<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, 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 0-14505
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Enstar Income Program II-2, L.P.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1628872
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, (310) 824-9990
including 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
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<PAGE>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED BALANCE SHEETS
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-----------------------
<TABLE>
<CAPTION>
December 31, September 30,
1997* 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 3,078,800 $ 3,887,900
Accounts receivable, less allowance of $12,500 and
$5,000 for possible losses 54,300 69,800
Prepaid expenses and other assets 190,500 319,400
Property, plant and equipment, less accumulated
depreciation and amortization of $7,567,400 and $7,388,800 3,040,000 2,832,100
Franchise cost, net of accumulated
amortization of $1,174,800 and $1,200,000 271,700 194,900
Deferred charges, net 14,100 7,700
------------------ -----------------
$ 6,649,400 $ 7,311,800
------------------ -----------------
------------------ -----------------
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 466,000 $ 261,000
Due to affiliates 228,000 172,400
------------------ -----------------
TOTAL LIABILITIES 694,000 433,400
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (14,200) (5,000)
Limited partners 5,969,600 6,883,400
------------------ -----------------
TOTAL PARTNERSHIP CAPITAL 5,955,400 6,878,400
------------------ -----------------
$ 6,649,400 $ 7,311,800
------------------ -----------------
------------------ -----------------
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
-----------------------
-----------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Three months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
REVENUES $ 961,000 $ 981,600
----------------- -----------------
OPERATING EXPENSES:
Service costs 300,100 306,500
General and administrative expenses 83,400 90,400
General Partner management fees
and reimbursed expenses 133,700 143,500
Depreciation and amortization 177,000 161,200
----------------- -----------------
694,200 701,600
----------------- -----------------
OPERATING INCOME 266,800 280,000
----------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 36,000 47,300
Interest expense (4,800) (4,500)
----------------- -----------------
31,200 42,800
----------------- -----------------
NET INCOME $ 298,000 $ 322,800
----------------- -----------------
----------------- -----------------
Net income allocated to General Partners $ 3,000 $ 3,200
----------------- -----------------
----------------- -----------------
Net income allocated to Limited Partners $ 295,000 $ 319,600
----------------- -----------------
----------------- -----------------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 9.87 $ 10.70
----------------- -----------------
----------------- -----------------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,880 29,880
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
-----------------------
-----------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
REVENUES $ 2,846,600 $ 2,986,300
----------------- -----------------
OPERATING EXPENSES:
Service costs 873,200 932,600
General and administrative expenses 264,000 320,300
General Partner management fees
and reimbursed expenses 396,200 423,600
Depreciation and amortization 538,200 510,200
----------------- -----------------
2,071,600 2,186,700
----------------- -----------------
OPERATING INCOME 775,000 799,600
----------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 91,900 127,900
Interest expense (17,000) (10,900)
Gain on sale of cable assets - 6,400
----------------- -----------------
74,900 123,400
----------------- -----------------
NET INCOME $ 849,900 $ 923,000
----------------- -----------------
----------------- -----------------
Net income allocated to General Partners $ 8,500 $ 9,200
----------------- -----------------
----------------- -----------------
Net income allocated to Limited Partners $ 841,400 $ 913,800
----------------- -----------------
----------------- -----------------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 28.16 $ 30.58
----------------- -----------------
----------------- -----------------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,880 29,880
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
STATEMENTS OF CASH FLOWS
-----------------------
-----------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 849,900 $ 923,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 538,200 510,200
Amortization of deferred loan costs 13,900 -
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other assets 22,000 (144,400)
Accounts payable and due to affiliates 59,800 (260,600)
----------------- -----------------
Net cash provided by operating activities 1,483,800 1,028,200
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (498,600) (212,200)
Increase in intangible assets (10,700) (6,900)
----------------- -----------------
Net cash used in investing activities (509,300) (219,100)
----------------- -----------------
INCREASE IN CASH AND CASH EQUIVALENTS 974,500 809,100
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,968,100 3,078,800
----------------- -----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 2,942,600 $ 3,887,900
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
-----------------------
-----------------------
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the three
and 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
$49,100 and $149,300 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
$94,400 and $274,300 for the three and nine months ended September 30, 1998.
Management fees and reimbursed expenses due the Corporate General Partner are
non-interest bearing.
The Partnership also receives certain system operating management
services from an affiliate of the Corporate General Partner in addition to
the Manager due to the fact that there are no such employees directly
employed by one of the Partnership's cable systems. The Partnership
reimburses the affiliate for its allocable share of the affiliate's
operational costs. The total amount charged to the Partnership for these
costs approximated $15,600 and $51,300 for the three and nine months ended
September 30, 1998. No management fee is payable to the affiliate by the
Partnership and there is no duplication of reimbursed expenses and costs paid
to the Manager.
-6-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
-----------------------
-----------------------
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
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 $221,200 and $654,700 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 in the near term as a result
of the change.
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-2, 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 $961,000 to $981,600, or by
2.1%, and from $2,846,600 to $2,986,300, or by 4.9%, for the three and nine
months ended September 30, 1998 as compared to the corresponding periods in
1997. Of the $20,600 increase in revenues for the three months ended
September 30, 1998 as compared to the corresponding period in 1997, $33,800
was due to increases in regulated service rates that were implemented by the
Partnership in 1997 and $5,100 was due to increases in other revenue
producing items. The increases were partially offset by an $18,300 decrease
due to decreases in the number of subscriptions for premium, tier and
equipment rental services. Of the $139,700 increase in revenues for the nine
months ended September 30, 1998 as compared to the corresponding period in
1997, $135,400 was due to increases in regulated service rates that were
implemented by the Partnership in 1997 and $28,500 was due to increases in
other revenue producing items. These increases were partially offset by a
$24,200 decrease due to decreases in the number of subscriptions for premium,
tier and equipment rental services. As of September 30, 1998, the Partnership
had approximately 9,000 basic subscribers and 1,800 premium service units.
-8-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs increased from $300,100 to $306,500, or by 2.1%, and
from $873,200 to $932,600, or by 6.8%, 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 increases were primarily due to decreases in the
capitalization of labor and overhead costs resulting from reductions in 1998
rebuild construction activity in the Jerseyville, Illinois franchise area.
Higher programming fees also contributed to the increase. Programming fees
increased primarily as a result of higher rates charged by program suppliers.
General and administrative expenses increased from $83,400 to $90,400,
or by 8.4%, and from $264,000 to $320,300, or by 21.3%, for the three and
nine months ended September 30, 1998 as compared to the corresponding periods
of 1997. The increase for the three months was principally the result of
increases in personnel costs and audit fees. Personnel costs increased due to
increases in allocations from an affiliate of the Corporate General Partner.
The increase in allocations was partially due to the hiring of personnel in
early 1998 to staff positions that had not been filled during 1997. The nine
months' increase was primarily due to higher audit fees.
Management fees and reimbursed expenses increased from $133,700 to
$143,500, or by 7.3%, and from $396,200 to $423,600, or by 6.9%, for the
three and nine months ended September 30, 1998 as compared to the
corresponding periods of 1997. Management fees increased in direct relation
to increased revenues as described above. Reimbursed expenses increased
primarily due to higher allocated personnel costs resulting from staff
additions.
Depreciation and amortization expense decreased from $177,000 to
$161,200, or by 8.9%, and from $538,200 to $510,200, or by 5.2%, for the
three and nine months ended September 30, 1998 as compared to the
corresponding periods of 1997. The decreases were primarily due to a
reduction in 1997 in the remaining life of certain plant assets that were
replaced.
Operating income increased from $266,800 to $280,000, or by 4.9%, and
from $775,000 to $799,600, or by 3.2%, for the three and nine months ended
September 30, 1998 as compared to the corresponding periods in 1997,
principally due to increases in revenues and decreases in depreciation and
amortization expense.
Interest income increased from $36,000 to $47,300, or by 31.4%, and
from $91,900 to $127,900, or by 39.2%, for the three and nine months ended
September 30, 1998 as compared to the corresponding periods of 1997,
primarily due to higher average cash balances available for investment in the
1998 periods.
Interest expense decreased from $4,800 to $4,500, or by 6.3%, and from
$17,000 to $10,900, or by 35.9%, for the three and nine months ended
September 30, 1998 as compared to the corresponding periods in 1997. The
Partnership fully amortized deferred loan costs to interest expense in the
first three months of 1997. Such costs were related to the Partnership's note
payable, which was repaid in August 1996.
The Partnership sold equipment during the nine months ended September
30, 1998 and, accordingly, recognized a $6,400 gain in connection with the
sale.
-9-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Due to the factors described above, the Partnership's net income
increased from $298,000 to $322,800, or by 8.3%, and from $849,900 to
$923,000, or by 8.6%, 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 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 46.2% to 44.9% and from 46.1% to 43.9% during the three and
nine months ended September 30, 1998 as compared to the corresponding periods
in 1997. The decreases were primarily due to decreases in capitalization of
labor and overhead costs and increases in programming fees as described
above. EBITDA decreased from $443,800 to $441,200, or by less than 1.0%, and
from $1,313,200 to $1,309,800, or by less than 1.0%, for 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, debt service 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 the availability of cash generated from operations to
fund its ongoing expenses and capital requirements. The Partnership is
required to rebuild its Jerseyville, Illinois cable system at an estimated
total cost of approximately $260,500 under a provision of its franchise
agreement. The Partnership is also rebuilding portions of its cable systems
in surrounding communities at an estimated additional cost of approximately
$1,801,900. The project is expected to be completed in 1999. Capital
expenditures related to the Jerseyville rebuild approximated $85,000 as of
December 31, 1997. Other rebuild costs amounted to $1,776,000 as of December
31, 1997. Total rebuild expenditures in the first nine months of 1998 were
approximately $77,500. Expenditures to upgrade equipment and other plant
assets approximated $134,700 for the nine months ended September 30, 1998.
Additionally, the Partnership is required to upgrade its cable plant in
Malden, Missouri at an estimated cost of approximately $2,100,000, the start
of which is dependent upon obtaining an extension of the franchise agreement
for that system.
The Corporate General Partner believes that cash flow from operations
will be adequate to meet the Partnership's current liquidity requirements,
including the funding for capital expenditures discussed above. However, as a
result of such liquidity requirements, the Corporate General Partner has
concluded that it is not prudent for the Partnership to resume paying
distributions at this time.
-10-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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. Approximately 71% of the Partnership's
subscribers are served by its system in Hillsboro, 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.
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 $10,700,
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
-11-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 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.
-12-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Operating activities provided $455,600 less cash in the nine months
ended September 30, 1998 as compared with the corresponding period in 1997.
The Partnership used $320,400 more cash for the payment of amounts owed to
affiliates and third-party creditors due to differences in the timing of
payments. Changes in accounts receivable and prepaid expenses used $166,400
more cash in the first nine months of 1998 due to differences in the timing
of receivable collections and in the payment of prepaid expenses.
Investing activities used $290,200 less cash in the nine months ended
September 30, 1998 than in the corresponding nine months of 1997, due to a
$286,400 decrease in expenditures for tangible assets, and a $3,800 decrease
in spending for intangible assets.
INFLATION
Certain of the Partnership's expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing
generally increase with inflation. However, the Partnership does not believe
that its financial results have been, or will be, adversely affected by
inflation in a material way, provided that Partnership is able to increase
its service rates periodically, of which there can be no assurance.
-13-
<PAGE>
ENSTAR INCOME PROGRAM II-2, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) None
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME PROGRAM II-2, L.P.
a GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 13, 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> 3,887,900
<SECURITIES> 0
<RECEIVABLES> 74,800
<ALLOWANCES> 5,000
<INVENTORY> 0
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<PP&E> 10,220,900
<DEPRECIATION> 7,388,800
<TOTAL-ASSETS> 7,311,800
<CURRENT-LIABILITIES> 433,400
<BONDS> 0
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 7,311,800
<SALES> 0
<TOTAL-REVENUES> 2,986,300
<CGS> 0
<TOTAL-COSTS> 2,186,700
<OTHER-EXPENSES> (134,300)
<LOSS-PROVISION> 46,300
<INTEREST-EXPENSE> 10,900
<INCOME-PRETAX> 923,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 923,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 923,000
<EPS-PRIMARY> 30.58
<EPS-DILUTED> 0
</TABLE>
