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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________ TO _________
Commission file number 33-17174
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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 Suite 400
St. Louis, Missouri 63131
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (314) 965-0555
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interests $1,000 per unit
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers Pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated into this Report by reference: None
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PART I
ITEM 1. BUSINESS
GENERAL
Cencom Cable Income Partners II, L.P. (the "Partnership" or the "Registrant")
was formed as a Delaware limited partnership in 1987 pursuant to the terms of a
partnership agreement (the "Partnership Agreement"), to acquire, develop,
operate and ultimately sell cable television systems. Cencom Properties II,
Inc., a Delaware corporation, is the general partner of the Registrant (the
"General Partner") and acts as the management company (the "Management
Company") for the purpose of managing the cable television systems. The
principal executive offices of the General Partner and the Partnership are
located at 12444 Powerscourt Drive, Suite 400, St. Louis, Missouri 63131 and
their telephone number is (314) 965-0555.
As of December 31, 1996, the Registrant owned and operated cable television
systems servicing communities located in northeast Missouri, South Carolina and
Southeast Texas (the "Partnership Systems" or the "Systems"). As of December
31, 1996, the Partnership Systems served approximately 44,700 basic subscribers
who subscribed to approximately 18,900 premium service subscriptions. Average
monthly revenue per subscriber was approximately $34.56 during the fourth
quarter of 1996, representing an increase of approximately 11.5% versus the
fourth quarter of 1995.
The Partnership also has invested in limited partnership interests of Cencom
Partners, L.P. ("CPLP"). The Partnership is allocated 84.03% of the net income
or losses of CPLP, based on its ownership interests. The Partnership owns only
Limited Partnership Units and does not exercise significant influence over CPLP
operations; therefore the Partnership's investment in CPLP is accounted for
using the equity method, and losses in excess of its investment in CPLP are not
recorded.
DISSOLUTION OF ASSETS
The Partnership's term expired on December 31, 1995. Because of the
Partnership's resulting need to liquidate all of its assets, including its
investment in CPLP, and because of the additional requirement by CPLP's senior
lenders that CPLP repay its outstanding indebtedness, both the Partnership and
CPLP began the process of dissolution of their respective assets. In
connection with the dissolution of the Partnership's assets, the Partnership
Systems were appraised as of March 31, 1995 by Daniels & Associates ("Daniels")
and Western Cable Systems ("Western"), who jointly reached a valuation of
$73,850,000 for all of the Partnership Systems (referred to as the "Appraisal
Process" herein), excluding its interest in CPLP. 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 and entered into agreements to sell the
South Carolina System (the "South Carolina System" or the "Anderson County
System") which serves approximately 20,800 basic subscribers (46.5% of the
Partnership's total basic subscribers) to an affiliate for an aggregate
purchase price of $36,700,000 and the Woodville, Jasper, Cleveland, Marlin,
Madisonville and Buffalo areas (which constitute a portion of the Southeast
Texas Systems) which serve approximately 10,300 basic subscribers (23..0% of
the Partnership's total basic subscribers) to non-affiliates for an aggregate
purchase price of $15,250,000. These sales of certain Southeast Texas systems
are anticipated to be consummated on March 31, 1997.
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. The General Partner retained Daniels and Western in March 1996 to
update their earlier appraisal to satisfy this requirement, which resulted in
values of $36,000,000 and $35,900,000, respectively. The bid from the
affiliate of the General Partner of $36,700,000 exceeded the updated appraisals
by $700,000 and $800,000, respectively.
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Bids submitted to date with respect to the Northeast Missouri Systems and the
remainder of the Southeast Texas Systems are viewed by the General Partner to
be too low relative to the estimated fair market values allocated to such
Systems pursuant to the appraisal process. Accordingly, these bids have not
been accepted by the General Partner. Subscribers in the Northeast Missouri
Systems and remainder of the Southeast Texas Systems represent approximately
31.7% of the Partnership's basic subscribers as of December 31, 1996. 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 Systems
or the remainder of the Southeast 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 while it actively seeks
potential purchasers for these remaining Systems.
Concurrent, with the liquidation of the Partnership's Systems, CPLP is
liquidating its assets through sales of the CPLP Systems. The liquidation is
being effected to satisfy the requirement by CPLP's senior bank lenders that
the CPLP credit facility be repaid in accordance with its terms. The CPLP
liquidation 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 liquidate 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 accepted bids by affiliates of the General
Partner for CPLP's South Carolina and North Carolina Systems which serve
approximately 29,900 basic subscribers (82.5% of CPLP's total basic
subscribers) for an aggregate price of $52,450,000, subject to written consent
from the Limited Partners of the Registrant. The bids submitted for CPLP's
Texas Systems were below the appraised fair market value and have not been
accepted by its general partner. CPLP intends to continue to operate its Texas
Systems until an acceptable bid is received.
Following CPLP's proposed sale of three of its four systems, CPLP 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 all of its senior bank credit facility, with the 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 (the "CPLP Distribution"). The distribution to
the Partnership from the proceeds of the proposed sale will be approximately
$5.9 million.
On March 6, 1997, a disclosure statement and related consent materials were
mailed to the limited partners of the Partnership (the "Limited Partners") in
connection with the solicitation by the General Partner for the written
consents of the Limited Partners for the proposed sales of the South Carolina
Systems and for the sale of three of the four systems owned by CPLP to
affiliates of the General Partner. The written votes of the Limited Partners
are to be received by April 7, 1997; however, the time period for delivering
the consents or revocations may be extended by the General Partner for a
period of up to 45 days in the event that consent has not been obtained.
After the consummation of the Partnership's proposed system sales for which
there are sale agreements and the receipt of the CPLP Distribution, the
Partnership will first repay approximately $19.8 million of its outstanding
senior indebtedness, which was $36.7 million as of December 31, 1996; second,
pay estimated sales transaction expenses of approximately $862,000; 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. However, there can be no
assurance that the Partnership will be able to amend the existing facility or
negotiate a new facility with terms that are favorable to the Partnership. The
net amount available for distribution to the Limited Partners is estimated to
be approximately $28.6 million, or $314 per unit. In addition, approximately
$2,525,000, or $28 per unit, of additional proceeds related to the sale of
certain of the Southeast Texas Systems will be held back in an indemnification
escrow account for a period of up to one year.
It is the General Partner's intention to continue to market and sell the
Partnership's remaining assets, repay the balance of the Partnership's
outstanding obligations, terminate the Partnership and distribute all remaining
proceeds thereof (subject to a holdback for contingencies) as expeditiously as
possible, subject to the receipt of offers to purchase the remaining
Partnership assets. At such time as all of the Partnership and the CPLP
systems are sold, and all available CPLP
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distributions are received by the Partnership, the Partnership's
outstanding obligations will be paid and the Partnership will be terminated.
Upon its termination, the Partnership will cease to be a public entity and will
no longer be subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended.
THE CABLE TELEVISION INDUSTRY
Cable television was introduced in the early 1950s to provide television
signals to small or rural towns with little or no available off-air television
signals and to communities with reception difficulties caused by terrain
problems. The cable television industry has since added non-broadcast
programming and increased channel capacity to these "classic system"
subscribers and has also expanded service to more densely populated areas and
to those communities in which off-air reception is not a problem. In addition,
most cable television systems offer a variety of channels and programming. See
"--Marketing, Programming and Rates."
In recent years, cable operators have been building more sophisticated systems
with greater channel capacity, thereby increasing the potential number of
programming offerings available to subscribers and, consequently, increasing
the potential revenue available per subscriber. Present day state-of-the-art
cable television systems are capable of providing 36 to 108 channels of
programming.
A cable television system consists of two principal operating components: one
or more signal origination points called "headends" and a signal distribution
system. It may also include program origination facilities. Each headend
includes a tower, antennae or other receiving equipment at a location favorable
for receiving broadcast signals and one or more earth stations that receive
signals transmitted by satellite. The headend facility also houses the
electronic equipment which amplifies, modifies and modulates the signals,
preparing them for passage over the system's network of cables.
The signal distribution system consists of amplifiers and trunk lines which
originate at the headend and carry the signal to various parts of the system,
smaller distribution cable and distribution amplifiers which carry the signal
to the immediate vicinity of the subscriber and drop lines which carry the
signal into the subscriber's home. In the past several years, many cable
operators have utilized fiber optic (in place of, or in combination with,
coaxial) technology to transmit signals through the primary trunk lines.
DESCRIPTION OF THE PARTNERSHIP SYSTEMS
The following table sets forth a summary of subscriber data (rounded to the
nearest hundred) of the Partnership's systems as of the dates indicated:
<TABLE>
<CAPTION>
As of December 31,
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1996 1995 1994
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<S> <C> <C>
Basic Subscribers:
Northeast Missouri Systems 2,000 2,100 2,100
Anderson County System 20,800 20,200 19,100
Southeast Texas Systems 21,900 22,200 21,800
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44,700 44,500 43,000
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Premium Subscriptions:
Northeast Missouri Systems 900 1,000 1,100
Anderson County System 10,400 11,100 10,400
Southeast Texas Systems 7,600 8,400 7,900
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18,900 20,500 19,400
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</TABLE>
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The Northeast Missouri Systems
The Northeast Missouri Systems serve eight communities in the northeastern
section of Missouri. As of December 31, 1996, these systems consisted of seven
headends having approximately 70 miles of activated distribution plant passing
approximately 4,000 homes. The largest headend serves Canton and LaGrange,
Missouri. As of December 31, 1995, Canton and LaGrange subscribers accounted
for approximately 47% of the Northeast Missouri Systems' basic subscribers.
The remaining six headends each serve less than 500 basic subscribers. At
December 31, 1996, the Registrant employed three full-time equivalent persons
in connection with the operation of the Northeast Missouri Systems.
Anderson County System
The Anderson County System serves the cities of Pelzer, Travelers Rest, West
Pelzer, Williamston and the private development of Keowee Key, the Town of
Salem, and portions of the counties of Anderson, Greenville, Oconee and
Pickens, all in South Carolina. As of December 31, 1996, the Anderson County
System consisted of four headends and approximately 1,200 miles of activated
distribution plant passing approximately 28,700 homes. At December 31, 1996,
the Registrant employed 26 persons full time in connection with the operation
of the Anderson County System. The largest communities served by the Anderson
County System are unincorporated Anderson and Greenville Counties, which
accounted for approximately 47% and 24%, respectively, of the basic subscribers
served by the Anderson County System.
The Southeast Texas Systems
The Southeast Texas Systems serve 17 communities in eastern and southern Texas.
As of December 31, 1996, the Southeast Texas Systems consisted of 13 headends
and approximately 700 miles of activated distribution plant passing
approximately 45,700 homes. At December 31, 1996, the Registrant employed 37
full-time equivalent persons in connection with the operation of the Southeast
Texas Systems. The largest communities served by the Southeast Texas Systems
are Kingsville and Angleton, Texas, which, as of December 31, 1996, accounted
for approximately 24% and 19%, respectively, of the basic subscribers served by
the Southeast Texas Systems. The areas served by the Southeast Texas Systems
also include the communities of Agua Dulce, Belleville, Buffalo, Cleveland,
Driscoll, Hempstead, Jasper, Madisonville, Marlin, Sealy and Woodville.
Partnership statistics provided as of December 31, 1996, for plant mileage,
number of subscribers of basic and premium services, employees, and basic
service tier and expanded service tier rates are substantially unchanged as of
the filing date of this report.
DESCRIPTION OF CPLP SYSTEMS
CPLP owns cable television systems that serve communities in South Carolina,
North Carolina and Texas. As of December 31, 1996, the CPLP Systems consisted
of approximately 1,600 miles of activated distribution plant which passed
approximately 64,300 homes and served customers subscribing to approximately
36,200 basic and 15,700 premium units. The CPLP Systems' monthly basic fees,
at December 31, 1996, ranged from $7.79 to $11.06 for the basic service tier
and $14.50 to $17.10 for the expanded basic tier. CPLP employed 53 full-time
equivalent persons at December 31, 1996.
CPLP statistics provided as of December 31, 1996 for plant mileage, number of
subscribers of basic and premium services, employees, and basic service tier
and expanded basic tier rates are substantially unchanged as of the filing date
of this report.
MARKETING, PROGRAMMING AND RATES
The Partnership's marketing program is based upon offering various packages of
cable services designed to appeal to different market segments. The General
Partner performs and utilizes market research on selected systems, compares the
data to national research and tailors a marketing program for each individual
market. The General Partner utilizes a coordinated array of marketing
techniques to attract and retain subscribers, including door-to-door
solicitation,
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telemarketing, media advertising and direct mail solicitations. The Registrant
implements in the Partnership Systems the marketing efforts instituted by the
General Partner to gain new subscribers and increase basic and premium
penetration in the communities served by the Systems.
Although services vary from system to system because of differences in channel
capacity, viewer interests and community demographics, each of the individual
Systems offers a "basic service tier," consisting of local television channels
(network and independent stations) available over-the-air, local public
channels and governmental and leased access channels. The individual Systems
also offer an expanded basic tier of television stations relayed from distant
cities, specialized programming delivered via satellite and various
alpha-numeric channels providing information on news, time, weather and the
stock market. In addition to these services, the Systems typically provide one
or more premium services purchased from independent suppliers and combined in
different formats to appeal to the various segments of the viewing audience,
such as Home Box Office, Cinemax, Showtime, The Movie Channel and the Disney
Channel. A "premium service unit" is a single premium service for which a
subscriber must pay an additional monthly fee in order to receive the service.
Subscribers may subscribe for one or more premium service units. The Systems
also receive revenues from the sale or monthly use of certain equipment (e.g.,
converters, wireless remote control devices, etc.) and from cable programming
guides, with some Systems offering enhanced audio services. Certain of the
Systems also generate revenues from the sale of advertising spots on one or
more channels, from the distribution and sale of pay-per-view movies and
events, and from commissions resulting from subscribers participating in home
shopping.
Rates to subscribers vary from market to market and in accordance with the type
of service selected. The Partnership Systems' monthly basic fees, at December
31, 1996, ranged from $8.23 to $15.60 for the basic service tier and $12.75 to
$19.95 for the expanded basic tier. These rates reflect reductions effected in
response to the implementation of the 1992 Cable Act, which became effective in
1993. A one-time installation fee, which may be partially waived during a
promotional period, is charged to new subscribers. The practices of the
Registrant regarding rates are consistent with the current practices in the
industry. See Item 1 - "Regulation of the Cable Television Industry" for a
discussion of rate setting.
MANAGEMENT AGREEMENT
Since July 15, 1994, the Partnership Systems have been managed by the General
Partner, as the "Management Company," which assumed the rights and obligations
of the former manager under the Management Agreement effective March 31, 1988,
by and between the Partnership and the Management Company (the "Management
Agreement"). Consequently, the Management Company has the exclusive right,
authorization and responsibility to manage the Partnership Systems.
The Management Agreement provides that the Management Company will receive for
its services a management fee equal to 5% of the annual gross operating
revenues of the Partnership. Such fee is to be paid quarterly in arrears after
the Partnership pays quarterly distributions to the Limited Partners.
Beginning in 1989, up to 50% of the management fee payment is subordinate to
certain quarterly distributions to the Limited Partners. Unpaid management
fees accrue without interest. During 1996, 1995, and 1994 , the Registrant
recorded approximately $905,071, $852,300, and $812,900, respectively, of such
management fee expense although it ceased making such payments in the fourth
quarter of 1993 because quarterly distributions to Limited Partners were
suspended. Management fees of approximately $3,614,000, $2,709,000, and
$1,855,000 were included in Payables to General Partners and affiliates at
December 31, 1996, 1995 and 1994, respectively. Although the General Partner
is currently entitled to collect 50% of its management fees pursuant to the
terms of the Management Agreement, the General Partner has decided to defer
receipt of such fees until such time as the Partnership's outstanding
indebtedness is reduced through a combination of repayment and refinancing of
such indebtedness.
Pursuant to its terms, the Management Agreement was to expire on the earlier of
December 31, 1995, or upon the dissolution of the Partnership. The General
Partner has agreed to extend the term of the Management Agreement through the
"winding-up" of the Partnership's business and affairs.
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The Management Company manages all aspects of the daily operation of the
Partnership Systems including, but not limited to, providing the Registrant
with financial, marketing, engineering, technical and operational guidance;
negotiating programming and other contracts; reviewing, approving and
processing of accounting transactions; developing and maintaining
administrative records, Limited Partner investment and tax records, procedures
and reports; developing recommendations for, and negotiating the acquisition
and maintenance of, insurance coverage; reviewing and approving personnel and
other management policies and procedures; supervising the training of
management personnel; developing engineering strategies for the implementation
of technical improvements; reviewing and approving maintenance standards and
capital expenditures for plant and equipment; providing a centralized
purchasing agent to provide the benefit of quantity discounts; developing
compensation policies and maintaining individual personnel files with respect
to employees; assisting in the selection of, and consultation with, attorneys,
consultants and accountants; and providing in-house legal support and
negotiating financing on behalf of the Registrant. In addition, the Management
Company is responsible for preparing and monitoring annual operating budgets,
Limited Partner correspondence, cash management, monthly financial statements
and such other reports as may be required by the Registrant.
FRANCHISES
The Systems operate pursuant to an aggregate of 36 non-exclusive franchises,
permits or similar authorizations issued by governmental authorities.
Franchises or permits are awarded by a governmental authority and generally are
not transferable absent the consent of the authority. Most of the franchises
pursuant to which the Systems operate may be terminated prior to their stated
expiration by the granting authority, after due process following a breach of a
material provision. Currently, six of the Partnership's 36 franchises, serving
approximately 5% of the Partnership's subscribers in the aggregate, were within
a three-year window period for renewal. Under the terms of most of the
franchises, a franchise fee of up to five percent (5%) of the gross revenues
derived by a cable system from the provision of cable television services (the
maximum amount that may be charged by a franchising authority under the 1992
Cable Act, as herein defined) is payable to the franchising authority.
The Cable Acts, as herein defined, provide for an orderly franchise renewal
process in which franchise renewal will not be unreasonably withheld. If a
renewal is withheld and the franchising authority acquires ownership of the
cable system or effects a transfer of ownership to another party, the franchise
authority must pay the cable operator the "fair market value" for the system
covered by such franchise. The Cable Acts also establish comprehensive renewal
procedures requiring that an incumbent franchisee's renewal application be
asserted on its own merit and not as part of a comparative process with
competing applications. In connection with the franchise renewal process, many
governmental authorities require the cable operator to commit to making certain
technological upgrades to the system, which may require substantial capital
expenditures.
CERTAIN REGULATORY AND LEGISLATIVE DEVELOPMENTS
The cable television industry is subject to extensive regulation by federal,
local and, in some instances, state government agencies. The Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Cable Act")
significantly expanded the scope of cable television regulation on an
industry-wide basis by imposing rate regulation, requirements related to the
carriage of local broadcast station, customer service obligations and other
requirements. Under the FCC's initial rate regulations pursuant to the 1992
Cable Act, regulated cable systems (i.e., those systems not subject to
effective competition) were required to apply a benchmark formula to determine
their maximum permitted rates. Those systems who rates were above the
benchmark on September 30, 1992, were required to reduce their rates to the
benchmark or by 10%, whichever was less. Under revised rate regulations
adopted in February 1994, regulated cable systems were required to set their
rates so that regulated revenues per subscriber did not exceed September 30,
1992 levels, reduced by 17% (taking into account the previous 10% reduction).
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On June 15, 1995, the FCC released new rules to reduce the substantive and
procedural burdens of rate regulation applicable to small cable systems (i.e.,
cable systems servicing 15,000 or fewer subscribers that are owned by a cable
company which served, in the aggregate, 400,000 or fewer subscribers at the
time such rules went into effect). Cable companies falling outside of this
definition may petition the FCC for small company treatment if they can
demonstrate similar circumstances. The FCC's new small cable systems rules
amended the FCC's previous definitions of small cable entities to encompass a
broader range of cable systems that are eligible for special rate and
administrative treatment. Specifically, the new rules create a new
cost-of-service approach for the purpose of determining the rate applicable to
a small cable system. The new approach involves a five-element calculation
based on a system's costs. The Partnership both applied regulatory authorities
for small cable system rate relief with regard to all of their systems. Such
systems' status as "small cable systems" could be challenged by other parties
and could be denied by the FCC. With regard to most of the systems for which
small system applications were filed, the time period in which a challenge
could be filed has passed. However, regarding CCIP II's systems in Jasper and
Angelton, Texas, the FCC has issued an order which denies those systems small
system status. The Partnership has sought clarification of this order, but
there has been no response from the FCC to date. The order did not require any
reduction in rates or rate refunds. However, because of the FCC's ruling, the
Partnership will be unable to take advantage of the special regulatory benefits
accruing to small systems with regard to Jasper and Angelton, Texas, systems,
including a presumption of reasonability of certain rates. Therefore, for the
Jasper and Angelton, Texas systems, the Partnership may be required to justify
its rates under the general rate processes applicable to cable operators,
which may be less favorable. At this time, however, the Partnership is unable
to determine whether the order will have any material impact on the rates the
Partnership can charge subscribers in these particular franchise areas.
On February 1, 1996, Congress passed the Telecommunications Act of 1996 ( the
"Telecommunications Act" and, together with the 1992 Cable Act, the "Cable
Acts"). The Telecommunications Act was signed into law by the President on
February 8, 1996, and substantially amends the Communications Act of 1934 (the
"Communications Act") (including the re-regulation of subscriber rates under
the 1992 Cable Act). The Telecommunications Act alters federal, state and
local laws and regulations pertaining to cable television, telecommunications
and other services.
Certain provisions of the Telecommunications Act could materially affect the
growth and operation of the cable television industry and the cable services
provided by the Partnership. Although the new legislation is expected to
substantially lessen regulatory burdens, the cable television industry may be
subject to additional competition as a result thereof. There are numerous
rulemakings which have been, and which will be undertaken by the FCC which will
interpret and implement the Telecommunications Act's provisions. In addition,
certain provisions of the Telecommunications Act (such as the deregulation of
cable programming rates) are not immediately effective. In addition, the
legality of certain of the Telecommunications Act's provisions have been and
are likely to continue to be, judicially challenged, and the FCC's regulations
implementing the Telecommunications Act may be appealed for reconsideration by
the FCC. The Partnership is unable at this time to predict the outcome of such
rulemaking or litigation or the substantive effect (financial or otherwise) of
the new legislation and the rulemakings on the Partnership.
REGULATION AND LEGISLATION
The cable television industry is subject to extensive regulation at the
federal, local and , in some instances, state levels. In addition, recent
legislative and regulatory changes and additional regulatory proposals under
consideration may materially affect the cable television industry. The Cable
Acts, both of which amended the Communications Act, establish a national policy
to guide the development and regulation of cable television systems. The
Communications Act was recently substantially amended by the Telecommunications
Act, which alters federal, state and local laws pertaining to cable television,
telecommunications and other services. Principal responsibility for
implementing the policies of the Cable Acts is allocated between the FCC and
state or local franchising authorities.
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Cable Acts and FCC Regulation
The Cable Acts and the FCC's implementing rules establish, among other things,
(i) rate regulations, (ii) "anti-buy through" provisions, (iii) "must carry"
and "retransmission consent" requirements, (iv) rules for franchise renewals
and transfer, and (v) other regulations covering a variety of operational
areas.
The 1992 Cable Act and the FCC's rules implementing the 1992 Cable Act
generally have increased the administrative and operational expenses of cable
television systems and have resulted in additional regulatory oversight by the
FCC and local franchise authorities. The Partnership is not able to predict
the ultimate effect of the 1992 Cable Act or the ultimate outcome of various
FCC rulemaking proceedings or the litigation challenging various aspects of the
1992 Cable Act and the FCC regulations implementing the 1992 Cable Act.
Rate Regulation. The Cable Acts and FCC regulations have imposed rate
requirements for basic services and equipment. Under the 1992 Cable Act, a
local franchising authority in a community not subject to "effective
competition" (as defined in the 1992 Cable Act) generally is authorized to
regulate basic cable service rates after certifying to the FCC that, among
other things, it will adopt and administer rate regulations consistent with FCC
rules, and in a manner that will provide a reasonable opportunity to consider
the views of interested parties. The Telecommunications Act expands the
definition of "effective competition" to include any franchise area where a
local exchange carrier (or its affiliate) (or any multichannel video
programming distributor using the facilities of such carrier or its affiliate)
provides video programming services to subscribers by any means, other than
through DBS. The local exchange carrier must provide "comparable" programming
services in the franchise area. In regulating the basic service rates,
certified local franchise authorities have the authority to order a rate refund
of previously paid rates determined to be in excess of the maximum permitted
reasonable rates.
For a defined class of "small cable operators," the Telecommunications Act
immediately eliminates regulation of cable programming rates. To qualify as a
"small cable operator," the operator must serve in the aggregate fewer than one
percent of all U.S. subscribers and have affiliate gross revenues not exceeding
$250,000,000 and serve 50,000 or fewer subscribers in any franchise area. Rate
regulation of the basic service tier remains subject to regulation by local
franchising authorities under the Telecommunications Act, except under specific
circumstances for certain small cable operators. Rates for the basic service
tier of small cable operators are deregulated if the system offered only a
single tier of services as of December 31, 1994. See "--Small Cable Systems,"
below.
Under the 1992 Cable Act, rates for cable programming services not carried on
the basic service tier ("non-basic services") could be regulated by the FCC
upon the filing of a complaint by franchise authorities or subscribers that
indicates the cable operator's rates for these services are unreasonable.
Three rate complaints have been filed with the FCC with respect to certain of
the Partnership's cable programming service tiers, one of which has been filed
with respect to the Anderson County System. The General Partner does not
believe that these rate complaints, even if decided against the Partnership,
will have a material adverse effect on the Partnership. The Telecommunications
Act eliminates regulation of the cable programming service tier (non-basic
programming) as of March 31, 1999. In the interim, rate regulation of the
cable programming tier can only be triggered by a franchising authority
complaint to the FCC. A franchising authority complaint must be based on more
than one subscriber complaint, which must be filed within 90 days after a rate
increase. If the FCC determines that the Partnership's cable programming
service tier rates are unreasonable, the FCC has the authority to order the
Partnership to reduce cable programming service tier rates and to refund to
customers any overcharges occurring from the filing date of the rate complaint
at the FCC. While management believes that the Partnership has complied in all
material respects with the rate provisions of the 1992 Cable Act, in
jurisdictions that have not yet chosen to certify, refunds covering a one-year
period on basic service may be ordered upon future certification if the
Partnership is unable to justify its rates through a benchmark or
cost-of-service filing or small system cost-of-service filing pursuant to FCC
rules. The General Partner is unable to estimate at this time the amount of
refunds that may be payable by the Partnership in the event any of the
Partnership System's rates are successfully challenged by franchising
authorities or found to be unreasonable by the FCC, although it does not
believe that the amount of any such refunds would have a material adverse
effect on the Partnership. Notwithstanding mandated rate reductions, cable
operators currently may adjust their regulated rates to reflect inflation and
what the FCC has deemed to be external costs (such as increased in franchise
fees).
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<PAGE> 10
In November 1994, the FCC adopted the so-called "going-forward rules" which,
among other things, allow cable operators to raise rates over the next three
years by adding channels to the expanded basic service tier. Under the revised
rules, cable operators were allowed to take a per channel markup of up to 20
cents for each channel added to the expanded basic service tier, with an
aggregate cap of $1.20 per subscriber per month. Accordingly, the Partnership
was permitted to adjust rates on January 1, 1995 for channel additions
occurring after May 14, 1994. In addition to rate adjustments permitted for
additional channels, the "going-forward rules" allowed cable operators to
recover an additional amount of 30 cents in the aggregate per subscriber per
month for license fees associated with adding new channels through 1996. The
license fee cap applied through December 31, 1996. (During the third year,
license fees are subject to the general rate rules.) Thus, through 1996 the
allowable rate increases for channel adjustments and license fees could have
totaled up to $1.50 per subscriber per month. Under the "going-forward rules,"
in 1997, cable operators may make an additional flat fee increase of 20 cents
per channel per month for channels added during that year, provided that the
rate increases made by cable operators over the three year period (exclusive of
license fees) do not exceed $1.40 in the aggregate. For channels added after
May 14, 1994, operators electing to take advantage of the 20 cents per channel
adjustment may not take a 7.5% markup on programming cost increases that are
otherwise currently permissible under the rate rules. The "going-forward
rules" are scheduled to expire on December 31, 1997.
The "going-forward rules" also allow cable operators to place channels that
were not offered on the cable system prior to October 1, 1994 on a new separate
unregulated service tier as long as the regulated basic and expanded basic
service tiers remain intact. Cable operators may offer the same new channels
simultaneously on both an expanded basic tier and a new unregulated service
tier, and may at any time move them to the new tier. Thus, operators may build
up a following for new channels by putting them in the expanded basic service
tier before moving them to the new unregulated service tier. Channels that
were in the basic service tier or the expanded service tier prior to September
30, 1994, may not be moved to the new tier, nor may such channels be dropped
from the basic or expanded basic service tiers and then added to a new tier
within the two-year period after the date upon which any such channel is
dropped.
In September 1995, the FCC developed an abbreviated cost-of-service form that
permits cable operators to recover the costs of significant upgrades that
provide benefits to subscribers of regulated cable services. Cable operators
seeking to raise rates to cover the cost of an upgrade would submit only the
costs of the upgrade instead of all current costs. In December 1995, the FCC
revised its cost-of-service rules. At this time, the Partnership is unable to
predict the effect of these revised rules on its business.
In another action in September 1995, the FCC established a new optional rate
adjustment methodology that encourages operators to limit their rate increases
to once per year to reflect inflation and changes in external costs and in the
number of channels. The rules permit cable operators to "project reasonable"
changes in their costs for the 12 months following the rate change (in an
effort to eliminate delays in recovering costs). The order also allows
operators to recover increases in additional types of franchise requirement
costs. Permitted pass-through increases include increases in the costs of
providing institutional networks, video services, data services to or from
governmental and educational institutions, and certain other cost increases.
The Partnership is unable to predict the effect of these new rate rules on its
business.
In November 1995, the FCC proposed to provide cable operators with the option
of establishing uniform rates for similar service packages offered in multiple
franchise areas located in the same region. Under the FCC's current rules,
cable operators subject to rate regulation must establish rates on a
franchise-specific basis. The proposed rules could lower cable operators'
marketing costs and may also allow operators to better respond to competition
from alternative providers. The Partnership is unable to predict whether these
proposed rules will ultimately be promulgated by the FCC and, if they are
promulgated what their effect on the Partnership will be.
In July 1996, the FCC proposed to give operators more flexibility with respect
to the relative pricing of different tiers of service. Under this proposal,
once an operator has set rates in accordance with existing regulations, the
operator could decrease its basic service tier ("BST") rate and then take a
corresponding increase in its cable programming service tier ("CPST") rate to
offset the lost revenue on the BST. In this proceeding, the FCC has also asked
parties to comment on whether it should place a limit on the amount of any CPST
rate increase or otherwise limit the amount by which the BST and CPST rate may
be adjusted.
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<PAGE> 11
The FCC expects that this proposal would give operators rate the structure
flexibility enjoyed by alternative providers of video service who are, or soon
will be, attempting to compete with cable operators but who are not subject to
the rate regulation imposed by statute on cable operators. The Partnership is
unable to predict whether these proposed rules will ultimately be promulgated
by the FCC, and if they are promulgated, what their effect on the Partnership
will be.
The uniform rate requirements in the 1992 Cable Act which require that cable
operators charge uniform rates through their franchise area are relaxed by the
Telecommunications Act. Specifically, the Telecommunications Act Clarifies
that the uniform rate provision does not apply where a cable operator faces
"effective competition." In addition, bulk discounts to multiple dwelling
units are exempted from the uniform rate requirements. However, complaints
concerning "predatory" pricing (including with respect to bulk discounts to
multiple dwelling units) may be made to the FCC. The Telecommunications Act
also permits cable operators to aggregate, on a franchise system, regional or
company level, its equipment costs in broad categories. The Telecommunications
Act should facilitate the rationalization of equipment rates across
jurisdictional boundaries. However, these cost-aggregation rules do not apply
to the limited equipment used by subscribers who only receive basic
programming.
"Anti-Buy Through" Provisions. The 1992 Cable Act and corresponding FCC
regulations have established requirements for customers to be able to purchase
video programming on a per channel or per program basis without having to
subscribe to any tier of service (other than the basic service tier), subject
to available technology. The available technology exception sunsets on October
5, 2002. Although most of the Partnership's subscribers are served by systems
that offer addressable technology, most of the Partnership's subscribers do
not currently have the requisite equipment in their home to utilize such
technology. As a result, most of the Partnership Systems are currently exempt
from complying with the requirements of the 1992 Cable Act. The Partnership
cannot predict the extent to which this provision of the 1992 Cable Act and the
corresponding FCC rules may cause customers to discontinue optional nonbasic
service tiers in favor of the less expensive basic cable service.
"Must Carry" Requirements/Retransmission Consents." Under the 1992 Cable
Act, cable television operators are subject to mandatory broadcast signal
carriage requirements that allow local commercial and non-commercial
educational television broadcast stations to elect to require a cable system to
carry the station, subject to certain exceptions, or, in the case of commercial
stations, to negotiate for "retransmission consent" to carry the station. In
addition, there are requirements for cable systems to obtain retransmission
consent for all "distant" commercial television stations (except for
commercial/satellite-delivered independent "superstations" such as WTBS),
commercial radio stations and certain low power television stations carried by
such systems after October 6, 1993. The validity of mandatory signal carriage
requirements is being litigated in the United States Supreme Court, which heard
arguments on the must carry rule in October 1996; however, the carriage
requirements will remain in effect pending the outcome of such proceedings. As
a result of the mandatory carriage rules, the Partnership Systems have been
required to carry television broadcast stations that otherwise would not have
been carried, thereby causing displacement of possible more attractive
programming. The retransmission consent rules have resulted in the deletion of
certain local and distant television broadcast stations which the Partnership
Systems were carrying. To the extent retransmission consent fees were paid for
the continued carriage of certain television stations, such costs were not
recoverable. Any future amounts paid in exchange for retransmission consent,
however, may be passed along to subscribers as additional programming costs.
Franchise Matters. The 1984 Cable Act contains franchise renewal procedures
designed to protect against arbitrary denials of renewal. The 1992 Cable Act
made several changes to the renewal process that could make it easier for a
franchising authority to deny renewal. Moreover, even if a franchise is
renewed, a franchising authority may seek to impose new and more onerous
requirements, including requiring significant upgrades in facilities and
services or increased franchise fees. If a franchising authority's consent is
required for the purchase or sale of a cable television system, the franchising
authority may also seek to impose new and more onerous requirements as a
condition to the transfer. The acceptance of these new requirements, however,
may not be made a condition of the transfer. Historically, franchises have
been renewed for cable operators that have provided satisfactory services and
have complied with the terms of their franchises. Although the General Partner
believes that the Partnership has generally met the terms of its franchise
agreements and has provided quality levels of service, and anticipates that the
Partnership's future franchise renewal
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<PAGE> 12
prospects generally will be favorable, there can be no assurance that any
such franchises will be renewed or, if renewed, that the franchising authority
will not impose more onerous requirements on the Partnership than previously
existed.
Other FCC Regulations. The Partnership is subject to a variety of other FCC
rules. covering such diverse areas as equal employment opportunity,
programming, maintenance of records and public inspection of files, technical
standards, leased access and customer service. The FCC has authority to
enforce its regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. Although the General Partner believes the Partnership is in
compliance in all material respects with all applicable FCC requirements.
Small Cable Systems. The FCC has implemented rules to reduce the substantive
and procedural burdens of rate regulation applicable to small cable systems
(i.e., cable systems serving 15,000 or fewer subscribers that are owned by or
affiliated with a cable company which served, in the aggregate, 400,000 or
fewer subscribers at the time such rules went into effect). Cable companies
falling outside of this definition may petition the FCC for small company
treatment if they can demonstrate similar circumstances. The FCC's small cable
systems rules amended the FCC's previous definitions of small cable entities
to encompass a broader range of cable systems that are eligible for special
rate and administrative treatment. In addition, these new rules made available
to this expanded category a new regulatory scheme which the FCC expects to
provide both rate relief and reduced administrative burdens. Specifically, the
new rules created a new cost-of-service approach involving a five-element
calculation based on a system's costs. The calculation will produce a per
channel rate for regulated services that will be presumed reasonable if it is
no higher than $1.24 per channel. If the formula generates a higher rate, the
operator may still charge that rate if not challenged by the franchise
authority, or if, upon being challenged, it meets its burden of proving that
the rate is reasonable. Under these new rules, the regulatory benefits
accruing to such small cable systems remain effective even if such small cable
systems are later acquired by cable companies which serve in excess of 400,000
subscribers. The Partnership applied to the appropriate regulatory authorities
for small cable system rate relief with regard to all of their systems. Such
systems' status as small cable systems could be challenged by other parties and
could be denied by the FCC. With regard to most of the systems for which small
systems applications were filed, the time period in which a challenge could be
filed has passed. However, regarding CCIP II's systems in Jasper and Angelton,
Texas, the FCC has issued an order which denies those systems small system
status. The Partnership plans to appeal this order. The order did not require
any reduction in rates or rate refunds. However, because of the FCC ruling,
the Partnership will be unable to take advantage of the special regulatory
benefits accruing to small systems with regard to the Jasper and Angelton,
Texas, systems, including a presumption of reasonability of certain rates.
Therefore, for the Jasper and Angelton, Texas, systems, the Partnership may be
required to justify its rates under the general rate processes applicable to
cable operators, which may be less favorable. At this time, however, the
Partnership is unable to determine whether the order will have any material
impact on the rates the partnership can charge subscribers in these particular
franchise areas.
Recent Telecommunications Legislation
On February 1, 1996, Congress passed the Telecommunications Act. The
Telecommunications Act was signed into law by President Clinton on February 8,
1996, and substantially amends the Communications Act (including the
re-regulation of subscriber rates under the 1992 Cable Act). The
Telecommunications Act alters federal, state and local laws and regulations
pertaining to cable television, telecommunications, and other services. In
addition to the amendments previously discussed in this section, the
legislation also allows additional competition in video programming by
telephone companies, and makes other revisions to the Communications Act and
the 1984 and 1992 Cable Acts.
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<PAGE> 13
Telephone Partnership Provision of Video Programming. Under the
Telecommunications Act, telephone companies can compete directly with cable
operators in the provision of video programming. The new legislation
recognizes several multiple entry options for telephone companies to provide
competitive video programming, including over their telephone facilities,
through either common carrier transport or an "open video system," by radio
communication, or as a regular cable system. LEC's, including RBOC's, will be
allowed to compete with cable operators both inside and outside the LECs'
telephone service areas. The Telecommunications Act repeals the statutory ban
on telephone company provision of video programming services in the telephone
company's service areas. The FCC's video dialtone regulations have also been
repealed. Pursuant to the authority granted to the FCC in the
Telecommunications Act, the FCC required all video dialtone operators in order
to continue to offer services, to elect one of the four permissible options for
telephone companies by November 6, 1996 (as discussed more fully below). Video
dialtone operators were permitted to apply for extensions based upon "good
cause."
In particular, if a telephone company provides video via radio communications,
it will be regulated under Title II of the Communications Act (the general
sections governing use of the airwaves), rather than cable regulation under
Title VI. If a telephone company provides common carriage transport of video
programming, it will be subject to the requirements of Title II of the
Communications Act (the general common carrier provisions), rather than Title
VI cable regulation. Telephone companies providing video programming through
any other means (other than as an "open video system," as described below) will
be regulated under Title VI cable regulation.
The Telecommunications Act replaces the FCC's video dialtone rules with an
"open video system" plan by which telephone companies can provide video
programming service in their telephone service area. Telephone companies that
comply with the FCC's open video system regulations (which must be prescribed
within six months from enactment) will be subject to a relaxed regulatory
scheme. The open video system requirements are in lieu of Title II common
carrier regulation.
The FCC was directed and has prescribed rules that prohibit open video systems
from discriminating among video programming providers with regard to carriage,
and that ensure that open video system rates, terms and conditions for service
are reasonable and non-discriminatory. Pursuant to the Telecommunications Act,
the FCC has also adopted regulations prohibiting an open video system operator
and its affiliates from occupying more than one-third of the system's activated
channels when demand for channels exceeds supply. The Telecommunications Act
also mandates other open video system regulations, including channel sharing
and sports exclusivity. Open video systems will be subject to the authority of
local governments to manage public rights-of-way. Local franchising
authorities may require open video system operators to pay franchise-type fees,
which may not exceed the rate at which franchise fees are imposed on any cable
operator in the corresponding franchise area.
Buyouts . The Telecommunications Act generally prohibits buyouts of cable
systems (which includes any ownership interest exceeding 10%) by LECs within
the LECs' telephone service area, cable operator buyouts of LEC systems within
the cable operator's franchise area, and joint ventures between cable operators
and LECs in the same markets. There are certain statutory exceptions,
including a rural exemption which permits buyouts where the purchased system
serves an area with fewer than 35,000 inhabitants outside an urban area. Also,
the FCC may grant waivers of the buyout provisions in cases where (1) the cable
operator of LEC would be subject to undue economic distress; (2) the cable
television system or facility would not be economically viable; or (3) the
anti-competitive effects of the proposed transaction are clearly outweighed by
the effect of the transaction in meeting community needs. The relevant local
franchising authority must approve any such waiver.
Public Utility Competition. The Telecommunications Act also authorizes
potential competitor, registered utility holding companies and their
subsidiaries, to provide video programming services, notwithstanding the Public
Utility Holding Company Act. Utilities must establish separate subsidiaries
for this purpose and must apply to the FCC for operating authority. Several
such utilities have been granted broad authority by the FCC to engage in
activities which could include video programming.
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<PAGE> 14
Cross-Ownership; Reduced Regulations. The Telecommunications Act makes several
other changes to relax ownership restrictions and regulation of cable systems.
It repeals the 1992 Cable Act's three-year holding requirement pertaining to
sales of cable systems. The broadcast/cable cross-ownership restrictions are
eliminated, although the FCC's regulations prohibiting broadcast/cable common
ownership currently remain. The SMATV cable cross-ownership and the MMDS cable
cross-ownership restrictions have been eliminated for cable operators subject
to effective competition.
The Telecommunications Act amends the definition of "cable system" so that a
broader class of entities (including some which may compete with the
Partnership) providing video programming will be exempt from regulation as
cable systems under the Communications Act.
Pole Attachments. The Telecommunications Act also alters the scheme pertaining
to pole attachment rates (rates charged by telephone and utility companies for
delivery of cable services). The current method for determining rates will
continue for five years. The FCC recently adopted an Order to implement the
Telecommunications Act's pole attachment provisions. Any increases pursuant to
this new formula may not begin for five years, and will be phased in over five
through ten in equal increments. However, this new FCC formula does not apply
in states which certify that they regulate pole rates.
Miscellaneous Requirements and Provisions. The Telecommunications Act also
imposes other miscellaneous requirements on cable operators, including an
obligation to fully scramble or block at no charge the audio and video portion
of any channel not specifically subscribed to by a household. In addition,
sexually explicit programming must be scrambled or blocked. If the cable
operator is unable to scramble or block its signal completely, it must restrict
transmission to those hours of the day when children are unlikely to view the
programming, as determined by the FCC. A federal court has temporarily stayed
enforcement of this provision pending further consideration of a constitutional
challenge. If the provision is held to be constitutional, it could increase
operating expenses for operators of cable television systems, including the
Partnership, and provide a competitive advantage to less regulated providers of
video programming services. The Telecommunications Act also directs the FCC to
adopt regulations to ensure, with certain exceptions, that video programming is
fully accessible through closed captioning. The FCC recently released a report
to Congress on the level at which video programming is closed captioned. The
FCC has also initiated another proceeding to establish regulations to implement
closed captioning requirements.
Although the new legislation may substantially lessen regulatory burdens, the
cable television industry may be subject to additional competition as a result
thereof. There are numerous rulemakings which have been, and which will be
undertaken by the FCC which will interpret and implement the provisions of the
Telecommunications Act. In addition, certain provisions of the Act (such as
the deregulation of cable programming rates) are not immediately effective.
Further, certain provisions of the Telecommunications Act have been, and are
likely to continue to be subject to legal challenges. Certain provisions of
the Telecommunications Act could materially affect the Partnership's ability to
sell the Partnership Systems, however, the Partnership is unable at this time
to predict the outcome of such rulemakings or litigation or the substantive
effect (financial or otherwise) of the new legislation and the rulemakings on
the Partnership.
FCC Implementation. The FCC is presently, and will be, engaged in numerous
proceedings to implement various provisions of the Telecommunications Act.
Recently, the FCC adopted cable television equipment cost aggregation rules and
adopted open video system rules. In addition to the proceedings previously
discussed herein, the FCC has recently initiated a proceeding to implement most
of the Cable Act reform provisions of the Telecommunications Act.
In this proceeding, the FCC has set forth certain interim rules to govern while
the FCC completes its implementation of the Telecommunications Act. Among
other things, the FCC is requiring on an interim basis that for a LEC to be
deemed to be offering "comparable" programming, such programming must include
the signals of local broadcasters. Cable systems that meet all of the relevant
criteria in the new effective competition test are exempt from rate regulation
as of February 8,
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<PAGE> 15
1996 (the date the Telecommunications Act was signed into law by President
Clinton). Cable systems may file a petition with the FCC at any time for a
determination of effective competition.
The FCC has also established interim rules governing the filing of rate
complaints by local franchising authorities. Local franchising authorities may
file rate complaints with the FCC when the local franchising authorities
receive more than one subscriber complaint concerning an operator's rate
increase. If the local franchising authority receives more than one subscriber
complaint within the 90-day period and decides to file its own complaint with
the FCC, it must do so within 180 days after the rate increase became
effective. Before filing a complaint with the FCC, the local franchising
authority must first provide the cable operator written notice of its intent to
do so and must give the operator a minimum of 30 days to file with the local
franchising authority the relevant FCC forms used to justify a rate increase.
The local franchising authority must then forward its complaint and the
operator's response to the FCC within the 180 day deadline. The FCC must issue
a final order within 90 days after it receives a local franchising authority
complaint.
For interim purposes, the FCC has established that an operator serving fewer
than 617,000 subscribers is a "small cable operator" if its annual revenues,
when combined with the total annual revenues of all of its affiliates, do not
exceed $250 million in the aggregate. For interim purposes, "affiliate" will
be defined as a 20% or greater equity interest.
In addition to the interim rules discussed above and other miscellaneous
interim rules, the FCC is also engaged in a rule-making proceeding to create
and implement final rules relating to the cable reform provisions of the
Telecommunications Act. Among other issues, the FCC is considering whether to
establish a LEC market share that must be satisfied before a LEC will be deemed
to constitute "effective competition" to an incumbent cable operator (which
would free the cable operator from rate regulation). The Partnership cannot
predict the outcome of this FCC proceeding or what its ultimate effect will be.
Copyright
Cable television systems are subject to federal copyright licensing covering
carriage of television and radio broadcast signals. In exchange for filing
certain reports and contributing a percentage of their revenues to a federal
copyright royalty pool, cable operators can obtain blanket permission to
retransmit broadcast signals. The nature and amount of future copyright
payments for broadcast signal carriage cannot be predicted. The possible
simplification, modification or elimination of the compulsory copyright license
is the subject of continuing legislative review. The elimination or
substantial modification of the cable compulsory license could adversely affect
the ability of the Partnership to obtain suitable programming and could
substantially increase the cost of programming that remained available for
distribution to the customers of the Partnership. The General Partner cannot
predict the result of such legislative activity or the effect of such activity
on the Partnership's condition (financial or otherwise). See "--Regulation and
Legislation."
State and Local Regulation
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and
in many cases are terminable if the franchisee fails to comply with material
provisions of its franchise agreement. The terms and conditions of franchises
vary materially from jurisdiction to jurisdiction. A number of states subject
cable television systems to the jurisdiction of centralized state governmental
agencies, some of which impose regulation of a character similar to that
imposed on a public utility. Attempts in other states to regulate cable
television systems are continuing and can be expected to increase. The
Partnership cannot predict whether any of the states in which the Partnership
currently operates will engage in such regulation in the future. State and
local franchising jurisdiction is not unlimited, however, and must be exercised
consistently with Federal law. The 1992 Cable Act immunizes franchising
authorities from monetary damage awards arising from regulation of cable
television systems or decisions made on franchise grants, renewals, transfers
and amendments.
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COMPETITION IN THE CABLE TELEVISION BUSINESS
Cable television companies generally operate under non-exclusive franchises
granted by local authorities that are subject to renewal and renegotiation from
time to time. The 1992 Cable Act prohibits franchising authorities from
granting exclusive cable television franchises and from unreasonably refusing
to award additional competitive franchises. Cable system operators may
therefore experience competition from other operators building a system in an
existing franchise area (i.e., an "overbuild"). The 1992 Cable Act also
permits municipal authorities to operate cable television systems in their
communities without franchises. There are virtually no overbuilds in the areas
in which the Partnership Systems are located, although other cable operators
may operate systems in the vicinity of the Partnership Systems. Cable system
operators also compete for the right to construct systems in new housing
developments adjoining or otherwise located in proximity to such operator's
existing systems. The Partnership believes that the selection of a cable
operator to construct a system in a new housing development (which may be
located near the cable systems of several different operators) is typically
based upon an evaluation by the real estate developer of the programming and
pricing offered by the different cable operators conducting business in
proximity to such housing development.
Cable television systems also face competition from alternative methods of
receiving and distributing television signals and from other sources of home
entertainment. Within the home video programming market, the Partnership
competes primarily with other cable franchise holders and with home satellite
and wireless cable providers, and when existing franchises become available for
renewal (or new franchises become available in the southeastern region of the
United States), with other cable franchise holders. The Partnership believes
that direct broadcast satellite ("DBS"), a service by which packages of
television programming are transmitted to individual homes which are serviced
by a single satellite dish, is currently the most significant competitive
threat to the Partnership Systems. However, there are currently certain
disadvantages associated with DBS technology (e.g., high upfront capital costs,
lack of local programming and topographical limitations which limit reception
in hilly areas). In some instances the prices that consumers pay to obtain a
DBS satellite dish have been reduced substantially. Nevertheless, the product
is still in its early stages of implementation and it is difficult to assess
the ultimate magnitude of the impact that DBS will have on the cable industry
or upon the Partnership's operations and revenues. The Partnership does not
expect DBS to become a more significant threat to it in the foreseeable future
because of the disadvantages currently associated with DBS technology. To the
extent these disadvantages are ameliorated in the future as a result of
technological or other advances, the competitive impact of DBS on the cable
industry and on the Partnership's operations would need to be reevaluated.
Cable television systems also compete with wireless program distribution
services such as multichannel multipoint distribution services ("MMDS"), which
uses low power microwave frequencies to transmit video programming over-the-air
to customers. The FCC has amended its regulations to enable MMDS systems to
compete more effectively with cable systems by making available additional
channels to the MMDS industry and by refining the procedures by which MMDS
licenses are granted. The FCC also recently ruled that wireless cable
operators may increase their channel capacity and service offerings through
digital compression techniques. Such increased capacity and offerings may make
wireless cable a more significant competitor in the video programming industry.
The 1992 Cable Act generally prohibits a cable operator from holding an FCC
MMDS license in its franchised cable service area. However, the
Telecommunications Act allows such common ownership if the cable operator is
subject to "effective competition". Although the Partnership faces some actual
or potential competition from MMDS operators, such competition is not yet
significant. Additionally, the FCC recently allocated frequencies in the 28
GHz band for a new multichannel wireless video service similar to MMDS. The
Partnership is unable to predict the economic viability of wireless video
services, such as MMDS, or whether such services will present a competitive
threat to the Partnership.
Additional forms of competition for cable systems are master antenna television
("MATV") and satellite master antenna television system ("SMATV"). These
systems are essentially small, closed cable systems which operate within
specific hotels, apartment- or condominium-complexes and individual residences.
Due to the widespread availability of earth stations, such private cable
television systems can offer both improved reception of local television
stations and many of the same satellite-delivered program services which are
offered by franchised cable television systems. MATV and SMATV systems
currently benefit from operating advantages not available to franchised cable
television systems, including fewer regulatory burdens and no requirement to
service low density or economically depressed communities. The
Telecommunications Act, which to some extent deregulates or lessens the
regulatory burden on the cable industry, may reduce some of the advantages of
MATV and SMATV systems. However, since MATV and SMATV systems
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<PAGE> 17
generally do not fall within the Cable Acts' definition of a "cable system",
notwithstanding the enactment of such legislation, they could still be exempt
from other requirements of the Cable Acts which were not amended. Furthermore,
the Telecommunications Act broadens an exemption from regulation as a "cable
system", which may exempt additional MATV and SMATV systems from regulation
under the Cable Acts.
A federal statutory cross-ownership restriction had historically limited entry
into the cable television business by local telephone companies, which are
potentially strong competitors to cable operators. The Telecommunications Act
repealed the cross-ownership restriction and authorizes local exchange carriers
("LECs") to provide a wide variety of video services competitive with services
provided by cable systems and to provide cable services directly to customers
in the telephone companies' service areas, with some regulatory safeguards.
See "--Regulation and Legislation." Some video programming services provided
by telephone companies (e.g., "open video systems") do not require local
franchises. Further, certain of the Regional Bell Operating Companies
("RBOCs") have already entered the cable television business outside their
service areas. The General Partner believes that telephone companies will
generally focus their efforts on cable acquisitions in larger metropolitan
areas, although there can be no assurance that this will be the case.
The Telecommunications Act also authorizes registered utility holding companies
and their subsidiaries to provide video programming services, notwithstanding
the applicability of the Public Utility Holding Company Act. See "--Regulation
and Legislation."
Other new technologies may become competitive with non-entertainment services
that cable television systems can offer. Advances in communications technology
as well as changes in the marketplace and the regulatory and legislative
environment are constantly occurring. The General Partner cannot predict the
effect that ongoing or future developments might have on the cable television
industry generally or the Partnership specifically.
EMPLOYEES
As of December 31, 1996, the Registrant employed a total of approximately 66
full-time equivalent persons in the operation of its cable television systems.
None of the employees are represented by a union. The Registrant has never
experienced a work stoppage. The Registrant believes its employee relations
are generally good.
OTHER MATTERS
The Partnership owns and operates cable television systems and does not engage
in any other identifiable industry segments. The Partnership does not believe
that changes of a seasonal nature are material to the cable television
business. The Partnership has not expended material amounts during the last
two years on research and development activities. As the Partnership is a
service-related organization, little or no raw materials are utilized by the
Partnership. The necessary hardware, coaxial cable and electronics required
for construction of new cable plant are available from a variety of vendors and
are generally available in ample supply. There is no one customer or
affiliated group of customers to whom sales are made in amounts which exceed
ten percent (10%) of the Partnership's revenues. The Partnership believes it
is not affected by inflation except to the extent that the economy in general
is affected thereby.
ITEM 2. PROPERTIES
The Registrant's principal physical assets consist of the components of each of
its cable television systems, which include a central receiving apparatus,
distribution cables and local business offices. The receiving apparatus is
comprised of a tower and antennas for reception of over-the-air broadcast
television signals and one or more earth stations for reception of satellite
signals. Located near these receiving devices is a building that houses
associated electronic gear and processing equipment. The Registrant owns the
receiving and distribution equipment of each system and owns or leases small
parcels of real property for the receiving sites.
- 17 -
<PAGE> 18
Cable is either buried in trenches or is attached to utility poles pursuant to
license agreements with the owners of the poles. As is typical in the cable
television industry, the Partnership maintains insurance on its above-ground
plant, but not for its underground plant. The Registrant owns or leases the
local business office of each system from which it dispatches service
employees, monitors the technical quality of the system, handles customer
service and billing inquiries and administers marketing programs. The office
facilities of some systems include certain equipment for program production, as
required under certain of the Partnership's franchises.
The Registrant believes that its properties are generally in good condition and
fully utilized. The Systems currently operate at between 220 and 330
megahertz, whereas the General Partner believes the standard in the cable
television industry to be 450 megahertz. The physical components of the
Systems, however, require maintenance and periodic upgrading to keep pace with
technological advances.
ITEM 3. LEGAL PROCEEDINGS
The Registrant has no material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal year
covered by this report. However, On March 6, 1997, a Disclosure Statement and
related consent materials were mailed to the Limited Partners in connection
with the solicitation by the General Partner for the written consents of the
Limited Partners for the proposed sales of the South Carolina Systems and for
the sale of three of the four systems owned by CPLP to an affiliate of the
General Partner. The written votes of the Limited Partners are to be received
by April 7, 1997; however, the time period for delivering the consents or
revocations can be extended by the General Partner for a period of up to 45
days in the event that consent has not been obtained.
- 18 -
<PAGE> 19
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
As of December 31, 1996, there were approximately 7,600 holders of 90,915
Limited Partnership Units of the Registrant. The Units of the Registrant are
not publicly traded and are subject to substantial restrictions on transfer.
Pursuant to the terms of the Partnership Agreement, the Registrant is required
to distribute all cash available for distribution to the Limited Partners
within 60 days after the end of each calendar quarter and, with respect to
certain available refinancing proceeds and certain available sales proceeds, as
soon as possible following completion of the relevant transaction. The
Registrant suspended distributions to Limited Partners in the fourth quarter of
1993. The suspension of distributions was undertaken to provide the Registrant
with greater financial flexibility in meeting its debt covenants and in making
capital expenditures. Distributions in arrears will be distributed in
accordance with the Partnership Agreement.
During January 1995, Charter Communications, Inc. ("Charter"), an affiliate of
the Management Company, acquired 1,746 Units of the Registrant as part of a
negotiated transaction for a sale of securities and assets. As of December 31,
1996, Charter held 1,746 Units of the Registrant.
In August 1996, Charter received a letter from Gale Island LLC ("Gale"), a
third party unaffiliated with the Partnership, the General Partner or any of
their affiliates, offering to purchase up to 4.9% of the total outstanding
limited partnership interests in the Partnership for a cash price of $250 per
LP Unit less the amount of any distribution received from the Partnership on or
after August 30, 1996, with the purchase to pay the transfer fee of $150 per
transfer. (The amount of the transfer fee is $150 regardless of the number of
LP Units transferred.) The offer was due to expire on September 30, 1996, but
was extended by Gale to November 4, 1996. The General Partner has forwarded to
all Limited Partners a statement (the "Tender Offer Statement") expressing no
opinion with respect to the tender offer and providing, in accordance with
applicable securities laws and regulations, certain information bearing upon
Gale's tender offer, including notice of the impending distribution of this
Disclosure Statement to the Limited Partners and the possibility that if the
Transaction is consummated and if the Remaining Assets can be sold for an
amount which approximates, in the aggregate, the appraised value of those
assets, the amount of the total distribution from liquidation of the
Partnership to the Limited Partners will exceed $450 per LP Unit. There can be
no assurance that any such Remaining Assets can be sold for an amount at least
equal to their appraised value. As of December 31, 1996, Gale has purchased
1,786 LP Units pursuant to its offers.
In September 1996, the Limited Partners received a letter from Madison
Partnership Liquidity Investors V, LLC ("Madison"), a third party unaffiliated
with the Partnership, the General Partner or any of their affiliates, offering
to purchase up to 4.9% of the total outstanding limited partnership interests
in the Partnership for a cash price of $255 per LP Unit less the amount of any
distribution received from the Partnership on or after September 5, 1996. The
letter makes no reference to the Partnership transfer fee. The offer expired
by its terms on October 18, 1996. The General Partner sent a statement to the
Limited Partners which was substantially identical to the Tender Offer
Statement. Following completion of the first offer, Madison renewed its offer
through December 20, 1996, but at a purchase price of $275 per LP Unit. As of
December 31, 1996, Madison has purchased 671 LP units pursuant to its offers.
- 19 -
<PAGE> 20
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from the audited
financial statements of the Partnership and should be read in conjunction with
the financial statements and notes thereto included pursuant to Item 8 of this
Form 10-K.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Service Revenues.............. $18,155,382 $17,046,419 $16,257,928 $16,124,256 $15,079,748
Net loss...................... (1,447,153) (2,292,563) (5,256,210) (8,653,943) (13,837,235)
Net loss per LP Unit.......... (15.76) (24.96) (57.24) (94.24) (150.68)
Cash distributions per LP Unit -- -- -- 60.00 67.50
BALANCE SHEET DATA:
Total assets.................. 20,845,510 24,960,260 30,517,928 34,825,726 45,280,200
Long-term obligations,
including current maturities.. 36,700,000 40,400,000 44,700,000 44,700,000 41,600,000
Partners' (deficit) capital... (21,828,007) (20,380,854) (18,088,291) (12,832,081) 1,276,762
MISCELLANEOUS DATA:
Ratio of earnings to fixed
charges1/..................... -- -- -- -- --
Book value per LP Unit........ ($240.09) ($224.17) ($198.96) ($141.14) $14.04
</TABLE>
1/ Ratio of earnings to fixed charges is calculated using income from
continuing operations adding back fixed charges; fixed charges include interest
expense and amortization expense for debt issuance costs. Earnings for the
years ended December 31, 1996, 1995, 1994, 1993 and 1992 were insufficient to
cover the fixed charges by $1,447,153, $2,292,563, $5,256,210, $8,653,943, and
$13,837,235, respectively. As a result of such insufficiencies, these ratios
are not presented above.
- 20 -
<PAGE> 21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
GENERAL INFORMATION
The following table summarizes the amounts and the percentage of total revenues
for certain items for the periods indicated:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1995 1994
----------- ----------- -----------
Amt. % Amt. % Amt. %
----------- ------ ----------- ------ ----------- ------
<S> <C> <C> <C> <C> <C> <C>
Service Revenues:
Basic Service $13,485,981 74.3 $12,595,495 73.9 $11,924,583 73.3
Premium Service 2,241,316 12.3 2,275,021 13.3 2,266,434 13.9
Other Services 2,428,085 13.4 2,175,903 12.8 2,066,911 12.8
----------- ------ ----------- ----------- ----------- ------
18,155,382 100.0 17,046,419 100.0 16,257,928 100.0
----------- ------ ----------- ----------- ----------- ------
Operating Expenses:
Operating, General and
Administrative 10,572,015 58.2 9,804,576 57.5 9,566,754 58.8
Depreciation and
Amortization 6,235,182 34.4 6,204,807 36.4 8,605,938 52.9
----------- ------ ----------- ----------- ----------- ------
16,807,197 92.6 16,009,383 93.9 18,172,692 111.7
----------- ------ ----------- ----------- ----------- ------
Income (Loss) from
Operations 1,348,185 7.4 1,037,036 6.1 (1,914,764) (11.7)
----------- ------ ----------- ----------- ----------- ------
Other Income (Expenses):
Interest Income 39,909 0.2 117,613 .7 55,125 .3
Interest Expense (2,835,247) (15.6) (3,447,212) (20.2) (3,152,940) (19.4)
Equity in loss of
unconsolidated limited
partnership -- -- -- -- (243,631) (1.5)
(2,795,338) (15.4) (3,329,599) (19.5) (3,341,446) (20.6)
------------ ------ ----------- ------ ----------- ------
Net Loss ($1,447,153) (8.0) ($2,292,563) (13.4) ($5,256,210) (32.3)
============ ====== =========== ====== =========== ======
</TABLE>
Operating results of the Registrant's investment in CPLP are not consolidated
as the Registrant owns only Limited Partnership Units and does not exercise
significant influence over CPLP's operations. The Registrant's investment in
CPLP is accounted for under the equity method and losses in excess of its
investment are not recorded. The amount of unrecorded losses in excess of the
equity investment were approximately $4.0 million, $4.9 million and $6.0
million for the years ended December 31, 1996, 1995 and 1994, respectively.
As of December 31, 1996, the cumulative unrecorded losses in excess of
investment were approximately $14.9 million.
- 21 -
<PAGE> 22
COMPARISON OF YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994.
Revenues
In September 1993, when federal rate regulation affecting the basic and
expanded basic tiers was implemented, rates were rolled back 10% throughout the
Partnership Systems, which offset rate increases implemented earlier in 1993.
In 1994, additional rate reductions of up to 7% were required for some local
franchises. These rate reductions significantly impacted the Partnership
Systems' actual revenues as well as the potential to increase revenues.
Limited rate increases are permitted to pass-through to subscribers certain
external costs (such as copyright, programming and franchise fees).
Notwithstanding that, the average revenue per subscriber was reduced for basic
services during the 1992 to 1994 period and the Partnership Systems were able
to increase revenues on an overall basis by increasing the subscriber base, as
well as by increasing revenues from unregulated services such as premium cable
services, advertising and other ancillary revenues.
Partnership revenues increased 4.8% from $16,257,928 in 1994 to $17,046,419 in
1995, and by an additional 6.5% to $18,155,382 in 1996. During this period,
the Partnership increased revenues by increasing the number of its basic
subscribers by 3.5% from December 31, 1994 to December 31, 1995, and by an
additional 0.4% from December 31, 1995 to December 31, 1996; subscribers
increased as a result of new-build and re-build construction and enhanced
marketing efforts. The subscribership increase reflects management's efforts
to increase the number of subscribers through improved customer service. It
also reflects an industry-wide increase in cable subscribers as a result of
increased advertising commenced in the latter part of 1994 by wireless and
direct broadcast service providers; these broad-based marketing campaigns
appear to have enhanced overall customer awareness and desire for alternative
programming options, with a "spill-over" benefit for cable providers.
The ratio of premium service subscriptions per basic subscriber fluctuated from
.45 at December 31, 1994, to .46 at December 31, 1995, to .42 at December 31,
1996. The Partnership anticipates that the ratio of subscriptions for premium
services to subscriptions for basic services may not increase substantially
over the next few years and, in fact, may continue to decline. 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. However, premium subscription services will still remain an
important revenue source of the Partnership.
Operating Expenses
Operating, general and administrative expenses increased by 2.5% from
$9,566,754 in 1994 to $9,804,576 in 1995, and by an additional 7.8% to
$10,572,015 in 1996. As a percentage of annual revenue, these expenses, which
include management fees ranged between 58.8% and 57.5% during the 1994-1996
time period. The Partnership was able to control certain operating costs to
offset the larger increases in certain other categories, as discussed below.
In addition, operating expenses included liquidation costs of approximately
$99,000 in 1995 and $242,000 in 1996, related to initiating the process to sell
the assets of the Partnership.
The Partnership's operating expenses were affected by substantial industry-wide
increases in programming expenses. Programming expenses were approximately
$2,799,000 in 1994; such expenses increased by 11.1% to $3,110,000 in 1995 and
by an additional 12.0% to $3,483,000 in 1996. The Partnership's increased
subscriber base also contributed to the overall increase in programming
expenses, since programming costs are determined on a per subscriber basis.
The Partnership Systems' copyright fees for the carriage of distant signals
increased during the subject periods. Applicable FCC regulations required the
Partnership Systems to add local channels on the basic cable service tier,
which resulted in certain channels regularly carried by the Partnership Systems
on the basic cable tier being moved to the expanded basic cable service tier.
Inclusion of additional revenues associated with the expanded basic cable tier
resulted in increased copyright fee payments.
- 22 -
<PAGE> 23
The Partnership also launched additional channels during the subject period,
with related programming costs and costs associated with channel line-up
changes, as the Partnership sought to improve the Partnership Systems' basic
product line as well as increase their subscriber base. Channel line-up
changes, whether resulting from FCC mandated local "must carry" regulations (as
discussed below) or voluntary changes, also involve indirect costs such as
marketing and customer mailings. Increased compliance costs related to the
1992 Cable Act were reflected in operating expenses.
Depreciation and amortization, in terms of percent of revenues, decreased
during the 1994-1996 period. The decrease is primarily the result of the
completion of amortization for certain franchises and deferred costs.
Other Income and Expenses
Interest expense increased by approximately $294,000 in 1995 versus 1994 due
to higher interest rates offset somewhat by a partial paydown of the debt
balance; the weighted average interest rate and outstanding borrowings for 1995
and 1994 were 8.0% and 6.7% and $43,163,000 and $44,700,000, respectively.
Interest expense decreased by approximately $612,000 in 1996 versus 1995 as a
result of a lower weighted average of outstanding borrowings in 1996. The
weighted average interest rates and outstanding borrowings from 1996 and 1995
were 7.3% and 8.0%, and $38,889,000 and $43,163,000 respectively.
The allocation to the Partnership of its proportionate share of the net loss of
CPLP for the year ended December 31, 1994 is represented by Equity in loss of
unconsolidated limited partnership. Allocated losses from CPLP in excess of
the Partnership's investment in CPLP are not recorded. During 1996, 1995 and
1994, the unrecorded losses in excess of investment were $3,997,497, $4,903,780
and $5,995,690, respectively.
Net Loss
Net loss was reduced by 56.4% for the year ended December 31, 1995 compared to
the year ended December 31, 1994. In addition, the net loss was reduced by
36.9% for the year ended December 31, 1996 compared to the year ended December
31, 1995. The decreases are due primarily to reduced amortization related to
franchises which have become fully amortized and the fact that Partnership is
no longer recording the equity losses of CPLP, as the Partnership's investment
has been reduced to zero.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's initial capital resources have included the aggregate of
approximately $81,574,000 (net of related expenses) raised through the sale of
LP Units and approximately $918,000 in General Partner contributions of cash
and notes. These sources of capital were used to fund the purchase of the
Partnership Systems and have since been supplemented with borrowings to finance
capital expenditures.
The Partnership maintains a secured revolving line of credit agreement (the
"Credit Agreement") with a syndicate 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 the certificate of deposit rate, as the case may be, plus a spread,
and has a maturity date of December 31, 1996, which was extended in December
1996 to June 30, 1997. The 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 incurred debt to cover the balance of capital expenditures.
Outstanding indebtedness of the Partnership under the Credit Agreement at
December 31, 1995 and 1996, was $40,400,000 and $36,700,000, respectively. If
the Partnership Transaction is not consummated by June 30, 1997, the Credit
Agreement will need to be extended again, which could result in substantial
fees being charged to the Partnership. However, there can be no assurance that
the Partnership will be able to amend the existing facility or negotiate a new
facility with terms that are favorable to the Partnership.
- 23 -
<PAGE> 24
The Partnership made capital expenditures of approximately $2,108,000,
$3,001,000 and $1,913,000 during 1996, 1995 and 1994, respectively, in
connection with the improvement and upgrading of the Partnership Systems.
Pursuant to the terms of the Partnership Agreement, the Partnership is required
to distribute all cash available for distribution to the Partners within 60
days after the end of each calendar quarter and, with respect to certain
available refinancing proceeds and certain available sales proceeds, as soon as
possible following completion of the relevant transaction. Limited Partners
received cash distributions during 1993 in the amount of $5,454,900. However,
the Partnership suspended further distributions to Limited Partners the fourth
quarter of 1993 to provide greater financial flexibility in meeting its debt
covenants and in making capital expenditures necessary to maintain the
Partnership's assets. No distributions were made in 1994, 1995 or 1996 to the
Limited Partners. Distributions in arrears, totaling approximately $49,807,086
at December 31, 1996 will be distributed in accordance with the Partnership
Agreement, although it is unlikely that all such amounts will be satisfied.
It is the General Partner's intention to sell the Partnership's remaining
assets as expeditiously as possible, subject to the receipt of offers to
purchase such assets at prices the General Partner deems reflective of their
fair market value. After the remaining Partnership assets, including the
Partnership's investment in CPLP, have been sold or liquidated for cash, the
General Partner will repay the balance of the Partnership's outstanding
obligations, expenses and other liabilities and distribute any remaining cash
(subject to holdback for contingencies) to the Limited Partners of the
Partnership, at which time the Partnership's existence will terminate.
The Partnership's investment in CPLP represents approximately 25% of the
Partnership's total investment in cable systems. The Partnership's investment
is passive in nature as evidenced by its position in CPLP as a limited partner.
The financial statement losses recorded by the Partnership for its allocated
share of the total losses of CPLP do not represent current or future cash
outlays and, as such, should not impact the operating results or operating cash
flows generated by the Partnership's owned cable systems.
The Partnership accounts for its investments in CPLP on the equity method as it
does not retain management control of CPLP. Therefore, allocated losses from
CPLP in excess of the Partnership's investment are not recorded. The balance
of investment in unconsolidated limited partnership was reduced to zero during
1994 through the recognition of the Partnership's allocated share of the net
loss of CPLP up to the amount of the remaining investment.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the fiscal year ended December 31, 1996, the Registrant was not involved
in any disagreements with its independent certified public accountants on
accounting principles or practices or on financial disclosure.
- 24 -
<PAGE> 25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no officers or directors. The General Partner manages and
controls substantially all of the Partnership's affairs and has general
responsibility and ultimate authority in all matters affecting the
Partnership's business. In addition, the General Partner is responsible for
operating and managing the Partnership's cable television systems.
Set forth below is the present principal occupation or employment and
employment history of the executive officers and directors of the General
Partner:
<TABLE>
NAME AGE POSITION WITH GENERAL PARTNER
<S> <C> <C>
Howard L. Wood 57 President, Chief Executive
Officer and Director
Barry L. Babcock 50 Executive Vice President,
Chief Operating Officer and
Director
Jerald L. Kent 40 Executive Vice President,
Chief Financial Officer and
Director
</TABLE>
Mr. Wood has been affiliated with Charter since 1993, now holding the position
of Chairman of the Management Committee of Charter, and has served as President
of the General Partner since 1994. Mr. Wood also co-founded Charter
Communications Group ("CCG") in 1992. Prior to that time, he was associated
with Cencom Cable Associates, Inc. ("CCA"), which he joined in July 1987 as
Director; at CCA he held the position of President, Chief Executive Officer and
Director from January 1, 1989 to November 1992.
Mr. Babcock has been affiliated with Charter since 1993 and now holds the
position of Chairman, and has served as Executive Vice President of the General
Partner since 1994. Mr. Babcock also co-founded CCG in 1992. Prior to that
time, he was associated with CCA as the Executive Vice President of CCA from
February 1986 to November 1992, and as Chief Operating Officer of CCA from May
1986 to November 1992.
Mr. Kent has been affiliated with Charter since 1993 and now holds the position
of President, and has served as Executive Vice President of the General Partner
since 1994. Mr. Kent also co-founded CCG in 1992. Prior to that time, he was
associated with CCA as Executive Vice President and Chief Financial Officer of
CCA from 1987 through November 1992.
ITEM 11. EXECUTIVE COMPENSATION
The General Partner does not currently pay any remuneration to any of its
officers or directors. See Item 13 herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1995, no Limited Partner was known to the General Partner to
be the beneficial owner of more than five percent (5%) of the outstanding LP
Units issued by the Partnership. Charter owns 1,746 LP Units, constituting
approximately 1.9% of the LP Units. Charter has no right to acquire additional
LP Units.
- 25 -
<PAGE> 26
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See Item 1 - "Partial Liquidation of Assets"
See Item 1 - "Management Agreement"
See Item 12 herein.
The Registrant may be subject to various conflicts of interest arising out of
the relationships among it, Charter, the Management Company, their respective
affiliates, officers and directors (such persons shall hereinafter be
collectively referred to as the "Affiliates").
Affiliates have engaged and, in the future, will engage in other business
activities related to the cable television industry that may be in competition
with the business of the Registrant. Such activities may include the
acquisition of cable television systems. The Affiliates have no obligation to
offer to the Registrant the opportunity to participate in any other
transactions in which they participate.
The officers and directors of the Management Company will manage the
Partnership Systems, as well as other cable television systems currently owned
or later acquired by certain of its Affiliates. Conflicts of interest may
arise in managing the operations of more than one entity with respect to the
allocation of the Management Company's and its Affiliates' time, personnel, and
other resources among the Registrant. The Management Company will resolve such
conflicts in a manner deemed in its reasonable judgment to be fair and
appropriate.
- 26 -
<PAGE> 27
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
---------------------------------------------------------------
(a) 1. Financial Statements:
See Index to Financial Statements and Schedules on page F-1 of
this Report.
2. Financial Statement Schedules:
See Index to Financial Statements and Schedules on page F-1 of this
Report.
3. Exhibits:
See Index on Page E-1 of this Report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the fourth quarter of 1996.
- 27 -
<PAGE> 28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
CENCOM CABLE INCOME PARTNERS II, L.P.
By: Cencom Properties II, Inc.
General Partner
By: /s/ Howard L. Wood
Howard L. Wood, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (as to the General Partner) and on the date
indicated.
Signature and Title Date
- ------------------- ----
By: /s/ Howard L. Wood
Howard L. Wood
President, Chief Executive Officer and Director
(Principal Executive Officer) March 25, 1997
By: /s/ Barry L. Babcock
Barry L. Babcock
Executive Vice President, Chief Operating
Officer and Director
(Principal Operating Officer) March 25, 1997
By: /s/ Jerald L. Kent
Jerald L. Kent
Executive Vice President, Chief Financial
Officer and Director
(Principal Financial Officer and Principal
Accounting Officer) March 25, 1997
S-1
<PAGE> 29
CENCOM CABLE INCOME PARTNERS II, L.P.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
REGISTRANT'S FINANCIAL STATEMENTS: F-2
Report of Independent Public Accountants F-3
Balance Sheets as of December 31, 1996 and 1995 F-4
Statements of Operations for the years ended December 31, 1996, 1995 and 1994 F-5
Statements of Partners' Capital (Deficit) for the years ended December 31, 1996, 1995 and 1994 F-6
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 F-7
Notes to Financial Statements
REGISTRANT'S FINANCIAL STATEMENT SCHEDULES:
None required
FINANCIAL STATEMENTS OF CENCOM PARTNERS, L.P.:
Report of Independent Public Accountants F-16
Balance Sheets as of December 31, 1996 and 1995 F-17
Statements of Operations for the years ended December 31, 1996, 1995 and 1994 F-18
Statements of Partners' Capital (Deficit) for the years ended December 31, 1996, 1995 and 1994 F-19
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 F-20
Notes to Financial Statements F-21
CENCOM PARTNERS, L.P. FINANCIAL STATEMENT SCHEDULES:
None required
</TABLE>
F-1
<PAGE> 30
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cencom Cable Income Partners II, L.P.:
We have audited the accompanying balance sheets of Cencom Cable Income Partners
II, L.P. (a Delaware limited partnership) as of December 31, 1996 and 1995, and
the related statements of operations, partners' capital (deficit) and cash
flows for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 2, the Partnership Agreement of Cencom Cable Income
Partners II, L.P. provides for the dissolution of the Partnership on or before
December 31, 1995. The General Partner is in the process of a complete and
orderly dissolution of the Partnership. Upon dissolution, the General Partner
or other authorized liquidating agent is required to liquidate the
Partnership's assets and distribute the proceeds thereof in accordance with the
provisions of the Partnership Agreement. Proceeds ultimately received upon
liquidation could differ substantially from the amounts recorded in the
accompanying financial statements.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cencom Cable Income Partners
II, L.P. as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 21, 1997
F-2
<PAGE> 31
CENCOM CABLE INCOME PARTNERS II, L.P.
BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -------------
ASSETS
-------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 531,285 $ 935,858
Accounts receivable, net of allowance for doubtful
accounts of $34,763 and $31,463, respectively 222,708 190,968
Prepaid expenses and other 78,705 149,923
------------ ------------
Total current assets 832,698 1,276,749
PROPERTY, PLANT AND EQUIPMENT 18,938,808 22,572,631
FRANCHISE COSTS, net of accumulated amortization of
$22,383,464 and $21,996,588 724,004 1,110,880
DEBT ISSUANCE COSTS, net of accumulated amortization of $- 350,000 -
------------ ------------
$ 20,845,510 $ 24,960,260
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 36,700,000 $ 40,400,000
Accounts payable and accrued expenses 2,397,674 2,160,916
Payables to General Partner and affiliates 3,532,580 2,731,619
Subscriber deposits 18,460 20,675
------------ ------------
Total current liabilities 42,648,714 45,313,210
------------ ------------
DEFERRED REVENUE 24,803 27,904
------------ ------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL (DEFICIT):
General Partner (2,828,374) (2,813,902)
Limited Partners (250,000 units authorized; 90,915 units
issued and outstanding) (18,540,466) (17,107,785)
Note receivable from General Partner (459,167) (459,167)
------------ ------------
Total Partners' capital (deficit) (21,828,007) (20,380,854)
------------ ------------
$ 20,845,510 $ 24,960,260
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 32
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
SERVICE REVENUES:
Basic service $ 13,485,981 $ 12,595,495 $ 11,924,583
Premium service 2,241,316 2,275,021 2,266,434
Other 2,428,085 2,175,903 2,066,911
------------ ------------ ------------
18,155,382 17,046,419 16,257,928
------------ ------------ ------------
OPERATING EXPENSES:
Operating costs 7,864,914 7,233,700 7,071,292
General and administrative 1,560,430 1,619,143 1,682,566
Liquidation costs 241,600 99,414 -
Depreciation and amortization 6,235,182 6,204,807 8,605,938
Management fees - related party 905,071 852,319 812,896
------------ ------------ ------------
16,807,197 16,009,383 18,172,692
------------ ------------ -------------
Income (loss) from operations 1,348,185 1,037,036 (1,914,764)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 39,909 117,613 55,125
Interest expense (2,835,247) (3,447,212) (3,152,940)
Equity in loss of unconsolidated limited partnership - - (243,631)
------------ ------------ ------------
(2,795,338) (3,329,599) (3,341,446)
------------ ------------ ------------
Net loss $ (1,447,153) $ (2,292,563) $ (5,256,210)
============ ============ ============
NET LOSS PER LIMITED PARTNERSHIP UNIT $ (15.76) $ (24.96) $ (57.24)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 33
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Note
Receivable
From
General Limited General
Partner Partners Partner Total
------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ (2,738,414) $ (9,634,500) $ (459,167) $ (12,832,081)
Net loss (52,562) (5,203,648) - (5,256,210)
------------ -------------- ---------- -------------
BALANCE, December 31, 1994 (2,790,976) (14,838,148) (459,167) (18,088,291)
Net loss (22,926) (2,269,637) - (2,292,563)
------------ -------------- ---------- -------------
BALANCE, December 31, 1995 (2,813,902) (17,107,785) (459,167) (20,380,854)
Net loss (14,472) (1,432,681) - (1,447,153)
------------ -------------- ---------- -------------
BALANCE, December 31, 1996 $ (2,828,374) $ (18,540,466) $ (459,167) $ (21,828,007)
============ ============== ========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 34
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,447,153) $ (2,292,563) $ (5,256,210)
Adjustments to reconcile net loss to net cash
provided by operating activities-
Depreciation and amortization 6,235,182 6,204,807 8,605,938
Equity in loss of unconsolidated limited partnership - - 243,631
Changes in assets and liabilities-
Accounts receivable, net (31,740) 35,000 3,169
Prepaid expenses and other 71,218 14,236 (45,764)
Accounts payable and accrued expenses 236,758 131,161 512,041
Payables to General Partner and affiliates 800,961 876,180 440,123
Subscriber deposits (2,215) (350) (3,752)
Deferred revenue (3,101) 27,904 -
------------ ------------ ------------
Net cash provided by operating activities 5,859,910 4,996,375 4,499,176
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,108,233) (3,000,860) (1,913,448)
------------ ------------ ------------
Net cash used in investing activities (2,108,233) (3,000,860) (1,913,448)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving line of credit 200,000 - -
Payments of revolving line of credit (3,900,000) (4,300,000) -
Debt issuance costs (456,250) - (97,917)
------------ ------------ ------------
Net cash used in financing activities (4,156,250) (4,300,000) (97,917)
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (404,573) (2,304,485) 2,487,811
CASH AND CASH EQUIVALENTS, beginning of year 935,858 3,240,343 752,532
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, end of year $ 531,285 $ 935,858 $ 3,240,343
============ ============ ============
CASH PAID FOR INTEREST $ 2,868,914 $ 3,645,205 $ 3,093,440
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 35
CENCOM CABLE INCOME PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
Cencom Cable Income Partners II, L.P., a Delaware limited partnership (the
"Partnership"), was formed on August 13, 1987, for the purpose of acquiring and
operating existing cable television systems. CC II Holdings, Inc. (CC II
Holdings) acquired the common stock of Cencom Properties II, Inc. (Cencom
Properties II or the "General Partner") from Cencom Cable Associates, Inc.
(presently doing business as Cencom Cable Entertainment, Inc. and referred to
as "Cencom Cable Associates" herein) in September 1994. CC II Holding is a
wholly owned subsidiary of Charter Communications, Inc. (Charter). The
Partnership was to be dissolved no later than December 31, 1995, as provided in
the partnership agreement (the "Partnership Agreement"). As of December 31,
1996, the Partnership is in the process of a complete and orderly dissolution
of the Partnership (see Note 2).
As of December 31, 1996, the Partnership provided cable television service to
approximately 36 franchises serving approximately 44,700 basic subscribers in
northeast Missouri, South Carolina and Texas.
Cash Equivalents
Cash equivalents consist primarily of repurchase agreements with original
maturities of 90 days or less. These investments are carried at cost, which
approximates market value. The Partnership is subject to loss for amounts
invested in repurchase agreements in the event of nonperformance by the
financial institution, which acts as the counterparty under such agreements;
however, such noncompliance is not anticipated.
Revenue Recognition
Cable service revenues are recognized in the period when the related services
are provided.
Installation revenues are recognized to the extent of direct selling costs
incurred. The remainder, if any, is deferred and amortized to income over the
average estimated period that customers are expected to remain connected to the
cable television system.
Franchise fees collected from cable subscribers and paid to local franchises
are reported as revenues.
Depreciation and Amortization
The Partnership provides depreciation using the composite method of
depreciation on a straight-line basis over the estimated useful lives of the
related property, plant and equipment as follows:
Trunk and distribution systems 10 years
Subscriber installations 10 years
Buildings and headends 9-20 years
Converters 3-5 years
Vehicles and equipment 4-8 years
Office equipment 5-10 years
F-7
<PAGE> 36
Franchise costs are being amortized using the straight-line method over the
term of the individual franchise agreements. Debt issuance costs are being
amortized over the term of the debt.
During 1995, the Partnership adopted Statement of Financial Accounting
Standards (SFAS) No. 121 entitled, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." In accordance with SFAS
No. 121, the Partnership periodically reviews the carrying value of its
long-lived assets, identifiable intangibles and franchise costs in relation to
historical financial results, current business conditions and trends (including
the impact of existing legislation and regulation) to identify potential
situations in which the carrying value of such assets may not be recoverable.
If a review indicates that the carrying value of such assets may not be
recoverable, the carrying value of such assets in excess of their fair value
would be recorded as a reduction of the assets' cost as if a permanent
impairment has occurred. No impairments have occurred and no adjustments to
the financial statements of the Partnership have been recorded related to SFAS
No. 121.
Investment in Unconsolidated Limited Partnership
The Partnership owns Limited Partnership units of Cencom Partners, L.P. (CPLP)
which equate to an 84.03% ownership interest in CPLP. The Partnership only
owns 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
(see Note 4).
Liquidation Costs
Certain liquidation costs which are not directly attributed to the Partnership
(i.e., accounting, legal, etc.) have been allocated between the Partnership and
CPLP based upon the number of total basic subscribers.
Income Taxes
Income taxes are the responsibility of the partners and as such are not
provided for in the accompanying financial statements.
Net Loss Per Limited Partnership Unit
The net loss per Limited Partnership unit has been calculated based on 90,915
weighted average Limited Partnership units outstanding each year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. LIQUIDATION, DISTRIBUTIONS AND ALLOCATIONS:
Distributions and Allocations
Profits and losses are generally allocated in proportion to the partners'
capital contributions. The Partnership is required to distribute all cash
available for distribution. Distributions are made within 60 days after the
end of each calendar quarter. The Limited Partners receive 100% of all cash
available for distribution until they receive a cumulative 11% per annum
preference return on their adjusted capital contributions. After the Limited
Partners have received the 11% preferred return, the General Partner will
receive 11% per annum on its capital contribution. Thereafter, the Limited
Partners will receive 99% and
F-8
<PAGE> 37
the General Partner will receive 1% of all additional cash available for
distribution. During the fourth quarter of 1993, the Partnership suspended
distributions to Limited Partners to meet its debt covenants and allow for
necessary capital expenditures. No distributions were made in 1996, 1995 and
1994. Distributions in arrears are approximately $49,807,000 as of December
31, 1996.
Liquidation of the Partnership
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
conducted during March 1995, resulting in an appraised value of $73,850,000 for
the Partnership's cable television systems (excluding its investment in CPLP).
The General Partner has accepted bids with respect to the South Carolina
systems, and for the Cleveland, Jasper, Woodville, Marlin, Madisonville and
Buffalo systems (which constitute approximately 47% of the basic subscribers of
the Texas systems), for an aggregate purchase price of $51,950,000, each
subject to execution of a final sale agreement. The accepted bids represent
approximately 69% of the Partnership's basic subscribers as of December 31,
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 describes the various transactions
and requests consent for the sale to the affiliates of the General Partner.
The affiliates of the General Partner have reached agreements with their
principal lenders regarding the proposed terms of their loans. In addition,
completion of the third-party 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
estimated fair market values of such systems established pursuant to the
appraisal process. Thus, these bids have not been accepted by the General
Partner. Accordingly, the General Partner will continue to seek potential
purchasers for the remaining systems.
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 above. Once the Limited Partners and the General Partner have received
aggregate cash distributions equal to their capital contributions plus the 11%
preferred return referred to above, sales proceeds will generally be allocated
70% to the Limited Partners and 30% to the General Partner.
Upon finalization of a plan of liquidation and execution of sale agreements,
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.
Liquidation of CPLP
Concurrent with the disposition of the Partnership's assets, including its
entire ownership interest in CPLP, CPLP has sought to dispose of its assets
through the sale of its cable television system to facilitate the liquidation
of the Partnership. Additionally, the asset sale is being effected to satisfy
the requirements by CPLP's senior bank lenders that the credit facility be
repaid.
F-9
<PAGE> 38
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 cable television 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 for CPLP's South Carolina and North
Carolina Systems for an aggregate price of $52,450,000. The affiliates of the
General Partner have reached agreements with their principal lenders regarding
the proposed terms of their financing. 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.
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and consists of the following
at December 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Trunk and distribution systems $ 33,744,552 $ 33,098,240
Subscriber installations 9,407,182 8,495,118
Land, buildings and headends 5,559,636 5,378,614
Converters 3,902,610 3,726,224
Vehicles and equipment 2,000,543 1,895,785
Office equipment 783,785 737,402
------------ ------------
55,398,308 53,331,383
Less- Accumulated depreciation (36,459,500) (30,758,752)
------------ ------------
$ 18,938,808 $ 22,572,631
============ ============
</TABLE>
4. INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP:
The Partnership has invested approximately $25,000,000 in CPLP, a limited
partnership. CPLP utilized these funds to purchase cable television systems in
North Carolina, South Carolina and Texas. The Partnership's equity
contribution consisted of the balance of funds which had previously been
restricted for investment in cable television systems, plus approximately
$18,135,000 of allowable borrowings as specified by the Partnership Agreement.
The Partnership is allocated 84.03% (based on ownership interest) of CPLP's net
income or losses and accounts for its investment in CPLP under the equity
method. Losses in excess of its investment in CPLP are not recorded. As of
December 31, 1996, the unrecorded losses in excess of investment were
approximately $14,897,000. Additional partners of CPLP include Charter.
F-10
<PAGE> 39
Summary financial information of CPLP as of December 31, 1996 and 1995, and for
each of the three years in the year period ended December 31, 1996, which is
not consolidated with the operating results of the Partnership, is as follows:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Current assets $ 1,058,448 $ 659,926
Noncurrent assets - primarily investment in cable
television properties 22,972,191 27,823,344
------------ ------------
Total assets $ 24,030,639 $ 28,483,270
============ ============
Current liabilities, including current maturities
of long-term debt of $34,957,500 and $34,957,500, respectively $ 39,727,149 $ 39,401,034
Deferred revenue 174,791 196,640
Partners' capital (deficit) (15,871,301) (11,114,404)
------------ ------------
Total liabilities and partners' capital (deficit) $ 24,030,639 $ 28,483,270
============ ============
<CAPTION>
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Service revenues $13,748,224 $ 12,855,563 $ 12,075,857
=========== ============ ============
Loss from operations $(1,776,152) $ (3,020,280) $ (5,047,535)
=========== ============ ============
Net loss $(4,756,897) $ (5,835,749) $ (7,425,112)
=========== ============ ============
</TABLE>
In accordance with restrictions under CPLP's senior debt agreement, CPLP may
make no partnership distributions during the term of its senior debt agreement.
Furthermore, a maximum of $3,000,000 in CPLP assets may be sold without bank
permission, and all proceeds from any such sale must be used to reduce
borrowings under the senior debt agreement.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Capital expenditures $ 128,786 $ 114,928
Accrued salaries and related benefits 158,372 144,024
Accrued liquidation costs 162,000 -
Professional fees 257,636 89,136
Debt issuance costs 350,000 -
Property taxes 358,786 645,849
Franchise fees 368,602 327,272
Programming expenses 369,137 355,174
Other 244,355 484,533
---------- ----------
$2,397,674 $2,160,916
========== ==========
</TABLE>
F-11
<PAGE> 40
6. LONG-TERM DEBT:
The Partnership maintains a secured revolving line of credit agreement (the
"Credit Agreement") with a consortium of banks for borrowings up to
$65,000,000. On December 31, 1996, the Partnership and the banks amended the
Credit Agreement to extend the maturity date to June 30, 1997. The Partnership
paid $350,000 in amendment fees in connection with this amendment which were
recorded as debt issuance costs. Loans under the Credit Agreement bear
interest, with the base rate being at the partnership's election at the Toronto
Dominion's (the agent bank) prime rate of interest, Eurodollar or certificates
of deposit rate, plus a certain spread. The applicable spreads are based on
the ratio of debt to annualized operating cash flow. At December 31, 1996 and
1995, the interest rates ranged from 6.81% to 8.50% and 7.38% to 9.00%,
respectively. The weighted average interest rates and borrowings for 1996,
1995 and 1994 were 7.29%, 7.99% and 6.68%, and approximately $38,889,000,
$43,163,000 and $44,700,000, respectively. Borrowings under the Credit
Agreement are subject to certain financial and nonfinancial covenants and
restrictions, the most restrictive of which requires the maintenance of a ratio
of debt to annualized operating cash flow, as defined, not to exceed 4.5 to 1.
Borrowings under the Credit Agreement are collateralized by the assets of the
Partnership. A quarterly commitment fee of 0.375% per annum is payable on the
unused portion of the Credit Agreement. As this debt instrument bears interest
at current market rates, its carrying amount approximates fair market value at
December 31, 1996 and 1995.
The Partnership has prepared projections of quarterly operating results for
1997 which demonstrate that the Partnership will be in compliance with its
financial covenants throughout the year. Such projections are dependent,
however, on sustained subscriber growth and the maintenance of current
operating margins. If current levels of subscriber growth and operating
margins are not maintained, the Partnership could be forced to renegotiate the
terms of the Credit Agreement or to seek alternative sources of financing.
7. RELATED-PARTY TRANSACTIONS:
During 1994, Cencom Cable Associates assigned management services under
contract with the Partnership to the General Partner. The management service
contract provides for the payment of fees equal to 5% of the Partnership's
annual gross operating revenue. Expenses recorded under this contract by the
Partnership during 1996, 1995 and 1994 were $905,071, $852,319 and $812,896,
respectively. Up to 50% of the management fee payment is subordinated to
certain quarterly distributions to the Limited Partners. Since assumption of
the responsibilities under the contract, the General Partner has elected to
defer payment of all such management fees. Management fees of $3,614,258 and
$2,709,187 have been deferred and are included in Payables to General Partner
and Affiliates at December 31, 1996 and 1995, respectively. In addition to the
management fees, the Partnership reimburses the General Partner for expenses
incurred on behalf of the Partnership for performance of services under the
contract.
The Partnership has a noninterest-bearing promissory note receivable due on
demand from the General Partner which represents one-half of its required
capital contribution.
The Partnership and all entities affiliated with Charter collectively utilize a
combination of insurance coverage and self-insurance programs for medical,
dental and workers' compensation claims. the Partnership is allocated charges
monthly based upon its total number of employees, historical claims and medical
cost trend rates. During 1996 and 1995, the Partnership expensed approximately
$150,700 and $143,328, respectively, relating to insurance allocations.
Affiliated entities maintain several regional offices. The regional offices
perform certain operational services on behalf of the Partnership and other
affiliated entities. The cost of these services is allocated to the
Partnership based on its number of subscribers. During 1996, 1995 and 1994,
the Partnership expensed approximately $189,000, $175,000 and $205,000,
respectively, relating to this allocation.
F-12
<PAGE> 41
8. COMMITMENTS AND CONTINGENCIES:
Leases
The Partnership leases certain facilities and equipment under noncancelable
operating leases. Rent expense incurred under these leases during 1996, 1995
and 1994 was approximately $99,200, $96,000 and $80,000, respectively.
Future minimum lease payments are as follows:
1997 $27,000
1998 24,000
1999 22,000
2000 10,000
2001 7,000
Thereafter 1,000
The Partnership rents utility poles in its operations. Generally, pole rental
agreements are short term, but the Partnership anticipates that such rentals
will continue to recur. Rent expense for pole attachments during 1996, 1995
and 1994 was approximately $317,000, $227,000 and $350,000, respectively.
Insurance Coverage
The Partnership currently does not have and does not in the near term
anticipate having property and casualty insurance on its underground
distribution plant. Due to large claims incurred by the property and casualty
insurance industry, the pricing of insurance coverage has become inflated to
the point where, in the judgment of the Partnership's management, the price is
too high for the coverage extended. Management believes that its experience
with such insurance coverage is consistent with general industry practice. The
Partnership's management will continue to monitor the insurance markets to
attempt to obtain coverage for the Partnership's distribution plant at
reasonable rates.
Litigation
The Partnership is a party to lawsuits which are generally incidental to its
business. In the opinion of management, after consulting with legal counsel,
the outcome of these lawsuits will not have a material adverse effect on the
Partnership's financial position or results of operations.
9. RATE REGULATION IN THE CABLE TELEVISION INDUSTRY:
The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. In addition, recent
legislative and regulatory changes and additional regulatory proposals under
consideration may materially affect the cable television industry.
Congress enacted the Cable Television Consumer Protection and Competition Act
of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992.
The 1992 Cable Act generally allows for a greater degree of regulation of the
cable television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable systems in the United States are subject to rate
regulation of basic cable services, provided that the local franchising
authority becomes certified to regulate basic service units. The 1992 Cable
Act and the Federal Communications Commission's (FCC) rules implementing the
1992 Cable Act have generally increased the administrative and operational
expenses of cable television systems and have resulted in additional regulatory
oversight by the FCC and local franchise authorities.
F-13
<PAGE> 42
While management believes that the Partnership has complied in all material
respects with the rate provisions of the 1992 Cable Act, in jurisdictions that
have not yet chosen to certify, refunds covering a one-year period on basic
services may be ordered upon future certification if the Partnership is unable
to justify its rates through a benchmark or cost-of-service filing or small
system cost-of-service filing pursuant to FCC rules. Management is unable to
estimate at this time the amount of refunds, if any, that may be payable by the
Partnership in the event certain of its rates are successfully challenged by
franchising authorities or found to be unreasonable by the FCC. Management
does not believe that the amount of any such refunds would have a material
adverse effect on the financial position or results of operations of the
Partnership.
The 1992 Cable Act modified the franchise renewal process to make it easier for
a franchising authority to deny renewal. Historically, franchises have been
renewed for cable operators that have provided satisfactory services and have
complied with the terms of the franchise agreement. Although management
believes that the Partnership has generally met the terms of its franchise
agreements and has provided quality levels of service and anticipates the
Partnership's future franchise renewal prospects generally will be favorable,
there can be no assurance that any such franchises will be renewed or, if
renewed, that the franchising authority will not impose more onerous
requirements on the Partnership than previously existed.
During 1996, Congress passed and the President signed into law the
Telecommunications Act of 1996 (the "Telecommunications Act") which alters
federal, state, and local laws and regulations pertaining to cable television,
telecommunications, and other services. Under the Telecommunications Act,
telephone companies can compete directly with cable operators in the provision
of video programming.
Certain provisions of the Telecommunications Act could materially affect the
growth and operation of the cable television industry and the cable services
provided by the Partnership. Although the new legislation may substantially
lessen regulatory burdens, the cable television industry may be subject to
additional competition as a result thereof. There are numerous rule-makings to
be undertaken by the FCC which will interpret and implement the
Telecommunications Act's provisions. In addition, certain provisions of the
Telecommunications Act (such as the deregulation of cable programming rates)
are not immediately effective. Further, certain of the Telecommunications
Act's provisions have been and are likely to be subject to judicial challenges.
Management is unable at this time to predict the outcome of such rule-makings
or litigation or the substantive effect of the new legislation and the
rule-makings on the financial position or results of operations of the
Partnership.
10. 401(k) PLAN:
In 1994, the Partnership adopted the Charter Communications, Inc. 401(k) Plan
(the "Plan") for the benefit of its employees. All employees who have
completed one year of employment are eligible to participate in the Plan. The
Plan is a tax-qualified retirement savings plan to which employees may elect to
make pretax contributions up to the lesser of 10% of their compensation or
dollar thresholds established under the Internal Revenue Code. The Partnership
contributes an amount equal to 50% of the first 5% contributed by each
employee. During 1996, 1995 and 1994, the Partnership contributed
approximately $26,200, $26,500 and $40,900, respectively.
F-14
<PAGE> 43
11. NET LOSS FOR INCOME TAX PURPOSES:
The following reconciliation summarizes the differences between the
Partnership's net loss for financial reporting purposes and net loss for
federal income tax purposes for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ------------ ------------
<S> <C> <C> <C>
Net loss for financial reporting purposes $(1,447,153) $ (2,292,563) $ (5,256,210)
Depreciation differences between
financial reporting and tax reporting 1,728,352 751,650 (91,608)
Equity in loss of unconsolidated Limited
Partnership differences between
financial reporting and tax reporting (2,853,381) (3,417,920) (4,564,540)
Differences in expenses recorded for
financial reporting and for tax purposes 224,167 (364,558) 584,764
Differences in revenue reported for
financial reporting and tax reporting (3,100) 27,904 -
Other 4,144 45,361 (19,489)
----------- ------------ ------------
Net loss for federal income tax purposes $(2,346,971) $ (5,250,126) $ (9,347,083)
=========== ============ ============
Net loss per Limited Partnership unit
for federal income tax purposes $ (25.82) $ (57.17) $ (101.78)
=========== ============ ============
</TABLE>
The following summarizes the significant temporary differences between the
Partnership's financial reporting basis and federal income tax reporting basis
as of December 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Assets:
Accounts receivable $ 34,763 $ 31,463
Accrued expenses 877,869 657,002
Deferred revenue 24,803 27,904
------------ ------------
$ 937,435 $ 716,369
============ ============
Liabilities:
Property, plant and equipment $(12,250,944) $(13,979,613)
Investment in unconsolidated Limited Partnership (3,178,842) (8,864,469)
------------ ------------
$(15,429,786) $(22,844,082)
============ ============
</TABLE>
F-15
<PAGE> 44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cencom Partners, L.P.:
We have audited the accompanying balance sheets of Cencom Partners, L.P. (a
Delaware limited partnership) as of December 31, 1996 and 1995, and the related
statements of operations, partners' capital (deficit) and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As discussed in Note 2, Cencom Cable Income Partners II, L.P., an affiliate who
owns 84.03% of the Limited Partner units, is in the process of dissolving its
Partnership. In connection with this process, the assets of Cencom Partners,
L.P. will be liquidated, in accordance with the provisions of the Partnership
Agreement.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cencom Partners, L.P. as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
February 21, 1997
F-16
<PAGE> 45
CENCOM PARTNERS, L.P.
BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
ASSETS
-------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 543,299 $ 412,532
Accounts receivable, net of allowance for doubtful accounts of
$25,788 and $21,651, respectively 172,642 140,541
Insurance receivables 313,290 -
Prepaid expenses and other 29,217 106,853
------------ ------------
Total current assets 1,058,448 659,926
------------ ------------
PROPERTY, PLANT AND EQUIPMENT 16,895,746 18,045,408
FRANCHISE COSTS, net of accumulated amortization of $21,960,618 and
$19,648,414, respectively 5,148,026 7,460,235
SUBSCRIBER LISTS, net of accumulated amortization of $9,472,652 and
$8,015,285, respectively 728,619 2,185,986
DEBT ISSUANCE COSTS, net of accumulated amortization of $- and
$38,030, respectively 199,800 131,715
------------ ------------
$ 24,030,639 $ 28,483,270
============ ============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
CURRENT LIABILITIES:
Current maturities of long-term debt $ 34,957,500 $ 34,957,500
Accounts payable and accrued expenses 1,358,434 1,635,873
Payables to General Partner and affiliates 3,358,684 2,743,225
Subscriber deposits 52,531 64,436
------------ ------------
Total current liabilities 39,727,149 39,401,034
------------ ------------
DEFERRED REVENUE 174,791 196,640
------------ ------------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL (DEFICIT):
General Partner (268,880) (197,051)
Limited Partners (293 units authorized, issued and outstanding) (17,602,421) (12,917,353)
Special Limited Partner (20 units authorized, issued and outstanding) 2,000,000 2,000,000
------------ ------------
Total Partners' capital (deficit) (15,871,301) (11,114,404)
------------ ------------
$ 24,030,639 $ 28,483,270
============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-17
<PAGE> 46
CENCOM PARTNERS, L.P.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
SERVICE REVENUES:
Basic service $ 10,176,306 $ 9,418,509 $ 8,899,173
Premium service 1,792,082 1,828,882 1,761,006
Other 1,779,836 1,608,172 1,415,678
------------ ------------ ------------
13,748,224 12,855,563 12,075,857
OPERATING EXPENSES:
Operating costs 5,841,053 5,394,026 4,843,805
General and administrative 1,187,267 1,141,985 1,262,442
Liquidation costs 243,154 115,910 -
Depreciation and amortization 7,565,531 8,581,137 10,413,352
Management fees - related party 687,371 642,785 603,793
------------ ------------ ------------
15,524,376 15,875,843 17,123,392
------------ ------------ ------------
Loss from operations (1,776,152) (3,020,280) (5,047,535)
------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 37,089 29,469 18,030
Interest expense (2,634,834) (2,844,938) (2,395,607)
Loss from Hurricane Fran (383,000) - -
------------ ------------ -------------
(2,980,745) (2,815,469) (2,377,577)
------------ ------------ ------------
Net loss $ (4,756,897) $ (5,835,749) $ (7,425,112)
============ ============ ============
NET LOSS PER LIMITED PARTNERSHIP UNIT $ (15,990) $ (19,616) $ (24,959)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE> 47
CENCOM PARTNERS, L.P.
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Special
General Limited Limited
Partner Partners Partner Total
------------ -------------- ----------- -------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1993 $ 3,188 $ 143,269 $ 2,000,000 $ 2,146,457
Net loss (112,119) (7,312,993) - (7,425,112)
---------- ------------ ----------- ------------
BALANCE, December 31, 1994 (108,931) (7,169,724) 2,000,000 (5,278,655)
Net loss (88,120) (5,747,629) - (5,835,749)
---------- ------------ ----------- ------------
BALANCE, December 31, 1995 (197,051) (12,917,353) 2,000,000 (11,114,404)
Net loss (71,829) (4,685,068) - (4,756,897)
---------- ------------ ----------- ------------
BALANCE, December 31, 1996 $ (268,880) $(17,602,421) $ 2,000,000 $(15,871,301)
========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-19
<PAGE> 48
CENCOM PARTNERS, L.P.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,756,897) $(5,835,749) $(7,425,112)
Adjustments to reconcile net loss to net
cash provided by operating activities-
Depreciation and amortization 7,565,531 8,581,137 10,413,352
Changes in assets and liabilities-
Accounts receivable, net (32,101) 69,822 (65,112)
Other receivables (313,290) - -
Prepaid expenses and other 77,636 15,235 (52,682)
Accounts payable and accrued expenses (277,439) 164,801 (154,306)
Payables to General Partner and affiliates 615,459 1,177,072 575,355
Subscriber deposits (11,905) (5,876) (7,960)
Deferred revenue (21,849) 196,640 -
----------- ----------- -----------
Net cash provided by operating activities 2,845,145 4,363,082 3,283,535
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (2,427,274) (1,973,566) (2,449,847)
----------- ----------- -----------
Net cash used in investing activities (2,427,274) (1,973,566) (2,449,847)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt - (2,381,850) (1,370,650)
Debt issuance costs (287,104) (67,562) (102,186)
----------- ----------- -----------
Net cash used in financing activities (287,104) (2,449,412) (1,472,836)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 130,767 (59,896) (639,148)
CASH AND CASH EQUIVALENTS, beginning of year 412,532 472,428 1,111,576
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 543,299 $ 412,532 $ 472,428
=========== =========== ===========
CASH PAID FOR INTEREST $ 2,981,421 $ 2,653,014 $ 2,529,475
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-20
<PAGE> 49
CENCOM PARTNERS, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Basis of Presentation
Cencom Partners, L.P., a Delaware limited partnership (the "Partnership"), was
formed on January 30, 1990, for the purpose of acquiring and operating existing
cable television systems. The Partnership commenced operations effective March
1990, through the acquisition of a cable television system in South Carolina.
The Partnership will terminate no later than June 30, 2001, as provided in the
partnership agreement (the "Partnership Agreement"). CC III Holdings, Inc. (CC
III Holdings) acquired the common stock of Cencom Properties, Inc. (Cencom
Properties) from Cencom Cable Associates, Inc. (presently doing business as
Cencom Cable Entertainment, Inc. and referred to as "Cencom Cable Associates"
herein) in September 1994. CC III Holdings is a wholly owned subsidiary of
Charter Communications, Inc. (Charter). Cencom Cable Income Partners II, L.P.
(CCIP II), an affiliate, owns 84.03% of the Limited Partner units.
As of December 31, 1996, the Partnership provided cable television service to
approximately 22 franchises serving approximately 36,200 basic subscribers in
North Carolina, South Carolina and Texas.
Cash Equivalents
Cash equivalents consist primarily of repurchase agreements with original
maturities of 90 days or less. These investments are carried at cost, which
approximates market value. The Partnership is subject to loss for amounts
invested in repurchase agreements in the event of nonperformance by the
financial institution, which acts as the counterparty under such agreements;
however, such noncompliance is not anticipated.
Revenue Recognition
Cable service revenues are recognized when the related services are provided.
Installation revenues are recognized to the extent of direct selling costs
incurred. The remainder, if any, is deferred and amortized to income over the
average estimated period that customers are expected to remain connected to the
cable television system.
Franchise fees collected from cable subscribers and paid to local franchises
are reported as revenues.
Depreciation and Amortization
The Partnership provides depreciation using the composite method on a
straight-line basis over the estimated useful lives of the related property,
plant and equipment as follows:
Trunk and distribution systems 10 years
Subscriber installations 10 years
Buildings and headends 9-20 years
Converters 3-5 years
Vehicles and equipment 4-8 years
Office equipment 5-10 years
F-21
<PAGE> 50
Franchise costs are being amortized using the straight-line method over the
term of the individual franchise agreements. Subscriber lists are being
amortized using the straight-line method over seven years. Debt issuance costs
are being amortized over the term of the debt.
During 1995, the Partnership adopted Statement of Financial Accounting
Standards (SFAS) No. 121 entitled, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." In accordance with SFAS
No. 121, the Partnership periodically reviews the carrying value of its
long-lived assets, identifiable intangibles and franchise costs in relation to
historical financial results, current business conditions and trends (including
the impact of existing legislation and regulation) to identify potential
situations in which the carrying value of such assets may not be recoverable.
If a review indicates that the carrying value of such assets may not be
recoverable, the carrying value of such assets in excess of their fair value
would be recorded as a reduction of the assets' cost as if a permanent
impairment has occurred. No impairments have occurred and no adjustments to
the financial statements of the Partnership have been recorded related to SFAS
No. 121.
Liquidation Costs
Certain liquidation costs which are not directly attributed to the Partnership
(i.e., accounting, legal, etc.) have been allocated between the Partnership and
CPLP based upon the number of total basic subscribers.
Income Taxes
Income taxes are the responsibility of the partners and as such are not
provided in the accompanying financial statements.
Net Loss Per Limited Partnership Unit
The net loss per Limited Partnership unit has been calculated based on 293
weighted average Limited Partnership units outstanding in each year. In
accordance with the Partnership Agreement, no losses have been allocated to the
Special Limited Partner units.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
2. LIQUIDATION, DISTRIBUTIONS AND ALLOCATIONS:
The Partnership is comprised of the General Partner, 293 Limited Partnership
units and 20 Special Limited Partnership units. Under terms of the Partnership
Agreement, allocation of Partnership profits is as follows: (i) to partners
with deficit capital balances, until such deficits are reduced to zero; (ii) to
the Special Limited Partner, until its account has been allocated all
unrecovered preference return amounts, as defined in the Agreement; and (iii)
to the General Partner and Limited Partners in proportion to their capital
contributions.
Partnership losses are allocated among the General Partner and Limited Partners
in proportion to their capital contributions. Any distributions made by the
Partnership are to be made as follows: (i) to all partners to the extent of
any tax liabilities; (ii) to the Special Limited Partner to the extent of any
unpaid preference returns as defined in the Partnership Agreement; and (iii) to
the General Partner and Limited
F-22
<PAGE> 51
Partners in proportion to their capital contributions. The Special Limited
Partner's preference return is equal to its adjusted capital balance, as
defined, plus an amount equal to 15% per annum, compounded quarterly, on such
amount through June 30, 1993. Thereafter, the preference return shall increase
to 18% per annum, compounded quarterly in accordance with the Partnership
Agreement. The accreted balance of the Special Limited Partner units is
$5,765,303 at December 31, 1996.
Liquidation of the Partnership
CCIP II's partnership agreement provides for the dissolution of CCIP II on or
before December 31, 1995. The general partner of CCIP II is in the process of
a complete and orderly dissolution of CCIP II.
Concurrent with the disposition of CCIP II's assets, including its entire
ownership interest in the Partnership, the Partnership has sought to dispose of
its assets through the sale of its cable television systems to facilitate the
liquidation of CCIP II. Additionally, the asset sale is being effected to
satisfy the requirements by the Partnership's senior bank lenders that the
credit facility be repaid.
To dispose of the assets of the Partnership, the General Partner obtained
appraisals as of March 31, 1995, from Daniels & Associates ("Daniels") and
Western Cablesystems, Inc., who jointly reached a valuation of $60,900,000 for
all of the Partnership systems. Thereafter, Daniels was retained to market the
Partnership systems using an auction process. As a result of the auction
process, the General Partner has executed final sale agreements with two
affiliated entities of CCIP II for the Partnership's South Carolina and North
Carolina Systems for an aggregate price of $52,450,000. The accepted bids
represent approximately 83% of the Partnership's basic subscribers as of
December 31, 1996. The affiliates of the General Partner have reached
agreements with their principal lenders regarding the proposed terms of their
financing. The bids submitted for the Partnership's Texas Systems were below
the appraised fair market value and have not been accepted. The Partnership
intends to continue to operate its Texas Systems until an acceptable bid is
received.
Following the Partnership's proposed sales of some or all of the Partnership's
systems, it will use the available sale proceeds to pay outstanding
indebtedness and expenses (including the payment of accrued and unpaid
management fees (which were $2,896,163 as of December 31, 1996) to the General
Partner and repayment of its senior bank credit facility), with any remaining
proceeds to be distributed in accordance with the terms of the Partnership
Agreement, which will include distributions to CCIP II in its capacity as a
Limited Partner of the Partnership.
Upon finalization of a plan of liquidation and the determination of sales
price, 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.
F-23
<PAGE> 52
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment is stated at cost and consists of the following
at December 31:
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Trunk and distribution systems $ 21,851,645 $ 20,716,319
Subscriber installations 7,455,295 6,584,628
Land, buildings and headends 3,704,136 3,604,544
Converters 2,748,418 2,499,502
Vehicles and equipment 917,817 895,168
Office equipment 431,770 411,629
------------ ------------
37,109,081 34,711,790
Less- Accumulated depreciation (20,213,335) (16,666,382)
------------ ------------
$ 16,895,746 $ 18,045,408
============ ============
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Accrued interest $ - $ 346,587
Salaries and related benefits 76,122 65,409
Property taxes 69,338 158,079
Professional fees 174,000 66,000
Franchise fees 260,464 226,246
Programming expenses 281,477 259,920
Capital expenditures 296,922 138,831
Other 200,111 374,801
----------- -----------
$ 1,358,434 $ 1,635,873
=========== ===========
</TABLE>
5. LONG-TERM DEBT:
The Partnership maintains a credit agreement (the "Credit Agreement") in the
form of a term loan with a consortium of banks. At December 31, 1996 and 1995,
$34,957,500 was outstanding related to the Credit Agreement. There is no
additional available borrowings for the Partnership in excess of the balance
outstanding. Loans under the Credit Agreement bear interest, with the base
rate being at the Partnership's election at the Toronto Dominion's (the agent
bank) prime rate of interest, the Eurodollar and certificates of deposit, plus
a certain spread. At December 31, 1996, the interest rate was 7.31% and at
December 31, 1995, the interest rates ranged from 7.38% to 8.18%. The weighted
average interest rate and borrowings for 1996, 1995 and 1994 were 7.54%, 7.81%
and 6.08% and approximately $34,957,500, $36,439,000 and $38,062,000,
respectively. Borrowings under the Credit Agreement are subject to certain
financial and nonfinancial covenants and restrictions, the most restrictive of
which requires maintenance of a ratio of debt to annualized operating cash
flow, as defined, not to exceed 5.25 to 1 at December 31, 1996. At December
31, 1995, the Partnership was not in compliance with its capital expenditure
covenant contained in the Credit
F-24
<PAGE> 53
Agreement. Pursuant to an amendment to the Credit Agreement, dated March 1996,
the Partnership received a waiver for such noncompliance. In addition, the
amendment changed the maturity date for all principal amounts and other
obligations then outstanding to be due and payable on December 31, 1996.
Amendment fees of $87,304 were paid related to this amendment and were expensed
during the year. On December 31, 1996, the Partnership and the banks amended
the Credit Agreement to extend the maturity date to June 30, 1997. Additional
amendment fees of $199,800 were paid in connection with this amendment and were
recorded as debt issuance costs. During the years ended December 31, 1996 and
1995, the Partnership incurred costs totaling $287,104 and $67,562,
respectively, relating to the amendment of certain covenants contained in the
Credit Agreement. Borrowings under the Credit Agreement are collateralized by
the assets of the Partnership. As this debt instrument bears interest at
current market rates, its carrying amount approximates fair market value at
December 31, 1996 and 1995.
6. RELATED-PARTY TRANSACTIONS:
During 1994, Cencom Cable Associates assigned management services under
contract with the Partnership to the General Partner. The management service
provides for the payment of fees equal to 5% of the Partnership's gross
operating revenues. The Partnership was allowed to defer 60% of all such fees
through December 31, 1995. Since the assumption of the responsibilities under
the contract, the General Partner has elected to defer payment of all such
management fees. Expenses recognized by the Partnership under this contract
during 1996, 1995 and 1994 were $687,371, $642,785 and $603,793, respectively.
Management fees payable of $2,896,163 and $2,208,792 are included in Payables
to General Partner and Affiliates at December 31, 1996 and 1995, respectively.
In addition to the management fees, the Partnership reimburses the General
Partner for expenses incurred on behalf of the Partnership for performance of
services under the contract.
Included in the payables to General Partner and Affiliates is $500,000 related
to a refundable deposit toward the purchase of the Abbeville System. The
amount will be refunded to Charter Communications II, L.P. (CC II) if the sale
is not consummated or applied to CC II's purchase of the Abbeville System.
The Partnership and all entities affiliated with Charter collectively utilize a
combination of insurance coverage and self-insurance programs for medical,
dental and workers' compensation claims. The Partnership is allocated charges
monthly based upon its total number of employees, historical claims and medical
cost trend rates. During 1996 and 1995, the Partnership expensed approximately
$144,600 and $149,400, respectively, relating to insurance allocations.
Affiliated entities maintain several regional offices. The regional offices
perform certain operational services on behalf of the Partnership and other
affiliated entities. Generally, the costs of these services are allocated to
the Partnership based on the number of subscribers. During 1996 and 1995,
certain costs which should have been allocated to the Partnership were borne by
Charter on behalf of the Partnership. Charter is not obligated to make such
payments in the future. The amount of the costs which were paid by Charter
during 1996 and 1995 was approximately $122,000 and $125,000, respectively.
7. COMMITMENTS AND CONTINGENCIES:
Leases
The Partnership leases certain facilities and equipment under noncancelable
operating leases. Rent expense incurred under these leases during 1996, 1995
and 1994 was approximately $64,000, $64,000 and $61,000, respectively.
F-25
<PAGE> 54
Future minimum lease payments are as follows:
1997 $38,000
1998 25,000
1999 25,000
2000 9,000
2001 3,000
Thereafter 14,000
The Partnership rents utility poles in its operations. Generally, pole rental
agreements are short term, but the Partnership anticipates that such rentals
will recur. Rent expense for pole attachments during 1996, 1995 and 1994 was
approximately $220,000, $153,000 and $185,000, respectively.
Insurance Coverage
The Partnership currently does not have and does not in the near term
anticipate having property and casualty insurance on its underground
distribution plant. Due to large claims incurred by the property and casualty
insurance industry, the pricing of insurance coverage has become inflated to
the point where, in the judgment of the Partnership's management, the price is
too high for the coverage extended. Management believes that its experience
and policy with such insurance coverage is consistent with general industry
practice. The Partnership's management will continue to monitor the insurance
markets to attempt to obtain coverage for the Partnership's distribution plant
at reasonable rates.
Litigation
The Partnership is a party to lawsuits which are generally incidental to its
business. In the opinion of management, after consulting with legal counsel,
the outcome of these lawsuits will not have a material adverse effect on the
Partnership's financial position or results of operations.
8. RATE REGULATION IN THE CABLE TELEVISION INDUSTRY:
The cable television industry is subject to extensive regulation at the
federal, local and, in some instances, state levels. In addition, recent
legislative and regulatory changes and additional regulatory proposals under
consideration may materially affect the cable television industry.
Congress enacted the Cable Television Consumer Protection and Competition Act
of 1992 (the "1992 Cable Act"), which became effective on December 4, 1992.
The 1992 Cable Act generally allows for a greater degree of regulation of the
cable television industry. Under the 1992 Cable Act's definition of effective
competition, nearly all cable systems in the United States are subject to rate
regulation of basic cable services, provided the local franchising authority
becomes certified to regulate basic service rates. The 1992 Cable Act and the
Federal Communications Commission's (FCC) rules implementing the 1992 Cable Act
have generally increased the administrative and operational expenses of cable
television systems and have resulted in additional regulatory oversight by the
FCC and local franchise authorities.
F-26
<PAGE> 55
While management believes that the Partnership has complied in all material
respects with the rate provisions of the 1992 Cable Act, in jurisdictions that
have not yet chosen to certify, refunds covering a one-year period on basic
services may be ordered upon future certification if the Partnership is unable
to justify its rates through a benchmark or cost-of-service filing or small
system cost-of-service filing pursuant to FCC rules. Management is unable to
estimate at this time the amount of refunds, if any, that may be payable by
the Partnership in the event certain of its rates are successfully challenged
by franchising authorities or found to be unreasonable by the FCC. Management
does not believe that the amount of any such refunds would have a material
adverse effect on the financial position or results of operations of the
Partnership.
The 1992 Cable Act modified the franchise renewal process to make it easier for
a franchising authority to deny renewal. Historically, franchises have been
renewed for cable operators that have provided satisfactory services and have
complied with the terms of the franchise agreements. Although management
believes that the Partnership has generally met the terms of its franchise
agreements and has provided quality levels of service and anticipates the
Partnership's future franchise renewal prospects generally will be favorable,
there can be no assurance that any such franchises will be renewed or, if
renewed, that the franchising authority will not impose more onerous
requirements on the Partnership than previously existed.
During 1996, Congress passed and the President signed into law the
Telecommunications Act of 1996 (the "Telecommunications Act") which alters
federal, state, and local laws and regulations pertaining to cable television,
telecommunications, and other services. Under the Telecommunications Act,
telephone companies can compete directly with cable operators in the provision
of video programming.
Certain provisions of the Telecommunications Act could materially affect the
growth and operation of the cable television industry and the cable services
provided by the Partnership. Although the new legislation may substantially
lessen regulatory burdens, the cable television industry may be subject to
additional competition as a result thereof. There are numerous rule-makings to
be undertaken by the FCC which will interpret and implement the
Telecommunication Act's provisions. In addition, certain provisions of the
Telecommunications Act (such as the deregulation of cable programming rates)
are not immediately effective. Further, certain of the Telecommunications
Act's provisions have been and are likely to be subject to judicial challenges.
Management is unable at this time to predict the outcome of such rule-makings
or litigation or the substantive effect of the new legislation and the
rule-makings on the financial position or results of operations of the
Partnership.
9. 401(k) PLAN:
In 1994, the Partnership adopted the Charter Communications, Inc. 401(k) Plan
(the "Plan") for the benefit of its employees. All employees who have
completed one year of employment are eligible to participate in the Plan. The
Plan is a tax-qualified retirement savings plan to which employees may elect to
make pretax contributions up to the lesser of 10% of their compensation or
dollar thresholds established under the Internal Revenue Code. The Partnership
contributes an amount equal to 50% of the first 5% contributed by each
employee. During 1996 and 1995, the Partnership contributed approximately
$20,500 and $22,100, respectively.
F-27
<PAGE> 56
10. NET LOSS FOR INCOME TAX PURPOSES:
The following reconciliation summarizes the differences between the
Partnership's net loss for financial reporting purposes and net loss for
federal income tax purposes for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Net loss for financial reporting purposes $ (4,756,897) $ (5,835,749) $ (7,425,112)
Depreciation differences between
financial reporting and tax reporting (302,210) (299,122) (621,340)
Amortization differences between
financial reporting and tax reporting 1,501,067 1,857,724 2,243,924
Differences in expenses recorded for
financial reporting and tax reporting 181,261 7,973 89,320
Differences in revenue reported
financial reporting and tax reporting (21,849) 196,640 -
Other 2,959 5,034 (8,762)
------------ ------------ ------------
Net loss for federal income tax purposes $ (3,395,669) $ (4,067,500) $ (5,721,970)
============ ============ ============
Net loss per Limited Partnership unit
for federal income tax purposes $ (11,414) $ (13,672) $ (19,236)
============ ============ ============
</TABLE>
The following summarizes the significant temporary differences between the
Partnership's financial reporting basis and federal income tax reporting basis
as of December 31:
<TABLE>
<CAPTION>
1996 1995
------------- -------------
<S> <C> <C>
Assets:
Accounts receivable $ 25,788 $ 21,651
Franchise costs and other assets 11,938,514 10,437,405
Accrued expenses 597,057 419,932
Deferred revenue 174,791 196,640
------------- -------------
$ 12,736,150 $ 11,075,628
============= =============
Liabilities- Property and equipment $ (10,048,954) $ (9,748,924)
============= =============
</TABLE>
11. INSURANCE SETTLEMENT:
In September 1996, Hurricane Fran caused damage to certain of the Partnership's
North Carolina system. The estimated total damage to the system was
approximately $955,000. As of December 31 the Partnership has incurred
approximately $855,000 in repairs. The Partnership received an insurance
advance of approximately $150,000 during 1996 and expects settlement in 1997.
In addition, the Partnership recorded a $383,000 nonoperating loss for its
portion of the insurance deductible.
F-28
<PAGE> 57
CENCOM CABLE INCOME PARTNERS II, L.P.
EXHIBIT INDEX
Exhibit
Number Description Page
- ------- -------------------- ----
3(a) Agreement of Limited Partnership, filed as Exhibit 3(b) to N/A
the Registrant's Registration Statement on Form S-1
(Registration No. 33-17174), incorporated herein by
this reference.
3(b) Amended and Restated Agreement of Limited Partnership, N/A
filed as Exhibit 3(c) to the Registrant's Registration
Statement on Form S-1 (Registration No. 33-17174),
incorporated herein by this reference.
10(a) Management Agreement between the Registrant and the N/A
Management Company filed as Exhibit 10(a) to the
Registrant's Registration Statement on Form S-1
(Registration No. 33-17174), incorporated herein
by this reference.
10(j) Agreement of Limited Partnership of Cencom Partners, N/A
L.P., dated January 30, 1990, by and between the
Registrant and Cencom Cable Associates, Inc., filed
as Exhibit 10(j) to the Registrant's Form 10-K for
the year ended December 31, 1990, incorporated herein
by this reference.
10(k) Loan Agreement, dated June 29, 1990, between the N/A
Registrant and the Toronto-Dominion Bank, filed as
Exhibit 10(k) to the Registrant's Form 10-K for the
year ended December 31, 1990, incorporated herein by
reference (the "1990 Loan Agreement").
10(l) First Amendment, dated December 11, 1990, to the 1990 N/A
Loan Agreement, filed as Exhibit 10(l) to the
Registrant's Form 10-K for the year ended December 31,
1993, incorporated herein by reference.
10(m) Second Amendment dated May 10, 1993, to the 1990 Loan N/A
Agreement, filed as Exhibit 10(m) to the Registrant's
Form 10-K for the year ended December 31, 1993,
incorporated herein by reference.
10(p) Third Amendment, dated June 30, 1994, to the 1990 Loan N/A
Agreement, filed as Exhibit 10(p) to the Registrant's
Form 10-K for the year ended December 31, 1994,
incorporated herein by reference.
10(q) Fourth Amendment, dated July 15, 1994, to the 1990 N/A
Loan Agreement, filed as Exhibit 10(q) to the Registrant's
Form 10-K for the year ended December 31, 1994,
incorporated herein by reference.
N/A
10(r) Assignment of shares of common stock of the General
Partner, dated July 15, 1994, filed as Exhibit 10(r) to
the Registrant's Form 10-K for the year ended December 31,
1994, incorporated herein by reference.
10(s) Assignment of the Management Agreement, dated July 15, N/A
1994, between the General Partner and Cencom Cable
Associates, Inc., filed as Exhibit 10(s) to the
Registrant's Form 10-K for the year ended December 31,
1994, incorporated herein by reference.
E-1
<PAGE> 58
Exhibit
Number Description Page
- ------- -------------------- ----
10(t) Transfer of Limited Partnership Interest in the N/A
Registrant, dated January 18, 1995, filed as
Exhibit 10(t) to the Registrant's Form 10-K for
the year ended December 31, 1994, incorporated
herein by reference.
10(u) Assignment of Limited Partnership Interest in Cencom N/A
Partners, L.P., dated January 18, 1995, filed as
Exhibit 10(u) to the Registrant's Form 10-K for the
year ended December 31, 1994, incorporated herein
by reference.
10(v) Fifth Amendment dated December 29, 1995, to the 1990 N/A
Loan Agreement, filed as Exhibit 10(v) to the
Registrant's Form 10-K for the year ended December 31,
1995, incorporated herein by reference.
10(w) Sixth Amendment dated December 31, 1996, to the 1990
Loan Agreement, filed herewith.
E-2
<PAGE> 1
SIXTH AMENDMENT TO LOAN AGREEMENT
THIS SIXTH AMENDMENT TO LOAN AGREEMENT, made as of this 31st day of
December, 1996 (the "Amendment Date"), by and among CENCOM CABLE INCOME
PARTNERS II, L.P., a Delaware limited partnership (the "Borrower"), THE
TORONTO-DOMINION BANK ("T-D Bank"), BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, CIBC INC. and PNC BANK, NATIONAL ASSOCIATION (as successor by
merger to Provident National Bank) (collectively, the "Banks") and TORONTO
DOMINION (TEXAS), INC. (successor to The Toronto-Dominion Bank Trust Company),
as administrative agent for the Banks (the "Agent"),
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent, The Toronto-Dominion Bank, and Marine
Midland Bank N.A. are original parties to that certain Loan Agreement dated as
of June 29, 1990 (the "Original Loan Agreement"); and
WHEREAS, the Borrower, the Agent, The Toronto-Dominion Bank, and Provident
National Bank are parties to that certain First Amendment to Loan Agreement
(the "First Amendment") dated December 11, 1990 pursuant to which Provident
National Bank, by way of an Assignment and Assumption Agreement, became a
"Bank" under the Original Loan Agreement, and assumed all of the rights and
obligations of Marine Midland Bank N.A. thereunder and under the Loan Documents
relating thereto; and
WHEREAS, the Borrower, the Agent, The Toronto-Dominion Bank, Bank of
America National Trust and Savings Association, CIBC Inc. and PNC Bank,
National Association are parties to that certain Second Amendment to Loan
Agreement (the "Second Amendment") dated May 10, 1993 pursuant to which each of
Bank of America National Trust and Savings Association, CIBC Inc. and PNC Bank,
National Association (as successor by merger to Provident National Bank) became
a "Bank" thereunder, that certain Third Amendment to Loan Agreement dated as of
June 30, 1994 (the "Third Amendment"), that certain Fourth Amendment to Loan
Agreement (the "Fourth Amendment") and that certain Fifth Amendment to Loan
Agreement (the "Fifth Amendment") (the Original Loan Agreement, as amended by
the First Amendment, Second Amendment, Third Amendment, the
<PAGE> 2
Fourth Amendment and the Fifth Amendment, collectively, the "Loan Agreement");
and
WHEREAS, the Borrower has requested the Agent and the Banks to agree to
amend the Loan Agreement as set forth herein;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is acknowledged, the parties agree that all
capitalized terms used herein shall have the meanings ascribed thereto in the
Loan Agreement except as otherwise defined or limited herein, and further agree
as follows:
1. Amendment to Article 1. Article 1 of the Loan Agreement, Definitions,
is hereby amended by deleting the existing definition of "Maturity Date" in its
entirety and by substituting the following in lieu thereof:
"`Maturity Date' shall mean June 30, 1997, or such earlier date as
payment of the Loans shall be due (whether by acceleration or
otherwise)."
2. Representations and Warranties. The Borrower hereby represents and
warrants in favor of the Agent and each Bank as follows:
(a) Each representation and warranty set forth in Article 4 of the Loan
Agreement is hereby restated and affirmed as true and correct as of the date
hereof;
(b) The Borrower has the partnership power and authority (i) to enter
into this Amendment and the Renewal Notes (as such term is hereinafter
defined), and (ii) to do all acts and things as are required or contemplated
hereunder to be done, observed and performed by it;
(c) This Amendment and the Renewal Notes have been duly authorized,
validly executed and delivered by one or more
-2-
<PAGE> 3
Authorized Signatories, and constitute the legal, valid and binding obligations
of the Borrower, enforceable against the Borrower in accordance with their
respective terms; and
(d) The execution and delivery of this Amendment and the Renewal Notes
and performance by the Borrower under the Loan Agreement, as amended hereby,
and the Renewal Notes do not and will not require the consent or approval of
any regulatory authority or governmental authority or agency having
jurisdiction over the Borrower which has not already been obtained, and are not
and will not be in contravention of or in conflict with the Certificate of
Limited Partnership or Partnership Agreement of the Borrower or the Certificate
of Incorporation or By-Laws of the General Partner, or the provision of any
statute, judgment, order, indenture, instrument, agreement, or undertaking, to
which the Borrower is party or by which the Borrower's assets or properties are
or may become bound.
3. Conditions Precedent to Effectiveness of Amendment. The effectiveness
of this Amendment is subject to the prior fulfillment of each of the following
conditions:
(a) the truth and accuracy of the representations and warranties
contained in Section 2 hereof;
(b) the receipt by each of the Banks of a promissory note substantially
in the form of Exhibit A attached hereto (collectively, the "Renewal Notes"),
which Renewal Notes shall be deemed to be "Notes" under the Loan Agreement and
the other Loan Documents for all purposes hereafter;
(c) the receipt by the Agent and the Banks of a signed opinion of
counsel to the Borrower in form and substance satisfactory to the Agent and its
special counsel;
(d) the receipt by the Agent and the Banks of an incumbency certificate
with respect to the officers of the Borrower signing this Amendment on behalf
of the Borrower, in form and substance satisfactory to the Agent and its
special counsel;
-3-
<PAGE> 4
(e) the receipt by each Bank of an amendment fee in an amount equal to
the product of (i) such Bank's portion of the Commitment, multiplied by (ii)
0.50%, which fee shall be fully earned when due and non-refundable when paid;
and
(f) the receipt by the Agent and the Banks of any other documents which
the Agent or any Bank may reasonably request, certified by an appropriate
governmental official or officer of the Borrower if so requested.
4. Counterparts. This Amendment may be executed in multiple counterparts,
each of which shall be deemed to be an original and all of which, taken
together, shall constitute one and the same agreement.
5. Law of Contract. THIS AMENDMENT SHALL BE DEEMED TO BE MADE PURSUANT TO
THE LAWS OF THE STATE OF NEW YORK WITH RESPECT TO AGREEMENTS MADE AND TO BE
PERFORMED WHOLLY IN THE STATE OF NEW YORK AND SHALL BE CONSTRUED, INTERPRETED,
PERFORMED AND ENFORCED IN ACCORDANCE THEREWITH.
6. Effective Date. Upon satisfaction of the conditions precedent referred
to in Section 3 above, this Amendment shall be effective as of the date first
set forth above.
7. Loan Document. This Amendment shall be deemed to be a Loan Document
for all purposes.
8. No Other Amendment or Waiver. Except for the amendments set forth
above, the text of the Loan Agreement and all other Loan Documents shall remain
unchanged and in full force and effect. The amendments agreed to herein shall
not constitute a modification of the Loan Agreement or a course of dealing with
the Agent and the Banks at variance with the Loan Agreement such as to require
further notice by the Agent, the Banks or the Majority Banks to require strict
compliance with the terms of the Loan Agreement, as amended by this Amendment,
and the other Loan Documents in the future.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused their respective duly
authorized officers or representatives to execute, deliver and seal this
Amendment as of the day and year first above written, to be effective as set
forth in Section 6 hereof.
BORROWER: CENCOM CABLE INCOME PARTNERS II, L.P., a Delaware limited
partnership
By its General Partner:
CENCOM PROPERTIES II, INC., a
Delaware corporation
[CORPORATE SEAL] By:
-------------------------------------
Title:
-------------------------------------
AGENT: TORONTO DOMINION (TEXAS), INC.
By:
-------------------------------------
Title:
-------------------------------------
BANKS: THE TORONTO-DOMINION BANK
By:
-------------------------------------
Title:
-------------------------------------
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By:
-------------------------------------
Title:
-------------------------------------
CIBC INC.
By:
-------------------------------------
Title:
-------------------------------------
<PAGE> 6
PNC BANK, NATIONAL ASSOCIATION (as
successor by merger to
Provident National Bank)
By:
-------------------------------------
Title:
-------------------------------------
Exhibit A - Form of Renewal Note
<PAGE> 7
EXHIBIT A
FORM OF RENEWAL NOTE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 531,285
<SECURITIES> 0
<RECEIVABLES> 257,471
<ALLOWANCES> 34,763
<INVENTORY> 0
<CURRENT-ASSETS> 832,698
<PP&E> 55,398,308
<DEPRECIATION> 36,459,500
<TOTAL-ASSETS> 20,845,510
<CURRENT-LIABILITIES> 5,948,714
<BONDS> 36,700,000
0
0
<COMMON> 0
<OTHER-SE> (21,828,007)
<TOTAL-LIABILITY-AND-EQUITY> 20,845,510
<SALES> 18,155,382
<TOTAL-REVENUES> 18,155,382
<CGS> 0
<TOTAL-COSTS> 16,807,197
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,835,247
<INCOME-PRETAX> (1,447,153)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,447,153)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,447,153)
<EPS-PRIMARY> (15.76)
<EPS-DILUTED> (15.76)
</TABLE>
