SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission File Number 0-16789
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Enstar Income/Growth Program Five-B, L.P.
-----------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1712898
------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
12405 Powerscourt Drive
St. Louis, Missouri 63131
------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 965-0555
--------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2001 2000*
------------- ------------
(UNAUDITED)
ASSETS
ASSETS:
Cash $ 700 $ 4,600
Equity in net assets of Joint Venture 4,962,600 4,887,200
----------- -----------
$ 4,963,300 $ 4,891,800
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 9,300 $ 2,700
Due to affiliates 131,300 90,800
----------- -----------
140,600 93,500
----------- -----------
PARTNERSHIP CAPITAL (DEFICIT):
General Partners (75,800) (76,000)
Limited Partners 4,898,500 4,874,300
----------- -----------
TOTAL PARTNERSHIP CAPITAL 4,822,700 4,798,300
----------- -----------
$ 4,963,300 $ 4,891,800
=========== ===========
* Agrees with audited balance sheet included in the Partnership's Annual
Report on Form 10-K.
The accompanying notes are an integral part of these
condensed financial statements.
2
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2001 2000
-------- --------
(UNAUDITED)
OPERATING EXPENSES:
General and administrative expenses $(20,700) $(15,200)
OTHER EXPENSE:
Other expense (3,700) --
-------- --------
LOSS BEFORE EQUITY IN NET INCOME OF JOINT VENTURE (24,400) (15,200)
EQUITY IN NET INCOME OF JOINT VENTURE 75,100 30,900
-------- --------
NET INCOME $ 50,700 $ 15,700
======== ========
Net income allocated to General Partners $ 500 $ 200
======== ========
Net income allocated to Limited Partners $ 50,200 $ 15,500
======== ========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 0.84 $ 0.26
======== ========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 59,830 59,830
======== ========
The accompanying notes are an integral part of these
condensed financial statements.
3
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
2001 2000
--------- ---------
(UNAUDITED)
OPERATING EXPENSES:
General and administrative expenses $ (47,300) $ (59,600)
OTHER EXPENSE:
Other expense (3,700) --
--------- ---------
LOSS BEFORE EQUITY IN NET INCOME OF JOINT VENTURE (51,000) (59,600)
EQUITY IN NET INCOME OF JOINT VENTURE 75,400 278,400
--------- ---------
NET INCOME $ 24,400 $ 218,800
========= =========
Net income allocated to General Partners $ 200 $ 2,200
========= =========
Net income allocated to Limited Partners $ 24,200 $ 216,600
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 0.40 $ 3.62
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 59,830 59,830
========= =========
The accompanying notes are an integral part of these
condensed financial statements.
4
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
2001 2000
--------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,400 $ 218,800
Adjustments to reconcile net income
to net cash from operating activities:
Equity in net income of Joint Venture (75,400) (278,400)
Changes in:
Accounts payable and due to affiliates 47,100 45,300
--------- ---------
Net cash from operating activities (3,900) (14,300)
--------- ---------
DECREASE IN CASH (3,900) (14,300)
CASH AT BEGINNING OF PERIOD 4,600 19,300
--------- ---------
CASH AT END OF PERIOD $ 700 $ 5,000
========= =========
The accompanying notes are an integral part of these
condensed financial statements.
5
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for Enstar
Income/Growth Program Five-B, L.P. (the "Partnership") as of September 30, 2001,
and for the three and nine months ended September 30, 2001 and 2000, are
unaudited. These condensed interim financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
our Annual Report on Form 10-K for the year ended December 31, 2000. In the
opinion of management, the condensed interim financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of such periods. The results of operations for
the three and nine months ended September 30, 2001 are not necessarily
indicative of results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (the "Management
Agreement") with Enstar Cable Corporation (the "Manager"), a wholly owned
subsidiary of Enstar Communications Corporation (ECC), the corporate general
partner, pursuant to which the Partnership pays a monthly management fee of 5%
of gross revenues to the Manager. The Manager has entered into an identical
agreement with Enstar Cable of Cumberland Valley (the "Joint Venture"), a
Georgia general partnership of which the Partnership is a co-general partner,
except that the Joint Venture pays the Manager only a 4% management fee. The
Joint Venture's management fee expense approximated $66,700 and $65,500 for the
three months ended September 30, 2001 and 2000, respectively, and $198,100 and
$196,000 for the nine months ended September 30, 2001 and 2000, respectively. In
addition, the Joint Venture is also required to distribute to ECC an amount
equal to 1% of the Joint Venture's gross revenues. The Joint Venture's
management fee expense to ECC approximated $16,600 and $16,400 during the three
months ended September 30, 2001 and 2000, respectively, and $49,500 and $49,000
for the nine months ended September 30, 2001 and 2000, respectively. No
management fee is payable to the Manager by the Partnership with respect to any
amounts received by the Partnership from the Joint Venture. Management fees are
non-interest bearing.
The Management Agreement also provides that the Partnership reimburse the
Manager for direct expenses incurred on behalf of the Partnership and the
Partnership's allocable share of the Manager's operational costs. Additionally,
Charter Communications Holding Company, LLC and its affiliates (collectively,
"Charter") provide other management and operational services for the Partnership
and the Joint Venture as there are no employees directly employed by the
Partnership or the Joint Venture. These expenses are charged to the properties
served based primarily on the Partnership's allocable share of operational costs
associated with the services provided. The Joint Venture reimburses the
affiliates for the Partnership's allocable share of the affiliates' costs. The
total amount charged to the Joint Venture for these costs approximated $176,400
and $291,200 for the three months ended September 30, 2001 and 2000,
respectively and $689,000 and $821,100 for the nine months ended September 30,
2001 and 2000, respectively.
Substantially all programming services are purchased through Charter.
Charter charges the Joint Venture for these costs based on its actual costs. The
Joint Venture recorded programming fee expense of $327,000 and $280,200 for the
three months ended September 30, 2001 and 2000, respectively, and $972,500 and
$783,200 for the nine months ended September 30, 2001 and 2000, respectively.
Programming fees are included in service costs in the accompanying condensed
statements of operations.
In the normal course of business, the Joint Venture paid interest and
principal to Enstar Finance Company, LLC, its primary lender and a subsidiary of
ECC, when amounts were outstanding under its revolving loan facility and paid a
commitment fee to Enstar Finance Company, LLC, on the unborrowed portion of its
facility. The facility matured on August 31, 2001 and any amounts outstanding
under the facility were paid in full.
6
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
3. NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST
Net income per unit of limited partnership interest is based on the
average number of units outstanding during the periods presented. For this
purpose, net income has been allocated 99% to the Limited Partners and 1% to the
General Partners. The General Partners do not own units of partnership interest
in the Partnership, but rather hold a participation interest in the income,
losses and distributions of the Partnership.
4. EQUITY IN NET ASSETS OF ENSTAR CABLE OF CUMBERLAND VALLEY (JOINT VENTURE)
The Partnership and an affiliated partnership (Enstar Income/Growth
Program Five-A, L.P.) each own 50% of the Joint Venture. Each shares equally in
the profits and losses of the Joint Venture. The investment in the Joint Venture
is accounted for on the equity method. Summarized financial information for the
Joint Venture as of September 30, 2001 and December 31, 2000, and the results of
its operations for the three and nine months ended September 30, 2001 and 2000
follow. The results of operations for the three and nine months ended September
30, 2001 are not necessarily indicative of results for the entire year.
SEPTEMBER 30, DECEMBER 31,
2001 2000*
------------- ------------
(UNAUDITED)
Current assets $ 4,189,700 $ 2,769,100
Investment in cable television properties, net 7,029,400 7,848,200
Other assets -- 38,300
----------- -----------
$11,219,100 $10,655,600
=========== ===========
Current liabilities $ 1,294,000 $ 881,200
Venturers' capital 9,925,100 9,774,400
----------- -----------
$11,219,100 $10,655,600
=========== ===========
* Agrees with audited balance sheet included in the Partnership's Annual
Report on Form 10-K.
7
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2001 2000
----------- -----------
(UNAUDITED)
REVENUES $ 1,666,700 $ 1,638,400
----------- -----------
OPERATING EXPENSES:
Service costs 536,900 578,400
General and administrative expenses 289,100 160,000
General partner management fees and
reimbursed expenses 259,700 373,100
Depreciation and amortization 470,300 450,400
----------- -----------
1,556,000 1,561,900
----------- -----------
OPERATING INCOME 110,700 76,500
OTHER INCOME (EXPENSE):
Interest income 28,300 3,900
Interest expense -- (18,500)
Other expense 11,100 --
----------- -----------
39,400 (14,600)
----------- -----------
NET INCOME $ 150,100 $ 61,900
=========== ===========
8
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2001 2000
----------- -----------
(UNAUDITED)
REVENUES $ 4,952,400 $ 4,900,700
----------- -----------
OPERATING EXPENSES:
Service costs 1,618,600 1,382,800
General and administrative expenses 804,800 522,900
General partner management fees
and reimbursed expenses 936,600 1,066,100
Depreciation and amortization 1,444,000 1,354,400
----------- -----------
4,804,000 4,326,200
----------- -----------
OPERATING INCOME 148,400 574,500
OTHER INCOME (EXPENSE):
Interest income 78,500 35,400
Interest expense (7,600) (53,100)
Other expense (68,600) --
----------- -----------
2,300 (17,700)
----------- -----------
NET INCOME $ 150,700 $ 556,800
=========== ===========
9
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. PROPOSED SALES TRANSACTIONS
The Joint Venture, together with certain affiliates (collectively, the
"Selling Partnerships"), entered into a purchase and sale agreement, dated as of
August 8, 2000, as amended September 29, 2000 (the "Agreement"), with Multimedia
Acquisition Corp., an affiliate of Gans Multimedia Partnership ("Gans"). The
Agreement provided for Gans to acquire the Joint Venture's Monticello, Kentucky
cable system, as well as certain assets of the other Selling Partnerships.
Following a series of discussions and meetings, the Joint Venture and Gans
determined that they were not able to agree on certain further amendments to the
Agreement required to satisfy conditions precedent to close the transactions. In
light of these conditions and existing economic and financial market conditions,
and their impact on Gans' inability to arrange financing in order to close the
acquisitions, on April 18, 2001 the parties agreed to terminate the Agreement.
The Joint Venture's corporate general partner will continue to operate the
Joint Venture's cable television systems and will continue to investigate
potential divestiture transactions for the benefit of its unitholders.
6. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", No. 142, "Goodwill and Other Intangible Assets"
and No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting. SFAS No. 141 is required to be
implemented for all acquisitions initiated after June 30, 2001 and all business
combinations accounted for using the purchase method for which the date of
acquisition is July 1, 2001 or later. Adoption of SFAS No. 141 will not impact
the consolidated financial statements of the Partnership or Joint Venture.
Under SFAS No. 142, goodwill and other indefinite lived intangible assets
are no longer subject to amortization over their useful lives, rather, they are
subject to at least annual assessments for impairment. Also, under SFAS No. 142,
an intangible asset should be recognized if the benefit of the intangible asset
is obtained through contractual or other legal rights or if the intangible asset
can be sold, transferred, licensed, rented or exchanged. Such intangibles will
be amortized over their useful lives. SFAS No. 142 will be implemented by the
Partnership on January 1, 2002 and all goodwill and intangible assets acquired
after June 30, 2001 will be immediately subject to the provisions of SFAS No.
142. Upon adoption, the Partnership will no longer amortize indefinite lived
intangible assets, which consist primarily of cable franchise operating rights.
The Partnership will test these assets for impairment at least annually. Other
than during any periods in which the Partnership may record a charge for
impairment, the Partnership expects that the adoption of SFAS No. 142 will
result in increased income as a result of reduced amortization expense. Based on
the Partnership's preliminary evaluation, the estimated amortization costs of
the Joint Venture incurred during the three and nine months ended September 30,
2001, which will not be recurring costs subsequent to adoption, were $59,900 and
$208,800, respectively.
Under SFAS No. 143, the fair value of a liability for an asset retirement
obligation is required to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 will be implemented by the Partnership on January 1, 2002. Adoption
of SFAS No. 143 will not have a material impact on the consolidated financial
statements of the Partnership or Joint Venture.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and resolves
implementation issues related to SFAS No. 121. SFAS No. 144 will be implemented
by the Partnership on January 1, 2002. The Partnership and Joint Venture are
currently in process of assessing the future impact of adoption of SFAS No. 144.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This report includes certain forward-looking statements regarding, among
other things, our future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward-looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing cable
television operators such as the Partnership. In addition to the information
provided herein, reference is made to our Annual Report on Form 10-K for the
year ended December 31, 2000 for additional information regarding such matters
and the effect thereof on the Partnership's business.
All of our cable television business operations are conducted through our
participation as a partner with a 50% interest in Enstar Cable of Cumberland
Valley (the "Joint Venture"). Our participation is equal to our affiliated
partner (Enstar Income/Growth Program Five-A, L.P.) under the joint venture
agreement with respect to capital contributions, obligations and commitments,
and results of operations. Accordingly, the financial condition and results of
operations of the Partnership are significantly impacted by the matters of the
Joint Venture. The following discussion reflects such consideration and provides
a separate discussion for each entity.
RESULTS OF OPERATIONS
THE PARTNERSHIP
All of our cable television business operations are conducted through our
participation as a partner in the Joint Venture. The Joint Venture did not
distribute cash from its operations to the Partnership and the Partnership did
not pay distributions to its partners during the three and nine months ended
September 30, 2001.
THE JOINT VENTURE
The Joint Venture's revenues increased from $1,638,400 to $1,666,700, or
1.7%, and from $4,900,700 to $4,952,400, or 1.1%, for the three and nine months
ended September 30, 2001, respectively, as compared to the corresponding periods
in 2000. The increases were primarily due to an increase in subscriber fees,
partially offset by a decline in the number of basic and premium service
customers. As of September 30, 2001 and 2000, the Joint Venture had
approximately 14,500 and 14,700 basic service customers, respectively, and 3,700
and 4,200 premium service customers, respectively.
Service costs decreased from $578,400 to $536,900, or 7.2%, and increased
from $1,382,800 to $1,618,600, or 17.1%, for the three and nine months ended
September 30, 2001, respectively, as compared to the corresponding periods in
2000. Service costs represent programming costs and other costs directly
attributable to providing cable services to customers. The decrease for the
three months ended September 30, 2000, as compared to the corresponding period,
is primarily due to a decline in the number of customers. The increase for the
nine months ended September 30, 2001, as compared to the corresponding period in
2000, is primarily due to an increase in service level employees of the manager
which provides support to the Joint Venture.
Gross margin increased from $1,060,000 to $1,129,800, or 6.6%, and
decreased from $3,517,900 to $3,333,800, or 5.2%, for the three and nine months
ended September 30, 2001, respectively, as compared to the corresponding periods
in 2000. As a percentage of revenues, gross margin increased from 64.7% to
67.8%, and decreased from 71.8% to 67.3%, for the three and nine months ended
September 30, 2001, respectively, as compared to the corresponding periods in
2000. The fluctuations were primarily due to the fluctuations in revenue and
service costs described above.
General and administrative expenses increased from $160,000 to $289,100,
or 80.7%, and from $522,900 to $804,800, or 53.9%, for the three and nine months
ended September 30, 2001, respectively, as compared to the corresponding periods
in 2000. The increases were primarily due to an increase in professional fees
coupled with an increase in new employees of the manager which provides support
to the Joint Venture, as compared to the corresponding periods in 2000.
General partner management fees and reimbursed expenses decreased from
$373,100 to $259,700, or 30.4%, and from $1,066,100 to $936,600, or 12.1%, for
the three and nine months ended September 30, 2001, respectively, as compared to
the corresponding periods in 2000. The decreases were primarily due to a
decrease in the level of such services being provided and billed to the Joint
Venture by Charter.
11
Depreciation and amortization expense increased from $450,400 to $470,300,
or 4.4%, and from $1,354,400 to $1,444,000, or 6.6%, for the three and nine
months ended September 30, 2001, respectively, as compared to the corresponding
periods in 2000. The increases were primarily due to capital expenditures during
2000 and the nine months ended September 30, 2001.
Due to the factors described above, operating income increased from
$76,500 to $110,700, or 44.7%, and decreased from $574,500 to $148,400, or
74.2%, for the three and nine months ended September 30, 2001, respectively, as
compared to the corresponding periods in 2000.
Interest income increased from $3,900 to $28,300, or 625.6%, and from
$35,400 to $78,500, or 121.8%, for the three and nine months ended September 30,
2001, respectively, as compared to the corresponding periods in 2000. The
increases were due to higher cash balances available for investment, as compared
to the corresponding periods in 2000.
Interest expense decreased from $18,500 to $0, or 100.0%, and from $53,100
to $7,600, or 85.7%, for the three and nine months ended September 30, 2001,
respectively, as compared to the corresponding periods in 2000. The decreases
were due to lower average outstanding borrowings during 2001 and the expiration
of the loan facility on August 31, 2001, partially offset by commitment fees on
the unborrowed portion of the Joint Venture's loan facility.
Other income of $11,100 and other expense of $68,600 for the three and
nine months ended September 30, 2001, respectively, represent other income and
costs associated with the termination of the Agreement with Gans.
Due to the factors described above, net income increased from $61,900 to
$150,100, or 142.5%, and decreased from $556,800 to $150,700, or 72.9%, for the
three and nine months ended September 30, 2001, respectively, as compared to the
corresponding periods in 2000.
Based on experience in the cable television industry, the Joint Venture
believes that income before interest, income taxes, depreciation and
amortization, or EBITDA, and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television companies
in several areas, such as liquidity, operating performance and leverage. EBITDA
is not a measurement determined under generally accepted accounting principles
(GAAP) and does not represent cash generated from operating activities in
accordance with GAAP. EBITDA should not be considered by the reader as an
alternative to net income, as an indicator of financial performance or as an
alternative to cash flows as a measure of liquidity. In addition, the definition
of EBITDA may not be identical to similarly titled measures used by other
companies. EBITDA decreased from $1,928,900 to $1,523,800, or 21.0%, for the
nine months ended September 30, 2001, as compared to the corresponding period in
2000. EBITDA as a percentage of revenues decreased from 39.4% to 30.8%, during
the nine months ended September 30, 2001, as compared to the corresponding
period in 2000.
LIQUIDITY AND CAPITAL RESOURCES
Our primary objective is to distribute to our partners all available cash
flow received from the Joint Venture's operations and proceeds from the sale of
the Joint Venture's cable television systems, if any, after providing for
expenses, debt service and capital requirements relating to the expansion,
improvement and upgrade of such cable television systems.
INVESTING ACTIVITIES
The Joint Venture relies upon the availability of cash generated from
operations to fund its liquidity requirements and capital requirements. The
Joint Venture was required to upgrade its system in Campbell County, Tennessee
under a provision of its franchise agreement. The upgrade began in 1998 and
$1,385,000 was incurred as of September 30, 2001. The franchise agreement
required the project to be completed by January 2000. The Joint Venture did not
meet this requirement, although the project has subsequently been completed.
Under this upgrade initiative, no additional capital expenditures are currently
planned. The franchising authority has not given any indication that it intends
to take action adverse to the Joint Venture as the result of the Joint Venture's
noncompliance with the upgrade timing requirements of the franchise agreement.
However, no assurances can be given that the franchising authority will not take
action that is adverse to the Joint Venture.
12
FINANCING ACTIVITIES
The Partnership was party to a loan agreement with Enstar Finance Company,
LLC, a subsidiary of Enstar Communications Corporation that matured on August
31, 2001. The loan facility was not extended or replaced and any amounts
outstanding under the facility were paid in full. Cash generated by operations
of the Joint Venture, together with available cash balances will be used to fund
capital expenditures as required by franchise authorities. However, our cash
reserves will be insufficient to fund our entire upgrade program. If our systems
are not sold, we will need to rely on increased cash flow from operations or new
sources of financing in order to meet our future liquidity requirements and
complete our planned upgrade program. There can be no assurance that such cash
flow increases can be attained, or that additional future financing will be
available on terms acceptable to us. If we are not able to attain such cash flow
increases, or obtain new sources of borrowings, we will not be able to fully
complete our cable systems upgrades. As a result, the value of our systems would
be lower than that of systems rebuilt to a higher technical standard.
We believe it is critical for the Partnership to conserve cash to fund its
anticipated capital expenditures. Accordingly, the Partnership does not
anticipate any distributions to partners at this time.
PROPOSED SALES TRANSACTIONS
The Joint Venture, together with certain affiliates (collectively, the
"Selling Partnerships"), entered into a purchase and sale agreement, dated as of
August 8, 2000, as amended September 29, 2000 (the "Agreement"), with Multimedia
Acquisition Corp., an affiliate of Gans Multimedia Partnership ("Gans"). The
Agreement provided for Gans to acquire the Joint Venture's Monticello, Kentucky
cable system, as well as certain assets of the other Selling Partnerships.
Following a series of discussions and meetings, the Joint Venture and Gans
determined that they were not able to agree on certain further amendments to the
Agreement required to satisfy conditions precedent to close the transactions. In
light of these conditions and existing economic and financial market conditions,
and their impact on Gans' inability to arrange financing in order to close the
acquisitions, on April 18, 2001 the parties agreed to terminate the Agreement.
The Joint Venture's corporate general partner will continue to operate the
Joint Venture's cable television systems and will continue to investigate
potential divestiture transactions for the benefit of its unitholders.
The Joint Venture maintains insurance coverage for all of the cable
television properties owned or managed by it to cover damage to cable
distribution plant and customer connections and against business interruptions
resulting from such damage. This coverage is subject to a significant annual
deductible, which applies to all of the cable television properties owned or
managed by Charter, including those of the Joint Venture.
Approximately 94% of the Joint Venture's customers are served by its
system in Monticello, Kentucky and neighboring communities. Significant damage
to the system due to seasonal weather conditions or other events could have a
material adverse effect on the Joint Venture's liquidity and cash flows. The
Joint Venture continues to purchase insurance coverage in amounts its management
views as appropriate for all other property, liability, automobile, workers'
compensation and other insurable risks.
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued SFAS No.
141, "Business Combinations", No. 142, "Goodwill and Other Intangible Assets"
and No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase method of accounting. SFAS No. 141 is required to be
implemented for all acquisitions initiated after June 30, 2001 and all business
combinations accounted for using the purchase method for which the date of
acquisition is July 1, 2001 or later. Adoption of SFAS No. 141 will not impact
the consolidated financial statements of the Partnership or Joint Venture.
Under SFAS No. 142, goodwill and other indefinite lived intangible assets
are no longer subject to amortization over their useful lives, rather, they are
subject to at least annual assessments for impairment. Also, under SFAS No. 142,
an intangible asset should be recognized if the benefit of the intangible asset
is obtained through contractual or other legal rights or if the intangible asset
can be sold, transferred, licensed, rented or exchanged. Such intangibles will
be amortized over their useful lives. SFAS No. 142 will be implemented by the
Partnership on January 1, 2002 and all goodwill and intangible assets acquired
after June 30, 2001 will be immediately subject to the provisions of SFAS No.
142. Upon adoption, the Partnership will no longer amortize indefinite lived
intangible assets, which consist primarily of cable franchise operating rights.
The Partnership will test these assets for impairment at
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least annually. Other than during any periods in which the Partnership may
record a charge for impairment, the Partnership expects that the adoption of
SFAS No. 142 will result in increased income as a result of reduced amortization
expense. Based on the Partnership's preliminary evaluation, the estimated
amortization costs of the Joint Venture incurred during the three and nine
months ended September 30, 2001, which will not be recurring costs subsequent to
adoption, were $59,900 and $208,800, respectively.
Under SFAS No. 143, the fair value of a liability for an asset retirement
obligation is required to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 will be implemented by the Partnership on January 1, 2002. Adoption
of SFAS No. 143 will not have a material impact on the consolidated financial
statements of the Partnership or Joint Venture.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and resolves
implementation issues related to SFAS No. 121. SFAS No. 144 will be implemented
by the Partnership on January 1, 2002. The Partnership and Joint Venture are
currently in process of assessing the future impact of adoption of SFAS No. 144.
OTHER EVENTS
Effective October 30, 2001, Carl E. Vogel was appointed to replace Steven A.
Schumm as the sole director of Enstar Communications Corporation, the
Partnership's corporate general partner.
ECONOMIC SLOWDOWN; TERRORISM; AND ARMED CONFLICT
Although we do not believe that the recent terrorist attacks and the
subsequent armed conflict and related events have resulted in any material
changes to the Partnership's business and operations for the period ended
September 30, 2001, it is difficult to assess the impact that these events,
combined with the general economic slowdown, will have on future operations.
These events, combined with the general economic slowdown, could result in
reduced spending by customers and advertisers, which could reduce our revenues
and operating cash flow. Additionally, an economic slowdown could affect our
ability to collect accounts receivable. If we experience reduced operating
revenues, it could negatively affect our ability to make expected capital
expenditures and our ability to obtain financing at reasonable rates, if at all.
Terrorist attacks could interrupt or disrupt our ability to deliver our services
(or the services provided to us by programmers) and could cause unforeseen
damage to the Partnership's physical facilities. Terrorism and the related
events may have other adverse effects on the Partnership, in ways that cannot be
presently predicted.
INFLATION
Certain of the Joint Venture's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, we do not believe that our financial results
have been, or will be, adversely affected by inflation in a material way,
provided that the Joint Venture is able to increase our service rates
periodically, of which there can be no assurance.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None.
(B) REPORTS ON FORM 8-K
On October 9, 2001, the Registrant filed a current report on Form
8-K to announce the resignation of Jerry Kent, President and Chief
Executive Officer of Charter Communications, Inc. Effective
concurrently with Mr. Kent's resignation, Steven A. Schumm,
Executive Vice President and Assistant to the President, will serve
as the sole director of Enstar Communications Corporation, the
Partnership's corporate general partner.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
a GEORGIA LIMITED PARTNERSHIP
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 13, 2001 By: /s/ Paul E. Martin
-----------------------------------------
Paul E. Martin, Vice President and
Corporate Controller (Principal Financial
Officer for Partnership Matters)
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