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 March 31, 1996
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
Enstar Income Program II-1, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Georgia 58-1628877
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
10900 Wilshire Boulevard, 15th Floor, Los Angeles, CA 90024
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 824-9990
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.
Indicate by check u 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
--- ---
EXHIBIT INDEX LOCATED AT PAGE E-1
2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED BALANCE SHEETS
December 31, March 31,
1995* 1996
---- ----
(unaudited)
ASSETS:
Cash and cash equivalents $ 2,657,300 $ 2,944,500
Accounts receivable less allowance of $5,500 and
$5,300 for possible losses 48,100 24,000
Prepaid expenses and other 16,400 51,100
Property, plant and equipment, less accumulated depreciation
and amortization of $3,893,000 and $3,969,300 1,322,200 1,263,700
Franchise cost, less accumulated amortization
of $8,800 and $10,900 63,500 62,400
Deferred charges, net 10,700 10,500
----------- -----------
$ 4,118,200 $ 4,356,200
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 186,800 $ 172,900
Due to affiliates 111,800 254,500
----------- -----------
TOTAL LIABILITIES 298,600 427,400
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (35,700) (34,600)
Limited partners 3,855,300 3,963,400
----------- -----------
TOTAL PARTNERSHIP CAPITAL 3,819,600 3,928,800
----------- -----------
$ 4,118,200 $ 4,356,200
=========== ===========
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
3
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
Unaudited
---------
Three months ended
March 31,
---------
1995 1996
---- ----
REVENUES $ 635,600 $ 649,700
--------- ---------
OPERATING EXPENSES:
Service costs 205,300 199,500
General and administrative expenses 45,800 91,600
General Partner management fees
and reimbursed expenses 90,000 84,600
Depreciation and amortization 123,000 97,100
--------- ---------
464,100 472,800
--------- ---------
OPERATING INCOME 171,500 176,900
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 24,500 28,200
Interest expense (600) (1,400)
--------- ---------
23,900 26,800
--------- ---------
NET INCOME $ 195,400 $ 203,700
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 6.46 $ 6.74
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
========= =========
See accompanying notes to condensed financial statements.
-3-
4
ENSTAR INCOME PROGRAM II-1, L.P.
STATEMENTS OF CASH FLOWS
Unaudited
---------
Three months ended
March 31,
---------
1995 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 195,400 $ 203,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 123,000 97,100
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other (67,100) (10,600)
Accounts payable and due to affiliates (93,900) 128,800
----------- -----------
Net cash provided by operating activities 157,400 419,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (116,700) (34,300)
Increase in intangible assets (11,100) (3,000)
----------- -----------
Net cash used in investing activities (127,800) (37,300)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (94,500) (94,500)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (64,900) 287,200
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,327,500 2,657,300
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,262,600 $ 2,944,500
=========== ===========
See accompanying notes to condensed financial statements.
-4-
5
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
months ended March 31, 1996 and 1995 are unaudited. These condensed interim
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Partnership's latest Annual Report
on Form 10-K. In the opinion of management, such statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of such periods. The results of operations for
the three months ended March 31, 1996 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 $32,500 for the
three months ended March 31, 1996.
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 $52,100 for
the three months ended March 31, 1996. 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
$129,000 for these programming services for the three months ended March 31,
1996. Programming fees are included in service costs in the statements of
operations for the three months ended March 31, 1996 and 1995.
-5-
6
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 1995 amounts have been reclassified to conform to the 1996
presentation.
-6-
7
ENSTAR INCOME PROGRAM II-1, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996 (the "1996 Telecom Act"). This statute
substantially changed the competitive and regulatory environment for
telecommunications providers by significantly amending the Communications Act of
1934, including certain of the rate regulation provisions previously imposed by
the Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"). Compliance with those rate regulations has had a negative impact on
the Partnership's revenues and cash flow. However, the Partnership believes that
recent policy decisions by the Federal Communications Commission (the "FCC")
will permit it to increase regulated service rates in the future in response to
specified historical and anticipated future 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 1996 Telecom Act provides
that certain of the rate regulations will be phased-out altogether in 1999.
Further, the regulatory environment will continue to change pending, among other
things, the outcome of legal challenges and FCC rulemaking and enforcement
activity in respect of the 1992 Cable Act and the completion of a significant
number of FCC rulemakings under the 1996 Telecom Act. There can 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. Accordingly, the Partnership's historic interim financial results as
described below are not necessarily indicative of future performance.
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, 1995 for additional information regarding regulatory matters and the effect
thereof on the Partnership's business.
RESULTS OF OPERATIONS
The Partnership's revenues increased from $635,600 to $649,700, or by
2.2%, for the quarter ended March 31, 1996 as compared to the corresponding
period in 1995. Of the $14,100 increase in revenues, $15,600 was due to
increases in regulated service rates permitted under the 1992 Cable Act that
were implemented by the Partnership in April 1995 and $6,900 resulted from
increases in other revenue producing items consisting primarily of advertising
sales revenue. These increases were partially offset by a decrease of $8,400 due
to a decrease in the number of subscriptions for service.
Service costs decreased from $205,300 to $199,500, or by 2.8%, for the
quarter ended March 31, 1996 as compared to the corresponding period in 1995.
Service costs represent costs directly attributable to providing cable services
to customers. Of the $5,800 decrease, $11,500 was due to an increase in
capitalization of labor and overhead expense due to more capital projects during
the quarter ended March 31, 1996. This decrease was partially offset by a $6,400
increase in franchise fees.
-7-
8
ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
General and administrative expenses increased from $45,800 to $91,600
for the quarter ended March 31, 1996 as compared to the corresponding period in
1995. Of the $45,800 increase, $13,800 was due to an increase in marketing
expense, $7,400 was due to an increase in professional fees, $6,800 was due to
higher insurance premiums, $5,000 was due to an increase in bad debt expense,
$4,000 was due to an increase in personnel costs and $3,300 was due to an
increase in business tax expense. Additional increases of $5,500 were due to a
net increase in other general and administrative expense items.
Management fees and reimbursed expenses decreased from $90,000 to
$84,600, or by 6.0%, for the quarter ended March 31, 1996 as compared to the
corresponding period in 1995. Of the $5,400 decrease, $6,100 was due to
decreased reimbursable expenses allocated by the Corporate General Partner,
including lower allocated marketing costs and telephone expense. This decrease
was partially offset by higher allocated personnel costs and office rent.
Management fees increased by 2.2% in direct relation to increases in revenues as
described above.
Depreciation and amortization expense decreased from $123,000 to
$97,100, or by 21.1%, for the quarter ended March 31, 1996 as compared to the
corresponding period in 1995 due to the effect of certain plant assets becoming
fully depreciated in late 1995.
Operating income increased from $171,500 to $176,900, or by 3.2%, for
the quarter ended March 31, 1996 as compared to the corresponding period in
1995, principally due to increases in revenues and decreases in depreciation and
amortization expense as described above.
Interest income increased from $24,500 to $28,200, or by 15.1%, for the
quarter ended March 31, 1996 as compared to the corresponding period in 1995 due
to higher cash balances available for investment.
Due to the factors described above, the Partnership's net income
increased from $195,400 to $203,700, or by 4.2%, for the quarter ended March 31,
1996 as compared to the corresponding period in 1995.
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.
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 March 31, 1996, the
Partnership had no debt outstanding.
-8-
9
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
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 $2,429,000 to
rebuild and upgrade its existing cable system beginning in 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 during the three
months ended March 31, 1996, and expects to continue to pay distributions at
this level during 1996. There can, however, be no assurances regarding the
level, timing or continuation of future distributions beyond the quarter ended
March 31, 1996.
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
Cash provided by operating activities increased by $261,600 from
$157,400 to $419,000 for the three months ended March 31, 1996 compared with the
corresponding period in 1995. The Partnership used $222,700 less cash to pay
liabilities owed to the General Partner and third party creditors during the
three months ended March 31, 1996 compared with the first three months of 1995.
Other operating items (receivables and prepaid expenses) used $56,500 less cash
during the first three months of 1996. Partnership operations generated $17,600
less cash in the three months ended March 31, 1996 after adding back non-cash
charges for depreciation and amortization.
The Partnership used $90,500 less cash in investing activities in the
three months ended March 31, 1996 than in the corresponding three months of
1995, due to an $82,400 decrease in expenditures for tangible assets and an
$8,100 decrease in expenditures for intangible assets.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues decreased from 46.3% during the first quarter of 1995 to
42.2% in the first three months of 1996. The change was primarily caused by an
increase in marketing expense, professional fees and insurance premiums. EBITDA
decreased from $294,500 to $274,000, or by 7.0%, during the three months ended
March 31, 1996 compared to the equivalent period in 1995.
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 in a
material way, provided that it is able to increase its service rates
periodically, of which there can be no assurance.
-9-
10
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) None
(b) No reports on Form 8-K were filed during the quarter for which this
report is filed.
11
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
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: May 9, 1996 By: /s/ Michael K. Menerey
-----------------------
Michael K. Menerey,
Chief Financial Officer