<PAGE>
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, 1999
----------------------------------------
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
- ------------------------------------------------ ----------------------------
(State or other jurisdiction of incorporation or (I.R.S. Employer
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 (310) 824-9990
area code: ----------------------------
- ------------------------------------------------------------------------------
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>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED BALANCE SHEETS
======================================
<TABLE>
<CAPTION>
December 31, June 30,
1998* 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash $ 1,990,700 $ 2,306,000
Accounts receivable, less allowance of $5,100 and
$4,500 for possible losses 59,800 41,000
Prepaid expenses and other assets 328,100 421,200
Property, plant and equipment, less accumulated
depreciation and amortization of $2,924,000 and $3,144,500 4,110,300 4,025,300
Franchise cost, net of accumulated
amortization of $37,000 and $42,300 61,300 59,500
Deferred charges, net 5,500 2,700
------------ ------------
$ 6,555,700 $ 6,855,700
============ ============
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 283,300 $ 235,200
Due to affiliates 269,900 363,500
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TOTAL LIABILITIES 553,200 598,700
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COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (13,900) (11,400)
Limited partners 6,016,400 6,268,400
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TOTAL PARTNERSHIP CAPITAL 6,002,500 6,257,000
------------ ------------
$ 6,555,700 $ 6,855,700
============ ============
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
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<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
======================================
<TABLE>
<CAPTION>
Unaudited
------------------------
Three months ended
June 30,
------------------------
1998 1999
---------- ----------
<S> <C> <C>
REVENUES $ 801,500 $ 802,300
---------- ----------
OPERATING EXPENSES:
Service costs 222,700 233,100
General and administrative expenses 96,300 110,100
General Partner management fees
and reimbursed expenses 124,600 120,300
Depreciation and amortization 123,300 116,100
---------- ----------
566,900 579,600
---------- ----------
OPERATING INCOME 234,600 222,700
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 20,300 21,600
Interest expense (3,500) (4,600)
---------- ----------
16,800 17,000
---------- ----------
NET INCOME $ 251,400 $ 239,700
========== ==========
Net income allocated to General Partners $ 2,500 $ 2,400
========== ==========
Net income allocated to Limited Partners $ 248,900 $ 237,300
========== ==========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 8.31 $ 7.93
========== ==========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
========== ==========
</TABLE>
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<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
=======================================
<TABLE>
<CAPTION>
Unaudited
--------------------------
Six months ended
June 30,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
REVENUES $ 1,571,200 $ 1,578,900
----------- -----------
OPERATING EXPENSES:
Service costs 452,300 495,700
General and administrative expenses 187,100 199,400
General Partner management fees
and reimbursed expenses 245,800 236,400
Depreciation and amortization 231,700 238,300
----------- -----------
1,116,900 1,169,800
----------- -----------
OPERATING INCOME 454,300 409,100
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 40,600 43,300
Interest expense (6,800) (8,900)
----------- -----------
33,800 34,400
----------- -----------
NET INCOME $ 488,100 $ 443,500
=========== ===========
Net income allocated to General Partners $ 4,900 $ 4,400
=========== ===========
Net income allocated to Limited Partners $ 483,200 $ 439,100
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 16.14 $ 14.67
=========== ===========
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
=======================================
<TABLE>
<CAPTION>
Unaudited
--------------------------
Six months ended
June 30,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 488,100 $ 443,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 231,700 238,300
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other assets (13,100) (74,300)
Accounts payable and due to affiliates (185,600) 45,500
----------- -----------
Net cash provided by operating activities 521,100 653,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (437,300) (145,200)
Increase in intangible assets (7,300) (3,500)
----------- -----------
Net cash used in investing activities (444,600) (148,700)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (189,000) (189,000)
----------- -----------
INCREASE (DECREASE) IN CASH (112,500) 315,300
CASH AT BEGINNING OF PERIOD 1,778,300 1,990,700
----------- -----------
CASH AT END OF PERIOD $ 1,665,800 $ 2,306,000
=========== ===========
</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 six months ended June 30, 1999 and 1998 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, 1999 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
$40,100 and $78,900 for the three and six months ended June 30, 1999.
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
$80,200 and $157,500 for the three and six months ended June 30, 1999.
Management fees and reimbursed expenses due the Corporate General Partner are
non-interest bearing.
Substantially all programming services have been purchased through
FCLP. FCLP, in the normal course of business, purchases cable programming
services from certain affiliated program suppliers. Such purchases of
programming services are made on behalf of the Partnership and the other
partnerships managed by the Corporate General Partner as well as for FCLP's
own cable television operations. FCLP charges the Partnership for these
services 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 $194,600 and $379,000 for the three and six months
ended June 30, 1999. Programming fees are included in service costs in the
statements of operations.
-6-
<PAGE>
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 ended the regulation of cable programming service tier rates
on March 31, 1999. 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, 1998 for additional
information regarding such matters and the effect thereof on the
Partnership's business.
RESULTS OF OPERATIONS
The Partnership's revenues increased from $801,500 to $802,300, or
by less than 1.0%, and from $1,571,200 to $1,578,900, or by less than 1.0%,
for the three and six months ended June 30, 1999 as compared to the
corresponding periods in 1998. Of the $800 increase in revenues for the three
months ended June 30, 1999, $11,800 was due to increases in regulated service
rates that were implemented by the Partnership in June 1999 and $5,400 was
due to increases in other revenue producing items. The increase was partially
offset by a $16,400 decrease due to reductions in the number of subscriptions
for basic, premium and equipment rental services. Of the $7,700 increase in
revenues for the six months ended June 30, 1999, $4,500 was due to the effect
of increases in regulated service rates that were implemented by the
Partnership in June 1999, partially offset by decreases in certain regulated
rates that occurred in March 1998, and $6,100 was due to increases in other
revenue producing items. The increases were partially offset by a $2,900
decrease due to reductions in the number of subscriptions for basic, tier and
equipment rental services. As of June 30, 1999, the Partnership had
approximately 7,100 basic subscribers and 1,400 premium service units.
Service costs increased from $222,700 to $233,100, or by 4.7%, and
from $452,300 to $495,700, or by 9.6%, for the three and six months ended
June 30, 1999 as compared to the corresponding periods in 1998. Service costs
represent costs directly attributable to providing cable services to
customers. The increase was primarily due to increases in programming fees
and decreases
-8-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
in capitalization of labor and overhead costs as a result of reduced rebuild
activity in the Partnership's Taylorville, Illinois franchise area.
Programming expense increased due to higher rates charged by program
suppliers. The six months' increase was also caused by higher franchise fees,
which increased due to a non-recurring adjustment in the first quarter of
1999.
General and administrative expenses increased from $96,300 to
$110,100, or by 14.3%, and from $187,100 to $199,400, or by 6.6%, for the
three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. The increases were primarily due to higher insurance
premiums and customer billing expense.
Management fees and reimbursed expenses decreased from $124,600 to
$120,300, or by 3.5%, and from $245,800 to $236,400, or by 3.8%, for the
three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. Management fees increased in direct relation to increased
revenues as described above. Reimbursed expenses decreased primarily due to
lower personnel costs allocated by the Corporate General Partner resulting
from staff reductions and due to lower telephone cost.
Depreciation and amortization expense decreased from $123,300 to
$116,100, or by 5.8%, and increased from $231,700 to $238,300, or by 2.8%,
respectively, for the three and six months ended June 30, 1999 as compared to
the corresponding periods in 1998. The decrease for the three months ended
June 30, 1999 was primarily due to certain plant assets becoming fully
depreciated. The increase for the six months ended June 30, 1999 was
primarily due to depreciation of asset additions from the rebuild of the
Partnership's plant in Taylorville, Illinois.
Operating income decreased from $234,600 to $222,700, or by 5.1%,
and from $454,300 to $409,100, or by 9.9%, for the three and six months ended
June 30, 1999 as compared to the equivalent periods in 1998, primarily due to
increases in programming fees and decreases in capitalization of labor and
overhead costs as described above.
Interest income increased from $20,300 to $21,600, or by 6.4%, and
from $40,600 to $43,300, or by 6.7%, for the three and six months ended June
30, 1999 as compared to the corresponding periods in 1998. The increases were
primarily due to higher average cash balances available for investment.
Due to the factors described above, the Partnership's net income
decreased from $251,400 to $239,700, or by 4.7%, and from $488,100 to
$443,500, or by 9.1%, for the three and six months ended June 30, 1999 as
compared to the corresponding periods in 1998.
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 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
-9-
<PAGE>
RESULTS OF OPERATIONS (CONTINUED)
similarly titled measures used by other companies. EBITDA as a percentage of
revenues decreased from 44.7% to 42.2% and 43.7% to 41.0% during the three
and six months ended June 30, 1999 as compared to the corresponding periods
in 1998. The decrease was primarily due to reductions in capitalization of
labor and overhead costs and increases in programming fees as described
above. EBITDA decreased from $357,900 to $338,800, or by 5.3%, and from
$686,000 to $647,400, or by 5.6%, during the three and six months ended June
30, 1999 as compared to the corresponding periods in 1998.
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.
Based on its belief that the market for cable systems has generally
improved, the Corporate General Partner has been evaluating strategies for
liquidating the Partnership. These strategies included the potential sale of
substantially all of the Partnership's assets to third parties and/or
affiliates of the Corporate General Partner, and the subsequent liquidation
of the Partnership. The Corporate General Partner expected to complete its
evaluation within the next several months and intended to advise unitholders
promptly if it believed that commencing a liquidating transaction would be in
the best interests of unitholders. On May 26, 1999, however, Charter
Communications ("Charter") signed an agreement to acquire all of the cable
television assets of FCLP and to acquire Enstar Communications Corporation,
the Partnership's Corporate General Partner. The Corporate General Partner
and Charter have decided to implement a strategy for liquidating the
Partnership that involves selling its systems to third parties. Accordingly,
the Corporate General Partner will commence discussions with cable brokers
regarding the sale of the systems, although no assurance can be given
regarding the likelihood, if any, of receiving appropriate offers to purchase
the systems. Any such sale and corresponding liquidation is unlikely to close
before the sale of the Corporate General Partner to Charter.
Following the close of all pending transactions, Charter will serve
approximately 6.2 million customers and will be the nation's fourth largest
cable operator. Headquartered in St. Louis, Missouri, Charter was acquired by
Paul G. Allen in 1998. More information about Charter can be accessed on the
Internet at www.chartercom.com.
At June 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 $2,640,700
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 $836,200. Rebuild construction costs amounted to
approximately $3,266,300 from inception to June 30, 1999. Construction is
substantially complete; however, the Partnership has budgeted expenditures of
approximately $300,000 for equipment to launch new channels in the
Taylorville system in the fourth quarter of 1999 and had
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
incurred $49,300 as of June 30, 1999. The Partnership is required to upgrade
its system in the community of Gillespie, Illinois under a provision of its
franchise agreement. Expenditures for a digital upgrade, scheduled for the
second half of 1999, are projected to total approximately $96,000, none of
which had been incurred as of June 30, 1999. 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 at an estimated cost of approximately $1,100,000
provided a franchise renewal is obtained. Although the franchise agreement is
still under negotiation, the Partnership anticipates that the agreement will
require completion of the upgrade within 24 to 36 months. Other capital
expenditures budgeted for 1999 total approximately $327,000 for the
improvement and upgrade of other assets. Such expenditures approximated
$95,900 in the first six months of 1999. 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.
Borrowings, if any, will bear interest at the lender's base rate
(7.75% at June 30, 1999) 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 $189,000
during the quarter and six months ended June 30, 1999, respectively, and
expects to continue to pay distributions at this level during 1999. There
can, however, be no assurances regarding the level, timing or continuation of
future distributions.
In October 1998, FCLP reinstated third party insurance coverage for
all of the cable television properties owned or managed by FCLP to cover
damage to cable distribution plant and subscriber connections and against
business interruptions resulting from such damage. This coverage is subject
to a significant annual deductible which applies to all of the cable
television properties owned or managed by FCLP.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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.
YEAR 2000
During the second quarter of 1999, FCLP, on behalf of the Corporate
General Partner, continued its identification, evaluation and remediation of
the Partnership's Year 2000 business risks associated with operations
directly under the control of the Partnership and those risks that are
dependent on third parties related to 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, assessment and remediation 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. Most of the Partnership's exposure to Year 2000 issues
is dependent in large part on third parties. Failure to identify and
remediate a critical Year 2000 issue could result in an interruption of
services to customers or in the interruption of critical business functions,
either of which could result in a material adverse impact on the
Partnership's financial results.
FCLP concluded that certain of the Partnership's internal
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. FCLP installed the new systems in the first
quarter of 1999. The cost of the implementation, including replacement
software and hardware, has been borne by FCLP. FCLP is continuing to utilize
internal and external resources to extend the functionality of the new
systems. The Partnership does not believe that any other significant
information technology projects affecting the Partnership have been delayed
due to efforts to identify or address Year 2000 issues.
Additionally, FCLP has continued to inventory the Partnership's
internal 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,
while ongoing, are substantially completed and a plan has been developed to
remediate or replace non-compliant equipment. Of the total number of
potentially non-compliant items identified in the inventory, approximately
1.5% are in the assessment stage. Approximately 14.4% of non-compliant items
are in the remediation planning phase and 85.6% are in the implementation
stage. FCLP plans to conduct limited testing of systems, software and
equipment in the third quarter of 1999 and place significant reliance on test
results provided by AT&T Broadband & Internet Services, an affiliate of FCLP.
The cost of such replacement or remediation to the Partnership is currently
estimated to be $13,100, of which $10,900 had been incurred as of June 30,
1999. FCLP has also substantially completed the assessment and replacement or
remediation of the majority of the Partnership's internal equipment
containing embedded computer chips.
-12-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
FCLP has continued to survey the Partnership's 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. The Partnership
is heavily dependent on third parties and these parties are themselves
heavily dependent on technology. For example, if a television broadcaster or
cable programmer encounters Year 2000 problems that impede its ability to
deliver its programming, the Partnership will be unable to provide that
programming to its cable customers, which would result in a loss of revenues,
although the Partnership would attempt to provide its customers with
alternative program services. Virtually all of the Partnership's most
critical equipment vendors have responded to the surveys regarding the Year
2000 compliance of their products and indicated that they are already
compliant or have indicated their intent to be compliant. Additional
compliance information has been obtained for specific products from vendor
Web sites, interviews, on-site visits, system interface testing and industry
group participation. Among the most significant third party service providers
upon which the Partnership relies are programming suppliers, power and
telephone companies, various banking institutions and the Partnership's
customer billing service. The Partnership is taking steps to attempt to
satisfy itself that the third parties on which it is heavily reliant are Year
2000 compliant and are developing satisfactory contingency plans, or that
alternative means of meeting the Partnership's business requirements are
available, but cannot predict the likelihood of such compliance nor the
direct or indirect costs to the Partnership of non-compliance by those third
parties or of securing such services from alternate compliant third parties.
In areas in which the Partnership is uncertain about the anticipated Year
2000 readiness of a significant third party, FCLP is investigating available
alternatives, if any.
FCLP believes that it has established an effective program to
resolve all significant Year 2000 issues in its control in a timely manner.
As noted above, however, FCLP has not yet completed all phases of the
Partnership's remediation program and is dependent on third parties whose
progress is not within its control. In the event that FCLP does not complete
the Partnership's currently planned additional remediation prior to the year
2000, management believes that the Partnership could experience significant
difficulty in producing and delivering its products and services and
conducting its business in the year 2000. In addition, disruptions
experienced by third parties with which the Partnership does business as well
as by the economy generally could also materially adversely affect the
Partnership. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time.
FCLP has focused its efforts on identification and remediation of
the Partnership's Year 2000 exposures and is beginning to develop specific
contingency plans in the event it does not successfully complete its
remaining remediation as anticipated or experiences unforeseen problems.
Considerable effort has been directed toward distinguishing between those
contingencies with a greater probability of occurring from those whose
occurrence is considered remote, and on those systems whose failure poses a
material risk to the Partnership's results of operations and financial
condition. FCLP is also examining the Partnership's business interruption
strategies to evaluate whether they would satisfactorily meet the demands of
failures arising from Year 2000 related problems. FCLP intends to examine the
Partnership's status periodically to determine the necessity of establishing
and implementing such contingency plans or additional strategies, which could
involve, among other things, manual workarounds, adjusting staffing
strategies and sharing resources.
-13-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Cash provided by operating activities increased by $131,900 for the
six months ended June 30, 1999 as compared with the corresponding period in
1998. The Partnership used $231,100 less cash to pay liabilities owed to the
Corporate General Partner and third party creditors during the six months
ended June 30, 1999 than in the first six months of 1998 due to differences
in the timing of payments. Receivables and prepaid expenses used $61,200 more
cash in the six months ended June 30, 1999 due to timing differences in
receivable collections and in the payment of prepaid expenses.
The Partnership used $295,900 less cash in investing activities in
the six months ended June 30, 1999 than in the corresponding six months of
1998 due to a $292,100 decrease in expenditures for tangible assets and a
$3,800 decrease in expenditures 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, provided that the Partnership is able to
increase its service rates periodically, of which there can be no assurance.
-14-
<PAGE>
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 Financial Data Schedule
(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: August 13, 1999 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 JUNE 30, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,306,000
<SECURITIES> 0
<RECEIVABLES> 45,500
<ALLOWANCES> 4,500
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,169,800
<DEPRECIATION> 3,144,500
<TOTAL-ASSETS> 6,855,700
<CURRENT-LIABILITIES> 598,700
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,855,700
<SALES> 0
<TOTAL-REVENUES> 1,578,900
<CGS> 0
<TOTAL-COSTS> 1,169,800
<OTHER-EXPENSES> (43,300)
<LOSS-PROVISION> 9,400
<INTEREST-EXPENSE> 8,900
<INCOME-PRETAX> 443,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 443,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 443,500
<EPS-BASIC> 14.67
<EPS-DILUTED> 0
</TABLE>
