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, 2000
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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-I, 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 (I.R.S. Employer Identification Number)
of incorporation or organization)
12444 Powerscourt Dr., Suite 100
St. Louis, Missouri 63131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area (314) 965-0555
code: --------------
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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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PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED BALANCE SHEETS
======================================
December 31, March 31,
1999* 2000
----------------- -----------------
(Unaudited)
ASSETS:
<S> <C> <C>
Cash $ 2,309,000 $ 2,491,400
Accounts receivable, less allowance of $2,000 and
$4,000 for possible losses 57,600 17,700
Prepaid expenses and other assets 77,800 74,700
Property, plant and equipment, less accumulated
depreciation and amortization of $3,343,900 and $3,470,700 4,585,500 4,470,400
Franchise cost, net of accumulated
amortization of $47,900 and $50,800 65,900 62,900
Deferred charges, net 700 500
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$ 7,096,500 $ 7,117,600
================= =================
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 267,200 $ 153,700
Due to affiliates 244,800 175,600
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TOTAL LIABILITIES 512,000 329,300
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COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (8,100) (6,000)
Limited partners 6,592,600 6,794,300
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TOTAL PARTNERSHIP CAPITAL 6,584,500 6,788,300
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$ 7,096,500 $ 7,117,600
================= =================
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*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
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<CAPTION>
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
======================================
Unaudited
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Three months ended
March 31,
-------------------------------------
1999 2000
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<S> <C> <C>
REVENUES $ 776,600 $ 802,000
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OPERATING EXPENSES:
Service costs 262,600 214,100
General and administrative expenses 89,300 71,400
General Partner management fees
and reimbursed expenses 116,100 104,100
Depreciation and amortization 122,200 140,000
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590,200 529,600
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OPERATING INCOME 186,400 272,400
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OTHER INCOME (EXPENSE):
Interest income 21,700 28,600
Interest expense (4,300) (2,700)
---------------- -----------------
17,400 25,900
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NET INCOME $ 203,800 $ 298,300
================ =================
Net income allocated to General Partners $ 2,000 $ 3,000
================ =================
Net income allocated to Limited Partners $ 201,800 $ 295,300
================ =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 6.74 $ 9.87
================ =================
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
================ =================
</TABLE>
See accompanying notes to condensed financial statements.
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<TABLE>
<CAPTION>
ENSTAR INCOME PROGRAM II-1, L.P.
STATEMENTS OF CASH FLOWS
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Unaudited
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Three months ended
March 31,
-------------------------------------
1999 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 203,800 $ 298,300
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 122,200 140,000
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other assets (78,200) 43,000
Accounts payable and due to affiliates 71,500 (182,700)
---------------- -----------------
Net cash provided by operating activities 319,300 298,600
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,200) (21,700)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (94,500) (94,500)
---------------- -----------------
INCREASE IN CASH 217,600 182,400
CASH AT BEGINNING OF PERIOD 1,990,700 2,309,000
---------------- -----------------
CASH AT END OF PERIOD $ 2,208,300 $ 2,491,400
================ =================
</TABLE>
See accompanying notes to condensed financial statements.
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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, 2000 and 1999 are unaudited. These condensed interim
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in our latest Annual Report on Form 10-K.
In the opinion of management, 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, 2000 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 our corporate general partner for a monthly management fee
of 5% of revenues, excluding revenues from the sale of cable television systems
or franchises. Management fee expense approximated $40,100 for the three months
ended March 31, 2000.
In addition to the monthly management fee, we reimburse the manager
for direct expenses incurred on behalf of the partnership and for the
partnership's allocable share of operational costs associated with services
provided by the Manager. All cable television properties managed by the
corporate general partner and its subsidiaries are charged a proportionate share
of these expenses. Charter Communications Holding Company, LLC and its
affiliates provide other management services for the partnership that were
provided by Falcon Communications, L.P. and its affiliates prior to November 12,
1999. Corporate office allocations and district office expenses are charged to
the properties served based primarily on the respective percentage of basic
customers or homes passed (dwelling units within a system) within the designated
service areas. The total amount charged to the partnership for these services
was $64,000, for the three months ended March 31, 2000.
We also receive certain system operating management services from
Charter and other affiliates of the corporate general partner in addition to the
manager, due to the fact that there are no such employees directly employed by
the partnership's cable systems. We reimburse the affiliates for our allocable
share of the affiliates' operational costs. The total amount charged to the
partnership for these costs approximated $13,300 for the three months ended
March 31, 2000. No management fee is payable to the affiliates by the
partnership and there is no duplication of reimbursed expenses and costs paid to
the manager.
Substantially all programming services have been purchased through
Charter since November 12, 1999. Before that time, substantially all programming
services were purchased through Falcon Communications. Falcon Communications
charged 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. Charter
charges the partnership for these costs based on its costs. The partnership
recorded programming fee expense of $165,800 for the three months ended March
31, 2000. Programming fees are included in service costs in the statements of
operations.
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ENSTAR INCOME PROGRAM II-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
======================================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (Continued)
The partnership provides cable television signals to certain cable
systems in neighboring communities which are owned by other partnerships managed
by the corporate general partner. Such services are provided without fee.
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.
4. SUBSEQUENT EVENT
On April 20, 2000, the corporate general partner signed a non-binding
letter of intent to sell all of the partnership's cable television systems. The
sale of the partnership's assets is subject to approval by a majority of the
limited partners and other standard closing conditions, such as obtaining
regulatory approvals. The prospective buyer seeks to purchase a large group of
cable television systems, which includes all of the partnership's systems as
well as certain systems owned by other partnerships under the common control of
the partnership's corporate general partner. There is no assurance that a
definitive sale agreement will be executed, and if so, whether the proposed sale
will be consummated. Even if the limited partners do approve the sale,
consummation of the sale is subject to certain factors beyond the partnership's
control, including receipt of regulatory approvals and approval of the sale by
other selling partnerships.
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ENSTAR INCOME PROGRAM II-1, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The 1992 Cable Act required the Federal Communications Commission to,
among other things, implement extensive regulation of the rates charged by cable
television systems for basic and programming service tiers, installation, and
customer premises equipment leasing. Compliance with those rate regulations has
had a negative impact on our revenues and cash flow. The 1996 Telecommunications
Act substantially changed the competitive and regulatory environment for cable
television and telecommunications service providers. Among other changes, the
1996 Telecommunications Act ended the regulation of cable programming service
tier rates on March 31, 1999. 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 their effect on our business. Accordingly, our historical
financial results as described below are not necessarily indicative of future
performance.
This report includes certain forward-looking statements regarding,
among other things, our future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
partnership. Such forward-looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing cable
television operators such as the partnership, as discussed more fully elsewhere
in this report.
RESULTS OF OPERATIONS
Our revenues increased from $776,600 to $802,000, or by 3.3%, for the
three months ended March 31, 2000 compared to the corresponding quarter in 1999.
Of the $25,400 increase, $31,900 was due to increases in regulated service rates
that we implemented in 1999. The increase was partially offset by a $5,100
decrease due to decreases in the number of subscriptions for basic, premium and
equipment rental services and a $1,400 decrease in other revenue producing
items. As of March 31, 2000, we had approximately 6,900 basic subscribers and
1,200 premium service units.
Our service costs decreased from $262,600 to $214,100, or by 18.5%,
for the three months ended March 31, 2000 compared to the equivalent 1999
period. Service costs represent costs directly attributable to providing cable
services to customers. The decrease was primarily due to decreases in
programming fees and personnel costs. Programming fees decreased as a result of
lower rates that Charter has extended to the partnership.
Our general and administrative expenses decreased from $89,200 to
$71,400, or by 20.0%, for the three months ended March 31, 2000 compared to the
corresponding quarter in 1999, primarily due to decreases in marketing expenses
and insurance premiums.
Our management fees and reimbursed expenses decreased from $116,100 to
$104,100, or by 10.3%, for the three months ended March 31, 2000 compared to the
first three months of 1999. Management fees increased in direct relation to
increased revenues as described above. Reimbursed expenses decreased primarily
due to lower allocated personnel costs, telephone expense and corporate office
expenses.
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ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (Continued)
Depreciation and amortization expense increased from $122,200 to
$140,000, or by 14.6%, for the three months ended March 31, 2000, as compared to
the corresponding period in 1999. The increases were primarily due to
depreciation of plant asset additions from the upgrade of the partnership's
cable systems.
Operating income increased from $186,400 to $272,400, or by 46.1%, for
the three months ended March 31, 2000 as compared to the equivalent period in
1999, primarily due to increases in revenues and decreases in programming fees
as described above.
Our interest income, net of interest expense, increased from $17,400
to $25,900, or by 48.9%, for the three months ended March 31, 2000 as compared
to the first three months of 1999, primarily due to higher average cash balances
available for investment in 2000.
Due to the factors described above, our net income increased from
$203,900 to $298,300, or by 46.3%, for the three months ended March 31, 2000
compared to corresponding period in 1999.
Based on our experience in the cable television industry, we believe
that operating income before depreciation and amortization, or EBITDA, and
related measures of cash flow serve as important financial analysis tools for
measuring and comparing cable television companies in several areas, such as
liquidity, operating performance and leverage. EBITDA is not a measurement
determined under generally accepted accounting principles, or GAAP, and does not
represent cash generated from operating activities in accordance with GAAP.
EBITDA should not be considered by the reader as an alternative to net income as
an indicator of financial performance or as an alternative to cash flows as a
measure of liquidity. In addition, the definition of EBITDA may not be identical
to similarly titled measures used by other companies. EBITDA as a percentage of
revenues increased from 39.7% to 51.4% during the three months ended March 31,
2000 as compared to the corresponding period in 1999. The increase was primarily
caused by decreased service costs and general and administrative expenses as
described above. EBITDA increased from $308,600 to $412,400, or by 33.6%, for
the three months ended March 31, 2000 as compared to the corresponding period in
1999.
LIQUIDITY AND CAPITAL RESOURCES
Our primary objective, having invested net offering proceeds in cable
television systems, is to distribute to our partners all available cash flow
from operations and proceeds from the sale of cable systems, if any, after
providing for expenses and capital requirements relating to the expansion,
improvement and upgrade of its cable systems.
In accordance with the partnership agreement, the corporate general
partner has implemented a plan for liquidating the partnership. In connection
with that strategy, the corporate general partner has entered into an agreement
with a cable broker to market the partnership's cable systems to third parties.
Should the partnership receive offers from third parties for such assets and
should the corporate general partner enter into an agreement to sell such
assets, the corporate general partner will prepare a proxy or written consent
solicitation for submission to the limited partners for the purpose of approving
or
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ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (Continued)
disapproving such sale. If all of the partnership's assets are sold, the
corporate general partner will proceed to liquidate the partnership following
the settlement of all final liabilities of the partnership. We can give no
assurance, however, that we will be able to generate a sale of the partnership's
cable assets.
On April 20, 2000, the corporate general partner signed a non-binding
letter of intent to sell all of the partnership's cable television systems. The
sale of the partnership's assets is subject to approval by a majority of the
limited partners and other standard closing conditions, such as obtaining
regulatory approvals. The prospective buyer seeks to purchase a large group of
cable television systems, which includes all of the partnership's systems as
well as certain systems owned by other partnerships under the common control of
the partnership's corporate general partner. There is no assurance that a
definitive sale agreement will be executed, and if so, whether the proposed sale
will be consummated. Even if the limited partners do approve the sale,
consummation of the sale is subject to certain factors beyond the partnership's
control, including receipt of regulatory approvals and approval of the sale by
other selling partnerships.
On April 26, 2000, Millenium Management, LLC filed with the Securities
and Exchange Commission a preliminary consent solicitation statement on Schedule
14A which states that Millenium intends to seek the approval by written consent
of the partnership's limited partners to terminate and dissolve the partnership
and to appoint Millenium as liquidating trustee to oversee the sale of the
partnership's assets and to wind up the partnership's business.
At December 31, 1999, 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 intends to upgrade its cable system in Litchfield, Illinois in 2000
at an estimated cost of approximately $1.0 million, which is required to be
completed by January 2001 under a provision of the franchise agreement. Other
capital expenditures budgeted for 2000 total approximately $552,100 for the
improvement and upgrade of other assets. Such expenditures approximated $21,700
as of March 31, 2000. As a result of these planned capital expenditures, the
partnership intends, if possible, to maintain cash reserves.
We paid distributions totaling $94,500 during the quarter ended March
31, 2000, and expect to continue to pay distributions at this level during 2000.
There can, however, be no assurances regarding the level, timing or continuation
of future distributions.
Falcon Communications purchased insurance coverage for all of the
cable television properties owned or managed by it to cover damage to cable
distribution plant and subscriber connections and against business interruptions
resulting from such damage. This coverage is subject to a significant annual
deductible which applies to all of the cable television properties owned or
formerly managed by Falcon Communications through November 12, 1999, and
currently managed by Charter, including those of the partnership.
All of our subscribers are served by our system in Taylorville,
Illinois and neighboring communities. Significant damage to the system due to
seasonal weather conditions or other events
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ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (Continued)
could have a material adverse effect on our liquidity and cash flows. We
continue to purchase insurance coverage in amounts our management views as
appropriate for all other property, liability, automobile, workers' compensation
and other types of insurable risks.
We have not experienced any system failures or other disruptions
caused by Year 2000 problems since January 1, 2000 through the date of this
report, and do not anticipate that we will encounter any Year 2000 problems
going forward. We did not incur expense in the first three months of 2000
related to the Year 2000 date change.
Three months ended March 31, 2000 and 1999
------------------------------------------
Our operating activities provided $20,700 less cash in the three
months ended March 31, 2000 than in the corresponding period of 1999. Changes in
receivables, prepaid expenses and other assets used $121,200 less cash during
the three months ended March 31, 2000 due to differences in the timing of
receivable collections and the payment of prepaid expenses. We used $254,200
more cash to pay liabilities owed to affiliates and third party creditors during
the three months ended March 31, 2000 due to differences in the timing of
payments.
We used $14,500 more cash in investing activities during the three
months ended March 31, 2000 than in the corresponding three months of 1999 due
to a $14,500 increase in expenditures for tangible assets.
INFLATION
Certain of our expenses, such as those for wages and benefits,
equipment repair and replacement, and billing and marketing generally increase
with inflation. However, we do not believe that our financial results have been,
or will be, adversely affected by inflation in a material way, provided that we
are able to increase our service rates periodically, of which there can be no
assurance.
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ENSTAR INCOME PROGRAM II-1, L.P.
PART II. OTHER INFORMATION
ITEMS 1-4. Not applicable.
ITEM 5. Other Information.
On April 20, 2000, the corporate general partner signed a
non-binding letter of intent to sell all of the partnership's
cable television systems. The sale of the partnership's assets
is subject to approval by a majority of the limited partners
and other standard closing conditions, such as obtaining
regulatory approvals. The prospective buyer seeks to purchase
a large group of cable television systems, which includes all
of the partnership's systems as well as certain systems owned
by other partnerships under the common control of the
partnership's corporate general partner. There is no assurance
that a definitive sale agreement will be executed, and if so,
whether the proposed sale will be consummated. Even if the
limited partners do approve the sale, consummation of the sale
is subject to certain factors beyond the partnership's
control, including receipt of regulatory approvals and
approval of the sale by other selling partnerships.
On April 26, 2000, Millenium Management, LLC filed with the
Securities and Exchange Commission a preliminary consent
solicitation statement on Schedule 14A which states that
Millenium intends to seek the approval by written consent of
the partnership's limited partners to terminate and dissolve
the partnership and to appoint Millenium as liquidating
trustee to oversee the sale of the partnership's assets and to
wind up the partnership's business.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed.
<PAGE>
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, 2000 By: /s/ Kent D. Kalkwarf
---------------------
Kent D. Kalkwarf
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer
and Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 2000, AND THE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000757595
<NAME> ENSTAR INCOME PROGRAM II-I, L.P.
<MULTIPLIER> 1
<CURRENCY> US$
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 2,491,400
<SECURITIES> 0
<RECEIVABLES> 21,700
<ALLOWANCES> 4,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,941,100
<DEPRECIATION> 3,470,700
<TOTAL-ASSETS> 7,117,600
<CURRENT-LIABILITIES> 329,300
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,117,600
<SALES> 0
<TOTAL-REVENUES> 802,000
<CGS> 0
<TOTAL-COSTS> 529,600
<OTHER-EXPENSES> (28,600)
<LOSS-PROVISION> 9,200
<INTEREST-EXPENSE> 2,700
<INCOME-PRETAX> 298,300
<INCOME-TAX> 0
<INCOME-CONTINUING> 298,300
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 298,300
<EPS-BASIC> 9.87
<EPS-DILUTED> 0
</TABLE>
