[LETTERHEAD OF KANE REECE ASSOCIATES, INC.]
March 11, 1996
VIA FEDEX
Mr. Michael K. Menerey
Chief Financial Officer
Falcon Holding Group, L.P.
474 South Raymond Avenue, Suite 200
Pasadena, CA 91105
Dear Mr. 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 assets of
Falcon Cable Systems Company ("FCSC") and each of its seven
regions (the "Regions"). The purpose of this letter is to pro-
vide a summary of our findings.
This valuation study was conducted to determine the fair market
value of 100% of FCSC's and each of the Region's assets as of
December 31, 1995. The appraisal was conducted pursuant to
Section 3.14 of the FCSC Partnership Agreement as Amended and
Restated. 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 corroborate this cal-
culated 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, the appraisers
were furnished materials on historical and prospective
operations. We have also consulted recognized sources of
financial and industry information, visited each Region area to
physically inspect facilities and the service area and inter-
viewed management.
Kane Reece and the report to follow comply with the appraisal
standards set forth in the Uniform Standards of Professional
Appraisal Practice and those promulgated by the American
Society of Appraisers.
Mr. Michael K. Menerey
March 11, 1996
Page 2
Based upon our investigation and valuation to be described in
the report to follow and subject to the Limiting and General
Service Conditions attached, it is Kane Reece's opinion that
the fair market value of 100% of FCSC's and each Region's
assets as of December 31, 1995 were:
FCSC $245,800,000
============
Regions:
Gilroy, CA $68,000,000
===========
Hesperia, CA $35,740,000
===========
San Luis Obispo, CA $22,960,000
===========
Tulare, CA $25,690,000
===========
Central, OR $25,120,000
===========
Dallas, OR $26,390,000
===========
Coos Bay/Florence, OR $41,900,000
===========
Attached for your information is a schedule showing various
operating statistics and selected factors considered in the
formation of the appraiser's opinions of value. Kane Reece
reserves the right to modify these conclusions, due to new
information, prior to the release of its final report, that in its
sole discretion deems material.
Respectfully submitted,
KANE REECE ASSOCIATES, INC.
/s/ Kane Reece Associates, Inc.
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 Associ-
ates, 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 responsi-
bility 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 inter-
est in the appraised entity, and we certify the compensa-
tion received for this study is in no way contingent upon
the valuation conclusions.
6) Kane Reece Associates, Inc. is not required to give testi-
mony 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 con-
versations, 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
FALCON CABLE SYSTEMS COMPANY KANE REECE ASSOCIATES, INC.
VALUATION SUMMARY VALUATION DATE: DECEMBER 31, 1995
($000 except where indicated)
REGION: GILROY HESPERIA SLO TULARE CENTRAL
Homes Passed 56,219 28,280 26,138 41,053 26,355
EBU's 33,491 19,310 15,973 15,563 14,609
% 59.6% 68.3% 61.1% 37.9% 55.4%
Pay Units 13,070 8,366 3,773 7,110 5,505
Pay/EBU 39.0% 43.3% 23.6% 45.7% 37.7%
Plant Miles 664.7 678.0 408.9 675.9 660.3
Density 84.6 41.7 63.9 60.7 39.9
1996 Cash Flow $7,700 $4,267 $2,768 $3,082 $2,594
Franchise Exp. 97-98 2006-8 99-2006 95-98 2005-2007
CapEx Total (10 yr) $20,083 $18,187 $8,995 $15,882 $6,233
Per Home ($) $357 $643 $344 $387 $236
Income Approach: $67,670.0 $35,330.0 $22,480.0 $25,280.0 $25,080.0
Per EBU ($) $2,021 $1,830 $1,407 $1,624 $1,717
CF Multiple 8.8 8.3 8.1 8.2 9.7
Market Approach:
Sub Multiple ($): $1,850 $61,958 $34,740 $29,550 $28,792 $27,027
CF Multiple: 9.6 73,916 40,964 26,575 29,586 24,902
Conclusions:
Market Approach $70,927 $39,408 $27,319 $29,388 $25,433
Income Approach $67,670 $35,330 $22,480 $25,280 $25,080
CONCLUSION $67,996 $35,738 $22,964 $25,691 $25,115
Rounded $68,000 $35,740 $22,960 $25,690 $25,120
------- ------- ------- ------- -------
Per EBU ($) $2,030 $1,851 $1,437 $1,651 $1,719
CF Multiple 8.8 8.4 8.3 8.3 9.7
COOS BAY/
DALLAS FLORENCE TOTAL
23,770 31,489 233,304
17,736 22,898 139,580
74.6% 72.7% 59.8%
7,139 7,771 52,734
40.3% 33.9% 37.8%
466.6 576.2 4,130.5
50.9 54.7 56.5
$3,332 $4,791 $28,533.9
99-2002 96-2004 n/a
$11,102 $9,272 $89,753
$467 $294 $385
$25,740.0 $41,550.0 $243,130.0
$1,451 $1,815 $1,742
7.7 8.7 8.5
$32,812 $42,361 $258,223
31,987 45,996 273,926
$32,193 $45,087 $270,000
$25,740 $41,550 $243,130
$26,385 $41,904 $245,792
$26,390 $41,900 $245,800
------- ------- --------
$1,488 $1,830 $1,761
7.9 8.7 8.6