<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2000
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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.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1628872
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
12444 Powerscourt Dr., Suite 100
St. Louis, Missouri 63131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 965-0555
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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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Exhibit Index located at Page E-1.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED BALANCE SHEETS
================================================
<TABLE>
<CAPTION>
December 31, September 30,
1999* 2000
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash $ 5,752,700 $ 7,213,400
Accounts receivable, net of allowance for doubtful accounts of $2,200
and $14,100 respectively 74,600 102,100
Prepaid expenses and other assets 107,200 182,500
Property, plant and equipment, net of accumulated
depreciation of $7,943,000 and $8,270,500, respectively 2,883,000 2,746,900
Franchise cost, net of accumulated
amortization of $1,329,300 and $1,386,900 respectively 72,500 16,900
Deferred charges, net 700 300
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$ 8,890,700 $10,262,100
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 239,600 $ 206,500
Due to affiliates 257,200 477,600
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496,800 684,100
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PARTNERSHIP CAPITAL:
General Partner 10,200 22,000
Limited Partners 8,383,700 9,556,000
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TOTAL PARTNERSHIP CAPITAL 8,393,900 9,578,000
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$ 8,890,700 $10,262,100
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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* Agrees with audited balance sheet included in the Partnership's Annual Report
on Form 10-K
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<PAGE> 3
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
================================================
<TABLE>
<CAPTION>
Unaudited
----------------------------
Three months ended
September 30,
----------------------------
1999 2000
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<S> <C> <C>
REVENUES $ 980,900 $ 984,400
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OPERATING EXPENSES:
Service costs 352,100 305,200
General and administrative expenses 116,600 86,100
General partner management fees
and reimbursed expenses 137,700 173,500
Depreciation and amortization 162,600 133,300
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769,000 698,100
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OPERATING INCOME 211,900 286,300
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OTHER INCOME (EXPENSE):
Interest income 60,700 102,200
Interest expense (2,800) (2,900)
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57,900 99,300
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NET INCOME $ 269,800 $ 385,600
========= =========
Net income allocated to General Partner $ 2,700 $ 3,900
========= =========
Net income allocated to Limited Partners $ 267,100 $ 381,700
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 8.94 $ 12.77
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,880 29,880
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE> 4
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
================================================
<TABLE>
<CAPTION>
Unaudited
------------------------------
Nine months ended
September 30,
------------------------------
1999 2000
----------- -----------
<S> <C> <C>
REVENUES $ 2,940,200 $ 2,942,100
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OPERATING EXPENSES:
Service costs 973,400 891,400
General and administrative expenses 366,900 251,800
General partner management fees
and reimbursed expenses 401,600 482,000
Depreciation and amortization 475,200 393,300
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2,217,100 2,018,500
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OPERATING INCOME 723,100 923,600
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OTHER INCOME (EXPENSE):
Interest income 160,700 270,600
Interest expense (11,100) (10,100)
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149,600 260,500
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NET INCOME $ 872,700 $ 1,184,100
=========== ===========
Net income allocated to General Partner $ 8,700 $ 11,800
=========== ===========
Net income allocated to Limited Partners $ 864,000 $ 1,172,300
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 28.92 $ 39.23
=========== ===========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,880 29,880
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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<PAGE> 5
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
================================================
<TABLE>
<CAPTION>
Unaudited
------------------------------
Nine months ended
September, 30
------------------------------
1999 2000
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 872,700 $ 1,184,100
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 475,200 393,300
Changes in:
Accounts receivable, prepaid expenses and other assets (79,100) (102,800)
Accounts payable and due to affiliates (263,100) 187,300
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Net cash from operating activities 1,005,700 1,661,900
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (244,000) (199,200)
Increase in intangible assets (4,700) (2,000)
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Net cash from investing activities (248,700) (201,200)
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INCREASE IN CASH 757,000 1,460,700
CASH AT BEGINNING OF PERIOD 4,468,300 5,752,700
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CASH AT END OF PERIOD $ 5,225,300 $ 7,213,400
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
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<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
Enstar Income Program II-2, L.P. (the "Partnership") as of September 30, 2000,
and for the three and nine months ended September 30, 2000 and 1999, are
unaudited. These condensed interim financial statements should be read in
conjunction with the audited financial statements and notes thereto included in
our latest Annual Report on Form 10-K. In the opinion of management, the
condensed interim financial 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, 2000, 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 (the
"Management Agreement") with Enstar Cable Corporation (the "Manager"), a wholly
owned subsidiary of Enstar Communications Corporation (ECC), the corporate
general partner, pursuant to which the Partnership pays a monthly management fee
of 5% of gross revenues to the Manager. Management fee expense approximated
$49,200 and $147,100 for the three and nine months ended September 30, 2000,
respectively. For the three and nine months ended September 30, 1999, management
fee expense approximated $49,000 and $147,000, respectively. Management fees are
non-interest bearing.
In addition to the monthly management fee, the Management
Agreement also provides that the Partnership reimburse 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. Additionally, Charter Communications Holding Company, LLC and its
affiliates (collectively, "Charter") provide other management and operational
services for the Partnership that were provided by Falcon Communications, L.P.
and its affiliates (collectively, "Falcon") prior to November 12, 1999. These
expenses are charged to the properties served based primarily on the
Partnership's allocable share of operational costs associated with the services
provided. The total amount charged to the Partnership for these services was
$124,300 and $334,900 for the three and nine months ended September 30, 2000,
respectively. For the three and nine months ended September 30, 1999, the total
amount charged to the Partnership for these services was $88,700 and $254,600,
respectively.
Substantially all programming services have been purchased
through Charter since November 12, 1999. Before that time, substantially all
programming services were purchased through Falcon. Falcon charged the
Partnership for these costs based on an estimate of what ECC could negotiate for
such programming services for the 14 partnerships managed as a group. Charter
charges the Partnership for these costs based on its costs. The Partnership
recorded programming fee expense of $187,200 and $562,100 for the three and nine
months ended September 30, 2000, respectively. For the three and nine months
ended September 30, 1999, programming fee expense
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<PAGE> 7
ENSTAR INCOME PROGRAM II-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS - (CONTINUED)
================================================
was $248,400 and $707,800, respectively. Programming fees are included in
service costs in the statements of operations.
The Partnership provides cable television signals to certain
cable systems in neighboring communities that are owned by other partnerships
managed by ECC. Such services are provided without fee.
3. NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST
Net income per unit of limited partnership interest is based
on the average number of units outstanding during the periods presented. For
this purpose, net income has been allocated 99% to the Limited Partners and 1%
to the General Partner. The General Partner does not own units of partnership
interest in the Partnership, but rather holds a participation interest in the
income, losses and distributions of the Partnership.
4. SALE OF CABLE SYSTEM
On August 8, 2000, (as amended on September 29, 2000) the
Partnership, together with certain affiliates, (collectively, the "Sellers")
entered into a purchase and sale agreement (the "Agreement") with Multimedia
Acquisition Corp., an affiliate of Gans Multimedia Partnership, (the
"Purchaser"). The Agreement provides for the Purchaser to acquire the assets
comprising the Partnership's cable systems serving Hillsboro, Illinois and
Malden, Missouri, as well as certain assets of other affiliates.
The aggregate purchase price payable to the Sellers pursuant
to the Agreement is $95,574,600 in cash (subject to normal closing adjustments).
Of that amount, $15,770,600 (subject to normal closing adjustments) is payable
to the Partnership. The allocation of the purchase price among each of the
Sellers was assigned by the Purchaser for each of the systems.
The Purchaser's obligation to acquire the cable systems is
subject to numerous closing conditions, including without limitation: (a)
receipt of the necessary governmental consents to transfer franchises covering
an aggregate of 90% of the subscribers of all of the Sellers; (b) receipt of
certain other material consents and approvals required for the consummation of
the sale; (c) receipt of the necessary approvals of the Limited Partners of each
Seller; and (d) other standard closing conditions. With respect to clause (c)
above, completion of the transaction is contingent on the Limited Partners of
the Partnership and the other selling affiliates voting to approve the sale.
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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
This report includes certain forward-looking statements regarding,
among other things, our 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 our Annual Report on Form 10-K for the
year ended December 31, 1999, for additional information regarding such matters
and the effect thereof on the Partnership's business.
RESULTS OF OPERATIONS
Our revenues increased from $980,900 to $984,400, or by less than 1%,
and from $2,940,200 to $2,942,100, or by less than 1%, for the three and nine
months ended September 30, 2000, as compared to the corresponding periods in
1999. Of the $3,500 increase for the three months ended September 30, 2000,
approximately $35,000 was due to an increase in regulated service rates. The
increase was partially offset by a $28,000 decrease due to decreases in the
number of subscribers for basic, premium and equipment rental services and a
$3,500 decrease in other revenue producing items. Of the $1,900 increase in
revenues for the nine months ended September 30, 2000, $117,700 was due to an
increase in regulated service rates. The increase was partially offset by a
$32,400 decrease due to decreases in the number of subscribers for basic,
premium and equipment rental services and a $83,400 decrease in other revenue
producing items. As of September 30, 2000, we had approximately 8,300 basic
subscribers and 2,200 premium service units.
Effective with the acquisition of Falcon Communications, L.P. (Falcon)
by Charter Communications Holdings Company, LLC (Charter) on November 12, 1999,
certain activities previously incurred at the Partnership and expensed through
service cost and general and administrative expense have been either eliminated
by Charter, or have been reimbursed by the Partnership based on Charter's costs
incurred. These reimbursed costs are included in general partner management fees
and reimbursed expenses on the Partnership's statements of operations. The total
of service costs, general and administrative expenses and general partner
management fees and reimbursed expenses decreased from $606,400 to $564,800, or
by 6.9%, and from $1,741,900 to $1,625,200, or by 6.7%, for the three and nine
months ended September 30, 2000, as compared to the corresponding periods in
1999.
Our service costs decreased from $352,100 to $305,200, or by 13.3%, and
from $973,400 to $891,400, or by 8.4%, for the three and nine months ended
September 30, 2000, as compared to the corresponding periods in 1999. Service
costs represent costs directly attributable to providing cable services to
customers. The decrease was primarily due to decreases in programming fees,
personnel costs and certain costs incurred by the Partnership prior to the
Charter acquisition that
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<PAGE> 9
ENSTAR INCOME PROGRAM II-2, L.P.
are now incurred by Charter and reimbursed by the Partnership, as discussed
above. Programming fees decreased as a result of lower rates that Charter has
extended to us and a decrease in subscribers.
Our general and administrative expenses decreased from $116,600 to
$86,100, or by 26.2%, and from $366,900 to $251,800, or by 31.4%, for the three
and nine months ended September 30, 2000, as compared to the corresponding
periods in 1999, primarily due to decreases in marketing expenses and certain
costs incurred by us prior to the Charter acquisition on November 12, 1999, that
are now incurred by Charter and reimbursed by us, as discussed above.
Our general partner management fees and reimbursed expenses increased
from $137,700 to $173,500, or by 26.0%, and from $401,600 to $482,000, or by
20.0%, for the three and nine months ended September 30, 2000, as compared to
the corresponding periods in 1999. As discussed above, Charter now performs
certain management and operational functions formerly performed by us. This has
resulted in us having more reimbursable costs and lower service costs and
general and administrative expenses.
Our depreciation and amortization expense decreased from $162,600 to
$133,300, or by 18.0%, and from $475,200 to $393,300, or by 17.2%, for the three
and nine months ended September 30, 2000, as compared to the corresponding
periods in 1999. The decrease is due to some fixed assets being fully
depreciated.
Due to the factors described above, our operating income increased from
$211,900 to $286,300, or by 35.1%, and from $723,100 to $923,600, or by 27.7%,
for the three and nine months ended September 30, 2000, as compared to the
equivalent periods in 1999.
Our interest income, net of interest expense, increased from $57,900 to
$99,300, or by 71.5%, and from $149,600 to $260,500, or by 74.1%, for the three
and nine months ended September 30, 2000, as compared to the corresponding
periods in 1999, primarily due to higher average cash balances available for
investment and due to higher average interest rates earned during 2000.
Due to the factors described above, our net income increased from
$269,800 to $385,600, or by 42.9%, and from $872,700 to $1,184,100, or by 35.7%,
for the three and nine months ended September 30, 2000, as compared to the
corresponding periods in 1999.
Based on our experience in the cable television industry, we believe
that operating income before depreciation and amortization, or EBITDA, and
related measures of cash flow serve as important financial analysis tools for
measuring and comparing cable television companies in several areas, such as
liquidity, operating performance and leverage. EBITDA is not a measurement
determined under generally accepted accounting principles (GAAP) and does not
represent cash generated from operating activities in accordance with GAAP.
EBITDA should not be considered by the reader as an alternative to net income as
an indicator of financial performance or as an alternative to cash flows as a
measure of liquidity. In addition, the definition of EBITDA may not be identical
to similarly titled measures used by other companies. EBITDA as a percentage of
revenues increased from 38.2% to 42.6% and 40.8% to 44.8% during the three and
nine months ended September 30, 2000, as compared to the corresponding periods
in 1999. The increase was primarily due to lower
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<PAGE> 10
ENSTAR INCOME PROGRAM II-2, L.P.
programming fees, marketing expenses as described above. EBITDA increased from
$374,500 to $419,600, or by 12.0%, and from $1,198,300 to $1,316,900, or by
9.9%, during the three and nine months ended September 30, 2000, as compared to
the corresponding periods in 1999.
LIQUIDITY AND CAPITAL RESOURCES
Our primary objective is to distribute to our partners all available
cash flow from operations and proceeds from the sale of cable systems, if any,
after providing for expenses and capital requirements relating to the expansion,
improvement and upgrade of such cable television systems.
In accordance with the partnership agreement, Enstar Communications
Corporation, our corporate general partner, has implemented a plan for
liquidating the Partnership. On August 8, 2000, (as amended on September 29,
2000) the Partnership, together with certain affiliates, (collectively, the
"Sellers") entered into a purchase and sale agreement (the "Agreement") with
Multimedia Acquisition Corp., an affiliate of Gans Multimedia Partnership, (the
"Purchaser"). The Agreement provides for the Purchaser to acquire the assets
comprising the Partnership's cable system serving Hillsboro, Illinois and
Malden, Missouri, as well as certain assets of other affiliates.
The aggregate purchase price payable to the Sellers pursuant to the
Agreement is $95,574,600 in cash (subject to normal closing adjustments). Of
that amount, $15,770,600 (subject to normal closing adjustments) is payable to
the Partnership. The allocation of the purchase price among each of the Sellers
was assigned by the Purchaser for each of the systems.
The Purchaser's obligation to acquire the cable systems is subject to
numerous closing conditions, including without limitation: (a) receipt of the
necessary governmental consents to transfer franchises covering an aggregate of
90% of the subscribers of all of the Sellers; (b) receipt of certain other
material consents and approvals required for the consummation of the sale; (c)
receipt of the necessary approvals of the Limited Partners of each Seller; and
(d) other standard closing conditions. With respect to clause (c) above,
completion of the transaction is contingent on the Limited Partners of the
Partnership and the other selling affiliates voting to approve the sale.
Enstar Communications Corporation is currently preparing a proxy for
submission to the Partnership's Limited Partners for the purpose of approving or
disapproving the sale. If all of the Partnership's assets are sold, Enstar
Communications Corporation will proceed to liquidate the Partnership following
the settlement of their final liabilities.
At September 30, 2000, the Partnership had no debt outstanding. The
Partnership relies upon cash flow from operations to meet operating requirements
and fund necessary capital expenditures. Although the Partnership currently has
a significant cash balance, there can be no assurance that the Partnership's
cash flow will be adequate to meet its future liquidity requirements.
Approximately 73% of our subscribers are served by our system in
Hillsboro, Illinois and neighboring communities. Significant damage to the
system due to seasonal weather conditions
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<PAGE> 11
ENSTAR INCOME PROGRAM II-2, L.P.
or other events could have a material adverse effect on our liquidity and cash
flows. We continue to purchase insurance coverage in amounts our management
views as appropriate for all other property, liability, automobile, workers'
compensation and other types of insurable risks.
Our operating activities provided $656,200 more cash in the nine months
ended September 30, 2000, than in the corresponding nine months of 1999. Changes
in receivables, prepaid expenses and other assets used $23,700 more cash during
the nine months ended September 30, 2000, than in the corresponding nine months
of 1999, due to differences in the timing of receivable collections and the
payment of prepaid expenses. We used $450,400 less cash to pay liabilities owed
to affiliates and third party creditors during the nine months ended September
30, 2000, than in the corresponding nine months of 1999, due to differences in
the timing of payments.
We used $47,500 less cash in investing activities during the nine
months ended September 30, 2000, than in the corresponding nine months of 1999
due to an decrease in capital expenditures.
INFLATION
Certain of our expenses, such as those for wages and benefits,
equipment repair and replacement, and billing and marketing generally increase
with inflation. However, we do not believe that our financial results have been,
or will be, adversely affected by inflation in a material way, provided that we
are able to increase our service rates periodically, of which there can be no
assurance.
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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) Exhibits
10.1 Amendment dated September 29, 2000,
of the Asset Purchase Agreement dated
August 8, 2000, by and among
Multimedia Acquisition Corp., as
Buyer, and Enstar Income Program
II-1, L.P., Enstar Income Program
II-2, L.P., Enstar Income Program
IV-3, L.P., Enstar Income/Growth
Program Six-A, L.P., Enstar IX, Ltd.,
Enstar XI, Ltd., Enstar IV/PBD
Systems Venture, Enstar Cable of
Cumberland Valley and Enstar Cable of
Macoupin County, as Sellers. (1)
27.1 Financial Data Schedule.*
(b) Reports on Form 8-K
- None
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* Filed herewith
(1) Incorporated by reference to the report on Form 10-Q of Enstar Income
Program IV-1, L.P. filed on November 13, 2000 (File No. 00015705).
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<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 13, 2000 By: /s/ Kent D. Kalkwarf
---------------------
Kent D. Kalkwarf
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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<PAGE> 14
EXHIBIT INDEX
Exhibit
Number Description
10.1 Amendment dated September 29, 2000, of the Asset Purchase
Agreement dated August 8, 2000, by and among Multimedia
Acquisition Corp., as Buyer, and Enstar Income Program II-1,
L.P., Enstar Income Program II-2, L.P., Enstar Income Program
IV-3, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar
IX, Ltd., Enstar XI, Ltd., Enstar IV/PBD Systems Venture,
Enstar Cable of Cumberland Valley and Enstar Cable of Macoupin
County, as Sellers (incorporated by reference to the Current
Report on Form 10-Q of Enstar Income Program IV-1, L.P. filed
on November 13, 2000, File No. 00015705).
27.1 Financial Data Schedule.
E-1
