<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(MARK ONE)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
-----------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------------
Commission file number 0-14505
------------
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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-2, L.P.
CONDENSED BALANCE SHEETS
========================
<TABLE>
<CAPTION>
December 31, June 30,
1994* 1995
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $1,147,600 $1,783,900
Accounts receivable less allowance of $6,300 and 24,500 26,200
$4,400 for possible losses
Prepaid expenses and other 21,400 27,900
Cable materials, equipment and supplies 194,800 194,800
Property, plant and equipment, less accumulated depreciation
and amortization of $6,095,600 and $6,440,000 2,538,500 2,248,300
Franchise cost, less accumulated amortization
of $867,500 and $913,400 570,000 520,800
Deferred loan costs and other charges, net 55,100 52,200
---------- ----------
$4,551,900 $4,854,100
========== ==========
</TABLE>
LIABILITIES AND PARTNERSHIP CAPITAL
<TABLE>
<S> <C> <C>
LIABILITIES:
Note payable $ 483,700 $ 483,700
Accounts payable 175,300 188,600
Due to affiliates 145,300 215,600
----------- -----------
TOTAL LIABILITIES 804,300 887,900
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (36,200) (34,100)
Limited partners 3,783,800 4,000,300
----------- -----------
TOTAL PARTNERSHIP CAPITAL 3,747,600 3,966,200
----------- -----------
$ 4,551,900 $ 4,854,100
=========== ===========
</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
June 30,
---------------------------
1994 1995
--------- ---------
<S> <C> <C>
REVENUES $ 747,900 $ 784,700
--------- ---------
OPERATING EXPENSES:
Service costs 229,300 256,800
General and administrative expenses 75,700 89,900
General Partner management fees
and reimbursed expenses 119,300 105,600
Depreciation and amortization 242,000 224,100
--------- ---------
666,300 676,400
--------- ---------
OPERATING INCOME 81,600 108,300
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 3,900 17,400
Interest expense (18,900) (21,300)
--------- ---------
(15,000) (3,900)
--------- ---------
NET INCOME $ 66,600 $ 104,400
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 2.21 $ 3.46
========= =========
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
-------------------------------
Six months ended
June 30,
-------------------------------
1994 1995
----------- -----------
<S> <C> <C>
REVENUES $ 1,492,200 $ 1,542,500
----------- -----------
OPERATING EXPENSES:
Service costs 450,700 491,400
General and administrative expenses 158,800 158,200
General Partner management fees
and reimbursed expenses 228,400 209,800
Depreciation and amortization 498,400 456,200
----------- -----------
1,336,300 1,315,600
----------- -----------
OPERATING INCOME 155,900 226,900
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 5,900 31,700
Interest expense (35,200) (40,000)
----------- -----------
(29,300) (8,300)
----------- -----------
NET INCOME $ 126,600 $ 218,600
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 4.19 $ 7.24
=========== ===========
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
-----------------------------
Six months ended
June 30,
-----------------------------
1994 1995
--------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 126,600 $ 218,600
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 498,400 456,200
Amortization of deferred loan costs 6,400 6,400
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other (65,000) (8,200)
Deferred loan costs (2,000) --
Accounts payable and due to affiliates (53,300) 83,600
--------- -----------
Net cash provided by operating activities 511,100 756,600
--------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (115,300) (103,500)
Increase in intangible assets (16,300) (16,800)
--------- -----------
Net cash used in investing activities (131,600) (120,300)
--------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 379,500 636,300
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 337,900 1,147,600
--------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 717,400 $ 1,783,900
========= ===========
</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 six months ended June 30, 1995 and 1994 are unaudited. It is suggested
that these condensed interim financial statements be read in conjunction with
the audited financial statements and notes thereto included in the
Partnership's latest Annual Report on Form 10-K. In the opinion of management,
such statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of such periods.
The results of operations for the three and six months ended June 30, 1995 are
not necessarily indicative of results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
The Partnership has a management and service agreement with a wholly
owned subsidiary of the Corporate General Partner (the "Manager") for a monthly
management fee of 5% of revenues, excluding revenues from the sale of cable
television systems or franchises. Management fees approximated $39,200 and
$77,100 for the three and six months ended June 30, 1995, respectively.
In addition to the monthly management fee described above, the
Partnership reimburses the Manager for direct expenses incurred on behalf of
the Partnership and for the Partnership's allocable share of operational costs
associated with services provided by the Manager. All cable television
properties managed by the Corporate General Partner and its 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 $66,400 and
$132,700 for the three and six months ended June 30, 1995, respectively.
Management fees and reimbursed expenses due the Corporate General Partner are
non-interest bearing.
Certain programming services have been purchased through an affiliate
of the Partnership. In turn, the affiliate charges the Partnership for these
costs based on an estimate of what the Partnership could negotiate for such
programming services on a stand-alone basis. The Partnership paid the
affiliate $174,000 and $339,100 for these programming services for the three
and six months ended June 30, 1995, respectively. Programming fees are
included in service costs in the statements of operations for the three and six
months ended June 30, 1995.
-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 partners.
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
On February 22, 1994, the Federal Communications Commission (the
"FCC") announced significant amendments to its regulations implementing certain
provisions of the 1992 Cable Act, including those relating to rate regulation
which had previously become effective on September 1, 1993. The amended rate
regulations became effective during the quarter ended September 30, 1994.
Additional amendments were adopted November 10, 1994 and became effective
January 1, 1995. Compliance with these rules has had, and will most likely
continue to have, a significant negative impact on the Partnership's revenues
and cash flow. Based on certain recent FCC decisions that have been released,
however, the Partnership's management presently believes that revenues for the
first six months of 1995 fully reflect the impact of the 1992 Cable Act.
Nonetheless, management expects that certain costs, including programming
costs, will continue to rise at a rate in excess of that which the Partnership
will be permitted to pass on to its customers. Furthermore, given events since
the enactment of the 1992 Cable Act, there can be no assurance as to what, if
any, future action may be taken by Congress, the FCC or any other regulatory
authority or court, or the effect thereof on the Partnership's business.
Specifically, the FCC recently issued a proposal that may allow cable operators
to file abbreviated cost of service filings for system rebuilds and upgrades,
providing for additional rate increases related to significant capital
expenditures. There is also legislation currently being debated in Congress
that could significantly revise the 1992 Cable Act, although there can be no
certainty as to the final provisions of such legislation, or whether it will
become law.
In addition to the information set forth in this report, reference is
made to the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1994 for additional information regarding regulatory matters and
the effect thereof on the Partnership's business.
RESULTS OF OPERATIONS
The Partnership's revenues increased by $36,800, or by 4.9%, and by
$50,300, or by 3.4%, for the three and six months ended June 30, 1995 as
compared to the corresponding periods in 1994. Of the three months' increase,
$47,700 was due to increases in the number of subscriptions for services,
$22,800 was due to increases in regulated service rates permitted under the
1992 Cable Act that were implemented by the Partnership in April 1995, and
$19,300 was due to increases in advertising sales and other revenue producing
items. 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 $53,000. Of the six months' increase, $101,400 was due to
increases in the number of subscriptions for services, $34,100 was due to
increases in advertising sales and other revenue producing items, and $22,800
was due to increases in regulated service rates that were implemented in April
1995. 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 $108,000.
-8-
<PAGE> 9
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (CONT.)
Service costs increased by $27,500, or by 12%, and by $40,700, or by
9%, for the three and six months ended June 30, 1995 as compared to the
corresponding periods in 1994. Service costs represent costs directly
attributable to providing cable services to customers. Of the three months'
increase, $25,600 was due to increases in programming fees charged by program
suppliers (including primary satellite fees), $14,200 was due to a decrease in
capitalization of labor and overhead costs and $4,000 was due to an increase in
personnel costs. These increases were partially offset by a $12,800 decrease in
copyright fees resulting from changes in copyright filing requirements based on
revenue levels in one of the Partnership's cable systems and by a $4,100
decrease in repair and maintenance expense. Of the six months' increase,
$43,400 was due to increases in programming fees charged by program suppliers
(including primary satellite fees), $14,600 was due to a decrease in
capitalization of labor and overhead costs due to lower construction activity
and $8,700 was due to an increase in personnel costs. These increases were
partially offset by a $25,100 decrease in copyright fees as described above.
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 increased by $14,200, or by 18.8%,
for the three months ended June 30, 1995 as compared to the corresponding
period in 1994 and remained relatively unchanged for the six months ended June
30, 1995 as compared to the corresponding period in 1994. Of the three months'
increase, $6,200 was due to an increase in professional fees, $3,400 was due to
an increase in personnel costs and $3,100 was due to higher bad debt expense.
Management fees and reimbursed expenses decreased by $13,700, or by
11.5%, and by $18,600, or by 8.1%, for the three and six months ended June 30,
1995 as compared to the corresponding periods in 1994 due to lower reimbursable
expenses allocated by the General Partner. Reimbursed expenses decreased due to
lower allocated personnel costs, property taxes, computer service fees and
telephone, postage and marketing expenses. Management fees increased by
$1,800, or by 4.8%, and by $2,500, or by 3.4%, in direct relation to revenues
for the three and six months ended June 30, 1995, respectively.
Depreciation and amortization expense decreased by $17,900, or by
7.4%, and by $42,200, or by 8.5%, for the three and six months ended June 30,
1995 as compared to the corresponding periods in 1994 due to the retirement of
certain tangible and intangible assets in 1994 and 1995. This decrease was
partially offset by an increase resulting from a reduction in the estimated
remaining life of existing plant being replaced of approximately $34,200 for
the three months and $45,000 for the six months ended June 30, 1995,
respectively.
Operating income increased by $26,700, or by 32.7%, and by $71,000, or
by 45.5%, for the three and six months ended June 30, 1995 compared to the
corresponding periods in 1994 primarily due to increased revenues and decreases
in copyright fees and reimbursed expenses as described above.
-9-
<PAGE> 10
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
Interest expense increased by $2,400, or by 12.7%, and by $4,800, or
by 13.6%, for the three and six months ended June 30, 1995 as compared to the
corresponding periods in 1994, due to higher applicable interest rates during
the three and six months ended June 30, 1995 (10.5% and 10.4% for the three and
six months ended June 30, 1995 versus 8.4% and 8.0% for the corresponding
periods in 1994).
Interest income increased by $13,500 and by $25,800 for the three and
six months ended June 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 $37,800, or by 56.8%, and by $92,000, or by 72.7%, for the three
and six months ended June 30, 1995 as compared to the corresponding periods in
1994.
LIQUIDITY AND CAPITAL RESOURCES
As previously stated, the FCC's amended rate regulation rules were
implemented during the quarter ended September 30, 1994. Compliance with these
rules has had, and most likely will continue to have, a significant negative
impact on the Partnership's revenues and cash flow.
The Partnership's primary objective, having invested its net offering
proceeds in cable systems, is to distribute to its partners all available cash
flow from operations and proceeds from the sale of cable systems, if any, after
providing for expenses, debt service and capital requirements relating to the
expansion, improvement and upgrade of its cable systems. 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 for renewal of the franchise. 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 its remaining plant. Additionally, the Corporate General Partner
believes 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
-10-
<PAGE> 11
ENSTAR INCOME PROGRAM II-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
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 year 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 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 June 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 June 30,
1995, the outstanding loan balance under the Facility was $483,700.
SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Operating activities provided $245,400 more cash in the six months
ended June 30, 1995 than in the corresponding period in 1994. The increase was
primarily due to a $136,800 decrease in the payment of liabilities owed to the
Corporate General Partner and third-party creditors. Cash generated by
Partnership operations increased by $49,800 after adding back non-cash
depreciation and amortization charges. Changes in accounts receivable, prepaid
expenses and deferred loan costs provided $58,800 of additional cash.
The Partnership used $11,300 less cash in investing activities in the
six months ended June 30, 1995 than in the corresponding period in 1994,
primarily due to an $11,800 decrease in expenditures for tangible assets.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues decreased from 43.3% in the second quarter of 1994 to
42.4% in the second quarter of 1995. EBITDA increased from 43.9% during the
first six months of 1994 to 44.3% in the comparable 1995 period. The three
months' decrease was principally due to higher programming fees and decreased
capitalization of labor and overhead costs. The six months' increase was
principally due to higher revenues and lower allocated reimbursed expenses.
EBITDA increased from $323,600 to $332,400, or by 2.1%, during the three months
ended June 30, 1995 compared to the corresponding period in 1994. EBITDA
increased from $654,300 to $683,100, or by 4.4%, during the first six months of
1995 compared to the corresponding period in 1994.
INFLATION
Certain of the Partnership's expenses, such as those for wages and
benefits, equipment repair and replacement and billing and marketing generally
increase with inflation. 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: August 9, 1995 By: /s/ Michael K. Menerey
-----------------------
Michael K. Menerey,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1995, AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 1,783,900
<SECURITIES> 0
<RECEIVABLES> 30,600
<ALLOWANCES> 4,400
<INVENTORY> 194,800
<CURRENT-ASSETS> 0
<PP&E> 8,688,300
<DEPRECIATION> 6,440,000
<TOTAL-ASSETS> 4,854,100
<CURRENT-LIABILITIES> 404,200
<BONDS> 483,700
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,854,100
<SALES> 0
<TOTAL-REVENUES> 1,542,500
<CGS> 0
<TOTAL-COSTS> 1,315,600
<OTHER-EXPENSES> (40,000)
<LOSS-PROVISION> 15,700
<INTEREST-EXPENSE> 31,700
<INCOME-PRETAX> 218,600
<INCOME-TAX> 0
<INCOME-CONTINUING> 218,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 218,600
<EPS-PRIMARY> 7.24
<EPS-DILUTED> 0
</TABLE>
