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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the Fiscal Year Ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
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Commission File Number: 0-17687
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
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(Exact name of Registrant as specified in its charter)
GEORGIA 58-1755230
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10900 WILSHIRE BOULEVARD - 15TH FLOOR
LOS ANGELES, CALIFORNIA 90024
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(Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: (310) 824-9990
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Securities registered pursuant to Section 12 (b) of the Act: NONE
Securities registered pursuant to Section 12 (b) of the Act:
Name of each exchange
Title of Each Class: on which registered
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UNITS OF LIMITED PARTNERSHIP INTEREST NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting equity securities held
by non-affiliates of the registrant - all of the registrant's 79,818 units of
limited partnership interests, its only class of equity securities, are held by
non-affiliates. There is no public trading market for the units, and transfers
of units are subject to certain restrictions; accordingly, the registrant is
unable to state the market value of the units held by non-affiliates.
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The Exhibit Index is located at Page E-1.
<PAGE> 2
PART I
ITEM 1. BUSINESS
INTRODUCTION
Enstar Income/Growth Program Six-A, L.P., a Georgia limited partnership
(the "Partnership"), is engaged in the ownership, operation and development,
and, when appropriate, sale or other disposition, of cable television systems in
small to medium-sized communities. The Partnership was formed on September 23,
1987. The general partners of the Partnership are Enstar Communications
Corporation, a Georgia corporation (the "Corporate General Partner"), and Robert
T. Graff, Jr. (the "Individual General Partner" and, together with the Corporate
General Partner, the "General Partners"). On September 30, 1988, ownership of
the Corporate General Partner was acquired by Falcon Cablevision, a California
limited partnership that has been engaged in the ownership and operation of
cable television systems since 1984 ("Falcon Cablevision"). Until March 1993,
the general partner of the general partner of Falcon Cablevision was Falcon
Holding Group, Inc., a California corporation ("FHGI"), which provided certain
management services to the Partnership. On March 29, 1993, a new entity, Falcon
Holding Group, L.P. ("FHGLP"), was organized to effect the consolidation of the
ownership of various cable television businesses (including that of Falcon
Cablevision) that were previously under the common management of FHGI. The
management of FHGLP is substantially the same as that of FHGI. See Item 13.,
"Certain Relationships and Related Transactions." The Corporate General Partner,
FHGLP and affiliated companies are responsible for the day to day management of
the Partnership and its operations. See "Employees" below.
A cable television system receives television, radio and data signals
at the system's "headend" site by means of over-the-air antennas, microwave
relay systems and satellite earth stations. These signals are then modulated,
amplified and distributed, primarily through coaxial and fiber optic
distribution systems, to customers who pay a fee for this service. Cable
television systems may also originate their own television programming and other
information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to non-exclusive
franchises or similar licenses granted by local governmental authorities for a
specified term of years.
The Partnership's cable television systems, (the "systems") offer
customers various levels (or "tiers") of cable services consisting of broadcast
television signals of local network, independent and educational stations, a
limited number of television signals from so-called "super stations" originating
from distant cities (such as WTBS, WGN and WOR), various satellite-delivered,
non-broadcast channels (such as Cable News Network ("CNN"), MTV: Music
Television ("MTV"), the USA Network ("USA"), ESPN and Turner Network Television
("TNT"), programming originated locally by the cable television system (such as
public, governmental and educational access programs) and informational displays
featuring news, weather, stock market and financial reports and public service
announcements. A number of the satellite services are also offered in certain
packages. For an extra monthly charge, the systems also offer "premium"
television services to their customers. These services (such as Home Box Office
("HBO"), Showtime, The Disney Channel and selected regional sports networks) are
satellite channels that consist principally of feature films, live sporting
events, concerts and other special entertainment features, usually presented
without commercial interruption. See "Legislation and Regulation."
A customer generally pays an initial installation charge and fixed
monthly fees for basic, expanded basic, other tiers of satellite services and
premium programming services. Such monthly service fees constitute the primary
source of revenues for the systems. In addition to customer revenues, the
systems receive revenue from additional fees paid by customers for pay-per-view
programming of movies and special events and from the sale of available
advertising spots on advertiser-supported programming. The systems also offer to
their customers home shopping services, which pay the systems a share of
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revenues from sales of products in the systems' service areas, in addition to
paying the systems a separate fee in return for carrying their shopping service.
The Partnership began its cable television business operations in
January 1989 with the acquisition of two cable television systems that provide
service to customers in and around the municipalities of Dyer, Tennessee. During
March 1989, the Partnership expanded its cable operations by acquiring certain
cable television systems providing service to customers in and around the
municipalities of Flora and Salem, Illinois. During October 1989, the
Partnership expanded its operations by acquiring a cable television system
providing service to customers in and around the communities of Farmersville and
Raymond, Illinois. As of December 31, 1995, the Partnership served approximately
9,800 homes subscribing to cable services. The Partnership does not expect to
make any additional material acquisitions during the remaining term of the
Partnership.
FHGLP receives a management fee and reimbursement of expenses from the
Corporate General Partner for managing the Partnership's cable television
operations. See Item 11., "Executive Compensation."
The Chief Executive Officer of FHGLP is Marc B. Nathanson. Mr.
Nathanson has managed FHGLP or its predecessors since 1975. Mr. Nathanson is a
veteran of more than 26 years in the cable industry and, prior to forming
FHGLP's predecessors, held several key executive positions with some of the
nation's largest cable television companies. The principal executive offices of
the Partnership, the General Partner and FHGLP are located at 10900 Wilshire
Boulevard, 15th Floor, Los Angeles, California 90024, and their telephone number
is (310) 824-9990. See Item 10., "Directors and Executive Officers of the
Registrant."
BUSINESS STRATEGY
Historically, the Partnership has followed a systematic approach to
acquiring, operating and developing cable television systems based on the
primary goal of increasing operating cash flow while maintaining the quality of
services offered by its cable television systems. The Partnership's business
strategy has focused on serving small to medium-sized communities. The
Partnership believes that its cable television systems generally involve less
risk of increased competition than systems in large urban cities. In the
Partnership's markets, consumers have access to only a limited number of
over-the-air broadcast television signals. In addition, these markets typically
offer fewer competing entertainment alternatives than large cities. As a result,
the Partnership's cable television systems generally have a higher basic
penetration rate (the number of homes subscribing to cable service as a
percentage of homes passed by cable) with a more stable customer base than
systems in large cities. Nonetheless, the Partnership believes that all cable
operators will face increased competition in the future from alternative
providers of multi-channel video programming services. See "Competition. "
On March 30, 1994, the Federal Communications Commission (the "FCC")
adopted significant amendments to its rules implementing certain provisions of
the 1992 Cable Act. The Partnership believes that compliance with these amended
rules has had a negative impact on the Partnership's revenues and cash flow.
These rules are subject to further amendment to give effect to the
Telecommunications Act of 1996 (the "1996 Telecom Act"). The 1996 Telecom Act is
expected to have a significant affect on all participants in the
telecommunications industry, including the Partnership. See " Legislation and
Regulation" and Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Partnership believes that its cable television systems generally
involve less risk of increased competition than systems in large urban cities.
In the Partnership's markets, consumers have access to only a limited number of
over-the-air broadcast television signals. In addition, these markets typically
offer fewer competing entertainment alternatives than large cities. As a result,
the Partnership's
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cable television systems generally have a higher basic penetration rate (the
number of homes subscribing to cable service as a percentage of homes passed by
cable) with a more stable customer base than systems in large cities.
Nonetheless, the Partnership believes that all cable operators will face
increased competition in the future from alternative providers of multi-channel
video programming services. See "Competition."
Clustering
The Partnership has sought to acquire cable television systems in
communities that are proximate to other owned or affiliated systems in order to
achieve the economies of scale and operating efficiencies associated with
regional "clusters" of systems. The Partnership believes clustering can reduce
marketing and personnel costs and can also reduce capital expenditures in cases
where cable service can be delivered to a number of systems within a single
region through a central headend reception facility.
Capital Expenditures
As noted in "Technological Developments," the Partnership's systems
have almost no available channel capacity with which to add new channels or to
further expand their use of pay-per-view offerings to customers. As a result,
significant amounts of capital for future upgrades will be required in order to
increase available channel capacity, improve quality of service and facilitate
the marketing of additional new services such as advertising, pay-per-view, new
unregulated tiers of satellite-delivered services and home shopping, so that the
systems remain competitive within the industry.
The Partnership's management has selected a technical standard that
mandates a 750 MHz fiber to the feeder architecture for the majority of all its
systems that are to be rebuilt. A system built to a 750 MHz standard can provide
approximately 95 channels of analog service. Such a system will also permit the
introduction of high speed data transmission and telephony services in the
future after incurring incremental capital expenditures related to these
services.
The Partnership's future capital expenditure plans are, however, all
subject to the availability of adequate capital on terms satisfactory to the
Partnership, of which there can be no assurance. As discussed in prior reports,
the Partnership postponed a number of rebuild and upgrade projects that were
planned for 1993, 1994 and 1995 because of the uncertainty related to
implementation of the 1992 Cable Act and the negative impact thereof on the
Partnership's business and access to capital. As a result, the Partnership's
systems will be significantly less technically advanced than had been expected
prior to the implementation of re-regulation. The Partnership believes that the
delays in upgrading its systems will, under present market conditions, most
likely have an adverse effect on the value of those systems compared to systems
that have been rebuilt to a higher technical standard. See "Legislation and
Regulation" and Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
Decentralized Management
The Corporate General Partner manages the Partnership's systems on a
decentralized basis. The Corporate General Partner believes that its
decentralized management structure, by enhancing management presence at the
system level, increases its sensitivity to the needs of its customers, enhances
the effectiveness of its customer service efforts, eliminates the need for
maintaining a large centralized corporate staff and facilitates the maintenance
of good relations with local governmental authorities.
Marketing
The Partnership has made substantial changes in the way in which it
packages and sells its services and equipment in the course of its
implementation of the FCC's rate regulations promulgated under the 1992 Cable
Act. Historically, the Partnership had offered four programming packages in its
upgraded
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addressable systems. These packages combined services at a lower rate than the
aggregate rates for such services purchased individually on an "a la carte"
basis. The new rules require that charges for cable-related equipment (e.g.,
converter boxes and remote control devices) and installation services be
unbundled from the provision of cable service and based upon actual costs plus a
reasonable profit. On November 10, 1994, the FCC announced the adoption of
further significant amendments to its rules. One amendment allows cable
operators to create new tiers of program services which the FCC has chosen to
exclude from rate regulation, so long as the programming is new to the system.
In addition, the FCC decided that discounted packages of non-premium "new
product tier" services will be subject to rate regulation in the future.
However, in applying this new policy to new product tier packages such as those
already offered by the Partnership and numerous other cable operators, the FCC
decided that where only a few services were moved from regulated tiers to the
new product tier package, the package will be treated as if it were a tier of
new program services as discussed above. Substantially all of the new product
tier packages offered by the Partnership have received this desirable treatment.
These amendments to the FCC's rules have allowed the Partnership to resume its
core marketing strategy and reintroduce programmed service packaging. As a
result, in addition to the basic service package, customers in substantially all
of the Systems may purchase an expanded basic service, additional unregulated
packages of satellite-delivered services and premium services on either an a la
carte or a discounted packaged basis. See " Legislation and Regulation."
The Partnership has employed a variety of targeted marketing techniques
to attract new customers by focusing on delivering value, choice, convenience
and quality. The Partnership employs direct mail, radio and local newspaper
advertising, telemarketing and door-to-door selling utilizing demographic
"cluster codes" to target specific messages to target audiences. In certain
systems, the Partnership offers discounts to customers who purchase premium
services on a limited trial basis in order to encourage a higher level of
service subscription. The Partnership also has a coordinated strategy for
retaining customers that includes televised retention advertising to reinforce
the initial decision to subscribe and encourage customers to purchase higher
service levels.
Customer Service and Community Relations
The Partnership places a strong emphasis on customer service and
community relations and believes that success in these areas is critical to its
business. The Partnership has developed and implemented a wide range of monthly
internal training programs for its employees, including its regional managers,
that focus on the Partnership's operations and employee interaction with
customers. The effectiveness of the Partnership's training program as it relates
to the employees' interaction with customers is monitored on an on-going basis,
and a portion of the regional managers' compensation is tied to achieving
customer service targets. The Partnership conducts an extensive customer survey
on an annual basis and uses the information in its efforts to enhance service
and better address the needs of its customers. In addition, the Partnership is
participating in the industry's recently announced Customer Service Initiative
which emphasizes an on-time guarantee program for service and installation
appointments. The Partnership's corporate executives and regional managers lead
the Partnership's involvement in a number of programs benefiting the communities
the Partnership serves, including, among others, Cable in the Classroom, Drug
Awareness, Holiday Toy Drive and the Cystic Fibrosis Foundation. Cable in the
Classroom is the cable television industry's public service initiative to enrich
education through the use of commercial-free cable programming. In addition, a
monthly publication, Cable in the Classroom magazine provides educational
program listings by curriculum area, as well as feature articles on how teachers
across the country use the programs.
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DESCRIPTION OF THE PARTNERSHIP'S SYSTEMS
The table below sets forth certain operating statistics for the
Partnership's cable systems as of December 31, 1995.
<TABLE>
<CAPTION>
Average
Monthly
Revenue
Homes Per Home
Subscribing Premium Subscribing
Homes to Cable Basic Service Premium to Cable
System Passed(1) Service Penetration(2) Units(3) Penetration(4) Service(5) Subscribers(6)
- ------ --------- ------- -------------- -------- -------------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dyer, TN 3,288 2,512 76.4% 917 36.5% $29.60 3,747
Flora, IL 8,290 6,860 82.8% 2,280 33.2% $27.14 7,119
Raymond, IL 710 425 59.9% 176 41.4% $26.43 482
------ ----- ----- ------
Total 12,288 9,797 79.7% 3,373 34.4% $27.74 11,348
====== ===== ===== ======
</TABLE>
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(1) Homes passed refers to estimates by the Partnership of the
approximate number of dwelling units in a particular community that can be
connected to the distribution system without any further extension of principal
transmission lines. Such estimates are based upon a variety of sources,
including billing records, house counts, city directories and other local
sources.
(2) Homes subscribing to cable service as a percentage of homes passed
by cable.
(3) Premium service units include only single channel services offered
for a monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee.
(4) Premium service units as a percentage of homes subscribing to cable
service. A customer may purchase more than one premium service, each of which is
counted as a separate premium service unit. This ratio may be greater than 100%
if the average customer subscribes for more than one premium service.
(5) Average monthly revenue per home subscribing to cable service has
been computed based on revenue for the year ended December 31, 1995.
(6) The Partnership reports subscribers for the Systems on an
equivalent subscriber basis and, unless otherwise indicated, the term
"SUBSCRIBERS" means equivalent subscribers, calculated by dividing aggregate
basic service revenues by the average lowest basic service rate within an
operating entity, adjusted to reflect the impact of regulation. Basic service
revenues include charges for basic programming, bulk and commercial accounts and
certain specialized "packaged programming" services, including the appropriate
components of new product tier revenue, and excluding premium television and
non-subscription services. Consistent with past practices, Subscribers is an
analytically derived number which is reported in order to provide a basis of
comparison to previously reported data. The computation of Subscribers has been
impacted by changes in service offerings made in response to the 1992 Cable Act.
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CUSTOMER RATES AND SERVICES
The Partnership's cable television systems offer customers packages of
services that include the local area network, independent and educational
television stations, a limited number of television signals from distant cities,
numerous satellite-delivered, non-broadcast channels (such as CNN, MTV, USA,
ESPN and TNT) and certain information and public access channels. For an extra
monthly charge, the systems provide certain premium television services, such as
HBO, Showtime, The Disney Channel and regional sports networks.
The Partnership also offers other cable television services to its
customers, including pay-per-view programming. For additional charges, in most
of its systems, the Partnership also rents remote control devices and VCR
compatible devices (devices that make it easier for a customer to tape a program
from one channel while watching a program on another).
The service options offered by the Partnership vary from system to
system, depending upon a system's channel capacity and viewer interests. Rates
for services also vary from market to market and according to the type of
services selected.
Prior to the adoption of the 1992 Cable Act, the systems generally were
not subject to any rate regulation, i.e., they were adjudged to be subject to
effective competition under then-effective FCC regulations. The 1992 Cable Act,
however, substantially changed the statutory and FCC rate regulation standards.
Under the new definition of effective competition, nearly all cable television
systems in the United States have become subject to local rate regulation of
basic service. The 1996 Telecom Act expanded this definition to include
situations where a local telephone company, or anyone using its facilities,
offers comparable video service by any means except direct broadcast satellite
("DBS"). In addition, the 1992 Cable Act eliminated the 5% annual basic rate
increases previously allowed by the 1984 Cable Act without local approval;
allows the FCC to review rates for nonbasic service tiers other than premium
services in response to complaints filed by franchising authorities and/or cable
customers; prohibits cable television systems from requiring customers to
purchase service tiers above basic service in order to purchase premium services
if the system is technically capable of doing so; and adopted regulations to
establish, on the basis of actual costs, the price for installation of cable
television service, remote controls, converter boxes, and additional outlets.
The FCC implemented these rate regulation provisions on September 1, 1993, which
affected all the Partnership's systems which are not deemed to be subject to
effective competition under the FCC's definition. The FCC substantially amended
its rate regulation rules on February 22, 1994 and again on November 10, 1994.
The FCC will have to conduct a number of rulemaking proceedings in order to
implement many of the provisions of the 1996 Telecom Act. See "Legislation and
Regulation."
At December 31, 1995, the Partnership's monthly rates for basic cable
service for residential customers, excluding special senior citizen discount
rates, ranged from $14.72 to $18.59 and premium service rates ranged from $10.50
to $11.95 excluding special promotions offered periodically in conjunction with
the Partnership's marketing programs. A one-time installation fee, which the
Partnership may wholly or partially waive during a promotional period, is
usually charged to new customers. The Partnership, prior to September 1, 1993,
generally charged monthly fees for additional outlets, converters, program
guides and descrambling and remote control tuning devices. As described above,
these charges have either been eliminated or altered by the implementation of
rate regulation, and as a result of such implementation under the FCC's
guidelines, the rates for basic cable service for residential customers
correspondingly increased in some cases. As a result, while many customers
experienced a decrease in their monthly bill for all services, some customers
experienced an increase. However, substantially all the Partnership's customers
did receive a decrease in their monthly charges in July 1994 upon implementation
of the FCC's amended rules. Commercial customers, such as hotels, motels and
hospitals, are charged a negotiated, non-recurring fee for installation of
service and monthly fees based upon a standard discounting procedure.
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Most multi-unit dwellings are offered a negotiated bulk rate in exchange for
single-point billing and basic service to all units. These rates are also
subject to regulation.
EMPLOYEES
The various personnel required to operate the Partnership's business
are employed by the Partnership, the Corporate General Partner, its subsidiary
corporation and FHGLP. As of February 12, 1996, the Partnership had 9 employees,
the cost of which is charged directly to the Partnership. The employment costs
incurred by the Corporate General Partner, its subsidiary corporation and FHGLP
are allocated and charged to the Partnership for reimbursement pursuant to the
partnership agreement and management agreement. The amounts of these
reimbursable costs are set forth below in Item 11., "Executive Compensation."
TECHNOLOGICAL DEVELOPMENTS
As part of its commitment to customer service, the Partnership
emphasizes the highest technical standards and prudently seeks to apply
technological advances in the cable television industry to its cable television
systems on the basis of cost effectiveness, capital availability, enhancement of
product quality and service delivery and industry-wide acceptance. The
Partnership continues to upgrade the technical quality of the Partnership
systems' cable plant and to increase channel capacity for the delivery of
additional programming and new services. Currently, the Partnership's systems
have an average channel capacity of 38 in systems that service 79% of its
customers and an average channel capacity of 60 in systems that serve 21% of its
customers and on average utilize 93% and 60% of such systems' respective channel
capacity. The Partnership believes that system upgrades would enable it to
provide customers with greater programming diversity, better picture quality and
alternative communications delivery systems made possible by the introduction of
fiber optic technology and by the possible future application of digital
compression. The implementation of the Partnership's capital expenditure plans
is, however, subject to the availability of adequate capital on terms
satisfactory to the Partnership, of which there can be no assurance. Also, as a
result of the uncertainty created by recent regulatory changes, the Partnership
has deferred all plant rebuilds and upgrades. See "Legislation and Regulation"
and Item 7., "Management's Discussion and analysis of Financial Condition and
Results of Operations."
The use of fiber optic cable as an alternative to coaxial cable is
playing a major role in expanding channel capacity and improving the performance
of cable television systems. Fiber optic cable is capable of carrying hundreds
of video, data and voice channels and, accordingly, its utilization is essential
to the enhancement of a cable television system's technical capabilities. The
Partnership's current policy to utilize fiber optic technology in substantially
all rebuild projects which it undertakes is based upon the benefits that the
utilization of fiber optic technology provides over traditional coaxial cable
distribution plant, including lower per mile rebuild costs due to a reduction in
the number of required amplifiers, the elimination of headends, lower ongoing
maintenance and power costs and improved picture quality and reliability.
As of December 31, 1995, approximately 64% of the Partnership's
customers were served by systems that utilize addressable technology.
Addressable technology permits the cable operator to activate from a central
control point the cable television services to be delivered to a customer if
that customer has also been supplied with an addressable converter box. To date,
the Partnership has supplied addressable converter boxes to customers of the
systems utilizing addressable technology who subscribe to one or more premium
services and, in selected systems, to customers who subscribe to new product
tier services. As a result, if the system utilizes addressable technology and
the customer has been supplied with an addressable converter box, the
Partnership can upgrade or downgrade services immediately, without the delay or
expense associated with dispatching a technician to the home. Addressable
technology also reduces pay service theft, is an effective enforcement tool in
collecting delinquent payments and allows the Partnership to offer pay-per-view
services. "See Customer Rates and Services."
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DIGITAL COMPRESSION
The Partnership has been closely monitoring developments in the area of
digital compression, a technology which is expected to enable cable operators to
increase the channel capacity of cable television systems by permitting a
significantly increased number of video signals to fit in a cable television
system's existing bandwidth. The Partnership believes that the utilization of
digital compression technology in the future could enable its systems to
increase channel capacity in certain systems in a manner that could be more cost
efficient than rebuilding such systems with higher capacity distribution plant.
The use of digital compression in its systems also could expand the number and
types of services these systems offer and enhance the development of current and
future revenue sources. Equipment vendors are beginning to market products to
provide this technology, but the Partnership's management has no plans to
install it at this time based on its present understanding of the costs as
compared to the benefits of the digital equipment currently available.
PROGRAMMING
The Partnership purchases basic and premium programming for its systems
from Falcon Cablevision. In turn, Falcon Cablevision charges the Partnership for
these costs based on an estimate of what the Partnership could negotiate for
such services for the fifteen partnerships managed by the Corporate General
Partner as a group (approximately 94,600 homes subscribing to cable service at
December 31, 1995), which is generally based on a fixed fee per customer or a
percentage of the gross receipts for the particular service. Falcon
Cablevision's programming contracts are generally for a fixed period of time and
are subject to negotiated renewal. Falcon Cablevision does not have long-term
programming contracts for the supply of a substantial amount if its programming.
Accordingly, no assurance can be given that its, and correspondingly the
Partnership's, programming costs will not increase substantially in the near
future, or that other materially adverse terms will not be added to Falcon
Cablevision's programming contracts. Management believes, however, that Falcon
Cablevision's relations with its programming suppliers generally are good.
The Partnership's cable programming costs have increased in recent
years and are expected to continue to increase due to additional programming
being provided to basic customers, requirements to add channels under
retransmission carriage agreements entered into with certain programming
sources, increased costs to produce or purchase cable programming generally,
inflationary increases and other factors. Under the FCC rate regulations,
increases in programming costs for regulated cable services occurring after the
earlier of March 1, 1994, or the date a system's basic cable service became
regulated, may be passed through to customers. See "Legislation and Regulation -
Federal Regulation - Carriage of Broadcast Television Signals." Generally,
programming costs are charged among systems on a per customer basis.
FRANCHISES
Cable television systems are generally constructed and operated under
non-exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as time limitations on
commencement and completion of construction; conditions of service, including
number of channels, types of programming and the provision of free service to
schools and certain other public institutions; and the maintenance of insurance
and indemnity bonds. The provisions of local franchises are subject to federal
regulation under the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom
Act. See "Legislation and Regulation."
As of December 31, 1995, the Partnership held 16 franchises. These
franchises, all of which are non-exclusive, provide for the payment of fees to
the issuing authority. Annual franchise fees imposed on the Partnership systems
range up to 5% of the gross revenues generated by a system. The 1984 Cable
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Act prohibits franchising authorities from imposing franchise fees in excess of
5% of gross revenues and also permits the cable system operator to seek
renegotiation and modification of franchise requirements if warranted by changed
circumstances.
The following table groups the franchises of the Partnership's cable
television systems by date of expiration and presents the number of franchises
for each group of franchises and the approximate number and percentage of homes
subscribing to cable service for each group as of December 31, 1995.
<TABLE>
<CAPTION>
Number of Percentage of
Homes Homes
Year of Number of Subscribing to Subscribing to
Franchise Expiration Franchises Cable Service Cable Service
- -------------------- ---------- ------------- -------------
<S> <C> <C> <C>
Prior to 1997 4 5,321 54.3%
1997 - 2001 4 736 7.5%
2002 and after 8 3,129 31.9%
-- ----- ----
Total 16 9,186 93.7%
== ===== ====
</TABLE>
The Partnership operates cable television systems which serve multiple
communities and, in some circumstances, portions of such systems extend into
jurisdictions for which the Partnership believes no franchise is necessary. In
the aggregate, approximately 611 customers, comprising approximately 6.3% of the
Partnership's customers, are served by unfranchised portions of such systems. In
certain instances, where a single franchise comprises a large percentage of the
customers in an operating region, the loss of such franchise could decrease the
economies of scale achieved by the Partnership's clustering strategy. The
Partnership has never had a franchise revoked for any of its systems and
believes that it has satisfactory relationships with substantially all of its
franchising authorities.
The 1984 Cable Act provides, among other things, for an orderly
franchise renewal process in which franchise renewal will not be unreasonably
withheld or, if renewal is withheld, the franchise authority must pay the
operator the "fair market value" for the system covered by such franchise. In
addition, the 1984 Cable Act establishes comprehensive renewal procedures which
require that an incumbent franchisee's renewal application be assessed on its
own merit and not as part of a comparative process with competing applications.
See "Legislation and Regulation."
COMPETITION
Cable television systems compete with other communications and
entertainment media, including over the air television broadcast signals which a
viewer is able to receive directly using the viewer's own television set and
antenna. The extent to which a cable system competes with over-the-air
broadcasting depends upon the quality and quantity of the broadcast signals
available by direct antenna reception compared to the quality and quantity of
such signals and alternative services offered by a cable system. In many areas,
television signals which constitute a substantial part of basic service can be
received by viewers who use their own antennas. Local television reception for
residents of apartment buildings or other multi-unit dwelling complexes may be
aided by use of private master antenna services. Cable systems also face
competition from alternative methods of distributing and receiving television
signals and from other sources of entertainment such as live sporting events,
movie theaters and home video products, including videotape recorders and
cassette players. In recent years, the FCC has adopted policies providing for
authorization of new technologies and a more favorable operating environment for
certain existing technologies that provide, or may provide, substantial
additional competition for cable television systems. The extent to which cable
television service is competitive depends in significant part upon the cable
television system's ability to provide an even greater variety of programming
than that available over the air
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or through competitive alternative delivery sources. In addition, certain
provisions of the 1992 Cable Act and the 1996 Telecom Act are expected to
increase competition significantly in the cable industry. See "Legislation and
Regulation."
Individuals presently have the option to purchase earth stations, which
allow the direct reception of satellite-delivered program services formerly
available only to cable television subscribers. Most satellite-distributed
program signals are being electronically scrambled to permit reception only with
authorized decoding equipment for which the consumer must pay a fee. From time
to time, legislation has been introduced in Congress which, if enacted into law,
would prohibit the scrambling of certain satellite-distributed programs or would
make satellite services available to private earth stations on terms comparable
to those offered to cable systems. Broadcast television signals are being made
available to owners of earth stations under the Satellite Home Viewer Copyright
Act of 1988, which became effective January 1, 1989 for an initial six-year
period. This Act establishes a statutory compulsory license for certain
transmissions made by satellite owners to home satellite dishes, for which
carriers are required to pay a royalty fee to the Copyright Office. This Act has
been extended by Congress until December 31, 1999. The 1992 Cable Act enhances
the right of cable competitors to purchase nonbroadcast satellite-delivered
programming. See "Legislation and Regulation-Federal Regulation."
Television programming is now also being delivered to individuals by
high-powered direct broadcast satellites ("DBS") utilizing video compression
technology. This technology has the capability of providing more than 100
channels of programming over a single high-powered DBS satellite with
significantly higher capacity available if multiple satellites are placed in the
same orbital position. Video compression technology may also be used by cable
operators in the future to similarly increase their channel capacity. DBS
service can be received virtually anywhere in the United States through the
installation of a small rooftop or side-mounted antenna, and it is more
accessible than cable television service where cable plant has not been
constructed or where it is not cost effective to construct cable television
facilities. DBS service is being heavily marketed on a nation-wide basis. The
extent to which DBS systems will be competitive with cable television systems
will depend upon, among other things, the ability of DBS operators to obtain
access to programming, the availability of reception equipment, and whether
equipment and service can be made available to consumers at reasonable prices.
Multi-channel multipoint distribution systems ("MMDS") deliver
programming services over microwave channels licensed by the FCC received by
subscribers with special antennas. MMDS systems are less capital intensive, are
not required to obtain local franchises or to pay franchise fees and are subject
to fewer regulatory requirements than cable television systems. To date, the
ability of these so-called "wireless" cable services to compete with cable
television systems has been limited by channel capacity constraints and the need
for unobstructed line-of-sight over-the-air transmission. Although relatively
few MMDS systems in the United States are currently in operation or under
construction, virtually all markets have been licensed or tentatively licensed.
The FCC has taken a series of actions intended to facilitate the development of
MMDS and other wireless cable systems as alternative means of distributing video
programming, including reallocating certain frequencies to these services and
expanding the permissible use and eligibility requirements for certain channels
reserved for educational purposes. The FCC's actions enable a single entity to
develop an MMDS system with a potential of up to 35 channels that could compete
effectively with cable television. MMDS systems qualify for the statutory
compulsory copyright license for the retansmission of television and radio
broadcast stations. FCC rules and the 1992 Cable Act prohibit the common
ownership of cable systems and MMDS facilities serving the same area.
Additional competition may come from private cable television systems
servicing condominiums, apartment complexes and certain other multiple unit
residential developments. The operators of these private systems, known as
satellite master antenna television ("SMATV") systems, often enter into
exclusive agreements with apartment building owners or homeowners' associations
which preclude franchised cable television operators from serving residents of
such private complexes. Although a number of states have enacted laws to afford
operators of franchised cable television systems access to
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such private complexes, the U.S. Supreme Court has held that cable companies
cannot have such access without compensating the property owner. The access
statutes of several states have been challenged successfully in the courts, and
other such laws are under attack. However, the 1984 Cable Act gives franchised
cable operators the right to use existing compatible easements within their
franchise areas upon nondiscriminatory terms and conditions. Accordingly, where
there are preexisting compatible easements, cable operators may not be unfairly
denied access or discriminated against with respect to the terms and conditions
of access to those easements. There have been conflicting judicial decisions
interpreting the scope of the access right granted by the 1984 Cable Act,
particularly with respect to easements located entirely on private property.
Due to the widespread availability of reasonably-priced earth stations,
SMATV systems can offer both improved reception of local television stations and
many of the same satellite-delivered program services which are offered by
franchised cable television systems. Further, while a franchised cable
television system typically is obligated to extend service to all areas of a
community regardless of population density or economic risk, the SMATV system
may confine its operation to small areas that are easy to serve and more likely
to be profitable. Under the 1996 Telecom Act, SMATV systems can interconnect
non-commonly owned buildings without having to comply with local, state and
federal regulatory requirements that are imposed upon cable systems providing
similar services, as long as they do not use public rights-of-way. However, a
SMATV system is subject to the 1984 Cable Act's franchise requirement if it uses
physically closed transmission paths such as wires or cables to interconnect
separately owned and managed buildings if its lines use or cross any public
right-of-way. In some cases, SMATV operators may be able to charge a lower price
than could a cable system providing comparable services and the FCC's new
regulations implementing the 1992 Cable Act limit a cable operator's ability to
reduce its rates to meet this competition. Furthermore, the U.S. Copyright
Office has tentatively concluded that SMATV systems are "cable systems" for
purposes of qualifying for the compulsory copyright license established for
cable systems by federal law. The 1992 Cable Act prohibits the common ownership
of cable systems and SMATV facilities serving the same area. However, a cable
operator can purchase a SMATV system serving the same area and technically
integrate it into the cable system.
The FCC has authorized a new interactive television service which will
permit non-video transmission of information between an individual's home and
entertainment and information service providers. This service will provide an
alternative means for DBS systems and other video programming distributors,
including television stations, to initiate the new interactive television
services. This service may also be used as well by the cable television
industry.
The FCC also has initiated a new rulemaking proceeding looking toward
the allocation of frequencies in the 28 Ghz range for a new multi-channel
wireless video service which could make 98 video channels available in a single
market. It cannot be predicted at this time whether competitors will emerge
utilizing such frequencies or whether such competition would have a material
impact on the operations of cable television systems.
The 1996 Telecom Act eliminates the restriction against ownership and
operation of cable systems by local telephone companies within their local
exchange service areas. Telephone companies are now free to enter the retail
video distribution business through any means, such as DBS, MMDS, SMATV or as
traditional franchised cable system operators. Alternatively, the 1996 Telecom
Act authorizes local telephone companies to operate "open video systems" without
obtaining a local cable franchise, although telephone companies operating such
systems can be required to make payments to local governmental bodies in lieu of
cable franchise fees. Up to two-thirds of the channel capacity on an "open video
system" must be available to programmers unaffiliated with the local telephone
company. The open video system concept replaces the FCC's video dialtone rules.
The 1996 Telecom Act also includes numerous provisions designed to make it
easier for cable operators and others to compete directly with local exchange
telephone carriers. With certain limited exceptions, neither a local exchange
carrier nor a cable operator can acquire more than 10% of the other entity
operating within its own service area.
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Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the effect that ongoing or future
developments might have on the cable industry. The ability of cable systems to
compete with present, emerging and future distribution media will depend to a
great extent on obtaining attractive programming. The availability and exclusive
use of a sufficient amount of quality programming may in turn be affected by
developments in regulation or copyright law. See "Legislation and Regulation."
The cable television industry competes with radio, television and print
media for advertising revenues. As the cable television industry continues to
develop programming designed specifically for distribution by cable, advertising
revenues may increase. Premium programming provided by cable systems is subject
to the same competitive factors which exist for other programming discussed
above. The continued profitability of premium services may depend largely upon
the continued availability of attractive programming at competitive prices.
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
the Congress and various federal agencies have in the past, and may in the
future materially affect the Partnership and the cable television industry. The
following is a summary of federal laws and regulations affecting the growth and
operation of the cable television industry and a description of certain state
and local laws.
RECENT DEVELOPMENTS
On February 8, 1996, the President signed the 1996 Telecom Act, into
law. This statute substantially amended the Communications Act of 1934 (the
"Communications Act") by, among other things, removing barriers to competition
in the cable television and telephone markets and reducing the regulation of
cable television rates. As it pertains to cable television, the 1996 Telecom
Act, among other things, (i) ends the regulation of certain nonbasic programming
services in 1999; (ii) expands the definition of effective competition, the
existence of which displaces rate regulation; (iii) eliminates the restriction
against the ownership and operation of cable systems by telephone companies
within their local exchange service areas; and (iv) liberalizes certain of the
FCC's cross-ownership restrictions. The FCC will have to conduct a number of
rulemaking proceedings in order to implement many of the provisions of the 1996
Telecom Act. See "Business - Competition" and "-Federal Regulation-Rate
Regulation."
The Partnership believes that the regulation of its industry remains a
matter of interest to Congress, the FCC and other regulatory authorities. There
can be no assurance as to what, if any, future actions such legislative and
regulatory authorities may take or the effect thereof on the Partnership.
CABLE COMMUNICATIONS POLICY ACT OF 1984
The 1984 Cable Act became effective on December 29, 1984. This federal
statute, which amended the Communications Act, creates uniform national
standards and guidelines for the regulation of cable television systems.
Violations by a cable television system operator of provisions of the
Communications Act, as well as of FCC regulations, can subject the operator to
substantial monetary penalties and other sanctions. Among other things, the 1984
Cable Act affirmed the right of franchising authorities (state or local,
depending on the practice in individual states) to award one or more franchises
within their jurisdictions. It also prohibited non-grandfathered cable
television systems from operating without a franchise in such jurisdictions. In
connection with new franchises, the 1984 Cable Act provides that in granting or
renewing franchises, franchising authorities may establish requirements for
cable-related facilities and equipment, but may not establish or enforce
requirements for video programming or information services other than in broad
categories. The 1984 Cable Act grandfathered, for the remaining term of existing
franchises, many but not all of the provisions in existing franchises which
would not be permitted in franchises entered into or renewed after the effective
date of the 1984 Cable Act.
CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION ACT OF 1992
On October 5, 1992, Congress enacted the 1992 Cable Act. This
legislation has effected significant changes to the legislative and regulatory
environment in which the cable industry operates. It amends the 1984 Cable Act
in many respects. The 1992 Cable Act became effective on December 4, 1992,
although certain provisions, most notably those dealing with rate regulation and
retransmission consent, became effective at later dates. The legislation
required the FCC to initiate a number of rulemaking proceedings to implement
various provisions of the statute, virtually all of which have been completed.
The 1992 Cable Act allows for a greater degree of regulation of the cable
industry with respect to, among other things: (i) cable system rates for both
basic and certain nonbasic services; (ii) programming access and
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exclusivity arrangements; (iii) access to cable channels by unaffiliated
programming services; (iv) leased access terms and conditions; (v) horizontal
and vertical ownership of cable systems; (vi) customer service requirements;
(vii) franchise renewals; (viii) television broadcast signal carriage and
retransmission consent; (ix) technical standards; (x) customer privacy; (xi)
consumer protection issues; (xii) cable equipment compatibility; (xiii) obscene
or indecent programming; and (xiv) requiring subscribers to subscribe to tiers
of service other than basic service as a condition of purchasing premium
services. Additionally, the legislation encourages competition with existing
cable television systems by allowing municipalities to own and operate their own
cable television systems without having to obtain a franchise; preventing
franchising authorities from granting exclusive franchises or unreasonably
refusing to award additional franchises covering an existing cable system's
service area; and prohibiting the common ownership of cable systems and
co-located MMDS or SMATV systems. The 1992 Cable Act also precludes video
programmers affiliated with cable television companies from favoring cable
operators over competitors and requires such programmers to sell their
programming to other multichannel video distributors.
A constitutional challenge to the must-carry provisions of the 1992
Cable Act is still ongoing. On April 8, 1993, a three-judge district court panel
granted summary judgment for the government upholding the must-carry provisions.
That decision was appealed directly to the U.S. Supreme Court which remanded the
case back to the district court to determine whether there was adequate evidence
that the provisions were needed and whether the restrictions chosen were the
least intrusive. On December 12, 1995, the district court again upheld the
must-carry provisions. The Supreme Court has again agreed to review the district
court's decision.
On September 16, 1993, a constitutional challenge to the balance of the
1992 Cable Act provisions was rejected by the U.S. District Court in the
District of Columbia which upheld the constitutionality of all but three
provisions of the statute (multiple ownership limits for cable operators,
advance notice of free previews for certain programming services and channel
set-asides for DBS operators). An appeal from that decision is pending before
the U.S. Court of Appeals for the District of Columbia Circuit.
FEDERAL REGULATION
The FCC, the principal federal regulatory agency with jurisdiction over
cable television, has heretofore promulgated regulations covering such areas as
the registration of cable television systems, cross-ownership between cable
television systems and other communications businesses, carriage of television
broadcast programming, consumer education and lockbox enforcement, origination
cablecasting and sponsorship identification, children's programming, the
regulation of basic cable service rates in areas where cable television systems
are not subject to effective competition, signal leakage and frequency use,
technical performance, maintenance of various records, equal employment
opportunity, and antenna structure notification, marking and lighting. The FCC
has the authority to enforce these regulations through the imposition of
substantial fines, the issuance of cease and desist orders and/or the imposition
of other administrative sanctions, such as the revocation of FCC licenses needed
to operate certain transmission facilities often used in connection with cable
operations. The 1992 Cable Act required the FCC to adopt additional regulations
covering, among other things, cable rates, signal carriage, consumer protection
and customer service, leased access, indecent programming, programmer access to
cable television systems, programming agreements, technical standards, consumer
electronics equipment compatibility, ownership of home wiring, program
exclusivity, equal employment opportunity, and various aspects of direct
broadcast satellite system ownership and operation. The 1996 Telecom Act
requires certain changes to various of these regulations. A brief summary of
certain of these federal regulations as adopted to date follows.
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RATE REGULATION
The 1984 Cable Act codified existing FCC preemption of rate regulation
for premium channels and optional nonbasic program tiers. The 1984 Cable Act
also deregulated basic cable rates for cable television systems determined by
the FCC to be subject to effective competition. The 1992 Cable Act substantially
changed the previous statutory and FCC rate regulation standards. The 1992 Cable
Act replaced the FCC's old standard for determining effective competition, under
which most cable systems were not subject to local rate regulation, with a
statutory provision that resulted in nearly all cable television systems
becoming subject to local rate regulation of basic service. The 1996 Telecom Act
expands the definition of effective competition to cover situations where a
local telephone company or its affiliate, or any multichannel video provider
using telephone company facilities, offers comparable video service by any means
except DBS. Satisfaction of this test deregulates both basic and nonbasic tiers.
Additionally, the 1992 Cable Act eliminated the 5% annual rate increase for
basic service previously allowed by the 1984 Cable Act without local approval;
required the FCC to adopt a formula, for franchising authorities to enforce, to
assure that basic cable rates are reasonable; allowed the FCC to review rates
for nonbasic service tiers (other than per-channel or per-program services) in
response to complaints filed by franchising authorities and/or cable customers;
prohibited cable television systems from requiring subscribers to purchase
service tiers above basic service in order to purchase premium services if the
system is technically capable of doing so; required the FCC to adopt regulations
to establish, on the basis of actual costs, the price for installation of cable
service, remote controls, converter boxes and additional outlets; and allows the
FCC to impose restrictions on the retiering and rearrangement of cable services
under certain limited circumstances. The 1996 Telecom Act ends FCC regulation of
nonbasic tier rates on March 31, 1999.
The FCC adopted rules designed to implement the 1992 Cable Act's rate
regulation provisions on April 1, 1993, and then significantly amended them on
reconsideration on February 22, 1994. The FCC's regulations contain standards
for the regulation of basic and nonbasic cable service rates (other than
per-channel or per-program services). The FCC's original rules became effective
on September 1, 1993. The rules have been further amended several times. The
rate regulations adopt a benchmark price cap system for measuring the
reasonableness of existing basic and nonbasic service rates, and a formula for
calculating additional rate increases. Alternatively, cable operators have the
opportunity to make cost-of-service showings which, in some cases, may justify
rates above the applicable benchmarks. The rules also require that charges for
cable-related equipment (e.g., converter boxes and remote control devices) and
installation services be unbundled from the provision of cable service and based
upon actual costs plus a reasonable profit.
Local franchising authorities and/or the FCC are empowered to order a
reduction of existing rates which exceed the maximum permitted level for either
basic and/or nonbasic cable services and associated equipment, and refunds can
be required, measured from the date of a complaint to the FCC challenging an
existing nonbasic cable service rate or from September 1993, for existing basic
cable service rates under the original rate regulations, and from May 15, 1994,
under the February 22, 1994 amendments thereto. In general, the reduction for
existing basic and nonbasic cable service rates under the original rate
regulations would be to the greater of the applicable benchmark level or the
rates in force as of September 30, 1992, minus 10 percent, adjusted forward for
inflation. The amended regulations require an aggregate reduction of 17 percent,
adjusted forward for inflation, from the rates in force as of September 30,
1992. The regulations also provide that future rate increases may not exceed an
inflation-indexed amount, plus increases in certain costs beyond the cable
operator's control, such as taxes, franchise fees and increased programming
costs. Cost- based adjustments to these capped rates can also be made in the
event a cable operator adds or deletes channels. Amendments adopted on November
10, 1994 incorporated an alternative method for adjusting the rate charged for a
regulated nonbasic tier when new services are added. Cable operators can
increase rates for such tiers by as much as $1.50 over a two year period to
reflect the addition of up to six new channels of service on nonbasic tiers (an
additional $0.20 for a seventh channel is permitted in the third year). In
addition, new product tiers consisting of services new to the cable system
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can be created free of rate regulation as long as certain conditions are met
such as not moving services from existing tiers to the new tier. These
provisions currently provide limited benefit to the Partnership's systems due to
the lack of channel capacity previously discussed. There is also a streamlined
cost-of-service methodology available to justify a rate increase on basic and
regulated nonbasic tiers for "significant" system rebuilds or upgrades.
Franchising authorities have become certified by the FCC to regulate the
rates charged by the Partnership for basic cable service and for associated
basic cable service equipment. In addition, a number of the Partnership's
customers have filed complaints with the FCC regarding the rates charged for
non-basic cable service.
The Partnership has adjusted its regulated programming service rates and
related equipment and installation charges in substantially all of its systems
so as to bring these rates and charges into compliance with the applicable
benchmark or equipment and installation cost levels. The Partnership also
implemented a program in substantially all of its systems under which a number
of the Partnership's satellite-delivered and premium services are now offered
individually on a per channel (i.e., a la carte) basis, or as a group at a
discounted price. A la carte services were not subject to the FCC's rate
regulations under the rules originally issued to implement the 1992 Cable Act.
The FCC, in its reconsideration of the original rate regulations, stated
that it was going to take a harder look at the regulatory treatment of such a la
carte packages on an ad hoc basis. Such packages which are determined to be
evasions of rate regulation rather than true enhancements of subscriber choice
will be treated as regulated tiers and, therefore, subject to rate regulation.
There have been no FCC rulings related to systems owned by the Partnership.
There have been two rulings, however, on such packages offered by affiliated
partnerships managed by FHGLP. In one case, the FCC's Cable Services Bureau
ruled that a nine-channel a la carte package was an evasion of rate regulation
and ordered this package to be treated as a regulated tier. In the other case, a
six-channel package was held not to be an evasion, but rather is to be
considered an unregulated new product tier under the FCC's November 10, 1994
rule amendments. The deciding factor in all of the FCC's decisions related to a
la carte tiers appears to be the number of channels moved from regulated tiers,
with six or fewer channels being deemed not to be an evasion. Almost all of the
Partnership's systems moved six or fewer channels to a la carte packages. Under
the November 10, 1994 amendments, any new a la carte package created after that
date will be treated as a regulated tier, except for packages involving
traditional premium services (e.g., HBO).
In December 1995, the Partnership, and all of its affiliated
partnerships, filed petitions with the FCC seeking a determination that they are
eligible for treatment as "small cable operators" for purposes of being able to
utilize the FCC's streamlined cost-of-service rate-setting methodology. If such
relief is granted, many of the Partnership's systems would be able to increase
their basic and/or nonbasic service tier rates.
On March 11, 1993, the FCC adopted regulations pursuant to the 1992 Act
which require cable systems to permit customers to purchase video programming on
a per channel or a per program basis without the necessity of subscribing to any
tier of service, other than the basic service tier, unless the cable system is
technically incapable of doing so. Generally, this exemption from compliance
with the statute for cable systems that do not have such technical capability is
available until a cable system obtains the capability, but not later than
December 2002.
CARRIAGE OF BROADCAST TELEVISION SIGNALS
The 1992 Cable Act contains new signal carriage requirements. These new
rules allowed commercial television broadcast stations which are "local" to a
cable system, i.e., the system is located in the station's Area of Dominant
Influence, to elect every three years whether to require the cable system to
carry the station, subject to certain exceptions, or whether the cable system
will have to negotiate for
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"retransmission consent" to carry the station. The first such election was made
on June 17, 1993. Local non-commercial television stations are also given
mandatory carriage rights, subject to certain exceptions, within the larger of:
(i) a 50 mile radius from the station's city of license; or (ii) the station's
Grade B contour (a measure of signal strength). Unlike commercial stations,
noncommercial stations are not given the option to negotiate retransmission
consent for the carriage of their signal. In addition, cable systems will have
to obtain retransmission consent for the carriage of all "distant" commercial
broadcast stations, except for certain "superstations," i.e., commercial
satellite-delivered independent stations such as WTBS. The 1992 Cable Act also
eliminated, effective December 4, 1992, the FCC's regulations requiring the
provision of input selector switches. The must-carry provisions for
non-commercial stations became effective on December 4, 1992. Implementing
must-carry rules for non-commercial and commercial stations and retransmission
consent rules for commercial stations were adopted by the FCC on March 11, 1993.
All commercial stations entitled to carriage were to have been carried by June
2, 1993, and any non-must-carry stations (other than superstations) for which
retransmission consent had not been obtained could no longer be carried after
October 5, 1993. A number of stations previously carried by the Partnership's
cable television systems elected retransmission consent. The Partnership was
able to reach agreements with broadcasters who elected retransmission consent or
to negotiate extensions to the October 6, 1993 deadline and has therefore not
been required to pay cash compensation to broadcasters for retransmission
consent or been required by broadcasters to remove broadcast stations from the
cable television channel line-ups. The Partnership has, however, agreed to carry
some services (e.g., ESPN2 and a new service by FOX) in specified markets
pursuant to retransmission consent arrangements which it believes are comparable
to those entered into by most other large cable operator, and for which it pays
monthly fees to the service providers, as it does with other satellite
providers. The next election between must-carry and retransmission consent for
local commercial television broadcast stations will be October 1, 1996.
NONDUPLICATION OF NETWORK PROGRAMMING
Cable television systems that have 1,000 or more customers must, upon
the appropriate request of a local television station, delete the simultaneous
or nonsimultaneous network programming of a distant station when such
programming has also been contracted for by the local station on an exclusive
basis.
DELETION OF SYNDICATED PROGRAMMING
FCC regulations enable television broadcast stations that have obtained
exclusive distribution rights for syndicated programming in their market to
require a cable system to delete or "black out" such programming from other
television stations which are carried by the cable system. The extent of such
deletions will vary from market to market and cannot be predicted with
certainty. However, it is possible that such deletions could be substantial and
could lead the cable operator to drop a distant signal in its entirety. The FCC
also has commenced a proceeding to determine whether to relax or abolish the
geographic limitations on program exclusivity contained in its rules, which
would allow parties to set the geographic scope of exclusive distribution rights
entirely by contract, and to determine whether such exclusivity rights should be
extended to noncommercial educational stations. It is possible that the outcome
of these proceedings will increase the amount of programming that cable
operators are requested to black out. Finally, the FCC has declined to impose
equivalent syndicated exclusivity rules on satellite carriers who provide
services to the owners of home satellite dishes similar to those provided by
cable systems.
FRANCHISE FEES
Although franchising authorities may impose franchise fees under the
1984 Cable Act, such payments cannot exceed 5% of a cable system's annual gross
revenues. Under the 1996 Telecom Act, franchising authorities may not exact
franchise fees from revenues derived from telecommunications services.
Franchising authorities are also empowered in awarding new franchises or
renewing existing franchises to require cable operators to provide cable-related
facilities and equipment and to enforce
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compliance with voluntary commitments. In the case of franchises in effect prior
to the effective date of the 1984 Cable Act, franchising authorities may enforce
requirements contained in the franchise relating to facilities, equipment and
services, whether or not cable-related. The 1984 Cable Act, under certain
limited circumstances, permits a cable operator to obtain modifications of
franchise obligations.
RENEWAL OF FRANCHISES
The 1984 Cable Act established renewal procedures and criteria designed
to protect incumbent franchisees against arbitrary denials of renewal. While
these formal procedures are not mandatory unless timely invoked by either the
cable operator or the franchising authority, they can provide substantial
protection to incumbent franchisees. Even after the formal renewal procedures
are invoked, franchising authorities and cable operators remain free to
negotiate a renewal outside the formal process. Nevertheless, renewal is by no
means assured, as the franchisee must meet certain statutory standards. Even if
a franchise is renewed, a franchising authority may impose new and more onerous
requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements.
The 1992 Cable Act makes several changes to the process under which a
cable operator seeks to enforce his renewal rights which could make it easier in
some cases for a franchising authority to deny renewal. While a cable operator
must still submit its request to commence renewal proceedings within thirty to
thirty-six months prior to franchise expiration to invoke the formal renewal
process, the request must be in writing and the franchising authority must
commence renewal proceedings not later than six months after receipt of such
notice. The four-month period for the franchising authority to grant or deny the
renewal now runs from the submission of the renewal proposal, not the completion
of the public proceeding. Franchising authorities may consider the "level" of
programming service provided by a cable operator in deciding whether to renew.
For alleged franchise violations occurring after December 29, 1984, franchising
authorities are no longer precluded from denying renewal based on failure to
substantially comply with the material terms of the franchise where the
franchising authority has "effectively acquiesced" to such past violations.
Rather, the franchising authority is estopped if, after giving the cable
operator notice and opportunity to cure, it fails to respond to a written notice
from the cable operator of its failure or inability to cure. Courts may not
reverse a denial of renewal based on procedural violations found to be "harmless
error."
A recent federal court decision could, if upheld and if adopted by other
federal courts, make the renewal of franchises more problematical in certain
circumstances. The United States District Court for the Western District of
Kentucky held that the statute does not authorize it to review a franchising
authority's assessment of its community needs to determine if they are
reasonable or supported by any evidence. This result would seemingly permit a
franchising authority which desired to oust an existing operator to set
cable-related needs at such a high level that the incumbent operator would have
difficulty in making a renewal proposal which met those needs. This decision has
been appealed. The Partnership was not a party to this litigation.
CHANNEL SET-ASIDES
The 1984 Cable Act permits local franchising authorities to require
cable operators to set aside certain channels for public, educational and
governmental access programming. The 1984 Cable Act further requires cable
television systems with thirty-six or more activated channels to designate a
portion of their channel capacity for commercial leased access by unaffiliated
third parties. While the 1984 Cable Act presently allows cable operators
substantial latitude in setting leased access rates, the 1992 Cable Act requires
leased access rates to be set according to a formula determined by the FCC.
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<PAGE> 20
COMPETING FRANCHISES
Questions concerning the ability of municipalities to award a single
cable television franchise and to impose certain franchise restrictions upon
cable television companies have been considered in several recent federal
appellate and district court decisions. These decisions have been somewhat
inconsistent and, until the U.S. Supreme Court rules definitively on the scope
of cable television's First Amendment protections, the legality of the
franchising process and of various specific franchise requirements is likely to
be in a state of flux. It is not possible at the present time to predict the
constitutionally permissible bounds of cable franchising and particular
franchise requirements. However, the 1992 Cable Act, among other things,
prohibits franchising authorities from unreasonably refusing to grant franchises
to competing cable television systems and permits franchising authorities to
operate their own cable television systems without franchises.
OWNERSHIP
The 1984 Cable Act codified existing FCC cross-ownership regulations,
which, in part, prohibit local exchange telephone companies ("LECs") from
providing video programming directly to customers within their local exchange
telephone service areas, except in rural areas or by specific waiver of FCC
rules. This restriction had been ruled unconstitutional in several court cases,
and was before the Supreme Court for review, when the 1996 Telecom Act was
passed. That statute repealed the rule in its entirety.
The 1984 Cable Act and the FCC's rules prohibit the common ownership,
operation, control or interest in a cable system and a local television
broadcast station whose predicted grade B contour (a measure of a television
station's significant signal strength as defined by the FCC's rules) covers any
portion of the community served by the cable system. The 1996 Telecom Act
eliminates the statutory ban and directs the FCC to review its rule within two
years. Common ownership or control has historically also been prohibited by the
FCC (but not by the 1984 Cable Act) between a cable system and a national
television network. The 1996 Telecom Act eliminates this prohibition. Finally,
in order to encourage competition in the provision of video programming, the FCC
adopted a rule prohibiting the common ownership, affiliation, control or
interest in cable television systems and MDS facilities having overlapping
service areas, except in very limited circumstances. The 1992 Cable Act codified
this restriction and extended it to co-located SMATV systems. Permitted
arrangements in effect as of October 5, 1992 are grandfathered. The 1996 Telecom
Act exempts cable systems facing effective competition from this restriction.
The 1992 Cable Act permits states or local franchising authorities to adopt
certain additional restrictions on the ownership of cable television systems.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the number
of cable systems which a single cable operator can own. In general, no cable
operator can have an attributable interest in cable systems which pass more than
30% of all homes nationwide. Attributable interests for these purposes include
voting interests of 5% or more (unless there is another single holder of more
than 50% of the voting stock), officerships, directorships and general
partnership interests. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from the U.S. District Court decision holding
the multiple ownership limit provision of the 1992 Cable Act unconstitutional.
The FCC has also adopted rules which limit the number of channels on a
cable system which can be occupied by programming in which the entity which owns
the cable system has an attributable interest. The limit is 40% of all activated
channels.
EEO
The 1984 Cable Act includes provisions to ensure that minorities and
women are provided equal employment opportunities within the cable television
industry. The statute requires the FCC to adopt
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<PAGE> 21
reporting and certification rules that apply to all cable system operators with
more than five full-time employees. Pursuant to the requirements of the 1992
Cable Act, the FCC has imposed more detailed annual EEO reporting requirements
on cable operators and has expanded those requirements to all multichannel video
service distributors. Failure to comply with the EEO requirements can result in
the imposition of fines and/or other administrative sanctions, or may, in
certain circumstances, be cited by a franchising authority as a reason for
denying a franchisee's renewal request.
PRIVACY
The 1984 Cable Act imposes a number of restrictions on the manner in
which cable system operators can collect and disclose data about individual
system customers. The statute also requires that the system operator
periodically provide all customers with written information about its policies
regarding the collection and handling of data about customers, their privacy
rights under federal law and their enforcement rights. In the event that a cable
operator is found to have violated the customer privacy provisions of the 1984
Cable Act, it could be required to pay damages, attorneys' fees and other costs.
Under the 1992 Cable Act, the privacy requirements are strengthened to require
that cable operators take such actions as are necessary to prevent unauthorized
access to personally identifiable information.
FRANCHISE TRANSFERS
The 1992 Cable Act precluded cable operators from selling or otherwise
transferring ownership of a cable television system within 36 months after
acquisition or initial construction, with certain exceptions. The 1996 Telecom
Act repealed this restriction. The 1992 Cable Act also requires franchising
authorities to act on any franchise transfer request submitted after December 4,
1992 within 120 days after receipt of all information required by FCC
regulations and by the franchising authority. Approval is deemed to be granted
if the franchising authority fails to act within such period.
REGISTRATION PROCEDURE AND REPORTING REQUIREMENTS
Prior to commencing operation in a particular community, all cable
television systems must file a registration statement with the FCC listing the
broadcast signals they will carry and certain other information. Additionally,
cable operators periodically are required to file various informational reports
with the FCC. Cable operators who operate in certain frequency bands are
required on an annual basis to file the results of their periodic cumulative
leakage testing measurements. Operators who fail to make this filing or who
exceed the FCC's allowable cumulative leakage index risk being prohibited from
operating in those frequency bands in addition to other sanctions.
TECHNICAL REQUIREMENTS
Historically, the FCC has imposed technical standards applicable to the
cable channels on which broadcast stations are carried, and has prohibited
franchising authorities from adopting standards which were in conflict with or
more restrictive than those established by the FCC. The FCC has revised such
standards and made them applicable to all classes of channels which carry
downstream National Television System Committee (NTSC) video programming. The
FCC also has adopted additional standards applicable to cable television systems
using frequencies in the 108-137 Mhz and 225- 400 Mhz bands in order to prevent
harmful interference with aeronautical navigation and safety radio services and
has also established limits on cable system signal leakage. Periodic testing by
cable operators for compliance with the technical standards and signal leakage
limits is required. The 1992 Cable Act requires the FCC to periodically update
its technical standards to take into account changes in technology. Under the
1996 Telecom Act, local franchising authorities may not prohibit, condition or
restrict a cable system's use of any type of subscriber equipment or
transmission technology.
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<PAGE> 22
The FCC has adopted regulations to implement the requirements of the
1992 Cable Act designed to improve the compatibility of cable systems and
consumer electronics equipment. These regulations, inter alia, generally
prohibit cable operators from scrambling their basic service tier and from
changing the infrared codes used in their existing customer premises equipment.
This latter requirement could make it more difficult or costly for cable
operators to upgrade their customer premises equipment and the FCC has been
asked to reconsider its regulations. The 1996 Telecom Act directs the FCC to set
only minimal standards to assure compatibility between television sets, VCRs and
cable systems, and to rely on the marketplace. The FCC must adopt rules to
assure the competitive availability to consumers of customer premises equipment,
such as converters, used to access the services offered by cable systems and
other multichannel video programming distributors.
POLE ATTACHMENTS
The FCC currently regulates the rates and conditions imposed by certain
public utilities for use of their poles unless state public service commissions
are able to demonstrate that they regulate the rates, terms and conditions of
cable television pole attachments. A number of states and the District of
Columbia have certified to the FCC that they regulate the rates, terms and
conditions for pole attachments. In the absence of state regulation, the FCC
administers such pole attachment rates through use of a formula which it has
devised. The 1996 Telecom Act directs the FCC to adopt a new rate formula for
any attaching party, including cable systems, which offer telecommunications
services. This new formula will result in significantly higher attachment rates
for cable systems which choose to offer such services.
OTHER MATTERS
FCC regulation pursuant to the Communications Act, as amended, also
includes matters regarding a cable system's carriage of local sports
programming; restrictions on origination and cablecasting by cable system
operators; application of the fairness doctrine and rules governing political
broadcasts; customer service; obscenity and indecency; home wiring and
limitations on advertising contained in nonbroadcast children's programming.
The 1996 Telecom Act establishes a process for the creation and
implementation of a "voluntary" system of ratings for video programming
containing sexual, violent or other "indecent" material and directs the FCC to
adopt rules requiring most television sets manufactured in the United States or
shipped in interstate commerce to be technologically capable of blocking the
display of programs with a common rating. The 1996 Telecom Act also requires
video programming distributors to employ technology to restrict the reception of
programming by persons not subscribing to those channels. In the case of
channels primarily dedicated to sexually-oriented programming, the distributor
must fully block reception of the audio and video portion of the channels; a
distributor that is unable to comply with this requirement may only provide such
programming during a "safe harbor" period when children are not likely to be in
the audience, as determined by the FCC. With respect to other kinds of channels,
the 1996 Telecom Act only requires that the audio and video portions of the
channel be fully blocked, at no charge, upon request of the person not
subscribing to the channel. The specific blocking requirements applicable to
sexually-oriented programming are being challenged in court on constitutional
grounds.
COPYRIGHT
Cable television systems are subject to federal copyright licensing
covering carriage of broadcast signals. In exchange for making semi-annual
payments to a federal copyright royalty pool and meeting certain other
obligations, cable operators obtain a statutory license to retransmit broadcast
signals. The amount of this royalty payment varies, depending on the amount of
system revenues from certain sources, the number of distant signals carried, and
the location of the cable system with respect to over-the-air television
stations. Originally, the Federal Copyright Royalty Tribunal was empowered to
make and, in fact, did make several adjustments in copyright royalty rates. This
tribunal was eliminated by
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<PAGE> 23
Congress in 1993. Any future adjustment to the copyright royalty rates will be
done through an arbitration process to be supervised by the U.S. Copyright
Office. Requests to adjust the rates were made in January, 1996 and are pending
before the Copyright Office.
Cable operators are liable for interest on underpaid and unpaid royalty
fees, but are not entitled to collect interest on refunds received for
overpayment of copyright fees.
The Copyright Office has commenced a proceeding aimed at examining its
policies governing the consolidated reporting of commonly owned and contiguous
cable television systems. The present policies governing the consolidated
reporting of certain cable television systems have often led to substantial
increases in the amount of copyright fees owed by the systems affected. These
situations have most frequently arisen in the context of cable television system
mergers and acquisitions. While it is not possible to predict the outcome of
this proceeding, any changes adopted by the Copyright Office in its current
policies may have the effect of reducing the copyright impact of certain
transactions involving cable company mergers and cable television system
acquisitions.
Various bills have been introduced into Congress over the past several
years that would eliminate or modify the cable television compulsory license.
Without the compulsory license, cable operators would have to negotiate rights
from the copyright owners for all of the programming on the broadcast stations
carried by cable systems. Such negotiated agreements would likely increase the
cost to cable operators of carrying broadcast signals. The 1992 Cable Act's
retransmission consent provisions expressly provide that retransmission consent
agreements between television broadcast stations and cable operators do not
obviate the need for cable operators to obtain a copyright license for the
programming carried on each broadcaster's signal.
Copyrighted music performed in programming supplied to cable television
systems by pay cable networks (such as HBO) and basic cable networks (such as
USA Network) is licensed by the networks through private agreements with the
American Society of Composers and Publishers ("ASCAP") and BMI, Inc. ("BMI"),
the two major performing rights organizations in the United States. As a result
of extensive litigation, both ASCAP and BMI now offer "through to the viewer"
licenses to the cable networks which cover the retransmission of the cable
networks' programming by cable systems to their customers.
Copyrighted music performed by cable systems themselves on local
origination channels, in advertisements inserted locally on cable networks, et
cetera, must also be licensed. A blanket license is available from BMI. Cable
industry negotiations with ASCAP are still in progress.
STATE AND LOCAL REGULATION
Because a cable television system uses local streets and rights-of-way,
cable television systems are subject to state and local regulation, typically
imposed through the franchising process. State and/or local officials are
usually involved in franchise selection, system design and construction, safety,
service rates, consumer relations, billing practices and community related
programming and services.
Cable television systems generally are operated pursuant to nonexclusive
franchises, permits or licenses granted by a municipality or other state or
local government entity. Franchises generally are granted for fixed terms and in
many cases are terminable if the franchise operator fails to comply with
material provisions. Although the 1984 Cable Act provides for certain procedural
protections, there can be no assurance that renewals will be granted or that
renewals will be made on similar terms and conditions. Franchises usually call
for the payment of fees, often based on a percentage of the system's gross
customer revenues, to the granting authority. Upon receipt of a franchise, the
cable system owner usually is subject to a broad range of obligations to the
issuing authority directly affecting the business of the system. The terms and
conditions of franchises vary materially from jurisdiction to jurisdiction, and
even from city to city within the same state, historically ranging from
reasonable to highly restrictive or burdensome. The
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<PAGE> 24
1984 Cable Act places certain limitations on a franchising authority's ability
to control the operation of a cable system operator and the courts have from
time to time reviewed the constitutionality of several general franchise
requirements, including franchise fees and access channel requirements, often
with inconsistent results. On the other hand, the 1992 Cable Act prohibits
exclusive franchises, and allows franchising authorities to exercise greater
control over the operation of franchised cable television systems, especially in
the area of customer service and rate regulation. The 1992 Cable Act also allows
franchising authorities to operate their own multichannel video distribution
system without having to obtain a franchise and permits states or local
franchising authorities to adopt certain restrictions on the ownership of cable
television systems. Moreover, franchising authorities are immunized from
monetary damage awards arising from regulation of cable television systems or
decisions made on franchise grants, renewals, transfers and amendments.
The specific terms and conditions of a franchise and the laws and
regulations under which it was granted directly affect the profitability of the
cable television system. Cable franchises generally contain provisions governing
charges for basic cable television services, fees to be paid to the franchising
authority, length of the franchise term, renewal, sale or transfer of the
franchise, territory of the franchise, design and technical performance of the
system, use and occupancy of public streets and number and types of cable
services provided. The 1996 Telecom Act prohibits a franchising authority from
either requiring or limiting a cable operator's provision of telecommunications
services.
Various proposals have been introduced at the state and local levels
with regard to the regulation of cable television systems, and a number of
states have adopted legislation subjecting cable television systems to the
jurisdiction of centralized state governmental agencies, some of which impose
regulation of a character similar to that of a public utility.
The attorneys general of approximately 25 states have announced the
initiation of investigations designed to determine whether cable television
systems in their states have acted in compliance with the FCC's rate
regulations.
The foregoing does not purport to describe all present and proposed
federal, state and local regulations and legislation relating to the cable
television industry. Other existing federal regulations, copyright licensing
and, in many jurisdictions, state and local franchise requirements, currently
are the subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying degrees,
the manner in which cable television systems operate. Neither the outcome of
these proceedings nor their impact upon the cable television industry can be
predicted at this time.
ITEM 2. PROPERTIES
The Partnership owns or leases parcels of real property for signal
reception sites (antenna towers and headends), microwave facilities and business
offices, and owns or leases its service vehicles. The Partnership believes that
its properties, both owned and leased, are in good condition and are suitable
and adequate for the Partnership's business operations.
The Partnership owns substantially all of the assets related to its
cable television operations, including its program production equipment, headend
(towers, antennae, electronic equipment and satellite earth stations), cable
plant (distribution equipment, amplifiers, customer drops and hardware),
converters, test equipment and tools and maintenance equipment.
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<PAGE> 25
ITEM 3. LEGAL PROCEEDINGS
The Partnership is a party to various legal proceedings. Such legal
proceedings are ordinary and routine litigation proceedings that are incidental
to the Partnership's business and management believes that the outcome of all
pending legal proceedings will not, in the aggregate, have a material adverse
effect on the financial condition of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
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<PAGE> 26
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY SECURITIES AND RELATED SECURITY
HOLDER MATTERS
LIQUIDITY
While the Partnership's equity securities, which consist of units of
limited partnership interests, are publicly held, there is no established public
trading market for the units and it is not expected that a market will develop
in the future. The approximate number of equity security holders of record was
2,372 as of December 31, 1995. In addition to restrictions on the
transferability of units contained in the Partnership Agreement, the
transferability of units may be affected by restrictions on resales imposed by
federal or state law.
DISTRIBUTIONS
The amended Partnership Agreement generally provides that all cash flow
be distributed 1% to the general partners and 99% to the limited partners until
the limited partners have received aggregate cash distributions equal to their
original capital contributions. The Partnership Agreement also provides that all
Partnership operating profits be allocated to the partners in the same
proportion as cash flow distributions are made. After the limited partners have
received cash flow equal to their initial investment, the general partners will
receive a 1% distribution of proceeds from a disposition or refinancing of a
system until the limited partners have received an annual simple interest return
of at least 8% of their initial investment less any distributions from previous
dispositions or refinancing of systems. Thereafter, proceeds from a disposition
or refinancing of a system shall be distributed 80% to the limited partners and
20% to the general partners. Gains from dispositions of systems are first
allocated in the same manner as the proceeds from such dispositions. This occurs
until the dispositions result in the aggregate fair market value of the
Partnership's remaining system(s) being less than or equal to 50% of the
aggregate contributions to the capital of the Partnership by the partners. Once
this level of dispositions has occurred, gain is allocated to the partners so
that distributions upon liquidation of the Partnership in accordance with
capital account balances will result in the same amounts being distributed to
the partners as if distributions were made in the same manner as they are prior
to a liquidation.
Any losses, whether resulting from operations or the sale or disposition
of a system, are allocated 99% to the limited partners and 1% to the general
partners until the limited partners' capital account balances are equal to or
less than zero. Thereafter, all losses are allocated to the Corporate General
Partner.
Upon dissolution of the partnership, distributions are to be made to the
partners in accordance with their capital account balances. No partners other
than general partners shall be obligated to restore any negative capital account
balance existing upon dissolution of a partnership. All allocations to
individual limited partners will be based on their respective limited
partnership ownership interests.
The policy of the Corporate General Partner (although there is no
contractual obligation to do so) is to cause the Partnership to make cash
distributions on a monthly basis throughout the operational life of the
Partnership, assuming the availability of sufficient cash flow from Partnership
operations. The amount of such distributions, if any, will vary from month to
month depending upon the Partnership's results of operations and the Corporate
General Partners' determination of whether otherwise available funds are needed
for the Partnership's ongoing working capital and liquidity requirements.
However, on February 22, 1994, the FCC announced significant amendments
to its rules implementing certain provisions of the 1992 Cable Act. Compliance
with these rules has had a negative impact on the Partnership's revenues and
cash flow.
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<PAGE> 27
The Partnership began making periodic cash distributions from operations
in January 1989, distributing an aggregate of $423,000 and $133,700 ($5.30 and
$1.67 per unit) to limited partners during 1992 and 1993, respectively. As
discussed in "Liquidity and Capital Resources" below, the amended bank credit
agreement prohibits cash distributions to Partners in 1994, 1995 and 1996,
through its termination date of December 31, 1996.
ITEM 6. SELECTED FINANCIAL DATA
This data should be read in conjunction with the Partnership's financial
statements included in Item 8 hereof and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in Item 7.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA
Revenues $ 2,616,400 $ 2,898,200 $ 3,142,300 $ 3,140,700 $ 3,267,000
Costs and expenses (1,678,700) (1,701,200) (1,832,000) (1,968,400) (1,976,300)
Depreciation and amortization (2,688,700) (2,698,700) (2,721,900) (1,993,300) (1,815,600)
----------- ----------- ----------- ----------- -----------
Operating loss (1,751,000) (1,501,700) (1,411,600) (821,000) (524,900)
Interest expense (435,200) (302,000) (254,400) (298,200) (361,200)
Interest income 11,700 11,600 14,800 18,600 23,700
----------- ----------- ----------- ----------- -----------
Net loss $(2,174,500) $(1,792,100) $(1,651,200) $(1,100,600) $ (862,400)
=========== =========== =========== =========== ===========
Distributions to partners $ 886,800 $ 427,300 $ 135,100 $ -- $ --
=========== =========== =========== =========== ===========
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net loss $ (26.97) $ (22.23) $ (20.48) $ (13.65) $ (10.70)
=========== =========== =========== =========== ===========
Distributions $ 11.00 $ 5.30 $ 1.67 $ -- $ --
=========== =========== =========== =========== ===========
OTHER OPERATING DATA
Net cash provided by operating
activities $ 1,251,900 $ 865,100 $ 1,038,000 $ 198,700 $ 926,900
EBITDA(1) 937,700 1,197,000 1,310,300 1,172,300 1,290,700
EBITDA to revenues 35.8% 41.3% 41.7% 37.3% 39.5%
Total debt to EBITDA 5.6x 4.4x 3.8x 3.9x 3.2x
Capital expenditures $ 141,600 $ 256,100 $ 333,500 $ 189,700 $ 806,300
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
--------------------------------------------------------------------------
BALANCE SHEET DATA 1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $ 14,761,700 $ 12,499,300 $ 10,446,500 $ 8,285,300 $ 6,957,300
Total debt 5,228,800 5,228,800 5,000,000 4,625,000 4,125,000
General partners' deficit (82,000) (104,200) (122,200) (133,200) (141,800)
Limited partners' capital 8,139,400 5,942,200 4,173,900 3,084,300 2,230,500
</TABLE>
- ------------------
(1) Operating income before depreciation and amortization. The Partnership
measures its financial performance by its EBITDA, among other items. Based
on its experience in the cable television industry, the Partnership
believes that EBITDA and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage.
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<PAGE> 28
This is evidenced by the covenants in the primary debt instruments of the
Partnership, in which EBITDA-derived calculations are used as a measure of
financial performance. EBITDA should not be considered by the reader as an
alternative to net income as an indicator of the Partnership's financial
performance or as an alternative to cash flows as a measure of liquidity.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Compliance with the rules adopted by the Federal Communications
Commission (the "FCC") to implement the rate regulation provisions of the 1992
Cable Act has had a significant negative impact on the Partnership's revenues
and cash flow. Based on certain FCC decisions that have been released, however,
the Partnership's management presently believes that revenues for 1995 reflect
the impact of the 1992 Cable Act in all material respects. Moreover, recent
policy decisions by the FCC make it more likely that in the future the
Partnership will be permitted to increase regulated service rates in response to
specified cost increases, although certain costs may continue to rise at a rate
in excess of that which the Partnership will be permitted to pass on to its
customers. The FCC has recently adopted a procedure under which cable operators
may file abbreviated cost of service showings for system rebuilds and upgrades,
the result of which would be a permitted increase in regulated rates to allow
recovery of a portion of those costs. The FCC has also proposed a new procedure
for the pass-through of increases in inflation and certain external costs, such
as programming costs, under which cable operators could increase rates based on
actual and anticipated cost increases for the coming year. In addition to these
FCC actions, on February 8, 1996, President Clinton signed into law the 1996
Telecom Act. The 1996 Telecom Act revises, among other things, certain rate
regulation provisions of the 1992 Cable Act. Given events since the enactment of
the 1992 Cable Act, there can also be no assurance as to what, if any, future
action may be taken by the FCC, Congress or any other regulatory authority or
court, or the effect thereof on the Partnership's business. Accordingly, the
Partnership's historical annual financial results as described below are not
necessarily indicative of future performance. See "Legislation and Regulation"
and "Liquidity and Capital Resources."
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
The Partnership's revenues increased from $3,140,700 to $3,267,000, or
by 4.0%, for the year ended December 31, 1995 as compared to 1994. Of the
$126,300 increase in revenues, $115,300 was due to increases in regulated rates
permitted under the 1992 Cable Act that were implemented by the Partnership in
April 1995, $57,500 was due to increases in the number of subscriptions for
cable services, $48,500 was due to increases in unregulated rates charged for
premium services and $31,300 was due to increases in advertising sales and other
revenue producing items. These increases were partially offset by rate decreases
implemented in September 1994 to comply with the 1992 Cable Act, estimated by
the Partnership to be approximately $126,300. As of December 31, 1995, the
Partnership had 9,797 homes subscribing to cable service and 3,373 premium
service units.
Service costs increased from $1,021,600 to $1,055,600, or by 3.3%, for
the year ended December 31, 1995 as compared to 1994. Service costs represent
costs directly attributable to providing cable services to customers. Of the
$34,000 increase, $59,900 was due to higher programming fees charged by program
suppliers (including primary satellite fees) and $21,600 was due to an increase
in personnel costs. These increases were partially offset by a $25,200 decrease
in copyright fees resulting from a change in copyright filing requirements, and
a $25,000 increase in the capitalization of labor and overhead costs resulting
from more capital projects in 1995. The increase in programming expense was also
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<PAGE> 29
due to expanded programming usage relating to channel line-up restructuring and
to retransmission consent arrangements implemented to comply with the 1992 Cable
Act.
General and administrative expenses increased from $431,600 to $453,200,
or by 5.0%, for the year ended December 31, 1995 as compared to 1994. Of the
$21,600 increase, $43,300 was due to higher insurance premiums and $18,000 was
due to an increase in professional fees. These increases were partially offset
by a $17,100 decrease in marketing expense, a $13,900 increase in capitalization
of labor and overhead costs and an $8,300 decrease in investor services expense.
Management fees and reimbursed expenses decreased from $515,200 to
$467,500, or by 9.3%, for the year ended December 31, 1995 as compared to 1994.
Of the $47,700 decrease, $54,100 was due to decreased reimbursable expenses
charged by the Corporate General Partner, including lower allocated personnel
costs, property taxes, postage expense, telephone expense, office rent and costs
associated with implementation of the 1992 Cable Act. Management fees increased
by $6,400, or 4.1%, in direct relation with increased revenues as described
above.
Depreciation and amortization expense decreased by $177,700 from
$1,993,300 to $1,815,600, or by 8.9%, for the year ended December 31, 1995 as
compared to 1994 due to the effect of certain intangible assets becoming fully
amortized. This decrease was partially offset by an increase resulting from a
change in the estimated useful lives of certain assets. The Partnership rebuilt
a portion of its plant during 1995 at an approximate cost of $113,000.
Accordingly, the estimated remaining life of the existing plant was reduced and
depreciation of its net book value accelerated. The impact of this change for
the twelve months ended December 31, 1995 was approximately $102,700.
Operating loss decreased from $821,000 to $524,900, or by 36.1%, for the
year ended December 31, 1995 as compared to 1994, due to decreased depreciation
and amortization expense and increased revenues as described above.
Interest expense increased from $298,200 to $361,200, or by 21.1%, for
the year ended December 31, 1995 compared to 1994 due to higher average interest
rates during 1995 (7.66% during 1995 compared to 5.65% during 1994).
Due to the factors described above, the Partnership's net loss decreased
from $1,100,600 to $862,400, or by 21.6%, for the year ended December 31, 1995
compared to 1994.
1994 COMPARED TO 1993
The Partnership's revenues decreased from $3,142,300 to $3,140,700, or
by 0.1%, for the year ended December 31, 1994 as compared to 1993. Of the $1,600
decrease in revenues, $55,700 was estimated to be due to rate reductions
mandated by the 1992 Cable Act, which was partially offset by increases of
$34,800 due to gains in the number of subscriptions for cable services and
$19,300 in advertising sales revenue and other revenue producing items. As of
December 31, 1994, the Partnership had 9,829 homes subscribing to cable service
and 3,834 premium service units.
Service costs increased from $955,000 to $1,021,600, or by 7.0%, for the
year ended December 31, 1994 as compared to 1993. Service costs represent costs
directly attributable to providing cable services to customers. Of the $66,600
increase, $92,600 was due to higher programming fees charged by program
suppliers (including primary satellite fees). The increase in programming
expense was also due to expanded programming usage relating to channel line up
restructuring and to retransmission consent arrangements implemented to comply
with the 1992 Cable Act. The increase was partially offset by an increase of
$29,300 in the capitalization of labor and overhead expense due to more capital
projects in 1994.
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<PAGE> 30
General and administrative expenses increased from $389,700 to $431,600,
or by 10.8%, for the year ended December 31, 1994 as compared to 1993. Of the
$41,900 increase, $16,900 was due to higher insurance premiums, $9,100 was due
to a decrease in capitalization of labor and overhead expense resulting from a
reduction in activities related to franchise renewal, $5,400 was due to
increased customer billing expense, $4,800 was due to increased professional
fees and $4,800 was due to higher telephone expense.
Management fees and reimbursed expenses increased from $487,300 to
$515,200, or by 5.7%, for the year ended December 31, 1994 as compared to 1993
due to higher reimbursable expenses payable to the Corporate General Partner,
including allocated personnel costs, marketing expenses and costs related to
compliance with the 1992 Cable Act.
Depreciation and amortization expense decreased from $2,721,900 to
$1,993,300, or by 26.8%, for the year ended December 31, 1994 as compared to
1993 due to effects of certain intangible assets becoming fully amortized.
Operating loss decreased from $1,411,600 to $821,000, or by 41.8%, for
the year ended December 31, 1994 as compared to 1993, due to a decrease in
depreciation and amortization expense as described above.
Interest expense increased from $254,400 to $298,200, or by 17.2%, for
the year ended December 31, 1994 compared to 1993 due to higher applicable
interest rates during 1994 (5.65% during 1994 versus 4.56% during 1993).
Due to the factors described above, the Partnership's net loss decreased
from $1,651,200 to $1,100,600, or by 33.3%, for the year ended December 31, 1994
compared to 1993.
Distributions to Partners
As provided in the Partnership Agreement, distributions to partners are
funded from operating income before depreciation and amortization, if any, after
providing for working capital and other liquidity requirements, including debt
service and capital expenditures not otherwise funded by borrowings. The
Partnership made distributions to its partners of $135,100 in 1993. No
distributions were paid in 1994 or 1995. Cash distributions to Partners are
prohibited by the amended term loan agreement.
LIQUIDITY AND CAPITAL RESOURCES
The FCC's amended rate regulation rules were implemented during the
quarter ended September 30, 1994. Compliance with these rules has had a negative
impact on the Partnership's revenues and cash flow. See "Legislation and
Regulation."
The Partnership's primary objective, having invested its net offering
proceeds in cable systems, is to distribute to its partners all available cash
flow from operations and proceeds from the sale of cable systems, if any, after
providing for expenses, debt service and capital requirements relating to the
expansion, improvement and upgrade of its cable systems. The Partnership
currently relies exclusively on the availability of cash generated from
operations to fund its ongoing expenses, debt service and capital requirements.
In general, these requirements involve expansion, improvement and upgrade of the
Partnership's existing cable systems. As of the date of this Report,
substantially all of the available channel capacity in the Partnership's systems
is being utilized and each of such systems requires rebuilding. The rebuild
program is presently estimated to require aggregate capital expenditures of
approximately $3.0 million, although the majority of the total is not planned to
be spent until 1998 and 1999.
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<PAGE> 31
The Partnership has $4,125,000 outstanding under its term loan
agreement. On December 29, 1995, the Partnership amended its term loan agreement
(the "Amendment") to, among other things, extend the maturity date by twelve
months from December 31, 1995 to December 31, 1996. The Amendment increases the
quarterly principal payments from $125,000 in 1995 to $250,000 through September
30, 1996. The remaining balance of $3,375,000 is due on December 31, 1996.
Unless the Partnership is able to refinance the term loan or negotiate an
additional extension, it will be unable to repay the term loan when it is
presently scheduled to mature. The Partnership's management has initiated
discussions with its lender regarding an extension of the term loan.
The amended term loan agreement restricts the Partnership from paying
distributions to the partners during the term of the agreement. The term loan
agreement also contains certain financial tests and other covenants including,
among others, restrictions on incurrence of indebtedness, investments, sale of
assets, acquisitions, and other covenants, defaults and conditions. The
Partnership believes that it was in compliance with its debt covenants as of
December 31, 1995.
1995 VS. 1994
Operating activities provided $728,200 more cash in 1995 than in 1994.
The change was primarily due to a $720,000 decrease in the payment of
liabilities owed to the Corporate General Partner and third-party creditors.
Cash generated by Partnership operations increased by $68,400 in 1995 after
adding back non-cash items consisting of depreciation and amortization. The
Partnership used $2,600 less cash for amendments to the loan agreement. Changes
in receivables and prepaid expenses used $62,800 more cash in 1995 than in 1994.
The Partnership used $622,500 more cash in investing activities in 1995
than in the prior year due to an increase of $616,600 in expenditures for
tangible assets and a $5,900 increase in expenditures for intangible assets. The
Partnership used $125,000 more cash in financing activities during 1995 for the
repayment of debt.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues increased from 37.3% during 1994 to 39.5% in 1995. The
increase was primarily due to higher revenues and lower reimbursed expenses
allocated by the Corporate General Partner. EBITDA increased from $1,172,300 to
$1,290,700, or by 10.1%, during 1995 compared with 1994.
1994 VS. 1993
Cash provided by operating activities decreased $839,300 from $1,038,000
to $198,700 in 1994 as compared with the previous year. The decrease was due
primarily to a $647,900 increase in the payment of liabilities owed to the
General Partner and third-party creditors. Cash generated by Partnership
operations decreased by $164,700 in 1994 after adding back non-cash depreciation
and amortization charges. The Partnership used $31,900 more cash during 1994 for
the payment of deferred loan costs. Changes in receivables and other assets
provided $5,200 of additional cash in 1994 compared with 1993.
The Partnership used $151,000 less cash in investing activities during
1994 than in 1993 due to a decrease of $143,800 in expenditures for tangible
assets and $7,200 for intangible assets. The Partnership used $11,100 more cash
in financing activities during 1994 due to a $146,200 increase in debt
repayments offset by a reduction of $135,100 in distributions to partners.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues decreased from 41.7% during 1993 to 37.3% in 1994. The
decrease was primarily caused by higher rates charged by suppliers of
programming as described above in results of operations. The decrease was also
attributable to reduced revenues. EBITDA decreased from $1,310,300 to
$1,172,300, or by 10.5%, during 1994 compared to 1993.
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<PAGE> 32
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. In such cases, impairment losses are to be recorded based on
estimated fair value, which would generally approximate discounted cash flows.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Partnership will adopt Statement 121 in the
first quarter of 1996 and, based on current circumstances, does not believe the
effect of adoption will be material.
INFLATION
Certain of the Partnership's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, the Partnership does not believe that its
financial results have been, or will be, adversely affected by inflation in a
material way, provided that it is able to increase its service rates
periodically, of which there can be no assurance. See "Legislation and
Regulation."
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information required to
be filed hereunder are indexed on Page F-1.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
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<PAGE> 33
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partners of the Partnership may be considered, for certain
purposes, the functional equivalents of directors and executive officers. The
Corporate General Partner is Enstar Communications Corporation, and Robert T.
Graff, Jr. is the Individual General Partner. As part of Falcon Cablevision's
September 30, 1988 acquisition of the Corporate General Partner, Falcon
Cablevision received an option to acquire Mr. Graff's interest as Individual
General Partner of the Partnership and other affiliated cable limited
partnerships that he previously co-sponsored with the Corporate General Partner,
and Mr. Graff received the right to cause Falcon Cablevision to acquire such
interests. These arrangements were modified and extended in an amendment dated
September 10, 1993 pursuant to which, among other things, the Corporate General
Partner obtained the option to acquire Mr. Graff's interest in lieu of the
purchase right described above which was originally granted to Falcon
Cablevision.
Since its incorporation in Georgia in 1982, the Corporate General
Partner has been engaged in the cable/telecommunications business, both as a
general partner of 15 limited partnerships formed to own and operate cable
television systems and through a wholly-owned operating subsidiary. As of
December 31, 1995, the Corporate General Partner managed cable television
systems which had approximately 126,200 Subscribers.
Falcon Cablevision was formed in 1984 as a California limited
partnership and has been engaged in the ownership and operation of cable
television systems since that time. Falcon Cablevision is a wholly-owned
subsidiary of FHGLP. FHGI is the sole general partner of FHGLP. FHGLP currently
operates cable systems through a series of affiliated limited partnerships,
including Falcon Cablevision, Falcon Cable Systems Company, Falcon Telecable,
Falcon Cable Media, Falcon Classic Cable Income Properties, Falcon First
Communications, Falcon Community Cable and Falcon Video Communications, and also
controls the general partners of the 15 limited partnerships which operate under
the Enstar name (including the Partnership). Although these limited partnerships
are affiliated with FHGLP, their assets are owned by legal entities separate
from the Partnership.
Set forth below is certain general information about the Directors and
Executive Officers of the Corporate General Partner, all of whom have served in
such capacities since October 1988:
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Marc B. Nathanson Director, Chairman of the Board, Chief Executive Officer and President
Frank J. Intiso Executive Vice President and Chief Operating Officer
Stanley S. Itskowitch Director, Executive Vice President and General Counsel
Michael K. Menerey Chief Financial Officer and Secretary
</TABLE>
MARC B. NATHANSON, 50, has been Chairman of the Board, Chief Executive Officer
and President of FHGI and its predecessors since 1975. Prior to 1975, Mr.
Nathanson was Vice President of Marketing for Teleprompter Corporation, at that
time the largest multiple-system cable operator in the United States. He also
held executive positions with Warner Cable and Cypress Communications
Corporation. He is a former President of the California Cable Television
Association and a member of Cable Pioneers. He is currently a Director of the
National Cable Television Association ("NCTA") and serves on its Executive
Committee. At the 1986 NCTA convention, Mr. Nathanson was honored by being named
the recipient of the Vanguard Award for outstanding contributions to the growth
and development of the cable television industry. Mr. Nathanson is a 26-year
veteran of the cable television industry. He is a founder of the Cable
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<PAGE> 34
Television Administration and Marketing Society ("CTAM") and the Southern
California Cable Television Association. Mr. Nathanson is also a Director of TV
Por Cable Nacional, S.A. de C.V. Mr. Nathanson is also Chairman of the Board and
Chief Executive Officer of Falcon International Communications, LLC ("FIC"). Mr.
Nathanson was appointed by President Clinton and confirmed by the U.S. Senate
for a three year term on the Board of Governors of International Broadcasting of
the United States Information Agency.
FRANK J. INTISO, 49, has been Executive Vice President and Chief Operating
Officer of FHGI and its predecessors since 1982. Mr. Intiso has been President
and Chief Operating Officer of Falcon Cable Group since its inception. Mr.
Intiso is responsible for the day-to-day operations of all cable television
systems under the management of FHGI. Mr. Intiso has a Master's Degree in
Business Administration from the University of California, Los Angeles, and is a
Certified Public Accountant. He serves as chair of the California Cable
Television Association, and is on the boards of Cable Advertising Bureau, Cable
In The Classroom, Community Antenna Television Association and California Cable
Television Association. He is a member of the American Institute of Certified
Public Accountants, the American Marketing Association, the American Management
Association, and the Southern California Cable Television Association.
STANLEY S. ITSKOWITCH, 57, has been a Director of FHGI and its predecessors
since 1975, and Senior Vice President and General Counsel from 1987 to 1990 and
has been Executive Vice President and General Counsel since February 1990. He
has been President and Chief Executive Officer of F.C. Funding, Inc. (formerly
Fallek Chemical Company), which is a marketer of chemical products, since 1980.
He is a Certified Public Accountant and a former tax partner in the New York
office of Touche Ross & Co. (now Deloitte & Touche). He has a J.D. Degree and an
L.L.M. Degree in Tax from New York University School of Law. Mr. Itskowitch is
also Executive Vice President and General Counsel of FIC.
MICHAEL K. MENEREY, 44, has been Chief Financial Officer and Secretary of FHGI
and its predecessors since 1984 and has been Chief Financial Officer and
Secretary of Falcon Cable Group since its inception. Mr. Menerey is a Certified
Public Accountant and is a member of the American Institute of Certified Public
Accountants and the California Society of Certified Public Accountants.
CERTAIN KEY PERSONNEL
The following sets forth, as of December 31, 1995, biographical
information about certain officers of FHGI and Falcon Cable Group, a division of
FHGLP, who share certain responsibilities with the officers of the Corporate
General Partner with respect to the operation and management of the Partnership.
JAMES V. ASHJIAN, 51, has been Controller of FHGI and its predecessors since
October 1985 and Controller of Falcon Cable Group since its inception. Mr.
Ashjian is a Certified Public Accountant and was a partner in Bider &
Montgomery, a Los Angeles-based CPA firm, from 1978 to 1983, and self-employed
from 1983 to October 1985. He is a member of the American Institute of Certified
Public Accountants and the California Society of Certified Public Accountants.
LYNNE A. BUENING, 42, has been Vice President of Programming of Falcon Cable
Group since November 1993. From 1989 to 1993, she served as Director of
Programming for Viacom Cable, a division of Viacom International Inc. Prior to
that, Ms. Buening held programming and marketing positions in the cable,
broadcast, and newspaper industries.
OVANDO COWLES, 42, has been Vice President of Advertising Sales and Production
of Falcon Cable Group since January 1992. From 1988 to 1991, he served as a
Director of Advertising Sales and Production at Cencom Cable Television in
Pasadena, California. He was an Advertising Sales Account Executive at Choice
Television from 1985 to 1988. From 1983 to 1985, Mr. Cowles served in various
sales and advertising positions.
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<PAGE> 35
HOWARD J. GAN, 49, has been Vice President of Corporate Development and
Government Affairs of FHGI and its predecessors since 1988 and Vice President of
Corporate Development and Government Affairs of Falcon Cable Group since its
inception. He was General Counsel at Malarkey-Taylor Associates, a Washington,
DC based telecommunications consulting firm, from 1986 to 1988. He was Vice
President and General Counsel at the Cable Television Information Center from
1978 to 1983. In addition, he was an attorney and an acting Branch Chief of the
Federal Communications Commission's Cable Television Bureau from 1975 to 1978.
R.W. ("SKIP") HARRIS, 48, has been Vice President of Marketing of Falcon Cable
Group since June 1991. He is a member of the CTAM Premium Television Committee.
Mr. Harris was National Director of Affiliate Marketing for the Disney Channel
from 1985 to 1991. He was also a sales manager, regional marketing manager and
director of marketing for Cox Cable Communications from 1978 to 1985.
JOE A. JOHNSON, 51, has been Executive Vice President - Operations of FHGI since
September 1995, and between January 1992 and that date was Senior Vice President
of Falcon Cable Group. He was a Divisional Vice President of FHGI between 1989
and 1992 and a Divisional Vice President of Falcon Cable Group from its
inception until 1992. From 1982 to 1989, he held the positions of Vice President
and Director of Operations for Sacramento Cable Television, Group W Cable of
Chicago and Warner Amex. From 1975 to 1982, Mr. Johnson held Cable System and
Regional Manager positions with Warner Amex and Teleprompter.
JON W. LUNSFORD, 36, has been Vice President - Finance and Corporate Development
FHGI since September 1994. From 1991 to 1994 he served as Director of Corporate
Finance at Continental Cablevision, Inc. Prior to 1991, Mr. Lunsford was a Vice
President with Crestar Bank.
JOAN SCULLY, 60, has been Vice President of Human Resources of FHGI and its
predecessors since May 1988 and Vice President of Human Resources of Falcon
Cable Group since its inception. From 1987 to May 1988, she was self-employed as
a Management Consultant to cable and transportation companies. She served as
Director of Human Resources of a Los Angeles based cable company from 1985
through 1987. Prior to that time she served as a human resource executive in the
entertainment and aerospace industries. Ms. Scully holds a Masters Degree in
Human Resources Management from Pepperdine University.
MICHAEL D. SINGPIEL, 48, was appointed Vice President of Operations of Falcon
Cable Group in March 1996. Mr. Singpiel joined Falcon in October 1992 as
Divisional Vice President of Falcon's Eastern Division. From 1990 to 1992,
Mr. Singpiel was Vice President of C-Tec Cable Systems in Michigan.
Mr. Singpiel held various positions with Comcast in New Jersey and Michigan
from 1980 to 1990.
RAYMOND J. TYNDALL, 48, has been Vice President of Engineering of Falcon Cable
Group since October 1989. From 1975 to September 1989 he held various technical
positions with Choice TV and its predecessors. From 1967 to 1975, he held
various technical positions with Sammons Communications. He is a certified
National Association of Radio and Television Engineering ("NARTE") engineer in
lightwave, microwave, satellite and broadband.
In addition, Falcon Cable Group has six Divisional Vice Presidents who
are based in the field. They are Ron L. Hall, Michael E. Kemph, Nicholas A.
Nocchi, Larry L. Ott, Robert S. Smith and Victor A. Wible.
Each director of the Corporate General Partner is elected to a one-year
term at the annual shareholder meeting to serve until the next annual
shareholder meeting and thereafter until his respective successor is elected and
qualified. Officers are appointed by and serve at the discretion of the
directors of the Corporate General Partner.
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<PAGE> 36
ITEM 11. EXECUTIVE COMPENSATION
MANAGEMENT FEE
The Partnership has a management agreement (the "Management Agreement")
with Enstar Cable Corporation, a wholly owned subsidiary of the Corporate
General Partner (the "Manager"), pursuant to which Enstar Cable Corporation
manages the Partnership's systems and provides all operational support for the
activities of the Partnership. For these services, the Manager receives a
management fee of 5% of the Partnership's gross revenues, excluding revenues
from the sale of cable television systems or franchises calculated and paid
monthly. In addition, the Partnership reimburses the Manager for certain
operating expenses incurred by the Manager in the day-to-day operation of the
Partnership's cable systems. The Management Agreement also requires the
Partnership to indemnify the Manager (including its officers, employees, agents
and shareholders) against loss or expense, absent negligence or deliberate
breach by the Manager of the Management Agreement. The Management Agreement is
terminable by the Partnership upon sixty (60) days written notice to the
Manager. The Manager has engaged FHGLP to provide certain management services
for the Partnership and pays FHGLP a portion of the management fees it receives
in consideration of such services and reimburses FHGLP for expenses incurred by
FHGLP on its behalf. The Corporate General Partner also performs certain
supervisory and administrative services for the Partnership, for which it is
reimbursed.
For the fiscal year ended December 31, 1995, the Partnership paid
approximately $163,400 of management fees and $304,100 of reimbursed expenses.
In addition, certain programming services are purchased through Falcon
Cablevision. The Partnership paid Falcon Cablevision approximately $713,900 for
these programming services for fiscal year 1995.
PARTICIPATION IN DISTRIBUTIONS
The General Partners are entitled to share in distributions from, and
profit and losses in, the Partnership. See Item 5., "Market for Registrant's
Equity Securities and Related Security Holder Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 3, 1996, the common stock of FHGI was owned as follows:
78.5 % by Falcon Cable Trust, a grantor trust of which Marc B. Nathanson is
trustee and he and members of his family are beneficiaries; 20% by Greg A.
Nathanson; and 1.5% by Stanley S. Itskowitch. In connection with the formation
of Falcon Community Cable, on August 15, 1989, FHGI issued to Hellman & Friedman
Capital Partners, A California Limited Partnership ("H&F"), a $1,293,357
convertible debenture due 1999 convertible under certain circumstances into ten
percent of the common stock of FHGI and entitling H&F to elect one director to
the board of directors of FHGI. H&F elected Marc B. Nathanson pursuant to such
right. In 1991 FHGI issued to Hellman & Friedman Capital Partners II, A
California Limited Partnership ("H&FII"), additional convertible debentures due
1999 in the aggregate amount of $2,006,198 convertible under certain
circumstances into approximately 6.3% of the common stock of FHGI and entitling
H&FII to elect one director to the board of directors of FHGI. As of March 3,
1996, H&FII had not exercised this right. FHGLP also held 12.1% of the interests
in the General Partner, and Falcon Cable Trust, Frank Intiso, H&FII and two
other individuals held 58.9%, 12.1%, 16.3% and 0.6% of the General Partner,
respectively. Such interests entitle the holders thereof to an allocable share
of cash distributions and profits and losses of the General Partner in
proportion to their ownership. Greg A. Nathanson is Marc B. Nathanson's brother.
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<PAGE> 37
As of March 3, 1996, Marc B. Nathanson and members of his family owned,
directly or indirectly, outstanding partnership interests (comprising both
general partner interests and limited partner interests) aggregating
approximately 0.46% of Falcon Classic Cable Income Properties, L.P., 2.58% of
Falcon Video Communications and 30.0% of Falcon Cable Systems Company. In
accordance with the respective partnership agreements of the partnerships
mentioned above, after the return of capital to and the receipt of certain
preferred returns by the limited partners of such partnerships, FHGLP and
certain of its officers and directors had rights to future profits greater than
their ownership interests of capital in such partnerships.
On March 29, 1993, FHGLP was organized to effect the consolidation of
certain cable television businesses, including Falcon Cablevision, Falcon
Telecable, Falcon Cable Media and Falcon Community Cable, into FHGLP. At the
same time FHGLP assumed the cable system management operations of FHGI. On
December 28, 1995, FHGLP acquired the remaining 72.3% of outstanding shares of
common stock of Falcon First, Inc., ("First"), that it did not previously own.
First was an affiliated entity prior to December 28, 1995. The ownership
interests in FHGLP are as follows: Falcon management, directors and affiliated
individuals and entities: 38.2% (including 35.3% owned by Marc B. Nathanson and
members of his family directly or indirectly), H&F and H&FII: 35.9%, Leeway &
Co.: 10.9%, Boston Ventures Limited Partnership II and Boston Ventures II-A
Investment Corporation: 6.9%, Falcon First Communications, LLC: 2.1% and other
institutional investors, individuals and trusts: 6.0%.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONFLICTS OF INTEREST
In March 1993, FHGLP, a new entity, assumed the management services
operations of FHGI. Effective March 29, 1993, FHGLP began receiving management
fees and reimbursed expenses which had previously been paid by the Partnership,
as well as the other affiliated entities mentioned above, to FHGI. The
management of FHGLP is substantially the same as that of FHGI.
FHGLP also manages the operations of Falcon Cable Systems Company,
Falcon Classic Cable Income Properties, L.P., Falcon Video Communications, L.P.,
and, through its management of the operation of Falcon Cablevision (a subsidiary
of FHGLP), the partnerships of which Enstar Communications Corporation is the
Corporate General Partner, including the Partnership. On September 30, 1988,
Falcon Cablevision acquired all of the outstanding stock of Enstar
Communications Corporation. Certain members of management of the General Partner
have also been involved in the management of other cable ventures. FHGLP
contemplates entering into other cable ventures, including ventures similar to
the Partnership.
Conflicts of interest involving acquisitions and dispositions of cable
television systems could adversely affect Unitholders. For instance, the
economic interests of management in other affiliated partnerships are different
from those in the Partnership and this may create conflicts relating to which
acquisition opportunities are preserved for which partnerships.
These affiliations subject FHGLP and the General Partner and their
management to certain conflicts of interest. Such conflicts of interest relate
to the time and services management will devote to the Partnership's affairs and
to the acquisition and disposition of cable television systems. Management or
its affiliates may establish and manage other entities which could impose
additional conflicts of interest.
FHGLP and the Corporate General Partner will resolve all conflicts of
interest in accordance with their fiduciary duties.
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<PAGE> 38
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION OF THE GENERAL PARTNERS
A general partner is accountable to a limited partnership as a
fiduciary and consequently must exercise good faith and integrity in handling
partnership affairs. Where the question has arisen, some courts have held that a
limited partner may institute legal action on his own behalf and on behalf of
all other similarly situated limited partners (a class action) to recover
damages for a breach of fiduciary duty by a general partner, or on behalf of the
partnership (a partnership derivative action) to recover damages from third
parties. Section 14-9-1001 of the Georgia Revised Uniform Limited Partnership
Act also allows a partner to maintain a partnership derivative action if general
partners with authority to do so have refused to bring the action or if an
effort to cause those general partners to bring the action is not likely to
succeed. Certain cases decided by federal courts have recognized the right of a
limited partner to bring such actions under the Securities and Exchange
Commission's Rule 10b-5 for recovery of damages resulting from a breach of
fiduciary duty by a general partner involving fraud, deception or manipulation
in connection with the limited partner's purchase or sale of partnership units.
The partnership agreement provides that the General Partners will be
indemnified by the Partnership for acts performed within the scope of their
authority under the partnership agreement if such general partner (i) acted in
good faith and in a manner that it reasonably believed to be in, or not opposed
to, the best interests of the Partnership and the partners, and (ii) had no
reasonable grounds to believe that its conduct was negligent. In addition, the
partnership agreement provides that the General Partners will not be liable to
the Partnership or its limited partners for errors in judgment or other acts or
omissions not amounting to negligence or misconduct. Therefore, limited partners
will have a more limited right of action than they would have absent such
provisions. In addition, the Partnership maintains insurance on behalf of the
General Partner, and such other persons as the General Partner shall determine
against any liability that may be asserted against or expense that may be
incurred by such person and against which the Partnership would be entitled to
indemnify such person pursuant to the Partnership Agreement. To the extent that
the exculpatory provisions purport to include indemnification for liabilities
arising under the Securities Act of 1933, it is the opinion of the Securities
and Exchange Commission that such indemnification is contrary to public policy
and therefore unenforceable.
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<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Reference is made to the Index to Financial Statements on page
F-1.
(a) 2. Financial Statement Schedules
Reference is made to the Index to Financial Statements on page
F-1.
(a) 3. Exhibits
Reference is made to the Index to Exhibits on Page E-1.
(b) Reports on Form 8-K
None
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<PAGE> 40
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 25, 1996.
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
By: Enstar Communications Corporation,
Corporate General Partner
By: /s/ Marc B. Nathanson
-------------------------------
Marc B. Nathanson
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title(*) Date
---------- -------- ----
<S> <C> <C>
/s/ Marc B. Nathanson Chairman of the Board, March 25, 1996
- ------------------------- Chief Executive Officer
Marc B. Nathanson and President (Principal
Executive Officer)
/s/ Michael K. Menerey Chief Financial Officer, March 25, 1996
- ------------------------- Secretary and Director
Michael K. Menerey (Principal Financial and
Accounting Officer)
/s/ Frank J. Intiso Chief Operating Officer, March 25, 1996
- ------------------------- Executive Vice President
Frank J. Intiso and Director
/s/ Stanley S. Itskowitch Executive Vice President, March 25, 1996
- ---------------------------- General Counsel and
Stanley S. Itskowitch Director
</TABLE>
(*) Indicates position(s) held with Enstar Communications Corporation, the
Corporate General Partner of the registrant.
-40-
<PAGE> 41
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors F-2
Balance Sheets - December 31, 1994 and 1995 F-3
Financial Statements for each of
the three years in the period
ended December 31, 1995:
Statements of Operations F-4
Statements of Partnership Capital (Deficit) F-5
Statements of Cash Flows F-6
Summary of Accounting Policies F-7
Notes to Financial Statements F-9
</TABLE>
All schedules have been omitted because they are either not required, not
applicable or the information has otherwise been supplied.
F-1
<PAGE> 42
REPORT OF INDEPENDENT AUDITORS
Partners
Enstar Income/Growth Program Six-A, L.P.
We have audited the accompanying balance sheets of Enstar Income/Growth
Program Six-A, L.P. (A Georgia Limited Partnership) as of December 31, 1994 and
1995, and the related statements of operations, partnership capital (deficit),
and cash flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits. The statements of
operations, partnership capital (deficit), and cash flows of Enstar
Income/Growth Program Six-A, L.P. for the year ended December 31, 1993 were
audited by other auditors whose report dated February 16, 1994, expressed an
unqualified opinion on those financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 4 to the financial statements, the Partnership's
note payable matures on December 31, 1996. Operating cash flow is not expected
to be sufficient to fund the required debt payment. The Partnership will need to
identify alternative cash sources to meet this obligation or negotiate an
extension of the maturity date.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar Income/Growth Program
Six-A, L.P. at December 31, 1994 and 1995, and the results of its operations and
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
February 20, 1996,
F-2
<PAGE> 43
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1995
---------- -----------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 579,200 $ 175,800
Accounts receivable, less allowance of $2,400 and $8,000
for possible losses 3,800 38,900
Prepaid expenses and other 10,300 27,800
Property, plant and equipment
less accumulated depreciation
and amortization 4,177,900 4,256,200
Franchise cost, net of accumulated
amortization of $7,910,600 and $8,038,900 3,480,400 2,418,400
Deferred loan costs and other, net 33,700 40,200
---------- -----------
$8,285,300 $ 6,957,300
========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 322,800 $ 445,800
Due to affiliates 386,400 297,800
Note payable 4,625,000 4,125,000
---------- -----------
TOTAL LIABILITIES 5,334,200 4,868,600
---------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (133,200) (141,800)
Limited partners 3,084,300 2,230,500
---------- -----------
TOTAL PARTNERSHIP CAPITAL 2,951,100 2,088,700
---------- -----------
$8,285,300 $ 6,957,300
========== ===========
</TABLE>
See accompanying summary of accounting
policies and notes to financial statements.
F-3
<PAGE> 44
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ 3,142,300 $ 3,140,700 $ 3,267,000
----------- ----------- -----------
OPERATING EXPENSES:
Service costs 955,000 1,021,600 1,055,600
General and administrative expenses 389,700 431,600 453,200
General Partner management fees
and reimbursed expenses 487,300 515,200 467,500
Depreciation and amortization 2,721,900 1,993,300 1,815,600
----------- ----------- -----------
4,553,900 3,961,700 3,791,900
----------- ----------- -----------
Operating loss (1,411,600) (821,000) (524,900)
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense (254,400) (298,200) (361,200)
Interest income 14,800 18,600 23,700
----------- ----------- -----------
(239,600) (279,600) (337,500)
----------- ----------- -----------
NET LOSS $(1,651,200) $(1,100,600) $ (862,400)
=========== =========== ===========
NET LOSS PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (20.48) $ (13.65) $ (10.70)
=========== =========== ===========
WEIGHTED AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING THE YEAR 79,818 79,818 79,818
=========== =========== ===========
</TABLE>
See accompanying summary of accounting
policies and notes to financial statements.
F-4
<PAGE> 45
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
STATEMENTS OF PARTNERSHIP CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------- -------- -----
<S> <C> <C> <C>
PARTNERSHIP CAPITAL (DEFICIT),
January 1, 1993 $(104,200) $ 5,942,200 $ 5,838,000
Distributions to partners (1,500) (133,600) (135,100)
Net loss for year (16,500) (1,634,700) (1,651,200)
--------- ----------- -----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1993 (122,200) 4,173,900 4,051,700
Net loss for year (11,000) (1,089,600) (1,100,600)
--------- ----------- -----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1994 (133,200) 3,084,300 2,951,100
Net loss for year (8,600) (853,800) (862,400)
--------- ----------- -----------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1995 $(141,800) $ 2,230,500 $ 2,088,700
========= =========== ===========
</TABLE>
See accompanying summary of accounting
policies and notes to financial statements.
F-5
<PAGE> 46
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,651,200) $(1,100,600) $ (862,400)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 2,721,900 1,993,300 1,815,600
Amortization of deferred loan costs -- 13,300 21,200
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses
and other assets 5,000 10,200 (52,600)
Deferred loan costs -- (31,900) (29,300)
Accounts payable and due to affiliates (37,700) (685,600) 34,400
----------- ----------- -----------
Net cash provided by
operating activities 1,038,000 198,700 926,900
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures (333,500) (189,700) (806,300)
Increase in intangible assets (25,300) (18,100) (24,000)
----------- ----------- -----------
Net cash used in investing
activities (358,800) (207,800) (830,300)
----------- ----------- -----------
Cash flows from financing activities:
Repayment of debt (228,800) (375,000) (500,000)
Distributions to partners (135,100) -- --
----------- ----------- -----------
Net cash used in
financing activities (363,900) (375,000) (500,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 315,300 (384,100) (403,400)
Cash and cash equivalents at beginning of year 648,000 963,300 579,200
----------- ----------- -----------
Cash and cash equivalents at end of year $ 963,300 $ 579,200 $ 175,800
=========== =========== ===========
</TABLE>
See accompanying summary of accounting
policies and notes to financial statements.
F-6
<PAGE> 47
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar Income/Growth Program Six-A, L.P., a Georgia limited partnership
(the "Partnership") operates cable systems in rural areas in Illinois and
Tennessee. As a Partnership, Enstar Income/Growth Program Six-A, L.P. pays no
income taxes. All of the income, gains, losses, deductions and credits of the
Partnership are passed through to its partners. The basis in the Partnership's
assets and liabilities differs for financial and tax reporting purposes. The
book basis of the Partnership's net assets exceeds its tax basis by $1,229,400.
The financial statements do not give effect to any assets that the
partners may have outside of their interest in the Partnership, nor to any
obligations, including income taxes, of the partners.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Partnership considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Direct costs
associated with installations in homes not previously served by cable are
capitalized as part of the distribution system, and reconnects are expensed as
incurred. For financial reporting, depreciation and amortization is computed
using the straight-line method over the following estimated useful lives:
Cable television systems 5-15 years
Vehicles 3 years
Furniture and equipment 5-7 years
Leasehold improvements Life of lease
FRANCHISE COST
The excess of cost over the fair values of tangible assets and customer
lists of cable television systems acquired represents the cost of franchises. In
addition, franchise cost includes capitalized costs incurred in obtaining new,
undeveloped franchises. These costs (primarily legal fees) are direct and
incremental to the acquisition of the franchise and are amortized using the
straight-line method over the lives of the franchises, ranging up to 15 years.
The Partnership periodically evaluates the amortization periods of these
intangible assets to determine whether events or circumstances warrant revised
estimates of useful lives. Costs relating to unsuccessful franchise applications
are charged to expense when it is determined that the efforts to obtain the
franchise will not be successful.
F-7
<PAGE> 48
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
SUMMARY OF ACCOUNTING POLICIES
(CONCLUDED)
DEFERRED LOAN COSTS AND OTHER DEFERRED CHARGES
Costs related to obtaining new loan agreements are capitalized and
amortized to interest expense over the life of the related loan. Other deferred
charges are amortized using the straight-line method over two to five years.
RECOVERABILITY OF ASSETS
The Partnership assesses on an on-going basis the recoverability of
intangible assets and capitalized plant assets based on estimates of future
undiscounted cash flows compared to net book value. If the future undiscounted
cash flow estimate were less than net book value, net book value would then be
reduced to the undiscounted cash flow estimate. The Partnership also evaluates
the amortization periods of assets to determine whether events or circumstances
warrant revised estimates of useful lives.
In March 1995, the FASB issued Statement No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. In such cases, impairment losses are to be recorded based on
estimated fair value, which would generally approximate discounted cash flows.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Partnership will adopt Statement 121 in the
first quarter of 1996 and, based on current circumstances, does not believe the
effect of adoption will be material.
REVENUE RECOGNITION
Revenues from cable services are recognized as the services are
provided.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1995 presentation.
EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses are allocated 99% to the limited partners and 1% to
the general partners. Earnings and losses per unit of limited partnership
interest are based on the weighted average number of units outstanding during
the year.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-8
<PAGE> 49
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - PARTNERSHIP MATTERS
The Partnership was formed on September 23, 1987 to acquire, construct,
improve, develop and operate cable television systems in various locations in
the United States. The partnership agreement provides for Enstar Communications
Corporation (the "Corporate General Partner") and Robert T. Graff, Jr., to be
the general partners and for the admission of limited partners through the sale
of interests in the Partnership.
On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of the Corporate
General Partner.
The Partnership was formed with an initial capital contribution of
$1,100 comprising $1,000 from the Corporate General Partner and $100 from the
initial limited partner. Sale of interests in the Partnership began in January
1988, and the initial closing took place in February 1988. The Partnership
continued to raise capital until $20,000,000 (the maximum) was sold by November
1988. The Partnership began its cable television business operations in January
1989 with the acquisition of its first cable television property.
The amended partnership agreement generally provides that all cash
flows be distributed 1% to the general partners and 99% to the limited partners
until the limited partners have received aggregate cash distributions equal to
their original capital contributions. The partnership agreement also provides
that all partnership operating profits be allocated to the partners in the same
proportion as cash flow distributions are made. After the limited partners have
received cash flow equal to their initial investment, the general partners will
only receive a 1% distribution of proceeds from a disposition or refinancing of
a system until the limited partners have received an annual simple interest
return of at least 8% of their initial investment less any distributions from
previous dispositions or refinancing of systems. Thereafter, proceeds from a
disposition or refinancing of a system shall be distributed 80% to the limited
partners and 20% to the general partners. Gains from dispositions of systems are
first allocated in the same manner as the proceeds from such dispositions. This
occurs until the dispositions result in the aggregate fair market value of the
Partnership's remaining system(s) being less than or equal to 50% of the
aggregate contributions to the capital of the Partnership by the partners.
Any losses, whether resulting from operations or the sale or
disposition of a system, are allocated 99% to the limited partners and 1% to the
general partners until the limited partners' capital account balances are equal
to or less than zero. Thereafter, all losses are allocated to the Corporate
General Partner.
Upon dissolution of the Partnership, distributions are to be made to
the partners in accordance with their capital account balances. No partners
other than general partners shall be obligated to restore any negative capital
account balance existing upon dissolution of the Partnership. All allocations to
individual limited partners will be based on their respective limited
partnership ownership interests.
F-9
<PAGE> 50
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December 31,
----------------------------
1994 1995
---- ----
<S> <C> <C>
Cable television systems $7,075,200 $7,767,100
Vehicles, furniture and
equipment, and leasehold
improvements 305,000 342,800
---------- ----------
7,380,200 8,109,900
Less accumulated depreciation
and amortization 3,202,300 3,853,700
---------- ----------
$4,177,900 $4,256,200
========== ==========
</TABLE>
NOTE 3 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
Cash and Cash Equivalents
The carrying amount approximates fair value due to the short maturity
of those instruments.
Note Payable
The carrying amount approximates fair value due to the variable rate
nature of the note payable.
NOTE 4 - NOTE PAYABLE
During December 1989, the Partnership entered into a term loan
agreement (the "Agreement"). On December 29, 1995 the Partnership amended its
Agreement to extend the maturity date to December 31, 1996. The Agreement, as
amended, requires quarterly principal payments of $250,000 continuing through
September 30, 1996 with the balance of the loan due on December 31, 1996. The
Agreement provides for quarterly payments of interest through June 30, 1996 at
either the prime rate, 1.125% above the LIBOR rate or 1.25% above the CD rate.
After June 30, 1996, quarterly payments of interest increase to either .25%
above the prime rate, 1.375% above the LIBOR rate or 1.5% above the CD rate. The
interest rate is determined at the Partnership's option at the time advances are
made. The LIBOR rate was 5.63% and the prime rate was 8.5% at December 31, 1995.
No advances were borrowed with interest charged at the CD rate as of December
31, 1995. The debt is collateralized by substantially all of the Partnership's
assets.
F-10
<PAGE> 51
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 4 - NOTE PAYABLE (Continued)
The Agreement contains various requirements and restrictions including
maintenance of minimum operating results, required financial reporting,
restrictions on sales of assets and limitations on investments, loans and
advances. Management believes that the Partnership was in compliance with all
such covenants at December 31, 1995. Management's 1996 cash flow projections
indicate that operating cash flows will not be sufficient to fund the required
debt payment in 1996. Management intends to refinance its outstanding
indebtedness during 1996. However, there can be no assurance that the
Partnership will be successful in negotiating new debt agreements or, if
successful, on terms favorable to the Partnership.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
The Partnership leases buildings and tower sites associated with its
systems under operating leases expiring in various years through 2004.
Future minimum rental payments under non-cancelable operating leases
that have remaining terms in excess of one year as of December 31, 1995 are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1996 16,700
1997 16,700
1998 16,400
1999 8,300
2000 2,600
Thereafter 7,800
-------
$68,500
=======
</TABLE>
Rentals, other than pole rentals, charged to operations approximated
$13,700, $12,700, $13,800 in 1993, 1994 and 1995, respectively. Pole rentals
approximated $33,300, $36,600 and $36,800 in 1993, 1994 and 1995, respectively.
The Partnership is subject to regulation by various federal, state and
local government entities. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") provides for, among other things,
federal and local regulation of rates charged for basic cable service, cable
programming services and equipment and installation services. Regulations issued
in 1993 and significantly amended in 1994 by the Federal Communications
Commission (the "FCC") have resulted in changes in the rates charged for the
Partnership's cable services. The Partnership believes that compliance with the
1992 Cable Act has had a significant negative impact on its operations and cash
flow.
F-11
<PAGE> 52
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
NOTE 5 - COMMITMENTS AND CONTINGENCIES (Continued)
It also believes that any potential future liabilities for refund claims or
other related actions would not be material. The Telecommunications Act of 1996
(the "1996 Telecom Act") was signed into law on February 8, 1996. This statute
contains a significant overhaul of the federal regulatory structure. As it
pertains to cable television, the 1996 Telecom Act, among other things, (i) ends
the regulation of certain nonbasic programming services in 1999; (ii) expands
the definition of effective competition, the existence of which displaces rate
regulation; (iii) eliminates the restriction against the ownership and operation
of cable systems by telephone companies within their local exchange service
areas; and (iv) liberalizes certain of the FCC's cross-ownership restrictions.
The FCC will have to conduct a number of rulemaking proceedings in order to
implement many of the provisions of the 1996 Telecom Act.
The attorneys general of approximately 25 states have announced the
initiation of investigations designed to determine whether cable television
systems in their states have acted in compliance with the FCC's rate
regulations.
A recent federal court decision could if upheld and if adopted by other
federal courts, make the renewal of franchises more problematic in certain
circumstances. The United States District Court for the Western District of
Kentucky held that the statute does not authorize it to review a franchising
authority's assessment of its community needs to determine if they are
reasonable or supported by any evidence. This result would seemingly permit a
franchising authority which desired to oust an existing operator to set
cable-related needs at such a high level that the incumbent operator would have
difficulty in making a renewal proposal which met those needs. This decision has
been appealed. The Partnership was not a party to this litigation.
NOTE 6 - EMPLOYEE BENEFIT PLANS
The Partnership has a cash or deferred profit sharing plan (the "Profit
Sharing Plan") covering substantially all of its employees. The Profit Sharing
Plan provides that each participant may elect to make a contribution in an
amount up to 15% of the participant's annual compensation which otherwise would
have been payable to the participant as salary. The Partnership's contribution
to the Profit Sharing Plan, as determined by management, is discretionary but
may not exceed 15% of the annual aggregate compensation (as defined) paid to all
participating employees. There were no contributions charged against operations
for the Profit Sharing Plan in 1993, 1994 or 1995.
NOTE 7 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (the
"Agreement") with a wholly owned subsidiary of the Corporate General Partner
(the "Manager") for a monthly management fee of 5% of gross receipts, as
defined, from the operations of the Partnership. Management fee expense was
$157,100, $157,000 and $163,400 in 1993, 1994 and 1995, respectively.
F-12
<PAGE> 53
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
NOTES TO FINANCIAL STATEMENTS
(CONCLUDED)
NOTE 7 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (Continued)
In addition to the monthly management fee, the Partnership reimburses
the Manager for direct expenses incurred on behalf of the Partnership, and for
the Partnership's allocable share of operational costs associated with services
provided by the Manager. All cable television properties managed by the
Corporate General Partner and its subsidiaries are charged a proportionate share
of these expenses. Corporate office allocations and district office expenses are
charged to the properties served based primarily on the respective percentage of
basic customers served within the designated service areas. The total amount
charged to the Partnership for these services approximated $330,200, $358,200
and $304,100 in 1993, 1994 and 1995, respectively.
Certain programming services have been purchased through Falcon
Cablevision. Falcon Cablevision charges the Partnership for these costs based on
an estimate of what the Partnership could negotiate for such programming
services on a stand-alone basis. The Partnership recorded programming fee
expense of $561,400, $654,000 and $713,900 in 1993, 1994 and 1995, respectively.
NOTE 8 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest amounted to $296,700, $258,600 and $400,400 in
1993, 1994 and 1995, respectively.
F-13
<PAGE> 54
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3 Third Amended and Restated Agreement of Limited Partnership of Enstar
Income/Growth Program Six-A, L.P., as of December 23, 1988(1)
10.1 Management Agreement between Enstar Income/Growth Program Six-A, L.P.
and Enstar Cable Corporation(1)
10.2 Franchise ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the city of
the Dyer, Tennessee(1)
10.3 Franchise ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the city of
Kenton, Tennessee(1)
10.4 Franchise ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the city of
Rutherford, Tennessee(1)
10.5 Franchise ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for Gibson County,
Tennessee(1)
10.6 Franchise ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the city of
Flora, Illinois(1)
10.7 Franchise ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the city of
Salem, Illinois(1)
10.8 Franchise ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the city of
Sandoval, Illinois(1)
10.9 Franchise ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the city of
Odin, Illinois(1)
10.10 Franchise ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the Village of
Raymond, Illinois(1)
10.11 Service agreement between Enstar Communications Corporation, Enstar
Cable Corporation and Falcon Holding Group, Inc. dated as of October 1,
1988(1)
10.12 Credit agreement between Enstar Income/Growth Program Six-A, L.P. and
NCNB Texas National Bank dated December 29, 1989.(3)
10.13 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for Gibson County,
Tennessee.(4)
10.14 First Amendment to Credit Agreement, between Enstar Income/Growth
Program Six-A, L.P., and NationsBank of Texas, N.A., a national banking
association (formerly NCNB Texas National Bank).(5)
10.15 Franchise ordinance granting a non-exclusive community antenna
television franchise for the city of Sandoval, Illinois.
10.16 A resolution of the Village Board of Odin, Illinois extending the Cable
Television Franchise of Enstar Cable. Passed and adopted December 12,
1994.
E-1
<PAGE> 55
Exhibit
Number Description
- ------ -----------
10.17 Second Amendment to Credit Agreement between Enstar Income/Growth
Program Six-A, L.P. and NationsBank of Texas, N.A., a national banking
association (formerly NCNB Texas National Bank).(7)
10.18 Third Amendment to Credit Agreement between Enstar Income/Growth
Program Six-A, L.P. and NationsBank of Texas, N.A., a national banking
association (formerly NCNB Texas National Bank)
16.1 Report of change in accountants.(6)
21.1 Subsidiaries: None.
FOOTNOTE REFERENCES
(1) Incorporated by reference to the exhibits to the Registrant's Annual Report
on Form 10-K, File No. 0-17687 for the fiscal year ended December 31, 1988.
(2) Incorporated by reference to the exhibits to the Registrant's Annual Report
on Form 10-K, File No. 0-17687 for the fiscal year ended December 31, 1989.
(3) Incorporated by reference to the exhibits to the Registrant's Annual Report
on Form 10-K, File No. 0-17687 for the fiscal year ended December 31, 1990.
(4) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-17687 for the quarter ended June 30, 1993.
(5) Incorporated by reference to the exhibits to the Registrant's Annual Report
on Form 10-K, File No. 0- 17687 for the fiscal year ended December 31,
1993.
(6) Incorporated by reference to the exhibits to the Registrant's Current
Report on Form 8-K, File No. 0-17687 dated October 17, 1994.
(7) Incorporated by reference to the exhibits to the Registrant's Annual Report
on Form 10-K, File No. 0-17687 for the fiscal year ended December 31, 1994.
E-2
<PAGE> 1
EXHIBIT 10.18
EXHIBIT A
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "Third Amendment") is
dated as of December 29, 1995, ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P. , a
Georgia limited partnership (the "Borrower") and NATIONSBANK OF TEXAS, N.A., a
national banking association ("Lender").
WITNESSETH:
WHEREAS, the Borrower and the Lender entered into that certain Credit
Agreement, dated as of December 29, 1989 (as amended, restated, or otherwise
modified from time to time, the "Credit Agreement"); and
WHEREAS, the Borrower and the Lender desire to amend the Credit
Agreement as set forth in this Third Amendment, among other things to extend the
maturity thereof;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
Borrower and the Lender agree as follows:
SECTION 1. Definitions. Unless specifically defined or redefined below,
capitalized terms used herein shall have the meanings ascribed thereto in the
Credit Agreement.
SECTION 2. Amendment to Definition of "Applicable Margin". The
definition of "Applicable Margin" in Section 1.1 on page 2 of the Credit
Agreement shall be amended in its entirety to read as follows:
"Applicable Margin" shall mean the following per annum percentages,
applicable for the following interest rate selections:
<TABLE>
<CAPTION>
Federal Prime Rate LIBOR CD Rate
Funds Rate Basis Basis Basis
---------- ---------- ----- -------
<S> <C> <C> <C> <C>
Until 0% 0% 1 & 1/8% 1 & 1/4%
June 30,
1996
From 0% 1/4% 1 & 3/8% 1 & 1/2%
June 30,
1996 and thereafter
</TABLE>
<PAGE> 2
SECTION 3. Amendment to Definition of "Maturity Date". The definition
of "Maturity Date" in Section 1.1 on page 11 of the Credit Agreement shall be
amended in its entirety to read as follows:
"Maturity Date" shall mean December 31, 1996 or such earlier date
the Obligations become due and payable (whether by acceleration,
prepayment in full, scheduled reduction or otherwise).
SECTION 4. Amendment to Definition of "Pro Forma Debt Service". The
definition of "Pro Forma Debt Service" in Section 1.1 on page 15 of the Credit
Agreement shall be amended in its entirety to read as follows:
"Pro-Forma Debt Service" shall mean, as of any date of
determination, payments of principal, interest, fees and other amounts
scheduled to be paid on all Indebtedness for Money Borrowed of the
Borrower and its Subsidiaries, on a consolidated basis, during the 12
months beginning on the day following the date of determination
assuming principal payments due hereunder of $750,000 and assuming for
any Indebtedness for Money Borrowed subject to a floating interest
rate, an interest rate equal to the applicable rate in effect on the
date of determination.
SECTION 5. Amendment to Section 2.4. Section 2.4 on page 22 of the
Credit Agreement shall be amended to add the following sentence:
Subject to Section 10.9 hereof, on any day after November 30, 1996
that any principal amount remains outstanding hereunder, the Borrower
agrees to pay to the Lender a fee equal to 0.25% of the outstanding
principal balance hereunder as of such date. Such fee shall be, subject
to Section 10.9 hereof, non-refundable when paid.
SECTION 6. Amendment to Section 2.6(b). Section 2.6(b) on page 23 of
the Credit Agreement shall be amended to read in its entirety as follows:
(b) Mandatory Reduction. The Commitment shall be reduced by
$125,000 on December 31, 1995, and by $250,000 on each of March 31,
1996, June 30, 1996, and September 30, 1996, and finally shall be
reduced to $0 on December 31, 1996.
SECTION 7. Amendment to Section 7.10. Section 7.10 on page 52 of the
Credit Agreement shall be amended to read in its entirety as follows:
Section 7.10 Leverage Ratio. The Borrower shall not permit the
Leverage Ratio to be more than 3.00 to 1 at any time.
SECTION 8. Amendment to Section 7.11. Section 7.11 on page 52 of the
Credit Agreement shall be amended to read in its entirety as follows:
Section 7.11 Pro-Forma Debt Service Ratio. The Borrower shall not
permit the ratio of (a) Net Operating Cash Flow plus interest income
for the quarter ending on the date of determination multiplied by four,
to (b) Pro-Forma Debt Service, to be less than 1.25 to 1.
SECTION 9. Amendment to Section 7.16. Section 7.16 on page 53 of the
Credit Agreement shall be amended to read in its entirety as follows:
<PAGE> 3
Section 7.16 Maximum Debt Per Subscriber. The Borrower shall not
permit the amount of Indebtedness outstanding hereunder less cash on
hand to exceed an amount equal to $450 per Basic Subscriber at any
time.
SECTION 10. Conditions Precedent. This Third Amendment shall not be
effective until the Lender shall have determined in its sole discretion that all
proceedings of the Borrower taken in connection with this Third Amendment and
the transactions contemplated hereby shall be satisfactory in form and substance
to the Lender, the Lender shall have received payment of all fees and expenses
(including reasonable attorneys' fees) incurred in connection with the
preparation and negotiation of this Third Amendment and the other Loan
Documents, and the Lender shall have received the following:
(a) subject to Section 10.9 of the Credit Agreement, receipt by
the Lender of an amendment fee in an amount equal to $15,000.00 on the
date hereof;
(b) a loan certificate of the Borrower certifying (i) as to the
accuracy of its representations and warranties set forth in Article 4
of the Credit Agreement, as amended by this Third Amendment, the other
Loan Documents and in this Third Amendment, (ii) that there exists no
Default or Event of Default and the execution, delivery and performance
of this Third Amendment will not cause a Default or Event of Default,
(iii) as to resolutions authorizing the Borrower to execute, deliver
and perform this Third Amendment and all Loan Documents and other
documents and instruments delivered or executed in connection with this
Third Amendment, and (iv) that it has complied with all agreements and
conditions to be complied with by them under the Credit Agreement, the
other Loan Documents and this Third Amendment by the date hereof; and
(c) such other documents, instruments, and certificates, in form
and substance satisfactory to the Lender, as the Lender shall deem
necessary or appropriate in connection with this Third Amendment and
the transactions contemplated hereby, including without limitation, a
promissory note in form and substance satisfactory to the Lender.
SECTION 11. Further Assurances.
(a) Within 30 days after the date hereof, the Borrower shall have
provided to the Lender (i) an opinion of counsel of the Borrower acceptable to
Lender with respect to this Third Amendment and the Loan Documents as amended by
this Third Amendment; and (ii) a written consent to the execution of this Third
Amendment executed by Robert T. Graff, Jr. in his capacity as a general partner
of the Borrower. Any breach of this provision shall constitute an Event of
Default under the Credit Agreement.
(b) The Borrower shall execute and deliver such further agreements,
documents, instruments, and certificates in form and substance satisfactory to
the Lender as the Lender may deem necessary or appropriate in connection with
this Third Amendment.
SECTION 12. Representations and Warranties. The Borrower represents and
warrants to the Lender that (a) this Third Amendment constitutes its legal,
valid, and binding obligation, enforceable in accordance with the terms hereof
(subject as to enforcement of remedies to any applicable bankruptcy,
reorganization, moratorium, or other laws or principles of equity affecting the
enforcement of creditors' rights generally), (b) there exists no Event of
Default or Default under the Credit Agreement, and the execution, delivery and
performance of this Third Amendment will not cause a Default or Event of
Default, (c) its representations and warranties set forth in the Credit
Agreement and other Loan Documents are true and correct on the date hereof, (d)
it has complied with all agreements and conditions to be complied with by it
under the Credit Agreement and the other Loan Documents by the date hereof, (e)
the Credit Agreement, as amended hereby, and the other Loan Documents remain in
full force and
<PAGE> 4
effect, and (f) the resolutions authorizing the Borrower to execute, deliver and
perform this Third Amendment and all Loan Documents and other documents and
instruments delivered or executed in connection with this Third Amendment are
true, correct, complete and in effect as of the date hereof.
SECTION 13. Entire Agreement; Ratification. THIS AGREEMENT AND THE LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXCEPT AS MODIFIED OR SUPPLEMENTED HEREBY, THE CREDIT AGREEMENT, THE OTHER LOAN
DOCUMENTS AND ALL OTHER DOCUMENTS AND AGREEMENTS EXECUTED IN CONNECTION
THEREWITH SHALL CONTINUE IN FULL FORCE AND EFFECT.
SECTION 14. Counterparts. This Third Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same instrument. In making proof hereof, it shall not be necessary to produce or
account for any counterpart other than one signed by the party against which
enforcement is sought.
SECTION 15. Effectiveness and Default. This Third Amendment shall not
be effective until the Lender has received and executed this Third Amendment.
The parties hereto agree that this Third Amendment is a Loan Document within the
definition thereof in the Credit Agreement, and any breach of any term or
provision in this agreement shall constitute an Event of Default under the
Credit Agreement.
SECTION 16. GOVERNING LAW. THIS AGREEMENT AND ALL LOAN DOCUMENTS SHALL
BE DEEMED CONTRACTS MADE IN DALLAS, TEXAS AND SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH AND GOVERNED BY THE LAWS OF TEXAS, EXCEPT TO THE EXTENT FEDERAL
LAWS GOVERN THE VALIDITY, CONSTRUCTION, ENFORCEMENT AND INTERPRETATION OF ALL OR
ANY PART OF THIS AGREEMENT AND ALL LOAN DOCUMENTS. WITHOUT EXCLUDING ANY OTHER
JURISDICTION, THE BORROWER AGREES THAT THE COURTS OF TEXAS WILL HAVE
JURISDICTION OVER PROCEEDINGS IN CONNECTION HEREWITH.
THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.
<PAGE> 5
IN WITNESS WHEREOF, this Third Amendment to Credit Agreement is executed as of
the date first set forth above.
BORROWER: ENSTAR INCOME/GROWTH PROGRAM
SIX-A, L.P., a Georgia Limited Partnership
By: ENSTAR COMMUNICATIONS CORPORATION,
a Georgia corporation, a General Partner
By: MICHAEL K. MENEREY
---------------------------------------
Its: CHIEF FINANCIAL OFFICER
--------------------------------------
LENDER: NATIONSBANK OF TEXAS, N.A.
By:
---------------------------------------
Its:
--------------------------------------
<PAGE> 6
PROMISSORY NOTE
Dallas, Texas $4,125,000 December 29, 1995
Enstar Income/Growth Program Six-A, L.P., a Georgia limited partnership
(the "Borrower"), for value received, promises to pay to the order of
NationsBank of Texas, N.A., a national banking association (the "Lender"), at
the principal office of NationsBank of Texas, N.A. in Dallas, Texas, in lawful
money of the United States of America, the principal sum of FOUR MILLION ONE
HUNDRED TWENTY-FIVE THOUSAND AND NO\ONE HUNDREDTHS DOLLARS ($4,125,000.00), or
such lesser sum as shall be due and payable from time to time hereunder, as
hereinafter provided. All terms used but not defined herein shall have the
meaning set forth in the Credit Agreement described below.
Principal of, and interest on the unpaid principal balance of, this
Note from time to time outstanding shall be due and payable as set forth in the
Credit Agreement.
This Note is issued pursuant to and evidences Advances under a Credit
Agreement, dated as of December 29, 1989, between the Borrower and the Lender
(as amended, restated, supplemented, renewed, extended or otherwise modified
from time to time, "Credit Agreement"), to which reference is made for a
statement of the rights and obligations of the Lender and the duties and
obligations of the Borrower in relation thereto; but neither this reference to
the Credit Agreement nor any provision thereof shall affect or impair the
absolute and unconditional obligation of the Borrower to pay the principal sum
of and interest on this Note when due. This Note is a renewal, restatement,
extension, and renewal of the Promissory Note dated December 29, 1989, in the
principal amount of $6,600,000 executed by the Borrower for the benefit of the
Lender.
The Borrower and all endorsers, sureties and guarantors of this Note
hereby severally waive demand, presentment for payment, protest, notice of
protest, notice of intention to accelerate the maturity of this Note, diligence
in collecting, the bringing of any suit against any party and any notice of or
defense on account of any extensions, renewals, partial payments or changes in
any manner of or in this Note or in any of its terms, provisions and covenants,
or any releases or substitutions of any security, or any delay, indulgence or
other act of any trustee or any holder hereof, whether before or after maturity.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.
<PAGE> 7
This Note may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all such separate counterparts shall
constitute but one and the same instrument.
ENSTAR INCOME/GROWTH PROGRAM
SIX-A, L.P.
By: ENSTAR COMMUNICATIONS
CORPORATION, a General Partner
By: ____________________________
Title: ____________________________
By: ____________________________
Robert T. Graff, Jr.,
a General Partner
<PAGE> 8
ENSTAR INCOME/GROWTH PROGRAM SIX-A, L.P.
Loan Certificate
The undersigned hereby certifies that it is a general partner of Enstar
Income/Growth Program Six-A, L.P., a Georgia limited partnership (the
"Company"), and that is authorized to execute this Certificate on behalf of the
Company in connection with that certain Third Amendment to Credit Agreement of
even date herewith (the "Third Amendment), between the Company and NationsBank
of Texas, N.A. (formerly NCNB Texas National Bank, herein referred to as
"Lender") which amends that certain Credit Agreement dated as of December 29,
1989 (the "Credit Agreement"), First Amendment dated March 30, 1994 (the "First
Amendment") and Second Amendment dated March 29, 1995 (the "Second Amendment")
between the Company and Lender. All terms used but not defined herein shall have
the meanings set forth in the Credit Agreement as amended by the First and
Second Amendments. The undersigned hereby further certifies to the following:
1. There exists no Default or Event of Default on the date hereof and
the execution, delivery and performance of the Third Amendment will not cause a
Default or Event of Default.
2. The representations and warranties set forth in Article 4 of the
Credit Agreement, as amended by the First, Second and Third Amendments, the
other Loan Documents and the First, Second and Third Amendments are true and
correct on the date hereof.
3. Attached hereto as Exhibit A is a complete and correct copy of
resolutions of the undersigned authorizing the Company to execute, deliver and
perform the Third Amendment and all Loan Documents and other documents and
instruments delivered or executed in connection with the Third Amendment, which
resolutions have not been amended, modified or rescinded, and are in full force
and effect on the date hereof
4. The Company has complied with all agreements and conditions to be
complied with by Company under the Credit Agreement, the other Loan Documents
and the Third Amendment.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of
the 29th day of December, 1995.
ENSTAR COMMUNICATIONS CORPORATION
By: _____________________________
MICHAEL K. MENEREY
Chief Financial Officer
<PAGE> 9
CONSENT
The undersigned, Robert T. Graff, Jr., a general partner of Enstar
Income/Growth Program Six-A, L.P., a Georgia limited partnership (the
"Partnership"), hereby consents to the execution and delivery by the Partnership
of the Third Amendment to Credit Agreement, dated as of December 29, 1995 (the
"Amendment") between the Partnership and NationsBank of Texas, N.A. attached
hereto as Exhibit A and hereby authorizes Enstar Communications Corporation, in
its capacity as a general partner of the Partnership, to execute and deliver the
Amendment.
Dated: As of December 29, 1995. _______________________________
Robert T. Graff, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1995, AND THE STATEMENT OF OPERATIONS FOR THE NINE MONTHS
ENDED DECEMBER 31, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 175,800
<SECURITIES> 0
<RECEIVABLES> 46,900
<ALLOWANCES> 8,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,109,900
<DEPRECIATION> 3,853,700
<TOTAL-ASSETS> 6,957,300
<CURRENT-LIABILITIES> 743,600
<BONDS> 4,125,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,957,300
<SALES> 0
<TOTAL-REVENUES> 3,267,000
<CGS> 0
<TOTAL-COSTS> 3,791,900
<OTHER-EXPENSES> (23,700)
<LOSS-PROVISION> 18,600
<INTEREST-EXPENSE> 361,200
<INCOME-PRETAX> (862,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (862,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (862,400)
<EPS-PRIMARY> (10.70)
<EPS-DILUTED> 0
</TABLE>
