<PAGE> 1
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 March 31, 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 0-15705
-------
Enstar Income Program IV-1, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1648322
- ------------------------------- -----------------------
(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
----- -----
<PAGE> 2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM IV-1, L.P.
CONDENSED BALANCE SHEETS
================================
<TABLE>
<CAPTION>
December 31, March 31,
1997* 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 117,300 $ 14,900
Prepaid expenses 3,400 2,300
----------- -----------
Equity in net assets of Joint Ventures:
Enstar IV/PBD Systems Venture 1,415,500 1,623,100
Enstar Cable of Macoupin County 708,600 749,800
----------- -----------
2,124,100 2,372,900
----------- -----------
Deferred loan costs, net 46,500 44,000
----------- -----------
$ 2,291,300 $ 2,434,100
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 23,600 $ 9,000
Due to affiliates 10,800 11,600
----------- -----------
TOTAL LIABILITIES 34,400 20,600
----------- -----------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (60,700) (59,100)
Limited partners 2,317,600 2,472,600
----------- -----------
TOTAL PARTNERSHIP CAPITAL 2,256,900 2,413,500
----------- -----------
$ 2,291,300 $ 2,434,100
=========== ===========
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE> 3
ENSTAR INCOME PROGRAM IV-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==================================
<TABLE>
<CAPTION>
Unaudited
----------------------------
Three months ended
March 31,
--------- ---------
1997 1998
--------- ---------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (6,700) $ (7,600)
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 3,900 600
Interest expense (27,200) (9,000)
--------- ---------
(23,300) (8,400)
--------- ---------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (30,000) (16,000)
--------- ---------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 234,700 257,600
Enstar Cable of Macoupin County 38,300 41,200
--------- ---------
273,000 298,800
--------- ---------
NET INCOME $ 243,000 $ 282,800
========= =========
Net income allocated to General Partners $ 2,400 $ 2,800
========= =========
Net income allocated to Limited Partners $ 240,600 $ 280,000
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 6.02 $ 7.00
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,982 39,982
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE> 4
ENSTAR INCOME PROGRAM IV-1, L.P.
STATEMENTS OF CASH FLOWS
================================
<TABLE>
<CAPTION>
Unaudited
----------------------------
Three months ended
March 31,
----------------------------
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 243,000 $ 282,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Joint Ventures (273,000) (298,800)
Amortization of deferred loan costs 4,000 3,100
Increase (decrease) from changes in:
Prepaid expenses (400) 1,100
Accounts payable and due to affiliates (2,100) (13,800)
--------- ---------
Net cash used in operating activities (28,500) (25,600)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Ventures 10,000 50,000
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (126,200) (126,200)
Deferred loan costs -- (600)
--------- ---------
Net cash used in financing activities (126,200) (126,800)
--------- ---------
DECREASE IN CASH AND CASH
EQUIVALENTS (144,700) (102,400)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 406,700 117,300
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 262,000 $ 14,900
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE> 5
ENSTAR INCOME PROGRAM IV-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the
three months ended March 31, 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 months ended March 31, 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 (the
"Agreement") with a wholly-owned subsidiary of the Corporate General Partner
(the "Manager") pursuant to which it pays a monthly management fee of 5% of
gross revenues. The Agreement also provides that the Partnership will reimburse
the Manager for (i) direct expenses incurred on behalf of the Partnership and
(ii) for the Partnership's allocable share of the Manager's operational costs.
The Corporate General Partner has contracted with Falcon Holding Group, L.P.
("FHGLP"), an affiliated partnership, to provide corporate management services
for the Partnership and Joint Ventures. Corporate office allocations and
district office expenses are charged to the properties served based primarily on
the respective percentage of basic subscribers within the designated service
areas. No such costs and expenses were incurred or charged to the Partnership
for these services during the three months ended March 31, 1998. The Manager has
entered into identical agreements with Enstar IV/PBD Systems Venture and Enstar
Cable of Macoupin County (both Georgia general partnerships, of which the
Partnership is a co-general partner - herein referred to as the "Joint
Ventures"), except that Enstar Cable of Macoupin County (the "Macoupin Joint
Venture") pays the Manager only a 4% management fee. However, the Macoupin Joint
Venture is required to distribute to Enstar Communications Corporation (which is
the Corporate General Partner of the Macoupin Joint Venture as well as of the
Partnership) an amount equal to 1% of the Joint Venture's gross revenues in
respect of Enstar Communications Corporation's interest as the Corporate General
Partner of the Joint Venture. No management fee is payable by the Partnership in
respect of any amounts received by the Partnership from the Joint Ventures, and
there is no duplication of reimbursed expenses or costs of the Manager. The
Joint Ventures paid the Manager management fees of approximately $90,200 and
reimbursement of expenses of approximately $120,900 under the management
agreements for the three months ended March 31, 1998. In addition, the Macoupin
Joint Venture paid the Corporate General Partner approximately $5,000 in respect
of its 1% special interest during the three months ended March 31, 1998.
Management fees and reimbursed expenses due the Corporate General Partner are
non-interest bearing.
The Joint Ventures also receive 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
the Joint Ventures' cable systems. The Joint Ventures reimburse the affiliate
for their allocable share of the affiliate's operational costs. The total amount
charged to the Joint Ventures for these costs approximated $36,300 in the three
months ended March 31, 1998. No management fee is payable to
-5-
<PAGE> 6
ENSTAR INCOME PROGRAM IV-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
the affiliate by the Joint Ventures and there is no duplication of reimbursed
expenses and costs paid to the Manager.
Certain programming services have been purchased through an
affiliate of the Joint Ventures. In turn, the affiliate charges the Joint
Ventures 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 Joint Ventures recorded
programming fee expense of $439,400 for the three months ended March 31, 1998.
Programming fees are included in service costs in the statements of operations.
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.
4. RECLASSIFICATIONS
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
-6-
<PAGE> 7
ENSTAR INCOME PROGRAM IV-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
5. EQUITY IN NET ASSETS OF JOINT VENTURES
ENSTAR IV/PBD SYSTEMS VENTURE
Each of the Partnership and an affiliated partnership (Enstar Income
Program IV-2, L.P.) owns 50% of Enstar IV/PBD Systems Venture (the "PBD Joint
Venture"). Each partnership shares equally in the profits and losses of the PBD
Joint Venture. The investment in the PBD Joint Venture is accounted for on the
equity method. Summarized financial information for the PBD Joint Venture as of
March 31, 1998 and December 31, 1997, and the results of its operations for the
three months ended March 31, 1998 and 1997, have been included. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, March 31,
1997* 1998
------------ ----------
(Unaudited)
<S> <C> <C>
Current assets $1,864,600 $2,257,000
Investment in cable television properties, net 1,655,700 1,580,900
Other assets 38,100 30,700
---------- ----------
$3,558,400 $3,868,600
========== ==========
Current liabilities $ 727,400 $ 622,400
Venturers' capital 2,831,000 3,246,200
---------- ----------
$3,558,400 $3,868,600
========== ==========
</TABLE>
*As presented in the audited financial statements.
-7-
<PAGE> 8
ENSTAR INCOME PROGRAM IV-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
ENSTAR IV/PBD SYSTEMS VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
-------------------------------
Three months ended
March 31,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
REVENUES $ 1,383,400 $ 1,407,100
----------- -----------
OPERATING EXPENSES:
Service costs 465,000 470,800
General and administrative expenses 166,500 183,600
General Partner management fees and reimbursed expenses 147,900 140,000
Depreciation and amortization 162,900 113,000
----------- -----------
942,300 907,400
----------- -----------
OPERATING INCOME 441,100 499,700
OTHER INCOME (EXPENSE):
Interest income 28,400 20,900
Interest expense -- (5,400)
----------- -----------
NET INCOME $ 469,500 $ 515,200
=========== ===========
</TABLE>
-8-
<PAGE> 9
ENSTAR INCOME PROGRAM IV-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
ENSTAR CABLE OF MACOUPIN COUNTY
Each of the Partnership and two affiliated partnerships (Enstar
Income Program IV-2, L.P. and Enstar Income Program IV-3, L.P.) owns one-third
(1/3) of the Macoupin Joint Venture. Each of the co-partners shares equally in
the profits and losses of the Macoupin Joint Venture. The investment in the
Macoupin Joint Venture is accounted for on the equity method. Summarized
financial information for the Macoupin Joint Venture as of March 31, 1998 and
December 31, 1997, and the results of its operations for the three months ended
March 31, 1998 and 1997, have been included. The results of operations for the
three months ended March 31, 1998 are not necessarily indicative of results for
the entire year.
<TABLE>
<CAPTION>
December 31, March 31,
1997* 1998
------------ ----------
(Unaudited)
<S> <C> <C>
Current assets $ 893,900 $ 858,700
Investment in cable television properties, net 1,667,100 1,639,100
Other assets 3,000 3,200
---------- ----------
$2,564,000 $2,501,000
========== ==========
Current liabilities $ 438,200 $ 251,700
Venturers' capital 2,125,800 2,249,300
---------- ----------
$2,564,000 $2,501,000
========== ==========
</TABLE>
*As presented in the audited financial statements.
-9-
<PAGE> 10
ENSTAR INCOME PROGRAM IV-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
ENSTAR CABLE OF MACOUPIN COUNTY (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
----------------------------
Three months ended
March 31,
----------------------------
1997 1998
--------- ---------
<S> <C> <C>
REVENUES $ 481,600 $ 496,900
--------- ---------
OPERATING EXPENSES:
Service costs 130,000 161,300
General and administrative expenses 14,100 43,200
General Partner management fees and reimbursed expenses 71,200 76,100
Depreciation and amortization 154,600 94,800
--------- ---------
369,900 375,400
--------- ---------
OPERATING INCOME 111,700 121,500
OTHER INCOME (EXPENSE):
Interest income 5,700 4,800
Interest expense (2,400) (2,800)
--------- ---------
NET INCOME $ 115,000 $ 123,500
========= =========
</TABLE>
-10-
<PAGE> 11
ENSTAR INCOME PROGRAM IV-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, the
Partnership expects Congress and the FCC to explore 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.
All of the Partnership's cable television business operations are
conducted through its participation as a general partner in both the PBD Joint
Venture and the Macoupin Joint Venture. The Partnership has a 50% interest in
the PBD Joint Venture and a one-third (1/3) interest in the Macoupin Joint
Venture. The PBD Joint Venture is owned equally by the Partnership and an
affiliated partnership (Enstar Income Program IV-2, L.P.). The Macoupin Joint
Venture is owned equally by the Partnership and two affiliated partnerships
(Enstar Income Program IV-2, L.P. and Enstar Income Program IV-3, L.P.). The
Partnership participates in the Joint Ventures equally with its co-partners,
based on its proportionate interest, with respect to capital contributions,
obligations and commitments, and results of operations. Accordingly, in
considering the financial condition and results of operations of the
Partnership, consideration must also be made of those matters as they relate to
the Joint Ventures. The following discussion reflects such consideration, and
with respect to Results of Operations, a separate discussion is provided for
each entity.
-11-
<PAGE> 12
ENSTAR INCOME PROGRAM IV-1, L.P.
RESULTS OF OPERATIONS
THE PARTNERSHIP
As discussed above, all of the Partnership's cable television
business operations are conducted through its participation as a partner in the
Joint Ventures. The PBD Joint Venture made distributions totaling $50,000 to the
Partnership and the Partnership distributed $126,200 to its partners during the
three months ended March 31, 1998. The Macoupin Joint Venture did not make
distributions to the Partnership during the quarter ended March 31, 1998.
THE PBD JOINT VENTURE
The PBD Joint Venture's revenues increased from $1,383,400 to
$1,407,100, or by 1.7%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. Of the $23,700 increase, $47,800 was due to
increases in regulated service rates that were implemented by the Joint Venture
in 1997 and $10,900 was due to increases in other revenue producing items. These
increases were partially offset by a decrease of $35,000 due to decreases in the
number of subscriptions for basic, premium, tier and equipment rental services.
As of March 31, 1998, the PBD Joint Venture had approximately 13,400 basic
subscribers and 3,800 premium service units.
Service costs increased from $465,000 to $470,800, or by 1.2%, for
the three months ended March 31, 1998 as compared to the corresponding period in
1997. Service costs represent costs directly attributable to providing cable
services to customers. The increase was principally due to decreased
capitalization of labor and overhead costs resulting from fewer capital projects
in the 1998 period. The increase was also due to higher programming and
franchise fees. Programming expense increased as a result of higher rates
charged by program suppliers. Franchise fees increased in direct relation to
increased revenues as described above.
General and administrative expenses increased from $166,500 to
$183,600, or by 10.3%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. The increase was primarily due to increases in
marketing expense and certain insurance premiums.
Management fees and reimbursed expenses decreased from $147,900 to
$140,000, or by 5.3%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. Management fees increased in direct relation
to increased revenues as described above. Reimbursed expenses decreased due to
lower allocated personnel costs.
Operating income before income taxes, depreciation and amortization
(EBITDA) is a commonly used financial analysis tool for measuring and comparing
cable television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA as a percentage of revenues decreased from
43.7% to 43.5% for the three months ended March 31, 1998 as compared to the
corresponding period in 1997. The decrease for the quarter was principally
attributable to decreases in capitalization of labor and overhead costs and
increased marketing expenses. EBITDA increased from $604,000 to $612,700, or by
1.4%, for the three months ended March 31, 1998 as compared to the corresponding
period in 1997. EBITDA should be considered in addition to and not as a
substitute for net income and cash flows determined in accordance with generally
accepted accounting principles as an indicator of financial performance and
liquidity.
-12-
<PAGE> 13
ENSTAR INCOME PROGRAM IV-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Depreciation and amortization expense decreased from $162,900 to
$113,000, or by 30.6%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997 due to the effect of certain tangible assets
becoming fully depreciated in 1997.
Operating income increased from $441,100 to $499,700, or by 13.3%,
for the three months ended March 31, 1998 as compared to the corresponding
period in 1997, primarily due to decreased depreciation and amortization expense
and increased revenues as described above.
Interest income, net of interest expense, decreased from $28,400 to
$15,500, or by 45.4%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. The decrease was primarily due to lower cash
balances available for investment.
Due to the factors described above, the PBD Joint Venture's net
income increased from $469,500 to $515,200, or by 9.7%, for the three months
ended March 31, 1998 as compared to the corresponding period in 1997.
MACOUPIN JOINT VENTURE
The Macoupin Joint Venture's revenues increased from $481,600 to
$496,900, or by 3.2%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. Of the $15,300 increase, $32,400 was due to
increases in regulated service rates that were implemented by the Macoupin Joint
Venture in 1997 and $3,100 was due to increases in other revenue producing
items. These increases were partially offset by a decrease of $20,200 due to
decreases in the number of subscriptions for basic, premium and tier services.
As of March 31, 1998, the Macoupin Joint Venture had approximately 4,400 basic
subscribers and 1,400 premium service units.
Service costs increased from $130,000 to $161,300, or by 24.1%, for
the three months ended March 31, 1998 as compared to the corresponding period in
1997. Service costs represent costs directly attributable to providing cable
services to customers. The increase was principally due to decreased
capitalization of labor and overhead costs due to fewer capital projects in the
1998 period and higher programming fees and personnel costs. Programming expense
increased as a result of higher rates charged by program suppliers. Personnel
costs increased due to staff additions.
General and administrative expenses increased from $14,100 to
$43,200 for the three months ended March 31, 1998 as compared to the
corresponding period in 1997. The increase was principally due to an increase of
$11,100 in bad debt expense and a decrease of $11,100 in capitalization of labor
and overhead costs resulting from reductions in rebuild construction activity in
the Auburn, Illinois franchise during the first quarter of 1998.
Management fees and reimbursed expenses increased from $71,200 to
$76,100, or by 6.9%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. Management fees increased in direct relation
to increased revenues as described above. Reimbursed expenses increased
primarily due to higher allocated personnel costs.
-13-
<PAGE> 14
ENSTAR INCOME PROGRAM IV-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Operating income before income taxes, depreciation and amortization
(EBITDA) is a commonly used financial analysis tool for measuring and comparing
cable television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA as a percentage of revenues decreased from
55.3% to 43.5% for the three months ended March 31, 1998 as compared to the
corresponding period in 1997. The three months' decrease was primarily due to
lower capitalization of labor and overhead costs and higher bad debt expense as
described above. EBITDA decreased from $266,300 to $216,300, or by 18.8%, for
the three months ended March 31, 1998 as compared to the corresponding period in
1997. EBITDA should be considered in addition to and not as a substitute for net
income and cash flows determined in accordance with generally accepted
accounting principles as an indicator of financial performance and liquidity.
Depreciation and amortization expense decreased from $154,600 to
$94,800, or by 38.7%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. The decrease for the quarter was due to
certain intangible assets becoming fully amortized.
Operating income increased from $111,700 to $121,500, or by 8.8%,
for the three months ended March 31, 1998 as compared to the corresponding
period in 1997. The increase for the quarter was primarily due to increased
revenues and decreased depreciation and amortization expense.
Interest income, net of interest expense, decreased from $3,300 to
$2,000, or by 39.4%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. The decrease was due to lower average cash
balances available for investment in 1998.
Due to the factors described above, the Macoupin Joint Venture's net
income increased from $115,000 to $123,500, or by 7.4%, for the three months
ended March 31, 1998 as compared to the corresponding period in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net
offering proceeds in the Joint Ventures, is to distribute to its partners all
available cash flow from operations and proceeds from the sale of cable systems,
after providing for expenses, debt service and capital requirements relating to
the expansion, improvement and upgrade of the Joint Ventures' cable systems. The
Joint Ventures rely upon the availability of cash generated from operations and
possible borrowings to fund their ongoing capital requirements. In general,
these requirements involve expansion, improvement and upgrade of the Joint
Ventures' existing cable television systems. The Macoupin Joint Venture is
required to rebuild its Auburn, Illinois cable system at an estimated total cost
of $456,000 as a condition of its franchise agreement. Capital expenditures
related to the rebuild totaled approximately $430,900 as of December 31, 1997.
The Macoupin Joint Venture has budgeted additional expenditures of $25,000 in
1998 to complete the rebuild. The Macoupin Joint Venture is also rebuilding
portions of its cable systems in surrounding communities at an estimated
additional cost of approximately $1,500,000. Capital expenditures in the
surrounding communities approximated $876,600 as of December 31, 1997. The
Macoupin Joint Venture has budgeted additional expenditures of $635,000 in 1998
to complete the rebuild. Expenditures related to the total rebuild approximated
$35,600 in the first quarter of 1998.
-14-
<PAGE> 15
ENSTAR INCOME PROGRAM IV-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Macoupin Joint Venture also expects to upgrade its cable plant
in Girard and Carlinville, Illinois beginning in 1999 at an estimated cost of
approximately $2.4 million. The PBD Joint Venture postponed the upgrade of its
Mt. Carmel, Illinois cable system that had been budgeted for 1997 pending
renewal of the franchise agreement. The PBD Joint Venture has budgeted
approximately $1.2 million and $7.3 million to upgrade its Mt. Carmel, Illinois
and Poplar Bluff, Missouri cable systems, respectively, beginning in 1998,
provided franchise renewals are obtained and adequate funds are available. The
PBD Joint Venture and Macoupin Joint Venture have budgeted expenditures of
$180,000 and $75,000, respectively, to upgrade other assets in 1998. Such
expenditures approximated $24,800 and $18,100, respectively, in the first
quarter of 1998.
As discussed in prior reports, the Joint Ventures postponed a number
of rebuild and upgrade projects because of the uncertainty related to
implementation of the 1992 Cable Act and the negative impact thereof on the
Joint Ventures' businesses and access to capital. Although the Joint Ventures
are presently rebuilding a number of their cable systems, a majority of their
customers are served by systems that have not been rebuilt. As a result, these
systems are significantly less technically advanced than had been expected prior
to the implementation of reregulation. The Joint Ventures believe that the
delays in upgrading many of their systems have had an adverse effect on the
value of those systems compared to systems that have been rebuilt to a higher
technical standard.
On September 30, 1997, the Partnership entered into a loan agreement
with Enstar Finance Company, LLC ("EFC"), a subsidiary of the Corporate General
Partner, for a revolving loan facility of $3,331,800 (the "Facility"). The
Partnership expects to use borrowings under the Facility for the rebuild and
upgrade of the Joint Ventures' systems. The Partnership used available cash to
repay outstanding borrowings of $808,900 and related interest expense under its
previous credit facility. No advances had been made under the new Facility as of
the date of this Report.
The Partnership's Facility will terminate on August 31, 2001, at
which time all funds previously advanced will be due in full. Borrowings bear
interest at the lender's base rate (8.5% at March 31, 1998) plus 0.625%, or at
an offshore rate plus 1.875%. The Partnership is permitted to prepay amounts
outstanding under the Facility at any time without penalty, and is able to
reborrow throughout the term of the Facility up to the maximum commitment then
available so long as no event of default exists. If the Partnership has excess
cash flow and its ratio of debt to cash flow exceeds 4.25 to 1, or it receives
proceeds from sales of its assets in excess of a specified amount, the
Partnership is required to make mandatory prepayments under its Facility. Such
prepayments permanently reduce the maximum commitment under the Facility.
The Facility contains certain financial tests and other covenants
including, among others, restrictions on incurrence of indebtedness,
investments, sales of assets, acquisitions and other covenants, defaults and
conditions. The Facility does not restrict the payment of distributions to
partners unless an event of default exists thereunder or the ratio of debt to
cash flow is greater than 4 to 1.
-15-
<PAGE> 16
ENSTAR INCOME PROGRAM IV-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Partnership paid distributions totaling $126,200 during the
three months ended March 31, 1998. However, there can be no assurance regarding
the level, timing or continuation of future distributions.
Beginning in August 1997, the Joint Ventures elected to self-insure
their 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 Joint Ventures have made the election to self-insure for
these risks based upon a comparison of historical damage sustained over the past
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 85% of the Joint Ventures'
subscribers are served by their systems in Poplar Bluff, Missouri and
Carlinville, Illinois and neighboring communities. Significant damage to these
systems due to seasonal weather conditions or other events could have a material
adverse effect on the Joint Ventures' liquidity and cash flows. The Joint
Ventures continue to purchase insurance coverage in amounts their management
views as appropriate for all other property, liability, automobile, workers'
compensation and other types of insurable risks.
The "Year 2000" issue refers to certain contingencies that could
result from computer programs being written using two digits rather than four to
define the year. Many existing computer systems, including certain computer
systems of the Partnership and Joint Ventures, process transactions based on two
digits for the year of the transaction (for example, "98" for 1998). These
computer systems may not operate effectively when the last two digits become
"00," as will occur on January 1, 2000.
The Corporate General Partner has commenced an assessment of the
Partnership's and Joint Ventures' Year 2000 business risks and their exposure to
computer systems, to operating equipment which is date sensitive and to the
interface systems of their vendors and service providers. Based on a preliminary
study, the Corporate General Partner has concluded that certain of the
Partnership's and Joint Ventures' information systems were not Year 2000
compliant and has elected to replace such software and hardware with Year 2000
compliant applications and equipment, although the decision to replace major
portions of such software and hardware had previously been made without regard
to the Year 2000 issue. The Corporate General Partner expects to install
substantially all of the new systems in 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 FHGLP.
In addition to evaluating internal systems, the Corporate General
Partner has also initiated communications with third party vendors and service
suppliers to determine the extent to which the Partnership's and Joint Ventures'
interface systems are vulnerable should those third parties fail to solve their
own Year 2000 problems on a timely basis. There can be no assurance that the
systems of other companies on which the Partnership's and Joint Ventures'
systems rely will be timely converted and that the failure to do so would not
have an adverse impact on the Partnership's and Joint Ventures' systems. The
Corporate General Partner continues to closely monitor Year 2000 developments
with vendors and service suppliers.
-16-
<PAGE> 17
ENSTAR INCOME PROGRAM IV-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Operating activities used $2,900 less cash during the three months
ended March 31, 1998 than in the corresponding quarter of 1997. Changes in
prepaid expenses provided $1,500 more cash in the 1998 quarter. The Partnership
used $11,700 more cash in the quarter ended March 31, 1998 than in the
corresponding period of 1997 to pay amounts owed to the Corporate General
Partner and third party creditors due to differences in the timing of payments.
Investing activities provided $40,000 more cash in the first three
months of 1998 than in the corresponding prior year period due to an increase in
distributions from the Joint Ventures.
INFLATION
Certain of the Joint Ventures' 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 Joint Ventures are able to increase their
service rates periodically, of which there can be no assurance.
-17-
<PAGE> 18
ENSTAR INCOME PROGRAM IV-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.
<PAGE> 19
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 IV-1, L.P.
a GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: May 14, 1998 By: /s/ Michael K. Menerey
--------------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 1998, AND THE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 14,900
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,434,100
<CURRENT-LIABILITIES> 20,600
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,434,100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 7,600
<OTHER-EXPENSES> (600)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,000
<INCOME-PRETAX> 282,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 282,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 282,800
<EPS-PRIMARY> 7.00
<EPS-DILUTED> 0
</TABLE>
