<PAGE>
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, 1998
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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 0-14508
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Enstar Income Program II-1, L.P.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1628877
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (310) 824-9990
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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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<PAGE>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED BALANCE SHEETS
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---------------------------------
<TABLE>
<CAPTION>
December 31, September 30,
1997* 1998
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(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,778,300 $ 1,702,200
Accounts receivable, less allowance of $11,000 and
$7,400 for possible losses 48,800 64,200
Prepaid expenses and other assets 351,000 354,800
Property, plant and equipment, less accumulated
depreciation and amortization of $4,419,300 and $2,830,600 3,765,500 4,093,400
Franchise cost, net of accumulated
amortization of $26,800 and $34,300 64,700 62,900
Deferred charges, net 6,800 5,900
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$ 6,015,100 $ 6,283,400
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LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 457,600 $ 272,000
Due to affiliates 192,200 170,700
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TOTAL LIABILITIES 649,800 442,700
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COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (20,300) (15,500)
Limited partners 5,385,600 5,856,200
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TOTAL PARTNERSHIP CAPITAL 5,365,300 5,840,700
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$ 6,015,100 $ 6,283,400
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</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
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---------------------------------
<TABLE>
<CAPTION>
Unaudited
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Three months ended
September 30,
--------------------------------------
1997 1998
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<S> <C> <C>
REVENUES $ 754,000 $ 793,300
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OPERATING EXPENSES:
Service costs 174,200 229,800
General and administrative expenses 61,000 71,900
General Partner management fees
and reimbursed expenses 116,900 129,100
Depreciation and amortization 86,600 108,600
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438,700 539,400
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OPERATING INCOME 315,300 253,900
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OTHER INCOME (EXPENSE):
Interest income 31,500 20,900
Interest expense (4,700) (4,000)
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26,800 16,900
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NET INCOME $ 342,100 $ 270,800
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Net income allocated to General Partners $ 3,400 $ 2,700
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Net income allocated to Limited Partners $ 338,700 $ 268,100
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NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 11.31 $ 8.96
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----------------- -----------------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
---------------------------------
---------------------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
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<S> <C> <C>
REVENUES $ 2,240,200 $ 2,364,500
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OPERATING EXPENSES:
Service costs 606,900 682,100
General and administrative expenses 180,000 259,000
General Partner management fees
and reimbursed expenses 347,400 374,900
Depreciation and amortization 227,300 340,300
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1,361,600 1,656,300
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OPERATING INCOME 878,600 708,200
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OTHER INCOME (EXPENSE):
Interest income 105,800 61,500
Interest expense (10,700) (10,800)
Other income 13,200 -
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108,300 50,700
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NET INCOME $ 986,900 $ 758,900
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Net income allocated to General Partners $ 9,900 $ 7,600
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Net income allocated to Limited Partners $ 977,000 $ 751,300
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NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 32.64 $ 25.10
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----------------- -----------------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
STATEMENTS OF CASH FLOWS
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---------------------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 986,900 $ 758,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 227,300 340,300
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other assets (276,400) (19,200)
Accounts payable and due to affiliates 216,800 (207,100)
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Net cash provided by operating activities 1,154,600 872,900
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,605,800) (655,000)
Increase in intangible assets (10,500) (10,500)
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Net cash used in investing activities (1,616,300) (665,500)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (283,500) (283,500)
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DECREASE IN CASH AND CASH EQUIVALENTS (745,200) (76,100)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,849,600 1,778,300
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CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,104,400 $ 1,702,200
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----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE>
ENSTAR INCOME PROGRAM II-1, 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, 1998 and 1997 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, 1998 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
$39,600 and $118,200 for the three and nine months ended September 30, 1998.
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. The Corporate General
Partner has contracted with Falcon Communications, L.P. ("FCLP"), successor
to Falcon Holding Group, L.P. ("FHGLP"), an affiliated partnership, to
provide corporate management services for the Partnership. 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
$89,500 and $256,700 for the three and nine months ended September 30, 1998.
Management fees and reimbursed expenses due the Corporate General Partner are
non-interest bearing.
Certain programming services have been purchased through an
affiliate of the Partnership. In turn, the affiliate charged 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 $174,100 and $511,400 for the three and nine
months ended September 30, 1998. Programming fees are included in service
costs in the statements of operations. In the future, programming services
will be purchased through another source, which may include FHGLP or an
affiliate of FHGLP. Programming rates may vary significantly in the near term
as a result of the change.
-6-
<PAGE>
ENSTAR INCOME PROGRAM II-1, 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.
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<PAGE>
ENSTAR INCOME PROGRAM II-1, 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 cable programming service
tier ("CPST") rates will be terminated on March 31, 1999. Because cable
service rate increases have continued to outpace inflation under the FCC's
existing regulations, it is possible that Congress and the FCC will consider
additional methods of regulating cable service rate increases, including
deferral or repeal of the March 31, 1999 termination of CPST rate regulation.
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, 1997 for additional
information regarding such matters and the effect thereof on the
Partnership's business.
RESULTS OF OPERATIONS
The Partnership's revenues increased from $754,000 to $793,300, or
by 5.2%, and from $2,240,200 to $2,364,500, or by 5.5%, for the three and
nine months ended September 30, 1998, as compared to the corresponding
periods in 1997. Of the $39,300 increase in revenues for the three months
ended September 30, 1998, as compared to the corresponding period in 1997,
$22,100 was due to increases in regulated service rates that were implemented
by the Partnership in 1997, $11,900 was due to increases in other revenue
producing items, including advertising sales revenue and charges for
franchise fees that the Partnership is permitted to pass through to its
customers, and $5,300 was due to increases in the number of subscriptions for
basic service. Of the $124,300 increase in revenues for the nine months ended
September 30, 1998, as compared to the corresponding period in 1997, $100,300
was due to increases in regulated service rates that were implemented by the
Partnership in 1997 and $25,400 was due to increases in other revenue
producing items as described above. The increase was partially offset by a
$1,400 decrease due to decreases in the number of subscriptions for pay, tier
and equipment rental services. As of September 30, 1998, the Partnership had
approximately 7,300 basic subscribers and 1,400 premium service units.
-8-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs increased from $174,200 to $229,800, or by 31.9%, and
from $606,900 to $682,100, or by 12.4%, for the three and nine months ended
September 30, 1998, as compared to the corresponding periods in 1997. Service
costs represent costs directly attributable to providing cable services to
customers. The increase was primarily due to decreases in capitalization of
labor and overhead costs resulting from reductions in rebuild construction
activity in the Taylorville, Illinois franchise area during the 1998 periods
as compared to the 1997 periods. Higher programming fees also contributed to
the increase. Programming expense increased primarily due to increases in
rates charged by program suppliers.
General and administrative expenses increased from $61,000 to
$71,900, or by 17.9%, and from $180,000 to $259,000, or by 43.9%, for the
three and nine months ended September 30, 1998, as compared to the
corresponding periods in 1997. The increases were due to increases in
marketing and telephone expenses. The increase for the nine months' period
was also due to higher audit fees.
Management fees and reimbursed expenses increased from $116,900 to
$129,100, or by 10.4%, and from $347,400 to $374,900, or by 7.9%, for the
three and nine months ended September 30, 1998, as compared to the
corresponding periods in 1997. Management fees increased in direct relation
to increased revenues as described above. Reimbursable expenses increased
primarily due to higher allocated personnel costs resulting from staff
additions and wage increases.
Depreciation and amortization expense increased from $86,600 to
$108,600, or by 25.4%, and from $227,300 to $340,300, or by 49.7%, for the
three and nine months ended September 30, 1998, as compared to the
corresponding periods in 1997. The increases were the result of placing into
service the Taylorville, Illinois system rebuild.
Operating income decreased from $315,300 to $253,900, or by 19.5%,
and from $878,600 to $708,200, or by 19.4%, for the three and nine months
ended September 30, 1998, as compared to the equivalent periods in 1997,
principally due to increased depreciation and amortization expense and
programming fees and decreased capitalization of labor and overhead costs as
described above.
Interest income decreased from $31,500 to $20,900, or by 33.7%, and
from $105,800 to $61,500, or by 41.9%, for the three and nine months ended
September 30, 1998, as compared to the corresponding periods in 1997. The
decreases were primarily due to lower average cash balances available for
investment.
Due to the factors described above, the Partnership's net income
decreased from $342,100 to $270,800, or by 20.8%, and from $986,900 to
$758,900, or by 23.1%, for the three and nine months ended September 30,
1998, as compared to the corresponding periods in 1997.
Based on its experience in the cable television industry, the
Partnership believes that operating income before depreciation and
amortization ("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
-9-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
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 decreased from 53.3% to 45.7% and from 49.4% to
44.3% during the three and nine months ended September 30, 1998 as compared
to the corresponding periods in 1997. The decreases were primarily due to
higher programming fees and decreased capitalization of labor and overhead
costs as described above. EBITDA decreased from $401,900 to $362,500, or by
9.8%, and from $1,105,900 to $1,048,500, or by 5.2%, during the three and
nine months ended September 30, 1998, as compared to the corresponding
periods in 1997.
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 and capital requirements
relating to the expansion, improvement and upgrade of its cable systems.
At September 30, 1998, 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. The Partnership is required to rebuild its
Taylorville, Illinois cable system at an estimated total cost of $2,500,000
under a provision of its franchise agreement and is also rebuilding portions
of its cable systems in surrounding communities at an estimated additional
cost of approximately $1,800,000. Construction costs related to the entire
rebuild approximated $2,784,300 as of December 31, 1997. The Partnership has
budgeted expenditures of approximately $1,500,000 in 1998 to complete the
rebuild. Rebuild construction costs approximated $528,200 during the first
nine months of 1998. Other capital expenditures in the nine months ended
September 30, 1998 included approximately $126,800 for the improvement and
upgrade of other assets. The Partnership is required to upgrade its system in
the community of Gillespie, Illinois under a provision of its franchise
agreement. Expenditures for the upgrade, beginning in 1999, are projected to
total approximately $725,000. The Partnership expects to complete the project
by the required deadline of December 31, 1999. Additionally, the Partnership
is planning to upgrade its cable system in Litchfield, Illinois beginning in
1999 at an estimated cost of approximately $1,250,000. As a result of these
planned capital expenditures, the Partnership intends, if possible, to
maintain cash reserves. In the future, the Partnership may also need to
borrow.
On September 30, 1997, Enstar Finance Company, LLC ("EFC"), a
subsidiary of the Corporate General Partner, obtained a secured bank facility
of $35 million from two agent banks in order to obtain funds that would in
turn be advanced to the Partnership and certain of the other partnerships
managed by the Corporate General Partner. The Partnership's maximum loan
commitment is approximately $799,600, which it will become eligible to borrow
at such time as the Partnership enters into a loan agreement with EFC. The
partnership agreement requires borrowings from an affiliate to be repaid
within 12 months. Such funds would be used to provide capital to fund future
rebuild and upgrade requirements.
-10-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Borrowings, if any, will bear interest at the lender's base rate
(8.25% at September 30, 1998) plus 0.625%, or at an offshore rate plus
1.875%. The Partnership will be permitted to prepay amounts outstanding under
the facility at any time without penalty, and will be able to reborrow
throughout the term of the facility up to the maximum commitment then
available so long as no event of default exists.
The facility will contain certain financial tests and other
covenants including, among others, restrictions on incurrence of
indebtedness, investments, sale of assets, acquisitions and other covenants,
defaults and conditions. The facility will not restrict the payment of
distributions to partners unless an event of default exists thereunder.
The Partnership paid distributions totaling $94,500 and $283,500
during the three and nine months ended September 30, 1998, and expects to
continue to pay distributions at this level during the remainder of 1998.
There can, however, be no assurances regarding the level, timing or
continuation of future distributions.
Beginning in August 1997, the Partnership elected to self-insure its
cable distribution plant and subscriber connections against property damage
as well as possible business interruptions caused by such damage. The
decision to self-insure was made due to significant increases in the cost of
insurance coverage and decreases in the amount of insurance coverage
available.
While the Partnership made the election to self-insure for these
risks based upon a comparison of historical damage sustained over the
previous five years with the cost and amount of insurance currently
available, there can be no assurance that future self-insured losses will not
exceed prior costs of maintaining insurance for these risks. All of the
Partnership's subscribers are served by its system in Taylorville, Illinois
and neighboring communities. Significant damage to the system due to seasonal
weather conditions or other events could have a material adverse effect on
the Partnership's liquidity and cash flows. The Partnership continues to
purchase insurance coverage in amounts its management views as appropriate
for all other property, liability, automobile, workers' compensation and
other types of insurable risks.
In October 1998, the Partnership reinstated third party insurance
coverage against damage to its cable distribution plant and subscriber
connections and against business interruptions resulting from such damage.
Although this coverage is subject to a significant annual deductible, the
policy is intended to insure the Partnership against catastrophic losses, if
any, in future periods.
During the third quarter, the Corporate General Partner continued
its identification and evaluation of the Partnership's Year 2000 business
risks and its exposure to computer systems, to operating equipment which is
date sensitive and to the interface systems of its vendors and service
providers. The evaluation has focused on identification and assessment of
systems and equipment that may fail to distinguish between the year 1900 and
the year 2000 and, as a result, may cease to operate or may operate
improperly when dates after December 31, 1999 are introduced.
-11-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Based on a study conducted in 1997, the Corporate General Partner
concluded that certain of the Partnership's information systems were not Year
2000 compliant and elected to replace such software and hardware with
applications and equipment certified by the vendors as Year 2000 compliant.
The Corporate General Partner expects to install substantially all of the new
systems in the fourth quarter of 1998, with the remaining systems to be
installed in the first half of 1999. The total anticipated cost, including
replacement software and hardware, will be borne by FCLP. FCLP is utilizing
internal and external resources to install the new systems. The Partnership
does not believe that any other significant information technology ("IT")
projects affecting the Partnership have been delayed due to efforts to
identify and address Year 2000 issues.
Additionally, the Partnership has inventoried its operating and
revenue generating equipment to identify items that need to be upgraded or
replaced and has surveyed cable equipment manufacturers to determine which of
their models require upgrade or replacement to become Year 2000 compliant.
Identification and evaluation are essentially completed and a plan is being
developed to remediate non-compliant equipment prior to January 1, 2000. The
Partnership expects to complete its planning process by the end of 1998.
Upgrade or replacement, testing and implementation will be performed in 1999.
The cost of such replacement or remediation, currently estimated at $60,000,
is not expected to have a material effect on the Partnership's financial
position or results of operations. The Partnership has not incurred any costs
related to the Year 2000 project as of September 30, 1998. The Partnership
plans to inventory, assess, replace and test equipment with embedded computer
chips in a separate segment of its project, presently scheduled for 1999.
The Partnership has continued to survey its significant third party
vendors and service suppliers to determine the extent to which the
Partnership's interface systems are vulnerable should those third parties
fail to solve their own Year 2000 problems on a timely basis. Among the most
significant service providers upon which the Partnership relies are
programming suppliers, power and telephone companies, various banking
institutions and the Partnership's customer billing service. A majority of
these service suppliers either have not responded to the Partnership's
inquiries regarding their Year 2000 compliance programs or have responded
that they are unsure if they will become compliant on a timely basis.
Consequently, there can be no assurance that the systems of other companies
on which the Partnership must rely will be Year 2000 compliant on a timely
basis.
The Partnership expects to develop a contingency plan in 1999 to
address possible situations in which various systems of the Partnership, or
of third parties with which the Partnership does business, are not compliant
prior to January 1, 2000. Considerable effort will be directed toward
distinguishing between those contingencies with a greater probability of
occurring from those whose occurrence is considered remote. Moreover, such a
plan will necessarily focus on systems whose failure poses a material risk to
the Partnership's results of operations and financial condition.
The Partnership's most significant Year 2000 risk is an interruption
of service to subscribers, resulting in a potentially material loss of
revenues. Other risks include impairment of the Partnership's ability to bill
and/or collect payment from its customers, which could negatively impact its
liquidity and cash flows. Such risks exist primarily due to technological
operations dependent upon third parties and to a much lesser extent to those
under the control of the Partnership. Failure to achieve Year 2000 readiness
in either area
-12-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
could have a material adverse impact on the Partnership. The Partnership is
unable to estimate the possible effect on its results of operations,
liquidity and financial condition should its significant service suppliers
fail to complete their readiness programs prior to the Year 2000. Depending
on the supplier, equipment malfunction or type of service provided, as well
as the location and duration of the problem, the effect could be material.
For example, if a cable programming supplier encounters an interruption of
its signal due to a Year 2000 satellite malfunction, the Partnership will be
unable to provide the signal to its cable subscribers, which could result in
a loss of revenues. Due to the number of individually owned and operated
channels the Partnership carries for its subscribers, and the packaging of
those channels, the Partnership is unable to estimate any reasonable dollar
impact of such interruption.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Cash provided by operating activities decreased by $281,700 for the
nine months ended September 30, 1998 as compared with the corresponding
period in 1997. The Partnership used $423,900 more cash to pay liabilities
owed to the Corporate General Partner and third party creditors during the
nine months ended September 30, 1998 than in the first nine months of 1997
due to differences in the timing of payments. Receivables and prepaid
expenses used $257,200 less cash in the nine months ended 1998 due to timing
differences in receivable collections and in the payment of prepaid expenses.
The Partnership used $950,800 less cash in investing activities in
the nine months ended September 30, 1998 than in the corresponding nine
months of 1997 due to a decrease in expenditures for tangible 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, provided that the Partnership is able to
increase its service rates periodically, of which there can be no assurance.
-13-
<PAGE>
ENSTAR INCOME PROGRAM II-1, 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>
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-1, L.P.
a GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 13, 1998 By: /s/ Michael K. Menerey
-----------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1998, AND THE STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1998 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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,702,200
<SECURITIES> 0
<RECEIVABLES> 71,600
<ALLOWANCES> 7,400
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,924,000
<DEPRECIATION> 2,830,600
<TOTAL-ASSETS> 6,283,400
<CURRENT-LIABILITIES> 442,700
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,283,400
<SALES> 0
<TOTAL-REVENUES> 2,364,500
<CGS> 0
<TOTAL-COSTS> 1,656,300
<OTHER-EXPENSES> (61,500)
<LOSS-PROVISION> 27,900
<INTEREST-EXPENSE> 10,800
<INCOME-PRETAX> 758,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 758,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 758,900
<EPS-PRIMARY> 25.10
<EPS-DILUTED> 0
</TABLE>
