<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, 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 0-14505
Enstar Income Program II-2, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Georgia 58-1628872
(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
--- ---
<PAGE> 2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, September 30,
1994* 1995
----------- -----------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,147,600 $ 1,980,200
Accounts receivable less allowance of $6,300 and 24,500 56,000
$8,600 for possible losses
Prepaid expenses and other 21,400 37,300
Cable materials, equipment and supplies 194,800 194,800
Property, plant and equipment, less accumulated depreciation
and amortization of $6,095,600 and $6,633,500 2,538,500 2,468,100
Franchise cost, less accumulated amortization
of $867,500 and $940,600 570,000 493,700
Deferred loan costs and other charges, net 55,100 50,500
----------- -----------
$ 4,551,900 $ 5,280,600
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Note payable $ 483,700 $ 483,700
Accounts payable 175,300 409,900
Due to affiliates 145,300 330,800
----------- -----------
TOTAL LIABILITIES 804,300 1,224,400
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (36,200) (33,100)
Limited partners 3,783,800 4,089,300
----------- -----------
TOTAL PARTNERSHIP CAPITAL 3,747,600 4,056,200
----------- -----------
$ 4,551,900 $ 5,280,600
=========== ===========
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE> 3
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
----------------------
Three months ended
September 30,
----------------------
1994 1995
--------- ---------
<S> <C> <C>
REVENUES $ 749,700 $ 784,400
--------- ---------
OPERATING EXPENSES:
Service costs 271,200 276,200
General and administrative expenses 96,600 80,900
General Partner management fees
and reimbursed expenses 105,700 105,400
Depreciation and amortization 251,300 231,400
--------- ---------
724,800 693,900
--------- ---------
OPERATING INCOME 24,900 90,500
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 7,500 19,900
Interest expense (18,900) (20,400)
--------- ---------
(11,400) (500)
--------- ---------
NET INCOME $ 13,500 $ 90,000
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 0.45 $ 2.98
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,880 29,880
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE> 4
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
--------------------------
Nine months ended
September 30,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
REVENUES $ 2,241,900 $ 2,326,900
----------- -----------
OPERATING EXPENSES:
Service costs 721,900 767,600
General and administrative expenses 255,400 239,100
General Partner management fees
and reimbursed expenses 334,100 315,200
Depreciation and amortization 749,700 687,600
----------- -----------
2,061,100 2,009,500
----------- -----------
OPERATING INCOME 180,800 317,400
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 13,400 51,600
Interest expense (54,100) (60,400)
----------- -----------
(40,700) (8,800)
----------- -----------
NET INCOME $ 140,100 $ 308,600
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 4.64 $ 10.22
=========== ===========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,880 29,880
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE> 5
ENSTAR INCOME PROGRAM II-2, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> Unaudited
--------------------------
Nine months ended
September 30,
--------------------------
1994 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 140,100 $ 308,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 749,700 687,600
Amortization of deferred loan costs 9,600 9,600
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other (12,900) (47,400)
Deferred loan costs (2,400) --
Accounts payable and due to affiliates 56,300 420,100
----------- -----------
Net cash provided by operating activities 940,400 1,378,500
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (142,300) (523,200)
Increase in intangible assets (20,300) (22,700)
----------- -----------
Net cash used in investing activities (162,600) (545,900)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 777,800 832,600
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 337,900 1,147,600
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,115,700 $ 1,980,200
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE> 6
ENSTAR INCOME PROGRAM II-2, 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, 1995 and 1994 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, 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 $39,200 and
$116,300 for the three and nine months ended September 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 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 $66,200 and
$198,900 for the three and nine months ended September 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
$172,200 and $511,300 for these programming services for the three and nine
months ended September 30, 1995, respectively. Programming fees are included in
service costs in the statements of operations for the three and nine months
ended September 30, 1995.
-6-
<PAGE> 7
ENSTAR INCOME PROGRAM II-2, 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 periods presented. For
this purpose, earnings and losses are allocated 99% to the limited partners and
1% to the general partner.
4. RECLASSIFICATIONS
Certain 1994 amounts have been reclassified to conform to the 1995
presentation.
-7-
<PAGE> 8
ENSTAR INCOME PROGRAM II-2, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
Compliance with the rules adopted by the Federal Communications
Commission (the "FCC") to implement the rate regulation provisions of the 1992
Cable Act has had a negative impact on the Partnership's revenues and cash flow.
Based on certain FCC decisions that have been released, however, the
Partnership's management presently believes that revenues for the first nine
months of 1995 reflect the impact of the 1992 Cable Act in all material
respects. Moreover, recent policy decisions by the FCC make it more likely that
in the future the Partnership will be permitted to increase regulated service
rates in response to specified 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 FCC has recently adopted a procedure
under which cable operators may file abbreviated cost of service showings for
system rebuilds and upgrades, the result of which would be a permitted increase
in regulated rates to allow recovery of a portion of those costs. The FCC has
also proposed a new procedure for the pass-through of increases in inflation and
certain external costs, such as programming costs, under which cable operators
could increase rates based on actual and anticipated cost increases for the
coming year. In addition to these FCC actions, Congress is presently considering
legislation that could significantly revise, among other things, the rate
regulation provisions of the 1992 Cable Act, although there can be no certainty
as to the final provisions of such legislation, or whether it will become law.
Similarly, given events since the enactment of the 1992 Cable Act, there can
also 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.
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 $34,700, or by 4.6%, and by
$85,000, or by 3.8%, for the three and nine months ended September 30, 1995 as
compared to the corresponding periods in 1994. Of the three months' increase,
$51,800 was due to increases in regulated service rates permitted under the 1992
Cable Act that were implemented by the Partnership in April 1995, $26,800 was
due to increases in the number of subscriptions for services and $5,400 was due
to increases in unregulated rates charged for premium services implemented
during the fourth quarter of 1994. These increases were partially offset by rate
decreases implemented in September 1994 to comply with the 1992 Cable Act,
estimated by the Partnership to be approximately $47,400, and by a $1,900
decrease in other revenue producing items. Of the nine months' increase,
$129,200 was due to increases in the number of subscriptions for services,
$80,100 was due to increases in regulated service rates that were implemented by
the Partnership in April 1995, $32,300 was due to increases in advertising sales
and other revenue producing items and $1,100 was due to increases in unregulated
rates charged for premium services implemented during the fourth quarter of
1994. These increases were partially offset by rate decreases implemented in
September 1994 to comply with the 1992 Cable Act, estimated by the Partnership
to be approximately $157,700.
-8-
<PAGE> 9
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs increased by $5,000, or by 1.8%, and by $45,700, or by
6.3%, for the three and nine months ended September 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, $13,200 was due to an increase in copyright fees versus 1994 levels,
$11,800 was due to increases in programming fees charged by program suppliers
(including primary satellite fees) and $7,800 was due to increases in franchise
fees. These increases were partially offset by a $15,000 increase in
capitalization of labor and overhead expense due to more capital projects in the
1995 period, by a $6,800 decrease in repair and maintenance expense and by a
$3,700 decrease in personnel costs. Of the nine months' increase, $55,200 was
due to increases in programming fees charged by program suppliers (including
primary satellite fees), $9,700 was due to an increase in franchise fees and
$5,000 was due to an increase in personnel costs. These increases were partially
offset by an $11,900 decrease in copyright fees. The increase in programming
fees was also due to expanded programming usage relating to retransmission
consent arrangements implemented to comply with the 1992 Cable Act.
General and administrative expenses decreased by $15,700, or by 16.3%,
and by $16,300, or by 6.4%, for the three and nine months ended September 30,
1995 as compared to the corresponding periods in 1994. Of the three months'
decrease, $9,200 was due to a decrease in insurance premiums and $4,900 was due
to a decrease in marketing expense. Of the nine months' decrease, $10,400 was
due to a decrease in marketing expense and $6,300 was due to a decrease in costs
associated with reregulation of the cable industry.
Management fees and reimbursed expenses remained relatively unchanged
for the three months ended September 30, 1995 and decreased by $18,900, or by
5.7%, for the nine months ended September 30, 1995 as compared to the
corresponding periods in 1994. The decrease in the nine months period was due to
lower reimbursable expenses charged by the General Partner including lower
allocated personnel costs, property taxes, costs associated with implementation
of the 1992 Cable Act, professional service fees and telephone, postage and
marketing expenses.
Depreciation and amortization expense decreased by $19,900, or by 7.9%,
and by $62,100, or by 8.3%, for the three and nine months ended September 30,
1995 as compared to the corresponding periods in 1994 due to the effect of
certain tangible assets becoming fully depreciated and intangible assets
becoming fully amortized.
Operating income increased by $65,600 and by $136,600 for the three and
nine months ended September 30, 1995 compared to the corresponding periods in
1994 primarily due to increases in revenues and decreases in depreciation and
amortization.
Interest expense increased by $1,500, or by 7.9%, and by $6,300, or by
11.6%, for the three and nine months ended September 30, 1995 as compared to the
corresponding periods in 1994, due to higher applicable interest rates during
the three and nine months ended September 30, 1995 (10.3% and 10.4% for the
three and nine months ended September 30, 1995 versus 9.0% and 8.3% for the
corresponding periods in 1994).
-9-
<PAGE> 10
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
Interest income increased by $12,400 and by $38,200 for the three and
nine months ended September 30, 1995 as compared to the corresponding periods in
1994 due to higher cash balances available for investment and higher interest
rates earned on invested cash.
Due to the factors described above, the Partnership's net income
increased by $76,500 and by $168,500 for the three and nine months ended
September 30, 1995 as compared to the corresponding periods in 1994.
LIQUIDITY 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. However, as discussed above,
recent policy decisions of the FCC and pending legislation may make it more
likely that the Partnership will be permitted to increase regulated service
rates in response to certain cost increases.
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. The Partnership relies
upon the availability of cash generated from operations and possible borrowings
to fund its ongoing expenses, debt service and capital requirements. In general,
these requirements involve expansion, improvement and upgrade of the
Partnership's existing cable television systems. The Partnership is required to
rebuild one of its Illinois cable systems at an estimated cost of approximately
$800,000 as a condition of a franchise renewal obtained in the second quarter of
1994. Construction will begin in the second half of 1995 and continue into 1996.
Other capital expenditures budgeted for 1995 include approximately $600,000 for
the improvement and upgrade of other assets. Additionally, the Corporate General
Partner believes that it is essential for the Partnership to preserve liquidity
through retention of cash for a required rebuild of its cable plant in Missouri
at an estimated cost of approximately $1,100,000. Management is continuing to
evaluate these liquidity issues, including whether or not it will be possible to
resume paying distributions.
In December 1993, the Partnership obtained from a lender a $2,250,000
revolving bank credit agreement (the "Facility") maturing on September 30, 1997.
Loans under the Facility are secured by substantially all of the Partnership's
assets. Interest is payable at the Base Rate plus 1.5%. "Base Rate" means the
higher of the lender's prime rate or the Federal Funds Effective Rate plus 1/2%.
The Facility provides for quarterly reductions of the maximum commitment
beginning September 30, 1994, payable at the end of each fiscal quarter. The
Partnership is permitted to prepay amounts outstanding under the Facility at any
time without penalty, and is able to re-borrow throughout the term of the
Facility up to the maximum commitment then available so long as no event of
default exists. The Partnership is also required to pay a commitment fee of 1/2%
per annum on the unused portion of the Facility. The Facility contains certain
conditions, events of default and financial tests as well as other covenants
including, among others, restrictions on capital
-10-
<PAGE> 11
ENSTAR INCOME PROGRAM II-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
expenditures, incurrence of indebtedness, distributions and investments, sale of
assets and acquisitions. The Partnership believes that it was in compliance with
the Facility's loan covenants as of September 30, 1995. The maximum amount
available under the Facility will decrease by $400,000 in 1995 to $1,700,000 and
by $650,000 in 1996 to $1,050,000. Repayment of principal is required to the
extent the loan balance then outstanding exceeds the maximum commitment, as
adjusted. At September 30, 1995, the outstanding loan balance under the Facility
was $483,700. The Partnership may be required to draw on the facility to fund a
portion of the capital expenditure program described above.
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
Operating activities provided $438,100 more cash in the nine months
ended September 30, 1995 than in the corresponding period in 1994. The increase
was primarily due to a $363,800 decrease in the payment of liabilities owed to
the Corporate General Partner and third-party creditors. Cash generated by
Partnership operations increased by $106,400 after adding back non-cash
depreciation and amortization charges. Changes in accounts receivable, prepaid
expenses and deferred loan costs provided $32,100 less cash.
The Partnership used $383,300 more cash in investing activities in the
nine months ended September 30, 1995 than in the corresponding period in 1994,
primarily due to an $380,900 increase in expenditures for tangible assets.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues increased from 36.8% in the third quarter of 1994 to
41.0% in the third quarter of 1995. EBITDA as a percentage of revenues increased
from 41.5% during the first nine months of 1994 to 43.2% in the comparable 1995
period. The three months' increase was principally due to higher revenues and
increased capitalization of labor and overhead costs. The nine months' increase
was principally due to higher revenues and lower allocated reimbursed expenses.
EBITDA increased from $276,200 to $321,900, or by 16.6%, during the three months
ended September 30, 1995 compared to the corresponding period in 1994. EBITDA
increased from $930,500 to $1,005,000, or by 8.0%, during the first nine 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. 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 due to the re-regulation of rates charged for certain cable services.
-11-
<PAGE> 12
ENSTAR INCOME PROGRAM II-2, 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-2, L.P.
a GEORGIA LIMITED PARTNERSHIP
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 6, 1995 By: /s/ Michael K. Menerey
---------------------------------
Michael K. Menerey,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE BALANCE SHEET AT
SEPTEMBER 30, 1995, AND THE STATEMENTS OF OPERATIONS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,980,200
<SECURITIES> 0
<RECEIVABLES> 64,600
<ALLOWANCES> 8,600
<INVENTORY> 194,800
<CURRENT-ASSETS> 0
<PP&E> 9,101,600
<DEPRECIATION> 6,633,500
<TOTAL-ASSETS> 5,280,600
<CURRENT-LIABILITIES> 740,700
<BONDS> 483,700
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,280,600
<SALES> 0
<TOTAL-REVENUES> 2,326,900
<CGS> 0
<TOTAL-COSTS> 2,009,500
<OTHER-EXPENSES> (51,600)
<LOSS-PROVISION> 24,800
<INTEREST-EXPENSE> 60,400
<INCOME-PRETAX> 308,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 308,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 308,600
<EPS-PRIMARY> 10.22
<EPS-DILUTED> 0
</TABLE>
