<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, 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
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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 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, June 30,
1996* 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,968,100 $ 2,711,100
Accounts receivable, less allowance of $5,200 and
$5,600 for possible losses 96,000 60,900
Prepaid expenses and other assets 182,200 195,900
Property, plant and equipment, less accumulated
depreciation and amortization of $7,591,400 and $7,299,900 2,692,700 2,631,000
Franchise cost, net of accumulated
amortization of $1,072,000 and $1,125,000 366,200 314,300
Deferred loan costs and deferred charges, net 34,900 19,400
----------- -----------
$ 5,340,100 $ 5,932,600
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 323,200 $ 270,600
Due to affiliates 203,800 297,000
----------- -----------
TOTAL LIABILITIES 527,000 567,600
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (25,600) (20,100)
Limited partners 4,838,700 5,385,100
----------- -----------
TOTAL PARTNERSHIP CAPITAL 4,813,100 5,365,000
----------- -----------
$ 5,340,100 $ 5,932,600
=========== ===========
</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
June 30,
---------------------------
1996 1997
--------- ---------
<S> <C> <C>
REVENUES $ 843,600 $ 945,800
--------- ---------
OPERATING EXPENSES:
Service costs 260,700 283,800
General and administrative expenses 123,800 105,000
General Partner management fees
and reimbursed expenses 109,000 135,500
Depreciation and amortization 250,500 173,800
--------- ---------
744,000 698,100
--------- ---------
OPERATING INCOME 99,600 247,700
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 24,200 30,800
Interest expense (17,800) (4,100)
Loss on sale of cable assets (3,300) --
--------- ---------
3,100 26,700
--------- ---------
NET INCOME $ 102,700 $ 274,400
========= =========
Net income allocated to General Partners $ 1,000 $ 2,700
========= =========
Net income allocated to Limited Partners $ 101,700 $ 271,700
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 3.40 $ 9.09
========= =========
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,
-------------------------------
1996 1997
----------- -----------
<S> <C> <C>
REVENUES $ 1,660,200 $ 1,885,600
----------- -----------
OPERATING EXPENSES:
Service costs 532,900 573,100
General and administrative expenses 198,300 180,600
General Partner management fees
and reimbursed expenses 208,700 262,500
Depreciation and amortization 487,400 361,200
----------- -----------
1,427,300 1,377,400
----------- -----------
OPERATING INCOME 232,900 508,200
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 44,600 55,900
Interest expense (36,400) (12,200)
Loss on sale of cable assets (3,300) --
----------- -----------
4,900 43,700
----------- -----------
NET INCOME $ 237,800 $ 551,900
=========== ===========
Net income allocated to General Partners $ 2,400 $ 5,500
=========== ===========
Net income allocated to Limited Partners $ 235,400 $ 546,400
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 7.88 $ 18.29
=========== ===========
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,
-------------------------------
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 237,800 $ 551,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 487,400 361,200
Amortization of deferred loan costs 6,400 13,900
Loss on sale of cable assets 3,300 --
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other assets (4,500) 21,400
Accounts payable and due to affiliates 134,700 40,600
----------- -----------
Net cash provided by operating activities 865,100 989,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (359,200) (237,600)
Increase in intangible assets (15,500) (8,400)
Proceeds from sale of property, plant and equipment 600 --
----------- -----------
Net cash used in investing activities (374,100) (246,000)
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 491,000 743,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,863,800 1,968,100
----------- -----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,354,800 $ 2,711,100
=========== ===========
</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, 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 six months ended June 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 $47,300
and $94,300 for the three and six months ended June 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 $88,200 and
$168,200 for the three and six months ended June 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 $12,100 and $22,600 for
the three and six months ended June 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
$205,100 and $403,300 for the three and six months ended June 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
(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 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.
-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 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 Federal Communications Commission (the
"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 $843,600 to $945,800, or by
12.1%, and from $1,660,200 to $1,885,600, or by 13.6%, for the three and six
months ended June 30, 1997 as compared to the corresponding periods in 1996. Of
the $102,200 increase in revenues for the three months ended June 30, 1997 as
compared to the corresponding period in 1996, $81,200 was due to increases in
regulated service rates that were implemented by the Partnership in the second
and fourth quarters of 1996, $19,700 was due to the restructuring of The Disney
Channel from a premium channel to a tier channel effective July 1, 1996 and
$8,500 was due to increases in other revenue producing items, consisting
primarily of advertising sales revenue. These increases were partially offset by
a decrease of $7,200 due to decreases in the number of subscriptions for basic,
premium and tier services. Of the $225,400 increase in revenues for the six
months ended June 30, 1997 as compared to the corresponding period in 1996,
$181,800 was due to increases in regulated service rates, $39,000 was due to the
restructuring of The Disney Channel and $18,000 was due to increases in other
revenue producing items. The increase for the six months was partially offset by
a $13,400 decrease in revenues due to decreases in the number of subscriptions
for basic, premium and tier services. As of June 30, 1997, the Partnership had
approximately 8,900 homes subscribing to cable service and 2,400 premium service
units.
-8-
<PAGE> 9
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs increased from $260,700 to $283,800, or by 8.9%, and from
$532,900 to $573,100, or by 7.5%, for the three and six months ended June 30,
1997 as compared to the corresponding periods in 1996. Service costs represent
costs directly attributable to providing cable services to customers.
Programming expense and copyright fees accounted for the majority of the
increase in both periods. Programming expense increased primarily as a result of
higher rates charged by program suppliers. Copyright fees increased as a result
of revenue increases as discussed above.
General and administrative expenses decreased from $123,800 to
$105,000, or by 15.2%, and from $198,300 to $180,600, or by 8.9%, for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996. Lower insurance premiums and an increase in capitalization of labor and
overhead costs related to construction activity accounted for the majority of
the decrease in both periods.
Management fees and reimbursed expenses increased from $109,000 to
$135,500, or by 24.3%, and from $208,700 to $262,500, or by 25.8%, for the three
and six months ended June 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
41.5% to 44.6% and from 43.4% to 46.1% during the three and six months ended
June 30, 1997 compared to the corresponding periods in 1996. The change was
primarily due to higher revenues. EBITDA increased from $350,100 to $421,500, or
by 20.4%, and from $720,300 to $869,400, or by 20.7%, during the three and six
months ended June 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 $250,500 to
$173,800, or by 30.6%, and from $487,400 to $361,200, or by 25.9%, for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996, due to certain plant assets becoming fully depreciated in 1996.
Operating income increased from $99,600 to $247,700 and from $232,900
to $508,200 for the three and six months ended June 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 $24,200 to $30,800, or by 27.3%, and
from $44,600 to $55,900, or by 25.3%, for the three and six months ended June
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.
Interest expense decreased from $17,800 to $4,100, or by 77.0%, and
from $36,400 to $12,200, or by 66.5%, for the three and six months ended June
30, 1997 as compared to the corresponding periods in 1996, due
-9-
<PAGE> 10
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
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 $102,700 to $274,400 and from $237,800 to $551,900 for the three
and six months ended June 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 June 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
$176,500 during the first half 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.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Operating activities provided $123,900 more cash in the six months
ended June 30, 1997 than in the corresponding period in 1996. Cash generated by
Partnership operations increased by $192,100 after adding back non-cash
depreciation and amortization charges and loss on sale of cable assets. Changes
in receivables, prepaid expenses and other assets used $25,900 less cash in the
first six months of 1997 due to the timing of receivable collections and the
payment of prepaid expenses. The increases were partially offset by a $94,100
increase in the use of cash to pay liabilities owed to affiliates and
third-party creditors due to differences in the timing of payments.
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<PAGE> 11
ENSTAR INCOME PROGRAM II-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
The Partnership used $128,100 less cash in investing activities in the
six months ended June 30, 1997 than in the corresponding six months of 1996, due
to a $121,600 decrease in expenditures for tangible assets and a $7,100 decrease
in spending for intangible assets.
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.
-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.
<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 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 JUNE 30, 1997, AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,711,100
<SECURITIES> 0
<RECEIVABLES> 66,500
<ALLOWANCES> 5,600
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,930,900
<DEPRECIATION> 7,299,900
<TOTAL-ASSETS> 5,932,600
<CURRENT-LIABILITIES> 567,600
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,932,600
<SALES> 0
<TOTAL-REVENUES> 1,885,600
<CGS> 0
<TOTAL-COSTS> 1,377,400
<OTHER-EXPENSES> (55,900)
<LOSS-PROVISION> 23,600
<INTEREST-EXPENSE> 12,200
<INCOME-PRETAX> 551,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 551,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 551,900
<EPS-PRIMARY> 18.29
<EPS-DILUTED> 0
</TABLE>
