1
EXHIBIT 10.31
FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P.
VALUATION ANALYSIS
AS OF
DECEMBER 31, 1996
[LOG0]
COMMUNICATIONS
EQUITY
ASSOCIATES
(C) 1997 BY CEA
MARCH 3, 1997
1235 WESTLAKES DRIVE SUITE 245 - BERWYN, PENNSYLVANIA 19312 -
(610) 251-0650 - (610) 251-9180
2
[LOG0]
COMMUNICATIONS
EQUITY
ASSOCIATES
VIA FEDERAL EXPRESS
March 3, 1997
PERSONAL AND CONFIDENTIAL
Mr. Michael K. Menerey
Chief Financial Officer
Falcon Holdings Group, L.P.
474 South Raymond Avenue
Suite 200
Pasadena, CA 91105
Dear Mr. Menerey:
Communications Equity Associates, Inc. ("CEA") is pleased to submit the
results of our valuation analysis of the cable television system assets (the
"Cable Systems") owned by Falcon Classic Cable Income Properties, L.P. ("Falcon
Classic" or the "Partnership"), as of December 31, 1996. It is our understanding
that the asset values determined by this analysis will be used by you as part of
the Appraisal Process, as defined in the Falcon Classic Partnership Agreement
dated May 15, 1989, as amended. CEA hereby expresses no opinion as to the value
of the Falcon Classic Partnership Units, nor does CEA hereby express an opinion
as to the fairness of any transaction involving the Cable Systems or the Falcon
Classic Partnership Units.
We hereby express our opinion of the fair market value of the assets of
the Cable Systems, free and clear of all liens, liabilities and encumbrances.
Fair market value is hereby defined as the cash price at which the assets of the
Cable Systems would sell in a normal market from a willing seller to a willing
buyer, allowing a reasonable time to find a purchaser, with both parties having
reasonable knowledge of relevant facts about the Cable Systems, and with neither
party under any compulsion to buy or to sell.
We have performed valuation analyses, as of December 31, 1996, of five
separate cable systems, respectively located in Burke County, North Carolina;
Redmond, Oregon; California City, California; Centreville, Maryland; and
Somerset, Kentucky. The results of these analyses are summarized below:
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Mr. Michael K. Menerey
March 3, 1997
Page Two
FAIR MARKET VALUE
CABLE SYSTEM AS OF 12/31/96
------------ --------------
BURKE COUNTY, NC $19,000,000
REDMOND, OR 6,200,000
CALIFORNIA CITY, CA 2,800,000
CENTREVILLE, MD 23,000,000
SOMERSET, KY 31,000,000
These valuations are intended solely for your use for the purpose stated
above, and are not intended for general publication or circulation. Since these
value indications are the result of certain specific assumptions, and since
these assumptions may not be relevant for other purposes, these values should
not be used for any other purpose. We specifically prohibit the use of these
results in assessing the fairness of any transactions involving the Falcon
Classic Partnership Units, and our value conclusions stated above should in no
way be construed as an opinion as to the value of the Partnership Units.
Since we have not undertaken an analysis of the debt of the Partnership,
we can make no representations as to whether the fair salable value of the
Partnership's assets exceeds its debt, whether the Partnership will be able to
meet its debt obligations as they come due, or whether the Partnership is
properly capitalized. We can similarly make no representations as to the
solvency of the Partnership.
In making this analysis, CEA relied substantially on financial and
operational information provided by the Partnership and system personnel. CEA
did not independently verify this information and can therefore accept no
responsibility as to its accuracy. As part of this analysis, CEA physically
toured only the Cable Systems located in North Carolina, Kentucky and Maryland.
A list of limiting conditions is attached to this letter.
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Mr. Michael K. Menerey
March 3, 1997
Page Three
CEA is independent of the Partnership, and CEA's fee for performing this
analysis was in no way contingent upon the results of this analysis. Neither CEA
nor any of its employees involved in the preparation of this analysis have a
present or contemplated direct or indirect interest in the Partnership or in the
property herein analyzed. To the best of CEA's knowledge and belief, all
statements contained in this letter are true and correct, and no important
information has been knowingly withheld. This valuation was developed and this
letter has been prepared in conformity with the Uniform Standards of
Professional Appraisal Practice.
Respectfully submitted,
/s/ COMMUNICATIONS EQUITY ASSOCIATES, INC.
Communications Equity Associates, Inc.
/cea
Attachment
5
LIMITING CONDITIONS
1. CEA offers no opinions on either the potential effect of current or future
FCC regulations on the cash flow of the Cable Systems, or on the
Partnership's strategy in dealing with these regulations. The value
conclusions derived herein were based on the assumption that the current
rates of the Cable Systems are in compliance with current FCC regulations,
and that no future refund liability is associated with the Cable Systems.
2. This valuation is based on CEA's assessment of market conditions as of the
date of this report, and assumes that market, regulatory and other conditions
remain static. Changes in the economy as well as additional rule-making by
the FCC could have a material effect on the values herein derived.
3. CEA cannot guarantee that a buyer could be found for the Cable Systems at the
prices herein determined, or at any rational price.
4. As part of this analysis, CEA relied substantially on financial and
operational information provided by the Partnership. CEA did not
independently verify this information and can therefore accept no
responsibility as to its accuracy.
5. CEA specifically prohibits the use of these value conclusions in all matters
related to the fairness of any transactions involving the Falcon Classic
Partnership Units.
6. CEA specifically prohibits the use of these value conclusions in all matters
related to the solvency of the Partnership. Since we have not undertaken an
analysis of the debt of the Partnership, we can make no representations as to
whether the fair salable value of the Partnership's assets exceeds its debt,
whether the Partnership will be able to meet its debt obligations as they
come due, or whether the Partnership is reasonably capitalized.
7. CEA did not conduct a detailed technical evaluation of the Cable Systems, but
instead relied on information provided by the Partnership and its employees
in assessing the technical condition of the Cable Systems.
8. CEA has assumed that the Cable Systems, as currently operated, are in
material compliance with all franchise, regulatory, and FCC requirements. CEA
did not independently verify compliance with these requirements.
9. The franchises for the Cable Systems expire at various points in the future,
and there is no assurance that any franchise will be renewed, or that any
will be renewed with reasonable provisions. The non-renewal of any franchise
or violations of franchise requirements could have a material detrimental
effect on the value of the Cable Systems.
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TABLE OF CONTENTS
SECTION PAGE
- ------- ----
1. OVERVIEW OF ANALYSIS
o Background and Description of Analysis...................... 1
o Definitions of Value........................................ 1
o Description of Valuation Methodologies...................... 1
2. BURKE COUNTY, NORTH CAROLINA
o System Overview............................................. 4
System Description....................................... 4
Home and Subscriber Growth............................... 4
Financial Summary........................................ 4
o Valuation................................................... 5
Discounted Cash Flow Approaches.......................... 5
Cash Flow Multiple and Adjusted
Cash Flow Multiple Approaches......................... 16
Subscriber Multiple Approach............................. 17
Rebuild Cash Flow Multiple Approach...................... 17
o Value Conclusions........................................... 18
3. REDMOND, OREGON
o System Overview............................................. 19
System Description....................................... 19
Home and Subscriber Growth............................... 19
Financial Summary........................................ 19
o Valuation................................................... 20
Discounted Cash Flow Approaches.......................... 20
Cash Flow Multiple and Adjusted
Cash Flow Multiple Approaches......................... 31
Subscriber Multiple Approach............................. 32
Rebuild Cash Flow Multiple Approach...................... 32
o Value Conclusions........................................... 33
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4. CALIFORNIA CITY, CA
o System Overview............................................. 34
System Description....................................... 34
Home and Subscriber Growth............................... 34
Financial Summary........................................ 34
o Valuation................................................... 35
Discounted Cash Flow Approaches.......................... 35
Cash Flow Multiple and Adjusted
Cash Flow Multiple Approaches......................... 46
Subscriber Multiple Approach............................. 47
Rebuild Cash Flow Multiple Approach...................... 47
o Value Conclusions........................................... 48
5. CENTREVILLE, MD
o System Overview............................................. 49
System Description....................................... 49
Home and Subscriber Growth............................... 49
Financial Summary........................................ 49
o Valuation................................................... 50
Discounted Cash Flow Approaches.......................... 50
Cash Flow Multiple and Adjusted
Cash Flow Multiple Approaches......................... 61
Subscriber Multiple Approach............................. 62
Rebuild Cash Flow Multiple Approach...................... 62
o Value Conclusions........................................... 63
6. SOMERSET, KY
o System Overview............................................. 64
System Description....................................... 64
Home and Subscriber Growth............................... 64
Financial Summary........................................ 64
o Valuation................................................... 65
Discounted Cash Flow Approaches.......................... 65
Cash Flow Multiple and Adjusted
Cash Flow Multiple Approaches......................... 76
Subscriber Multiple Approach............................. 77
Rebuild Cash Flow Multiple Approach...................... 77
o Value Conclusions........................................... 78
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FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
OVERVIEW OF ANALYSIS
BACKGROUND AND DESCRIPTION OF ANALYSIS
CEA has been retained by the Partnership to determine the fair market
value of the assets of the Cable Systems as of December 31, 1996. It is CEA's
understanding that the asset values determined by this analysis will be used by
the Partnership as part of the Appraisal Process, as defined in the Falcon
Classic Partnership Agreement dated May 15, 1989, as amended. CEA hereby
expresses no opinion as to the value of the Falcon Classic Partnership Units,
nor does CEA hereby express an opinion as to the fairness of any transaction
involving the Cable Systems or the Falcon Classic Partnership Units.
CEA physically toured only the North Carolina, Kentucky and Maryland Cable
Systems as part of this analysis. CEA has not conducted a technical analysis of
the cable plant, and has therefore relied on assertions made by Cable System
management regarding the technical performance of the cable plant.
DEFINITION OF FAIR MARKET VALUE
"FAIR MARKET VALUE" is hereby defined as the cash price at which the
assets of the Cable Systems would sell in a normal market from a willing seller
to a willing buyer, allowing a reasonable time to find a purchaser, with both
parties having reasonable knowledge of relevant facts about the Cable Systems,
and with neither party under any compulsion to buy or to sell.
DESCRIPTION OF VALUATION METHODOLOGIES
CEA used variations of two valuation methods in determining the fair
market value of the Cable Systems. These two methods, the discounted cash flow
approach and the market approach, are discussed below.
DISCOUNTED CASH FLOW APPROACH
In the discounted cash flow ("DCF") approach, the value of an asset
is determined by calculating the total present value of the future cash
flows generated by the asset. The critical variables to be derived in a
discounted cash flow analysis are: (1) the projection of the relevant cash
flow stream, (2) the appropriate discount rate for the asset, and (3) the
terminal value of the asset at the end of a given projection period. In
the case of cable television systems, the value of a system is usually
calculated as the present value of the free cash flow (operating cash flow
less capital expenditures) of the system, using a weighted average cost of
debt and equity capital as the discount rate, with a terminal value based
on a multiple of operating cash flow.
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FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
In conducting each of the Cable System valuations, CEA performed two
variations of the discounted cash flow approach, as follows:
1. The first variation of the DCF approach (the "Rebuild DCF
Approach") was conducted under the assumption that the Cable
System would be rebuilt to current state-of-the-art technical
standards.
2. The second variation of the DCF approach (the "No Rebuild DCF
Approach") was conducted under the assumption that the Cable
System would continue to operate without a significant technical
rebuild.
MARKET APPROACH
In the market approach, the value of an asset is determined based on
a comparison with market transactions involving comparable assets. In
order to facilitate this comparison, the respective purchase prices of the
comparable assets are expressed as ratios based on a relevant operating
statistic, typically earnings or cash flow. In the case of cable
television systems, the purchase price of a system is usually expressed as
either a multiple of the operating cash flow of the system, or as a price
per basic subscriber served by the system. The appropriate multiple is
then applied to the operating cash flow or the number of subscribers of
the subject system in order to determine its value.
In conducting each of the Cable System valuations, CEA performed
four variations of the market approach, as follows:
1. In the first variation of the market approach (the "Cash Flow
Multiple Approach"), CEA determined and applied the appropriate
multiple of the Cable System's actual 1996 operating cash flow in
determining value.
2. In the second variation of the market approach (the "Adjusted
Cash Flow Multiple Approach"), CEA determined and applied the
appropriate multiple of the Cable System's adjusted 1996
operating cash flow in determining value, with the Cable System's
cash flow adjusted to a normalized, industry-average 50% cash
flow margin.
3. In the third variation of the market approach (the "Subscriber
Multiple Approach"), CEA multiplied the number of basic
subscribers in each Cable System as of December 31, 1996 by
$1,800. Based on CEA's recent experience in the cable system
transaction market, it is CEA's opinion that $1,800 is the
current overall average per-subscriber price at which typical
cable systems could reasonably be expected to sell.
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FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
4. In the fourth variation of the market approach (the "Rebuild Cash
Flow Multiple Approach"), CEA determined the value of each Cable
System by multiplying the actual 1996 operating cash flow of each
Cable System by 10.5, and then subtracting the estimated cost to
rebuild each Cable System. Based on CEA's recent experience in
the cable system transaction market, it is CEA's opinion that a
typical fully-rebuilt, state-of-the-art cable system could
reasonably be expected to sell, on average, for approximately
10.5 times operating cash flow.
The application of each of these approaches and the derivation of the
relevant variables of each approach are discussed in subsequent sections of this
report.
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FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
BURKE COUNTY, NC
SYSTEM OVERVIEW -- BURKE COUNTY, NC
SYSTEM DESCRIPTION
The Partnership owns the Cable System that serves Burke County,
North Carolina, as well as the North Carolina towns of Valdese, Drexel,
Glen Alpine, Rutherford College, and Connelly Springs. As of December 31,
1996, the Cable System passed nearly 20,000 homes with 731 miles of plant,
and served 10,516 basic subscribers from one headend. Relevant subscriber
statistics as of December 31, 1996 are displayed in the following table.
Homes Basic Basic Pay Pay
As of 12/31/96 Passed Subscribers Penetration Units Penetration
-------------- ------ ----------- ----------- ----- -----------
Burke County, NC 18,986 10,516 55.4% 4,840 46.0%
The Cable System operates at 330 MHz, 43-channel capacity, and
offers 43 channels of programming.
HOME AND SUBSCRIBER GROWTH
During the past few years, the Cable System has experienced some
home growth, while basic subscribers have declined due to competition in
certain overbuilt areas of the Cable System. The Company's home and
subscriber growth history is displayed below.
1994 1995 1996 CAGR 94-96
---- ---- ---- ----------
Homes Passed 18,525 18,745 18,986 1.2%
Basic Subscribers 11,124 10,908 10,516 -2.8%
FINANCIAL SUMMARY
For the year ended December 31, 1996, the Burke County, NC Cable
System generated total revenue of $5,077,796 and operating cash flow of
$3,054,154, resulting in a 60.1% operating cash flow margin.
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FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
VALUATION -- BURKE COUNTY, NC
DISCOUNTED CASH FLOW APPROACHES
Financial projections, including all assumptions regarding
operations and future capital expenditures, relating to the Rebuild DCF
Approach and to the No Rebuild DCF Approach are displayed on the following
ten pages. These projections were prepared by CEA based on certain
information provided by the Partnership, including, but not limited to,
the Partnership's 1997 budget for the Cable System.
The discount rate used in this analysis was derived using a weighted
average cost of capital. Based on CEA's recent experience in the cable
system transaction market, it is CEA's opinion that equity investors in
cable systems would likely require a 25 percent return in order to justify
the equity investment. Additionally, based on CEA's recent experience in
raising debt financing for cable operators, a lender would likely charge
an interest rate of approximately 10 percent and would likely be willing
to lend up to 50 percent of asset value at that rate. Thus, the likely
weighted average cost of capital for the subject Cable System can be
calculated as follows:
50 percent debt at a rate of 10% = .50 x 10% = 5.0%
50 percent equity at a rate of 25% = .50 x 25% = 12.5%
Total Cost of Capital = 17.5%
The terminal value of the Cable System was calculated as the price
at which the cable assets might sell at the end of the ten-year projection
period, based on a multiple of the operating cash flow of the Cable System
at that time. The cash flow multiple used reflects the expected growth of
cash flow in the Cable System after year ten, as well as the return on
debt and equity capital that would likely be required by investors at that
time given the expected risk of the investment at that time.
Based on the calculations displayed on the following pages, the
discounted cash flow approaches indicate fair market values for the Cable
System as follows:
Rebuild DCF Approach $ 17,181,984
No Rebuild DCF Approach $ 20,100,147
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VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 18,198 18,525 18,745 18,986 19,135 19,326 19,520
Ending 18,525 18,745 18,986 19,135 19,326 19,520 19,715
Change 327 220 241 149 191 193 195
% Change 1.8% 1.2% 1.7% 0.8% 1.0% 1.0% 1.0%
Average 18,362 18,635 18,866 19,061 19,231 19,423 19,617
BASIC SUBSCRIBERS:
Beginning 11,179 11,124 10,908 10,516 10,760 10,867 11,366
Ending 11,124 10,908 10,516 10,760 10,867 11,366 11,874
Change -55 -216 -392 244 108 499 508
% Change -0.5% -1.9% -4.8% 2.3% 1.0% 4.6% 4.5%
Average 11,152 11,016 10,712 10,638 10,813 11,117 11,620
Ending Penetration 60.0% 58.2% 55.4% 56.2% 56.2% 58.2% 60.2%
Monthly Basic Rev/Sub $28.78 $29.48 $31.08 $34.92 $35.97 $37.77 $39.65
% Change 2.4% 5.4% 12.4% 3.0% 5.0% 5.0%
PAY + MINI-PAY UNITS:
Beginning 8,257 8,987 7,226 4,840 4,664 4,711 4,927
Ending 8,967 7,226 4,840 4,664 4,711 4,927 5,147
Change 730 -1,761 -2,386 -176 47 216 220
% Change 8.8% -19.6% -44.0% -3.6% 1.0% 4.6% 4.5%
Average 8,622 8,107 6,033 4,752 4,688 4,819 5,037
Ending Penetration 80.8% 66.2% 46.0% 43.4% 43.4% 43.4% 43.4%
Monthly Pay Rev/Unit $5.87 $6.13 $6.98 $6.99 $6.99 $6.99 $6.99
% Change 4.4% 13.9% 0.1% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $0.93 $0.89 $0.81 $1.01 $1.06 $1.27 $1.53
% Change -4.2% -8.9% 24.8% 5.0% 20.0% 20.0%
ADVERTISING REVENUE PER SUB $0.89 $0.74 $1.06 $1.20 $1.26 $1.38 $1.52
% Change -16.6% 43.5% 12.8% 5.0% 10.0% 10.0%
OTHER REVENUE PER SUB $2.83 $2.58 $2.67 $2.53 $2.65 $2.92 $3.21
% Change -9.1% 3.7% -5.4% 5.0% 10.0% 10.0%
TOTAL REVENUE PER SUB $37.96 $38.17 $39.50 $42.78 $43.97 $46.37 $48.94
% Change 0.6% 3.5% 8.3% 2.8% 5.5% 5.5%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 19,715 19,912 20,111 20,312 20,515 20,721
Ending 19,912 20,111 20,312 20,515 20,721 20,928
Change 197 199 201 203 205 207
% Change 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Average 19,813 20,012 20,212 20,414 20,618 20,824
BASIC SUBSCRIBERS:
Beginning 11,874 12,391 12,917 13,453 13,998 14,552
Ending 12,391 12,917 13,453 13,998 14,552 15,116
Change 517 526 535 545 554 564
% Change 4.4% 4.2% 4.1% 4.0% 4.0% 3.9%
Average 12,133 12,654 13,185 13,725 14,275 14,834
Ending Penetration 62.2% 64.2% 66.2% 68.2% 70.2% 72.2%
Monthly Basic Rev/Sub $41.64 $43.72 $45.90 $48.20 $50.61 $53.14
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
PAY + MINI-PAY UNITS:
Beginning 5,147 5,372 5,600 5,832 6,068 6,308
Ending 5,372 5,600 5,832 6,068 6,308 6,553
Change 224 228 232 236 240 245
% Change 4.4% 4.2% 4.1% 4.0% 4.0% 3.9%
Average 5,260 5,486 5,716 5,950 6,188 6,431
Ending Penetration 43.4% 43.4% 43.4% 43.4% 43.4% 43.4%
Monthly Pay Rev/Unit $6.99 $6.99 $6.99 $6.99 $6.99 $6.99
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $1.83 $2.20 $2.64 $3.16 $3.80 $4.55
% Change 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
ADVERTISING REVENUE PER SUB $1.67 $1.84 $2.02 $2.23 $2.45 $2.69
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
OTHER REVENUE PER SUB $3.53 $3.89 $4.28 $4.70 $5.17 $5.69
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
TOTAL REVENUE PER SUB $51.70 $54.67 $57.87 $61.32 $65.06 $69.11
% Change 5.6% 5.7% 5.8% 6.0% 6.1% 6.2%
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VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $3.27 $3.76 $4.15 $4.86 $5.05 $5.56 $6.11
% Change 15.2% 10.4% 17.0% 4.0% 10.0% 10.0%
PAY/MINI-PAY PROG.
PER UNIT $3.68 $3.80 $3.77 $4.66 $4.80 $4.94 $5.09
% Change 3.3% -0.8% 23.5% 3.0% 3.0% 3.0%
PPV PROGRAMMING/PPV
REVENUE 55.0% 46.6% 57.0% 53.0% 53.0% 53.0% 53.0%
PROGRAMMING GUIDE
COST PER SUB $0.17 $0.16 $0.17 $0.08 $0.09 $0.09 $0.09
% Change -5.5% 4.6% -50.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS
FEES/REVENUE 2.3% 3.3% 3.4% 3.2% 3.2% 3.2% 3.2%
BAD DEBT EXPENSES/
REVENUE 1.4% 1.4% 1.1% 1.3% 1.3% 1.3% 1.3%
TECHNICAL EXP.
GROWTH -13.9% -11.0% -7.8% 4.0% 4.0% 4.0%
PRODUCTION/LO
EXPENSE GROWTH -99.0% -100.0% 4.0% 4.0% 4.0% 4.0%
GEN & ADMIN
EXPENSE GROWTH -6.8% 10.8% 6.0% 4.0% 4.0% 4.0%
MARKETING EXP/
REVENUE 2.2% 1.6% 1.4% 1.5% 1.5% 1.5% 1.5%
AD SALES EXP/AD
REVENUE 60.0% 38.8% 26.0% 17.3% 17.3% 17.3% 17.3%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $6.73 $7.40 $8.14 $8.95 $9.85 $10.83
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
PAY/MINI-PAY PROG.
PER UNIT $5.24 $5.40 $5.56 $5.73 $5.90 $6.08
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PPV PROGRAMMING/PPV
REVENUE 53.0% 53.0% 53.0% 53.0% 53.0% 53.0%
PROGRAMMING GUIDE
COST PER SUB $0.10 $0.10 $0.10 $0.11 $0.11 $0.12
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS
FEES/REVENUE 3.2% 3.2% 3.2% 3.2% 3.2% 3.2%
BAD DEBT EXPENSES/
REVENUE 1.3% 1.3% 1.3% 1.3% 1.3% 1.3%
TECHNICAL EXP.
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PRODUCTION/LO
EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
GEN & ADMIN
EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
MARKETING EXP/
REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
AD SALES EXP/AD
REVENUE 17.3% 17.3% 17.3% 17.3% 17.3% 17.3%
7
15
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 2001
- -------------------- ------ ------ ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 708.49 723.89 726.78 731.12 739.10 746.49 753.96 761.50
Ending 723.89 726.78 731.12 739.10 746.49 753.96 761.50 769.11
Change 15.40 2.89 4.34 7.98 7.39 7.46 7.54 7.61
Average 716.19 725.34 728.95 735.11 742.80 750.22 757.73 756.30
Homes/Mile 25.6 25.8 26.0 25.9 25.9 25.9 25.9 25.9
CONVERTERS:
Beginning 15,950 16,269 15,938 15,346 15,414 15,568 16,283 17,011
Ending 16,269 15,938 15,346 15,414 15,568 16,283 17,011 17,752
Change 319 (331) (592) 68 154 715 728 741
Average 6,110 16,104 15,642 15,380 15,491 15,926 16,647 17,381
Ending
Penetration 145.9% 144.7% 143.3% 143.3% 143.3% 143.3% 143.3% 143.3%
REBUILD CAPITAL:
UG Miles, % Rebuilt 262.4 74.0% based on numbers provided by Falon
Aerial Miles, %
Rebuilt 468.7 74.0% based on numbers provided by Falcon
Total Rebuild Costs:
Plant Rebuild
Cost/UG Mile $22,500 2,184,730 2,184,730 11,858,293
Plant Rebuild
Cost/Aerial Mile $16,500 2,861,352 2,861,352
Other Non-Plant
Rebuild Costs 17.5% 883,064 883,064
TRUNK & DISTRIBUTION/
NEW MILE
(3-Year average) $30,721 $52,100 $54,184 $56,351 $58,605 $60,950
MAKE-READY/MILE $6.74 $361.64 $20.26 $10.17 $10.58 $11.00 $11.44 $11.90
CONV & CUST EQUIP/
NEW CONVERTER $281.81 $ - $ - $855.00 $200.00 $208.00 $216.32 $224.97
CUST. CONNECT
COSTS/SUB $14.34 $12.97 $23.86 $14.50 $15.08 $15.68 $16.31 $16.96
OTHER TECHNICAL
CAPITAL/SUB $7.35 $3.90 $2.29 $12.50 $5.00 $5.20 $5.41 $5.62
OTHER CAPITAL/
SUB $3.80 $1.24 $0.87 $1.00 $1.04 $1.08 $1.12 $1.17
CAPITAL EXPENDITURES 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 769.11 776.80 784.57 792.42 800.34
Ending 776.80 784.57 792.42 800.34 808.34
Change 7.69 7.77 7.85 7.92 8.00
Average 772.96 780.69 788.49 796.38 804.34
Homes/Mile 25.9 25.9 25.9 25.9 25.9
CONVERTERS:
Beginning 17,752 18,505 19,272 20,053 20,847
Ending 18,505 19,272 20,053 20,847 21,655
Change 754 767 781 794 808
Average 18,129 18,889 19,663 20,450 21,251
Ending
Penetration 143.3% 143.3% 143.3% 143.3% 143.3%
REBUILD CAPITAL:
UG Miles, % Rebuilt
Aerial Miles, %
Rebuilt
Plant Rebuild
Cost/UG Mile
Plant Rebuild
Cost/Aerial Mile
Oher Non-Plant
Rebuild Costs
TRUNK & DISTRIBUTION/
NEW MILE
(3-Year average) $63,388 $65,923 $68,560 $71,302 $74,155
MAKE-READY/MILE $12.37 $12.87 $13.38 $13.92 $14.48
CONV & CUST EQUIP/
NEW CONVERTER $233.97 $243.33 $253.06 $263.19 $273.71
CUST. CONNECT
COSTS/SUB $17.64 $18.35 $19.08 $19.84 $20.64
OTHER TECHNICAL
CAPITAL/SUB $5.85 $6.08 $6.33 $6.58 $6.84
OTHER CAPITAL/
SUB $1.22 $1.27 $1.32 $1.37 $1.42
8
16
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
REBUILD DCF APPROACH
BUDGET PROJECTED:
ACTUAL ACTUAL ACTUAL ---------- ----------
CASH FLOW PROJECTIONS 1994 1995 1996 1997 1998 1999 2000
- --------------------- --------- --------- --------- ---------- ---------- --------- ---------
REVENUE:
Basic & Equipment
Revenue 3,851,328 3,896,819 3,994,545 4,457,585 4,667,108 5,037,928 5,529,417
Pay and Mini-Pay
Revenue 607,709 596,715 505,682 398,720 393,306 404,339 422,653
PPV Revenue 124,007 117,381 103,952 128,782 137,453 169,571 212,702
Advertising Revenue 118,635 97,750 136,363 152,752 163,038 184,372 211,995
Other Revenue 378,328 337,278 337,254 322,738 344,469 389,545 447,908
--------- --------- --------- ---------- ---------- --------- ---------
Total Revenue 5,080,007 5,045,943 5,077,796 5,460,578 5,705,375 6,185,756 6,824,675
% Growth -0.7% 0.6% 7.5% 4.5% 8.4% 10.3%
EXPENSES:
Basic Programming
Costs 436,931 497,181 533,833 620,259 655,719 741,524 852,621
Pay Programming
Costs 381,017 370,035 273,126 265,697 269,952 285,850 307,761
PPV Programming
Costs 68,247 54,746 59,250 68,254 72,850 89,873 112,732
Program Guide
Costs 22,404 20,904 21,264 10,558 11,162 11,934 12,974
Franchise & License
Fees 118,437 165,668 171,423 177,196 185,139 200,728 221,461
Bad Debt Expense 72,445 68,861 54,212 71,697 74,912 81,219 89,608
Technical Expenses 435,746 375,189 333,914 308,036 320,357 333,171 346,498
Production/LO
Expenses 18,135 186 0 - - - -
Gen. & Admin
Expenses 456,423 425,383 471,360 499,642 519,627 540,412 562,029
Marketing Expenses 111,226 78,452 69,718 83,547 87,292 94,642 104,418
Advertising Sales
Expenses 71,179 37,908 35,442 26,426 28,206 31,896 36,675
--------- --------- --------- ---------- ---------- --------- ---------
Total Expenses 2,192,190 2,094,513 2,023,542 2,131,313 2,225,216 2,411,250 2,646,776
OPERATING CASH FLOW 2,887,817 2,951,430 3,054,254 3,329,265 3,480,159 3,774,506 4,177,899
% Margin 56.8% 58.5% 60.1% 61.0% 61.0% 61.0% 61.2%
% Growth 2.2% 3.5% 9.0% 4.5% 8.5% 10.7%
CAPITAL EXPENDITURES:
Rebuild/Upgrade
Costs - - - 5,929,147 5,929,147 - -
Trunk &
Distribution Costs 250,180 242,159 202,880 415,758 400,474 420,658 441,859
Make-Ready 4,827 262,308 14,772 7,476 7,856 8,252 8,668
Fiber Costs - Plant
and Headend - 894,758 6,607 - - - -
Converters &
Customer Equipment 80,898 147,127 23,493 58,344 30,828 148,712 157,417
Customer Connect
Costs 159,918 142,876 255,602 154,248 163,067 174,346 189,533
Other Technical
Capital 81,966 42,919 24,541 132,973 54,067 57,807 62,842
Other Capital 42,395 13,663 9,329 364,638 11,246 12,024 13,071
--------- --------- --------- ---------- ---------- --------- ---------
Total Capital
Expenditures 629,184 1,745,810 537,224 7,062,584 6,596,685 821,799 873,390
NET CASH FLOW 2,258,633 1,205,620 2,517,030 (3,733,319) (3,116,526) 2,952,707 3,304,509
% Growth -16.5% -194.7% 11.9%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- ----------------------- --------- --------- --------- --------- ---------- ----------
REVENUE:
Basic & Equipment
Revenue 6,061,936 6,638,651 7,262,960 7,938,512 8,669,220 9,459,288
Pay and Mini-Pay
Revenue 441,292 460,263 479,568 499,213 519,204 539,544
PPV Revenue 266,499 333,546 417,043 520,953 650,177 810,778
Advertising Revenue 243,479 279,340 320,163 366,606 419,415 479,430
Other Revenue 514,427 590,196 676,446 774,572 886,148 1,012,950
--------- --------- --------- ---------- ---------- ----------
Total Revenue 7,527,634 8,301,995 9,156,180 10,099,856 11,144,164 12,301,991
% Growth 10.3% 10.3% 10.3% 10.3% 10.3% 10.4%
EXPENSES:
Basic Programming
Costs 979,245 1,123,474 1,287,657 1,474,447 1,686,838 1,928,214
Pay Programming
Costs 330,974 355,558 381,586 409,134 438,283 469,116
PPV Programming
Costs 141,244 176,779 221,033 276,105 344,594 429,712
Program Guide
Costs 14,088 15,281 16,559 17,927 19,390 20,956
Franchise & License
Fees 244,272 269,400 297,118 327,740 361,628 399,200
Bad Debt Expense 98,838 109,005 120,221 132,611 146,323 161,525
Technical Expenses 360,358 374,772 389,763 405,354 421,568 438,431
Production/LO
Expenses - - - - - -
Gen. & Admin
Expenses 584,510 607,890 632,206 657,494 683,794 711,146
Marketing Expenses 115,173 127,021 140,090 154,528 170,506 188,220
Advertising Sales
Expenses 42,122 48,326 55,388 63,423 72,559 82,941
--------- --------- --------- --------- --------- ---------
Total Expenses 2,910,823 3,207,506 3,541,620 3,918,762 4,345,482 4,829,462
OPERATING CASH FLOW 4,616,811 5,094,489 5,614,560 6,181,094 6,798,682 7,472,529
% Margin 61.3% 61.4% 61.3% 61.2% 61.0% 60.7%
% Growth 10.5% 10.3% 10.2% 10.1% 10.0% 9.9%
CAPITAL EXPENDITURES:
Rebuild/Upgrade
Costs - - - - - -
Trunk &
Distribution Costs 464,129 487,521 512,092 537,901 537,011 593,488
Make-Ready 9,105 9,564 10,046 10,552 11,084 11,643
Fiber Costs - Plant
and Headend - - - - - -
Converters &
Customer Equipment 166,621 176,354 186,644 197,524 209,026 221,186
Customer Connect
Costs 205,807 223,240 241,908 261,891 283,273 306,145
Other Technical
Capital 68,238 74,019 80,208 86,834 93,923 101,507
Other Capital 14,194 15,396 16,683 18,061 19,536 21,113
--------- --------- --------- --------- --------- ---------
Total Capital
Expenditures 928,094 986,094 1,047,582 1,112,764 1,181,854 1,255,083
NET CASH FLOW 3,688,717 4,108,395 4,566,978 5,068,330 5,616.827 6,217,446
% Growth 11.6% 11.4% 11.2% 11.0% 10.8% 10.7%
9
17
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
PV OF CASH FLOWS: 1994 1995 1996 1997 1998 1999 2000
- ----------------- ------ ------ ------ ------ ------ ------ ------
PROJECTED NET CASH FLOW -3,733,319 -3,116,526 2,952,707 3,304,509
Value of Assets in
Year 10 assuming
OCG multiple of 70
Discount Rate 17.5%
PV OF CASH FLOW
STREAM 17,181,984
5.6 TIMES RUNNING RATE CASH FLOW
5.2 TIMES PROJECTED CASH FLOW
$1,634 PER SUBSCRIBER
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
PROJECTED NET CASH FLOW 3,688,717 4,108,395 4,566,978 5,068,330 5,616,827 6,217,446
Value of Assets in
Year 10 assuming
OCG multiple of 52,307,705
Discount Rate
10
18
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 18,198 18,525 18,745 18,986 19,135 19,326 19,520
Ending 18,525 18,745 18,986 19,135 19,326 19,520 19,715
Change 327 220 241 149 191 193 195
% Change 1.8% 1.2% 1.7% 0.8% 1.0% 1.0% 1.0%
Average 18,362 18,635 18,866 19,061 19,231 19,423 19,617
BASIC SUBSCRIBERS:
Beginning 11,179 11,124 10,908 10,516 10,760 10,867 10,976
Ending 11,124 10,908 10,516 10,760 10,867 10,976 11,086
Change -55 -216 -392 244 108 109 110
% Change -0.5% -1.9% -4.8% 2.3% 1.0% 1.0% 1.0%
Average 11,152 11,016 10,712 10,638 10,813 10,922 11,031
Ending Penetration 60.0% 58.2% 55.4% 56.2% 56.2% 56.2% 56.2%
Monthly Basic
Rev/Sub $28.78 $29.48 $31.08 $34.92 $35.97 $37.05 $38.16
% Change 2.4% 5.4% 12.4% 3.0% 3.0% 3.0%
PAY + MINI-PAY UNITS:
Beginning 8,257 8,987 7,226 4,840 4,664 4,711 4,758
Ending 8,987 7,226 4,840 4,664 4,711 4,758 4,806
Change 730 -1,761 -2,386 -176 47 47 48
% Change 8.8% -19.6% -44.0% -3.6% 1.0% 1.0% 1.0%
Average 8,622 8,107 6,033 4,752 4,688 4,734 4,782
Ending Penetration 80.8% 66.2% 46.0% 43.4% 43.4% 43.4% 43.4%
Monthly Pay
Rev/Unit $5.87 $6.13 $6.98 $6.99 $6.99 $6.99 $6.99
% Change 4.4% 13.9% 0.1% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $0.93 $0.89 $0.81 $1.01 $1.06 $1.11 $1.17
% Change -4.2% -8.9% 24.8% 5.0% 5.0% 5.0%
ADVERTISING REVENUE
PER SUB $0.89 $0.74 $1.06 $1.20 $1.26 $1.32 $1.39
% Change -16.6% 43.5% 12.8% 5.0% 5.0% 5.0%
OTHER REVENUE PER SUB $2.83 $2.58 $2.67 $2.53 $2.65 $2.79 $2.93
% Change -9.1% 3.7% -5.4% 5.0% 5.0% 5.0%
TOTAL REVENUE PER SUB $37.96 $38.17 $39.50 $42.78 $43.97 $45.30 $46.67
% Change 0.6% 3.5% 8.3% 2.8% 3.0% 3.0%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 19,715 19,912 20,111 20,312 20,515 20,721
Ending 19,912 20,111 20,312 20,515 20,721 20,928
Change 197 199 201 203 205 207
% Change 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Average 19,813 20,012 20,212 20,414 20,618 20,824
BASIC SUBSCRIBERS:
Beginning 11,086 11,197 11,308 11,422 11,536 11,651
Ending 11,197 11,308 11,422 11,536 11,651 11,768
Change 111 112 113 114 115 117
% Change 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Average 11,141 11,252 11,365 11,479 11,593 11,709
Ending Penetration 56.2% 56.2% 56.2% 56.2% 56.2% 56.2%
Monthly Basic
Rev/Sub $39.30 $40.48 $41.70 $42.95 $44.23 $45.56
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PAY + MINI-PAY UNITS:
Beginning 4,806 4,854 4,902 4,951 5,001 5,051
Ending 4,854 4,902 4,951 5,001 5,051 5,101
Change 48 49 49 50 50 51
% Change 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Average 4,830 4,878 4,927 4,976 5,026 5,076
Ending Penetration 43.4% 43.4% 43.4% 43.4% 43.4% 43.4%
Monthly Pay
Rev/Unit $6.99 $6.99 $6.99 $6.99 $6.99 $6.99
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $1.23 $1.29 $1.35 $1.42 $1.49 $1.57
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
ADVERTISING REVENUE
PER SUB $1.45 $1.53 $1.60 $1.68 $1.77 $1.86
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
OTHER REVENUE PER SUB $3.07 $3.23 $3.39 $3.56 $3.74 $3.92
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
TOTAL REVENUE PER SUB $48.09 $49.55 $51.07 $52.64 $54.26 $55.94
% Change 3.0% 3.1% 3.1% 3.1% 3.1% 3.1%
11
19
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $3.27 $3.76 $4.15 $4.86 $5.05 $5.26 $5.47
% Change 15.2% 10.4% 17.0% 4.0% 4.0% 4.0%
PAY/MINI-PAY PROG.
PER UNIT $3.68 $3.80 $3.77 $4.66 $4.80 $4.94 $5.09
% Change 3.3% -0.8% 23.5% 3.0% 3.0% 3.0%
PPV PROGRAMMING/
PPV REVENUE 55.0% 46.6% 57.0% 53.0% 53.0% 53.0% 53.0%
PROGRAM GUIDE COST
PER SUB $0.17 $0.16 $0.17 $0.08 $0.09 $0.09 $0.09
% Change -5.5% 4.6% -50.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS
FEES/REVENUE 2.3% 3.3% 3.4% 3.2% 3.2% 3.2% 3.2%
BAD DEBT EXPENSE/
REVENUE 1.4% 1.4% 1.1% 1.3% 1.3% 1.3% 1.3%
TECHNICAL EXP.
GROWTH -13.9% -11.0% -7.8% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH -99.0% -100.0% 4.0% 4.0% 4.0% 4.0%
GEN. & ADMIN.
EXPENSE GROWTH -6.8% 10.8% 6.0% 4.0% 4.0% 4.0%
MARKETING EXP/
REVENUE 2.2% 1.6% 1.4% 1.5% 1.5% 1.5% 1.5%
AD SALES EXP/
AD REVENUE 60.0% 38.8% 26.0% 17.3% 17.3% 17.3% 17.3%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $5.68 $5.91 $6.15 $6.39 $6.65 $6.92
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PAY/MINI-PAY PROG.
PER UNIT $5.24 $5.40 $5.56 $5.73 $5.90 $6.08
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PPV PROGRAMMING/
PPV REVENUE 53.0% 53.0% 53.0% 53.0% 53.0% 53.0%
PROGRAM GUIDE COST
PER SUB $0.10 $0.10 $0.10 $0.11 $0.11 $0.12
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS
FEES/REVENUE 3.2% 3.2% 3.2% 3.2% 3.2% 3.2%
BAD DEBT EXPENSE/
REVENUE 1.3% 1.3% 1.3% 1.3% 1.3% 1.3%
TECHNICAL EXP.
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PRODUCTION/LO
EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
GEN. & ADMIN.
EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
MARKETING EXP/
REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
AD SALES EXP/
AD REVENUE 17.3% 17.3% 17.3% 17.3% 17.3% 17.3%
12
20
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
CAPITAL ACTUAL ACTUAL ACTUAL ------- -------
EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- ---------------- ------ ------ ------ ------- ------- ------- -------
MILES OF PLANT:
Beginning 708.49 723.89 726.78 731.12 739.10 746.49 753.96
Ending 723.89 726.78 731.12 739.10 746.49 753.96 761.50
Change 15.40 2.89 4.34 7.98 7.39 7.46 7.54
Average 716.19 725.34 728.95 735.11 742.80 750.22 757.73
Homes/Mile 25.6 25.8 26.0 25.9 25.9 25.9 25.9
CONVERTERS:
Beginning 15,950 16,269 15,938 15,346 15,414 15,568 15,724
Ending 16,269 15,938 15,346 15,414 15,568 15,724 15,881
Change 319 (331) (592) 68 154 156 157
Average 16,110 16,104 15,642 15,380 15,491 15,646 15,803
Ending
Penetration 145.9% 144.7% 143.3% 143.3% 143.3% 143.3% 143.3%
- --------------------------------------------------------------------------------
REBUILD CAPITAL:
UG Miles,
% Rebuilt 262.4 74.0%
Aerial Miles,
% Rebuilt 468.7 74.0%
TOTAL REBUILD COSTS:
Plant Rebuild Cost
/UG Mile $ - 0 0 0
Plant Rebuild Cost
/Aerial Mile $ - 0 0 0
Other Non-Plant
Rebuild Costs 17.5% 0 0 0
- --------------------------------------------------------------------------------
TRUNK & DISTRIBUTION/
NEW MILE
(3-Year average) $30,721 $52,100 $54,184 $56,351 $58,605
MAKE-READY/MILE $ 6.74 $361.64 $ 20.26 $ 10.17 $ 10.58 $ 11.00 $ 11.44
CONV. & CUST.
EQUIP/NEW
CONVERTER $281.81 $ - $ - $855.00 $200.00 $208.00 $216.32
CUST. CONNECT
COSTS/SUB $14.34 $12.97 $23.86 $14.50 $15.08 $15.68 $16.31
OTHER TECHNICAL
CAPITAL/SUB $7.35 $3.90 $2.29 $12.50 $5.00 $5.20 $5.41
OTHER CAPITAL/
SUB $3.80 $1.24 $0.87 $1.00 $1.04 $1.08 $1.12
CAPITAL
EXPENDITURES: 2001 2002 2003 2004 2005 2006
- ---------------- ------ ------ ------ ------- ------- -------
MILES OF PLANT:
Beginning 761.50 769.11 776.80 784.57 792.42 800.34
Ending 769.11 776.80 784.57 792.42 800.34 808.34
Change 7.61 7.69 7.77 7.85 7.92 8.00
Average 765.30 772.96 780.69 788.49 796.38 804.34
Homes/Mile 25.9 25.9 25.9 25.9 25.9 25.9
CONVERTERS:
Beginning 15,881 16,040 16,201 16,363 16,526 16,691
Ending 16,040 16,201 16,363 16,526 16,691 16,858
Change 159 160 162 164 165 167
Average 15,961 16,120 16,282 16,444 16,609 16,775
Ending
Penetration 143.3% 143.3% 143.3% 143.3% 143.3% 143.3%
- ------------------------------------------------------------------------
REBUILD CAPITAL:
UG Miles,
% Rebuilt
Aerial Miles,
% Rebuilt
TOTAL REBUILD COSTS:
0
Plant Rebuild Cost
/UG Mile
Plant Rebuild Cost
/Aerial Mile
TRUNK & DISTRIBUTION/
NEW MILE
(3-Year average) $60,950 $63,388 $65,923 $68,560 $71,302 $74,155
MAKE-READY/MILE $11.90 $12.37 $12.87 $13.38 $13.92 $14.48
CONV. & CUST.
EQUIP/NEW
CONVERTER $224.97 $233.97 $243.33 $253.06 $263.19 $273.71
CUST. CONNECT
COSTS/SUB $16.96 $17.64 $18.35 $19.08 $19.84 $20.64
OTHER TECHNICAL
CAPITAL/SUB $5.62 $5.85 $6.08 $6.33 $6.58 $6.84
OTHER CAPITAL/
SUB $1.17 $1.22 $1.27 $1.32 $1.37 $1.42
13
21
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
NO REBUILD DCF APPROACH
BUDGET PROJECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
--------- --------- --------- --------- --------- --------- ---------
REVENUE:
Basic & Equipment Revenue 3,851,328 3,896,819 3,994,545 4,457,585 4,667,108 4,855,193 5,050,857
Pay and Mini-Pay Revenue 607,709 596,715 505,682 398,720 393,306 397,239 401,212
PPV Revenue 124,007 117,381 103,952 128,782 137,453 145,769 154,588
Advertising Revenue 118,635 97,750 136,363 152,752 163,038 172,901 183,362
Other Revenue 378,328 337,278 337,254 322,738 344,469 365,310 387,411
--------- --------- --------- --------- --------- --------- ---------
Total Revenue 5,080,007 5,045,943 5,077,796 5,460,578 5,705,375 5,936,413 6,177,430
% Growth -0.7% 0.6% 7.5% 4.5% 4.0% 4.1%
EXPENSES:
Basic Programming Costs 436,931 497,181 533,833 620,259 655,719 688,767 723,481
Pay Programming Costs 381,017 370,035 273,126 265,697 269,952 280,831 292,149
PPV Programming Costs 68,247 54,746 59,250 68,254 72,850 77,258 81,932
Program Guide Costs 22,404 20,904 21,264 10,558 11,162 11,725 12,315
Franchise & License Fees 118,437 165,668 171,423 177,196 185,139 192,637 200,458
Bad Debt Expense 72,445 68,861 54,212 71,697 74,912 77,945 81,110
Technical Expenses 435,746 375,189 333,914 308,036 320,357 333,171 346,498
Production/LO Expenses 18,135 186 0 - - - -
Gen. & Admin. Expenses 456,423 425,383 471,360 499,642 519,627 540,412 562,029
Marketing Expenses 111,226 78,452 69,718 83,547 87,292 90,827 94,515
Advertising Sales Expenses 71,179 37,908 35,442 26,426 28,206 29,912 31,722
--------- --------- --------- --------- --------- --------- ---------
Total Expenses 2,192,190 2,094,513 2,023,542 2,131,313 2,225,216 2,323,485 2,426,207
OPERATING CASH FLOW 2,887,817 2,951,430 3,054,254 3,329,265 3,480,159 3,612,928 3,751,223
% Margin 56.8% 58.5% 60.1% 61.0% 61.0% 60.9% 60.7%
% Growth 2.2% 3.5% 9.0% 4.5% 3.8% 3.8%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - - - - -
Trunk & Distribution Costs 250,180 242,159 202,880 415,758 400,474 420,658 441,859
Make-Ready 4,827 262,308 14,772 7,476 7,856 8,252 8,668
Fiber Costs-Plant & Headend - 894,758 6,607 - - - -
Converters & Customer Equipment 89,898 147,127 23,493 58,344 30,828 32,382 34,014
Customer Connect Costs 159,918 142,876 255,602 154,248 163,067 171,285 179,918
Other Technical Capital 81,966 42,919 24,541 132,973 54,067 56,792 59,654
Other Capital 42,395 13,663 9,329 364,638 11,246 11,813 12,408
--------- --------- --------- --------- --------- --------- ---------
Total Capital Expenditures 629,184 1,745,810 537,224 1,133,437 667,538 701,182 736,522
NET CASH FLOW 2,258,633 1,205,620 2,517,030 2,195,828 2,812,620 2,911,745 3,014,701
% Growth 28.1% 3.5% 3.5%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
--------- --------- --------- --------- --------- ---------
REVENUE:
Basic & Equipment Revenue 5,254,407 5,466,159 5,686,445 5,915,609 6,154,008 6,402,015
Pay and Mini-Pay Revenue 405,224 409,276 413,369 417,503 421,678 425,894
PPV Revenue 163,941 173,859 184,378 195,533 207,363 219,908
Advertising Revenue 194,455 206,220 218,696 231,927 245,959 260,839
Other Revenue 410,849 435,706 462,066 490,021 519,667 551,107
--------- --------- --------- --------- --------- ---------
Total Revenue 6,428,876 6,691,220 6,964,954 7,250,593 7,548,674 7,859,763
% Growth 4.1% 4.1% 4.1% 4.1% 4.1% 4.1%
EXPENSES:
Basic Programming Costs 759,944 798,245 838,477 880,736 925,125 971,752
Pay Programming Costs 303,922 316,170 328,912 342,167 355,956 370,301
PPV Programming Costs 86,889 92,146 97,720 103,632 109,902 116,551
Program Guide Costs 12,936 13,588 14,273 14,992 15,748 16,542
Franchise & License Fees 208,617 217,130 226,013 235,282 244,954 255,049
Bad Debt Expense 84,411 87,856 91,450 95,200 99,114 103,199
Technical Expenses 360,358 374,772 389,763 405,354 421,568 438,431
Production/LO Expenses - - - - - -
Gen. & Admin. Expenses 584,510 607,890 632,206 657,494 683,794 711,146
Marketing Expenses 98,362 102,376 106,564 110,934 115,495 120,254
Advertising Sales Expenses 33,641 35,676 37,834 40,123 42,551 45,125
--------- --------- --------- --------- --------- ---------
Total Expenses 2,533,590 2,645,850 2,763,212 2,885,916 3,014,208 3,148,350
OPERATING CASH FLOW 3,895,286 4,045,371 4,201,742 4,364,677 4,534,466 4,711,413
% Margin 60.6% 60.5% 60.3% 60.2% 60.1% 59.9%
% Growth 3.8% 3.9% 3.9% 3.9% 3.9% 3.9%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - - - -
Trunk & Distribution Costs 464,129 487,521 512,092 537,901 565,011 593,488
Make-Ready 9,105 9,564 10,046 10,552 11,084 11,643
Fiber Costs-Plant & Headend - - - - - -
Converters & Customer Equipment 35,729 37,529 39,421 41,408 43,495 45,687
Customer Connect Costs 188,986 198,511 208,516 219,025 230,064 241,659
Other Technical Capital 62,661 65,819 69,136 72,621 76,281 80,126
Other Capital 13,033 13,690 14,380 15,105 15,866 16,666
--------- --------- --------- --------- --------- ---------
Total Capital Expenditures 773,643 812,634 853,591 896,612 941,801 989,268
NET CASH FLOW 3,121,643 3,232,736 3,348,151 3,468,065 3,592,665 3,722,145
% Growth 3.5% 3.6% 3.6% 3.6% 3.6% 3.6%
14
22
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
BURKE COUNTY, NC
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
PROJECTED NET
CASH FLOW 2,195,828 2,812,620 2,911,745 3,014,701
Value of Assets
in Year 10
assuming OCF
multiple of 7.0
Discount Rate 17.5%
PV OF CASH
FLOW STREAM 20,100,147
6.6 TIMES RUNNING RATE CASH FLOW
6.0 TIMES PROJECTED CASH FLOW
$1,911 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ----------
PROJECTED NET
CASH FLOW 3,121,643 3,232,736 3,348,151 3,468,065 3,592,665 3,722,145
Value of Assets
in Year 10
assuming OCF
multiple of 32,979,893
Discount Rate
15
23
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CASH FLOW MULTIPLE AND ADJUSTED CASH FLOW MULTIPLE APPROACHES
As discussed previously, the Cable System generated revenue of
$5,077,796 and operating cash flow of $3,054,254 in 1996, for an actual
operating cash flow margin of 60.1%.
The current operating cash flow multiples indicated by the market
range from 6 to 11 times, based on transactions which have been announced
in recent months. In order to determine the respective appropriate cash
flow multiples to apply to the cash flow and to the adjusted cash flow of
the Cable System, the following factors must be considered:
o The Cable System has experienced a decline in basic subscribers due
to competition in overbuilt areas as well as the technical inability
of the system to add channels and new services commensurate with
recent rate increases.
o The cable plant needs to be rebuilt, as the 330 MHz plant has no
room to add the programming needed to keep up with competition.
Partnership management has estimated that a rebuild would cost in
excess of $11,000,000.
o The current rates of the Cable System are relatively high given the
level of service provided in each system, and the presence of direct
competition in the overbuilt portion of the service area.
o The operating cash flow margin approximates 60 percent, a very high
level by industry standards, leaving little perceived potential for
improvement by a buyer. A typical buyer would likely discount this
margin in determining the potential cash flow that such a buyer
would be able to consistently generate from this Cable System.
Based on these factors, as well as on CEA's recent experience in the cable
system transaction market, it is CEA's opinion that the following cash
flow multiples are appropriate in valuing the Cable System:
Operating Cash Flow Multiple 6.5
Adjusted Operating Cash Flow Multiple 7.0
Applying these multiples respectively to the actual operating cash
flow and to the adjusted operating cash flow of the Cable System yields
the following calculations:
Cash Flow Multiple Approach:
---------------------------
Actual Operating Cash Flow $ 3,054,254
Operating Cash Flow Multiple x 6.5
------------
Value Indication $ 19,852,651
16
24
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
Adjusted Cash Flow Multiple Approach:
Actual Revenue $ 5,077,796
Adjusted Margin x 50%
-----------
Adjusted Operating Cash Flow $ 2,538,898
Operating Cash Flow Multiple x 7.0
-----------
Value Indication $17,772,286
SUBSCRIBER MULTIPLE APPROACH
Based on CEA's recent experience in the cable system transaction
market, it is CEA's opinion that a buyer would expect the typical cable
system to generate just over $33.00 per month in total revenue, operate at
a 50% cash flow margin, and be valued at approximately 9 times this
operating cash flow. Based on these parameters, a buyer would be willing
to pay approximately $1,800 per subscriber for this typical cable system.
Applying this per-subscriber value to the subject Cable System results in
the following calculation:
Basic Subscribers 10,516
Per Subscriber Multiple x $ 1,800
-----------
Value Indication $18,928,800
REBUILD CASH FLOW MULTIPLE APPROACH
Based on CEA's recent experience in the cable system transaction
market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art
cable system could reasonably be expected to sell, on average, for
approximately 10.5 times operating cash flow. For cable systems in need of
rebuild, a buyer would likely be willing to pay approximately 10.5 times
operating cash flow less the cost of the rebuild. Therefore, to estimate
the value of the Cable System using the Rebuild Cash Flow Multiple
Approach, CEA multiplied 1996 operating cash flow by 10.5 and subtracted
the estimated cost to rebuild the Cable System, as follows:
1996 Operating Cash Flow $ 3,054,254
Rebuild Operating Cash Flow Multiple x 10.5
------------
Value of System After Rebuild 32,069,667
less: Cost of Rebuild (11,449,000)
------------
Value Indication $ 20,620,667
17
25
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
VALUE CONCLUSIONS -- BURKE COUNTY, NC
CEA used two variations of the discounted cash flow approach, and four
variations of the market approach to determine six indications of the value of
the Cable System. These value indications are summarized as follows:
Rebuild DCF Approach $ 17,181,984
No Rebuild DCF Approach $ 20,100,147
Cash Flow Multiple Approach $ 19,852,651
Adjusted Cash Flow Multiple Approach $ 17,772,286
Subscriber Multiple Approach $ 18,982,800
Rebuild Cash Flow Multiple Approach $ 20,620,667
VALUE CONCLUSION $ 19,000,000
Therefore, based on this analysis, it is CEA's opinion that, as of
December 31, 1996, the fair market value of the Burke County, NC Cable System is
$19,000,000.
18
26
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
REDMOND, OR
SYSTEM OVERVIEW -- REDMOND, OR
SYSTEM DESCRIPTION
The Partnership owns the Cable System that serves Redmond, Oregon,
as well as portions of Deschutes County, Oregon. As of December 31, 1996,
the Cable System passed 7,252 homes with 170 miles of plant, and served
3,516 basic subscribers from one headend. Relevant subscriber statistics
as of December 31, 1996 are displayed in the following table.
Homes Basic Basic Pay Pay
As of 12/31/96 Passed Subscribers Penetration Units Penetration
-------------- ------ ----------- ----------- ----- -----------
Redmond, OR 7,252 3,516 48.5% 777 22.1%
The Cable System operates at 270 MHz, 32-channel capacity, and
offers 32 channels of programming.
HOME AND SUBSCRIBER GROWTH
During the past few years, the Cable System has experienced strong
home growth, but basic subscribers have declined due to competition from
an MMDS operator in nearby Bend, Oregon. The Company's home and subscriber
growth history is displayed below.
1994 1995 1996 CAGR 94-96
---- ---- ---- ----------
Homes Passed 6,487 6,681 7,252 5.7%
Basic Subscribers 4,062 3,833 3,516 -7.0%
FINANCIAL SUMMARY
For the year ended December 31, 1996, the Redmond, OR Cable System
generated total revenue of $1,561,601 and operating cash flow of $928,970,
resulting in a 59.5% operating cash flow margin.
19
27
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
VALUATION -- REDMOND, OR
DISCOUNTED CASH FLOW APPROACHES
Financial projections, including all assumptions regarding
operations and future capital expenditures, relating to the Rebuild DCF
Approach and to the No Rebuild DCF Approach are displayed on the following
ten pages. These projections were prepared by CEA based on certain
information provided by the Partnership, including, but not limited to,
the Partnership's 1997 budget for the Cable System.
The discount rate used in this analysis was derived using a weighted
average cost of capital. Based on CEA's recent experience in the cable
system transaction market, it is CEA's opinion that equity investors in
cable systems would likely require a 25 percent return in order to justify
the equity investment. Additionally, based on CEA's recent experience in
raising debt financing for cable operators, a lender would likely charge
an interest rate of approximately 10 percent and would likely be willing
to lend up to 50 percent of asset value at that rate. Thus, the likely
weighted average cost of capital for the subject Cable System can be
calculated as follows:
50 percent debt at a rate of 10% = .50 x 10% = 5.0%
50 percent equity at a rate of 25% = .50 x 25% = 12.5%
Total Cost of Capital = 17.5%
The terminal value of the Cable System was calculated as the price
at which the cable assets might sell at the end of the ten-year projection
period, based on a multiple of the operating cash flow of the Cable System
at that time. The cash flow multiple used reflects the expected growth of
cash flow in the Cable System after year ten, as well as the return on
debt and equity capital that would likely be required by investors at that
time given the expected risk of the investment at that time.
Based on the calculations displayed on the following pages, the
discounted cash flow approaches indicate fair market values for the Cable
System as follows:
Rebuild DCF Approach $6,132,648
No Rebuild DCF Approach $6,218,514
20
28
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 6,171 6,487 6,681 7,252 9,562 9,896 10,243
Ending 6,487 6,681 7,252 9,562 9,896 10,243 10,601
Change 316 194 571 2,310 335 346 358
% Change 5.1% 3.0% 11.4% 31.9% 3.5% 3.5% 3.5%
Average 6,329 6,584 6,967 8,407 9,729 10,070 10,422
BASIC SUBSCRIBERS:
Beginning 4,046 4,062 3,833 3,516 4,614 4,775 5,147
Ending 4,062 3,833 3,516 4,614 4,775 5,147 5,539
Change 16 -229 -317 1,098 161 372 392
% Change 0.4% -5.6% -11.0% 31.2% 3.5% 7.8% 7.6%
Average 4,054 3,948 3,675 4,065 4,694 4,961 5,343
Ending Penetration 62.6% 57.4% 48.5% 48.3% 48.3% 50.3% 52.3%
Monthly Basic Rev/Sub $28.26 $28.33 $30.52 $30.64 $31.56 $33.14 $34.79
% Change 0.3% 7.7% 0.4% 3.0% 5.0% 5.0%
PAY + MINI-PAY UNITS:
Beginning 1,130 1,336 1,043 777 946 979 1,055
Ending 1,336 1,043 777 946 979 1,055 1,136
Change 206 -293 -266 169 33 76 80
% Change 18.2% -21.9% -34.0% 21.7% 3.5% 7.8% 7.6%
Average 1,233 1,190 910 861 962 1,017 1,095
Ending Penetration 32.9% 27.2% 22.1% 20.5% 20.5% 20.5% 20.5%
Monthly Pay Rev/Unit $6.42 $7.15 $6.82 $5.60 $5.60 $5.60 $5.60
% Change 11.3% -4.5% -18.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $ - $ - $ - $ - $ - $ - $ -
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
ADVERTISING REVENUE
PER SUB $1.62 $1.47 $1.52 $1.41 $1.48 $1.63 $1.79
% Change -9.6% 4.1% -7.5% 5.0% 10.0% 10.0%
OTHER REVENUE PER SUB $1.38 $1.38 $1.76 $1.34 $1.41 $1.55 $1.71
% Change -0.4% 27.5% -23.5% 5.0% 10.0% 10.0%
TOTAL REVENUE PER SUB $33.22 $33.29 $35.42 $34.58 $35.60 $37.47 $39.44
% Change 0.2% 6.4% -2.4% 2.9% 5.2% 5.3%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 10,601 10,972 11,356 11,754 12,165 12,591
Ending 10,972 11,356 11,754 12,165 12,591 13,032
Change 371 384 397 411 426 441
% Change 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Average 10,787 11,164 11,555 11,960 12,378 12,811
BASIC SUBSCRIBERS:
Beginning 5,539 5,952 6,388 6,847 7,330 7,838
Ending 5,952 6,388 6,847 7,330 7,838 8,373
Change 413 435 459 483 508 535
% Change 7.5% 7.3% 7.2% 7.1% 6.9% 6.8%
Average 5,746 6,170 6,617 7,088 7,584 8,105
Ending Penetration 54.3% 56.3% 58.3% 60.3% 62.3% 64.3%
Monthly Basic Rev/Sub $36.53 $38.36 $40.28 $42.29 $44.41 $46.63
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
PAY + MINI-PAY UNITS:
Beginning 1,136 1,220 1,310 1,404 1,503 1,607
Ending 1,220 1,310 1,404 1,503 1,607 1,716
Change 85 89 94 99 104 110
% Change 7.5% 7.3% 7.2% 7.1% 6.9% 6.8%
Average 1,178 1,265 1,357 1,453 1,555 1,662
Ending Penetration 20.5% 20.5% 20.5% 20.5% 20.5% 20.5%
Monthly Pay Rev/Unit $5.60 $5.60 $5.60 $5.60 $5.60 $5.60
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $ - $ - $ - $ - $ - $ -
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
ADVERTISING REVENUE
PER SUB $1.97 $2.17 $2.39 $2.62 $2.89 $3.17
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
OTHER REVENUE PER SUB $1.88 $2.07 $2.27 $2.50 $2.75 $3.03
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
TOTAL REVENUE PER SUB $41.53 $43.74 $46.09 $48.57 $51.19 $53.98
% Change 5.3% 5.3% 5.4% 5.4% 5.4% 5.4%
21
29
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $2.98 $3.51 $3.34 $4.34 $4.51 $4.96 $5.46
% Change 17.7% -4.9% 30.0% 4.0% 10.0% 10.0%
PAY/MINI-PAY PROG.
PER UNIT $4.88 $5.52 $4.99 $4.69 $4.83 $4.98 $5.13
% Change 13.2% -9.5% -6.0% 3.0% 3.0% 3.0%
PPV PROGRAMMING/
PPV REVENUE 0.0% 0.0% 0.0% 55.0% 55.0% 55.0% 55.0%
PROGRAM GUIDE COST
PER SUB $0.08 $0.10 $0.15 $0.04 $0.04 $0.04 $0.04
% Change 20.5% 50.8% -75.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS FEES/
REVENUE 2.7% 2.6% 2.7% 2.7% 2.7% 2.7% 2.7%
BAD DEBT EXPENSE/REVENUE 1.3% 1.4% 1.3% 1.5% 1.5% 1.5% 1.5%
TECHNICAL EXP. GROWTH 19.2% -42.1% 87.0% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH #DIV/01 162.3% 17.5% 4.0% 4.0% 4.0%
GEN. & ADMIN. EXPENSE
GROWTH -14.5% -1.6% 16.5% 4.0% 4.0% 4.0%
MARKETING EXP./REVENUE 2.5% 2.3% 3.2% 2.2% 2.2% 2.2% 2.2%
AD SALES EXP./AD REVENUE 45.9% 48.9% 77.7% 66.0% 66.0% 66.0% 66.0%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $6.00 $6.61 $7.27 $7.99 $8.79 $9.67
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
PAY/MINI-PAY PROG.
PER UNIT $5.28 $5.44 $5.61 $5.77 $5.95 $6.12
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PPV PROGRAMMING/
PPV REVENUE 55.0% 55.0% 55.0% 55.0% 55.0% 55.0%
PROGRAM GUIDE COST
PER SUB $0.04 $0.05 $0.05 $0.05 $0.05 $0.05
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS FEES/
REVENUE 2.7% 2.7% 2.7% 2.7% 2.7% 2.7%
BAD DEBT EXPENSE/REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
GEN. & ADMIN. EXPENSE
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
MARKETING EXP./REVENUE 2.2% 2.2% 2.2% 2.2% 2.2% 2.2%
AD SALES EXP./AD REVENUE 66.0% 66.0% 66.0% 66.0% 66.0% 66.0%
22
30
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 136.43 136.43 162.00 170.00 198.90 205.86 213.07
Ending 136.43 162.00 170.00 198.90 205.86 213.07 220.52
Change - 25.57 8.00 28.90 6.96 7.21 7.46
Average 136.43 149.22 166.00 184.45 202.38 209.46 216.80
Homes/Mile 47.5 41.2 42.7 48.1 48.1 48.1 48.1
CONVERTERS:
Beginning 1,792 1,479 1,238 1,050 1,384 1,433 1,544
Ending 1,479 1,238 1,050 1,384 1,433 1,544 1,662
Change (313) (241) (188) 334 48 112 118
Average 1,636 1,359 1,144 1,217 1,408 1,488 1,603
Ending Penetration 36.5% 31.4% 28.6% 30.0% 30.0% 30.0% 30.0%
REBUILD CAPITAL:
UG Miles 54.00
Aerial Miles 116.00
Cost/UG Mile $22,500
Cost/Aerial Mile $15,500
Other Rebuild Costs $527,275
TRUNK & DISTRIBUTION/
NEW MILE $25,056 $27,500 $28,600 $29,744 $30,934
(3-YEAR AVERAGE)
MAKE-READY/MILE $15.51 $ - $201.66 $38.00 $39.52 $41.10 $42.74
CONV. & CUST. EQUIP./
NEW CONVERTER $160.00 $166.00 $173.06 $179.98
CUST. CONNECT COSTS/SUB $12.44 $18.14 $29.16 $18.00 $18.72 $19.47 $20.25
OTHER TECHNICAL CAPITAL/
SUB $6.24 $4.65 $16.82 $16.00 $16.64 $17.31 $18.00
OTHER CAPITAL/SUB $5.07 $2.34 $6.57 $1.50 $1.56 $1.62 $1.69
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 220.52 228.24 236.23 244.50 253.06 253.06
Ending 228.24 236.23 244.50 253.06 261.91 271.08
Change 7.72 7.99 8.27 8.56 8.86 9.17
Average 224.38 232.24 240.36 248.78 257.48 266.50
Homes/Mile 48.1 48.1 48.1 48.1 48.1 48.1
CONVERTERS:
Beginning 1,662 1,786 1,916 2,054 2,199 2,351
Ending 1,786 1,916 2,054 2,199 2,351 2,512
Change 124 131 138 145 153 160
Average 1,724 1,851 1,985 2,126 2,275 2,432
Ending Penetration 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
TRUNK & DISTRIBUTION/
NEW MILE $32,171 $33,458 $34,796 $36,188 $37,636 $39,141
(3-YEAR AVERAGE)
MAKE-READY/MILE $44.45 $46.23 $48.08 $50.01 $52.01 $54.09
CONV. & CUST. EQUIP./
NEW CONVERTER $187.18 $194.66 $202.45 $210.55 $218.97 $227.73
CUST. CONNECT COSTS/SUB $21.06 $21.90 $22.78 $23.69 $24.63 $25.62
OTHER TECHNICAL CAPITAL/
SUB $18.72 $19.47 $20.25 $21.05 $21.90 $22.77
OTHER CAPITAL/SUB $1.75 $1.82 $1.90 $1.97 $2.05 $2.13
23
31
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------------- ------ ------ ------ ------ ------ ------ ------
REVENUE:
Basic & Equipment Revenue 1,374,689 1,342,223 1,345,692 1,494,575 1,777,821 1,972,778 2,230,949
Pay and Mini-Pay Revenue 94,969 102,010 74,521 57,843 64,621 68,293 73,553
PPV Revenue - - - - - - -
Advertising Revenue 78,866 69,408 67,240 68,803 83,432 96,989 114,905
Other Revenue 67,456 63,419 74,148 65,577 79,519 92,441 109,516
--------- --------- --------- --------- --------- --------- ---------
Total Revenue 1,615,980 1,577,060 1,561,601 1,686,797 2,005,393 2,230,501 2,528,923
% Growth -2.4% -1.0% 8.0% 18.9% 11.2% 13.4%
EXPENSES:
Basic Programming Costs 145,095 166,294 147,138 211,596 254,140 295,438 350,011
Pay Programming Costs 72,138 78,767 54,532 48,522 55,834 60,777 67,421
PPV Programming Cost (2,151) - - - - - -
Program Guide Costs 4,115 4,829 6,777 1,874 2,251 2,474 2,771
Franchise & License Fees 43,970 41,783 41,980 45,346 53,910 59,962 67,984
Bad Debt Expense 20,372 21,437 20,654 24,459 29,078 32,342 36,669
Technical Expense 96,960 115,544 66,871 125,049 130,051 135,253 140,663
Production/LO Expenses - 1,509 3,958 4,651 4,837 5,030 5,231
Gen. & Admin. Expenses 224,524 192,025 189,009 220,195 229,003 238,163 247,690
Marketing Expenses 39,764 35,730 49,495 36,266 43,116 47,956 54,372
Advertising Sales Expenses 36,201 33,944 52,217 45,410 55,065 64,013 75,837
--------- --------- --------- --------- --------- --------- ---------
Total Expenses 680,988 691,862 632,631 763,367 857,285 941,408 1,048,650
OPERATING CASH FLOW 934,992 885,198 928,970 923,431 1,148,108 1,289,093 1,480,273
% Margin 57.9% 56.1% 59.5% 54.7% 57.3% 57.8% 58.5%
% Growth -5.3% 4.9% -0.6% 24.3% 12.3% 14.8%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - 1,170,138 1,770,138 - -
Trunk & Distribution Costs 107,285 109,527 624,303 794,750 199,099 214,310 230,683
Make-Ready 2,116 - 33,475 7,009 7,998 8,609 9,267
Fiber Costs-Plant and Headend - - - - - - -
Converters & Customer
Equipment 10,261 10,125 5,630 53,450 8,061 19,312 21,175
Customer Connect Costs 50,448 71,594 107,162 73,166 87,877 96,585 108,185
Other Technical Capital 25,306 18,344 61,803 65,036 78,113 85,853 96,164
Other Capital 20,558 9,233 24,135 6,097 7,323 8,049 9,015
--------- --------- --------- --------- --------- --------- ---------
Total Capital Expenditures 215,974 218,823 856,508 2,769,647 2,158,608 432,718 474,489
NET CASH FLOW 719,018 666,375 72,462 (1,846,216) (1,010,501) 856,375 1,005,784
% Growth -45.3% -184.7% 17.4%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- ------ ------ ------ ------ ------ ------
REVENUE:
Basic & Equipment Revenue 2,519,066 2,840,382 3,198,489 3,597,353 4,041,348 4,535,305
Pay and Mini-Pay Revenue 79,097 84,939 91,093 97,574 104,397 111,578
PPV Revenue - - - - - -
Advertising Revenue 135,923 160,558 189,410 223,175 262,659 308,799
Other Revenue 129,549 153,029 180,528 212,709 250,342 294,318
--------- --------- --------- --------- --------- ---------
Total Revenue 2,863,634 3,238,908 3,659,521 4,130,811 4,658,746 5,250,000
% Growth 13.2% 13.1% 13.0% 12.9% 12.8% 12.7%
EXPENSES:
Basic Programming Costs 414,033 489,075 576,961 679,811 800,083 940,629
Pay Programming Costs 74,678 82,600 91,242 100,666 110,936 122,124
PPV Programming Cost - - - - - -
Program Guide Costs 3,099 3,461 3,861 4,301 4,786 5,319
Franchise & License Fees 76,982 87,070 98,378 111,047 125,240 141,134
Bad Debt Expense 41,523 46,964 53,063 59,897 67,552 76,125
Technical Expense 146,289 152,141 158,227 164,556 171,138 177,983
Production/LO Expenses 5,441 5,658 5,885 6,120 6,365 6,619
Gen. & Admin. Expenses 257,598 267,901 278,618 289,762 301,353 313,407
Marketing Expenses 61,568 69,637 78,680 88,812 100,163 112,875
Advertising Sales Expenses 89,709 105,968 125,011 147,295 173,355 203,807
--------- --------- --------- --------- --------- ---------
Total Expenses 1,170,920 1,310,476 1,469,924 1,652,267 1,860,969 2,100,023
OPERATING CASH FLOW 1,692,714 1,928,432 2,189,597 2,478,544 2,797,777 3,149,976
% Margin 59.1% 59.5% 59.8% 60.0% 60.1% 60.0%
% Growth 14.4% 13.9% 13.5% 13.2% 12.9% 12.6%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - - - -
Trunk & Distribution Costs 248,308 267,278 287,698 309,678 333,338 358,805
Make-Ready 9,975 10,737 11,557 12,440 13,391 14,414
Fiber Costs-Plant and Headend - - - - - -
Converters & Customer
Equipment 23,209 25,431 27,857 30,505 33,394 36,548
Customer Connect Costs 120,993 135,126 150,714 167,894 186,819 207,657
Other Technical Capital 107,549 120,112 133,968 149,239 166,062 184,584
Other Capital 10,083 11,261 12,559 13,991 15,568 17,305
--------- --------- --------- --------- --------- ---------
Total Capital Expenditures 520,116 569,945 624,353 683,747 748,572 819,312
NET CASH FLOW 1,172,598 1,358,486 1,565,244 1,794,796 2,049,204 2,330,664
% Growth 16.6% 15.9% 15.2% 14.7% 14.2% 13.7%
24
32
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
PV OF CASH FLOWS: 1994 1995 1996 1997 1998 1999 2000
- ----------------- ------ ------ ------ ------ ------ ------ ------
PROJECTED NET CASH FLOW -1,846,216 -1,010,501 856,375 1,005,784
Value of Assets in Year 10
assuming OCF multiple of 7.0
Discount Rate 17.5%
------------------------------------------------------------
PV OF CASH FLOW STREAM 6,132,648
6.6 times trailing cash flow
6.6 times projected cash flow
$1,744 per subscriber
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- ------ ------ ------ ------ ------ ------
PROJECTED NET CASH FLOW 1,172,598 1,358,486 1,565,244 1,794,796 2,049,204 2,330,664
Value of Assets in Year 10
assuming OCF multiple of 22,049,835
Discount Rate
25
33
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 6,171 6,487 6,681 7,252 9,562 9,896 10,243
Ending 6,487 6,681 7,252 9,562 9,896 10,243 10,601
Change 316 194 571 2,310 335 346 358
% Change 5.1% 3.0% 11.4% 31.9% 3.5% 3.5% 3.5%
Average 6,329 6,584 6,967 8,407 9,729 10,070 10,422
BASIC SUBSCRIBERS:
Beginning 4,046 4,062 3,833 3,516 4,614 4,775 4,942
Ending 4,062 3,833 3,516 4,614 4,775 4,942 5,115
Change 16 -229 -317 1,098 161 167 173
% Change 0.4% -5.6% -11.0% 31.2% 3.5% 3.5% 3.5%
Average 4,054 3,948 3,675 4,065 4,694 4,859 5,029
Ending Penetration 62.6% 57.4% 48.5% 48.3% 48.3% 48.3% 48.3%
Monthly Basic
Rev/Sub $28.26 $28.33 $30.52 $30.64 $31.56 $32.51 $33.48
% Change 0.3% 7.7% 0.4% 3.0% 3.0% 3.0%
PAY + MINI-PAY UNITS:
Beginning 1,130 1,336 1,043 777 946 979 1,013
Ending 1,336 1,043 777 946 979 1,013 1,049
Change 206 -293 -266 169 33 34 35
% Change 18.2% -21.9% -34.0% 21.7% 3.5% 3.5% 3.5%
Average 1,233 1,190 910 861 962 996 1,031
Ending Penetration 32.9% 27.2% 22.1% 20.5% 20.5% 20.5% 20.5%
Monthly Pay
Rev/Unit $6.42 $7.15 $6.82 $5.60 $5.60 $5.60 $5.60
% Change 11.3% -4.5% -18.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $- $- $- $- $- $- $-
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
ADVERTISING REVENUE
PER SUB $1.62 $1.47 $1.52 $1.41 $1.48 $1.56 $1.63
% Change -9.6% 4.1% -7.5% 5.0% 5.0% 5.0%
OTHER REVENUE PER SUB $1.38 $1.38 $1.76 $1.34 $1.41 $1.48 $1.56
% Change -0.4% 27.5% -23.5% 5.0% 5.0% 5.0%
TOTAL REVENUE PER SUB $33.22 $33.29 $35.42 $34.58 $35.60 $36.69 $37.82
% Change 0.2% 6.4% -2.4% 2.9% 3.1% 3.1%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 10,601 10,972 11,356 11,754 12,165 12,591
Ending 10,972 11,356 11,754 12,165 12,591 13,032
Change 371 384 397 411 426 441
% Change 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Average 10,787 11,164 11,555 11,960 12,378 12,811
BASIC SUBSCRIBERS:
Beginning 5,115 5,294 5,479 5,671 5,870 6,075
Ending 5,294 5,479 5,671 5,870 6,075 6,288
Change 179 185 192 198 205 213
% Change 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Average 5,205 5,387 5,575 5,770 5,972 6,181
Ending Penetration 48.3% 48.3% 48.3% 48.3% 48.3% 48.3%
Monthly Basic
Rev/Sub $34.49 $35.52 $36.59 $37.68 $38.81 $39.98
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PAY + MINI-PAY UNITS:
Beginning 1,049 1,085 1,123 1,163 1,203 1,245
Ending 1,085 1,123 1,163 1,203 1,245 1,289
Change 37 38 39 41 42 44
% Change 3.5% 3.5% 3.5% 3.5% 3.5% 3.5%
Average 1,067 1,104 1,143 1,183 1,224 1,267
Ending Penetration 20.5% 20.5% 20.5% 20.5% 20.5% 20.5%
Monthly Pay
Rev/Unit $5.60 $5.60 $5.60 $5.60 $5.60 $5.60
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $- $- $- $- $- $-
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
ADVERTISING REVENUE
PER SUB $1.71 $1.80 $1.89 $1.98 $2.08 $2.19
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
OTHER REVENUE PER SUB $1.63 $1.72 $1.80 $1.89 $1.99 $2.09
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
TOTAL REVENUE PER SUB $38.98 $40.18 $41.43 $42.71 $44.03 $45.40
% Change 3.1% 3.1% 3.1% 3.1% 3.1% 3.1%
26
34
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $2.98 $3.51 $3.34 $4.34 $4.51 $4.69 $4.88
% Change 17.7% -4.9% 30.0% 4.0% 4.0% 4.0%
PAY/MINI-PAY PROG.
PER UNIT $4.88 $5.52 $4.99 $4.69 $4.83 $4.98 $5.13
% Change 13.2% -9.5% -6.0% 3.0% 3.0% 3.0%
PPV PROGRAMMING/
PPV REVENUE 0.0% 0.0% 0.0% 55.0% 55.0% 55.0% 55.0%
PROGRAM GUIDE COST
PER SUB $0.08 $0.10 $0.15 $0.04 $0.04 $0.04 $0.04
% Change 20.5% 50.8% -75.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS
FEES/REVENUE 2.7% 2.6% 2.7% 2.7% 2.7% 2.7% 2.7%
BAD DEBT EXPENSE/
REVENUE 1.3% 1.4% 1.3% 1.5% 1.5% 1.5% 1.5%
TECHNICAL EXP.
GROWTH 19.2% -42.1% 87.0% 4.0% 4.0% 4.0%
PRODUCTION/LO
EXPENSE GROWTH #DIV/01 162.3% 17.5% 4.0% 4.0% 4.0%
GEN & ADMIN
EXPENSE GROWTH -14.5% -1.6% 16.5% 4.0% 4.0% 4.0%
MARKETING EXP/
REVENUE 2.5% 2.3% 3.2% 2.2% 2.2% 2.2% 2.2%
AD SALES EXP/
AD REVENUE 45.9% 48.9% 77.7% 66.0% 66.0% 66.0% 66.0%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $5.07 $5.28 $5.49 $5.71 $5.94 $6.17
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PAY/MINI-PAY PROG.
PER UNIT $5.28 $5.44 $5.61 $5.77 $5.95 $6.12
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PPV PROGRAMMING/
PPV REVENUE 55.0% 55.0% 55.0% 55.0% 55.0% 55.0%
PROGRAM GUIDE COST
PER SUB $0.04 $0.05 $0.05 $0.05 $0.05 $0.05
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS
FEES/REVENUE 2.7% 2.7% 2.7% 2.7% 2.7% 2.7%
BAD DEBT EXPENSE/
REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
TECHNICAL EXP.
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PRODUCTION/LO
EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
GEN & ADMIN
EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
MARKETING EXP/
REVENUE 2.2% 2.2% 2.2% 2.2% 2.2% 2.2%
AD SALES EXP/
AD REVENUE 66.0% 66.0% 66.0% 66.0% 66.0% 66.0%
27
35
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------ ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 136.43 136.43 162.00 170.00 198.90 205.86 213.07
Ending 136.43 162.00 170.00 198.90 205.86 213.07 220.52
Change - 25.57 8.00 28.90 6.96 7.21 7.46
Average 136.43 149.22 166.00 184.45 202.38 209.46 216.80
Homes/Mile 47.5 41.2 42.7 48.1 48.1 48.1 48.1
CONVERTERS:
Beginning 1,792 1,479 1,238 1,050 1,384 1,433 1,483
Ending 1,479 1,238 1,050 1,384 1,433 1,483 1,535
Change (313) (241) (188) 334 48 50 52
Average 1,636 1,359 1,144 1,217 1,408 1,458 1,509
Ending Penetration 36.5% 31.4% 28.6% 30.0% 30.0% 30.0% 30.0%
REBUILD CAPITAL:
UG Miles 54.00
Aerial Miles 116.00
Cost/UG Mile $ -
Cost/Aerial Mile $ -
Other Rebuild Costs $ -
TRUNK & DISTRIBUTION/
NEW MILE $25,056 $27,500 $28,600 $29,744 $30,934
(3-Year average)
MAKE-READY/MILE $15.51 $ - $201.66 $38.00 $39.52 $41.10 $42.74
CONV & CUST EQUIP/
NEW CONVERTER $160.00 $166.40 $173.06 $179.98
CUST. CONNECT
COSTS/SUB $12.44 $18.14 $29.16 $18.00 $18.72 $19.47 $20.25
OTHER TECHNICAL
CAPITAL/SUB $6.24 $4.65 $16.82 $16.00 $16.64 $17.31 $18.00
OTHER CAPITAL/SUB $5.07 $2.34 $6.57 $1.50 $1.56 $1.62 $1.69
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- --------------------- ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 220.52 228.24 236.23 244.50 253.06 261.91
Ending 228.24 236.23 244.50 253.06 261.91 271.08
Change 7.72 7.99 8.27 8.56 8.86 9.17
Average 224.38 232.24 240.36 248.78 257.48 266.50
Homes/Mile 48.1 48.1 48.1 48.1 48.1 48.1
CONVERTERS:
Beginning 1,535 1,588 1,644 1,701 1,761 1,823
Ending 1,588 1,644 1,701 1,761 1,823 1,886
Change 54 56 58 60 62 64
Average 1,561 1,616 1,673 1,731 1,792 1,854
Ending Penetration 30.0% 30.0% 30.0% 30.0% 30.0% 30.0%
TRUNK & DISTRIBUTION/
NEW MILE $32,171 $33,458 $34,796 $36,188 $37,636 $39,141
(3-Year average)
MAKE-READY/MILE $44.45 $46.23 $48.08 $50.01 $52.01 $54.09
CONV & CUST EQUIP/
NEW CONVERTER $187.18 $194.66 $202.45 $210.55 $218.97 $227.73
CUST. CONNECT
COSTS/SUB $21.06 $21.90 $22.78 $23.69 $24.63 $25.62
OTHER TECHNICAL
CAPITAL/SUB $18.72 $19.47 $20.25 $21.05 $21.90 $22.77
OTHER CAPITAL/SUB $1.75 $1.82 $1.90 $1.97 $2.05 $2.13
28
36
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------------- --------- --------- --------- --------- --------- --------- ---------
REVENUE:
Basic & Equipment
Revenue 1,374,689 1,342,223 1,345,692 1,494,575 1,777,821 1,895,246 2,020,427
Pay and Mini-Pay
Revenue 94,969 102,010 74,521 57,843 64,621 66,883 69,224
PPV Revenue - - - - - - -
Advertising Revenue 78,866 69,408 67,240 68,803 83,432 90,669 98,535
Other Revenue 67,456 63,419 74,148 65,577 79,519 86,417 93,914
---------------------------------------------------------------------------
Total Revenue 1,615,980 1,577,060 1,561,601 1,686,797 2,005,393 2,139,215 2,282,100
% Growth -2.4% -1.0% 8.0% 18.9% 6.7% 6.7%
EXPENSES:
Basic Programming
Costs 145,095 166,294 147,138 211,596 254,140 273,556 294,456
Pay Programming
Costs 72,138 78,767 54,532 48,522 55,834 59,522 63,453
PPV Programming
Cost (2,151) - - - - - -
Program Guide
Costs 4,115 4,829 6,777 1,874 2,251 2,423 2,608
Franchise & License
Fees 43,970 41,783 41,980 45,346 53,910 57,508 61,349
Bad Debt Expense 20,372 21,437 20,654 24,459 29,078 31,019 33,090
Technical Expenses 96,960 115,544 66,871 125,049 130,051 135,253 140,663
Production/LO
Expenses - 1,509 3,958 4,651 4,837 5,030 5,231
Gen. & Admin
Expenses 224,524 192,025 189,009 220,195 229,003 238,163 247,690
Marketing Expenses 39,764 35,730 49,495 36,266 43,116 45,993 49,065
Advertising Sales
Expenses 36,201 33,944 52,217 45,410 55,065 59,842 65,033
---------------------------------------------------------------------------
Total Expenses 680,988 691,862 632,631 763,367 857,285 908,309 962,639
OPERATING CASH FLOW 934,992 885,198 928,970 923,431 1,148,108 1,230,907 1,319,461
% Margin 57.9% 56.1% 59.5% 54.7% 57.3% 57.5% 57.8%
% Growth -5.3% 4.9% -0.6% 24.3% 7.2% 7.2%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - - - - -
Trunk & Distribution
Costs 107,285 109,527 624,303 794,750 199,099 214,310 230,683
Make-Ready 2,116 - 33,475 7,009 7,998 8,609 9,267
Fiber Costs - Plant
and Headend - - - - - - -
Converters and
Customer Equipment 10,261 10,125 5,630 53,450 8,061 8,677 9,340
Customer Connect
Costs 50,448 71,594 107,162 73,166 87,877 94,591 101,818
Other Technical
Capital 25,306 18,344 61,803 65,036 78,113 84,081 90,505
Other Capital 20,558 9,233 24,135 6,097 7,323 7,883 8,485
---------------------------------------------------------------------------
Total Capital
Expenditures 215,974 218,823 856,508 999,509 388,471 418,150 450,097
NET CASH FLOW 719,018 666,375 72,462 (76,078) 759,637 812,757 869,364
% Growth -1098.5% 7.0% 7.0%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- --------- --------- --------- --------- --------- ---------
REVENUE:
Basic & Equipment
Revenue 2,153,876 2,296,140 2,447,800 2,609,477 2,781,833 2,965,573
Pay and Mini-Pay
Revenue 71,647 74,154 76,750 79,436 82,216 85,094
PPV Revenue - - - - - -
Advertising Revenue 107,083 116,372 126,467 137,438 149,361 162,318
Other Revenue 102,061 110,915 120,537 130,993 142,357 154,706
----------------------------------------------------------------
Total Revenue 2,434,667 2,597,581 2,771,553 2,957,344 3,155,767 3,367,691
% Growth 6.7% 6.7% 6.7% 6.7% 6.7% 6.7%
EXPENSES:
Basic Programming
Costs 316,952 341,168 367,233 395,289 425,489 457,997
Pay Programming
Costs 67,644 72,112 76,875 81,953 87,366 93,136
PPV Programming
Cost - - - - - -
Program Guide
Costs 2,807 3,022 3,253 3,501 3,769 4,057
Franchise & License
Fees 65,450 69,830 74,507 79,501 84,835 90,533
Bad Debt Expense 35,303 37,665 40,188 42,881 45,759 48,832
Technical Expenses 146,289 152,141 158,227 164,556 171,138 177,983
Production/LO
Expenses 5,441 5,658 5,885 6,120 6,365 6,619
Gen. & Admin
Expenses 257,598 267,901 278,168 289,762 301,353 313,407
Marketing Expenses 52,345 55,848 59,588 63,583 67,849 72,405
Advertising Sales
Expenses 70,675 76,806 83,468 90,709 98,578 107,130
----------------------------------------------------------------
Total Expenses 1,020,505 1,082,151 1,147,841 1,217,856 1,292,501 1,372,099
OPERATING CASH FLOW 1,414,162 1,515,430 1,623,713 1,739,488 1,863,266 1,995,592
% Margin 58.1% 58.3% 58.6% 58.8% 59.0% 59.3%
% Growth 7.2% 7.2% 7.1% 7.1% 7.1% 7.1%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - - - -
Trunk & Distribution
Costs 248,308 267,278 287,698 309,678 333,338 358,805
Make-Ready 9,975 10,737 11,557 12,440 13,391 14,414
Fiber Costs - Plant
and Headend - - - - - -
Converters and
Customer Equipment 10,053 10,821 11,648 12,538 13,496 14,527
Customer Connect
Costs 109,596 117,970 126,983 136,684 147,127 158,367
Other Technical
Capital 97,419 104,862 112,873 121,497 130,779 140,771
Other Capital 9,133 9,831 10,582 11,390 12,261 13,197
----------------------------------------------------------------
Total Capital
Expenditures 484,484 521,499 561,341 604,228 650,391 700,080
NET CASH FLOW 929,678 993,932 1,062,372 1,135,261 1,212,876 1,295,512
% Growth 6.9% 6.9% 6.9% 6.9% 6.8% 6.8%
29
37
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
REDMOND, OR
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
PROJECTED NET
CASH FLOW -76,078 759,637 812,757 869,364
Value of Assets
in Year 10
assuming OCF
multiple of 7.0
Discount Rate 17.5%
PV OF CASH
FLOW STREAM 6,218,514
6.7 TIMES TRAILING CASH FLOW
6.7 TIMES PROJECTED CASH FLOW
$1,769 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
PROJECTED NET
CASH FLOW 929,678 993,932 1,062,372 1,135,261 1,212,876 1,295,512
Value of Assets
in Year 10
assuming OCF
multiple of 13,969,147
Discount Rate
30
38
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CASH FLOW MULTIPLE AND ADJUSTED CASH FLOW MULTIPLE APPROACHES
As discussed previously, the Cable System generated revenue of
$1,561,601 and operating cash flow of $928,970 in 1996, for an actual
operating cash flow margin of 59.5%.
The current operating cash flow multiples indicated by the market
range from 6 to 11 times, based on transactions which have been announced
in recent months. In order to determine the respective appropriate cash
flow multiples to apply to the cash flow and to the adjusted cash flow of
the Cable System, the following factors must be considered:
o The Cable System has experienced a decline in basic subscribers due
to competition with MMDS as well as the technical inability of the
system to add channels and new services commensurate with recent
rate increases. However, home growth in the system has been strong.
o The cable plant needs to be rebuilt, as the 270 MHz plant has no
room to add the programming needed to keep up with competition.
o The current rates of the Cable System are relatively high given the
level of service provided in each system, and the presence of
competition.
o The operating cash flow margin approximates 60 percent, a very high
level by industry standards, leaving little perceived potential for
improvement by a buyer. A typical buyer would likely discount this
margin in determining the potential cash flow that such a buyer
would be able to consistently generate from this Cable System.
Based on these factors, as well as on CEA's recent experience in the cable
system transaction market, it is CEA's opinion that the following cash
flow multiples are appropriate in valuing the Cable System:
Operating Cash Flow Multiple 7.0
Adjusted Operating Cash Flow Multiple 8.0
Applying these multiples respectively to the actual operating cash
flow and to the adjusted operating cash flow of the Cable System yields
the following calculations:
Cash Flow Multiple Approach:
---------------------------
Actual Operating Cash Flow $ 928,970
Operating Cash Flow Multiple x 7.0
----------
Value Indication $6,502,790
31
39
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
Adjusted Cash Flow Multiple Approach:
Actual Revenue $ 1,561,601
Adjusted Margin x 50%
------------
Adjusted Operating Cash Flow $ 780,801
Operating Cash Flow Multiple x 8.0
------------
Value Indication $ 6,246,404
SUBSCRIBER MULTIPLE APPROACH
Based on CEA's recent experience in the cable system transaction
market, it is CEA's opinion that a buyer would expect the typical cable
system to generate just over $33.00 per month in total revenue, operate at
a 50% cash flow margin, and be valued at approximately 9 times this
operating cash flow. Based on these parameters, a buyer would be willing
to pay approximately $1,800 per subscriber for this typical cable system.
Applying this per-subscriber value to the subject Cable System results in
the following calculation:
Basic Subscribers 3,516
Per Subscriber Multiple x $ 1,800
--------------
Value Indication $ 6,328,800
REBUILD CASH FLOW MULTIPLE APPROACH
Based on CEA's recent experience in the cable system transaction
market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art
cable system could reasonably be expected to sell, on average, for
approximately 10.5 times operating cash flow. For cable systems in need of
rebuild, a buyer would likely be willing to pay approximately 10.5 times
operating cash flow less the cost of the rebuild. Therefore, to estimate
the value of the Cable System using the Rebuild Cash Flow Multiple
Approach, CEA multiplied 1996 operating cash flow by 10.5 and subtracted
the estimated cost to rebuild the Cable System, as follows:
1996 Operating Cash Flow $ 928,970
Rebuild Operating Cash Flow Multiple x 10.5
-----------
Value of System After Rebuild 9,754,185
less: Estimated Cost of Rebuild (3,676,575)
-----------
Value Indication $ 6,077,610
32
40
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
VALUE CONCLUSIONS -- REDMOND, OR
CEA used two variations of the discounted cash flow approach, and four
variations of the market approach to determine six indications of the value of
the Cable System. These value indications are summarized as follows:
Rebuild DCF Approach $ 6,132,648
No Rebuild DCF Approach $ 6,218,514
Cash Flow Multiple Approach $ 6,502,790
Adjusted Cash Flow Multiple Approach $ 6,246,404
Subscriber Multiple Approach $ 6,328,800
Rebuild Cash Flow Multiple Approach $ 6,077,610
VALUE CONCLUSION $ 6,200,000
Therefore, based on this analysis, it is CEA's opinion that, as of
December 31, 1996, the fair market value of the Redmond, Oregon Cable System is
$6,200,000.
33
41
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CALIFORNIA CITY, CA
SYSTEM OVERVIEW -- CALIFORNIA CITY, CA
SYSTEM DESCRIPTION
The Partnership owns the Cable System that serves the town of
California City, California. As of December 31, 1996, the Cable System
passed nearly 2,858 homes with 90 miles of plant, and served 1,922 basic
subscribers from one headend. Relevant subscriber statistics as of
December 31, 1996 are displayed in the following table.
Homes Basic Basic Pay Pay
As of 12/31/96 Passed Subscribers Penetration Units Penetration
-------------- ------ ----------- ----------- ----- -----------
California City, CA 2,858 1,922 67.2% 839 43.7%
The Cable System operates at 330 MHz, 41-channel capacity, and
offers 41 channels of programming. The California City area does not have
its own dedicated headend and is served from an adjacent cable system in
North Edwards, California and managed jointly with that system.
HOME AND SUBSCRIBER GROWTH
During the past few years, the Cable System has experienced steady
home growth, while basic subscribers have declined. The Company's home and
subscriber growth history is displayed below.
1994 1995 1996 CAGR 94-96
---- ---- ---- ----------
Homes Passed 2,707 2,858 2,858 2.8%
Basic Subscribers 2,075 2,097 1,922 -3.8%
FINANCIAL SUMMARY
For the year ended December 31, 1996, the California City, CA Cable
System generated total revenue of $753,252 and operating cash flow of
$434,967, resulting in a 57.7% operating cash flow margin.
34
42
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
VALUATION -- CALIFORNIA CITY, CA
DISCOUNTED CASH FLOW APPROACHES
Financial projections, including all assumptions regarding
operations and future capital expenditures, relating to the Rebuild DCF
Approach and to the No Rebuild DCF Approach are displayed on the following
ten pages. These projections were prepared by CEA based on certain
information provided by the Partnership, including, but not limited to,
the Partnership's 1997 budget for the Cable System.
The discount rate used in this analysis was derived using a weighted
average cost of capital. Based on CEA's recent experience in the cable
system transaction market, it is CEA's opinion that equity investors in
cable systems would likely require a 25 percent return in order to justify
the equity investment. Additionally, based on CEA's recent experience in
raising debt financing for cable operators, a lender would likely charge
an interest rate of approximately 10 percent and would likely be willing
to lend up to 50 percent of asset value at that rate. Thus, the likely
weighted average cost of capital for the subject Cable System can be
calculated as follows:
50 percent debt at a rate of 10% = .50 x 10% = 5.0%
50 percent equity at a rate of 25% = .50 x 25% = 12.5%
Total Cost of Capital = 17.5%
The terminal value of the Cable System was calculated as the price
at which the cable assets might sell at the end of the ten-year projection
period, based on a multiple of the operating cash flow of the Cable System
at that time. The cash flow multiple used reflects the expected growth of
cash flow in the Cable System after year ten, as well as the return on
debt and equity capital that would likely be required by investors at that
time given the expected risk of the investment at that time.
Based on the calculations displayed on the following pages, the
discounted cash flow approaches indicate fair market values for the Cable
System as follows:
Rebuild DCF Approach $2,237,514
No Rebuild DCF Approach $2,900,933
35
43
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 2,500 2,707 2,858 2,858 2,938 3,056 3,178
Ending 2,707 2,858 2,858 2,938 3,056 3,178 3,305
Change 207 151 0 80 118 122 127
% Change 8.3% 5.6% 0.0% 2.8% 4.0% 4.0% 4.0%
Average 2,604 2,783 2,858 2,898 2,997 3,117 3,241
BASIC SUBSCRIBERS:
Beginning 1,933 2,075 2,097 1,922 1,974 2,069 2,215
Ending 2,075 2,097 1,922 1,974 2,069 2,215 2,370
Change 142 22 -175 52 94 146 155
% Change 7.3% 1.1% -11.1% 2.7% 4.8% 7.1% 7.0%
Average 2,004 2,086 2,010 1,948 2,021 2,142 2,292
Ending Penetration 76.7% 73.4% 67.2% 67.2% 67.7% 69.7% 71.7%
Monthly Basic Rev/
Sub $24.94 $24.48 $25.29 $26.87 $27.94 $29.34 $30.81
% Change -1.8% 3.3% 6.3% 4.0% 5.0% 5.0%
PAY + MINI-PAY UNITS:
Beginning 952 1,288 1,180 839 862 903 967
Ending 1,288 1,180 839 862 903 967 1,034
Change 336 -108 -341 23 41 64 68
% Change 35.3% -8.4% -38.5% 2.7% 4.8% 7.1% 7.0%
Average 1,120 1,234 1,010 850 882 935 1,001
Ending Penetration 62.1% 56.3% 43.7% 43.7% 43.7% 43.7% 43.7%
Monthly Pay Rev/
Unit $7.14 $7.28 $7.80 $7.64 $7.64 $7.64 $7.64
% Change 2.0% 7.1% -2.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $- $- $- $- $- $- $-
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
ADVERTISING REVENUE
PER SUB $- $- $- $- $- $- $-
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
OTHER REVENUE PER SUB $1.79 $2.21 $2.12 $1.98 $2.08 $2.49 $2.99
% Change 23.6% -4.1% -6.8% 5.0% 20.0% 20.0%
TOTAL REVENUE PER SUB $30.78 $31.01 $31.24 $32.18 $33.36 $35.17 $37.14
% Change 0.8% 0.7% 3.0% 3.6% 5.4% 5.6%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 3,305 3,437 3,575 3,718 3,866 4,021
Ending 3,437 3,575 3,718 3,866 4,021 4,182
Change 132 137 143 149 155 161
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Average 3,371 3,506 3,646 3,792 3,944 4,101
BASIC SUBSCRIBERS:
Beginning 2,370 2,533 2,706 2,889 3,081 3,285
Ending 2,533 2,706 2,889 3,081 3,285 3,500
Change 164 173 183 193 204 215
% Change 6.9% 6.8% 6.7% 6.7% 6.6% 6.5%
Average 2,451 2,620 2,797 2,985 3,183 3,393
Ending Penetration 73.7% 75.7% 77.7% 79.7% 81.7% 83.7%
Monthly Basic Rev/
Sub $32.35 $33.97 $35.66 $37.45 $39.32 $41.29
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
PAY + MINI-PAY UNITS:
Beginning 1,034 1,106 1,181 1,261 1,345 1,434
Ending 1,106 1,181 1,261 1,345 1,434 1,528
Change 71 75 80 84 89 94
% Change 6.9% 6.8% 6.7% 6.7% 6.6% 6.5%
Average 1,070 1,143 1,221 1,303 1,390 1,481
Ending Penetration 43.7% 43.7% 43.7% 43.7% 43.7% 43.7%
Monthly Pay Rev/
Unit $7.64 $7.64 $7.64 $7.64 $7.64 $7.64
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $- $- $- $- $- $-
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
ADVERTISING REVENUE
PER SUB $- $- $- $- $- $-
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
OTHER REVENUE PER SUB $3.59 $4.31 $5.17 $6.20 $7.45 $8.93
% Change 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
TOTAL REVENUE PER SUB $39.28 $41.61 $44.17 $46.99 $50.10 $53.56
% Change 5.8% 5.9% 6.2% 6.4% 6.6% 6.9%
36
44
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $4.16 $4.40 $4.02 $5.05 $5.25 $5.78 $6.35
% Change 5.6% -8.5% 25.5% 4.0% 10.0% 10.0%
PAY/MIN-PAY PROG.
PER UNIT $4.54 $4.34 $3.85 $5.89 $6.06 $6.24 $6.43
% Change -4.4% -11.3% 52.8% 3.0% 3.0% 3.0%
PPV PROGRAMMING/PPV
REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PROGRAM GUIDE COST
PER SUB $0.11 $0.11 $0.09 $0.02 $0.02 $0.02 $0.03
% Change 1.6% -17.6% -75.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS FEES/
REVENUE 2.5% 2.3% 0.7% 0.7% 0.7% 0.7% 0.7%
BAD DEBT EXPENSE/
REVENUE 0.9% 1.4% 0.3% 1.5% 1.5% 1.5% 1.5%
TECHNICAL EXP. GROWTH 36.8% 0.3% -27.5% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH 0.0% 0.0% -100.0% 0.0% 0.0% 0.0%
GEN & ADMIN EXPENSE
GROWTH -17.5% 17.4% -0.1% 4.0% 4.0% 4.0%
MARKETING EXP/REVENUE 2.1% 1.5% 0.8% 2.2% 2.2% 2.2% 2.2%
AD SALES EXP/AD
REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $6.99 $7.69 $8.46 $9.30 $10.23 $11.25
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
PAY/MINI-PAY PROG.
PER UNIT $6.62 $6.82 $7.03 $7.24 $7.46 $7.68
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PPV PROGRAMMING/PPV
REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PROGRAM GUIDE COST
PER SUB $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE ACCESS FEES/
REVENUE 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%
BAD DEBT EXPENSE/
REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
GEN & ADMIN EXPENSE
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
MARKETING EXP/REVENUE 2.2% 2.2% 2.2% 2.2% 2.2% 2.2%
AD SALES EXP/AD
REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
37
45
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 59.57 85.21 90.12 90.12 92.10 95.78 99.62
Ending 85.21 90.12 90.12 92.10 95.78 99.62 103.60
Change 25.64 4.91 - 1.98 3.68 3.83 3.98
Average 72.39 87.67 90.12 91.11 93.94 97.70 101.61
Homes/Mile 31.8 31.7 31.7 31.9 31.9 31.9 31.9
CONVERTERS:
Beginning 1,160 1,011 1,007 931 958 1,003 1,074
Ending 1,011 1,007 931 958 1,003 1,074 1,149
Change (149) (4) (76) 27 46 71 75
Average 1,086 1,009 969 944 980 1,039 1,112
Ending Penetration 50.4% 48.3% 46.3% 48.5% 48.5% 48.5% 48.5%
REBUILD CAPITAL:
UG Miles 11.1
Aerial Miles 79.0
Cost/UG Mile $22,500
Cost/Aerial Mile $16,500
Other Rebuild Costs $271,877
TRUNK & DISTRIBUTION/
NEW MILE
(3 Year average) $14,059 $28,000 $29,120 $30,285 $31,496
MAKE-READY/MILE $73.31 $104.69 $- $22.00 $22.88 $23.80 $24.75
CONV & CUST EQUIP/
NEW CONVERTER $- $- $- $509.00 $529.36 $550.53 $572.56
CUST. CONNECT COSTS/
SUB $48.79 $30.69 $20.72 $16.50 $17.16 $17.85 $18.56
OTHER TECHNICAL
CAPITAL/SUB $1.89 $- $1.47 $22.75 $2.00 $2.08 $2.16
OTHER CAPITAL/SUB $0.35 $2.01 $0.17 $0.90 $0.94 $0.97 $1.01
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 103.60 107.74 112.05 116.54 121.20 126.05
Ending 107.74 112.05 116.54 121.20 126.05 131.09
Change 4.14 4.31 4.48 4.66 4.85 5.04
Average 105.67 109.90 114.29 118.87 123.62 128.57
Homes/Mile 31.9 31.9 31.9 31.9 31.9 31.9
CONVERTERS:
Beginning 1,149 1,229 1,312 1,401 1,494 1,593
Ending 1,229 1,312 1,401 1,494 1,593 1,698
Change 79 84 89 94 99 104
Average 1,189 1,270 1,357 1,448 1,544 1,645
Ending Penetration 48.5% 48.5% 48.5% 48.5% 48.5% 48.5%
TRUNK & DISTRIBUTION/
NEW MILE
(3 Year average) $32,756 $34,066 $35,429 $36,846 $38,320 $39,853
MAKE-READY/MILE $25.74 $26.77 $27.84 $28.95 $30.11 $31.31
CONV & CUST EQUIP/
NEW CONVERTER $595.46 $619.28 $644.05 $669.81 $696.60 $724.47
CUST. CONNECT COSTS/
SUB $19.30 $20.07 $20.88 $21.71 $22.58 $23.48
OTHER TECHNICAL
CAPITAL/SUB $2.25 $2.34 $2.43 $2.53 $2.63 $2.74
OTHER CAPITAL/SUB $1.05 $1.09 $1.14 $1.18 $1.23 $1.28
38
46
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------ ------ ------ ------ ------ ------ ------
REVENUE:
Basic & Equipment
Revenue 599,671 612,815 609,818 628,159 677,866 754,108 847,452
Pay and Mini-Pay
Revenue 95,913 107,771 94,460 77,984 80,918 85,733 91,757
PPV Revenue - - - - - - -
Advertising Revenue - - - - - - -
Other Revenue 44,605 55,702 48,974 46,265 50,406 64,087 82,308
Total Revenue 740,189 776,288 753,252 752,408 809,190 903,927 1,021,517
% Growth 4.9% -3.0% -0.1% 7.5% 11.7% 13.0%
EXPENSES:
Basic Programming
Costs 100,086 110,042 97,000 118,020 127,359 148,430 174,746
Pay Programming
Costs 61,038 64,295 46,657 60,058 64,187 70,046 77,218
PPV Programming
Cost - - - - - - -
Program Guide Costs 2,618 2,769 2,199 533 575 634 705
Franchise & License
Fees 18,731 17,886 5,185 5,267 5,664 6,327 7,151
Bad Debt Expense 6,658 10,706 2,526 11,286 12,138 13,559 15,323
Technical Expenses 53,165 72,712 72,964 52,899 55,015 57,215 59,504
Production/LO
Expenses - - 93 - - - -
Gen & Admin Expenses 88,214 72,804 85,471 85,386 88,801 92,353 96,047
Marketing Expenses 15,844 11,676 6,190 16,177 17,398 19,434 21,963
Advertising Sales
Expenses - - - - - - -
Total Expenses 346,354 362,890 318,285 349,625 371,137 408,000 452,657
OPERATING CASH FLOW 393,835 413,398 434,967 402,783 438,053 495,927 568,860
% Margin 53.2% 53.3% 57.7% 53.5% 54.1% 54.9% 55.7%
% Growth 5.0% 5.2% -7.4% 8.8% 13.2% 14.7%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - 912,728 912,728 - -
Trunk & Distribution
Costs 259,428 159,556 10,516 55,440 107,278 116,032 125,500
Make-Ready 5,307 9,178 - 2,004 2,149 2,325 2,514
Fiber Costs - Plant
and Headend - - - - - - -
Converters and Customer
Equipment 1 - 301 13,519 24,198 39,063 42,957
Customer Connect Costs 97,775 64,022 41,637 32,145 34,689 38,223 42,545
Other Technical Capital 3,793 - 2,950 44,321 4,043 4,455 4,959
Other Capital 707 4,200 347 1,753 1,892 2,085 2,321
Total Capital
Expenditures 367,011 236,956 55,751 1,061,911 1,086,978 202,182 220,795
NET CASH FLOW 26,824 176,442 379,216 (659,129) (648,925) 293,745 348,065
% Growth -273.8% -1.5% -145.3% 18.5%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- --------------------- ------ ------ ------ ------ ------ ------
REVENUE:
Basic & Equipment
Revenue 951,589 1,067,715 1,197,153 1,341,371 1,501,992 1,680,814
Pay and Mini-Pay 98,126 104,858 111,971 119,485 127,422 135,802
Revenue
PPV Revenue - - - - - -
Advertising Revenue - - - - - -
Other Revenue 105,625 135,446 173,561 222,251 284,416 363,746
Total Revenue 1,155,340 1,308,018 1,482,685 1,683,107 1,913,830 2,180,362
% Growth 13.1% 13.2% 13.4% 13.5% 13.7% 13.9%
EXPENSES:
Basic Programming
Costs 205,563 241,632 283,826 333,162 390,821 458,177
Pay Programming
Costs 85,055 93,616 102,966 113,173 124,311 136,461
PPV Programming
Cost - - - - - -
Program Guide Costs 785 872 968 1,075 1,192 1,321
Franchise & License
Fees 8,087 9,156 10,379 11,782 13,397 15,263
Bad Debt Expense 17,330 19,620 22,240 25,247 28,707 32,705
Technical Expenses 61,884 64,360 66,934 69,611 72,396 75,292
Production/LO
Expenses - - - - - -
Gen & Admin Expenses 99,889 103,885 108,040 112,362 116,856 121,530
Marketing Expenses 24,840 28,122 31,878 36,187 41,147 46,878
Advertising Sales
Expenses - - - - - -
Total Expenses 503,433 561,264 627,232 702,597 788,826 887,626
OPERATING CASH FLOW 651,907 746,754 855,453 980,510 1,125,003 1,292,736
% Margin 56.4% 57.1% 57.7% 58.3% 58.8% 59.3%
% Growth 14.6% 14.5% 14.6% 14.6% 14.7% 14.9%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - - - -
Trunk & Distribution
Costs 135,741 146,817 158,798 171,756 185,771 200,930
Make-Ready 2,720 2,942 3,182 3,441 3,722 4,026
Fiber Costs - Plant
and Headend - - - - - -
Converters and Customer
Equipment 47,226 51,905 57,034 62,654 68,811 75,557
Customer Connect Costs 47,318 52,586 58,400 64,812 71,882 79,674
Other Technical Capital 5,515 6,129 6,807 7,554 8,378 9,286
Other Capital 2,581 2,868 3,185 3,535 3,921 4,346
Total Capital
Expenditures 241,100 263,248 287,405 313,752 342,485 373,818
NET CASH FLOW 410,807 483,506 568,048 666,758 782,518 918,918
% Growth 18.0% 17.7% 17.5% 17.4% 17.4% 17.4%
39
47
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
PROJECTED NET
CASH FLOW -659,129 -648,925 293,745 348,065
Value of Assets
in Year 10
assuming OCF
multiple of 7.0
Discount Rate 17.5%
PV OF CASH
FLOW STREAM 2,237,514
5.1 TIMES RUNNING RATE CASH FLOW
5.6 TIMES PROJECTED CASH FLOW
$1,164 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
PROJECTED NET
CASH FLOW 410,807 483,506 568,048 666,758 782,518 918,918
Value of Assets
in Year 10
assuming OCF
multiple of 9,049,150
Discount Rate
40
48
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 2,500 2,707 2,858 2,858 2,938 3,056 3,178
Ending 2,707 2,858 2,858 2,938 3,056 3,178 3,305
Change 207 151 0 80 118 122 127
% Change 8.3% 5.6% 0.0% 2.8% 4.0% 4.0% 4.0%
Average 2,604 2,783 2,858 2,898 2,997 3,117 3,241
BASIC SUBSCRIBERS:
Beginning 1,933 2,075 2,097 1,922 1,974 2,069 2,167
Ending 2,075 2,097 1,922 1,974 2,069 2,167 2,270
Change 142 22 -175 52 94 99 103
% Change 7.3% 1.1% -11.1% 2.7% 4.8% 4.8% 4.8%
Average 2,004 2,086 2,010 1,948 2,021 2,118 2,219
Ending Penetration 76.7% 73.4% 67.2% 67.2% 67.7% 68.2% 68.7%
Monthly Basic Rev/Sub $24.94 $24.48 $25.29 $26.87 $27.94 $29.06 $30.22
% Change -1.8% 3.3% 6.3% 4.0% 4.0% 4.0%
PAY + MINI-PAY UNITS:
Beginning 952 1,288 1,180 839 862 903 946
Ending 1,288 1,180 839 862 903 946 991
Change 336 -108 -341 23 41 43 45
% Change 35.3% -8.4% -38.5% 2.7% 4.8% 4.8% 4.8%
Average 1,120 1,234 1,010 850 882 925 969
Ending Penetration 62.1% 56.3% 43.7% 43.7% 43.7% 43.7% 43.7%
Monthly Pay Rev/Unit $7.14 $7.28 $7.80 $7.64 $7.64 $7.64 $7.64
% Change 2.0% 7.1% -2.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $- $- $- $- $- $- $-
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
ADVERTISING REVENUE
PER SUB $- $- $- $- $- $- $-
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
OTHER REVENUE PER SUB $1.79 $2.21 $2.12 $1.98 $2.08 $2.18 $2.29
% Change 23.6% -4.1% -6.8% 5.0% 5.0% 5.0%
TOTAL REVENUE PER SUB $30.78 $31.01 $31.24 $32.18 $33.36 $34.58 $35.85
% Change 0.8% 0.7% 3.0% 3.6% 3.7% 3.7%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 3,305 3,437 3,575 3,718 3,866 4,021
Ending 3,437 3,575 3,718 3,866 4,021 4,182
Change 132 137 143 149 155 161
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
Average 3,371 3,506 3,646 3,792 3,944 4,101
BASIC SUBSCRIBERS:
Beginning 2,270 2,378 2,491 2,610 2,733 2,863
Ending 2,378 2,491 2,610 2,733 2,863 2,998
Change 108 113 118 124 129 135
% Change 4.8% 4.8% 4.7% 4.7% 4.7% 4.7%
Average 2,324 2,435 2,551 2,672 2,798 2,931
Ending Penetration 69.2% 69.7% 70.2% 70.7% 71.2% 71.7%
Monthly Basic Rev/Sub $31.43 $32.69 $34.00 $35.36 $36.77 $38.24
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PAY + MINI-PAY UNITS:
Beginning 991 1,038 1,088 1,139 1,193 1,250
Ending 1,038 1,088 1,139 1,193 1,250 1,309
Change 47 49 52 54 57 59
% Change 4.8% 4.8% 4.7% 4.7% 4.7% 4.7%
Average 1,015 1,063 1,113 1,166 1,221 1,279
Ending Penetration 43.7% 43.7% 43.7% 43.7% 43.7% 43.7%
Monthly Pay Rev/Unit $7.64 $7.64 $7.64 $7.64 $7.64 $7.64
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $- $- $- $- $- $-
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
ADVERTISING REVENUE
PER SUB $- $- $- $- $- $-
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
OTHER REVENUE PER SUB $2.41 $2.53 $2.65 $2.78 $2.92 $3.07
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
TOTAL REVENUE PER SUB $37.17 $38.55 $39.99 $41.48 $43.03 $44.65
% Change 3.7% 3.7% 3.7% 3.7% 3.7% 3.8%
41
49
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $4.16 $4.40 $4.02 $5.05 $5.25 $5.46 $5.68
% Change 5.6% -8.5% 25.5% 4.0% 4.0% 4.0%
PAY/MINI-PAY PROG.
PER UNIT $4.54 $4.34 $3.85 $5.89 $6.06 $6.24 $6.43
% Change -4.4% -11.3% 52.8% 3.0% 3.0% 3.0%
PPV PROGRAMMING/
PPV REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PROGRAM GUIDE COST
PER SUB $0.11 $0.11 $0.09 $0.02 $0.02 $0.02 $0.03
% Change 1.6% -17.6% -75.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS FEES/
REVENUE 2.5% 2.3% 0.7% 0.7% 0.7% 0.7% 0.7%
BAD DEBT EXPENSE/
REVENUE 0.9% 1.4% 0.3% 1.5% 1.5% 1.5% 1.5%
TECHNICAL EXP. GROWTH 36.8% 0.3% -27.5% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH 0.0% 0.0% -100.0% 0.0% 0.0% 0.0%
GEN & ADMIN EXPENSE
GROWTH -17.5% 17.4% -0.1% 4.0% 4.0% 4.0%
MARKETING EXP/REVENUE 2.1% 1.5% 0.8% 2.2% 2.2% 2.2% 2.2%
AD SALES EXP/AD REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $5.91 $6.14 $6.39 $6.64 $6.91 $7.19
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PAY/MINI-PAY PROG.
PER UNIT $6.62 $6.82 $7.03 $7.24 $7.46 $7.68
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PPV PROGRAMMING/
PPV REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PROGRAM GUIDE COST
PER SUB $0.03 $0.03 $0.03 $0.03 $0.03 $0.03
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS FEES/
REVENUE 0.7% 0.7% 0.7% 0.7% 0.7% 0.7%
BAD DEBT EXPENSE/
REVENUE 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
GEN & ADMIN EXPENSE
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
MARKETING EXP/REVENUE 2.2% 2.2% 2.2% 2.2% 2.2% 2.2%
AD SALES EXP/AD REVENUE 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
42
50
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------ ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 59.57 85.21 90.12 90.12 92.10 95.78 99.62
Ending 85.21 90.12 90.12 92.10 95.78 99.62 103.60
Change 25.64 4.91 - 1.98 3.68 3.83 3.98
Average 72.39 87.67 90.12 91.11 93.94 97.70 101.61
Homes/Mile 31.8 31.7 31.7 31.9 31.9 31.9 31.9
CONVERTERS:
Beginning 1,160 1,011 1,007 931 958 1,003 1,051
Ending 1,011 1,007 931 958 1,003 1,051 1,101
Change (149) (4) (76) 27 46 48 50
Average 1,086 1,009 969 944 980 1,027 1,076
Ending Penetration 50.4% 48.3% 46.3% 48.5% 48.5% 48.5% 48.5%
REBUILD CAPITAL:
UG Miles 11.1
Aerial Miles 79.0
Cost/UG Mile $ -
Cost/Aerial Mile $ -
Other Rebuild Costs $ -
TRUNK & DISTRIBUTION/
NEW MILE $14,059 $28,000 $29,120 $30,285 $31,496
(3-Year average)
MAKE-READY/MILE $ 73.31 $104.69 $ - $ 22.00 $ 22.88 $ 23.80 $ 24.75
CONV & CUST EQUIP/
NEW CONVERTER $ - $ - $ - $509.00 $529.36 $550.53 $572.56
CUST. CONNECT
COSTS/SUB $ 48.79 $ 30.69 $ 20.72 $ 16.50 $ 17.16 $ 17.85 $ 18.56
OTHER TECHNICAL
CAPITAL/SUB $ 1.89 $ - $ 1.47 $ 22.75 $ 2.00 $ 2.08 $ 2.16
OTHER CAPITAL/SUB $ 0.35 $ 2.01 $ 0.17 $ 0.90 $ 0.94 $ 0.97 $ 1.01
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- --------------------- ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 103.60 107.74 112.05 116.54 121.20 126.05
Ending 107.74 112.05 116.54 121.20 126.05 131.09
Change 4.14 4.31 4.48 4.66 4.85 5.04
Average 105.67 109.90 114.29 118.87 123.62 128.57
Homes/Mile 31.9 31.9 31.9 31.9 31.9 31.9
CONVERTERS:
Beginning 1,101 1,154 1,208 1,266 1,326 1,388
Ending 1,154 1,208 1,266 1,326 1,388 1,454
Change 52 55 57 60 63 66
Average 1,127 1,181 1,237 1,296 1,357 1,421
Ending Penetration 48.5% 48.5% 48.5% 48.5% 48.5% 48.5%
REBUILD CAPITAL:
UG Miles
Aerial Miles
Cost/UG Mile
Cost/Aerial Mile
Other Rebuild Costs
TRUNK & DISTRIBUTION/
NEW MILE $32,756 $34,066 $35,429 $36,846 $38,320 $39,853
(3-Year average)
MAKE-READY/MILE $25.74 $26.77 $27.84 $28.95 $30.11 $31.31
CONV & CUST EQUIP/
NEW CONVERTER $596.46 $619.28 $644.05 $669.81 $696.60 $724.47
CUST. CONNECT
COSTS/SUB $19.30 $20.07 $20.88 $21.71 $22.58 $23.48
OTHER TECHNICAL
CAPITAL/SUB $ 2.25 $ 2.34 $ 2.43 $ 2.53 $ 2.63 $ 2.74
OTHER CAPITAL/SUB $ 1.05 $ 1.09 $ 1.14 $ 1.18 $ 1.23 $ 1.28
43
51
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------------- ------ ------ ------ ------ ------ ------ ------
REVENUE:
Basic & Equipment
Revenue 599,671 612,815 609,818 628,159 677,866 738,614 804,763
Pay and Mini-Pay
Revenue 95,913 107,771 94,460 77,984 80,918 84,779 88,818
PPV Revenue - - - - - - -
Advertising Revenue - - - - - - -
Other Revenue 44,605 55,702 48,974 46,265 50,406 55,452 60,999
---------------------------------------------------------------------
Total Revenue 740,189 776,288 753,252 752,408 809,190 878,844 954,580
% Growth 4.9% -3.0% -0.1% 7.5% 8.6% 8.6%
EXPENSES:
Basic Programming
Costs 100,086 110,042 97,000 118,020 127,359 138,773 151,201
Pay Programming
Costs 61,038 64,295 46,657 60,058 64,187 69,267 74,745
PPV Programming
Costs - - - - - - -
Program Guide Costs 2,618 2,769 2,199 533 575 627 683
Franchise & License
Fees 18,731 17,886 5,185 5,267 5,664 6,152 6,682
Bad Debt Expense 6,658 10,706 2,526 11,286 12,138 13,183 14,319
Technical Expenses 53,165 72,712 72,964 52,899 55,015 57,215 59,504
Production/LO
Expenses - - 93 - - - -
Gen. & Admin
Expenses 88,214 72,804 85,471 85,386 88,801 92,353 96,047
Marketing Expenses 15,844 11,676 6,190 16,177 17,398 18,895 20,523
Advertising Sales
Expenses - - - - - - -
---------------------------------------------------------------------
Total Expenses 346,354 362,890 318,285 349,625 371,137 396,464 423,704
OPERATING CASH FLOW 393,835 413,398 434,967 402,783 438,053 482,380 530,876
% Margin 53.2% 53.3% 57.7% 53.5% 54.1% 54.9% 55.6%
% Growth 5.0% 5.2% -7.4% 8.8% 10.1% 10.1%
CAPITAL EXPENDITURES:
Rebuild/Upgrade
Costs - - - - - - -
Trunk & Distribution
Costs 259,428 159,556 10,516 55,440 107,278 116,032 125,500
Make-Ready 5,307 9,178 - 2,004 2,149 2,325 2,514
Fiber Costs - Plant
and Headend - - - - - - -
Converters & Customer
Equipment 1 - 301 13,519 24,198 26,336 28,661
Customer Connect
Costs 97,775 64,022 41,637 32,145 34,689 37,797 41,182
Other Technical
Capital 3,793 - 2,950 44,321 4,043 4,405 4,800
Other Capital 707 4,200 347 1,753 1,892 2,062 2,246
---------------------------------------------------------------------
Total Capital
Expenditures 367,011 236,956 55,751 149,183 174,249 188,957 204,904
NET CASH FLOW 26,824 176,442 379,216 253,600 263,804 293,423 325,972
% Growth -33.1% 4.0% 11.2% 11.1%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- ------ ------ ------ ------ ------ ------
REVENUE:
Basic & Equipment
Revenue 876,789 955,212 1,040,595 1,133,552 1,234,750 1,344,917
Pay and Mini-Pay
Revenue 93,046 97,469 102,098 106,941 112,008 117,309
PPV Revenue - - - - - -
Advertising Revenue - - - - - -
Other Revenue 67,097 73,802 81,172 89,273 98,178 107,966
-----------------------------------------------------------
Total Revenue 1,036,932 1,126,483 1,223,864 1,329,765 1,444,936 1,570,192
% Growth 8.6% 8.6% 8.6% 8.7% 8.7% 8.7%
EXPENSES:
Basic Programming
Costs 164,733 179,468 195,509 212,974 231,988 252,686
Pay Programming
Costs 80,651 87,020 93,887 101,291 109,273 117,878
PPV Programming
Costs - - - - - -
Program Guide Costs 744 810 883 962 1,048 1,141
Franchise & License
Fees 7,259 7,885 8,567 9,308 10,115 10,991
Bad Debt Expense 15,554 16,897 18,358 19,946 21,674 23,553
Technical Expenses 61,884 64,360 66,934 69,611 72,396 75,292
Production/LO
Expenses - - - - - -
Gen. & Admin
Expenses 99,889 103,885 108,040 112,362 116,856 121,530
Marketing Expenses 22,294 24,219 26,313 28,590 31,066 33,759
Advertising Sales
Expenses - - - - - -
-----------------------------------------------------------
Total Expenses 453,008 484,544 518,492 555,045 594,415 636,830
OPERATING CASH FLOW 583,924 641,938 705,373 774,721 850,521 933,361
% Margin 56.3% 57.0% 57.6% 58.3% 58.9% 59.4%
% Growth 10.0% 9.9% 9.9% 9.8% 9.8% 9.7%
CAPITAL EXPENDITURES:
Rebuild/Upgrade
Costs - - - - - -
Trunk & Distribution
Costs 135,741 146,817 158,798 171,756 185,771 200,930
Make-Ready 2,720 2,942 3,182 3,441 3,722 4,026
Fiber Costs - Plant
and Headend - - - - - -
Converters & Customer
Equipment 31,191 33,943 36,936 40,191 43,732 47,583
Customer Connect
Costs 44,868 48,881 53,251 58,007 63,186 68,824
Other Technical
Capital 5,229 5,697 6,206 6,761 7,364 8,021
Other Capital 2,447 2,666 2,905 3,164 3,447 3,754
-----------------------------------------------------------
Total Capital
Expenditures 222,197 240,946 261,277 283,320 307,222 333,138
NET CASH FLOW 361,727 400,992 444,096 491,400 543,299 600,223
% Growth 11.0% 10.9% 10.7% 10.7% 10.6% 10.5%
44
52
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CALIFORNIA CITY, CALIFORNIA
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- ------ ------ ------ ------ ------ ------ ------
PROJECTED NET
CASH FLOW 253,600 263,804 293,423 325,972
Value of Assets in
Year 10 assuming
OCF multiple of 7.0
Discount rate 17.5%
PV OF CASH FLOW
STREAM 2,900,933
6.7 TIMES RUNNING RATE CASH FLOW
7.2 TIMES PROJECTED CASH FLOW
$1,509 PER SUBSCRIBER
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
PROJECTED NET
CASH FLOW 361,727 400,992 444,096 491,400 543,299 600,223
Value of Assets in
Year 10 assuming
OCF multiple of 6,633,528
Discount rate
45
53
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CASH FLOW MULTIPLE AND ADJUSTED CASH FLOW MULTIPLE APPROACHES
As discussed previously, the Cable System generated revenue of
$753,252 and operating cash flow of $434,967 in 1996, for an actual
operating cash flow margin of 57.7%.
The current operating cash flow multiples indicated by the market
range from 6 to 11 times, based on transactions which have been announced
in recent months. In order to determine the respective appropriate cash
flow multiples to apply to the cash flow and to the adjusted cash flow of
the Cable System, the following factors must be considered:
o The Cable System has experienced a decline in basic subscribers due
in part to technical inability of the system to add channels and new
services commensurate with recent rate increases.
o The cable plant needs to be rebuilt, as the 330 MHz plant has no
room to add the programming needed to keep up with competition.
Additionally, a buyer of the Cable System would need to build a
headend to serve The Cable Systems' subscribers, which are currently
served from the headend of an adjacent cable system.
o The current rates of the Cable System are relatively high given the
level of service provided in each system, and the presence of direct
competition in the overbuilt portion of the service area.
o The operating cash flow margin approximates 58 percent, a very high
level by industry standards, leaving little perceived potential for
improvement by a buyer. A typical buyer would likely discount this
margin in determining the potential cash flow that such a buyer
would be able to consistently generate from this Cable System.
Based on these factors, as well as on CEA's recent experience in the cable
system transaction market, it is CEA's opinion that the following cash
flow multiples are appropriate in valuing the Cable System:
Operating Cash Flow Multiple 7.0
Adjusted Operating Cash Flow Multiple 7.5
Applying these multiples respectively to the actual operating cash
flow and to the adjusted operating cash flow of the Cable System yields
the following calculations:
Cash Flow Multiple Approach:
---------------------------
Actual Operating Cash Flow $ 434,967
Operating Cash Flow Multiple x 7.0
-----------
Value Indication $ 3,044,769
46
54
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
Adjusted Cash Flow Multiple Approach:
Actual Revenue $ 753,252
Adjusted Margin x 50%
-----------
Adjusted Operating Cash Flow $ 376,626
Operating Cash Flow Multiple x 7.5
-----------
Value Indication $2,824,695
SUBSCRIBER MULTIPLE APPROACH
Based on CEA's recent experience in the cable system transaction
market, it is CEA's opinion that a buyer would expect the typical cable
system to generate just over $33.00 per month in total revenue, operate at
a 50% cash flow margin, and be valued at approximately 9 times this
operating cash flow. Based on these parameters, a buyer would be willing
to pay approximately $1,800 per subscriber for this typical cable system.
Applying this per-subscriber value to the subject Cable System results in
the following calculation:
Basic Subscribers 1,922
Per Subscriber Multiple x $ 1,800
--------------
Value Indication $ 3,459,600
REBUILD CASH FLOW MULTIPLE APPROACH
Based on CEA's recent experience in the cable system transaction
market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art
cable system could reasonably be expected to sell, on average, for
approximately 10.5 times operating cash flow. For cable systems in need of
rebuild, a buyer would likely be willing to pay approximately 10.5 times
operating cash flow less the cost of the rebuild. Therefore, to estimate
the value of the Cable System using the Rebuild Cash Flow Multiple
Approach, CEA multiplied 1996 operating cash flow by 10.5 and subtracted
the estimated cost to rebuild the Cable System, as follows:
1996 Operating Cash Flow $ 434,967
Rebuild Operating Cash Flow Multiple x 10.5
------------
Value of System After Rebuild 4,567,154
less: Cost of Rebuild (1,825,457)
------------
Value Indication $ 2,741,697
47
55
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
VALUE CONCLUSIONS -- CALIFORNIA CITY, CA
CEA used two variations of the discounted cash flow approach, and four
variations of the market approach to determine six indications of the value of
the Cable System. These value indications are summarized as follows:
Rebuild DCF Approach $2,237,514
No Rebuild DCF Approach $2,900,933
Cash Flow Multiple Approach $3,044,769
Adjusted Cash Flow Multiple Approach $2,824,695
Subscriber Multiple Approach $3,459,600
Rebuild Cash Flow Multiple Approach $2,741,697
VALUE CONCLUSION $2,800,000
Therefore, based on this analysis, it is CEA's opinion that, as of
December 31, 1996, the fair market value of the California City, CA Cable System
is $2,800,000.
48
56
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CENTREVILLE, MD
SYSTEM OVERVIEW -- CENTREVILLE, MD
SYSTEM DESCRIPTION
The Partnership owns the Cable System that serves Centreville,
Maryland, as well as various towns in the Maryland Counties of Queen
Anne's, Kent, and Talbot, all located on the Eastern Shore of the
Chesapeake Bay. As of December 31, 1996, the Cable System passed 23,857
homes with 650 miles of plant, and served 12,325 basic subscribers from
one headend and six microwave receive sites. Relevant subscriber
statistics as of December 31, 1996 are displayed in the following table.
Homes Basic Basic Pay Pay
As of 12/31/96 Passed Subscribers Penetration Units Penetration
-------------- ------ ----------- ----------- ----- -----------
Centreville, MD 23,857 12,325 51.7% 7,440 60.4%
The Cable System operates at 450 MHz, 62-channel capacity, and
offers 51 channels of programming.
HOME AND SUBSCRIBER GROWTH
During the past few years, the Cable System has experienced some
home growth and strong growth in basic subscribers as basic penetration
rose from 47% in 1994 to nearly 52% in 1996. The Company's home and
subscriber growth history is displayed below.
1994 1995 1996 CAGR 94-96
---- ---- ---- ----------
Homes Passed 23,383 23,497 23,857 1.0%
Basic Subscribers 11,001 11,893 12,325 5.8%
FINANCIAL SUMMARY
For the year ended December 31, 1996, the Centreville, MD Cable
System generated total revenue of $5,342,649 and operating cash flow of
$2,719,375, resulting in a 50.9% operating cash flow margin.
49
57
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
VALUATION -- CENTREVILLE, MD
DISCOUNTED CASH FLOW APPROACHES
Financial projections, including all assumptions regarding
operations and future capital expenditures, relating to the Rebuild DCF
Approach and to the No Rebuild DCF Approach are displayed on the following
ten pages. These projections were prepared by CEA based on certain
information provided by the Partnership, including, but not limited to,
the Partnership's 1997 budget for the Cable System.
The discount rate used in this analysis was derived using a weighted
average cost of capital. Based on CEA's recent experience in the cable
system transaction market, it is CEA's opinion that equity investors in
cable systems would likely require a 25 percent return in order to justify
the equity investment. Additionally, based on CEA's recent experience in
raising debt financing for cable operators, a lender would likely charge
an interest rate of approximately 10 percent and would likely be willing
to lend up to 50 percent of asset value at that rate. Thus, the likely
weighted average cost of capital for the subject Cable System can be
calculated as follows:
50 percent debt at a rate of 10% = .50 x 10% = 5.0%
50 percent equity at a rate of 25% = .50 x 25% = 12.5%
Total Cost of Capital = 17.5%
The terminal value of the Cable System was calculated as the price
at which the cable assets might sell at the end of the ten-year projection
period, based on a multiple of the operating cash flow of the Cable System
at that time. The cash flow multiple used reflects the expected growth of
cash flow in the Cable System after year ten, as well as the return on
debt and equity capital that would likely be required by investors at that
time given the expected risk of the investment at that time.
Based on the calculations displayed on the following pages, the
discounted cash flow approaches indicate fair market values for the Cable
System as follows:
Rebuild DCF Approach $18,553,636
No Rebuild DCF Approach $24,605,420
50
58
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 22,168 23,383 23,497 23,857 24,169 24,531 24,899
Ending 23,383 23,497 23,857 24,169 24,531 24,899 25,273
Change 1,215 114 360 312 363 368 373
% Change 5.5% 0.5% 2.0% 1.3% 1.5% 1.5% 1.5%
Average 22,776 23,440 23,677 24,013 24,350 24,715 25,086
BASIC SUBSCRIBERS:
Beginning 10,241 11,001 11,893 12,325 12,926 13,365 14,063
Ending 11,001 11,893 12,325 12,926 13,365 14,063 14,780
Change 760 892 432 601 439 698 716
% Change 7.4% 8.1% 4.8% 4.9% 3.4% 5.2% 5.1%
Average 10,621 11,447 12,109 12,625 13,145 13,714 14,421
Ending Penetration 47.0% 50.6% 51.7% 53.5% 54.5% 56.5% 58.5%
Monthly Basic Rev/Sub $22.50 $23.78 $26.70 $30.10 $31.31 $32.87 $34.52
% Change 5.7% 12.3% 12.7% 4.0% 5.0% 5.0%
PAY + MINI-PAY UNITS:
Beginning 9,003 9,250 8,643 7,440 7,292 7,540 7,934
Ending 9,250 8,643 7,440 7,292 7,540 7,934 8,338
Change 247 -607 -1,203 -148 248 394 404
% Change 2.7% -6.6% -18.6% -2.0% 3.4% 5.2% 5.1%
Average 9,127 8,947 8,042 7,366 7,416 7,737 8,136
Ending Penetration 84.1% 72.7% 60.4% 56.4% 56.4% 56.4% 56.4%
Monthly Pay Rev/Unit $7.48 $8.80 $8.91 $8.43 $8.43 $8.43 $8.43
% Change 17.7% 1.2% -5.4% 0.0% 0.0% 0.0%
SEGA REVENUE PER SUB $- $0.04 $0.28 $0.25 $0.27 $1.00 $1.20
% Change 0.0% 617.4% -10.5% 5.0% 20.0% 20.0%
ADVERTISING REVENUE
PER SUB $0.68 $0.83 $0.85 $0.91 $0.96 $1.05 $1.16
% Change 22.2% 1.7% 7.5% 5.0% 10.0% 10.0%
OTHER REVENUE PER SUB $2.15 $2.33 $2.97 $2.82 $2.97 $3.26 $3.59
% Change 8.4% 27.1% -4.8% 5.0% 10.0% 10.0%
TOTAL REVENUE PER SUB $31.83 $33.95 $36.77 $39.01 $40.25 $42.94 $45.22
% Change 6.7% 8.3% 6.1% 3.2% 6.7% 5.3%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 25,273 25,652 26,036 26,427 26,823 27,226
Ending 25,652 26,036 26,427 26,823 27,226 27,634
Change 379 385 391 396 402 408
% Change 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Average 25,462 25,844 26,232 26,625 27,025 27,430
BASIC SUBSCRIBERS:
Beginning 14,780 15,514 16,268 17,040 17,832 18,644
Ending 15,514 16,268 17,040 17,832 18,644 19,477
Change 735 753 773 792 812 832
% Change 5.0% 4.9% 4.7% 4.6% 4.6% 4.5%
Average 15,147 15,891 16,654 17,436 18,238 19,061
Ending Penetration 60.5% 62.5% 64.5% 66.5% 68.5% 70.5%
Monthly Basic Rev/Sub $36.24 $38.06 $39.96 $41.96 $44.05 $46.26
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
PAY + MINI-PAY UNITS:
Beginning 8,338 8,752 9,177 9,613 10,060 10,518
Ending 8,752 9,177 9,613 10,060 10,518 10,988
Change 414 425 436 447 458 470
% Change 5.0% 4.9% 4.7% 4.6% 4.6% 4.5%
Average 8,545 8,965 9,395 9,837 10,289 10,753
Ending Penetration 56.4% 56.4% 56.4% 56.4% 56.4% 56.4%
Monthly Pay Rev/Unit $8.43 $8.43 $8.43 $8.43 $8.43 $8.43
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
SEGA REVENUE PER SUB $1.44 $1.73 $2.07 $2.07 $2.28 $2.51
% Change 20.0% 20.0% 20.0% 0.0% 10.0% 10.0%
ADVERTISING REVENUE
PER SUB $1.27 $1.40 $1.54 $1.69 $1.86 $2.05
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
OTHER REVENUE PER SUB $3.95 $4.34 $4.78 $5.25 $5.78 $6.36
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
TOTAL REVENUE PER SUB $47.66 $50.28 $53.10 $55.73 $58.73 $61.93
% Change 5.4% 5.5% 5.6% 5.0% 5.4% 5.4%
51
59
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $3.75 $4.82 $5.34 $6.22 $6.47 $7.12 $7.83
% Change 28.3% 10.8% 16.6% 4.0% 10.0% 10.0%
PAY/MINI-PAY PROG.
PER UNIT $4.05 $4.89 $4.36 $4.66 $4.80 $4.95 $5.09
% Change 20.5% -10.8% 7.0% 3.0% 3.0% 3.0%
SEGA PROGRAMMING/
SEGA REVENUE 0.0% 29.4% 39.4% 38.7% 38.7% 38.7% 38.7%
PROGRAM GUIDE COST
PER SUB $0.08 $0.07 $0.06 $0.07 $0.07 $0.07 $0.08
% Change -15.3% -14.0% 13.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS FEES/
REVENUE 4.8% 4.5% 4.2% 4.3% 4.3% 4.3% 4.3%
BAD DEBT EXPENSE/
REVENUE 1.9% 1.2% 0.6% 1.2% 1.2% 1.2% 1.2%
TECHNICAL EXP. GROWTH 47.4% -12.0% -9.6% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
GEN & ADMIN EXPENSE
GROWTH 17.0% 22.4% -3.7% -3.7% -3.7% -3.7%
MARKETING EXP/REVENUE 4.4% 3.2% 1.9% 2.3% 2.3% 2.3% 2.3%
AD SALES EXP/AD REVENUE 75.1% 56.1% 64.7% 50.4% 50.4% 50.4% 50.4%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $8.61 $9.47 $10.42 $11.46 $12.61 $13.87
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
PAY/MINI-PAY PROG.
PER UNIT $5.25 $5.40 $5.57 $5.73 $5.91 $6.08
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
SEGA PROGRAMMING/
SEGA REVENUE 38.7% 38.7% 38.7% 38.7% 38.7% 38.7%
PROGRAM GUIDE COST
PER SUB $0.08 $0.08 $0.08 $0.09 $0.09 $0.10
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE, ACCESS FEES/
REVENUE 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%
BAD DEBT EXPENSE/
REVENUE 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%
TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
GEN & ADMIN EXPENSE
GROWTH -3.7% -3.7% -3.7% -3.7% -3.7% -3.7%
MARKETING EXP/REVENUE 2.3% 2.3% 2.3% 2.3% 2.3% 2.3%
AD SALES EXP/AD REVENUE 50.4% 50.4% 50.4% 50.4% 50.4% 50.4%
52
60
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------ ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 578.59 630.15 635.93 649.75 654.40 664.22 674.18
Ending 630.15 635.93 649.75 654.40 664.22 674.18 684.29
Change 51.56 5.78 13.82 4.65 9.82 9.96 10.11
Average 604.37 633.04 642.84 652.08 659.31 669.20 679.24
Homes/Mile 37.1 36.9 36.7 36.9 36.9 36.9 36.9
CONVERTERS:
Beginning 1,916 1,796 1,625 1,838 1,960 2,026 2,132
Ending 1,796 1,625 1,838 1,960 2,026 2,132 2,241
Change (120) (171) 213 122 67 106 109
Average 1,856 1,711 1,732 1,899 1,993 2,079 2,186
Ending Penetration 16.9% 14.2% 15.2% 15.2% 15.2% 15.2% 15.2%
REBUILD CAPITAL:
UG Miles 189.6 95.0%
Aerial Miles 460.2 95.0%
Cost/UG Mile $22,500 2,026,350 2,026,350
Cost/Aerial Mile $16,500 3,606,426 3,606,426
Other Rebuild Costs 17.5% 985,736 985,736
-----------------------------------------------
TRUNK & DISTRIBUTION/
NEW MILE $35,580 $20,700 $25,000 $26,000 $27,040
(3-Year average)
MAKE-READY/MILE $291.78 $128.66 $2.44 $- $10.00 $10.40 $10.82
CONV & CUST EQUIP/
NEW CONVERTER $- $- $117.94 $18.50 $19.24 $20.01 $20.81
CUST. CONNECT
COSTS/SUB $28.90 $28.77 $27.38 $21.60 $22.46 $23.36 $24.30
OTHER TECHNICAL
CAPITAL/SUB $6.75 $15.15 $2.34 $13.57 $14.11 $14.68 $15.26
OTHER CAPITAL/SUB $0.51 $3.80 $0.42 $1.19 $1.24 $1.29 $1.34
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- --------------------- ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 684.29 694.56 704.97 715.55 726.28 737.18
Ending 694.56 704.97 715.55 726.28 737.18 748.23
Change 10.26 10.42 10.57 10.73 10.89 11.06
Average 689.42 699.77 710.26 720.92 731.73 742.71
Homes/Mile 36.9 36.9 36.9 36.9 36.9 36.9
CONVERTERS:
Beginning 2,241 2,352 2,466 2,583 2,703 2,826
Ending 2,352 2,466 2,583 2,703 2,826 2,953
Change 111 114 117 120 123 126
Average 2,296 2,409 2,525 2,643 2,765 2,890
Ending Penetration 15.2% 15.2% 15.2% 15.2% 15.2% 15.2%
REBUILD CAPITAL:
UG Miles
Aerial Miles
Total Rebuild Costs:
Cost/UG Mile 13,237,023
Cost/Aerial Mile
Other Rebuild Costs
- -------------------------------
TRUNK & DISTRIBUTION/
NEW MILE $28,122 $29,246 $30,416 $31,633 $32,898 $34,214
(3-Year average)
MAKE-READY/MILE $11.25 $11.70 $12.17 $12.65 $13.16 $13.69
CONV & CUST EQUIP/
NEW CONVERTER $21.64 $22.51 $23.41 $24.34 $25.32 $26.33
CUST. CONNECT
COSTS/SUB $25.27 $26.28 $27.33 $28.42 $29.56 $30.74
OTHER TECHNICAL
CAPITAL/SUB $15.87 $16.51 $17.17 $17.86 $18.57 $19.31
OTHER CAPITAL/SUB $1.39 $1.45 $1.51 $1.57 $1.63 $1.69
53
61
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------------- ------ ------ ------ ------ ------ ------ ------
REVENUE:
Basic & Equipment
Revenue 2,867,158 3,266,153 3,879,951 4,560,845 4,938,601 5,409,922 5,973,438
Pay and Mini-Pay
Revenue 818,923 944,980 859,786 745,112 750,156 782,618 822,988
Sega Revenue - 5,414 41,088 38,342 41,917 164,568 207,669
Advertising Revenue 86,824 114,382 123,040 137,908 150,766 173,019 200,138
Other Revenue 284,331 333,075 438,784 427,900 467,797 536,843 620,989
---------------------------------------------------------------------------
Total Revenue 4,057,236 4,664,004 5,342,649 5,910,106 6,349,237 7,066,969 7,825,222
% Growth 15.0% 14.6% 10.6% 7.4% 11.3% 10.7%
EXPENSES:
Basic Programming
Costs 478,562 661,699 775,456 942,329 1,020,379 1,170,986 1,354,530
Pay Programming
Costs 444,068 524,646 420,459 412,099 427,336 459,202 497,377
Sega Programming
Costs - 1,590 16,199 14,838 16,222 63,688 80,368
Program Guide Costs 10,392 9,484 8,628 10,165 11,007 11,943 13,061
Franchise & License
Fees 194,285 209,504 225,877 256,203 275,239 306,353 339,223
Bad Debt Expense 76,907 56,738 33,754 71,512 76,826 85,510 94,685
Technical Expenses 304,253 448,354 394,378 356,478 370,737 385,567 400,990
Production/LO
Expenses - - - - - - -
Gen. & Admin
Expenses 396,107 463,270 567,155 546,454 526,508 507,291 488,775
Marketing Expenses 177,479 148,887 101,787 133,155 143,048 159,219 176,302
Advertising Sales
Expenses 65,230 64,179 79,581 69,436 75,911 87,115 100,770
---------------------------------------------------------------------------
Total Expenses 2,147,283 2,588,351 2,623,274 2,812,670 2,943,213 3,236,874 3,546,080
OPERATING CASH FLOW 1,909,953 2,075,653 2,719,375 3,097,435 3,406,023 3,830,095 4,279,142
% Margin 47.1% 44.5% 50.9% 52.4% 53.6% 54.2% 54.7%
% Growth 8.7% 31.0% 13.9% 10.0% 12.5% 11.7%
CAPITAL EXPENDITURES:
Rebuild/Upgrade
Costs - - - 6,618,511 6,618,511 - -
Trunk & Distribution
Costs 1,156,410 425,285 950,145 96,255 245,400 259,044 273,447
Make-Ready 176,345 81,573 1,150 - 6,593 6,960 7,347
Fiber Costs - Plant
and Headend 37,407 830,776 16,877 - - - -
Converters & Customer
Equipment 14,761 27,946 25,122 2,248 1,281 2,119 2,260
Customer Connect
Costs 306,965 329,310 331,527 272,706 295,294 320,395 350,399
Other Technical
Capital 71,740 173,478 28,378 171,325 185,515 201,285 220,135
Other Capital 5,466 43,550 5,129 15,024 16,268 17,651 19,304
---------------------------------------------------------------------------
Total Capital 1,769,094 1,911,918 1,358,748 7,176,070 7,368,863 807,453 872,892
Expenditures
NET CASH FLOW 140,859 163,735 1,360,627 (4,078,635)(3,962,840) 3,022,642 3,406,250
% Growth -2.8% -176.3% 12.7%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- ------ ------ ------ ------ ------ ------
REVENUE:
Basic & Equipment
Revenue 6,587,668 7,256,847 7,985,544 8,778,692 9,641,617 10,580,067
Pay and Mini-Pay
Revenue 864,394 906,857 950,399 995,043 1,040,813 1,087,732
Sega Revenue 261,740 329,518 414,407 433,874 499,214 573,890
Advertising Revenue 231,228 266,846 307,624 354,282 407,636 468,613
Other Revenue 717,455 827,970 954,497 1,099,267 1,264,814 1,454,014
----------------------------------------------------------------
Total Revenue 8,662,486 9,588,037 10,612,470 11,661,158 12,854,094 14,164,316
% Growth 10.7% 10.7% 10.7% 9.9% 10.2% 10.2%
EXPENSES:
Basic Programming
Costs 1,564,946 1,806,005 2,081,991 2,397,770 2,758,869 3,171,560
Pay Programming
Costs 538,072 581,440 627,638 676,835 729,206 784,941
Sega Programming
Costs 101,293 127,523 160,376 167,909 193,196 222,095
Program Guide Costs 14,267 15,567 16,967 18,474 20,097 21,843
Franchise & License
Fees 375,519 415,641 460,051 505,511 557,225 614,023
Bad Debt Expense 104,816 116,015 128,411 141,100 155,535 171,388
Technical Expenses 417,029 433,710 451,059 469,101 487,865 507,380
Production/LO
Expenses - - - - - -
Gen. & Admin
Expenses 470,934 453,745 437,184 421,226 405,852 391,038
Marketing Expenses 195,166 216,018 239,099 262,726 289,603 319,122
Advertising Sales
Expenses 116,423 134,357 154,889 178,381 205,245 235,947
----------------------------------------------------------------
Total Expenses 3,898,457 4,300,023 4,757,663 5,239,034 5,802,692 6,439,337
OPERATING CASH FLOW 4,764,020 5,288,014 5,854,807 6,422,124 7,051,402 7,724,978
% Margin 55.0% 55.2% 55.2% 55.1% 54.9% 54.5%
% Growth 11.3% 11.0% 10.7% 9.7% 9.8% 9.6%
CAPITAL EXPENDITURES:
Rebuild/Upgrade
Costs - - - - - -
Trunk & Distribution
Costs 288,651 304,700 321,641 339,524 358,402 378,329
Make-Ready 7,755 8,186 8,641 9,122 9,629 10,164
Fiber Costs - Plant
and Headend - - - - - -
Converters & Customer
Equipment 2,411 2,571 2,742 2,923 3,117 3,323
Customer Connect
Costs 382,749 417,613 455,171 495,615 539,148 585,991
Other Technical
Capital 240,458 262,362 385,957 311,365 338,715 368,143
Other Capital 21,087 23,007 25,077 27,305 29,703 32,284
----------------------------------------------------------------
Total Capital
Expenditures 943,110 1,018,439 1,099,229 1,185,854 1,278,714 1,378,234
NET CASH FLOW 3,820,909 4,269,575 4,755,578 5,236,270 5,772,688 6,346,744
% Growth 12.2% 11.7% 11.4% 10.1% 10.2% 9.9%
54
62
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- ------ ------ ------ ------ ------ ------ ------
PROJECTED NET
CASH FLOW -4,078,635 -3,962,840 3,022,642 3,406,250
Value of Assets in
Year 10 assuming
OCF multiple of 8.0
Discount Rate 17.5%
PV OF CASH FLOW
STREAM 18,553,636
6.8 TIMES RUNNING RATE CASH FLOW
6.0 TIMES PROJECTED CASH FLOW
$1,505 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- ------ ------ ------ ------ ------ ------
PROJECTED NET
CASH FLOW 3,820,909 4,269,575 4,755,578 5,236,270 5,772,688 6,346,744
Value of Assets in
Year 10 assuming
OCF multiple of 61,799,825
Discount Rate
55
63
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 22,168 23,383 23,497 23,857 24,169 24,531 24,899
Ending 23,383 23,497 23,857 24,169 24,531 24,899 25,273
Change 1,215 114 360 312 363 368 373
% Change 5.5% 0.5% 2.0% 1.3% 1.5% 1.5% 1.5%
Average 22,776 23,440 23,677 24,013 24,350 24,715 25,086
BASIC SUBSCRIBERS:
Beginning 10,241 11,001 11,893 12,325 12,926 13,365 13,814
Ending 11,001 11,893 12,325 12,926 13,365 13,814 14,274
Change 760 892 432 601 439 449 460
% Change 7.4% 8.1% 4.8% 4.9% 3.4% 3.4% 3.3%
Average 10,621 11,447 12,109 12,625 13,145 13,590 14,044
Ending Penetration 47.0% 50.6% 51.7% 53.5% 54.5% 55.5% 56.5%
Monthly Basic Rev/Sub $22.50 $23.78 $26.70 $30.10 $31.31 $32.56 $33.86
% Change 5.7% 12.3% 12.7% 4.0% 4.0% 4.0%
PAY + MINI-PAY UNITS:
Beginning 9,003 9,250 8,643 7,440 7,292 7,540 7,793
Ending 9,250 8,643 7,440 7,292 7,540 7,793 8,053
Change 247 -607 -1,203 -148 248 254 259
% Change 2.7% -6.6% -18.6% -2.0% 3.4% 3.4% 3.3%
Average 9,127 8,947 8,042 7,366 7,416 7,667 7,923
Ending Penetration 84.1% 72.7% 60.4% 56.4% 56.4% 56.4% 56.4%
Monthly Pay Rev/Unit $7.48 $8.80 $8.91 $8.43 $8.43 $8.43 $8.43
% Change 17.7% 1.2% -5.4% 0.0% 0.0% 0.0%
SEGA REVENUE PER SUB $- $0.04 $0.28 $0.25 $0.27 $0.28 $0.29
% Change 0.0% 617.4% -10.5% 5.0% 5.0% 5.0%
ADVERTISING REVENUE PER SUB $0.68 $0.83 $0.85 $0.91 $0.96 $1.00 $1.05
% Change 22.2% 1.7% 7.5% 5.0% 5.0% 5.0%
OTHER REVENUE PER SUB $2.15 $2.33 $2.97 $2.82 $2.97 $3.11 $3.27
% Change 8.4% 27.1% -4.8% 5.0% 5.0% 5.0%
TOTAL REVENUE PER SUB $31.83 $33.95 $36.77 $39.01 $40.25 $41.71 $43.23
% Change 6.7% 8.3% 6.1% 3.2% 3.6% 3.6%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 25,273 25,652 26,036 26,427 26,823 27,226
Ending 25,652 26,036 26,427 26,823 27,226 27,634
Change 379 385 391 396 402 408
% Change 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Average 25,462 25,844 26,232 26,625 27,025 27,430
BASIC SUBSCRIBERS:
Beginning 14,274 14,745 15,226 15,719 16,223 16,739
Ending 14,745 15,226 15,719 16,223 16,739 17,266
Change 471 482 493 504 516 527
% Change 3.3% 3.3% 3.2% 3.2% 3.2% 3.2%
Average 14,510 14,986 15,473 15,971 16,481 17,002
Ending Penetration 57.5% 58.5% 59.5% 60.5% 61.5% 62.5%
Monthly Basic Rev/Sub $35.22 $36.63 $38.09 $39.61 $41.20 $42.85
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PAY + MINI-PAY UNITS:
Beginning 8,053 8,318 8,590 8,868 9,152 9,443
Ending 8,318 8,590 8,868 9,152 9,443 9,741
Change 266 272 278 284 291 298
% Change 3.3% 3.3% 3.2% 3.2% 3.2% 3.2%
Average 8,186 8,454 8,729 9,010 9,298 9,592
Ending Penetration 56.4% 56.4% 56.4% 56.4% 56.4% 56.4%
Monthly Pay Rev/Unit $8.43 $8.43 $8.43 $8.43 $8.43 $8.43
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
SEGA REVENUE PER SUB $0.31 $0.32 $0.34 $0.34 $0.37 $0.41
% Change 5.0% 5.0% 5.0% 0.0% 10.0% 10.0%
ADVERTISING REVENUE PER SUB $1.11 $1.16 $1.22 $1.28 $1.34 $1.41
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
OTHER REVENUE PER SUB $3.43 $3.60 $3.78 $3.97 $4.17 $4.38
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
TOTAL REVENUE PER SUB $44.82 $46.47 $48.19 $49.96 $51.85 $53.81
% Change 3.7% 3.7% 3.7% 3.7% 3.8% 3.8%
56
64
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $3.75 $4.82 $5.34 $6.22 $6.47 $6.73 $7.00
% Change 28.3% 10.8% 16.6% 4.0% 4.0% 4.0%
PAY/MIN-PAY PROG.
PER UNIT $4.05 $4.89 $4.36 $4.66 $4.80 $4.95 $5.09
% Change 20.5% -10.8% 7.0% 3.0% 3.0% 3.0%
SEGA PROGRAMMING/
SEGA REVENUE 0.0% 29.4% 39.4% 38.7% 38.7% 38.7% 38.7%
PROGRAM GUIDE COST
PER SUB $0.08 $0.07 $0.06 $0.07 $0.07 $0.07 $0.08
% Change -15.3% -14.0% 13.0% 4.0% 4.0% 4.0%
FRANCHISE ACCESS
FEES/REVENUE 4.8% 4.5% 4.2% 4.3% 4.3% 4.3% 4.3%
BAD DEBT EXPENSE/
REVENUE 1.9% 1.2% 0.6% 1.2% 1.2% 1.2% 1.2%
TECHNICAL EXP.
GROWTH 47.4% -12.0% -9.6% 4.0% 4.0% 4.0%
PRODUCTION/LO
EXPENSE GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
GEN & ADMIN
EXPENSE GROWTH 17.0% 22.4% -3.7% -3.7% -3.7% -3.7%
MARKETING EXP/
REVENUE 4.4% 3.2% 1.9% 2.3% 2.3% 2.3% 2.3%
AD SALES EXP/
AD REVENUE 75.1% 56.1% 64.7% 50.4% 50.4% 50.4% 50.4%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $7.28 $7.57 $7.87 $8.18 $8.51 $8.85
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PAY/MIN-PAY PROG.
PER UNIT $5.25 $5.40 $5.57 $5.73 $5.91 $6.08
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
SEGA PROGRAMMING/
SEGA REVENUE 38.7% 38.7% 38.7% 38.7% 38.7% 38.7%
PROGRAM GUIDE COST
PER SUB $0.08 $0.08 $0.08 $0.09 $0.09 $0.10
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
FRANCHISE ACCESS
FEES/REVENUE 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%
BAD DEBT EXPENSE/
REVENUE 1.2% 1.2% 1.2% 1.2% 1.2% 1.2%
TECHNICAL EXP.
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PRODUCTION/LO
EXPENSE GROWTH 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
GEN & ADMIN
EXPENSE GROWTH -3.7% -3.7% -3.7% -3.7% -3.7% -3.7%
MARKETING EXP/
REVENUE 2.3% 2.3% 2.3% 2.3% 2.3% 2.3%
AD SALES EXP/
AD REVENUE 50.4% 50.4% 50.4% 50.4% 50.4% 50.4%
57
65
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------ ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 578.59 630.15 635.93 649.75 654.40 664.22 674.18
Ending 630.15 635.93 649.75 654.40 664.22 674.18 684.29
Change 51.56 5.78 13.82 4.65 9.82 9.96 10.11
Average 604.37 633.04 642.84 652.08 659.31 669.20 679.24
Homes/Mile 37.1 36.9 36.7 36.9 36.9 36.9 36.9
CONVERTERS:
Beginning 1,916 1,796 1,625 1,838 1,960 2,026 2,094
Ending 1,796 1,625 1,838 1,960 2,026 2,094 2,164
Change (120) (171) 213 122 67 68 70
Average 1,856 1,711 1,732 1,899 1,993 2,060 2,129
Ending Penetration 16.9% 14.2% 15.2% 15.2% 15.2% 15.2% 15.2%
REBUILD CAPITAL:
UG Miles 189.6
Aerial Miles 460.2
Cost/UG Mile $-
Cost/Aerial Mile $-
Other Rebuild Costs $-
TRUNK & DISTRIBUTION/
NEW MILE $35,580 $20,700 $25,000 $26,000 $27,040
(3-Year average)
MAKE-READY/MILE $291.78 $128.86 $2.44 $- $10.00 $10.40 $10.82
CONV & CUST EQUIP/
NEW CONVERTER $- $- $117.94 $18.50 $19.24 $20.01 $20.81
CUST. CONNECT
COSTS/SUB $28.90 $28.77 $27.38 $21.60 $22.46 $23.36 $24.30
OTHER TECHNICAL
CAPITAL/SUB $6.75 $15.15 $2.34 $13.57 $14.11 $14.68 $15.26
OTHER CAPITAL/SUB $0.51 $3.80 $0.42 $1.19 $1.24 $1.29 $1.34
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- --------------------- ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 684.29 694.56 704.97 715.55 726.28 737.18
Ending 694.56 704.97 715.55 726.28 737.18 748.23
Change 10.26 10.42 10.57 10.73 10.89 11.06
Average 689.42 699.77 710.26 720.92 731.73 742.71
Homes/Mile 36.9 36.9 36.9 36.9 36.9 36.9
CONVERTERS:
Beginning 2,164 2,235 2,308 2,383 2,459 2,538
Ending 2,235 2,308 2,383 2,459 2,538 2,618
Change 71 73 75 76 78 80
Average 2,200 2,272 2,346 2,421 2,498 2,578
Ending Penetration 15.2% 15.2% 15.2% 15.2% 15.2% 15.2%
TRUNK & DISTRIBUTION/
NEW MILE $28,122 $29,246 $30,416 $31,633 $32,898 $34,214
(3-Year average)
MAKE-READY/MILE $11.25 $11.70 $12.17 $12.65 $13.16 $13.69
CONV & CUST EQUIP/
NEW CONVERTER $21.64 $22.51 $23.41 $24.34 $25.32 $26.33
CUST. CONNECT
COSTS/SUB $25.27 $26.28 $27.33 $28.42 $29.56 $30.74
OTHER TECHNICAL
CAPITAL/SUB $15.87 $16.51 $17.17 $17.86 $18.57 $19.31
OTHER CAPITAL/SUB $1.39 $1.45 $1.51 $1.57 $1.63 $1.69
58
66
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------------- --------- --------- --------- --------- --------- --------- ---------
REVENUE:
Basic & Equipment
Revenue 2,867,158 3,266,153 3,879,951 4,560,845 4,938,601 5,309,755 5,706,915
Pay and Mini-Pay
Revenue 818,923 944,980 859,786 745,112 750,156 775,513 801,461
Sega Revenue - 5,414 41,088 38,342 41,917 45,500 49,374
Advertising Revenue 86,824 114,382 123,040 137,908 150,766 163,655 177,587
Other Revenue 284,331 333,075 438,784 427,900 467,797 507,789 551,019
---------------------------------------------------------------------------
Total Revenue 4,057,236 4,664,004 5,342,649 5,910,106 6,349,237 6,802,213 7,286,356
% Growth 15.0% 14.6% 10.6% 7.4% 7.1% 7.1%
EXPENSES:
Basic Programming
Costs 478,562 661,699 775,456 942,329 1,020,379 1,097,064 1,179,122
Pay Programming
Costs 444,068 524,646 420,459 412,099 427,336 455,034 484,367
Sega Programming
Cost - 1,590 16,199 14,838 16,222 17,609 19,108
Program Guide
Costs 10,392 9,484 8,628 10,165 11,007 11,835 12,720
Franchise & License
Fees 194,285 209,504 225,877 256,203 275,239 294,876 315,864
Bad Debt Expense 76,907 56,738 33,754 71,512 76,826 82,307 88,165
Technical Expenses 304,253 448,354 394,378 356,478 370,737 385,567 400,990
Production/LO
Expenses - - - - - - -
Gen. & Admin
Expenses 396,107 463,270 567,155 546,454 526,508 507,291 488,775
Marketing Expenses 177,479 148,887 101,787 133,155 143,048 153,254 164,162
Advertising Sales
Expenses 65,230 64,179 79,581 69,436 75,911 82,400 89,415
---------------------------------------------------------------------------
Total Expenses 2,147,283 2,588,351 2,623,274 2,812,670 2,943,213 3,087,235 3,242,686
OPERATING CASH FLOW 1,909,953 2,075,653 2,719,375 3,097,435 3,406,023 3,714,977 4,403,670
% Margin 47.1% 44.5% 50.9% 52.4% 53.6% 54.6% 55.5%
% Growth 8.7% 31.0% 13.9% 10.0% 9.1% 8.8%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - 1,272,693 - - -
Trunk & Distribution
Costs 1,156,410 425,285 950,145 96,255 245,400 259,044 273,447
Make-Ready 176,345 81,573 1,570 - 6,593 6,960 7,347
Fiber Costs - Plant
and Headend 37,407 830,776 16,877 - - - -
Converters and
Customer Equipment 14,761 27,946 25,122 2,248 1,281 1,363 1,451
Customer Connect
Costs 306,965 329,310 331,527 272,706 295,294 317,486 341,233
Other Technical
Capital 71,740 173,478 28,378 171,325 185,515 199,458 214,377
Other Capital 5,466 43,550 5,129 15,024 16,268 17,491 18,799
---------------------------------------------------------------------------
Total Capital
Expenditures 1,769,094 1,911,918 1,358,748 1,830,252 750,352 801,802 856,654
NET CASH FLOW 140,859 163,735 1,360,627 1,267,183 2,655,672 2,913,175 3,187,016
% Growth 109.6% 9.7% 9.4%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ---------------------- --------- --------- --------- --------- --------- ---------
REVENUE:
Basic & Equipment
Revenue 6,131,824 6,586,341 7,072,444 7,592,242 8,147,977 8,742,040
Pay and Mini-Pay
Revenue 828,014 855,182 882,980 911,419 940,512 970,273
Sega Revenue 53,560 58,083 62,970 64,998 73,780 83,726
Advertising Revenue 192,644 208,914 226,490 245,473 265,975 288,111
Other Revenue 597,738 648,218 702,753 761,656 825,267 893,951
----------------------------------------------------------------
Total Revenue 7,803,779 8,356,738 8,947,636 9,575,788 10,253,511 10,978,100
% Growth 7.1% 7.1% 7.1% 7.0% 7.1% 7.1%
EXPENSES:
Basic Programming
Costs 1,266,914 1,360,823 1,461,258 1,568,655 1,683,477 1,806,218
Pay Programming
Costs 515,426 548,308 583,115 619,953 658,934 700,179
Sega Programming
Cost 20,728 22,478 24,369 25,154 28,553 32,402
Program Guide
Costs 13,667 14,680 15,763 16,922 18,160 19,485
Franchise & License
Fees 338,294 362,265 387,880 415,110 444,490 475,901
Bad Debt Expense 94,426 101,117 108,266 115,867 124,067 132,835
Technical Expenses 417,029 433,710 451,059 469,101 487,865 507,380
Production/LO
Expenses - - - - - -
Gen. & Admin
Expenses 470,934 453,745 437,184 421,226 405,852 391,038
Marketing Expenses 175,819 188,277 201,590 215,742 231,012 247,337
Advertising Sales
Expenses 96,996 105,188 114,037 123,596 133,918 145,064
----------------------------------------------------------------
Total Expenses 3,410,233 3,590,591 3,784,522 3,991,327 4,216,329 4,457,837
OPERATING CASH FLOW 4,393,546 4,766,146 5,163,144 5,584,461 6,037,182 6,520,263
% Margin 56.3% 57.0% 57.7% 58.3% 58.9% 59.4%
% Growth 8.7% 8.5% 8.3% 8.2% 8.1% 8.0%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - - - -
Trunk & Distribution
Costs 288,651 304,700 321,641 339,524 358,402 378,329
Make-Ready 7,755 8,186 8,641 9,122 9,629 10,164
Fiber Costs - Plant
and Headend - - - - - -
Converters and
Customer Equipment 1,544 1,643 1,748 1,860 1,979 2,105
Customer Connect
Costs 366,640 393,817 422,882 453,963 487,192 522,712
Other Technical
Capital 230,338 247,412 265,672 285,198 306,074 328,389
Other Capital 20,199 21,696 23,298 25,010 26,841 28,798
----------------------------------------------------------------
Total Capital
Expenditures 915,127 977,454 1,043,883 1,114,677 1,190,116 1,270,498
NET CASH FLOW 3,478,419 3,788,692 4,119,231 4,469,784 4,847,066 5,249,765
% Growth 9.1% 8.9% 8.7% 8.5% 8.4% 8.3%
59
67
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
CENTREVILLE, MD
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
PROJECTED NET
CASH FLOW 1,267,183 2,655,672 2,913,175 3,187,016
Value of Assets
in Year 10
assuming OCF
multiple of 8.0
Discount Rate 17.5%
PV OF CASH
FLOW STREAM 24,605,420
9.0 TIMES TRAILING CASH FLOW
7.9 TIMES PROJECTED CASH FLOW
$1,996 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
PROJECTED NET
CASH FLOW 3,478,419 3,788,692 4,119,231 4,469,784 4,847,066 5,249,765
Value of Assets
in Year 10
assuming OCF
multiple of 52,162,104
Discount Rate
60
68
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CASH FLOW MULTIPLE AND ADJUSTED CASH FLOW MULTIPLE APPROACHES
As discussed previously, the Cable System generated revenue of
$5,342,649 and operating cash flow of $2,719,375 in 1996, for an actual
operating cash flow margin of 50.9%.
The current operating cash flow multiples indicated by the market
range from 6 to 11 times, based on transactions which have been announced
in recent months. In order to determine the respective appropriate cash
flow multiples to apply to the cash flow and to the adjusted cash flow of
the Cable System, the following factors must be considered:
o The Cable System has experienced strong growth in basic subscribers
during the past few years.
o The cable plant does not need an immediate rebuild, as the 450 MHz
plant has some room to add channels. However, Partnership management
has estimated that a rebuild would cost in excess of $13,000,000.
o The current rates of the Cable System are reasonable, given the
level of service provided in each system.
o The operating cash flow margin approximates 50 percent, a normal
level by industry standards, leaving some perceived potential for
improvement by a buyer. A typical buyer would likely not adjust this
margin significantly in determining the potential cash flow that
such a buyer would be able to consistently generate from this Cable
System.
Based on these factors, as well as on CEA's recent experience in the cable
system transaction market, it is CEA's opinion that the following cash
flow multiples are appropriate in valuing the Cable System:
Operating Cash Flow Multiple 9.0
Adjusted Operating Cash Flow Multiple 9.0
Applying these multiples respectively to the actual operating cash
flow and to the adjusted operating cash flow of the Cable System yields
the following calculations:
Cash Flow Multiple Approach:
Actual Operating Cash Flow $ 2,719,375
Operating Cash Flow Multiple x 9.0
------------
Value Indication $ 24,474,375
61
69
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
Adjusted Cash Flow Multiple Approach:
Actual Revenue $ 5,342,644
Adjusted Margin x 50%
------------
Adjusted Operating Cash Flow $ 2,671,325
Operating Cash Flow Multiple x 9.0
------------
Value Indication $ 24,041,921
SUBSCRIBER MULTIPLE APPROACH
Based on CEA's recent experience in the cable system transaction
market, it is CEA's opinion that a buyer would expect the typical cable
system to generate just over $33.00 per month in total revenue, operate at
a 50% cash flow margin, and be valued at approximately 9 times this
operating cash flow. Based on these parameters, a buyer would be willing
to pay approximately $1,800 per subscriber for this typical cable system.
Applying this per-subscriber value to the subject Cable System results in
the following calculation:
Basic Subscribers 12,325
Per Subscriber Multiple x $ 1,800
-------------
Value Indication $ 22,185,000
REBUILD CASH FLOW MULTIPLE APPROACH
Based on CEA's recent experience in the cable system transaction
market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art
cable system could reasonably be expected to sell, on average, for
approximately 10.5 times operating cash flow. For cable systems in need of
rebuild, a buyer would likely be willing to pay approximately 10.5 times
operating cash flow less the cost of the rebuild. Therefore, to estimate
the value of the Cable System using the Rebuild Cash Flow Multiple
Approach, CEA multiplied 1996 operating cash flow by 10.5 and subtracted
the estimated cost to rebuild the Cable System, as follows:
1996 Operating Cash Flow $ 2,719,375
Rebuild Operating Cash Flow Multiple x 10.5
-------------
Value of System After Rebuild 28,553,438
less: Cost of Rebuild (13,204,000)
-------------
Value Indication $ 15,349,438
62
70
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
VALUE CONCLUSIONS -- CENTREVILLE, MD
CEA used two variations of the discounted cash flow approach, and four
variations of the market approach to determine six indications of the value of
the Cable System. These value indications are summarized as follows:
Rebuild DCF Approach $18,553,636
No Rebuild DCF Approach $24,605,420
Cash Flow Multiple Approach $24,474,375
Adjusted Cash Flow Multiple Approach $24,041,921
Subscriber Multiple Approach $22,185,000
Rebuild Cash Flow Multiple Approach $15,349,438
VALUE CONCLUSION $23,000,000
Therefore, based on this analysis, it is CEA's opinion that, as of
December 31, 1996, the fair market value of the Centreville, MD Cable System is
$23,000,000.
63
71
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
SOMERSET, KY
SYSTEM OVERVIEW -- SOMERSET, KY
SYSTEM DESCRIPTION
The Partnership owns the Cable System that serves Somerset,
Kentucky, as well as the Kentucky towns of Burnside, Columbia, Eubank,
London, and McKinney. As of December 31, 1996, the Cable System passed
22,060 homes with 833 miles of plant, and served 19,296 basic subscribers
from five headends. Relevant subscriber statistics as of December 31, 1996
are displayed in the following table.
Homes Basic Basic Pay Pay
As of 12/31/96 Passed Subscribers Penetration Units Penetration
-------------- ------ ----------- ----------- ----- -----------
Somerset, KY 22,060 19,296 87.5% 3,914 20.3%
The largest headend, in Burnside, operates at 300 MHz, 40-channel
capacity, offers 40 channels of programming, and serves about 14,000
subscribers. The remaining four headends operate at capacities of 270 to
400 MHz.
HOME AND SUBSCRIBER GROWTH
During the past few years, the Cable System has experienced no home
growth, but basic subscribers have increased slightly. The Company's home
and subscriber growth history is displayed below.
1994 1995 1996 CAGR 94-96
---- ---- ---- ----------
Homes Passed 22,120 22,015 22,060 -0.1%
Basic Subscribers 18,650 19,226 19,296 1.7%
FINANCIAL SUMMARY
For the year ended December 31, 1996, the Somerset, KY Cable System
generated total revenue of $7,090,880 and operating cash flow of
$3,988,486, resulting in a 56.2% operating cash flow margin.
64
72
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
VALUATION -- SOMERSET, KY
DISCOUNTED CASH FLOW APPROACHES
Financial projections, including all assumptions regarding
operations and future capital expenditures, relating to the Rebuild DCF
Approach and to the No Rebuild DCF Approach are displayed on the following
ten pages. These projections were prepared by CEA based on certain
information provided by the Partnership, including, but not limited to,
the Partnership's 1997 budget for the Cable System.
The discount rate used in this analysis was derived using a weighted
average cost of capital. Based on CEA's recent experience in the cable
system transaction market, it is CEA's opinion that equity investors in
cable systems would likely require a 25 percent return in order to justify
the equity investment. Additionally, based on CEA's recent experience in
raising debt financing for cable operators, a lender would likely charge
an interest rate of approximately 10 percent and would likely be willing
to lend up to 50 percent of asset value at that rate. Thus, the likely
weighted average cost of capital for the subject Cable System can be
calculated as follows:
50 percent debt at a rate of 10% = .50 x 10% = 5.0%
50 percent equity at a rate of 25% = .50 x 25% = 12.5%
Total Cost of Capital = 17.5%
The terminal value of the Cable System was calculated as the price
at which the cable assets might sell at the end of the ten-year projection
period, based on a multiple of the operating cash flow of the Cable System
at that time. The cash flow multiple used reflects the expected growth of
cash flow in the Cable System after year ten, as well as the return on
debt and equity capital that would likely be required by investors at that
time given the expected risk of the investment at that time.
Based on the calculations displayed on the following pages, the
discounted cash flow approaches indicate fair market values for the Cable
System as follows:
Rebuild DCF Approach $27,365,438
No Rebuild DCF Approach $32,577,831
65
73
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 21,577 22,120 22,015 22,060 22,060 22,391 22,727
Ending 22,120 22,015 22,060 22,060 22,391 22,727 23,068
Change 543 -105 45 0 331 336 341
% Change 2.5% -0.5% 0.3% 0.0% 1.5% 1.5% 1.5%
Average 21,849 22,068 22,038 22,060 22,225 22,559 22,897
BASIC SUBSCRIBERS:
Beginning 18,134 18,650 19,226 19,296 19,550 19,899 20,311
Ending 18,650 19,226 19,296 19,550 19,899 20,311 20,731
Change 516 576 70 254 349 412 420
% Change 2.8% 3.1% 0.5% 1.3% 1.8% 2.1% 2.1%
Average 18,392 18,938 19,261 19,423 19,724 20,105 20,521
Ending Penetration 84.3% 87.3% 87.5% 88.6% 88.9% 89.4% 89.9%
Monthly Basic
Rev/Sub $22.29 $22.75 $24.88 $27.70 $29.09 $30.83 $32.68
% Change 2.1% 9.4% 11.3% 5.0% 6.0% 6.0%
PAY + MINI-PAY UNITS:
Beginning 4,291 4,840 5,170 3,914 3,999 4,070 4,155
Ending 4,840 5,170 3,914 3,999 4,070 4,155 4,241
Change 549 330 -1,256 85 71 84 86
% Change 12.8% 6.8% -32.4% 2.2% 1.8% 2.1% 2.1%
Average 4,566 5,005 4,542 3,956 4,035 4,112 4,198
Ending Penetration 26.0% 26.9% 20.3% 20.5% 20.5% 20.5% 20.5%
Monthly Pay
Rev/Unit $7.52 $8.43 $8.53 $8.80 $8.80 $8.80 $8.80
% Change 12.1% 1.1% 3.2% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $0.03 $0.03 $0.05 $0.05 $0.05 $1.00 $1.20
% Change 0.0% 0.0% -11.0% 5.0% 20.0% 20.0%
ADVERTISING REVENUE
PER SUB $1.16 $1.31 $1.49 $1.66 $1.74 $1.92 $2.11
% Change 12.6% 14.1% 11.3% 5.0% 10.0% 10.0%
OTHER REVENUE PER SUB $1.31 $1.38 $2.24 $1.56 $1.64 $1.80 $1.98
% Change 5.2% 62.4% -30.4% 5.0% 10.0% 10.0%
TOTAL REVENUE PER SUB $26.68 $27.72 $30.68 $32.76 $34.31 $37.35 $39.77
% Change 3.9% 10.7% 6.8% 4.7% 8.8% 6.5%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 23,068 23,414 23,765 24,121 24,483 24,850
Ending 23,414 23,765 24,121 24,483 24,850 25,223
Change 346 351 356 362 367 373
% Change 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Average 23,241 23,589 23,943 24,302 24,667 25,037
BASIC SUBSCRIBERS:
Beginning 20,731 21,159 21,595 22,040 22,493 22,954
Ending 21,159 21,595 22,040 22,493 22,954 23,425
Change 428 436 445 453 462 470
% Change 2.1% 2.1% 2.1% 2.1% 2.1% 2.0%
Average 20,945 21,377 21,817 22,266 22,724 23,190
Ending Penetration 90.4% 90.9% 91.4% 91.9% 92.4% 92.9%
Monthly Basic
Rev/Sub $34.64 $36.72 $38.92 $41.26 $43.73 $46.36
% Change 6.0% 6.0% 6.0% 6.0% 6.0% 6.0%
PAY + MINI-PAY UNITS:
Beginning 4,241 4,328 4,417 4,508 4,601 4,695
Ending 4,328 4,417 4,508 4,601 4,695 4,792
Change 88 89 91 93 94 96
% Change 2.1% 2.1% 2.1% 2.1% 2.1% 2.0%
Average 4,284 4,373 4,463 4,555 4,648 4,743
Ending Penetration 20.5% 20.5% 20.5% 20.5% 20.5% 20.5%
Monthly Pay
Rev/Unit $8.80 $8.80 $8.80 $8.80 $8.80 $8.80
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $1.44 $1.73 $2.07 $2.49 $2.99 $3.58
% Change 20.0% 20.0% 20.0% 20.0% 20.0% 20.0%
ADVERTISING REVENUE
PER SUB $2.32 $2.55 $2.81 $3.09 $3.40 $3.74
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
OTHER REVENUE PER SUB $2.18 $2.39 $2.63 $2.90 $3.19 $3.51
% Change 10.0% 10.0% 10.0% 10.0% 10.0% 10.0%
TOTAL REVENUE PER SUB $42.38 $45.20 $48.24 $51.54 $55.11 $58.99
% Change 6.6% 6.6% 6.7% 6.8% 6.9% 7.0%
66
74
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
EXPENSE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $2.98 $3.54 $4.00 $4.95 $5.15 $5.57 $6.01
% Change 18.7% 13.2% 23.7% 4.0% 8.0% 8.0%
PAY/MIN-PAY PROG.
PER UNIT $4.29 $4.58 $4.61 $4.98 $5.13 $5.29 $5.45
% Change 6.9% 0.7% 8.1% 3.0% 3.0% 3.0%
PPV PROGRAMMING/PPV
REVENUE 0.0% -3.5% 56.5% 52.0% 52.0% 52.0% 52.0%
PROGRAM GUIDE COST
PER SUB $0.07 $0.09 $0.05 $0.01 $0.01 $0.01 $0.01
% Change 23.3% -49.3% -77.0% 5.0% 5.0% 5.0%
FRANCHISE, ACCESS FEES/
REVENUE 3.9% 4.2% 3.9% 4.0% 4.0% 4.0% 4.0%
BAD DEBT EXPENSE/
REVENUE 1.6% 1.0% 0.7% 1.4% 1.4% 1.4% 1.4%
TECHNICAL EXP. GROWTH 2.8% 11.3% 10.9% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH 0.0% 0.0% 18.0% 4.0% 4.0% 4.0%
GEN & ADMIN EXPENSE
GROWTH 0.0% 11.3% 10.7% 4.0% 4.0% 4.0%
MARKETING EXP/REVENUE 1.9% 1.0% 1.4% 2.0% 2.0% 2.0% 2.0%
AD SALES EXP/AD
REVENUE 41.4% 33.7% 18.9% 29.5% 29.5% 29.5% 29.5%
EXPENSE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
BASIC PROGRAMMING
PER SUB $6.49 $7.01 $7.57 $8.18 $8.83 $9.54
% Change 8.0% 8.0% 8.0% 8.0% 8.0% 8.0%
PAY/MINI-PAY PROG.
PER UNIT $5.61 $5.78 $5.95 $6.13 $6.31 $6.50
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PPV PROGRAMMING/PPV
REVENUE 52.0% 52.0% 52.0% 52.0% 52.0% 52.0%
PROGRAM GUIDE COST
PER SUB $0.01 $0.01 $0.01 $0.01 $0.02 $0.02
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
FRANCHISE ACCESS FEES/
REVENUE 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
BAD DEBT EXPENSE/
REVENUE 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%
TECHNICAL EXP. GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PRODUCTION/LO EXPENSE
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
GEN & ADMIN EXPENSE
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
MARKETING EXP/REVENUE 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
AD SALES EXP/AD
REVENUE 29.5% 29.5% 29.5% 29.5% 29.5% 29.5%
67
75
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000 2001
- -------------------- ------ ------ ------ ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 794.50 833.00 831.50 834.50 834.50 847.02 859.72 872.62
Ending 833.00 831.50 834.50 834.50 847.02 859.72 872.62 885.71
Change 38.50 (1.50) 3.00 - 12.52 12.71 12.90 13.09
Average 813.75 832.25 833.00 834.50 840.76 853.37 866.17 879.16
Homes/Mile 26.6 26.5 26.4 26.4 26.4 26.4 26.4 26.4
CONVERTERS:
Beginning 4,515 4,715 4,969 5,132 5,196 5,289 5,399 5,510
Ending 4,715 4,969 5,132 5,196 5,289 5,399 5,510 5,624
Change 200 254 163 64 93 110 112 114
Average 4,615 4,842 5,051 5,164 5,243 5,344 5,454 5,567
Ending Penetration 25.6% 26.2% 26.6% 26.6% 26.6% 26.6% 26.6% 26.6%
REBUILD CAPITAL:
UG Miles 18.00 69.5% based on numbers provided by Falcon
Aerial Miles 816.50 69.5% based on numbers provided by Falcon
Total Rebuild Costs:
Cost/UG Miles $22,500 140,738 140,738 11,332,509
Cost/Aerial Mile $16,500 4,681,607 4,681,607
Other Rebuild Costs 17.5% 843,910 843,910
TRUNK & DISTRIBUTION/
NEW MILE
(3-Year average) $21,718 $22,000 $22,880 $23,795 $24,747
MAKE-READY/MILE $163.74 $99.51 $24.01 $ - $10.00 $10.40 $10.82 $11.25
CONV & CUST EQUIP/
NEW CONVERTER $658.78 $618.14 $1,276.00 $456.00 $474.24 $493.21 $512.94 $553.46
CUST. CONNECT
COSTS/SUB $5.03 $4.04 $9.70 $7.68 $7.99 $8.31 $8.64 $8.98
OTHER TECHNICAL
CAPITAL/SUB $4.37 $4.55 $2.24 $5.90 $6.14 $6.38 $6.64 $6.90
OTHER CAPITAL/
SUB $4.75 $2.19 $0.47 $2.85 $2.96 $3.08 $3.21 $3.33
CAPITAL EXPENDITURES 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------
MILES OF PLANT:
Beginning 885.71 898.99 912.48 926.17 940.06
Ending 898.99 912.48 926.17 940.06 954.16
Change 13.29 13.48 13.69 13.89 14.10
Average 892.35 905.74 919.32 933.11 947.11
Homes/Mile 26.4 26.4 26.4 26.4 26.4
CONVERTERS:
Beginning 5,624 5,740 5,858 5,979 6,101
Ending 5,740 5,858 5,979 6,101 6,226
Change 116 118 120 123 125
Average 5,682 5,799 5,918 6,040 6,164
Ending Penetration 26.6% 26.6% 26.6% 26.6% 26.6%
REBUILD CAPITAL:
UG Miles, % Rebuilt
Aerial Miles, %
Cost/UG Miles
Cost/Aerial Mile
Oher Rebuild Costs
TRUNK & DISTRIBUTION/
NEW MILE
(3-Year average) $25,737 $26,766 $27,837 $28,950 $30,109
MAKE-READY/MILE $11.70 $12.17 $12.65 $13.16 $13.69
CONV & CUST EQUIP/
CONVERTER $554.79 $576.99 $600.06 $624.07 $649.03
CUST. CONNECT
COSTS/SUB $9.34 $9.72 $10.11 $10.51 $10.93
OTHER TECHNICAL
CAPITAL/SUB $7.18 $7.47 $7.76 $8.07 $8.40
OTHER CAPITAL/
SUB $3.47 $3.61 $3.75 $3.90 $4.06
68
76
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
REBUILD DCF APPROACH
BUDGET PROJECTED:
ACTUAL ACTUAL ACTUAL ---------- ----------
CASH FLOW PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------------------- --------- --------- --------- ---------- ---------- --------- ---------
REVENUE:
Basic & Equipment Revenue 4,919,375 5,170,726 5,751,113 6,456,379 6,884,395 7,438,297 8,047,762
Pay and Mini-Pay Revenue 412,066 506,563 464,906 417,726 425,977 434,198 443,183
PPV Revenue 7,417 6,818 11,912 10,691 11,399 241,258 295,501
Advertising Revenue 256,444 297,294 345,077 387,297 412,972 463,036 519,881
Other Revenue 293,009 317,810 517,872 363,068 387,137 434,069 487,357
--------- --------- --------- --------- ---------- ---------- ---------
Total Revenue 5,888,311 6,299,211 7,090,880 7,635,160 8,121,880 9,010,858 9,793,784
% Growth 7.0% 12.6% 7.7% 6.4% 10.9% 8.7%
EXPENSES:
Basic Programming Costs 657,702 803,806 925,578 1,154,837 1,219,668 1,342,663 1,480,085
Pay Proramming Costs 234,780 275,154 251,372 236,591 248,502 260,897 274,285
PPV Programming Costs 4,149 (237) 6,730 5,559 5,928 125,454 153,661
Program Guide Costs 16,367 20,788 10,712 2,484 2,649 2,835 3,039
Franchise & License Fees 229,703 266,704 273,727 304,261 323,657 359,083 390,278
Bad Debt Expense 96,890 65,460 51,395 104,983 111,676 123,899 134,663
Technical Expenses 665,998 684,850 762,091 844,778 878,569 913,712 950,260
Production/LO Expenses 24,793 29,699 33,994 40,113 41,717 43,386 45,122
Gen. & Admin Expenses 556,149 556,363 619,042 685,094 712,498 740,997 770,637
Marketing Expenses 111,412 60,221 102,689 153,696 163,493 181,389 197,147
Advertising Sales Expenses 106,106 100,244 65,064 114,253 121,827 136,596 153,365
--------- --------- --------- --------- ---------- ---------- ---------
Total Expenses 2,704,049 2,863,052 3,102,394 3,646,649 3,830,184 4,230,912 4,552,542
OPERATING CASH FLOW 3,184,262 3,436,159 3,988,486 3,988,510 4,291,696 4,779,947 5,241,142
% Margin 54.1% 54.5% 56.2% 52.5% 52.8% 53.0% 53.5%
% Growth 7.9% 16.1% 0.0% 7.6% 11.4% 9.6%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - 5,666,255 5,666,255 -
Trunk & Distribution Costs 475,844 140,803 252,057 239,705 275,385 290,696 306,859
Make-Ready 133,245 82,814 20,003 - 8,408 8,875 9,369
Fiber Costs - Plant and Headend - 1,014,698 17,215 - - - -
Converters & Customer Equipment 131,756 157,008 207,988 29,310 44,020 54,026 57,263
Customer Connect Costs 92,578 76,545 186,887 149,167 157,541 167,005 177,279
Other Technical Capital 80,306 86,181 43,191 114,594 121,028 128,298 136,191
Other Capital 87,428 41,393 9,121 55,355 58,462 61,974 65,787
--------- --------- --------- --------- ---------- ---------- ---------
Total Capital Expenditures 1,001,157 1,599,442 736,462 6,254,386 6,331,099 710,875 752,748
NET CASH FLOW 2,183,105 1,836,717 3,252,024 (2,265,876) (2,039,402) 4,069,072 4,488,395
% Growth -10.0% -299.5% 10.3%
CASH FLOW PROJECTIONS: 2001 2002 2003 2004 2005 2006
- ------------------------------- ---------- ---------- ---------- ---------- ---------- ----------
REVENUE:
Basic & Equipment Revenue 8,706,893 9,419,719 10,190,593 11,024,221 11,925,687 12,900,487
Pay and Mini-Pay Revenue 452,341 461,673 471,184 480,876 490,752 500,817
PPV Revenue 361,928 443,274 542,887 664,865 814,225 997,108
Advertising Revenue 583,685 655,300 735,679 825,893 927,141 1,040,772
Other Revenue 547,170 614,305 689,656 774,226 869,140 975,662
---------- ---------- ---------- ---------- ---------- ----------
Total Revenue 10,652,017 11,594,271 12,629,999 13,770,079 15,026,945 16,414,846
% Growth 8.8% 8.8% 8.9% 9.0% 9.1% 9.2%
EXPENSES:
Basic Programming Costs 1,631,521 1,798,396 1,982,279 2,184,897 2,408,155 2,654,147
Pay Proramming Costs 288,351 303,129 318,655 334,966 352,101 370,102
PPV Programming Costs 188,203 230,503 282,301 345,730 423,397 518,496
Program Guide Costs 3,257 3,490 3,740 4,008 4,294 4,602
Franchise & License Fees 424,483 462,032 503,305 548,738 598,824 654,132
Bad Debt Expense 146,465 159,421 173,662 189,339 206,620 225,704
Technical Expenses 988,271 1,027,801 1,068,914 1,111,670 1,156,137 1,202,382
Production/LO Expenses 46,926 48,804 50,756 52,786 54,897 57,093
Gen. & Admin Expenses 801,463 833,521 866,862 901,537 937,598 975,102
Marketing Expenses 214,425 233,393 254,242 277,192 302,492 330,431
Advertising Sales Expenses 172,187 193,313 217,025 243,638 273,507 307,028
---------- ---------- ---------- ---------- ---------- ----------
Total Expenses 4,905,552 5,293,803 5,721,741 6,194,499 6,718,023 7,299,219
OPERATING CASH FLOW 5,746,466 6,300,468 6,908,257 7,575,580 8,308,923 9,115,627
% Margin 53.9% 54.3% 54.3% 55.0% 55.3% 55.5%
% Growth 9.6% 9.6% 9.6% 9.7% 9.7% 9.7%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - - - -
Trunk & Distribution Costs 323,920 341,930 360,942 381,010 402,194 424,556
Make-Ready 9,889 10,439 11,020 11,632 12,279 12,962
Fiber Costs - Plant and Headend - - - - - -
Converters & Customer Equipment 60,692 64,325 68,175 72,254 76,576 81,155
Customer Connect Costs 188,180 199,745 212,014 225,030 238,838 253,486
Other Technical Capital 144,565 153,450 162,875 172,875 183,482 194,735
Other Capital 69,832 74,124 78,677 83,507 88,631 94,067
---------- ---------- ---------- ---------- ---------- ----------
Total Capital Expenditures 797,079 844,014 893,703 946,309 1,002,001 1,060,961
NET CASH FLOW 4,949,386 5,456,455 6,014,554 6,629,272 7,306,921 8,054,666
% Growth 10.3% 10.2% 10.2% 10.2% 10.2% 10.2%
69
77
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL --------- ---------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
PROJECTED NET
CASH FLOW -2,265,876 -2,039,402 4,069,072 4,488,395
Value of Assets
in Year 10
assuming OCF
multiple of 8.0
Discount Rate 17.5%
PV OF CASH
FLOW STREAM 27,365.438
6.9 TIMES TRAILING CASH FLOW
6.9 TIMES PROJECTED CASH FLOW
$1,418 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
PROJECTED NET
CASH FLOW 4,949,386 5,456,455 6,014,554 6,629,272 7,306,921 8,054,666
Value of Assets
in Year 10
assuming OCF
multiple of 72,925,018
Discount Rate
70
78
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
REVENUE ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- -------------------- ------ ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 21,577 22,120 22,015 22,060 22,060 22,391 22,727
Ending 22,120 22,015 22,060 22,060 22,391 22,727 23,068
Change 543 -105 45 0 331 336 341
% Change 2.5% -0.5% 0.3% 0.0% 1.5% 1.5% 1.5%
Average 21,849 22,068 22,038 22,060 22,225 22,559 22,897
BASIC SUBSCRIBERS:
Beginning 18,134 18,650 19,226 19,296 19,550 19,899 20,254
Ending 18,650 19,226 19,296 19,550 19,899 20,254 20,616
Change 516 576 70 254 349 355 361
% Change 2.8% 3.1% 0.5% 1.3% 1.8% 1.8% 1.8%
Average 18,392 18,938 19,261 19,423 19,724 20,076 20,435
Ending Penetration 84.3% 87.3% 87.5% 88.6% 88.9% 89.1% 89.4%
Monthly Basic Rev/Sub $22.29 $22.75 $24.88 $27.70 $29.09 $30.54 $32.07
% Change 2.1% 9.4% 11.3% 5.0% 5.0% 5.0%
PAY + MINI-PAY UNITS:
Beginning 4,291 4,840 5,170 3,914 3,999 4,070 4,143
Ending 4,840 5,170 3,914 3,999 4,070 4,143 4,217
Change 549 330 -1,256 85 71 73 74
% Change 12.8% 6.8% -32.4% 2.2% 1.8% 1.8% 1.8%
Average 4,566 5,005 4,542 3.956 4,035 4,107 4,180
Ending Penetration 26.0% 26.9% 20.3% 20.5% 20.5% 20.5% 20.5%
Monthly Pay Rev/Unit $7.52 $8.43 $8.53 $8.80 $8.80 $8.80 $8.80
% Change 12.1% 1.1% 3.2% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $0.03 $0.03 $0.05 $0.05 $0.05 $0.05 $0.05
% Change 0.0% 0.0% -11.3% 5.0% 5.0% 5.0%
ADVERTISING REVENUE
PER SUB $1.16 $1.31 $1.49 $1.66 $1.74 $1.83 $1.92
% Change 12.6% 14.1% 11.3% 5.0% 5.0% 5.0%
OTHER REVENUE PER SUB $1.31 $1.38 $2.24 $1.56 $1.64 $1.72 $1.80
% Change 5.2% 62.4% -30.4% 5.0% 5.0% 5.0%
TOTAL REVENUE PER SUB $26.68 $27.72 $30.68 $32.76 $34.31 $35.94 $37.65
% Change 3.9% 10.75 6.8% 4.7% 4.7% 4.7%
REVENUE ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- -------------------- ------ ------ ------ ------ ------ ------
HOMES PASSED:
Beginning 23,068 23,414 23,765 24,121 24,483 24,850
Ending 23,414 23,765 24,121 24,483 24,850 25,223
Change 346 351 356 362 367 373
% Change 1.5% 1.5% 1.5% 1.5% 1.5% 1.5%
Average 23,241 23,589 23,943 24,302 24,667 25,037
BASIC SUBSCRIBERS:
Beginning 20,616 20,983 21,358 21,738 22,125 22,519
Ending 20,983 21,358 21,738 22,125 22,519 22,920
Change 368 374 381 387 394 401
% Change 1.8% 1.8% 1.8% 1.8% 1.8% 1.8%
Average 20,799 21,170 21,548 21,932 22,322 22,720
Ending Penetration 89.6% 89.9% 90.1% 90.4% 90.6% 90.0%
Monthly Basic Rev/Sub $33.67 $35.35 $37.12 $38.98 $40.93 $42.97
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
PAY + MINI-PAY UNITS:
Beginning 4,217 4,292 4,369 4,447 4,526 4,606
Ending 4,292 4,369 4,447 4,526 4,606 4,688
Change 75 77 78 79 81 82
% Change 1.8% 1.8% 1.8% 1.8% 1.8% 1.8%
Average 4,255 4,330 4,408 4,486 4,566 4,647
Ending Penetration 20.5% 20.5% 20.5% 20.5% 20.5% 20.5%
Monthly Pay Rev/Unit $8.80 $8.80 $8.80 $8.80 $8.80 $8.80
% Change 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PPV REVENUE PER SUB $0.06 $0.06 $0.06 $0.07 $0.07 $0.07
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
ADVERTISING REVENUE
PER SUB $2.02 $2.12 $2.23 $2.34 $2.46 $2.58
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
OTHER REVENUE PER SUB $1.89 $1.99 $2.09 $2.19 $2.30 $2.42
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
TOTAL REVENUE PER SUB $39.44 $41.32 $43.30 $45.37 $47.55 $49.84
% Change 4.8% 4.8% 4.8% 4.8% 4.8% 4.8%
71
79
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
EXPENSE ACTUAL ACTUAL ACTUAL --------- ---------
ASSUMPTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
BASIC PROGRAMMING
PER SUB $2.98 $3.54 $4.00 $4.95 $5.15 $5.36 $5.57
% Change 18.7% 13.2% 23.7% 4.0% 4.0% 4.0%
PAY/MINI-PAY PROG.
PER UNIT $4.29 $4.58 $4.61 $4.98 $5.13 $5.29 $5.45
% Change 6.9% 0.7% 8.1% 3.0% 3.0% 3.0%
PPV PROGRAMMING/
PPV REVENUE 0.0% -3.5% 56.5% 52.0% 52.0% 52.0% 52.0%
PROGRAM GUIDE
COST PER SUB $0.07 $0.09 $0.05 $0.01 $0.01 $0.01 $0.01
% Change 23.3% -49.3% -77.0% 5.0% 5.0% 5.0%
FRANCHISE, ACCESS
FEES/REVENUE 3.9% 4.2% 3.9% 4.0% 4.0% 4.0% 4.0%
BAD DEBT EXPENSE/
REVENUE 1.6% 1.0% 0.7% 1.4% 1.4% 1.4% 1.4%
TECHNICAL EXP.
GROWTH 2.8% 11.3% 10.9% 4.0% 4.0% 4.0%
PRODUCTION/LO
EXPENSE GROWTH 0.0% 0.0% 18.0% 4.0% 4.0% 4.0%
GEN & ADMIN
EXPENSE GROWTH 0.0% 11.3% 10.7% 4.0% 4.0% 4.0%
MARKETING EXP/
REVENUE 1.9% 1.0% 1.4% 2.0% 2.0% 2.0% 2.0%
AD SALES EXP/
AD REVENUE 41.4% 33.7% 18.9% 29.5% 29.5% 29.5% 29.5%
EXPENSE
ASSUMPTIONS: 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
BASIC PROGRAMMING
PER SUB $5.80 $6.03 $6.27 $6.52 $6.78 $7.05
% Change 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PAY/MINI-PAY PROG.
PER UNIT $5.61 $5.78 $5.95 $6.13 $6.31 $6.50
% Change 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%
PPV PROGRAMMING/
PPV REVENUE 52.0% 52.0% 52.0% 52.0% 52.0% 52.0%
PROGRAM GUIDE COST
PER SUB $0.01 $0.01 $0.01 $0.01 $0.02 $0.02
% Change 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
FRANCHISE, ACCESS
FEES/REVENUE 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
BAD DEBT EXPENSE/
REVENUE 1.4% 1.4% 1.4% 1.4% 1.4% 1.4%
TECHNICAL EXP.
GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
PRODUCTION/LO
EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
GEN & ADMIN
EXPENSE GROWTH 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%
MARKETING EXP/
REVENUE 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
AD SALES EXP/
AD REVENUE 29.5% 29.5% 29.5% 29.5% 29.5% 29.5%
72
80
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------- -------
CAPITAL EXPENDITURES: 1994 1995 1996 1997 1998 1999 2000
- --------------------- ------- ------- --------- ------- ------- ------- -------
NEW CONVERTER $658.78 $618.14 $1,276.00 $456.00 $474.24 $493.21 $512.94
MILES OF PLANT:
Beginning 794.50 833.00 831.50 834.50 834.50 847.02 859.72
Ending 833.00 831.50 834.50 834.50 847.02 859.72 872.62
Change 38.50 (1.50) 3.00 -- 12.52 12.71 12.90
Average 813.75 832.25 833.00 834.50 840.76 853.37 866.17
Homes/Mile 26.6 26.5 26.4 26.4 26.4 26.4 26.4
CONVERTERS:
Beginning 4,515 4,715 4,969 5,132 5,196 5,289 5,384
Ending 4,715 4,969 5,132 5,196 5,289 5,384 5,480
Change 200 254 163 64 93 94 96
Average 4,615 4,842 5,051 5,164 5,243 5,336 5,432
Ending Penetration 25.6% 26.2% 26.6% 26.6% 26.6% 26.6% 26.6%
REBUILD CAPITAL:
UG Miles 18.00
Aerial Miles 816.50
Cost/UG Mile
Cost/Aerial Mile
Other Rebuild Costs
TRUNK & DISTRIBUTION/
NEW MILE $21,718 $22,000 $22,880 $23,795
(3-Year average)
MAKE-READY/MILE $163.74 $99.51 $24.01 $- $10.00 $10.40 $10.82
CONV & CUST EQUIP/
NEW CONVERTER $658.78 $618.14 $1,276.00 $456.00 $474.24 $493.21 $512.94
CUST. CONNECT
COSTS/SUB $5.03 $4.04 $9.70 $7.68 $7.99 $8.31 $8.64
OTHER TECHNICAL
CAPITAL/SUB $4.37 $4.55 $2.24 $5.90 $6.14 $6.38 $6.64
OTHER CAPITAL/SUB $4.75 $2.19 $0.47 $2.85 $2.96 $3.08 $3.21
CAPITAL EXPENDITURES: 2001 2002 2003 2004 2005 2006
- --------------------- ------- ------- ------- ------- ------- -------
MILES OF PLANT:
Beginning 872.62 885.71 898.99 912.48 926.17 940.06
Ending 885.71 898.99 912.48 926.17 940.06 954.16
Change 13.09 13.29 13.48 13.69 13.89 14.10
Average 879.16 892.35 905.74 919.32 933.11 947.11
Homes/Mile 26.4 26.4 26.4 26.4 26.4 26.4
CONVERTERS:
Beginning 5,480 5,577 5,677 5,778 5,881 5,986
Ending 5,577 5,677 5,778 5,881 5,986 6,092
Change 98 99 101 103 105 107
Average 5,528 5,627 5,727 5,829 5,933 6,039
Ending Penetration 26.6% 26.6% 26.6% 26.6% 26.6% 26.6%
TRUNK & DISTRIBUTION/
NEW MILE $24,747 $25,737 $26.766 $27,837 $28,950 $30,109
(3-Year average)
MAKE-READY/MILE $11.25 $11.70 $12.17 $12.65 $13.16 $13.69
CONV & CUST EQUIP/
NEW CONVERTER $533.46 $554.79 $576.99 $600.06 $624.07 $649.03
CUST. CONNECT
COSTS/SUB $8.98 $9.34 $9.72 $10.11 $10.51 $10.93
OTHER TECHNICAL
CAPITAL/SUB $6.90 $7.18 $7.47 $7.76 $8.07 $8.40
OTHER CAPITAL/SUB $3.33 $3.47 $3.61 $3.75 $3.90 $4.06
73
81
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
CASH FLOW ACTUAL ACTUAL ACTUAL --------- ---------
PROJECTIONS: 1994 1995 1996 1997 1998 1999 2000
- ---------------- --------- --------- --------- --------- --------- --------- ---------
REVENUE:
Basic & Equipment
Revenue 4,919,375 5,170,726 5,751,113 6,456,379 6,884,395 7,357,713 7,863,510
Pay and Mini-Pay
Revenue 412,066 506,563 464,906 417,726 425,977 433,584 441,324
PPV Revenue 7,417 6,818 11,912 10,691 11,399 12,183 13,021
Advertising
Revenue 256,444 297,294 345,077 387,297 412,972 441,365 471,706
Other Revenue 293,009 317,810 517,872 363,068 387,137 413,753 442,196
----------------------------------------------------------------------------
Total Revenue 5,888,311 6,299,211 7,090,880 7,635,160 8,121,880 8,658,598 9,231,757
% Growth 7.0% 12.6% 7.7% 6.4% 6.6% 6.6%
EXPENSES:
Basic Programming
Costs 657,703 803,806 925,578 1,154,837 1,219,668 1,291,108 1,366,722
Pay Programming
Costs 234,780 275,154 251,372 236,591 248,502 260,528 273,135
PPV Programming
Cost 4,149 (237) 6,730 5,559 5,928 6,335 6,771
Program Guide
Costs 16,367 20,788 10,712 2,484 2,649 2,831 3,026
Franchise & License
Fees 229,703 226,704 273,727 304,261 323,657 345,045 367,886
Bad Debt Expense 96,890 65,460 51,395 104,983 111,676 119,056 126,937
Technical Expenses 665,998 684,850 762,091 844,778 878,569 913,712 950,260
Production/LO
Expenses 24,793 29,699 33,994 40,113 41,717 43,386 45,122
Gen. & Admin
Expenses 556,149 556,363 619,042 685,094 712,498 740,997 770,637
Marketing Expenses 111,412 60,221 102,689 153,696 163,493 174,298 185,835
Advertising Sales
Expenses 106,106 100,244 65,064 114,253 121,827 130,203 139,153
---------------------------------------------------------------------------
Total Expenses 2,704,049 2,863,052 3,102,394 3,646,649 3,830,184 4,027,500 4,235,484
OPERATING CASH FLOW 3,184,262 3,436,159 3,988,486 3,988,510 4,291,696 4,631,099 4,996,274
% Margin 54.1% 54.5% 56.2% 52.2% 52.8% 53.5% 54.1%
% Growth 7.9% 16.1% 0.0% 7.6% 7.9% 7.9%
CAPITAL EXPENDITURES:
Rebuild/Upgrade Costs - - - 272,599 -
Trunk & Distribution
Costs 475,844 140,803 252,057 239,705 275,385 290,696 306,859
Make-Ready 133,245 82,814 20,003 - 8,408 8,875 9,369
Fiber Costs - Plant
and Headend - 1,014,698 17,215 - - - -
Converters &
Customer Equipment 131,756 157,008 207,988 29,310 44,020 46,578 49,284
Customer Connect
Costs 92,578 76,545 186,887 149,167 157,541 166,769 176,536
Other Technical
Capital 80,306 86,181 43,191 114,594 121,028 128,117 135,620
Other Capital 87,428 41,393 9,121 55,355 58,462 61,887 65,511
---------------------------------------------------------------------------
Total Capital
Expenditures 1,001,157 1,599,442 736,462 860,730 664,844 702,922 743,178
NET CASH FLOW 2,183,105 1,836,717 3,252,024 3,127,780 3,626,852 3,928,177 4,253,096
% Growth 16.0% 8.3% 8.3%
CASH FLOW
PROJECTIONS 2001 2002 2003 2004 2005 2006
- ---------------- --------- --------- --------- --------- --------- ---------
REVENUE:
Basic & Equipment
Revenue 8,404,012 8,981,595 9,598,799 10,258,338 10,963,110 11,716,212
Pay and Mini-Pay
Revenue 449,199 457,211 465,361 473,654 482,091 490,674
PPV Revenue 13,916 14,872 15,894 16,986 18,153 19,400
Advertising Revenue 504,129 538,776 575,800 615,364 657,641 702,817
Other Revenue 472,591 505,071 539,779 576,867 616,499 658,849
Total Revenue 9,843,846 10,497,525 11,195,634 11,941,209 12,737,494 13,587,952
% Growth 6.6% 6.6% 6.7% 6.7% 6.7% 6.7%
EXPENSES:
Basic Programming
Costs 1,446,753 1,531,459 1,621,112 1,715,999 1,816,426 1,922,717
Pay Programming
Costs 286,348 300,199 314,718 329,935 345,887 362,606
PPV Programming
Costs 7,236 7,733 8,265 8,833 9,440 10,088
Program Guide Costs 3,234 3,456 3,694 3,947 4,219 4,508
Franchise & License
Fees 392,277 418,326 446,146 475,857 507,589 541,480
Bad Debt Expense 135,353 144,341 153,940 164,192 175,141 186,834
Technical Expense 988,271 1,027,801 1,068,914 1,111,670 1,156,137 1,202,382
Production/LO
Expense 46,926 48,804 50,756 52,786 54,897 57,093
Gen. & Admin.
Expenses 801,463 833,521 866,862 901,537 937,598 975,102
Marketing Expense 198,157 211,315 225,368 240,377 256,406 273,525
Advertising Sales
Expenses 148,718 158,939 169,861 181,532 194,004 207,331
---------------------------------------------------------------------
Total Expenses 4,454,737 4,685,896 4,929,634 5,186,665 5,457,743 5,743,668
OPERATING CASH FLOW 5,389,109 5,811,629 6,266,000 6,754,544 7,279,751 7,844,284
% Margin 54.7% 55.4% 56.0% 56.6% 57.2% 57.7%
% Growth 7.9% 7.8% 7.8% 7.8% 7.8% 7.8%
CAPITAL EXPENDITURES:
Rebuild/Upgrade
Costs - - - - - -
Trunk & Distribution
Costs 323,920 341,930 360,942 381,010 402,194 424,556
Make-Ready 9,889 10,439 11,020 11,632 12,279 12,962
Fiber-Costs -
Plant and Headend - - - - - -
Converters & Cus-
tomer Equipment 52,147 55,176 58,380 61,770 65,357 69,151
Customer Connect
Costs 186,873 197,814 209,394 221,651 234,623 248,352
Other Technical
Capital 143,561 151,967 160,863 170,279 180,244 190,791
Other Capital 69,347 73,408 77,705 82,253 87,067 92,162
---------------------------------------------------------------------
Total Capital
Expenditures 785,738 830,734 878,304 928,595 981,764 1,037,974
NET CASH FLOW 4,603,371 4,980,895 5,387,696 5,825,949 6,297,987 6,806,310
% Growth 8.2% 8.2% 8.2% 8.1% 8.1% 8.1%
74
82
VALUATION OF FALCON CLASSIC CABLE
INCOME PROPERTIES, L.P. COMMUNICATIONS EQUITY ASSOCIATES
SOMERSET, KY
NO REBUILD DCF APPROACH
PRO-
BUDGET JECTED:
ACTUAL ACTUAL ACTUAL ------ ------
PV OF CASH FLOWS 1994 1995 1996 1997 1998 1999 2000
- ---------------- ------ ------ ------ ------ ------ ------ ------
PROJECTED NET
CASH FLOW 3,127,780 3,626,852 3,928,177 4,253,096
Value of Assets in
Year 10 assuming
OCF multiple of 8.0
Discount rate 17.5%
PV OF CASH FLOW
STREAM 32,577,831
8.2 TIMES RUNNING RATE CASH FLOW
8.2 TIMES PROJECTED CASH FLOW
$1,688 PER SUBSCRIBER
PV OF CASH FLOWS 2001 2002 2003 2004 2005 2006
- ---------------- ------ ------ ------ ------ ------ ------
PROJECTED NET
CASH FLOW 4,603,371 4,980,895 5,387,696 5,825,949 6,297,987 6,806,310
Value of Assets in
Year 10 assuming
OCF multiple of 62,754,274
Discount rate
75
83
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
CASH FLOW MULTIPLE AND ADJUSTED CASH FLOW MULTIPLE APPROACHES
As discussed previously, the Cable System generated revenue of
$7,090,880 and operating cash flow of $3,988,486 in 1996, for an actual
operating cash flow margin of 56.2%.
The current operating cash flow multiples indicated by the market
range from 6 to 11 times, based on transactions which have been announced
in recent months. In order to determine the respective appropriate cash
flow multiples to apply to the cash flow and to the adjusted cash flow of
the Cable System, the following factors must be considered:
o The Cable System has experienced only slight growth in basic
subscribers and no home growth.
o The cable plant needs to be rebuilt, as the portion of the plant
serving the bulk of the subscribers has no room to add programming.
Partnership management has estimated that a rebuild would cost in
excess of $11,000,000.
o The current rates of the Cable System are reasonable given the
level of service provided in each system.
o The operating cash flow margin approximates 56 percent, a slightly
high level by industry standards, leaving less perceived potential
for improvement by a buyer. A typical buyer would likely discount
this margin slightly in determining the potential cash flow that
such a buyer would be able to consistently generate from this Cable
System.
Based on these factors, as well as on CEA's recent experience in the cable
system transaction market, it is CEA's opinion that the following cash
flow multiples are appropriate in valuing the Cable System:
Operating Cash Flow Multiple 8.0
Adjusted Operating Cash Flow Multiple 8.5
Applying these multiples respectively to the actual operating cash
flow and to the adjusted operating cash flow of the Cable System yields
the following calculations:
Cash Flow Multiple Approach:
Actual Operating Cash Flow $ 3,988,486
Operating Cash Flow Multiple x 8.0
------------
Value Indication $ 31,907,888
76
84
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
Adjusted Cash Flow Multiple Approach:
Actual Revenue $ 7,090,880
Adjusted Margin x 50%
------------
Adjusted Operating Cash Flow $ 3,545,440
Operating Cash Flow Multiple x 8.5
------------
Value Indication $ 30,136,240
SUBSCRIBER MULTIPLE APPROACH
Based on CEA's recent experience in the cable system transaction
market, it is CEA's opinion that a buyer would expect the typical cable
system to generate just over $33.00 per month in total revenue, operate at
a 50% cash flow margin, and be valued at approximately 9 times this
operating cash flow. Based on these parameters, a buyer would be willing
to pay approximately $1,800 per subscriber for this typical cable system.
Applying this per-subscriber value to the subject Cable System results in
the following calculation:
Basic Subscribers 19,296
Per Subscriber Multiple x $ 1,800
-----------
Value Indication $34,732,800
REBUILD CASH FLOW MULTIPLE APPROACH
Based on CEA's recent experience in the cable system transaction
market, it is CEA's opinion that a typical fully-rebuilt, state-of-the-art
cable system could reasonably be expected to sell, on average, for
approximately 10.5 times operating cash flow. For cable systems in need of
rebuild, a buyer would likely be willing to pay approximately 10.5 times
operating cash flow less the cost of the rebuild. Therefore, to estimate
the value of the Cable System using the Rebuild Cash Flow Multiple
Approach, CEA multiplied 1996 operating cash flow by 10.5 and subtracted
the estimated cost to rebuild the Cable System, as follows:
1996 Operating Cash Flow $ 3,988,486
Rebuild Operating Cash Flow Multiple x 10.5
-------------
Value of System After Rebuild 41,879,103
less: Cost of Rebuild (11,332,509)
-------------
Value Indication $ 30,546,594
77
85
FALCON CLASSIC CABLE INCOME PROPERTIES, L.P.
VALUE CONCLUSIONS -- SOMERSET, KY
CEA used two variations of the discounted cash flow approach, and four
variations of the market approach to determine six indications of the value of
the Cable System. These value indications are summarized as follows:
Rebuild DCF Approach $ 27,365,438
No Rebuild DCF Approach $ 32,577,831
Cash Flow Multiple Approach $ 31,907,888
Adjusted Cash Flow Multiple Approach $ 30,136,240
Subscriber Multiple Approach $ 34,732,800
Rebuild Cash Flow Multiple Approach $ 30,546,594
VALUE CONCLUSION $ 31,000,000
Therefore, based on this analysis, it is CEA's opinion that, as of
December 31, 1996, the fair market value of the Somerset, KY Cable System is
$31,000,000.
78