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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: 33-60776
FALCON HOLDING GROUP, L.P.
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(Exact name of Registrant as specified in its charter)
DELAWARE 95-4408577
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
10900 WILSHIRE BOULEVARD - 15TH FLOOR
LOS ANGELES, CALIFORNIA 90024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (310) 824-9990
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Securities registered pursuant to Section 12 NONE
(b) of the Act:
Securities registered pursuant to Section 12 NONE
(g) of the Act:
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
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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]
The aggregate market value of equity securities held by non-affiliates
of the Registrant: There is no public trading market for the equity securities
of the Registrant and, accordingly, the Registrant is not presently able to
determine the market value of the equity securities held by non-affiliates.
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The Exhibit Index is located at Page E-1
<PAGE> 2
PART I
ITEM 1. BUSINESS
INTRODUCTION
Falcon Holding Group, L.P., a Delaware limited partnership (the
"Partnership"), owns and operates cable television systems in 23 states (the
"Owned Systems"), principally Missouri, Georgia, California, Oregon, Texas,
Alabama, North Carolina and Arkansas. At December 31, 1996, the Owned Systems
had approximately 732,000 Subscribers(1) and served approximately 544,000 homes
subscribing to cable service. The Partnership also controls, holds varying
equity interests in and manages certain other cable television systems (the
"Affiliated Systems" and, together with the Owned Systems, the "Systems"). At
December 31, 1996, the Affiliated Systems had approximately 285,000 Subscribers
and served approximately 207,000 homes subscribing to cable service in 16
states, including North Carolina, Kentucky, Illinois, Washington and Tennessee.
All of the Owned Systems and most of the Affiliated Systems operate under the
name "Falcon Cable TV." See "Overview of the 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."
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
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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 appropriate 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 "Overview of the Systems" for additional information about Subscribers and
homes subscribing to cable service.
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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, 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."
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, Falcon Holding Group, Inc. ("FHGI"), 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 possesses the right,
under certain circumstances, to acquire some or all of the Affiliated Systems.
Among the Affiliated Systems subject to such a purchase right are the cable
television systems owned by Falcon Classic Cable Income Properties, L.P.
("Classic" or "Falcon Classic"). Falcon Classic's agreement of limited
partnership (the "Classic Partnership Agreement") provides that certain
affiliates of its general partner (including FHGLP) may elect to acquire Falcon
Classic's cable systems for cash pursuant to an "Appraisal Process." The
Partnership commenced the Appraisal Process in August 1996. In February 1997,
the Partnership received the results of the related appraisals which indicated
an aggregate appraised value for all of the Falcon Classic cable systems of $82
million. At December 31, 1996, the Falcon Classic cable systems had
approximately 47,600 homes subscribing to cable service located in five states.
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 of the Falcon
Classic assets at this time. These matters are discussed more fully under the
caption Item 7., "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Item 13., "Certain Relationships and Related
Transactions - Falcon Classic Appraisal Process."
BUSINESS STRATEGY
Historically, the Partnership has followed a systematic approach to
acquiring, operating and developing cable television systems based on the
primary goal of increasing operating cash flow while maintaining the quality of
its services. The Partnership's business strategy has focused on serving small
to medium-sized communities and the suburbs of certain cities, including Corpus
Christi, Eugene, Little Rock, Los Angeles, Norfolk, Portland (Oregon), San Luis
Obispo, San Jose and St. Louis that have favorable demographic characteristics.
Because the Systems are located in geographically and economically diverse
markets across the United States, the Systems, taken as a whole, are not
dependent on any single local economy, are more resistant to regional economic
fluctuations and provide the Partnership with more stable revenue and operating
cash flow streams.
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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."
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. In many of the Partnership's markets,
consumers have access to only a limited number of over-the-air broadcast
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."
Clustering
The Partnership has sought to acquire cable television operations in
communities that are proximate to other 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. In
determining whether the Partnership should acquire a particular system, the
Partnership evaluates, among other things, the capital expenditure requirements
of the system and the demographics of the region.
Acquisitions
Management believes that the cable television industry has entered a
period of consolidation. Subject to the availability of adequate capital on
terms satisfactory to the Partnership, of which there can be no assurance, the
Partnership plans to continue its acquisition strategy by pursuing opportunities
to purchase cable television systems in its existing geographic service areas as
well as by entering new geographic markets, if and when attractive acquisition
opportunities become available. Any such acquisitions, which could be
substantial in size, may involve cable systems owned by affiliated entities.
Among other things, the Partnership possesses the right, under certain
circumstances, to acquire some or all of the Affiliated Systems, and is
currently evaluating whether or not to excercise this right in respect of the
Systems owned by Falcon Classic. In addition to opportunities to purchase
additional cable systems, management expects to pursue opportunities to exchange
its Systems for other cable television properties to further its clustering
strategy. In the ordinary course of its business, the Partnership regularly
investigates and otherwise considers investment and acquisition opportunities.
See Item 7., "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Item 13., "Certain Relationships and Related
Transactions."
Strategic Partnerships
The Partnership has from time to time had discussions with a number
of cable operators, telephone companies and other telecommunications companies
regarding possible strategic partnerships and other investment arrangements,
and, in certain instances, has engaged in negotiations regarding such
transactions. The Partnership has no present agreement regarding the terms of
any such transaction. There can be no assurance that any such strategic business
arrangement will be entered into or the timing thereof. Specifically, any future
decision by the Partnership as to whether or not to pursue any such strategic
partnership or similar business arrangement will be based upon, among other
things, the relative attractiveness of available alternative business and
investment opportunities, the regulatory environment for cable
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properties, future developments relating to the Partnership, the cable industry
and any prospective partner's industry, general economic conditions and other
future developments.
Capital Expenditures
The Partnership has invested in the rebuilding and upgrading of its
cable television 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 "Overview of the Systems - The Owned
Systems," many of the Systems 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.
For the three year period ended December 31, 1996, capital expenditures for line
extensions, rebuilds and upgrades, and new equipment for the Partnership totaled
approximately $123.8 million. Due to the regulatory uncertainty, only $50
million of these capital expenditures related to upgrading and rebuilding
existing distribution plant.
As discussed in prior reports, the Partnership postponed a number of
rebuild and upgrade projects that were planned for 1994 and 1995 because of the
uncertainty related to implementation of the 1992 Cable Act and the impact
thereof on the Partnership's business and access to capital. As a result, even
after giving effect to certain upgrades and rebuilds that were started or
completed in 1996, 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 the systems compared to systems that have been rebuilt to a higher technical
standard. Currently, the Owned Systems have an average capacity of 45 channels
(substantially all of which is presently utilized), and approximately 63% of
their 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 its Systems that
are to be rebuilt. A system built to a 750 MHz standard can provide
approximately 95 channels of analog video 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. See "Technological Developments."
The Partnership's future capital expenditure plans are, however, all
subject to the availability of adequate capital on terms satisfactory to the
Partnership, of which there can be no assurance. Provided the Partnership
remains in compliance with certain covenants of its Amended and Restated Credit
Agreement and its Subordinated Notes, the Partnership presently intends to spend
approximately $50 million for rebuild and upgrade projects in 1997. See
"Legislation and Regulation" and Item 7., "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."
Decentralized Management
The Partnership manages the Systems through 40 separate regional
service centers in 27 states. In some circumstances, both Owned Systems and
Affiliated Systems are operated through the same regional service center to take
advantage of cost efficiencies. 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
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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 package 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 to reinforce
the initial decision to subscribe and encourage customers to purchase higher
service levels.
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 ongoing basis,
and a portion of the regional managers' compensation is tied to achieving
customer service targets. The Partnership 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.
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OVERVIEW OF THE SYSTEMS
The following table sets forth certain operating statistics for the
Systems as of the dates indicated.
<TABLE>
<CAPTION>
As of December 31,
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1992(2) 1993(2) 1994 1995(3) 1996(4)
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<S> <C> <C> <C> <C> <C>
Homes passed (1)
Owned Systems 536,155 546,702 562,616 691,941 924,030
Affiliated Systems 639,773 640,798 654,108 549,676 327,201
----------- ------------ ----------- ------------ ------------
Total 1,175,928 1,187,500 1,216,724 1,241,617 1,251,231
Homes subscribing to cable service
Owned Systems 332,207 329,902 340,681 419,288 544,153
Affiliated Systems 401,186 400,416 411,133 343,369 207,375
----------- ------------ ----------- ------------ ------------
Total 733,393 730,318 751,814 762,657 751,528
Basic penetration (5)
Owned Systems 62.0% 60.3% 60.6% 60.6% 58.9%
Affiliated Systems 62.7 62.5 62.9 62.5 63.4
Combined 62.4 61.5 61.8 61.4 60.1
Premium service units (6)
Owned Systems 158,001 154,846 165,137 186,477 203,679
Affiliated Systems 179,541 184,846 194,958 143,810 77,659
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Total 337,542 339,692 360,095 330,287 281,338
Premium penetration (7)
Owned Systems 47.6% 46.9% 48.5% 44.5% 37.4%
Affiliated Systems 44.8 46.2 47.4 41.9 37.4
Combined 46.0 46.5 47.9 43.3 37.4
Average monthly revenue per home
subscribing to cable service (8)
Owned Systems $32.15 $34.36 $34.01 $34.52 $36.23
Affiliated Systems 30.68 32.85 32.68 32.61 35.00
Combined 31.40 33.53 33.28 33.66 35.89
Subscribers (9)
Owned Systems 430,637 430,321 445,196 634,556 732,102
Affiliated Systems 559,157 560,706 578,313 506,526 285,150
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Total 989,794 991,027 1,023,509 1,141,082 1,017,252
</TABLE>
(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) In prior reports, the December 31, 1992 and 1993 totals for the Affiliated
Systems included the statistics for the systems owned by Vista
Communications Limited Partnership III ("Vista"). Vista sold those systems
on December 23, 1994. Accordingly, in order to provide a comparable
presentation, the statistics for the Vista systems have been removed from
the table above for all periods presented.
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(3) On December 28, 1995, the Partnership acquired all of the direct and
indirect ownership interests in Falcon First, Inc. ("Falcon First") that
it did not previously own and, as a result, the systems of Falcon First
became Owned Systems; previously they were reported as Affiliated Systems.
On July 1, 1996, the Partnership sold certain of the Falcon First Systems.
As a result, comparisons of 1996 and 1995 to prior years must take these
changes into account. At December 31, 1996 and 1995, Falcon First had
approximately 96,318 and 114,682 homes passed, 67,104 and 75,789 homes
subscribing to cable service, 29,571 and 36,413 premium service units and
98,678 and 125,622 Subscribers, respectively. At December 31, 1994, the
corresponding totals for Falcon First were 113,403, 74,254, 38,756, and
113,386, respectively. At July 1, 1996, the Systems that were sold had
approximately 18,957 homes passed, 9,547 homes subscribing to cable
service, 3,932 premium service units and 12,528 Subscribers.
(4) On July 12, 1996, the Partnership acquired the assets of Falcon Cable
Systems Company ("FCSC") and, as a result, the systems of FCSC became
Owned Systems; previously they were reported as Affiliated Systems. As a
result, comparisons of 1996 to prior years must take this change into
account. At December 31, 1996, the FCSC systems had approximately 239,431
homes passed, 135,550 homes subscribing to cable service, 44,199 premium
service units and 170,561 Subscribers. At December 31, 1995 and 1994, the
corresponding totals for the FCSC systems were 233,304 and 228,522 homes
passed, 135,475 and 133,249 homes subscribing to cable service, 52,694 and
59,732 premium service units and 219,269 and 193,008 Subscribers,
respectively.
(5) Homes subscribing to cable service as a percentage of homes passed by
cable.
(6) 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, December 31, 1995 and at December 31, 1994 were:
Owned 19,124, Affiliated 7,060; Owned 22,613, Affiliated 18,970, and Owned
21,309, Affiliated 29,641, respectively.
(7) 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.
(8) Average monthly revenue per home subscribing to cable service for the
one-year period ending on the respective dates indicated, except for 1994
which reflects the fourth quarter of 1994 only. Management believes that
the fourth quarter is more relevant for 1994 because the FCC's amended
rate regulation rules became effective during the third quarter of 1994.
See "Legislation and Regulation" and Item 7., "Management's Discussion and
Analysis of Financial Position and Results of Operations."
(9) 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.
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THE OWNED SYSTEMS
The Owned Systems are divided into 32 separate operating regions
located in 23 states. The following is a brief description of the operating
regions located in states that include at least 5% of the Subscribers of the
Owned Systems. In certain cases, operating regions serve customers in more than
one state and, thus, totals by operating region may exceed Subscriber totals for
a given state.
California. As of December 31, 1996, the Partnership's six operating
regions in California had 174,275 Subscribers, which comprised approximately 24%
of the Subscribers of the Owned Systems. The systems in the California regions
have an average channel capacity of 47, approximately 94% of which are currently
utilized. Approximately 89% of the customers in the California regions are
served by systems that utilize addressable technology.
Oregon. As of December 31, 1996, the Partnership's seven Oregon
operating regions had 125,595 Subscribers, which comprised approximately 17% of
the Subscribers of the Owned Systems. The systems in the Oregon operating
regions have an average channel capacity of 45, approximately 96% of which are
currently utilized. Over 77% of the customers in these operating regions are
served by systems that utilize addressable technology.
Missouri. As of December 31, 1996, the Partnership's four operating
regions in Missouri had 95,903 Subscribers, which comprised approximately 13% of
the Subscribers of the Owned Systems. The Missouri systems have an average
channel capacity of 45, approximately 94% of which are currently utilized.
Approximately 88% of the customers in the Missouri regions are served by systems
that utilize addressable technology. The Partnership has invested in advertising
insertion equipment in each of the Missouri regions and has formed a regional
advertising sales group in Missouri.
Georgia. As of December 31, 1996 the Partnership's Georgia systems
had 61,723 Subscribers, which comprised approximately 8% of the Subscribers of
the Owned Systems. The systems had average channel capacity of 52, of which 100%
are utilized. Approximately 71% of the customers are served by addressable
technology.
Texas. As of December 31, 1996, the Partnership's three Texas
operating regions had 36,549 Subscribers, which comprised approximately 5% of
the Subscribers of the Owned Systems. These systems currently have an average
channel capacity of 52, approximately 88% of which are currently utilized.
Approximately 61% of the customers in the Texas regions are served by systems
that utilize addressable technology.
Alabama. As of December 31, 1996, the Partnership's Alabama systems
had 36,200 Subscribers which comprised 5% of the Subscribers of the Owned
Systems. The Alabama systems have an average channel capacity of 44,
approximately 98% of which are currently utilized. Approximately 22% of the
customers are served by systems that utilize addressable technology.
North Carolina. As of December 31, 1996, the Partnership's two North
Carolina operating regions had 35,155 Subscribers, which comprised approximately
5% of the Subscribers of the Owned Systems. These systems have an average
channel capacity of 36, approximately 98% of which are utilized.
Other Operating Regions. The Partnership also owns and operates
systems through ten additional regional centers in Benton, Arkansas;
Plattsburgh, New York; Suffolk, Virginia; Corbin, Kentucky; Colville,
Washington; Shawnee, Oklahoma; Sebastian, Florida; St. George, Utah; Scottsburg,
Indiana; and Au Gres, Michigan. None of these regions are in states that have
Subscribers that are in excess of 5% of the total Subscribers of the Owned
Systems.
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The following is a summary of certain operating data, as of December 31,
1996, for the Owned Systems:
<TABLE>
<CAPTION>
Average
Monthly
Homes Revenue
Subscribing Premium Per Home
Homes To Cable Basic Service Premium Subscribing to
State Passed Service Penetration Units Penetration Cable Service(1) Subscribers(2)
- ----- ------ ------- ----------- ----- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama 39,418 26,599 67.5% 12,872 48.4% $ 34.88 36,200
Arkansas 45,368 20,721 45.7% 7,648 36.9% $ 35.48 25,183
California 233,905 135,029 57.7% 48,127 35.6% $ 36.64 174,275
Florida 14.425 8,321 57.7%. 2,381 28.6% $ 36.48 12,348
Georgia 52,542 42,478 80.8% 15,127 35.6% $ 39.20 61,723
Illinois 3,372 1,894 56.2% 906 47.8% $ 29.93 2,500
Indiana 6,845 4,453 65.1% 942 21.2% $ 35.57 6,725
Kansas 3,691 2,300 62.3% 711 30.9% $ 34.73 2,974
Kentucky 19,105 14,480 75.8% 4,384 30.3% $ 32.36 20,891
Louisiana 5,494 2,758 50.2% 1,815 65.8% $ 38.83 3,962
Maryland 2,916 2,096 71.9% 755 36.0% $ 41.00 2,732
Michigan 7,286 3,448 47.3% 1,126 32.7% $ 35.81 4,662
Missouri 114,886 71,273 62.0% 23,096 32.4% $ 35.85 95,903
Mississippi 1,911 1,204 63.0% 282 23.4% $ 35.32 1,668
North Carolina 44,165 25,792 58.4% 9,331 36.2% $ 38.55 35,155
Nevada 4,211 1,281 30.4% 1,270 99.1% $ 39.62 1,793
New York 25,861 15,715 60.8% 7,497 47.7% $ 36.42 22,679
Oklahoma 17,132 10,308 60.2% 5,112 49.6% $ 38.28 13,519
Oregon 149,785 92,373 61.7% 29,950 32.4% $ 33.66 125,595
Texas 52,071 27,743 53.3% 12,609 45.4% $ 37.23 36,549
Utah 30,270 7,592 25.1% 5,316 70.0% $ 39.62 10,625
Virginia 34,589 16,033 46.4% 9,412 58.7% $ 41.00 20,900
Washington 14,782 10,262 69.4% 3,010 29.3% $ 34.03 13,540
-------- ----------- ---------- ---------
924,030 544,153 58.9% 203,679 37.4% $ 36.23 732,102
======== =========== ========== =========
</TABLE>
(1) Average monthly revenue per home subscribing to cable service has been
computed based on revenue for the year ended December 31, 1996.
(2) 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.
-10-
<PAGE> 11
THE AFFILIATED SYSTEMS
The Partnership controls and holds varying equity interests in the
Affiliated Systems, which it manages pursuant to agreements that provide for
fees generally based on revenues and the reimbursement of certain expenses. The
Affiliated Systems are owned separately by several partnerships, namely, Falcon
Classic, Falcon Video Communications, L.P., ("Falcon Video"), as well as certain
partnerships of which Enstar Communications Corporation ("Enstar"), a
wholly-owned subsidiary of one of the subsidiaries of the Partnership, is the
general partner (collectively, the "Affiliated Partnerships"). On December 28,
1995 the Partnership acquired the direct and indirect ownership interests in
Falcon First that it did not previously own, and as a result, the Systems of
Falcon First became Owned Systems; previously they were reported as Affiliated
Systems. On July 12, 1996 the Partnership acquired the assets of FCSC and, as a
result, the Systems of FCSC became Owned Systems; previously they were reported
as Affiliated Systems. As a result, comparisons of 1996 and 1995 to prior years
must take these changes into account. Due to the date of the acquisition of
Falcon First, no operating results of Falcon First were included in the
Partnership's 1995 results of operations. As a result, the management fees
received by the Partnership from Falcon First similarly have not been eliminated
in consolidation, and are treated as having been received from the Affiliated
Systems. The operating results of the FCSC systems have been included from July
12, 1996. The management fees and reimbursed expenses received by the
Partnership from FCSC prior to July 12, 1996 have not been eliminated in
consolidation, and are also treated as having been received from the Affiliated
Systems.
For the period April 1992 through December 23, 1994, the Partnership
managed the systems owned by Vista, which were also included in the Affiliated
Systems. As discussed below, on December 23, 1994, Vista sold these systems
serving approximately 31,000 homes subscribing to cable service. Accordingly, in
order to provide a comparable presentation, the statistics for the Vista systems
have been removed from this Report for all periods presented. Through the
Affiliated Systems, the Partnership manages cable television systems which at
December 31, 1996 had approximately 285,000 Subscribers and provided cable
television service to approximately 207,000 homes subscribing to cable service
in 16 states, including North Carolina, Kentucky, Illinois, Washington and
Tennessee.
The Partnership also possesses the right, under certain
circumstances, to acquire some or all of the Affiliated Systems. These rights
are more fully described under Item 13. "Certain Relationships and Related
Transactions - Falcon Classic Appraisal Process." As of the date of this Report,
the Partnership is actively considering the exercise of the purchase right it
holds to acquire the cable systems owned by Falcon Classic.
In 1994, 1995 and 1996, the Partnership recognized aggregate
revenues of $9.0 million, $8.6 million and $6.3 million, respectively, from
management agreements with the Affiliated Systems and its consulting agreements
with NYNEX Cable Comms ("NYNEX") and Telecab (as described below). Subject to
customary conditions, most of the management agreements continue for the lives
of the respective managed entities. Falcon Classic and Falcon Video are
scheduled to terminate in 2004 and 2007, respectively. Additionally, as noted
above, the Partnership manages the partnerships of which Enstar is the general
partner. The partnership agreeements of these partnerships are scheduled to
terminate at various times from 2033 to 2037. The consulting agreement with
NYNEX is scheduled to expire on September 12, 1997, and is not expected to be
renewed. The Partnership received $329,000, $336,000 and $343,000 under this
agreement in 1994, 1995 and 1996, respectively. The consulting agreement with
Telecab was assigned to an affiliate in February 1996. The Partnership received
$141,000, $270,000 and $37,000 under this agreement in 1994, 1995 and 1996,
respectively. Certain of the credit agreements and partnership agreements of the
Affiliated Partnerships restrict, in certain circumstances, the payment of cash
management fees by the Affiliated Systems to the Partnership. In addition, the
Partnership may provide additional financing to certain of the Affiliated
Partnerships in the form of deferral of amounts owed to the Partnership. Marc B.
Nathanson, certain members of management and the Partnership hold varying equity
interests in the Affiliated Partnerships. See Item 7., "Management's Discussion
and Analysis of Financial Condition and Results of
-11-
<PAGE> 12
Operations Liquidity and Capital Resources" and Item 13., "Certain Relationships
and Related Transactions."
INTERNATIONAL ACTIVITIES
In order to focus its limited capital resources on the upgrade and
rebuild needs of the Owned Systems, the Partnership does not expect to pursue
any further international investments. The Partnership's overhead and
infrastructure related to international investments has been disbanded. See Item
7., "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Item 13., "Certain Relationships and Related Transactions." As
of December 31, 1996, the Partnership held the following international
investments:
NYNEX Cable Comms. The Partnership holds a 1.1% carried interest in
certain applicable regions in which NYNEX operates in the United Kingdom. NYNEX
is currently the third largest provider of cable television services in the U.K.
and is operating and constructing advanced fiber optic cable and telephone
networks.
The Partnership is entitled to a carried interest in the results of
the franchises that the Partnership contributed to NYNEX. The carried interest
is determined after the return to NYNEX of its total capital investment, the
repayment of any loans made by Nynex Network System Company, and a priority
return of 12% per annum. There are approximately 520,000 homes in the
Partnership's applicable franchise areas. On October 22, 1996, NYNEX, Cable and
Wireless plc. and Bell Canada International Inc. announced a conditional
agreement to merge their respective interests to form Cable and Wireless
Communications. The Partnership believes that should the merger be completed,
NYNEX would be obligated to make the carried interest payment to the
Partnership. NYNEX has not provided the Partnership with information required to
make the calculation of the carried interest and the amount of the carried
interest, if any, is therefore unknown at this time.
The Partnership also provides consulting services to NYNEX for an
annual fee of $356,700. This consulting agreement terminates September 12, 1997
and is not expected to be renewed. Through its consulting activities in the
United Kingdom, the Partnership has gained expertise in the design and
development of combined cable and telephony, including advanced system
architecture, which may be applicable to other markets.
Avalon Telecommunications, L.L.C. In 1993, Avalon
Telecommunications, L.L.C. (50% owned by the Partnership and 50% by Camelot
Cable II Inc.) ("Avalon") purchased the stock of two corporate subsidiaries
owned by NYNEX that hold licenses to build cable television and telephony
systems in the communities of Teesside and Darlington in northeast England.
Subsequently, those corporations were merged into Comcast UK Cable Partners
Limited ("Comcast UK") in consideration for Convertible Preference Shares of
Comcast UK, which shares were converted into approximately 1.4 million shares of
common stock upon completion of Comcast UK's initial public offering in
September 1995. In connection with the Comcast transaction, Avalon recognized a
gain of approximately $10.7 million of which the Partnership's share was
approximately $5.3 million. This gain was recognized in the Partnership's 1994
results of operations. On July 9, 1996 Avalon distributed 715,367 shares of
Comcast UK Class A stock to the Partnership. These shares were sold during the
fourth quarter of 1996 for approximately $9.5 million, resulting in an
additional gain of $2.3 million. Prior to the sale of these securites, the
Partnership had accounted for its investment in Avalon on the equity method,
which reflected its investment at fair value, with the Partnership's share of
the change in unrealized gain or loss being recorded as a component of partners'
deficit. Avalon was liquidated on February 6, 1997.
Telecab. The Partnership has made a 5% equity investment of $2.5
million in Duhamel Falcon Cable Mexico L.L.C., a Delaware limited liability
company ("DFC Mexico"). DFC Mexico was formed with
-12-
<PAGE> 13
Hellman & Friedman Capital Partners II, L.P. (which is also a partner in the
Partnership), Mexican Duhamel Cable, Limited Partnership and Duhamel Cable
Partners, Limited Partnership to make an investment in TV Por Cable Nacional,
S.A. de C.V. ("Telecab"). Telecab is the third largest cable television operator
in Mexico, and owns and operates cable television systems in 17 Mexican cities,
including Tijuana, Ensenada, Mexicali, Chihuahua and Ciudad Juarez. The
Partnership's investment is part of an investment of approximately $41 million
by DFC Mexico for an ownership interest of 34% of Telecab. Telecab presently
serves approximately 124,600 customers and has approximately 1.2 million
serviceable homes in its 17 license areas. The Partnership entered into a
consulting agreement with Telecab to provide it with certain services, including
technical services and administrative support, in connection with the operation
of Telecab's cable television systems. On February 20, 1996 in connection with
the Partnership's wind-up of its international activities, this agreement was
assigned to Falcon International Communications, LLC ("FIC"), a separately
capitalized affiliated company whose members and management also include certain
limited partners and management of the Partnership. DFC Mexico is presently in
an arbitration proceeding (which includes the Partnership) with the Mexican
partners regarding the resolution of certain disagreements regarding the
management policies of Telecab.
RCF. In October 1994, the Partnership paid approximately $2.0
million for 96,431 shares representing 3.7% of the share capital in Reseaux
Cables de France ("RCF"), the fourth largest multiple system operator in France
with systems in nine medium sized French cities. The RCF systems presently pass
200,000 homes and have 63,000 subscribers. The Partnership currently has no
arrangement to receive any consulting or management fees from RCF. On January
10, 1996, KPN Kabel BV, a Dutch group, purchased 2,280,000 shares of RCF,
thereby acquiring approximately 46.0% of the company. As a result of this
transaction, the Partnership's percentage ownership in RCF was reduced to
approximately 2.0%. The Partnership has a "put" option exercisable on July 4,
1997 for a thirty day period at a price of FRF42 per share, or approximately
$8.40 per share.
Other. Through September 30, 1995, the Partnership had also made
investments in and loans to cable systems operations in the Philippines and
India which totaled approximately $6.3 million. On October 4, 1995, the
Partnership sold its investments and loans in India and the Philippines to FIC.
The sales price of approximately $6.3 million in cash was determined to be the
fair market value of the assets and was supported by an appraisal conducted by
an independent third party. In addition, the Partnership received an additional
$1.9 million in cash as reimbursement for 1995 operating costs related to its
international investments.
OTHER INVESTMENTS
Lake Las Vegas Project. The Partnership is an equity owner in, and the
general partner of, Falcon Lake Las Vegas Cablevision, L.P. ("Falcon Lake Las
Vegas"). This limited partnership was formed in September 1993 to design,
construct and operate an advanced fiber optic cable network in Lake Las Vegas, a
master planned community being developed around a man-made lake southeast of Las
Vegas, Nevada. The Partnership's partner in this project is an affiliate of
Transcontinental Properties, Inc., which is controlled by Ronald Boeddeker of
Santa Barbara, California and the Bass Family interests of Fort Worth, Texas.
Upon its completion, Lake Las Vegas is targeted to have 5,000 dwelling units and
up to 11,000 hotel units. The Partnership recently completed building a
fiber-to-the-curb cable television system, and the system is now operational.
Falcon/Capital Cable. During 1988, one of the Owned Partnerships made a
$1.3 million investment in, and became co-general partner of, Falcon/Capital
Cable, which has approximately 30,000 homes subscribing to cable service in six
midwestern states. The Partnership does not manage these systems and has not
included these in the number of Subscribers of the Systems, but has certain
rights of first refusal to acquire these systems. These systems continue to be
listed for sale and it is expected that they will be sold at some future date.
-13-
<PAGE> 14
Enstar Communications Corporation. Enstar, an indirect wholly-owned
subsidiary of the Partnership, controls and holds varying equity interests in 15
limited partnerships. The Partnership's financial statements as of December 31,
1996 reflected a $1.5 million investment in Enstar.
Vista Communications Limited Partnership III. In connection with its
management of certain cable television systems owned by Vista, the Partnership
received management fees. Vista sold these systems on December 23, 1994. In
connection with the sale, the Partnership earned an incentive fee of
approximately $1.0 million that was based on a fixed formula tied to operating
cash flow. Except for management fees of approximately $88,000 for final
accounting and tax services received in 1995, no fees were received from Vista
in 1995 or thereafter.
CUSTOMER RATES AND SERVICES
The Partnership's cable television 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 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 is in the process of
conducting 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 Owned Systems, excluding special senior
citizen discount rates, ranged from $12.29 to $33.03 and premium service rates
ranged from $5.00 to $15.65, 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,
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<PAGE> 15
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.
For the years ended December 31, 1994, 1995 and 1996, subscriber
fees accounted for 85.1%, 84.9% and 86.9%, respectively, of the Partnership's
revenues. Management fees accounted for 6.1%, 5.7% and 2.9%, respectively, of
the Partnership's revenues, with other services, comprised of, among other
things, installation fees, franchise fees and other charges, advertising and
home shopping revenues, accounting for 8.8%, 9.4% and 10.2%, respectively.
EMPLOYEES
As of February 7, 1997, the Partnership had approximately 778
full-time employees and 45 part-time employees. The Partnership considers its
relations with its employees to be good. As of February 7, 1997, the Affiliated
Systems had approximately 230 full-time and 11 part-time employees. There are no
collective bargaining agreements relating to any of such employees.
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 the Owned Systems on the basis of
cost effectiveness, capital availability, enhancement of product quality,
service delivery and industry-wide acceptance. Currently, the Owned Systems have
an average channel capacity of 45, substantially all of which is presently
utilized. 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. The implementation of the Partnership's capital expenditure plans
is, however, dependent in part on the availability of adequate capital on terms
satisfactory to the Partnership, of which there can be no assurance. 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 68% of the customers of the
Owned Systems 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
-15-
<PAGE> 16
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 Owned Systems 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 Owned 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 the majority 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.
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 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 certain of its Systems (serving approximately 48,600 homes
subscribing to cable service), 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."
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
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<PAGE> 17
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 Owned Systems held 446 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 Owned
Systems range up to 5% of the gross revenues generated by a System. For the past
three years, franchise fee payments made by the Owned Systems have averaged
approximately 2.9% of total gross system revenues. The 1984 Cable Act prohibits
franchising authorities from imposing franchise fees in excess of 5% of gross
revenues and also permits the cable operator to seek renegotiation and
modification of franchise requirements if warranted by changed circumstances.
The following table groups the franchises of the Owned 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.
<TABLE>
<CAPTION>
YEAR OF NUMBER OF HOMES PERCENTAGE OF
FRANCHISE NUMBER OF SUBSCRIBING TO HOMES SUBSCRIBING
EXPIRATION FRANCHISES CABLE SERVICE TO CABLE SERVICE
- ---------------- ------------ ------------------ -------------------
<S> <C> <C> <C>
Prior to 1998 113 129,298 23.8%
1998-2002 131 148,618 27.3%
2003 and after 202 231,955 42.6%
------------ ------------------ -------------------
Total 446 509,871 93.7%
============ ================== ===================
</TABLE>
The Partnership operates numerous cable television systems which
serve multiple communities and, in some circumstances, portions of such systems
extend into jurisdictions for which it believes no franchise is necessary. In
the aggregate, approximately 34,282 homes subscribing to cable service,
comprising approximately 6.3% of the Owned Systems' homes subscribing to cable
service, are served by such 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 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 and the system is acquired by the franchise
authority or a third party, 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,
-17-
<PAGE> 18
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 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 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. The use of digital compression technology may
enable MMDS systems to deliver even more channels. MMDS systems qualify for the
statutory compulsory copyright license for the retransmission of television and
radio broadcast
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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 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 initiated 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 a pending rulemaking proceeding looking toward the
allocation of frequencies in the 28 Ghz range for a new multichannel 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
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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.
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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.
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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.
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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, a number of the Partnership's
customers and/or 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
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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
specified markets 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.
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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
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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.
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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
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<PAGE> 28
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
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<PAGE> 29
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.
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<PAGE> 30
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.
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 owns or leases parcels of real property for signal reception sites
(antenna towers and headends), microwave facilities and business offices. The
Partnership believes that its properties, both owned and leased, are in good
condition and are suitable and adequate for the Partnership's business
operations.
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<PAGE> 31
The Partnership leases office space for both its corporate
headquarters (located in Los Angeles, California) and its corporate financial
center (located in Pasadena, California). The office building in which the
Partnership leases space for the corporate financial center is owned by a
partnership owned by Marc B. Nathanson and his wife. The Partnership has
increased the amount of space it leases from such partnership. The terms of the
current lease for the corporate financial center have been negotiated on an
arm's length basis. The Partnership also assumed a lease for office space in a
building owned by Marc B. Nathanson and his wife in connection with the
acquisition of the assets of FCSC. See Item 13., "Certain Relationships and
Related Transactions."
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.
The Partnership, certain of its affiliates, and certain third
parties have been named as defendants in an action entitled Frank O'Shea I.R.A.
et al. v. Falcon Cable Systems Company, et al., Case No. BC 147386, pending in
the Superior Court of the State of California, County of Los Angeles (the
"Action"). Plaintiffs in the Action are certain former unitholders of FCSC
purporting to represent a class consisting of former unitholders of FCSC other
than those affiliated with FCSC and/or its controlling persons. The complaint in
the Action alleges, among other things, that defendants breached their fiduciary
and contractual duties to unitholders, and acted negligently, with respect to
the purchase from former unitholders of their interests in FCSC in 1996. In
particular, the complaint in the Action alleges, among other things, (a) that
the appraisals conducted to determine the price at which the purchase of the
former unitholders' interests would occur were "inadequate", "defective" and
"unreasonable" and that the appraisal firms who conducted the appraisals (two
out of three of which are named as defendants) acted negligently or recklessly
in performing the appraisals; (b) that the price paid per unit was unfair and
was intended to unfairly benefit the defendants at the expense of the public
unitholders, in that allegedly the price paid did not fairly reflect the
intrinsic value of the partnership assets, was not based on arms-length
negotiation, and was less than the per unit value that could be derived from an
alleged estimate of asset value submitted by FCSC to its lenders in connection
with its borrowings' and (c) that the sums paid the unitholders should not have
been based on a calculation that reflected payment to the General Partner of a
"sales fee" as defined in the partnership agreement. As relief, the complaint
seeks damages (and prejudgment interest) in an unspecified amount, and/or the
imposition of a constructive trust upon the partnership assets purchased by
certain defendants, and/or rescission of the transaction. The defendants have
filed answers denying the material allegations of the complaint in the Action,
and the Action is currently in the pre-trial discovery state. The Partnership
believes it has substantial and meritorious defenses to the claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for the Partnership's
equity securities and no distributions have been paid or declared in respect
thereof since the formation of the Partnership on March 29, 1993. As of March 1,
1997, there were 26 partners, including FHGI, in the Partnership.
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<PAGE> 32
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.
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------
1992 1993 1994 1995(6) 1996(6)
--------- -------- --------- --------- -----------
(In thousands of dollars)
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA
Revenues $ 135,236 $146,469 $ 147,229 $ 151,208 $ 217,320
Costs and expenses (61,164) (67,025) (67,711) (71,652) (97,180)
Depreciation and amortization (63,593) (57,771) (60,935) (54,386) (100,415)
--------- -------- --------- --------- -----------
Operating income 10,479 21,673 18,583 25,170 19,725
Interest expense, net(1) (54,417) (49,122) (49,859) (57,777) (71,602)
Equity in net loss of
investee partnerships (1,769) (3,596) (1,782) (5,705) (44)
Other income (expense), net(2) (746) (403) (455) 13,077 814
Income tax benefit - - - - 1,122
--------- -------- --------- --------- -----------
Loss before extraordinary item $ (46,453) $(31,448) $ (33,513)$ (25,235) $ (49,985)
========= ======== ========= ========= ===========
OTHER OPERATING DATA
Net cash provided by
operating activities $ 26,016 $ 51,642 $ 49,076 $ 43,162 $ 90,631
EBITDA(3) 74,072 79,444 79,518 79,556 120,140
EBITDA to revenues 54.8% 54.2% 54.0% 52.6% 55.3%
Total debt to EBITDA 6.9x 6.7x 6.8x 7.0x(4) 6.6x(4)
Capital expenditures(5) $ 22,386 $ 25,798 $ 28,232 $ 37,149 $ 57,668
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------------------------------------------
1992 1993 1994 1995 1996
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Cash and cash equivalents $ 16,767 $ 15,626 $ 10,468 $ 15,050 $ 13,633
Total assets 457,195 432,668 425,402 585,258 774,323
Total debt 512,893 532,938 538,626 669,019 885,786
Redeemable partners' equity(7) - 93,964 93,964 271,902 271,902
Partners' deficit (86,265) (236,096) (256,758) (411,681) (456,499)
</TABLE>
footnotes on the following page
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<PAGE> 33
FOOTNOTES TO ITEM 6 - "SELECTED FINANCIAL DATA"
(1) Interest expense, net includes payment-in-kind interest expense amounting
to $4.2 million, $17.5 million, $24.5 million, $27.1 million and $26.6
million during 1992, 1993, 1994, 1995 and 1996, respectively. See Note 7
to the Consolidated Financial Statements.
(2) Other income (expense) includes the following items:
o 1992, waiver fee payment ($539,700).
o 1993, gain on sale of a cable television system ($1.4 million), and a
nonrecurring charge ($1.3 million) relating to loans previously made
by FHGI, the Partnership's general partner. Prior to the consolidation
of the operations of FHGI with the Partnership, the loans were repaid
to FHGI with the proceeds of a payment made by FHGI to certain
executives of FHGI.
o 1994, costs associated with a terminated equity offering initiated in
December 1993 ($1.2 million), partially offset by an incentive fee
earned in connection with the sale of the Vista systems ($1.0
million).
o 1995, gain on sale of marketable securities ($13.3 million).
o 1996, gain on sale of marketable securities ($2.3 million) and the
write down of the Partnership's investment in Telecab ($1.0 million).
(3) 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.
(4) This number has been computed on a pro forma basis for 1995 to include the
EBITDA of Falcon First of $15.9 million, making the combined 1995 EBITDA
$95.4 million. Similarly, the number has also been computed on a pro forma
basis for 1996 to include the EBITDA of FCSC of $13.6 million, making the
combined 1996 EBITDA $133.8 million. Without these pro forma adjustments,
the computations would be misleading, as 1995 would include the debt
incurred to acquire Falcon First, but would exclude Falcon First's EBITDA,
and 1996 would include the debt to acquire FCSC, but would exclude its
EBITDA for the period January 1, 1996 through July 11, 1996. See Item 7.,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(5) Excluding acquisition purchase price.
(6) The December 31, 1995 consolidated balance sheet includes the assets and
liabilities of Falcon First which were acquired on December 28, 1995. The
consolidated statement of operations for the year ended December 31, 1995
excludes the operations of Falcon First due to the proximity of the
acquisition date to the end of the year, except that management fees from
Falcon First of $1.6 million are included in the consolidated statement of
operations. On July 12, 1996, the Partnership acquired the assets of FCSC
and, accordingly, the results of the FCSC systems have been included from
July 12, 1996. Management fees and reimbursed expenses received by the
Partnership from FCSC prior to July 12, 1996 amounted to $1.5 million and
$1.0 million, respectively, and are included in the 1996 consolidated
statement of operations. The amounts received by the Partnership in 1995
were $2.6 million and $2.0 million, respectively.
(7) The Third Amended and Restated Partnership Agreement dated December 28,
1995 provides that certain holders of partnership interests have various
redemption rights as more fully described in Note 9 to the consolidated
financial statements.
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<PAGE> 34
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.
On December 28, 1995, the Partnership completed its acquisition of
all of the direct and indirect ownership interests in Falcon First which it did
not already own. Falcon First was previously managed by the Partnership and, as
such, its systems were classified as Affiliated Systems in prior periods. The
transaction was recorded as a purchase for financial accounting purposes and,
due to the date of the acquisition, no operating results of Falcon First were
included in the Partnership's 1995 consolidated results of operations. The
management fee revenue received by the Partnership from Falcon First in 1995 was
not eliminated in consolidation, but was treated as revenue from the Affiliated
Systems, as it was in prior years. Such fees have been eliminated in
consolidation subsequent to the acquisition date. See Note 3 to the consolidated
financial statements.
On July 12, 1996, the Partnership, through a newly-formed and
wholly-owned partnership, Falcon Cable Systems Company II, L.P. ("FCSC II"),
acquired the assets of FCSC for approximately $247.4 million in cash. FCSC was
previously managed by the Partnership for a fee and, as such, its systems were
classified as Affiliated Systems in the periods prior to the acquisition date.
Commencing July 12, 1996, the FCSC II systems have been included as Owned
Systems. Management fees and reimbursed expenses received by the Partnership
from FCSC prior to July 12, 1996 are included as revenue from the Affiliated
Systems and have not been eliminated in consolidation. Such fees have been
eliminated in consolidation since July 12, 1996.
This Report includes certain forward looking statements regarding,
among other things, future results of operations, regulatory requirements,
competition, capital needs, the possible purchase or 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.
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<PAGE> 35
RESULTS OF OPERATIONS
1996 COMPARED TO 1995 (PRO FORMA)
As discussed in Note 3 to the consolidated financial statements, the
historical results of operations of the Partnership for 1995 did not include the
results of Falcon First or FCSC, and for the period January 1, 1996 through July
11, 1996 did not include the results of FCSC. Results of operations of the
Partnership in 1996 compared to 1995 were significantly affected by the
acquisition of Falcon First on December 28, 1995 and FCSC on July 12, 1996.
Falcon First and FCSC have been managed by the Partnership prior to and
subsequent to their acquisitions and have been affected by the same trends in
operating costs and revenues as all of the Partnership's cable systems.
Accordingly, the Partnership believes that it is more meaningful to compare 1996
operations to 1995 operations on a pro forma basis assuming that the
acquisitions of Falcon First and FCSC had occurred on January 1, 1995 and
January 1, 1996. The pro forma results include the effect of increased
amortization for both periods relating to the allocated purchase price of the
intangible assets acquired, and the effect of increased interest expense related
to the increase in debt incurred to finance the acquisitions. Set forth in the
table below are pro forma results of operations prepared on this basis. These
results are not necessarily indicative of what would have occurred had the
acquisitions been made as of those dates or of results which may occur in the
future.
<TABLE>
<CAPTION>
Pro Forma
Year ended December 31,
---------------------------
1995 1996
----------- -----------
(In thousands of dollars)
<S> <C> <C>
OPERATIONS STATEMENT DATA
Revenues $ 231,498 $ 244,905
Costs and expenses (112,141) (111,124)
Depreciation and amortization (118,772) (126,832)
----------- -----------
Operating income 585 6,949
Interest expense, net (94,975) (83,333)
Equity in net income (loss) of
investee partnerships 66 (44)
Other income, net 20,355 649
Income tax benefit 5,994 1,122
----------- -----------
Loss before extraordinary item $ (67,975) $ (74,657)
=========== ===========
</TABLE>
The Partnership's revenues increased from $231.5 million to $244.9
million, or by 5.8%, during 1996 compared to 1995. Of the $13.4 million net
increase in revenues, $13 million was due to increased cable service revenues
and $444,000 was due to increases in management fees. The $13 million increase
in cable service revenues was caused principally by increases of $13.3 million
due to increases in regulated service rates implemented in April and October
1996, $3.1 million due to increases related to other revenue producing items
(primarily advertising sales) and $1.7 million due to the restructuring of The
Disney Channel from a premium channel to a tier channel on July 1, 1996. These
increases were partially offset by decreases of $1.7 million due to reductions
in the number of regulated subscriptions for cable service, $1.6 million related
to cable systems sold during 1996, $1.4 million due to reductions in the number
of premium subscriptions for cable service and $388,000 related to rate
decreases implemented in 1995 to comply with the 1992 Cable Act. As of December
31, 1996, the Owned Systems had approximately 544,153 homes subscribing to cable
service and 203,679 premium service units.
Service costs increased from $67.9 million to $69 million, or by
1.6%, during 1996 compared to 1995. Service costs represent costs directly
attributable to providing cable services to customers.
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<PAGE> 36
The $1.1 million increase in service costs was primarily caused by a $1.8
million increase in programming fees paid to program suppliers (including
primary satellite fees), partially offset by a $759,000 decrease in property
taxes. The increase in programming costs included a $340,000 increase related to
the restructuring of The Disney Channel discussed above.
General and administrative expenses decreased from $44.3 million to
$42.2 million, or by 4.7%, during 1996 compared to 1995. Of the $2.1 million
decrease, $900,000 related to certain one-time charges occurring in 1995,
$500,000 related to the recovery of previously reserved bad debt expense, and
$687,000 related primarily to decreases in personnel costs and other expenses.
Depreciation and amortization expense increased from $118.8 million
to $126.8 million, or by 6.8%, during 1996 compared with 1995. Depreciation
expense increased by approximately $6.8 million due to accelerated depreciation
related to asset retirements and adjustments of the estimated useful lives of
certain tangible assets due to rebuilds and by approximately $4.5 million due to
the depreciation of property, plant and equipment additions. These increases
were substantially offset by intangible assets becoming fully amortized and as a
result of the estimated useful lives of certain other intangible assets being
extended.
Operating income increased from $585,000 to $6.9 million, or by
1087.9%, during 1996 compared to 1995. The $6.4 million increase was principally
due to increases in revenues in excess of increases in operating expenses as
discussed above.
Interest expense, including the effects of interest rate hedging
agreements, decreased from $95 million to $83.3 million, or by 12.3%, during
1996 compared to 1995. The decrease was due to interest expense of $3.5 million
related to the write-off of deferred loan costs recorded during 1995 (with no
similar entry in 1996), the effect of lower average interest rates (8.7% during
1996 compared to 9.4% during 1995) and lower average debt balances outstanding.
Payment-in-kind interest expense (in which interest payment requirements are met
by an increase in the principal amount of the notes) associated with the 11%
Senior Subordinated Notes (and in 1995 only, with the $20 million Falcon
Telecable 11.56% notes payable), amounted to $26.6 million during 1996 compared
to $27.1 million in 1995. Interest rate hedging agreements resulted in
additional interest expense of $1.0 million during 1996 and $729,000 in 1995.
Other income decreased from $26.3 million to $1.8 million during
1996 compared to 1995. The decrease was primarily due to a $20.8 million
non-recurring gain from the sale of marketable securities during 1995, to a $4.9
million reduction in income tax benefits recorded during 1996 and to a $1.0
million write-down of the Partnership's investment in Telecab in 1996. These
decreases were partially offset by a $2.3 million gain in 1996 from the sale of
Comcast UK Stock.
Due to the factors described above, the Partnership's net loss
increased from $68 million to $74.7 million, or by 9.8%, during 1996 compared to
1995.
1995 COMPARED TO 1994 (HISTORICAL)
The Partnership's revenues increased from $147.2 million to $151.2
million, or by 2.7%, during 1995 compared to 1994. Of the $4 million net
increase in revenues, $4.4 million was due to increased cable service revenues,
partially offset by a $361,000 decrease in management fees. The $4.4 million
increase in cable service revenues was caused principally by increases of $3.4
million due to increases in the number of subscriptions for cable service, $2.2
million due to increases in regulated service rates implemented in April 1995,
$1.2 million due to increases in other revenue producing items (primarily
advertising sales and installation revenues), $738,000 due to increases in
premium service rates implemented during the fourth quarter of 1994 and $628,000
due to the revenue contribution of cable television systems acquired in August
1994. These increases were offset to a significant degree by rate decreases
implemented in 1994 to comply with the 1992 Cable Act, estimated by the
Partnership to be approximately $3.7 million.
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As of December 31, 1995, the Owned Systems (including the Falcon First systems)
had approximately 419,288 homes subscribing to cable service and 186,477 premium
service units.
Management and consulting fees earned by the Partnership decreased
from $9 million during 1994 to $8.6 million during 1995 (including fees of
$1.6 million from Falcon First based on 5% of its net cable revenues, as
defined). The decreased fees resulted primarily from the reduction of fees
earned from two Affiliated Partnerships, Falcon Classic, the fees from which
were reduced due to restrictions in its partnership agreement, and Vista, which
was sold in December 1994. These decreases were partially offset by increases in
fees from other Affiliated Partnerships. Payment of approximately $1.6 million
of the $8.6 million in fees has been deferred due to restrictions applicable to
FCSC, an Affiliated Partnership.
Service costs increased from $38.5 million to $41.6 million, or by
8.0%, during 1995 compared to 1994. Service costs represent costs directly
attributable to providing cable services to customers. Of the $3.1 million
increase in service costs, $1.4 million related to increases in property taxes,
$920,900 related to increases in programming fees paid to program suppliers
(including primary satellite fees) and $692,000 related to increases in
personnel costs, due primarily to cost of living increases and to group
insurance adjustments. The property tax increases related primarily to audit
appeal refunds recorded in 1994 and adjustments in assessment methods in
California. 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 increased from $29.2 million to
$30 million, or by 3.0%, during 1995 compared with 1994. The $870,000 increase
related primarily to a $2.9 million increase in personnel costs partially offset
by a $1.9 million decrease related to reimbursement by FIC of expenses incurred
in connection with international investments during 1995 which it assumed and a
$774,000 decrease related to costs associated with reregulation by the FCC.
Depreciation and amortization expense decreased from $60.9 million
to $54.4 million, or by 10.7%, during 1995 compared with 1994, primarily due to
increased depreciation in 1994 resulting from accelerated depreciation on asset
retirements, from adjustments to the estimated useful lives of certain tangible
assets in 1994 and to intangible assets becoming fully amortized in 1994 and
1995.
Operating income increased from $18.6 million to $25.2 million, or
by 35.4%, during 1995 compared to 1994. The $6.6 million increase was primarily
due to the decrease in depreciation and amortization expense of $6.5 million.
Interest expense, including the effects of interest rate hedging
agreements, increased from $49.9 million to $57.8 million, or by 15.9%, during
1995 compared to 1994. Higher average interest rates (10.1% during 1995 compared
to 9.4% during 1994) accounted for the majority of the increase, except that
additional interest expense of $3.5 million was recorded during the fourth
quarter of 1995 due to the write-off of deferred loan costs associated with
previously issued debt which was retired. Payment-in-kind interest expense (in
which interest payment requirements are met by an increase in the principal
amount of the notes) associated with the publicly-held 11% Senior Subordinated
Notes and $20 million Falcon Telecable 11.56% notes payable to MONY amounted
to $27.1 million during 1995 compared to $24.5 million in 1994. Interest rate
hedging agreements resulted in additional interest expense of $729,000 during
1995 and $3.3 million in 1994.
Equity in net loss of investee partnerships increased from $1.8
million to $5.7 million during 1995 compared to 1994. The increase was primarily
due to a $5.3 million gain recorded during 1994 representing the Partnership's
pro-rata share of the unrealized gain on the sale of franchise rights by Avalon.
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<PAGE> 38
Other, net changed from $455,000 of expense in 1994 to $13.1 million
of income in 1995. The change was primarily due to a $13.3 million non-recurring
gain realized from the sale of marketable securities during 1995. The prior
year's results also include $1.2 million of costs associated with a terminated
equity offering offset by a $1.0 million incentive fee earned in connection with
the sale of Vista in December 1994.
Due to the factors described above, the Partnership's net loss
decreased from $33.5 million to $25.2 million, or by 24.7%, during 1995 compared
to 1994.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Partnership's primary need for capital has been to
acquire cable systems and to finance plant extensions, rebuilds and upgrades,
and to add addressable converters to certain of the Owned Systems. The
Partnership spent $57.7 million during 1996 on capital expenditures, other than
on the acquisition of FCSC. Management's current plan calls for the expenditure
of approximately $86.6 million in capital expenditures in 1997, including
approximately $50 million to rebuild and upgrade certain of the Owned Systems.
The Partnership's proposed spending plans, (including its plans for 1997), are
constantly being reviewed and revised with respect to changes in technology,
acceptable leverage parameters (including those specified in its debt
agreements), franchise requirements, competitive circumstances and other
factors.
As discussed in Note 3 to the consolidated financial statements, on
July 12, 1996 the Partnership amended its principal credit facility with a $775
million Amended and Restated Credit Agreement (the "Amended and Restated Credit
Agreement") in order to finance the acquisition of the assets of FCSC, pay
transaction and financing costs of approximately $5.6 million and prepay $28.6
million of subordinated debt. On July 16, 1996, the Partnership received payment
of approximately $5.2 million of previously deferred fees from FCSC. On August
1, 1996, the Partnership received $5 million from certain existing limited
partners who purchased additional partnership units, the proceeds of which were
used to temporarily repay outstanding debt under the Amended and Restated Credit
Agreement.
On July 1, 1996, the Partnership sold certain of the Falcon First
assets for $15 million, the proceeds being used to temporarily repay
outstanding debt under the former Bank Credit Agreement. The cable assets sold
generated approximately 1.9% of consolidated revenues for the six months ended
June 30, 1996. The Partnership has decided not to sell certain other cable
assets that were contemplated to be sold under the Amended and Restated Credit
Agreement due to offers it considered inadequate. The failure to sell these
assets may result in the reduction of capital expenditures permitted under the
Amended and Restated Credit Agreement. The Partnership frequently considers
opportunities to sell assets that it views as non-strategic.
The Amended and Restated Credit Agreement provides for maximum
available borrowings as follows: $775 million at December 31, 1996; $774 million
at December 31, 1997; $773 million at December 31, 1998; $706 million at
December 31, 1999; $611 million at December 31, 2000; $535 million at December
31, 2001; and $439 million at December 31, 2002. As of December 31, 1996, the
amount outstanding under the Amended and Restated Credit Agreement was $616
million and the Partnership had available to it additional borrowings thereunder
of approximately $112 million. As of the closing of the acquisition of the
assets of FCSC on July 12, 1996, the amount outstanding under the Amended and
Restated Credit Agreement was $646 million, which included $28.6 million
borrowed to prepay a portion of outstanding subordinated debt. The Amended and
Restated Credit Agreement requires that interest be tied to the ratio of
consolidated total debt to consolidated annualized cash flow (in each case, as
defined therein), and further requires that the Partnership maintain hedging
arrangements with respect to at least 50% of the outstanding borrowings
thereunder. As of December 31, 1996, borrowings under the Amended and Restated
Credit Agreement bore interest at an average rate of 7.98% (including the effect
of interest rate hedging agreements). The Partnership has entered into fixed
interest rate hedging agreements with an aggregate notional amount at December
31, 1996
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<PAGE> 39
of $760 million (including $150 million of contracts purchased from FCSC).
Agreements in effect at December 31, 1996 totaled $540 million, with the
remaining $220 million to become effective as certain of the existing contracts
mature during 1997 and 1998. The agreements serve as a hedge against interest
rate fluctuations associated with the Partnership's variable rate debt. These
agreements expire through May 27, 2000. The Amended and Restated Credit
Agreement also contains various restrictions relating to, among other things,
mergers and acquisitions, a change in control and the incurrence of additional
indebtedness and also requires compliance with certain financial covenants. The
Partnership's management believes that it was in compliance with all such
requirements as of December 31, 1996.
On March 29, 1993, the Partnership issued $175 million aggregate
principal amount of its 11% Senior Subordinated Notes (the "Notes") in
connection with the Partnership's formation. As a result of payment-in-kind
interest payments, the aggregate principal of the Notes outstanding as of
December 31, 1996 had increased to $253 million. Future interest payments are
expected to be paid in kind until the year 2000, when cash payment is required.
The Notes also contain various restrictions relating to, among other things,
mergers and acquisitions, a change in control and the incurrence of additional
indebtedness. The incurrence of additional indebtedness test limits the ratio of
the total debt of the Partnership to Operating Cash Flow (as defined in the
indenture) to 7.5 to 1 if such indebtedness is incurred through December 31,
1999 and to 6.5 to 1 thereafter.
As of December 31, 1996, the Partnership also had outstanding an
aggregate of $15 million in principal amount of subordinated debt (other than
the Notes).
The Partnership (i.e., FHGLP) is a separate, stand-alone holding
company which employs all of the management personnel. Prior to October 1995,
the Partnership conducted certain international investment and development
activities. In October 1995, the Partnership sold certain of its international
investments to FIC for approximately $6.3 million. The Partnership was
reimbursed $1.9 and $1.1 million in 1995 and 1996, respectively, for operating
costs related to these investments. The Partnership expects to incur no further
liquidity obligations in respect of international investments, although the
amount of reimbursement FHGLP receives from FIC with respect to the salaries of
certain of its employees has been reduced for 1997. All of the Owned Systems are
owned by subsidiaries of the Partnership. Accordingly, the Partnership is
financially dependent on the receipt of permitted payments from the Owned
Systems, management and consulting fees from both domestic and the remaining
international cable ventures, and the reimbursement of specified expenses by
certain of the Affiliated Systems to fund its operations. Expected increases in
the funding requirements of the Partnership combined with limitations on its
sources of cash may create liquidity issues for the Partnership in the future.
Specifically, the former Bank Credit Agreement permitted the Owned Partnerships
to remit to FHGLP no more than 3.75% of their net cable revenues, as defined, in
any year. The Amended and Restated Credit Agreement increased that amount to
4.25% effective July 12, 1996. For 1995, that limit was approximately $4.9
million ($3 million was actually remitted), and for the year ended December
31, 1996 the limit was approximately $8.4 million ($3.5 million was actually
remitted). In addition, the management fees and reimbursed expenses earned from
the Affiliated Systems have been adversely affected by the FCC's rate
regulations (to the extent those fees are based on revenues of the Affiliated
Systems), as well as by payment restrictions imposed, or which may be imposed in
the future, by the senior lenders to several of those entities or by the
entities' partnership agreements. In addition, the Partnerhip has, from time to
time, elected to provide additional financing to certain of the Affiliated
Partnerships in the form of deferral of amounts owed to the Partnership. As a
result, a portion of the payment of fees due to FHGLP has been deferred in prior
years due to such restrictions and decisions. Receivables from the Affiliated
Systems for services and reimbursements described above amounted to
approximately $5.8 million at December 31, 1996.
The Partnership has historically pursued a strategy of seeking to
acquire attractive acquisition candidates, with an emphasis on the acquisition
of systems which can be integrated with its existing operations. Over the past
two years, the Partnership has emphasized the acquisition of Affiliated Systems
due
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<PAGE> 40
to its familiarity with these assets and because, in many cases, these assets
were already operationally integrated with Owned Systems located nearby. The
Partnership cannot predict whether it will have access to adequate capital in
the future to make further acquisitions of cable systems from third parties or
affiliated parties.
The Partnership continues to possess the right, under certain
circumstances, to acquire certain of the remaining Affiliated Systems. In August
1996, the Partnership's Board of Representatives authorized its management to
commence the "Appraisal Process," as defined in the Classic Partnership
Agreement, in order to determine whether the Partnership should exercise its
right under that partnership agreement to acquire some or all of Falcon
Classic's cable systems. Falcon Classic had revenues and net loss of $19.8
million and $15,000, respectively, for the year ended December 31, 1996. The
three appraisal firms were selected in October 1996. In February 1997, the
Partnership received the results of the related appraisals which indicated an
aggregate appraised value for all of the Falcon Classic Systems of $82 million.
At December 31, 1996, the Falcon Classic systems had approximately 47,600 homes
subscribing to cable service located in five states. As of the date of the
Report, the Partnership has not made a decision as to whether or not it will
purchase any or all of the five cable television systems owned by Falcon
Classic. Any decision by the Partnership will, as permitted by the Classic
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 Partnership; (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, Falcon Classic and the cable
television industry, general economic conditions and other future developments.
The costs of the Appraisal Process, anticipated to be approximately $200,000,
will be borne by FHGLP. See Item 13., "Certain Relationships and Related
Transactions - Falcon Classic Appraisal Process."
On February 10, 1995, the Owned Partnerships realized net proceeds
of approximately $13.5 million in connection with the acquisition of its shares
in QVC, Inc. pursuant to a tender offer by Liberty Media Corporation and Comcast
Corporation. The net proceeds were used to temporarily pay down bank debt.
During the fourth quarter of 1996, the Partnership sold its 715,367 shares of
Comcast UK Class A stock for approximately $9.5 million. The proceeds were used
to temporarily pay down bank debt.
Enstar Communications Corporation, a wholly-owned subsidiary of one
of the subsidiaries of the Partnership ("ECC"), has guaranteed the debt
obligations of certain Enstar partnerships in which it acts as general partner.
The Enstar partnerships, most of which are publicly-held, own cable television
systems. At December 31, 1996, the maximum exposure to ECC pursuant to such
guarantees was approximately $9.5 million, plus accrued interest. This guarantee
is recourse only to the assets of ECC, which consist primarily of 0.5% to 1.0%
equity interests in the Enstar partnerships.
As more fully described in Note 9 to the consolidated financial
statements, the Partnership Agreement contains provisions that may require FHGLP
to purchase substantially all of the limited partnership interests held by the
Group I, II and III limited partners (constituting approximately 60% of the
common equity of the Partnership), at the holders' option, during the period
from September 15, 1996 to June 30, 1999. Certain of these interests are
mandatorily redeemable in 1998. Limited partnership interests held by the Group
IV limited partner become redeemable in 2004, subject to certain shared
liquidity rights. The purchase price for such partnership interests (other than
Class C partnership interests), which would be negotiated based on market
conditions or determined by an appraisal, is to be paid in cash or, under
certain circumstances, through the issuance of debt or equity securities. The
redemption value of the Class C partnership interests will generally be
determined based on a formula due to its preferred status. Certain of the
Partnership's debt agreements (including the Amended and Restated Credit
Agreement and the Notes) will restrict the Partnership's ability to (i) make
distributions to fund the purchase of these partnership interests pursuant to
the provisions described above, (ii) incur indebtedness or issue debt securities
in connection with such purchase or (iii) sell a substantial amount of its
assets. The obligation to redeem any significant amount
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<PAGE> 41
of the limited partnership interests in the Partnership could result in a
material liquidity demand on the Partnership and there can be no assurance that
the Partnership will be able to raise such funds on terms acceptable to the
Partnership, or at all. See Note 9 to the consolidated financial statements and
the Partnership's Third Amended and Restated Agreement of Limited Partnership
filed as an exhibit to this Report.
The following table sets forth, on a historical basis, for the
periods indicated certain items from the Consolidated Statements of Cash Flows
of the Partnership:
<TABLE>
<CAPTION>
Year ended December 31,
1994 1995 1996
----------- ----------- -----------
(Dollars in Thousands)
<S> <C> <C> <C>
Net cash provided by operating activities:
Net loss $ (33,513) $ (25,235) $ (49,985)
Payment-in-kind interest expense 24,512 27,127 26,580
Depreciation and amortization 60,935 54,386 100,415
Gain on sale of securities -- (13,267) (2,265)
Other (2,858) 151 15,886
----------- ----------- -----------
$ 49,076 $ 43,162 $ 90,631
=========== =========== ===========
Net cash used in investing activities:
Capital expenditures $ (28,232) $ (37,149) $ (57,668)
Sale of available-for-sale securities -- 13,487 9,502
Acquisitions of cable television systems,
net of cash (4,013) 2,655 (247,397)
Proceeds from sale of cable systems -- -- 15,000
Other (3,820) (1,667) (3,684)
----------- ----------- -----------
$ (36,065) $ (22,674) $ (284,247)
=========== =========== ===========
Net cash (used in) provided by financing activities:
Net borrowings, (repayments) $ (18,027) $ (9,866) $ 191,022
Capital contributions -- -- 5,000
Deferred loan costs (142) (6,320) (3,823)
Other -- 280 --
----------- ----------- -----------
$ (18,169) $ (15,906) $ 192,199
=========== =========== ===========
</TABLE>
1996 COMPARED TO 1995 (HISTORICAL)
Cash provided by operating activities (including interest expense
and management fee income) increased from $43.2 million to $90.6 million for the
year ended December 31, 1996 compared to the corresponding period in 1995, an
increase of $47.4 million. The increase resulted primarily from a net increase
of $47.9 million in other operating items (receivables, cable materials and
supplies, payables, accrued expenses and subscriber deposits and prepayments)
partially offset by a $547,000 decrease in payment-in-kind interest expense
related primarily to the $20 million Falcon Telecable 11.56% notes payable that
were repaid on July 12, 1996.
Cash used in investing activities increased from $22.7 million to
$284.2 million for the year ended December 31, 1996 compared to the
corresponding period in 1995. The change was due primarily to the July 12, 1996
$247.4 million acquisition of the FCSC assets, to the absence in 1996 of
approximately
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<PAGE> 42
$13.5 million of net proceeds received by the Partnership during 1995 from the
sale of marketable securities, to an increase in capital expenditures of $20.5
million and to an increase in intangible assets of $2.2 million. These increases
were partially offset by $15 million of cash provided in 1996 in connection
with the sale of a system and by $9.5 million of net proceeds received by the
partnership upon the sale of its shares in Comcast UK.
Cash flows from financing activities increased from a use of cash of
$15.9 million for the year ended December 31, 1995 to cash provided of $192.2
million in 1996, or a change of $208.1 million. The change was due primarily to
increased borrowings in 1996 of $200.9 million, to a $5 million capital
contribution received by the Partnership, and to a $2.5 million reduction of
expenditures for deferred loan costs in 1996, of which $1.3 million related to
FHGLP debt issue costs and $1.2 million related to interest rate hedging
agreements.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues increased from 52.6% during 1995 to 55.3% in 1996. On a
pro forma basis EBITDA as a percentage of revenues increased from 51.6% to
54.6%. The increase was primarily caused by revenue increases as described
above. EBITDA increased from $79.6 million to $120.1 million, or by 150.9%. On a
pro forma basis EBIDTA increased from $119.4 million to $133.8 million, or by
12.1%.
1995 COMPARED TO 1994 (ACTUAL)
Cash provided by operating activities (including interest expense
and management fee income) decreased from $49.1 million to $43.2 million for the
year ended December 31, 1995 compared to the corresponding period in 1994, a
decrease of $5.9 million. The decrease resulted primarily from a $5.9 million
increase in other operating items (receivables, cable materials and supplies,
payables, accrued expenses and subscriber deposits and prepayments).
Cash used in investing activities decreased by $13.4 million during
the year ended December 31, 1995 compared to the corresponding period in 1994.
The decrease was due primarily to approximately $13.5 million of net proceeds
received by the Partnership upon the acquisition of its shares in QVC, Inc.
pursuant to a tender offer by Liberty Media Corporation and Comcast Corporation,
$4 million of cash used to acquire cable television systems in August 1994,
$2.7 million of cash provided from acquisition of cable television systems in
December 28, 1995, a $2 million decrease in investments in international cable
ventures and $1.1 million of net proceeds received from the sale of investment
securities. These decreases were partially offset by an increase in capital
expenditures of $8.9 million and an increase in intangible assets of $1.3
million.
Cash flows from financing activities decreased by $2.3 million
during the year ended December 31, 1995 due to decreases in net borrowings of
approximately $8.2 million offset by a $6.2 million increase in deferred loan
costs of which $4.8 million related to FHGLP debt issue costs and $1.4 million
related to interest rate hedging agreements.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues decreased from 54.0% during 1994 to 52.6% in 1995. The
decrease was primarily caused by higher rates charged by suppliers of
programming in excess of revenue increases, as described above. EBITDA remained
unchanged at $79.5 million during 1995 compared to 1994.
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<PAGE> 43
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 due to the re-regulation of
rates charged for certain cable services. 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.
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<PAGE> 44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership Agreement provides for the establishment of a Board
of Representatives of the Partnership, which has the authority to approve annual
budgets and whose approval is required in order for the Partnership to undertake
certain actions specified in the Partnership Agreement. The Board of
Representatives consists of eleven members, six of whom are appointed by FHGI
(of whom a minimum of two must be outsiders since they may not be members of
Falcon management), two of whom are appointed by Hellman & Friedman Capital
Partners II, L.P., one of whom is appointed by Hellman & Friedman Capital
Partners, one of whom is appointed by Boston Ventures Limited Partnership II and
one of whom is appointed by Madison Dearborn Partners VI. Pursuant to the
Partnership Agreement, the size of the Board of Representatives and the identity
of the partners appointing its members will change if certain current partners
cease to be partners.
The directors and executive officers of FHGI and Falcon Cable Group,
the operating division of the Partnership, are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
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
</TABLE>
Pursuant to certain management rights agreements with the
Partnership, Hellman & Friedman Capital Partners and Hellman & Friedman Capital
Partners II, L.P. have the right until December 31, 1999 to designate an
aggregate of two directors of FHGI. To date such entities have concurred in the
designation of Marc B. Nathanson and Stanley S. Itskowitch as the sole directors
of FHGI. In the event such entities did not so concur, Mr. Nathanson, through
his voting control of FHGI, would have the option of increasing the size of the
Board of Directors of FHGI to a maximum of nine members.
BOARD OF REPRESENTATIVES OF FHGLP
The members of the Board of Representatives of FHGLP who also are
members of Falcon management are: Marc B. Nathanson, Frank J. Intiso, Stanley S.
Itskowitch and Michael K. Menerey. The other members of the Board of
Representatives of FHGLP are:
Leonard J. Baxt (1)(2) Joseph M. Niehaus
John L. Bunce, Jr. (1)(2) Steven Rattner (2)
Roy F. Coppedge, III (1)(2) Lawrence M. Unrein
Paul J. Finnegan
(1) Member of Audit Committee
(2) Member of Compensation Committee
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<PAGE> 45
The following sets forth certain biographical information with
respect to the directors and executive officers of FHGI and Falcon Cable Group
and the members of the Board of Representatives of FHGLP who are also members of
Falcon management.
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 FIC. 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.
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
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<PAGE> 46
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.
The following sets forth certain biographical information with respect to the
members of the Board of Representatives of the Partnership who are not members
of management. Each of such persons has been a member of the Board of
Representatives since the formation of the Partnership except for Messrs.
Finnegan and Unrein, each of whom was first appointed in 1995 and 1996,
respectively.
LEONARD J. BAXT, 49, has been a partner in the Washington, D.C. office of the
law firm of Dow Lohnes & Albertson since 1980. Mr. Baxt heads the Corporate
Department of Dow Lohnes & Albertson and specializes in the acquisition and
financing of media and telecommunications companies.
JOHN L. BUNCE, JR., 38, is a General Partner of Hellman & Friedman. Prior to
joining Hellman & Friedman in 1988, Mr. Bunce was a Vice President with the
venture capital firm of TA Associates. Previously, he was employed in the
Mergers & Acquisitions and Corporate Finance Departments of Lehman Brothers Kuhn
Loeb. Mr. Bunce is a director of Western Wireless Corporation, MobileMedia
Corporation and T.V. Por Cable Nacional, S.A. De C.V. and numerous private
companies. Mr Bunce is also a director of FIC.
ROY F. COPPEDGE, III, 48, has been a General Partner of Boston Ventures and a
director of Boston Ventures Management, Inc. since August 1983. Prior to that
date he was a First Vice President of The First National Bank of Boston and
headed the bank's U.S. Merchant Banking group. He is currently a director of
American Media, Inc. and Sinclair Broadcast Group, Inc. Mr. Coppedge is also a
director of FIC.
PAUL J. FINNEGAN, 44, has been a Vice President of Madison Dearborn Partners,
Inc., the general partner of Madison Dearborn Capital Partners, L.P. since
January 1993. Previously, he served in various positions at First Capital
Corporation of Chicago and its affiliates. Mr. Finnegan currently serves a
director of Omnipoint Corporation and as a member of the Board of Trustees of
The Skyline Fund.
JOSEPH M. NIEHAUS, 34, is a General Partner of Hellman & Friedman. Prior to
joining Hellman & Friedman in 1989, Mr. Niehaus was employed in the Merchant
Banking and Mergers & Acquisitions Departments of Morgan Stanley & Co. Mr.
Niehaus is a director of Hoyts Cinemas Limited, Hoyts Cinemas America Limited
and numerous private companies. Mr. Niehaus is also a director of FIC.
LAWRENCE M. UNREIN, 41, is Vice President, Investment Policy and Securities
Investments of AT&T Investment Management Corp. He oversees all public and
private equity and fixed-income investing, both domestically and internationally
and is a member of the advisory board of numerous corporate finance
partnerships. Mr. Unrein currently serves as Vice President and Treasurer of the
AT&T Foundation and Treasurer of the Malcolm Baldrige Foundation.
STEVEN RATTNER, 44, is a Managing Director of Lazard Freres & Co. LLC. Between
1986 and 1989, Mr. Rattner was a Managing Director at Morgan Stanley & Co.
Incorporated.
OTHER OFFICERS OF FALCON
The following sets forth, as of December 31, 1996, certain biographical
information with respect to additional members of the management of Falcon Cable
Group:
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<PAGE> 47
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
Television from 1985 to 1988. From 1983 to 1985, Mr. Cowles served in various
sales and advertising positions.
ABEL C. 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 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.
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<PAGE> 48
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Partnership and its predecessor to its Chief Executive Officer and to each of
the four other most highly compensated executive officers for services rendered
during the three years ended December 31, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
--------------------------------- All Other
Name and Principal Position Salary Bonus Compensation(1)
------------ ------------- -----------------
<S> <C> <C> <C>
Marc B. Nathanson, Chairman and
Chief Executive Officer
1996 $ 291,020(2) $ 56,998(2) $ 2,610
1995 619,619(2) 123,952(2) 2,174
1994 698,800 69,888 2,550
Frank J. Intiso, President and
Chief Operating Officer
1996 587,923 106,800 2,610
1995 539,085 98,753 2,530
1994 500,923 100,000 2,432
Stanley S. Itskowitch, Executive Vice
President and General Counsel
1996 191,962(2) 32,845(2) 2,140
1995 95,154(2) 14,287(2) 461
1994 323,685 30,200 1,995
Michael K. Menerey, Chief Financial
Officer and Secretary
1996 247,023(2) 45,806(2) 1,725
1995 227,938 42,642 1,564
1994 215,698 25,000 1,513
Jon W. Lunsford(3) Vice President -
Finance and Corporate Development
1996 191,461 38,000 1,425
1995 170,000 34,000 1,255
1994 49,038 49,000 904
</TABLE>
(1) These amounts relate to term life insurance premiums paid by the
Partnership.
(2) Net of reimbursement for salary and bonus the Partnership received from
FIC related to the time of Mr. Nathanson ($500,000 and $100,002, and
$107,216 and $21,448) Mr. Itskowitch ($175,000 and $35,000, and $242,640
and $48,513) and Mr. Menerey ($968 and $194), spent on international
activities in 1996 and in 1995, respectively.
(3) Mr. Lunsford's employment commenced September 19, 1994.
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<PAGE> 49
PROFIT SHARING PLAN
The Partnership maintains a cash or deferred profit sharing plan
referred to as the Smart 401K Plan (the "Plan"), covering substantially all of
its employees. The Plan allows participants to elect to make a contribution in
an amount up to 15% of their annual compensation, which otherwise would have
been payable to the participant as salary. Additionally, subject to certain
limitations, the Partnership can contribute to the Plan on a discretionary
basis, as determined by management, an amount that does not exceed 15% of the
annual aggregate compensation, as defined, paid to participating employees. In
general, participants in the Plan vest in any Partnership contributions
according to the following schedule:
<TABLE>
<CAPTION>
Percentage
Years of Service Vested
---------------- -----------
<S> <C>
Less than 3 years 0%
3 20
4 40
5 60
6 80
7 100
</TABLE>
The following executive officers named in the Summary Compensation
Table are participants in the Plan and, as of December 31, 1996, were 100%
vested: Marc B. Nathanson, Frank J. Intiso, Stanley S. Itskowitch and Michael K.
Menerey.
There were no contributions charged against operations for the
Profit Sharing Plan in 1994, 1995 or 1996.
1993 INCENTIVE PERFORMANCE PLAN
On December 30, 1993, the Partnership assumed the obligations of
FHGI for its 1993 Incentive Performance Plan (the "Incentive Plan"). The value
of the interests in the Incentive Plan is tied to the equity value of certain
Partnership Units held by FHGI. In connection with the assumption by the
Partnership, FHGI agreed to fund any benefits payable under the Incentive Plan
through additional capital contributions to the Partnership, the waiver of its
rights to receive all or part of certain distributions from the Partnership
and/or a contribution of a portion of its Partnership Units to the Partnership.
The benefits which are payable under the Incentive Plan are equal to the amount
of distributions which FHGI would have otherwise received with respect to
3,780.14 of the Units of the Partnership held by FHGI, 237.98 of the Class A
Units of the Partnership held by FHGI, (both of which have been adjusted for the
Falcon First acquisition), and a portion of FHGI's interest in certain of the
partnerships that are the general partners of the Affliated Partnerships.
Benefits are payable under the Incentive Plan only when distributions would
otherwise be paid to FHGI with respect to the above-described Units and
interests. The Incentive Plan is scheduled to terminate on January 5, 1998, at
which time the Partnership is required to distribute the Units described above
to the participants in the Incentive Plan. At such time, FHGI is required to
contribute the Units to the Partnership to fund such distributions. The
participants in the Incentive Plan are present and former employees of the
Partnership and its operating affiliates, all of whom are 100% vested.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1996, Marc B. Nathanson,
Chairman of the Board and Chief Executive Officer, Frank J. Intiso, President
and Chief Operating Officer, Stanley S. Itskowitch, Executive Vice President and
General Counsel, and Michael K. Menerey, Chief Financial Officer and
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<PAGE> 50
Secretary, participated in deliberations with the Board of Representatives of
the Partnership with respect to executive officer compensation.
The Partnership leases certain office space for its corporate
financial center (located in Pasadena, California) from a partnership owned by
Marc B. Nathanson and his wife (the "Pasadena Lease"). The Pasadena Lease
commenced on October 1, 1990 and was for a term of five years. The Partnership
has negotiated a new lease expiring September 30, 2005. The base rent is
currently approximately $33,000 per month. The Partnership believes that the
terms of the new Pasadena lease are consistent with leases between unaffiliated
parties involving similarly situated properties. The Partnership also assumed a
lease for office space in a building owned by Marc B. Nathanson and his wife in
connection with the acquisition of the assets of FCSC. The rent on this property
is less than $60,000 per year.
In addition, the Partnership provides certain accounting,
bookkeeping and clerical services to Marc B. Nathanson. Mr. Nathanson pays for a
portion of the costs relating to these services, and the Partnership pays the
balance. The net amount paid by the Partnership in 1996 was approximately
$118,300. See Note 11 to the consolidated financial statements.
COMPENSATION OF DIRECTORS
The directors of FHGI receive no compensation for their services as
directors thereof. The members of the Board of Representatives of the
Partnership receive no compensation for their service on the board other than
reimbursement of expenses.
MANAGEMENT LOANS
As a condition of his employment in September 1996, the Partnership
loaned Jon W. Lunsford, Vice President-Finance and Corporate Development, an
aggregate $125,000 pursuant to a promissory note secured by a second trust deed
on real property. This loan bears interest at the rate of 7.05% per annum,
payable annually, and the unpaid principal and related accrued interest is due
and payable on December 31, 2002. Effective December 31, 1994 and continuing
until the loan is repaid, two-thirds of each annual bonus payment, if any,
payable to Mr. Lunsford will be applied first as payment against accrued
interest payable and secondly as a principal payment against the loan balance.
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<PAGE> 51
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table and footnotes set forth, as of December 31,
1995, the beneficial ownership of general partnership interests and Class A and
Class B limited partnership interests of the Partnership by (i) each person who
is known to the Partnership to own beneficially more than 5% of such Partnership
interests and (ii) all executive officers of the Partnership and the members of
the Board of Representatives of the Partnership.
<TABLE>
<CAPTION>
Type of Number of Units
Name and Address of Partnership Assigned to Percent of
Beneficial Owners Interest Partnership Ownership
Interest
- -------------------------------------------- -------------------- -------------------- --------------
<S> <C> <C> <C>
Marc B. Nathanson(1)(2) General Partner - 100.0%
Limited Partner 36,107 36.1%
Hellman & Friedman(3) Limited Partner 35,446 35.4%
Leeway & Co. (4) Limited Partner 10,732 10.7%
Boston Ventures(5) Limited Partner 6,816 6.8%
Leonard J. Baxt(12) Limited Partner 82 *
Steven Rattner(13) Limited Partner 310 *
Falcon First Communications, LLC(10)(11) Limited Partner 2,043 2.1%
Frank J. Intiso(1)(6) Limited Partner 1,808 1.8%
Stanley S. Itskowitch(1)(7) Limited Partner 645 *
Michael K. Menerey(1)(8) Limited Partner 67 *
All executive officers and members of
the Board of Representatives of the General Partner 100.0%
Partnership as a group (13 persons)(9) Limited Partner 39,019 39.0%
</TABLE>
* Less than 1%
(1) The address for each of such persons is c/o Falcon Cable TV, 10900
Wilshire Blvd., 15th Floor, Los Angeles, California 90024.
(2) Marc B. Nathanson individually holds of record no partnership units of the
Partnership. However, by virtue of Mr. Nathanson's ownership of a majority
of the voting securities of the general partner of the Partnership, he has
voting and investment power as to the 11,195 limited partnership units of
the Partnership held of record by FHGI. Although FHGI has equity
ownership, and therefore investment power, over 11.2% of the partnership
units of the Partnership, pursuant to the Partnership Agreement, this
constitutes only a 9.1% voting power percentage. In addition, because Mr.
Nathanson is co-trustee of two irrevocable trusts that own a majority of
the voting securities of Advance TV of California Inc., he shares voting
and investment power as to the 3,308 limited partnership units of the
Partnership held of record by such entity. Mr. Nathanson also is the
general partner of Advance Company, Ltd. And therefore has voting and
investment power as to the 1,254 limited partnership units of the
Partnership held of record by such limited partnership. As the owner of a
majority of the voting securities of Blackhawk Holding Company, Inc., Mr.
Nathanson has voting and investment power as to the 6,472 limited
partnership units of the Partnership held by such corporation. Also, as
trustee of a revocable trust, the Falcon Cable Trust, Mr. Nathanson has
voting and investment power as to the 13,878 limited partnership units of
the Partnership held by such trust. Mr. Nathanson also beneficially owns
.46% of Falcon Classic Cable Income Properties, L.P. and 2.58% of Falcon
Video Communications, L.P., each an Affiliated Partnership.
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<PAGE> 52
(3) Of such 35,446 limited partnership units, 8,924 are held of record by
Hellman & Friedman Capital Partners and 26,522 are held of record by
Hellman & Friedman Capital Partners II, L.P., both of which entities are
controlled by Hellman & Friedman. Hellman & Friedman has equity ownership,
and therefore investment power over only 35.4% of the partnership units of
the Partnership pursuant to the Partnership Agreement, Hellman & Friedman
Capital Partners has an 8.9% voting power percentage and Hellman &
Friedman Capital Partners II, L.P. has a 28.7% voting power percentage,
which results in Hellman & Friedman having voting power over 37.6% of the
partnership units of the Partnership. The address is One Maritime Plaza,
12th Floor, San Francisco, California 94111.
(4) Of such 10,732 limited partnership units, 5,342 are held of record by
Leeway & Co. An additional 5,390 are held of record by MLC Investors,
L.P., of which Leeway & Co. is the general partner. The address is c/o
State Street Bank and Trust Company, Master Trust Division-W6C, One
Enterprise Drive, North Quincy, Massachusetts 02171.
(5) Of such 6,816 limited partnership units, 6,644 are held of record by
Boston Ventures Limited Partnership II and 172 are held of record by
Boston II A Investment Corporation, both of which entities are controlled
by Boston Ventures. The address is 21 Custom House Street, Boston,
Massachusetts 02110.
(6) Frank J. Intiso beneficially owns .04% of Falcon Classic Cable Income
Properties, L.P. and .35% of Falcon Video Communications, L.P., each an
Affiliated Partnership.
(7) Stanley S. Itskowitch beneficially owns .09% of Falcon Classic Cable
Income Properties, L.P., and .35% of Falcon Video Communications, L.P.,
each an Affiliated Partnership.
(8) Michael K. Menerey beneficially owns .04% of Falcon Classic Cable Income
Properties, L.P. and .15% of Falcon Video Communications, L.P., each an
Affiliated Partnership.
(9) Each of John L. Bunce, Roy F. Coppedge, III, Paul J. Finnegan, Joseph M.
Niehaus and Lawrence M. Unrein serves on the Board of Representatives as
the designee of an affiliated partner of the Partnership. Each such person
disclaims beneficial ownership of the partnership interest owned by the
related entity. Except as otherwise identified in the table, no member of
the Board of Representatives is the record owner of any partnership
interests in the Partnership.
(10) Represents Class B partnership interests held of record by Falcon First
Communications, LLC ("FFC"). Madison Dearborn Partners VI, of which Mr.
Finnegan is a general partner, is the sole manager of FFC. Excludes the
Class C partnership units held of record by FFC which generally do not
have voting rights and are entitled to participate in the profits of the
Partnership under limited circumstances after receipt of a preferred
return as described in the Partnership Agreement. Except for its
partnership interest in the Partnership, FFC is otherwise unaffiliated
with any other Falcon entity. The address is c/o Madison Dearborn Partners
VI, Three First National Plaza, Suite 1330, Chicago, IL 60670-0501.
(11) All information in this table excludes Class C Partnership interests which
generally do not have voting rights and participate in the profits of the
Partnership under limited circumstances after receipt of a preferred
return as described in the Partnership Agreement. All such Class C
partnership interests are held of record by FFC.
(12) The address is c/o Dow, Lohnes & Albertson, 1200 New Hampshire Avenue,
N.W., Washington, D.C. 20036-6802.
(13) The address is c/o Lazard Freres & Co., Thirty Rockefeller Plaza, New
York, New York 10020.
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<PAGE> 53
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
AFFILIATED PARTNERSHIPS
The Partnership and its affiliates, including Marc B. Nathanson and
other members of Falcon's senior management team, currently own varying
interests in, and the Partnership controls the general partners of, the
Affiliated Partnerships and certain other entities engaged in the cable
television business. The Partnership receives management fees from the
Affiliated Partnerships, and receives additional reimbursement of certain
expenses from Falcon Classic.
Falcon Cable Systems Company. On July 12, 1996, the Partnership
acquired the assets of FCSC. See "Business." In connection with this
transaction, FCSC paid a $6.2 disposition fee to Falcon Cable Investors Group,
its general partner, which in turn distributed the fee, along with cash on hand
of approximately $1.6 million, to its partners. As a result, FCIG distributed
funds as follows: Marc B. Nathanson, approximately $3.9 million, Hellman and
Friedman Capital Partners, II, L.P. approximately $2.3 million; Frank J. Intiso
approximately $759,000; Steven Rattner approximately $68,000; and the
Partnership approximately $758,000. FCSC also paid the Partnership approximately
$5.2 million of previously deferred fees.
Falcon Classic Appraisal Process
As previously disclosed in prior filings with the Commission, Falcon
Classic may, in the sole discretion of its General Partner, sell individual
cable Systems and may also sell all or substantially all of its 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 Falcon Classic
Partnership Agreement and summarized below. The Partnership has stated in its
prior filings with the Commission that it and its affiliates may consider and
otherwise investigate the exercise of the purchase rights provided to them under
the Falcon Classic Partnership Agreement from time to time at their discretion.
The Falcon Classic Partnership Agreement provides that any sale of
Falcon Classic assets to the Partnership or any of its affiliates must be made
in cash pursuant to the "Appraisal Process." "Appraisal Process" is defined in
the Falcon Classic 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 Falcon Classic's general partner, one by Falcon
Classic's Conflicts Committee and the third by the first two appraisers acting
jointly. The Falcon Classic 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
Partnership 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. All costs of the
Appraisal Process must be borne by the Partnership and not by Falcon Classic.
Such expenses are expected to approximately $200,000. Appraisers selected
pursuant to the Appraisal Process may not have any interest in, nor any material
business or professional relationship with, Falcon Classic, the Partnership or
any of its affiliates. Except under certain circumstances, sales of assets by
Falcon Classic to the Partnership 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 Partnership or its affiliates. No
such vote is required or will be sought in the future.
If the limited partners of Falcon Classic propose to sell
partnership assets without the approval of the Partnership, the Partnership has
a right of first refusal to purchase such assets on the same terms and
conditions as agreed to by the prospective purchaser. The Partnership also has a
right to purchase such partnership assets without a vote of the limited partners
if the general partner of Falcon Classic is removed without cause.
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<PAGE> 54
As previously disclosed, in a meeting held in Los Angeles on August
27, 1996, the Partnership formally advised the Falcon Classic Advisory Committee
and Conflicts Committee that it desired to explore on a preliminary basis the
possibility of exercising the purchase rights contained in the Falcon Classic
Partnership Agreement as 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 Falcon Classic Cable Systems. Pursuant to the Falcon Classic 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 Partnership 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 Falcon Classic. The reports have been filed as exhibits to this
Annual Report on Form 10-K. These Appraisals address the value of the appraised
Falcon Classic assets and do not give effect to any debt or other liabilities of
Falcon Classic. Based solely upon the Appraisals, as of December 31, 1996, the
Partnership understands the appraised values of the five cable Systems owned by
Falcon Classic to be as follows (dollars in thousands):
<TABLE>
<CAPTION>
Communications
Equity
Kane Reece Arthur Associates, Inc.
Associates, Inc. Andersen LLP (MEDIAN)
--------------- ------------- ----------------
<S> <C> <C> <C>
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
=======
</TABLE>
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. To the Partnership's knowledge, no
limitations were imposed by Falcon Classic with respect to the investigations
made or the procedures followed by the Appraisers in rendering their Appraisals.
The Partnership is under no obligation to exercise its purchase right in full or
in part, nor can there be any assurance that Falcon Classic 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.
The Appraisals, by their respective terms, are based upon numerous
sources of information including data supplied by or on behalf of Falcon
Classic, which included certain projections regarding 1997 operating results for
Falcon Classic prepared in the ordinary course of its business. As a matter of
course neither Falcon Classic nor the Partnership make public any forecasts as
to 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 FALCON CLASSIC, THE PARTNERSHIP, ANY AFFILIATE OR ANY PARTY TO WHOM THE
PROJECTIONS WERE PROVIDED ASSUMES ANY RESPONSIBILITY FOR THE
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<PAGE> 55
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 control of Falcon Classic or the Partnership, 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 1997 projections. Neither the Partnership nor Falcon Classic
is under any obligation to update the 1997 projections at any future time.
Each of the Appraisers is a nationally recognized cable system
appraisal firm and is continually engaged in the valuation of cable systems.
Each of the Appraisers, 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.
The Partnership has made no decision whether to purchase any or all
of Falcon Classic's five cable television systems. Any decision by the
Partnership will, as permitted by Falcon Classic's Partnership Agreement, be
made on a system-by-system basis. Any decision by the Partnership or its
affiliates to acquire any of the Falcon Classic systems will further be subject
to, among other things, (i) the availability of the necessary financing on terms
acceptable to the Partnership; (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 Falcon Classic, the Partnership and the cable television industry, general
economic conditions and other future developments.
Although the foregoing reflects activities which Falcon Classic, the
Partnership and certain of its affiliates are currently exploring with respect
to Falcon Classic, the foregoing is subject to change at any time. Accordingly,
there can be no assurance that the sale of cable television systems of Falcon
Classic in accordance with the rights of the Partnership and its affiliates
under the terms of the Falcon Classic Partnership Agreement as described above
or otherwise will be pursued, or if pursued, when and if any of them will be
successfully consummated.
Forward-looking statements in this Report including, in particular,
the statements made above under the caption "Falcon Classic 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 exoneration and indemnification
provisions contained in the Falcon Classic Partnership Agreement relating to the
General Partner and other; potential conflicts of interest involving the
Partnership and its affiliates; and other risks detailed from time to time in
the Partnership's periodic reports filed with the Commission.
Falcon Video Communications, L.P. At any time subsequent to May 15,
1999, either the Partnership or certain limited partners of Falcon Video
Communications, L.P., another Affiliated Partnership ("Falcon Video"), may
initiate the sale of the partnership based on an appraised value. In such a
circumstance, the Partnership may submit a bid for the assets of Falcon Video at
or above their appraised value. If a limited partner initiates the sale process,
then the limited partners may agree to either (i) sell the assets to the
Partnership at its bid, (ii) sell such assets to an unaffiliated third party at
a price equal to at least 105% of the price which the Partnership agreed to pay
or (iii) not effect a sale of the assets. If the Partnership initiates the sale
process, any such sale to an unaffiliated third party must be at a price equal
to at least 102.5% of the price which the Partnership agreed to pay. The
limitations on the price at which sales may be made described above terminate on
May 15, 2001. In addition, the Amended and Restated Partnership Agreement of
Falcon Video prohibits any Falcon entity from directly or indirectly acquiring,
managing, operating or otherwise
-55-
<PAGE> 56
participating in any business or operation which (i) constitutes a media
property or provides the same or equivalent services as a media property
(including, by way of example, a satellite master antenna television system,
multi-point distribution service or direct broadcast service), and is conducted
wholly or partially within any community or other area served by the cable
television systems owned by Falcon Video or (ii) which otherwise competes in any
material respect with any investments of Falcon Video.
From time to time, the Partnership has had preliminary discussions
with the partners of Falcon Video regarding a consolidation of the operations of
Falcon Video with the Partnership and may consider such a transaction in the
future. The Partnership has no agreement regarding the terms of any such
transaction. Any future decision by the Partnership as to whether or not to
exercise any of the foregoing purchase options or enter into any other business
combination with any of the Affiliated Partnerships will be based upon, among
other things, the availability of necessary financing on favorable terms, the
relative attractiveness of alternative business and investment opportunities
available, the regulatory environment for cable properties, future developments
relating to each specific partnership and the cable industry, general economic
conditions and other future developments. Accordingly, there can be no assurance
that any of such purchase rights will be exercised at all or, if exercised, when
they will be exercised, or that any other business combination with an
Affiliated Partnership will be proposed or consummated.
Falcon International Communications LLC. On October 4, 1995, the
Partnership sold its investments and loans in the Philippines and India to FIC,
a newly-formed, separately capitalized entity, the members of which include
members of management of the Partnership and certain of its limited partners.
The sales price of approximately $6.3 million in cash was determined to be the
fair market value of the assets and was supported by an appraisal conducted by
an independent third party. In addition, the Partnership received an additional
$1.9 and $1.1 million in cash as reimbursement for 1995 and 1996 operating costs
related to international investments. In order to focus its limited capital
resources on the upgrade and rebuild needs of the Owned Systems, the Partnership
does not expect to pursue any further international investments. There is an
insurance cost allocation agreement between the Partnership and FIC. See
"Business - International Activities."
OTHER
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. The Partnership
also assumed a lease for office space in a building owned by Marc B. Nathanson
and his wife in connection with the acquisition of the assets of FCSC. The rent
on this property is less than $60,000 per year.
As noted herein, certain executive officers of the Partnership have
ownership interests in the Affiliated Partnerships and in other domestic and
international cable operations in addition to their equity interests in the
Partnership. Conflicts of interest may arise at various times in respect of the
allocation of time, personnel and other resources as between the Owned Systems
the Affiliated Systems and other ventures. However, the Affiliated Partnerships
each have Advisory Committees or similar bodies which, among other things, acts
in the case of conflicts of interest.
For a description of certain other transactions involving
management, see "Compensation Committee Interlocks and Insider Participation."
-56-
<PAGE> 57
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
None.
-57-
<PAGE> 58
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 26th
day of March 1997.
FALCON HOLDING GROUP, L.P.
by its general partner,
Falcon Holding Group, Inc.
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 26th day of March 1997.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
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
</TABLE>
-58-
<PAGE> 59
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors F-2
Consolidated Balance Sheets at December 31, 1995 and 1996 F-3
Consolidated Financial Statements for each of the three years in the period
ended December 31, 1996:
Consolidated Statements of Operations F-4
Consolidated Statements of Partners' Deficit F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-8
Schedule II - Valuation and Qualifying Accounts F-35
</TABLE>
All other schedules have been omitted because they are either not required, not
applicable or the information has otherwise been supplied.
F-1
<PAGE> 60
REPORT OF INDEPENDENT AUDITORS
Partners
Falcon Holding Group, L.P.
We have audited the accompanying consolidated balance sheets of Falcon Holding
Group, L.P. as of December 31, 1995 and 1996, and the related consolidated
statements of operations, partners' deficit, 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
consolidated financial statements and schedule are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated 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 and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Falcon
Holding Group, 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 consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ ERNST & YOUNG LLP
Los Angeles, California
February 27, 1997
F-2
<PAGE> 61
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
==========================================
<TABLE>
<CAPTION>
December 31,
------------------------------
1995 1996
------------- --------------
(Dollars in Thousands)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 15,050 $ 13,633
Receivables:
Trade, less allowance of $830,000
and $907,000 for possible losses 7,378 11,607
Affiliates 10,023 5,793
Other assets 5,419 5,145
Cable materials, equipment and supplies 4,038 5,410
Other investments 11,934 3,446
Property, plant and equipment, less accumulated
depreciation and amortization 228,249 309,128
Franchise cost, less accumulated
amortization of $149,105,000 and $173,742,000 221,057 256,461
Goodwill, less accumulated amortization of $5,246,000 and $12,454,000 63,516 72,956
Customer lists and other intangible costs, less
accumulated amortization of $5,539,000 and $8,793,000 6,521 76,448
Deferred loan costs, less accumulated amortization
of $3,282,000 and $5,755,000 12,073 14,296
------------- --------------
$ 585,258 $ 774,323
============= ==============
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Notes payable 669,019 885,786
Accounts payable 5,811 10,561
Accrued expenses and other 35,274 47,228
Customer deposits and prepayments 1,058 1,627
Deferred income taxes 9,085 10,301
Minority interest 227 193
Equity in losses of affiliated partnerships in excess of investment 4,563 3,224
-------------- --------------
TOTAL LIABILITIES 725,037 958,920
-------------- --------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PARTNERS' EQUITY 271,902 271,902
-------------- --------------
PARTNERS' DEFICIT:
General partner (12,091) (12,591)
Limited partners (399,423) (443,908)
Unrealized loss on available-for-sale securities (167) -
-------------- --------------
TOTAL PARTNERS' DEFICIT (411,681) (456,499)
-------------- --------------
$ 585,258 $ 774,323
============== ==============
</TABLE>
See accompanying notes to consolidated
financial statements.
F-3
<PAGE> 62
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
============================================
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1994 1995 1996
--------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
REVENUES $147,229 $ 151,208 $ 217,320
--------- ---------- ----------
EXPENSES:
Service costs 38,554 41,626 60,302
General and administrative expenses 29,157 30,026 36,878
Depreciation and amortization 60,935 54,386 100,415
--------- ---------- ----------
Total expenses 128,646 126,038 197,595
--------- ---------- ----------
Operating income 18,583 25,170 19,725
OTHER INCOME (EXPENSE):
Interest expense (49,859) (57,777) (71,602)
Equity in net losses of investee partnerships (1,782) (5,705) (44)
Other income (expense), net (455) 13,077 1,936
--------- ---------- ----------
NET LOSS $(33,513) $ (25,235) $(49,985)
========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 63
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT
============================================
<TABLE>
<CAPTION>
Unrealized
Gain on
Available-
General Limited for-Sale
Partner Partners Securities Total
--------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
PARTNERS' DEFICIT,
January 1, 1994 $ (11,505) $(224,591) $ -- $(236,096)
Net loss for year (334) (33,179) -- (33,513)
Unrealized gain on
available-for-sale
securities -- -- 12,851 12,851
--------- --------- --------- ---------
PARTNERS' DEFICIT,
December 31, 1994 (11,839) (257,770) 12,851 (256,758)
Acquisition of Falcon First, Inc. -- 61,268 -- 61,268
Reclassification to redeemable
partners' equity -- (177,938) -- (177,938)
Net loss for year (252) (24,983) -- (25,235)
Sale of marketable securities -- -- (12,133) (12,133)
Unrealized loss on
available-for-sale
securities (included in other
investments) -- -- (885) (885)
--------- --------- --------- ---------
PARTNERS' DEFICIT,
December 31, 1995 (12,091) (399,423) (167) (411,681)
Net loss for year (500) (49,485) -- (49,985)
Sale of marketable securities -- -- 167 167
Capital Contribution -- 5,000 -- 5,000
--------- --------- --------- ---------
PARTNERS' DEFICIT,
December 31, 1996 $ (12,591) $(443,908) $ -- $(456,499)
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 64
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
===========================================
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1994 1995 1996
--------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (33,513) $ (25,235) $ (49,985)
Adjustments to reconcile net
loss to net cash provided by
operating activities
Payment-in-kind interest expense 24,512 27,127 26,580
Depreciation and amortization 60,935 54,386 100,415
Amortization of deferred loan costs 1,551 5,840 2,473
Write-off deferred offering costs 1,198 - -
Gain on sale of securities - (13,267) (2,264)
Equity in net losses of investee
partnerships 1,782 5,705 44
Provision for losses on receivables, net
of recoveries 1,820 3,076 2,417
Cost of terminated public offering (925) - -
Deferred income taxes - - (2,684)
Other (21) (17) 764
Increase (decrease) from changes in:
Receivables (6,344) (348) (2,420)
Other assets 76 (1,184) 63
Cable materials, equipment and supplies 196 (85) (337)
Accounts payable (481) (214) 4,750
Accrued expenses and other (1,632) (12,542) 10,246
Customer deposits and prepayments (78) (80) 569
--------- -------- --------
Net cash provided by operating activities $ 49,076 $ 43,162 $ 90,631
--------- -------- --------
</TABLE>
(Continued)
F-6
<PAGE> 65
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONCLUDED)
==========================================
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
1994 1995 1996
--------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Cash flows from investing activities:
Capital expenditures $ (28,232) $ (37,149) $ (57,668)
Proceeds from sale of available-for-sale
securities - 13,487 9,502
Sale of securities - 1,051 -
Investments in affiliated partnerships and
other investments (2,856) (409) -
Increase in intangible assets (1,361) (2,631) (4,847)
Acquisitions of cable television systems (4,013) - (247,397)
Cash acquired in connection with the
acquisition of Falcon First, Inc. - 2,655 -
Proceeds from sale of cable system - - 15,000
Proceeds from sale of cable assets 397 322 379
Distributions from investee partnerships - - 784
--------- -------- ---------
Net cash used in investing activities $ (36,065) $(22,674) $(284,247)
--------- -------- ---------
Cash flows from financing activities:
Borrowings from notes payable $ 8,002 $ 408,707 $ 700,533
Repayment of debt (26,029) (418,573) (509,511)
Deferred loan costs (142) (6,320) (3,823)
Capital contributions - - 5,000
Minority interest capital contributions - 280 -
--------- -------- ---------
Net cash (used in) provided by financing
activities (18,169) (15,906) 192,199
--------- -------- ---------
Increase (decrease) in cash
and cash equivalents (5,158) 4,582 (1,417)
Cash and cash equivalents,
at beginning of year 15,626 10,468 15,050
--------- -------- ---------
Cash and cash equivalents,
at end of year $ 10,468 $ 15,050 $ 13,633
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 66
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
===========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
CASH EQUIVALENTS
For purposes of the consolidated 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.
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 10-16 years
Trunk and distribution 5-15 years
Microwave equipment 10-15 years
OTHER:
Furniture and equipment 3-7 years
Vehicles 3-10 years
Leasehold improvements Life of lease
FRANCHISE COST AND GOODWILL
The excess of cost over the fair values 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
25 years (composite 8 year average). Goodwill is amortized over 20 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-8
<PAGE> 67
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
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,
covenants not to compete and organization costs which are amortized using the
straight-line method over two to five years.
DEFERRED LOAN COSTS
Costs related to borrowings are capitalized and amortized to
interest expense over the life of the related loan.
INVESTMENTS IN AFFILIATED PARTNERSHIPS
The Partnership is the general partner of certain entities, which in
turn act as general partner of related partnerships which own, directly or
through subsidiaries, cable television systems managed by the Partnership (the
"Affiliated Partnerships"). The Partnership's effective ownership interests in
the Affiliated Partnerships are less than one percent. The Affiliated
Partnerships are accounted for using the equity method of accounting. Equity in
net losses are recorded to the extent of the investments in and advances to the
partnerships plus obligations for which the Partnership, as general partner, is
responsible. The liabilities of the Affiliated Partnerships, other than amounts
due the Partnership, principally consist of debt for borrowed money and related
accrued interest. The substantial portion of such liabilities are, by agreement,
non-recourse to the general partner.
OTHER INVESTMENTS
Other investments, principally minority investments in
non-affiliated limited partnerships, are carried at cost. Certain investments in
joint ventures where the Partnership exercises significant influence over the
operations of the joint venture are carried on the equity method.
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 estimates 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. Management fees are recognized on the accrual basis based on a
percentage of gross revenues of the respective cable television systems managed.
F-9
<PAGE> 68
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONCLUDED)
DERIVATIVE FINANCIAL INSTRUMENTS
As part of the Partnership's management of financial market risk and
as required by the Partnership's Bank Credit Agreement, 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 and its direct and indirect subsidiaries, except for
Falcon First, Inc. ("Falcon First") and Enstar Communications Corporation
("ECC"), are limited partnerships and pay no income taxes as entities. All of
the income, gains, losses, deductions and credits of the Partnership are passed
through to its partners. Nominal taxes are assessed by certain state
jurisdictions. 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 $82.2 million.
Falcon First and ECC are corporations and are subject to federal and
state income taxes, which have not been significant. Deferred taxes relate
principally to the difference between book and tax basis of the cable television
assets of Falcon First, partially offset by the tax effect of related net
operating loss carryforwards.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1996 presentation.
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 - BASIS OF PRESENTATION
Falcon Holding Group, L.P., a Delaware limited partnership (the
"Partnership" or "FHGLP"), owns and operates cable television systems serving
small to medium-sized communities and the suburbs of certain cities in 23 states
(the "Owned Systems"). The Partnership also controls, holds varying equity
interests in and manages certain other cable television systems for a fee (the
"Affiliated Systems" and, together with the Owned Systems, the "Systems"). The
Affiliated Systems operate cable television systems in 16 states. FHGLP is a
limited partnership, the sole general partner of which is Falcon Holding Group,
Inc., a California corporation ("FHGI").
F-10
<PAGE> 69
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 2 - BASIS OF PRESENTATION (CONCLUDED)
The consolidated financial statements include the consolidated
accounts of FHGLP, its subsidiary cable television operating partnerships (the
"Owned Subsidiaries") and those operating partnerships' general partners, which
are owned by FHGLP. The consolidated financial statements include the accounts
of ECC, a wholly-owned subsidiary of one of the operating partnerships, which is
the general partner of the 15 limited partnerships operating under the name
"Enstar" (which are Affiliated Systems).
All significant inter-company accounts and transactions have been
eliminated in consolidation. The consolidated financial statements do not give
effect to any assets that the partners may have outside their interests in the
Partnership, nor to any obligations, including income taxes, of the partners.
On December 28, 1995, the Partnership completed the acquisition of
all of the direct and indirect ownership interests in Falcon First which it did
not previously own. Falcon First was previously managed by the Partnership and,
as such, classified as an "Affiliated Partnership" in prior periods. Due to the
proximity of the acquisition date to December 31, 1995, no operating results
were included for Falcon First for 1995, except for the management fees received
by FHGLP pursuant to its management agreement with Falcon First. On July 12,
1996, the Partnership acquired the assets of Falcon Cable Systems Company
("FCSC"), an Affiliated Partnership. The results of operations of these Systems
have been included in the consolidated financial statements of FHGLP from July
12, 1996. Management fees and reimbursed expenses received by the Partnership
from FCSC for the period of January 1, 1996 through July 11, 1996 are also
included in the consolidated financial statements and have not been eliminated
in consolidation. See Note 3.
NOTE 3 - ACQUISITIONS AND SALES
FALCON FIRST
Falcon First, through wholly-owned subsidiaries, owns cable
television systems in Georgia, Alabama, Mississippi and New York. Prior to the
transaction, the Partnership had managed the Falcon First Systems for a fee and
held an indirect, minority interest in its former parent company, Falcon First
Communications, L.P. ("FFC"). As a result of the acquisition, the Falcon First
Systems became Owned Systems; previously they were Affiliated Systems.
The holders of the direct and indirect partnership interests in FFC,
excluding the Partnership's affiliates, received newly issued partnership
interests (Class B partnership interests) in the Partnership. In addition,
certain holders of subordinated notes of FFC, through a newly-established
holding company, received Class C partnership interests in the Partnership. The
Class C partnership interests are entitled to a stated preference on liquidation
and are mandatorily redeemable in 2004, subject to certain liquidity sharing
rights. As of the closing of the Falcon First acquisition, the Class C
partnership interests were entitled to an aggregate liquidation preference of
approximately $51.4 million. See Note 9.
FALCON CABLE SYSTEMS COMPANY
The Systems of FCSC, acquired through a newly-formed subsidiary
operating partnership, serve customers in California and Oregon and were
previously managed by the Partnership as Affiliated Systems. As a result of the
acquisition, the FCSC Systems became Owned Systems.
F-11
<PAGE> 70
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 3 - ACQUISITIONS AND SALES (CONTINUED)
The assets were acquired at a price determined by an appraisal
process defined in the FCSC partnership agreement. Various legal challenges have
been filed regarding the appraisal valuations. See Note 8.
The acquisitions of Falcon First and FCSC were accounted for by the
purchase method of accounting, whereby the purchase price of Falcon First was
allocated to the assets and liabilities assumed based on the estimated fair
values at the date of acquisition, and the purchase price of the FCSC assets was
allocated based on an appraisal, as follows:
<TABLE>
<CAPTION>
Falcon FCSC
First
---------- -----------
(Dollars in
Thousands)
<S> <C> <C>
Purchase Price:
Class B partnership interests issued $ 9,895 $ -
Class C partnership interests issued 51,373 -
Debt assumed 120,621 -
Other liabilities assumed 3,274 -
Transaction costs 5,278 5,625
Asset purchase price determined by appraisal - 247,397
---------- -----------
190,441 253,022
---------- -----------
Fair Market Value of Assets and Liabilities
Acquired:
Property, plant and equipment 33,992 81,941
Franchise costs 88,003 69,936
Customer lists and other intangible assets 3,411 75,840
Other assets 5,705 7,060
Deferred taxes related to step-up of intangible
assets 9,048 -
---------- -----------
140,159 234,777
---------- -----------
Excess of Purchase Price over Fair Value of Assets
and Liabilities Acquired $ 50,282 $ 18,245
========== ===========
</TABLE>
The excess of purchase price over the fair value of net assets
acquired has been recorded as goodwill and is being amortized using the
straight-line method over 20 years.
The Class B partnership interests were valued in proportion to the
Partnership's estimated fair value, which was agreed upon by all holders of
Partnership interests in the Third Amended and Restated Partnership Agreement,
which became effective December 28, 1995. See Note 9.
The Class C partnership interests were valued at current stated
liquidation value which was equivalent to the unpaid amounts due on the
subordinated notes of FCC.
In connection with the Falcon First transaction, the Partnership
entered into a $435 million Senior Secured Reducing Revolver (the "Bank Credit
Agreement") in order to refinance its existing indebtedness and Falcon First's
existing indebtedness, repay other notes, fund capital expenditures and provide
for general liquidity requirements. On July 12, 1996, in connection with the
acquisition of the FCSC assets, the Partnership
F-12
<PAGE> 71
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 3 - ACQUISITIONS AND SALES (CONTINUED)
further amended the terms of the Bank Credit Agreement and increased the
available borrowings to $775 million (the "Amended and Restated Credit
Agreement") in order to acquire the FCSC assets, repay other notes, pay
transaction and financing costs, and provide future working capital. See Note 7.
Sources and uses of funds for each of the transactions were as follows:
<TABLE>
<CAPTION>
Falcon
First FCSC
--------- ---------
Sources of Funds (Dollars in Thousands)
<S> <C> <C>
Cash in Owned Systems $ 5,325 $ 7,757
Advance under bank credit facilities 379,000 616,500
--------- ---------
Total sources of funds $ 384,325 $ 624,257
========= =========
Uses of Funds
Repay existing bank debt
of the Partnership and of First,
including accrued interest $ 376,611 $ 370,285
Purchase price of FCSC assets - 247,397
Transaction fees and expenses 5,278 5,625
Available funds 2,436 950
--------- ---------
Total uses of funds $ 384,325 $ 624,257
========= =========
</TABLE>
The Partnership recorded additional interest expense of
approximately $3.5 million during the year ended December 31, 1995 due to the
write-off of deferred loan costs associated with the early retirement of the
Partnership's then outstanding debt with the proceeds from the former Bank
Credit Agreement. No such adjustment was required in connection with the Amended
and Restated Credit Agreement.
F-13
<PAGE> 72
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 3 - ACQUISITION AND SALES (CONCLUDED)
The following unaudited condensed consolidated pro forma statements
of operations present the consolidated results of operations of the Partnership
as if the acquisitions had occurred at the beginning of the periods presented
and are not necessarily indicative of what would have occurred had the
acquisitions been made as of those dates or of results which may occur in the
future.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1995 1996
--------- ---------
(Dollars in Thousands)
<S> <C> <C>
Revenues $ 231,498 $ 244,905
Expenses 230,913 237,956
--------- ---------
Operating income 585 6,949
Other expenses 74,554 82,728
--------- ---------
Loss before income tax benefits (73,969) (75,779)
Income tax benefit 5,994 1,122
--------- ---------
Net Loss $ (67,975) $ (74,657)
========= =========
</TABLE>
On July 1, 1996 the Partnership sold certain of the Falcon First assets
for $15 million, the proceeds being used to temporarily repay outstanding debt
under the former Bank Credit Agreement. The cable assets sold generated
approximately 1.9% of consolidated revenues for the six months ended June 30,
1996. Given the proximity of the sale date to the December 28, 1995 acquisition
date, the resulting gain on sale of $3.6 million was recorded as a reduction to
goodwill.
NOTE 4 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective January 1, 1994, the Partnership adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," relating to, among other things, accounting for
debt and equity securities which will neither be held to maturity nor sold in
the near term. Debt and equity securities not classified as either
held-to-maturity securities or trading securities are classified as
available-for-sale securities and are reported at fair value, with unrealized
gains and losses excluded from earnings and reported as a separate component of
partners' deficit. On February 10, 1995, the Partnership received net proceeds
of approximately $13.5 million (of which $13.3 million was recorded as a gain on
sale) upon the acquisition of the Partnership's shares in QVC Network, Inc.
pursuant to a tender offer by Liberty Media Corporation and Comcast Corporation
for $46.00 per share. These securities had previously required treatment as
available-for-sale securities. The net proceeds were used to temporarily pay
down bank debt. At December 31, 1995, the unrealized loss on available-for-sale
securities of approximately $167,000 represents the Partnership's pro-rata share
of changes in the market value of securities owned by Avalon Communications LLC,
("Avalon") in which the Partnership had a 50% ownership interest. The
corresponding investment in these securities was included in other investments
on the consolidated balance sheet. On July 9, 1996, Avalon distributed 715,367
shares of Comcast UK Class A stock to the Partnership. These shares were sold
during the fourth quarter of 1996 for approximately $9.5 million, resulting in a
gain of $2.3 million. See Note 12.
F-14
<PAGE> 73
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 4 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
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.
Available-for-sale securities
The fair value of available-for-sale securities is based on quoted
market prices.
Notes Payable
The fair value of the Partnership's subordinated notes payable is
based on quoted market prices for similar issues of debt with similar remaining
maturities. The carrying amount of the Partnership's remaining debt outstanding
approximates fair value due to its variable rate nature.
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.
F-15
<PAGE> 74
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 4 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS (CONCLUDED)
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:
<TABLE>
<CAPTION>
1995 1996
------------------------------------------------
Carrying Fair Carrying Fair
Value(1) Value Value(1) Value
----------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 15,050 $ 15,050 $ 13,633 $ 13,633
Notes Payable (Note 7):
11% Senior subordinated
notes(2) 227,791 214,124 253,537 225,648
Amended and Restated Bank
Credit Agreement(3) 397,000 397,000 616,000 616,000
Other subordinated notes(2) 43,576 49,376 15,000 16,266
Capitalized lease obligations 260 260 141 141
Other - - 1,108 1,108
</TABLE>
<TABLE>
<CAPTION>
------------------------------------------------
Notional Fair Notional Fair
Amount(4) Value(5) Amount(4) Value(5)
------------------------------------------------
Interest Rate Hedging
Agreements
(Note 7):
<S> <C> <C> <C> <C>
Interest rate swaps $ 405,000 $ (4,317) $ 690,000 $ (79)
Interest rate caps 100,000 - 70,000 305
</TABLE>
The carrying value of interest rate swaps and caps was $865,000 at
December 31, 1996.
- ----------------
(1) Carrying amounts represent cost basis.
(2) Determined based on quoted market prices of individual trades for those
or similar notes. Accordingly, no inference may be drawn that such
valuation would apply to the entire issue.
(3) Due to the variable rate nature of the indebtedness, the fair value is
assumed to approximate the carrying value.
(4) The amount on which current interest expense has been affected is $220
million and $495 million for swaps and $100 million and $45 million for
caps, respectively, at December 31, 1995 and 1996. The balance of the
contract totals presented above reflect contracts entered into as of
December 31 which do not become effective until 1997 and 1998, at which
time effective contracts expire.
(5) The amount that the Partnership estimates it would receive (pay) to
terminate the hedging agreements. This amount is not recognized in the
consolidated financial statements.
F-16
<PAGE> 75
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 5 - INVESTMENTS IN AFFILIATED PARTNERSHIPS
FHGLP is the general partner of the Affiliated Partnerships shown
below. FHGLP's effective ownership interest in the respective Affiliated
Partnerships is less than one percent. FHGLP's investment in net losses in
excess of equity of the Affiliated Partnerships was approximately $4.6 million
and $3.2 million at December 31, 1995 and 1996, respectively. FHGLP has the
right, under certain circumstances, to acquire the assets of certain of the
Affiliated Partnerships.
Investments in affiliated partnerships include:
Falcon Classic Cable Investors, L.P., general partner of Falcon Classic
Cable Income Properties, L.P.
Falcon Video Communications Investors, L.P., general partner of Falcon
Video Communications, L.P.
Enstar Partnerships, 15 limited partnerships of which ECC is the
corporate general partner.
Falcon Cable Investors Group, L.P., general partner of Falcon Cable
Systems Company (through July 11, 1996. See Note 3).
Falcon First Investors, L.P., general partner of Falcon First
Communications, L.P. (through December 28, 1995. See Note 3).
Vista Communications, Inc., general partner of Vista Communications
Limited Partnership III (through December 23, 1994, the date on
which it was sold).
Investments in these partnerships are accounted for on the equity
method of accounting. Equity in net losses are recorded to the extent of FHGLP's
obligations as the general partner of the partnerships, except when the
Partnership, as general partner or through subsidiaries, has guaranteed
obligations of the partnerships.
Summarized unaudited financial information of these partnerships is
as follows:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
(Dollars in Thousands)
<S> <C> <C> <C>
At Period End
Total assets $ 461,685 $ 333,422 $ 216,352
Total liabilities 481,056 367,383 178,448
Partners' equity (deficit) (19,371) (33,961) 37,904
For the Period
Revenues $ 169,421 $ 164,671 $ 116,241
Depreciation and amortization 82,871 70,994 41,363
Operating income (4,603) 4,460 13,142
Net loss (42,378) (36,648) (7,658)
</TABLE>
F-17
<PAGE> 76
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 5 - INVESTMENTS IN AFFILIATED PARTNERSHIPS (CONCLUDED)
Falcon Classic may, in the sole discretion of its General Partner,
sell individual cable Systems and may also sell all or substantially all of its
assets to the General Partner or its affiliates, which include FHGLP. Any such
sale would be subject to the "Appraisal Process" as set forth in the Falcon
Classic Partnership Agreement. "Appraisal Process" is defined in the Falcon
Classic Partnership Agreement as an appraisal undertaken by three independent
nationally recognized experts in the cable television field (the "Appraisers")
to determine the fair market value of the cable systems to be appraised. One
such appraiser must be appointed by Falcon Classic's general partner, one by
Falcon Classic's Conflicts Committee, as defined, 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. All costs of the
Appraisal Process must be borne by the Partnership and not by Falcon Classic.
In a meeting held in Los Angeles on August 27, 1996, the Partnership
formally advised the Falcon Classic Advisory Committee and Conflicts Committee
that it desired to explore on a preliminary basis the possibility of exercising
the purchase rights contained in the Falcon Classic Partnership Agreement and
summarized above. Accordingly, the General Partner requested that the Appraisal
Process be commenced.
On February 6, 1997, each of the Appraisers delivered summaries of
the results of their appraisals (the "Appraisals"), and subsequently delivered
their reports to Falcon Classic. These Appraisals indicated a median appraisal
for all of the assets of Falcon Classic of $82 million.
The Partnership is under no obligation to exercise its purchase
right in full or in part, and the Partnership has made no decision whether to
purchase any or all of Falcon Classic's five cable television systems. Any
decision by the Partnership will, as permitted by Falcon Classic's Partnership
Agreement, be made on a System-by-System basis. Falcon Classic's revenues and
net loss for the year ended December 31, 1996 were $19.8 million and $15,000,
respectively.
NOTE 6 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
------------ ----------
(Dollars in Thousands)
<S> <C> <C>
Cable television systems $ 390,167 $ 500,697
Furniture and equipment 11,823 17,915
Vehicles 7,515 10,861
Land, buildings and improvements 5,018 10,575
------------ ----------
414,523 540,048
Less accumulated depreciation and amortization (186,274) (230,920)
------------ ----------
$ 228,249 $ 309,128
============ ==========
</TABLE>
F-18
<PAGE> 77
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 7 - NOTES PAYABLE
Notes payable consist of:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
--------- ---------
(Dollars in
Thousands)
<S> <C> <C>
FHGLP Only:
11% Senior Subordinated Notes (a) $ 227,791 $ 253,537
Capitalized lease obligations 260 141
Owned Subsidiaries:
Amended and Restated Credit Agreement (b) 397,000 616,000
Other Subordinated Notes (c) 43,576 15,000
Other 392 1,108
--------- ---------
$ 669,019 $ 885,786
========= =========
</TABLE>
(A) 11% SENIOR SUBORDINATED NOTES
On March 29, 1993, FHGLP issued $175 million aggregate principal
amount of 11% Senior Subordinated Notes (the "Notes") due 2003. Interest payment
dates are semi-annual commencing September 15, 1993. Through September 15, 2000
FHGLP, at its option, may pay all or any portion of accrued interest on the
Notes by delivering to the holders thereof, in lieu of cash, additional Notes
having an aggregate principal amount equal to the amount of accrued interest not
paid in cash. Additional notes amounting to $20.8 million for 1994, $23.1
million for 1995 and $25.7 million for 1996 were issued as payment-in-kind for
interest. The Amended and Restated Credit Agreement prohibits FHGLP from paying
interest on the Notes in cash until September 30, 2000. The Notes represent
unsecured general obligations of FHGLP, subordinated in right of payment to all
senior indebtedness of FHGLP in the manner and to the extent set forth in the
indenture relating to the Notes (the "Indenture"). In addition, the Notes are
effectively subordinated to the claims of creditors of FHGLP's subsidiaries,
including the Owned Partnerships.
The Notes are redeemable at the option of FHGLP, in whole or in
part, at any time on or after September 15, 1998, initially at 105.5% of
principal amount, plus accrued interest, declining to 100% of principal amount,
plus accrued interest, on or after September 15, 2000. The Indenture contains,
among others, covenants with respect to: (i) the incurrence of additional
indebtedness, (ii) the making of investments, (iii) the making of restricted
payments (as defined therein), (iv) transactions with affiliates, (v) asset
sales (as defined) and (vi) mergers, consolidations and sales of substantially
all assets. The Indenture's limitation on the incurrence of additional
indebtedness limits the ratio of the total debt of the Partnership to Operating
Cash Flow (as defined in the Indenture) to 7.5 to 1 if such indebtedness is
incurred through December 31, 1999 and to 6.5 to 1 thereafter. Management
believes that the Partnership was in compliance with such covenants as of
December 31, 1996.
F-19
<PAGE> 78
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
============================================
NOTE 7 - NOTES PAYABLE (CONTINUED)
(B) AMENDED AND RESTATED CREDIT AGREEMENT
In connection with the acquisition of Falcon First, on December 28,
1995 the Partnership entered into a $435 million Bank Credit Agreement. On July
12, 1996, in order to finance the acquisition of the FCSC assets, the
Partnership negotiated an increase in the available borrowings to $775 million
(see Note 3). The maturity date of this Amended and Restated Credit Agreement
was extended to July 11, 2005. $646 million was drawn initially under the
facility ($125 million on the Term Loan and $521 million on the Reducing
Revolver), with the proceeds used to finance the acquisition of the assets of
FCSC, pay transaction and financing costs of approximately $5.6 million and
prepay $28.6 million of subordinated debt. The Amended and Restated Credit
Agreement requires the Partnership to make annual reductions of $1.0 million on
the Term Loan commencing December 31, 1997 and requires the Partnership to make
quarterly reductions on the Reducing Revolver commencing March 31, 1999,
reducing maximum available borrowings under the Amended and Restated Credit
Agreement to the following levels: $774 million at December 31, 1997; $773
million at December 31, 1998; $706 million at December 31, 1999; $611 million at
December 31, 2000; $535 million at December 31, 2001; $439 million at December
31, 2002; $331 million at December 31, 2003; and $185 million at December 31,
2004. The Amended and Restated Credit Agreement also includes a $75 million
Acquisition Facility that the Partnership may, prior to December 31, 1998,
request the Lenders to fund for the sole purpose of acquiring other businesses
or assets and paying the applicable costs of such transactions, subject to
certain terms and conditions. If any borrowings are advanced under this
facility, quarterly repayments shall commence March 31, 1999 or later, (based on
the amounts outstanding under the Reducing Revolver and Term Loan) and will not
have a maturity date earlier than July 11, 2005.
The Amended and Restated Credit Agreement requires interest on the
amount outstanding under the Reducing Revolver to be tied to the ratio of
consolidated total debt (as defined) to consolidated annualized cash flow (as
defined) as follows:
<TABLE>
<CAPTION>
Applicable Margin
Total Debt/ ------------------------
Annualized Cash Flow Base + LIBOR +
-------------------- ---------- ---------
<S> <C> <C> <C>
5.00x or more 0.50% 1.625%
4.75x to 4.99x 0.25 1.375
4.50x to 4.74x 0.00% 1.250
4.25x to 4.49x 0.00 1.125
4.00x to 4.24x 0.00 1.000
3.50x to 3.99x 0.00 0.875
Less than 3.50x 0.00 0.750
</TABLE>
Interest on the Term Loan will be the LIBOR rate plus 2.375%.
At December 31, 1996, the weighted average interest rate on
borrowings outstanding under the Amended and Restated Credit Agreement
(including the effects of the interest rate hedging agreements) was 7.98%. The
Partnership is also required to pay a commitment fee per annum on the unused
portion. The commitment fee will be computed at 0.375% if the ratio of
consolidated total debt to consolidated annualized
F-20
<PAGE> 79
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 7 - NOTES PAYABLE (CONTINUED)
operating cash flow is greater than or equal to 4.75x; if the ratio is less than
4.75x, the fee will be computed at 0.25%. As of December 31, 1996, the
Partnership had available borrowings under the Amended and Restated Credit
Agreement of $112 million. Borrowings are collateralized by substantially all of
the Partnership's assets, including stock and partnership interests, of all
subsidiaries. However, the lending banks do not have recourse against the assets
of the limited partners or the general partner.
The Amended and Restated Credit Agreement contains various
restrictions relating to, among other items, mergers and acquisitions,
investments, indebtedness, contingent liabilities and sale of property. The
Amended and Restated Credit Agreement also contains restrictions regarding
distributions and a change of management or a change in control (as defined).
The Amended and Restated Credit Agreement contains financial
covenants which may, among other things, limit the amount the Partnership may
borrow. The Amended and Restated Credit Agreement currently contains, among
others, the following covenants, which provide that (i) consolidated cash flow
to consolidated cash interest expense (as defined) shall exceed 2.00x; (ii)
consolidated total debt (as defined, which definition does not include the
Notes) to consolidated annualized cash flow (as defined) shall not exceed 5.50
prior to June 29, 1999; 5.0 for the period June 30, 1999 through December 30,
1999; 4.50 for the period December 31, 1999 through June 29, 2000; 4.00 for the
period June 30, 2000 through December 30, 2000; 3.50 for the period December 31,
2000 through June 29, 2001; 3.00 for the period June 30, 2001 through December
30, 2001; 2.75 for the period December 31, 2001 through June 29, 2002; and 2.50
thereafter and (iii) consolidated annualized cash flow to consolidated pro forma
debt service (as defined) shall be greater than 110%. Management believes that
the Partnership was in compliance with all financial covenants as of December
31, 1996.
Substantially all of the assets of the Partnership are held by the
subsidiaries of the Partnership. The Amended and Restated Credit Agreement
contains restrictions that prohibit the subsidiaries from making distributions
to FHGLP except for payments on account of management services provided by
FHGLP, which were limited by the former Bank Credit Agreement based on the
lesser of FHGLP's cash flow shortfall (as defined) or 3.75% of consolidated
cable revenues (as defined). The 3.75% limit was raised to 4.25% under the
Amended and Restated Credit Agreement, effective July 12, 1996. For 1996 the
permitted amount of distributions to FHGLP was $8.4 million; the actual amount
distributed was $3.5 million. Accordingly, at December 31, 1996, substantially
all the assets of the Partnership's subsidiaries are restricted from being
transferred to FHGLP.
In 1995, in connection with the write-off of deferred loan costs
necessitated by the refinancing associated with the acquisition of Falcon First
(see Note 3), the Partnership recorded additional interest expense of $3.5
million. There was no corresponding write-off required related to the Amended
and Restated Credit Agreement.
F-21
<PAGE> 80
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 7 - NOTES PAYABLE (CONTINUED)
(C) OTHER SUBORDINATED NOTES
Other Subordinated Notes consist of:
<TABLE>
<CAPTION>
December 31,
--------------------
1995 1996
--------- --------
(Dollars in Thousands)
<S> <C> <C>
11.56% Subordinated Notes due
March 2001 $ 43,576 $ 15,000
========= ========
</TABLE>
The subordinated note agreement contains certain covenants which are
substantially the same as the covenants under the Amended and Restated Credit
Agreement described in (b) above. At December 31, 1996, management believes that
the Partnership was in compliance with such covenants.
(D) INTEREST RATE HEDGING AGREEMENTS
The Partnership utilizes interest rate hedging agreements to
establish long-term fixed interest rates on a portion of its variable-rate debt.
The Amended and Restated Credit Agreement requires that the Partnership maintain
hedging arrangements with respect to at least 50% of its total outstanding
indebtedness, excluding the Notes, for a two year period at rates satisfactory
to the Admistrative Agent in order to manage the interest rate sensitivity on
its borrowings. At December 31, 1996, the Partnership participated in interest
rate hedging contracts with an aggregate notional principal of $690 million
(including $150 million of contracts it purchased from FCSC) under which the
Partnership pays interest at fixed rates ranging from 5.10% to 8.05%, (weighted
average rate of 5.84%), and receives interest at variable LIBOR-based rates.
$195 million of these contracts were not yet effective at December 31, 1996, but
are scheduled to go into effect during 1997 and 1998 as certain of the existing
contracts mature. The hedging contracts expire between January 1997 and May
2000. The Partnership has also entered into LIBOR-based interest rate cap
agreements aggregating $70.0 million as of December 31, 1996, $25 million of
which were not effective at December 31, 1996, but become effective on January
2, 1997.
The hedging agreements resulted in additional interest expense of
$3.3 million, $729,000 and $1.0 million 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.
F-22
<PAGE> 81
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 7 - NOTES PAYABLE (CONCLUDED)
(E) DEBT MATURITIES
The Partnership's notes payable outstanding at December 31, 1996
mature as follows:
<TABLE>
<CAPTION>
11% Senior Other
Subordinated Notes to Subordinated
Year Notes Banks Notes Other Total
---- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
1997 $ -- $ 1,000 $ -- $ 721 $ 1,721
1998 -- 1,000 -- 528 1,528
1999 -- 1,000 -- -- 1,000
2000 -- 2,000 -- -- 2,000
2001 -- 76,000 15,000 -- 91,000
Thereafter 253,537 535,000 -- -- 788,537
-------- -------- -------- -------- --------
$253,537 $616,000 $ 15,000 $ 1,249 $885,786
======== ======== ======== ======== ========
</TABLE>
The maturity date of notes payable may be accelerated upon the
occurrence of certain events. See Note 9.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Partnership leases land, office space and equipment under
operating leases expiring at various dates through the year 2039. See Note 11.
Future minimum rentals for operating leases at December 31, 1996 are
as follows:
<TABLE>
<CAPTION>
Year Total
---- -----
(Dollars in
Thousands)
<S> <C>
1997 $ 1,483
1998 1,307
1999 1,210
2000 1,163
2001 1,116
Thereafter 3,272
--------
$ 9,551
========
</TABLE>
F-23
<PAGE> 82
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
In most cases, management expects that, in the normal course of
business, these leases will be renewed or replaced by other leases. Rent expense
amounted to $1.7 million in 1994, $1.8 million in 1995 and $2.1 million in 1996.
In addition, the Partnership rents line space on utility poles in some of
the franchise areas it serves. These rentals amounted to $1.6 million for 1994,
$1.9 million for 1995 and $2.8 million for 1996. Generally, such pole rental
agreements are short-term; however, the Partnership anticipates such rentals
will continue in the future.
FHGLP holds a general partnership interest in each of the limited
partnerships which are the general partners of the Affiliated Partnerships,
excluding the Enstar Partnerships. Although all the indebtedness for borrowed
money owed by these Affiliated Partnerships is non-recourse, and each of their
respective partnership agreements provide for indemnification of its general
partner, FHGLP may have liability, as a result of its position as a general
partner, with respect to all other obligations of the Affiliated Partnerships.
The Partnership believes, however, that based on current values of the
Affiliated Partnerships, the likelihood of any potential loss from such
obligations is remote.
ECC has guaranteed the debt obligations of certain Enstar
partnerships. At December 31, 1996, the maximum exposure to ECC pursuant to such
guarantees was approximately $9.5 million, plus accrued interest. This guarantee
is recourse only to the assets of ECC. ECC's assets consist primarily of equity
interests in the Enstar partnerships.
Other commitments include approximately $20 million at December 31,
1996 to rebuild certain existing cable systems.
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 that 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
F-24
<PAGE> 83
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONCLUDED)
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 assurances 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, certain of its affiliates, and certain third
parties have been named as defendants in an action entitled Frank O'Shea I.R.A.
et al. v. Falcon Cable Systems Company, et al., Case No. BC 147386, pending in
the Superior Court of the State of California, County of Los Angeles (the
"Action"). Plaintiffs in the Action are certain former unitholders of FCSC
purporting to represent a class consisting of former unitholders of FCSC other
than those affiliated with FCSC and/or its controlling persons. The complaint in
the Action alleges, among other things, that defendants breached their fiduciary
and contractual duties to unitholders, and acted negligently, with respect to
the purchase from former unitholders of their interests in FCSC in 1996. In
particular, the complaint in the Action alleges, among other things, (a) that
the appraisals conducted to determine the price at which the purchase of the
former unitholders' interests would occur were "inadequate", "defective" and
"unreasonable" and that the appraisal firms who conducted the appraisals (two
out of three of which are named as defendants) acted negligently or recklessly
in performing the appraisals; (b) that the price paid per unit was unfair and
was intended to unfairly benefit the defendants at the expense of the public
unitholders, in that allegedly the price paid did not fairly reflect the
intrinsic value of the partnership assets, was not based on arms-length
negotiation, and was less than the per unit value that could be derived from an
alleged estimate of asset value submitted by FCSC to its lenders in connection
with its borrowings' and (c) that the sums paid the unitholders should not have
been based on a calculation that reflected payment to the General Partner of a
"sales fee" as defined in the partnership agreement. As relief, the complaint
seeks damages (and prejudgment interest) in an unspecified amount, and/or the
imposition of a constructive trust upon the partnership assets purchased by
certain defendants, and/or rescission of the transaction. The defendants have
filed answers denying the material allegations of the complaint in the Action,
and the Action is currently in the pre-trial discovery state. The Partnership
believes it has substantial and meritorious defenses to the claims.
NOTE 9 - PARTNERSHIP MATTERS
In connection with the acquisition of Falcon First, Inc., the Third
Amended and Restated Partnership Agreement (the "Partnership Agreement") became
effective on December 28, 1995. The Partnership Agreement provides for Class A,
Class B and Class C partnership interests. At December 31, 1996, there were
6,237.05 Class A partnership units and 93,762.95 Class B partnership units.
Class C partnership interests are generally not expressed in units but are
carried at liquidation value. Income and losses of the Partnership are generally
allocated to the General Partner and limited partners in proportion to the
partnership interest held by each Partner. The Class C partnership interests
have certain preferences with respect to the allocation of income and
distributions of the Partnership. On August, 1, 1996, the Partnership received
$5.0 million from certain existing limited partners who purchased additional
partnership interests, the proceeds of which were used to temporarily repay
outstanding debt under the Amended and Restated Credit Agreement. These limited
partners also entered into an option agreement to acquire additional partnership
interests in the future for a purchase price of $10 million.
F-25
<PAGE> 84
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 9 - PARTNERSHIP MATTERS (CONTINUED)
Holders of Class A and B partnership units have voting rights in all
partnership matters requiring a vote; the votes of the holder of Class C
partnership interests are required for certain transactions, generally related
to distributions. Class C partnership interests have a stated value of
approximately $51.4 million which increases at the annual rate of 8% from
December 28, 1997 to December 27, 1999, 10% from December 28, 1999 to December
27, 2001, and 12% from December 28, 2001 until redemption. The Class C
partnership interests must be redeemed by the Partnership in March 2004 at their
then stated value. Class C partnership interests also have priority in
liquidation over other partnership units in the amount of stated value.
The Partnership Agreement provides for certain groups of holders of
partnership units to have certain rights and priorities with respect to other
holders of partnership units. Among these rights are stated obligations of the
Partnership to redeem partnership units at fair value for Class A and B
partnership units, or in the case of Class C partnership interests, as described
above, at stated value. As more fully described below, partnership interests
held by specified groups are subject to mandatory redemption and/or have the
option to require redemption ("puts") of such partnership interests.
The following table sets forth the holdings and the estimated
redemption rights of each of these groups of holders.
<TABLE>
<CAPTION>
Class A Class B Estimated
Partnership Partnership Redemption Redemption Value at
Units Units Rights December 31, 1996
---------- ----------- ----------- ------------------
<S> <C> <C> <C> <C>
Group I Partners - 8,658.02 Put $ 32,073,000
Group II Partners 1,368.13 36,748.96 Mandatory 141,131,000
Group III Partners - 10,732.30 Put 39,756,000
Group IV Partner (Class B) - 2,043.33 Put 7,569,000
Group IV Partner (Class C) - - Mandatory 51,373,000
---------- ----------- -------------
Redeemable Partners'
Equity 1,368.13 58,182.61 $271,902,000
========== =========== ============
</TABLE>
The estimated redemption values at December 31, 1996 were determined by
management based on its best estimate of the relative fair value of such
interest under current market conditions. The actual redemption value of all
partnership interests (other than Class C partnership interests) will generally
be determined through negotiation or a third party appraisal mechanism at the
time such units are put, and the appraisers will not be bound by historical
estimates. Accordingly, such negotiated or appraised valuations may vary from
the amounts shown in the table and any such variations could be significant.
Group I holders have the option to require redemption of one-third of
their partnership units at fair value effective September 1996; two-thirds of
their partnership units effective September 1997; and all of their partnership
units effective September 1998. The September 1996 and 1997 put rights were not
exercised. The redemption requirements in 1996 and 1997 are subject to the
Partnership using its `best efforts' to obtain the financing necessary to
accomplish the redemption. Subject to certain conditions, the Partnership is
required to redeem the Group II partnership units at fair value during the
period July 1, 1998 through June 30, 1999. If Group I holders exercise their put
rights (election is required to be made between
F-26
<PAGE> 85
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 9 - PARTNERSHIP MATTERS (CONCLUDED)
December and March prior to the above effective dates), the Group II partnership
units cannot be redeemed until the Group I redemption has been completed. The
Group III partnership units must be redeemed concurrently with the redemption of
the Group II partnership units unless the Group III holders exercise an option
to not be so redeemed. If the Group III holders exercise their option not to be
so redeemed, on the earlier of March 31, 2000 or approximately nine months after
the Partnership's purchase of the Group II partnership units and for every two
years thereafter, there will be a 90-day period during which the Partnership may
elect to redeem the Group III partnership units and the Group III holders may
elect to put their Group III partnership units (which redemption or put shall be
effective within 180 days after the election to redeem or put, as applicable).
The Class C partnership interests held by the Group IV holder may be
repurchased by the Partnership at any time, and from time to time, at a price
equal to the liquidation preference thereof, and are subject to mandatory
redemption at stated value in March, 2004. The Group IV holder has the option to
require redemption of its Class B partnership units at fair value at any time
after June 30, 2004. Under certain circumstances, the Group IV holder may elect
to share in the existing liquidity rights of the Group II holders.
Certain of the partnership's debt agreements (including the Amended
and Restated Credit Agreement and the Notes) restrict the Partnership's ability
to: (i) make distributions to fund the purchase of partnership units pursuant to
the redemption provisions described above, (ii) incur indebtedness or issue debt
securities in connection with such purchase, and (iii) sell a substantial amount
of its assets. There can be no assurance that the Partnership will be able to
satisfy the above obligations without a recapitalization of the Partnership and
a renegotiation of its debt obligations. If a redemption is not completed as
required, liquidation of the Partnership's assets would be necessary.
In the event of liquidation, the Partnership is required to
distribute assets and/or the proceeds from liquidation first, to pay all debts
and liabilities outstanding; second, to the holder of the Class C partnership
interests; and finally, to holders of the Class A and Class B partnership
interests in proportion to their respective percentage interests.
NOTE 10 - EMPLOYEE BENEFIT PLANS
The subsidiaries of the Partnership have a cash or deferred profit
sharing plan (the "Profit Sharing Plan") covering substantially all of their
employees. FHGLP joined in the adoption of the FHGI cash or deferred profit
sharing plan as of March 31, 1993. The provisions of this plan were amended to
be substantially identical to the provisions of the Profit Sharing Plan.
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 for the Profit Sharing Plan in 1994, 1995 or 1996.
Each of the subsidaries of the Partnership maintains a Key Executive
Equity Program (the "Program") for certain key employees designated by the
Partnership. Participants become vested over six
F-27
<PAGE> 86
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 10 - EMPLOYEE BENEFIT PLANS (CONCLUDED)
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 acquisitions and
dispositions, are adjusted appropriately on a pro forma basis in the
determination of benefits. The Partnership may, in its discretion, reduce the
participant's benefits account if the participant's operating region fails to
achieve specified results. There were no expenses incurred under this Program in
1994, 1995 or 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.
On December 30 1993, the Partnership assumed the obligations of FHGI
for its 1993 Incentive Performance Plan (the "Incentive Plan"). The value of the
interests in the Incentive Plan is tied to the equity value of certain
partnership units held by FHGI. In connection with the assumption by the
Partnership, FHGI agreed to fund any benefits payable under the Incentive Plan
through additional capital contribution to the Partnership, the waiver of its
rights to receive all or part of certain distributions from the Partnership
and/or a contribution of a portion of its partnership units to the Partnership.
The benefits which are payable under the Incentive Plan are equal to the amount
of distributions which FHGI would have otherwise received with respect to
3,780.14 of the Class B units of the Partnership and 237.98 of the Class A units
of the Partnership held by FHGI (both of which have been adjusted for the Falcon
First acquisition and for the 1996 $5 million purchase of additional partnership
interests discussed in Note 9), and a portion of FHGI's interest in certain of
the general partners of the Affiliated Partnerships. Benefits are payable under
the Incentive Plan only when distributions would otherwise be paid to FHGI with
respect to the above-described units and interests. The Incentive Plan is
scheduled to terminate on January 5, 1998, at which time the Partnership is
required to distribute the units described above to the participants in the
Incentive Plan. At such time, FHGI is required to contribute the units to the
Partnership to fund such distributions.
The participants in the Incentive Plan are employees of the
Partnership and its operating affiliates, all of whom are 100% vested.
NOTE 11 - RELATED PARTY TRANSACTIONS
The Partnership (i.e., FHGLP) is a separate, stand-alone holding
company which employs all of the management personnel. In addition, prior to
October 1995, the Partnership conducted certain international investment and
development activities. In October 1995, the Partnership sold certain of its
international investments and loans to cable ventures in India and the
Philippines to Falcon International Communications, LLC ("FIC"), a newly-formed,
separately capitalized entity (or FIC's affiliates), for approximately $6.3
million in cash. FHGLP was reimbursed approximately $1.9 and $1.1 million by FIC
for 1995 and 1996 operating costs related to these investments. The Partnership
expects to incur no further liquidity obligations in respect of international
investments, although the amount of reimbursement FHGLP receives from FIC with
respect to the salaries of certain of its employees has been reduced for 1997.
Certain members of the Partnership's management also are officers of, and hold
equity interests in, FIC.
FHGLP is financially dependent on the receipt of permitted payments
from the Owned Systems, management and consulting fees from both domestic and
the remaining international cable ventures,
F-28
<PAGE> 87
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
============================================
NOTE 11 - RELATED PARTY TRANSACTIONS (CONTINUED)
and, the reimbursement of specified expenses by certain of the Affiliated
Systems to fund its operations. Expected increases in the funding requirements
of the Partnership combined with limitations on its sources of cash may create
liquidity issues for the Partnership in the future. Specifically, the Amended
and Restated Credit Agreement permits the subsidiaries of the Partnership to
remit to FHGLP no more than 4.25% of their net cable revenues, as defined, in
any year, effective July 12, 1996. This limitation was 3.75% for the period
January 1, 1996 through July 11, 1996. For 1996, that limit was approximately
$8.4 million. Actual fundings, which represent the lesser of the 3.75% and 4.25%
of revenues or the cash flow shortfall of FHGLP, as defined, amounted to $3.2
million in 1994, $3.0 million in 1995 and $3.5 million in 1996. In addition, the
management fees and reimbursed expenses earned from the Affiliated Partnerships
have been adversely affected by the FCC's rate regulations (to the extent those
fees are based on revenues of the Affiliated Systems), as well as by payment
restrictions currently imposed or which may be imposed in the future, by the
senior lenders to several of those entities. As a result, a portion of the
payment of fees due to FHGLP has been deferred in prior years due to such
restrictions, which increased the amount required to be funded by the Owned
Systems. On July 16, 1996, the Partnership received $5.2 million of previously
deferred management fees and reimbursed expenses from Falcon Cable Systems
Company.
The management and consulting fees and expense reimbursements earned
from the Affiliated Partnerships amounted to approximately $9.0 million and $3.9
million, $8.6 million and $5.5 million and $6.3 million and $3.7 million
(including the $1.9 and $1.1 million mentioned above related to international
expenses) for the years ended December 31, 1994, 1995 and 1996, respectively.
Included in the management fee totals for the years ended 1994 and 1995 are
$515,000 and $88,000 received by FHGLP for the management of cable systems owned
by Vista. Vista sold the systems on December 23, 1994, and except for an
incentive fee in the amount of approximately $1.0 million earned in 1994 by
FHGLP on the sale and fees earned in 1995 of approximately $88,000 for final
accounting and tax services, no other fees have been received from Vista. The
fees of $8.6 million earned in 1995 include $1.6 million from Falcon First
(based on 5% of its net cable revenues, as defined). The fees of $6.3 million
and $3.7 million earned in 1996 included $1.5 million and $1.0 million earned
from FCSC from January 1, 1996 through July 11, 1996. Subsequent to
acquisitions, the amounts payable to FHGLP in respect of its management of the
former Falcon First and FCSC Systems became subject to the 4.25% limitation
contained in the Amended and Restated Credit Agreement.
Receivables from the Affiliated Partnerships for services and
reimbursements described above amounted to approximately $10 million and $5.8
million at December 31, 1995 and 1996. The amounts due at December 31, 1995 and
December 31, 1996 include approximately $8.9 million and $3.6 million,
respectively, related to fees and reimbursements deferred as a result of the
liquidity constraints experienced by the Affiliated Partnerships, the
limitations described above or decisions made by the Partnership, including $4.6
million due from FCSC at December 31, 1995, which was paid in July, 1996.
Included in Commitments and Contingencies (Note 8) are two facility
lease agreements with the Partnership's Chief Executive Officer and his wife, or
entities owned by them, requiring annual future minimum rental payments
aggregating $2.1 million through 2001, one facility being acquired as part of
the assets acquired on July 12, 1996 from FCSC. During the years ended December
31, 1994, 1995 and 1996 rent expense on the first facility amounted to $400,000,
$416,000 and $397,000, respectively. The rent paid for the second facility for
the period July 12, 1996 through December 31, 1996 amounted to $18,335.
F-29
<PAGE> 88
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 11 - RELATED PARTY TRANSACTIONS (CONCLUDED)
In addition, the Partnership provides certain accounting, bookkeeping
and clerical services to the Partnership's Chief Executive Officer. The costs of
services provided were determined based on allocations of time plus overhead
costs (rent, parking, supplies, telephone, etc.). Such services amounted to
$181,000, $180,000 and $118,300 for the years ended December 31, 1994, 1995 and
1996. These costs were net of amounts reimbursed to the Partnership by the Chief
Executive Officer amounting to $55,000, $66,000 and $75,000 for the years ended
December 31, 1994, 1995 and 1996.
NOTE 12 - OTHER INCOME (EXPENSE)
Other income (expense) is comprised of the following:
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------
(Dollars in Thousands)
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Gain on sale of Available-for-Sale
Securities (Note 4) $ -- $ 13,267 $ 2,264
Special charges (1,198) -- --
Other, net 743 (190) (328)
-------- -------- --------
$ (455) $ 13,077 $ 1,936
======== ======== ========
</TABLE>
In December 1993, the Partnership formed a new corporation, Falcon
Cable TV, Inc., to file a registration statement with the Securities and
Exchange Commission to sell common equity. Due to the adverse effect on market
conditions created by the FCC's amended regulations implementing the 1992 Cable
Act, the Partnership terminated the equity offering in March 1994. The
Partnership incurred approximately $1.2 million of costs related to the proposed
equity offering. These costs were charged against earnings of 1994 as other
expense following the termination of the offering, and represent the "Special
charges" above.
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Operating activities
During the years ended December 31, 1994, 1995 and 1996, the
Partnership paid cash interest amounting to approximately $24.8 million, $30.8
million and $39.7 million.
Investing activities
See Note 3 regarding the non-cash investing activities related to
the acquisitions of Falcon First and the cable systems of FCSC.
F-30
<PAGE> 89
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(CONCLUDED)
Financing activities
See Note 3 regarding the non-cash financing activities relating to
the acquisitions of Falcon First and the cable systems of FCSC. See Note 9
regarding the reclassification to redeemable partners' equity.
NOTE 14 - FALCON HOLDING GROUP, L.P. (PARENT COMPANY ONLY)
The following parent-only condensed financial information presents
Falcon Holding Group, L.P.'s balance sheets and related statements of operations
and cash flows by accounting for the investments in the Owned Subsidiaries on
the equity method of accounting. The accompanying condensed financial
information should be read in conjunction with the consolidated financial
statements and notes thereto.
F-31
<PAGE> 90
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
===========================================
NOTE 14 - FALCON HOLDING GROUP, L.P. (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
December 31
----------------------
1995 1996
--------- ---------
(Dollars in
thousands)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 9,759 $ 6,706
Receivables:
Intercompany notes and accrued interest receivable 169,993 203,827
Due from affiliates and other entities, of which
$17,176,000 and $17,839,000 are contractually restricted
or otherwise deferred (see Note 11) 18,356 20,944
Prepaid expenses and other 288 202
Investment in affiliated partnerships 13,594 12,830
Other investments 11,728 3,580
Property, plant and equipment, less accumulated
depreciation and amortization 1,325 1,180
Deferred loan costs, less accumulated amortization 6,586 5,721
--------- ---------
$ 231,629 $ 254,990
========= =========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES:
Notes payable $ 260 $ 141
11% Senior Subordinated Notes 227,791 253,537
Accounts payable 208 266
Accrued expenses and other 10,559 11,702
Equity in net losses of Owned Subsidiaries
in excess of investment 132,590 173,941
--------- ---------
TOTAL LIABILITIES 371,408 439,587
REDEEMABLE PARTNERS' EQUITY 271,902 271,902
PARTNERS' DEFICIT (411,681) (456,499)
--------- ---------
$ 231,629 $ 254,990
========= =========
</TABLE>
F-32
<PAGE> 91
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
============================================
NOTE 14 - FALCON HOLDING GROUP, L.P. (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENT OF OPERATIONS INFORMATION
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
REVENUES:
Management fees:
Affiliated Partnerships $ 6,765 $ 6,196 $ 3,962
Owned Subsidiaries 8,170 8,509 12,020
International and other 520 639 413
-------- -------- --------
Total revenues 15,455 15,344 16,395
-------- -------- --------
EXPENSES:
General and administrative expenses 9,798 10,309 9,096
Depreciation and amortization 547 608 375
-------- -------- --------
Total expenses 10,345 10,917 9,471
-------- -------- --------
Operating income 5,110 4,427 6,924
OTHER INCOME (EXPENSE):
Interest income 15,903 17,623 19,884
Interest expense (22,387) (24,796) (27,469)
Equity in net loss of Owned Subsidiaries (30,877) (16,392) (50,351)
Equity in net losses of investee
partnerships (1,091) (5,843) (73)
Other, net (171) (254) 1,100
-------- -------- --------
NET LOSS $(33,513) $(25,235) $(49,985)
======== ======== ========
</TABLE>
F-33
<PAGE> 92
FALCON HOLDING GROUP, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONCLUDED)
===========================================
NOTE 14 - FALCON HOLDING GROUP, L.P. (PARENT COMPANY ONLY) (CONCLUDED)
CONDENSED STATEMENT OF CASH FLOWS INFORMATION
<TABLE>
<CAPTION>
Year ended December 31,
--------------------------------
1994 1995 1996
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Net cash provided by (used in)
operating activities $ (1,745) $ 1,427 $ (8,969)
-------- -------- --------
Cash flows from investing activities:
Distributions from affiliated partnerships -- -- 773
Capital expenditures (349) (444) (242)
Investments in affiliated partnerships
and other investments (2,517) (666) (9,000)
Proceeds from sale of investments and
other assets -- 1,856 3
Proceeds from sale of available-for-sale
securities -- -- 9,502
-------- -------- --------
Net cash provided by (used in) investing
activities (2,866) 746 1,036
-------- -------- --------
Cash flows from financing activities:
Repayment of debt (454) (121) (120)
Capital contributions -- -- 5,000
-------- -------- --------
Net cash provided by (used in)
financing activities (454) (121) 4,880
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents (5,065) 2,052 (3,053)
Cash and cash equivalents,
at beginning of year 12,772 7,707 9,759
-------- -------- --------
Cash and cash equivalents,
at end of year $ 7,707 $ 9,759 $ 6,706
======== ======== ========
</TABLE>
F-34
<PAGE> 93
FALCON HOLDING GROUP, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
================================================
<TABLE>
<CAPTION>
Additions
Balance at charged to Balance at
beginning costs and end of
Description of period expenses Deductions(a) Other(b) period
----------- --------- -------- ------------- -------- ------
<S> <C> <C> <C> <C> <C>
Allowance for
possible
losses on
receivables
Year ended December 31,
1994 $314 $1,820 $(1,933) - $201
1995 $201 $2,499 $(1,928) $58 $830
1996 $830 $2,817 $(2,740) - $907
</TABLE>
- ---------------
(a) Write-off uncollectible accounts.
(b) Allowance for losses on receivable acquired in connection with the
acquisition of Falcon First.
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.1 1995 Contribution, Purchase and Partnership Amendment Agreement, dated
as of December 28, 1995 by and among Falcon Holding Group, L.P., its
current limited partners, Falcon Holding Group, Inc., Falcon First
Communications, L.L.C., Falcon First Communications, L.P., its limited
partners and Falcon First Investors, L.P.(7)
3.1 Certificate of Limited Partnership of FHGLP(1)
3.2 Amended and Restated Agreement of Limited Partnership of
FHGLP(1)
3.3 Third Amended and Restated Agreement of Limited Partnership of
FHGLP(7)
4.1 Indenture for the Old Notes, dated as of March 29, 1993, between FHGLP
and United States Trust Company of New York, as trustee(1)
4.2 Form of Old Note (included in Exhibit No. 4.1)(1)
4.3 Form of Amended and Restated Indenture for the Notes, between
FHGLP and United States Trust Company of New York, as
trustee(1)
4.4 Form of New Note (included in Exhibit No. 4.3)(1)
4.5 Registration Rights Agreement, dated as of March 29, 1993,
between FHGLP and Morgan Stanley & Co. Incorporated and Lazard
Freres & Co(1)
4.6 Notice to MONY Mutual Life Insurance Company of New York of
Prepayment of Falcon Cablevision's, a California limited
partnership's, 12% Subordinated Notes due December 31,
1995.(8)
10.1 Bank Credit Agreement, dated as of March 17, 1993, between the
Owned Partnerships, and certain lenders and agents named
therein(1)
10.2 Pledge and Subordination Agreement, dated as of March 29,
1993, between Falcon, FHGLP and certain lenders and agents
named therein(1)
10.3 Guarantors Contribution Agreement, dated as of March 29, 1993,
among certain subsidiaries of FHGLP(1)
10.4 Management Compensation Agreement, dated as of March 29, 1993,
by and among Falcon and the limited Partners signatory
thereto(1)
10.5 Management Rights Agreement, dated as of March 29, 1993, by
and between FHGLP and Hellman & Friedman Capital Partners(1)
10.6 Management Rights Agreement, dated as of March 29, 1993, by and between
FHGLP and Hellman & Friedman Capital Partners II, L.P.(1)
10.7 Lease, dated December 1989, between Raymond Business Center
and Falcon(1)
10.8 Lease, dated as of June 25, 1992, by and between Sumitomo Life
Realty (N.Y.), Inc. and Falcon(1)
10.9 Cash or Deferred Profit Sharing Plan of Falcon(1)
10.10 Money Purchase Pension Plan of Falcon(1)
10.11 Combined Incentive Performance Plan of FHGLP(1)
10.12 Falcon Holding Group 401(k) Plan(1)
</TABLE>
E-1
<PAGE> 95
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.13 Ordinance No. 93-75 of the City of Santa Clara, Utah granting
to Falcon Telecable a Franchise to Construct, Operate and
Maintain a Cable Television System(2)
10.14 Ordinance No. 93-01 of the Board of Trustees for the Town of
Stratford, Oklahoma granting to Falcon Cable Media a permit to
construct, operate and maintain a cable television system and
declaring an emergency(2)
10.15 Resolution of the City Council of Hardy, Arkansas extending
the Cable Television Franchise of Falcon Telecable(2)
10.16 Ordinance No. 1064 N.S. of the City Council of the City of
Colville passing an Ordinance amending Ordinance No. 768 N.S.
Section 5. Extending the length of time for the existing
Franchise for one year(1)
10.17 Ordinance #3 an ordinance to amend the franchise tax for the
Town of Leeds, Utah(1)
10.18 Ordinance No. 1077 regulating rates charged by cable
television operators within the City of Pleasanton, Texas.(4)
10.19 Permit for the Town of Bethel Acres, Oklahoma authorizes Falcon Cable
TV to provide cable communication services to the Town of Bethel
Acres.(4)
10.20 Ordinance No. 93-01, An ordinance setting forth regulations, terms and
conditions under which cable television systems shall operate in
Stratford, Oklahoma; and granting to Falcon Cable Media, its successors
and assigns, a permit to construct, operate and maintain a cable
television system and declaring and emergency.(4)
10.21 Confirmation of offer of employment with Jon Lunsford and
Promissory Note.(3)
10.22 Loan agreement between Falcon Holding Group L.P., Lender, and
Neil McCarthy Borrower including Short Form Deed of Trust and
Assignment of Rents (Individual) and Promissory
Note.(8)
10.23 Amendment No. 1 to Bank Credit Agreement, dated as of March
17, 1993, between the Owned Partnerships, and certain lenders
and agents named therein.(6)
10.24 Amendment No. 2 to Bank Credit Agreement, dated as of March
17, 1993, between the Owned Partnerships, and certain lenders
and agents named therein.(6)
10.25 Bank Credit Agreement, dated as of December 28, 1995, among
certain affiliates of Falcon Holding Group, L.P., their
respective subsidiaries that are from time to time party
thereto, The First National Bank of Boston, as Managing Agent,
Toronto-Dominion (Texas) Inc., as Administrative Agent,
Chemical Bank, as Co-Administrative Agent, NationsBank of
Texas, N.A., as Syndication Agent, and the several lenders
from time to time party thereto.(7)
10.26 Agreement and Plan of Merger, dated as of December 28, 1995, by and
among Falcon First Communications, L.L.C., Falcon First Communications,
L.P., its limited partners and Falcon First Investors, L.P.(7)
10.27 Amendment to Contingent Interest Agreement, dated as of
December 28, 1995, between Falcon First Communications, L. P.,
Continental Equity Capital Corporation, First Chicago
Investment Corporation, Madison Dearborn Partners VIII and
William Blair Venture Partners III Limited Partnership.(7)
l0.28 Tax-Sharing Agreement, dated as of December 28, 1995, by and between WB
Cable Investors II, Inc., Madison Dearborn Partners VI, Continental
Equity Capital Corporation, Avy Stein, John Willis, Burton McGillevray,
Hellman & Friedman Capital Partners II, L.P., Falcon Cable Trust and
Falcon Holding Group, L.P.(7)
</TABLE>
E-2
<PAGE> 96
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.29 Employment Termination and Settlement Agreement between Neil
McCarthy and Falcon Holding Group, L.P. dated September 1,
1995.(8)
10.30 First Amendment to and Extension of office Lease between
Raymond Business Center and Falcon Holding Group, L.P.(9)
10.31 Asset purchase agreement by and among subsidiaries of Falcon
Holding Group, L.P. and Teleview, Inc.(9)
10.32 Amendment No. 1 to Bank Credit Agreement, dated as of December
28, 1995, among certain affiliates of Falcon Holding Group,
L.P., their respective subsidiaries that are from time to time
party thereto, The First National Bank of Boston, as Managing
Agent, Toronto-Dominion (Texas) Inc., as Administrative Agent,
Chemical Bank, as Co-Administrative Agent, NationsBank of
Texas, N.A., as Syndication Agent, and the several lenders(9)
10.33 Restricted Subordination Agreement dated as of March 26, 1993
as restated as of December 28, 1995 betwen Falcon Holding
Group, L.P., Falcon Holding Group, Inc. and AUSA Life
Insurance Company, Inc. and MONY Life Insurance Company of
America.(9)
10.34 System Appraisal of Falcon Cable Systems Company, as of December 31,
1995, by Malarkey-Taylor Associates, Inc., dated April 29, 1996 (filed
as Exhibit 1 to the June 13 Falcon Cable Systems Company Report file
no. 19332 and incorporated by reference).(10)
10.35 System Appraisal of Falcon Cable Systems Company, as of December 31,
1995, by Kane-Reece Associates, Inc., dated April 29, 1996 (filed as
Exhibit 2 to the June 13 Falcon Cable Systems Company Report file no.
19332 and incorporated by reference).(10)
10.36 System Appraisal of Falcon Cable Systems Company, as of
December 31, 1995, by Waller Capital Corporation (filed as
Exhibit 3 to the June 13 Falcon Cable Systems Company Report
file no. 19332 and incorporated by reference).(10)
10.37 Asset Purchase Agreement by and between the Partnership and New Falcon,
dated as of June 13, 1996 (filed as Exhibit 4 to the June 13 Falcon
Cable Systems Company Report file no. 19332 and incorporated by
reference).(10)
10.38 Amended and Restated Credit Agreement dated July 12,
1996.(10)
10.39 Limited Partnership Interest Purchase Agreement dated July 15,
1996, by and among Falcon Holding Group, L.P., Marc B.
Nathanson, Trustee of the Falcon Cable Trust and Advance TV of
California, Inc.(11)
10.40 Partnership Option Agreement dated July 15, 1996, by and among
Marc B. Nathanson, Trustee of the Falcon Cable Trust and
Falcon Holding Group, L.P.(11)
10.41 Partnership Option Agreement dated July 15, 1996, between
Advance TV of California, Inc. and Falcon Holding Group,
L.P.(11)
10.42 Fourth Amendment to Note Purchase and Exchange Agreement dated
July 12, 1996, between Falcon Telecable, AUSA Life Insurance
Company, Inc. and MONY Life Insurance Company of America.(12)
10.43 Second Restated Subordination Agreement between Registrant and
AUSA Life Insurance Company, Inc. and MONY Life Insurance
Company of America dated July 12, 1996.(11)
</TABLE>
E-3
<PAGE> 97
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.44 Second Restated Guaranty Agreement, dated July 12, 1996, by
Falcon Cablevision, Falcon Cable Media, Falcon Community
Cable, L.P., Falcon Community Ventures I Limited Partnership,
Falcon Investors Group, LTD., Falcon Telecable Investors
Group, Falcon Media Investors Group, Falcon Community
Investors, L.P., Falcon Telecom, L.P., Falcon Cable Systems
Company II, L.P., and Falcon First, Inc. in favor of each of
AUSA Life Insurance Company, Inc. and MONY Life Insurance
Company of America with respect to the Notes.(11)
10.45 Certificate, dated (July 12, 1996), of Falcon Holding Group,
Inc. with respect to the common ownership of certain
partnership guarantors.(11)
10.46 Insurance Cost Allocation Agreement, dated July 1, 1996,
between Falcon Holding Group, L.P. and Falcon International
Communications, L.L.C..
10.47 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.
10.48 Valuation Analysis for Falcon Classic Cable Income Properties, L.P., as
of December 31, 1996, dated March 3, 1997, prepared by Communications
Equity Associates.
10.49 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 Associates, Inc.
21.1 Subsidiaries: None.
</TABLE>
FOOTNOTES
(1) Incorporated by reference to the exhibits to the Registrant's
Registration Statement on Form S-4, Registration No. 33-60776.
(2) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q, File No. 33-60776 for the quarter
ended September 30, 1993.
(3) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q, File No. 33-60776 for the quarter
ended September 30, 1995.
(4) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 33-60776 for the fiscal year
ended December 31, 1993.
(5) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 33-60776 for the fiscal year
ended December 31, 1994.
(6) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q, File No. 33-60776 for the quarter
ended June 30, 1995.
(7) Incorporated by reference to the exhibit to the Registrant's
current Report on Form 8-K, File No. 33-60776 dated December 28,
1995.
(8) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 33-60776 for the fiscal year
ended December 31, 1995.
(9) Incorporated by reference to the exhibit to the Registrant's
Quarterly Report on Form 10-Q, File No. 33-60776 for the quarter
ended March 31, 1996.
(10) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q, File No. 33-60776 for the quarter
ended June 30, 1996.
(11) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q File No. 33-60776 for the quarter ended September
30, 1996.
E-4
<PAGE> 1
EXHIBIT 10.46
INSURANCE COST ALLOCATION AGREEMENT
This Insurance Cost Allocation Agreement ("Agreement") is entered into
this 1st day of July, 1996, by and between Falcon Holding Group, L.P. ("FHG"),
and Falcon International Communications, L.L.C. ("FIC"), with reference to the
following facts:
RECITALS
A. FHG presently carries a Commercial Umbrella Policy with Federal
Insurance Company ("Federal") with aggregate liability limits of $25,000,000,
and an Excess Liability Policy with Indemnity Insurance Company of North America
("INA") with aggregate liability limits of $25,000,000. The aforesaid policies
shall hereinafter be collectively referred to as the "Policies," and the
aforesaid insurance carriers shall hereinafter be collectively referred to as
the "Insurers."
B. FIC desires to be named as an insured on the Policies, and FHG is
willing to permit FIC to be so named provided FIC reimburses FHG, or pays
directly to the Insurers, the incremental cost associated therewith.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
conditions herein contained, the parties hereto agree as follows:
AGREEMENT
1. Within ten (10) days after the execution of this Agreement, FHG will
notify the Insurers that FIC should be added as a named insured to the Policies.
2. At such time as payment is due to the Insurers, at FHG's election,
FIC shall either (a) reimburse FHG for payments made on behalf of FIC, or (b)
pay directly to the Insurers the incremental cost associated with adding FIC to
the Policies.
3. In the event FIC makes a claim against either or both of the
Insurers, FIC shall immediately pay such additional premium as may be required
to reinstate the aggregate coverage limits of the Policies so that FHG does not
have diminished coverage limits as a result of such claim(s). In the event FHG
makes a claim under the Policies after FIC has made a claim under such Policies,
and FHG fails to have its claim satisfied by the Insurers because the aggregate
coverage limits of the Policies has not been reinstated as provided above,
whether as a result of (a) an act or omission of FIC, or (b) the Insurers
failure to timely process FIC's request to reinstate the aggregate coverage, FIC
shall in such circumstance, indemnify, defend, and forever hold FHG and its
officers, directors, employees, and agents harmless against and from any and all
third party claims, lawsuits, costs, liabilities, judgment, damages, and
expenses (including, without limitation, reasonable attorneys' fees) which would
otherwise have been covered under the Policies.
1
<PAGE> 2
4. In the event FIC and FHG both make a claim which arises from the same
or similar factual circumstances such that it is considered by either or both of
the Insurers to be a single claim, to the extent there is insufficient insurance
proceeds to fully cover all claims, such proceeds shall be allocated to the
parties on a pari passu basis according to the verifiable amount of each parties
claim. If the parties are unable to agree on the verifiable amount of their
respective claims, such issue shall be submitted to arbitration in accordance
with the rules of the American Arbitration Association.
5. FHG and FIC shall each have the right to terminate this Agreement
for any reason whatsoever on thirty (30) days' prior written notice to the
non-terminating party.
6. This Agreement shall be construed and enforced under and in
accordance with the laws of the State of California.
7. No waiver of the breach of any of the terms or provisions of this
Agreement shall be a waiver of any preceding or succeeding breach of the
Agreement of any other provisions of it.
8. This Agreement contains the entire agreement between the parties
hereto with respect to the subject matter hereof, supersedes all prior
agreements, negotiations, and oral understandings, if any, and may not be
amended, supplemented, or discharged, except by an instrument in writing signed
by each of the parties hereto.
9. If any provision of this Agreement is deemed to be unenforceable,
the balance of this Agreement shall nevertheless continue in effect, and any
court may enforce any provision to the extent permitted by law, even though the
entire Agreement may not be enforced.
FALCON INTERNATIONAL
COMMUNICATIONS, L.L.C.
DATED: July 1, 1996 By: /s/ Stanley Itskowitch
------------ -------------------------------------
Stanley Itskowitch
FALCON HOLDING GROUP, L.P.,
a Delaware limited partnership
By: Falcon Holding Group, Inc.,
a California corporation
its general partner
DATED: July 1, 1996 By: /s/ Mike Menerey
------------ -------------------------------------
Mike Menerey
2
<PAGE> 1
EXHIBIT 10.47
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
<PAGE> 2
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
<PAGE> 3
[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.
<PAGE> 4
[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:
<TABLE>
<S> <C>
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
-----------
</TABLE>
Very truly yours,
/S/Arthur Andersen LLP
ARTHUR ANDERSEN LLP
<PAGE> 5
[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
<PAGE> 6
[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
<PAGE> 7
[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
<PAGE> 8
[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
<PAGE> 9
[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:
<TABLE>
<S> <C>
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
</TABLE>
2
<PAGE> 10
[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
<PAGE> 11
[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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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:
<TABLE>
<CAPTION>
Burke County, North Carolina Penetration
- ---------------------------- -----------
<S> <C> <C>
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%
</TABLE>
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<TABLE>
<CAPTION>
California City, California Penetration
- --------------------------- -----------
<S> <C> <C>
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%
</TABLE>
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.
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5. Franchise Agreements
The following chart details the active franchises and agreements for
the Systems and provides term expiration.
<TABLE>
<CAPTION>
Franchise Area Expiration Date
-------------- ---------------
Burke County, North Carolina
- ----------------------------
<S> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
Franchise Area Expiration Date
-------------- ---------------
Redmond, Oregon
- ---------------
Redmond February 23, 2002
Somerset, Kentucky
- ------------------
<S> <C>
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
</TABLE>
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.
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6. Channel Line-Up and Rate Card
As of the valuation date, the following average rates were charged
to subscribers.
<TABLE>
<CAPTION>
Burke County, North Carolina
- ----------------------------
<S> <C>
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
</TABLE>
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<TABLE>
<CAPTION>
Somerset, Kentucky
- ------------------
<S> <C>
Basic: 19.24
Expanded Basic: 2.37
Pay: 8.71
Converters: 1.58
Remotes: 0.33
Installation: 45.00
Reconnect: 45.00
</TABLE>
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.
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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.
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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
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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.
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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
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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
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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.
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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
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(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.
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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.
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<TABLE>
<CAPTION>
Recent Transactions/
Announced Sales Price Price/Subscriber Multiple(1)
--------------- ----- ---------------- ---------
<S> <C> <C> <C>
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
</TABLE>
(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.
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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.
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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.
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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.
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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.
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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
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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
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EXHIBIT A-1
- ---------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
BURKE COUNTY, NC
AS OF DECEMBER 31, 1996
- ---------------------------------------------------
- ---------------------------------------------------
CABLE TELEVISION MILES, HOMES PASSED, SUBSCRIBERS
- ---------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 46
EXHIBIT A-2
- -------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CALIFORNIA CITY, CALIFORNIA
AS OF DECEMBER 31, 1996
- -------------------------------------------------
- -------------------------------------------------
CABLE TELEVISION MILES, HOMES PASSED, SUBSCRIBERS
- -------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 47
EXHIBIT A-3
- ---------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CENTREVILLE, MARYLAND
AS OF DECEMBER 31, 1996
- ---------------------------------------------
- ---------------------------------------------
CABLE TELEVISION MILES, HOMES PASSED, SUBSCRIBERS
- ---------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 48
EXHIBIT A-4
- --------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
REDMOND, OREGON
AS OF DECEMBER 31, 1996
- --------------------------------------
- --------------------------------------
CABLE TELEVISION MILES, HOMES PASSED, SUBSCRIBERS
- --------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 49
EXHIBIT A-5
- ------------------------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SOMERSET, KY
AS OF DECEMBER 31, 1996
- ------------------------------------------------------------------
- ------------------------------------------------------------------
CABLE TELEVISION MILES, HOMES PASSED, SUBSCRIBERS
- ------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 50
EXHIBIT B-1
- ------------------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
BURKE COUNTY, NC
AS OF DECEMBER 31, 1996
- ------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------
SERVICE RATES
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 51
EXHIBIT B-2
- -------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CALIFORNIA CITY, CALIFORNIA
AS OF DECEMBER 31, 1996
- -------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------
SERVICE RATES
- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 52
EXHIBIT B-3
- -------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CENTREVILLE, MARYLAND
AS OF DECEMBER 31, 1996
- -------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------
SERVICE RATES
- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 53
EXHIBIT B-4
- -------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
REDMOND, OREGON
AS OF DECEMBER 31, 1996
- -------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------
SERVICE RATES
- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 54
EXHIBIT B-5
- -------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SOMERSET, KY
AS OF DECEMBER 31, 1996
- -------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------
SERVICE RATES
- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 55
EXHIBIT C-1
- ------------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
BURKE COUNTY, NC
AS OF DECEMBER 31, 1996
- ------------------------------------------------------
- ------------------------------------------------------
REVENUE, EXPENSE, OPERATING INCOME
- ------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000
----------- ----------- ----------- -----------
REVENUE
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 56
EXHIBIT C-2
- --------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CALIFORNIA CITY, CALIFORNIA
AS OF DECEMBER 31, 1996
- --------------------------------------------
- --------------------------------------------
REVENUE, EXPENSE, OPERATING INCOME
- --------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 57
EXHIBIT C-3
- --------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CENTREVILLE, MARYLAND
AS OF DECEMBER 31, 1996
- --------------------------------------------
- --------------------------------------------
REVENUE, EXPENSE, OPERATING INCOME
- --------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 58
EXHIBIT C-4
- --------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
REDMOND, OREGON
AS OF DECEMBER 31, 1996
- --------------------------------------------
- --------------------------------------------
REVENUE, EXPENSE, OPERATING INCOME
- --------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 59
EXHIBIT C-5
- --------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SOMERSET, KY
AS OF DECEMBER 31, 1996
- --------------------------------------------
- --------------------------------------------
REVENUE, EXPENSE, OPERATING INCOME
- --------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 60
EXHIBIT D-1
- ------------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
BURKE COUNTY, NC
AS OF DECEMBER 31, 1996
- ------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------
CAPITAL EXPENDITURES
- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 61
EXHIBIT D-2
- -----------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CALIFORNIA CITY, CALIFORNIA
AS OF DECEMBER 31, 1996
- -----------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------
CAPITAL EXPENDITURES
- -----------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 62
EXHIBIT D-3
- -----------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CENTREVILLE, MARYLAND
AS OF DECEMBER 31, 1996
- -----------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------
CAPITAL EXPENDITURES
- -----------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003
---------- ---------- ---------- ---------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 63
EXHIBIT D-4
- -----------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
REDMOND, OREGON
AS OF DECEMBER 31, 1996
- -----------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------
CAPITAL EXPENDITURES
- -----------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 64
EXHIBIT D-5
- -----------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SOMERSET, KY
AS OF DECEMBER 31, 1996
- -----------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------
CAPITAL EXPENDITURES
- -----------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003
-------- ---------- ---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 65
EXHIBIT E-1
- ----------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
BURKE COUNTY, NC
AS OF DECEMBER 31, 1996
- ----------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------
DISCOUNTED CASH FLOW VALUATION
- ----------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL
--------- --------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 66
EXHIBIT E-2
- --------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CALIFORNIA CITY, CALIFORNIA
AS OF DECEMBER 31, 1996
- --------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------
DISCOUNTED CASH FLOW VALUATION
- --------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 67
EXHIBIT E-3
- -------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CENTREVILLE, MARYLAND
AS OF DECEMBER 31, 1996
- -------------------------------------------------
<TABLE>
<CAPTION>
- -------------------------------------------------
DISCOUNTED CASH FLOW VALUATION
- -------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 68
EXHIBIT E-4
- ------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
REDMOND, OREGON
AS OF DECEMBER 31, 1996
- ------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------
DISCOUNTED CASH FLOW VALUATION
- ------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 69
EXHIBIT E-5
- ------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SOMERSET, KY
AS OF DECEMBER 31, 1996
- ------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------
DISCOUNTED CASH FLOW VALUATION
- ------------------------------------------------
YEAR ENDING DECEMBER 31, 1997 1998 1999 2000 2001 2002 2003 TOTAL
---------- ---------- ---------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 70
EXHIBIT F-1
- -------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
BURKE COUNTY, NC
AS OF DECEMBER 31, 1996
- -------------------------------------------
- -------------------------------------------
VALUATION MATRIX
- -------------------------------------------
VALUATION MATRIX
<TABLE>
<CAPTION>
MULTIPLE OF PAST YEAR'S OPERATING INCOME
<S> <C> <C>
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
===========
</TABLE>
<TABLE>
<CAPTION>
VALUE SUMMARY WEIGHTING
<S> <C> <C>
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%
============ ====
</TABLE>
<TABLE>
<CAPTION>
INFORMATIONAL ITEMS
LOW HIGH
<S> <C> <C>
VALUE RANGE $15,706,719 $23,946,812
AVERAGE $19,826,766
</TABLE>
<TABLE>
<CAPTION>
PAST YEAR'S CURRENT YEAR'S NEXT YEAR'S
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 71
EXHIBIT F-2
- ----------------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CALIFORNIA CITY, CALIFORNIA
AS OF DECEMBER 31, 1996
- -------------------------------------------
- -------------------------------------------
VALUATION MATRIX
- -------------------------------------------
VALUATION MATRIX
<TABLE>
<CAPTION>
MULTIPLE OF PAST YEAR'S OPERATING INCOME
<S> <C> <C>
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
==========
</TABLE>
<TABLE>
<CAPTION>
VALUE SUMMARY WEIGHTING
<S> <C> <C>
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%
=========== ====
</TABLE>
<TABLE>
<CAPTION>
INFORMATIONAL ITEMS
LOW HIGH
<S> <C> <C>
VALUE RANGE $2,699,409 $3,349,832
AVERAGE $3,024,620
</TABLE>
<TABLE>
<CAPTION>
PAST YEAR'S CURRENT YEAR'S NEXT YEAR'S
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 72
EXHIBIT F-3
- ----------------------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CENTREVILLE, MARYLAND
AS OF DECEMBER 31, 1996
- -------------------------------------------
- -------------------------------------------
VALUATION MATRIX
- -------------------------------------------
<TABLE>
<CAPTION>
VALUATION MATRIX
MULTIPLE OF PAST YEAR'S OPERATING INCOME
<S> <C> <C>
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
===========
</TABLE>
<TABLE>
<CAPTION>
VALUE SUMMARY WEIGHTING
<S> <C> <C>
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%
============ ====
</TABLE>
<TABLE>
<CAPTION>
INFORMATIONAL ITEMS
LOW HIGH
<S> <C> <C>
VALUE RANGE $19,359,143 $24,030,716
AVERAGE $21,694,930
</TABLE>
<TABLE>
<CAPTION>
PAST YEAR'S CURRENT YEAR'S NEXT YEAR'S
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 73
EXHIBIT F-4
- -------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
REDMOND, OREGON
AS OF DECEMBER 31, 1996
- -------------------------------------------
- -------------------------------------------
VALUATION MATRIX
- -------------------------------------------
VALUATION MATRIX
<TABLE>
<CAPTION>
MULTIPLE OF PAST YEAR'S OPERATING INCOME
<S> <C> <C>
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
==========
</TABLE>
<TABLE>
VALUE SUMMARY WEIGHTING
<S> <C> <C>
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%
---------- ----
</TABLE>
<TABLE>
<CAPTION>
INFORMATIONAL ITEMS
LOW HIGH
<S> <C> <C>
VALUE RANGE $5,769,101 $6,720,968
AVERAGE $6,245,034
</TABLE>
<TABLE>
<CAPTION>
PAST YEAR'S CURRENT YEAR'S NEXT YEAR'S
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 74
EXHIBIT F-5
- -------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SOMERSET, KY
AS OF DECEMBER 31, 1996
- -------------------------------------------
- -------------------------------------------
VALUATION MATRIX
- -------------------------------------------
VALUATION MATRIX
<TABLE>
<CAPTION>
MULTIPLE OF PAST YEAR'S OPERATING INCOME
<S> <C> <C>
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
===========
</TABLE>
<TABLE>
<CAPTION>
VALUE SUMMARY WEIGHTING
<S> <C> <C>
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%
============ ====
</TABLE>
<TABLE>
<CAPTION>
INFORMATIONAL ITEMS
LOW HIGH
<S> <C> <C>
VALUE RANGE $29,525,152 $35,044,360
AVERAGE $32,284,756
</TABLE>
<TABLE>
PAST YEAR'S CURRENT YEAR'S NEXT YEAR'S
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 75
[LOGO - ARTHUR ANDERSEN LLP]
ADDENDUM 1 Channel Line-Ups and Rate Cards
<PAGE> 76
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.
<PAGE> 77
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.
<PAGE> 78
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.
<PAGE> 79
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.
<PAGE> 80
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.
<PAGE> 81
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.
<PAGE> 82
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.
<PAGE> 83
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.
<PAGE> 84
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.
<PAGE> 85
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.
<PAGE> 86
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.
<PAGE> 87
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.
<PAGE> 88
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.
<PAGE> 89
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.
<PAGE> 90
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.
<PAGE> 91
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.
<PAGE> 92
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.
<PAGE> 93
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.
<PAGE> 94
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.
<PAGE> 95
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.
<PAGE> 96
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.
<PAGE> 97
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.
<PAGE> 98
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.
<PAGE> 99
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.
<PAGE> 100
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.
<PAGE> 101
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.
<PAGE> 102
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.
<PAGE> 103
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.
<PAGE> 104
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.
<PAGE> 105
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.
<PAGE> 106
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.
<PAGE> 107
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.
<PAGE> 108
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.
<PAGE> 109
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.
<PAGE> 110
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.
<PAGE> 111
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.
<PAGE> 112
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.
<PAGE> 113
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.
<PAGE> 114
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.
<PAGE> 115
[LOGO - ARTHUR ANDERSEN LLP]
ADDENDUM 2 Capital Asset Pricing Model & Weighted Average Cost of Capital
<PAGE> 116
- --------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
BURKE COUNTY, NC
AS OF DECEMBER 31, 1996
- --------------------------------------------
- --------------------------------------------
DEVELOPMENT OF VALUATION DISCOUNT RATE
- --------------------------------------------
<TABLE>
<CAPTION>
DEVELOPMENT OF EQUITY RATE DEVELOPMENT OF DEBT RATE
<S> <C> <C> <C>
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%
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
<TABLE>
<CAPTION>
WEIGHTED
RATIO RATE RATE
<S> <C> <C> <C>
Debt 60.00% 9.75% 5.85%
Equity 40.00% 22.95% 9.18%
100.00%
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL 15.03%
-----
PRELIMINARY & TENTATIVE - FOR DISCUSSION PURPOSES ONLY ARTHUR ANDERSEN LLP
- ------------------------------------------------------
<PAGE> 117
- --------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CALIFORNIA CITY, CALIFORNIA
AS OF DECEMBER 31, 1996
- --------------------------------------------
- --------------------------------------------
DEVELOPMENT OF VALUATION DISCOUNT RATE
- --------------------------------------------
<TABLE>
<CAPTION>
DEVELOPMENT OF EQUITY RATE DEVELOPMENT OF DEBT RATE
<S> <C> <C> <C>
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%
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
<TABLE>
<CAPTION>
WEIGHTED
RATIO RATE RATE
<S> <C> <C> <C>
Debt 60.00% 9.75% 5.85%
Equity 40.00% 22.95% 9.18%
100.00%
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL 15.03%
-----
PRELIMINARY & TENTATIVE - FOR DISCUSSION PURPOSES ONLY ARTHUR ANDERSEN LLP
- ------------------------------------------------------
<PAGE> 118
- --------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CENTREVILLE, MARYLAND
AS OF DECEMBER 31, 1996
- --------------------------------------------
- --------------------------------------------
DEVELOPMENT OF VALUATION DISCOUNT RATE
- --------------------------------------------
<TABLE>
<CAPTION>
DEVELOPMENT OF EQUITY RATE DEVELOPMENT OF DEBT RATE
<S> <C> <C> <C>
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%
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
<TABLE>
<CAPTION>
WEIGHTED
RATIO RATE RATE
<S> <C> <C> <C>
Debt 60.00% 9.75% 5.85%
Equity 40.00% 20.95% 8.38%
100.00%
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL 14.23%
-----
PRELIMINARY & TENTATIVE - FOR DISCUSSION PURPOSES ONLY ARTHUR ANDERSEN LLP
- ------------------------------------------------------
<PAGE> 119
- --------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
REDMOND, OREGON
AS OF DECEMBER 31, 1996
- --------------------------------------------
- --------------------------------------------
DEVELOPMENT OF VALUATION DISCOUNT RATE
- --------------------------------------------
<TABLE>
<CAPTION>
DEVELOPMENT OF EQUITY RATE DEVELOPMENT OF DEBT RATE
<S> <C> <C> <C>
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%
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
<TABLE>
<CAPTION>
WEIGHTED
RATIO RATE RATE
<S> <C> <C> <C>
Debt 60.00% 9.75% 5.85%
Equity 40.00% 22.95% 9.18%
100.00%
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL 15.03%
-----
PRELIMINARY & TENTATIVE - FOR DISCUSSION PURPOSES ONLY ARTHUR ANDERSEN LLP
- ------------------------------------------------------
<PAGE> 120
- --------------------------------------------
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SOMERSET, KY
AS OF DECEMBER 31, 1996
- --------------------------------------------
- --------------------------------------------
DEVELOPMENT OF VALUATION DISCOUNT RATE
- --------------------------------------------
<TABLE>
<CAPTION>
DEVELOPMENT OF EQUITY RATE DEVELOPMENT OF DEBT RATE
<S> <C> <C> <C>
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%
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
<TABLE>
<CAPTION>
WEIGHTED
RATIO RATE RATE
<S> <C> <C> <C>
Debt 60.00% 9.75% 5.85%
Equity 40.00% 20.95% 8.38%
100.00%
</TABLE>
WEIGHTED AVERAGE COST OF CAPITAL 14.23%
-----
PRELIMINARY & TENTATIVE - FOR DISCUSSION PURPOSES ONLY ARTHUR ANDERSEN LLP
- ------------------------------------------------------
<PAGE> 121
[LOGO - ARTHUR ANDERSEN LLP]
ADDENDUM 3 Financial History
<PAGE> 122
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: BURKE, NC
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
---------------
----------------------------- ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
----------------------------- ---------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 123
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: BURKE, NC
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
---------------
----------------------------- ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
----------------------------- ---------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 124
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: BURKE, NC
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
---------------
----------------------------- ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
----------------------------- ---------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 125
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: BURKE, NC
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
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
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
---------------
----------------------------- ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
----------------------------- ---------------
<S> <C> <C> <C>
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%
</TABLE>
<PAGE> 126
SYSTEM LOCATION: BURKE, NC
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 127
SYSTEM LOCATION: BURKE, NC
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 128
SYSTEM LOCATION: BURKE, NC
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 129
SYSTEM LOCATION: BURKE, NC
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 130
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: CALIFORNIA CITY
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
--------------
------------------------------ ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
------------------------------ ---------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 131
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: CALIFORNIA CITY
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
---------------
------------------------------ ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
------------------------------ ---------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 132
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: CALIFORNIA CITY
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
--------------
------------------------------ ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
------------------------------ ---------------
<S> <C> <C> <C>
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%
</TABLE>
<PAGE> 133
SYSTEM LOCATION: CALIFORNIA CITY
<TABLE>
<CAPTION>
--------------------------------------------- -----------------------------
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
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 134
SYSTEM LOCATION: CALIFORNIA CITY
<TABLE>
<CAPTION>
--------------------------------------------- -----------------------------
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
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 135
SYSTEM LOCATION: CALIFORNIA CITY
<TABLE>
<CAPTION>
--------------------------------------------- -----------------------------
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
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 136
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: CENTREVILLE, MD
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
---------------
----------------------------- ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
----------------------------- ---------------
<C> <C> <C>
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
</TABLE>
<PAGE> 137
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: CENTREVILLE, MD
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
---------------
----------------------------- ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
----------------------------- ---------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 138
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: CENTREVILLE, MD
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
---------------
----------------------------- ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
----------------------------- ---------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 139
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: CENTREVILLE, MD
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
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
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
---------------
----------------------------- ADJUSTED
TWELVE MONTHS TWELVE MONTHS ONE MONTH
ENDING ENDING ENDING 12/31/96
12/31/94 12/31/93 ANNUALIZED
----------------------------- ---------------
<S> <C> <C> <C>
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%
</TABLE>
<PAGE> 140
SYSTEM LOCATION: CENTREVILLE, MD
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
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
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 141
SYSTEM LOCATION: CENTREVILLE, MD
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
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
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 142
SYSTEM LOCATION: CENTREVILLE, MD
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
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
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 143
SYSTEM LOCATION: CENTREVILLE, MD
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
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
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 144
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: REDMOND, OR
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
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
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
-------------------------------
TWELVE MONTHS TWELVE MONTHS
ENDING ENDING
12/31/94 12/31/93
-------------------------------
<S> <C> <C>
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
</TABLE>
<PAGE> 145
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: REDMOND, OR
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDING ENDING ENDING
12/31/95 12/31/94 12/31/93
-------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 146
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: REDMOND, OR
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDING ENDING ENDING
12/31/95 12/31/94 12/31/93
-------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 147
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: REDMOND, OR
<TABLE>
<CAPTION>
------------------------------------------------------------------------------
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
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDING ENDING ENDING
12/31/95 12/31/94 12/31/93
-------------------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
<PAGE> 148
SYSTEM LOCATION: REDMOND, OR
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 149
SYSTEM LOCATION: REDMOND, OR
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
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
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 150
SYSTEM LOCATION: REDMOND, OR
<TABLE>
<CAPTION>
------------------------------------------------------
ADJUSTED ADJUSTED ADJUSTED
ONE MONTH THREE MONTHS TWELVE MONTHS
ENDING 12/31/96 ENDING 12/31/96 ENDING
ANNUALIZED ANNUALIZED 12/31/96
------------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------
ADJUSTED ADJUSTED ADJUSTED
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDING ENDING ENDING
12/31/95 12/31/94 12/31/93
---------------------------------------------------
<S> <C> <C> <C>
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
</TABLE>
<PAGE> 151
SYSTEM LOCATION: REDMOND, OR
<TABLE>
<CAPTION>
-----------------------------------------------------
ADJUSTED ADJUSTED ADJUSTED
ONE MONTH THREE MONTHS TWELVE MONTHS
ENDING 12/31/96 ENDING 12/31/96 ENDING
ANNUALIZED ANNUALIZED 12/31/96
-----------------------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------------------
ADJUSTED ADJUSTED ADJUSTED
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS
ENDING ENDING ENDING
12/31/95 12/31/94 12/31/93
----------------------------------------------------
<S> <C> <C> <C>
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%
</TABLE>
<PAGE> 152
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: SOMERSET, KY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
SYSTEM LOCATION: SOMERSET, KY
<TABLE>
<CAPTION>
--------------
-------------------------------------------- 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
-------------------------------------------- --------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 153
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: SOMERSET, KY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
--------------
-------------------------------------------- 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
-------------------------------------------- --------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 154
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: SOMERSET, KY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
--------------
-------------------------------------------- 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
-------------------------------------------- --------------
<S> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 155
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SYSTEM LOCATION: SOMERSET, KY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
--------------
-------------------------------------------- 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
-------------------------------------------- --------------
<S> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 156
SYSTEM LOCATION: SOMERSET, KY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 157
SYSTEM LOCATION: SOMERSET, KY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<PAGE> 158
SYSTEM LOCATION: SOMERSET, KY
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
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
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 159
[LOGO - ARTHUR ANDERSEN LLP]
ADDENDUM 4 Demographics
<PAGE> 160
SERVICE AREA DEMOGRAPHICS
<TABLE>
<CAPTION>
ANNUAL
1/1/96 1/1/01 CHANGE
------ ------ -------
<S> <C> <C> <C>
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%
</TABLE>
<PAGE> 161
<TABLE>
<S> <C> <C> <C>
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%
</TABLE>
<PAGE> 162
<TABLE>
<S> <C> <C> <C>
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%
</TABLE>
<PAGE> 1
EXHIBIT 10.48
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
<PAGE> 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:
<PAGE> 3
Mr. Michael K. Menerey
March 3, 1997
Page Two
<TABLE>
<CAPTION>
FAIR MARKET VALUE
CABLE SYSTEM AS OF 12/31/96
------------ --------------
<S> <C>
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
</TABLE>
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.
<PAGE> 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
<PAGE> 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.
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C> <C>
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
</TABLE>
<PAGE> 7
<TABLE>
<S> <C> <C>
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
</TABLE>
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<TABLE>
<CAPTION>
Homes Basic Basic Pay Pay
As of 12/31/96 Passed Subscribers Penetration Units Penetration
-------------- ------ ----------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
Burke County, NC 18,986 10,516 55.4% 4,840 46.0%
</TABLE>
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.
<TABLE>
<CAPTION>
1994 1995 1996 CAGR 94-96
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Homes Passed 18,525 18,745 18,986 1.2%
Basic Subscribers 11,124 10,908 10,516 -2.8%
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C> <C> <C>
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%
</TABLE>
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:
<TABLE>
<S> <C>
Rebuild DCF Approach $ 17,181,984
No Rebuild DCF Approach $ 20,100,147
</TABLE>
5
<PAGE> 13
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<PAGE> 14
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
7
<PAGE> 15
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 2001
- -------------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
8
<PAGE> 16
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
BUDGET PROJECTED:
ACTUAL ACTUAL ACTUAL ---------- ----------
CASH FLOW PROJECTIONS 1994 1995 1996 1997 1998 1999 2000
- --------------------- --------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- ----------------------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
9
<PAGE> 17
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
PV OF CASH FLOWS: 1994 1995 1996 1997 1998 1999 2000
- ----------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
10
<PAGE> 18
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
11
<PAGE> 19
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
12
<PAGE> 20
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
CAPITAL ACTUAL ACTUAL ACTUAL ------- -------
EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- ---------------- ------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL
EXPENDITURES: 2001 2002 2003 2004 2005 2006
- ---------------- ------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
13
<PAGE> 21
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
BUDGET PROJECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
14
<PAGE> 22
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
15
<PAGE> 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:
<TABLE>
<S> <C>
Operating Cash Flow Multiple 6.5
Adjusted Operating Cash Flow Multiple 7.0
</TABLE>
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:
<TABLE>
<S> <C>
Cash Flow Multiple Approach:
---------------------------
Actual Operating Cash Flow $ 3,054,254
Operating Cash Flow Multiple x 6.5
------------
Value Indication $ 19,852,651
</TABLE>
16
<PAGE> 24
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
<TABLE>
<S> <C>
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
</TABLE>
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:
<TABLE>
<S> <C>
Basic Subscribers 10,516
Per Subscriber Multiple x $ 1,800
-----------
Value Indication $18,928,800
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
17
<PAGE> 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:
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Homes Basic Basic Pay Pay
As of 12/31/96 Passed Subscribers Penetration Units Penetration
-------------- ------ ----------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
Redmond, OR 7,252 3,516 48.5% 777 22.1%
</TABLE>
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.
<TABLE>
<CAPTION>
1994 1995 1996 CAGR 94-96
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Homes Passed 6,487 6,681 7,252 5.7%
Basic Subscribers 4,062 3,833 3,516 -7.0%
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C> <C> <C>
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%
</TABLE>
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:
<TABLE>
<S> <C>
Rebuild DCF Approach $6,132,648
No Rebuild DCF Approach $6,218,514
</TABLE>
20
<PAGE> 28
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
21
<PAGE> 29
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
22
<PAGE> 30
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
23
<PAGE> 31
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
24
<PAGE> 32
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
PV OF CASH FLOWS: 1994 1995 1996 1997 1998 1999 2000
- ----------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
25
<PAGE> 33
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
26
<PAGE> 34
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
27
<PAGE> 35
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- --------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
28
<PAGE> 36
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
29
<PAGE> 37
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
30
<PAGE> 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:
<TABLE>
<S> <C>
Operating Cash Flow Multiple 7.0
Adjusted Operating Cash Flow Multiple 8.0
</TABLE>
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:
<TABLE>
<S> <C>
Cash Flow Multiple Approach:
---------------------------
Actual Operating Cash Flow $ 928,970
Operating Cash Flow Multiple x 7.0
----------
Value Indication $6,502,790
</TABLE>
31
<PAGE> 39
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
<TABLE>
<S> <C>
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
</TABLE>
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:
<TABLE>
<S> <C>
Basic Subscribers 3,516
Per Subscriber Multiple x $ 1,800
--------------
Value Indication $ 6,328,800
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
32
<PAGE> 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:
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Homes Basic Basic Pay Pay
As of 12/31/96 Passed Subscribers Penetration Units Penetration
-------------- ------ ----------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
California City, CA 2,858 1,922 67.2% 839 43.7%
</TABLE>
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.
<TABLE>
<CAPTION>
1994 1995 1996 CAGR 94-96
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Homes Passed 2,707 2,858 2,858 2.8%
Basic Subscribers 2,075 2,097 1,922 -3.8%
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C> <C> <C>
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%
</TABLE>
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:
<TABLE>
<S> <C>
Rebuild DCF Approach $2,237,514
No Rebuild DCF Approach $2,900,933
</TABLE>
35
<PAGE> 43
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
36
<PAGE> 44
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
37
<PAGE> 45
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
38
<PAGE> 46
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- --------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
39
<PAGE> 47
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
40
<PAGE> 48
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
41
<PAGE> 49
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
42
<PAGE> 50
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- --------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
43
<PAGE> 51
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
44
<PAGE> 52
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
45
<PAGE> 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:
<TABLE>
<S> <C>
Operating Cash Flow Multiple 7.0
Adjusted Operating Cash Flow Multiple 7.5
</TABLE>
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:
<TABLE>
<S> <C>
Cash Flow Multiple Approach:
---------------------------
Actual Operating Cash Flow $ 434,967
Operating Cash Flow Multiple x 7.0
-----------
Value Indication $ 3,044,769
</TABLE>
46
<PAGE> 54
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
<TABLE>
<S> <C>
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
</TABLE>
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:
<TABLE>
<S> <C>
Basic Subscribers 1,922
Per Subscriber Multiple x $ 1,800
--------------
Value Indication $ 3,459,600
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
47
<PAGE> 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:
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Homes Basic Basic Pay Pay
As of 12/31/96 Passed Subscribers Penetration Units Penetration
-------------- ------ ----------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
Centreville, MD 23,857 12,325 51.7% 7,440 60.4%
</TABLE>
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.
<TABLE>
<CAPTION>
1994 1995 1996 CAGR 94-96
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Homes Passed 23,383 23,497 23,857 1.0%
Basic Subscribers 11,001 11,893 12,325 5.8%
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C> <C> <C>
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%
</TABLE>
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:
<TABLE>
<S> <C>
Rebuild DCF Approach $18,553,636
No Rebuild DCF Approach $24,605,420
</TABLE>
50
<PAGE> 58
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
51
<PAGE> 59
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
52
<PAGE> 60
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- --------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
53
<PAGE> 61
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
54
<PAGE> 62
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
55
<PAGE> 63
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
56
<PAGE> 64
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
57
<PAGE> 65
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- --------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
58
<PAGE> 66
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
59
<PAGE> 67
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
60
<PAGE> 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:
<TABLE>
<S> <C>
Operating Cash Flow Multiple 9.0
Adjusted Operating Cash Flow Multiple 9.0
</TABLE>
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:
<TABLE>
<S> <C>
Cash Flow Multiple Approach:
Actual Operating Cash Flow $ 2,719,375
Operating Cash Flow Multiple x 9.0
------------
Value Indication $ 24,474,375
</TABLE>
61
<PAGE> 69
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
<TABLE>
<S> <C>
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
</TABLE>
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:
<TABLE>
<S> <C>
Basic Subscribers 12,325
Per Subscriber Multiple x $ 1,800
-------------
Value Indication $ 22,185,000
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
62
<PAGE> 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:
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE> 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.
<TABLE>
<CAPTION>
Homes Basic Basic Pay Pay
As of 12/31/96 Passed Subscribers Penetration Units Penetration
-------------- ------ ----------- ----------- ----- -----------
<S> <C> <C> <C> <C> <C>
Somerset, KY 22,060 19,296 87.5% 3,914 20.3%
</TABLE>
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.
<TABLE>
<CAPTION>
1994 1995 1996 CAGR 94-96
---- ---- ---- ----------
<S> <C> <C> <C> <C>
Homes Passed 22,120 22,015 22,060 -0.1%
Basic Subscribers 18,650 19,226 19,296 1.7%
</TABLE>
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
<PAGE> 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:
<TABLE>
<S> <C> <C> <C>
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%
</TABLE>
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:
<TABLE>
<S> <C>
Rebuild DCF Approach $27,365,438
No Rebuild DCF Approach $32,577,831
</TABLE>
65
<PAGE> 73
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
66
<PAGE> 74
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
67
<PAGE> 75
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 2001
- -------------------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
68
<PAGE> 76
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
BUDGET PROJECTED:
ACTUAL ACTUAL ACTUAL ---------- ----------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------------------- --------- --------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
69
<PAGE> 77
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
70
<PAGE> 78
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
71
<PAGE> 79
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
EXPENSE ACTUAL ACTUAL ACTUAL --------- ---------
ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
EXPENSE
ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
72
<PAGE> 80
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
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
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- --------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
73
<PAGE> 81
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
CASH FLOW ACTUAL ACTUAL ACTUAL --------- ---------
PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
CASH FLOW
PROJECTIONS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
74
<PAGE> 82
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
NO REBUILD DCF APPROACH
<TABLE>
<CAPTION>
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
75
<PAGE> 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:
<TABLE>
<S> <C>
Operating Cash Flow Multiple 8.0
Adjusted Operating Cash Flow Multiple 8.5
</TABLE>
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:
<TABLE>
<S> <C>
Cash Flow Multiple Approach:
Actual Operating Cash Flow $ 3,988,486
Operating Cash Flow Multiple x 8.0
------------
Value Indication $ 31,907,888
</TABLE>
76
<PAGE> 84
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
<TABLE>
<S> <C>
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
</TABLE>
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:
<TABLE>
<S> <C>
Basic Subscribers 19,296
Per Subscriber Multiple x $ 1,800
-----------
Value Indication $34,732,800
</TABLE>
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:
<TABLE>
<S> <C>
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
</TABLE>
77
<PAGE> 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:
<TABLE>
<S> <C>
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
</TABLE>
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
<PAGE> 1
EXHIBIT 10.49
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.
<PAGE> 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
<PAGE> 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:
<TABLE>
<S> <C>
Burke County $ 20,570,000
=================
Centreville $ 23,980,000
=================
Somerset $ 33,590,000
=================
Redmond $ 7,680,000
=================
California City $ 3,500,000
=================
</TABLE>
Respectfully submitted,
KANE REECE ASSOCIATES, INC.
<PAGE> 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
<PAGE> 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
<PAGE> 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>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
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
</TABLE>
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 13
TABLE 1A
CABLE TELEVISION INDUSTRY STATISTICS
CABLE INDUSTRY GROWTH STATISTICS
<TABLE>
<CAPTION>
Basic Cable Pay Cable Units
------------------------- --------------------------------------
TV Homes % of % of
Passed Subscribers* Homes Units** Homes % of
Yr End (Millions) (Millions) Passed (Millions) Passed Basic
- ------ ---------- ---------- ------ ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
*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-
<PAGE> 14
TABLE 1B
CABLE TELEVISION INDUSTRY STATISTICS (CONTINUED)
CABLE INDUSTRY REVENUES
($ Millions)
<TABLE>
<CAPTION>
Actual Forecast 1995-
------------------- 2000
Year 1995 1996 2000 CAGR
---- ---- ---- ----
<S> <C> <C> <C> <C>
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%
========= ========= =========
</TABLE>
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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 33
FIGURE 1
[BURKE COUNTY REGION MAP]
[FALCON CLASSIC CABLE INC. PROP.]
-27-
<PAGE> 34
FIGURE 2
[CENTREVILLE REGION MAP]
[FALCON CLASSIC CABLE INC. PROP.]
-28-
<PAGE> 35
FIGURE 3
[SOMERSET REGION MAP]
[FALCON CLASSIC CABLE INC. PROP.]
-29-
<PAGE> 36
FIGURE 4
[REDMOND SYSTEM MAP]
[FALCON CLASSIC CABLE INC. PROP.]
-30-
<PAGE> 37
FIGURE 5
[CALIFORIA CITY SYSTEM MAP]
FALCON CLASSIC CABLE INC. PROP.]
-31-
<PAGE> 38
TABLE 2A
Burke County, NC Region
Demographic Characteristics
<TABLE>
<CAPTION>
Population
------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ---- ----- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
<TABLE>
<CAPTION>
Households
--------------------------------------------- Median
Zip CAGR Median Age HH National State
Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile
---- -------- ---- ---- ---- ----- ----- ---- ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
-32-
<PAGE> 39
TABLE 2B
Centreville, MD Region
Demographic Characteristics
<TABLE>
<CAPTION>
Population
----------------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
<TABLE>
<CAPTION>
Households
---------------------------------------------- Median
Zip CAGR Median Age HH National State
Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile
---- -------- ---- ---- ---- ----- ----- ---- ---- ------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
-33-
<PAGE> 40
TABLE 2C
Somerset, KY Region
Demographic Characteristics
<TABLE>
<CAPTION>
Population
---------------------------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
<TABLE>
<CAPTION>
Households
-------------------------------------------------- Median
Zip CAGR Median Age HH National State
Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile
---- -------- ---- ---- ---- ----- ----- ---- ---- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
-34-
<PAGE> 41
TABLE 2D
Redmond, OR Region
Demographic Characteristics
<TABLE>
<CAPTION>
Population
----------------------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
<TABLE>
<CAPTION>
Households
---------------------------------------------------- Median
Zip CAGR Median Age HH National State
Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile
---- -------- ---- ---- ---- ----- ----- ---- ---- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
-35-
<PAGE> 42
TABLE 2E
California City, CA Region
Demographic Characteristics
<TABLE>
<CAPTION>
Population
---------------------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ----------- ----------- ------------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
<TABLE>
<CAPTION>
Households
-----------------------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ------------ ---------- ------------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
<TABLE>
<CAPTION>
Median
Zip Median Age Median National State
Code Location 1990 1995 Income Centile Centile
---- -------- ---- ---- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
-36-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 46
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. Table 3A Revenue Analysis
Burke, NC Valuation Date: December 31, 1996
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 Budget Dec 1996 Actual 1996 Actual 1995 Actual
-------------------- --------------------- ---------------------- ----------------------
($000) /EBU/MO ($000) /EBU ($000) /EBU/MO ($000) /EBU/MO
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
===== ===== ===== =====
</TABLE>
* Adj to normalize: ** $39.26 When adj. for
$0.05 Rent one time program
(0.50) Advertising payments
($0.45)
-40-
<PAGE> 47
Falcon Classic Cable Income Properties, L.P. Table 3B
Revenue Analysis
Centreville, MD
Valuation Date: December 31, 1996
<TABLE>
<CAPTION>
1997 Budget Dec 1996 Actual 1996 Actual 1995 Actual
------------------- --------------- ----------------- ------------------
($000) /EBU/MO ($000) /EBU ($000) /EBU/MO ($000) /EBU/MO
----- ------- ------ ---- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
-41-
<PAGE> 48
- --------------------------------------------------------------------------------
Falcon Classic Income Properties Table 3C Revenue Analysis
Somerset, Kentucky Valuation Date: December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
----------------- ------------------ ------------------- -------------------
($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO
------ ------ ------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
===== ===== ===== =====
</TABLE>
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<PAGE> 49
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties Table 3D Revenue Analysis
Redmond, Oregon Valuation Date: December 31, 1996
- -------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
-------------------- -------------------- -------------------- --------------------
($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO
-------- ------ ------- ------ -------- ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
===== ===== ===== =====
</TABLE>
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<PAGE> 50
- --------------------------------------------------------------------------------
Table 3E
Falcon Classic Cable Income Properties Revenue Analysis
California City, California Valuation Date: December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
------------------ ------------------ ------------------ -------------------
($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO
------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
===== ===== ===== =====
</TABLE>
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<PAGE> 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;
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
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
=========
</TABLE>
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
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<PAGE> 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
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<PAGE> 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:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
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
=========
</TABLE>
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.
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<PAGE> 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:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
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
========
</TABLE>
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
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<PAGE> 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
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<PAGE> 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:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
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
========
</TABLE>
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-
<PAGE> 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.
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<PAGE> 58
California City's operating statistics as of the valuation date follows:
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
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
=========
</TABLE>
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-
<PAGE> 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.
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<PAGE> 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
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<PAGE> 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-
<PAGE> 62
TABLE 4
WEIGHTED AVERAGE COST OF CAPITAL
FALCON CLASSIC CABLE INCOME PROPERTIES
AS OF DECEMBER 31, 1996
<TABLE>
<S> <C>
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%
========
</TABLE>
-56-
<PAGE> 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-
<PAGE> 64
<TABLE>
<S> <C>
Burke County $ 19,960,000
=================
Centreville $ 23,800,000
=================
Somerset $ 33,230,000
=================
Redmond $ 7,770,000
=================
California City $ 3,530,000
=================
</TABLE>
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-
<PAGE> 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-
<PAGE> 66
TABLE 5A
Market Approach Valuation Date
1996 Announced/Proposed Cable System Sales (less than 10,000 subscribers)
<TABLE>
<CAPTION>
PRICE HOMES
LOCATION STATE SELLER BUYER (MIL) PASSED
- -------- ----- ------ ----- ----- ------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
<TABLE>
<CAPTION>
BASIC CASH
SUBS % FLOW PROJ
LOCATION STATE SELLER BUYER (000) PEN. VPS ($000s) CFx
- -------- ----- ------ ----- --- ---- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
</TABLE>
-60-
<PAGE> 67
TABLE 5B
Market Approach Valuation Date
1996 Announced/Proposed Cable System Sales (between 10,000 - 50,000
subscribers)
<TABLE>
<CAPTION>
BASIC CASH
PRICE HOMES SUBS % FLOW PROJ
LOCATION STATE SELLER BUYER (MIL) PASSED (000) PEN. VPS ($000) CFx
- -------- ----- ------ ----- ----- ------ ----- ---- --- ------ ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
====== ====
</TABLE>
-61-
<PAGE> 68
<TABLE>
<CAPTION>
Standard
Multiple Deviation
<S> <C> <C>
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
=== ===
</TABLE>
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.
<TABLE>
<CAPTION>
Burke California
Multiple County Centreville Somerset Redmond City
- -------- ------ ----------- -------- ------- ----
($000s)
<S> <C> <C> <C> <C> <C>
< 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
</TABLE>
-62-
<PAGE> 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):
<TABLE>
<S> <C>
Burke County $ 26,107,000
=================
Centreville $ 25,646,000
=================
Somerset $ 36,785,000
=================
Redmond $ 6,897,000
=================
California City $ 3,231,000
=================
</TABLE>
Correlation and Conclusion
The valuation indicators, as of the valuation date, under the income and market
approaches follow as of December 31, 1996:
<TABLE>
<CAPTION>
Burke California
County Centreville Somerset Redmond City
------- ----------- -------- ------- ----
<S> <C> <C> <C> <C> <C>
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
=========== =========== =========== ========== ==========
</TABLE>
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-
<PAGE> 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):
<TABLE>
<S> <C>
Burke County $ 20,570,000
==================
Centreville $ 23,980,000
==================
Somerset $ 33,590,000
==================
Redmond $ 7,680,000
==================
California City $ 3,500,000
==================
</TABLE>
-64-
<PAGE> 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-
<PAGE> 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-
<PAGE> 73
EXHIBIT A
PHOTOGRAPHS
<PAGE> 74
[BURKE REGION OFFICE PICTURE]
[BURKE HEADEND PICTURE]
-68-
<PAGE> 75
[WYE - MILLS HEADEND, 300' GUYED TOWER PICTURE]
[CENTERVILLE REGION OFFICE PICTURE]
-69-
<PAGE> 76
EXHIBIT B
REGION AND SYSTEM OPERATING STATISTICS
<PAGE> 77
- --------------------------------------------------------------------------------
Falcon Classic Cable Income EXHIBIT B1 Operating Statistics
Properties, L.P. Valuation Date:
Burke, NC December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
------ ------ ------ ------ ------- ------ -------- ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
======= ====== ==== ====== ====== ==== ====== ==== ===== ==== =====
</TABLE>
<TABLE>
<CAPTION>
Franchise
Plant Miles -------------------------
--------------------------------------------- 1996 Channel Address- Life
Aerial UG Total '96 1995 % Chg. Density Capacity able Fee Expiration (Yrs)
------ ------ --------- ------ ------ ------- -------- -------- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
====== ====== ====== ====== ==== ==== ===
</TABLE>
-71-
<PAGE> 78
- ------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT B2 Operating Statisics
Income Properties, L.P. Valuation Date:
Centreville, MD December 31, 1996
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
----- ----- ----- ----- ----- ------ ----- ----- ---- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
====== ====== ===== ====== ====== ==== ====== ===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Franchise
Plant Miles -------------------------
------------------------------------------------ 1996 Address- Life
Aerial UG Total '96 1995 % Chg. Density able Fee Expiration (Yrs)
------ ---- --------- ----- ------ ------- -------- --- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
===== ===== ===== ===== ===== ====
</TABLE>
* 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-
<PAGE> 79
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT B3 Operating Statistics
Income Properties Valuation Date:
Somerset, Kentucky December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Homes Passed
--------------------------- '96-'95
1996 1995 1994 % Chg.
---- ---- ---- ------
<S> <C> <C> <C> <C>
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%
===== ===== ===== ====
</TABLE>
<TABLE>
<CAPTION>
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
---- ---- ---- ------ ------ ---- ----- ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
====== ====== ====== ===== ====== ====== ===== ===== ======
</TABLE>
<TABLE>
<CAPTION>
Plant Miles
-------------------------------------------------------
Aerial UG 1996 1995 % Chg.
------ -- ---- ---- ------
<S> <C> <C> <C> <C> <C>
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%
====== ===== ====== ====== ====
</TABLE>
<TABLE>
<CAPTION>
Franchise
--------------------------------
1996 Channel Address- Life
Density Capacity able Rebuild Fee Expiration (Yrs)
------- -------- -------- ------- --- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
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
====
</TABLE>
-73-
<PAGE> 80
- -------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT B4 Operating Statisics
Income Properties Valuation Date:
Redmond, Oregon December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
---- ---- ---- ------ ---- ---- ---- ------- ------ ---- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
===== ===== ===== ==== ===== ===== ===== ===== ===== ==== === ===== =====
</TABLE>
<TABLE>
<CAPTION>
Plant Miles Franchise
----------------------------------------- -----------------------
1996 Channel Address- Life
Aerial UG 1996 1995 % Chg. Density Capacity able Rebuild Fee Expiration (Yrs)
------ -- ---- ---- ------ ------- -------- ---- ------- --- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
------ ----- ------ ------ ---- ----
</TABLE>
-74-
<PAGE> 81
- -------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT B5 Operating Statisics
Income Properties Valuation Date:
California City, California December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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
----- ----- ----- ------ ----- ----- ----- ------ ------ ---- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
===== ===== ===== === ===== ===== ===== ==== ===== ==== === ==== =====
</TABLE>
<TABLE>
<CAPTION>
Franchise
Plant Miles ------------------------
------------------------------------------ 1996 Channel Address- Life
Aerial UG 1996 1995 % Chg. Density Capacity able Rebuild Fee Expiration (Yrs)
------ ----- ----- ----- ------ ------- -------- -------- ------- --- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
===== ===== ===== ===== ==== ====
</TABLE>
-75-
<PAGE> 82
EXHIBIT C
REGION AND SYSTEM CASH FLOW STATEMENTS
<PAGE> 83
- --------------------------------------------------------------------------------
EXHIBIT C1
Falcon Classic Cable Income Operating Cash Flow: Actual & Budget
Properties, L.P. Burke, NC Valuation Date: December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 Budget Dec 1996 Actual 1996 Actual
-------------------- ------------------- -------------------
($000) % to Rev. ($000) % to Rev. ($000) % to Rev.
-------- --------- ------ ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
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%
======= ===== ===== ===== ======= =====
</TABLE>
<TABLE>
1995 Actual 1994 Actual
-------------------- -------------------
($000) % to Rev. ($000) % to Rev.
-------- ---------- -------- ---------
<S> <C> <C> <C> <C>
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%
======= ===== ======= =====
</TABLE>
-77-
<PAGE> 84
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C2 Operating Cash Flow:
Income Properties, L.P. Actual & Budget
Burke, NC Valuation Date:
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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.
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
======== ===== ====== ===== ======== ===== ======== ===== ======== =====
</TABLE>
-78-
<PAGE> 85
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C3 Operating Cash Flow:
Income Properties, L.P. Actual & Budget
Centreville, MD
Valuation Date:
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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.
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
======= ===== ======= ======= ========
</TABLE>
-79-
<PAGE> 86
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C4 Operating Cash Flow:
Income Properties, L.P. Actual & Budget
Centreville, MD Valuation Date:
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
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.
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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%
======= ==== ===== ==== ======== ==== ======= ==== ======= ====
</TABLE>
=80=
<PAGE> 87
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C5 Operating Cash Flow:
Income Properties Budget & Actual
Somerset, Kentucky Valuation Date:
December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
-------------------- -------------------- --------------------- ---------------------
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
------ --------- ------ --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
-------- ------- ------ ------- -------- ------- -------- -------
</TABLE>
-81-
<PAGE> 88
- -------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C6 Operating Cash Flow:
Income Properties Budget & Actual
Somerset, Kentucky Valuation Date:
December 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
--------------------- -------------------- ---------------------- ---------------------
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
======== ====== ====== ====== ======== ====== ======== ======
</TABLE>
-82-
<PAGE> 89
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Falcon Classic Cable EXHIBIT C7 Operating Cash Flow: Budget & Actual
Income Properties Valuation Date: December 31, 1996
Redmond, Oregon
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
-------------------- ------------------- ------------------- ---------------------
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
-------- -------- ------- -------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
------- ------ ----- ------ ------- ------- ------- -------
</TABLE>
-83-
<PAGE> 90
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C8 Operating Cash Flow: Budget & Actual
Income Properties Valuation Date: December 31, 1996
Redmond, Oregon
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
-------------------- -------------------- -------------------- ---------------------
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
====== ====== ===== ====== ====== ====== ====== ======
</TABLE>
-84-
<PAGE> 91
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C9 Operating Cash Flow:
Income Properties Budget & Actual
California City, California
Valuation Date:
December 31,1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
------ ------ ----- ------ ------ ------ ------ -------
</TABLE>
-85-
<PAGE> 92
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties EXHIBIT C10 Operating Cash Flow: Budget & Actual
California City, California Valuation Date: December 31, 1996
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
--------------------- -------------------- -------------------- ------------------
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
------- --------- ------- --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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%
====== ===== ===== ===== ====== ===== ====== =====
</TABLE>
-86-
<PAGE> 93
EXHIBIT D
REGION AND SYSTEM CASH FLOW PROJECTION ASSUMPTIONS
<PAGE> 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.
<TABLE>
<CAPTION>
Years 1-5 Years 6-10
Operating Annual Annual
Area Growth Rate Growth Rate
---- ----------- -----------
<S> <C> <C>
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%
</TABLE>
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.
<TABLE>
<CAPTION>
Operating Current Projected Projected
Area Penetration Year 1 Penetration Year 10 Penetration
---- ----------- ------------------ -------------------
<S> <C> <C> <C>
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%
</TABLE>
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-
<PAGE> 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.
<TABLE>
<CAPTION>
Ultimate Margin
---------------
Operating 1996 Year One Year
Area Actual Margin Margin % Achieved
- ---- ------------- ------ - --------
<S> <C> <C> <C> <C>
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
</TABLE>
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-
<PAGE> 96
EXHIBIT D (Continued)
<TABLE>
<CAPTION>
Operating
Area Rebuild Recurring Total
---- ------- --------- -----
<S> <C> <C> <C>
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
</TABLE>
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-
<PAGE> 97
EXHIBIT D (Continued)
<TABLE>
<CAPTION>
Burke California
County Centreville Somerset Redmond City
------ ----------- -------- ------- ----------
<S> <C> <C> <C> <C>
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%
=========== =========== =========== =========== ==========
</TABLE>
-91-
<PAGE> 98
EXHIBIT E
REGION AND SYSTEM CASH FLOW PROJECTIONS
<PAGE> 99
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
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
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5
---- - - - - -
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<S> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- - - - - --
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category.
-93-
<PAGE> 100
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-1b
Burke, NC CATV SYSTEM VALUATION MODEL
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5
---- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ===========
</TABLE>
-94-
<PAGE> 101
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-1c
Burke, NC CATV SYSTEM VALUATION MODEL
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5
---- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
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
---------- ---------- ---------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- ---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
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
---------- ---------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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
---
</TABLE>
-95-
<PAGE> 102
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5
- - - - -
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
- - - - --
<S> <C> <C> <C> <C> <C>
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
</TABLE>
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category.
-96-
<PAGE> 103
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-2b
Centreville, MD CATV SYSTEM VALUATION MODEL
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5
---- - - - - -
<S> <C> <C> <C> <C> <C> <C>
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
---------- ---------- ---------- --------- ----------
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- - - - - --
<S> <C> <C> <C> <C> <C> <C>
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
---------- ----------- ----------- ----------- -----------
</TABLE>
-97-
<PAGE> 104
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-2c
Centreville, MD CATV SYSTEM VALUATION MODEL
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5
---- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- -- -- -- -- --
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<S> <C> <C>
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
===
</TABLE>
-98-
<PAGE> 105
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-3a
Somerset, Kentucky CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5
---- - - - - -
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<S> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- - - - - --
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category.
-99-
<PAGE> 106
<TABLE>
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-3b
Somerset, Kentucky CATV SYSTEM VALUATION MODEL
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5
---- - - - - -
<S> <C> <C> <C> <C> <C> <C>
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
========== ========== ========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- - - - - --
<S> <C> <C> <C> <C> <C> <C>
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
=========== =========== =========== =========== ===========
</TABLE>
-100-
<PAGE> 107
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-3c
Somerset, Kentucky CATV SYSTEM VALUATION MODEL
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5
---- - - - - -
<S> <C> <C> <C> <C> <C>
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
========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- - - - - --
<S> <C> <C> <C> <C> <C>
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
========== ========== =========== ========== ==========
</TABLE>
<TABLE>
<S> <C> <C> <C>
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
===
</TABLE>
-101-
<PAGE> 108
<TABLE>
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-4a
Redmond, Oregon CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5 6
---- - - - - - -
<S> <C> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Year 7 8 9 10
---- - - - --
<S> <C> <C> <C> <C>
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
</TABLE>
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category.
-102-
<PAGE> 109
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC . Exhibit E-4b
Redmond, Oregon CATV SYSTEM VALUATION MODEL
- --------------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5
---- - - - - -
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- - - - - --
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>
-103-
<PAGE> 110
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-4c
Redmond, Oregon CATV SYSTEM VALUATION MODEL
- --------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5
---- - - - - -
<S> <C> <C> <C> <C> <C>
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
======== ========= ========= ======== ========
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- - - - - --
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========
</TABLE>
<TABLE>
<S> <C> <C> <C>
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
---
</TABLE>
-104-
<PAGE> 111
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-5a
California City, California CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
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
---- - - - - -
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
---- - - - - --
<S> <C> <C> <C> <C> <C>
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%
</TABLE>
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category.
-105-
<PAGE> 112
<TABLE>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. EXHIBIT E-5b
California City, California CATV SYSTEM VALUATION MODEL
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year 1 2 3 4 5 6 7 8 9 10
---- - - - - - - - - - --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ========== ========== ========== ========== ========== ==========
</TABLE>
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<PAGE> 113
<TABLE>
<CAPTION>
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Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-5c
California City, California CATV SYSTEM VALUATION MODEL
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Year 1 2 3 4 5
- - - - -
<S> <C> <C> <C> <C> <C>
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
======== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Year 6 7 8 9 10
- - - - --
<S> <C> <C> <C> <C> <C>
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
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<S> <C> <C>
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
----------
</TABLE>
-107-
<PAGE> 114
QUALIFICATIONS OF THE APPRAISERS
<PAGE> 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.
<PAGE> 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).
<PAGE> 117
APPENDIX
GLOSSARY OF CABLE TV TERMS
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
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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.
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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-
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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-
<PAGE> 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-
<PAGE> 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-
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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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<PAGE> 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-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
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 FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 13,633
<SECURITIES> 0
<RECEIVABLES> 18,307
<ALLOWANCES> 907
<INVENTORY> 5,410
<CURRENT-ASSETS> 0
<PP&E> 540,048
<DEPRECIATION> 230,920
<TOTAL-ASSETS> 774,323
<CURRENT-LIABILITIES> 73,134
<BONDS> 885,786
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 774,323
<SALES> 0
<TOTAL-REVENUES> 217,320
<CGS> 0
<TOTAL-COSTS> 197,595
<OTHER-EXPENSES> (1,892)
<LOSS-PROVISION> 2,417
<INTEREST-EXPENSE> 71,602
<INCOME-PRETAX> (49,985)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49,985)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,985)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
