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 June 30, 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 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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PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED BALANCE SHEETS
December 31, June 30,
1995* 1996
----------- ----------
(unaudited)
ASSETS:
Cash and cash equivalents $2,657,300 $3,000,400
Accounts receivable less allowance of $5,500 and
$4,700 for possible losses 48,100 19,000
Prepaid expenses and other 16,400 42,300
Property, plant and equipment, less accumulated depreciation
and amortization of $3,893,000 and $4,043,300 1,322,200 1,218,800
Franchise cost, less accumulated amortization
of $8,800 and $13,100 63,500 66,100
Deferred charges, net 10,700 11,000
---------- ----------
$4,118,200 $4,357,600
========== ==========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 186,800 $ 159,000
Due to affiliates 111,800 116,700
---------- ----------
TOTAL LIABILITIES 298,600 275,700
---------- ----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (35,700) (33,100)
Limited partners 3,855,300 4,115,000
---------- ----------
TOTAL PARTNERSHIP CAPTAL 3,819,600 4,081,900
---------- ----------
$4,118,200 $4,357,600
========== ==========
*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
June 30,
---------------------
1995 1996
-------- --------
REVENUES $665,900 $666,500
-------- --------
OPERATING EXPENSES:
Service costs 206,000 190,800
General and administrative expenses 64,000 79,000
General Partner management fees
and reimbursed expenses 89,100 94,800
Depreciation and amortization 182,600 84,800
-------- --------
541,700 449,400
-------- --------
OPERATING INCOME 124,200 217,100
-------- --------
OTHER INCOME (EXPENSE):
Interest income 26,100 30,600
Interest expense (2,800) (800)
Gain on sale of cable assets - 700
-------- --------
23,300 30,500
-------- --------
NET INCOME $147,500 $247,600
======== ========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 4.88 $ 8.19
======== ========
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
-------------------------
Six months ended
June 30,
-------------------------
1995 1996
---------- ----------
REVENUES $1,301,500 $1,316,200
---------- ----------
OPERATING EXPENSES:
Service costs 411,300 390,300
General and administrative expenses 109,800 170,600
General Partner management fees
and reimbursed expenses 179,100 179,400
Depreciation and amortization 305,600 181,900
---------- ----------
1,005,800 922,200
---------- ----------
OPERATING INCOME 295,700 394,000
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 50,600 58,800
Interest expense (3,400) (2,200)
Gain on sale of cable assets - 700
---------- ----------
47,200 57,300
---------- ----------
NET INCOME $ 342,900 $ 451,300
========== ==========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 11.34 $ 14.92
========== ==========
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
Unaudited
-------------------------
Six months ended
June 30,
-------------------------
1995 1996
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 342,900 $ 451,300
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 305,600 181,900
Gain on sale of cable assets - (700)
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other (19,300) 3,200
Accounts payable and due to affiliates (79,900) (22,900)
---------- ----------
Net cash provided by operating activities 549,300 612,800
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (143,600) (77,900)
Increase in intangible assets (16,800) (11,800)
Proceeds from sale of cable assets - 9,000
---------- ----------
Net cash used in investing activities (160,400) (80,700)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (189,000) (189,000)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 199,900 343,100
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,327,500 2,657,300
---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $2,527,400 $3,000,400
========== ==========
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 six months ended June 30, 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 and six months ended June 30, 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 $33,300 and
$65,800 for the three and six months ended June 30, 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 $61,500 and
$113,600 for the three and six months ended June 30, 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 and $258,000 for these programming services for the three and six
months ended June 30, 1996. Programming fees are included in service costs in
the statements of operations for the three and six months ended June 30, 1996
and 1995.
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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 1995 amounts have been reclassified to conform to the 1996
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
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, in accordance with policy
decisions by the Federal Communications Commission (the "FCC"), the Partnership
will 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.
This Report includes certain forward looking statements regarding,
among other things, 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 the Partnership's Annual Report on Form
10-K for the year ended December 31, 1995 for additional information regarding
such matters and the effect thereof on the Partnership's business.
RESULTS OF OPERATIONS
The Partnership's revenues increased from $665,900 to $666,500 (less
than one-percent) and from $1,301,500 to $1,316,200, or by 1.1%, for the three
and six months ended June 30, 1996 as compared to the corresponding periods in
1995. Of the $600 increase in revenues for the three months ended June 30, 1996
as compared to the corresponding period in 1995, $21,300 was due to increases in
regulated service rates that were implemented by the Partnership in the second
quarter in each of 1995 and 1996 and $1,700 resulted from increases in other
revenue producing items consisting primarily of advertising sales revenue. These
increases were largely offset by a decrease of $22,400 due to a decrease in the
number of subscriptions for service. Of the $14,700 increase in revenues for the
six months ended June 30, 1996 as compared to the corresponding period in 1995,
$37,000 was due to increases in regulated service rates that were implemented by
the Partnership as discussed above and $8,600 resulted from increases in other
revenue producing items consisting primarily of advertising sales revenue. These
increases were partially offset by a decrease of $30,900 due to a decrease in
the number of subscriptions for service. As of June 30, 1996, the Partnership
had approximately 6,900 homes subscribing to cable service and 2,000 premium
service units.
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ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
Service costs decreased from $206,000 to $190,800, or by 7.4%, and from
$411,300 to $390,300, or by 5.1%, for the three and six months ended June 30,
1996 as compared to the corresponding periods for 1995. Service costs represent
costs directly attributable to providing cable services to customers. Of the
$15,200 decrease in service costs for the three months ended June 30, 1996 as
compared to the corresponding period in 1995, $21,600 was due to an increase in
capitalization of labor and overhead expense due to more capital projects during
the three months ended June 30, 1996. This decrease was partially offset by a
$4,300 increase in repair and maintenance expense and a $3,300 increase in
franchise fees. Of the $21,000 decrease in service costs for the six months
ended June 30, 1996 as compared to the corresponding period in 1995, $33,100 was
due to an increase in capitalization of labor and overhead expense due to more
capital projects during the six months period, which was partially offset by a
$9,700 increase in franchise fees.
General and administrative expenses increased from $64,000 to $79,000,
or by 23.4%, and from $109,800 to $170,600, or by 55.4%, for the three and six
months ended June 30, 1996 as compared to the corresponding periods in 1995. Of
the $15,000 increase for the three months ended June 30, 1996 as compared to the
corresponding period in 1995, $5,400 was due to an increase in marketing
expense, $5,400 was due to higher insurance premiums and $4,000 was due to an
increase in personnel costs. Of the $60,800 increase for the six months ended
June 30, 1996 as compared to the corresponding period in 1995, $19,200 was due
to an increase in marketing expense, $12,200 was due to higher insurance
premiums, $8,000 was due to an increase in personnel costs, $7,000 was due to an
increase in professional fees, $7,000 was due to an increase in business tax
expense and $5,700 was due to higher bad debt expense.
Management fees and reimbursed expenses increased from $89,100 to
$94,800, or by 6.4%, during the three months ended June 30, 1996 as compared
with the corresponding 1995 quarter, and remained relatively unchanged at
$179,400 for the six months ended June 30, 1996 as compared to the first six
months of 1995. The $5,700 increase for the three months period was due to
increased reimbursable expenses allocated by the Corporate General Partner,
including higher allocated personnel costs, rent expense and professional fees.
Depreciation and amortization expense decreased from $182,600 to
$84,800, or by 53.6%, and from $305,600 to $181,900, or by 40.5% for the three
and six months ended June 30, 1996 as compared to the corresponding periods in
1995. The decrease in the three and six month periods was due to the effect of
certain plant assets becoming fully depreciated in the fourth quarter of 1995.
Operating income increased from $124,200 to $217,100, or by 74.8%, and
from $295,700 to $394,000, or by 33.2% for the three and six months ended June
30, 1996 as compared to the corresponding periods for 1995 principally due to
decreases in depreciation and amortization expense as described above.
Interest income increased from $26,100 to $30,600, or by 17.2%, and
from $50,600 to $58,800, or by 16.2% for the three and six months ended June 30,
1996 as compared to the corresponding periods for 1995 due to higher cash
balances available for investment.
Due to the factors described above, the Partnership's net income
increased from $147,500 to $247,600, or by 67.9%, and from $342,900 to $451,300,
or by 31.6% for the three and six months ended June 30, 1996 as compared to the
corresponding periods for 1995.
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ENSTAR INCOME PROGRAM II-1, L.P.
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 June 30, 1996, 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 $2,429,000 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 and $189,000 during
the three and six months ended June 30, 1996, and expects to continue to pay
distributions at this level during the remainder of 1996. There can, however, be
no assurances regarding the level, timing or continuation of future
distributions beyond the quarter ended June 30, 1996.
SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Cash provided by operating activities increased by $63,500 from
$549,300 to $612,800 for the six months ended June 30, 1996 compared with the
corresponding period in 1995. The Partnership used $57,000 less cash to pay
liabilities owed to the General Partner and third party creditors during the six
months ended June 30, 1996 compared with the first six months of 1995. Other
operating items (receivables and prepaid expenses) used $22,500 less cash during
the first six months of 1996. Partnership operations generated $16,000 less cash
in the six months ended June 30, 1996 after adding back non-cash charges for
depreciation and amortization and gain on the sale of cable assets.
The Partnership used $79,600 less cash in investing activities in the
six months ended June 30, 1996 than in the corresponding six months of 1995 due
to a $65,700 decrease in expenditures for tangible assets and a $4,900 decrease
in expenditures for intangible assets. The Partnership received proceeds of
$9,000 from the sale of certain cable assets.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues decreased from 46.1% and 46.2% during the three and six
months ended June 30, 1995 to 45.3% and 43.8% in the three and six months ended
June 30, 1996. The change was caused primarily by an increase in reimbursed
expenses allocated by the Corporate General Partner, increased marketing costs
and higher insurance premiums. EBITDA decreased from $306,800 to $301,900, or by
1.6%, and from $601,300 to $575,900, or by 4.2%, for the three and six months
ended June 30, 1996 as compared to the corresponding periods for 1995.
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ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
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.
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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) None
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
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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 II-1, L.P.
a GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: August 7, 1996 By: /s/ Michael K. Menerey
-----------------------------------
Michael K. Menerey,
Chief Financial Officer