<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, 1997
--------------------------
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 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 [ ]
<PAGE> 2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED BALANCE SHEETS
===============================================
<TABLE>
<CAPTION>
December 31, September 30,
1996* 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,968,100 $ 2,942,600
Accounts receivable, less allowance of $5,200 and
$13,000 for possible losses 96,000 71,300
Prepaid expenses and other assets 182,200 184,900
Property, plant and equipment, less accumulated
depreciation and amortization of $7,591,400 and $7,435,900 2,692,700 2,745,700
Franchise cost, net of accumulated
amortization of $1,072,000 and $1,149,100 366,200 290,200
Deferred loan costs and deferred charges, net 34,900 15,100
------------- -------------
$ 5,340,100 $ 6,249,800
============= =============
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 323,200 $ 280,500
Due to affiliates 203,800 306,300
------------- -------------
TOTAL LIABILITIES 527,000 586,800
------------- -------------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (25,600) (17,100)
Limited partners 4,838,700 5,680,100
------------- -------------
TOTAL PARTNERSHIP CAPITAL 4,813,100 5,663,000
------------- -------------
$ 5,340,100 $ 6,249,800
============= =============
</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,
--------------------------
1996 1997
--------- ---------
<S> <C> <C>
REVENUES $ 867,700 $ 961,000
--------- ---------
OPERATING EXPENSES:
Service costs 290,800 300,100
General and administrative expenses 83,800 83,400
General Partner management fees
and reimbursed expenses 113,600 133,700
Depreciation and amortization 255,500 177,000
--------- ---------
743,700 694,200
--------- ---------
OPERATING INCOME 124,000 266,800
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 20,700 36,000
Interest expense (9,500) (4,800)
Gain on sale of cable assets 100 -
--------- ---------
11,300 31,200
--------- ---------
NET INCOME $ 135,300 $ 298,000
========= =========
Net income allocated to General Partners $ 1,400 $ 3,000
========= =========
Net income allocated to Limited Partners $ 133,900 $ 295,000
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 4.48 $ 9.87
========= =========
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,
------------------------------
1996 1997
----------- -----------
<S> <C> <C>
REVENUES $ 2,527,900 $ 2,846,600
----------- -----------
OPERATING EXPENSES:
Service costs 823,700 873,200
General and administrative expenses 282,100 264,000
General Partner management fees
and reimbursed expenses 322,300 396,200
Depreciation and amortization 742,900 538,200
----------- -----------
2,171,000 2,071,600
----------- -----------
OPERATING INCOME 356,900 775,000
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 65,300 91,900
Interest expense (45,900) (17,000)
Loss on sale of cable assets (3,200) -
----------- -----------
16,200 74,900
----------- -----------
NET INCOME $ 373,100 $ 849,900
=========== ===========
Net income allocated to General Partners $ 3,700 $ 8,500
=========== ===========
Net income allocated to Limited Partners $ 369,400 $ 841,400
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 12.36 $ 28.16
=========== ===========
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,
------------------------------
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 373,100 $ 849,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 742,900 538,200
Amortization of deferred loan costs 9,600 13,900
Loss on sale of cable assets 3,200 -
Increase from changes in:
Accounts receivable, prepaid expenses and other assets 13,600 22,000
Accounts payable and due to affiliates 186,100 59,800
----------- -----------
Net cash provided by operating activities 1,328,500 1,483,800
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (726,900) (498,600)
Increase in intangible assets (21,000) (10,700)
Proceeds from sale of property, plant and equipment 700 -
----------- -----------
Net cash used in investing activities (747,200) (509,300)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (483,700) -
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 97,600 974,500
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,863,800 1,968,100
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 1,961,400 $ 2,942,600
=========== ===========
</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, 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 and nine months ended September 30, 1997 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 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 $48,000
and $142,300 for the three and nine months ended September 30, 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 $85,700 and
$253,900 for the three and nine months ended September 30, 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 $16,800 and $39,400 for
the three and nine months ended September 30, 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
$206,600 and $609,900 for the three and nine months ended September 30, 1997.
Programming fees are included in service costs in the statements of operations.
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<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 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. RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform to the 1997
presentation.
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<PAGE> 8
ENSTAR INCOME PROGRAM II-2, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") required the Federal Communications Commission ("FCC")
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 the Partnership's revenues and cash flow. The
Telecommunications Act of 1996 (the "1996 Telecom Act") substantially changed
the competitive and regulatory environment for cable television and
telecommunications service providers. Among other changes, the 1996 Telecom Act
provides that the regulation of programming service tiers will be phased out
altogether in 1999. 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 $867,700 to $961,000, or by
10.8%, and from $2,527,900 to $2,846,600, or by 12.6%, for the three and nine
months ended September 30, 1997 as compared to the corresponding periods in
1996. Of the $93,300 increase in revenues for the three months ended September
30, 1997 as compared to the corresponding period in 1996, $77,700 was due to
increases in regulated service rates that were implemented by the Partnership in
the fourth quarter of 1996 and the third quarter of 1997, $10,200 was due to
increases in the number of subscriptions for basic and premium services and
$5,400 was due to increases in other revenue producing items. Of the $318,700
increase in revenues for the nine months ended September 30, 1997 as compared to
the corresponding period in 1996, $260,700 was due to increases in regulated
service rates, $38,100 was due to the restructuring of The Disney Channel from a
premium channel to a tier channel effective July 1, 1996 and $23,300 was due to
increases in other revenue producing items. These increases were partially
offset by a decrease of $3,400 due to decreases in the number of subscriptions
for tier and equipment rental services. As of September 30, 1997, the
Partnership had approximately 9,000 homes subscribing to cable service and 2,300
premium service units.
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<PAGE> 9
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs increased from $290,800 to $300,100, or by 3.2%, and from
$823,700 to $873,200, or by 6.0%, for the three and nine months ended September
30, 1997 as compared to the corresponding periods in 1996. Service costs
represent costs directly attributable to providing cable services to customers.
Programming expense accounted for the majority of the increase in both periods.
Programming expense increased primarily as a result of higher rates charged by
program suppliers.
General and administrative expenses remained relatively unchanged,
decreasing from $83,800 to $83,400 (less than one percent), for the three months
and decreased from $282,100 to $264,000, or by 6.4%, for the nine months ended
September 30, 1997 as compared to the corresponding periods in 1996. The
decrease for the nine months was due to lower personnel costs and insurance
premiums.
Management fees and reimbursed expenses increased from $113,600 to
$133,700, or by 17.7%, and from $322,300 to $396,200, or by 22.9%, for the three
and nine months ended September 30, 1997 as compared to the corresponding
periods in 1996. Management fees increased in direct relation to increased
revenues as described above. Reimbursed expenses increased primarily due to
higher allocated personnel costs resulting from staff additions and wage
increases.
Operating income before income taxes, depreciation and amortization
(EBITDA) is a commonly used financial analysis tool for measuring and comparing
cable television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA as a percentage of revenues increased from
43.7% to 46.2% and from 43.5% to 46.1% during the three and nine months ended
September 30, 1997 compared to the corresponding periods in 1996. The increases
were primarily due to higher revenues. EBITDA increased from $379,500 to
$443,800, or by 16.9%, and from $1,099,800 to $1,313,200, or by 19.4%, during
the three and nine months ended September 30, 1997 compared to the corresponding
periods in 1996. EBITDA should be considered in addition to and not as a
substitute for net income and cash flows determined in accordance with generally
accepted accounting principles as an indicator of financial performance and
liquidity.
Depreciation and amortization expense decreased from $255,500 to
$177,000, or by 30.7%, and from $742,900 to $538,200, or by 27.6%, for the three
and nine months ended September 30, 1997 as compared to the corresponding
periods in 1996, due to certain plant assets becoming fully depreciated in 1996.
Operating income increased from $124,000 to $266,800 and from $356,900
to $775,000 for the three and nine months ended September 30, 1997 as compared
to the corresponding periods in 1996, due to increases in revenues and decreases
in depreciation and amortization as described above.
Interest income increased from $20,700 to $36,000, or by 73.9%, and
from $65,300 to $91,900, or by 40.7%, for the three and nine months ended
September 30, 1997 as compared to the corresponding periods in 1996, primarily
due to changes in investment policy that yielded a higher return on invested
cash and due to higher cash balances available for investment.
-9-
<PAGE> 10
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Interest expense decreased from $9,500 to $4,800, or by 49.5%, and from
$45,900 to $17,000, or by 63.0%, for the three and nine months ended September
30, 1997 as compared to the corresponding periods in 1996, due to the repayment
of the Partnership's note payable in August 1996. The Partnership fully
amortized the related deferred loan costs to interest expense in the first three
months of 1997.
Due to the factors described above, the Partnership's net income
increased from $135,300 to $298,000 and from $373,100 to $849,900 for the three
and nine months ended September 30, 1997 as compared to the corresponding
periods 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 September 30, 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, 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
$397,200 during the first nine 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 $2,400,000, the
start of which is dependent upon obtaining an extension of the franchise
agreement for that system. Additional rebuilds totaling approximately $4,900,000
are planned for the Partnership's other Illinois cable systems in 1999 and 2000.
As a result of these future liquidity requirements, management has concluded
that it is not prudent for the Partnership to resume paying distributions at
this time.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Operating activities provided $155,300 more cash in the nine months
ended September 30, 1997 as compared with the corresponding period in 1996. Cash
generated by Partnership operations increased by $273,200 after adding back
non-cash depreciation and amortization charges and loss on sale of cable assets.
Changes in receivables and prepaid expenses provided $8,400 more cash in the
first nine months of 1997 due to differences in the timing of receivable
collections and in the payment of prepaid expenses. The
-10-
<PAGE> 11
ENSTAR INCOME PROGRAM II-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Partnership used $126,300 more cash to pay liabilities owed to affiliates and
third-party creditors in the 1997 period.
The Partnership used $237,900 less cash in investing activities in the
nine months ended September 30, 1997 than in the corresponding nine months of
1996, due to a $228,300 decrease in expenditures for tangible assets and a
$10,300 decrease in spending for intangible assets. Financing activities used
$483,700 less cash for the repayment of debt in the first nine months of 1997
than in the corresponding period of 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> 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.
<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 12, 1997 By: /s/ Michael K. Menerey
----------------------------
Michael K. Menerey,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1997, AND THE STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,942,600
<SECURITIES> 0
<RECEIVABLES> 84,300
<ALLOWANCES> 13,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 10,181,600
<DEPRECIATION> 7,435,900
<TOTAL-ASSETS> 6,249,800
<CURRENT-LIABILITIES> 586,800
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,249,800
<SALES> 0
<TOTAL-REVENUES> 2,846,600
<CGS> 0
<TOTAL-COSTS> 2,071,600
<OTHER-EXPENSES> (91,900)
<LOSS-PROVISION> 42,000
<INTEREST-EXPENSE> 17,000
<INCOME-PRETAX> 849,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 849,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 849,900
<EPS-PRIMARY> 28.16
<EPS-DILUTED> 0
</TABLE>
