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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16789
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Enstar Income/Growth Program Five-B, L.P.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1713008
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12444 Powerscourt Dr., Suite 100
St. Louis, Missouri 63131
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(Address of principal (Zip Code)
executive offices)
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
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ITEM 1. - FINANCIAL STATEMENTS
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED BALANCE SHEETS
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March 31, December 31,
2001 2000*
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(Unaudited)
ASSETS:
Cash $ - $ 4,600
Equity in net assets of Joint Venture 4,915,000 4,887,200
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$ 4,915,000 $ 4,891,800
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LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 3,100 $ 2,700
Due to affiliates 102,200 90,800
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105,300 93,500
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PARTNERSHIP CAPITAL (DEFICIT):
General Partners (75,900) (76,000)
Limited Partners 4,885,600 4,874,300
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TOTAL PARTNERSHIP CAPITAL 4,809,700 4,798,300
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$ 4,915,000 $ 4,891,800
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* 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.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==================================
Unaudited
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Three months ended
March 31,
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2001 2000
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OPERATING EXPENSES:
General and administrative expenses $ (16,400) $ (26,100)
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LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE (16,400) (26,100)
EQUITY IN NET INCOME OF JOINT VENTURE 27,800 87,600
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NET INCOME $ 11,400 $ 61,500
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Net income allocated to General Partners $ 100 $ 600
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Net income allocated to Limited Partners $ 11,300 $ 60,900
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NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 0.19 $ 1.02
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AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 59,830 59,830
================ =================
The accompanying notes are an integral part of these
condensed financial statements.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
==================================
Unaudited
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Three months ended
March 31,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,400 $ 61,500
Adjustments to reconcile net income to net cash
from operating activities:
Equity in net income of Joint Venture (27,800) (87,600)
Changes in:
Accounts payable and due to affiliates 11,800 17,000
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Net cash from operating activities (4,600) (9,100)
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DECREASE IN CASH (4,600) (9,100)
CASH AT BEGINNING OF PERIOD 4,600 19,300
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CASH AT END OF PERIOD $ - $ 10,200
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The accompanying notes are an integral part of these
condensed financial statements.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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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,
2001, and for the three months ended March 31, 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 months ended
March 31, 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 $66,100
and $65,200 for the three months ended March 31, 2001 and 2000, respectively. In
addition, the Joint Venture is also required to distribute to ECC (which is the
corporate general partner of the Joint Venture as well as of the Partnership) an
amount equal to 1% of the Joint Venture's gross revenues, representing ECC's
interest as the corporate general partner of the Joint Venture. The Joint
Venture's management fee expense to ECC approximated $16,500 and $16,300 during
the three months ended March 31, 2001 and 2000, respectively. No management fee
is payable to the Manager by the Partnership in respect of 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. This results from the fact that there are
no employees directly employed by the Partnership and 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 $298,000 and $55,200 for the three months
ended March 31, 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 $323,600 and
$284,100 for the three months ended March 31, 2001 and 2000, respectively.
Programming fees are included in service costs in the accompanying condensed
statements of operations.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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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 there were amounts outstanding under its revolving loan
facility and pays a commitment fee to Enstar Finance Company, LLC, on the
unborrowed portion of its facility.
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.
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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.) each own 50% of the Joint Venture. Each of
the co-partners 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 March 31, 2001, and
December 31, 2000, and the results of its operations for the three months ended
March 31, 2001 and 2000, are included below. The results of operations for the
three months ended March 31, 2001, are not necessarily indicative of results for
the entire year.
March 31, December 31,
2001 2000 *
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(Unaudited)
Current assets $ 3,089,500 $ 2,769,100
Investment in cable television properties, net 7,479,200 7,848,200
Other assets 34,800 38,300
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$ 10,603,500 $ 10,655,600
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Current liabilities $ 773,400 $ 881,200
Venturers' capital 9,830,100 9,774,400
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$ 10,603,500 $ 10,655,600
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* Agrees with audited balance sheet included in the Partnership's Annual
Report on Form 10-K
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
=====================================
Unaudited
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Three months ended
March 31,
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2001 2000
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REVENUES $ 1,651,800 $ 1,630,300
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OPERATING EXPENSES:
Service costs 523,700 591,700
General and administrative expenses 210,300 267,700
General partner management fees and reimbursed expenses 380,600 136,700
Depreciation and amortization 482,300 451,700
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1,596,900 1,447,800
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OPERATING INCOME 54,900 182,500
OTHER INCOME (EXPENSE):
Interest income 18,100 12,300
Interest expense (17,300) (19,600)
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NET INCOME $ 55,700 $ 175,200
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
5. SUBSEQUENT EVENT
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
Partnership and Gans have determined that they will not be able to agree on
certain further amendments to the Agreement that are required in order to
satisfy conditions precedent to close the transaction. In light of this, present
economic and financial market conditions, and their impact on Gans' inability to
arrange financing in order to close the acquisition, on April 18, 2001 the
parties agreed to terminate the Agreement.
The Partnership's corporate general partner will continue to
operate the Partnership's cable television systems and will continue to
investigate potential divestiture transactions for the benefit of its
unitholders.
On December 7, 2000, the Partnership filed a Preliminary
Consent Statement with the Securities and Exchange Commission, pursuant to which
the Partnership's corporate general partner would solicit consents from the
Limited Partners to approve the Agreement. In light of the foregoing events, the
Partnership has withdrawn the Preliminary Consent Statement.
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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 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 months
ended March 31, 2001.
THE JOINT VENTURE
The Joint Venture's revenues increased from $1,630,300 to
$1,651,800, or 1.3%, for the three months ended March 31, 2001, as compared to
the corresponding periods in 2000. The increase was due to an increase in the
number of premium service customers, partially offset by a decline in the number
of basic service customers. As of March 31, 2001 and 2000, the Joint Venture had
approximately 15,200 and 15,300 basic service customers, respectively, and 3,900
and 2,200 premium service customers, respectively.
Service costs decreased from $591,700 to $523,700, or 11.5%,
for the three months ended March 31, 2001, as compared to the corresponding
period in 2000. Service costs represent costs directly attributable to providing
cable services to customers. The decrease was primarily due to the increase in
such services being provided and billed to us by Charter. Such expenses are
included in general partner management and reimbursed expenses, rather than
service costs.
Gross margin increased from $1,038,600 to $1,128,100, or 8.6%,
for the three months ended March 31, 2001, as compared to the corresponding
period in 2000. As a percentage of revenues, gross margin increased from 63.7%
to 68.3% for the three months ended March 31, 2001, as compared to the
corresponding period in 2000. The increase was due to the increase in service
costs being provided and billed to us by Charter during the three months ended
March 31, 2001, as compared to the corresponding period in 2000.
General and administrative expenses decreased from $267,700 to
$210,300, or 21.4%, for the three months ended March 31, 2001, as compared to
the corresponding period in 2000. The decrease was due
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to decreases in marketing expenses and an increase in general and administrative
expenses being provided and billed to us by Charter during the three months
ended March 31, 2001, as compared to the corresponding period in 2000.
General partner management fees and reimbursed expenses
increased from $136,700 to $380,600, or by 178.4%, for the three months ended
March 31, 2001, as compared to the corresponding period in 2000. As discussed
above, Charter now performs certain management and operational functions
formerly performed by us. Therefore, we have higher costs reimbursed to Charter
and lower service costs and general and administrative expenses.
Depreciation and amortization expense increased from $451,700
to $482,300 or 6.8%, for the three months ended March 31, 2001, as compared to
the corresponding period in 2000. The increase for the three months was due to
fixed asset additions during the past year to upgrade the Joint Venture's cable
systems.
Due to the factors described above, operating income decreased
from $182,500 to $54,900, or 69.9%, for the three months ended March 31, 2001,
as compared to the corresponding period in 2000.
Interest income increased from $12,300 to $18,100, or 47.2%,
and for the three months ended March 31, 2001, as compared to the corresponding
period in 2000. The increase was due to higher cash balances available for
investment during the three months ended March 31, 2001, as compared to the
corresponding period in 2000.
Interest expense decreased from $19,600 to $17,300, or 11.7%,
for the three months ended March 31, 2001, as compared to the corresponding
period in 2000. The decrease was due to lower average outstanding borrowings
during the three months ended March 31, 2001, partially offset by commitment
fees on the unborrowed portion of the Joint Venture's loan facility.
Due to the factors described above, net income decreased from
$175,200 to $55,700, or 68.2%, for the three months ended March 31, 2001, as
compared to the corresponding period in 2000.
Based on its experience in the cable television industry, the
Joint Venture believes that operating income before 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 $634,200 to $537,200, or by 15.3% during the
three months ended March 31, 2001, as compared to the corresponding period in
2000. EBITDA as a percentage of revenues decreased from 38.9% to 32.5% during
the three months ended March 31, 2001, as compared to the corresponding period
in 2000. The decrease was due to the decline in revenues and expenses, as
discussed above.
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.
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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
Partnership and Gans have determined that they will not be able to agree on
certain further amendments to the Agreement that are required in order to
satisfy conditions precedent to close the transaction. In light of this, present
economic and financial market conditions, and their impact on Gans' inability to
arrange financing in order to close the acquisition, on April 18, 2001 the
parties agreed to terminate the Agreement.
The Partnership's Corporate General Partner will continue to
operate the Partnership's cable television systems and will continue to
investigate potential divestiture transactions for the benefit of its
unitholders.
On December 7, 2000, the Partnership filed a Preliminary
Consent Statement with the Securities and Exchange Commission, pursuant to which
the Partnership's Corporate General Partner would solicit consents from the
Limited Partners to approve the Agreement. In light of the foregoing events, the
Partnership has withdrawn the Preliminary Consent Statement.
The Joint Venture relies upon the availability of cash
generated from operations and possible borrowings to fund its ongoing expenses,
debt service and capital requirements. The Joint Venture was required to upgrade
its system in Campbell County, Tennessee under a provision of its franchise
agreement. Upgrade expenditures are budgeted at a total estimated cost of
approximately $1,061,000. The upgrade began in 1998 and $1,385,000 has been
incurred as of March 31, 2001. The franchise agreement required the project to
be completed by January 2000. The Joint Venture did not meet this requirement,
although it has since 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
requirements in the franchise agreement. No assurances can be given that the
franchising authority will not take action that is adverse to the Joint Venture.
We believe that cash generated by operations of the Joint
Venture, together with available cash and proceeds from borrowings, will be
adequate to fund capital expenditures, debt service and other liquidity
requirements in 2000 and beyond. As a result, the Joint Venture intends to use
its cash for such purposes.
The Joint Venture is party to a loan agreement with Enstar
Finance Company, LLC, its primary lender and a subsidiary of Enstar
Communications Corporation. The loan agreement provides for a revolving loan
facility of $1,000,000. The Joint Venture had no borrowings outstanding under
the loan facility at March 31, 2001. The Joint Venture pays a commitment fee of
0.5% to Enstar Finance Company, LLC, on the unborrowed portion of its facility.
The Joint Venture's management expects to increase borrowings under the facility
in the future for system upgrades and other liquidity requirements.
The Joint Venture's facility matures on August 31, 2001, at
which time all amounts then outstanding are due in full. It is the intention of
the Joint Venture to renew the facility upon maturity. Borrowings bear interest
at the lender's base rate (8.50% at March 31, 2001) plus 0.625%, or at an
offshore rate (5.62% at March 31, 2001) plus 1.875%. Under certain
circumstances, the Joint Venture is required to make mandatory prepayments,
which permanently reduce the maximum commitment under the facility. The facility
contains certain financial tests and other covenants including, among others,
restrictions on incurrence of indebtedness, investments, sales of assets,
acquisitions and other covenants, defaults and conditions.
The facility does not restrict the payment of distributions to
partners by the Partnership unless an event of default exists thereunder or the
Joint Venture's ratio of debt to cash flow is greater than four to
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one. We believe it is critical for the Joint Venture to conserve cash and
borrowing capacity to fund its anticipated capital expenditures. Accordingly,
the Joint Venture does not anticipate an increase in distributions to the
Partnership in order to fund distributions to partners at this time.
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.
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 April 30, 2001, the Registrant filed a
current report on Form 8-K to announce the
termination of its sale agreement with
Multimedia Acquisition Corp.
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SIGNATURE
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
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(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: May 15, 2001 By: /s/ Kent D. Kalkwarf
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Kent D. Kalkwarf
Executive Vice President and Chief Financial
Officer (Principal Financial Officer and
Principal Accounting Officer)