<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, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transaction period from ________________ to ___________________
Commission File Number 0-21309
CENCOM CABLE INCOME PARTNERS II, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 43-1456575
-------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
12444 Powerscourt Drive - 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 __
<PAGE> 2
CENCOM CABLE INCOME PARTNERS II, L.P.
-------------------------------------
FORM 10-Q - FOR THE QUARTER ENDED SEPTEMBER 30, 1998
----------------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
Part I. Financial Information ----
---------------------
<S> <C>
Item 1. Financial Statements
a. Balance Sheets - September 30, 1998 and December 31, 1997 3
b. Statements of Operations - Three Months Ended
September 30, 1998 and 1997 4
c. Statements of Operations - Nine Months Ended September 30, 1998 and 1997 5
d. Statement of Partners' Capital (Deficit) - Nine Months Ended
September 30, 1998 6
e. Statements of Cash flows - Nine Months Ended September 30, 1998 and 1997 7
f. Notes to Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 16
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 16
Signature Page 17
</TABLE>
Page 2
<PAGE> 3
CENCOM CABLE INCOME PARTNERS II, L.P.
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -----------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 174,648 $ 220,104
Accounts receivable, net 29,815 98,685
Prepaid expenses and other 36,457 29,458
----------- -----------
Total current assets 240,920 348,247
PROPERTY AND EQUIPMENT 3,305,714 3,003,525
FRANCHISE COSTS, net of accumulated amortization of $1,280,581 and
$1,262,965, respectively 15,786 33,402
DEBT ISSUANCE COSTS, net of accumulated amortization of $ 69,511 and
$30,411, respectively 221,567 260,667
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP 3,001,331 2,633,748
RESTRICTED FUNDS HELD IN ESCROW --- 750,000
----------- -----------
$ 6,785,318 $ 7,029,589
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
-------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 1,034,457 $ 3,084,357
Payables to General Partner and affiliate 6,122,046 5,141,521
Subscriber deposits 10,827 11,542
----------- -----------
Total current liabilities 7,167,330 8,237,420
----------- -----------
DEFERRED REVENUE 20,751 18,536
----------- -----------
LONG TERM DEBT 3,800,000 4,600,000
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partner --- ---
Limited Partners (250,000 units authorized; 90,915 units issued and outstanding)
(3,743,596) (5,367,200)
Note receivable from General Partner (459,167) (459,167)
----------- -----------
Total Partners' capital (deficit) (4,202,763) (5,826,367)
----------- -----------
$ 6,785,318 $ 7,029,589
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
Page 3
<PAGE> 4
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
SERVICE REVENUES $1,547,272 $1,473,477
----------- ----------
OPERATING EXPENSES:
Operating, general and administrative 790,473 804,039
Depreciation and amortization 179,680 291,000
Liquidation costs -- 337
Management fees - related party 77,558 73,674
----------- ----------
1,047,711 1,169,050
----------- ----------
Income from operations 499,561 304,427
----------- ----------
OTHER INCOME (EXPENSE):
Interest income 6,837 2,903
Interest expense (100,451) (131,546)
Equity in income of unconsolidated limited partnership (see Note 2) 69,334 89,570
Gain on sale of fixed assets 3,000 --
----------- ----------
(21,280) (39,073)
----------- ----------
Net income $ 478,281 $ 265,354
=========== ==========
NET INCOME ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner -- --
Common Limited Partners 478,281 265,354
----------- ----------
$ 478,281 $ 265,354
=========== ==========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 5.26 $ 2.92
=========== ==========
AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING
90,915 90,915
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 4
<PAGE> 5
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
SERVICE REVENUES $4,570,640 $ 7,783,061
---------- -----------
OPERATING EXPENSES:
Operating, general and administrative 2,349,930 4,146,225
Depreciation and amortization 464,386 2,020,842
Liquidation costs -- 326,806
Management fees - related party 228,727 388,894
---------- -----------
3,043,043 6,882,767
---------- -----------
Income from operations 1,527,597 900,294
---------- -----------
OTHER INCOME (EXPENSE):
Interest income 35,128 170,612
Interest expense (309,704) (1,208,211)
Equity in income of unconsolidated limited partnership (See Note 2) 367,583 8,221,423
Gain on sale of cable television systems -- 36,230,293
Gain on sale of fixed assets 3,000 --
---------- -----------
96,007 43,414,117
---------- -----------
Net income $1,623,604 $44,314,411
========== ===========
NET INCOME ALLOCATION TO PARTNERS' CAPITAL ACCOUNTS:
General Partner -- --
Common Limited Partners 1,623,604 44,314,411
---------- -----------
$1,623,604 $44,314,411
========== ===========
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 17.86 $ 487.43
========== ===========
AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING
90,915 90,915
========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
Page 5
<PAGE> 6
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
Note
Receivable
From
General Limited General
Partner Partners Partner Total
--------- ------------ --------- -----------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ $ (5,367,200) $(459,167) $(5,826,367)
---
Net income --- 1,623,604 --- 1,623,604
--------- ------------ --------- -----------
BALANCE, September 30, 1998 $ --- $ (3,743,596) $(459,167) $ 4,202,763
========= ============ ========= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
Page 6
<PAGE> 7
CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,623,604 $ 44,314,411
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 464,386 2,020,842
Amortization of debt issuance costs 39,100 367,290
Equity in income of unconsolidated limited partnership (367,583) (8,221,423)
Gain on sale of cable television systems -- (36,230,293)
Gain on sale of fixed assets (3,000) --
Changes in assets and liabilities, net of effects from sale of cable
television systems-
Accounts receivable, net 68,870 (232,124)
Prepaid expenses and other (6,999) (40,638)
Accounts payable and accrued expenses 172,257 (699,271)
Accrued income taxes withheld on behalf of Limited Partners (2,222,157) 2,216,768
Payables to General Partner and affiliate 980,525 1,541,529
Subscriber deposits (715) (785)
Deferred revenue 2,215 (2,099)
------------- -------------
Net cash provided by operating activities 750,503 5,034,207
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (748,959) (969,124)
Proceeds from sale of cable television systems, net of cash sold --- 51,477,222
Proceeds from sale of fixed assets 3,000 --
Restricted funds held in escrow 750,000 (750,000)
Distributions from investment in unconsolidated limited partnership --- 5,500,000
------------- -------------
Net cash provided by investing activities 4,041 55,258,098
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to Limited Partners --- (26,330,542)
Income taxes withheld related to distribution --- (2,216,768)
Borrowings on credit agreement 2,100,000 5,800,000
Repayments on revolving line of credit (2,900,000) (37,400,000)
Debt issuance costs --- (289,579)
------------- -------------
Net cash used in financing activities (800,000) (60,436,889)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (45,456) (144,584)
CASH AND CASH EQUIVALENTS, beginning of period 220,104 531,285
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $174,648 $ 386,701
============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
Page 7
<PAGE> 8
CENCOM CABLE INCOME PARTNERS II, L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. 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, 1998 and 1997, 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, 1997. 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
nine month period ended September 30, 1998, the Partnership recorded equity in
income from its investment in CPLP totaling approximately $368,000.
Summary financial information for the operating results of CPLP, for the three
and nine month periods ended September 30, 1998, which are not consolidated with
the operating results of the Registrant, 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
9/30/98 9/30/97 9/30/98 9/30/97
<S> <C> <C> <C> <C>
Service revenues $656,409 $626,448 $1,944,146 $ 5,080,647
======== ======== ========== ===========
Income from operations $259,832 $135,947 $ 920,765 $ (53,719)
======== ======== ========== ===========
Gain on sale of cable television systems -- -- -- $32,614,346
======== ======== ========== ===========
Net income $ 82,538 $106,593 $ 437,442 $31,391,259
======== ======== ========== ===========
</TABLE>
3. 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.
Page 8
<PAGE> 9
4. LITIGATION
In April of 1997, certain limited partners of Cencom Cable Income Partners II,
L.P. filed suit against their General Partner, Cencom Properties II, Inc.
(General Partner) and several other related Defendants (collectively "Cencom
Defendants") and unrelated Defendants in the Circuit Court of Jackson County,
Missouri. Abeles v. Cencom Properties II, Inc., Cause No. CV-97-9292 ("Abeles
I"). Plaintiffs amended their petition on several occasions. In their Third
Amended Petition, Plaintiffs alleged that the Cencom Defendants mismanaged CCIP
II in breach of the Partnership Agreement and in violation of certain fiduciary
duties. The Cencom Defendants moved to dismiss the Third Amended Petition. On
May 18, 1998, the Court dismissed Abeles I with prejudice.
On June 17, 1998, 402 limited partners filed another Lawsuit in the Circuit
Court of Jackson County, Missouri, Abeles v. Cencom Cable Entertainment, Inc.,
et al., Cause No. 98CV11480 ("Abeles II") against the General Partner and Cencom
Cable Entertainment, Inc. ("Cencom Cable Defendants") as well as three unrelated
Defendants. Plaintiffs' allegations in Abeles II are substantially the same as
those set forth in their First Amended Petition in Abeles I. Plaintiffs allege
that the Cencom Cable Defendants made certain misrepresentations and omissions
to the limited partners in the marketing and sale of interests in CCIP II.
Plaintiffs seek recision of the securities and repayment of their investment,
actual damages, punitive damages, attorney's fees and the costs of the action.
Defendants are awaiting rulings on Defendants' motions to dismiss, argued on
November 5, 1998.
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, Cencom Cable, Charter, parent of Cencom Partners and Cencom
Properties II, certain other affiliates of Charter, certain individuals,
including officers of Charter or Cencom Properties II and certain other
unaffiliated parties. The plaintiffs allege that the defendants breached
fiduciary duties and the terms of the Partnership Agreement in connection with
the investment in CPLP, the management of the Partnership's assets and the sale
of certain partnership assets. In November 1997, the plaintiffs amended their
complaint to restate their allegations as a shareholder's derivative claim. As
of September 30, 1998, the damages claimed by the plaintiffs are unspecified.
The Partnership has not been named as a defendant in the above actions.
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.
5. RELATED PARTY
Payable to General Partner and CPLP were approximately $6.1 million at September
30, 1998 and approximately $5.1 million at December 31, 1997. At December 31,
1997, the payable to General Partner consisted primarily of deferred management
fees, of which approximately $2.6 million was deferred under the terms of the
Partnership Agreement and approximately $1.4 million voluntarily deferred by the
General Partner. At September 30, 1998, the payable 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 $1.7
million voluntarily deferred by the General Partner. In addition, at September
30, 1998, payable to General Partner and CPLP included $1.8 million payable to
CPLP, the proceeds of which were used to reduce outstanding indebtedness under
the Credit Agreement.
Page 9
<PAGE> 10
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 dated indicated.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1998 1997 1997
------------- ----------- -------------
Basic Subscribers:
<S> <C> <C> <C>
Texas systems 11,800 11,600 11,700
Northeast Missouri systems 1,700 1,800 1,800
--------- --------- ---------
13,500 13,400 13,500
========= ========= =========
Premium Subscriptions:
Texas systems 6,400 4,400 4,500
Northeast Missouri systems 700 800 700
--------- --------- ---------
7,100 5,200 5,200
========= ========= =========
</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)
1998 1997
---------------------------- -----------------------------
% of % of
Amount Revenue Amount Revenue
------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Service Revenues $1,547,272 100.0% $1,473,477 100.0%
------------- ----------- ------------- ------------
Operating Expenses:
Operating, General and Administrative 790,473 51.1 804,039 54.5
Depreciation and Amortization 179,680 11.6 291,000 19.7
Liquidation Costs -- 337 .1
Management Fees - Related Party 77,558 5.0 73,674 5.0
------------- ----------- ------------- ------------
1,047,711 67.7 1,169,050 79.3
------------- ----------- ------------- ------------
Income From Operations 499,561 32.3 304,427 20.7
------------- ----------- ------------- ------------
Other Income (Expense):
Interest Income 6,837 .4 2,903 .1
Interest Expense (100,451) (6.5) (131,546) (8.9)
Equity in income of unconsolidated limited
partnership 69,334 4.5 89,570 6.1
Gain on Sale of Fixed Assets 3,000 .2 -- --
------------- ----------- ------------- ------------
(21,280) 1.4 (39,073) (2.7)
------------- ----------- ------------- ------------
Net Income $478,281 30.9% $265,354 18.0%
============= =========== ============= ============
</TABLE>
Page 10
<PAGE> 11
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)
1998 1997
---------------------------- ----------------------------
% of % of
Amount Revenue Amount Revenue
-------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Service Revenues $4,570,640 100.0% $7,783,061 100.0%
-------------- ----------- ------------- ------------
Operating Expenses:
Operating, General and Administrative 2,349,930 51.4 4,146,225 53.3
Depreciation and Amortization 464,386 10.2 2,020,842 26.0
Liquidation Costs -- -- 326,806 4.1
Management Fees - Related Party 228,727 5.0 388,894 5.0
-------------- ----------- ------------- ------------
3,043,043 66.6 6,882,767 88.4
-------------- ----------- ------------- ------------
Income From Operations 1,527,597 33.4 900,294 11.6
-------------- ----------- ------------- ------------
Other Income (Expense):
Interest Income 35,128 .8 170,612 2.2
Interest Expense (309,704) (6.8) (1,208,211) (15.5)
Equity in income of unconsolidated
limited partnership 367,583 8.0 8,221,423 105.6
Gain on Sale of Cable Television Systems -- -- 36,230,293 465.5
Gain on Sale of Fixed Assets 3,000 .1 -- --
-------------- ----------- ------------- ------------
96,007 2.1 43,414,117 557.8
-------------- ----------- ------------- ------------
Net Income $1,623,604 35.5% $ 44,314,411 569.4%
============== =========== ============= ============
</TABLE>
Page 11
<PAGE> 12
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 increased/(decreased) by approximately $74,000 and ($3,212,000) or 5.0%
and (41.3%), respectively for the three and nine months ended September 30,
1998, when compared to the similar periods of 1997. The nine month decrease is
due to the sale of certain of the Texas systems on March 31, 1997, and the sale
of the South Carolina systems on April 7, 1997.
Premium service subscriptions increased 36.5% from September 30, 1997 to
September 30, 1998. The ratio of premium service subscriptions per basic
subscriber increased from 38.5% at September 30, 1997 to 52.6% at September 30,
1998. The Partnership has begun to offer premium services to subscribers in a
packaged format, providing subscribers with a discount from the combined retail
rates of these packaged services in an effort to maintain premium subscription
levels and attract additional subscriptions.
Operating Expenses
Operating, general and administrative expenses decreased by approximately
$14,000 and $1,796,000 or .2% and 43.3% during the three and nine months ended
September 30, 1998 when compared to the similar periods of 1997. The decreases
are primarily the result of the Partnership serving fewer subscribers as a
result of the system sales.
Depreciation and amortization decreased by approximately $111,000 and $1,556,000
or 38.3% and 77.0%, respectively for the three and nine months ended September
30, 1998, when compared to the similar periods for 1997. These decreases are
related to the smaller base of depreciable and amortizable assets as a result of
the system sales.
Liquidation costs related to system sales of approximately $300 and $327,000
were incurred by the Partnership during the three and nine months ended
September 30, 1997, respectively. These costs consisted primarily of legal fees.
Other Income and Expenses
Interest expense was approximately $100,000 and $310,000 for the three and nine
months ended September 30, 1998, respectively, which was a decrease of 23.6%,
and 74.4%, respectively, versus the similar periods of 1997. The decrease is
primarily the result of lower average outstanding indebtedness of the
Partnership during 1998 as a result of utilizing proceeds from the system sales
to reduce outstanding debt balances.
Equity in income of unconsolidated limited partnership relates to income
recorded by the Partnership for its share of net income recorded by CPLP.
Gain on sale of cable television systems by the partnership is the result of the
sale of certain of the Texas systems on March 31, 1997, and the sale of the
South Carolina systems on April 7, 1997.
Net Income
Net income was $.5 million and $1.6 million for the three and nine months ended
September 30, 1998, respectively, versus $.3 million and $44.3 million for the
three and nine months ended September 30, 1997, respectively. This is primarily
the result of the gain recorded on the sale of certain of the assets of the
Texas systems on March 31, 1997, and the sale of the South Carolina systems on
April 7, 1997.
Page 12
<PAGE> 13
Liquidity and Capital Resources
The Partnership's initial capital resources have included the aggregate of
approximately $81.6 million (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.
On May 23, 1997, the Partnership terminated its existing secured revolving line
of credit agreement and entered into a new bank credit agreement (the "Credit
Agreement") 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, 1998, CCIP II had
$3,800,000 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 higher of the prime
rate of the Canadian Imperial Bank of Commerce (the agent bank) or the Federal
Funds Rate plus 1/2 of 1%, or the LIBOR plus applicable margins based upon the
Partnership's leverage ratio at the time of the borrowings. At September 30,
1998, the interest rate on this outstanding indebtedness was approximately
7.36%.
Borrowings under the Credit Agreement are subject to certain financial and
nonfinancial covenants and restrictions, including the maintenance of a ratio of
total debt to annualized operating cash flow of 4.0 to 1.0 at September 30,
1998. 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.
The Partnership made capital expenditures of approximately $749,000 during the
first nine months of 1998 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. However, the partnership
suspended distributions to Limited Partners in 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, and
no additional distributions were made until a special distribution in June 1997
following the sale of assets. No further distributions were made after June
1997.
The General Partner continues to seek potential purchasers for the remaining
Northeast Missouri and Texas systems. The General Partner continues to operate
these remaining cable television systems until such time as these systems are
sold. During September 1998, the Partnership entered into a non-binding letter
of intent with respect to the sale of its Texas systems and, second, CPLP
entered into a non-binding letter of intent with the same buyer for the sale of
its Texas systems. For both of these transactions, there is no assurance that
definitive asset sale agreements will be executed or that the sales will be
completed. However, if both of these sales are completed, CPLP will no longer
have any cable television assets and the Partnership's only remaining cable
television systems will be its Northeast Missouri systems with approximately
1,700 basic service customers.
CPLP intends to continue to operate its remaining systems until an acceptable
bid is received. Any future sale of CPLP's remaining cable television systems
will be utilized to satisfy any indebtedness and obligations, with the remaining
proceeds to be distributed in accordance with the CPLP partnership agreement.
The Partnership maintains an 84.03% ownership interest in CPLP.
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.
Page 13
<PAGE> 14
Year 2000 Issue
The issue surrounding the Year 2000 is whether computer systems, software and
all equipment using a computer chip will properly recognize date sensitive
information when the year changes to 2000. Computerized information that does
not properly recognize such information could generate erroneous data or cause a
system to fail. This issue impacts the Partnership's owned and licensed computer
systems and equipment used in connection with internal operations, including
systems, software and equipment supplied by vendors and third party service
providers. The Partnership may also be affected by virtue of its external
dealings with third parties in the ordinary course of business.
During 1998, the Partnership began a review of its computer systems and
databases. A committee comprised of members of Charter's senior management from
various disciplines has been formed and is meeting regularly to discuss the
steps necessary to deal with any potential Year 2000 problems. This project team
reports directly to the executive management of Charter, who has assigned a high
priority to such efforts.
The scope of the Partnership's Year 2000 readiness program includes the review
and evaluation of (i) the Partnership's information technology ("IT"), such as
hardware and software utilized in the operation of the Partnership's business;
(ii) the Partnership's non-IT systems or embedded technology such as
micro-controllers contained in various equipment and facilities including the
equipment used in the transmission and reception of all signals; and (iii) the
readiness of third parties, including suppliers and other key vendors to the
Partnership.
The Partnership utilizes a subscriber billing system under contractual
arrangements with a third party vendor. The Partnership has requested the third
party to advise the Partnership as to whether it anticipates difficulties in
addressing Year 2000 problems, and if so, the nature of such difficulties. The
Partnership has also initiated communications with its significant suppliers of
major computers, software, and other equipment used, operated or maintained by
the Partnership, and financial institutions to identify and, to the extent
possible, to ensure that those parties have appropriate plans to remediate Year
2000 problems. However, the Partnership has limited or no control over the
actions of these third party suppliers. Thus, while the Partnership anticipates
that it will be able to resolve any significant Year 2000 problems with these
systems, there can be no assurance that these third party suppliers will resolve
any or all Year 2000 problems before the occurrence of a material disruption to
the business of the Partnership. Any failure by these third parties to timely
resolve Year 2000 problems with their systems could have a material adverse
effect on the Partnership's business, financial condition, and results of
operations.
The Partnership has completed an inventory of all "mission critical" equipment
used in the transmission and reception of all signals and is in the process of
identifying equipment that need to be upgraded or replaced. The Partnership is
also monitoring industry-wide efforts with regards to signal delivery to its
cable distribution plant and is working with others in the industry seeking
potential solutions.
Management of the Partnership has not determined the total cost associated with
its Year 2000 readiness efforts and related potential impact on the
Partnership's results of operations. Amounts expended to date have not been
material. The estimated cost of the Year 2000 compliance program is not
anticipated to be material to the Partnership's financial position or results of
operations.
There can be no assurance that the Partnership's systems or systems of other
companies on which the Partnership relies will be converted in time or that any
such failure to convert by the Partnership or another company will not have a
material adverse effect on the Partnership's financial position or results of
operations.
After evaluating its internal compliance efforts as well as the compliance of
third parties by the end of 1998, the Partnership will develop appropriate
contingency plans to address situations in which systems of the Partnership, or
of third parties with which the Partnership does business, are not Year 2000
compliant.
Page 14
<PAGE> 15
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward looking statements. Certain information included in this Form 10-Q
contains statements that are forward looking, such as statements relating to the
effects of future regulation, future capital commitments, future acquisitions
and the company's success in dealing with the Year 2000 issues. Such
forward-looking information involves important risks and uncertainties that
could significantly affect expected results in the future from those expressed
in any forward-looking statements made by, or on behalf of the Partnership.
These risks and uncertainties include, but are not limited to, uncertainties
relating to economic conditions, acquisitions and divestitures, government and
regulatory policies, the pricing and availability of equipment, materials,
inventories and programming, technological developments and changes in the
competitive environment in which the Partnership operates. Investors are
cautioned that all forward-looking statements involve risks and uncertainties.
Page 15
<PAGE> 16
Part II. Other Information
Item 1. Legal Proceedings
In April of 1997, certain limited partners of Cencom Cable Income Partners II,
L.P. ("CCIP II") filed suit against their General Partner, Cencom Properties II,
Inc. (General Partner) and several other related Defendants (collectively
"Cencom Defendants") and unrelated Defendants in the Circuit Court of Jackson
County, Missouri. Abeles v. Cencom Properties II, Inc., Cause No. CV-97-9292
("Abeles I") Plaintiffs amended their petition on several occasions. In their
Third Amended Petition, Plaintiffs alleged that the Cencom Defendants mismanaged
CCIP II in breach of the Partnership Agreement and in violation of certain
fiduciary duties. The Cencom Defendants moved to dismiss the Third Amended
Petition. On May 18, 1998, the Court dismissed Abeles I with prejudice.
On June 17, 1998, 402 limited partners filed another Lawsuit in the Circuit
Court of Jackson County, Missouri, Abeles v. Cencom Cable Entertainment, Inc.,
et al., Cause No. 98CV11480 ("Abeles II") against the General Partner and Cencom
Cable Entertainment, Inc. ("Cencom Cable Defendants") as well as three unrelated
Defendants. Plaintiffs' allegations in Abeles II are substantially the same as
those set forth in their First Amended Petitions in Abeles I. Plaintiffs allege
that the Cencom Cable Defendants made certain misrepresentations and omissions
to the limited partners in the marketing and sale of interests in CCIP II.
Plaintiffs seek recision of the securities and repayment of their investment,
actual damages, punitive damages, attorney's fees and the costs of the action.
Defendants are awaiting rulings on Defendants' motions to dismiss, argued on
November 5, 1998.
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, Cencom Cable, Charter, parent of Cencom Partners and Cencom
Properties II, certain other affiliates of Charter, certain individuals,
including officers of Charter or Cencom Properties II and certain other
unaffiliated parties. The plaintiffs allege that the defendants breached
fiduciary duties and the terms of the Partnership Agreement in connection with
the investment in CPLP, the management of the Partnership's assets and the sale
of certain partnership assets. In November 1997, the plaintiffs amended their
complaint to restate their allegations as a shareholder's derivative claim. As
of September 30, 1998, the damages claimed by the plaintiffs are unspecified.
The Partnership has not been named as a defendant in the above actions.
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 16
<PAGE> 17
CENCOM CABLE INCOME PARTNERS II, L.P.
FOR QUARTER ENDED SEPTEMBER 30, 1998
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 11, 1998
-----------------------------------
Jerald L. Kent
Executive Vice President and
Chief Financial Officer
By: /s/Ralph G. Kelly November 11, 1998
-----------------------------------
Ralph G. Kelly
Treasurer
Page 17
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