[LETTERHEAD OF MTA-EMCI]
March 8, 1996
Mr. Michael K. Menerey
Chief Financial Officer
Falcon Holding Group, L.P.
474 So. Raymond Avenue
Suite 200
Pasadena, CA 91105
Dear Mr. Menerey:
PURPOSE OF APPRAISAL
Malarkey-Taylor Associates, Inc., ("MTA-EMCI") was
retained by the Advisory Committee of Falcon Cable Systems,
L.P. ("Falcon") to (1) prepare a separate fair market appraisal
of each of the eight regions of cable systems (the "Systems")
now owned by Falcon and an overall fair market valuation as of
December 31, 1995, (2) prepare appraisals of Proposed Exchange
Systems, if and when identified, (3) prepare an overall
appraisal of the Systems remaining, absent the Exchange
Systems, and (4) render a fairness opinion on certain aspects
of the Exchange and Section 3.14 Sale, as described in Falcon's
Limited Partnership Agreement. The results of the appraisals
in Item 1, above, are presented below and will be used by
Falcon as an independent determination of the fair market value
of the Systems in each region and an overall value, with the
resulting values to be utilized in the selection and valuation
of the Proposed Exchange Systems. The deliverables for Items
2, 3 and 4, above, will be provided at later dates.
FAIR MARKET VALUE
Fair market value is the cash price a willing buyer
would give a willing seller in an arm's length transaction in
order to complete the sale. It is assumed that both buyer and
seller have been informed of all relevant facts and neither is
under any compulsion to conclude the transaction.
Mr. Michael K. Menerey
March 8, 1996
Page 2
FAIR MARKET VALUE METHODOLOGY
MTA-EMCI used five generally accepted cable televi-
sion valuation methods in establishing the range of total fair
market values of the Systems as going concerns. The first
method used a multiple of the past year's operating income
derived from comparable asset values of privately-held and
publicly-traded companies. The second method used a lower mul-
tiple of the annualized current month's operating income. The
third method applied a slightly lower multiple of next year's
projected operating income. The fourth method was a discounted
net cash flow analysis to achieve a target after-tax return on
equity, given particular operating and financing assumptions
unique to the Systems' assets. The fifth method was a dis-
counted cash flow method that measured the net present value of
the projected pre-tax operating cash flows (less capital expen-
ditures, plus the residual value of the Systems) that represent
the return on the total investment.
CONTINGENCIES AND LIMITING CONDITIONS
Our conclusions as to the fair market values of the
Systems are based upon the following, which to the best of our
knowledge, are reliable and sound:
1. MTA-EMCI's onsite inspection of a representative portion
of the Systems and communities served.
2. Unaudited financial statements for the 12-month period
ending December 31, 1995, and audited financial statements
for the 12-month periods ending December 31, 1994 and
December 31, 1993.
4. Homes passed and subscriber data as of December 31, 1995,
provided by Falcon.
5. Miscellaneous management data as to the current subscriber
rates, construction schedules, etc., as of the appraisal
date.
Mr. Michael K. Menerey
March 8, 1996
Page 3
STATEMENT OF VALUE
MTA-EMCI certifies that, to the best of our knowl-
edge, the statements contained in this appraisal are correct
and that the opinions stated are based on a consideration of
the relevant factors. Furthermore, neither MTA-EMCI nor any of
its representatives have any current interest or contemplated
future interest in the assets appraised.
Based on the various analyses, computations, and con-
siderations discussed in this letter, it is our professional
judgment, subject to the assumptions and limitations stated
herein, that the fair market values of the Systems as of Decem-
ber 31, 1995, free and clear of any encumbrances, are as fol-
lows:
Region Value
Tulare $ 31,972,000
San Luis Obispo 29,585,000
Hesperia 38,846,000
Gilroy 76,000,000
Florence 10,696,000
Dallas 35,334,000
Coos Bay 34,501,000
Central (Oregon) 26,294,000
Combined Systems $283,228,000
Sincerely,
/s/ Robert M. Jones
Robert M. Jones
President
RMJ/byn