-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ow8I6zN7BX/RdqfVtMXuxD9FrAz/0HIq9UmGqNZKzdKiQcaGMxtnJvLQ42PtBhJj VCNwCWz97quGVCIbQUbLKw== 0001047469-98-040772.txt : 19981116 0001047469-98-040772.hdr.sgml : 19981116 ACCESSION NUMBER: 0001047469-98-040772 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENSTAR INCOME PROGRAM II-1 LP CENTRAL INDEX KEY: 0000757595 STANDARD INDUSTRIAL CLASSIFICATION: CABLE & OTHER PAY TELEVISION SERVICES [4841] IRS NUMBER: 581628877 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14508 FILM NUMBER: 98748524 BUSINESS ADDRESS: STREET 1: 10900 WILSHIRE BLVD 15TH FLOOR CITY: LOS ANGELES STATE: CA ZIP: 90024 BUSINESS PHONE: 3108249990 MAIL ADDRESS: STREET 1: 474 SOUTH RAYMOND AVE #200 CITY: PASADENA STATE: CA ZIP: 91105 10-Q 1 10-Q 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 ---------------------- 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 area code: (310) 824-9990 --------------- - -------------------------------------------------------------------------------- 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 --- --- PART I - FINANCIAL INFORMATION ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED BALANCE SHEETS --------------------------------- ---------------------------------
December 31, September 30, 1997* 1998 ------------------ ----------------- (Unaudited) ASSETS: Cash and cash equivalents $ 1,778,300 $ 1,702,200 Accounts receivable, less allowance of $11,000 and $7,400 for possible losses 48,800 64,200 Prepaid expenses and other assets 351,000 354,800 Property, plant and equipment, less accumulated depreciation and amortization of $4,419,300 and $2,830,600 3,765,500 4,093,400 Franchise cost, net of accumulated amortization of $26,800 and $34,300 64,700 62,900 Deferred charges, net 6,800 5,900 ------------------ ----------------- $ 6,015,100 $ 6,283,400 ------------------ ----------------- ------------------ ----------------- LIABILITIES AND PARTNERSHIP CAPITAL LIABILITIES: Accounts payable $ 457,600 $ 272,000 Due to affiliates 192,200 170,700 ------------------ ----------------- TOTAL LIABILITIES 649,800 442,700 ------------------ ----------------- COMMITMENTS AND CONTINGENCIES PARTNERSHIP CAPITAL (DEFICIT): General partners (20,300) (15,500) Limited partners 5,385,600 5,856,200 ------------------ ----------------- TOTAL PARTNERSHIP CAPITAL 5,365,300 5,840,700 ------------------ ----------------- $ 6,015,100 $ 6,283,400 ------------------ ----------------- ------------------ -----------------
*As presented in the audited financial statements. See accompanying notes to condensed financial statements. -2- ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED STATEMENTS OF OPERATIONS --------------------------------- ---------------------------------
Unaudited -------------------------------------- Three months ended September 30, -------------------------------------- 1997 1998 ----------------- ----------------- REVENUES $ 754,000 $ 793,300 ----------------- ----------------- OPERATING EXPENSES: Service costs 174,200 229,800 General and administrative expenses 61,000 71,900 General Partner management fees and reimbursed expenses 116,900 129,100 Depreciation and amortization 86,600 108,600 ----------------- ----------------- 438,700 539,400 ----------------- ----------------- OPERATING INCOME 315,300 253,900 ----------------- ----------------- OTHER INCOME (EXPENSE): Interest income 31,500 20,900 Interest expense (4,700) (4,000) ----------------- ----------------- 26,800 16,900 ----------------- ----------------- NET INCOME $ 342,100 $ 270,800 ----------------- ----------------- ----------------- ----------------- Net income allocated to General Partners $ 3,400 $ 2,700 ----------------- ----------------- ----------------- ----------------- Net income allocated to Limited Partners $ 338,700 $ 268,100 ----------------- ----------------- ----------------- ----------------- NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST $ 11.31 $ 8.96 ----------------- ----------------- ----------------- ----------------- AVERAGE LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD 29,936 29,936 ----------------- ----------------- ----------------- -----------------
See accompanying notes to condensed financial statements. -3- ENSTAR INCOME PROGRAM II-1, L.P. CONDENSED STATEMENTS OF OPERATIONS --------------------------------- ---------------------------------
Unaudited -------------------------------------- Nine months ended September 30, -------------------------------------- 1997 1998 ----------------- ----------------- REVENUES $ 2,240,200 $ 2,364,500 ----------------- ----------------- OPERATING EXPENSES: Service costs 606,900 682,100 General and administrative expenses 180,000 259,000 General Partner management fees and reimbursed expenses 347,400 374,900 Depreciation and amortization 227,300 340,300 ----------------- ----------------- 1,361,600 1,656,300 ----------------- ----------------- OPERATING INCOME 878,600 708,200 ----------------- ----------------- OTHER INCOME (EXPENSE): Interest income 105,800 61,500 Interest expense (10,700) (10,800) Other income 13,200 - ----------------- ----------------- 108,300 50,700 ----------------- ----------------- NET INCOME $ 986,900 $ 758,900 ----------------- ----------------- ----------------- ----------------- Net income allocated to General Partners $ 9,900 $ 7,600 ----------------- ----------------- ----------------- ----------------- Net income allocated to Limited Partners $ 977,000 $ 751,300 ----------------- ----------------- ----------------- ----------------- NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST $ 32.64 $ 25.10 ----------------- ----------------- ----------------- ----------------- AVERAGE LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD 29,936 29,936 ----------------- ----------------- ----------------- -----------------
See accompanying notes to condensed financial statements. -4- ENSTAR INCOME PROGRAM II-1, L.P. STATEMENTS OF CASH FLOWS --------------------------------- ---------------------------------
Unaudited -------------------------------------- Nine months ended September 30, -------------------------------------- 1997 1998 ----------------- ----------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 986,900 $ 758,900 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 227,300 340,300 Increase (decrease) from changes in: Accounts receivable, prepaid expenses and other assets (276,400) (19,200) Accounts payable and due to affiliates 216,800 (207,100) ----------------- ----------------- Net cash provided by operating activities 1,154,600 872,900 ----------------- ----------------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,605,800) (655,000) Increase in intangible assets (10,500) (10,500) ----------------- ----------------- Net cash used in investing activities (1,616,300) (665,500) ----------------- ----------------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to partners (283,500) (283,500) ----------------- ----------------- DECREASE IN CASH AND CASH EQUIVALENTS (745,200) (76,100) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,849,600 1,778,300 ----------------- ----------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,104,400 $ 1,702,200 ----------------- ----------------- ----------------- -----------------
See accompanying notes to condensed financial statements. -5- ENSTAR INCOME PROGRAM II-1, L.P. NOTES TO CONDENSED FINANCIAL STATEMENTS --------------------------------- --------------------------------- 1. INTERIM FINANCIAL STATEMENTS The accompanying condensed interim financial statements for the three and nine months ended September 30, 1998 and 1997 are unaudited. These condensed interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Partnership's latest Annual Report on Form 10-K. In the opinion of management, such statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of such periods. The results of operations for the three and nine months ended September 30, 1998 are not necessarily indicative of results for the entire year. 2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES The Partnership has a management and service agreement with a wholly owned subsidiary of the Corporate General Partner (the "Manager") for a monthly management fee of 5% of revenues, excluding revenues from the sale of cable television systems or franchises. Management fee expense approximated $39,600 and $118,200 for the three and nine months ended September 30, 1998. In addition to the monthly management fee described above, the Partnership reimburses the Manager for direct expenses incurred on behalf of the Partnership and for the Partnership's allocable share of operational costs associated with services provided by the Manager. All cable television properties managed by the Corporate General Partner and its subsidiary are charged a proportionate share of these expenses. The Corporate General Partner has contracted with Falcon Communications, L.P. ("FCLP"), successor to Falcon Holding Group, L.P. ("FHGLP"), an affiliated partnership, to provide corporate management services for the Partnership. Corporate office allocations and district office expenses are charged to the properties served based primarily on the respective percentage of basic subscribers or homes passed (dwelling units within a system) within the designated service areas. The total amount charged to the Partnership for these services approximated $89,500 and $256,700 for the three and nine months ended September 30, 1998. Management fees and reimbursed expenses due the Corporate General Partner are non-interest bearing. Certain programming services have been purchased through an affiliate of the Partnership. In turn, the affiliate charged the Partnership for these costs based on an estimate of what the Corporate General Partner could negotiate for such programming services for the 15 partnerships managed by the Corporate General Partner as a group. The Partnership recorded programming fee expense of $174,100 and $511,400 for the three and nine months ended September 30, 1998. Programming fees are included in service costs in the statements of operations. In the future, programming services will be purchased through another source, which may include FHGLP or an affiliate of FHGLP. Programming rates may vary significantly in the near term as a result of the change. -6- 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- ENSTAR INCOME PROGRAM II-1, L.P. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Cable Act") required the Federal Communications Commission ("FCC") to, among other things, implement extensive regulation of the rates charged by cable television systems for basic and programming service tiers, installation, and customer premises equipment leasing. Compliance with those rate regulations has had a negative impact on the Partnership's revenues and cash flow. The Telecommunications Act of 1996 (the "1996 Telecom Act") substantially changed the competitive and regulatory environment for cable television and telecommunications service providers. Among other changes, the 1996 Telecom Act provides that the regulation of cable programming service tier ("CPST") rates will be terminated on March 31, 1999. Because cable service rate increases have continued to outpace inflation under the FCC's existing regulations, it is possible that Congress and the FCC will consider additional methods of regulating cable service rate increases, including deferral or repeal of the March 31, 1999 termination of CPST rate regulation. There can be no assurance as to what, if any, further action may be taken by the FCC, Congress or any other regulatory authority or court, or the effect thereof on the Partnership's business. Accordingly, the Partnership's historical financial results as described below are not necessarily indicative of future performance. This Report includes certain forward looking statements regarding, among other things, future results of operations, regulatory requirements, competition, capital needs and general business conditions applicable to the Partnership. Such forward looking statements involve risks and uncertainties including, without limitation, the uncertainty of legislative and regulatory changes and the rapid developments in the competitive environment facing cable television operators such as the Partnership. In addition to the information provided herein, reference is made to the Partnership's Annual Report on Form 10-K for the year ended December 31, 1997 for additional information regarding such matters and the effect thereof on the Partnership's business. RESULTS OF OPERATIONS The Partnership's revenues increased from $754,000 to $793,300, or by 5.2%, and from $2,240,200 to $2,364,500, or by 5.5%, for the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997. Of the $39,300 increase in revenues for the three months ended September 30, 1998, as compared to the corresponding period in 1997, $22,100 was due to increases in regulated service rates that were implemented by the Partnership in 1997, $11,900 was due to increases in other revenue producing items, including advertising sales revenue and charges for franchise fees that the Partnership is permitted to pass through to its customers, and $5,300 was due to increases in the number of subscriptions for basic service. Of the $124,300 increase in revenues for the nine months ended September 30, 1998, as compared to the corresponding period in 1997, $100,300 was due to increases in regulated service rates that were implemented by the Partnership in 1997 and $25,400 was due to increases in other revenue producing items as described above. The increase was partially offset by a $1,400 decrease due to decreases in the number of subscriptions for pay, tier and equipment rental services. As of September 30, 1998, the Partnership had approximately 7,300 basic subscribers and 1,400 premium service units. -8- ENSTAR INCOME PROGRAM II-1, L.P. RESULTS OF OPERATIONS (CONTINUED) Service costs increased from $174,200 to $229,800, or by 31.9%, and from $606,900 to $682,100, or by 12.4%, for the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997. Service costs represent costs directly attributable to providing cable services to customers. The increase was primarily due to decreases in capitalization of labor and overhead costs resulting from reductions in rebuild construction activity in the Taylorville, Illinois franchise area during the 1998 periods as compared to the 1997 periods. Higher programming fees also contributed to the increase. Programming expense increased primarily due to increases in rates charged by program suppliers. General and administrative expenses increased from $61,000 to $71,900, or by 17.9%, and from $180,000 to $259,000, or by 43.9%, for the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997. The increases were due to increases in marketing and telephone expenses. The increase for the nine months' period was also due to higher audit fees. Management fees and reimbursed expenses increased from $116,900 to $129,100, or by 10.4%, and from $347,400 to $374,900, or by 7.9%, for the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997. Management fees increased in direct relation to increased revenues as described above. Reimbursable expenses increased primarily due to higher allocated personnel costs resulting from staff additions and wage increases. Depreciation and amortization expense increased from $86,600 to $108,600, or by 25.4%, and from $227,300 to $340,300, or by 49.7%, for the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997. The increases were the result of placing into service the Taylorville, Illinois system rebuild. Operating income decreased from $315,300 to $253,900, or by 19.5%, and from $878,600 to $708,200, or by 19.4%, for the three and nine months ended September 30, 1998, as compared to the equivalent periods in 1997, principally due to increased depreciation and amortization expense and programming fees and decreased capitalization of labor and overhead costs as described above. Interest income decreased from $31,500 to $20,900, or by 33.7%, and from $105,800 to $61,500, or by 41.9%, for the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997. The decreases were primarily due to lower average cash balances available for investment. Due to the factors described above, the Partnership's net income decreased from $342,100 to $270,800, or by 20.8%, and from $986,900 to $758,900, or by 23.1%, for the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997. Based on its experience in the cable television industry, the Partnership believes that operating income before depreciation and amortization ("EBITDA") and related measures of cash flow serve as important financial analysis tools for measuring and comparing cable television companies in several areas, such as liquidity, operating performance and leverage. EBITDA is not a measurement determined under generally accepted accounting principles ("GAAP") and does not represent cash generated from operating activities in accordance with GAAP. EBITDA should not be considered by the reader as an alternative to net -9- ENSTAR INCOME PROGRAM II-1, L.P. RESULTS OF OPERATIONS (CONTINUED) income as an indicator of financial performance or as an alternative to cash flows as a measure of liquidity. In addition, the definition of EBITDA may not be identical to similarly titled measures used by other companies. EBITDA as a percentage of revenues decreased from 53.3% to 45.7% and from 49.4% to 44.3% during the three and nine months ended September 30, 1998 as compared to the corresponding periods in 1997. The decreases were primarily due to higher programming fees and decreased capitalization of labor and overhead costs as described above. EBITDA decreased from $401,900 to $362,500, or by 9.8%, and from $1,105,900 to $1,048,500, or by 5.2%, during the three and nine months ended September 30, 1998, as compared to the corresponding periods in 1997. LIQUIDITY AND CAPITAL RESOURCES The Partnership's primary objective, having invested its net offering proceeds in cable systems, is to distribute to its partners all available cash flow from operations and proceeds from the sale of cable systems, if any, after providing for expenses and capital requirements relating to the expansion, improvement and upgrade of its cable systems. At September 30, 1998, the Partnership had no debt outstanding. The Partnership relies upon cash flow from operations to meet operating requirements and fund necessary capital expenditures. Although the Partnership currently has a significant cash balance, there can be no assurance that the Partnership's cash flow will be adequate to meet its future liquidity requirements. The Partnership is required to rebuild its Taylorville, Illinois cable system at an estimated total cost of $2,500,000 under a provision of its franchise agreement and is also rebuilding portions of its cable systems in surrounding communities at an estimated additional cost of approximately $1,800,000. Construction costs related to the entire rebuild approximated $2,784,300 as of December 31, 1997. The Partnership has budgeted expenditures of approximately $1,500,000 in 1998 to complete the rebuild. Rebuild construction costs approximated $528,200 during the first nine months of 1998. Other capital expenditures in the nine months ended September 30, 1998 included approximately $126,800 for the improvement and upgrade of other assets. The Partnership is required to upgrade its system in the community of Gillespie, Illinois under a provision of its franchise agreement. Expenditures for the upgrade, beginning in 1999, are projected to total approximately $725,000. The Partnership expects to complete the project by the required deadline of December 31, 1999. Additionally, the Partnership is planning to upgrade its cable system in Litchfield, Illinois beginning in 1999 at an estimated cost of approximately $1,250,000. As a result of these planned capital expenditures, the Partnership intends, if possible, to maintain cash reserves. In the future, the Partnership may also need to borrow. On September 30, 1997, Enstar Finance Company, LLC ("EFC"), a subsidiary of the Corporate General Partner, obtained a secured bank facility of $35 million from two agent banks in order to obtain funds that would in turn be advanced to the Partnership and certain of the other partnerships managed by the Corporate General Partner. The Partnership's maximum loan commitment is approximately $799,600, which it will become eligible to borrow at such time as the Partnership enters into a loan agreement with EFC. The partnership agreement requires borrowings from an affiliate to be repaid within 12 months. Such funds would be used to provide capital to fund future rebuild and upgrade requirements. -10- ENSTAR INCOME PROGRAM II-1, L.P. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Borrowings, if any, will bear interest at the lender's base rate (8.25% at September 30, 1998) plus 0.625%, or at an offshore rate plus 1.875%. The Partnership will be permitted to prepay amounts outstanding under the facility at any time without penalty, and will be able to reborrow throughout the term of the facility up to the maximum commitment then available so long as no event of default exists. The facility will contain certain financial tests and other covenants including, among others, restrictions on incurrence of indebtedness, investments, sale of assets, acquisitions and other covenants, defaults and conditions. The facility will not restrict the payment of distributions to partners unless an event of default exists thereunder. The Partnership paid distributions totaling $94,500 and $283,500 during the three and nine months ended September 30, 1998, and expects to continue to pay distributions at this level during the remainder of 1998. There can, however, be no assurances regarding the level, timing or continuation of future distributions. Beginning in August 1997, the Partnership elected to self-insure its cable distribution plant and subscriber connections against property damage as well as possible business interruptions caused by such damage. The decision to self-insure was made due to significant increases in the cost of insurance coverage and decreases in the amount of insurance coverage available. While the Partnership made the election to self-insure for these risks based upon a comparison of historical damage sustained over the previous five years with the cost and amount of insurance currently available, there can be no assurance that future self-insured losses will not exceed prior costs of maintaining insurance for these risks. All of the Partnership's subscribers are served by its system in Taylorville, Illinois and neighboring communities. Significant damage to the system due to seasonal weather conditions or other events could have a material adverse effect on the Partnership's liquidity and cash flows. The Partnership continues to purchase insurance coverage in amounts its management views as appropriate for all other property, liability, automobile, workers' compensation and other types of insurable risks. In October 1998, the Partnership reinstated third party insurance coverage against damage to its cable distribution plant and subscriber connections and against business interruptions resulting from such damage. Although this coverage is subject to a significant annual deductible, the policy is intended to insure the Partnership against catastrophic losses, if any, in future periods. During the third quarter, the Corporate General Partner continued its identification and evaluation of the Partnership's Year 2000 business risks and its exposure to computer systems, to operating equipment which is date sensitive and to the interface systems of its vendors and service providers. The evaluation has focused on identification and assessment of systems and equipment that may fail to distinguish between the year 1900 and the year 2000 and, as a result, may cease to operate or may operate improperly when dates after December 31, 1999 are introduced. -11- ENSTAR INCOME PROGRAM II-1, L.P. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Based on a study conducted in 1997, the Corporate General Partner concluded that certain of the Partnership's information systems were not Year 2000 compliant and elected to replace such software and hardware with applications and equipment certified by the vendors as Year 2000 compliant. The Corporate General Partner expects to install substantially all of the new systems in the fourth quarter of 1998, with the remaining systems to be installed in the first half of 1999. The total anticipated cost, including replacement software and hardware, will be borne by FCLP. FCLP is utilizing internal and external resources to install the new systems. The Partnership does not believe that any other significant information technology ("IT") projects affecting the Partnership have been delayed due to efforts to identify and address Year 2000 issues. Additionally, the Partnership has inventoried its operating and revenue generating equipment to identify items that need to be upgraded or replaced and has surveyed cable equipment manufacturers to determine which of their models require upgrade or replacement to become Year 2000 compliant. Identification and evaluation are essentially completed and a plan is being developed to remediate non-compliant equipment prior to January 1, 2000. The Partnership expects to complete its planning process by the end of 1998. Upgrade or replacement, testing and implementation will be performed in 1999. The cost of such replacement or remediation, currently estimated at $60,000, is not expected to have a material effect on the Partnership's financial position or results of operations. The Partnership has not incurred any costs related to the Year 2000 project as of September 30, 1998. The Partnership plans to inventory, assess, replace and test equipment with embedded computer chips in a separate segment of its project, presently scheduled for 1999. The Partnership has continued to survey its significant third party vendors and service suppliers to determine the extent to which the Partnership's interface systems are vulnerable should those third parties fail to solve their own Year 2000 problems on a timely basis. Among the most significant service providers upon which the Partnership relies are programming suppliers, power and telephone companies, various banking institutions and the Partnership's customer billing service. A majority of these service suppliers either have not responded to the Partnership's inquiries regarding their Year 2000 compliance programs or have responded that they are unsure if they will become compliant on a timely basis. Consequently, there can be no assurance that the systems of other companies on which the Partnership must rely will be Year 2000 compliant on a timely basis. The Partnership expects to develop a contingency plan in 1999 to address possible situations in which various systems of the Partnership, or of third parties with which the Partnership does business, are not compliant prior to January 1, 2000. Considerable effort will be directed toward distinguishing between those contingencies with a greater probability of occurring from those whose occurrence is considered remote. Moreover, such a plan will necessarily focus on systems whose failure poses a material risk to the Partnership's results of operations and financial condition. The Partnership's most significant Year 2000 risk is an interruption of service to subscribers, resulting in a potentially material loss of revenues. Other risks include impairment of the Partnership's ability to bill and/or collect payment from its customers, which could negatively impact its liquidity and cash flows. Such risks exist primarily due to technological operations dependent upon third parties and to a much lesser extent to those under the control of the Partnership. Failure to achieve Year 2000 readiness in either area -12- ENSTAR INCOME PROGRAM II-1, L.P. LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) could have a material adverse impact on the Partnership. The Partnership is unable to estimate the possible effect on its results of operations, liquidity and financial condition should its significant service suppliers fail to complete their readiness programs prior to the Year 2000. Depending on the supplier, equipment malfunction or type of service provided, as well as the location and duration of the problem, the effect could be material. For example, if a cable programming supplier encounters an interruption of its signal due to a Year 2000 satellite malfunction, the Partnership will be unable to provide the signal to its cable subscribers, which could result in a loss of revenues. Due to the number of individually owned and operated channels the Partnership carries for its subscribers, and the packaging of those channels, the Partnership is unable to estimate any reasonable dollar impact of such interruption. NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997 Cash provided by operating activities decreased by $281,700 for the nine months ended September 30, 1998 as compared with the corresponding period in 1997. The Partnership used $423,900 more cash to pay liabilities owed to the Corporate General Partner and third party creditors during the nine months ended September 30, 1998 than in the first nine months of 1997 due to differences in the timing of payments. Receivables and prepaid expenses used $257,200 less cash in the nine months ended 1998 due to timing differences in receivable collections and in the payment of prepaid expenses. The Partnership used $950,800 less cash in investing activities in the nine months ended September 30, 1998 than in the corresponding nine months of 1997 due to a decrease in expenditures for tangible assets. INFLATION Certain of the Partnership's expenses, such as those for wages and benefits, equipment repair and replacement, and billing and marketing generally increase with inflation. However, the Partnership does not believe that its financial results have been, or will be, adversely affected by inflation in a material way, provided that the Partnership is able to increase its service rates periodically, of which there can be no assurance. -13- ENSTAR INCOME PROGRAM II-1, L.P. PART II. OTHER INFORMATION ITEMS 1-5. Not applicable. ITEM 6. Exhibits and Reports on Form 8-K (a) None. (b) No reports on Form 8-K were filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ENSTAR INCOME PROGRAM II-1, L.P. a GEORGIA LIMITED PARTNERSHIP ----------------------------- (Registrant) By: ENSTAR COMMUNICATIONS CORPORATION General Partner Date: November 13, 1998 By: /s/ Michael K. Menerey ----------------------------- Michael K. Menerey, Executive Vice President, Chief Financial Officer and Secretary EX-27 2 EXHIBIT 27
5 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. 1 9-MOS DEC-31-1998 SEP-30-1998 1,702,200 0 71,600 7,400 0 0 6,924,000 2,830,600 6,283,400 442,700 0 0 0 0 0 6,283,400 0 2,364,500 0 1,656,300 (61,500) 27,900 10,800 758,900 0 758,900 0 0 0 758,900 25.10 0
-----END PRIVACY-ENHANCED MESSAGE-----