<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 September 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
-------------------- --------------------
Commission File Number 0-14508
-------
Enstar Income Program II-1, L.P.
- -------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1628877
- ------------------------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
- ----------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including (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, September 30,
1998* 1999
------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash $1,990,700 $2,190,100
Accounts receivable, less allowance of $5,100 and
$4,700 for possible losses 59,800 27,100
Prepaid expenses and other assets 328,100 403,700
Property, plant and equipment, less accumulated
depreciation and amortization of $2,924,000
and $3,238,600 4,110,300 4,019,500
Franchise cost, net of accumulated
amortization of $37,000 and $45,000 61,300 64,200
Deferred charges, net 5,500 1,600
---------- ----------
$6,555,700 $6,706,200
========== ==========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 283,300 $ 219,400
Due to affiliates 269,900 63,400
---------- ----------
TOTAL LIABILITIES 553,200 282,800
---------- ----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (13,900) (9,700)
Limited partners 6,016,400 6,433,100
---------- ----------
TOTAL PARTNERSHIP CAPITAL 6,002,500 6,423,400
---------- ----------
$6,555,700 $6,706,200
========== ==========
</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
=======================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Three months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
REVENUES $ 793,300 $ 802,000
---------------- -----------------
OPERATING EXPENSES:
Service costs 229,800 254,500
General and administrative expenses 71,900 69,200
General Partner management fees
and reimbursed expenses 129,100 125,000
Depreciation and amortization 108,600 113,700
---------------- -----------------
539,400 562,400
---------------- -----------------
OPERATING INCOME 253,900 239,600
---------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 20,900 25,400
Interest expense (4,000) (4,200)
---------------- -----------------
16,900 21,200
---------------- -----------------
NET INCOME $ 270,800 $ 260,800
================ =================
Net income allocated to General Partners $ 2,700 $ 2,600
================ =================
Net income allocated to Limited Partners $ 268,100 $ 258,200
================ =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 8.96 $ 8.63
================ =================
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,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
REVENUES $ 2,364,500 $ 2,380,900
---------------- -----------------
OPERATING EXPENSES:
Service costs 682,100 750,200
General and administrative expenses 259,000 268,500
General Partner management fees
and reimbursed expenses 374,900 361,400
Depreciation and amortization 340,300 352,000
---------------- -----------------
1,656,300 1,732,100
---------------- -----------------
OPERATING INCOME 708,200 648,800
---------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 61,500 68,700
Interest expense (10,800) (13,100)
---------------- -----------------
50,700 55,600
---------------- -----------------
NET INCOME $ 758,900 $ 704,400
================ =================
Net income allocated to General Partners $ 7,600 $ 7,000
================ =================
Net income allocated to Limited Partners $ 751,300 $ 697,400
================ =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 25.10 $ 23.30
================ =================
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
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 758,900 $ 704,400
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 340,300 352,000
Decrease from changes in:
Accounts receivable, prepaid expenses and other assets (19,200) (42,900)
Accounts payable and due to affiliates (207,100) (270,400)
---------------- -----------------
Net cash provided by operating activities 872,900 743,100
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (655,000) (249,400)
Increase in intangible assets (10,500) (10,800)
---------------- -----------------
Net cash used in investing activities (665,500) (260,200)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (283,500) (283,500)
---------------- -----------------
INCREASE (DECREASE) IN CASH (76,100) 199,400
CASH AT BEGINNING OF PERIOD 1,778,300 1,990,700
---------------- -----------------
CASH AT END OF PERIOD $ 1,702,200 $ 2,190,100
================ =================
</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, 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 nine months ended September 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 $40,200
and $119,100 for the three and nine months ended September 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"), 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 $84,800 and $242,300 for the three and nine months ended
September 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
$207,500 and $586,500 for the three and nine months ended September 30, 1999.
Programming fees are included in service costs in the statements of operations.
-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.
-7-
<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 $793,300 to $802,000, or by
1.1%, and from $2,364,500 to $2,380,900, or by less than 1.0%, for the three and
nine months ended September 30, 1999 as compared to the corresponding periods in
1998. Of the $8,700 increase in revenues for the three months ended September
30, 1999, $23,800 was due to increases in regulated service rates that were
implemented by the Partnership in June 1999. The increase was partially offset
by a $12,300 decrease in other revenue producing items and a $2,800 decrease due
to reductions in the number of subscriptions for basic, tier, premium and
equipment rental services. Of the $16,400 increase in revenues for the nine
months ended September 30, 1999, $40,100 was due to increases in regulated
service rates that were implemented by the Partnership in June 1999. The
increase was partially offset by a $17,500 decrease due to reductions in the
number of subscriptions for basic, premium, tier and equipment rental services
and a $6,200 decrease in other revenue producing items. As of September 30,
1999, the Partnership had approximately 7,100 basic subscribers and 1,500
premium service units.
Service costs increased from $229,800 to $254,500, or by 10.7%, and
from $682,100 to $750,200, or by 9.1%, for the three and nine months ended
September 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
resulting from higher rates charged by program suppliers.
-8-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
General and administrative expenses decreased from $71,900 to $69,200,
or by 3.8%, and increased from $259,000 to $268,500, or by 3.7%, respectively,
for the three and nine months ended September 30, 1999 as compared to the
corresponding periods in 1998. The quarterly decrease was primarily due to lower
telephone costs, bad debt expense and insurance expense, which decreased as a
result of an insurance premium refund in September 1999. The nine months'
increase was primarily due to increases in insurance premiums and customer
billing costs.
Management fees and reimbursed expenses decreased from $129,100 to
$125,000, or by 3.2%, and from $374,900 to $361,400, or by 3.6%, for the three
and nine months ended September 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 costs.
Depreciation and amortization expense increased from $108,600 to
$113,700, or by 4.7%, and from $340,300 to $352,000, or by 3.4%, for the three
and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. The increases were primarily due to depreciation of asset
additions from the rebuild of the Partnership's plant in Taylorville, Illinois.
Operating income decreased from $253,900 to $239,600, or by 5.6%, and
from $708,200 to $648,800, or by 8.4%, for the three and nine months ended
September 30, 1999 as compared to the equivalent periods in 1998. The decreases
were primarily due to increases in programming fees as described above. The nine
months' decrease was also due to increases in insurance premiums.
Interest income, net of interest expense, increased from $16,900 to
$21,200, or by 25.4%, and from $50,700 to $55,600, or by 9.7%, for the three and
nine months ended September 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 $270,800 to $260,800, or by 3.7%, and from $758,900 to $704,400,
or by 7.2%, for the three and nine months ended September 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 similarly titled measures used by other companies. EBITDA as a
percentage of revenues decreased from 45.7% to 44.1% and from 44.3% to 42.0%
during the three and nine months ended September 30, 1999 as compared to the
corresponding periods in 1998. The decreases were primarily due to increases in
programming fees as described above. EBITDA decreased from $362,500 to $353,300,
or by 2.5%,
-9-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
and from $1,048,500 to $1,000,800, or by 4.5%, during the three and nine months
ended September 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 had 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. On May 26, 1999, 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 has entered into an
agreement with a cable broker 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 will not 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 September 30, 1999, 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 totaled approximately $3,276,300 from inception to September 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, and approximately $10,000 of such expenditures had
been incurred as of September 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 $139,400 in the first nine months of 1999. As a
result
-10-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 (8.25%
at September 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 $283,500 during
the quarter and nine months ended September 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.
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 third 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
-11-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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, all were evaluated during the assessment stage, approximately
8.5% are in the remediation planning phase and 91.5% are in the implementation
stage. FCLP conducted limited testing of systems, software and equipment in the
third quarter of 1999 and placed 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
$10,100, all of which had been incurred as of September 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.
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
-12-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
programming suppliers, power and telephone companies, various banking
institutions and the Partnership's customer billing service. The Partnership
has taken steps to attempt to satisfy itself that the third parties on which
it is heavily reliant are Year 2000 compliant and have developed satisfactory
contingency plans, or that alternative means of meeting the Partnership's
business requirements are available. However, the Partnership can predict
neither the likelihood of successful 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.
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, while FCLP has substantially completed all phases of the
Partnership's remediation program, it is dependent on third parties whose
progress is not within its control. 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 has developed 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 has also examined 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.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Cash provided by operating activities decreased by $129,800 for the
nine months ended September 30, 1999 as compared with the corresponding period
in 1998. The Partnership used $63,300 more cash to pay liabilities owed to the
Corporate General Partner and third party creditors during the nine months ended
September 30, 1999 than in the first nine months of 1998 due to differences in
the timing of payments. Receivables and prepaid expenses used $23,700 more cash
in the nine months ended September 30, 1999 due to timing differences in
receivable collections and in the payment of prepaid expenses.
The Partnership used $405,300 less cash in investing activities in the
nine months ended September 30, 1999 than in the corresponding nine months of
1998 due to a $405,600 decrease in expenditures for tangible assets.
-13-
<PAGE>
ENSTAR INCOME PROGRAM II-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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>
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) 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: November 11, 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 SEPTEMBER 30, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,190,100
<SECURITIES> 0
<RECEIVABLES> 31,800
<ALLOWANCES> 4,700
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,258,100
<DEPRECIATION> 3,238,600
<TOTAL-ASSETS> 6,706,200
<CURRENT-LIABILITIES> 282,800
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,706,200
<SALES> 0
<TOTAL-REVENUES> 2,380,900
<CGS> 0
<TOTAL-COSTS> 1,732,100
<OTHER-EXPENSES> (68,700)
<LOSS-PROVISION> 10,500
<INTEREST-EXPENSE> 13,100
<INCOME-PRETAX> 704,400
<INCOME-TAX> 0
<INCOME-CONTINUING> 704,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 704,400
<EPS-BASIC> 23.30
<EPS-DILUTED> 0
</TABLE>
