102 FALCON CABLE TV - EUBANK, KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 NICKELODEON 4 ARTS & ENTERTAINMENT 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WTVQ-TV 36-ABC LEXINGTON, KY 7 WKYT-TV 27-CBS LEXINGTON, KY 8 WDKY-TV 56-FOX DANVILLE, KY 9 WGRB 34-FOX CAMPBELLSVILLE, KY 10 C-SPAN 11 CNN 12 TNT + 13 THE DISNEY CHANNEL * 14 HBO * 15 CINEMAX * 16 THE MOVIE CHANNEL 17 ESPN 18 THE NASHVILLE NETWORK 19 QVC 20 NEW INSPIRATIONAL NETWORK 21 MTV 22 COUNTRY MUSIC TV + 23 WTBS 17-IND ATLANTA, GA + 24 WWOR-TV + 25 WGN-TV + 26 THE HISTORY CHANNEL = 27 USA NETWORK = 28 SCI-FI CHANNEL = 29 THE FAMILY CHANNEL = 30 THE WEATHER CHANNEL 31 CNN HEADLINE NEWS 32 E! - ENTERTAINMENT TV 33 TRINITY BROADCAST NETWORK 34 HOME SHOPPING NETWORK 35 VH-1 RATES___________________________________________________________________________ BASIC $20.49 TIER (=) 3.54 SATELLITE PACKAGE 1 (+) 5.88 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.87 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 103 FALCON CABLE TV - LINCOLN COUNTY (EUBANK), KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 NICKELODEON 4 ARTS & ENTERTAINMENT 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WTVQ-TV 36-ABC LEXINGTON, KY 7 WKYT-TV 27-CBS LEXINGTON, KY 8 WDKY-TV 56-FOX DANVILLE, KY 9 WGRB 34-FOX CAMPBELLSVILLE, KY 10 C-SPAN 11 CNN 12 TNT + 13 THE DISNEY CHANNEL * 14 HBO * 15 CINEMAX * 16 THE MOVIE CHANNEL 17 ESPN 18 THE NASHVILLE NETWORK 19 QVC 20 NEW INSPIRATIONAL NETWORK 21 MTV 22 COUNTRY MUSIC TV + 23 WTBS 17-IND ATLANTA, GA + 24 WWOR-TV + 25 WGN-TV + 26 THE HISTORY CHANNEL = 27 USA NETWORK = 28 SCI-FI CHANNEL = 29 THE FAMILY CHANNEL = 30 THE WEATHER CHANNEL 31 CNN HEADLINE NEWS 32 E! - ENTERTAINMENT TV 33 TRINITY BROADCAST NETWORK 34 HOME SHOPPING NETWORK 35 VH-1 RATES___________________________________________________________________________ BASIC $20.38 TIER (=) 3.53 SATELLITE PACKAGE 1 (+) 5.88 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.87 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 104 FALCON CABLE TV - PULASKI COUNTY (NORTH), KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 NICKELODEON 4 ARTS & ENTERTAINMENT 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WTVQ-TV 36-ABC LEXINGTON, KY 7 WKYT-TV 27-CBS LEXINGTON, KY 8 WDKY-TV 56-FOX DANVILLE, KY 9 WGRB 34-FOX CAMPBELLSVILLE, KY 10 C-SPAN 11 CNN 12 TNT + 13 THE DISNEY CHANNEL * 14 HBO * 15 CINEMAX * 16 THE MOVIE CHANNEL 17 ESPN 18 THE NASHVILLE NETWORK 19 QVC 20 NEW INSPIRATIONAL NETWORK 21 MTV 22 COUNTRY MUSIC TV + 23 WTBS 17-IND ATLANTA, GA + 24 WWOR-TV + 25 WGN-TV + 26 THE HISTORY CHANNEL = 27 USA NETWORK = 28 SCI-FI CHANNEL = 29 THE FAMILY CHANNEL = 30 THE WEATHER CHANNEL 31 CNN HEADLINE NEWS 32 E!-ENTERTAINMENT TV 33 TRINITY BROADCAST NETWORK 34 HOME SHOPPING NETWORK 35 VH-1 RATES___________________________________________________________________________ BASIC $20.28 TIER (=) 3.57 SATELLITE PACKAGE 1 (+) 5.88 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.87 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ CINEMAX 10.95 THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 105 FALCON CABLE TV - LINCOLN COUNTY (MCKINNEY), KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 CNN HEADLINE NEWS 4 THE NASHVILLE NETWORK 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WTVQ-TV 36-ABC LEXINGTON, KY 7 WKYT-TV 27-CBS LEXINGTON, KY 8 WDRB-TV 41-FOX LOUISVILLE, KY 9 WGRB 34-FOX CAMPBELLSVILLE, KY 10 WDKY-TV 56-FOX DANVILLE, KY 11 CNN 12 NEW INSPIRATIONAL NETWORK 13 ESPN * 14 HBO 15 E! - ENTERTAINMENT TV + 16 THE DISNEY CHANNEL + 17 WTBS 17-IND ATLANTA, GA + 18 WGN-TV + 19 WWOR-TV = 20 THE FAMILY CHANNEL = 21 USA NETWORK = 22 SCI-FI CHANNEL 23 NICKELODEON 24 COUNTRY MUSIC TV 25 C-SPAN 26 MTV RATES___________________________________________________________________________ BASIC $20.05 TIER (=) 1.96 SATELLITE PACKAGE 1 (+) 4.88 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.87 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE DISNEY CHANNEL 10.95 HBO 11.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 106 FALCON CABLE TV - LAUREL COUNTY, KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WTVQ-TV 36-ABC LEXINGTON, KY 3 WLEX-TV 18-NBC LEXINGTON, KY 4 WTBS 17-IND ATLANTA, GA 5 WKYT-TV 27-CBS LEXINGTON, KY 6 WKSO-TV 29-PBS SOMERSET, KY * 7 THE MOVIE CHANNEL 8 THE DISCOVERY CHANNEL 9 CNN 10 WYMT-TV 57-CBS HAZARD,KY 11 WWOR-TV 12 WDKY-TV 56-FOX DANVILLE, KY 13 WGN-TV 14 NICKELODEON 15 COUNTRY MUSIC TV = 16 USA NETWORK = 17 THE FAMILY CHANNEL = 18 SCI-FI CHANNEL = 20 THE NASHVILLE NETWORK 21 ESPN 22 MTV 23 VH-1 24 QVC 25 FX RATES___________________________________________________________________________ BASIC $18.32 TIER (=) 3.45 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.87 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE MOVIE CHANNEL 10.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 107 FALCON CABLE TV - CLAY COUNTY, KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WTVQ-TV 36-ABC LEXINGTON, KY 3 WLEX-TV 18-NBC LEXINGTON, KY 4 WTBS 17-IND ATLANTA, GA 5 WKYT-TV 27-CBS LEXINGTON, KY 6 WKSO-TV 29-PBS SOMERSET, KY * 7 THE MOVIE CHANNEL 8 THE DISCOVERY CHANNEL 9 CNN 10 WYMT-TV 57-CBS HAZARD,KY 11 WWOR-TV 12 WDKY-TV 56-FOX DANVILLE, KY 13 WGN-TV 14 NICKELODEON 15 COUNTRY MUSIC TV = 16 USA NETWORK = 17 THE FAMILY CHANNEL = 18 SCI-FI CHANNEL = 20 THE NASHVILLE NETWORK 21 ESPN 22 MTV 23 VH-1 24 QVC 25 FX RATES___________________________________________________________________________ BASIC $18.20 TIER (=) 3.71 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.87 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE MOVIE CHANNEL 10.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 108 FALCON CABLE TV - PULASKI COUNTY (NORTH), KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 QVC 4 CNN 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WTVQ-TV 36-ABC LEXINGTON, KY 7 WKYT-TV 27-CBS LEXINGTON, KY 8 LOCAL - COMMUNITY ACCES/PEG 9 WKXT-TV 8-CBS KNOXVILLE, TN 10 WBIR-TV 10-NBC KNOXVILLE, TN 11 ARTS & ENTERTAINMENT 12 WDKY-TV 56-FOX DANVILLE, KY 13 ESPN * 14 HBO * 15 PPV SPECIAL EVENTS * 16 THE MOVIE CHANNEL 17 CNN HEADLINE NEWS 18 VH-1 = 19 SCI-FI CHANNEL = 20 USA NETWORK = 21 THE WEATHER CHANNEL = 22 TNT + 23 NICKELODEON + 24 THE NASHVILLE NETWORK + 25 WTBS 17-IND ATLANTA, GA + 26 WGN-TV + 27 WWOR-TV + 28 THE FAMILY CHANNEL + 29 ESPN 2 + 30 THE DISNEY CHANNEL 31 SPORTSCHANNEL CINCINNATTI 32 MTV 33 COUNTRY MUSIC TV 34 E! - ENTERTAINMENT TV 35 C-SPAN 36 FX 37 HOME SHOPPING NETWORK 38 TRINITY BROADCAST NETWORK + 39 NEWSTALK TELEVISION RATES___________________________________________________________________________ BASIC $19.83 TIER (=) 1.72 SATELLITE PACKAGE 1 (+) 7.40 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.22 ADDRESSABLE CONVERTER 2.46 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 109 FALCON CABLE TV - SCIENCE HILL, KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 QVC 4 CNN 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WTVQ-TV 36-ABC LEXINGTON, KY 7 WKYT-TV 27-CBS LEXINGTON, KY 8 LOCAL - COMMUNITY ACCESS/PEG 9 WKXT-TV 8-CBS KNOXVILLE, TN 10 WBIR-TV 10-NBC KNOXVILLE, TN 11 ARTS & ENTERTAINMENT 12 WDKY-TV 56-FOX DANVILLE, KY 13 ESPN * 14 HBO * 15 PPV SPECIAL EVENTS * 16 THE MOVIE CHANNEL 17 CNN HEADLINE NEWS 18 VH-1 = 19 SCI-FI CHANNEL = 20 USA NETWORK = 21 THE WEATHER CHANNEL = 22 TNT + 23 NICKELODEON + 24 THE NASHVILLE NETWORK + 25 WTBS 17-IND ATLANTA, GA + 26 WGN-TV + 27 WWOR-TV + 28 THE FAMILY CHANNEL + 29 ESPN 2 + 30 THE DISNEY CHANNEL 31 SPORTSCHANNEL CINCINNATI 32 MTV 33 COUNTRY MUSIC TV 34 E! - ENTERTAINMENT TV 35 C-SPAN 36 FX 37 HOME SHOPPING NETWORK 38 TRINITY BROADCAST NETWORK + 39 NEWSTALK TELEVISION RATES___________________________________________________________________________ BASIC $19.58 TIER (=) 1.76 SATELLITE PACKAGE 1 (+) 7.40 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.22 ADDRESSABLE CONVERTER 2.46 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 110 FALCON CABLE TV - SOMERSET, KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 QVC 4 CNN 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WTVQ-TV 36-ABC LEXINGTON, KY 7 WKYT-TV 27-CBS LEXINGTON, KY 8 LOCAL - COMMUNITY ACCESS/PEG 9 WKXT-TV 8-CBS KNOXVILLE, TN 10 WBIR-TV 10-NBC KNOXVILLE, TN 11 ARTS & ENTERTAINMENT 12 WDKY-TV 56-FOX DANVILLE, KY 13 ESPN * 14 HBO * 15 PPV SPECIAL EVENTS * 16 THE MOVIE CHANNEL 17 CNN HEADLINE NEWS 18 VH-1 = 19 SCI-FI CHANNEL = 20 USA NETWORK = 21 THE WEATHER CHANNEL = 22 TNT + 23 NICKELODEON + 24 THE NASHVILLE NETWORK + 25 WTBS 17-IND ATLANTA, GA + 26 WGN-TV + 27 WWOR-TV + 28 THE FAMILY CHANNEL + 29 ESPN 2 + 30 THE DISNEY CHANNEL 31 SPORTSCHANNEL CINCINNATI 32 MTV 33 COUNTRY MUSIC TV 34 E! - ENTERTAINMENT TV 35 C-SPAN 36 FX 37 HOME SHOPPING NETWORK 38 TRINITY BROADCAST NETWORK + 39 NEWSTALK TELEVISION RATES___________________________________________________________________________ BASIC $19.65 TIER (=) 1.72 SATELLITE PACKAGE 1 (+) 7.40 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.22 ADDRESSABLE CONVERTER 2.46 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 111 FALCON CABLE TV - BURNSIDE, KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 QVC 4 CNN 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WTVQ-TV 36-ABC LEXINGTON, KY 7 WKYT-TV 27-CBS LEXINGTON, KY 8 LOCAL - COMMUNITY ACCESS/PEG 9 WKXT-TV 8-CBS KNOXVILLE, TN 10 WBIR-TV 10-NBC KNOXVILLE, TN 11 ARTS & ENTERTAINMENT 12 WDKY-TV 56-FOX DANVILLE, KY 13 ESPN * 14 HBO * 15 PPV SPECIAL EVENTS * 16 THE MOVIE CHANNEL 17 CNN HEADLINE NEWS 18 VH-1 = 19 SCI-FI CHANNEL = 20 USA NETWORK = 21 THE WEATHER CHANNEL = 22 TNT + 23 NICKELODEON + 24 THE NASHVILLE NETWORK + 25 WTBS 17-IND ATLANTA, GA + 26 WGN-TV + 27 WWOR-TV + 28 THE FAMILY CHANNEL + 29 ESPN 2 + 30 THE DISNEY CHANNEL 31 SPORTSCHANNEL CINCINNATI 32 MTV 33 COUNTRY MUSIC TV 34 E! - ENTERTAINMENT TV 35 C-SPAN 36 FX 37 HOME SHOPPING NETWORK 38 TRINITY BROADCAST NETWORK + 39 NEWSTALK TELEVISION RATES___________________________________________________________________________ BASIC $19.70 TIER (=) 1.50 SATELLITE PACKAGE 1 (+) 7.40 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.22 ADDRESSABLE CONVERTER 2.46 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments. Any such amounts will be itemized on your bill. 112 FALCON CABLE TV - FERGUSON, KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 QVC 4 CNN 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WTVQ-TV 36-ABC LEXINGTON, KY 7 WKYT-TV 27-CBS LEXINGTON, KY 8 LOCAL - COMMUNITY ACCESS/PEG 9 WKXT-TV 8-CBS KNOXVILLE, TN 10 WBIR-TV 10-NBC KNOXVILLE, TN 11 ARTS & ENTERTAINMENT 12 WDKY-TV 56-FOX DANVILLE, KY 13 ESPN * 14 HBO * 15 PPV SPECIAL EVENTS * 16 THE MOVIE CHANNEL 17 CNN HEADLINE NEWS 18 VH-1 = 19 SCI-FI CHANNEL = 20 USA NETWORK = 21 THE WEATHER CHANNEL = 22 TNT + 23 NICKELODEON + 24 THE NASHVILLE NETWORK + 25 WTBS 17-IND ATLANTA, GA + 26 WGN-TV + 27 WWOR-TV + 28 THE FAMILY CHANNEL + 29 ESPN 2 + 30 THE DISNEY CHANNEL 31 SPORTSCHANNEL CINCINNATI 32 MTV 33 COUNTRY MUSIC TV 34 E! - ENTERTAINMENT TV 35 C-SPAN 36 FX 37 HOME SHOPPING NETWORK 38 TRINITY BROADCAST NETWORK + 39 NEWSTALK TELEVISION RATES___________________________________________________________________________ BASIC $19.51 TIER (=) 1.41 SATELLITE PACKAGE 1 (+) 7.40 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.22 ADDRESSABLE CONVERTER 2.46 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 3% of your total bill. Any such amounts will be itemized on your bill. 113 FALCON CABLE TV - PULASKI COUNTY (BURNSIDE), KY (Effective: 10/1/96) CHANNEL LINE-UP________________________________________________________________ 2 WKSO-TV 29-PBS SOMERSET, KY 3 QVC 4 CNN 5 WLEX-TV 18-NBC LEXINGTON, KY 6 WTVQ-TV 36-ABC LEXINGTON, KY 7 WKYT-TV 27-CBS LEXINGTON, KY 8 LOCAL - COMMUNITY ACCESS/PEG 9 WKXT-TV 8-CBS KNOXVILLE, TN 10 WBIR-TV 10-NBC KNOXVILLE, TN 11 ARTS & ENTERTAINMENT 12 WDKY-TV 56-FOX DANVILLE, KY 13 ESPN * 14 HBO * 15 PPV SPECIAL EVENTS * 16 THE MOVIE CHANNEL 17 CNN HEADLINE NEWS 18 VH-1 = 19 SCI-FI CHANNEL = 20 USA NETWORK = 21 THE WEATHER CHANNEL = 22 TNT + 23 NICKELODEON + 24 THE NASHVILLE NETWORK + 25 WTBS 17-IND ATLANTA, GA + 26 WGN-TV + 27 WWOR-TV + 28 THE FAMILY CHANNEL + 29 ESPN 2 + 30 THE DISNEY CHANNEL 31 SPORTSCHANNEL CINCINNATI 32 MTV 33 COUNTRY MUSIC TV 34 E! - ENTERTAINMENT TV 35 C-SPAN 36 FX 37 HOME SHOPPING NETWORK 38 TRINITY BROADCAST NETWORK + 39 NEWSTALK TELEVISION RATES___________________________________________________________________________ BASIC $19.85 TIER (=) 1.41 SATELLITE PACKAGE 1 (+) 7.40 BASIC ON ADDITIONAL OUTLET 0.00 INSTALLATION/SERVICE (per hr.) 45.00 INSTALL MATERIALS (if any) At Cost REMOTE 0.22 ADDRESSABLE CONVERTER 2.46 NON-ADDRESSABLE CONVERTER 1.00 RADIO SERVICE 1.95 WIRE MAINTENANCE AGREEMENT 1.50 CABLE PROGRAM GUIDE 1.75 LATE PAYMENT FEE 5.00 RETURNED CHECK FEE 10.00 LOST/STOLEN CONVERTER EQUIP 200.00 PREMIUM SERVICES (*)------------------------------------------------------------ THE DISNEY CHANNEL 10.95 HBO 11.95 THE MOVIE CHANNEL 10.95 PAY PER VIEW MOVIE 3.95 ________________________________________________________________________________ All Broadcast TV stations carried on a channel higher than 13 can only be received via cable through a converter box, unless you have a cable-ready TV set. Converter boxes are available for rent at the low rate listed above. The above rates may not include applicable taxes, fees and assessments and do not include franchise fees of 3% of your total bill. Any such amounts will be itemized on your bill. 114 [LOGO - ARTHUR ANDERSEN LLP] ADDENDUM 2 Capital Asset Pricing Model & Weighted Average Cost of Capital 115 - -------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. BURKE COUNTY, NC AS OF DECEMBER 31, 1996 - -------------------------------------------- - -------------------------------------------- DEVELOPMENT OF VALUATION DISCOUNT RATE - --------------------------------------------
DEVELOPMENT OF EQUITY RATE DEVELOPMENT OF DEBT RATE Risk Free Rate 6.85% Borrowing Rate 9.75% Market Return 11.40% Tax Rate (NA - Pre-tax) 0.00% Market Premium 4.55% Beta 0.90 Co. Specific Risk 12.00% Equity Return Rate 22.95% Debt Rate 9.75%
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
WEIGHTED RATIO RATE RATE Debt 60.00% 9.75% 5.85% Equity 40.00% 22.95% 9.18% 100.00%
WEIGHTED AVERAGE COST OF CAPITAL 15.03% ----- PRELIMINARY & TENTATIVE - FOR DISCUSSION PURPOSES ONLY ARTHUR ANDERSEN LLP - ------------------------------------------------------ 116 - -------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CALIFORNIA CITY, CALIFORNIA AS OF DECEMBER 31, 1996 - -------------------------------------------- - -------------------------------------------- DEVELOPMENT OF VALUATION DISCOUNT RATE - --------------------------------------------
DEVELOPMENT OF EQUITY RATE DEVELOPMENT OF DEBT RATE Risk Free Rate 6.85% Borrowing Rate 9.75% Market Return 11.40% Tax Rate (NA-Pre-tax) 0.00% Market Premium 4.55% Beta 0.90 Co. Specific Risk 12.00% Equity Return Rate 22.95% Debt Rate 9.75%
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
WEIGHTED RATIO RATE RATE Debt 60.00% 9.75% 5.85% Equity 40.00% 22.95% 9.18% 100.00%
WEIGHTED AVERAGE COST OF CAPITAL 15.03% ----- PRELIMINARY & TENTATIVE - FOR DISCUSSION PURPOSES ONLY ARTHUR ANDERSEN LLP - ------------------------------------------------------ 117 - -------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CENTREVILLE, MARYLAND AS OF DECEMBER 31, 1996 - -------------------------------------------- - -------------------------------------------- DEVELOPMENT OF VALUATION DISCOUNT RATE - --------------------------------------------
DEVELOPMENT OF EQUITY RATE DEVELOPMENT OF DEBT RATE Risk Free Rate 6.85% Borrowing Rate 9.75% Market Return 11.40% Tax Rate (NA-Pre-tax) 0.00% Market Premium 4.55% Beta 0.90 Co. Specific Risk 10.00% Equity Return Rate 20.95% Debt Rate 9.75%
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
WEIGHTED RATIO RATE RATE Debt 60.00% 9.75% 5.85% Equity 40.00% 20.95% 8.38% 100.00%
WEIGHTED AVERAGE COST OF CAPITAL 14.23% ----- PRELIMINARY & TENTATIVE - FOR DISCUSSION PURPOSES ONLY ARTHUR ANDERSEN LLP - ------------------------------------------------------ 118 - -------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. REDMOND, OREGON AS OF DECEMBER 31, 1996 - -------------------------------------------- - -------------------------------------------- DEVELOPMENT OF VALUATION DISCOUNT RATE - --------------------------------------------
DEVELOPMENT OF EQUITY RATE DEVELOPMENT OF DEBT RATE Risk Free Rate 6.85% Borrowing Rate 9.75% Market Return 11.40% Tax Rate (NA-Pre-tax) 0.00% Market Premium 4.55% Beta 0.90 Co. Specific Risk 12.00% Equity Return Rate 22.95% Debt Rate 9.75%
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
WEIGHTED RATIO RATE RATE Debt 60.00% 9.75% 5.85% Equity 40.00% 22.95% 9.18% 100.00%
WEIGHTED AVERAGE COST OF CAPITAL 15.03% ----- PRELIMINARY & TENTATIVE - FOR DISCUSSION PURPOSES ONLY ARTHUR ANDERSEN LLP - ------------------------------------------------------ 119 - -------------------------------------------- FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SOMERSET, KY AS OF DECEMBER 31, 1996 - -------------------------------------------- - -------------------------------------------- DEVELOPMENT OF VALUATION DISCOUNT RATE - --------------------------------------------
DEVELOPMENT OF EQUITY RATE DEVELOPMENT OF DEBT RATE Risk Free Rate 6.85% Borrowing Rate 9.75% Market Return 11.40% Tax Rate (NA-Pre-tax) 0.00% Market Premium 4.55% Beta 0.90 Co. Specific Risk 10.00% Equity Return Rate 20.95% Debt Rate 9.75%
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
WEIGHTED RATIO RATE RATE Debt 60.00% 9.75% 5.85% Equity 40.00% 20.95% 8.38% 100.00%
WEIGHTED AVERAGE COST OF CAPITAL 14.23% ----- PRELIMINARY & TENTATIVE - FOR DISCUSSION PURPOSES ONLY ARTHUR ANDERSEN LLP - ------------------------------------------------------ 120 [LOGO - ARTHUR ANDERSEN LLP] ADDENDUM 3 Financial History 121 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: BURKE, NC
--------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 --------------------------------------------------------------------------------------- REVENUES Primary - First Outlet $178,389 $2,140,668 $532,529 $2,130,116 $2,042,600 $2,040,107 Primary Commercial $710 $8,520 $2,130 $8,520 $8,520 $8,752 Expanded Tier $0 $0 $0 $0 $0 $0 AG Tier $0 $0 $0 $0 $0 $0 AJ Tier $0 $0 $0 $0 $0 $0 AL Tier $56,384 $676,608 $162,080 $648,320 $574,897 $406,998 Radio Services $2,883 $34,596 $8,871 $35,484 $39,156 $47,713 Pay Cable First Outlet $35,588 $427,056 $105,105 $420,420 $495,343 $583,725 Ala Carte $0 $0 $0 $0 $0 $0 New Product Tier 1 $81,726 $980,712 $246,567 $986,268 $892,061 $948,060 Mini Pay $754 $9,048 $2,349 $9,396 $10,339 $12,990 Pay Per View $7,256 $87,072 $27,881 $111,524 $103,952 $117,381 Primary Additional Outlet $0 $0 $0 $0 $0 $0 Remote Control $348 $4,176 $982 $3,928 $4,148 $4,049 Converter Rental $38,330 $459,960 $115,280 $461,120 $472,318 $488,851 Maintenance Contracts $5,705 $68,460 $17,374 $69,496 $68,243 $62,257 New Customer Pay Installs $0 $0 $0 $0 $0 $5 New Customer Basic Installs $992 $11,904 $5,602 $22,408 $17,625 $28,145 Installation Materials Charge $45 $540 $388 $1,552 $1,095 $400 Installs Non New Customers $3,314 $39,768 $11,168 $44,672 $68,262 $72,044 Classified Ads $157 $1,884 $1,780 $7,120 $4,631 $4,578 Ad Insertion Sales $16,008 $192,096 $44,506 $178,024 $130,958 $93,171 Ad Sales Other $0 $0 $0 $0 $0 $0 Production & Location Origination $297 $3,564 $773 $3,092 $773 $0 Other Late Charges $4,370 $52,440 $13,135 $52,540 $57,190 $63,319 Other Rent ($275) ($3,300) $275 $1,100 $2,695 $3,025 Other Copyright Pass Through $0 $0 $0 $0 $0 $0 Other Miscellaneous $0 $0 $0 $0 $5 $40 FCC User Fees Pass Through $429 $5,148 $1,288 $5,152 $5,259 $5,100 Other Programmers $35 $420 $15,970 $63,880 $16,482 $0 QVC Monthly Commission $943 $11,316 $4,453 $17,812 $16,730 $15,131 QVC Carriage Payment $0 $0 $3,138 $12,552 $12,150 $14,020 HSN Monthly Commission $240 $2,880 $683 $2,732 $9,597 $0 Guides $1,747 $20,964 $5,477 $21,908 $22,758 $26,072 -------- ---------- ---------- ---------- ---------- ---------- Total Revenues $436,375 $5,236,500 $1,329,784 $5,319,136 $5,077,787 $5,045,933
--------------- ----------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ----------------------------- --------------- REVENUES Primary - First Outlet $2,064,907 $2,092,282 $2,140,668 Primary Commercial $5,349 $4,275 $8,520 Expanded Tier $0 $0 $0 AG Tier $0 $471,849 $0 AJ Tier $0 $512,290 $0 Al Tier $159,998 $861 $676,608 Radio Services $58,903 $24,419 $34,596 Pay Cable First Outlet $589,479 $539,269 $427,056 Ala Carte $1,127,729 $292,192 $0 New Product Tier 1 $0 $0 $980,712 Mini Pay $18,230 $34,771 $9,048 Pay Per View $124,007 $99,986 $87,072 Primary Additional Outlet $0 $226,545 $0 Remote Control $4,158 $280,149 $4,176 Converter Rental $489,185 $119,585 $459,960 Maintenance Contracts $47,496 $0 $68,460 New Customer Pay Installs $5 $2,045 $0 New Customer Basic Installs $50,357 $63,122 $11,904 Installation Materials Charge $0 $0 $540 Installs Non New Customers $81,141 $91,838 $39,768 Classified Ads $6,560 $1,260 $1,884 Ad Insertion Sales $111,734 $54,651 $192,096 Ad Sales Other $0 $59 $0 Production & Location Origination $340 $1,013 $3,564 Other Late Charges $68,172 $51,488 $52,440 Other Rent $3,250 $1,300 $0 Other Copyright Pass Through $0 $54,187 $0 Other Miscellaneous $10 $1,770 $0 FCC User Fees Pass Through $120 $0 $5,148 Other Programmers $0 $0 $420 QVC Monthly Commission $19,432 $12,899 $11,316 QVC Carriage Payment $14,020 $14,018 $0 HSN Monthly Commission $0 $0 $2,880 Guides $35,416 $55,022 $20,964 ---------- ---------- ---------- Total Revenues $5,079,998 $5,103,145 $5,239,800
122 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: BURKE, NC
--------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 --------------------------------------------------------------------------------------- EXPENSES Technical Salary - Supervisor $0 $0 $0 $0 $0 $0 Technical Salary - Technician $10,403 $124,836 $31,038 $124,152 $117,953 $126,035 Technical Salary - Dispatcher $1,185 $14,220 $3,691 $14,764 $12,477 $14,695 Technical Salary - Installers $4,103 $49,236 $11,623 $46,492 $43,935 $38,074 Overtime/Standby $2,018 $24,216 $5,847 $23,388 $32,158 $47,599 Payroll Taxes $1,135 $13,620 $3,988 $15,952 $15,329 $17,992 Group Insurance $1,020 $12,240 $4,544 $18,176 $22,443 $18,424 Other Benefits ($7,906) ($94,872) ($6,214) ($24,856) $1,400 $11,514 Tech. Allocated Personnel Expense $1,451 $17,412 $3,504 $14,016 $17,104 $8,566 Tech. Allocated P/R Benefit $325 $3,900 $737 $2,948 $3,927 $2,080 Rent - Headend $0 $0 $0 $0 $0 $0 Rent - Poles and Ducts $14,014 $168,168 $42,042 $168,168 $133,373 $77,997 R & M Plant $0 $0 $15 $60 $445 $1,336 R & M Other $2,847 $34,164 $5,233 $20,932 $11,194 $3,062 Material and Reconnect $1,758 $21,096 $6,625 $26,500 $18,197 $8,006 Vehicle - Gas & Oil $3,569 $42,828 $7,866 $31,464 $21,596 $23,575 Vehicle - Service $726 $8,712 $2,182 $8,728 $8,676 $9,952 T & E System Travel $0 $0 $0 $0 $127 $222 T & E System Non-Travel $0 $0 $0 $0 $0 $0 Dues & Subscriptions $0 $0 $143 $572 $1,408 $1,659 Education $0 $0 $0 $0 $0 $223 System Power Costs $5,632 $67,584 $17,453 $69,812 $67,968 $64,859 Recruiting $0 $0 $0 $0 $50 $44 Loss on Converters $58 $696 $174 $696 $696 $1,200 Property Taxes ($6,569) ($78,828) ($329) ($1,316) $24,952 $35,328 Uniforms $1,063 $12,756 $1,847 $7,388 $5,735 $4,217 Small Tool and Safety $0 $0 $58 $232 $684 $1,131 Capital Labor & OH Construction ($7,386) ($88,632) ($27,202) ($108,808) ($185,451) ($99,477) Capital Labor & OH Customer ($644) ($7,728) ($2,958) ($11,832) ($42,463) ($43,123) Production & L.O. Personnel Costs $0 $0 $0 $0 $0 $0 Production & L.O. Other Expenses $0 $0 $0 $0 $0 $0 Ad Sales Payroll Taxes $0 $0 $0 $0 $19 $346 Ad Sales Group Insurance $0 $0 $0 $0 $0 ($142) Ad Sales Alloc. Personnel Expense $1,264 $15,168 $3,523 $14,092 $14,251 $12,975 Ad Sales Alloc. P/R Benefit $437 $5,244 $1,407 $5,628 $5,660 $4,348 Employee Commissions $0 $0 $0 $0 $226 $3,941 Other Ad Sale Expenses $1,271 $15,252 $4,130 $16,520 $15,287 $16,625
--------------- ----------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ----------------------------- --------------- EXPENSES Technical Salary - Supervisor $31,691 $30,472 $0 Technical Salary - Technician $129,889 $124,671 $124,836 Technical Salary - Dispatcher $14,150 $13,374 $14,220 Technical Salary - Installers $39,774 $45,100 $49,236 Overtime/Standby $29,759 $26,787 $24,216 Payroll Taxes $22,200 $22,756 $13,620 Group Insurance $11,796 $28,523 $12,240 Other Benefits $16,443 $16,248 $0 Tech. Allocated Personnel Expense $0 $0 $17,412 Tech. Allocated P/R Benefit $0 $0 $3,900 Rent - Headend $0 $0 $0 Rent - Poles and Ducts $75,962 $69,918 $168,168 R & M Plant $1,879 $292 $0 R & M Other $4,274 $2,556 $34,164 Material and Reconnect $5,436 $3,000 $21,096 Vehicle - Gas & Oil $19,603 $19,713 $42,828 Vehicle - Service $11,954 $6,720 $8,712 T & E System Travel $1,150 $2,138 $0 T & E System Non-Travel $0 $194 $0 Dues & Subscriptions $1,148 $1,913 $0 Education $0 $217 $0 System Power Costs $67,552 $67,490 $67,584 Recruiting $149 $0 $0 Loss on Converters $1,200 $1,200 $696 Property Taxes $48,689 $45,600 $25,000 Uniforms $4,481 $4,238 $12,756 Small Tool and Safety $1,665 $1,342 $0 Capital Labor & OH Construction ($50,080) ($60,659) $0 Capital Labor & OH Customer ($55,017) ($43,436) $0 Production & L.O. Personnel Costs $17,224 $0 $0 Production & L.O. Other Expenses $911 $1,719 $0 Ad Sales Payroll Taxes $2,281 $2,760 $0 Ad Sales Group Insurance $484 $4,863 $0 Ad Sales Alloc. Personnel Expense $13,444 $7,918 $15,168 Ad Sales Alloc. P/R Benefit $4,844 $2,736 $5,244 Employee Commissions $28,252 $12,134 $0 Other Ad Sale Expenses $21,875 $31,647 $15,252
123 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: BURKE, NC
--------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 --------------------------------------------------------------------------------------- Marketing Salary & Benefits $0 $0 $0 $0 $0 $0 Marketing Employee Commissions $441 $5,292 $711 $2,844 $844 $221 Marketing Expenses $6,514 $78,168 $5,421 $21,684 $36,286 $46,009 Dues and Subscriptions $41 $492 $131 $524 $331 $1,333 Pay Per View Expenses $1,259 $15,108 $4,552 $18,208 $20,113 $24,242 Video Game Expenses $0 $0 $0 $0 $0 $0 Miscellaneous Marketing Expenses $3,240 $38,880 $7,322 $29,288 $12,144 $6,649 G & A Salary - Supervisor $0 $0 $0 $0 $0 $23,366 G & A Salary - CSR $6,917 $83,004 $20,771 $83,084 $84,179 $69,180 G & A Overtime/Standby $538 $6,456 $1,217 $4,868 $8,984 $5,390 G & A Payroll Taxes $530 $6,360 $1,768 $7,072 $8,051 $8,451 G & A Group Insurance $472 $5,664 $2,621 $10,484 $13,489 $15,133 G & A Other Benefits ($906) ($10,872) ($2,718) ($10,872) ($10,872) ($2,489) Contract Labor $0 $0 $48 $192 $3,648 $224 G & A Allocated Personnel Expense $3,596 $43,152 $11,181 $44,724 $40,231 $15,263 G & A Allocated P/R Benefit $1,882 $22,584 $3,690 $14,760 $10,148 $3,400 Rent - Office $0 $0 $0 $0 $0 $0 R & M - Office $618 $7,416 $1,760 $7,040 $8,365 $6,080 Office Supplies $467 $5,604 $1,287 $5,148 $6,257 $5,979 Xerox & Printing $89 $1,068 $574 $2,296 $3,080 $1,938 Vehicle - Gas & Oil $0 $0 $36 $144 $208 $128 T & E System Travel $0 $0 $146 $584 $921 $373 T & E System Non-Travel $0 $0 $17 $68 $400 $13 Dues and Subscriptions $148 $1,776 $314 $1,256 $384 $635 Conventions - Travel $0 $0 $0 $0 $198 $13 Education $7 $84 $6 $24 $635 $2,254 Recruiting $0 $0 $0 $0 $27 $0 Insurance $7,511 $90,132 $14,973 $59,892 $113,877 $90,917 Legal $450 $5,400 $4,850 $19,400 $10,983 $8,858 Audit & Taxes $762 $9,144 $2,285 $9,140 $11,406 $15,709 Association - Dues $305 $3,660 $917 $3,668 $3,803 $4,691 Association - Lobbying $68 $816 $203 $812 $837 $886 Political Contribution $0 $0 $0 $0 $0 $0 Donations/Public Relations $261 $3,132 $499 $1,996 $1,186 $4,291 Customer Billing $4,896 $58,752 $15,069 $60,276 $62,072 $66,402 Postage & Messengers $3,995 $47,940 $12,592 $50,368 $52,083 $50,460 Utilities $357 $4,284 $1,187 $4,748 $5,901 $5,960 Telephone $1,705 $20,460 $4,073 $16,292 $16,787 $16,187 Tax & Licenses $94 $1,128 $303 $1,212 $1,838 $392
--------------- ----------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ----------------------------- --------------- Marketing Salary & Benefits $0 $29 $0 Marketing Employee Commissions $2,619 $3,878 $5,292 Marketing Expenses $80,112 $38,090 $78,168 Dues and Subscriptions $573 $2,575 $492 Pay Per View Expenses $22,329 $15,732 $15,108 Video Game Expenses $0 $0 $0 Miscellaneous Marketing Expenses $5,592 $6,250 $38,880 G & A Salary - Supervisor $67,016 $64,061 $0 G & A Salary - CSR $63,316 $57,121 $83,004 G & A Overtime/Standby $5,032 $4,570 $6,456 G & A Payroll Taxes $12,962 $12,545 $6,360 G & A Group Insurance $11,280 $26,291 $5,664 G & A Other Benefits $3,057 $27,720 ($10,872) Contract Labor $0 $0 $0 G & A Allocated Personnel Expense ($19,531) $0 $43,152 G & A Allocated P/R Benefit ($2,469) $0 $22,584 Rent - Office $0 $4,208 $0 R & M - Office $4,067 $5,858 $7,416 Office Supplies $6,935 $5,235 $5,604 Xerox & Printing $3,027 $3,855 $1,068 Vehicle - Gas & Oil $718 $524 $0 T & E System Travel $5,040 $801 $0 T & E System Non-Travel $0 $1,099 $0 Dues and Subscriptions $687 $508 $1,776 Conventions - Travel $75 $1,452 $0 Education $1,782 $715 $84 Recruiting $95 $0 $0 Insurance $95,757 $80,960 $90,132 Legal $9,400 $6,400 $5,400 Audit & Taxes $25,084 $31,758 $9,144 Association - Dues $5,375 $5,804 $3,660 Association - Lobbying $920 $0 $816 Political Contribution $100 $29 $0 Donations/Public Relations $4,826 $3,900 $3,132 Customer Billing $69,564 $66,873 $58,752 Postage & Messengers $52,996 $49,570 $47,940 Utilities $7,664 $6,535 $4,284 Telephone $16,972 $17,628 $20,460 Tax & Licenses $263 $1,169 $1,128
124 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: BURKE, NC
--------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 --------------------------------------------------------------------------------------- FCC User Fees $473 $5,676 $1,417 $5,668 $5,904 $5,491 Reregulation Costs $4 $48 $3,505 $14,020 $9,886 $16,240 CATV Franchise $6,894 $82,728 $15,692 $62,768 $45,484 $69,124 Copyright Fees $14,819 $177,828 $33,726 $134,904 $120,035 $91,053 BMI License Fees $0 $0 ($567) ($2,268) $3,917 $0 ASCAP License Fees $649 $7,788 $1,948 $7,792 $5,009 $0 Bad Debt Expense $4,368 $52,416 $8,625 $34,500 $54,212 $68,861 Cap. Labor & OH Other ($186) ($2,232) ($745) ($2,980) ($9,058) ($13,263) G & A Miscellaneous Expense $602 $7,224 $1,723 $6,892 $2,501 $2,321 Primary Satellite Fees $44,245 $530,940 $133,476 $533,904 $533,833 $497,181 Program Guides $1,360 $16,320 $5,860 $23,440 $21,264 $20,904 Pay TV Fees $19,041 $228,492 $50,929 $203,716 $273,126 $370,035 Pay Per View Fees $4,557 $54,684 $16,038 $64,152 $59,250 $54,746 -------- ---------- -------- ---------- ---------- ---------- Total Expenses $174,857 $2,098,284 $510,400 $2,041,600 $2,023,543 $2,094,514 Operating Income $261,518 $3,138,216 $819,384 $3,277,536 $3,054,244 $2,951,419 Operating Margin 59.93% 59.93% 61.62% 61.62% 60.15% 58.49%
--------------- ----------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ----------------------------- --------------- FCC User Fees $4,164 $0 $5,676 Reregulation Costs $17,935 $13,149 $48 CATV Franchise $73,527 $106,468 $82,728 Copyright Fees $40,746 $144,292 $177,828 BMI License Fees $0 $0 $0 ASCAP License Fees $0 $0 $7,788 Bad Debt Expense $72,445 $84,451 $52,416 Cap. Labor & OH Other ($16,753) ($14,562) $0 G & A Miscellaneous Expense $3,230 $2,921 $7,224 Primary Satellite Fees $436,931 $457,835 $530,940 Program Guides $22,404 $23,984 $16,320 Pay TV Fees $381,017 $354,187 $228,492 Pay Per View Fees $68,247 $60,329 $54,684 ---------- ---------- ---------- Total Expenses $2,192,190 $2,280,941 $2,395,576 Operating Income $2,887,808 $2,822,204 $2,844,224 Operating Margin 56.85% 55.30% 54.28%
125 SYSTEM LOCATION: BURKE, NC
------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 ------------------------------------------------------------------------- REVENUES Primary - First Outlet $2,130,116 $2,042,600 $2,040,107 $2,064,907 $2,092,282 Primary Commercial $8,520 $8,520 $8,752 $5,349 $4,275 Expanded Tier $0 $0 $0 $0 $0 AG Tier $0 $0 $0 $0 $471,849 AJ Tier $0 $0 $0 $0 $512,290 AL Tier $648,320 $574,897 $406,998 $159,998 $861 Radio Services $35,484 $39,156 $47,713 $58,903 $24,419 Pay Cable First Outlet $420,420 $495,343 $583,725 $589,479 $539,269 Ala Carte $0 $0 $0 $1,127,729 $292,192 New Product Tier 1 $986,268 $892,061 $948,060 $0 $0 Mini Pay $9,396 $10,339 $12,990 $18,230 $34,771 Pay Per View $111,524 $103,952 $117,381 $124,007 $99,986 Primary Additional Outlet $0 $0 $0 $0 $226,545 Remote Control $3,928 $4,148 $4,049 $4,158 $280,149 Converter Rental $461,120 $472,318 $488,851 $489,185 $119,585 Maintenance Contracts $69,496 $68,243 $62,257 $47,496 $0 New Customer Pay Installs $0 $0 $5 $5 $2,045 New Customer Basic Installs $22,408 $17,625 $28,145 $50,357 $63,122 Installation Materials Charge $1,552 $1,095 $400 $0 $0 Installs Non New Customers $44,672 $68,262 $72,044 $81,141 $91,838 Classified Ads $7,120 $4,631 $4,578 $6,560 $1,260 Ad Insertion Sales $178,024 $130,958 $93,171 $111,734 $54,651 Ad Sales Other $0 $0 $0 $0 $59 Production & Location Origination $3,092 $773 $0 $340 $1,013 Other Late Charges $52,540 $57,190 $63,319 $68,172 $51,488 Other Rent $1,100 $2,695 $3,025 $3,250 $1,300 Other Copyright Pass Through $0 $0 $0 $0 $54,187 Other Miscellaneous $0 $5 $40 $10 $1,770 FCC User Fees Pass Through $5,152 $5,259 $5,100 $120 $0 Other Programmers $63,880 $16,482 $0 $0 $0 QVC Monthly Commission $17,812 $16,730 $15,131 $19,432 $12,899 QVC Carriage Payment $12,552 $12,150 $14,020 $14,020 $14,018 HSN Monthly Commission $2,732 $9,597 $0 $0 $0 Guides $21,908 $22,758 $26,072 $35,416 $55,022 ---------- ---------- ---------- ---------- ---------- Total Revenues $5,319,136 $5,077,787 $5,045,933 $5,079,998 $5,103,145
126 SYSTEM LOCATION: BURKE, NC
------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 ------------------------------------------------------------------------- EXPENSES Technical Salary - Supervisor $0 $0 $0 $31,691 $30,472 Technical Salary - Technician $124,152 $117,953 $126,035 $129,889 $124,671 Technical Salary - Dispatcher $14,764 $12,477 $14,695 $14,150 $13,374 Technical Salary - Installers $46,492 $43,935 $38,074 $39,774 $45,100 Overtime/Standby $23,388 $32,158 $47,599 $29,759 $26,787 Payroll Taxes $15,952 $15,329 $17,992 $22,200 $22,756 Group Insurance $18,176 $22,443 $18,424 $11,796 $28,523 Other Benefits $0 $1,400 $11,514 $16,443 $16,248 Tech. Allocated Personnel Expense $14,016 $17,104 $8,566 $0 $0 Tech. Allocated P/R Benefit $2,948 $3,927 $2,080 $0 $0 Rent - Headend $0 $0 $0 $0 $0 Rent - Poles and Ducts $168,168 $133,373 $77,997 $75,962 $69,918 R & M Plant $60 $445 $1,336 $1,879 $292 R & M Other $20,932 $11,194 $3,062 $4,274 $2,556 Material and Reconnect $26,500 $18,197 $8,006 $5,436 $3,000 Vehicle - Gas & Oil $31,464 $21,596 $23,575 $19,603 $19,713 Vehicle - Service $8,728 $8,676 $9,952 $11,954 $6,720 T & E System Travel $0 $127 $222 $1,150 $2,138 T & E System Non-Travel $0 $0 $0 $0 $194 Dues & Subscriptions $572 $1,408 $1,659 $1,148 $1,913 Education $0 $0 $223 $0 $217 System Power Costs $69,812 $67,968 $64,859 $67,552 $67,490 Recruiting $0 $50 $44 $149 $0 Loss on Converters $696 $696 $1,200 $1,200 $1,200 Property Taxes $25,000 $24,952 $35,328 $48,689 $45,600 Uniforms $7,388 $5,735 $4,217 $4,481 $4,238 Small Tool and Safety $232 $684 $1,131 $1,665 $1,342 Capital Labor & OH Construction $0 $0 $0 $0 $0 Capital Labor & OH Customer $0 $0 $0 $0 $0 Production & L.O. Personnel Costs $0 $0 $0 $17,224 $0 Production & L.O. Other Expenses $0 $0 $0 $911 $1,719 Ad Sales Payroll Taxes $0 $19 $346 $2,281 $2,760 Ad Sales Group Insurance $0 $0 $0 $484 $4,863 Ad Sales Alloc. Personnel Expense $14,092 $14,251 $12,975 $13,444 $7,918 Ad Sales Alloc. P/R Benefit $5,628 $5,660 $4,348 $4,844 $2,736 Employee Commissions $0 $226 $3,941 $28,252 $12,134 Other Ad Sale Expenses $16,520 $15,287 $16,625 $21,875 $31,647
127 SYSTEM LOCATION: BURKE, NC
------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 ------------------------------------------------------------------------- Marketing Salary & Benefits $0 $0 $0 $0 $29 Marketing Employee Commissions $2,844 $844 $221 $2,619 $3,878 Marketing Expenses $21,684 $36,286 $46,009 $80,112 $38,090 Dues and Subscriptions $524 $331 $1,333 $573 $2,575 Pay Per View Expenses $18,208 $20,113 $24,242 $22,329 $15,732 Video Game Expenses $0 $0 $0 $0 $0 Miscellaneous Marketing Expenses $29,288 $12,144 $6,649 $5,592 $6,250 G & A Salary - Supervisor $0 $0 $23,366 $67,016 $64,061 G & A Salary - CSR $83,084 $84,179 $69,180 $63,316 $57,121 G & A Overtime/Standby $4,868 $8,984 $5,390 $5,032 $4,570 G & A Payroll Taxes $7,072 $8,051 $8,451 $12,962 $12,545 G & A Group Insurance $10,484 $13,489 $15,133 $11,280 $26,291 G & A Other Benefits ($10,872) ($10,872) ($2,489) $3,057 $27,720 Contract Labor $192 $3,648 $224 $0 $0 G & A Allocated Personnel Expense $44,724 $40,231 $15,263 ($19,531) $0 G & A Allocated P/R Benefit $14,760 $10,148 $3,400 ($2,469) $0 Rent - Office $0 $0 $0 $0 $4,208 R & M - Office $7,040 $8,365 $6,080 $4,067 $5,858 Office Supplies $5,148 $6,257 $5,979 $6,935 $5,235 Xerox & Printing $2,296 $3,080 $1,938 $3,027 $3,855 Vehicle - Gas & Oil $144 $208 $128 $718 $524 T & E System Travel $584 $921 $373 $5,040 $801 T & E System Non-Travel $68 $400 $13 $0 $1,099 Dues and Subscriptions $1,256 $384 $635 $687 $508 Conventions - Travel $0 $198 $13 $75 $1,452 Education $24 $635 $2,254 $1,782 $715 Recruiting $0 $27 $0 $95 $0 Insurance $59,892 $113,877 $90,917 $95,757 $80,960 Legal $19,400 $10,983 $8,858 $9,400 $6,400 Audit & Taxes $9,140 $11,406 $15,709 $25,084 $31,758 Association - Dues $3,668 $3,803 $4,691 $5,375 $5,804 Association - Lobbying $812 $837 $886 $920 $0 Political Contribution $0 $0 $0 $100 $29 Donations/Public Relations $1,996 $1,186 $4,291 $4,826 $3,900 Customer Billing $60,276 $62,072 $66,402 $69,564 $66,873 Postage & Messengers $50,368 $52,083 $50,460 $52,996 $49,570 Utilities $4,748 $5,901 $5,960 $7,664 $6,535 Telephone $16,292 $16,787 $16,187 $16,972 $17,628 Tax & Licenses $1,212 $1,838 $392 $263 $1,169
128 SYSTEM LOCATION: BURKE, NC
------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 ------------------------------------------------------------------------- FCC User Fees $5,668 $5,904 $5,491 $4,164 $0 Reregulation Costs $14,020 $9,886 $16,240 $17,935 $13,149 CATV Franchise $62,768 $45,484 $69,124 $73,527 $106,468 Copyright Fees $134,904 $120,035 $91,053 $40,746 $144,292 BMI License Fees $0 $3,917 $0 $0 $0 ASCAP License Fees $7,792 $5,009 $0 $0 $0 Bad Debt Expense $34,500 $54,212 $68,861 $72,445 $84,451 Cap. Labor & OH Other $0 $0 $0 $0 $0 G & A Miscellaneous Expense $6,892 $2,501 $2,321 $3,230 $2,921 Primary Satellite Fees $533,904 $533,833 $497,181 $436,931 $457,835 Program Guides $23,440 $21,264 $20,904 $22,404 $23,984 Pay TV Fees $203,716 $273,126 $370,035 $381,017 $354,187 Pay Per View Fees $64,152 $59,250 $54,746 $68,247 $60,329 -------- -------- -------- -------- ------- Total Expenses $2,218,660 $2,260,515 $2,250,519 $2,314,040 $2,399,598 Operating Income $3,100,476 $2,817,272 $2,795,414 $2,765,958 $2,703,547 Operating Margin 58.29% 55.48% 55.40% 54.45% 52.98%
129 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: CALIFORNIA CITY
---------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 ---------------------------------------------------------------------------------------- REVENUES Primary First Outlet $30,304 $363,648 $90,303 $361,212 $351,579 $361,745 Primary Commercial $1,082 $12,984 $3,246 $12,984 $12,984 $5,244 Expanded Tier $0 $0 $0 $0 $0 $0 AG Tier $0 $0 $0 $0 $0 $0 AL Tier $10,926 $131,112 $32,871 $131,484 $136,376 $145,695 Radio Services $501 $6,012 $1,509 $6,036 $6,423 $7,683 Pay Cable First Outlet $6,553 $78,636 $19,861 $79,444 $90,571 $103,443 Pay Cable Additional Outlet $273 $3,276 $827 $3,308 $3,889 $4,328 Ala Carte $0 $0 $0 $0 $0 $0 New Product Tier 1 $5,066 $60,792 $15,171 $60,684 $51,265 $40,814 Primary Additional Outlet $0 $0 $0 $0 $0 $0 Remote Control $272 $3,264 $817 $3,268 $3,515 $3,622 Converter Rental $4,155 $49,860 $12,570 $50,280 $54,098 $55,694 Maintenance Contracts $355 $4,260 $1,099 $4,396 $4,679 $4,286 New Customer Basic Installs $0 $0 $0 $0 $2,425 $14,401 Installation Materials Charge $7 $84 $7 $28 $12 $249 Installs - Non New Customers $1,445 $17,340 $3,730 $14,920 $14,443 $10,272 Guides $67 $804 $247 $988 $752 $0 Other Late Charges $575 $6,900 $2,065 $8,260 $8,695 $7,930 Other Miscellaneous $0 $0 $0 $0 $0 $0 FCC User Fees Pass Through $79 $948 $241 $964 $991 $985 Ad Sales Other $0 $0 $0 $0 $0 $0 Other Programmers $6 $72 $2,988 $11,952 $3,432 $0 QVC Monthly Commission $224 $2,688 $650 $2,600 $3,064 $6,129 HSN Monthly Commission $170 $2,040 $486 $1,944 $2,222 $1,933 HSN Carriage Payment $152 $1,824 $457 $1,828 $1,829 $1,829 ------- -------- -------- -------- -------- -------- Total Revenues $62,212 $746,544 $189,145 $756,580 $753,244 $776,282 EXPENSES Technical Allocated Personnel Expense $858 $10,296 $3,883 $15,532 $7,650 $10,773 Technical Allocated P/R Benefit $268 $3,216 $1,189 $4,756 $7,448 $6,757 Technical Allocated Department Expense $335 $4,020 $1,398 $5,592 $14,934 $22,749 Rent - Headend $494 $5,928 $2,928 $11,712 $5,928 $5,800 Rent - Poles and Ducts $1,169 $14,028 $3,401 $13,604 $10,495 $8,000 R & M Plant $0 $0 $0 $0 $1,735 $0
-------------- ------------------------------ ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ------------------------------ --------------- REVENUES Primary First Outlet $417,802 $349,297 $363,648 Primary Commercial $5,244 $7,988 $12,984 Expanded Tier $0 $0 $0 AG Tier $0 $19,353 $0 AL Tier $80,045 ($27) $131,112 Radio Services $9,082 $3,756 $6,012 Pay Cable First Outlet $91,449 $83,463 $78,636 Pay Cable Additional Outlet $4,464 $4,066 $3,276 Ala Carte $35,580 $65,132 $0 New Product Tier 1 $0 $0 $60,792 Primary Additional Outlet $0 $21,440 $0 Remote Control $3,419 $17,133 $3,264 Converter Rental $57,579 $20,434 $49,860 Maintenance Contracts $1,788 $0 $4,260 New Customer Basic Installs $19,922 $11,333 $0 Installation Materials Charge $0 $0 $84 Installs - Non New Customers $6,687 $7,047 $17,340 Guides $0 $3 $804 Other Late Charges $7,110 $7,900 $6,900 Other Miscellaneous $0 $47 $0 FCC User Fees Pass Through $12 $0 $948 Ad Sales Other $0 $9 $0 Other Programmers $0 $0 $72 QVC Monthly Commission $0 $0 $2,688 HSN Monthly Commission $0 $0 $2,040 HSN Carriage Payment $0 $0 $1,824 -------- -------- -------- Total Revenues $740,183 $618,374 $746,544 EXPENSES Technical Allocated Personnel Expense $37,783 $35,695 $10,296 Technical Allocated P/R Benefit $9,279 $9,378 $3,216 Technical Allocated Department Expense $12,079 $7,598 $4,020 Rent - Headend $5,800 $2,366 $5,928 Rent - Poles and Ducts $6,775 $5,794 $14,028 R & M Plant $0 $0 $0
130 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: CALIFORNIA CITY
---------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 ---------------------------------------------------------------------------------------- R & M Other $175 $2,100 $174 $696 $829 $1,644 Material and Reconnect $1,011 $12,132 $2,137 $8,548 $10,030 $6,546 Vehicle - Gas & Oil $1 $12 $21 $84 $41 $68 Vehicle - Service $0 $0 $2 $8 $6 $159 T & E System Travel $0 $0 $0 $0 $39 $4 T & E System Non-Travel $58 $696 $258 $1,032 $321 $0 System Power Costs $1,256 $15,072 $3,590 $14,360 $14,559 $15,088 Property Taxes $1,113 $13,356 $3,340 $13,360 $13,980 $13,274 Small Tool and Safety $0 $0 $0 $0 $0 $359 Capital Labor & OH Construction ($1,126) ($13,512) ($7,098) ($28,392) ($15,030) ($15,418) Capital Labor & OH Customer $0 $0 $0 $0 $0 ($3,091) Production & LO Alloc. Personnel Benefit $0 $0 $0 $0 $76 $0 Production & LO Alloc. P/R Benefit $0 $0 $0 $0 $17 $0 Ad Sales $0 $0 $0 $0 $0 $0 Marketing Employee Commissions $0 $0 $0 $0 $0 $0 Marketing Expenses $838 $10,056 $1,528 $6,112 $5,131 $10,013 Dues and Subscriptions $8 $96 $26 $104 $91 $201 Pay Per View Expenses $11 $132 $35 $140 $136 $38 Miscellaneous Marketing Expenses ($210) ($2,520) $60 $240 $833 $1,425 G & A Allocated Personnel Expense $478 $5,736 $1,432 $5,728 $4,961 $9,255 G & A Allocated P/R Expense $532 $6,384 $802 $3,208 $2,355 $2,086 G & A Allocated Department Expense $1,221 $14,652 $3,844 $15,376 $19,852 $25,265 R & M - Office $0 $0 $2 $8 $319 $444 Office Supplies $0 $0 $0 $0 $99 $93 Xerox & Printing $0 $0 $0 $0 $0 $375 T & E System Travel $0 $0 $0 $0 $0 $70 T & E System Non-Travel $0 $0 $28 $112 $118 $0 Dues and Subscriptions $0 $0 $66 $264 $429 $189 Conventions - Travel $0 $0 $0 $0 $0 $0 Insurance $801 $9,612 $2,528 $10,112 $9,976 $9,381 Legal $131 $1,572 $393 $1,572 $1,572 $1,301 Audit & Taxes $762 $9,144 $2,285 $9,140 $14,539 $2,764 Association - Dues $115 $1,380 $213 $852 $804 $1,174 Association - Lobbying $11 $132 $33 $132 $158 $228 Political Contribution $63 $756 $62 $248 $125 $425 Donations/Public Relations ($24) ($288) $23 $92 $276 $274 Customer Billing $1,716 $20,592 $5,220 $20,880 $19,645 $21,873 Postage & Messengers $766 $9,192 $2,163 $8,652 $8,451 $9,423 Telephone $0 $0 $1 $4 $4 $5
--------------- ------------------------------ ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ------------------------------ --------------- R & M Other $845 $3,313 $2,100 Material and Reconnect $2,511 $0 $12,132 Vehicle - Gas & Oil $68 $96 $12 Vehicle - Service $151 $73 $0 T & E System Travel $0 $0 $0 T & E System Non-Travel $0 $0 $696 System Power Costs $11,654 $10,888 $15,072 Property Taxes $9,659 $6,980 $13,356 Small Tool and Safety $0 $102 $0 Capital Labor & OH Construction ($30,323) ($29,683) $0 Capital Labor & OH Customer ($13,116) ($16,816) $0 Production & LO Alloc. Personnel Benefit $0 $0 $0 Production & LO Alloc. P/R Benefit $0 $0 $0 Ad Sales $0 $0 $0 Marketing Employee Commissions $328 $0 $0 Marketing Expenses $12,919 ($772) $10,056 Dues and Subscriptions $144 $365 $96 Pay Per View Expenses $0 $0 $132 Miscellaneous Marketing Expenses $2,453 $5,716 $1,000 G & A Allocated Personnel Expense $22,790 $20,988 $5,736 G & A Allocated P/R Expense $7,705 $2,998 $6,384 G & A Allocated Department Expense $21,013 $23,533 $14,652 R & M - Office $154 $99 $0 Office Supplies $111 $378 $0 Xerox & Printing $0 $412 $0 T & E System Travel $10 $0 $0 T & E System Non-Travel $0 $40 $0 Dues and Subscriptions $123 $201 $0 Conventions - Travel $0 $0 $0 Insurance $8,071 $6,446 $9,612 Legal $1,573 $1,260 $1,572 Audit & Taxes $4,330 $1,079 $9,144 Association - Dues $1,234 $906 $1,380 Association - Lobbying $153 $0 $132 Political Contribution $278 $0 $756 Donations/Public Relations $227 $2,996 $0 Customer Billing $20,697 $19,485 $20,592 Postage & Messengers $8,187 $6,836 $9,192 Telephone $357 $749 $0
131 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: CALIFORNIA CITY
---------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 ---------------------------------------------------------------------------------------- Tax & Licenses $0 $0 $0 $0 $340 $20 FCC User Fees $85 $1,020 $159 $636 $1,112 $1,007 Reregulation Costs $0 $0 $1,032 $4,128 $1,674 $520 CATV Franchise $30 $360 $208 $832 $1,596 $15,249 Copyright Fees $174 $2,088 $515 $2,060 $2,477 $1,630 ASCAP License Fees $103 $1,236 $309 $1,236 $795 $0 Bad Debt Expense $573 $6,876 ($2,648) ($10,592) $2,526 $10,706 Cap. Labor & OH Other $0 $0 ($399) ($1,596) ($1,197) ($12,534) G & A Miscellaneous Expense $48 $576 $67 $268 $177 $171 Primary Satellite Fees $7,979 $95,748 $24,127 $96,508 $97,000 $110,042 Program Guides $254 $3,048 $580 $2,320 $2,199 $2,769 Pay TV Fees $2,914 $34,968 $7,489 $29,956 $46,657 $64,295 ------- -------- -------- -------- -------- -------- Total Expenses $24,991 $299,892 $67,406 $269,624 $318,288 $362,889 Operating Income $37,221 $446,652 $121,739 $486,956 $434,956 $413,393 Operating Margin 59.83% 59.83% 64.36% 64.36% 57.74% 53.25%
-------------- ------------------------------ ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ------------------------------ --------------- Tax & Licenses $20 $111 $0 FCC User Fees $739 $0 $1,020 Reregulation Costs $2,932 $5,782 $0 CATV Franchise $14,627 $12,422 $360 Copyright Fees $3,365 $2,502 $2,088 ASCAP License Fees $0 $0 $1,236 Bad Debt Expense $6,658 $21,430 $6,876 Cap. Labor & OH Other ($12,204) ($33,161) $0 G & A Miscellaneous Expense $451 $130 $576 Primary Satellite Fees $100,086 $80,667 $95,748 Program Guides $2,618 $2,413 $3,048 Pay TV Fees $61,038 $52,887 $34,968 -------- -------- -------- Total Expenses $346,352 $274,682 $317,212 Operating Income $393,831 $343,692 $429,332 Operating Margin 53.21% 55.58% 57.51%
132 SYSTEM LOCATION: CALIFORNIA CITY
--------------------------------------------- ----------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 --------------------------------------------------------------------------- REVENUES Primary First Outlet $361,212 $351,579 $361,745 $417,802 $349,297 Primary Commercial $12,984 $12,984 $5,244 $5,244 $7,988 Expanded Tier $0 $0 $0 $0 $0 AG Tier $0 $0 $0 $0 $19,353 AL Tier $131,484 $136,376 $145,695 $80,045 ($27) Radio Services $6,036 $6,423 $7,683 $9,082 $3,756 Pay Cable First Outlet $79,444 $90,571 $103,443 $91,449 $83,463 Pay Cable Additional Outlet $3,308 $3,889 $4,328 $4,464 $4,066 Ala Carte $0 $0 $0 $35,580 $65,132 New Product Tier 1 $60,684 $51,265 $40,814 $0 $0 Primary Additional Outlet $0 $0 $0 $0 $21,440 Remote Control $3,268 $3,515 $3,622 $3,419 $17,133 Converter Rental $50,280 $54,098 $55,694 $57,579 $20,434 Maintenance Contracts $4,396 $4,679 $4,286 $1,788 $0 New Customer Basic Installs $0 $2,425 $14,401 $19,922 $11,333 Installation Materials Charge $28 $12 $249 $0 $0 Installs - Non New Customers $14,920 $14,443 $10,272 $6,687 $7,047 Guides $988 $752 $0 $0 $3 Other Late Charges $8,260 $8,695 $7,930 $7,110 $7,900 Other Miscellaneous $0 $0 $0 $0 $47 FCC User Fees Pass Through $964 $991 $985 $12 $0 Ad Sales Other $0 $0 $0 $0 $9 Other Programmers $11,952 $3,432 $0 $0 $0 QVC Monthly Commission $2,600 $3,064 $6,129 $0 $0 HSN Monthly Commission $1,944 $2,222 $1,933 $0 $0 HSN Carriage Payment $1,828 $1,829 $1,829 $0 $0 -------- -------- -------- -------- -------- Total Revenues $756,580 $753,244 $776,282 $740,183 $618,374 EXPENSES Technical Allocated Personnel Expense $15,532 $7,650 $10,773 $37,783 $35,695 Technical Allocated P/R Benefit $4,756 $7,448 $6,757 $9,279 $9,378 Technical Allocated Department Expense $5,592 $14,934 $22,749 $12,079 $7,598 Rent - Headend $11,712 $5,928 $5,800 $5,800 $2,366 Rent - Poles and Ducts $13,604 $10,495 $8,000 $6,775 $5,794 R & M Plant $0 $1,735 $0 $0 $0
133 SYSTEM LOCATION: CALIFORNIA CITY
--------------------------------------------- ----------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 --------------------------------------------------------------------------- R & M Other $696 $829 $1,644 $845 $3,313 Material and Reconnect $8,548 $10,030 $6,546 $2,511 $0 Vehicle - Gas & Oil $84 $41 $68 $68 $96 Vehicle - Service $8 $6 $159 $151 $73 T & E System Travel $0 $39 $4 $0 $0 T & E System Non-Travel $1,032 $321 $0 $0 $0 System Power Costs $14,360 $14,559 $15,088 $11,654 $10,888 Property Taxes $13,360 $13,980 $13,274 $9,659 $6,980 Small Tool and Safety $0 $0 $359 $0 $102 Capital Labor & OH Construction $0 $0 $0 $0 $0 Capital Labor & OH Customer $0 $0 $0 $0 $0 Production & LO Alloc. Personnel Benefit $0 $76 $0 $0 $0 Production & LO Alloc. P/R Benefit $0 $17 $0 $0 $0 Ad Sales $0 $0 $0 $0 $0 Marketing Employee Commissions $0 $0 $0 $328 $0 Marketing Expenses $6,112 $5,131 $10,013 $12,919 $0 Dues and Subscriptions $104 $91 $201 $144 $365 Pay Per View Expenses $140 $136 $38 $0 $0 Miscellaneous Marketing Expenses $240 $833 $1,425 $2,453 $5,716 G & A Allocated Personnel Expense $5,728 $4,961 $9,255 $22,790 $20,988 G & A Allocated P/R Expense $3,208 $2,355 $2,086 $7,705 $2,998 G & A Allocated Department Expense $15,376 $19,852 $25,265 $21,013 $23,533 R & M - Office $8 $319 $444 $154 $99 Office Supplies $0 $99 $93 $111 $378 Xerox & Printing $0 $0 $375 $0 $412 T & E System Travel $0 $0 $70 $10 $0 T & E System Non-Travel $112 $118 $0 $0 $40 Dues and Subscriptions $264 $429 $189 $123 $201 Conventions - Travel $0 $0 $0 $0 $0 Insurance $10,112 $9,976 $9,381 $8,071 $6,446 Legal $1,572 $1,572 $1,301 $1,573 $1,260 Audit & Taxes $9,140 $14,539 $2,764 $4,330 $1,079 Association - Dues $852 $804 $1,174 $1,234 $906 Association - Lobbying $132 $158 $228 $153 $0 Political Contribution $248 $125 $425 $278 $0 Donations/Public Relations $92 $276 $274 $227 $2,996 Customer Billing $20,880 $19,645 $21,873 $20,697 $19,485 Postage & Messengers $8,652 $8,451 $9,423 $8,187 $6,836 Telephone $4 $4 $5 $357 $749
134 SYSTEM LOCATION: CALIFORNIA CITY
--------------------------------------------- ----------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 --------------------------------------------------------------------------- Tax & Licenses $0 $340 $20 $20 $111 FCC User Fees $636 $1,112 $1,007 $739 $0 Reregulation Costs $4,128 $1,674 $520 $2,932 $5,782 CATV Franchise $832 $1,596 $15,249 $14,627 $12,422 Copyright Fees $2,060 $2,477 $1,630 $3,365 $2,502 ASCAP License Fees $1,236 $795 $0 $0 $0 Bad Debt Expense $3,000 $2,526 $10,706 $6,658 $21,430 Cap. Labor & OH Other $0 $0 $0 $0 $0 G & A Miscellaneous Expense $268 $177 $171 $451 $130 Primary Satellite Fees $96,508 $97,000 $110,042 $100,086 $80,667 Program Guides $2,320 $2,199 $2,769 $2,618 $2,413 Pay TV Fees $29,956 $46,657 $64,295 $61,038 $52,887 -------- -------- -------- -------- -------- Total Expenses $313,204 $334,515 $393,932 $401,995 $355,114 Operating Income $443,376 $418,729 $382,350 $338,188 $263,260 Operating Margin 58.60% 55.59% 49.25% 45.69% 42.57%
135 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: CENTREVILLE, MD
---------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 ---------------------------------------------------------------------------------------- REVENUES Primary First Outlet $246,374 $2,956,488 $737,776 $2,951,104 $2,754,855 $2,478,829 Primary Commercial $7,571 $90,852 $22,580 $90,320 $79,007 $53,512 Expanded Tier $0 $0 $0 $0 $0 $0 AG Tier $0 $0 $0 $0 $0 $0 AJ Tier $0 $0 $0 $0 $0 $0 AL Tier $41,814 $501,768 $125,325 $501,300 $424,950 $340,506 Radio Services $2,088 $25,056 $6,408 $25,632 $28,104 $33,305 Pay Cable First Outlet $62,372 $748,464 $190,678 $762,712 $845,121 $931,201 Ala Carte $0 $0 $0 $0 $0 $0 New Product Tier 1 $63,453 $761,436 $192,101 $768,404 $580,639 $361,832 Commercial Pay $1,192 $14,304 $3,578 $14,312 $14,665 $13,779 Video $3,085 $37,020 $9,674 $38,696 $41,088 $5,414 Primary Additional Outlet $0 $0 $0 $0 $0 $0 Remote Control $462 $5,544 $1,391 $5,564 $5,704 $6,215 Converter Rental $3,666 $43,992 $11,197 $44,788 $34,794 $25,258 Maintenance Contracts $3,504 $42,048 $10,833 $43,332 $39,325 $31,186 New Customer Pay Installs $0 $0 $300 $1,200 $300 $0 New Customer Basic Installs $470 $5,640 $1,930 $7,720 $7,307 $15,003 Installation Materials Charge $0 $0 $0 $0 $8 $1 Installs - Non New Customers $2,020 $24,240 $9,258 $37,032 $47,807 $28,795 Other Late Charges $7,058 $84,696 $20,331 $81,324 $74,032 $64,609 Other Rent $1,922 $23,064 $5,758 $23,032 $23,455 $14,778 Other Franchise Pass Thru $9,090 $109,080 $27,707 $110,828 $104,885 $101,381 Other Miscellaneous $0 $0 $0 $0 $0 $25 FCC User Fees Pass Through $509 $6,108 $1,528 $6,112 $6,036 $5,454 Video Game Activation $0 $0 $0 $0 $0 $0 Other Programmers $42 $504 $18,419 $73,676 $24,709 $0 QVC Monthly Commission $1,133 $13,596 $3,642 $14,568 $13,209 $9,020 QVC Carriage Payment $0 $0 $5,478 $21,912 $31,486 $0 HSN Monthly Commission $1,601 $19,212 $5,407 $21,628 $22,193 $18,635 HSN Carriage Payment $173 $2,076 $519 $2,076 $2,076 $2,076 Ad Insertion Sales $13,313 $159,756 $35,084 $140,336 $122,640 $113,707 Ad Sales Other $0 $0 $0 $0 $0 $0 Interconnect Services $0 $0 $0 $0 $0 $0 Production & Local Origination $0 $0 $200 $800 $400 $675 Guides $1,851 $22,212 $5,254 $21,016 $13,842 $8,799 ------- -------- ------- -------- -------- ------- Total Revenues $474,763 $5,697,156 $1,452,356 $5,809,424 $5,342,637 $4,663,995
--------------- ----------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ----------------------------- --------------- REVENUES Primary First Outlet $2,377,380 $1,913,174 $2,956,488 Primary Commercial $38,888 $36,739 $90,852 Expanded Tier $0 $0 $0 AG Tier $0 $306,438 $0 AJ Tier $0 $177,195 $0 AL Tier $129,308 $0 $501,768 Radio Services $39,699 $12,573 $25,056 Pay Cable First Outlet $805,144 $805,207 $748,464 Ala Carte $290,512 $70,058 $0 New Product Tier 1 $0 $0 $761,436 Commercial Pay $13,779 $13,008 $14,304 Video $0 $0 $37,020 Primary Additional Outlet ($52) $125,547 $0 Remote Control $5,173 $16,434 $5,544 Converter Rental $25,948 $7,688 $43,992 Maintenance Contracts $18,646 $0 $42,048 New Customer Pay Installs $0 $240 $0 New Customer Basic Installs $20,729 $41,595 $5,640 Installation Materials Charge $0 Installs - Non New Customers $16,487 $16,692 $24,240 Other Late Charges $72,245 $67,845 $84,696 Other Rent $12,784 $2,780 $23,064 Other Franchise Pass Thru $95,659 $93,775 $109,080 Other Miscellaneous $0 $0 $0 FCC User Fees Pass Through $155 $0 $6,108 Video Game Activation $0 $0 $0 Other Programmers $0 $0 $504 QVC Monthly Commission $8,406 $9,676 $13,596 QVC Carriage Payment ($10,190) $10,190 $0 HSN Monthly Commission $0 $0 $19,212 HSN Carriage Payment $867 $0 $2,076 Ad Insertion Sales $83,674 $31,494 $159,756 Ad Sales Other $0 $49 $0 Interconnect Services $3,150 $0 $0 Production & Local Origination $0 $0 $0 Guides $8,841 $8,623 $22,212 ---------- ---------- ---------- Total Revenues $4,057,232 $3,767,020 $5,697,156
136 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: CENTREVILLE, MD
---------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 ---------------------------------------------------------------------------------------- EXPENSES Technical Salary - Supervisor $2,924 $35,088 $8,773 $35,092 $35,091 $33,746 Technical Salary - Technician $8,157 $97,884 $24,416 $97,664 $97,848 $94,041 Technical Salary - Dispatcher $0 $0 $1,259 $5,036 $9,221 $11,147 Technical Salary - Installers $1,962 $23,544 $4,302 $17,208 $20,736 $21,926 Overtime/Standby $5,097 $61,164 $12,764 $51,056 $50,078 $53,793 Payroll Taxes $1,339 $16,068 $4,311 $17,244 $19,034 $18,612 Group Insurance $3,581 $42,972 $6,089 $24,356 $20,855 $14,432 Other Benefits ($2,541) ($30,492) ($699) ($2,796) $7,590 $7,536 Rent - Headend $1,475 $17,700 $4,791 $19,164 $20,665 $19,894 Rent - Poles and Ducts $9,733 $116,796 $29,199 $116,796 $116,796 $107,707 R & M Plant $1,202 $14,424 $3,918 $15,672 $9,086 $4,383 R & M Other $1,391 $16,692 $2,582 $10,328 $13,569 $12,310 Material and Reconnect $3,951 $47,412 $10,000 $40,000 $35,973 $28,849 Vehicle - Gas & Oil $2,165 $25,980 $6,357 $25,428 $27,790 $25,169 Vehicle - Service $2,612 $31,344 $3,022 $12,088 $14,473 $12,420 T & E System Travel $0 $0 $0 $0 $38 $518 T & E System Non-Travel $0 $0 $0 $0 $0 $107 Dues & Subscriptions $331 $3,972 $668 $2,672 $3,532 $4,997 Education $0 $0 $0 $0 $109 $411 System Power Costs $7,760 $93,120 $27,322 $109,288 $96,548 $93,635 Recruiting $0 $0 $0 $0 $0 $399 Loss on Converters $100 $1,200 $300 $1,200 $1,200 $1,200 Property Taxes ($19,763) ($237,156) ($19,289) ($77,156) ($17,116) $504 Uniforms $180 $2,160 $825 $3,300 $3,475 $3,354 Small Tool and Safety $1,273 $15,276 $1,511 $6,044 $3,936 $4,635 Capital Labor & OH Construction ($15,198) ($182,376) ($38,708) ($154,832) ($143,194) ($103,364) Capital Labor & OH Customer ($15,006) ($180,072) ($24,400) ($97,600) ($52,954) ($24,007) Ad Sales Payroll Taxes $117 $1,404 $475 $1,900 $1,847 $1,584 Ad Sales Group Insurance $573 $6,876 $1,037 $4,148 $3,265 $3,956 Ad Sales Alloc. Personnel Benefit $1,484 $17,808 $4,137 $16,548 $16,021 $13,189 Ad Sales Alloc. P/R Benefit $513 $6,156 $1,653 $6,612 $6,364 $4,464 Employee Commissions $1,605 $19,260 $6,482 $25,928 $22,735 $18,879 Other Ad Sale Expenses $2,123 $25,476 $10,729 $42,916 $29,349 $22,107 Marketing Salary & Benefits ($1,211) ($14,532) ($87) ($348) $6,680 $6,801 Marketing Employee Commissions $1,215 $14,580 $2,006 $8,024 $18,612 $82,475 Marketing Expenses $5,322 $63,864 $25,790 $103,160 $56,104 $41,331 Dues and Subscriptions $46 $552 $149 $596 $508 $1,060 Pay Per View Expenses $0 $0 $9 $36 $13 $201 Video Game Expenses $0 $0 $0 $0 $5,914 $7,475
--------------- ----------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ----------------------------- --------------- EXPENSES Technical Salary - Supervisor $32,448 $31,200 $35,088 Technical Salary - Technician $77,899 $78,628 $97,884 Technical Salary - Dispatcher $10,645 $12,237 $0 Technical Salary - Installers $30,390 $25,459 $23,544 Overtime/Standby $64,383 $36,401 $61,164 Payroll Taxes $18,606 $16,313 $16,068 Group Insurance $12,160 $25,863 $42,972 Other Benefits $11,842 $12,660 $7,500 Rent - Headend $20,311 $20,487 $17,700 Rent - Poles and Ducts $76,445 $64,016 $116,796 R & M Plant $1,964 $1,247 $14,424 R & M Other $5,191 $3,057 $16,692 Material and Reconnect $9,122 $2,400 $47,412 Vehicle - Gas & Oil $21,566 $21,639 $25,980 Vehicle - Service $11,358 $6,024 $31,344 T & E System Travel $210 $566 $0 T & E System Non-Travel $347 $284 $0 Dues & Subscriptions $3,611 $2,563 $3,972 Education $225 $96 $0 System Power Costs $81,087 $74,920 $93,120 Recruiting $143 $274 $0 Loss on Converters $1,200 $1,200 $1,200 Property Taxes ($84,426) $49,901 $0 Uniforms $3,177 $2,933 $2,160 Small Tool and Safety $3,397 $2,485 $15,276 Capital Labor & OH Construction ($100,780) ($58,994) $0 Capital Labor & OH Customer ($8,868) ($18,371) $0 Ad Sales Payroll Taxes $1,603 $1,486 $1,404 Ad Sales Group Insurance $2,681 $2,675 $6,876 Ad Sales Alloc. Personnel Benefit $10,740 $5,958 $17,808 Ad Sales Alloc. P/R Benefit $3,855 $2,060 $6,156 Employee Commissions $17,641 $17,382 $19,260 Other Ad Sale Expenses $28,710 $20,338 $25,476 Marketing Salary & Benefits $554 $20 $7,000 Marketing Employee Commissions $7,814 $2,200 $14,580 Marketing Expenses $162,690 $140,606 $63,864 Dues and Subscriptions $545 $2,029 $552 Pay Per View Expenses $236 $0 $0 Video Game Expenses $0 $0 $0
137 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: CENTREVILLE, MD
---------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 ---------------------------------------------------------------------------------------- Miscellaneous Marketing Expenses $2,250 $27,000 $8,130 $32,520 $13,956 $9,544 G & A Salary - Supervisor $3,562 $42,744 $10,686 $42,744 $53,014 $58,858 G & A Salary - CSR $3,348 $40,176 $9,880 $39,520 $48,667 $51,810 G & A Overtime/Standby $264 $3,168 $1,064 $4,256 $2,173 $3,877 G & A Payroll Taxes $563 $6,756 $1,985 $7,940 $9,251 $10,460 G & A Group Insurance $1,202 $14,424 $2,244 $8,976 $8,517 $9,155 G & A Other Benefits ($2,722) ($32,664) ($3,376) ($13,504) $429 $10,326 G & A Allocated Personnel Expense $0 $0 $0 $0 $1,834 $0 G & A Allocated P/R Expense $0 $0 $0 $0 $371 $0 Rent - Office $2,084 $25,008 $6,241 $24,964 $24,446 $18,607 R & M - Office $385 $4,620 $2,588 $10,352 $8,770 $8,339 Office Supplies $508 $6,096 $1,515 $6,060 $9,714 $9,103 Xerox & Printing $22 $264 $21 $84 $2,113 $3,385 Vehicle - Gas & Oil $50 $600 $119 $476 $1,046 $1,085 T & E System Travel $268 $3,216 $550 $2,200 $2,032 $873 T & E System Non-Travel $0 $0 $12 $48 $513 $618 Dues and Subscriptions $118 $1,416 $266 $1,064 $1,909 $717 Conventions - Travel $0 $0 $0 $0 $55 $13 Education $7 $84 $17 $68 $3,507 $2,693 Recruiting $0 $0 $0 $0 $941 $233 Insurance $6,811 $81,732 $21,726 $86,904 $155,888 $82,303 Legal $4,311 $51,732 $9,639 $38,556 $16,389 $7,599 Audit & Taxes $762 $9,144 $2,285 $9,140 $11,744 $14,311 Association - Dues $337 $4,044 $1,009 $4,036 $4,156 $4,467 Association - Lobbying $75 $900 $224 $896 $878 $794 Political Contribution $0 $0 $0 $0 $0 $0 Donations/Public Relations ($63) ($756) $301 $1,204 $1,967 $1,810 Customer Billing $4,093 $49,116 $13,411 $53,644 $63,687 $68,758 Postage & Messengers $5,543 $66,516 $15,356 $61,424 $59,685 $54,234 Utilities $897 $10,764 $2,712 $10,848 $9,580 $7,995 Telephone $2,132 $25,584 $11,736 $46,944 $47,138 $41,672 Tax & Licenses $73 $876 $221 $884 $1,219 $548 FCC User Fees $577 $6,924 $1,732 $6,928 $6,686 $5,709 Reregulation Costs $1 $12 $5,438 $21,752 $14,035 $3,876 CATV Franchise $15,157 $181,884 $33,549 $134,196 $112,159 $118,639 Copyright Fees $4,885 $58,620 $23,200 $92,800 $107,032 $85,156 BMI License Fees $0 $0 ($383) ($1,532) $3,254 $0 ASCAP License Fees $656 $7,872 $1,968 $7,872 $5,062 $0 Bad Debt Expense $6,877 $82,524 $8,569 $34,276 $33,754 $56,738 Cap. Labor & OH Other $0 $0 $0 $0 ($10,621) ($19,977) G & A Miscellaneous Expense $1,456 $17,472 $2,111 $8,444 $3,792 $4,727
--------------- ----------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ----------------------------- --------------- Miscellaneous Marketing Expenses $5,639 $4,203 $27,000 G & A Salary - Supervisor $59,683 $54,074 $42,744 G & A Salary - CSR $45,096 $41,565 $40,176 G & A Overtime/Standby $2,439 $898 $3,168 G & A Payroll Taxes $10,488 $8,513 $6,756 G & A Group Insurance $6,643 $8,242 $14,424 G & A Other Benefits ($38,690) $8,592 $0 G & A Allocated Personnel Expense $0 $0 $0 G & A Allocated P/R Expense $0 $0 $0 Rent - Office $16,800 $14,600 $25,008 R & M - Office $6,894 $5,955 $4,620 Office Supplies $6,420 $5,289 $6,096 Xerox & Printing $5,119 $6,327 $264 Vehicle - Gas & Oil $1,882 $839 $600 T & E System Travel $1,576 $1,841 $3,216 T & E System Non-Travel $550 $490 $0 Dues and Subscriptions $766 $686 $1,416 Conventions - Travel $600 $2,115 $0 Education $785 $905 $84 Recruiting $64 $0 $0 Insurance $56,394 $67,186 $81,732 Legal $9,000 $21,250 $51,732 Audit & Taxes $22,254 $24,001 $9,144 Association - Dues $4,867 $4,347 $4,044 Association - Lobbying $720 $0 $900 Political Contribution $50 $0 $0 Donations/Public Relations $2,672 $2,462 $0 Customer Billing $60,389 $55,869 $49,116 Postage & Messengers $51,889 $46,479 $66,516 Utilities $7,294 $7,245 $10,764 Telephone $45,588 $39,583 $25,584 Tax & Licenses $655 $66 $876 FCC User Fees $3,734 $0 $6,924 Reregulation Costs $16,274 $11,202 $12 CATV Franchise $102,244 $129,731 $181,884 Copyright Fees $88,307 $79,921 $58,620 BMI License Fees $0 $0 $0 ASCAP License Fees $0 $0 $7,872 Bad Debt Expense $76,907 $92,197 $82,524 Cap. Labor & OH Other ($13,367) ($18,934) $0 G & A Miscellaneous Expense $4,914 $3,834 $17,472
138 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: CENTREVILLE, MD
---------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 ---------------------------------------------------------------------------------------- Primary Satellite Fees $68,195 $818,340 $205,446 $821,784 $775,456 $661,699 Program Guides $1,115 $13,380 $2,383 $9,532 $8,628 $9,484 Pay TV Fees $32,463 $389,556 $93,428 $373,712 $420,459 $524,646 Video Game Fees $1,243 $14,916 $3,854 $15,416 $16,199 $1,590 -------- ---------- -------- ---------- ---------- ---------- Total Expenses $184,017 $2,208,204 $623,550 $2,494,200 $2,623,275 $2,588,350 Operating Income $290,746 $3,488,952 $828,806 $3,315,224 $2,719,362 $2,075,645 Operating Margin 61.24% 61.24% 57.07% 57.07% 50.90% 44.50%
--------------- ----------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING 12/31/96 12/31/94 12/31/93 ANNUALIZED ----------------------------- --------------- Primary Satellite Fees $478,562 $434,114 $818,340 Program Guides $10,392 $11,463 $13,380 Pay TV Fees $444,068 $455,873 $389,556 Video Game Fees $0 $0 $14,916 ---------- ---------- ---------- Total Expenses $2,147,283 $2,243,265 $2,900,752 Operating Income $1,909,949 $1,523,755 $2,796,404 Operating Margin 47.08% 40.45% 49.08%
139 SYSTEM LOCATION: CENTREVILLE, MD
-------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 -------------------------------------------------------------------------- REVENUES Primary First Outlet $2,951,104 $2,754,855 $2,478,829 $2,377,380 $1,913,174 Primary Commercial $90,320 $79,007 $53,512 $38,888 $36,739 Expanded Tier $0 $0 $0 $0 $0 AG Tier $0 $0 $0 $0 $306,438 AJ Tier $0 $0 $0 $0 $177,195 AL Tier $501,300 $424,950 $340,506 $129,308 $0 Radio Services $25,632 $28,104 $33,305 $39,699 $12,573 Pay Cable First Outlet $762,712 $845,121 $931,201 $805,144 $805,207 Ala Carte $0 $0 $0 $290,512 $70,058 New Product Tier 1 $768,404 $580,639 $361,832 $0 $0 Commercial Pay $14,312 $14,665 $13,779 $13,779 $13,008 Video $38,696 $41,088 $5,414 $0 $0 Primary Additional Outlet $0 $0 $0 ($52) $125,547 Remote Control $5,564 $5,704 $6,215 $5,173 $16,434 Converter Rental $44,788 $34,794 $25,258 $25,948 $7,688 Maintenance Contracts $43,332 $39,325 $31,186 $18,646 $0 New Customer Pay Installs $1,200 $300 $0 $0 $240 New Customer Basic Installs $7,720 $7,307 $15,003 $20,729 $41,595 Installation Materials Charge $0 $8 $1 $0 $0 Installs - Non New Customers $37,032 $47,807 $28,795 $16,487 $16,692 Other Late Charges $81,324 $74,032 $64,609 $72,245 $67,845 Other Rent $23,032 $23,455 $14,778 $12,784 $2,780 Other Franchise Pass Thru $110,828 $104,885 $101,381 $95,659 $93,775 Other Miscellaneous $0 $0 $25 $0 $0 FCC User Fees Pass Through $6,112 $6,036 $5,454 $155 $0 Video Game Activation $0 $0 $0 $0 $0 Other Programmers $73,676 $24,709 $0 $0 $0 QVC Monthly Commission $14,568 $13,209 $9,020 $8,406 $9,676 QVC Carriage Payment $21,912 $31,486 $0 $0 $0 HSN Monthly Commission $21,628 $22,193 $18,635 $0 $0 HSN Carriage Payment $2,076 $2,076 $2,076 $867 $0 Ad Insertion Sales $140,336 $122,640 $113,707 $83,674 $31,494 Ad Sales Other $0 $0 $0 $0 $49 Interconnect Services $0 $0 $0 $3,150 $0 Production & Local Origination $800 $400 $675 $0 $0 Guides $21,016 $13,842 $8,799 $8,841 $8,623 -------- -------- ------- ------- ------ Total Revenues $5,809,424 $5,342,637 $4,663,995 $4,067,422 $3,756,830
140 SYSTEM LOCATION: CENTREVILLE, MD
-------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 -------------------------------------------------------------------------- EXPENSES Technical Salary - Supervisor $35,092 $35,091 $33,746 $32,448 $31,200 Technical Salary - Technician $97,664 $97,848 $94,041 $77,899 $78,628 Technical Salary - Dispatcher $5,036 $9,221 $11,147 $10,645 $12,237 Technical Salary - Installers $17,208 $20,736 $21,926 $30,390 $25,459 Overtime/Standby $51,056 $50,078 $53,793 $64,383 $36,401 Payroll Taxes $17,244 $19,034 $18,612 $18,606 $16,313 Group Insurance $24,356 $20,855 $14,432 $12,160 $25,863 Other Benefits $7,500 $7,590 $7,536 $11,842 $12,660 Rent - Headend $19,164 $20,665 $19,894 $20,311 $20,487 Rent - Poles and Ducts $116,796 $116,796 $107,707 $76,445 $64,016 R & M Plant $15,672 $9,086 $4,383 $1,964 $1,247 R & M Other $10,328 $13,569 $12,310 $5,191 $3,057 Material and Reconnect $40,000 $35,973 $28,849 $9,122 $2,400 Vehicle - Gas & Oil $25,428 $27,790 $25,169 $21,566 $21,639 Vehicle - Service $12,088 $14,473 $12,420 $11,358 $6,024 T & E System Travel $0 $38 $518 $210 $566 T & E System Non-Travel $0 $0 $107 $347 $284 Dues & Subscriptions $2,672 $3,532 $4,997 $3,611 $2,563 Education $0 $109 $411 $225 $96 System Power Costs $109,288 $96,548 $93,635 $81,087 $74,920 Recruiting $0 $0 $399 $143 $274 Loss on Converters $1,200 $1,200 $1,200 $1,200 $1,200 Property Taxes $0 $0 $504 $0 $49,901 Uniforms $3,300 $3,475 $3,354 $3,177 $2,933 Small Tool and Safety $6,044 $3,936 $4,635 $3,397 $2,485 Capital Labor & OH Construction $0 $0 $0 $0 $0 Capital Labor & OH Customer $0 $0 $0 $0 $0 Ad Sales Payroll Taxes $1,900 $1,847 $1,584 $1,603 $1,486 Ad Sales Group Insurance $4,148 $3,265 $3,956 $2,681 $2,675 Ad Sales Alloc. Personnel Benefit $16,548 $16,021 $13,189 $10,740 $5,958 Ad Sales Alloc. P/R Benefit $6,612 $6,364 $4,464 $3,855 $2,060 Employee Commissions $25,928 $22,735 $18,879 $17,641 $17,382 Other Ad Sale Expenses $42,916 $29,349 $22,107 $28,710 $20,338 Marketing Salary & Benefits $7,000 $6,680 $6,801 $554 $20 Marketing Employee Commissions $8,024 $18,612 $82,475 $7,814 $2,200 Marketing Expenses $103,160 $56,104 $41,331 $162,690 $140,606 Dues and Subscriptions $596 $508 $1,060 $545 $2,029 Pay Per View Expenses $36 $13 $201 $236 $0 Video Game Expenses $0 $5,914 $7,475 $0 $0
141 SYSTEM LOCATION: CENTREVILLE, MD
-------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 -------------------------------------------------------------------------- Miscellaneous Marketing Expenses $32,520 $13,956 $9,544 $5,639 $4,203 G & A Salary - Supervisor $42,744 $53,014 $58,858 $59,683 $54,074 G & A Salary - CSR $39,520 $48,667 $51,810 $45,096 $41,565 G & A Overtime/Standby $4,256 $2,173 $3,877 $2,439 $898 G & A Payroll Taxes $7,940 $9,251 $10,460 $10,488 $8,513 G & A Group Insurance $8,976 $8,517 $9,155 $6,643 $8,242 G & A Other Benefits $0 $429 $10,326 $0 $8,592 G & A Allocated Personnel Expense $0 $1,834 $0 $0 $0 G & A Allocated P/R Expense $0 $371 $0 $0 $0 Rent - Office $24,964 $24,446 $18,607 $16,800 $14,600 R & M - Office $10,352 $8,770 $8,339 $6,894 $5,955 Office Supplies $6,060 $9,714 $9,103 $6,420 $5,289 Xerox & Printing $84 $2,113 $3,385 $5,119 $6,327 Vehicle - Gas & Oil $476 $1,046 $1,085 $1,882 $839 T & E System Travel $2,200 $2,032 $873 $1,576 $1,841 T & E System Non-Travel $48 $513 $618 $550 $490 Dues and Subscriptions $1,064 $1,909 $717 $766 $686 Conventions - Travel $0 $55 $13 $600 $2,115 Education $68 $3,507 $2,693 $785 $905 Recruiting $0 $941 $233 $64 $0 Insurance $86,904 $155,888 $82,303 $56,394 $67,186 Legal $38,556 $16,389 $7,599 $9,000 $21,250 Audit & Taxes $9,140 $11,744 $14,311 $22,254 $24,001 Association - Dues $4,036 $4,156 $4,467 $4,867 $4,347 Association - Lobbying $896 $878 $794 $720 $0 Political Contribution $0 $0 $0 $50 $0 Donations/Public Relations $1,204 $1,967 $1,810 $2,672 $2,462 Customer Billing $53,644 $63,687 $68,758 $60,389 $55,869 Postage & Messengers $61,424 $59,685 $54,234 $51,889 $46,479 Utilities $10,848 $9,580 $7,995 $7,294 $7,245 Telephone $46,944 $47,138 $41,672 $45,588 $39,583 Tax & Licenses $884 $1,219 $548 $655 $66 FCC User Fees $6,928 $6,686 $5,709 $3,734 $0 Reregulation Costs $21,752 $14,035 $3,876 $16,274 $11,202 CATV Franchise $134,196 $112,159 $118,639 $102,244 $129,731 Copyright Fees $92,800 $107,032 $85,156 $88,307 $79,921 BMI License Fees $0 $3,254 $0 $0 $0 ASCAP License Fees $7,872 $5,062 $0 $0 $0 Bad Debt Expense $34,276 $33,754 $56,738 $76,907 $92,197 Cap. Labor & OH Other $0 $0 $0 $0 $0 G & A Miscellaneous Expense $8,444 $3,792 $4,727 $4,914 $3,834
142 SYSTEM LOCATION: CENTREVILLE, MD
-------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 -------------------------------------------------------------------------- Primary Satellite Fees $821,784 $775,456 $661,699 $478,562 $434,114 Program Guides $9,532 $8,628 $9,484 $10,392 $11,463 Pay TV Fees $373,712 $420,459 $524,646 $444,068 $455,873 Video Game Fees $15,416 $16,199 $1,590 $0 $0 -------- -------- ------- --- -- Total Expenses $2,856,468 $2,847,160 $2,735,698 $2,393,414 $2,339,564 Operating Income $2,952,956 $2,495,477 $1,928,297 $1,674,008 $1,417,266 Operating Margin 50.83% 46.71% 41.34% 41.16% 37.73%
143 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: REDMOND, OR
----------------------------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 12/31/95 ----------------------------------------------------------------------------------------------- REVENUES Primary-1st Outlet $78,150 $937,800 $233,216 $932,864 $922,548 $932,155 Primary Commercial $5,332 $63,984 $15,505 $62,020 $69,928 $74,523 AG Tier $0 $0 $0 $0 $0 $0 AJ Tier $0 $0 $0 $0 $0 $0 AL Tier $5,845 $70,140 $17,491 $69,964 $69,638 $74,131 Radio Services $627 $7,524 $1,919 $7,676 $8,730 $11,473 Pay Cable 1st Outlet $4,597 $55,164 $14,539 $58,156 $71,992 $99,639 New Product Tier 1 $22,825 $273,900 $68,678 $274,712 $245,465 $219,116 Pay Cable Add'l Outlet $0 $0 $0 $0 $0 $0 Ala Carte $0 $0 $0 $0 $0 $0 Commercial Pay $0 $0 $0 $0 $0 $0 Mini Pay $187 $2,244 $546 $2,184 $2,529 $2,371 Primary Additional Outlet $0 $0 $0 $0 $0 $0 Remote Control $192 $2,304 $588 $2,352 $2,535 $2,868 Converter Rental $2,697 $32,364 $8,066 $32,264 $35,576 $39,429 Maintenance Contracts $511 $6,132 $1,587 $6,348 $7,002 $7,842 New Customer Pay Installs $0 $0 $0 $0 $0 $9 New Customer Basic Installs $535 $6,420 $2,575 $10,300 $5,607 $5,334 Installs Non New Customers $152 $1,824 $448 $1,792 $8,008 $9,167 Classified Ads $10 $120 $15 $60 $150 $1,100 Ad Insertion Sales $11,803 $141,636 $20,378 $81,512 $66,601 $67,548 Ad Sales Other $0 $0 $0 $0 $0 $0 Production and Loc. Origination ($5,360) ($64,320) ($200) ($800) $489 $760 Other Late Charges $780 $9,360 $2,930 $11,720 $13,540 $13,990 Other Copyright Pass Thru $0 $0 $0 $0 $0 $0 Other Miscellaneous $525 $6,300 $1,575 $6,300 $6,300 $5,897 FCC User Fees Pass Through $147 $1,764 $436 $1,744 $1,822 $1,841 Other - Programmers $0 $0 $5,594 $22,376 $6,386 $0 QVC Monthly Commission $657 $7,884 $2,084 $8,336 $7,529 $6,633 QVC Carriage Payment $654 $7,848 $1,308 $5,232 $6,965 $1,204 Other Networks Monthly Comm. $0 $0 $0 $0 $0 $20 Guides $271 $3,252 $848 $3,392 $2,253 $3 -------- ---------- -------- ---------- ---------- ---------- Total Revenues $131,137 $1,573,644 $400,126 $1,600,504 $1,561,593 $1,577,053
------------------------------- TWELVE MONTHS TWELVE MONTHS ENDING ENDING 12/31/94 12/31/93 ------------------------------- REVENUES Primary-1st Outlet $1,015,166 $924,178 Primary Commercial $65,937 $45,745 AG Tier $0 $159,727 AJ Tier $0 $166,375 AL Tier $32,963 $0 Radio Services $15,045 $11,067 Pay Cable 1st Outlet $92,242 $117,344 New Product Tier 1 $0 $0 Pay Cable Add'l Outlet ($19) $0 Ala Carte $212,349 $43,578 Commercial Pay $0 $17,545 Mini Pay $2,746 $4,336 Primary Additional Outlet $7 $44,916 Remote Control $2,995 $20,722 Converter Rental $45,270 $21,765 Maintenance Contracts $4,809 $0 New Customer Pay Installs $49 $139 New Customer Basic Installs $5,511 $6,837 Installs Non New Customers $13,227 $11,317 Classified Ads $912 $9,941 Ad Insertion Sales $73,634 $12,173 Ad Sales Other $0 $21 Production and Loc. Origination $4,320 $0 Other Late Charges $14,685 $14,925 Other Copyright Pass Thru $0 $12,451 Other Miscellaneous $6,300 $7,834 FCC User Fees Pass Through $98 $0 Other - Programmers $0 $0 QVC Monthly Commission $6,522 $7,028 QVC Carriage Payment $1,204 $1,204 Other Networks Monthly Comm. $0 $0 Guides $0 $0 ---------- ---------- Total Revenues $1,615,972 $1,661,168
144 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: REDMOND, OR
------------------------------------------------------------------------------ ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 ------------------------------------------------------------------------------ EXPENSES Technical Salary - Supervisor $2,721 $32,652 $8,162 $32,648 $32,971 Technical Salary - Technician $1,684 $20,208 $5,011 $20,044 $20,180 Technical Salary - Dispatcher $0 $0 $0 $0 $0 Technical Salary - Installers $1,560 $18,720 $4,680 $18,720 $17,658 Overtime/Standby $1,133 $13,596 $4,865 $19,460 $12,805 Payroll Taxes $495 $5,940 $2,526 $10,104 $8,129 Group Insurance $504 $6,048 $1,762 $7,048 $7,475 Other Benefits ($4,643) ($55,716) ($3,615) ($14,460) $1,011 Contract Labor $0 $0 $160 $640 $160 Allocated Department Expense $0 $0 $496 $1,984 $496 Rent - Headend $0 $0 ($160) ($640) $0 Rent - Poles and Ducts ($3,437) ($41,244) ($311) ($1,244) $13,566 R & M Plant $220 $2,640 $529 $2,116 $1,629 R & M Converter $0 $0 $0 $0 $0 R & M Other $55 $660 $55 $220 $671 Material and Reconnect $448 $5,376 $1,239 $4,956 $7,459 Vehicle - Gas & Oil $471 $5,652 $1,889 $7,556 $6,895 Vehicle - Service $200 $2,400 $473 $1,892 $2,176 T & E System Travel $0 $0 $0 $0 $41 T & E System Non-Travel $0 $0 $0 $0 $15 Dues & Subscriptions $0 $0 $0 $0 $42 Education $0 $0 $0 $0 $61 System Power Costs $1,253 $15,036 $3,132 $12,528 $12,085 Recruiting $0 $0 $0 $0 $42 Loss on Converters $75 $900 $225 $900 $900 Property Taxes ($8,294) ($99,528) ($6,300) ($25,200) $429 Uniforms $322 $3,864 $645 $2,580 $1,906 Small Tool and Safety $101 $1,212 $160 $640 $385 Capital Labor & OH Construction ($7,349) ($88,188) ($21,816) ($87,264) ($63,520) Capital Labor & OH Customer ($1,093) ($13,116) ($4,695) ($18,780) ($18,795) Production and Local Origination Allocated $541 $6,492 $777 $3,108 $1,966 P and L Allocated P/R Benefit ($3) ($36) $79 $316 $450 P and L Other Expense $144 $1,728 $478 $1,912 $1,541 Ad Sales Payroll Taxes $136 $1,632 $687 $2,748 $2,250 Ad Sales Group Insurance ($215) ($2,580) $339 $1,356 $2,063
------------------------------------------------- TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING ENDING 12/31/95 12/31/94 12/31/93 ------------------------------------------------- EXPENSES Technical Salary - Supervisor $31,888 $0 $0 Technical Salary - Technician $20,563 $51,573 $48,776 Technical Salary - Dispatcher $0 $0 $0 Technical Salary - Installers $14,674 $17,424 $17,264 Overtime/Standby $6,535 $10,460 $14,538 Payroll Taxes $6,399 $6,689 $7,401 Group Insurance $6,999 $2,865 $8,152 Other Benefits $3,240 $4,116 $4,956 Contract Labor $260 $0 $0 Allocated Department Expense $27 $0 $0 Rent - Headend $0 $0 $0 Rent - Poles and Ducts $17,546 $8,902 $16,819 R & M Plant $916 $986 $2,234 R & M Converter $0 $0 $61 R & M Other $540 $561 $695 Material and Reconnect $5,898 $1,309 $0 Vehicle - Gas & Oil $6,606 $6,157 $6,874 Vehicle - Service $1,991 $3,461 $2,379 T & E System Travel $76 $203 $152 T & E System Non-Travel $0 $0 $83 Dues & Subscriptions $80 $0 $45 Education $234 $0 $0 System Power Costs $10,772 $11,245 $10,733 Recruiting $287 $0 $0 Loss on Converters $900 $900 $900 Property Taxes $13,710 $14,013 $14,081 Uniforms $1,280 $1,271 $1,336 Small Tool and Safety $522 $120 $723 Capital Labor & OH Construction ($12,184) ($12,346) ($15,878) Capital Labor & OH Customer ($24,215) ($32,947) ($20,441) Production and Local Origination Allocated $947 $0 $654 P and L Allocated P/R Benefit $270 $0 $86 P and L Other Expense $292 $0 $0 Ad Sales Payroll Taxes $1,053 $1,089 $763 Ad Sales Group Insurance $1,291 $2,095 $299
145 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: REDMOND, OR
------------------------------------------------------------------------------ ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 ------------------------------------------------------------------------------ Ad Sales Alloc. Personnel Benefit $394 $4,728 $1,192 $4,768 $5,189 Ad Sales Alloc. P/R Benefit $63 $756 $258 $1,032 $1,351 Employee Commissions $1,800 $21,600 $6,300 $25,200 $23,451 Other Ad Sale Expenses $1,730 $20,760 $3,780 $15,120 $17,912 Marketing Payroll Taxes $84 $1,008 $181 $724 $181 Allocated P/R Benefit $0 $0 $0 $0 $0 Marketing Employee Commissions $949 $11,388 $1,933 $7,732 $2,127 Marketing Expenses $1,791 $21,492 $6,997 $27,988 $41,591 Dues and Subscriptions $14 $168 $30 $120 $154 Rebates $0 $0 $0 $0 $0 Pay Per View Expenses $0 $0 $2 $8 $9 Video Game Expenses $0 $0 $0 $0 $0 Miscellaneous Marketing Expenses $1,556 $18,672 $4,096 $16,384 $5,433 G & A Salary - Supervisor $2,947 $35,364 $8,842 $35,368 $35,368 G & A Salary - CSR $2,999 $35,988 $9,195 $36,780 $34,892 G & A Overtime/Standby $0 $0 $0 $0 $0 G & A Payroll Taxes $561 $6,732 $2,222 $8,888 $7,232 G & A Group Insurance $276 $3,312 $1,055 $4,220 $4,405 G & A Other Benefits ($3,414) ($40,968) ($2,658) ($10,632) $744 G & A Contract Labor $0 $0 $0 $0 $0 G & A Allocated Personnel Expense $0 $0 $0 $0 $0 G & A Allocated Department Expense $0 $0 $0 $0 $1,276 Rent - Office $0 $0 $0 $0 $0 R & M - Office $547 $6,564 $1,387 $5,548 $6,215 Office Supplies $48 $576 $917 $3,668 $3,477 Xerox & Printing $124 $1,488 $386 $1,544 $697 Vehicle - Gas & Oil $0 $0 $40 $160 $367 T & E System Travel $20 $240 $447 $1,788 $582 T & E System Non-Travel $0 $0 $0 $0 $22 Dues and Subscriptions $113 $1,356 $365 $1,460 $1,807 Conventions - Travel $0 $0 $0 $0 $200 Education $7 $84 $6 $24 $550 Recruiting $0 $0 $0 $0 $0 Insurance $3,170 $38,040 $8,379 $33,516 $7,860 Legal $500 $6,000 $1,519 $6,076 $6,019 Audit & Taxes $762 $9,144 $2,285 $9,140 $13,154 Association - Dues $184 $2,208 $551 $2,204 $2,299
------------------------------------------------- TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING ENDING 12/31/95 12/31/94 12/31/93 ------------------------------------------------- Ad Sales Alloc. Personnel Benefit $4,895 $4,549 $3,161 Ad Sales Alloc. P/R Benefit $1,320 $1,240 $821 Employee Commissions $12,715 $13,072 $7,286 Other Ad Sale Expenses $12,671 $14,157 $10,449 Marketing Payroll Taxes $0 $0 $722 Allocated P/R Benefit $0 $0 $10 Marketing Employee Commissions $644 $503 $8,750 Marketing Expenses $31,634 $35,140 $16,153 Dues and Subscriptions $455 $226 $1,028 Rebates $0 ($603) $0 Pay Per View Expenses $84 $35 $0 Video Game Expenses $0 $0 $0 Miscellaneous Marketing Expenses $2,914 $4,463 $4,760 G & A Salary - Supervisor $34,008 $28,621 $51,916 G & A Salary - CSR $35,386 $25,245 $19,032 G & A Overtime/Standby $119 $0 $0 G & A Payroll Taxes $6,242 $5,019 $7,444 G & A Group Insurance $4,101 ($636) $7,340 G & A Other Benefits ($4,286) $11,892 $23,112 G & A Contract Labor $40 $9,448 $1,775 G & A Allocated Personnel Expense $0 $0 $0 G & A Allocated Department Expense $479 $0 $0 Rent - Office $0 $0 $0 R & M - Office $6,015 $5,578 $5,125 Office Supplies $2,416 $1,944 $2,072 Xerox & Printing $1,607 $1,671 $2,278 Vehicle - Gas & Oil $427 $515 $1,099 T & E System Travel $404 $335 $911 T & E System Non-Travel $1,674 $0 $208 Dues and Subscriptions $2,238 $1,470 $2,769 Conventions - Travel $676 $620 $2,221 Education $248 $851 $545 Recruiting $8 $0 $0 Insurance $26,414 $45,772 $32,315 Legal $3,266 $6,000 $5,304 Audit & Taxes $8,511 $8,954 $10,844 Association - Dues $1,961 $2,440 $3,327
146 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: REDMOND, OR
------------------------------------------------------------------------------ ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 ------------------------------------------------------------------------------ Association - Lobbying $50 $600 $151 $604 $623 Political Contribution $0 $0 $0 $0 $0 Donations/Public Relations ($129) ($1,548) $663 $2,652 $3,754 Customer Billing $1,617 $19,404 $5,765 $23,060 $21,933 Postage & Messengers $1,533 $18,396 $4,608 $18,432 $18,757 Utilities $334 $4,008 $1,016 $4,064 $4,703 Telephone $664 $7,968 $2,197 $8,788 $8,582 Tax & Licenses $60 $720 $429 $1,716 $1,584 FCC User Fees $160 $1,920 $480 $1,920 $2,051 Reregulation Costs $0 $0 $1,931 $7,724 $4,167 CATV Franchise $1,295 $15,540 $3,757 $15,028 $15,186 Copyright Fees $1,996 $23,952 $5,872 $23,488 $24,743 BMI License Fees $0 $0 ($42) ($168) $1,216 ASCAP License Fees $291 $3,492 $873 $3,492 $2,244 Bad Debt Expense $2,031 $24,372 $5,627 $22,508 $20,654 Cap. Labor & OH Other ($380) ($4,560) ($1,267) ($5,068) ($6,525) G & A Miscellaneous Expense $471 $5,652 $709 $2,836 $807 Primary Satellite Fees $13,005 $156,060 $37,226 $148,904 $147,138 Program Guides $659 $7,908 $2,306 $9,224 $6,777 Pay TV Fees $4,372 $52,464 $12,211 $48,844 $54,532 Video Game Fees $0 $0 $0 $0 $0 Pay Per View Fees $0 $0 $0 $0 $0 ------- ---------- -------- ---------- -------- Total Expenses $32,283 $387,396 $145,691 $582,764 $632,632 Operating Income $98,854 $1,186,248 $254,435 $1,017,740 $928,961 Operating Margin 75.38% 75.38% 63.59% 63.59% 59.49%
------------------------------------------------- TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING ENDING 12/31/95 12/31/94 12/31/93 ------------------------------------------------- Association - Lobbying $315 $429 $0 Political Contribution $0 $0 $0 Donations/Public Relations $3,215 $3,161 $2,786 Customer Billing $24,870 $25,987 $24,510 Postage & Messengers $19,538 $18,465 $19,239 Utilities $3,931 $4,275 $3,746 Telephone $8,653 $9,565 $7,412 Tax & Licenses $1,021 $375 $326 FCC User Fees $2,002 $1,820 $0 Reregulation Costs $1,321 $6,987 $8,026 CATV Franchise $19,447 $20,851 $25,970 Copyright Fees $20,334 $21,299 $22,096 BMI License Fees $0 $0 $0 ASCAP License Fees $0 $0 $0 Bad Debt Expense $21,437 $20,372 $19,263 Cap. Labor & OH Other ($4,704) ($1,142) ($3,152) G & A Miscellaneous Expense $1,912 $684 $530 Primary Satellite Fees $166,294 $145,095 $152,834 Program Guides $4,829 $4,115 $4,312 Pay TV Fees $78,767 $72,138 $84,799 Video Game Fees $0 $0 $0 Pay Per View Fees $0 $0 $0 -------- -------- -------- Total Expenses $691,865 $683,143 $729,159 Operating Income $885,188 $932,829 $932,009 Operating Margin 56.13% 57.73% 56.11%
147 SYSTEM LOCATION: REDMOND, OR
------------------------------------------------------------------------------------------------ ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED ONE MONTH THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 ------------------------------------------------------------------------------------------------ REVENUES Primary-1st Outlet $937,800 $932,864 $922,548 $932,155 $1,015,166 $924,178 Primary Commercial $63,984 $62,020 $69,928 $74,523 $65,937 $45,745 AG Tier $0 $0 $0 $0 $0 $159,727 AJ Tier $0 $0 $0 $0 $0 $166,375 AL Tier $70,140 $69,964 $69,638 $74,131 $32,963 $0 Radio Services $7,524 $7,676 $8,730 $11,473 $15,045 $11,067 Pay Cable 1st Outlet $55,164 $58,156 $71,992 $99,639 $92,242 $117,344 New Product Tier 1 $273,900 $274,712 $245,465 $219,116 $0 $0 Pay Cable Add'l Outlet $0 $0 $0 $0 ($19) $0 Ala Carte $0 $0 $0 $0 $212,349 $43,578 Commercial Pay $0 $0 $0 $0 $0 $17,545 Mini Pay $2,244 $2,184 $2,529 $2,371 $2,746 $4,336 Primary Additional Outlet $0 $0 $0 $0 $7 $44,916 Remote Control $2,304 $2,352 $2,535 $2,868 $2,995 $20,722 Converter Rental $32,364 $32,264 $35,576 $39,429 $45,270 $21,765 Maintenance Contracts $6,132 $6,348 $7,002 $7,842 $4,809 $0 New Customer Pay Installs $0 $0 $0 $9 $49 $139 New Customer Basic Installs $6,420 $10,300 $5,607 $5,334 $5,511 $6,837 Installs Non New Customers $1,824 $1,792 $8,008 $9,167 $13,227 $11,317 Classified Ads $120 $60 $150 $1,100 $912 $9,941 Ad Insertion Sales $141,636 $81,512 $66,601 $67,548 $73,634 $12,173 Ad Sales Other $0 $0 $0 $0 $0 $21 Production and Loc. Origination $0 $0 $489 $760 $4,320 $0 Other Late Charges $9,360 $11,720 $13,540 $13,990 $14,685 $14,925 Other Copyright Pass Thru $0 $0 $0 $0 $0 $12,451 Other Miscellaneous $6,300 $6,300 $6,300 $5,897 $6,300 $7,834 FCC User Fees Pass Through $1,764 $1,744 $1,822 $1,841 $98 $0 Other - Programmers $0 $22,376 $6,386 $0 $0 $0 QVC Monthly Commission $7,884 $8,336 $7,529 $6,633 $6,522 $7,028 QVC Carriage Payment $7,848 $5,232 $6,965 $1,204 $1,204 $1,204 Other Networks Monthly Comm. $0 $0 $0 $20 $0 $0 Guides $3,252 $3,392 $2,253 $3 $0 $0 ---------- ---------- ---------- ---------- ---------- ---------- Total Revenues $1,637,964 $1,601,304 $1,561,593 $1,577,053 $1,615,972 $1,661,168
148 SYSTEM LOCATION: REDMOND, OR
------------------------------------------------------------------------------------------------ ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED ONE MONTH THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 ------------------------------------------------------------------------------------------------ EXPENSES Technical Salary - Supervisor $32,652 $32,648 $32,971 $31,888 $0 $0 Technical Salary - Technician $20,208 $20,044 $20,180 $20,563 $51,573 $48,776 Technical Salary - Dispatcher $0 $0 $0 $0 $0 $0 Technical Salary - Installers $18,720 $18,720 $17,658 $14,674 $17,424 $17,264 Overtime/Standby $13,596 $19,460 $12,805 $6,535 $10,460 $14,538 Payroll Taxes $5,940 $10,104 $8,129 $6,399 $6,689 $7,401 Group Insurance $6,048 $7,048 $7,475 $6,999 $2,865 $8,152 Other Benefits $0 $0 $1,011 $3,240 $4,116 $4,956 Contract Labor $0 $640 $160 $260 $0 $0 Allocated Department Expense $0 $1,984 $496 $27 $0 $0 Rent - Headend $0 $0 $0 $0 $0 $0 Rent - Poles and Ducts $14,000 $14,000 $13,566 $17,546 $8,902 $16,819 R & M Plant $2,640 $2,116 $1,629 $916 $986 $2,234 R & M Converter $0 $0 $0 $0 $0 $61 R & M Other $660 $220 $671 $540 $561 $695 Material and Reconnect $5,376 $4,956 $7,459 $5,898 $1,309 $0 Vehicle - Gas & Oil $5,652 $7,556 $6,895 $6,606 $6,157 $6,874 Vehicle - Service $2,400 $1,892 $2,176 $1,991 $3,461 $2,379 T & E System Travel $0 $0 $41 $76 $203 $152 T & E System Non-Travel $0 $0 $15 $0 $0 $83 Dues & Subscriptions $0 $0 $42 $80 $0 $45 Education $0 $0 $61 $234 $0 $0 System Power Costs $15,036 $12,528 $12,085 $10,772 $11,245 $10,733 Recruiting $0 $0 $42 $287 $0 $0 Loss on Converters $900 $900 $900 $900 $900 $900 Property Taxes $0 $0 $429 $13,710 $14,013 $14,081 Uniforms $3,864 $2,580 $1,906 $1,280 $1,271 $1,336 Small Tool and Safety $1,212 $640 $385 $522 $120 $723 Capital Labor & OH Construction $0 $0 $0 $0 $0 $0 Capital Labor & OH Customer $0 $0 $0 $0 $0 $0 Production and Local Origination Allocated $6,492 $3,108 $1,966 $947 $0 $654 P and L Allocated P/R Benefit ($36) $316 $450 $270 $0 $86 P and L Other Expense $1,728 $1,912 $1,541 $292 $0 $0 Ad Sales Payroll Taxes $1,632 $2,748 $2,250 $1,053 $1,089 $763 Ad Sales Group Insurance $2,000 $1,356 $2,063 $1,291 $2,095 $299
149 SYSTEM LOCATION: REDMOND, OR
------------------------------------------------------ ADJUSTED ADJUSTED ADJUSTED ONE MONTH THREE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING 12/31/96 ENDING ANNUALIZED ANNUALIZED 12/31/96 ------------------------------------------------------ Ad Sales Alloc. Personnel Benefit $4,728 $4,768 $5,189 Ad Sales Alloc. P/R Benefit $756 $1,032 $1,351 Employee Commissions $21,600 $25,200 $23,451 Other Ad Sale Expenses $20,760 $15,120 $17,912 Marketing Payroll Taxes $1,008 $724 $181 Allocated P/R Benefit $0 $0 $0 Marketing Employee Commissions $11,388 $7,732 $2,127 Marketing Expenses $21,492 $27,988 $41,591 Dues and Subscriptions $168 $120 $154 Rebates $0 $0 $0 Pay Per View Expenses $0 $8 $9 Video Game Expenses $0 $0 $0 Miscellaneous Marketing Expenses $18,672 $16,384 $5,433 G & A Salary - Supervisor $35,364 $35,368 $35,368 G & A Salary - CSR $35,988 $36,780 $34,892 G & A Overtime/Standby $0 $0 $0 G & A Payroll Taxes $6,732 $8,888 $7,232 G & A Group Insurance $3,312 $4,220 $4,405 G & A Other Benefits $0 $0 $744 G & A Contract Labor $0 $0 $0 G & A Allocated Personnel Expense $0 $0 $0 G & A Allocated Department Expense $0 $0 $1,276 Rent - Office $0 $0 $0 R & M - Office $6,564 $5,548 $6,215 Office Supplies $576 $3,668 $3,477 Xerox & Printing $1,488 $1,544 $697 Vehicle - Gas & Oil $0 $160 $367 T & E System Travel $240 $1,788 $582 T & E System Non-Travel $0 $0 $22 Dues and Subscriptions $1,356 $1,460 $1,807 Conventions - Travel $0 $0 $200 Education $84 $24 $550 Recruiting $0 $0 $0 Insurance $38,040 $33,516 $7,860 Legal $6,000 $6,076 $6,019 Audit & Taxes $9,144 $9,140 $13,154 Association - Dues $2,208 $2,204 $2,299
--------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING ENDING 12/31/95 12/31/94 12/31/93 --------------------------------------------------- Ad Sales Alloc. Personnel Benefit $4,895 $4,549 $3,161 Ad Sales Alloc. P/R Benefit $1,320 $1,240 $821 Employee Commissions $12,715 $13,072 $7,286 Other Ad Sale Expenses $12,671 $14,157 $10,449 Marketing Payroll Taxes $0 $0 $722 Allocated P/R Benefit $0 $0 $10 Marketing Employee Commissions $644 $503 $8,750 Marketing Expenses $31,634 $35,140 $16,153 Dues and Subscriptions $455 $226 $1,028 Rebates $0 ($603) $0 Pay Per View Expenses $84 $35 $0 Video Game Expenses $0 $0 $0 Miscellaneous Marketing Expenses $2,914 $4,463 $4,760 G & A Salary - Supervisor $34,008 $28,621 $51,916 G & A Salary - CSR $35,386 $25,245 $19,032 G & A Overtime/Standby $119 $0 $0 G & A Payroll Taxes $6,242 $5,019 $7,444 G & A Group Insurance $4,101 $0 $7,340 G & A Other Benefits $0 $11,892 $23,112 G & A Contract Labor $40 $9,448 $1,775 G & A Allocated Personnel Expense $0 $0 $0 G & A Allocated Department Expense $479 $0 $0 Rent - Office $0 $0 $0 R & M - Office $6,015 $5,578 $5,125 Office Supplies $2,416 $1,944 $2,072 Xerox & Printing $1,607 $1,671 $2,278 Vehicle - Gas & Oil $427 $515 $1,099 T & E System Travel $404 $335 $911 T & E System Non-Travel $1,674 $0 $208 Dues and Subscriptions $2,238 $1,470 $2,769 Conventions - Travel $676 $620 $2,221 Education $248 $851 $545 Recruiting $8 $0 $0 Insurance $26,414 $45,772 $32,315 Legal $3,266 $6,000 $5,304 Audit & Taxes $8,511 $8,954 $10,844 Association - Dues $1,961 $2,440 $3,327
150 SYSTEM LOCATION: REDMOND, OR
----------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ONE MONTH THREE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING 12/31/96 ENDING ANNUALIZED ANNUALIZED 12/31/96 ----------------------------------------------------- Association - Lobbying $600 $604 $623 Political Contribution $0 $0 $0 Donations/Public Relations $3,000 $2,652 $3,754 Customer Billing $19,404 $23,060 $21,933 Postage & Messengers $18,396 $18,432 $18,757 Utilities $4,008 $4,064 $4,703 Telephone $7,968 $8,788 $8,582 Tax & Licenses $720 $1,716 $1,584 FCC User Fees $1,920 $1,920 $2,051 Reregulation Costs $0 $7,724 $4,167 CATV Franchise $15,540 $15,028 $15,186 Copyright Fees $23,952 $23,488 $24,743 BMI License Fees $0 $0 $1,216 ASCAP License Fees $3,492 $3,492 $2,244 Bad Debt Expense $24,372 $22,508 $20,654 Cap. Labor & OH Other $0 $0 $0 G & A Miscellaneous Expense $5,652 $2,836 $807 Primary Satellite Fees $156,060 $148,904 $147,138 Program Guides $7,908 $9,224 $6,777 Pay TV Fees $52,464 $48,844 $54,532 Video Game Fees $0 $0 $0 Pay Per View Fees $0 $0 $0 --- --- --- Total Expenses $753,844 $760,220 $721,472 Operating Income $884,120 $841,084 $840,121 Operating Margin 53.98% 52.52% 53.80%
---------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING ENDING ENDING 12/31/95 12/31/94 12/31/93 ---------------------------------------------------- Association - Lobbying $315 $429 $0 Political Contribution $0 $0 $0 Donations/Public Relations $3,215 $3,161 $2,786 Customer Billing $24,870 $25,987 $24,510 Postage & Messengers $19,538 $18,465 $19,239 Utilities $3,931 $4,275 $3,746 Telephone $8,653 $9,565 $7,412 Tax & Licenses $1,021 $375 $326 FCC User Fees $2,002 $1,820 $0 Reregulation Costs $1,321 $6,987 $8,026 CATV Franchise $19,447 $20,851 $25,970 Copyright Fees $20,334 $21,299 $22,096 BMI License Fees $0 $0 $0 ASCAP License Fees $0 $0 $0 Bad Debt Expense $21,437 $20,372 $19,263 Cap. Labor & OH Other $0 $0 $0 G & A Miscellaneous Expense $1,912 $684 $530 Primary Satellite Fees $166,294 $145,095 $152,834 Program Guides $4,829 $4,115 $4,312 Pay TV Fees $78,767 $72,138 $84,799 Video Game Fees $0 $0 $0 Pay Per View Fees $0 $0 $0 --- --- -- Total Expenses $737,254 $730,214 $768,630 Operating Income $839,799 $885,758 $892,538 Operating Margin 53.25% 54.81% 53.73%
151 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: SOMERSET, KY
------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 ------------------------------------------------------------------------- REVENUES Primary - First Outlet $365,957 $4,391,484 $1,081,892 $4,327,568 $4,085,262 Primary Commercial $5,310 $63,720 $17,526 $70,104 $73,145 Expanded Tier $0 $0 $0 $0 $0 A-G Tier $6 $72 $21 $84 $83 A-J Tier $15 $180 $48 $192 $149 A-L Tier $44,521 $534,252 $131,572 $526,288 $474,908 Radio Services $5 $60 $17 $68 $102 Pay Cable First Outlet $32,923 $395,076 $98,341 $393,364 $440,217 Pay Cable Additional Outlet $299 $3,588 $867 $3,468 $4,085 Ala Carte $0 $0 $0 $0 $0 New Product Tier 1 $99,755 $1,197,060 $296,279 $1,185,116 $1,005,944 Commercial Pay $857 $10,284 $4,080 $16,320 $20,604 Pay Per View $623 $7,476 $3,560 $14,240 $11,912 Primary Additional Outlet $0 $0 $0 $0 $0 Remote Control $1,544 $18,528 $4,624 $18,496 $28,564 Converter Rental $8,108 $97,296 $23,900 $95,600 $83,054 Maintenance Contracts $3,264 $39,168 $9,959 $39,836 $41,057 New Customer Pay Installs $0 $0 $0 $0 $0 New Customer Basic Installs $910 $10,920 $4,257 $17,028 $24,787 Installation Materials Charge $0 $0 ($10) ($40) $5 Installs - Non New Customers $4,083 $48,996 $15,801 $63,204 $88,319 Guide Revenue $406 $4,872 $1,263 $5,052 $3,762 Other - Late Charges $6,590 $79,080 $18,325 $73,300 $70,610 Other - Rent $1,164 $13,968 $2,400 $9,600 $9,600 Other - Franchise Pass Through $2,061 $24,732 $6,146 $24,584 $22,934 Other - Miscellaneous $0 $0 $660 $2,640 $905 FCC User Fees Pass Through $780 $9,360 $2,346 $9,384 $9,413 Other - Programmers $45,922 $551,064 $163,871 $655,484 $168,073 QVC Monthly Commission $1,943 $23,316 $6,898 $27,592 $26,495 QVC Carriage Payment $0 $0 $3,103 $12,412 $12,307 HSN Monthly Commission $707 $8,484 ($8,332) ($33,328) $10,667 HSN Carriage Payment $2,234 $26,808 $17,748 $70,992 $28,827 Classifed Ads $6,770 $81,240 $21,790 $87,160 $101,632 Ad Insertion Sales $28,650 $343,800 $72,005 $288,020 $198,116 Ad Sales Other $0 $0 $0 $0 $0 Production & Local Origination $8,453 $101,436 $17,325 $69,300 $45,327 ------- --------- -------- -------- ------- Total Revenues $673,860 $8,086,320 $2,018,282 $8,073,128 $7,090,865
SYSTEM LOCATION: SOMERSET, KY
-------------- -------------------------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING ENDING 12/31/96 12/31/95 12/31/94 12/31/93 ANNUALIZED -------------------------------------------- -------------- REVENUES Primary - First Outlet $3,780,392 $3,827,585 $3,171,423 $4,391,484 Primary Commercial $69,778 $68,505 $67,614 $63,720 Expanded Tier $0 $0 $0 $0 A-G Tier $60 $23,815 $457,868 $72 A-J Tier $74 $23,544 $815,239 $180 A-L Tier $412,199 $165,567 $0 $534,252 Radio Services $98 $0 $0 $60 Pay Cable First Outlet $466,915 $390,766 $354,268 $395,076 Pay Cable Additional Outlet $6,672 $8,484 $7,591 $3,588 Ala Carte $0 $717,997 $173,276 $0 New Product Tier 1 $813,889 $0 $0 $1,197,060 Commercial Pay $32,976 $12,816 $12,567 $10,284 Pay Per View $6,818 $7,417 $6,523 $7,476 Primary Additional Outlet $0 $1,470 $40,225 $0 Remote Control $44,680 $42,696 $50,444 $18,528 Converter Rental $49,650 $48,193 $14,060 $97,296 Maintenance Contracts $37,671 $21,269 $0 $39,168 New Customer Pay Installs $78 $78 $275 $0 New Customer Basic Installs $33,786 $53,663 $65,766 $10,920 Installation Materials Charge $301 $0 $0 $0 Installs - Non New Customers $92,532 $83,947 $78,466 $48,996 Guide Revenue $8 $0 $0 $4,872 Other - Late Charges $67,905 $85,715 $73,700 $79,080 Other - Rent $8,960 $9,498 $10,407 $13,968 Other - Franchise Pass Through $5,519 $0 $0 $24,732 Other - Miscellaneous $33 $382 $1,403 $0 FCC User Fees Pass Through $8,848 $455 $0 $9,360 Other - Programmers $0 $0 $0 $551,064 QVC Monthly Commission $25,290 $23,479 $23,297 $23,316 QVC Carriage Payment $14,516 $14,516 $14,515 $0 HSN Monthly Commission $7,489 $0 $0 $8,484 HSN Carriage Payment $14,772 $0 $0 $26,808 Classifed Ads $91,439 $71,510 $60,097 $81,240 Ad Insertion Sales $183,458 $171,423 $127,342 $343,800 Ad Sales Other $0 $0 $91 $0 Production & Local Origination $22,396 $13,511 $9,175 $101,436 -------- -------- ------- -------- Total Revenues $6,299,202 $5,888,301 $5,635,632 $8,086,320
152 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: SOMERSET, KY
------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 ------------------------------------------------------------------------- EXPENSES Technical Salary - Supervisor $5,576 $66,912 $16,729 $66,916 $66,916 Technical Salary - Technician $35,569 $426,828 $109,714 $438,856 $428,056 Technical Salary - Dispatcher $0 $0 $0 $0 $0 Technical Salary - Installers $13,103 $157,236 $38,269 $153,076 $148,029 Overtime/Standby $18,599 $223,188 $60,220 $240,880 $158,241 Payroll Taxes $4,992 $59,904 $17,547 $70,188 $66,258 Group Insurance $5,467 $65,604 $16,982 $67,928 $69,287 Other Benefits ($23,842) ($286,104) ($17,070) ($68,280) $13,404 Allocated Personnel Expense ($41,600) ($499,200) ($122,898) ($491,592) ($449,977) Allocated P/R Benefit $7,278 $87,336 ($10,058) ($40,232) ($87,450) Allocated Department Expense $0 $0 $92 $368 $92 Rent - Headend $2,800 $33,600 $8,400 $33,600 $34,100 Rent - Poles and Ducts ($10,459) ($125,508) $3,603 $14,412 $67,017 R & M Plant $564 $6,768 $4,063 $16,252 $15,538 R & M Converter $867 $10,404 $4,351 $17,404 $18,647 R & M Other $484 $5,808 $3,354 $13,416 $6,072 Material and Reconnect $818 $9,816 $2,903 $11,612 $9,544 Vehicle - Gas & Oil $1,756 $21,072 $7,568 $30,272 $28,896 Vehicle - Service $652 $7,824 $2,743 $10,972 $14,128 Leased Vehicles $0 $0 $0 $0 $0 T & E System Travel $0 $0 $0 $0 $0 T & E System Non-Travel $141 $1,692 $483 $1,932 $578 Dues & Subscriptions $9 $108 $28 $112 $203 Education $0 $0 $0 $0 $409 System Power Costs $5,581 $66,972 $18,295 $73,180 $68,318 Recruiting $0 $0 $0 $0 $0 Loss on Converters $150 $1,800 $450 $1,800 $1,800 Property Taxes $87,028 $1,044,336 $137,789 $551,156 $364,690 Uniforms $738 $8,856 $1,915 $7,660 $7,304 Small Tool and Safety $0 $0 $0 $0 $800 Capital Labor & OH Construction ($24,618) ($295,416) ($94,369) ($377,476) ($206,921) Capital Labor & OH Customer ($6,293) ($75,516) ($24,657) ($98,628) ($81,887) P & L Salary - Producer Assistant $1,908 $22,896 $5,716 $22,864 $22,738 Payroll Taxes $159 $1,908 $544 $2,176 $1,899 Group Insurance $98 $1,176 $347 $1,388 $1,500 Other Benefits $190 $2,280 $664 $2,656 $1,744 Employee Commissions $0 $0 $0 $0 $0 P & L Other Expenses $808 $9,696 $2,860 $11,440 $6,113 Ad Sales Salary Supervisor $451 $5,412 $1,353 $5,412 $5,412
-------------- -------------------------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING ENDING 12/31/96 12/31/95 12/31/94 12/31/93 ANNUALIZED -------------------------------------------- -------------- EXPENSES Technical Salary - Supervisor $64,342 $61,868 $59,488 $66,912 Technical Salary - Technician $405,137 $394,220 $395,567 $426,828 Technical Salary - Dispatcher $0 $0 $0 $0 Technical Salary - Installers $132,929 $114,762 $124,670 $157,236 Overtime/Standby $125,429 $133,982 $101,432 $223,188 Payroll Taxes $61,895 $59,987 $55,772 $59,904 Group Insurance $53,433 $30,569 $98,650 $65,604 Other Benefits $25,668 $37,410 $44,592 $15,000 Allocated Personnel Expense ($405,626) ($408,422) ($390,803) ($499,200) Allocated P/R Benefit ($84,926) ($76,166) ($122,091) $87,336 Allocated Department Expense $0 $0 ($433) $0 Rent - Headend $34,900 $33,600 $33,600 $33,600 Rent - Poles and Ducts $78,490 $97,371 $53,318 $60,000 R & M Plant $10,113 $5,916 $4,751 $6,768 R & M Converter $14,051 $4,852 $1,581 $10,404 R & M Other $6,202 $4,084 $2,138 $5,808 Material and Reconnect $9,481 $7,208 $4,800 $9,816 Vehicle - Gas & Oil $22,128 $22,015 $21,404 $21,072 Vehicle - Service $17,710 $16,800 $7,986 $7,824 Leased Vehicles $0 $0 $13,384 $0 T & E System Travel $58 $0 $150 $0 T & E System Non-Travel $0 $63 $78 $1,692 Dues & Subscriptions $522 $925 $586 $108 Education $132 $497 $506 $0 System Power Costs $72,792 $77,598 $62,774 $66,972 Recruiting $0 $0 $0 $0 Loss on Converters $1,800 $1,800 $1,800 $1,800 Property Taxes $264,900 $184,185 $309,246 $1,044,336 Uniforms $6,791 $5,435 $6,621 $8,856 Small Tool and Safety $400 $156 $169 $0 Capital Labor & OH Construction ($156,243) ($95,119) ($68,332) $0 Capital Labor & OH Customer ($77,658) ($49,598) ($86,936) $0 P & L Salary - Producer Assistant $22,198 $20,016 $15,600 $22,896 Payroll Taxes $1,886 $1,669 $1,227 $1,908 Group Insurance $1,240 $1,571 $1,993 $1,176 Other Benefits $1,488 $1,512 $1,230 $2,280 Employee Commissions $2,320 $25 $0 $0 P & L Other Expenses $568 $0 $0 $9,696 Ad Sales Salary Supervisor $5,412 $20,810 $20,290 $5,412
153 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: SOMERSET, KY
------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 ------------------------------------------------------------------------- Ad Sales Payroll Taxes $535 $6,420 $1,845 $7,380 $7,630 Ad Sales Group Insurance $532 $6,384 $1,698 $6,792 $7,730 Ad Sales Other Benefits ($22) ($264) $34 $136 $286 Ad Sales Alloc. Personnel Benefit $958 $11,496 $3,023 $12,092 $11,163 Ad Sales Alloc. P/R Benefit $937 $11,244 ($485) ($1,940) ($6,535) Employee Commissions $1,904 $22,848 $5,428 $21,712 $25,626 Other Ad Sale Expenses ($12,225) ($146,700) ($6,420) ($25,680) $13,751 Marketing Payroll Taxes $0 $0 $0 $0 $0 Marketing Salary & Benefits $0 $0 $0 $0 $0 Marketing Allocated P/R Benefit $0 $0 $0 $0 $0 Marketing Employee Commissions $526 $6,312 $526 $2,104 $978 Marketing Expenses $3,180 $38,160 $31,522 $126,088 $88,866 Dues and Subscriptions $73 $876 $238 $952 $727 Rebates $0 $0 $0 $0 $0 Pay Per View Expenses $30 $360 $158 $632 $3,346 Video Game Expenses $0 $0 $0 $0 $0 Miscellaneous Marketing Expenses $770 $9,240 $3,830 $15,320 $8,772 G & A Salary - Supervisor $5,319 $63,828 $9,414 $37,656 $42,579 G & A Salary - CSR $20,044 $240,528 $61,422 $245,688 $238,058 G & A Overtime/Standby $1,144 $13,728 $2,905 $11,620 $8,125 G & A Payroll Taxes $4,411 $52,932 $8,484 $33,936 $28,519 G & A Group Insurance $2,575 $30,900 $8,181 $32,724 $34,834 G & A Other Benefits ($8,930) ($107,160) ($6,790) ($27,160) $2,840 G & A Contract Labor $0 $0 $0 $0 $0 G & A Allocated Personnel Expense ($14,510) ($174,120) ($38,089) ($152,356) ($152,428) G & A Allocated P/R Expense ($20) ($240) ($6,033) ($24,132) ($37,524) Allocated Department Expense ($5,723) ($68,676) ($17,100) ($68,400) ($38,441) Rent - Office $525 $6,300 $1,575 $6,300 $6,300 R & M - Office $755 $9,060 $2,573 $10,292 $11,845 Office Supplies $732 $8,784 $1,764 $7,056 $8,291 Xerox & Printing $0 $0 $1,113 $4,452 $5,224 Vehicle - Gas & Oil $299 $3,588 $498 $1,992 $2,322 T & E System Travel $1,318 $15,816 $2,154 $8,616 $5,803 T & E System Non-Travel $180 $2,160 $269 $1,076 $386 Dues and Subscriptions $21 $252 $81 $324 $1,442 Conventions - Travel $0 $0 $0 $0 $310 Conventions - Non Travel $0 $0 $0 $0 $0 Education $943 $11,316 $1,153 $4,612 $3,691 Recruiting $0 $0 $0 $0 $21 Insurance $18,028 $216,336 $51,355 $205,420 $137,803 Legal $1,050 $12,600 $6,421 $25,684 $15,871
-------------- -------------------------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING ENDING 12/31/96 12/31/95 12/31/94 12/31/93 ANNUALIZED -------------------------------------------- -------------- Ad Sales Payroll Taxes $7,577 $7,271 $4,587 $6,420 Ad Sales Group Insurance $5,863 $3,813 $7,225 $6,384 Ad Sales Other Benefits $336 $1,334 $1,824 $0 Ad Sales Alloc. Personnel Benefit $15,788 ($23,115) ($1,733) $11,496 Ad Sales Alloc. P/R Benefit ($666) ($1,626) $552 $11,244 Employee Commissions $44,203 $74,049 $37,482 $22,848 Other Ad Sale Expenses $21,732 $23,572 $16,294 $10,000 Marketing Payroll Taxes $0 $0 $0 $0 Marketing Salary & Benefits $0 $0 $0 $0 Marketing Allocated P/R Benefit $0 $0 $43 $0 Marketing Employee Commissions $314 $1,718 $8,039 $6,312 Marketing Expenses $48,533 $95,148 $44,100 $38,160 Dues and Subscriptions $2,002 $1,071 $4,022 $876 Rebates $0 ($2,316) $0 $0 Pay Per View Expenses $1,594 $1,259 $8,552 $360 Video Game Expenses $0 $0 $0 $0 Miscellaneous Marketing Expenses $7,778 $14,530 $9,203 $9,240 G & A Salary - Supervisor $76,266 $73,332 $70,512 $63,828 G & A Salary - CSR $219,595 $210,635 $219,528 $240,528 G & A Overtime/Standby $4,440 $4,369 $3,662 $13,728 G & A Payroll Taxes $26,888 $25,899 $24,930 $52,932 G & A Group Insurance $24,036 $13,087 $42,772 $30,900 G & A Other Benefits $6,897 ($172) $32,992 $0 G & A Contract Labor $1,538 $644 $0 $0 G & A Allocated Personnel Expense ($166,526) ($166,962) ($164,094) ($174,120) G & A Allocated P/R Expense ($34,543) ($33,445) ($51,431) ($240) Allocated Department Expense ($62,558) ($70,956) ($66,737) ($68,676) Rent - Office $6,300 $6,200 $5,700 $6,300 R & M - Office $9,379 $10,703 $13,365 $9,060 Office Supplies $9,775 $10,288 $7,292 $8,784 Xerox & Printing $4,344 $4,396 $4,273 $0 Vehicle - Gas & Oil $1,613 $1,585 $1,209 $3,588 T & E System Travel $542 $251 $1,490 $15,816 T & E System Non-Travel $984 $951 $672 $2,160 Dues and Subscriptions $1,380 $890 $1,164 $252 Conventions - Travel $13 $650 $484 $0 Conventions - Non Travel $28 $0 $0 $0 Education $3,889 $2,096 $2,613 $11,316 Recruiting $0 $0 $0 $0 Insurance $165,149 $162,277 $175,848 $216,336 Legal $12,263 $12,000 $7,000 $12,600
154 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SYSTEM LOCATION: SOMERSET, KY
------------------------------------------------------------------------- ONE MONTH ONE MONTH THREE MONTHS THREE MONTHS TWELVE MONTHS ENDING ENDING 12/31/96 ENDING ENDING 12/31/96 ENDING 12/31/96 ANNUALIZED 12/31/96 ANNUALIZED 12/31/96 ------------------------------------------------------------------------- Audit & Taxes $762 $9,144 $2,285 $9,140 $9,010 Association - Dues $1,162 $13,944 $3,391 $13,564 $13,832 Association - Lobbying $186 $2,232 $651 $2,604 $2,271 Political Contribution $0 $0 $100 $400 $100 Donations/Public Relations $163 $1,956 $1,184 $4,736 $7,848 Customer Billing $7,148 $85,776 $21,250 $85,000 $85,197 Postage & Messengers $7,090 $85,080 $21,110 $84,440 $85,890 Utilities $988 $11,856 $3,375 $13,500 $13,060 Telephone $3,567 $42,804 $10,112 $40,448 $32,119 Tax & Licenses $97 $1,164 $291 $1,164 $1,563 FCC User Fees $886 $10,632 $2,658 $10,632 $10,619 Reregulation Costs $0 $0 $13,232 $52,928 $30,024 CATV Franchise $10,626 $127,512 $39,927 $159,708 $164,256 Copyright Fees $7,722 $92,664 $22,881 $91,524 $98,852 BMI License Fees $0 $0 ($448) ($1,792) $4,526 ASCAP License Fees $1,094 $13,128 $3,284 $13,136 $8,445 Bad Debt Expense $9,255 $111,060 $7,646 $30,584 $51,395 Cap. Labor & OH Other ($1,812) ($21,744) ($4,813) ($19,252) ($10,782) G & A Miscellaneous Expense $3,287 $39,444 $6,623 $26,492 $10,069 Primary Satellite Fees $81,022 $972,264 $244,728 $978,912 $925,578 Program Guides $331 $3,972 $1,087 $4,348 $10,712 Pay TV Fees $18,758 $225,096 $55,151 $220,604 $251,372 Pay Per View Fees $384 $4,608 $2,067 $8,268 $6,730 Video Game Fees $0 $0 $0 $0 $0 --- --- --- --- -- Total Expenses $267,049 $3,204,588 $788,449 $3,153,796 $3,102,395 Operating Income $406,811 $4,881,732 $1,229,833 $4,919,332 $3,988,470 Operating Margin 60.37% 60.37% 60.93% 60.93% 56.25%
-------------- -------------------------------------------- ADJUSTED TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ONE MONTH ENDING ENDING ENDING ENDING 12/31/96 12/31/95 12/31/94 12/31/93 ANNUALIZED -------------------------------------------- -------------- Audit & Taxes $25,604 $39,812 $16,246 $9,144 Association - Dues $6,574 $7,318 $7,312 $13,944 Association - Lobbying $1,212 $1,202 $0 $2,232 Political Contribution $0 $0 $0 $0 Donations/Public Relations $6,135 $5,021 $4,256 $1,956 Customer Billing $95,517 $98,893 $88,898 $85,776 Postage & Messengers $83,629 $78,104 $77,033 $85,080 Utilities $12,222 $11,663 $11,281 $11,856 Telephone $27,776 $27,991 $28,860 $42,804 Tax & Licenses $1,437 $270 $753 $1,164 FCC User Fees $8,678 $7,257 $0 $10,632 Reregulation Costs $7,841 $25,519 $13,010 $0 CATV Franchise $179,949 $148,978 $160,945 $127,512 Copyright Fees $78,077 $73,468 $63,629 $92,664 BMI License Fees $0 $0 $0 $0 ASCAP License Fees $0 $0 $0 $13,128 Bad Debt Expense $65,460 $96,890 $69,142 $111,060 Cap. Labor & OH Other ($32,458) ($15,411) ($5,946) $0 G & A Miscellaneous Expense $9,182 $7,050 $7,250 $39,444 Primary Satellite Fees $803,806 $657,702 $649,739 $972,264 Program Guides $20,788 $16,367 $13,018 $3,972 Pay TV Fees $275,154 $234,780 $218,302 $225,096 Pay Per View Fees ($237) $4,149 $3,914 $4,608 Video Game Fees $0 $0 $0 $0 --- --- --- --- Total Expenses $2,863,054 $2,704,050 $2,677,884 $4,348,000 Operating Income $3,436,148 $3,184,251 $2,957,748 $3,738,320 Operating Margin 54.55% 54.08% 52.48% 46.23%
155 SYSTEM LOCATION: SOMERSET, KY
------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 ------------------------------------------------------------------------- REVENUES Primary - First Outlet $4,327,568 $4,085,262 $3,780,392 $3,827,585 $3,171,423 Primary Commercial $70,104 $73,145 $69,778 $68,505 $67,614 Expanded Tier $0 $0 $0 $0 $0 A-G Tier $84 $83 $60 $23,815 $457,868 A-J Tier $192 $149 $74 $23,544 $815,239 A-L Tier $526,288 $474,908 $412,199 $165,567 $0 Radio Services $68 $102 $98 $0 $0 Pay Cable First Outlet $393,364 $440,217 $466,915 $390,766 $354,268 Pay Cable Additional Outlet $3,468 $4,085 $6,672 $8,484 $7,591 Ala Carte $0 $0 $0 $717,997 $173,276 New Product Tier 1 $1,185,116 $1,005,944 $813,889 $0 $0 Commercial Pay $16,320 $20,604 $32,976 $12,816 $12,567 Pay Per View $14,240 $11,912 $6,818 $7,417 $6,523 Primary Additional Outlet $0 $0 $0 $1,470 $40,225 Remote Control $18,496 $28,564 $44,680 $42,696 $50,444 Converter Rental $95,600 $83,054 $49,650 $48,193 $14,060 Maintenance Contracts $39,836 $41,057 $37,671 $21,269 $0 New Customer Pay Installs $0 $0 $78 $78 $275 New Customer Basic Installs $17,028 $24,787 $33,786 $53,663 $65,766 Installation Materials Charge ($40) $5 $301 $0 $0 Installs - Non New Customers $63,204 $88,319 $92,532 $83,947 $78,466 Guide Revenue $5,052 $3,762 $8 $0 $0 Other - Late Charges $73,300 $70,610 $67,905 $85,715 $73,700 Other - Rent $9,600 $9,600 $8,960 $9,498 $10,407 Other - Franchise Pass Through $24,584 $22,934 $5,519 $0 $0 Other - Miscellaneous $2,640 $905 $33 $382 $1,403 FCC User Fees Pass Through $9,384 $9,413 $8,848 $455 $0 Other - Programmers $655,484 $168,073 $0 $0 $0 QVC Monthly Commission $27,592 $26,495 $25,290 $23,479 $23,297 QVC Carriage Payment $12,412 $12,307 $14,516 $14,516 $14,515 HSN Monthly Commission $10,000 $10,667 $7,489 $0 $0 HSN Carriage Payment $70,992 $28,827 $14,772 $0 $0 Classifed Ads $87,160 $101,632 $91,439 $71,510 $60,097 Ad Insertion Sales $288,020 $198,116 $183,458 $171,423 $127,342 Ad Sales Other $0 $0 $0 $0 $91 Production & Local Origination $69,300 $45,327 $22,396 $13,511 $9,175 -------- -------- -------- -------- ------- Total Revenues $8,116,456 $7,090,865 $6,299,202 $5,888,301 $5,635,632
156 SYSTEM LOCATION: SOMERSET, KY
------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 ------------------------------------------------------------------------- EXPENSES Technical Salary - Supervisor $66,916 $66,916 $64,342 $61,868 $59,488 Technical Salary - Technician $438,856 $428,056 $405,137 $394,220 $395,567 Technical Salary - Dispatcher $0 $0 $0 $0 $0 Technical Salary - Installers $153,076 $148,029 $132,929 $114,762 $124,670 Overtime/Standby $240,880 $158,241 $125,429 $133,982 $101,432 Payroll Taxes $70,188 $66,258 $61,895 $59,987 $55,772 Group Insurance $67,928 $69,287 $53,433 $30,569 $98,650 Other Benefits $15,000 $13,404 $25,668 $37,410 $44,592 Allocated Personnel Expense ($491,592) ($449,977) ($405,626) ($408,422) ($390,803) Allocated P/R Benefit ($40,232) ($87,450) ($84,926) ($76,166) ($122,091) Allocated Department Expense $368 $92 $0 $0 ($433) Rent - Headend $33,600 $34,100 $34,900 $33,600 $33,600 Rent - Poles and Ducts $14,412 $67,017 $78,490 $97,371 $53,318 R & M Plant $16,252 $15,538 $10,113 $5,916 $4,751 R & M Converter $17,404 $18,647 $14,051 $4,852 $1,581 R & M Other $13,416 $6,072 $6,202 $4,084 $2,138 Material and Reconnect $11,612 $9,544 $9,481 $7,208 $4,800 Vehicle - Gas & Oil $30,272 $28,896 $22,128 $22,015 $21,404 Vehicle - Service $10,972 $14,128 $17,710 $16,800 $7,986 Leased Vehicles $0 $0 $0 $0 $13,384 T & E System Travel $0 $0 $58 $0 $150 T & E System Non-Travel $1,932 $578 $0 $63 $78 Dues & Subscriptions $112 $203 $522 $925 $586 Education $0 $409 $132 $497 $506 System Power Costs $73,180 $68,318 $72,792 $77,598 $62,774 Recruiting $0 $0 $0 $0 $0 Loss on Converters $1,800 $1,800 $1,800 $1,800 $1,800 Property Taxes $551,156 $364,690 $264,900 $184,185 $309,246 Uniforms $7,660 $7,304 $6,791 $5,435 $6,621 Small Tool and Safety $0 $800 $400 $156 $169 Capital Labor & OH Construction $0 $0 $0 $0 $0 Capital Labor & OH Customer $0 $0 $0 $0 $0 P&L Salary - Producer Assistant $22,864 $22,738 $22,198 $20,016 $15,600 Payroll Taxes $2,176 $1,899 $1,886 $1,669 $1,227 Group Insurance $1,388 $1,500 $1,240 $1,571 $1,993 Other Benefits $2,656 $1,744 $1,488 $1,512 $1,230 Employee Commissions $0 $0 $2,320 $25 $0 P&L, Other expenses $11,440 $6,113 $568 $0 $0 Ad Sales Salary Supervisor $5,412 $5,412 $5,412 $20,810 $20,290 Ad Sales Payroll Taxes $7,380 $7,630 $7,577 $7,271 $4,587 Ad Sales Group Insurance $6,792 $7,730 $5,863 $3,813 $7,225 Ad Sales Other Benefits $136 $286 $336 $1,334 $1,824 Ad Sales Alloc. Personnel Benefit $12,092 $11,163 $15,788 ($23,115) ($1,733) Ad Sales Alloc. P/R Benefit ($1,940) ($6,535) ($666) ($1,626) $552 Employee Commissions $21,712 $25,626 $44,203 $74,049 $37,482 Other Ad Sale Expenses $10,000 $13,751 $21,732 $23,572 $16,294 Marketing Payroll Taxes $0 $0 $0 $0 $0 Marketing Salary & Benefits $0 $0 $0 $0 $0 Marketing Allocated P/R Benefit $0 $0 $0 $0 $43 Marketing Employee Commissions $2,104 $978 $314 $1,718 $8,039 Marketing Expenses $126,088 $88,866 $48,533 $95,148 $44,100 Dues and Subscriptions $952 $727 $2,002 $1,071 $4,022 Rebates $0 $0 $0 ($2,316) $0 Pay Per View Expenses $632 $3,346 $1,594 $1,259 $8,552 Video Game Expenses $0 $0 $0 $0 $0 Miscellaneous Marketing Expenses $15,320 $8,772 $7,778 $14,530 $9,203 G&A Salary - Supervisor $37,656 $42,579 $76,266 $73,332 $70,512 G&A Salary - CSR $245,688 $238,058 $219,595 $210,635 $219,528 G&A Overtime/Standby $11,620 $8,125 $4,440 $4,369 $3,662 G&A Payroll Taxes $33,936 $28,519 $26,888 $25,899 $24,930 G&A Group Insurance $32,724 $34,834 $24,036 $13,087 $42,772 G&A Other Benefits $0 $2,840 $6,897 $0 $32,992 G&A Contract Labor $0 $0 $1,538 $644 $0 G&A Allocated Personnel Expense ($152,356) ($152,428) ($166,526) ($166,962) ($164,094) G&A Allocated P/R Expense ($24,132) ($37,524) ($34,543) ($33,445) ($51,431) Allocated Department Expense ($68,400) ($38,441) ($62,558) ($70,956) ($66,737) Rent - Office $6,300 $6,300 $6,300 $6,200 $5,700 R&M - Office $10,292 $11,845 $9,379 $10,703 $13,365 Office Supplies $7,056 $8,291 $9,775 $10,288 $7,292 Xerox & Printing $4,452 $5,224 $4,344 $4,396 $4,273 Vehicle - Gas & Oil $1,992 $2,322 $1,613 $1,585 $1,209 T&E System Travel $8,616 $5,803 $542 $251 $1,490 T&E System Non-Travel $1,076 $386 $984 $951 $672 Dues and Subscriptions $324 $1,442 $1,380 $890 $1,164 Conventions - Travel $0 $310 $13 $650 $484 Conventions - Non Travel $0 $0 $28 $0 $0 Education $4,612 $3,691 $3,889 $2,096 $2,613 Recruiting $0 $21 $0 $0 $0 Insurance $205,420 $137,803 $165,149 $162,277 $175,848 Legal $25,684 $15,871 $12,263 $12,000 $7,000
157 SYSTEM LOCATION: SOMERSET, KY
------------------------------------------------------------------------- ADJUSTED ADJUSTED ADJUSTED ADJUSTED ADJUSTED THREE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDING 12/31/96 ENDING ENDING ENDING ENDING ANNUALIZED 12/31/96 12/31/95 12/31/94 12/31/93 ------------------------------------------------------------------------- Audit & Taxes $9,140 $9,010 $25,604 $39,812 $16,246 Association - Dues $13,564 $13,832 $6,574 $7,318 $7,312 Association - Lobbying $2,604 $2,271 $1,212 $1,202 $0 Political Contribution $400 $100 $0 $0 $0 Donations/Public Relations $4,736 $7,848 $6,135 $5,021 $4,256 Customer Billing $85,000 $85,197 $95,517 $98,893 $88,898 Postage & Messengers $84,440 $85,890 $83,629 $78,104 $77,033 Utilities $13,500 $13,060 $12,222 $11,663 $11,281 Telephone $40,448 $32,119 $27,776 $27,991 $28,860 Tax & Licenses $1,164 $1,563 $1,437 $270 $753 FCC User Fees $10,632 $10,619 $8,678 $7,257 $0 Reregulation Costs $52,928 $30,024 $7,841 $25,519 $13,010 CATV Franchise $159,708 $164,256 $179,949 $148,978 $160,945 Copyright Fees $91,524 $98,852 $78,077 $73,468 $63,629 BMI License Fees $0 $4,526 $0 $0 $0 ASCAP License Fees $13,136 $8,445 $0 $0 $0 Bad Debt Expense $30,584 $51,395 $65,460 $96,890 $69,142 Cap. Labor & OH Other $0 $0 $0 $0 $0 G & A Miscellaneous Expense $26,492 $10,069 $9,182 $7,050 $7,250 Primary Satellite Fees $978,912 $925,578 $803,806 $657,702 $649,739 Program Guides $4,348 $10,712 $20,788 $16,367 $13,018 Pay TV Fees $220,604 $251,372 $275,154 $234,780 $218,302 Pay Per View Fees $8,268 $6,730 ($237) $4,149 $3,914 Video Game Fees $0 $0 $0 $0 $0 --- --- --- --- --- Total Expenses $3,797,064 $3,401,985 $3,129,413 $2,864,350 $2,839,098 Operating Income $4,319,392 $3,688,880 $3,169,789 $3,023,951 $2,796,534 Operating Margin 53.22% 52.02% 50.32% 51.36% 49.62%
158 [LOGO - ARTHUR ANDERSEN LLP] ADDENDUM 4 Demographics 159 SERVICE AREA DEMOGRAPHICS
ANNUAL 1/1/96 1/1/01 CHANGE ------ ------ ------- BURKE COUNTY, NC POPULATION 81,000 85,500 1.09% HOUSEHOLDS 31,200 33,200 1.25% MEDIAN AGE 37.1 N/A AVERAGE HOUSEHOLD EBI $32,427 $38,191 3.33% STATE OF NORTH CAROLINA POPULATION 7,527,800 7,845,900 0.83% HOUSEHOLDS 2,775,800 3,056,700 1.95% MEDIAN AGE 33.5 N/A AVERAGE HOUSEHOLD EBI $36,360 $43,414 3.61% KERN COUNTY, CALIFORNIA POPULATION 627,900 674,300 1.44% HOUSEHOLDS 203,400 218,200 1.41% MEDIAN AGE 30.9 N/A AVERAGE HOUSEHOLD EBI $35,099 $38,197 1.71% STATE OF CALIFORNIA POPULATION 32,362,300 33,276,700 0.56% HOUSEHOLDS 10,898,600 11,190,500 0.53% MEDIAN AGE 32.9 N/A AVERAGE HOUSEHOLD EBI $43,427 $46,677 1.45% KENT COUNTY, MARYLAND POPULATION 18,900 19,400 0.52% HOUSEHOLDS 7,300 7,800 1.33% MEDIAN AGE 38.5 N/A AVERAGE HOUSEHOLD EBI $37,878 $40,407 1.30% QUEEN ANNE'S COUNTY, MARYLAND POPULATION 36,700 38,800 1.12% HOUSEHOLDS 13,700 14,800 1.56% MEDIAN AGE 37.1 N/A AVERAGE HOUSEHOLD EBI $43,959 $47,376 1.51% TALBOT COUNTY, MARYLAND POPULATION 32,600 34,500 1.14% HOUSEHOLDS 13,500 14,500 1.44% MEDIAN AGE 41.1 N/A AVERAGE HOUSEHOLD EBI $45,806 $54,151 3.40%
160 STATE OF MARYLAND POPULATION 5,072,900 5,299,500 0.88% HOUSEHOLDS 1,859,100 1,964,800 1.11% MEDIAN AGE 35.0 N/A AVERAGE HOUSEHOLD EBI $46,295 $51,496 2.15% TOTAL SERVICE AREA - STATE OF MARYLAND POPULATION 88,200 92,700 1.00% HOUSEHOLDS 34,500 37,100 1.46% DESCHUTES COUNTY, OREGON POPULATION 95,600 110,900 3.01% HOUSEHOLDS 37,500 44,000 3.25% MEDIAN AGE 37.3 N/A AVERAGE HOUSEHOLD EBI $34,515 $39,764 2.87% STATE OF OREGON POPULATION 3,166,800 3,431,000 1.62% HOUSEHOLDS 1,227,300 1,342,200 1.81% MEDIAN AGE 38.7 N/A AVERAGE HOUSEHOLD EBI $25,986 $31,884 4.18% ADAIR COUNTY, KENTUCKY POPULATION 16,300 17,300 1.20% HOUSEHOLDS 6,300 6,800 1.54% MEDIAN AGE 36.9 N/A AVERAGE HOUSEHOLD EBI $25,986 $31,884 4.18% PULASKI COUNTY, KENTUCKY POPULATION 55,000 59,900 1.72% HOUSEHOLDS 21,100 23,400 2.09% MEDIAN AGE 37.0 N/A AVERAGE HOUSEHOLD EBI $27,746 $34,345 4.36% LAUREL COUNTY, KENTUCKY POPULATION 48,600 53,000 1.75% HOUSEHOLDS 17,600 19,600 2.18% MEDIAN AGE 34.2 N/A AVERAGE HOUSEHOLD EBI $27,345 $32,701 3.64%
161 LINCOLN COUNTY, KENTUCKY POPULATION 21,700 23,200 1.35% HOUSEHOLDS 8,100 8,600 1.21% MEDIAN AGE 35.7 N/A AVERAGE HOUSEHOLD EBI $27,595 $36,183 5.57% TOTAL SERVICE AREA - STATE OF KENTUCKY POPULATION 141,600 153,400 1.61% HOUSEHOLDS 53,100 58,400 1.92% STATE OF KENTUCKY POPULATION 3,876,100 4,020,000 0.73% HOUSEHOLDS 1,457,000 1,537,200 1.08% MEDIAN AGE 34.7 N/A AVERAGE HOUSEHOLD EBI $33,594 $41,428 4.28% UNITED STATES POPULATION 264,900,090 276,107,000 0.83% HOUSEHOLDS 97,647,400 102,813,100 1.04% MEDIAN AGE 34.8 N/A AVERAGE HOUSEHOLD EBI $40,598 $47,002 2.97% TOTAL SERVICE AREA - ENTIRE SYSTEM POPULATION 40,924,400 42,239,400 0.63% HOUSEHOLDS 14,034,100 14,638,100 0.85%
EX-10.31 3 EXHIBIT 10.31 1 EXHIBIT 10.31 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUATION ANALYSIS AS OF DECEMBER 31, 1996 [LOG0] COMMUNICATIONS EQUITY ASSOCIATES (C) 1997 BY CEA MARCH 3, 1997 1235 WESTLAKES DRIVE SUITE 245 - BERWYN, PENNSYLVANIA 19312 - (610) 251-0650 - (610) 251-9180 2 [LOG0] COMMUNICATIONS EQUITY ASSOCIATES VIA FEDERAL EXPRESS March 3, 1997 PERSONAL AND CONFIDENTIAL Mr. Michael K. Menerey Chief Financial Officer Falcon Holdings Group, L.P. 474 South Raymond Avenue Suite 200 Pasadena, CA 91105 Dear Mr. Menerey: Communications Equity Associates, Inc. ("CEA") is pleased to submit the results of our valuation analysis of the cable television system assets (the "Cable Systems") owned by Falcon Classic Cable Income Properties, L.P. ("Falcon Classic" or the "Partnership"), as of December 31, 1996. It is our understanding that the asset values determined by this analysis will be used by you as part of the Appraisal Process, as defined in the Falcon Classic Partnership Agreement dated May 15, 1989, as amended. CEA hereby expresses no opinion as to the value of the Falcon Classic Partnership Units, nor does CEA hereby express an opinion as to the fairness of any transaction involving the Cable Systems or the Falcon Classic Partnership Units. We hereby express our opinion of the fair market value of the assets of the Cable Systems, free and clear of all liens, liabilities and encumbrances. Fair market value is hereby defined as the cash price at which the assets of the Cable Systems would sell in a normal market from a willing seller to a willing buyer, allowing a reasonable time to find a purchaser, with both parties having reasonable knowledge of relevant facts about the Cable Systems, and with neither party under any compulsion to buy or to sell. We have performed valuation analyses, as of December 31, 1996, of five separate cable systems, respectively located in Burke County, North Carolina; Redmond, Oregon; California City, California; Centreville, Maryland; and Somerset, Kentucky. The results of these analyses are summarized below: 3 Mr. Michael K. Menerey March 3, 1997 Page Two
FAIR MARKET VALUE CABLE SYSTEM AS OF 12/31/96 ------------ -------------- BURKE COUNTY, NC $19,000,000 REDMOND, OR 6,200,000 CALIFORNIA CITY, CA 2,800,000 CENTREVILLE, MD 23,000,000 SOMERSET, KY 31,000,000
These valuations are intended solely for your use for the purpose stated above, and are not intended for general publication or circulation. Since these value indications are the result of certain specific assumptions, and since these assumptions may not be relevant for other purposes, these values should not be used for any other purpose. We specifically prohibit the use of these results in assessing the fairness of any transactions involving the Falcon Classic Partnership Units, and our value conclusions stated above should in no way be construed as an opinion as to the value of the Partnership Units. Since we have not undertaken an analysis of the debt of the Partnership, we can make no representations as to whether the fair salable value of the Partnership's assets exceeds its debt, whether the Partnership will be able to meet its debt obligations as they come due, or whether the Partnership is properly capitalized. We can similarly make no representations as to the solvency of the Partnership. In making this analysis, CEA relied substantially on financial and operational information provided by the Partnership and system personnel. CEA did not independently verify this information and can therefore accept no responsibility as to its accuracy. As part of this analysis, CEA physically toured only the Cable Systems located in North Carolina, Kentucky and Maryland. A list of limiting conditions is attached to this letter. 4 Mr. Michael K. Menerey March 3, 1997 Page Three CEA is independent of the Partnership, and CEA's fee for performing this analysis was in no way contingent upon the results of this analysis. Neither CEA nor any of its employees involved in the preparation of this analysis have a present or contemplated direct or indirect interest in the Partnership or in the property herein analyzed. To the best of CEA's knowledge and belief, all statements contained in this letter are true and correct, and no important information has been knowingly withheld. This valuation was developed and this letter has been prepared in conformity with the Uniform Standards of Professional Appraisal Practice. Respectfully submitted, /s/ COMMUNICATIONS EQUITY ASSOCIATES, INC. Communications Equity Associates, Inc. /cea Attachment 5 LIMITING CONDITIONS 1. CEA offers no opinions on either the potential effect of current or future FCC regulations on the cash flow of the Cable Systems, or on the Partnership's strategy in dealing with these regulations. The value conclusions derived herein were based on the assumption that the current rates of the Cable Systems are in compliance with current FCC regulations, and that no future refund liability is associated with the Cable Systems. 2. This valuation is based on CEA's assessment of market conditions as of the date of this report, and assumes that market, regulatory and other conditions remain static. Changes in the economy as well as additional rule-making by the FCC could have a material effect on the values herein derived. 3. CEA cannot guarantee that a buyer could be found for the Cable Systems at the prices herein determined, or at any rational price. 4. As part of this analysis, CEA relied substantially on financial and operational information provided by the Partnership. CEA did not independently verify this information and can therefore accept no responsibility as to its accuracy. 5. CEA specifically prohibits the use of these value conclusions in all matters related to the fairness of any transactions involving the Falcon Classic Partnership Units. 6. CEA specifically prohibits the use of these value conclusions in all matters related to the solvency of the Partnership. Since we have not undertaken an analysis of the debt of the Partnership, we can make no representations as to whether the fair salable value of the Partnership's assets exceeds its debt, whether the Partnership will be able to meet its debt obligations as they come due, or whether the Partnership is reasonably capitalized. 7. CEA did not conduct a detailed technical evaluation of the Cable Systems, but instead relied on information provided by the Partnership and its employees in assessing the technical condition of the Cable Systems. 8. CEA has assumed that the Cable Systems, as currently operated, are in material compliance with all franchise, regulatory, and FCC requirements. CEA did not independently verify compliance with these requirements. 9. The franchises for the Cable Systems expire at various points in the future, and there is no assurance that any franchise will be renewed, or that any will be renewed with reasonable provisions. The non-renewal of any franchise or violations of franchise requirements could have a material detrimental effect on the value of the Cable Systems. 6 TABLE OF CONTENTS
SECTION PAGE - ------- ---- 1. OVERVIEW OF ANALYSIS o Background and Description of Analysis...................... 1 o Definitions of Value........................................ 1 o Description of Valuation Methodologies...................... 1 2. BURKE COUNTY, NORTH CAROLINA o System Overview............................................. 4 System Description....................................... 4 Home and Subscriber Growth............................... 4 Financial Summary........................................ 4 o Valuation................................................... 5 Discounted Cash Flow Approaches.......................... 5 Cash Flow Multiple and Adjusted Cash Flow Multiple Approaches......................... 16 Subscriber Multiple Approach............................. 17 Rebuild Cash Flow Multiple Approach...................... 17 o Value Conclusions........................................... 18 3. REDMOND, OREGON o System Overview............................................. 19 System Description....................................... 19 Home and Subscriber Growth............................... 19 Financial Summary........................................ 19 o Valuation................................................... 20 Discounted Cash Flow Approaches.......................... 20 Cash Flow Multiple and Adjusted Cash Flow Multiple Approaches......................... 31 Subscriber Multiple Approach............................. 32 Rebuild Cash Flow Multiple Approach...................... 32 o Value Conclusions........................................... 33
7 4. CALIFORNIA CITY, CA o System Overview............................................. 34 System Description....................................... 34 Home and Subscriber Growth............................... 34 Financial Summary........................................ 34 o Valuation................................................... 35 Discounted Cash Flow Approaches.......................... 35 Cash Flow Multiple and Adjusted Cash Flow Multiple Approaches......................... 46 Subscriber Multiple Approach............................. 47 Rebuild Cash Flow Multiple Approach...................... 47 o Value Conclusions........................................... 48 5. CENTREVILLE, MD o System Overview............................................. 49 System Description....................................... 49 Home and Subscriber Growth............................... 49 Financial Summary........................................ 49 o Valuation................................................... 50 Discounted Cash Flow Approaches.......................... 50 Cash Flow Multiple and Adjusted Cash Flow Multiple Approaches......................... 61 Subscriber Multiple Approach............................. 62 Rebuild Cash Flow Multiple Approach...................... 62 o Value Conclusions........................................... 63 6. SOMERSET, KY o System Overview............................................. 64 System Description....................................... 64 Home and Subscriber Growth............................... 64 Financial Summary........................................ 64 o Valuation................................................... 65 Discounted Cash Flow Approaches.......................... 65 Cash Flow Multiple and Adjusted Cash Flow Multiple Approaches......................... 76 Subscriber Multiple Approach............................. 77 Rebuild Cash Flow Multiple Approach...................... 77 o Value Conclusions........................................... 78
8 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. OVERVIEW OF ANALYSIS BACKGROUND AND DESCRIPTION OF ANALYSIS CEA has been retained by the Partnership to determine the fair market value of the assets of the Cable Systems as of December 31, 1996. It is CEA's understanding that the asset values determined by this analysis will be used by the Partnership as part of the Appraisal Process, as defined in the Falcon Classic Partnership Agreement dated May 15, 1989, as amended. CEA hereby expresses no opinion as to the value of the Falcon Classic Partnership Units, nor does CEA hereby express an opinion as to the fairness of any transaction involving the Cable Systems or the Falcon Classic Partnership Units. CEA physically toured only the North Carolina, Kentucky and Maryland Cable Systems as part of this analysis. CEA has not conducted a technical analysis of the cable plant, and has therefore relied on assertions made by Cable System management regarding the technical performance of the cable plant. DEFINITION OF FAIR MARKET VALUE "FAIR MARKET VALUE" is hereby defined as the cash price at which the assets of the Cable Systems would sell in a normal market from a willing seller to a willing buyer, allowing a reasonable time to find a purchaser, with both parties having reasonable knowledge of relevant facts about the Cable Systems, and with neither party under any compulsion to buy or to sell. DESCRIPTION OF VALUATION METHODOLOGIES CEA used variations of two valuation methods in determining the fair market value of the Cable Systems. These two methods, the discounted cash flow approach and the market approach, are discussed below. DISCOUNTED CASH FLOW APPROACH In the discounted cash flow ("DCF") approach, the value of an asset is determined by calculating the total present value of the future cash flows generated by the asset. The critical variables to be derived in a discounted cash flow analysis are: (1) the projection of the relevant cash flow stream, (2) the appropriate discount rate for the asset, and (3) the terminal value of the asset at the end of a given projection period. In the case of cable television systems, the value of a system is usually calculated as the present value of the free cash flow (operating cash flow less capital expenditures) of the system, using a weighted average cost of debt and equity capital as the discount rate, with a terminal value based on a multiple of operating cash flow. 1 9 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. In conducting each of the Cable System valuations, CEA performed two variations of the discounted cash flow approach, as follows: 1. The first variation of the DCF approach (the "Rebuild DCF Approach") was conducted under the assumption that the Cable System would be rebuilt to current state-of-the-art technical standards. 2. The second variation of the DCF approach (the "No Rebuild DCF Approach") was conducted under the assumption that the Cable System would continue to operate without a significant technical rebuild. MARKET APPROACH In the market approach, the value of an asset is determined based on a comparison with market transactions involving comparable assets. In order to facilitate this comparison, the respective purchase prices of the comparable assets are expressed as ratios based on a relevant operating statistic, typically earnings or cash flow. In the case of cable television systems, the purchase price of a system is usually expressed as either a multiple of the operating cash flow of the system, or as a price per basic subscriber served by the system. The appropriate multiple is then applied to the operating cash flow or the number of subscribers of the subject system in order to determine its value. In conducting each of the Cable System valuations, CEA performed four variations of the market approach, as follows: 1. In the first variation of the market approach (the "Cash Flow Multiple Approach"), CEA determined and applied the appropriate multiple of the Cable System's actual 1996 operating cash flow in determining value. 2. In the second variation of the market approach (the "Adjusted Cash Flow Multiple Approach"), CEA determined and applied the appropriate multiple of the Cable System's adjusted 1996 operating cash flow in determining value, with the Cable System's cash flow adjusted to a normalized, industry-average 50% cash flow margin. 3. In the third variation of the market approach (the "Subscriber Multiple Approach"), CEA multiplied the number of basic subscribers in each Cable System as of December 31, 1996 by $1,800. Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that $1,800 is the current overall average per-subscriber price at which typical cable systems could reasonably be expected to sell. 2 10 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. 4. In the fourth variation of the market approach (the "Rebuild Cash Flow Multiple Approach"), CEA determined the value of each Cable System by multiplying the actual 1996 operating cash flow of each Cable System by 10.5, and then subtracting the estimated cost to rebuild each Cable System. Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art cable system could reasonably be expected to sell, on average, for approximately 10.5 times operating cash flow. The application of each of these approaches and the derivation of the relevant variables of each approach are discussed in subsequent sections of this report. 3 11 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. BURKE COUNTY, NC SYSTEM OVERVIEW -- BURKE COUNTY, NC SYSTEM DESCRIPTION The Partnership owns the Cable System that serves Burke County, North Carolina, as well as the North Carolina towns of Valdese, Drexel, Glen Alpine, Rutherford College, and Connelly Springs. As of December 31, 1996, the Cable System passed nearly 20,000 homes with 731 miles of plant, and served 10,516 basic subscribers from one headend. Relevant subscriber statistics as of December 31, 1996 are displayed in the following table.
Homes Basic Basic Pay Pay As of 12/31/96 Passed Subscribers Penetration Units Penetration -------------- ------ ----------- ----------- ----- ----------- Burke County, NC 18,986 10,516 55.4% 4,840 46.0%
The Cable System operates at 330 MHz, 43-channel capacity, and offers 43 channels of programming. HOME AND SUBSCRIBER GROWTH During the past few years, the Cable System has experienced some home growth, while basic subscribers have declined due to competition in certain overbuilt areas of the Cable System. The Company's home and subscriber growth history is displayed below.
1994 1995 1996 CAGR 94-96 ---- ---- ---- ---------- Homes Passed 18,525 18,745 18,986 1.2% Basic Subscribers 11,124 10,908 10,516 -2.8%
FINANCIAL SUMMARY For the year ended December 31, 1996, the Burke County, NC Cable System generated total revenue of $5,077,796 and operating cash flow of $3,054,154, resulting in a 60.1% operating cash flow margin. 4 12 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUATION -- BURKE COUNTY, NC DISCOUNTED CASH FLOW APPROACHES Financial projections, including all assumptions regarding operations and future capital expenditures, relating to the Rebuild DCF Approach and to the No Rebuild DCF Approach are displayed on the following ten pages. These projections were prepared by CEA based on certain information provided by the Partnership, including, but not limited to, the Partnership's 1997 budget for the Cable System. The discount rate used in this analysis was derived using a weighted average cost of capital. Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that equity investors in cable systems would likely require a 25 percent return in order to justify the equity investment. Additionally, based on CEA's recent experience in raising debt financing for cable operators, a lender would likely charge an interest rate of approximately 10 percent and would likely be willing to lend up to 50 percent of asset value at that rate. Thus, the likely weighted average cost of capital for the subject Cable System can be calculated as follows: 50 percent debt at a rate of 10% = .50 x 10% = 5.0% 50 percent equity at a rate of 25% = .50 x 25% = 12.5% Total Cost of Capital = 17.5%
The terminal value of the Cable System was calculated as the price at which the cable assets might sell at the end of the ten-year projection period, based on a multiple of the operating cash flow of the Cable System at that time. The cash flow multiple used reflects the expected growth of cash flow in the Cable System after year ten, as well as the return on debt and equity capital that would likely be required by investors at that time given the expected risk of the investment at that time. Based on the calculations displayed on the following pages, the discounted cash flow approaches indicate fair market values for the Cable System as follows: Rebuild DCF Approach $ 17,181,984 No Rebuild DCF Approach $ 20,100,147
5 13 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES BURKE COUNTY, NC REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 18,198 18,525 18,745 18,986 19,135 19,326 19,520 Ending 18,525 18,745 18,986 19,135 19,326 19,520 19,715 Change 327 220 241 149 191 193 195 % Change 1.8% 1.2% 1.7% 0.8% 1.0% 1.0% 1.0% Average 18,362 18,635 18,866 19,061 19,231 19,423 19,617 BASIC SUBSCRIBERS: Beginning 11,179 11,124 10,908 10,516 10,760 10,867 11,366 Ending 11,124 10,908 10,516 10,760 10,867 11,366 11,874 Change -55 -216 -392 244 108 499 508 % Change -0.5% -1.9% -4.8% 2.3% 1.0% 4.6% 4.5% Average 11,152 11,016 10,712 10,638 10,813 11,117 11,620 Ending Penetration 60.0% 58.2% 55.4% 56.2% 56.2% 58.2% 60.2% Monthly Basic Rev/Sub $28.78 $29.48 $31.08 $34.92 $35.97 $37.77 $39.65 % Change 2.4% 5.4% 12.4% 3.0% 5.0% 5.0% PAY + MINI-PAY UNITS: Beginning 8,257 8,987 7,226 4,840 4,664 4,711 4,927 Ending 8,967 7,226 4,840 4,664 4,711 4,927 5,147 Change 730 -1,761 -2,386 -176 47 216 220 % Change 8.8% -19.6% -44.0% -3.6% 1.0% 4.6% 4.5% Average 8,622 8,107 6,033 4,752 4,688 4,819 5,037 Ending Penetration 80.8% 66.2% 46.0% 43.4% 43.4% 43.4% 43.4% Monthly Pay Rev/Unit $5.87 $6.13 $6.98 $6.99 $6.99 $6.99 $6.99 % Change 4.4% 13.9% 0.1% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $0.93 $0.89 $0.81 $1.01 $1.06 $1.27 $1.53 % Change -4.2% -8.9% 24.8% 5.0% 20.0% 20.0% ADVERTISING REVENUE PER SUB $0.89 $0.74 $1.06 $1.20 $1.26 $1.38 $1.52 % Change -16.6% 43.5% 12.8% 5.0% 10.0% 10.0% OTHER REVENUE PER SUB $2.83 $2.58 $2.67 $2.53 $2.65 $2.92 $3.21 % Change -9.1% 3.7% -5.4% 5.0% 10.0% 10.0% TOTAL REVENUE PER SUB $37.96 $38.17 $39.50 $42.78 $43.97 $46.37 $48.94 % Change 0.6% 3.5% 8.3% 2.8% 5.5% 5.5%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 19,715 19,912 20,111 20,312 20,515 20,721 Ending 19,912 20,111 20,312 20,515 20,721 20,928 Change 197 199 201 203 205 207 % Change 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Average 19,813 20,012 20,212 20,414 20,618 20,824 BASIC SUBSCRIBERS: Beginning 11,874 12,391 12,917 13,453 13,998 14,552 Ending 12,391 12,917 13,453 13,998 14,552 15,116 Change 517 526 535 545 554 564 % Change 4.4% 4.2% 4.1% 4.0% 4.0% 3.9% Average 12,133 12,654 13,185 13,725 14,275 14,834 Ending Penetration 62.2% 64.2% 66.2% 68.2% 70.2% 72.2% Monthly Basic Rev/Sub $41.64 $43.72 $45.90 $48.20 $50.61 $53.14 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% PAY + MINI-PAY UNITS: Beginning 5,147 5,372 5,600 5,832 6,068 6,308 Ending 5,372 5,600 5,832 6,068 6,308 6,553 Change 224 228 232 236 240 245 % Change 4.4% 4.2% 4.1% 4.0% 4.0% 3.9% Average 5,260 5,486 5,716 5,950 6,188 6,431 Ending Penetration 43.4% 43.4% 43.4% 43.4% 43.4% 43.4% Monthly Pay Rev/Unit $6.99 $6.99 $6.99 $6.99 $6.99 $6.99 % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $1.83 $2.20 $2.64 $3.16 $3.80 $4.55 % Change 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% ADVERTISING REVENUE PER SUB $1.67 $1.84 $2.02 $2.23 $2.45 $2.69 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% OTHER REVENUE PER SUB $3.53 $3.89 $4.28 $4.70 $5.17 $5.69 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% TOTAL REVENUE PER SUB $51.70 $54.67 $57.87 $61.32 $65.06 $69.11 % Change 5.6% 5.7% 5.8% 6.0% 6.1% 6.2%
14 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES BURKE COUNTY, NC REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $3.27 $3.76 $4.15 $4.86 $5.05 $5.56 $6.11 % Change 15.2% 10.4% 17.0% 4.0% 10.0% 10.0% PAY/MINI-PAY PROG. PER UNIT $3.68 $3.80 $3.77 $4.66 $4.80 $4.94 $5.09 % Change 3.3% -0.8% 23.5% 3.0% 3.0% 3.0% PPV PROGRAMMING/PPV REVENUE 55.0% 46.6% 57.0% 53.0% 53.0% 53.0% 53.0% PROGRAMMING GUIDE COST PER SUB $0.17 $0.16 $0.17 $0.08 $0.09 $0.09 $0.09 % Change -5.5% 4.6% -50.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/REVENUE 2.3% 3.3% 3.4% 3.2% 3.2% 3.2% 3.2% BAD DEBT EXPENSES/ REVENUE 1.4% 1.4% 1.1% 1.3% 1.3% 1.3% 1.3% TECHNICAL EXP. GROWTH -13.9% -11.0% -7.8% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH -99.0% -100.0% 4.0% 4.0% 4.0% 4.0% GEN & ADMIN EXPENSE GROWTH -6.8% 10.8% 6.0% 4.0% 4.0% 4.0% MARKETING EXP/ REVENUE 2.2% 1.6% 1.4% 1.5% 1.5% 1.5% 1.5% AD SALES EXP/AD REVENUE 60.0% 38.8% 26.0% 17.3% 17.3% 17.3% 17.3%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $6.73 $7.40 $8.14 $8.95 $9.85 $10.83 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% PAY/MINI-PAY PROG. PER UNIT $5.24 $5.40 $5.56 $5.73 $5.90 $6.08 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% PPV PROGRAMMING/PPV REVENUE 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% PROGRAMMING GUIDE COST PER SUB $0.10 $0.10 $0.10 $0.11 $0.11 $0.12 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/REVENUE 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% BAD DEBT EXPENSES/ REVENUE 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% GEN & ADMIN EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% MARKETING EXP/ REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% AD SALES EXP/AD REVENUE 17.3% 17.3% 17.3% 17.3% 17.3% 17.3%
7 15 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES BURKE COUNTY, NC REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 2001 - -------------------- ------ ------ ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 708.49 723.89 726.78 731.12 739.10 746.49 753.96 761.50 Ending 723.89 726.78 731.12 739.10 746.49 753.96 761.50 769.11 Change 15.40 2.89 4.34 7.98 7.39 7.46 7.54 7.61 Average 716.19 725.34 728.95 735.11 742.80 750.22 757.73 756.30 Homes/Mile 25.6 25.8 26.0 25.9 25.9 25.9 25.9 25.9 CONVERTERS: Beginning 15,950 16,269 15,938 15,346 15,414 15,568 16,283 17,011 Ending 16,269 15,938 15,346 15,414 15,568 16,283 17,011 17,752 Change 319 (331) (592) 68 154 715 728 741 Average 6,110 16,104 15,642 15,380 15,491 15,926 16,647 17,381 Ending Penetration 145.9% 144.7% 143.3% 143.3% 143.3% 143.3% 143.3% 143.3% REBUILD CAPITAL: UG Miles, % Rebuilt 262.4 74.0% based on numbers provided by Falon Aerial Miles, % Rebuilt 468.7 74.0% based on numbers provided by Falcon Total Rebuild Costs: Plant Rebuild Cost/UG Mile $22,500 2,184,730 2,184,730 11,858,293 Plant Rebuild Cost/Aerial Mile $16,500 2,861,352 2,861,352 Other Non-Plant Rebuild Costs 17.5% 883,064 883,064 TRUNK & DISTRIBUTION/ NEW MILE (3-Year average) $30,721 $52,100 $54,184 $56,351 $58,605 $60,950 MAKE-READY/MILE $6.74 $361.64 $20.26 $10.17 $10.58 $11.00 $11.44 $11.90 CONV & CUST EQUIP/ NEW CONVERTER $281.81 $ - $ - $855.00 $200.00 $208.00 $216.32 $224.97 CUST. CONNECT COSTS/SUB $14.34 $12.97 $23.86 $14.50 $15.08 $15.68 $16.31 $16.96 OTHER TECHNICAL CAPITAL/SUB $7.35 $3.90 $2.29 $12.50 $5.00 $5.20 $5.41 $5.62 OTHER CAPITAL/ SUB $3.80 $1.24 $0.87 $1.00 $1.04 $1.08 $1.12 $1.17
CAPITAL EXPENDITURES 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 769.11 776.80 784.57 792.42 800.34 Ending 776.80 784.57 792.42 800.34 808.34 Change 7.69 7.77 7.85 7.92 8.00 Average 772.96 780.69 788.49 796.38 804.34 Homes/Mile 25.9 25.9 25.9 25.9 25.9 CONVERTERS: Beginning 17,752 18,505 19,272 20,053 20,847 Ending 18,505 19,272 20,053 20,847 21,655 Change 754 767 781 794 808 Average 18,129 18,889 19,663 20,450 21,251 Ending Penetration 143.3% 143.3% 143.3% 143.3% 143.3% REBUILD CAPITAL: UG Miles, % Rebuilt Aerial Miles, % Rebuilt Plant Rebuild Cost/UG Mile Plant Rebuild Cost/Aerial Mile Oher Non-Plant Rebuild Costs TRUNK & DISTRIBUTION/ NEW MILE (3-Year average) $63,388 $65,923 $68,560 $71,302 $74,155 MAKE-READY/MILE $12.37 $12.87 $13.38 $13.92 $14.48 CONV & CUST EQUIP/ NEW CONVERTER $233.97 $243.33 $253.06 $263.19 $273.71 CUST. CONNECT COSTS/SUB $17.64 $18.35 $19.08 $19.84 $20.64 OTHER TECHNICAL CAPITAL/SUB $5.85 $6.08 $6.33 $6.58 $6.84 OTHER CAPITAL/ SUB $1.22 $1.27 $1.32 $1.37 $1.42
8 16 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES BURKE COUNTY, NC REBUILD DCF APPROACH
BUDGET PROJECTED: ACTUAL ACTUAL ACTUAL ---------- ---------- CASH FLOW PROJECTIONS 1994 1995 1996 1997 1998 1999 2000 - --------------------- --------- --------- --------- ---------- ---------- --------- --------- REVENUE: Basic & Equipment Revenue 3,851,328 3,896,819 3,994,545 4,457,585 4,667,108 5,037,928 5,529,417 Pay and Mini-Pay Revenue 607,709 596,715 505,682 398,720 393,306 404,339 422,653 PPV Revenue 124,007 117,381 103,952 128,782 137,453 169,571 212,702 Advertising Revenue 118,635 97,750 136,363 152,752 163,038 184,372 211,995 Other Revenue 378,328 337,278 337,254 322,738 344,469 389,545 447,908 --------- --------- --------- ---------- ---------- --------- --------- Total Revenue 5,080,007 5,045,943 5,077,796 5,460,578 5,705,375 6,185,756 6,824,675 % Growth -0.7% 0.6% 7.5% 4.5% 8.4% 10.3% EXPENSES: Basic Programming Costs 436,931 497,181 533,833 620,259 655,719 741,524 852,621 Pay Programming Costs 381,017 370,035 273,126 265,697 269,952 285,850 307,761 PPV Programming Costs 68,247 54,746 59,250 68,254 72,850 89,873 112,732 Program Guide Costs 22,404 20,904 21,264 10,558 11,162 11,934 12,974 Franchise & License Fees 118,437 165,668 171,423 177,196 185,139 200,728 221,461 Bad Debt Expense 72,445 68,861 54,212 71,697 74,912 81,219 89,608 Technical Expenses 435,746 375,189 333,914 308,036 320,357 333,171 346,498 Production/LO Expenses 18,135 186 0 - - - - Gen. & Admin Expenses 456,423 425,383 471,360 499,642 519,627 540,412 562,029 Marketing Expenses 111,226 78,452 69,718 83,547 87,292 94,642 104,418 Advertising Sales Expenses 71,179 37,908 35,442 26,426 28,206 31,896 36,675 --------- --------- --------- ---------- ---------- --------- --------- Total Expenses 2,192,190 2,094,513 2,023,542 2,131,313 2,225,216 2,411,250 2,646,776 OPERATING CASH FLOW 2,887,817 2,951,430 3,054,254 3,329,265 3,480,159 3,774,506 4,177,899 % Margin 56.8% 58.5% 60.1% 61.0% 61.0% 61.0% 61.2% % Growth 2.2% 3.5% 9.0% 4.5% 8.5% 10.7% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - 5,929,147 5,929,147 - - Trunk & Distribution Costs 250,180 242,159 202,880 415,758 400,474 420,658 441,859 Make-Ready 4,827 262,308 14,772 7,476 7,856 8,252 8,668 Fiber Costs - Plant and Headend - 894,758 6,607 - - - - Converters & Customer Equipment 80,898 147,127 23,493 58,344 30,828 148,712 157,417 Customer Connect Costs 159,918 142,876 255,602 154,248 163,067 174,346 189,533 Other Technical Capital 81,966 42,919 24,541 132,973 54,067 57,807 62,842 Other Capital 42,395 13,663 9,329 364,638 11,246 12,024 13,071 --------- --------- --------- ---------- ---------- --------- --------- Total Capital Expenditures 629,184 1,745,810 537,224 7,062,584 6,596,685 821,799 873,390 NET CASH FLOW 2,258,633 1,205,620 2,517,030 (3,733,319) (3,116,526) 2,952,707 3,304,509 % Growth -16.5% -194.7% 11.9%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - ----------------------- --------- --------- --------- --------- ---------- ---------- REVENUE: Basic & Equipment Revenue 6,061,936 6,638,651 7,262,960 7,938,512 8,669,220 9,459,288 Pay and Mini-Pay Revenue 441,292 460,263 479,568 499,213 519,204 539,544 PPV Revenue 266,499 333,546 417,043 520,953 650,177 810,778 Advertising Revenue 243,479 279,340 320,163 366,606 419,415 479,430 Other Revenue 514,427 590,196 676,446 774,572 886,148 1,012,950 --------- --------- --------- ---------- ---------- ---------- Total Revenue 7,527,634 8,301,995 9,156,180 10,099,856 11,144,164 12,301,991 % Growth 10.3% 10.3% 10.3% 10.3% 10.3% 10.4% EXPENSES: Basic Programming Costs 979,245 1,123,474 1,287,657 1,474,447 1,686,838 1,928,214 Pay Programming Costs 330,974 355,558 381,586 409,134 438,283 469,116 PPV Programming Costs 141,244 176,779 221,033 276,105 344,594 429,712 Program Guide Costs 14,088 15,281 16,559 17,927 19,390 20,956 Franchise & License Fees 244,272 269,400 297,118 327,740 361,628 399,200 Bad Debt Expense 98,838 109,005 120,221 132,611 146,323 161,525 Technical Expenses 360,358 374,772 389,763 405,354 421,568 438,431 Production/LO Expenses - - - - - - Gen. & Admin Expenses 584,510 607,890 632,206 657,494 683,794 711,146 Marketing Expenses 115,173 127,021 140,090 154,528 170,506 188,220 Advertising Sales Expenses 42,122 48,326 55,388 63,423 72,559 82,941 --------- --------- --------- --------- --------- --------- Total Expenses 2,910,823 3,207,506 3,541,620 3,918,762 4,345,482 4,829,462 OPERATING CASH FLOW 4,616,811 5,094,489 5,614,560 6,181,094 6,798,682 7,472,529 % Margin 61.3% 61.4% 61.3% 61.2% 61.0% 60.7% % Growth 10.5% 10.3% 10.2% 10.1% 10.0% 9.9% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - Trunk & Distribution Costs 464,129 487,521 512,092 537,901 537,011 593,488 Make-Ready 9,105 9,564 10,046 10,552 11,084 11,643 Fiber Costs - Plant and Headend - - - - - - Converters & Customer Equipment 166,621 176,354 186,644 197,524 209,026 221,186 Customer Connect Costs 205,807 223,240 241,908 261,891 283,273 306,145 Other Technical Capital 68,238 74,019 80,208 86,834 93,923 101,507 Other Capital 14,194 15,396 16,683 18,061 19,536 21,113 --------- --------- --------- --------- --------- --------- Total Capital Expenditures 928,094 986,094 1,047,582 1,112,764 1,181,854 1,255,083 NET CASH FLOW 3,688,717 4,108,395 4,566,978 5,068,330 5,616.827 6,217,446 % Growth 11.6% 11.4% 11.2% 11.0% 10.8% 10.7%
9 17 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES BURKE COUNTY, NC REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ PV OF CASH FLOWS: 1994 1995 1996 1997 1998 1999 2000 - ----------------- ------ ------ ------ ------ ------ ------ ------ PROJECTED NET CASH FLOW -3,733,319 -3,116,526 2,952,707 3,304,509 Value of Assets in Year 10 assuming OCG multiple of 70 Discount Rate 17.5% PV OF CASH FLOW STREAM 17,181,984 5.6 TIMES RUNNING RATE CASH FLOW 5.2 TIMES PROJECTED CASH FLOW $1,634 PER SUBSCRIBER
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ PROJECTED NET CASH FLOW 3,688,717 4,108,395 4,566,978 5,068,330 5,616,827 6,217,446 Value of Assets in Year 10 assuming OCG multiple of 52,307,705 Discount Rate
10 18 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES BURKE COUNTY, NC NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 18,198 18,525 18,745 18,986 19,135 19,326 19,520 Ending 18,525 18,745 18,986 19,135 19,326 19,520 19,715 Change 327 220 241 149 191 193 195 % Change 1.8% 1.2% 1.7% 0.8% 1.0% 1.0% 1.0% Average 18,362 18,635 18,866 19,061 19,231 19,423 19,617 BASIC SUBSCRIBERS: Beginning 11,179 11,124 10,908 10,516 10,760 10,867 10,976 Ending 11,124 10,908 10,516 10,760 10,867 10,976 11,086 Change -55 -216 -392 244 108 109 110 % Change -0.5% -1.9% -4.8% 2.3% 1.0% 1.0% 1.0% Average 11,152 11,016 10,712 10,638 10,813 10,922 11,031 Ending Penetration 60.0% 58.2% 55.4% 56.2% 56.2% 56.2% 56.2% Monthly Basic Rev/Sub $28.78 $29.48 $31.08 $34.92 $35.97 $37.05 $38.16 % Change 2.4% 5.4% 12.4% 3.0% 3.0% 3.0% PAY + MINI-PAY UNITS: Beginning 8,257 8,987 7,226 4,840 4,664 4,711 4,758 Ending 8,987 7,226 4,840 4,664 4,711 4,758 4,806 Change 730 -1,761 -2,386 -176 47 47 48 % Change 8.8% -19.6% -44.0% -3.6% 1.0% 1.0% 1.0% Average 8,622 8,107 6,033 4,752 4,688 4,734 4,782 Ending Penetration 80.8% 66.2% 46.0% 43.4% 43.4% 43.4% 43.4% Monthly Pay Rev/Unit $5.87 $6.13 $6.98 $6.99 $6.99 $6.99 $6.99 % Change 4.4% 13.9% 0.1% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $0.93 $0.89 $0.81 $1.01 $1.06 $1.11 $1.17 % Change -4.2% -8.9% 24.8% 5.0% 5.0% 5.0% ADVERTISING REVENUE PER SUB $0.89 $0.74 $1.06 $1.20 $1.26 $1.32 $1.39 % Change -16.6% 43.5% 12.8% 5.0% 5.0% 5.0% OTHER REVENUE PER SUB $2.83 $2.58 $2.67 $2.53 $2.65 $2.79 $2.93 % Change -9.1% 3.7% -5.4% 5.0% 5.0% 5.0% TOTAL REVENUE PER SUB $37.96 $38.17 $39.50 $42.78 $43.97 $45.30 $46.67 % Change 0.6% 3.5% 8.3% 2.8% 3.0% 3.0%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 19,715 19,912 20,111 20,312 20,515 20,721 Ending 19,912 20,111 20,312 20,515 20,721 20,928 Change 197 199 201 203 205 207 % Change 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Average 19,813 20,012 20,212 20,414 20,618 20,824 BASIC SUBSCRIBERS: Beginning 11,086 11,197 11,308 11,422 11,536 11,651 Ending 11,197 11,308 11,422 11,536 11,651 11,768 Change 111 112 113 114 115 117 % Change 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Average 11,141 11,252 11,365 11,479 11,593 11,709 Ending Penetration 56.2% 56.2% 56.2% 56.2% 56.2% 56.2% Monthly Basic Rev/Sub $39.30 $40.48 $41.70 $42.95 $44.23 $45.56 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% PAY + MINI-PAY UNITS: Beginning 4,806 4,854 4,902 4,951 5,001 5,051 Ending 4,854 4,902 4,951 5,001 5,051 5,101 Change 48 49 49 50 50 51 % Change 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Average 4,830 4,878 4,927 4,976 5,026 5,076 Ending Penetration 43.4% 43.4% 43.4% 43.4% 43.4% 43.4% Monthly Pay Rev/Unit $6.99 $6.99 $6.99 $6.99 $6.99 $6.99 % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $1.23 $1.29 $1.35 $1.42 $1.49 $1.57 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% ADVERTISING REVENUE PER SUB $1.45 $1.53 $1.60 $1.68 $1.77 $1.86 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% OTHER REVENUE PER SUB $3.07 $3.23 $3.39 $3.56 $3.74 $3.92 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% TOTAL REVENUE PER SUB $48.09 $49.55 $51.07 $52.64 $54.26 $55.94 % Change 3.0% 3.1% 3.1% 3.1% 3.1% 3.1%
11 19 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES BURKE COUNTY, NC NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $3.27 $3.76 $4.15 $4.86 $5.05 $5.26 $5.47 % Change 15.2% 10.4% 17.0% 4.0% 4.0% 4.0% PAY/MINI-PAY PROG. PER UNIT $3.68 $3.80 $3.77 $4.66 $4.80 $4.94 $5.09 % Change 3.3% -0.8% 23.5% 3.0% 3.0% 3.0% PPV PROGRAMMING/ PPV REVENUE 55.0% 46.6% 57.0% 53.0% 53.0% 53.0% 53.0% PROGRAM GUIDE COST PER SUB $0.17 $0.16 $0.17 $0.08 $0.09 $0.09 $0.09 % Change -5.5% 4.6% -50.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/REVENUE 2.3% 3.3% 3.4% 3.2% 3.2% 3.2% 3.2% BAD DEBT EXPENSE/ REVENUE 1.4% 1.4% 1.1% 1.3% 1.3% 1.3% 1.3% TECHNICAL EXP. GROWTH -13.9% -11.0% -7.8% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH -99.0% -100.0% 4.0% 4.0% 4.0% 4.0% GEN. & ADMIN. EXPENSE GROWTH -6.8% 10.8% 6.0% 4.0% 4.0% 4.0% MARKETING EXP/ REVENUE 2.2% 1.6% 1.4% 1.5% 1.5% 1.5% 1.5% AD SALES EXP/ AD REVENUE 60.0% 38.8% 26.0% 17.3% 17.3% 17.3% 17.3%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $5.68 $5.91 $6.15 $6.39 $6.65 $6.92 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PAY/MINI-PAY PROG. PER UNIT $5.24 $5.40 $5.56 $5.73 $5.90 $6.08 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% PPV PROGRAMMING/ PPV REVENUE 53.0% 53.0% 53.0% 53.0% 53.0% 53.0% PROGRAM GUIDE COST PER SUB $0.10 $0.10 $0.10 $0.11 $0.11 $0.12 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/REVENUE 3.2% 3.2% 3.2% 3.2% 3.2% 3.2% BAD DEBT EXPENSE/ REVENUE 1.3% 1.3% 1.3% 1.3% 1.3% 1.3% TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% GEN. & ADMIN. EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% MARKETING EXP/ REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% AD SALES EXP/ AD REVENUE 17.3% 17.3% 17.3% 17.3% 17.3% 17.3%
12 20 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES BURKE COUNTY, NC NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: CAPITAL ACTUAL ACTUAL ACTUAL ------- ------- EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 - ---------------- ------ ------ ------ ------- ------- ------- ------- MILES OF PLANT: Beginning 708.49 723.89 726.78 731.12 739.10 746.49 753.96 Ending 723.89 726.78 731.12 739.10 746.49 753.96 761.50 Change 15.40 2.89 4.34 7.98 7.39 7.46 7.54 Average 716.19 725.34 728.95 735.11 742.80 750.22 757.73 Homes/Mile 25.6 25.8 26.0 25.9 25.9 25.9 25.9 CONVERTERS: Beginning 15,950 16,269 15,938 15,346 15,414 15,568 15,724 Ending 16,269 15,938 15,346 15,414 15,568 15,724 15,881 Change 319 (331) (592) 68 154 156 157 Average 16,110 16,104 15,642 15,380 15,491 15,646 15,803 Ending Penetration 145.9% 144.7% 143.3% 143.3% 143.3% 143.3% 143.3% - -------------------------------------------------------------------------------- REBUILD CAPITAL: UG Miles, % Rebuilt 262.4 74.0% Aerial Miles, % Rebuilt 468.7 74.0% TOTAL REBUILD COSTS: Plant Rebuild Cost /UG Mile $ - 0 0 0 Plant Rebuild Cost /Aerial Mile $ - 0 0 0 Other Non-Plant Rebuild Costs 17.5% 0 0 0 - -------------------------------------------------------------------------------- TRUNK & DISTRIBUTION/ NEW MILE (3-Year average) $30,721 $52,100 $54,184 $56,351 $58,605 MAKE-READY/MILE $ 6.74 $361.64 $ 20.26 $ 10.17 $ 10.58 $ 11.00 $ 11.44 CONV. & CUST. EQUIP/NEW CONVERTER $281.81 $ - $ - $855.00 $200.00 $208.00 $216.32 CUST. CONNECT COSTS/SUB $14.34 $12.97 $23.86 $14.50 $15.08 $15.68 $16.31 OTHER TECHNICAL CAPITAL/SUB $7.35 $3.90 $2.29 $12.50 $5.00 $5.20 $5.41 OTHER CAPITAL/ SUB $3.80 $1.24 $0.87 $1.00 $1.04 $1.08 $1.12
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006 - ---------------- ------ ------ ------ ------- ------- ------- MILES OF PLANT: Beginning 761.50 769.11 776.80 784.57 792.42 800.34 Ending 769.11 776.80 784.57 792.42 800.34 808.34 Change 7.61 7.69 7.77 7.85 7.92 8.00 Average 765.30 772.96 780.69 788.49 796.38 804.34 Homes/Mile 25.9 25.9 25.9 25.9 25.9 25.9 CONVERTERS: Beginning 15,881 16,040 16,201 16,363 16,526 16,691 Ending 16,040 16,201 16,363 16,526 16,691 16,858 Change 159 160 162 164 165 167 Average 15,961 16,120 16,282 16,444 16,609 16,775 Ending Penetration 143.3% 143.3% 143.3% 143.3% 143.3% 143.3% - ------------------------------------------------------------------------ REBUILD CAPITAL: UG Miles, % Rebuilt Aerial Miles, % Rebuilt TOTAL REBUILD COSTS: 0 Plant Rebuild Cost /UG Mile Plant Rebuild Cost /Aerial Mile TRUNK & DISTRIBUTION/ NEW MILE (3-Year average) $60,950 $63,388 $65,923 $68,560 $71,302 $74,155 MAKE-READY/MILE $11.90 $12.37 $12.87 $13.38 $13.92 $14.48 CONV. & CUST. EQUIP/NEW CONVERTER $224.97 $233.97 $243.33 $253.06 $263.19 $273.71 CUST. CONNECT COSTS/SUB $16.96 $17.64 $18.35 $19.08 $19.84 $20.64 OTHER TECHNICAL CAPITAL/SUB $5.62 $5.85 $6.08 $6.33 $6.58 $6.84 OTHER CAPITAL/ SUB $1.17 $1.22 $1.27 $1.32 $1.37 $1.42
13 21 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES BURKE COUNTY, NC NO REBUILD DCF APPROACH
BUDGET PROJECTED: ACTUAL ACTUAL ACTUAL --------- --------- CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000 --------- --------- --------- --------- --------- --------- --------- REVENUE: Basic & Equipment Revenue 3,851,328 3,896,819 3,994,545 4,457,585 4,667,108 4,855,193 5,050,857 Pay and Mini-Pay Revenue 607,709 596,715 505,682 398,720 393,306 397,239 401,212 PPV Revenue 124,007 117,381 103,952 128,782 137,453 145,769 154,588 Advertising Revenue 118,635 97,750 136,363 152,752 163,038 172,901 183,362 Other Revenue 378,328 337,278 337,254 322,738 344,469 365,310 387,411 --------- --------- --------- --------- --------- --------- --------- Total Revenue 5,080,007 5,045,943 5,077,796 5,460,578 5,705,375 5,936,413 6,177,430 % Growth -0.7% 0.6% 7.5% 4.5% 4.0% 4.1% EXPENSES: Basic Programming Costs 436,931 497,181 533,833 620,259 655,719 688,767 723,481 Pay Programming Costs 381,017 370,035 273,126 265,697 269,952 280,831 292,149 PPV Programming Costs 68,247 54,746 59,250 68,254 72,850 77,258 81,932 Program Guide Costs 22,404 20,904 21,264 10,558 11,162 11,725 12,315 Franchise & License Fees 118,437 165,668 171,423 177,196 185,139 192,637 200,458 Bad Debt Expense 72,445 68,861 54,212 71,697 74,912 77,945 81,110 Technical Expenses 435,746 375,189 333,914 308,036 320,357 333,171 346,498 Production/LO Expenses 18,135 186 0 - - - - Gen. & Admin. Expenses 456,423 425,383 471,360 499,642 519,627 540,412 562,029 Marketing Expenses 111,226 78,452 69,718 83,547 87,292 90,827 94,515 Advertising Sales Expenses 71,179 37,908 35,442 26,426 28,206 29,912 31,722 --------- --------- --------- --------- --------- --------- --------- Total Expenses 2,192,190 2,094,513 2,023,542 2,131,313 2,225,216 2,323,485 2,426,207 OPERATING CASH FLOW 2,887,817 2,951,430 3,054,254 3,329,265 3,480,159 3,612,928 3,751,223 % Margin 56.8% 58.5% 60.1% 61.0% 61.0% 60.9% 60.7% % Growth 2.2% 3.5% 9.0% 4.5% 3.8% 3.8% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - - Trunk & Distribution Costs 250,180 242,159 202,880 415,758 400,474 420,658 441,859 Make-Ready 4,827 262,308 14,772 7,476 7,856 8,252 8,668 Fiber Costs-Plant & Headend - 894,758 6,607 - - - - Converters & Customer Equipment 89,898 147,127 23,493 58,344 30,828 32,382 34,014 Customer Connect Costs 159,918 142,876 255,602 154,248 163,067 171,285 179,918 Other Technical Capital 81,966 42,919 24,541 132,973 54,067 56,792 59,654 Other Capital 42,395 13,663 9,329 364,638 11,246 11,813 12,408 --------- --------- --------- --------- --------- --------- --------- Total Capital Expenditures 629,184 1,745,810 537,224 1,133,437 667,538 701,182 736,522 NET CASH FLOW 2,258,633 1,205,620 2,517,030 2,195,828 2,812,620 2,911,745 3,014,701 % Growth 28.1% 3.5% 3.5%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006 --------- --------- --------- --------- --------- --------- REVENUE: Basic & Equipment Revenue 5,254,407 5,466,159 5,686,445 5,915,609 6,154,008 6,402,015 Pay and Mini-Pay Revenue 405,224 409,276 413,369 417,503 421,678 425,894 PPV Revenue 163,941 173,859 184,378 195,533 207,363 219,908 Advertising Revenue 194,455 206,220 218,696 231,927 245,959 260,839 Other Revenue 410,849 435,706 462,066 490,021 519,667 551,107 --------- --------- --------- --------- --------- --------- Total Revenue 6,428,876 6,691,220 6,964,954 7,250,593 7,548,674 7,859,763 % Growth 4.1% 4.1% 4.1% 4.1% 4.1% 4.1% EXPENSES: Basic Programming Costs 759,944 798,245 838,477 880,736 925,125 971,752 Pay Programming Costs 303,922 316,170 328,912 342,167 355,956 370,301 PPV Programming Costs 86,889 92,146 97,720 103,632 109,902 116,551 Program Guide Costs 12,936 13,588 14,273 14,992 15,748 16,542 Franchise & License Fees 208,617 217,130 226,013 235,282 244,954 255,049 Bad Debt Expense 84,411 87,856 91,450 95,200 99,114 103,199 Technical Expenses 360,358 374,772 389,763 405,354 421,568 438,431 Production/LO Expenses - - - - - - Gen. & Admin. Expenses 584,510 607,890 632,206 657,494 683,794 711,146 Marketing Expenses 98,362 102,376 106,564 110,934 115,495 120,254 Advertising Sales Expenses 33,641 35,676 37,834 40,123 42,551 45,125 --------- --------- --------- --------- --------- --------- Total Expenses 2,533,590 2,645,850 2,763,212 2,885,916 3,014,208 3,148,350 OPERATING CASH FLOW 3,895,286 4,045,371 4,201,742 4,364,677 4,534,466 4,711,413 % Margin 60.6% 60.5% 60.3% 60.2% 60.1% 59.9% % Growth 3.8% 3.9% 3.9% 3.9% 3.9% 3.9% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - Trunk & Distribution Costs 464,129 487,521 512,092 537,901 565,011 593,488 Make-Ready 9,105 9,564 10,046 10,552 11,084 11,643 Fiber Costs-Plant & Headend - - - - - - Converters & Customer Equipment 35,729 37,529 39,421 41,408 43,495 45,687 Customer Connect Costs 188,986 198,511 208,516 219,025 230,064 241,659 Other Technical Capital 62,661 65,819 69,136 72,621 76,281 80,126 Other Capital 13,033 13,690 14,380 15,105 15,866 16,666 --------- --------- --------- --------- --------- --------- Total Capital Expenditures 773,643 812,634 853,591 896,612 941,801 989,268 NET CASH FLOW 3,121,643 3,232,736 3,348,151 3,468,065 3,592,665 3,722,145 % Growth 3.5% 3.6% 3.6% 3.6% 3.6% 3.6%
14 22 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES BURKE COUNTY, NC NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL --------- --------- PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000 - ---------------- --------- --------- --------- --------- --------- --------- --------- PROJECTED NET CASH FLOW 2,195,828 2,812,620 2,911,745 3,014,701 Value of Assets in Year 10 assuming OCF multiple of 7.0 Discount Rate 17.5% PV OF CASH FLOW STREAM 20,100,147 6.6 TIMES RUNNING RATE CASH FLOW 6.0 TIMES PROJECTED CASH FLOW $1,911 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006 - ---------------- --------- --------- --------- --------- --------- ---------- PROJECTED NET CASH FLOW 3,121,643 3,232,736 3,348,151 3,468,065 3,592,665 3,722,145 Value of Assets in Year 10 assuming OCF multiple of 32,979,893 Discount Rate
15 23 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CASH FLOW MULTIPLE AND ADJUSTED CASH FLOW MULTIPLE APPROACHES As discussed previously, the Cable System generated revenue of $5,077,796 and operating cash flow of $3,054,254 in 1996, for an actual operating cash flow margin of 60.1%. The current operating cash flow multiples indicated by the market range from 6 to 11 times, based on transactions which have been announced in recent months. In order to determine the respective appropriate cash flow multiples to apply to the cash flow and to the adjusted cash flow of the Cable System, the following factors must be considered: o The Cable System has experienced a decline in basic subscribers due to competition in overbuilt areas as well as the technical inability of the system to add channels and new services commensurate with recent rate increases. o The cable plant needs to be rebuilt, as the 330 MHz plant has no room to add the programming needed to keep up with competition. Partnership management has estimated that a rebuild would cost in excess of $11,000,000. o The current rates of the Cable System are relatively high given the level of service provided in each system, and the presence of direct competition in the overbuilt portion of the service area. o The operating cash flow margin approximates 60 percent, a very high level by industry standards, leaving little perceived potential for improvement by a buyer. A typical buyer would likely discount this margin in determining the potential cash flow that such a buyer would be able to consistently generate from this Cable System. Based on these factors, as well as on CEA's recent experience in the cable system transaction market, it is CEA's opinion that the following cash flow multiples are appropriate in valuing the Cable System: Operating Cash Flow Multiple 6.5 Adjusted Operating Cash Flow Multiple 7.0
Applying these multiples respectively to the actual operating cash flow and to the adjusted operating cash flow of the Cable System yields the following calculations: Cash Flow Multiple Approach: --------------------------- Actual Operating Cash Flow $ 3,054,254 Operating Cash Flow Multiple x 6.5 ------------ Value Indication $ 19,852,651
16 24 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. Adjusted Cash Flow Multiple Approach: Actual Revenue $ 5,077,796 Adjusted Margin x 50% ----------- Adjusted Operating Cash Flow $ 2,538,898 Operating Cash Flow Multiple x 7.0 ----------- Value Indication $17,772,286
SUBSCRIBER MULTIPLE APPROACH Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a buyer would expect the typical cable system to generate just over $33.00 per month in total revenue, operate at a 50% cash flow margin, and be valued at approximately 9 times this operating cash flow. Based on these parameters, a buyer would be willing to pay approximately $1,800 per subscriber for this typical cable system. Applying this per-subscriber value to the subject Cable System results in the following calculation: Basic Subscribers 10,516 Per Subscriber Multiple x $ 1,800 ----------- Value Indication $18,928,800
REBUILD CASH FLOW MULTIPLE APPROACH Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art cable system could reasonably be expected to sell, on average, for approximately 10.5 times operating cash flow. For cable systems in need of rebuild, a buyer would likely be willing to pay approximately 10.5 times operating cash flow less the cost of the rebuild. Therefore, to estimate the value of the Cable System using the Rebuild Cash Flow Multiple Approach, CEA multiplied 1996 operating cash flow by 10.5 and subtracted the estimated cost to rebuild the Cable System, as follows: 1996 Operating Cash Flow $ 3,054,254 Rebuild Operating Cash Flow Multiple x 10.5 ------------ Value of System After Rebuild 32,069,667 less: Cost of Rebuild (11,449,000) ------------ Value Indication $ 20,620,667
17 25 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUE CONCLUSIONS -- BURKE COUNTY, NC CEA used two variations of the discounted cash flow approach, and four variations of the market approach to determine six indications of the value of the Cable System. These value indications are summarized as follows: Rebuild DCF Approach $ 17,181,984 No Rebuild DCF Approach $ 20,100,147 Cash Flow Multiple Approach $ 19,852,651 Adjusted Cash Flow Multiple Approach $ 17,772,286 Subscriber Multiple Approach $ 18,982,800 Rebuild Cash Flow Multiple Approach $ 20,620,667 VALUE CONCLUSION $ 19,000,000
Therefore, based on this analysis, it is CEA's opinion that, as of December 31, 1996, the fair market value of the Burke County, NC Cable System is $19,000,000. 18 26 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. REDMOND, OR SYSTEM OVERVIEW -- REDMOND, OR SYSTEM DESCRIPTION The Partnership owns the Cable System that serves Redmond, Oregon, as well as portions of Deschutes County, Oregon. As of December 31, 1996, the Cable System passed 7,252 homes with 170 miles of plant, and served 3,516 basic subscribers from one headend. Relevant subscriber statistics as of December 31, 1996 are displayed in the following table.
Homes Basic Basic Pay Pay As of 12/31/96 Passed Subscribers Penetration Units Penetration -------------- ------ ----------- ----------- ----- ----------- Redmond, OR 7,252 3,516 48.5% 777 22.1%
The Cable System operates at 270 MHz, 32-channel capacity, and offers 32 channels of programming. HOME AND SUBSCRIBER GROWTH During the past few years, the Cable System has experienced strong home growth, but basic subscribers have declined due to competition from an MMDS operator in nearby Bend, Oregon. The Company's home and subscriber growth history is displayed below.
1994 1995 1996 CAGR 94-96 ---- ---- ---- ---------- Homes Passed 6,487 6,681 7,252 5.7% Basic Subscribers 4,062 3,833 3,516 -7.0%
FINANCIAL SUMMARY For the year ended December 31, 1996, the Redmond, OR Cable System generated total revenue of $1,561,601 and operating cash flow of $928,970, resulting in a 59.5% operating cash flow margin. 19 27 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUATION -- REDMOND, OR DISCOUNTED CASH FLOW APPROACHES Financial projections, including all assumptions regarding operations and future capital expenditures, relating to the Rebuild DCF Approach and to the No Rebuild DCF Approach are displayed on the following ten pages. These projections were prepared by CEA based on certain information provided by the Partnership, including, but not limited to, the Partnership's 1997 budget for the Cable System. The discount rate used in this analysis was derived using a weighted average cost of capital. Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that equity investors in cable systems would likely require a 25 percent return in order to justify the equity investment. Additionally, based on CEA's recent experience in raising debt financing for cable operators, a lender would likely charge an interest rate of approximately 10 percent and would likely be willing to lend up to 50 percent of asset value at that rate. Thus, the likely weighted average cost of capital for the subject Cable System can be calculated as follows: 50 percent debt at a rate of 10% = .50 x 10% = 5.0% 50 percent equity at a rate of 25% = .50 x 25% = 12.5% Total Cost of Capital = 17.5%
The terminal value of the Cable System was calculated as the price at which the cable assets might sell at the end of the ten-year projection period, based on a multiple of the operating cash flow of the Cable System at that time. The cash flow multiple used reflects the expected growth of cash flow in the Cable System after year ten, as well as the return on debt and equity capital that would likely be required by investors at that time given the expected risk of the investment at that time. Based on the calculations displayed on the following pages, the discounted cash flow approaches indicate fair market values for the Cable System as follows: Rebuild DCF Approach $6,132,648 No Rebuild DCF Approach $6,218,514
20 28 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES REDMOND, OR REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 6,171 6,487 6,681 7,252 9,562 9,896 10,243 Ending 6,487 6,681 7,252 9,562 9,896 10,243 10,601 Change 316 194 571 2,310 335 346 358 % Change 5.1% 3.0% 11.4% 31.9% 3.5% 3.5% 3.5% Average 6,329 6,584 6,967 8,407 9,729 10,070 10,422 BASIC SUBSCRIBERS: Beginning 4,046 4,062 3,833 3,516 4,614 4,775 5,147 Ending 4,062 3,833 3,516 4,614 4,775 5,147 5,539 Change 16 -229 -317 1,098 161 372 392 % Change 0.4% -5.6% -11.0% 31.2% 3.5% 7.8% 7.6% Average 4,054 3,948 3,675 4,065 4,694 4,961 5,343 Ending Penetration 62.6% 57.4% 48.5% 48.3% 48.3% 50.3% 52.3% Monthly Basic Rev/Sub $28.26 $28.33 $30.52 $30.64 $31.56 $33.14 $34.79 % Change 0.3% 7.7% 0.4% 3.0% 5.0% 5.0% PAY + MINI-PAY UNITS: Beginning 1,130 1,336 1,043 777 946 979 1,055 Ending 1,336 1,043 777 946 979 1,055 1,136 Change 206 -293 -266 169 33 76 80 % Change 18.2% -21.9% -34.0% 21.7% 3.5% 7.8% 7.6% Average 1,233 1,190 910 861 962 1,017 1,095 Ending Penetration 32.9% 27.2% 22.1% 20.5% 20.5% 20.5% 20.5% Monthly Pay Rev/Unit $6.42 $7.15 $6.82 $5.60 $5.60 $5.60 $5.60 % Change 11.3% -4.5% -18.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $ - $ - $ - $ - $ - $ - $ - % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ADVERTISING REVENUE PER SUB $1.62 $1.47 $1.52 $1.41 $1.48 $1.63 $1.79 % Change -9.6% 4.1% -7.5% 5.0% 10.0% 10.0% OTHER REVENUE PER SUB $1.38 $1.38 $1.76 $1.34 $1.41 $1.55 $1.71 % Change -0.4% 27.5% -23.5% 5.0% 10.0% 10.0% TOTAL REVENUE PER SUB $33.22 $33.29 $35.42 $34.58 $35.60 $37.47 $39.44 % Change 0.2% 6.4% -2.4% 2.9% 5.2% 5.3%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 10,601 10,972 11,356 11,754 12,165 12,591 Ending 10,972 11,356 11,754 12,165 12,591 13,032 Change 371 384 397 411 426 441 % Change 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% Average 10,787 11,164 11,555 11,960 12,378 12,811 BASIC SUBSCRIBERS: Beginning 5,539 5,952 6,388 6,847 7,330 7,838 Ending 5,952 6,388 6,847 7,330 7,838 8,373 Change 413 435 459 483 508 535 % Change 7.5% 7.3% 7.2% 7.1% 6.9% 6.8% Average 5,746 6,170 6,617 7,088 7,584 8,105 Ending Penetration 54.3% 56.3% 58.3% 60.3% 62.3% 64.3% Monthly Basic Rev/Sub $36.53 $38.36 $40.28 $42.29 $44.41 $46.63 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% PAY + MINI-PAY UNITS: Beginning 1,136 1,220 1,310 1,404 1,503 1,607 Ending 1,220 1,310 1,404 1,503 1,607 1,716 Change 85 89 94 99 104 110 % Change 7.5% 7.3% 7.2% 7.1% 6.9% 6.8% Average 1,178 1,265 1,357 1,453 1,555 1,662 Ending Penetration 20.5% 20.5% 20.5% 20.5% 20.5% 20.5% Monthly Pay Rev/Unit $5.60 $5.60 $5.60 $5.60 $5.60 $5.60 % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $ - $ - $ - $ - $ - $ - % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ADVERTISING REVENUE PER SUB $1.97 $2.17 $2.39 $2.62 $2.89 $3.17 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% OTHER REVENUE PER SUB $1.88 $2.07 $2.27 $2.50 $2.75 $3.03 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% TOTAL REVENUE PER SUB $41.53 $43.74 $46.09 $48.57 $51.19 $53.98 % Change 5.3% 5.3% 5.4% 5.4% 5.4% 5.4%
21 29 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES REDMOND, OR REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $2.98 $3.51 $3.34 $4.34 $4.51 $4.96 $5.46 % Change 17.7% -4.9% 30.0% 4.0% 10.0% 10.0% PAY/MINI-PAY PROG. PER UNIT $4.88 $5.52 $4.99 $4.69 $4.83 $4.98 $5.13 % Change 13.2% -9.5% -6.0% 3.0% 3.0% 3.0% PPV PROGRAMMING/ PPV REVENUE 0.0% 0.0% 0.0% 55.0% 55.0% 55.0% 55.0% PROGRAM GUIDE COST PER SUB $0.08 $0.10 $0.15 $0.04 $0.04 $0.04 $0.04 % Change 20.5% 50.8% -75.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/ REVENUE 2.7% 2.6% 2.7% 2.7% 2.7% 2.7% 2.7% BAD DEBT EXPENSE/REVENUE 1.3% 1.4% 1.3% 1.5% 1.5% 1.5% 1.5% TECHNICAL EXP. GROWTH 19.2% -42.1% 87.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH #DIV/01 162.3% 17.5% 4.0% 4.0% 4.0% GEN. & ADMIN. EXPENSE GROWTH -14.5% -1.6% 16.5% 4.0% 4.0% 4.0% MARKETING EXP./REVENUE 2.5% 2.3% 3.2% 2.2% 2.2% 2.2% 2.2% AD SALES EXP./AD REVENUE 45.9% 48.9% 77.7% 66.0% 66.0% 66.0% 66.0%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $6.00 $6.61 $7.27 $7.99 $8.79 $9.67 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% PAY/MINI-PAY PROG. PER UNIT $5.28 $5.44 $5.61 $5.77 $5.95 $6.12 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% PPV PROGRAMMING/ PPV REVENUE 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% PROGRAM GUIDE COST PER SUB $0.04 $0.05 $0.05 $0.05 $0.05 $0.05 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/ REVENUE 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% BAD DEBT EXPENSE/REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% GEN. & ADMIN. EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% MARKETING EXP./REVENUE 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% AD SALES EXP./AD REVENUE 66.0% 66.0% 66.0% 66.0% 66.0% 66.0%
22 30 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES REDMOND, OR REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 136.43 136.43 162.00 170.00 198.90 205.86 213.07 Ending 136.43 162.00 170.00 198.90 205.86 213.07 220.52 Change - 25.57 8.00 28.90 6.96 7.21 7.46 Average 136.43 149.22 166.00 184.45 202.38 209.46 216.80 Homes/Mile 47.5 41.2 42.7 48.1 48.1 48.1 48.1 CONVERTERS: Beginning 1,792 1,479 1,238 1,050 1,384 1,433 1,544 Ending 1,479 1,238 1,050 1,384 1,433 1,544 1,662 Change (313) (241) (188) 334 48 112 118 Average 1,636 1,359 1,144 1,217 1,408 1,488 1,603 Ending Penetration 36.5% 31.4% 28.6% 30.0% 30.0% 30.0% 30.0% REBUILD CAPITAL: UG Miles 54.00 Aerial Miles 116.00 Cost/UG Mile $22,500 Cost/Aerial Mile $15,500 Other Rebuild Costs $527,275 TRUNK & DISTRIBUTION/ NEW MILE $25,056 $27,500 $28,600 $29,744 $30,934 (3-YEAR AVERAGE) MAKE-READY/MILE $15.51 $ - $201.66 $38.00 $39.52 $41.10 $42.74 CONV. & CUST. EQUIP./ NEW CONVERTER $160.00 $166.00 $173.06 $179.98 CUST. CONNECT COSTS/SUB $12.44 $18.14 $29.16 $18.00 $18.72 $19.47 $20.25 OTHER TECHNICAL CAPITAL/ SUB $6.24 $4.65 $16.82 $16.00 $16.64 $17.31 $18.00 OTHER CAPITAL/SUB $5.07 $2.34 $6.57 $1.50 $1.56 $1.62 $1.69
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 220.52 228.24 236.23 244.50 253.06 253.06 Ending 228.24 236.23 244.50 253.06 261.91 271.08 Change 7.72 7.99 8.27 8.56 8.86 9.17 Average 224.38 232.24 240.36 248.78 257.48 266.50 Homes/Mile 48.1 48.1 48.1 48.1 48.1 48.1 CONVERTERS: Beginning 1,662 1,786 1,916 2,054 2,199 2,351 Ending 1,786 1,916 2,054 2,199 2,351 2,512 Change 124 131 138 145 153 160 Average 1,724 1,851 1,985 2,126 2,275 2,432 Ending Penetration 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% TRUNK & DISTRIBUTION/ NEW MILE $32,171 $33,458 $34,796 $36,188 $37,636 $39,141 (3-YEAR AVERAGE) MAKE-READY/MILE $44.45 $46.23 $48.08 $50.01 $52.01 $54.09 CONV. & CUST. EQUIP./ NEW CONVERTER $187.18 $194.66 $202.45 $210.55 $218.97 $227.73 CUST. CONNECT COSTS/SUB $21.06 $21.90 $22.78 $23.69 $24.63 $25.62 OTHER TECHNICAL CAPITAL/ SUB $18.72 $19.47 $20.25 $21.05 $21.90 $22.77 OTHER CAPITAL/SUB $1.75 $1.82 $1.90 $1.97 $2.05 $2.13
23 31 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES REDMOND, OR REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000 - ---------------------- ------ ------ ------ ------ ------ ------ ------ REVENUE: Basic & Equipment Revenue 1,374,689 1,342,223 1,345,692 1,494,575 1,777,821 1,972,778 2,230,949 Pay and Mini-Pay Revenue 94,969 102,010 74,521 57,843 64,621 68,293 73,553 PPV Revenue - - - - - - - Advertising Revenue 78,866 69,408 67,240 68,803 83,432 96,989 114,905 Other Revenue 67,456 63,419 74,148 65,577 79,519 92,441 109,516 --------- --------- --------- --------- --------- --------- --------- Total Revenue 1,615,980 1,577,060 1,561,601 1,686,797 2,005,393 2,230,501 2,528,923 % Growth -2.4% -1.0% 8.0% 18.9% 11.2% 13.4% EXPENSES: Basic Programming Costs 145,095 166,294 147,138 211,596 254,140 295,438 350,011 Pay Programming Costs 72,138 78,767 54,532 48,522 55,834 60,777 67,421 PPV Programming Cost (2,151) - - - - - - Program Guide Costs 4,115 4,829 6,777 1,874 2,251 2,474 2,771 Franchise & License Fees 43,970 41,783 41,980 45,346 53,910 59,962 67,984 Bad Debt Expense 20,372 21,437 20,654 24,459 29,078 32,342 36,669 Technical Expense 96,960 115,544 66,871 125,049 130,051 135,253 140,663 Production/LO Expenses - 1,509 3,958 4,651 4,837 5,030 5,231 Gen. & Admin. Expenses 224,524 192,025 189,009 220,195 229,003 238,163 247,690 Marketing Expenses 39,764 35,730 49,495 36,266 43,116 47,956 54,372 Advertising Sales Expenses 36,201 33,944 52,217 45,410 55,065 64,013 75,837 --------- --------- --------- --------- --------- --------- --------- Total Expenses 680,988 691,862 632,631 763,367 857,285 941,408 1,048,650 OPERATING CASH FLOW 934,992 885,198 928,970 923,431 1,148,108 1,289,093 1,480,273 % Margin 57.9% 56.1% 59.5% 54.7% 57.3% 57.8% 58.5% % Growth -5.3% 4.9% -0.6% 24.3% 12.3% 14.8% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - 1,170,138 1,770,138 - - Trunk & Distribution Costs 107,285 109,527 624,303 794,750 199,099 214,310 230,683 Make-Ready 2,116 - 33,475 7,009 7,998 8,609 9,267 Fiber Costs-Plant and Headend - - - - - - - Converters & Customer Equipment 10,261 10,125 5,630 53,450 8,061 19,312 21,175 Customer Connect Costs 50,448 71,594 107,162 73,166 87,877 96,585 108,185 Other Technical Capital 25,306 18,344 61,803 65,036 78,113 85,853 96,164 Other Capital 20,558 9,233 24,135 6,097 7,323 8,049 9,015 --------- --------- --------- --------- --------- --------- --------- Total Capital Expenditures 215,974 218,823 856,508 2,769,647 2,158,608 432,718 474,489 NET CASH FLOW 719,018 666,375 72,462 (1,846,216) (1,010,501) 856,375 1,005,784 % Growth -45.3% -184.7% 17.4%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006 - ---------------------- ------ ------ ------ ------ ------ ------ REVENUE: Basic & Equipment Revenue 2,519,066 2,840,382 3,198,489 3,597,353 4,041,348 4,535,305 Pay and Mini-Pay Revenue 79,097 84,939 91,093 97,574 104,397 111,578 PPV Revenue - - - - - - Advertising Revenue 135,923 160,558 189,410 223,175 262,659 308,799 Other Revenue 129,549 153,029 180,528 212,709 250,342 294,318 --------- --------- --------- --------- --------- --------- Total Revenue 2,863,634 3,238,908 3,659,521 4,130,811 4,658,746 5,250,000 % Growth 13.2% 13.1% 13.0% 12.9% 12.8% 12.7% EXPENSES: Basic Programming Costs 414,033 489,075 576,961 679,811 800,083 940,629 Pay Programming Costs 74,678 82,600 91,242 100,666 110,936 122,124 PPV Programming Cost - - - - - - Program Guide Costs 3,099 3,461 3,861 4,301 4,786 5,319 Franchise & License Fees 76,982 87,070 98,378 111,047 125,240 141,134 Bad Debt Expense 41,523 46,964 53,063 59,897 67,552 76,125 Technical Expense 146,289 152,141 158,227 164,556 171,138 177,983 Production/LO Expenses 5,441 5,658 5,885 6,120 6,365 6,619 Gen. & Admin. Expenses 257,598 267,901 278,618 289,762 301,353 313,407 Marketing Expenses 61,568 69,637 78,680 88,812 100,163 112,875 Advertising Sales Expenses 89,709 105,968 125,011 147,295 173,355 203,807 --------- --------- --------- --------- --------- --------- Total Expenses 1,170,920 1,310,476 1,469,924 1,652,267 1,860,969 2,100,023 OPERATING CASH FLOW 1,692,714 1,928,432 2,189,597 2,478,544 2,797,777 3,149,976 % Margin 59.1% 59.5% 59.8% 60.0% 60.1% 60.0% % Growth 14.4% 13.9% 13.5% 13.2% 12.9% 12.6% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - Trunk & Distribution Costs 248,308 267,278 287,698 309,678 333,338 358,805 Make-Ready 9,975 10,737 11,557 12,440 13,391 14,414 Fiber Costs-Plant and Headend - - - - - - Converters & Customer Equipment 23,209 25,431 27,857 30,505 33,394 36,548 Customer Connect Costs 120,993 135,126 150,714 167,894 186,819 207,657 Other Technical Capital 107,549 120,112 133,968 149,239 166,062 184,584 Other Capital 10,083 11,261 12,559 13,991 15,568 17,305 --------- --------- --------- --------- --------- --------- Total Capital Expenditures 520,116 569,945 624,353 683,747 748,572 819,312 NET CASH FLOW 1,172,598 1,358,486 1,565,244 1,794,796 2,049,204 2,330,664 % Growth 16.6% 15.9% 15.2% 14.7% 14.2% 13.7%
24 32 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES REDMOND, OR REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ PV OF CASH FLOWS: 1994 1995 1996 1997 1998 1999 2000 - ----------------- ------ ------ ------ ------ ------ ------ ------ PROJECTED NET CASH FLOW -1,846,216 -1,010,501 856,375 1,005,784 Value of Assets in Year 10 assuming OCF multiple of 7.0 Discount Rate 17.5% ------------------------------------------------------------ PV OF CASH FLOW STREAM 6,132,648 6.6 times trailing cash flow 6.6 times projected cash flow $1,744 per subscriber
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006 - ---------------------- ------ ------ ------ ------ ------ ------ PROJECTED NET CASH FLOW 1,172,598 1,358,486 1,565,244 1,794,796 2,049,204 2,330,664 Value of Assets in Year 10 assuming OCF multiple of 22,049,835 Discount Rate
25 33 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES REDMOND, OR NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 6,171 6,487 6,681 7,252 9,562 9,896 10,243 Ending 6,487 6,681 7,252 9,562 9,896 10,243 10,601 Change 316 194 571 2,310 335 346 358 % Change 5.1% 3.0% 11.4% 31.9% 3.5% 3.5% 3.5% Average 6,329 6,584 6,967 8,407 9,729 10,070 10,422 BASIC SUBSCRIBERS: Beginning 4,046 4,062 3,833 3,516 4,614 4,775 4,942 Ending 4,062 3,833 3,516 4,614 4,775 4,942 5,115 Change 16 -229 -317 1,098 161 167 173 % Change 0.4% -5.6% -11.0% 31.2% 3.5% 3.5% 3.5% Average 4,054 3,948 3,675 4,065 4,694 4,859 5,029 Ending Penetration 62.6% 57.4% 48.5% 48.3% 48.3% 48.3% 48.3% Monthly Basic Rev/Sub $28.26 $28.33 $30.52 $30.64 $31.56 $32.51 $33.48 % Change 0.3% 7.7% 0.4% 3.0% 3.0% 3.0% PAY + MINI-PAY UNITS: Beginning 1,130 1,336 1,043 777 946 979 1,013 Ending 1,336 1,043 777 946 979 1,013 1,049 Change 206 -293 -266 169 33 34 35 % Change 18.2% -21.9% -34.0% 21.7% 3.5% 3.5% 3.5% Average 1,233 1,190 910 861 962 996 1,031 Ending Penetration 32.9% 27.2% 22.1% 20.5% 20.5% 20.5% 20.5% Monthly Pay Rev/Unit $6.42 $7.15 $6.82 $5.60 $5.60 $5.60 $5.60 % Change 11.3% -4.5% -18.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $- $- $- $- $- $- $- % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ADVERTISING REVENUE PER SUB $1.62 $1.47 $1.52 $1.41 $1.48 $1.56 $1.63 % Change -9.6% 4.1% -7.5% 5.0% 5.0% 5.0% OTHER REVENUE PER SUB $1.38 $1.38 $1.76 $1.34 $1.41 $1.48 $1.56 % Change -0.4% 27.5% -23.5% 5.0% 5.0% 5.0% TOTAL REVENUE PER SUB $33.22 $33.29 $35.42 $34.58 $35.60 $36.69 $37.82 % Change 0.2% 6.4% -2.4% 2.9% 3.1% 3.1%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 10,601 10,972 11,356 11,754 12,165 12,591 Ending 10,972 11,356 11,754 12,165 12,591 13,032 Change 371 384 397 411 426 441 % Change 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% Average 10,787 11,164 11,555 11,960 12,378 12,811 BASIC SUBSCRIBERS: Beginning 5,115 5,294 5,479 5,671 5,870 6,075 Ending 5,294 5,479 5,671 5,870 6,075 6,288 Change 179 185 192 198 205 213 % Change 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% Average 5,205 5,387 5,575 5,770 5,972 6,181 Ending Penetration 48.3% 48.3% 48.3% 48.3% 48.3% 48.3% Monthly Basic Rev/Sub $34.49 $35.52 $36.59 $37.68 $38.81 $39.98 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% PAY + MINI-PAY UNITS: Beginning 1,049 1,085 1,123 1,163 1,203 1,245 Ending 1,085 1,123 1,163 1,203 1,245 1,289 Change 37 38 39 41 42 44 % Change 3.5% 3.5% 3.5% 3.5% 3.5% 3.5% Average 1,067 1,104 1,143 1,183 1,224 1,267 Ending Penetration 20.5% 20.5% 20.5% 20.5% 20.5% 20.5% Monthly Pay Rev/Unit $5.60 $5.60 $5.60 $5.60 $5.60 $5.60 % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $- $- $- $- $- $- % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ADVERTISING REVENUE PER SUB $1.71 $1.80 $1.89 $1.98 $2.08 $2.19 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% OTHER REVENUE PER SUB $1.63 $1.72 $1.80 $1.89 $1.99 $2.09 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% TOTAL REVENUE PER SUB $38.98 $40.18 $41.43 $42.71 $44.03 $45.40 % Change 3.1% 3.1% 3.1% 3.1% 3.1% 3.1%
26 34 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES REDMOND, OR NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $2.98 $3.51 $3.34 $4.34 $4.51 $4.69 $4.88 % Change 17.7% -4.9% 30.0% 4.0% 4.0% 4.0% PAY/MINI-PAY PROG. PER UNIT $4.88 $5.52 $4.99 $4.69 $4.83 $4.98 $5.13 % Change 13.2% -9.5% -6.0% 3.0% 3.0% 3.0% PPV PROGRAMMING/ PPV REVENUE 0.0% 0.0% 0.0% 55.0% 55.0% 55.0% 55.0% PROGRAM GUIDE COST PER SUB $0.08 $0.10 $0.15 $0.04 $0.04 $0.04 $0.04 % Change 20.5% 50.8% -75.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/REVENUE 2.7% 2.6% 2.7% 2.7% 2.7% 2.7% 2.7% BAD DEBT EXPENSE/ REVENUE 1.3% 1.4% 1.3% 1.5% 1.5% 1.5% 1.5% TECHNICAL EXP. GROWTH 19.2% -42.1% 87.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH #DIV/01 162.3% 17.5% 4.0% 4.0% 4.0% GEN & ADMIN EXPENSE GROWTH -14.5% -1.6% 16.5% 4.0% 4.0% 4.0% MARKETING EXP/ REVENUE 2.5% 2.3% 3.2% 2.2% 2.2% 2.2% 2.2% AD SALES EXP/ AD REVENUE 45.9% 48.9% 77.7% 66.0% 66.0% 66.0% 66.0%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $5.07 $5.28 $5.49 $5.71 $5.94 $6.17 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PAY/MINI-PAY PROG. PER UNIT $5.28 $5.44 $5.61 $5.77 $5.95 $6.12 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% PPV PROGRAMMING/ PPV REVENUE 55.0% 55.0% 55.0% 55.0% 55.0% 55.0% PROGRAM GUIDE COST PER SUB $0.04 $0.05 $0.05 $0.05 $0.05 $0.05 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/REVENUE 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% BAD DEBT EXPENSE/ REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% GEN & ADMIN EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% MARKETING EXP/ REVENUE 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% AD SALES EXP/ AD REVENUE 66.0% 66.0% 66.0% 66.0% 66.0% 66.0%
27 35 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES REDMOND, OR NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 - --------------------- ------ ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 136.43 136.43 162.00 170.00 198.90 205.86 213.07 Ending 136.43 162.00 170.00 198.90 205.86 213.07 220.52 Change - 25.57 8.00 28.90 6.96 7.21 7.46 Average 136.43 149.22 166.00 184.45 202.38 209.46 216.80 Homes/Mile 47.5 41.2 42.7 48.1 48.1 48.1 48.1 CONVERTERS: Beginning 1,792 1,479 1,238 1,050 1,384 1,433 1,483 Ending 1,479 1,238 1,050 1,384 1,433 1,483 1,535 Change (313) (241) (188) 334 48 50 52 Average 1,636 1,359 1,144 1,217 1,408 1,458 1,509 Ending Penetration 36.5% 31.4% 28.6% 30.0% 30.0% 30.0% 30.0% REBUILD CAPITAL: UG Miles 54.00 Aerial Miles 116.00 Cost/UG Mile $ - Cost/Aerial Mile $ - Other Rebuild Costs $ - TRUNK & DISTRIBUTION/ NEW MILE $25,056 $27,500 $28,600 $29,744 $30,934 (3-Year average) MAKE-READY/MILE $15.51 $ - $201.66 $38.00 $39.52 $41.10 $42.74 CONV & CUST EQUIP/ NEW CONVERTER $160.00 $166.40 $173.06 $179.98 CUST. CONNECT COSTS/SUB $12.44 $18.14 $29.16 $18.00 $18.72 $19.47 $20.25 OTHER TECHNICAL CAPITAL/SUB $6.24 $4.65 $16.82 $16.00 $16.64 $17.31 $18.00 OTHER CAPITAL/SUB $5.07 $2.34 $6.57 $1.50 $1.56 $1.62 $1.69
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006 - --------------------- ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 220.52 228.24 236.23 244.50 253.06 261.91 Ending 228.24 236.23 244.50 253.06 261.91 271.08 Change 7.72 7.99 8.27 8.56 8.86 9.17 Average 224.38 232.24 240.36 248.78 257.48 266.50 Homes/Mile 48.1 48.1 48.1 48.1 48.1 48.1 CONVERTERS: Beginning 1,535 1,588 1,644 1,701 1,761 1,823 Ending 1,588 1,644 1,701 1,761 1,823 1,886 Change 54 56 58 60 62 64 Average 1,561 1,616 1,673 1,731 1,792 1,854 Ending Penetration 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% TRUNK & DISTRIBUTION/ NEW MILE $32,171 $33,458 $34,796 $36,188 $37,636 $39,141 (3-Year average) MAKE-READY/MILE $44.45 $46.23 $48.08 $50.01 $52.01 $54.09 CONV & CUST EQUIP/ NEW CONVERTER $187.18 $194.66 $202.45 $210.55 $218.97 $227.73 CUST. CONNECT COSTS/SUB $21.06 $21.90 $22.78 $23.69 $24.63 $25.62 OTHER TECHNICAL CAPITAL/SUB $18.72 $19.47 $20.25 $21.05 $21.90 $22.77 OTHER CAPITAL/SUB $1.75 $1.82 $1.90 $1.97 $2.05 $2.13
28 36 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES REDMOND, OR NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL --------- --------- CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000 - ---------------------- --------- --------- --------- --------- --------- --------- --------- REVENUE: Basic & Equipment Revenue 1,374,689 1,342,223 1,345,692 1,494,575 1,777,821 1,895,246 2,020,427 Pay and Mini-Pay Revenue 94,969 102,010 74,521 57,843 64,621 66,883 69,224 PPV Revenue - - - - - - - Advertising Revenue 78,866 69,408 67,240 68,803 83,432 90,669 98,535 Other Revenue 67,456 63,419 74,148 65,577 79,519 86,417 93,914 --------------------------------------------------------------------------- Total Revenue 1,615,980 1,577,060 1,561,601 1,686,797 2,005,393 2,139,215 2,282,100 % Growth -2.4% -1.0% 8.0% 18.9% 6.7% 6.7% EXPENSES: Basic Programming Costs 145,095 166,294 147,138 211,596 254,140 273,556 294,456 Pay Programming Costs 72,138 78,767 54,532 48,522 55,834 59,522 63,453 PPV Programming Cost (2,151) - - - - - - Program Guide Costs 4,115 4,829 6,777 1,874 2,251 2,423 2,608 Franchise & License Fees 43,970 41,783 41,980 45,346 53,910 57,508 61,349 Bad Debt Expense 20,372 21,437 20,654 24,459 29,078 31,019 33,090 Technical Expenses 96,960 115,544 66,871 125,049 130,051 135,253 140,663 Production/LO Expenses - 1,509 3,958 4,651 4,837 5,030 5,231 Gen. & Admin Expenses 224,524 192,025 189,009 220,195 229,003 238,163 247,690 Marketing Expenses 39,764 35,730 49,495 36,266 43,116 45,993 49,065 Advertising Sales Expenses 36,201 33,944 52,217 45,410 55,065 59,842 65,033 --------------------------------------------------------------------------- Total Expenses 680,988 691,862 632,631 763,367 857,285 908,309 962,639 OPERATING CASH FLOW 934,992 885,198 928,970 923,431 1,148,108 1,230,907 1,319,461 % Margin 57.9% 56.1% 59.5% 54.7% 57.3% 57.5% 57.8% % Growth -5.3% 4.9% -0.6% 24.3% 7.2% 7.2% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - - Trunk & Distribution Costs 107,285 109,527 624,303 794,750 199,099 214,310 230,683 Make-Ready 2,116 - 33,475 7,009 7,998 8,609 9,267 Fiber Costs - Plant and Headend - - - - - - - Converters and Customer Equipment 10,261 10,125 5,630 53,450 8,061 8,677 9,340 Customer Connect Costs 50,448 71,594 107,162 73,166 87,877 94,591 101,818 Other Technical Capital 25,306 18,344 61,803 65,036 78,113 84,081 90,505 Other Capital 20,558 9,233 24,135 6,097 7,323 7,883 8,485 --------------------------------------------------------------------------- Total Capital Expenditures 215,974 218,823 856,508 999,509 388,471 418,150 450,097 NET CASH FLOW 719,018 666,375 72,462 (76,078) 759,637 812,757 869,364 % Growth -1098.5% 7.0% 7.0%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006 - ---------------------- --------- --------- --------- --------- --------- --------- REVENUE: Basic & Equipment Revenue 2,153,876 2,296,140 2,447,800 2,609,477 2,781,833 2,965,573 Pay and Mini-Pay Revenue 71,647 74,154 76,750 79,436 82,216 85,094 PPV Revenue - - - - - - Advertising Revenue 107,083 116,372 126,467 137,438 149,361 162,318 Other Revenue 102,061 110,915 120,537 130,993 142,357 154,706 ---------------------------------------------------------------- Total Revenue 2,434,667 2,597,581 2,771,553 2,957,344 3,155,767 3,367,691 % Growth 6.7% 6.7% 6.7% 6.7% 6.7% 6.7% EXPENSES: Basic Programming Costs 316,952 341,168 367,233 395,289 425,489 457,997 Pay Programming Costs 67,644 72,112 76,875 81,953 87,366 93,136 PPV Programming Cost - - - - - - Program Guide Costs 2,807 3,022 3,253 3,501 3,769 4,057 Franchise & License Fees 65,450 69,830 74,507 79,501 84,835 90,533 Bad Debt Expense 35,303 37,665 40,188 42,881 45,759 48,832 Technical Expenses 146,289 152,141 158,227 164,556 171,138 177,983 Production/LO Expenses 5,441 5,658 5,885 6,120 6,365 6,619 Gen. & Admin Expenses 257,598 267,901 278,168 289,762 301,353 313,407 Marketing Expenses 52,345 55,848 59,588 63,583 67,849 72,405 Advertising Sales Expenses 70,675 76,806 83,468 90,709 98,578 107,130 ---------------------------------------------------------------- Total Expenses 1,020,505 1,082,151 1,147,841 1,217,856 1,292,501 1,372,099 OPERATING CASH FLOW 1,414,162 1,515,430 1,623,713 1,739,488 1,863,266 1,995,592 % Margin 58.1% 58.3% 58.6% 58.8% 59.0% 59.3% % Growth 7.2% 7.2% 7.1% 7.1% 7.1% 7.1% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - Trunk & Distribution Costs 248,308 267,278 287,698 309,678 333,338 358,805 Make-Ready 9,975 10,737 11,557 12,440 13,391 14,414 Fiber Costs - Plant and Headend - - - - - - Converters and Customer Equipment 10,053 10,821 11,648 12,538 13,496 14,527 Customer Connect Costs 109,596 117,970 126,983 136,684 147,127 158,367 Other Technical Capital 97,419 104,862 112,873 121,497 130,779 140,771 Other Capital 9,133 9,831 10,582 11,390 12,261 13,197 ---------------------------------------------------------------- Total Capital Expenditures 484,484 521,499 561,341 604,228 650,391 700,080 NET CASH FLOW 929,678 993,932 1,062,372 1,135,261 1,212,876 1,295,512 % Growth 6.9% 6.9% 6.9% 6.9% 6.8% 6.8%
29 37 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES REDMOND, OR NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL --------- --------- PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000 - ---------------- --------- --------- --------- --------- --------- --------- --------- PROJECTED NET CASH FLOW -76,078 759,637 812,757 869,364 Value of Assets in Year 10 assuming OCF multiple of 7.0 Discount Rate 17.5% PV OF CASH FLOW STREAM 6,218,514 6.7 TIMES TRAILING CASH FLOW 6.7 TIMES PROJECTED CASH FLOW $1,769 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006 - ---------------- --------- --------- --------- --------- --------- --------- PROJECTED NET CASH FLOW 929,678 993,932 1,062,372 1,135,261 1,212,876 1,295,512 Value of Assets in Year 10 assuming OCF multiple of 13,969,147 Discount Rate
30 38 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CASH FLOW MULTIPLE AND ADJUSTED CASH FLOW MULTIPLE APPROACHES As discussed previously, the Cable System generated revenue of $1,561,601 and operating cash flow of $928,970 in 1996, for an actual operating cash flow margin of 59.5%. The current operating cash flow multiples indicated by the market range from 6 to 11 times, based on transactions which have been announced in recent months. In order to determine the respective appropriate cash flow multiples to apply to the cash flow and to the adjusted cash flow of the Cable System, the following factors must be considered: o The Cable System has experienced a decline in basic subscribers due to competition with MMDS as well as the technical inability of the system to add channels and new services commensurate with recent rate increases. However, home growth in the system has been strong. o The cable plant needs to be rebuilt, as the 270 MHz plant has no room to add the programming needed to keep up with competition. o The current rates of the Cable System are relatively high given the level of service provided in each system, and the presence of competition. o The operating cash flow margin approximates 60 percent, a very high level by industry standards, leaving little perceived potential for improvement by a buyer. A typical buyer would likely discount this margin in determining the potential cash flow that such a buyer would be able to consistently generate from this Cable System. Based on these factors, as well as on CEA's recent experience in the cable system transaction market, it is CEA's opinion that the following cash flow multiples are appropriate in valuing the Cable System: Operating Cash Flow Multiple 7.0 Adjusted Operating Cash Flow Multiple 8.0
Applying these multiples respectively to the actual operating cash flow and to the adjusted operating cash flow of the Cable System yields the following calculations: Cash Flow Multiple Approach: --------------------------- Actual Operating Cash Flow $ 928,970 Operating Cash Flow Multiple x 7.0 ---------- Value Indication $6,502,790
31 39 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. Adjusted Cash Flow Multiple Approach: Actual Revenue $ 1,561,601 Adjusted Margin x 50% ------------ Adjusted Operating Cash Flow $ 780,801 Operating Cash Flow Multiple x 8.0 ------------ Value Indication $ 6,246,404
SUBSCRIBER MULTIPLE APPROACH Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a buyer would expect the typical cable system to generate just over $33.00 per month in total revenue, operate at a 50% cash flow margin, and be valued at approximately 9 times this operating cash flow. Based on these parameters, a buyer would be willing to pay approximately $1,800 per subscriber for this typical cable system. Applying this per-subscriber value to the subject Cable System results in the following calculation: Basic Subscribers 3,516 Per Subscriber Multiple x $ 1,800 -------------- Value Indication $ 6,328,800
REBUILD CASH FLOW MULTIPLE APPROACH Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art cable system could reasonably be expected to sell, on average, for approximately 10.5 times operating cash flow. For cable systems in need of rebuild, a buyer would likely be willing to pay approximately 10.5 times operating cash flow less the cost of the rebuild. Therefore, to estimate the value of the Cable System using the Rebuild Cash Flow Multiple Approach, CEA multiplied 1996 operating cash flow by 10.5 and subtracted the estimated cost to rebuild the Cable System, as follows: 1996 Operating Cash Flow $ 928,970 Rebuild Operating Cash Flow Multiple x 10.5 ----------- Value of System After Rebuild 9,754,185 less: Estimated Cost of Rebuild (3,676,575) ----------- Value Indication $ 6,077,610
32 40 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUE CONCLUSIONS -- REDMOND, OR CEA used two variations of the discounted cash flow approach, and four variations of the market approach to determine six indications of the value of the Cable System. These value indications are summarized as follows: Rebuild DCF Approach $ 6,132,648 No Rebuild DCF Approach $ 6,218,514 Cash Flow Multiple Approach $ 6,502,790 Adjusted Cash Flow Multiple Approach $ 6,246,404 Subscriber Multiple Approach $ 6,328,800 Rebuild Cash Flow Multiple Approach $ 6,077,610 VALUE CONCLUSION $ 6,200,000
Therefore, based on this analysis, it is CEA's opinion that, as of December 31, 1996, the fair market value of the Redmond, Oregon Cable System is $6,200,000. 33 41 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CALIFORNIA CITY, CA SYSTEM OVERVIEW -- CALIFORNIA CITY, CA SYSTEM DESCRIPTION The Partnership owns the Cable System that serves the town of California City, California. As of December 31, 1996, the Cable System passed nearly 2,858 homes with 90 miles of plant, and served 1,922 basic subscribers from one headend. Relevant subscriber statistics as of December 31, 1996 are displayed in the following table.
Homes Basic Basic Pay Pay As of 12/31/96 Passed Subscribers Penetration Units Penetration -------------- ------ ----------- ----------- ----- ----------- California City, CA 2,858 1,922 67.2% 839 43.7%
The Cable System operates at 330 MHz, 41-channel capacity, and offers 41 channels of programming. The California City area does not have its own dedicated headend and is served from an adjacent cable system in North Edwards, California and managed jointly with that system. HOME AND SUBSCRIBER GROWTH During the past few years, the Cable System has experienced steady home growth, while basic subscribers have declined. The Company's home and subscriber growth history is displayed below.
1994 1995 1996 CAGR 94-96 ---- ---- ---- ---------- Homes Passed 2,707 2,858 2,858 2.8% Basic Subscribers 2,075 2,097 1,922 -3.8%
FINANCIAL SUMMARY For the year ended December 31, 1996, the California City, CA Cable System generated total revenue of $753,252 and operating cash flow of $434,967, resulting in a 57.7% operating cash flow margin. 34 42 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUATION -- CALIFORNIA CITY, CA DISCOUNTED CASH FLOW APPROACHES Financial projections, including all assumptions regarding operations and future capital expenditures, relating to the Rebuild DCF Approach and to the No Rebuild DCF Approach are displayed on the following ten pages. These projections were prepared by CEA based on certain information provided by the Partnership, including, but not limited to, the Partnership's 1997 budget for the Cable System. The discount rate used in this analysis was derived using a weighted average cost of capital. Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that equity investors in cable systems would likely require a 25 percent return in order to justify the equity investment. Additionally, based on CEA's recent experience in raising debt financing for cable operators, a lender would likely charge an interest rate of approximately 10 percent and would likely be willing to lend up to 50 percent of asset value at that rate. Thus, the likely weighted average cost of capital for the subject Cable System can be calculated as follows: 50 percent debt at a rate of 10% = .50 x 10% = 5.0% 50 percent equity at a rate of 25% = .50 x 25% = 12.5% Total Cost of Capital = 17.5%
The terminal value of the Cable System was calculated as the price at which the cable assets might sell at the end of the ten-year projection period, based on a multiple of the operating cash flow of the Cable System at that time. The cash flow multiple used reflects the expected growth of cash flow in the Cable System after year ten, as well as the return on debt and equity capital that would likely be required by investors at that time given the expected risk of the investment at that time. Based on the calculations displayed on the following pages, the discounted cash flow approaches indicate fair market values for the Cable System as follows: Rebuild DCF Approach $2,237,514 No Rebuild DCF Approach $2,900,933
35 43 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CALIFORNIA CITY, CALIFORNIA REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 2,500 2,707 2,858 2,858 2,938 3,056 3,178 Ending 2,707 2,858 2,858 2,938 3,056 3,178 3,305 Change 207 151 0 80 118 122 127 % Change 8.3% 5.6% 0.0% 2.8% 4.0% 4.0% 4.0% Average 2,604 2,783 2,858 2,898 2,997 3,117 3,241 BASIC SUBSCRIBERS: Beginning 1,933 2,075 2,097 1,922 1,974 2,069 2,215 Ending 2,075 2,097 1,922 1,974 2,069 2,215 2,370 Change 142 22 -175 52 94 146 155 % Change 7.3% 1.1% -11.1% 2.7% 4.8% 7.1% 7.0% Average 2,004 2,086 2,010 1,948 2,021 2,142 2,292 Ending Penetration 76.7% 73.4% 67.2% 67.2% 67.7% 69.7% 71.7% Monthly Basic Rev/ Sub $24.94 $24.48 $25.29 $26.87 $27.94 $29.34 $30.81 % Change -1.8% 3.3% 6.3% 4.0% 5.0% 5.0% PAY + MINI-PAY UNITS: Beginning 952 1,288 1,180 839 862 903 967 Ending 1,288 1,180 839 862 903 967 1,034 Change 336 -108 -341 23 41 64 68 % Change 35.3% -8.4% -38.5% 2.7% 4.8% 7.1% 7.0% Average 1,120 1,234 1,010 850 882 935 1,001 Ending Penetration 62.1% 56.3% 43.7% 43.7% 43.7% 43.7% 43.7% Monthly Pay Rev/ Unit $7.14 $7.28 $7.80 $7.64 $7.64 $7.64 $7.64 % Change 2.0% 7.1% -2.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $- $- $- $- $- $- $- % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ADVERTISING REVENUE PER SUB $- $- $- $- $- $- $- % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% OTHER REVENUE PER SUB $1.79 $2.21 $2.12 $1.98 $2.08 $2.49 $2.99 % Change 23.6% -4.1% -6.8% 5.0% 20.0% 20.0% TOTAL REVENUE PER SUB $30.78 $31.01 $31.24 $32.18 $33.36 $35.17 $37.14 % Change 0.8% 0.7% 3.0% 3.6% 5.4% 5.6%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 3,305 3,437 3,575 3,718 3,866 4,021 Ending 3,437 3,575 3,718 3,866 4,021 4,182 Change 132 137 143 149 155 161 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Average 3,371 3,506 3,646 3,792 3,944 4,101 BASIC SUBSCRIBERS: Beginning 2,370 2,533 2,706 2,889 3,081 3,285 Ending 2,533 2,706 2,889 3,081 3,285 3,500 Change 164 173 183 193 204 215 % Change 6.9% 6.8% 6.7% 6.7% 6.6% 6.5% Average 2,451 2,620 2,797 2,985 3,183 3,393 Ending Penetration 73.7% 75.7% 77.7% 79.7% 81.7% 83.7% Monthly Basic Rev/ Sub $32.35 $33.97 $35.66 $37.45 $39.32 $41.29 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% PAY + MINI-PAY UNITS: Beginning 1,034 1,106 1,181 1,261 1,345 1,434 Ending 1,106 1,181 1,261 1,345 1,434 1,528 Change 71 75 80 84 89 94 % Change 6.9% 6.8% 6.7% 6.7% 6.6% 6.5% Average 1,070 1,143 1,221 1,303 1,390 1,481 Ending Penetration 43.7% 43.7% 43.7% 43.7% 43.7% 43.7% Monthly Pay Rev/ Unit $7.64 $7.64 $7.64 $7.64 $7.64 $7.64 % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $- $- $- $- $- $- % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ADVERTISING REVENUE PER SUB $- $- $- $- $- $- % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% OTHER REVENUE PER SUB $3.59 $4.31 $5.17 $6.20 $7.45 $8.93 % Change 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% TOTAL REVENUE PER SUB $39.28 $41.61 $44.17 $46.99 $50.10 $53.56 % Change 5.8% 5.9% 6.2% 6.4% 6.6% 6.9%
36 44 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CALIFORNIA CITY, CALIFORNIA REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $4.16 $4.40 $4.02 $5.05 $5.25 $5.78 $6.35 % Change 5.6% -8.5% 25.5% 4.0% 10.0% 10.0% PAY/MIN-PAY PROG. PER UNIT $4.54 $4.34 $3.85 $5.89 $6.06 $6.24 $6.43 % Change -4.4% -11.3% 52.8% 3.0% 3.0% 3.0% PPV PROGRAMMING/PPV REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PROGRAM GUIDE COST PER SUB $0.11 $0.11 $0.09 $0.02 $0.02 $0.02 $0.03 % Change 1.6% -17.6% -75.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/ REVENUE 2.5% 2.3% 0.7% 0.7% 0.7% 0.7% 0.7% BAD DEBT EXPENSE/ REVENUE 0.9% 1.4% 0.3% 1.5% 1.5% 1.5% 1.5% TECHNICAL EXP. GROWTH 36.8% 0.3% -27.5% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 0.0% 0.0% -100.0% 0.0% 0.0% 0.0% GEN & ADMIN EXPENSE GROWTH -17.5% 17.4% -0.1% 4.0% 4.0% 4.0% MARKETING EXP/REVENUE 2.1% 1.5% 0.8% 2.2% 2.2% 2.2% 2.2% AD SALES EXP/AD REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $6.99 $7.69 $8.46 $9.30 $10.23 $11.25 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% PAY/MINI-PAY PROG. PER UNIT $6.62 $6.82 $7.03 $7.24 $7.46 $7.68 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% PPV PROGRAMMING/PPV REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PROGRAM GUIDE COST PER SUB $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% FRANCHISE ACCESS FEES/ REVENUE 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% BAD DEBT EXPENSE/ REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% GEN & ADMIN EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% MARKETING EXP/REVENUE 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% AD SALES EXP/AD REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
37 45 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CALIFORNIA CITY, CALIFORNIA REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 59.57 85.21 90.12 90.12 92.10 95.78 99.62 Ending 85.21 90.12 90.12 92.10 95.78 99.62 103.60 Change 25.64 4.91 - 1.98 3.68 3.83 3.98 Average 72.39 87.67 90.12 91.11 93.94 97.70 101.61 Homes/Mile 31.8 31.7 31.7 31.9 31.9 31.9 31.9 CONVERTERS: Beginning 1,160 1,011 1,007 931 958 1,003 1,074 Ending 1,011 1,007 931 958 1,003 1,074 1,149 Change (149) (4) (76) 27 46 71 75 Average 1,086 1,009 969 944 980 1,039 1,112 Ending Penetration 50.4% 48.3% 46.3% 48.5% 48.5% 48.5% 48.5% REBUILD CAPITAL: UG Miles 11.1 Aerial Miles 79.0 Cost/UG Mile $22,500 Cost/Aerial Mile $16,500 Other Rebuild Costs $271,877 TRUNK & DISTRIBUTION/ NEW MILE (3 Year average) $14,059 $28,000 $29,120 $30,285 $31,496 MAKE-READY/MILE $73.31 $104.69 $- $22.00 $22.88 $23.80 $24.75 CONV & CUST EQUIP/ NEW CONVERTER $- $- $- $509.00 $529.36 $550.53 $572.56 CUST. CONNECT COSTS/ SUB $48.79 $30.69 $20.72 $16.50 $17.16 $17.85 $18.56 OTHER TECHNICAL CAPITAL/SUB $1.89 $- $1.47 $22.75 $2.00 $2.08 $2.16 OTHER CAPITAL/SUB $0.35 $2.01 $0.17 $0.90 $0.94 $0.97 $1.01
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 103.60 107.74 112.05 116.54 121.20 126.05 Ending 107.74 112.05 116.54 121.20 126.05 131.09 Change 4.14 4.31 4.48 4.66 4.85 5.04 Average 105.67 109.90 114.29 118.87 123.62 128.57 Homes/Mile 31.9 31.9 31.9 31.9 31.9 31.9 CONVERTERS: Beginning 1,149 1,229 1,312 1,401 1,494 1,593 Ending 1,229 1,312 1,401 1,494 1,593 1,698 Change 79 84 89 94 99 104 Average 1,189 1,270 1,357 1,448 1,544 1,645 Ending Penetration 48.5% 48.5% 48.5% 48.5% 48.5% 48.5% TRUNK & DISTRIBUTION/ NEW MILE (3 Year average) $32,756 $34,066 $35,429 $36,846 $38,320 $39,853 MAKE-READY/MILE $25.74 $26.77 $27.84 $28.95 $30.11 $31.31 CONV & CUST EQUIP/ NEW CONVERTER $595.46 $619.28 $644.05 $669.81 $696.60 $724.47 CUST. CONNECT COSTS/ SUB $19.30 $20.07 $20.88 $21.71 $22.58 $23.48 OTHER TECHNICAL CAPITAL/SUB $2.25 $2.34 $2.43 $2.53 $2.63 $2.74 OTHER CAPITAL/SUB $1.05 $1.09 $1.14 $1.18 $1.23 $1.28
38 46 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CALIFORNIA CITY, CALIFORNIA REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000 - --------------------- ------ ------ ------ ------ ------ ------ ------ REVENUE: Basic & Equipment Revenue 599,671 612,815 609,818 628,159 677,866 754,108 847,452 Pay and Mini-Pay Revenue 95,913 107,771 94,460 77,984 80,918 85,733 91,757 PPV Revenue - - - - - - - Advertising Revenue - - - - - - - Other Revenue 44,605 55,702 48,974 46,265 50,406 64,087 82,308 Total Revenue 740,189 776,288 753,252 752,408 809,190 903,927 1,021,517 % Growth 4.9% -3.0% -0.1% 7.5% 11.7% 13.0% EXPENSES: Basic Programming Costs 100,086 110,042 97,000 118,020 127,359 148,430 174,746 Pay Programming Costs 61,038 64,295 46,657 60,058 64,187 70,046 77,218 PPV Programming Cost - - - - - - - Program Guide Costs 2,618 2,769 2,199 533 575 634 705 Franchise & License Fees 18,731 17,886 5,185 5,267 5,664 6,327 7,151 Bad Debt Expense 6,658 10,706 2,526 11,286 12,138 13,559 15,323 Technical Expenses 53,165 72,712 72,964 52,899 55,015 57,215 59,504 Production/LO Expenses - - 93 - - - - Gen & Admin Expenses 88,214 72,804 85,471 85,386 88,801 92,353 96,047 Marketing Expenses 15,844 11,676 6,190 16,177 17,398 19,434 21,963 Advertising Sales Expenses - - - - - - - Total Expenses 346,354 362,890 318,285 349,625 371,137 408,000 452,657 OPERATING CASH FLOW 393,835 413,398 434,967 402,783 438,053 495,927 568,860 % Margin 53.2% 53.3% 57.7% 53.5% 54.1% 54.9% 55.7% % Growth 5.0% 5.2% -7.4% 8.8% 13.2% 14.7% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - 912,728 912,728 - - Trunk & Distribution Costs 259,428 159,556 10,516 55,440 107,278 116,032 125,500 Make-Ready 5,307 9,178 - 2,004 2,149 2,325 2,514 Fiber Costs - Plant and Headend - - - - - - - Converters and Customer Equipment 1 - 301 13,519 24,198 39,063 42,957 Customer Connect Costs 97,775 64,022 41,637 32,145 34,689 38,223 42,545 Other Technical Capital 3,793 - 2,950 44,321 4,043 4,455 4,959 Other Capital 707 4,200 347 1,753 1,892 2,085 2,321 Total Capital Expenditures 367,011 236,956 55,751 1,061,911 1,086,978 202,182 220,795 NET CASH FLOW 26,824 176,442 379,216 (659,129) (648,925) 293,745 348,065 % Growth -273.8% -1.5% -145.3% 18.5%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006 - --------------------- ------ ------ ------ ------ ------ ------ REVENUE: Basic & Equipment Revenue 951,589 1,067,715 1,197,153 1,341,371 1,501,992 1,680,814 Pay and Mini-Pay 98,126 104,858 111,971 119,485 127,422 135,802 Revenue PPV Revenue - - - - - - Advertising Revenue - - - - - - Other Revenue 105,625 135,446 173,561 222,251 284,416 363,746 Total Revenue 1,155,340 1,308,018 1,482,685 1,683,107 1,913,830 2,180,362 % Growth 13.1% 13.2% 13.4% 13.5% 13.7% 13.9% EXPENSES: Basic Programming Costs 205,563 241,632 283,826 333,162 390,821 458,177 Pay Programming Costs 85,055 93,616 102,966 113,173 124,311 136,461 PPV Programming Cost - - - - - - Program Guide Costs 785 872 968 1,075 1,192 1,321 Franchise & License Fees 8,087 9,156 10,379 11,782 13,397 15,263 Bad Debt Expense 17,330 19,620 22,240 25,247 28,707 32,705 Technical Expenses 61,884 64,360 66,934 69,611 72,396 75,292 Production/LO Expenses - - - - - - Gen & Admin Expenses 99,889 103,885 108,040 112,362 116,856 121,530 Marketing Expenses 24,840 28,122 31,878 36,187 41,147 46,878 Advertising Sales Expenses - - - - - - Total Expenses 503,433 561,264 627,232 702,597 788,826 887,626 OPERATING CASH FLOW 651,907 746,754 855,453 980,510 1,125,003 1,292,736 % Margin 56.4% 57.1% 57.7% 58.3% 58.8% 59.3% % Growth 14.6% 14.5% 14.6% 14.6% 14.7% 14.9% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - Trunk & Distribution Costs 135,741 146,817 158,798 171,756 185,771 200,930 Make-Ready 2,720 2,942 3,182 3,441 3,722 4,026 Fiber Costs - Plant and Headend - - - - - - Converters and Customer Equipment 47,226 51,905 57,034 62,654 68,811 75,557 Customer Connect Costs 47,318 52,586 58,400 64,812 71,882 79,674 Other Technical Capital 5,515 6,129 6,807 7,554 8,378 9,286 Other Capital 2,581 2,868 3,185 3,535 3,921 4,346 Total Capital Expenditures 241,100 263,248 287,405 313,752 342,485 373,818 NET CASH FLOW 410,807 483,506 568,048 666,758 782,518 918,918 % Growth 18.0% 17.7% 17.5% 17.4% 17.4% 17.4%
39 47 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CALIFORNIA CITY, CALIFORNIA REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL --------- --------- PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000 - ---------------- --------- --------- --------- --------- --------- --------- --------- PROJECTED NET CASH FLOW -659,129 -648,925 293,745 348,065 Value of Assets in Year 10 assuming OCF multiple of 7.0 Discount Rate 17.5% PV OF CASH FLOW STREAM 2,237,514 5.1 TIMES RUNNING RATE CASH FLOW 5.6 TIMES PROJECTED CASH FLOW $1,164 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006 - ---------------- --------- --------- --------- --------- --------- --------- PROJECTED NET CASH FLOW 410,807 483,506 568,048 666,758 782,518 918,918 Value of Assets in Year 10 assuming OCF multiple of 9,049,150 Discount Rate
40 48 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CALIFORNIA CITY, CALIFORNIA NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 2,500 2,707 2,858 2,858 2,938 3,056 3,178 Ending 2,707 2,858 2,858 2,938 3,056 3,178 3,305 Change 207 151 0 80 118 122 127 % Change 8.3% 5.6% 0.0% 2.8% 4.0% 4.0% 4.0% Average 2,604 2,783 2,858 2,898 2,997 3,117 3,241 BASIC SUBSCRIBERS: Beginning 1,933 2,075 2,097 1,922 1,974 2,069 2,167 Ending 2,075 2,097 1,922 1,974 2,069 2,167 2,270 Change 142 22 -175 52 94 99 103 % Change 7.3% 1.1% -11.1% 2.7% 4.8% 4.8% 4.8% Average 2,004 2,086 2,010 1,948 2,021 2,118 2,219 Ending Penetration 76.7% 73.4% 67.2% 67.2% 67.7% 68.2% 68.7% Monthly Basic Rev/Sub $24.94 $24.48 $25.29 $26.87 $27.94 $29.06 $30.22 % Change -1.8% 3.3% 6.3% 4.0% 4.0% 4.0% PAY + MINI-PAY UNITS: Beginning 952 1,288 1,180 839 862 903 946 Ending 1,288 1,180 839 862 903 946 991 Change 336 -108 -341 23 41 43 45 % Change 35.3% -8.4% -38.5% 2.7% 4.8% 4.8% 4.8% Average 1,120 1,234 1,010 850 882 925 969 Ending Penetration 62.1% 56.3% 43.7% 43.7% 43.7% 43.7% 43.7% Monthly Pay Rev/Unit $7.14 $7.28 $7.80 $7.64 $7.64 $7.64 $7.64 % Change 2.0% 7.1% -2.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $- $- $- $- $- $- $- % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ADVERTISING REVENUE PER SUB $- $- $- $- $- $- $- % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% OTHER REVENUE PER SUB $1.79 $2.21 $2.12 $1.98 $2.08 $2.18 $2.29 % Change 23.6% -4.1% -6.8% 5.0% 5.0% 5.0% TOTAL REVENUE PER SUB $30.78 $31.01 $31.24 $32.18 $33.36 $34.58 $35.85 % Change 0.8% 0.7% 3.0% 3.6% 3.7% 3.7%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 3,305 3,437 3,575 3,718 3,866 4,021 Ending 3,437 3,575 3,718 3,866 4,021 4,182 Change 132 137 143 149 155 161 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% Average 3,371 3,506 3,646 3,792 3,944 4,101 BASIC SUBSCRIBERS: Beginning 2,270 2,378 2,491 2,610 2,733 2,863 Ending 2,378 2,491 2,610 2,733 2,863 2,998 Change 108 113 118 124 129 135 % Change 4.8% 4.8% 4.7% 4.7% 4.7% 4.7% Average 2,324 2,435 2,551 2,672 2,798 2,931 Ending Penetration 69.2% 69.7% 70.2% 70.7% 71.2% 71.7% Monthly Basic Rev/Sub $31.43 $32.69 $34.00 $35.36 $36.77 $38.24 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PAY + MINI-PAY UNITS: Beginning 991 1,038 1,088 1,139 1,193 1,250 Ending 1,038 1,088 1,139 1,193 1,250 1,309 Change 47 49 52 54 57 59 % Change 4.8% 4.8% 4.7% 4.7% 4.7% 4.7% Average 1,015 1,063 1,113 1,166 1,221 1,279 Ending Penetration 43.7% 43.7% 43.7% 43.7% 43.7% 43.7% Monthly Pay Rev/Unit $7.64 $7.64 $7.64 $7.64 $7.64 $7.64 % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $- $- $- $- $- $- % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% ADVERTISING REVENUE PER SUB $- $- $- $- $- $- % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% OTHER REVENUE PER SUB $2.41 $2.53 $2.65 $2.78 $2.92 $3.07 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% TOTAL REVENUE PER SUB $37.17 $38.55 $39.99 $41.48 $43.03 $44.65 % Change 3.7% 3.7% 3.7% 3.7% 3.7% 3.8%
41 49 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CALIFORNIA CITY, CALIFORNIA NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $4.16 $4.40 $4.02 $5.05 $5.25 $5.46 $5.68 % Change 5.6% -8.5% 25.5% 4.0% 4.0% 4.0% PAY/MINI-PAY PROG. PER UNIT $4.54 $4.34 $3.85 $5.89 $6.06 $6.24 $6.43 % Change -4.4% -11.3% 52.8% 3.0% 3.0% 3.0% PPV PROGRAMMING/ PPV REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PROGRAM GUIDE COST PER SUB $0.11 $0.11 $0.09 $0.02 $0.02 $0.02 $0.03 % Change 1.6% -17.6% -75.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/ REVENUE 2.5% 2.3% 0.7% 0.7% 0.7% 0.7% 0.7% BAD DEBT EXPENSE/ REVENUE 0.9% 1.4% 0.3% 1.5% 1.5% 1.5% 1.5% TECHNICAL EXP. GROWTH 36.8% 0.3% -27.5% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 0.0% 0.0% -100.0% 0.0% 0.0% 0.0% GEN & ADMIN EXPENSE GROWTH -17.5% 17.4% -0.1% 4.0% 4.0% 4.0% MARKETING EXP/REVENUE 2.1% 1.5% 0.8% 2.2% 2.2% 2.2% 2.2% AD SALES EXP/AD REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $5.91 $6.14 $6.39 $6.64 $6.91 $7.19 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PAY/MINI-PAY PROG. PER UNIT $6.62 $6.82 $7.03 $7.24 $7.46 $7.68 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% PPV PROGRAMMING/ PPV REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PROGRAM GUIDE COST PER SUB $0.03 $0.03 $0.03 $0.03 $0.03 $0.03 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/ REVENUE 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% BAD DEBT EXPENSE/ REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% GEN & ADMIN EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% MARKETING EXP/REVENUE 2.2% 2.2% 2.2% 2.2% 2.2% 2.2% AD SALES EXP/AD REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
42 50 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CALIFORNIA CITY, CALIFORNIA NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 - --------------------- ------ ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 59.57 85.21 90.12 90.12 92.10 95.78 99.62 Ending 85.21 90.12 90.12 92.10 95.78 99.62 103.60 Change 25.64 4.91 - 1.98 3.68 3.83 3.98 Average 72.39 87.67 90.12 91.11 93.94 97.70 101.61 Homes/Mile 31.8 31.7 31.7 31.9 31.9 31.9 31.9 CONVERTERS: Beginning 1,160 1,011 1,007 931 958 1,003 1,051 Ending 1,011 1,007 931 958 1,003 1,051 1,101 Change (149) (4) (76) 27 46 48 50 Average 1,086 1,009 969 944 980 1,027 1,076 Ending Penetration 50.4% 48.3% 46.3% 48.5% 48.5% 48.5% 48.5% REBUILD CAPITAL: UG Miles 11.1 Aerial Miles 79.0 Cost/UG Mile $ - Cost/Aerial Mile $ - Other Rebuild Costs $ - TRUNK & DISTRIBUTION/ NEW MILE $14,059 $28,000 $29,120 $30,285 $31,496 (3-Year average) MAKE-READY/MILE $ 73.31 $104.69 $ - $ 22.00 $ 22.88 $ 23.80 $ 24.75 CONV & CUST EQUIP/ NEW CONVERTER $ - $ - $ - $509.00 $529.36 $550.53 $572.56 CUST. CONNECT COSTS/SUB $ 48.79 $ 30.69 $ 20.72 $ 16.50 $ 17.16 $ 17.85 $ 18.56 OTHER TECHNICAL CAPITAL/SUB $ 1.89 $ - $ 1.47 $ 22.75 $ 2.00 $ 2.08 $ 2.16 OTHER CAPITAL/SUB $ 0.35 $ 2.01 $ 0.17 $ 0.90 $ 0.94 $ 0.97 $ 1.01
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006 - --------------------- ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 103.60 107.74 112.05 116.54 121.20 126.05 Ending 107.74 112.05 116.54 121.20 126.05 131.09 Change 4.14 4.31 4.48 4.66 4.85 5.04 Average 105.67 109.90 114.29 118.87 123.62 128.57 Homes/Mile 31.9 31.9 31.9 31.9 31.9 31.9 CONVERTERS: Beginning 1,101 1,154 1,208 1,266 1,326 1,388 Ending 1,154 1,208 1,266 1,326 1,388 1,454 Change 52 55 57 60 63 66 Average 1,127 1,181 1,237 1,296 1,357 1,421 Ending Penetration 48.5% 48.5% 48.5% 48.5% 48.5% 48.5% REBUILD CAPITAL: UG Miles Aerial Miles Cost/UG Mile Cost/Aerial Mile Other Rebuild Costs TRUNK & DISTRIBUTION/ NEW MILE $32,756 $34,066 $35,429 $36,846 $38,320 $39,853 (3-Year average) MAKE-READY/MILE $25.74 $26.77 $27.84 $28.95 $30.11 $31.31 CONV & CUST EQUIP/ NEW CONVERTER $596.46 $619.28 $644.05 $669.81 $696.60 $724.47 CUST. CONNECT COSTS/SUB $19.30 $20.07 $20.88 $21.71 $22.58 $23.48 OTHER TECHNICAL CAPITAL/SUB $ 2.25 $ 2.34 $ 2.43 $ 2.53 $ 2.63 $ 2.74 OTHER CAPITAL/SUB $ 1.05 $ 1.09 $ 1.14 $ 1.18 $ 1.23 $ 1.28
43 51 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CALIFORNIA CITY, CALIFORNIA NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000 - ---------------------- ------ ------ ------ ------ ------ ------ ------ REVENUE: Basic & Equipment Revenue 599,671 612,815 609,818 628,159 677,866 738,614 804,763 Pay and Mini-Pay Revenue 95,913 107,771 94,460 77,984 80,918 84,779 88,818 PPV Revenue - - - - - - - Advertising Revenue - - - - - - - Other Revenue 44,605 55,702 48,974 46,265 50,406 55,452 60,999 --------------------------------------------------------------------- Total Revenue 740,189 776,288 753,252 752,408 809,190 878,844 954,580 % Growth 4.9% -3.0% -0.1% 7.5% 8.6% 8.6% EXPENSES: Basic Programming Costs 100,086 110,042 97,000 118,020 127,359 138,773 151,201 Pay Programming Costs 61,038 64,295 46,657 60,058 64,187 69,267 74,745 PPV Programming Costs - - - - - - - Program Guide Costs 2,618 2,769 2,199 533 575 627 683 Franchise & License Fees 18,731 17,886 5,185 5,267 5,664 6,152 6,682 Bad Debt Expense 6,658 10,706 2,526 11,286 12,138 13,183 14,319 Technical Expenses 53,165 72,712 72,964 52,899 55,015 57,215 59,504 Production/LO Expenses - - 93 - - - - Gen. & Admin Expenses 88,214 72,804 85,471 85,386 88,801 92,353 96,047 Marketing Expenses 15,844 11,676 6,190 16,177 17,398 18,895 20,523 Advertising Sales Expenses - - - - - - - --------------------------------------------------------------------- Total Expenses 346,354 362,890 318,285 349,625 371,137 396,464 423,704 OPERATING CASH FLOW 393,835 413,398 434,967 402,783 438,053 482,380 530,876 % Margin 53.2% 53.3% 57.7% 53.5% 54.1% 54.9% 55.6% % Growth 5.0% 5.2% -7.4% 8.8% 10.1% 10.1% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - - Trunk & Distribution Costs 259,428 159,556 10,516 55,440 107,278 116,032 125,500 Make-Ready 5,307 9,178 - 2,004 2,149 2,325 2,514 Fiber Costs - Plant and Headend - - - - - - - Converters & Customer Equipment 1 - 301 13,519 24,198 26,336 28,661 Customer Connect Costs 97,775 64,022 41,637 32,145 34,689 37,797 41,182 Other Technical Capital 3,793 - 2,950 44,321 4,043 4,405 4,800 Other Capital 707 4,200 347 1,753 1,892 2,062 2,246 --------------------------------------------------------------------- Total Capital Expenditures 367,011 236,956 55,751 149,183 174,249 188,957 204,904 NET CASH FLOW 26,824 176,442 379,216 253,600 263,804 293,423 325,972 % Growth -33.1% 4.0% 11.2% 11.1%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006 - ---------------------- ------ ------ ------ ------ ------ ------ REVENUE: Basic & Equipment Revenue 876,789 955,212 1,040,595 1,133,552 1,234,750 1,344,917 Pay and Mini-Pay Revenue 93,046 97,469 102,098 106,941 112,008 117,309 PPV Revenue - - - - - - Advertising Revenue - - - - - - Other Revenue 67,097 73,802 81,172 89,273 98,178 107,966 ----------------------------------------------------------- Total Revenue 1,036,932 1,126,483 1,223,864 1,329,765 1,444,936 1,570,192 % Growth 8.6% 8.6% 8.6% 8.7% 8.7% 8.7% EXPENSES: Basic Programming Costs 164,733 179,468 195,509 212,974 231,988 252,686 Pay Programming Costs 80,651 87,020 93,887 101,291 109,273 117,878 PPV Programming Costs - - - - - - Program Guide Costs 744 810 883 962 1,048 1,141 Franchise & License Fees 7,259 7,885 8,567 9,308 10,115 10,991 Bad Debt Expense 15,554 16,897 18,358 19,946 21,674 23,553 Technical Expenses 61,884 64,360 66,934 69,611 72,396 75,292 Production/LO Expenses - - - - - - Gen. & Admin Expenses 99,889 103,885 108,040 112,362 116,856 121,530 Marketing Expenses 22,294 24,219 26,313 28,590 31,066 33,759 Advertising Sales Expenses - - - - - - ----------------------------------------------------------- Total Expenses 453,008 484,544 518,492 555,045 594,415 636,830 OPERATING CASH FLOW 583,924 641,938 705,373 774,721 850,521 933,361 % Margin 56.3% 57.0% 57.6% 58.3% 58.9% 59.4% % Growth 10.0% 9.9% 9.9% 9.8% 9.8% 9.7% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - Trunk & Distribution Costs 135,741 146,817 158,798 171,756 185,771 200,930 Make-Ready 2,720 2,942 3,182 3,441 3,722 4,026 Fiber Costs - Plant and Headend - - - - - - Converters & Customer Equipment 31,191 33,943 36,936 40,191 43,732 47,583 Customer Connect Costs 44,868 48,881 53,251 58,007 63,186 68,824 Other Technical Capital 5,229 5,697 6,206 6,761 7,364 8,021 Other Capital 2,447 2,666 2,905 3,164 3,447 3,754 ----------------------------------------------------------- Total Capital Expenditures 222,197 240,946 261,277 283,320 307,222 333,138 NET CASH FLOW 361,727 400,992 444,096 491,400 543,299 600,223 % Growth 11.0% 10.9% 10.7% 10.7% 10.6% 10.5%
44 52 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CALIFORNIA CITY, CALIFORNIA NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000 - ---------------- ------ ------ ------ ------ ------ ------ ------ PROJECTED NET CASH FLOW 253,600 263,804 293,423 325,972 Value of Assets in Year 10 assuming OCF multiple of 7.0 Discount rate 17.5% PV OF CASH FLOW STREAM 2,900,933 6.7 TIMES RUNNING RATE CASH FLOW 7.2 TIMES PROJECTED CASH FLOW $1,509 PER SUBSCRIBER
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ PROJECTED NET CASH FLOW 361,727 400,992 444,096 491,400 543,299 600,223 Value of Assets in Year 10 assuming OCF multiple of 6,633,528 Discount rate
45 53 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CASH FLOW MULTIPLE AND ADJUSTED CASH FLOW MULTIPLE APPROACHES As discussed previously, the Cable System generated revenue of $753,252 and operating cash flow of $434,967 in 1996, for an actual operating cash flow margin of 57.7%. The current operating cash flow multiples indicated by the market range from 6 to 11 times, based on transactions which have been announced in recent months. In order to determine the respective appropriate cash flow multiples to apply to the cash flow and to the adjusted cash flow of the Cable System, the following factors must be considered: o The Cable System has experienced a decline in basic subscribers due in part to technical inability of the system to add channels and new services commensurate with recent rate increases. o The cable plant needs to be rebuilt, as the 330 MHz plant has no room to add the programming needed to keep up with competition. Additionally, a buyer of the Cable System would need to build a headend to serve The Cable Systems' subscribers, which are currently served from the headend of an adjacent cable system. o The current rates of the Cable System are relatively high given the level of service provided in each system, and the presence of direct competition in the overbuilt portion of the service area. o The operating cash flow margin approximates 58 percent, a very high level by industry standards, leaving little perceived potential for improvement by a buyer. A typical buyer would likely discount this margin in determining the potential cash flow that such a buyer would be able to consistently generate from this Cable System. Based on these factors, as well as on CEA's recent experience in the cable system transaction market, it is CEA's opinion that the following cash flow multiples are appropriate in valuing the Cable System: Operating Cash Flow Multiple 7.0 Adjusted Operating Cash Flow Multiple 7.5
Applying these multiples respectively to the actual operating cash flow and to the adjusted operating cash flow of the Cable System yields the following calculations: Cash Flow Multiple Approach: --------------------------- Actual Operating Cash Flow $ 434,967 Operating Cash Flow Multiple x 7.0 ----------- Value Indication $ 3,044,769
46 54 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. Adjusted Cash Flow Multiple Approach: Actual Revenue $ 753,252 Adjusted Margin x 50% ----------- Adjusted Operating Cash Flow $ 376,626 Operating Cash Flow Multiple x 7.5 ----------- Value Indication $2,824,695
SUBSCRIBER MULTIPLE APPROACH Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a buyer would expect the typical cable system to generate just over $33.00 per month in total revenue, operate at a 50% cash flow margin, and be valued at approximately 9 times this operating cash flow. Based on these parameters, a buyer would be willing to pay approximately $1,800 per subscriber for this typical cable system. Applying this per-subscriber value to the subject Cable System results in the following calculation: Basic Subscribers 1,922 Per Subscriber Multiple x $ 1,800 -------------- Value Indication $ 3,459,600
REBUILD CASH FLOW MULTIPLE APPROACH Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art cable system could reasonably be expected to sell, on average, for approximately 10.5 times operating cash flow. For cable systems in need of rebuild, a buyer would likely be willing to pay approximately 10.5 times operating cash flow less the cost of the rebuild. Therefore, to estimate the value of the Cable System using the Rebuild Cash Flow Multiple Approach, CEA multiplied 1996 operating cash flow by 10.5 and subtracted the estimated cost to rebuild the Cable System, as follows: 1996 Operating Cash Flow $ 434,967 Rebuild Operating Cash Flow Multiple x 10.5 ------------ Value of System After Rebuild 4,567,154 less: Cost of Rebuild (1,825,457) ------------ Value Indication $ 2,741,697
47 55 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUE CONCLUSIONS -- CALIFORNIA CITY, CA CEA used two variations of the discounted cash flow approach, and four variations of the market approach to determine six indications of the value of the Cable System. These value indications are summarized as follows: Rebuild DCF Approach $2,237,514 No Rebuild DCF Approach $2,900,933 Cash Flow Multiple Approach $3,044,769 Adjusted Cash Flow Multiple Approach $2,824,695 Subscriber Multiple Approach $3,459,600 Rebuild Cash Flow Multiple Approach $2,741,697 VALUE CONCLUSION $2,800,000
Therefore, based on this analysis, it is CEA's opinion that, as of December 31, 1996, the fair market value of the California City, CA Cable System is $2,800,000. 48 56 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CENTREVILLE, MD SYSTEM OVERVIEW -- CENTREVILLE, MD SYSTEM DESCRIPTION The Partnership owns the Cable System that serves Centreville, Maryland, as well as various towns in the Maryland Counties of Queen Anne's, Kent, and Talbot, all located on the Eastern Shore of the Chesapeake Bay. As of December 31, 1996, the Cable System passed 23,857 homes with 650 miles of plant, and served 12,325 basic subscribers from one headend and six microwave receive sites. Relevant subscriber statistics as of December 31, 1996 are displayed in the following table.
Homes Basic Basic Pay Pay As of 12/31/96 Passed Subscribers Penetration Units Penetration -------------- ------ ----------- ----------- ----- ----------- Centreville, MD 23,857 12,325 51.7% 7,440 60.4%
The Cable System operates at 450 MHz, 62-channel capacity, and offers 51 channels of programming. HOME AND SUBSCRIBER GROWTH During the past few years, the Cable System has experienced some home growth and strong growth in basic subscribers as basic penetration rose from 47% in 1994 to nearly 52% in 1996. The Company's home and subscriber growth history is displayed below.
1994 1995 1996 CAGR 94-96 ---- ---- ---- ---------- Homes Passed 23,383 23,497 23,857 1.0% Basic Subscribers 11,001 11,893 12,325 5.8%
FINANCIAL SUMMARY For the year ended December 31, 1996, the Centreville, MD Cable System generated total revenue of $5,342,649 and operating cash flow of $2,719,375, resulting in a 50.9% operating cash flow margin. 49 57 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUATION -- CENTREVILLE, MD DISCOUNTED CASH FLOW APPROACHES Financial projections, including all assumptions regarding operations and future capital expenditures, relating to the Rebuild DCF Approach and to the No Rebuild DCF Approach are displayed on the following ten pages. These projections were prepared by CEA based on certain information provided by the Partnership, including, but not limited to, the Partnership's 1997 budget for the Cable System. The discount rate used in this analysis was derived using a weighted average cost of capital. Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that equity investors in cable systems would likely require a 25 percent return in order to justify the equity investment. Additionally, based on CEA's recent experience in raising debt financing for cable operators, a lender would likely charge an interest rate of approximately 10 percent and would likely be willing to lend up to 50 percent of asset value at that rate. Thus, the likely weighted average cost of capital for the subject Cable System can be calculated as follows: 50 percent debt at a rate of 10% = .50 x 10% = 5.0% 50 percent equity at a rate of 25% = .50 x 25% = 12.5% Total Cost of Capital = 17.5%
The terminal value of the Cable System was calculated as the price at which the cable assets might sell at the end of the ten-year projection period, based on a multiple of the operating cash flow of the Cable System at that time. The cash flow multiple used reflects the expected growth of cash flow in the Cable System after year ten, as well as the return on debt and equity capital that would likely be required by investors at that time given the expected risk of the investment at that time. Based on the calculations displayed on the following pages, the discounted cash flow approaches indicate fair market values for the Cable System as follows: Rebuild DCF Approach $18,553,636 No Rebuild DCF Approach $24,605,420
50 58 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CENTREVILLE, MD REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 22,168 23,383 23,497 23,857 24,169 24,531 24,899 Ending 23,383 23,497 23,857 24,169 24,531 24,899 25,273 Change 1,215 114 360 312 363 368 373 % Change 5.5% 0.5% 2.0% 1.3% 1.5% 1.5% 1.5% Average 22,776 23,440 23,677 24,013 24,350 24,715 25,086 BASIC SUBSCRIBERS: Beginning 10,241 11,001 11,893 12,325 12,926 13,365 14,063 Ending 11,001 11,893 12,325 12,926 13,365 14,063 14,780 Change 760 892 432 601 439 698 716 % Change 7.4% 8.1% 4.8% 4.9% 3.4% 5.2% 5.1% Average 10,621 11,447 12,109 12,625 13,145 13,714 14,421 Ending Penetration 47.0% 50.6% 51.7% 53.5% 54.5% 56.5% 58.5% Monthly Basic Rev/Sub $22.50 $23.78 $26.70 $30.10 $31.31 $32.87 $34.52 % Change 5.7% 12.3% 12.7% 4.0% 5.0% 5.0% PAY + MINI-PAY UNITS: Beginning 9,003 9,250 8,643 7,440 7,292 7,540 7,934 Ending 9,250 8,643 7,440 7,292 7,540 7,934 8,338 Change 247 -607 -1,203 -148 248 394 404 % Change 2.7% -6.6% -18.6% -2.0% 3.4% 5.2% 5.1% Average 9,127 8,947 8,042 7,366 7,416 7,737 8,136 Ending Penetration 84.1% 72.7% 60.4% 56.4% 56.4% 56.4% 56.4% Monthly Pay Rev/Unit $7.48 $8.80 $8.91 $8.43 $8.43 $8.43 $8.43 % Change 17.7% 1.2% -5.4% 0.0% 0.0% 0.0% SEGA REVENUE PER SUB $- $0.04 $0.28 $0.25 $0.27 $1.00 $1.20 % Change 0.0% 617.4% -10.5% 5.0% 20.0% 20.0% ADVERTISING REVENUE PER SUB $0.68 $0.83 $0.85 $0.91 $0.96 $1.05 $1.16 % Change 22.2% 1.7% 7.5% 5.0% 10.0% 10.0% OTHER REVENUE PER SUB $2.15 $2.33 $2.97 $2.82 $2.97 $3.26 $3.59 % Change 8.4% 27.1% -4.8% 5.0% 10.0% 10.0% TOTAL REVENUE PER SUB $31.83 $33.95 $36.77 $39.01 $40.25 $42.94 $45.22 % Change 6.7% 8.3% 6.1% 3.2% 6.7% 5.3%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 25,273 25,652 26,036 26,427 26,823 27,226 Ending 25,652 26,036 26,427 26,823 27,226 27,634 Change 379 385 391 396 402 408 % Change 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% Average 25,462 25,844 26,232 26,625 27,025 27,430 BASIC SUBSCRIBERS: Beginning 14,780 15,514 16,268 17,040 17,832 18,644 Ending 15,514 16,268 17,040 17,832 18,644 19,477 Change 735 753 773 792 812 832 % Change 5.0% 4.9% 4.7% 4.6% 4.6% 4.5% Average 15,147 15,891 16,654 17,436 18,238 19,061 Ending Penetration 60.5% 62.5% 64.5% 66.5% 68.5% 70.5% Monthly Basic Rev/Sub $36.24 $38.06 $39.96 $41.96 $44.05 $46.26 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% PAY + MINI-PAY UNITS: Beginning 8,338 8,752 9,177 9,613 10,060 10,518 Ending 8,752 9,177 9,613 10,060 10,518 10,988 Change 414 425 436 447 458 470 % Change 5.0% 4.9% 4.7% 4.6% 4.6% 4.5% Average 8,545 8,965 9,395 9,837 10,289 10,753 Ending Penetration 56.4% 56.4% 56.4% 56.4% 56.4% 56.4% Monthly Pay Rev/Unit $8.43 $8.43 $8.43 $8.43 $8.43 $8.43 % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% SEGA REVENUE PER SUB $1.44 $1.73 $2.07 $2.07 $2.28 $2.51 % Change 20.0% 20.0% 20.0% 0.0% 10.0% 10.0% ADVERTISING REVENUE PER SUB $1.27 $1.40 $1.54 $1.69 $1.86 $2.05 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% OTHER REVENUE PER SUB $3.95 $4.34 $4.78 $5.25 $5.78 $6.36 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% TOTAL REVENUE PER SUB $47.66 $50.28 $53.10 $55.73 $58.73 $61.93 % Change 5.4% 5.5% 5.6% 5.0% 5.4% 5.4%
51 59 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CENTREVILLE, MD REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $3.75 $4.82 $5.34 $6.22 $6.47 $7.12 $7.83 % Change 28.3% 10.8% 16.6% 4.0% 10.0% 10.0% PAY/MINI-PAY PROG. PER UNIT $4.05 $4.89 $4.36 $4.66 $4.80 $4.95 $5.09 % Change 20.5% -10.8% 7.0% 3.0% 3.0% 3.0% SEGA PROGRAMMING/ SEGA REVENUE 0.0% 29.4% 39.4% 38.7% 38.7% 38.7% 38.7% PROGRAM GUIDE COST PER SUB $0.08 $0.07 $0.06 $0.07 $0.07 $0.07 $0.08 % Change -15.3% -14.0% 13.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/ REVENUE 4.8% 4.5% 4.2% 4.3% 4.3% 4.3% 4.3% BAD DEBT EXPENSE/ REVENUE 1.9% 1.2% 0.6% 1.2% 1.2% 1.2% 1.2% TECHNICAL EXP. GROWTH 47.4% -12.0% -9.6% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% GEN & ADMIN EXPENSE GROWTH 17.0% 22.4% -3.7% -3.7% -3.7% -3.7% MARKETING EXP/REVENUE 4.4% 3.2% 1.9% 2.3% 2.3% 2.3% 2.3% AD SALES EXP/AD REVENUE 75.1% 56.1% 64.7% 50.4% 50.4% 50.4% 50.4%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $8.61 $9.47 $10.42 $11.46 $12.61 $13.87 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% PAY/MINI-PAY PROG. PER UNIT $5.25 $5.40 $5.57 $5.73 $5.91 $6.08 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% SEGA PROGRAMMING/ SEGA REVENUE 38.7% 38.7% 38.7% 38.7% 38.7% 38.7% PROGRAM GUIDE COST PER SUB $0.08 $0.08 $0.08 $0.09 $0.09 $0.10 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% FRANCHISE, ACCESS FEES/ REVENUE 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% BAD DEBT EXPENSE/ REVENUE 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% GEN & ADMIN EXPENSE GROWTH -3.7% -3.7% -3.7% -3.7% -3.7% -3.7% MARKETING EXP/REVENUE 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% AD SALES EXP/AD REVENUE 50.4% 50.4% 50.4% 50.4% 50.4% 50.4%
52 60 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CENTREVILLE, MD REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 - --------------------- ------ ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 578.59 630.15 635.93 649.75 654.40 664.22 674.18 Ending 630.15 635.93 649.75 654.40 664.22 674.18 684.29 Change 51.56 5.78 13.82 4.65 9.82 9.96 10.11 Average 604.37 633.04 642.84 652.08 659.31 669.20 679.24 Homes/Mile 37.1 36.9 36.7 36.9 36.9 36.9 36.9 CONVERTERS: Beginning 1,916 1,796 1,625 1,838 1,960 2,026 2,132 Ending 1,796 1,625 1,838 1,960 2,026 2,132 2,241 Change (120) (171) 213 122 67 106 109 Average 1,856 1,711 1,732 1,899 1,993 2,079 2,186 Ending Penetration 16.9% 14.2% 15.2% 15.2% 15.2% 15.2% 15.2% REBUILD CAPITAL: UG Miles 189.6 95.0% Aerial Miles 460.2 95.0% Cost/UG Mile $22,500 2,026,350 2,026,350 Cost/Aerial Mile $16,500 3,606,426 3,606,426 Other Rebuild Costs 17.5% 985,736 985,736 ----------------------------------------------- TRUNK & DISTRIBUTION/ NEW MILE $35,580 $20,700 $25,000 $26,000 $27,040 (3-Year average) MAKE-READY/MILE $291.78 $128.66 $2.44 $- $10.00 $10.40 $10.82 CONV & CUST EQUIP/ NEW CONVERTER $- $- $117.94 $18.50 $19.24 $20.01 $20.81 CUST. CONNECT COSTS/SUB $28.90 $28.77 $27.38 $21.60 $22.46 $23.36 $24.30 OTHER TECHNICAL CAPITAL/SUB $6.75 $15.15 $2.34 $13.57 $14.11 $14.68 $15.26 OTHER CAPITAL/SUB $0.51 $3.80 $0.42 $1.19 $1.24 $1.29 $1.34
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006 - --------------------- ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 684.29 694.56 704.97 715.55 726.28 737.18 Ending 694.56 704.97 715.55 726.28 737.18 748.23 Change 10.26 10.42 10.57 10.73 10.89 11.06 Average 689.42 699.77 710.26 720.92 731.73 742.71 Homes/Mile 36.9 36.9 36.9 36.9 36.9 36.9 CONVERTERS: Beginning 2,241 2,352 2,466 2,583 2,703 2,826 Ending 2,352 2,466 2,583 2,703 2,826 2,953 Change 111 114 117 120 123 126 Average 2,296 2,409 2,525 2,643 2,765 2,890 Ending Penetration 15.2% 15.2% 15.2% 15.2% 15.2% 15.2% REBUILD CAPITAL: UG Miles Aerial Miles Total Rebuild Costs: Cost/UG Mile 13,237,023 Cost/Aerial Mile Other Rebuild Costs - ------------------------------- TRUNK & DISTRIBUTION/ NEW MILE $28,122 $29,246 $30,416 $31,633 $32,898 $34,214 (3-Year average) MAKE-READY/MILE $11.25 $11.70 $12.17 $12.65 $13.16 $13.69 CONV & CUST EQUIP/ NEW CONVERTER $21.64 $22.51 $23.41 $24.34 $25.32 $26.33 CUST. CONNECT COSTS/SUB $25.27 $26.28 $27.33 $28.42 $29.56 $30.74 OTHER TECHNICAL CAPITAL/SUB $15.87 $16.51 $17.17 $17.86 $18.57 $19.31 OTHER CAPITAL/SUB $1.39 $1.45 $1.51 $1.57 $1.63 $1.69
53 61 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CENTREVILLE, MD REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000 - ---------------------- ------ ------ ------ ------ ------ ------ ------ REVENUE: Basic & Equipment Revenue 2,867,158 3,266,153 3,879,951 4,560,845 4,938,601 5,409,922 5,973,438 Pay and Mini-Pay Revenue 818,923 944,980 859,786 745,112 750,156 782,618 822,988 Sega Revenue - 5,414 41,088 38,342 41,917 164,568 207,669 Advertising Revenue 86,824 114,382 123,040 137,908 150,766 173,019 200,138 Other Revenue 284,331 333,075 438,784 427,900 467,797 536,843 620,989 --------------------------------------------------------------------------- Total Revenue 4,057,236 4,664,004 5,342,649 5,910,106 6,349,237 7,066,969 7,825,222 % Growth 15.0% 14.6% 10.6% 7.4% 11.3% 10.7% EXPENSES: Basic Programming Costs 478,562 661,699 775,456 942,329 1,020,379 1,170,986 1,354,530 Pay Programming Costs 444,068 524,646 420,459 412,099 427,336 459,202 497,377 Sega Programming Costs - 1,590 16,199 14,838 16,222 63,688 80,368 Program Guide Costs 10,392 9,484 8,628 10,165 11,007 11,943 13,061 Franchise & License Fees 194,285 209,504 225,877 256,203 275,239 306,353 339,223 Bad Debt Expense 76,907 56,738 33,754 71,512 76,826 85,510 94,685 Technical Expenses 304,253 448,354 394,378 356,478 370,737 385,567 400,990 Production/LO Expenses - - - - - - - Gen. & Admin Expenses 396,107 463,270 567,155 546,454 526,508 507,291 488,775 Marketing Expenses 177,479 148,887 101,787 133,155 143,048 159,219 176,302 Advertising Sales Expenses 65,230 64,179 79,581 69,436 75,911 87,115 100,770 --------------------------------------------------------------------------- Total Expenses 2,147,283 2,588,351 2,623,274 2,812,670 2,943,213 3,236,874 3,546,080 OPERATING CASH FLOW 1,909,953 2,075,653 2,719,375 3,097,435 3,406,023 3,830,095 4,279,142 % Margin 47.1% 44.5% 50.9% 52.4% 53.6% 54.2% 54.7% % Growth 8.7% 31.0% 13.9% 10.0% 12.5% 11.7% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - 6,618,511 6,618,511 - - Trunk & Distribution Costs 1,156,410 425,285 950,145 96,255 245,400 259,044 273,447 Make-Ready 176,345 81,573 1,150 - 6,593 6,960 7,347 Fiber Costs - Plant and Headend 37,407 830,776 16,877 - - - - Converters & Customer Equipment 14,761 27,946 25,122 2,248 1,281 2,119 2,260 Customer Connect Costs 306,965 329,310 331,527 272,706 295,294 320,395 350,399 Other Technical Capital 71,740 173,478 28,378 171,325 185,515 201,285 220,135 Other Capital 5,466 43,550 5,129 15,024 16,268 17,651 19,304 --------------------------------------------------------------------------- Total Capital 1,769,094 1,911,918 1,358,748 7,176,070 7,368,863 807,453 872,892 Expenditures NET CASH FLOW 140,859 163,735 1,360,627 (4,078,635)(3,962,840) 3,022,642 3,406,250 % Growth -2.8% -176.3% 12.7%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006 - ---------------------- ------ ------ ------ ------ ------ ------ REVENUE: Basic & Equipment Revenue 6,587,668 7,256,847 7,985,544 8,778,692 9,641,617 10,580,067 Pay and Mini-Pay Revenue 864,394 906,857 950,399 995,043 1,040,813 1,087,732 Sega Revenue 261,740 329,518 414,407 433,874 499,214 573,890 Advertising Revenue 231,228 266,846 307,624 354,282 407,636 468,613 Other Revenue 717,455 827,970 954,497 1,099,267 1,264,814 1,454,014 ---------------------------------------------------------------- Total Revenue 8,662,486 9,588,037 10,612,470 11,661,158 12,854,094 14,164,316 % Growth 10.7% 10.7% 10.7% 9.9% 10.2% 10.2% EXPENSES: Basic Programming Costs 1,564,946 1,806,005 2,081,991 2,397,770 2,758,869 3,171,560 Pay Programming Costs 538,072 581,440 627,638 676,835 729,206 784,941 Sega Programming Costs 101,293 127,523 160,376 167,909 193,196 222,095 Program Guide Costs 14,267 15,567 16,967 18,474 20,097 21,843 Franchise & License Fees 375,519 415,641 460,051 505,511 557,225 614,023 Bad Debt Expense 104,816 116,015 128,411 141,100 155,535 171,388 Technical Expenses 417,029 433,710 451,059 469,101 487,865 507,380 Production/LO Expenses - - - - - - Gen. & Admin Expenses 470,934 453,745 437,184 421,226 405,852 391,038 Marketing Expenses 195,166 216,018 239,099 262,726 289,603 319,122 Advertising Sales Expenses 116,423 134,357 154,889 178,381 205,245 235,947 ---------------------------------------------------------------- Total Expenses 3,898,457 4,300,023 4,757,663 5,239,034 5,802,692 6,439,337 OPERATING CASH FLOW 4,764,020 5,288,014 5,854,807 6,422,124 7,051,402 7,724,978 % Margin 55.0% 55.2% 55.2% 55.1% 54.9% 54.5% % Growth 11.3% 11.0% 10.7% 9.7% 9.8% 9.6% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - Trunk & Distribution Costs 288,651 304,700 321,641 339,524 358,402 378,329 Make-Ready 7,755 8,186 8,641 9,122 9,629 10,164 Fiber Costs - Plant and Headend - - - - - - Converters & Customer Equipment 2,411 2,571 2,742 2,923 3,117 3,323 Customer Connect Costs 382,749 417,613 455,171 495,615 539,148 585,991 Other Technical Capital 240,458 262,362 385,957 311,365 338,715 368,143 Other Capital 21,087 23,007 25,077 27,305 29,703 32,284 ---------------------------------------------------------------- Total Capital Expenditures 943,110 1,018,439 1,099,229 1,185,854 1,278,714 1,378,234 NET CASH FLOW 3,820,909 4,269,575 4,755,578 5,236,270 5,772,688 6,346,744 % Growth 12.2% 11.7% 11.4% 10.1% 10.2% 9.9%
54 62 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CENTREVILLE, MD REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000 - ---------------- ------ ------ ------ ------ ------ ------ ------ PROJECTED NET CASH FLOW -4,078,635 -3,962,840 3,022,642 3,406,250 Value of Assets in Year 10 assuming OCF multiple of 8.0 Discount Rate 17.5% PV OF CASH FLOW STREAM 18,553,636 6.8 TIMES RUNNING RATE CASH FLOW 6.0 TIMES PROJECTED CASH FLOW $1,505 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006 - ---------------- ------ ------ ------ ------ ------ ------ PROJECTED NET CASH FLOW 3,820,909 4,269,575 4,755,578 5,236,270 5,772,688 6,346,744 Value of Assets in Year 10 assuming OCF multiple of 61,799,825 Discount Rate
55 63 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CENTREVILLE, MD NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 22,168 23,383 23,497 23,857 24,169 24,531 24,899 Ending 23,383 23,497 23,857 24,169 24,531 24,899 25,273 Change 1,215 114 360 312 363 368 373 % Change 5.5% 0.5% 2.0% 1.3% 1.5% 1.5% 1.5% Average 22,776 23,440 23,677 24,013 24,350 24,715 25,086 BASIC SUBSCRIBERS: Beginning 10,241 11,001 11,893 12,325 12,926 13,365 13,814 Ending 11,001 11,893 12,325 12,926 13,365 13,814 14,274 Change 760 892 432 601 439 449 460 % Change 7.4% 8.1% 4.8% 4.9% 3.4% 3.4% 3.3% Average 10,621 11,447 12,109 12,625 13,145 13,590 14,044 Ending Penetration 47.0% 50.6% 51.7% 53.5% 54.5% 55.5% 56.5% Monthly Basic Rev/Sub $22.50 $23.78 $26.70 $30.10 $31.31 $32.56 $33.86 % Change 5.7% 12.3% 12.7% 4.0% 4.0% 4.0% PAY + MINI-PAY UNITS: Beginning 9,003 9,250 8,643 7,440 7,292 7,540 7,793 Ending 9,250 8,643 7,440 7,292 7,540 7,793 8,053 Change 247 -607 -1,203 -148 248 254 259 % Change 2.7% -6.6% -18.6% -2.0% 3.4% 3.4% 3.3% Average 9,127 8,947 8,042 7,366 7,416 7,667 7,923 Ending Penetration 84.1% 72.7% 60.4% 56.4% 56.4% 56.4% 56.4% Monthly Pay Rev/Unit $7.48 $8.80 $8.91 $8.43 $8.43 $8.43 $8.43 % Change 17.7% 1.2% -5.4% 0.0% 0.0% 0.0% SEGA REVENUE PER SUB $- $0.04 $0.28 $0.25 $0.27 $0.28 $0.29 % Change 0.0% 617.4% -10.5% 5.0% 5.0% 5.0% ADVERTISING REVENUE PER SUB $0.68 $0.83 $0.85 $0.91 $0.96 $1.00 $1.05 % Change 22.2% 1.7% 7.5% 5.0% 5.0% 5.0% OTHER REVENUE PER SUB $2.15 $2.33 $2.97 $2.82 $2.97 $3.11 $3.27 % Change 8.4% 27.1% -4.8% 5.0% 5.0% 5.0% TOTAL REVENUE PER SUB $31.83 $33.95 $36.77 $39.01 $40.25 $41.71 $43.23 % Change 6.7% 8.3% 6.1% 3.2% 3.6% 3.6%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 25,273 25,652 26,036 26,427 26,823 27,226 Ending 25,652 26,036 26,427 26,823 27,226 27,634 Change 379 385 391 396 402 408 % Change 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% Average 25,462 25,844 26,232 26,625 27,025 27,430 BASIC SUBSCRIBERS: Beginning 14,274 14,745 15,226 15,719 16,223 16,739 Ending 14,745 15,226 15,719 16,223 16,739 17,266 Change 471 482 493 504 516 527 % Change 3.3% 3.3% 3.2% 3.2% 3.2% 3.2% Average 14,510 14,986 15,473 15,971 16,481 17,002 Ending Penetration 57.5% 58.5% 59.5% 60.5% 61.5% 62.5% Monthly Basic Rev/Sub $35.22 $36.63 $38.09 $39.61 $41.20 $42.85 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PAY + MINI-PAY UNITS: Beginning 8,053 8,318 8,590 8,868 9,152 9,443 Ending 8,318 8,590 8,868 9,152 9,443 9,741 Change 266 272 278 284 291 298 % Change 3.3% 3.3% 3.2% 3.2% 3.2% 3.2% Average 8,186 8,454 8,729 9,010 9,298 9,592 Ending Penetration 56.4% 56.4% 56.4% 56.4% 56.4% 56.4% Monthly Pay Rev/Unit $8.43 $8.43 $8.43 $8.43 $8.43 $8.43 % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% SEGA REVENUE PER SUB $0.31 $0.32 $0.34 $0.34 $0.37 $0.41 % Change 5.0% 5.0% 5.0% 0.0% 10.0% 10.0% ADVERTISING REVENUE PER SUB $1.11 $1.16 $1.22 $1.28 $1.34 $1.41 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% OTHER REVENUE PER SUB $3.43 $3.60 $3.78 $3.97 $4.17 $4.38 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% TOTAL REVENUE PER SUB $44.82 $46.47 $48.19 $49.96 $51.85 $53.81 % Change 3.7% 3.7% 3.7% 3.7% 3.8% 3.8%
56 64 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CENTREVILLE, MD NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $3.75 $4.82 $5.34 $6.22 $6.47 $6.73 $7.00 % Change 28.3% 10.8% 16.6% 4.0% 4.0% 4.0% PAY/MIN-PAY PROG. PER UNIT $4.05 $4.89 $4.36 $4.66 $4.80 $4.95 $5.09 % Change 20.5% -10.8% 7.0% 3.0% 3.0% 3.0% SEGA PROGRAMMING/ SEGA REVENUE 0.0% 29.4% 39.4% 38.7% 38.7% 38.7% 38.7% PROGRAM GUIDE COST PER SUB $0.08 $0.07 $0.06 $0.07 $0.07 $0.07 $0.08 % Change -15.3% -14.0% 13.0% 4.0% 4.0% 4.0% FRANCHISE ACCESS FEES/REVENUE 4.8% 4.5% 4.2% 4.3% 4.3% 4.3% 4.3% BAD DEBT EXPENSE/ REVENUE 1.9% 1.2% 0.6% 1.2% 1.2% 1.2% 1.2% TECHNICAL EXP. GROWTH 47.4% -12.0% -9.6% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% GEN & ADMIN EXPENSE GROWTH 17.0% 22.4% -3.7% -3.7% -3.7% -3.7% MARKETING EXP/ REVENUE 4.4% 3.2% 1.9% 2.3% 2.3% 2.3% 2.3% AD SALES EXP/ AD REVENUE 75.1% 56.1% 64.7% 50.4% 50.4% 50.4% 50.4%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $7.28 $7.57 $7.87 $8.18 $8.51 $8.85 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PAY/MIN-PAY PROG. PER UNIT $5.25 $5.40 $5.57 $5.73 $5.91 $6.08 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% SEGA PROGRAMMING/ SEGA REVENUE 38.7% 38.7% 38.7% 38.7% 38.7% 38.7% PROGRAM GUIDE COST PER SUB $0.08 $0.08 $0.08 $0.09 $0.09 $0.10 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% FRANCHISE ACCESS FEES/REVENUE 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% BAD DEBT EXPENSE/ REVENUE 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% GEN & ADMIN EXPENSE GROWTH -3.7% -3.7% -3.7% -3.7% -3.7% -3.7% MARKETING EXP/ REVENUE 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% AD SALES EXP/ AD REVENUE 50.4% 50.4% 50.4% 50.4% 50.4% 50.4%
57 65 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CENTREVILLE, MD NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 - --------------------- ------ ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 578.59 630.15 635.93 649.75 654.40 664.22 674.18 Ending 630.15 635.93 649.75 654.40 664.22 674.18 684.29 Change 51.56 5.78 13.82 4.65 9.82 9.96 10.11 Average 604.37 633.04 642.84 652.08 659.31 669.20 679.24 Homes/Mile 37.1 36.9 36.7 36.9 36.9 36.9 36.9 CONVERTERS: Beginning 1,916 1,796 1,625 1,838 1,960 2,026 2,094 Ending 1,796 1,625 1,838 1,960 2,026 2,094 2,164 Change (120) (171) 213 122 67 68 70 Average 1,856 1,711 1,732 1,899 1,993 2,060 2,129 Ending Penetration 16.9% 14.2% 15.2% 15.2% 15.2% 15.2% 15.2% REBUILD CAPITAL: UG Miles 189.6 Aerial Miles 460.2 Cost/UG Mile $- Cost/Aerial Mile $- Other Rebuild Costs $- TRUNK & DISTRIBUTION/ NEW MILE $35,580 $20,700 $25,000 $26,000 $27,040 (3-Year average) MAKE-READY/MILE $291.78 $128.86 $2.44 $- $10.00 $10.40 $10.82 CONV & CUST EQUIP/ NEW CONVERTER $- $- $117.94 $18.50 $19.24 $20.01 $20.81 CUST. CONNECT COSTS/SUB $28.90 $28.77 $27.38 $21.60 $22.46 $23.36 $24.30 OTHER TECHNICAL CAPITAL/SUB $6.75 $15.15 $2.34 $13.57 $14.11 $14.68 $15.26 OTHER CAPITAL/SUB $0.51 $3.80 $0.42 $1.19 $1.24 $1.29 $1.34
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006 - --------------------- ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 684.29 694.56 704.97 715.55 726.28 737.18 Ending 694.56 704.97 715.55 726.28 737.18 748.23 Change 10.26 10.42 10.57 10.73 10.89 11.06 Average 689.42 699.77 710.26 720.92 731.73 742.71 Homes/Mile 36.9 36.9 36.9 36.9 36.9 36.9 CONVERTERS: Beginning 2,164 2,235 2,308 2,383 2,459 2,538 Ending 2,235 2,308 2,383 2,459 2,538 2,618 Change 71 73 75 76 78 80 Average 2,200 2,272 2,346 2,421 2,498 2,578 Ending Penetration 15.2% 15.2% 15.2% 15.2% 15.2% 15.2% TRUNK & DISTRIBUTION/ NEW MILE $28,122 $29,246 $30,416 $31,633 $32,898 $34,214 (3-Year average) MAKE-READY/MILE $11.25 $11.70 $12.17 $12.65 $13.16 $13.69 CONV & CUST EQUIP/ NEW CONVERTER $21.64 $22.51 $23.41 $24.34 $25.32 $26.33 CUST. CONNECT COSTS/SUB $25.27 $26.28 $27.33 $28.42 $29.56 $30.74 OTHER TECHNICAL CAPITAL/SUB $15.87 $16.51 $17.17 $17.86 $18.57 $19.31 OTHER CAPITAL/SUB $1.39 $1.45 $1.51 $1.57 $1.63 $1.69
58 66 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CENTREVILLE, MD NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL --------- --------- CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000 - ---------------------- --------- --------- --------- --------- --------- --------- --------- REVENUE: Basic & Equipment Revenue 2,867,158 3,266,153 3,879,951 4,560,845 4,938,601 5,309,755 5,706,915 Pay and Mini-Pay Revenue 818,923 944,980 859,786 745,112 750,156 775,513 801,461 Sega Revenue - 5,414 41,088 38,342 41,917 45,500 49,374 Advertising Revenue 86,824 114,382 123,040 137,908 150,766 163,655 177,587 Other Revenue 284,331 333,075 438,784 427,900 467,797 507,789 551,019 --------------------------------------------------------------------------- Total Revenue 4,057,236 4,664,004 5,342,649 5,910,106 6,349,237 6,802,213 7,286,356 % Growth 15.0% 14.6% 10.6% 7.4% 7.1% 7.1% EXPENSES: Basic Programming Costs 478,562 661,699 775,456 942,329 1,020,379 1,097,064 1,179,122 Pay Programming Costs 444,068 524,646 420,459 412,099 427,336 455,034 484,367 Sega Programming Cost - 1,590 16,199 14,838 16,222 17,609 19,108 Program Guide Costs 10,392 9,484 8,628 10,165 11,007 11,835 12,720 Franchise & License Fees 194,285 209,504 225,877 256,203 275,239 294,876 315,864 Bad Debt Expense 76,907 56,738 33,754 71,512 76,826 82,307 88,165 Technical Expenses 304,253 448,354 394,378 356,478 370,737 385,567 400,990 Production/LO Expenses - - - - - - - Gen. & Admin Expenses 396,107 463,270 567,155 546,454 526,508 507,291 488,775 Marketing Expenses 177,479 148,887 101,787 133,155 143,048 153,254 164,162 Advertising Sales Expenses 65,230 64,179 79,581 69,436 75,911 82,400 89,415 --------------------------------------------------------------------------- Total Expenses 2,147,283 2,588,351 2,623,274 2,812,670 2,943,213 3,087,235 3,242,686 OPERATING CASH FLOW 1,909,953 2,075,653 2,719,375 3,097,435 3,406,023 3,714,977 4,403,670 % Margin 47.1% 44.5% 50.9% 52.4% 53.6% 54.6% 55.5% % Growth 8.7% 31.0% 13.9% 10.0% 9.1% 8.8% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - 1,272,693 - - - Trunk & Distribution Costs 1,156,410 425,285 950,145 96,255 245,400 259,044 273,447 Make-Ready 176,345 81,573 1,570 - 6,593 6,960 7,347 Fiber Costs - Plant and Headend 37,407 830,776 16,877 - - - - Converters and Customer Equipment 14,761 27,946 25,122 2,248 1,281 1,363 1,451 Customer Connect Costs 306,965 329,310 331,527 272,706 295,294 317,486 341,233 Other Technical Capital 71,740 173,478 28,378 171,325 185,515 199,458 214,377 Other Capital 5,466 43,550 5,129 15,024 16,268 17,491 18,799 --------------------------------------------------------------------------- Total Capital Expenditures 1,769,094 1,911,918 1,358,748 1,830,252 750,352 801,802 856,654 NET CASH FLOW 140,859 163,735 1,360,627 1,267,183 2,655,672 2,913,175 3,187,016 % Growth 109.6% 9.7% 9.4%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006 - ---------------------- --------- --------- --------- --------- --------- --------- REVENUE: Basic & Equipment Revenue 6,131,824 6,586,341 7,072,444 7,592,242 8,147,977 8,742,040 Pay and Mini-Pay Revenue 828,014 855,182 882,980 911,419 940,512 970,273 Sega Revenue 53,560 58,083 62,970 64,998 73,780 83,726 Advertising Revenue 192,644 208,914 226,490 245,473 265,975 288,111 Other Revenue 597,738 648,218 702,753 761,656 825,267 893,951 ---------------------------------------------------------------- Total Revenue 7,803,779 8,356,738 8,947,636 9,575,788 10,253,511 10,978,100 % Growth 7.1% 7.1% 7.1% 7.0% 7.1% 7.1% EXPENSES: Basic Programming Costs 1,266,914 1,360,823 1,461,258 1,568,655 1,683,477 1,806,218 Pay Programming Costs 515,426 548,308 583,115 619,953 658,934 700,179 Sega Programming Cost 20,728 22,478 24,369 25,154 28,553 32,402 Program Guide Costs 13,667 14,680 15,763 16,922 18,160 19,485 Franchise & License Fees 338,294 362,265 387,880 415,110 444,490 475,901 Bad Debt Expense 94,426 101,117 108,266 115,867 124,067 132,835 Technical Expenses 417,029 433,710 451,059 469,101 487,865 507,380 Production/LO Expenses - - - - - - Gen. & Admin Expenses 470,934 453,745 437,184 421,226 405,852 391,038 Marketing Expenses 175,819 188,277 201,590 215,742 231,012 247,337 Advertising Sales Expenses 96,996 105,188 114,037 123,596 133,918 145,064 ---------------------------------------------------------------- Total Expenses 3,410,233 3,590,591 3,784,522 3,991,327 4,216,329 4,457,837 OPERATING CASH FLOW 4,393,546 4,766,146 5,163,144 5,584,461 6,037,182 6,520,263 % Margin 56.3% 57.0% 57.7% 58.3% 58.9% 59.4% % Growth 8.7% 8.5% 8.3% 8.2% 8.1% 8.0% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - Trunk & Distribution Costs 288,651 304,700 321,641 339,524 358,402 378,329 Make-Ready 7,755 8,186 8,641 9,122 9,629 10,164 Fiber Costs - Plant and Headend - - - - - - Converters and Customer Equipment 1,544 1,643 1,748 1,860 1,979 2,105 Customer Connect Costs 366,640 393,817 422,882 453,963 487,192 522,712 Other Technical Capital 230,338 247,412 265,672 285,198 306,074 328,389 Other Capital 20,199 21,696 23,298 25,010 26,841 28,798 ---------------------------------------------------------------- Total Capital Expenditures 915,127 977,454 1,043,883 1,114,677 1,190,116 1,270,498 NET CASH FLOW 3,478,419 3,788,692 4,119,231 4,469,784 4,847,066 5,249,765 % Growth 9.1% 8.9% 8.7% 8.5% 8.4% 8.3%
59 67 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES CENTREVILLE, MD NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL --------- --------- PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000 - ---------------- --------- --------- --------- --------- --------- --------- --------- PROJECTED NET CASH FLOW 1,267,183 2,655,672 2,913,175 3,187,016 Value of Assets in Year 10 assuming OCF multiple of 8.0 Discount Rate 17.5% PV OF CASH FLOW STREAM 24,605,420 9.0 TIMES TRAILING CASH FLOW 7.9 TIMES PROJECTED CASH FLOW $1,996 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006 - ---------------- --------- --------- --------- --------- --------- --------- PROJECTED NET CASH FLOW 3,478,419 3,788,692 4,119,231 4,469,784 4,847,066 5,249,765 Value of Assets in Year 10 assuming OCF multiple of 52,162,104 Discount Rate
60 68 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CASH FLOW MULTIPLE AND ADJUSTED CASH FLOW MULTIPLE APPROACHES As discussed previously, the Cable System generated revenue of $5,342,649 and operating cash flow of $2,719,375 in 1996, for an actual operating cash flow margin of 50.9%. The current operating cash flow multiples indicated by the market range from 6 to 11 times, based on transactions which have been announced in recent months. In order to determine the respective appropriate cash flow multiples to apply to the cash flow and to the adjusted cash flow of the Cable System, the following factors must be considered: o The Cable System has experienced strong growth in basic subscribers during the past few years. o The cable plant does not need an immediate rebuild, as the 450 MHz plant has some room to add channels. However, Partnership management has estimated that a rebuild would cost in excess of $13,000,000. o The current rates of the Cable System are reasonable, given the level of service provided in each system. o The operating cash flow margin approximates 50 percent, a normal level by industry standards, leaving some perceived potential for improvement by a buyer. A typical buyer would likely not adjust this margin significantly in determining the potential cash flow that such a buyer would be able to consistently generate from this Cable System. Based on these factors, as well as on CEA's recent experience in the cable system transaction market, it is CEA's opinion that the following cash flow multiples are appropriate in valuing the Cable System: Operating Cash Flow Multiple 9.0 Adjusted Operating Cash Flow Multiple 9.0
Applying these multiples respectively to the actual operating cash flow and to the adjusted operating cash flow of the Cable System yields the following calculations: Cash Flow Multiple Approach: Actual Operating Cash Flow $ 2,719,375 Operating Cash Flow Multiple x 9.0 ------------ Value Indication $ 24,474,375
61 69 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. Adjusted Cash Flow Multiple Approach: Actual Revenue $ 5,342,644 Adjusted Margin x 50% ------------ Adjusted Operating Cash Flow $ 2,671,325 Operating Cash Flow Multiple x 9.0 ------------ Value Indication $ 24,041,921
SUBSCRIBER MULTIPLE APPROACH Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a buyer would expect the typical cable system to generate just over $33.00 per month in total revenue, operate at a 50% cash flow margin, and be valued at approximately 9 times this operating cash flow. Based on these parameters, a buyer would be willing to pay approximately $1,800 per subscriber for this typical cable system. Applying this per-subscriber value to the subject Cable System results in the following calculation: Basic Subscribers 12,325 Per Subscriber Multiple x $ 1,800 ------------- Value Indication $ 22,185,000
REBUILD CASH FLOW MULTIPLE APPROACH Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art cable system could reasonably be expected to sell, on average, for approximately 10.5 times operating cash flow. For cable systems in need of rebuild, a buyer would likely be willing to pay approximately 10.5 times operating cash flow less the cost of the rebuild. Therefore, to estimate the value of the Cable System using the Rebuild Cash Flow Multiple Approach, CEA multiplied 1996 operating cash flow by 10.5 and subtracted the estimated cost to rebuild the Cable System, as follows: 1996 Operating Cash Flow $ 2,719,375 Rebuild Operating Cash Flow Multiple x 10.5 ------------- Value of System After Rebuild 28,553,438 less: Cost of Rebuild (13,204,000) ------------- Value Indication $ 15,349,438
62 70 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUE CONCLUSIONS -- CENTREVILLE, MD CEA used two variations of the discounted cash flow approach, and four variations of the market approach to determine six indications of the value of the Cable System. These value indications are summarized as follows: Rebuild DCF Approach $18,553,636 No Rebuild DCF Approach $24,605,420 Cash Flow Multiple Approach $24,474,375 Adjusted Cash Flow Multiple Approach $24,041,921 Subscriber Multiple Approach $22,185,000 Rebuild Cash Flow Multiple Approach $15,349,438 VALUE CONCLUSION $23,000,000
Therefore, based on this analysis, it is CEA's opinion that, as of December 31, 1996, the fair market value of the Centreville, MD Cable System is $23,000,000. 63 71 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. SOMERSET, KY SYSTEM OVERVIEW -- SOMERSET, KY SYSTEM DESCRIPTION The Partnership owns the Cable System that serves Somerset, Kentucky, as well as the Kentucky towns of Burnside, Columbia, Eubank, London, and McKinney. As of December 31, 1996, the Cable System passed 22,060 homes with 833 miles of plant, and served 19,296 basic subscribers from five headends. Relevant subscriber statistics as of December 31, 1996 are displayed in the following table.
Homes Basic Basic Pay Pay As of 12/31/96 Passed Subscribers Penetration Units Penetration -------------- ------ ----------- ----------- ----- ----------- Somerset, KY 22,060 19,296 87.5% 3,914 20.3%
The largest headend, in Burnside, operates at 300 MHz, 40-channel capacity, offers 40 channels of programming, and serves about 14,000 subscribers. The remaining four headends operate at capacities of 270 to 400 MHz. HOME AND SUBSCRIBER GROWTH During the past few years, the Cable System has experienced no home growth, but basic subscribers have increased slightly. The Company's home and subscriber growth history is displayed below.
1994 1995 1996 CAGR 94-96 ---- ---- ---- ---------- Homes Passed 22,120 22,015 22,060 -0.1% Basic Subscribers 18,650 19,226 19,296 1.7%
FINANCIAL SUMMARY For the year ended December 31, 1996, the Somerset, KY Cable System generated total revenue of $7,090,880 and operating cash flow of $3,988,486, resulting in a 56.2% operating cash flow margin. 64 72 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUATION -- SOMERSET, KY DISCOUNTED CASH FLOW APPROACHES Financial projections, including all assumptions regarding operations and future capital expenditures, relating to the Rebuild DCF Approach and to the No Rebuild DCF Approach are displayed on the following ten pages. These projections were prepared by CEA based on certain information provided by the Partnership, including, but not limited to, the Partnership's 1997 budget for the Cable System. The discount rate used in this analysis was derived using a weighted average cost of capital. Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that equity investors in cable systems would likely require a 25 percent return in order to justify the equity investment. Additionally, based on CEA's recent experience in raising debt financing for cable operators, a lender would likely charge an interest rate of approximately 10 percent and would likely be willing to lend up to 50 percent of asset value at that rate. Thus, the likely weighted average cost of capital for the subject Cable System can be calculated as follows: 50 percent debt at a rate of 10% = .50 x 10% = 5.0% 50 percent equity at a rate of 25% = .50 x 25% = 12.5% Total Cost of Capital = 17.5%
The terminal value of the Cable System was calculated as the price at which the cable assets might sell at the end of the ten-year projection period, based on a multiple of the operating cash flow of the Cable System at that time. The cash flow multiple used reflects the expected growth of cash flow in the Cable System after year ten, as well as the return on debt and equity capital that would likely be required by investors at that time given the expected risk of the investment at that time. Based on the calculations displayed on the following pages, the discounted cash flow approaches indicate fair market values for the Cable System as follows: Rebuild DCF Approach $27,365,438 No Rebuild DCF Approach $32,577,831
65 73 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES SOMERSET, KY REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 21,577 22,120 22,015 22,060 22,060 22,391 22,727 Ending 22,120 22,015 22,060 22,060 22,391 22,727 23,068 Change 543 -105 45 0 331 336 341 % Change 2.5% -0.5% 0.3% 0.0% 1.5% 1.5% 1.5% Average 21,849 22,068 22,038 22,060 22,225 22,559 22,897 BASIC SUBSCRIBERS: Beginning 18,134 18,650 19,226 19,296 19,550 19,899 20,311 Ending 18,650 19,226 19,296 19,550 19,899 20,311 20,731 Change 516 576 70 254 349 412 420 % Change 2.8% 3.1% 0.5% 1.3% 1.8% 2.1% 2.1% Average 18,392 18,938 19,261 19,423 19,724 20,105 20,521 Ending Penetration 84.3% 87.3% 87.5% 88.6% 88.9% 89.4% 89.9% Monthly Basic Rev/Sub $22.29 $22.75 $24.88 $27.70 $29.09 $30.83 $32.68 % Change 2.1% 9.4% 11.3% 5.0% 6.0% 6.0% PAY + MINI-PAY UNITS: Beginning 4,291 4,840 5,170 3,914 3,999 4,070 4,155 Ending 4,840 5,170 3,914 3,999 4,070 4,155 4,241 Change 549 330 -1,256 85 71 84 86 % Change 12.8% 6.8% -32.4% 2.2% 1.8% 2.1% 2.1% Average 4,566 5,005 4,542 3,956 4,035 4,112 4,198 Ending Penetration 26.0% 26.9% 20.3% 20.5% 20.5% 20.5% 20.5% Monthly Pay Rev/Unit $7.52 $8.43 $8.53 $8.80 $8.80 $8.80 $8.80 % Change 12.1% 1.1% 3.2% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $0.03 $0.03 $0.05 $0.05 $0.05 $1.00 $1.20 % Change 0.0% 0.0% -11.0% 5.0% 20.0% 20.0% ADVERTISING REVENUE PER SUB $1.16 $1.31 $1.49 $1.66 $1.74 $1.92 $2.11 % Change 12.6% 14.1% 11.3% 5.0% 10.0% 10.0% OTHER REVENUE PER SUB $1.31 $1.38 $2.24 $1.56 $1.64 $1.80 $1.98 % Change 5.2% 62.4% -30.4% 5.0% 10.0% 10.0% TOTAL REVENUE PER SUB $26.68 $27.72 $30.68 $32.76 $34.31 $37.35 $39.77 % Change 3.9% 10.7% 6.8% 4.7% 8.8% 6.5%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 23,068 23,414 23,765 24,121 24,483 24,850 Ending 23,414 23,765 24,121 24,483 24,850 25,223 Change 346 351 356 362 367 373 % Change 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% Average 23,241 23,589 23,943 24,302 24,667 25,037 BASIC SUBSCRIBERS: Beginning 20,731 21,159 21,595 22,040 22,493 22,954 Ending 21,159 21,595 22,040 22,493 22,954 23,425 Change 428 436 445 453 462 470 % Change 2.1% 2.1% 2.1% 2.1% 2.1% 2.0% Average 20,945 21,377 21,817 22,266 22,724 23,190 Ending Penetration 90.4% 90.9% 91.4% 91.9% 92.4% 92.9% Monthly Basic Rev/Sub $34.64 $36.72 $38.92 $41.26 $43.73 $46.36 % Change 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% PAY + MINI-PAY UNITS: Beginning 4,241 4,328 4,417 4,508 4,601 4,695 Ending 4,328 4,417 4,508 4,601 4,695 4,792 Change 88 89 91 93 94 96 % Change 2.1% 2.1% 2.1% 2.1% 2.1% 2.0% Average 4,284 4,373 4,463 4,555 4,648 4,743 Ending Penetration 20.5% 20.5% 20.5% 20.5% 20.5% 20.5% Monthly Pay Rev/Unit $8.80 $8.80 $8.80 $8.80 $8.80 $8.80 % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $1.44 $1.73 $2.07 $2.49 $2.99 $3.58 % Change 20.0% 20.0% 20.0% 20.0% 20.0% 20.0% ADVERTISING REVENUE PER SUB $2.32 $2.55 $2.81 $3.09 $3.40 $3.74 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% OTHER REVENUE PER SUB $2.18 $2.39 $2.63 $2.90 $3.19 $3.51 % Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0% TOTAL REVENUE PER SUB $42.38 $45.20 $48.24 $51.54 $55.11 $58.99 % Change 6.6% 6.6% 6.7% 6.8% 6.9% 7.0%
66 74 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES SOMERSET, KY REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $2.98 $3.54 $4.00 $4.95 $5.15 $5.57 $6.01 % Change 18.7% 13.2% 23.7% 4.0% 8.0% 8.0% PAY/MIN-PAY PROG. PER UNIT $4.29 $4.58 $4.61 $4.98 $5.13 $5.29 $5.45 % Change 6.9% 0.7% 8.1% 3.0% 3.0% 3.0% PPV PROGRAMMING/PPV REVENUE 0.0% -3.5% 56.5% 52.0% 52.0% 52.0% 52.0% PROGRAM GUIDE COST PER SUB $0.07 $0.09 $0.05 $0.01 $0.01 $0.01 $0.01 % Change 23.3% -49.3% -77.0% 5.0% 5.0% 5.0% FRANCHISE, ACCESS FEES/ REVENUE 3.9% 4.2% 3.9% 4.0% 4.0% 4.0% 4.0% BAD DEBT EXPENSE/ REVENUE 1.6% 1.0% 0.7% 1.4% 1.4% 1.4% 1.4% TECHNICAL EXP. GROWTH 2.8% 11.3% 10.9% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 0.0% 0.0% 18.0% 4.0% 4.0% 4.0% GEN & ADMIN EXPENSE GROWTH 0.0% 11.3% 10.7% 4.0% 4.0% 4.0% MARKETING EXP/REVENUE 1.9% 1.0% 1.4% 2.0% 2.0% 2.0% 2.0% AD SALES EXP/AD REVENUE 41.4% 33.7% 18.9% 29.5% 29.5% 29.5% 29.5%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ BASIC PROGRAMMING PER SUB $6.49 $7.01 $7.57 $8.18 $8.83 $9.54 % Change 8.0% 8.0% 8.0% 8.0% 8.0% 8.0% PAY/MINI-PAY PROG. PER UNIT $5.61 $5.78 $5.95 $6.13 $6.31 $6.50 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% PPV PROGRAMMING/PPV REVENUE 52.0% 52.0% 52.0% 52.0% 52.0% 52.0% PROGRAM GUIDE COST PER SUB $0.01 $0.01 $0.01 $0.01 $0.02 $0.02 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% FRANCHISE ACCESS FEES/ REVENUE 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% BAD DEBT EXPENSE/ REVENUE 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% GEN & ADMIN EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% MARKETING EXP/REVENUE 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% AD SALES EXP/AD REVENUE 29.5% 29.5% 29.5% 29.5% 29.5% 29.5%
67 75 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES SOMERSET, KY REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 2001 - -------------------- ------ ------ ------ ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 794.50 833.00 831.50 834.50 834.50 847.02 859.72 872.62 Ending 833.00 831.50 834.50 834.50 847.02 859.72 872.62 885.71 Change 38.50 (1.50) 3.00 - 12.52 12.71 12.90 13.09 Average 813.75 832.25 833.00 834.50 840.76 853.37 866.17 879.16 Homes/Mile 26.6 26.5 26.4 26.4 26.4 26.4 26.4 26.4 CONVERTERS: Beginning 4,515 4,715 4,969 5,132 5,196 5,289 5,399 5,510 Ending 4,715 4,969 5,132 5,196 5,289 5,399 5,510 5,624 Change 200 254 163 64 93 110 112 114 Average 4,615 4,842 5,051 5,164 5,243 5,344 5,454 5,567 Ending Penetration 25.6% 26.2% 26.6% 26.6% 26.6% 26.6% 26.6% 26.6% REBUILD CAPITAL: UG Miles 18.00 69.5% based on numbers provided by Falcon Aerial Miles 816.50 69.5% based on numbers provided by Falcon Total Rebuild Costs: Cost/UG Miles $22,500 140,738 140,738 11,332,509 Cost/Aerial Mile $16,500 4,681,607 4,681,607 Other Rebuild Costs 17.5% 843,910 843,910 TRUNK & DISTRIBUTION/ NEW MILE (3-Year average) $21,718 $22,000 $22,880 $23,795 $24,747 MAKE-READY/MILE $163.74 $99.51 $24.01 $ - $10.00 $10.40 $10.82 $11.25 CONV & CUST EQUIP/ NEW CONVERTER $658.78 $618.14 $1,276.00 $456.00 $474.24 $493.21 $512.94 $553.46 CUST. CONNECT COSTS/SUB $5.03 $4.04 $9.70 $7.68 $7.99 $8.31 $8.64 $8.98 OTHER TECHNICAL CAPITAL/SUB $4.37 $4.55 $2.24 $5.90 $6.14 $6.38 $6.64 $6.90 OTHER CAPITAL/ SUB $4.75 $2.19 $0.47 $2.85 $2.96 $3.08 $3.21 $3.33
CAPITAL EXPENDITURES 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ MILES OF PLANT: Beginning 885.71 898.99 912.48 926.17 940.06 Ending 898.99 912.48 926.17 940.06 954.16 Change 13.29 13.48 13.69 13.89 14.10 Average 892.35 905.74 919.32 933.11 947.11 Homes/Mile 26.4 26.4 26.4 26.4 26.4 CONVERTERS: Beginning 5,624 5,740 5,858 5,979 6,101 Ending 5,740 5,858 5,979 6,101 6,226 Change 116 118 120 123 125 Average 5,682 5,799 5,918 6,040 6,164 Ending Penetration 26.6% 26.6% 26.6% 26.6% 26.6% REBUILD CAPITAL: UG Miles, % Rebuilt Aerial Miles, % Cost/UG Miles Cost/Aerial Mile Oher Rebuild Costs TRUNK & DISTRIBUTION/ NEW MILE (3-Year average) $25,737 $26,766 $27,837 $28,950 $30,109 MAKE-READY/MILE $11.70 $12.17 $12.65 $13.16 $13.69 CONV & CUST EQUIP/ CONVERTER $554.79 $576.99 $600.06 $624.07 $649.03 CUST. CONNECT COSTS/SUB $9.34 $9.72 $10.11 $10.51 $10.93 OTHER TECHNICAL CAPITAL/SUB $7.18 $7.47 $7.76 $8.07 $8.40 OTHER CAPITAL/ SUB $3.47 $3.61 $3.75 $3.90 $4.06
68 76 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES SOMERSET, KY REBUILD DCF APPROACH
BUDGET PROJECTED: ACTUAL ACTUAL ACTUAL ---------- ---------- CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------------------- --------- --------- --------- ---------- ---------- --------- --------- REVENUE: Basic & Equipment Revenue 4,919,375 5,170,726 5,751,113 6,456,379 6,884,395 7,438,297 8,047,762 Pay and Mini-Pay Revenue 412,066 506,563 464,906 417,726 425,977 434,198 443,183 PPV Revenue 7,417 6,818 11,912 10,691 11,399 241,258 295,501 Advertising Revenue 256,444 297,294 345,077 387,297 412,972 463,036 519,881 Other Revenue 293,009 317,810 517,872 363,068 387,137 434,069 487,357 --------- --------- --------- --------- ---------- ---------- --------- Total Revenue 5,888,311 6,299,211 7,090,880 7,635,160 8,121,880 9,010,858 9,793,784 % Growth 7.0% 12.6% 7.7% 6.4% 10.9% 8.7% EXPENSES: Basic Programming Costs 657,702 803,806 925,578 1,154,837 1,219,668 1,342,663 1,480,085 Pay Proramming Costs 234,780 275,154 251,372 236,591 248,502 260,897 274,285 PPV Programming Costs 4,149 (237) 6,730 5,559 5,928 125,454 153,661 Program Guide Costs 16,367 20,788 10,712 2,484 2,649 2,835 3,039 Franchise & License Fees 229,703 266,704 273,727 304,261 323,657 359,083 390,278 Bad Debt Expense 96,890 65,460 51,395 104,983 111,676 123,899 134,663 Technical Expenses 665,998 684,850 762,091 844,778 878,569 913,712 950,260 Production/LO Expenses 24,793 29,699 33,994 40,113 41,717 43,386 45,122 Gen. & Admin Expenses 556,149 556,363 619,042 685,094 712,498 740,997 770,637 Marketing Expenses 111,412 60,221 102,689 153,696 163,493 181,389 197,147 Advertising Sales Expenses 106,106 100,244 65,064 114,253 121,827 136,596 153,365 --------- --------- --------- --------- ---------- ---------- --------- Total Expenses 2,704,049 2,863,052 3,102,394 3,646,649 3,830,184 4,230,912 4,552,542 OPERATING CASH FLOW 3,184,262 3,436,159 3,988,486 3,988,510 4,291,696 4,779,947 5,241,142 % Margin 54.1% 54.5% 56.2% 52.5% 52.8% 53.0% 53.5% % Growth 7.9% 16.1% 0.0% 7.6% 11.4% 9.6% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - 5,666,255 5,666,255 - Trunk & Distribution Costs 475,844 140,803 252,057 239,705 275,385 290,696 306,859 Make-Ready 133,245 82,814 20,003 - 8,408 8,875 9,369 Fiber Costs - Plant and Headend - 1,014,698 17,215 - - - - Converters & Customer Equipment 131,756 157,008 207,988 29,310 44,020 54,026 57,263 Customer Connect Costs 92,578 76,545 186,887 149,167 157,541 167,005 177,279 Other Technical Capital 80,306 86,181 43,191 114,594 121,028 128,298 136,191 Other Capital 87,428 41,393 9,121 55,355 58,462 61,974 65,787 --------- --------- --------- --------- ---------- ---------- --------- Total Capital Expenditures 1,001,157 1,599,442 736,462 6,254,386 6,331,099 710,875 752,748 NET CASH FLOW 2,183,105 1,836,717 3,252,024 (2,265,876) (2,039,402) 4,069,072 4,488,395 % Growth -10.0% -299.5% 10.3%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006 - ------------------------------- ---------- ---------- ---------- ---------- ---------- ---------- REVENUE: Basic & Equipment Revenue 8,706,893 9,419,719 10,190,593 11,024,221 11,925,687 12,900,487 Pay and Mini-Pay Revenue 452,341 461,673 471,184 480,876 490,752 500,817 PPV Revenue 361,928 443,274 542,887 664,865 814,225 997,108 Advertising Revenue 583,685 655,300 735,679 825,893 927,141 1,040,772 Other Revenue 547,170 614,305 689,656 774,226 869,140 975,662 ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue 10,652,017 11,594,271 12,629,999 13,770,079 15,026,945 16,414,846 % Growth 8.8% 8.8% 8.9% 9.0% 9.1% 9.2% EXPENSES: Basic Programming Costs 1,631,521 1,798,396 1,982,279 2,184,897 2,408,155 2,654,147 Pay Proramming Costs 288,351 303,129 318,655 334,966 352,101 370,102 PPV Programming Costs 188,203 230,503 282,301 345,730 423,397 518,496 Program Guide Costs 3,257 3,490 3,740 4,008 4,294 4,602 Franchise & License Fees 424,483 462,032 503,305 548,738 598,824 654,132 Bad Debt Expense 146,465 159,421 173,662 189,339 206,620 225,704 Technical Expenses 988,271 1,027,801 1,068,914 1,111,670 1,156,137 1,202,382 Production/LO Expenses 46,926 48,804 50,756 52,786 54,897 57,093 Gen. & Admin Expenses 801,463 833,521 866,862 901,537 937,598 975,102 Marketing Expenses 214,425 233,393 254,242 277,192 302,492 330,431 Advertising Sales Expenses 172,187 193,313 217,025 243,638 273,507 307,028 ---------- ---------- ---------- ---------- ---------- ---------- Total Expenses 4,905,552 5,293,803 5,721,741 6,194,499 6,718,023 7,299,219 OPERATING CASH FLOW 5,746,466 6,300,468 6,908,257 7,575,580 8,308,923 9,115,627 % Margin 53.9% 54.3% 54.3% 55.0% 55.3% 55.5% % Growth 9.6% 9.6% 9.6% 9.7% 9.7% 9.7% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - Trunk & Distribution Costs 323,920 341,930 360,942 381,010 402,194 424,556 Make-Ready 9,889 10,439 11,020 11,632 12,279 12,962 Fiber Costs - Plant and Headend - - - - - - Converters & Customer Equipment 60,692 64,325 68,175 72,254 76,576 81,155 Customer Connect Costs 188,180 199,745 212,014 225,030 238,838 253,486 Other Technical Capital 144,565 153,450 162,875 172,875 183,482 194,735 Other Capital 69,832 74,124 78,677 83,507 88,631 94,067 ---------- ---------- ---------- ---------- ---------- ---------- Total Capital Expenditures 797,079 844,014 893,703 946,309 1,002,001 1,060,961 NET CASH FLOW 4,949,386 5,456,455 6,014,554 6,629,272 7,306,921 8,054,666 % Growth 10.3% 10.2% 10.2% 10.2% 10.2% 10.2%
69 77 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES SOMERSET, KY REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL --------- --------- PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000 - ---------------- --------- --------- --------- --------- --------- --------- --------- PROJECTED NET CASH FLOW -2,265,876 -2,039,402 4,069,072 4,488,395 Value of Assets in Year 10 assuming OCF multiple of 8.0 Discount Rate 17.5% PV OF CASH FLOW STREAM 27,365.438 6.9 TIMES TRAILING CASH FLOW 6.9 TIMES PROJECTED CASH FLOW $1,418 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006 - ---------------- --------- --------- --------- --------- --------- --------- PROJECTED NET CASH FLOW 4,949,386 5,456,455 6,014,554 6,629,272 7,306,921 8,054,666 Value of Assets in Year 10 assuming OCF multiple of 72,925,018 Discount Rate
70 78 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES SOMERSET, KY NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - -------------------- ------ ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 21,577 22,120 22,015 22,060 22,060 22,391 22,727 Ending 22,120 22,015 22,060 22,060 22,391 22,727 23,068 Change 543 -105 45 0 331 336 341 % Change 2.5% -0.5% 0.3% 0.0% 1.5% 1.5% 1.5% Average 21,849 22,068 22,038 22,060 22,225 22,559 22,897 BASIC SUBSCRIBERS: Beginning 18,134 18,650 19,226 19,296 19,550 19,899 20,254 Ending 18,650 19,226 19,296 19,550 19,899 20,254 20,616 Change 516 576 70 254 349 355 361 % Change 2.8% 3.1% 0.5% 1.3% 1.8% 1.8% 1.8% Average 18,392 18,938 19,261 19,423 19,724 20,076 20,435 Ending Penetration 84.3% 87.3% 87.5% 88.6% 88.9% 89.1% 89.4% Monthly Basic Rev/Sub $22.29 $22.75 $24.88 $27.70 $29.09 $30.54 $32.07 % Change 2.1% 9.4% 11.3% 5.0% 5.0% 5.0% PAY + MINI-PAY UNITS: Beginning 4,291 4,840 5,170 3,914 3,999 4,070 4,143 Ending 4,840 5,170 3,914 3,999 4,070 4,143 4,217 Change 549 330 -1,256 85 71 73 74 % Change 12.8% 6.8% -32.4% 2.2% 1.8% 1.8% 1.8% Average 4,566 5,005 4,542 3.956 4,035 4,107 4,180 Ending Penetration 26.0% 26.9% 20.3% 20.5% 20.5% 20.5% 20.5% Monthly Pay Rev/Unit $7.52 $8.43 $8.53 $8.80 $8.80 $8.80 $8.80 % Change 12.1% 1.1% 3.2% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $0.03 $0.03 $0.05 $0.05 $0.05 $0.05 $0.05 % Change 0.0% 0.0% -11.3% 5.0% 5.0% 5.0% ADVERTISING REVENUE PER SUB $1.16 $1.31 $1.49 $1.66 $1.74 $1.83 $1.92 % Change 12.6% 14.1% 11.3% 5.0% 5.0% 5.0% OTHER REVENUE PER SUB $1.31 $1.38 $2.24 $1.56 $1.64 $1.72 $1.80 % Change 5.2% 62.4% -30.4% 5.0% 5.0% 5.0% TOTAL REVENUE PER SUB $26.68 $27.72 $30.68 $32.76 $34.31 $35.94 $37.65 % Change 3.9% 10.75 6.8% 4.7% 4.7% 4.7%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - -------------------- ------ ------ ------ ------ ------ ------ HOMES PASSED: Beginning 23,068 23,414 23,765 24,121 24,483 24,850 Ending 23,414 23,765 24,121 24,483 24,850 25,223 Change 346 351 356 362 367 373 % Change 1.5% 1.5% 1.5% 1.5% 1.5% 1.5% Average 23,241 23,589 23,943 24,302 24,667 25,037 BASIC SUBSCRIBERS: Beginning 20,616 20,983 21,358 21,738 22,125 22,519 Ending 20,983 21,358 21,738 22,125 22,519 22,920 Change 368 374 381 387 394 401 % Change 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% Average 20,799 21,170 21,548 21,932 22,322 22,720 Ending Penetration 89.6% 89.9% 90.1% 90.4% 90.6% 90.0% Monthly Basic Rev/Sub $33.67 $35.35 $37.12 $38.98 $40.93 $42.97 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% PAY + MINI-PAY UNITS: Beginning 4,217 4,292 4,369 4,447 4,526 4,606 Ending 4,292 4,369 4,447 4,526 4,606 4,688 Change 75 77 78 79 81 82 % Change 1.8% 1.8% 1.8% 1.8% 1.8% 1.8% Average 4,255 4,330 4,408 4,486 4,566 4,647 Ending Penetration 20.5% 20.5% 20.5% 20.5% 20.5% 20.5% Monthly Pay Rev/Unit $8.80 $8.80 $8.80 $8.80 $8.80 $8.80 % Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% PPV REVENUE PER SUB $0.06 $0.06 $0.06 $0.07 $0.07 $0.07 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% ADVERTISING REVENUE PER SUB $2.02 $2.12 $2.23 $2.34 $2.46 $2.58 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% OTHER REVENUE PER SUB $1.89 $1.99 $2.09 $2.19 $2.30 $2.42 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% TOTAL REVENUE PER SUB $39.44 $41.32 $43.30 $45.37 $47.55 $49.84 % Change 4.8% 4.8% 4.8% 4.8% 4.8% 4.8%
71 79 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES SOMERSET, KY NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: EXPENSE ACTUAL ACTUAL ACTUAL --------- --------- ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000 - ---------------- --------- --------- --------- --------- --------- --------- --------- BASIC PROGRAMMING PER SUB $2.98 $3.54 $4.00 $4.95 $5.15 $5.36 $5.57 % Change 18.7% 13.2% 23.7% 4.0% 4.0% 4.0% PAY/MINI-PAY PROG. PER UNIT $4.29 $4.58 $4.61 $4.98 $5.13 $5.29 $5.45 % Change 6.9% 0.7% 8.1% 3.0% 3.0% 3.0% PPV PROGRAMMING/ PPV REVENUE 0.0% -3.5% 56.5% 52.0% 52.0% 52.0% 52.0% PROGRAM GUIDE COST PER SUB $0.07 $0.09 $0.05 $0.01 $0.01 $0.01 $0.01 % Change 23.3% -49.3% -77.0% 5.0% 5.0% 5.0% FRANCHISE, ACCESS FEES/REVENUE 3.9% 4.2% 3.9% 4.0% 4.0% 4.0% 4.0% BAD DEBT EXPENSE/ REVENUE 1.6% 1.0% 0.7% 1.4% 1.4% 1.4% 1.4% TECHNICAL EXP. GROWTH 2.8% 11.3% 10.9% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 0.0% 0.0% 18.0% 4.0% 4.0% 4.0% GEN & ADMIN EXPENSE GROWTH 0.0% 11.3% 10.7% 4.0% 4.0% 4.0% MARKETING EXP/ REVENUE 1.9% 1.0% 1.4% 2.0% 2.0% 2.0% 2.0% AD SALES EXP/ AD REVENUE 41.4% 33.7% 18.9% 29.5% 29.5% 29.5% 29.5%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006 - ---------------- --------- --------- --------- --------- --------- --------- BASIC PROGRAMMING PER SUB $5.80 $6.03 $6.27 $6.52 $6.78 $7.05 % Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PAY/MINI-PAY PROG. PER UNIT $5.61 $5.78 $5.95 $6.13 $6.31 $6.50 % Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% PPV PROGRAMMING/ PPV REVENUE 52.0% 52.0% 52.0% 52.0% 52.0% 52.0% PROGRAM GUIDE COST PER SUB $0.01 $0.01 $0.01 $0.01 $0.02 $0.02 % Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% FRANCHISE, ACCESS FEES/REVENUE 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% BAD DEBT EXPENSE/ REVENUE 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% PRODUCTION/LO EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% GEN & ADMIN EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% MARKETING EXP/ REVENUE 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% AD SALES EXP/ AD REVENUE 29.5% 29.5% 29.5% 29.5% 29.5% 29.5%
72 80 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES SOMERSET, KY NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------- ------- CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 - --------------------- ------- ------- --------- ------- ------- ------- ------- NEW CONVERTER $658.78 $618.14 $1,276.00 $456.00 $474.24 $493.21 $512.94 MILES OF PLANT: Beginning 794.50 833.00 831.50 834.50 834.50 847.02 859.72 Ending 833.00 831.50 834.50 834.50 847.02 859.72 872.62 Change 38.50 (1.50) 3.00 -- 12.52 12.71 12.90 Average 813.75 832.25 833.00 834.50 840.76 853.37 866.17 Homes/Mile 26.6 26.5 26.4 26.4 26.4 26.4 26.4 CONVERTERS: Beginning 4,515 4,715 4,969 5,132 5,196 5,289 5,384 Ending 4,715 4,969 5,132 5,196 5,289 5,384 5,480 Change 200 254 163 64 93 94 96 Average 4,615 4,842 5,051 5,164 5,243 5,336 5,432 Ending Penetration 25.6% 26.2% 26.6% 26.6% 26.6% 26.6% 26.6% REBUILD CAPITAL: UG Miles 18.00 Aerial Miles 816.50 Cost/UG Mile Cost/Aerial Mile Other Rebuild Costs TRUNK & DISTRIBUTION/ NEW MILE $21,718 $22,000 $22,880 $23,795 (3-Year average) MAKE-READY/MILE $163.74 $99.51 $24.01 $- $10.00 $10.40 $10.82 CONV & CUST EQUIP/ NEW CONVERTER $658.78 $618.14 $1,276.00 $456.00 $474.24 $493.21 $512.94 CUST. CONNECT COSTS/SUB $5.03 $4.04 $9.70 $7.68 $7.99 $8.31 $8.64 OTHER TECHNICAL CAPITAL/SUB $4.37 $4.55 $2.24 $5.90 $6.14 $6.38 $6.64 OTHER CAPITAL/SUB $4.75 $2.19 $0.47 $2.85 $2.96 $3.08 $3.21
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006 - --------------------- ------- ------- ------- ------- ------- ------- MILES OF PLANT: Beginning 872.62 885.71 898.99 912.48 926.17 940.06 Ending 885.71 898.99 912.48 926.17 940.06 954.16 Change 13.09 13.29 13.48 13.69 13.89 14.10 Average 879.16 892.35 905.74 919.32 933.11 947.11 Homes/Mile 26.4 26.4 26.4 26.4 26.4 26.4 CONVERTERS: Beginning 5,480 5,577 5,677 5,778 5,881 5,986 Ending 5,577 5,677 5,778 5,881 5,986 6,092 Change 98 99 101 103 105 107 Average 5,528 5,627 5,727 5,829 5,933 6,039 Ending Penetration 26.6% 26.6% 26.6% 26.6% 26.6% 26.6% TRUNK & DISTRIBUTION/ NEW MILE $24,747 $25,737 $26.766 $27,837 $28,950 $30,109 (3-Year average) MAKE-READY/MILE $11.25 $11.70 $12.17 $12.65 $13.16 $13.69 CONV & CUST EQUIP/ NEW CONVERTER $533.46 $554.79 $576.99 $600.06 $624.07 $649.03 CUST. CONNECT COSTS/SUB $8.98 $9.34 $9.72 $10.11 $10.51 $10.93 OTHER TECHNICAL CAPITAL/SUB $6.90 $7.18 $7.47 $7.76 $8.07 $8.40 OTHER CAPITAL/SUB $3.33 $3.47 $3.61 $3.75 $3.90 $4.06
73 81 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES SOMERSET, KY NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: CASH FLOW ACTUAL ACTUAL ACTUAL --------- --------- PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000 - ---------------- --------- --------- --------- --------- --------- --------- --------- REVENUE: Basic & Equipment Revenue 4,919,375 5,170,726 5,751,113 6,456,379 6,884,395 7,357,713 7,863,510 Pay and Mini-Pay Revenue 412,066 506,563 464,906 417,726 425,977 433,584 441,324 PPV Revenue 7,417 6,818 11,912 10,691 11,399 12,183 13,021 Advertising Revenue 256,444 297,294 345,077 387,297 412,972 441,365 471,706 Other Revenue 293,009 317,810 517,872 363,068 387,137 413,753 442,196 ---------------------------------------------------------------------------- Total Revenue 5,888,311 6,299,211 7,090,880 7,635,160 8,121,880 8,658,598 9,231,757 % Growth 7.0% 12.6% 7.7% 6.4% 6.6% 6.6% EXPENSES: Basic Programming Costs 657,703 803,806 925,578 1,154,837 1,219,668 1,291,108 1,366,722 Pay Programming Costs 234,780 275,154 251,372 236,591 248,502 260,528 273,135 PPV Programming Cost 4,149 (237) 6,730 5,559 5,928 6,335 6,771 Program Guide Costs 16,367 20,788 10,712 2,484 2,649 2,831 3,026 Franchise & License Fees 229,703 226,704 273,727 304,261 323,657 345,045 367,886 Bad Debt Expense 96,890 65,460 51,395 104,983 111,676 119,056 126,937 Technical Expenses 665,998 684,850 762,091 844,778 878,569 913,712 950,260 Production/LO Expenses 24,793 29,699 33,994 40,113 41,717 43,386 45,122 Gen. & Admin Expenses 556,149 556,363 619,042 685,094 712,498 740,997 770,637 Marketing Expenses 111,412 60,221 102,689 153,696 163,493 174,298 185,835 Advertising Sales Expenses 106,106 100,244 65,064 114,253 121,827 130,203 139,153 --------------------------------------------------------------------------- Total Expenses 2,704,049 2,863,052 3,102,394 3,646,649 3,830,184 4,027,500 4,235,484 OPERATING CASH FLOW 3,184,262 3,436,159 3,988,486 3,988,510 4,291,696 4,631,099 4,996,274 % Margin 54.1% 54.5% 56.2% 52.2% 52.8% 53.5% 54.1% % Growth 7.9% 16.1% 0.0% 7.6% 7.9% 7.9% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - 272,599 - Trunk & Distribution Costs 475,844 140,803 252,057 239,705 275,385 290,696 306,859 Make-Ready 133,245 82,814 20,003 - 8,408 8,875 9,369 Fiber Costs - Plant and Headend - 1,014,698 17,215 - - - - Converters & Customer Equipment 131,756 157,008 207,988 29,310 44,020 46,578 49,284 Customer Connect Costs 92,578 76,545 186,887 149,167 157,541 166,769 176,536 Other Technical Capital 80,306 86,181 43,191 114,594 121,028 128,117 135,620 Other Capital 87,428 41,393 9,121 55,355 58,462 61,887 65,511 --------------------------------------------------------------------------- Total Capital Expenditures 1,001,157 1,599,442 736,462 860,730 664,844 702,922 743,178 NET CASH FLOW 2,183,105 1,836,717 3,252,024 3,127,780 3,626,852 3,928,177 4,253,096 % Growth 16.0% 8.3% 8.3%
CASH FLOW PROJECTIONS 2001 2002 2003 2004 2005 2006 - ---------------- --------- --------- --------- --------- --------- --------- REVENUE: Basic & Equipment Revenue 8,404,012 8,981,595 9,598,799 10,258,338 10,963,110 11,716,212 Pay and Mini-Pay Revenue 449,199 457,211 465,361 473,654 482,091 490,674 PPV Revenue 13,916 14,872 15,894 16,986 18,153 19,400 Advertising Revenue 504,129 538,776 575,800 615,364 657,641 702,817 Other Revenue 472,591 505,071 539,779 576,867 616,499 658,849 Total Revenue 9,843,846 10,497,525 11,195,634 11,941,209 12,737,494 13,587,952 % Growth 6.6% 6.6% 6.7% 6.7% 6.7% 6.7% EXPENSES: Basic Programming Costs 1,446,753 1,531,459 1,621,112 1,715,999 1,816,426 1,922,717 Pay Programming Costs 286,348 300,199 314,718 329,935 345,887 362,606 PPV Programming Costs 7,236 7,733 8,265 8,833 9,440 10,088 Program Guide Costs 3,234 3,456 3,694 3,947 4,219 4,508 Franchise & License Fees 392,277 418,326 446,146 475,857 507,589 541,480 Bad Debt Expense 135,353 144,341 153,940 164,192 175,141 186,834 Technical Expense 988,271 1,027,801 1,068,914 1,111,670 1,156,137 1,202,382 Production/LO Expense 46,926 48,804 50,756 52,786 54,897 57,093 Gen. & Admin. Expenses 801,463 833,521 866,862 901,537 937,598 975,102 Marketing Expense 198,157 211,315 225,368 240,377 256,406 273,525 Advertising Sales Expenses 148,718 158,939 169,861 181,532 194,004 207,331 --------------------------------------------------------------------- Total Expenses 4,454,737 4,685,896 4,929,634 5,186,665 5,457,743 5,743,668 OPERATING CASH FLOW 5,389,109 5,811,629 6,266,000 6,754,544 7,279,751 7,844,284 % Margin 54.7% 55.4% 56.0% 56.6% 57.2% 57.7% % Growth 7.9% 7.8% 7.8% 7.8% 7.8% 7.8% CAPITAL EXPENDITURES: Rebuild/Upgrade Costs - - - - - - Trunk & Distribution Costs 323,920 341,930 360,942 381,010 402,194 424,556 Make-Ready 9,889 10,439 11,020 11,632 12,279 12,962 Fiber-Costs - Plant and Headend - - - - - - Converters & Cus- tomer Equipment 52,147 55,176 58,380 61,770 65,357 69,151 Customer Connect Costs 186,873 197,814 209,394 221,651 234,623 248,352 Other Technical Capital 143,561 151,967 160,863 170,279 180,244 190,791 Other Capital 69,347 73,408 77,705 82,253 87,067 92,162 --------------------------------------------------------------------- Total Capital Expenditures 785,738 830,734 878,304 928,595 981,764 1,037,974 NET CASH FLOW 4,603,371 4,980,895 5,387,696 5,825,949 6,297,987 6,806,310 % Growth 8.2% 8.2% 8.2% 8.1% 8.1% 8.1%
74 82 VALUATION OF FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES SOMERSET, KY NO REBUILD DCF APPROACH
PRO- BUDGET JECTED: ACTUAL ACTUAL ACTUAL ------ ------ PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000 - ---------------- ------ ------ ------ ------ ------ ------ ------ PROJECTED NET CASH FLOW 3,127,780 3,626,852 3,928,177 4,253,096 Value of Assets in Year 10 assuming OCF multiple of 8.0 Discount rate 17.5% PV OF CASH FLOW STREAM 32,577,831 8.2 TIMES RUNNING RATE CASH FLOW 8.2 TIMES PROJECTED CASH FLOW $1,688 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006 - ---------------- ------ ------ ------ ------ ------ ------ PROJECTED NET CASH FLOW 4,603,371 4,980,895 5,387,696 5,825,949 6,297,987 6,806,310 Value of Assets in Year 10 assuming OCF multiple of 62,754,274 Discount rate
75 83 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. CASH FLOW MULTIPLE AND ADJUSTED CASH FLOW MULTIPLE APPROACHES As discussed previously, the Cable System generated revenue of $7,090,880 and operating cash flow of $3,988,486 in 1996, for an actual operating cash flow margin of 56.2%. The current operating cash flow multiples indicated by the market range from 6 to 11 times, based on transactions which have been announced in recent months. In order to determine the respective appropriate cash flow multiples to apply to the cash flow and to the adjusted cash flow of the Cable System, the following factors must be considered: o The Cable System has experienced only slight growth in basic subscribers and no home growth. o The cable plant needs to be rebuilt, as the portion of the plant serving the bulk of the subscribers has no room to add programming. Partnership management has estimated that a rebuild would cost in excess of $11,000,000. o The current rates of the Cable System are reasonable given the level of service provided in each system. o The operating cash flow margin approximates 56 percent, a slightly high level by industry standards, leaving less perceived potential for improvement by a buyer. A typical buyer would likely discount this margin slightly in determining the potential cash flow that such a buyer would be able to consistently generate from this Cable System. Based on these factors, as well as on CEA's recent experience in the cable system transaction market, it is CEA's opinion that the following cash flow multiples are appropriate in valuing the Cable System: Operating Cash Flow Multiple 8.0 Adjusted Operating Cash Flow Multiple 8.5
Applying these multiples respectively to the actual operating cash flow and to the adjusted operating cash flow of the Cable System yields the following calculations: Cash Flow Multiple Approach: Actual Operating Cash Flow $ 3,988,486 Operating Cash Flow Multiple x 8.0 ------------ Value Indication $ 31,907,888
76 84 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. Adjusted Cash Flow Multiple Approach: Actual Revenue $ 7,090,880 Adjusted Margin x 50% ------------ Adjusted Operating Cash Flow $ 3,545,440 Operating Cash Flow Multiple x 8.5 ------------ Value Indication $ 30,136,240
SUBSCRIBER MULTIPLE APPROACH Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a buyer would expect the typical cable system to generate just over $33.00 per month in total revenue, operate at a 50% cash flow margin, and be valued at approximately 9 times this operating cash flow. Based on these parameters, a buyer would be willing to pay approximately $1,800 per subscriber for this typical cable system. Applying this per-subscriber value to the subject Cable System results in the following calculation: Basic Subscribers 19,296 Per Subscriber Multiple x $ 1,800 ----------- Value Indication $34,732,800
REBUILD CASH FLOW MULTIPLE APPROACH Based on CEA's recent experience in the cable system transaction market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art cable system could reasonably be expected to sell, on average, for approximately 10.5 times operating cash flow. For cable systems in need of rebuild, a buyer would likely be willing to pay approximately 10.5 times operating cash flow less the cost of the rebuild. Therefore, to estimate the value of the Cable System using the Rebuild Cash Flow Multiple Approach, CEA multiplied 1996 operating cash flow by 10.5 and subtracted the estimated cost to rebuild the Cable System, as follows: 1996 Operating Cash Flow $ 3,988,486 Rebuild Operating Cash Flow Multiple x 10.5 ------------- Value of System After Rebuild 41,879,103 less: Cost of Rebuild (11,332,509) ------------- Value Indication $ 30,546,594
77 85 FALCON CLASSIC CABLE INCOME PROPERTIES, L.P. VALUE CONCLUSIONS -- SOMERSET, KY CEA used two variations of the discounted cash flow approach, and four variations of the market approach to determine six indications of the value of the Cable System. These value indications are summarized as follows: Rebuild DCF Approach $ 27,365,438 No Rebuild DCF Approach $ 32,577,831 Cash Flow Multiple Approach $ 31,907,888 Adjusted Cash Flow Multiple Approach $ 30,136,240 Subscriber Multiple Approach $ 34,732,800 Rebuild Cash Flow Multiple Approach $ 30,546,594 VALUE CONCLUSION $ 31,000,000
Therefore, based on this analysis, it is CEA's opinion that, as of December 31, 1996, the fair market value of the Somerset, KY Cable System is $31,000,000. 78 EX-10.32 4 EXHIBIT 10.32 1 EXHIBIT 10.32 FAIR MARKET VALUATION OF THE REGIONS AND SYSTEMS THAT COMPRISE FALCON CLASSIC CABLE INCOME PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1996 Prepared For: Falcon Cable Investors Group Los Angeles, California [LOGO] KANE REECE ASSOCIATES, INC. 2 [KANE REECE LETTERHEAD] March 10, 1997 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 each of the Regions (Burke County, Centreville, and Somerset) and Systems (Redmond and California City) that comprise Falcon Classic Cable Income Properties ("FCCIP" or the "Partnership"). This valuation study was conducted to determine the fair market value of 100% of the assets described above as of December 31, 1996. The appraisal was conducted pursuant to Section 4.9 of the Amended and Restated Agreement of Limited Partnership of Falcon Classic Cable Income Properties, L.P. dated May 15, 1989. 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. We did not visit the California City and Redmond systems. 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 3 Falcon Cable Investors Group March 10, 1997 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 each of the Regions' and Systems' assets that make up FCCIP as of December 31, 1996 were: Burke County $ 20,570,000 ================= Centreville $ 23,980,000 ================= Somerset $ 33,590,000 ================= Redmond $ 7,680,000 ================= California City $ 3,500,000 =================
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 THE REGIONS AND SYSTEMS THAT COMPRISE FALCON CLASSIC CABLE INCOME PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1996 6 FAIR MARKET VALUATION OF THE REGIONS AND SYSTEMS THAT COMPRISE FALCON CLASSIC CABLE INCOME PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1996
TABLE OF CONTENTS ----------------- TRANSMITTAL LETTER LIMITING AND GENERAL SERVICE CONDITIONS I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1 II. INDUSTRY REVIEW . . . . . . . . . . . . . . . . . . . . . . . 5 III. DESCRIPTION OF THE REGIONS' AND SYSTEMS' SERVICE AREAS . . . . . . . . . . . . . . . . . 26 IV. BUSINESS ENTERPRISE VALUATION . . . . . . . . . . . . . . . 53 APPRAISAL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 EXHIBIT A: Photographs EXHIBIT B: Region and System Operating Statistics EXHIBIT C: Region and System Cash Flow Statements EXHIBIT D Region and System Cash Flow Projection Assumptions EXHIBIT E Region and System Cash Flow Projections QUALIFICATIONS OF THE APPRAISERS APPENDIX: Glossary of Cable TV Terms
7 FAIR MARKET VALUATION OF THE REGIONS AND SYSTEMS THAT COMPRISE FALCON CLASSIC CABLE INCOME PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1996 PART I - INTRODUCTION Falcon Cable Investors Group, the General Partner (the "General Partner") of Falcon Classic Cable Income Properties, a California Limited Partnership ("FCCIP" or the "Partnership") manages cable television systems located in three (3) regional clusters in Burke County, North Carolina; Centreville, Maryland; and Somerset, Kentucky; (the "Regions") as well as two (2) systems in Redmond, Oregon and California City, California (the "Systems"). 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 each Region and System of FCCIP as of December 31, 1996. Kane Reece was retained pursuant to Section 4.9 of the Partnership Agreement as Amended and Restated. This is the sole purpose 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. The appraisers visited Burke County, Centreville, and Somerset for this study, while having visited the Hesperia Region, the region that California City reports to in a previous Falcon engagement. The appraisers visited the service areas to interview -1- 8 management, inspect facilities, and to determine the growth potential of each of the service areas. Pursuant to information requests, the appraisers were 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, 1996. . Management prepared operating statistics reports -- homes passed, basic subscribers, pay units, etc. for various dates including December 31, 1996. . 1997 operating budgets by Region and System. . 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 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 -2- 9 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, while 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 THE REGIONS AND SYSTEMS THAT COMPRISE FALCON CLASSIC CABLE INCOME PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1996 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 -5- 12 government regulations, the increased availability of capital, more cable-exclusive 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 1995 the number of cable subscribers more than tripled from 18.1 million in 1980 to 62.1 million in 1995 (Table 1A), representing a compound annual growth rate ("CAGR") of 8.6%. During the same time period, pay TV units grew from 9.1 million to 54.2 million representing a 12.6% CAGR. Basic cable TV subscribers now comprise 67% of United States homes passed by cable television. This is projected by Kagan1 to decline to 65.5% by 2000, reflecting the impact of competitive delivery systems, such as direct broadcast satellite (DBS), multichannel multipoint distribution service (MMDS), and hybrid fiber/coax transport services, among others. While the percent of cable television households subscribing to cable is projected to be flat or slightly decline, basic subscribers will continue to grow in absolute numbers, but at a rate of growth slower than in the past. While basic cable units grew at a CAGR of 8.6% between 1980 - 1995, they are expected to grow only at a 0.2% rate between 1995 and 2005. Pay unit growth patterns are also projected at a substantially lower rate than the industry has seen over the past 15 years. Between 1980 and 1995 pay units grew at a CAGR of 12.6%; however, between 1995 and 2005 the growth rate is expected to decline to 1.9% due to market saturation and increased competition. Historical and projected subscriber growth rates and industry revenues are shown in Table 1A and 1B. ______________________ (1)The Cable TV Financial Databook 1996, published by Paul Kagan Associates, Inc. -6- 13 TABLE 1A CABLE TELEVISION INDUSTRY STATISTICS CABLE INDUSTRY GROWTH STATISTICS
Basic Cable Pay Cable Units ------------------------- -------------------------------------- TV Homes % of % of Passed Subscribers* Homes Units** Homes % of Yr End (Millions) (Millions) Passed (Millions) Passed Basic - ------ ---------- ---------- ------ ---------- ------ ----- 1980 32.8 18.1 55.2% 9.1 27.7% 50.3% 1981 41.2 22.5 54.6% 15.5 37.6% 68.9% 1982 49.1 27.2 55.4% 20.8 42.4% 76.5% 1983 55.9 31.4 56.2% 26.4 47.2% 84.1% 1984 60.5 34.2 56.5% 30.0 49.6% 87.7% 1985 64.7 36.7 56.7% 30.6 47.3% 83.4% 1986 69.4 39.7 57.2% 32.1 46.3% 80.9% 1987 73.1 42.6 58.3% 34.8 47.6% 81.7% 1988 77.2 45.7 59.2% 38.8 50.3% 84.9% 1989 82.8 49.3 59.5% 41.1 49.6% 83.4% 1990 86.0 51.7 60.1% 41.5 48.3% 80.3% 1991 88.4 53.4 60.4% 43.1 48.8% 80.7% 1992 89.7 55.2 61.5% 44.4 49.5% 80.4% 1993 90.6 57.2 63.1% 46.0 50.8% 80.4% 1994 91.6 59.7 65.2% 51.1 55.8% 85.6% 1995 92.7 62.1 67.0% 54.2 58.5% 87.3% 1996 (Est.) 93.7 64.0 68.3% 57.6 61.4% 89.9% 2000 (Est.) 98.1 64.3 65.5% 62.0 63.2% 96.4% 2005 (Est.) 103.9 63.3 60.9% 65.5 63.1% 103.5% COMPOUND AVERAGE ANNUAL GROWTH RATES (CAGR) 1980-1995 7.2% 8.6% 12.6% 1995-2000 1.1% 0.7% 2.7% 1995-2005 1.1% 0.2% 1.9%
*Prior to 1982, basic subscribers and homes passed reflect quantities in those systems offering pay TV. **Pay cable units includes both pay units and mini pay units. Sources: Paul Kagan Associates, Inc., The Cable TV Financial Databook, June 1996. Kane Reece Associates, Inc., Compound Annual Growth Rates. -7- 14 TABLE 1B CABLE TELEVISION INDUSTRY STATISTICS (CONTINUED) CABLE INDUSTRY REVENUES ($ Millions)
Actual Forecast 1995- ------------------- 2000 Year 1995 1996 2000 CAGR ---- ---- ---- ---- Basic/Exp. Basic Cable Revenue $ 16,858 $ 18,600 $ 22,900 6.3% Pay Revenue (1) 5,063 5,237 5,377 1.2% --------- --------- --------- Total Basic/Pay Revenue 21,921 23,837 28,277 5.22% --------- --------- --------- Other Revenue: PPV Revenue (2) 595 718 2,367 31.8% Net Advertising Revenue 1,281 1,499 2,451 13.9% Digital Services Revenue (3) 341 468 3,273 57.2% Other Video Revenue (4) 729 865 1,371 13.5% --------- --------- --------- Total Other Revenue 2,946 3,550 9,462 26.3% --------- --------- --------- Total Video Revenue 24,867 27,387 37,739 8.7% --------- --------- --------- Video Revenue/Subscriber/Month 34.03 36.17 48.76 7.5% Cable Telephony Revenue (5) 222 416 2,868 66.8% --------- --------- --------- Total Video & Cable Telephony Revenue $ 25,089 $ 27,803 $ 40,607 10.1% ========= ========= ========= Per Basic Subscriber $ 34.33 $ 36.72 $ 52.46 8.9% ========= ========= =========
Sources: Paul Kagan Associates, Inc., The Cable TV Financial Databook, June 1996. Kane Reece Associates, Inc. Compound Annual Growth Rate Calculations. (1) Pay cable revenue includes mini-pay revenue. (2) PPV revenue includes PPV event, PPV/NVOD Movie and Non-Movie PPV/NVOD revenue. (3) Digital revenue includes cable delivered video game, digital video tier, cable to business video and high speed access revenue. (4) Other video revenue includes home shopping commission and miscellaneous revenue. (5) Cable telephony revenue includes residential cablephone and wholesale/retail business cablephone revenue and cable Sprint Spectrum revenue at 60%. -8- 15 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 Federal Communications Commission ("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. - 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. -9- 16 - Other provisions affect channel positioning, customer service standards, 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. The 1992 Act had a substantial impact on the industry with revenues and cash flows adversely affected, which in turn influenced the availability of capital. 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 regulations called 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. 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 under pressure to enact some "significant legislation." - Election year friendly/voter indifference. - Regain policy authority from the court. - Provides for "compromise," something for each industry. - Public Relations Spin: jobs created for the information superhighway. 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 -10- 17 Title VI Effect on Other Laws Title VII Miscellaneous Provisions The 1996 Act is voluminous and complex. 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 is broadened and better defined v. the 1992 Act. Effective Competition - Local exchange carriers ("LEC's") are added to test criteria. - Satisfaction of test criteria deregulates all rates. - Subscriber notice of rate changes are relaxed. - Customer premise equipment rules remain essentially the same as the 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. 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. -11- 18 - Telephone and Cable Buyouts - No LEC or affiliate can acquire more than 10% of a cable operator providing cable service within the carrier's 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 networks with the telcos' networks. - 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 the removal of rate regulations. However, the deregulatory benefit is modified by several effects of the Act: competitors are encouraged; telco takeovers become more feasible; the threat of competition restricts cable financing; 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 put their cable systems up for sale in 1995, systems serving over 13 million subscribers, almost 20% of the industry. When all of these proposed deals close, the top 20 U.S. cable multiple system operators ("MSOs") will serve about 87% of an estimated 62.1 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. According to a Wall Street Journal special report on telecommunications (September 16, 1996), only about 15% to 20% of the country's cable lines are equipped for two-way service; however, the industry is still leading the race to provide high speed data communications. Securing a portion of the market for the revenues from this type of service will serve as a key to maintaining competitiveness as convergence develops. 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 ____________________________ (2) Cable TV Investor, December 18, 1995. -13- 20 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, as well as, major markets in which to develop a Sprint branded wireline service. 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 the new telecommunications legislation, and the ensuing competitive 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 investments in a Time Warner cable and programming venture, acquisition of the Bass Atlanta systems, and its pending acquisition of Continental Cablevision. 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 and new competition. The industry will focus on new programming and alternative viewing selections, such as staggered starting _______________________________ (3) Cablevision Magazine, "Sprinting Into Telecommunications", November 13, 1995. -14- 21 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 standard for industry rebuilds in high density areas. This, 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 will 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 1995 other revenues including telephony (see Table 1B) were approximately $3.2 billion, or 13%, of the industry's $25.0 billion in revenues. As depicted in Table 1B, between 1995 and 2000 other revenues (non-telephony) are projected to grow to $9.5 billion, representing a CAGR of 26.3%. Telephony revenue is projected to grow at a rapid 66.8% CAGR between 1995 and 2000 reaching $2.9 billion in revenues. Basic cable subscription revenue is expected to grow at a 6.3% CAGR and pay services revenue will increase by 1.2% CAGR. These numbers clearly determine what services cable television companies will be focusing their energies on as convergence becomes a reality. -15- 22 In addition to providing broadcast networks, basic cable offers a great variety of program alternatives in the form of basic cable networks. Each of the ten largest basic service networks (the top five being: The Discovery Channel, USA Network, Cable News Network, TBS Superstation, and TNT) have over 67 million subscribers as of the end of July 1996.4 Other widely distributed basic cable networks include The Learning Channel, Headline News, Lifetime, The Travel Channel, The Family Channel, C-Span, MTV, ESPN, Arts & 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, April 29, 1996, the top five movie oriented pay channels served over 53 million subscribers as of mid-1996. The top five movie entertainment services are Home Box Office (19.2 million subscribers), Cinemax, Showtime, Disney Channel, and Encore.(4) Many of these programmers have increased their development and production of original programming as opposed to relying mostly on the acquisition of Hollywood movies. In addition to these services, regional and local sport networks and other specialized channels 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 (Bell Atlantic, Nynex, Pacific Telesis) and Americast) (Ameritech, BellSouth, GTE, SBC Communications and Disney).(5) The Tele-TV venture was formed by several "RBOC's" with the intention of providing video on demand cable services over telephone wires in an attempt to compete with the cable operators. However, due to technology delay, the venture has since switched their strategy to wireless cable "MMDS" in order to compete in video with a technology that is available _______________________________ (4) Cablevision Magazine, October 21, 1996. (5) Standard & Poor's Telecommunications Industry Survey, December 7, 1995. -16- 23 today. Americast is not a proponent of "MMDS" and will continue to focus their efforts on competing in the video services industry via telephone infrastructure. The "RBOC's" are currently struggling with digital technology issues with MMDS and continue to be delayed in entering the market, but it is still expected that they will have a direct impact on video delivery service. Cable advertising revenues have begun to play a significant role in the industry's profitability. According to Veronis, Suhler & Associates Communications Industry Forecast, 1996, the audience share for daytime cable increased from 30.1% in 1994 to 35.3% in 1995. Prime-time viewing also grew significantly in 1995, basic cable rising 20 percent and pay cable rising 7 percent. In contrast the 1995-1996 major network television season was hit hard by cable viewership due to the O.J. Simpson trial, the Winter Olympics and a barrage of new shows that confused viewers and were narrowly targeted at the shrinking 18-34 year old bracket. Network prime-time viewing fell 7.6% showing a direct relationship between cable network viewership and major network viewership. This has attracted the attention of both local and national advertisers. 1995 total advertiser spending on subscription video services rose to $5.3 billion, a 16.3% increase over the $4.6 billion spent in 1994 (Veronis Suhler & Associates, Communications Industry Forecast, 1996) "VS&A". Furthermore, according to VS&A, network ad spending rose to $3.7 billion in 1995, an increase of only 14.4% compared to an 18.2% increase in 1994, whereas, spot and local advertising rose 20.7% in 1995 versus 20.2% in 1994, another comparison that reaffirms the trade-off between major broadcast networks and cable networks. 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, facilitate -17- 24 the booking of advertising time at multiple cable systems time by national and regional advertisers. In the future, PPV will become a significant source of revenues as digital technology is deployed 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 cable MSOs as well as both cable and broadcast networks continue to show significant interest in both acquiring and developing new programming. As of this writing, approximately 150 new programming channels are in development for cable television. Other examples of interest 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 of the Philadelphia Flyers and 76ers, and the Spectrum Sports Arena. These purchases will lock-in cable television broadcast rights. Veronis, Suhler and Associates projects a downward trend in PPV movie prices, falling to $2.95 per movie in the year 2000 from the 1995 rate of $4.10. This trend in pricing will result in an increase in annual buys per PPV household rising from 2.9 in 1995 to 5.6 in 2000. With the success of DBS and the availability of PPV services offered (over 50% of a DBS service's channels) and the coming of digital converters and increased channels in cable, VS&A gives the following favorable projections to PPV: - Total spending on PPV movies through cable operations will grow at a CAGR of 25.1% between 1995 and 2000 reaching $776 million in 2000. - Total spending on PPV movies through non-cable video services will climb to $218 million in 2000 from $76 million in 1995, a CAGR of 23.5%. -18- 25 . Total aggregate spending on PPV movies through cable and non-cable video services will be $994 million in 2000, up from $329 million in 1995, a CAGR of 24.7%. Another source of incremental revenues has been the growth of home shopping services on cable TV. Paul Kagan Associates that reported these services generated 1995 revenue for CATV operators of $144 million and projects these revenues to grow to $217 million by 2000 (an 8.5% CAGR). These services are highly 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 systems. These technical architectural changes include both digital and switched technologies. 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; -19- 26 . Improved signal quality, due to fewer electronics and less possibility of static or electrical interference. Competition Technological developments will dramatically alter the way households, businesses, and schools "connect" with informational, educational, entertainment, tele-communications 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 well 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 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. However, "U.S. Satellite Broadcasting's latest research found that 63% of its recent subscribers live in a city, suburb, or town while only 37% live in rural areas.6 The first DBS service was offered in June of 1994 by G.M. Hughes Electronics ("DirecTV") and U.S. Satellite Broadcasting, ("USSB"). The industry closed out 1995 with a subscriber base of 1.8 million, 500% greater than the 300,000 subscribers as of year-end 1994. DirecTV's 125 channel service accounted for 1.5 million of those subscribers, USSB had 800,000 subscribers and Primestar, had 1.1 million subscribers (the total number of subscribers does not correlate with the number of subscribers for each service because the services do have overlapping subscribers). ________________________________ 6Cable World, August 26, 1996. -20- 27 As expected, 1996 has brought added competition to the DBS service industry, including Echostar, a company that is projecting 300,000 to 400,000 subscribers by year end and Alphastar, a company that is projecting 100,000 to 150,000 by year end. DBS analysts are estimating that DBS hardware will be in 4.8 million homes by the end of 1996 and between 13 and 17 million homes by the close of the year 2000 (CableWorld, August 1996). Donaldson, Lufkin and Jenrette projects a subscriber base in the year 2000 of 19.3 million homes or roughly one of every five homes in America. These escalated growth projections are a direct result of the heated price wars brought on by a strategy to realize quicker subscriber growth and rely on monthly service revenue to cover offers to consumers of below-cost equipment sale prices. Echostar offered DBS equipment to the consumer in May of 1996 for $199 forcing the other DBS service providers to follow suit. The monthly costs range between $5.95 and $44.95 per month and pay-per-view movies cost $2.99 each, more than a dollar less than the average cable pay-per-view. 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, 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 an entree to cable services. In fact, AT&T has made an investment in DirecTV and has already begun to market the service to its 95 million customers; and Primestar is owned by GE and several major cable operators. -21- 28 Wireless: Wireless cable (officially referred to as "multichannel multipoint distribution system," or "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 the transition to digital technology. 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 when the service providers come up with the capital to make the transition. Support for this technology is offered by the recent entry of several RBOC's, including 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. Some analysts believe the telco companies see this technology as an opportunity to get into subscription video services now while they await the arrival of video dial tone. The availability of digital technology is a significant factor in reviewing the prospects of MMDS. If deployed, it would give the industry a fair chance against DBS with the ability to provide 120 plus channel systems, a vast improvement over the current 33 channel systems. In addition to MMDS the government has proposed another frequency auction at the 27.5-29.5 GHz range. This area of frequency providing for "LMDS" (local multipoint distribution service) offers five times as much spectrum as MMDS and is designed with two-way capability in mind. LMDS can be used for video-on-demand, high quality, digital radio and TV programming. Because of its cellular-like configuration, it is ideal for trunking personal communications services, video teleconferencing, and local transactional services. On the downside, LMDS requires that transmitters be placed approximately 2-3 kilometers apart, or more frequently than those of MMDS, giving -22- 29 LMDS a much higher cost structure and is also much more sensitive to atmospheric conditions because of it's high frequency. Though true competitive services to cable and DBS, 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, 1996 which projects wireless cable subscribers increasing from 0.7 million in 1995 to 2.4 million in 2000 representing a 28% CAGR and 3% of the total subscription video subscribers. Telephone Companies: When talking about cable competition, "telephone" usually means RBOCs 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 virtually no video experience since historically 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 (though telephone companies seem to be making significant inroads in certain states like Connecticut and Michigan); telephone companies have little experience in marketing services, much less in a complicated, multi- tiered, menu-driven cable television era. The 1996 Act creates a competitive marketplace for telephone and cable services by allowing phone and cable companies to compete in each others businesses while prohibiting combinations of companies serving overlapping areas. This so-called "two (2) wire" model is a situation that cable is far better situated to take advantage of -23- 30 from both a technological and regulatory standpoint with its broadband network in place. The telephone companies would face heavier costs, and time delays. Many analysts continue to 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. - RBOC's are occupied with other priorities such as entering the long distance telephone market and defending their local service "monopoly." On the other hand, Standard & Poor's Telecommunications Industry Survey, December 7, 1995 provides a synopsis of some of the more difficult 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. -24- 31 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 players in the CATV industry and telecommunications industry, e.g., U.S. West's acquisition of Continental, Time Warner's acquisition of Cablevision Industries in 1995 and Turner Broadcasting in 1996 and Comcast's acquisition of Scripps Howard, will continue so that economies of scale and sufficient resources, both capital and management, will remain available. -25- 32 FAIR MARKET VALUATION OF THE REGIONS AND SYSTEMS THAT COMPRISE FALCON CLASSIC CABLE INCOME PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1996 PART III - DESCRIPTION OF THE REGIONS' AND SYSTEMS' SERVICE AREAS Description of Service Areas FCCIP is made up of three (3) Regions and two (2) Systems collectively called the "Operating Areas" as follows: Regions: Burke County, North Carolina Centreville, Maryland Somerset, Kentucky Systems: Redmond, Oregon California City, California Figures 1 - 5 are maps showing the location of each Operating Area 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 2E depict various relevant demographic factors, available at the valuation date, for each Operating Area'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 Operating Area franchise areas. The Tables contain population and household statistics, beginning with 1990 census data, show CACI projections for 1995 and 2000. Kane Reece computed the -26- 33 FIGURE 1 [BURKE COUNTY REGION MAP] [FALCON CLASSIC CABLE INC. PROP.] -27- 34 FIGURE 2 [CENTREVILLE REGION MAP] [FALCON CLASSIC CABLE INC. PROP.] -28- 35 FIGURE 3 [SOMERSET REGION MAP] [FALCON CLASSIC CABLE INC. PROP.] -29- 36 FIGURE 4 [REDMOND SYSTEM MAP] [FALCON CLASSIC CABLE INC. PROP.] -30- 37 FIGURE 5 [CALIFORIA CITY SYSTEM MAP] FALCON CLASSIC CABLE INC. PROP.] -31- 38 TABLE 2A Burke County, NC Region Demographic Characteristics
Population ------------------------------------------------ Zip CAGR Code Location 1990 1995 2000 90-95 95-00 ---- -------- ---- ----- ---- ----- ---- 28601 Hickory 44,830 46,799 49,006 0.9% 0.9% 28602 Hickory 21,146 22,205 23,311 1.0% 1.0% 28603 N/A 28612 Connellys Spring 15,387 16,117 16,846 0.9% 0.9% 28619 N/A 28628 N/A 28637 N/A 28666 N/A 28671 N/A 28680 N/A 28690 Valdese 4,231 4,234 4,329 0.0% 0.4% 28761 Nebo 5,046 5,495 5,838 1.7% 1.2% Total/Avg 90,640 94,850 99,330 0.9% 0.9% Wtd. Avg. 30,196 31,535 33,037 0.9% 0.9% North Carolina 6,628,637 7,179,473 7,704,035 1.6% 1.4% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0%
* National Rank Source: The Sourcebook of Zip Code Demographics, 1995
Households --------------------------------------------- Median Zip CAGR Median Age HH National State Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile ---- -------- ---- ---- ---- ----- ----- ---- ---- ------- ------- ------- 28601 Hickory 18,141 19,003 19,920 0.9% 0.9% 34.7 36.3 $34,719 70% 77% 28602 Hickory 7,948 8,337 8,745 1.0% 1.0% 33.7 35.4 28,503 52% 46% 28603 N/A 28612 Connellys Spring 5,887 6,157 6,432 0.9% 0.9% 33.9 36 30,716 60% 61% 28619 N/A 28628 N/A 28637 N/A 28666 N/A 28671 N/A 28680 N/A 28690 Valdese 1,801 1,799 1,838 -0.0% 0.4% 37.5 38.7 29,277 55% 53% 28761 Nebo 1,747 1,906 2,026 1.8% 1.2% 34.4 36.4 29,165 54% 52% Total/Avg 35,524 37,202 38,961 0.9% 0.9% 34.8 36.6 30,476 58% 58% Wtd. Avg. 12,195 12,779 13,401 0.9% 1.0% 34.4 36.2 32,116 North Carolina 2,517,026 2,730,795 2,936,445 1.6% 1.5% 33.1 34.6 32,188 26 * 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 -32- 39 TABLE 2B Centreville, MD Region Demographic Characteristics
Population ---------------------------------------------------------- Zip CAGR Code Location 1990 1995 2000 90-95 95-00 ---- -------- ---- ---- ---- ----- ----- 21620 Chestertown 10,618 11,541 12,304 1.7% 1.3% 21645 Kennedyville 1,811 1,877 1,955 0.7% 0.8% 21646 N/A 21661 Rock Hall 2,770 2,815 2,908 0.3% 0.7% 21667 Still Pond 289 300 312 0.7% 0.8% 21678 Worton 1,680 1,742 1,815 0.7% 0.8% 21610 Betterton 485 503 524 0.7% 0.8% 21651 Millington 2,003 2,096 2,200 0.9% 1.0% 21670 N/A 21668 Sudlersville 2,008 2,124 2,248 1.1% 1.1% 21623 Church Hill 814 879 939 1.5% 1.3% 21617 Centreville 5,863 5,856 6,025 -0.0% 0.6% 21658 Queenstown 3,301 3,582 3,838 1.6% 1.4% 21619 Chester 4,199 4,713 5,131 2.3% 1.7% 21628 Crumpton 689 736 782 1.3% 1.2% 21638 Grasonville 3,225 3,550 3,829 1.9% 1.5% 21666 Stevensville 8,630 9,541 10,316 2.0% 1.6% 21663 Saint Michael 3,247 3,427 3,606 1.1% 1.0% 21601 Easton 16,439 17,537 18,538 1.3% 1.1% 21612 Bozman 847 894 941 1.1% 1.0% 21624 N/A 21625 Cordova 2,346 2,472 2,599 1.1% 1.0% 21647 McDaniel 610 632 659 0.7% 0.8% 21652 N/A 21653 N/A 21662 Royal Oak 889 938 986 1.1% 1.0% 21665 Sherwood 262 272 283 0.8% 0.8% 21671 Tilghman 745 772 805 0.7% 0.8% 21676 Wittman 338 350 365 0.7% 0.8% 21679 Wye Mills 270 285 299 1.1% 1.0% Total/Avg 74,378 79,434 84,207 1.3% 1.2% Wtd. Avg. 7,701 8,303 8,833 1.5% 1.2% Maryland 4,781,468 5,056,951 5,344,316 1.1% 1.1% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0%
* National Rank Source: The Sourcebook of Zip Code Demographics, 1995
Households ---------------------------------------------- Median Zip CAGR Median Age HH National State Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile ---- -------- ---- ---- ---- ----- ----- ---- ---- ------ -------- ------- 21620 Chestertown 3,996 4,378 4,698 1.8% 1.4% 35.5 36.7 $37,609 78% 29% 21645 Kennedyville 575 595 621 0.7% 0.9% 36.8 38 36,660 76% 26% 21646 N/A 21661 Rock Hall 1,175 1,191 1,230 0.3% 0.6% 41.3 41.8 26,571 43% 3% 21667 Still Pond 109 113 118 0.7% 0.9% 36.5 38 36,764 76% 27% 21678 Worton 645 668 697 0.7% 0.9% 36.7 38 36,680 76% 26% 21610 Betterton 195 202 211 0.7% 0.9% 36.6 38.2 36,777 76% 27% 21651 Millington 734 767 805 0.9% 1.0% 35.7 36.9 35,957 74% 23% 21670 N/A 21668 Sudlersville 695 734 777 1.1% 1.1% 34.3 36.4 37,608 78% 29% 21623 Church Hill 309 334 358 1.6% 1.4% 36.4 38.2 40,521 83% 35% 21617 Centreville 2,149 2,135 2,192 -0.1% 0.5% 36.9 37.6 40,604 83% 36% 21658 Queenstown 1,224 1,325 1,420 1.6% 1.4% 39.1 38.4 59,543 97% 77% 21619 Chester 1,634 1,828 1,986 2.3% 1.7% 34.3 34.5 52,153 94% 64% 21628 Crumpton 257 274 291 1.3% 1.2% 36.5 37.7 35,553 72% 22% 21638 Grasonville 1,204 1,323 1,426 1.9% 1.5% 35.5 35.5 46,040 90% 51% 21666 Stevensville 3,068 3,388 3,662 2.0% 1.6% 34.1 35.3 60,443 97% 79% 21663 Saint Michael 1,470 1,549 1,629 1.1% 1.0% 48.5 49.6 39,636 82% 33% 21601 Easton 6,859 7,320 7,745 1.3% 1.1% 38.3 39.1 36,144 74% 24% 21612 Bozman 376 396 417 1.0% 1.0% 49 50 39,191 81% 32% 21624 N/A 21625 Cordova 811 854 897 1.0% 1.0% 33.4 35.1 39,262 81% 32% 21647 McDaniel 247 256 267 0.7% 0.8% 40.9 40.7 32,288 64% 17% 21652 N/A 21653 N/A 21662 Royal Oak 371 391 411 1.1% 1.0% 44.3 46.5 40,628 83% 36% 21665 Sherwood 113 117 122 0.7% 0.8% 40.9 41.2 32,734 66% 18% 21671 Tilghman 307 318 331 0.7% 0.8% 40.7 40.8 32,537 65% 17% 21676 Wittman 154 159 166 0.6% 0.9% 40.9 40.8 32,466 65% 17% 21679 Wye Mills 104 109 115 0.9% 1.1% 33.9 35.3 39,651 82% 33% Total/Avg 28,781 30,724 32,592 1.3% 1.2% 38.3 39.2 39,361 77% 33% Wtd. Avg. 3,104 3,348 3,566 1.5% 1.3% 37.3 38.2 41,730 Maryland 1,748,991 1,845,277 1,948,339 1.1% 1.1% 33.0 34.2 47,728 4 * 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 -33- 40 TABLE 2C Somerset, KY Region Demographic Characteristics
Population --------------------------------------------------------------------- Zip CAGR Code Location 1990 1995 2000 90-95 95-00 ---- -------- ---- ---- ---- ----- ----- 42544 Nancy 3,861 4,622 5,220 3.7% 2.5% 42553 Science Hill 2,899 3,550 4,056 4.1% 2.7% 40489 Waynesburg 4,024 4,124 4,284 0.5% 0.8% 42567 Eubank 5,867 6,895 7,725 3.3% 2.3% 42519 Burnside 2,843 2,998 3,189 1.1% 1.2% 42518 Bronston 2,417 2,538 2,689 1.0% 1.2% 42555 N/A 42558 N/A 42633 Monticello 13,523 14,305 15,024 1.1% 1.0% 42533 N/A 40437 Hustonville 2,965 3,174 3,356 1.4% 1.1% 40448 N/A 40484 Stanford 9,072 9,831 10,524 1.6% 1.4% 42501 Somerset 28,546 30,687 32,941 1.5% 1.4% 40740 Lily 7,471 8,029 8,634 1.5% 1.5% 40741 London 20,329 23,226 25,770 2.7% 2.1% 42642 Russell Springs 9,569 9,908 10,393 0.7% 1.0% 42728 Columbia 10,012 10,690 11,282 1.3% 1.1% 42743 Greensburg 8,471 8,355 8,328 -0.3% -0.1% Total/Avg 131,869 142,932 153,415 1.6% 1.4% Wtd. Avg. 14,479 15,764 17,047 1.7% 1.6% Kentucky 3,685,296 3,860,579 4,029,593 0.9% 0.9% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0%
* National Rank Source: The Sourcebook of Zip Code Demographics, 1995
Households -------------------------------------------------- Median Zip CAGR Median Age HH National State Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile ---- -------- ---- ---- ---- ----- ----- ---- ---- ------ ------- ------- 42544 Nancy 1,488 1,789 2,024 3.8% 2.5% 37 38.7 20,197 16% 61% 42553 Science Hill 1,095 1,347 1,542 4.2% 2.7% 34.6 36.4 21,100 20% 65% 40489 Waynesburg 1,455 1,497 1,559 0.6% 0.8% 33.4 34.9 17,794 8% 45% 42567 Eubank 2,162 2,552 2,865 3.4% 2.3% 34.3 36.1 18,921 12% 53% 42519 Burnside 1,075 1,139 1,213 1.2% 1.3% 35.1 36.5 16,099 4% 31% 42518 Bronston 914 964 1,024 1.1% 1.2% 34.8 36.4 15,345 3% 25% 42555 N/A 42558 N/A 42633 Monticello 5,164 5,472 5,761 1.2% 1.0% 34.3 36 15,055 2% 24% 42533 N/A 40437 Hustonville 1,096 1,178 1,247 1.5% 1.1% 34.4 36.1 $19,589 14% 59% 40448 N/A 40484 Stanford 3,396 3,700 3,972 1.7% 1.4% 34 35.6 21,261 20% 66% 42501 Somerset 10,988 11,883 12,805 1.6% 1.5% 35.2 36.9 21,038 19% 65% 40740 Lily 2,627 2,840 3,066 1.6% 1.5% 31.6 33.3 16,989 6% 38% 40741 London 7,525 8,612 9,566 2.7% 2.1% 33.4 35 19,297 13% 56% 42642 Russell Springs 3,868 4,026 4,233 0.8% 1.0% 35.8 37.4 17,781 8% 45% 42728 Columbia 3,837 4,130 4,380 1.5% 1.2% 35.3 36.6 17,805 8% 45% 42743 Greensburg 3,357 3,325 3,320 -0.2% -0.0% 38 39.2 20,243 16% 62% Total/Avg 50,047 54,454 58,577 1.7% 1.5% 34.7 36.3 18,568 11% 49% Wtd. Avg. 5,531 6,038 6,541 1.8% 1.6% 34.7 36.3 18,981 Kentucky 1,379,782 1,450,703 1,516,692 1.0% 0.9% 33.0 34.6 24,504 48 * 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 -34- 41 TABLE 2D Redmond, OR Region Demographic Characteristics
Population ---------------------------------------------------------------- Zip CAGR Code Location 1990 1995 2000 90-95 95-00 ---- -------- ---- ---- ---- ----- ----- 97756 Redmond 12,161 15,680 18,968 5.2% 3.9% 97760 Terrebonne 2,101 2,885 3,586 6.5% 4.4% Total/Avg 14,262 18,565 22,554 5.4% 4.0% Wtd. Avg. 10,679 13,692 16,522 5.1% 3.8% Oregon 2,842,321 3,141,979 3,427,386 2.0% 1.8% United States 248,709,873 263,006,245 277,083,635 1.1% 1.0%
* National Rank Source: The Sourcebook of Zip Code Demographics, 1995
Households ---------------------------------------------------- Median Zip CAGR Median Age HH National State Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile ---- -------- ---- ---- ---- ----- ----- ---- ---- ------ ------- ------- 97756 Redmond 4,644 5,967 7,210 5.1% 3.9% 34.9 35.9 $30,992 61% 52% 97760 Terrebonne 772 1,055 1,310 6.4% 4.4% 35.4 36.6 31,995 64% 56% Total/Avg 5,416 7,022 8,520 5.3% 3.9% 35.2 36.3 31,494 63% 54% Wtd. Avg. 4,092 5,229 6,303 5.0% 3.8% 35.0 36.0 31,143 Oregon 1,103,313 1,214,202 1,322,298 1.9% 1.7% 34.5 35.6 35,077 21 * 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 -35- 42 TABLE 2E California City, CA Region Demographic Characteristics
Population --------------------------------------------------------------- Zip CAGR Code Location 1990 1995 2000 90-95 95-00 ---- -------- ----------- ----------- ------------ ------ ----- 93505 California City 6,086 10,090 13,337 10.6% 5.7% 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%
* National Rank Source: The Sourcebook of Zip Code Demographics, 1995
Households ----------------------------------------------------------------- Zip CAGR Code Location 1990 1995 2000 90-95 95-00 ---- -------- ------------ ---------- ------------- ----- ------ 93505 California City 2,172 3,573 4,707 10.5% 5.7% California 10,381,206 10,995,431 11,624,997 1.2% 1.1% United States 91,947,410 97,069,804 102,201,641 1.1% 1.0%
* National Rank Source: The Sourcebook of Zip Code Demographics, 1995
Median Zip Median Age Median National State Code Location 1990 1995 Income Centile Centile ---- -------- ---- ---- ------ ------- ------- 93505 California City 30.7 31.4 $37,779 78% 58% California 31.5 32.6 38,099 15 * United States 32.9 34.0 33,610
* National Rank Source: The Sourcebook of Zip Code Demographics, 1995 -36- 43 various compound annual growth rates ("CAGR"). Median ages are shown for 1990 and 1995. Median household income for 1995 and the corresponding national income centiles are also included. Statistics for each state served and the U.S. are included for comparative purposes. Area Description BURKE COUNTY, CALIFORNIA - Table 2A depicts various relevant demographic statistics for the service area which encompasses several communities lying along Interstate Route 40. The service area lies approximately 70 miles north west of Charlotte and 40 miles east of Asheville. The Region serves the communities of Connelly Springs; Drexel, Glen Alpine, Rutherford College and Valdese as well as the unincorporated portions of Burke County. The primary industries in the county include furniture making and textiles. Other employers manufacture anti-lock brakes, pharmaceutical glass, ceramic tile, lithium batteries, medical appliances and truck axles. In spite of the strong manufacturing base the area's household growth and income are slightly below North Carolina and the U.S. CENTREVILLE, MARYLAND - Table 2B depicts various relevant demographic statistics for the service area consists of several communities located on the eastern shore of Maryland (see Figure 2). Annual household growth between 1990 and 1995 (1.5%) is 0.4% higher than the state and U.S. This growth rate is expected to decline by 0.2% through 2000 but is still expected to be above the state and nation. The eastern shore economy relies heavily on the Chesapeake Bay. Fishing, crabbing, and processing are important industries as is a growing tourism industry. Agriculture is also an important industry. According to regional management, over the past fifteen years the area's relatively inexpensive land has made it attractive for people to move from the western shore and commute to Washington DC and Baltimore for work. -37- 44 The service area's median household income, while 12% below the state's, is 24% higher than the U.S. The relatively high median age also suggests a sizable retirement community. SOMERSET, KENTUCKY - Table 2C depicts various relevant demographic statistics for the service area which consists of several communities in southern Kentucky, 75 miles south of Lexington, and 45 miles north of the Tennessee border (see Figure 3). Annual household growth between 1990 and 1995 was approximately 1.7% compared to Kentucky's annual growth rate of 1.0% on the U.S. rate of 1.1%. This annual growth rate pattern (1.5%) is expected to continue between 1995 and 2000. The service area's 1995 median household income is significantly below the State (24%) and the U.S. average (45%), but is growing at a fast rate as Somerset becomes a commerce center for southern Kentucky. Unemployment in Somerset is below the state average with large employers including General Electric, Tecumseh Products Company, Kingsford Co., and others. REDMOND, OREGON - Table 2D depicts various relevant demographic statistics for the service area which consists of the community of Redmond, Oregon (see Figure 4). Annual household growth between 1990 and 1995 was 5.1% which is approximately 2.5 times higher than that of the State and 4.5 times that of the U.S. average. Redmond is the single fastest growing city in Oregon. This annual growth rate is expected to moderate somewhat between 1995 and 2000 (3.9%) but it is still over double the State and four times the U.S. projections. The service area's 1995 median household income is 12% below the State average and 8% below the U.S. average. -38- 45 The Region's economic base is largely based on timber and tourism. The city of Redmond has the only airport in central Oregon bordered by industrial land. The community also has a job and workforce training facility. CALIFORNIA CITY, CALIFORNIA - Table 2E depicts various demographics for the service area which encompasses the city of California City, California. Household growth rates, both historical and projected, are well above the U.S. and the State averages. Annual household growth rates between 1990 and 1995 were 10.0% compared to 1.2% for California and 1.1% for the U.S. For the period 1995-2000 growth is projected at an annual rate of 5.7%. Median age is below both the U.S. and State's average. Median household income is approximately equal to the State and approximately 12% higher than the U.S. The following paragraphs describe the physical plant, revenue and cash flow generating capacity of the Regions. Tables 3A through 3E delineate the revenue per subscriber from various services in the 1995 and 1996 historical time periods, as well as budgeted 1997. These revenues per subscriber by revenue category have been used in our discounted cash flow analysis methodology to determine each Region's and System's fair market value at December 31, 1996. System Description BURKE COUNTY, NORTH CAROLINA - The Region serves subscribers from one (1) headend. The headend is well-located on the tallest mountain in the area. According to management, the System provides 43 channels and the plant is approximately 10 years old. Recently, fiber optics has replaced 65 miles of coax trunk. This has improved picture quality and capacity through a reduction in amplifier cascades. In spite of the fiber upgrade, the system needs a rebuild. In fact, Valdese requires an upgrade to 550 MHz by 2000. Notwithstanding the Valdese requirement, the service area is overbuilt. -39- 46 - ------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties, L.P. Table 3A Revenue Analysis Burke, NC Valuation Date: December 31, 1996 - -------------------------------------------------------------------------------------------------
1997 Budget Dec 1996 Actual 1996 Actual 1995 Actual -------------------- --------------------- ---------------------- ---------------------- ($000) /EBU/MO ($000) /EBU ($000) /EBU/MO ($000) /EBU/MO Primary/Commercial $2,220.2 $17.49 $179.1 $16.97 $2,051.1 $15.91 $2,048.9 $15.50 Expanded Tier 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 AL Tier 688.0 5.42 56.4 5.34 574.9 4.46 407.0 3.08 -------- ------ ------ ------ -------- ------ -------- ------ Total Reg. Prog. 2,908.3 22.91 236.2 22.32 2,626.0 20.37 2,455.9 18.58 Radio Services 34.7 0.27 2.9 0.27 39.2 0.30 47.7 0.36 Pay Cable - 1st Outlet 387.4 3.05 35.6 3.37 495.3 3.84 583.7 4.42 Pay Cable - Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 New Product Tier - 1 1,081.6 8.52 81.7 7.74 892.1 6.92 948.1 7.17 Commercial Pay 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Mini-Pay 9.4 0.07 0.8 0.07 10.3 0.08 13.0 0.10 Mini-Pay - Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Pay Per View 128.7 1.01 7.3 0.69 104.0 0.81 117.4 0.89 -------- ------ ------ ------ -------- ------ -------- ------ Total Unreg. Prog. 1,641.8 12.93 128.2 12.15 1,540.9 11.95 1,709.9 12.93 Primary Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Remote Control 3.9 0.03 0.3 0.03 4.1 0.03 4.0 0.03 Converter Rental 463.7 3.65 38.3 3.63 472.3 3.66 488.9 3.70 Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 -------- ------ ------ ------ -------- ------ -------- ------ Total Equipment 467.6 3.68 38.7 3.67 476.5 3.70 492.9 3.73 Wire Maint. Agreements 68.4 0.54 5.7 0.54 68.2 0.53 62.3 0.47 New Cust. - Pay Installs 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 New Cust. - Basic Installs 93.3 0.74 1.0 0.09 17.6 0.14 28.1 0.21 Install Mat'l Charge 0.0 0.00 0.0 0.00 1.1 0.01 0.4 0.00 Installs - Non New Cust. 0.0 0.00 3.3 0.31 68.3 0.53 72.0 0.54 -------- ------ ------ ------ -------- ------ -------- ------ Total Install/Service 161.7 1.27 10.1 0.95 155.2 1.20 162.9 1.23 Guide Revenue 21.7 0.17 1.7 0.17 22.8 0.18 26.1 0.20 Late Charges 56.5 0.44 4.4 0.41 57.2 0.44 63.3 0.48 Rent 3.2 0.03 (0.3) (0.03) 2.7 0.02 3.0 0.02 Franchise Pass Thru 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Miscellaneous 0.0 0.00 0.0 0.00 16.5 0.13 0.0 0.00 Shopping Net Car. Fee 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 FCC User Fee Pass Thru 5.8 0.05 0.4 0.04 5.3 0.04 5.1 0.04 QVC Monthly Comm. 16.7 0.13 0.9 0.09 16.7 0.13 15.1 0.11 QVC Carriage Payment 13.0 0.10 0.0 0.00 12.2 0.09 14.0 0.11 HSN Monthly Comm. 9.6 0.08 0.2 0.02 9.6 0.07 0.0 0.00 HSN Carriage Payment 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 -------- ------ ------ ------ -------- ------ -------- ------ Total Non-Service/Misc. 126.5 1.00 7.5 0.71 142.9 1.11 126.7 0.96 Advertising 152.7 1.20 16.5 1.56 136.4 1.06 97.8 0.74 -------- ------ ------ ------ -------- ------ -------- ------ Total Revenues $5,458.5 $42.99 $437.1 $41.35 $5,077.8 $39.39 $5,045.9 $38.17 ======== ====== ====== ====== ======== ====== ======== ====== % Change from Prior Yr. 7.5% 9.1% 0.6% 3.2% === === === === Pay Revenue/Pay Unit $7.51 $7.66 $7.14 $6.25 ===== ===== ===== =====
* Adj to normalize: ** $39.26 When adj. for $0.05 Rent one time program (0.50) Advertising payments ($0.45) -40- 47 Falcon Classic Cable Income Properties, L.P. Table 3B Revenue Analysis Centreville, MD Valuation Date: December 31, 1996
1997 Budget Dec 1996 Actual 1996 Actual 1995 Actual ------------------- --------------- ----------------- ------------------ ($000) /EBU/MO ($000) /EBU ($000) /EBU/MO ($000) /EBU/MO ----- ------- ------ ---- ------ ------- ------ ------- Primary/Commercial $3,203.1 $20.70 $253.9 $19.91 $2,833.9 $19.02 $2,532.3 $17.60 Expanded Tier 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 AL Tier 516.9 3.34 41.8 3.28 425.0 2.85 340.5 2.37 Total Reg. Prog. 3,720.0 24.04 295.8 23.18 3,258.8 21.87 2,872.8 19.96 Radio Services 25.6 0.17 2.1 0.16 28.1 0.19 33.3 0.23 Pay Cable - 1st Outlet 745.2 4.82 62.4 4.89 845.1 5.67 931.2 6.47 Pay Cable - Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 New Product Tier - 1 790.1 5.11 63.5 4.97 580.6 3.90 361.8 2.51 Commercial Pay 0.0 0.00 1.2 0.09 14.7 0.10 13.8 0.10 Mini-Pay 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Video Games & Activation 43.3 0.28 3.1 0.24 41.1 0.28 5.4 0.04 Pay Per View 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Total Unreg. Prog. 1,604.2 10.37 132.2 10.36 1,509.6 10.13 1,345.5 9.35 Primary Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Remote Control 5.8 0.04 0.5 0.04 5.7 0.04 6.2 0.04 Converter Rental 45.0 0.29 3.7 0.29 34.8 0.23 25.3 0.18 Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Total Equipment 50.8 0.33 4.1 0.32 40.5 0.27 31.5 0.22 Wire Maint. Agreements 43.0 0.28 3.5 0.27 39.3 0.26 31.2 0.22 New Cust. - Pay Installs 58.4 0.38 0.0 0.00 0.3 0.00 0.0 0.00 New Cust. - Basic Installs 0.0 0.00 0.5 0.04 7.3 0.05 15.0 0.10 Install Mat'l Charge 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Installs - Non New Cust. 0.0 0.00 2.0 0.16 47.8 0.32 28.8 0.20 Total Install/Service 101.4 0.66 6.0 0.47 94.7 0.64 75.0 0.52 Guide Revenue 21.3 0.14 1.9 0.15 13.8 0.09 8.8 0.06 Late Charges 67.8 0.44 7.1 0.55 74.0 0.50 64.6 0.45 Rent 23.7 0.15 1.9 0.15 23.5 0.16 14.8 0.10 Franchise Pass Thru 117.4 0.76 9.1 0.71 104.9 0.70 101.4 0.70 Miscellaneous 2.8 0.02 0.0 0.00 24.7 0.17 0.0 0.00 FCC User Fee Pass Thru 6.9 0.04 0.5 0.04 6.0 0.04 5.5 0.04 QVC Monthly Comm. 13.2 0.09 1.1 0.09 13.2 0.09 9.0 0.06 QVC Carriage Payment 18.3 0.12 0.0 0.00 31.5 0.21 0.0 0.00 HSN Monthly Comm. 22.2 0.14 1.6 0.13 22.2 0.15 18.6 0.13 HSN Carriage Payment 2.1 0.01 0.2 0.01 2.1 0.01 2.1 0.01 Total Non-Service/Misc. 295.7 1.91 23.4 1.83 315.9 2.12 224.8 1.56 Advertising 138.0 0.89 13.3 1.04 123.0 0.83 114.4 0.79 Total Revenues 5,910.1 $38.19 474.8 $37.22 5,342.6 $35.85 4,664.0 $32.41 % Change from Prior Yr 10.6% 6.5% 14.6% 10.6% 15.0% 15.0% Pay Revenue/ Pay Unit $9.04 $8.23 $8.76 $8.67
-41- 48 - -------------------------------------------------------------------------------- Falcon Classic Income Properties Table 3C Revenue Analysis Somerset, Kentucky Valuation Date: December 31, 1996 - --------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual ----------------- ------------------ ------------------- ------------------- ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ------ ------ ------ ------ ------ ------ ------- ------ Revenues: Primary / Commercial $4,579.9 $19.48 $371.3 $19.05 $4,158.5 $17.81 $3,850.2 $16.76 Expanded Tier 542.1 2.31 44.5 2.28 475.1 2.03 412.3 1.79 -------- ------ ------ ------ -------- ------ -------- ------ Total Regulated Programming 5,122.0 21.78 415.8 21.34 4,633.6 19.84 4,262.5 18.55 -------- ------ ------ ------ -------- ------ -------- ------ Radio Services 0.0 0.00 0.0 0.00 0.1 0.00 0.1 0.00 Pay Cable 417.7 1.78 34.1 1.75 464.9 1.99 506.6 2.20 New Product Tier 1,219.2 5.19 99.8 5.12 1,005.9 4.31 813.9 3.54 Mini-Pay 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Pay Per View 10.7 0.05 0.6 0.03 11.9 0.05 6.8 0.03 -------- ------ ------ ------ -------- ------ -------- ------ Total Unregulated Programming 1,647.6 7.01 134.5 6.90 1,482.8 6.35 1,327.4 5.78 -------- ------ ------ ------ -------- ------ -------- ------ Remote Control 18.7 0.08 1.5 0.08 28.6 0.12 44.7 0.19 Converter Rental 96.4 0.41 8.1 0.42 83.0 0.36 49.6 0.22 Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 -------- ------ ------ ------ -------- ------ -------- ------ Total Equipment 115.1 0.49 9.6 0.49 111.6 0.48 94.3 0.41 -------- ------ ------ ------ -------- ------ -------- ------ Wire Maintenance Agreements 39.5 0.17 3.3 0.17 41.1 0.18 37.7 0.16 Installation 125.2 0.53 5.0 0.26 113.1 0.48 126.6 0.55 -------- ------ ------ ------ -------- ------ -------- ------ Total Installation / Service 164.7 0.70 8.3 0.43 154.2 0.66 164.3 0.72 -------- ------ ------ ------ -------- ------ -------- ------ Guide Revenue 5.1 0.02 0.4 0.02 3.8 0.02 0.0 0.00 Late Charges 66.4 0.28 6.6 0.34 70.6 0.40 67.9 0.30 Home Shopping 76.4 0.32 4.8 0.25 78.3 0.45 62.1 0.27 FCC User Fee Pass Thru 10.7 0.05 0.8 0.04 9.4 0.05 8.8 0.04 Franchise Pass Thru 25.4 0.11 2.1 0.11 22.9 0.10 5.5 0.02 Miscellaneous / Rent 14.4 0.06 47.1 2.42 178.6 0.76 9.1 0.04 -------- ------ ------ ------ -------- ------ -------- ------ Total Non-Service / Misc. 198.4 0.84 61.8 3.17 363.6 1.56 153.4 0.67 -------- ------ ------ ------ -------- ------ -------- ------ Advertising 387.2 1.65 43.9 2.25 345.1 1.48 297.3 1.29 -------- ------ ------ ------ -------- ------ -------- ------ Total Revenues $7,635.0 $32.47 $673.9 $34.58 $7,090.9 $30.36 $6,299.2 $27.41 ======== ===== ====== ====== ======== ====== ======== ====== % Change From Prior Year 7.67% 6.94% 12.57% 10.76% ==== ==== ===== ===== Revenue / Pay Unit / Month $9.05 $8.43 $8.53 $8.43 ===== ===== ===== =====
-42- 49 - ------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties Table 3D Revenue Analysis Redmond, Oregon Valuation Date: December 31, 1996 - -------------------------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual -------------------- -------------------- -------------------- -------------------- ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO -------- ------ ------- ------ -------- ------ -------- ------ Revenues: Primary / Commercial $1,084.2 $21.41 $83.5 $22.57 $992.5 $21.47 $1,006.7 $20.27 Expanded Tier 75.9 1.50 5.8 1.57 69.6 1.51 74.1 1.49 -------- ------ ------ ------ -------- ------ -------- ------ Total Regulated Programming 1,160.1 22.91 89.3 24.14 1,062.1 22.98 1,080.8 21.76 -------- ------ ------ ------ -------- ------ -------- ------ Radio Services 8.1 0.16 0.6 0.16 8.7 0.19 11.5 0.23 Pay Cable 55.4 1.09 4.6 1.24 72.0 1.56 99.6 2.01 New Product Tier 297.7 5.88 22.8 6.16 245.5 5.31 219.1 4.41 Mini-Pay 2.4 0.05 0.2 0.05 2.5 0.05 2.4 0.05 Pay Per View 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 -------- ------ ------ ------ -------- ------ -------- ------ Total Unregulated Programming 363.6 7.18 28.2 7.62 328.7 7.11 332.6 6.70 -------- ------ ------ ------ -------- ------ -------- ------ Remote Control 2.5 0.05 0.2 0.05 2.5 0.05 2.9 0.06 Converter Rental 34.1 0.67 2.7 0.73 35.6 0.77 39.4 0.79 Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 -------- ------ ------ ------ -------- ------ -------- ------ Total Equipment 36.6 0.72 2.9 0.78 38.1 0.82 42.3 0.85 -------- ------ ------ ------ -------- ------ -------- ------ Wire Maintenance Agreements 6.6 0.13 0.5 0.14 7.0 0.15 7.8 0.16 Installation 14.5 0.29 0.7 0.19 13.6 0.29 14.5 0.29 -------- ------ ------ ------ -------- ------ -------- ------ Total Installation / Service 21.1 0.42 1.2 0.32 20.6 0.45 22.3 0.45 -------- ------ ------ ------ -------- ------ -------- ------ Guide Revenue 3.4 0.07 0.3 0.08 2.3 0.05 0.0 0.00 Late Charges 13.7 0.27 0.8 0.22 13.5 0.29 14.0 0.28 Home Shopping 10.3 0.20 1.3 0.35 14.5 0.31 7.8 0.16 FCC User Fee Pass Thru 2.1 0.04 0.1 0.03 1.8 0.04 1.8 0.04 Franchise Pass Thru 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Miscellaneous / Rent 7.0 0.14 0.5 0.14 12.7 0.27 6.0 0.12 -------- ------ ------ ------ -------- ------ -------- ------ Total Non-Service / Misc. 36.5 0.72 3.0 0.81 44.8 0.97 29.6 0.60 -------- ------ ------ ------ -------- ------ -------- ------ Advertising 68.4 1.35 6.5 1.76 67.2 1.45 69.4 1.40 -------- ------ ------ ------ -------- ------ -------- ------ Total Revenues $1,686.3 $33.30 $131.1 $35.43 $1,561.5 $33.78 $1,577.0 $31.75 ======== ====== ====== ====== ======== ====== ======== ====== % Change From Prior Year 7.99% -1.41% -0.98% 6.41% ==== ===== ===== ==== Revenue / Pay Unit / Month $6.21 $6.32 $7.12 $7.45 ===== ===== ===== =====
-43- 50 - -------------------------------------------------------------------------------- Table 3E Falcon Classic Cable Income Properties Revenue Analysis California City, California Valuation Date: December 31, 1996 - --------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual ------------------ ------------------ ------------------ ------------------- ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ------- ------ ------- ------ ------- ------ ------- ------ Revenues: Primary / Commercial $377.5 $15.85 $31.4 $15.96 $364.6 $14.92 $367.0 $14.57 Expanded Tier 131.1 5.50 10.9 5.54 136.4 5.58 145.7 5.78 ------ ------ ----- ------ ------ ------ ------ ------ Total Regulated Programming 508.6 21.35 42.3 21.50 501.0 20.50 512.7 20.35 ------ ------ ----- ------ ------ ------ ------ ------ Radio Services 6.0 0.25 0.5 0.25 6.4 0.26 7.7 0.31 Pay Cable 78.0 3.27 6.9 3.51 94.5 3.87 107.8 4.28 New Product Tier 66.2 2.78 5.0 2.54 51.2 2.10 40.8 1.62 Mini-Pay 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Pay Per View 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 ------ ------ ----- ------ ------ ------ ------ ------ Total Unregulated Programming 150.2 6.31 12.4 6.30 152.1 6.22 156.3 6.21 ------ ------ ----- ------ ------ ------ ------ ------ Remote Control 3.3 0.14 0.3 0.15 3.5 0.14 3.6 0.14 Converter Rental 50.0 2.10 4.1 2.08 54.1 2.21 55.7 2.21 Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 ------ ------ ----- ------ ------ ------ ------ ------ Total Equipment 53.3 2.24 4.4 2.24 57.6 2.36 59.3 2.35 ------ ------ ----- ------ ------ ------ ------ ------ Wire Maintenance Agreements 4.2 0.18 0.4 0.20 4.7 0.19 4.3 0.17 Installation 18.3 0.77 1.4 0.71 16.9 0.69 24.9 0.99 ------ ------ ----- ------ ------ ------ ------ ------ Total Installation / Service 22.5 0.94 1.8 0.92 21.6 0.88 29.2 1.16 ------ ------ ----- ------ ------ ------ ------ ------ Guide Revenue 1.0 0.04 0.1 0.05 0.8 0.03 0.0 0.00 Late Charges 8.1 0.34 0.6 0.31 8.7 0.36 7.9 0.31 Home Shopping 7.1 0.30 0.5 0.25 7.1 0.29 9.9 0.39 FCC User Fee Pass Thru 1.0 0.04 0.1 0.05 1.0 0.04 1.0 0.04 Franchise Pass Thru 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 Miscellaneous / Rent 0.6 0.03 0.0 0.00 3.4 0.14 0.0 0.00 ------ ------ ----- ------ ------ ------ ------ ------ Total Non-Service / Misc. 17.8 0.75 1.3 0.66 21.0 0.86 18.8 0.75 ------ ------ ----- ------ ------ ------ ------ ------ Advertising 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00 ------ ------ ----- ------ ------ ------ ------ ------ Total Revenues $752.4 $31.59 $62.2 $31.62 $753.3 $30.83 $776.3 $30.82 ====== ====== ===== ====== ====== ====== ====== ====== % Change From Prior Year -0.12% 2.45% -2.96% 0.03% ===== ==== ===== ===== Revenue / Pay Unit / Month $8.10 $8.12 $7.80 $7.28 ===== ===== ===== =====
-44- 51 The following remarks on overbuilds from Wanda Parsons, the Regional Manager, follow: Cable TV is a very competitive business in Burke County. The City of Morganton built a municipally-owned interdiction system in the early 1990's and quickly converted our customers within the city limits with their dramatically lower rates and greater channel offerings. The City is aggressively annexing more of our service area and they continue to convert virtually all of our subscribers in those areas. Additionally, TCI and Falcon have parallel lines in Valdese, Drexel and a small area in the County. They too have substantially lower rates and a comparable channel line-up. Most residents subscribe to TCI in those overbuilt areas. This competition has put further urgency on the rebuild. Burke's operating statistics as of the valuation date follow;
December 31, 1996 ----------------- Homes passed 18,986 Equivalent Billing Units (EBU's) 10,546 Penetration % 55.5% Pay Units 4,614 Pay-to-EBU's % 43.8% Plant Miles: Aerial 469 Underground 262 --------- Total 731 ========= Density (Homes/Miles) 26.0 =========
EBU and pay unit penetrations are well-below industry averages of 68.3% and 78.0% respectively. The planned plant rebuild coupled with increased marketing efforts should result in improved subscriber retention growth and revenues per subscriber particularly from ancillary revenue sources. The Region's average density of 26 homes/mile is well -45- 52 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 Burke's actual revenues for 1995 and the month of December and year 1996; and the budget for 1997. The Table shows the impact of the overbuilds and FCCIP's efforts to minimize the revenue impact. Primary/Commercial (Basic) revenues increased 6.9% between 1995 and 1996 by increasing the rates for basic and tier services offset by a 3.6% decline in EBU's. Total 1996 revenue/EBU increased 3.2% while total revenues remained essentially flat as compared to 1995. Total 1997 budgeted revenues are expected to increase 7.5% while revenues/EBU are expected to increase 9.1%. The largest year-to-year increases are expected to come from regulated basic and tier services. The Table also shows a decline in 1997 pay cable revenues. This is due in part to moving Disney from the pay category to the new product tier. Exhibit C1 presents operating cash flow statements for time periods comparable to Table 3A. Cash flow margins after an allocation of corporate expenses were 53.5% and 55.1% of revenues for 1995 and 1996 respectively. The 1997 Budget reflects a margin increase to 56%. These margins are quite high based upon our experience and discussions 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") accounts which increased cash flow margins. However, net cash flow, i.e., cash flow minus capex negates the effect of this expense capitalization policy. CENTREVILLE, MARYLAND - The Centreville Region serves its subscribers from a single headend located at Wye Mills. The plant dates back to 1978 but was upgraded to 450 -46- 53 gear spaced at 330 MHz in 1989. A rebuild has already begun in the St. Michael's portion of the Region and according to management a complete rebuild of the entire plant and headend is planned. Centreville's operating statistics as of the valuation date follow:
December 31, 1996 ----------------- Homes passed 23,857 EBU's 12,593 Penetration % 52.8% Pay Units 7,440 Pay-to-EBU's % 59.1% Plant Miles: Aerial 460.15 Underground 189.60 --------- Total 649.75 ========= Density (Homes/Miles) 36.7 =========
EBU penetration of 52.8% is well below the industry average of 68.3% and pay unit penetration of 60.4% is below the industry average of 78.0%. The Region's average density of 36.7 home/mile is well below the industry average of 105 homes/mile. Table 3B details Centreville's actual revenues for 1995, and the month of December and year 1996, as well as the 1997 budget. Total 1996 revenue/EBU rose by 10.6% and total revenue increased by nearly 15% as compared to 1995. Total budgeted 1997 revenues are expected to increase by 10.6%, while revenue/EBU are expected to increase by 6.5%. EBU's are expected to increase by nearly 700 or 5.5% by years end. -47- 54 Exhibit C2 presents operating cash flow statements for time periods comparable to Table 3B. Cash flow margins after allocated corporate expense were 39.5% in 1995 and 45.9% in 1996. The 1997 budget reflects a margin increase to 47.7%. The margin increase is due to rate increase, subscriber growth and higher capitalization of in-house labor. SOMERSET, KENTUCKY - The Somerset Region serves its subscribers from five separate headends; Burnside, Columbia, Eubank, London, and McKinney that offer between 23 and 40 channels. The plant ranges from 270 MHz to 400 MHz in capacity. It is projected that the Burnside (Somerset) area will be rebuilt in the next few years. Burnside comprises approximately 528 miles or 63% of the total of 834.5 plant miles. The London (Laurel) area has been partially rebuilt to 750 MHz in 1996, and it is expected to complete the rebuild in 1997. Somerset operating statistics as of the valuation date follows:
December 31, 1996 ----------------- Homes Passed 22,060 EBU's 19,486 Penetration % 88.3% Pay Units 3,914 Pay-to-EBU's % 20.1% Plant Miles: Aerial 816.5 Underground 18.0 -------- Total 834.5 ======== Density (Homes/Mile) 26.4 ========
EBU penetration is well above industry average of 68.3%, while the pay unit penetration of 20.1% is well below industry averages of 78.0%. The EBU penetration is reflective of the area's poor off-air reception. The planned rebuild and the continued improvement in -48- 55 the economy should result in improved revenue per subscriber, particularly from pay and ancillary revenue sources. The Region's average density of 26.4 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. Table 3C details Somerset's actual revenues for 1995 and the month of December and year 1996, and the budget for 1997. Primary/Commercial (Basic) revenue increased 6.3% on an EBU basis between 1995 and 1996. Total 1996 revenue/EBU increased 10.8% and total revenues increased 12.6% as compared to 1995. Total 1997 budgeted revenues are expected to increase 7.7% while revenue/EBU are expected to increase 7.0%. 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 50.9% in 1995 and 52.5% in 1996. The 1997 budget reflects a margin of 48.5%. The major area of increased costs is the technical category which has increased costs to accommodate the projected rebuild. Also, Somerset's 1996 margin is 1% point higher than normal due to one-time payments from programmers to insure carriage. These include Disney, Home Shopping, QVC, and Sci-Fi among others. These margins are approximately at levels that other cable systems with these characteristics would exhibit. REDMOND, OREGON - The Redmond System serves its subscribers from one headend that offers 32 channels. The plant is predominantly 270 MHz, with a portion at 450 MHz. The plant was built in 1965 and upgraded over the years, but needs to be rebuilt, especially in the light of competition from MMDS operators. The System has not been -49- 56 scheduled for a rebuild in the next few years, however, the appraisers have assumed a rebuild in our cash flow projections. Redmond's operating statistics as of the valuation date follows:
December 31, 1996 ----------------- Homes Passed 7,252 EBU's 3,679 Penetration % 50.7% Pay Units 706 Pay-to-EBU's % 19.2% Plant Miles: Aerial 116.0 Underground 54.0 -------- Total 170.0 ======== Density (Homes/Mile) 42.7 ========
The Redmond System has been losing both basic and pay units in recent years due to a very strong MMDS competitor (American Telecasting) and DTH installations. EBU's in 1995 were 4,025, a decline of 8.6% in 1996. Pay units were 979 in 1995, a decline in 1996 of 27.9%. This has led to EBU and pay unit penetration of 50.7% and 19.2% respectively, well-below the industry average of 68.3% and 78.0% respectively. The appraiser projected rebuild combined with increased marketing should result in improved subscriber growth. According to System management, financial constraints did not permit the System to compete for the majority of new homes built in the System's franchise area in the past year or more. This is to be rectified in 1997 and the System is optimistic it can capture the majority of new built homes due to superior programming and picture quality. The System's average density of 42.7 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. -50- 57 Table 3D details Redmond's actual revenues for 1995 and the month of December and year 1996, and the budget for 1997. Primary/Commercial (Basic) revenue increased 5.9% on an EBU basis between 1995 and 1996. Total 1996 revenue/EBU increased approximately 6.4% and total revenues declined 1% as compared to 1995, due to loss of EBU's and pay units. Total 1997 budgeted revenues are expected to increase 8.0% while revenues/EBU are expected to decrease 1.4%. Exhibit C4 presents operating cash flow statements for time periods comparable to Table 3D. Cash flow margins after allocated corporate expense were 52.4% and 55.8% in 1995 and 1996 respectively after a reduction of 3.7% from before allocation margins. The 1997 budget reflects a margin of 51.1%, with virtually all the increased expense in the technical category. These margins are high based upon our experience. Factors which contribute to these historically 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. CALIFORNIA CITY, CALIFORNIA - The California City System serves subscribers from a single headend, with a capacity of 300 MHz and offering 41 channels. The system was upgraded in 1982. A rebuild has not been projected for the system. System management believes that channel capacity and picture quality are adequate for the foreseable future. -51- 58 California City's operating statistics as of the valuation date follows:
December 31, 1996 ----------------- Homes Passed 2,858 EBU's 1,960 Penetration % 68.6% Pay Units 839 Pay-to-EBU's % 42.8% Plant Miles: Aerial 79.0 Underground 11.1 --------- Total 90.1 ========= Density (Homes/Mile) 31.7 =========
EBU penetration is equal to and pay unit penetration is well-below industry averages of 68.3% and 78.0% respectively. Density of 31.7 homes/mile is extremely low. Table 3E details California City's actual revenue for 1995 and the month of December and year 1996; and the 1997 budget. Primary (Basic) revenue/EBU increased by 2.5% while total revenues/EBU was flat compared to 1995. Total 1997 revenues are expected to be flat compared to 1996. Exhibit B5 presents operating cash flow statements for time periods comparable to Table E. Cash flow margins after allocation of corporate expenses were 54.1% and 49.6% for 1996 and 1995 respectively. The projected 1997 margin is 49.6%. The areas of increased expense are technical and marketing. The appraisers have utilized a projected 1997 margin of 54%, in line with the 1996 margin. A rebuild is not scheduled, therefore not necessitating the increased technical costs. Subscriber losses were due to the closing of Edwards Air Force Base, not competitive pressure, therefore eliminating the need for increased marketing costs. -52- 59 FAIR MARKET VALUATION OF THE REGIONS AND SYSTEMS THAT COMPRISE FALCON CLASSIC CABLE INCOME PROPERTIES, A CALIFORNIA LIMITED PARTNERSHIP AS OF DECEMBER 31, 1996 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 FCCIP. 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 FCCIP 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 as discussed above, but rejected as inappropriate. -53- 60 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 and Systems 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 and System. In determining each Region's and System's operating cash flows, the appraisers 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 and System 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 -54- 61 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.7 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 appraisers considered various factors, such as competition, demographics, geography, clustering, etc. in arriving at FCCIP'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. _______________________________ 7Stocks, Bonds, Bills and Inflation 1996 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 -55- 62 TABLE 4 WEIGHTED AVERAGE COST OF CAPITAL FALCON CLASSIC CABLE INCOME PROPERTIES AS OF DECEMBER 31, 1996 Cost of Equity Risk Free Rate (10-Year Treasury Securities Composite; December 26, 1996; Source: Value Line) 6.33% Equity Risk Premium Intermediate-Term (Entire Market) 7.80% (Ibbotson Associates, 1995) Market Beta CATV Stocks x 1.60 ------ Adjusted Equity Risk Premium 12.48% -------- Small Stock Premium (Ibbotson Associates, 1996) 3.60% Unsystematic Risk - Company Specific 5.00% ======== Cost of Equity 27.41% ======== Cost of Debt Kagan High Yield Media Bonds 10.23% Less Tax Effect (at 35%) 3.58% After Tax Cost of Debt 6.65% ========= Weighting % % of Capital Weighted Cost Return Structure of Capital ------ --------- ---------- Equity 27.41% 40% 10.96% Debt 6.65% 60% 3.99% -------- Weighted Average Cost of Capital 14.95% ======== Rounded to 15.00% ========
-56- 63 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 October 15, 1996, reported a yield to maturity for high yield cable bonds of 10.23%. Cable TV Investor tracked a large number of cable bonds providing a cable high-yield bond average. The appraisers 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 FCCIP is shown in Table 4. The weighted average cost of capital for FCCIP was 15% (rounded). Beyond the projection horizon, each Region and System 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 appraisers selected a residual multiple of 8.0 for each Region and System. 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. The value indications, under the income approach from Exhibit E, for 100% of the assets for each Region and System of FCCIP as of December 31, 1996 were as follows: -57- 64 Burke County $ 19,960,000 ================= Centreville $ 23,800,000 ================= Somerset $ 33,230,000 ================= Redmond $ 7,770,000 ================= California City $ 3,530,000 =================
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 appraisers 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. 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, -58- 65 to complete a valid comparative analysis the following variables would need 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 and System. 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 appraisers reviewed the cable television transaction market, as reported in Cable TV Investor (Paul Kagan Associates) and selected the transactions of between 1,000 and 10,000 subscribers for comparisons to Redmond and California City and between 10,000 and 30,000 subscribers for comparisons to Burke, Centreville, and Somerset, announced between July 31, 1996 and December 31, 1996 (Table 5). The weighted average multiples and standard deviations are as follows: -59- 66 TABLE 5A Market Approach Valuation Date 1996 Announced/Proposed Cable System Sales (less than 10,000 subscribers)
PRICE HOMES LOCATION STATE SELLER BUYER (MIL) PASSED - -------- ----- ------ ----- ----- ------ DAVIDSON, WILLIAMSON TN CABLEVISION INTERMEDIA PRTNRS. $1.7 1.5 CLINTON COUNTY KY CLINTON CABLE ROY L. BAKER 1.4 1.9 BROOKHAVEN MS FUTUREVISION MARCUS CABLE 2.6 5.5 FRANKFORT IN FRANKFORT CABLE MARCUS CABLE 6.7 8.0 & DAYTON OH NH ME PHOENIX GRASSRTS FRONTIERVISION 9.6 11.3 CHARTSWORTH, ETON GA FRONTIERVISION HELICON PRTNRS. I LP 8.6 7.0 WOODSTOCK, NEW MKT. VA FRONTIERVISION SHENANDOAH CBL. 8.5 6.2 PA OH SRW INC PA/OH CBL. FRONTIERVISION 3.8 5.3 ROSENBERG TX JONES SPACELINK TCI 5.5 8.3 CHESTERFIELD NH GATEWAY CVISION PINE STATE 2.9 4.0 VAN BUREN ET AL. AR CLASSIC CABLE TCA 9.6 9.0 BOGART, WATKINSVILLE GA OCB INTERMEDIA 8.3 7.0 OH, IN, PA NORTHERN OHIO FANCH 9.4 12.1 CENTRAL/NORTHERN NH PEGASUS CABLE STATE CABLE TV 7.2 6.1 MOCKSVILLE NC FRIENDSHIP GENESIS CABLE 7.8 10.0 N. BREVARD FL BREVARD GENESIS CABLE 1.6 2.6 ROBESON COUNTY NC GWC PROPERTIES GENESIS CABLE 2.5 3.8 TOTALS / SIMPLE AVERAGES $97.7 109.5
BASIC CASH SUBS % FLOW PROJ LOCATION STATE SELLER BUYER (000) PEN. VPS ($000s) CFx - -------- ----- ------ ----- --- ---- ----- ------- ----- DAVIDSON, WILLIAMSON TN CABLEVISION INTERMEDIA PRTNRS. 1.3 87.0% $1,283 $212.5 8.0 CLINTON COUNTY KY CLINTON CABLE ROY L. BAKER 1.3 70.0% 1,111 197.2 7.1 BROOKHAVEN MS FUTUREVISION MARCUS CABLE 2.4 44.0% 1,079 346.7 7.5 FRANKFORT IN FRANKFORT CABLE MARCUS CABLE 5.6 70.0% 1,196 705.3 9.5 & DAYTON OH NH ME PHOENIX GRASSRTS FRONTIERVISION 7.0 62.0% 1,371 1,142.9 8.4 CHARTSWORTH, ETON GA FRONTIERVISION HELICON PRTNRS. I LP 5.7 81.0% 1,509 1,048.8 8.2 WOODSTOCK, NEW MKT. VA FRONTIERVISION SHENANDOAH CBL. 5.0 81.0% 1,700 904.3 9.4 PA OH SRW INC PA/OH CBL. FRONTIERVISION 3.3 62.0% 1,152 506.7 7.5 ROSENBERG TX JONES SPACELINK TCI 2.9 35.0% 1,896 509.3 10.8 CHESTERFIELD NH GATEWAY CVISION PINE STATE 2.5 63.0% 1,170 367.1 7.9 VAN BUREN ET AL. AR CLASSIC CABLE TCA 8.0 89.0% 1,199 1,185.2 8.1 BOGART, WATKINSVILLE GA OCB INTERMEDIA 6.3 90.0% 1,333 1,024.7 8.1 OH, IN, PA NORTHERN OHIO FANCH 6.8 56.0% 1,387 1,132.5 8.3 CENTRAL/NORTHERN NH PEGASUS CABLE STATE CABLE TV 4.6 75.0% 1,572 757.9 9.5 MOCKSVILLE NC FRIENDSHIP GENESIS CABLE 7.4 74.0% 1,057 1,114.3 7.0 N. BREVARD FL BREVARD GENESIS CABLE 1.6 62.0% 1,013 228.6 7.0 ROBESON COUNTY NC GWC PROPERTIES GENESIS CABLE 2.5 66.0% 1,015 347.2 7.2 TOTALS / SIMPLE AVERAGES 74.2 68.6% 1,297 $11,730.9 8.2 WEIGHTED AVERAGES 67.7% 1,317 8.3 STANDARD DEVIATION 252 1.1 SIMPLE AVERAGE RANGE WITHIN 1 STANDARD DEVIATION - HIGH 1,548 9.3 SIMPLE AVERAGE RANGE WITHIN 1 STANDARD DEVIATION - LOW 1,045 7.1
-60- 67 TABLE 5B Market Approach Valuation Date 1996 Announced/Proposed Cable System Sales (between 10,000 - 50,000 subscribers)
BASIC CASH PRICE HOMES SUBS % FLOW PROJ LOCATION STATE SELLER BUYER (MIL) PASSED (000) PEN. VPS ($000) CFx - -------- ----- ------ ----- ----- ------ ----- ---- --- ------ ---- SAN FRAN BAY AREA CA BALKIN CABLE TCI OF GA $19.6 24.1 12.3 51.0% $1,594 $2,227.3 8.8 SUMMERVILLE,TRENTON GA CLEAR-VU CABLE HELICON 18.2 15.0 12.3 82.0% 1,530 2,246.9 8.1 & DAYTON OH MOSES LAKE WA MARCUS CABLE NORTHLAND COMM. 20.0 15.1 12.5 83.0% 1,568 2,105.3 9.5 ANAHEIM, ORANGE CO. CA JONES PRTNRS. II CENTURY COMM. 36.0 24.3 17.0 70.0% 2,102 3,428.6 10.5 PALM COAST FL BENCHMARK COMM. MOFFAT COMM. 29.7 12.3 10.0 81.0% 2,965 3,228.3 9.2 ALBUQUERQUE, SW WA, NM CLASSIC CABLE CAMBRIDGE 22.9 22.8 13.0 57.0% 1,760 2,694.1 8.5 NWEST OR BROOMFIELD CO. JONES INTERCABLE TCI 33.8 28.9 18.5 64.0% 1,825 3,557.9 9.5 OK-EASTERN AREAS TX MISSION CABLE TW/FANCH-ONE 31.2 48.2 27.0 56.0% 1,156 4,105.3 7.6 ROSEVILLE CA JONES 87-A ROSEVILLE CABLE 31.0 21.9 16.0 73.0% 1,938 3,039.2 10.2 EVERGREEN ET AL CO JONES INTERCABLE TCI 43.2 31.3 26.0 83.0% 1,662 4,547.4 9.5 TOTALS / SIMPLE AVERAGES $285.6 244.0 164.6 70.0% $1,810 $31,180.1 9.1 ====== ===== ===== ===== ====== ========= ==== WEIGHTED AVERAGES 67.5% $1,735 9.2 ===== ====== ==== STANDARD DEVIATION $480 0.9 ====== ==== SIMPLE AVERAGE RANGE WITHIN 1 STANDARD DEVIATION - HIGH $2,290 10.0 ====== ==== SIMPLE AVERAGE RANGE WITHIN 1 STANDARD DEVIATION - LOW $1,330 8.2 ====== ====
-61- 68
Standard Multiple Deviation Less than 10,000 Subscribers: Price/Subscriber $1,317 $252 ====== ==== Price/Cash Flow 8.3 1.1 === === Over 10,000 Subscribers: Price/Subscriber $1,735 $480 ====== ==== Price/Cash Flow 9.2 0.9 === ===
The standard deviations for the subscriber and cash flow multiples indicate that the multiples can vary between 19% and 28% and 13% and 10% 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.
Burke California Multiple County Centreville Somerset Redmond City - -------- ------ ----------- -------- ------- ---- ($000s) < 10K Subs Price/EBU $1,317 > 10K Subs Price/EBU $1,735 12/31/96 EBU's 10,546 12,593 19,406 3,679 1,960 Price/EBU Value Indicator $18,297 $21,849 $33,808 $4,845 $2,581 < 10K Subs Price/Cash Flow 8.3x > 10K Subs Price/Cash Flow 9.2x 1997 or Year One Cash Flow $3,120.7 $2,925.2 $4,106.2 $913.3 $415.4 Price/Cash Flow Value Indicator $28,710 $26,912 $37,777 $7,580 $3,448
-62- 69 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 and System's assets under the market approach as of December 31, 1996 was (rounded): Burke County $ 26,107,000 ================= Centreville $ 25,646,000 ================= Somerset $ 36,785,000 ================= Redmond $ 6,897,000 ================= California City $ 3,231,000 =================
Correlation and Conclusion The valuation indicators, as of the valuation date, under the income and market approaches follow as of December 31, 1996:
Burke California County Centreville Somerset Redmond City ------- ----------- -------- ------- ---- Income $19,960,000 $23,800,000 $33,230,000 $7,770,000 $3,530,000 =========== =========== =========== ========== ========== Market $26,107,000 $25,646,000 $36,785,000 $6,897,000 $3,231,000 =========== =========== =========== ========== ==========
The appraisers 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. -63- 70 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. The market approach, using market derived multiples, is a much less reliable method to value the Regions and Systems 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 Systems of FCCIP as of December 31, 1996 were (rounded): Burke County $ 20,570,000 ================== Centreville $ 23,980,000 ================== Somerset $ 33,590,000 ================== Redmond $ 7,680,000 ================== California City $ 3,500,000 ==================
-64- 71 APPRAISAL CERTIFICATE The determination of the fair market value of 100% of the assets of the Regions and Systems comprising Falcon Classic Cable Income Properties serving portions of the states of North Carolina, Maryland, Kentucky, Oregon, and California 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, 1996. 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 November 11 and 13, 1996. The Systems (Redmond and California City) were not visited. No investigation has been made of the title to or the liabilities against the assets which have been appraised. -65- 72 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 otherwise referred to or disseminated to any other person, entity or government agency without the prior written consent of 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 March 10, 1997 -66- 73 EXHIBIT A PHOTOGRAPHS 74 [BURKE REGION OFFICE PICTURE] [BURKE HEADEND PICTURE] -68- 75 [WYE - MILLS HEADEND, 300' GUYED TOWER PICTURE] [CENTERVILLE REGION OFFICE PICTURE] -69- 76 EXHIBIT B REGION AND SYSTEM OPERATING STATISTICS 77 - -------------------------------------------------------------------------------- Falcon Classic Cable Income EXHIBIT B1 Operating Statistics Properties, L.P. Valuation Date: Burke, NC December 31, 1996 - --------------------------------------------------------------------------------
1996 Pay Homes Passed Basic Subscribers EBU's 1996 Units ------------------------- ---------------------------- FCC EBU Pay Pay/ % Chg 1996 1995 % Chg. 1996 1995 % Chg. Method Pene Units EBUs v. 95 ------ ------ ------ ------ ------- ------ -------- ----- ------ ----- ------ Burke County 15,528 15,020 3.4% 9,233 9,652 -4.3% 9,255 59.6% 4,045 43.7% -34.5% Valdese 1,377 1,097 25.5% 527 503 4.8% 527 38.3% 220 41.7% -25.9% Drexel 653 653 0.0% 178 180 -1.1% 178 27.3% 93 52.2% -29.5% Glen Alpine 514 514 0.0% 142 152 -6.6% 142 27.6% 52 36.6% -35.8% Rutherford College 432 432 0.0% 136 139 -2.2% 144 33.3% 72 50.0% -30.1% Connelly Springs 482 482 0.0% 300 282 6.4% 300 62.2% 132 44.0% -20.0% ------ ------ ---- ------ ------ ---- ------ ---- ----- ---- ----- Total Burke 18,986 18,198 4.3% 10,516 10,908 -3.6% 10,546 55.5% 4,614 43.8% -33.6% ======= ====== ==== ====== ====== ==== ====== ==== ===== ==== =====
Franchise Plant Miles ------------------------- --------------------------------------------- 1996 Channel Address- Life Aerial UG Total '96 1995 % Chg. Density Capacity able Fee Expiration (Yrs) ------ ------ --------- ------ ------ ------- -------- -------- ---- ---------- ----- Burke County 404.64 229.43 634.07 631.69 0.4% 24.5 43 Yes 3% Jun-98 1.4 Valdese 15.99 18.32 34.31 32.35 6.1% 40.1 43 Yes 5% Jun-2007 10.5 Drexel 8.92 4.91 13.83 13.83 0.0% 47.2 43 Yes 5% Feb-2005 8.1 Glen Alpine 8.50 5.81 14.31 14.31 -0.0% 35.9 43 Yes 3% Oct-98 1.8 Rutherford College 17.19 0.68 17.87 17.87 0.0% 24.2 43 Yes 5% Oct-2001 4.8 Connelly Springs 13.45 3.28 16.73 16.73 0.0% 28.8 43 Yes 3% Oct-99 2.8 ------ ------ ------ ------ ---- ---- --- Total Burke 468.69 262.43 731.12 726.78 0.6% 26.0 3.2% ====== ====== ====== ====== ==== ==== ===
-71- 78 - ------------------------------------------------------------------------------ Falcon Classic Cable EXHIBIT B2 Operating Statisics Income Properties, L.P. Valuation Date: Centreville, MD December 31, 1996 - ------------------------------------------------------------------------------
1996 Pay Homes Passed Basic Subscribers EBU's 1996 Units ---------------------------------------------------- FCC EBU Pay Pay/ % Chg 1996 1995 % Chg. 1996 1995 % Chg. Method Pene Units EBUs v. 95 ----- ----- ----- ----- ----- ------ ----- ----- ---- ----- ------ Kent County 2,154 2,120 0.016 701 670 0.05 701 0.325 450 0.642 -0.19 Betterton 219 219 0 93 91 0.02 93 0.425 40 0.43 -0.22 Rock Hall 1,073 1,073 0 405 394 0.03 450 0.419 235 0.58 -0.2 Chestertown 1,404 1,396 0.006 1,212 1,231 -0.0 1,347 0.959 727 0.6 -0.07 Millington 215 215 0 176 169 0.04 176 0.819 115 0.653 -0.23 Templeville 44 44 0 18 19 -0.1 18 0.409 6 0.333 -0.4 Sudlersville 201 201 0 83 81 0.03 83 0.413 52 0.627 -0.09 Church Hill 203 203 0 95 97 -0.0 0 0 68 0.716 -0.16 Centreville 819 819 0 494 483 0.02 517 0.631 265 0.536 -0.18 Queenstown 240 220 0.091 167 147 0.14 167 0.696 103 0.617 -0.21 Queen Anne's County 10,964 10,682 0.026 5,805 5,519 0.05 5,873 0.536 3818 0.658 -0.12 St. Michaels 1,101 1,101 0 493 480 0.03 516 0.469 297 0.602 -0.13 Rio Vista 0 0 0 197 178 0.11 220 n/a 136 0.69 -0.05 Talbot County 4,253 4,237 0.004 1,569 1,542 0.02 1,592 0.374 690 0.44 -0.22 Barclay 56 56 0 47 52 -0.01 47 0.839 23 0.489 -0.34 Oxford 499 499 0 427 407 0.05 450 0.902 169 0.396 -0.16 Trappe 412 412 0 343 333 0.03 343 0.833 246 0.717 -0.05 ------ ------ ----- ------ ------ ---- ------ ----- ----- ----- ----- Total Centreville 23,857 23,497 0.015 12,325 11,893 0.04 12,593 0.528 7,440 0.604 -0.14 ====== ====== ===== ====== ====== ==== ====== ===== ===== ===== =====
Franchise Plant Miles ------------------------- ------------------------------------------------ 1996 Address- Life Aerial UG Total '96 1995 % Chg. Density able Fee Expiration (Yrs) ------ ---- --------- ----- ------ ------- -------- --- ---------- ----- Kent County 27.57 9.9 37.47 36.66 0.022 57.5 No 1.4 Betterton 3.32 0.04 3.36 3.36 0 65.2 No 10.5 Rock Hall 22.85 1.09 23.94 23.94 0 44.8 No 8.1 Chestertown 25.33 6.1 31.43 31.23 0.006 44.7 No 1.8 Millington 2.69 0.24 2.93 2.93 0 73.4 No 4.8 Templeville 0.72 0.07 0.79 0.79 0 55.7 No 2.8 Sudlersville 3.03 0.74 3.77 3.77 0 53.3 No 2.8 Church Hill 3.05 0.48 3.53 3.53 0 57.5 No 2.8 Centreville 11.12 1.21 12.33 12.33 0 66.4 No 2.8 Queenstown 4.15 0.66 4.81 4.2 0.145 49.9 No 2.8 Queen Anne's County 208.4 109.9 318.3 306.7 0.038 34.4 No 2.8 St. Michaels 7.34 5.03 12.37 12.37 0 89 No 2.8 Rio Vista 0 0 0 0 0 n/a No 2.8 Talbot County 128.7 49.14 177.8 177.2 0.003 23.9 No 2.8 Barclay 1.22 0 1.22 1.22 0 45.9 No 12.2 Oxford 5.85 1.62 7.47 7.47 0 66.8 No 2.8 Trappe 4.81 3.34 8.15 8.15 0 50.6 No 2.8 ----- ----- ----- ----- ----- ---- Total Centreville 460.2 189.6 649.8 635.9 0.022 36.7 No 100%/96-99 ===== ===== ===== ===== ===== ====
* Indicated capacity is 61 channels however plant spaced at 330 MHz with 450MHz gear. ** Rebuild per Falcon Rebuild Projection (8/6/96). Portion of H/E service area to be rebuilt/ Yr.(s) of rebuild. -72- 79 - -------------------------------------------------------------------------------- Falcon Classic Cable EXHIBIT B3 Operating Statistics Income Properties Valuation Date: Somerset, Kentucky December 31, 1996 - --------------------------------------------------------------------------------
Homes Passed --------------------------- '96-'95 1996 1995 1994 % Chg. ---- ---- ---- ------ Somerset 4,890 4,890 4,890 0.0% Pulaski Co. (Somerset) 4,269 4,269 4,336 0.0% Science Hill 809 809 809 0.0% Lincoln Co. (Eubank) 618 618 618 0.0% Eubank 438 438 438 0.0% Pulaski Co. (Eubank) 230 230 230 0.0% Burnside 299 299 299 0.0% Pulaski Co. (Burnside) 4,275 4,275 4,275 0.0% Ferguson 366 366 366 0.0% Woodson Bend 454 454 454 0.0% Lincoln Co. (McKinney) 316 316 316 0.0% SOMXPC 229 229 229 0.0% Laurel County 2,263 2,218 2,256 2.0% Clay County 57 57 57 0.0% Columbia 1,529 1,529 1,529 0.0% Adair County 1,018 1,018 1,018 0.0% ----- ----- ----- ---- Total Somerset 22,060 22,015 22,120 0.2% ===== ===== ===== ====
1996 Pay Basic Subscribers EBU's 1996 Units -------------------------- '96-'95 FCC EBU Pay Pay/ % Chg. 1996 1995 1994 % Chg. Method Pene Units EBUs v. 95 ---- ---- ---- ------ ------ ---- ----- ---- ------ Somerset 3,867 3,972 3,927 -2.6% 3,924 731 18.6% -40.3% Pulaski Co. (Somerset) 3,502 3,439 3,302 1.8% 3,529 82.7% 599 17.0% -23.4% Science Hill 630 637 624 -1.1% 635 78.5% 80 12.6% -23.1% Lincoln Co. (Eubank) 474 501 493 -5.4% 474 76.7% 162 34.2% -16.1% Eubank 289 287 281 0.7% 289 66.0% 74 25.6% -18.7% Pulaski Co. (Eubank) 129 121 123 6.6% 129 56.1% 32 24.8% -25.6% Burnside 251 254 257 -1.2% 270 90.3% 47 17.4% -33.8% Pulaski Co. (Burnside) 4,645 4,580 4,358 1.4% 4,688 109.7% 866 18.5% -25.8% Ferguson 298 304 302 -2.0% 298 81.4% 38 12.8% -35.6% Woodson Bend 346 353 370 -2.0% 346 76.2% 17 4.9% -43.3% Lincoln Co. (McKinney) 302 298 284 1.3% 302 95.6% 47 15.6% -17.5% SOMXPC 189 183 191 3.3% 189 82.5% 41 21.7% -10.9% Laurel County 1,762 1,728 1,681 2.0% 1,762 77.9% 309 17.5% -18.5% Clay County 47 48 51 -2.1% 47 82.5% 14 29.8% -22.2% Columbia 1,461 1,475 1,481 -0.9% 1,500 98.1% 501 33.4% -7.2% Adair County 1,104 1,046 925 5.5% 1,104 108.4% 356 32.2% -2.5% ------ ------ ------ ----- ------ ------ ----- ----- ------ Total Somerset 19,296 19,226 18,650 0.4% 19,486 88.3% 3,914 20.1% -24.3% ====== ====== ====== ===== ====== ====== ===== ===== ======
Plant Miles ------------------------------------------------------- Aerial UG 1996 1995 % Chg. ------ -- ---- ---- ------ Somerset 74.00 1.00 75.00 75.00 0.0% Pulaski Co. (Somerset) 182.50 0.00 182.50 182.50 0.0% Science Hill 29.50 0.00 29.50 29.50 0.0% Lincoln Co. (Eubank) 30.00 1.00 31.00 31.00 0.0% Eubank 16.00 0.00 16.00 16.00 0.0% Pulaski Co. (Eubank) 19.00 0.00 19.00 19.00 0.0% Burnside 12.00 0.00 12.00 12.00 0.0% Pulaski Co. (Burnside) 185.00 0.00 185.00 185.00 0.0% Ferguson 14.00 8.00 22.00 22.00 0.0% Woodson Bend 5.00 8.00 13.00 13.00 0.0% Lincoln Co. (McKinney) 19.00 0.00 19.00 19.00 0.0% SOMXPC 9.00 0.00 9.00 9.00 0.0% Laurel County 116.50 0.00 116.50 113.50 2.6% Clay County 3.00 0.00 3.00 3.00 0.0% Columbia 39.00 0.00 39.00 39.00 0.0% Adair 63.00 0.00 63.00 63.00 0.0% ------ ----- ------ ------ ---- Total Somerset 816.50 18.00 834.50 831.50 0.4% ====== ===== ====== ====== ====
Franchise -------------------------------- 1996 Channel Address- Life Density Capacity able Rebuild Fee Expiration (Yrs) ------- -------- -------- ------- --- ---------- ----- Somerset 65.2 40 No 3% Feb-96 (0.9) Pulaski Co. (Somerset) 23.4 40 No 3% Oct-2008 11.8 Science Hill 27.4 40 No 3% n/a Lincoln Co. (Eubank) 19.9 36 No 3% Sep-98 1.7 Eubank 27.4 36 No 3% Sep-98 1.7 Pulaski Co. (Eubank) 12.1 36 No 3% Sep-98 1.7 Burnside 24.9 52 Yes '97 - 99 3% Jun-99 2.4 Pulaski Co. (Burnside) 23.1 52 Yes '97 - 99 3% Jun-99 2.4 Ferguson 16.6 52 Yes '97 - 99 3% Nov-2008 11.9 Woodson Bend 34.9 52 Yes '97 - 99 3% Sep-98 1.7 Lincoln Co. (McKinney) 16.6 52 Yes '97 - 99 3% May-2007 10.3 SOMXPC 25.4 40 No 3% n/a Laurel County 19.4 24 No 1997 5% May-2008 11.4 Clay County 19.0 24 No 3% n/a Columbia 39.2 52 No 3% - 5% Aug-2011 14.7 Adair 16.2 52 No 3% May-2005 8.4 ---- Total Somerset 26.4 ====
-73- 80 - ------------------------------------------------------------------------------- Falcon Classic Cable EXHIBIT B4 Operating Statisics Income Properties Valuation Date: Redmond, Oregon December 31, 1996 - -------------------------------------------------------------------------------
Homes Passed Basic Subscribers 1996 Pay ------------------------------- ------------------------------ EBU's 1996 Units '96-'95 '96-'95 FCC EBU Pay Pay/ % Chg. 1996 1995 1994 % Chg. 1996 1995 1994 % Chg. Method Pene Units EBUs v. 95 ---- ---- ---- ------ ---- ---- ---- ------- ------ ---- ----- ----- ----- Redmond 7,252 6,881 6,487 5.4% 2,367 2,573 2,684 -8.0% 2,461 33.9% 446 18.1% -28.9% Deschutes County 0 0 0 0.0% 1,149 1,260 1,378 -8.8% 1,218 n/a 260 21.3% -26.1% ----- ----- ----- ---- ----- ----- ----- ----- ----- ---- --- ----- ----- Total Redmond 7,252 6,881 6,487 5.4% 3,516 3,833 4,062 -8.3% 3,679 50.7% 706 19.2% -27.9% ===== ===== ===== ==== ===== ===== ===== ===== ===== ==== === ===== =====
Plant Miles Franchise ----------------------------------------- ----------------------- 1996 Channel Address- Life Aerial UG 1996 1995 % Chg. Density Capacity able Rebuild Fee Expiration (Yrs) ------ -- ---- ---- ------ ------- -------- ---- ------- --- ---------- ----- Redmond 116.00 54.00 170.00 162.00 4.9% 42.7 32 yes '98 - '99 1% Feb-2002 5.2 Deschutes County 0.00 0.00 0.00 0.00 0.0% 0.0 32 yes '98 - '99 ------ ----- ------ ------ ---- ----
-74- 81 - ------------------------------------------------------------------------------- Falcon Classic Cable EXHIBIT B5 Operating Statisics Income Properties Valuation Date: California City, California December 31, 1996 - -------------------------------------------------------------------------------
Homes Passed Basic Subscribers 1996 Pay --------------------------------- -------------------------------- EBU's 1996 Units '96-'95 '96-'95 FCC EBU Pay Pay/ % Chg 1996 1995 1994 % Chg. 1996 1995 1994 % Chg. Method Pene Units EBU's v. 95 ----- ----- ----- ------ ----- ----- ----- ------ ------ ---- ----- ----- ------ California City 2,858 2,858 2,707 0.0% 1,922 2,097 2,075 -8.3% 1,960 68.6% 839 42.8% -28.9% ----- ----- ----- --- ----- ----- ----- ---- ----- ---- --- ---- ----- Total California City 2,858 2,858 2,707 0.0% 1,922 2,097 2,075 -8.3% 1,960 68.6% 839 42.8% -28.9% ===== ===== ===== === ===== ===== ===== ==== ===== ==== === ==== =====
Franchise Plant Miles ------------------------ ------------------------------------------ 1996 Channel Address- Life Aerial UG 1996 1995 % Chg. Density Capacity able Rebuild Fee Expiration (Yrs) ------ ----- ----- ----- ------ ------- -------- -------- ------- --- ---------- ----- California City 79.02 11.10 90.12 90.12 0.0% 0.0 41 yes no Apr-2001 4.3 ----- ----- ----- ----- ---- --- Total California City 79.02 11.10 90.12 90.12 -0.0% 31.7 ===== ===== ===== ===== ==== ====
-75- 82 EXHIBIT C REGION AND SYSTEM CASH FLOW STATEMENTS 83 - -------------------------------------------------------------------------------- EXHIBIT C1 Falcon Classic Cable Income Operating Cash Flow: Actual & Budget Properties, L.P. Burke, NC Valuation Date: December 31, 1996 - --------------------------------------------------------------------------------
1997 Budget Dec 1996 Actual 1996 Actual -------------------- ------------------- ------------------- ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. -------- --------- ------ ---------- ------- --------- Revenues: Primary 2,211.7 40.5% $178.4 40.9% $2,042.6 40.2% Commercial 8.5 0.2% 0.7 0.2% 8.5 0.2% Expanded Tier 0.0 0.0% 0.0 0.0% 0.0 0.0% AL Tier 688.0 12.6% 56.4 12.9% 574.9 11.3% ------- ----- ------- Total Reg. Prog. 2,908.3 53.3% 235.5 54.0% 2,626.0 51.7% Radio Services 34.7 0.6% 2.9 0.7% 39.2 0.8% Pay Cable - 1st Outlet 387.4 7.1% 35.6 8.2% 495.3 9.8% Pay Cable - Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0% New Product Tier - 1 1,081.6 19.8% 81.7 18.7% 892.1 17.6% Commercial Pay 0.0 0.0% 0.0 0.0% 0.0 0.0% Mini-Pay 9.4 0.2% 0.8 0.2% 10.3 0.2% Mini-Pay - Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0% Pay Per View 128.7 2.4% 7.3 1.7% 104.0 2.0% ------- ----- ------- Total Unreg. Prog. 1,641.8 30.1% 128.2 29.4% 1,540.9 30.3% Primary Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0% Remote Control 3.9 0.1% 0.3 0.1% 4.1 0.1% Converter Rental 463.7 8.5% 38.3 8.8% 472.3 9.3% Other - VCR 0.0 0.0% 0.0 0.0% 0.0 0.0% ------- ----- ------- Total Equipment 467.6 8.6% 38.7 8.9% 476.5 9.4% Wire Maint. Agreements 68.4 1.3% 5.7 1.3% 68.2 1.3% New Cust. - Pay Installs 0.0 0.0% 0.0 0.0% 0.0 0.0% New Cust. - Basic Installs 93.3 1.7% 1.0 0.2% 17.6 0.3% Install Mat'l Charge 0.0 0.0% 0.0 0.0% 1.1 0.0% Installs - Non New Cust. 0.0 0.0% 3.3 0.8% 68.3 1.3% ------- ----- ------- Total Install/Service 161.7 3.0% 10.1 2.3% 155.2 3.1% Guide Revenue 21.7 0.4% 1.7 0.4% 22.8 0.4% Late Charges 56.5 1.0% 4.4 1.0% 57.2 1.1% Rent 3.2 0.1% (0.3) -0.1% 2.7 0.1% Franchise Pass Thru 0.0 0.0% 0.0 0.0% 0.0 0.0% Miscellaneous 0.0 0.0% 0.0 0.0% 16.5 0.3% Shopping Net Car. Fee 0.0 0.0% 0.0 0.0% 0.0 0.0% FCC User Fee Pass Thru 5.8 0.1% 0.4 0.1% 5.3 0.1% QVC Monthly Comm. 16.7 0.3% 0.9 0.2% 16.7 0.3% QVC Carriage Payment 13.0 0.2% 0.0 0.0% 12.2 0.2% HSN Monthly Comm. 9.6 0.2% 0.2 0.1% 9.6 0.2% HSN Carriage Payment 0.0 0.0% 0.0 0.0% 0.0 0.0% ------- ----- ------- Total Non-Service/Misc. 126.5 2.3% 7.5 1.7% 142.9 2.8% Advertising 152.7 2.8% 16.5 3.8% 136.4 2.7% ------- ----- ------- Total Revenues 5,458.5 100.0% 436.4 100.0% 5,077.8 100.0% ======= ===== ===== ===== ======= =====
1995 Actual 1994 Actual -------------------- ------------------- ($000) % to Rev. ($000) % to Rev. -------- ---------- -------- --------- Revenues: Primary $2,040.1 40.4% $2,064.9 40.6% Commercial 8.8 0.2% 5.3 0.1% Expanded Tier 0.0 0.0% 0.0 0.0% AL Tier 407.0 8.1% 160.0 3.1% ------- ------- Total Reg. Prog. 2,455.9 48.7% 2,230.3 43.9% Radio Services 47.7 0.9% 58.9 1.2% Pay Cable - 1st Outlet 583.7 11.6% 589.5 11.6% Pay Cable - Add'l Outlet 0.0 0.0% 0.0 0.0% New Product Tier - 1 948.1 18.8% 1,127.7 22.2% Commercial Pay 0.0 0.0% 0.0 0.0% Mini-Pay 13.0 0.3% 18.2 0.4% Mini-Pay - Add'l Outlet 0.0 0.0% 0.0 0.0% Pay Per View 117.4 2.3% 124.0 2.4% ------- ------- Total Unreg. Prog. 1,709.9 33.9% 1,918.3 37.8% Primary Add'l Outlet 0.0 0.0% 0.0 0.0% Remote Control 4.0 0.1% 4.2 0.1% Converter Rental 488.9 9.7% 489.2 9.6% Other - VCR 0.0 0.0% 0.0 0.0% ------- ------- Total Equipment 492.9 9.8% 493.3 9.7% Wire Maint. Agreements 62.3 1.2% 47.5 0.9% New Cust. - Pay Installs 0.0 0.0% 0.0 0.0% New Cust. - Basic Installs 28.1 0.6% 50.4 1.0% Install Mat'l Charge 0.4 0.0% 0.0 0.0% Installs - Non New Cust. 72.0 1.4% 81.1 1.6% ------- ------- Total Install/Service 162.9 3.2% 179.0 3.5% Guide Revenue 26.1 0.5% 35.4 0.7% Late Charges 63.3 1.3% 68.2 1.3% Rent 3.0 0.1% 3.3 0.1% Franchise Pass Thru 0.0 0.0% 0.0 0.0% Miscellaneous 0.0 0.0% 0.0 0.0% Shopping Net Car. Fee 0.0 0.0% 0.0 0.0% FCC User Fee Pass Thru 5.1 0.1% 0.1 0.0% QVC Monthly Comm. 15.1 0.3% 19.4 0.4% QVC Carriage Payment 14.0 0.3% 14.0 0.3% HSN Monthly Comm. 0.0 0.0% 0.0 0.0% HSN Carriage Payment 0.0 0.0% 0.0 0.0% ------- ------- Total Non-Service/Misc. 126.7 2.5% 140.4 2.8% Advertising 97.8 1.9% 118.6 2.3% ------- ------- Total Revenues 5,045.9 100.0% 5,080.0 100.0% ======= ===== ======= =====
-77- 84 - -------------------------------------------------------------------------------- Falcon Classic Cable EXHIBIT C2 Operating Cash Flow: Income Properties, L.P. Actual & Budget Burke, NC Valuation Date: December 31, 1996 - --------------------------------------------------------------------------------
1997 Budget Dec 1996 Actual 1996 Actual 1995 Actual 1994 Actual ------------------- ------------------ ------------------ ----------------- ------------------- ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ------ --------- ------ --------- ------ --------- ------ --------- ------ --------- Operating Expenses: Technical Personnel 551.5 10.1% 13.7 3.1% 266.7 5.3% 285.0 5.6% 295.7 5.8% Other 23.1 5.3% 295.1 5.8% 232.8 4.6% 245.1 4.8% Programming 964.6 17.7% 69.2 15.9% 887.5 17.5% 942.9 18.7% 908.6 17.9% Capitalized Labor & O/H (243.4) -4.5% (8.0) -1.8% (227.9) -4.5% (142.6) -2.8% (105.1) -2.1% -------- ------ -------- -------- -------- Total Technical 1,272.7 23.3% 98.0 22.5% 1,221.4 24.1% 1,318.1 26.1% 1,344.3 26.5% Production & L/O Personnel 0.0 0.0% 0.0 0.0% (0.1) -0.0% 17.2 0.3% Other 0.0 0.0% 0.0 0.0% 0.3 0.0% 0.9 0.0% ------ -------- -------- -------- Total Prod. & L/O 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.2 0.0% 18.1 0.4% Ad Sales Personnel 1.7 0.4% 20.2 0.4% 21.6 0.4% 49.3 1.0% Other 1.3 0.3% 15.3 0.3% 16.3 0.3% 21.9 0.4% ------ -------- -------- -------- Total Ad Sales 26.4 0.5% 3.0 0.7% 35.4 0.7% 37.9 0.8% 71.2 1.4% Marketing Commissions 0.4 0.1% 0.8 0.0% 0.2 0.0% 2.6 0.1% Other 11.1 2.5% 68.9 1.4% 78.2 1.6% 108.6 2.1% ------ -------- -------- -------- Total Marketing 83.5 1.53% 11.5 2.6% 69.7 1.4% 78.5 1.6% 111.2 2.2% General & Administrative Personnel 374.8 6.87% 13.0 3.0% 157.9 3.1% 137.9 2.7% 140.7 2.8% Other 373.4 6.84% 49.5 11.4% 548.2 10.8% 535.3 10.6% 523.4 10.3% Capitalized Labor & O/H (0.2) -0.0% (9.1) -0.2% (13.3) -0.3% (16.8) -0.3% ------ -------- -------- -------- Total G & A 748.2 13.71% 62.4 14.3% 697.0 13.7% 659.9 13.1% 647.3 12.7% Total Operating Expense Before Partnership Exps. 2,130.8 39.04% 174.9 40.1% 2,023.5 39.9% 2,094.5 41.5% 2,192.2 43.2% Total Oper. Cash Flow Before Partnership Exps. 3,327.7 61.0% 261.5 59.9% 3,054.2 60.1% 2,951.4 58.5% 2,887.8 56.8% Partnership Expenses 272.9 5.0% 21.8 5.0% 253.9 5.0% 252.3 5.0% 254.0 5.0% -------- ------ -------- -------- -------- Total Oper. Cash Flow After Partnership Exps. $3,054.8 56.0% $239.7 54.9% $2,800.4 55.1% $2,699.1 53.5% $2,633.8 51.8% ======== ===== ====== ===== ======== ===== ======== ===== ======== =====
-78- 85 - -------------------------------------------------------------------------------- Falcon Classic Cable EXHIBIT C3 Operating Cash Flow: Income Properties, L.P. Actual & Budget Centreville, MD Valuation Date: December 31, 1996 - --------------------------------------------------------------------------------
December 1997 Budget 1996 Actual 1996 Actual 1995 Actual 1994 Actual -------------------- ----------------- ----------------- ------------------- ------------------ ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ------ --------- ------ --------- ------ --------- ------ --------- ------ --------- Revenues: Primary 3,112.2 52.7% $246.4 51.9% $2,754.9 51.6% $2,478.8 53.1% $2,377.4 58.6% Commercial 90.9 1.5% 7.6 1.6% 79.007 1.5% 53.5 1.1% 38.9 1.0% Expanded Tier 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% AL Tier 516.9 8.7% 41.8 8.8% 425.0 8.0% 340.5 7.3% 129.3 3.2% ------- ----- ------- ------- -------- Total Reg. Prog. 3,720.0 62.9% 295.8 62.3% 3,258.8 61.0% 2,872.8 61.6% 2,545.6 62.7% Radio Services 25.6 0.4% 2.1 0.4% 28.1 0.5% 33.3 0.7% 39.7 1.0% Pay Cable - 1st Outlet 745.2 12.6% 62.4 13.1% 845.1 15.8% 931.2 20.0% 805.1 19.8% Pay Cable - Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% New Product Tier - 1 790.1 13.4% 63.5 13.4% 580.6 10.9% 361.8 7.8% 290.5 7.2% Commercial Pay 0.0 0.0% 1.2 0.3% 14.7 0.3% 13.8 0.3% 13.8 0.3% Mini-Pay 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% Video Games & Activation 43.3 0.7% 3.1 0.6% 41.1 0.8% 5.4 0.1% 0.0 0.0% Pay Per View 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% ------- ----- ------- ------- -------- Total Unreg. Prog. 1,604.2 27.1% 132.2 27.8% 1,509.6 28.3% 1,345.5 28.8% 1,149.1 28.3% Primary Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% (0.1) -0.0% Remote Control 5.8 0.1% 0.5 0.1% 5.7 0.1% 6.2 0.1% 5.2 0.1% Converter Rental 45.0 0.8% 3.7 0.8% 34.8 0.7% 25.3 0.5% 25.9 0.6% Other - VCR 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% ------- ----- ------- ------- -------- Total Equipment 50.8 0.9% 4.1 0.9% 40.5 0.8% 31.5 0.7% 31.1 0.8% Wire Maint. Agreements 43.0 0.7% 3.5 0.7% 39.3 0.7% 31.2 0.7% 18.6 0.5% New Cust. - Pay Installs 58.4 1.0% 0.0 0.0% 0.3 0.0% 0.0 0.0% 20.7 0.5% New Cust. - Basic Installs 0.0 0.0% 0.5 0.1% 7.3 0.1% 15.0 0.3% 0.0 0.0% Install Mat'l Charge 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% Installs - Non New Cust. 0.0 0.0% 2.0 0.4% 47.8 0.9% 28.8 0.6% 16.5 0.4% ------- ----- ------- ------- -------- Total Install/Service 101.4 1.7% 6.0 1.3% 94.7 1.8% 75.0 1.6% 55.9 1.4% Guide Revenue 21.3 0.4% 1.9 0.4% 13.8 0.3% 8.8 0.2% 8.8 0.2% Late Charges 67.8 1.1% 7.1 1.5% 74.0 1.4% 64.6 1.4% 72.2 1.8% Rent 23.7 0.4% 1.9 0.4% 23.5 0.4% 14.8 0.3% 12.8 0.3% Franchise Pass Thru 117.4 2.0% 9.1 1.9% 104.9 2.0% 101.4 2.2% 95.7 2.4% Miscellaneous 2.8 0.0% 0.0 0.0% 24.7 0.5% 0.0 0.0% 0.0 0.0% FCC User Fee Pass Thru 6.9 0.1% 0.5 0.1% 6.0 0.1% 5.5 0.1% 0.2 0.0% QVC Monthly Comm. 13.2 0.2% 1.1 0.2% 13.2 0.2% 9.0 0.2% 8.4 0.2% QVC Carriage Payment 18.3 0.3% 0.0 0.0% 31.5 0.6% 0.0 0.0% (10.2) -0.3% HSN Monthly Comm. 22.2 0.4% 1.6 0.3% 22.2 0.4% 18.6 0.4% 0.0 0.0% HSN Carriage Payment 2.1 0.0% 0.2 0.0% 2.1 0.0% 2.1 0.0% 0.9 0.0% ------- ----- ------- ------- -------- Total Non-Service/Misc. 295.7 5.0% 23.4 4.9% 315.9 5.9% 224.8 4.8% 188.8 4.7% Advertising 138.0 2.3% 13.3 2.8% 123.0 2.3% 114.4 2.5% 86.8 2.1% ------- ----- ------- ------- -------- Total Revenues 5,910.1 100.0% 474.8 100.0% 5,342.6 100.0% 4,664.0 100.0% 4,057.2 100.0% ======= ===== ======= ======= ========
-79- 86 - -------------------------------------------------------------------------------- Falcon Classic Cable EXHIBIT C4 Operating Cash Flow: Income Properties, L.P. Actual & Budget Centreville, MD Valuation Date: December 31, 1996 - --------------------------------------------------------------------------------
December 1997 Budget 1996 Actual 1996 Actual 1995 Actual 1994 Actual -------------------- ----------------- ----------------- ------------------- ------------------ ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ------ --------- ------ --------- ------ --------- ------ --------- ------ --------- Operating Expenses: Technical Personnel 593.9 10.05% 20.5 4.3% 260.5 4.9% 255.2 5.5% 295.7 7.3% Other 12.4 2.6% 330.1 6.2% 320.5 6.9% 245.1 6.0% Programming 1,379.5 23.34% 103.0 21.7% 1,220.7 22.8% 1,197.4 25.7% 908.6 22.4% Capitalized Labor & O/H (237.4) -4.02% (30.2) -6.4% (196.1) -3.7% (127.4) -2.7% (105.1) -2.6% ------- ----- ------- ------- ------- Total Technical 1,736.0 29.37% 105.7 22.3% 1,615.1 30.2% 1,645.8 35.3% 1,344.3 33.1% Production & L/O Personnel 0.0 0.0% 0.0 0.0% (0.1) -0.0% 17.2 0.4% Other 0.0 0.0% 0.0 0.0% 0.3 0.0% 0.9 0.0% ----- ------- ------- ------- Total Prod. & L/O 0.0 0.00% 0.0 0.0% 0.0 0.0% 0.2 0.0% 18.1 0.4% Ad Sales Personnel 4.3 0.9% 50.2 0.9% 42.1 0.9% 49.3 1.2% Other 2.1 0.4% 29.3 0.5% 22.1 0.5% 21.9 0.5% ----- ------- ------- ------- Total Ad Sales 69.4 1.17% 6.4 1.4% 79.6 1.5% 64.2 1.4% 71.2 1.8% Marketing Commissions 0.0 0.0% 25.3 0.5% 89.3 1.9% 2.6 0.1% Other 7.6 1.6% 76.5 1.4% 59.6 1.3% 108.6 2.7% ----- ------- ------- ------- Total Marketing 133.1 2.25% 7.6 1.6% 101.8 1.9% 148.9 3.2% 111.2 2.7% General & Administrative Personnel 6.2 1.3% 124.3 2.3% 144.5 3.1% 140.7 3.5% Other 58.0 12.2% 713.2 13.3% 605.0 13.0% 523.4 12.9% Capitalized Labor & O/H 0.0 0.0% (10.6) -0.2% (20.0) -0.4% (16.8) -0.4% ----- ------- ------- ------- Total G & A 874.3 14.79% 64.2 13.5% 826.8 15.5% 729.5 15.6% 647.3 16.0% Total Operating Expense Before Partnership Exps. 2,812.8 47.59% 184.0 38.8% 2,623.3 49.1% 2,588.6 55.5% 2,192.2 54.0% Total Oper. Cash Flow Before Partnership Exps. 3,097.4 52.4% 290.8 61.2% 2,719.4 50.9% 2,075.4 44.5% 1,865.1 46.0% Partnership Expenses 295.5 5.0% 23.7 5.0% 267.1 5.0% 233.2 5.0% 254.0 6.3% ------- ----- ------- ------- ------- Total Oper. Cash Flow After Partnership Exps. $2,801.9 47.4% $267.0 56.2% $2,452.2 45.9% $1,842.2 39.5% $1,611.1 39.7% ======= ==== ===== ==== ======== ==== ======= ==== ======= ====
=80= 87 - -------------------------------------------------------------------------------- Falcon Classic Cable EXHIBIT C5 Operating Cash Flow: Income Properties Budget & Actual Somerset, Kentucky Valuation Date: December 31, 1996 - --------------------------------------------------------------------------------
1996 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual -------------------- -------------------- --------------------- --------------------- ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ------ --------- ------ --------- ------- --------- ------- --------- Revenues: Primary / Commercial $4,579.9 59.99% $371.3 55.10% $4,158.5 58.65% $3,850.2 61.12% Expanded Tier 542.1 7.10% 44.5 6.60% 475.1 6.70% 412.3 6.55% -------- ------ ------ ------ -------- ------ -------- ------ Total Regulated Programming 5,122.0 67.09% 415.8 61.70% 4,633.6 65.35% 4,262.5 67.67% -------- ------ ------ ------ -------- ------ -------- ------ Radio Services 0.0 0.00% 0.0 0.00% 0.1 0.00% 0.1 0.00% Pay Cable 417.7 5.47% 34.1 5.06% 464.9 6.56% 506.6 8.04% New Product Tier 1,219.2 15.97% 99.8 14.81% 1,005.9 14.19% 813.9 12.92% Mini-Pay 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% Pay Per View 10.7 0.14% 0.6 0.09% 11.9 0.17% 6.8 0.11% -------- ------ ------ ------ -------- ------ -------- ------ Total Unregulated Programming 1,647.6 21.58% 134.5 19.96% 1,482.8 20.91% 1,327.4 21.07% -------- ------ ------ ------ -------- ------ -------- ------ Remote Control 18.7 0.24% 1.5 0.22% 28.6 0.40% 44.7 0.71% Converter Rental 96.4 1.26% 8.1 1.20% 83.0 1.17% 49.6 0.79% Other - VCR 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% -------- ------ ------ ------ -------- ------ -------- ------ Total Equipment 115.1 1.51% 9.6 1.42% 111.6 1.57% 94.3 1.50% -------- ------ ------ ------ -------- ------ -------- ------ Wire Maintenance Agreements 39.5 0.52% 3.3 0.49% 41.1 0.58% 37.7 0.60% Installation 125.2 1.64% 5.0 0.74% 113.1 1.60% 126.6 2.01% -------- ------ ------ ------ -------- ------ -------- ------ Total Installation / Service 164.7 2.16% 8.3 1.23% 154.2 2.17% 164.3 2.61% -------- ------ ------ ------ -------- ------ -------- ------ Guide Revenue 5.1 0.07% 0.4 0.06% 3.8 0.05% 0.0 0.00% Late Charges 66.4 0.87% 6.6 0.98% 70.6 1.00% 67.9 1.08% Home Shopping 76.4 1.00% 4.8 0.71% 78.3 1.10% 62.1 0.99% FCC User Fee Pass Thru 10.7 0.14% 0.8 0.12% 9.4 0.13% 8.8 0.14% Franchise Pass Thru 25.4 0.33% 2.1 0.31% 22.9 0.32% 5.5 0.09% Miscellaneous / Rent 14.4 0.19% 47.1 6.99% 178.6 2.52% 9.1 0.14% -------- ------ ------ ------ -------- ------ -------- ------ Total Non-Service / Misc. 198.4 2.60% 61.8 9.17% 363.6 5.13% 153.4 2.44% -------- ------ ------ ------ -------- ------ -------- ------ Advertising 387.2 5.07% 43.9 6.51% 345.1 4.87% 297.3 4.72% ------ ------ ------ ------ Total Revenues 7,635.0 100.00% 673.9 100.00% 7,090.9 100.00% 6,299.2 100.00% -------- ------- ------ ------- -------- ------- -------- -------
-81- 88 - ------------------------------------------------------------------------------- Falcon Classic Cable EXHIBIT C6 Operating Cash Flow: Income Properties Budget & Actual Somerset, Kentucky Valuation Date: December 31, 1996 - -------------------------------------------------------------------------------
1996 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual --------------------- -------------------- ---------------------- --------------------- ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ------- --------- ------- --------- ------- --------- ------- --------- Operating Expenses: Technical Personnel 472.1 6.18% 25.1 3.72% 412.8 5.82% 378.3 6.01% Other 603.0 91.1 13.52% 638.1 9.00% 540.5 8.58% Programming 1,399.5 18.33% 100.5 14.91% 1,194.4 16.84% 1,099.5 17.45% Capitalized Labor & O/H (230.3) ------ (30.9) -4.59% (288.8) -4.07% (233.9) -3.71% -------- ------ ------ -------- ------ -------- ------ Total Technical 2,244.3 29.39% 185.8 27.57% 1,956.5 27.59% 1,784.4 28.33% -------- ------ ------ ------ -------- ------ -------- ------ Production & L/O Personnel 2.4 0.36% 27.9 0.39% 29.1 0.46% Other 0.8 0.12% 6.1 0.09% 0.6 0.01% ------ ------ -------- ------ -------- ------ Total Production & L/O 40.1 0.53% 3.2 0.47% 34.0 0.48% 29.7 0.47% -------- ------ ------ ------ -------- ------ -------- ------ Ad Sales Personnel 5.3 0.79% 51.3 0.72% 78.5 1.25% Other -12.2 -1.81% 13.8 0.19% 21.7 0.34% ------ ------ -------- ------ -------- ------ Total Ad Sales 114.5 1.50% -6.9 -1.02% 65.1 0.92% 100.2 1.59% -------- ------ ------ ------ -------- ------ -------- ------ Marketing Commissions 0.5 0.07% 1.0 0.01% 0.3 0.00% Other 4.1 0.61% 101.7 1.43% 59.9 0.95% ------ ------ -------- ------ -------- ------ Total Marketing 153.8 2.01% 4.6 0.68% 102.7 1.45% 60.2 0.96% -------- ------ ------ ------ -------- ------ -------- ------ General & Administrative Personnel 10.0 1.48% 165.0 2.33% 158.6 2.52% Other 70.3 10.43% 779.2 10.99% 729.9 11.59% ------ ------ -------- ------ -------- ------ Total G & A 1,093.8 14.33% 80.3 11.92% 944.2 13.32% 888.5 14.10% -------- ------ ------ ------ -------- ------ -------- ------ Total Operating Expense Before Partnership Exps. 3,646.5 47.76% 267.0 39.62% 3,102.5 43.75% 2,863.0 45.45% -------- ------ ------ ------ -------- ------ -------- ------ Total Oper. Cash Flow Before Partnership Exps. $3,988.5 52.24% $406.9 60.38% $3,988.4 56.25% $3,436.2 54.55% ======== ====== ====== ====== ======== ====== ======== ======
-82- 89 - ------------------------------------------------------------------------------------------------------------------ Falcon Classic Cable EXHIBIT C7 Operating Cash Flow: Budget & Actual Income Properties Valuation Date: December 31, 1996 Redmond, Oregon - ------------------------------------------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual -------------------- ------------------- ------------------- --------------------- ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. -------- -------- ------- -------- ------- -------- -------- --------- Revenues: Primary / Commercial $1,084.2 64.29% $83.5 63.69% $992.5 63.56% $1,006.7 63.84% Expanded Tier 75.9 4.50% 5.8 4.42% 69.6 4.46% 74.1 4.70% ------- ------ ----- ------ ------- ------- ------- ------- Total Regulated Programming 1,160.1 68.80% 89.3 68.12% 1,062.1 68.02% 1,080.8 68.54% ------- ------ ----- ------ ------- ------ ------- ------- Radio Services 8.1 0.48% 0.6 0.46% 8.7 0.56% 11.5 0.73% Pay Cable 55.4 3.29% 4.6 3.51% 72.0 4.61% 99.6 6.32% New Product Tier 297.7 17.65% 22.8 17.39% 245.5 15.72% 219.1 13.89% Mini-Pay 2.4 0.14% 0.2 0.15% 2.5 0.16% 2.4 0.15% Pay Per View 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% ------- ------ ----- ------ ------- ------ ------- ------- Total Unregulated Programming 363.6 21.56% 28.2 21.51% 328.7 21.05% 332.6 21.09% ------- ------ ----- ------ ------- ------- ------- ------- Remote Control 2.5 0.15% 0.2 0.15% 2.5 0.16% 2.9 0.18% Converter Rental 34.1 2.02% 2.7 2.06% 35.6 2.28% 39.4 2.50% Other - VCR 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% ------- ------ ----- ------ ------- ------- ------- ------- Total Equipment 36.6 2.17% 2.9 2.21% 38.1 2.44% 42.3 2.68% ------- ------ ----- ------ ------- ------- ------- ------- Wire Maintenance Agreements 6.6 0.39% 0.5 0.38% 7.0 0.45% 7.8 0.49% Installation 14.5 0.86% 0.7 0.53% 13.6 0.87% 14.5 0.92% ------- ------ ----- ------ ------- ------- ------- ------- Total Installation / Service 21.1 1.25% 1.2 0.92% 20.6 1.32% 22.3 1.41% ------- ------ ----- ------ ------- ------- ------- ------- Guide Revenue 3.4 0.20% 0.3 0.23% 2.3 0.15% 0.0 0.00% Late Charges 13.7 0.81% 0.8 0.61% 13.5 0.86% 14.0 0.89% Home Shopping 10.3 0.61% 1.3 0.99% 14.5 0.93% 7.8 0.49% FCC User Fee Pass Thru 2.1 0.12% 0.1 0.08% 1.8 0.12% 1.8 0.11% Franchise Pass Thru 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% Miscellaneous / Rent 7.0 0.42% 0.5 0.38% 12.7 0.81% 6.0 0.38% ------- ------ ----- ------ ------- ------ ------- ------- Total Non-Service / Misc. 36.5 2.16% 3.0 2.29% 44.8 2.87% 29.6 1.88% ------- ------ ----- ------ ------- ------- ------- ------- Advertising 68.4 4.06% 6.5 4.96% 67.2 4.30% 69.4 4.40% ------ ------ ------ ------- Total Revenues 1,686.3 100.00% 131.1 100.00% 1,561.5 100.00% 1,577.0 100.00% ------- ------ ----- ------ ------- ------- ------- -------
-83- 90 - -------------------------------------------------------------------------------- Falcon Classic Cable EXHIBIT C8 Operating Cash Flow: Budget & Actual Income Properties Valuation Date: December 31, 1996 Redmond, Oregon - --------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual -------------------- -------------------- -------------------- --------------------- ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ------- --------- ------- --------- ------- --------- ------- --------- Operating Expenses: Technical Personnel 125.0 7.41% 3.5 2.67% 100.9 6.46% 90.6 5.75% Other (8.6) -6.56% 48.3 3.09% 61.4 3.89% Programming 261.7 15.52% 18 13.73% 208.4 13.35% 249.9 15.85% ------ Capitalized Labor & O/H (8.4) -6.41% (82.3) -5.27% (36.4) -2.31% ---- ------ ----- ----- ----- ------ Total Technical 386.7 22.93% 4.5 3.43% 275.3 17.63% 365.5 23.18% ----- ------ ---- ------ ----- ----- ----- ------ Production & L/O Personnel 0.5 0.38% 2.4 0.15% 1.2 0.08% Other 0.2 0.15% 1.6 0.10% 0.3 0.02% ---- ------ ----- ----- ----- ------ Total Production & L/O 4.7 0.28% 0.7 0.53% 4.0 0.26% 1.5 0.10% ----- ------ ---- ------ ----- ----- ----- ------ Ad Sales Personnel 2.2 1.68% 34.3 2.20% 21.3 1.35% Other 1.7 1.30% 17.9 1.15% 12.7 0.81% ---- ------ ----- ----- ----- ------ Total Ad Sales 45.8 2.72% 3.9 2.97% 52.2 3.34% 34.0 2.16% ----- ------ ---- ------ ----- ----- ----- ------ Marketing Commissions 1.0 0.76% 2.3 0.15% 0.6 0.04% Other 3.4 2.59% 47.2 3.02% 35.1 2.23% ---- ------ ----- ----- ----- ------ Total Marketing 36.5 2.16% 4.4 3.36% 49.5 3.17% 35.7 2.26% ----- ------ ---- ------ ----- ----- ----- ------ General & Administrative Personnel 3.4 2.59% 82.6 5.29% 75.6 4.79% Other 15.4 11.75% 169.0 10.82% 179.6 11.39% ---- ------ ----- ----- ----- ------ Total G & A 289.2 17.15% 18.8 14.34% 251.6 16.11% 255.2 16.18% ----- ------ ---- ------ ----- ----- ----- ------ Total Operating Expense Before Partnership Exps. 762.9 45.24% 32.3 24.64% 632.6 40.51% 691.9 43.87% ----- ------ ---- ------ ----- ----- ----- ------ Total Oper. Cash Flow Before Partnership Exps. $923.4 54.76% $98.8 75.36% $928.9 59.49% $885.1 56.13% ====== ====== ===== ====== ====== ====== ====== ======
-84- 91 - -------------------------------------------------------------------------------- Falcon Classic Cable EXHIBIT C9 Operating Cash Flow: Income Properties Budget & Actual California City, California Valuation Date: December 31,1996 - --------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. Revenues: Primary / Commercial $377.5 50.17% $31.4 50.48% $364.6 48.40% $367.0 47.28% Expanded Tier 131.1 17.42% 10.9 17.52% 136.4 18.11% 145.7 18.77% ------ ----- ----- ------ ------ ------ ------ ------ Total Regulated Programming 508.6 67.60% 42.3 68.01% 501.0 66.51% 512.7 66.04% ------ ----- ----- ------ ------ ------ ------ ------ Radio Services 6.0 0.80% 0.5 0.80% 6.4 0.85% 7.7 0.99% Pay Cable 78.0 10.37% 6.9 11.09% 94.5 12.54% 107.8 13.89% New Product Tier 66.2 8.80% 5.0 8.04% 51.2 6.80% 40.8 5.26% Mini-Pay 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% Pay Per View 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% ------ ----- ----- ------ ------ ------ ------ ------ Total Unregulated Programming 150.2 19.96% 12.4 19.94% 152.1 20.19% 156.3 20.13% ------ ----- ----- ------ ------ ------ ------ ------ Remote Control 3.3 0.44% 0.3 0.48% 3.5 0.46% 3.6 0.46% Converter Rental 50.0 6.65% 4.1 6.59% 54.1 7.18% 55.7 7.18% Other - VCR 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% ------ ----- ----- ------ ------ ------ ------ ------ Total Equipment 53.3 7.08% 4.4 7.07% 57.6 7.65% 59.3 7.64% ------ ----- ----- ------ ------ ------ ------ ------ Wire Maintenance Agreements 4.2 0.56% 0.4 0.64% 4.7 0.62% 4.3 0.55% Installation 18.3 2.43% 1.4 2.25% 16.9 2.24% 24.9 3.21% ------ ----- ----- ------ ------ ------ ------ ------ Total Installation / Service 22.5 2.99% 1.8 2.89% 21.6 2.87% 29.2 3.76% ------ ----- ----- ------ ------ ------ ------ ------ Guide Revenue 1.0 0.13% 0.1 0.16% 0.8 0.11% 0.0 0.00% Late Charges 8.1 1.08% 0.6 0.96% 8.7 1.15% 7.9 1.02% Home Shopping 7.1 0.94% 0.5 0.80% 7.1 0.94% 9.9 1.28% FCC User Fee Pass Thru 1.0 0.13% 0.1 0.16% 1.0 0.13% 1.0 0.13% Franchise Pass Thru 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% Miscellaneous / Rent 0.6 0.08% 0.0 0.00% 3.4 0.45% 0.0 0.00% ------ ----- ----- ------ ------ ------ ------ ------ Total Non-Service / Misc. 17.8 2.37% 1.3 2.09% 21.0 2.79% 18.8 2.42% ------ ----- ----- ------ ------ ------ ------ ------ Advertising 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00% Total Revenues 752.4 100.00% 62.2 100.00% 753.3 100.00% 776.3 100.00% ------ ------ ----- ------ ------ ------ ------ -------
-85- 92 - ------------------------------------------------------------------------------------------------------------ Falcon Classic Cable Income Properties EXHIBIT C10 Operating Cash Flow: Budget & Actual California City, California Valuation Date: December 31, 1996 - ------------------------------------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual --------------------- -------------------- -------------------- ------------------ ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ------- --------- ------- --------- ------- --------- ------- --------- Operating Expenses: Technical Personnel 52.9 7.03% 1.1 1.77% 15.1 2.00% 17.5 2.25% Other 5.6 9.00% 72.9 9.68% 73.7 9.49% Programming 178.5 23.72% 11.2 18.01% 145.9 19.37% 177.1 22.81% ----- Capitalized Labor & O/H (1.1) -1.77% (15.0) -1.99% (18.5) -2.38% ----- ----- ------ ----- ------ ----- Total Technical 231.4 30.75% 16.8 27.01% 218.9 29.06% 249.8 32.18% ------ ----- ----- ----- ------ ----- ------ ----- Production & L/O Personnel 0 0.00% 0.1 0.01% 0.0 0.00% Other 0 0.00% 0.0 0.00% 0.0 0.00% ----- ----- ------ ----- ------ ----- Total Production & L/O 0.0 0.00% 0 0.00% 0.1 0.01% 0.0 0.00% ------ ----- ----- ----- ------ ----- ------ ----- Ad Sales Personnel 0 0.00% 0.0 0.00% 0.0 0.00% Other 0 0.00% 0.0 0.00% 0.0 0.00% ----- ----- ------ ----- ------ ----- Total Ad Sales 0.0 0.00% 0 0.00% 0.0 0.00% 0.0 0.00% ------ ----- ----- ----- ------ ----- ------ ----- Marketing Commissions 0.0 0.00% 0.0 0.00% 0.0 0.00% Other 0.6 0.96% 6.2 0.82% 11.7 1.51% ----- ----- ------ ----- ------ ----- Total Marketing 16.1 2.14% 0.6 0.96% 6.2 0.82% 11.7 1.51% ------ ----- ----- ----- ------ ----- ------ ----- General & Administrative Personnel 1.0 1.61% 7.3 0.97% 11.3 1.46% Other 6.6 10.61% 85.8 11.39% 90.1 11.61% ----- ----- ------ ----- ------ ----- Total G & A 102.0 13.56% 7.6 12.22% 93.1 12.36% 101.4 13.06% ------ ----- ----- ----- ------ ----- ------ ----- Total Operating Expense Before Partnership Exps. 349.5 46.45% 25.0 40.19% 318.3 42.25% 362.9 46.75% ------ ----- ----- ----- ------ ----- ------ ----- Total Oper. Cash Flow Before Partnership Exps. $402.9 53.55% $37.2 59.81% $435.0 57.75% $413.4 53.25% ====== ===== ===== ===== ====== ===== ====== =====
-86- 93 EXHIBIT D REGION AND SYSTEM CASH FLOW PROJECTION ASSUMPTIONS 94 EXHIBIT D REGION AND SYSTEM CASH FLOW PROJECTION ASSUMPTIONS BEGINNING DECEMBER 31, 1996 INTRODUCTION A cash flow projection has been developed for each Region and System. These projections are shown in Exhibit E. HOMES PASSED Homes passed are based upon current passings and projection of growth provided by CACI and operational management (see Tables 2A-2E). Accordingly, households are projected to grow at the following annual rates during the projection period.
Years 1-5 Years 6-10 Operating Annual Annual Area Growth Rate Growth Rate ---- ----------- ----------- Burke County 1.0% 0.5% Centreville 2.0% 1.0% Somerset 3.0% 1.5% Redmond 3.8% 1.9% California City 3.0% 1.5%
EBU PENETRATION Current penetrations are shown below. The national average basic penetration is 68.3%. Penetration is increased as shown in the table below. This growth considers the relatively poor off-air reception in certain of the areas and increased System channel offerings after projected rebuilds.
Operating Current Projected Projected Area Penetration Year 1 Penetration Year 10 Penetration ---- ----------- ------------------ ------------------- Burke County 55.5% 55.4% 60.0% Centreville 52.8% 53.8% 65.0% Somerset 88.3% 89.0% 90.0% Redmond 50.7% 50.0% 52.5% California City 68.6% 69.0% 73.5%
EBU's This is the product of homes passed times EBU penetration. AVERAGE EBU REVENUE Tables 3A-3E analyze regional and system revenues for 1995, 1996 and projected 1997. 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 (1996). Revenues for digital and telephony services have not been -88- 95 EXHIBIT D (Continued) projected as they were too speculative, nor was the capex needed to implement these services forecasted. TOTAL REVENUE This is the product of EBU's times average EBU revenue. Page 2 of Exhibit for each Region and System 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 and System was reviewed for prior years and for 1996. The 1996 cash flow margin, after corporate expense allocation is shown below. Including the corporate expense allocation reduces the margins by approximately 3.7%. 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 1996 margin, the year one projected margin, the ultimate margin, and the year achieved.
Ultimate Margin --------------- Operating 1996 Year One Year Area Actual Margin Margin % Achieved - ---- ------------- ------ - -------- Burke County 56.1% 57.3% 55.0% 5 Centreville 47.2% 48.7% 55.0% 8 Somerset 51.6% 52.0% 55.0% 7 Redmond 55.8% 51.1% 55.0% 6 California City 54.0% 54.0% 55.0% 3
Year one margin is based upon appraisers review of the FCCIP management prepared 1997 budget and adjusted as necessary. 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 and System, the appraisers determination of various components of customer and replacement capital, and the FCCIP management prepared capital expenditure 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 capex requirements by Region and System ($000s). -89- 96 EXHIBIT D (Continued)
Operating Area Rebuild Recurring Total ---- ------- --------- ----- Burke County $10,700 $3,227 $13,927 Centreville 9,692 6,127 15,819 Somerset 11,853 2,503 14,356 Redmond 4,985 1,082 6,067 California City 692 633 1,325
NET CASH FLOW This is the computational result of operating cash flow minus capital expenditures. PRESENT VALUE FACTOR A 15% 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 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. -90- 97 EXHIBIT D (Continued)
Burke California County Centreville Somerset Redmond City ------ ----------- -------- ------- ---------- Estimated Tax Basis for Residual Calculation Business Enterprise Value $19,960,000 $23,800,000 $33,230,000 $7,770,000 $3,530,000 Unamortized Basis: Tangible @ 25% life less than 10 yrs 0 0 0 0 0 Amortizable intangibles at 75% 4,985,010 5,944,050 8,299,193 1,940,558 881,618 Capital Expenditures 993,829 1,565,225 1,020,830 634,982 362,902 ----------- ----------- ----------- ----------- ---------- Tax Basis 5,978,839 7,509,275 9,320,023 2,575,607 1,244,520 Year 10 "Sales Price" 46,776,571 63,056,287 70,531,280 21,255,607 6,897,117 Percent of "Sales Price" not Taxable 12.8% 11.9% 13.2% 12.1% 18.0% Net Capital Gains Tax 30.5% 30.8% 30.4% 30.8% 28.7% =========== =========== =========== =========== ==========
-91- 98 EXHIBIT E REGION AND SYSTEM CASH FLOW PROJECTIONS 99
- ---------------------------------------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-1A Burke, NC CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1996 - ---------------------------------------------------------------------------------------------------------------------------------- Growth Rate in Homes Passed 1.0% Thru Yr 5 Homes Passed @ 12/31/96 18,986 Equivalent Billing Units @ 12/31/96 10,546 55.5% EBU's/HP Pay Units @ 12/31/96 4,614 43.8% Pay Units/EBU's Operating Margin for 96 Yr. 56.4% After Adj Partnership Expenses & One time payments from programmers. Operating Margin for 95 Yr. 54.8% After Adj Partnership Expenses Weighted average discount rate 15.0%
Year 1 2 3 4 5 ---- - - - - - Basic Rev/EBU (now $22.32) $22.91 $23.90 $25.00 $26.10 $27.30 Growth rate 2.6% 4.5% 4.5% 4.5% 4.5% Kagan Projection $26.04 $27.35 $28.44 $29.58 $30.76 Growth rate 12.9% 5.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $7.66) $7.51 $7.51 $7.51 $7.51 $7.51 Growth rate -1.9% 0% 0% 0% 0% Kagan Projection* $8.15 $8.03 $7.93 $7.82 $7.73 Growth rate -1.5% -1.5% -1.2% -1.4% -1.2% New Product Tier (now $7.74) $8.52 $9.37 $10.07 $10.58 $11.11 Growth rate 23.1% 10.0% 7.5% 5.0% 5.0% Mini-Pay/EBU (now $0.07) $0.07 $0.09 $0.12 $0.14 $0.18 Growth rate 0.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.81) $1.01 $1.22 $1.40 $1.61 $1.85 Growth rate 25.2% 20.0% 15.0% 15.0% 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$3.67) $3.68 $3.79 $3.91 $4.02 $4.15 Growth rate 0.3% 3% 3% 3% 3% Advertising/EBU (now $1.06) $1.20 $1.44 $1.73 $2.08 $2.39 Growth rate 13.5% 20.0% 20.0% 20.0% 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 $0.29) $0.31 $0.37 $0.45 $0.54 $0.62 Growth rate 6.9% 20% 20% 20% 15% Install/Service/EBU (now $.68) $0.74 $0.78 $0.82 $0.86 $0.90 Growth rate 8.8% 5% 5% 5% 5% Wire Maint. Agreement/EBU (now $0.54) $0.54 $0.56 $0.57 $0.59 $0.61 Growth rate 0.0% 3.0% 3.0% 3.0% 3.0% Late Fees, Radio & Other/EBU (now $0.95) $0.96 $1.01 $1.06 $1.11 $1.17 growth rate 1.1% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 43.9%) 40.7% 41.0% 41.5% 42.0% 43.0% Kagan Projection* 79.7% 81.2% 81.9% 82.4% 82.8% Total Annual EBU Rev $516.15 $547.34 $578.89 $609.42 $641.94 monthly (now $40.90) $43.01 $45.61 $48.24 $50.78 $53.50 Compound growth 5.3% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 Compound growth 4.8%
Growth Rate in Homes Passed 1.0% Thru Yr 5 Homes Passed @ 12/31/96 18,986 Equivalent Billing Units @ 12/31/96 10,546 55.5% EBU's/HP Pay Units @ 12/31/96 4,614 43.8% Pay Units/EBU's Operating Margin for 96 Yr. 56.4% After Adj Partnership Expenses & One time payments from programmers. Operating Margin for 95 Yr. 54.8% After Adj Partnership Expenses Weighted average discount rate 15.0%
Year 6 7 8 9 10 ---- - - - - -- Basic Rev/EBU (now $22.32) $28.50 $29.80 $31.10 $32.50 $34.00 Growth rate 4.5% 4.5% 4.5% 4.5% 4.5% Kagan Projection $31.99 $33.27 $34.60 $35.99 n/a Growth rate 4.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $7.66) $7.51 $7.51 $7.51 $7.51 $7.51 Growth rate 0% 0% 0% 0% 0% Kagan Projection* $7.63 $7.54 $7.45 $7.35 n/a Growth rate -1.3% -1.2% -1.2% -1.3% New Product Tier (now $7.74) $11.66 $12.25 $12.86 $13.50 $14.18 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.07) $0.23 $0.28 $0.35 $0.44 $0.55 Growth rate 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.81) $2.04 $2.24 $2.46 $2.71 $2.98 Growth rate 10.0% 10.0% 10.0% 10.0% 10.0% 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 $3.67) $4.27 $4.40 $4.53 $4.67 $4.81 Growth rate 3% 3% 3% 3% 3% Advertising/EBU (now $1.06) $2.75 $3.02 $3.33 $3.66 $4.02 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 $0.29) $0.71 $0.81 $0.94 $1.08 $1.24 Growth rate 15% 15% 15% 15% 15% Install/Service/EBU (now $.68) $0.94 $0.99 $1.04 $1.09 $1.15 Growth rate 5% 5% 5% 5% 5% Wire Maint. Agreement/EBU (now $0.54) $0.63 $0.64 $0.66 $0.68 $0.70 Growth rate 3.0% 3.0% 3.0% 3.0% 3.0% Late Fees, Radio & Other/EBU (now $0.95) $1.23 $1.29 $1.35 $1.42 $1.49 growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 43.9%) 44.0% 45.0% 46.0% 47.0% 48.0% Kagan Projection* 83.0% 83.2% 83.1% 83.1% n/a Total Annual EBU Rev $675.03 $709.29 $744.95 $783.36 $824.70 monthly (now $40.90) $56.25 $59.11 $62.08 $65.28 $68.73 Compound growth Kagan Projection $42.60 $44.74 $46.91 $49.15 Compound growth 4.8%
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category. -93- 100 - ------------------------------------------------------------------------------------------------------------ Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-1b Burke, NC CATV SYSTEM VALUATION MODEL - ------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- ---------- ----------- ----------- ----------- ----------- Homes Passed 19,046 19,237 19,429 19,623 19,820 EBU Penetration 55.4% 56.0% 56.0% 57.0% 58.0% Kagan Penetration Projection 68.5% 67.7% 66.6% 65.5% 64.4% Equivalent Billing Units 10,552 10,773 10,880 11,185 11,495 Basic Revenue/EBU $22.91 $23.90 $25.00 $26.10 $27.30 Basic Revenue 2,900,929 3,089,579 3,264,095 3,503,253 3,765,895 ---------- ---------- ---------- ---------- ----------- Pay-to-Basic Ratio 40.7% 42.0% 43.0% 44.0% 45.0% Pay Units 4,295 4,524 4,679 4,922 5,173 Pay Revenue/Pay Unit $7.51 $7.51 $7.51 $7.51 $7.51 Pay Revenue 387,234 407,970 421,860 443,773 466,439 ---------- ---------- ---------- ---------- ----------- New Product Tier/EBU $8.52 $9.37 $10.07 $10.58 $11.11 New Product Tier Revenue 1,078,801 1,211,529 1,315,417 1,419,911 1,532,233 ---------- ---------- ---------- ---------- ----------- Mini-Pay Revenue/EBU $0.07 $0.09 $0.12 $0.14 $0.18 Mini-Pay Revenue/EBU 9,370 11,958 15,096 19,400 24,922 ---------- ---------- ---------- ---------- ----------- Pay-Per-View Revenue/EBU $1.01 $1.22 $1.40 $1.61 $1.85 Pay-Per-View Revenue 128,393 157,297 182,701 215,996 255,281 ---------- ---------- ---------- ---------- ----------- Equipment Revenue/ EBU $3.68 $3.79 $3.91 $4.02 $4.15 Equipment Revenue 466,316 490,362 510,124 540,158 571,785 ---------- ---------- ---------- ---------- ----------- Advertising Revenue/EBU $1.20 $1.44 $1.73 $2.08 $2.39 Advertising Revenue/EBU 152,286 186,569 226,122 278,954 329,689 ---------- ---------- ---------- ---------- ----------- Home Shopping/EBU $0.31 $0.37 $0.45 $0.54 $0.62 Home Shopping Revenue 39,252 48,089 58,284 71,901 84,978 ---------- ---------- ---------- ---------- ----------- Installation Revenue/EBU $0.74 $0.78 $0.82 $0.86 $0.90 Installation Revenue 93,699 100,444 106,520 114,982 124,078 ---------- ---------- ---------- ---------- ----------- Franchise Fee Pass-thru Revenue/EBU $0.54 $0.56 $0.57 $0.59 $0.61 Franchise Fee Pass-thru Revenue 68,375 71,901 74,798 79,202 83,839 ---------- ---------- ---------- ---------- ----------- Late Fees & Other Revenue/EBU $0.96 $1.01 $1.06 $1.11 $1.17 Late Fees & Other Revenue 121,555 130,305 138,189 149,166 160,966 ---------- ---------- ---------- ---------- ----------- Total Revenue $5,446,208 $5,906,002 $6,313,206 $6,836,696 $7,400,105 ========== ========== ========== ========== ===========
Year 6 7 8 9 10 ---- ---------- ---------- ---------- ---------- ----------- Homes Passed 19,919 20,018 20,118 20,219 20,320 EBU Penetration 59.0% 60.0% 60.0% 60.0% 60.0% Kagan Penetration Projection 63.4% 62.3% 61.6% 60.9% Equivalent Billing Units 11,752 12,011 12,071 12,131 12,192 Basic Revenue/EBU $28.50 $29.80 $31.10 $32.50 $34.00 Basic Revenue 4,019,208 4,295,139 4,504,923 4,731,255 4,974,369 ---------- ---------- ---------- ---------- ----------- Pay-to-Basic Ratio 46.0% 47.0% 48.0% 49.0% 50.0% Pay Units 5,406 5,645 5,794 5,944 6,096 Pay Revenue/Pay Unit $7.51 $7.51 $7.51 $7.51 $7.51 Pay Revenue 487,450 509,021 522,451 536,002 549,675 ---------- ---------- ---------- ---------- ----------- New Product Tier/EBU $11.66 $12.25 $12.86 $13.50 $14.18 New Product Tier Revenue 1,644,767 1,765,057 1,862,577 1,965,484 2,074,077 ---------- ---------- ---------- ---------- ----------- Mini-Pay Revenue/EBU $0.23 $0.28 $0.35 $0.44 $0.55 Mini-Pay Revenue/EBU 31,848 40,687 51,113 64,210 80,664 ---------- ---------- ---------- ---------- ----------- Pay-Per-View Revenue/EBU $2.04 $2.24 $2.46 $2.71 $2.98 Pay-Per-View Revenue 287,079 322,745 356,794 394,436 436,049 ---------- ---------- ---------- ---------- ----------- Equipment Revenue/ EBU $4.27 $4.40 $4.53 $4.67 $4.81 Equipment Revenue 602,088 633,815 656,093 679,155 703,027 ---------- ---------- ---------- ---------- ----------- Advertising Revenue/EBU $2.75 $3.02 $3.33 $3.66 $4.02 Advertising Revenue/EBU 387,608 435,763 481,736 532,559 588,744 ---------- ---------- ---------- ---------- ----------- Home Shopping/EBU $0.71 $0.81 $0.94 $1.08 $1.24 Home Shopping Revenue 99,907 117,425 135,714 156,851 181,281 ---------- ---------- ---------- ---------- ----------- Installation Revenue/EBU $0.94 $0.99 $1.04 $1.09 $1.15 Installation Revenue 133,191 142,932 150,829 159,162 167,956 ---------- ---------- ---------- ---------- ----------- Franchise Fee Pass-thru Revenue/EBU $0.63 $0.64 $0.66 $0.68 $0.70 Franchise Fee Pass-thru Revenue 88,283 92,935 96,201 99,583 103,083 ---------- ---------- ---------- ---------- ----------- Late Fees & Other Revenue/EBU $1.23 $1.29 $1.35 $1.42 $1.49 Late Fees & Other Revenue 172,788 185,425 195,670 206,480 217,888 ---------- ---------- ---------- ---------- ----------- Total Revenue $7,954,215 $8,540,942 $9,014,100 $9,525,178 $10,076,814 ========== ========== ========== ========== ===========
-94- 101 - ------------------------------------------------------------------------------------------------------------ Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-1c Burke, NC CATV SYSTEM VALUATION MODEL - ------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- ---------- ---------- ---------- ---------- ---------- Total Revenue $5,446,208 $5,906,002 $6,313,206 $6,836,696 $7,400,105 Margin % to Revenue 57.3% 56.5% 56.0% 55.5% 55.0% Operating Cash Flow 3,120,677 3,336,891 3,535,395 3,794,366 4,070,058 Captal Expenditures: - Rebuild/Extensions 423,000 2,857,000 2,971,000 4,199,000 66,000 - Recurring 713,000 292,000 278,000 288,000 293,000 ---------- ---------- ---------- ---------- ---------- Total 1,136,000 3,149,000 3,249,000 4,487,000 359,000 ---------- ---------- ---------- ---------- ---------- Net Cash Flow 1,984,677 187,891 286,395 (692,634) 3,711,058 Present Value Factor @ 15.0% 0.93250 0.81087 0.70511 0.61314 0.53316 PV Net Cash Flow 1,850,721 152,356 201,940 (424,679) 1,978,597 ---------- ---------- ---------- ---------- ----------
Year 6 7 8 9 10 ---- ---------- ---------- ---------- ---------- ----------- Total Revenue $7,954,215 $8,540,942 $9,014,100 $9,525,178 $10,076,814 Margin % to Revenue 55.0% 55.0% 55.0% 55.0% 55.0% Operating Cash Flow 4,374,818 4,697,518 4,957,755 5,238,848 5,238,848 Captal Expenditures: - Rebuild/Extensions 34,000 36,000 37,000 38,000 39,000 - Recurring 288,000 292,000 259,000 261,000 263,000 ---------- ---------- ---------- ---------- ----------- Total 322,000 328,000 296,000 299,000 302,000 ---------- ---------- ---------- ---------- ----------- 0 Net Cash Flow 4,052,818 4,369,518 4,661,755 4,939,848 5,240,248 Present Value Factor @ 15.0% 0.46362 0.40315 0.35056 0.30484 0.26508 PV Net Cash Flow 1,878,966 1,761,561 1,634,239 1,505,851 1,389,064 ---------- ---------- ---------- ---------- -----------
Present Value of Net Cash Flows $11,928,616 Residual Value Present Value of Residual 8,032,852 --------------- ----------- 8x's Yr 11 Operating Cash Flow $46,776,571 Value Indication under Income Approach $19,961,467 Less: Taxes 30.5% 14,279,206 ----------- ----------- Value Indication (Rounded) $19,960,000 After Tax Proceeds (end of year 10) 32,497,365 ----------- ----------- Value Indication/EBU $1,893 Present Value @ 15.0% $ 8,032,852 ------ ----------- Cash Flow Multiple - Projected 6.4 ---
-95- 102 - ------------------------------------------------------------------------------------------------------------------------------------ Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-2a Centreville, MD CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1996 - ------------------------------------------------------------------------------------------------------------------------------------
Growth Rate in Homes Passed 2.0% Thru Yr 5 Homes Passed @ 12/31/96 23,857 Equivalent Billing Units @ 12/31/96 12,593 52.8% EBU's/HP Pay Units @ 12/31/96 7,440 59.1% Pay Units/EBU's Operating Margin for 96 Yr. 47.2% After Adj Partnership Expenses Operating Margin for 95 Yr. 40.8% After Adj Partnership Expenses Weighted average discount rate 15.0%
Year 1 2 3 4 5 - - - - - Basic Rev/EBU (now $23.18) $24.04 $25.10 $26.20 $27.40 $28.60 Growth rate 3.7% 4.5% 4.5% 4.5% 4.5% Kagan Projection $26.04 $27.35 $28.44 $29.58 $30.76 Growth rate 12.9% 5.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $8.50) $9.04 $9.04 $9.04 $9.04 $9.04 Growth rate 6.4% 0% 0% 0% 0% Kagan Projection* $8.15 $8.03 $7.93 $7.82 $7.73 Growth rate -1.5% -1.5% -1.2% -1.4% -1.2% New Product Tier (now $4.97) $5.11 $5.37 $5.63 $5.92 $6.21 Growth rate 2.8% 5.0% 5.0% 5.0% 5.0% Video Games & Activation/EBU (now $0.28) $0.28 $0.35 $0.44 $0.55 $0.68 Growth rate 0.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.00) $0.00 $0.00 $0.02 $0.50 $1.00 Growth rate 0.0% 0.0% n/a 2400.0% 100.0% 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$0.32) $0.33 $0.34 $0.35 $1.05 $1.72 Growth rate 3.1% 3% 3% 3% 3% Advertising/EBU (now $0.83) $0.89 $1.07 $1.28 $1.54 $1.77 Growth rate 7.2% 20.0% 20.0% 20.0% 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 $0.46) $0.36 $0.43 $0.52 $0.62 $0.72 Growth rate -21.7% 20% 20% 20% 15% Install/Service/EBU (now $0.37) $0.38 $0.40 $0.42 $0.44 $0.46 Growth rate 2.7% 5% 5% 5% 5% Wire Maint. Agreement/EBU (now $0.27) $0.28 $0.29 $0.30 $0.31 $0.32 Growth rate 3.7% 3.0% 3.0% 3.0% 3.0% Late Fees, Radio & Other/EBU (now $1.53) $1.72 $1.81 $1.90 $1.99 $2.09 growth rate 12.4% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 59.1%) 60.0% 60.0% 60.0% 60.0% 60.0% Kagan Projection* 79.7% 81.2% 81.9% 82.4% 82.8% Total Annual EBU Rev $465.77 $486.87 $509.73 $540.53 $571.70 monthly (now $37.22) $38.81 $40.57 $42.48 $45.04 $47.64 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 $23.18) $29.90 $31.20 $32.60 $34.10 $35.60 Growth rate 4.5% 4.5% 4.5% 4.5% 4.5% Kagan Projection $31.99 $33.27 $34.60 $35.99 n/a Growth rate 4.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $8.50) $9.04 $9.04 $9.04 $9.04 $9.04 Growth rate 0% 0% 0% 0% 0% Kagan Projection* $7.63 $7.54 $7.45 $7.35 n/a Growth rate -1.3% -1.2% -1.2% -1.3% New Product Tier (now $4.97) $6.52 $6.85 $7.19 $7.55 $7.93 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Video Games & Activation/EBU (now $0.28) $0.85 $1.07 $1.34 $1.67 $2.09 Growth rate 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.00) $1.50 $1.88 $2.16 $2.37 $2.61 Growth rate 50.0% 25.0% 15.0% 10.0% 10.0% 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$0.32) $3.04 $3.02 $3.00 $3.06 $3.13 Growth rate 3% 3% 3% 3% 3% Advertising/EBU (now $0.83) $2.03 $2.24 $2.46 $2.71 $2.98 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 $0.46) $0.82 $0.95 $1.09 $1.25 $1.44 Growth rate 15% 15% 15% 15% 15% Install/Service/EBU (now $0.37) $0.48 $0.51 $0.53 $0.56 $0.59 Growth rate 5% 5% 5% 5% 5% Wire Maint. Agreement/EBU (now $0.27) $0.32 $0.33 $0.34 $0.35 $0.37 Growth rate 3.0% 3.0% 3.0% 3.0% 3.0% Late Fees, Radio & Other/EBU (now $1.53) $2.20 $2.30 $2.42 $2.54 $2.67 growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 59.1%) 60.0% 60.0% 60.0% 60.0% 60.0% Kagan Projection* 83.0% 83.2% 83.1% 83.1% n/a Total Annual EBU Rev $605.33 $637.69 $671.52 $707.38 $745.40 monthly (now $37.22) $50.44 $53.14 $55.96 $58.95 $62.12 Compound growth Kagan Projection $42.60 $44.74 $46.91 $49.15 Compound growth
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category. -96- 103 - ---------------------------------------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-2b Centreville, MD CATV SYSTEM VALUATION MODEL - ----------------------------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- - - - - - Homes Passed 23,953 24,432 24,920 25,419 25,927 EBU Penetration 53.8% 56.0% 56.0% 57.0% 59.0% Kagan Penetration Projection 68.5% 67.7% 66.6% 65.5% 64.4% Equivalent Billing Units 12,896 13,682 13,955 14,489 15,297 Basic Revenue/EBU $24.04 $25.10 $26.20 $27.40 $28.60 Basic Revenue 3,720,238 4,120,965 4,387,596 4,763,903 5,249,957 ---------- ---------- ---------- --------- ---------- Pay-to-Basic Ratio 60.0% 42.0% 43.0% 44.0% 45.0% Pay Units 7,738 5,746 6,001 6,375 6,884 Pay Revenue/Pay Unit $9.04 $9.04 $9.04 $9.04 $9.04 Pay Revenue 839,375 623,366 650,972 691,566 746,742 ---------- ---------- ---------- --------- ---------- New Product Tier/EBU $5.11 $5.37 $5.63 $5.92 $6.21 New Product Tier Revenue 790,783 880,918 943,463 1,028,493 1,140,165 ---------- ---------- ---------- --------- ---------- Mini-Pay Revenue/EBU $0.28 $0.35 $0.44 $0.55 $0.68 Mini-Pay Revenue/EBU 43,331 57,464 73,266 95,082 125,484 ---------- ---------- ---------- --------- ---------- Pay-Per-View Revenue/EBU $0.00 $0.00 $0.02 $0.50 $1.00 Pay-Per-View Revenue 0 0 3,349 86,933 183,565 ---------- ---------- ---------- --------- ---------- Equipment Revenue/ EBU $0.33 $0.34 $0.35 $1.05 $1.72 Equipment Revenue 51,068 55,805 58,629 182,696 315,379 ---------- ---------- ---------- --------- ---------- Advertising Revenue/EBU $0.89 $1.07 $1.28 $1.54 $1.77 Advertising Revenue/EBU 137,729 175,346 214,624 267,391 324,654 ---------- ---------- ---------- --------- ---------- Home Shopping/EBU $0.36 $0.43 $0.52 $0.62 $0.72 Home Shopping Revenue 55,711 70,927 86,814 108,158 131,321 ---------- ---------- ---------- --------- ---------- Installation Revenue/EBU $0.38 $0.40 $0.42 $0.44 $0.46 Installation Revenue 58,806 65,509 70,160 76,483 84,787 ---------- ---------- ---------- --------- ---------- Franchise Fee Pass-thru Revenue/EBU $0.28 $0.29 $0.30 $0.31 $0.32 Franchise Fee Pass-thru Revenue 43,331 47,350 49,746 53,196 57,849 ---------- ---------- ---------- --------- ---------- Late Fees & Other Revenue/EBU $1.72 $1.81 $1.90 $1.99 $2.09 Late Fees & Other Revenue 266,173 296,512 317,565 346,185 383,774 ---------- ---------- ---------- --------- ---------- Total Revenue $6,006,544 $6,394,161 $6,856,184 $7,700,085 $8,743,677 ---------- ---------- ---------- --------- ----------
Year 6 7 8 9 10 ---- - - - - -- Homes Passed 26,187 26,448 26,713 26,980 27,250 EBU Penetration 61.0% 63.0% 65.0% 65.0% 65.0% Kagan Penetration Projection 63.4% 62.3% 61.6% 60.9% Equivalent Billing Units 15,974 16,662 17,363 17,537 17,712 Basic Revenue/EBU $29.90 $31.20 $32.60 $34.10 $35.60 Basic Revenue 5,731,391 6,238,434 6,792,548 7,176,140 7,566,724 ---------- ----------- ----------- ----------- ----------- Pay-to-Basic Ratio 46.0% 47.0% 48.0% 49.0% 50.0% Pay Units 7,348 7,831 8,334 8,593 8,856 Pay Revenue/Pay Unit $9.04 $9.04 $9.04 $9.04 $9.04 Pay Revenue 797,104 849,547 904,117 932,183 960,719 ---------- ----------- ----------- ----------- ----------- New Product Tier/EBU $6.52 $6.85 $7.19 $7.55 $7.93 New Product Tier Revenue 1,250,133 1,369,234 1,498,170 1,588,809 1,684,932 ---------- ----------- ----------- ----------- ----------- Mini-Pay Revenue/EBU $0.85 $1.07 $1.34 $1.67 $2.09 Mini-Pay Revenue/EBU 163,794 213,569 278,191 351,216 443,411 ---------- ----------- ----------- ----------- ----------- Pay-Per-View Revenue/EBU $1.50 $1.88 $2.16 $2.37 $2.61 Pay-Per-View Revenue 287,528 374,906 449,277 499,147 554,552 ---------- ----------- ----------- ----------- ----------- Equipment Revenue/ EBU $3.04 $3.02 $3.00 $3.06 $3.13 Equipment Revenue 582,563 603,297 624,809 644,424 664,663 ---------- ----------- ----------- ----------- ----------- Advertising Revenue/EBU $2.03 $2.24 $2.46 $2.71 $2.98 Advertising Revenue/EBU 389,869 447,345 512,779 569,697 632,933 ---------- ----------- ----------- ----------- ----------- Home Shopping/EBU $0.82 $0.95 $1.09 $1.25 $1.44 Home Shopping Revenue 157,700 189,174 226,701 263,313 305,838 ---------- ----------- ----------- ----------- ----------- Installation Revenue/EBU $0.48 $0.51 $0.53 $0.56 $0.59 Installation Revenue 92,965 101,822 111,410 118,150 125,298 ---------- ----------- ----------- ----------- ----------- Franchise Fee Pass-thru Revenue/EBU $0.32 $0.33 $0.34 $0.35 $0.37 Franchise Fee Pass-thru Revenue 62,220 66,850 71,752 74,644 77,652 ---------- ----------- ----------- ----------- ----------- Late Fees & Other Revenue/EBU $2.20 $2.30 $2.42 $2.54 $2.67 Late Fees & Other Revenue 420,788 460,877 504,276 534,785 567,140 ---------- ----------- ----------- ----------- ----------- Total Revenue $9,936,056 $10,915,054 $11,974,031 $12,752,508 $13,583,862 ---------- ----------- ----------- ----------- -----------
-97- 104 - ----------------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-2c Centreville, MD CATV SYSTEM VALUATION MODEL - -----------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- -- -- -- -- -- Total Revenue $6,006,544 $6,394,161 $6,856,184 $7,700,085 $8,743,677 Margin % to Revenue 48.7% 49.0% 50.0% 51.0% 52.0% Operating Cash Flow 2,925,187 3,133,139 3,428,092 3,927,043 4,546,712 Captal Expenditures: - Rebuild/Extensions 1,194,000 4,552,000 3,021,000 183,000 193,000 - Recurring 636,000 303,000 275,000 1,477,000 1,183,000 ---------- ---------- ---------- ---------- ---------- Total 1,830,000 4,855,000 3,296,000 1,660,000 1,376,000 ========== ========== ========== ========== ========== Net Cash Flow 1,095,187 (1,721,861) 132,092 2,267,043 3,170,712 Present Value Factor @ 15.0% 0.93250 0.81087 0.70511 0.61314 0.53316 PV Net Cash Flow 1,021,267 (1,396,212) 93,139 1,390,008 1,690,505 ========== ========== ========== ========== ==========
Year 6 7 8 9 10 ---- -- -- -- -- -- Total Revenue $9,936,056 $10,915,054 $11,974,031 $12,752,508 $13,583,862 Margin % to Revenue 53.0% 54.0% 55.0% 55.0% 55.0% Operating Cash Flow 5,266,109 5,894,129 6,585,717 7,013,880 7,471,124 Captal Expenditures: - Rebuild/Extensions 101,000 105,000 110,000 114,000 119,000 - Recurring 523,000 489,000 505,000 365,000 371,000 ---------- ---------- ---------- ---------- ---------- Total 624,000 594,000 615,000 479,000 490,000 ========== ========== ========== ========== ========== 0 Net Cash Flow 4,642,109 5,300,129 5,970,717 6,534,880 6,981,124 Present Value Factor @ 15.0% 0.46362 0.40315 0.35056 0.30484 0.26508 PV Net Cash Flow 2,152,173 2,136,734 2,093,113 1,992,076 1,850,529 ========== ========== ========== ========== ==========
Present Value of Net Cash Flows $13,023,334 Residual Value Present Value of Residual 10,780,920 --------------------------------------------------------- ----------- 8x's Yr 11 Operating Cash Flow $63,056,287 Value Indication under Income Approach $23,804,253 Less: Taxes 30.8% 19,441,454 ----------- ----------- Value Indication (Rounded) $23,800,000 After Tax Proceeds (end of year 10) 43,614,833 =========== =========== Value Indication/EBU $1,890 Present Value @ 15.0% $10,780,920 ====== =========== Cash Flow Multiple - Proje 8.1 ===
-98- 105
- ----------------------------------------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-3a Somerset, Kentucky CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1995 - ----------------------------------------------------------------------------------------------------------------------------------- Growth Rate in Homes Passed 1.60% Thru Yr 5 Homes Passed @ 12/31/96 22,060 Equivalent Billing Units @ 12/31/96 19,486 88.3% EBU's/HP Pay Units @ 12/31/96 3,914 20.1% Pay Units/EBU's Operating Margin for 96 Yr. 51.5% After Adj Partnership Expenses & One-Time Payments from Programmers Operating Margin for 95 Yr. 49.6% After Adj Partnership Expenses Weighted average discount rate 15.0%
Year 1 2 3 4 5 ---- - - - - - Basic Rev/EBU (now $21.34) $21.60 $22.60 $23.60 $25.00 $26.10 Growth rate 1.2% 7.0% 7.0% 6.0% 4.5% Kagan Projection $26.04 $27.35 $28.44 $29.58 $30.76 Growth rate 12.9% 5.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $8.43) $8.43 $8.43 $8.43 $8.43 $8.43 Growth rate 0.0% 0.0% 0.0% 0.0% 0.0% Kagan Projection $8.15 $8.03 $7.93 $7.82 $7.73 Growth rate -1.5% -1.5% -1.2% -1.4% -1.2% New Product Tier (now $5.12) $5.48 $6.03 $6.63 $7.16 $7.52 Growth rate 7.0% 10.0% 10.0% 8.0% 5.0% Mini-Pay/EBU (now $0.00) $0.00 $0.05 $0.06 $0.08 $0.10 Growth rate 0.0% 0.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.05) $0.06 $0.25 $0.50 $0.60 $0.69 Growth rate 25.0% 300.0% 100.0% 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$0.49) $0.50 $1.50 $2.50 $2.58 $2.65 Growth rate 3.0% 197.2% 66.7% 3.0% 3.0% Advertising/EBU (now $1.48) $1.66 $1.86 $2.04 $2.21 $2.38 Growth rate 12.0% 12.0% 10.0% 8.0% 8.0% 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) $0.45 $0.47 $0.50 $0.52 $0.55 Growth rate 0.0% 5.0% 5.0% 5.0% 5.0% Install/Service/EBU (now $0.66) $0.69 $0.73 $0.76 $0.80 $0.84 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Franchise Fee Pass-thru/EBU (now $0.11) $0.11 $0.18 $0.39 $0.63 $0.87 Growth rate n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.96) $1.01 $1.06 $1.11 $1.17 $1.23 growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 20.1%) 20.0% 20.0% 20.0% 20.0% 20.0% Kagan Projection 79.7% 81.2% 81.9% 82.4% 82.8% Total Annual EBU Rev $399.00 $436.90 $477.42 $509.05 $535.37 monthly (now $32.22) $33.25 $36.41 $39.78 $42.42 $44.61 Compound growth 6.2% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 Compound growth 4.8%
Growth Rate in Homes Passed 1.60% Thru Yr 5 Homes Passed @ 12/31/96 22,060 Equivalent Billing Units @ 12/31/96 19,486 88.3% EBU's/HP Pay Units @ 12/31/96 3,914 20.1% Pay Units/EBU's Operating Margin for 96 Yr. 51.5% After Adj Partnership Expenses & One-Time Payments from Programmers Operating Margin for 95 Yr. 49.6% After Adj Partnership Expenses Weighted average discount rate 15.0%
Year 6 7 8 9 10 ---- - - - - -- Basic Rev/EBU (now $21.34) $27.30 $28.50 $29.80 $31.10 $32.50 Growth rate 4.5% 4.5% 4.5% 4.5% 4.5% Kagan Projection $31.99 $33.27 $34.60 $35.99 n/a Growth rate 4.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $8.43) $8.43 $8.43 $8.43 $8.43 $8.43 Growth rate 0.0% 0.0% 0.0% 0.0% 0.0% Kagan Projection $7.63 $7.54 $7.45 $7.35 n/a Growth rate -1.3% -1.2% -1.2% -1.3% New Product Tier (now $5.12) $7.89 $8.29 $8.70 $9.14 $9.59 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% Pay-Per-View Rev/EBU (now $0.05) $0.79 $0.91 $1.00 $1.10 $1.21 Growth rate 15.0% 15.0% 10.0% 10.0% 10.0% 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$0.49) $2.73 $2.81 $2.90 $2.99 $3.07 Growth rate 3.0% 3.0% 3.0% 3.0% 3.0% Advertising/EBU (now $1.48) $2.56 $2.75 $2.96 $3.18 $3.42 Growth rate 7.5% 7.5% 7.5% 7.5% 7.5% 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) $0.57 $0.60 $0.63 $0.66 $0.70 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Install/Service/EBU (now $0.66) $0.88 $0.93 $0.98 $1.02 $1.08 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Franchise Fee Pass-thru/EBU (now $0.11) $1.15 $1.44 $1.76 $2.10 $2.20 Growth rate n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.96) $1.29 $1.35 $1.42 $1.49 $1.56 growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 20.1%) 20.0% 20.0% 20.0% 20.0% 20.0% Kagan Projection 83.0% 83.2% 83.1% 83.1% n/a Total Annual EBU Rev $563.74 $593.13 $624.31 $656.57 $687.95 monthly (now $32.22) $46.98 $49.43 $52.03 $54.71 $57.33 Compound growth Kagan Projection $42.60 $44.74 $46.91 $49.15 Compound growth 4.8%
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category. -99- 106 - -------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-3b Somerset, Kentucky CATV SYSTEM VALUATION MODEL - --------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- - - - - - Homes Passed 22,236 22,592 22,954 23,321 23,694 EBU Penetration 89.0% 89.5% 90.0% 90.0% 90.0% Kagan Penetration Projection 68.5% 67.7% 66.6% 65.5% 64.4% Equivalent Billing Units 19,790 20,220 20,658 20,989 21,325 Basic Revenue/EBU $21.60 $22.60 $23.60 $25.00 $26.10 Basic Revenue 5,129,689 5,483,685 5,850,449 6,296,670 6,678,903 --------- --------- --------- --------- --------- Pay-to-Basic Ratio 20.0% 20.0% 20.0% 20.0% 20.0% Pay Units 3,958 4,044 4,132 4,198 4,265 Pay Revenue/Pay Unit $8.43 $8.43 $8.43 $8.43 $8.43 Pay Revenue 400,401 409,093 417,960 424,647 431,442 --------- --------- --------- --------- --------- New Product Tier/EBU $5.48 $6.03 $6.63 $7.16 $7.52 New Product Tier Revenue 1,301,041 1,462,212 1,643,298 1,803,158 1,923,609 --------- --------- --------- --------- --------- Mini-Pay Revenue/EBU $0.00 $0.05 $0.06 $0.08 $0.10 Mini-Pay Revenue/EBU 0 12,132 15,494 19,677 24,990 --------- --------- --------- --------- --------- Pay-Per-View Revenue/EBU $0.06 $0.25 $0.50 $0.60 $0.69 Pay-Per-View Revenue 14,843 60,660 123,950 151,120 176,569 --------- --------- --------- --------- --------- Equipment Revenue/ EBU $0.50 $1.50 $2.50 $2.58 $2.65 Equipment Revenue 119,859 363,961 619,751 648,557 678,702 --------- --------- --------- --------- --------- Advertising Revenue/EBU $1.66 $1.86 $2.04 $2.21 $2.38 Advertising Revenue/EBU 393,656 450,466 506,253 555,501 609,541 --------- --------- --------- --------- --------- Home Shopping/EBU $0.45 $0.47 $0.50 $0.52 $0.55 Home Shopping Revenue 106,869 114,648 122,990 131,205 139,970 --------- --------- --------- --------- --------- Installation Revenue/EBU $0.69 $0.73 $0.76 $0.80 $0.84 Installation Revenue 164,578 176,558 189,404 202,056 215,553 --------- --------- --------- --------- --------- Franchise Fee Pass-thru Revenue/EBU $0.11 $0.18 $0.39 $0.63 $0.87 Franchise Fee Pass-thru Revenue 26,123 43,951 97,650 157,897 223,856 --------- --------- --------- --------- --------- Late Fees & Other Revenue/EBU $1.01 $1.06 $1.11 $1.17 $1.23 Late Fees & Other Revenue 239,385 256,811 275,497 293,900 313,532 --------- --------- --------- --------- --------- Total Revenue $7,896,444 $8,834,177 $9,862,696 $10,684,390 $11,416,667 ========== ========== ========== =========== ===========
Year 6 7 8 9 10 ---- - - - - -- Homes Passed 23,884 24,075 24,267 24,461 24,657 EBU Penetration 90.0% 90.0% 90.0% 90.0% 90.0% Kagan Penetration Projection 63.4% 62.3% 61.6% 60.9% Equivalent Billing Units 21,495 21,667 21,841 22,015 22,191 Basic Revenue/EBU $27.30 $28.50 $29.80 $31.10 $32.50 Basic Revenue 7,041,867 7,410,211 7,810,206 8,216,127 8,654,673 --------- --------- --------- --------- --------- Pay-to-Basic Ratio 20.0% 20.0% 20.0% 20.0% 20.0% Pay Units 4,299 4,333 4,368 4,403 4,438 Pay Revenue/Pay Unit $8.43 $8.43 $8.43 $8.43 $8.43 Pay Revenue 434,893 438,372 441,879 445,414 448,978 --------- --------- --------- --------- --------- New Product Tier/EBU $7.89 $8.29 $8.70 $9.14 $9.59 New Product Tier Revenue 2,035,948 2,154,847 2,280,690 2,413,882 2,554,853 --------- --------- --------- --------- --------- Mini-Pay Revenue/EBU $0.12 $0.15 $0.19 $0.24 $0.30 Mini-Pay Revenue/EBU 31,487 39,674 49,989 62,986 79,363 Pay-Per-View Revenue/EBU $0.79 $0.91 $1.00 $1.10 $1.21 Pay-Per-View Revenue 204,678 237,263 263,077 291,700 323,437 --------- --------- --------- --------- --------- Equipment Revenue/ EBU $2.73 $2.81 $2.90 $2.99 $3.07 Equipment Revenue 704,655 731,602 759,578 788,624 818,781 --------- --------- --------- --------- --------- Advertising Revenue/EBU $2.56 $2.75 $2.96 $3.18 $3.42 Advertising Revenue/EBU 660,498 715,716 775,550 840,386 910,642 --------- --------- --------- --------- --------- Home Shopping/EBU $0.57 $0.60 $0.63 $0.66 $0.70 Home Shopping Revenue 148,144 156,796 165,953 175,644 185,902 --------- --------- --------- --------- --------- Installation Revenue/EBU $0.88 $0.93 $0.98 $1.02 $1.08 Installation Revenue 228,142 241,465 255,567 270,492 286,289 --------- --------- --------- --------- --------- Franchise Fee Pass-thru Revenue/EBU $1.15 $1.44 $1.76 $2.10 $2.20 Franchise Fee Pass-thru Revenue 295,554 374,315 461,098 555,948 587,173 --------- --------- --------- --------- --------- Late Fees & Other Revenue/EBU $1.29 $1.35 $1.42 $1.49 $1.56 Late Fees & Other Revenue 331,843 351,222 371,734 393,443 416,420 --------- --------- --------- --------- --------- Total Revenue $12,117,710 $12,851,483 $13,635,321 $14,454,647 $15,266,511 =========== =========== =========== =========== ===========
-100- 107 - ---------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-3c Somerset, Kentucky CATV SYSTEM VALUATION MODEL - ----------------------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- - - - - - Total Revenue $7,896,444 $8,834,177 $9,862,696 $10,684,390 $11,416,667 Margin % to Revenue 52.0% 52.5% 53.0% 53.5% 54.0% Operating Cash Flow 4,106,151 4,637,943 5,227,229 5,716,148 6,165,000 Capital Expenditures: - Rebuild/Extensions 2,312,000 2,025,000 6,525,000 148,000 155,000 - Recurring 226,000 264,000 275,000 256,000 266,000 ---------- ---------- ----------- ---------- ---------- Total 2,538,000 2,289,000 6,800,000 404,000 421,000 ========== ========== =========== ========== ========== Net Cash Flow 1,568,151 2,348,943 (1,572,771) 5,312,148 5,744,000 Present Value Factor @ 15.0% 0.93250 0.81087 0.70511 0.61314 0.53316 PV Net Cash Flow $1,462,308 $1,904,696 ($1,108,973) $3,257,075 $3,062,486 ========== ========== =========== ========== ==========
Year 6 7 8 9 10 ---- - - - - -- Total Revenue $12,117,710 $12,851,483 $13,635,321 $14,454,647 $15,266,511 Margin % to Revenue 54.5% 55.0% 55.0% 55.0% 55.0% Operating Cash Flow 6,604,152 7,068,316 7,499,426 7,950,056 8,396,581 Capital Expenditures: - Rebuild/Extensions 131,000 134,000 138,000 141,000 144,000 - Recurring 229,000 236,000 243,000 250,000 258,000 ---------- ---------- ----------- ---------- ---------- Total 360,000 370,000 381,000 391,000 402,000 ========== ========== =========== ========== ========== Net Cash Flow 6,244,152 6,698,316 7,118,426 7,559,056 7,994,581 Present Value Factor @ 15.0% 0.46362 0.40315 0.35056 0.30484 0.26508 PV Net Cash Flow $2,894,912 $2,700,410 $2,495,458 $2,304,284 $2,119,172 ========== ========== =========== ========== ==========
Present Value of Net Cash Flows $21,091,827 Residual Value Present Value of Residual 12,138,583 ------------------------------------------------------ ----------- 8x's Yr 11 Operating Cash Flow $70,531,280 Value Indication under Income Approach $33,230,410 Less: Taxes (see Schedule 30.4% 21,423,940 =========== ----------- Value Indication (Rounded) $33,230,000 After Tax Proceeds (end of year 10) 49,107,340 =========== =========== Value Indication/EBU $1,705 Present Value @ 15.0% $12,138,583 ====== =========== Cash Flow Multiple - Projected 8.1 ===
-101- 108 - ---------------------------------------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-4a Redmond, Oregon CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1995 - ----------------------------------------------------------------------------------------------------------------------------------
Growth Rate in Homes Passed 3.80% Thru Yr 5 Homes Passed @ 12/31/96 7,252 Equivalent Billing Units @ 12/31/96 3,679 50.7% EBU's/HP Pay Units @ 12/31/96 706 19.2% Pay Units/EBU's Operating Margin for 96 Yr. 55.8% After Adj Partnership Expenses & One-Time Payments from Programmers Operating Margin for 95 Yr. 52.4% After Adj Partnership Expenses Weighted average discount rate 15.0%
Year 1 2 3 4 5 6 ---- - - - - - - Basic Rev/EBU (now $24.14) $24.14 $25.20 $26.30 $27.50 $28.70 $30.00 Growth rate 0.0% 4.5% 4.5% 4.5% 4.5% 4.5% Kagan Projection $26.04 $27.35 $28.44 $29.58 $30.76 $31.99 Growth rate 12.9% 5.0% 4.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $6.32) $6.32 $6.51 $6.51 $6.70 $6.70 $6.91 Growth rate 0.0% 3.0% 0.0% 3.0% 0.0% 3.0% Kagan Projection $8.15 $8.03 $7.93 $7.82 $7.73 $7.63 Growth rate -1.5% -1.5% -1.2% -1.4% -1.2% -1.3% New Product Tier (now $6.16) $6.16 $6.78 $7.45 $8.05 $8.45 $8.88 Growth rate 0.0% 10.0% 10.0% 8.0% 5.0% 5.0% Mini-Pay/EBU (now $0.05) $0.05 $0.06 $0.08 $0.10 $0.12 $0.15 Growth rate 0.0% 25.0% 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.00) $0.00 $0.50 $0.63 $0.78 $0.94 $1.08 Growth rate 0.0% 25.0% 25.0% 25.0% 20.0% 15.0% Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 $2.36 Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% 17.4% Equipment/EBU (now $0.82) $0.84 $1.50 $2.50 $2.58 $2.65 $2.73 Growth rate 3.0% 77.6% 66.7% 3.0% 3.0% 3.0% Advertising/EBU (now $1.45) $1.54 $1.73 $1.95 $2.14 $2.35 $2.53 Growth rate 6.0% 12.5% 12.5% 10.0% 10.0% 7.5% Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 $3.47 Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% 12.7% Home Shopping/EBU (now $0.31) $0.33 $0.34 $0.36 $0.38 $0.40 $0.42 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0% Install/Service/EBU (now $.45) $0.45 $0.47 $0.50 $0.52 $0.55 $0.57 Growth rate 0.0% 5.0% 5.0% 5.0% 5.0% 5.0% Franchise Fee Pass-thru/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Growth rate n/a n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.71) $0.71 $0.75 $0.78 $0.82 $0.86 $0.91 growth rate 0.0% 5.0% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 19.2%) 19.2% 19.0% 19.0% 19.0% 19.0% 19.0% Kagan Projection 79.7% 81.2% 81.9% 82.4% 82.8% 83.0% Total Annual EBU Rev $425.17 $462.77 $501.32 $529.65 $555.57 $582.91 monthly (now $35.43) $35.43 $38.56 $41.78 $44.14 $46.30 $48.58 Compound growth 5.8% Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 $42.60 Compound growth 4.8%
Year 7 8 9 10 ---- - - - -- Basic Rev/EBU (now $24.14) $31.40 $32.80 $34.30 $35.80 Growth rate 4.5% 4.5% 4.5% 4.5% Kagan Projection $33.27 $34.60 $35.99 n/a Growth rate 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $6.32) $6.91 $7.11 $7.11 $7.33 Growth rate 0.0% 3.0% 0.0% 3.0% Kagan Projection $7.54 $7.45 $7.35 n/a Growth rate -1.2% -1.2% -1.3% New Product Tier (now $6.16) $9.32 $9.78 $10.27 $10.79 Growth rate 5.0% 5.0% 5.0% 5.0% Mini-Pay/EBU (now $0.05) $0.19 $0.24 $0.30 $0.37 Growth rate 25.0% 25.0% 25.0% 25.0% Pay-Per-View Rev/EBU (now $0.00) $1.24 $1.36 $1.50 $1.65 Growth rate 15.0% 10.0% 10.0% 10.0% Kagan Projection $2.81 $3.25 $3.66 n/a Growth rate 19.1% 15.7% 12.6% Equipment/EBU (now $0.82) $2.81 $2.90 $2.99 $3.07 Growth rate 3.0% 3.0% 3.0% 3.0% Advertising/EBU (now $1.45) $2.72 $2.92 $3.14 $3.38 Growth rate 7.5% 7.5% 7.5% 7.5% Kagan Projection $3.87 $4.28 $4.69 n/a Growth rate 11.5% 10.6% 9.6% Home Shopping/EBU (now $0.31) $0.44 $0.46 $0.48 $0.50 Growth rate 5.0% 5.0% 5.0% 5.0% Install/Service/EBU (now $.45) $0.60 $0.63 $0.66 $0.70 Growth rate 5.0% 5.0% 5.0% 5.0% Franchise Fee Pass-thru/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 Growth rate n/a n/a n/a n/a Late Fees & Other/EBU (now $0.71) $0.95 $1.00 $1.05 $1.10 growth rate 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 19.2%) 19.0% 19.0% 19.0% 19.0% Kagan Projection 83.2% 83.1% 83.1% n/a Total Annual EBU Rev $611.83 $641.41 $672.56 $705.13 monthly (now $35.43) $50.99 $53.45 $56.05 $58.76 Compound growth Kagan Projection $44.74 $46.91 $49.15
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category. -102- 109
- -------------------------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC . Exhibit E-4b Redmond, Oregon CATV SYSTEM VALUATION MODEL - -------------------------------------------------------------------------------------------------------------------- Year 1 2 3 4 5 ---- - - - - - Homes Passed 8,407 9,925 10,303 10,694 11,100 EBU Penetration 50.0% 48.0% 49.0% 49.5% 50.0% Kagan Penetration Projection 68.5% 67.7% 66.6% 65.5% 64.4% Equivalent Billing Units 4,204 4,764 5,048 5,294 5,550 Basic Revenue/EBU $24.14 $25.20 $26.30 $27.50 $28.70 Basic Revenue 1,217,670 1,440,685 1,593,223 1,746,867 1,911,487 ---------- ---------- ---------- ---------- ---------- Pay-to-Basic Ratio 19.2% 19.0% 19.0% 19.0% 19.0% Pay Units 807 905 959 1,006 1,055 Pay Revenue/Pay Unit $6.32 $6.51 $6.51 $6.70 $6.70 Pay Revenue 61,208 70,709 74,925 80,923 84,847 ---------- ---------- ---------- ---------- ---------- New Product Tier/EBU $6.16 $6.78 $7.45 $8.05 $8.45 New Product Tier Revenue 310,723 387,384 451,530 511,349 562,948 ---------- ---------- ---------- ---------- ---------- Mini-Pay Revenue/EBU $0.05 $0.06 $0.08 $0.10 $0.12 Mini-Pay Revenue/EBU 2,522 3,573 4,733 6,203 8,130 ---------- ---------- ---------- ---------- ---------- Pay-Per-View Revenue/EBU $0.00 $0.50 $0.63 $0.78 $0.94 Pay-Per-View Revenue 0 28,585 37,862 49,627 62,440 ---------- ---------- ---------- ---------- ---------- Equipment Revenue/ EBU $0.84 $1.50 $2.50 $2.58 $2.65 Equipment Revenue 42,603 85,755 151,447 163,570 176,646 ---------- ---------- ---------- ---------- ---------- Advertising Revenue/EBU $1.54 $1.73 $1.95 $2.14 $2.35 Advertising Revenue/EBU 77,529 98,854 117,842 135,925 156,767 ---------- ---------- ---------- ---------- ---------- Home Shopping/EBU $0.33 $0.34 $0.36 $0.38 $0.40 Home Shopping Revenue 16,419 19,539 21,740 23,936 26,351 ---------- ---------- ---------- ---------- ---------- Installation Revenue/EBU $0.45 $0.47 $0.50 $0.52 $0.55 Installation Revenue 22,699 27,013 30,055 33,091 36,430 ---------- ---------- ---------- ---------- ---------- Franchise Fee Pass-thru Revenue/EB $0.00 $0.00 $0.00 $0.00 $0.00 Franchise Fee Pass-thru Revenue 0 0 0 0 0 Late Fees & Other Revenue/EBU $0.71 $0.75 $0.78 $0.82 $0.86 Late Fees & Other Revenue 35,814 42,620 47,420 52,210 57,478 ---------- ---------- ---------- ---------- ---------- Total Revenue $1,787,187 $2,204,719 $2,530,776 $2,803,701 $3,083,524 ========== ========== ========== ========== ==========
Year 6 7 8 9 10 ---- - - - - -- Homes Passed 11,311 11,526 11,745 11,968 12,196 EBU Penetration 50.5% 51.0% 51.5% 52.0% 52.5% Kagan Penetration Projection 63.4% 62.3% 61.6% 60.9% Equivalent Billing Units 5,712 5,878 6,049 6,224 6,403 Basic Revenue/EBU $30.00 $31.40 $32.80 $34.30 $35.80 Basic Revenue 2,056,393 2,214,969 2,380,801 2,561,613 2,750,633 ---------- ---------- ---------- ---------- ---------- Pay-to-Basic Ratio 19.0% 19.0% 19.0% 19.0% 19.0% Pay Units 1,085 1,117 1,149 1,182 1,217 Pay Revenue/Pay Unit $6.91 $6.91 $7.11 $7.11 $7.33 Pay Revenue 89,943 92,559 98,100 100,934 106,956 ---------- ---------- ---------- ---------- ---------- New Product Tier/EBU $8.88 $9.32 $9.78 $10.27 $10.79 New Product Tier Revenue 608,350 657,349 710,225 767,283 828,849 ---------- ---------- ---------- ---------- ---------- Mini-Pay Revenue/EBU $0.15 $0.19 $0.24 $0.30 $0.37 Mini-Pay Revenue/EBU 10,459 13,455 17,306 22,257 28,623 ---------- ---------- ---------- ---------- ---------- Pay-Per-View Revenue/EBU $1.08 $1.24 $1.36 $1.50 $1.65 Pay-Per-View Revenue 73,902 87,459 98,994 112,040 126,793 ---------- ---------- ---------- ---------- ---------- Equipment Revenue/ EBU $2.73 $2.81 $2.90 $2.99 $3.07 Equipment Revenue 187,256 198,485 210,366 222,937 236,238 ---------- ---------- ---------- ---------- ---------- Advertising Revenue/EBU $2.53 $2.72 $2.92 $3.14 $3.38 Advertising Revenue/EBU 173,443 191,875 212,246 234,756 259,631 ---------- ---------- ---------- ---------- ---------- Home Shopping/EBU $0.42 $0.44 $0.46 $0.48 $0.50 Home Shopping Revenue 28,476 30,770 33,245 35,916 38,798 ---------- ---------- ---------- ---------- ---------- Installation Revenue/EBU $0.57 $0.60 $0.63 $0.66 $0.70 Installation Revenue 39,368 42,539 45,961 49,653 53,637 ---------- ---------- ---------- ---------- ---------- Franchise Fee Pass-thru Revenue/EB $0.00 $0.00 $0.00 $0.00 $0.00 Franchise Fee Pass-thru Revenue 0 0 0 0 0 Late Fees & Other Revenue/EBU $0.91 $0.95 $1.00 $1.05 $1.10 Late Fees & Other Revenue 62,114 67,117 72,516 78,342 84,628 ---------- ---------- ---------- ---------- ---------- Total Revenue $3,329,705 $3,596,576 $3,879,759 $4,185,732 $4,514,785 ========== ========== ========== ========== ==========
-103- 110 - -------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-4c Redmond, Oregon CATV SYSTEM VALUATION MODEL - --------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 ---- - - - - - Total Revenue $1,787,187 $2,204,719 $2,530,776 $2,803,701 $3,083,524 Margin % to Revenue 51.1% 53.0% 53.5% 54.0% 54.5% Operating Cash Flow 913,253 1,168,501 1,353,965 1,513,999 1,680,520 Capital Expenditures: - Rebuild/Extensions 853,000 1,641,000 1,638,000 116,000 123,000 - Recurring 144,000 26,000 99,000 118,000 126,000 -------- --------- --------- -------- -------- Total 997,000 1,667,000 1,737,000 234,000 249,000 -------- --------- --------- -------- -------- Net Cash Flow (83,747) (498,499) (383,035) 1,279,999 1,431,520 Present Value Factor @ 15.0% 0.93250 0.81087 0.70511 0.61314 0.53316 PV Net Cash Flow ($78,095) ($404,220) ($270,081) $784,815 $763,233 ======== ========= ========= ======== ========
Year 6 7 8 9 10 ---- - - - - -- Total Revenue $3,329,705 $3,596,576 $3,879,759 $4,185,732 $4,514,785 Margin % to Revenue 55.0% 55.0% 55.0% 55.0% 55.0% Operating Cash Flow 1,831,338 1,978,117 2,133,867 2,302,153 2,483,132 Capital Expenditures: - Rebuild/Extensions 116,000 119,000 123,000 126,000 130,000 - Recurring 104,000 109,000 113,000 119,000 124,000 -------- --------- --------- -------- -------- Total 220,000 228,000 236,000 245,000 254,000 -------- --------- --------- -------- -------- Net Cash Flow 1,611,338 1,750,117 1,897,867 2,057,153 2,229,132 Present Value Factor @ 15.0% 0.46362 0.40315 0.35056 0.30484 0.26508 PV Net Cash Flow $747,048 $705,555 $665,322 $627,097 $590,889 ======== ======== ======== ======== ========
Present Value of Net Cash Flows $4,131,564 Residual Value Present Value of Residual 3,637,961 ---------------------------------------------------- ---------- 8x's Yr 11 Operating Cash Flow $21,255,607 Value Indication under Income Appr $7,769,526 Less: Taxes (see Schedule)(C) 30.8% 6,538,024 ---------- ----------- Value Indication (Rounded) $7,770,000 After Tax Proceeds (end of year 10) 14,717,583 ---------- ----------- Value Indication/EBU $2,112 Present Value @ 15.0% $ 3,637,961 ------ =========== Cash Flow Multiple - Proj 8.5 ---
-104- 111 - ----------------------------------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-5a California City, California CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1995 - -----------------------------------------------------------------------------------------------------------------------------
Growth Rate in Homes Passed 3.00% Thru Yr 5 (CACI shows 5.7%, System Mgmt says 2-3%) Homes Passed @ 12/31/96 2,858 Equivalent Billing Units @ 12/31/96 1,960 68.6% EBU's/HP Pay Units @ 12/31/96 839 42.8% Pay Units/EBU's Operating Margin for 96 Yr. 54.0% After Adj Partnership Expenses & One-Time Payments from Programmers Operating Margin for 95 Yr. 49.6% After Adj Partnership Expenses Weighted average discount rate 15.0% Year 1 2 3 4 5 ---- - - - - - Basic Rev/EBU (now $21.50) $21.70 $22.70 $23.70 $24.80 $25.90 Growth rate 1.0% 4.5% 4.5% 4.5% 4.5% Kagan Projection $26.04 $27.35 $28.44 $29.58 $30.76 Growth rate 12.9% 5.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $8.12) $8.12 $8.12 $8.12 $8.12 $8.12 Growth rate 0.0% 0.0% 0.0% 0.0% 0.0% Kagan Projection $8.15 $8.03 $7.93 $7.82 $7.73 Growth rate -1.5% -1.5% -1.2% -1.4% -1.2% New Product Tier (now $2.54) $2.67 $2.85 $3.05 $3.24 $3.40 Growth rate 5.0% 7.0% 7.0% 6.0% 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% Pay-Per-View Rev/EBU (now $0.00) $0.00 $0.25 $0.33 $0.39 $0.45 Growth rate 0.0% 0.0% 30.0% 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$2.36) $2.43 $2.50 $2.58 $2.66 $2.74 Growth rate 3.0% 3.0% 3.0% 3.0% 3.0% Advertising/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.00 Growth rate 10.0% 10.0% 10.0% 8.0% 8.0% 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 $0.29) $0.30 $0.32 $0.34 $0.35 $0.37 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Install/Service/EBU (now $0.88) $0.92 $0.97 $1.02 $1.07 $1.12 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Franchise Fee Pass-thru/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.00 Growth rate n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.72) $0.76 $0.79 $0.83 $0.88 $0.92 growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 42.8%) 40.0% 40.0% 40.0% 40.0% 40.0% Kagan Projection 79.7% 81.2% 81.9% 82.4% 82.8% Total Annual EBU Rev $384.36 $404.27 $421.87 $440.48 $458.89 monthly (now $31.62) $32.03 $33.69 $35.16 $36.71 $38.24 Compound growth 4.4% 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 $21.50) $27.10 $28.30 $29.60 $30.90 $32.30 Growth rate 4.5% 4.5% 4.5% 4.5% 4.5% Kagan Projection $31.99 $33.27 $34.60 $35.99 n/a Growth rate 4.0% 4.0% 4.0% 4.0% Pay Rev/Pay Unit (now $8.12) $8.12 $8.12 $8.12 $8.12 $8.12 Growth rate 0.0% 0.0% 0.0% 0.0% 0.0% Kagan Projection $7.63 $7.54 $7.45 $7.35 n/a Growth rate -1.3% -1.2% -1.2% -1.3% New Product Tier (now $2.54) $3.57 $3.75 $3.93 $4.13 $4.34 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% Pay-Per-View Rev/EBU (now $0.00) $0.52 $0.59 $0.65 $0.72 $0.79 Growth rate 15.0% 15.0% 10.0% 10.0% 10.0% 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 $2.36) $2.82 $2.90 $2.99 $3.08 $3.17 Growth rate 3.0% 3.0% 3.0% 3.0% 3.0% Advertising/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.00 Growth rate 7.5% 7.5% 7.5% 7.5% 7.5% 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 $0.29) $0.39 $0.41 $0.43 $0.45 $0.47 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Install/Service/EBU (now $0.88) $1.18 $1.24 $1.30 $1.37 $1.43 Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Franchise Fee Pass-thru/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.00 Growth rate n/a n/a n/a n/a n/a Late Fees & Other/EBU (now $0.72) $0.96 $1.01 $1.06 $1.12 $1.17 growth rate 5.0% 5.0% 5.0% 5.0% 5.0% Pay-to-EBU (now 42.8%) 40.0% 40.0% 40.0% 40.0% 40.0% Kagan Projection 83.0% 83.2% 83.1% 83.1% n/a Total Annual EBU Rev $478.86 $499.23 $520.89 $542.96 $566.68 monthly (now $31.62) $39.91 $41.60 $43.41 $45.25 $47.22 Compound growth Kagan Projection $42.60 $44.74 $46.91 $49.15 Compound growth 4.8%
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category. -105- 112 - ----------------------------------------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. EXHIBIT E-5b California City, California CATV SYSTEM VALUATION MODEL - -----------------------------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 6 7 8 9 10 ---- - - - - - - - - - -- Homes Passed 2,901 2,988 3,078 3,170 3,265 3,314 3,364 3,414 3,465 3,517 EBU Penetration 69.0% 69.5% 70.0% 70.5% 71.0% 71.5% 72.0% 72.5% 73.0% 73.5% Kagan Penetration Projection 68.5% 67.7% 66.6% 65.5% 64.4% 63.4% 62.3% 61.6% 60.9% Equivalent Billing Units 2,002 2,077 2,154 2,235 2,318 2,369 2,422 2,475 2,530 2,585 Basic Revenue/EBU $21.70 $22.70 $23.70 $24.80 $25.90 $27.10 $28.30 $29.60 $30.90 $32.30 Basic Revenue 521,217 565,663 612,675 665,062 720,471 770,548 822,450 879,197 938,002 1,002,025 -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------- Pay-to-Basic Ratio 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% Pay Units 801 831 862 894 927 948 969 990 1,012 1,034 Pay Revenue/Pay Unit $8.12 $8.12 $8.12 $8.12 $8.12 $8.12 $8.12 $8.12 $8.12 $8.12 Pay Revenue 78,014 80,937 83,965 87,102 90,351 92,352 94,393 96,474 98,596 100,761 -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------- New Product Tier/EBU $2.67 $2.85 $3.05 $3.24 $3.40 $3.57 $3.75 $3.93 $4.13 $4.34 New Product Tier Revenue 64,059 71,111 78,936 86,797 94,537 101,462 108,890 116,855 125,397 134,558 -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------- Mini-Pay Revenue/EBU $0.00 $0.05 $0.06 $0.08 $0.10 $0.12 $0.15 $0.19 $0.24 $0.30 Mini-Pay Revenue/EBU 0 1,246 1,616 2,095 2,717 3,471 4,434 5,665 7,237 9,245 -------- -------- -------- -------- -------- -------- -------- -------- -------- ---------- Pay-Per-View Revenue/EBU $0.00 $0.25 $0.33 $0.39 $0.45 $0.52 $0.59 $0.65 $0.72 $0.79 Pay-Per-View Revenue 0 6,230 8,402 10,459 12,476 14,665 17,238 19,380 21,787 24,491 -------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Equipment Revenue/EBU $2.43 $2.50 $2.58 $2.66 $2.74 $2.82 $2.90 $2.99 $3.08 $3.17 Equipment Revenue 58,386 62,390 66,666 71,231 76,105 80,125 84,352 88,798 93,474 98,392 -------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Advertising Revenue/ EBU $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Advertising Revenue/ EBU 0 0 0 0 0 0 0 0 0 0 Home Shopping/EBU $0.30 $0.32 $0.34 $0.35 $0.37 $0.39 $0.41 $0.43 $0.45 $0.47 Home Shopping Revenue 7,314 7,967 8,679 9,453 10,296 11,050 11,859 12,726 13,657 14,654 -------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Installation Revenue/ EBU $0.92 $0.97 $1.02 $1.07 $1.12 $1.18 $1.24 $1.30 $1.37 $1.43 Installation Revenue 22,194 24,176 26,335 28,685 31,243 33,531 35,986 38,618 41,441 44,468 -------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Franchise Fee Pass-thru Revenue/EBU $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Franchise Fee Pass-thru Revenue 0 0 0 0 0 0 0 0 0 0 Late Fees & Other Revenue/EBU $0.76 $0.79 $0.83 $0.88 $0.92 $0.96 $1.01 $1.06 $1.12 $1.17 Late Fees & Other Revenue 18,159 19,781 21,547 23,469 25,562 27,435 29,443 31,597 33,906 36,383 -------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ---------- Total Revenue $769,342 $839,501 $908,820 $984,353 $1,063,757 $1,134,639 $1,209,044 $1,289,311 $1,373,499 $1,464,978 ======== ======== ======== ======== ========== ========== ========== ========== ========== ==========
-106- 113
- --------------------------------------------------------------------------------------------------------------------------------- Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-5c California City, California CATV SYSTEM VALUATION MODEL - --------------------------------------------------------------------------------------------------------------------------------- Year 1 2 3 4 5 - - - - - Total Revenue $769,342 $839,501 $908,820 $984,353 $1,063,757 Margin % to Revenue 54.0% 54.5% 55.0% 55.0% 55.0% Operating Cash Flow 415,445 457,528 499,851 541,394 585,067 Captal Expenditures: - Rebuild/Extensions 20,000 41,000 44,000 96,000 99,000 - Recurring 70,000 79,000 81,000 58,000 61,000 -------- -------- -------- -------- ---------- Total 90,000 120,000 125,000 154,000 160,000 ======== ======== ======== ======== ========== Net Cash Flow 325,445 337,528 374,851 387,394 425,067 Present Value Factor @ 15.0% 0.93250 0.81087 0.70511 0.61314 0.53316 PV Net Cash Flow $303,479 $273,693 $264,310 $237,526 $ 226,630 ======== ======== ======== ======== ==========
Year 6 7 8 9 10 - - - - -- Total Revenue $1,134,639 $1,209,044 $1,289,311 $1,373,499 $1,464,978 Margin % to Revenue 55.0% 55.0% 55.0% 55.0% 55.0% Operating Cash Flow 624,052 664,974 709,121 755,424 805,738 Captal Expenditures: - Rebuild/Extensions 76,000 77,000 78,000 80,000 81,000 - Recurring 54,000 55,000 57,000 58,000 60,000 ---------- ---------- ---------- ---------- ---------- Total 130,000 132,000 135,000 138,000 141,000 ========== ========== ========== ========== ========== Net Cash Flow 494,052 532,974 574,121 617,424 664,738 Present Value Factor @ 15.0% 0.46362 0.40315 0.35056 0.30484 0.26508 PV Net Cash Flow $ 229,052 $ 214,867 $ 201,266 $ 188,214 $ 176,206 ========== ========== ========== ========== ==========
Present Value of Net Cash Flows $2,315,242 Residual Value Present Value of Residual 1,215,829 ------------------------------------------------ ---------- 8x's Yr 11 Operating Cash Flow $6,897,117 Value Indication under Income Approach $3,531,072 Less: Taxes (see Schedule) @28.7% 1,978,409 ---------- ---------- Value Indication (Rounded) $3,530,000 After Tax Proceeds (end of year 10) 4,918,708 ---------- ---------- Value Indication/EBU $1,801 Present Value @ 15.0% $1,215,829 ---------- ---------- Cash Flow Multiple - Projected 8.5 ----------
-107- 114 QUALIFICATIONS OF THE APPRAISERS 115 KANE REECE PROVIDES VALUATION, MANAGEMENT AND TECHNICAL CONSULTING TO THE MEDIA AND COMMUNICATIONS INDUSTRIES. 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. 116 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 seventeen 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, a member of The New York Media Association, and a candidate for Senior Member - Business Valuation of the American Society of Appraisers (ASA). 117 APPENDIX GLOSSARY OF CABLE TV TERMS 118 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. ASCERTAINMENT - A survey of a community to determine local concerns, needs, and interests, especially in regard to cable programming. -A 1- 119 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. 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 -A 2- 120 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. 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. -A 3- 121 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 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 -A 4- 122 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). 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 -A 5- 123 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. 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. -A 6- 124 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. 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. -A 7- 125 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. 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. -A 8- 126 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. 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. -A 9- 127 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. 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. -A 10- 128 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. 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 -A 11- 129 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. 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. -A 12- 130 MSO (Multiple System Operator) - Company that owns and operates more than one cable television system. 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. NUMBER PORTABILITY - A capability that permits telecommunications users to maintain the same telephone access number as they change telecommunications suppliers. -A 13- 131 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 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. -A 14- 132 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 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. -A 15- 133 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 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. -A 16- 134 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. 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 -A 17- 135 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. 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. -A 18- 136 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. 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. -A 19- 137 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). -A 20- EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AT DECEMBER 31, 1996, AND THE STATEMENTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FIANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1996 DEC-31-1996 7,216 0 691 31 1,053 0 49,783 19,128 59,334 4,201 24,300 0 0 0 0 59,334 0 19,826 0 18,028 0 171 1,813 (15) 0 (15) 0 0 0 (15) (0.21) 0
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