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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 March 31, 2002.
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: 000-16789
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
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(Exact name of registrant as specified in its charter)
Georgia 58-1712898
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(State or other jurisdiction of incorporation or (I.R.S. Employer Identification Number)
organization)
12405 Powerscourt Drive
St. Louis, Missouri 63131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 965-0555
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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 _
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2002 2001 *
------------ ------------
(UNAUDITED)
ASSETS
ASSETS:
Cash $ 600 $ 1,100
Equity in net assets of joint venture 5,004,200 4,949,400
------------ ------------
Total assets $ 5,004,800 $ 4,950,500
============ ============
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable and accrued liabilities $ 500 $ 3,300
Due to affiliates 162,100 147,700
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Total liabilities 162,600 151,000
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PARTNERSHIP CAPITAL (DEFICIT):
General Partners (75,600) (76,000)
Limited Partners 4,917,800 4,875,500
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Total partnership capital 4,842,200 4,799,500
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Total liabilities and partnership capital $ 5,004,800 $ 4,950,500
============ ============
* Agrees with the audited balance sheet included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 2001.
See accompanying notes to condensed financial statements.
2
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
2002 2001
-------- --------
(UNAUDITED)
OPERATING EXPENSES:
General and administrative expenses $(12,100) $(16,400)
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LOSS BEFORE EQUITY IN NET INCOME OF JOINT VENTURE (12,100) (16,400)
EQUITY IN NET INCOME OF JOINT VENTURE 54,800 27,800
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NET INCOME $ 42,700 $ 11,400
======== ========
Net income allocated to General Partners $ 400 $ 100
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Net income allocated to Limited Partners $ 42,300 $ 11,300
======== ========
NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST $ 0.71 $ 0.19
======== ========
AVERAGE LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD 59,830 59,830
======== ========
See accompanying notes to condensed financial statements.
3
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
2002 2001
-------- --------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 42,700 $ 11,400
Adjustments to reconcile net income to net cash
from operating activities:
Equity in net income of joint venture (54,800) (27,800)
Changes in:
Accounts payable, accrued liabilities and due to affiliates 11,600 11,800
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Net cash from operating activities (500) (4,600)
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NET DECREASE IN CASH (500) (4,600)
CASH AT BEGINNING OF PERIOD 1,100 4,600
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CASH AT END OF PERIOD $ 600 $ --
======== ========
See accompanying notes to condensed financial statements.
4
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 March 31, 2002, and
for the three months ended March 31, 2002 and 2001, 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, 2001. 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 months ended
March 31, 2002 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 (Enstar Cable), a wholly owned
subsidiary of Enstar Communications Corporation (ECC), the Corporate General
Partner, for a monthly management fee of 5% of gross revenues, as defined, from
the operations of the Partnership. The Partnership did not own or operate any
cable television operations in 2002 and 2001 other than through its investment
in the Joint Venture. No management fees were paid by the Partnership during
2002 and 2001. Enstar Cable 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 Enstar Cable a 4% management fee. The Joint Venture's management fee
expense approximated $63,900 and $66,100 for the three months ended March 31,
2002 and 2001, 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 $16,000 and
$16,500 during the three months ended March 31, 2002 and 2001, respectively. No
management fee is payable to Enstar Cable 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
Enstar Cable for direct expenses incurred on behalf of the Partnership and the
Partnership's allocable share of Enstar Cable'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. These expenses are charged to the properties served based
primarily on the Partnership's or Joint Venture's allocable share of operational
costs associated with the services provided. The Partnership and the Joint
Venture reimburse the affiliates for the Partnership's and Joint Venture's
allocable share of the affiliates' costs. The total amount charged to the Joint
Venture for these costs approximated $181,500 and $298,000 for the three months
ended March 31, 2002 and 2001, respectively. No reimbursable expenses were
incurred on behalf of the Partnership during the three months ended March 31,
2002 and 2001.
All programming services are purchased through Charter. Charter charges
the Joint Venture for these costs based on its costs. The Joint Venture recorded
programming fee expense of $318,600 and $323,600 for the three months ended
March 31, 2002 and 2001, respectively. Programming fees are included in service
costs in the accompanying condensed statements of operations.
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.
5
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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. (collectively, the Venturers), each own 50% of the Joint
Venture. Each of the Venturers share 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
March 31, 2002 and December 31, 2001, and the results of its operations for the
three months ended March 31, 2002 and 2001 follow. The results of operations for
the three months ended March 31, 2002 are not necessarily indicative of results
for the entire year.
ENSTAR CABLE OF CUMBERLAND VALLEY
CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2002 2001 *
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(UNAUDITED)
ASSETS
Current assets $ 5,084,000 $ 4,471,500
Investment in cable television properties, net 6,465,500 6,845,300
Other assets 300 600
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$ 11,549,800 $ 11,317,400
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LIABILITIES AND VENTURERS' CAPITAL
Current liabilities $ 1,541,400 $ 1,418,600
Venturers' capital 10,008,400 9,898,800
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$ 11,549,800 $ 11,317,400
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* Agrees with the audited balance sheet included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 2001.
6
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ENSTAR CABLE OF CUMBERLAND VALLEY
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
-----------------------------
2002 2001
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(UNAUDITED)
REVENUES $ 1,597,400 $ 1,651,800
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OPERATING EXPENSES:
Service costs 573,500 523,700
General and administrative expenses 239,100 210,300
General partner management fees and reimbursed expenses 261,400 380,600
Depreciation and amortization 425,900 482,300
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1,499,900 1,596,900
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OPERATING INCOME 97,500 54,900
OTHER INCOME (EXPENSE):
Interest income 12,100 18,100
Interest expense -- (17,300)
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12,100 800
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NET INCOME $ 109,600 $ 55,700
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5. RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 provides for the rescission of several previously
issued accounting standards, new accounting guidance for the accounting for
certain lease modifications and various technical corrections that are not
substantive in nature to existing pronouncements. SFAS No. 145 will be adopted
by the Partnership and Joint Venture beginning January 1, 2003, except for the
provisions relating to the amendment of SFAS No. 13, which will be adopted for
transactions occurring subsequent to May 15, 2002. Adoption of SFAS No. 145 will
not have a material impact on the condensed financial statements of the
Partnership or Joint Venture.
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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 us. 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 us. In addition to the information provided herein, reference is made to
our Annual Report on Form 10-K for the year ended December 31, 2001 for
additional information regarding such matters and the effect thereof on our
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, in considering the
financial condition and results of operations for us, consideration must also be
made of those matters as they relate to the Joint Venture. The following
discussion reflects such consideration, and with respect to results of
operations, a separate discussion is provided for each entity.
RESULTS OF OPERATIONS
THE PARTNERSHIP
All of our cable television business operations, which began in
January 1988, are conducted through our participation as a partner in the Joint
Venture. The Joint Venture did not pay distributions from its operations to us
and we did not pay distributions to our partners during the three months ended
March 31, 2002 and 2001.
Operating activities used $500 and $4,600 during the three months
ended March 31, 2002 and 2001, respectively. Changes in liabilities owed to
affiliates and third party creditors provided $11,600 and $11,800 during the
three months ended March 31, 2002 and 2001, respectively.
THE JOINT VENTURE
The Joint Venture's revenues decreased $54,400 from $1,651,800 to
$1,597,400, or 3.3%, for the three months ended March 31, 2002 compared to the
corresponding period in 2001. The decrease was primarily due to a decline in the
number of basic and premium service customers. As of March 31, 2002 and 2001,
the Joint Venture had approximately 13,900 and 15,200 basic service customers,
respectively, and 2,400 and 3,900 premium service customers, respectively.
Service costs increased $49,800 from $523,700 to $573,500, or 9.5%,
for the three months ended March 31, 2002 compared to the corresponding period
in 2001. Service costs represent programming costs and other costs directly
attributable to providing cable services to customers. The increase for the
three months ended March 31, 2002 compared to the corresponding period in 2001,
is primarily due to an increase in the number of employees.
General and administrative expenses increased $28,800 from $210,300
to $239,100, or 13.7%, for the three months ended March 31, 2002 compared to the
corresponding period in 2001. The increase was primarily due to an increase in
the number of employees compared to the corresponding period in 2001.
General partner management fees and reimbursed expenses decreased
$119,200 from $380,600 to $261,400, or 31.3%, for the three months ended March
31, 2002 compared to the corresponding period in 2001. The decrease was
primarily due to a decrease in the level of such services being provided and
billed to the Joint Venture by Charter, therefore, increasing service and
general and administrative expenses.
8
Depreciation and amortization expense decreased $56,400 from
$482,300 to $425,900, or 11.7%, for the three months ended March 31, 2002
compared to the corresponding period in 2001. The decrease was primarily due to
a decrease in capital expenditures coupled with fixed assets becoming fully
depreciated during the last three quarters of 2001 and the three months ended
March 31, 2002.
Due to the factors described above, operating income increased
$42,600 from $54,900 to $97,500, or 77.6%, for the three months ended March 31,
2002 compared to the corresponding period in 2001.
Interest income decreased $6,000 from $18,100 to $12,100, or 33.1%,
for the three months ended March 31, 2002 compared to the corresponding period
in 2001. The decrease was primarily due to a decrease in interest rates on cash
balances available for investment during the three months ended March 31, 2002
compared to the corresponding period in 2001.
Interest expense decreased from $17,300 to $0, or 100.0%, for the
three months ended March 31, 2002 compared to the corresponding period in 2001.
The decrease was due to the expiration of our loan facility on August 31, 2001.
Due to the factors described above, net income increased $53,900
from $55,700 to $109,600, or 96.8%, for the three months ended March 31, 2002
compared to the corresponding period in 2001.
Based on its 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 $13,800 from $537,200 to $523,400, or 2.6%, for the
three months ended March 31, 2002 compared to the corresponding period in 2001.
EBITDA as a percentage of revenues increased less than 1% from 32.5% to 32.8%,
during the three months ended March 31, 2002 compared to the corresponding
period in 2001.
LIQUIDITY AND CAPITAL RESOURCES
Our primary objective, having invested net offering proceeds in the
Joint Venture, is to distribute to our partners distributions of 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
and any planned capital requirements relating to the expansion, improvement and
upgrade of such cable television systems.
INVESTING ACTIVITIES
Significant capital would be required for a comprehensive plant and
headend upgrade particularly in light of the high cost of electronics to enable
two-way service, to offer high speed cable modem Internet service and other
interactive services, as well as to increase channel capacity and allow a
greater variety of video services.
The estimated cost of a comprehensive upgrade would be approximately
$20.6 million (for an upgrade to 550 megahertz capacity) and $24.8 million (for
an upgrade to 870 megahertz capacity). Given the high cost of this comprehensive
upgrade plan, the limited funds available, and the belief that such a plan is
not economically prudent, the Corporate General Partner does not presently
anticipate that it will proceed with a comprehensive upgrade plan. Provided
there are available funds, the Corporate General Partner will, however, continue
to evaluate alternative, cost-effective solutions to increase channel capacity,
pay-per-view services, and digital services which would enhance the value of the
Joint Venture's systems and be economically prudent.
The Joint Venture relies upon the availability of cash generated
from operations and possible borrowings to fund its ongoing expenses 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 the
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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 at a total cost of approximately $1.385 million.
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.
FINANCING ACTIVITIES
The Joint Venture was a party to a loan agreement with Enstar
Finance Company, LLC, a subsidiary of Enstar Communications Corporation (the
Corporate General Partner), 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, the Joint Venture's cash reserves will be
insufficient to fund the Joint Venture's entire upgrade program. If the Joint
Venture's systems are not sold, the Joint Venture 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 the
Joint Venture is not able to attain such cash flow increases, or obtain new
sources of borrowings, it 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.
The Joint Venture believes it is critical to conserve cash to fund
its anticipated capital expenditures. Accordingly, we do not anticipate any
distributions to partners at this time.
CERTAIN TRENDS AND UNCERTAINTIES
Insurance coverage is maintained for all of the cable television
properties owned or managed by Charter to cover damage to cable distribution
systems, 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.
Although we do not believe that the terrorist attacks on September
11, 2001 and the related events have resulted in any material changes to our
business and operations to date, it is difficult to assess the impact that these
events, combined with the general economic slowdown, will have on future
operations. These events could result in reduced spending by customers and
advertisers, which could reduce revenues and operating cash flow, as well as the
collectibility of accounts receivable.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission
of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and
Technical Corrections." SFAS No. 145 provides for the rescission of several
previously issued accounting standards, new accounting guidance for the
accounting for certain lease modifications and various technical corrections
that are not substantive in nature to existing pronouncements. SFAS No. 145 will
be adopted by us and the Joint Venture beginning January 1, 2003, except for the
provisions relating to the amendment of SFAS No. 13, which will be adopted for
transactions occurring subsequent to May 15, 2002. Adoption of SFAS No. 145 will
not have a material impact on the condensed financial statements.
10
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 manner,
provided that the Joint Venture is able to increase its prices periodically, of
which there can be no assurance.
11
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None.
(B) REPORTS ON FORM 8-K
None.
12
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.
By: ENSTAR COMMUNICATIONS CORPORATION
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Corporate General Partner
Date: May 15, 2002 By: /s/ Paul E. Martin
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Paul E. Martin
Senior Vice President, Corporate Controller
(Principal Accounting Officer)
13