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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
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 0-16779
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, 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 (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
Securities registered pursuant to Section 12 (b) --------------
of the Act: NONE
Securities registered pursuant to Section 12 (g)
of the Act:
Name of each exchange
Title of each Class on which registered
------------------- -------------------
UNITS OF LIMITED PARTNERSHIP INTEREST NONE
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X] State the aggregate market value of the voting
equity securities held by non-affiliates of the registrant. 59,646 of the
registrant's 59,766 units of limited partnership interests, its only class of
equity securities, are held by non-affiliates. There is no public trading market
for the units, and transfers of units are subject to certain restrictions;
accordingly, the registrant is unable to state the market value of the units
held by non-affiliates.
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The Exhibit Index is located at Page E-1.
<PAGE> 2
PART I
ITEM 1. BUSINESS
INTRODUCTION
Enstar Income/Growth Program Five-A, L.P., a Georgia limited
partnership (the "Partnership"), is engaged in the ownership, operation and
development, and, when appropriate, sale or other disposition, of cable
television systems in small to medium-sized communities. The Partnership was
formed on September 4, 1986. The general partners of the Partnership are Enstar
Communications Corporation, a Georgia corporation (the "Corporate General
Partner"), and Robert T. Graff, Jr. (the "Individual General Partner" and,
together with the Corporate General Partner, the "General Partners"). On
September 30, 1988, ownership of the Corporate General Partner was acquired by
Falcon Cablevision, a California limited partnership that has been engaged in
the ownership and operation of cable television systems since 1984 ("Falcon
Cablevision"). The general partner of Falcon Cablevision is Falcon Holding
Group, L.P. ("FHGLP"), which provides certain management services to the
Partnership. The general partner of FHGLP is Falcon Holding Group, Inc., a
California corporation ("FHGI"). See Item 13., "Certain Relationships and
Related Transactions." The General Partner, FHGLP and affiliated companies are
responsible for the day to day management of the Partnership and its operations.
See "Employees" below.
A cable television system receives television, radio and data
signals at the system's "headend" site by means of over-the-air antennas,
microwave relay systems and satellite earth stations. These signals are then
modulated, amplified and distributed, primarily through coaxial and fiber optic
distribution systems, to customers who pay a fee for this service. Cable
television systems may also originate their own television programming and other
information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to non-exclusive
franchises or similar licenses granted by local governmental authorities for a
specified term of years.
The systems offer customers various levels (or "tiers") of
cable services consisting of broadcast television signals of local network,
independent and educational stations, a limited number of television signals
from so-called "super stations" originating from distant cities (such as WTBS
and WGN), various satellite-delivered, non-broadcast channels (such as Cable
News Network ("CNN"), MTV: Music Television ("MTV"), the USA Network ("USA"),
ESPN, Turner Network Television ("TNT") and The Disney Channel), programming
originated locally by the cable television system (such as public, educational
and governmental access programs) and informational displays featuring news,
weather, stock market and financial reports and public service announcements. A
number of the satellite services are also offered in certain packages. For an
extra monthly charge, the systems also offer "premium" television services to
their customers. These services (such as Home Box Office ("HBO"), Showtime and
selected regional sports networks) are satellite channels that consist
principally of feature films, live sporting events, concerts and other special
entertainment features, usually presented without commercial interruption. See
"Legislation and Regulation."
A customer generally pays an initial installation charge and
fixed monthly fees for basic, expanded basic, other tiers of satellite services
and premium programming services. Such monthly service fees constitute the
primary source of revenues for the systems. In addition to customer revenues,
the systems receive revenue from the sale of available advertising spots on
advertiser-supported programming. The systems also offer to their customers home
shopping services, which pay the systems a share of revenues from sales of
products in the systems' service areas, in addition to paying the systems a
separate fee in return for carrying their shopping service. Certain other new
channels have also recently offered the cable systems managed by FHGLP,
including those of the Partnership, fees in return for carrying their service.
Due to a lack of channel capacity available for adding new channels, the
Partnership's management cannot predict the impact of such potential payments on
the Partnership's business. See Item 7., "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."
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All of the Partnership's cable television business operations
are conducted through its participation as a co-general partner with a 50%
interest in Enstar Cable of Cumberland Valley (the "Joint Venture"), the other
general partner of which is also a limited partnership sponsored by the General
Partners of the Partnership. The Joint Venture was formed in order to enable
each of its partners to participate in the acquisition and ownership of a more
diverse pool of systems by combining certain of its financial resources. Because
all of the Partnership's operations are conducted through its participation in
the Joint Venture, much of the discussion in this report relates to the Joint
Venture and its activities. References to the Partnership include the Joint
Venture, where appropriate.
The Joint Venture began its cable television business
operations in January 1988 with the acquisition of certain cable television
systems located in Kentucky and Tennessee and expanded its operations during
February 1989 with the acquisition of certain cable television systems located
in Arkansas and Missouri. The Kentucky systems provide service to customers in
and around the Cumberland Valley area. The Missouri systems provide service to
customers in and around the municipality of Hermitage. As of December 31, 1996,
the Joint Venture served approximately 17,100 homes subscribing to cable service
in these areas. In February 1993, the systems serving Noel, Missouri and Sulphur
Springs, Arkansas were sold. The Joint Venture does not expect to make any
additional material acquisitions during the remaining term of the Joint Venture.
FHGLP receives a management fee and reimbursement of expenses
from the Corporate General Partner for managing the Partnership's cable
television operations. See Item 11., "Executive Compensation."
The Chief Executive Officer of FHGLP is Marc B. Nathanson. Mr.
Nathanson has managed FHGLP or its predecessors since 1975. Mr. Nathanson is a
veteran of more than 27 years in the cable industry and, prior to forming
FHGLP's predecessors, held several key executive positions with some of the
nation's largest cable television companies. The principal executive offices of
the Partnership, the Corporate General Partner and FHGLP are located at 10900
Wilshire Boulevard, 15th Floor, Los Angeles, California 90024, and their
telephone number is (310) 824-9990. See Item 10, "Directors and Executive
Officers of the Registrant."
BUSINESS STRATEGY
Historically, the Joint Venture has followed a systematic
approach to acquiring, operating and developing cable television systems based
on the primary goal of increasing operating cash flow while maintaining the
quality of services offered by its cable television systems. The Joint Venture's
business strategy has focused on serving small to medium-sized communities. The
Joint Venture believes that given a similar technical profile, its cable
television systems generally involve less risk of increased competition than
systems in large urban cities. In the Joint Venture's markets, consumers have
access to only a limited number of over-the-air broadcast television signals. In
addition, these markets typically offer fewer competing entertainment
alternatives than large cities. As a result, the Joint Venture's cable
television systems generally have a higher basic penetration rate (the number of
homes subscribing to cable service as a percentage of homes passed by cable)
with a more stable customer base than systems in large cities. Nonetheless, the
Joint Venture believes that all cable operators will face increased competition
in the future from alternative providers of multi-channel video programming
services. See "Competition."
Adoption of rules implementing certain provisions of the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") by the Federal Communications Commission (the "FCC") has had a negative
impact on the Joint Venture's revenues and cash flow. These rules are subject to
further amendment to give effect to the Telecommunications Act of 1996 (the
"1996 Telecom Act"). See "Legislation and Regulation" and Item 7., "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
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Clustering
The Joint Venture has sought to acquire cable television
operations in communities that are proximate to other owned or affiliated
systems in order to achieve the economies of scale and operating efficiencies
associated with regional "clusters." The Joint Venture believes clustering can
reduce marketing and personnel costs and can also reduce capital expenditures in
cases where cable service can be delivered to a number of systems within a
single region through a central headend reception facility.
Capital Expenditures
As noted in "Technological Developments," the Joint Venture's
systems have almost no available channel capacity with which to add new channels
or to provide pay-per-view offerings to customers. As a result, significant
amounts of capital for future upgrades will be required in order to increase
available channel capacity, improve quality of service and facilitate the
expansion of new services such as advertising, pay-per-view, new unregulated
tiers of satellite-delivered services and home shopping, so that the systems
remain competitive within the industry.
The Joint Venture's management has selected a technical
standard that incorporates a 750 MHz fiber to the feeder architecture for the
majority of all its systems that are to be rebuilt. A system built to a 750 MHz
standard can provide approximately 95 channels of analog service. Such a system
will also permit the introduction of high speed data transmission and telephony
services in the future after incurring incremental capital expenditures related
to these services.
The Joint Venture's future capital expenditure plans are,
however, all subject to the availability of adequate capital on terms
satisfactory to the Joint Venture, of which there can be no assurance. As
discussed in prior reports, the Joint Venture postponed a number of rebuild and
upgrade projects that were planned for 1994, 1995 and 1996 because of the
uncertainty related to implementation of the 1992 Cable Act and the negative
impact thereof on the Joint Venture's business and access to capital. As a
result, the Joint Venture's systems will be significantly less technically
advanced than had been expected prior to the implementation of re-regulation.
The Joint Venture spent $662,100 on capital expenditures in 1996, primarily for
equipment upgrades, and has budgeted capital expenditures of approximately
$688,700 in 1997, primarily to upgrade additional equipment. The Joint Venture
believes that the delays in upgrading its systems will, under present market
conditions, most likely have an adverse effect on the value of those systems
compared to systems that have been rebuilt to a higher technical standard. See
"Legislation and Regulation" and Item 7., "Management's Discussion and Analysis
of Financial Condition and Results of Operations Liquidity and Capital
Resources."
Decentralized Management
The Corporate General Partner manages the Joint Venture's
systems on a decentralized basis. The Corporate General Partner believes that
its decentralized management structure, by enhancing management presence at the
system level, increases its sensitivity to the needs of its customers, enhances
the effectiveness of its customer service efforts, eliminates the need for
maintaining a large centralized corporate staff and facilitates the maintenance
of good relations with local governmental authorities.
Marketing
The Joint Venture has made substantial changes in the way in
which it packages and sells its services and equipment in the course of its
implementation of the FCC's rate regulations promulgated under the 1992 Cable
Act. Historically, the Joint Venture had offered programming packages in its
systems. These packages combined services at a lower rate than the aggregate
rates for such services purchased individually on an "a la carte" basis. The new
rules require that charges for cable-related equipment (e.g., converter boxes
and remote control devices) and installation services be unbundled from the
provision of cable service and based upon actual costs plus a reasonable profit.
On November 10, 1994, the FCC announced the adoption of
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further significant amendments to its rules. One amendment allows cable
operators to create new tiers of program services which the FCC has chosen to
exclude from rate regulation, so long as the programming is new to the system.
However, in applying this new policy to packages such as those already offered
by the Joint Venture and numerous other cable operators, the FCC decided that
where only a few services were moved from regulated tiers to a non-premium "new
product tier" package, the package will be treated as if it were a tier of new
program services as discussed above. Substantially all of the new product tier
packages offered by the Joint Venture have received this desirable treatment. In
addition, the FCC decided that discounted packages of non-premium programming
services will be subject to rate regulation in the future. These amendments to
the FCC's rules have allowed the Joint Venture to resume its core marketing
strategy and reintroduce programmed service packaging. As a result, in addition
to the basic service package, customers in substantially all of the systems may
purchase an expanded group of regulated services, additional unregulated
packages of satellite-delivered services and premium services on either an a la
carte or a discounted packaged basis. See "Legislation and Regulation."
The Joint Venture has employed a variety of targeted marketing
techniques to attract new customers by focusing on delivering value, choice,
convenience and quality. The Joint Venture employs direct mail, radio and local
newspaper advertising, telemarketing and door-to-door selling utilizing
demographic "cluster codes" to target specific messages to target audiences. In
certain systems, the Joint Venture offers discounts to customers who purchase
premium services on a limited trial basis in order to encourage a higher level
of service subscription. The Joint Venture also has a coordinated strategy for
retaining customers that includes televised retention advertising to reinforce
the initial decision to subscribe and encourage customers to purchase higher
service levels.
Customer Service and Community Relations
The Joint Venture places a strong emphasis on customer service
and community relations and believes that success in these areas is critical to
its business. FHGLP has developed and implemented a wide range of monthly
internal training programs for its employees, including its regional managers,
that focus on the Joint Venture's operations and employee interaction with
customers. The effectiveness of FHGLP's training program as it relates to the
employees' interaction with customers is monitored on an ongoing basis, and a
portion of the regional managers' compensation is tied to achieving customer
service targets. FHGLP conducts an extensive customer survey on a periodic basis
and uses the information in its efforts to enhance service and better address
the needs of the Joint Venture's customers. In addition, the Joint Venture is
participating in the industry's Customer Service Initiative which emphasizes an
on-time guarantee program for service and installation appointments. FHGLP's
corporate executives and regional managers lead the Joint Venture's involvement
in a number of programs benefiting the communities the Joint Venture serves,
including, among others, Cable in the Classroom, Drug Awareness, Holiday Toy
Drive and the Cystic Fibrosis Foundation. Cable in the Classroom is the cable
television industry's public service initiative to enrich education through the
use of commercial-free cable programming. In addition, a monthly publication,
Cable in the Classroom magazine provides educational program listings by
curriculum area, as well as feature articles on how teachers across the country
use the programs.
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DESCRIPTION OF THE JOINT VENTURE'S SYSTEMS
The table below sets forth certain operating statistics for the
Joint Venture's cable systems as of December 31, 1996.
<TABLE>
<CAPTION>
Average
Monthly
Revenue
Homes Per Home
Subscribing Premium Subscribing
Homes to Cable Basic Service Premium to Cable
System Passed(1) Service Penetration(2) Units(3) Penetration(4) Service(5) Subscribers(6)
- ------ ------ ------- ----------- ----- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Monticello, KY and
Jellico, TN 21,145 15,946 75.4% 3,154 19.8% $32.97 18,732
Pomme De Terre, MO 3,583 1,119 31.2% 207 18.5% $27.67 5,214
------ ------ ----- ------
Total 24,728 17,065 69.0% 3,361 19.7% $32.62 23,946
====== ====== ===== ======
</TABLE>
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(1) Homes passed refers to estimates by the Joint Venture of the
approximate number of dwelling units in a particular community that can be
connected to the distribution system without any further extension of principal
transmission lines. Such estimates are based upon a variety of sources,
including billing records, house counts, city directories and other local
sources.
(2) Homes subscribing to cable service as a percentage of homes passed by
cable.
(3) Premium service units include only single channel services offered
for a monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee. Prior to July 1, 1996, The Disney Channel was
offered as a premium service. Effective July 1, 1996, it was offered as part of
an unregulated tier of services. As a result, the number of reported premium
service units was artificially reduced by this service offering change. The
number of Disney Channel premium service units at June 30, 1996 was 410.
(4) Premium service units as a percentage of homes subscribing to cable
service. A customer may purchase more than one premium service, each of which is
counted as a separate premium service unit. This ratio may be greater than 100%
if the average customer subscribes for more than one premium service.
(5) Average monthly revenue per home subscribing to cable service has
been computed based on revenue for the year ended December 31, 1996.
(6) The Joint Venture reports subscribers for the systems on an
equivalent subscriber basis and, unless otherwise indicated, the term
"SUBSCRIBERS" means equivalent subscribers, calculated by dividing aggregate
basic service revenues by the average basic service rate within an operating
entity, adjusted to reflect the impact of regulation. Basic service revenues
include charges for basic programming, bulk and commercial accounts and certain
specialized "packaged programming" services, including the appropriate
components of new product tier revenue, and excluding premium television and
non-subscription services. Consistent with past practices, Subscribers is an
analytically derived number which is reported in order to provide a basis of
comparison to previously reported data. The computation of Subscribers has been
impacted by changes in service offerings made in response to the 1992 Cable Act.
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CUSTOMER RATES AND SERVICES
The Joint Venture's cable television systems offer customers
packages of services that include the local area network, independent and
educational television stations, a limited number of television signals from
distant cities, numerous satellite-delivered, non-broadcast channels (such as
CNN, MTV, USA, ESPN, TNT and The Disney Channel) and certain information and
public access channels. For an extra monthly charge, the systems provide certain
premium television services, such as HBO, Showtime and regional sports networks.
The Joint Venture also offers other cable television services to its customers.
For additional charges, in most of its systems, the Joint Venture also rents
remote control devices and VCR compatible devices (devices that make it easier
for a customer to tape a program from one channel while watching a program on
another).
The service options offered by the Joint Venture vary from
system to system, depending upon a system's channel capacity and viewer
interests. Rates for services also vary from market to market and according to
the type of services selected.
Prior to the adoption of the 1992 Cable Act, the systems
generally were not subject to any rate regulation, i.e., they were adjudged to
be subject to effective competition under then-effective FCC regulations. The
1992 Cable Act, however, substantially changed the statutory and FCC rate
regulation standards. Under the definition of effective competition provided for
in the 1992 Cable Act, nearly all cable television systems in the United States
have become subject to local rate regulation of basic service. The 1996 Telecom
Act expanded the definition of effective competition to include situations in
which a local telephone company, or anyone using its facilities, offers
comparable video service by any means except direct broadcast satellite ("DBS").
In addition, the 1992 Cable Act eliminated the 5% annual basic rate increases
previously allowed by the 1984 Cable Act without local approval; allows the FCC
to review rates for non-basic service tiers other than premium services in
response to complaints filed by franchising authorities and/or cable customers;
prohibits cable television systems from requiring customers to purchase service
tiers above basic service in order to purchase premium services if the system is
technically capable of doing so; and adopted regulations to establish, on the
basis of actual costs, the price for installation of cable television service,
remote controls, converter boxes, and additional outlets. The FCC implemented
these rate regulation provisions on September 1, 1993, affecting all of the
Joint Venture's systems not deemed to be subject to effective competition under
the FCC's definition. The FCC substantially amended its rate regulation rules on
February 22, 1994 and again on November 10, 1994. The FCC is in the process of
conducting a number of additional rulemaking proceedings in order to implement
many of the provisions of the 1996 Telecom Act. See "Legislation and
Regulation."
At December 31, 1996, the Joint Venture's monthly rates for
basic cable service for residential customers, excluding special senior citizen
discount rates, ranged from $19.45 to $24.20 and premium service rates ranged
from $10.95 to $11.95, excluding special promotions offered periodically in
conjunction with the Joint Venture's marketing programs. A one-time installation
fee, which the Joint Venture may wholly or partially waive during a promotional
period, is usually charged to new customers. Prior to September 1, 1993, the
Joint Venture generally charged monthly fees for additional outlets, converters,
program guides and descrambling and remote control tuning devices. As described
above, these charges have either been eliminated or altered by the
implementation of rate regulation. Substantially all the Joint Venture's
customers received a decrease in their monthly charges in July 1994 upon
implementation of the FCC's amended rules. Commercial customers, such as hotels,
motels and hospitals, are charged a negotiated, non-recurring fee for
installation of service and monthly fees based upon a standard discounting
procedure. Most multi-unit dwellings are offered a negotiated bulk rate in
exchange for single-point billing and basic service to all units. These rates
are also subject to regulation.
EMPLOYEES
The Joint Venture has no employees. The various personnel
required to operate the Joint Venture's business are employed by the Corporate
General Partner, its subsidiary corporation and FHGLP. The cost of such
employment is allocated and charged to the Joint Venture for reimbursement
pursuant to the
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partnership agreement and management agreement. Other personnel required to
operate the Joint Venture's business are employed by affiliates of the Corporate
General Partner. The cost of such employment is allocated and charged to the
Joint Venture. The amounts of these reimbursable costs are set forth below in
Item 11, "Executive Compensation."
TECHNOLOGICAL DEVELOPMENTS
As part of its commitment to customer service, the Joint
Venture seeks to apply technological advances in the cable television industry
to its cable television systems on the basis of cost effectiveness, capital
availability, enhancement of product quality and service delivery and industry
wide acceptance. Currently, the Joint Venture systems have an average channel
capacity of 36 and, on average, 99% of the channel capacity of the systems was
utilized at December 31, 1996. The Joint Venture believes that system upgrades
would enable it to provide customers with greater programming diversity, better
picture quality and alternative communications delivery systems made possible by
the introduction of fiber optic technology and by the possible future
application of digital compression. The implementation of the Joint Venture's
capital expenditure plans is, however, dependent in part on the availability of
adequate capital on terms satisfactory to the Joint Venture, of which there can
be no assurance. Also, as a result of the uncertainty created by recent
regulatory changes, the Joint Venture has deferred all plant rebuilds and
upgrades. See "Legislation and Regulation" and Item 7., "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The use of fiber optic cable as an alternative to coaxial
cable is playing a major role in expanding channel capacity and improving the
performance of cable television systems. Fiber optic cable is capable of
carrying hundreds of video, data and voice channels and, accordingly, its
utilization is essential to the enhancement of a cable television system's
technical capabilities. The Joint Venture's current policy is to utilize fiber
optic technology in substantially all rebuild projects which it undertakes. The
benefits of fiber optic technology over traditional coaxial cable distribution
plant include lower per mile rebuild costs due to a reduction in the number of
required amplifiers, the elimination of headends, lower ongoing maintenance and
power costs and improved picture quality and reliability.
DIGITAL COMPRESSION
The Joint Venture has been closely monitoring developments in
the area of digital compression, a technology which is expected to enable cable
operators to increase the channel capacity of cable television systems by
permitting a significantly increased number of video signals to fit in a cable
television system's existing bandwidth. The Joint Venture believes that the
utilization of digital compression technology in the future could enable its
systems to increase channel capacity in certain systems in a manner that could
be more cost efficient than rebuilding such systems with higher capacity
distribution plant. The use of digital compression in its systems also could
expand the number and types of services these systems offer and enhance the
development of current and future revenue sources. Equipment vendors are
beginning to market products to provide this technology, but the Joint Venture's
management has no plans to install it at this time based on the current
technological profile of its systems and its present understanding of the costs
as compared to the benefits of the digital equipment currently available. This
issue is under frequent management review.
PROGRAMMING
The Joint Venture purchases basic and premium programming for
its systems from Falcon Cablevision. In turn, Falcon Cablevision charges the
Joint Venture for these costs based on an estimate of what the Corporate General
Partner could negotiate for such services for the 15 partnerships managed by the
Corporate General Partner as a group (approximately 94,300 homes subscribing to
cable service at December 31, 1996), which is generally based on a fixed fee per
customer or a percentage of the gross receipts for the particular service.
Certain other new channels have also recently offered Cablevision and the Joint
Venture's systems fees in return for carrying their service. Due to a lack of
channel capacity available for adding new channels, the Joint Venture's
management cannot predict the impact of such potential payments on its business.
Falcon
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Cablevision's programming contracts are generally for a fixed period of time and
are subject to negotiated renewal. Falcon Cablevision does not have long-term
programming contracts for the supply of a substantial amount of its programming.
Accordingly, no assurance can be given that its, and correspondingly the Joint
Venture's programming costs will not increase substantially in the near future,
or that other materially adverse terms will not be added to Falcon Cablevision's
programming contracts. Management believes, however, that Falcon Cablevision's
relations with its programming suppliers generally are good.
The Joint Venture's cable programming costs have increased in
recent years and are expected to continue to increase due to additional
programming being provided to basic customers, requirements to carry channels
under retransmission carriage agreements entered into with certain programming
sources, increased costs to produce or purchase cable programming generally,
inflationary increases and other factors. The 1996 retransmission carriage
agreement negotiations resulted in the Joint Venture agreeing to carry one new
service in its Monticello system, for which it will receive reimbursement of
certain costs related to launching the service. All other negotiations were
completed with essentially no change to the previous agreements. Under the FCC
rate regulations, increases in programming costs for regulated cable services
occurring after the earlier of March 1, 1994, or the date a system's basic cable
service became regulated, may be passed through to customers. See "Legislation
and Regulation - Federal Regulation - Carriage of Broadcast Television Signals."
Generally, programming costs are charged among systems on a per customer basis.
FRANCHISES
Cable television systems are generally constructed and
operated under non-exclusive franchises granted by local governmental
authorities. These franchises typically contain many conditions, such as time
limitations on commencement and completion of construction; conditions of
service, including number of channels, types of programming and the provision of
free service to schools and certain other public institutions; and the
maintenance of insurance and indemnity bonds. The provisions of local franchises
are subject to federal regulation under the 1984 Cable Act, the 1992 Cable Act
and the 1996 Telecom Act. See "Legislation and Regulation."
As of December 31, 1996, the Joint Venture held 19 franchises.
These franchises, all of which are non-exclusive, provide for the payment of
fees to the issuing authority. Annual franchise fees imposed on the Joint
Venture systems range up to 5% of the gross revenues generated by a system. The
1984 Cable Act prohibits franchising authorities from imposing franchise fees in
excess of 5% of gross revenues and also permits the cable system operator to
seek re-negotiation and modification of franchise requirements if warranted by
changed circumstances.
The following table groups the franchises of the Joint
Venture's cable television systems by date of expiration and presents the number
of franchises for each group of franchises and the approximate number and
percentage of homes subscribing to cable service for each group as of December
31, 1996.
<TABLE>
<CAPTION>
Number of Percentage of
Homes Homes
Year of Number of Subscribing to Subscribing to
Franchise Expiration Franchises Cable Service Cable Service
- -------------------- ---------- ------------- -------------
<S> <C> <C> <C>
Prior to 1998 4 5,849 34.3%
1998 - 2002 12 8,202 48.1%
2003 and after 3 2,118 12.4%
-- ------ ----
Total 19 16,169 94.8%
== ====== ====
</TABLE>
The Joint Venture operates cable television systems which
serve multiple communities and, in some circumstances, portions of such systems
extend into jurisdictions for which the Joint Venture believes no franchise is
necessary. In the aggregate, approximately 896 customers, comprising
approximately 5.2% of the
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Joint Venture's customers, are served by unfranchised portions of such systems.
In certain instances, however, where a single franchise comprises a large
percentage of the customers in an operating region, the loss of such franchise
could decrease the economies of scale achieved by the Joint Venture's clustering
strategy. The Joint Venture has never had a franchise revoked for any of its
systems and believes that it has satisfactory relationships with substantially
all of its franchising authorities.
The 1984 Cable Act provides, among other things, for an
orderly franchise renewal process in which franchise renewal will not be
unreasonably withheld or, if renewal is withheld, the franchise authority must
pay the operator the "fair market value" for the system covered by such
franchise. In addition, the 1984 Cable Act establishes comprehensive renewal
procedures which require that an incumbent franchisee's renewal application be
assessed on its own merit and not as part of a comparative process with
competing applications. See "Legislation and Regulation."
COMPETITION
Cable television systems compete with other communications and
entertainment media, including over-the-air television broadcast signals which a
viewer is able to receive directly using the viewer's own television set and
antenna. The extent to which a cable system competes with over-the-air
broadcasting depends upon the quality and quantity of the broadcast signals
available by direct antenna reception compared to the quality and quantity of
such signals and alternative services offered by a cable system. In many areas,
television signals which constitute a substantial part of basic service can be
received by viewers who use their own antennas. Local television reception for
residents of apartment buildings or other multi-unit dwelling complexes may be
aided by use of private master antenna services. Cable systems also face
competition from alternative methods of distributing and receiving television
signals and from other sources of entertainment such as live sporting events,
movie theaters and home video products, including videotape recorders and
videodisk players. In recent years, the FCC has adopted policies providing for
authorization of new technologies and a more favorable operating environment for
certain existing technologies that provide, or may provide, substantial
additional competition for cable television systems. The extent to which cable
television service is competitive depends in significant part upon the cable
television system's ability to provide an even greater variety of programming
than that available over the air or through competitive alternative delivery
sources. In addition, certain provisions of the 1992 Cable Act and the 1996
Telecom Act are expected to increase competition significantly in the cable
industry. See "Legislation and Regulation."
Individuals presently have the option to purchase earth
stations, which allow the direct reception of satellite-delivered program
services formerly available only to cable television subscribers. Most
satellite-distributed program signals are being electronically scrambled to
permit reception only with authorized decoding equipment for which the consumer
must pay a fee. From time to time, legislation has been introduced in Congress
which, if enacted into law, would prohibit the scrambling of certain
satellite-distributed programs or would make satellite services available to
private earth stations on terms comparable to those offered to cable systems.
Broadcast television signals are being made available to owners of earth
stations under the Satellite Home Viewer Copyright Act of 1988, which became
effective January 1, 1989 for an initial six-year period. This Act establishes a
statutory compulsory license for certain transmissions made by satellite owners
to home satellite dishes, for which carriers are required to pay a royalty fee
to the Copyright Office. This Act has been extended by Congress until December
31, 1999. The 1992 Cable Act enhances the right of cable competitors to purchase
nonbroadcast satellite-delivered programming. See "Legislation and
Regulation-Federal Regulation."
Television programming is now also being delivered to
individuals by high-powered direct broadcast satellites ("DBS") utilizing video
compression technology. This technology has the capability of providing more
than 100 channels of programming over a single high-powered DBS satellite with
significantly higher capacity available if multiple satellites are placed in the
same orbital position. Video compression technology may also be used by cable
operators in the future to similarly increase their channel capacity. DBS
service can be received virtually anywhere in the United States through the
installation of a small rooftop or side-mounted antenna, and it is more
accessible than cable television service where cable
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plant has not been constructed or where it is not cost effective to construct
cable television facilities. DBS service is being heavily marketed on a
nationwide basis by several service providers.
Multichannel multipoint distribution systems ("MMDS") deliver
programming services over microwave channels licensed by the FCC received by
subscribers with special antennas. MMDS systems are less capital intensive, are
not required to obtain local franchises or to pay franchise fees, and are
subject to fewer regulatory requirements than cable television systems. To date,
the ability of these so-called "wireless" cable services to compete with cable
television systems has been limited by channel capacity and the need for
unobstructed line-of-sight over-the-air transmission. Although relatively few
MMDS systems in the United States are currently in operation or under
construction, virtually all markets have been licensed or tentatively licensed.
The FCC has taken a series of actions intended to facilitate the development of
MMDS and other wireless cable systems as alternative means of distributing video
programming, including reallocating certain frequencies to these services and
expanding the permissible use and eligibility requirements for certain channels
reserved for educational purposes. The FCC's actions enable a single entity to
develop an MMDS system with a potential of up to 35 channels that could compete
effectively with cable television. The use of digital compression technology may
enable MMDS systems to deliver even more channels. MMDS systems qualify for the
statutory compulsory copyright license for the retransmission of television and
radio broadcast stations. Several of the Regional Bell Operating Companies have
begun to enter the MMDS business as a way of breaking into video programming
delivery.
Additional competition may come from private cable television
systems servicing condominiums, apartment complexes and certain other multiple
unit residential developments. The operators of these private systems, known as
satellite master antenna television ("SMATV") systems, often enter into
exclusive agreements with apartment building owners or homeowners' associations
which preclude franchised cable television operators from serving residents of
such private complexes. However, the 1984 Cable Act gives franchised cable
operators the right to use existing compatible easements within their franchise
areas upon nondiscriminatory terms and conditions. Accordingly, where there are
preexisting compatible easements, cable operators may not be unfairly denied
access or discriminated against with respect to the terms and conditions of
access to those easements. There have been conflicting judicial decisions
interpreting the scope of the access right granted by the 1984 Cable Act,
particularly with respect to easements located entirely on private property.
Further, while a franchised cable television system typically is obligated to
extend service to all areas of a community regardless of population density or
economic risk, a SMATV system may confine its operation to small areas that are
easy to serve and more likely to be profitable. Under the 1996 Telecom Act,
SMATV systems can interconnect non-commonly owned buildings without having to
comply with local, state and federal regulatory requirements that are imposed
upon cable systems providing similar services, as long as they do not use public
rights-of-way. In some cases, SMATV operators may be able to charge a lower
price than could a cable system providing comparable services and the FCC's
regulations implementing the 1992 Cable Act limit a cable operator's ability to
reduce its rates to meet this competition. Furthermore, the U.S. Copyright
Office has tentatively concluded that SMATV systems are "cable systems" for
purposes of qualifying for the compulsory copyright license established for
cable systems by federal law.
The FCC has initiated a new interactive television service
which will permit non-video transmission of information between an individual's
home and entertainment and information service providers. This service will
provide an alternative means for DBS systems and other video programming
distributors, including television stations, to initiate the new interactive
television services. This service may also be used by the cable television
industry.
The FCC also has a pending rulemaking proceeding looking
toward the allocation of frequencies in the 28 Ghz range for a new multichannel
wireless video service which could make 98 video channels available in a single
market. It cannot be predicted at this time whether competitors will emerge
utilizing such frequencies or whether such competition would have a material
impact on the operations of cable television systems.
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The 1996 Telecom Act eliminates the restriction against
ownership and operation of cable systems by local telephone companies within
their local exchange service areas. Telephone companies are now free to enter
the retail video distribution business through any means, such as DBS, MMDS,
SMATV or as traditional franchised cable system operators. Alternatively, the
1996 Telecom Act authorizes local telephone companies to operate "open video
systems" without obtaining a local cable franchise, although telephone companies
operating such systems can be required to make payments to local governmental
bodies in lieu of cable franchise fees. Up to two-thirds of the channel capacity
on an "open video system" must be available to programmers unaffiliated with the
local telephone company. The open video system concept replaces the FCC's video
dialtone rules. The 1996 Telecom Act also includes numerous provisions designed
to make it easier for cable operators and others to compete directly with local
exchange telephone carriers. With certain limited exceptions, neither a local
exchange carrier nor a cable operator can acquire more than 10% of the other
entity operating within its own service area.
Advances in communications technology, as well as changes in
the marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the effect that ongoing or future
developments might have on the cable industry. The ability of cable systems to
compete with present, emerging and future distribution media will depend to a
great extent on obtaining attractive programming. The availability and exclusive
use of a sufficient amount of quality programming may in turn be affected by
developments in regulation or copyright law. See "Legislation and Regulation."
The cable television industry competes with radio, television
and print media for advertising revenues. As the cable television industry
continues to develop programming designed specifically for distribution by
cable, advertising revenues may increase. Premium programming provided by cable
systems is subject to the same competitive factors which exist for other
programming discussed above. The continued profitability of premium services may
depend largely upon the continued availability of attractive programming at
competitive prices.
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some
state governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
the Congress and various federal agencies have in the past, and may in the
future, materially affect the Partnership and the cable television industry. The
following is a summary of federal laws and regulations affecting the growth and
operation of the cable television industry and a description of certain state
and local laws. The Partnership believes that the regulation of its industry
remains a matter of interest to Congress, the FCC and other regulatory
authorities. There can be no assurance as to what, if any, future actions such
legislative and regulatory authorities may take or the effect thereof on the
Partnership and Joint Venture.
CABLE COMMUNICATIONS POLICY ACT OF 1984
The 1984 Cable Act became effective on December 29, 1984. This
federal statute, which amended the Communications Act of 1934 (the
"Communications Act"), created uniform national standards and guidelines for the
regulation of cable television systems. Violations by a cable television system
operator of provisions of the Communications Act, as well as of FCC regulations,
can subject the operator to substantial monetary penalties and other sanctions.
Among other things, the 1984 Cable Act affirmed the right of franchising
authorities (state or local, depending on the practice in individual states) to
award one or more franchises within their jurisdictions. It also prohibited
non-grandfathered cable television systems from operating without a franchise in
such jurisdictions. In connection with new franchises, the 1984 Cable Act
provides that in granting or renewing franchises, franchising authorities may
establish requirements for cable-related facilities and equipment, but may not
establish or enforce requirements for video programming or information services
other than in broad categories. The 1984 Cable Act grandfathered, for the
remaining term of existing franchises, many but not all of the provisions in
existing franchises which would not be permitted in franchises entered into or
renewed after the effective date of the 1984 Cable Act.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992
On October 5, 1992, Congress enacted the 1992 Cable Act. This
legislation has effected significant changes to the legislative and regulatory
environment in which the cable industry operates. It amends the 1984 Cable Act
in many respects. The 1992 Cable Act became effective on December 4, 1992,
although certain provisions, most notably those dealing with rate regulation and
retransmission consent, became effective at later dates. The legislation
required the FCC to conduct a number of rulemaking proceedings to implement
various provisions of the statute. The 1992 Cable Act allows for a greater
degree of regulation of the cable industry with respect to, among other things:
(i) cable system rates for both basic and certain nonbasic services; (ii)
programming access and exclusivity arrangements; (iii) access to cable channels
by unaffiliated programming services; (iv) leased access terms and conditions;
(v) horizontal and vertical ownership of cable systems; (vi) customer service
requirements; (vii) franchise renewals; (viii) television broadcast signal
carriage and retransmission consent; (ix) technical standards; (x) customer
privacy; (xi) consumer protection issues; (xii) cable equipment compatibility;
(xiii) obscene or indecent programming; and (xiv) requiring subscribers to
subscribe to tiers of service other than basic service as a condition of
purchasing premium services. Additionally, the legislation encourages
competition with existing cable television systems by allowing municipalities to
own and operate their own cable television systems without having to obtain a
franchise; preventing franchising authorities from granting exclusive franchises
or unreasonably refusing to award additional franchises covering an existing
cable system's service area; and prohibiting the common ownership of cable
systems and co-located MMDS or SMATV systems. The 1992 Cable Act also precludes
video programmers affiliated with cable television companies from favoring cable
operators over competitors and requires such programmers to sell their
programming to other multichannel video distributors.
A constitutional challenge to the must-carry provisions of the
1992 Cable Act is still ongoing. On April 8, 1993, a three-judge district court
panel granted summary judgment for the government upholding the must-carry
provisions. That decision was appealed directly to the U.S. Supreme Court which
remanded
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the case back to the district court to determine whether there was adequate
evidence that the provisions were needed and whether the restrictions chosen
were the least intrusive. On December 12, 1995, the district court again upheld
the must-carry provisions. The Supreme Court is reviewing the district court's
decision.
On September 16, 1993, a constitutional challenge to the
balance of the 1992 Cable Act provisions was rejected by the U.S. District Court
in the District of Columbia which upheld the constitutionality of all but three
provisions of the statute (multiple ownership limits for cable operators,
advance notice of free previews for certain programming services and channel
set-asides for DBS operators). On August 30, 1996, the U.S. Court of Appeals for
the District of Columbia Circuit sustained the constitutionality of all
provisions except for the multiple ownership limits and the limits on the number
of channels which can be occupied by programmers affiliated with the cable
operator, both of which are being challenged in a separate appeal.
TELECOMMUNICATIONS ACT OF 1996
On February 8, 1996, the President signed the 1996 Telecom Act
into law. This statute substantially amended the Communications Act by, among
other things, removing barriers to competition in the cable television and
telephone markets and reducing the regulation of cable television rates. As it
pertains to cable television, the 1996 Telecom Act, among other things, (i) ends
the regulation of certain nonbasic programming services in 1999; (ii) expands
the definition of effective competition, the existence of which displaces rate
regulation; (iii) eliminates the restriction against the ownership and operation
of cable systems by telephone companies within their local exchange service
areas; and (iv) liberalizes certain of the FCC's cross-ownership restrictions.
The FCC is in the process of conducting a number of additional rulemaking
proceedings in order to implement many of the provisions of the 1996 Telecom
Act. See "Business - Competition" and "Federal Regulation-Rate Regulation."
FEDERAL REGULATION
The FCC, the principal federal regulatory agency with
jurisdiction over cable television, has heretofore promulgated regulations
covering such areas as the registration of cable television systems,
cross-ownership between cable television systems and other communications
businesses, carriage of television broadcast programming, consumer education and
lockbox enforcement, origination cablecasting and sponsorship identification,
children's programming, the regulation of basic cable service rates in areas
where cable television systems are not subject to effective competition, signal
leakage and frequency use, technical performance, maintenance of various
records, equal employment opportunity, and antenna structure notification,
marking and lighting. The FCC has the authority to enforce these regulations
through the imposition of substantial fines, the issuance of cease and desist
orders and/or the imposition of other administrative sanctions, such as the
revocation of FCC licenses needed to operate certain transmission facilities
often used in connection with cable operations. The 1992 Cable Act required the
FCC to adopt additional regulations covering, among other things, cable rates,
signal carriage, consumer protection and customer service, leased access,
indecent programming, programmer access to cable television systems, programming
agreements, technical standards, consumer electronics equipment compatibility,
ownership of home wiring, program exclusivity, equal employment opportunity, and
various aspects of direct broadcast satellite system ownership and operation.
The 1996 Telecom Act requires certain changes to various of these regulations. A
brief summary of certain of these federal regulations as adopted to date
follows.
RATE REGULATION
The 1984 Cable Act codified existing FCC preemption of rate
regulation for premium channels and optional nonbasic program tiers. The 1984
Cable Act also deregulated basic cable rates for cable television systems
determined by the FCC to be subject to effective competition. The 1992 Cable Act
substantially changed the previous statutory and FCC rate regulation standards.
The 1992 Cable Act replaced the FCC's old standard for determining effective
competition, under which most cable systems were not subject to local rate
regulation, with a statutory provision that resulted in nearly all cable
television systems
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becoming subject to local rate regulation of basic service. The 1996 Telecom Act
expands the definition of effective competition to cover situations where a
local telephone company or its affiliate, or any multichannel video provider
using telephone company facilities, offers comparable video service by any means
except DBS. Satisfaction of this test deregulates both basic and nonbasic tiers.
Additionally, the 1992 Cable Act required the FCC to adopt a formula, for
franchising authorities to enforce, to assure that basic cable rates are
reasonable; allowed the FCC to review rates for nonbasic service tiers (other
than per-channel or per-program services) in response to complaints filed by
franchising authorities and/or cable customers; prohibited cable television
systems from requiring subscribers to purchase service tiers above basic service
in order to purchase premium services if the system is technically capable of
doing so; required the FCC to adopt regulations to establish, on the basis of
actual costs, the price for installation of cable service, remote controls,
converter boxes and additional outlets; and allows the FCC to impose
restrictions on the retiering and rearrangement of cable services under certain
limited circumstances. The 1996 Telecom Act limits the class of complainants
regarding nonbasic tier rates to franchising authorities only and ends FCC
regulation of nonbasic tier rates on March 31, 1999.
The FCC adopted rules designed to implement the 1992 Cable
Act's rate regulation provisions on April 1, 1993, and then significantly
amended them on February 22 and November 10, 1994. The FCC's regulations contain
standards for the regulation of basic and nonbasic cable service rates (other
than per-channel or per-program services). The rules have been further amended
several times. Local franchising authorities and/or the FCC are empowered to
order a reduction of existing rates which exceed the maximum permitted level for
either basic and/or nonbasic cable services and associated equipment, and
refunds can be required. The rate regulations adopt a benchmark price cap system
for measuring the reasonableness of existing basic and nonbasic service rates.
Alternatively, cable operators have the opportunity to make cost-of-service
showings which, in some cases, may justify rates above the applicable
benchmarks. The rules also require that charges for cable-related equipment
(e.g., converter boxes and remote control devices) and installation services be
unbundled from the provision of cable service and based upon actual costs plus a
reasonable profit. The regulations also provide that future rate increases may
not exceed an inflation-indexed amount, plus increases in certain costs beyond
the cable operator's control, such as taxes, franchise fees and increased
programming costs. Cost-based adjustments to these capped rates can also be made
in the event a cable operator adds or deletes channels. In addition, new product
tiers consisting of services new to the cable system can be created free of rate
regulation as long as certain conditions are met such as not moving services
from existing tiers to the new tier. These provisions currently provide limited
benefit to the Joint Venture's systems due to the lack of channel capacity
previously discussed. There is also a streamlined cost-of-service methodology
available to justify a rate increase on basic and regulated nonbasic tiers for
"significant" system rebuilds or upgrades.
Franchising authorities have become certified by the FCC to
regulate the rates charged by the Joint Venture for basic cable service and for
associated basic cable service equipment.
The Joint Venture has adjusted its regulated programming
service rates and related equipment and installation charges in substantially
all of its systems so as to bring these rates and charges into compliance with
the applicable benchmark or equipment and installation cost levels. The Joint
Venture also implemented a program in substantially all of its systems under
which a number of the Joint Venture's satellite-delivered and premium services
are now offered individually on a per channel (i.e., a la carte) basis, or as a
group at a discounted price. A la carte services were not subject to the FCC's
rate regulations under the rules originally issued to implement the 1992 Cable
Act.
The FCC, in its reconsideration of the original rate
regulations, stated that it was going to take a harder look at the regulatory
treatment of such a la carte packages on an ad hoc basis. Such packages which
are determined to be evasions of rate regulation rather than true enhancements
of subscriber choice will be treated as regulated tiers and, therefore, subject
to rate regulation. There have been no FCC rulings related to systems owned by
the Joint Venture. There have been three rulings, however, on such packages
offered by
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affiliated partnerships managed by FHGLP. In one case, the FCC's Cable Services
Bureau ruled that a nine-channel a la carte package was an evasion of rate
regulation and ordered this package to be treated as a regulated tier. In the
second case, a seven-channel a la carte package was ordered to be treated as a
regulated tier. In the third case, a six-channel package was held not to be an
evasion, but rather is to be considered an unregulated new product tier under
the FCC's November 10, 1994 rule amendments. The deciding factor in all of the
FCC's decisions related to a la carte tiers appears to be the number of channels
moved from regulated tiers, with six or fewer channels being deemed not to be an
evasion. Almost all of the Joint Venture's systems moved six or fewer channels
to a la carte packages. Under the November 10, 1994 amendments, any new a la
carte package created after that date will be treated as a regulated tier,
except for packages involving traditional premium services (e.g., HBO).
On March 11, 1993, the FCC adopted regulations pursuant to the
1992 Act which require cable systems to permit customers to purchase video
programming on a per channel or a per program basis without the necessity of
subscribing to any tier of service, other than the basic service tier, unless
the cable system is technically incapable of doing so. Generally, this exemption
from compliance with the statute for cable systems that do not have such
technical capability is available until a cable system obtains the capability,
but not later than December 2002.
CARRIAGE OF BROADCAST TELEVISION SIGNALS
The 1992 Cable Act contained new signal carriage requirements.
These rules allow commercial television broadcast stations which are "local" to
a cable system, i.e., the system is located in the station's Area of Dominant
Influence, to elect every three years whether to require the cable system to
carry the station, subject to certain exceptions, or whether the cable system
will have to negotiate for "retransmission consent" to carry the station. Local
non-commercial television stations are also given mandatory carriage rights,
subject to certain exceptions, within the larger of: (i) a 50 mile radius from
the station's city of license; or (ii) the station's Grade B contour (a measure
of signal strength). Unlike commercial stations, noncommercial stations are not
given the option to negotiate retransmission consent for the carriage of their
signal. In addition, cable systems will have to obtain retransmission consent
for the carriage of all "distant" commercial broadcast stations, except for
certain "superstations," i.e., commercial satellite-delivered independent
stations such as WTBS. The Joint Venture has thus far not been required to pay
cash compensation to broadcasters for retransmission consent or been required by
broadcasters to remove broadcast stations from the cable television channel
line-ups. The Joint Venture has, however, agreed to carry some services in
specified markets pursuant to retransmission consent arrangements which it
believes are comparable to those entered into by most other large cable
operators, and for which it pays monthly fees to the service providers, as it
does with other satellite providers. The second election between must-carry and
retransmission consent for local commercial television broadcast stations was
October 1, 1996, and the Joint Venture has agreed to carry one new service in
specified markets pursuant to these retransmission consent arrangements. The
next election between must-carry and retransmission consent for local commercial
television broadcast stations will be October 1, 1999.
NONDUPLICATION OF NETWORK PROGRAMMING
Cable television systems that have 1,000 or more customers
must, upon the appropriate request of a local television station, delete the
simultaneous or nonsimultaneous network programming of a distant station when
such programming has also been contracted for by the local station on an
exclusive basis.
DELETION OF SYNDICATED PROGRAMMING
FCC regulations enable television broadcast stations that have
obtained exclusive distribution rights for syndicated programming in their
market to require a cable system to delete or "black out" such programming from
other television stations which are carried by the cable system. The extent of
such deletions will vary from market to market and cannot be predicted with
certainty. However, it is possible that such deletions could be substantial and
could lead the cable operator to drop a distant signal in its entirety.
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The FCC also has commenced a proceeding to determine whether to relax or abolish
the geographic limitations on program exclusivity contained in its rules, which
would allow parties to set the geographic scope of exclusive distribution rights
entirely by contract, and to determine whether such exclusivity rights should be
extended to noncommercial educational stations. It is possible that the outcome
of these proceedings will increase the amount of programming that cable
operators are requested to black out. Finally, the FCC has declined to impose
equivalent syndicated exclusivity rules on satellite carriers who provide
services to the owners of home satellite dishes similar to those provided by
cable systems.
FRANCHISE FEES
Although franchising authorities may impose franchise fees
under the 1984 Cable Act, such payments cannot exceed 5% of a cable system's
annual gross revenues. Under the 1996 Telecom Act, franchising authorities may
not exact franchise fees from revenues derived from telecommunications services.
Franchising authorities are also empowered in awarding new franchises or
renewing existing franchises to require cable operators to provide cable-related
facilities and equipment and to enforce compliance with voluntary commitments.
In the case of franchises in effect prior to the effective date of the 1984
Cable Act, franchising authorities may enforce requirements contained in the
franchise relating to facilities, equipment and services, whether or not
cable-related. The 1984 Cable Act, under certain limited circumstances, permits
a cable operator to obtain modifications of franchise obligations.
RENEWAL OF FRANCHISES
The 1984 Cable Act established renewal procedures and criteria
designed to protect incumbent franchisees against arbitrary denials of renewal.
While these formal procedures are not mandatory unless timely invoked by either
the cable operator or the franchising authority, they can provide substantial
protection to incumbent franchisees. Even after the formal renewal procedures
are invoked, franchising authorities and cable operators remain free to
negotiate a renewal outside the formal process. Nevertheless, renewal is by no
means assured, as the franchisee must meet certain statutory standards. Even if
a franchise is renewed, a franchising authority may impose new and more onerous
requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements.
The 1992 Cable Act makes several changes to the process under
which a cable operator seeks to enforce his renewal rights which could make it
easier in some cases for a franchising authority to deny renewal. While a cable
operator must still submit its request to commence renewal proceedings within
thirty to thirty-six months prior to franchise expiration to invoke the formal
renewal process, the request must be in writing and the franchising authority
must commence renewal proceedings not later than six months after receipt of
such notice. The four-month period for the franchising authority to grant or
deny the renewal now runs from the submission of the renewal proposal, not the
completion of the public proceeding. Franchising authorities may consider the
"level" of programming service provided by a cable operator in deciding whether
to renew. For alleged franchise violations occurring after December 29, 1984,
franchising authorities are no longer precluded from denying renewal based on
failure to substantially comply with the material terms of the franchise where
the franchising authority has "effectively acquiesced" to such past violations.
Rather, the franchising authority is estopped if, after giving the cable
operator notice and opportunity to cure, it fails to respond to a written notice
from the cable operator of its failure or inability to cure. Courts may not
reverse a denial of renewal based on procedural violations found to be "harmless
error."
CHANNEL SET-ASIDES
The 1984 Cable Act permits local franchising authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. The 1984 Cable Act further requires cable
television systems with thirty-six or more activated channels to designate a
portion of their channel capacity for commercial leased access by unaffiliated
third parties. While the 1984 Cable Act allowed cable operators substantial
latitude in setting leased access rates, the 1992 Cable Act requires leased
access rates to be set according to a formula determined by the FCC.
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COMPETING FRANCHISES
Questions concerning the ability of municipalities to award a
single cable television franchise and to impose certain franchise restrictions
upon cable television companies have been considered in several recent federal
appellate and district court decisions. These decisions have been somewhat
inconsistent and, until the U.S. Supreme Court rules definitively on the scope
of cable television's First Amendment protections, the legality of the
franchising process and of various specific franchise requirements is likely to
be uncertain. It is not possible at the present time to predict the
constitutionally permissible bounds of cable franchising and particular
franchise requirements. However, the 1992 Cable Act, among other things,
prohibits franchising authorities from unreasonably refusing to grant franchises
to competing cable television systems and permits franchising authorities to
operate their own cable television systems without franchises.
OWNERSHIP
The 1996 Telecom Act repealed the 1984 Cable Act's prohibition
against local exchange telephone companies ("LECs") providing video programming
directly to customers within their local telephone exchange service areas.
However, with certain limited exceptions, a LEC may not acquire more than a 10%
equity interest in an existing cable system operating within the LEC's service
area. The 1996 Telecom Act also authorized LECs and others to operate "open
video systems" without obtaining a local cable franchise. See "Competition."
The 1984 Cable Act and the FCC's rules prohibit the common
ownership, operation, control or interest in a cable system and a local
television broadcast station whose predicted grade B contour (a measure of a
television station's signal strength as defined by the FCC's rules) covers any
portion of the community served by the cable system. The 1996 Telecom Act
eliminates the statutory ban and directs the FCC to review its rule within two
years. Common ownership or control has historically also been prohibited by the
FCC (but not by the 1984 Cable Act) between a cable system and a national
television network. The 1996 Telecom Act eliminated this prohibition. Finally,
in order to encourage competition in the provision of video programming, the FCC
adopted a rule prohibiting the common ownership, affiliation, control or
interest in cable television systems and MMDS facilities having overlapping
service areas, except in very limited circumstances. The 1992 Cable Act codified
this restriction and extended it to co-located SMATV systems. Permitted
arrangements in effect as of October 5, 1992 are grandfathered. The 1996 Telecom
Act exempts cable systems facing effective competition from the MMDS and SMATV
restriction. In addition, a cable operator can purchase a SMATV system serving
the same area and technically integrate it into the cable system. The 1992 Cable
Act permits states or local franchising authorities to adopt certain additional
restrictions on the ownership of cable television systems.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on
the number of cable systems which a single cable operator can own. In general,
no cable operator can have an attributable interest in cable systems which pass
more than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single holder of
more than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from the U.S. District Court decision holding
the multiple ownership limit provision of the 1992 Cable Act unconstitutional.
The FCC has also adopted rules which limit the number of
channels on a cable system which can be occupied by programming in which the
entity which owns the cable system has an attributable interest. The limit is
40% of the first 75 activated channels.
EEO
The 1984 Cable Act includes provisions to ensure that
minorities and women are provided equal employment opportunities within the
cable television industry. The statute requires the FCC to adopt reporting and
certification rules that apply to all cable system operators with more than five
full-time
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<PAGE> 19
employees. Pursuant to the requirements of the 1992 Cable Act, the FCC has
imposed more detailed annual EEO reporting requirements on cable operators and
has expanded those requirements to all multichannel video service distributors.
Failure to comply with the EEO requirements can result in the imposition of
fines and/or other administrative sanctions, or may, in certain circumstances,
be cited by a franchising authority as a reason for denying a franchisee's
renewal request.
PRIVACY
The 1984 Cable Act imposes a number of restrictions on the
manner in which cable system operators can collect and disclose data about
individual system customers. The statute also requires that the system operator
periodically provide all customers with written information about its policies
regarding the collection and handling of data about customers, their privacy
rights under federal law and their enforcement rights. In the event that a cable
operator is found to have violated the customer privacy provisions of the 1984
Cable Act, it could be required to pay damages, attorneys' fees and other costs.
Under the 1992 Cable Act, the privacy requirements are strengthened to require
that cable operators take such actions as are necessary to prevent unauthorized
access to personally identifiable information.
FRANCHISE TRANSFERS
The 1992 Cable Act requires franchising authorities to act on
any franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.
REGISTRATION PROCEDURE AND REPORTING REQUIREMENTS
Prior to commencing operation in a particular community, all
cable television systems must file a registration statement with the FCC listing
the broadcast signals they will carry and certain other information.
Additionally, cable operators periodically are required to file various
informational reports with the FCC.
TECHNICAL REQUIREMENTS
Historically, the FCC has imposed technical standards
applicable to the cable channels on which broadcast stations are carried, and
has prohibited franchising authorities from adopting standards which were in
conflict with or more restrictive than those established by the FCC. The FCC has
revised such standards and made them applicable to all classes of channels which
carry downstream National Television System Committee (NTSC) video programming.
The FCC also has adopted additional standards applicable to cable television
systems using frequencies in the 108-137 Mhz and 225-400 Mhz bands in order to
prevent harmful interference with aeronautical navigation and safety radio
services and has also established limits on cable system signal leakage.
Periodic testing by cable operators for compliance with the technical standards
and signal leakage limits is required and an annual filing of the results of
these measurements is required. The 1992 Cable Act requires the FCC to
periodically update its technical standards to take into account changes in
technology. Under the 1996 Telecom Act, local franchising authorities may not
prohibit, condition or restrict a cable system's use of any type of subscriber
equipment or transmission technology.
The FCC has adopted regulations to implement the requirements
of the 1992 Cable Act designed to improve the compatibility of cable systems and
consumer electronics equipment. These regulations, inter alia, generally
prohibit cable operators from scrambling their basic service tier and from
changing the infrared codes used in their existing customer premises equipment.
This latter requirement could make it more difficult or costly for cable
operators to upgrade their customer premises equipment and the FCC has been
asked to reconsider its regulations. The 1996 Telecom Act directs the FCC to set
only minimal standards to assure compatibility between television sets, VCRs and
cable systems, and to rely on the marketplace. The FCC must adopt rules to
assure the competitive availability to consumers of customer
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<PAGE> 20
premises equipment, such as converters, used to access the services offered by
cable systems and other multichannel video programming distributors.
POLE ATTACHMENTS
The FCC currently regulates the rates and conditions imposed
by certain public utilities for use of their poles unless state public service
commissions are able to demonstrate that they regulate the rates, terms and
conditions of cable television pole attachments. A number of states and the
District of Columbia have certified to the FCC that they regulate the rates,
terms and conditions for pole attachments. In the absence of state regulation,
the FCC administers such pole attachment rates through use of a formula which it
has devised. The 1996 Telecom Act directs the FCC to adopt a new rate formula
for any attaching party, including cable systems, which offer telecommunications
services. This new formula will result in significantly higher attachment rates
for cable systems which choose to offer such services.
OTHER MATTERS
FCC regulation pursuant to the Communications Act, as amended,
also includes matters regarding a cable system's carriage of local sports
programming; restrictions on origination and cablecasting by cable system
operators; application of the fairness doctrine and rules governing political
broadcasts; customer service; obscenity and indecency; home wiring and
limitations on advertising contained in nonbroadcast children's programming.
The 1996 Telecom Act establishes a process for the creation
and implementation of a "voluntary" system of ratings for video programming
containing sexual, violent or other "indecent" material and directs the FCC to
adopt rules requiring most television sets manufactured in the United States or
shipped in interstate commerce to be technologically capable of blocking the
display of programs with a common rating. The 1996 Telecom Act also requires
video programming distributors to employ technology to restrict the reception of
programming by persons not subscribing to those channels. In the case of
channels primarily dedicated to sexually-oriented programming, the distributor
must fully block reception of the audio and video portion of the channels; a
distributor that is unable to comply with this requirement may only provide such
programming during a "safe harbor" period when children are not likely to be in
the audience, as determined by the FCC. This provision has been temporarily
stayed while certain programmers seek Supreme Court review on constitutional
grounds. With respect to other kinds of channels, the 1996 Telecom Act only
requires that the audio and video portions of the channel be fully blocked, at
no charge, upon request of the person not subscribing to the channel.
COPYRIGHT
Cable television systems are subject to federal copyright
licensing covering carriage of broadcast signals. In exchange for making
semi-annual payments to a federal copyright royalty pool and meeting certain
other obligations, cable operators obtain a statutory license to retransmit
broadcast signals. The amount of this royalty payment varies, depending on the
amount of system revenues from certain sources, the number of distant signals
carried, and the location of the cable system with respect to over-the-air
television stations. Any future adjustment to the copyright royalty rates will
be done through an arbitration process supervised by the U.S. Copyright Office.
Cable operators are liable for interest on underpaid and
unpaid royalty fees, but are not entitled to collect interest on refunds
received for overpayment of copyright fees.
The Copyright Office has commenced a proceeding aimed at
examining its policies governing the consolidated reporting of commonly owned
and contiguous cable television systems. The present policies governing the
consolidated reporting of certain cable television systems have often led to
substantial increases in the amount of copyright fees owed by the systems
affected. These situations have most frequently arisen in the context of cable
television system mergers and acquisitions. While it is not possible to predict
the
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<PAGE> 21
outcome of this proceeding, any changes adopted by the Copyright Office in its
current policies may have the effect of reducing the copyright impact of certain
transactions involving cable company mergers and cable television system
acquisitions.
Various bills have been introduced into Congress over the past
several years that would eliminate or modify the cable television compulsory
license. Without the compulsory license, cable operators would have to negotiate
rights from the copyright owners for all of the programming on the broadcast
stations carried by cable systems. Such negotiated agreements would likely
increase the cost to cable operators of carrying broadcast signals. The 1992
Cable Act's retransmission consent provisions expressly provide that
retransmission consent agreements between television broadcast stations and
cable operators do not obviate the need for cable operators to obtain a
copyright license for the programming carried on each broadcaster's signal.
Copyrighted music performed in programming supplied to cable
television systems by pay cable networks (such as HBO) and basic cable networks
(such as USA Network) is licensed by the networks through private agreements
with the American Society of Composers and Publishers ("ASCAP") and BMI, Inc.
("BMI"), the two major performing rights organizations in the United States. As
a result of extensive litigation, both ASCAP and BMI now offer "through to the
viewer" licenses to the cable networks which cover the retransmission of the
cable networks' programming by cable systems to their customers.
Copyrighted music performed by cable systems themselves on
local origination channels, in advertisements inserted locally on cable
networks, et cetera, must also be licensed. A blanket license is available from
BMI. Cable industry negotiations with ASCAP are still in progress.
STATE AND LOCAL REGULATION
Because a cable television system uses local streets and
rights-of-way, cable television systems are subject to state and local
regulation, typically imposed through the franchising process. State and/or
local officials are usually involved in franchise selection, system design and
construction, safety, service rates, consumer relations, billing practices and
community related programming and services.
Cable television systems generally are operated pursuant to
nonexclusive franchises, permits or licenses granted by a municipality or other
state or local government entity. Franchises generally are granted for fixed
terms and in many cases are terminable if the franchise operator fails to comply
with material provisions. Although the 1984 Cable Act provides for certain
procedural protections, there can be no assurance that renewals will be granted
or that renewals will be made on similar terms and conditions. Franchises
usually call for the payment of fees, often based on a percentage of the
system's gross customer revenues, to the granting authority. Upon receipt of a
franchise, the cable system owner usually is subject to a broad range of
obligations to the issuing authority directly affecting the business of the
system. The terms and conditions of franchises vary materially from jurisdiction
to jurisdiction, and even from city to city within the same state, historically
ranging from reasonable to highly restrictive or burdensome. The 1984 Cable Act
places certain limitations on a franchising authority's ability to control the
operation of a cable system operator and the courts have from time to time
reviewed the constitutionality of several general franchise requirements,
including franchise fees and access channel requirements, often with
inconsistent results. On the other hand, the 1992 Cable Act prohibits exclusive
franchises, and allows franchising authorities to exercise greater control over
the operation of franchised cable television systems, especially in the area of
customer service and rate regulation. The 1992 Cable Act also allows franchising
authorities to operate their own multichannel video distribution system without
having to obtain a franchise and permits states or local franchising authorities
to adopt certain restrictions on the ownership of cable television systems.
Moreover, franchising authorities are immunized from monetary damage awards
arising from regulation of cable television systems or decisions made on
franchise grants, renewals, transfers and amendments.
The specific terms and conditions of a franchise and the laws
and regulations under which it was granted directly affect the profitability of
the cable television system. Cable franchises generally contain
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<PAGE> 22
provisions governing charges for basic cable television services, fees to be
paid to the franchising authority, length of the franchise term, renewal, sale
or transfer of the franchise, territory of the franchise, design and technical
performance of the system, use and occupancy of public streets and number and
types of cable services provided. The 1996 Telecom Act prohibits a franchising
authority from either requiring or limiting a cable operator's provision of
telecommunications services.
Various proposals have been introduced at the state and local
levels with regard to the regulation of cable television systems, and a number
of states have adopted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies, some of which impose
regulation of a character similar to that of a public utility.
The foregoing does not purport to describe all present and
proposed federal, state and local regulations and legislation relating to the
cable television industry. Other existing federal regulations, copyright
licensing and, in many jurisdictions, state and local franchise requirements,
currently are the subject of a variety of judicial proceedings, legislative
hearings and administrative and legislative proposals which could change, in
varying degrees, the manner in which cable television systems operate. Neither
the outcome of these proceedings nor their impact upon the cable television
industry can be predicted at this time.
ITEM 2. PROPERTIES
The Joint Venture owns or leases parcels of real property for
signal reception sites (antenna towers and headends), microwave facilities and
business offices, and owns or leases its service vehicles. The Joint Venture
believes that its properties, both owned and leased, are in good condition and
are suitable and adequate for the Joint Venture's business operations.
The Joint Venture owns substantially all of the assets related
to its cable television operations, including its program production equipment,
headend (towers, antennae, electronic equipment and satellite earth stations),
cable plant (distribution equipment, amplifiers, customer drops and hardware),
converters, test equipment and tools and maintenance equipment.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is a party to various legal proceedings. Such
legal proceedings are ordinary and routine litigation proceedings that are
incidental to the Partnership's business and management believes that the
outcome of all pending legal proceedings will not, in the aggregate, have a
material adverse effect on the financial condition of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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<PAGE> 23
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY SECURITIES AND RELATED
SECURITY HOLDER MATTERS
LIQUIDITY
While the Partnership's equity securities, which consist of
units of limited partnership interests, are publicly held, there is no
established public trading market for the units and it is not expected that a
market will develop in the future. The approximate number of equity security
holders of record was 1,864 as of December 31, 1996. In addition to restrictions
on the transferability of units contained in the Partnership Agreement, the
transferability of units may be affected by restrictions on resales imposed by
federal or state law.
DISTRIBUTIONS
The amended Partnership Agreement generally provides that all
cash distributions (as defined) be allocated 1% to the general partners and 99%
to the limited partners until the limited partners have received aggregate cash
distributions equal to their original capital contributions ("Capital Payback").
The Partnership Agreement also provides that all Partnership profits, gains,
operational losses, and credits (all as defined) be allocated 1% to the general
partners and 99% to the limited partners until the limited partners have been
allocated net profits equal to the amount of cash flow required for Capital
Payback. After the limited partners have received cash flow equal to their
initial investments, the general partners will only receive a 1% allocation of
cash flow from sale or liquidation of a system until the limited partners have
received an annual simple interest return of at least 10% of their initial
investments less any distributions from previous system sales or refinancing of
systems. Thereafter, the respective allocations will be made 20% to the general
partners and 80% to the limited partners. Any losses from system sales or
exchanges shall be allocated first to all partners having positive capital
account balances (based on their respective capital accounts) until all such
accounts are reduced to zero and thereafter to the Corporate General Partner.
All allocations to individual limited partners will be based on their respective
limited partnership ownership interests.
Upon the disposition of substantially all of the Partnership's
assets, gains shall be allocated first to the limited partners having negative
capital account balances until their capital accounts are increased to zero,
next equally among the general partners until their capital accounts are
increased to zero, and thereafter as outlined in the preceding paragraph. Upon
dissolution of the Partnership, any negative capital account balances remaining
after all allocations and distributions are made must be funded by the
respective partners.
The policy of the Corporate General Partner (although there is
no contractual obligation to do so) is to cause the Partnership to make cash
distributions on a quarterly basis throughout the operational life of the
Partnership, assuming the availability of sufficient cash flow from the Joint
Venture operations. The amount of such distributions, if any, will vary from
quarter to quarter depending upon the Joint Venture's results of operations and
the Corporate General Partner's determination of whether otherwise available
funds are needed for the Joint Venture's ongoing working capital and liquidity
requirements. However, on February 22, 1994, the FCC announced significant
amendments to its rules implementing certain provisions of the 1992 Cable Act.
Compliance with these rules has had a negative impact on the Partnership's
revenues and cash flow.
The Partnership began making periodic cash distributions to
limited partners from operations in February 1988. The distributions were funded
primarily from distributions received by the Partnership from the Joint Venture.
No distributions were made during 1994, 1995 or 1996.
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<PAGE> 24
The Partnership's ability to pay distributions in the future,
the actual level of any such distributions and the continuance of distributions
if commenced, will depend on a number of factors, including the amount of cash
flow from operations, projected capital expenditures, provision for contingent
liabilities, availability of bank refinancing, regulatory or legislative
developments governing the cable television industry, and growth in customers.
Some of these factors are beyond the control of the Partnership, and
consequently, no assurances can be given regarding the level or timing of future
distributions, if any. See Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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<PAGE> 25
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected financial data of the Partnership
and of the Joint Venture for the five years ended December 31, 1996. This data
should be read in conjunction with the Partnership's and Joint Venture's
financial statements included in Item 8 hereof and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included in Item 7.
I. THE PARTNERSHIP
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
OPERATIONS STATEMENT DATA 1992 1993 1994 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Costs and expenses $ (80,400) $ (44,300) $ (49,800) $ (32,000) $ (27,100)
Depreciation and amortization (4,800) - - - -
------------- ------------- ------------- ------------- -------------
Operating loss (85,200) (44,300) (49,800) (32,000) (27,100)
Interest expense (2,500) (2,000) (1,700) (500) (500)
Equity in net loss of joint venture (664,000) (601,600) (642,500) (555,100) (311,000)
------------- ------------- ------------- ------------- -------------
Net loss $ (751,700) $ (647,900) $ (694,000) $ (587,600) $ (338,600)
============= ============= ============= ============= =============
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net loss $ (12.45) $ (10.73) $ (11.50) $ (9.73) $ (5.61)
============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------------
BALANCE SHEET DATA 1992 1993 1994 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Total assets $ 6,680,800 $ 5,948,000 $ 5,259,800 $ 4,663,400 $ 4,326,200
General partners' deficit (58,400) (64,900) (71,800) (77,700) (81,100)
Limited partners' capital 6,634,500 5,993,100 5,306,000 4,724,300 4,389,100
</TABLE>
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<PAGE> 26
II. ENSTAR CABLE OF CUMBERLAND VALLEY
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------------
OPERATIONS STATEMENT DATA 1992 1993 1994 1995 1996
----------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,917,800 $ 6,243,400 $ 6,173,900 $ 6,241,700 $ 6,728,900
Cost and expenses (3,446,400) (3,471,600) (3,657,600) (3,526,300) (3,881,000)
Depreciation and amortization (3,227,300) (3,012,700) (3,158,600) (3,104,900) (2,841,600)
------------ ------------ ------------ ------------ ------------
Operating income (loss) (755,900) (240,900) (642,300) (389,500) 6,300
Interest expense (587,000) (439,100) (664,800) (779,300) (699,400)
Interest income 14,900 15,700 22,100 58,600 71,100
Loss on sale of cable television system - (538,900) - - -
------------ ------------ ------------ ------------ ------------
Net loss $ (1,328,000) $ (1,203,200) $ (1,285,000) $ (1,110,200) $ (622,000)
============ ============ ============ ============ ============
Distributions paid to venturers $ 176,000 $ 264,000 $ 158,200 $ 18,000 $ 63,000
============ ============ ============ ============ ============
OTHER OPERATING DATA
Net cash provided by
operating activities $ 1,544,800 $ 1,884,800 $ 1,882,400 $ 2,045,900 $ 2,750,200
EBITDA(1) 2,471,400 2,771,800 2,516,300 2,715,400 2,847,900
EBITDA to revenues 41.8% 44.4% 40.8% 43.5% 42.3%
Total debt to EBITDA 3.5x 2.4x 2.7x 2.5x 2.1x
Capital expenditures $ 546,600 $ 532,900 $ 763,400 $ 1,975,800 $ 662,100
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA 1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
Total assets $ 23,245,100 $ 19,406,000 $ 18,232,200 $ 17,049,700 $ 15,832,600
Total debt 8,681,500 6,767,200 6,767,200 6,767,200 6,067,200
Venturers' capital 13,311,600 11,844,400 10,401,200 9,273,000 8,588,000
</TABLE>
- --------------------
(1) Operating income before depreciation and amortization. The Joint
Venture measures its financial performance by its EBITDA, among other items.
Based on its experience in the cable television industry, the General Partner
believes that 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. This is
evidenced by the covenants in the primary debt instruments of the Joint Venture,
in which EBITDA-derived calculations are used as a measure of financial
performance. EBITDA should not be considered by the reader as an alternative to
net income, as an indicator of the Joint Venture's financial performance or as
an alternative to cash flows as a measure of liquidity.
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<PAGE> 27
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
On February 8, 1996, President Clinton signed into law the 1996
Telecom Act. This statute substantially changed the competitive and regulatory
environment for telecommunications providers by significantly amending the
Communications Act, including certain of the rate regulation provisions
previously imposed by the 1992 Cable Act. Compliance with those rate regulations
has had a negative impact on the Joint Venture's revenues and cash flow.
However, in accordance with the FCC's regulations, the Joint Venture will be
able to increase regulated service rates in the future in response to inflation
and specified historical and anticipated cost increases, although certain costs
may continue to rise at a rate in excess of that which the Joint Venture will be
permitted to pass on to its customers. The 1996 Telecom Act provides that
certain of the rate regulations will be phased-out altogether in 1999. Further,
the regulatory environment will continue to change pending, among other things,
the outcome of legal challenges and FCC rulemaking and enforcement activity in
respect of the 1992 Cable Act and the 1996 Telecom Act. There can be no
assurance as to what, if any, future 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 and the Joint Venture. 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 Joint
Venture, as discussed more fully elsewhere in this Report.
All of the Partnership's cable television business operations
are conducted through its participation as a partner with a 50% interest in
Enstar Cable of Cumberland Valley. The Partnership participates equally with its
affiliated partner (Enstar Income/Growth Program Five-B, 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
$79,100, $9,000 and $31,500 to the Partnership, representing the Partnership's
pro rata (i.e., 50%) share of the cash flow distributed from the Joint Venture's
operations, during 1994, 1995 and 1996, respectively. The Partnership did not
pay distributions to its partners during 1994, 1995 or 1996.
THE JOINT VENTURE
1996 COMPARED TO 1995
The Joint Venture's revenues increased from $6,241,700 to
$6,728,900, or by 7.8%, for the year ended December 31, 1996 as compared to
1995. Of the $487,200 increase in revenues for the year ended December 31, 1996
as compared to 1995, $406,900 was due to increases in regulated service rates
that were implemented by the Joint Venture in the second, third and fourth
quarters of 1996, $108,400 was due to the restructuring of The Disney Channel
from a premium channel to a tier channel effective July 1, 1996 and
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<PAGE> 28
$76,100 was due to increases in other revenue producing items including rebates
from programmers, charges for franchise fees the Joint Venture passed through to
its customers and installation revenues. These increases were partially offset
by a decrease of $104,200 due to decreases in the number of subscriptions for
services. As of December 31, 1996, the Joint Venture had approximately 17,100
homes subscribing to cable service and 3,400 premium service units.
Service costs increased from $2,177,600 to $2,394,700, or by
10.0%, for the year ended December 31, 1996 as compared to 1995. Service costs
represent costs directly attributable to providing cable services to customers.
Of the $217,100 increase in service costs for the year ended December 31, 1996
as compared to 1995, $120,800 was due to increased programming fees charged by
program suppliers (including primary satellite fees), $58,300 was due to an
increase in personnel costs, $41,900 was due to an increase in franchise fees,
$19,500 was due to an increase in copyright fees, $15,200 was due to an increase
in repair and maintenance expense, $11,300 was due to a decrease in
capitalization of labor and overhead expense due to fewer capital projects
during 1996 and $10,100 was due to an increase in pole rent expense. These
increases were partially offset by a $52,400 decrease in property taxes as the
result of an adjustment to expense in 1995 for additional tax assessments
related to 1994. The increase in programming fees included a $35,600 increase
related to the restructuring of The Disney Channel discussed above.
General and administrative expenses increased from $786,100 to
$877,700, or by 11.7%, for the year ended December 31, 1996 as compared to 1995.
Of the $91,600 increase for the year ended December 31, 1996 as compared to
1995, $70,100 was due to higher insurance premiums, $38,900 was due to a
decrease in capitalization of labor and overhead expense, $15,300 was due to an
increase in personnel costs and $8,300 was due to an increase in marketing
expense. These increases were partially offset by a $29,100 decrease in bad debt
expense and by an $8,500 decrease in customer billing expense.
Management fees and reimbursed expenses increased from
$562,600 to $608,600, or by 8.2%, for the year ended December 31, 1996 as
compared to 1995. Management fees increased by $24,300 for the year ended
December 31, 1996 as compared to 1995 in direct relation to increased revenues
as described above. Reimbursable expenses increased by $21,700 for the year
ended December 31, 1996 as compared to 1995, primarily due to higher allocated
personnel costs, rent expense, dues and subscription expense, professional
service fees and compliance costs associated with reregulation by the FCC.
Depreciation and amortization expense decreased from
$3,104,900 to $2,841,600, or by 8.5%, for the year ended December 31, 1996 as
compared to 1995, due to the effect of certain tangible assets becoming fully
depreciated and certain intangible assets becoming fully amortized.
The Joint Venture generated operating income of $6,300 for the
year ended December 31, 1996 as compared to an operating loss of $389,500 in
1995, primarily due to increases in revenues and decreases in depreciation and
amortization expense as described above.
Interest expense decreased from $779,300 to $699,400, or by
10.3%, for the year ended December 31, 1996 as compared to 1995, due to lower
average interest rates (9.8% in 1996 versus 10.3% in 1995) and a decrease in
average borrowings from $6,767,200 in 1995 to $6,396,200 in 1996.
Interest income increased from $58,600 to $71,100, or by
21.3%, for the year ended December 31, 1996 as compared to 1995, due to higher
cash balances available for investment.
Due to the factors described above, the Joint Venture's net
loss decreased from $1,110,200 to $622,000, or by 44.0%, for the year ended
December 31, 1996 as compared to 1995.
Operating income before depreciation and amortization (EBITDA)
as a percentage of revenues decreased from 43.5% during 1995 to 42.3% in 1996.
The decrease was primarily due to increases in programming fees, insurance
premiums and personnel costs as discussed above. EBITDA increased from
$2,715,400 to $2,847,900, or by 4.9%, for the year ended December 31, 1996 as
compared with 1995.
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<PAGE> 29
1995 COMPARED TO 1994
The Joint Venture's revenues increased from $6,173,900 to
$6,241,700, or by 1.1%, during 1995 compared to 1994. Of the $67,800 increase in
revenues, $184,900 was due to increases in regulated service rates permitted
under the 1992 Cable Act that were implemented in April 1995, $76,500 was due to
greater numbers of subscriptions for cable service and $53,800 was due to
increases in unregulated rates charged for premium services implemented during
the fourth quarter of 1994. These increases were partially offset by rate
decreases implemented in 1994 to comply with the 1992 Cable Act, estimated by
the Joint Venture to be approximately $238,400, and by a $9,000 decrease in
other revenue producing items. As of December 31, 1995, the Joint Venture had
approximately 17,300 homes subscribing to cable service and 4,300 premium
service units.
Service costs for the Joint Venture increased from $2,133,400 to
$2,177,600, or by 2.1%, during 1995 compared with 1994. Service costs represent
costs directly attributable to providing cable services to customers. Of the
$44,200 increase, $99,200 was due to increases in property taxes and $65,300 was
due to increases in programming fees (including primary satellite fees). These
increases were partially offset by a $48,300 increase in the capitalization of
labor and overhead expense due to increased capital expenditure activity in
1995, a decrease of $44,200 in repair and maintenance expense, a decrease of
$14,000 in personnel costs and a decrease of $10,900 in pole rent expense. The
increase in programming fees was due to a combination of higher rates charged by
program suppliers and expanded programming usage relating to channel line-up
restructuring and retransmission consent arrangements implemented to comply with
the 1992 Cable Act.
General and administrative expenses decreased from $931,300 to
$786,100, or by 15.6%, during 1995 compared with 1994. Of the $145,200 decrease,
$77,500 was due to a decrease in bad debt expense, $26,300 was due to an
increase in the capitalization of labor and overhead expense, $22,600 was due to
lower marketing expenses and $11,900 was due to lower customer billing costs.
Management fees and reimbursed expenses decreased from $592,900
to $562,600, or by 5.1%, during 1995 compared with 1994. Of the $30,300
decrease, $33,700 was due to decreased reimbursable expenses resulting from
lower allocated personnel costs and compliance costs associated with
reregulation by the FCC during 1995. Management fees increased by $3,400 in
direct relation to increased revenues as described above.
Depreciation and amortization expense decreased from $3,158,600
to $3,104,900, or by 1.7%, during 1995 compared with 1994, due primarily to the
effect of certain tangible assets becoming fully depreciated in 1994 and certain
intangible assets becoming fully amortized in 1995. The decrease was partially
offset by depreciation of asset additions.
The Joint Venture's operating loss decreased from $642,300 to
$389,500, or by 39.4%, during 1995 as compared to 1994, primarily due to
increased revenues, decreased general and administrative expenses and lower
depreciation and amortization expense as described above.
Interest expense increased from $664,800 to $779,300, or by
17.2%, during 1995 as compared to 1994, due to an increase in the average
interest rates paid by the Joint Venture on long-term borrowings (10.3% in 1995
versus 8.6% in 1994).
Interest income increased from $22,100 to $58,600 during 1995 as
compared to 1994, due to higher cash balances available for investment and
higher interest rates earned on invested funds.
Due to the factors described above, the Joint Venture's net loss
decreased from $1,285,000 to $1,110,200, or by 13.6%, for the year ended
December 31, 1995 as compared with 1994.
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<PAGE> 30
Operating income before depreciation and amortization (EBITDA) as
a percentage of revenues increased from 40.8% during 1994 to 43.5% in 1995. The
increase was primarily due to increased revenues and lower general and
administrative expenses as discussed above. EBITDA increased from $2,516,300 to
$2,715,400, or by 7.9%, during 1995 compared to 1994.
DISTRIBUTIONS MADE BY THE CUMBERLAND VALLEY JOINT VENTURE
The Joint Venture distributed $158,200, $18,000 and $63,000
equally between its two partners during 1994, 1995 and 1996, respectively.
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.
In general, these requirements involve expansion, improvement and upgrade of the
Joint Venture's existing cable television systems. The Joint Venture spent
$662,100 on capital expenditures in 1996, primarily for equipment upgrades, and
has budgeted capital expenditures of approximately $688,700 in 1997 to upgrade
additional equipment.
Management 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 1997. As a result, the Corporate General Partner intends to use
its cash for such purposes. Accordingly, management does not anticipate a
resumption of distributions to unitholders during 1997.
In December 1993, the Joint Venture obtained a $9,000,000
reducing revolving credit facility (the "Facility") maturing on September 30,
1999. The Facility is secured by substantially all of the Joint Venture's
assets. Interest is payable at the Base Rate plus 1.50%. "Base Rate" means the
higher of the Lender's prime rate or the Federal Funds Effective Rate plus 1/2%.
The Facility provides for quarterly reductions of the maximum commitment
beginning on September 30, 1994 which are payable at the end of each fiscal
quarter. The Joint Venture is permitted to prepay amounts outstanding under the
Facility at any time without penalty, and is able to re-borrow throughout the
term of the Facility up to the maximum commitment then available so long as no
event of default exists. The Joint Venture is also required to pay a commitment
fee of 1/2% per annum on the unused portion of the Facility. The Facility
contains certain financial tests and other covenants including, among others,
restrictions on capital expenditures, incurrence of indebtedness, distributions
and investments, sale of assets, acquisitions, and other covenants, defaults and
conditions. The Joint Venture believes that it was in compliance with its loan
covenants as of December 31, 1996. The Joint Venture's maximum commitment of
$6,850,000 at December 31, 1996 will decrease by $1,850,000 in 1997 to
$5,000,000, by $2,100,000 in 1998 to $2,900,000 and by $1,100,000 through June
30, 1999 with a final installment of $1,800,000 due on September 30, 1999. The
outstanding balance under the Facility at December 31, 1996 was $6,067,200. On
March 7, 1997, the Joint Venture elected to prepay $2,000,000 of its note
payable balance, which reduced its outstanding borrowings from $6,067,200 to
$4,067,200.
1996 VS. 1995
The Partnership used $46,700 less cash in operating activities
during the year ended December 31, 1996 than in 1995, primarily due to the
timing of collections of receivables from affiliates ($31,600 cash increase) and
the payment of recurring liabilities to the Corporate General Partner and third
party creditors ($10,200 cash increase). Partnership expenses used $4,900 less
cash during 1996 than in 1995 after adding back non-cash equity in net loss of
Joint Venture.
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<PAGE> 31
Cash provided by investing activities increased by $22,500
during 1996 as compared to 1995 due to increased distributions from the
Cumberland Valley Joint Venture.
1995 VS. 1994
The Partnership used $11,400 more cash in operating activities
during the year ended December 31, 1995 than in 1994, primarily due to the
timing of collections of receivables from affiliates ($15,800 cash decrease) and
the payment of recurring liabilities owed to the Corporate General Partner and
third party creditors ($14,600 cash decrease). Partnership expenses used $19,000
less cash during 1995 than in 1994 after adding back non-cash equity in net loss
of Joint Venture.
Cash provided by investing activities decreased by $70,100 during
1995 as compared to 1994 due to reduced distributions from the Cumberland Valley
Joint Venture.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. In such cases, impairment losses are to be recorded based on
estimated fair value, which would generally approximate discounted cash flows.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Joint Venture adopted Statement 121 in the first
quarter of 1996, the effects of which were not material.
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. See "Legislation and
Regulation."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information
required to be filed hereunder are indexed on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
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<PAGE> 32
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partners of the Partnership may be considered, for
certain purposes, the functional equivalents of directors and executive
officers. The Corporate General Partner is Enstar Communications Corporation,
and Robert T. Graff, Jr. is the Individual General Partner. As part of Falcon
Cablevision's September 30, 1988 acquisition of the Corporate General Partner,
Falcon Cablevision received an option to acquire Mr. Graff's interest as
Individual General Partner of the Partnership and other affiliated cable limited
partnerships that he previously co-sponsored with the Corporate General Partner,
and Mr. Graff received the right to cause Falcon Cablevision to acquire such
interests. These arrangements were modified and extended in an amendment dated
September 10, 1993 pursuant to which, among other things, the Corporate General
Partner obtained the option to acquire Mr. Graff's interest in lieu of the
purchase right described above which was originally granted to Falcon
Cablevision. Since its incorporation in Georgia in 1982, the Corporate General
Partner has been engaged in the cable/telecommunications business, both as a
general partner of 15 limited partnerships formed to own and operate cable
television systems and through a wholly-owned operating subsidiary. As of
December 31, 1996, the Corporate General Partner managed cable television
systems with approximately 125,000 Subscribers.
Falcon Cablevision was formed in 1984 as a California limited
partnership and has been engaged in the ownership and operation of cable
television systems since that time. Falcon Cablevision is a wholly-owned
subsidiary of FHGLP. FHGI is the sole general partner of FHGLP. FHGLP currently
operates cable systems through a series of subsidiaries and also controls the
general partners of the 15 limited partnerships which operate under the Enstar
name (including the Partnership). Although these limited partnerships are
affiliated with FHGLP, their assets are owned by legal entities separate from
the Partnership.
Set forth below is certain general information about the
Directors and Executive Officers of the Corporate General Partner:
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Marc B. Nathanson Director, Chairman of the Board and Chief Executive Officer
Frank J. Intiso Director, President and Chief Operating Officer
Stanley S. Itskowitch Director, Executive Vice President and General Counsel
Michael K. Menerey Director, Chief Financial Officer and Secretary
Joe A. Johnson Executive Vice President - Operations
Jon W. Lunsford Vice President - Finance and Corporate Development
Abel C. Crespo Controller
</TABLE>
MARC B. NATHANSON, 51, has been Chairman of the Board and Chief Executive
Officer of FHGI and its predecessors since 1975, and prior to September 19, 1995
also served as President. He has been Chairman of the Board and Chief Executive
Officer of Enstar Communications Corporation since October 1988, and also served
as its President prior to September 1995. Prior to 1975, Mr. Nathanson was Vice
President of Marketing for Teleprompter Corporation, at that time the largest
multiple-system cable operator in the United States. He also held executive
positions with Warner Cable and Cypress Communications Corporation. He is a
former President of the California Cable Television Association and a member of
Cable Pioneers. He is currently a Director of the National Cable Television
Association ("NCTA") and serves on its Executive Committee. At the 1986 NCTA
convention, Mr. Nathanson was honored by being named the recipient of the
Vanguard Award for outstanding contributions to the growth and development of
the cable television industry. Mr. Nathanson is a 27-year veteran of the cable
television industry. He is a founder of the Cable
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<PAGE> 33
Television Administration and Marketing Society ("CTAM") and the Southern
California Cable Television Association. Mr. Nathanson is also a Director of TV
Por Cable Nacional, S.A. de C.V. Mr. Nathanson is also Chairman of the Board and
Chief Executive Officer of Falcon International Communications, LLC ("FIC"). Mr.
Nathanson was appointed by President Clinton and confirmed by the U.S. Senate
for a three year term on the Board of Governors of International Broadcasting of
the United States Information Agency.
FRANK J. INTISO, 50, was appointed President and Chief Operating Officer of FHGI
in September 1995, and between 1982 and that date held the positions of
Executive Vice President and Chief Operating Officer. He has been President and
Chief Operating Officer of Enstar Communications Corporation since September
1995, and between October 1988 and September 1995 held the positions of
Executive Vice President and Chief Operating Officer. Mr. Intiso is responsible
for the day-to-day operations of all cable television systems under the
management of FHGI. Mr. Intiso has a Masters Degree in Business Administration
from the University of California, Los Angeles, and is a Certified Public
Accountant. He serves as chair of the California Cable Television Association,
and is on the boards of Cable Advertising Bureau, Cable In The Classroom,
Community Antenna Television Association and California Cable Television
Association. He is a member of the American Institute of Certified Public
Accountants, the American Marketing Association, the American Management
Association, and the Southern California Cable Television Association.
STANLEY S. ITSKOWITCH, 58, has been a Director of FHGI and its predecessors
since 1975, and Senior Vice President and General Counsel from 1987 to 1990 and
has been Executive Vice President and General Counsel since February 1990. He
has been Executive Vice President and General Counsel of Enstar Communications
Corporation since October 1988. He has been President and Chief Executive
Officer of F.C. Funding, Inc. (formerly Fallek Chemical Company), which is a
marketer of chemical products, since 1980. He is a Certified Public Accountant
and a former tax partner in the New York office of Touche Ross & Co. (now
Deloitte & Touche). He has a J.D. Degree and an L.L.M. Degree in Tax from New
York University School of Law. Mr. Itskowitch is also Executive Vice President
and General Counsel of FIC.
MICHAEL K. MENEREY, 45, has been Chief Financial Officer and Secretary of FHGI
and its predecessors since 1984. He has been Chief Financial Officer and
Secretary of Enstar Communications Corporation since October 1988. Mr. Menerey
is a Certified Public Accountant and is a member of the American Institute of
Certified Public Accountants and the California Society of Certified Public
Accountants.
JOE A. JOHNSON, 52, has been Executive Vice President - Operations of FHGI since
September 1995, and between January 1992 and that date was Senior Vice
President. He has been Executive Vice President-Operations of Enstar
Communications Corporation since January 1996. He was a Divisional Vice
President of FHGI between 1989 and 1992. From 1982 to 1989, he held the
positions of Vice President and Director of Operations for Sacramento Cable
Television, Group W Cable of Chicago and Warner Amex. From 1975 to 1982, Mr.
Johnson held cable system and regional manager positions with Warner Amex and
Teleprompter.
JON W. LUNSFORD, 37, has been Vice President - Finance and Corporate Development
FHGI since September 1994. He has been Vice President-Finance and Corporate
Development of Enstar Communications Corporation since January 1996. From 1991
to 1994 he served as Director of Corporate Finance at Continental Cablevision,
Inc. Prior to 1991, Mr. Lunsford was a Vice President with Crestar Bank.
ABEL C. CRESPO, 37, has been Controller of FHGI since January 1997. Mr. Crespo
joined Falcon in December 1984, and has held various accounting positions during
that time, most recently that of Senior Assistant Controller. Mr. Crespo holds a
Bachelor of Science degree in Business Administration from California State
University, Los Angeles.
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<PAGE> 34
CERTAIN KEY PERSONNEL
The following sets forth, as of December 31, 1996, biographical
information about certain officers of FHGI and Falcon Cable Group, a division of
FHGLP, who share certain responsibilities with the officers of the Corporate
General Partner with respect to the operation and management of the Partnership.
LYNNE A. BUENING, 43, has been Vice President of Programming of Falcon Cable
Group since November 1993. From 1989 to 1993, she served as Director of
Programming for Viacom Cable, a division of Viacom International Inc. Prior to
that, Ms. Buening held programming and marketing positions in the cable,
broadcast, and newspaper industries.
OVANDO COWLES, 43, has been Vice President of Advertising Sales and Production
of Falcon Cable Group since January 1992. From 1988 to 1991, he served as a
Director of Advertising Sales and Production at Cencom Cable Television in
Pasadena, California. He was an Advertising Sales Account Executive at Choice
Television from 1985 to 1988. From 1983 to 1985, Mr. Cowles served in various
sales and advertising positions.
HOWARD J. GAN, 50, has been Vice President of Regulatory Affairs of FHGI and its
predecessors since 1988 and Vice President of Regulatory Affairs of Falcon Cable
Group since its inception. He was General Counsel at Malarkey-Taylor Associates,
a Washington, DC based telecommunications consulting firm, from 1986 to 1988. He
was Vice President and General Counsel at the Cable Television Information
Center from 1978 to 1983. In addition, he was an attorney and an acting Branch
Chief of the Federal Communications Commission's Cable Television Bureau from
1975 to 1978.
R.W. ("SKIP") HARRIS, 49, has been Vice President of Marketing of Falcon Cable
Group since June 1991. He is a member of the CTAM Premium Television Committee.
Mr. Harris was National Director of Affiliate Marketing for The Disney Channel
from 1985 to 1991. He was also a sales manager, regional marketing manager and
director of marketing for Cox Cable Communications from 1978 to 1985.
JOAN SCULLY, 61, has been Vice President of Human Resources of FHGI and its
predecessors since May 1988 and Vice President of Human Resources of Falcon
Cable Group since its inception. From 1987 to May 1988, she was self-employed as
a Management Consultant to cable and transportation companies. She served as
Director of Human Resources of a Los Angeles based cable company from 1985
through 1987. Prior to that time she served as a human resource executive in the
entertainment and aerospace industries. Ms. Scully holds a Masters Degree in
Human Resources Management from Pepperdine University.
MICHAEL D. SINGPIEL, 49, was appointed Vice President of Operations of Falcon
Cable Group in March 1996. Mr. Singpiel joined Falcon in October 1992 as
Divisional Vice President of Falcon's Eastern Division. From 1990 to 1992, Mr.
Singpiel was Vice President of C-Tec Cable Systems in Michigan. Mr. Singpiel
held various positions with Comcast in New Jersey and Michigan from 1980 to
1990.
RAYMOND J. TYNDALL, 49, has been Vice President of Engineering of Falcon Cable
Group since October 1989. From 1975 to September 1989 he held various technical
positions with Choice TV and its predecessors. From 1967 to 1975, he held
various technical positions with Sammons Communications. He is a certified
National Association of Radio and Television Engineering ("NARTE") engineer in
lightwave, microwave, satellite and broadband.
In addition, Falcon Cable Group has six Divisional Vice
Presidents who are based in the field. They are Ron L. Hall, Michael E. Kemph,
Nicholas A. Nocchi, Larry L. Ott, Robert S. Smith and Victor A. Wible.
Each director of the Corporate General Partner is elected to a
one-year term at the annual shareholder meeting to serve until the next annual
shareholder meeting and thereafter until his respective
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<PAGE> 35
successor is elected and qualified. Officers are appointed by and serve at the
discretion of the directors of the Corporate General Partner.
ITEM 11. EXECUTIVE COMPENSATION
MANAGEMENT FEE
The Partnership has a management agreement (the "Management
Agreement") with Enstar Cable Corporation, a wholly owned subsidiary of the
Corporate General Partner (the "Manager"), pursuant to which Enstar Cable
Corporation manages the Joint Venture's systems and provides all operational
support for the activities of the Partnership and Joint Venture. For these
services, the Manager receives a management fee of 4% of gross revenues,
excluding revenues from the sale of cable television systems or franchises,
calculated and paid monthly. In addition, the Joint Venture is required to
distribute 1% of its gross revenues to the Corporate General Partner in respect
of its interest as the Corporate General Partner of the Partnership. The
Management Agreement also requires the Partnership to indemnify the Manager
(including its officers, employees, agents and shareholders) against loss or
expense, absent negligence or deliberate breach by the Manager of the Management
Agreement. The Management Agreement is terminable by the Partnership upon sixty
(60) days written notice to the Manager. The Manager has engaged FHGLP to
provide certain management services for the Joint Venture and pays FHGLP a
portion of the management fees it receives in consideration of such services and
reimburses FHGLP for expenses incurred by FHGLP on its behalf. Additionally, the
Joint Venture receives certain system operating management services from
affiliates of the Manager in lieu of directly employing personnel to perform
such services. The Joint Venture reimburses the affiliates for its allocable
share of their operating costs. The Corporate General Partner also performs
certain supervisory and administrative services for the Partnership, for which
it is reimbursed.
For the fiscal year ended December 31, 1996, the Manager
charged the Joint Venture management fees of approximately $269,100 and
reimbursed expenses of $272,200. In addition, the Joint Venture paid the
Corporate General Partner approximately $67,300 in respect of its 1% special
interest. The Joint Venture also reimbursed affiliates approximately $580,100
for system operating management services. Certain programming services are
purchased through Falcon Cablevision. The Joint Venture paid Falcon Cablevision
approximately $1,257,300 for these programming services for fiscal year 1996.
PARTICIPATION IN DISTRIBUTIONS
The General Partners are entitled to share in distributions
from, and profit and losses in, the Partnership. See Item 5, "Market for
Registrant's Equity Securities and Related Security Holder Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 3, 1997, the common stock of FHGI was owned as
follows: 78.5% by Falcon Cable Trust, a grantor trust of which Marc B. Nathanson
is trustee and he and members of his family are beneficiaries; 20% by Greg A.
Nathanson; and 1.5% by Stanley S. Itskowitch. In 1989, FHGI issued to Hellman &
Friedman Capital Partners, A California Limited Partnership ("H&F"), a
$1,293,357 convertible debenture due 1999 convertible under certain
circumstances into 10% of the common stock of FHGI and entitling H&F to elect
one director to the board of directors of FHGI. H&F elected Marc B. Nathanson
pursuant to such right. In 1991 FHGI issued to Hellman & Friedman Capital
Partners II, A California Limited Partnership ("H&FII"), additional convertible
debentures due 1999 in the aggregate amount of $2,006,198 convertible under
certain circumstances into approximately 6.3% of the common stock of FHGI and
entitling H&FII to elect one director to the board of directors of FHGI. As of
March 3, 1997, H&FII had not exercised this right. FHGLP also held 12.1% of the
interests in the General Partner, and Falcon Cable Trust, Frank Intiso and H&FII
held 58.9%, 12.1% and 16.3% of the General Partner, respectively. Such interests
entitle the holders thereof to an allocable share of cash distributions and
profits and losses of the General Partner in proportion to their ownership. Greg
A. Nathanson is Marc B. Nathanson's brother.
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<PAGE> 36
As of March 3, 1997, Marc B. Nathanson and members of his
family owned, directly or indirectly, outstanding partnership interests
(comprising both general partner interests and limited partner interests)
aggregating approximately 0.46% of Falcon Classic Cable Income Properties, L.P.
and 2.58% of Falcon Video Communications. In accordance with the respective
partnership agreements of these two partnerships, after the return of capital to
and the receipt of certain preferred returns by the limited partners of such
partnerships, FHGLP and certain of its officers and directors had rights to
future profits greater than their ownership interests of capital in such
partnerships.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONFLICTS OF INTEREST
In March 1993, FHGLP, a new entity, assumed the management
services operations of FHGI. Effective March 29, 1993, FHGLP began receiving
management fees and reimbursed expenses which had previously been paid by the
Partnership, as well as the other affiliated entities mentioned above, to FHGI.
The management of FHGLP is substantially the same as that of FHGI.
FHGLP also manages the operations of Falcon Classic Cable
Income Properties, L.P., Falcon Video Communications, L.P., and, through its
management of the operation of Falcon Cablevision (a subsidiary of FHGLP), the
partnerships of which Enstar Communications Corporation is the Corporate General
Partner, including the Partnership. On September 30, 1988, Falcon Cablevision
acquired all of the outstanding stock of Enstar Communications Corporation.
Certain members of management of the Corporate General Partner have also been
involved in the management of other cable ventures. FHGLP contemplates entering
into other cable ventures, including ventures similar to the Partnership.
Conflicts of interest involving acquisitions and dispositions
of cable television systems could adversely affect Unitholders. For instance,
the economic interests of management in other affiliated partnerships are
different from those in the Partnership and this may create conflicts relating
to which acquisition opportunities are preserved for which partnerships.
These affiliations subject FHGLP and the Corporate General
Partner and their management to certain conflicts of interest. Such conflicts of
interest relate to the time and services management will devote to the
Partnership's affairs and to the acquisition and disposition of cable television
systems. Management or its affiliates may establish and manage other entities
which could impose additional conflicts of interest.
FHGLP and the Corporate General Partner will resolve all
conflicts of interest in accordance with their fiduciary duties.
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION OF THE GENERAL PARTNERS
A general partner is accountable to a limited partnership as a
fiduciary and consequently must exercise good faith and integrity in handling
partnership affairs. Where the question has arisen, some courts have held that a
limited partner may institute legal action on his own behalf and on behalf of
all other similarly situated limited partners (a class action) to recover
damages for a breach of fiduciary duty by a general partner, or on behalf of the
partnership (a partnership derivative action) to recover damages from third
parties. Section 14-9-1001 of the Georgia Revised Uniform Limited Partnership
Act also allows a partner to maintain a partnership derivative action if general
partners with authority to do so have refused to bring the action or if an
effort to cause those general partners to bring the action is not likely to
succeed. Certain cases decided by federal courts have recognized the right of a
limited partner to bring such actions under the Securities and Exchange
Commission's Rule 10b-5 for recovery of damages resulting from a breach of
fiduciary duty by a general partner involving fraud, deception or manipulation
in connection with the limited partner's purchase or sale of partnership units.
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<PAGE> 37
The Partnership Agreement provides that the General Partners
will be indemnified by the Partnership for acts performed within the scope of
their authority under the partnership agreement if such general partner (i)
acted in good faith and in a manner that it reasonably believed to be in, or not
opposed to, the best interests of the Partnership and the partners, and (ii) had
no reasonable grounds to believe that its conduct was negligent. In addition,
the Partnership agreement provides that the General Partners will not be liable
to the Partnership or its limited partners for errors in judgment or other acts
or omissions not amounting to negligence or misconduct. Therefore, limited
partners will have a more limited right of action than they would have absent
such provisions. In addition, the Partnership maintains, at its expense and in
such reasonable amounts and at such reasonable prices as the Corporate General
Partner shall determine, a liability insurance policy which insures the
Corporate General Partner, FHGI and its affiliates (which includes FHGLP),
officers and directors and such other persons as the Corporate General Partner
shall determine against liabilities which they may incur with respect to claims
made against them for certain wrongful or allegedly wrongful acts, including
certain errors, misstatements, misleading statements, omissions, neglect or
breaches of duty. To the extent that the exculpatory provisions purport to
include indemnification for liabilities arising under the Securities Act of
1933, it is the opinion of the Securities and Exchange Commission that such
indemnification is contrary to public policy and therefore unenforceable.
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<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
Reference is made to the Index to Financial Statements on
page F-1.
(a) 2. Financial Statement Schedules
Reference is made to the Index to Financial Statements on
page F-1.
(a) 3. Exhibits
Reference is made to the Index to Exhibits on Page E-1.
(b) Reports on Form 8-K
None.
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<PAGE> 39
Signatures
Pursuant to the requirements of Section 13 or 15 (d) 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, on March 25, 1997.
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
By: Enstar Communications Corporation,
Corporate General Partner
By: /s/ Marc B. Nathanson
-----------------------------------
Marc B. Nathanson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities indicated on the 25th day of March 1997.
<TABLE>
<CAPTION>
Signatures Title(*)
---------- --------
<S> <C>
/s/ Marc B. Nathanson Chairman of the Board and Chief Executive Officer
---------------------------------------- (Principal Executive Officer)
Marc B. Nathanson
/s/ Michael K. Menerey Chief Financial Officer, Secretary and Director
---------------------------------------- (Principal Financial and Accounting Officer)
Michael K. Menerey
/s/ Frank J. Intiso President, Chief Operating Officer
---------------------------------------- and Director
Frank J. Intiso
/s/ Stanley S. Itskowitch Executive Vice President, General Counsel
---------------------------------------- and Director
Stanley S. Itskowitch
</TABLE>
(*) Indicates position(s) held with Enstar Communications Corporation, the
Corporate General Partner of the Registrant.
-39-
<PAGE> 40
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-------------------------------------------------------
Enstar Income/Growth Enstar Cable of
Program Five-A, L.P. Cumberland Valley
-------------------- -----------------
<S> <C> <C>
Reports of Independent Auditors F-2 F-10
Balance Sheets - December 31, 1995 and 1996 F-3 F-11
Financial Statements for each of
the three years in the period
ended December 31, 1996:
Statements of Operations F-4 F-12
Statements of Partnership/
Venturers' Capital (Deficit) F-5 F-13
Statements of Cash Flows F-6 F-14
Notes to Financial Statements F-7 F-15
</TABLE>
All schedules have been omitted because they are either not required, not
applicable or the information has otherwise been supplied.
F-1
<PAGE> 41
REPORT OF INDEPENDENT AUDITORS
Partners
Enstar Income/Growth Program Five-A, L.P. (A Georgia Limited Partnership)
We have audited the accompanying balance sheets of Enstar Income/Growth Program
Five-A, L.P. (A Georgia Limited Partnership) as of December 31, 1995 and 1996,
and the related statements of operations, partnership capital (deficit), and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar Income/Growth Program
Five-A, L.P. at December 31, 1995 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
February 21, 1997
F-2
<PAGE> 42
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
BALANCE SHEETS
=================================================
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS:
Cash $ 11,100 $ 32,200
Due from affi1iates 15,800 --
Equity in net assets of joint venture 4,636,500 4,294,000
----------- -----------
$ 4,663,400 $ 4,326,200
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 16,800 $ 15,000
Due to affiliates -- 3,200
----------- -----------
TOTAL LIABILITIES $ 16,800 $ 18,200
----------- -----------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (77,700) (81,100)
Limited partners 4,724,300 4,389,100
----------- -----------
TOTAL PARTNERSHIP CAPITAL 4,646,600 4,308,000
----------- -----------
$ 4,663,400 $ 4,326,200
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 43
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
STATEMENTS OF OPERATIONS
=====================================
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ 23,700 $ 32,000 $ 27,100
General Partner reimbursed expenses 26,100 -- --
--------- --------- ---------
Operating loss (49,800) (32,000) (27,100)
INTEREST EXPENSE (1,700) (500) (500)
--------- --------- ---------
Loss before equity in net loss of joint venture (51,500) (32,500) (27,600)
EQUITY IN NET LOSS OF JOINT VENTURE (642,500) (555,100) (311,000)
--------- --------- ---------
NET LOSS $(694,000) $(587,600) $(338,600)
========= ========= =========
NET LOSS PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (11.50) $ (9.73) $ (5.61)
========= ========= =========
WEIGHTED AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING THE YEAR 59,766 59,766 59,766
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 44
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
STATEMENTS OF PARTNERSHIP CAPITAL (DEFICIT)
=============================
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP CAPITAL (DEFICIT),
January 1, 1994 $ (64,900) $ 5,993,100 $ 5,928,200
Net loss for year (6,900) (687,100) (694,000)
----------- ----------- -----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1994 (71,800) 5,306,000 5,234,200
Net loss for year (5,900) (581,700) (587,600)
----------- ----------- -----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1995 (77,700) 4,724,300 4,646,600
Net loss for year (3,400) (335,200) (338,600)
----------- ----------- -----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1996 $ (81,100) $ 4,389,100 $ 4,308,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 45
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
STATEMENTS OF CASH FLOWS
=====================================
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(694,000) $(587,600) $(338,600)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in net loss of joint venture 642,500 555,100 311,000
Increase (decrease) from changes in:
Due from affiliates - (15,800) 15,800
Accounts payable and due to affiliates 5,800 (8,800) 1,400
--------- --------- ---------
Net cash used in operating activities (45,700) (57,100) (10,400)
--------- --------- ---------
Cash flows from investing activities:
Distributions from joint venture 79,100 9,000 31,500
--------- --------- ---------
Net increase (decrease) in cash 33,400 (48,100) 21,100
Cash at beginning of year 25,800 59,200 11,100
--------- --------- ---------
Cash at end of year $ 59,200 $ 11,100 $ 32,200
========= ========= =========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 46
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
NOTES TO FINANCIAL STATEMENTS
============================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar Income/Growth Program Five-A, L.P. is a Georgia limited
partnership (the "Partnership") whose principal business is derived from its 50%
ownership interest in the operations of Enstar Cable of Cumberland Valley, a
Georgia general partnership (the "Joint Venture"). The financial statements
include the operations of the Partnership and its equity ownership interest in
the Joint Venture. The separate financial statements of the Joint Venture are
included on pages F-10 to F-20 of this report on Form 10-K, and should be read
in conjunction with these financial statements.
The financial statements do not give effect to any assets that
the partners may have outside of their interest in the Partnership, nor to any
obligations, including income taxes, of the partners.
INVESTMENT IN JOINT VENTURE
The Partnership's investment and share of the income or loss in
a Joint Venture is accounted for on the equity method of accounting.
INCOME TAXES
The Partnership pays no income taxes as an entity. All of the
income, gains, losses, deductions and credits of the Partnership are passed
through to the general partners and the limited partners. Nominal taxes are
assessed by certain state jurisdictions. The basis in the Partnership's assets
and liabilities differs for financial and tax reporting purposes. At December
31, 1996, the book basis of the Partnership's net assets exceeds its tax basis
by $1,456,800.
EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses are allocated 99% to the limited partners
and 1% to the general partners. Earnings and losses per unit of limited
partnership interest are based on the weighted average number of units
outstanding during the year.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - PARTNERSHIP MATTERS
The Partnership was formed on September 4, 1986 to acquire,
construct or improve, develop, and operate cable television systems in various
locations in the United States. The partnership agreement provides for Enstar
Communications Corporation (the "Corporate General Partner") and Robert T.
Graff, Jr. to be the general partners and for the admission of limited partners
through the sale of interests in the Partnership.
F-7
<PAGE> 47
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
=================================
NOTE 2 - PARTNERSHIP MATTERS (CONCLUDED)
On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of the Corporate
General Partner.
The Partnership was formed with an initial capital contribution
of $1,100 comprising $1,000 from the Corporate General Partner and $100 from the
initial limited partner. Sale of interests in the Partnership began in January
1987, and the initial closing took place in March 1987. The Partnership
continued to raise capital until $15,000,000 (the maximum) was sold in July
1987.
The amended partnership agreement generally provides that all
cash distributions (as defined) be allocated 1% to the general partners and 99%
to the limited partners until the limited partners have received aggregate cash
distributions equal to their original capital contributions ("Capital Payback").
The amended partnership agreement also provides that all partnership profits,
gains, operational losses, and credits (all as defined) be allocated 1% to the
general partners and 99% to the limited partners until the limited partners have
been allocated net profits equal to the amount of cash flow required for Capital
Payback. After the limited partners have received cash flow equal to their
initial investments, the general partners will only receive a 1% allocation of
cash flow from sale or liquidation of a system until the limited partners have
received an annual simple interest return of at least 10% of their initial
investments less any distributions from previous system sales or refinancing of
systems. Thereafter, the respective allocations will be made 20% to the general
partners and 80% to the limited partners. Any losses from system sales or
exchanges shall be allocated first to all partners having positive capital
account balances (based on their respective capital accounts) until all such
accounts are reduced to zero and thereafter to the Corporate General Partner.
All allocations to individual limited partners will be based on their respective
limited partnership ownership interests.
Upon the disposition of substantially all of the Partnership's
assets, gains shall be allocated first to the limited partners having negative
capital account balances until their capital accounts are increased to zero,
next equally among the general partners until their capital accounts are
increased to zero, and thereafter as outlined in the preceding paragraph. Upon
dissolution of the Partnership, any negative capital account balances remaining
after all allocations and distributions are made must be funded by the
respective partners.
The Partnership's operating expenses and distributions to
partners are funded primarily from distributions received from the Joint
Venture.
The amended partnership agreement limits the amount of debt the
Partnership may incur.
NOTE 3- EQUITY IN NET ASSETS OF JOINT VENTURE
The Partnership and an affiliate partnership, Enstar
Income/Growth Program Five-B, L.P., (collectively, the "Venturers") each own 50%
of the Joint Venture. The Joint Venture was initially funded through capital
contributions made by each venturer during 1988 totaling $11,821,000 in cash and
$750,000 in capitalized system acquisition and related costs. Each partnership
shares equally in the profits and losses of the Joint Venture. The Joint Venture
incurred losses of $1,285,000, $1,110,200 and $622,000 in 1994, 1995 and 1996,
respectively, of which $642,500, $555,100 and $311,000 were allocated to the
Partnership.
F-8
<PAGE> 48
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
=================================
NOTE 4- 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") for a monthly management fee of 5% of gross receipts as defined,
from the operations of the Partnership. The Partnership did not own or operate
any cable television operations in 1994, 1995 or 1996 other than through its
investment in the Joint Venture. No management fees were paid by the Partnership
during 1994, 1995 and 1996.
The Agreement also provides that the Partnership will reimburse
the Manager for direct expenses incurred on behalf of the Partnership and for
the Partnership's allocable share of operational costs associated with services
provided by the Manager. Reimbursed expenses totaled approximately $26,100 in
1994. No reimbursable expenses were incurred on behalf of the Partnership during
1995 or 1996.
NOTE 5 - COMMITMENTS
The Partnership, together with Enstar Income/Growth Program
Five-B, L.P. has pledged its Joint Venture interest as collateral against the
debt of the Joint Venture.
F-9
<PAGE> 49
REPORT OF INDEPENDENT AUDITORS
To the Venturers of
Enstar Cable of Cumberland Valley (A Georgia General Partnership)
We have audited the accompanying balance sheets of Enstar Cable of Cumberland
Valley (A Georgia General Partnership) as of December 31, 1995 and 1996, and the
related statements of operations, venturers' capital, and cash flows for each of
the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Joint Venture's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar Cable of Cumberland
Valley at December 31, 1995 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
February 21, 1997
F-10
<PAGE> 50
ENSTAR CABLE OF CUMBERLAND VALLEY
BALANCE SHEETS
============================
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,110,900 $ 2,425,100
Accounts receivable, less allowance of $28,500 and
$23,600 for possible losses 147,700 149,500
Insurance claim receivable 353,800 15,600
Prepaid expenses 59,700 85,600
Cable materials, equipment and supplies 196,300 196,300
Property, plant and equipment, less accumulated
depreciation and amortization 10,498,900 9,743,900
Franchise cost, net of accumulated
amortization of $12,989,000 and $12,173,600 4,477,000 3,063,200
Deferred loan costs and other, net 205,400 153,400
----------- -----------
$17,049,700 $15,832,600
=========== ===========
LIABILITIES AND VENTURERS' CAPITAL
LIABILITIES:
Accounts payable $ 966,000 $ 839,600
Due to affiliates 43,500 337,800
Note payable 6,767,200 6,067,200
----------- -----------
TOTAL LIABILITIES 7,776,700 7,244,600
----------- -----------
COMMITMENTS AND CONTINGENCIES
VENTURERS' CAPITAL:
Enstar Income/Growth Program Five-A, L.P. 4,636,500 4,294,000
Enstar Income/Growth Program Five-B, L.P. 4,636,500 4,294,000
----------- -----------
TOTAL VENTURERS' CAPITAL 9,273,000 8,588,000
----------- -----------
$17,049,700 $15,832,600
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-11
<PAGE> 51
ENSTAR CABLE OF CUMBERLAND VALLEY
STATEMENTS OF OPERATIONS
====================================
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ 6,173,900 $ 6,241,700 $ 6,728,900
----------- ----------- -----------
OPERATING EXPENSES:
Service costs 2,133,400 2,177,600 2,394,700
General and administrative expenses 931,300 786,100 877,700
General Partner management fees
and reimbursed expenses 592,900 562,600 608,600
Depreciation and amortization 3,158,600 3,104,900 2,841,600
----------- ----------- -----------
6,816,200 6,631,200 6,722,600
----------- ----------- -----------
Operating income (loss) (642,300) (389,500) 6,300
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (664,800) (779,300) (699,400)
Interest income 22,100 58,600 71,100
----------- ----------- -----------
(642,700) (720,700) (628,300)
----------- ----------- -----------
NET LOSS $(1,285,000) $(1,110,200) $ (622,000)
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-12
<PAGE> 52
ENSTAR CABLE OF CUMBERLAND VALLEY
STATEMENTS OF VENTURERS' CAPITAL
===============================
<TABLE>
<CAPTION>
Enstar Income/ Enstar Income/
Growth Program Growth Program
Five-A, L.P. Five-B, L.P. Total
------------ ------------ ------------
<S> <C> <C> <C>
BALANCE, January 1, 1994 $ 5,922,200 $ 5,922,200 $11,844,400
Distributions to venturers (79,100) (79,100) (158,200)
Net loss for year (642,500) (642,500) (1,285,000)
------------ ------------ ------------
BALANCE, December 31, 1994 5,200,600 5,200,600 10,401,200
Distributions to venturers (9,000) (9,000) (18,000)
Net loss for year (555,100) (555,100) (1,110,200)
------------ ------------ ------------
BALANCE, December 31, 1995 4,636,500 4,636,500 9,273,000
Distributions to venturers (31,500) (31,500) (63,000)
Net loss for year (311,000) (311,000) (622,000)
------------ ------------ ------------
BALANCE, December 31, 1996 $ 4,294,000 $ 4,294,000 $ 8,588,000
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE> 53
ENSTAR CABLE OF CUMBERLAND VALLEY
STATEMENTS OF CASH FLOWS
=====================================
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,285,000) $(1,110,200) $ (622,000)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 3,158,600 3,104,900 2,841,600
Amortization of deferred loan costs 52,200 52,200 52,200
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses,
cable materials and other assets (312,800) 53,300 310,500
Accounts payable and due to affiliates 269,400 (54,300) 167,900
----------- ----------- -----------
Net cash provided by operating activities 1,882,400 2,045,900 2,750,200
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (763,400) (1,975,800) (662,100)
Increase in intangible assets (9,900) (21,000) (10,900)
----------- ----------- -----------
Net cash used in investing activities (773,300) (1,996,800) (673,000)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to venturers (158,200) (18,000) (63,000)
Repayment of debt - - (700,000)
Deferred loan costs (47,400) - -
----------- ----------- -----------
Net cash used in financing activities (205,600) (18,000) (763,000)
----------- ----------- -----------
Net increase in cash and cash equivalents 903,500 31,100 1,314,200
Cash and cash equivalents at beginning of year 176,300 1,079,800 1,110,900
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,079,800 $ 1,110,900 $ 2,425,100
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE> 54
ENSTAR CABLE OF CUMBERLAND VALLEY
NOTES TO FINANCIAL STATEMENTS
===========================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar Cable of Cumberland Valley, a Georgia general partnership
(the "Joint Venture"), owns and operates cable systems in rural areas of
Kentucky, Tennessee and Missouri.
The financial statements do not give effect to any assets that
Enstar Income/Growth Program Five-A, L.P. and Enstar Income/Growth Program
Five-B, L.P. (the "Venturers") may have outside of their interest in the Joint
Venture, nor to any obligations, including income taxes, of the Venturers.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Joint Venture
considers all highly liquid debt instruments purchased with an initial maturity
of three months or less to be cash equivalents.
Cash equivalents at December 31, 1996 include $2,311,000 of
short-term investments in commercial paper.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Direct costs
associated with installations in homes not previously served by cable are
capitalized as part of the distribution system, and reconnects are expensed as
incurred. For financial reporting, depreciation and amortization is computed
using the straight-line method over the following estimated useful lives:
Cable television systems 5-15 years
Vehicles 3 years
Furniture and equipment 5-7 years
Leasehold improvement Life of lease
FRANCHISE COST
The excess of cost over the fair values of tangible assets and
customer lists of cable television systems acquired represents the cost of
franchises. In addition, franchise cost includes capitalized costs incurred in
obtaining new, undeveloped franchises. These costs (primarily legal fees) are
direct and incremental to the acquisition of the franchise and are amortized
using the straight-line method over the lives of the franchises, ranging up to
15 years. The Joint Venture periodically evaluates the amortization periods of
these intangible assets to determine whether events or circumstances warrant
revised estimates of useful lives. Costs relating to unsuccessful franchise
applications are charged to expense when it is determined that the efforts to
obtain the franchise will not be successful.
DEFERRED LOAN COSTS AND OTHER DEFERRED CHARGES
Costs related to obtaining new loan agreements are capitalized
and amortized to interest expense over the life of the related loan. Other
deferred charges are amortized using the straight-line method over two years.
F-15
<PAGE> 55
ENSTAR CABLE OF CUMBERLAND VALLEY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
=============================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONCLUDED)
RECOVERABILITY OF ASSETS
The Joint Venture assesses on an ongoing basis the
recoverability of intangible and capitalized plant assets based on estimates of
future undiscounted cash flows compared to net book value. If the future
undiscounted cash flow estimate were less than net book value, net book value
would then be reduced to estimated fair value, which would generally approximate
discounted cash flows. The Joint Venture also evaluates the amortization periods
of assets to determine whether events or circumstances warrant revised estimates
of useful lives.
REVENUE RECOGNITION
Revenues from cable services are recognized as the services are
provided.
INCOME TAXES
As a partnership, the Joint Venture pays no income taxes. All
of the income, gains, losses, deductions and credits of the Joint Venture are
passed through to the Joint Venturers. Nominal taxes are assessed by certain
state jurisdictions. The basis in the Joint Venture's assets and liabilities
differs for financial and tax reporting purposes. At December 31, 1996, the book
basis of the Joint Venture's net assets exceeds its tax basis by $2,913,600.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform
to the 1996 presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - JOINT VENTURE MATTERS
The Joint Venture was formed under the terms of a general
partnership agreement (the "Partnership Agreement") effective January 11, 1988
between Enstar Income/Growth Program Five-A, L.P. and Enstar Income/Growth
Program Five-B, L.P., which are two limited partnerships sponsored by Enstar
Communications Corporation (the "Corporate General Partner"). The Joint Venture
was formed to pool the resources of the two limited partnerships to acquire,
own, operate and dispose of certain cable television systems.
On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of the Corporate
General Partner.
Under the terms of the Partnership Agreement, the Venturers
share equally in profits, losses, allocations and assets. Capital contributions,
as required, are also made equally.
F-16
<PAGE> 56
ENSTAR CABLE OF CUMBERLAND VALLEY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
=============================
NOTE 3 - INSURANCE CLAIM RECEIVABLE
Insurance claim receivable at December 31, 1995 consisted of an
uncollected insurance claim arising from storm related system damage incurred in
1994. The claim was largely collected in 1996. The Joint Venture believes the
remaining $15,600 balance due at December 31, 1996 is fully collectible in 1997.
NOTE 4- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December 31,
----------------------------
1995 1996
------------ ------------
<S> <C> <C>
Cable television systems $ 18,374,800 $ 18,928,500
Vehicles, furniture and
equipment and leasehold
improvements 518,800 574,700
------------ ------------
18,893,600 19,503,200
Less accumulated depreciation
and amortizatation (8,394,700) (9,759,300)
------------ ------------
$ 10,498,900 $ 9,743,900
============ ============
</TABLE>
NOTE 5 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents
The carrying amount approximates fair value due to the short
maturity of these instruments.
Note Payable
The carrying amount approximates fair value due to the variable
rate nature of the note payable.
NOTE 6 - NOTE PAYABLE
During 1993, the Joint Venture entered into a $9,000,000
reducing revolving line of credit agreement (the "Credit Agreement") with a
final maturity of September 30, 1999. The Credit Agreement provides for
quarterly reductions of the maximum commitment which commenced September 30,
1994, permanently reducing the maximum available borrowings under the Credit
Agreement. The commitment reduces in quarterly installments of $425,000 through
June 30, 1997, $500,000 through June 30, 1998, $550,000 through June 30, 1999,
with a final payment of $1,800,000 due on September 30, 1999. Repayment of
principal is required to the extent the loan balance then outstanding exceeds
the reduced maximum commitment.
F-17
<PAGE> 57
ENSTAR CABLE OF CUMBERLAND VALLEY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
=============================
NOTE 6 - NOTE PAYABLE (CONCLUDED)
The Joint Venture is permitted to prepay amounts outstanding
under the Credit Agreement at any time without penalty, and is able to re-borrow
throughout the term of the Credit Agreement up to the maximum commitment then
available so long as no event of default exists.
Borrowings bear interest at the lender's base rate (8.25% at
December 31, 1996), as defined, plus 1.5%, payable quarterly. The Joint Venture
is also required to pay a commitment fee of .5% per annum on the unused portion
of the revolver. Borrowings under the Credit Agreement are collateralized by
substantially all assets of the Joint Venture and by a pledge of the Venturers'
interests in the Joint Venture. The Joint Venture has substantially utilized its
borrowing capacity under the note payable.
The Credit Agreement contains various requirements and
restrictions including maintenance of minimum operating results, required
financial reporting, restrictions on sales of assets and limitations on
investments, loans and advances. According to the Credit Agreement, the lender
may also require that at least 50% of borrowings under the Credit Agreement be
subject to a fixed rate of interest for a period of at least two years.
Management believes that the Joint Venture was in compliance with all loan
covenants at December 31, 1996.
Principal maturities of the note payable as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
Year Amount
---- ----------
<S> <C>
1997 $1,067,200
1998 2,100,000
1999 2,900,000
----------
$6,067,200
==========
</TABLE>
On March 7, 1997, (subsequent to the date of report of
independent auditors) the Joint Venture elected to prepay $2,000,000 of its note
payable balance, which reduced its outstanding borrowings from $6,067,200 to
$4,067,200.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Joint Venture leases buildings and tower sites associated
with the systems under operating leases expiring in various years through 2002.
F-18
<PAGE> 58
ENSTAR CABLE OF CUMBERLAND VALLEY
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
=============================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONCLUDED)
Future minimum rental payments under non-cancelable leases that
have remaining terms in excess of one year as of December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- -------
<S> <C>
1997 $13,600
1998 13,600
1999 13,600
2000 13,100
2001 13,000
Thereafter 5,300
-------
$72,200
=======
</TABLE>
Rentals, other than pole rentals, charged to operations
approximated $49,200, $48,400 and $49,400, in 1994, 1995 and 1996, respectively,
while pole rental expense approximated $106,700, $95,800 and $105,900 in 1994,
1995 and 1996, respectively.
The Joint Venture is subject to regulation by various federal,
state and local government entities. The Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act") provides for, among other
things, federal and local regulation of rates charged for basic cable service,
cable programming services and equipment and installation services. Regulations
issued in 1993 and significantly amended in 1994 by the Federal Communications
Commission (the "FCC") have resulted in changes in the rates charged for the
Joint Venture's cable services. The Joint Venture believes that compliance with
the 1992 Cable Act has had a significant negative impact on its operations and
cash flow. It also believes that any potential future liabilities for refund
claims or other related actions would not be material. The Telecommunications
Act of 1996 (the "1996 Telecom Act") was signed into law on February 8, 1996.
This statute contains a significant overhaul of the federal regulatory
structure. As it pertains to cable television, the 1996 Telecom Act, among other
things, (i) ends the regulation of certain non-basic programming services in
1999; (ii) expands the definition of effective competition, the existence of
which displaces rate regulation; (iii) eliminates the restriction against the
ownership and operation of cable systems by telephone companies within their
local exchange service areas; and (iv) liberalizes certain of the FCC's
cross-ownership restrictions. The FCC is in the process of conducting a number
of additional rulemaking proceedings in order to implement many of the
provisions of the 1996 Telecom Act.
F-19
<PAGE> 59
ENSTAR CABLE OF CUMBERLAND VALLEY
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
================================
NOTE 8 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Joint Venture has a management and service agreement (the
"Agreement") with a wholly owned subsidiary of the Corporate General Partner
(the "Manager") for a monthly management fee of 4% of gross receipts, as
defined, from the operations of the Joint Venture. Management fee expense
approximated $247,000, $249,700, and $269,100 in 1994, 1995 and 1996,
respectively. In addition, the Joint Venture is required to distribute 1% of its
gross revenues to the Corporate General Partner in respect of its interest as
the Corporate General Partner of the Partnership. This fee approximated $61,700,
$62,400 and $67,300 in 1994, 1995 and 1996, respectively.
The Joint Venture also reimburses the Manager for direct
expenses incurred on behalf of the Joint Venture and for the Venture's allocable
share of operational costs associated with services provided by the Manager. All
cable television properties managed by the Corporate General Partner and its
subsidiaries are charged a proportionate share of these expenses. Corporate
office allocations and district office expenses are charged to the properties
served based primarily on the respective percentage of basic customers or homes
passed (dwelling units within a system) within the designated service areas. The
total amounts charged to the Joint Venture for these services approximated
$284,200, $250,500 and $272,200 during 1994, 1995 and 1996, respectively.
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 such 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 $581,900,
$532,800 and $580,100 in 1994, 1995 and 1996, respectively. No management 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 Falcon
Cablevision. In turn, Falcon Cablevision 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 $1,071,200, $1,136,500 and $1,257,300 in 1994, 1995 and 1996, respectively.
Programming fees are included in service costs in the statements of operations.
NOTE 9 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest amounted to $662,500, $777,400 and
$703,400 in 1994, 1995 and 1996, respectively.
F-20
<PAGE> 60
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3 Second Amended and Restated Agreement of Limited Partnership of Enstar Income/Growth Program Five-A,
L.P., dated as of August 1, 1988(2)
10.1 Amended and Restated Partnership Agreement of Enstar Cable of Cumberland Valley, dated as of April 28,
1988(2)
10.2 Management Agreement between Enstar Income/Growth Program Five-A, L.P., and Enstar Cable Corporation(1)
10.3 Management Agreement between Enstar Cable of Cumberland Valley and Enstar Cable Corporation, as
amended(2)
10.4 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system franchise for the City of Cumberland, Kentucky(1)
10.5 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system franchise for the City of Greensboro, Kentucky(1)
10.6 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system franchise for the City of Jellico, Tennessee(1)
10.7 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system franchise for the City of Liberty, Kentucky(1)
10.8 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system franchise for the City of Monticello, Kentucky(1)
10.9 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system franchise for the City of Russell Springs, Kentucky(1)
10.10 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system franchise for McCreary County, Kentucky(1)
10.11 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system franchise for Whitley County, Kentucky(1)
10.12 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system franchise for Campbell County, Tennessee(1)
10.13 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system for Russell County, Kentucky(2)
10.14 Franchise ordinance and related documents thereto granting a non-exclusive community antenna television
system for Wayne County, Kentucky(2)
10.15 Service Agreement between Enstar Communications Corporation, Enstar Cable Corporation and Falcon Holding
Group, Inc. dated as of October 1, 1988(3)
10.16 Amendment No. 2 to Revolving Credit and Term Loan Agreement dated April 29, 1988 between Enstar Cable of
Cumberland Valley and Rhode Island Hospital Trust National Bank, dated March 26, 1990.(4)
10.17 Amendment No. 3 to Revolving Credit and Term Loan Agreement dated April 29, 1988 between Enstar Cable of
Cumberland Valley and Rhode Island Hospital Trust National Bank, dated December 27, 1990.(4)
</TABLE>
E-1
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
10.18 Amendment No. 4 to Revolving Credit and Term Loan Agreement dated April 29, 1988 between Enstar Cable of
Cumberland Valley and Rhode Island Hospital Trust National Bank, dated March 25, 1992.(5)
10.19 Amendment No. 5 to Revolving Credit and Term Loan Agreement dated April 29, 1988 between Enstar Cable of
Cumberland Valley and Rhode Island Hospital Trust National Bank, dated February 16, 1993.(6)
10.20 Amendment No. 6 to Revolving and Term Loan Agreement dated April 29, 1988 between Enstar Cable of
Cumberland Valley and Rhode Island Hospital Trust National Bank, dated March 23, 1993.(6)
10.21 Asset Purchase Agreement and related documents by and between Enstar Cable of Cumberland Valley and W.K.
Communications, Inc., dated as of April 23, 1993.(6)
10.22 Loan Agreement between Enstar Cable of Cumberland Valley and Kansallis-Osake-Pankki dated December 9,
1993.(8)
10.23 Amendment to Loan Agreement dated December 9, 1993 between Enstar Cable of Cumberland Valley and Merita
Bank Ltd., Successor in Interest to Kansallis-Osake-Pankki, dated December 15, 1995.(9)
16.1 Report of change in accountants (7)
21.1 Subsidiaries: Enstar Cable of Cumberland Valley.
</TABLE>
FOOTNOTE REFERENCES
(1) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-16779 for the fiscal year
ended December 31, 1987.
(2) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-16779 for the fiscal year
ended December 31, 1988.
(3) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-16779 for the fiscal year
ended December 31, 1989.
(4) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-16779 for the fiscal year
ended December 31, 1990.
(5) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-16779 for the fiscal year
ended December 31, 1991.
(6) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q, File No. 0-16779 for the quarter
ended March 31, 1993.
(7) Incorporated by reference to the exhibit to the Registrant's
Current Report on Form 8-K, File No. 0-16779 dated October 17,
1994.
(8) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-16779 for the fiscal year
ended December 31, 1993.
(9) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-16779 for the fiscal year
ended December 31, 1995.
E-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1996, AND THE STATEMENTS OF OPERATIONS FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 32,200
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,326,200
<CURRENT-LIABILITIES> 18,200
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,326,200
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 27,100
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 500
<INCOME-PRETAX> (338,600)
<INCOME-TAX> 0
<INCOME-CONTINUING> (338,600)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (338,600)
<EPS-PRIMARY> (5.61)
<EPS-DILUTED> 0
</TABLE>
