<PAGE> 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, 1995
-------------------------------
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
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10900 Wilshire Boulevard, 15th Floor, Los Angeles, CA 90024
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (310) 824-9990
---------------------------
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FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT.
Indicate by check X whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED BALANCE SHEETS
========================
<TABLE>
<CAPTION>
December 31, June 30,
1994* 1995
------------ ----------
(unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $2,327,500 $2,527,400
Accounts receivable less allowance of $7,200 and
$4,500 for possible losses 19,100 34,200
Prepaid expenses and other 7,800 12,000
Property, plant and equipment, less accumulated depreciation
and amortization of $3,255,000 and $3,540,600 1,594,100 1,437,400
Franchise cost, less accumulated amortization
of $3,800 and $5,100 22,900 33,300
Organization costs and deferred charges, net 8,400 9,500
---------- ----------
$3,979,800 $4,053,800
========== ==========
</TABLE>
LIABILITIES AND PARTNERSHIP CAPITAL
<TABLE>
<S> <C> <C>
LIABILITIES:
Accounts payable $ 195,200 $ 161,500
Due to affiliates 205,600 159,400
----------- -----------
TOTAL LIABILITIES 400,800 320,900
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT)
General partners (38,100) (36,500)
Limited partners 3,617,100 3,769,400
----------- -----------
TOTAL PARTNERSHIP CAPITAL 3,579,000 3,732,900
----------- -----------
$ 3,979,800 $ 4,053,800
=========== ===========
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE> 3
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==================================
<TABLE>
<CAPTION>
Unaudited
---------------------------
Three months ended
June 30,
---------------------------
1994 1995
--------- ---------
<S> <C> <C>
REVENUES $ 656,000 $ 665,900
--------- ---------
OPERATING EXPENSES:
Service costs 187,500 206,000
General and administrative expenses 58,200 64,000
General Partner management fees
and reimbursed expenses 111,800 89,100
Depreciation and amortization 82,200 182,600
--------- ---------
439,700 541,700
--------- ---------
OPERATING INCOME 216,300 124,200
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 14,200 26,100
Interest expense (2,400) (2,800)
--------- ---------
11,800 23,300
--------- ---------
NET INCOME $ 228,100 $ 147,500
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 7.54 $ 4.88
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE> 4
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------
Six months ended
June 30,
-------------------------------
1994 1995
----------- -----------
<S> <C> <C>
REVENUES $ 1,295,300 $ 1,301,500
----------- -----------
OPERATING EXPENSES:
Service costs 366,600 411,300
General and administrative expenses 119,000 109,800
General Partner management fees
and reimbursed expenses 208,000 179,100
Depreciation and amortization 169,000 305,600
----------- -----------
862,600 1,005,800
----------- -----------
OPERATING INCOME 432,700 295,700
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 25,400 50,600
Interest expense (3,700) (3,400)
----------- -----------
21,700 47,200
----------- -----------
NET INCOME $ 454,400 $ 342,900
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 15.03 $ 11.34
=========== ===========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE> 5
ENSTAR INCOME PROGRAM II-1, L.P.
STATEMENTS OF CASH FLOWS
========================
<TABLE>
<CAPTION>
Unaudited
-------------------------------
Six months ended
June 30,
-------------------------------
1994 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 454,400 $ 342,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 169,000 305,600
Decrease from changes in:
Accounts receivable, prepaid expenses and other (56,700) (19,300)
Accounts payable and due to affiliates (63,100) (79,900)
----------- -----------
Net cash provided by operating activities 503,600 549,300
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (123,700) (143,600)
Increase in intangible assets (8,200) (16,800)
----------- -----------
Net cash used in investing activities (131,900) (160,400)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (189,000) (189,000)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 182,700 199,900
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,999,400 2,327,500
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,182,100 $ 2,527,400
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE> 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 six
months ended June 30, 1995 and 1994 are unaudited. It is suggested that these
condensed interim financial statements 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, 1995 are not
necessarily indicative of results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
The Partnership has a management and service agreement with a wholly
owned subsidiary of the Corporate General Partner (the "Manager") for a monthly
management fee of 5% of revenues, excluding revenues from the sale of cable
television systems or franchises. Management fees approximated $33,300 and
$65,100 for the three and six months ended June 30, 1995, respectively.
In addition to the monthly management fee described above, the
Partnership reimburses the Manager for direct expenses incurred on behalf of
the Partnership and for the Partnership's allocable share of operational costs
associated with services provided by the Manager. All cable television
properties managed by the Corporate General Partner and its subsidiaries are
charged a proportionate share of these expenses. Corporate office allocations
and district office expenses are charged to the properties served based
primarily on the respective percentage of basic subscribers or homes passed
(dwelling units within a system) within the designated service areas. The total
amount charged to the Partnership for these services approximated $55,800 and
$114,000 for the three and six months ended June 30, 1995, respectively.
Management fees and reimbursed expenses due the Corporate General Partner are
non-interest bearing.
Certain programming services have been purchased through an affiliate
of the Partnership. In turn, the affiliate charges the Partnership for these
costs based on an estimate of what the Partnership could negotiate for such
programming services on a stand-alone basis. The Partnership paid the
affiliate $126,000 and $252,700 for these programming services for the three
and six months ended June 30, 1995, respectively. Programming fees are
included in service costs in the statements of operations for the three and six
months ended June 30, 1995 and 1994.
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<PAGE> 7
ENSTAR INCOME PROGRAM II-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
3. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is based
on the average number of units outstanding during the period presented. For
this purpose, earnings and losses are allocated 99% to the limited partners and
1% to the general partners.
4. RECLASSIFICATIONS
Certain 1994 amounts have been reclassified to conform to the 1995
presentation.
-7-
<PAGE> 8
ENSTAR INCOME PROGRAM II-1, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
On February 22, 1994, the Federal Communications Commission (the
"FCC") announced significant amendments to its regulations implementing certain
provisions of the 1992 Cable Act, including those relating to rate regulation
which had previously become effective on September 1, 1993. The amended rate
regulations became effective during the quarter ended September 30, 1994.
Additional amendments were adopted November 10, 1994 and became effective
January 1, 1995. Compliance with these rules has had, and will most likely
continue to have, a significant negative impact on the Partnership's revenues
and cash flow. Based on certain recent FCC decisions that have been released,
however, the Partnership's management presently believes that revenues for the
first six months of 1995 fully reflect the impact of the 1992 Cable Act.
Nonetheless, management expects that certain costs, including programming
costs, will continue to rise at a rate in excess of that which the Partnership
will be permitted to pass on to its customers. Furthermore, given events since
the enactment of the 1992 Cable Act, there can be no assurance as to what, if
any, future action may be taken by Congress, the FCC or any other regulatory
authority or court, or the effect thereof on the Partnership's business.
Specifically, the FCC recently issued a proposal that may allow cable operators
to file abbreviated cost of service filings for system rebuilds and upgrades,
providing for additional rate increases related to significant capital
expenditures. There is also legislation currently being debated in Congress
that could significantly revise the 1992 Cable Act, although there can be no
certainty as to the final provisions of such legislation, or whether it will
become law.
In addition to the information set forth in this report, reference is
made to the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994 for additional information regarding regulatory matters and
the effect thereof on the Partnership's business.
RESULTS OF OPERATIONS
The Partnership's revenues increased by $9,900, or 1.5%, and by $6,200
(less than one-half of one percent) for the three and six months ended June 30,
1995 as compared to the corresponding periods in 1994. Of the three months'
increase, $17,800 was due to an increase in other revenue producing items,
$10,000 was due to increases in regulated service rates permitted under the
1992 Cable Act that were implemented by the Partnership in April 1995, $4,900
was due to increases in the number of subscriptions for services and $4,100 was
due to increases in advertising sales. These increases were partially offset
by rate decreases implemented in 1994 to comply with the 1992 Cable Act,
estimated by the Partnership to be approximately $26,900. Of the six months'
increase, $26,600 was due to an increase in other revenue producing items,
$16,600 was due to increases in the number of subscriptions for services,
$10,000 was due to increases in regulated service rates permitted under the
1992 Cable Act that were implemented by the Partnership in April 1995 and
$8,500 was due to increases in advertising sales. These increases were
partially offset by rate decreases implemented in 1994 to comply with the 1992
Cable Act, estimated by the Partnership to be approximately $55,500.
-8-
<PAGE> 9
ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONT.)
Service costs increased by $18,500, or 9.9%, and by $44,700, or 12.2%,
for the three and six months ended June 30, 1995 as compared to the
corresponding periods in 1994. Service costs represent costs directly
attributable to providing cable services to customers. Of the three months'
increase, $6,800 was due to increases in programming fees (including primary
satellite fees) resulting from higher rates charged by program suppliers,
$5,300 related to increases in franchise fees and $3,100 was due to increases
in personnel costs. Of the six months' increase, $15,800 was due to increases
in programming fees resulting from higher rates charged by program suppliers,
$15,700 was due to decreased capitalization of labor and overhead expense
resulting from fewer capital projects in the first six months of 1995 compared
to 1994, $7,800 was attributable to increases in franchise fees and $6,700 was
due to higher personnel costs.
General and administrative expenses increased by $5,800, or 10%, and
decreased by $9,200, or 7.7%, for the three and six months ended June 30, 1995
as compared to the corresponding periods in 1994. Of the three months'
increase, $5,400 was due to an increase in professional fees, $3,100 to higher
insurance premiums and $3,000 to greater personnel costs. These increases were
partially offset by a $4,400 decrease in bad debt expense. Of the six months'
decrease, $10,800 was due to a decrease in marketing expense and $9,800 to a
decrease in bad debt expense. These decreases were partially offset by an
increase of $5,500 in insurance premiums, $4,100 in personnel costs and $3,800
in professional fees.
Management fees and reimbursed expenses decreased by $22,700, or
20.3%, and by $28,900, or 13.9%, for the three and six months ended June 30,
1995 as compared to the corresponding periods in 1994 due to decreases in
reimbursable expenses payable to the Corporate General Partner. Reimbursed
expenses decreased due to lower allocated personnel costs, computer service
fees, consulting fees, postage costs, telephone expense and property taxes.
Depreciation and amortization expense increased by $100,400, or 122%,
and by $136,600, or 80.8%, for the three and six months ended June 30, 1995 as
compared to the corresponding periods in 1994. The increases for the three and
six month periods were primarily due to a reduction in the estimated remaining
life of existing plant being replaced. Other increases in depreciation and
amortization resulted from asset additions related to upgrades of the
Partnership's plant.
Operating income decreased by $92,100, or 42.6%, and by $137,000, or
31.7%, for the three and six months ended June 30, 1995 compared to the
corresponding periods in 1994, principally due to increased depreciation and
amortization expense as described above.
Interest income increased by $11,900, or 83.8%, and by $25,200, or
99.2%, for the three and six months ended June 30, 1995 compared to the
corresponding periods in 1994, as a result of higher cash balances available
for investment and higher interest rates earned on invested funds.
-9-
<PAGE> 10
ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
Due to the factors described above, the Partnership's net income
decreased by $80,600, or 35.3%, and by $111,500, or 24.5%, for the three and
six months ended June 30, 1995 compared to the corresponding periods in 1994.
LIQUIDITY AND CAPITAL RESOURCES
As previously stated, the FCC's amended rate regulation rules were
implemented during the quarter ended September 30, 1994. Compliance with these
rules has had, and most likely will continue to have, a significant 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, 1995, the
Partnership had no debt outstanding.
The Partnership depends on cash flow from operations to meet operating
requirements and fund necessary capital expenditures. Although the Partnership
currently has a significant cash balance, there can be no assurance that the
Partnership's cash flow will be adequate to meet its future liquidity
requirements which include planned expenditures of approximately $2,500,000 to
rebuild and upgrade its existing cable system beginning in late 1995 and
extending into 1996. As a result, the Partnership intends, if possible, to
maintain cash reserves. In the future, the Partnership may also need to borrow,
if such borrowings are available on terms acceptable to the Partnership, of
which there can be no assurance.
The Partnership paid distributions totaling $94,500 and $187,000
during the three and six months ended June 30, 1995, respectively, and expects
to continue to pay distributions during 1995. There can, however, be no
assurances regarding the level, timing or continuation of future distributions
beyond 1995.
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Cash provided by operating activities increased by $45,700 from
$503,600 to $549,300 for the six months ended June 30, 1995 compared with the
prior year period. Receivables and prepaid expenses used $37,400 less cash
during the first six months of 1995. Partnership operations generated $25,100
more cash in the six months ended June 30, 1995 after adding back non-cash
charges for depreciation and amortization. The Partnership used $16,800 more
cash to pay liabilities owed to the General Partner and third party creditors
during the six months ended June 30, 1995 compared with the first six months of
1994.
The Partnership used $28,500 more cash in investing activities in the
six months ended June 30, 1995 than in the corresponding six months of 1994,
due to a $19,900 increase in expenditures for tangible assets and an $8,600
increase in expenditures for intangible assets.
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<PAGE> 11
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues increased from 45.5% during the second quarter of 1994
to 46.1% in the second quarter of 1995. EBITDA decreased from 46.5% during the
first six months of 1994 to 46.2% in the first six months of 1995. The three
months' increase was primarily caused by lower allocated reimbursed expenses.
The six months' decrease was principally due to higher programming fees and
decreased capitalization of labor and overhead costs. EBITDA increased from
$298,500 to $306,800, or by 2.8%, during the three months ended June 30, 1995
compared to the equivalent period in 1994. EBITDA decreased from $601,700 to
$601,300 during the first six months of 1995 compared to the corresponding
period in 1994.
INFLATION
Certain of the Partnership's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, the Partnership does not believe that its
financial results have been, or will be, adversely affected by inflation,
provided that it is able to increase its service rates periodically, of which
there can be no assurance.
-11-
<PAGE> 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) None
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
-12-
<PAGE> 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: August 9, 1995 By: /s/ Michael K. Menerey
---------------------------
Michael K. Menerey,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1995, AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,527,400
<SECURITIES> 0
<RECEIVABLES> 38,700
<ALLOWANCES> 4,500
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 4,978,000
<DEPRECIATION> 3,540,600
<TOTAL-ASSETS> 4,053,800
<CURRENT-LIABILITIES> 320,900
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,053,800
<SALES> 0
<TOTAL-REVENUES> 1,301,500
<CGS> 0
<TOTAL-COSTS> 1,005,800
<OTHER-EXPENSES> (50,600)
<LOSS-PROVISION> 10,800
<INTEREST-EXPENSE> 3,400
<INCOME-PRETAX> 342,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 342,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 342,900
<EPS-PRIMARY> 11.34
<EPS-DILUTED> 0
</TABLE>
