<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 September 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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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<PAGE> 2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED BALANCE SHEETS
========================================
<TABLE>
<CAPTION>
December 31, September 30,
1995* 1996
-------------- ---------------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 2,657,300 $ 3,055,200
Accounts receivable less allowance of $5,500 and
$4,600 for possible losses 48,100 65,100
Prepaid expenses and other 16,400 33,200
Property, plant and equipment, less accumulated depreciation
and amortization of $3,893,000 and $4,087,700 1,322,200 1,592,700
Franchise cost, less accumulated amortization
of $8,800 and $15,300 63,500 64,600
Deferred charges, net 10,700 10,000
-------------- ---------------
$ 4,118,200 $ 4,820,800
============== ===============
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 186,800 $ 309,100
Due to affiliates 111,800 217,700
-------------- ---------------
TOTAL LIABILITIES 298,600 526,800
-------------- ---------------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (35,700) (30,900)
Limited partners 3,855,300 4,324,900
-------------- ---------------
TOTAL PARTNERSHIP CAPITAL 3,819,600 4,294,000
-------------- ---------------
$ 4,118,200 $ 4,820,800
============== ===============
</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
September 30,
--------------------------------------
1995 1996
------------- ------------
<S> <C> <C>
REVENUES $ 656,900 $ 699,600
------------- ------------
OPERATING EXPENSES:
Service costs 188,600 199,300
General and administrative expenses 49,100 66,700
General Partner management fees
and reimbursed expenses 90,500 100,600
Depreciation and amortization 184,000 59,500
------------- ------------
512,200 426,100
------------- ------------
OPERATING INCOME 144,700 273,500
------------- ------------
OTHER INCOME (EXPENSE):
Interest income 28,600 31,000
Interest expense (2,200) -
Gain on sale of cable assets - 2,000
------------- ------------
26,400 33,000
------------- ------------
NET INCOME $ 171,100 $ 306,500
============= ============
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 5.66 $ 10.14
============= ============
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
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1995 1996
------------- ------------
<S> <C> <C>
REVENUES $ 1,958,400 $ 2,015,800
------------- ------------
OPERATING EXPENSES:
Service costs 599,900 589,600
General and administrative expenses 158,900 237,300
General Partner management fees
and reimbursed expenses 269,600 280,000
Depreciation and amortization 489,600 241,400
------------- ------------
1,518,000 1,348,300
------------- ------------
OPERATING INCOME 440,400 667,500
------------- ------------
OTHER INCOME (EXPENSE):
Interest income 79,200 89,000
Interest expense (5,600) (1,400)
Gain on sale of cable assets - 2,700
------------- ------------
73,600 90,300
------------- ------------
NET INCOME $ 514,000 $ 757,800
============= ============
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 17.00 $ 25.06
============= ============
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
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1995 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 514,000 $ 757,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 489,600 241,400
Gain on sale of cable assets - (2,700)
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other (35,800) (33,800)
Accounts payable and due to affiliates 57,800 228,200
------------ ------------
Net cash provided by operating activities 1,025,600 1,190,900
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (312,000) (506,800)
Increase in intangible assets (55,300) (13,700)
Proceeds from sale of cable assets - 11,000
------------ ------------
Net cash used in investing activities (367,300) (509,500)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (283,500) (283,500)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 374,800 397,900
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,327,500 2,657,300
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,702,300 $ 3,055,200
============ ============
</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 three and nine months ended September 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 nine months ended September 30,
1996 are not necessarily indicative of results for the entire year.
2. TRANSACTIONS WITH THE CORPORATE 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 $35,000
and $100,800 for the three and nine months ended September 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 $65,600
and $179,200 for the three and nine months ended September 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 $143,200 and $401,200 for these programming services for the three
and nine months ended September 30, 1996. Programming fees are included in
service costs in the statements of operations for the three and nine months
ended September 30, 1996 and 1995.
-6-
<PAGE> 7
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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<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 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 $656,900 to
$699,600, or by 6.5%, and from $1,958,400 to $2,015,800, or by 2.9%, for the
three and nine months ended September 30, 1996 as compared to the corresponding
periods in 1995. Of the $42,700 increase in revenues for the three months
ended September 30, 1996 as compared to the corresponding period in 1995,
$27,700 was due to increases in regulated service rates that were implemented
by the Partnership in the second quarter of 1996, $24,200 due to the
restructuring of The Disney Channel from a premium channel to a tier channel
effective July 1, 1996, and $14,200 was due to increases in other revenue
producing items. These increases were partially offset by a decrease of $23,400
due to a decrease in the number of subscriptions for basic and premium service.
Of the $57,400 increase in revenues for the nine months ended September 30,
1996 as compared to the corresponding period in 1995, $64,500 was due to
increases in regulated service rates that were implemented by the Partnership
in the second quarter in each of 1995 and 1996 as discussed above, $24,200 due
to the restructuring of The Disney Channel discussed above and $22,700 resulted
from increases in other revenue producing items consisting primarily of
advertising sales revenue. These increases were
-8-
<PAGE> 9
ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
partially offset by a decrease of $54,000 due to a decrease in the number of
subscriptions for basic and premium service. As of September 30, 1996, the
Partnership had approximately 6,900 homes subscribing to cable service and
1,800 premium service units. The decrease of 200 premium units from June 30,
1996 was primarily due to approximately 180 Disney premium units that became
tier subscriptions under the restructuring discussed above.
Service costs increased from $188,600 to $199,300, or by 5.7%,
for the three months ended September 30, 1996 and decreased from $599,900 to
$589,600, or by 1.7%, for the nine months ended September 30, 1996 as compared
to the corresponding periods for 1995. Service costs represent costs directly
attributable to providing cable services to customers. Of the $10,700 increase
in service costs for the three months ended September 30, 1996 as compared to
the corresponding period in 1995, $16,400 was due to an increase in programming
fees (including primary satellite fees) and $10,800 was due to an increase in
copyright fees. These increases were partially offset by a $9,000 decrease in
franchise fees and a $7,000 increase in capitalization of labor and overhead
costs due to more capital projects during the 1996 three- month period. Of the
$10,300 decrease in service costs for the nine months ended September 30, 1996
as compared to the corresponding period in 1995, $40,100 was due to an increase
in capitalization of labor and overhead costs due to more capital projects
during the 1996 period, which was partially offset by increases of $21,700 in
programming fees (including primary satellite fees) and $10,300 in copyright
fees. The increases in programming fees during the three and nine months ended
September 30, 1996 included a $7,200 increase related to the restructuring of
The Disney Channel discussed above.
General and administrative expenses increased from $49,100 to
$66,700, or by 35.9%, and from $158,900 to $237,300, or by 49.3%, for the three
and nine months ended September 30, 1996 as compared to the corresponding
periods in 1995. Of the $17,600 increase for the three months ended September
30, 1996 as compared to the corresponding period in 1995, $17,500 was due to an
increase in marketing expense. Of the $78,400 increase for the nine months
ended September 30, 1996 as compared to the corresponding period in 1995,
$36,700 was due to an increase in marketing expense, $15,200 was due to higher
insurance premiums, $10,800 was due to an increase in business tax expense,
$8,800 was due to an increase in professional fees, $5,400 was due to an
increase in personnel costs, and $5,400 was due to higher bad debt expense.
Management fees and reimbursed expenses increased from $90,500
to $100,600, or by 11.2%, and from $269,600 to $280,000, or by 3.9%, for the
three and nine months ended September 30, 1996 as compared with the
corresponding periods in 1995. Reimbursable expenses increased by $7,900 and
$7,500 for the three and nine months ended September 30, 1996 from the
comparable periods in 1995, primarily due to higher allocated personnel costs.
The nine months' increase was also due to higher allocated professional service
fees and computer service expense. Management fees increased by $2,200 and
$2,900 for the three and nine months ended September 30, 1996 from the
corresponding 1995 periods in direct relation to increased revenues as
described above.
Depreciation and amortization expense decreased from $184,000
to $59,500, or by 67.7%, and from $489,600 to $241,400, or by 50.7%, for the
three and nine months ended September 30, 1996 as compared to the corresponding
periods in 1995. The decrease in the three and nine month periods was the
result of certain plant assets becoming fully depreciated in 1995.
-9-
<PAGE> 10
ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
Operating income increased from $144,700 to $273,500, or by
89.0%, and from $440,400 to $667,500, or by 51.6%, for the three and nine
months ended September 30, 1996 as compared to the corresponding periods for
1995 principally due to decreases in depreciation and amortization expense and
increased revenues as described above.
Interest income increased from $28,600 to $30,200, or by 5.6%,
and from $79,200 to $89,000, or by 12.4%, for the three and nine months ended
September 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 $171,100 to $306,500, or by 79.1%, and from $514,000 to
$757,800, or by 47.4%, for the three and nine months ended September 30, 1996
as compared to the corresponding periods for 1995.
LIQUDITY 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 September 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. The Partnership is required to rebuild its cable system by July
1, 1997 at an estimated cost of $2,429,000 as a condition of its franchise
agreement. Rebuild capital expenditures are estimated to be approximately
$975,000 in 1996 and $1,454,000 in 1997. Other capital expenditures budgeted
for 1996 include approximately $126,000 for the improvement and upgrade of
other assets. Rebuild construction began in October 1996 and will be completed
prior to the required date of July 1, 1997. 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
$283,500 during the three and nine months ended September 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 September 30,
1996.
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<PAGE> 11
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Cash provided by operating activities increased by $165,300
from $1,025,600 to $1,190,900 for the nine months ended September 30, 1996
compared with the corresponding period in 1995. The Partnership used $170,400
less cash to pay liabilities owed to the General Partner and third party
creditors during the nine months ended September 30, 1996 compared with the
first nine months of 1995. Other operating items (receivables and prepaid
expenses) used $2,000 less cash during the first nine months of 1996.
Partnership operations generated $7,100 less cash in the nine months ended
September 30, 1996 after adding back non-cash charges for depreciation and
amortization and gain on the sale of cable assets.
The Partnership used $142,200 more cash in investing
activities in the nine months ended September 30, 1996 than in the
corresponding nine months of 1995 due to a $194,800 increase in expenditures
for tangible assets partially offset by a $41,600 decrease in expenditures for
intangible assets. The Partnership received proceeds of $11,000 from the sale
of certain cable assets.
Operating income before depreciation and amortization (EBITDA)
as a percentage of revenues decreased from 50.0% and 47.6% during the three and
nine months ended September 30, 1995 to 47.5% and 45.1% in the three and nine
months ended September 30, 1996. The change was caused primarily by increases
in marketing expense, programming fees and copyright fees. The nine months
change was also due to higher insurance premiums. EBITDA increased from
$328,700 to $333,000, or by 1.3% for the three months ended September 30, 1996,
and decreased from $930,000 to $908,900, or by 2.3%, for the nine months ended
September 30, 1996 as compared to the corresponding periods for 1995.
INFLATION
Certain of the Partnership's expenses, such as those for wages
and benefits, equipment repair and replacement, and billing and marketing
generally increase with inflation. However, the Partnership does not believe
that its financial results have been, or will be, adversely affected by
inflation in a material way, provided that it is able to increase its service
rates periodically, of which there can be no assurance.
-11-
<PAGE> 12
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: November 12, 1996 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 SEPTEMBER 30, 1996, AND THE STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 3,055,200
<SECURITIES> 0
<RECEIVABLES> 69,700
<ALLOWANCES> 4,600
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,680,400
<DEPRECIATION> 4,087,700
<TOTAL-ASSETS> 4,820,800
<CURRENT-LIABILITIES> 526,800
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,820,800
<SALES> 0
<TOTAL-REVENUES> 2,015,800
<CGS> 0
<TOTAL-COSTS> 1,348,300
<OTHER-EXPENSES> (89,000)
<LOSS-PROVISION> 25,300
<INTEREST-EXPENSE> 1,400
<INCOME-PRETAX> 757,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 757,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 757,800
<EPS-PRIMARY> 25.06
<EPS-DILUTED> 0
</TABLE>
