SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-14508
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Enstar Income Program II-1, L.P.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1628877
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(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification Number)
12405 Powerscourt Drive
St. Louis, Missouri 63131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 965-0555
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- --------------------------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
2001 2000 *
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(UNAUDITED)
ASSETS
ASSETS:
Cash $ 1,447,700 $ 1,861,600
Accounts receivable, net of allowance for doubtful
accounts of $8,200 and $6,100, respectively 86,800 119,300
Prepaid expenses and other assets 11,600 37,000
Due from affiliates 344,800 41,400
Property, plant and equipment, net of accumulated
depreciation of $4,500,400 and $3,933,900, respectively 5,905,200 6,046,300
Franchise cost, net of accumulated
amortization of $69,300 and $59,700, respectively 53,000 56,100
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$ 7,849,100 $ 8,161,700
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 220,300 $ 633,100
Accrued liabilities 259,100 404,700
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479,400 1,037,800
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PARTNERSHIP CAPITAL (DEFICIT):
General Partners (200) (2,700)
Limited Partners 7,369,900 7,126,600
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TOTAL PARTNERSHIP CAPITAL 7,369,700 7,123,900
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$ 7,849,100 $ 8,161,700
=========== ===========
* Agrees with audited balance sheet included in the Partnership's
Annual Report on Form 10-K.
The accompanying notes are an integral part of these
condensed financial statements.
2
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
SEPTEMBER 30,
------------------------
2001 2000
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(UNAUDITED)
REVENUES $ 793,400 $ 812,100
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OPERATING EXPENSES:
Service costs 226,700 242,700
General and administrative expenses 94,000 91,900
General partner management fees and reimbursed expenses 131,200 145,600
Depreciation and amortization 196,600 159,500
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648,500 639,700
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OPERATING INCOME 144,900 172,400
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OTHER INCOME (EXPENSE):
Interest income 9,400 35,900
Interest expense (300) (1,200)
Other income 2,500 --
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11,600 34,700
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NET INCOME $ 156,500 $ 207,100
========= =========
Net income allocated to General Partners $ 1,600 $ 2,100
========= =========
Net income allocated to Limited Partners $ 154,900 $ 205,000
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 5.17 $ 6.85
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
========= =========
The accompanying notes are an integral part of these
condensed financial statements.
3
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2001 2000
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(UNAUDITED)
REVENUES $ 2,390,000 $ 2,429,300
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OPERATING EXPENSES:
Service costs 670,100 659,500
General and administrative expenses 243,900 232,500
General partner management fees and reimbursed expenses 378,300 389,500
Depreciation and amortization 576,100 442,700
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1,868,400 1,724,200
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OPERATING INCOME 521,600 705,100
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OTHER INCOME (EXPENSE):
Interest income 35,500 99,000
Interest expense (300) (6,500)
Other expense (28,500) --
----------- -----------
6,700 92,500
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NET INCOME $ 528,300 $ 797,600
=========== ===========
Net income allocated to General Partners $ 5,300 $ 8,000
=========== ===========
Net income allocated to Limited Partners $ 523,000 $ 789,600
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 17.47 $ 26.38
=========== ===========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 29,936 29,936
=========== ===========
The accompanying notes are an integral part of these
condensed financial statements.
4
ENSTAR INCOME PROGRAM II-1, L.P.
CONDENSED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------
2001 2000
----------- -----------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 528,300 $ 797,600
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation and amortization 576,100 442,700
Changes in:
Accounts receivable, prepaid expenses, other assets,
and due from affiliates (245,500) 17,100
Accounts payable and accrued liabilities (558,400) 237,400
----------- -----------
Net cash from operating activities 300,500 1,494,800
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (425,400) (707,800)
Increase in intangible assets (6,500) (2,000)
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Net cash from investing activities (431,900) (709,800)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (282,500) (282,500)
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Net cash from financing activities (282,500) (282,500)
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INCREASE (DECREASE) IN CASH (413,900) 502,500
CASH AT BEGINNING OF PERIOD 1,861,600 2,309,000
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CASH AT END OF PERIOD $ 1,447,700 $ 2,811,500
=========== ===========
The accompanying notes are an integral part of these
condensed financial statements.
5
ENSTAR INCOME PROGRAM II-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for Enstar Income
Program II-1, L.P. (the "Partnership") as of September 30, 2001, and for the
three and nine months ended September 30, 2001 and 2000, are unaudited. These
condensed interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in our Annual Report on
Form 10-K for the year ended December 31, 2000. In the opinion of management,
the condensed interim financial 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, 2001 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 (the "Management
Agreement") with Enstar Cable Corporation (the "Manager"). The Management
Agreement provides for a monthly management fee of 5% of gross revenues,
excluding revenues from the sale of cable television systems or franchises,
payable to the Manager. The Manager is a wholly owned subsidiary of Enstar
Communications Corporation (ECC), the corporate general partner. Management fee
expense approximated $39,700 and $40,600 for the three months ended September
30, 2001 and 2000, respectively, and $119,500 and $121,500 for the nine months
ended September 30, 2001 and 2000, respectively. Management fees are
non-interest bearing.
In addition to the monthly management fee, the Management Agreement also
provides that the Partnership reimburse 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.
Additionally, Charter Communications Holding Company, LLC and its affiliates
(collectively, "Charter") provide other management and operational services for
the Partnership. These expenses are charged to the properties served based
primarily on the Partnership's allocable share of operational costs associated
with the services provided. The total amount charged to the Partnership for
these services was $91,500 and $105,000 for the three months ended September 30,
2001 and 2000, respectively, and $258,800 and $268,000 for the nine months ended
September 30, 2001 and 2000, respectively.
Substantially all programming services have been purchased through Charter.
Charter charges the Partnership for these costs based on its actual costs. The
Partnership recorded programming fee expense of $174,200 and $169,100 for the
three months ended September 30, 2001 and 2000, respectively, and $516,000 and
$484,500 for the nine months ended September 30, 2001, and 2000, respectively.
Programming fees are included in service costs in the accompanying condensed
statements of operations.
The Partnership provides cable television signals to certain cable systems
in neighboring communities that are owned by other partnerships managed by ECC.
Such services are provided without fee.
3. NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST
Net income per unit of limited partnership interest is based on the average
number of units outstanding during the periods presented. For this purpose, net
income has 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.
6
ENSTAR INCOME PROGRAM II-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
4. PROPOSED SALES TRANSACTIONS
The Partnership, together with certain affiliates (collectively, the "Gans
Selling Partnerships"), entered into a purchase and sale agreement, dated as of
August 8, 2000, as amended as of September 29, 2000 (the "Agreement"), with
Multimedia Acquisition Corp., an affiliate of Gans Multimedia Partnership
("Gans"). The Agreement provided for Gans to acquire the assets comprising the
Partnership's Taylorville, Illinois cable system, as well as certain assets of
the other Gans Selling Partnerships.
Following a series of discussions and meetings, the Partnership and Gans
determined that they were not able to agree on certain further amendments to the
Agreement required to satisfy conditions precedent to close the transactions. In
light of these conditions and existing economic and financial market conditions,
and their impact on Gans' inability to arrange financing in order to close the
acquisitions, on April 18, 2001, the parties agreed to terminate the Agreement.
The Partnership, together with certain affiliates (collectively, the "Selling
Partnerships"), entered into an asset purchase agreement (the "Illinois
Agreement"), dated August 29, 2001, with certain indirect subsidiaries of
Charter, a related party, to sell the assets of the Illinois cable systems of
the Selling Partnerships. The Illinois Agreement was entered into as the result
of an auction process with sealed bids, in which the bid from Charter was for an
aggregate purchase price of $63.0 million and exceeded those of all other
bidders. The assets to be sold under the Illinois Agreement include the
Partnership's Taylorville cable system in and around Litchfield and Taylorville,
Illinois for a total purchase price of $14.7 million. Proceeds from the sale
will be used primarily for dissolution expenses and distributions to partners.
Each sale transaction outlined in the Illinois Agreement is contingent upon the
closing of each of the other Selling Partnerships' sales transactions. The sale
is subject to approval by a majority of the holders of the Partnership's
outstanding units, approval by the other Selling Partnerships of their
respective sales transactions and certain closing conditions, including
regulatory approvals. There can be no assurance that this proposed sale will be
consummated.
5. NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", No. 142, "Goodwill and Other Intangible Assets" and No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting. SFAS No. 141 is required to be implemented
for all acquisitions initiated after June 30, 2001 and all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001 or later. Adoption of SFAS No. 141 will not impact the consolidated
financial statements of the Partnership.
Under SFAS No. 142, goodwill and other indefinite lived intangible assets
are no longer subject to amortization over their useful lives, rather, they are
subject to at least annual assessments for impairment. Also, under SFAS No. 142,
an intangible asset should be recognized if the benefit of the intangible asset
is obtained through contractual or other legal rights or if the intangible asset
can be sold, transferred, licensed, rented or exchanged. Such intangibles will
be amortized over their useful lives. SFAS No. 142 will be implemented by the
Partnership on January 1, 2002 and all goodwill and intangible assets acquired
after June 30, 2001 will be immediately subject to the provisions of SFAS No.
142. Upon adoption, the Partnership will no longer amortize indefinite lived
intangible assets, which consist primarily of cable franchise operating rights.
The Partnership will test these assets for impairment at least annually. Other
than during any periods in which the Partnership may record a charge for
impairment, the Partnership expects that the adoption of SFAS No. 142 will
result in increased income as a result of reduced amortization expense. Based on
the Partnership's preliminary evaluation, the estimated amortization costs
incurred during the three and nine months ended September 30, 2001, which will
not be recurring costs subsequent to adoption, were $3,300 and $9,600,
respectively.
Under SFAS No. 143, the fair value of a liability for an asset retirement
obligation is required to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 will be implemented by the Partnership on January 1, 2002. Adoption
of SFAS No. 143 will not have a material impact on the consolidated financial
statements of the Partnership.
7
ENSTAR INCOME PROGRAM II-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and resolves
implementation issues related to SFAS No. 121. SFAS No. 144 will be implemented
by the Partnership on January 1, 2002. The Partnership is currently in process
of assessing the future impact of adoption of SFAS No. 144.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This report includes certain forward-looking statements regarding, among
other things, our 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 our Annual Report on Form 10-K for the
year ended December 31, 2000 for additional information regarding such matters
and the effect thereof on the Partnership's business.
RESULTS OF OPERATIONS
Revenues decreased from $812,100 to $793,400, or 2.3%, and from $2,429,300
to $2,390,000, or 1.6%, for the three and nine months ended September 30, 2001,
respectively, as compared to the corresponding periods in 2000. The decreases in
revenues were primarily due to a decline in the number of basic and premium
service customers. As of September 30, 2001 and 2000, we had approximately 6,400
and 6,700 basic service customers, respectively, and 1,100 and 1,700 premium
service customers, respectively.
Service costs decreased from $242,700 to $226,700, or 6.6%, and increased
from $659,500 to $670,100, or 1.6%, for the three and nine months ended
September 30, 2001, respectively, as compared to the corresponding periods in
2000. Service costs represent programming costs and other costs directly
attributable to providing cable services to customers. The decrease for the
three months ended September 30, 2001 is primarily due to the decline in
customers coupled with an increase in capitalized labor costs associated with
the rebuild and upgrade of the cable system, as compared to the corresponding
period in 2000. The increase for the nine months ended September 30, 2001 is
primarily due to increased programming costs coupled with higher maintenance and
other service costs incurred by the Partnership, as compared to the
corresponding period in 2000.
Gross margin decreased from $569,400 to $566,700, or 0.5%, and from
$1,769,800 to $1,719,900, or 2.8%, for the three and nine months ended September
30, 2001, respectively, as compared to the corresponding periods in 2000. As a
percentage of revenues, gross margin increased from 70.1% to 71.4%, and
decreased from 72.9% to 72.0%, for the three and nine months ended September 30,
2001, respectively, as compared to the corresponding periods in 2000. The
fluctuations in gross margin dollars and gross margin dollars as a percentage of
revenues were primarily due to the decrease in revenues coupled with the
fluctuations in service costs described above, as compared to the corresponding
periods in 2000.
General and administrative expenses increased from $91,900 to $94,000, or
2.3%, and from $232,500 to $243,900, or 4.9%, for the three and nine months
ended September 30, 2001, respectively, as compared to the corresponding periods
in 2000. The increases were primarily due to increases in professional fees, as
compared to the corresponding periods in 2000.
General partner management fees and reimbursed expenses decreased from
$145,600 to $131,200, or 9.9%, and from $389,500 to $378,300, or 2.9%, for the
three and nine months ended September 30, 2001, respectively, as compared to the
corresponding periods in 2000. The decreases were primarily due to a decrease in
the level of such services being provided and billed to the Partnership by
Charter.
Depreciation and amortization expense increased from $159,500 to $196,600,
or 23.3%, and from $442,700 to $576,100, or 30.1%, for the three and nine months
ended September 30, 2001, respectively, as compared to the corresponding periods
in 2000. The increases were due to asset additions for cable system upgrades in
2001 and throughout 2000.
Due to the factors described above, operating income decreased from $172,400
to $144,900, or 16.0%, and from $705,100 to $521,600, or 26.0%, for the three
and nine months ended September 30, 2001, respectively, as compared to the
corresponding periods in 2000.
Interest income, net of interest expense, decreased from $34,700 to $9,100,
or 73.8%, and from $92,500 to $35,200, or 61.9%, for the three and nine months
ended September 30, 2001, respectively, as compared to the corresponding periods
in 2000. The decreases are primarily due to lower average cash balances
available for investment during the three and nine months ended September 30,
2001.
9
Other income of $2,500 and other expense of $28,500 for the three and nine
months ended September 30, 2001, respectively, represent other income and costs
associated with the termination of the Agreements with Gans.
Due to the factors described above, net income decreased from $207,100 to
$156,500 or 24.4%, and from $797,600 to $528,300, or 33.8%, for the three and
nine months ended September 30, 2001, respectively, as compared to the
corresponding periods in 2000.
Based on our experience in the cable television industry, we believe that
income before interest, income taxes, depreciation and amortization, or 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 decreased from
$1,147,800 to $1,069,200, or 6.8%, for the nine months ended September 30, 2001,
as compared to the corresponding period in 2000. EBITDA as a percentage of
revenues decreased from 47.2% to 44.7%, during the nine months ended September
30, 2001, as compared to the corresponding period in 2000. The decrease was
related to the changes in revenues and expenses as described above.
LIQUIDITY AND CAPITAL RESOURCES
Our primary objective is to distribute to our 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 such cable systems.
Operating activities provided $300,500 and $1,494,800 cash in the nine
months ended September 30, 2001 and 2000, respectively. Changes in receivables,
due from affiliates, and prepaid expenses and other assets used $245,500 and
provided $17,100 cash during the nine months ended September 30, 2001 and 2000,
respectively, primarily due to fluctuations in the amount owed from affiliates.
We used $558,400 and provided $237,400 cash to pay liabilities owed to
affiliates and third party creditors during the nine months ended September 30,
2001 and 2000, respectively. We used $431,900 and $709,800 cash in investing
activities during the nine months ended September 30, 2001 and 2000,
respectively, on capital expenditures for systems upgrades. Cash used in
financing activities of $282,500 and $282,500 represent distributions to
partners during the nine months ended September 30, 2001 and 2000, respectively.
FINANCING ACTIVITIES
At September 30, 2001, the Partnership had no debt outstanding. The
Partnership relies upon cash flow from operations to meet liquidity requirements
and fund necessary capital expenditures. Although the Partnership currently
maintains a cash balance, there can be no assurance that the Partnership's
future cash flows combined with available cash balances will be adequate to meet
its future liquidity requirements or to fund future capital expenditures. The
Partnership has upgraded its cable system in Litchfield, Illinois under a
provision of the franchise agreement. Total capital expenditures related to the
cable system upgrade in Litchfield, Illinois during 2000 and the nine months
ended September 30, 2001 approximated $1,600,000 million.
We paid distributions to partners totaling $282,500 and $282,500 during the
nine months ended September 30, 2001 and 2000, respectively, and expect to
continue to pay distributions at approximately this level during 2001. There
can, however, be no assurances regarding the level, timing or continuation of
future distributions.
PROPOSED SALES TRANSACTIONS
The Partnership, together with certain affiliates (collectively, the "Gans
Selling Partnerships"), entered into a purchase and sale agreement, dated as of
August 8, 2000, as amended as of September 29, 2000 (the "Agreement"), with
Multimedia Acquisition Corp., an affiliate of Gans Multimedia Partnership
("Gans"). The Agreement provided for Gans to acquire the assets comprising the
Partnership's Taylorville, Illinois cable system, as well as certain assets of
the other Gans Selling Partnerships.
Following a series of discussions and meetings, the Partnership and Gans
determined that they were not able to agree on certain further amendments to the
Agreement required to satisfy conditions precedent to close the transactions. In
light of these conditions and existing economic and financial market conditions,
and their impact on Gans' inability to arrange financing in order to close the
acquisitions, on April 18, 2001 the parties agreed to terminate the Agreement.
10
The Partnership, together with certain affiliates (collectively, the
"Selling Partnerships"), entered into an asset purchase agreement (the "Illinois
Agreement"), dated August 29, 2001, with certain indirect subsidiaries of
Charter, a related party, to sell the assets of the Illinois cable systems of
the Selling Partnerships. The Illinois Agreement was entered into as the result
of an auction process with sealed bids, in which the bid from Charter was for an
aggregate purchase price of $63.0 million and exceeded those of all other
bidders. The assets to be sold under the Illinois Agreement include the
Partnership's Taylorville cable system in and around Litchfield and Taylorville,
Illinois for a total purchase price of $14.7 million. Proceeds from the sale
will be used primarily for dissolution expenses and distributions to partners.
Each sale transaction outlined in the Illinois Agreement is contingent upon the
closing of each of the other Selling Partnerships' sales transactions. The sale
is subject to approval by a majority of the holders of the Partnership's
outstanding units, approval by the other Selling Partnerships of their
respective sales transactions and certain closing conditions, including
regulatory approvals. There can be no assurance that this proposed sale will be
consummated.
The Partnership maintains insurance coverage for all of the cable television
properties owned or managed by it to cover damage to cable distribution plant
and customer 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 Charter,
including those of the Partnership.
All of our customers are served by our 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 our
liquidity and cash flows. We continue to purchase insurance coverage in amounts
our management views as appropriate for all other property, liability,
automobile, workers' compensation and other insurable risks.
NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
"Business Combinations", No. 142, "Goodwill and Other Intangible Assets" and No.
143, "Accounting for Asset Retirement Obligations." SFAS No. 141 requires all
business combinations initiated after June 30, 2001 to be accounted for using
the purchase method of accounting. SFAS No. 141 is required to be implemented
for all acquisitions initiated after June 30, 2001 and all business combinations
accounted for using the purchase method for which the date of acquisition is
July 1, 2001 or later. Adoption of SFAS No. 141 will not impact the consolidated
financial statements of the Partnership.
Under SFAS No. 142, goodwill and other indefinite lived intangible assets
are no longer subject to amortization over their useful lives, rather, they are
subject to at least annual assessments for impairment. Also, under SFAS No. 142,
an intangible asset should be recognized if the benefit of the intangible asset
is obtained through contractual or other legal rights or if the intangible asset
can be sold, transferred, licensed, rented or exchanged. Such intangibles will
be amortized over their useful lives. SFAS No. 142 will be implemented by the
Partnership on January 1, 2002 and all goodwill and intangible assets acquired
after June 30, 2001 will be immediately subject to the provisions of SFAS No.
142. Upon adoption, the Partnership will no longer amortize indefinite lived
intangible assets, which consist primarily of cable franchise operating rights.
The Partnership will test these assets for impairment at least annually. Other
than during any periods in which the Partnership may record a charge for
impairment, the Partnership expects that the adoption of SFAS No. 142 will
result in increased income as a result of reduced amortization expense. Based on
the Partnership's preliminary evaluation, the estimated amortization costs
incurred during the three and nine months ended September 30, 2001, which will
not be recurring costs subsequent to adoption, were $3,300 and $9,600,
respectively.
Under SFAS No. 143, the fair value of a liability for an asset retirement
obligation is required to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the long-lived asset.
SFAS No. 143 will be implemented by the Partnership on January 1, 2002. Adoption
of SFAS No. 143 will not have a material impact on the consolidated financial
statements of the Partnership.
In August 2001, the Financial Accounting Standards Board issued SFAS No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No.
144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of and supersedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 establishes a single
accounting model for long-lived assets to be disposed of by sale and resolves
implementation issues related to SFAS No. 121. SFAS No. 144 will be implemented
by the Partnership on January 1, 2002. The Partnership is currently in process
of assessing the future impact of adoption of SFAS No. 144.
11
OTHER EVENTS
Effective October 30, 2001, Carl E. Vogel was appointed to replace Steven A.
Schumm as the sole director of Enstar Communications Corporation, the
Partnership's corporate general partner.
ECONOMIC SLOWDOWN; TERRORISM; AND ARMED CONFLICT
Although we do not believe that the recent terrorist attacks and the
subsequent armed conflict and related events have resulted in any material
changes to the Partnership's business and operations for the period ended
September 30, 2001, it is difficult to assess the impact that these events,
combined with the general economic slowdown, will have on future operations.
These events, combined with the general economic slowdown, could result in
reduced spending by customers and advertisers, which could reduce our revenues
and operating cash flow. Additionally, an economic slowdown could affect our
ability to collect accounts receivable. If we experience reduced operating
revenues, it could negatively affect our ability to make expected capital
expenditures and our ability to obtain financing at reasonable rates, if at all.
Terrorist attacks could interrupt or disrupt our ability to deliver our services
(or the services provided to us by programmers) and could cause unforeseen
damage to the Partnership's physical facilities. Terrorism and the related
events may have other adverse effects on the Partnership, in ways that cannot be
presently predicted.
INFLATION
Certain of our expenses, such as those for wages and benefits, equipment
repair and replacement, and billing and marketing generally increase with
inflation. However, we do not believe that our financial results have been, or
will be, adversely affected by inflation in a material way, provided that we are
able to increase our service rates periodically, of which there can be no
assurance.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
None.
(B) REPORTS ON FORM 8-K
On September 13, 2001, the Registrant filed a current report on Form
8-K to announce its asset purchase agreement with certain indirect
subsidiaries of Charter Communications, Inc.
On October 9, 2001, the Registrant filed a current report on Form 8-K
to announce the resignation of Jerry Kent, President and Chief
Executive Officer of Charter Communications, Inc. Effective
concurrently with Mr. Kent's resignation, Steven A. Schumm, Executive
Vice President and Assistant to the President, will serve as the sole
director of Enstar Communications Corporation, the Partnership's
corporate general partner.
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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, 2001 By: /s/ Paul E. Martin
----------------------------------
Paul E. Martin, Vice President and
Corporate Controller (Principal
Financial Officer for Partnership Matters)
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