10-Q 1 c58531e10-q.txt FORM 10-Q 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, 2000 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 (I.R.S. Employer incorporation or organization) Identification Number) 12444 POWERSCOURT DR., SUITE 100 ST. LOUIS, MISSOURI 63131 ---------------------------------- ------------------------------ (Address of principal (Zip Code) executive offices) Registrant's telephone number, (314) 965-0555 including area code: ------------------ -------------------------------------------------------------------------------- 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 --- --- Exhibit Index located at Page E-1. 2 PART I - FINANCIAL INFORMATION ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED BALANCE SHEETS =============================================================
December 31, September 30, 1999* 2000 ----------------- ----------------- (Unaudited) ASSETS: Cash $ 2,309,000 $ 2,811,500 Accounts receivable, net of allowance for doubtful accounts of $2,000 and $5,800, respectively 57,600 75,200 Prepaid expenses and other assets 77,800 43,100 Property, plant and equipment, net of accumulated depreciation of $3,343,900 and $3,765,900, respectively 4,585,500 4,860,100 Franchise cost, net of accumulated amortization of $47,900 and $56,700, respectively 65,900 59,100 Deferred charges, net 700 - ----------------- ----------------- $ 7,096,500 $ 7,849,000 ================= ================= LIABILITIES AND PARTNERSHIP CAPITAL LIABILITIES: Accounts payable $ 267,200 $ 291,700 Due to affiliates 244,800 457,700 ----------------- ----------------- 512,000 749,400 ----------------- ----------------- PARTNERSHIP CAPITAL (DEFICIT): General Partner (8,100) (2,000) Limited Partners 6,592,600 7,101,600 ----------------- ----------------- TOTAL PARTNERSHIP CAPITAL 6,584,500 7,099,600 ----------------- ----------------- $ 7,096,500 $ 7,849,000 ================= =================
The accompanying notes are an integral part of these condensed financial statements. ---------- * Agrees with audited balance sheet included in the Partnership's Annual Report on Form 10-K -2- 3 ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED STATEMENTS OF OPERATIONS ========================================================
Unaudited ------------------------------------- Three months ended September 30, ------------------------------------- 1999 2000 ---------------- ----------------- REVENUES $ 802,000 $ 812,100 ---------------- ----------------- OPERATING EXPENSES: Service costs 254,500 242,700 General and administrative expenses 69,200 91,900 General partner management fees and reimbursed expenses 125,000 145,600 Depreciation and amortization 113,700 159,500 ---------------- ----------------- 562,400 639,700 ---------------- ----------------- OPERATING INCOME 239,600 172,400 ---------------- ----------------- OTHER INCOME (EXPENSE): Interest income 25,400 35,900 Interest expense (4,200) (1,200) ---------------- ----------------- 21,200 34,700 ---------------- ----------------- NET INCOME $ 260,800 $ 207,100 ================ ================= Net income allocated to General Partner $ 2,600 $ 2,100 ================ ================= Net income allocated to Limited Partners $ 258,200 $ 205,000 ================ ================= NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST $ 8.63 $ 6.85 ================ ================= AVERAGE LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD 29,936 29,936 ================ =================
The accompanying notes are an integral part of these condensed financial statements. -3- 4 ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED STATEMENTS OF OPERATIONS =========================================================
Unaudited ------------------------------------- Nine months ended September 30, ------------------------------------- 1999 2000 ---------------- ----------------- REVENUES $ 2,380,900 $ 2,429,300 ---------------- ----------------- OPERATING EXPENSES: Service costs 750,200 659,500 General and administrative expenses 268,500 232,500 General partner management fees and reimbursed expenses 361,400 389,500 Depreciation and amortization 352,000 442,700 ---------------- ----------------- 1,732,100 1,724,200 ---------------- ----------------- OPERATING INCOME 648,800 705,100 ---------------- ----------------- OTHER INCOME (EXPENSE): Interest income 68,700 99,000 Interest expense (13,100) (6,500) ---------------- ----------------- 55,600 92,500 ---------------- ----------------- NET INCOME $ 704,400 $ 797,600 ================ ================= Net income allocated to General Partner $ 7,000 $ 8,000 ================ ================= Net income allocated to Limited Partners $ 697,400 $ 789,600 ================ ================= NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST $ 23.30 $ 26.38 ================ ================= AVERAGE LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD 29,936 29,936 ================ =================
The accompanying notes are an integral part of these condensed financial statements. -4- 5 ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED STATEMENTS OF CASH FLOWS ==========================================================
Unaudited ------------------------------------- Nine months ended September 30, ------------------------------------- 1999 2000 ---------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 704,400 $ 797,600 Adjustments to reconcile net income to net cash from operating activities: Depreciation and amortization 352,000 442,700 Changes in: Accounts receivable, prepaid expenses and other assets (42,900) 17,100 Accounts payable and due to affiliates (270,400) 237,400 ---------------- ----------------- Net cash from operating activities 743,100 1,494,800 ---------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (249,400) (707,800) Increase in intangible assets (10,800) (2,000) ---------------- ----------------- Net cash from investing activities (260,200) (709,800) ---------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (283,500) (282,500) ---------------- ----------------- INCREASE IN CASH 199,400 502,500 CASH AT BEGINNING OF PERIOD 1,990,700 2,309,000 ---------------- ----------------- CASH AT END OF PERIOD $ 2,190,100 $ 2,811,500 ================ =================
The accompanying notes are an integral part of these condensed financial statements. -5- 6 ENSTAR INCOME PROGRAM II-1, L.P. NOTES TO CONDENSED FINANCIAL STATEMENTS ============================================================== 1. INTERIM FINANCIAL STATEMENTS The accompanying condensed interim financial statements for Enstar Income Program II-1, L.P. (the "Partnership") as of September 30, 2000, and for the three and nine months ended September 30, 2000 and 1999, are unaudited. These condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in our latest Annual Report on Form 10-K. 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 and nine months ended September 30, 2000, 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 (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 $40,600 and $121,500 for the three and nine months ended September 30, 2000, respectively. For the three and nine months ended September 30, 1999, management fee expense approximated $40,200 and $119,100, 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 that were provided by Falcon Communications, L.P. and its affiliates (collectively, "Falcon") prior to November 12, 1999. 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 $105,000 and $268,000 for the three and nine months ended September 30, 2000, respectively. For the three and nine months ended September 30, 1999, the total amount charged to the Partnership for these services was $84,800 and $242,300, respectively. Substantially all programming services have been purchased through Charter since November 12, 1999. Before that time, substantially all programming services were purchased through Falcon. Falcon charged the Partnership for these costs based on an estimate of what ECC could negotiate for such programming services for the 14 partnerships managed as a group. Charter charges the Partnership for these costs based on its costs. The Partnership recorded programming fee expense of $169,100 and $484,500 for the three and nine months ended September 30, 2000, -6- 7 ENSTAR INCOME PROGRAM II-1, L.P. NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED) =============================================================== respectively. For the three and nine months ended September 30, 1999, programming fee expense was $207,500 and $586,500, respectively. Programming fees are included in service costs in the 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 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. SALE OF CABLE SYSTEM On August 8, 2000, (as amended on September 29, 2000) the Partnership, together with certain affiliates, (collectively, the "Sellers") entered into a purchase and sale agreement (the "Agreement") with Multimedia Acquisition Corp., an affiliate of Gans Multimedia Partnership, (the "Purchaser"). The Agreement provides for the Purchaser to acquire the assets comprising the Partnership's cable system serving Taylorville, Illinois, as well as certain assets of other affiliates. The aggregate purchase price payable to the Sellers pursuant to the Agreement is $95,574,600 in cash (subject to normal closing adjustments). Of that amount, $13,846,000 (subject to normal closing adjustments) is payable to the Partnership. The allocation of the purchase price among each of the Sellers was assigned by the Purchaser for each of the systems. The Purchaser's obligation to acquire the cable systems is subject to numerous closing conditions, including without limitation: (a) receipt of the necessary governmental consents to transfer franchises covering an aggregate of 90% of the subscribers of all of the Sellers; (b) receipt of certain other material consents and approvals required for the consummation of the sale; (c) receipt of the necessary approvals of the Limited Partners of each Seller; and (d) other standard closing conditions. With respect to clause (c) above, completion of the transaction is contingent on the Limited Partners of the Partnership and the other selling affiliates voting to approve the sale. -7- 8 ENSTAR INCOME PROGRAM II-1, L.P. 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, 1999, for additional information regarding such matters and the effect thereof on the Partnership's business. RESULTS OF OPERATIONS Our revenues increased from $802,000 to $812,100, or by 1.3%, and from $2,380,900 to $2,429,300, or by 2.0%, for the three and nine months ended September 30, 2000, as compared to the corresponding periods in 1999. Of the $10,100 increase in revenues for the three months ended September 30, 2000, $21,400 was due to increases in regulated service rates that we implemented in 2000 and $12,000 was due to increases in other revenue producing items. The increase was partially offset by a $23,300 decrease due to decreases in the number of subscribers for basic, premium and equipment rental services. Of the $48,400 increase in revenues for the nine months ended September 30, 2000, $87,900 was due to increases in regulated service rates that we implemented in 2000 and $11,600 was due to an increase in other revenue producing items. The increases were partially offset by a $51,100 decrease in the number of subscribers for basic, premium and equipment rental services. As of September 30, 2000, we had approximately 6,700 basic subscribers and 1,700 premium service units. Effective with the acquisition of Falcon Communications, L.P. (Falcon) by Charter Communications Holdings Company, LLC (Charter) on November 12, 1999, certain activities previously incurred at the Partnership and expensed through service cost and general and administrative expense have been either eliminated by Charter, or have been reimbursed by the Partnership based on Charter's costs incurred. These reimbursed costs are included in general partner management fees and reimbursed expenses on the Partnership's statements of operations. The total of service costs, general and administrative expenses and general partner management fees and reimbursed expenses increased from $448,700 to $480,200, or by 7.0%, and decreased from $1,380,100 to $1,281,500, or by 7.1%, for the three and nine months ended September 30, 2000, as compared to the corresponding periods in 1999. Our service costs decreased from $254,500 to $242,700, or by 4.6%, and from $750,200 to $659,500, or by 12.1%, for the three and nine months ended September 30, 2000, as compared to the corresponding periods in 1999. Service costs represent costs directly attributable to providing cable services to customers. The decrease was primarily due to decreases in programming fees, personnel costs and certain costs incurred by the Partnership prior to the Charter acquisition that -8- 9 ENSTAR INCOME PROGRAM II-1, L.P. are now incurred by Charter and reimbursed by the Partnership, as discussed above. Programming fees decreased as a result of lower rates that Charter has extended to us and a decrease in subscribers. Our general and administrative expenses increased from $69,200 to $91,900, or by 32.8%, and decreased from $268,500 to $232,500, or by 13.4%, for the three and nine months ended September 30, 2000, as compared to the corresponding periods in 1999. The increase for the three months ended September 30, 2000, was primarily due to an increase in bad debt expense. The decrease for the nine months ended September 30, 2000, was due to decreases in marketing expenses and certain costs incurred by the Partnership prior to the Charter acquisition that are now incurred by Charter and reimbursed by the Partnership, as discussed above. Our general partner management fees and reimbursed expenses increased from $125,000 to $145,600, or by 16.5%, and from $361,400 to $389,500, or by 7.8%, for the three and nine months ended September 30, 2000, as compared to the corresponding periods in 1999. Management fees increased in direct relation to increased revenues as described above. As discussed above, Charter now performs certain management and operational functions formerly performed by the Partnership. This has resulted in us having more reimbursable costs and lower service costs and general and administrative expenses. Our depreciation and amortization expense increased from $113,700 to $159,500, or by 40.3%, and from $352,000 to $442,700, or by 25.8% for the three and nine months ended September 30, 2000, as compared to the corresponding periods in 1999. The increases were primarily due to asset additions from the upgrade of our cable systems. Due to the factors described above, our operating income decreased from $239,600 to $172,400, or by 28.0%, and increased from $648,800 to $705,100, or by 8.7%, for the three and nine months ended September 30, 2000, as compared to the corresponding periods in 1999. Our interest income, net of interest expense, increased from $21,200 to $34,700, or by 63.7%, and from $55,600 to $92,500, or by 66.4%, for the three and nine months ended September 30, 2000, as compared to the corresponding periods in 1999, primarily due to higher average cash balances available for investment and due to higher average interest rates earned in 2000. Due to the factors described above, our net income decreased from $260,800 to $207,100, or by 20.6%, and increased from $704,400 to $797,600, or by 13.2%, for the three and nine months ended September 30, 2000, as compared to the corresponding periods in 1999. 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 -9- 10 ENSTAR INCOME PROGRAM II-1, L.P. similarly titled measures used by other companies. EBITDA as a percentage of revenues decreased from 44.1% to 40.9% and increased from 42.0% to 47.2% during the three and nine months ended September 30, 2000, as compared to the corresponding period in 1999. The increase was primarily related to increases in revenues and decreases in programming fees as described above. EBITDA decreased from $353,300 to $331,900, or by 6.1%, and increased from $1,000,800 to $1,147,800, or by 14.7%, during the three and nine months ended September 30, 2000, as compared to the corresponding period in 1999. 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 television systems. In accordance with the partnership agreement, Enstar Communications Corporation, our corporate general partner, has implemented a plan for liquidating the Partnership. On August 8, 2000, (as amended on September 29, 2000) the Partnership, together with certain affiliates, (collectively, the "Sellers") entered into a purchase and sale agreement (the "Agreement") with Multimedia Acquisition Corp., an affiliate of Gans Multimedia Partnership, (the "Purchaser"). The Agreement provides for the Purchaser to acquire the assets comprising the Partnership's cable system serving Taylorville, Illinois, as well as certain assets of other affiliates. The aggregate purchase price payable to the Sellers pursuant to the Agreement is $95,574,600 in cash (subject to normal closing adjustments). Of that amount, $13,846,000 (subject to normal closing adjustments) is payable to the Partnership. The allocation of the purchase price among each of the Sellers was assigned by the Purchaser for each of the systems. The Purchaser's obligation to acquire the cable systems is subject to numerous closing conditions, including without limitation: (a) receipt of the necessary governmental consents to transfer franchises covering an aggregate of 90% of the subscribers of all of the Sellers; (b) receipt of certain other material consents and approvals required for the consummation of the sale; (c) receipt of the necessary approvals of the Limited Partners of each Seller; and (d) other standard closing conditions. With respect to clause (c) above, completion of the transaction is contingent on the Limited Partners of the Partnership and the other selling affiliates voting to approve the sale. Enstar Communications Corporation is currently preparing a proxy for submission to the Partnership's Limited Partners for the purpose of approving or disapproving the sale. If all of the Partnership's assets are sold, Enstar Communications Corporation will proceed to liquidate the Partnership following the settlement of their final liabilities. At September 30, 2000, 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 -10- 11 ENSTAR INCOME PROGRAM II-1, L.P. assurance that the Partnership's cash flow will be adequate to meet its future liquidity requirements. The Partnership intends to upgrade its cable system in Litchfield, Illinois in 2000 at an estimated cost of approximately $1,000,000, which is required to be completed by January 2001 under a provision of the franchise agreement. Capital expenditures approximated $707,800 as of September 30, 2000. As a result of these planned capital expenditures, the Partnership intends, if possible, to maintain cash reserves. We paid distributions totaling $282,500 during the nine months ended September 30, 2000, and expect to continue to pay distributions at this level during 2000. There can, however, be no assurances regarding the level, timing or continuation of future distributions. Falcon purchased insurance coverage for all of the cable television properties owned or managed by it to cover damage to cable distribution plant and subscriber 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 formerly managed by Falcon through November 12, 1999, and currently managed by Charter, including those of the Partnership. All of our subscribers 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 types of insurable risks. Our operating activities provided $751,700 more cash in the nine months ended September 30, 2000, than in the corresponding period of 1999. Changes in receivables, prepaid expenses and other assets provided $60,000 more cash during the nine months ended September 30, 2000, than in the corresponding period of 1999, due to differences in the timing of receivable collections and the payment of prepaid expenses. We used $507,800 less cash to pay liabilities owed to affiliates and third party creditors during the nine months ended September 30, 2000, than in the corresponding period of 1999, due to differences in the timing of payments. We used $449,600 more cash in investing activities during the nine months ended September 30, 2000, than in the corresponding nine months of 1999 due to an increase in expenditures for tangible assets. 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. -11- 12 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) Exhibits 10.1 Amendment dated September 29, 2000, of the Asset Purchase Agreement dated August 8, 2000, by and among Multimedia Acquisition Corp., as Buyer, and Enstar Income Program II-1, L.P., Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar IX, Ltd., Enstar XI, Ltd., Enstar IV/PBD Systems Venture, Enstar Cable of Cumberland Valley and Enstar Cable of Macoupin County, as Sellers. (1) 27.1 Financial Data Schedule.* (b) Reports on Form 8-K - None ------- * Filed herewith (1) Incorporated by reference to the report on Form 10-Q of Enstar Income Program IV-1, L.P. filed on November 13, 2000 (File No. 00015705). -12- 13 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: November 13, 2000 By: /s/ Kent D. Kalkwarf ---------------------------------- Kent D. Kalkwarf Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) -13- 14 EXHIBIT INDEX Exhibit Number Description 10.1 Amendment dated September 29, 2000, of the Asset Purchase Agreement dated August 8, 2000, by and among Multimedia Acquisition Corp., as Buyer, and Enstar Income Program II-1, L.P., Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar IX, Ltd., Enstar XI, Ltd., Enstar IV/PBD Systems Venture, Enstar Cable of Cumberland Valley and Enstar Cable of Macoupin County, as Sellers (incorporated by reference to the Current Report on Form 10-Q of Enstar Income Program IV-1, L.P. filed on November 13, 2000, File No. 00015705). 27.1 Financial Data Schedule. E-1