<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16779
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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 Identification Number)
incorporation or organization)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (310) 824-9990
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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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<PAGE>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
CONDENSED BALANCE SHEETS
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-----------------------------------------
<TABLE>
<CAPTION>
December 31, September 30,
1997* 1998
------------------ ------------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash $ 22,800 $ 19,800
Equity in net assets of Joint Venture 4,222,900 4,427,500
------------------ ------------------
$ 4,245,700 $ 4,447,300
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------------------ ------------------
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 14,500 $ 4,200
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PARTNERSHIP CAPITAL (DEFICIT):
General partners (81,900) (79,800)
Limited partners 4,313,100 4,522,900
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TOTAL PARTNERSHIP CAPITAL 4,231,200 4,443,100
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$ 4,245,700 $ 4,447,300
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------------------ ------------------
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
CONDENSED STATEMENTS OF OPERATIONS
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-----------------------------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Three months ended
September 30,
--------------------------------------
1997 1998
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<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (10,800) $ (5,100)
----------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME (LOSS)
OF JOINT VENTURE (10,800) (5,100)
EQUITY IN NET INCOME (LOSS) OF JOINT VENTURE (49,800) 94,500
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NET INCOME (LOSS) $ (60,600) $ 89,400
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Net income (loss) allocated to General Partners $ (600) $ 900
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Net income (loss) allocated to Limited Partners $ (60,000) $ 88,500
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----------------- -----------------
NET INCOME (LOSS) PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (1.00) $ 1.48
----------------- -----------------
----------------- -----------------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 59,766 59,766
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
CONDENSED STATEMENTS OF OPERATIONS
-----------------------------------------
-----------------------------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (26,600) $ (18,700)
----------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME (LOSS)
OF JOINT VENTURE (26,600) (18,700)
EQUITY IN NET INCOME (LOSS) OF JOINT VENTURE (48,600) 230,600
----------------- -----------------
NET INCOME (LOSS) $ (75,200) $ 211,900
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----------------- -----------------
Net income (loss) allocated to General Partners $ (800) $ 2,100
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Net income (loss) allocated to Limited Partners $ (74,400) $ 209,800
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NET INCOME (LOSS) PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (1.24) $ 3.51
----------------- -----------------
----------------- -----------------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 59,766 59,766
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
STATEMENTS OF CASH FLOWS
-----------------------------------------
-----------------------------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (75,200) $ 211,900
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Equity in net (income) loss of Joint Venture 48,600 (230,600)
Decrease from change in:
Accounts payable (6,900) (10,300)
----------------- -----------------
Net cash used in operating activities (33,500) (29,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Venture 25,000 26,000
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DECREASE IN CASH (8,500) (3,000)
CASH AT BEGINNING OF PERIOD 32,200 22,800
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CASH AT END OF PERIOD $ 23,700 $ 19,800
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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-----------------------------------------
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the three
and nine months ended September 30, 1998 and 1997 are unaudited. These condensed
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Partnership's latest
Annual Report on Form 10-K. In the opinion of management, such statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of such periods. The results of
operations for the three and nine months ended September 30, 1998 are not
necessarily indicative of results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (the
"Agreement") with a wholly owned subsidiary of the Corporate General Partner
(the "Manager") pursuant to which it pays a monthly management fee of 5% of
gross revenues. The Agreement also provides that the Partnership will reimburse
the Manager for (i) direct expenses incurred on behalf of the Partnership and
(ii) the Partnership's allocable share of the Manager's operational costs. The
Corporate General Partner has contracted with Falcon Communications, L.P.
("FCLP"), successor to Falcon Holding Group, L.P. ("FHGLP"), an affiliated
partnership, to provide corporate management services for the Partnership and
Enstar Cable of Cumberland Valley, a Georgia general partnership, of which the
Partnership is co-general partner (the "Joint Venture"). Corporate office
allocations and district office expenses are charged to the properties served
based primarily on the respective percentage of basic subscribers within the
designated service areas. No such costs and expenses were incurred or charged to
the Partnership for these services during the three and nine months ended
September 30, 1998. The Manager has entered into an identical agreement with the
Joint Venture, except that the Joint Venture pays the Manager only a 4%
management fee. However, the Joint Venture is required to distribute to Enstar
Communications Corporation (which is the Corporate General Partner of the Joint
Venture as well as of the Partnership) an amount equal to 1% of the Joint
Venture's gross revenues in respect of Enstar Communications Corporation's
interest as the Corporate General Partner of the Joint Venture. No management
fee is payable to the Manager by the Partnership in respect of any amounts
received by the Partnership from the Joint Venture, and there is no duplication
of reimbursed expenses and costs of the Manager. The Joint Venture paid the
Manager management fees of approximately $31,400 and $173,800 and reimbursement
of expenses of approximately $121,300 and $266,600 under its management
agreement for the three and nine months ended September 30, 1998. In addition,
the Joint Venture paid the Corporate General Partner approximately $7,800 and
$43,400 in respect of its 1% special interest during the three and nine months
ended September 30, 1998. Management fees and reimbursed expenses due the
Corporate General Partner are non-interest bearing.
The Joint Venture also receives certain system operating management
services from affiliates of the Corporate General Partner in addition to the
Manager, due to the fact that there are no employees directly employed by the
Joint Venture. The Joint Venture reimburses the affiliates for the Joint
Venture's allocable share of the affiliates' operational costs. The total amount
charged to the Joint Venture for these costs approximated $166,900 and $484,700
for the three and nine months ended September 30, 1998. No
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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-----------------------------------------
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
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 an affiliate
of the Joint Venture. In turn, the affiliate charged 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 $347,900 and $1,033,600 for the three and nine months ended September 30,
1998. Programming fees are included in service costs in the statements of
operations. In the future, programming services will be purchased through
another source, which may include FHGLP or an affiliate of FHGLP. Programming
rates may vary in the near term as a result of the change.
In the normal course of business, the Joint Venture pays interest and
principal to Enstar Finance Company, LLC ("EFC"), its primary lender and an
affiliate of the Corporate General Partner.
3. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is based
on the average number of units outstanding during the periods presented. For
this purpose, earnings and losses have been allocated 99% to the Limited
Partners and 1% to the General Partners. The General Partners do not own units
of partnership interest in the Partnership, but rather hold a participation
interest in the income, losses and distributions of the Partnership.
4. RECLASSIFICATIONS
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
-7-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
-----------------------------------------
-----------------------------------------
5. EQUITY IN NET ASSETS OF JOINT VENTURE
The Partnership and an affiliated partnership (Enstar Income/Growth
Program Five-B, L.P.) each own 50% of the Joint Venture. Each of the co-partners
share equally in the profits and losses of the Joint Venture. The investment in
the Joint Venture is accounted for on the equity method. Summarized financial
information for the Joint Venture as of September 30, 1998 and December 31, 1997
and the results of its operations for the three and nine months ended September
30, 1998 and 1997 have been included. The results of operations for the three
and nine months ended September 30, 1998 are not necessarily indicative of
results for the entire year.
<TABLE>
<CAPTION>
December 31, September 30,
1997* 1998
------------------ ------------------
(Unaudited)
<S> <C> <C>
Current assets $ 1,504,500 $ 1,014,800
Investment in cable television properties, net 10,759,800 10,268,800
Other assets 127,800 106,900
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$ 12,392,100 $ 11,390,500
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------------------ ------------------
Current liabilities $ 1,346,300 $ 1,235,500
Long-term debt 2,600,000 1,300,000
Venturers' capital 8,445,800 8,855,000
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$ 12,392,100 $ 11,390,500
------------------ ------------------
------------------ ------------------
</TABLE>
*As presented in the audited financial statements.
-8-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
-----------------------------------------
-----------------------------------------
5. EQUITY IN NET ASSETS OF JOINT VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Three months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
REVENUES $ 1,824,800 $ 1,773,700
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OPERATING EXPENSES:
Service costs 639,500 663,700
General and administrative expenses 232,600 203,700
General Partner management fees
and reimbursed expenses 163,200 160,500
Depreciation and amortization 680,200 505,400
----------------- -----------------
1,715,500 1,533,300
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OPERATING INCOME 109,300 240,400
OTHER INCOME (EXPENSE):
Interest income 23,100 10,100
Interest expense (232,100) (61,500)
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NET INCOME (LOSS) $ (99,700) $ 189,000
----------------- -----------------
----------------- -----------------
</TABLE>
-9-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
-----------------------------------------
-----------------------------------------
5. EQUITY IN NET ASSETS OF JOINT VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
REVENUES $ 5,407,300 $ 5,333,000
----------------- -----------------
OPERATING EXPENSES:
Service costs 1,884,400 1,793,900
General and administrative expenses 701,400 645,900
General Partner management fees
and reimbursed expenses 489,500 483,800
Depreciation and amortization 1,997,300 1,562,800
----------------- -----------------
5,072,600 4,486,400
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OPERATING INCOME 334,700 846,600
OTHER INCOME (EXPENSE):
Interest income 68,900 39,700
Interest expense (500,800) (209,500)
Loss from involuntary conversion of cable
system assets - (215,600)
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NET INCOME (LOSS) $ (97,200) $ 461,200
----------------- -----------------
----------------- -----------------
</TABLE>
-10-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") required the Federal Communications Commission ("FCC")
to, among other things, implement extensive regulation of the rates charged by
cable television systems for basic and programming service tiers, installation,
and customer premises equipment leasing. Compliance with those rate regulations
has had a negative impact on the Joint Venture's revenues and cash flow. The
Telecommunications Act of 1996 (the "1996 Telecom Act") substantially changed
the competitive and regulatory environment for cable television and
telecommunications service providers. Among other changes, the 1996 Telecom Act
provides that the regulation of cable programming service tier ("CPST") rates
will be terminated on March 31, 1999. Because cable service rate increases have
continued to outpace inflation under the FCC's existing regulations, it is
possible that Congress and the FCC will consider additional methods of
regulating cable service rate increases, including deferral or repeal of the
March 31, 1999 termination of CPST rate regulation. There can be no assurance as
to what, if any, further action may be taken by the FCC, Congress or any other
regulatory authority or court, or the effect thereof on the Joint Venture's
business. Accordingly, the Joint Venture's historical financial results as
described below are not necessarily indicative of future performance.
This Report includes certain forward looking statements regarding,
among other things, future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing cable
television operators such as the Partnership. In addition to the information
provided herein, reference is made to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1997 for additional information regarding
such matters and the effect thereof on the Partnership's business.
All of the Partnership's cable television business operations are
conducted through its participation as a partner with a 50% interest in the
Joint Venture. The Partnership participates equally with its affiliated partner
(Enstar Income/Growth Program Five-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 $13,000 and
$26,000 to the Partnership, representing the Partnership's pro rata share of the
cash flow distributed from the Joint Venture's operations during the three and
nine months ended September 30,
-11-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
RESULTS OF OPERATIONS (CONTINUED)
1998. The Partnership did not pay distributions to its partners during the three
and nine months ended September 30, 1998.
THE JOINT VENTURE
The Joint Venture's revenues decreased from $1,824,800 to $1,773,700,
or by 2.8%, for the three months ended September 30, 1998 as compared to the
corresponding quarter in 1997. Revenues decreased from $5,407,300 to $5,333,000,
or by 1.4%, for the nine months ended September 30, 1998 as compared to the
corresponding period in 1997. Of the $51,100 decrease for the three months ended
September 30, 1998 as compared to the corresponding period in 1997, $72,800 was
due to decreases in the number of subscriptions for basic, premium, tier and
equipment rental services and $15,300 due to decreases in other revenue
producing items. These decreases were partially offset by an increase of $37,000
due to increases in regulated service rates that were implemented by the Joint
Venture in 1997. Of the $74,300 decrease for the nine months ended September 30,
1998 as compared to the corresponding period in 1997, $142,100 was due to
decreases in the number of subscriptions for basic, premium, tier and equipment
rental services and $20,600 was due to decreases in other revenue producing
items. These decreases were partially offset by an increase of $88,400 due to
increases in regulated service rates that were implemented by the Joint Venture
in 1997. As of September 30, 1998, the Joint Venture had approximately 16,500
basic subscribers and 2,800 premium service units.
Service costs increased from $639,500 to $663,700, or by 3.8%, for the
three months ended September 30, 1998 as compared to the corresponding period in
1997. For the nine months ended September 30, 1998, service costs decreased from
$1,884,400 to $1,793,900, or by 4.8%, as compared to the corresponding period in
1997. Service costs represent costs directly attributable to providing cable
services to customers. The increase for the three months ended September 30,
1998 was principally due to higher personnel costs, property tax assessments and
programming fees. Personnel costs increased due to staff additions. Programming
fees increased primarily as a result of higher rates charged by program
suppliers. The decrease for the nine months ended September 30, 1998 was
principally due to increases in the capitalization of labor and overhead costs
resulting from replacement of portions of the Joint Venture's Monticello,
Kentucky system, which sustained storm damage in February 1998.
General and administrative expenses decreased from $232,600 to
$203,700, or by 12.4%, and from $701,400 to $645,900, or by 7.9%, for the three
and nine months ended September 30, 1998 as compared to the corresponding
periods in 1997, due to decreases in marketing and bad debt expenses during the
1998 periods.
Management fees and reimbursed expenses decreased from $163,200 to
$160,500, or by 1.7%, and from $489,500 to $483,800, or by 1.2%, for the three
and nine months ended September 30, 1998 as compared to the corresponding
periods in 1997. The decreases were due to lower management fees, which
decreased in direct relation to reductions in revenues as described above.
-12-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Depreciation and amortization expense decreased from $680,200 to
$505,400, or by 25.7%, and from $1,997,300 to $1,562,800, or by 21.8%, for the
three and nine months ended September 30, 1998 as compared to the corresponding
periods in 1997, due to the effect of certain tangible assets becoming fully
depreciated and certain intangible assets becoming fully amortized.
Operating income increased from $109,300 to $240,400, and from $334,700
to $846,600, for the three and nine months ended September 30, 1998 as compared
to the corresponding periods in 1997, primarily due to decreases in depreciation
and amortization expense as described above.
Interest income decreased from $23,100 to $10,100, or by 56.3%, and
from $68,900 to $39,700, or by 42.4%, for the three and nine months ended
September 30, 1998 as compared to the corresponding periods in 1997, as a result
of lower average cash balances available for investment in the 1998 periods.
Interest expense decreased from $232,100 to $61,500, or by 73.5%, and
from $500,800 to $209,500, or by 58.2%, for the three and nine months ended
September 30, 1998 as compared to the corresponding periods in 1997, due to
decreases in average borrowings and due to lower average interest rates in the
1998 periods.
The Joint Venture recognized a $215,600 loss on involuntary conversion
of cable system assets during the first quarter of 1998 related to storm damage
sustained in its Monticello system.
Due to the factors described above, the Joint Venture recognized net
income of $189,000 and $461,200 for the three and nine months ended September
30, 1998 as compared to a net loss of $99,700 and $97,200 for the corresponding
periods in 1997.
Based on its experience in the cable television industry, the
Partnership believes that operating income before depreciation and amortization
("EBITDA") and related measures of cash flow serve as important financial
analysis tools for measuring and comparing cable television companies in several
areas, such as liquidity, operating performance and leverage. EBITDA is not a
measurement determined under generally accepted accounting principles ("GAAP")
and does not represent cash generated from operating activities in accordance
with GAAP. EBITDA should not be considered by the reader as an alternative to
net income as an indicator of financial performance or as an alternative to cash
flows as a measure of liquidity. In addition, the definition of EBITDA may not
be identical to similarly titled measures used by other companies. EBITDA as a
percentage of revenues decreased from 43.3% to 42.0% during the three months
ended September 30, 1998 and increased from 43.1% to 45.2% during the nine
months ended September 30, 1998 as compared to the corresponding periods in
1997. EBITDA decreased from $789,500 to $745,800, or by 5.5% during the three
months ended September 30, 1998 and increased from $2,332,000 to $2,409,400, or
by 3.3%, during the nine months ended September 30, 1998 as compared to the
corresponding periods in 1997.
-13-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net offering
proceeds in the Joint Venture, is to distribute to its partners distributions of
cash flow received from the Joint Venture's operations and proceeds from the
sale of the Joint Venture's cable systems, if any, after providing for expenses,
debt service and capital requirements relating to the expansion, improvement and
upgrade of such cable systems. The Joint Venture relies upon the availability of
cash generated from operations and possible borrowings to fund its ongoing
expenses, debt service and capital requirements. The Joint Venture is required
to upgrade its system in Campbell County, Tennessee under a provision of its
franchise agreement. Upgrade expenditures are budgeted at a total estimated cost
of approximately $400,000 beginning in 1998 of which $15,000 had been incurred
as of September 30, 1998. The franchise agreement requires the project be
completed by October 2000. Additionally, the Joint Venture expects to upgrade
its systems in surrounding communities at a total estimated cost of
approximately $570,000 beginning in 1999. The Joint Venture spent approximately
$1,064,500 in the first nine months of 1998 to replace and upgrade cable plant
in Kentucky that sustained storm damage in February 1998. As discussed below,
such losses were not covered by insurance. The Joint Venture also spent $182,700
in the nine months ended September 30, 1998 for other equipment and plant
upgrades.
The Partnership believes that cash generated by operations of the Joint
Venture, together with available cash and proceeds from borrowings, will be
adequate to fund capital expenditures, debt service and other liquidity
requirements in 1998 and beyond. As a result, the Joint Venture intends to use
its cash for such purposes.
The Joint Venture is party to a loan agreement with EFC which provides
for a revolving loan facility of $9,181,000 (the "Facility"). The Joint Venture
prepaid $1,300,000 of its outstanding borrowings under the Facility during the
nine months ended September 30, 1998, and prepaid an additional $150,000 on
October 9, 1998, such that total outstanding borrowings under the Facility were
$1,150,000. The Joint Venture's management expects to increase borrowings under
the Facility in the future for system upgrades and other liquidity requirements.
The Joint Venture's Facility will mature on August 31, 2001, at which
time all funds previously advanced will be due in full. Borrowings bear interest
at the lender's base rate (8.25% at September 30, 1998) plus 0.625%, or at an
offshore rate plus 1.875%. Under certain circumstances, the Joint Venture is
required to make mandatory prepayments, which permanently reduce the maximum
commitment under the Facility. The Facility contains certain financial tests and
other covenants including, among others, restrictions on incurrence of
indebtedness, investments, sales of assets, acquisitions and other covenants,
defaults and conditions. The Partnership believes the Joint Venture was in
compliance with the covenants at September 30, 1998.
The Facility does not restrict the payment of distributions to partners
unless an event of default exists thereunder or the ratio of debt to cash flow
is greater than 4 to 1. The Partnership believes it is critical for the Joint
Venture to conserve cash and borrowing capacity to fund its anticipated capital
expenditures. Accordingly, the Joint Venture does not anticipate an increase in
distributions to the Partnership in order to fund distributions to unitholders
at this time.
-14-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Beginning in August 1997, the Joint Venture elected to self-insure its
cable distribution plant and subscriber connections against property damage as
well as possible business interruptions caused by such damage. The decision to
self-insure was made due to significant increases in the cost of insurance
coverage and decreases in the amount of insurance coverage available.
While the Joint Venture made the election to self-insure for these
risks based upon a comparison of historical damage sustained over the previous
five years with the cost and amount of insurance currently available, there can
be no assurance that future self-insured losses will not exceed prior costs of
maintaining insurance for these risks. Approximately 94% of the Joint Venture's
subscribers are served by its system in Monticello, Kentucky and neighboring
communities. Significant damage to the system due to seasonal weather conditions
or other events could have a material adverse effect on the Joint Venture's
liquidity and cash flows. In February 1998, the Joint Venture's Monticello,
Kentucky system incurred damage as a result of an ice storm. As of September 30,
1998, the Joint Venture had spent $1,064,500 to replace and upgrade the damaged
system. The Joint Venture continues to purchase insurance coverage in amounts
its management views as appropriate for all other property, liability,
automobile, workers' compensation and other types of insurable risks.
In October 1998, the Joint Venture reinstated third party insurance
coverage against damage to its cable distribution plant and subscriber
connections and against business interruptions resulting from such damage.
Although this coverage is subject to a significant annual deductible, the policy
is intended to insure the Joint Venture against catastrophic losses, if any, in
future periods.
During the third quarter, the Corporate General Partner continued its
identification and evaluation of the Joint Venture's Year 2000 business risks
and its exposure to computer systems, to operating equipment which is date
sensitive and to the interface systems of its vendors and service providers. The
evaluation has focused on identification and assessment of systems and equipment
that may fail to distinguish between the year 1900 and the year 2000 and, as a
result, may cease to operate or may operate improperly when dates after December
31, 1999 are introduced.
Based on a study conducted in 1997, the Corporate General Partner
concluded that certain of the Joint Venture's information systems were not Year
2000 compliant and elected to replace such software and hardware with
applications and equipment certified by the vendors as Year 2000 compliant. The
Corporate General Partner expects to install substantially all of the new
systems in the fourth quarter of 1998, with the remaining systems to be
installed in the first half of 1999. The total anticipated cost, including
replacement software and hardware, will be borne by FCLP. FCLP is utilizing
internal and external resources to install the new systems. The Partnership does
not believe that any other significant information technology ("IT") projects
affecting the Partnership have been delayed due to efforts to identify and
address Year 2000 issues.
Additionally, the Joint Venture has inventoried its operating and
revenue generating equipment to identify items that need to be upgraded or
replaced and has surveyed cable equipment manufacturers to determine which of
their models require upgrade or replacement to become Year 2000 compliant.
Identification and evaluation are essentially completed and a plan is being
developed to remediate non-compliant equipment prior to January 1, 2000. The
Joint Venture expects to complete its planning process
-15-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
by the end of 1998. Upgrade or replacement, testing and implementation will be
performed in 1999. The cost of such replacement or remediation, currently
estimated at $4,200, is not expected to have a material effect on the Joint
Venture's financial position or results of operations. The Joint Venture has not
incurred any costs related to the Year 2000 project as of September 30, 1998.
The Joint Venture plans to inventory, assess, replace and test equipment with
embedded computer chips in a separate segment of its project, presently
scheduled for 1999.
The Joint Venture has continued to survey its significant third party
vendors and service suppliers to determine the extent to which the Joint
Venture's interface systems are vulnerable should those third parties fail to
solve their own Year 2000 problems on a timely basis. Among the most significant
service providers upon which the Joint Venture relies are programming suppliers,
power and telephone companies, various banking institutions and the Joint
Venture's customer billing service. A majority of these service suppliers either
have not responded to the Joint Venture's inquiries regarding their Year 2000
compliance programs or have responded that they are unsure if they will become
compliant on a timely basis. Consequently, there can be no assurance that the
systems of other companies on which the Joint Venture must rely will be Year
2000 compliant on a timely basis.
The Joint Venture expects to develop a contingency plan in 1999 to
address possible situations in which various systems of the Joint Venture, or of
third parties with which the Joint Venture does business, are not compliant
prior to January 1, 2000. Considerable effort will be directed toward
distinguishing between those contingencies with a greater probability of
occurring from those whose occurrence is considered remote. Moreover, such a
plan will necessarily focus on systems whose failure poses a material risk to
the Joint Venture's results of operations and financial condition.
The Joint Venture's most significant Year 2000 risk is an interruption
of service to subscribers, resulting in a potentially material loss of revenues.
Other risks include impairment of the Joint Venture's ability to bill and/or
collect payment from its customers, which could negatively impact its liquidity
and cash flows. Such risks exist primarily due to technological operations
dependent upon third parties and to a much lesser extent to those under the
control of the Joint Venture. Failure to achieve Year 2000 readiness in either
area could have a material adverse impact on the Joint Venture and consequently
on the Partnership. The Joint Venture is unable to estimate the possible effect
on its results of operations, liquidity and financial condition should its
significant service suppliers fail to complete their readiness programs prior to
the Year 2000. Depending on the supplier, equipment malfunction or type of
service provided, as well as the location and duration of the problem, the
effect could be material. For example, if a cable programming supplier
encounters an interruption of its signal due to a Year 2000 satellite
malfunction, the Joint Venture will be unable to provide the signal to its cable
subscribers, which could result in a loss of revenues. Due to the number of
individually owned and operated channels the Joint Venture carries for its
subscribers, and the packaging of those channels, the Joint Venture is unable to
estimate any reasonable dollar impact of such interruption.
-16-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Operating activities used $4,500 less cash during the nine months
ended September 30, 1998 than in the corresponding period in 1997. Cash
provided by investing activities increased by $1,000 due to increased
distributions from the Joint Venture.
INFLATION
Certain of the Joint Venture's expenses, such as those for equipment
repair and replacement, billing and marketing, generally increase with
inflation. However, the Partnership does not believe that its financial results
have been, or will be, adversely affected by inflation in a material way,
provided that the Joint Venture is able to increase its service rates
periodically, of which there can be no assurance.
-17-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) None.
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
a GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 13, 1998 By: /s/ Michael K. Menerey
-------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1998, AND THE STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 19,800
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,447,300
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0
0
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<CGS> 0
<TOTAL-COSTS> 18,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 211,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 211,900
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