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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 000-13333
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 incorporation or organization) (I.R.S. Employer Identification Number)
12405 Powerscourt Drive
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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Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENSTAR INCOME PROGRAM 1984-1, L.P.
CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
2002 2001*
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(UNAUDITED)
ASSETS
ASSETS:
Cash ......................................................... $ 1,904,600 $ 2,222,100
Accounts receivable .......................................... 120,000 134,800
Prepaid expenses and other assets ............................ 62,400 50,000
Property, plant and equipment, net of accumulated depreciation
of $11,227,800 and $10,985,300, respectively ............. 4,052,500 4,046,200
Franchise cost, net of accumulated amortization of
$37,000 and $35,100, respectively ....................... 43,700 45,600
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Total assets ............................................ $ 6,183,200 $ 6,498,700
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LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable ............................................. $ 78,800 $ 80,900
Accrued liabilities .......................................... 553,900 1,150,100
Due to affiliates ............................................ 669,200 414,600
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Total liabilities ...................................... 1,301,900 1,645,600
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PARTNERSHIP CAPITAL (DEFICIT)
General Partner .............................................. (23,900) (24,200)
Limited Partners ............................................. 4,905,200 4,877,300
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Total partnership capital .............................. 4,881,300 4,853,100
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Total liabilities and partnership capital .............. $ 6,183,200 $ 6,498,700
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* Agrees with the audited balance sheet included in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 2001.
See accompanying notes to condensed financial statements.
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ENSTAR INCOME PROGRAM 1984-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
MARCH 31,
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2002 2001
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(UNAUDITED)
REVENUES $ 907,900 $ 948,900
OPERATING EXPENSES:
Service costs 349,400 387,000
General and administrative expenses 187,700 205,800
General partner management fees and reimbursed expenses 105,000 103,900
Depreciation and amortization 244,400 194,800
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886,500 891,500
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OPERATING INCOME 21,400 57,400
OTHER INCOME (EXPENSE):
Interest income 4,700 16,500
Interest expense -- (6,000)
Other 2,100 (5,700)
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6,800 4,800
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NET INCOME $ 28,200 $ 62,200
========= =========
Net income allocated to General Partner $ 300 $ 600
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Net income allocated to Limited Partners $ 27,900 $ 61,600
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NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST $ 0.93 $ 2.06
========= =========
AVERAGE LIMITED PARTNERSHIP UNITS OUTSTANDING
DURING PERIOD 29,940 29,940
========= =========
See accompanying notes to condensed financial statements.
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ENSTAR INCOME PROGRAM 1984-1, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31,
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2002 2001
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(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 28,200 $ 62,200
Adjustments to reconcile net income to net cash from operating
activities:
Depreciation and amortization 244,400 194,800
Changes in:
Accounts receivable, prepaid expenses and other assets 2,400 52,900
Accounts payable, accrued liabilities and due to affiliates (343,700) (367,900)
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Net cash from operating activities (68,700) (58,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (248,800) (5,900)
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Net cash from investing activities (248,800) (5,900)
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NET DECREASE IN CASH (317,500) (63,900)
CASH AT BEGINNING OF PERIOD 2,222,100 2,366,800
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CASH AT END OF PERIOD $ 1,904,600 $ 2,302,900
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See accompanying notes to condensed financial statements.
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ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITIED)
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for Enstar
Income Program 1984-1, L.P. (the Partnership) as of March 31, 2002, and for the
three months ended March 31, 2002 and 2001, are unaudited. These condensed
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 2001. In the opinion of
management, the condensed interim financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of the results of such periods. The results of operations for the
three months ended March 31, 2002 are not necessarily indicative of results for
the entire year.
RECLASSIFICATIONS
Certain 2001 amounts have been reclassified to conform with the 2002
presentation.
2. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
The Partnership has a management and service agreement (the Management
Agreement) with Enstar Cable Corporation (Enstar Cable), a wholly owned
subsidiary of Enstar Communications Corporation (ECC), the Corporate General
Partner, for a monthly management fee of 5% of gross revenues, as defined, from
operations of the Partnership, excluding revenues from the sale of cable
television systems or franchises. Management fee expense approximated $45,400
and $47,400 for the three months ended March 31, 2002 and 2001, respectively.
Management fees are non-interest bearing.
In addition to the monthly management fee, the Partnership reimburses
Enstar Cable for direct expenses incurred on behalf of the Partnership, and for
the Partnership's allocable share of operational costs associated with services
provided by Enstar Cable. Additionally, Charter Communications Holding Company,
LLC and its affiliates (collectively, Charter) provide other management and
operational services for the Partnership. These expenses are charged to the
properties served based primarily on the Partnership's allocable share of
operational costs associated with the services provided. The total amount
charged to the Partnership for these services approximated $59,600 and $56,500
for the three months ended March 31, 2002 and 2001, respectively.
All programming services are purchased through Charter. Charter charges
the Partnership for these costs based on its costs. The Partnership recorded
programming fee expense of $211,400 and $215,200 for the three months ended
March 31, 2002 and 2001, respectively. Programming fees are included in service
costs in the accompanying condensed statements of operations.
3. NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST
Net income per unit of limited partnership interest is based on the
average number of units outstanding during the periods presented. For this
purpose, net income has been allocated 99% to the Limited Partners and 1% to the
General Partner. 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.
4. CERTAIN TRENDS AND UNCERTAINTIES
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 in Covington and pay franchise
fees to the city. In March 2000, Charter submitted another proposal to the city
on behalf of us. The city suspended the hearing to consider Charter's renewal
proposal, and in May 2000 issued a resolution denying its consent to transfer
controlling interest in us from an affiliate of Charter. In November 2000, the
city sold municipal bonds to finance construction of a municipally owned cable
system. The city is actively competing with us following the completion of the
city's cable plant during the first quarter of 2002. Should the determination
not to renew the franchise be upheld, or if we do not have the authority to
transfer the affiliate's interest to Charter, then we
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ENSTAR INCOME PROGRAM 1984-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITIED)
would have no right to continue operations within the city unless the city
issued a new franchise. The loss of our franchise and the related loss of
customers would have a significant adverse impact on our financial condition and
results of operations. The city of Covington is one of three franchise areas
located in the Brownsville cable television system. No impairment charge was
taken on Brownsville's cable television system and franchise assets which had a
carrying value of $2,027,200 at March 31, 2002.
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. As we have in Covington, we have continued to
operate our 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
customers would have an adverse impact on our financial condition and results of
operations. As of March 31, 2002, there were approximately 2,300 and 1,300 basic
customers in the cities of Covington and Bolivar, respectively.
5. RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 provides for the rescission of several previously
issued accounting standards, new accounting guidance for the accounting for
certain lease modifications and various technical corrections that are not
substantive in nature to existing pronouncements. SFAS No. 145 will be adopted
by the Partnership beginning January 1, 2003, except for the provisions relating
to the amendment of SFAS No. 13, which will be adopted for transactions
occurring subsequent to May 15, 2002. Adoption of SFAS No. 145 will not have a
material impact on the condensed financial statements of the Partnership.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
This 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 us.
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 us. In addition to the information provided herein, reference
is made to our Annual Report on Form 10-K for the year ended December 31, 2001
for additional information regarding such matters and the effect thereof on our
business.
RESULTS OF OPERATIONS
Revenues decreased $41,000 from $948,900 to $907,900, or 4.3%, for the
three months ended March 31, 2002 compared to the corresponding period in 2001.
The decrease was primarily due to a decline in basic and premium service
customers partially offset by an increase in prices. As of March 31, 2002 and
2001, we had approximately 7,400 and 8,200 basic service customers,
respectively, and 3,400 and 5,300 premium service customers, respectively.
Service costs decreased $37,600 from $387,000 to $349,400, or 9.7%, for
the three months ended March 31, 2002 compared to the corresponding period in
2001. Service costs represent programming costs and other costs directly
attributable to providing cable services to customers. The decrease was
primarily due to the decline in basic and premium service customers, described
above, coupled with reduced labor costs.
General and administrative expenses decreased $18,100 from $205,800 to
$187,700, or 8.8%, for the three months ended March 31, 2002 compared to the
corresponding period in 2001. The decrease was due primarily to reduced labor
costs compared to the corresponding period in 2001.
General partner management fees and reimbursed expenses represent
administrative costs reimbursed to Charter by us based on Charter's actual costs
incurred. These costs increased $1,100 from $103,900 to $105,000, or 1.1%, for
the three months ended March 31, 2002 compared to the corresponding period in
2001. The increase was primarily due to an increase in the level of such
services being provided and billed to us by Charter.
Depreciation and amortization expense increased $49,600 from $194,800
to $244,400, or 25.5%, for the three months ended March 31, 2002 compared to the
corresponding period in 2001. The increase was due primarily to capital
expenditures during the three months ended March 31, 2002 and the last three
quarters of 2001 relating to cable systems upgrades.
Due to the factors described above, operating income decreased $36,000
from $57,400 to $21,400, or 62.7%, for the three months ended March 31, 2002
compared to the corresponding period in 2001.
Interest income decreased $11,800 from $16,500 to $4,700, or 71.5%, for
the three months ended March 31, 2002 compared to the corresponding period in
2001. The decrease was primarily due to lower average cash balances available
for investment coupled with lower interest rates during the three months ended
March 31, 2002 compared to the corresponding period in 2001.
Interest expense decreased from $6,000 to $0, or 100.0%, for the three
months ended March 31, 2002 compared to the corresponding period in 2001. The
decrease was due to no outstanding borrowings under our loan facility during the
three months ended March 31, 2002 as the loan facility expired on August 31,
2001.
Other income of $2,100 and other expense of $5,700 for the three months
ended March 31, 2002 and 2001, respectively, represents a gain on the sale of
fixed assets in 2002 and costs associated with the sale of our cable system
located in Kershaw, South Carolina occurring in the first quarter of 2001.
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Due to the factors described above, our net income decreased $34,000
from $62,200 to $28,200, or 54.7%, for the three months ended March 31, 2002
compared to the corresponding period in 2001.
Based on our experience in the cable television industry, we believe
that income before interest, income taxes, depreciation and amortization, or
EBITDA, and related measures of cash flow serve as important financial analysis
tools for measuring and comparing cable television companies in several areas,
such as liquidity, operating performance and leverage. EBITDA is not a
measurement determined under generally accepted accounting principles (GAAP) and
does not represent cash generated from operating activities in accordance with
GAAP. EBITDA should not be considered by the reader as an alternative to net
income as an indicator of financial performance or as an alternative to cash
flows as a measure of liquidity. In addition, the definition of EBITDA may not
be identical to similarly titled measures used by other companies. EBITDA
increased $21,400 from $246,500 to $267,900, or 8.7%, for the three months ended
March 31, 2002 compared to the corresponding period in 2001. As a percentage of
revenues, EBITDA increased 3.5%, from 26.0% to 29.5%, during the three months
ended March 31, 2002 compared to the corresponding period in 2001.
Operating activities used $68,700 and $58,000 during the three months
ended March 31, 2002 and 2001, respectively. Changes in accounts receivable,
prepaid expenses and other assets provided $2,400 and $52,900 in cash during the
three months ended March 31, 2002 and 2001, respectively, due primarily to
fluctuations in receivable collections. Changes in liabilities owed to
affiliates and third party creditors used $343,700 and $367,900 in cash during
the three months ended March 31, 2002 and 2001, respectively, primarily due to
differences in the timing of payments.
Investing activities used $248,800 and $5,900 during the three months
ended March 31, 2002 and 2001, respectively, due to capital expenditures.
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 and any planned capital requirements. In general, these
capital requirements involve expansion, improvement and upgrade of our existing
cable systems.
INVESTING ACTIVITIES
Significant capital would be required for a comprehensive plant and
headend upgrade particularly in light of the high cost of electronics to enable
two-way service, to offer high speed cable modem Internet service and other
interactive services, as well as to increase channel capacity and allow a
greater variety of video services.
The estimated cost of all of these comprehensive upgrades would be
approximately $12.2 million (for an upgrade to 550 megahertz capacity) and $14.6
million (for an upgrade to 870 megahertz capacity). Given the potential
overbuilds that exist in Tennessee, the high cost of this comprehensive upgrade
plan, the limited funds available, and the belief that such a plan is not
economically prudent, Enstar Communications Corporation (the Corporate General
Partner) does not presently anticipate that it will proceed with a comprehensive
upgrade plan. Provided there are available funds, the Corporate General Partner
will, however, continue to make upgrades required by franchise agreements and
will continue to evaluate alternative, cost-effective solutions to increase
channel capacity, pay-per-view services, and digital services which would
enhance the value of our systems and be economically prudent.
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FINANCING ACTIVITIES
We were party to a loan agreement with Enstar Finance Company, LLC, a
subsidiary of the Corporate General Partner, that matured on August 31, 2001.
The loan facility was not extended or replaced. Cash generated by our
operations, together with available cash balances will be used to fund capital
expenditures as required by franchise authorities. However, our cash reserves
will be insufficient to fund a comprehensive upgrade program. If our systems are
not sold, we will need to rely on increased cash flow from operations or new
sources of financing in order to meet our future liquidity requirements. There
can be no assurance that such cash flow increases can be attained, or that
additional future financing will be available on terms acceptable to us. If we
are not able to attain such cash flow increases, or obtain new sources of
borrowings, we will not be able to fully complete a comprehensive cable systems
upgrade. As a result, the value of our systems would be lower than that of
systems built to a higher technical standard.
We believe it is critical to conserve cash to fund our anticipated
capital expenditures. Accordingly, we do not anticipate any distributions to
partners at this time.
CERTAIN TRENDS AND UNCERTAINTIES
The Corporate General Partner believes that if we were to make
comprehensive additional upgrades to enable the variety of enhanced and
competitive services available in today's marketplace, particularly in light of
the potential overbuilds and the high cost of two-way capability, we would not
recoup the costs or regain our ability to operate profitably within the
remaining term of our franchises, so that making these upgrades would not be
economically prudent. Furthermore, in April 2002, the City of Covington,
Tennessee launched a competitive overbuild and is actively competing with the
Partnership. The City has also resolved not to renew our franchise. In Bolivar,
Tennessee, the local municipal utility has received a franchise to operate a
competing cable system. Thus, only limited plant upgrades have been made, and
generally only where necessary to meet the requirements of existing franchises
or when believed to be economically viable.
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 in Covington and pay franchise
fees to the city. In March 2000, Charter submitted another proposal to the city
on behalf of us. The city suspended the hearing to consider Charter's renewal
proposal, and in May 2000 issued a resolution denying its consent to transfer
controlling interest in us from an affiliate of Charter. In November 2000, the
city sold $5.3 million in municipal bonds to finance construction of a
municipally owned cable system. The city is actively competing with us following
the completion of the city's cable plant during the first quarter of 2002.
Should the determination not to renew the franchise be upheld, or if we do not
have the authority to transfer the affiliate's interest to Charter, then we
would have no right to continue operations within the city unless the city
issued a new franchise. The loss of our franchise and the related loss of
customers would have a significant adverse impact on our 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. As we have in Covington, we have continued to
operate our 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
customers would have an adverse impact on our financial condition and results of
operations. As of March 31, 2002, there were approximately 2,300 and 1,300 basic
customers in the cities of Covington and Bolivar, respectively.
COMMITMENTS AND CONTINGENCIES
Insurance coverage is maintained for all of the cable television
properties owned or managed by Charter to cover damage to cable distribution
systems, customer connections and against business interruptions resulting from
such damage. This coverage is subject to a significant annual deductible which
applies to all of the cable television properties owned or managed by Charter,
including ours.
Approximately 81% of our customers 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
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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 insurable
risks.
Although we do not believe that the terrorist attacks on September 11,
2001 and the related events have resulted in any material changes to our
business and operations to date, it is difficult to assess the impact that these
events, combined with the general economic slowdown, will have on future
operations. These events could result in reduced spending by customers and
advertisers, which could reduce our revenues and operating cash flow, as well as
the collectibility of accounts receivable.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2002, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 145, "Rescission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections." SFAS No. 145 provides for the rescission of several previously
issued accounting standards, new accounting guidance for the accounting for
certain lease modifications and various technical corrections that are not
substantive in nature to existing pronouncements. SFAS No. 145 will be adopted
by us beginning January 1, 2003, except for the provisions relating to the
amendment of SFAS No. 13, which will be adopted for transactions occurring
subsequent to May 15, 2002. Adoption of SFAS No. 145 will not have a material
impact on the condensed financial statements.
INFLATION
Certain of 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 manner, provided that we
are able to increase our service prices periodically, of which there can be no
assurance.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None.
(B) REPORTS ON FORM 8-K
None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME PROGRAM 1984-1, L.P.
By: ENSTAR COMMUNICATIONS CORPORATION
Corporate General Partner
Date: May 15, 2002 By: /s/ Paul E. Martin
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Paul E. Martin
Senior Vice President, Corporate
Controller (Principal
Accounting Officer)
12