<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from to
----------------- --------------------------
Commission File Number 33-17174
----------
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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
- -
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CENCOM CABLE INCOME PARTNERS II, L.P.
FORM 10-Q - FOR THE QUARTER ENDED SEPTEMBER 30, 1997
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
a. Balance Sheets - September 30, 1997 and December 31, 1996 3
b. Statements of Operations - Three Months Ended September 30, 1997 and 1996 4
c. Statements of Operations - Nine Months Ended September 30, 1997 and 1996 5
d. Statement of Partners' Capital (Deficit) - Nine Months Ended
September 30, 1997 6
e. Statements of Cash flows - Nine Months Ended September 30, 1997 and 1996 7
f. Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
Part II. Other Information
Item 1. Legal Proceedings 17
Item 2. Change in Securities - None -
Item 3. Defaults upon Senior Securities - None -
Item 4. Submission of Matters to a Vote of Security Holders - None -
Item 5. Other Information - None -
Item 6. Exhibits and Reports on Form 8-K 17
Signature Page 18
</TABLE>
Page 2
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CENCOM CABLE INCOME PARTNERS II, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 386,701 $ 531,285
Accounts receivable, net 122,997 222,708
Prepaid expenses and other 40,675 78,705
------------- -------------
Total current assets 550,373 832,698
PROPERTY, PLANT AND EQUIPMENT, net 2,994,709 18,938,808
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP 2,721,423 ---
FRANCHISE COSTS, net of accumulated amortization of $1,257,094 and
$22,383,464, respectively 39,274 724,004
DEBT ISSUANCE COSTS, net of accumulated amortization of $17,288 and
$-0-, respectively 272,291 350,000
RESTRICTED FUNDS HELD IN ESCROW 750,000 ---
------------- -------------
$ 7,328,070 $ 20,845,510
============= =============
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ --- $ 36,700,000
Accounts payable and accrued expenses 966,919 2,397,674
Income taxes withheld on behalf of Limited Partners 2,216,768 ---
Payables to General Partner and Unconsolidated Limited Partnership 5,074,109 3,532,580
Subscriber deposits 11,982 18,460
------------- -------------
Total current liabilities 8,269,778 42,648,714
------------- -------------
LONG-TERM DEBT 5,100,000 ---
------------- -------------
DEFERRED REVENUE 19,198 24,803
------------- -------------
PARTNERS' CAPITAL (DEFICIT):
General Partner --- (2,828,374)
Limited Partners (250,000 units authorized; 90,915 units issued
and outstanding) (5,601,739) (18,540,466)
Note receivable from General Partner (459,167) (459,167)
------------- -------------
Total Partners' capital (deficit) (6,060,906) (21,828,007)
------------- -------------
$ 7,328,070 $ 20,845,510
============= =============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
Page 3
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CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
SERVICE REVENUES $ 1,473,477 $ 4,588,588
----------- -----------
OPERATING EXPENSES:
Operating, general and administrative 877,713 2,616,489
Depreciation and amortization 291,000 1,460,192
Liquidation costs 337 100,770
----------- -----------
1,169,050 4,177,451
----------- -----------
Income from operations 304,427 411,137
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 2,903 9,505
Interest expense (131,546) (707,973)
Equity in income of unconsolidated limited partnership (See Note 2) 89,570 ---
----------- -----------
(39,073) (698,468)
----------- -----------
Net income (loss) $ 265,354 $ (287,331)
=========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ 2.92 $ (3.13)
=========== ===========
AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 90,915 90,915
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
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CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
SERVICE REVENUES $ 7,783,061 $ 13,500,474
----------- ------------
OPERATING EXPENSES:
Operating, general and administrative 4,535,119 7,703,051
Depreciation and amortization 2,020,842 4,312,695
Liquidation costs 326,806 309,968
----------- ------------
6,882,767 12,325,714
----------- ------------
Income from operations 900,294 1,174,760
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 170,612 31,596
Interest expense (1,208,211) (2,179,681)
Equity in income of unconsolidated limited partnership (See Note 2) 8,221,423 ---
Gain on sale of cable television systems 36,230,293 ---
----------- ------------
43,414,117 (2,148,085)
----------- ------------
Net income (loss) $44,314,411 $ (973,325)
=========== ============
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT $ 456.32 $ (10.60)
=========== ============
AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 90,915 90,915
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
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CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
Note
Receivable
From
General Limited General
Partner Partners Partner Total
--------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ (2,828,374) $(18,540,466) $(459,167) $(21,828,007)
Net income 2,828,374 41,486,037 --- 44,314,411
Distributions --- (28,547,310) --- (28,547,310)
-------------- ------------ ---------- ------------
BALANCE, September 30, 1997 $ --- $ (5,601,739) $(459,167) $ (6,060,906)
============== ============ ========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
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CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 44,314,411 $ (973,325)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities-
Depreciation and amortization 2,020,842 4,312,695
Amortization of debt issuance costs 367,290 ---
Equity in income of unconsolidated limited partnership (8,221,423) ---
Gain on sales of cable television systems (36,230,293) ---
Changes in assets and liabilities, net of effect from sales of cable
television systems:
Accounts receivable, net (232,124) (83,717)
Prepaid expenses and other (40,638) (51,556)
Accounts payable and accrued expenses (699,271) (22,054)
Income taxes withheld on behalf of Limited Partners 2,216,768 ---
Payables to General Partner and Unconsolidated Limited Partnership 1,541,529 702,707
Subscriber deposits (785) (1,755)
Deferred revenue (2,099) (2,325)
-------------- --------------
Net cash provided by operating activities 5,034,207 3,880,670
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net (969,124) (1,479,821)
Proceeds from sales of cable television systems, net of cash sold 51,477,222 ---
Proceeds from sales of property, plant and equipment --- 7,275
Restricted funds held in escrow (750,000) ---
Distributions from investment in unconsolidated limited partnership 5,500,000 ---
-------------- --------------
Net cash provided by (used in) investing activities 55,258,098 (1,472,546)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to Limited Partners (26,330,542) ---
Income taxes withheld related to distribution (2,216,768) ---
Repayments on revolving line of credit (37,400,000) (2,900,000)
Borrowings on credit agreement 5,800,000 ---
Debt issuance costs (289,579) ---
-------------- --------------
Net cash used in financing activities (60,436,889) (2,900,000)
-------------- --------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (144,584) (491,876)
CASH AND CASH EQUIVALENTS, beginning of period 531,285 935,858
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 386,701 $ 443,982
============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
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CENCOM CABLE INCOME PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. RESPONSIBILITY FOR INTERIM FINANCIAL STATEMENTS:
The financial statements of Cencom Cable Income Partners II, L.P. (the
"Partnership" or "CCIP II") as of September 30, 1997 and 1996, are unaudited;
however, in the opinion of management, such statements include all adjustments
necessary for a fair presentation of the results for the periods presented.
The interim financial statements should be read in conjunction with the
financial statements and notes thereto contained in the Partnership's Form 10-K
for the year ended December 31, 1996. Interim results are not necessarily
indicative of results for a full year.
The accompanying unaudited financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission. Accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
2. INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP:
The Partnership owns limited partnership units of Cencom Partners, L.P.
("CPLP") which provide the Partnership an 84.03% ownership interest in CPLP.
The Partnership accounts for its investment in CPLP using the equity method.
For the period ended September 30, 1997, the Partnership recorded equity in
income from its investment in CPLP totaling approximately $8,221,000, net of
previously unrecorded losses of approximately $15,875,000. Also, during June
1997, the Partnership received a cash distribution from CPLP in the amount of
$5,500,000.
Summary financial information for the operating results of CPLP, which are not
consolidated with the operating results of the Partnership, are as follows:
<TABLE>
<CAPTION>
For the Three For the Three For the Nine For the Nine
Months Ended Months Ended Months Ended Months Ended
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Service revenues $626,448 $ 3,453,621 $ 5,080,647 $10,180,196
======== =========== =========== ===========
Income (loss) from operations $135,947 $ (383,920) $ (53,719) $(1,045,490)
======== =========== =========== ===========
Gain on sale of cable television systems $ -- $ -- $32,614,346 $ --
======== =========== =========== ===========
Net income (loss) $106,593 $(1,400,259) $31,391,259 $(3,430,125)
======== =========== =========== ===========
</TABLE>
3. LIQUIDATION:
The General Partner distributed a disclosure statement (the "Disclosure
Statement") to the limited partners of the Partnership (the "Limited Partners")
on March 6, 1997, which described various transactions and requested consent
for certain proposed sales of cable television systems by the Partnership and
CPLP to affiliates of the General Partner. A majority of the Limited Partners
gave their consent for the sale of certain cable television systems to
affiliates of the General Partner. Following receipt of the Limited Partners'
consent, the Partnership and CPLP consummated the transactions with the
affiliates of the General Partner, in accordance with the Disclosure Statement.
On March 31, 1997, the Partnership consummated the sale of certain of the cable
television systems located in Texas (the "Texas Sales") in two separate asset
sale transactions with unaffiliated third parties. The sales price was
approximately $15,255,000, after initial closing adjustments, for the sale of
approximately 10,400 basic subscribers,
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<PAGE> 9
in the aggregate. Pursuant to the asset sale transactions with the
unaffiliated third parties, the aggregate amount of $750,000 was deposited into
indemnification escrow accounts. These funds will be released to the
Partnership upon mutual satisfaction of the seller's representations and
warranties related to the assets that were sold.
Proceeds from the Texas Sales on March 31, 1997, and South Carolina systems on
April 7, 1997 (as discussed in the Disclosure Statement) were used to reduce to
zero the balance of outstanding indebtedness, with the remaining funds of
approximately $14.0 million placed in short-term investments.
Proceeds from the sale of certain of the cable television systems owned by CPLP
on April 7, 1997 to affiliates of the General Partner enabled CPLP to reduce
the balance of its outstanding indebtedness to zero and retire its special
limited partnership interests, with the remaining funds of approximately $6.6
million placed in short-term investments. During May 1997, CPLP distributed
$5.5 million to the Partnership.
The Partnership utilized its short-term investments, the cash distribution
received from CPLP and funds available under its new credit facility (see Note
6) for the purpose of making a distribution to the Limited Partners. During
June 1997, the Partnership made a distribution of $314 per unit, net of $2.4
million withheld for state income taxes, to the Limited Partners, for a total
net distribution of approximately $26.1 million. No distribution was made by
the Partnership to the General Partner.
Bids submitted to date with respect to the Northeast Missouri systems and the
remainder of the Texas systems were considered too low relative to the
appraised fair market values of such systems established pursuant to an
appraisal process. Thus, these bids have not been accepted by the General
Partner. The General Partner continues to seek potential purchasers for these
remaining systems.
Upon dissolution, the General Partner or other liquidating agent is required to
liquidate partnership assets and to distribute all available proceeds as soon
as practicable after their receipt by the Partnership. After payment of the
Partnership's liabilities, these sales proceeds will be distributed as set
forth in the Partnership Agreement.
Upon finalization of a complete plan of liquidation and the determination of
net proceeds (in accordance with that prescribed in the Partnership Agreement)
from sales of all assets, the Partnership will change its basis of accounting
from the going-concern basis to the liquidation basis. Under the liquidation
basis of accounting, assets are recorded at their estimated realizable values
and liabilities are recorded at their estimated settlement amounts. The asset
and liability amounts on the balance sheets do not purport to represent
realizable or settlement values.
4. PARTNER ALLOCATIONS
In accordance with the Partnership Agreement, net income including equity in
income of unconsolidated limited partnership and excluding gain on sale of
cable television systems shall be allocated to those partners with negative
capital balances in proportion to such negative balances until the negative
balances are restored to zero. Gains attributed to the sale or disposition of
assets sold shall be allocated to those partners with negative capital account
balances, after giving effect to the net income for the current year, in
proportion to such negative balances until the negative balances are restored
to zero. After the partners' capital accounts have been restored to zero,
gains on sale of cable television systems are allocated to the Limited Partners
until they receive an amount equal to cash distributions received with respect
to the 11% Preferred Return in excess of net profits previously allocated
reduced by certain previously allocated gains. Next, gains are allocated to
the Limited Partners until the sum of all allocated net profits (other than
certain previously allocated gains) equals their unpaid 11% Preferred Return.
5. LITIGATION
On April 15, 1997, a petition was filed, and on June 19, 1997, an amended
petition was filed by certain of the limited partners of the Partnership against
Cencom Properties II, Inc., the general partner of the Partnership, Cencom
Partners Inc., the general partner of CPLP, the brokerage firms involved in the
original sale of the limited
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partnership units and Cencom Cable Entertainment, Inc. ("Cencom Cable").
Cencom Cable provided management services to both the Partnership and CPLP and
also owned all of the stock of the general partners of each of these
partnerships prior to mid-1994. The plaintiffs allege that the defendants
breached fiduciary duties, committed fraud and made various misrepresentations
in the marketing and sale of CCIP II limited partnership units and in the
management of CCIP II. The plaintiffs seek recovery of the consideration paid
for their partnership units, restitution of all profits received by the
defendants in connection with the management of the Partnership and punitive
damages.
On June 10, 1997, a purported class action was filed in Delaware Chancery Court
under the name Wallace, Matthews, Lerner and Roberts v. Wood et al, Case No.
15731, on behalf of the limited partners of the Partnership against Cencom
Properties II, Inc., Cencom Cable, Charter Communications, Inc. ("Charter"),
manager of the Partnership's operating cable television systems, and the parent
of Cencom Partners, Inc. and Cencom Properties II, Inc., certain other
affiliates of Charter, certain individuals, including officers of Charter or
Cencom Properties II, Inc. and certain other unaffiliated parties. The
plaintiffs allege that the defendants breached fiduciary duties and the terms
of the CCIP II partnership agreement in connection with the investment in CPLP,
the management of CCIP II assets and the sale of certain Partnership assets.
The damages claimed by the plaintiffs are as yet unspecified.
The Partnership has not been named as a defendant in the above actions.
6. LONG - TERM DEBT
On May 23, 1997, the Partnership terminated its existing secured revolving
line of credit agreement for $65.0 million and entered into a credit agreement
(the "Credit Agreement") with a bank for borrowings up to $8,500,000. The
Credit Agreement also provides for borrowings up to $7,500,000 by CPLP, with
each partnership held jointly and severally liable in the event of default. At
September 30, 1997, CCIP II had $5,100,00 of indebtedness outstanding under the
Credit Agreement and CPLP had $-0- of indebtedness outstanding under the Credit
Agreement. The debt bears interest, at the Partnership's option, based on the
prime rate of the Canadian Imperial Bank of Commerce (the agent bank), or LIBOR
plus applicable margins based upon the Partnership's leverage ratio at the time
of the borrowings. At September 30, 1997, the weighted average interest rate
on outstanding indebtedness was 7.72%. The weighted average interest rate and
weighted average outstanding borrowings for the period from May 23, 1997 to
September 30, 1997 related to outstanding indebtedness of the Credit Agreement
was 9.30% and $4,278,000, respectively. As this debt instrument bears interest
at current market rates, its carrying amount approximates fair market value at
September 30, 1997.
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 total debt to annualized operating cash flow of
4.00 to 1.00 at September 30, 1997. A quarterly commitment fee of 0.375% per
annum is payable on the unused portion of the Credit Agreement. Commencing
March 31, 1999, and at the end of each calendar quarter thereafter, the
borrowing capacity shall be reduced by $800,000. Quarterly reductions will
continue until March 31, 2002, at which time the borrowing capacity shall be
reduced by $1,600,000, quarterly until December 31, 2002.
7. RELATED PARTY
Payables to General Partner and CPLP were approximately $5.1 million at
September 30, 1997 and approximately $3.5 million at December 31, 1996. At
December 31, 1996, the payable to General Partner consisted of deferred
management fees, of which approximately $2.3 million was deferred under the
terms of the Partnership Agreement and approximately $1.2 million was deferred
under the terms of the Credit Agreement. At September 30, 1997, the payables
to General Partner and CPLP consisted primarily of deferred management fees,
with approximately $2.6 million deferred under the terms of the Partnership
Agreement and approximately $1.4 million voluntarily deferred by the General
Partner. In addition, at September 30, 1997, payables to General Partner and
CPLP included $1,100,000 payable to CPLP, proceeds of which were used to reduce
outstanding indebtedness under the Credit Agreement.
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CENCOM CABLE INCOME PARTNERS II, L.P.
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The following table sets forth the approximate number of subscribers of the
Partnership as of the dates indicated.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1997 1996 1996
------------- ------------ -------------
<S> <C> <C> <C>
Basic Subscribers:
Texas systems 11,700 21,900 22,200
South Carolina systems -- 20,800 20,700
Northeast Missouri systems 1,800 2,000 2,000
------ ------ ------
13,500 44,700 44,900
====== ====== ======
Premium Subscriptions:
Texas systems 4,500 7,600 7,100
South Carolina systems -- 10,400 10,800
Northeast Missouri systems 700 900 900
------ ------ ------
5,200 18,900 18,800
====== ====== ======
</TABLE>
The following table sets forth certain items in dollars and as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
For the Three Months
Ended September 30
--------------------
(Unaudited)
1997 1996
------------------------- --------------------------
Amount % of Revenue Amount % of Revenue
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Service Revenues $1,473,477 100.0% $4,588,588 100.0%
---------- ------ ---------- -----
Operating Expenses:
Operating, General and Administrative 877,713 59.5 2,616,489 57.0
Depreciation and Amortization 291,000 19.7 1,460,192 31.8
Liquidation Costs 337 .1 100,770 2.2
---------- ------ ---------- -----
1,169,050 79.3 4,177,451 91.0
---------- ------ ---------- -----
Income from Operations 304,427 20.7 411,137 9.0
---------- ------ ---------- -----
Other Income (Expense):
Interest Income 2,903 .1 9,505 .2
Interest Expense (131,546) (8.9) (707,973) (15.4)
Equity in Income of Unconsolidated
Limited Partnership 89,570 6.1 --- ---
---------- ------ ---------- -----
(39,073) (2.7) (698,468) (15.2)
---------- ------ ---------- -----
Net Income (Loss) $ 265,354 18.0 $(287,331) (6.2)
========== ====== ========== =====
</TABLE>
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<PAGE> 12
The following table sets forth certain items in dollars and as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30
-------------------
(Unaudited)
1997 1996
---------------------------- ------------------------
Amount % of Revenue Amount % of Revenue
------------- ------------ ---------------- --------------
<S> <C> <C> <C> <C>
Service Revenues $ 7,783,061 100.0% $13,500,474 100.0%
------------- ----------- ---------------- -------------
Operating Expenses:
Operating, General and Administrative 4,535,119 58.3 7,703,051 57.1
Depreciation and Amortization 2,020,842 26.0 4,312,695 31.9
Liquidation Costs 326,806 4.1 309,968 2.3
------------- ----------- ---------------- -------------
6,882,767 88.4 12,325,714 91.3
------------- ----------- ---------------- -------------
Income from Operations 900,294 11.6 1,174,760 8.7
-------------- ----------- ---------------- -------------
Other Income (Expense):
Interest Income 170,612 2.2 31,596 .2
Interest Expense (1,208,211) (15.5) (2,179,681) (16.1)
Equity in Income of Unconsolidated
Limited Partnership 8,221,423 105.6 --- ---
Gain on Sales of Cable Television
Systems 36,230,293 465.5 --- ---
------------- ----------- ---------------- ------------
43,414,117 557.8 (2,148,085) (15.9)
------------- ----------- ---------------- ------------
Net Income (Loss) $ 44,314,411 569.4% $ (973,325) (7.2)%
============== =========== =============== =============
</TABLE>
Service Revenues
The Partnership earns substantially all of its revenues from monthly
subscription fees for basic tier, expanded tier, premium channels, equipment
rental and ancillary services provided by its cable television systems.
Service revenues decreased by 67.9% and 42.3% for the three and nine months
ended September 30, 1997, respectively, when compared to the similar periods of
1996. These decreases are due to the sale of certain of the Texas systems on
March 31, 1997, (the "Texas Sales") and the sale of the South Carolina systems
on April 7, 1997, (the "South Carolina Sale") (collectively the "System
Sales").
Basic subscribers of the Partnership at September 30, 1997 were approximately
13,500, which represents a decrease of 69.8% versus December 31, 1996 as a
result of the System Sales. Basic subscribers in the Northeast Missouri
systems and the Texas systems that were not sold on March 31, 1997
(collectively the "Remaining Systems") have decreased 0.7% from approximately
13,600 subscribers at December 31, 1996.
Premium service subscriptions decreased 72.5% from 18,900 subscriptions at
December 31, 1996 to 5,200 subscriptions at September 30, 1997. This decrease
is primarily due to the System Sales. Premium subscriptions for the Remaining
Systems decreased 3.7% from approximately 5,400 subscriptions at December 31,
1996.
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<PAGE> 13
Operating Expenses
Operating, general and administrative expenses of the Partnership decreased by
$1,739,000 and $3,168,000, or 66.5% and 41.1%, respectively, for the three and
nine months ended September 30, 1997 versus the similar periods of 1996. These
decreases are primarily the result of the Partnership serving fewer subscribers
as a result of the System Sales.
Depreciation and amortization expense decreased by $1,169,000 and $2,292,000,
or 80.1% and 53.1%, respectively, for the three and nine months ended September
30, 1997 versus the similar periods of 1996. These decreases are related to
the smaller base of depreciable and amortizable assets as a result of the
System Sales.
Liquidation costs of $337 and $327,000 were incurred by the Partnership for the
three and nine months ended September 30, 1997, related to System Sales. These
costs consisted primarily of legal fees.
Other Income and Expenses
Interest income was $3,000 and $171,000 for the three and nine months ended
September 30, 1997. Interest income was primarily generated by the Partnership
during the period following the System Sales when approximately $14.0 million
was invested in short-term commercial paper. These investments were sold in
order to make the distribution to the Limited Partners during June 1997.
Interest expense was $132,000 and $1,208,000 for the three and nine months
ended September 30, 1997, which was a decrease of 81.3% and 44.6% versus the
similar periods of 1996. These decreases are primarily the result of lower
average outstanding indebtedness of the Partnership during 1997 as a result of
utilizing proceeds from the System Sales to reduce debt balances.
Equity in income of unconsolidated limited partnership relates to revenue
recorded by the Partnership for its share of net income recorded by Cencom
Partners, L.P. ("CPLP"). For the nine months ended September 30, 1997, this
revenue is primarily due to CPLP's gain on the sale of its cable television
systems, which occurred during April 1997.
Gain on sale of cable television systems by the Partnership is the result of
the Texas Sales on March 31, 1997 and from the South Carolina Sale on April 7,
1997. The gain is net of brokerage fees of approximately $403,000.
Net Income
Net income was $0.3 million and $44.3 million for the three and nine months
ended September 30, 1997, versus net losses of $0.3 million and $1.0 million
for the three and nine months ended September 30, 1996, respectively. The
primary reasons for the change for the quarter ended September 30, 1997 are the
reduction in interest expense and the equity in income of unconsolidated
limited partnership. For the nine months ended September 30, 1997, the reasons
for the change are the reduction in interest expense, the gains on sales of
cable television systems and the equity in income of unconsolidated limited
partnership.
Page 13
<PAGE> 14
Liquidity and Capital Resources
The Registrant has historically been able to meet capital needs through
borrowings under credit facilities and from cash generated by operations. The
Registrant anticipates that cash generated from operations and available credit
should be adequate for future foreseeable capital requirements over the
remaining life of the Partnership.
Prior to May 23, 1997, the Partnership had maintained for a secured revolving
line of credit with a consortium of banks for borrowings up to a maximum of
$65.0 million. Outstanding borrowings under this credit facility were
$36,700,000 at December 31, 1996, which was reduced to $21,718,122 at March 31,
1997 from the proceeds of the Texas Sales. Outstanding indebtedness was
reduced to zero on April 7, 1997 from the proceeds of the South Carolina Sale.
On May 23, 1997, the Partnership terminated its existing secured revolving
line of credit agreement for $65.0 million and entered into a credit agreement
(the "Credit Agreement") with a bank for borrowings up to $8,500,000. The
Credit Agreement also provides for borrowings up to $7,500,000 by CPLP, with
each partnership held jointly and severally liable in the event of default. At
September 30, 1997, CCIP II had $5,100,000 of indebtedness outstanding under
the Credit Agreement and CPLP had $-0- of indebtedness outstanding under the
Credit Agreement. The debt bears interest at rates, at the Partnership's
option, based on the prime rate of the Canadian Imperial Bank of Commerce (the
agent bank), or LIBOR plus applicable margins based upon the Partnership's
leverage ratio at the time of the borrowings. At September 30, 1997, the
weighted average interest rate on outstanding indebtedness was 7.72%. The
weighted average interest rate and weighted average outstanding borrowings by
CCIP II for the period from May 23, 1997 to September 30, 1997 related to
outstanding indebtedness of the Credit Agreement was 9.30% and $4,278,000,
respectively. As this debt instrument bears interest at current market rates,
its carrying amount approximates fair market value at September 30, 1997.
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 total debt to annualized operating cash flow of
4.00 to 1.00 at September 30, 1997. A quarterly commitment fee of 0.375% per
annum is payable on the unused portion of the Credit Agreement. Commencing
March 31, 1999, and at the end of each calendar quarter thereafter, the total
amount outstanding (based upon available borrowings) shall be reduced by
$800,000. Quarterly payments will continue until March 31, 2002, at which time
the total outstanding (based upon available borrowings) shall be reduced by
$1,600,000, payable quarterly until December 31, 2002 or such time as the
outstanding indebtedness under the Credit Agreement is reduced to zero.
The Partnership made capital expenditures of approximately $969,000 during the
first nine months of 1997, primarily related to subscriber installations and
improvements to the cable plant.
Payables to General Partner and affiliates were approximately $5.1 million at
September 30, 1997 and approximately $3.5 million at December 31, 1996. At
December 31, 1996, the payable to General Partner consisted of deferred
management fees, of which approximately $2.3 million was deferred under the
terms of the Partnership Agreement and approximately $1.2 million was deferred
under the terms of the credit facility. At September 30, 1997, the payables to
General Partner and affiliates consisted primarily of deferred management fees,
with approximately $2.6 million deferred under the terms of the Partnership
Agreement and approximately $1.4 million voluntarily deferred by the General
Partner. In addition, at September 30, 1997, payables to General Partner and
affiliates included $1,100,000 payable to CPLP, proceeds of which were used to
reduce bank indebtedness.
The Partnership Agreement provides for the dissolution of the Partnership to
have been initiated on or before December 31, 1995. In accordance with the
Partnership Agreement, the General Partner began dissolution during 1995. Two
independent appraisals were received, resulting in an appraised value of
$73,850,000 as of March 31, 1995 for the Partnership's cable systems (the
"Systems") (excluding its investment in CPLP). The General Partner retained a
broker to market the Systems using an auction process and accepted bids with
respect to the South Carolina systems, and for the Cleveland, Jasper,
Woodville, Marlin, Madisonville and Buffalo systems, which constitute a portion
of the Texas systems, for an aggregate purchase price of $51,950,000. The bid
for the South Carolina systems was submitted by an affiliate of the General
Partner. In accordance with the Partnership
Page 14
<PAGE> 15
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.
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 engaged two independent appraisers, who
jointly reached a valuation of $60,900,000 for all of the CPLP Systems.
Thereafter, a broker 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 accepted bids by
affiliates of the General Partner for CPLP's South Carolina and North Carolina
Systems which served 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.
On March 31, 1997, the Partnership consummated the sale of certain of its cable
television systems located in Texas in two separate asset sale transactions
with unaffiliated third parties. The sales price was approximately
$15,255,000, after initial closing adjustments, for the sale of approximately
10,400 basic subscribers, in the aggregate. Pursuant to the asset sale
transactions with the unaffiliated third parties, the aggregate amount of
$750,000 was deposited into indemnification escrow accounts. These funds will
be released to the Partnership upon mutual satisfaction of the seller's
representations and warranties related to the assets that were sold.
The General Partner distributed a disclosure statement to the Limited Partners
on March 6, 1997 which described the various transactions and requested consent
for certain proposed sales by the Partnership and CPLP to affiliates of the
General Partner. On April 7, 1997, the last day of the voting period, a
majority of the Limited Partners gave their consent for the sale of certain
cable television systems to affiliates of the General Partner. Following
receipt of the Limited Partners' consent, the Partnership and CPLP consummated
the transactions with the affiliates of the General Partner, in accordance with
the disclosure statement.
Proceeds from the Texas Sales on March 31, 1997 and the South Carolina Sale on
April 7, 1997 were used to reduce to zero the balance of outstanding
indebtedness, with the remaining funds of approximately $14.0 million placed in
short-term investments.
Proceeds from the sale of certain of the cable television systems owned by CPLP
on April 7, 1997 to affiliates of the General Partner enabled CPLP to reduce to
zero the balance of its outstanding indebtedness and retire its special limited
partnership interests, with the remaining funds of approximately $6.6 million
placed in short-term investments. During May 1997, CPLP distributed
approximately $5.5 million to the Partnership.
The Partnership utilized its short-term investments, the cash distribution that
it received from CPLP and funds available under its new credit facility (see
Note 6 of the financial statements) for the purpose of generating a
distribution to the Limited Partners. During June 1997, the Partnership made a
distribution of $314 per unit, net of amounts withheld for state income taxes
to the Limited Partners, for a total net distribution of approximately $26.1
million. No distribution was made by the Partnership to the General Partner.
There have been no subsequent distributions.
Bids submitted to date with respect to the Northeast Missouri systems and the
remainder of the Texas systems were considered to be too low relative to the
appraised fair market values of such systems established pursuant to the
appraisal process. Thus, these bids have not been accepted by the General
Partner. The General Partner continues to seek potential purchasers for these
remaining systems.
Page 15
<PAGE> 16
Upon dissolution, the General Partner or other liquidating agent is required to
liquidate partnership assets and to distribute all available proceeds as soon
as practicable after their receipt by the Partnership. After payment of the
Partnership's liabilities, these sales proceeds will be distributed as set
forth in the Partnership Agreement.
The Partnership does not maintain property and casualty insurance covering its
underground cable television distribution plant. The General Partner believes
that the likelihood of any material damage to such distribution plant, due to
natural disasters or otherwise, is minimal and that damage to such distribution
plant at any individual location is unlikely to have a material adverse effect
on the Partnership. The General Partner also believes that its decision not to
insure such distribution plant is consistent with standard practices in the
cable television industry.
The Partnership believes that it has generally complied with the provisions of
the 1992 Act regarding cable programming service rates. However, some Systems
may be charging rates which are in excess of allowable rates and, accordingly,
may be subject to challenge by regulatory authorities; such challenge may
result in the Partnership being required to make refunds to subscribers. The
amount of refunds, if any, which could be payable by the Partnership in the
event such Systems' rates are successfully challenged by regulatory authorities
is not currently estimable. The Partnership has not reserved any amounts for
payment of such refunds as the General Partner does not believe that the
amounts of any such refunds would have a material adverse effect on the
financial position or results of the Partnership.
Page 16
<PAGE> 17
Part II. Other Information
Item 1. Legal Proceedings - None
Item 2. Change in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
A. Exhibits
27 Financial Data Schedule
B. Reports on Form 8-K - None
Page 17
<PAGE> 18
CENCOM CABLE INCOME PARTNERS II, L.P.
FOR QUARTER ENDED SEPTEMBER 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENCOM CABLE INCOME PARTNERS II, L.P.
By: Cencom Properties II, Inc.,
its General Partner
By: /s/ Jerald L. Kent
----------------------------
Jerald L. Kent
Executive Vice President and
Chief Financial Officer
By: /s/Jerald L. Kent November 13, 1997
----------------------------
Jerald L. Kent
Executive Vice President and
Chief Financial Officer
By: /s/Ralph G. Kelly November 13, 1997
----------------------------
Ralph G. Kelly
Treasurer
Page 18
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 386,701
<SECURITIES> 0
<RECEIVABLES> 122,997
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 550,373
<PP&E> 2,994,709
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,328,070
<CURRENT-LIABILITIES> 8,269,778
<BONDS> 5,100,000
0
0
<COMMON> 0
<OTHER-SE> (6,060,906)
<TOTAL-LIABILITY-AND-EQUITY> 7,328,070
<SALES> 1,473,477
<TOTAL-REVENUES> 1,473,477
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,169,050
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,546
<INCOME-PRETAX> 265,354
<INCOME-TAX> 0
<INCOME-CONTINUING> 265,354
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> 265,354
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