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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 June 30, 1998
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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 _______________________
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)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 824-9990
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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
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED BALANCE SHEETS
=================================================
December 31, June 30,
1997* 1998
----------- -----------
(Unaudited)
ASSETS:
Cash $ 3,400 $ 800
Equity in net assets of Joint Venture 4,222,900 4,346,000
----------- -----------
$ 4,226,300 $ 4,346,800
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 14,800 $ 10,500
----------- -----------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (81,900) (80,700)
Limited partners 4,293,400 4,417,000
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TOTAL PARTNERSHIP CAPITAL 4,211,500 4,336,300
----------- -----------
$ 4,226,300 $ 4,346,800
=========== ===========
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
=================================================
Unaudited
---------------------------
Three months ended
June 30,
---------------------------
1997 1998
--------- ---------
OPERATING EXPENSES:
General and administrative expenses $ (5,600) $ (6,300)
--------- ---------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE (5,600) (6,300)
EQUITY IN NET INCOME OF JOINT VENTURE 3,000 123,600
--------- ---------
NET INCOME (LOSS) $ (2,600) $ 117,300
========= =========
NET INCOME (LOSS) ALLOCATED TO GENERAL PARTNERS $ -- $ 1,200
========= =========
NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS $ (2,600) $ 116,100
========= =========
NET INCOME (LOSS) PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (0.04) $ 1.94
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 59,830 59,830
========= =========
See accompanying notes to condensed financial statements.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
=================================================
Unaudited
---------------------------
Six months ended
June 30,
---------------------------
1997 1998
--------- ---------
OPERATING EXPENSES:
General and administrative expenses $ (13,500) $ (11,300)
--------- ---------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE (13,500) (11,300)
EQUITY IN NET INCOME OF JOINT VENTURE 1,200 136,100
--------- ---------
NET INCOME (LOSS) $ (12,300) $ 124,800
========= =========
NET INCOME (LOSS) ALLOCATED TO GENERAL PARTNERS $ (100) $ 1,200
========= =========
NET INCOME (LOSS) ALLOCATED TO LIMITED PARTNERS $ (12,200) $ 123,600
========= =========
NET INCOME (LOSS) PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (0.20) $ 2.07
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 59,830 59,830
========= =========
See accompanying notes to condensed financial statements.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
STATEMENTS OF CASH FLOWS
=================================================
Unaudited
---------------------------
Six months ended
June 30,
---------------------------
1997 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (12,300) $ 124,800
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in net income of Joint Venture (1,200) (136,100)
Increase (decrease) from changes in:
Due from affiliates 1,200 --
Accounts payable (2,500) (4,300)
--------- ---------
Net cash used in operating activities (14,800) (15,600)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Venture 15,000 13,000
--------- ---------
INCREASE (DECREASE) IN CASH 200 (2,600)
CASH AT BEGINNING OF PERIOD 4,500 3,400
--------- ---------
CASH AT END OF PERIOD $ 4,700 $ 800
========= =========
See accompanying notes to condensed financial statements.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the three
and six months ended June 30, 1998 and 1997 are unaudited. These condensed
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Partnership's latest
Annual Report on Form 10-K. In the opinion of management, such 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 six months ended June 30, 1998 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
"Agreement") with a wholly owned subsidiary of the Corporate General Partner
(the "Manager") pursuant to which it pays a monthly management fee of 5% of
gross revenues. The Agreement also provides that the Partnership will reimburse
the Manager for (i) direct expenses incurred on behalf of the Partnership and
(ii) the Partnership's allocable share of the Manager's operational costs. The
Corporate General Partner has contracted with Falcon Holding Group, L.P.
("FHGLP"), an affiliated partnership, to provide corporate management services
for the Partnership and Enstar Cable of Cumberland Valley, a Georgia general
partnership, of which the Partnership is co-general partner (the "Joint
Venture"). Corporate office allocations and district office expenses are charged
to the properties served based primarily on the respective percentage of basic
subscribers within the designated service areas. No such costs and expenses were
incurred or charged to the Partnership for these services during the three and
six months ended June 30, 1998. The Manager has entered into an identical
agreement with the Joint Venture, except that the Joint Venture pays the Manager
only a 4% management fee. However, the Joint Venture is required to distribute
to Enstar Communications Corporation (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 in respect of Enstar Communications Corporation's
interest as the Corporate General Partner of the Joint Venture. No management
fee is payable to the Manager by the Partnership in respect of any amounts
received by the Partnership from the Joint Venture, and there is no duplication
of reimbursed expenses and costs of the Manager. The Joint Venture paid the
Manager management fees of approximately $71,400 and $142,400 and reimbursement
of expenses of approximately $76,000 and $145,300 under its management agreement
for the three and six months ended June 30, 1998. In addition, the Joint Venture
paid the Corporate General Partner approximately $17,800 and $35,600 in respect
of its 1% special interest during the three and six months ended June 30, 1998.
Management fees and reimbursed expenses due the Corporate General Partner are
non-interest bearing.
The Joint Venture also receives certain system operating management
services from affiliates of the Corporate General Partner in addition to the
Manager, due to the fact that there are no employees directly employed by the
Joint Venture. The Joint Venture reimburses the affiliates for the Joint
Venture's allocable share of the affiliates' operational costs. The total amount
charged to the Joint Venture for these costs approximated $152,300 and $317,800
for the three and six months ended June 30, 1998. No management
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
fee is payable to the affiliates by the Joint Venture and there is no
duplication of reimbursed expenses and costs paid to the Manager.
Certain programming services have been purchased through an affiliate
of the Joint Venture. In turn, the affiliate charges the Joint Venture for these
costs based on an estimate of what the Corporate General Partner could negotiate
for such programming services for the 15 partnerships managed by the Corporate
General Partner as a group. The Joint Venture recorded programming fee expense
of $340,700 and $685,700 for the three and six months ended June 30, 1998.
Programming fees are included in service costs in the statements of operations.
In the normal course of business, the Joint Venture pays interest and
principal to Enstar Finance Company, LLC, its primary lender and an affiliate of
the Corporate General Partner.
3. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is based
on the average number of units outstanding during the periods presented. For
this purpose, earnings and losses have 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. RECLASSIFICATIONS
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
5. EQUITY IN NET ASSETS OF 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
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 June 30, 1998 and December 31, 1997 and
the results of its operations for the three and six months ended June 30, 1998
and 1997 have been included. The results of operations for the three and six
months ended June 30, 1998 are not necessarily indicative of results for the
entire year.
December 31, June 30,
1997* 1998
----------- -----------
(Unaudited)
Current assets $ 1,504,500 $ 1,572,600
Investment in cable television properties, net 10,759,800 10,340,800
Other assets 127,800 115,000
----------- -----------
$12,392,100 $12,028,400
=========== ===========
Current liabilities $ 1,346,300 $ 1,336,400
Long-term debt 2,600,000 2,000,000
Venturers' capital 8,445,800 8,692,000
----------- -----------
$12,392,100 $12,028,400
=========== ===========
*As presented in the audited financial statements.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
5. EQUITY IN NET ASSETS OF JOINT VENTURE (CONTINUED)
Unaudited
-------------------------------
Three months ended
June 30,
-------------------------------
1997 1998
----------- -----------
REVENUES $ 1,780,100 $ 1,782,900
----------- -----------
OPERATING EXPENSES:
Service costs 620,700 571,000
General and administrative expenses 231,500 214,500
General Partner management fees
and reimbursed expenses 164,900 165,200
Depreciation and amortization 653,400 527,200
----------- -----------
1,670,500 1,477,900
----------- -----------
OPERATING INCOME 109,600 305,000
OTHER INCOME (EXPENSE):
Interest income 18,700 16,400
Interest expense (122,300) (74,100)
----------- -----------
NET INCOME $ 6,000 $ 247,300
=========== ===========
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
5. EQUITY IN NET ASSETS OF JOINT VENTURE (CONTINUED)
Unaudited
-------------------------------
Six months ended
June 30,
-------------------------------
1997 1998
----------- -----------
REVENUES $ 3,582,500 $ 3,559,300
----------- -----------
OPERATING EXPENSES:
Service costs 1,244,900 1,130,200
General and administrative expenses 468,800 442,200
General Partner management fees
and reimbursed expenses 326,300 323,300
Depreciation and amortization 1,317,100 1,057,400
----------- -----------
3,357,100 2,953,100
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OPERATING INCOME 225,400 606,200
OTHER INCOME (EXPENSE):
Interest income 45,800 29,600
Interest expense (268,700) (148,000)
Loss from involuntary conversion
of cable system assets -- (215,600)
----------- -----------
NET INCOME $ 2,500 $ 272,200
=========== ===========
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") required the Federal Communications Commission ("FCC")
to, among other things, implement extensive regulation of the rates charged by
cable television systems for basic and programming service tiers, installation,
and customer premises equipment leasing. Compliance with those rate regulations
has had a negative impact on the Joint Venture's revenues and cash flow. The
Telecommunications Act of 1996 (the "1996 Telecom Act") substantially changed
the competitive and regulatory environment for cable television and
telecommunications service providers. Among other changes, the 1996 Telecom Act
provides that the regulation of cable programming service tier ("CPST") rates
will be terminated on March 31, 1999. Because cable service rate increases have
continued to outpace inflation under the FCC's existing regulations, the
Partnership and Joint Venture expect Congress and the FCC to explore additional
methods of regulating cable service rate increases, including deferral or repeal
of the March 31, 1999 termination of CPST rate regulation. There can be no
assurance as to what, if any, further action may be taken by the FCC, Congress
or any other regulatory authority or court, or the effect thereof on the Joint
Venture's business. Accordingly, the Joint Venture's historical financial
results as described below are not necessarily indicative of future performance.
This Report includes certain forward looking statements regarding,
among other things, 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 the Partnership's Annual Report on Form
10-K for the year ended December 31, 1997 for additional information regarding
such matters and the effect thereof on the Partnership's business.
All of the Partnership's cable television business operations are
conducted through its participation as a partner with a 50% interest in the
Joint Venture. The Partnership participates equally with its 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 of the Partnership, consideration must also be made of those
matters as they relate to the Joint Venture. The following discussion reflects
such consideration and provides a separate discussion for each entity.
RESULTS OF OPERATIONS
THE PARTNERSHIP
All of the Partnership's cable television business operations, which
began in January 1988, are conducted through its participation as a partner in
the Joint Venture. The Joint Venture distributed an aggregate of $3,000 and
$13,000 to the Partnership, representing the Partnership's pro rata share of the
cash
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
RESULTS OF OPERATIONS (CONTINUED)
flow distributed from the Joint Venture's operations during the three and six
months ended June 30, 1998. The Partnership did not pay distributions to its
partners during the three and six months ended June 30, 1998.
THE JOINT VENTURE
The Joint Venture's revenues remained relatively unchanged for the
three months ended June 30, 1998 as compared to the corresponding quarter in
1997, increasing from $1,780,100 to $1,782,900, or by less than 1%. Revenues
decreased from $3,582,500 to $3,559,300, or by less than 1%, for the six months
ended June 30, 1998 as compared to the corresponding period in 1997. Of the
$2,800 increase for the three months ended June 30, 1998 as compared to the
corresponding period in 1997, $33,500 was due to increases in regulated service
rates that were implemented by the Joint Venture in 1997 and $7,200 was due to
increases in other revenue producing items, including incentive fees from
programmers. These increases were partially offset by a decrease of $37,900 due
to decreases in the number of subscriptions for basic, premium, tier and
equipment rental services. Of the $23,200 decrease for the six months ended June
30, 1998 as compared to the corresponding period in 1997, $71,800 was due to
decreases in the number of subscriptions for basic, premium, tier and equipment
rental services and $5,200 was due to decreases in other revenue producing items
including installation revenue. These decreases were partially offset by an
increase of $53,800 due to increases in regulated service rates that were
implemented by the Joint Venture in 1997. As of June 30, 1998, the Joint Venture
had approximately 16,800 basic subscribers and 2,500 premium service units.
Service costs decreased from $620,700 to $571,000, or by 8.0%, and from
$1,244,900 to $1,130,200, or by 9.2%, for the three and six months ended June
30, 1998 as compared to the corresponding periods in 1997. Service costs
represent costs directly attributable to providing cable services to customers.
The decreases were principally due to increases in capitalization of labor and
overhead costs resulting from replacement of portions of the Joint Venture's
Monticello, Kentucky system, which sustained storm damage in February 1998.
General and administrative expenses decreased from $231,500 to
$214,500, or by 7.3%, and from $468,800 to $442,200, or by 5.7%, for the three
and six months ended June 30, 1998 as compared to the corresponding periods in
1997, due to decreases in marketing expenses and bad debt expense during the
1998 periods. The six months' decrease was also due primarily to lower insurance
expense resulting from non-recurring workers' compensation claims paid in the
first six months of 1997.
Management fees and reimbursed expenses remained relatively unchanged,
increasing from $164,900 to $165,200, or by less than 1%, and decreasing from
$326,300 to $323,300, or by less than 1%, for the three and six months ended
June 30, 1998 as compared to the corresponding periods in 1997.
Depreciation and amortization expense decreased from $653,400 to
$527,200, or by 19.3%, and from $1,317,100 to $1,057,400, or by 19.7%, for the
three and six months ended June 30, 1998 as compared to the corresponding
periods in 1997, due to the effect of certain tangible assets becoming fully
depreciated and certain intangible assets becoming fully amortized.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Operating income increased from $109,600 to $305,000 and from $225,400
to $606,200 for the three and six months ended June 30, 1998 as compared to the
corresponding periods in 1997, primarily due to decreases in depreciation and
amortization expense as described above.
Interest income decreased from $18,700 to $16,400, or by 12.3%, and
from $45,800 to $29,600, or by 35.4%, for the three and six months ended June
30, 1998 as compared to the corresponding periods in 1997, as a result of lower
average cash balances available for investment in the 1998 period.
Interest expense decreased from $122,300 to $74,100, or by 39.4%, and
from $268,700 to $148,000, or by 44.9%, for the three and six months ended June
30, 1998 as compared to the corresponding periods in 1997, due to decreases in
average borrowings and due to lower average interest rates in the 1998 periods.
The Joint Venture recognized a $215,600 loss on involuntary conversion
of cable system assets during the first quarter of 1998 related to storm damage
sustained in its Monticello system.
Due to the factors described above, the Joint Venture's net income
increased from $6,000 to $247,300 and from $2,500 to $272,200 in the three and
six months ended June 30, 1998 as compared to the corresponding periods in 1997.
Based on its experience in the cable television industry, the Joint
Venture believes that operating income before depreciation and amortization
(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 as a
percentage of revenues increased from 42.9% to 46.7% and from 43.1% to 46.7%
during the three and six months ended June 30, 1998 as compared to the
corresponding periods in 1997. The increases were primarily due to increases in
capitalization and overhead costs related to the storm as discussed above.
EBITDA increased from $763,000 to $832,200, or by 9.1%, and from $1,542,500 to
$1,663,600, or by 7.9%, for the three and six months ended June 30, 1998 as
compared with the corresponding periods in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net offering
proceeds in the Joint Venture, is to distribute to its partners distributions of
cash flow received from the Joint Venture's operations and proceeds from the
sale of the Joint Venture's cable systems, if any, after providing for expenses,
debt service and capital requirements relating to the expansion, improvement and
upgrade of such cable systems. 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 is required
to upgrade its system in Campbell County, Tennessee under a provision of its
franchise agreement. Upgrade expenditures
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
are budgeted at a total estimated cost of approximately $400,000 beginning in
1998. The franchise agreement requires the project be completed by October 2000.
Additionally, the Joint Venture expects to upgrade its systems in surrounding
communities at a total estimated cost of approximately $570,000 beginning in
1999. Capital expenditures of $2.7 million are budgeted for the 1998 upgrade of
other assets and extension of the Joint Venture's cable systems to pass new
serviceable homes in their franchise areas. The Joint Venture has also budgeted
for expenditures of approximately $900,000 to replace and upgrade cable plant in
Kentucky that sustained storm damage in February 1998. Such expenditures totaled
$751,700 as of June 30, 1998. As discussed below, such losses are not covered by
insurance. The Joint Venture also spent $85,800 in the first six months of 1998,
primarily for equipment and plant upgrades.
The Partnership believes 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 1998. As a result, the Joint Venture intends to use its cash for
such purposes.
On September 30, 1997, the Joint Venture entered into a loan agreement
with Enstar Finance Company, LLC ("EFC"), a subsidiary of the Corporate General
Partner, for a revolving loan facility of $9,181,000 (the "Facility") of which
$2,600,000 was advanced to the Joint Venture at closing. Such funds together
with available cash were used to repay the Joint Venture's previous note payable
balance of $4,067,200 and related interest expense. The Joint Venture repaid
$600,000 of its outstanding borrowings under the Facility on June 22, 1998,
although 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 will mature on August 31, 2001, at which
time all funds previously advanced will be due in full. Borrowings bear interest
at the lender's base rate (8.5% at June 30, 1998) plus 0.625%, or at an offshore
rate plus 1.875%. The Joint Venture is permitted to prepay amounts outstanding
under the Facility at any time without penalty, and is able to reborrow
throughout the term of the Facility up to the maximum commitment then available
so long as no event of default exists. If the Joint Venture has excess cash flow
and its ratio of debt to cash flow exceeds 4.25 to 1, or it receives proceeds
from sales of its assets in excess of a specified amount, the Joint Venture is
required to make mandatory prepayments under the Facility. Such prepayments
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 Partnership believes the Joint Venture was in compliance with
the covenants at June 30, 1998.
The Facility does not restrict the payment of distributions to partners
unless an event of default exists thereunder or the ratio of debt to cash flow
is greater than 4 to 1. The Partnership believes 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 unitholders
at this time.
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ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Beginning in August 1997, the Joint Venture elected to self-insure its
cable distribution plant and subscriber connections against property damage as
well as possible business interruptions caused by such damage. The decision to
self-insure was made due to significant increases in the cost of insurance
coverage and decreases in the amount of insurance coverage available.
While the Joint Venture has made the election to self-insure for these
risks based upon a comparison of historical damage sustained over the past five
years with the cost and amount of insurance currently available, there can be no
assurance that future self-insured losses will not exceed prior costs of
maintaining insurance for these risks. Approximately 94% of the Joint Venture's
subscribers 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. In February 1998, the Joint Venture's Monticello,
Kentucky system incurred damage as a result of an ice storm. The Joint Venture
estimates the cost to replace and upgrade the damaged system will be
approximately $900,000. 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 types of insurable risks.
The "Year 2000" issue refers to certain contingencies that could result
from computer programs being written using two digits rather than four to define
the year. Many existing computer systems, including certain computer systems of
the Partnership and Joint Venture, process transactions based on two digits for
the year of the transaction (for example, "98" for 1998). These computer systems
may not operate effectively when the last two digits become "00," as will occur
on January 1, 2000.
The Corporate General Partner has commenced an assessment of the
Partnership's and Joint Venture's Year 2000 business risks and their exposure to
computer systems, to operating equipment which is date sensitive and to the
interface systems of their vendors and service providers. Based on a preliminary
study, the Corporate General Partner has concluded that certain of the
Partnership's and Joint Venture's information systems were not Year 2000
compliant and has elected to replace such software and hardware with Year 2000
compliant applications and equipment, although the decision to replace major
portions of such software and hardware had previously been made without regard
to the Year 2000 issue. The Corporate General Partner expects to install
substantially all of the new systems in 1998, with the remaining systems to be
installed in the first half of 1999. The total anticipated cost, including
replacement software and hardware, will be borne by FHGLP.
In addition to evaluating internal systems, the Partnership and Joint
Venture are currently assessing their exposure to risks associated with
operating and revenue generating equipment and have also initiated
communications with significant third party vendors and service suppliers to
determine the extent to which the Partnership's and Joint Venture's interface
systems are vulnerable should those third parties fail to solve their own Year
2000 problems on a timely basis. The Joint Venture currently expects that the
cost to replace non-compliant equipment will be determined during the third
quarter of 1998. Such costs will be borne by the Joint Venture. There can be no
assurance that the systems of other companies on which the Partnership's and
Joint Venture's systems rely will be timely converted and that the failure to do
so would not have an
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16
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
adverse impact on the Joint Venture's business. The Partnership and Joint
Venture continue to closely monitor developments with their vendors and service
suppliers.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Operating activities used $800 more cash during the six months ended
June 30, 1998 than in the corresponding period in 1997. The Partnership used
$1,800 more cash for accounts payable resulting from differences in the timing
of payments. Investing activities provided $2,000 less cash due to decreased
distributions from the Joint Venture.
INFLATION
Certain of the Joint Venture's expenses, such as those for equipment
repair and replacement, billing and marketing, generally increase with
inflation. However, the Partnership does not believe that its financial results
have been, or will be, adversely affected by inflation in a material way,
provided that the Joint Venture is able to increase its service rates
periodically, of which there can be no assurance.
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17
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) None.
(b) The Registrant filed a Form 8-K dated June
8, 1998, in which it reported under Item 5
that an unsolicited offer to purchase
partnership units had been made without the
consent of the Corporate General Partner.
18
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: August 13, 1998 By: /s/ Michael K. Menerey
-------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary