<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 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 0-14505
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Enstar Income Program II-2, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1628872
- ------------------------------ ----------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation organization) Identification Number)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 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 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-2, L.P.
CONDENSED BALANCE SHEETS
==================================
<TABLE>
<CAPTION>
December 31, March 31,
1996* 1997
------------ ------------
(Unaudited)
ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,968,100 $ 2,334,600
Accounts receivable, less allowance of $5,200 and
$5,400 for possible losses 96,000 88,400
Prepaid expenses and other assets 182,200 201,400
Property, plant and equipment, less accumulated
depreciation and amortization of $7,591,400 and $7,735,900 2,692,700 2,649,500
Franchise cost, net of accumulated
amortization of $1,072,000 and $1,097,700 366,200 340,500
Deferred loan costs and deferred charges, net 34,900 19,600
------------ ------------
$ 5,340,100 $ 5,634,000
============ ============
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 323,200 $ 226,100
Due to affiliates 203,800 317,300
------------ ------------
TOTAL LIABILITIES 527,000 543,400
------------ ------------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (25,600) (22,800)
Limited partners 4,838,700 5,113,400
------------ ------------
TOTAL PARTNERSHIP CAPITAL 4,813,100 5,090,600
------------ ------------
$ 5,340,100 $ 5,634,000
============ ============
</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-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
====================================
<TABLE>
<CAPTION>
Unaudited
------------------------------
Three months ended
March 31,
------------------------------
1996 1997
---------- ------------
<S> <C> <C>
REVENUES $ 816,600 $ 939,800
---------- ----------
OPERATING EXPENSES:
Service costs 272,200 289,300
General and administrative expenses 74,500 75,600
General Partner management fees
and reimbursed expenses 99,700 127,000
Depreciation and amortization 236,900 187,400
---------- ----------
683,300 679,300
---------- ----------
OPERATING INCOME 133,300 260,500
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 20,400 25,100
Interest expense (18,600) (8,100)
---------- ----------
1,800 17,000
---------- ----------
NET INCOME $ 135,100 $ 277,500
========== =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 4.48 $ 9.19
========== =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,880 29,880
========== =========
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE> 4
ENSTAR INCOME PROGRAM II-2, L.P.
STATEMENTS OF CASH FLOWS
================================
<TABLE>
<CAPTION>
Unaudited
--------------------------------
Three months ended
March 31,
--------------------------------
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 135,100 $ 277,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 236,900 187,400
Amortization of deferred loan costs 3,200 13,900
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other 13,500 (11,600)
Accounts payable and due to affiliates 105,100 16,400
------------ ------------
Net cash provided by operating activities 493,800 483,600
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (29,700) (113,300)
Increase in intangible assets (7,500) (3,800)
------------ ------------
Net cash used in investing activities (37,200) (117,100)
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 456,600 366,500
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,863,800 1,968,100
------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,320,400 $ 2,334,600
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
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<PAGE> 5
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
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 $47,000
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 $80,000
for the three months ended March 31, 1997. Management fees and reimbursed
expenses due the Corporate General Partner are non-interest bearing.
The Partnership also receives certain system operating management
services from an affiliate of the Corporate General Partner in addition to the
Manager due to the fact that there are no such employees directly employed by
one of the Partnership's cable systems. The Partnership reimburses the
affiliate for its allocable share of the affiliate's operational costs. The
total amount charged to the Partnership for these costs approximated $10,500
for the three months ended March 31, 1997. No management fee is payable to the
affiliate by the Partnership and there is no duplication of reimbursed expenses
and costs paid to the Manager.
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 $198,200 for the three months ended March 31, 1997. Programming
fees are included in service costs in the statements of operations.
-5-
<PAGE> 6
ENSTAR INCOME PROGRAM II-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Concluded)
=======================================
3. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is based
on the average number of units outstanding during the periods presented. For
this purpose, earnings and losses are allocated 99% to the limited partners and
1% to the general partners.
4. RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
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<PAGE> 7
ENSTAR INCOME PROGRAM II-2, 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 $816,600 to $939,800, or by
15.1%, for the quarter ended March 31, 1997 as compared to the corresponding
period in 1996. Of the $123,200 increase, $100,400 was due to increases in
regulated service rates that were implemented by the Partnership in the second
and fourth quarters of 1996, $19,200 was due to the restructuring of The Disney
Channel from a premium channel to a tier channel effective July 1, 1996 and
$9,500 was due to increases in other revenue producing items, consisting
primarily of advertising sales revenue. These increases were partially offset
by a $5,900 decrease due to decreases in the number of subscriptions for
premium service. As of March 31, 1997, the Partnership had approximately 8,800
homes subscribing to cable service and 2,400 premium service units.
Service costs increased from $272,200 to $289,300, or by 6.3%, 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 $17,100 increase, $19,700 was due to an increase in
programming fees charged by program suppliers (including primary satellite
fees), $15,000 was due to an increase in copyright fees resulting from revenue
increases as described above, and $5,800 was due to an increase in franchise
fees. These increases were partially offset by a $15,800 decrease in direct
personnel costs
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<PAGE> 8
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (Concluded)
due to the transfer of certain Partnership employees to the Corporate General
Partner's operations in the second half of 1996 and a $6,400 increase in
capitalization of labor and overhead expense due to a greater number of capital
projects in the 1997 quarter.
General and administrative expenses remained relatively unchanged,
increasing from $74,500 to $75,600, or by 1.5%, for the quarter ended March 31,
1997 as compared to the corresponding period in 1996.
Management fees and reimbursed expenses increased from $99,700 to
$127,000, or by 27.4%, for the quarter ended March 31, 1997 as compared to the
corresponding period in 1996. Of the $27,300 increase, reimbursable expenses
increased by $21,100, primarily due to higher allocated personnel costs
resulting from staff additions and wage increases. Management fees increased by
$6,200 in direct relation to increased revenues as described above.
Depreciation and amortization expense decreased from $236,900 to
$187,400, or by 20.9%, for the quarter ended March 31, 1997 as compared to the
corresponding period in 1996 primarily due to the rebuild of the Partnership's
Jerseyville, Illinois cable system. The estimated remaining life of existing
plant was reduced and depreciation of its net book value accelerated in 1996.
The assets became fully depreciated in 1996.
Operating income increased from $133,300 to $260,500, or by 95.4%, for
the quarter ended March 31, 1997 as compared to the corresponding period in
1996, due to increases in revenues and decreases in depreciation and
amortization as described above.
Interest expense decreased from $18,600 to $8,100, or by 56.5%, for the
quarter ended March 31, 1997 as compared to the corresponding period in 1996,
due to the repayment of the Partnership's note payable in 1996. The Partnership
fully amortized the related deferred loan costs to interest expense in the first
quarter of 1997.
Interest income increased from $20,400 to $25,100, or by 23.0%, 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 $135,100 to $277,500 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, debt service 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 relies upon the
availability of cash generated from operations and possible future borrowings
to fund its ongoing expenses and capital requirements. The Partnership is
required to rebuild its Jerseyville,
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<PAGE> 9
ENSTAR INCOME PROGRAM II-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (Concluded)
Illinois cable system at an estimated total cost of approximately $81,000 as a
condition of its franchise agreement. The Partnership is also rebuilding
portions of its cable systems in surrounding communities at an estimated
additional cost of approximately $1,689,000. Construction began in the second
quarter of 1996 and is expected to be completed in the second half of 1997.
Capital expenditures related to the Jerseyville rebuild approximated $51,000 in
1996 and other rebuild costs were approximately $1,071,000. Additional
construction expenditures of $648,000 are projected for 1997, including
approximately $30,000 for the required rebuild in Jerseyville. Rebuild
construction costs approximated $86,500 during the first three months of 1997.
Other capital expenditures budgeted for 1997 include approximately $331,000 for
the improvement and upgrade of other assets. Management believes that cash
flow from operations will be adequate to meet the Partnership's current
liquidity requirements. 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, the start of which is dependent
upon obtaining an extension of the franchise agreement for that system.
Management is continuing to evaluate these liquidity issues, including whether
or not it will be possible to resume paying distributions.
THREE MONTHS ENDED MARCH 31, 1997 AND 1996
Operating activities provided $10,200 less cash in the three months
ended March 31, 1997 as compared with the corresponding period in 1996. The
decrease was primarily due to an $88,700 increase in the use of cash to pay
liabilities owed to affiliates and third-party creditors resulting from
differences in the timing of payments. Changes in receivables and other assets
used $25,100 more cash in the first three months of 1997 due to differences in
the timing of receivable collections and in the payment of prepaid expenses.
Cash generated by Partnership operations increased by $103,600 after adding
back non-cash depreciation and amortization charges.
The Partnership used $79,900 more cash in investing activities in the
three months ended March 31, 1997 than in the corresponding three months of
1996, due to an $83,600 increase in expenditures for tangible assets, partially
offset by a $3,700 decrease in expenditures for intangible assets.
Operating income before depreciation and amortization (EBITDA) as a
percentage of revenues increased from 45.3% during the first three months of
1996 to 47.7% in the corresponding 1997 quarter, primarily due to higher
revenues. EBITDA increased from $370,200 to $447,900, or by 21.0%, 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.
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<PAGE> 10
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.
<PAGE> 11
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: May 6, 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> 2,334,600
<SECURITIES> 0
<RECEIVABLES> 93,800
<ALLOWANCES> 5,400
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,385,400
<DEPRECIATION> 7,735,900
<TOTAL-ASSETS> 5,634,000
<CURRENT-LIABILITIES> 543,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,634,000
<SALES> 0
<TOTAL-REVENUES> 939,800
<CGS> 0
<TOTAL-COSTS> 679,300
<OTHER-EXPENSES> (25,100)
<LOSS-PROVISION> 9,200
<INTEREST-EXPENSE> 8,100
<INCOME-PRETAX> 277,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 277,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 277,500
<EPS-PRIMARY> 9.19
<EPS-DILUTED> 0
</TABLE>
