-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KaBJ9FW1M58vCXH702Sw1ybDJXI3M5//DtvirTPJ4GdYOKgtMsKG7Zv97hj7I0QI mqtm9wIX/USWlTqdfgsjew== 0000950148-97-002028.txt : 19970813 0000950148-97-002028.hdr.sgml : 19970813 ACCESSION NUMBER: 0000950148-97-002028 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENSTAR INCOME PROGRAM II-1 LP CENTRAL INDEX KEY: 0000757595 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 581628877 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14508 FILM NUMBER: 97656855 BUSINESS ADDRESS: STREET 1: 10900 WILSHIRE BLVD 15TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3108249990 MAIL ADDRESS: STREET 1: 474 SOUTH RAYMOND AVE #200 CITY: PASADENA STATE: CA ZIP: 91105 10-Q 1 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 June 30, 1997 --------------------- 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) 10900 Wilshire Boulevard - 15th Floor Los Angeles, California 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 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 --- --- 2 PART I - FINANCIAL INFORMATION ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED BALANCE SHEETS ========================================
December 31, June 30, 1996* 1997 ----------- ----------- (Unaudited) ASSETS: Cash and cash equivalents $ 2,849,600 $ 2,962,100 Accounts receivable, less allowance of $4,700 and $4,600 for possible losses 75,000 40,800 Prepaid expenses and other assets 29,200 29,200 Property, plant and equipment, less accumulated depreciation and amortization of $4,145,800 and $4,262,300 1,891,100 2,656,300 Franchise cost, net of accumulated amortization of $17,500 and $22,800 64,600 62,600 Deferred charges, net 8,900 9,200 ----------- ----------- $ 4,918,400 $ 5,760,200 =========== =========== LIABILITIES AND PARTNERSHIP CAPITAL LIABILITIES: Accounts payable $ 229,800 $ 551,000 Due to affiliates 173,900 238,700 ----------- ----------- TOTAL LIABILITIES 403,700 789,700 ----------- ----------- COMMITMENTS AND CONTINGENCIES PARTNERSHIP CAPITAL (DEFICIT): General partners (28,800) (24,300) Limited partners 4,543,500 4,994,800 ----------- ----------- TOTAL PARTNERSHIP CAPITAL 4,514,700 4,970,500 ----------- ----------- $ 4,918,400 $ 5,760,200 =========== ===========
*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 June 30, --------------------------- 1996 1997 --------- --------- REVENUES $ 666,500 $ 748,100 --------- --------- OPERATING EXPENSES: Service costs 190,800 218,900 General and administrative expenses 79,000 70,200 General Partner management fees and reimbursed expenses 94,800 118,300 Depreciation and amortization 84,800 70,800 --------- --------- 449,400 478,200 --------- --------- OPERATING INCOME 217,100 269,900 --------- --------- OTHER INCOME (EXPENSE): Interest income 30,600 39,100 Interest expense (800) (2,900) Gain on sale of cable assets 700 -- --------- --------- 30,500 36,200 --------- --------- NET INCOME $ 247,600 $ 306,100 ========= ========= Net income allocated to General Partners $ 2,500 $ 3,100 ========= ========= Net income allocated to Limited Partners $ 245,100 $ 303,000 ========= ========= NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST $ 8.19 $ 10.12 ========= ========= 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. CONDENSED STATEMENTS OF OPERATIONS ========================================
Unaudited ------------------------------- Six months ended June 30, ------------------------------- 1996 1997 ----------- ----------- REVENUES $ 1,316,200 $ 1,486,200 ----------- ----------- OPERATING EXPENSES: Service costs 390,300 432,700 General and administrative expenses 170,600 119,000 General Partner management fees and reimbursed expenses 179,400 230,500 Depreciation and amortization 181,900 140,700 ----------- ----------- 922,200 922,900 ----------- ----------- OPERATING INCOME 394,000 563,300 ----------- ----------- OTHER INCOME (EXPENSE): Interest income 58,800 74,300 Interest expense (2,200) (6,000) Gain on sale of cable assets 700 -- Other income -- 13,200 ----------- ----------- 57,300 81,500 ----------- ----------- NET INCOME $ 451,300 $ 644,800 =========== =========== Net income allocated to General Partners $ 4,500 $ 6,400 =========== =========== Net income allocated to Limited Partners $ 446,800 $ 638,400 =========== =========== NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST $ 14.92 $ 21.33 =========== =========== AVERAGE LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD 29,936 29,936 =========== ===========
See accompanying notes to condensed financial statements. -4- 5 ENSTAR INCOME PROGRAM II-1, L.P. STATEMENTS OF CASH FLOWS ========================================
Unaudited ------------------------------- Six months ended June 30, ------------------------------- 1996 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 451,300 $ 644,800 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 181,900 140,700 Gain on sale of cable assets (700) -- Increase (decrease) from changes in: Accounts receivable, prepaid expenses and other assets 3,200 34,200 Accounts payable and due to affiliates (22,900) 386,000 ----------- ----------- Net cash provided by operating activities 612,800 1,205,700 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (77,900) (897,000) Increase in intangible assets (11,800) (7,200) Proceeds from sale of cable assets 9,000 -- ----------- ----------- Net cash used in investing activities (80,700) (904,200) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (189,000) (189,000) ----------- ----------- INCREASE IN CASH AND CASH EQUIVALENTS 343,100 112,500 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,657,300 2,849,600 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,000,400 $ 2,962,100 =========== ===========
See accompanying notes to 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 the three and six months ended June 30, 1997 and 1996 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, 1997 are not necessarily indicative of results for the entire year. 2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES The Partnership has a management and service agreement 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 fee expense approximated $37,400 and $74,300 for the three and six months ended June 30, 1997. 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 subsidiary 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 $80,900 and $156,200 for the three and six months ended June 30, 1997. 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 Corporate General Partner could negotiate for such programming services for the 15 partnerships managed by the Corporate General Partner as a group. The Partnership recorded programming fee expense of $153,700 and $303,200 for the three and six months ended June 30, 1997. Programming fees are included in service costs in the statements of operations. 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 periods presented. For this purpose, earnings and losses have been allocated 99% to the Limited Partners and 1% to the General Partners. The General Partners do not own units of partnership interest in the Partnership, but rather hold a participation interest in the income, losses and distributions of the Partnership. -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. 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 Federal Communications Commission (the "FCC") rulemaking and enforcement activity in respect of the 1992 Cable Act and the 1996 Telecom Act. There can be no assurance as to what, if any, further 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 historical 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, 1996 for additional information regarding such matters and the effect thereof on the Partnership's business. RESULTS OF OPERATIONS The Partnership's revenues increased from $666,500 to $748,100, or by 12.2%, and from $1,316,200 to $1,486,200, or by 12.9%, for the three and six months ended June 30, 1997 as compared to the corresponding periods in 1996. Of the $81,600 increase in revenues for the three months ended June 30, 1997 as compared to the corresponding period in 1996, $47,900 was due to increases in regulated service rates that were implemented by the Partnership in the second and fourth quarters of 1996, $23,800 was due to the restructuring of The Disney Channel from a premium channel to a tier channel effective July 1, 1996 and $9,400 was due to increases in other revenue producing items. Of the $170,000 increase in revenues for the six months ended June 30, 1997 compared to the corresponding period in 1996, $112,400 was due to increases in regulated service rates, $47,100 was due to the restructuring of The Disney Channel and $16,300 was due to increases in other revenue producing items. These increases were partially offset by a decrease of $5,800 due to decreases in the number of subscriptions, primarily for premium service. As of June 30, 1997, the Partnership had approximately 7,000 homes subscribing to cable service and 1,700 premium service units. -7- 8 ENSTAR INCOME PROGRAM II-1, L.P. RESULTS OF OPERATIONS (CONTINUED) Service costs increased from $190,800 to $218,900, or by 14.7%, and from $390,300 to $432,700, or by 10.9%, for the three and six months ended June 30, 1997 as compared to the corresponding periods in 1996. Service costs represent costs directly attributable to providing cable services to customers. Programming expense accounted for the majority of the increase in both periods. Programming expense increased primarily as a result of higher rates charged by program suppliers. General and administrative expenses decreased from $79,000 to $70,200, or by 11.1%, and from $170,600 to $119,000, or by 30.2%, for the three and six months ended June 30, 1997 as compared to the corresponding periods in 1996. The decreases for the three and six months were primarily due to lower personnel costs. The decrease for the six months was also due to lower insurance premiums, professional fees and bad debt expense. Personnel costs decreased due to the transfer of certain employees to the Corporate General Partner's operations. Management fees and reimbursed expenses increased from $94,800 to $118,300, or by 24.8%, and from $179,400 to $230,500, or by 28.5%, for the three and six months ended June 30, 1997 as compared to the corresponding periods in 1996. Management fees increased in direct relation to increased revenues as described above. Reimbursable expenses increased primarily due to higher allocated personnel costs resulting from the transfer of personnel to the Corporate General Partner's staff from the Partnership's operations. Operating income before income taxes, depreciation and amortization (EBITDA) is a commonly used financial analysis tool for measuring and comparing cable television companies in several areas, such as liquidity, operating performance and leverage. EBITDA as a percentage of revenues increased from 45.3% to 45.5% and from 43.8% to 47.4% during the three and six months ended June 30, 1997 compared to the corresponding periods in 1996. The change was primarily due to higher revenues. EBITDA increased from $301,900 to $340,700, or by 12.9%, and from $575,900 to $704,000, or by 22.2%, during the three and six months ended June 30, 1997 compared to the corresponding periods in 1996. EBITDA should be considered in addition to and not as a substitute for net income and cash flows determined in accordance with generally accepted accounting principles as an indicator of financial performance and liquidity. Depreciation and amortization expense decreased from $84,800 to $70,800, or by 16.5%, and from $181,900 to $140,700, or by 22.6%, for the three and six months ended June 30, 1997 as compared to the corresponding periods in 1996, primarily due to certain plant assets becoming fully depreciated in 1996. Depreciation and amortization expense will increase significantly in future periods as system rebuilds, which are under construction, are placed into service. Operating income increased from $217,100 to $269,900, or by 24.3%, and from $394,000 to $563,300, or by 43.0%, for the three and six months ended June 30, 1997 as compared to the corresponding periods in 1996, principally due to increases in revenues as described above. -8- 9 ENSTAR INCOME PROGRAM II-1, L.P. RESULTS OF OPERATIONS (CONCLUDED) Interest income increased from $30,600 to $39,100, or by 27.8%, and from $58,800 to $74,300, or by 26.4%, for the three and six months ended June 30, 1997 as compared to the corresponding periods in 1996. These increases were primarily due to a change in investment policy that yielded a greater return on invested cash. Interest income also increased due to higher cash balances available for investment. Due to the factors described above, the Partnership's net income increased from $247,600 to $306,100, or by 23.6%, and from $451,300 to $644,800, or by 42.9%, for the three and six months ended June 30, 1997 as compared to the corresponding periods in 1996. LIQUIDITY AND CAPITAL RESOURCES 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 and capital requirements relating to the expansion, improvement and upgrade of its cable systems. At June 30, 1997, the Partnership had no debt outstanding. The Partnership relies upon cash flow from operations to meet operating requirements and fund necessary capital expenditures. Although the Partnership currently has a significant cash balance, there can be no assurance that the Partnership's cash flow will be adequate to meet its future liquidity requirements. The Partnership is required to rebuild its Taylorville, Illinois cable system at an estimated total cost of $2,490,000 as a condition of its franchise agreement and is also rebuilding portions of its cable systems in surrounding communities at an estimated additional cost of approximately $789,000. Rebuild construction began in October 1996 and is expected to be completed in the second half of 1997. The Partnership has budgeted expenditures of $2,460,000 in 1997 to complete the entire rebuild. Construction costs related to the rebuild approximated $849,000 during the first half of 1997. Other capital expenditures budgeted for 1997 include approximately $471,000 for the improvement and upgrade of other assets. As a result, the Partnership intends, if possible, to maintain cash reserves. In the future, the Partnership may also need to borrow. The Corporate General Partner has engaged in discussions with a number of possible financing sources regarding the availability and terms of a bank facility for the Partnership. These discussions have to date not been successful. The Corporate General Partner has generally been advised that an individual facility of the size needed by the Partnership is too small to interest most banks which lend to the cable television industry. Accordingly, on June 6, 1997, the Corporate General Partner and an affiliated partnership formed Enstar Finance Company, LLC ("EFC"). The Corporate General Partner's objective is to have EFC obtain a secured bank facility of up to $35 million in order to provide funds that would in turn be advanced to the Partnership and certain of the other related partnerships managed by the Corporate General Partner. Such funds would be used to provide capital to fund future rebuild and upgrade requirements. Based on discussions with prospective lenders, the Corporate General Partner believes that this structure, if implemented, will provide capital to the Partnership on terms more favorable than could be obtained on a "stand-alone" basis. Any advances by EFC will be independently collateralized by the individual partnership borrowers so that no partnership will be required to accept responsibility for borrowings made to other partnerships. The Corporate General Partner has received a commitment letter from two agent banks -9- 10 ENSTAR INCOME PROGRAM II-1, L.P. LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED) regarding the terms of a bank facility for EFC, although a definitive credit agreement has not been executed as of the date of this Report. The Corporate General Partner presently expects the EFC facility to be completed in the third quarter and, accordingly, contemplates that a loan will be made by EFC to the Partnership if the Partnership needs to borrow to meet its liquidity requirements. The Partnership paid distributions totaling $94,500 and $189,000 during the three and six months ended June 30, 1997, and expects to continue to pay distributions at this level during the remainder of 1997. There can, however, be no assurances regarding the level, timing or continuation of future distributions. SIX MONTHS ENDED JUNE 30, 1997 AND 1996 Cash provided by operating activities increased by $592,900 from $612,800 to $1,205,700 for the six months ended June 30, 1997 as compared with the corresponding period in 1996. The Partnership used $408,900 less cash to pay liabilities owed to affiliates and third party creditors during the six months ended June 30, 1997 compared with the first six months of 1996 due to differences in the timing of payments. Cash generated by Partnership operations increased by $153,000 after adding back non-cash depreciation and amortization charges and gain on sale of cable assets. Receivables and prepaid expenses used $31,000 less cash in the six months ended June 30, 1997 due to differences in the timing of receivable collections and payment of prepaid expenses. The Partnership used $823,500 more cash in investing activities in the six months ended June 30, 1997 than in the corresponding six months of 1996, due to an $819,100 increase in expenditures for tangible assets, partially offset by a $4,600 decrease in expenditures for intangible assets. The Partnership received proceeds of $9,000 in the first half of 1996 related to the sale of equipment and other assets. 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. -10- 11 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. 12 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 12, 1997 By: /s/ Michael K. Menerey ------------------------- Michael K. Menerey, Chief Financial Officer EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AT JUNE 30, 1997, AND THE STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1997 JUN-30-1997 2,962,100 0 45,400 4,600 0 0 6,918,600 4,262,300 5,760,200 789,700 0 0 0 0 0 5,760,200 0 1,486,200 0 922,900 (87,500) 13,200 6,000 644,800 0 644,800 0 0 0 644,800 21.33 0
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