1
EXHIBIT 10.49
FAIR MARKET VALUATION
OF THE REGIONS AND SYSTEMS THAT COMPRISE
FALCON CLASSIC CABLE INCOME PROPERTIES,
A CALIFORNIA LIMITED PARTNERSHIP
AS OF DECEMBER 31, 1996
Prepared For:
Falcon Cable Investors Group
Los Angeles, California
[LOGO]
KANE REECE
ASSOCIATES, INC.
2
[KANE REECE LETTERHEAD]
March 10, 1997
Falcon Cable Investors Group
10900 Wilshire Boulevard
Los Angeles, CA 90024
ATTN: Mr. Michael K. Menerey
In accordance with your authorization, Kane Reece Associates, Inc. ("Kane
Reece" or the "appraisers") has made an investigation and valuation of the
cable television system assets of each of the Regions (Burke County,
Centreville, and Somerset) and Systems (Redmond and California City) that
comprise Falcon Classic Cable Income Properties ("FCCIP" or the "Partnership").
This valuation study was conducted to determine the fair market value of 100%
of the assets described above as of December 31, 1996. The appraisal was
conducted pursuant to Section 4.9 of the Amended and Restated Agreement of
Limited Partnership of Falcon Classic Cable Income Properties, L.P. dated May
15, 1989. This is the sole purpose of this appraisal.
Fair market value, as used herein, is defined as the price, in cash or
equivalent, that a buyer could reasonably be expected to pay and a seller could
reasonably be expected to accept, if the property were exposed for sale on the
open market for a reasonable period of time, both buyer and seller being in
possession of the pertinent facts, and neither being under compulsion to act,
as of a certain date.
Our methodology for determining the fair market value of any CATV property
incorporates an assessment of the potential revenues and cash flows the
property will generate over an appropriate investment term and the likely
appreciation in value of the property over that term. We confirm this
calculated economic valuation with an analysis of recent sales of comparable
properties to the extent available and relevant.
As part of the research required for our study, we were furnished materials on
historical and prospective operations. We have also consulted recognized
sources of financial and industry information; visited each Region to
physically inspect facilities and the service area, and interview management.
We did not visit the California City and Redmond systems.
Kane Reece and this report comply with the appraisal standards set forth in the
Uniform Standards of Professional Appraisal Practice and those promulgated by
the American Society of Appraisers.
Valuation, Management & Technical Consultants
3
Falcon Cable Investors Group
March 10, 1997
Page Two
Based upon our investigation and valuation as described in the accompanying
report and subject to the Limiting and General Service Conditions and the
Appraisal Certificate contained in the report that follows, it is Kane Reece's
opinion that the fair market values of 100% of each of the Regions' and
Systems' assets that make up FCCIP as of December 31, 1996 were:
Burke County $ 20,570,000
=================
Centreville $ 23,980,000
=================
Somerset $ 33,590,000
=================
Redmond $ 7,680,000
=================
California City $ 3,500,000
=================
Respectfully submitted,
KANE REECE ASSOCIATES, INC.
4
Limiting and General Service Conditions
1) We were provided certain financial and operating data by management
and we have relied on this information without independent analysis or
verification by Kane Reece Associates, Inc.
2) Kane Reece Associates, Inc. is not responsible for the impact of
economic events occurring after the date of this report and we have no
obligation to update this report unless subsequently engaged to do so.
3) We have made no investigation of, and assume no responsibility for,
the title to the assets appraised nor for any undisclosed liabilities
of the subject company.
4) All statements in this appraisal are based on the best knowledge and
belief of Kane Reece Associates, Inc.
5) Neither Kane Reece Associates, Inc. nor any of its employees has any
present or contemplated financial interest in the appraised entity,
and we certify the compensation received for this study is in no way
contingent upon the valuation conclusions.
6) Kane Reece Associates, Inc. is not required to give testimony in
court, or be in attendance during any hearings or depositions, with
reference to the company being appraised, unless previous arrangements
have been made.
7) This appraisal is valid only for the purpose(s) stated herein, and no
one may rely on the report for any other purpose(s) and is valid only
for the appraisal date or dates specified herein. You may show our
report in its entirety to those third parties who need to review the
information contained therein. You agree to hold Kane Reece
Associates, Inc., harmless from any liability, including attorneys'
fees, damages or cost which may result from any improper use or
reliance by you or third parties. No reference to our name or our
report, in whole or in part, in any document you prepare and/or
distribute to third parties may be made without our prior written
consent. We will maintain the confidentiality of all conversations,
documents provided to us, and the contents of our reports, subject to
legal or administrative process or proceedings. These conditions can
be modified only by written documents executed by both parties.
KANE REECE ASSOCIATES, INC.
399 Thornall Street
Metro Park, NJ 08837-2236
(908)494-3700
5
FAIR MARKET VALUATION
OF THE REGIONS AND SYSTEMS THAT COMPRISE
FALCON CLASSIC CABLE INCOME PROPERTIES,
A CALIFORNIA LIMITED PARTNERSHIP
AS OF DECEMBER 31, 1996
6
FAIR MARKET VALUATION
OF THE REGIONS AND SYSTEMS THAT COMPRISE
FALCON CLASSIC CABLE INCOME PROPERTIES,
A CALIFORNIA LIMITED PARTNERSHIP
AS OF DECEMBER 31, 1996
TABLE OF CONTENTS
-----------------
TRANSMITTAL LETTER
LIMITING AND GENERAL SERVICE CONDITIONS
I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . 1
II. INDUSTRY REVIEW . . . . . . . . . . . . . . . . . . . . . . . 5
III. DESCRIPTION OF THE REGIONS' AND
SYSTEMS' SERVICE AREAS . . . . . . . . . . . . . . . . . 26
IV. BUSINESS ENTERPRISE VALUATION . . . . . . . . . . . . . . . 53
APPRAISAL CERTIFICATE . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
EXHIBIT A: Photographs
EXHIBIT B: Region and System Operating Statistics
EXHIBIT C: Region and System Cash Flow Statements
EXHIBIT D Region and System Cash Flow Projection Assumptions
EXHIBIT E Region and System Cash Flow Projections
QUALIFICATIONS OF THE APPRAISERS
APPENDIX: Glossary of Cable TV Terms
7
FAIR MARKET VALUATION
OF THE REGIONS AND SYSTEMS THAT COMPRISE
FALCON CLASSIC CABLE INCOME PROPERTIES,
A CALIFORNIA LIMITED PARTNERSHIP
AS OF DECEMBER 31, 1996
PART I - INTRODUCTION
Falcon Cable Investors Group, the General Partner (the "General Partner") of
Falcon Classic Cable Income Properties, a California Limited Partnership
("FCCIP" or the "Partnership") manages cable television systems located in
three (3) regional clusters in Burke County, North Carolina; Centreville,
Maryland; and Somerset, Kentucky; (the "Regions") as well as two (2) systems in
Redmond, Oregon and California City, California (the "Systems").
Kane Reece Associates, Inc. ("Kane Reece" or the "appraisers") of Metro Park,
New Jersey was selected and retained by the General Partner to determine fair
market value of 100% of the assets of each Region and System of FCCIP as of
December 31, 1996. Kane Reece was retained pursuant to Section 4.9 of the
Partnership Agreement as Amended and Restated. This is the sole purpose of
this report.
Fair market value, as used herein, is defined as the price, in cash or
equivalent, that a buyer could reasonably be expected to pay and a seller could
reasonably be expected to accept, if the property were exposed for sale in the
open market for a reasonable period of time, both buyer and seller being in
possession of the pertinent facts, and neither being under compulsion to act,
as of a certain date.
The appraisers visited Burke County, Centreville, and Somerset for this study,
while having visited the Hesperia Region, the region that California City
reports to in a previous Falcon engagement. The appraisers visited the service
areas to interview
-1-
8
management, inspect facilities, and to determine the growth potential of each
of the service areas. Pursuant to information requests, the appraisers were
provided various documents. The appraisers were not denied any material
information and all requests were handled in a timely manner.
Documents provided included but were not limited to the following:
. Management prepared financial statements at various time
periods including the year ending December 31, 1996.
. Management prepared operating statistics reports -- homes
passed, basic subscribers, pay units, etc. for various dates
including December 31, 1996.
. 1997 operating budgets by Region and System.
. Various SEC filings, i.e., 10K and 8K filings.
. System channel charts and rate cards for various dates.
The appraiser also relied on demographic data and other service area
information provided by CACI and various Chambers of Commerce as well as cable
industry trade publications and industry analysts' reports in forming the value
conclusions contained herein.
GENERAL APPRAISAL CONSIDERATIONS
The following paragraphs discuss some of the pertinent variables which
contribute to or detract from the value of a cable system, and provide
commentary on how they are considered in this study.
Remaining Life of the Franchise
The terms under which franchises are issued can vary considerably. The term of
the acquired franchise represents franchise life because the continued
operation of the existing system will terminate at that point. In order to
secure a franchise renewal the operator will be required to negotiate a new
franchise. Typical system changes agreed to
-2-
9
by the incumbent operator in this negotiation process include, but are not
limited to, rebuilding the system, adding local origination facilities, adding
more channels, and making rate concessions. There are numerous examples of
onerous franchise provisions demanded by cities to grant a new franchise.
These types of changes materially alter the economic environment for the cable
system. Additionally, there are many examples of cities either denying a new
franchise or allowing a second franchise when the incumbent operator resists
new franchise provisions.
Homes in the Franchise Area
The number of homes and the future growth of households in the franchise area
limit the maximum potential for expansion of revenues for a system. The
demographics of the franchise area are also important factors. Other important
demographics include household income, median age, and projected growth of the
employment base.
Net Plant Age and Channel Capacity
A typical cable television system plant is generally believed to have a 10 to
12 year life. A new system plant is obviously more attractive for investment
than one which is facing a very near-term major rebuild. The 10 to 12 year
life can be longer or shorter depending on preventive maintenance, several
environmental factors, e.g., proximity to salt water, and type and quality of
initial construction.
Old-fashioned 12-channel systems, or for that matter 36-channel systems, are
obsolete when compared to the new or high capacity systems. The greater the
channel capacity, the greater the possibility for offering additional pay
services and other revenue enhancing services.
-3-
10
Local Political Considerations
Certain areas have been identified as politically difficult for the cable TV
operators. In such cases, the anticipated market value or selling price for a
cable system will be less than in areas with a cooperative political
environment.
Regulatory Environment
In addition to franchises issued by local governmental units, the industry is
regulated under the Cable Acts of 1984 and 1992, the Telecommunication Act of
1934 and the Telecommunication Act of 1996. The 1996 Act, while the
regulations have yet to codified, will have far reaching affects on the cable
TV, communications, and broadcast industries. One of the major elements of the
1996 Act is the removal or lessening of barriers of entry for the provision of
telephone and multichannel video services by would be competitors. The
Industry Review section includes a discussion of the current regulatory
environment.
-4-
11
FAIR MARKET VALUATION
OF THE REGIONS AND SYSTEMS THAT COMPRISE
FALCON CLASSIC CABLE INCOME PROPERTIES,
A CALIFORNIA LIMITED PARTNERSHIP
AS OF DECEMBER 31, 1996
PART II - INDUSTRY REVIEW
The cable television ("CATV") industry is currently facing sweeping regulatory
and technological changes which offer, on one hand, the potential for new
services and growth opportunities and on the other, significant challenges. It
is the purpose of this section to provide the reader with a brief historical
backdrop and a discussion of various factors and issues that will impact the
CATV industry.
Early History
The first cable television system was developed in Mahanoy, Pennsylvania in
1948 as a re-distributor of off-air television broadcast signals. Technical
constraints and limited product confined industry growth to areas of limited or
no off-air television reception through the mid-1970s. By that time, 29% of
television homes in the United States had cable television service available to
them, and approximately 12% to 15% of television households subscribed. Home
Box Office, and other satellite delivered cable exclusive programming,
developed in the mid-1970s represented a major breakthrough in technology. The
number of cable exclusive programming services grew exponentially through the
mid-1980s giving consumers a reason to subscribe to cable other than just
better television reception.
Historic Growth and Forecasts
During the late 1970s and the 1980s, the cable television industry was
characterized by a period of rapid growth as a number of communities granted
franchises, systems were built and wired, and subscribers were added. This
growth was spawned by an easing of
-5-
12
government regulations, the increased availability of capital, more
cable-exclusive programming, and improved technology. Following this period of
intensive construction, the industry's attention in the latter half of the
1980s turned to new programming, geographic consolidation ("clustering"), new
sources of revenues, such as "pay-per-view", increased competition with
broadcasters, the development of more dynamic consumer marketing, and improved
customer service.
From 1980 to 1995 the number of cable subscribers more than tripled from 18.1
million in 1980 to 62.1 million in 1995 (Table 1A), representing a compound
annual growth rate ("CAGR") of 8.6%. During the same time period, pay TV units
grew from 9.1 million to 54.2 million representing a 12.6% CAGR. Basic cable
TV subscribers now comprise 67% of United States homes passed by cable
television. This is projected by Kagan1 to decline to 65.5% by 2000,
reflecting the impact of competitive delivery systems, such as direct broadcast
satellite (DBS), multichannel multipoint distribution service (MMDS), and
hybrid fiber/coax transport services, among others.
While the percent of cable television households subscribing to cable is
projected to be flat or slightly decline, basic subscribers will continue to
grow in absolute numbers, but at a rate of growth slower than in the past.
While basic cable units grew at a CAGR of 8.6% between 1980 - 1995, they are
expected to grow only at a 0.2% rate between 1995 and 2005. Pay unit growth
patterns are also projected at a substantially lower rate than the industry has
seen over the past 15 years. Between 1980 and 1995 pay units grew at a CAGR of
12.6%; however, between 1995 and 2005 the growth rate is expected to decline to
1.9% due to market saturation and increased competition.
Historical and projected subscriber growth rates and industry revenues are
shown in Table 1A and 1B.
______________________
(1)The Cable TV Financial Databook 1996, published by Paul Kagan Associates,
Inc.
-6-
13
TABLE 1A
CABLE TELEVISION INDUSTRY STATISTICS
CABLE INDUSTRY GROWTH STATISTICS
Basic Cable Pay Cable Units
------------------------- --------------------------------------
TV Homes % of % of
Passed Subscribers* Homes Units** Homes % of
Yr End (Millions) (Millions) Passed (Millions) Passed Basic
- ------ ---------- ---------- ------ ---------- ------ -----
1980 32.8 18.1 55.2% 9.1 27.7% 50.3%
1981 41.2 22.5 54.6% 15.5 37.6% 68.9%
1982 49.1 27.2 55.4% 20.8 42.4% 76.5%
1983 55.9 31.4 56.2% 26.4 47.2% 84.1%
1984 60.5 34.2 56.5% 30.0 49.6% 87.7%
1985 64.7 36.7 56.7% 30.6 47.3% 83.4%
1986 69.4 39.7 57.2% 32.1 46.3% 80.9%
1987 73.1 42.6 58.3% 34.8 47.6% 81.7%
1988 77.2 45.7 59.2% 38.8 50.3% 84.9%
1989 82.8 49.3 59.5% 41.1 49.6% 83.4%
1990 86.0 51.7 60.1% 41.5 48.3% 80.3%
1991 88.4 53.4 60.4% 43.1 48.8% 80.7%
1992 89.7 55.2 61.5% 44.4 49.5% 80.4%
1993 90.6 57.2 63.1% 46.0 50.8% 80.4%
1994 91.6 59.7 65.2% 51.1 55.8% 85.6%
1995 92.7 62.1 67.0% 54.2 58.5% 87.3%
1996 (Est.) 93.7 64.0 68.3% 57.6 61.4% 89.9%
2000 (Est.) 98.1 64.3 65.5% 62.0 63.2% 96.4%
2005 (Est.) 103.9 63.3 60.9% 65.5 63.1% 103.5%
COMPOUND AVERAGE ANNUAL GROWTH RATES (CAGR)
1980-1995 7.2% 8.6% 12.6%
1995-2000 1.1% 0.7% 2.7%
1995-2005 1.1% 0.2% 1.9%
*Prior to 1982, basic subscribers and homes passed reflect quantities in those
systems offering pay TV.
**Pay cable units includes both pay units and mini pay units.
Sources: Paul Kagan Associates, Inc., The Cable TV Financial Databook, June
1996.
Kane Reece Associates, Inc., Compound Annual Growth Rates.
-7-
14
TABLE 1B
CABLE TELEVISION INDUSTRY STATISTICS (CONTINUED)
CABLE INDUSTRY REVENUES
($ Millions)
Actual Forecast 1995-
------------------- 2000
Year 1995 1996 2000 CAGR
---- ---- ---- ----
Basic/Exp. Basic Cable Revenue $ 16,858 $ 18,600 $ 22,900 6.3%
Pay Revenue (1) 5,063 5,237 5,377 1.2%
--------- --------- ---------
Total Basic/Pay Revenue 21,921 23,837 28,277 5.22%
--------- --------- ---------
Other Revenue:
PPV Revenue (2) 595 718 2,367 31.8%
Net Advertising Revenue 1,281 1,499 2,451 13.9%
Digital Services Revenue (3) 341 468 3,273 57.2%
Other Video Revenue (4) 729 865 1,371 13.5%
--------- --------- ---------
Total Other Revenue 2,946 3,550 9,462 26.3%
--------- --------- ---------
Total Video Revenue 24,867 27,387 37,739 8.7%
--------- --------- ---------
Video Revenue/Subscriber/Month 34.03 36.17 48.76 7.5%
Cable Telephony Revenue (5) 222 416 2,868 66.8%
--------- --------- ---------
Total Video & Cable Telephony Revenue $ 25,089 $ 27,803 $ 40,607 10.1%
========= ========= =========
Per Basic Subscriber $ 34.33 $ 36.72 $ 52.46 8.9%
========= ========= =========
Sources: Paul Kagan Associates, Inc., The Cable TV Financial Databook,
June 1996.
Kane Reece Associates, Inc. Compound Annual Growth Rate
Calculations.
(1) Pay cable revenue includes mini-pay revenue.
(2) PPV revenue includes PPV event, PPV/NVOD Movie and Non-Movie PPV/NVOD
revenue.
(3) Digital revenue includes cable delivered video game, digital video
tier, cable to business video and high speed access revenue.
(4) Other video revenue includes home shopping commission and
miscellaneous revenue.
(5) Cable telephony revenue includes residential cablephone and
wholesale/retail business cablephone revenue and cable Sprint Spectrum
revenue at 60%.
-8-
15
Regulation
The Cable Communications Policy Act of 1984 (the "1984 Act") had a major impact
on the CATV industry, the most significant of which was the deregulation of
basic cable rates. Effective December 29, 1986 cable operators were able to
raise monthly subscription rates on basic service at their own discretion,
rather than being limited to rate approval by local and state authorities. The
1984 Act also eased the franchise renewal process by establishing a specific
and consistent process for renewal. This "deregulated" cable world came to an
end with the passage of the "Cable Television Consumer Protection Act of 1992"
(the "1992 Act").
The Congress authorized the Federal Communications Commission ("FCC") to
promulgate and enforce the major elements of the 1992 Act.
Some of the key elements and issues addressed by the 1992 Act were:
- "Retransmission consent" whereby local TV stations were
allowed to negotiate with cable operators for consent, for a
fee, to retransmit their signals on cable, or local TV
stations could opt for "must carry" which requires cable
systems to carry the station for no fee.
- The "anti-buythrough" provision requires cable operators to
install expensive new addressable technology over the next ten
years so subscribers would no longer be required to buy "full
basic", or the "second tier", before being eligible to buy
premium and pay-per-view services.
- Rates of the lowest tier of local broadcast signals are
subject to local regulation of most cable systems (97%) under
guidelines developed by the FCC; expanded tiers of service may
be subject to rate regulation if subscribers complain to the
FCC and cable rates are found to be "unreasonable" on a
case-by-case basis by the FCC.
- New competition is "encouraged" by the bill from new cable
operators, municipalities and alternate video distributors,
and cable programmers are required to sell their creative
products to competitors at justifiable prices.
- An anti-trafficing provision prohibits cable operators from
selling or transferring ownership in a cable system for at
least three years after buying or building the system.
-9-
16
- Other provisions affect channel positioning, customer service
standards, the number of channels that can be occupied by a
programmer owned or backed by a cable operator, and the number
of cable subscribers any one cable operator may serve.
The 1992 Act had a substantial impact on the industry with revenues and cash
flows adversely affected, which in turn influenced the availability of capital.
Rate regulation became effective with the FCC initial benchmark on September 1,
1993, followed by revised benchmarks effective as of May 15, 1994. In general,
the regulations called for up to a maximum 17% reduction in basic cable service
rates and a cost based approach to the pricing of installation and customer
premise equipment such as remote control devices, converters and additional
outlets.
The first major overhaul of the Telecommunications Act of 1934 was passed by
Congress in January 1996. The Telecommunications Act of 1996 (the "1996 Act")
passed for several reasons including the following:
- Congress was under pressure to enact some "significant
legislation."
- Election year friendly/voter indifference.
- Regain policy authority from the court.
- Provides for "compromise," something for each industry.
- Public Relations Spin: jobs created for the information
superhighway.
The 1996 Act is made up of seven titles:
Title I Telecommunications Services
Title II Broadcast Services
Title III Cable Services
Title IV Regulation Reform
Title V Broadcast Obscenity and Violence
-10-
17
Title VI Effect on Other Laws
Title VII Miscellaneous Provisions
The 1996 Act is voluminous and complex. We will only deal with a sample of the
more significant aspects of the bill as they relate to cable TV. The 1996 Act
leaves in place, with certain modifications, most of the 1992 Act provisions.
Rate Regulation
- Upper tier regulations
- Only a local franchising authority can file a
complaint with the FCC -- the 1992 Act had
provisions for individuals.
- All tier rate regulation ends on March 31, 1999.
- Small company relief is broadened and better defined
v. the 1992 Act.
Effective Competition
- Local exchange carriers ("LEC's") are added to test
criteria.
- Satisfaction of test criteria deregulates all rates.
- Subscriber notice of rate changes are relaxed.
- Customer premise equipment rules remain essentially
the same as the 1992 Act - sunset when FCC
determines true competition exists.
- "Must Carry" stays in place -- Nielsen DMA's ("designated
market area") define broadcast market.
- Telco's can enter cable TV business in their service area in
three (3) ways:
1. As a cable system -- regulated under Title III.
2. As a common carrier -- regulated under Title II only.
3. As an "open video system" -- cannot discriminate among
programmers, do not require a local franchise but must comply with
network non-duplication, syndicated exclusivity.
-11-
18
- Telephone and Cable Buyouts
- No LEC or affiliate can acquire more than 10% of a
cable operator providing cable service within the
carrier's service area.
- No cable operator or an affiliate can acquire more
than 10% of a LEC providing telephone service within
the cable system's service area.
- Developing LEC's and cable operators cannot form
joint ventures to offer cable or telephone service.
- There are several exceptions to the above
prohibitions which generally deal with small systems
and markets.
- Infrastructure Sharing
- Requires telcos to provide information about their
switched network to any "qualifying carrier".
Potential competitors, including cable, need the
information in order to connect their networks with
the telcos' networks.
- Direct Broadcast Satellite
- Gives the FCC exclusive authority over direct-to-home
satellite services ("DTH"), including direct
broadcast satellite ("DBS"). The bill also bars
local jurisdictions from taxing DTH satellite
services but does not affect state taxes.
- Bars local communities, including homeowner
associations, from writing zoning laws that prohibit
DBS dishes.
The 1996 Act impact on the cable industry is mixed. The industry will benefit
from telco competitive opportunities and the removal of rate regulations.
However, the deregulatory benefit is modified by several effects of the Act:
competitors are encouraged; telco takeovers become more feasible; the threat of
competition restricts cable financing; and several 1992 Act regulations remain.
According to Research Weekly (Prudential Securities, December 11, 1995) the
cable industry has essentially learned to live with the new regulations.
Further, it notes that strategically the most important issues are local
telephone entry and revenue growth driven by new technologies and services.
-12-
19
Consolidation
The uncertainty of the impact of regulation, the timing and financing of the
"information superhighway" and its associated potential new revenue sources,
and the advent of a competitive environment have created a market for cable
systems driven by a need for consolidation. This is evident in the
unprecedented number of large cable operators who put their cable systems up
for sale in 1995, systems serving over 13 million subscribers, almost 20% of
the industry. When all of these proposed deals close, the top 20 U.S. cable
multiple system operators ("MSOs") will serve about 87% of an estimated 62.1
million cable customers and the top five MSOs will control 65% of the
universe.(2)
The industry consensus is that consolidation is necessary in order to survive
the impacts of convergence, regulation, and competition, and to provide
operators with greater access to investment capital and greater leverage with
suppliers of equipment and programming. According to a Wall Street Journal
special report on telecommunications (September 16, 1996), only about 15% to
20% of the country's cable lines are equipped for two-way service; however, the
industry is still leading the race to provide high speed data communications.
Securing a portion of the market for the revenues from this type of service
will serve as a key to maintaining competitiveness as convergence develops.
Cable TV companies are also creating joint ventures with companies outside the
cable industry. A good example of industry convergence is the Sprint/Cable
Alliance. The major players include Sprint with a 40% equity interest in the
venture, TCI with a 30% equity interest and Cox Communications and Comcast
Corporation each with a 15% equity interest. The total costs have been
estimated at around $8 billion. Each of the players in the alliance will bring
something different to the table in an attempt to accomplish what is best
described as a national digital wireless communications network based on
broadband communications services. Sprint brings long-distance and local
____________________________
(2) Cable TV Investor, December 18, 1995.
-13-
20
exchange authority, as well as a marketable and recognizable name. TCI offers
a vast broadband wireline network. Comcast brings a wireline network and
cellular service expertise to the venture, as well as, major markets in which
to develop a Sprint branded wireline service. Cox Communications will provide
their wireline network and a wireless service in the large southern
California/Las Vegas market.(3)
Cable Financing
Regardless of the size of current transactions, the ability to complete a
transaction requires the use of creative financing. The traditional financing
vehicles, i.e., senior debt and mezzanine financing, have become limited as the
investment community tries to analyze the potential impact of the new
telecommunications legislation, and the ensuing competitive environment. New
areas of financing include strategic alliances, recently increased junk bond
activity; seller paper; major pension fund investors, e.g., CalPERs, and
increased liquidity from non-traditional investors, e.g., US West's investments
in a Time Warner cable and programming venture, acquisition of the Bass Atlanta
systems, and its pending acquisition of Continental Cablevision.
Industry Trends
Cable TV historically has provided competitively priced entertainment compared
with movie theaters and other away-from-home leisure activities. Cable
revenues continue to exhibit stability over the business cycle relative to many
other discretionary consumer expenditures.
The latter half of the nineties is expected to bring continued growth in both
cable television subscriptions and revenues, albeit at a somewhat slower growth
rate, reflecting a maturing of the traditional basic cable industry and new
competition. The industry will focus on new programming and alternative
viewing selections, such as staggered starting
_______________________________
(3) Cablevision Magazine, "Sprinting Into Telecommunications", November 13,
1995.
-14-
21
times on alternative channels for entertainment events, increased pay-per-view
options, video on demand, etc. Technology will play a major role in the
continued growth and profitability of the industry. The use of fiber optic
technology for 750 MHz systems with 500-2,000 households per node is standard
for industry rebuilds in high density areas. This, along with developments in
digital television signal compression technologies, will allow cable systems to
offer more channels by orders of magnitude at cost effective rates.
Additionally, this distribution network architecture will position the cable
operator to offer new interactive services in competition with other service
providers as the new services approach viability. High speed cable modem
services offering extremely rapid access to the internet and other data
services, telecommunications, and information services, such as Personal
Communications Networks, are expected to offer additional revenue sources.
Programming and Services: The next five to ten years will see additional
growth of CATV revenues from "other revenue" categories (other than basic and
pay cable subscription revenue) such as advertising, pay-per-view ("PPV"), home
shopping, digital audio, telephony, and potential new technology oriented
services such as interactive games and computer related services. In 1995
other revenues including telephony (see Table 1B) were approximately $3.2
billion, or 13%, of the industry's $25.0 billion in revenues. As depicted in
Table 1B, between 1995 and 2000 other revenues (non-telephony) are projected to
grow to $9.5 billion, representing a CAGR of 26.3%. Telephony revenue is
projected to grow at a rapid 66.8% CAGR between 1995 and 2000 reaching $2.9
billion in revenues. Basic cable subscription revenue is expected to grow at a
6.3% CAGR and pay services revenue will increase by 1.2% CAGR. These numbers
clearly determine what services cable television companies will be focusing
their energies on as convergence becomes a reality.
-15-
22
In addition to providing broadcast networks, basic cable offers a great variety
of program alternatives in the form of basic cable networks. Each of the ten
largest basic service networks (the top five being: The Discovery Channel, USA
Network, Cable News Network, TBS Superstation, and TNT) have over 67 million
subscribers as of the end of July 1996.4 Other widely distributed basic cable
networks include The Learning Channel, Headline News, Lifetime, The Travel
Channel, The Family Channel, C-Span, MTV, ESPN, Arts & Entertainment, The
Weather Channel, WWOR- TV, QVC, The Nashville Network, CNBC, and Comedy
Channel.
Pay television services include channels for which an optional additional fee
is paid to the CATV operator. According to CableVision Magazine, April 29,
1996, the top five movie oriented pay channels served over 53 million
subscribers as of mid-1996. The top five movie entertainment services are Home
Box Office (19.2 million subscribers), Cinemax, Showtime, Disney Channel, and
Encore.(4) Many of these programmers have increased their development and
production of original programming as opposed to relying mostly on the
acquisition of Hollywood movies. In addition to these services, regional and
local sport networks and other specialized channels are sometimes offered as
pay services.
New programming services are anticipated as cable industry capacity constraints
and regulatory "disincentives" are eased. New sources of competition are
expected from the Regional Bell Operating Companies ("RBOCs") and Hollywood.
Examples include the formation of Tele-TV in 1994 (Bell Atlantic, Nynex,
Pacific Telesis) and Americast) (Ameritech, BellSouth, GTE, SBC Communications
and Disney).(5) The Tele-TV venture was formed by several "RBOC's" with the
intention of providing video on demand cable services over telephone wires in
an attempt to compete with the cable operators. However, due to technology
delay, the venture has since switched their strategy to wireless cable "MMDS"
in order to compete in video with a technology that is available
_______________________________
(4) Cablevision Magazine, October 21, 1996.
(5) Standard & Poor's Telecommunications Industry Survey, December 7, 1995.
-16-
23
today. Americast is not a proponent of "MMDS" and will continue to focus their
efforts on competing in the video services industry via telephone
infrastructure. The "RBOC's" are currently struggling with digital technology
issues with MMDS and continue to be delayed in entering the market, but it is
still expected that they will have a direct impact on video delivery service.
Cable advertising revenues have begun to play a significant role in the
industry's profitability. According to Veronis, Suhler & Associates
Communications Industry Forecast, 1996, the audience share for daytime cable
increased from 30.1% in 1994 to 35.3% in 1995. Prime-time viewing also grew
significantly in 1995, basic cable rising 20 percent and pay cable rising 7
percent. In contrast the 1995-1996 major network television season was hit
hard by cable viewership due to the O.J. Simpson trial, the Winter Olympics and
a barrage of new shows that confused viewers and were narrowly targeted at the
shrinking 18-34 year old bracket. Network prime-time viewing fell 7.6% showing
a direct relationship between cable network viewership and major network
viewership. This has attracted the attention of both local and national
advertisers. 1995 total advertiser spending on subscription video services
rose to $5.3 billion, a 16.3% increase over the $4.6 billion spent in 1994
(Veronis Suhler & Associates, Communications Industry Forecast, 1996) "VS&A".
Furthermore, according to VS&A, network ad spending rose to $3.7 billion in
1995, an increase of only 14.4% compared to an 18.2% increase in 1994, whereas,
spot and local advertising rose 20.7% in 1995 versus 20.2% in 1994, another
comparison that reaffirms the trade-off between major broadcast networks and
cable networks.
Due to the niche nature of cable television programming, cable advertising
offers an attractive, cost effective advertising medium to target specific
consumer demographics. Additionally, cable advertising interconnects, serving
broad metropolitan areas, facilitate
-17-
24
the booking of advertising time at multiple cable systems time by national and
regional advertisers.
In the future, PPV will become a significant source of revenues as digital
technology is deployed and the acquisition of movies and event programming
becomes more aggressive, thereby improving their availability on cable relative
to theatrical and videocassette releases. A number of the large cable MSOs as
well as both cable and broadcast networks continue to show significant interest
in both acquiring and developing new programming. As of this writing,
approximately 150 new programming channels are in development for cable
television. Other examples of interest include cable programmers purchase of
the rights to numerous professional sporting events including football,
baseball, basketball, hockey, and boxing. In addition, MSO's have purchased
sports teams and venues, such as Comcast's purchase of the Philadelphia Flyers
and 76ers, and the Spectrum Sports Arena. These purchases will lock-in cable
television broadcast rights.
Veronis, Suhler and Associates projects a downward trend in PPV movie prices,
falling to $2.95 per movie in the year 2000 from the 1995 rate of $4.10. This
trend in pricing will result in an increase in annual buys per PPV household
rising from 2.9 in 1995 to 5.6 in 2000.
With the success of DBS and the availability of PPV services offered (over 50%
of a DBS service's channels) and the coming of digital converters and increased
channels in cable, VS&A gives the following favorable projections to PPV:
- Total spending on PPV movies through cable operations will
grow at a CAGR of 25.1% between 1995 and 2000 reaching $776
million in 2000.
- Total spending on PPV movies through non-cable video services
will climb to $218 million in 2000 from $76 million in 1995, a
CAGR of 23.5%.
-18-
25
. Total aggregate spending on PPV movies through cable and
non-cable video services will be $994 million in 2000, up from
$329 million in 1995, a CAGR of 24.7%.
Another source of incremental revenues has been the growth of home shopping
services on cable TV. Paul Kagan Associates that reported these services
generated 1995 revenue for CATV operators of $144 million and projects these
revenues to grow to $217 million by 2000 (an 8.5% CAGR). These services are
highly profitable for cable system operators who generally receive 5%-10% of
gross sales.
Technology Developments
New revenue sources will be dependent upon new delivery systems. Emerging
technologies which will influence the new delivery systems are briefly
described below.
Interactive Digital Technology
A major factor in the growth in cable video revenues and related service
revenues such as telephony will be dependent upon the cable industry's
implementation of interactive digital technology into their delivery systems.
These technical architectural changes include both digital and switched
technologies.
Fiber Optics: Optical fiber technology is rapidly being deployed in cable
television systems and is projected to grow at an annual rate of 25% in the
1990s. It's use provides several advantages over traditional coaxial copper
cable:
. Cost effective upgrades of channel capacity by replacing
"trunk" without the high cost of replacing all cable to each
individual home, resulting in the "hybrid" fiber-coaxial
system commonly in use today;
. Improved reliability, by reducing the number of electronics
required between the headend and the consumer;
. The addition of two-way services for consumers or business at
cost effective rates.
. Reduced operating costs due to fewer electronics which need
periodic "balancing" or fine-tuning;
-19-
26
. Improved signal quality, due to fewer electronics and less
possibility of static or electrical interference.
Competition
Technological developments will dramatically alter the way households,
businesses, and schools "connect" with informational, educational,
entertainment, tele-communications and transactional services. The cable
television industry is well positioned to take advantage of the new competitive
marketplace brought about by the 1996 Act. Future competition to cable
operators is expected to come from three industries; direct broadcast satellite
services, telephone companies, and wireless cable. It appears that all three
competitors are well financed to compete with cable operators. Briefly, here
are some of the strengths and weaknesses of the most frequently mentioned
competitive threats to cable television in the years ahead.
DBS: Direct Broadcast Satellite, is a satellite-to-home service utilizing a
"backyard dish" or receiver. Historically, most DBS customers have been in
lightly populated rural areas which are not served by cable companies due to
cable's self-imposed guidelines for "cost-effective" densities of 20-30
households per mile. However, "U.S. Satellite Broadcasting's latest research
found that 63% of its recent subscribers live in a city, suburb, or town while
only 37% live in rural areas.6
The first DBS service was offered in June of 1994 by G.M. Hughes Electronics
("DirecTV") and U.S. Satellite Broadcasting, ("USSB"). The industry closed out
1995 with a subscriber base of 1.8 million, 500% greater than the 300,000
subscribers as of year-end 1994. DirecTV's 125 channel service accounted for
1.5 million of those subscribers, USSB had 800,000 subscribers and Primestar,
had 1.1 million subscribers (the total number of subscribers does not correlate
with the number of subscribers for each service because the services do have
overlapping subscribers).
________________________________
6Cable World, August 26, 1996.
-20-
27
As expected, 1996 has brought added competition to the DBS service industry,
including Echostar, a company that is projecting 300,000 to 400,000 subscribers
by year end and Alphastar, a company that is projecting 100,000 to 150,000 by
year end.
DBS analysts are estimating that DBS hardware will be in 4.8 million homes by
the end of 1996 and between 13 and 17 million homes by the close of the year
2000 (CableWorld, August 1996). Donaldson, Lufkin and Jenrette projects a
subscriber base in the year 2000 of 19.3 million homes or roughly one of every
five homes in America.
These escalated growth projections are a direct result of the heated price wars
brought on by a strategy to realize quicker subscriber growth and rely on
monthly service revenue to cover offers to consumers of below-cost equipment
sale prices. Echostar offered DBS equipment to the consumer in May of 1996 for
$199 forcing the other DBS service providers to follow suit.
The monthly costs range between $5.95 and $44.95 per month and pay-per-view
movies cost $2.99 each, more than a dollar less than the average cable
pay-per-view.
Advantages of DBS to consumers are the prospect of satellite signals at
competitive monthly prices and additional program services. Disadvantages are
requirements for an unimpeded line of sight for the antenna, no carriage of
local broadcast signals or locally originated programming, and currently the
inability to provide practical interactive services. Cable systems in rural,
low density areas with limited channel capacity (35 or less) and poor service,
or areas without wired cable service are the most vulnerable to DBS
competition. Telephone companies and cable operators themselves may also
market DBS services as an entree to cable services. In fact, AT&T has made an
investment in DirecTV and has already begun to market the service to its 95
million customers; and Primestar is owned by GE and several major cable
operators.
-21-
28
Wireless: Wireless cable (officially referred to as "multichannel multipoint
distribution system," or "MMDS") provides multichannel television service via a
local microwave distribution system and microwave receive equipment at the
consumer location. Wireless requires less capital than cable, is easier to
construct, and provides service to an area faster than it takes to build a
cable system. Disadvantages include line of sight requirements, a lack of
interactivity and the transition to digital technology. In addition there are
current limitations to a maximum of 33-channels of capacity for an MMDS system.
However, digital compression techniques will increase the number of programs
delivered when the service providers come up with the capital to make the
transition.
Support for this technology is offered by the recent entry of several RBOC's,
including Pacific Telesis and Nynex. Bell Atlantic has also formed an alliance
with Cellular Vision of New York which provides a similar wireless service but
at an even higher frequency. Some analysts believe the telco companies see
this technology as an opportunity to get into subscription video services now
while they await the arrival of video dial tone. The availability of digital
technology is a significant factor in reviewing the prospects of MMDS. If
deployed, it would give the industry a fair chance against DBS with the ability
to provide 120 plus channel systems, a vast improvement over the current 33
channel systems.
In addition to MMDS the government has proposed another frequency auction at
the 27.5-29.5 GHz range. This area of frequency providing for "LMDS" (local
multipoint distribution service) offers five times as much spectrum as MMDS and
is designed with two-way capability in mind. LMDS can be used for
video-on-demand, high quality, digital radio and TV programming. Because of
its cellular-like configuration, it is ideal for trunking personal
communications services, video teleconferencing, and local transactional
services. On the downside, LMDS requires that transmitters be placed
approximately 2-3 kilometers apart, or more frequently than those of MMDS,
giving
-22-
29
LMDS a much higher cost structure and is also much more sensitive to
atmospheric conditions because of it's high frequency.
Though true competitive services to cable and DBS, the growth of wireless seems
limited to an average of 2-3% of the marketplace. This is supported by
Veronis, Suhler & Associates Communications Industry Forecast, 1996 which
projects wireless cable subscribers increasing from 0.7 million in 1995 to 2.4
million in 2000 representing a 28% CAGR and 3% of the total subscription video
subscribers.
Telephone Companies: When talking about cable competition, "telephone" usually
means RBOCs because their lobbying and public campaign for rights to provide
video in their service areas has been highly visible. Telephone companies view
cable as a great new source of revenue and a way to finance fiber optic cable
throughout their areas. The RBOC's have the financial resources, technical
expertise and consumer experience to be real competitive threats. However,
serious barriers to their entry remain. They have virtually no video
experience since historically they have been prohibited from offering video
services by the court and the Cable Act of 1984; their drops to households
would all need to be replaced and new coax/fiber plant built at a huge cost in
order to provide a broadband video service comparable to what cable already has
in place; Public Utility Commissions would be unlikely to tolerate any
cross-ownership of subsidiaries by a regulated utility for an entry into a new,
competitive field dominated by an experienced incumbent (though telephone
companies seem to be making significant inroads in certain states like
Connecticut and Michigan); telephone companies have little experience in
marketing services, much less in a complicated, multi- tiered, menu-driven
cable television era. The 1996 Act creates a competitive marketplace for
telephone and cable services by allowing phone and cable companies to compete
in each others businesses while prohibiting combinations of companies serving
overlapping areas. This so-called "two (2) wire" model is a situation that
cable is far better situated to take advantage of
-23-
30
from both a technological and regulatory standpoint with its broadband network
in place. The telephone companies would face heavier costs, and time delays.
Many analysts continue to give the competitive advantage to cable due to:
- Cable's national broadband fiber/coaxial networks can be
expanded for telephone services with an estimated cost of $20
billion while telephone's limited fiber/twisted pair network
would require an investment of an estimated $400 billion to
enable it to provide high capacity video services;
- Cable companies are likely to react to market opportunities
more quickly, having an opportunistic entrepreneurial history,
rather than that of a large, bureaucratic, utility monopoly
which has only recently ventured into competitive business;
- Cable is expected to "out-market" telephone companies, having
experienced some competition and several large cable companies
having managed cable-telco combined systems in the U.K. for
several years; and
- Cable will probably have an initial window of opportunity in
the "open marketplace" of 2-3 years due to the RBOC's focus on
first entering the long distance market, as well as normal
lapsed time required for telephone companies to work their way
through Public Utility Commission ("PUC") and regulatory
procedures.
- RBOC's are occupied with other priorities such as entering the
long distance telephone market and defending their local
service "monopoly."
On the other hand, Standard & Poor's Telecommunications Industry Survey,
December 7, 1995 provides a synopsis of some of the more difficult issues
facing the CATV industry as it prepares to enter the telecommunications market:
- Cable networks are generally one way and operators must
upgrade their networks with appropriate switching capabilities.
- The cable industry must overcome the reliability of its
service.
- The United Kingdom market provides some insight into the
ability of U.K. cable companies to capture as much as 25% of
the U.K. Telephony market. However, the telephony market in
the U.K. does not provide the same level of reliability as in
the U.S.; thus the analogy may not correlate.
-24-
31
Summary
In summary, the cable TV industry is well positioned to participate in the
growth of the information highway. It has a broadband cable plant in place, is
entrepreneurial in nature, has outstanding companies and management talent to
compete with the entrenched telephone and broadcast players in the marketplace.
Additional services and corresponding sources of revenue will continue to
develop, and the consolidation of players in the CATV industry and
telecommunications industry, e.g., U.S. West's acquisition of Continental, Time
Warner's acquisition of Cablevision Industries in 1995 and Turner Broadcasting
in 1996 and Comcast's acquisition of Scripps Howard, will continue so that
economies of scale and sufficient resources, both capital and management, will
remain available.
-25-
32
FAIR MARKET VALUATION
OF THE REGIONS AND SYSTEMS THAT COMPRISE
FALCON CLASSIC CABLE INCOME PROPERTIES,
A CALIFORNIA LIMITED PARTNERSHIP
AS OF DECEMBER 31, 1996
PART III - DESCRIPTION OF THE REGIONS'
AND SYSTEMS' SERVICE AREAS
Description of Service Areas
FCCIP is made up of three (3) Regions and two (2) Systems collectively called
the "Operating Areas" as follows:
Regions:
Burke County, North Carolina
Centreville, Maryland
Somerset, Kentucky
Systems:
Redmond, Oregon
California City, California
Figures 1 - 5 are maps showing the location of each Operating Area and certain
systems, i.e., systems serving communities that are in the "Maplinx" database,
within each Region. Exhibits A and B contain photographs and detailed
operating statistics as of the valuation date respectively. Tables 2A through
2E depict various relevant demographic factors, available at the valuation
date, for each Operating Area's service areas. The reader should note that the
demographic data in the Tables were compiled by postal zip codes. The zip
codes served were provided by Falcon management. Also, the place names are
associated with zip codes and will not necessarily be the same as the Operating
Area franchise areas. The Tables contain population and household statistics,
beginning with 1990 census data, show CACI projections for 1995 and 2000. Kane
Reece computed the
-26-
33
FIGURE 1
[BURKE COUNTY REGION MAP]
[FALCON CLASSIC CABLE INC. PROP.]
-27-
34
FIGURE 2
[CENTREVILLE REGION MAP]
[FALCON CLASSIC CABLE INC. PROP.]
-28-
35
FIGURE 3
[SOMERSET REGION MAP]
[FALCON CLASSIC CABLE INC. PROP.]
-29-
36
FIGURE 4
[REDMOND SYSTEM MAP]
[FALCON CLASSIC CABLE INC. PROP.]
-30-
37
FIGURE 5
[CALIFORIA CITY SYSTEM MAP]
FALCON CLASSIC CABLE INC. PROP.]
-31-
38
TABLE 2A
Burke County, NC Region
Demographic Characteristics
Population
------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ---- ----- ---- ----- ----
28601 Hickory 44,830 46,799 49,006 0.9% 0.9%
28602 Hickory 21,146 22,205 23,311 1.0% 1.0%
28603 N/A
28612 Connellys Spring 15,387 16,117 16,846 0.9% 0.9%
28619 N/A
28628 N/A
28637 N/A
28666 N/A
28671 N/A
28680 N/A
28690 Valdese 4,231 4,234 4,329 0.0% 0.4%
28761 Nebo 5,046 5,495 5,838 1.7% 1.2%
Total/Avg 90,640 94,850 99,330 0.9% 0.9%
Wtd. Avg. 30,196 31,535 33,037 0.9% 0.9%
North Carolina 6,628,637 7,179,473 7,704,035 1.6% 1.4%
United States 248,709,873 263,006,245 277,083,635 1.1% 1.0%
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
Households
--------------------------------------------- Median
Zip CAGR Median Age HH National State
Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile
---- -------- ---- ---- ---- ----- ----- ---- ---- ------- ------- -------
28601 Hickory 18,141 19,003 19,920 0.9% 0.9% 34.7 36.3 $34,719 70% 77%
28602 Hickory 7,948 8,337 8,745 1.0% 1.0% 33.7 35.4 28,503 52% 46%
28603 N/A
28612 Connellys Spring 5,887 6,157 6,432 0.9% 0.9% 33.9 36 30,716 60% 61%
28619 N/A
28628 N/A
28637 N/A
28666 N/A
28671 N/A
28680 N/A
28690 Valdese 1,801 1,799 1,838 -0.0% 0.4% 37.5 38.7 29,277 55% 53%
28761 Nebo 1,747 1,906 2,026 1.8% 1.2% 34.4 36.4 29,165 54% 52%
Total/Avg 35,524 37,202 38,961 0.9% 0.9% 34.8 36.6 30,476 58% 58%
Wtd. Avg. 12,195 12,779 13,401 0.9% 1.0% 34.4 36.2 32,116
North Carolina 2,517,026 2,730,795 2,936,445 1.6% 1.5% 33.1 34.6 32,188 26 *
United States 91,947,410 97,069,804 102,201,641 1.1% 1.0% 32.9 34.0 33,610
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
-32-
39
TABLE 2B
Centreville, MD Region
Demographic Characteristics
Population
----------------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ---- ---- ---- ----- -----
21620 Chestertown 10,618 11,541 12,304 1.7% 1.3%
21645 Kennedyville 1,811 1,877 1,955 0.7% 0.8%
21646 N/A
21661 Rock Hall 2,770 2,815 2,908 0.3% 0.7%
21667 Still Pond 289 300 312 0.7% 0.8%
21678 Worton 1,680 1,742 1,815 0.7% 0.8%
21610 Betterton 485 503 524 0.7% 0.8%
21651 Millington 2,003 2,096 2,200 0.9% 1.0%
21670 N/A
21668 Sudlersville 2,008 2,124 2,248 1.1% 1.1%
21623 Church Hill 814 879 939 1.5% 1.3%
21617 Centreville 5,863 5,856 6,025 -0.0% 0.6%
21658 Queenstown 3,301 3,582 3,838 1.6% 1.4%
21619 Chester 4,199 4,713 5,131 2.3% 1.7%
21628 Crumpton 689 736 782 1.3% 1.2%
21638 Grasonville 3,225 3,550 3,829 1.9% 1.5%
21666 Stevensville 8,630 9,541 10,316 2.0% 1.6%
21663 Saint Michael 3,247 3,427 3,606 1.1% 1.0%
21601 Easton 16,439 17,537 18,538 1.3% 1.1%
21612 Bozman 847 894 941 1.1% 1.0%
21624 N/A
21625 Cordova 2,346 2,472 2,599 1.1% 1.0%
21647 McDaniel 610 632 659 0.7% 0.8%
21652 N/A
21653 N/A
21662 Royal Oak 889 938 986 1.1% 1.0%
21665 Sherwood 262 272 283 0.8% 0.8%
21671 Tilghman 745 772 805 0.7% 0.8%
21676 Wittman 338 350 365 0.7% 0.8%
21679 Wye Mills 270 285 299 1.1% 1.0%
Total/Avg 74,378 79,434 84,207 1.3% 1.2%
Wtd. Avg. 7,701 8,303 8,833 1.5% 1.2%
Maryland 4,781,468 5,056,951 5,344,316 1.1% 1.1%
United States 248,709,873 263,006,245 277,083,635 1.1% 1.0%
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
Households
---------------------------------------------- Median
Zip CAGR Median Age HH National State
Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile
---- -------- ---- ---- ---- ----- ----- ---- ---- ------ -------- -------
21620 Chestertown 3,996 4,378 4,698 1.8% 1.4% 35.5 36.7 $37,609 78% 29%
21645 Kennedyville 575 595 621 0.7% 0.9% 36.8 38 36,660 76% 26%
21646 N/A
21661 Rock Hall 1,175 1,191 1,230 0.3% 0.6% 41.3 41.8 26,571 43% 3%
21667 Still Pond 109 113 118 0.7% 0.9% 36.5 38 36,764 76% 27%
21678 Worton 645 668 697 0.7% 0.9% 36.7 38 36,680 76% 26%
21610 Betterton 195 202 211 0.7% 0.9% 36.6 38.2 36,777 76% 27%
21651 Millington 734 767 805 0.9% 1.0% 35.7 36.9 35,957 74% 23%
21670 N/A
21668 Sudlersville 695 734 777 1.1% 1.1% 34.3 36.4 37,608 78% 29%
21623 Church Hill 309 334 358 1.6% 1.4% 36.4 38.2 40,521 83% 35%
21617 Centreville 2,149 2,135 2,192 -0.1% 0.5% 36.9 37.6 40,604 83% 36%
21658 Queenstown 1,224 1,325 1,420 1.6% 1.4% 39.1 38.4 59,543 97% 77%
21619 Chester 1,634 1,828 1,986 2.3% 1.7% 34.3 34.5 52,153 94% 64%
21628 Crumpton 257 274 291 1.3% 1.2% 36.5 37.7 35,553 72% 22%
21638 Grasonville 1,204 1,323 1,426 1.9% 1.5% 35.5 35.5 46,040 90% 51%
21666 Stevensville 3,068 3,388 3,662 2.0% 1.6% 34.1 35.3 60,443 97% 79%
21663 Saint Michael 1,470 1,549 1,629 1.1% 1.0% 48.5 49.6 39,636 82% 33%
21601 Easton 6,859 7,320 7,745 1.3% 1.1% 38.3 39.1 36,144 74% 24%
21612 Bozman 376 396 417 1.0% 1.0% 49 50 39,191 81% 32%
21624 N/A
21625 Cordova 811 854 897 1.0% 1.0% 33.4 35.1 39,262 81% 32%
21647 McDaniel 247 256 267 0.7% 0.8% 40.9 40.7 32,288 64% 17%
21652 N/A
21653 N/A
21662 Royal Oak 371 391 411 1.1% 1.0% 44.3 46.5 40,628 83% 36%
21665 Sherwood 113 117 122 0.7% 0.8% 40.9 41.2 32,734 66% 18%
21671 Tilghman 307 318 331 0.7% 0.8% 40.7 40.8 32,537 65% 17%
21676 Wittman 154 159 166 0.6% 0.9% 40.9 40.8 32,466 65% 17%
21679 Wye Mills 104 109 115 0.9% 1.1% 33.9 35.3 39,651 82% 33%
Total/Avg 28,781 30,724 32,592 1.3% 1.2% 38.3 39.2 39,361 77% 33%
Wtd. Avg. 3,104 3,348 3,566 1.5% 1.3% 37.3 38.2 41,730
Maryland 1,748,991 1,845,277 1,948,339 1.1% 1.1% 33.0 34.2 47,728 4 *
United States 91,947,410 97,069,804 102,201,641 1.1% 1.0% 32.9 34.0 33,610
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
-33-
40
TABLE 2C
Somerset, KY Region
Demographic Characteristics
Population
---------------------------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ---- ---- ---- ----- -----
42544 Nancy 3,861 4,622 5,220 3.7% 2.5%
42553 Science Hill 2,899 3,550 4,056 4.1% 2.7%
40489 Waynesburg 4,024 4,124 4,284 0.5% 0.8%
42567 Eubank 5,867 6,895 7,725 3.3% 2.3%
42519 Burnside 2,843 2,998 3,189 1.1% 1.2%
42518 Bronston 2,417 2,538 2,689 1.0% 1.2%
42555 N/A
42558 N/A
42633 Monticello 13,523 14,305 15,024 1.1% 1.0%
42533 N/A
40437 Hustonville 2,965 3,174 3,356 1.4% 1.1%
40448 N/A
40484 Stanford 9,072 9,831 10,524 1.6% 1.4%
42501 Somerset 28,546 30,687 32,941 1.5% 1.4%
40740 Lily 7,471 8,029 8,634 1.5% 1.5%
40741 London 20,329 23,226 25,770 2.7% 2.1%
42642 Russell Springs 9,569 9,908 10,393 0.7% 1.0%
42728 Columbia 10,012 10,690 11,282 1.3% 1.1%
42743 Greensburg 8,471 8,355 8,328 -0.3% -0.1%
Total/Avg 131,869 142,932 153,415 1.6% 1.4%
Wtd. Avg. 14,479 15,764 17,047 1.7% 1.6%
Kentucky 3,685,296 3,860,579 4,029,593 0.9% 0.9%
United States 248,709,873 263,006,245 277,083,635 1.1% 1.0%
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
Households
-------------------------------------------------- Median
Zip CAGR Median Age HH National State
Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile
---- -------- ---- ---- ---- ----- ----- ---- ---- ------ ------- -------
42544 Nancy 1,488 1,789 2,024 3.8% 2.5% 37 38.7 20,197 16% 61%
42553 Science Hill 1,095 1,347 1,542 4.2% 2.7% 34.6 36.4 21,100 20% 65%
40489 Waynesburg 1,455 1,497 1,559 0.6% 0.8% 33.4 34.9 17,794 8% 45%
42567 Eubank 2,162 2,552 2,865 3.4% 2.3% 34.3 36.1 18,921 12% 53%
42519 Burnside 1,075 1,139 1,213 1.2% 1.3% 35.1 36.5 16,099 4% 31%
42518 Bronston 914 964 1,024 1.1% 1.2% 34.8 36.4 15,345 3% 25%
42555 N/A
42558 N/A
42633 Monticello 5,164 5,472 5,761 1.2% 1.0% 34.3 36 15,055 2% 24%
42533 N/A
40437 Hustonville 1,096 1,178 1,247 1.5% 1.1% 34.4 36.1 $19,589 14% 59%
40448 N/A
40484 Stanford 3,396 3,700 3,972 1.7% 1.4% 34 35.6 21,261 20% 66%
42501 Somerset 10,988 11,883 12,805 1.6% 1.5% 35.2 36.9 21,038 19% 65%
40740 Lily 2,627 2,840 3,066 1.6% 1.5% 31.6 33.3 16,989 6% 38%
40741 London 7,525 8,612 9,566 2.7% 2.1% 33.4 35 19,297 13% 56%
42642 Russell Springs 3,868 4,026 4,233 0.8% 1.0% 35.8 37.4 17,781 8% 45%
42728 Columbia 3,837 4,130 4,380 1.5% 1.2% 35.3 36.6 17,805 8% 45%
42743 Greensburg 3,357 3,325 3,320 -0.2% -0.0% 38 39.2 20,243 16% 62%
Total/Avg 50,047 54,454 58,577 1.7% 1.5% 34.7 36.3 18,568 11% 49%
Wtd. Avg. 5,531 6,038 6,541 1.8% 1.6% 34.7 36.3 18,981
Kentucky 1,379,782 1,450,703 1,516,692 1.0% 0.9% 33.0 34.6 24,504 48 *
United States 91,947,410 97,069,804 102,201,641 1.1% 1.0% 32.9 34.0 33,610
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
-34-
41
TABLE 2D
Redmond, OR Region
Demographic Characteristics
Population
----------------------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ---- ---- ---- ----- -----
97756 Redmond 12,161 15,680 18,968 5.2% 3.9%
97760 Terrebonne 2,101 2,885 3,586 6.5% 4.4%
Total/Avg 14,262 18,565 22,554 5.4% 4.0%
Wtd. Avg. 10,679 13,692 16,522 5.1% 3.8%
Oregon 2,842,321 3,141,979 3,427,386 2.0% 1.8%
United States 248,709,873 263,006,245 277,083,635 1.1% 1.0%
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
Households
---------------------------------------------------- Median
Zip CAGR Median Age HH National State
Code Location 1990 1995 2000 90-95 95-00 1990 1995 Income Centile Centile
---- -------- ---- ---- ---- ----- ----- ---- ---- ------ ------- -------
97756 Redmond 4,644 5,967 7,210 5.1% 3.9% 34.9 35.9 $30,992 61% 52%
97760 Terrebonne 772 1,055 1,310 6.4% 4.4% 35.4 36.6 31,995 64% 56%
Total/Avg 5,416 7,022 8,520 5.3% 3.9% 35.2 36.3 31,494 63% 54%
Wtd. Avg. 4,092 5,229 6,303 5.0% 3.8% 35.0 36.0 31,143
Oregon 1,103,313 1,214,202 1,322,298 1.9% 1.7% 34.5 35.6 35,077 21 *
United States 91,947,410 97,069,804 102,201,641 1.1% 1.0% 32.9 34.0 33,610
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
-35-
42
TABLE 2E
California City, CA Region
Demographic Characteristics
Population
---------------------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ----------- ----------- ------------ ------ -----
93505 California City 6,086 10,090 13,337 10.6% 5.7%
California 29,760,021 31,754,305 33,660,583 1.3% 1.2%
United States 248,709,873 263,006,245 277,083,635 1.1% 1.0%
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
Households
-----------------------------------------------------------------
Zip CAGR
Code Location 1990 1995 2000 90-95 95-00
---- -------- ------------ ---------- ------------- ----- ------
93505 California City 2,172 3,573 4,707 10.5% 5.7%
California 10,381,206 10,995,431 11,624,997 1.2% 1.1%
United States 91,947,410 97,069,804 102,201,641 1.1% 1.0%
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
Median
Zip Median Age Median National State
Code Location 1990 1995 Income Centile Centile
---- -------- ---- ---- ------ ------- -------
93505 California City 30.7 31.4 $37,779 78% 58%
California 31.5 32.6 38,099 15 *
United States 32.9 34.0 33,610
* National Rank
Source: The Sourcebook of Zip Code Demographics, 1995
-36-
43
various compound annual growth rates ("CAGR"). Median ages are shown for 1990
and 1995. Median household income for 1995 and the corresponding national
income centiles are also included. Statistics for each state served and the
U.S. are included for comparative purposes.
Area Description
BURKE COUNTY, CALIFORNIA - Table 2A depicts various relevant demographic
statistics for the service area which encompasses several communities lying
along Interstate Route 40. The service area lies approximately 70 miles north
west of Charlotte and 40 miles east of Asheville. The Region serves the
communities of Connelly Springs; Drexel, Glen Alpine, Rutherford College and
Valdese as well as the unincorporated portions of Burke County. The primary
industries in the county include furniture making and textiles. Other
employers manufacture anti-lock brakes, pharmaceutical glass, ceramic tile,
lithium batteries, medical appliances and truck axles. In spite of the strong
manufacturing base the area's household growth and income are slightly below
North Carolina and the U.S.
CENTREVILLE, MARYLAND - Table 2B depicts various relevant demographic
statistics for the service area consists of several communities located on the
eastern shore of Maryland (see Figure 2). Annual household growth between 1990
and 1995 (1.5%) is 0.4% higher than the state and U.S. This growth rate is
expected to decline by 0.2% through 2000 but is still expected to be above the
state and nation.
The eastern shore economy relies heavily on the Chesapeake Bay. Fishing,
crabbing, and processing are important industries as is a growing tourism
industry. Agriculture is also an important industry. According to regional
management, over the past fifteen years the area's relatively inexpensive land
has made it attractive for people to move from the western shore and commute to
Washington DC and Baltimore for work.
-37-
44
The service area's median household income, while 12% below the state's, is 24%
higher than the U.S. The relatively high median age also suggests a sizable
retirement community.
SOMERSET, KENTUCKY - Table 2C depicts various relevant demographic statistics
for the service area which consists of several communities in southern
Kentucky, 75 miles south of Lexington, and 45 miles north of the Tennessee
border (see Figure 3). Annual household growth between 1990 and 1995 was
approximately 1.7% compared to Kentucky's annual growth rate of 1.0% on the
U.S. rate of 1.1%. This annual growth rate pattern (1.5%) is expected to
continue between 1995 and 2000. The service area's 1995 median household
income is significantly below the State (24%) and the U.S. average (45%), but
is growing at a fast rate as Somerset becomes a commerce center for southern
Kentucky.
Unemployment in Somerset is below the state average with large employers
including General Electric, Tecumseh Products Company, Kingsford Co., and
others.
REDMOND, OREGON - Table 2D depicts various relevant demographic statistics for
the service area which consists of the community of Redmond, Oregon (see Figure
4). Annual household growth between 1990 and 1995 was 5.1% which is
approximately 2.5 times higher than that of the State and 4.5 times that of the
U.S. average. Redmond is the single fastest growing city in Oregon. This
annual growth rate is expected to moderate somewhat between 1995 and 2000
(3.9%) but it is still over double the State and four times the U.S.
projections. The service area's 1995 median household income is 12% below the
State average and 8% below the U.S. average.
-38-
45
The Region's economic base is largely based on timber and tourism. The city of
Redmond has the only airport in central Oregon bordered by industrial land.
The community also has a job and workforce training facility.
CALIFORNIA CITY, CALIFORNIA - Table 2E depicts various demographics for the
service area which encompasses the city of California City, California.
Household growth rates, both historical and projected, are well above the U.S.
and the State averages. Annual household growth rates between 1990 and 1995
were 10.0% compared to 1.2% for California and 1.1% for the U.S. For the
period 1995-2000 growth is projected at an annual rate of 5.7%. Median age is
below both the U.S. and State's average. Median household income is
approximately equal to the State and approximately 12% higher than the U.S.
The following paragraphs describe the physical plant, revenue and cash flow
generating capacity of the Regions. Tables 3A through 3E delineate the revenue
per subscriber from various services in the 1995 and 1996 historical time
periods, as well as budgeted 1997. These revenues per subscriber by revenue
category have been used in our discounted cash flow analysis methodology to
determine each Region's and System's fair market value at December 31, 1996.
System Description
BURKE COUNTY, NORTH CAROLINA - The Region serves subscribers from one (1)
headend. The headend is well-located on the tallest mountain in the area.
According to management, the System provides 43 channels and the plant is
approximately 10 years old. Recently, fiber optics has replaced 65 miles of
coax trunk. This has improved picture quality and capacity through a reduction
in amplifier cascades. In spite of the fiber upgrade, the system needs a
rebuild. In fact, Valdese requires an upgrade to 550 MHz by 2000.
Notwithstanding the Valdese requirement, the service area is overbuilt.
-39-
46
- -------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. Table 3A Revenue Analysis
Burke, NC Valuation Date: December 31, 1996
- -------------------------------------------------------------------------------------------------
1997 Budget Dec 1996 Actual 1996 Actual 1995 Actual
-------------------- --------------------- ---------------------- ----------------------
($000) /EBU/MO ($000) /EBU ($000) /EBU/MO ($000) /EBU/MO
Primary/Commercial $2,220.2 $17.49 $179.1 $16.97 $2,051.1 $15.91 $2,048.9 $15.50
Expanded Tier 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
AL Tier 688.0 5.42 56.4 5.34 574.9 4.46 407.0 3.08
-------- ------ ------ ------ -------- ------ -------- ------
Total Reg. Prog. 2,908.3 22.91 236.2 22.32 2,626.0 20.37 2,455.9 18.58
Radio Services 34.7 0.27 2.9 0.27 39.2 0.30 47.7 0.36
Pay Cable - 1st Outlet 387.4 3.05 35.6 3.37 495.3 3.84 583.7 4.42
Pay Cable - Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
New Product Tier - 1 1,081.6 8.52 81.7 7.74 892.1 6.92 948.1 7.17
Commercial Pay 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Mini-Pay 9.4 0.07 0.8 0.07 10.3 0.08 13.0 0.10
Mini-Pay - Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Pay Per View 128.7 1.01 7.3 0.69 104.0 0.81 117.4 0.89
-------- ------ ------ ------ -------- ------ -------- ------
Total Unreg. Prog. 1,641.8 12.93 128.2 12.15 1,540.9 11.95 1,709.9 12.93
Primary Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Remote Control 3.9 0.03 0.3 0.03 4.1 0.03 4.0 0.03
Converter Rental 463.7 3.65 38.3 3.63 472.3 3.66 488.9 3.70
Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
-------- ------ ------ ------ -------- ------ -------- ------
Total Equipment 467.6 3.68 38.7 3.67 476.5 3.70 492.9 3.73
Wire Maint. Agreements 68.4 0.54 5.7 0.54 68.2 0.53 62.3 0.47
New Cust. - Pay Installs 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
New Cust. - Basic Installs 93.3 0.74 1.0 0.09 17.6 0.14 28.1 0.21
Install Mat'l Charge 0.0 0.00 0.0 0.00 1.1 0.01 0.4 0.00
Installs - Non New Cust. 0.0 0.00 3.3 0.31 68.3 0.53 72.0 0.54
-------- ------ ------ ------ -------- ------ -------- ------
Total Install/Service 161.7 1.27 10.1 0.95 155.2 1.20 162.9 1.23
Guide Revenue 21.7 0.17 1.7 0.17 22.8 0.18 26.1 0.20
Late Charges 56.5 0.44 4.4 0.41 57.2 0.44 63.3 0.48
Rent 3.2 0.03 (0.3) (0.03) 2.7 0.02 3.0 0.02
Franchise Pass Thru 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Miscellaneous 0.0 0.00 0.0 0.00 16.5 0.13 0.0 0.00
Shopping Net Car. Fee 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
FCC User Fee Pass Thru 5.8 0.05 0.4 0.04 5.3 0.04 5.1 0.04
QVC Monthly Comm. 16.7 0.13 0.9 0.09 16.7 0.13 15.1 0.11
QVC Carriage Payment 13.0 0.10 0.0 0.00 12.2 0.09 14.0 0.11
HSN Monthly Comm. 9.6 0.08 0.2 0.02 9.6 0.07 0.0 0.00
HSN Carriage Payment 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
-------- ------ ------ ------ -------- ------ -------- ------
Total Non-Service/Misc. 126.5 1.00 7.5 0.71 142.9 1.11 126.7 0.96
Advertising 152.7 1.20 16.5 1.56 136.4 1.06 97.8 0.74
-------- ------ ------ ------ -------- ------ -------- ------
Total Revenues $5,458.5 $42.99 $437.1 $41.35 $5,077.8 $39.39 $5,045.9 $38.17
======== ====== ====== ====== ======== ====== ======== ======
% Change from Prior Yr. 7.5% 9.1% 0.6% 3.2%
=== === === ===
Pay Revenue/Pay Unit $7.51 $7.66 $7.14 $6.25
===== ===== ===== =====
* Adj to normalize: ** $39.26 When adj. for
$0.05 Rent one time program
(0.50) Advertising payments
($0.45)
-40-
47
Falcon Classic Cable Income Properties, L.P. Table 3B
Revenue Analysis
Centreville, MD
Valuation Date: December 31, 1996
1997 Budget Dec 1996 Actual 1996 Actual 1995 Actual
------------------- --------------- ----------------- ------------------
($000) /EBU/MO ($000) /EBU ($000) /EBU/MO ($000) /EBU/MO
----- ------- ------ ---- ------ ------- ------ -------
Primary/Commercial $3,203.1 $20.70 $253.9 $19.91 $2,833.9 $19.02 $2,532.3 $17.60
Expanded Tier 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
AL Tier 516.9 3.34 41.8 3.28 425.0 2.85 340.5 2.37
Total Reg. Prog. 3,720.0 24.04 295.8 23.18 3,258.8 21.87 2,872.8 19.96
Radio Services 25.6 0.17 2.1 0.16 28.1 0.19 33.3 0.23
Pay Cable - 1st Outlet 745.2 4.82 62.4 4.89 845.1 5.67 931.2 6.47
Pay Cable - Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
New Product Tier - 1 790.1 5.11 63.5 4.97 580.6 3.90 361.8 2.51
Commercial Pay 0.0 0.00 1.2 0.09 14.7 0.10 13.8 0.10
Mini-Pay 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Video Games & Activation 43.3 0.28 3.1 0.24 41.1 0.28 5.4 0.04
Pay Per View 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Total Unreg. Prog. 1,604.2 10.37 132.2 10.36 1,509.6 10.13 1,345.5 9.35
Primary Add'l Outlet 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Remote Control 5.8 0.04 0.5 0.04 5.7 0.04 6.2 0.04
Converter Rental 45.0 0.29 3.7 0.29 34.8 0.23 25.3 0.18
Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Total Equipment 50.8 0.33 4.1 0.32 40.5 0.27 31.5 0.22
Wire Maint. Agreements 43.0 0.28 3.5 0.27 39.3 0.26 31.2 0.22
New Cust. - Pay Installs 58.4 0.38 0.0 0.00 0.3 0.00 0.0 0.00
New Cust. - Basic Installs 0.0 0.00 0.5 0.04 7.3 0.05 15.0 0.10
Install Mat'l Charge 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Installs - Non New Cust. 0.0 0.00 2.0 0.16 47.8 0.32 28.8 0.20
Total Install/Service 101.4 0.66 6.0 0.47 94.7 0.64 75.0 0.52
Guide Revenue 21.3 0.14 1.9 0.15 13.8 0.09 8.8 0.06
Late Charges 67.8 0.44 7.1 0.55 74.0 0.50 64.6 0.45
Rent 23.7 0.15 1.9 0.15 23.5 0.16 14.8 0.10
Franchise Pass Thru 117.4 0.76 9.1 0.71 104.9 0.70 101.4 0.70
Miscellaneous 2.8 0.02 0.0 0.00 24.7 0.17 0.0 0.00
FCC User Fee Pass Thru 6.9 0.04 0.5 0.04 6.0 0.04 5.5 0.04
QVC Monthly Comm. 13.2 0.09 1.1 0.09 13.2 0.09 9.0 0.06
QVC Carriage Payment 18.3 0.12 0.0 0.00 31.5 0.21 0.0 0.00
HSN Monthly Comm. 22.2 0.14 1.6 0.13 22.2 0.15 18.6 0.13
HSN Carriage Payment 2.1 0.01 0.2 0.01 2.1 0.01 2.1 0.01
Total Non-Service/Misc. 295.7 1.91 23.4 1.83 315.9 2.12 224.8 1.56
Advertising 138.0 0.89 13.3 1.04 123.0 0.83 114.4 0.79
Total Revenues 5,910.1 $38.19 474.8 $37.22 5,342.6 $35.85 4,664.0 $32.41
% Change from Prior Yr 10.6% 6.5% 14.6% 10.6% 15.0% 15.0%
Pay Revenue/ Pay Unit $9.04 $8.23 $8.76 $8.67
-41-
48
- --------------------------------------------------------------------------------
Falcon Classic Income Properties Table 3C Revenue Analysis
Somerset, Kentucky Valuation Date: December 31, 1996
- --------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
----------------- ------------------ ------------------- -------------------
($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO
------ ------ ------ ------ ------ ------ ------- ------
Revenues:
Primary / Commercial $4,579.9 $19.48 $371.3 $19.05 $4,158.5 $17.81 $3,850.2 $16.76
Expanded Tier 542.1 2.31 44.5 2.28 475.1 2.03 412.3 1.79
-------- ------ ------ ------ -------- ------ -------- ------
Total Regulated Programming 5,122.0 21.78 415.8 21.34 4,633.6 19.84 4,262.5 18.55
-------- ------ ------ ------ -------- ------ -------- ------
Radio Services 0.0 0.00 0.0 0.00 0.1 0.00 0.1 0.00
Pay Cable 417.7 1.78 34.1 1.75 464.9 1.99 506.6 2.20
New Product Tier 1,219.2 5.19 99.8 5.12 1,005.9 4.31 813.9 3.54
Mini-Pay 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Pay Per View 10.7 0.05 0.6 0.03 11.9 0.05 6.8 0.03
-------- ------ ------ ------ -------- ------ -------- ------
Total Unregulated Programming 1,647.6 7.01 134.5 6.90 1,482.8 6.35 1,327.4 5.78
-------- ------ ------ ------ -------- ------ -------- ------
Remote Control 18.7 0.08 1.5 0.08 28.6 0.12 44.7 0.19
Converter Rental 96.4 0.41 8.1 0.42 83.0 0.36 49.6 0.22
Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
-------- ------ ------ ------ -------- ------ -------- ------
Total Equipment 115.1 0.49 9.6 0.49 111.6 0.48 94.3 0.41
-------- ------ ------ ------ -------- ------ -------- ------
Wire Maintenance Agreements 39.5 0.17 3.3 0.17 41.1 0.18 37.7 0.16
Installation 125.2 0.53 5.0 0.26 113.1 0.48 126.6 0.55
-------- ------ ------ ------ -------- ------ -------- ------
Total Installation / Service 164.7 0.70 8.3 0.43 154.2 0.66 164.3 0.72
-------- ------ ------ ------ -------- ------ -------- ------
Guide Revenue 5.1 0.02 0.4 0.02 3.8 0.02 0.0 0.00
Late Charges 66.4 0.28 6.6 0.34 70.6 0.40 67.9 0.30
Home Shopping 76.4 0.32 4.8 0.25 78.3 0.45 62.1 0.27
FCC User Fee Pass Thru 10.7 0.05 0.8 0.04 9.4 0.05 8.8 0.04
Franchise Pass Thru 25.4 0.11 2.1 0.11 22.9 0.10 5.5 0.02
Miscellaneous / Rent 14.4 0.06 47.1 2.42 178.6 0.76 9.1 0.04
-------- ------ ------ ------ -------- ------ -------- ------
Total Non-Service / Misc. 198.4 0.84 61.8 3.17 363.6 1.56 153.4 0.67
-------- ------ ------ ------ -------- ------ -------- ------
Advertising 387.2 1.65 43.9 2.25 345.1 1.48 297.3 1.29
-------- ------ ------ ------ -------- ------ -------- ------
Total Revenues $7,635.0 $32.47 $673.9 $34.58 $7,090.9 $30.36 $6,299.2 $27.41
======== ===== ====== ====== ======== ====== ======== ======
% Change From Prior Year 7.67% 6.94% 12.57% 10.76%
==== ==== ===== =====
Revenue / Pay Unit / Month $9.05 $8.43 $8.53 $8.43
===== ===== ===== =====
-42-
49
- -------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties Table 3D Revenue Analysis
Redmond, Oregon Valuation Date: December 31, 1996
- -------------------------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
-------------------- -------------------- -------------------- --------------------
($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO
-------- ------ ------- ------ -------- ------ -------- ------
Revenues:
Primary / Commercial $1,084.2 $21.41 $83.5 $22.57 $992.5 $21.47 $1,006.7 $20.27
Expanded Tier 75.9 1.50 5.8 1.57 69.6 1.51 74.1 1.49
-------- ------ ------ ------ -------- ------ -------- ------
Total Regulated Programming 1,160.1 22.91 89.3 24.14 1,062.1 22.98 1,080.8 21.76
-------- ------ ------ ------ -------- ------ -------- ------
Radio Services 8.1 0.16 0.6 0.16 8.7 0.19 11.5 0.23
Pay Cable 55.4 1.09 4.6 1.24 72.0 1.56 99.6 2.01
New Product Tier 297.7 5.88 22.8 6.16 245.5 5.31 219.1 4.41
Mini-Pay 2.4 0.05 0.2 0.05 2.5 0.05 2.4 0.05
Pay Per View 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
-------- ------ ------ ------ -------- ------ -------- ------
Total Unregulated Programming 363.6 7.18 28.2 7.62 328.7 7.11 332.6 6.70
-------- ------ ------ ------ -------- ------ -------- ------
Remote Control 2.5 0.05 0.2 0.05 2.5 0.05 2.9 0.06
Converter Rental 34.1 0.67 2.7 0.73 35.6 0.77 39.4 0.79
Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
-------- ------ ------ ------ -------- ------ -------- ------
Total Equipment 36.6 0.72 2.9 0.78 38.1 0.82 42.3 0.85
-------- ------ ------ ------ -------- ------ -------- ------
Wire Maintenance Agreements 6.6 0.13 0.5 0.14 7.0 0.15 7.8 0.16
Installation 14.5 0.29 0.7 0.19 13.6 0.29 14.5 0.29
-------- ------ ------ ------ -------- ------ -------- ------
Total Installation / Service 21.1 0.42 1.2 0.32 20.6 0.45 22.3 0.45
-------- ------ ------ ------ -------- ------ -------- ------
Guide Revenue 3.4 0.07 0.3 0.08 2.3 0.05 0.0 0.00
Late Charges 13.7 0.27 0.8 0.22 13.5 0.29 14.0 0.28
Home Shopping 10.3 0.20 1.3 0.35 14.5 0.31 7.8 0.16
FCC User Fee Pass Thru 2.1 0.04 0.1 0.03 1.8 0.04 1.8 0.04
Franchise Pass Thru 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Miscellaneous / Rent 7.0 0.14 0.5 0.14 12.7 0.27 6.0 0.12
-------- ------ ------ ------ -------- ------ -------- ------
Total Non-Service / Misc. 36.5 0.72 3.0 0.81 44.8 0.97 29.6 0.60
-------- ------ ------ ------ -------- ------ -------- ------
Advertising 68.4 1.35 6.5 1.76 67.2 1.45 69.4 1.40
-------- ------ ------ ------ -------- ------ -------- ------
Total Revenues $1,686.3 $33.30 $131.1 $35.43 $1,561.5 $33.78 $1,577.0 $31.75
======== ====== ====== ====== ======== ====== ======== ======
% Change From Prior Year 7.99% -1.41% -0.98% 6.41%
==== ===== ===== ====
Revenue / Pay Unit / Month $6.21 $6.32 $7.12 $7.45
===== ===== ===== =====
-43-
50
- --------------------------------------------------------------------------------
Table 3E
Falcon Classic Cable Income Properties Revenue Analysis
California City, California Valuation Date: December 31, 1996
- --------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
------------------ ------------------ ------------------ -------------------
($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO ($000s) EBU/MO
------- ------ ------- ------ ------- ------ ------- ------
Revenues:
Primary / Commercial $377.5 $15.85 $31.4 $15.96 $364.6 $14.92 $367.0 $14.57
Expanded Tier 131.1 5.50 10.9 5.54 136.4 5.58 145.7 5.78
------ ------ ----- ------ ------ ------ ------ ------
Total Regulated Programming 508.6 21.35 42.3 21.50 501.0 20.50 512.7 20.35
------ ------ ----- ------ ------ ------ ------ ------
Radio Services 6.0 0.25 0.5 0.25 6.4 0.26 7.7 0.31
Pay Cable 78.0 3.27 6.9 3.51 94.5 3.87 107.8 4.28
New Product Tier 66.2 2.78 5.0 2.54 51.2 2.10 40.8 1.62
Mini-Pay 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Pay Per View 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
------ ------ ----- ------ ------ ------ ------ ------
Total Unregulated Programming 150.2 6.31 12.4 6.30 152.1 6.22 156.3 6.21
------ ------ ----- ------ ------ ------ ------ ------
Remote Control 3.3 0.14 0.3 0.15 3.5 0.14 3.6 0.14
Converter Rental 50.0 2.10 4.1 2.08 54.1 2.21 55.7 2.21
Other - VCR 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
------ ------ ----- ------ ------ ------ ------ ------
Total Equipment 53.3 2.24 4.4 2.24 57.6 2.36 59.3 2.35
------ ------ ----- ------ ------ ------ ------ ------
Wire Maintenance Agreements 4.2 0.18 0.4 0.20 4.7 0.19 4.3 0.17
Installation 18.3 0.77 1.4 0.71 16.9 0.69 24.9 0.99
------ ------ ----- ------ ------ ------ ------ ------
Total Installation / Service 22.5 0.94 1.8 0.92 21.6 0.88 29.2 1.16
------ ------ ----- ------ ------ ------ ------ ------
Guide Revenue 1.0 0.04 0.1 0.05 0.8 0.03 0.0 0.00
Late Charges 8.1 0.34 0.6 0.31 8.7 0.36 7.9 0.31
Home Shopping 7.1 0.30 0.5 0.25 7.1 0.29 9.9 0.39
FCC User Fee Pass Thru 1.0 0.04 0.1 0.05 1.0 0.04 1.0 0.04
Franchise Pass Thru 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
Miscellaneous / Rent 0.6 0.03 0.0 0.00 3.4 0.14 0.0 0.00
------ ------ ----- ------ ------ ------ ------ ------
Total Non-Service / Misc. 17.8 0.75 1.3 0.66 21.0 0.86 18.8 0.75
------ ------ ----- ------ ------ ------ ------ ------
Advertising 0.0 0.00 0.0 0.00 0.0 0.00 0.0 0.00
------ ------ ----- ------ ------ ------ ------ ------
Total Revenues $752.4 $31.59 $62.2 $31.62 $753.3 $30.83 $776.3 $30.82
====== ====== ===== ====== ====== ====== ====== ======
% Change From Prior Year -0.12% 2.45% -2.96% 0.03%
===== ==== ===== =====
Revenue / Pay Unit / Month $8.10 $8.12 $7.80 $7.28
===== ===== ===== =====
-44-
51
The following remarks on overbuilds from Wanda Parsons, the Regional Manager,
follow:
Cable TV is a very competitive business in Burke County. The City of
Morganton built a municipally-owned interdiction system in the early
1990's and quickly converted our customers within the city limits with
their dramatically lower rates and greater channel offerings. The
City is aggressively annexing more of our service area and they
continue to convert virtually all of our subscribers in those areas.
Additionally, TCI and Falcon have parallel lines in Valdese, Drexel
and a small area in the County. They too have substantially lower
rates and a comparable channel line-up. Most residents subscribe to
TCI in those overbuilt areas.
This competition has put further urgency on the rebuild.
Burke's operating statistics as of the valuation date follow;
December 31, 1996
-----------------
Homes passed 18,986
Equivalent Billing Units (EBU's) 10,546
Penetration % 55.5%
Pay Units 4,614
Pay-to-EBU's % 43.8%
Plant Miles: Aerial 469
Underground 262
---------
Total 731
=========
Density (Homes/Miles) 26.0
=========
EBU and pay unit penetrations are well-below industry averages of 68.3% and
78.0% respectively. The planned plant rebuild coupled with increased marketing
efforts should result in improved subscriber retention growth and revenues per
subscriber particularly from ancillary revenue sources. The Region's average
density of 26 homes/mile is well
-45-
52
below the industry average of 105 homes/mile. The higher the density the more
efficient the use of capital, thus the higher the return on investment.
Table 3A details the Burke's actual revenues for 1995 and the month of December
and year 1996; and the budget for 1997. The Table shows the impact of the
overbuilds and FCCIP's efforts to minimize the revenue impact.
Primary/Commercial (Basic) revenues increased 6.9% between 1995 and 1996 by
increasing the rates for basic and tier services offset by a 3.6% decline in
EBU's. Total 1996 revenue/EBU increased 3.2% while total revenues remained
essentially flat as compared to 1995.
Total 1997 budgeted revenues are expected to increase 7.5% while revenues/EBU
are expected to increase 9.1%. The largest year-to-year increases are expected
to come from regulated basic and tier services. The Table also shows a decline
in 1997 pay cable revenues. This is due in part to moving Disney from the pay
category to the new product tier.
Exhibit C1 presents operating cash flow statements for time periods comparable
to Table 3A. Cash flow margins after an allocation of corporate expenses were
53.5% and 55.1% of revenues for 1995 and 1996 respectively. The 1997 Budget
reflects a margin increase to 56%. These margins are quite high based upon our
experience and discussions with management. Factors which contribute to these
high margins are very lean staffing, sometimes at the expense of customer
service; low marketing and advertising expenses; and an aggressive in-house
labor capitalization policy, i.e., moving labor costs to capital expenditures
("capex") accounts which increased cash flow margins. However, net cash flow,
i.e., cash flow minus capex negates the effect of this expense capitalization
policy.
CENTREVILLE, MARYLAND - The Centreville Region serves its subscribers from a
single headend located at Wye Mills. The plant dates back to 1978 but was
upgraded to 450
-46-
53
gear spaced at 330 MHz in 1989. A rebuild has already begun in the St.
Michael's portion of the Region and according to management a complete rebuild
of the entire plant and headend is planned.
Centreville's operating statistics as of the valuation date follow:
December 31, 1996
-----------------
Homes passed 23,857
EBU's 12,593
Penetration % 52.8%
Pay Units 7,440
Pay-to-EBU's % 59.1%
Plant Miles: Aerial 460.15
Underground 189.60
---------
Total 649.75
=========
Density (Homes/Miles) 36.7
=========
EBU penetration of 52.8% is well below the industry average of 68.3% and pay
unit penetration of 60.4% is below the industry average of 78.0%. The Region's
average density of 36.7 home/mile is well below the industry average of 105
homes/mile.
Table 3B details Centreville's actual revenues for 1995, and the month of
December and year 1996, as well as the 1997 budget. Total 1996 revenue/EBU
rose by 10.6% and total revenue increased by nearly 15% as compared to 1995.
Total budgeted 1997 revenues are expected to increase by 10.6%, while
revenue/EBU are expected to increase by 6.5%. EBU's are expected to increase
by nearly 700 or 5.5% by years end.
-47-
54
Exhibit C2 presents operating cash flow statements for time periods comparable
to Table 3B. Cash flow margins after allocated corporate expense were 39.5% in
1995 and 45.9% in 1996. The 1997 budget reflects a margin increase to 47.7%.
The margin increase is due to rate increase, subscriber growth and higher
capitalization of in-house labor.
SOMERSET, KENTUCKY - The Somerset Region serves its subscribers from five
separate headends; Burnside, Columbia, Eubank, London, and McKinney that offer
between 23 and 40 channels. The plant ranges from 270 MHz to 400 MHz in
capacity. It is projected that the Burnside (Somerset) area will be rebuilt in
the next few years. Burnside comprises approximately 528 miles or 63% of the
total of 834.5 plant miles. The London (Laurel) area has been partially
rebuilt to 750 MHz in 1996, and it is expected to complete the rebuild in 1997.
Somerset operating statistics as of the valuation date follows:
December 31, 1996
-----------------
Homes Passed 22,060
EBU's 19,486
Penetration % 88.3%
Pay Units 3,914
Pay-to-EBU's % 20.1%
Plant Miles: Aerial 816.5
Underground 18.0
--------
Total 834.5
========
Density (Homes/Mile) 26.4
========
EBU penetration is well above industry average of 68.3%, while the pay unit
penetration of 20.1% is well below industry averages of 78.0%. The EBU
penetration is reflective of the area's poor off-air reception. The planned
rebuild and the continued improvement in
-48-
55
the economy should result in improved revenue per subscriber, particularly from
pay and ancillary revenue sources. The Region's average density of 26.4
homes/miles is well-below the industry average of 105 homes/mile. The higher
the density the more efficient the use of capital, thus the higher the return
on investment.
Table 3C details Somerset's actual revenues for 1995 and the month of December
and year 1996, and the budget for 1997. Primary/Commercial (Basic) revenue
increased 6.3% on an EBU basis between 1995 and 1996. Total 1996 revenue/EBU
increased 10.8% and total revenues increased 12.6% as compared to 1995.
Total 1997 budgeted revenues are expected to increase 7.7% while revenue/EBU
are expected to increase 7.0%. The largest year-to-year increases are expected
to come from regulated services.
Exhibit C3 presents operating cash flow statements for time periods comparable
to Table 3C. Cash flow margins after allocated corporate expenses (3.7% less
than before allocated corporate expenses) were 50.9% in 1995 and 52.5% in 1996.
The 1997 budget reflects a margin of 48.5%. The major area of increased costs
is the technical category which has increased costs to accommodate the
projected rebuild. Also, Somerset's 1996 margin is 1% point higher than normal
due to one-time payments from programmers to insure carriage. These include
Disney, Home Shopping, QVC, and Sci-Fi among others. These margins are
approximately at levels that other cable systems with these characteristics
would exhibit.
REDMOND, OREGON - The Redmond System serves its subscribers from one headend
that offers 32 channels. The plant is predominantly 270 MHz, with a portion at
450 MHz. The plant was built in 1965 and upgraded over the years, but needs to
be rebuilt, especially in the light of competition from MMDS operators. The
System has not been
-49-
56
scheduled for a rebuild in the next few years, however, the appraisers have
assumed a rebuild in our cash flow projections.
Redmond's operating statistics as of the valuation date follows:
December 31, 1996
-----------------
Homes Passed 7,252
EBU's 3,679
Penetration % 50.7%
Pay Units 706
Pay-to-EBU's % 19.2%
Plant Miles: Aerial 116.0
Underground 54.0
--------
Total 170.0
========
Density (Homes/Mile) 42.7
========
The Redmond System has been losing both basic and pay units in recent years due
to a very strong MMDS competitor (American Telecasting) and DTH installations.
EBU's in 1995 were 4,025, a decline of 8.6% in 1996. Pay units were 979 in
1995, a decline in 1996 of 27.9%. This has led to EBU and pay unit penetration
of 50.7% and 19.2% respectively, well-below the industry average of 68.3% and
78.0% respectively. The appraiser projected rebuild combined with increased
marketing should result in improved subscriber growth. According to System
management, financial constraints did not permit the System to compete for the
majority of new homes built in the System's franchise area in the past year or
more. This is to be rectified in 1997 and the System is optimistic it can
capture the majority of new built homes due to superior programming and picture
quality. The System's average density of 42.7 homes/mile is well-below the
industry average of 105 homes/mile. The higher the density the more efficient
the use of capital, thus the higher the return on investment.
-50-
57
Table 3D details Redmond's actual revenues for 1995 and the month of December
and year 1996, and the budget for 1997. Primary/Commercial (Basic) revenue
increased 5.9% on an EBU basis between 1995 and 1996. Total 1996 revenue/EBU
increased approximately 6.4% and total revenues declined 1% as compared to
1995, due to loss of EBU's and pay units.
Total 1997 budgeted revenues are expected to increase 8.0% while revenues/EBU
are expected to decrease 1.4%.
Exhibit C4 presents operating cash flow statements for time periods comparable
to Table 3D. Cash flow margins after allocated corporate expense were 52.4%
and 55.8% in 1995 and 1996 respectively after a reduction of 3.7% from before
allocation margins. The 1997 budget reflects a margin of 51.1%, with virtually
all the increased expense in the technical category. These margins are high
based upon our experience. Factors which contribute to these historically high
margins are very lean staffing, low marketing and advertising expense and an
aggressive in- house labor capitalization policy, which increases cash flow
margin. However, net cash flow, i.e., cash flow minus capital expenditures,
negates the effect of this expense capitalization policy.
CALIFORNIA CITY, CALIFORNIA - The California City System serves subscribers
from a single headend, with a capacity of 300 MHz and offering 41 channels.
The system was upgraded in 1982. A rebuild has not been projected for the
system. System management believes that channel capacity and picture quality
are adequate for the foreseable future.
-51-
58
California City's operating statistics as of the valuation date follows:
December 31, 1996
-----------------
Homes Passed 2,858
EBU's 1,960
Penetration % 68.6%
Pay Units 839
Pay-to-EBU's % 42.8%
Plant Miles: Aerial 79.0
Underground 11.1
---------
Total 90.1
=========
Density (Homes/Mile) 31.7
=========
EBU penetration is equal to and pay unit penetration is well-below industry
averages of 68.3% and 78.0% respectively. Density of 31.7 homes/mile is
extremely low.
Table 3E details California City's actual revenue for 1995 and the month of
December and year 1996; and the 1997 budget. Primary (Basic) revenue/EBU
increased by 2.5% while total revenues/EBU was flat compared to 1995. Total
1997 revenues are expected to be flat compared to 1996.
Exhibit B5 presents operating cash flow statements for time periods comparable
to Table E. Cash flow margins after allocation of corporate expenses were
54.1% and 49.6% for 1996 and 1995 respectively. The projected 1997 margin is
49.6%. The areas of increased expense are technical and marketing. The
appraisers have utilized a projected 1997 margin of 54%, in line with the 1996
margin. A rebuild is not scheduled, therefore not necessitating the increased
technical costs. Subscriber losses were due to the closing of Edwards Air
Force Base, not competitive pressure, therefore eliminating the need for
increased marketing costs.
-52-
59
FAIR MARKET VALUATION
OF THE REGIONS AND SYSTEMS THAT COMPRISE
FALCON CLASSIC CABLE INCOME PROPERTIES,
A CALIFORNIA LIMITED PARTNERSHIP
AS OF DECEMBER 31, 1996
PART IV - BUSINESS ENTERPRISE VALUATION
The purpose of developing a business enterprise value ("BEV") is to determine
the fair market value for a going concern entity. The business enterprise
value includes the additional value that all the assets generate together as a
going concern. This additional value is estimated from the returns achieved by
the operating assets (both tangible and intangible) of FCCIP.
There are several possible approaches to value for any cable television system.
The three classical approaches to value, based upon cost, market, and income,
may all have relevance and validity in the valuation of a cable system.
However, approaches that are based on cost would be the least meaningful and
most subjective because a major element of value is the intangible assets, such
as franchises, licenses, and subscriber relationships which permit a system to
operate, and the cost of directly obtaining these assets usually bears little
relation to the value of those intangible assets. Consequently, the best
approaches to value are those which rely on estimates of future income to be
realized from operating the system, and to a lesser extent, on market data from
the sales of other systems.
THE VALUATION OF FCCIP
We have utilized the two most commonly employed methods for valuing a CATV
business namely: income approach and market approach. The cost approach was
considered as discussed above, but rejected as inappropriate.
-53-
60
Income Approach
There are several adaptions, or versions, of the income approach. The method
most applicable to valuing properties like the subject is the Discounted Cash
Flow Method ("DCF"). In this method, the anticipated future cash flows of the
Region and Systems are discounted at a rate commensurate with the property's
risk characteristics.
The DCF approach is standard investor and appraisal industry practice. The
appraiser determined system operating cash flow, defined as income before
depreciation, amortization, debt retirement, interest on funds invested in the
property, and taxes, in arriving at a value indicator for each Region and
System.
In determining each Region's and System's operating cash flows, the appraisers
derived average annual revenue per subscriber, number of homes passed,
operating margin, and market penetration as a percent of homes passed. This
data, along with historical financial statements and other information obtained
from Region and System management and industry sources, are reflected in our
projections as of the valuation date. Exhibit D details the assumptions made
and methodology employed in developing the cash flow projections in Exhibit E.
In using the DCF, value results from the sum of two sources: the present value
of the annual cash flows of the projection period and the present value of the
property's residual value at the end of the projection period. The reliability
of this method rests directly with the accuracy of the revenue forecast, the
income-expense relationship, and other assumptions required to produce the
yearly cash flows.
In any analysis of future cash flows, a critical factor is the selection of the
discount rate which will be utilized in the calculation of the present value of
these future values. The investment's discount rate, also referred to as a
return requirement, is the overall return
-54-
61
which an investor expects to achieve on an investment. The development of the
discount rate starts with the determination of a weighted average cost of
capital.
The weighted average cost of capital is made up of two components: debt and
equity.7 The cost of equity is arrived at by using the widely accepted Capital
Asset Pricing Model ("CAPM"). The derivation of the cost of equity and its
formula are shown in Table 4 and are consistent with the general form of the
CAPM.
The derived equity rate represents the return expected on equity capital by an
investor and is consistent with our experience with respect to equity investor
expectations in today's CATV marketplace. Briefly, this method begins with the
risk free rate of return, generally the rate on U.S. government debt
instruments of appropriate duration, and then applies an equity risk premium, a
small stock premium, and a unsystematic or company specific premium that an
equity investor requires in order to invest. The appraisers considered various
factors, such as competition, demographics, geography, clustering, etc. in
arriving at FCCIP's unsystematic risk of 5%. In addition to these factors, the
unsystematic risk must consider the single system as opposed to the portfolio
of systems implicit in the CAPM. To determine the total equity return
requirement, these components are summed.
_______________________________
7Stocks, Bonds, Bills and Inflation 1996 Yearbook, Ibbotson Associates
Weighted Average Cost of Capital
r = (re x we) + (rd x wd)
we + wd
r = weighted average cost of capital
re = expected rate or return on equity
rd = expected rate of return on debt
we = appropriate weight of equity
wd = appropriate weight of debt
Equity Cost of Capital
rs = rf + (B x rp)
rs = the equity cost of capital
rf = the current riskless rate
B = the beta or market risk of the stock
rp = the arithmetic equity risk (or market) premium
sp = small stock premium is added if appropriate
-55-
62
TABLE 4
WEIGHTED AVERAGE COST OF CAPITAL
FALCON CLASSIC CABLE INCOME PROPERTIES
AS OF DECEMBER 31, 1996
Cost of Equity
Risk Free Rate
(10-Year Treasury Securities Composite; December 26, 1996;
Source: Value Line) 6.33%
Equity Risk Premium Intermediate-Term (Entire Market) 7.80%
(Ibbotson Associates, 1995)
Market Beta CATV Stocks x 1.60
------
Adjusted Equity Risk Premium 12.48%
--------
Small Stock Premium
(Ibbotson Associates, 1996) 3.60%
Unsystematic Risk - Company Specific 5.00%
========
Cost of Equity 27.41%
========
Cost of Debt
Kagan High Yield Media Bonds 10.23%
Less Tax Effect (at 35%) 3.58%
After Tax Cost of Debt 6.65%
=========
Weighting
% % of Capital Weighted Cost
Return Structure of Capital
------ --------- ----------
Equity 27.41% 40% 10.96%
Debt 6.65% 60% 3.99%
--------
Weighted Average Cost of Capital 14.95%
========
Rounded to 15.00%
========
-56-
63
The next step is to determine the cost of debt capital. This rate is
principally affected by the credit worthiness of the borrower and the general
risk associated with the industry. To estimate the cost of debt as of the
valuation date, we looked to the cable television debt market. Paul Kagan, in
his Cable TV Investor of October 15, 1996, reported a yield to maturity for
high yield cable bonds of 10.23%. Cable TV Investor tracked a large number of
cable bonds providing a cable high-yield bond average. The appraisers then tax
effected this cost of debt, taking into consideration statutory federal tax
rates.
The final step is to determine the mixture of debt and equity in the capital
structure. The capital structure percentages were derived based upon a review
of the industry lending practices as of the valuation date. Senior debt
lending limits are typically discussed in terms of cash flow multiples. The
debt-to-equity ratio is derived by comparing the debt lending limit multiples
to the valuation cash flow multiples. The calculation for the weighted average
cost of capital for FCCIP is shown in Table 4. The weighted average cost of
capital for FCCIP was 15% (rounded).
Beyond the projection horizon, each Region and System will still have value.
This residual value is based upon the theory that the investor would sell the
property at the end of the projection period. The present value of this
hypothetical sale (residual) is then added to the present value of annual cash
flows to arrive at a value indication under this approach. The appraisers
selected a residual multiple of 8.0 for each Region and System. This 8.0
multiple was derived based on the appraisers opinion that due to increased risk
over time, competition, and maturity of markets that the multiples ten years in
the future generally should be equal to or lower, but not higher than today's
multiple.
The value indications, under the income approach from Exhibit E, for 100% of
the assets for each Region and System of FCCIP as of December 31, 1996 were as
follows:
-57-
64
Burke County $ 19,960,000
=================
Centreville $ 23,800,000
=================
Somerset $ 33,230,000
=================
Redmond $ 7,770,000
=================
California City $ 3,530,000
=================
Market Approach
Another approach to be considered in the valuation of CATV businesses is known
as the market approach or comparable sales approach. The market approach
requires the appraisers to collect and analyze recent comparable market
transactions and then make value adjustments based on a comparative analysis
between the market transactions and the subject property. It is important to
use transactions which are on or about the valuation date and which, if
possible, straddle that date.
The application of the market approach is most commonly found in the appraisal
of real estate. The market for real estate is characterized by frequent sales
within a geographic area, reliably known sale prices, and readily discernable
attributes of properties sold. This is not the case for sales of cable
television businesses. The businesses are comprised of a number of types of
tangible and intangible assets, and data on these transactions are available
only through the press and trade publications. The quality of this reported
data is suspect and quite incomplete. The appraiser's experience in the cable
industry has been that the publicly available data is at best an approximation.
The buyers and sellers in this market are under no obligation to report the
information.
The application of a classic market approach to cable television business would
be extremely difficult and unreliable due to the lack of comparative data and
the subjectivity of any comparative value adjustments. Due to the unique
nature of each cable property,
-58-
65
to complete a valid comparative analysis the following variables would need to
be collected and analyzed for each market transaction:
- Homes in Franchise Area
- Homes Passed by Cable
- Subscriber Penetration
- Revenues Per Subscriber
- Current Cash Flow
- Operating Margin
- System Size/Configuration
- Location
- Service Area Demographics
- Physical Plant Condition
- Required Capital Expenditures
- Regulatory Environment
- Competition
- Specific Buyer and Seller Motivations
- Liabilities Assumed
Even if all the necessary information was available, the quantification of
value adjustments to reflect differences between market transaction comparative
indicators and the subject property's comparative indicators would be extremely
difficult. As such, the classic market approach was not given a great deal of
weight in arriving at a value conclusion for each Region and System.
Industry practice is to describe market transactions for cable systems in terms
of subscriber (Price/Number of Subscribers) and cash flow multiples (Price/Cash
Flow). The appraisers reviewed the cable television transaction market, as
reported in Cable TV Investor (Paul Kagan Associates) and selected the
transactions of between 1,000 and 10,000 subscribers for comparisons to Redmond
and California City and between 10,000 and 30,000 subscribers for comparisons
to Burke, Centreville, and Somerset, announced between July 31, 1996 and
December 31, 1996 (Table 5). The weighted average multiples and standard
deviations are as follows:
-59-
66
TABLE 5A
Market Approach Valuation Date
1996 Announced/Proposed Cable System Sales (less than 10,000 subscribers)
PRICE HOMES
LOCATION STATE SELLER BUYER (MIL) PASSED
- -------- ----- ------ ----- ----- ------
DAVIDSON, WILLIAMSON TN CABLEVISION INTERMEDIA PRTNRS. $1.7 1.5
CLINTON COUNTY KY CLINTON CABLE ROY L. BAKER 1.4 1.9
BROOKHAVEN MS FUTUREVISION MARCUS CABLE 2.6 5.5
FRANKFORT IN FRANKFORT CABLE MARCUS CABLE 6.7 8.0
& DAYTON OH
NH ME PHOENIX GRASSRTS FRONTIERVISION 9.6 11.3
CHARTSWORTH, ETON GA FRONTIERVISION HELICON PRTNRS. I LP 8.6 7.0
WOODSTOCK, NEW MKT. VA FRONTIERVISION SHENANDOAH CBL. 8.5 6.2
PA OH SRW INC PA/OH CBL. FRONTIERVISION 3.8 5.3
ROSENBERG TX JONES SPACELINK TCI 5.5 8.3
CHESTERFIELD NH GATEWAY CVISION PINE STATE 2.9 4.0
VAN BUREN ET AL. AR CLASSIC CABLE TCA 9.6 9.0
BOGART, WATKINSVILLE GA OCB INTERMEDIA 8.3 7.0
OH, IN, PA NORTHERN OHIO FANCH 9.4 12.1
CENTRAL/NORTHERN NH PEGASUS CABLE STATE CABLE TV 7.2 6.1
MOCKSVILLE NC FRIENDSHIP GENESIS CABLE 7.8 10.0
N. BREVARD FL BREVARD GENESIS CABLE 1.6 2.6
ROBESON COUNTY NC GWC PROPERTIES GENESIS CABLE 2.5 3.8
TOTALS / SIMPLE AVERAGES $97.7 109.5
BASIC CASH
SUBS % FLOW PROJ
LOCATION STATE SELLER BUYER (000) PEN. VPS ($000s) CFx
- -------- ----- ------ ----- --- ---- ----- ------- -----
DAVIDSON, WILLIAMSON TN CABLEVISION INTERMEDIA PRTNRS. 1.3 87.0% $1,283 $212.5 8.0
CLINTON COUNTY KY CLINTON CABLE ROY L. BAKER 1.3 70.0% 1,111 197.2 7.1
BROOKHAVEN MS FUTUREVISION MARCUS CABLE 2.4 44.0% 1,079 346.7 7.5
FRANKFORT IN FRANKFORT CABLE MARCUS CABLE 5.6 70.0% 1,196 705.3 9.5
& DAYTON OH
NH ME PHOENIX GRASSRTS FRONTIERVISION 7.0 62.0% 1,371 1,142.9 8.4
CHARTSWORTH, ETON GA FRONTIERVISION HELICON PRTNRS. I LP 5.7 81.0% 1,509 1,048.8 8.2
WOODSTOCK, NEW MKT. VA FRONTIERVISION SHENANDOAH CBL. 5.0 81.0% 1,700 904.3 9.4
PA OH SRW INC PA/OH CBL. FRONTIERVISION 3.3 62.0% 1,152 506.7 7.5
ROSENBERG TX JONES SPACELINK TCI 2.9 35.0% 1,896 509.3 10.8
CHESTERFIELD NH GATEWAY CVISION PINE STATE 2.5 63.0% 1,170 367.1 7.9
VAN BUREN ET AL. AR CLASSIC CABLE TCA 8.0 89.0% 1,199 1,185.2 8.1
BOGART, WATKINSVILLE GA OCB INTERMEDIA 6.3 90.0% 1,333 1,024.7 8.1
OH, IN, PA NORTHERN OHIO FANCH 6.8 56.0% 1,387 1,132.5 8.3
CENTRAL/NORTHERN NH PEGASUS CABLE STATE CABLE TV 4.6 75.0% 1,572 757.9 9.5
MOCKSVILLE NC FRIENDSHIP GENESIS CABLE 7.4 74.0% 1,057 1,114.3 7.0
N. BREVARD FL BREVARD GENESIS CABLE 1.6 62.0% 1,013 228.6 7.0
ROBESON COUNTY NC GWC PROPERTIES GENESIS CABLE 2.5 66.0% 1,015 347.2 7.2
TOTALS / SIMPLE AVERAGES 74.2 68.6% 1,297 $11,730.9 8.2
WEIGHTED AVERAGES 67.7% 1,317 8.3
STANDARD DEVIATION 252 1.1
SIMPLE AVERAGE RANGE WITHIN 1 STANDARD DEVIATION - HIGH 1,548 9.3
SIMPLE AVERAGE RANGE WITHIN 1 STANDARD DEVIATION - LOW 1,045 7.1
-60-
67
TABLE 5B
Market Approach Valuation Date
1996 Announced/Proposed Cable System Sales (between 10,000 - 50,000
subscribers)
BASIC CASH
PRICE HOMES SUBS % FLOW PROJ
LOCATION STATE SELLER BUYER (MIL) PASSED (000) PEN. VPS ($000) CFx
- -------- ----- ------ ----- ----- ------ ----- ---- --- ------ ----
SAN FRAN BAY AREA CA BALKIN CABLE TCI OF GA $19.6 24.1 12.3 51.0% $1,594 $2,227.3 8.8
SUMMERVILLE,TRENTON GA CLEAR-VU CABLE HELICON 18.2 15.0 12.3 82.0% 1,530 2,246.9 8.1
& DAYTON OH
MOSES LAKE WA MARCUS CABLE NORTHLAND COMM. 20.0 15.1 12.5 83.0% 1,568 2,105.3 9.5
ANAHEIM, ORANGE CO. CA JONES PRTNRS. II CENTURY COMM. 36.0 24.3 17.0 70.0% 2,102 3,428.6 10.5
PALM COAST FL BENCHMARK COMM. MOFFAT COMM. 29.7 12.3 10.0 81.0% 2,965 3,228.3 9.2
ALBUQUERQUE, SW WA, NM CLASSIC CABLE CAMBRIDGE 22.9 22.8 13.0 57.0% 1,760 2,694.1 8.5
NWEST OR
BROOMFIELD CO. JONES INTERCABLE TCI 33.8 28.9 18.5 64.0% 1,825 3,557.9 9.5
OK-EASTERN AREAS TX MISSION CABLE TW/FANCH-ONE 31.2 48.2 27.0 56.0% 1,156 4,105.3 7.6
ROSEVILLE CA JONES 87-A ROSEVILLE CABLE 31.0 21.9 16.0 73.0% 1,938 3,039.2 10.2
EVERGREEN ET AL CO JONES INTERCABLE TCI 43.2 31.3 26.0 83.0% 1,662 4,547.4 9.5
TOTALS / SIMPLE AVERAGES $285.6 244.0 164.6 70.0% $1,810 $31,180.1 9.1
====== ===== ===== ===== ====== ========= ====
WEIGHTED AVERAGES 67.5% $1,735 9.2
===== ====== ====
STANDARD DEVIATION $480 0.9
====== ====
SIMPLE AVERAGE RANGE WITHIN 1 STANDARD DEVIATION - HIGH $2,290 10.0
====== ====
SIMPLE AVERAGE RANGE WITHIN 1 STANDARD DEVIATION - LOW $1,330 8.2
====== ====
-61-
68
Standard
Multiple Deviation
Less than 10,000 Subscribers:
Price/Subscriber $1,317 $252
====== ====
Price/Cash Flow 8.3 1.1
=== ===
Over 10,000 Subscribers:
Price/Subscriber $1,735 $480
====== ====
Price/Cash Flow 9.2 0.9
=== ===
The standard deviations for the subscriber and cash flow multiples indicate
that the multiples can vary between 19% and 28% and 13% and 10% respectively,
above and below the mean. The subscriber multiple has greater variation and
hence is less useful as a value indicator than the cash flow multiple. The
weighted average multiples yield the following value indicators.
Burke California
Multiple County Centreville Somerset Redmond City
- -------- ------ ----------- -------- ------- ----
($000s)
< 10K Subs Price/EBU $1,317
> 10K Subs Price/EBU $1,735
12/31/96 EBU's 10,546 12,593 19,406 3,679 1,960
Price/EBU
Value Indicator $18,297 $21,849 $33,808 $4,845 $2,581
< 10K Subs Price/Cash Flow 8.3x
> 10K Subs Price/Cash Flow 9.2x
1997 or Year One
Cash Flow $3,120.7 $2,925.2 $4,106.2 $913.3 $415.4
Price/Cash Flow
Value
Indicator $28,710 $26,912 $37,777 $7,580 $3,448
-62-
69
In arriving at the value indicator under the market approach the appraiser
weighted the subscriber multiple value indication 25% and the cash flow value
indication 75%. This weighting considers investors' preference for the cash
flow multiple and the variability, as described above, of the subscriber
multiple.
Therefore, the value indicator for 100% of each Region's and System's assets
under the market approach as of December 31, 1996 was (rounded):
Burke County $ 26,107,000
=================
Centreville $ 25,646,000
=================
Somerset $ 36,785,000
=================
Redmond $ 6,897,000
=================
California City $ 3,231,000
=================
Correlation and Conclusion
The valuation indicators, as of the valuation date, under the income and market
approaches follow as of December 31, 1996:
Burke California
County Centreville Somerset Redmond City
------- ----------- -------- ------- ----
Income $19,960,000 $23,800,000 $33,230,000 $7,770,000 $3,530,000
=========== =========== =========== ========== ==========
Market $26,107,000 $25,646,000 $36,785,000 $6,897,000 $3,231,000
=========== =========== =========== ========== ==========
The appraisers considered the approaches used in light of the strengths and
weaknesses inherent in each. The market approach is generally much weaker than
the income approach for at least two reasons:
1. Our experience has shown that seasoned cable system investors only use
the market approach to "get a feel for value" and rely heavily on the
income approach before making system purchases.
-63-
70
2. In spite of the large number of transactions occurring around the
valuation date, it is an almost impossible task to find "truly"
comparable properties where all or most of the key parameters, such as
date of sale, location, character, size, and situation are similar.
General appraisal practice would hold that when reliable market or
cost data is not available for like properties, greater emphasis falls
on the capitalization of net income method of appraisal.
The market approach, using market derived multiples, is a much less reliable
method to value the Regions and Systems for the reasons stated above, and those
discussed in the previous section of this report. However, the market approach
does provide corroborative information. We have therefore weighted the market
approach at 10% and the income approach at 90%.
It is the appraiser's opinion that the fair market value of 100% of the assets
of each of the Regions and Systems of FCCIP as of December 31, 1996 were
(rounded):
Burke County $ 20,570,000
==================
Centreville $ 23,980,000
==================
Somerset $ 33,590,000
==================
Redmond $ 7,680,000
==================
California City $ 3,500,000
==================
-64-
71
APPRAISAL CERTIFICATE
The determination of the fair market value of 100% of the assets of the Regions
and Systems comprising Falcon Classic Cable Income Properties serving portions
of the states of North Carolina, Maryland, Kentucky, Oregon, and California has
been appraised by John E. Kane and Henry E. Sherman of Kane Reece Associates,
Inc., Metro Park, New Jersey. The effective date of the appraisal is December
31, 1996.
We certify that, to the best of our knowledge and belief:
- The statements of fact contained in this report are true and
correct.
- The reported analysis, opinions, and conclusions, are limited
only by the reported assumptions and limiting conditions and
are our personal, unbiased professional analyses, opinions,
and conclusions.
- Neither Kane Reece Associates, Inc., nor we have any present
or prospective interest in the property that is subject of
this report, and we have no personal interest or bias with
respect to the parties involved.
- Kane Reece Associates, Inc.'s compensation is not contingent
on an action or event resulting from the analyses, opinions,
or conclusions in, or the use of, this report.
- Our analyses, opinions, and conclusions were developed, and
this report has been prepared in conformity with the Uniform
Standards of Professional Appraisal Practice.
- No one provided significant professional assistance to the
person(s) signing this report.
The appraisers personally interviewed management and inspected the Regions'
service areas between November 11 and 13, 1996. The Systems (Redmond and
California City) were not visited.
No investigation has been made of the title to or the liabilities against the
assets which have been appraised.
-65-
72
It is understood that this report is provided for the purpose(s) described in
the transmittal letter and introduction of this report. It is not to be quoted
in whole or in part or otherwise referred to or disseminated to any other
person, entity or government agency without the prior written consent of Kane
Reece Associates, Inc.
/s/ John E. Kane
___________________________________
John E. Kane
Principal
/s/ Henry E. Sherman
___________________________________
Henry E. Sherman
Vice President
399 Thornall Street
Metro Park, NJ 08837-2236
March 10, 1997
-66-
73
EXHIBIT A
PHOTOGRAPHS
74
[BURKE REGION OFFICE PICTURE]
[BURKE HEADEND PICTURE]
-68-
75
[WYE - MILLS HEADEND, 300' GUYED TOWER PICTURE]
[CENTERVILLE REGION OFFICE PICTURE]
-69-
76
EXHIBIT B
REGION AND SYSTEM OPERATING STATISTICS
77
- --------------------------------------------------------------------------------
Falcon Classic Cable Income EXHIBIT B1 Operating Statistics
Properties, L.P. Valuation Date:
Burke, NC December 31, 1996
- --------------------------------------------------------------------------------
1996 Pay
Homes Passed Basic Subscribers EBU's 1996 Units
------------------------- ---------------------------- FCC EBU Pay Pay/ % Chg
1996 1995 % Chg. 1996 1995 % Chg. Method Pene Units EBUs v. 95
------ ------ ------ ------ ------- ------ -------- ----- ------ ----- ------
Burke County 15,528 15,020 3.4% 9,233 9,652 -4.3% 9,255 59.6% 4,045 43.7% -34.5%
Valdese 1,377 1,097 25.5% 527 503 4.8% 527 38.3% 220 41.7% -25.9%
Drexel 653 653 0.0% 178 180 -1.1% 178 27.3% 93 52.2% -29.5%
Glen Alpine 514 514 0.0% 142 152 -6.6% 142 27.6% 52 36.6% -35.8%
Rutherford College 432 432 0.0% 136 139 -2.2% 144 33.3% 72 50.0% -30.1%
Connelly Springs 482 482 0.0% 300 282 6.4% 300 62.2% 132 44.0% -20.0%
------ ------ ---- ------ ------ ---- ------ ---- ----- ---- -----
Total Burke 18,986 18,198 4.3% 10,516 10,908 -3.6% 10,546 55.5% 4,614 43.8% -33.6%
======= ====== ==== ====== ====== ==== ====== ==== ===== ==== =====
Franchise
Plant Miles -------------------------
--------------------------------------------- 1996 Channel Address- Life
Aerial UG Total '96 1995 % Chg. Density Capacity able Fee Expiration (Yrs)
------ ------ --------- ------ ------ ------- -------- -------- ---- ---------- -----
Burke County 404.64 229.43 634.07 631.69 0.4% 24.5 43 Yes 3% Jun-98 1.4
Valdese 15.99 18.32 34.31 32.35 6.1% 40.1 43 Yes 5% Jun-2007 10.5
Drexel 8.92 4.91 13.83 13.83 0.0% 47.2 43 Yes 5% Feb-2005 8.1
Glen Alpine 8.50 5.81 14.31 14.31 -0.0% 35.9 43 Yes 3% Oct-98 1.8
Rutherford College 17.19 0.68 17.87 17.87 0.0% 24.2 43 Yes 5% Oct-2001 4.8
Connelly Springs 13.45 3.28 16.73 16.73 0.0% 28.8 43 Yes 3% Oct-99 2.8
------ ------ ------ ------ ---- ---- ---
Total Burke 468.69 262.43 731.12 726.78 0.6% 26.0 3.2%
====== ====== ====== ====== ==== ==== ===
-71-
78
- ------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT B2 Operating Statisics
Income Properties, L.P. Valuation Date:
Centreville, MD December 31, 1996
- ------------------------------------------------------------------------------
1996 Pay
Homes Passed Basic Subscribers EBU's 1996 Units
---------------------------------------------------- FCC EBU Pay Pay/ % Chg
1996 1995 % Chg. 1996 1995 % Chg. Method Pene Units EBUs v. 95
----- ----- ----- ----- ----- ------ ----- ----- ---- ----- ------
Kent County 2,154 2,120 0.016 701 670 0.05 701 0.325 450 0.642 -0.19
Betterton 219 219 0 93 91 0.02 93 0.425 40 0.43 -0.22
Rock Hall 1,073 1,073 0 405 394 0.03 450 0.419 235 0.58 -0.2
Chestertown 1,404 1,396 0.006 1,212 1,231 -0.0 1,347 0.959 727 0.6 -0.07
Millington 215 215 0 176 169 0.04 176 0.819 115 0.653 -0.23
Templeville 44 44 0 18 19 -0.1 18 0.409 6 0.333 -0.4
Sudlersville 201 201 0 83 81 0.03 83 0.413 52 0.627 -0.09
Church Hill 203 203 0 95 97 -0.0 0 0 68 0.716 -0.16
Centreville 819 819 0 494 483 0.02 517 0.631 265 0.536 -0.18
Queenstown 240 220 0.091 167 147 0.14 167 0.696 103 0.617 -0.21
Queen Anne's County 10,964 10,682 0.026 5,805 5,519 0.05 5,873 0.536 3818 0.658 -0.12
St. Michaels 1,101 1,101 0 493 480 0.03 516 0.469 297 0.602 -0.13
Rio Vista 0 0 0 197 178 0.11 220 n/a 136 0.69 -0.05
Talbot County 4,253 4,237 0.004 1,569 1,542 0.02 1,592 0.374 690 0.44 -0.22
Barclay 56 56 0 47 52 -0.01 47 0.839 23 0.489 -0.34
Oxford 499 499 0 427 407 0.05 450 0.902 169 0.396 -0.16
Trappe 412 412 0 343 333 0.03 343 0.833 246 0.717 -0.05
------ ------ ----- ------ ------ ---- ------ ----- ----- ----- -----
Total Centreville 23,857 23,497 0.015 12,325 11,893 0.04 12,593 0.528 7,440 0.604 -0.14
====== ====== ===== ====== ====== ==== ====== ===== ===== ===== =====
Franchise
Plant Miles -------------------------
------------------------------------------------ 1996 Address- Life
Aerial UG Total '96 1995 % Chg. Density able Fee Expiration (Yrs)
------ ---- --------- ----- ------ ------- -------- --- ---------- -----
Kent County 27.57 9.9 37.47 36.66 0.022 57.5 No 1.4
Betterton 3.32 0.04 3.36 3.36 0 65.2 No 10.5
Rock Hall 22.85 1.09 23.94 23.94 0 44.8 No 8.1
Chestertown 25.33 6.1 31.43 31.23 0.006 44.7 No 1.8
Millington 2.69 0.24 2.93 2.93 0 73.4 No 4.8
Templeville 0.72 0.07 0.79 0.79 0 55.7 No 2.8
Sudlersville 3.03 0.74 3.77 3.77 0 53.3 No 2.8
Church Hill 3.05 0.48 3.53 3.53 0 57.5 No 2.8
Centreville 11.12 1.21 12.33 12.33 0 66.4 No 2.8
Queenstown 4.15 0.66 4.81 4.2 0.145 49.9 No 2.8
Queen Anne's County 208.4 109.9 318.3 306.7 0.038 34.4 No 2.8
St. Michaels 7.34 5.03 12.37 12.37 0 89 No 2.8
Rio Vista 0 0 0 0 0 n/a No 2.8
Talbot County 128.7 49.14 177.8 177.2 0.003 23.9 No 2.8
Barclay 1.22 0 1.22 1.22 0 45.9 No 12.2
Oxford 5.85 1.62 7.47 7.47 0 66.8 No 2.8
Trappe 4.81 3.34 8.15 8.15 0 50.6 No 2.8
----- ----- ----- ----- ----- ----
Total Centreville 460.2 189.6 649.8 635.9 0.022 36.7 No 100%/96-99
===== ===== ===== ===== ===== ====
* Indicated capacity is 61 channels however plant spaced at 330 MHz with 450MHz
gear.
** Rebuild per Falcon Rebuild Projection (8/6/96). Portion of H/E service area
to be rebuilt/ Yr.(s) of rebuild.
-72-
79
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT B3 Operating Statistics
Income Properties Valuation Date:
Somerset, Kentucky December 31, 1996
- --------------------------------------------------------------------------------
Homes Passed
--------------------------- '96-'95
1996 1995 1994 % Chg.
---- ---- ---- ------
Somerset 4,890 4,890 4,890 0.0%
Pulaski Co. (Somerset) 4,269 4,269 4,336 0.0%
Science Hill 809 809 809 0.0%
Lincoln Co. (Eubank) 618 618 618 0.0%
Eubank 438 438 438 0.0%
Pulaski Co. (Eubank) 230 230 230 0.0%
Burnside 299 299 299 0.0%
Pulaski Co. (Burnside) 4,275 4,275 4,275 0.0%
Ferguson 366 366 366 0.0%
Woodson Bend 454 454 454 0.0%
Lincoln Co. (McKinney) 316 316 316 0.0%
SOMXPC 229 229 229 0.0%
Laurel County 2,263 2,218 2,256 2.0%
Clay County 57 57 57 0.0%
Columbia 1,529 1,529 1,529 0.0%
Adair County 1,018 1,018 1,018 0.0%
----- ----- ----- ----
Total Somerset 22,060 22,015 22,120 0.2%
===== ===== ===== ====
1996 Pay
Basic Subscribers EBU's 1996 Units
-------------------------- '96-'95 FCC EBU Pay Pay/ % Chg.
1996 1995 1994 % Chg. Method Pene Units EBUs v. 95
---- ---- ---- ------ ------ ---- ----- ---- ------
Somerset 3,867 3,972 3,927 -2.6% 3,924 731 18.6% -40.3%
Pulaski Co. (Somerset) 3,502 3,439 3,302 1.8% 3,529 82.7% 599 17.0% -23.4%
Science Hill 630 637 624 -1.1% 635 78.5% 80 12.6% -23.1%
Lincoln Co. (Eubank) 474 501 493 -5.4% 474 76.7% 162 34.2% -16.1%
Eubank 289 287 281 0.7% 289 66.0% 74 25.6% -18.7%
Pulaski Co. (Eubank) 129 121 123 6.6% 129 56.1% 32 24.8% -25.6%
Burnside 251 254 257 -1.2% 270 90.3% 47 17.4% -33.8%
Pulaski Co. (Burnside) 4,645 4,580 4,358 1.4% 4,688 109.7% 866 18.5% -25.8%
Ferguson 298 304 302 -2.0% 298 81.4% 38 12.8% -35.6%
Woodson Bend 346 353 370 -2.0% 346 76.2% 17 4.9% -43.3%
Lincoln Co. (McKinney) 302 298 284 1.3% 302 95.6% 47 15.6% -17.5%
SOMXPC 189 183 191 3.3% 189 82.5% 41 21.7% -10.9%
Laurel County 1,762 1,728 1,681 2.0% 1,762 77.9% 309 17.5% -18.5%
Clay County 47 48 51 -2.1% 47 82.5% 14 29.8% -22.2%
Columbia 1,461 1,475 1,481 -0.9% 1,500 98.1% 501 33.4% -7.2%
Adair County 1,104 1,046 925 5.5% 1,104 108.4% 356 32.2% -2.5%
------ ------ ------ ----- ------ ------ ----- ----- ------
Total Somerset 19,296 19,226 18,650 0.4% 19,486 88.3% 3,914 20.1% -24.3%
====== ====== ====== ===== ====== ====== ===== ===== ======
Plant Miles
-------------------------------------------------------
Aerial UG 1996 1995 % Chg.
------ -- ---- ---- ------
Somerset 74.00 1.00 75.00 75.00 0.0%
Pulaski Co. (Somerset) 182.50 0.00 182.50 182.50 0.0%
Science Hill 29.50 0.00 29.50 29.50 0.0%
Lincoln Co. (Eubank) 30.00 1.00 31.00 31.00 0.0%
Eubank 16.00 0.00 16.00 16.00 0.0%
Pulaski Co. (Eubank) 19.00 0.00 19.00 19.00 0.0%
Burnside 12.00 0.00 12.00 12.00 0.0%
Pulaski Co. (Burnside) 185.00 0.00 185.00 185.00 0.0%
Ferguson 14.00 8.00 22.00 22.00 0.0%
Woodson Bend 5.00 8.00 13.00 13.00 0.0%
Lincoln Co. (McKinney) 19.00 0.00 19.00 19.00 0.0%
SOMXPC 9.00 0.00 9.00 9.00 0.0%
Laurel County 116.50 0.00 116.50 113.50 2.6%
Clay County 3.00 0.00 3.00 3.00 0.0%
Columbia 39.00 0.00 39.00 39.00 0.0%
Adair 63.00 0.00 63.00 63.00 0.0%
------ ----- ------ ------ ----
Total Somerset 816.50 18.00 834.50 831.50 0.4%
====== ===== ====== ====== ====
Franchise
--------------------------------
1996 Channel Address- Life
Density Capacity able Rebuild Fee Expiration (Yrs)
------- -------- -------- ------- --- ---------- -----
Somerset 65.2 40 No 3% Feb-96 (0.9)
Pulaski Co. (Somerset) 23.4 40 No 3% Oct-2008 11.8
Science Hill 27.4 40 No 3% n/a
Lincoln Co. (Eubank) 19.9 36 No 3% Sep-98 1.7
Eubank 27.4 36 No 3% Sep-98 1.7
Pulaski Co. (Eubank) 12.1 36 No 3% Sep-98 1.7
Burnside 24.9 52 Yes '97 - 99 3% Jun-99 2.4
Pulaski Co. (Burnside) 23.1 52 Yes '97 - 99 3% Jun-99 2.4
Ferguson 16.6 52 Yes '97 - 99 3% Nov-2008 11.9
Woodson Bend 34.9 52 Yes '97 - 99 3% Sep-98 1.7
Lincoln Co. (McKinney) 16.6 52 Yes '97 - 99 3% May-2007 10.3
SOMXPC 25.4 40 No 3% n/a
Laurel County 19.4 24 No 1997 5% May-2008 11.4
Clay County 19.0 24 No 3% n/a
Columbia 39.2 52 No 3% - 5% Aug-2011 14.7
Adair 16.2 52 No 3% May-2005 8.4
----
Total Somerset 26.4
====
-73-
80
- -------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT B4 Operating Statisics
Income Properties Valuation Date:
Redmond, Oregon December 31, 1996
- -------------------------------------------------------------------------------
Homes Passed Basic Subscribers 1996 Pay
------------------------------- ------------------------------ EBU's 1996 Units
'96-'95 '96-'95 FCC EBU Pay Pay/ % Chg.
1996 1995 1994 % Chg. 1996 1995 1994 % Chg. Method Pene Units EBUs v. 95
---- ---- ---- ------ ---- ---- ---- ------- ------ ---- ----- ----- -----
Redmond 7,252 6,881 6,487 5.4% 2,367 2,573 2,684 -8.0% 2,461 33.9% 446 18.1% -28.9%
Deschutes County 0 0 0 0.0% 1,149 1,260 1,378 -8.8% 1,218 n/a 260 21.3% -26.1%
----- ----- ----- ---- ----- ----- ----- ----- ----- ---- --- ----- -----
Total Redmond 7,252 6,881 6,487 5.4% 3,516 3,833 4,062 -8.3% 3,679 50.7% 706 19.2% -27.9%
===== ===== ===== ==== ===== ===== ===== ===== ===== ==== === ===== =====
Plant Miles Franchise
----------------------------------------- -----------------------
1996 Channel Address- Life
Aerial UG 1996 1995 % Chg. Density Capacity able Rebuild Fee Expiration (Yrs)
------ -- ---- ---- ------ ------- -------- ---- ------- --- ---------- -----
Redmond 116.00 54.00 170.00 162.00 4.9% 42.7 32 yes '98 - '99 1% Feb-2002 5.2
Deschutes County 0.00 0.00 0.00 0.00 0.0% 0.0 32 yes '98 - '99
------ ----- ------ ------ ---- ----
-74-
81
- -------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT B5 Operating Statisics
Income Properties Valuation Date:
California City, California December 31, 1996
- -------------------------------------------------------------------------------
Homes Passed Basic Subscribers 1996 Pay
--------------------------------- -------------------------------- EBU's 1996 Units
'96-'95 '96-'95 FCC EBU Pay Pay/ % Chg
1996 1995 1994 % Chg. 1996 1995 1994 % Chg. Method Pene Units EBU's v. 95
----- ----- ----- ------ ----- ----- ----- ------ ------ ---- ----- ----- ------
California City 2,858 2,858 2,707 0.0% 1,922 2,097 2,075 -8.3% 1,960 68.6% 839 42.8% -28.9%
----- ----- ----- --- ----- ----- ----- ---- ----- ---- --- ---- -----
Total California City 2,858 2,858 2,707 0.0% 1,922 2,097 2,075 -8.3% 1,960 68.6% 839 42.8% -28.9%
===== ===== ===== === ===== ===== ===== ==== ===== ==== === ==== =====
Franchise
Plant Miles ------------------------
------------------------------------------ 1996 Channel Address- Life
Aerial UG 1996 1995 % Chg. Density Capacity able Rebuild Fee Expiration (Yrs)
------ ----- ----- ----- ------ ------- -------- -------- ------- --- ---------- -----
California City 79.02 11.10 90.12 90.12 0.0% 0.0 41 yes no Apr-2001 4.3
----- ----- ----- ----- ---- ---
Total California City 79.02 11.10 90.12 90.12 -0.0% 31.7
===== ===== ===== ===== ==== ====
-75-
82
EXHIBIT C
REGION AND SYSTEM CASH FLOW STATEMENTS
83
- --------------------------------------------------------------------------------
EXHIBIT C1
Falcon Classic Cable Income Operating Cash Flow: Actual & Budget
Properties, L.P. Burke, NC Valuation Date: December 31, 1996
- --------------------------------------------------------------------------------
1997 Budget Dec 1996 Actual 1996 Actual
-------------------- ------------------- -------------------
($000) % to Rev. ($000) % to Rev. ($000) % to Rev.
-------- --------- ------ ---------- ------- ---------
Revenues:
Primary 2,211.7 40.5% $178.4 40.9% $2,042.6 40.2%
Commercial 8.5 0.2% 0.7 0.2% 8.5 0.2%
Expanded Tier 0.0 0.0% 0.0 0.0% 0.0 0.0%
AL Tier 688.0 12.6% 56.4 12.9% 574.9 11.3%
------- ----- -------
Total Reg. Prog. 2,908.3 53.3% 235.5 54.0% 2,626.0 51.7%
Radio Services 34.7 0.6% 2.9 0.7% 39.2 0.8%
Pay Cable - 1st Outlet 387.4 7.1% 35.6 8.2% 495.3 9.8%
Pay Cable - Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0%
New Product Tier - 1 1,081.6 19.8% 81.7 18.7% 892.1 17.6%
Commercial Pay 0.0 0.0% 0.0 0.0% 0.0 0.0%
Mini-Pay 9.4 0.2% 0.8 0.2% 10.3 0.2%
Mini-Pay - Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0%
Pay Per View 128.7 2.4% 7.3 1.7% 104.0 2.0%
------- ----- -------
Total Unreg. Prog. 1,641.8 30.1% 128.2 29.4% 1,540.9 30.3%
Primary Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0%
Remote Control 3.9 0.1% 0.3 0.1% 4.1 0.1%
Converter Rental 463.7 8.5% 38.3 8.8% 472.3 9.3%
Other - VCR 0.0 0.0% 0.0 0.0% 0.0 0.0%
------- ----- -------
Total Equipment 467.6 8.6% 38.7 8.9% 476.5 9.4%
Wire Maint. Agreements 68.4 1.3% 5.7 1.3% 68.2 1.3%
New Cust. - Pay Installs 0.0 0.0% 0.0 0.0% 0.0 0.0%
New Cust. - Basic Installs 93.3 1.7% 1.0 0.2% 17.6 0.3%
Install Mat'l Charge 0.0 0.0% 0.0 0.0% 1.1 0.0%
Installs - Non New Cust. 0.0 0.0% 3.3 0.8% 68.3 1.3%
------- ----- -------
Total Install/Service 161.7 3.0% 10.1 2.3% 155.2 3.1%
Guide Revenue 21.7 0.4% 1.7 0.4% 22.8 0.4%
Late Charges 56.5 1.0% 4.4 1.0% 57.2 1.1%
Rent 3.2 0.1% (0.3) -0.1% 2.7 0.1%
Franchise Pass Thru 0.0 0.0% 0.0 0.0% 0.0 0.0%
Miscellaneous 0.0 0.0% 0.0 0.0% 16.5 0.3%
Shopping Net Car. Fee 0.0 0.0% 0.0 0.0% 0.0 0.0%
FCC User Fee Pass Thru 5.8 0.1% 0.4 0.1% 5.3 0.1%
QVC Monthly Comm. 16.7 0.3% 0.9 0.2% 16.7 0.3%
QVC Carriage Payment 13.0 0.2% 0.0 0.0% 12.2 0.2%
HSN Monthly Comm. 9.6 0.2% 0.2 0.1% 9.6 0.2%
HSN Carriage Payment 0.0 0.0% 0.0 0.0% 0.0 0.0%
------- ----- -------
Total Non-Service/Misc. 126.5 2.3% 7.5 1.7% 142.9 2.8%
Advertising 152.7 2.8% 16.5 3.8% 136.4 2.7%
------- ----- -------
Total Revenues 5,458.5 100.0% 436.4 100.0% 5,077.8 100.0%
======= ===== ===== ===== ======= =====
1995 Actual 1994 Actual
-------------------- -------------------
($000) % to Rev. ($000) % to Rev.
-------- ---------- -------- ---------
Revenues:
Primary $2,040.1 40.4% $2,064.9 40.6%
Commercial 8.8 0.2% 5.3 0.1%
Expanded Tier 0.0 0.0% 0.0 0.0%
AL Tier 407.0 8.1% 160.0 3.1%
------- -------
Total Reg. Prog. 2,455.9 48.7% 2,230.3 43.9%
Radio Services 47.7 0.9% 58.9 1.2%
Pay Cable - 1st Outlet 583.7 11.6% 589.5 11.6%
Pay Cable - Add'l Outlet 0.0 0.0% 0.0 0.0%
New Product Tier - 1 948.1 18.8% 1,127.7 22.2%
Commercial Pay 0.0 0.0% 0.0 0.0%
Mini-Pay 13.0 0.3% 18.2 0.4%
Mini-Pay - Add'l Outlet 0.0 0.0% 0.0 0.0%
Pay Per View 117.4 2.3% 124.0 2.4%
------- -------
Total Unreg. Prog. 1,709.9 33.9% 1,918.3 37.8%
Primary Add'l Outlet 0.0 0.0% 0.0 0.0%
Remote Control 4.0 0.1% 4.2 0.1%
Converter Rental 488.9 9.7% 489.2 9.6%
Other - VCR 0.0 0.0% 0.0 0.0%
------- -------
Total Equipment 492.9 9.8% 493.3 9.7%
Wire Maint. Agreements 62.3 1.2% 47.5 0.9%
New Cust. - Pay Installs 0.0 0.0% 0.0 0.0%
New Cust. - Basic Installs 28.1 0.6% 50.4 1.0%
Install Mat'l Charge 0.4 0.0% 0.0 0.0%
Installs - Non New Cust. 72.0 1.4% 81.1 1.6%
------- -------
Total Install/Service 162.9 3.2% 179.0 3.5%
Guide Revenue 26.1 0.5% 35.4 0.7%
Late Charges 63.3 1.3% 68.2 1.3%
Rent 3.0 0.1% 3.3 0.1%
Franchise Pass Thru 0.0 0.0% 0.0 0.0%
Miscellaneous 0.0 0.0% 0.0 0.0%
Shopping Net Car. Fee 0.0 0.0% 0.0 0.0%
FCC User Fee Pass Thru 5.1 0.1% 0.1 0.0%
QVC Monthly Comm. 15.1 0.3% 19.4 0.4%
QVC Carriage Payment 14.0 0.3% 14.0 0.3%
HSN Monthly Comm. 0.0 0.0% 0.0 0.0%
HSN Carriage Payment 0.0 0.0% 0.0 0.0%
------- -------
Total Non-Service/Misc. 126.7 2.5% 140.4 2.8%
Advertising 97.8 1.9% 118.6 2.3%
------- -------
Total Revenues 5,045.9 100.0% 5,080.0 100.0%
======= ===== ======= =====
-77-
84
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C2 Operating Cash Flow:
Income Properties, L.P. Actual & Budget
Burke, NC Valuation Date:
December 31, 1996
- --------------------------------------------------------------------------------
1997 Budget Dec 1996 Actual 1996 Actual 1995 Actual 1994 Actual
------------------- ------------------ ------------------ ----------------- -------------------
($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev.
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
Operating Expenses:
Technical
Personnel 551.5 10.1% 13.7 3.1% 266.7 5.3% 285.0 5.6% 295.7 5.8%
Other 23.1 5.3% 295.1 5.8% 232.8 4.6% 245.1 4.8%
Programming 964.6 17.7% 69.2 15.9% 887.5 17.5% 942.9 18.7% 908.6 17.9%
Capitalized Labor & O/H (243.4) -4.5% (8.0) -1.8% (227.9) -4.5% (142.6) -2.8% (105.1) -2.1%
-------- ------ -------- -------- --------
Total Technical 1,272.7 23.3% 98.0 22.5% 1,221.4 24.1% 1,318.1 26.1% 1,344.3 26.5%
Production & L/O
Personnel 0.0 0.0% 0.0 0.0% (0.1) -0.0% 17.2 0.3%
Other 0.0 0.0% 0.0 0.0% 0.3 0.0% 0.9 0.0%
------ -------- -------- --------
Total Prod. & L/O 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.2 0.0% 18.1 0.4%
Ad Sales
Personnel 1.7 0.4% 20.2 0.4% 21.6 0.4% 49.3 1.0%
Other 1.3 0.3% 15.3 0.3% 16.3 0.3% 21.9 0.4%
------ -------- -------- --------
Total Ad Sales 26.4 0.5% 3.0 0.7% 35.4 0.7% 37.9 0.8% 71.2 1.4%
Marketing
Commissions 0.4 0.1% 0.8 0.0% 0.2 0.0% 2.6 0.1%
Other 11.1 2.5% 68.9 1.4% 78.2 1.6% 108.6 2.1%
------ -------- -------- --------
Total Marketing 83.5 1.53% 11.5 2.6% 69.7 1.4% 78.5 1.6% 111.2 2.2%
General & Administrative
Personnel 374.8 6.87% 13.0 3.0% 157.9 3.1% 137.9 2.7% 140.7 2.8%
Other 373.4 6.84% 49.5 11.4% 548.2 10.8% 535.3 10.6% 523.4 10.3%
Capitalized Labor & O/H (0.2) -0.0% (9.1) -0.2% (13.3) -0.3% (16.8) -0.3%
------ -------- -------- --------
Total G & A 748.2 13.71% 62.4 14.3% 697.0 13.7% 659.9 13.1% 647.3 12.7%
Total Operating Expense
Before Partnership Exps. 2,130.8 39.04% 174.9 40.1% 2,023.5 39.9% 2,094.5 41.5% 2,192.2 43.2%
Total Oper. Cash Flow
Before Partnership Exps. 3,327.7 61.0% 261.5 59.9% 3,054.2 60.1% 2,951.4 58.5% 2,887.8 56.8%
Partnership Expenses 272.9 5.0% 21.8 5.0% 253.9 5.0% 252.3 5.0% 254.0 5.0%
-------- ------ -------- -------- --------
Total Oper. Cash Flow
After Partnership Exps. $3,054.8 56.0% $239.7 54.9% $2,800.4 55.1% $2,699.1 53.5% $2,633.8 51.8%
======== ===== ====== ===== ======== ===== ======== ===== ======== =====
-78-
85
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C3 Operating Cash Flow:
Income Properties, L.P. Actual & Budget
Centreville, MD
Valuation Date:
December 31, 1996
- --------------------------------------------------------------------------------
December
1997 Budget 1996 Actual 1996 Actual 1995 Actual 1994 Actual
-------------------- ----------------- ----------------- ------------------- ------------------
($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev.
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
Revenues:
Primary 3,112.2 52.7% $246.4 51.9% $2,754.9 51.6% $2,478.8 53.1% $2,377.4 58.6%
Commercial 90.9 1.5% 7.6 1.6% 79.007 1.5% 53.5 1.1% 38.9 1.0%
Expanded Tier 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
AL Tier 516.9 8.7% 41.8 8.8% 425.0 8.0% 340.5 7.3% 129.3 3.2%
------- ----- ------- ------- --------
Total Reg. Prog. 3,720.0 62.9% 295.8 62.3% 3,258.8 61.0% 2,872.8 61.6% 2,545.6 62.7%
Radio Services 25.6 0.4% 2.1 0.4% 28.1 0.5% 33.3 0.7% 39.7 1.0%
Pay Cable - 1st Outlet 745.2 12.6% 62.4 13.1% 845.1 15.8% 931.2 20.0% 805.1 19.8%
Pay Cable - Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
New Product Tier - 1 790.1 13.4% 63.5 13.4% 580.6 10.9% 361.8 7.8% 290.5 7.2%
Commercial Pay 0.0 0.0% 1.2 0.3% 14.7 0.3% 13.8 0.3% 13.8 0.3%
Mini-Pay 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Video Games & Activation 43.3 0.7% 3.1 0.6% 41.1 0.8% 5.4 0.1% 0.0 0.0%
Pay Per View 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
------- ----- ------- ------- --------
Total Unreg. Prog. 1,604.2 27.1% 132.2 27.8% 1,509.6 28.3% 1,345.5 28.8% 1,149.1 28.3%
Primary Add'l Outlet 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% (0.1) -0.0%
Remote Control 5.8 0.1% 0.5 0.1% 5.7 0.1% 6.2 0.1% 5.2 0.1%
Converter Rental 45.0 0.8% 3.7 0.8% 34.8 0.7% 25.3 0.5% 25.9 0.6%
Other - VCR 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
------- ----- ------- ------- --------
Total Equipment 50.8 0.9% 4.1 0.9% 40.5 0.8% 31.5 0.7% 31.1 0.8%
Wire Maint. Agreements 43.0 0.7% 3.5 0.7% 39.3 0.7% 31.2 0.7% 18.6 0.5%
New Cust. - Pay Installs 58.4 1.0% 0.0 0.0% 0.3 0.0% 0.0 0.0% 20.7 0.5%
New Cust. - Basic Installs 0.0 0.0% 0.5 0.1% 7.3 0.1% 15.0 0.3% 0.0 0.0%
Install Mat'l Charge 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0% 0.0 0.0%
Installs - Non New Cust. 0.0 0.0% 2.0 0.4% 47.8 0.9% 28.8 0.6% 16.5 0.4%
------- ----- ------- ------- --------
Total Install/Service 101.4 1.7% 6.0 1.3% 94.7 1.8% 75.0 1.6% 55.9 1.4%
Guide Revenue 21.3 0.4% 1.9 0.4% 13.8 0.3% 8.8 0.2% 8.8 0.2%
Late Charges 67.8 1.1% 7.1 1.5% 74.0 1.4% 64.6 1.4% 72.2 1.8%
Rent 23.7 0.4% 1.9 0.4% 23.5 0.4% 14.8 0.3% 12.8 0.3%
Franchise Pass Thru 117.4 2.0% 9.1 1.9% 104.9 2.0% 101.4 2.2% 95.7 2.4%
Miscellaneous 2.8 0.0% 0.0 0.0% 24.7 0.5% 0.0 0.0% 0.0 0.0%
FCC User Fee Pass Thru 6.9 0.1% 0.5 0.1% 6.0 0.1% 5.5 0.1% 0.2 0.0%
QVC Monthly Comm. 13.2 0.2% 1.1 0.2% 13.2 0.2% 9.0 0.2% 8.4 0.2%
QVC Carriage Payment 18.3 0.3% 0.0 0.0% 31.5 0.6% 0.0 0.0% (10.2) -0.3%
HSN Monthly Comm. 22.2 0.4% 1.6 0.3% 22.2 0.4% 18.6 0.4% 0.0 0.0%
HSN Carriage Payment 2.1 0.0% 0.2 0.0% 2.1 0.0% 2.1 0.0% 0.9 0.0%
------- ----- ------- ------- --------
Total Non-Service/Misc. 295.7 5.0% 23.4 4.9% 315.9 5.9% 224.8 4.8% 188.8 4.7%
Advertising 138.0 2.3% 13.3 2.8% 123.0 2.3% 114.4 2.5% 86.8 2.1%
------- ----- ------- ------- --------
Total Revenues 5,910.1 100.0% 474.8 100.0% 5,342.6 100.0% 4,664.0 100.0% 4,057.2 100.0%
======= ===== ======= ======= ========
-79-
86
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C4 Operating Cash Flow:
Income Properties, L.P. Actual & Budget
Centreville, MD Valuation Date:
December 31, 1996
- --------------------------------------------------------------------------------
December
1997 Budget 1996 Actual 1996 Actual 1995 Actual 1994 Actual
-------------------- ----------------- ----------------- ------------------- ------------------
($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev. ($000) % to Rev.
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
Operating Expenses:
Technical
Personnel 593.9 10.05% 20.5 4.3% 260.5 4.9% 255.2 5.5% 295.7 7.3%
Other 12.4 2.6% 330.1 6.2% 320.5 6.9% 245.1 6.0%
Programming 1,379.5 23.34% 103.0 21.7% 1,220.7 22.8% 1,197.4 25.7% 908.6 22.4%
Capitalized Labor & O/H (237.4) -4.02% (30.2) -6.4% (196.1) -3.7% (127.4) -2.7% (105.1) -2.6%
------- ----- ------- ------- -------
Total Technical 1,736.0 29.37% 105.7 22.3% 1,615.1 30.2% 1,645.8 35.3% 1,344.3 33.1%
Production & L/O
Personnel 0.0 0.0% 0.0 0.0% (0.1) -0.0% 17.2 0.4%
Other 0.0 0.0% 0.0 0.0% 0.3 0.0% 0.9 0.0%
----- ------- ------- -------
Total Prod. & L/O 0.0 0.00% 0.0 0.0% 0.0 0.0% 0.2 0.0% 18.1 0.4%
Ad Sales
Personnel 4.3 0.9% 50.2 0.9% 42.1 0.9% 49.3 1.2%
Other 2.1 0.4% 29.3 0.5% 22.1 0.5% 21.9 0.5%
----- ------- ------- -------
Total Ad Sales 69.4 1.17% 6.4 1.4% 79.6 1.5% 64.2 1.4% 71.2 1.8%
Marketing
Commissions 0.0 0.0% 25.3 0.5% 89.3 1.9% 2.6 0.1%
Other 7.6 1.6% 76.5 1.4% 59.6 1.3% 108.6 2.7%
----- ------- ------- -------
Total Marketing 133.1 2.25% 7.6 1.6% 101.8 1.9% 148.9 3.2% 111.2 2.7%
General & Administrative
Personnel 6.2 1.3% 124.3 2.3% 144.5 3.1% 140.7 3.5%
Other 58.0 12.2% 713.2 13.3% 605.0 13.0% 523.4 12.9%
Capitalized Labor & O/H 0.0 0.0% (10.6) -0.2% (20.0) -0.4% (16.8) -0.4%
----- ------- ------- -------
Total G & A 874.3 14.79% 64.2 13.5% 826.8 15.5% 729.5 15.6% 647.3 16.0%
Total Operating Expense
Before Partnership Exps. 2,812.8 47.59% 184.0 38.8% 2,623.3 49.1% 2,588.6 55.5% 2,192.2 54.0%
Total Oper. Cash Flow
Before Partnership Exps. 3,097.4 52.4% 290.8 61.2% 2,719.4 50.9% 2,075.4 44.5% 1,865.1 46.0%
Partnership Expenses 295.5 5.0% 23.7 5.0% 267.1 5.0% 233.2 5.0% 254.0 6.3%
------- ----- ------- ------- -------
Total Oper. Cash Flow
After Partnership Exps. $2,801.9 47.4% $267.0 56.2% $2,452.2 45.9% $1,842.2 39.5% $1,611.1 39.7%
======= ==== ===== ==== ======== ==== ======= ==== ======= ====
=80=
87
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C5 Operating Cash Flow:
Income Properties Budget & Actual
Somerset, Kentucky Valuation Date:
December 31, 1996
- --------------------------------------------------------------------------------
1996 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
-------------------- -------------------- --------------------- ---------------------
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
------ --------- ------ --------- ------- --------- ------- ---------
Revenues:
Primary / Commercial $4,579.9 59.99% $371.3 55.10% $4,158.5 58.65% $3,850.2 61.12%
Expanded Tier 542.1 7.10% 44.5 6.60% 475.1 6.70% 412.3 6.55%
-------- ------ ------ ------ -------- ------ -------- ------
Total Regulated Programming 5,122.0 67.09% 415.8 61.70% 4,633.6 65.35% 4,262.5 67.67%
-------- ------ ------ ------ -------- ------ -------- ------
Radio Services 0.0 0.00% 0.0 0.00% 0.1 0.00% 0.1 0.00%
Pay Cable 417.7 5.47% 34.1 5.06% 464.9 6.56% 506.6 8.04%
New Product Tier 1,219.2 15.97% 99.8 14.81% 1,005.9 14.19% 813.9 12.92%
Mini-Pay 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00%
Pay Per View 10.7 0.14% 0.6 0.09% 11.9 0.17% 6.8 0.11%
-------- ------ ------ ------ -------- ------ -------- ------
Total Unregulated Programming 1,647.6 21.58% 134.5 19.96% 1,482.8 20.91% 1,327.4 21.07%
-------- ------ ------ ------ -------- ------ -------- ------
Remote Control 18.7 0.24% 1.5 0.22% 28.6 0.40% 44.7 0.71%
Converter Rental 96.4 1.26% 8.1 1.20% 83.0 1.17% 49.6 0.79%
Other - VCR 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00%
-------- ------ ------ ------ -------- ------ -------- ------
Total Equipment 115.1 1.51% 9.6 1.42% 111.6 1.57% 94.3 1.50%
-------- ------ ------ ------ -------- ------ -------- ------
Wire Maintenance Agreements 39.5 0.52% 3.3 0.49% 41.1 0.58% 37.7 0.60%
Installation 125.2 1.64% 5.0 0.74% 113.1 1.60% 126.6 2.01%
-------- ------ ------ ------ -------- ------ -------- ------
Total Installation / Service 164.7 2.16% 8.3 1.23% 154.2 2.17% 164.3 2.61%
-------- ------ ------ ------ -------- ------ -------- ------
Guide Revenue 5.1 0.07% 0.4 0.06% 3.8 0.05% 0.0 0.00%
Late Charges 66.4 0.87% 6.6 0.98% 70.6 1.00% 67.9 1.08%
Home Shopping 76.4 1.00% 4.8 0.71% 78.3 1.10% 62.1 0.99%
FCC User Fee Pass Thru 10.7 0.14% 0.8 0.12% 9.4 0.13% 8.8 0.14%
Franchise Pass Thru 25.4 0.33% 2.1 0.31% 22.9 0.32% 5.5 0.09%
Miscellaneous / Rent 14.4 0.19% 47.1 6.99% 178.6 2.52% 9.1 0.14%
-------- ------ ------ ------ -------- ------ -------- ------
Total Non-Service / Misc. 198.4 2.60% 61.8 9.17% 363.6 5.13% 153.4 2.44%
-------- ------ ------ ------ -------- ------ -------- ------
Advertising 387.2 5.07% 43.9 6.51% 345.1 4.87% 297.3 4.72%
------ ------ ------ ------
Total Revenues 7,635.0 100.00% 673.9 100.00% 7,090.9 100.00% 6,299.2 100.00%
-------- ------- ------ ------- -------- ------- -------- -------
-81-
88
- -------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C6 Operating Cash Flow:
Income Properties Budget & Actual
Somerset, Kentucky Valuation Date:
December 31, 1996
- -------------------------------------------------------------------------------
1996 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
--------------------- -------------------- ---------------------- ---------------------
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
------- --------- ------- --------- ------- --------- ------- ---------
Operating Expenses:
Technical
Personnel 472.1 6.18% 25.1 3.72% 412.8 5.82% 378.3 6.01%
Other 603.0 91.1 13.52% 638.1 9.00% 540.5 8.58%
Programming 1,399.5 18.33% 100.5 14.91% 1,194.4 16.84% 1,099.5 17.45%
Capitalized Labor & O/H (230.3) ------ (30.9) -4.59% (288.8) -4.07% (233.9) -3.71%
-------- ------ ------ -------- ------ -------- ------
Total Technical 2,244.3 29.39% 185.8 27.57% 1,956.5 27.59% 1,784.4 28.33%
-------- ------ ------ ------ -------- ------ -------- ------
Production & L/O
Personnel 2.4 0.36% 27.9 0.39% 29.1 0.46%
Other 0.8 0.12% 6.1 0.09% 0.6 0.01%
------ ------ -------- ------ -------- ------
Total Production & L/O 40.1 0.53% 3.2 0.47% 34.0 0.48% 29.7 0.47%
-------- ------ ------ ------ -------- ------ -------- ------
Ad Sales
Personnel 5.3 0.79% 51.3 0.72% 78.5 1.25%
Other -12.2 -1.81% 13.8 0.19% 21.7 0.34%
------ ------ -------- ------ -------- ------
Total Ad Sales 114.5 1.50% -6.9 -1.02% 65.1 0.92% 100.2 1.59%
-------- ------ ------ ------ -------- ------ -------- ------
Marketing
Commissions 0.5 0.07% 1.0 0.01% 0.3 0.00%
Other 4.1 0.61% 101.7 1.43% 59.9 0.95%
------ ------ -------- ------ -------- ------
Total Marketing 153.8 2.01% 4.6 0.68% 102.7 1.45% 60.2 0.96%
-------- ------ ------ ------ -------- ------ -------- ------
General & Administrative
Personnel 10.0 1.48% 165.0 2.33% 158.6 2.52%
Other 70.3 10.43% 779.2 10.99% 729.9 11.59%
------ ------ -------- ------ -------- ------
Total G & A 1,093.8 14.33% 80.3 11.92% 944.2 13.32% 888.5 14.10%
-------- ------ ------ ------ -------- ------ -------- ------
Total Operating Expense
Before Partnership Exps. 3,646.5 47.76% 267.0 39.62% 3,102.5 43.75% 2,863.0 45.45%
-------- ------ ------ ------ -------- ------ -------- ------
Total Oper. Cash Flow
Before Partnership Exps. $3,988.5 52.24% $406.9 60.38% $3,988.4 56.25% $3,436.2 54.55%
======== ====== ====== ====== ======== ====== ======== ======
-82-
89
- ------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C7 Operating Cash Flow: Budget & Actual
Income Properties Valuation Date: December 31, 1996
Redmond, Oregon
- ------------------------------------------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
-------------------- ------------------- ------------------- ---------------------
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
-------- -------- ------- -------- ------- -------- -------- ---------
Revenues:
Primary / Commercial $1,084.2 64.29% $83.5 63.69% $992.5 63.56% $1,006.7 63.84%
Expanded Tier 75.9 4.50% 5.8 4.42% 69.6 4.46% 74.1 4.70%
------- ------ ----- ------ ------- ------- ------- -------
Total Regulated Programming 1,160.1 68.80% 89.3 68.12% 1,062.1 68.02% 1,080.8 68.54%
------- ------ ----- ------ ------- ------ ------- -------
Radio Services 8.1 0.48% 0.6 0.46% 8.7 0.56% 11.5 0.73%
Pay Cable 55.4 3.29% 4.6 3.51% 72.0 4.61% 99.6 6.32%
New Product Tier 297.7 17.65% 22.8 17.39% 245.5 15.72% 219.1 13.89%
Mini-Pay 2.4 0.14% 0.2 0.15% 2.5 0.16% 2.4 0.15%
Pay Per View 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00%
------- ------ ----- ------ ------- ------ ------- -------
Total Unregulated Programming 363.6 21.56% 28.2 21.51% 328.7 21.05% 332.6 21.09%
------- ------ ----- ------ ------- ------- ------- -------
Remote Control 2.5 0.15% 0.2 0.15% 2.5 0.16% 2.9 0.18%
Converter Rental 34.1 2.02% 2.7 2.06% 35.6 2.28% 39.4 2.50%
Other - VCR 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00%
------- ------ ----- ------ ------- ------- ------- -------
Total Equipment 36.6 2.17% 2.9 2.21% 38.1 2.44% 42.3 2.68%
------- ------ ----- ------ ------- ------- ------- -------
Wire Maintenance Agreements 6.6 0.39% 0.5 0.38% 7.0 0.45% 7.8 0.49%
Installation 14.5 0.86% 0.7 0.53% 13.6 0.87% 14.5 0.92%
------- ------ ----- ------ ------- ------- ------- -------
Total Installation / Service 21.1 1.25% 1.2 0.92% 20.6 1.32% 22.3 1.41%
------- ------ ----- ------ ------- ------- ------- -------
Guide Revenue 3.4 0.20% 0.3 0.23% 2.3 0.15% 0.0 0.00%
Late Charges 13.7 0.81% 0.8 0.61% 13.5 0.86% 14.0 0.89%
Home Shopping 10.3 0.61% 1.3 0.99% 14.5 0.93% 7.8 0.49%
FCC User Fee Pass Thru 2.1 0.12% 0.1 0.08% 1.8 0.12% 1.8 0.11%
Franchise Pass Thru 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00%
Miscellaneous / Rent 7.0 0.42% 0.5 0.38% 12.7 0.81% 6.0 0.38%
------- ------ ----- ------ ------- ------ ------- -------
Total Non-Service / Misc. 36.5 2.16% 3.0 2.29% 44.8 2.87% 29.6 1.88%
------- ------ ----- ------ ------- ------- ------- -------
Advertising 68.4 4.06% 6.5 4.96% 67.2 4.30% 69.4 4.40%
------ ------ ------ -------
Total Revenues 1,686.3 100.00% 131.1 100.00% 1,561.5 100.00% 1,577.0 100.00%
------- ------ ----- ------ ------- ------- ------- -------
-83-
90
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C8 Operating Cash Flow: Budget & Actual
Income Properties Valuation Date: December 31, 1996
Redmond, Oregon
- --------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
-------------------- -------------------- -------------------- ---------------------
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
------- --------- ------- --------- ------- --------- ------- ---------
Operating Expenses:
Technical
Personnel 125.0 7.41% 3.5 2.67% 100.9 6.46% 90.6 5.75%
Other (8.6) -6.56% 48.3 3.09% 61.4 3.89%
Programming 261.7 15.52% 18 13.73% 208.4 13.35% 249.9 15.85%
------
Capitalized Labor & O/H (8.4) -6.41% (82.3) -5.27% (36.4) -2.31%
---- ------ ----- ----- ----- ------
Total Technical 386.7 22.93% 4.5 3.43% 275.3 17.63% 365.5 23.18%
----- ------ ---- ------ ----- ----- ----- ------
Production & L/O
Personnel 0.5 0.38% 2.4 0.15% 1.2 0.08%
Other 0.2 0.15% 1.6 0.10% 0.3 0.02%
---- ------ ----- ----- ----- ------
Total Production & L/O 4.7 0.28% 0.7 0.53% 4.0 0.26% 1.5 0.10%
----- ------ ---- ------ ----- ----- ----- ------
Ad Sales
Personnel 2.2 1.68% 34.3 2.20% 21.3 1.35%
Other 1.7 1.30% 17.9 1.15% 12.7 0.81%
---- ------ ----- ----- ----- ------
Total Ad Sales 45.8 2.72% 3.9 2.97% 52.2 3.34% 34.0 2.16%
----- ------ ---- ------ ----- ----- ----- ------
Marketing
Commissions 1.0 0.76% 2.3 0.15% 0.6 0.04%
Other 3.4 2.59% 47.2 3.02% 35.1 2.23%
---- ------ ----- ----- ----- ------
Total Marketing 36.5 2.16% 4.4 3.36% 49.5 3.17% 35.7 2.26%
----- ------ ---- ------ ----- ----- ----- ------
General & Administrative
Personnel 3.4 2.59% 82.6 5.29% 75.6 4.79%
Other 15.4 11.75% 169.0 10.82% 179.6 11.39%
---- ------ ----- ----- ----- ------
Total G & A 289.2 17.15% 18.8 14.34% 251.6 16.11% 255.2 16.18%
----- ------ ---- ------ ----- ----- ----- ------
Total Operating Expense
Before Partnership Exps. 762.9 45.24% 32.3 24.64% 632.6 40.51% 691.9 43.87%
----- ------ ---- ------ ----- ----- ----- ------
Total Oper. Cash Flow
Before Partnership Exps. $923.4 54.76% $98.8 75.36% $928.9 59.49% $885.1 56.13%
====== ====== ===== ====== ====== ====== ====== ======
-84-
91
- --------------------------------------------------------------------------------
Falcon Classic Cable EXHIBIT C9 Operating Cash Flow:
Income Properties Budget & Actual
California City, California
Valuation Date:
December 31,1996
- --------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
Revenues:
Primary / Commercial $377.5 50.17% $31.4 50.48% $364.6 48.40% $367.0 47.28%
Expanded Tier 131.1 17.42% 10.9 17.52% 136.4 18.11% 145.7 18.77%
------ ----- ----- ------ ------ ------ ------ ------
Total Regulated Programming 508.6 67.60% 42.3 68.01% 501.0 66.51% 512.7 66.04%
------ ----- ----- ------ ------ ------ ------ ------
Radio Services 6.0 0.80% 0.5 0.80% 6.4 0.85% 7.7 0.99%
Pay Cable 78.0 10.37% 6.9 11.09% 94.5 12.54% 107.8 13.89%
New Product Tier 66.2 8.80% 5.0 8.04% 51.2 6.80% 40.8 5.26%
Mini-Pay 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00%
Pay Per View 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00%
------ ----- ----- ------ ------ ------ ------ ------
Total Unregulated Programming 150.2 19.96% 12.4 19.94% 152.1 20.19% 156.3 20.13%
------ ----- ----- ------ ------ ------ ------ ------
Remote Control 3.3 0.44% 0.3 0.48% 3.5 0.46% 3.6 0.46%
Converter Rental 50.0 6.65% 4.1 6.59% 54.1 7.18% 55.7 7.18%
Other - VCR 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00%
------ ----- ----- ------ ------ ------ ------ ------
Total Equipment 53.3 7.08% 4.4 7.07% 57.6 7.65% 59.3 7.64%
------ ----- ----- ------ ------ ------ ------ ------
Wire Maintenance Agreements 4.2 0.56% 0.4 0.64% 4.7 0.62% 4.3 0.55%
Installation 18.3 2.43% 1.4 2.25% 16.9 2.24% 24.9 3.21%
------ ----- ----- ------ ------ ------ ------ ------
Total Installation / Service 22.5 2.99% 1.8 2.89% 21.6 2.87% 29.2 3.76%
------ ----- ----- ------ ------ ------ ------ ------
Guide Revenue 1.0 0.13% 0.1 0.16% 0.8 0.11% 0.0 0.00%
Late Charges 8.1 1.08% 0.6 0.96% 8.7 1.15% 7.9 1.02%
Home Shopping 7.1 0.94% 0.5 0.80% 7.1 0.94% 9.9 1.28%
FCC User Fee Pass Thru 1.0 0.13% 0.1 0.16% 1.0 0.13% 1.0 0.13%
Franchise Pass Thru 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00%
Miscellaneous / Rent 0.6 0.08% 0.0 0.00% 3.4 0.45% 0.0 0.00%
------ ----- ----- ------ ------ ------ ------ ------
Total Non-Service / Misc. 17.8 2.37% 1.3 2.09% 21.0 2.79% 18.8 2.42%
------ ----- ----- ------ ------ ------ ------ ------
Advertising 0.0 0.00% 0.0 0.00% 0.0 0.00% 0.0 0.00%
Total Revenues 752.4 100.00% 62.2 100.00% 753.3 100.00% 776.3 100.00%
------ ------ ----- ------ ------ ------ ------ -------
-85-
92
- ------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties EXHIBIT C10 Operating Cash Flow: Budget & Actual
California City, California Valuation Date: December 31, 1996
- ------------------------------------------------------------------------------------------------------------
1997 Budget Dec Mo 1996 Actual 1996 Actual 1995 Actual
--------------------- -------------------- -------------------- ------------------
($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev. ($000s) % to Rev.
------- --------- ------- --------- ------- --------- ------- ---------
Operating Expenses:
Technical
Personnel 52.9 7.03% 1.1 1.77% 15.1 2.00% 17.5 2.25%
Other 5.6 9.00% 72.9 9.68% 73.7 9.49%
Programming 178.5 23.72% 11.2 18.01% 145.9 19.37% 177.1 22.81%
-----
Capitalized Labor & O/H (1.1) -1.77% (15.0) -1.99% (18.5) -2.38%
----- ----- ------ ----- ------ -----
Total Technical 231.4 30.75% 16.8 27.01% 218.9 29.06% 249.8 32.18%
------ ----- ----- ----- ------ ----- ------ -----
Production & L/O
Personnel 0 0.00% 0.1 0.01% 0.0 0.00%
Other 0 0.00% 0.0 0.00% 0.0 0.00%
----- ----- ------ ----- ------ -----
Total Production & L/O 0.0 0.00% 0 0.00% 0.1 0.01% 0.0 0.00%
------ ----- ----- ----- ------ ----- ------ -----
Ad Sales
Personnel 0 0.00% 0.0 0.00% 0.0 0.00%
Other 0 0.00% 0.0 0.00% 0.0 0.00%
----- ----- ------ ----- ------ -----
Total Ad Sales 0.0 0.00% 0 0.00% 0.0 0.00% 0.0 0.00%
------ ----- ----- ----- ------ ----- ------ -----
Marketing
Commissions 0.0 0.00% 0.0 0.00% 0.0 0.00%
Other 0.6 0.96% 6.2 0.82% 11.7 1.51%
----- ----- ------ ----- ------ -----
Total Marketing 16.1 2.14% 0.6 0.96% 6.2 0.82% 11.7 1.51%
------ ----- ----- ----- ------ ----- ------ -----
General & Administrative
Personnel 1.0 1.61% 7.3 0.97% 11.3 1.46%
Other 6.6 10.61% 85.8 11.39% 90.1 11.61%
----- ----- ------ ----- ------ -----
Total G & A 102.0 13.56% 7.6 12.22% 93.1 12.36% 101.4 13.06%
------ ----- ----- ----- ------ ----- ------ -----
Total Operating Expense
Before Partnership Exps. 349.5 46.45% 25.0 40.19% 318.3 42.25% 362.9 46.75%
------ ----- ----- ----- ------ ----- ------ -----
Total Oper. Cash Flow
Before Partnership Exps. $402.9 53.55% $37.2 59.81% $435.0 57.75% $413.4 53.25%
====== ===== ===== ===== ====== ===== ====== =====
-86-
93
EXHIBIT D
REGION AND SYSTEM CASH FLOW PROJECTION ASSUMPTIONS
94
EXHIBIT D
REGION AND SYSTEM CASH FLOW PROJECTION ASSUMPTIONS
BEGINNING DECEMBER 31, 1996
INTRODUCTION
A cash flow projection has been developed for each Region and System. These
projections are shown in Exhibit E.
HOMES PASSED
Homes passed are based upon current passings and projection of growth provided
by CACI and operational management (see Tables 2A-2E). Accordingly, households
are projected to grow at the following annual rates during the projection
period.
Years 1-5 Years 6-10
Operating Annual Annual
Area Growth Rate Growth Rate
---- ----------- -----------
Burke County 1.0% 0.5%
Centreville 2.0% 1.0%
Somerset 3.0% 1.5%
Redmond 3.8% 1.9%
California City 3.0% 1.5%
EBU PENETRATION
Current penetrations are shown below. The national average basic penetration
is 68.3%. Penetration is increased as shown in the table below. This growth
considers the relatively poor off-air reception in certain of the areas and
increased System channel offerings after projected rebuilds.
Operating Current Projected Projected
Area Penetration Year 1 Penetration Year 10 Penetration
---- ----------- ------------------ -------------------
Burke County 55.5% 55.4% 60.0%
Centreville 52.8% 53.8% 65.0%
Somerset 88.3% 89.0% 90.0%
Redmond 50.7% 50.0% 52.5%
California City 68.6% 69.0% 73.5%
EBU's
This is the product of homes passed times EBU penetration.
AVERAGE EBU REVENUE
Tables 3A-3E analyze regional and system revenues for 1995, 1996 and projected
1997. This analysis provides a baseline for the projections. The first page
of Exhibit E shows the revenue projection assumptions by service. Many of
these assumptions are compared to projections prepared by Paul Kagan
Associates, Inc. and published in The Cable TV Financial Databook (1996).
Revenues for digital and telephony services have not been
-88-
95
EXHIBIT D (Continued)
projected as they were too speculative, nor was the capex needed to implement
these services forecasted.
TOTAL REVENUE
This is the product of EBU's times average EBU revenue. Page 2 of Exhibit for
each Region and System details the revenue projections by service.
OPERATING CASH FLOW MARGIN (%)
The operating margin is a function of the average revenue per EBU and the cost
of providing services. The operating performance of each Region and System was
reviewed for prior years and for 1996. The 1996 cash flow margin, after
corporate expense allocation is shown below. Including the corporate expense
allocation reduces the margins by approximately 3.7%. The appraiser
understands that this allocation accounts for the System's use of corporate
legal, finance and tax services. The appraisers believe it is appropriate to
use the lower margin. Kane Reece assumed that the likely buyer would be a
large MSO and the allocated services provided would require approximately an
equivalent reduction in margin.
The following table delineates the 1996 margin, the year one projected margin,
the ultimate margin, and the year achieved.
Ultimate Margin
---------------
Operating 1996 Year One Year
Area Actual Margin Margin % Achieved
- ---- ------------- ------ - --------
Burke County 56.1% 57.3% 55.0% 5
Centreville 47.2% 48.7% 55.0% 8
Somerset 51.6% 52.0% 55.0% 7
Redmond 55.8% 51.1% 55.0% 6
California City 54.0% 54.0% 55.0% 3
Year one margin is based upon appraisers review of the FCCIP management
prepared 1997 budget and adjusted as necessary.
OPERATING CASH FLOW
This is the computational result of Total Revenue times Operating Margin.
CAPITAL EXPENDITURES
Capital expenditures were incorporated into the projections based upon the
appraisers physical inspection of each Region and System, the appraisers
determination of various components of customer and replacement capital, and
the FCCIP management prepared capital expenditure plan.
For modelling purposes, capital expenditures were separated into two
components; rebuild capital and recurring capital. Recurring capital includes
subscriber capital (drops and converters), new build, both fill-in and line
extension capital, pre and post wire of multiple dwelling units, headend
equipment, furniture, vehicles, etc.
The following table outlines the ten year projected capex requirements by
Region and System ($000s).
-89-
96
EXHIBIT D (Continued)
Operating
Area Rebuild Recurring Total
---- ------- --------- -----
Burke County $10,700 $3,227 $13,927
Centreville 9,692 6,127 15,819
Somerset 11,853 2,503 14,356
Redmond 4,985 1,082 6,067
California City 692 633 1,325
NET CASH FLOW
This is the computational result of operating cash flow minus capital
expenditures.
PRESENT VALUE FACTOR
A 15% mid-year convention. The reader is referred to the text for a discussion
of the discount rate.
PRESENT VALUE CASH FLOW
This is the result of multiplying the net cash flow times the present value
factor. The sum of the yearly "present valued" cash flows is shown as an
element of the value indication.
RESIDUAL VALUE
A multiple of eight times year 11 cash flow was used. The reader is referred
to the text for a discussion of the residual multiple.
Taxes, adjusted for an estimated remaining tax basis in the assets
(calculations shown on the next page), are deducted and the after tax proceeds
are then discounted to present value. The discounted residual is then added to
the present value of the annual cash flows to yield the value indication.
-90-
97
EXHIBIT D (Continued)
Burke California
County Centreville Somerset Redmond City
------ ----------- -------- ------- ----------
Estimated Tax Basis for Residual Calculation
Business Enterprise Value $19,960,000 $23,800,000 $33,230,000 $7,770,000 $3,530,000
Unamortized Basis:
Tangible @ 25% life less than 10 yrs 0 0 0 0 0
Amortizable intangibles at 75% 4,985,010 5,944,050 8,299,193 1,940,558 881,618
Capital Expenditures 993,829 1,565,225 1,020,830 634,982 362,902
----------- ----------- ----------- ----------- ----------
Tax Basis 5,978,839 7,509,275 9,320,023 2,575,607 1,244,520
Year 10 "Sales Price" 46,776,571 63,056,287 70,531,280 21,255,607 6,897,117
Percent of "Sales Price" not Taxable 12.8% 11.9% 13.2% 12.1% 18.0%
Net Capital Gains Tax 30.5% 30.8% 30.4% 30.8% 28.7%
=========== =========== =========== =========== ==========
-91-
98
EXHIBIT E
REGION AND SYSTEM CASH FLOW PROJECTIONS
99
- ----------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-1A
Burke, NC CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Rate in Homes Passed 1.0% Thru Yr 5
Homes Passed @ 12/31/96 18,986
Equivalent Billing Units @ 12/31/96 10,546 55.5% EBU's/HP
Pay Units @ 12/31/96 4,614 43.8% Pay Units/EBU's
Operating Margin for 96 Yr. 56.4% After Adj Partnership Expenses & One time payments from programmers.
Operating Margin for 95 Yr. 54.8% After Adj Partnership Expenses
Weighted average discount rate 15.0%
Year 1 2 3 4 5
---- - - - - -
Basic Rev/EBU (now $22.32) $22.91 $23.90 $25.00 $26.10 $27.30
Growth rate 2.6% 4.5% 4.5% 4.5% 4.5%
Kagan Projection $26.04 $27.35 $28.44 $29.58 $30.76
Growth rate 12.9% 5.0% 4.0% 4.0% 4.0%
Pay Rev/Pay Unit (now $7.66) $7.51 $7.51 $7.51 $7.51 $7.51
Growth rate -1.9% 0% 0% 0% 0%
Kagan Projection* $8.15 $8.03 $7.93 $7.82 $7.73
Growth rate -1.5% -1.5% -1.2% -1.4% -1.2%
New Product Tier (now $7.74) $8.52 $9.37 $10.07 $10.58 $11.11
Growth rate 23.1% 10.0% 7.5% 5.0% 5.0%
Mini-Pay/EBU (now $0.07) $0.07 $0.09 $0.12 $0.14 $0.18
Growth rate 0.0% 25.0% 25.0% 25.0% 25.0%
Pay-Per-View Rev/EBU (now $0.81) $1.01 $1.22 $1.40 $1.61 $1.85
Growth rate 25.2% 20.0% 15.0% 15.0% 15.0%
Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01
Growth rate 22.0% 36.5% 25.7% 29.9% 21.8%
Equipment/EBU (now$3.67) $3.68 $3.79 $3.91 $4.02 $4.15
Growth rate 0.3% 3% 3% 3% 3%
Advertising/EBU (now $1.06) $1.20 $1.44 $1.73 $2.08 $2.39
Growth rate 13.5% 20.0% 20.0% 20.0% 15.0%
Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08
Growth rate 14.0% 12.0% 11.2% 10.4% 12.0%
Home Shopping/EBU (now $0.29) $0.31 $0.37 $0.45 $0.54 $0.62
Growth rate 6.9% 20% 20% 20% 15%
Install/Service/EBU (now $.68) $0.74 $0.78 $0.82 $0.86 $0.90
Growth rate 8.8% 5% 5% 5% 5%
Wire Maint. Agreement/EBU (now $0.54) $0.54 $0.56 $0.57 $0.59 $0.61
Growth rate 0.0% 3.0% 3.0% 3.0% 3.0%
Late Fees, Radio & Other/EBU (now $0.95) $0.96 $1.01 $1.06 $1.11 $1.17
growth rate 1.1% 5.0% 5.0% 5.0% 5.0%
Pay-to-EBU (now 43.9%) 40.7% 41.0% 41.5% 42.0% 43.0%
Kagan Projection* 79.7% 81.2% 81.9% 82.4% 82.8%
Total Annual EBU Rev $516.15 $547.34 $578.89 $609.42 $641.94
monthly (now $40.90) $43.01 $45.61 $48.24 $50.78 $53.50
Compound growth 5.3%
Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62
Compound growth 4.8%
Growth Rate in Homes Passed 1.0% Thru Yr 5
Homes Passed @ 12/31/96 18,986
Equivalent Billing Units @ 12/31/96 10,546 55.5% EBU's/HP
Pay Units @ 12/31/96 4,614 43.8% Pay Units/EBU's
Operating Margin for 96 Yr. 56.4% After Adj Partnership Expenses & One time payments from programmers.
Operating Margin for 95 Yr. 54.8% After Adj Partnership Expenses
Weighted average discount rate 15.0%
Year 6 7 8 9 10
---- - - - - --
Basic Rev/EBU (now $22.32) $28.50 $29.80 $31.10 $32.50 $34.00
Growth rate 4.5% 4.5% 4.5% 4.5% 4.5%
Kagan Projection $31.99 $33.27 $34.60 $35.99 n/a
Growth rate 4.0% 4.0% 4.0% 4.0%
Pay Rev/Pay Unit (now $7.66) $7.51 $7.51 $7.51 $7.51 $7.51
Growth rate 0% 0% 0% 0% 0%
Kagan Projection* $7.63 $7.54 $7.45 $7.35 n/a
Growth rate -1.3% -1.2% -1.2% -1.3%
New Product Tier (now $7.74) $11.66 $12.25 $12.86 $13.50 $14.18
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Mini-Pay/EBU (now $0.07) $0.23 $0.28 $0.35 $0.44 $0.55
Growth rate 25.0% 25.0% 25.0% 25.0% 25.0%
Pay-Per-View Rev/EBU (now $0.81) $2.04 $2.24 $2.46 $2.71 $2.98
Growth rate 10.0% 10.0% 10.0% 10.0% 10.0%
Kagan Projection $2.36 $2.81 $3.25 $3.66 n/a
Growth rate 17.4% 19.1% 15.7% 12.6%
Equipment/EBU (now $3.67) $4.27 $4.40 $4.53 $4.67 $4.81
Growth rate 3% 3% 3% 3% 3%
Advertising/EBU (now $1.06) $2.75 $3.02 $3.33 $3.66 $4.02
Growth rate 15.0% 10.0% 10.0% 10.0% 10.0%
Kagan Projection $3.47 $3.87 $4.28 $4.69 n/a
Growth rate 12.7% 11.5% 10.6% 9.6%
Home Shopping/EBU (now $0.29) $0.71 $0.81 $0.94 $1.08 $1.24
Growth rate 15% 15% 15% 15% 15%
Install/Service/EBU (now $.68) $0.94 $0.99 $1.04 $1.09 $1.15
Growth rate 5% 5% 5% 5% 5%
Wire Maint. Agreement/EBU (now $0.54) $0.63 $0.64 $0.66 $0.68 $0.70
Growth rate 3.0% 3.0% 3.0% 3.0% 3.0%
Late Fees, Radio & Other/EBU (now $0.95) $1.23 $1.29 $1.35 $1.42 $1.49
growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Pay-to-EBU (now 43.9%) 44.0% 45.0% 46.0% 47.0% 48.0%
Kagan Projection* 83.0% 83.2% 83.1% 83.1% n/a
Total Annual EBU Rev $675.03 $709.29 $744.95 $783.36 $824.70
monthly (now $40.90) $56.25 $59.11 $62.08 $65.28 $68.73
Compound growth
Kagan Projection $42.60 $44.74 $46.91 $49.15
Compound growth 4.8%
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category.
-93-
100
- ------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-1b
Burke, NC CATV SYSTEM VALUATION MODEL
- ------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5
---- ---------- ----------- ----------- ----------- -----------
Homes Passed 19,046 19,237 19,429 19,623 19,820
EBU Penetration 55.4% 56.0% 56.0% 57.0% 58.0%
Kagan Penetration Projection 68.5% 67.7% 66.6% 65.5% 64.4%
Equivalent Billing Units 10,552 10,773 10,880 11,185 11,495
Basic Revenue/EBU $22.91 $23.90 $25.00 $26.10 $27.30
Basic Revenue 2,900,929 3,089,579 3,264,095 3,503,253 3,765,895
---------- ---------- ---------- ---------- -----------
Pay-to-Basic Ratio 40.7% 42.0% 43.0% 44.0% 45.0%
Pay Units 4,295 4,524 4,679 4,922 5,173
Pay Revenue/Pay Unit $7.51 $7.51 $7.51 $7.51 $7.51
Pay Revenue 387,234 407,970 421,860 443,773 466,439
---------- ---------- ---------- ---------- -----------
New Product Tier/EBU $8.52 $9.37 $10.07 $10.58 $11.11
New Product Tier Revenue 1,078,801 1,211,529 1,315,417 1,419,911 1,532,233
---------- ---------- ---------- ---------- -----------
Mini-Pay Revenue/EBU $0.07 $0.09 $0.12 $0.14 $0.18
Mini-Pay Revenue/EBU 9,370 11,958 15,096 19,400 24,922
---------- ---------- ---------- ---------- -----------
Pay-Per-View Revenue/EBU $1.01 $1.22 $1.40 $1.61 $1.85
Pay-Per-View Revenue 128,393 157,297 182,701 215,996 255,281
---------- ---------- ---------- ---------- -----------
Equipment Revenue/ EBU $3.68 $3.79 $3.91 $4.02 $4.15
Equipment Revenue 466,316 490,362 510,124 540,158 571,785
---------- ---------- ---------- ---------- -----------
Advertising Revenue/EBU $1.20 $1.44 $1.73 $2.08 $2.39
Advertising Revenue/EBU 152,286 186,569 226,122 278,954 329,689
---------- ---------- ---------- ---------- -----------
Home Shopping/EBU $0.31 $0.37 $0.45 $0.54 $0.62
Home Shopping Revenue 39,252 48,089 58,284 71,901 84,978
---------- ---------- ---------- ---------- -----------
Installation Revenue/EBU $0.74 $0.78 $0.82 $0.86 $0.90
Installation Revenue 93,699 100,444 106,520 114,982 124,078
---------- ---------- ---------- ---------- -----------
Franchise Fee Pass-thru Revenue/EBU $0.54 $0.56 $0.57 $0.59 $0.61
Franchise Fee Pass-thru Revenue 68,375 71,901 74,798 79,202 83,839
---------- ---------- ---------- ---------- -----------
Late Fees & Other Revenue/EBU $0.96 $1.01 $1.06 $1.11 $1.17
Late Fees & Other Revenue 121,555 130,305 138,189 149,166 160,966
---------- ---------- ---------- ---------- -----------
Total Revenue $5,446,208 $5,906,002 $6,313,206 $6,836,696 $7,400,105
========== ========== ========== ========== ===========
Year 6 7 8 9 10
---- ---------- ---------- ---------- ---------- -----------
Homes Passed 19,919 20,018 20,118 20,219 20,320
EBU Penetration 59.0% 60.0% 60.0% 60.0% 60.0%
Kagan Penetration Projection 63.4% 62.3% 61.6% 60.9%
Equivalent Billing Units 11,752 12,011 12,071 12,131 12,192
Basic Revenue/EBU $28.50 $29.80 $31.10 $32.50 $34.00
Basic Revenue 4,019,208 4,295,139 4,504,923 4,731,255 4,974,369
---------- ---------- ---------- ---------- -----------
Pay-to-Basic Ratio 46.0% 47.0% 48.0% 49.0% 50.0%
Pay Units 5,406 5,645 5,794 5,944 6,096
Pay Revenue/Pay Unit $7.51 $7.51 $7.51 $7.51 $7.51
Pay Revenue 487,450 509,021 522,451 536,002 549,675
---------- ---------- ---------- ---------- -----------
New Product Tier/EBU $11.66 $12.25 $12.86 $13.50 $14.18
New Product Tier Revenue 1,644,767 1,765,057 1,862,577 1,965,484 2,074,077
---------- ---------- ---------- ---------- -----------
Mini-Pay Revenue/EBU $0.23 $0.28 $0.35 $0.44 $0.55
Mini-Pay Revenue/EBU 31,848 40,687 51,113 64,210 80,664
---------- ---------- ---------- ---------- -----------
Pay-Per-View Revenue/EBU $2.04 $2.24 $2.46 $2.71 $2.98
Pay-Per-View Revenue 287,079 322,745 356,794 394,436 436,049
---------- ---------- ---------- ---------- -----------
Equipment Revenue/ EBU $4.27 $4.40 $4.53 $4.67 $4.81
Equipment Revenue 602,088 633,815 656,093 679,155 703,027
---------- ---------- ---------- ---------- -----------
Advertising Revenue/EBU $2.75 $3.02 $3.33 $3.66 $4.02
Advertising Revenue/EBU 387,608 435,763 481,736 532,559 588,744
---------- ---------- ---------- ---------- -----------
Home Shopping/EBU $0.71 $0.81 $0.94 $1.08 $1.24
Home Shopping Revenue 99,907 117,425 135,714 156,851 181,281
---------- ---------- ---------- ---------- -----------
Installation Revenue/EBU $0.94 $0.99 $1.04 $1.09 $1.15
Installation Revenue 133,191 142,932 150,829 159,162 167,956
---------- ---------- ---------- ---------- -----------
Franchise Fee Pass-thru Revenue/EBU $0.63 $0.64 $0.66 $0.68 $0.70
Franchise Fee Pass-thru Revenue 88,283 92,935 96,201 99,583 103,083
---------- ---------- ---------- ---------- -----------
Late Fees & Other Revenue/EBU $1.23 $1.29 $1.35 $1.42 $1.49
Late Fees & Other Revenue 172,788 185,425 195,670 206,480 217,888
---------- ---------- ---------- ---------- -----------
Total Revenue $7,954,215 $8,540,942 $9,014,100 $9,525,178 $10,076,814
========== ========== ========== ========== ===========
-94-
101
- ------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-1c
Burke, NC CATV SYSTEM VALUATION MODEL
- ------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5
---- ---------- ---------- ---------- ---------- ----------
Total Revenue $5,446,208 $5,906,002 $6,313,206 $6,836,696 $7,400,105
Margin % to Revenue 57.3% 56.5% 56.0% 55.5% 55.0%
Operating Cash Flow 3,120,677 3,336,891 3,535,395 3,794,366 4,070,058
Captal Expenditures:
- Rebuild/Extensions 423,000 2,857,000 2,971,000 4,199,000 66,000
- Recurring 713,000 292,000 278,000 288,000 293,000
---------- ---------- ---------- ---------- ----------
Total 1,136,000 3,149,000 3,249,000 4,487,000 359,000
---------- ---------- ---------- ---------- ----------
Net Cash Flow 1,984,677 187,891 286,395 (692,634) 3,711,058
Present Value Factor @ 15.0% 0.93250 0.81087 0.70511 0.61314 0.53316
PV Net Cash Flow 1,850,721 152,356 201,940 (424,679) 1,978,597
---------- ---------- ---------- ---------- ----------
Year 6 7 8 9 10
---- ---------- ---------- ---------- ---------- -----------
Total Revenue $7,954,215 $8,540,942 $9,014,100 $9,525,178 $10,076,814
Margin % to Revenue 55.0% 55.0% 55.0% 55.0% 55.0%
Operating Cash Flow 4,374,818 4,697,518 4,957,755 5,238,848 5,238,848
Captal Expenditures:
- Rebuild/Extensions 34,000 36,000 37,000 38,000 39,000
- Recurring 288,000 292,000 259,000 261,000 263,000
---------- ---------- ---------- ---------- -----------
Total 322,000 328,000 296,000 299,000 302,000
---------- ---------- ---------- ---------- -----------
0
Net Cash Flow 4,052,818 4,369,518 4,661,755 4,939,848 5,240,248
Present Value Factor @ 15.0% 0.46362 0.40315 0.35056 0.30484 0.26508
PV Net Cash Flow 1,878,966 1,761,561 1,634,239 1,505,851 1,389,064
---------- ---------- ---------- ---------- -----------
Present Value of Net Cash Flows $11,928,616 Residual Value
Present Value of Residual 8,032,852 ---------------
----------- 8x's Yr 11 Operating Cash Flow $46,776,571
Value Indication under Income Approach $19,961,467 Less: Taxes 30.5% 14,279,206
----------- -----------
Value Indication (Rounded) $19,960,000 After Tax Proceeds (end of year 10) 32,497,365
----------- -----------
Value Indication/EBU $1,893 Present Value @ 15.0% $ 8,032,852
------ -----------
Cash Flow Multiple - Projected 6.4
---
-95-
102
- ------------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-2a
Centreville, MD CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1996
- ------------------------------------------------------------------------------------------------------------------------------------
Growth Rate in Homes Passed 2.0% Thru Yr 5
Homes Passed @ 12/31/96 23,857
Equivalent Billing Units @ 12/31/96 12,593 52.8% EBU's/HP
Pay Units @ 12/31/96 7,440 59.1% Pay Units/EBU's
Operating Margin for 96 Yr. 47.2% After Adj Partnership Expenses
Operating Margin for 95 Yr. 40.8% After Adj Partnership Expenses
Weighted average discount rate 15.0%
Year 1 2 3 4 5
- - - - -
Basic Rev/EBU (now $23.18) $24.04 $25.10 $26.20 $27.40 $28.60
Growth rate 3.7% 4.5% 4.5% 4.5% 4.5%
Kagan Projection $26.04 $27.35 $28.44 $29.58 $30.76
Growth rate 12.9% 5.0% 4.0% 4.0% 4.0%
Pay Rev/Pay Unit (now $8.50) $9.04 $9.04 $9.04 $9.04 $9.04
Growth rate 6.4% 0% 0% 0% 0%
Kagan Projection* $8.15 $8.03 $7.93 $7.82 $7.73
Growth rate -1.5% -1.5% -1.2% -1.4% -1.2%
New Product Tier (now $4.97) $5.11 $5.37 $5.63 $5.92 $6.21
Growth rate 2.8% 5.0% 5.0% 5.0% 5.0%
Video Games & Activation/EBU (now $0.28) $0.28 $0.35 $0.44 $0.55 $0.68
Growth rate 0.0% 25.0% 25.0% 25.0% 25.0%
Pay-Per-View Rev/EBU (now $0.00) $0.00 $0.00 $0.02 $0.50 $1.00
Growth rate 0.0% 0.0% n/a 2400.0% 100.0%
Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01
Growth rate 22.0% 36.5% 25.7% 29.9% 21.8%
Equipment/EBU (now$0.32) $0.33 $0.34 $0.35 $1.05 $1.72
Growth rate 3.1% 3% 3% 3% 3%
Advertising/EBU (now $0.83) $0.89 $1.07 $1.28 $1.54 $1.77
Growth rate 7.2% 20.0% 20.0% 20.0% 15.0%
Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08
Growth rate 14.0% 12.0% 11.2% 10.4% 12.0%
Home Shopping/EBU (now $0.46) $0.36 $0.43 $0.52 $0.62 $0.72
Growth rate -21.7% 20% 20% 20% 15%
Install/Service/EBU (now $0.37) $0.38 $0.40 $0.42 $0.44 $0.46
Growth rate 2.7% 5% 5% 5% 5%
Wire Maint. Agreement/EBU (now $0.27) $0.28 $0.29 $0.30 $0.31 $0.32
Growth rate 3.7% 3.0% 3.0% 3.0% 3.0%
Late Fees, Radio & Other/EBU (now $1.53) $1.72 $1.81 $1.90 $1.99 $2.09
growth rate 12.4% 5.0% 5.0% 5.0% 5.0%
Pay-to-EBU (now 59.1%) 60.0% 60.0% 60.0% 60.0% 60.0%
Kagan Projection* 79.7% 81.2% 81.9% 82.4% 82.8%
Total Annual EBU Rev $465.77 $486.87 $509.73 $540.53 $571.70
monthly (now $37.22) $38.81 $40.57 $42.48 $45.04 $47.64
Compound growth 5.4%
Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62
Compound growth 4.8%
Year 6 7 8 9 10
- - - - --
Basic Rev/EBU (now $23.18) $29.90 $31.20 $32.60 $34.10 $35.60
Growth rate 4.5% 4.5% 4.5% 4.5% 4.5%
Kagan Projection $31.99 $33.27 $34.60 $35.99 n/a
Growth rate 4.0% 4.0% 4.0% 4.0%
Pay Rev/Pay Unit (now $8.50) $9.04 $9.04 $9.04 $9.04 $9.04
Growth rate 0% 0% 0% 0% 0%
Kagan Projection* $7.63 $7.54 $7.45 $7.35 n/a
Growth rate -1.3% -1.2% -1.2% -1.3%
New Product Tier (now $4.97) $6.52 $6.85 $7.19 $7.55 $7.93
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Video Games & Activation/EBU (now $0.28) $0.85 $1.07 $1.34 $1.67 $2.09
Growth rate 25.0% 25.0% 25.0% 25.0% 25.0%
Pay-Per-View Rev/EBU (now $0.00) $1.50 $1.88 $2.16 $2.37 $2.61
Growth rate 50.0% 25.0% 15.0% 10.0% 10.0%
Kagan Projection $2.36 $2.81 $3.25 $3.66 n/a
Growth rate 17.4% 19.1% 15.7% 12.6%
Equipment/EBU (now$0.32) $3.04 $3.02 $3.00 $3.06 $3.13
Growth rate 3% 3% 3% 3% 3%
Advertising/EBU (now $0.83) $2.03 $2.24 $2.46 $2.71 $2.98
Growth rate 15.0% 10.0% 10.0% 10.0% 10.0%
Kagan Projection $3.47 $3.87 $4.28 $4.69 n/a
Growth rate 12.7% 11.5% 10.6% 9.6%
Home Shopping/EBU (now $0.46) $0.82 $0.95 $1.09 $1.25 $1.44
Growth rate 15% 15% 15% 15% 15%
Install/Service/EBU (now $0.37) $0.48 $0.51 $0.53 $0.56 $0.59
Growth rate 5% 5% 5% 5% 5%
Wire Maint. Agreement/EBU (now $0.27) $0.32 $0.33 $0.34 $0.35 $0.37
Growth rate 3.0% 3.0% 3.0% 3.0% 3.0%
Late Fees, Radio & Other/EBU (now $1.53) $2.20 $2.30 $2.42 $2.54 $2.67
growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Pay-to-EBU (now 59.1%) 60.0% 60.0% 60.0% 60.0% 60.0%
Kagan Projection* 83.0% 83.2% 83.1% 83.1% n/a
Total Annual EBU Rev $605.33 $637.69 $671.52 $707.38 $745.40
monthly (now $37.22) $50.44 $53.14 $55.96 $58.95 $62.12
Compound growth
Kagan Projection $42.60 $44.74 $46.91 $49.15
Compound growth
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category.
-96-
103
- ----------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-2b
Centreville, MD CATV SYSTEM VALUATION MODEL
- ----------------------------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5
---- - - - - -
Homes Passed 23,953 24,432 24,920 25,419 25,927
EBU Penetration 53.8% 56.0% 56.0% 57.0% 59.0%
Kagan Penetration Projection 68.5% 67.7% 66.6% 65.5% 64.4%
Equivalent Billing Units 12,896 13,682 13,955 14,489 15,297
Basic Revenue/EBU $24.04 $25.10 $26.20 $27.40 $28.60
Basic Revenue 3,720,238 4,120,965 4,387,596 4,763,903 5,249,957
---------- ---------- ---------- --------- ----------
Pay-to-Basic Ratio 60.0% 42.0% 43.0% 44.0% 45.0%
Pay Units 7,738 5,746 6,001 6,375 6,884
Pay Revenue/Pay Unit $9.04 $9.04 $9.04 $9.04 $9.04
Pay Revenue 839,375 623,366 650,972 691,566 746,742
---------- ---------- ---------- --------- ----------
New Product Tier/EBU $5.11 $5.37 $5.63 $5.92 $6.21
New Product Tier Revenue 790,783 880,918 943,463 1,028,493 1,140,165
---------- ---------- ---------- --------- ----------
Mini-Pay Revenue/EBU $0.28 $0.35 $0.44 $0.55 $0.68
Mini-Pay Revenue/EBU 43,331 57,464 73,266 95,082 125,484
---------- ---------- ---------- --------- ----------
Pay-Per-View Revenue/EBU $0.00 $0.00 $0.02 $0.50 $1.00
Pay-Per-View Revenue 0 0 3,349 86,933 183,565
---------- ---------- ---------- --------- ----------
Equipment Revenue/ EBU $0.33 $0.34 $0.35 $1.05 $1.72
Equipment Revenue 51,068 55,805 58,629 182,696 315,379
---------- ---------- ---------- --------- ----------
Advertising Revenue/EBU $0.89 $1.07 $1.28 $1.54 $1.77
Advertising Revenue/EBU 137,729 175,346 214,624 267,391 324,654
---------- ---------- ---------- --------- ----------
Home Shopping/EBU $0.36 $0.43 $0.52 $0.62 $0.72
Home Shopping Revenue 55,711 70,927 86,814 108,158 131,321
---------- ---------- ---------- --------- ----------
Installation Revenue/EBU $0.38 $0.40 $0.42 $0.44 $0.46
Installation Revenue 58,806 65,509 70,160 76,483 84,787
---------- ---------- ---------- --------- ----------
Franchise Fee Pass-thru Revenue/EBU $0.28 $0.29 $0.30 $0.31 $0.32
Franchise Fee Pass-thru Revenue 43,331 47,350 49,746 53,196 57,849
---------- ---------- ---------- --------- ----------
Late Fees & Other Revenue/EBU $1.72 $1.81 $1.90 $1.99 $2.09
Late Fees & Other Revenue 266,173 296,512 317,565 346,185 383,774
---------- ---------- ---------- --------- ----------
Total Revenue $6,006,544 $6,394,161 $6,856,184 $7,700,085 $8,743,677
---------- ---------- ---------- --------- ----------
Year 6 7 8 9 10
---- - - - - --
Homes Passed 26,187 26,448 26,713 26,980 27,250
EBU Penetration 61.0% 63.0% 65.0% 65.0% 65.0%
Kagan Penetration Projection 63.4% 62.3% 61.6% 60.9%
Equivalent Billing Units 15,974 16,662 17,363 17,537 17,712
Basic Revenue/EBU $29.90 $31.20 $32.60 $34.10 $35.60
Basic Revenue 5,731,391 6,238,434 6,792,548 7,176,140 7,566,724
---------- ----------- ----------- ----------- -----------
Pay-to-Basic Ratio 46.0% 47.0% 48.0% 49.0% 50.0%
Pay Units 7,348 7,831 8,334 8,593 8,856
Pay Revenue/Pay Unit $9.04 $9.04 $9.04 $9.04 $9.04
Pay Revenue 797,104 849,547 904,117 932,183 960,719
---------- ----------- ----------- ----------- -----------
New Product Tier/EBU $6.52 $6.85 $7.19 $7.55 $7.93
New Product Tier Revenue 1,250,133 1,369,234 1,498,170 1,588,809 1,684,932
---------- ----------- ----------- ----------- -----------
Mini-Pay Revenue/EBU $0.85 $1.07 $1.34 $1.67 $2.09
Mini-Pay Revenue/EBU 163,794 213,569 278,191 351,216 443,411
---------- ----------- ----------- ----------- -----------
Pay-Per-View Revenue/EBU $1.50 $1.88 $2.16 $2.37 $2.61
Pay-Per-View Revenue 287,528 374,906 449,277 499,147 554,552
---------- ----------- ----------- ----------- -----------
Equipment Revenue/ EBU $3.04 $3.02 $3.00 $3.06 $3.13
Equipment Revenue 582,563 603,297 624,809 644,424 664,663
---------- ----------- ----------- ----------- -----------
Advertising Revenue/EBU $2.03 $2.24 $2.46 $2.71 $2.98
Advertising Revenue/EBU 389,869 447,345 512,779 569,697 632,933
---------- ----------- ----------- ----------- -----------
Home Shopping/EBU $0.82 $0.95 $1.09 $1.25 $1.44
Home Shopping Revenue 157,700 189,174 226,701 263,313 305,838
---------- ----------- ----------- ----------- -----------
Installation Revenue/EBU $0.48 $0.51 $0.53 $0.56 $0.59
Installation Revenue 92,965 101,822 111,410 118,150 125,298
---------- ----------- ----------- ----------- -----------
Franchise Fee Pass-thru Revenue/EBU $0.32 $0.33 $0.34 $0.35 $0.37
Franchise Fee Pass-thru Revenue 62,220 66,850 71,752 74,644 77,652
---------- ----------- ----------- ----------- -----------
Late Fees & Other Revenue/EBU $2.20 $2.30 $2.42 $2.54 $2.67
Late Fees & Other Revenue 420,788 460,877 504,276 534,785 567,140
---------- ----------- ----------- ----------- -----------
Total Revenue $9,936,056 $10,915,054 $11,974,031 $12,752,508 $13,583,862
---------- ----------- ----------- ----------- -----------
-97-
104
- -----------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties, L.P. KANE REECE ASSOCIATES, INC. Exhibit E-2c
Centreville, MD CATV SYSTEM VALUATION MODEL
- -----------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5
---- -- -- -- -- --
Total Revenue $6,006,544 $6,394,161 $6,856,184 $7,700,085 $8,743,677
Margin % to Revenue 48.7% 49.0% 50.0% 51.0% 52.0%
Operating Cash Flow 2,925,187 3,133,139 3,428,092 3,927,043 4,546,712
Captal Expenditures:
- Rebuild/Extensions 1,194,000 4,552,000 3,021,000 183,000 193,000
- Recurring 636,000 303,000 275,000 1,477,000 1,183,000
---------- ---------- ---------- ---------- ----------
Total 1,830,000 4,855,000 3,296,000 1,660,000 1,376,000
========== ========== ========== ========== ==========
Net Cash Flow 1,095,187 (1,721,861) 132,092 2,267,043 3,170,712
Present Value Factor @ 15.0% 0.93250 0.81087 0.70511 0.61314 0.53316
PV Net Cash Flow 1,021,267 (1,396,212) 93,139 1,390,008 1,690,505
========== ========== ========== ========== ==========
Year 6 7 8 9 10
---- -- -- -- -- --
Total Revenue $9,936,056 $10,915,054 $11,974,031 $12,752,508 $13,583,862
Margin % to Revenue 53.0% 54.0% 55.0% 55.0% 55.0%
Operating Cash Flow 5,266,109 5,894,129 6,585,717 7,013,880 7,471,124
Captal Expenditures:
- Rebuild/Extensions 101,000 105,000 110,000 114,000 119,000
- Recurring 523,000 489,000 505,000 365,000 371,000
---------- ---------- ---------- ---------- ----------
Total 624,000 594,000 615,000 479,000 490,000
========== ========== ========== ========== ==========
0
Net Cash Flow 4,642,109 5,300,129 5,970,717 6,534,880 6,981,124
Present Value Factor @ 15.0% 0.46362 0.40315 0.35056 0.30484 0.26508
PV Net Cash Flow 2,152,173 2,136,734 2,093,113 1,992,076 1,850,529
========== ========== ========== ========== ==========
Present Value of Net Cash Flows $13,023,334 Residual Value
Present Value of Residual 10,780,920 ---------------------------------------------------------
----------- 8x's Yr 11 Operating Cash Flow $63,056,287
Value Indication under Income Approach $23,804,253 Less: Taxes 30.8% 19,441,454
----------- -----------
Value Indication (Rounded) $23,800,000 After Tax Proceeds (end of year 10) 43,614,833
=========== ===========
Value Indication/EBU $1,890 Present Value @ 15.0% $10,780,920
====== ===========
Cash Flow Multiple - Proje 8.1
===
-98-
105
- -----------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-3a
Somerset, Kentucky CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Growth Rate in Homes Passed 1.60% Thru Yr 5
Homes Passed @ 12/31/96 22,060
Equivalent Billing Units @ 12/31/96 19,486 88.3% EBU's/HP
Pay Units @ 12/31/96 3,914 20.1% Pay Units/EBU's
Operating Margin for 96 Yr. 51.5% After Adj Partnership Expenses & One-Time Payments from Programmers
Operating Margin for 95 Yr. 49.6% After Adj Partnership Expenses
Weighted average discount rate 15.0%
Year 1 2 3 4 5
---- - - - - -
Basic Rev/EBU (now $21.34) $21.60 $22.60 $23.60 $25.00 $26.10
Growth rate 1.2% 7.0% 7.0% 6.0% 4.5%
Kagan Projection $26.04 $27.35 $28.44 $29.58 $30.76
Growth rate 12.9% 5.0% 4.0% 4.0% 4.0%
Pay Rev/Pay Unit (now $8.43) $8.43 $8.43 $8.43 $8.43 $8.43
Growth rate 0.0% 0.0% 0.0% 0.0% 0.0%
Kagan Projection $8.15 $8.03 $7.93 $7.82 $7.73
Growth rate -1.5% -1.5% -1.2% -1.4% -1.2%
New Product Tier (now $5.12) $5.48 $6.03 $6.63 $7.16 $7.52
Growth rate 7.0% 10.0% 10.0% 8.0% 5.0%
Mini-Pay/EBU (now $0.00) $0.00 $0.05 $0.06 $0.08 $0.10
Growth rate 0.0% 0.0% 25.0% 25.0% 25.0%
Pay-Per-View Rev/EBU (now $0.05) $0.06 $0.25 $0.50 $0.60 $0.69
Growth rate 25.0% 300.0% 100.0% 20.0% 15.0%
Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01
Growth rate 22.0% 36.5% 25.7% 29.9% 21.8%
Equipment/EBU (now$0.49) $0.50 $1.50 $2.50 $2.58 $2.65
Growth rate 3.0% 197.2% 66.7% 3.0% 3.0%
Advertising/EBU (now $1.48) $1.66 $1.86 $2.04 $2.21 $2.38
Growth rate 12.0% 12.0% 10.0% 8.0% 8.0%
Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08
Growth rate 14.0% 12.0% 11.2% 10.4% 12.0%
Home Shopping/EBU (now $0.45) $0.45 $0.47 $0.50 $0.52 $0.55
Growth rate 0.0% 5.0% 5.0% 5.0% 5.0%
Install/Service/EBU (now $0.66) $0.69 $0.73 $0.76 $0.80 $0.84
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Franchise Fee Pass-thru/EBU (now $0.11) $0.11 $0.18 $0.39 $0.63 $0.87
Growth rate n/a n/a n/a n/a n/a
Late Fees & Other/EBU (now $0.96) $1.01 $1.06 $1.11 $1.17 $1.23
growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Pay-to-EBU (now 20.1%) 20.0% 20.0% 20.0% 20.0% 20.0%
Kagan Projection 79.7% 81.2% 81.9% 82.4% 82.8%
Total Annual EBU Rev $399.00 $436.90 $477.42 $509.05 $535.37
monthly (now $32.22) $33.25 $36.41 $39.78 $42.42 $44.61
Compound growth 6.2%
Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62
Compound growth 4.8%
Growth Rate in Homes Passed 1.60% Thru Yr 5
Homes Passed @ 12/31/96 22,060
Equivalent Billing Units @ 12/31/96 19,486 88.3% EBU's/HP
Pay Units @ 12/31/96 3,914 20.1% Pay Units/EBU's
Operating Margin for 96 Yr. 51.5% After Adj Partnership Expenses & One-Time Payments from Programmers
Operating Margin for 95 Yr. 49.6% After Adj Partnership Expenses
Weighted average discount rate 15.0%
Year 6 7 8 9 10
---- - - - - --
Basic Rev/EBU (now $21.34) $27.30 $28.50 $29.80 $31.10 $32.50
Growth rate 4.5% 4.5% 4.5% 4.5% 4.5%
Kagan Projection $31.99 $33.27 $34.60 $35.99 n/a
Growth rate 4.0% 4.0% 4.0% 4.0%
Pay Rev/Pay Unit (now $8.43) $8.43 $8.43 $8.43 $8.43 $8.43
Growth rate 0.0% 0.0% 0.0% 0.0% 0.0%
Kagan Projection $7.63 $7.54 $7.45 $7.35 n/a
Growth rate -1.3% -1.2% -1.2% -1.3%
New Product Tier (now $5.12) $7.89 $8.29 $8.70 $9.14 $9.59
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Mini-Pay/EBU (now $0.00) $0.12 $0.15 $0.19 $0.24 $0.30
Growth rate 25.0% 25.0% 25.0% 25.0% 25.0%
Pay-Per-View Rev/EBU (now $0.05) $0.79 $0.91 $1.00 $1.10 $1.21
Growth rate 15.0% 15.0% 10.0% 10.0% 10.0%
Kagan Projection $2.36 $2.81 $3.25 $3.66 n/a
Growth rate 17.4% 19.1% 15.7% 12.6%
Equipment/ EBU (now$0.49) $2.73 $2.81 $2.90 $2.99 $3.07
Growth rate 3.0% 3.0% 3.0% 3.0% 3.0%
Advertising/EBU (now $1.48) $2.56 $2.75 $2.96 $3.18 $3.42
Growth rate 7.5% 7.5% 7.5% 7.5% 7.5%
Kagan Projection $3.47 $3.87 $4.28 $4.69 n/a
Growth rate 12.7% 11.5% 10.6% 9.6%
Home Shopping/EBU (now $0.45) $0.57 $0.60 $0.63 $0.66 $0.70
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Install/Service/EBU (now $0.66) $0.88 $0.93 $0.98 $1.02 $1.08
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Franchise Fee Pass-thru/EBU (now $0.11) $1.15 $1.44 $1.76 $2.10 $2.20
Growth rate n/a n/a n/a n/a n/a
Late Fees & Other/EBU (now $0.96) $1.29 $1.35 $1.42 $1.49 $1.56
growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Pay-to-EBU (now 20.1%) 20.0% 20.0% 20.0% 20.0% 20.0%
Kagan Projection 83.0% 83.2% 83.1% 83.1% n/a
Total Annual EBU Rev $563.74 $593.13 $624.31 $656.57 $687.95
monthly (now $32.22) $46.98 $49.43 $52.03 $54.71 $57.33
Compound growth
Kagan Projection $42.60 $44.74 $46.91 $49.15
Compound growth 4.8%
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category.
-99-
106
- --------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-3b
Somerset, Kentucky CATV SYSTEM VALUATION MODEL
- --------------------------------------------------------------------------------------------------
Year 1 2 3 4 5
---- - - - - -
Homes Passed 22,236 22,592 22,954 23,321 23,694
EBU Penetration 89.0% 89.5% 90.0% 90.0% 90.0%
Kagan Penetration Projection 68.5% 67.7% 66.6% 65.5% 64.4%
Equivalent Billing Units 19,790 20,220 20,658 20,989 21,325
Basic Revenue/EBU $21.60 $22.60 $23.60 $25.00 $26.10
Basic Revenue 5,129,689 5,483,685 5,850,449 6,296,670 6,678,903
--------- --------- --------- --------- ---------
Pay-to-Basic Ratio 20.0% 20.0% 20.0% 20.0% 20.0%
Pay Units 3,958 4,044 4,132 4,198 4,265
Pay Revenue/Pay Unit $8.43 $8.43 $8.43 $8.43 $8.43
Pay Revenue 400,401 409,093 417,960 424,647 431,442
--------- --------- --------- --------- ---------
New Product Tier/EBU $5.48 $6.03 $6.63 $7.16 $7.52
New Product Tier Revenue 1,301,041 1,462,212 1,643,298 1,803,158 1,923,609
--------- --------- --------- --------- ---------
Mini-Pay Revenue/EBU $0.00 $0.05 $0.06 $0.08 $0.10
Mini-Pay Revenue/EBU 0 12,132 15,494 19,677 24,990
--------- --------- --------- --------- ---------
Pay-Per-View Revenue/EBU $0.06 $0.25 $0.50 $0.60 $0.69
Pay-Per-View Revenue 14,843 60,660 123,950 151,120 176,569
--------- --------- --------- --------- ---------
Equipment Revenue/ EBU $0.50 $1.50 $2.50 $2.58 $2.65
Equipment Revenue 119,859 363,961 619,751 648,557 678,702
--------- --------- --------- --------- ---------
Advertising Revenue/EBU $1.66 $1.86 $2.04 $2.21 $2.38
Advertising Revenue/EBU 393,656 450,466 506,253 555,501 609,541
--------- --------- --------- --------- ---------
Home Shopping/EBU $0.45 $0.47 $0.50 $0.52 $0.55
Home Shopping Revenue 106,869 114,648 122,990 131,205 139,970
--------- --------- --------- --------- ---------
Installation Revenue/EBU $0.69 $0.73 $0.76 $0.80 $0.84
Installation Revenue 164,578 176,558 189,404 202,056 215,553
--------- --------- --------- --------- ---------
Franchise Fee Pass-thru Revenue/EBU $0.11 $0.18 $0.39 $0.63 $0.87
Franchise Fee Pass-thru Revenue 26,123 43,951 97,650 157,897 223,856
--------- --------- --------- --------- ---------
Late Fees & Other Revenue/EBU $1.01 $1.06 $1.11 $1.17 $1.23
Late Fees & Other Revenue 239,385 256,811 275,497 293,900 313,532
--------- --------- --------- --------- ---------
Total Revenue $7,896,444 $8,834,177 $9,862,696 $10,684,390 $11,416,667
========== ========== ========== =========== ===========
Year 6 7 8 9 10
---- - - - - --
Homes Passed 23,884 24,075 24,267 24,461 24,657
EBU Penetration 90.0% 90.0% 90.0% 90.0% 90.0%
Kagan Penetration Projection 63.4% 62.3% 61.6% 60.9%
Equivalent Billing Units 21,495 21,667 21,841 22,015 22,191
Basic Revenue/EBU $27.30 $28.50 $29.80 $31.10 $32.50
Basic Revenue 7,041,867 7,410,211 7,810,206 8,216,127 8,654,673
--------- --------- --------- --------- ---------
Pay-to-Basic Ratio 20.0% 20.0% 20.0% 20.0% 20.0%
Pay Units 4,299 4,333 4,368 4,403 4,438
Pay Revenue/Pay Unit $8.43 $8.43 $8.43 $8.43 $8.43
Pay Revenue 434,893 438,372 441,879 445,414 448,978
--------- --------- --------- --------- ---------
New Product Tier/EBU $7.89 $8.29 $8.70 $9.14 $9.59
New Product Tier Revenue 2,035,948 2,154,847 2,280,690 2,413,882 2,554,853
--------- --------- --------- --------- ---------
Mini-Pay Revenue/EBU $0.12 $0.15 $0.19 $0.24 $0.30
Mini-Pay Revenue/EBU 31,487 39,674 49,989 62,986 79,363
Pay-Per-View Revenue/EBU $0.79 $0.91 $1.00 $1.10 $1.21
Pay-Per-View Revenue 204,678 237,263 263,077 291,700 323,437
--------- --------- --------- --------- ---------
Equipment Revenue/ EBU $2.73 $2.81 $2.90 $2.99 $3.07
Equipment Revenue 704,655 731,602 759,578 788,624 818,781
--------- --------- --------- --------- ---------
Advertising Revenue/EBU $2.56 $2.75 $2.96 $3.18 $3.42
Advertising Revenue/EBU 660,498 715,716 775,550 840,386 910,642
--------- --------- --------- --------- ---------
Home Shopping/EBU $0.57 $0.60 $0.63 $0.66 $0.70
Home Shopping Revenue 148,144 156,796 165,953 175,644 185,902
--------- --------- --------- --------- ---------
Installation Revenue/EBU $0.88 $0.93 $0.98 $1.02 $1.08
Installation Revenue 228,142 241,465 255,567 270,492 286,289
--------- --------- --------- --------- ---------
Franchise Fee Pass-thru Revenue/EBU $1.15 $1.44 $1.76 $2.10 $2.20
Franchise Fee Pass-thru Revenue 295,554 374,315 461,098 555,948 587,173
--------- --------- --------- --------- ---------
Late Fees & Other Revenue/EBU $1.29 $1.35 $1.42 $1.49 $1.56
Late Fees & Other Revenue 331,843 351,222 371,734 393,443 416,420
--------- --------- --------- --------- ---------
Total Revenue $12,117,710 $12,851,483 $13,635,321 $14,454,647 $15,266,511
=========== =========== =========== =========== ===========
-100-
107
- ----------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-3c
Somerset, Kentucky CATV SYSTEM VALUATION MODEL
- ----------------------------------------------------------------------------------------------
Year 1 2 3 4 5
---- - - - - -
Total Revenue $7,896,444 $8,834,177 $9,862,696 $10,684,390 $11,416,667
Margin % to Revenue 52.0% 52.5% 53.0% 53.5% 54.0%
Operating Cash Flow 4,106,151 4,637,943 5,227,229 5,716,148 6,165,000
Capital Expenditures:
- Rebuild/Extensions 2,312,000 2,025,000 6,525,000 148,000 155,000
- Recurring 226,000 264,000 275,000 256,000 266,000
---------- ---------- ----------- ---------- ----------
Total 2,538,000 2,289,000 6,800,000 404,000 421,000
========== ========== =========== ========== ==========
Net Cash Flow 1,568,151 2,348,943 (1,572,771) 5,312,148 5,744,000
Present Value Factor @ 15.0% 0.93250 0.81087 0.70511 0.61314 0.53316
PV Net Cash Flow $1,462,308 $1,904,696 ($1,108,973) $3,257,075 $3,062,486
========== ========== =========== ========== ==========
Year 6 7 8 9 10
---- - - - - --
Total Revenue $12,117,710 $12,851,483 $13,635,321 $14,454,647 $15,266,511
Margin % to Revenue 54.5% 55.0% 55.0% 55.0% 55.0%
Operating Cash Flow 6,604,152 7,068,316 7,499,426 7,950,056 8,396,581
Capital Expenditures:
- Rebuild/Extensions 131,000 134,000 138,000 141,000 144,000
- Recurring 229,000 236,000 243,000 250,000 258,000
---------- ---------- ----------- ---------- ----------
Total 360,000 370,000 381,000 391,000 402,000
========== ========== =========== ========== ==========
Net Cash Flow 6,244,152 6,698,316 7,118,426 7,559,056 7,994,581
Present Value Factor @ 15.0% 0.46362 0.40315 0.35056 0.30484 0.26508
PV Net Cash Flow $2,894,912 $2,700,410 $2,495,458 $2,304,284 $2,119,172
========== ========== =========== ========== ==========
Present Value of Net Cash Flows $21,091,827 Residual Value
Present Value of Residual 12,138,583 ------------------------------------------------------
----------- 8x's Yr 11 Operating Cash Flow $70,531,280
Value Indication under Income Approach $33,230,410 Less: Taxes (see Schedule 30.4% 21,423,940
=========== -----------
Value Indication (Rounded) $33,230,000 After Tax Proceeds (end of year 10) 49,107,340
=========== ===========
Value Indication/EBU $1,705 Present Value @ 15.0% $12,138,583
====== ===========
Cash Flow Multiple - Projected 8.1
===
-101-
108
- ----------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-4a
Redmond, Oregon CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------
Growth Rate in Homes Passed 3.80% Thru Yr 5
Homes Passed @ 12/31/96 7,252
Equivalent Billing Units @ 12/31/96 3,679 50.7% EBU's/HP
Pay Units @ 12/31/96 706 19.2% Pay Units/EBU's
Operating Margin for 96 Yr. 55.8% After Adj Partnership Expenses & One-Time Payments from Programmers
Operating Margin for 95 Yr. 52.4% After Adj Partnership Expenses
Weighted average discount rate 15.0%
Year 1 2 3 4 5 6
---- - - - - - -
Basic Rev/EBU (now $24.14) $24.14 $25.20 $26.30 $27.50 $28.70 $30.00
Growth rate 0.0% 4.5% 4.5% 4.5% 4.5% 4.5%
Kagan Projection $26.04 $27.35 $28.44 $29.58 $30.76 $31.99
Growth rate 12.9% 5.0% 4.0% 4.0% 4.0% 4.0%
Pay Rev/Pay Unit (now $6.32) $6.32 $6.51 $6.51 $6.70 $6.70 $6.91
Growth rate 0.0% 3.0% 0.0% 3.0% 0.0% 3.0%
Kagan Projection $8.15 $8.03 $7.93 $7.82 $7.73 $7.63
Growth rate -1.5% -1.5% -1.2% -1.4% -1.2% -1.3%
New Product Tier (now $6.16) $6.16 $6.78 $7.45 $8.05 $8.45 $8.88
Growth rate 0.0% 10.0% 10.0% 8.0% 5.0% 5.0%
Mini-Pay/EBU (now $0.05) $0.05 $0.06 $0.08 $0.10 $0.12 $0.15
Growth rate 0.0% 25.0% 25.0% 25.0% 25.0% 25.0%
Pay-Per-View Rev/EBU (now $0.00) $0.00 $0.50 $0.63 $0.78 $0.94 $1.08
Growth rate 0.0% 25.0% 25.0% 25.0% 20.0% 15.0%
Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01 $2.36
Growth rate 22.0% 36.5% 25.7% 29.9% 21.8% 17.4%
Equipment/EBU (now $0.82) $0.84 $1.50 $2.50 $2.58 $2.65 $2.73
Growth rate 3.0% 77.6% 66.7% 3.0% 3.0% 3.0%
Advertising/EBU (now $1.45) $1.54 $1.73 $1.95 $2.14 $2.35 $2.53
Growth rate 6.0% 12.5% 12.5% 10.0% 10.0% 7.5%
Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08 $3.47
Growth rate 14.0% 12.0% 11.2% 10.4% 12.0% 12.7%
Home Shopping/EBU (now $0.31) $0.33 $0.34 $0.36 $0.38 $0.40 $0.42
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Install/Service/EBU (now $.45) $0.45 $0.47 $0.50 $0.52 $0.55 $0.57
Growth rate 0.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Franchise Fee Pass-thru/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Growth rate n/a n/a n/a n/a n/a n/a
Late Fees & Other/EBU (now $0.71) $0.71 $0.75 $0.78 $0.82 $0.86 $0.91
growth rate 0.0% 5.0% 5.0% 5.0% 5.0% 5.0%
Pay-to-EBU (now 19.2%) 19.2% 19.0% 19.0% 19.0% 19.0% 19.0%
Kagan Projection 79.7% 81.2% 81.9% 82.4% 82.8% 83.0%
Total Annual EBU Rev $425.17 $462.77 $501.32 $529.65 $555.57 $582.91
monthly (now $35.43) $35.43 $38.56 $41.78 $44.14 $46.30 $48.58
Compound growth 5.8%
Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62 $42.60
Compound growth 4.8%
Year 7 8 9 10
---- - - - --
Basic Rev/EBU (now $24.14) $31.40 $32.80 $34.30 $35.80
Growth rate 4.5% 4.5% 4.5% 4.5%
Kagan Projection $33.27 $34.60 $35.99 n/a
Growth rate 4.0% 4.0% 4.0%
Pay Rev/Pay Unit (now $6.32) $6.91 $7.11 $7.11 $7.33
Growth rate 0.0% 3.0% 0.0% 3.0%
Kagan Projection $7.54 $7.45 $7.35 n/a
Growth rate -1.2% -1.2% -1.3%
New Product Tier (now $6.16) $9.32 $9.78 $10.27 $10.79
Growth rate 5.0% 5.0% 5.0% 5.0%
Mini-Pay/EBU (now $0.05) $0.19 $0.24 $0.30 $0.37
Growth rate 25.0% 25.0% 25.0% 25.0%
Pay-Per-View Rev/EBU (now $0.00) $1.24 $1.36 $1.50 $1.65
Growth rate 15.0% 10.0% 10.0% 10.0%
Kagan Projection $2.81 $3.25 $3.66 n/a
Growth rate 19.1% 15.7% 12.6%
Equipment/EBU (now $0.82) $2.81 $2.90 $2.99 $3.07
Growth rate 3.0% 3.0% 3.0% 3.0%
Advertising/EBU (now $1.45) $2.72 $2.92 $3.14 $3.38
Growth rate 7.5% 7.5% 7.5% 7.5%
Kagan Projection $3.87 $4.28 $4.69 n/a
Growth rate 11.5% 10.6% 9.6%
Home Shopping/EBU (now $0.31) $0.44 $0.46 $0.48 $0.50
Growth rate 5.0% 5.0% 5.0% 5.0%
Install/Service/EBU (now $.45) $0.60 $0.63 $0.66 $0.70
Growth rate 5.0% 5.0% 5.0% 5.0%
Franchise Fee Pass-thru/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00
Growth rate n/a n/a n/a n/a
Late Fees & Other/EBU (now $0.71) $0.95 $1.00 $1.05 $1.10
growth rate 5.0% 5.0% 5.0% 5.0%
Pay-to-EBU (now 19.2%) 19.0% 19.0% 19.0% 19.0%
Kagan Projection 83.2% 83.1% 83.1% n/a
Total Annual EBU Rev $611.83 $641.41 $672.56 $705.13
monthly (now $35.43) $50.99 $53.45 $56.05 $58.76
Compound growth
Kagan Projection $44.74 $46.91 $49.15
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category.
-102-
109
- --------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC . Exhibit E-4b
Redmond, Oregon CATV SYSTEM VALUATION MODEL
- --------------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5
---- - - - - -
Homes Passed 8,407 9,925 10,303 10,694 11,100
EBU Penetration 50.0% 48.0% 49.0% 49.5% 50.0%
Kagan Penetration Projection 68.5% 67.7% 66.6% 65.5% 64.4%
Equivalent Billing Units 4,204 4,764 5,048 5,294 5,550
Basic Revenue/EBU $24.14 $25.20 $26.30 $27.50 $28.70
Basic Revenue 1,217,670 1,440,685 1,593,223 1,746,867 1,911,487
---------- ---------- ---------- ---------- ----------
Pay-to-Basic Ratio 19.2% 19.0% 19.0% 19.0% 19.0%
Pay Units 807 905 959 1,006 1,055
Pay Revenue/Pay Unit $6.32 $6.51 $6.51 $6.70 $6.70
Pay Revenue 61,208 70,709 74,925 80,923 84,847
---------- ---------- ---------- ---------- ----------
New Product Tier/EBU $6.16 $6.78 $7.45 $8.05 $8.45
New Product Tier Revenue 310,723 387,384 451,530 511,349 562,948
---------- ---------- ---------- ---------- ----------
Mini-Pay Revenue/EBU $0.05 $0.06 $0.08 $0.10 $0.12
Mini-Pay Revenue/EBU 2,522 3,573 4,733 6,203 8,130
---------- ---------- ---------- ---------- ----------
Pay-Per-View Revenue/EBU $0.00 $0.50 $0.63 $0.78 $0.94
Pay-Per-View Revenue 0 28,585 37,862 49,627 62,440
---------- ---------- ---------- ---------- ----------
Equipment Revenue/ EBU $0.84 $1.50 $2.50 $2.58 $2.65
Equipment Revenue 42,603 85,755 151,447 163,570 176,646
---------- ---------- ---------- ---------- ----------
Advertising Revenue/EBU $1.54 $1.73 $1.95 $2.14 $2.35
Advertising Revenue/EBU 77,529 98,854 117,842 135,925 156,767
---------- ---------- ---------- ---------- ----------
Home Shopping/EBU $0.33 $0.34 $0.36 $0.38 $0.40
Home Shopping Revenue 16,419 19,539 21,740 23,936 26,351
---------- ---------- ---------- ---------- ----------
Installation Revenue/EBU $0.45 $0.47 $0.50 $0.52 $0.55
Installation Revenue 22,699 27,013 30,055 33,091 36,430
---------- ---------- ---------- ---------- ----------
Franchise Fee Pass-thru Revenue/EB $0.00 $0.00 $0.00 $0.00 $0.00
Franchise Fee Pass-thru Revenue 0 0 0 0 0
Late Fees & Other Revenue/EBU $0.71 $0.75 $0.78 $0.82 $0.86
Late Fees & Other Revenue 35,814 42,620 47,420 52,210 57,478
---------- ---------- ---------- ---------- ----------
Total Revenue $1,787,187 $2,204,719 $2,530,776 $2,803,701 $3,083,524
========== ========== ========== ========== ==========
Year 6 7 8 9 10
---- - - - - --
Homes Passed 11,311 11,526 11,745 11,968 12,196
EBU Penetration 50.5% 51.0% 51.5% 52.0% 52.5%
Kagan Penetration Projection 63.4% 62.3% 61.6% 60.9%
Equivalent Billing Units 5,712 5,878 6,049 6,224 6,403
Basic Revenue/EBU $30.00 $31.40 $32.80 $34.30 $35.80
Basic Revenue 2,056,393 2,214,969 2,380,801 2,561,613 2,750,633
---------- ---------- ---------- ---------- ----------
Pay-to-Basic Ratio 19.0% 19.0% 19.0% 19.0% 19.0%
Pay Units 1,085 1,117 1,149 1,182 1,217
Pay Revenue/Pay Unit $6.91 $6.91 $7.11 $7.11 $7.33
Pay Revenue 89,943 92,559 98,100 100,934 106,956
---------- ---------- ---------- ---------- ----------
New Product Tier/EBU $8.88 $9.32 $9.78 $10.27 $10.79
New Product Tier Revenue 608,350 657,349 710,225 767,283 828,849
---------- ---------- ---------- ---------- ----------
Mini-Pay Revenue/EBU $0.15 $0.19 $0.24 $0.30 $0.37
Mini-Pay Revenue/EBU 10,459 13,455 17,306 22,257 28,623
---------- ---------- ---------- ---------- ----------
Pay-Per-View Revenue/EBU $1.08 $1.24 $1.36 $1.50 $1.65
Pay-Per-View Revenue 73,902 87,459 98,994 112,040 126,793
---------- ---------- ---------- ---------- ----------
Equipment Revenue/ EBU $2.73 $2.81 $2.90 $2.99 $3.07
Equipment Revenue 187,256 198,485 210,366 222,937 236,238
---------- ---------- ---------- ---------- ----------
Advertising Revenue/EBU $2.53 $2.72 $2.92 $3.14 $3.38
Advertising Revenue/EBU 173,443 191,875 212,246 234,756 259,631
---------- ---------- ---------- ---------- ----------
Home Shopping/EBU $0.42 $0.44 $0.46 $0.48 $0.50
Home Shopping Revenue 28,476 30,770 33,245 35,916 38,798
---------- ---------- ---------- ---------- ----------
Installation Revenue/EBU $0.57 $0.60 $0.63 $0.66 $0.70
Installation Revenue 39,368 42,539 45,961 49,653 53,637
---------- ---------- ---------- ---------- ----------
Franchise Fee Pass-thru Revenue/EB $0.00 $0.00 $0.00 $0.00 $0.00
Franchise Fee Pass-thru Revenue 0 0 0 0 0
Late Fees & Other Revenue/EBU $0.91 $0.95 $1.00 $1.05 $1.10
Late Fees & Other Revenue 62,114 67,117 72,516 78,342 84,628
---------- ---------- ---------- ---------- ----------
Total Revenue $3,329,705 $3,596,576 $3,879,759 $4,185,732 $4,514,785
========== ========== ========== ========== ==========
-103-
110
- --------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-4c
Redmond, Oregon CATV SYSTEM VALUATION MODEL
- --------------------------------------------------------------------------------------------------
Year 1 2 3 4 5
---- - - - - -
Total Revenue $1,787,187 $2,204,719 $2,530,776 $2,803,701 $3,083,524
Margin % to Revenue 51.1% 53.0% 53.5% 54.0% 54.5%
Operating Cash Flow 913,253 1,168,501 1,353,965 1,513,999 1,680,520
Capital Expenditures:
- Rebuild/Extensions 853,000 1,641,000 1,638,000 116,000 123,000
- Recurring 144,000 26,000 99,000 118,000 126,000
-------- --------- --------- -------- --------
Total 997,000 1,667,000 1,737,000 234,000 249,000
-------- --------- --------- -------- --------
Net Cash Flow (83,747) (498,499) (383,035) 1,279,999 1,431,520
Present Value Factor @ 15.0% 0.93250 0.81087 0.70511 0.61314 0.53316
PV Net Cash Flow ($78,095) ($404,220) ($270,081) $784,815 $763,233
======== ========= ========= ======== ========
Year 6 7 8 9 10
---- - - - - --
Total Revenue $3,329,705 $3,596,576 $3,879,759 $4,185,732 $4,514,785
Margin % to Revenue 55.0% 55.0% 55.0% 55.0% 55.0%
Operating Cash Flow 1,831,338 1,978,117 2,133,867 2,302,153 2,483,132
Capital Expenditures:
- Rebuild/Extensions 116,000 119,000 123,000 126,000 130,000
- Recurring 104,000 109,000 113,000 119,000 124,000
-------- --------- --------- -------- --------
Total 220,000 228,000 236,000 245,000 254,000
-------- --------- --------- -------- --------
Net Cash Flow 1,611,338 1,750,117 1,897,867 2,057,153 2,229,132
Present Value Factor @ 15.0% 0.46362 0.40315 0.35056 0.30484 0.26508
PV Net Cash Flow $747,048 $705,555 $665,322 $627,097 $590,889
======== ======== ======== ======== ========
Present Value of Net Cash Flows $4,131,564 Residual Value
Present Value of Residual 3,637,961 ----------------------------------------------------
---------- 8x's Yr 11 Operating Cash Flow $21,255,607
Value Indication under Income Appr $7,769,526 Less: Taxes (see Schedule)(C) 30.8% 6,538,024
---------- -----------
Value Indication (Rounded) $7,770,000 After Tax Proceeds (end of year 10) 14,717,583
---------- -----------
Value Indication/EBU $2,112 Present Value @ 15.0% $ 3,637,961
------ ===========
Cash Flow Multiple - Proj 8.5
---
-104-
111
- -----------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-5a
California City, California CATV SYSTEM VALUATION MODEL Valuation Date: December 31, 1995
- -----------------------------------------------------------------------------------------------------------------------------
Growth Rate in Homes Passed 3.00% Thru Yr 5 (CACI shows 5.7%, System Mgmt says 2-3%)
Homes Passed @ 12/31/96 2,858
Equivalent Billing Units @ 12/31/96 1,960 68.6% EBU's/HP
Pay Units @ 12/31/96 839 42.8% Pay Units/EBU's
Operating Margin for 96 Yr. 54.0% After Adj Partnership Expenses & One-Time Payments from Programmers
Operating Margin for 95 Yr. 49.6% After Adj Partnership Expenses
Weighted average discount rate 15.0%
Year 1 2 3 4 5
---- - - - - -
Basic Rev/EBU (now $21.50) $21.70 $22.70 $23.70 $24.80 $25.90
Growth rate 1.0% 4.5% 4.5% 4.5% 4.5%
Kagan Projection $26.04 $27.35 $28.44 $29.58 $30.76
Growth rate 12.9% 5.0% 4.0% 4.0% 4.0%
Pay Rev/Pay Unit (now $8.12) $8.12 $8.12 $8.12 $8.12 $8.12
Growth rate 0.0% 0.0% 0.0% 0.0% 0.0%
Kagan Projection $8.15 $8.03 $7.93 $7.82 $7.73
Growth rate -1.5% -1.5% -1.2% -1.4% -1.2%
New Product Tier (now $2.54) $2.67 $2.85 $3.05 $3.24 $3.40
Growth rate 5.0% 7.0% 7.0% 6.0% 5.0%
Mini-Pay/EBU (now $0.00) $0.00 $0.05 $0.06 $0.08 $0.10
Growth rate n/a n/a 25.0% 25.0% 25.0%
Pay-Per-View Rev/EBU (now $0.00) $0.00 $0.25 $0.33 $0.39 $0.45
Growth rate 0.0% 0.0% 30.0% 20.0% 15.0%
Kagan Projection $0.74 $1.01 $1.27 $1.65 $2.01
Growth rate 22.0% 36.5% 25.7% 29.9% 21.8%
Equipment/EBU (now$2.36) $2.43 $2.50 $2.58 $2.66 $2.74
Growth rate 3.0% 3.0% 3.0% 3.0% 3.0%
Advertising/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.00
Growth rate 10.0% 10.0% 10.0% 8.0% 8.0%
Kagan Projection $2.00 $2.24 $2.49 $2.75 $3.08
Growth rate 14.0% 12.0% 11.2% 10.4% 12.0%
Home Shopping/EBU (now $0.29) $0.30 $0.32 $0.34 $0.35 $0.37
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Install/Service/EBU (now $0.88) $0.92 $0.97 $1.02 $1.07 $1.12
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Franchise Fee Pass-thru/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.00
Growth rate n/a n/a n/a n/a n/a
Late Fees & Other/EBU (now $0.72) $0.76 $0.79 $0.83 $0.88 $0.92
growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Pay-to-EBU (now 42.8%) 40.0% 40.0% 40.0% 40.0% 40.0%
Kagan Projection 79.7% 81.2% 81.9% 82.4% 82.8%
Total Annual EBU Rev $384.36 $404.27 $421.87 $440.48 $458.89
monthly (now $31.62) $32.03 $33.69 $35.16 $36.71 $38.24
Compound growth 4.4%
Kagan Projection $33.72 $35.22 $36.85 $38.70 $40.62
Compound growth 4.8%
Year 6 7 8 9 10
---- - - - - --
Basic Rev/EBU (now $21.50) $27.10 $28.30 $29.60 $30.90 $32.30
Growth rate 4.5% 4.5% 4.5% 4.5% 4.5%
Kagan Projection $31.99 $33.27 $34.60 $35.99 n/a
Growth rate 4.0% 4.0% 4.0% 4.0%
Pay Rev/Pay Unit (now $8.12) $8.12 $8.12 $8.12 $8.12 $8.12
Growth rate 0.0% 0.0% 0.0% 0.0% 0.0%
Kagan Projection $7.63 $7.54 $7.45 $7.35 n/a
Growth rate -1.3% -1.2% -1.2% -1.3%
New Product Tier (now $2.54) $3.57 $3.75 $3.93 $4.13 $4.34
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Mini-Pay/EBU (now $0.00) $0.12 $0.15 $0.19 $0.24 $0.30
Growth rate 25.0% 25.0% 25.0% 25.0% 25.0%
Pay-Per-View Rev/EBU (now $0.00) $0.52 $0.59 $0.65 $0.72 $0.79
Growth rate 15.0% 15.0% 10.0% 10.0% 10.0%
Kagan Projection $2.36 $2.81 $3.25 $3.66 n/a
Growth rate 17.4% 19.1% 15.7% 12.6%
Equipment/EBU (now $2.36) $2.82 $2.90 $2.99 $3.08 $3.17
Growth rate 3.0% 3.0% 3.0% 3.0% 3.0%
Advertising/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.00
Growth rate 7.5% 7.5% 7.5% 7.5% 7.5%
Kagan Projection $3.47 $3.87 $4.28 $4.69 n/a
Growth rate 12.7% 11.5% 10.6% 9.6%
Home Shopping/EBU (now $0.29) $0.39 $0.41 $0.43 $0.45 $0.47
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Install/Service/EBU (now $0.88) $1.18 $1.24 $1.30 $1.37 $1.43
Growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Franchise Fee Pass-thru/EBU (now $0.00) $0.00 $0.00 $0.00 $0.00 $0.00
Growth rate n/a n/a n/a n/a n/a
Late Fees & Other/EBU (now $0.72) $0.96 $1.01 $1.06 $1.12 $1.17
growth rate 5.0% 5.0% 5.0% 5.0% 5.0%
Pay-to-EBU (now 42.8%) 40.0% 40.0% 40.0% 40.0% 40.0%
Kagan Projection 83.0% 83.2% 83.1% 83.1% n/a
Total Annual EBU Rev $478.86 $499.23 $520.89 $542.96 $566.68
monthly (now $31.62) $39.91 $41.60 $43.41 $45.25 $47.22
Compound growth
Kagan Projection $42.60 $44.74 $46.91 $49.15
Compound growth 4.8%
*Kane Reece adjusted Kagan Projection to exclude mini-pay from pay category.
-105-
112
- -----------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. EXHIBIT E-5b
California City, California CATV SYSTEM VALUATION MODEL
- -----------------------------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5 6 7 8 9 10
---- - - - - - - - - - --
Homes Passed 2,901 2,988 3,078 3,170 3,265 3,314 3,364 3,414 3,465 3,517
EBU Penetration 69.0% 69.5% 70.0% 70.5% 71.0% 71.5% 72.0% 72.5% 73.0% 73.5%
Kagan Penetration
Projection 68.5% 67.7% 66.6% 65.5% 64.4% 63.4% 62.3% 61.6% 60.9%
Equivalent Billing
Units 2,002 2,077 2,154 2,235 2,318 2,369 2,422 2,475 2,530 2,585
Basic Revenue/EBU $21.70 $22.70 $23.70 $24.80 $25.90 $27.10 $28.30 $29.60 $30.90 $32.30
Basic Revenue 521,217 565,663 612,675 665,062 720,471 770,548 822,450 879,197 938,002 1,002,025
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------
Pay-to-Basic Ratio 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0% 40.0%
Pay Units 801 831 862 894 927 948 969 990 1,012 1,034
Pay Revenue/Pay Unit $8.12 $8.12 $8.12 $8.12 $8.12 $8.12 $8.12 $8.12 $8.12 $8.12
Pay Revenue 78,014 80,937 83,965 87,102 90,351 92,352 94,393 96,474 98,596 100,761
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------
New Product Tier/EBU $2.67 $2.85 $3.05 $3.24 $3.40 $3.57 $3.75 $3.93 $4.13 $4.34
New Product Tier
Revenue 64,059 71,111 78,936 86,797 94,537 101,462 108,890 116,855 125,397 134,558
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------
Mini-Pay Revenue/EBU $0.00 $0.05 $0.06 $0.08 $0.10 $0.12 $0.15 $0.19 $0.24 $0.30
Mini-Pay Revenue/EBU 0 1,246 1,616 2,095 2,717 3,471 4,434 5,665 7,237 9,245
-------- -------- -------- -------- -------- -------- -------- -------- -------- ----------
Pay-Per-View
Revenue/EBU $0.00 $0.25 $0.33 $0.39 $0.45 $0.52 $0.59 $0.65 $0.72 $0.79
Pay-Per-View Revenue 0 6,230 8,402 10,459 12,476 14,665 17,238 19,380 21,787 24,491
-------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Equipment Revenue/EBU $2.43 $2.50 $2.58 $2.66 $2.74 $2.82 $2.90 $2.99 $3.08 $3.17
Equipment Revenue 58,386 62,390 66,666 71,231 76,105 80,125 84,352 88,798 93,474 98,392
-------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Advertising Revenue/
EBU $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Advertising Revenue/
EBU 0 0 0 0 0 0 0 0 0 0
Home Shopping/EBU $0.30 $0.32 $0.34 $0.35 $0.37 $0.39 $0.41 $0.43 $0.45 $0.47
Home Shopping Revenue 7,314 7,967 8,679 9,453 10,296 11,050 11,859 12,726 13,657 14,654
-------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Installation Revenue/
EBU $0.92 $0.97 $1.02 $1.07 $1.12 $1.18 $1.24 $1.30 $1.37 $1.43
Installation Revenue 22,194 24,176 26,335 28,685 31,243 33,531 35,986 38,618 41,441 44,468
-------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Franchise Fee
Pass-thru
Revenue/EBU $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
Franchise Fee
Pass-thru
Revenue 0 0 0 0 0 0 0 0 0 0
Late Fees & Other
Revenue/EBU $0.76 $0.79 $0.83 $0.88 $0.92 $0.96 $1.01 $1.06 $1.12 $1.17
Late Fees & Other
Revenue 18,159 19,781 21,547 23,469 25,562 27,435 29,443 31,597 33,906 36,383
-------- -------- -------- -------- ---------- ---------- ---------- ---------- ---------- ----------
Total Revenue $769,342 $839,501 $908,820 $984,353 $1,063,757 $1,134,639 $1,209,044 $1,289,311 $1,373,499 $1,464,978
======== ======== ======== ======== ========== ========== ========== ========== ========== ==========
-106-
113
- ---------------------------------------------------------------------------------------------------------------------------------
Falcon Classic Cable Income Properties KANE REECE ASSOCIATES, INC. Exhibit E-5c
California City, California CATV SYSTEM VALUATION MODEL
- ---------------------------------------------------------------------------------------------------------------------------------
Year 1 2 3 4 5
- - - - -
Total Revenue $769,342 $839,501 $908,820 $984,353 $1,063,757
Margin % to Revenue 54.0% 54.5% 55.0% 55.0% 55.0%
Operating Cash Flow 415,445 457,528 499,851 541,394 585,067
Captal Expenditures:
- Rebuild/Extensions 20,000 41,000 44,000 96,000 99,000
- Recurring 70,000 79,000 81,000 58,000 61,000
-------- -------- -------- -------- ----------
Total 90,000 120,000 125,000 154,000 160,000
======== ======== ======== ======== ==========
Net Cash Flow 325,445 337,528 374,851 387,394 425,067
Present Value Factor
@ 15.0% 0.93250 0.81087 0.70511 0.61314 0.53316
PV Net Cash Flow $303,479 $273,693 $264,310 $237,526 $ 226,630
======== ======== ======== ======== ==========
Year 6 7 8 9 10
- - - - --
Total Revenue $1,134,639 $1,209,044 $1,289,311 $1,373,499 $1,464,978
Margin % to Revenue 55.0% 55.0% 55.0% 55.0% 55.0%
Operating Cash Flow 624,052 664,974 709,121 755,424 805,738
Captal Expenditures:
- Rebuild/Extensions 76,000 77,000 78,000 80,000 81,000
- Recurring 54,000 55,000 57,000 58,000 60,000
---------- ---------- ---------- ---------- ----------
Total 130,000 132,000 135,000 138,000 141,000
========== ========== ========== ========== ==========
Net Cash Flow 494,052 532,974 574,121 617,424 664,738
Present Value Factor
@ 15.0% 0.46362 0.40315 0.35056 0.30484 0.26508
PV Net Cash Flow $ 229,052 $ 214,867 $ 201,266 $ 188,214 $ 176,206
========== ========== ========== ========== ==========
Present Value of Net Cash Flows $2,315,242 Residual Value
Present Value of Residual 1,215,829 ------------------------------------------------
---------- 8x's Yr 11 Operating Cash Flow $6,897,117
Value Indication under Income Approach $3,531,072 Less: Taxes (see Schedule) @28.7% 1,978,409
---------- ----------
Value Indication (Rounded) $3,530,000 After Tax Proceeds (end of year 10) 4,918,708
---------- ----------
Value Indication/EBU $1,801 Present Value @ 15.0% $1,215,829
---------- ----------
Cash Flow Multiple - Projected 8.5
----------
-107-
114
QUALIFICATIONS OF THE APPRAISERS
115
KANE REECE PROVIDES VALUATION, MANAGEMENT AND TECHNICAL CONSULTING TO THE MEDIA
AND COMMUNICATIONS INDUSTRIES.
STATEMENT OF BACKGROUND AND EXPERIENCE
JOHN E. KANE CFA, ASA
John E. (Jack) Kane is a Principal and President of Kane Reece Associates,
Inc., a Firm he co-founded in 1986.
Mr. Kane has personally conducted valuation and appraisal studies of real and
personal property and intangible assets of media/communications businesses with
aggregate values over $40 billion. He has served as a valuation and
communications industry expert, providing advice, management consulting,
testimony, and litigation support. The clients he serves number among the
largest in the industry. Mr. Kane has been accepted as an expert in the
media/communication industry in Federal Courts, U.S. Bankruptcy Courts, various
trial courts, various administrative hearing boards, and the American
Arbitration Association. He has spoken on valuation, industry, and tax issues
at meetings of the National Cable Television Association, the Broadcast Cable
Financial Management Association, the Cable Television Tax Professionals
Institute, and the American Society of Appraisers.
Prior to his current position, Mr. Kane was Chief Operating Officer of Frazier,
Gross & Kadlec, Inc., a Washington, DC communications consultancy and was
Executive Vice President of Valuation Research Corporation in Princeton, New
Jersey. While at these firms, he was responsible for all media/communications
clients.
Mr. Kane has been actively involved in the communications industry for eighteen
years, gaining experience as a Vice President of Group W Cable (formerly one of
the largest cable television companies) where he was involved with
acquisitions, divestitures, strategic planning, and capital investments. In
that position, Mr. Kane was responsible for the analysis, approval, and
monitoring of approximately $100 million of annual capital expenditures. Prior
to Group W, Mr. Kane was Director of Financial Analysis for the RCA Corporation
and later, Director of Corporate Planning for the RCA Communications Group.
While at RCA, Mr. Kane was intimately involved in the start-up of RCA's
domestic satellite communications business (RCA American Communications).
He received an undergraduate degree from Upsala College and an M.B.A. in
Finance from St. Johns University where he was elected to the National Business
Honor Society, Beta Gamma Sigma and the National Economics Honor Society,
Omicron Delta Epsilon. Mr. Kane is a member of the Institute of Chartered
Financial Analysts (CFA), as well as the New York Society of Security Analysts
and the Association for Investment Management and Research. He or his Firm is
also a member of the American Economic Association, National Cable Television
Association, the Cable Television Tax Professionals Institute, National
Association of Broadcasters, the Broadcast Cable Financial Management
Association, the Personal Communications Industry Association, and
International Licensing Industry Merchandisers' Association. He is an
Accredited Senior Appraiser - Business Valuation of the American Society of
Appraisers (ASA) and the Firm's representative to the ASA's Affiliate Firm
Committee.
Mr. Kane and his Firm received the 1993 Presidents Award from the Cable
Television Tax Professionals Institute.
Mr. Kane serves on the Executive Board of the Watchung Area Council of the Boy
Scouts of America.
116
STATEMENT OF BACKGROUND AND EXPERIENCE
HENRY E. SHERMAN CFA, CPA
Henry E. Sherman is a Vice President of Kane Reece Associates, Inc. Mr.
Sherman joined the Firm in June 1988.
Mr. Sherman is responsible for the analysis and evaluation of business
operations for determining fair market value of closely held and thinly- traded
public corporations, purchase price allocations, due diligence support, and
solvency and fairness opinions. Mr. Sherman is experienced in valuing business
interests and intangible and tangible assets in media oriented businesses such
as cable television, broadcast radio and television, publishing, and
telecommunications.
Prior to his current position, Mr. Sherman was a Senior Consultant of Standard
Research Consultants in New York City. While at Standard Research, he was
responsible for all solvency letters and fairness opinions. Previous to
employment at Standard Research, Mr. Sherman was a Supervising Appraiser of
Valuation Research Corporation where he had responsibility for clients in a
broad range of industries.
Mr. Sherman has been involved in the industry for over seventeen years,
beginning as Manager of Business Analysis of Group W Cable where he had
responsibility in the areas of acquisitions, divestitures, and capital
expenditure analysis. Mr. Sherman is also experienced in developing and
implementing business and strategic plans.
Mr. Sherman received an undergraduate degree from Johnston College of the
University of Redlands and an M.B.A. from the Bernard Baruch College of the
City University of New York. Mr. Sherman is a member of The Institute of
Chartered Financial Analysts (CFA), a Certified Public Accountant (CPA), a
member of The American Institute of Certified Public Accountants, The New York
State Society of Certified Public Accountants, a member of The New York Society
of Security Analysts, a member of The American Bankruptcy Institute, a member
of The New York Media Association, and a candidate for Senior Member - Business
Valuation of the American Society of Appraisers (ASA).
117
APPENDIX
GLOSSARY OF CABLE TV TERMS
118
GLOSSARY OF CABLE TELEVISION TERMS
ACCESS CHANNELS - Channels set aside by the cable operator
for use by the public, educational
institutions, municipal government, or for
lease on a non-discriminatory basis.
ACCESS TIME - Total time required to locate, recover and
display data on-screen after initiating
command to do so, in other words, the time
it takes to get from point A to point B in
getting data from a computer.
ACTIVATED CHANNEL - A cable channel that is technically
equipped to carry and deliver video
programming.
ADDRESSABILITY
(Addressable Converter) - The capability of transmitting video,
audio, and/or data to specific locations or
"addresses" on the cable system. This
requires an addressable converter which
permits the cable operator to authorize the
reception of programs according to
subscribers' orders.
ADDRESSABLE - Control of customers' home receiving
equipment from the headend.
AERIAL PLANT - Cable that is suspended in the air on
telephone or electric utility poles.
ALPHANUMERIC KEYBOARD - Keyboard which allows communications with a
computer in letters and numbers.
ALTERNATIVE ACCESS
PROVIDER - A telecommunications provider, other than
the local telephone company that provides a
connection, between a customer's premises
(usually a large business customer) to the
point of presence of the long distance
carrier, or portions thereof.
AML SYSTEM - A microwave system that is used to
distribute the signals of a cable system
from the central headend to receive
locations in the service area where the
signals are placed on the coaxial
distribution system. The frequency of
operation is licensed by the FCC.
AMPLIFIER - A device that boosts the strength of an
electrical signal. In a cable system,
amplifiers are spaced at regular intervals
throughout the system to keep signals
picture-perfect no matter where you live.
ANTENNA - A device designed to receive radio
frequency signals.
ANTI-ALIASING - A manipulation of software that make
combinations of diagonal or curved lines
appear consistent in computer generated
images.
ASCERTAINMENT - A survey of a community to determine local
concerns, needs, and interests, especially
in regard to cable programming.
-A 1-
119
AUTOMATED CHANNEL/
PROGRAMMING - A channel programmed with text or graphics
utilizing a character generator. Typical
information includes news, weather, program
guides, and bulletin boards.
BANDWIDTH - Frequency spectrum used to transmit
pictures, sounds or both. The average
television station uses a bandwidth of six
million cycles per second (6 megahertz).
BASIC SERVICE - The channels and services subscribers for
their minimum monthly fee. Basic fare
normally includes broadcast stations, plus
satellite signals (e.g. superstations) and
access channels.
BAUD - The measure of data rates via modems.
Common BAUD rates are 2400, 9600, and
14,000. At 2,400 BAUD, a modem is
transferred 2,400 bits per second. It
takes 10 bits to represent a BTYE in
communications situations, so 2,400 BAUD
represents 240 bytes per second.
BIRD - Colloquial for any communications
satellite.
BIT - The smallest unit of data in a computer,
either a zero or a one.
BIT MAP - The representation of a graphic image in
terms of dots or pixels that create the
image.
BROADBAND COMMUNICATIONS
SYSTEM - Frequently used as a synonym for cable
television. It can describe any system
capable of delivering "wideband" channels
and services.
BURST - In color TV terms, a reference point that
appears in the vertical blanking interval;
in computer terms, a program encoded in a
digital audio tone.
BUS INTERFACE - Refers to a connection between a circuit or
group of circuits providing an electronic
pathway for two central processing
input/output units.
BYTE - 8 bits make a byte. A byte is the standard
unit of memory and processing in most
personal computers.
CABLECASTING - Production of programming on a private
communications system, using coaxial cable
as the means of transmission to paying
subscribers.
CABLE READY TELEVISION
SET - A television set or a VCR that has the
following attributes: an improved tuner
that is more resistant to interference than
traditional tuners, the ability to tune
cable channels according to an FCC approved
channel plan, and a special connector known
as a "decoder interface connector" that
allows the seamless
-A 2-
120
connection of cable service to the cable
ready set without the use of a traditional
set-top box. If a device has all three of
the above, it may be marketed as a "Cable
Ready" device.
CABLE SYSTEM - A communication system that distributes
broadcast television signals, satellite
signals, original programming, and other
services by means of coaxial cable. Also
known as cable communications or Community
Antenna Television (CATV).
CABLE TELEVISION - Communications system that distributes
broadcast and non-broadcast signals, as
well as multiplicity of satellite signals,
original programming and other signals by
means of a coaxial cable and/or optical
fiber.
CARS (Cable Television
Relay Services) - Terrestrial microwave frequency band used
to relay television, FM radio, cablecasting
and other band signals from the original
reception site to the headend terminal for
distribution over cable.
CASH FLOW - Cash flow is operating income minus
interest expense; and it basically
indicates the amount of cash available
before taxes, capital expenditures and debt
retirement. Due to its capital-intensive
nature, the cable industry is considered a
"cash flow" business since the depreciation
allowance acceptable for tax purposes is a
non-cash expenditure, and thus can generate
funds available for use by the system.
CAV - Constant Angular Velocity; a videodisc
playback mode in which a given disc rotates
at a persistent speed, notwithstanding the
position of the reading head or stylus.
CD-ROM XA - Compact disc read-only memory extender
architecture; a more sophisticated form of
CD-ROM, permitting interleaving of sound
and data for animation and sound
synchronization.
CENTRAL OFFICE - A telecommunications facility where calls
are switched. It generally represents a
10,000-line service area.
CG (Character Generator)- Device which electronically displays
letters and numbers on the television
screen.
CHANNEL - A designated portion of the electromagnetic
spectrum, 6 MHz wide, which carries a
television signals. (Audio and data
signals occupy far less spectrum space.)
CHANNEL CAPACITY - Maximum number of channels that a cable
system can carry simultaneously.
CHARACTER GENERATOR - A device which electronically displays
letters and numerals on the TV screen.
-A 3-
121
CHERRY PICKING - Overbuilding economically desirable
portions of a franchised community.
CHROMINANCE - The color portion of a video signal that
defines the luminance and hue of an on-
screen image.
CIRC - Cross Interleaved Reed-Solomon Code; method
of error detection and correction for CD
audio discs.
CLI - Cumulative Leakage Index is defined as the
basic signal leakage performance criteria
as per FCC 76.611 with measurements (in
microvolts/meter) made over a large
percentage of the system.
CLOCK RATE - The clock speed that synchronizes internal
operations of a central processing chip.
Clock rates range from 8 million cycles per
second (in the original IBM-AT) up to 166
million cycles per second (in the latest
Intel processors).
CLV - Constant Lineary Velocity; alternate format
for video discs, allowing twice the playing
time per side, although it can be read in
linear playing time alone.
COAXIAL CABLE - Actual line of transmission for carrying
television signals. Its principal
conductor is either a pure copper or
copper-coated wire, surrounded by
insulation and then encased in aluminum.
COLLOCATION - The circumstance whereby competitors to
local telephone companies locate facilities
at or close to the local telephone company
central offices to facilitate their
offering of an alternative means of
delivering local telecommunications
services. A form of collocation, known as
"virtual collocation", permits the
achievement much of the functionality of
physical collocation by technical means.
This technique can be used where telephone
companies decline to make physical
collocation available.
COLOR DEPTH - The number of colors displayed at any given
pixel. If the color is one bit deep, then
the pixel can be black or white; if the
color is 8 bits deep, then 64 colors can be
displayed. So called "True Color" is 32
bits deep and represent over 16 million
colors at any given pixel.
COMMON CARRIER - An entity that provides communication
services to the public, at rates approved
by state or federal authority, on a
non-discriminatory basis, and exercises no
control over the message content.
COMMUNICATIONS COMMON
CARRIER - General name for any medium which carries
messages prepared by others for a fee and
is required by law to offer its services on
a non-discriminatory basis. Common
carriers are regulated by federal and state
-A 4-
122
agencies and excercise no control over the
message content carried.
COMMUNITY ANTENNA
TELEVISION - A system comprised of antennas, coaxial
cables or other electrical conductors, and
other electronic equipment used to receive
and distribute radio and/or television
signals, directly or indirectly, off-the-
air, to subscribers for a fee.
COMPETITIVE ACCESS
PROVIDER - A telecommunications entity engaged in
providing competitive access service.
CONDUIT - Metal or plastic tubing that protects
coaxial cable in underground installations
and makes it possible to install additional
cables for transmitting information.
CONVERTER - Device that is attached between the
television set and the cable system that
can increase the number of channels
available on the TV set, enabling it to
accommodate the multiplicity of channels
offered by cable TV.
CPU - Central processing unit; the "brain" that
facilitates the functions of any computer.
CRAWL - The movement of a printed message from
right to left or bottom to top of a
television screen, usually while a picture
is on screen.
CROSS-OWNERSHIP - Legal term for ownership of two or more
kinds of communication outlets (radio, TV,
newspaper) by the same individual or
company in the same market. The FCC
prohibits companies from owning certain
combinations of media within given markets
to avoid monopoly situations.
CRT - Cathode Ray Tube (television/computer
screen).
CYCLE TIME - Refers to time required for performance of
particular functions; in the context of
video games, refers to the relative
responsiveness of a particular system or
platform.
DATA PATH - The number of data bits simultaneously
processed internally in a central
processor. A 32-bit CPU has a data path
that is twice as wide as a 16-bit CPU.
DATA RATES - Data rates are a key concern in
communications applications and CD-ROM
applications. Telephone engineers refer to
bit rates and calculate the number of bits
per second that can be transferred; so an
ISDN "B- Channel" has a data rate of 64
kbps - which means 64 thousand bits per
second. A computer engineer might refer to
this as 64 kilo-BAUD. The opportunity for
confusion is great when talking about bit
rates off a
-A 5-
123
CD-ROM drive, which is often written as 150
kbps. While this looks like bits per
second, it is actually Bytes per second!
The bit rate off a CD-ROM drive is about
1.2 megabits per second! The usual
convention is to refer to bits with a "b"
and bytes with a "B", but this is not
always rigorously followed.
DBS (Direct Broadcasting
Satellite) - System in which signals are transmitted
directly from a satellite to a home rooftop
receiving dish (antenna).
DEDICATED CHANNEL - A cable channel designated exclusively for
a specific purpose or type of programming.
Examples include public access, educational
use, or business data.
DEMOGRAPHICS - Breakdown of television viewers by such
factors as age, sex, income levels,
education and race. These figures are used
in selling advertising time.
DESCRAMBLER - Electronic circuit that restores a
scrambled video signal to its standard form.
DIALING PARITY - The offering to all telecommunications
providers the capability to provide service
that includes the dialing by their
customers of the same number of digits to
complete calls.
DIGITAL COMPRESSION - An engineering technique for converting a
cable television signal into a digital
format (in which it can easily be stored
and manipulated) which may then be
processed so as to require a smaller
portion of spectrum for its transmission.
It could allow many channels to be carried
in the capacity currently needed for one
signal.
DIRECT BROADCASTING
BY SATELLITE - A distribution system in which programming
is transmitted directly via satellite to a
receiving dish on an apartment building
(multiple subscribers) or to an individual
residence.
DISTANT SIGNALS - Television channel from another market
imported and carried locally by a cable
television system.
DISTRIBUTION CABLE - Cable branching off the trunk line and
passing residences that may subscribe to
cable services.
DISTRIBUTION SYSTEM - Part of a cable system consisting of trunk
and feeder cables used to carry signals
from headend to customer terminals.
DONGLE - Yes, it's a real part of multimedia jargon;
it's a electronic device that controls
access to a range of licensed applications.
DOWNLINK - Reception of video and audio programming
from satellites in orbit using dish
antennas and electronic equipment.
-A 6-
124
DOWNSTREAM - Flow of signals from the cable system
headend through the distribution network to
the customer.
DRIVE BAY - The opening in a computer unit to hold a
floppy drive, a hard drive, a tape drive
or other device.
DROP CABLE - The last piece of cable that connects the
customer's home to the cable system.
DUAL CABLE - Two independent distribution systems
operating side-by side providing double the
channel capacity of a single cable.
DVI - Digital Video Interaction; enables
compressing, decompressing and displaying
digital graphics and full motion video with
audio; works with CD-ROM, CD-I and hard or
floppy discs.
EARTH STATION - Structure, referred to as a "dish", used
for receiving and/or transmitting those
electromagnetic signals coming from or
going to a satellite.
EDC/ECC - Stands for Error Detection Code/Error
Correction Code; effective and complex
means of discerning errors and correcting
CD-ROM discs.
EDITING - The process of combining various segments
of master videotape into a new or altered
program.
EDUCATIONAL ACCESS
CHANNEL - A channel on a cable system which is
designated for exclusive use by
educational entities.
EEPROM - A read-only memory program that can be
erased electronically or a type of PROM,
programmable read-only memory that can be
erased with electric current.
EMERGENCY OVERRIDE - The capability to interrupt all channels of
a cable system with an emergency message
to subscribers.
EQUAL ACCESS - The offering of access to local exchange
facilities on a nondiscriminatory basis.
EXCLUSIVITY - Contractual right to be the sole exhibition
of a program in a particular area during a
particular time.
FAT - Nothing to do with dieting; stands for File
Allocation Table; it's that part of a DOS
system that keeps record of just where all
those files are on a given disk.
FCC - Federal Communications Commission; the
federal government's policy, licensing, and
regulatory agency which governs
communications within its jurisdiction.
FEEDER CABLE (or BRANCH) - An intermediate cable distribution line
that connects housedrops to the main trunk
line.
-A 7-
125
FEEDER LINE - Cable distribution lines that connect the
main trunk line or cable to the smaller
drop cable.
FIBER OPTICS - Very thin and pliable tubes of glass or
plastic used to carry wide bands of
frequencies.
FILTER - A circuit which allows signals of desired
channels to pass through but blocks others.
Used in trunk and feeder lines for special
cable services, such as two-way operation
and also as a method to secure service.
FM CABLE SERVICE - FM radio signals offered by a cable system
(the cable must be connected to the
customer's FM stereo receiver).
FM SERVICE - CABLE RADIO - Audio services provided by attaching cable
to an FM converter. Audio services can
include radio stations, satellite audio,
simulcasting of broadcast, satellite, or
pay services, and special programs for the
visually impaired such as radio reading
services.
FOOTPRINT - Term used to describe the geographic area
which receives sufficient satellite signal
strength for reception.
FORBEARANCE - The practice whereby a regulatory agency,
although possessing jurisdiction to
regulate, declines to regulate, either
entirely or to the extent permitted by law.
Forbearance has usually been based upon the
conclusion that the presence of competition
limits a regulated company's market power.
FRANCHISE - Contractual agreement between a cable
operator and a governmental body which
defines the rights and responsibilities of
each in the construction and operation of a
cable system within a specified geographic
area. Under the Cable Act, a cable
operation may not provide cable service
without a franchise.
FRANCHISE FEE - Annual fee collected from cable operator by
franchising authority. Generally based on
2 to 5 percent of cable operator's gross
revenues. Limited to 5% by Cable Act of
1984.
FRANCHISING AUTHORITY - Governmental body responsible for awarding
a franchise, specifying the terms of a
franchise, and regulating its operation.
While the franchise authority is usually a
local city of county body, some areas are
regulated exclusively on the state level.
FREQUENCY - A measure of the number of times an
electromagnetic signal repeats an identical
cycle within a unit of time. One hertz
(Hz) is one cycle per second. A Kilohertz
(KHz) is 1,000 cycles per second, a
megahertz (MHz) is one million cycles per
second, and a gigahertz (GHz) is one
billion cycles per second.
-A 8-
126
GATEWAY - A computer system that can transfer data
between two normally incompatible
applications or networks. A gateway
reformats data so that it is readable by
the other network or applications. In a
functional sense, a gateway might convert
data carried over a cable TV network to a
format readable by the worldwide telephone
network, or translate between data on an
Ethernet local area network and the
Internet.
GLASS MASTER - Part of the disc making process; a highly
polished glass disc, coated with
photoresist and imprinted with the use of a
laser beam.
GOVERNMENT ACCESS
CHANNEL - A channel on a cable system dedicated for
use by local government.
GOVERNMENTAL
CABLECASTING - An opportunity for government officials to
disseminate information to their
constituents via cable television. This
can be achieved for example, by the
official periodically submitting 3/4 inch
videocassettes to the cable operator,
sending abridged newsletters for display on
a system's alphanumeric channel or
participating in interview programs on
access channels.
GROSS RECEIPTS - Total revenue (as defined in the governing
franchise agreement) derived from
programming and services on a cable system.
HARDWARE - Equipment involved in production, storage,
distribution, or reception of electronic
signals, such as the headend, the coaxial
cable network, amplifiers, the television
receiver and production equipment like
cameras and videotape recorders.
HDTV - A television signal with greater detail and
fidelity than the current TV systems used.
The USA currently uses a system called
NTSC; HDTV would provide a picture with
twice the visual resolution as NTSC as well
as CD-quality audio.
HEADEND - Electronic control center of the cable
system. This is the site of the receiving
antenna and the signal processing equipment
essential to proper functioning of a cable
system.
HIGH BAND - Television broadcast channels seven through
thirteen.
HIGH DEFINITION TELEVISION
(HDTV) - Television transmission which increases the
number of lines on the television screen so
as to enhance picture resolution.
Standards are currently under evaluation by
the FCC.
HOMES PASSED - The total number of homes which have the
potential for being hooked up to the cable
system.
-A 9-
127
HOUSEDROP - The cable which connects the subscriber's
set to the feeder (or branch) line of the
cable system. Also referred to as drop
cable.
HUBS - Local distribution centers where signals
are taken from a master feed, and
transmitted over cable to customers.
HYPERMEDIA - Refers to incorporation of other media in
hypertext or the promotional pump-priming
preceding every new wrinkle in media these
days.
HYPERTEXT - The format for the great interactive
American novel; writing in non-linear style
intended to allow the reader to select and
arrange segments to determine plot.
INDEPENDENT - Individually owned and operated cable
television system, not affiliated with an
MSO.
INSTITUTIONAL NETWORK - A network which is operated in conjunction
with a cable TV system, which is designed
to satisfy the needs of schools,
businesses, or government.
INTERACTIVE CABLE - A cable system that can carry information
both to and from subscribers. Examples of
uses include opinion polling, requests for
pay-per-view, information retrieval, and
video games. (See also TWO-WAY SYSTEM.)
INTERCONNECT - Connection of two or more cable systems by
microwave, fiber, coaxial cable, or
satellite, so that programming or
advertising may be exchanged, shared, or
simultaneously viewed.
INTERCONNECTION - The practice of linking cable systems,
usually with microwave, so that users of
different cable systems can receive the
same services simultaneously.
INTERDICTION - A method of receiving TV signals by jamming
unauthorized signals but having all other
signals received in the clear. Because the
jamming is accomplished outside the home
and does not require a set-top terminal in
the home, interdiction is receiving more
operator interest, especially in light of
recent FCC actions encouraging more
consumer friendly approaches.
INTEREXCHANGE CARRIER - A long distance carrier between serving
areas of LATAs.
INTERLACED DISPLAY - A raster display is "interlaced" when the
display screen skips every other line the
first time through and then comes back to
scan the alternate lines. Television
screens are interlaced. In computer
applications, interlaced displays are
thought to contribute to image flicker.
-A 10-
128
INTER-LATA - The provision of telecommunications
services between LATAs. Pursuant to the
AT&T Consent Decree, the RBOC's are
prohibited from providing
telecommunications services between LATAs.
INTRA-LATA - The area within a LATA in which, pursuant
to the AT&T Consent Decree, the RBOCs are
permitted to offer local telephone service.
ISDN - Integrated Service Digital Network; a
universal digital telecommunications
standard developed to facilitate
simultaneous transmission of high-bandwidth
data, video and audio signals.
ITFS (Instructional
Television Fixed Service) - An instructional broadcasting system where
signals are distributed on a special
microwave band to one or more fixed
receiving points.
JANUS DISC - Incidental allusion to the Roman god;
CD-ROM that possess god-like capacity to
incorporate data in two or more otherwise
incompatible formats.
LASER ROT - Degeneration of a laser disc resulting from
contamination of raw material or improper
process control.
LATA - Local Access and Transport Area.
LAYERED ECC - Layered Error Correction Code; means of
preserving integrity of CD-ROM material;
term refers to the fact that it is used on
top of the CIRC error correction of CD
audio discs.
LEASED CHANNELS - Any channels made available by the operator
to potential programmers for a fee.
LINE EXTENSION AREA - Area outside the initial service area of a
cable system where service will be provided
after the area reaches a certain density.
LOCAL AREA NETWORK - Network within a building of office
complex.
LOCAL EXCHANGE CARRIER
(LEC) - A local telephone company within a serving
area or LATA.
LOCAL LOOP - The set of facilities used by a telephone
company to transport signals between a
central office, roughly similar to a cable
TV headend, and a customer location. The
LOCAL LOOP using twisted pair copper wire
typically stretches a maximum of 18,000
feet between CO and customer premises.
LOCAL ORIGINATION
CHANNEL - A channel that carries programming produced
by a cable system for the community it
serves. Unlike
-A 11-
129
access channels, it is under the operator's
exclusive control and may carry
advertising.
LOCAL ORIGINATION
PROGRAMMING - Programming developed by an individual
cable television system specifically for
the community it serves.
LOCAL PROGRAMMING - All programming on a cable system that is
originated locally.
LOCKOUT DEVICE OR
LOCKBOX - A mechanism designed to prevent the
reception of specific programs. Usually
used to prevent reception of pay cable
movies.
LOOP - A dedicated local information distribution
service, using phone lines, cable or other
technologies, usually between business
machines or locations of an institution.
LOW BAND - Television broadcast channels two through
six.
MAGNETO OPTICAL - An information storage format magnetically
sensitive at high temperatures only; a
magneto optical disc can be erased or
recorded over.
MATV (Master Antenna
Television System) - A system that serves a concentration of
television sets such as an apartment
building, hotel, etc., utilizing one
antenna to pick up broadcast signals.
MICROWAVE - One method of interconnecting a cable
system with a series of high frequency
receive and transmit antennas mounted on
towers spaced up to 50 miles apart.
MIDBAND - The part of the electromagnetic spectrum
that lies between television channels 6 and
7, allocated by the FCC for aeronautical,
maritime, and land mobile radio. These
frequencies can be used on cable systems
with appropriate waivers, and may require
converters for reception on home TV sets.
MMDS (Multichannel Multipoint
Distribution Service) - Private service utilizing a very high
frequency (2 GHz) to transmit multiple
television signals (also called wireless
cable).
MODULATOR An electronic device that adjusts the level
and frequency of TV channels to that
desired.
MONITOR - A device used to display a video signal.
MPEG - Motion Picture Experts Group; the working
committee operating under the auspices of
the International Standards Organization to
set standards for digital compression and
decompression of motion video/audio.
-A 12-
130
MSO (Multiple System Operator) - Company that owns and operates more than
one cable television system.
MULTIMEDIA - Literally, more than one medium
simultaneously. In popular usage,
typically refers to graphics (with or
without animation) accompanied by sound.
Some computer-based encyclopedias claim to
be multimedia because they use both text
and still pictures, although this seems a
weaker definition of the word.
MULTIPLEXING - The potential transmission of several feeds
of the same cable network with the same
programming available at different times of
the day. This is seen as one possible use
of the additional channel capacity that may
be made available by digital compression.
Multiplexing is also used by some cable
networks to mean transmitting several
slightly different versions of the network,
for example several MTV channels carrying
different genres of music.
MUST-CARRY CHANNEL - Local broadcast signals that are required
to be carried over a cable system by the
FCC.
NARROWCASTING - Delivery of programming that address a
specific need or highly focused audience.
NCTA (National Cable
Television Association) - The major trade association for the cable
television industry.
NEAR VIDEO ON DEMAND (a.k.a.
Near Movie on Demand) - An entertainment and information service
that "broadcasts" a common set of programs
to customers on a scheduled basis. At
least initially, NVOD services are expected
to focus on delivery of movies and other
video entertainment. NVOD typically
features a schedule of popular movies and
events, offered on a staggered-start basis
(every 15 to 30 minutes, for example). See
VIDEO ON DEMAND.
NON-DUPLICATION RULES - Restrictions placed on cable television
systems prohibiting them from importing
distant programming that is simultaneously
available locally.
NON-INTERLACED DISPLAY - Whenever a line on a raster display is
scanned in order, the display is
"non-interlaced". This presents a
steadier, sharper image.
NONPROFIT ACCESS
CORPORATION - A corporation formed exclusively for the
purpose of facilitating program production
on access channels. May be responsible for
setting policies, administering grants,
and/or promoting use of access facilities.
NUMBER PORTABILITY - A capability that permits
telecommunications users to maintain the
same telephone access number as they change
telecommunications suppliers.
-A 13-
131
OFF-AIR - Reception of a television signal that has
been broadcast through the air.
OLE - Object linking and embedding; a
specification enabling developers to
readily integrate information drawn from
different applications by extending
graphical connections under Microsoft
Windows, OS/2 Presentation Manager and
Apple Macintosh System 7.0.
OOP - Object-Oriented Programming; a programming
method where each element is
self-contained, including all data and
instructions related to a particular
object.
ORDINANCE - Enabling legislation passed by a local
government to establish guidelines for the
franchising process.
ORIGINATION EQUIPMENT - A category of television equipment which
includes, but is not limited to, cameras,
film chains, videotape recorders, lighting,
and remote location equipment.
OROM - Optical Read-Only Memory; a laser-encoded
optical memory storage format for digital
data storage.
PAY-CABLE - Pay-TV delivered over cable, where
subscribers pay an additional fee for
programs such as first-run movies or sports
events.
PAY-PER-VIEW - Cable programming for which customers pay
on a one-time basis (e.g., for prize
fights, Broadway shows and movie
premieres).
PAY PROGRAMMING - Movies, sports, and made-for-cable specials
that are available to the cable customer
for a charge in addition to the basic fee.
PEL - Abbreviation for a "Picture Element", used
by television engineers to refer to the
smallest display point on a screen.
PENETRATION - Ratio of the number of cable customers (or
pay-TV customers) to the total number of
households passed by the system.
PERFORMANCE STANDARDS - Minimum technical criteria that a cable
system must meet as defined by the FCC and/
or a local ordinance.
PERSONAL COMMUNICATIONS
SERVICES - A new wireless communications service that
allows users to communicate through the use
of miniature hand held devices transmitted
over radio waves. The technology uses a
network of transmission towers or "mini-
cells" to relay the signal from one point
to another.
PIRATING - Illegal tapping of pay TV or cable TV
signals.
-A 14-
132
PIXEL - Abbreviation for a "Picture Element", used
by computer scientists. A pixel is the
smallest dot on the screen that is managed
by a screen display program. A VGA screen
with 640 x 480 resolution displays over
300,000 pixels.
PLANT - The hardware, buildings, and distribution
system of a cable system.
POINT OF PRESENCE - The place at which, pursuant to the AT&T
consent decree, a long distance carrier
interconnects with a local telephone
company.
POLE ATTACHMENT - Cable television hook-ups to telephone or
electric utility poles.
POLE REARRANGEMENTS - The process of spacing utility lines and
cable on a pole in a sequence regulated by
the Public Utilities Commission or the
utility. This rearrangement often involves
adding cross-arms or replacing the pole.
POLE RENTAL - A fee paid to a utility company for the
right to use its poles.
POLLING/OPINION POLLING - Using an interactive converter, the process
whereby a cable subscriber may register a
response to a request or a question posed
on a cable program.
PULSE CODE MODULATION - Means of changing analog audio to a digital
format by use of successive samples of
materials to be copied.
PREMIUM SERVICES - Optional services that have charges above
basic cable. Can include pay cable for
special types of programming, video games,
text and/or interactive services.
PROGRAMMER - Individual, organization, or company
providing programs to cable systems.
PUBLIC ACCESS CHANNEL - A channel designated for use by the general
public or nonprofit entities within a
community on a nondiscriminatory basis,
with no charges for channel time.
RAM - Random Access Memory; that portion of a
computer's memory that read and writes
data, representing the day- to-day capacity
enabling most computer tasks, expressed in
video game terms as VRAM (Video Random
Access Memory).
RASTER DISPLAY - The standard television display in which
the screen is scanned horizontally in
interlaced lines from upper left to lower
right. The standard television display is
525 lines.
REBUILD - The systematic replacement of old cable
plant -- to improve signal quality or
increase channel capacity.
-A 15-
133
RESOLUTION - The amount of detail in a picture.
RIEF - Resource Interchange File Format; a
multimedia specification, not tied to a
particular platform, which permits assorted
audio and video elements to be stored in
common formats.
RISC - Reduced Instruction Set Computing; RISC
differs from CISC (Complex Instruction Set
Computing) in that complex operations are
defined in terms of a sequence of smaller,
simpler operations. The computer hardware
in a RISC computer is designed to optimize
the speed at which the simplest operations
are performed and thus achieve overall high
performance levels. Direct comparisons
between RISC and CISC based hardware are
not easy to make, but each has its
proponents and detractors.
SATELLITE (Domestic
Communications) - Device located in geostationary orbit above
the earth which receives transmissions from
separate points and retransmits them to
cable systems, DBS and others over a wide
area.
SATELLITE MASTER ANTENNA
TELEVISION SYSTEM (SMATV) - Systems that serve a concentration of TV
sets such as an apartment building, hotel,
etc., utilizing one central antenna to pick
up broadcast and/or satellite signals.
SATELLITE SERVICE - Any channel delivered to cable systems by a
communications satellite.
SATURATED SYSTEM - Any cable system carrying up to its
existing channel capacity.
SCRAMBLING - A signal security technique for rendering a
TV picture unviewable, while permitting
full restoration with a properly authorized
decoder or descrambler.
SCSI - Small Computer Systems Interface, a
standard way to connect external systems to
a computer. In general, CD- ROM drives are
connected to computers through an SCSI
(pronounced "scuzzy") interface card.
SECURITY SYSTEMS - General term encompassing fire alarms,
smoke detectors, burglary devices, and
other services aimed at protecting the
welfare and property of subscribers and
users. Some use cable system from
subscriber's home to police or fire
departments.
SERVICE/TEST EQUIPMENT - A category of equipment which includes, but
is not limited to, oscilloscopes, field
strength meters, spectrum analyzers, and
cable testing equipment.
SERVO Electronic/mechanical machine using
feedback to make precise starts and stops
of the optical head; focuses the laser
beam.
-A 16-
134
SET TOP BOX - Any of several different electronic devices
that may be used in a customer's home to
enable services to be on that customer's
television set. If the "set top" device is
for extended tuning of channels only, it is
called a CONVERTER. It restores scrambled
or otherwise protected signals, it is a
DESCRAMBLER.
SHOP-AT-HOME - Programs allowing customers to view
products and/or order them by cable
television, inlcuding catalogues, shopping
shows, etc.
SIGNAL COMPRESSION A method of combining television signals so
that a larger number of channels than usual
can be transmitted over a fixed bandwidth.
A device to "expand" the wanted signal a
the receive location is also required.
SIGNAL-TO-NOISE-RATIO - The ratio of the desired signal to the
amount of noise (interference or
degradation) in a picture. The higher the
S/N ratio, the better.
SMATV - Satellite master antenna television.
Satellite dishes and aerial antennae
erected on apartment buildings and
multi-unit dwellings to receive and
re-transmit satellite and off-the-air
television signals to occupants of such
buildings or dwellings.
SOFTWARE - Materials used in programming such as
films, slides, video tapes, or video discs,
and the information they carry. Also
languages and formats used in computer
programming. Compare to hardware.
SPECIAL-EFFECTS
GENERATOR - A device used in the production of
television programs that facilities
transitions from one scene to another.
SPIN UP - Getting up to speed, referring to the
rotation rate of a CD-ROM that must be
reached for the disc to be readable.
SPRITE - A graphic element defined on a plane in
front of the background plane. Video games
are optimized to use sprites; computer
displays are optimized around bit-maps.
STOPWORD - A word in the data base that is not
included in the index.
STV (Subscription Television) - Pay-TV delivered by UHF over-the-air.
Signals are scrambled and decoded at the
subscriber's set by special receiver.
SUBSCRIBER - Customer paying a monthly fee to cable
system operators for the capability of
receiving a diversity or programs and
services.
SUPERSTATIONS - Broadcast stations whose signals are
transmitted over satellite and available
nationwide for distribution over
-A 17-
135
cable systems. Examples include
WGN-Chicago, WTBS-Atlanta, and WWOR-New
York.
SUPERTRUNK - Cable that carries several video signals
between facilities of a cable system.
SYNDICATED EXCLUSIVITY - Requirement by which cable systems must
blackout significant portions of their
distant signals in order to protect
syndicated programming which local
television broadcasters had under an
exclusive contract. The FCC eliminated
this requirement in 1980 and reimposed it
in 1990.
TAP - The connection from the feeder cable to the
subscriber housedrop.
TELECONFERENCING - A term for simultaneous sound hookup that
allows individuals in two or more locations
to meet with one another in a long-distance
"conference" mode. Video conferencing
includes pictures and sound. Can be video
one-way, audio two-way or two-way video.
TELETEXT - One-way system of storing and displaying
printed and graphic material on the home
television screen.
TERMINAL - Device that serves as interface between
user and communication system, e.g.
computer keyboard or a Fax machine.
TIERED PROGRAMMING - A group of programs for which the customer
is charged a fee. For example, most cable
systems offer a satellite programming tier.
TIERS - Levels of programming or services offered
in packages or singly to cable subscribers.
Usually progressive in price, quality and
quantity of programs. Compare to basic
service.
TIME BASE CORRECTOR - An electronic device that corrects and
stabilizes the video image during editing
and/or cablecasting. Local cable channels
which are not equipped with time base
correctors usually produce inferior picture
quality.
TRANSLATOR - Relay system that picks up distant
television signals, converts the signals to
another channel to avoid interference, and
retransmits them into areas the original
television station could not reach.
TRANSPONDER - The part of a satellite that receives and
transmits a signal.
TRUNKING - Transporting signals from one point (an
antenna site for instance) to another point
(such as a headend), usually without
serving customers directly. Trunking can
be accomplished by using coaxial cable,
fiber optics or microwave radio.
-A 18-
136
TRUNK LINE - The major distribution cable used in cable
television systems.
TWO-WAY SYSTEM - A cable system which can carry signals in
both directions, from the headend to the
subscriber and back to the headend.
TVRO - A television receive-only earth station
which receives signals
from satellites in geosynchronous orbit.
TV TRANSLATOR - A relay system that picks up distant
broadcast television signals, converts the
signals to another channel to avoid
interference, and re-transmits them into
areas the original station could not reach.
UNBUNDLING - The separation and discrete offering of the
components of the local telephone service.
UNBUNDLING of network components
facilitates the provision of "pieces" of
the local network, such as local switching
and transport, by telephone company
competitors.
UNDERGROUND
INSTALLATION - Method of installing cable underground as
opposed to aerial suspension of cable on
poles.
UPGRADE (OR SYSTEM
UPGRADE) - Modification of cable plant or home
terminal equipment (converters) to improve
quality and/or increase channel capacity.
UPLINK - A satellite dish antenna and transmitter
designed to send programming to a satellite
for distribution.
UPSTREAM - Flow of any information from the customer,
through the cable system, to the headend.
UPWARD COMPATIBLE - The high-tech equipment of upwardly mobile;
an entity that can be incorporated in a
larger, or more sophisticated environment,
such as software that can run on computer
systems of expanded capacity.
VCR (Video Cassette Recorder) - A machine used to record and playback
images on magnetic tape, packaged in a
cassette for storage, convenience and
longevity.
VAPORWARE - Word that connotes any multimedia product
that is real only in the mind of its
creator; related slang includes hyperware,
indicating hardware that has not yet been
delivered and slideware, something that
only exits in slide presentations.
VIDEO DIALTONE - A means by which telephone companies may
provide transmission facilities and for
on-telco video programming as well as
certain enhanced services to third party
programmers.
-A 19-
137
VIDEO ON DEMAND - An entertainment and information service
that allows customers to order programs
from library of material at any time they
desire.
WORD - Typically 2 or 4 bytes make up a "word".
Word is not often used today, but in use it
would refer to the size of the instruction
a CPU is required to process.
WORM - Write Once Read Many; a permanent optical
storage that permits the user to record
information on a blank disc.
YELLOW BOOK - The physical specification for any form of
laser encoded optical memory storage
medium (CD-ROM disc).
-A 20-