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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
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 0-13333
ENSTAR INCOME PROGRAM 1984-1,L.P.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1581136
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12444 Powerscourt Dr., Suite 100
St. Louis, Missouri 63131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 965-0555
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Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act
Name of each exchange
Title of each Class on which registered
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Units of Limited Partnership Interest None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting equity securities held
by non-affiliates of the registrant - 29,935 of the registrant's 29,940 units of
limited partnership interests, its only class of equity securities, are held by
non-affiliates. There is no public trading market for the units, and transfers
of units are subject to certain restrictions; accordingly, the registrant is
unable to state the market value of the units held by non-affiliates.
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The Exhibit Index is located at Page E-1.
PART I
Item 1. BUSINESS
Introduction
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Enstar Income Program 1984-1, L.P., a Georgia limited
partnership, is engaged in the ownership and operation of cable television
systems in small to medium-sized communities. The partnership was formed on
December 12, 1983. The general partner of the partnership is Enstar
Communications Corporation, a Georgia corporation. On November 12, 1999, Charter
Communications Holdings Company, LLC, an entity controlled by Charter
Communications, Inc., acquired both the general partner, as well as Falcon
Communications, L.P., the entity that provided management and certain other
services to the partnership. Charter is the nation's fourth largest cable
operator, serving 6.2 million customers and files periodic reports with the
Securities and Exchange Commission. Charter and its affiliates (principally CC
VII Holdings, LLC, the successor-by-merger to Falcon Communications, L.P.) now
provide management and other services to the partnership. See Item 13., "Certain
Relationships and Related Transactions." See "Employees" below. In this annual
report, the terms "we" and "our" refer to the partnership.
In accordance with the partnership agreement, the general
partner has implemented a plan for liquidating the partnership. In connection
with that strategy, the general partner has entered into an agreement with a
cable broker to market the partnership's cable systems to third parties. Should
the partnership receive offers from third parties for such assets, the general
partner will prepare a proxy for submission to the limited partners for the
purpose of approving or disapproving such sale. Should such a sale be approved,
the general partner will proceed to liquidate the partnership following the
settlement of its final liabilities. We can give no assurance, however, that we
will be able to generate a sale of the partnership's cable assets. On May 27,
1999, the general partner signed a non-binding letter of intent to sell the
partnership's cable system in Kershaw, South Carolina to Catawba Services, Inc.
but the parties have yet to reach a definitive agreement regarding the sale.
A cable television system receives television, radio and data
signals at the system's "headend" site by means of over-the-air antennas,
microwave relay systems and satellite earth stations. These signals are then
modulated, amplified and distributed, primarily through coaxial and fiber optic
distribution systems, to customers who pay a fee for this service. Cable
television systems may also originate their own television programming and other
information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to non-exclusive
franchises or similar licenses granted by local governmental authorities for a
specified term of years.
Our cable television systems offer customers various levels,
or "tiers", of cable services consisting of:
* broadcast television signals of local network, independent and educational
stations
* a limited number of television signals from so-called "super stations"
originating from distant cities, such as WGN
* various satellite - delivered, non-broadcast channels, such as
- Cable News Network, or "CNN"
- MTV: Music Television, or "MTV"
- The USA Network
- ESPN
- Turner Network Television, or "TNT" and
- The Disney Channel
* programming originated locally by the cable television system, such as
public, educational and government access programs, and
* information displays featuring news, weather, stock market and financial
reports, and public service announcements.
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For an extra monthly charge, our cable television systems also
offer "premium" television services to their customers. These services, such as
Home Box Office, or "HBO", and Showtime are satellite channels that consist
principally of feature films, live sporting events, concerts and other special
entertainment features, usually presented without commercial interruption. See
"Legislation and Regulation."
A customer generally pays an initial installation charge and
fixed monthly fees for basic, expanded basic, other tiers of satellite services
and premium programming services. Such monthly service fees constitute the
primary source of revenues for our cable television systems. In addition to
customer revenues, our cable television systems receive revenue from the sale of
available advertising spots on advertiser-supported programming and also offer
to our customers home shopping services, which pay the partnership a share of
revenues from sales of products to our customers, in addition to paying us a
separate fee in return for carrying their shopping service. Certain other
channels have also offered the cable systems managed by Charter, including those
of the partnership, fees in return for carrying their service. Due to a general
lack of channel capacity available for adding new channels, our management
cannot predict the impact of such potential payments on our business. See Item
7., "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
We began our cable television business operations in 1984 with
the acquisition of several cable television systems and expanded our operations
in 1985 with additional system acquisitions. We sold some of our cable
television systems during 1986 and 1987. As of December 31, 1999, we offered
cable service in South Carolina, North Carolina and Tennessee. The two South
Carolina systems are located in and around the cities of Kershaw, in Lancaster
County, and River Hills, in York County. Our North Carolina system serves
portions of Greene County, including the municipalities of Grifton, Snow Hill,
Hookerton and Walstonburg. The three Tennessee systems cover portions of the
municipalities of Covington, Bolivar, Brownsville and Burlison. As of December
31, 1999, we served approximately 10,800 basic subscribers in these areas. We do
not expect to make any additional acquisitions during the remaining term of the
partnership.
Charter receives a management fee and reimbursement of
expenses from the general partner for managing our cable television operations.
See Item 11., "Executive Compensation."
The Chief Executive Officer of the general partner is Jerald
L. Kent. The principal executive offices of the partnership and the general
partner are located at 12444 Powerscourt Drive, Suite 100, St. Louis, MO
63131-0555 and their telephone number is (314) 965-0555. See Item 10.,
"Directors and Executive Officers of the Registrant."
BUSINESS STRATEGY
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Historically, the partnership has followed a systematic
approach to acquiring, operating and developing cable television systems based
on the primary goal of increasing operating cash flow while maintaining the
quality of services offered by its cable television systems. Our business
strategy has focused on serving small to medium-sized communities. We believe
that given a similar rate, technical, and channel capacity/utilization profile,
our cable television systems generally involve less risk of increased
competition than systems in large urban cities. In our markets, consumers have
access to only a limited number of over-the-air broadcast television signals. In
addition, these markets typically offer fewer competing entertainment
alternatives than large cities. Nonetheless, we believe that all cable operators
will face increased competition in the future from alternative providers of
multi-channel video programming services. See "Competition."
Adoption of rules implementing certain provisions of the Cable
Television Consumer Protection and Competition Act of 1992 by the FCC has had a
negative impact on our revenues and cash flow. These rules are subject to
further amendment to give effect to the Telecommunications Act of 1996. Among
other changes, the Telecommunications Act of 1996 caused the regulation of
certain cable programming service tier rates to terminate 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 their effect on our
business. See "Legislation and Regulation" and Item 7., "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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Clustering
We have sought to acquire cable television operations in
communities that are proximate to other owned or affiliated systems in order to
achieve the economies of scale and operating efficiencies associated with
regional "clusters." We believe clustering can reduce marketing and personnel
costs and can also reduce capital expenditures in cases where cable service can
be delivered through a central headend reception facility.
Capital Expenditures
As noted in "Technological Developments," certain of our cable
television systems have no available channel capacity with which to add new
channels or to provide pay-per-view offerings to customers. As a result, in the
event we are not able to sell our cable television systems to a third party,
significant amounts of capital for future upgrades will be required in order to
increase available channel capacity in those systems, improve quality of service
and facilitate the expansion of new services such as advertising, pay-per-view,
new unregulated tiers of satellite-delivered services and home shopping, so that
our cable television systems remain competitive within the industry.
Our management has selected a technical standard that
incorporates the use of fiber optic technology where applicable in its
engineering design for the majority of our cable television systems that are to
be rebuilt. A system built with this type of architecture can provide for future
channels of analog service as well as new digital services. Such a system will
also permit the introduction of high speed data transmission/Internet access and
telephony services in the future after incurring incremental capital
expenditures related to these services. We are also evaluating the use of
digital compression technology in our cable television systems. See
"Technological Developments" and "Digital Compression."
As discussed in prior reports, we postponed a number of
rebuild and upgrade projects because of the uncertainty related to
implementation of the 1992 Cable Act and the negative impact thereof on the
partnership's business and access to capital. As a result, our cable television
systems are significantly less technically advanced than had been expected prior
to the implementation of reregulation. The partnership is party to a loan
agreement with an affiliate which provided for a revolving loan facility of
$7,481,700. Upon the acquisition of the general partner by Charter on November
12, 1999, the facility was reduced to $4.8 million. Prior to listing our cable
television systems for sale, we had expected to use borrowings under the loan
facility to upgrade our cable television systems. Our upgrade program, in the
event we are not able to sell our cable television systems to a third party, is
presently estimated to require aggregate capital expenditures of approximately
$8,300,000 and covers 12 franchise areas. These upgrades are currently required
in six existing franchise agreements covering eight franchise areas. The
upgrades required by the six existing franchise agreements are estimated to cost
approximately $4.4 million and must be completed by June 2000, December 2001 and
February 2002, and will most likely negatively impact any offers we receive for
our cable television systems. See "Digital Compression," "Legislation and
Regulation" and Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
Decentralized Management
The general partner manages the partnership's cable television
systems on a decentralized basis. The general partner believes that its
decentralized management structure, by enhancing management presence at the
system level, increases its sensitivity to the needs of its customers, enhances
the effectiveness of its customer service efforts, eliminates the need for
maintaining a large centralized corporate staff and facilitates the maintenance
of good relations with local governmental authorities.
Marketing
Our marketing strategy is to provide added value to increasing
levels of subscription services through "packaging." In addition to the basic
service package, customers in substantially all of our cable television systems
may purchase additional unregulated
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packages of satellite-delivered services and premium services. We have employed
a variety of targeted marketing techniques to attract new customers by focusing
on delivering value, choice, convenience and quality. We employ direct mail,
radio and local newspaper advertising, telemarketing and door-to-door selling
utilizing demographic "cluster codes" to target specific messages to target
audiences. In some cable television systems, we offer discounts to customers who
purchase premium services on a limited trial basis in order to encourage a
higher level of service subscription. We also have a coordinated strategy for
retaining customers that includes televised retention advertising to reinforce
the initial decision to subscribe and encourage customers to purchase higher
service levels.
Customer Service and Community Relations
We place a strong emphasis on customer service and community
relations and believe that success in these areas is critical to our business.
We have developed and implemented a wide range of monthly internal training
programs for employees, including our regional managers, that focus on our
operations and employee interaction with customers. The effectiveness of our
training program as it relates to the employees' interaction with customers is
monitored on an ongoing basis. We are also committed to fostering strong
community relations in the towns and cities we serve. We support many local
charities and community causes in various ways, including marketing promotions
to raise money and supplies for persons in need, and in-kind donations that
include production services and free air-time on major cable networks. We also
participate in the "Cable in the Classroom" program, whereby cable television
companies throughout the United States provide schools with free cable
television service. In addition, we install and provide free basic cable service
to public schools, government buildings and non-profit hospitals in many of the
communities in which we operate.
DESCRIPTION OF THE PARTNERSHIP'S SYSTEMS
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The table below sets forth operating statistics for our cable
television systems as of December 31, 1999.
Premium Average Monthly
Homes Basic Basic Service Premium Revenue Per Basic
System Passed(1) Subscribers Penetration(2) Units(3) Penetration(4) Subscriber(5)
- ------ ------ ----------- ----------- ----- ----------- ----------
Snow Hill, NC 5,888 1,523 25.9% 526 34.5% $38.92
Kershaw, SC 4,335 2,269 52.3% 919 40.5% $37.42
Brownsville, TN 15,592 6,593 42.3% 2,763 41.9% $41.18
------ ----- -----
Total 25,815 10,385 40.2% 4,208 40.5% $40.04
====== ====== =====
1 Homes passed refers to our estimates of the approximate number of
dwelling units in a particular community that can be connected to the
distribution system without any further extension of principal transmission
lines. Such estimates are based upon a variety of sources, including billing
records, house counts, city directories and other local sources.
2 Basic subscribers as a percentage of homes passed by cable.
3 Premium service units include only single channel services offered
for a monthly fee per channel and do not include tiers of channels offered as a
package for a single monthly fee.
4 Premium service units as a percentage of homes subscribing to cable
service. A customer may purchase more than one premium service, each of which is
counted as a separate premium service unit. This ratio may be greater than 100%
if the average customer subscribes for more than one premium service.
5 Average monthly revenue per basic subscriber has been computed based
on revenue for the year ended December 31, 1999.
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Customer Rates and Services
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Our cable television systems offer customers packages of
services that include the local area network, independent and educational
television stations, a limited number of television signals from distant cities,
numerous satellite-delivered, non-broadcast channels such as CNN, MTV, USA,
ESPN, TNT and The Disney Channel and certain information and public access
channels. For an extra monthly charge, we also provide certain premium
television services, such as HBO and Showtime. We also offer other cable
television services to our customers. For additional charges, in most of our
cable television systems, we also rent remote control devices and VCR compatible
devices, which are devices that make it easier for a customer to tape a program
from one channel while watching a program on another.
Our service options vary from system to system, depending upon
a cable system's channel capacity and viewer interests. Rates for services also
vary from market to market and according to the type of services selected.
Under the 1992 Cable Act, most cable television systems are
subject to rate regulation of the basic service tier, the charges for
installation of cable service, and the rental rates for customer premises
equipment such as converter boxes and remote control devices. These rate
regulation provisions affect all of our cable television systems not deemed to
be subject to effective competition under the FCC's definition. Currently, none
of our cable television systems are subject to effective competition. See
"Legislation and Regulation."
At December 31, 1999, our monthly rates for basic cable
service for residential customers, including certain discounted rates, ranged
from $21.05 to $26.75 and our premium service rate was $11.95, excluding special
promotions offered periodically in conjunction with our marketing programs. A
one-time installation fee, which we may wholly or partially waive during a
promotional period, is usually charged to new customers. We charge commercial
customers, such as hotels, motels and hospitals, a negotiated, non-recurring fee
for installation of service and monthly fees based upon a standard discounting
procedure. We offer most multi-unit dwellings a negotiated bulk rate in exchange
for single-point billing and basic service to all units. These rates are also
subject to regulation.
Employees
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The various personnel required to operate our business are
employed by the partnership, the general partner, its subsidiary corporation and
Charter. As of February 19, 2000, we had nine employees, the cost of which is
charged directly to the partnership. The employment costs incurred by the
general partner, its subsidiary corporation and Charter are allocated and
charged to the partnership for reimbursement pursuant to the partnership
agreement and management agreement. Other personnel required to operate our
business are employed by affiliates of the general partner. The cost of such
employment is allocated and charged to the partnership. The amounts of these
reimbursable costs are set forth below in Item 11., "Executive Compensation."
Technological Developments
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As part of our commitment to customer service, we seek to
apply technological advances in the cable television industry to our cable
television systems on the basis of cost effectiveness, capital availability,
enhancement of product quality and service delivery and industry-wide
acceptance. Currently, our cable television systems have an average channel
capacity of 38, which was 96% utilized at December 31, 1999. We believe that
system upgrades would enable us to provide customers with greater programming
diversity, better picture quality and alternative communications delivery
systems made possible by the introduction of fiber optic technology and by the
application of digital compression. See "Business Strategy - Capital
Expenditures," "Legislation and Regulation" and Item 7., "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The use of fiber optic cable as an alternative to coaxial
cable is playing a major role in expanding channel capacity and improving the
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performance of cable television systems. Fiber optic cable is capable of
carrying hundreds of video, data and voice channels and, accordingly, its
utilization is essential to the enhancement of a cable television system's
technical capabilities. Our current policy is to utilize fiber optic technology
where applicable in rebuild projects which we undertake. The benefits of fiber
optic technology over traditional coaxial cable distribution plant include lower
ongoing maintenance and power costs and improved picture quality and
reliability.
Digital Compression
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We have been closely monitoring developments in the area of
digital compression, a technology that enables cable operators to increase the
channel capacity of cable television systems by permitting a significantly
increased number of video signals to fit in a cable television system's existing
bandwidth. Depending on the technical characteristics of the existing system, we
believe that the utilization of digital compression technology will enable our
cable television systems to increase channel capacity in a manner that could, in
the short term, be more cost efficient than rebuilding such cable television
systems with higher capacity distribution plant. However, we believe that unless
the cable television system has sufficient unused channel capacity and
bandwidth, the use of digital compression to increase channel offerings is not a
substitute for the rebuild of the cable television system, which will improve
picture quality, system reliability and quality of service. The use of digital
compression will expand the number and types of services these cable television
systems offer and enhance the development of current and future revenue sources.
This technology has been under frequent management review.
Programming
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We purchase basic and premium programming for our systems from
Charter. In turn, Charter charges the partnership for these costs at its costs,
which are generally based on a fixed fee per customer or a percentage of the
gross receipts for the particular service. Prior to the acquisition of the
general partner, Falcon Communications charged the partnership for these
services based on an estimate of what the general partner could negotiate for
such programming services for the 15 partnerships managed by the general partner
as a group (approximately 81,100 basic subscribers at December 31, 1999). Other
channels have also offered Charter and the partnership's cable television
systems fees in return for carrying their service. Due to a lack of channel
capacity available for adding new channels, our management cannot predict the
impact of such potential payments on our business. In addition, the FCC may
require that such payments from programmers be offset against the programming
fee increases which can be passed through to subscribers under the FCC's rate
regulations. Charter's programming contracts are generally for a fixed period of
time and are subject to negotiated renewal. Accordingly, no assurance can be
given that its, and correspondingly our programming costs will not increase
substantially in the near future, or that other materially adverse terms will
not be added to Charter's programming contracts. Management believes, however,
that Charter's relations with its programming suppliers generally are good.
Our cable programming costs have increased in recent years and
are expected to continue to increase due to additional programming being
provided to basic customers, requirements to carry channels under retransmission
carriage agreements entered into with some programming sources, increased costs
to produce or purchase cable programming generally (including sports
programming), inflationary increases and other factors. The 1996 retransmission
carriage agreement negotiations resulted in the partnership agreeing to carry
one new service in our Brownsville and Kershaw systems, for which we expect to
receive reimbursement of some costs related to launching the service. All other
negotiations were completed with essentially no change to the previous
agreements. Under the FCC's rate regulations, increases in programming costs for
regulated cable services occurring after the earlier of March 1, 1994, or the
date a system's basic cable service became regulated, may be passed through to
customers. Generally, programming costs are charged among systems on a per
customer basis.
Franchises
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Cable television systems are generally constructed and
operated under non-exclusive franchises granted by local governmental
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authorities. These franchises typically contain many conditions, such as time
limitations on commencement and completion of construction; conditions of
service, including number of channels, types of programming and the provision of
free service to schools and other public institutions; and the maintenance of
insurance and indemnity bonds. The provisions of local franchises are subject to
federal regulation under the Cable Communications Policy Act of 1984, or the
"1984 Cable Act", the 1992 Cable Act and the 1996 Telecommunications Act.
See "Legislation and Regulation."
As of December 31, 1999, we operated cable systems in 22
franchise areas. These franchises, all of which are non-exclusive, provide for
the payment of fees to the issuing authority. Annual franchise fees imposed on
our systems range up to 5% of the gross revenues generated by a system. The 1984
Cable Act prohibits franchising authorities from imposing franchise fees in
excess of 5% of gross revenues and also permits the cable system operator to
seek renegotiation and modification of franchise requirements if warranted by
changed circumstances.
The following table groups the franchises of our cable
television systems by date of expiration and presents the number of franchises
for each group of franchises and the approximate number and percentage of basic
subscribers for each group as of December 31, 1999.
Number of Percentage of
Year of Number of Basic Basic
Franchise Expiration Franchises Subscribers Subscribers
-------------------- ---------- ----------- -----------
Prior to 2001 4 5,561 53.6%
2001 - 2005 8 1,697 16.3%
2006 and after 10 3,127 30.1%
-- -----
Total 22 10,385 100%
== ======
As of December 31, 1999, the franchise agreements have expired
in four of our franchise areas where we serve 5,561 basic subscribers. We
continue to serve these customers while we are in negotiations to extend the
franchise agreements and continue to pay franchise fees to the franchise
authorities. We operate cable television systems which serve multiple
communities. As of December 31, 1999, all areas were served by franchises. In
certain instances, where a single franchise comprises a large percentage of the
customers in an operating region, the loss of such franchise could decrease the
economies of scale achieved by our clustering strategy. We have never had a
franchise revoked for any of our systems and we believe that we have
satisfactory relationships with substantially all of our franchising
authorities.
The city of Covington, Tennessee rejected the partnership's
franchise renewal proposal in June 1999. The franchise agreement with the city
expired in 1994 and we have continued to operate our cable system there and pay
franchise fees to the city. In March 2000, Charter submitted another proposal to
the city on behalf of the partnership. The city is currently reviewing the
proposed terms against a competing proposal to award the franchise to a
municipal utility. There can be no assurance that the city will accept the
Charter proposal. Should the city revoke our right to operate our system in
Covington, an event of default may be declared under the partnership's loan
facility which would require the partnership to identify alternative sources of
financing, and the loss of subscribers would have a significant adverse impact
on the partnership's financial condition and results of operations.
In January 2000, the franchise authority in Bolivar, Tennessee
authorized its municipal utility to construct and operate a competing cable
system in that franchise area. Our franchise agreement with the city expired in
1995. As we have in Covington, the partnership has continued to operate its
cable system in Bolivar and pay franchise fees to the franchise authority.
Although the municipal utility has not obtained funds to build a cable system,
we believe that if a competing system were built, the loss of subscribers would
have an adverse impact on the partnership's financial condition and results of
operations. As in Covington, the loss of the franchise in Bolivar could be
considered an event of default under the partnership's loan facility, which
would require the partnership to identify alternative sources of financing. As
of December 31, 1999, there were 1,761 and 1,279 basic subscribers in the cities
of Covington and Bolivar, respectively.
The 1984 Cable Act provides, among other things, for an
orderly franchise renewal process in which franchise renewal will not be
unreasonably withheld or, if renewal is denied and the franchising authority
acquires ownership of the system or effects a transfer of the system to another
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person, the operator generally is entitled to the "fair market value" for the
system covered by such franchise, but no value may be attributed to the
franchise itself. In addition, the 1984 Cable Act, as amended by the 1992 Cable
Act, establishes comprehensive renewal procedures which require that an
incumbent franchisee's renewal application be assessed on its own merit and not
as part of a comparative process with competing applications. See "Legislation
and Regulation."
Competition
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We face competition in the areas of price, service offerings,
and service reliability. We compete with other providers of television signals
and other sources of home entertainment. In addition, as we expand into
additional services such as Internet access, interactive services and telephony,
we will face competition from other providers of each type of service.
To date, we believe that we have not lost a significant number
of customers, or a significant amount of revenue, to our competitors' systems.
However, competition from other providers of the technologies we expect to offer
in the future may have a negative impact on our business in the future.
Through mergers such as the recent merger of
Tele-Communications, Inc. and AT&T, customers will come to expect a variety of
services from a single provider. While the TCI/AT&T merger has no direct or
immediate impact on our business, it encourages providers of cable and
telecommunications services to expand their service offerings. It also
encourages consolidation in the cable industry as cable operators recognize the
competitive benefits of a large customer base and expanded financial resources.
Key competitors today include:
BROADCAST TELEVISION. Cable television has long competed with
broadcast television, which consists of television signals that the viewer is
able to receive without charge using an "off-air" antenna. The extent of such
competition is dependent upon the quality and quantity of broadcast signals
available through "off-air" reception compared to the services provided by the
local cable system. The recent licensing of digital spectrum by the FCC will
provide incumbent television licenses with the ability to deliver high
definition television pictures and multiple digital-quality program streams, as
well as advanced digital services such as subscription video.
DBS. Direct broadcast satellite, known as DBS, has emerged as
significant competition to cable systems. The DBS industry has grown rapidly
over the last several years, far exceeding the growth rate of the cable
television industry, and now serves approximately 10 million subscribers
nationwide. DBS service allows the subscriber to receive video services directly
via satellite using a relatively small dish antenna. Moreover, video compression
technology allows DBS providers to offer more than 100 digital channels, thereby
surpassing the typical analog cable system. DBS companies historically were
prohibited from retransmitting popular local broadcast programming, but a change
to the existing copyright laws in November 1999 eliminated this legal
impediment. After an initial six-month grace period, DBS companies will need to
secure retransmission consent from the popular broadcast stations they wish to
carry, and they will face mandatory carriage obligations of less popular
broadcast stations as of January 2002. In response to the legislation, DirecTV,
Inc. and EchoStar Communications Corporation already have initiated plans to
carry the major network stations in the nation's top television markets. DBS,
however, is limited in the local programming it can provide because of the
current capacity limitations of satellite technology. It is, therefore, expected
that DBS companies will offer local broadcast programming only in the larger
U.S. markets for the foreseeable future. The same legislation providing for DBS
carriage of local broadcast stations reduced the compulsory copyright fees paid
by DBS companies and allows them to continue offering distant network signals to
rural customers. America Online Inc., the nation's leading provider of Internet
services has recently announced a plan to invest $1.5 billion in Hughes
Electronics Corp., DirecTV's parent company, and these companies intend to
jointly market America Online's prospective Internet television service to
DirecTV's DBS customers.
DSL. The deployment of digital subscriber line technology,
known as DSL, will allow Internet access to subscribers at data transmission
speeds greater than those of modems over conventional telephone lines. Several
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telephone companies and other companies are introducing DSL service. The FCC
recently released an order in which it mandated that incumbent telephone
companies grant access to the high frequency portion of the local loop over
which they provide voice services. This will enable competitive carriers to
provide DSL services over the same telephone lines simultaneously used by
incumbent telephone companies to provide basic telephone service. However, in a
separate order the FCC declined to mandate that incumbent telephone companies
unbundle their internal packet switching functionality or related equipment for
the benefit of competitive carriers. This functionality or equipment could
otherwise have been used by competitive carriers directly to provide DSL or
other high-speed broadband services. We are unable to predict whether the FCC's
decisions will be sustained upon administrative or judicial appeal, the
likelihood of success of the Internet access offered by our competitors or the
impact on our business and operations of these competitive ventures.
TRADITIONAL OVERBUILDS. Cable television systems are operated
under non-exclusive franchises granted by local authorities. More than one cable
system may legally be built in the same area. It is possible that a franchising
authority might grant a second franchise to another cable operator and that
franchise might contain terms and conditions more favorable than those afforded
us. In addition, entities willing to establish an open video system, under which
they offer unaffiliated programmers non-discriminatory access to a portion of
the system's cable system may be able to avoid local franchising requirements.
Well financed businesses from outside the cable industry, such as public
utilities which already possess fiber optic and other transmission lines in the
areas they serve may over time become competitors. There has been a recent
increase in the number of cities that have constructed their own cable systems,
in a manner similar to city-provided utility services. Constructing a competing
cable system is a capital intensive process which involves a high degree of
risk. We believe that in order to be successful, a competitor's overbuild would
need to be able to serve the homes and businesses in the overbuilt area on a
more cost-effective basis than us. Any such overbuild operation would require
either significant access to capital or access to facilities already in place
that are capable of delivering cable television programming.
TELEPHONE COMPANIES AND UTILITIES. The competitive environment
has been significantly affected by both technological developments and
regulatory changes enacted in the 1996 Telecommunications Act, which were
designed to enhance competition in the cable television and local telephone
markets. Federal cross-ownership restrictions historically limited entry by
local telephone companies into the cable television business. The 1996
Telecommunications Act modified this cross-ownership restriction, making it
possible for local exchange carriers who have considerable resources to provide
a wide variety of video services competitive with services offered by cable
systems.
If we expand our offerings to include Internet and other
telecommunications services, we will be subject to competition from other
telecommunications providers. The telecommunications industry is highly
competitive and includes competitors with greater financial and personnel
resources, who have brand name recognition and long-standing relationships with
regulatory authorities. Moreover, mergers, joint ventures and alliances among
franchise, wireless or private cable television operators, local exchange
carriers and others may result in providers capable of offering cable
television, Internet, and telecommunications services in direct competition with
us.
Several telephone companies have obtained or are seeking cable
television franchises from local governmental authorities and are constructing
cable systems. Cross-subsidization by local exchange carriers of video and
telephony services poses a strategic advantage over cable operators seeking to
compete with local exchange carriers that provide video services. Some local
exchange carriers may choose to make broadband services available under the open
video regulatory framework of the FCC. In addition, local exchange carriers
provide facilities for the transmission and distribution of voice and data
services, including Internet services, in competition with our existing or
potential interactive services ventures and businesses, including Internet
service, as well as data and other non-video services. We cannot predict the
likelihood of success of the broadband services offered by our competitors or
the impact on us of such competitive ventures. The entry of telephone companies
as direct competitors in the video marketplace, however, is likely to become
more widespread and could adversely affect the profitability and valuation of
the systems.
-10-
Additionally, we are subject to competition from utilities
which possess fiber optic transmission lines capable of transmitting signals
with minimal signal distortion.
SMATV. Additional competition is posed by satellite master
antenna television systems known as "SMATV systems" serving multiple dwelling
units, referred to in the cable industry as "MDU's", such as condominiums,
apartment complexes, and private residential communities. These private cable
systems may enter into exclusive agreements with such MDUs, which may preclude
operators of franchise systems from serving residents of such private complexes.
Such private cable systems can offer both improved reception of local television
stations and many of the same satellite-delivered program services which are
offered by cable systems. SMATV systems currently benefit from operating
advantages not available to franchised cable systems, including fewer regulatory
burdens and no requirement to service low density or economically depressed
communities. Exemption from regulation may provide a competitive advantage to
certain of our current and potential competitors.
WIRELESS DISTRIBUTION. Cable television systems also compete
with wireless program distribution services such as multi-channel multipoint
distribution systems or "wireless cable", known as MMDS. MMDS uses low-power
microwave frequencies to transmit television programming over-the-air to paying
customers. Wireless distribution services generally provide many of the
programming services provided by cable systems, and digital compression
technology is likely to increase significantly the channel capacity of their
systems. Both analog and digital MMDS services require unobstructed "line of
sight" transmission paths.
-11-
LEGISLATION AND REGULATION
The following summary addresses the key regulatory
developments and legislation affecting the cable television industry.
The operation of a cable system is extensively regulated by
the FCC, some state governments and most local governments. The 1996
Telecommunications Act has altered the regulatory structure governing the
nation's communications providers. It removes barriers to competition in both
the cable television market and the local telephone market. Among other things,
it also reduces the scope of cable rate regulation and encourages additional
competition in the video programming industry by allowing local telephone
companies to provide video programming in their own telephone service areas.
The 1996 Telecommunications Act requires the FCC to undertake
a host of implementing rulemakings. Moreover, Congress and the FCC have
frequently revisited the subject of cable regulation. Future legislative and
regulatory changes could adversely affect our operations, and there have been
calls in Congress and at the FCC to maintain or even tighten cable regulation in
the absence of widespread effective competition.
CABLE RATE REGULATION. The 1992 Cable Act imposed an extensive
rate regulation regime on the cable television industry, which limited the
ability of cable companies to increase subscriber fees. Under that regime, all
cable systems are subject to rate regulation, unless they face "effective
competition" in their local franchise area. Federal law now defines "effective
competition" on a community-specific basis as requiring satisfaction of
conditions rarely satisfied in the current marketplace.
Although the FCC has established the underlying regulatory
scheme, local government units, commonly referred to as local franchising
authorities, are primarily responsible for administering the regulation of the
lowest level of cable--the basic service tier, which typically contains local
broadcast stations and public, educational, and government access channels.
Before a local franchising authority begins basic service rate regulation, it
must certify to the FCC that it will follow applicable federal rules. Many local
franchising authorities have voluntarily declined to exercise their authority to
regulate basic service rates. Local franchising authorities also have primary
responsibility for regulating cable equipment rates. Under federal law, charges
for various types of cable equipment must be unbundled from each other and from
monthly charges for programming services.
As of December 31, 1999, approximately 35% of our local
franchising authorities were certified to regulate basic tier rates. The 1992
Cable Act permits communities to certify and regulate rates at any time, so that
it is possible that additional localities served by the systems may choose to
certify and regulate rates in the future.
The FCC historically administered rate regulation of cable
programming service tiers, which is the expanded basic programming package that
offers services other than basic programming and which typically contains
satellite-delivered programming. As of December 31, 1999, we had no cable
programming service tier rate complaints pending at the FCC. Under the 1996
Telecommunications Act, however, the FCC's authority to regulate cable
programming service tier rates terminated on March 31, 1999. The FCC has taken
the position that it will still adjudicate pending cable programming service
tier complaints but will strictly limit its review, and possible refund orders,
to the time period predating the termination date. The elimination of cable
programming service tier regulation on a prospective basis affords us
substantially greater pricing flexibility.
Under the rate regulations of the FCC, most cable systems were
required to reduce their basic service tier and cable programming service tier
rates in 1993 and 1994, and have since had their rate increases governed by a
complicated price cap scheme that allows for the recovery of inflation and
certain increased costs, as well as providing some incentive for expanding
channel carriage. The FCC has modified its rate adjustment regulations to allow
for annual rate increases and to minimize previous problems associated with
regulatory lag. Operators also have the opportunity to bypass this "benchmark"
regulatory scheme in favor of traditional "cost-of-service" regulation in cases
where the latter methodology appears favorable. Cost of service regulation is a
-12-
traditional form of rate regulation, under which a utility is allowed to recover
its costs of providing the regulated service, plus a reasonable profit. The FCC
and Congress have provided various forms of rate relief for smaller cable
systems owned by smaller operators. Premium cable services offered on a
per-channel or per program basis remain unregulated. However, federal law
requires that the basic service tier be offered to all cable subscribers and
limits the ability of operators to require purchase of any cable programming
service tier if a customer seeks to purchase premium services offered on a
per-channel or per-program basis, subject to a technology exception which
terminates in 2002.
As noted above, FCC regulation of cable programming service
tier rates for all systems, regardless of size, terminated under the 1996
Telecommunications Act on March 31, 1999. As a result, the regulatory regime
just discussed is now essentially applicable only to basic services tier and
cable equipment. Some legislators, however, have called for new rate regulations
if unregulated rates increase dramatically. The 1996 Telecommunications Act also
relaxes existing "uniform rate" requirements by specifying that uniform rate
requirements do not apply where the operator faces "effective competition," and
by exempting bulk discounts to multiple dwelling units, although complaints
about predatory pricing still may be made to the FCC.
CABLE ENTRY INTO TELECOMMUNICATIONS. The 1996
Telecommunications Act creates a more favorable environment for us to provide
telecommunications services beyond traditional video delivery. It provides that
no state or local laws or regulations may prohibit or have the effect of
prohibiting any entity from providing any interstate or intrastate
telecommunications service. A cable operator is authorized under the 1996
Telecommunications Act to provide telecommunications services without obtaining
a separate local franchise. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way and
may require reasonable, competitively neutral compensation for management of the
public rights-of-way when cable operators provide telecommunications service.
The favorable pole attachment rates afforded cable operators under federal law
can be gradually increased by utility companies owning the poles, beginning in
2001, if the operator provides telecommunications service, as well as cable
service, over its plant. The FCC recently clarified that a cable operator's
favorable pole rates are not endangered by the provision of Internet access.
Cable entry into telecommunications will be affected by the
regulatory landscape now being developed by the FCC and state regulators. One
critical component of the 1996 Telecommunications Act to facilitate the entry of
new telecommunications providers, including cable operators, is the
interconnection obligation imposed on all telecommunications carriers. In July
1997, the Eighth Circuit Court of Appeals vacated certain aspects of the FCC
initial interconnection order but most of that decision was reversed by the U.S.
Supreme Court in January 1999. The Supreme Court effectively upheld most of the
FCC interconnection regulations. Although these regulations should enable new
telecommunications entrants to reach viable interconnection agreements with
incumbent carriers, many issues, including which specific network elements the
FCC can mandate that incumbent carriers make available to competitors, remain
subject to administrative and judicial appeal. If the FCC's current list of
unbundled network elements is upheld on appeal, it would make it easier for us
to provide telecommunications service.
INTERNET SERVICE. Although there is at present no significant
federal regulation of cable system delivery of Internet services, and the FCC
recently issued several reports finding no immediate need to impose such
regulation, this situation may change as cable systems expand their broadband
delivery of Internet services. In particular, proposals have been advanced at
the FCC and Congress that would require cable operators to provide access to
unaffiliated Internet service providers and online service providers. Certain
Internet service providers also are attempting to use existing modes of access
that are commercially leased to gain access to cable system delivery. A petition
on this issue is now pending before the FCC. Finally, some local franchising
authorities are considering the imposition of mandatory Internet access
requirements as part of cable franchise renewals or transfers. A federal
district court in Portland, Oregon recently upheld the legal ability of local
franchising authorities to impose such conditions, but an appeal was filed with
the Ninth Circuit Court of Appeals, oral argument has been held and the parties
are awaiting a decision. Other local authorities have imposed or may impose
mandatory Internet access requirements on cable operators. These developments
-13-
could, if they become widespread, burden the capacity of cable systems and
complicate our own plans for providing Internet service.
TELEPHONE COMPANY ENTRY INTO CABLE TELEVISION. The 1996
Telecommunications Act allows telephone companies to compete directly with cable
operators by repealing the historic telephone company/cable cross-ownership ban.
Local exchange carriers, including the regional telephone companies, can now
compete with cable operators both inside and outside their telephone service
areas with certain regulatory safeguards. Because of their resources, local
exchange carriers could be formidable competitors to traditional cable
operators. Various local exchange carriers already are providing video
programming services within their telephone service areas through a variety of
distribution methods, including both the deployment of broadband wire facilities
and the use of wireless transmission.
Under the 1996 Telecommunications Act, local exchange carriers
or any other cable competitor providing video programming to subscribers through
broadband wire should be regulated as a traditional cable operator, subject to
local franchising and federal regulatory requirements, unless the local exchange
carrier or other cable competitor elects to deploy its broadband plant as an
open video system. To qualify for favorable open video system status, the
competitor must reserve two-thirds of the system's activated channels for
unaffiliated entities. The Fifth Circuit Court of Appeals reversed certain of
the FCC's open video system rules, including its preemption of local
franchising. The FCC recently revised the applicable rules to eliminate this
general preemption, thereby leaving franchising discretion to state and local
authorities. It is unclear what effect this ruling will have on the entities
pursuing open video system operation.
Although local exchange carriers and cable operators can now
expand their offerings across traditional service boundaries, the general
prohibition remains on local exchange carrier buyouts of co-located cable
systems. Co-located cable systems are cable systems serving an overlapping
territory. Cable operator buyouts of co-located local exchange carrier systems,
and joint ventures between cable operators and local exchange carriers in the
same market are also prohibited. The 1996 Telecommunications Act provides a few
limited exceptions to this buyout prohibition, including a carefully
circumscribed "rural exemption." The 1996 Telecommunications Act also provides
the FCC with the limited authority to grant waivers of the buyout prohibition.
ELECTRIC UTILITY ENTRY INTO TELECOMMUNICATIONS/CABLE
TELEVISION. The 1996 Telecommunications Act provides that registered utility
holding companies and subsidiaries may provide telecommunications services,
including cable television, despite restrictions in the Public Utility Holding
Company Act. Electric utilities must establish separate subsidiaries, known as
"exempt telecommunications companies" and must apply to the FCC for operating
authority. Like telephone companies, electric utilities have substantial
resources at their disposal, and could be formidable competitors to traditional
cable systems. Several such utilities have been granted broad authority by the
FCC to engage in activities which could include the provision of video
programming.
ADDITIONAL OWNERSHIP RESTRICTIONS. The 1996 Telecommunications
Act eliminates statutory restrictions on broadcast/cable cross-ownership,
including broadcast network/cable restrictions, but leaves in place existing FCC
regulations prohibiting local cross-ownership between co-located television
stations and cable systems.
Under the 1992 Cable Act, the FCC adopted rules precluding a
cable system from devoting more than 40% of its activated channel capacity to
the carriage of affiliated national video program services. Also under the 1992
Cable Act, the FCC has adopted rules that preclude any cable operator from
serving more than 30% of all U.S. domestic multichannel video subscribers,
including cable and direct broadcast satellite subscribers. However, this
provision has been stayed pending further judicial review.
MUST CARRY/RETRANSMISSION CONSENT. The 1992 Cable Act contains
broadcast signal carriage requirements. Broadcast signal carriage is the
transmission of broadcast television signals over a cable system to cable
customers. These requirements, among other things, allow local commercial
television broadcast stations to elect once every three years between "must
carry" status or "retransmission consent" status. Less popular stations
-14-
typically elect must carry, which is the broadcast signal carriage requirement
that allows local commercial television broadcast stations to require a cable
system to carry the station. More popular stations, such as those affiliated
with a national network, typically elect retransmission consent which is the
broadcast signal carriage requirement that allows local commercial television
broadcast stations to negotiate for payments for granting permission to the
cable operator to carry the stations. Must carry requests can dilute the appeal
of a cable system's programming offerings because a cable system with limited
channel capacity may be required to forego carriage of popular channels in favor
of less popular broadcast stations electing must carry. Retransmission consent
demands may require substantial payments or other concessions. Either option has
a potentially adverse effect on our business. The burden associated with must
carry may increase substantially if broadcasters proceed with planned conversion
to digital transmission and the FCC determines that cable systems must carry all
analog and digital broadcasts in their entirety. This burden would reduce
capacity available for more popular video programming and new internet and
telecommunication offerings. A rulemaking is now pending at the FCC regarding
the imposition of dual digital and analog must carry.
ACCESS CHANNELS. Local franchising authorities can include
franchise provisions requiring cable operators to set aside certain channels for
public, educational and governmental access programming. Federal law also
requires cable systems to designate a portion of their channel capacity, up to
15% in some cases, for commercial leased access by unaffiliated third parties.
The FCC has adopted rules regulating the terms, conditions and maximum rates a
cable operator may charge for commercial leased access use. We believe that
requests for commercial leased access carriages have been relatively limited. A
new request has been forwarded to the FCC, however, requesting that unaffiliated
Internet service providers be found eligible for commercial leased access.
Although we do not believe such use is in accord with the governing statute, a
contrary ruling could lead to substantial leased activity by Internet service
providers and disrupt our own plans for Internet service.
ACCESS TO PROGRAMMING. To spur the development of independent
cable programmers and competition to incumbent cable operators, the 1992 Cable
Act imposed restrictions on the dealings between cable operators and cable
programmers. Of special significance from a competitive business posture, the
1992 Cable Act precludes video programmers affiliated with cable companies from
favoring their cable operators over new competitors and requires such
programmers to sell their programming to other multichannel video distributors.
This provision limits the ability of vertically integrated cable programmers to
offer exclusive programming arrangements to cable companies. There also has been
interest expressed in further restricting the marketing practices of cable
programmers, including subjecting programmers who are not affiliated with cable
operators to all of the existing program access requirements, and subjecting
terrestrially delivered programming to the program access requirements.
Terrestrially delivered programming is programming delivered other than by
satellite. These changes should not have a dramatic impact on us, but would
limit potential competitive advantages we now enjoy.
INSIDE WIRING; SUBSCRIBER ACCESS. In an order issued in 1997,
the FCC established rules that require an incumbent cable operator upon
expiration of a multiple dwelling unit service contract to sell, abandon, or
remove "home run" wiring that was installed by the cable operator in a multiple
dwelling unit building. These inside wiring rules are expected to assist
building owners in their attempts to replace existing cable operators with new
programming providers who are willing to pay the building owner a higher fee,
where such a fee is permissible. The FCC has also proposed abrogating all
exclusive multiple dwelling unit service agreements held by incumbent operators,
but allowing such contracts when held by new entrants. In another proceeding,
the FCC has preempted restrictions on the deployment of private antenna on
rental property within the exclusive use of a tenant, such as balconies and
patios. This FCC ruling may limit the extent to which we along with multiple
dwelling unit owners may enforce certain aspects of multiple dwelling unit
agreements which otherwise prohibit, for example, placement of digital broadcast
satellite receiver antennae in multiple dwelling unit areas under the exclusive
occupancy of a renter. These developments may make it even more difficult for us
to provide service in multiple dwelling unit complexes.
-15-
OTHER REGULATIONS OF THE FCC. In addition to the FCC
regulations noted above, there are other regulations of the FCC covering such
areas as:
* equal employment opportunity,
* subscriber privacy,
* programming practices, including, among other things,
(1) syndicated program exclusivity, which is a FCC rule which requires
a cable system to delete particular programming offered by a
distant broadcast signal carried on the system which duplicates the
programming for which a local broadcast station has secured
exclusive distribution rights,
(2) network program nonduplication,
(3) local sports blackouts,
(4) indecent programming,
(5) lottery programming,
(6) political programming,
(7) sponsorship identification,
(8) children's programming advertisements, and
(9) closed captioning,
* registration of cable systems and facilities licensing,
* maintenance of various records and public inspection files,
* aeronautical frequency usage,
* lockbox availability,
* antenna structure notification,
* tower marking and lighting,
* consumer protection and customer service standards,
* technical standards,
* consumer electronics equipment compatibility, and
* emergency alert systems.
The FCC recently ruled that cable customers must be allowed to
purchase cable converters from third parties and established a multi-year
phase-in during which security functions, which would remain in the operator's
exclusive control, would be unbundled from basic converter functions, which
could then be satisfied by third party vendors.
The FCC has the authority to enforce its regulations through
the imposition of substantial fines, the issuance of cease and desist orders
and/or the imposition of other administrative sanctions, such as the revocation
of FCC licenses needed to operate certain transmission facilities used in
connection with cable operations.
-16-
COPYRIGHT. Cable television systems are subject to federal
copyright licensing covering carriage of television and radio broadcast signals.
In exchange for filing certain reports and contributing a percentage of their
revenues to a federal copyright royalty pool, that varies depending on the size
of the system, the number of distant broadcast television signals carried, and
the location of the cable system, cable operators can obtain blanket permission
to retransmit copyrighted material included in broadcast signals. The possible
modification or elimination of this compulsory copyright license is the subject
of continuing legislative review and could adversely affect our ability to
obtain desired broadcast programming. We cannot predict the outcome of this
legislative activity. Copyright clearances for nonbroadcast programming services
are arranged through private negotiations.
Cable operators distribute locally originated programming and
advertising that use music controlled by the two principal major music
performing rights organizations, the American Society of Composers, Authors and
Publishers and Broadcast Music, Inc. The cable industry has had a long series of
negotiations and adjudications with both organizations. A prior voluntarily
negotiated agreement with Broadcast Music has now expired, and is subject to
further proceedings. The governing rate court recently set retroactive and
prospective cable industry rates for American Society of Composers music based
on the previously negotiated Broadcast Music rate. Although we cannot predict
the ultimate outcome of these industry proceedings or the amount of any license
fees we may be required to pay for past and future use of association-controlled
music, we do not believe such license fees will be significant to our business
and operations.
STATE AND LOCAL REGULATION. Cable television systems generally
are operated pursuant to nonexclusive franchises granted by a municipality or
other state or local government entity in order to cross public rights-of-way.
Federal law now prohibits local franchising authorities from granting exclusive
franchises or from unreasonably refusing to award additional franchises. Cable
franchises generally are granted for fixed terms and in many cases include
monetary penalties for non-compliance and may be terminable if the franchisee
failed to comply with material provisions.
The specific terms and conditions of franchises vary
materially between jurisdictions. Each franchise generally contains provisions
governing cable operations, service rates, franchising fees, system construction
and maintenance obligations, system channel capacity, design and technical
performance, customer service standards, and indemnification protections. A
number of states, including Connecticut, subject cable systems to the
jurisdiction of centralized state governmental agencies, some of which impose
regulation of a character similar to that of a public utility. Although local
franchising authorities have considerable discretion in establishing franchise
terms, there are certain federal limitations. For example, local franchising
authorities cannot insist on franchise fees exceeding 5% of the system's gross
cable-related revenues, cannot dictate the particular technology used by the
system, and cannot specify video programming other than identifying broad
categories of programming.
Federal law contains renewal procedures designed to protect
incumbent franchisees against arbitrary denials of renewal. Even if a franchise
is renewed, the local franchising authority may seek to impose new and more
onerous requirements such as significant upgrades in facilities and service or
increased franchise fees as a condition of renewal. Similarly, if a local
franchising authority's consent is required for the purchase or sale of a cable
system or franchise, such local franchising authority may attempt to impose more
burdensome or onerous franchise requirements in connection with a request for
consent. Historically, most franchises have been renewed for and consents
granted to cable operators that have provided satisfactory services and have
complied with the terms of their franchise.
Under the 1996 Telecommunications Act, cable operators are not
required to obtain franchises for the provision of telecommunications services,
and local franchising authorities are prohibited from limiting, restricting, or
conditioning the provision of such services. In addition, local franchising
authorities may not require a cable operator to provide any telecommunications
service or facilities, other than institutional networks under certain
circumstances, as a condition of an initial franchise grant, a franchise
renewal, or a franchise transfer. The 1996 Telecommunications Act also provides
that franchising fees are limited to an operator's cable-related revenues and do
not apply to revenues that a cable operator derives from providing new
telecommunications services.
-17-
Item 2. PROPERTIES
We own or lease parcels of real property for signal reception
sites (antenna towers and headends), microwave facilities and business offices,
and own or lease our service vehicles. We believe that our properties, both
owned and leased, are in good condition and are suitable and adequate for our
business operations.
We own substantially all of the assets related to our cable
television operations, including our program production equipment, headend
(towers, antennas, electronic equipment and satellite earth stations), cable
plant (distribution equipment, amplifiers, customer drops and hardware),
converters, test equipment and tools and maintenance equipment.
Item 3. LEGAL PROCEEDINGS
We are periodically a party to various legal proceedings.
These legal proceedings are ordinary and routine litigation proceedings that are
incidental to our business and management believes that the outcome of all
pending legal proceedings will not, in the aggregate, have a material adverse
effect on our financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-18-
PART II
Item 5. MARKET FOR THE REGISTRANT'S EQUITY SECURITIES AND RELATED
SECURITY HOLDER MATTERS
Liquidity
- ---------
While our equity securities, which consist of units of limited
partnership interests, are publicly held, there is no established public trading
market for the units and we do not expect that a market will develop. The
approximate number of equity security holders of record was 853 as of December
31, 1999. In addition to restrictions on the transferability of units contained
in our partnership agreement, the transferability of units may be affected by
restrictions on resales imposed by federal or state law.
In documents filed with the Securities and Exchange Commission
on April 21, 1999, Madison Liquidity Investors 104, LLC ("Madison") initiated a
tender offer to purchase up to approximately 3.6% of the outstanding units for
$210 per unit. On May 5, 1999, we filed a Recommendation Statement on Schedule
14D-9 and distributed a letter to unitholders recommending that unitholders
reject Madison's offer.
Distributions
- -------------
The partnership agreement generally provides that all
partnership profits, gains, losses, credits, and cash distributions (all as
defined) from operations or liquidation be allocated one percent to the general
partners and 99% to the limited partners until the limited partners have
received distributions of cash flow from operations and/or cash flow from sales,
refinancing, or liquidation of systems equal to their initial investment. After
the limited partners have received cash flow equal to their initial investment,
the general partner will receive a one percent allocation of cash flow from
liquidating a system until the limited partners have received an annual simple
interest return of at least 18% of their initial investment less any
distributions from previous system liquidations. Thereafter, allocations will be
made 15% to the general partner and 85% to the limited partners. All allocations
to individual limited partners will be based on their respective capital
accounts. Upon dissolution of the partnership, any negative capital account
balances remaining after all allocations and distributions are made must be
funded by the respective partners.
The policy of the general partner (although there is no
contractual obligation to do so) is to cause the partnership to make cash
distributions on a quarterly basis throughout the operational life of the
partnership, assuming the availability of sufficient cash flow from partnership
operations. The amount of such distributions, if any, will vary from quarter to
quarter depending upon our results of operations and the general partner's
determination of whether otherwise available funds are needed for the
partnership's ongoing working capital and liquidity requirements. It is also the
general partner's policy to distribute available net proceeds from sales of
cable television systems.
We began making periodic cash distributions to limited
partners during 1984 and discontinued distributions in January 1990. No
distributions were made during 1997, 1998 or 1999. For more information
regarding distributions, see Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Our ability to pay distributions, the actual level of
distributions and the continuance of distributions, if any, will depend on a
number of factors, including: the amount of cash flow from operations, projected
capital expenditures, provision for contingent liabilities, availability of bank
financing, regulatory or legislative developments governing the cable television
industry, and growth in customers. Some of these factors are beyond our control,
and consequently, we cannot make assurances regarding the level or timing of
future distributions, if any. Our loan facility does not restrict the payment of
distributions to partners unless an event of default exists or our ratio of debt
to cash flow is greater than 4 to 1.
Item 6. SELECTED FINANCIAL DATA
Set forth below is selected financial data of the partnership
for the five years ended December 31, 1999. This data should be read in
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conjunction with the partnership's financial statements included in Item 8
hereof and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included in Item 7.
Year Ended December 31,
---------------------------------------------------------------------------------
OPERATIONS STATEMENT DATA 1995 1996 1997 1998 1999
------------- -------------- -------------- ------------- -------------
Revenues $ 4,919,300 $ 5,243,500 $ 5,369,200 $ 5,221,100 $ 5,090,800
Costs and expenses (3,010,900) (3,175,000) (3,473,500) (3,184,700) (3,280,700)
Depreciation and amortization (1,173,500) (570,600) (583,100) (747,600) (854,500)
-------------- ------------- -------------- ------------- --------------
Operating income 734,900 1,497,900 1,312,600 1,288,800 955,600
Interest expense (270,600) (187,900) (107,500) (103,900) (92,400)
Interest income 53,200 43,500 34,700 25,700 61,900
Gain on sale of cable assets 3,300 100 - - -
Casualty gain (loss) - - 202,400 (271,000) (113,300)
Costs of potential sale of
cable television system - - - - (18,800)
-------------- ------------- -------------- ------------- --------------
Net income $ 520,800 $ 1,353,600 $ 1,442,200 $ 939,600 $ 793,000
============== ============= ============== ============= ==============
Per unit of limited
partnership interest:
Net income $ 17.22 $ 44.76 $ 47.69 $ 31.07 $ 26.22
============== ============= ============== ============= ==============
OTHER OPERATING DATA
Net cash provided by operating
activities $ 1,712,900 $ 1,804,800 $ 1,830,400 $ 2,084,800 $ 1,655,200
Net cash used in investing activities (960,700) (1,170,000) (825,600) (1,398,400) (1,050,500)
Net cash used in financing activities (986,600) (565,700) (1,546,300) (113,300) 322,800
EBITDA (1) 1,908,400 2,068,500 1,895,700 2,036,400 1,810,100
EBITDA to revenues 38.8% 39.4% 35.3% 39.0% 35.6%
Total debt to EBITDA 1.0x .5x .1x - -
Capital expenditures $ 934,300 $ 1,149,600 $ 776,900 $ 1,389,800 $ 1,050,500
As of December 31,
------------------------------------------------------------------------------------
BALANCE SHEET DATA 1995 1996 1997 1998 1999
-------------- ------------- -------------- ------------- --------------
Total assets $ 3,853,400 $ 4,605,200 $ 4,696,100 $ 5,417,400 $ 6,537,900
Total debt 1,942,800 1,042,800 250,000 - -
General partner's deficit (69,000) (55,500) (41,100) (31,700) (23,800)
Limited partners' capital (deficit) 435,300 1,775,400 3,203,200 4,133,400 4,918,500
- ----------
(1) EBITDA is calculated as operating income before depreciation and
amortization. Based on our experience in the cable television industry, we
believe that EBITDA and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television companies
in several areas, such as liquidity, operating performance and leverage. In
addition, the covenants in the primary debt instrument of the partnership use
EBITDA-derived calculations as a measure of financial performance. 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. You should not consider EBITDA as an alternative to net income as an
indicator of our financial performance or as an alternative to cash flows as a
measure of liquidity. In addition, our definition of EBITDA may not be identical
to similarly titled measures used by other companies.
-20-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
- ------------
The 1992 Cable Act required the Federal Communications
Commission 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 our revenues and cash flow. The
1996 Telecommunications Act substantially changed the competitive and regulatory
environment for cable television and telecommunications service providers. Among
other changes, the 1996 Telecommunications 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 their effect on our business. Accordingly, our
historical financial results as described below are not necessarily indicative
of future performance.
This annual report includes certain forward-looking statements
regarding, among other things, our 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.
RESULTS OF OPERATIONS
- ---------------------
1999 Compared to 1998
Our revenues decreased from $5,221,100 to $5,090,800, or by
2.5%, for the year ended December 31, 1999 compared to 1998. Of the $130,300
decrease, $155,200 was due to decreases in the number of subscriptions for
basic, pay, tier and equipment rental services and $25,200 was due to decreases
in other revenue producing items. These decreases were partially offset by a
$50,100 increase due to increases in regulated service rates we implemented in
1999. As of December 31, 1999, we had approximately 10,800 basic subscribers and
4,200 premium service units.
Our service costs increased from $1,848,400 to $1,928,600, or
by 4.3%, for the year ended December 31, 1999 as compared to 1998. Service costs
represent costs directly attributable to providing cable services to customers.
The increase was primarily due to increases in personnel costs, programming
expenses and franchise fees.
Our general and administrative expenses increased from
$676,000 to $761,700, or by 12.7%, for the year ended December 31, 1999 as
compared to 1998, primarily due to increases in insurance premiums and personnel
costs.
Our management fees and reimbursed expenses decreased from
$660,300 to $590,400, or by 10.6%, for the year ended December 31, 1999 as
compared to 1998. Management fees decreased in direct relation to decreased
revenues as described above. Reimbursed expenses decreased as a result of lower
allocated personnel costs.
Our depreciation and amortization expense increased from
$747,600 to $854,500, or by 14.3%, for the year ended December 31, 1999 as
compared to 1998, primarily due to depreciation of asset additions including
expenditures to replace segments of our North Carolina cable plant and
subscriber connections that were damaged by a storm.
Our operating income decreased from $1,288,800 to $955,600, or
by 25.9%, for the year ended December 31, 1999 as compared to 1998, primarily
due to increases in depreciation and amortization expense and decreases in
revenues as described above.
-21-
Our interest expense decreased from $103,900 to $92,400, or by
11.1%, for the year ended December 31, 1999 as compared to 1998, primarily due
to the repayment of borrowings under our loan facility in 1998. Interest expense
in both years includes interest paid on the unborrowed portion of our loan
facility and loan costs which have been amortized to interest expense.
Our interest income increased from $25,700 to $61,900 for the
year ended December 31, 1999 as compared to 1998, primarily due to higher
average cash balances available for investment.
Due to the factors described above, our net income decreased
from $939,600 to $793,000, or by 15.6%, for the year ended December 31, 1999
compared to 1998.
We recognized a $113,300 casualty loss during 1999 related to
storm damage sustained by our North Carolina system in September 1999.
As of December 31, 1999, we had incurred $18,800 of expenses
related to the proposed sale of our cable television system assets.
EBITDA is calculated as operating income before depreciation
and amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues decreased from 39.0% in 1998 to 35.6% during 1999. The
decrease was primarily due to higher service costs and franchise fees as
described above. EBITDA decreased from $2,036,400 to $1,810,100, or by 11.1%, as
a result.
1998 Compared to 1997
Our revenues decreased from $5,369,200 to $5,221,100, or by
2.8%, for the year ended December 31, 1998 compared to 1997. Of the $148,100
decrease, $326,700 was due to decreases in the number of subscriptions for
basic, pay, tier and equipment rental services. These decreases were partially
offset by a $467,300 increase due to increases in regulated service rates that
we implemented in 1997 and a $7,500 increase in other revenue producing items.
As of December 31, 1998, we had approximately 10,800 basic subscribers and 4,400
premium service units.
Our service costs decreased from $2,012,500 to $1,848,400, or
by 8.2%, for the year ended December 31, 1998 as compared to 1997. Service costs
represent costs directly attributable to providing cable services to customers.
Lower copyright fees accounted for most of the decrease as a result of the
industry-wide change in status of one satellite service that resulted in lower
fees. Copyright fees also decreased in direct relation to decreased revenues as
described above.
Our general and administrative expenses decreased from
$857,400 to $676,000, or by 21.2%, for the year ended December 31, 1998 as
compared to 1997, primarily due to decreases in bad debt expense, personnel
costs and customer billing expenses.
Our management fees and reimbursed expenses increased from
$603,600 to $660,300, or by 9.4%, for the year ended December 31, 1998 as
compared to 1997. Management fees decreased in direct relation to decreased
revenues as described above. Reimbursed expenses increased as a result of
transferring system operating management of our Tennessee systems from an
affiliate to the general partner.
Our depreciation and amortization expense increased from
$583,100 to $747,600, or by 28.2%, for the year ended December 31, 1998 as
compared to 1997, primarily due to depreciation of asset additions including
expenditures to replace segments of our North Carolina cable plant and
subscriber connections that were damaged by a storm.
Our operating income decreased from $1,312,600 to $1,288,800,
or by 1.8%, for the year ended December 31, 1998 as compared to 1997, primarily
due to increases in amortization and depreciation expense and decreases in
revenues as described above.
-22-
Our interest expense decreased from $107,500 to $103,900, or
by 3.3%, for the year ended December 31, 1998 as compared to 1997, primarily due
to lower average borrowings in 1998 caused by the repayment of a note payable in
June 1998.
Our interest income decreased from $34,700 to $25,700, or by
25.9%, for the year ended December 31, 1998 as compared to 1997, primarily due
to lower average cash balances available for investment.
We recognized a $271,000 casualty loss during 1998 related to
storm damage sustained by our North Carolina system in 1996 and 1998.
Due to the factors described above, our net income decreased
from $1,442,200 to $939,600, or by 34.8%, for the year ended December 31, 1998
compared to 1997.
EBITDA is calculated as operating income before depreciation
and amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues increased from 35.3% in 1997 to 39.0% during 1998. The
increase was primarily due to lower copyright fees and bad debt expense as
described above. EBITDA increased from $1,895,700 to $2,036,400, or by 7.4%, as
a result.
Distributions to Partners
As provided in our partnership agreement, distributions to
partners are funded from income before depreciation and amortization after
providing for working capital and other liquidity requirements, including debt
service and capital expenditures not otherwise funded by borrowings. We did not
make distributions during 1997, 1998 or 1999. We can not make any assurances
regarding the level or timing of future distributions, if any.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Our primary objective, having invested net offering proceeds
in cable television systems, is to distribute to our 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. In general, these
capital requirements involve expansion, improvement and upgrade of our existing
cable systems.
In accordance with the partnership agreement, the general
partner has implemented a plan for liquidating the partnership. In connection
with that strategy, the general partner has entered into an agreement with a
cable broker to market the partnership's cable systems to third parties. Should
the partnership receive offers from third parties for such assets, the general
partner will prepare a proxy for submission to the limited partners for the
purpose of approving or disapproving such sale. Should such a sale be approved,
the general partner will proceed to liquidate the partnership following the
settlement of its final liabilities. We can give no assurance, however, that we
will be able to generate a sale of the partnership's cable assets. On May 27,
1999, the general partner signed a non-binding letter of intent to sell the
partnership's cable system in Kershaw, South Carolina to Catawba Services, Inc.
but the parties have yet to reach a definitive agreement regarding the sale.
The partnership relies upon the availability of cash generated
from operations and possible borrowings to fund its ongoing expenses, debt
service and capital requirements. Our capital expenditures were $1,050,500 for
the year ended December 31, 1999. As of the date of this report, substantially
all of the available channel capacity in our cable television systems is being
utilized and each of the systems requires an upgrade. We presently estimate that
the entire upgrade program will require aggregate capital expenditures of
approximately $8,300,000 and will cover 12 franchise areas. These upgrades are
currently required in six existing franchise agreements covering eight franchise
areas. The upgrades required by the six existing franchise agreements are
estimated to cost approximately $4.4 million and must be completed by June 2000,
December 2001 and February 2002, and will most likely impact any offers we
receive for our systems. We believe that possible borrowings under our credit
agreement together with cash flow from operations will be adequate to fund
capital expenditures and other liquidity requirements.
-23-
On September 30, 1997, Enstar Finance Company, LLC ("EFC"), a
subsidiary of the general partner, obtained a secured bank facility of $35
million from two agent banks in order to obtain funds that would in turn be
advanced to us and certain of the other partnerships managed by the general
partner. Our maximum loan commitment was approximately $7,481,700 through
November 12, 1999. After that date, our commitment was reduced to $4,800,000
under the EFC facility, which was reduced to $15 million.
Our loan facility matures on August 31, 2001, at which time
all amounts then outstanding are due in full. Borrowings bear interest at the
lender's base rate (8.5% at December 31, 1999) plus 0.625%, or at an offshore
rate plus 1.875%. Under certain circumstances, we are required to make mandatory
prepayments, which permanently reduce the maximum commitment under the loan
facility. The loan 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 loan facility does not restrict the payment of distributions to
partners unless an event of default exists thereunder or our ratio of debt to
cash flow is greater than 4 to 1. However, due to the upgrade program discussed
above, the general partner believes it is critical to conserve cash and
borrowing capacity and, consequently, has concluded that it would not be prudent
for the partnership to resume paying distributions at this time.
The city of Covington, Tennessee rejected our franchise
renewal proposal in June 1999. The franchise agreement with the city expired in
1994 and we have continued to operate our cable system there and pay franchise
fees to the city. In March 2000, Charter submitted another proposal to the city
on behalf of the partnership. The city is currently reviewing the proposed terms
against a competing proposal to award the franchise to a municipal utility.
There can be no assurance that the city will accept the Charter proposal. Should
the city revoke our right to operate our system in Covington, an event of
default may be declared under the partnership's loan facility which would
require the partnership to identify alternative sources of financing, and the
loss of subscribers would have a significant adverse impact on the partnership's
financial condition and results of operations.
In January 2000, the franchise authority in Bolivar, Tennessee
authorized its municipal utility to construct and operate a competing cable
system in that franchise area. Our franchise agreement with the city expired in
1995. As we have in Covington, the partnership has continued to operate its
cable system in Bolivar and pay franchise fees to the franchise authority.
Although the municipal utility has not obtained funds to build a cable system,
we believe that if a competing system were built, the loss of subscribers would
have an adverse impact on the partnership's financial condition and results of
operations. Additionally, the loss of either franchise would constitute an event
of default under our loan agreement and would preclude us from borrowing under
our loan facility to finance our franchise-required rebuilds. This would require
the partnership to identify alternative sources of financing. As in Covington,
the loss of the franchise in Bolivar could be considered an event of default
under the partnership's loan facility, which would require the partnership to
identify alternative sources of financing. As of December 31, 1999, there were
1,761 and 1,279 basic subscribers in the cities of Covington and Bolivar,
respectively.
Beginning in August 1997, the general partner elected to
self-insure our 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, Falcon Communications, L.P. reinstated third
party insurance coverage for all of the cable television properties owned or
managed by it 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 formerly owned or managed by Falcon
Communications, L.P. through November 12, 1999, and currently managed by
Charter, including those of the partnership. We have recorded a receivable of
approximately $27,900 for insurance recovery due us under this policy.
Approximately 63% of our subscribers are served by our system
in Brownsville, Tennessee and neighboring communities. Significant damage to the
system due to seasonal weather conditions or other events could have a material
adverse effect on our liquidity and cash flows. We continue to purchase
insurance coverage in amounts our management views as appropriate for all other
property, liability, automobile, workers' compensation and other types of
insurable risks.
-24-
We have not experienced any system failures or other
disruptions caused by Year 2000 problems since January 1, 2000 through the date
of this report, and do not anticipate that we will encounter any Year 2000
problems going forward. We did not incur any expenditures in the fourth quarter
of 1999 to complete our preparation for the arrival of January 1, 2000 with
respect to the Year 2000 date change.
1999 vs. 1998
Our operating activities provided $429,600 less cash in the
year ended December 31, 1999 than in 1998. Changes in accounts receivable and
prepaid expenses provided $205,500 less cash in 1999 than in 1998 due to
differences in the timing of receivable collections and in the payment of
prepaid expenses. We used $113,700 less cash in 1999 for the payment of
liabilities owed to third party creditors due to differences in the timing of
payments.
We used $347,900 less cash in investing activities in 1999
than in 1998 due to a $339,300 decrease in capital expenditures and an $8,600
decrease in expenditures for intangible assets. Financing activities provided
cash of $322,800 in 1999 as compared to 1998 when such activities used $113,300.
The difference was primarily due to a decrease in the repayment of borrowings
under our loan facility in 1999 compared with 1998 and increases in amounts owed
to the general partner. Such increases were caused by differences in the timing
of payments.
1998 vs. 1997
Our operating activities provided $254,400 more cash in the
year ended December 31, 1998 than in 1997. Collection of an insurance claim
receivable provided $304,500 more cash in 1998 due to receipt of the insurance
settlement during the year. Changes in accounts receivable and prepaid expenses
provided $25,500 more cash in 1998 than in 1997 due to differences in the timing
of receivable collections and in the payment of prepaid expenses. We used
$190,100 more cash in 1998 for the payment of liabilities owed to third party
creditors due to differences in the timing of payments.
We used $572,800 more cash in investing activities in 1998
than in 1997 due to a $612,900 increase in capital expenditures, partially
offset by a $40,100 decrease in expenditures for intangible assets. Financing
activities used $1,433,000 less cash in 1998 than in 1997. We used $780,300 less
cash to pay deferred management fees and reimbursed expenses owed to the general
partner, $542,800 less cash, net of new borrowings, for the repayment of debt
and $109,900 less cash for deferred loan costs related to our loan facility.
Inflation
- ---------
Certain of our expenses, such as those for wages and benefits,
equipment repair and replacement, and billing and marketing generally increase
with inflation. However, we do not believe that our financial results have been,
or will be, adversely affected by inflation in a material way, provided that we
are able to increase our service rates periodically, of which there can be no
assurance. See "Legislation and Regulation."
Item 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are not currently exposed to material market risks
associated with financial instruments, although we would be subject to interest
rate risk were we to borrow under our loan facility.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information
required to be filed hereunder are indexed on Page F-1.
-25-
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-26-
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The general partners of a partnership may be considered for
certain purposes the functional equivalent of directors and executive officers.
Enstar Communications Corporation is the sole general partner of the
partnership. Since its incorporation in Georgia in 1982, the general partner has
been engaged in the cable-telecommunications business, both as a general partner
of 15 limited partnerships formed to own and operate cable television systems
and through a wholly-owned operating subsidiary. As of December 31, 1999, the
general partner managed cable television systems serving approximately 81,100
basic subscribers.
Following the acquisition of the general partner in November
1999 by a Charter Communications-controlled entity, the directors and executive
officers of the general partner have been changed to the persons named below all
of whom have their principal employment in a comparable position with Charter
Communications, Inc.:
NAME POSITION
- ---- --------
Jerald L. Kent Director, President and Chief Executive Officer
David G. Barford Senior Vice President of Operations - Western Division
Mary Pat Blake Senior Vice President - Marketing and Programming
Eric A. Freesmeier Senior Vice President - Administration
Thomas R. Jokerst Senior Vice President - Advanced Technology Development
Kent D. Kalkwarf Senior Vice President and Chief Financial Officer
Ralph G. Kelly Senior Vice President - Treasurer
David L. McCall Senior Vice President of Operations - Eastern Division
John C. Pietri Senior Vice President - Engineering
Michael E. Riddle Senior Vice President and Chief Information Officer
Steven A. Schumm Executive Vice President, Assistant to the President
Curtis S. Shaw Senior Vice President, General Counsel and Secretary
Steven E. Silva Senior Vice President - Corporate Development and Technology
Except for Mr. Riddle, our executive officers were appointed
to their position following our formation in July 1999, and became employees of
Charter Communications, Inc., upon completion of our initial public offering.
Prior to that time, they were employees of Charter Investment, Inc. All of our
executive officers simultaneously serve in the same capacity with Charter
Investment, Inc.
JERALD L. KENT, 43 Director, President and Chief Executive Officer. Mr. Kent
co-founded Charter Communications Investment, Inc. in 1993. Mr. Kent was
executive vice president and chief financial officer of Cencom Cable Associates,
Inc. Mr. Kent, a certified public accountant, attained the position of tax
manager with Arthur Andersen LLP. Mr. Kent received a bachelor's degree and
M.B.A. from Washington University.
DAVID G. BARFORD, 41 Senior Vice President of Operations - Western Division.
Prior to joining Charter Communications Investment, Inc. in 1995, Mr. Barford
held various senior marketing and operating roles during nine years at Comcast
Cable Communications, Inc. He received a B.A. from California State University,
Fullerton, and an M.B.A. from National University.
MARY PAT BLAKE, 44 Senior Vice President - Marketing and Programming. Prior to
joining Charter Communications Investment, Inc. in 1995, Ms. Blake was active in
-27-
the emerging business sector and formed Blake Investments, Inc. in 1993. She has
18 years of experience with senior management responsibilities in marketing,
sales, finance, systems, and general management. Ms. Blake received a B.S. from
the University of Minnesota and an M.B.A. from the Harvard Business School.
ERIC A. FREESMEIER, 46 Senior Vice President - Administration. From 1986 until
joining Charter Investment, Inc. in 1998, Mr. Freesmeier served in various
executive management positions at Edison Brothers Stores, Inc. Earlier he held
management and executive positions at Montgomery Ward. Mr. Freesmeier holds
bachelor's degrees from the University of Iowa and a master's degree from
Northwestern University's Kellogg Graduate School of Management.
THOMAS R. JOKERST, 50 Senior Vice President - Advanced Technology Development.
Mr. Jokerst joined Charter Investment, Inc. in 1994. Previously he served as a
vice president of Cable Television Laboratories and as a regional director of
engineering for Continental Cablevision. He is a graduate of Ranken Technical
Institute and of Southern Illinois University.
KENT D. KALKWARF, 40 Senior Vice President and Chief Financial Officer. Prior to
joining Charter Investment, Inc. in 1995, Mr. Kalkwarf was employed for 13 years
by Arthur Andersen LLP where he attained the position of senior tax manager. He
has extensive experience in cable, real estate, and international tax issues.
Mr. Kalkwarf has a B.S. from Illinois Wesleyan University and is a certified
public accountant.
RALPH G. KELLY, 43 Senior Vice President - Treasurer. Prior to joining Charter
Investment, Inc. in 1993, Mr. Kelly was controller and then treasurer of Cencom
Cable Associates. He left Charter in 1994, to become chief financial officer of
CableMaxx, Inc., and returned in 1996. Mr. Kelly received his bachelor's degree
in accounting from the University of Missouri - Columbia and his M.B.A. from
Saint Louis University.
DAVID L. MCCALL, 44 Senior Vice President of Operations - Eastern Division.
Prior to joining Charter Investment, Inc. in 1995, Mr. McCall was associated
with Crown Cable and its predecessor company, Cencom Cable Associates, Inc. from
1983 to 1994. Earlier he was system manager of Coaxial Cable Developers. Mr.
McCall has served as a director of the South Carolina Cable Television
Association for the past 10 years.
JOHN C. PIETRI, 50 Senior Vice President - Engineering. Prior to joining Charter
Investment, Inc. in 1998, Mr. Pietri was with Marcus Cable for eight years, most
recently serving as senior vice president and chief technical officer. Earlier
he was in operations with West Marc Communications and Minnesota Utility
Contracting. Mr. Pietri attended the University of Wisconsin-Oshkosh.
MICHAEL E. RIDDLE, 41 Senior Vice President and Chief Information Officer. Prior
to joining Charter Investment, Inc. in 1999, Mr. Riddle was director, applied
technologies of Cox Communications for four years. Prior to that, he held
technical and management positions during four years at Southwestern Bell and
its subsidiaries. Mr. Riddle attended Fort Hays State University.
STEVEN A. SCHUMM, 47 Executive Vice President and Assistant to the President.
Prior to joining Charter Investment, Inc. in 1998, Mr. Schumm was managing
partner of the St. Louis office of Ernst & Young LLP, where he was a partner for
14 of 24 years. He served as one of 10 members of the firm's National Tax
Committee. Mr. Schumm earned a B.S. degree from Saint Louis University.
CURTIS S. SHAW, 51 Senior Vice President, General Counsel and Secretary. Prior
to joining Charter Investment, Inc. in 1997, Mr. Shaw served as corporate
counsel to NYNEX since 1988. He has over 25 years of experience as a corporate
lawyer, specializing in mergers and acquisitions, joint ventures, public
offerings, financings, and federal securities and antitrust law. Mr. Shaw
received a B.A. from Trinity College and a J.D. from Columbia University School
of Law.
STEVEN E. SILVA, 40 Senior Vice President - Corporate Development and
Technology. From 1983 until joining Charter Investment, Inc. in 1995, Mr. Silva
served in various management positions at U.S. Computer Services, Inc. He is a
member of the board of directors of High Speed Access Corp.
The sole director of the general partner is elected to a
one-year term at the annual shareholder meeting to serve until the next annual
shareholder meeting and thereafter until his respective successor is elected and
qualified. Officers are appointed by and serve at the discretion of the
directors of the general partner.
-28-
Item 11. EXECUTIVE COMPENSATION
MANAGEMENT FEE
- --------------
The partnership has a management agreement with Enstar Cable
Corporation, a wholly owned subsidiary of the general partner, pursuant to which
Enstar Cable manages our systems and provides operational support for our
activities. For these services, Enstar Cable receives a management fee of 5% of
our gross revenues, excluding revenues from the sale of cable television systems
or franchises, calculated and paid monthly. In addition, we reimburse Enstar
Cable for operating expenses incurred by Enstar Cable in the day-to-day
operation of our cable systems. The management agreement also requires us to
indemnify Enstar Cable (including its officers, employees, agents and
shareholders) against loss or expense, absent negligence or deliberate breach by
Enstar Cable of the management agreement. The management agreement is terminable
by the partnership upon 60 days written notice to Enstar Cable. Enstar Cable
had, prior to November 12, 1999, engaged Falcon Communications, L.P. to provide
management services for us and paid Falcon Communications, L.P. a portion of the
management fees it received in consideration of such services and reimbursed
Falcon Communications, L.P. for expenses incurred by Falcon Communications, L.P.
on its behalf. Subsequent to November 12, 1999, Charter, as successor-by-merger
to Falcon Communications, L.P., has provided such services and received such
payments. Additionally, we receive system operating management services from
affiliates of Enstar Cable in lieu of directly employing personnel to perform
those services. We reimburse the affiliates for our allocable share of their
operating costs. The general partner also performs supervisory and
administrative services for the partnership, for which it is reimbursed.
For the fiscal year ended December 31, 1999, Enstar Cable
charged us management fees of approximately $254,500 and reimbursed expenses of
$335,900. We also reimbursed affiliates approximately $44,500 for system
operating management services. In addition, programming services were purchased
through Falcon Communications, L.P. and, subsequent to November 12, 1999,
through Charter. We paid Falcon Communications and Charter approximately
$1,192,800 for these programming services for fiscal year 1999.
PARTICIPATION IN DISTRIBUTIONS
- ------------------------------
The general partner is entitled to share in distributions
from, and profit and losses in, the partnership. See Item 5., "Market for
Registrant's Equity Securities and Related Security Holder Matters."
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 3, 2000, the only persons known by us to own
beneficially or that may be deemed to own beneficially more than 5% of the units
were:
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- ----------------------------- ---------------------------------------- --------------------------- -----------
Units of Limited Madison Liquidity Investors, 104 LLC 2,458(1) 8.2%
Partnership Interest 6143 S. Willow Drive, Suite 340
Englewood, CO 80111
Units of Limited Paul Isaacs 1,510(1) 5.0%
Partnership Interest 7 Douglas Lane
Larchmont, NY 10538
(1) As reported to us by our transfer agent, Gemisys Corporation.
The general partner is a wholly-owned subsidiary of Charter
Communications Holding Company, LLC. Charter Communications Holding Company,
-29-
LLC, through a subsidiary, owns a 100% interest in CC VII. As of March 30, 2000,
Charter Communications Holding Company, LLC was beneficially controlled by Paul
G. Allen through his ownership and control of Charter Communications, Inc.,
Charter Investment, Inc. and Vulcan Cable III, Inc.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONFLICTS OF INTEREST
- ---------------------
On November 12, 1999, Charter acquired ownership of Enstar
Communications Corporation from Falcon Holding Group, L.P. and assumed the
management services operations of Falcon Communications, L.P. Charter now
manages the operations of the partnerships of which Enstar Communications
Corporation is the general partner, including the partnership. Commencing
November 13, 1999, Charter began receiving management fees and reimbursed
expenses which had previously been paid by the general partner to Falcon
Communications, L.P.
The partnership relies upon the general partner and certain of
its affiliates to provide general management services, system operating
services, supervisory and administrative services and programming. See Item 11.,
"Executive Compensation" and Item 7., "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The executive officers of the
general partner have their personal employment with Charter Communications,
Inc., and, as a result, are involved in the management of other cable ventures.
Charter expects to continue to enter into other cable ventures. These
affiliations subject Charter and the general partner and their management to
conflicts of interest. These conflicts of interest relate to the time and
services that management will devote to the partnership's affairs.
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION OF THE GENERAL PARTNER
- -------------------------------------------------------------------
A general partner is accountable to a limited partnership as a
fiduciary and consequently must exercise good faith and integrity in handling
partnership affairs. Where the question has arisen, some courts have held that a
limited partner may institute legal action on his own behalf and on behalf of
all other similarly situated limited partners (a class action) to recover
damages for a breach of fiduciary duty by a general partner, or on behalf of the
partnership (a partnership derivative action) to recover damages from third
parties. Section 14-9-1001 of the Georgia Revised Uniform Limited Partnership
Act also allows a partner to maintain a partnership derivative action if general
partners with authority to do so have refused to bring the action or if an
effort to cause those general partners to bring the action is not likely to
succeed. Some cases decided by federal courts have recognized the right of a
limited partner to bring such actions under the Securities and Exchange
Commission's Rule 10b-5 for recovery of damages resulting from a breach of
fiduciary duty by a general partner involving fraud, deception or manipulation
in connection with the limited partner's purchase or sale of partnership units.
The partnership agreement provides that the general partner
will be indemnified by the partnership for acts performed within the scope of
its authority under the partnership agreement if the general partner (i) acted
in good faith and in a manner that it reasonably believed to be in, or not
opposed to, the best interests of the partnership and the partners, and (ii) had
no reasonable grounds to believe that its conduct was negligent. In addition,
the partnership agreement provides that the general partner will not be liable
to the partnership or its limited partners for errors in judgment or other acts
or omissions not amounting to negligence or misconduct. Therefore, limited
partners will have a more limited right of action than they would have absent
such provisions. In addition, we maintain, at our expense and in such reasonable
amounts as the general partner determines, a liability insurance policy which
insures the general partner, Charter and its affiliates (which include CC VII),
officers and directors and other persons determined by the general partner,
against liabilities which they may incur with respect to claims made against
them for certain wrongful or allegedly wrongful acts, including errors,
misstatements, misleading statements, omissions, neglect or breaches of duty. To
the extent that the exculpatory provisions purport to include indemnification
for liabilities arising under the Securities Act of 1933, it is the opinion of
the Securities and Exchange Commission that such indemnification is contrary to
public policy and therefore unenforceable.
-30-
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
Reference is made to the Index to Financial
Statements on page F-1.
(a) 2. Financial Statement Schedules
Reference is made to the Index to Financial
Statements on page F-1.
(a) 3. Exhibits
Reference is made to the Index to Exhibits
on Page E-1.
(b) Reports on Form 8-K
None.
-31-
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on March
30, 2000.
ENSTAR INCOME PROGRAM 1984-1, L.P.
By: Enstar Communications Corporation,
General Partner
By: /s/ Jerald L. Kent
--------------------
Jerald L. Kent
Director, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated on the 30th day of March 2000.
Signatures Title(*)
- ------------------------ -----------------------------------------------------
/s/ Jerald L. Kent Director, President and Chief Executive Officer
----------------------- (Principal Executive Officer)
Jerald L. Kent
/s/ Kent D. Kalkwarf Senior Vice President and Chief Financial Officer
----------------------- (Principal Financial Officer and
Kent D. Kalkwarf Principal Accounting Officer)
(*) Indicates position(s) held with Enstar Communications Corporation, the
General Partner of the Registrant.
-32-
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors F-2
Balance Sheets - December 31, 1998 and 1999 F-3
Financial Statements for each of
the three years in the period
ended December 31, 1999:
Statements of Operations F-4
Statements of Partnership Capital (Deficit) F-5
Statements of Cash Flows F-6
Notes to Financial Statements F-7
All schedules have been omitted because they are either not required, not
applicable or the information has otherwise been supplied.
F-1
REPORT OF INDEPENDENT AUDITORS
Partners
Enstar Income Program 1984-1, L.P. (A Georgia Limited Partnership)
We have audited the accompanying balance sheets of Enstar Income Program 1984-1,
L.P. (A Georgia Limited Partnership) as of December 31, 1998 and 1999, and the
related statements of operations, partnership capital (deficit), and cash flows
for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar Income Program 1984-1,
L.P. at December 31, 1998 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 24, 2000
F-2
ENSTAR INCOME PROGRAM 1984-1, L.P.
BALANCE SHEETS
=========================================
December 31,
-------------------------------------
1998 1999
----------------- ------------------
ASSETS:
Cash and cash equivalents $ 1,036,000 $ 1,963,500
Accounts receivable, less allowance of $5,500 and
$700 for possible losses 27,800 90,700
Insurance claim receivable - 27,900
Prepaid expenses and other assets 83,200 160,300
Property, plant and equipment, less accumulated
depreciation and amortization 4,115,500 4,189,700
Franchise cost, net of accumulated
amortization of $114,500 and $127,400 66,000 53,000
Deferred loan costs and other deferred charges, net 88,900 52,800
----------------- ----------------
$ 5,417,400 $ 6,537,900
================= ================
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 420,800 $ 425,500
Due to affiliates 894,900 1,217,700
----------------- ----------------
TOTAL LIABILITIES 1,315,700 1,643,200
----------------- ----------------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partner (31,700) (23,800)
Limited partners 4,133,400 4,918,500
----------------- ----------------
TOTAL PARTNERSHIP CAPITAL 4,101,700 4,894,700
----------------- ----------------
$ 5,417,400 $ 6,537,900
================= ================
See accompanying notes to financial statements
F-3
ENSTAR INCOME PROGRAM 1984-1, L.P.
STATEMENTS OF OPERATIONS
=========================================
Year Ended December 31,
-----------------------------------------------------
1997 1998 1999
--------------- --------------- --------------
REVENUES $ 5,369,200 $ 5,221,100 $ 5,090,800
--------------- --------------- --------------
OPERATING EXPENSES:
Service costs 2,012,500 1,848,400 1,928,600
General and administrative expenses 857,400 676,000 761,700
General Partner management fees
and reimbursed expenses 603,600 660,300 590,400
Depreciation and amortization 583,100 747,600 854,500
--------------- --------------- --------------
4,056,600 3,932,300 4,135,200
--------------- --------------- --------------
Operating income 1,312,600 1,288,800 955,600
--------------- --------------- --------------
OTHER INCOME (EXPENSE):
Interest expense (107,500) (103,900) (92,400)
Interest income 34,700 25,700 61,900
Casualty gain (loss) 202,400 (271,000) (113,300)
Costs of potential sale of cable television system - - (18,800)
--------------- --------------- --------------
129,600 (349,200) (162,600)
--------------- --------------- --------------
NET INCOME $ 1,442,200 $ 939,600 $ 793,000
=============== =============== ==============
Net income allocated to General Partner $ 14,400 $ 9,400 $ 7,900
=============== =============== ==============
Net income allocated to Limited Partners $ 1,427,800 $ 930,200 $ 785,100
=============== =============== ==============
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 47.69 $ 31.07 $ 26.22
=============== =============== ==============
WEIGHTED AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING THE YEAR 29,940 29,940 29,940
=============== =============== ==============
See accompanying notes to financial statements
F-4
ENSTAR INCOME PROGRAM 1984-1, L.P.
STATEMENTS OF PARTNERSHIP CAPITAL (DEFICIT)
==============================================
General Limited
Partners Partners Total
--------------- --------------- --------------
PARTNERSHIP CAPITAL (DEFICIT),
January 1, 1997 $ (55,500) $ 1,775,400 $ 1,719,900
Net income for year 14,400 1,427,800 1,442,200
--------------- --------------- ---------------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1997 (41,100) 3,203,200 3,162,100
Net income for year 9,400 930,200 939,600
--------------- --------------- ---------------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1998 (31,700) 4,133,400 4,101,700
Net income for year 7,900 785,100 793,000
--------------- --------------- ---------------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1999 $ (23,800) $ 4,918,500 $ 4,894,700
=============== =============== ===============
See accompanying notes to financial statements
F-5
ENSTAR INCOME PROGRAM 1984-1, L.P.
STATEMENTS OF CASH FLOWS
=============================================
Year Ended December 31,
----------------------------------------------------------
1997 1998 1999
----------------- ---------------- -----------------
Cash flows from operating activities:
Net income $ 1,442,200 $ 939,600 $ 793,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 583,100 747,600 854,500
Amortization of deferred loan costs 50,300 29,500 29,700
Casualty (gain) loss (202,400) 271,000 113,300
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses
and other assets 40,000 65,500 (140,000)
Insurance claim receivable (163,900) 140,600 -
Accounts payable 81,100 (109,000) 4,700
----------------- ---------------- -----------------
Net cash provided by operating activities 1,830,400 2,084,800 1,655,200
----------------- ---------------- -----------------
Cash flows from investing activities:
Capital expenditures (776,900) (1,389,800) (1,050,500)
Increase in intangible assets (48,700) (8,600) -
----------------- ---------------- -----------------
Net cash used in investing activities (825,600) (1,398,400) (1,050,500)
----------------- ---------------- -----------------
Cash flows from financing activities:
Repayment of debt (1,042,800) - -
Borrowings from affiliate 250,000 - -
Repayment of borrowings from affiliate - (250,000) -
Deferred loan costs (113,900) (4,000) -
Due to affiliates (639,600) 140,700 322,800
----------------- ---------------- -----------------
Net cash provided by (used in)
financing activities (1,546,300) (113,300) 322,800
----------------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents (541,500) 573,100 927,500
Cash and cash equivalents at beginning of year 1,004,400 462,900 1,036,000
----------------- ---------------- -----------------
Cash and cash equivalents at end of year $ 462,900 $ 1,036,000 $ 1,963,500
================= ================ =================
See accompanying notes to financial statements
F-6
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
=========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar Income Program 1984-1, L.P., a Georgia limited
partnership (the "Partnership"), owns and operates cable television systems in
rural areas of North Carolina, South Carolina and Tennessee.
The financial statements do not give effect to any assets that
the partners may have outside of their interest in the Partnership, nor to any
obligations, including income taxes, of the partners.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Partnership
considers all highly liquid debt instruments purchased with an initial maturity
of three months or less to be cash equivalents. The carrying value of cash and
cash equivalents approximates fair value due to the short maturity of the
instruments.
The Partnership has no cash equivalents at December 31, 1999.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Direct costs
associated with installations in homes not previously served by cable are
capitalized as part of the distribution system, and reconnects are expensed as
incurred. For financial reporting, depreciation and amortization is computed
using the straight-line method over the following estimated useful lives:
Cable television systems 5-15 years
Vehicles 3 years
Furniture and equipment 5-7 years
Leasehold improvement Life of lease
FRANCHISE COST
The excess of cost over the fair values of tangible assets and
customer lists of cable television systems acquired represents the cost of
franchises. In addition, franchise cost includes capitalized costs incurred in
obtaining new franchises and the renewal of existing franchises. These costs are
amortized using the straight-line method over the lives of the franchises,
ranging up to 15 years. The Partnership periodically evaluates the amortization
periods of these intangible assets to determine whether events or circumstances
warrant revised estimates of useful lives. Costs relating to unsuccessful
franchise applications are charged to expense when it is determined that the
efforts to obtain the franchise will not be successful. The Partnership is in
the process of negotiating the renewal of expired franchise agreements for four
of the Partnership's 22 franchises, which include approximately 54% of the
Partnership's basic subscribers at December 31, 1999.
DEFERRED LOAN COSTS AND OTHER DEFERRED CHARGES
Costs related to obtaining new loan agreements are capitalized
and amortized to interest expense over the life of the loan. Other deferred
charges are amortized using the straight-line method over two years.
F-7
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
=========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
RECOVERABILITY OF ASSETS
The Partnership assesses on an ongoing basis the
recoverability of intangible and capitalized plant assets based on estimates of
future undiscounted cash flows compared to net book value. If the future
undiscounted cash flow estimate were less than net book value, net book value
would then be reduced to estimated fair value, which would generally approximate
discounted cash flows. The Partnership also evaluates the amortization periods
of assets, including franchise costs and other intangible assets, to determine
whether events or circumstances warrant revised estimates of useful lives.
REVENUE RECOGNITION
Revenues from customer fees, equipment rental and advertising
are recognized in the period that services are delivered. Installation revenue
is recognized in the period the installation services are provided to the extent
of direct selling costs. Any remaining amount is deferred and recognized over
the estimated average period that customers are expected to remain connected to
the cable television system.
INCOME TAXES
As a partnership, Enstar Income Program 1984-1, L.P. pays no
income taxes. All of the income, gains, losses, deductions and credits of the
Partnership are passed through to its partners. The basis in the Partnership's
assets and liabilities differs for financial and tax reporting purposes. At
December 31, 1999, the book basis of the Partnership's net assets exceeds its
tax basis by $1,421,300.
The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, differ from the
financial statements prepared for tax purposes due to the different treatment of
various items as specified in the Internal Revenue Code. The net effect of these
accounting differences is that net income for 1999 in the financial statements
is $355,500 more than tax income of the Partnership for the same period, caused
principally by timing differences in depreciation expense.
ADVERTISING COSTS
All advertising costs are expensed as incurred.
EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses have been allocated 99% to the limited
partners and 1% to the general partner. Earnings and losses per unit of limited
partnership interest are based on the weighted average number of units
outstanding during the year. The General Partner does not own units of
Partnership interest in the Partnership, but rather holds a participation
interest in the income, losses and distributions of the Partnership.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F-8
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
=========================================
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
RECLASSIFICATIONS
Certain prior years amounts have been reclassified to conform
to the 1999 presentation.
NOTE 2 - PARTNERSHIP MATTERS
The Partnership was formed December 12, 1983 to acquire,
construct, improve, develop and operate cable television systems. The
partnership agreement provides for Enstar Communications Corporation (the
"General Partner") and Robert T. Graff, Jr. to be the general partners and for
the admission of limited partners through the sale of interests in the
Partnership. Sale of interests in the Partnership began in February 1984, and
the initial closing took place in May 1984. The Partnership continued to raise
capital until $7,500,000 (the maximum) was sold by September 1984. The
Partnership acquired its first property subsequent to the initial closing. The
Partnership acquired several other operating properties during 1984 and 1985.
On September 30, 1988, Falcon Cablevision, a California
limited partnership, purchased all of the outstanding capital stock of the
General Partner. On September 10, 1993, the General Partner, purchased the
general partnership interest held by Robert Graff, Jr., the individual general
partner, in Enstar Income Program 1984-1, L.P. and five affiliated partnerships.
The purchase was made pursuant to an agreement dated August 9, 1988 and amended
September 10, 1993, by and among Enstar Communications Corporation, Falcon
Cablevision and Robert Graff, Jr. Following the purchase, Enstar Communications
Corporation became the sole general partner of Enstar Income Program 1984-1,
L.P.
On September 30, 1998, Falcon Holding Group, L.P. ("FHGLP")
acquired ownership of the General Partner from Falcon Cablevision.
Simultaneously with the closing of that transaction, FHGLP contributed all of
its existing cable television system operations to Falcon Communications, L.P.
("FCLP"), a California limited partnership and successor to FHGLP. FHGLP served
as the managing partner of FCLP, and the general partner of FHGLP was Falcon
Holding Group, Inc., a California corporation ("FHGI"). On November 12, 1999,
Charter Communications Holding Company, LLC, ("Charter"), acquired the ownership
of FCLP and the General Partner. The General Partner, Charter and affiliated
companies are responsible for the day-to-day management of the Partnership and
its operations.
The partnership agreement generally provides that all
partnership profits, gains, losses, credits, and cash distributions (all as
defined) from operations or liquidation be allocated 1% to the general partner
and 99% to the limited partners until the limited partners have received
distributions of cash flow from operations and/or cash flow from sales,
refinancing, or liquidation of systems equal to their initial investment. After
the limited partners have received cash flow equal to their initial investment,
the general partner will only receive a one percent allocation of cash flow from
liquidating a system until the limited partners have received an annual simple
interest return of at least 18% of their initial investment less any
distributions from previous system liquidations. Thereafter, allocations will be
made 15% to the general partner and 85% to the limited partners. All allocations
to individual limited partners will be based on their respective capital
accounts. Upon dissolution of the Partnership, any negative capital account
balances remaining after all allocations and distributions are made must be
funded by the respective partners.
The partnership agreement limits the amount of debt the
Partnership may incur.
F-9
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
=========================================
NOTE 3 - POTENTIAL SALE OF PARTNERSHIP ASSETS
In accordance with the partnership agreement, the General
Partner has implemented a plan for liquidating the Partnership. In connection
with that strategy, the General Partner has entered into an agreement with a
cable broker to market the Partnership's cable systems to third parties. Should
the Partnership receive offers from third parties for such assets, the General
Partner will prepare a proxy for submission to the limited partners for the
purpose of approving or disapproving such sale. Should such a sale be approved,
the General Partner will proceed to liquidate the Partnership following the
settlement of its final liabilities. The General Partner can give no assurance,
however, that it will be able to generate a sale of the Partnership's cable
assets. The financial statements do not reflect any adjustments that may result
from the outcome of this uncertainty. On May 27, 1999, the General Partner
signed a non-binding letter of intent to sell the Partnership's cable system in
Kershaw, South Carolina to Catawba Services, Inc. but the parties have yet to
reach a definitive agreement regarding the sale. As of December 31, 1999, the
Partnership had incurred costs of approximately $18,800 related to the possible
sale, which have been expensed.
NOTE 4 - INSURANCE CLAIM RECEIVABLE
Insurance claim receivable at December 31, 1999 represents an
uncollected claim arising from storm related damage to the Partnership's Snow
Hill, North Carolina cable system in September 1999. The Partnership recognized
a loss of $113,300 in 1999 reflecting the net carrying value of the damaged
assets over the anticipated insurance reimbursement. The deductible amounted to
$92,000 and was funded from available cash reserves and operating cash flow. The
Partnership anticipates that the claim will be adjusted for additional
storm-related expenditures in 2000.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
December 31,
-----------------------------------
1998 1999
--------------- --------------
Cable television systems $ 14,819,300 $ 15,527,300
Vehicles, furniture and
equipment, and leasehold
improvements 390,700 455,800
---------------- --------------
15,210,000 15,983,100
Less accumulated depreciation and
amortization (11,094,500) (11,793,400)
---------------- --------------
$ 4,115,500 $ 4,189,700
================ ==============
F-10
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
=========================================
NOTE 6 - NOTE PAYABLE - AFFILIATE
The Partnership is party to a loan agreement with Enstar
Finance Company, LLC ("EFC"), a subsidiary of the General Partner. The loan
agreement provides for a revolving loan facility of $7,481,700 (the "Facility").
The Partnership repaid its outstanding borrowings in 1998, although the
Partnership may reborrow under the Facility in the future for the upgrade of the
Partnership's systems. On November 12, 1999, in connection with the sale of the
General Partner to Charter, the Facility was reduced to $4,800,000.
The Partnership's Facility matures on August 31, 2001, at
which time all amounts then outstanding are due in full. Borrowings bear
interest at the lender's base rate (8.5% at December 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. Borrowings under the Partnership's Facility are
collateralized by substantially all assets of the Partnership. 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 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. The General Partner believes that the Partnership was in compliance
with the covenants at December 31, 1999. See Note 7.
The General Partner contributed $462,300 of its receivable
balance due from the Partnership for deferred management fees and reimbursed
expenses as an equity contribution to EFC. This balance remains an outstanding
obligation of the Partnership.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
The Partnership leases buildings associated with the
franchises under operating leases expiring in various years through 2006.
Future minimum rental payments under non-cancelable leases
having remaining terms in excess of one year as of December 31, 1999 are as
follows:
Year Amount
--------------- ------------
2000 $ 12,500
2001 11,900
2002 6,100
2003 5,400
2004 5,400
Thereafter 10,800
------------
$ 52,100
============
Rentals, other than pole rentals, charged to operations
amounted to $31,800, $33,000 and $31,000 in 1997, 1998 and 1999, respectively.
Total expense charged to operations for pole rentals was $99,900, $105,800 and
$99,400 in 1997, 1998 and 1999, respectively.
Other commitments include approximately $4,400,000 at December
31, 1999 to upgrade the Partnership's cable systems in eight franchise areas.
Franchise agreements for the eight required upgrades specify completion dates
ranging from June 2000 to February 2002.
F-11
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
=========================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
The city of Covington, Tennessee rejected the Partnership's
franchise renewal proposal in June 1999. The franchise agreement with the city
expired in 1994 and the Partnership has continued to operate its cable system
there and pay franchise fees to the city. In March 2000, Charter submitted
another proposal to the city on behalf of the Partnership. The city is currently
reviewing the proposed terms against a competing proposal to award the franchise
to a municipal utility. There can be no assurance that the city will accept the
Charter proposal. Should the city revoke the Partnership's right to operate its
system in Covington, the loss of subscribers would have a significant adverse
impact on the Partnership's financial condition and results of operations.
In January 2000, the franchise authority in Bolivar, Tennessee
authorized its municipal utility to construct and operate a competing cable
system in that franchise area. The Partnership's franchise agreement with the
city expired in 1995. As it has in Covington, the Partnership has continued to
operate its cable system in Bolivar and pay franchise fees to the franchise
authority. Although the municipal utility has not obtained funds to build a
cable system, the Partnership's management believes that if a competing system
were built, the loss of subscribers would have an adverse impact on the
Partnership's financial condition and results of operations. Additionally, the
loss of either franchise would constitute an event of default under the
Partnership's loan agreement and would preclude the Partnership from borrowing
under the Facility to finance its franchise-required rebuilds. This would
require the Partnership to identify alternative sources of financing. See Note
6. As of December 31, 1999, there were 1,761 and 1,279 basic subscribers in the
cities of Covington and Bolivar, respectively which together represent
approximately 30% of the Partnership's basic subscribers at December 31, 1999.
The Partnership is subject to regulation by various federal,
state and local government entities. The Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Cable Act") provides for, among other
things, federal and local regulation of rates charged for basic cable service,
cable programming service tiers ("CPSTs") and equipment and installation
services. Regulations issued in 1993 and significantly amended in 1994 by the
Federal Communications Commission (the "FCC") have resulted in changes in the
rates charged for the Partnership's cable services. The Partnership believes
that compliance with the 1992 Cable Act has had a significant negative impact on
its operations and cash flow. It also believes that any potential future
liabilities for refund claims or other related actions would not be material.
The Telecommunications Act of 1996 (the "1996 Telecommunications Act") was
signed into law on February 8, 1996. As it pertains to cable television, the
1996 Telecommunications Act, among other things, (i) ended the regulation of
certain CPSTs in 1999; (ii) expands the definition of effective competition, the
existence of which displaces rate regulation; (iii) eliminates the restriction
against the ownership and operation of cable systems by telephone companies
within their local exchange service areas; and (iv) liberalizes certain of the
FCC's cross-ownership restrictions.
Beginning in August 1997, the 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 1999, 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 formerly owned or managed by FCLP through November 12, 1999, and
currently managed by Charter, including the Partnership.
F-12
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
=========================================
NOTE 7 - COMMITMENTS AND CONTINGENCIES (Continued)
Approximately 63% of the Partnership's subscribers are served
by its system in Brownsville, Tennessee 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.
NOTE 8 - EMPLOYEE BENEFIT PLAN
The Partnership participates in a cash or deferred profit
sharing plan (the "Profit Sharing Plan") sponsored by a subsidiary of the
General Partner, which covers substantially all of its employees. The Profit
Sharing Plan provides that each participant may elect to make a contribution in
an amount up to 15% of the participant's annual compensation which otherwise
would have been payable to the participant as salary. Prior to 1999, the
Partnership's contribution to the Profit Sharing Plan, as determined by
management, was discretionary but could not exceed 15% of the annual aggregate
compensation (as defined) paid to all participating employees. Effective January
1, 1999, the Profit Sharing Plan was amended, whereby the Partnership would make
an employer contribution equal to 100% of the first 3% and 50% of the next 2% of
the participants' contributions. A contribution of $1,200 was made during 1999.
There were no contributions charged against operations of the Partnership for
the Profit Sharing Plan in 1997 or 1998.
NOTE 9 - TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
The Partnership has a management and service agreement with a
wholly-owned subsidiary of the General Partner (the "Manager") for a monthly
management fee of 5% of gross receipts, as defined, from the operations of the
Partnership. Management fee expense was $268,500, $261,100 and $254,500 during
1997, 1998 and 1999, respectively.
In addition to the monthly management fee, the Partnership
reimburses the Manager for direct expenses incurred on behalf of the
Partnership, and for the Partnership's allocable share of operational costs
associated with services provided by the Manager. All cable television
properties managed by the General Partner and its subsidiaries are charged a
proportionate share of these expenses. Charter and its affiliates provide
management services for the Partnership. Such services were provided by FCLP and
its affiliates prior to November 12, 1999. Corporate office allocations and
district office expenses are charged to the properties served based primarily on
the respective percentage of basic customers or homes passed (dwelling units
within a system) within the designated service areas. The total amount charged
to the Partnership for these services was $335,100, $399,200 and $335,900 during
1997, 1998 and 1999, respectively.
Payments of management fees and reimbursed expenses were
deferred in prior years pursuant to restrictions imposed by the Partnership's
previous note payable agreement. The cumulative amount deferred was
approximately $1,081,300. On September 30, 1997, the Partnership obtained new
financing and subsequently used such borrowings and other available cash to pay
$619,000 of previously deferred management fees and reimbursed expenses. The
remainder of these deferred amounts was contributed as an equity contribution by
the General Partner to EFC. In the normal course of business, the Partnership
pays commitment fees to EFC. See Note 6.
The Partnership also receives certain system operating
management services from affiliates of the General Partner in addition to the
Manager. 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 $104,300, $26,900 and $44,500 in 1997, 1998 and
1999, respectively. 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.
F-13
ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO FINANCIAL STATEMENTS
=========================================
NOTE 9 - TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES (Continued)
Substantially all programming services had been purchased
through FCLP, and since November 12, 1999, have been purchased through Charter.
FCLP charged the Partnership for these costs based on an estimate of what the
General Partner could negotiate for such programming services for the 15
partnerships managed by the General Partner as a group. Charter charges the
Partnership for these costs based on its costs. The Partnership recorded
programming fee expense of $1,195,900, $1,161,700 and $1,192,800 in 1997, 1998,
and 1999, respectively. Programming fees are included in service costs in the
statements of operations.
NOTE 10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended December 31, 1997, 1998 and 1999, cash
paid for interest amounted to $107,100, $103,900 and $92,400, respectively.
F-14
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3 The Sixteenth Amended and Restated Agreement of Limited Partnership of
Enstar Income Program 1984-1, L.P., Dated as of August 1, 1988(3)
10.1 Management Agreement between Enstar Income Program 1984-1 and Enstar
Cable Corporation(1)
10.2 Revolving Credit and Term Loan Agreement dated April 10, 1985, between
Enstar Income Program 1984-1, L.P. and Rhode Island Hospital Trust
National Bank, as amended(2)
10.3 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for Greene County,
North Carolina(2)
10.4 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City of
Hookerton, North Carolina(2)
10.5 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City of
Kershaw, South Carolina(2)
10.6 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for York County,
South Carolina(2)
10.7 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City of
Covington, Tennessee(2)
10.8 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for Tipton County,
Tennessee(2)
10.9 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City of
Brownsville, Tennessee(2)
10.10 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City of
Bolivar, Tennessee(2)
10.11 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the City of
Riverhills, South Carolina(2)
10.12 Amendment No. 6 to Revolving Credit and Term Loan Agreement dated April
10, 1985 between Enstar Income Program 1984-1, L.P. and Rhode Island
Hospital Trust National Bank, dated as of January 26, 1990(4)
10.13 Service Agreement between Enstar Communications Corporation, Enstar
Cable Corporation and Falcon Holding Group, Inc. dated as of October 1,
1988(4)
10.14 Easement agreement and related documents thereto granting an agreement
for the purpose of constructing, maintaining and operating a community
antenna television system in River Hills Plantation, South Carolina.(5)
10.15 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for the Town of
Heath Springs, South Carolina.(5)
10.16 Amendment No. 6 to Revolving Credit and Term Loan Agreement dated April
10, 1985 between Enstar Income Program 1984-1 and Rhode Island Hospital
Trust National Bank, dated January 26, 1990.(5)
10.17 Amendment No. 7 to Revolving Credit and Term Loan Agreement dated April
10, 1985 between Enstar Income Program 1984-1 and Rhode Island Hospital
Trust National Bank, dated November 30, 1990.(5)
E-1
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
10.18 Amendment No. 8 to Revolving Credit and Term Loan Agreement dated April
10, 1985 between Enstar Income Program 1984-1 and Rhode Island Hospital
Trust National Bank, dated April 1, 1991.(6)
10.19 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television franchise for Hardeman
County, Tennessee.(6)
10.20 Amendment No. 9 to Revolving Credit and Term Loan Agreement dated April
10, 1985 between Enstar Income Program 1984-1 and Rhode Island Hospital
Trust National Bank, dated June 17, 1992.(7)
10.21 Amendment No. 10 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode Island
Hospital Trust National Bank, dated March 29, 1993.(7)
10.22 Amendment No. 11 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode Island
Hospital Trust National Bank, dated March 29, 1994. (8)
10.23 Amendment No. 12 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode Island
Hospital Trust National Bank, dated March 31, 1995.(9)
10.24 Amendment No. 13 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode Island
Hospital Trust National Bank, dated March 27, 1996.(10)
10.25 Amendment No. 14 to Revolving Credit and Term Loan Agreement dated
April 10, 1985 between Enstar Income Program 1984-1 and Rhode Island
Hospital Trust National Bank, dated October 31, 1996.(11)
10.26 Loan Agreement between Enstar Income Program 1984-1, L.P. and Enstar
Finance Company, LLC dated September 30, 1997.(12)
10.27 Franchise Ordinance granting a non-exclusive community antenna
television franchise for Greene County, North Carolina.(13)
10.28 Franchise Ordinance granting a non-exclusive community antenna
television franchise for the Town of Grifton, North Carolina.(14)
10.29 Franchise Ordinance granting a non-exclusive community antenna
television franchise for the Town of Heath Springs, the Town of Kershaw
and Lancaster County, South Carolina.(15)
21.1 Subsidiaries: None.
27.1 Financial Data Schedule.
E-2
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
FOOTNOTE REFERENCES
-------------------
(1) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1986.
(2) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1987.
(3) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1988.
(4) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1989.
(5) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1990.
(6) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1991.
(7) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-13333 for the quarter ended June 30,
1993.
(8) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1993.
(9) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1994.
(10) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-13333 for the fiscal year ended
December 31, 1995.
(11) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-13333 for the quarter ended September
30, 1996.
(12) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-13333 for the quarter ended September
30, 1997.
(13) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-13333 for the quarter ended March 31,
1999.
(14) Incorporated by reference to the exhibits to the Registrant's Quarterly
Report on Form 10-Q, File No. 0-13333 for the quarter ended June 30,
1999.
(15) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No.0-13333 for the fiscal year ended December
31, 1998.
E-3