<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 SEPTEMBER 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
---------------- ------------------
Commission File Number 0-21309
-------
CENCOM CABLE INCOME PARTNERS II, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1456575
- --------------------------------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12444 Powerscourt Drive #400
St. Louis, Missouri 63131
- --------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(Registrant's telephone number, including area code) (314) 965-0555
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> 2
CENCOM CABLE INCOME PARTNERS II, L.P.
FORM 10-Q - FOR THE QUARTER ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
INDEX
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
a. Balance Sheets - September 30, 1996 and December 31, 1995 3
b. Statements of Operations - Three Months Ended
September 30, 1996 and 1995 4
c. Statements of Operations - Nine Months Ended
September 30, 1996 and 1995 5
d. Statement of Partners' Capital (Deficit) - Nine Months Ended
September 30, 1996 6
e. Statements of Cash Flows - Nine Months Ended September 30, 1996 and 1995 7
f. Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Part II. Other Information
Item 1. Legal Proceedings - None -
Item 2. Change in Securities - None -
Item 3. Defaults upon Senior Securities - None -
Item 4. Submission of Matters to a Vote of Security Holders - None -
Item 5. Other Information - Tender Offers 15
Item 6. Exhibits and Reports on Form 8-K - None -
Signature Page 16
</TABLE>
Page 2
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CENCOM CABLE INCOME PARTNERS II, L.P.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
----------------- -----------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 443,982 $ 935,858
Accounts receivable, net 274,685 190,968
Prepaid expenses and other 201,479 149,923
----------------- -----------------
Total current assets 920,146 1,276,749
PROPERTY AND EQUIPMENT 20,106,297 22,572,631
FRANCHISE COSTS 737,065 1,110,880
----------------- -----------------
$ 21,763,508 $ 24,960,260
================= =================
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
<S> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term debt $ 37,500,000 $ 40,400,000
Accounts payable and accrued expenses 2,138,862 2,160,916
Payables to General Partner and affiliate 3,434,326 2,731,619
Subscriber deposits and prepayments 18,920 20,675
----------------- -----------------
Total current liabilities 43,092,108 45,313,210
----------------- -----------------
DEFERRED REVENUE 25,579 27,904
----------------- -----------------
PARTNERS' CAPITAL (DEFICIT):
General Partner (2,823,635) (2,813,902)
Limited Partners (250,000 units
authorized; 90,915 units issued and
outstanding) (18,071,377) (17,107,785)
Note receivable from General Partner (459,167) (459,167)
----------------- -----------------
Total Partners' capital (deficit) (21,354,179) (20,380,854)
----------------- -----------------
$ 21,763,508 $ 24,960,260
================= =================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
Page 3
<PAGE> 4
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
------------------ -----------------
<S> <C> <C>
SERVICE REVENUES $ 4,588,588 $ 4,279,449
------------------ -----------------
OPERATING EXPENSES:
Operating, general and administrative 2,616,489 2,644,669
Liquidation costs 100,770 --
Depreciation and amortization 1,460,192 1,661,291
------------------ -----------------
4,177,451 4,305,960
------------------ -----------------
Income (loss) from operations 411,137 (26,511)
------------------ -----------------
OTHER INCOME (EXPENSE):
Interest income 9,505 51,492
Interest expense (707,973) (847,353)
Equity in loss of unconsolidated limited partnership -- --
------------------ -----------------
(698,468) (795,861)
------------------ -----------------
Net loss $ (287,331) $ (822,372)
================== =================
NET LOSS PER UNIT OF LIMITED PARTNERSHIP INTEREST $ (3.13) $ (8.96)
================== =================
AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS
OUTSTANDING 90,915 90,915
================== =================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
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CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
<S> <C> <C>
SERVICE REVENUES $ 13,500,474 $ 12,738,301
---------------- -----------------
OPERATING EXPENSES:
Operating, general and administrative 7,703,051 7,447,447
Liquidation costs 309,968 --
Depreciation and amortization 4,312,695 5,550,345
---------------- -----------------
12,325,714 12,997,792
---------------- -----------------
Income (loss) from operations 1,174,760 (259,491)
---------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 31,596 74,009
Interest expense (2,179,681) (2,617,680)
Equity in loss of unconsolidated limited partnership -- --
---------------- -----------------
(2,148,085) (2,543,671)
---------------- -----------------
Net loss $ (973,325) $ (2,803,162)
================ =================
NET LOSS PER UNIT OF LIMITED PARTNERSHIP INTEREST $ (10.60) $ (30.52)
================ =================
AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS
OUTSTANDING 90,915 90,915
================ =================
</TABLE>
The accompanying notes are an integral part of these statements
Page 5
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CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Note
Receivable
From
General Limited General
Partner Partners Partner Total
----------------- ------------------ ---------------- -----------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 $(2,813,902) $ (17,107,785) $(459,167) $(20,380,854)
Net loss (9,733) (963,592) -- (973,325)
----------------- ------------------ ---------------- -----------------
BALANCE, September 30, 1996 $(2,823,635) $ (18,071,377) $(459,167) $(21,354,179)
================= ================== ================ =================
</TABLE>
The accompanying notes are an integral part of this statement.
Page 6
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CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (973,325) $(2,803,162)
---------------- ----------------
Adjustments to reconcile net loss to net cash provided by operating activities-
Depreciation and amortization 4,312,695 5,550,345
Gain on sale of property and equipment -- (1,800)
Changes in assets and liabilities-
Accounts receivable, net (83,717) (7,329)
Prepaid expenses and other (51,556) 46,710
Accounts payable and accrued expenses (22,054) 350,481
Payables to General Partner and affiliate 702,707 677,147
Subscriber deposits and prepayments (1,755) 122
Deferred revenue (2,325) 25,583
---------------- ----------------
Net cash provided by operating activities 3,880,670 3,838,097
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment, net (1,479,821) (2,325,322)
Proceeds from sale of property and equipment 7,275 1,800
---------------- ----------------
Net cash used in investing activities (1,472,546) (2,323,522)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments on revolving line of credit (2,900,000) (1,900,000)
---------------- ----------------
Net cash used in financing activities (2,900,000) (1,900,000)
---------------- ----------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (491,876) (385,425)
CASH AND CASH EQUIVALENTS, beginning of period 935,858 3,240,343
---------------- ----------------
CASH AND CASH EQUIVALENTS, end of period $ 443,982 $2,854,918
================ ================
</TABLE>
The accompanying notes are an integral part of these statements.
Page 7
<PAGE> 8
CENCOM CABLE INCOME PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Cencom Cable Income Partners II, L.P., a Delaware limited partnership (the
"Partnership" or the "Registrant"), was formed on August 13, 1987, for the
purpose of acquiring and operating existing cable television systems. The
accompanying unaudited financial statements have been prepared in accordance
with the rules and regulations of the Securities and Exchange Commission.
Accordingly, certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted.
2. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The financial statements as of September 30, 1996 and 1995, are unaudited;
however, in the opinion of management, such statements include all adjustments
necessary for a fair presentation of the results for the periods presented.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Registrant's Form 10-K
for the year ended December 31, 1995. Interim results are not necessarily
indicative of results for a full year.
3. INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP:
The Registrant owns limited partnership units of Cencom Partners, L.P. ("CPLP")
which provide the Registrant an 84.03% ownership interest in CPLP. The
Registrant owns only limited partnership units and does not exercise
significant influence over CPLP's operations; therefore, its investment in CPLP
is accounted for using the equity method and losses in excess of its investment
in CPLP are not recorded. As of September 30, 1996, the cumulative unrecorded
losses in excess of investment were $ 13,781,805.
Summary financial information for the operating results of CPLP which are not
consolidated with the operating results of the Registrant, are as follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, 1996 Ended September 30, 1996
------------------------ ------------------------
<S> <C> <C>
Service revenues $ 3,453,621 $ 10,180,196
============= ==============
Loss from operations $ (388,420) $ (1,070,294)
============= ==============
Net loss $ (1,400,259) $ (3,430,125)
============= ==============
Total partners' capital (deficit) $(14,544,527) $(14,544,527)
============= ==============
</TABLE>
4. LIQUIDATION:
The Partnership Agreement provides for the dissolution of the Partnership on or
before December 31, 1995. In accordance with the Partnership Agreement, the
General Partner began dissolution during 1995. Two independent appraisals were
received, resulting in an appraised value of $73,850,000 as of March 31, 1995
for the Partnership's cable systems (the "Systems") (excluding its investment
in CPLP). The General Partner retained a broker to market the Systems using an
auction process and has accepted bids for an aggregate purchase price of
$51,950,000, including the South Carolina systems and the Cleveland, Jasper,
Woodville, Buffalo, Madisonville and Marlin,
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<PAGE> 9
Texas systems (which constitute approximately 46.2% of the subscribers of the
Texas systems), with each bid being subject to execution of a final sale
agreement. The accepted bids constitute approximately 69% of the Partnership's
basic subscribers as of September 30, 1996. The bid for the South Carolina
systems was submitted by an affiliate of the General Partner. In accordance
with the Partnership Agreement, the sale of assets to an affiliate of the
General Partner is subject to an appraisal process, requiring two independent
appraisers to jointly determine the appraised value, and must be approved by a
majority of outstanding Limited Partner units. The General Partner is
preparing a disclosure statement for distribution to the Limited Partners which
will describe the various transactions of the Partnership and CPLP and request
consent for the proposed sales to affiliates of the general partners of the
Registrant and CPLP. In addition, completion of the proposed sales are subject
to the successful arrangement of financing on the part of the buyers of these
systems.
Bids submitted to date with respect to the Northeast Missouri systems and the
remainder of the Texas systems were considered to be too low relative to the
appraised fair market values of such systems established pursuant to the
appraisal process. Thus, these bids have not been accepted by the General
Partner. The General Partner will continue to seek potential purchasers for
these remaining systems.
Concurrent with the disposition of the Partnership's Systems, CPLP has sought
to dispose of its assets through the sale of its cable television systems. The
asset sale is being effected to satisfy the requirement by CPLP's senior bank
lenders that the credit facility be repaid in accordance with its terms. The
CPLP asset disposition was also commenced to facilitate the liquidation of the
Partnership which requires the liquidation of all of the Partnership's assets,
including its entire ownership interest in CPLP.
To dispose of the assets of CPLP, the general partner of CPLP obtained
appraisals as of March 31, 1995 from Daniels & Associates ("Daniels") and
Western Cablesystems, Inc. ("Western"), who jointly reached a valuation of
$60,900,000 for all of the CPLP systems. Thereafter, Daniels was retained to
market the CPLP systems using an auction process substantially identical to
that employed for the Partnership's Systems. As a result of the auction
process, CPLP's general partner has executed final sale agreements with two
affiliates of the General Partner of the Registrant for CPLP's South Carolina
and North Carolina Systems for an aggregate price of $52,450,000. Completion
of these proposed sales are subject to the successful arrangement of financing
on the part of the buyers of these systems. The bids submitted for CPLP's
Texas Systems were below the appraised fair market value and have not been
accepted. CPLP intends to continue to operate its Texas Systems until an
acceptable bid is received.
Following CPLP's proposed sales of some or all of its systems, it will use the
available sale proceeds to pay outstanding indebtedness and expenses (including
the payment of accrued and unpaid management fees to its General Partner and
repayment of its senior bank credit facility), with any remaining proceeds to
be distributed in accordance with the terms of CPLP's partnership agreement,
which will include distributions to the Partnership in its capacity as a
Limited Partner of CPLP. As of September 30, 1996, outstanding indebtedness
under the CPLP senior bank credit facility was $34,957,500 and accrued and
unpaid management fees to its General Partner were approximately $2,717,500.
The amount, if any, of a distribution to the Partnership of remaining proceeds
from the sale of the CPLP systems cannot be estimated at this time and the
amount of proceeds which may be available for distribution is entirely
dependent on the ultimate purchase price of CPLP's Texas Systems.
Upon dissolution, the General Partner or other liquidating agent is required to
liquidate partnership assets and to distribute all available proceeds as soon
as practicable after their receipt by the Partnership. After payment of the
Partnership's liabilities, these sales proceeds will be distributed as set
forth in the Partnership Agreement. Distributions to the Limited Partners may
be subject to regulations requiring tax withholding in certain states.
Upon finalization of a complete plan of liquidation and the determination of
net proceeds from sales of Partnership assets, the Partnership will change its
basis of accounting from the going-concern basis to the liquidation basis.
Under the liquidation basis of accounting, assets are recorded at their
estimated realizable values and liabilities are recorded at their estimated
settlement amounts.
Page 9
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CENCOM CABLE INCOME PARTNERS II, L.P.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth the approximate number of subscribers of the
Partnership as of the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1996 1995 1995
------------- ------------ -------------
<S> <C> <C> <C>
Basic Subscribers:
Texas systems 22,200 22,200 22,000
South Carolina systems 20,700 20,200 20,100
Northeast Missouri systems 2,000 2,100 2,100
------------- ------------ -------------
44,900 44,500 44,200
============= ============ =============
Premium Subscriptions:
Texas systems 7,100 8,400 7,500
South Carolina systems 10,800 11,100 11,500
Northeast Missouri systems 900 1,000 1,000
------------- ------------ -------------
18,800 20,500 20,000
============= ============ =============
</TABLE>
The following table sets forth certain items as a percentage of total revenues
for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30 Ended September 30
------------------------------------ ------------------------------------
(Unaudited) (Unaudited)
1996 1995 1996 1995
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Service Revenues 100.0% 100.0% 100.0% 100.0%
================= ================= ================= =================
Operating Expenses:
Operating, General and Administrative 57.0 61.8 57.1 58.5
Liquidation Costs 2.2 -- 2.3 --
Depreciation and Amortization 31.8 38.8 31.9 43.6
----------------- ----------------- ----------------- -----------------
91.0 100.6 91.3 102.1
----------------- ----------------- ----------------- -----------------
Income (Loss) from Operations 9.0 (.6) 8.7 (2.1)
----------------- ----------------- ----------------- -----------------
Other Income (Expense):
Interest Income .2 1.2 .2 .6
Interest Expense (15.4) (19.8) (16.1) (20.6)
Equity in loss of unconsolidated limited partnership -- -- -- --
----------------- ----------------- ----------------- -----------------
(15.2) (18.6) (15.9) (20.0)
----------------- ----------------- ----------------- -----------------
Net Loss (6.2)% (19.2)% (7.2)% (22.1)%
================= ================= ================= =================
</TABLE>
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Service Revenues
The Partnership earns substantially all of its revenues from monthly
subscription fees for basic tier, expanded basic service tier, premium
channels, equipment rental and ancillary services provided by its cable
television systems. Service revenues increased by 7.2% to $4,588,588 and 6.0%
to $13,500,474, respectively, for the three and nine month periods ended
September 30, 1996, when compared to the similar periods of 1995. These
increases in 1996 are primarily due to an increase in subscribers for the basic
tier of cable service offered by the Systems and to retail rate increases for
basic and ancillary services. These increases have served to offset the
decrease in premium service subscriptions since September 30, 1995.
Revenue increases through September 30, 1996, reflect basic and ancillary rate
increases implemented in certain franchise areas. Rate increases have been
limited because federal rate regulation implemented in 1993 and 1994 rolled
back cable rates up to 17% and authorized only limited rate increases along
with the pass-through of certain external costs for those systems.
Basic subscribers at September 30, 1996 increased by 700 subscribers or 1.6%
over September 30, 1995. However, the Partnership experienced a decrease of
approximately 300 basic subscribers during the quarter ended September 30,
1996. In an effort to confront the emergence of new competition for video
services, the Partnership has focused its efforts on retaining customers
through improved customer service. In addition, a limited amount of new-build
construction was completed to reach potential new customers.
Premium service subscriptions decreased 8.3% from September 30, 1995 to
September 30, 1996. The ratio of premium service subscriptions per basic
subscriber decreased from 45.2% at September 30, 1995 to 41.9% at September
30, 1996. This overall decrease may reflect the fact that there is an
increasing variety of programming on the basic and expanded basic tiers. Given
this change at the basic level, the Partnership anticipates that premium
services may continue to decline relative to basic services over the next few
years. As a result, the Partnership has begun to offer premium services to
subscribers in a packaged format, providing subscribers with a discount from
the combined retail rates of these packaged services in an effort to maintain
premium subscription levels and attract additional subscriptions.
Operating Expenses
Operating, general and administrative expenses decreased by $28,180 or 1.1% and
increased by $255,604 or 3.4%, respectively for the three and nine month
periods ended September 30, 1996 when compared to the similar periods of 1995.
The majority of the increase, for the nine month period, was related to
increases in license fees paid for programming. Programming expense increases
are the result of additional subscribers, new channels launched and increases
in license fee rates paid to programmers. The growth in programming expense by
the Registrant is consistent with industry-wide increases.
Liquidation costs for the three and nine month periods ended September 30,
1996, were $100,770 and $309,968, respectively. Liquidation costs during these
periods related primarily to professional fees for preparation of the
disclosure statements for distribution to the Limited Partners related to the
proposed sales of certain cable systems of the Partnership.
Depreciation and amortization decreased by 12.1% from $1,661,291 to $1,460,192
and 22.3% from $5,550,345 to $4,312,695, respectively, for the three and nine
months ended September 30 1996, when compared to the similar periods of 1995.
Although the Partnership had increased depreciation as a result of capital
expenditures made to the Systems, this was offset by a significant decrease in
amortization because of the completion of original amortization periods for
franchises for the South Carolina systems.
Other Income (Expense)
Interest expense decreased by 16.4% from $847,353 to $707,973 and 16.7% from
$2,617,680 to $2,179,681, respectively, for the three and nine month periods
ended September 30, 1996, when compared to the similar periods
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<PAGE> 12
of 1995. This decrease was due to both the decrease in the average outstanding
debt balance between the comparable periods and a decrease in the effective
weighted average interest rates between the comparable periods.
Net Loss
Net loss was reduced by 65.1% from $822,372 to $287,331 and 65.3% from
$2,803,162 to $973,325 respectively for the three and nine month periods ended
September 30, 1996 when compared to the similar periods of 1995. In 1996,
decreases in interest expense and amortization expense were significant factors
versus the prior year.
Liquidity and Capital Resources
The Registrant has historically been able to meet capital needs through
borrowings under credit facilities, and from cash generated by operations. The
Registrant anticipates that cash generated from operations and available credit
should be adequate for future foreseeable capital requirements over the
remaining life of the Partnership.
The Partnership has arranged for a secured revolving line of credit agreement
(the "Credit Agreement") with a consortium of banks, for which The Toronto
Dominion Bank is the agent. Such Credit Agreement bears interest at a rate
selected by the Partnership equal to the Eurodollar rate, The Toronto Dominion
Bank's prime rate, or certificate of deposit rate, as the case may be, plus a
spread, and has a maturity date of December 31, 1996. This Credit Agreement
allows borrowings up to $65 million. While the Partnership's cash flow from
operations has been used to fund a portion of capital expenditures, in prior
periods the Partnership from time to time did increase debt to cover the
balance of capital expenditures. Outstanding indebtedness of the Partnership
at September 30, 1996 was $37,500,000 borrowed under the Credit Agreement. The
Registrant is currently negotiating with the banks to amend the terms and
extend the maturity of its indebtedness, which currently has a maturity date of
December 31, 1996. If the asset sales are completed, the General Partner
anticipates using a portion of the sale proceeds to retire a portion of this
indebtedness and refinance the remaining balance, along with renegotiating the
terms of the Credit Agreement.
The Partnership made capital expenditures of approximately $1,473,000 during
the first nine months of 1996 in connection with the improvement and upgrading
of the Partnership systems. The Registrant anticipates that capital
expenditures for such purposes will aggregate approximately $2,400,000 during
1996.
Pursuant to the terms of the Partnership Agreement, the General Partner
suspended distributions to the Limited Partners during the fourth quarter of
1993. The distributions were suspended to provide the Partnership with greater
financial flexibility in meeting debt obligations and continuing capital
expenditures to maintain and enhance the Partnership's assets. Distributions
in arrears will be distributed in accordance with the Partnership Agreement.
Following the pending sales of the Partnership's assets as described below and
a favorable renegotiation of the Credit Agreement, the General Partner
anticipates that it will be able to recommence quarterly distributions to the
Limited Partners. However, there can be no assurance that these events will
occur and/or that sufficient proceeds will be available in the future for
distributions to the Limited Partners after payments for expenses, capital
expenditures and debt service.
Pursuant to the terms of the Partnership Agreement, the Partnership's term
expired on December 31, 1995. In connection with the disposition of the
Partnership's assets, the Partnership Systems were appraised as of March 31,
1995 by Daniels & Associates ("Daniels") and Western Cablesystems, Inc.
("Western"), who jointly reached a valuation of $73,850,000 for all of the
Partnership Systems (referred to as the "Appraisal Process" herein).
Thereafter, the General Partner retained Daniels to market the Systems using an
auction process with competing bids and counter-bids. As a result of the
auction process, the General Partner has accepted bids for an aggregate
purchase price of $51,950,000, including the South Carolina systems and the
Woodville, Jasper, Cleveland, Buffalo, Madisonville and Marlin, Texas, systems
(which constitute approximately 46.2% of the subscribers of the Texas systems
and are subject to execution of a final sale agreement). The accepted bids
constitute approximately 69% of the Partnership's basic subscribers as of
September 30, 1996. The highest bid for the South Carolina systems was
submitted by an affiliate of the General Partner. In accordance with the terms
of the Partnership Agreement, the sale of assets to an affiliate of the General
Partner must be approved by a majority of outstanding Limited Partner interests
and is subject to an appraisal process, which requires that two independent
appraisers jointly determine the appraised value. Daniels and Western reached
a separate valuation of the South Carolina systems of $ 36.0 million as of
March 31, 1996. The affiliate of the general partner is seeking approval to
purchase the South Carolina
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<PAGE> 13
systems for $36.7 million. The General Partner is preparing a disclosure
statement for distribution to the Limited Partners which will describe the
various system sales to be made by the Partnership and Cencom Partners, L.P.
("CPLP"), describe in detail the appraisal process and terms of the
transactions, and request consent for the proposed sales to affiliates of the
general partners of the Registrant and CPLP. In addition, completion of the
proposed sales, are subject to the successful arrangement of financing on the
part of the buyers of these systems. No assurances can be made that the buyers
will be able to successfully make such financial arrangements.
Bids submitted to date with respect to the Northeast Missouri and the remainder
of the Texas Systems are viewed by the General Partner to be too low relative to
the appraised fair market values of such Systems. Accordingly, these bids have
not been accepted by the General Partner. Although the General Partner intends
to liquidate the Partnership as expeditiously as possible, it does not believe a
sale or sales of the Northeast Missouri or the remainder of the Texas Systems at
this time would be in the best interests of the Partnership or the Limited
Partners. The General Partner intends to continue to operate the Partnership in
accordance with the Partnership Agreement while it actively seeks potential
purchasers for these remaining Systems.
Concurrent with the disposition of the Partnership's Systems, CPLP has sought
to dispose of its assets through sale of its television cable systems. The
asset sale is being effected to satisfy the requirement by CPLP's senior bank
lenders that the credit facility be repaid in accordance with its terms. The
CPLP asset disposition was also commenced to facilitate the liquidation of the
Partnership which requires the liquidation of all of the Partnership's assets,
including its entire ownership interest in CPLP.
To dispose of the assets of CPLP, the general partner of CPLP obtained
appraisals as of March 31, 1995 from Daniels and Western, who jointly reached
a valuation of $60,900,000 for all of the CPLP systems. Thereafter, Daniels
was retained to market the CPLP systems using an auction process substantially
identical to that employed for the Partnership's Systems. As a result of the
auction process, CPLP's general partner has executed final sale agreements with
two affiliates of the General Partner of the Registrant for CPLP's South
Carolina and North Carolina Systems for an aggregate price of $52,450,000.
Completion of these proposed sales are subject to the successful arrangement of
financing on the part of the buyers of these systems. No assurances can be
made that the buyers will be able to successfully make such financial
arrangements. The bids submitted for CPLP's Texas Systems were below the
appraised fair market value and have not been accepted. CPLP intends to
continue to operate its Texas Systems until an acceptable bid is received.
Following CPLP's proposed sales of some of its systems, it will use the
available sale proceeds to pay outstanding indebtedness and expenses (including
the payment of accrued and unpaid management fees to its General Partner and
repayment of its senior bank credit facility), with any remaining proceeds to
be distributed in accordance with the terms of CPLP's partnership agreement,
which will include distributions to the Partnership in its capacity as a
Limited Partner of CPLP. As of September 30, 1996, outstanding indebtedness
under the CPLP senior bank credit facility was $34,957,500 and accrued and
unpaid management fees to its General Partner were approximately $2,717,500.
The amount, if any, of a distribution to the Partnership of remaining proceeds
from the sale of the CPLP systems is dependent upon the completion of the
proposed transactions, which are subject to the successful arrangement of
financing on the part of the buyers of these systems.
After the consummation of the Partnership's proposed system sales for which
there are acceptable bids, and the receipt of the CPLP distribution, the
Partnership will first repay a portion of its outstanding senior indebtedness,
which was $37,500,000 as of September 30, 1996, second, pay a portion of the
accrued and unpaid management fees to the General Partner which was
approximately $3,384,000 at September 30, 1996; and, thereafter, distribute the
remaining proceeds to the Limited Partners. Concurrently, the Partnership
intends to either refinance or amend the terms and extend the maturity of the
remaining balance of its senior indebtedness, pending the sale of the remainder
of its assets. While the Partnership continues to work toward the sale of its
cable systems, there are no assurances that such transactions will be
consummated. Further, while the Partnership will attempt to negotiate
amendments and extensions for its existing credit facility prior to the
December 31, 1996 maturity, there are no assurances that such negotiations will
be successful or at terms that are favorable to the Partnership. If the
negotiations are less favorable than anticipated, the Partnership may be
required to use the entire net proceeds to pay down indebtedness.
The Partnership does not maintain property and casualty insurance covering its
underground cable television distribution plant. The General Partner believes
that the likelihood of any material damage to such distribution plan, due to
natural disasters or otherwise, is minimal and that damage to such distribution
plant at any individual location
Page 13
<PAGE> 14
is unlikely to have a materiel adverse effect on the Partnership. The General
Partner also believes that its decision not to insure such distribution plant
is consistent with standard practices in the cable television industry.
The Partnership believes that it has generally complied with the provisions of
the 1992 Act regarding cable programming service rates. However, some Systems
may be charging rates which are in excess of allowable rates and, accordingly,
may be subject to challenge by regulatory authorities; such challenge may
result in the Partnership being required to make refunds to subscribers. The
amount of refunds, if any, which could be payable by the Partnership in the
event such Systems' rates are successfully challenged by regulatory authorities
is not currently estimable. The Partnership has not reserved any amounts for
payment of such refunds as the General Partner does not believe that the
amounts of any such refunds would have a material adverse effect on the
financial position or results of the Partnership.
Page 14
<PAGE> 15
Part II. Other Information
Item 1. Legal Proceedings - None
Item 2. Change in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - Tender Offers
During August 1996 and September 1996, the Limited Partners received tender
offers from two separate and unrelated third parties that are each unaffiliated
with the Partnership, the General Partner or its affiliates. The tender offers
were offering to purchase limited partnership interests of the Partnership at
prices between $250 and $255 per Limited Partnership Unit. The offer period
for each third party has expired under the terms of their tender offer letters.
As of November 11, 1996, approximately 1,600 units, or approximately 1.8% of
the outstanding units of the Partnership, have been approved by the General
Partner for transfer to these two third party groups.
Item 6. Exhibits and Reports on Form 8-K - None
Page 15
<PAGE> 16
CENCOM CABLE INCOME PARTNERS II, L.P.
FOR QUARTER ENDED SEPTEMBER 30, 1996
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.
CENCOM CABLE INCOME PARTNERS II, L.P.
By: Cencom Properties II, Inc.
General Partner
By: /s/ Jerald L. Kent
---------------------------------
Jerald L. Kent
Executive Vice President and
Chief Financial Officer
By: /s/Jerald L. Kent November 13, 1996
----------------------------
Jerald L. Kent
Executive Vice President and
Chief Financial Officer
By: /s/Ralph G. Kelly November 13, 1996
----------------------------
Ralph G. Kelly
Treasurer
Page 16
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 443,982
<SECURITIES> 0
<RECEIVABLES> 274,685
<ALLOWANCES> 0
<INVENTORY> 201,479
<CURRENT-ASSETS> 920,146
<PP&E> 20,106,297
<DEPRECIATION> 0
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<CURRENT-LIABILITIES> 43,092,108
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0
0
<COMMON> 0
<OTHER-SE> (21,354,179)
<TOTAL-LIABILITY-AND-EQUITY> 21,763,508
<SALES> 4,588,588
<TOTAL-REVENUES> 4,588,588
<CGS> 0
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<OTHER-EXPENSES> 4,177,451
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 698,468
<INCOME-PRETAX> (287,331)
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