<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 JUNE 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 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___
<PAGE> 2
CENCOM CABLE INCOME PARTNERS II, L.P.
-------------------------------------
FORM 10-Q - FOR THE QUARTER ENDED JUNE 30, 1998
-----------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
---------------------
Item 1. Financial Statements
a. Balance Sheets - June 30, 1998 and December 31, 1997 3
b. Statements of Operations - Three Months Ended
June 30, 1998 and 1997 4
c. Statements of Operations - Six Months Ended June 30, 1998 and 1997 5
d. Statement of Partners' Capital (Deficit) - Six Months Ended
June 30, 1998 6
e. Statements of Cash flows - Six Months Ended June 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 15
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 15
Signature Page 16
</TABLE>
Page 2
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CENCOM CABLE INCOME PARTNERS II, L.P.
-------------------------------------
BALANCE SHEETS
--------------
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 587,468 $ 220,104
Accounts receivable, net 74,108 98,685
Prepaid expenses and other 43,020 29,458
----------- -----------
Total current assets 704,596 348,247
PROPERTY AND EQUIPMENT, NET 2,980,723 3,003,525
FRANCHISE COSTS, net of accumulated amortization of $1,274,709 and
$1,262,965, respectively 21,658 33,402
DEBT ISSUANCE COSTS, net of accumulated amortization of $56,478 and
$30,411, respectively 234,600 260,667
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP 2,931,997 2,633,748
RESTRICTED FUNDS HELD IN ESCROW -- 750,000
----------- -----------
$ 6,873,574 $ 7,029,589
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 2,114,473 $ 3,084,357
Payables to General Partner and affiliate 5,811,218 5,141,521
Subscriber deposits 11,092 11,542
----------- -----------
Total current liabilities 7,936,783 8,237,420
----------- -----------
DEFERRED REVENUE 17,839 18,536
----------- -----------
LONG TERM DEBT 3,600,000 4,600,000
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partner -- --
Limited Partners (250,000 units authorized; 90,915 units issued and
outstanding) (4,221,881) (5,367,200)
Note receivable from General Partner (459,167) (459,167)
----------- -----------
Total Partners' capital (deficit) (4,681,048) (5,826,367)
----------- -----------
$ 6,873,574 $ 7,029,589
=========== ===========
</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 JUNE 30, 1998 AND 1997
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
SERVICE REVENUES $ 1,527,547 $ 1,686,605
------------ ------------
OPERATING EXPENSES:
Operating, general and administrative 791,252 972,890
Depreciation and amortization 172,990 357,599
Liquidation costs -- 122,784
Management fees - related party 76,377 84,330
------------ ------------
1,040,619 1,537,603
------------ ------------
Income from operations 486,928 149,002
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 21,196 155,857
Interest expense (101,266) (256,825)
Equity in income of unconsolidated limited partnership (see Note 2) 134,466 8,131,853
Gain on sale of cable television systems -- 23,662,873
------------ ------------
54,396 31,693,758
------------ ------------
Net income $ 541,324 $ 31,842,760
============ ============
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 5.95 $ 337.12
============ ============
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 SIX MONTHS ENDED JUNE 30, 1998 AND 1997
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
SERVICE REVENUES $ 3,023,365 $ 6,309,583
------------ ------------
OPERATING EXPENSES:
Operating, general and administrative 1,559,458 3,341,927
Depreciation and amortization 284,706 1,729,842
Liquidation costs -- 326,469
Management fees - related party 151,168 315,479
------------ ------------
1,995,332 5,713,717
------------ ------------
Income from operations 1,028,033 595,866
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 28,290 167,711
Interest expense (209,253) (1,076,666)
Equity in income of unconsolidated limited partnership (See Note 2) 298,249 8,131,853
Gain on sale of cable television systems -- 36,230,293
------------ ------------
117,286 43,453,191
------------ ------------
Net income $ 1,145,319 $ 44,049,057
============ ============
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 12.60 $ 453.40
============ ============
AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 90,915 90,915
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
Page 5
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CENCOM CABLE INCOME PARTNERS II, L.P.
-------------------------------------
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
----------------------------------------
FOR THE SIX MONTHS ENDED JUNE 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 -- 1,145,319 -- 1,145,319
----- ----------- --------- -----------
BALANCE, June 30, 1998 $ -- $(4,221,881) $(459,167) $(4,681,048)
===== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of this statement.
Page 6
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CENCOM CABLE INCOME PARTNERS II, L.P.
-------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,145,319 $ 44,049,057
Adjustments to reconcile net income (loss) to net cash provided by operating
activities-
Depreciation and amortization 284,706 1,729,842
Amortization of debt issuance costs 26,067 353,955
Equity in income of unconsolidated limited partnership (298,249) (8,131,853)
Gain on sale of cable television systems -- (36,230,293)
Changes in assets and liabilities, net of effects from sale of
cable television systems
Accounts receivable, net 24,577 (163,617)
Prepaid expenses and other (13,562) (56,505)
Accounts payable and accrued expenses 1,252,273 (664,886)
Accrued income taxes withheld on behalf of Limited Partners (2,222,157) 2,408,798
Payables to General Partner and affiliate 669,697 830,794
Subscriber deposits (450) (550)
Deferred revenue (697) (1,437)
----------- ------------
Net cash provided by operating activities 867,524 4,123,305
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (250,160) (813,250)
Proceeds from sale of cable television systems, net of cash sold -- 51,477,222
Restricted funds held in escrow 750,000 (750,000)
Distributions from investment in unconsolidated limited partner ship -- 5,500,000
----------- ------------
Net cash provided by (used in) investing activities 499,840 55,413,972
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to Limited Partners -- (26,138,512)
Income taxes withheld related to distribution -- (2,408,798)
Borrowings on credit agreement 1,300,000 5,800,000
Repayments on revolving line of credit (2,300,000) (36,700,000)
Debt issuance costs -- (265,000)
----------- ------------
Net cash used in financing activities (1,000,000) (59,712,310)
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS 367,364 (175,033)
CASH AND CASH EQUIVALENTS, beginning of period 220,104 531,285
----------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 587,468 $ 356,252
=========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
Page 7
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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 June 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
six month period ended June 30, 1998, the Partnership recorded equity in income
from its investment in CPLP totaling approximately $298,000.
Summary financial information for the operating results of CPLP, for the three
and six month periods ended June 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 six For the six
months ended months ended months ended months ended
June 30, 1998 June 30, 1997 June 30, 1998 June 30, 1997
<S> <C> <C> <C> <C>
Service revenues $657,356 $ 884,834 $1,287,737 $ 4,454,198
======== ============ ========== ============
Income from operations $335,079 $ (165,291) $ 660,931 $ (1,329,682)
======== ============ ========== ============
Gain on sale of cable television systems $ -- $ 32,614,346 $ -- $ 32,614,346
======== ============ ========== ============
Net income $159,998 $ 32,449,055 $ 354,902 $ 31,284,664
======== ============ ========== ============
</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
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4. LITIGATION
----------
In March 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 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.
The Cencom Cable Defendants are scheduled to file a responsure pleading to
Plaintiffs Petition on August 17, 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 June 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 $5.8 million at June 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 June 30, 1998, the payable to General Partner and CPLP
consisted primarily of deferred management fees, with approximately $2.7 million
deferred under the terms of the Partnership Agreement and approximately $1.5
million voluntarily deferred by the General Partner. In addition, at June 30,
1998, payable to General Partner and CPLP included $1.6 million payable to CPLP,
the proceeds of which were used to reduce outstanding indebtedness under the
Credit Agreement.
Page 9
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CENCOM CABLE INCOME PARTNERS II, L.P.
- -------------------------------------
Item 2: Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
- ---------------------
The following table sets forth the approximate number of subscribers of the
Partnership as of the dated indicated.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1998 1997 1997
------ ------ ------
<S> <C> <C> <C>
Basic Subscribers:
Texas systems 11,800 11,600 11,600
Northeast Missouri systems 1,700 1,800 1,900
------ ------ ------
13,500 13,400 13,500
====== ====== ======
Premium Subscriptions:
Texas systems 5,300 4,400 4,500
Northeast Missouri systems 800 800 800
------ ------ ------
6,100 5,200 5,300
====== ====== ======
</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 June 30
-------------
(Unaudited)
1998 1997
------------------------- -------------------------
% of % of
Amount Revenue Amount Revenue
------ ------- ------ -------
<S> <C> <C> <C> <C>
Service Revenues $ 1,527,547 100.0% $ 1,686,605 100.0%
----------- ---- ------------ -------
Operating Expenses:
Operating, General and Administrative 791,252 51.8 972,890 57.7
Depreciation and Amortization 172,990 11.3 357,599 21.2
Liquidation Costs -- -- 122,784 7.3
Management Fees - Related Party 76,377 5.0 84,330 5.0
----------- ---- ------------ -------
1,040,619 68.1 1,537,603 91.2
----------- ---- ------------ -------
Income From Operations 486,928 31.9 149,002 8.8
----------- ---- ------------ -------
Other Income (Expense):
Interest Income 21,196 1.3 155,857 9.2
Interest Expense (101,266) (6.6) (256,825) (15.2)
Gain on Sale of Cable Television Systems -- -- 23,662,873 1403.1
Equity in income of unconsolidated limited
partnership 134,466 8.8 8,131,853 482.1
----------- ---- ------------ -------
54,396 3.5 31,693,758 1,879.2
----------- ---- ------------ -------
Net Income $ 541,324 35.4 $ 31,842,760 1,888.0
=========== ==== ============ =======
</TABLE>
The following table sets forth certain items in dollars and as a percentage of
total revenues for the periods indicated:
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<TABLE>
<CAPTION>
For the Six Months
Ended June 30
-------------
(Unaudited)
1998 1997
------------------------ -------------------------
% of % of
Amount Revenue Amount Revenue
------ ------- ------ -------
<S> <C> <C> <C> <C>
Service Revenues $ 3,023,365 100.0% $ 6,309,583 100.0%
----------- ----- ------------ -----
Operating Expenses:
Operating, General and Administrative 1,559,458 51.6 3,341,927 53.0
Depreciation and Amortization 284,706 9.4 1,729,842 27.4
Liquidation Costs -- -- 326,469 5.2
Management Fees - Related Party 151.168 5.0 315,479 5.0
----------- ----- ------------ -----
1,995,332 66.0 5,713,717 90.6
----------- ----- ------------ -----
Income From Operations 1,028,033 34.0 595,866 9.4
----------- ----- ------------ -----
Other Income (Expense):
Interest Income 28,290 .9 167,711 2.7
Interest Expense (209,253) (6.9) (1,076,666) (17.1)
Gain on Sale of Cable Television Systems -- -- 36,230,293 574.2
Equity in income of unconsolidated
limited partnership 298,249 9.9 8,131,853 128.9
----------- ----- ------------ -----
117,286 3.9 43,453,191 688.7
----------- ----- ------------ -----
Net Income $ 1,145,319 37.9 $ 44,049,057 698.1
=========== ==== ============ =====
</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 decreased by approximately $159,000 and $3,286,000 or 9.4% and 52.1%,
respectively for the three and six months ended June 30, 1998, when compared to
the similar periods of 1997. These decreases are 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 15.1% from June 30, 1997 to June 30,
1998. The ratio of premium service subscriptions per basic subscriber increased
from 39.3% at June 30, 1997 to 45.2% at June 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
$182,000 and $1,782,000 or 18.7% and 53.3% during the three and six months ended
June 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 $185,000 and $1,445,000
or 51.6% and 83.5%, respectively for the three and six months ended June 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 $123,000 and $326,000
were incurred by the Partnership during the three and six months ended June 30,
1997, respectively. These costs consisted primarily of legal fees.
Other Income and Expenses
- -------------------------
Interest expense was approximately $101,000 and $209,000 for the three and six
months ended June 30, 1998, respectively, which was a decrease of 60.6%, and
80.6%, 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 $1.1 million for the three and six months ended
June 30, 1998, respectively, versus $31.8 million and $44 million for the three
and six months ended June 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.
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
Page 12
<PAGE> 13
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 June 30, 1998, CCIP II had
$3,600,000 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 June 30, 1998,
the interest rate on this outstanding indebtedness was approximately 7.41%.
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 June 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 $250,000 during the
first six 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.
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.
Year 2000 Impact
- ----------------
As of the quarter ended June 30, 1998, the Partnership is engaged in a process
to identify and address issues surrounding the Year 2000 and its impact on the
Partnership's operations. The issue surrounding the Year 2000 is
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<PAGE> 14
whether the computer systems, software and all equipment using a computer chip
will properly recognize date sensitive information when the year changes to
2000, or "00". Computerized systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. This issue
impacts the Partnership as to its owned or 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 regular course of business. As management of the
Partnership has not completed its initial assessment of the impact the Year 2000
may have on the Partnership's operations, it cannot estimate the costs
associated with ensuring the Partnership's operations are Year 2000 compliant.
The Partnership is in the initial phases of determining the impact of the Year
2000, and management anticipates completion of the project by December 1998,
allowing adequate time for testing. However, there can be no assurance that the
Partnership's operations or the computer systems of other companies with whom
the Partnership conducts business will be Year 2000 compliant prior to December
31, 1999. If such modifications and conversions are not completed timely, the
Year 2000 problem may have a material impact on the operation of the
Partnership.
Page 14
<PAGE> 15
Part II. Other Information
-----------------
Item 1. Legal Proceedings
In March 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 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.
The Cencom Cable Defendants are scheduled to file a responsure pleading to
Plaintiffs Petition on August 17, 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 June 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 15
<PAGE> 16
CENCOM CABLE INCOME PARTNERS II, L.P.
-------------------------------------
FOR QUARTER ENDED JUNE 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 August 11, 1998
-----------------------------------
Jerald L. Kent
Executive Vice President and
Chief Financial Officer
By: /s/Ralph G. Kelly August 11, 1998
-----------------------------------
Ralph G. Kelly
Treasurer
Page 16
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 587,468
<SECURITIES> 0
<RECEIVABLES> 74,108
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 704,596
<PP&E> 2,980,723
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,873,574
<CURRENT-LIABILITIES> 7,936,783
<BONDS> 3,600,000
0
0
<COMMON> 0
<OTHER-SE> (4,681,048)
<TOTAL-LIABILITY-AND-EQUITY> 6,873,574
<SALES> 3,023,365
<TOTAL-REVENUES> 3,023,365
<CGS> 0
<TOTAL-COSTS> 1,559,458
<OTHER-EXPENSES> 435,874
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 209,253
<INCOME-PRETAX> 1,145,319
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,145,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,145,319
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
