1
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 September 30, 1995
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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 ______________________
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 INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
10900 Wilshire Boulevard, 15th Floor, Los Angeles, CA 90024
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 824-9990
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________________________________________________________________________________
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR,
IF CHANGED SINCE LAST REPORT.
Indicate by check X 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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EXHIBIT INDEX LOCATED AT PAGE E-1
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PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED BALANCE SHEETS
================================
December 31, September 30,
1994* 1995
------------------- -----------------
(unaudited)
ASSETS:
Cash and cash equivalents $ 2,327,500 $ 2,702,300
Accounts receivable less allowance of $7,200 and
$7,400 for possible losses 19,100 39,400
Prepaid expenses and other 7,800 23,300
Property, plant and equipment, less accumulated depreciation
and amortization of $3,255,000 and $3,709,900 1,594,100 1,425,400
Franchise cost, less accumulated amortization
of $3,800 and $6,700 22,900 65,600
Deferred charges, net 8,400 12,100
------------------- -----------------
$ 3,979,800 $ 4,268,100
=================== =================
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 195,200 $ 231,200
Due to affiliates 205,600 227,400
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TOTAL LIABILITIES 400,800 458,600
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT)
General partners (38,100) (35,800)
Limited partners 3,617,100 3,845,300
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TOTAL PARTNERSHIP CAPITAL 3,579,000 3,809,500
------------------- -----------------
$ 3,979,800 $ 4,268,100
=================== =================
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
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ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==================================
Unaudited
------------------------------------------
Three months ended
September 30,
------------------------------------------
1994 1995
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REVENUES $ 646,500 $ 656,900
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OPERATING EXPENSES:
Service costs 195,800 188,600
General and administrative expenses 65,700 49,100
General Partner management fees
and reimbursed expenses 97,300 90,500
Depreciation and amortization 103,600 184,000
------------------ -----------------
462,400 512,200
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OPERATING INCOME 184,100 144,700
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OTHER INCOME (EXPENSE):
Interest income 18,700 28,600
Interest expense (1,200) (2,200)
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17,500 26,400
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NET INCOME $ 201,600 $ 171,100
================== =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 6.67 $ 5.66
================== =================
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
================== =================
See accompanying notes to condensed financial statements.
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ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==================================
Unaudited
------------------------------------------
Nine months ended
September 30,
------------------------------------------
1994 1995
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REVENUES $ 1,941,800 $ 1,958,400
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OPERATING EXPENSES:
Service costs 562,400 599,900
General and administrative expenses 184,700 158,900
General Partner management fees
and reimbursed expenses 305,300 269,600
Depreciation and amortization 272,600 489,600
------------------ -----------------
1,325,000 1,518,000
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OPERATING INCOME 616,800 440,400
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OTHER INCOME (EXPENSE):
Interest income 44,100 79,200
Interest expense (4,900) (5,600)
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39,200 73,600
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NET INCOME $ 656,000 $ 514,000
================== =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 21.69 $ 17.00
================== =================
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
================== =================
See accompanying notes to condensed financial statements.
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ENSTAR INCOME PROGRAM II-1, L.P.
STATEMENTS OF CASH FLOWS
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Unaudited
------------------------------------------
Nine months ended
September 30,
------------------------------------------
1994 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 656,000 $ 514,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 272,600 489,600
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other (8,200) (35,800)
Accounts payable and due to affiliates 133,300 57,800
------------------ -----------------
Net cash provided by operating activities 1,053,700 1,025,600
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (425,400) (312,000)
Increase in intangible assets (9,400) (55,300)
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Net cash used in investing activities (434,800) (367,300)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (283,500) (283,500)
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INCREASE IN CASH AND CASH EQUIVALENTS 335,400 374,800
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,999,400 2,327,500
------------------ -----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,334,800 $ 2,702,300
================== =================
See accompanying notes to condensed financial statements.
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ENSTAR INCOME PROGRAM II-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the three
and nine months ended September 30, 1995 and 1994 are unaudited. These
condensed interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Partnership's
latest Annual Report on Form 10-K. In the opinion of management, such
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of such periods.
The results of operations for the three and nine months ended September 30,
1995 are not necessarily indicative of results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
The Partnership has a management and service agreement with a wholly
owned subsidiary of the Corporate General Partner (the "Manager") for a monthly
management fee of 5% of revenues, excluding revenues from the sale of cable
television systems or franchises. Management fees approximated $32,800 and
$97,900 for the three and nine months ended September 30, 1995, respectively.
In addition to the monthly management fee described above, the
Partnership reimburses the Manager for direct expenses incurred on behalf of
the Partnership and for the Partnership's allocable share of operational costs
associated with services provided by the Manager. All cable television
properties managed by the Corporate General Partner and its subsidiaries are
charged a proportionate share of these expenses. Corporate office allocations
and district office expenses are charged to the properties served based
primarily on the respective percentage of basic subscribers or homes passed
(dwelling units within a system) within the designated service areas. The total
amount charged to the Partnership for these services approximated $57,700 and
$171,700 for the three and nine months ended September 30, 1995, respectively.
Management fees and reimbursed expenses due the Corporate General Partner are
non-interest bearing.
Certain programming services have been purchased through an affiliate
of the Partnership. In turn, the affiliate charges the Partnership for these
costs based on an estimate of what the Partnership could negotiate for such
programming services on a stand-alone basis. The Partnership paid the
affiliate $126,800 and $379,500 for these programming services for the three
and nine months ended September 30, 1995, respectively. Programming fees are
included in service costs in the statements of operations for the three and
nine months ended September 30, 1995 and 1994.
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ENSTAR INCOME PROGRAM II-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(CONCLUDED)
=======================================
3. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is based
on the average number of units outstanding during the period presented. For
this purpose, earnings and losses are allocated 99% to the limited partners and
1% to the general partners.
4. RECLASSIFICATIONS
Certain 1994 amounts have been reclassified to conform to the 1995
presentation.
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ENSTAR INCOME PROGRAM II-1, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Compliance with the rules adopted by the Federal Communications
Commission (the "FCC") to implement the rate regulation provisions of the 1992
Cable Act has had a negative impact on the Partnership's revenues and cash
flow. Based on certain FCC decisions that have been released, however, the
Partnership's management presently believes that revenues for the first nine
months of 1995 reflect the impact of the 1992 Cable Act in all material
respects. Moreover, recent policy decisions by the FCC make it more likely
that in the future the Partnership will be permitted to increase regulated
service rates in response to specified cost increases, although certain costs
may continue to rise at a rate in excess of that which the Partnership will be
permitted to pass on to its customers. The FCC has recently adopted a procedure
under which cable operators may file abbreviated cost of service showings for
system rebuilds and upgrades, the result of which would be a permitted increase
in regulated rates to allow recovery of a portion of those costs. The FCC has
also proposed a new procedure for the pass-through of increases in inflation
and certain external costs, such as programming costs, under which cable
operators could increase rates based on actual and anticipated cost increases
for the coming year. In addition to these FCC actions, Congress is presently
considering legislation that could significantly revise, among other things,
the rate regulation provisions of the 1992 Cable Act, although there can be no
certainty as to the final provisions of such legislation, or whether it will
become law. Similarly, given events since the enactment of the 1992 Cable Act,
there can also be no assurance as to what, if any, future action may be taken
by the FCC, Congress or any other regulatory authority or court, or the effect
thereof on the Partnership's business.
In addition to the information set forth in this report, reference is
made to the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994 for additional information regarding regulatory matters and
the effect thereof on the Partnership's business.
RESULTS OF OPERATIONS
The Partnership's revenues increased by $10,400, or 1.6%, and by
$16,600 (less than one percent) for the three and nine months ended September
30, 1995 as compared to the corresponding periods in 1994. Of the three
months' increase, $33,500 was due to increases in regulated service rates
permitted under the 1992 Cable Act that were implemented by the Partnership in
April 1995, $4,200 was due to increases in the number of subscriptions for
services and $4,200 was due to increases in unregulated rates charged for
premium services implemented during the fourth quarter of 1994. These increases
were partially offset by rate decreases implemented in 1994 to comply with the
1992 Cable Act, estimated by the Partnership to be approximately $26,300, and
by decreases of approximately $5,200 in other revenue producing items. Of the
nine months' increase, $43,500 was due to increases in regulated service rates
permitted under the 1992 Cable Act that were implemented by the Partnership in
April 1995, $35,400 was due to increases in the number of subscriptions for
services, $15,200 was due to increases in other revenue producing items and
$1,400 was due to an increase in unregulated service rates charged for premium
services implemented during the fourth quarter of 1994. These increases were
partially offset by rate decreases implemented in 1994 to comply with the 1992
Cable Act, estimated by the Partnership to be approximately $78,900.
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ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs decreased by $7,200, or 3.7%, and increased by $37,500,
or 6.7%, for the three and nine months ended September 30, 1995 as compared to
the corresponding periods in 1994. Service costs represent costs directly
attributable to providing cable services to customers. Of the three months'
decrease, $12,200 was due to decreases in personnel costs, $5,100 was due to
decreases in copyright fees, and $3,200 was due to decreases in repair and
maintenance expense. These decreases were partially offset by an $8,100
increase in franchise fees and a $7,000 increase in programming fees (including
primary satellite fees) resulting from higher rates charged by program
suppliers. Of the nine months' increase, $22,800 was due to increases in
programming fees resulting from higher rates charged by program suppliers,
$15,900 was attributable to increases in franchise fees and $13,000 was due to
decreased capitalization of labor and overhead expense resulting from fewer
capital projects in the first nine months of 1995 compared to 1994. These
increases were partially offset by a $6,300 decrease in copyright fees and by a
$5,500 decrease in personnel costs.
General and administrative expenses decreased by $16,600, or 25.3%,
and by $25,800, or 14.0%, for the three and nine months ended September 30,
1995 as compared to the corresponding periods in 1994. Of the three months'
decrease, $10,900 was due to a decrease in insurance premiums, $4,600 was due
to lower marketing expenses and $2,300 was due to a decrease in advertising
sales expense. Of the nine months' decrease, $15,400 was due to a decrease in
marketing expense, $8,300 was due to a decrease in bad debt expense and $5,400
was due to a decrease in insurance premiums. These decreases were partially
offset by increases of $6,700 in personnel costs and $5,300 in professional
fees.
Management fees and reimbursed expenses decreased by $6,800, or 7.0%,
and by $35,700, or 11.7%, for the three and nine months ended September 30,
1995 as compared to the corresponding periods in 1994 due to decreases in
reimbursable expenses payable to the Corporate General Partner. Reimbursed
expenses for the three and nine month periods decreased due to lower allocated
personnel costs, recruiting expense, postage costs, telephone expense, property
taxes, professional service fees and costs associated with implementation of
the 1992 Cable Act.
Depreciation and amortization expense increased by $80,400, or 77.6%,
and by $217,000, or 79.6%, for the three and nine months ended September 30,
1995 as compared to the corresponding periods in 1994. The increases for the
three and nine month periods were primarily due to a reduction in the estimated
remaining life of existing plant being replaced. Other increases in
depreciation and amortization resulted from asset additions related to upgrades
of the Partnership's plant.
Operating income decreased by $39,400, or 21.4%, and by $176,400, or
28.6%, for the three and nine months ended September 30, 1995 compared to the
corresponding periods in 1994, principally due to increased depreciation and
amortization expense as described above.
Interest income increased by $9,900, or 53.0%, and by $35,100, or
79.6%, for the three and nine months ended September 30, 1995 compared to the
corresponding periods in 1994, as a result of higher cash balances available
for investment and higher interest rates earned on invested funds.
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ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
Due to the factors described above, the Partnership's net income
decreased by $30,500, or 15.1%, and by $142,000, or 21.7%, for the three and
nine months ended September 30, 1995 compared to the corresponding periods in
1994.
LIQUIDITY AND CAPITAL RESOURCES
The FCC's amended rate regulation rules were implemented during the
quarter ended September 30, 1994. Compliance with these rules has had a
negative impact on the Partnership's revenues and cash flow. However, as
discussed above, recent policy decisions of the FCC and pending legislation may
make it more likely that the Partnership will be permitted to increase
regulated service rates in response to certain cost increases.
The Partnership's primary objective, having invested its net offering
proceeds in cable systems, is to distribute to its partners all available cash
flow from operations and proceeds from the sale of cable systems, if any, after
providing for expenses, debt service, and capital requirements relating to the
expansion, improvement and upgrade of its cable systems. At September 30, 1995,
the Partnership had no debt outstanding.
The Partnership depends on 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 which include planned expenditures of approximately $2,500,000 to
rebuild and upgrade its existing cable system beginning in late 1995 and
extending into 1996. As a result, the Partnership intends, if possible, to
maintain cash reserves. In the future, the Partnership may also need to borrow,
if such borrowings are available on terms acceptable to the Partnership, of
which there can be no assurance.
The Partnership paid distributions totaling $94,500 and $283,500
during the three and nine months ended September 30, 1995, respectively, and
expects to continue to pay distributions at this level during 1995. There can,
however, be no assurances regarding the level, timing or continuation of future
distributions beyond 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Cash provided by operating activities decreased by $28,100 from
$1,053,700 to $1,025,600 for the nine months ended September 30, 1995 compared
with the prior year period. The Partnership used $75,500 more cash to pay
liabilities owed to the General Partner and third party creditors during the
nine months ended September 30, 1995 than in the first nine months of 1994.
Receivables and prepaid expenses used $27,600 more cash during the first nine
months of 1995. Partnership operations generated $75,000 more cash in the nine
months ended September 30, 1995 after adding back non-cash charges for
depreciation and amortization.
The Partnership used $67,500 less cash in investing activities in the
nine months ended September 30, 1995 than in the corresponding nine months of
1994, due to a $113,400 decrease in expenditures for tangible assets partially
offset by a $45,900 increase in expenditures for intangible assets.
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ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues increased from 44.5% during the third quarter of 1994 to
50.0% in the third quarter of 1995. EBITDA as a percentage of revenues
increased from 45.8% during the first nine months of 1994 to 47.5% in the first
nine months of 1995. The three and nine months' increases were primarily caused
by higher revenues and lower allocated reimbursed expenses, insurance premiums,
marketing expense and personnel costs. EBITDA increased from $287,700 to
$328,700, or by 14.3%, during the three months ended September 30, 1995
compared to the equivalent period in 1994. EBITDA increased from $889,400 to
$930,000, or by 4.6%, during the first nine months of 1995 compared to the
corresponding period in 1994.
INFLATION
Certain of the Partnership's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, the Partnership does not believe that its
financial results have been, or will be, adversely affected by inflation,
provided that it is able to increase its service rates periodically, of which
there can be no assurance.
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ENSTAR INCOME PROGRAM II-1, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 10.15 - Franchise agreement between Enstar
Income Program II-1, L.P. and the City of
Taylorville, IL.
Exhibit 10.16 - Agreement with Respect to Franchise
Fees and Reimbursable Fees between Enstar Income
Program II-1, L.P. and the City of Taylorville, IL.
Exhibit 10.17 - Franchise ordinance granting a
non-exclusive community antenna television franchise
for the City of Taylorville, IL.
(b) No reports on Form 8-K were filed during the quarter
for which this report is filed.
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EXHIBIT INDEX
Exhibit
Number Description
10.15 Franchise Agreement between Enstar Income Program II-1, L.P.
and the City of Taylorville, Illinois.
10.16 Agreement with Respect to Franchise Fees and Reimbursable
Fees between Enstar Income Program II-1, L.P. and the City of
Taylorville, Illinois.
10.17 Franchise Ordinance granting a non-exclusive community antenna
television franchise for the City of Taylorville, Illinois.
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ENSTAR INCOME PROGRAM II-1, L.P.
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 II-1, L.P.
a GEORGIA LIMITED PARTNERSHIP
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(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 6, 1995 By: /s/ Michael K. Menerey
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Michael K. Menerey,
Chief Financial Officer