<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 March 31, 1997
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-14508
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Enstar Income Program II-1, L.P.
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(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 Identification
incorporation or organization) Number)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 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 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
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED BALANCE SHEETS
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<TABLE>
<CAPTION>
December 31, March 31,
1996* 1997
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(Unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,849,600 $ 3,143,000
Accounts receivable, less allowance of $4,700 and
$4,800 for possible losses 75,000 61,800
Prepaid expenses and other assets 29,200 37,300
Property, plant and equipment, less accumulated
depreciation and amortization of $4,145,800 and $4,203,300 1,891,100 1,893,000
Franchise cost, net of accumulated
amortization of $17,500 and $19,800 64,600 63,800
Deferred charges, net 8,900 8,800
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$ 4,918,400 $ 5,207,700
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 229,800 $ 192,600
Due to affiliates 173,900 256,200
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TOTAL LIABILITIES 403,700 448,800
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COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (28,800) (26,300)
Limited partners 4,543,500 4,785,200
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TOTAL PARTNERSHIP CAPITAL 4,514,700 4,758,900
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$ 4,918,400 $ 5,207,700
=========== ===========
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
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<PAGE> 3
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==============================================
<TABLE>
<CAPTION>
Unaudited
------------------------------
Three months ended
March 31,
------------------------------
1996 1997
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<S> <C> <C>
REVENUES $ 649,700 $ 738,100
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OPERATING EXPENSES:
Service costs 199,500 213,800
General and administrative expenses 91,600 48,800
General Partner management fees
and reimbursed expenses 84,600 112,200
Depreciation and amortization 97,100 69,900
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472,800 444,700
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OPERATING INCOME 176,900 293,400
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OTHER INCOME (EXPENSE):
Interest income 28,200 35,200
Interest expense (1,400) (3,100)
Other income - 13,200
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26,800 45,300
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NET INCOME $ 203,700 $ 338,700
============= =============
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 6.74 $ 11.20
============= =============
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE> 4
ENSTAR INCOME PROGRAM II-1, L.P.
STATEMENTS OF CASH FLOWS
============================================
<TABLE>
<CAPTION>
Unaudited
------------------------------
Three months ended
March 31,
------------------------------
1996 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 203,700 $ 338,700
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 97,100 69,900
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other assets (10,600) 5,100
Accounts payable and due to affiliates 128,800 45,100
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Net cash provided by operating activities 419,000 458,800
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (34,300) (67,400)
Increase in intangible assets (3,000) (3,500)
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Net cash used in investing activities (37,300) (70,900)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (94,500) (94,500)
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INCREASE IN CASH AND CASH EQUIVALENTS 287,200 293,400
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,657,300 2,849,600
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,944,500 $ 3,143,000
============= =============
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE> 5
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
months ended March 31, 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 months ended March 31, 1997 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 fee expense approximated $36,900
for the three months ended March 31, 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 $75,300 for
the three months ended March 31, 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
$149,500 for the three months ended March 31, 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 are allocated 99% to the limited partners and 1% to
the general partners.
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<PAGE> 6
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 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 $649,700 to $738,100, or by
13.6%, for the quarter ended March 31, 1997 as compared to the corresponding
period in 1996. Of the $88,400 increase, $64,500 was due to increases in
regulated service rates that were implemented by the Partnership in the second
and fourth quarters of 1996, $23,200 was due to the restructuring of The Disney
Channel from a premium channel to a tier channel effective July 1, 1996 and
$6,900 was due to increases in other revenue producing items. These increases
were partially offset by a $6,200 decrease due to a decrease in the number of
subscriptions, primarily for premium service. As of March 31, 1997, the
Partnership had approximately 6,900 homes subscribing to cable service and 1,700
premium service units.
Service costs increased from $199,500 to $213,800, or by 7.2%, for the
quarter ended March 31, 1997 as compared to the corresponding period in 1996.
Service costs represent costs directly attributable to providing cable services
to customers. Of the $14,300 increase, $20,500 was due to an increase in
programming fees charged by program suppliers (including primary satellite fees)
and $4,900 was due to an increase in pole rent expense. These increases were
partially offset by an $8,800 increase in capitalization of labor and overhead
expense resulting from a greater number of capital projects in the 1997 quarter
and a $4,300 decrease in direct personnel costs due to the transfer of certain
employees to the Corporate General
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<PAGE> 7
ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
Partner's operations in the second half of 1996. The increase in programming
fees for the quarter ended March 31, 1997 included a $7,400 increase related to
the restructuring of The Disney Channel discussed above.
General and administrative expenses decreased from $91,600 to $48,800,
or by 46.7%, for the quarter ended March 31, 1997 as compared to the
corresponding period in 1996. Of the $42,800 decrease, $11,100 was due to an
increase in capitalization of labor and overhead costs related to the rebuild of
the Partnership's Taylorville, Illinois cable system, $10,200 was due to a
decrease in personnel costs, $9,500 was due to lower insurance premiums, $5,100
was due to a decrease in bad debt expense, $3,400 was due to a decrease in
professional fees and $3,500 was composed of nominal decreases in various other
accounts.
Management fees and reimbursed expenses increased from $84,600 to
$112,200, or by 32.6%, for the quarter ended March 31, 1997 as compared to the
corresponding period in 1996. Of the $27,600 increase, reimbursable expenses
increased by $23,200, primarily due to higher allocated personnel costs
resulting from staff additions and wage increases. Management fees increased by
$4,400 in direct relation to increased revenues as described above.
Depreciation and amortization expense decreased from $97,100 to $69,900,
or by 28.0%, for the quarter ended March 31, 1997 as compared to the
corresponding period in 1996 due to certain plant assets becoming fully
depreciated in 1996.
Operating income increased from $176,900 to $293,400, or by 65.9%, for
the quarter ended March 31, 1997 as compared to the corresponding period in
1996, principally due to increases in revenues and decreases in general and
administrative expenses and depreciation and amortization expense as described
above.
Interest income increased from $28,200 to $35,200, or by 24.8%, for the
quarter ended March 31, 1997 as compared to the corresponding period in 1996,
due to higher cash balances available for investment.
Due to the factors described above, the Partnership's net income
increased from $203,700 to $338,700, or by 66.3%, for the quarter ended March
31, 1997 as compared to the corresponding period 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 March 31, 1997, 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.
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<PAGE> 8
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
The Partnership is required to rebuild its Taylorville, Illinois cable system by
July 1, 1997 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 $47,400 during the first quarter 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, 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 during the three
months ended March 31, 1997, and expects to continue to pay distributions at
this level during 1997. There can, however, be no assurances regarding the
level, timing or continuation of future distributions.
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Cash provided by operating activities increased by $39,800 from $419,000
to $458,800 for the three months ended March 31, 1997 as compared with the
corresponding period in 1996. Cash generated by Partnership operations increased
by $107,800 after adding back non-cash depreciation and amortization charges.
Receivables and prepaid expenses used $15,700 less cash in the three months
ended March 31, 1997 due to differences in the timing of receivable collections
and in the payment of prepaid expenses. The Partnership used $83,700 more cash
to pay liabilities owed to the Corporate General Partner and third party
creditors due to differences in the timing of payments during the three months
ended March 31, 1997 compared with the first three months of 1996.
The Partnership used $33,600 more cash in investing activities in the
three months ended March 31, 1997 than in the corresponding three months of 1996
due to a $33,100 increase in expenditures for tangible assets.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues increased from 42.2% during the first three months of
1996 to 49.2% in the corresponding 1997 quarter, primarily due to higher
revenues and decreased general and administrative expenses. EBITDA increased
from $274,000 to $363,300, or by 32.6%, during the quarter ended March 31, 1997
compared to the corresponding three months in 1996.
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.
-8-
<PAGE> 9
ENSTAR INCOME PROGRAM II-1, L.P.
<TABLE>
<S> <C>
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.
</TABLE>
<PAGE> 10
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: May 12, 1997 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 MARCH 31, 1997, AND THE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,143,000
<SECURITIES> 0
<RECEIVABLES> 66,600
<ALLOWANCES> 4,800
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,096,300
<DEPRECIATION> 4,203,300
<TOTAL-ASSETS> 5,207,700
<CURRENT-LIABILITIES> 448,800
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,207,700
<SALES> 0
<TOTAL-REVENUES> 738,100
<CGS> 0
<TOTAL-COSTS> 444,700
<OTHER-EXPENSES> (48,400)
<LOSS-PROVISION> 4,400
<INTEREST-EXPENSE> 3,100
<INCOME-PRETAX> 338,700
<INCOME-TAX> 0
<INCOME-CONTINUING> 338,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 338,700
<EPS-PRIMARY> 11.20
<EPS-DILUTED> 0
</TABLE>
