<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------- -------------
Commission File Number 0-15705
-------
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 Identification Number)
incorporation or organization)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
- --------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including (310) 824-9990
area code: ----------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM IV-1, L.P.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
1998* 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash $ 4,100 $ 10,700
Prepaid expenses 3,400 1,200
------------ ------------
Equity in net assets of Joint Ventures:
Enstar IV/PBD Systems Venture 2,007,300 2,307,300
Enstar Cable of Macoupin County 903,200 996,300
------------ ------------
2,910,500 3,303,600
------------ ------------
Deferred loan costs, net 35,700 29,400
------------ ------------
$ 2,953,700 $ 3,344,900
------------ ------------
------------ ------------
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 6,600 $ 900
Due to affiliates 18,000 149,100
------------ ------------
TOTAL LIABILITIES 24,600 150,000
------------ ------------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (53,900) (51,200)
Limited partners 2,983,000 3,246,100
------------ ------------
TOTAL PARTNERSHIP CAPITAL 2,929,100 3,194,900
------------ ------------
$ 2,953,700 $ 3,344,900
------------ ------------
------------ ------------
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
-----------------------------
Three months ended
June 30,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (11,600) $ (12,200)
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (8,000) (9,200)
------------ ------------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (19,600) (21,400)
------------ ------------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 260,800 204,500
Enstar Cable of Macoupin County 57,800 65,100
------------ ------------
318,600 269,600
------------ ------------
NET INCOME $ 299,000 $ 248,200
------------ ------------
------------ ------------
Net income allocated to General Partners $ 3,000 $ 2,500
------------ ------------
------------ ------------
Net income allocated to Limited Partners $ 296,000 $ 245,700
------------ ------------
------------ ------------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 7.40 $ 6.15
------------ ------------
------------ ------------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,982 39,982
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Unaudited
-----------------------------
Six months ended
June 30,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (19,200) $ (25,700)
------------ ------------
OTHER INCOME (EXPENSE):
Interest income 600 100
Interest expense (17,000) (18,300)
------------ ------------
(16,400) (18,200)
------------ ------------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (35,600) (43,900)
------------ ------------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 518,400 444,000
Enstar Cable of Macoupin County 99,000 118,100
------------ ------------
617,400 562,100
------------ ------------
NET INCOME $ 581,800 $ 518,200
------------ ------------
------------ ------------
Net income allocated to General Partners $ 5,800 $ 5,200
------------ ------------
------------ ------------
Net income allocated to Limited Partners $ 576,000 $ 513,000
------------ ------------
------------ ------------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 14.41 $ 12.83
------------ ------------
------------ ------------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,982 39,982
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Unaudited
-----------------------------
Six months ended
June 30,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 581,800 $ 518,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Joint Ventures (617,400) (562,100)
Amortization of deferred loan costs 5,300 6,300
Increase (decrease) from changes in:
Prepaid expenses 2,200 2,200
Accounts payable and due to affiliates (8,000) 125,400
------------ ------------
Net cash provided by (used in) operating activities (36,100) 90,000
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Ventures 173,500 169,000
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (252,400) (252,400)
Deferred loan costs (1,800) -
------------ ------------
Net cash used in financing activities (254,200) (252,400)
------------ ------------
INCREASE (DECREASE) IN CASH (116,800) 6,600
CASH AT BEGINNING OF PERIOD 117,300 4,100
------------ ------------
CASH AT END OF PERIOD $ 500 $ 10,700
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE>
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 and
six months ended June 30, 1999 and 1998 are unaudited. These condensed interim
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Partnership's latest Annual Report
on Form 10-K. In the opinion of management, such statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of such periods. The results of operations for
the three and six months ended June 30, 1999 are not necessarily indicative of
results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (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) the Partnership's
allocable share of the Manager's operational costs. 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 as well as 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"). 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 and six months ended June 30, 1999. The Manager has
entered into identical agreements with 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 $89,300 and $176,900 and reimbursement of
expenses of approximately $122,500 and $239,600 under the management agreements
for the three and six months ended June 30, 1999. In addition, the Macoupin
Joint Venture paid the Corporate General Partner approximately $5,100 and
$10,000 in respect of its 1% special interest during the three and six months
ended June 30, 1999. 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 $72,000 and $98,500
in the three and six months ended
-6-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
June 30, 1999. No management fee is payable to the affiliate by the Joint
Ventures and there is no duplication of reimbursed expenses and costs paid to
the Manager.
Substantially all programming services have been purchased through FCLP.
FCLP, in the normal course of business, purchases cable programming services
from certain affiliated program suppliers. Such purchases of programming
services are made on behalf of the Joint Ventures and the other partnerships
managed by the Corporate General Partner as well as for FCLP's own cable
television operations. FCLP charges the Joint Ventures for these services based
on an estimate of what the Corporate General Partner could negotiate for such
programming services for the 15 partnerships managed by the Corporate General
Partner as a group. The Joint Ventures recorded programming fee expense of
$464,100 and $914,300 for the three and six months ended June 30, 1999.
Programming fees are included in service costs in the statements of operations.
In the normal course of business, the Partnership pays a commitment fee to
Enstar Finance Company, LLC ("EFC"), its primary lender and subsidiary of the
Corporate General Partner.
3. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is based on
the average number of units outstanding during the periods presented. For this
purpose, earnings and losses have been allocated 99% to the Limited Partners and
1% to the General Partners. The General Partners do not own units of partnership
interest in the Partnership, but rather hold a participation interest in the
income, losses and distributions of the Partnership.
-7-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
4. 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
June 30, 1999 and December 31, 1998, and the results of its operations for the
three and six months ended June 30, 1999 and 1998, have been included. The
results of operations for the three and six months ended June 30, 1999 are not
necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, June 30,
1998* 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets $ 3,143,900 $ 3,615,100
Investment in cable television properties, net 1,578,900 1,554,500
Other assets 14,100 6,700
------------ ------------
$ 4,736,900 $ 5,176,300
------------ ------------
------------ ------------
Current liabilities $ 722,300 $ 561,700
Venturers' capital 4,014,600 4,614,600
------------ ------------
$ 4,736,900 $ 5,176,300
------------ ------------
------------ ------------
</TABLE>
*As presented in the audited financial statements.
-8-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
ENSTAR IV/PBD SYSTEMS VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
-----------------------------
Three months ended
June 30,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES $ 1,423,300 $ 1,398,200
------------ ------------
OPERATING EXPENSES:
Service costs 469,100 451,400
General and administrative expenses 193,600 268,000
General Partner management fees and reimbursed expenses 146,500 142,900
Depreciation and amortization 114,100 159,100
------------ ------------
923,300 1,021,400
------------ ------------
OPERATING INCOME 500,000 376,800
OTHER INCOME (EXPENSE):
Interest income 26,100 29,600
Interest expense (4,600) (4,700)
Gain on sale of cable assets - 3,500
------------ ------------
NET INCOME $ 521,500 $ 405,200
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Unaudited
-----------------------------
Six months ended
June 30,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES $ 2,830,400 $ 2,758,400
------------ ------------
OPERATING EXPENSES:
Service costs 939,900 876,800
General and administrative expenses 377,200 492,500
General Partner management fees and reimbursed expenses 286,500 282,200
Depreciation and amortization 227,100 273,000
------------ ------------
1,830,700 1,924,500
------------ ------------
OPERATING INCOME 999,700 833,900
OTHER INCOME (EXPENSE):
Interest income 47,000 60,600
Interest expense (10,000) (10,000)
Gain on sale of cable assets - 3,500
------------ ------------
NET INCOME $ 1,036,700 $ 888,000
------------ ------------
------------ ------------
</TABLE>
-9-
<PAGE>
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 June 30, 1999 and December 31,
1998, and the results of its operations for the six months ended June 30, 1999
and 1998, have been included. The results of operations for the six months ended
June 30, 1999 are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, June 30,
1998* 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets $ 1,522,900 $ 1,823,900
Investment in cable television properties, net 1,528,100 1,524,800
Other assets 2,500 2,400
------------ ------------
$ 3,053,500 $ 3,351,100
------------ ------------
------------ ------------
Current liabilities $ 343,900 $ 362,100
Venturers' capital 2,709,600 2,989,000
------------ ------------
$ 3,053,500 $ 3,351,100
------------ ------------
------------ ------------
</TABLE>
*As presented in the audited financial statements.
-10-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
ENSTAR CABLE OF MACOUPIN COUNTY (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
-----------------------------
Three months ended
June 30,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES $ 500,600 $ 505,400
------------ ------------
OPERATING EXPENSES:
Service costs 143,900 158,200
General and administrative expenses 29,400 34,000
General Partner management fees and reimbursed expenses 77,200 74,000
Depreciation and amortization 80,800 55,200
------------ ------------
331,300 321,400
------------ ------------
OPERATING INCOME 169,300 184,000
OTHER INCOME (EXPENSE):
Interest income 7,100 13,800
Interest expense (3,000) (2,500)
------------ ------------
NET INCOME $ 173,400 $ 195,300
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
Unaudited
-----------------------------
Six months ended
June 30,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES $ 997,500 $ 995,900
------------ ------------
OPERATING EXPENSES:
Service costs 305,200 323,000
General and administrative expenses 72,600 87,300
General Partner management fees and reimbursed expenses 153,300 144,300
Depreciation and amortization 175,600 109,600
------------ ------------
706,700 664,200
------------ ------------
OPERATING INCOME 290,800 331,700
OTHER INCOME (EXPENSE):
Interest income 11,900 27,800
Interest expense (5,800) (5,100)
------------ ------------
NET INCOME $ 296,900 $ 354,400
------------ ------------
------------ ------------
</TABLE>
-11-
<PAGE>
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
ended the regulation of cable programming service tier rates on March 31, 1999.
There can be no assurance as to what, if any, further action may be taken by the
FCC, Congress or any other regulatory authority or court, or the effect thereof
on the Partnership's business. Accordingly, the Partnership's historical
financial results as described below are not necessarily indicative of future
performance.
This Report includes certain forward looking statements regarding, among
other things, future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing cable
television operators such as the Partnership. In addition to the information
provided herein, reference is made to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1998 for additional information regarding
such matters and the effect thereof on the Partnership's business.
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.
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 Joint Ventures made distributions totaling $155,000 and $169,000
to the Partnership and the Partnership distributed $126,200 and $252,400 to its
partners during the three and six months ended June 30, 1999.
-12-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
THE PBD JOINT VENTURE
The PBD Joint Venture's revenues decreased from $1,423,300 to $1,398,200,
or by 1.8%, and from $2,830,400 to $2,758,400, or by 2.5%, for the three and six
months ended June 30, 1999 as compared to the corresponding periods in 1998. Of
the $25,100 decrease in revenues for the three months ended June 30, 1999,
$67,300 was due to decreases in the number of subscriptions for basic, premium,
tier and equipment rental services. The decrease was partially offset by a
$15,500 increase due to increases in regulated service rates that were
implemented by the PBD Joint Venture in June 1999 and a $26,700 increase in
other revenue producing items. Of the $72,000 decrease in revenues for the six
months ended June 30, 1999, $111,700 was due to decreases in the number of
subscriptions for basic, premium, tier and equipment rental services. The
decrease was partially offset by a $15,500 increase due to increases in
regulated service rates that were implemented by the PBD Joint Venture in June
1999 and a $24,200 increase in other revenue producing items. As of June 30,
1999, the PBD Joint Venture had approximately 12,900 basic subscribers and 3,500
premium service units.
Service costs decreased from $469,100 to $451,400, or by 3.8%, and from
$939,900 to $876,800, or by 6.7%, for the three and six months ended June 30,
1999 as compared to the corresponding periods in 1998. Service costs represent
costs directly attributable to providing cable services to customers. The
decrease was primarily due to increased capitalization of labor and overhead
costs resulting from more capital projects in the 1999 periods and due to
decreased franchise fees.
General and administrative expenses increased from $193,600 to $268,000, or
by 38.4%, and from $377,200 to $492,500, or by 30.6%, for the three and six
months ended June 30, 1999 as compared to the corresponding periods in 1998. The
increases were primarily due to increases in insurance premiums, professional
fees and personnel costs.
Management fees and reimbursed expenses decreased from $146,500 to
$142,900, or by 2.5%, and from $286,500 to $282,200, or by 1.5%, for the three
and six months ended June 30, 1999 as compared to the corresponding periods in
1998. Management fees decreased in direct relation to the decreased revenues as
described above. Reimbursed expenses increased for the three months ended June
30, 1999 due to higher allocated personnel costs resulting from staff additions,
and due to higher telephone and rent expense. Reimbursed expenses remained
relatively unchanged for the six months ended June 30, 1999.
Depreciation and amortization expense increased from $114,100 to $159,100,
or by 39.4%, and from $227,100 to $273,000, or by 20.2%, for the three and six
months ended June 30, 1999 as compared to the corresponding periods in 1998. The
increase was primarily due to depreciation of plant asset additions.
Operating income decreased from $500,000 to $376,800, or by 24.6%, and from
$999,700 to $833,900, or by 16.6%, for the three and six months ended June 30,
1999 as compared to the corresponding periods in 1998. The decrease was
primarily due to decreases in revenues and increases in insurance premiums,
professional fees and depreciation and amortization as described above.
-13-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Interest income, net of interest expense, increased from $21,500 to
$24,900, or by 15.8%, and from $37,000 to $50,600, or by 36.8%, for the three
and six months ended June 30, 1999 as compared to the corresponding periods
in 1998. The increase was primarily due to higher average cash balances
available for investment in the 1999 periods.
The PBD Joint Venture recognized a $3,500 gain on the sale of certain
equipment during the second quarter of 1999.
Due to the factors described above, the PBD Joint Venture's net income
decreased from $521,500 to $405,200, or by 22.3%, and from $1,036,700 to
$888,000, or by 14.3%, for the three and six months ended June 30, 1999 as
compared to the corresponding periods in 1998.
Based on its experience in the cable television industry, the PBD Joint
Venture's management believes that operating income before depreciation and
amortization ("EBITDA") and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television
companies in several areas such as liquidity, operating performance and
leverage. EBITDA is not a measurement determined under generally accepted
accounting principles ("GAAP") and does not represent cash generated from
operating activities in accordance with GAAP. EBITDA should not be considered
by the reader as an alternative to net income as an indicator of financial
performance or as an alternative to cash flows as a measure of liquidity. In
addition, the definition of EBITDA may not be identical to similarly titled
measures used by other companies. EBITDA as a percentage of revenues
decreased from 43.1% to 38.3% and from 43.3% to 40.1% during the three and
six months ended June 30, 1999, as compared to the corresponding periods in
1998. The decrease was primarily caused by lower revenues and higher
insurance premiums and professional fees as described above. EBITDA decreased
from $614,100 to $535,900, or by 12.7%, and from $1,226,800 to $1,106,900, or
by 9.8%, for the three and six months ended June 30, 1999 as compared to the
corresponding periods in 1998.
MACOUPIN JOINT VENTURE
The Macoupin Joint Venture's revenues increased from $500,600 to
$505,400, or by 1.0%, and decreased from $997,500 to $995,900, or by less
than 1.0%, for the three and six months ended June 30, 1999 as compared to
the corresponding periods in 1998. Of the $4,800 increase in revenues for the
three months ended June 30, 1999, $4,300 was due to increases in regulated
service rates that were implemented by the Macoupin Joint Venture in June
1999 and $7,900 was due to increases in other revenue producing items. The
increase was offset by a $7,400 decrease due to reductions in the number of
subscriptions for premium, tier and equipment rental services. Of the $1,600
decrease in revenues for the six months ended June 30, 1999, $8,900 was due
to reductions in the number of subscriptions for premium, tier and equipment
rental services. The decrease was offset by a $4,300 increase due to
increases in regulated service rates that were implemented by the Macoupin
Joint Venture in June 1999 and a $3,000 increase in other revenue producing
items. As of June 30, 1999, the Macoupin Joint Venture had approximately
4,700 basic subscribers and 1,300 premium service units.
Service costs increased from $143,900 to $158,200, or by 9.9%, and from
$305,200 to $323,000, or by 5.8%, for the three and six months ended June 30,
1999 as compared to the corresponding periods in 1998. Service costs
represent costs directly attributable to providing cable
-14-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
services to customers. The increase was primarily due to higher programming
fees, which increased as a result of higher rates charged by program
suppliers.
General and administrative expenses increased from $29,400 to $34,000,
or by 15.6%, and from $72,600 to $87,300, or by 20.2%, for the three and six
months ended June 30, 1999 as compared to the corresponding periods in 1998.
The increase was primarily due to increases in insurance premiums. The six
months' increase was also due to increases in professional fees, including
audit fees.
Management fees and reimbursed expenses decreased from $77,200 to
$74,000, or by 4.1%, and from $153,300 to $144,300, or by 5.9%, for the three
months and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. Management fees increased for the three months and decreased
for the six months ended June 30, 1999 in direct relation to changes in
revenues as discussed above. Reimbursed expenses decreased primarily due to
lower allocated personnel costs resulting from staff reductions, and due to
decreased telephone expense.
Depreciation and amortization expense decreased from $80,800 to $55,200,
or by 31.7%, and from $175,600 to $109,600, or by 37.6%, for the three and
six months ended June 30, 1999 as compared to the corresponding periods in
1998. The decrease was due to the effect of certain tangible assets becoming
fully depreciated and certain intangible assets becoming fully amortized.
Operating income increased from $169,300 to $184,000, or by 8.7%, and
from $290,800 to $331,700, or by 14.1%, for the three and six months ended
June 30, 1999 as compared to the corresponding periods in 1998. The increase
was primarily due to decreased depreciation and amortization expense as
described above.
Interest income, net of interest expense, increased from $4,100 to
$11,300 and from $6,100 to $22,700 for the three and six months ended June
30, 1999 as compared to the corresponding periods in 1998. The increase was
due to higher average cash balances available for investment in the 1999
periods.
Due to the factors described above, the Macoupin Joint Venture's net
income increased from $173,400 to $195,300, or by 12.6%, and from $296,900 to
$354,400, or by 19.4%, for the three and six months ended June 30, 1999 as
compared to the corresponding periods in 1998.
Based on its experience in the cable television industry, the Macoupin
Joint Venture's management believes that operating income before depreciation
and amortization ("EBITDA") and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable
television companies in several areas such as liquidity, operating
performance and leverage. EBITDA is not a measurement determined under
generally accepted accounting principles ("GAAP") and does not represent cash
generated from operating activities in accordance with GAAP. EBITDA should
not be considered by the reader as an alternative to net income as an
indicator of financial performance or as an alternative to cash flows as a
measure of liquidity. In addition, the definition of EBITDA may not be
identical to similarly titled measures used by other companies. EBITDA as a
percentage of revenues decreased from 50.0% to 47.3% and from 46.8% to 44.3%
during the three and six months ended June 30, 1999, as compared to the
corresponding periods in 1998. The decrease
-15-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
RESULTS OF OPERATIONS (CONTINUED)
was primarily caused by higher programming fees and insurance premiums as
described above. EBITDA decreased from $250,100 to $239,200, or by 4.4%, and
from $466,400 to $441,300, or by 5.4%, for the three and six months ended
June 30, 1999 as compared to the corresponding periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net offering
proceeds in 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.
Based on its belief that the market for cable systems has generally
improved, the Corporate General Partner has been evaluating strategies for
liquidating the Joint Venture and the Partnership. These strategies included
the potential sale of substantially all of the Joint Venture's and
Partnership's assets to third parties and/or affiliates of the Corporate
General Partner, and the subsequent liquidation of the Partnership. The
Corporate General Partner expected to complete its evaluation within the next
several months and intended to advise unitholders promptly if it believed
that commencing a liquidating transaction would be in the best interests of
unitholders. On May 26, 1999, however, Charter Communications ("Charter")
signed an agreement to acquire all of the cable television assets of FCLP and
to acquire Enstar Communications Corporation, the Partnership's and Joint
Ventures' Corporate General Partner. The Corporate General Partner and
Charter have decided to implement a strategy for liquidating the Partnership
that involves selling the Joint Ventures' systems to third parties.
Accordingly, the Corporate General Partner will commence discussions with
cable brokers regarding the sale of the systems, although no assurance can be
given regarding the likelihood, if any, of receiving appropriate offers to
purchase the systems. Any such sale and corresponding liquidation is unlikely
to close before the sale of the Corporate General Partner to Charter.
Following the close of all pending transactions, Charter will serve
approximately 6.2 million customers and will be the nation's fourth largest
cable operator. Headquartered in St. Louis, Missouri, Charter was acquired by
Paul G. Allen in 1998. More information about Charter can be accessed on the
Internet at www.chartercom.com.
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 approximately $630,000 under a provision
of its franchise agreement. Capital expenditures related to the rebuild
totaled approximately $508,400 from inception through June 30, 1999. The
Macoupin Joint Venture is also rebuilding portions of its cable systems in
surrounding communities at an estimated additional cost of approximately
$1,280,000. Project expenditures in the surrounding communities approximated
$957,900 from inception through June 30, 1999. Rebuild construction in and
around Auburn is substantially complete. During 1999, the Macoupin Joint
Venture incurred rebuild expenditures of approximately $37,200 through June
30.
-16-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Macoupin Joint Venture is also required by a provision of its
franchise agreement with the city of Carlinville, Illinois to upgrade its
cable system in the community by December 2001 at an estimated cost of
$875,000, and plans to upgrade its cable plant in Girard, Illinois beginning
in 1999 at an estimated cost of approximately $1.0 million provided the
franchise agreement is renewed. The franchise agreement under negotiation
with Girard is expected to require completion of a plant upgrade in the
franchise area within two years. The Macoupin Joint Venture is budgeted to
spend approximately $217,200 in 1999 for the upgrade and replacement of other
assets. Such expenditures totaled $48,400 as of June 30, 1999. The PBD Joint
Venture has budgeted approximately $1.3 million and $6.2 million to upgrade
its Mt. Carmel, Illinois and Poplar Bluff, Missouri cable systems,
respectively, provided franchise renewals are obtained and adequate funds are
available. Although both franchise agreements are still under negotiation,
the PBD Joint Venture anticipates that each will require an upgrade. The
franchise agreement with Mt. Carmel, Illinois is expected to require
completion of the upgrade within 24 months. The agreement under negotiation
with Poplar Bluff, Missouri may include a similar requirement. The PBD Joint
Venture has budgeted capital expenditures of $520,200 in 1999 to upgrade
other assets. In the first six months of 1999, capital expenditures by the
PBD Joint Venture were approximately $238,600.
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.
The Partnership is party to a loan agreement with EFC. The loan
agreement provides for a revolving loan facility of $3,331,800 (the
"Facility"). The Partnership and its co-partners expect to use borrowings
under their respective facilities along with cash flow from operations of the
Joint Ventures for the rebuild and upgrade of the Joint Ventures' systems. No
advances had been made under the Partnership's Facility as of the date of
this Report.
The Partnership's Facility matures on August 31, 2001, at which time all
amounts then outstanding are due in full. Borrowings bear interest at the
lender's base rate (7.75% at June 30, 1999) plus 0.625%, or at an offshore
rate plus 1.875%. Under certain circumstances, the Partnership is required to
make mandatory prepayments, which 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
Partnership's ratio of debt to cash flow is greater than 4 to 1.
The Partnership paid distributions totaling $126,200 and $252,400 during
the three and six months ended June 30, 1999. However, there can be no
assurance regarding the level, timing or continuation of future distributions.
-17-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In October 1998, FCLP reinstated third party insurance coverage for all
of the cable television properties owned or managed by FCLP to cover damage
to cable distribution plant and subscriber connections and against business
interruptions resulting from such damage. This coverage is subject to a
significant annual deductible which applies to all of the cable television
properties owned or managed by FCLP.
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.
YEAR 2000
During the second quarter of 1999, FCLP, on behalf of the Corporate
General Partner, continued its identification, evaluation and remediation of
the Joint Ventures' Year 2000 business risks associated with operations
directly under the control of the Joint Ventures and those risks that are
dependent on third parties related to 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, assessment and remediation of systems and equipment that may
fail to distinguish between the year 1900 and the year 2000 and, as a result,
may cease to operate or may operate improperly when dates after December 31,
1999 are introduced. Most of the Joint Ventures' exposure to Year 2000 issues
is dependent in large part on third parties. Failure to identify and
remediate a critical Year 2000 issue could result in an interruption of
services to customers or in the interruption of critical business functions,
either of which could result in a material adverse impact on the Joint
Ventures' and Partnership's financial results.
FCLP concluded that certain of the Joint Ventures' internal information
systems were not Year 2000 compliant and elected to replace such software and
hardware with applications and equipment certified by the vendors as Year
2000 compliant. FCLP installed the new systems in the first quarter of 1999.
The cost of the implementation, including replacement software and hardware,
has been borne by FCLP. FCLP is continuing to utilize internal and external
resources to extend the functionality of the new systems. The Partnership
does not believe that any other significant information technology projects
affecting the Partnership or Joint Ventures have been delayed due to efforts
to identify or address Year 2000 issues.
Additionally, FCLP has continued to inventory the Joint Ventures'
internal operating and revenue generating equipment to identify items that
need to be upgraded or replaced and has surveyed cable equipment
manufacturers to determine which of their models require upgrade or
replacement to become Year 2000 compliant. Identification and evaluation,
while ongoing, are substantially completed and a plan has been developed to
remediate or replace non-compliant equipment. Of the total number of
potentially non-compliant items identified in the inventory, approximately
1.5% are in the assessment stage. Approximately 14.4% of non-compliant items
are in the remediation planning phase and 85.6% are in the implementation
stage. FCLP plans to conduct limited testing of systems, software and
equipment in the third quarter of 1999 and place significant reliance on test
results
-18-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
provided by AT&T Broadband & Internet Services, an affiliate of FCLP. The
cost of such replacement or remediation to the Joint Ventures is currently
estimated to be $7,600, of which $6,100 had been incurred as of June 30,
1999. FCLP has also substantially completed the assessment and replacement or
remediation of the majority of the Joint Ventures' internal equipment
containing embedded computer chips.
FCLP has continued to survey the Joint Ventures' significant third party
vendors and service suppliers to determine the extent to which the Joint
Ventures' interface systems are vulnerable should those third parties fail to
solve their own Year 2000 problems on a timely basis. The Joint Ventures are
heavily dependent on third parties and these parties are themselves heavily
dependent on technology. For example, if a television broadcaster or cable
programmer encounters Year 2000 problems that impede its ability to deliver
its programming, the Joint Ventures will be unable to provide that
programming to their cable customers, which would result in a loss of
revenues, although the Joint Ventures would attempt to provide their
customers with alternative program services. Virtually all of the Joint
Ventures' most critical equipment vendors have responded to the surveys
regarding the Year 2000 compliance of their products and indicated that they
are already compliant or have indicated their intent to be compliant.
Additional compliance information has been obtained for specific products
from vendor Web sites, interviews, on-site visits, system interface testing
and industry group participation. Among the most significant third party
service providers upon which the Joint Ventures rely are programming
suppliers, power and telephone companies, various banking institutions and
the Joint Ventures' customer billing service. The Joint Ventures are taking
steps to confirm that the third parties on which they are heavily reliant are
Year 2000 compliant and are developing satisfactory contingency plans, or
that alternative means of meeting the Joint Ventures' business requirements
are available, but cannot predict the likelihood of such compliance nor the
direct or indirect costs to the Joint Ventures of non-compliance by those
third parties or of securing such services from alternate compliant third
parties. In areas in which the Joint Ventures are uncertain about the
anticipated Year 2000 readiness of a significant third party, FCLP is
investigating available alternatives, if any.
FCLP believes that it has established an effective program to resolve
all significant Year 2000 issues in its control in a timely manner. As noted
above, however, FCLP has not yet completed all phases of the Joint Ventures'
remediation program and is dependent on third parties whose progress is not
within its control. In the event that FCLP does not complete the Joint
Ventures' currently planned additional remediation prior to the year 2000,
management believes that the Joint Ventures could experience significant
difficulty in producing and delivering products and services and conducting
business in the year 2000. In addition, disruptions experienced by third
parties with which the Joint Ventures do business as well as by the economy
generally could also materially adversely affect the Joint Ventures. The
amount of potential liability and lost revenue cannot be reasonably estimated
at this time.
FCLP has focused its efforts on identification and remediation of the
Joint Ventures' Year 2000 exposures and is beginning to develop specific
contingency plans in the event it does not successfully complete the
remaining remediation as anticipated or experiences unforeseen problems.
Considerable effort has been directed toward distinguishing between those
contingencies with a greater probability of occurring from those whose
occurrence is considered remote, and on those systems whose failure poses a
material risk to the Joint Ventures' results of operations and financial
condition. FCLP is also examining the Joint Ventures' business interruption
strategies to evaluate whether they would
-19-
<PAGE>
ENSTAR INCOME PROGRAM IV-1, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
satisfactorily meet the demands of failures arising from Year 2000 related
problems. FCLP intends to examine the Joint Ventures' status periodically to
determine the necessity of establishing and implementing such contingency
plans or additional strategies, which could involve, among other things,
manual workarounds, adjusting staffing strategies and sharing resources.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Operating activities provided $126,100 more cash during the six months
ended June 30, 1999 than in the corresponding period in 1998. The Partnership
used $133,400 less cash in the six months ended June 30, 1999 than in the
corresponding period in 1998 to pay amounts owed to the Corporate General
Partner and third party creditors due to differences in the timing of
payments.
Investing activities provided $4,500 less cash in the first six months
of 1999 than in the corresponding prior year period due to a decrease in
distributions from the Joint Ventures. The Partnership used $1,800 less cash
in financing activities due to reductions in amounts paid for deferred loan
costs related to the Partnership's Facility.
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.
-20-
<PAGE>
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) Exhibit 27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for
which this report is filed
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME PROGRAM IV-1, L.P.
a GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: August 13, 1999 By: /s/ Michael K. Menerey
-------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 10,700
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,344,900
<CURRENT-LIABILITIES> 150,000
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,344,900
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 25,700
<OTHER-EXPENSES> (100)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,300
<INCOME-PRETAX> 518,200
<INCOME-TAX> 0
<INCOME-CONTINUING> 518,200
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<NET-INCOME> 518,200
<EPS-BASIC> 12.83
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</TABLE>
