<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, 1999
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 100
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, 1999
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Condensed Financial Statements
a. Balance Sheets - June 30, 1999 and December 31, 1998 3
b. Statements of Operations - Three Months Ended
June 30, 1999 and 1998 4
c. Statements of Operations - Six Months Ended June 30, 1999 and 1998 5
d. Statement of Partners' Capital (Deficit) - Six Months Ended
June 30, 1999 6
e. Statements of Cash flows - Six Months Ended June 30, 1999 and 1998 7
f. Notes to Condensed Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 19
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 20
Item 6. Exhibits and Reports on Form 8-K 20
Signature Page 21
</TABLE>
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CENCOM CABLE INCOME PARTNERS II, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- -------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents, including restricted cash of $1,040,000 $ 3,135,133 $ 267,002
Accounts receivable, net 16,522 52,409
Prepaid expenses and other 13,804 30,844
----------- -----------
Total current assets 3,165,459 350,255
PROPERTY AND EQUIPMENT 395,637 4,156,583
FRANCHISE COSTS, net of accumulated amortization of $1,157,680 and
$1,274,709, respectively -- 10,521
DEBT ISSUANCE COSTS, net of accumulated amortization of $-0- and
$56,478, respectively -- 208,533
INVESTMENT IN UNCONSOLIDATED LIMITED PARTNERSHIP 2,172,502 3,171,808
----------- -----------
$ 5,733,598 $ 7,897,700
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 599,139 $ 1,310,831
Payables to General Partner and affiliate 4,622,249 6,291,552
Income taxes withheld on behalf of Limited Partners 83,480 --
Subscriber deposits -- 10,527
----------- -----------
Total current liabilities 5,304,868 7,612,910
----------- -----------
DEFERRED REVENUE -- 19,774
----------- -----------
LONG-TERM DEBT -- 3,800,000
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partner -- --
Limited Partners (250,000 units authorized; 90,915 units issued and
outstanding) 887,897 (3,075,817)
Note receivable from General Partner (459,167) (459,167)
----------- -----------
Total Partners' capital (deficit) 428,730 (3,534,984)
----------- -----------
$ 5,733,598 $ 7,897,700
=========== ===========
</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, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
SERVICE REVENUES $ 163,871 $ 1,527,547
------------ ------------
OPERATING EXPENSES:
Operating, general and administrative 258,123 791,252
Depreciation and amortization 15,211 172,990
Management fees - related party 8,188 76,377
------------ ------------
281,522 1,040,619
------------ ------------
Income (loss) from operations (117,651) 486,928
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 186,507 21,196
Interest expense (700) (101,266)
Equity in income of unconsolidated limited partnership 7,205,349 134,466
Gain on sale of cable television systems 16,657,491 --
------------ ------------
24,048,647 54,396
------------ ------------
Income before extraordinary item 23,930,996 541,324
Extraordinary loss - early extinguishment of long-term debt (195,500) --
------------ ------------
Net income $ 23,735,496 $ 541,324
============ ============
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 260.98 $ 5.95
============ ============
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.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
SERVICE REVENUES $ 1,681,363 $ 3,023,365
------------ ------------
OPERATING EXPENSES:
Operating, general and administrative 1,007,750 1,559,458
Depreciation and amortization 126,720 284,706
Management fees - related party 84,063 151,168
------------ ------------
1,218,533 1,995,332
------------ ------------
Income from operations 462,830 1,028,033
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 191,536 28,290
Interest expense (100,462) (209,253)
Equity in income of unconsolidated limited partnership 7,403,694 298,249
Gain on sale of cable television systems 16,657,491 --
------------ ------------
24,152,259 117,286
------------ ------------
Income before extraordinary item 24,615,089 1,145,319
Extraordinary loss - early extinguishment of long-term debt (195,500) --
------------ ------------
Net income $ 24,419,589 $ 1,145,319
============ ============
NET INCOME PER LIMITED PARTNERSHIP UNIT $ 268.50 $ 12.60
============ ============
AVERAGE NUMBER OF LIMITED PARTNERSHIP UNITS OUTSTANDING 90,915 90,915
============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
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CENCOM CABLE INCOME PARTNERS II, L.P.
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Note
Receivable
From
General Limited General
Partner Partner Partner Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1998 $ -- $ (3,075,817) $ (459,167) $ (3,534,984)
Net income 8,879 24,410,710 -- 24,419,589
Distributions -- (20,455,875) -- (20,455,875)
------------ ------------ ------------ ------------
BALANCE, June 30, 1999 $ 8,879 $ 879,018 $ (459,167) $ 428,730
============ ============ ============ ============
</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 SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(Unaudited)
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 24,419,589 $ 1,145,319
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 126,720 284,706
Amortization of debt issuance costs 13,033 26,067
Extraordinary loss - early extinguishment of long-term debt 195,500 --
Equity in income of unconsolidated limited partnership (7,403,695) (298,249)
Gain on sale of cable television systems (16,657,491) --
Changes in assets and liabilities, net of effects from sale of cable television
systems-
Accounts receivable, net 266,667 24,577
Prepaid expenses and other (4,424) (13,562)
Accounts payable, accrued expenses and other current liabilities (473,269) 1,251,126
Accrued income taxes withheld on behalf of Limited Partners -- (2,222,157)
Payables to General Partner and affiliate (1,705,911) 669,697
------------ ------------
Net cash provided by (used in) operating activities (1,223,281) 867,524
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (259,998) (250,160)
Proceeds from sale of cable television systems, net of cash sold 20,204,285 --
Restricted funds held in escrow -- 750,000
Distributions from unconsolidated limited partnership 8,403,000 --
------------ ------------
Net cash provided by investing activities 28,347,287 499,840
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to Limited Partners (20,372,395) --
Income taxes withheld related to distribution (83,480) --
Borrowings on credit agreement 300,000 1,300,000
Repayments on credit agreement (4,100,000) (2,300,000)
------------ ------------
Net cash used in financing activities (24,255,875) (1,000,000)
------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,868,131 367,364
CASH AND CASH EQUIVALENTS, beginning of period 267,002 220,104
------------ ------------
CASH AND CASH EQUIVALENTS, end of period $ 3,135,133 $ 587,468
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
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CENCOM CABLE INCOME PARTNERS II, L.P.
NOTES TO CONDENSED 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, 1999 and 1998, 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, 1998. 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, 1999, the Partnership recorded equity in income
from its investment in CPLP totaling approximately $7,403,694.
Summary financial information for the operating results of CPLP, for the three
and six month periods ended June 30, 1999, which are not consolidated with the
operating results of the Partnership, are as follows:
<TABLE>
<CAPTION>
For the three months ended For the six months ended
-------------------------- ------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Service revenues $ -- $ 657,356 $ 660,630 $ 1,287,737
Income (loss) from operations $ (14,881) $ 335,079 $ 302,625 $ 660,931
Gain on sale of cable television $ 8,985,528 $ -- $ 8,985,528 $ --
Net income $ 8,574,734 $ 159,998 $ 8,810,775 $ 354,902
</TABLE>
3. DISPOSITIONS
On April 1, 1999, CCIP II sold its cable television systems serving
approximately 11,800 basic subscribers in the communities of Angleton, Aqua
Dolce, Belleville, Driscoll, Hempstead, Kingsville, and Sealy, Texas
(collectively, the "Texas Systems"). The purchaser of the Texas Systems was Etan
Industries, Inc. ("Etan"), an unaffiliated third party. The sale price was $20.8
million, subject to working capital adjustments. Net proceeds were used to repay
outstanding bank indebtedness and a payable to CPLP. CCIP II used the remaining
net proceeds, less amounts held in an indemnity escrow and required income tax
withholdings, plus the distribution received from CPLP (as described below), to
make distributions to its partners in accordance with the liquidation provisions
of the Partnership Agreement. Pursuant to the asset purchase agreement,
$1,040,000 was deposited into an indemnification escrow account. These funds
will be released to the Partnership upon mutual satisfaction of the
Partnership's representations and warranties related to the assets that were
sold.
On April 1, 1999, CPLP sold its remaining cable television systems serving
approximately 6,400 basic subscribers in the communities in and around LaGrange,
Texas (collectively, the "LaGrange Systems"). The purchaser of the cable
television systems was Etan and the sales price was $11.2 million, subject to
working capital adjustments. The
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sale of the LaGrange Systems completes CPLP's dissolution of its cable
television assets. CPLP used the net proceeds from the sale, less a holdback for
contingencies and amounts held in an indemnity escrow, to satisfy the
liabilities and expenses of CPLP, with the remaining funds distributed to its
partners, of which CCIP II received 84.03%.
The following table presents unaudited pro forma results of operations as though
the divestitures discussed above had occurred on January 1, 1998, with
adjustments to give effect to interest expense. Accordingly, these results
include only the Partnership's remaining 1,640 subscribers in northeast
Missouri.
<TABLE>
<CAPTION>
For the three months ended For the six months ended
-------------------------- ------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Service revenues $ 307,315 $ 318,343 $ 152,152 $ 157,434
Income from operations $ 134,524 $ 130,960 $ 64,120 $ 60,190
Net income $ 131,727 $ 54,770 $ 86,191 $ 17,927
</TABLE>
The unaudited pro forma results of operations has been presented for comparative
purposes and does not purport to be indicative of the results of operations or
financial position of the Partnership had these transactions been completed as
of the assumed date or which may be obtained in the future.
In May 1999, the Partnership entered into an Asset Purchase Agreement with
Galaxy Telecom, L.P., an unaffiliated third party, pursuant to which the
Partnership's remaining northeast Missouri systems would be sold. Consummation
of the sale is subject to regulatory approvals and other conditions to closing,
and the closing is anticipated to occur prior to December 31, 1999. Upon sale of
the assets, there will be a holdback of a portion of the purchase price should
the buyer seek indemnity with respect to the purchased assets. If and when this
sale is consummated, the Partnership will have sold all of its cable television
assets.
4. DEBT
On April 1, 1999, the Partnership paid off its outstanding indebtedness under
the Partnership's and CPLP's joint bank credit facility with the proceeds from
the sale of the Texas Systems. As of April 1, 1999, there was no indebtedness
outstanding under this facility and the credit facility was terminated. In
connection therewith, the Partnership recognized an extraordinary loss of
$195,500 pertaining to the write-off of unamortized debt issuance costs.
5. LITIGATION
Abeles v. Cencom Cable Entertainment, Inc., et. al.
On June 17, 1998, approximately 400 limited partners in CCIP II, filed a lawsuit
against the General Partner and Cencom Cable Entertainment, Inc. ("CCE",
together with the General Partner , "Cencom Defendants"), and three brokerage
firms involved in the original sale of limited partnership units. CCE provided
management services to the Partnership and also owned all of the stock of the
General Partner prior to mid-1994.
Plaintiffs allege that the Cencom Defendants are liable for fraud, negligent
misrepresentation or omission, negligence, breach of fiduciary duty, breach of
implied covenants and violations of the Missouri Merchandising Practices Act in
connection with the sale of limited partnership interests in CCIP II commencing
in 1987. Plaintiffs seek rescission of the purchase of the securities along with
ancillary damages, actual damages, punitive damages, costs and attorneys' fees.
On August 17, 1998, the Cencom Defendants filed a Motion to Dismiss. On November
5, 1998, the Court heard an oral argument on that motion and a ruling has not
yet been made on this motion. Discovery has been stayed during the pendency of
the Motion to Dismiss.
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The Partnership is not named a defendant in the above case.
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Wallace v. Wood, et. al.
On June 10, 1997, four limited partners of the Partnership filed a putative
class action suit on behalf of the limited partners against the General Partner,
Charter Communications, Inc. ("Charter"), certain other Charter affiliates and
four present or former officers of the General Partner. The Plaintiffs
subsequently amended their lawsuit and converted it to a Derivative Action, thus
adding the Partnership as a nominal defendant.
Plaintiffs allege that the Defendants breached the Partnership Agreement and
their fiduciary duties of loyalty and candor in connection with the management
of the Partnership and the sale of the Partnership assets to certain purchasing
affiliates. Plaintiffs seek a declaration that the distribution to the Limited
Partners is improper, request that defendants compensate the Partnership for all
damages suffered as a result of the actions and transactions, including
interest, costs, reasonable attorneys' fees, accountants' and experts' fees and
request an accounting for all monies earned by the properties after the
effective date of the sale to the purchasing affiliates.
On May 19, 1998, Defendants filed a Motion for Judgment on the Pleadings,
seeking dismissal of certain of the defendants from the lawsuit. That motion is
scheduled for a hearing in September 1999.
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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,
1999 1998 1998
-------- ------------ --------
<S> <C> <C> <C>
Basic Subscribers:
Texas systems (a) -- 11,900 11,800
Northeast Missouri systems 1,640 1,700 1,700
------ ------ ------
1,640 13,600 13,500
====== ====== ======
Premium Subscriptions:
Texas systems (a) -- 5,850 5,300
Northeast Missouri systems 670 730 800
------ ------ ------
670 6,580 6,100
====== ====== ======
</TABLE>
(a) The Texas systems were sold on April 1, 1999.
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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)
1999 1998
------------------------------- ---------------------------
% of % of
Amount Revenue Amount Revenue
------------ -------- ------------ -------
<S> <C> <C> <C> <C>
Service revenues $ 163,871 100.0% $ 1,527,547 100.0%
------------ -------- ------------ -----
Operating expenses:
Operating, general and administrative 258,123 157.5 791,252 51.8
Depreciation and amortization 15,211 9.3 172,990 11.3
Management fees - related party 8,188 5.0 76,377 5.0
------------ -------- ------------ -----
281,522 171.8 1,040,619 68.1
------------ -------- ------------ -----
Income (loss) from operations (117,651) (71.8) 486,928 31.9
------------ -------- ------------ -----
Other income (expense):
Interest income 186,507 113.8 21,196 1.3
Interest expense (700) (0.4) (101,266) (6.6)
Equity in income of unconsolidated limited
partnership 7,205,349 4,397.0 134,466 8.8
Gain on sale of cable television systems 16,657,491 10,165.0 -- --
------------ -------- ------------ -----
24,048,647 14,675.4 54,396 3.5
------------ -------- ------------ -----
Income before extraordinary item 23,930,996 14,603.6 541,324 35.4
Extraordinary loss - early extinguishment of
long-term debt (195,500) (119.3) -- --
------------ -------- ------------ -----
Net income $ 23,735,496 14,484.3% $ 541,324 35.4%
============ ======== ============ =====
</TABLE>
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The following table sets forth certain items in dollars and as a percentage of
total revenues for the periods indicated:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30
--------------------------------------------------------------
(Unaudited)
1999 1998
---------------------------- --------------------------
% of % of
Amount Revenue Amount Revenue
------------ ------- ----------- -------
<S> <C> <C> <C> <C>
Service revenues $ 1,681,363 100.0% $ 3,023,365 100.0%
------------ ------- ----------- -----
Operating expenses:
Operating, general and administrative 1,007,750 59.9 1,559,458 51.6
Depreciation and amortization 126,720 7.5 284,706 9.4
Management fees - related party 84,063 5.0 151,168 5.0
------------ ------- ----------- -----
1,218,533 72.4 1,995,332 66.0
------------ ------- ----------- -----
Income from operations 462,830 27.6 1,028,033 34.0
------------ ------- ----------- -----
Other income (expense):
Interest income 191,536 11.4 28,290 0.9
Interest expense (100,462) (6.0) (209,253) (6.9)
Equity in income of unconsolidated
limited partnership 7,403,694 440.3 298,249 9.9
Gain on sale of cable television systems 16,657,491 990.7 -- --
------------ ------- ----------- -----
24,152,259 1,436.4 117,286 3.9
------------ ------- ----------- -----
Income before extraordinary item 24,615,089 1,464.0 1,145,319 37.9
Extraordinary loss - early extinguishment of
long-term debt (195,500) (11.6) -- --
------------ ------- ----------- -----
Net income $ 24,419,589 1,452.4% $ 1,145,319 37.9%
============ ======= =========== =====
</TABLE>
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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 $1,364,000 and $1,342,000 or 89.3% and
44.4%, respectively, for the three and six months ended June 30, 1999, when
compared to the similar periods of 1998. These decreases are due to the
Partnership serving fewer subscribers as a result of the sale of the Texas
systems on April 1, 1999.
Operating Expenses
Operating, general and administrative expenses decreased by approximately
$533,000 and $552,000 or 67.4% and 35.4% during the three and six months ended
June 30, 1999, respectively, when compared to the similar periods of 1998. The
decreases are primarily the result of the Partnership serving fewer subscribers
as a result of the sale of the Texas systems.
Depreciation and amortization decreased by approximately $158,000 and $158,000
or 91.3% and 55.5%, respectively, for the three and six months ended June 30,
1999, when compared to the similar periods for 1998. These decreases are related
to the smaller base of depreciable and amortizable assets as a result of the
sale of the Texas system.
Other Income and Expenses
Interest expense was approximately $700 and $100,000 for the three and six
months ended June 30, 1999, respectively, which was an increase of 99.3%, and
52.0%, respectively, versus the similar periods of 1998. The decrease was
attributed to the termination of the Credit Agreement.
Equity in income of unconsolidated limited partnership relates to income
recorded by the Partnership for its share of net income recorded by CPLP and
increased by approximately $7.1 million for both the three months and six months
ended June 30, 1999, compared to similar periods of 1998. The increase is
attributed to CPLP's gain on the sale of the LaGrange systems.
Gain on sale of cable television systems by the Partnership is the result of the
sale of certain of the Texas systems on April 1, 1999.
Net Income
Net income was $23.7 million and $24.4 million for the three and six months
ended June 30, 1999, respectively, versus $.5 million and $1.1 million for the
three and six months ended June 30, 1998, respectively. This is primarily the
result of the gain recorded on the sale of certain of the assets of the Texas
systems on April 1, 1999 and the increase in equity in income of unconsolidated
limited partnership.
Liquidity and Capital Resources
On April 1, 1999, CCIP II sold its cable television systems serving
approximately 11,800 basic subscribers in Texas for a sale price of $20.8
million, subject to working capital adjustments. Net proceeds were used to repay
outstanding bank indebtedness of $3.8 million and a payable to CPLP of $1.864
million. CCIP II used the remaining net proceeds, less amounts held in an
indemnity escrow, plus the distribution received from CPLP (as described below),
to make distributions to its partners in accordance with the liquidation
provisions of the Partnership Agreement.
On April 1, 1999, CPLP sold its remaining cable television systems serving
approximately 6,400 basic subscribers in the communities in and around LaGrange,
Texas for a sale price of $11.2 million, subject to working capital adjustments.
The sale of these systems completes CPLP's dissolution of its cable television
assets. CPLP used the net proceeds from the sale, less a holdback for
contingencies and amounts held in an indemnity escrow, first to
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<PAGE> 16
satisfy the liabilities and expenses of CPLP with the remaining funds
distributed to its partners, of which CCIP II received 84.03%.
The Partnership and CPLP both maintained a credit agreement (the "Credit
Agreement") providing for borrowings up to $8,500,000 and $7,500,000 by the
Partnership and CPLP, respectively, with each borrower jointly and severally
liable in the event of default. The debt bore 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 3/4 of
1%, or the LIBOR plus applicable margins based upon the Partnership's leverage
ratio at the time of the borrowings. At March 31, 1999, the interest rate on
this outstanding indebtedness was approximately 6.69%. On April 1, 1999, all
outstanding indebtedness under the Credit Agreement was repaid from the proceeds
of the sale of the Texas Systems and the facility was terminated.
The Partnership made capital expenditures of approximately $260,000 during the
first six months of 1999 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 regular 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.
No additional distributions have been made other than a special distribution in
June 1997 following the sale of certain assets and a second special distribution
in May 1998 from the remaining net proceeds of the sale of the Texas Systems and
distribution received from CPLP.
In May 1999, the Partnership entered into an Asset Purchase Agreement with an
unaffiliated third party pursuant to which the northeast Missouri systems would
be sold. Consummation of the sale is subject to regulatory approvals and other
conditions to closing, and the closing is anticipated to occur prior to
year-end. Upon sale of the assets, there will be a holdback of a portion of the
purchase price should the buyer seek indemnity with respect to the purchased
assets. If and when this sale is consummated, the Partnership will have sold all
of its cable television assets.
It is also the General Partner's intention to repay the balance of the
Partnership's outstanding obligations, terminate the Partnership and distribute
all remaining proceeds thereof (subject to a holdback for contingencies) as
expeditiously as possible. At such time as all of the Partnership's systems are
sold, and all available CPLP distributions are received by the Partnership, the
Partnership's outstanding obligations will be paid and the Partnership will be
terminated. Upon its termination, the Partnership will cease to be a public
entity and will no longer be subject to the informational reporting requirements
of the Securities Exchange Act of 1934, as amended.
Year 2000 Impact
Many existing computer systems and applications, and other control devices and
embedded computer chips use only two digits (rather than four) to identify a
year in the date field, failing to consider the impact of the upcoming change in
the century. As a result, such systems, applications, devices, and chips could
create erroneous results or might fail altogether unless corrected properly to
interpret data related to the year 2000 and beyond (the "Year 2000 Problem").
These errors and failures may result, not only from a date recognition problem
in the particular part of a system failing, but may also result as systems,
applications, devices and chips receive erroneous or improper data from
third-parties suffering from the Year 2000 Problem. In addition, two interacting
systems, applications, devices or chips, each of which has individually been
fixed so that it will properly handle the Year 2000 Problem, could nonetheless
suffer "integration failure" because their method of dealing with the problem is
not compatible.
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These problems are expected to increase in frequency and severity as the Year
2000 approaches. This issue impacts our owned and licensed computer systems and
equipment used in connection with internal operations, including
o information processing and financial reporting systems,
o customer billing systems,
o customer service systems,
o telecommunication transmission and reception systems, and
o facility systems.
We also rely directly and indirectly, in the regular course of business, on the
proper operation and compatibility of third party systems. The Year 2000 Problem
could cause these systems to fail, err, or become incompatible with our systems.
If we or a significant third party on which we rely fails to become year 2000
ready, or if the Year 2000 Problem cause our systems to become internally
incompatible or incompatible with third party systems, our business could suffer
from material disruption, including the inability to process transactions, send
invoices, accept customer orders or provide customers with our cable services.
We could also face similar disruptions if the Year 2000 Problem causes general
widespread problems or an economic crisis. We cannot now estimate the extent of
these potential disruptions.
We are addressing the Year 2000 Problem with respect to our internal operations
in three stages: (1) inventory and evaluation of our systems, components and
other significant infrastructure to identify those elements that reasonably
could be expected to be affected by the Year 2000 Problem, (2) remediation and
replacement to address problems identified in stage one and (3) testing of the
remediation and replacement carried out in stage two. We formed an executive
Year 2000 Taskforce at the beginning of 1998, have completed stage one, and
anticipate that we will complete stages two and three by August 1999. We plan to
complete all stages for our existing systems by August 1999, but we cannot
determine when such stages would be completed in connection with systems we may
acquire in the near future.
Much of our assessment efforts in stage one have involved, and depend on,
inquiries to third party service providers, who are the suppliers and vendors of
various parts or components of our systems. Certain of these third parties that
have certified the readiness of their products will not certify their
interoperability within our fully integrated systems. We cannot assure you that
these technologies of third parties, on which we rely, we be year 2000 ready or
timely converted into year 2000 compliant systems compatible with our systems.
Moreover, because a full test of our systems, on an integrated basis, would
require a complete shut down of our operations, it is not practicable to conduct
such testing. We have been advised that a plan has been developed to utilize a
third party, in cooperation with other cable operators, to begin testing a
"mock-up" of our major billing and plant components (including pay-per-view
systems) as an integrated system. We are also evaluating the potential impact of
third party failure and integration failure on our systems.
The Partnership cannot be certain that it or third parties supporting its
systems have resolved or will resolve all Year 2000 issues in a timely manner.
Failure by the Partnership or any such third party to successfully address
relevant Year 2000 issues could result in disruptions of the Partnership's
business and the incurrence of significant expenses by the Partnership.
Additionally, the Partnership could be affected by any disruption to third
parties with which the Partnership does business if such third parties have not
successfully address their Year 2000 issues.
Failure to resolve Year 2000 issues could result in improper billing to the
Partnership's subscribers which could have a major impact on the recording of
revenue and the collection of cash as well as create significant customer
dissatisfaction. In addition, failure on the part of the financial institutions
with which the Partnership relies on for its cash collection and management
services could also have significant impact on collections, results of
operations and the liquidity of the Partnership.
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We have incurred only immaterial costs to date directly related to addressing
the Year 2000 Problem. We have redeployed internal resources and have
selectively engaged outside vendors to meet the goals of our year 2000 program.
We currently do not estimate the total cost of our year 2000 remediation program
to be material.
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 Partnership'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, changes in the
competitive environment in which the Partnership operates and the Partnership's
success dealing with Year 2000 issues. Investors are cautioned that all
forward-looking statements involve risks and uncertainties.
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Part II. Other Information
Item 1. Legal Proceedings
Wallace v. Wood, et. al.
On June 10, 1997, four limited partners of the Partnership filed a putative
class action suit on behalf of the limited partners against the General Partner,
Charter Communications, Inc. (Charter), certain other Charter affiliates and
four present or former officers of the General Partner. On May 19, 1998,
Defendants filed a Motion for Judgment on the Pleadings, seeking dismissal of
certain of the defendants from the lawsuit. That motion is scheduled for a
hearing in September 1999.
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
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Item 5. Other Information
In May 1999, the Partnership entered into an Asset Purchase Agreement with an
unaffiliated third-party pursuant to which the remaining Northeast Missouri
systems owned by the Partnership would be sold. Consummation of the sale is
subject to regulatory approvals and other conditions to closing, and the closing
is anticipated to occur prior to year-end. Upon sale of the assets, there will
be a holdback of a portion of the purchase price should the buyer seek indemnity
with respect to the purchased assets. If and when this sale is consummated, the
Partnership will have sold all of its cable television assets.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(bb) Asset Purchase Agreement by and between Cencom Cable
Income Partners II, L.P. and Galaxy Telecom, L.P. dated as of May
5, 1999
27.1 Financial Data Schedule (supplied for the information of
the Commission)
(b) Reports on Form 8-K
On April 15, 1999, CCIP II filed a current report on Form 8-K related
to the sale of cable television systems on April 1, 1999, reported in
part I, Item 2 therein, as follows:
(a) CCIP II sold its cable television systems serving Angleton, Aqua
Dolce, Belleville, Driscoll, Hempstead, Kingsville, and Sealy,
Texas, to an unaffiliated third party for $20.8 million, subject
to working capital adjustments.
(b) CPLP sold its cable television systems serving LaGrange, Texas,
to an unaffiliated third party for $11.2 million, subject to
working capital adjustments.
Pursuant to Article 3 of Regulation S-X, the Form 8-K filing included
certain unaudited pro forma financial information related to the these
sale transactions.
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<PAGE> 21
CENCOM CABLE INCOME PARTNERS II, L.P.
FOR QUARTER ENDED JUNE 30, 1999
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 13, 1999
-------------------------------
Jerald L. Kent
Executive Vice President and
Chief Financial Officer
By: /s/Ralph G. Kelly August 13, 1999
-------------------------------
Ralph G. Kelly
Treasurer
Page 21
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