<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
(MARK ONE)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-16789
--------
Enstar Income/Growth Program Five-B, L.P.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Georgia 58-1713008
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
10900 Wilshire Boulevard, 15th Floor, Los Angeles, CA 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 /x/ 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> 2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995* 1996
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS:
Cash $ 700 $ 5,900
Due from affiliates 4,300 -
Equity in net assets of joint venture 4,636,500 4,521,200
---------- ----------
$4,641,500 $4,527,100
========== ==========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 14,800 $ 20,300
Due to affiliates - 500
---------- ----------
TOTAL LIABILITIES 14,800 20,800
---------- ----------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (77,800) (79,000)
Limited partners 4,704,500 4,585,300
---------- ----------
TOTAL PARTNERSHIP CAPITAL 4,626,700 4,506,300
---------- ----------
$4,641,500 $4,527,100
========== ==========
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE> 3
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
--------------------------
Three months ended
March 31,
--------------------------
1995 1996
--------- ---------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (2,900) $ (8,600)
--------- ---------
(2,900) (8,600)
OTHER EXPENSE:
Interest expense (600) -
--------- ---------
LOSS BEFORE EQUITY IN NET LOSS
OF JOINT VENTURE (3,500) (8,600)
EQUITY IN NET LOSS OF JOINT VENTURE (129,500) (111,800)
--------- ---------
NET LOSS $(133,000) $(120,400)
========= =========
NET LOSS PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (2.20) $ (1.99)
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD $ 59,830 $ 59,830
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE> 4
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
--------------------------
Three months ended
March 31,
--------------------------
1995 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(133,000) $(120,400)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Equity in net loss of Joint Venture 129,500 111,800
Increase (decrease) from changes in:
Due from affiliates - 4,300
Accounts payable and due to affiliates (32,200) 6,000
--------- ---------
Net cash provided by (used in) operating activities (35,700) 1,700
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Venture - 3,500
--------- ---------
INCREASE (DECREASE) IN CASH (35,700) 5,200
CASH AT BEGINNING OF PERIOD 49,300 700
--------- ---------
CASH AT END OF PERIOD $ 13,600 $ 5,900
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE> 5
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the three
months ended March 31, 1996 and 1995 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 months ended March 31, 1996 are not necessarily indicative of results
for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNER 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. No
such costs and expenses were incurred or charged to the Partnership for these
services during the three months ended March 31, 1996. The Manager has entered
into an identical agreement with Enstar Cable of Cumberland Valley, a Georgia
general partnership, of which the Partnership is co-general partner (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 $63,700 and reimbursement of expenses
of approximately $66,300 under its management agreement for the three months
ended March 31, 1996. In addition, the Joint Venture paid the Corporate General
Partner approximately $15,900 in respect of its 1% special interest during the
three months ended March 31, 1996. Management fees and reimbursed expenses due
the 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 such employees directly employed by
the Partnership. 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 $150,300 for the three
months ended March 31, 1996. 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 an affiliate
of the Joint Venture. In turn, the affiliate charges the Joint Venture for these
costs based on an estimate of what the Joint Venture could negotiate for such
programming services on a stand-alone basis. The Joint Venture paid the
affiliate
-5-
<PAGE> 6
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
CONTINUED
2. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES (CONTINUED)
$301,000 for programming services for the three months ended March 31, 1996.
Programming fees are included in service costs in the statements of operations
for the three months ended March 31, 1996 and 1995.
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 are allocated 99% to the limited partners and
1% to the general partners.
4. RECLASSIFICATION
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
5. EQUITY IN NET ASSETS OF JOINT VENTURE
The Partnership and an affiliated partnership (Enstar Income/Growth
Program Five-A, L.P.) each own 50% of the Joint Venture. Each of the co-partners
share equally in the profits and losses of the Joint Venture. The investment in
the Joint Venture is accounted for on the equity method. Summarized financial
information for the Joint Venture as of March 31, 1996 and December 31, 1995 and
the results of its operations for the three months ended March 31, 1996 and 1995
have been included. The results of operations for the three months ended March
31, 1996 are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, March 31,
1995* 1996
----------- -----------
(unaudited)
<S> <C> <C>
Current assets $ 1,868,400 $ 2,243,500
Investment in cable television
properties, net 14,975,900 14,392,400
Other assets 205,400 193,200
----------- -----------
$17,049,700 $16,829,100
=========== ===========
Current liabilities $ 1,009,500 $ 1,019,700
Long-term debt 6,767,200 6,767,200
Venturers' capital 9,273,000 9,042,200
----------- -----------
$17,049,700 $16,829,100
=========== ===========
</TABLE>
*As presented in the audited financial statements.
-6-
<PAGE> 7
ENSTAR INCOME/GROWTH PROGRAM FIVE-B L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
CONCLUDED
5. EQUITY IN NET ASSETS OF JOINT VENTURE
<TABLE>
<CAPTION>
Unaudited
----------------------------
Three months ended
March 31,
----------------------------
1995 1996
---------- ----------
<S> <C> <C>
REVENUES $1,532,600 $1,591,800
---------- ----------
OPERATING EXPENSES:
Service costs 534,800 591,700
General and administrative expenses 193,400 204,900
General Partner management fees and
reimbursed expenses 129,500 145,900
Depreciation and amortization 757,300 704,600
---------- ----------
1,615,000 1,647,100
---------- ----------
OPERATING LOSS (82,400) (55,300)
OTHER INCOME (EXPENSE):
Interest income 13,500 14,000
Interest expense (190,200) (182,300)
---------- ----------
NET LOSS $ (259,100) $ (223,600)
========== ==========
</TABLE>
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<PAGE> 8
ENSTAR INCOME/GROWTH PROGRAM FIVE-A, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996 (the "1996 Telecom Act"). This statute
substantially changed the competitive and regulatory environment for
telecommunications providers by significantly amending the Communications Act of
1934, including certain of the rate regulation provisions previously imposed by
the Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"). Compliance with those rate regulations has had a negative impact on
the Partnership's revenues and cash flow. However, the Partnership believes that
recent policy decisions by the Federal Communications Commission (the "FCC")
will permit it to increase regulated service rates in the future in response to
specified historical and anticipated future cost increases, although certain
costs may continue to rise at a rate in excess of that which the Partnership
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 completion of a significant
number of FCC rulemakings under 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 Partnership's
business. Accordingly, the Partnership's historic interim financial results as
described below are not necessarily indicative of future performance.
In addition to the information set forth in this report, reference is
made to the Partnership's Annual Report on Form 10-K for the year ended December
31, 1995 for additional information regarding regulatory 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 Enstar
Cable of Cumberland Valley. The Partnership participates equally with its
affiliated partner (Enstar Income/Growth Program Five-A, L.P.) under the Joint
Venture Agreement with respect to capital contributions, obligations and
commitments, and results of operations. Accordingly, in considering the
financial condition and results of operations of the Partnership, consideration
must also be made of those matters as they relate to the Joint Venture. The
following discussion reflects such consideration and provides a separate
discussion for each entity.
RESULTS OF OPERATIONS
THE PARTNERSHIP
All of the Partnership's cable television business operations, which
began in January 1988, are conducted through its participation as a partner in
the Joint Venture. The Joint Venture did not pay distributions to the
Partnership and the Partnership did not pay distributions to its partners during
the three months ended March 31, 1996.
-8-
<PAGE> 9
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
RESULTS OF OPERATIONS (CONTINUED)
THE JOINT VENTURE
The Joint Venture's revenues increased from $1,532,600 to $1,591,800,
or by 3.9%, for the quarter ended March 31, 1996 as compared to the
corresponding period in 1995. Of the $59,200 increase in revenues, $40,400 was
due to increases in regulated service rates permitted under the 1992 Cable Act
that were implemented by the Partnership in April 1995, $11,100 was due to
increases in the number of subscriptions for service and $7,700 resulted from
increases in other revenue producing items.
Service costs for the Joint Venture increased from $534,800 to
$591,700, or by 10.6%, for the quarter ended March 31, 1996 as compared to the
corresponding period in 1995. Service costs represent costs directly
attributable to providing cable services to customers. Of the $56,900 increase,
$29,900 was due to cost of living increases in personnel costs, $21,600 related
to increased programming fees charged by program suppliers (including primary
satellite fees) and $12,900 was due to an increase in property taxes. These
increases were partially offset by a $9,200 increase in capitalization of labor
and overhead expense due to more capital projects during the 1996 period. The
increase in programming expense was also due to expanded programming usage
relating to channel line-up restructuring and to retransmission consent
arrangements implemented to comply with the 1992 Cable Act.
General and administrative expenses increased from $193,400 to
$204,900, or by 6.0%, for the quarter ended March 31, 1996 as compared to the
corresponding period in 1995. Of the $11,500 increase, $8,600 was due to an
increase in personnel costs and $7,000 was due to an increase in marketing
expense. These increases were partially offset by a $4,400 decrease in telephone
expense.
Management fees and reimbursed expenses increased from $129,500 to
$145,900, or by 12.7%, for the quarter ended March 31, 1996 as compared to the
corresponding period in 1995. Of the $16,400 increase, $13,400 was due to
increased reimbursable expenses allocated by the Corporate General Partner,
including higher personnel costs and office rent. Management fees increased by
$3,000 in direct relation to increases in revenues as described above.
Depreciation and amortization expense decreased from $757,300 to
$704,600, or by 7.0%, for the quarter ended March 31, 1996 as compared to the
corresponding period in 1995 due to the effect of certain intangible assets
becoming fully amortized after the first quarter 1995.
The Joint Venture's operating loss decreased from $82,400 to $55,300,
or by 32.9%, for the quarter ended March 31, 1996 as compared to the
corresponding period in 1995 primarily due to increases in revenues and
decreases in depreciation and amortization expense as described above.
Interest income increased from $13,500 to $14,000, or by 3.7%, for the
quarter ended March 31, 1996 as compared to the corresponding period in 1995 due
to higher cash balances available for investment.
-9-
<PAGE> 10
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
Interest expense decreased from $190,200 to $182,300, or by 4.2%, for
the quarter ended March 31, 1996 as compared to the corresponding period in
1995, due to a decrease in the average interest rate paid by the Joint Venture
on long-term borrowings (9.8% for the 1996 period versus 10.3% for the
corresponding period in 1995).
Due to the factors described above, the Joint Venture's net loss
decreased from $259,100 to $223,600 for the quarter ended March 31, 1996 as
compared to the corresponding period in 1995.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues decreased from 44.0% to 40.8% for the quarter ended March
31, 1996 as compared to the corresponding period in 1995. The decrease was
primarily due to increases in personnel costs and programming expense.
Accordingly, EBITDA decreased from $674,900 to $649,300, or by 3.8%, for the
quarter ended March 31, 1996 as compared to the corresponding period in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The FCC's amended rate regulation rules were implemented during the
quarter ended September 30, 1994. Compliance with these rules has had a negative
impact on the Partnership's revenues and cash flow.
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 has budgeted capital expenditures of
approximately $304,400 in 1996, primarily to upgrade certain 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 1996. 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 1996.
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
-10-
<PAGE> 11
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
each fiscal quarter. The Joint Venture is permitted to prepay amounts
outstanding under the Facility at any time without penalty, and is able to
reborrow throughout the term of the Facility up to the maximum commitment then
available so long as no event of default exists. 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 March 31, 1996. The Joint Venture's
maximum commitment will decrease by $1,350,000 in 1996 to $6,850,000, which will
not require any repayment in 1996 since the outstanding balance under the
Facility at March 31, 1996 was $6,767,200.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Operating activities provided cash of $1,700 during the three months
ended March 31, 1996 as compared to the first three months of 1995 when
operating activities used cash of $35,700. The change was primarily due to a
$38,200 decrease in the payment of liabilities owed to the Corporate General
Partner and third party creditors and a $4,300 decrease in receivables from
affiliates. Partnership expenses used $5,100 more cash during the three months
ended March 31, 1996 as compared to the corresponding three months in 1995 after
adding back non-cash equity in net loss of Joint Venture.
Financing activities provided $3,500 more cash in the 1996 period due
to distributions of cash flow from the Joint Venture.
INFLATION
Certain of the Partnership's expenses, such as those for wages and
benefits, equipment repair and replacement, and 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 it is able to increase its service rates
periodically, of which there can be no assurance.
-11-
<PAGE> 12
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) None
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
-12-
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
A GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
By:
Date: May 9, 1996 /s/ Michael K. Menerey
-----------------------
Michael K. Menerey,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 1996, AND THE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 5,900
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,527,100
<CURRENT-LIABILITIES> 20,800
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,527,100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 8,600
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (120,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (120,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (120,400)
<EPS-PRIMARY> (1.99)
<EPS-DILUTED> 0
</TABLE>
