<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 March 31, 1999
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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
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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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, March 31,
1998 1999
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<S> <C> <C>
(Unaudited)
ASSETS:
Cash and cash equivalents $ 362,300 $ 325,600
Accounts receivable, less allowance of $1,900 and
$2,000 for possible losses 82,800 77,700
Prepaid expenses and other assets 64,100 161,100
Property, plant and equipment, less accumulated
depreciation and amortization of $3,409,900 and $4,137,300 3,508,100 3,681,900
Franchise cost, net of accumulated
amortization of $2,976,700 and $3,067,100 1,361,500 1,271,100
Intangible costs, net of accumulated amortization
$398,600 and $413,800 187,500 172,300
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$ 5,566,300 $ 5,689,700
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LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 193,100 $ 268,200
Due to affiliates 504,000 662,100
Note payable - affiliate 1,400,000 1,450,000
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TOTAL LIABILITIES 2,097,100 2,380,300
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COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (38,000) (39,600)
Limited partners 3,507,200 3,349,000
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TOTAL PARTNERSHIP CAPITAL 3,469,200 3,309,400
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$ 5,566,300 $ 5,689,700
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</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<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
March 31,
-------------------------------------
1998 1999
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<S> <C> <C>
REVENUES $ 753,600 $ 745,100
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OPERATING EXPENSES:
Service costs 259,100 271,700
General and administrative expenses 99,100 127,700
General Partner management fees
and reimbursed expenses 67,500 67,000
Depreciation and amortization 272,400 303,000
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698,100 769,400
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OPERATING INCOME (LOSS) 55,500 (24,300)
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OTHER INCOME (EXPENSE):
Interest income 3,100 3,700
Interest expense (41,100) (32,800)
Cost of potential sale of cable television systems - (106,400)
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(38,000) (135,500)
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NET INCOME (LOSS) $ 17,500 $ (159,800)
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Net income (loss) allocated to General Partners $ 200 $ (1,600)
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Net income (loss) allocated to Limited Partners $ 17,300 $ (158,200)
---------------- -----------------
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NET INCOME (LOSS) PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 0.47 $ (4.32)
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AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 36,626 36,626
---------------- -----------------
---------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
STATEMENTS OF CASH FLOWS
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----------------------------------------
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Three months ended
March 31,
-------------------------------------
<S> <C> <C>
1998 1999
---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 17,500 $ (159,800)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 272,400 303,000
Amortization of deferred loan costs 2,300 2,400
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other assets 26,600 (91,900)
Accounts payable (31,200) 75,100
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Net cash provided by operating activities 287,600 128,800
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (208,000) (373,600)
Increase in intangible assets (4,600) -
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Net cash used in investing activities (212,600) (373,600)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Due to affiliates 1,700 158,100
Borrowings from affiliate - 50,000
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Net cash provided by financing activities 1,700 208,100
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INCREASE (DECREASE) IN CASH 76,700 (36,700)
CASH AT BEGINNING OF PERIOD 304,800 362,300
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CASH AT END OF PERIOD $ 381,500 $ 325,600
---------------- -----------------
---------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<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
months ended March 31, 1999 and 1998 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 months ended March 31, 1999 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
$37,300 for the three months ended March 31, 1999.
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
$32,800 for the three months ended March 31, 1999. 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 $73,500 for the three months ended
March 31, 1999. 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.
-5-
<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)
Substantially all programming services have been purchased through FCLP.
FCLP, in the normal course of business, purchases cable programming services
from certain program suppliers owned in whole or in part by affiliates of an
entity that became a general partner of FCLP on September 30, 1998. Such
purchases of programming services are made on behalf of the Partnership and
the other partnerships managed by the Corporate General Partner as well as
for FCLP's own cable television operations. FCLP charges the Partnership for
these services 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 $161,000 for the three months ended March 31,
1999. Programming fees are included in service costs in the statements of
operations.
3. POTENTIAL SALE OF PARTNERSHIP ASSETS
The Partnership has concluded that it is not able to obtain the
appropriate amount of capital to make the necessary upgrades to its cable
systems. 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 in 1999. In addition, the Partnership is in the
process of negotiating the renewal of expired franchise agreements for two
other franchise areas served by the Villa Rica cable system and the
Partnership believes that the renewed franchise agreements may require the
Partnership to upgrade the cable system 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.
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
only has $1.1 million of availability under its $2.5 million revolving loan
facility and is limited by the partnership agreement to incur up to a maximum
of approximately $3.0 million of indebtedness. Consequently, even if the
Partnership used the approximately $1.1 million of existing availability
under its revolving loan facility and was able to obtain the additional
$500,000 of debt financing permitted under the terms of the partnership
agreement, the Partnership would still lack approximately $5.9 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, but concluded that sufficient debt
financing was not available. As a result, the Partnership 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 material closing
conditions and potential material purchase price adjustments. 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 material closing conditions and potential
material
-6-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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3. POTENTIAL SALE OF PARTNERSHIP ASSETS (CONTINUED)
purchase price adjustments. Subsequent to the Partnership's receipt of the
Initial Offers, the Partnership received an offer (the "Falcon Offer") from
certain affiliates of the Corporate General Partner and FCLP (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 Corporate 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,
dated November 6, 1998, and an Amendment to Asset Purchase Agreement, dated
as of March 30, 1999 (collectively, the "Purchase Agreement"), 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
Corporate 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, terminate and be liquidated.
After repayment of the Partnership's existing obligations, the Partnership
presently estimates that liquidating distributions to unitholders would total
approximately $227 per unit, less applicable taxes, if any. The sale requires
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
agreement and to the liquidation. On April 30, 1999, the Partnership mailed
to unitholders a consent solicitation statement seeking such consents.
Consents will be solicited until May 27, 1999 or until the date on which the
requisite consents are obtained, whichever occurs first (unless extended in
the sole discretion of the Corporate General Partner acting on behalf of the
Partnership).
Should the Falcon Offer be rejected by the unitholders, the Partnership
would need to amend the partnership agreement to seek additional sources of
capital, of which there can be no assurance, seek to renegotiate the
franchise agreements to delay the required rebuilds, or limit, to the extent
possible, the upgrade expenditures to those franchises with required
rebuilds. If the above actions are not sufficient to meet the Partnership's
franchise requirements, the Partnership would need to seek additional
potential buyers for its cable television systems.
As of December 31, 1998, the Partnership had incurred costs of
approximately $90,500 related to the proposed sale, which were expensed. The
Partnership incurred additional sale expenses of $106,400 during the first
three months of 1999.
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
-7-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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----------------------------------------
4. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST (CONTINUED)
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.
-8-
<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 ended the regulation of cable programming service tier rates
on March 31, 1999. 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, 1998 for additional
information regarding such matters and the effect thereof on the
Partnership's business.
RESULTS OF OPERATIONS
The Partnership's revenues decreased from $753,600 to $745,100, or by
1.1%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. Of the $8,500 decrease, $14,200 was due to
decreases in installation revenue, program rebates and other revenue
producing items. The decrease was partially offset by an increase of $5,700
due to increases in the number of subscriptions for basic and tier services.
As of March 31, 1999, the Partnership had approximately 7,500 basic
subscribers and 2,000 premium service units.
Service costs increased from $259,100 to $271,700, or by 4.9%, for the
three months ended March 31, 1999 as compared to the corresponding period in
1998. Service costs represent costs directly attributable to providing cable
services to customers. The increase was primarily due to increases in
programming fees resulting from higher rates charged by program suppliers.
General and administrative expenses increased from $99,100 to $127,700,
or by 28.9%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. The increase was primarily due to increases in
insurance premiums and professional fees, including audit and legal fees.
Management fees and reimbursed expenses decreased from $67,500 to
$67,000, or by less than 1.0%, for the three months ended March 31, 1999 as
compared to the corresponding period in 1998.
-9-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Management fees decreased in direct relation to decreased revenues as
described above. Reimbursed expenses remained relatively unchanged.
Depreciation and amortization expense increased from $272,400 to
$303,000, or by 11.2%, for the three months ended March 31, 1999 as compared
to the corresponding period in 1998. The increase was due to a reduction in
the remaining life of certain plant assets that must be replaced under a
provision of one of the Partnership's franchise agreements.
The Partnership recorded an operating loss of $24,300 for the three
months ended March 31, 1999 as compared to operating income of $55,500 for
the corresponding period in 1998. The decrease was primarily due to decreases
in revenues and increases in depreciation and amortization as described above.
Interest income increased from $3,100 to $3,700, or by 19.4%, for the
three months ended March 31, 1999 as compared to the corresponding period in
1998. The increase was primarily due to higher average cash balances
available for investment.
Interest expense decreased from $41,100 to $32,800, or by 20.2%, for the
three months ended March 31, 1999 as compared to the corresponding period in
1998. The decrease was primarily due to decreases in average borrowings.
As of March 31, 1999, the Partnership incurred expenses of $106,400 in
connection with the proposed sale of its cable television system assets.
Due to the factors described above, the Partnership recorded a net loss
of $159,800 for the three months ended March 31, 1999 as compared to net
income of $17,500 for the corresponding period in 1998.
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
decreased from 43.5% to 37.4% during the three months ended March 31, 1999
compared to the corresponding period in 1998. The decrease was primarily due
to decreases in revenues and increases in programming fees and general and
administrative expenses as described above. EBITDA decreased from $327,900 to
$278,700, or by 15.0%, during the three months ended March 31, 1999 as
compared to the corresponding period in 1998.
-10-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
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 in 1999. In addition, the
Partnership is in the process of negotiating the renewal of franchise
agreements for two other franchise areas served by the Villa Rica cable
system and the Partnership believes that the renewed franchise agreements may
require the Partnership to upgrade the cable system 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 $1.1 million of availability under its
$2.5 million revolving loan facility. In addition, the 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
$1.1 million of existing availability under its revolving loan facility and
was able to obtain the additional $500,000 of debt financing permitted under
the terms of the Partnership Agreement, the Partnership would still lack
approximately $5.9 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 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 material closing conditions and potential
material purchase price adjustments.
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, each Initial Offer was subject to material closing conditions and
potential material purchase price adjustments, and neither Initial Offer
constituted an
-11-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
offer to purchase all of the Partnership's cable systems. 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 Partnership's cable systems, 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, and an Amendment to Asset Purchase Agreement, dated as
of March 30, 1999, 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 Corporate 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, terminate 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 approximately $227 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.
One of the Partnership's franchise agreements in the Villa Rica cable
system requires the Partnership to have completed an upgrade to the cable
system by February 7, 1999 and the Partnership has not yet completed that
upgrade. Another of the Partnership's franchise agreements in the Villa Rica
system requires the Partnership to complete an upgrade to the cable system by
May 20, 1999 and the Partnership expects that it will not have completed an
upgrade by the required date. The Partnership has commenced each of the
upgrades and has not received any indication from either of the franchising
authorities that they intend to take any action adverse to the Partnership as
the result of the Partnership's noncompliance with the upgrade requirements
in the respective franchise agreements. There can be no assurance, however,
that the franchising authorities will not take action that is adverse to the
Partnership.
Should the Falcon Offer be rejected by the unitholders, the Partnership
would need to amend the partnership agreement to seek additional sources of
capital, of which there can be no assurance, seek to renegotiate the
franchise agreements to delay the required rebuilds, or limit, to the extent
possible, the upgrade expenditures to those franchises with required
rebuilds. If the above actions are not sufficient to meet the Partnership's
franchise requirements, the Partnership would need to seek additional
potential buyers for its cable television systems.
-12-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Partnership is party to a loan agreement with EFC. The loan
agreement provides for a revolving loan facility of $2,528,900 (the
"Facility"). The Partnership borrowed an additional $50,000 during the first
three months of 1999 such that total outstanding borrowings under the
Facility were $1,450,000 at March 31, 1999. 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 matures on August 31, 2001, at which time
amounts then outstanding are due in full. Borrowings bear interest at the
lender's base rate (7.75% at March 31, 1999) 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 and compliance with material terms of various
agreements. The Partnership believes it was in compliance with the covenants
as of March 31, 1999.
The Facility does not restrict the payment of distributions to partners
unless an event of default exists thereunder or the Partnership's 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 through 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. This balance 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 Corporate General Partner elected to
self-insure the Partnership's 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.
In October 1998, FCLP reinstated third party insurance coverage for all
of the cable television properties owned or managed by FCLP to cover damage
to cable distribution plant and subscriber connections and against business
interruptions resulting from such damage. This coverage is subject to a
significant annual deductible, which applies to all of the cable television
properties owned or managed by FCLP.
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
-13-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
appropriate for all other property, liability, automobile, workers'
compensation and other types of insurable risks.
During the first quarter of 1999, FCLP, on behalf of 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, FCLP 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. FCLP installed the new systems in the
first quarter of 1999. The total anticipated cost, including replacement
software and hardware, will be borne by FCLP. FCLP is continuing to utilize
internal and external resources to extend the functionality of the new
systems. FCLP does not believe that any other significant information
technology projects affecting the Partnership have been delayed due to
efforts to identify and address Year 2000 issues.
Additionally, FCLP has continued to inventory the Partnership's
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, while ongoing, are
substantially completed and a plan has been developed to remediate
non-compliant equipment prior to January 1, 2000. Upgrade or replacement,
testing and implementation will be performed over the remaining months of
1999. The cost of such replacement or remediation, currently estimated at
$34,400, is not expected to have a material effect on the Partnership's
financial position or results of operations. The Partnership had not incurred
any costs related to the Year 2000 project as of March 31, 1999. FCLP plans
to inventory, assess, replace and test equipment with embedded computer chips
in a separate segment of its project, presently scheduled for 1999.
FCLP has continued to survey the Partnership's 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. Approximately
80% of the Partnership's most critical equipment vendors have responded to
the surveys regarding the Year 2000 compliance of their products. Additional
compliance information has been obtained for specific products from vendor
Web sites. 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 FCLP'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.
FCLP is developing 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
-14-
<PAGE>
ENSTAR INCOME/GROWTH PROGRAM SIX-B, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
compliant prior to January 1, 2000. Considerable effort has been directed
toward distinguishing between those contingencies with a greater probability
of occurring from those whose occurrence is considered remote. Moreover, such
a plan has focused 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, although the Partnership would
attempt to provide its customers with alternative program services for the
period during which it could not provide the original signal. 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.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Operating activities provided $158,000 less cash in the three months
ended March 31, 1999 than in the corresponding period in 1998. Changes in
accounts receivable and prepaid expenses used $118,500 more cash in the first
three months of 1999 due to timing differences in the collection of
receivables and in the payment of prepaid expenses. Changes in accounts
payable balances provided $106,300 more cash in the first three months of
1999 due to differences in the timing of payments.
The Partnership used $161,000 more cash in investing activities during
the three months ended March 31, 1999 than in the comparable three months of
1998 due to an increase of $165,600 in expenditures for tangible assets,
partially offset by a $4,600 decrease in spending for intangible assets.
Financing activities provided $206,400 more cash in the first three months of
1999 than in the equivalent period of 1998. Changes in liabilities owed to
the Corporate General Partner and other affiliates provided $156,400 more
cash in the first quarter of 1999 due to differences in the timing of
payments. The Partnership borrowed $50,000 under its Facility with EFC in the
first three months of 1999 as compared with the first three months of 1998
when the Partnership did not borrow 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) Amendment to Asset Purchase Agreement, dated as of
March 30, 1999, among the Partnership, Falcon
Cablevision, a California Limited Partnership, and
Falcon Telecable, a California Limited Partnership
(incorporated herein by reference to Exhibit B to the
Partnership's Consent Solicitation Statement on
Schedule 14A, filed on April 30, 1999).
(b) The Registrant filed a Form 8-K dated February 24,
1999, in which it reported under Item 5 that an
unsolicited offer to purchase partnership units had
been made without the consent of the Corporate General
Partner.
-17-
<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: May 14, 1999 By: /s/ Michael K. Menerey
-------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
-18-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 325,600
<SECURITIES> 0
<RECEIVABLES> 79,700
<ALLOWANCES> 2,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,819,200
<DEPRECIATION> 4,137,300
<TOTAL-ASSETS> 5,689,700
<CURRENT-LIABILITIES> 930,300
<BONDS> 1,450,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,689,700
<SALES> 0
<TOTAL-REVENUES> 745,100
<CGS> 0
<TOTAL-COSTS> 769,400
<OTHER-EXPENSES> 102,700
<LOSS-PROVISION> 17,600
<INTEREST-EXPENSE> 32,800
<INCOME-PRETAX> (159,800)
<INCOME-TAX> 0
<INCOME-CONTINUING> (159,800)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (159,800)
<EPS-PRIMARY> (4.32)
<EPS-DILUTED> 0
</TABLE>
