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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-14508
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Enstar Income Program II-1, L.P.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1628877
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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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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 II-1, L.P.
CONDENSED BALANCE SHEETS
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March 31, December 31,
2001 2000*
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(Unaudited)
ASSETS:
Cash $ 1,331,800 $ 1,861,600
Accounts receivable, net of allowance for doubtful accounts of $8,400
and $6,100, respectively 48,100 119,300
Prepaid expenses and other assets 39,200 37,000
Due from affiliates 78,700 41,400
Property, plant and equipment, net of accumulated
depreciation of $4,120,200 and $3,933,900, respectively 5,904,200 6,046,300
Franchise cost, net of accumulated
amortization of $62,600 and $59,700, respectively 53,100 56,100
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$ 7,455,100 $ 8,161,700
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LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 46,100 $ 633,100
Accrued liabilities 173,500 404,700
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219,600 1,037,800
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PARTNERSHIP CAPITAL (DEFICIT):
General Partners (1,500) (2,700)
Limited Partners 7,237,000 7,126,600
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TOTAL PARTNERSHIP CAPITAL 7,235,500 7,123,900
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$ 7,455,100 $ 8,161,700
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* Agrees with audited balance sheet included in the Partnership's Annual Report
on Form 10-K
The accompanying notes are an integral part of these condensed
financial statements.
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ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
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Unaudited
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Three months ended
March 31,
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2001 2000
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REVENUES $ 803,900 $ 802,000
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OPERATING EXPENSES:
Service costs 230,300 214,100
General and administrative expenses 68,900 71,400
General partner management fees and reimbursed expenses 121,600 104,100
Depreciation and amortization 189,200 140,000
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610,000 529,600
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OPERATING INCOME 193,900 272,400
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OTHER INCOME (EXPENSE):
Interest income 10,900 28,600
Interest expense -- (2,700)
Gain on sale of fixed assets 1,000 --
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11,900 25,900
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NET INCOME $ 205,800 $ 298,300
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Net income allocated to General Partners $ 2,100 $ 3,000
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Net income allocated to Limited Partners $ 203,700 $ 295,300
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NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 6.80 $ 9.87
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AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
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The accompanying notes are an integral part of these condensed
financial statements.
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ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
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Unaudited
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Three months ended
March 31,
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2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 205,800 $ 298,300
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 189,200 140,000
Changes in:
Accounts receivable, due from affiliates, and prepaid expenses and other
assets 31,700 43,000
Accounts payable and accrued liabilities (818,200) (182,700)
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Net cash from operating activities (391,500) 298,600
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (44,100) (21,700)
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Net cash from investing activities (44,100) (21,700)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (94,200) (94,500)
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Net cash from financing activities (94,200) (94,500)
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INCREASE (DECREASE) IN CASH (529,800) 182,400
CASH AT BEGINNING OF PERIOD 1,861,600 2,309,000
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CASH AT END OF PERIOD $ 1,331,800 $ 2,491,400
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The accompanying notes are an integral part of these condensed
financial statements.
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ENSTAR INCOME PROGRAM II-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for
Enstar Income Program II-1, L.P. (the "Partnership") as of March 31, 2001, and
for the three months ended March 31, 2001 and 2000, are unaudited. These
condensed interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in our Annual Report on
Form 10-K for the year ended December 31, 2000. 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, 2001, are not necessarily indicative of results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (the
"Management Agreement") with Enstar Cable Corporation (the "Manager"), a wholly
owned subsidiary of Enstar Communications Corporation (ECC), the corporate
general partner, for a monthly management fee of 5% of revenues to the Manager,
excluding revenues from the sale of cable television systems or franchises.
Management fee expense approximated $38,700 and $40,100 for the three months
ended March 31, 2001 and 2000, respectively. Management fees are non-interest
bearing.
In addition to the monthly management fee, the Management
Agreement also provides that the Partnership reimburse 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. 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 was $82,900 and $64,000 for the three months
ended March 31, 2001 and 2000, respectively.
Substantially all programming services have been purchased
through Charter. Charter charges the Partnership for these costs based on its
actual costs. The Partnership recorded programming fee expense of $173,100 and
$165,800 for the three months ended March 31, 2001 and 2000, respectively.
Programming fees are included in service costs in the accompanying condensed
statements of operations.
The Partnership provides cable television signals to certain
cable systems in neighboring communities that are owned by other partnerships
managed by ECC. Such services are provided without fee.
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 Partners. The General Partners do not own units of partnership
interest in the Partnership, but rather hold a participation interest in the
income, losses and distributions of the Partnership.
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ENSTAR INCOME PROGRAM II-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
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4. SUBSEQUENT EVENT
The Partnership, together with certain affiliates
(collectively, the "Selling Partnerships"), entered into a purchase and sale
agreement, dated as of August 8, 2000, as amended as of September 29, 2000 (the
"Agreement"), with Multimedia Acquisition Corp., an affiliate of Gans Multimedia
Partnership ("Gans"). The Agreement provided for Gans to acquire the assets
comprising the Partnership's Taylorville, Illinois cable system, as well as
certain assets of the other Selling Partnerships.
Following a series of discussions and meetings, the
Partnership and Gans have determined that they will not be able to agree on
certain further amendments to the Agreement that are required in order to
satisfy conditions precedent to close the transaction. In light of this, present
economic and financial market conditions, and their impact on Gans' inability to
arrange financing in order to close the acquisition, on April 18, 2001 the
parties agreed to terminate the Agreement.
The Partnership's corporate general partner will continue to
operate the Partnership's cable television systems and will continue to
investigate potential divestiture transactions for the benefit of its
unitholders.
On December 7, 2000, the Partnership filed a Preliminary Consent Statement with
the Securities and Exchange Commission, pursuant to which the Partnership's
corporate general partner would solicit consents from the Limited Partners to
approve the Agreement. In light of the foregoing events, the Partnership has
withdrawn the Preliminary Consent Statement.
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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 the Partnership. Such forward-looking statements involve risks and
uncertainties including, without limitation, the uncertainty of legislative and
regulatory changes and the rapid developments in the competitive environment
facing cable television operators such as the Partnership. In addition to the
information provided herein, reference is made to our Annual Report on Form 10-K
for the year ended December 31, 2000, for additional information regarding such
matters and the effect thereof on the Partnership's business.
RESULTS OF OPERATIONS
Revenues increased from $802,000 to $803,900, or 0.2%, for the
three months ended March 31, 2000, as compared to the corresponding period in
2000. The increase in revenues for the three months ended March 31, 2001 was due
to an increase in the number of premium service customers, partially offset by a
decline in the number of basic service customers. As of March 31, 2001 and 2000,
we had approximately 6,400 and 6,900 basic service customers, respectively, and
1,300 and 1,200 premium service customers, respectively.
Service costs increased from $214,100 to $230,300, or 7.6%,
for the three months ended March 31, 2001, as compared to the corresponding
period in 2000. Service costs represent costs directly attributable to providing
cable services to customers. The increase was primarily due to an increase in
programming fees.
Gross margin decreased from $587,900 to $573,600, or 2.4%, for
the three months ended March 31, 2001, as compared to the corresponding period
in 2000. As a percentage of revenues, gross margin decreased from 73.3% to 71.4%
for the three months ended March 31, 2001, as compared to the corresponding
period in 2000. The decrease in gross margin dollars and as a percentage of
revenues was primarily due to our customer base mix during the three months
ended March 31, 2001, as compared to the corresponding period in 2000.
General and administrative expenses decreased from $71,400 to
$68,900, or 3.5%, for the three months ended March 31, 2001, as compared to the
corresponding period in 2000. The decrease for the three months ended March 31,
2001 was primarily due to decreases in marketing expenses and an increase in
general and administrative expenses being provided and billed to us by Charter
during the three months ended March 31, 2001, as compared to the corresponding
period in 2000.
General partner management fees and reimbursed expenses
increased from $104,100 to $121,600, or 16.8%, for the three months ended March
31, 2001, as compared to the corresponding period in 2000. Management fees
increased due to increased revenues as well as an increase in administrative
activities provided by the corporate general partner on our behalf. As discussed
above, Charter now performs certain management and operational functions
formerly performed by us. Therefore, we have higher costs reimbursed to Charter
and lower service costs and general and administrative expenses.
Depreciation and amortization expense increased from $140,000
to $189,200, or 35.1%, for the three months ended March 31, 2001, as compared to
the corresponding period in 2000. The increase was due to asset additions for
cable system upgrades since the first quarter in 2000.
Due to the factors described above, operating income decreased
from $272,400 to $193,900, or 28.8%, for the three months ended March 31, 2001,
as compared to the corresponding period in 2000.
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Interest income, net of interest expense, decreased from
$25,900 to $10,900, or 57.9%, for the three months ended March 31, 2001, as
compared to the corresponding period in 2000, primarily due to lower average
cash balances available for investment during the three months ended March 31,
2001.
Due to the factors described above, net income decreased from
$298,300 to $205,800, or 31.0%, for the three months ended March 31, 2001, as
compared to the corresponding period in 2000.
Based on our experience in the cable television industry, we
believe that operating income before 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 decreased from
$412,400 to $383,100, or 7.1%, during the three months ended March 31, 2001, as
compared to the corresponding period in 2000. EBITDA as a percentage of revenues
decreased from 51.4% to 47.7% during the three months ended March 31, 2001, as
compared to the corresponding period in 2000. The decrease was related to the
changes in revenues and expenses as described above.
LIQUIDITY AND CAPITAL RESOURCES
Our primary objective 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 capital requirements relating to the
expansion, improvement and upgrade of such cable systems.
The Partnership, together with certain affiliates
(collectively, the "Selling Partnerships"), entered into a purchase and sale
agreement, dated as of August 8, 2000, as amended as of September 29, 2000 (the
"Agreement"), with Multimedia Acquisition Corp., an affiliate of Gans Multimedia
Partnership ("Gans"). The Agreement provided for Gans to acquire the assets
comprising the Partnership's Taylorville, Illinois cable system, as well as
certain assets of the other Selling Partnerships.
Following a series of discussions and meetings, the
Partnership and Gans have determined that they will not be able to agree on
certain further amendments to the Agreement that are required in order to
satisfy conditions precedent to close the transaction. In light of this, present
economic and financial market conditions, and their impact on Gans' inability to
arrange financing in order to close the acquisition, on April 18, 2001 the
parties agreed to terminate the Agreement.
The Partnership's corporate general partner will continue to
operate the Partnership's cable television systems and will continue to
investigate potential divestiture transactions for the benefit of its
unitholders.
On December 7, 2000, the Partnership filed a Preliminary
Consent Statement with the Securities and Exchange Commission, pursuant to which
the Partnership's corporate general partner would solicit consents from the
Limited Partners to approve the Agreement. In light of the foregoing events, the
Partnership has withdrawn the Preliminary Consent Statement
At March 31, 2001, the Partnership had no debt outstanding.
The Partnership relies upon cash flow from operations to meet operating
requirements and fund necessary capital expenditures. Although the Partnership
currently has a significant cash balance, there can be no assurance that the
Partnership's cash flow will be adequate to meet its future liquidity
requirements. The Partnership has upgraded its cable system in Litchfield,
Illinois under a provision of the franchise agreement. Capital expenditures
during 2000 and through first quarter 2001 approximated $1.6 million.
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We paid distributions totaling $94,200 during the three months
ended March 31, 2001, and expect to continue to pay distributions at this level
during 2001. There can, however, be no assurances regarding the level, timing or
continuation of future distributions.
The Partnership maintains insurance coverage for all of the
cable television properties owned or managed by it to cover damage to cable
distribution plant and 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 those of the Partnership.
All of our customers are served by our system in Taylorville,
Illinois 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 insurable risks.
Our operating activities used $391,500 cash in the three
months ended March 31, 2001. Changes in receivables, due from affiliates, and
prepaid expenses and other assets provided $31,700 cash during the three months
ended March 31, 2001, due to higher receivable collections. We used $818,200
cash to pay liabilities owed to affiliates and third party creditors during the
three months ended March 31, 2001, due to differences in the timing of payments.
We used $44,100 cash in investing activities during the three months ended March
31, 2001 on capital expenditures for systems upgrades. Cash used in financing
activities totaling $94,200 represent distributions to partners during the three
months ended March 31, 2001.
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.
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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
On April 30, 2001, the Registrant filed a current
report on Form 8-K to announce the termination of its
sale agreement with Multimedia Acquisition Corp.
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SIGNATURE
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 II-1, L.P.
a GEORGIA LIMITED PARTNERSHIP
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(Registrant)
By: ENSTAR COMMUNICATIONS
CORPORATION
General Partner
Date: May 15, 2001 By: /s/ Kent D. Kalkwarf
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Kent D. Kalkwarf
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)