<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, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-16789
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Enstar Income/Growth Program Five-B, L.P.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1713008
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) 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 (310) 824-9990
area code: --------------------------------------
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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
---- ----
<PAGE>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED BALANCE SHEETS
==================================================
<TABLE>
<CAPTION>
December 31, September 30,
1998* 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash $ 200 $ 800
Equity in net assets of Joint Venture 4,466,400 4,550,300
----------------- -----------------
$ 4,466,600 $ 4,551,100
================= =================
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 6,700 $ 3,500
Due to affiliates 2,200 200
----------------- -----------------
8,900 3,700
----------------- -----------------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (79,400) (78,500)
Limited partners 4,537,100 4,625,900
----------------- -----------------
TOTAL PARTNERSHIP CAPITAL 4,457,700 4,547,400
----------------- -----------------
$ 4,466,600 $ 4,551,100
================= =================
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Three months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (9,500) $ (12,600)
---------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE (9,500) (12,600)
EQUITY IN NET INCOME OF JOINT VENTURE 94,500 70,500
---------------- -----------------
NET INCOME $ 85,000 $ 57,900
================ =================
Net income allocated to General Partners $ 900 $ 600
================ =================
Net income allocated to Limited Partners $ 84,100 $ 57,300
================ =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 1.41 $ 0.96
================ =================
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 59,830 59,830
================ =================
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (20,800) $ (39,200)
---------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE (20,800) (39,200)
EQUITY IN NET INCOME OF JOINT VENTURE 230,600 128,900
---------------- -----------------
NET INCOME $ 209,800 $ 89,700
================ =================
Net income allocated to General Partners $ 2,100 $ 900
================ =================
Net income allocated to Limited Partners $ 207,700 $ 88,800
================ =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 3.47 $ 1.48
================ =================
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 59,830 59,830
================ =================
</TABLE>
See accompanying notes to condensed financial statement.
-4-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
STATEMENTS OF CASH FLOWS
==================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 209,800 $ 89,700
Adjustments to reconcile net income to net cash used in operating
activities:
Equity in net income of Joint Venture (230,600) (128,900)
Decrease from changes in:
Accounts payable and due to affiliates (8,500) (5,200)
---------------- -----------------
Net cash used in operating activities (29,300) (44,400)
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Venture 26,000 45,000
---------------- -----------------
INCREASE (DECREASE) IN CASH (3,300) 600
CASH AT BEGINNING OF PERIOD 3,400 200
---------------- -----------------
CASH AT END OF PERIOD $ 100 $ 800
================ =================
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
==================================================
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the three
and nine months ended September 30, 1999 and 1998 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, 1999 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"), 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, 1999. 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 $67,800 and $203,700 and reimbursement
of expenses of approximately $66,800 and $195,300 under its management agreement
for the three and nine months ended September 30, 1999. In addition, the Joint
Venture paid the Corporate General Partner approximately $16,900 and $50,900 in
respect of its 1% special interest during the three and nine months ended
September 30, 1999. 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 $187,100 and $592,100
for the three and nine months ended
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
==================================================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
September 30, 1999. 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.
Substantially all programming services have been purchased through
FCLP. FCLP, in the normal course of business, purchases cable programming
services from certain affiliated program suppliers. Such purchases of
programming services are made on behalf of the Joint Venture and the other
partnerships managed by the Corporate General Partner as well as for FCLP's
own cable television operations. FCLP charges the Joint Venture for these
services 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 $360,600 and $1,054,900 for the three and nine
months ended September 30, 1999. Programming fees are included in service
costs in the statements of operations.
In the normal course of business, the Joint Venture pays interest and
principal to Enstar Finance Company, LLC ("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.
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
==================================================
4. 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 September 30, 1999 and December 31, 1998
and the results of its operations for the three and nine months ended September
30, 1999 and 1998 have been included. The results of operations for the three
and nine months ended September 30, 1999 are not necessarily indicative of
results for the entire year.
<TABLE>
<CAPTION>
December 31, September 30,
1998* 1999
------------------ ------------------
(Unaudited)
<S> <C> <C>
Current assets $ 878,500 $ 978,400
Investment in cable television properties, net 10,253,100 9,321,900
Other assets 98,200 64,400
------------------ ------------------
$ 11,229,800 $ 10,364,700
================== ==================
Current liabilities $ 1,297,000 $ 964,000
Long-term debt 1,000,000 300,000
Venturers' capital 8,932,800 9,100,700
------------------ ------------------
$ 11,229,800 $ 10,364,700
================== ==================
</TABLE>
*As presented in the audited financial statements.
-8-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
==================================================
4. EQUITY IN NET ASSETS OF JOINT VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Three months ended
September 30,
--------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
REVENUES $ 1,773,700 $ 1,693,700
----------------- -----------------
OPERATING EXPENSES:
Service costs 663,700 698,000
General and administrative expenses 203,700 231,900
General Partner management fees
and reimbursed expenses 160,500 151,500
Depreciation and amortization 505,400 439,700
----------------- -----------------
1,533,300 1,521,100
----------------- -----------------
OPERATING INCOME 240,400 172,600
OTHER INCOME (EXPENSE):
Interest income 10,100 13,700
Interest expense (61,500) (45,200)
----------------- -----------------
NET INCOME $ 189,000 $ 141,100
================= =================
</TABLE>
-9-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
==================================================
4. EQUITY IN NET ASSETS OF JOINT VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1998 1999
----------------- -----------------
<S> <C> <C>
REVENUES $ 5,333,000 $ 5,092,600
----------------- -----------------
OPERATING EXPENSES:
Service costs 1,793,900 2,118,900
General and administrative expenses 645,900 773,700
General Partner management fees
and reimbursed expenses 483,800 449,900
Depreciation and amortization 1,562,800 1,377,600
----------------- -----------------
4,486,400 4,720,100
----------------- -----------------
OPERATING INCOME 846,600 372,500
OTHER INCOME (EXPENSE):
Interest income 39,700 30,400
Interest expense (209,500) (145,000)
Casualty loss (215,600) -
----------------- -----------------
NET INCOME $ 461,200 $ 257,900
================= =================
</TABLE>
-10-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") required the Federal Communications Commission ("FCC")
to, among other things, implement extensive regulation of the rates charged by
cable television systems for basic and programming service tiers, installation,
and customer premises equipment leasing. Compliance with those rate regulations
has had a negative impact on the Joint Venture's revenues and cash flow. The
Telecommunications Act of 1996 (the "1996 Telecom Act") substantially changed
the competitive and regulatory environment for cable television and
telecommunications service providers. Among other changes, the 1996 Telecom Act
ended the regulation of cable programming service tier rates on March 31, 1999.
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, 1998 for additional information regarding
such matters and the effect thereof on the Partnership's business.
All of the Partnership's cable television business operations are
conducted through its participation as a partner with a 50% interest in the
Joint Venture. The Partnership participates equally with its affiliated partner
(Enstar Income/Growth Program Five-A, L.P.) under the Joint Venture Agreement
with respect to capital contributions, obligations and commitments, and results
of operations. Accordingly, in considering the financial condition and results
of operations of the Partnership, consideration must also be made of those
matters as they relate to the Joint Venture. The following discussion reflects
such consideration and provides a separate discussion for each entity.
RESULTS OF OPERATIONS
THE PARTNERSHIP
All of the Partnership's cable television business operations, which
began in January 1988, are conducted through its participation as a partner in
the Joint Venture. The Joint Venture distributed an aggregate of $13,000 and
$45,000 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, 1999. The Partnership did not pay distributions
to its partners during the three and nine months ended September 30, 1999.
-11-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
RESULTS OF OPERATIONS (CONTINUED)
THE JOINT VENTURE
The Joint Venture's revenues decreased from $1,773,700 to $1,693,700,
or by 4.5%, and from $5,333,000 to $5,092,600, or by 4.5%, for the three and
nine months ended September 30, 1999 as compared to the corresponding periods in
1998. Of the $80,000 decrease in revenues for the nine months ended September
30, 1999, $121,900 was due to decreases in the number of subscriptions for
basic, premium, tier and equipment rental services and $12,700 was due to
decreases in other revenue producing items. The decrease was partially offset by
a $54,600 increase due to increases in regulated service rates that were
implemented by the Joint Venture in June 1999. Of the $240,400 decrease in
revenues for the nine months ended September 30, 1999, $272,500 was due to
decreases in the number of subscriptions for basic, premium, tier and equipment
rental services and $40,800 was due to decreases in other revenue producing
items. The decrease was partially offset by a $72,900 increase due to increases
in regulated service rates as described above. As of September 30, 1999, the
Joint Venture had approximately 15,400 basic subscribers and 2,500 premium
service units.
Service costs increased from $663,700 to $698,000, or by 5.2%, and from
$1,793,900 to $2,118,900, or by 18.1%, for the three and nine months ended
September 30, 1999 as compared to the corresponding periods in 1998. Service
costs represent costs directly attributable to providing cable services to
customers. The increase for the three months ended September 30, 1999 was
primarily due to increases in personnel costs resulting from staff additions by
affiliates, and due to higher repair and maintenance expense. The increase for
the nine months ended September 30, 1999 was primarily due to decreases in
capitalization of labor and overhead costs from the first nine months of 1998
when the Joint Venture replaced portions of its Kentucky system which had
sustained storm damage in February 1998.
General and administrative expenses increased from $203,700 to
$231,900, or by 13.8%, and from $645,900 to $773,700, or by 19.8%, for the three
and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998, primarily due to increases in insurance premiums. The nine
months' increase was also due to higher allocated personnel costs charged by
affiliates as a result of staff additions.
Management fees and reimbursed expenses decreased from $160,500 to
$151,500, or by 5.6%, and from $483,800 to $449,900, or by 7.0%, for the three
and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. Management fees decreased in direct relation to decreased
revenues as described above. Reimbursed expenses decreased primarily due to
reduced personnel costs allocated by the Corporate General Partner.
Depreciation and amortization expense decreased from $505,400 to
$439,700, or by 13.0%, and from $1,562,800 to $1,377,600, or by 11.9%, for the
three and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998, primarily due to the effect of certain intangible assets
becoming fully amortized.
Operating income decreased from $240,400 to $172,600, or by 28.2%, and
from $846,600 to $372,500, or by 56.0%, for the three and nine months ended
September 30, 1999 as compared to the corresponding periods in 1998, primarily
due to decreases in revenues and capitalization of labor and overhead costs and
increases in personnel costs and insurance premiums as described above.
-12-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Interest income increased from $10,100 to $13,700, or by 35.6%, and
decreased from $39,700 to $30,400, or by 23.4%, respectively, for the three and
nine months ended September 30, 1999 as compared to the corresponding periods in
1998. The quarterly increase was primarily due to higher average cash balances
available for investment during the 1999 quarter. The nine months' decrease was
primarily due to lower average cash balances available for investment and lower
average interest rates earned on invested cash in the 1999 period.
Interest expense decreased from $61,500 to $45,200, or by 26.5%, and
from $209,500 to $145,000, or by 30.8%, for the three and nine months ended
September 30, 1999 as compared to the corresponding periods in 1998, primarily
due to decreases in average borrowings.
The Joint Venture recognized a $215,600 casualty loss during the first
quarter of 1998 that resulted from storm damage sustained in its Kentucky
system.
Due to the factors described above, net income decreased from $189,000
to $141,100, or by 25.3%, and from $461,200 to $257,900, or by 44.1%, for the
three and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998.
Based on its experience in the cable television industry, the Joint
Venture believes that operating income before depreciation and amortization
("EBITDA") and related measures of cash flow serve as important financial
analysis tools for measuring and comparing cable television companies in several
areas such as liquidity, operating performance and leverage. EBITDA is not a
measurement determined under generally accepted accounting principles ("GAAP")
and does not represent cash generated from operating activities in accordance
with GAAP. EBITDA should not be considered by the reader as an alternative to
net income as an indicator of financial performance or as an alternative to cash
flows as a measure of liquidity. In addition, the definition of EBITDA may not
be identical to similarly titled measures used by other companies. EBITDA as a
percentage of revenues decreased from 42.0% to 36.2% and from 45.2% to 34.4%
during the three and nine months ended September 30, 1999 as compared to the
corresponding periods in 1998. The decrease was primarily due to decreases in
revenues and capitalization of labor and overhead costs and increases in
personnel costs and insurance premiums as described above. EBITDA decreased from
$745,800 to $612,300, or by 17.9%, and from $2,409,400 to $1,750,100, or by
27.4%, during the three and nine months ended September 30, 1999 as compared to
the corresponding periods in 1998.
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.
Based on its belief that the market for cable systems has generally
improved, the Corporate General Partner had been evaluating strategies for
liquidating the Joint Venture and the Partnership. These strategies included the
potential sale of substantially all of the Joint Venture's assets to third
parties and/or affiliates of the Corporate General Partner, and the subsequent
liquidation of the
-13-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Partnership. On May 26, 1999, Charter Communications ("Charter") signed an
agreement to acquire all of the cable television assets of FCLP and to acquire
Enstar Communications Corporation, the Partnership's and Joint Venture's
Corporate General Partner. The Corporate General Partner and Charter have
decided to implement a strategy for liquidating the Partnership that involves
selling the Joint Venture's systems to third parties. Accordingly, the Corporate
General Partner has entered into an agreement with a cable broker regarding the
sale of the systems, although no assurance can be given regarding the
likelihood, if any, of receiving appropriate offers to purchase the systems. Any
such sale and corresponding liquidation will not close before the sale of the
Corporate General Partner to Charter.
Following the close of all pending transactions, Charter will serve
approximately 6.2 million customers and will be the nation's fourth largest
cable operator. Headquartered in St. Louis, Missouri, Charter was acquired by
Paul G. Allen in 1998. More information about Charter can be accessed on the
Internet at www.chartercom.com.
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 $470,000.
The upgrade began in 1998 and $113,900 of such expenditures had been incurred as
of September 30, 1999. The franchise agreement requires the project be completed
by January 2000. Additionally, the Joint Venture expects to upgrade its systems
in surrounding communities at a total estimated cost of approximately $500,000,
beginning in 2000. The Joint Venture is budgeted to spend approximately
$1,257,000 in 1999 for plant extensions, new equipment and system upgrades,
including its upgrades in Tennessee. Capital expenditures were approximately
$433,200 during the first nine months of 1999, and it is unlikely that the
budgeted amount will be spent in 1999 due to construction delays.
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 1999 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. The loan
agreement provides for a revolving loan facility of $9,181,000 (the "Facility").
Total outstanding borrowings under the Facility were $300,000 at September 30,
1999. The Joint Venture's management expects to increase borrowings under the
Facility in the future for system upgrades and other liquidity requirements.
The Joint Venture's Facility matures on August 31, 2001, at which time
all amounts then outstanding are due in full. Borrowings bear interest at the
lender's base rate (8.25% at September 30, 1999) 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, 1999.
-14-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Facility does not restrict the payment of distributions to partners
by the Partnership unless an event of default exists thereunder or the Joint
Venture's ratio of debt to cash flow is greater than 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.
In October 1998, FCLP reinstated third party insurance coverage for all
of the cable television properties owned or managed by FCLP to cover damage to
cable distribution plant and subscriber connections and against business
interruptions resulting from such damage. This coverage is subject to a
significant annual deductible which applies to all of the cable television
properties owned or managed by FCLP.
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 sustained damage
as a result of an ice storm. The Joint Venture spent $1,361,400 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.
YEAR 2000
During the third quarter of 1999, FCLP, on behalf of the Corporate
General Partner, continued its identification, evaluation and remediation of the
Joint Venture's Year 2000 business risks associated with operations directly
under the control of the Joint Venture and those risks that are dependent on
third parties related to 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, assessment
and remediation 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. Most of
the Joint Venture's exposure to Year 2000 issues is dependent in large part on
third parties. Failure to identify and remediate a critical Year 2000 issue
could result in an interruption of services to customers or in the interruption
of critical business functions, either of which could result in a material
adverse impact on the Joint Venture's and Partnership's financial results.
FCLP concluded that certain of the Joint Venture's internal 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. FCLP installed the new systems in the first quarter of 1999. The cost
of the implementation, including replacement software and hardware, has been
borne by FCLP. FCLP is continuing to utilize internal and external resources to
extend the functionality of the new systems. The Partnership does not believe
that any other significant information technology projects affecting the
Partnership or Joint Venture have been delayed due to efforts to identify or
address Year 2000 issues.
-15-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Additionally, FCLP has continued to inventory the Joint Venture's
internal 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, while ongoing, are substantially
completed and a plan has been developed to remediate or replace non-compliant
equipment. Of the total number of potentially non-compliant items identified in
the inventory, all were evaluated during the assessment stage, approximately
8.5% are in the remediation planning phase and 91.5% are in the implementation
stage. FCLP conducted limited testing of systems, software and equipment in the
third quarter of 1999 and placed significant reliance on test results provided
by AT&T Broadband & Internet Services, an affiliate of FCLP. The cost of such
replacement or remediation to the Joint Venture is currently estimated to be
$12,000, all of which had been incurred as of September 30, 1999. FCLP has also
substantially completed the assessment and replacement or remediation of the
majority of the Joint Venture's internal equipment containing embedded computer
chips.
FCLP has continued to survey the Joint Venture's 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. The Joint
Venture is heavily dependent on third parties and these parties are
themselves heavily dependent on technology. For example, if a television
broadcaster or cable programmer encounters Year 2000 problems that impede its
ability to deliver its programming, the Joint Venture will be unable to
provide that programming to its cable customers, which would result in a loss
of revenues, although the Joint Venture would attempt to provide its
customers with alternative program services. Virtually all of the Joint
Venture's most critical equipment vendors have responded to the surveys
regarding the Year 2000 compliance of their products and indicated that they
are already compliant or have indicated their intent to be compliant.
Additional compliance information has been obtained for specific products
from vendor Web sites, interviews, on-site visits, system interface testing
and industry group participation. Among the most significant third party
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. The Joint Venture has taken
steps to satisfy itself that the third parties on which it is heavily reliant
are Year 2000 compliant and have developed satisfactory contingency plans, or
that alternative means of meeting the Joint Venture's business requirements
are available. However, the Joint Venture can predict neither the likelihood
of successful compliance nor the direct or indirect costs to the Joint
Venture of non-compliance by those third parties or of securing such services
from alternate compliant third parties.
FCLP believes that it has established an effective program to resolve
all significant Year 2000 issues in its control in a timely manner. As noted
above, however, while FCLP has substantially completed all phases of the Joint
Venture's remediation program, it is dependent on third parties whose progress
is not within its control. Disruptions experienced by third parties with which
the Joint Venture does business as well as by the economy generally could also
materially adversely affect the Joint Venture. The amount of potential liability
and lost revenue cannot be reasonably estimated at this time.
-16-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM FIVE-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
FCLP has focused its efforts on identification and remediation of the
Joint Venture's Year 2000 exposures and has developed specific contingency plans
in the event it does not successfully complete its remaining remediation as
anticipated or experiences unforeseen problems. Considerable effort has been
directed toward distinguishing between those contingencies with a greater
probability of occurring from those whose occurrence is considered remote, and
on those systems whose failure poses a material risk to the Joint Venture's
results of operations and financial condition. FCLP has also examined the Joint
Venture's business interruption strategies to evaluate whether they would
satisfactorily meet the demands of failures arising from Year 2000 related
problems. FCLP intends to examine the Joint Venture's status periodically to
determine the necessity of establishing and implementing such contingency plans
or additional strategies, which could involve, among other things, manual
workarounds, adjusting staffing strategies and sharing resources.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Operating activities used $15,100 more cash during the nine months
ended September 30, 1999 than in the corresponding period in 1998. Investing
activities provided $19,000 more cash 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-B, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 Financial Data Schedule
(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-B, L.P.
A GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 11, 1999 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, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 800
<SECURITIES> 0
<RECEIVABLES> 0
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