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EXHIBIT 3
FALCON CABLE SYSTEMS COMPANY
Fair Market Value
As of December 31, 1995
W A L L E R C A P I T A L
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CORPORATION
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TABLE OF CONTENTS
SECTION I INTRODUCTION
Preamble...................................................... I - 1
Statement of Appraisal and Limiting Conditions................ I - 3
Summary and Conclusion........................................ I - 5
General Economic Outlook and the Specific Industry Outlook.... I - 7
SECTION II THE SYSTEMS
Gilroy Region................................................. II - 1
Hesperia Region............................................... II - 10
San Louis Obispo Region....................................... II - 19
Tulare Region................................................. II - 28
Central Oregon Region......................................... II - 37
Dallas Region................................................. II - 45
Coos Bay Region............................................... II - 55
SECTION III DISCOUNTED CASH FLOW ANALYSIS
Introduction.................................................. III - 1
Income Statement Summary...................................... III - 1
Capital Expenditure Summary................................... III - 6
Terminal Value................................................ III - 7
Comparable System Sales....................................... III - 7
Discount Rate................................................. III - 8
Conclusion.................................................... III - 9
SECTION IV APPENDIX
A. Discounted Cash Flow Analysis by Region
B. Summary Appraisal of Exchange Systems
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I. PREAMBLE
At the request of Falcon Cable Systems Company ("Falcon" or the "Company"), a
California Limited Partnership, Waller Capital Corporation ("Waller Capital")
has conducted an appraisal of the fair market value of the assets of Falcon. The
Company operates cable television systems that serve approximately 135,000
subscribers located in California and Oregon (the "Systems").
Neither Waller Capital nor any of their representatives have any active or
contemplated direct interest in Falcon or any affiliates of Falcon.
The purpose of this appraisal is to determine the value a buyer would assign to
the Company on a going concern basis if a willing seller, under no undue
pressure to sell, placed the Company for sale. The valuation is determined as of
December 31, 1995, on a cash-for-assets basis.
As directed by Falcon, the Systems were divided into seven regions; Gilroy
Region, Tulare Region, Hesperia Region, San Luis Obispo Region, Coos Bay Region,
Dallas Region and Central Oregon Region (the "Regions"). The general methodology
of the appraisal was to evaluate the Discounted Cash Flow ("DCF") stream
generated by each Region over a ten-year period (fiscal 1996 to 2005) and apply
relevant market and economic factors. Ten-year projections have been prepared by
Waller Capital as part of the DCF analysis. Developing projections required a
general understanding of each Region's current business and future plans. This
understanding was obtained through: i) discussions with management concerning
business operations and future prospects; ii) a review of each Region's December
31, 1995 fiscal year end unaudited financial statements; iii) a review of
Falcon's 1993 and 1994 unaudited regional and audited consolidated financial
statements; iv) a review of other operating and subscriber data; v) an analysis
of demographic data as it relates to the service areas of each Region; and (vi)
on-site due diligence of the Systems.
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Projections for the years 1996 to 2005 were made by Waller Capital based upon
each Region's 1995 unaudited financial statements which we believe to be
generally reasonable. The general expense structure of the Systems was projected
according to market and inflationary factors as it was judged to be efficient.
In addition, specific adjustment was made for partnership expenses, as
determined by Waller Capital, which were not allocated back to each Region.
A sale is assumed to occur in the tenth year (2005) of the DCF model. The cash
flow sales multiples selected for each Region reflect the long-term prospects
for cash flow growth and the cash flow quality. The multiples selected also
account for the presumed technical condition of each Region at the time of sale.
The multiples were applied against the full tenth-year of each Region's cash
flow.
This analysis utilized a discount rate derived from Waller Capital's Weighted
Average Cost of Capital ("WACC") model. This discount rate is consistent with
the WACC for an average cable buyer, private or public, utilizing a mix of debt
and equity to capitalize operations.
Waller Capital's analysis was further supported by comparable system sales.
Waller Capital examined specific transactions to determine if an appropriate
multiple of cash flow could be derived from current market information. Waller
Capital examined multiples from announced and completed cable television
transactions for the twelve months preceding December 31, 1995, relying upon
data from Paul Kagan Associates, Inc., transactions executed by Waller Capital
and general industry information. However, comparable sales data is difficult to
generalize from because of the variability of factors such as system size,
growth prospects, penetration, location, demographics, technical system
condition and franchise terms, which are often not publicly available. Given
these limitations, Waller Capital is of the opinion that comparable sales data
offers only an approximation of factors that help determine a fair market value.
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II. STATEMENT OF APPRAISAL ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal has been prepared pursuant to the following general assumptions
and general limiting conditions:
1. Waller Capital assumes no responsibility for the legal description or
matters including legal or title considerations. Title to the subject
assets, properties, and business interests are assumed to be good and
marketable unless otherwise stated.
2. The subject assets, properties, and business interests are appraised
free and clear of any and all liens or encumbrances unless otherwise
stated.
3. Waller Capital assumes responsible ownership and competent management
with respect to the subject assets, properties, or business interests.
4. The information furnished by others is believed to be generally
reliable. However, Waller Capital issues no warranty or other form of
assurance regarding its accuracy.
5. Waller Capital assumes that there is full compliance with all
applicable federal, state, and local regulations and laws unless
noncompliance is stated, defined, and considered in the appraisal
report.
6. Waller Capital assumes that all required licenses, certificates of
occupancy, rights of entry or easement, consents, or legislative or
administrative authority from any local, state, or national government,
private entity or organization have been or can be obtained or renewed
for any use on which the valuation opinion contained in this report is
based.
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7. Possession of this valuation report, or a copy thereof, does not carry
with it the right of publication. It may not be used for any purpose by
any person other than the party to whom it is addressed without Waller
Capital's prior written consent and, in any event, only with proper
written qualifications and only in its entirety.
8. Waller Capital, by reason of this valuation, is not required to furnish
a complete valuation report, or to give testimony, or to be in
attendance in a court of law or other arbitration with reference to the
assets, properties, and business interests in question unless
arrangements have been previously made.
9. No part of the contents of this report (especially any conclusions of
value, the identity of the appraisers, or the firm with which the
appraisers are associated) shall be disseminated to the public through
advertising, public relations, news, sales, or other media without
Waller Capital's prior written consent and approval.
10. Waller Capital assumes no responsibility for any financial reporting
judgements which are appropriately those of management. Management
accepts the responsibility for any related financial reporting with
respect to the assets, properties, and business interests encompassed
by this appraisal.
11. Waller Capital has no responsibility to update this report for any
changes occurring subsequent to the issuance of this report, except as
Waller Capital may be retained to do so in the future under a separate
contract and agreement.
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III. SUMMARY AND CONCLUSION
Based on the investigation and analyses discussed in this report, it is Waller
Capital Corporation's opinion that the fair market value of Falcon Cable Systems
Company, as of December 31, 1995, was $213,672,442. On a per region basis the
value was determined as follows:
Gilroy $ 57,640,720
Hesperia 28,865,947
San Luis Obispo 21,988,550
Tulare 22,269,159
Coos Bay 35,486,280
Dallas 27,257,132
Central 20,164,654
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TOTAL VALUE $213,672,442
This value was based on the Discounted Cash Flow analysis and was supported by
our comparable system sales analysis.
Falcon Cable Systems Company serves 135,470 subscribers in 35 systems which are
grouped into seven regions. The systems are spread over 800 miles from southern
California to northern Oregon. There is an average of 3,871 subscribers per
headend with an average technical capacity of 41 channels. After four years of a
lack of liquidity and capital scarcity, the Systems are generally in need of
upgrades and rebuilds. Two of the Company's regions have lost basic subscribers
in the last three years, however, during the period from FYE 1993 through FYE
1995 overall basic subscribers have increased at a 2.2% annual rate. Pay
subscription has fallen 11% over the same period. From FY 1993 to FY 1995
revenue has dropped by over $800 thousand or -1.5% and cash flow has dropped by
$2.8 million, or 8.9%. On a pre-management fee and partnership expense basis
five of the seven regions had operating margins in excess of 50%.
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The California regions are all located within areas adjacent to the operations
of a number of different MSOs, however, all of the regions in Oregon are
surrounded by either TCI or other Falcon owned systems.
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IV. GENERAL ECONOMIC OUTLOOK AND THE SPECIFIC INDUSTRY OUTLOOK
GENERAL ECONOMY
1995 was a blockbuster year for almost all U.S. equity markets. The Dow Jones
Industrials and the S&P 500 returned 36.8 % and 37.5%, respectively. The U.S.
bond market fared equally well, with 30-year Treasury yields dropping from 7.85%
to 6.25% and providing a total return of over 25%. Real GDP growth ended the
year at 3.3%, with an inflation rate (CPI, which includes the volatile energy
and food components) of 2.9%. The average unemployment rate held steady at 5.6%.
Most economists feel that the Federal Reserve orchestrated a "soft-landing",
quelling runaway inflation fears, while not stifling economic output and future
capital spending plans. Public companies showed overpowering strength in the
equity markets, benefiting from decreasing interest rates, low and stable
inflation, increasing productivity, lower operating costs, restructurings and a
tremendous increase in liquidity due to substantial mutual fund inflows.
Companies with international sales exposure benefitted from the weaker U.S.
dollar. The technology sector fared best as companies not only increased actual
capital spending dollars, but also increased the percentage of technology
spending as a percent of total capital spending to approximately 50% -- up
dramatically from years past. The merger and acquisition market was also highly
active, with media, cable, technology, defense and health care companies leading
the charge. A record $442 billion in merger and acquisition deals were recorded
by Securities Data Co., a leading database for merger and acquisition activity.
The prognosis for 1996 appears less optimistic than 1995, yet moderately strong,
for the financial markets. In early December, the Federal Reserve lowered the
discount rate from 5.50% to 5.25% as a preemptive strike against a stagnating
economy. Inflation is expected to edge up slightly to 3.2% and GDP growth is
expected to decrease moderately to 2.8%. Bond yields are expected to primarily
maintain their current historical low levels, which bodes well for residential
construction activity. Finally, with U.S. equities at record levels, companies
are finding that acquisitions are a faster and
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INTRODUCTION
more cost effective way to grow revenues in a marketplace where raising prices
is not an option.
Corporate capital spending is expected to remain healthy and companies are
projecting moderate growth with controlled costs. Consumer spending is showing
signs of flattening, as consumer debt begins to approach the saturation point.
On the legislative front, Congress also aims to complete a tax-reform bill and
pass a balanced-budget bill during 1996. Labor cost control improvements,
technology, inventory management and manufacturing efficiencies appear to have
built a solid foundation for long-term, sustainable, non-inflationary economic
growth in 1996.
HISTORY OF THE CABLE MARKET
The robust merger and acquisition market for cable television systems witnessed
from 1986 to middle of 1989 was driven by the very positive outlook for the
fundamentals of the cable industry and readily available credit. With the prior
arrival of basic rate deregulation, rising penetration of services and growing
ancillary revenues, the cable television industry utilized its natural operating
leverage to produce strong cash flow growth. Simultaneously, the high yield debt
market and commercial banks made enormous amounts of capital available at ever
increasing multiples of cash flow.
In late 1989, the market for cable systems reversed, with price multiples
falling approximately 20% on average and the volume of sales greatly reduced.
The principle cause of this reversal was a severe constriction of credit. The
high yield market virtually collapsed in conjunction with Drexel Burnham
Lambert's failure. Commercial banks virtually ceased providing new credit to
cable television in response to the implementation of Highly Leveraged
Transactions ("HLT") reporting requirements by the Comptroller of the Currency,
and banks' overall need to improve capital ratios.
The cable television market experienced some improvements beginning in late
1991. Waller Capital experienced a renewed interest in transactions, with
increased numbers of interested buyers and bidders. Commercial banks slowly
returned to the market, albeit at reduced debt/cash flow multiples.
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Large Multiple System Operators ("MSOs") accessed long-term fixed-rate debt at
attractive terms. Also, many new equity investors successfully sought entry into
the market, including: Hallmark, Meredith Corp., Kohlberg, Kravis and Roberts &
Co. and Warburg, Pincus. In addition, low interest rates aided buyers in the
market. While the overall consensus for cable television's future prospects were
attractive in this period, many cable operators were experiencing a decline in
their fundamentals. The economic recession and other factors lead to reduced
basic unit growth and pay unit declines. Basic rate growth was flattening.
Simultaneously, expense pressures from programming suppliers and customer
service requirements were rising. The overall impact of these forces would limit
cash flow growth from traditional video services in many markets.
In 1992 and 1993, enthusiasm grew among cable operators and the investment
community for cable television's prospects for generating revenue from the
distribution of data and voice, in addition to expanded video services. Spurred
by improved economics of fiber optic deployment and prospects for video
compression, financial expectations for large MSOs in large markets rose.
On October 5, 1992, Congress voted to override a presidential veto and enacted
the 1992 Cable Act. On April 1, 1993, the FCC disclosed the methodology by which
it began to regulate cable television. The 1992 Cable Act allows for a greater
degree of regulation of the cable industry with respect to, among other things:
(1) cable system rates for both basic and certain nonbasic services; (2)
programming access and exclusivity arrangements; (3) access to cable channels by
unaffiliated programming services; (4) leased access terms and conditions; (5)
horizontal and vertical ownership of cable systems; (6) customer service
requirements; (7) franchise renewals; (8) television broadcast signal carriage
and payments for retransmission consent; (9) technical standards; (10)
subscriber privacy; (11) consumer protection issues; (12) cable equipment
compatibility; (13) obscene or indecent programming; and (14) prohibiting cable
operators from requiring subscribers to subscribe to tiers of service other than
basic service as a condition of purchasing premium services. Additionally, the
legislation encourages competition with existing cable systems by: (1) allowing
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municipalities to own and operate their own cable systems without having to
obtain a franchise; (2) preventing franchising authorities from granting
exclusive franchises or unreasonably refusing to award additional franchises
covering an existing cable system's service area; and (3) prohibiting the common
ownership of cable systems and co-located MMDS or SMATV systems.
The disclosure of the benchmarks imposed by the FCC in April 1993 had a negative
impact on the market for cable television systems. Rate freezes through the
summer limited cash flow growth. More importantly, many systems faced basic rate
rollbacks with future cash flow growth limited by inflation related increases.
The uncertainty lend to reduced commercial bank lending, a critical aspect of
the marketplace.
However, as the September 1, 1993, compliance date for benchmark pricing
approached, increasing rumors of Regional Bell Operating Company ("RBOC")
acquisition interest following the Southwestern Bell acquisition of Hauser
Communications, combined with a clear incentive for cable MSOs to consolidate to
access capital and compete in voice and data telecommunications, pushed system
market values higher. During late September, Paul Kagan's Cable TV Finance
newsletter noted Southwestern Bell, BellSouth and NYNEX as interested in
acquiring Viacom Cable. Clearly, confidence in cable capital markets and
valuations were on an upswing.
Regulatory matters dictated the market for cable systems again in 1994. RBOC
interest early in the year created a near frenzy in the market. Moreover, the
FCCs announced alterations to current rate regulation schemes on February 22nd
once again caused a serious market disruption. The market's bellwether
transaction, Bell Atlantic/TCI, collapsed, bringing the market for cable systems
down. Other RBOCs were soon to follow Bell Atlantic's lead and the demand for
cable systems was greatly reduced.
The transaction marketplace stalled until mid-summer 1994, as cable operators
once again worked
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to understand the impact of potential 17% basic rate rollbacks and unclear
cost-of-service guidelines. However, as in the prior year, cable operators were
willing to focus on acquisition opportunities once they assimilated these
changes. Perhaps the forces driving consolidation were now even stronger as
competition from telephone companies was more likely. The necessity to amass
capital and critical market mass to compete in voice and data telecommunications
was more evident.
Transaction activity picked up strongly in the second half of 1994 despite
generally weak capital markets. Commercial banks were supportive of the largest
MSOs, with commercial bank capital in short supply for many smaller and
mid-sized operators. The high yield debt market was weak as rising short-term
rates limited demand among high yield buyers. Public equity markets were
depressed by the exodus of RBOCs. However, many sellers were willing to accept
securities from buyers, the sale of Times Mirror, Summit Communications and
Newhouse Broadcasting being noteworthy.
Competitive forces increased their pressures upon the cable industry in late
1994 with two new digital DBS/DSS providers joining the four-year veteran
PrimeStar Partners ("PrimeStar") owned by GE American Communications. October
saw the launch of GM-Hughes Electronics' DirecTV ("DirecTV") and Hubbard
Broadcasting's United States Satellite Broadcasting ("USSB"), both using the
much-publicized 18-inch (Ku-band) digital satellite dish technology. The reduced
size of these antennae, coupled with broad channel offerings and digital-quality
audio, in large measure offset the initial high startup equipment price
associated with the new systems, and demand for the dishes was very brisk. While
most attractive to rural customers outside cable service areas, the DBS/DSS
systems are also very competitive inside cable service areas in the market for
premium and tier-level customers. The entry of DirecTV and USSB, along with
PrimeStar, has subjected cable MSOs in many areas to effective competition,
placing pressure on service rates. This pressure is likely to increase in the
future as DBS/DSS providers introduce interactivity to their product offerings.
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By year-end 1994, the market for systems had stabilized. In addition, the fall
elections brought optimism on the regulatory front. Republican Senate Commerce
Committee chairman Larry Pressler introduced legislation that aimed to achieve
sweeping cable/telecommunications deregulation and reform. The market was
enthusiastic that an approved bill would provide for the repeal of the current
federally controlled cable rate structure, and fully open the local cable and
telephony markets to both MSOs and telcos. In addition, the legislation
contemplated allowing the RBOCs to enter long-distance and telecom equipment
making markets, as well as relax the restrictive broadcast station ownership
rules currently in place.
1995 was a year of restructurings, mergers, acquisitions, strategic
joint-ventures, leveraging and the beginning of a what will prove to be a long
battle for the multimedia consumer dollar. Telcos, MSOs and long-distance
carriers ("LDC"s) formed alliances in an attempt either to protect themselves
from unserved areas or to complement their current product offerings: i) Bell
Atlantic/NYNEX (wireless, video programming) ii) U.S. West/Pactel's Airtouch
Communications (wireless); iii) AT&T/McCaw Cellular (wireless); iv)
Disney/BellSouth Corp./Ameritech Corp./SBC Communications (programming); v)
MCI/News Corp. (DBS, Internet); vi) Sprint/TCI/Comcast/Cox (cable, wireline and
wireless telephony). Perhaps the last alliance is the most telling of what will
be MSO's preferred method of competing in an open playing field where consumers
can choose one provider for cable, telephony and long-distance. Senator
Pressler's pending telecommunications reform legislation reform has caused
cellular providers, MSOs and LDCs to rethink their growth and product strategies
in an open, competitive environment and without exclusive franchise areas or
protected products.
Over $20 billion in mergers occured during 1995, including Time
Warner/Cablevision Industries, Intermedia/Viacom, TCI/Viacom, Time
Warner/Houston Industries (Paragon/KBLCOM), Comcast/E.W. Scripps, Marcus/Sammons
and Gannett/Multimedia. MSOs faced the key operating decision of whether to
consolidate into strategic clusters or to sell-out to the highest bidder. Access
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to capital was a key factor in this decision. The enormous expected costs to
upgrade cable plant using fiber so that voice and data transmission would be
possible prompted MSOs to look for scale economies by growing quickly via
acquisitions.
While the demand for capital remained strong throughout the year, the supply of
capital was also available through private and public debt markets to qualified
MSOs. In addition, an abundance of private equity was available to cable
companies as demonstrated by the following: i) Austin Ventures/B.T. Capital
extended $20 million to Classic Cable; ii) Calpers extended $250 million to
Comcast; iii) Goldman Sachs extended $180 million to Marcus Cable; iv) Hicks
Muse extended $115 million to Marcus; v) J.P. Morgan extended $125 million to
FrontierVision; vi) Kelso/Charterhouse extended $300 million to Charter
Communications; and vii) Spectrum Partners/Fleet Ventures/T.A. Associates
extended $50 million to Galaxy.
DBS competition also grew into a credible threat to cable's subscriber base.
Primestar, DirecTV, USSB and Echostar began to acquire subscribers at an
increasing rate. Due to several multi-million dollar marketing campaigns, DBS
has now become a significant threat to the high-end cable customer. However, the
lack of local broadcast stations, the high cost of initial setup and certain
logistical problems have hampered wide-scale defections to DBS services.
RBOCs have also entered the video market by acquiring wireless cable operators,
or MDS/MMDS operators. The markets believe that RBOCs view wireless cable as a
short-term, stop-gap measure to deliver video to the home, while they are
developing a long-term, cost-effective, quality delivery method. Among some of
the more salient deals are NYNEX & Bell Atlantic/CAI Wireless ($668), CS
Wireless/Bakersfield, CA ($186 MM)/Cleveland and Dayton, OH and Dallas, TX ($502
MM), CAWS/ACS Entertainment ($248 MM), Pacific Telesis/S.A. Cross Country ($175
MM).
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In conclusion, the major themes for cable television in 1995 were consolidation,
capital formation, competition and deregulation legislation. The cable industry
continues to exhibit attractive opportunities for growth and appreciation to
well positioned MSOs. In the long- term, cable television will play an integral
part in the dynamic reshaping of the larger media and telecommunications
industry.
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II. THE SYSTEMS
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GILROY REGION
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GILROY REGION
INTRODUCTION
The Gilroy Region ("Gilroy" or the "Region") is composed of four cable
television systems (the "Systems") which serve communities in Monterey County
and San Benito County in Northern California. The Systems are served by four
headends located in Gilroy, Soledad Peak, Greenfield and King City. The
following map highlights the location of the Systems within the state of
California.
[Map of Region]
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GILROY REGION
[CHART 1]
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TABLE 1:
HISTORICAL SUBSCRIBER SUMMARY
(Fiscal Years Ended December 31)
1993 1994 1995
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HOMES PASSED 54,557 54,496 56,219
BASIC SUBSCRIBERS 31,338 31,996 33,078
% PENETRATION 57.4% 58.7% 58.8%
PAY UNITS 16,011 14,693 13,070
% PENETRATION 51.1% 45.9% 39.5%
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GILROY REGION
[CHART 2]
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TABLE 1:
HISTORICAL FINANCIAL SUMMARY
(Fiscal Years Ended December 31)
($ IN THOUSANDS) 1993 1994 1995
---- ---- ----
REVENUES $13,602 $13,249 $13,146
EXPENSES 4,763 5,537 5,512
SYSTEM CASH FLOW $ 8,839 $ 7,713 $7,633
% MARGIN 64.9% 58.2% 58.1%
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GILROY REGION
As of December 31, 1995, the Systems passed 56,219 homes with 664 miles of plant
(84 homes per mile) and served 33,078 basic subscribers (58.8% basic
penetration) and 13,070 pay units (39.5% pay penetration). The charts and tables
on the preceding pages demonstrate the historical operating and financial
performance of the Systems.
The Gilroy Region generated homes passed growth of 1.5% annually since 1993 and
subscriber growth of 2.7% annually over the same period. This subscriber growth
resulted in a small increase in basic penetration from 57.4% in 1993 to 58.8% in
1995. Pay subscription eroded over time from 15,573 (51.1% penetration) to
13,070 (39.5% penetration) over the same period.
Gilroy has had a relatively flat revenue history with an actual $456 thousand
decline in revenue from FY 1993 through FY 1995. This decline was attributable
to revenue losses sustained as a result of reregulation and pay subscription
losses. System cash flow has declined from a high of $8.8 million in 1993 to
$7.6 million in 1995, which is flat from the previous year. The operating margin
has been flat at 58% for the last two years.
MARKET OVERVIEW
The communities served by the Gilroy Region are situated in the heart of the
fertile Santa Clara Valley, just 15 miles from the Pacific Ocean in the
surrounding rolling hills and farmland. Gilroy is approximately one-half hour
from the center of the nations computer industry in San Jose/Silicon Valley and
the beautiful and diverse recreational areas on the Monterey Peninsula. The
communities are also strategically located at the junction of two of
California's most important highways, Interstate 101 between San Francisco and
Los Angeles, and US 152 linking 101 and Interstate 5 which serves California's
Central Valley. The demographics of the Gilroy Region vary from the rapidly
expanding companies of Silicon Valley to the north, to a migrant worker
component in King City to the south.
Gilroy is the self-proclaimed Garlic Capital of the World, and since 1979, home
to the Gilroy Garlic
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Festival. Surrounding the Region is an important agricultural center which
provides enormous quantities of broccoli, cauliflower and other staples. The
city is a regional shopping hub with over 130 stores in 517,500 square feet of
retail space. King City and Soledad Peak are small communities that support the
surrounding farmland and serve as a base for the large migrant work force. The
largest employers in the Region are highlighted below:
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COMPANY EMPLOYEES PRODUCT/SERVICE
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Gilroy Foods, Inc. 1,100* Food Processing
Outlet Shopping Centers 1,000+ Discount Retail
Gilroy Unified School District 865** Education
A&D Christopher 574* Grower, Processor
Nob Hill Foods/Corp. Offices 418 Supermarket Chain
South Valley Hospital 310 General Hospital
Gilroy Auto Dealers 303 Sales
Hecker Pass, A Family Adventure 300* Theme Park
WalMart 240 Discount Retail
City of Gilroy 225 City Government
* Seasonal peak employment ** Contract basis
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The communities within the Gilroy Region have enjoyed historically strong
growth. However, the Region has suffered as of late along with the rest of the
California economy. The closure of the nearby Fort Ord military base in 1993
also adversly impacted the local economy.
TECHNICAL OVERVIEW
The Gilroy Region is served by four headends identified as Gilroy, Greenfield,
Soledad Peak and King City.
The system serving the city of Gilroy is the largest in the region. The system
was originally constructed in 1970 and upgraded in 1983 to 300 MHz . The headend
is primarily Scientific Atlanta components with a mix of Regal and Scientific
Atlanta electronics in the plant. The Gilroy headend is located several miles
west of Gilroy in the mountains to improve off-air reception and improve sight
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paths for microwave links. The headend microwaves signal to receive sites in the
City of Gilroy, Morgan Hill, Hollister and Spring Hill. Spring Hill is a
repeater which feeds Aromos, Las Lomas, Oak Hill/Castorville, San Juan Bautista
and Prunedale. The Spring Hill site also feeds Laguana Seca which further feeds
La Mesa and Carmel Highlands.
The Greenfield system passes 2,621 homes with 40 miles of plant. The system is
operating at 300 MHz. The headend is a mix of Scientific Atlanta, Standard,
Jerrold, Blonder Tongue and ISS components with a mix of Magnavox and Scientific
Atlanta electronics in the plant.
The headend located on Soledad Peak is located just west of Highway 101 in the
mountains. The headend uses microwave to deliver signal to the Soledad and
Gonzalez systems. The Gonzalez receive site is fiber connected to the Chualar
system. The systems are primarily 400 MHz with Scientific Atlanta components in
the headend and plant.
The King City system passes 2,847 homes with 60 miles of plant. The system is
operating at 300 MHz. The headend is a mix of Scientific Atlanta, Standard,
Jerrold, Blonder Tongue and ISS components with a mix of Regal, Magnavox and
Scientific Atlanta electronics in the plant.
RATES/CHANNELS
The Systems' rate and channel line-ups vary slightly by system due to technical
capacity, franchise and retransmission/must-carry issues, but generally offer a
basic service, a tier and a satellite package. The following highlights the
basic rates, tier rates and the total number of channels.
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SERVICE RATE SUMMARY
BASIC TIER TOTAL
FRANCHISE RATE RATE CHANNELS
- --------- ---- ---- --------
Gilroy, CA $20.76 $5.57 35
Hollister, CA 21.03 5.82 35
Morgan Hill, CA 21.72 5.55 35
San Benito County, CA 22.76 5.86 35
Santa Clara County, CA 21.83 5.21 35
King City, CA 20.18 1.66 35
Monterey County, CA 20.97 1.23 35
Gonzales, CA 11.74 7.95 35
Monterey County, CA 12.68 8.34 35
Soledad, CA 11.85 7.95 35
Monterey County, CA 21.99 4.05 35
San Juan Bautista, CA 19.44 5.21 35
La Mesa Naval Post Grad School, CA 19.21 1.29 35
Monterey County (Lag Seca/RTG), CA 22.45 4.05 35
Greenfield, CA 19.75 1.82 35
Monterey County, CA 20.22 0.70 35
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Gilroy has approximately 12,600 addressable subscribers which generated an
average 5.6% buy rate in 1995.
OPERATIONS OVERVIEW
The Gilroy Region systems are operated from a centrally located facility in
Gilroy, two satellite offices in King City and Soledad and a part time office in
Greenfield. The Gilroy facility serves as the office, warehouse and technical
center for the entire Region. The two other offices are walk-in payment centers.
The Region utilizes a PC-based CSG billing system under master contract through
Falcon. The Region is operated by a total of 27 staff members including: a
System Manager, an Office Manager, a Plant Manager, 7 Technicians, 1 Lead
Installer, 5 Installers / Dispatchers, 7 Customer Service Representatives
("CSRs") and an Advertising Salesperson. There are also 2 CSRs in King City and
1 CSR in Soledad. None of the employees are covered by collective bargaining
agreements, nor has there been any organized effort to unionize.
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The Region operates under the authority of 13 franchises. Approximately 80% of
the subscribers are in franchises that are within 3 years of renewal or in some
cases have not been renewed and are still being negotiated.
MANAGEMENT FEES
Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of
total revenues. For the purposes of this appraisal, system cash flow was
determined prior to the Management Fee. Each region was then charged a
reimbursement of partnership expenses of 5.73% of total revenues. This charge is
comprised of reimbursed partnership expenses and miscellaneous charges. The
reimbursed partnership expense was calculated as 3.73% of total revenues. In
FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues
of $52.9 million) as Reimbursed Expense under Partnership Expense which
discussions with Falcon management confirmed represented expenses of the entire
Company and should be allocated accordingly. An additional 2% of revenues was
added to each Region's Unallocated Partnership expense to account for
miscellaneous services and support provided by the general partner of Falcon
Cable Systems Company including management, financial, programming, billing,
marketing, legal, programming and other services and discounts.
COMPETITION AND POTENTIAL ACQUIRORS
The Systems are not currently overbuilt by any other franchised cable operator.
There is an MMDS operator which delivers signal in Greenfield which has caused a
small subscriber loss. Within the immediate surrounding area are the following
operators: Tele-Communications, Inc., Intermedia Partners and Post Newsweek
Cable.
SUMMARY
The Gilroy region has the widest range of demographics of the Falcon systems.
The systems to the north including Gilroy have excellent growth prospects as
Silicon Valley continues to expand,
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however King City to the south is at the lower end of the demographic scale.
The franchising environment in the Systems appears difficult as many of the
franchising authorities have filed to prevent Falcon's bid for the small system
exclusion following the lead of the Naval Postgraduate School. In addition,
approximately 80% of subscribers are in franchises that have either expired or
expire within the next three years.
Homes passed growth is projected to be relatively robust at 1.7% versus an
historical 1.5% with continual improvement in subscriber penetration. Revenue
and cash flow are projected to increase, reversing the historical trend, due to
rate increases, subscriber gains and continued generation of revenue from other
sources.
The plant will require a rebuild in the next three years to eliminate channel
lock, permit revenue gains, eliminate multiple microwave connections, improve
system signal integrity, reduce cost of operation, and to aid the franchise
renewal process for those areas due to expire in the next three years.
In the event of a sale the most likely buyer is TCI/Intermedia, and possibly
Post Newsweek. However, TCI is the dominant player in the northern California
markets.
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HESPERIA REGION
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INTRODUCTION
The Hesperia region ("Hesperia" or the "Region") is composed of five cable
television systems (the "Systems") which serve the communities of Adelanto,
Rosamond/Mojave, North Edwards, Boron and Hesperia in the state of California.
The following map highlights the location of the Systems in the state of
California.
[MAP OF REGION]
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[CHART 1]
TABLE 1:
HISTORICAL SUBSCRIBER SUMMARY
(Fiscal Years Ended December 31)
1993 1994 1995
---- ---- ----
HOMES PASSED 27,332 28,031 28,312
BASIC SUBSCRIBERS 16,420 17,611 18,513
% PENETRATION 60.1% 62.8% 65.4%
PAY UNITS 7,438 8,907 8,366
% PENETRATION 45.3% 50.6% 45.2%
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[CHART 2]
TABLE 1:
HISTORICAL FINANCIAL SUMMARY
(Fiscal Years Ended December 31)
($ in thousands) 1993 1994 1995
---- ---- ----
REVENUES $7,085 $7,321 $7,847
EXPENSES 2,956 3,204 3,645
SYSTEM CASH FLOW $4,129 $4,117 $4,202
% MARGIN 58.3% 56.2% 53.5%
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As of December 31, 1995, the Systems passed 28,312 homes with 678 miles of plant
(42 homes per mile) and served 18,513 basic subscribers (65.4% basic
penetration) who subscribed to 8,366 pay units (45.2% pay penetration). Revenue
and cash flow for the fiscal year ended December 31, 1995 were $7.847 million
and $4.202 million respectively (53.5% operating margin). The charts and tables
on the preceding pages demonstrate the historical operating and financial
performance of the Systems.
The historical subscriber summary indicates that the Hesperia Region generated
homes passed growth of 1.8% annually since 1993 and subscriber growth of 6.2%
over the same period. Homes passed growth slowed in 1995 to 1.0% versus 2.6% in
1994. Basic subscribers continued to climb with penetration reaching 65% in 1995
from 60% in 1993. Pay subscribers declined from 8,907 at FYE 1994 to 8,366 at
FYE 1995, a loss of 6.1%.
In the Hesperia Region, revenue has climbed over the preceding three years at a
compound growth rate of 5.2% fueled by subscriber gains which offset revenue
losses as a result of reregulation. However, the operating margin declined over
the period from 58.3% in 1993 to 53.5% in 1995 resulting in a flat actual cash
flow over the three year period.
MARKET OVERVIEW
Hesperia is the largest community in the Hesperia Region. Hesperia is located
approximately 20 miles north of the City of San Bernardino along Interstate 15
and approximately 80 miles north and east of Los Angeles. The area is an extreme
outer bedroom community for Los Angeles and for San Bernardino. The closing of
George Air Force Base, a large area employer, approximately three years ago, had
a severe negative effect on the economy. System management estimated that a
large portion of the population was on welfare and the area suffered from high
unemployment.
The City of Adelanto was founded in 1915 by inventor E.H. Richardson. Richardson
built the
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community with money received from the sale of his patent for what was later
developed as the Hotpoint Electric Iron. Adelanto was developed as one of the
first master planned communities in Southern California. The city is located
approximately 95 miles northeast of Los Angeles on State Highway 395 in the
California High Desert and 35 miles north of San Bernardino via Interstate 15.
Major employers in Adelanto include:
EMPLOYER EMPLOYEES
- -------- ---------
Roadway Express, Inc. 1,000
Adelanto School District 272
Iron Horse Trucking 200
Adelanto, like Hesperia, suffers from unemployment and a large percentage of
welfare recipients. However, the city has constructed several industrial parks
to encourage the influx of new business and has developed a Fast Track process
to minimize the time it takes to gain building permits and other authorizations
required to begin business operations in the city.
Boron is located approximately 35 miles to the north of Adelanto and is an
abandoned boron mining town. The mine has been closed and the community is
slowly shrinking. The Rosamond/Mojave system is located approximately 60 miles
from Adelanto and approximately 20 miles west of Boron. The communities are
composed of small tract homes and are outer bedroom communities for Los Angeles
and other cities in Los Angeles and San Bernardino counties. North Edwards is
adjacent to Edwards Air Force base and approximately 10 miles west of Boron.
Edwards is a major U.S. base and is the West Coast home and landing site for the
NASA Space Shuttle.
TECHNICAL OVERVIEW
The system serving Hesperia passes 16,948 homes with 415 miles of plant. The
system was originally constructed in 1972 and rebuilt in 1988 to 330 MHz. The
plant is technically sound and there is a nearly complete fiber project which
will replace significant portions of the trunk in order to reduce
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amplifier cascades. Management indicated that the area was built out and that
future growth was occurring primarily under existing plant. The system has a
microwave receive site at the office/headend which receives microwave signals
from Los Angeles off-air networks at a site on Blue Ridge Mountain. The Blue
Ridge site is also used to send the off-air signals to Adelanto.
The Adelanto system passes 2,600 homes with 62 miles of plant. The system was
constructed in 1972 and rebuilt in 1988 to 330 MHz. Adelanto acts as a microwave
distribution source for the community of Silver Lake, a small retirement
community with 1,802 homes passed by 41 miles of plant located outside of
Adelanto.
The Rosamond/Mojave system is linked together via a fiber run which permitted
the elimination of a headend. The system was originally built in 1974 and is
currently operating at 300 MHz. The Boron system passes 1,256 homes with 27
miles of plant. The system was originally constructed in 1967 and 60% rebuilt in
1991. The system is operating at 270 MHz. The North Edwards system passes 235
homes with 7 miles of plant. The system was constructed in 1990 and is operating
at 450 MHz.
OPERATIONS OVERVIEW
The Hesperia Region has a main office located in Hesperia and a satellite office
in Mojave. The Hesperia office is open for walk-in payments customer service and
subscriber inquires. The Region uses a CSG-based billing system under a master
contract through Falcon. The Hesperia Region is operated by 21 employees
including, a System Manager, an Office Manager, a Chief Technician, 3
Technicians, 3 Installers, 1 Dispatch Supervisor and 6 Customer Service
Representatives ("CSRs"). The Mojave office has 2 CSRs and 3 Technicians. None
of the employees are covered by collective bargaining agreements, nor has there
been any organized effort to unionize.
The Hesperia Region operates under the authority of four franchises. The
earliest franchise expiration
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is in 2006.
RATES/CHANNELS
The Systems rate and channel line-ups vary slightly by system due to franchise
and retransmission/must-carry issues but generally offer a basic package
composed of a variety of Los Angeles off-air signals, a tier package, a
satellite package, premium networks, and pay-per-view channels. The following
highlights the basic rates, tier rates and the number of channels available in
each franchise area:
SERVICE RATES SUMMARY
FRANCHISE BASIC RATE TIER RATE TOTAL CHANNELS
- --------- ---------- --------- --------------
Hesperia, CA $19.43 $7.95 44
Kern County, CA 15.66 4.90 41
Adelanto, CA 18.36 7.78 43
San Bern. Co. (Silver Lake), CA 17.85 9.25 44
Kern County, CA 16.54 6.07 41
Kern County, CA 15.39 1.70 28
Hesperia has approximately 6,000 addressable subscribers which generated an
average buy rate of 11% in 1995.
MANAGEMENT FEES
Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of
total revenues. For the purposes of this appraisal, system cash flow was
determined prior to the Management Fee. Each region was then charged a
reimbursement of partnership expenses of 5.73% of total revenues. This charge is
comprised of reimbursed partnership expenses and miscellaneous charges. The
reimbursed partnership expense was calculated as 3.73% of total revenues. In
FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues
of $52.9 million) as Reimbursed Expense under Partnership Expense which
discussions with Falcon management confirmed
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represented expenses of the entire Company and should be allocated accordingly.
An additional 2% of revenues was added to each Region's Unallocated Partnership
expense to account for miscellaneous services and support provided by the
general partner of Falcon Cable Systems Company including management, financial,
programming, billing, marketing, legal, programming and other services and
discounts.
COMPETITION & POTENTIAL ACQUIRORS
The systems are not currently overbuilt by any other franchised cable system.
Within the immediate surrounding area are Booth American Company, Century
Communications, Comcast Corp. and Tele-Communications, Inc.
SUMMARY
The Hesperia Region has had strong growth over the preceding three years,
however, the economy of the communities served by the Systems continues to
suffer. Homes passed growth based on information from management and other
sources is projected to decrease to .8% per annum, however, basic penetration is
projected to continue to rise.
The Systems were originally constructed in the early 1970s. They are operated at
330 MHz and are channel locked. The Systems will require a rebuild over the next
few years in order to raise rates and fend off competition.
In the event of a sale, the most likely buyers include Century,
Tele-Communications, Inc. and Mediacom, which recently announced the purchase of
11,000 subscribers in Ridgecrest, CA for $120.8 million ($1,890 per subscriber),
or 7.5x cash flow. (This transaction will not close until early 1996). The
Systems would command a premium market price due to the historical growth in
subscribers and revenues. However, at 65% basic penetration, continual
subscriber growth will be more difficult to maintain and the market demographics
present a difficult economic outlook. In
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addition, the purchase price would be discounted for the cost of rebuilding all
of the Systems.
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SAN LUIS OBISPO REGION
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INTRODUCTION
The San Luis Obispo Region ("SLO" or the "Region") is composed of two cable
television systems (the "Systems") which serve the communities of Atascadero,
Los Alamos, Guadeloupe, Los Osos, Cambria and portions of San Luis Obispo County
in the state of California. The following map highlights the location of the
Systems within the state of California.
[MAP OF REGION]
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[GRAPHIC OMITTED]
TABLE 1:
HISTORICAL SUBSCRIBER SUMMARY
(Fiscal Years Ended December 31)
1993 1994 1995
---- ---- ----
HOMES PASSED 25,399 25,699 26,138
BASIC SUBSCRIBERS 15,717 15,669 15,635
% PENETRATION 61.9% 61.0% 59.8%
PAY UNITS 5,161 5,224 3,733
% PENETRATION 32.8% 33.3% 23.9%
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[GRAPHIC OMITTED]
TABLE 1:
HISTORICAL FINANCIAL SUMMARY
(Fiscal Years Ended December 31)
($ IN THOUSANDS) 1993 1994 1995
---- ---- ----
REVENUES $6,486 $6,134 $5,729
EXPENSES 2,734 2,967 3,194
SYSTEM CASH FLOW $3,751 $3,168 $2,535
% MARGIN 57.8% 51.6% 44.2%
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As of December 31, 1995, the Systems passed 26,138 homes with 409 miles of plant
(64 homes per mile) and served 15,635 basic subscribers (59.8% basic
penetration) who subscribed to 3,733 pay units (23.9% pay penetration). Revenue
and cash flow for the fiscal year ended December 31, 1995 were $5.729 million
and $2.535 million respectively (44.2% operating margin). The charts and tables
on the preceding pages demonstrate the historical operating and financial
performance of the Systems.
The SLO Region experienced homes passed growth of approximately 1.4% annually
over the period from 1993 through 1995. Over the same period, basic subscribers
dropped resulting in a three year net subscriber loss of 82 subscribers. This
resulted in basic penetration declining from 61.9% in 1993 to 59.8% in 1995. Pay
subscription also declined precipitously from 5,161 to 3,733 (32.8% pay
penetration to 23.9%) over the period.
The SLO Region's revenues have fallen by $757 thousand over the period from 1993
through 1995. This decline was attributable to regulation which decreased rates,
and the falling number of pay subscribers. Over the period, the Region had
incremental expense increases which caused system cash flow to decline from $3.8
million to $2.5 million, a decline of 34%, resulting in a margin decrease from
57.8% to 44.2%.
MARKET OVERVIEW
The communities served by SLO are located in the heart of California's Central
Coast, approximately 210 miles south of San Francisco, 210 miles north of Los
Angeles, and 17 miles inland from the Pacific Ocean, in the San Lucia Mountains.
Atascadero, with a population of over 25,000, and the largest city served in the
SLO region, is the second largest community in San Luis Obispo County.
Following the general trend in California, the economy in San Luis Obispo County
has suffered over the last few years, however, the 1996 San Luis Obispo County
Economic Outlook prepared by the
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Regents of the University of California indicates that a recovery is in
progress. The report concluded that labor markets have demonstrated clear
improvement, retail gains are underway and that incomes have begun to modestly
rise again. The report also points to new residential development, positive net
in-migration and estimates that 2,775 people will relocate to the county in
1996. In the near term the report predicts population growth of 1.4% per annum
through 2004.
The employment environment of SLO County remains relatively stable as one-fourth
of all residents work for some level of government. The county is also
increasing its tourism base which serves the Hearst Castle, the local vineyards
and the beaches along California's scenic Route 1.
The city of Atascadero was founded in 1913 as a planned utopian colony by Edward
Gardner Lewis, a successful magazine publisher from the East. Many of Mr.
Gardner's principles have survived through to the present as a result of
Atascadero's city charter, which calls for the preservation of open space and
the protection of trees and hillsides. The population of Atascadero is 25,225.
Growth from 1980 through 1990 was 43%, and since 1980 the city has averaged 700
new residents per year. The major employer in the area is the Atascadero State
Hospital which has over 1,500 employees.
Cambria is a small community to the northwest of Atascadero along Route 1, and
just south of San Simeon State Park. The community is comprised primarily of
retirees, artists and individuals who serve the tourist trade. Los Osos is to
the southwest of Atascadero and just south of Morro Bay. The community is a
small bedroom community for the City of San Luis Obispo as well as home to
employees of Pacific Gas & Electric's Diablo Canyon Nuclear Facility. Los Osos
also has a significant retirement component. Guadeloupe is the southern most
system located approximately 30 miles to the south of Atascadero just outside of
Santa Maria.
The following chart highlights the population and economic growth of San Luis
Obispo County:
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1990 1992 1994 1995
---- ---- ---- ----
County
Population 221,843 221,902 231,549 236,038
Growth N/A .03% 4.3% 1.9%
Taxable Retail Sales
(000s) $1,260,520 $1,914,174 $1,246,975 N/A
The following chart highlights the demographic and economic growth of the City
of Atascadero:
(DOLLAR VALUES IN MILLIONS) 1990 1991 1993 1995
---- ---- ---- ----
Population in the County 217,162 221,340 228,380 236,038
Taxable Retail
Sales
- - County $1,730.5 $1,662.5 $1,679.0(1) 1,654.0(1)
Populations in City Limits
- - Atascadero 23,138 23,382 24,091 25,225
Taxable Retail Sales
- - City $132.0 $187.0 $185.0 $151.0(1)
Total Number of Dwellings
- - City 8,875 8,973 9,127 9,273
Total School Enrollment
- -Atascadero 5,275 5,436 5,686 5,924
TECHNICAL OVERVIEW
The SLO Region is served by two headends located in Atascadero and Los Alamos.
Atascadero serves the city of Atascadero and surrounding areas of San Louis
Obispo County, and microwaves signal to Cambria, Los Osos and Guadeloupe. Los
Alamos is a stand-alone system.
The Atascadero headend is located on the grounds of the Atascadero State
Hospital. The system uses a receive site located on Cuesta Peak to receive
off-air signals which are then fibered to the Atascadero headend and microwaved
to the other receive sites. All satellite signals are received at the Atascadero
headend and fibered to Cuesta Peak for transmission to the other systems. Los
Angeles off-air networks are received via a microwave signal from a vendor.
- -----------
(1) Results from previous years.
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The SLO Region, with the exception of the city of Atascadero, Guadeloupe and Los
Alamos, have been rebuilt (approximately 50% of the Region's plant miles) within
the last year to 750 MHz fiber-to-the-node technology at an estimated cost of
$5.5 million. The fiber project also included the installation of a new headend
in Atascadero and a fiber connection between Atascadero and Cuesta Peak. This
has significantly increased signal quality and reduced outages. Atascadero is
slated to be rebuilt in the next few years as part of the refranchising effort
(franchise expiration for Atascadero is 2001).
Los Alamos is a small community that was built in 1985 to 450 MHz with a
40-channel capacity.
OPERATIONS OVERVIEW
The Region is served by one office located in Atascadero. The Atascadero office
also shares space with the Falcon Western Region Division Office. The office is
open for walk-in payments, customer service and subscriber inquires. The Region
uses a CSG-based billing system under a master contract through Falcon. The SLO
Region is operated by 17 employees including, a System Manager, an Office
Manager, a Chief Technician, 2 Maintenance Technicians, 1 Service Technician, 1
Installer/Technician, 2 Installers, 1 Dispatch Supervisor, 1 Warehouse
Supervisor, 5 Customer Service Representatives and 1 Advertising Sales Manager.
None of the employees are covered by collective bargaining agreements, nor has
there been any organized effort to unionize.
RATES/CHANNELS
The Systems' rate and channel line-ups vary slightly by system due to franchise
and retransmission/must-carry issues but generally offer a basic line-up
composed of a variety of Oxnard, Los Angeles, Santa Maria, Santa Barbara and San
Luis Obispo, California off-air signals, a tier package, a satellite package,
premium networks, and pay-per-view channels. The following highlights the basic
rates, tier rates and the total number of channels available by franchise area:
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SERVICE RATE SUMMARY
BASIC TIER TOTAL
FRANCHISE RATE RATE CHANNELS
- --------- ---- ---- --------
Atascadero, CA $16.56 $7.66 37
Guadalupe, CA 17.42 6.10 37
Los Alamos, CA 15.60 2.18 21
San Luis Obispo, CA 15.83 7.03 58
At FYE 1995, the Systems had 5,019 addressable subscribers and an average buy
rate of 5.5%.
MANAGEMENT FEES
Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of
total revenues. For the purposes of this appraisal, system cash flow was
determined prior to the Management Fee. Each region was then charged a
reimbursement of partnership expenses of 5.73% of total revenues. This charge is
comprised of reimbursed partnership expenses and miscellaneous charges. The
reimbursed partnership expense was calculated as 3.73% of total revenues. In
FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues
of $52.9 million) as Reimbursed Expense under Partnership Expense which
discussions with Falcon management confirmed represented expenses of the entire
Company and should be allocated accordingly. An additional 2% of revenues was
added to each Region's Unallocated Partnership expense to account for
miscellaneous services and support provided by the general partner of Falcon
Cable Systems Company including management, financial, programming, billing,
marketing, legal, programming and other services and discounts.
COMPETITION & POTENTIAL ACQUIRORs
The Systems are not currently overbuilt by any other franchised cable system.
Within the immediate surrounding area are Sonic Communications, Time Warner
Cable and Comcast Corp.
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SAN LUIS OBISPO REGION
SUMMARY
The SLO Region serves attractive, stable, economically improving markets. Falcon
completed a portion of the rebuild of the Systems that was required, however, a
large portion of the plant, located in the city of Atascadero, must be rebuilt
within the next few years, not only to assure a franchise renewal, but also to
ensure the reversal of subscriber erosion already sustained.
The revenue losses sustained since 1993 should be reversed as the advent of
deregulation permits the service rates to rise. The state of the economy and a
refranchising environment will not permit a large recapture, but rate increases
in the 4% range are sustainable. The completion of the rebuild will also improve
signal quality, reduce outages and lead to basic subscriber gains as well as
permit growth of other revenue sources and the retention of pay subscribers.
Homes passed growth of 1.7% is projected and penetration increases are projected
to increase the number of basic subscribers by approximately 2.4% per annum.
In the event of a sale of SLO, likely acquirors include Comcast, Time Warner and
possibly TCI/Intermedia as they continue to consolidate much of Northern
California. The Systems would command an average price in the market based on
growth potential and demographics, but would be discounted by the cost of
rebuilding Atascadero, and for the negative trend of historical operating and
financial results.
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TULARE REGION
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TULARE REGION
INTRODUCTION
The Tulare Region ("Tulare"or the "Region") is composed of three cable systems
(the "Systems") which serve the communities of Posey, Springville, California
Hot Springs, Camp Nelson, Three Rivers, Woodlake, Lemon Cove, Terra Bella,
Woodville, Strathmore, Porterville, Pet, Exeter, Farmersville, Ivanhoe, Cutler,
Orosi, Orange Cove, Oak Ranch and Lindsay. These communities are all located in
and around Tulare County, California. The following map indicates the location
of the Tulare Region within the state of California.
[Map of Region]
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[CHART 1 OMITTED]
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TABLE 1:
HISTORICAL SUBSCRIBER SUMMARY
(Fiscal Years Ended December 31)
1993 1994 1995
---- ---- ----
Homes Passed 38,340 39,514 41,053
Basic Subscribers 16,552 15,562 15,249
% Penetration 43.2% 39.4% 37.1%
Pay Units 11,064 9,316 7,110
% Penetration 66.8% 59.9% 46.6%
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[CHART 2 OMITTED]
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TABLE 1:
ISTORICAL FINANCIAL SUMMARY
(Fiscal Years Ended December 31)
($ in thousands) 1993 1994 1995
- ---------------- ---- ---- ----
Revenues $7,493 $6,802 $6,506
Expenses $3,787 $3,469 $3,338
System Cash Flow $3,706 $3,334 $3,169
% Margin 49.5% 49.0% 48.7%
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As of December 31, 1995, the Systems passed 41,053 homes with 675 miles of plant
(60 homes per mile) and served 15,249 basic subscribers (37.1% basic
penetration) who subscribed to 7,110 pay units (46.6% pay penetration). Revenue
and system cash flow for the fiscal year ended December 31, 1995 were $6,506,018
and $3,168,517 respectively (48.7% operating margin). The charts and tables on
the preceding pages demonstrate the operating and financial perfomance of the
Systems over the last three years.
As the historical results indicate, the Systems have been losing subscribers
over the last three years despite a 7% increase in homes passed over the period.
Subscribers have fallen from 16,552 in 1993 to 15,249 in 1995, a 7.7% decline,
and penetration has fallen from 43.2% in 1993 to 37.1% in 1995.
The Tulare Region revenues and cash flow have also been decreasing over the last
three years from $7.4 million in revenues in 1993 to $6.5 million in 1995, a 12%
decline, and from $3.7 million to $3.2 million in cash flow for the same period,
a 14% decline. The declines were attributable to subscriber losses as well as
reregulation related rate decreases and other incremental expense increases.
MARKET OVERVIEW
The communities served by the Tulare Region systems are located approximately
180 miles north of Los Angeles, 230 miles south of San Francisco and Sacremento
and 45 miles south of Fresno. There are three systems in the Region,
Porterville, Posey/Jack Ranch and California Hot Springs.
Porterville is the largest with approximately 98% of the Region's total
subscribers. Porterville is located in Tulare County which is the heart of
California's agri-business region. Tulare County's agri-business' produce over
46 products which yield over $1,000,000 in annual sales including almonds,
cotton, citrus and grapes. In the county, approximately 32,000, or 25% of the
employment base is employed in agriculture. The area was hit with a disaterous
freeze in the early 1990s which destroyed a large number of the citrus and other
trees. Replanted trees are just beginning to mature and output
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is again begining to surge.
Posey/Jack Ranch and California Hot Springs are east of the Porterville system,
in or near the mountains. Posey/Jack Ranch is a retirement community drawing
retirees from as far away as Los Angeles who, in a search for cheaper housing
and a quieter lifestyle, will commute or semi-retire to the area. There is also
a sprinkling of logging and cattle ranching in the communities and surrounding
areas.
The following chart highlights the major employers in Tulare County:
- -------------------------------------------------------------------------------------------------------------
EMPLOYER EMPLOYEES DESCRIPTION
- -------- --------- -----------
Dairyman's Coop. Creamery Assoc. 650 Dairy Products
Tulare City School District 640 Education
Tulare Joint Union H.S. District 450 Education
Tulare District Hospital 435 Medical Facilities
Haagen-Dazs 300 Ice Cream
Kraft General Foods 300 Cheese & Dairy Products
City of Tulare 250 Municipality
Southern Cal. Edison 250 Utility Services
Grumman/Olsen Ind., Inc. 200 Truck Bodies
PSI Tronix 175 Electronics
Kings County Truck Lines 150 Transportation Services
Kraft U.S.A. South 130 Cheese & Dairy Products
Stella Cheese 120 Cheese & Dairy Products
J.D. Heiskell 100 Grain Processor
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The following chart highlights the demographic trends in Tulare County over the
last 10 years:
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1985 1988 1990 1993
---- ---- ---- ----
Population-County 260,300 295,000 319,600 340,000
Taxable Sales-County(in $1,000's) $1,549,525 $1,793,916 $2,148,811 $2,243,541
Population City of Tulare (area 225,000) 26,356 28,040 33,249 39,314
Taxable Sales City of Tulare(in 1,000's) $177,463 $218,719 $266,637 $283,997
Housholds City of Tulare 9,550 10,500 11,900 13,500
K-12 School Enrollment 8,029 8,744 9,364 10,512
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TECHNICAL OVERVIEW
The Tulare Region is served by three headends located in Porterville, Posey/Jack
Ranch and California Hot Springs. The Tulare Systems have a total of 675 miles
of plant (79% aerial and 21% underground).
The Porterville headend serves as a microwave distribution site for 16
sub-systems in the surrounding area. Porterville microwaves signal to Blue
Ridge, Rich Grove, Pixley (which distributes via microwave to Earlimont),
Tipton, Lindsay and Venus Hills. Blue Ridge is a secondary site which
distributes to Springville, Camp Nelson and Three Rivers. Venus Hills is also a
secondary distibution site which transmits to Woodlake, Lin Cove, Farmerville,
Pat Tract and Orosi. Headend hardware is primarily Scientific Atlanta components
and the system is a mixture of various manufactures. Presently the system is
configured to a mixture of between 300 MHz to 750 MHz with a 24-mile fiber trunk
overlay completed in 1995 (estimated cost of $196,000) which is engineered to
750 MHz.
The California Hot Springs system is composed of 18 miles of plant serving 161
basic subscribers. The system was built in 1963 and upgraded in 1986 to 400 MHz.
The headend is primarily Scientific Atlanta equipment with a mixture of Jerrold
and Scientific Atlanta equipment in the system.
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TULARE REGION
The Posey/Jack Ranch system is composed of 12 miles of plant serving 126 basic
subscribers. The system was built in 1963 and upgraded in 1986 to 400 MHz. The
headend is primarily Scientific Atlanta equipment with a mixture of Jerrold and
Scientific Atlanta equipment in the system.
RATES/CHANNELS
The Systems' rate and channel line-ups vary slightly by system due to franchise
and retransmission/must-carry issues but generally offer a basic composed of a
variety of Fresno, Los Angeles, Bakersfield, Hanford and Visalia, California
off-air signals, a tier, a satellite package, 5 premium networks, and 1 channel
of pay-per-view (Request 1). The following highlights the basic rates, tier
rates and the number of channels available by franchise area:
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SERVICE RATE SUMMARY
BASIC TIER TOTAL
FRANCHISE RATE RATE CHANNELS
- --------- ---- ---- --------
Exeter, CA $18.69 4.97 40
Farmersville, CA 18.36 4.79 40
Lindsay, CA 17.25 5.32 40
Orange Cove, CA 14.92 3.90 40
Porterville, CA 15.90 5.80 40
Tulare County, CA 18.48 4.88 40
Woodlake, CA 15.86 5.95 40
Tulare County, CA 19.72 0.00 13
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There are 7,857 addressable subscribers in the Systems which generated a 5.8%
average buy rate.
OPERATIONS OVERVIEW
The Tulare Region is operated from a centrally located facility in Porterville.
The Porterville facility serves as the office, warehouse and technical center
for the entire Region. The office is open for walk in payments, customer service
and inquiries. The office utilizes a PC-based CSG billing system under a master
contract through Falcon. The Tulare Region is operated by a total of 25 staff
members
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including: a System Manager, an Office Manager, a Chief Technician, 4
Technicians, 5 Installers, 1 converter repair/warehouse/inventory, 2
Dispatchers, 1 Construction/Engineering Supervisor, 7 Customer Service
Representatives and 2 Advertising Salepersons. None of the employees are covered
by collective bargaining agreements, nor has there been any organized effort to
unionize.
The Region operates under the authority of 7 franchises, of which 5 expire
within the next 3 years, including Tulare County, the largest in terms of
subscribers.
MANAGEMENT FEES
Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of
total revenues. For the purposes of this appraisal, system cash flow was
determined prior to the Management Fee. Each region was then charged a
reimbursement of partnership expenses of 5.73% of total revenues. This charge is
comprised of reimbursed partnership expenses and miscellaneous charges. The
reimbursed partnership expense was calculated as 3.73% of total revenues. In
FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues
of $52.9 million) as Reimbursed Expense under Partnership Expense which
discussions with Falcon management confirmed represented expenses of the entire
Company and should be allocated accordingly. An additional 2% of revenues was
added to each Region's Unallocated Partnership expense to account for
miscellaneous services and support provided by the general partner of Falcon
Cable Systems Company including management, financial, programming, billing,
marketing, legal, programming and other services and discounts.
COMPETITION & POTENTIAL ACQUIORs
The Systems are not currently overbuilt by any other franchised cable system,
however, a Fresno based MMDS operator currently has approximately 3,000
subscribers within the zip codes of areas served by the Systems. The MMDS
provider does not have a comparable channel line-up but is competing for the
more price sensitive subscribers.
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TULARE REGION
Within the immediate surrounding area are Continental Cablevision and Northland
Communications.
SUMMARY
The Tulare Region is suffering from the severe effects of the general California
economic slump, the aftershocks of the damage done to its citrus crops and the
effect of cable reregulation. The introduction of competition to the market has
also hurt subscriber growth and retention, and increased the price awareness of
the subscribers.
Homes passed growth was projected to continue at historic levels in the short
term, and subscriber losses should be stemmed and begin to grow as the economy
improves. The Systems are in need of a rebuild from the current 270/330/400 MHz
capacity in order to encourage subscriber growth, permit rate increases, fend
off competition and to ensure orderly franchise renewals. The introduction of
digital MMDS will vastly increase the competitivness of MMDS and reduce its
dependence on price comparisons.
In the event of a sale, there are several operators in the region including
Continental and Northland. The purchase price for the Region, however, would be
depressed by the recent historical subscriber, revenue and cash flow trends, by
the presence of a viable, operating competitor and by the cost of the rebuild of
the Systems.
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CENTRAL OREGON REGION
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CENTRAL OREGON REGION
INTRODUCTION
The Central Oregon Region ("Central Oregon" or the "Region) is composed of six
cable television systems (the "Systems") in areas surrounding Eugene, Oregon and
one system near the border of California. The Systems were operated from
headends located in Brownsville, Veneta/Noti, Cottage Grove, Sutherlin, Cave
Junction and one located atop Bear Mountain which services nine hub sites via
microwave. The following map indicates the location of the Systems within the
state of Oregon.
[MAP OF REGION]
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CENTRAL OREGON REGION
[GRAPHIC OMITTED]
TABLE 1:
HISTORICAL SUBSCRIBER SUMMARY
(Fiscal Years Ended December 31)
1993 1994 1995
---- ---- ----
HOMES PASSED 26,355 26,355 26,355
BASIC SUBSCRIBERS 13,808 14,198 14,225
% PENETRATION 52.4% 53.9% 54.0%
PAY UNITS 5,293 5,477 5,505
% PENETRATION 38.3% 38.6% 38.7%
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[GRAPHIC OMITTED]
TABLE 2:
HISTORICAL FINANCIAL SUMMARY
(Fiscal Years Ended December 31)
($ IN THOUSANDS) 1993 1994 1995
---- ---- ----
REVENUES $5,228 $5,029 $5,001
EXPENSES 2,180 2,217 2,289
SYSTEM CASH FLOW $3,048 $2,812 $2,712
% MARGIN 58.3% 55.9% 54.2%
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CENTRAL OREGON REGION
As of December 31, 1995, the Systems passed 26,355 homes with 660.3 miles of
plant (39.9 homes per mile) and served 14,225 basic subscribers (54.0% basic
penetration) who subscribed to 5,505 pay units (38.7% pay penetration). Revenue
and system cash flow for the fiscal year ended December 31, 1995 were $5,001,040
and $2,712,460, respectively (54.2% margin). The charts and tables on the
preceding pages, depict the operating and financial performance of the Systems
over the last three years.
The Central Oregon Region has not experienced any homes passed growth in the
last three years. Basic subscribers in the Region have increased at a compound
annual growth rate of 1.5% since 1993 and only .2% between 1994 and 1995. Pay
penetration has remained flat at between 38.3% and 38.7%.
In terms of revenue and cash flow, the Region generated a compound annual growth
rate of 3.3% and 1.8%, respectively, over the period from 1993 through 1995. The
Region's operating margin is extremly high at 55% especially when considering
the geographic spread of the Systems and the average system size.
MARKET OVERVIEW
The Central Oregon Region has been evolving from a logging based economy towards
high tech industries, recently being labeled the "Silicon Forest". Two large
international manufacturers, Sony and Hyundai, have opened plants just outside
Eugene. The Sony plant employs 600 people and produces CD ROM discs, and the
Hyundai plant staffs over 1,600 people.
Cottage Grove is experiencing growth in trailer parks and retirees. McKinsey
River is growing and is already a highly cable saturated area. Coburg, Creswell,
Marcola and Brownsville, the suburbs of Eugene, are undergoing subdivision
growth as the population moves outside the larger city. The caves in Cottage
Grove have also been instrumental in luring tourist dollars to the area.
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TECHNICAL OVERVIEW
The Central Oregon Region is operated from headends in Cave Junction, Sutherlin,
Brownsville, Cottage Grove,Veneta and Bear Mountain. The Region passes 26,355
homes with 660 miles of plant, of which 605 (92%) is of aerial contruction and
54 (8%) is underground construction.
The Bear Mountain headend uses AML microwave to feed nine additional systems in
Drain, Oak Ridge/Westford, Rural Cottage Grove, Creswell, Coburg,
Marcola/Walterville, Vida/Nimord, Blue River/McKinsey Ridge and Pleasant
Hill/Dexter/Lowell, over an eight hub split.
The Veneta and Cave Junction systems were rebuilt in 1995. Management plans to
increase channel offerings in early 1996.
RATES/CHANNEL
The Systems offer various amounts of programming from 28 channels of service in
Oakland, Sutherlin and the outlying Douglas County areas of Oakland and
Sutherlin, to 44 channels of service in the Cottage Grove and Lane County
(Cottage Grove) franchises. The Systems rate and channel line-ups vary slightly
by system due to technical capacities and franchise and
retransmission/must-carry issues. They generally offer a basic service composed
of a variety of Eugene, Roseburg, Medford, Corvallis and Winston off-air
signals, a tier package, up to two satellite packages and up to six pay services
(pay services available include Cinemax, The Disney Channel, HBO, The Movie
Channel, Showtime and Encore). There are no pay-per-view services in any of the
addressable systems.
Rates vary from $14.01 to $25.87 for basic, $1.46 to $5.80 for the tier package,
$2.17 to $6.00 for satellite package 1 and $4.50 or $5.00 for satellite package
2. The relations with the franchising authorities are good, and only Florence
and Dunes City have certified with the FCC. The following table lists rates for
the three packages of service and the number of basic and pay channels being
offered.
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SERVICE RATE SUMMARY
BASIC TIER SATELLITE 1 SATELLITE 2 TOTAL PAY
FRANCHISE RATE RATE RATE RATE CHANNELS CHANNELS
- --------- ---- ---- ---- ---- -------- --------
Brownsville $20.06 $5.57 $3.85 N/A 33 4
Cave Junction 17.27 9.83 2.95 N/A 34 4
Coburg 15.98 7.39 5.00 $4.00 38 5
Cottage Grove 20.46 1.18 7.19 N/A 45 6
Creswell 15.95 7.39 5.00 4.00 38 5
Douglas Co. (Drain/Yoncalla) 15.08 6.95 5.00 4.00 38 5
Douglas Co. (Sutherlin/Oakland) 19.04 3.15 4.55 N/A 29 4
Drain 15.84 6.95 5.00 4.00 38 5
Josephine County 17.51 10.09 2.95 N/A 34 4
Lane Co. (Bear Mtn.) 16.15 7.76 5.00 4.00 38 5
Lane Co. (Cottage Grove) 20.43 0.78 7.19 N/A 45 6
Lane Co. (Cott. Grv./Bear Mtn.) 18.48 7.07 5.00 4.00 38 5
Lane Co. (Veneta) 15.90 4.92 5.90 N/A 31 4
Linn Co. (Brownsville) 23.95 2.40 3.84 N/A 33 4
Lowell 15.57 7.39 5.00 4.00 38 5
Oakland 19.45 2.80 4.55 N/A 28 4
Oakridge 14.34 7.39 5.00 4.00 38 5
Sutherlin 19.48 2.89 4.55 N/A 29 4
Veneta 15.51 4.89 5.90 N/A 31 4
West Fir 14.37 6.36 5.00 4.00 38 5
Yoncalla 15.21 6.95 5.00 4.00 38 5
OPERATIONS OVERVIEW
The regional office for Central Oregon is located in Springfield due to its
location in the center of the sprawling Bear Mountain system. Springfield is not
serviced by Falcon. Additional offices include a leased office site in Cottage
Grove and a part-time leased office site in Oak Ridge. The Springfield office is
staffed by an Office Manager, 4 Customer Service Representatives ("CSRs"), 4
Technicians, 3 Installers and a Dispatcher, in addition to the Regional Manager
and Chief Technician. The other offices are both staffed with a single CSR.
Additionally, the Region operates two tech centers, in Sutherlin and Cave
Junction, each staffing one Technician.
Although nearly all of the systems in the Region are addressable, channel
capacity limitations have restricted the option of pay-per-view services. There
are no ad insertions in the Central Oregon
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Region as well.
MANAGEMENT FEES
Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of
total revenues. For the purposes of this appraisal, system cash flow was
determined prior to the Management Fee. Each region was then charged a
reimbursement of partnership expenses of 5.73% of total revenues. This charge is
comprised of reimbursed partnership expenses and miscellaneous charges. The
reimbursed partnership expense was calculated as 3.73% of total revenues. In
FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues
of $52.9 million) as Reimbursed Expense under Partnership Expense which
discussions with Falcon management confirmed represented expenses of the entire
Company and should be allocated accordingly. An additional 2% of revenues was
added to each Region's Unallocated Partnership expense to account for
miscellaneous services and support provided by the general partner of Falcon
Cable Systems Company including management, financial, programming, billing,
marketing, legal, programming and other services and discounts.
COMPETITION & POTENTIAL ACQUIRORS OVERVIEW
The Systems are beginning to see a smattering of DBS dishes in the area,
although the impact to date has been insignificant. They are not currently
overbuilt by any other franchised cable operator. American Telecasting has
announced plans to begin MMDS service within two years. There are some SMATV
operators but they are largely unsuccessful due to the inability to receive
off-air channels without microwave. Franchise relations with all of the
authorities have been excellent to date.
The Systems are surrounded by either TCI systems or other Falcon partnerships,
with very minimal local, single system operators.
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CENTRAL OREGON REGION
SUMMARY
The Central Oregon region is composed of small (average of 2,300 subscribers per
system) cable systems in the heart of northern Oregon. The Region has maintained
steady growth as the Systems have been built out and have increased revenue and
cash flow on a marginal basis every year. This growth is expected to continue,
however, at a slower pace into the future.
The Systems with the exception of Veneta and Cave Junction, are in need of a
rebuild including the unwieldy 8 hub AML microwave distrution site.
In the event of a sale, the Systems would command a below average price due to
the small system size, the announced intent of American Telecasting, the low
historical subscriber growth and the cost of rebuild. In addition, the Systems
are surrounded by TCI and Falcon systems thus limiting the pool of likely
acquirers and minimizing the possible bidders.
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DALLAS REGION
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DALLAS REGION
INTRODUCTION
The Dallas Region ("Dallas" or the "Region") is composed of seven cable systems
(the "Systems") including five which serve communities along the northern coast
of Oregon approximately 75 miles west of Portland (the "Tillamook Systems") and
two others located 75 miles south of Portland (the "Dallas Systems"). The
Systems are located in Tillamook, Netarts, Nehalem, Brickyard Road and Wilson
River on the coast and in Dallas and Silverton in the interior of the state. The
following map indicates the location of the Dallas Region within the state of
Oregon.
[Map of Region]
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DALLAS REGION
[CHART 1 OMITTED]
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TABLE 1:
HISTORICAL SUBSCRIBER SUMMARY
(Fiscal Years Ended December 31)
1993 1994 1995
---- ---- ----
Homes Passed 21,514 23,349 23,770
Basic Subscribers 14,466 16,380 16,928
% Penetration 67.2% 70.2% 71.2%
Pay Units 6,868 7,578 7,139
% Penetration 47.5% 46.3% 42.2%
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[CHART 2 OMITTED]
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TABLE 2:
HISTORICAL FINANCIAL SUMMARY
(Fiscal Years Ended December 31)
($ in thousands) 1993 1994 1995
---- ---- ----
Revenues $5,750 $6,006 $6,074
Expenses 2,273 2,394 2,410
System Cash Flow $3,477 $3,612 $3,664
% Margin 60.5% 60.1% 60.3%
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DALLAS REGION
As of December 31, 1995, the Systems passed 23,770 homes with 467 miles of plant
(51 homes per mile) and served 16,928 basic subscribers (71.2% basic
penetration) who subscribed to 7,139 pay units (42.2% pay penetration). Revenue
and system cash flow for the fiscal year ended December 31, 1995 were $6,074,204
and $3,664,003 respectively (60.3% margin). The charts and tables on the
preceding pages demonstrate the operating and financial performance of the
Dallas Region over the last three years.
The Dallas Region has been increasing homes passed at a compound annual growth
rate of 5.1% since 1993. The area is benefitting from infill new home
construction as well as new subdivision growth. The growth peaked in 1994 at
8.5% annual growth and declined to 1.8% in 1995. Basic subscriber growth has
been continuous with a compound annual rate of 8.1%, however, like homes passed
growth, this was primarily in 1994 and dropped to 3.3% in 1995 on a year-to-year
basis. Basic penetration is 71.2% which would indicate that the market is well
saturated.
The Systems' revenues and cash flows have grown steadily over the past three
years. Total revenue and cash flow have grown at a compound annual rate of 2.8%,
which lags subscriber growth due to rate adjustments resulting from
reregulation. The Systems' operating margin of over 60% is well in excess of
industry norms.
MARKET OVERVIEW
The Systems experienced steady historical growth in the past and this is
projected to continue into the future. The Oregon coastal area in and around the
Tillamook Systems is growing rapidly from the expanding tourist trade as well as
the existing fishing industry. Many of the communities comprising the Tillamook
Systems are becoming second homes for Portland and northern California
residents, and many of the franchise areas are witnessing the development of a
number of new subdivisions.
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DALLAS REGION
The Dallas and Silverton systems serving the communities of Monmouth,
Independence, Silverton, Dallas and Falls City are undergoing growth from the
immigration of residents from Salem and Portland. These towns offer a higher
quality of life and a small town atmosphere within easy commuting distance.
Major businesses in the Dallas area include Pregitser Computer Chips, Boise
Cascade, a new WalMart, Caterpillar and Western Oregon State College in addition
to a large scale logging industry. The area is experiencing strong housing
growth and Falcon is building nearly 20 miles of new plant each year and
benefitting from continuous infill growth.
TECHNICAL SUMMARY
The Systems currently operate from 7 headend sites located in Nehalem,
Tillamook, Netarts, Brickyard, Wilson River, Dallas and Silverton. The Systems
pass 23,700 homes with 467 miles of plant of which 382 (82%) is underground
construction and 84 (18%) is of aerial construction.
Tillamook Systems
The five headends comprising the Tillamook Systems serve the communities of Bay
City, Brickyard Road, Cannon Beach, Garibaldi, Manzanita, Nehalem, Netarts,
Oceanside, Rockaway Beach, Tillamook, Wheeler and Wilson River. The headend in
Nehalem microwaves to a site on Angora Peak and then down to Cannon Beach,
Nehalem and Garibaldi. The other four headends, in Tillamook, Netarts, Brickyard
Road and Wilson River, service their own towns and neighboring communities.
The largest of the Tillamook Systems' headends is located in Nehalem. The
Nehalem system passes 6,197 homes with 129.9 plant miles (47.7 homes per mile)
of which 102.1 miles (78.6%) are aerial and 27.8 miles (21.4%) are underground.
Nehalem provides service to 4,608 customers or 27.2% of the Systems' total
subscribers. Nehalem was rebuilt in 1986 and currently is designed to 330 MHz
capacity.
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Netarts, Brickyard Road and Wilson River were all built in the 1960's and
operate at 270 MHz capacity. The Tillamook headend was built in 1958 and given
an electronics upgrade in 1983. It is operating at 330 MHz channel capacity.
A complete rebuild was begun in October of 1995 to consolidate and upgrade the
five headends comprising the Tillamook Systems into one central headend to be
located in Tillamook. The rebuild will be completed by the end of 1996. The
rebuild is being engineered at 750 MHz using a fiber to feeder design. The
majority of the new plant will be underground at a cost of $22,500 per mile and
any aerial additions will cost $16,500 per mile. All of the rebuilt areas will
become addressable. The rebuild will be instrumental in allowing Falcon to
increase rates while offering additional services and increasing penetrations.
It will also correct the leakage problems dominant in the Tillamook systems. The
completed Tillamook system will be built to 500 homes per node. Nehalem will be
interconnected by March 1996 and Wilson River by May 1996.
Dallas Systems
The headend in Dallas feeds Monmouth via a seven mile fiber run, and Falls City
and Jefferson through fiber to microwave hops. The Dallas system is the Region's
largest providing service to 6,684 customers or 39.5% of the Systems' total
subscriber base. The headend was built in 1987 and upgraded in 1995 with 750 MHz
fiber plant. The coaxial plant is currently operating at 330 MHz. The Dallas
system passes 9,034 homes with 157.7 miles of plant (57.3 homes per mile) of
which 120.2 miles (76.2%) are aerial and 37.5 miles (23.8%) are underground.
The Dallas and Silverton systems are building line extensions at 330 MHz at a
cost of $10,500 per mile for aerial and $18,500 per mile for underground with
the majority built in conduit.
CLI testing is ongoing in all of the Systems, and all systems have passed the
FCC proof of performance tests. A complete audit of the Systems was conducted
three years ago.
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RATES/CHANNELS
The Systems offer various amounts of programming from a five channel basic
package in Wilson River to 40 channels of service in all of the Dallas Systems'
franchises. The Systems rate and channel line-ups vary slightly by system due to
technical capacities and franchise and retransmission/must- carry issues. They
generally offer a basic service composed of a variety of Portland and Vancouver,
Washington off-air signals, a tier package, a satellite package, up to seven pay
services (pay services available include Cinemax, The Disney Channel, HBO, The
Movie Channel, Showtime, Playboy and Encore), and one channel of pay-per-view
(Request 1) in all of the addressable systems. The following table lists rates
for the three packages of service and the number of basic and pay channels being
offered.
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SERVICE RATE SUMMARY
BASIC TIER SATELLITE TOTAL PAY
FRANCHISE RATE RATE RATE CHANNELS CHANNELS
- --------- ---- ---- ---- -------- --------
Bay City $14.58 $7.56 $5.18 34 7
Brickyard Road 17.23 0.00 0.00 18 2
Cannon Beach 13.91 8.39 5.18 34 7
Clatsop County 15.68 10.97 5.18 40 10
Dallas 17.00 5.70 6.40 40 7
Falls City 16.59 5.24 5.94 40 7
Garibaldi 14.43 7.71 5.18 34 7
Independence 16.76 5.22 6.40 40 7
Jefferson 17.99 4.38 5.93 40 7
Manzanita 14.60 8.57 5.18 34 7
Marion County 18.39 3.91 5.94 40 7
Monmouth 16.87 5.20 6.40 40 7
Mt. Angel 18.14 4.97 6.40 37 7
Nehalem 15.85 8.26 5.18 34 7
Netarts/Oceanside 17.23 0.00 0.00 18 2
Polk County 18.01 5.64 5.93 40 7
Rockaway Beach 14.43 7.49 5.18 34 7
Silverton 18.70 5.06 6.40 37 7
Tillamook 19.04 5.47 2.42 29 5
Tillamook Co. (Tillamook) 20.16 4.45 2.42 29 5
Tillamook Co. (Nehalem) 15.24 9.07 5.18 34 7
Wheeler 15.85 7.15 5.18 34 7
Wilson River 10.00 0.00 0.00 5 0
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Rates vary from $10.00 to $20.16 for basic, $3.91 to $9.07 for the tier package
and $2.30 to 5.95 for the satellite package. Only the franchising authorities in
Dallas, Monmouth, Independence and Silverton have certified.
The Systems have 6,768 addressable subscribers and generated a 5.3% average buy
rate in 1995.
OPERATIONS OVERVIEW
The Dallas Region is operated from a Company-owned and centrally located
facility in Dallas. The Dallas facility serves as the office, warehouse and
technical center for the entire Region. The office is open for walk-in payments,
customer service and inquiries. The office utilizes a PC-based CSG billing
system under a master contract through Falcon. The Dallas office is staffed by a
total of 11 workers including: a System Manager, an Office Manager, an Engineer,
a Lead Technician, 1 Technician, 2 Installers, 1 Dispatcher, 2 Customer Service
Representatives ("CSRs") and 1 Advertising Salesperson. Additional full-time
offices are located in Tillamook, Nehalem and Silverton and one part-time office
is located in Garibaldi. The Tillamook office is operated under an Office
Manager, a Technical Supervisor, 2 CSRs and 4 Installer/Technicians. Each of the
Nehalem and Garibaldi offices are run by a CSR, while the Silverton office is
staffed by 2 CSRs. The Tillamook Systems' customers can receive service by
calling an 800 telephone number which rings in Tillamook. None of the employees
are covered by collective bargaining agreements, nor has there been any
organized effort to unionize.
MANAGEMENT FEES
Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of
total revenues. For the purposes of this appraisal, system cash flow was
determined prior to the Management Fee. Each region was then charged a
reimbursement of partnership expenses of 5.73% of total revenues. This charge is
comprised of reimbursed partnership expenses and miscellaneous charges. The
reimbursed partnership expense was calculated as 3.73% of total revenues. In
FY1995 the Gilroy
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Region was charged $1,980,591 (3.73% of Partnership Revenues of $52.9 million)
as Reimbursed Expense under Partnership Expense which discussions with Falcon
management confirmed represented expenses of the entire Company and should be
allocated accordingly. An additional 2% of revenues was added to each Region's
Unallocated Partnership expense to account for miscellaneous services and
support provided by the general partner of Falcon Cable Systems Company
including management, financial, programming, billing, marketing, legal,
programming and other services and discounts.
COMPETITION & POTENTIAL ACQUIRORS
The Systems are not currently overbuilt by any other franchised cable operator,
nor are there any nearby MMDS or SMATV operators. The Systems have experienced
minimal DBS subscriber erosion and non-cable customers can only receive off-airs
from Eugene or Portland. Franchise relations with all of the authorities have
been excellent to date.
The Systems are surrounded by either TCI systems or other Falcon partnerships.
Opportunities do exist to tie the northern Tillamook area into Falcon's Astoria
system, and the southern Tillamook area into Falcon's Lincoln City System.
SUMMARY
The Dallas Region experienced strong growth over the last three years, but this
growth appears to have slowed down in 1995. Homes passed growth fell to 1.8% in
1995 and basic subscriber growth was 3.3%. The Region has built plant in all
existing locations where economically feasible and basic penetration has climbed
to an above average 71%. This growth is projected to slow down, especially
penetration growth, as the market is saturated.
The Tillamook portion of the plant will undergo a rebuild in 1996 to 750 MHz and
the remainder of the Dallas systems will require a rebuild in the near future to
compete effectively and to relieve
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DALLAS REGION
channel lock.
In the event of a sale, the likely acquirers of the Systems would be either
Falcon or TCI. An analysis of the neighboring operators indicates that Falcon
and TCI are the only operators close enough to permit any consolidation
opportunity and economies of scale. This would severely hamper any marketing
effort. In addition, the Systems are comprised of two clusters over 75 miles
apart effectively diluting a purchase price premium that could be generated from
selling a 17,000 subscriber cluster. The Region's operating margin of over 60%
while impressive, is well in excess of industry averages and would most likely
be discounted by a potential acquior.
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COOS BAY REGION
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COOS BAY REGION
INTRODUCTION
The Coos Bay Region ("Coos Bay" or the "Region") is composed of eight cable
television systems (the "Systems") along the central Oregon coast just southwest
of Eugene in the communities of Mapleton and Florence (the "Florence Systems"),
and Reedsport, Coos Bay, Coquille, Myrtle Point, Bandon and Powers (the "Coos
Bay Systems"). The Systems are serviced through a regional office in Coos Bay
and smaller offices in outlying areas. The following map indicates the location
of the Coos Bay Region within the state of Oregon.
[Map of Region]
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[CHART 1 Omitted]
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TABLE 1:
HISTORICAL SUBSCRIBER SUMMARY
(Fiscal Years Ended December 31)
1993 1994 1995
---- ---- ----
Homes Passed 30,526 31,078 31,489
Basic Subscribers 21,439 21,767 21,847
% Penetration 70.2% 70.0% 69.4%
Pay Units 7,551 8,624 7,771
% Penetration 35.2% 39.6% 35.6%
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[CHART 2 Omitted]
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TABLE 2:
HISTORICAL FINANCIAL SUMMARY
(Fiscal Years Ended December 31)
($ in thousands) 1993 1994 1995
---- ---- ----
Revenues $8,090 $8,354 $8,633
Expenses 3,508 3,703 3,886
System Cash Flow $4,591 $4,651 $4,747
% Margin 56.7% 55.7% 55.0%
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COOS BAY REGION
As of December 31, 1995, the Systems passed 31,489 homes with 580 miles of plant
(54 homes per mile) and served 21,847 basic subscribers (69.4% basic
penetration) who subscribed to 7,771 pay units (35.6% pay penetration). Revenue
and system cash flow for the fiscal year ended December 31, 1995 were $8,632,868
and $4,746,505, respectively (55.0% margin). The charts and tables on the
preceding pages, depict the operating and financial performance of the Systems
over the last three years.
The Systems have been increasing homes passed at a 1.6% compound annual growth
rate over the period from 1993 to 1995. Over the same period, basic subscribers
increased at a 1% compound annual rate and basic penetration hovered at 70%
indicating the market reached saturation. Pay subscription spiked to 39% in
1994, from 35% in 1993, but retreated to 35% in 1995.
Revenue and cash flow increased at a 3.3% and 1.6% compound annual growth rate,
respectively, between 1993 and 1995. The slow cash flow growth resulted in the
operating margin declining from 56% in 1993 to 55% in 1995.
MARKET OVERVIEW
Coos Bay's port has helped the city to become a major exporter of lumber and to
develop a strong fishing industry. The city has numerous businesses and is also
a common retirement area. Nearby Bandon conducts a strong tourist trade. Bandon
has a large cranberry industry and is also home to many retirees. Coquille is
the county seat and is home to many Coos Bay commuters. It has a modest lumber
industry and some retirees. These three towns are all experiencing slow growth.
TECHNICAL SUMMARY
The Coos Bay Region's eight cable systems consist of 580 miles of plant,
consisting of 485 (84%) miles are of aerial construction and 95 (16%) are
underground construction.
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The largest system in Coos Bay recently underwent a complete rebuild, including
electronics and drops, in 1993 to 450 MHz using a fiber to feeder design. To
date, a total of 235 miles of plant have been rebuilt. The rebuild included a 16
node fiber run to Hauser which previously operated as a stand-alone headend.
There is an ongoing plan to replace old drops in the Coos Bay Region. Coos Bay
represents the majority of the Region's total customers.
The remaining headends comprising the Coos Bay Systems are Reedsport, Coquille,
Myrtle Point, Bandon and Powers. Reedsport was constructed in 1971 to 270 MHz
and last underwent an electronics upgrade in 1985. A former stand alone headend
in Gardiner was fiber connected to Reedsport in 1993. The Coquille headend
underwent a complete coax rebuild in 1992 to 61 channels and 450 MHz capacity.
Myrtle Point was constructed in 1970 as a 300 MHz system. Myrtle Point shares
its headend site with Coquille as well as some of its electronics. Myrtle Point
is tied into the headends with fiber. Powers is a 300 MHz system built in 1980.
Bandon, originally constructed in 1980, underwent an electronics upgrade in 1992
and now is designed to 450 MHz.
There are plans underway to tie the Bandon headend into the Coos Bay system with
AML microwave or fiber, and then Coquille via a 25 mile fiber run. Myrtle Point
and Reedsport also are potential interconnect candidates to the Coos Bay system,
however, both will need to be rebuilt to handle the additional channel capacity.
The Reedsport system is only a six mile fiber run from Hauser in the Coos Bay
system and Myrtle Point is already partially connected to the Coquille system.
A rebuild of the Florence system was completed in 1993. It included a new
headend and the replacement of all drops, trunks and feeder. The system was
originally operating at 450 MHz and the rebuild was spaced at 450 MHz but could
be upgraded to 550 MHz with a module changeout. All rebuild completed in the
last 9 months was spaced to 750 MHz. Currently the system has 1,500 addressable
converters in the field. Florence, due to its channel capacity and other revenue
generating sources, has the highest revenue per subscriber in the Company.
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Mapleton is a small headend that completes the Florence Systems and operates at
300 MHz capacity. The Florence Systems previously operated autonomously, but
joined the Coos Bay Region on January 1, 1996.
The five channels of pay-per-view available from the Coos Bay and Florence
headends, have been very successful in the addressable homes with over half of
the region's subscribers having addressable converters. Buy rates for the
addressable customers in 1995 averaged 31% in Coos Bay and 22% in Florence. The
addressable converters are also required for the premium channels and the
satellite packages.
OPERATIONS OVERVIEW
The Coos Bay Region is operated out of a regional office in Coos Bay, an office
in Florence, and a satellite office in Reedsport. The offices are owned and also
house the headends for those systems. The office in Coos Bay is staffed by a
System Manager, an Office Manager, a Chief Technician, 4 Technicians, 4
Installers, 6 Customer Service Representatives ("CSRs"), and 2 Advertising
Executives. The Florence office employs a Lead Technician, a Technician, an
Installer, 2 CSRs, and 1 part-time CSR. The Reedsport office staffs 1 CSR and 1
technician. The Coos Bay office utilizes a PC-based CSG billing system that is
received via satellite under a master contract through Falcon.
Advertising revenue is growing from the ad insertions underway on five channels
in the Coos Bay Systems and 6 channels in Florence. The Coos Bay service area
has the option of subscribing to the Sega Channel, an additional source of
revenue for the Company.
Marketing takes the form of telemarketing and twice yearly non-subscriber
promotions. Door-to- door sales are contracted out of house.
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RATES/CHANNELS
The Systems offer various amounts of programming from 20 channels in the Lane
County (Mapleton) franchise to 61 channels of service in the Coos Bay, North
Bend and Hauser franchises. The Systems' rate and channel line-ups vary slightly
by system due to technical capacities and franchise and
retransmission/must-carry issues. The following table lists rates for the three
packages of service and the number of basic and pay channels being offered.
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SERVICE RATE SUMMARY
BASIC TIER SATELLITE 1 SATELLITE 2 TOTAL PAY
FRANCHISE RATE RATE RATE RATE CHANNELS CHANNELS
- --------- ---- ---- ---- ---- -------- --------
Bandon $17.61 $2.74 $3.96 N/A 37 4
Coos Bay 17.42 5.80 6.00 $5.00 61 7
Coos Co. (Bandon) 19.95 3.89 3.96 N/A 37 4
Coos Co. (Coos Bay/N. Bend) 17.32 5.60 6.00 5.00 61 7
Coos Co. (Coquille) 17.48 3.98 3.55 N/A 37 4
Coos Co. (Myrtle Point) 20.19 1.54 4.41 N/A 36 5
Coos Co. (Powers) 15.18 3.89 3.30 N/A 23 2
Coos Co. (Winchester Bay) 23.44 1.85 3.33 N/A 35 5
Coquille 17.38 3.97 3.55 N/A 37 4
Dunes City 25.87 5.02 3.50 4.50 56 6
Florence 25.87 4.99 3.50 4.50 56 6
Gardiner 23.20 1.46 3.33 N/A 35 5
Hauser 18.89 4.48 6.00 5.00 61 7
Lakeside 22.95 2.25 3.33 N/A 35 5
Lane Co. (Florence) 25.87 3.45 3.50 4.50 56 6
Lane Co. (Mapleton) 14.01 1.73 2.17 N/A 17 2
Myrtle Point 20.19 1.54 4.41 N/A 36 5
North Bend 17.62 5.64 6.00 5.00 61 7
Powers 17.00 2.45 3.30 N/A 23 2
Reedsport 23.20 2.44 3.33 N/A 35 5
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The Systems generally offer a basic service composed of a variety of Eugene,
Coos Bay, Portland, Medford and Corvallis off-air signals, a tier package, up to
two satellite packages, up to seven pay services (pay services available include
Cinemax, The Disney Channel, HBO, The Movie Channel, Showtime, Playboy, Encore
and Sega), and five channels of pay-per-view (Request 1 and 4, Spice,
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Action and Viewer's Choice) in all of the addressable systems.
Rates vary from $14.01 to $25.87 for basic, $1.46 to $5.80 for the tier package,
$2.17 to 6.00 for the satellite package 1 and $4.50 or $5.00 for satellite
package 2. The relations with the franchising authorities are good.
MANAGEMENT FEES
Falcon Cable charges Falcon Cable Systems Company a Management Fee of 5.0% of
total revenues. For the purposes of this appraisal, system cash flow was
determined prior to the Management Fee. Each region was then charged a
reimbursement of partnership expenses of 5.73% of total revenues. This charge is
comprised of reimbursed partnership expenses and miscellaneous charges. The
reimbursed partnership expense was calculated as 3.73% of total revenues. In
FY1995 the Gilroy Region was charged $1,980,591 (3.73% of Partnership Revenues
of $52.9 million) as Reimbursed Expense under Partnership Expense which
discussions with Falcon management confirmed represented expenses of the entire
Company and should be allocated accordingly. An additional 2% of revenues was
added to each Region's Unallocated Partnership expense to account for
miscellaneous services and support provided by the general partner of Falcon
Cable Systems Company including management, financial, programming, billing,
marketing, legal, programming and other services and discounts.
COMPETITION & POTENTIAL ACQUIRORS OVERVIEW
The Systems are beginning to see a strong influx of DBS, C-Band, Primestar and
DirecTV satellite dishes in the area. They are not currently overbuilt by any
other franchised cable operator, nor are there any MMDS or SMATV operators.
Non-cable customers can receive off-airs from locally originated NBC and CBS
stations in Coos Bay, and Eugene based FOX and ABC stations from translators in
Coos Bay.
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COOS BAY REGION
The Systems are surrounded by either TCI systems or other Falcon partnerships,
with very minimal local, single system operators. An opportunity exists to
acquire a nearby 130 subscriber system in Green Acres.
SUMMARY
The Coos Bay Region is composed of extremely attractive cable systems. Homes
passed growth is expected to continue at rates fairly consistent with historical
trends, and subscriber growth will be fueled by homes passed growth and modest
increases in penetration above the current 69%.
The majority of the Systems have been rebuilt and headends have been
interconnected via fiber trunk, which has also been used to reduce cascades in
the last few years. The exceptions are Reedsport and Gardiner which need to be
rebuilt immediately. To date, the rebuilds have been to 450 MHz limiting channel
availability in the future and requiring updating to compete with digital
mega-channel capacity competitors.
As noted above, the only nearby operators are Falcon and TCI. The entire Region
hugs the Oregon coastline and is fairly remote from other major population
centers. The opportunity for a buyer to acquire the Coos Bay Region would not
include the opportunity to build a significant cluster in the Region and would
reduce the pool of likely buyers which would be reflected in the sales price for
the Region.
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DISCOUNTED CASH FLOW ANALYSIS BY REGION
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DISCOUNTED CASH FLOW ANALYSIS
INTRODUCTION
A discounted cash flow ("DCF") approach was utilized to value Falcon because the
DCF measures the current value of an investment as the present value of its
future economic benefits such as earnings, cost savings, and proceeds from
disposition.
DCF models were developed for each of the regions (the "Regions") to value
Falcon. To arrive at system cash flow, operating expenses were deducted from
projected revenues. Cash flows recorded on the balance sheet (capital
expenditures) were subtracted from system cash flow to determine debt free net
cash flow. In addition, we incorporated our estimates of long-term growth,
discount rate and other factors. Our DCF analysis yielded the value of Falcon's
aggregate assets, as of December 31, 1995.
INCOME STATEMENT SUMMARY
Homes Passed and Subscriber Revenues
HOMES PASSED:
Homes passed growth was projected on a by-Region basis based on a combination of
trailing homes passed growth, economic variables, future prospects and unserved
areas reachable by existing plant. This analysis resulted in homes passed growth
ranging from .8% to 1.7% per annum depending on the Region.
BASIC/EXPANDED TIER:
Basic and expanded basic service were combined, in order to evaluate these
rates. Basic/Expanded Tier reflects the subscribers for the most penetrated
service in the region's rate package. Subscriber growth was based on a
combination of factors including the region's demographics, current
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penetration, historical trends, availability of off-air signals, current rates,
service offerings, and technical quality of the system plant.
NEW PRODUCT TIER:
The New Product Tier was projected according to historical trends, system
demographics, quality of service and overall penetration. There can be no
assurance that the Regions' will continue to offer a New Product Tier Service,
however, it is assumed that if the service is canceled it would be rolled into a
different package in a revenue neutral manner.
PAY SUBSCRIBERS:
Subscriber growth was based on a combination of factors including the Regions'
demographics, current penetration, historical trends, availability of off-air
signals, other entertainment alternatives, rates, service offerings, and
technical quality of the system plant. Pay subscription for the Systems has been
tending downward. This was projected to stabilize then grow slightly over time
as the Systems were rebuilt and were able to expand channel options and offer
multi-plexing.
MINI-PAY:
Mini Pay subscribers were projected according to historical trends, system
demographics, quality of service and overall penetration. There can be no
assurance that the Regions will continue to offer a Mini-Pay, however it is
assumed that if the service is canceled it would be rolled into a different
package in a revenue neutral manner.
Service Rates
BASIC REVENUE & TIER/SUB/MONTH:
For the purposes of this analysis, the basic and tier revenue were combined and
analyzed against the number of basic subscribers. Basic revenue includes Primary
1st Outlet, Primary Commercial,
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DISCOUNTED CASH FLOW ANALYSIS
Expanded Tier and Al Tier as defined in Falcon's unaudited financial
presentation. This method was used because there were over 80 separate channel
line-ups and rates cards utilized by the Company with wide discrepancies within
regions. Rate growth was projected after considering current rates and a
combination of factors including the region's demographics, current penetration,
historical trends, availability of off-air signals, service offerings, and
technical quality of the system plant.
NPT REVENUE/SUB/MONTH:
NPT Revenue/Sub/Month was determined by averaging total NPT Revenue over total
NPT subscribers in a given Region. However, each Region had differences within
its various systems in rates and offerings. Growth in averaged revenue was
determined by considering current rates and a combination of factors including
the Region's demographics, current penetration, historical trends, service
offerings, and technical quality of the system plant.
PAY REVENUE/SUB/MONTH:
Pay Revenue/Sub/Month was determined be averaging total Pay Revenue over total
Pay Subscribers in a given Region. Each Region had differences within its
various systems in rates and offerings. Growth in average rates was determined
by considering current rates and a combination of factors including the Region's
demographics, current penetration, historical trends, service offerings, and
technical quality of the system plant.
MINI-PAY REVENUE/SUB/MONTH:
Mini-Pay Revenue/Sub/Month was determined be averaging total Mini-Pay Revenue
over total Mini-Pay subscribers in a given Region. Each Region had differences
within its various systems in rates and offerings. Growth in average revenue was
determined by considering current rates and a combination of factors including
the Region's demographics, current penetration, historical trends, availability
of off-air signals, service offerings, and technical quality of the system
plant.
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PPV REV/SUB/MONTH:
PPV Rev/Sub/Month was determined by dividing PPV Revenue by Basic Subscribers
and allocating the revenue on a per subscriber (whether or not addressable)
basis. Each Region was composed of varying demographics which were averaged over
the ten year projections It is assumed that significant capital would be
allocated to rebuilding the Systems over the term creating the subsequent
availability of PPV to all subscribers. Therefore, the allocation of revenue
over the entire subscriber base would reflect the average revenue generated by
PPV over the term of the projections. Each of the Regions was individually
analyzed and factors including demographics, and other services was considered
when determining the revenue growth.
OTHER REVENUE/SUB/MONTH:
Other Revenue/Sub/Month was determined by dividing total other revenues by the
number of basic subscribers. Other Revenue includes Radio Services, Primary
Additional Outlet, Remote Control, Converter Rental, Other-VCR, Maintenance
Contracts, New Customer-Pay Installs, New Customer Basic Installs, Installs-Non
New Customers, Guide Revenues, Other-Late Charges, Other-Franchise Pass Thru,
FCC User Fees Pass Through, QVC Monthly Commission, QVC Carriage Payment,
Classified Ads and Ad Insertions Sales as allocated in Falcon's unaudited
financial presentation.
Operating Expenses
Revenues were reduced by the following expenses in order to determine system
cash flow:
TECHNICAL:
Technical Expenses were determined by dividing 1995 Technical Expense by the
number of Basic Subscribers in the Region to determine Technical Expenses per
Basic Subscribers. This number was then increased by an inflation factor and
multiplied by year-end subscribers in the Region.
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PRODUCTION AND LOCAL ORIGINATION:
Production and Local Origination expense was allocated only in the Coos Bay and
Dallas Regions. This expense was projected based on its 1995 percentage of
revenue, and applied throughout the projection period.
ADVERTISING:
Advertising Expense was determined by applying 1995's Advertising Expenses as a
percentage of total revenues. This percentage was utilized throughout the
projection period.
MARKETING:
Marketing Expense was determined by dividing 1995 Marketing Expense by Region by
the number of Basic Subscribers in the Region to determine a marketing
coefficient which was then increased by an inflation factor and multiplied by
year-end subscribers in the Region.
GENERAL AND ADMINISTRATIVE:
General and Administrative Expenses were determined by dividing 1995 General and
Administrative Expense by Region by the number of Basic Subscribers in the
Region to determine a general and administrative coefficient which was then
increased by an inflation factor and multiplied by year-end subscribers in the
Region.
PROGRAMMING:
Programming Expenses was determined by calculating the programming operating
margin as a percent of total "service only" revenues. That margin was then
applied to programming revenue in the applicable year.
UNALLOCATED PARTNERSHIP:
Unallocated Partnership Expenses were calculated as 5.073% of total revenues.
This percent was
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DISCOUNTED CASH FLOW ANALYSIS
calculated by allocating the Partnership Expenses which accrue in the Gilroy
Region financial presentation ($1.9 million) prepared by Falcon, which Falcon
management confirmed represented expenses of the entire Company. This line item
represented 3.073% of total revenue. This expense was allocated to each Region.
An additional 2.0% was added to each Region's Unallocated Partnership expense to
account for miscellaneous services provided by the General Partner which are not
allocated including management, financial, programming, billing, marketing,
legal, programming and other services and discounts.
CAPITAL EXPENDITURE SUMMARY
System cash flow was then reduced by capital expenditures to determine debt free
net cash flow.
Capital Expenditures can be segregated into three categories; maintenance,
growth and rebuild. Maintenance capital is defined as normal and ordinary
capital expenditures required to maintain the cable plant and headend in normal
working condition. Capital expenditures are also required in order to expand the
size of existing plant to pass new homes. The Falcon systems also need
significant capital to rebuild and upgrade existing plant. On average the Falcon
systems have 41 channels of capacity which is nearly fully allocated. In order
to increase service rates or add new services Falcon will have to rebuild the
majority of its systems.
Over the period from 1993 through 1995, the Partnership delayed a number of
rebuild and upgrade projects because of uncertainty related to the reregulation
of the cable industry and in addition the Partnership's limited access to
capital. The result of these delays was that the Systems are less technically
advanced than many comparable cable systems. The Systems are in need of a major
capital influx to upgrade its facilities so as to renew franchises, remain
competitive against overbuilds, MMDS and DTH providers and to implement of
services which will add incremental revenues. In addition, the technical
deficiencies of the plant have limited channel capacity and hampered rate
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DISCOUNTED CASH FLOW ANALYSIS
increases.
The DCF analysis assumed a buyer with sufficient liquidity would begin a program
of rebuilds and upgrades, focusing on the most deficient systems and then moving
to upgrade the higher technical quality systems in later years.
TERMINAL VALUE
The valuation model utilized an exit multiple (which was applied to the 10th
year's cash flow) thereby assuming a sale of the Systems at the end of the DCF
projection period. The exit multiple utilized for all of the Regions' was 9.0x
with the exception of Central Oregon for which an 8.75x multiple was applied.
The exit multiple was determined after analyzing current and projected
demographics, growth prospects, the technical condition of the Systems at the
time of sale and projected operating margins. This was then offset against the
number of logical buyers for Systems with the above characteristics, the amount
of consolidation that has already occurred in the Regions' general market and
comparable system sales in the previous twelve months.
COMPARABLE SYSTEMS SALES
The Falcon systems have 135,000 subscribers operating as seven regions with an
average of 19,300 subscribers per region. The Regions are all located on the
west coast, from southern California to northern Oregon. While a 135,000
subscriber company is attractive, the geographic spread (approximately 850
miles) of the Systems would reduce their attractiveness to any one buyer and
would most likely be packaged for sale by Region. For a comparable system sale
analysis, systems of similar size both for the whole company and for the Regions
were incorporated. Comparables were selected for a variety of criteria including
size, multiple locations and ex-urban demographics. The following is a selected
list of comparable transactions completed in 1995.
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DISCOUNTED CASH FLOW ANALYSIS
SELLER BUYER VALUE SUBS VPS CF CF MULT.
- ------ ----- ----- ---- --- -- --------
($000,000) (000) ($000,000)
US Cable V Cable $219.0 252.5 $ 867 $34.2 6.4
Leadership/Ist Carol Adelphia/Olympus 177.9 108.0 1,647 22.0 8.1
Clear Channels Adelphia 122.3 69.2 1,767 15.1 8.1
United Video FrontierVision 120.0 88.0 1,364 13.0 9.2
Donrey Media Group TCA Cable Prtnrs 101.6 60.0 1,693 10.4 9.8
TCI Post-Newsweek 89.0 63.0 1,413 10.9 8.2
Century Rock Associates 84.0 47.0 1,787 8.7 9.7
Douglas Cable Comm. Galaxy Telecom LP 65.5 60.0 1,092 7.8 8.4
WK Communications Classic Cable 65.1 31.0 2,100 6.6 9.8
Mission Cable Classic 57.5 42.6 1,350 7.0 8.3
C-4 Media FrontierVision 44.7 40.4 1,106 5.3 8.5
United Video Classic Cable 37.0 22.4 1,652 3.9 9.5
Friendship Cable Galaxy Telecom 21.0 18.0 1,167 3.0 7.0
Fanch Comm. Leonard Comm. 17.2 12.1 1,421 2.0 8.4
Doulgas Comm. Anderson Pac. Corp. 17.1 16.0 1,069 2.1 8.1
Cable Vid. Enterprises Universal Cab. Comm. 16.0 12.2 1,311 1.9 8.5
American Cable Ent. Classic Cable 13.3 9.8 1,357 1.6 8.5
------ ----- ------ ----- ---
TOTALS/WEIGHTED AVERAGES $1,332 8.2
The comparable system sales analysis yielded an average sales price of $1,322
per subscriber and 8.2x cash flow. This supports and validates the Waller
Capital's analysis which resulted in $1,577 per subscriber and 8.33x operating
cash flow for Falcon Cable Systems Company.
DISCOUNT RATE
The resultant debt-free net cash flow streams and terminal value were discounted
to present value at 13.5%. The discount rate was based on the risk-adjusted
industry Weighted Average Cost of Capital ("WACC"). WACC is an estimate of the
overall rate of return required for an investment by both equity and debt
owners. Determination of the weighted average cost of capital required a
separate analysis of the cost of equity and the cost of debt.
The equity component was determined by using the Capital Asset Pricing Model
("CAPM"). The CAPM incorporates estimates of the risk-free rate for the use of
funds, an equity risk premium, an
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DISCOUNTED CASH FLOW ANALYSIS
industry premium (Beta), as well as the risks inherent with a specific
investment in the Systems. The debt component of the cost of capital was
determined by using the after-tax cost of debt appropriate for the Company.
CONCLUSION
Based on the investigation and analysis outlined in this report, the fair market
value of Falcon's seven regional systems, as of December 31, 1995, were as
follows:
Gilroy $ 57,640,720
Hesperia 28,865,947
San Louis Obispo 21,988,550
Tulare 22,269,159
Coos Bay 35,486,280
Dallas 27,257,132
Central 20,164,654
----------
TOTAL VALUE $213,672,442
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IV. APPENDIX
99
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Falcon Cable TV - Gilroy, California
Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected)
---------------------------------------
Year 1995 1996 1997 1998
Period 0 1 2 3
---------- ---------------------------------------
Operations Statistics
- --------------------------------------
% Growth
--------
Homes Passed: 56,219 57,231 58,175 59,135
% Growth 1.8% 1.7% 1.7%
Basic/Expanded Tier 33,073 33,652 34,323 35,008
% Penetration 58.8% 58.8% 59.0% 59.2%
% Growth - - 1.8% 2.0% 2.0%
New Product Tier (NPT 1) 13,992 14,235 14,519 14,913
% Penetration 42.3% 42.3% 42.3% 42.6%
% Growth - - 1.7% 2.0% 2.7%
Pay 13,010 13,192 13,626 14,073
% Penetration 39.3% 39.2% 39.7% 40.2%
% Growth - - 1.4% 3.3% 3.3%
Mini-Pay 403 404 412 420
% Penetration 1.2% 1.2% 1.2%
% Growth - - 0.2% 2.0% 2.0%
Basic Revenue& Tier/Sub/Month $ 24.36 $ 25.09 $ 25.84 $ 26.61
% Growth - - 3.0% 3.0% 3.0% 3.0%
NPT 1 Revenue/Sub/Month $ 3.90 $ 4.02 $ 4.14 $ 4.26
% Growth - - 3.0% 3.0% 3.0% 3.0%
Pay Revenue/Sub/Month $ 7.87 $ 8.00 $ 8.14 $ 8.28
% Growth - - 1.7% 1.7% 1.7% 1.7%
Mini-Pay Revenue/Sub/Month $ 2.94 $ 2.99 $ 3.05 $ 3.12
% Growth - - 2.0% 2.0% 2.0% 2.0%
PPV Rev/Sub/Month $ 0.34 $ 0.35 $ 0.36 $ 0.37
% Growth 3.0% 3.0% 3.0%
Other Revenue/Sub/Month $ 3.65 $ 3.76 $ 3.87 $ 3.99
% Growth - - 3.0% 3.0% 3.0% 3.0%
FYE 12/31, (Projected)
------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005
4 5 6 7 8 9 10
------------------------------------------------------------------------------------------
Operations Statistics
- --------------------------------
Homes Passed: 60,111 61,103 62,111 63,136 64,177 65,236 66,313
% Growth 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%
Basic/Expanded Tier 35,706 36,417 37,142 37,881 38,635 39,403 40,186
% Penetration 59.4% 59.6% 59.8% 60.0% 60.2% 60.4% 60.6%
% Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
New Product Tier (NPT 1) 15,318 15,732 16,157 16,592 17,038 17,495 17,963
% Penetration 42.9% 43.2% 43.5% 43.8% 44.1% 44.4% 44.7%
% Growth 2.7% 2.7% 2.7% 2.7% 2.7% 2.7% 2.7%
Pay 14,532 15,004 15,488 15,986 16,497 17,022 17,561
% Penetration 40.7% 41.2% 41.7% 42.2% 42.7% 43.2% 43.7%
% Growth 3.3% 3.2% 3.2% 3.2% 3.2% 3.2% 3.2%
Mini-Pay 428 437 446 455 464 473 482
% Penetration 1.2% 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%
% Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Basic Revenue& Tier/Sub/Month $ 27.41 $ 28.24 $ 29.08 $ 29.95 $ 30.85 $ 31.78 $ 32.73
% Growth 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
NPT 1 Revenue/Sub/Month $ 4.39 $ 4.52 $ 4.66 $ 4.80 $ 4.94 $ 5.09 $ 5.24
% Growth 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Pay Revenue/Sub/Month $ 8.42 $ 8.56 $ 8.71 $ 8.85 $ 9.00 $ 9.16 $ 9.31
% Growth 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%
Mini-Pay Revenue/Sub/Month $ 3.18 $ 3.24 $ 3.31 $ 3.37 $ 3.44 $ 3.51 $ 3.58
% Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
PPV Rev/Sub/Month $ 0.38 $ 0.39 $ 0.40 $ 0.41 $ 0.43 $ 0.44 $ 0.45
% Growth 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Other Revenue/Sub/Month $ 4.15 $ 4.31 $ 4.48 $ 4.66 $ 4.85 $ 5.05 $ 5.25
% Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
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Falcon Cable TV - Gilroy, California
Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected)
-------- ---------------------------------------------------------------
Year 1995 1996 1997 1998 1999
Period 0 1 2 3 4
-------- ---------------------------------------------------------------
Income Statement Summary
- ------------------------
Revenues
Basic & Tier $ 9,666,283 $10,130,511 $10,642,671 $11,180,596 $11,745,576
NPT 1 655,057 686,412 721,115 762,936 807,133
Pay 1,228,380 1,266,691 1,330,694 1,397,693 1,467,821
Mini-Pay 14,197 14,510 15,096 15,705 16,339
PPV 133,654 140,073 147,154 154,592 162,404
Other 1,448,122 1,517,669 1,594,396 1,674,984 1,776,708
---------- ----------- ----------- ----------- -----------
Total Revenue 13,145,693 $13,755,867 $14,451,127 $15,186,505 $15,975,980
% Growth -- 4.6% 5.1% 5.1% 5.2%
Expenses:
Adjusted
Technical $ 1,069,936 $ 1,126,764 $ 1,189,475 $ 1,255,662 $ 1,325,516
Production and Local Origination 0 0 0 0 0
Advertising 89,174 93,313 98,029 103,018 108,373
Marketing 284,931 300,065 316,765 334,391 352,994
General and Administrative 2,050,887 2,159,816 2,280,022 2,406,892 2,540,792
Programming 1,999,921 2,092,310 2,198,057 2,310,013 2,427,605
Partnership Expenses 753,248 788,211 828,050 870,187 915,424
---------- ----------- ----------- ----------- -----------
Total Operating Expenses $ 6,248,097 $ 6,560,478 $ 6,910,398 $ 7,280,162 $ 7,670,704
% Growth -- 5.0% 5.3% 5.4% 5.4%
* 1995 Adjusted for Partnership Expenses
U.L.System Cash Flow (EBITDA) $ 6,897,596 $ 7,195,389 $ 7,540,729 $ 7,906,343 $ 8,305,276
% Margin 52.5% 52.3% 52.2% 52.1% 52.0%
% Growth -- 4.3% 4.8% 4.8% 5.0%
Revenue / Subscriber / Month $ 33.12 $ 34.06 $ 35.09 $ 36.15 $ 37.29
SCF / Subscriber / Year $ 208.6 $ 213.8 $ 219.7 $ 225.8 $ 232.6
--------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005
Income Statement Summary 5 6 7 8 9 10
- ------------------------------- --------------------------------------------------------------------------------------
Revenues
Basic & Tier $12,338,965 $12,962,186 $13,616,733 $14,304,174 $15,026,154 $15,784,402
NPT 1 853,839 903,194 955,345 1,010,450 1,068,671 1,130,184
Pay 1,541,218 1,618,029 1,698,404 1,782,502 1,870,487 1,962,530
Mini-Pay 16,997 17,682 18,395 19,136 19,907 20,708
PPV 170,609 179,226 188,276 197,781 207,764 218,248
Other 1,884,589 1,998,997 2,120,328 2,248,998 2,385,449 2,530,152
----------- ----------- ----------- ----------- ----------- -----------
Total Revenue $16,806,216 $17,679,314 $18,597,482 $19,563,041 $20,578,432 $21,646,224
% Growth 5.2% 5.2% 5.2% 5.2% 5.2% 5.2%
Expenses:
Technical $ 1,399,241 $ 1,477,050 $ 1,559,169 $ 1,645,834 $ 1,737,298 $ 1,833,824
Production and Local Origination 0 0 0 0 0 0
Advertising 114,005 119,928 126,156 132,706 139,594 146,837
Marketing 372,627 393,348 415,217 438,296 462,654 488,359
General and Administrative 2,682,110 2,831,257 2,988,664 3,154,787 3,330,107 3,515,132
Programming 2,551,114 2,680,835 2,817,079 2,960,171 3,110,453 3,268,283
Partnership Expenses 962,996 1,013,025 1,065,636 1,120,962 1,179,144 1,240,329
----------- ----------- ----------- ----------- ----------- -----------
Total Operating Expenses $ 8,082,094 $ 8,515,443 $ 8,971,920 $ 9,452,757 $ 9,959,250 $10,492,765
% Growth 5.4% 5.4% 5.4% 5.4% 5.4% 5.4%
* 1995 Adjusted for Partnership Expenses
U.L.System Cash Flow (EBITDA) $ 8,724,122 $ 9,163,871 $ 9,625,562 $10,110,284 $10,619,183 $11,153,459
% Margin 51.9% 51.8% 51.8% 51.7% 51.6% 51.5%
% Growth 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Revenue / Subscriber / Month $ 38.46 $ 39.67 $ 40.91 $ 42.20 $ 43.52 $ 44.89
SCF / Subscriber / Year $ 239.6 $ 246.7 $ 254.1 $ 261.7 $ 269.5 $ 277.5
101
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Falcon Cable TV - Gilroy, California
Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected)
-------- ------------------------------------------------------
Year 1995 1996 1997 1998
Period 0 1 2 3
------------------------------------------------------
Capital Expenditure Analysis
- ------------------------------------------------
System Cash Flow $ 6,897,596 $ 7,195,389 $ 7,540,729 $ 7,906,343
% Growth 4.3% 4.8% 4.8%
Total Capital Expenditures 4,826,776 4,841,563 4,871,729
% of Revenue 35.1% 33.5% 32.1%
Total Capex / Basic Sub $ 143.4 $ 141.1 $ 139.2
- -----------------------------------------------------------------------------------------------------------------------------
Debt Free Cash Flow $ 2,368,613 $ 2,699,166 $ 3,034,614
- -----------------------------------------------------------------------------------------------------------------------------
FYE 12/31, (Projected)
--------------------------------------------------------------------------
1999 2000 2001 2002
4 5 6 7
--------------------------------------------------------------------------
System Cash Flow $ 8,305,276 $ 8,724,122 $ 9,163,871 $ 9,625,562
% Growth 5.0% 5.0% 5.0% 5.0%
Total Capital Expenditures 1,602,472 1,633,801 1,665,727 1,698,263
% of Revenue 10.0% 9.7% 9.4% 9.1%
Total Capex / Basic Sub $ 44.9 $ 44.9 $ 44.8 $ 44.8
- ---------------------------------------------------------------------------------------------------------------------------------
Debt Free Cash Flow $ 6,702,804 $ 7,090,321 $ 7,498,144 $ 7,927,299
- ---------------------------------------------------------------------------------------------------------------------------------
FYE 12/31, (Projected)
------------------------------------------------------
2003 2004 2005
8 9 10
------------------------------------------------------
System Cash Flow $ 10,110,284 $ 10,619,183 $ 11,153,459
% Growth 5.0% 5.0% 5.0%
Total Capital Expenditures 1,731,418 1,765,206 1,799,637
% of Revenue 8.9% 8.6% 8.3%
Total Capex / Basic Sub $ 44.8 $ 44.8 $ 44.8
- -----------------------------------------------------------------------------------------------------------
Debt Free Cash Flow $ 8,378,866 $ 8,853,977 $ 9,353,823
- -----------------------------------------------------------------------------------------------------------
Aggregate Value Value per 1995 Subscriber Multiple of 1995 SCF
- -----------------------------------------------------------------------------------------------------------
FAIR MARKET VALUE $57,640,720 $1,743 8.4
- -----------------------------------------------------------------------------------------------------------
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FALCON CABLE TV - HESPERIA, CALIFORNIA
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (PROJECTED)
---------- ----------------------------------------------
YEAR 1995 1996 1997 1998 1999 2000
PERIOD 0 1 2 3 4 5
- -------------------------------------------------------- ---------- ----------------------------------------------
OPERATIONS STATISTICS
- --------------------------------------------------------
% GROWTH
-------------
Homes Passed: 28,280 28,492 28,731 28,973 29,216 29,462
% Growth 0.8% 0.8% 0.8% 0.8% 0.8%
Basic/Expanded Tier 18,513 18,737 18,995 19,256 19,520 19,787
% Penetration 65.5% 65.8% 66.1% 66.5% 66.8% 67.2%
% Growth -- 1.2% 1.4% 1.4% 1.4% 1.4%
New Product Tier (NPT 1) 8,712 8,825 8,966 9,108 9,253 9,399
% Penetration 47.1% 47.1% 47.2% 47.3% 47.4% 47.5%
% Growth -- 1.3% 1.6% 1.6% 1.6% 1.6%
Pay 8,366 8,469 8,586 8,704 8,921 9,142
% Penetration 45.2% 45.2% 45.2% 45.2% 45.7% 46.2%
% Growth -- 1.2% 1.4% 1.4% 2.5% 2.5%
Mini-Pay 141 150 152 154 351 554
% Penetration 0.8% 0.8% 0.8% 0.8% 1.8% 2.8%
% Growth -- 6.3% 1.4% 1.4% 1.4% 1.4%
Basic Revenue& Tier/Sub/Month $25.60 $26.37 $27.16 $27.97 $28.81 $29.68
% Growth -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
NPT 1 Revenue/Sub/Month $3.21 $3.33 $3.47 $3.61 $3.75 $3.90
% Growth -- 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Pay Revenue/Sub/Month $7.08 $7.22 $7.36 $7.51 $7.66 $7.81
% Growth -- 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Mini-Pay Revenue/Sub/Month $3.44 $3.51 $3.58 $3.65 $3.73 $3.80
% Growth -- 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
PPV Rev/Sub/Month $0.46 $0.48 $0.49 $0.51 $0.54 $0.57
% Growth 3.0% 3.0% 3.0% 6.0% 6.0%
Other Revenue/Sub/Month $4.52 $4.70 $4.89 $5.09 $5.29 $5.50
% Growth -- 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FYE 12/31, (PROJECTED)
------------------------------
YEAR 2001 2002 2003
PERIOD 6 7 8
- -------------------------------------------------------- ------------------------------
OPERATIONS STATISTICS
- --------------------------------------------------------
Homes Passed: 29,709 29,959 30,210
% Growth 0.8% 0.8% 0.8%
Basic/Expanded Tier 20,058 20,331 20,607
% Penetration 67.5% 67.9% 68.2%
% Growth 1.4% 1.4% 1.4%
New Product Tier (NPT 1) 9,547 9,698 9,850
% Penetration 47.6% 47.7% 47.8%
% Growth 1.6% 1.6% 1.6%
Pay 9,367 9,596 9,830
% Penetration 46.7% 47.2% 47.7%
% Growth 2.5% 2.4% 2.4%
Mini-Pay 762 976 1,195
% Penetration 3.8% 4.8% 5.8%
% Growth 1.4% 1.4% 1.4%
Basic Revenue& Tier/Sub/Month $30.57 $31.49 $32.43
% Growth 3.0% 3.0% 3.0%
NPT 1 Revenue/Sub/Month $4.06 $4.22 $4.39
% Growth 4.0% 4.0% 4.0%
Pay Revenue/Sub/Month $7.97 $8.13 $8.29
% Growth 2.0% 2.0% 2.0%
Mini-Pay Revenue/Sub/Month $3.88 $3.96 $4.04
% Growth 2.0% 2.0% 2.0%
PPV Rev/Sub/Month $0.60 $0.64 $0.68
% Growth 6.0% 6.0% 6.0%
Other Revenue/Sub/Month $5.72 $5.95 $6.19
% Growth 4.0% 4.0% 4.0%
FYE 12/31, (PROJECTED)
-------------------
YEAR 2004 2005
PERIOD 9 10
- -------------------------------------------------------- -------------------
OPERATIONS STATISTICS
- --------------------------------------------------------
Homes Passed: 30,464 30,720
% Growth 0.8% 0.8%
Basic/Expanded Tier 20,887 21,170
% Penetration 68.6% 68.9%
% Growth 1.4% 1.4%
New Product Tier (NPT 1) 10,005 10,162
% Penetration 47.9% 48.0%
% Growth 1.6% 1.6%
Pay 10,068 10,310
% Penetration 48.2% 48.7%
% Growth 2.4% 2.4%
Mini-Pay 1,420 1,651
% Penetration 6.8% 7.8%
% Growth 1.4% 1.4%
Basic Revenue& Tier/Sub/Month $33.40 $34.40
% Growth 3.0% 3.0%
NPT 1 Revenue/Sub/Month $4.56 $4.75
% Growth 4.0% 4.0%
Pay Revenue/Sub/Month $8.46 $8.63
% Growth 2.0% 2.0%
Mini-Pay Revenue/Sub/Month $4.12 $4.20
% Growth 2.0% 2.0%
PPV Rev/Sub/Month $0.72 $0.76
% Growth 6.0% 6.0%
Other Revenue/Sub/Month $6.44 $6.69
% Growth 4.0% 4.0%
103
- --------------------------------------------------
W A L L E R C A P I T A L C O R P O R A T I O N
- --------------------------------------------------
FALCON CABLE TV - HESPERIA, CALIFORNIA
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (PROJECTED)
---------- ------------------------------------------------------
Year 1995 1996 1997 1998 1999
Period 0 1 2 3 4
------ ---------- ------------------------------------------------------
INCOME STATEMENT SUMMARY
- -------------------------------------
REVENUES
Basic & Tier $5,687,270 $5,928,869 $6,190,805 $6,464,133 $6,749,341
NPT 1 335,208 353,149 373,122 394,211 416,479
Pay 710,582 733,741 758,719 784,525 820,160
Mini-Pay 5,827 6,319 6,534 6,756 15,718
PPV 102,952 107,325 112,067 117,015 125,736
Other 1,004,759 1,057,611 1,115,058 1,175,592 1,239,378
--------- --------- --------- --------- ---------
TOTAL REVENUE 7,846,598 $8,187,014 $8,556,304 $8,942,232 $9,366,812
% Growth -- 4.3% 4.5% 4.5% 4.7%
EXPENSES: Adjusted
Technical $ 635,589 $ 665,806 $ 698,596 $ 732,980 $769,035
Production and Local Origination 0 0 0 0 0
Advertising 73,173 76,348 79,791 83,390 87,350
Marketing 276,177 289,307 303,555 318,495 334,162
General and Administrative 1,260,508 1,320,434 1,385,464 1,453,655 1,525,161
Programming 1,384,338 1,442,512 1,505,599 1,571,427 1,643,751
Partnership Expenses 449,610 469,116 490,276 512,390 536,718
------- ------- ------- ------- -------
Total Operating Expenses $4,079,395 $4,263,522 $4,463,281 $4,672,338 $4,896,178
% Growth -- 4.5% 4.7% 4.7% 4.8%
* Adjusted for Partnership Expenses
U.L.SYSTEM CASH FLOW (EBITDA) $3,767,203 $3,923,491 $4,093,024 $4,269,895 $4,470,635
% Margin 48.0% 47.9% 47.8% 47.7% 47.7%
% Growth -- 4.1% 4.3% 4.3% 4.7%
Revenue / Subscriber / Month $ 35.32 $ 36.41 $ 37.54 $ 38.70 $ 39.99
SCF / Subscriber / Year $ 203.5 $ 209.4 $ 215.5 $ 221.7 $ 229.0
FYE 12/31, (PROJECTED)
--------------------------------------------------------
2000 2001 2002 2003
5 6 7 8
--------------------------------------------------------
INCOME STATEMENT SUMMARY
- -------------------------------------
REVENUES
Basic & Tier $7,046,939 $7,357,460 $7,681,457 $8,019,508
NPT 1 439,991 464,816 491,026 518,697
Pay 857,288 895,966 936,258 978,226
Mini-Pay 25,280 35,472 46,326 57,873
PPV 135,104 145,166 155,973 167,580
Other 1,306,589 1,377,408 1,452,026 1,530,646
--------- --------- --------- ---------
TOTAL REVENUE $9,811,191 $10,276,288 $10,763,066 $11,272,530
% Growth 4.7% 4.7% 4.7% 4.7%
EXPENSES:
Technical $ 806,842 $ 846,485 $ 888,051 $ 931,634
Production and Local Origination 0 0 0 0
Advertising 91,494 95,831 100,370 105,121
Marketing 350,590 367,816 385,877 404,815
General and Administrative 1,600,140 1,678,759 1,761,194 1,847,628
Programming 1,719,307 1,798,235 1,880,682 1,966,805
Partnership Expenses 562,181 588,831 616,724 645,916
------- ------- ------- -------
Total Operating Expenses $5,130,554 $ 5,375,957 $ 5,632,899 $ 5,901,918
% Growth 4.8% 4.8% 4.8% 4.8%
* Adjusted for Partnership Expenses
U.L.SYSTEM CASH FLOW (EBITDA) $4,680,637 $ 4,900,332 $ 5,130,167 $ 5,370,612
% Margin 47.7% 47.7% 47.7% 47.6%
% Growth 4.7% 4.7% 4.7% 4.7%
Revenue / Subscriber / Month $ 41.32 $ 42.70 $ 44.12 $ 45.58
SCF / Subscriber / Year $ 236.5 $ 244.3 $ 252.3 $ 260.6
FYE 12/31, (PROJECTED)
--------------------------
2004 2005
9 10
--------------------------
INCOME STATEMENT SUMMARY
- -------------------------------------
REVENUES
Basic & Tier $ 8,372,217 $ 8,740,210
NPT 1 547,912 578,754
Pay 1,021,935 1,067,455
Mini-Pay 70,148 83,185
PPV 180,046 193,434
Other 1,613,480 1,700,752
--------- ---------
TOTAL REVENUE $11,805,737 $12,363,790
% Growth 4.7% 4.7%
EXPENSES:
Technical $ 977,330 $ 1,025,240
Production and Local Origination 0 0
Advertising 110,094 115,298
Marketing 424,671 445,489
General and Administrative 1,938,252 2,033,269
Programming 2,056,762 2,150,722
Partnership Expenses 676,469 708,445
------- -------
Total Operating Expenses $ 6,183,577 $ 6,478,463
% Growth 4.8% 4.8%
* Adjusted for Partnership Expenses
U.L.SYSTEM CASH FLOW (EBITDA) $ 5,622,160 $ 5,885,327
% Margin 47.6% 47.6%
% Growth 4.7% 4.7%
Revenue / Subscriber / Month $ 47.10 $ 48.67
SCF / Subscriber / Year $ 269.2 $ 278.0
104
- -------------------------------------------------------------------------------
W A L L E R C A P I T A L C O R P O R A T I O N
- -------------------------------------------------------------------------------
FALCON CABLE TV - HESPERIA, CALIFORNIA
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (PROJECTED)
----------- ---------------------------------------------------
Year 1995 1996 1997 1998 1999
Period 0 1 2 3 4
----------- ---------------------------------------------------
- --------------------------------------------------------------
CAPITAL EXPENDITURE ANALYSIS
- --------------------------------------------------------------
System Cash Flow $3,767,203 $3,923,491 $4,093,024 $4,269,895 $4,470,635
% Growth 4.1% 4.3% 4.3% 4.7%
Total Capital Expenditures 823,481 3,743,300 3,754,439 3,765,707
% of Revenue 10.1% 43.7% 42.0% 40.2%
Total Capex / Basic Sub $43.9 $197.1 $195.0 $192.9
------------------------------------------------------------------------------------------------------------------------------
DEBT FREE CASH FLOW $3,100,010 $349,724 $515,455 $704,928
========== ======== ======== ========
------------------------------------------------------------------------------------------------------------------------------
FYE 12/31, (PROJECTED)
-------------------------------------
2000 2001 2002
5 6 7
-------------------------------------
- ------------------------------------------------------
CAPITAL EXPENDITURE ANALYSIS
- ------------------------------------------------------
System Cash Flow $4,680,637 $4,900,332 $5,130,167
% Growth 4.7% 4.7% 4.7%
Total Capital Expenditures 877,104 888,631 900,289
% of Revenue 8.9% 8.6% 8.4%
Total Capex / Basic Sub $44.3 $44.3 $44.3
------------------------------------------------------------------------------------------
DEBT FREE CASH FLOW $3,803,534 $4,011,701 $4,229,877
========== ========== ==========
------------------------------------------------------------------------------------------
FYE 12/31, (PROJECTED)
--------------------------------------
2003 2004 2005
8 9 10
--------------------------------------
- ------------------------------------------------------
CAPITAL EXPENDITURE ANALYSIS
- ------------------------------------------------------
System Cash Flow $5,370,612 $5,622,160 $5,885,327
% Growth 4.7% 4.7% 4.7%
Total Capital Expenditures 912,081 924,008 936,070
% of Revenue 8.1% 7.8% 7.6%
Total Capex / Basic Sub $44.3 $44.2 $44.2
-------------------------------------------------------------------------------------------
DEBT FREE CASH FLOW $4,458,531 $4,698,153 $4,949,257
========== ========== ==========
-------------------------------------------------------------------------------------------
AGGREGATE VALUE VALUE PER 1995 SUBSCRIBER MULTIPLE OF 1995 SCF
- -----------------------------------------------------------------------------------------------------------------------------
FAIR MARKET VALUE $28,865,947 $1,559 7.7
- -----------------------------------------------------------------------------------------------------------------------------
105
W A L L E R C A P I T A L C O R P O R A T I O N
FALCON CABLE TV - SAN LOUIS OBISPO, CALIFORNIA
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (Projected)
-------- -------------------------------
Year 1995 1996 1997 1998 1999
Period 0 1 2 3 4
------ -------- -------------------------------
Operations Statistics % Growth
- --------------------- --------
Homes Passed: 26,138 26,582 27,034 27,494 27,961
% Growth 1.7% 1.7% 1.7% 1.7%
Basic/Expanded Tier 15,635 16,003 16,418 16,843 17,277
% Penetration 59.8% 60.2% 60.7% 61.3% 61.8%
% Growth -- 2.4% 2.6% 2.6% 2.6%
New Product Tier (NPT 1) 4,466 4,561 4,728 4,901 5,080
% Penetration 28.6% 28.5% 28.8% 29.1% 29.4%
% Growth -- 2.1% 3.7% 3.7% 3.6%
Pay 3,733 3,873 4,104 4,345 4,596
% Penetration 23.9% 24.2% 25.0% 25.8% 26.6%
% Growth -- 3.7% 6.0% 5.9% 5.8%
Mini-Pay 0 0 0 0 0
% Penetration 0.0% 0.0% 0.0% 0.0%
% Growth -- -- -- -- --
Basic Revenue & Tier/
Sub/Month $22.24 $23.22 $24.24 $25.30 $26.42
% Growth -- 4.4% 4.4% 4.4% 4.4% 4.4%
NPT 1 Revenue/Sub/Month $ 3.31 $ 3.44 $ 3.58 $ 3.72 $ 3.87
% Growth -- 4.0% 4.0% 4.0% 4.0% 4.0%
Pay Revenue/Sub/Month $ 9.28 $ 9.47 $ 9.66 $ 9.85 $10.05
% Growth -- 2.0% 2.0% 2.0% 2.0% 2.0%
Mini-Pay Revenue/Sub/Month -- -- -- -- --
% Growth -- -- -- -- -- --
PPV Rev/Sub/Month $ 0.16 $ 0.16 $ 0.17 $ 0.18 $ 0.20
% Growth 3.0% 3.0% 8.0% 8.0%
Other Revenue/Sub/Month $ 4.97 $ 5.17 $ 5.38 $ 5.60 $ 5.82
% Growth -- 4.0% 4.0% 4.0% 4.0% 4.0%
FYE 12/31, (Projected)
-----------------------------------------------
2000 2001 2002 2003 2004 2005
5 6 7 8 9 10
-----------------------------------------------
Operations Statistics
- ---------------------
Homes Passed: 28,437 28,920 29,412 29,912 30,420 30,937
% Growth 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%
Basic/Expanded Tier 17,722 18,176 18,641 19,117 19,603 20,100
% Penetration 62.3% 62.9% 63.4% 63.9% 64.4% 65.0%
% Growth 2.6% 2.6% 2.6% 2.6% 2.5% 2.5%
New Product Tier (NPT 1) 5,263 5,453 5,648 5,850 6,057 6,271
% Penetration 29.7% 30.0% 30.3% 30.6% 30.9% 31.2%
% Growth 3.6% 3.6% 3.6% 3.6% 3.5% 3.5%
Pay 4,856 5,126 5,406 5,697 5,998 6,311
% Penetration 27.4% 28.2% 29.0% 29.8% 30.6% 31.4%
% Growth 5.7% 5.6% 5.5% 5.4% 5.3% 5.2%
Mini-Pay 0 0 0 0 0 0
% Penetration 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
% Growth -- -- -- -- -- --
Basic Revenue & Tier/
Sub/Month $27.58 $28.79 $30.06 $31.38 $32.76 $34.21
% Growth 4.4% 4.4% 4.4% 4.4% 4.4% 4.4%
NPT 1 Revenue/Sub/Month $ 4.03 $ 4.19 $ 4.36 $ 4.53 $ 4.71 $ 4.90
% Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Pay Revenue/Sub/Month $10.25 $10.45 $10.66 $10.87 $11.09 $11.31
% Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Mini-Pay Revenue/Sub/Month -- -- -- -- -- --
% Growth -- -- -- -- -- --
PPV Rev/Sub/Month $ 0.21 $ 0.23 $ 0.25 $ 0.27 $ 0.29 $ 0.31
% Growth 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
Other Revenue/Sub/Month $ 6.05 $ 6.29 $ 6.55 $ 6.81 $ 7.08 $ 7.36
% Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
106
W A L L E R C A P I T A L C O R P O R A T I O N
FALCON CABLE TV - SAN LOUIS OBISPO, CALIFORNIA
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (Projected)
--------- ---------------------------------------------------------------
Year 1995 1996 1997 1998 1999 2000
Period 0 1 2 3 4 5
------ --------- ---------------------------------------------------------------
Income Statement Summary
- ------------------------
Revenues
Basic & Tier $4,172,358 $4,458,348 $4,775,317 $5,114,432 $5,477,218 $5,865,307
NPT 1 177,400 188,410 203,148 218,998 236,042 254,368
Pay 415,739 439,914 475,577 513,565 554,012 597,061
Mini-Pay 0 0 0 0 0 0
PPV 29,828 31,445 33,229 36,816 40,787 45,183
Other 933,229 993,376 1,059,924 1,130,844 1,206,419 1,286,950
--------- --------- --------- --------- --------- ---------
Total Revenue $5,728,554 $6,111,493 $6,547,194 $7,014,654 $7,514,479 $8,048,869
% Growth -- 6.7% 7.1% 7.1% 7.1% 7.1%
Expenses: Adjusted
Technical $627,259 $664,476 $705,582 $749,173 $795,399 $844,414
Production and Local Origination 0 0 0 0 0 0
Advertising 87,515 93,365 100,021 107,163 114,799 122,962
Marketing 226,985 240,453 255,327 271,102 287,829 305,566
General and Administrative 1,099,901 1,165,161 1,237,240 1,313,678 1,394,734 1,480,683
Programming 1,138,066 1,214,767 1,302,500 1,396,342 1,496,711 1,604,049
Partnership Expenses 328,246 350,189 375,154 401,940 430,580 461,200
--------- --------- --------- --------- --------- ---------
Total Operating Expenses $3,507,972 $3,728,410 $3,975,824 $4,239,398 $4,520,051 $4,818,874
% Growth -- 6.3% 6.6% 6.6% 6.6% 6.6%
* Adjusted for Partnership Expenses
U.L.System Cash Flow (EBITDA) $2,220,582 $2,383,083 $2,571,370 $2,775,256 $2,994,428 $3,229,995
% Margin 38.8% 39.0% 39.3% 39.6% 39.8% 40.1%
% Growth -- 7.3% 7.9% 7.9% 7.9% 7.9%
Revenue / Subscriber / Month $30.53 $31.83 $33.23 $34.71 $36.24 $37.85
SCF / Subscriber / Year $142.0 $148.9 $156.6 $164.8 $173.3 $182.3
FYE 12/31, (Projected)
------------------------------------------------------------------
Year 2001 2002 2003 2004 2005
Period 6 7 8 9 10
------ ------------------------------------------------------------------
Income Statement Summary
- ------------------------
Revenues
Basic & Tier $6,280,439 $6,724,476 $7,199,403 $7,707,342 $8,250,560
NPT 1 274,069 295,245 318,003 342,460 368,738
Pay 642,860 691,565 743,343 798,366 856,819
Mini-Pay 0 0 0 0 0
PPV 50,049 55,436 61,398 67,996 75,298
Other 1,372,757 1,464,182 1,561,586 1,665,355 1,775,900
--------- --------- --------- ---------- ----------
Total Revenue $8,620,175 $9,230,903 $9,883,733 $10,581,519 $11,327,314
% Growth 7.1% 7.1% 7.1% 7.1% 7.0%
Expenses:
Technical $896,385 $951,487 $1,009,905 $1,071,837 $1,137,489
Production and Local Origination 0 0 0 0 0
Advertising 131,690 141,020 150,994 161,654 173,047
Marketing 324,373 344,313 365,452 387,863 411,621
General and Administrative 1,571,814 1,668,435 1,770,873 1,879,470 1,994,591
Programming 1,718,830 1,841,561 1,972,780 2,113,064 2,263,026
Partnership Expenses 493,936 528,931 566,338 606,321 649,055
--------- --------- --------- --------- ---------
Total Operating Expenses $5,137,028 $5,475,747 $5,836,342 $6,220,208 $6,628,830
% Growth 6.6% 6.6% 6.6% 6.6% 6.6%
* Adjusted for Partnership Expenses
U.L.System Cash Flow (EBITDA) $3,483,146 $3,755,157 $4,047,391 $4,361,311 $4,698,484
% Margin 40.4% 40.7% 41.0% 41.2% 41.5%
% Growth 7.8% 7.8% 7.8% 7.8% 7.7%
Revenue / Subscriber / Month $39.52 $41.27 $43.09 $44.98 $46.96
SCF / Subscriber / Year $191.6 $201.4 $211.7 $222.5 $231.8
107
W A L L E R C A P I T A L C O R P O R A T I O N
FALCON CABLE TV - SAN LOUIS OBISPO, CALIFORNIA
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (Projected)
--------- -------------------------------------------------------------
Year 1995 1996 1997 1998 1999 2000
Period 0 1 2 3 4 5
------ --------- -------------------------------------------------------------
Capital Expenditure Analysis
- ----------------------------
System Cash Flow $2,220,582 $2,383,083 $2,571,370 $2,775,256 $2,994,428 $3,229,995
% Growth 7.3% 7.9% 7.9% 7.9% 7.9%
Total Capital Expenditures 745,900 2,464,311 2,483,133 802,374 822,043
% of Revenue 12.2% 37.6% 35.4% 10.7% 10.2%
Total Capex / Basic Sub $46.6 $150.1 $147.4 $46.4 $46.4
- -----------------------------------------------------------------------------------------------------------------------------------
Debt Free Cash Flow $1,637,183 $107,059 $292,123 $2,192,054 $2,407,952
- -----------------------------------------------------------------------------------------------------------------------------------
Aggregate Value Value per 1995 Subscriber
- -----------------------------------------------------------------------------------------------------------------------------------
FAIR MARKET VALUE $21,988,550 $1,406
- -----------------------------------------------------------------------------------------------------------------------------------
FYE 12/31, (Projected)
-------------------------------------------------------------------
Year 2001 2002 2003 2004 2005
Period 6 7 8 9 10
------ -------------------------------------------------------------------
Capital Expenditure Analysis
- ----------------------------
System Cash Flow $3,483,146 $3,755,157 $4,047,391 $4,361,311 $4,698,484
% Growth 7.8% 7.8% 7.8% 7.8% 7.7%
Total Capital Expenditures 842,149 862,701 883,708 905,180 927,127
% of Revenue 9.8% 9.3% 8.9% 8.6% 8.2%
Total Capex / Basic Sub $46.3 $46.3 $46.2 $46.2 $46.1
- --------------------------------------------------------------------------------------------------------------------
Debt Free Cash Flow $2,640,998 $2,892,456 $3,163,683 $3,456,131 $3,771,357
- --------------------------------------------------------------------------------------------------------------------
Multiple of 1995 SCF
- --------------------------------------------------------------------------------------------------------------------
FAIR MARKET VALUE 9.9
- --------------------------------------------------------------------------------------------------------------------
108
W A L L E R C A P I T A L C O R P O R A T I O N
Falcon Cable TV - Tulare, California
Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected)
-------- -----------------------------------------------
Year 1995 1996 1997 1998 1999 2000
Period 0 1 2 3 4 5
------ -------- -----------------------------------------------
Operations Statistics % Growth
- --------------------- --------
Homes Passed: 41,053 41,464 41,878 42,297 42,720 43,147
% Growth 1.0% 1.0% 1.0% 1.0% 1.0%
Basic/Expanded Tier 15,249 15,466 15,788 16,115 16,490 16,871
% Penetration 37.1% 37.3% 37.7% 38.1% 38.6% 39.1%
% Growth -- 1.4% 2.1% 2.1% 2.3% 2.3%
New Product Tier (NPT 1) 7,001 7,099 7,247 7,429 7,635 7,845
% Penetration 45.9% 45.9% 45.9% 46.1% 46.3% 46.5%
% Growth -- 1.4% 2.1% 2.5% 2.8% 2.8%
Pay 7,110 7,207 7,389 7,574 7,783 7,997
% Penetration 46.6% 46.6% 46.8% 47.0% 47.2% 47.4%
% Growth -- 1.4% 2.5% 2.5% 2.8% 2.7%
Mini-Pay 0 0 0 0 0 0
% Penetration 0.0% 0.0% 0.0% 0.0% 0.0%
% Growth -- -- -- -- -- --
Basic Revenue& Tier/Sub/Month $22.05 $22.98 $23.96 $24.98 $26.04 $27.15
% Growth -- 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%
NPT 1 Revenue/Sub/Month $5.47 $ 5.63 $ 5.80 $ 5.98 $ 6.16 $ 6.34
% Growth -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Pay Revenue/Sub/Month $7.07 $ 7.28 $ 7.50 $ 7.72 $ 7.96 $ 8.19
% Growth -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Mini-Pay Revenue/Sub/Month $0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
% Growth -- 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PPV Rev/Sub/Month $0.48 $ 0.49 $ 0.51 $ 0.52 $ 0.54 $ 0.56
% Growth 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
Other Revenue/Sub/Month $7.22 $ 7.44 $ 7.66 $ 7.89 $ 8.13 $ 8.37
% Growth -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
-----------------------------------------------
2001 2002 2003 2004 2005
6 7 8 9 10
-----------------------------------------------
Operations Statistics
- ---------------------
Homes Passed: 43,579 44,014 44,455 44,899 45,348
% Growth 1.0% 1.0% 1.0% 1.0% 1.0%
Basic/Expanded Tier 17,257 17,650 18,049 18,454 18,865
% Penetration 39.6% 40.1% 40.6% 41.1% 41.6%
% Growth 2.3% 2.3% 2.3% 2.2% 2.2%
New Product Tier (NPT 1) 8,059 8,278 8,501 8,729 8,961
% Penetration 46.7% 46.9% 47.1% 47.3% 47.5%
% Growth 2.7% 2.7% 2.7% 2.7% 2.7%
Pay 8,214 8,437 8,663 8,895 9,131
% Penetration 47.6% 47.8% 48.0% 48.2% 48.4%
% Growth 2.7% 2.7% 2.7% 2.7% 2.7%
Mini-Pay 0 0 0 0 0
% Penetration 0.0% 0.0% 0.0% 0.0% 0.0%
% Growth -- -- -- -- --
Basic Revenue& Tier/Sub/Month $28.30 $29.50 $30.76 $32.07 $33.43
% Growth 4.3% 4.3% 4.3% 4.3% 4.3%
NPT 1 Revenue/Sub/Month $ 6.53 $ 6.73 $ 6.93 $ 7.14 $ 7.35
% Growth 3.0% 3.0% 3.0% 3.0% 3.0%
Pay Revenue/Sub/Month $ 8.44 $ 8.69 $ 8.95 $ 9.22 $ 9.50
% Growth 3.0% 3.0% 3.0% 3.0% 3.0%
Mini-Pay Revenue/Sub/Month $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
% Growth 0.0% 0.0% 0.0% 0.0% 0.0%
PPV Rev/Sub/Month $ 0.57 $ 0.59 $ 0.61 $ 0.63 $ 0.64
% Growth 3.0% 3.0% 3.0% 3.0% 3.0%
Other Revenue/Sub/Month $ 8.62 $ 8.88 $ 9.15 $ 9.42 $ 9.70
% Growth 3.0% 3.0% 3.0% 3.0% 3.0%
109
WALLER CAPITAL CORPORATION
FALCON CABLE TV - TULARE, CALIFORNIA
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
-------- ---------------------------------------------------------
12/31/95 FYE 12/31, (PROJECTED)
-------- ---------------------------------------------------------
Year 1995 1996 1997 1998 1999
Income Statement Summary Period 0 1 2 3 4
- ---------------------------------------------------------- ---------------------------------------------------------
Revenues
Basic & Tier $4,034,444 $4,265,731 $4,539,661 $4,830,638 $5,153,049
NPT 1 459,527 479,928 504,623 532,841 564,025
Pay 603,044 629,619 664,858 701,977 742,999
Mini-Pay 0 0 0 0 0
PPV 87,677 91,592 96,305 101,249 106,711
Other 1,321,320 1,380,317 1,451,343 1,525,852 1,608,175
--------- ---------- ---------- ---------- ----------
Total Revenue $6,506,012 $6,847,187 $7,256,790 $7,692,557 $8,174,959
% Growth - - 5.2% 6.0% 6.0% 6.3%
Expenses: Adjusted
Technical $634,621 $666,175 $703,854 $743,581 $787,503
Production and Local Origination 0 0 0 0 0
Advertising 122,569 128,997 136,713 144,923 154,011
Marketing 184,260 193,422 204,362 215,896 228,649
General and Administrative 1,116,860 1,172,392 1,238,703 1,308,617 1,385,915
Programming 1,279,191 1,349,026 1,432,816 1,522,239 1,621,276
Partnership Expenses 372,794 392,344 415,814 440,783 468,425
---------- ---------- ---------- ---------- ----------
Total Operating Expenses $3,710,295 $3,902,356 $4,132,262 $4,376,039 $4,645,778
% Growth - - 5.2% 5.9% 5.9% 6.2%
* Adjusted for Partnership Expenses
U.L.System Cash Flow (EBITDA) $2,795,717 $2,944,832 $3,124,528 $3,316,518 $3,529,181
% Margin 43.0% 43.0% 43.1% 43.1% 43.2%
% Growth - - 5.3% 6.1% 6.1% 6.4%
Revenue / Subscriber / Month $35.55 $36.89 $38.30 $39.78 $41.31
SCF / Subscriber / Year $183.3 $190.4 $197.9 $205.8 $214.0
-----------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005
Income Statement Summary 5 6 7 8 9 10
- ----------------------------------------------------------------------------------------------------------------------------------
Revenues
Basic & Tier $5,496,056 $5,860,937 $6,249,045 $6,661,818 $7,100,779 $7,567,544
NPT 1 596,923 631,625 668,226 706,824 747,526 790,440
Pay 786,271 831,913 880,049 930,809 984,330 1,040,756
Mini-Pay 0 0 0 0 0 0
PPV 112,450 118,478 124,808 131,457 138,439 145,770
Other 1,694,655 1,785,494 1,880,902 1,981,100 2,086,319 2,196,802
---------- ---------- ---------- ----------- ----------- -----------
Total Revenue $8,686,356 $9,228,447 $9,803,030 $10,412,008 $11,057,392 $11,741,311
% Growth 6.3% 6.2% 6.2% 6.2% 6.2% 6.2%
Expenses:
Technical $833,880 $882,843 $934,533 $989,095 $1,046,683 $1,107,461
Production and Local Origination 0 0 0 0 0 0
Advertising 163,645 173,858 184,683 196,155 208,314 221,199
Marketing 242,114 256,330 271,338 287,180 303,901 321,548
General and Administrative 1,467,532 1,553,702 1,644,670 1,740,693 1,842,042 1,949,004
Programming 1,726,476 1,838,214 1,956,883 2,082,902 2,216,714 2,358,789
Partnership Expenses 497,728 528,790 561,714 596,608 633,589 672,777
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Expenses $4,931,376 $5,233,737 $5,553,820 $5,892,633 $6,251,243 $6,630,778
% Growth 6.1% 6.1% 6.1% 6.1% 6.1% 6.1%
* Adjusted for Partnership Expenses
U.L.System Cash Flow (EBITDA) $3,754,980 $3,994,709 $4,249,210 $4,519,375 $4,806,149 $5,110,533
% Margin 43.2% 43.3% 43.3% 43.4% 43.5% 43.5%
% Growth 6.4% 6.4% 6.4% 6.4% 6.3% 6.3%
Revenue / Subscriber / Month $42.91 $44.56 $46.28 $48.07 $49.93 $51.87
SCF / Subscriber / Year $222.6 $231.5 $240.8 $250.4 $260.4 $270.9
110
W A L L E R C A P I T A L C O R P O R A T I O N
Falcon Cable TV - Tulare, California
Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected)
--------- ---------------------------------------------------------------
Year 1995 1996 1997 1998 1999 2000
Capital Expenditure Analysis Period 0 1 2 3 4 5
- ---------------------------- ------ --------- ---------------------------------------------------------------
System Cash Flow $2,795,717 $2,944,832 $3,124,528 $3,316,518 $3,529,181 $3,754,980
% Growth 5.3% 6.1% 6.1% 6.4% 6.4%
Total Capital Expenditures 798,598 3,614,122 3,629,877 3,647,787 865,973
% of Revenue 11.7% 49.8% 47.2% 44.6% 10.0%
Total Capex / Basic Sub $51.6 $228.9 $225.2 $221.2 $51.3
Debt Free Cash Flow $2,146,234 $(489,594 ) $(313,359 ) $(118,606 ) $2,889,007
--------------------------------------------------------------
2001 2002 2003 2004 2005
Capital Expenditure Analysis 6 7 8 9 10
- ------------------------------ --------------------------------------------------------------
System Cash Flow $3,994,709 $4,249,210 $4,519,375 $4,806,149 $5,110,533
% Growth 6.4% 6.4% 6.4% 6.3% 6.3%
Total Capital Expenditures 884,438 903,186 922,220 941,544 961,163
% of Revenue 9.6% 9.2% 8.9% 8.5% 8.2%
Total Capex / Basic Sub $51.3 $51.2 $51.1 $51.0 $51.0
Debt Free Cash Flow $3,110,271 $3,346,024 $3,597,155 $3,864,605 $4,149,370
Aggregate Value Value per 1995 Subscriber Multiple of 1995 SCF
- -----------------------------------------------------------------------------------------------------------------
FAIR MARKET VALUE $22,269,159 1,460 8.0
- -----------------------------------------------------------------------------------------------------------------
111
W A L L E R C A P I T A L C O R P O R A T I O N
FALCON CABLE TV - CENTRAL OREGON
Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95
--------
Year 1995
Period 0
Operations Statistics --------
- ---------------------
% Growth
--------
Homes Passed: 26,355
% Growth
Basic/Expanded Tier 14,225
% Penetration 54.0%
% Growth --
New Product Tier (NPT 1) 9,266
% Penetration 65.1%
% Growth --
Pay 5,505
% Penetration 38.7%
% Growth --
Mini-Pay 11
% Penetration 0.1%
% Growth --
Basic Revenue& Tier/Sub/Month $21.16
% Growth -- 4.3%
NPT 1 Revenue/Sub/Month $ 4.19
% Growth -- 4.0%
Pay Revenue/Sub/Month $ 7.96
% Growth -- 2.0%
Mini-Pay Revenue/Sub/Month $ 5.53
% Growth -- 2.0%
PPV Rev/Sub/Month $ 0.08
% Growth
Other Revenue/Sub/Month $ 2.26
% Growth -- 4.0%
FYE 12/31, (Projected)
----------------------------------------------------------------------------------------
Year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Period 1 2 3 4 5 6 7 8 9 10
Operations Statistics ----------------------------------------------------------------------------------------
- ---------------------
Homes Passed: 26,487 26,672 26,859 27,047 27,236 27,427 27,619 27,812 28,007 28,203
% Growth 0.5% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%
Basic/Expanded Tier 14,455 14,690 14,927 15,166 15,409 15,654 15,901 16,152 16,405 16,661
% Penetration 54.6% 55.1% 55.6% 56.1% 56.6% 57.1% 57.6% 58.1% 58.6% 59.1%
% Growth 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6%
New Product Tier (NPT 1) 9,560 9,862 10,171 10,486 10,808 11,136 11,471 11,813 12,162 12,519
% Penetration 66.1% 67.1% 68.1% 69.1% 70.1% 71.1% 72.1% 73.1% 74.1% 75.1%
% Growth 3.2% 3.2% 3.1% 3.1% 3.1% 3.0% 3.0% 3.0% 3.0% 2.9%
Pay 5,594 5,685 5,851 6,021 6,194 6,371 6,551 6,735 6,923 7,114
% Penetration 38.7% 38.7% 39.2% 39.7% 40.2% 40.7% 41.2% 41.7% 42.2% 42.7%
% Growth 1.6% 1.6% 2.9% 2.9% 2.9% 2.9% 2.8% 2.8% 2.8% 2.8%
Mini-Pay 14 15 15 15 15 16 16 16 16 17
% Penetration 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1%
% Growth 31.4% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6% 1.6%
Basic Revenue & Tier/Sub/Month $22.06 $23.00 $23.97 $24.99 $26.05 $27.16 $28.32 $29.52 $30.77 $32.08
% Growth 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%
NPT 1 Revenue/Sub/Month $4.36 $4.53 $4.71 $4.90 $5.10 $5.30 $5.52 $5.74 $5.97 $6.20
% Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Pay Revenue/Sub/Month $8.12 $8.28 $8.45 $8.62 $8.79 $8.97 $9.15 $9.33 $9.52 $9.71
% Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Mini-Pay Revenue/Sub/Month $5.64 $5.75 $5.87 $5.98 $6.10 $6.23 $6.35 $6.48 $6.61 $6.74
% Growth 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
PPV Rev/Sub/Month $0.08 $0.08 $0.08 $0.09 $0.09 $0.10 $0.10 $0.11 $0.12 $0.12
% Growth 3.0% 3.0% 3.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
Other Revenue/Sub/Month $2.35 $2.45 $2.55 $2.70 $2.86 $3.03 $3.21 $3.41 $3.61 $3.83
% Growth 4.0% 4.0% 4.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
112
W A L L E R C A P I T A L C O R P O R A T I O N
FALCON CABLE TV - CENTRAL OREGON
Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected)
-------- ----------------------------------
Year 1995 1996 1997 1998
Period 0 1 2 3
Income Statement Summary ----------------------------------
- ------------------------
Revenues
Basic & Tier $3,611,860 $3,826,258 $4,053,597 $4,294,089
NPT 1 466,060 500,103 536,538 575,452
Pay 526,042 545,247 565,176 593,354
Mini-Pay 730 978 1,014 1,051
PPV 12,829 13,428 14,055 14,710
Other 386,283 408,231 431,450 455,951
---------- ---------- ---------- ----------
Total Revenue $5,003,805 $5,294,245 $5,601,829 $5,934,606
% Growth -- 5.8% 5.8% 5.9%
Expenses: Adjusted
Technical $443,453 $466,396 $490,553 $515,918
Production and Local Origination 0 0 0 0
Advertising 0 0 0 0
Marketing 120,328 126,554 133,108 139,991
General and Administrative 856,767 901,094 947,765 996,772
Programming 868,032 918,533 972,020 1,030,010
Partnership Expenses 286,718 303,360 320,985 340,053
--------- --------- --------- ---------
Total Operating Expenses $2,575,298 $2,715,937 $2,864,432 $3,022,743
% Growth -- 5.5% 5.5% 5.5%
U.L.System Cash Flow (EBITDA) $2,428,507 $2,578,308 $2,737,397 $2,911,863
% Margin 48.5% 48.7% 48.9% 49.1%
% Growth -- 6.2% 6.2% 6.4%
Revenue / Subscriber / Month $29.31 $30.52 $31.78 $33.13
SCF / Subscriber / Year $170.7 $178.4 $186.3 $195.1
FYE 12/31, (Projected)
--------------------------------------------------------------------------------------
Year 1999 2000 2001 2002 2003 2004 2005
Period 4 5 6 7 8 9 10
Income Statement Summary --------------------------------------------------------------------------------------
- ------------------------
Revenues
Basic & Tier $4,548,482 $4,817,562 $5,102,162 $5,403,160 $5,721,483 $6,058,112 $6,414,078
NPT 1 617,005 661,368 708,722 759,257 813,179 870,702 932,057
Pay 622,784 653,519 685,611 719,114 754,088 790,589 828,681
Mini-Pay 1,089 1,129 1,170 1,212 1,256 1,301 1,347
PPV 15,843 17,062 18,374 19,784 21,301 22,933 24,688
Other 491,070 528,851 569,496 613,216 660,244 710,825 765,226
---------- --------- ---------- ---------- ---------- ---------- ----------
Total Revenue $6,296,273 $6,679,491 $7,085,533 $7,515,744 $7,971,550 $8,454,462 $8,966,079
% Growth 6.1% 6.1% 6.1% 6.1% 6.1% 6.1% 6.1%
Expenses:
Technical $ 542,551 $ 570,513 $ 599,869 $ 630,688 $ 663,040 $ 697,000 $ 732,645
Production and Local Origination 0 0 0 0 0 0 0
Advertising 0 0 0 0 0 0 0
Marketing 147,217 154,805 162,770 171,133 179,911 189,126 198,798
General and Administrative 1,048,227 1,102,251 1,158,969 1,218,511 1,281,016 1,346,628 1,415,497
Programming 1,091,354 1,156,243 1,224,877 1,297,468 1,374,241 1,455,432 1,541,291
Partnership Expenses 360,776 382,735 406,001 430,652 456,770 484,441 513,756
--------- --------- --------- --------- --------- --------- ---------
Total Operating Expenses $3,190,126 $3,366,546 $3,552,486 $3,748,452 $3,954,979 $4,172,627 $4,401,988
% Growth 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
U.L.System Cash Flow (EBITDA) $3,106,147 $3,312,945 $3,533,047 $3,767,292 $4,016,572 $4,281,836 $4,564,091
% Margin 49.3% 49.6% 49.9% 50.1% 50.4% 50.6% 50.9%
% Growth 6.7% 6.7% 6.6% 6.6% 6.6% 6.6% 6.6%
Revenue / Subscriber / Month $34.60 $36.12 $37.72 $39.39 $41.13 $42.95 $44.85
SCF / Subscriber / Year $204.8 $215.0 $225.7 $236.9 $248.7 $261.0 $273.9
113
W A L L E R C A P I T A L C O R P O R A T I O N
FALCON CABLE TV - CENTRAL OREGON
Discounted Cash Flow Analysis (000 unless otherwise specified)
12/31/95 FYE 12/31, (Projected)
-------- ---------------------------------------
Year 1995 1996 1997 1998
Period 0 1 2 3
-------- ---------------------------------------
Capital Expenditure Analysis
- ----------------------------
System Cash Flow $2,428,507 $2,578,308 $2,737,397 $2,911,863
% Growth 6.2% 6.2% 6.4%
Total Capital Expenditures 701,160 2,632,342 2,643,512
% of Revenue 13.2% 47.0% 44.5%
Total Capex / Basic Sub $48.5 $179.2 $177.1
Debt Free Cash Flow $1,877,148 $105,055 $268,351
FYE 12/31, (Projected)
----------------------------------------------------------------------------------
Year 1999 2000 2001 2002 2003 2004 2005
Period 4 5 6 7 8 9 10
----------------------------------------------------------------------------------
Capital Expenditure Analysis
- ----------------------------
System Cash Flow $3,106,147 $3,312,945 $3,533,047 $3,767,292 $4,016,572 $4,281,836 $4,564,091
% Growth 6.7% 6.7% 6.6% 6.6% 6.6% 6.6% 6.6%
Total Capital Expenditures 3,454,802 766,214 777,748 789,407 801,190 813,100 825,138
% of Revenue 54.9% 11.5% 11.0% 10.5% 10.1% 9.6% 9.2%
Total Capex / Basic Sub $227.8 $49.7 $49.7 $49.6 $49.6 $49.6 $49.5
Debt Free Cash Flow $(348,655) $2,546,732 $2,755,298 $2,977,885 $3,215,382 $3,468,736 $3,738,953
Aggregate Value Value per 1995 Subscriber Multiple of 1995 SCF
FAIR MARKET VALUE $20,164,654 $1,418 8.3
114
W A L L E R C A P I T A L C O R P O R A T I O N
FALCON CABLE TV - DALLAS, OREGON
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (Projected)
-------- --------------------------------------------------------------------
Year 1995 1996 1997 1998 1999 2000 2001 2002
Period 0 1 2 3 4 5 6 7
- -------------------------------------- -------- --------------------------------------------------------------------
Operations Statistics
- --------------------------------------
% Growth
--------
Homes Passed: 23,770 24,174 24,585 25,003 25,428 25,860 26,300 26,747
% Growth 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%
Basic/Expanded Tier 16,928 17,212 17,505 17,802 18,105 18,413 18,726 19,044
% Penetration 71.2% 71.2% 71.2% 71.2% 71.2% 71.2% 71.2% 71.2%
% Growth -- 1.7% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%
New Product Tier (NPT 1) 7,458 7,635 7,817 8,003 8,194 8,388 8,587 8,790
% Penetration 44.1% 44.4% 44.7% 45.0% 45.3% 45.6% 45.9% 46.2%
% Growth -- 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4%
Pay 7,139 7,310 7,487 7,668 7,853 8,041 8,234 8,431
% Penetration 42.2% 42.5% 42.8% 43.1% 43.4% 43.7% 44.0% 44.3%
% Growth -- 2.4% 2.4% 2.4% 2.4% 2.4% 2.4% 2.4%
Mini-Pay 241 241 245 249 253 258 262 267
% Penetration 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%
% Growth -- -0.0% 1.7% 1.7% 1.7% 1.7% 1.7% 1.7%
Basic Revenue& Tier/Sub/Month $21.74 $22.61 $23.52 $24.46 $25.44 $26.45 $27.51 $28.61
% Growth -- 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
NPT 1 Revenue/Sub/Month $3.86 $4.01 $4.17 $4.34 $4.51 $4.69 $4.88 5.08
% Growth -- 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Pay Revenue/Sub/Month $7.60 $7.67 $7.75 $7.83 $7.90 $7.98 $8.06 $8.14
% Growth -- 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Mini-Pay Revenue/Sub/Month $3.08 $3.15 $3.21 $3.27 $3.34 $3.41 $3.47 $3.54
% Growth -- 2.0% $2.0% $2.0% $2.0% $2.0% $2.0% $2.0% $2.0%
PPV Rev/Sub/Month $0.22 $0.23 $0.24 $0.25 $0.26 $0.27 $0.28 $0.29
% Growth 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Other Revenue/Sub/Month $2.93 $3.02 $3.11 $3.20 $3.30 $3.40 $3.50 $3.61
% Growth -- 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
12/31/95 FYE 12/31, (Projected)
--------
Year 1995 2003 2004 2005
Period 0 8 9 10
- -------------------------------------- -------- ------------------------
Operations Statistics
- -------------------------------------- ------------------------
Homes Passed: 27,202 27,664 28,134
% Growth 1.7% 1.7% 1.7%
Basic/Expanded Tier 19,368 19,697 20,032
% Penetration 71.2% 71.2% 71.2%
% Growth 1.7% 1.7% 1.7%
New Product Tier (NPT 1) 8,998 9,210 9,426
% Penetration 46.5% 46.8% 47.1%
% Growth 2.4% 2.4% 2.4%
Pay 8,633 8,839 9,049
% Penetration 44.6% 44.9% 45.2%
% Growth 2.4% 2.4% 2.4%
Mini-Pay 271 276 280
% Penetration 1.4% 1.4% 1.4%
% Growth 1.7% 1.7% 1.7%
Basic Revenue& Tier/Sub/Month $29.76 $30.95 $32.18
% Growth 4.0% 4.0% 4.0%
NPT 1 Revenue/Sub/Month $5.28 $5.49 $5.71
% Growth 4.0% 4.0% 4.0%
Pay Revenue/Sub/Month $8.22 $8.31 $8.39
% Growth 1.0% 1.0% 1.0%
Mini-Pay Revenue/Sub/Month $3.61 $3.69 $3.76
% Growth 2.0% 2.0% 2.0%
PPV Rev/Sub/Month $0.30 $0.31 $0.33
% Growth 4.0% 4.0% 4.0%
Other Revenue/Sub/Month $3.71 $3.83 $3.94
% Growth 3.0% 3.0% 3.0%
115
- -------------------------------------------------------------------------------
W A L L E R C A P I T A L C O R P O R A T I O N
- -------------------------------------------------------------------------------
FALCON CABLE TV - DALLAS, OREGON
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (PROJECTED)
-------------------------------------
Year 1995 1996 1997 1998
Period 0 1 2 3
- ---------------------------------------------------------------------- ---------- -------------------------------------
INCOME STATEMENT SUMMARY
- ----------------------------------------------------------------------
REVENUES
Basic & Tier $4,416,771 $4,670,493 $4,939,887 $5,224,820
NPT 1 345,351 367,677 391,514 416,879
Pay 650,659 672,942 696,108 720,036
Mini-Pay 8,919 9,096 9,436 9,788
PPV 44,723 47,292 50,020 52,905
Other 595,570 623,727 653,360 684,401
------- ------- ------- -------
TOTAL REVENUE $6,061,993 $6,391,227 $6,740,325 $7,108,829
% Growth - - 5.4% 5.5% 5.5%
EXPENSES: Adjusted
Technical $237,985 $250,446 $263,618 $277,483
Production and Local Origination 12,181 12,843 13,544 14,285
Advertising 72,619 76,563 80,745 85,159
Marketing 87,885 92,487 97,351 102,471
General and Administrative 932,115 980,922 1,032,513 1,086,818
Programming 1,067,415 1,126,185 1,188,543 1,254,414
Partnership Expenses 347,352 366,217 386,221 407,336
------- ------- ------- -------
Total Operating Expenses $2,757,552 $2,905,662 $3,062,536 $3,227,967
% Growth - - 5.4% 5.4% 5.4%
* Adjusted for Partnership Expenses
U.L.System Cash Flow (EBITDA) $3,304,441 $3,485,565 $3,677,789 $3,880,862
% Margin 54.5% 54.5% 54.6% 54.6%
% Growth - - 5.5% 5.5% 5.5%
Revenue / Subscriber / Month $29.84 $30.94 $32.09 $33.28
SCF / Subscriber / Year $195.2 $202.5 $210.1 $218.0
12/31/95 FYE 12/31, (PROJECTED)
---------------------------------------------
Year 1995 1999 2000 2001 2002
Period 0 4 5 6 7
---------- ---------------------------------------------
- ----------------------------------------------------------------------
INCOME STATEMENT SUMMARY
- ----------------------------------------------------------------------
REVENUES
Basic & Tier $4,416,771 $5,526,187 $5,844,938 $6,182,074 $6,538,656
NPT 1 345,351 443,867 472,581 503,131 535,633
Pay 650,659 744,751 770,277 796,640 823,868
Mini-Pay 8,919 10,154 10,533 10,926 11,334
PPV 44,723 55,957 59,184 62,598 66,208
Other 595,570 716,917 750,978 786,657 824,031
------- ------- ------- ------- -------
TOTAL REVENUE 6,061,993 $7,497,832 $7,908,491 $8,342,026 $8,799,730
% Growth - - 5.5% 5.5% 5.5% 5.5%
EXPENSES: Adjusted
Technical $237,985 $292,078 $307,439 $323,609 $340,629
Production and Local Origination 12,181 15,066 15,891 16,763 17,682
Advertising 72,619 89,819 94,739 99,932 105,415
Marketing 87,885 107,861 113,534 119,505 125,790
General and Administrative 932,115 1,143,979 1,204,147 1,267,479 1,334,142
Programming 1,067,415 1,323,998 1,397,507 1,475,164 1,557,207
Partnership Expenses 347,352 429,626 453,157 477,998 504,225
------- ------- ------- ------- -------
Total Operating Expenses $2,757,552 $3,402,428 $3,586,414 $3,780,450 $3,985,091
% Growth - - 5.4% 5.4% 5.4% 5.4%
* Adjusted for Partnership Expenses
U.L.System Cash Flow (EBITDA) $3,304,441 $4,095,405 $4,322,077 $4,561,576 $4,814,639
% Margin 54.5% 54.6% 54.7% 54.7% 54.7%
% Growth - - 5.5% 5.5% 5.5% 5.5%
Revenue / Subscriber / Month $29.84 $34.51 $35.79 $37.12 $38.51
SCF / Subscriber / Year $195.2 $226.2 $234.7 $243.6 $252.8
12/31/95 FYE 12/31, (PROJECTED)
-------------------------------------
Year 1995 2003 2004 2005
Period 0 8 9 10
---------- -------------------------------------
- ----------------------------------------------------------------------
INCOME STATEMENT SUMMARY
- ----------------------------------------------------------------------
REVENUES
Basic & Tier $4,416,771 $6,915,806 $7,314,709 $7,736,622
NPT 1 345,351 570,210 606,995 646,125
Pay 650,659 851,987 881,025 911,013
Mini-Pay 8,919 11,758 12,197 12,652
PPV 44,723 70,027 74,067 78,339
Other 595,570 863,181 904,190 947,148
------- ------- ------- -------
TOTAL REVENUE $6,061,993 $9,282,968 $9,793,182 $10,331,899
% Growth - - 5.5% 5.5% 5.5%
EXPENSES: Adjusted
Technical $237,985 $358,545 $377,403 $397,252
Production and Local Origination 12,181 18,653 19,678 20,761
Advertising 72,619 111,204 117,316 123,770
Marketing 87,885 132,406 139,370 146,700
General and Administrative 932,115 1,404,311 1,478,171 1,555,916
Programming 1,067,415 1,643,886 1,735,467 1,832,230
Partnership Expenses 347,352 531,914 561,149 592,018
------- ------- ------- -------
Total Operating Expenses $2,757,552 $4,200,921 $4,428,556 $4,668,647
% Growth - - 5.4% 5.4% 5.4%
* Adjusted for Partnership Expenses
U.L.SYSTEM CASH FLOW (EBITDA) $3,304,441 $5,082,047 $5,364,627 $5,663,252
% Margin 54.5% 54.7% 54.8% 54.8%
% Growth - - 5.6% 5.6% 5.6%
Revenue / Subscriber / Month $29.84 $39.94 $41.43 $42.98
SCF / Subscriber / Year $195.2 $262.4 $272.4 $282.7
116
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W A L L E R C A P I T A L C O R P O R A T I O N
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FALCON CABLE TV - DALLAS, OREGON
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
12/31/95 FYE 12/31, (PROJECTED)
--------------------------------------
Year 1995 1996 1997 1998
Period 0 1 2 3
------------- --------------------------------------
- ----------------------------------------------------------------------
CAPITAL EXPENDITURE ANALYSIS
- ----------------------------------------------------------------------
System Cash Flow $3,304,441 $3,485,565 $3,677,789 $3,880,862
% Growth 5.5% 5.5% 5.5%
Total Capital Expenditures 2,893,388 2,908,575 2,924,021
% of Revenue 45.3% 43.2% 41.1%
Total Capex/Basic Sub $168.1 $166.2 $164.3
--------------------------------------------------------------------------------------------------------------------------
DEBT FREE CASH FLOW $592,177 $769,214 $956,841
======== ======== ========
--------------------------------------------------------------------------------------------------------------------------
FYE 12/31, (PROJECTED)
-----------------------------------
1999 2000 2001
4 5 6
-----------------------------------
- -------------------------------------------------------
CAPITAL EXPENDITURE ANALYSIS
- -------------------------------------------------------
System Cash Flow $4,095,405 $4,322,077 $4,561,576
% Growth 5.5% 5.5% 5.5%
Total Capital Expenditures 939,730 955,705 971,952
% of Revenue 12.5% 12.1% 11.7%
Total Capex/Basic Sub $51.9 $51.9 $51.9
---------------------------------------------------- ----------------------------------------
DEBT FREE CASH FLOW $3,155,675 $3,366,372 $3,589,624
========== ========== ==========
---------------------------------------------------- ----------------------------------------
FYE 12/31, (PROJECTED)
-----------------------------------------------
2002 2003 2004 2005
7 8 9 10
-----------------------------------------------
- -------------------------------------------------------
CAPITAL EXPENDITURE ANALYSIS
- -------------------------------------------------------
System Cash Flow $4,814,639 $5,082,017 $5,364,627 $5,663,252
% Growth 5.5% 5.6% 5.6% 5.6%
Total Capital Expenditures 988,475 1,005,279 1,022,369 1,039,749
% of Revenue 11.2% 10.8% 10.4% 10.1%
Total Capex/Basic Sub $51.9 $51.9 $51.9 $51.9
--------------------------------------------------------------------------------------------------------------------------------
DEBT FREE CASH FLOW $3,826,164 $4,076,768 $4,342,258 $4,623,503
========== ========== ========== ==========
-------------------------------------------------------------------------------------------------------------------------------
AGGREGATE VALUE VALUE PER 1995 SUBSCRIBER MULTIPLE OF 1995 SCF
- ---------------------------------------------------------------------------------------------------------------------------------
FAIR MARKET VALUE $27,257,132 $1,610 8.2
- ---------------------------------------------------------------------------------------------------------------------------------
117
WALLER CAPITAL CORPORATION
FALCON CABLE TV - COOS BAY, OREGON
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
-------- ------------------------------------
12/31/95 FYE 12/31, (PROJECTED)
-------- ------------------------------------
Year 1995 1996 1997 1998 1999
Period 0 1 2 3 4
- ---------------------------------------------------------------------- -------------------------------------
Operations Statistics
% Growth
Homes Passed: 31,489 31,804 32,122 32,443 32,768
% Growth 1.0% 1.0% 1.0% 1.0%
Basic/Expanded Tier 21,847 22,097 22,350 22,606 22,865
% Penetration 69.4% 69.5% 69.6% 69.7% 69.8%
% Growth - - 1.1% 1.1% 1.1% 1.1%
New Product Tier (NPT 1) 13,487 13,686 13,865 14,046 14,230
% Penetration 61.7% 61.9% 62.0% 62.1% 62.2%
% Growth - - 1.5% 1.3% 1.3% 1.3%
Pay 7,771 7,971 8,174 8,380 8,590
% Penetration 35.6% 36.1% 36.6% 37.1% 37.6%
% Growth - - 2.6% 2.5% 2.5% 2.5%
Mini-Pay 306 309 313 316 320
% Penetration 1.4% 1.4% 1.4% 1.4% 1.4%
% Growth - - 1.1% 1.1% 1.1% 1.1%
Basic Revenue& Tier/Sub/Month $22.91 $23.77 $24.66 $25.58 $26.54
% Growth - - 3.8% 3.8% 3.8% 3.8% 3.8%
NPT 1 Revenue/Sub/Month $3.39 $3.52 $3.67 $3.81 $3.96
% Growth - - 4.0% 4.0% 4.0% 4.0% 4.0%
Pay Revenue/Sub/Month $7.38 $7.45 $7.53 $7.60 $7.68
% Growth - - 1.0% 1.0% 1.0% 1.0% 1.0%
Mini-Pay Revenue/Sub/Month $3.60 $3.67 $3.74 $3.82 $3.89
% Growth - - 2.0% 2.0% 2.0% 2.0% 2.0%
PPV Rev/Sub/Month $0.53 $0.56 $0.58 $0.60 $0.62
% Growth 4.0% 4.0% 4.0% 4.0% 4.0%
Other Revenue/Sub/Month $4.72 $4.86 $5.01 $5.16 $5.31
% Growth - - 3.0% 3.0% 3.0% 3.0% 3.0%
FYE 12/31, (PROJECTED)
---------------------------------------------------------
2000 2001 2002 2003 2004 2005
5 6 7 8 9 10
- -------------------------------------------------- ---------------------------------------------------------
Operations Statistics
Homes Passed:
% Growth 33,095 33,426 33,760 34,098 34,439 34,783
1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Basic/Expanded Tier
% Penetration 23,127 23,392 23,659 23,930 24,204 24,481
% Growth 69.9% 70.0% 70.1% 70.2% 70.3% 70.4%
1.1% 1.1% 1.1% 1.1% 1.1% 1.1%
New Product Tier (NPT 1)
% Penetration 14,416 14,604 14,795 14,988 15,184 15,382
% Growth 62.3% 62.4% 62.5% 62.6% 62.7% 62.8%
1.3% 1.3% 1.3% 1.3% 1.3% 1.3%
Pay
% Penetration 8,712 8,835 8,960 9,086 9,214 9,344
% Growth 37.7% 37.8% 37.9% 38.0% 38.1% 38.2%
1.4% 1.4% 1.4% 1.4% 1.4% 1.4%
Mini-Pay
% Penetration 324 327 331 335 339 343
% Growth 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%
1.1% 1.1% 1.1% 1.1% 1.1% 1.1%
Basic Revenue& Tier/Sub/Month
% Growth $27.54 $28.57 $29.64 $30.75 $31.91 $33.10
3.8% 3.8% 3.8% 3.8% 3.8% 3.8%
NPT 1 Revenue/Sub/Month
% Growth $4.12 $4.29 $4.46 $4.64 $4.82 $5.02
4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Pay Revenue/Sub/Month
% Growth $7.75 $7.83 $7.91 $7.99 $8.07 $8.15
1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Mini-Pay Revenue/Sub/Month
% Growth $3.97 $4.05 $4.13 $4.21 $4.30 $4.38
2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
PPV Rev/Sub/Month
% Growth $0.65 $0.68 $0.70 $0.73 $0.76 $0.79
4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Other Revenue/Sub/Month
% Growth $5.47 $5.64 $5.80 $5.98 $6.16 $6.34
3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
118
WALLER CAPITAL CORPORATION
FALCON CABLE TV - COOS BAY, OREGON
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
-------- -------------------------------------------------------
12/31/95 FYE 12/31, (PROJECTED)
-------- -------------------------------------------------------
Year 1995 1996 1997 1998 1999
Period 0 1 2 3 4
- --------------------------------------------------------- -------------------------------------------------------
Income Statement Summary
Revenues
Basic & Tier $6,005,889 $6,302,492 $6,613,729 $6,940,322 $7,283,027
NPT 1 548,476 578,819 609,849 642,541 676,981
Pay 687,957 712,675 738,139 764,367 791,382
Mini-Pay 13,209 13,621 14,053 14,498 14,957
PPV 139,973 147,240 154,883 162,923 171,380
Other 1,237,351 1,289,072 1,342,951 1,399,080 1,457,552
--------- ---------- ---------- ---------- -----------
Total Revenue 8,632,855 $9,043,918 $9,473,604 $9,923,730 $10,395,279
% Growth - - 4.8% 4.8% 4.8% 4.8%
Expenses: Adjusted
Technical $683,125 $715,134 $748,641 $783,717 $820,434
Production and Local Origination 10,937 11,458 12,002 12,572 13,170
Advertising 110,004 115,242 120,717 126,453 132,462
Marketing 231,570 242,421 253,779 265,669 278,116
General and Administrative 1,274,150 1,333,852 1,396,350 1,461,772 1,530,256
Programming 1,576,577 1,653,081 1,733,080 1,816,946 1,904,867
Partnership Expenses 494,663 518,217 542,838 568,630 595,649
---------- ---------- ---------- ---------- ----------
Total Operating Expenses $4,381,026 $4,589,404 $4,807,407 $5,035,759 $5,274,954
% Growth - - 4.8% 4.8% 4.8% 4.7%
* Adjusted for Partnership Expenses
U.L.System Cash Flow (EBITDA) $4,251,829 $4,454,514 $4,666,197 $4,887,971 $5,120,324
% Margin 49.3% 49.3% 49.3% 49.3% 49.3%
% Growth - - 4.8% 4.8% 4.8% 4.8%
Revenue / Subscriber / Month $32.93 $34.11 $35.32 $36.58 $37.89
SCF / Subscriber / Year $194.6 $201.6 $208.8 $216.2 $223.9
FYE 12/31, (PROJECTED)
----------------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005
5 6 7 8 9 10
----------------------------------------------------------------------------------
Income Statement Summary
Revenues
Basic & Tier $7,642,638 $8,019,990 $8,415,956 $8,831,454 $9,267,447 $9,724,943
NPT 1 713,264 751,488 791,758 834,181 878,873 925,955
Pay 810,598 830,272 850,417 871,042 892,159 913,781
Mini-Pay 15,431 15,920 16,424 16,944 17,481 18,034
PPV 180,275 189,632 199,474 209,827 220,716 232,170
Other 1,518,464 1,581,919 1,648,022 1,716,883 1,788,619 1,863,348
----------- ----------- ----------- ----------- ----------- -----------
Total Revenue $10,880,671 $11,389,221 $11,922,050 $12,480,331 $13,065,294 $13,678,231
% Growth 4.7% 4.7% 4.7% 4.7% 4.7% 4.7%
Expenses:
Technical $858,870 $899,105 $941,222 $985,310 $1,031,462 $1,079,773
Production and Local Origination 13,785 14,429 15,104 15,811 16,552 17,329
Advertising 138,647 145,127 151,917 159,030 166,484 174,295
Marketing 291,145 304,784 319,061 334,007 349,651 366,028
General and Administrative 1,601,946 1,676,990 1,755,547 1,837,780 1,923,860 2,013,969
Programming 1,995,171 2,089,854 2,189,131 2,293,229 2,402,384 2,516,844
Partnership Expenses 623,462 652,602 683,133 715,123 748,641 783,763
---------- ---------- ---------- ---------- ---------- ----------
Total Operating Expenses $5,523,025 $5,782,891 $6,055,116 $6,340,291 $6,639,036 $6,952,000
% Growth 4.7% 4.7% 4.7% 4.7% 4.7% 4.7%
* Adjusted for Partnership Expenses
U.L.System Cash Flow (EBITDA) $5,357,645 $5,606,330 $5,866,935 $6,140,040 $6,426,259 $6,726,231
% Margin 49.2% 49.2% 49.2% 49.2% 49.2% 49.2%
% Growth 4.6% 4.6% 4.6% 4.7% 4.7% 4.7%
Revenue / Subscriber / Month $39.21 $40.57 $41.99 $43.46 $44.98 $46.56
SCF / Subscriber / Year $231.7 $239.7 $248.0 $256.6 $265.5 $274.8
119
WALLER CAPITAL CORPORATION
FALCON CABLE TV - COOS BAY, OREGON
DISCOUNTED CASH FLOW ANALYSIS (000 UNLESS OTHERWISE SPECIFIED)
-------- -------------------------------------------------
12/31/95 FYE 12/31, (PROJECTED)
-------- -------------------------------------------------
Year 1995 1996 1997 1998 1999
Period 0 1 2 3 4
- ------------------------------------------------------------ ---------------------------------------------------
Capital Expenditure Analysis
System Cash Flow $4,251,829 $4,454,514 $4,666,197 $4,887,971 $5,120,324
% Growth 4.8% 4.8% 4.8% 4.8%
Total Capital Expenditures 1,184,920 1,648,376 1,661,982 2,725,740
% of Revenue 13.1% 17.4% 16.7% 26.2%
Total Capex / Basic Sub $53.6 $73.8 $73.5 $119.2
- --------------------------------------------------------------------------------------------------------------------
Debt Free Cash Flow $3,269,594 $3,017,822 $3,225,990 $2,394,585
- --------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------
FYE 12/31, (PROJECTED)
----------------------------------------------------------------------------
2000 2001 2002 2003 2004 2005
5 6 7 8 9 10
- ----------------------------------------- ----------------------------------------------------------------------------
Capital Expenditure Analysis
System Cash Flow $5,357,645 $5,606,330 $5,866,935 $6,140,040 $6,426,259 $6,726,231
% Growth 4.6% 4.6% 4.6% 4.7% 4.7% 4.7%
Total Capital Expenditures 2,739,652 2,753,720 1,267,945 1,282,329 1,296,875 1,311,583
% of Revenue 25.2% 24.2% 10.6% 10.3% 9.9% 9.6%
Total Capex / Basic Sub $118.5 $117.7 $53.6 $53.6 $53.6 $53.6
- ----------------------------------------- ---------------------------------------------------------------------------
Debt Free Cash Flow $2,617,993 $2,852,611 $4,598,990 $4,857,711 $5,129,384 $5,414,648
- ----------------------------------------- ---------------------------------------------------------------------------
Aggregate Value Value per 1995 Subscriber Multiple of 1995 SCF
- ----------------------------------------------------------------------------------------------
FAIR MARKET VALUE $35,486,280 $1,624 8.3
- ----------------------------------------------------------------------------------------------
120
SUMMARY APPRAISAL OF EXCHANGE SYSTEMS
121
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FALCON CABLE SYSTEMS COMPANY
- ------------------------------------------------------------------------------
SUMMARY APPRAISAL OF EXCHANGE SYSTEMS
As part of the appraisal (the "Appraisal") process Waller Capital determined
that appraised value of certain cable systems (the "Systems") which could be
subject to Section 3.14 of the Falcon Cable Systems Company partnership
agreement's plan of liquidation.
Falcon Holdings Group, L.P. provided the following list of Systems which
separated those Systems which would be allocated (the "Allocation") to Marc
Nathanson (the "Proposed Exchange Systems") and the remaining cable systems
(the "Remaining Systems").
PROPOSED EXCHANGE SYSTEMS REMAINING SYSTEMS
Bandon (System) Gilroy (Region)
Coquille (System) San Luis Obispo (Region)
Myrtle Point (System) Central Oregon (Region)
Powers (System) Tulare (Region)
Nehalem (System) Coos Bay (System)
Netarts (System) Dallas (System)
Tillamook (System) Gardiner (System)
Brickyard Road (System) Hauser (System)
Silverton (System) Reedsport (System)
Florence (System) Mapleton (System)
Hesperia (Region) Wilson River (System)
In the Allocation, if a Region was left intact, the value determined in the
Appraisal was incorporated, however, if a Region's systems were split between
the Proposed Exchange Systems and the Remaining Systems, the valuation on a per
system basis was subject to the methodology described below.
METHODOLOGY
The appraisal analysis of the Proposed Exchange Systems and the Remaining
Systems was consistent with the analysis performed to provide the appraisal of
all of Falcon Cable Systems Company. In
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WALLER CAPITAL CORPORATION
122
- ------------------------------------------------------------------------------
FALCON CABLE SYSTEMS COMPANY
- ------------------------------------------------------------------------------
SUMMARY APPRAISAL OF EXCHANGE SYSTEMS
addition, certain assumptions were required including but not limited to; (a)
the use of a one month annualized billing statement prepared on a per headend
basis to allocate regional revenue on a per headend basis; (b) capital
expenditures were allocated on a per headend basis versus across a Region as in
the Appraisal; (c) capital expenditures were not increased to create headends
for those systems that would be separated from a signal origination source due
to the allocation; (d) the assumed operating margin was the margin achieved by
the Region in which the headend is located as it was determined to be
unreasonable to derive a margin on a per headend basis (due to among other
things a wide disparity in channel line-ups, rates and operating expenses), and
(e) the exit multiple and the weighted average cost of capital remained
consistent with the assumptions in the Appraisal's Discounted Cash Flow
Analysis made for each applicable Region.
EXCHANGE SYSTEM'S VALUE
The following table summarizes the values assigned on a per headend basis (or
in the case of Hesperia, the entire Region) for those assigned for distribution
subject to the Section 3.14 sale, a plan of liquidation:
PROPOSED EXCHANGE SYSTEMS
SYSTEM SUBSCRIBERS VALUATION
- ------ ----------- -----------
Bandon 1,549 $ 2,015,229
Coquille 1,796 2,279,242
Myrtle Point 774 996,374
Powers 203 216,457
Nehalem 4,608 7,314,278
Netarts 830 948,909
Tillamook 2,478 4,053,336
Brickyard Road 484 502,530
Silverton 1,753 2,734,442
Florence 3,751 7,300,686
Hesperia (Region) 18,513 28,865,947
----------- ----------
TOTAL 36,739 $57,227,430
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WALLER CAPITAL CORPORATION
123
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FALCON CABLE SYSTEMS COMPANY
- --------------------------------------------------------------------------------
SUMMARY APPRAISAL OF EXCHANGE SYSTEMS
The Remaining Systems and appraised values are as follows:
REMAINING SYSTEMS
-----------------
SYSTEM SUBSCRIBERS VALUATION
- ------ ----------- -----------
Gilroy (Region) 33,073 $57,640,720
San Louis Obispo (Region) 15,635 21,988,550
Central Oregon (Region) 14,225 20,164,654
Tulare (Region) 15,249 22,269,159
Coos Bay (System) 10,385 17,981,662
Dallas (System) 6,684 11,670,175
Gardiner (System) 102 87,396
Hauser (System) 491 606,994
Reedsport (System) 2,600 3,834,126
Mapleton (System) 196 168,124
Wilson River (System) 91 33,453
----------- ------------
TOTAL 98,731 $156,445,013
I have included this analysis as an Appendix to our formal appraisal because of
the inter-related nature of the information. The analysis and conclusions are
subject to the caveats and other limitations discussed herein.
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WALLER CAPITAL CORPORATION