<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-18495
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Enstar Income/Growth Program Six-B, L.P.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1754588
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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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Former name, former address and former fiscal year, if changed since last
report.
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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<PAGE>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
CONDENSED BALANCE SHEETS
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<TABLE>
<CAPTION>
December 31, September 30,
1997* 1998
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(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 304,800 $ 538,400
Accounts receivable, less allowance of $2,500 and
$2,000 for possible losses 101,500 73,300
Prepaid expenses and other assets 48,800 74,700
Property, plant and equipment, less accumulated
depreciation and amortization of $3,244,600 and $3,758,000 3,477,400 3,437,300
Franchise cost, net of accumulated
amortization of $2,615,600 and $2,886,300 1,714,100 1,449,400
Intangible costs, net of accumulated amortization
of $380,800 and $402,200 248,100 202,600
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$ 5,894,700 $ 5,775,700
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LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 176,500 $ 211,700
Due to affiliates 430,300 410,700
Note payable - affiliate 1,750,000 1,600,000
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TOTAL LIABILITIES 2,356,800 2,222,400
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COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (37,300) (37,100)
Limited partners 3,575,200 3,590,400
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TOTAL PARTNERSHIP CAPITAL 3,537,900 3,553,300
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$ 5,894,700 $ 5,775,700
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</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
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----------------------------------------
<TABLE>
<CAPTION>
Unaudited
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Three months ended
September 30,
--------------------------------------
1997 1998
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<S> <C> <C>
REVENUES $ 727,600 $ 754,200
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OPERATING EXPENSES:
Service costs 244,000 259,000
General and administrative expenses 120,200 109,300
General Partner management fees
and reimbursed expenses 66,400 68,500
Depreciation and amortization 278,900 284,600
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709,500 721,400
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OPERATING INCOME 18,100 32,800
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OTHER INCOME (EXPENSE):
Interest income 4,200 5,500
Interest expense (32,900) (37,200)
Other expense - (20,100)
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(28,700) (51,800)
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NET LOSS $ (10,600) $ (19,000)
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Net loss allocated to General Partners $ (100) $ (200)
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Net loss allocated to Limited Partners $ (10,500) $ (18,800)
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NET LOSS PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ (0.29) $ (0.51)
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AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 36,626 36,626
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----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
CONDENSED STATEMENTS OF OPERATIONS
----------------------------------------
----------------------------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
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<S> <C> <C>
REVENUES $ 2,185,500 $ 2,275,900
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OPERATING EXPENSES:
Service costs 727,400 769,400
General and administrative expenses 322,200 321,000
General Partner management fees
and reimbursed expenses 200,800 207,000
Depreciation and amortization 826,000 838,700
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2,076,400 2,136,100
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OPERATING INCOME 109,100 139,800
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OTHER INCOME (EXPENSE):
Interest income 8,400 13,600
Interest expense (97,400) (118,800)
Other expense - (20,100)
Gain on sale of cable assets - 900
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(89,000) (124,400)
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NET INCOME $ 20,100 $ 15,400
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Net income allocated to General Partners $ 200 $ 200
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Net income allocated to Limited Partners $ 19,900 $ 15,200
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NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 0.54 $ 0.42
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AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 36,626 36,626
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
STATEMENTS OF CASH FLOWS
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----------------------------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 20,100 $ 15,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 826,000 838,700
Amortization of deferred loan costs 4,500 7,100
Gain on sale of cable assets - (900)
Increase (decrease) from changes in:
Receivables 239,100 28,200
Prepaid expenses and other assets 500 (25,900)
Accounts payable 54,300 35,200
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Net cash provided by operating activities 1,144,500 897,800
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (404,000) (482,500)
Increase in intangible assets (7,300) (11,700)
Proceeds from sale of property, plant and equipment - 900
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Net cash used in investing activities (411,300) (493,300)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Due to affiliates (1,237,900) (19,600)
Repayment of debt (1,288,400) (150,000)
Borrowings from affiliate 1,750,000 -
Deferred loan costs (34,900) (1,300)
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Net cash used in financing activities (811,200) (170,900)
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INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (78,000) 233,600
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 353,500 304,800
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 275,500 $ 538,400
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the three
and nine months ended September 30, 1998 and 1997 are unaudited. These condensed
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Partnership's latest
Annual Report on Form 10-K. In the opinion of management, such statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of such periods. The results of
operations for the three and nine months ended September 30, 1998 are not
necessarily indicative of results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement with a wholly
owned subsidiary of the Corporate General Partner (the "Manager") for a monthly
management fee of 5% of revenues, excluding revenues from the sale of cable
television systems or franchises. Management fee expense approximated $37,700
and $113,800 for the three and nine months ended September 30, 1998.
In addition to the monthly management fee described above, 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 subsidiary are
charged a proportionate share of these expenses. The Corporate General Partner
has contracted with Falcon Communications, L.P. ("FCLP"), successor to Falcon
Holding Group, L.P. ("FHGLP"), an affiliated partnership, to provide corporate
management services for the Partnership. Corporate office allocations and
district office expenses are charged to the properties served based primarily on
the respective percentage of basic subscribers or homes passed (dwelling units
within a system) within the designated service areas. The total amount charged
to the Partnership for these services approximated $30,800 and $93,200 for the
three and nine months ended September 30, 1998. The payment of management fees
and reimbursed expenses was deferred in prior years. On September 30, 1997, the
Partnership obtained new financing and subsequently used such borrowings and
other available cash to pay $387,500 of its previously deferred management fees
and reimbursed expenses, which approximated $632,100. The remaining $244,600 of
these deferred amounts was contributed as an equity contribution by the
Corporate General Partner to its subsidiary, Enstar Finance Company, LLC
("EFC"), and remains an outstanding obligation of the Partnership. In the normal
course of business, the Partnership pays interest and principal to EFC, its
primary lender.
The Partnership also receives certain system operating management
services from affiliates of the Corporate General Partner in addition to the
Manager due to the fact that there are no employees directly employed by the
Partnership. The Partnership reimburses the affiliates for its allocable share
of the affiliates' operational costs. The total amount charged to the
Partnership for these costs approximated $73,000 and $210,800 for the three and
nine months ended September 30, 1998. No management fee is payable to the
affiliates by the Partnership and there is no duplication of reimbursed expenses
and costs paid to the Manager.
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
Certain programming services have been purchased through an affiliate
of the Partnership. In turn, the affiliate charged the Partnership for these
costs based on an estimate of what the Corporate General Partner could negotiate
for such programming services for the 15 partnerships managed by the Corporate
General Partner as a group. The Partnership recorded programming fee expense of
$153,200 and $449,600 for the three and nine months ended September 30, 1998.
Programming fees are included in service costs in the statements of operations.
In the future, programming services will be purchased through another source,
which may include FHGLP or an affiliate of FHGLP. Programming rates may vary in
the near term as a result of the change.
3. SALE OF PARTNERSHIP ASSETS
As reported in the Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998, the Partnership concluded that it is not able to
obtain the appropriate amount of capital to make the necessary upgrades to its
cable systems and initiated discussions with a business broker to sell the
Partnership's cable systems. The Partnership subsequently engaged a business
broker to solicit offers for its cable systems, but received only two
preliminary offers (the "Initial Offers"), each of which excluded the Ivins,
Utah and Fisk, Missouri cable systems and contained several potential purchase
price adjustments and material closing contingencies. The Partnership concluded
that it was not in the best interests of unitholders to accept either of the
Initial Offers because, among other things, neither Initial Offer constituted an
offer to purchase all of the cable systems, and each Initial Offer was subject
to several potential purchase price adjustments and material closing conditions.
Subsequent to the Partnership's receipt of the Initial Offers, the Partnership
received an offer (the "Falcon Offer") from certain of its affiliates (the
"Purchasers") to purchase all of the Partnership's cable systems for $10,473,200
in cash. The Falcon Offer includes a price for the Villa Rica cable system which
exceeds the highest of the Initial Offers by approximately 2.5%, contains no
potential purchase price adjustments and only limited closing conditions. After
the Partnership received the Falcon Offer, the Partnership received an
additional offer solely for the Fisk, Missouri cable system (the "Fisk Offer").
The Partnership concluded that it was not in the best interests of the
unitholders to accept the Fisk Offer because, among other things, the Fisk Offer
did not constitute an offer to purchase all of the cable systems, and the Falcon
Offer includes a price for the Fisk, Missouri cable system that exceeds the Fisk
Offer by approximately 15%.
The General Partner believes that accepting the Falcon Offer is in the
best interests of the Partnership and the unitholders. Accordingly, the
Partnership and the Purchasers entered into an Asset Purchase Agreement (the
"Purchase Agreement") dated November 6, 1998, for the purchase and sale of all
of the Partnership's assets, subject to limited partner approval as discussed
below. If the sale is consummated, the General Partner will make one or more
liquidating distributions to the partners and, after providing for the payment
of the Partnership's obligations, cause the Partnership to dissolve and be
liquidated. After repayment of the Partnership's existing obligations, the
Partnership presently estimates that liquidating distributions to unitholders
would total between $220 and $230 per unit, less applicable taxes, if any. The
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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3. SALE OF PARTNERSHIP ASSETS (CONTINUED)
sale will require the holders of at least a majority of the Partnership's
limited partnership units to consent to the sale, to certain amendments to the
Partnership's partnership agreement and to the liquidation.
4. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is based
on the average number of units outstanding during the periods presented. For
this purpose, earnings and losses have been allocated 99% to the Limited
Partners and 1% to the General Partners. The General Partners do not own units
of partnership interest in the Partnership, but rather hold a participation
interest in the income, losses and distributions of the Partnership.
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") required the Federal Communications Commission ("FCC")
to, among other things, implement extensive regulation of the rates charged by
cable television systems for basic and programming service tiers, installation,
and customer premises equipment leasing. Compliance with those rate regulations
has had a negative impact on the Partnership's revenues and cash flow. The
Telecommunications Act of 1996 (the "1996 Telecom Act") substantially changed
the competitive and regulatory environment for cable television and
telecommunications service providers. Among other changes, the 1996 Telecom Act
provides that the regulation of cable programming service tier ("CPST") rates
will be terminated on March 31, 1999. Because cable service rate increases have
continued to outpace inflation under the FCC's existing regulations, it is
possible that Congress and the FCC will consider additional methods of
regulating cable service rate increases, including deferral or repeal of the
March 31, 1999 termination of CPST rate regulation. There can be no assurance as
to what, if any, further 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 financial results as
described below are not necessarily indicative of future performance.
This Report includes certain forward looking statements regarding,
among other things, future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing cable
television operators such as the Partnership. In addition to the information
provided herein, reference is made to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1997 for additional information regarding
such matters and the effect thereof on the Partnership's business.
RESULTS OF OPERATIONS
The Partnership's revenues increased from $727,600 to $754,200, or by
3.7%, and from $2,185,500 to $2,275,900, or by 4.1%, for the three and nine
months ended September 30, 1998 as compared to the corresponding periods in
1997. Of the $26,600 increase in revenues for the three months ended September
30, 1998 as compared to the corresponding period in 1997, $24,100 was due to
increases in the number of subscriptions for basic, premium and tier services
and $7,800 was due to increases in regulated service rates that were implemented
by the Partnership in 1997. These increases were partially offset by a decrease
of $5,300 in other revenue producing items. Of the $90,400 increase in revenues
for the nine months ended September 30, 1998 as compared to the corresponding
period in 1997, $52,100 was due to increases in regulated service rates that
were implemented by the Partnership in 1997 and $50,300 was due to increases in
the number of subscriptions for basic, premium and tier services. These
increases were partially offset by a decrease of $12,000 in other revenue
producing items such as advertising sales revenue. As of September 30, 1998, the
Partnership had approximately 7,500 basic subscribers and 1,900 premium service
units.
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs increased from $244,000 to $259,000, or by 6.1%, and from
$727,400 to $769,400, or by 5.8%, for the three and nine months ended September
30, 1998 as compared to the corresponding periods in 1997. Service costs
represent costs directly attributable to providing cable services to customers.
The increases were primarily due to increases in programming fees resulting from
higher rates charged by program suppliers.
General and administrative expenses decreased from $120,200 to
$109,300, or by 9.1%, and from $322,200 to $321,000, or by less than 1.0%,
for the three and nine months ended September 30, 1998 as compared to the
corresponding periods in 1997. The decreases were primarily due to lower bad
debt expense.
Management fees and reimbursed expenses increased from $66,400 to
$68,500, or by 3.2%, and from $200,800 to $207,000, or by 3.1%, for the three
and nine months ended September 30, 1998 as compared to the corresponding
periods in 1997. Management fees increased in direct relation to increased
revenues as described above. Reimbursed expenses increased as a result of higher
personnel costs resulting from wage increases.
Depreciation and amortization expense increased from $278,900 to
$284,600, or by 2.0%, and from $826,000 to $838,700, or by 1.5%, for the three
and nine months ended September 30, 1998 as compared to the corresponding
periods in 1997. The increases were due to asset additions related to the
upgrade and extension of the Partnership's plant.
Operating income increased from $18,100 to $32,800, or by 81.2%, and
from $109,100 to $139,800, or by 28.1%, for the three and nine months ended
September 30, 1998 as compared to the corresponding periods in 1997. The
increases were primarily due to increases in revenues as described above.
Interest income increased from $4,200 to $5,500, or by 31.0%, and from
$8,400 to $13,600, or by 61.9%, for the three and nine months ended September
30, 1998 as compared to the corresponding periods in 1997. The increases were
primarily due to higher average cash balances available for investment and
higher average interest rates earned in the 1998 periods as compared to the
corresponding periods in 1997.
Interest expense increased from $32,900 to $37,200, or by 13.1%, and
from $97,400 to $118,800, or by 22.0%, for the three and nine months ended
September 30, 1998 as compared to the corresponding periods in 1997. The
increases were primarily due to increases in average borrowings in the three and
nine months ended September 30, 1998 as compared to the corresponding periods in
1997.
The Partnership incurred expenses of $20,100 in connection with the
proposed sale of its cable systems during the three and nine months ended
September 30, 1998.
Due to the factors described above, the Partnership's net loss
increased from $10,600 to $19,000, or by 79.2%, for the three months ended
September 30, 1998 as compared to the corresponding period in 1997. The
Partnership's net income decreased to $15,400 from $20,100, or by 30.5%, for the
nine months ended September 30, 1998 as compared to the equivalent period in
1997.
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Based on its experience in the cable television industry, the
Partnership believes that operating income before depreciation and amortization
("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. EBITDA is not a
measurement determined under generally accepted accounting principles ("GAAP")
and does not represent cash generated from operating activities in accordance
with GAAP. EBITDA should not be considered by the reader as an alternative to
net income as an indicator of financial performance or as an alternative to cash
flows as a measure of liquidity. In addition, the definition of EBITDA may not
be identical to similarly titled measures used by other companies. EBITDA as a
percentage of revenues increased from 40.8% to 42.1% and from 42.8% to 43.0%
during the three and nine months ended September 30, 1998 compared to the
corresponding periods in 1997. The increases were due to higher revenues. EBITDA
increased from $297,000 to $317,400, or by 6.9%, and from $935,100 to $978,500,
or by 4.6%, during the three and nine months ended September 30, 1998 as
compared to the corresponding periods in 1997.
LIQUIDITY AND CAPITAL RESOURCES
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.
Substantially all of the available channel capacity in the
Partnership's cable systems is being utilized and each of the Partnership's
cable systems requires upgrading. Existing franchise agreements for three of the
seven franchise areas in the Partnership's Villa Rica, Georgia cable system
require the Partnership to complete system upgrades by early 1999. In addition,
the Partnership is in the process of negotiating the renewal of franchise
agreements for two other franchise areas covered by the Villa Rica cable system
and the Partnership believes that the renewed franchise agreements may require
the Partnership to upgrade the cable systems within those franchise areas. If
the Partnership is unable to obtain financing to fund the upgrades required by
its franchise agreements, the respective franchising authorities may be entitled
to terminate the franchise agreements and the Partnership could lose valuable
franchises.
Because the Villa Rica cable system is served by one headend and
utilizes integrated cable hardware, the Partnership's proposed upgrade program
would cover all of the seven franchise areas in the Villa Rica, Georgia cable
system (the "Villa Rica Upgrade") and is estimated to require aggregate capital
expenditures of approximately $7.5 million. The Partnership, however, does not
presently have, and believes it will be unable to obtain, the funds required to
complete the Villa Rica Upgrade. The Partnership only has approximately $1.0
million of availability under its $2.5 million revolving loan facility. In
addition, the Partnership's partnership agreement (the "Partnership Agreement")
provides that the Partnership may not incur borrowings unless the amount of such
borrowings, together with all outstanding borrowings, does not exceed 33% of the
original capital raised by the Partnership (i.e., a maximum of approximately
$3.0 million of outstanding indebtedness). Consequently, even if the Partnership
used the approximately $1.0 million of existing availability under its revolving
loan facility and was able to obtain the additional $500,000 of debt
-11-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
financing permitted under the terms of the Partnership Agreement, the
Partnership would still lack approximately $6.0 million of additional funding
necessary to complete the Villa Rica Upgrade.
The Partnership considered seeking an amendment to the Partnership
Agreement to permit the Partnership to incur sufficient indebtedness to fund
completion of the Villa Rica Upgrade. Ultimately, however, the Partnership
concluded that such an amendment would not benefit the Partnership because debt
financing sufficient to complete the Villa Rica Upgrade was not available. This
conclusion was based in large part on the discussions held with financing
sources in 1996 and 1997 in connection with the refinancing by EFC of the
long-term indebtedness of several partnerships managed by the Corporate General
Partner. Since financing was not available to fund completion of the Villa Rica
Upgrade, the Partnership instead engaged a business broker to solicit offers
from third parties to purchase the Partnership's cable systems. In response to
such solicitation, the Partnership received only the Initial Offers, each of
which excluded the Ivins, Utah and Fisk, Missouri cable systems and contained
several potential purchase price adjustments and material closing conditions.
The Partnership concluded that it was not in the best interests of the
unitholders to accept either of the Initial Offers because, among other things,
neither Initial Offer constituted an offer to purchase all of the Partnership's
cable systems, and each Initial Offer was subject to several potential purchase
price adjustments and material closing conditions. Subsequent to the
Partnership's receipt of the Initial Offers, the Partnership received the Falcon
Offer for $10,473,200 in cash. The Falcon Offer includes a price for the Villa
Rica cable system which exceeds the highest of the Initial Offers by
approximately 2.5%, contains no potential purchase price adjustments and
contains only limited closing conditions. After the Partnership received the
Falcon Offer, the Partnership received the Fisk Offer. The Partnership concluded
that it was not in the best interests of the unitholders to accept the Fisk
Offer because, among other things, the Fisk Offer did not constitute an offer to
purchase all of the cable systems, and the Falcon Offer includes a price for the
Fisk, Missouri cable system that exceeds the Fisk Offer by approximately 15%.
Given current market conditions for the Assets, the lack of channel
capacity, the impending upgrades required by the Partnership's franchise
agreements and the Partnership's funding limitations, the Corporate General
Partner believes that accepting the Falcon Offer is in the best interests of the
Partnership and the unitholders. Accordingly, the Purchasers and the Partnership
entered into the Purchase Agreement, dated as of November 6, 1998, pursuant to
which the Purchasers agreed to purchase from the Partnership, and the
Partnership agreed to sell to the Purchasers, subject to obtaining the requisite
consents from the unitholders as discussed below, all of the Partnership's cable
systems for a price of $10,473,200 in cash (the "Sale"). If the Sale is
consummated, the General Partner will make one or more liquidating distributions
to the unitholders and the general partners and, after providing for the payment
of the Partnership's obligations, cause the Partnership to dissolve and be
liquidated. Based upon the terms and conditions of the Sale, after repayment of
the Partnership's existing obligations, the Partnership presently estimates that
liquidating distributions to Unitholders would total between $220 and $230 per
unit, less applicable taxes, if any. As a condition to the Sale, the Purchase
Agreement requires that the holders of a majority of the units approve the Sale,
certain amendments to the partnership agreement and the liquidation of the
Partnership. On November 9, 1998, the Partnership filed with the Securities and
Exchange Commission preliminary consent solicitation materials and a Rule 13e-3
Transaction Statement relating to the proposed Sale.
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<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Partnership is party to a loan agreement with EFC which provides
for a revolving loan facility of $2,528,900 (the "Facility"). The Partnership
prepaid $150,000 and $100,000 of its outstanding borrowings under the Facility
on June 22, 1998 and October 9, 1998, respectively, such that total outstanding
borrowings under the Facility were $1,500,000. All outstanding borrowings under
the Facility would be repaid in full with the proceeds from the sale of the
Partnership's assets as described above.
The Partnership's Facility will mature on August 31, 2001, at which
time all funds previously advanced will be due in full. Borrowings bear interest
at the lender's base rate (8.25% at September 30, 1998) plus 0.625%, or at an
offshore rate plus 1.875%. Under certain circumstances, the Partnership is
required to make mandatory prepayments, which permanently reduce the maximum
commitment under the Facility. The Facility contains certain financial tests and
other covenants including, among others, restrictions on incurrence of
indebtedness, investments, sales of assets, acquisitions and other covenants,
defaults and conditions. The Partnership believes it was in compliance with the
covenants at September 30, 1998.
The Facility does not restrict the payment of distributions to partners
unless an event of default exists thereunder or the ratio of debt to cash flow
is greater than 4 to 1. As previously disclosed, however, in response to the
FCC's amended rate regulation rules and the Partnership's capital expenditure
requirements, distributions to Unitholders were discontinued in July 1994. As
stated at the time of the announcement of this decision, the Partnership
believes that it is critical to preserve its liquidity though the retention of
cash. As a result, and because of the pending system upgrade requirements
discussed above, the Partnership does not anticipate paying distributions at any
time in the foreseeable future except in connection with a liquidation of the
Partnership as described above.
The Corporate General Partner contributed $244,600 of its $632,100
receivable balance from the Partnership for past due management fees and
reimbursed expenses as an equity contribution to EFC. As a result, this balance
was not repaid on September 30, 1997 and remains an outstanding obligation of
the Partnership. Such receivable balance would be repaid from the proceeds of
the sale of the Partnership's assets as described above.
Beginning in August 1997, the Partnership elected to self-insure its
cable distribution plant and subscriber connections against property damage as
well as possible business interruptions caused by such damage. The decision to
self-insure was made due to significant increases in the cost of insurance
coverage and decreases in the amount of insurance coverage available.
While the Partnership made the election to self-insure for these risks
based upon a comparison of historical damage sustained over the previous five
years with the cost and amount of insurance currently available, there can be no
assurance that future self-insured losses will not exceed prior costs of
maintaining insurance for these risks. Approximately 90% of the Partnership's
subscribers are served by its system in Villa Rica, Georgia and neighboring
communities. Significant damage to the system due to seasonal weather conditions
or other events could have a material adverse effect on the Partnership's
liquidity and cash flows. The Partnership continues to purchase insurance
coverage in amounts its management views as appropriate for all other property,
liability, automobile, workers' compensation and other types of insurable risks.
-13-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In October 1998, the Partnership reinstated third party insurance
coverage against damage to its cable distribution plant and subscriber
connections and against business interruptions resulting from such damage.
Although this coverage is subject to a significant annual deductible, the policy
is intended to insure the Partnership against catastrophic losses, if any, in
future periods.
During the third quarter, the Corporate General Partner continued its
identification and evaluation of the Partnership's Year 2000 business risks and
its exposure to computer systems, to operating equipment which is date sensitive
and to the interface systems of its vendors and service providers. The
evaluation has focused on identification and assessment of systems and equipment
that may fail to distinguish between the year 1900 and the year 2000 and, as a
result, may cease to operate or may operate improperly when dates after December
31, 1999 are introduced.
Based on a study conducted in 1997, the Corporate General Partner
concluded that certain of the Partnership's information systems were not Year
2000 compliant and elected to replace such software and hardware with
applications and equipment certified by the vendors as Year 2000 compliant. The
Corporate General Partner expects to install substantially all of the new
systems in the fourth quarter of 1998, with the remaining systems to be
installed in the first half of 1999. The total anticipated cost, including
replacement software and hardware, will be borne by FCLP. FCLP is utilizing
internal and external resources to install the new systems. The Partnership does
not believe that any other significant information technology ("IT") projects
affecting the Partnership have been delayed due to efforts to identify and
address Year 2000 issues.
Additionally, the Partnership has inventoried its operating and revenue
generating equipment to identify items that need to be upgraded or replaced and
has surveyed cable equipment manufacturers to determine which of their models
require upgrade or replacement to become Year 2000 compliant. Identification and
evaluation are essentially completed and a plan is being developed to remediate
non-compliant equipment prior to January 1, 2000. The Partnership expects to
complete its planning process by the end of 1998. Upgrade or replacement,
testing and implementation will be performed in 1999. The cost of such
replacement or remediation, currently estimated at $4,300, is not expected to
have a material effect on the Partnership's financial position or results of
operations. The Partnership has not incurred any costs related to the Year 2000
project as of September 30, 1998. The Partnership plans to inventory, assess,
replace and test equipment with embedded computer chips in a separate segment of
its project, presently scheduled for 1999.
The Partnership has continued to survey its significant third party
vendors and service suppliers to determine the extent to which the Partnership's
interface systems are vulnerable should those third parties fail to solve their
own Year 2000 problems on a timely basis. Among the most significant service
providers upon which the Partnership relies are programming suppliers, power and
telephone companies, various banking institutions and the Partnership's customer
billing service. A majority of these service suppliers either have not responded
to the Partnership's inquiries regarding their Year 2000 compliance programs or
have responded that they are unsure if they will become compliant on a timely
basis. Consequently, there can be no assurance that the systems of other
companies on which the Partnership must rely will be Year 2000 compliant on a
timely basis.
-14-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Partnership expects to develop a contingency plan in 1999 to
address possible situations in which various systems of the Partnership, or of
third parties with which the Partnership does business, are not compliant prior
to January 1, 2000. Considerable effort will be directed toward distinguishing
between those contingencies with a greater probability of occurring from those
whose occurrence is considered remote. Moreover, such a plan will necessarily
focus on systems whose failure poses a material risk to the Partnership's
results of operations and financial condition.
The Partnership's most significant Year 2000 risk is an interruption of
service to subscribers, resulting in a potentially material loss of revenues.
Other risks include impairment of the Partnership's ability to bill and/or
collect payment from its customers, which could negatively impact its liquidity
and cash flows. Such risks exist primarily due to technological operations
dependent upon third parties and to a much lesser extent to those under the
control of the Partnership. Failure to achieve Year 2000 readiness in either
area could have a material adverse impact on the Partnership. The Partnership is
unable to estimate the possible effect on its results of operations, liquidity
and financial condition should its significant service suppliers fail to
complete their readiness programs prior to the Year 2000. Depending on the
supplier, equipment malfunction or type of service provided, as well as the
location and duration of the problem, the effect could be material. For example,
if a cable programming supplier encounters an interruption of its signal due to
a Year 2000 satellite malfunction, the Partnership will be unable to provide the
signal to its cable subscribers, which could result in a loss of revenues. Due
to the number of individually owned and operated channels the Partnership
carries for its subscribers, and the packaging of those channels, the
Partnership is unable to estimate any reasonable dollar impact of such
interruption.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Cash provided by operating activities decreased by $246,700 in the
nine months ended September 30, 1998 from the corresponding period in 1997.
Changes in receivables and prepaid expenses provided $237,300 less cash in
the first nine months of 1998 primarily due to the collection of an insurance
claim in the first three months of 1997. Changes in accounts payable balances
provided $19,100 less cash in the first nine months of 1998 due to
differences in the timing of payments.
The Partnership used $82,000 more cash in investing activities during
the nine months ended September 30, 1998 than in the comparable nine months of
1997 due to increases of $78,500 in expenditures for tangible assets and $4,400
in spending for intangible assets. Financing activities used $640,300 less cash
in the first nine months of 1998 than in the comparable 1997 period. The
Partnership used $1,218,300 more cash in the first nine months of 1997 than in
the equivalent period of 1998 to pay past due balances for management fees and
reimbursed expenses owed to the Corporate General Partner and programming
expense owed to Cablevision. Additionally, the Partnership used $1,138,400 less
cash for the repayment of debt in the 1998 period and $33,600 less cash for
deferred loan costs related to its Facility with EFC. The Partnership borrowed
$1,750,000 under its Facility with EFC in the first nine months of 1997 as
compared with the first nine months of 1998 when the Partnership borrowed no
additional funds.
-15-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
INFLATION
Certain of the Partnership's expenses, such as those for equipment
repair and replacement, 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.
-16-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) None.
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
a GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 13, 1998 By: /s/ Michael K. Menerey
-------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30,1998, AND THE STATEMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 538,400
<SECURITIES> 0
<RECEIVABLES> 75,300
<ALLOWANCES> 2,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,195,300
<DEPRECIATION> 3,758,000
<TOTAL-ASSETS> 5,775,700
<CURRENT-LIABILITIES> 622,400
<BONDS> 1,600,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,775,700
<SALES> 0
<TOTAL-REVENUES> 2,275,900
<CGS> 0
<TOTAL-COSTS> 2,136,100
<OTHER-EXPENSES> 5,600
<LOSS-PROVISION> 51,500
<INTEREST-EXPENSE> 118,800
<INCOME-PRETAX> 15,400
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,400
<EPS-PRIMARY> 0.42
<EPS-DILUTED> 0
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