<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
---------------------------------------
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 0-15706
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Enstar Income Program IV-2, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1648318
- -------------------------------- ----------------------
(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>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED BALANCE SHEETS
----------------------
----------------------
<TABLE>
<CAPTION>
December 31, September 30,
1997* 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 357,800 $ 258,600
Prepaid expenses 3,300 3,900
------------------ -----------------
Equity in net assets of Joint Ventures:
Enstar IV/PBD Systems Venture 1,415,500 1,884,100
Enstar Cable of Macoupin County 708,600 847,900
------------------ -----------------
2,124,100 2,732,000
------------------ -----------------
Deferred loan costs, net 45,000 40,600
------------------ -----------------
$ 2,530,200 $ 3,035,100
------------------ -----------------
------------------ -----------------
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 20,400 $ 6,300
Due to affiliates 10,700 13,000
------------------ -----------------
TOTAL LIABILITIES 31,100 19,300
------------------ -----------------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (58,100) (53,000)
Limited partners 2,557,200 3,068,800
------------------ -----------------
TOTAL PARTNERSHIP CAPITAL 2,499,100 3,015,800
------------------ -----------------
$ 2,530,200 $ 3,035,100
------------------ -----------------
------------------ -----------------
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
----------------------
----------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Three months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (11,800) $ (11,900)
----------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 7,200 3,200
Interest expense (44,100) (7,100)
----------------- -----------------
(36,900) (3,900)
----------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (48,700) (15,800)
----------------- -----------------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 242,800 264,900
Enstar Cable of Macoupin County 34,800 52,800
----------------- -----------------
277,600 317,700
----------------- -----------------
NET INCOME $ 228,900 $ 301,900
----------------- -----------------
----------------- -----------------
Net income allocated to General Partners $ 2,300 $ 3,000
----------------- -----------------
----------------- -----------------
Net income allocated to Limited Partners $ 226,600 $ 298,900
----------------- -----------------
----------------- -----------------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 5.69 $ 7.50
----------------- -----------------
----------------- -----------------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,848 39,848
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
----------------------
----------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (27,700) $ (27,100)
----------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 19,600 10,200
Interest expense (99,800) (24,100)
----------------- -----------------
(80,200) (13,900)
----------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (107,900) (41,000)
----------------- -----------------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 756,900 783,300
Enstar Cable of Macoupin County 93,500 151,800
----------------- -----------------
850,400 935,100
----------------- -----------------
NET INCOME $ 742,500 $ 894,100
----------------- -----------------
----------------- -----------------
Net income allocated to General Partners $ 7,400 $ 8,900
----------------- -----------------
----------------- -----------------
Net income allocated to Limited Partners $ 735,100 $ 885,200
----------------- -----------------
----------------- -----------------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 18.45 $ 22.21
----------------- -----------------
----------------- -----------------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,848 39,848
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
STATEMENTS OF CASH FLOWS
----------------------
----------------------
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 742,500 $ 894,100
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Joint Ventures (850,400) (935,100)
Amortization of deferred loan costs 26,400 6,200
Decrease from changes in:
Prepaid expenses (3,900) (600)
Accounts payable and due to affiliates (2,100) (11,800)
----------------- -----------------
Net cash used in operating activities (87,500) (47,200)
----------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Ventures 1,380,000 327,200
----------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (377,300) (377,400)
Repayment of debt (1,000,000) -
Deferred loan costs (45,900) (1,800)
----------------- -----------------
Net cash used in financing activities (1,423,200) (379,200)
----------------- -----------------
DECREASE IN CASH AND CASH EQUIVALENTS (130,700) (99,200)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 619,300 357,800
----------------- -----------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 488,600 $ 258,600
----------------- -----------------
----------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
----------------------
----------------------
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the
three and nine months ended September 30, 1998 and 1997 are unaudited. These
condensed interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Partnership's
latest Annual Report on Form 10-K. In the opinion of management, such
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of such
periods. The results of operations for the three and nine months ended
September 30, 1998 are not necessarily indicative of results for the entire
year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (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 nine months ended September 30, 1998. 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 $88,900
and $270,300 and reimbursement of expenses of approximately $125,000 and
$373,400 under the management agreements for the three and nine months ended
September 30, 1998. In addition, the Macoupin Joint Venture paid the
Corporate General Partner approximately $5,000 and $15,000 in respect of its
1% special interest during the three and nine months ended September 30,
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
$39,100 and $124,100 in the three and nine months ended September 30, 1998. No
-6-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
----------------------
----------------------
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
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.
Certain programming services have been purchased through an
affiliate of the Joint Ventures. In turn, the affiliate charged 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 $444,700 and $1,327,900 for the three and
nine months ended September 30, 1998. Programming fees are included in
service costs in the statements of operations. In the future, programming
services will be purchased through another source, which may include FHGLP or
an affiliate of FHGLP. Programming rates may vary in the near term as a
result of the change.
In the normal course of business, the Partnership pays a commitment
fee to Enstar Finance Company, LLC ("EFC"), its primary lender and an
affiliate 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-2, 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-1, 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 September 30, 1998 and December 31, 1997, and the results of
its operations for the three and nine months ended September 30, 1998 and
1997, have been included. The results of operations for the three and nine
months ended September 30, 1998 are not necessarily indicative of results for
the entire year.
<TABLE>
<CAPTION>
December 31, September 30,
1997* 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
Current assets $ 1,864,600 $ 2,746,500
Investment in cable television properties, net 1,655,700 1,548,100
Other assets 38,100 14,900
------------------ -----------------
$ 3,558,400 $ 4,309,500
------------------ -----------------
------------------ -----------------
Current liabilities $ 727,400 $ 541,300
Venturers' capital 2,831,000 3,768,200
------------------ -----------------
$ 3,558,400 $ 4,309,500
------------------ -----------------
------------------ -----------------
</TABLE>
*As presented in the audited financial statements.
-8-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
----------------------
----------------------
ENSTAR IV/PBD SYSTEMS VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Three months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
REVENUES $ 1,399,900 $ 1,377,800
----------------- -----------------
OPERATING EXPENSES:
Service costs 481,800 451,600
General and administrative expenses 196,000 170,400
General Partner management fees and reimbursed expenses 148,500 138,300
Depreciation and amortization 120,300 113,300
----------------- -----------------
946,600 873,600
----------------- -----------------
OPERATING INCOME 453,300 504,200
OTHER INCOME (EXPENSE):
Interest income 38,500 29,800
Interest expense (6,000) (4,100)
----------------- -----------------
NET INCOME $ 485,800 $ 529,900
----------------- -----------------
----------------- -----------------
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
REVENUES $ 4,175,000 $ 4,208,200
----------------- -----------------
OPERATING EXPENSES:
Service costs 1,430,100 1,391,500
General and administrative expenses 519,600 547,600
General Partner management fees and reimbursed expenses 447,100 424,800
Depreciation and amortization 356,400 340,400
----------------- -----------------
2,753,200 2,704,300
----------------- -----------------
OPERATING INCOME 1,421,800 1,503,900
OTHER INCOME (EXPENSE):
Interest income 101,600 76,800
Interest expense (9,500) (14,100)
----------------- -----------------
NET INCOME $ 1,513,900 $ 1,566,600
----------------- -----------------
----------------- -----------------
</TABLE>
-9-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
----------------------
----------------------
ENSTAR CABLE OF MACOUPIN COUNTY
Each of the Partnership and two affiliated partnerships (Enstar
Income Program IV-1, 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
September 30, 1998 and December 31, 1997, and the results of its operations
for the three and nine months ended September 30, 1998 and 1997, have been
included. The results of operations for the three and nine months ended
September 30, 1998 are not necessarily indicative of results for the entire
year.
<TABLE>
<CAPTION>
December 31, September 30,
1997* 1998
------------------ -----------------
(Unaudited)
<S> <C> <C>
Current assets $ 893,900 $ 1,214,000
Investment in cable television properties, net 1,667,100 1,577,400
Other assets 3,000 2,400
------------------ -----------------
$ 2,564,000 $ 2,793,800
------------------ -----------------
------------------ -----------------
Current liabilities $ 438,200 $ 250,200
Venturers' capital 2,125,800 2,543,600
------------------ -----------------
$ 2,564,000 $ 2,793,800
------------------ -----------------
------------------ -----------------
</TABLE>
*As presented in the audited financial statements.
-10-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
----------------------
----------------------
ENSTAR CABLE OF MACOUPIN COUNTY (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
--------------------------------------
Three months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
REVENUES $ 501,100 $ 500,200
----------------- -----------------
OPERATING EXPENSES:
Service costs 141,600 162,900
General and administrative expenses 49,000 24,200
General Partner management fees and reimbursed expenses 74,300 80,600
Depreciation and amortization 136,900 82,200
----------------- -----------------
401,800 349,900
----------------- -----------------
OPERATING INCOME 99,300 150,300
OTHER INCOME (EXPENSE):
Interest income 8,400 11,200
Interest expense (3,300) (3,100)
----------------- -----------------
NET INCOME $ 104,400 $ 158,400
----------------- -----------------
----------------- -----------------
<CAPTION>
Unaudited
--------------------------------------
Nine months ended
September 30,
--------------------------------------
1997 1998
----------------- -----------------
<S> <C> <C>
REVENUES $ 1,475,400 $ 1,497,700
----------------- -----------------
OPERATING EXPENSES:
Service costs 411,000 468,100
General and administrative expenses 108,200 96,800
General Partner management fees and reimbursed expenses 218,800 233,900
Depreciation and amortization 470,700 257,800
----------------- -----------------
1,208,700 1,056,600
----------------- -----------------
OPERATING INCOME 266,700 441,100
OTHER INCOME (EXPENSE):
Interest income 22,500 23,100
Interest expense (8,700) (8,900)
----------------- -----------------
NET INCOME $ 280,500 $ 455,300
----------------- -----------------
----------------- -----------------
</TABLE>
-11-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") required the Federal Communications Commission ("FCC")
to, among other things, implement extensive regulation of the rates charged
by cable television systems for basic and programming service tiers,
installation, and customer premises equipment leasing. Compliance with those
rate regulations has had a negative impact on the Partnership's revenues and
cash flow. The Telecommunications Act of 1996 (the "1996 Telecom Act")
substantially changed the competitive and regulatory environment for cable
television and telecommunications service providers. Among other changes, the
1996 Telecom Act provides that the regulation of cable programming service
tier ("CPST") rates will be terminated on March 31, 1999. Because cable
service rate increases have continued to outpace inflation under the FCC's
existing regulations, it is possible that Congress and the FCC will consider
additional methods of regulating cable service rate increases, including
deferral or repeal of the March 31, 1999 termination of CPST rate regulation.
There can be no assurance as to what, if any, further action may be taken by
the FCC, Congress or any other regulatory authority or court, or the effect
thereof on the Partnership's business. Accordingly, the Partnership's
historical financial results as described below are not necessarily
indicative of future performance.
This Report includes certain forward looking statements regarding,
among other things, future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing
cable television operators such as the Partnership. In addition to the
information provided herein, reference is made to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1997 for additional
information regarding such matters and the effect thereof on the
Partnership's business.
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-1, L.P.).
The Macoupin Joint Venture is owned equally by the Partnership and two
affiliated partnerships (Enstar Income Program IV-1, 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.
-12-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, 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 Joint Ventures made distributions totaling $153,700
and $327,200 to the Partnership and the Partnership distributed $125,800 and
$377,400 to its partners during the three and nine months ended September 30,
1998.
THE PBD JOINT VENTURE
The PBD Joint Venture's revenues decreased from $1,399,900 to
$1,377,800, or by 1.6%, and increased from $4,175,000 to $4,208,200, or by
less than one percent, for the three and nine months ended September 30, 1998
as compared to the corresponding periods in 1997. Of the $22,100 decrease in
revenues for the three months ended September 30, 1998 as compared to the
corresponding period in 1997, $25,200 was due to decreases in the number of
subscriptions for premium, tier and equipment rental services and $5,800 was
due to decreases in other revenue producing items. These decreases were
partially offset by an increase of $8,900 due to increases in regulated
service rates that were implemented by the PBD Joint Venture in 1997. Of the
$33,200 increase in revenues for the nine months ended September 30, 1998 as
compared to the corresponding period in 1997, $59,400 was due to increases in
regulated service rates that were implemented by the PBD Joint Venture in
1997 and $14,400 was due to increases in other revenue producing items. These
increases were partially offset by a decrease of $40,600 due to decreases in
the number of subscriptions for basic, premium, tier and equipment rental
services. As of September 30, 1998, the PBD Joint Venture had approximately
13,300 basic subscribers and 3,500 premium service units.
Service costs decreased from $481,800 to $451,600, or by 6.3%, and
from $1,430,100 to $1,391,500, or by 2.7%, for the three and nine months
ended September 30, 1998 as compared to the corresponding periods in 1997.
Service costs represent costs directly attributable to providing cable
services to customers. The decreases were principally due to 1997 copyright
fee expense estimates that were reduced in 1998 and due to the industry-wide
change in status of one satellite service that resulted in lower 1998
copyright fees.
General and administrative expenses decreased from $196,000 to
$170,400, or by 13.1%, for the three months ended September 30, 1998 as
compared to the corresponding period in 1997. For the nine months ended
September 30, 1998, general and administrative expenses increased from
$519,600 to $547,600, or by 5.4%, as compared to the corresponding period in
1997. The decrease for the three months ended September 30, 1998 was
primarily due to decreases in marketing costs and bad debt expense. The
increase for the nine months ended September 30, 1998 was primarily due to
1996 insurance expense estimates that were reduced in 1997, resulting in a
decrease in 1997 insurance expense.
Management fees and reimbursed expenses decreased from $148,500 to
$138,300, or by 6.9%, and from $447,100 to $424,800, or by 5.0%, for the
three and nine months ended September 30, 1998 as compared to the
corresponding periods in 1997. Management fees decreased in the three months
and increased in the nine months ended September 30, 1998 in direct relation
to the changes in revenues as described above. Reimbursed expenses decreased
due to lower allocated personnel costs resulting from staff reductions.
-13-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Depreciation and amortization expense decreased from $120,300 to
$113,300, or by 5.8%, and from $356,400 to $340,400, or by 4.5%, for the
three and nine months ended September 30, 1998 as compared to the
corresponding periods in 1997. The decreases were primarily due to the effect
of certain tangible assets becoming fully depreciated and certain intangible
assets becoming fully amortized.
Operating income increased from $453,300 to $504,200, or by 11.2%,
and from $1,421,800 to $1,503,900, or by 5.8%, for the three and nine months
ended September 30, 1998 as compared to the corresponding periods in 1997.
The increases were primarily due to a decrease in copyright fee expense as
described above.
Interest income, net of interest expense, decreased from $32,500 to
$25,700, or by 20.9%, and from $92,100 to $62,700, or by 31.9%, for the three
and nine months ended September 30, 1998 as compared to the corresponding
periods in 1997. The decreases were primarily due to lower cash balances
available for investment.
Due to the factors described above, the PBD Joint Venture's net
income increased from $485,800 to $529,900, or by 9.1%, and from $1,513,900
to $1,566,600, or by 3.5%, for the three and nine months ended September 30,
1998 as compared to the corresponding periods in 1997.
Based on its experience in the cable television industry, the PBD
Joint Venture 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
increased from 41.0% to 44.8% and from 42.6% to 43.8% for the three and nine
months ended September 30, 1998 as compared to the corresponding periods in
1997. The increases were primarily due to decreases in copyright fee expense.
EBITDA increased from $573,600 to $617,500, or by 7.7%, and from $1,778,200
to $1,844,300, or by 3.7%, for the three and nine months ended September 30,
1998 as compared to the corresponding periods in 1997.
MACOUPIN JOINT VENTURE
The Macoupin Joint Venture's revenues decreased from $501,100 to
$500,200, or by less than one percent, and increased from $1,475,400 to
$1,497,700, or by 1.5%, for the three and nine months ended September 30,
1998 as compared to the corresponding periods in 1997. Of the $900 decrease
in revenues for the three months ended September 30, 1998 as compared to the
corresponding period in 1997, $19,900 was due to decreases in the number of
subscriptions for basic, premium, tier and equipment rental and $3,400 was
due to decreases in other revenue producing items. These decreases were
partially offset by an increase of $22,400 due to increases in regulated
service rates that were implemented by the Macoupin Joint Venture in 1997. Of
the $22,300 increase in revenues for the nine months ended September 30, 1998
as compared to the corresponding
-14-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
period in 1997, $84,000 was due to increases in regulated service rates that
were implemented by the Macoupin Joint Venture in 1997. These increases were
partially offset by a decrease of $59,100 due to decreases in the number of
subscriptions for basic, premium, tier and equipment rental services and
$2,600 due to decreases in other revenue producing items. As of September 30,
1998, the Macoupin Joint Venture had approximately 4,500 basic subscribers
and 1,300 premium service units.
Service costs increased from $141,600 to $162,900, or by 15.0%, and
from $411,000 to $468,100, or by 13.9%, for the three and nine months ended
September 30, 1998 as compared to the corresponding periods in 1997. Service
costs represent costs directly attributable to providing cable services to
customers. The increases were principally due to higher programming fees and
lower capitalization of labor and overhead costs resulting from reductions in
1998 construction activity in the Auburn, Illinois franchise area.
Programming expense increased as a result of higher rates charged by program
suppliers.
General and administrative expenses decreased from $49,000 to
$24,200, or by 50.6%, and from $108,200 to $96,800, or by 10.5%, for the
three and nine months ended September 30, 1998 as compared to the
corresponding periods in 1997. The decreases were principally due to lower
insurance premiums.
Management fees and reimbursed expenses increased from $74,300 to
$80,600, or by 8.5%, and from $218,800 to $233,900, or by 6.9%, for the three
and nine months ended September 30, 1998 as compared to the corresponding
periods in 1997. Management fees decreased in the three months and increased
in the nine months ended September 30, 1998 in direct relation to changes in
revenues as described above. Reimbursed expenses increased primarily due to
higher allocated personnel costs resulting from staff additions and wage
increases in the 1998 periods.
Depreciation and amortization expense decreased from $136,900 to
$82,200, or by 40.0%, and from $470,700 to $257,800, or by 45.2%, for the
three and nine months ended September 30, 1998 as compared to the
corresponding periods in 1997. The decreases were due to certain tangible
assets becoming fully depreciated and certain intangible assets becoming
fully amortized.
Operating income increased from $99,300 to $150,300 and from
$266,700 to $441,100 for the three and nine months ended September 30, 1998
as compared to the corresponding periods in 1997. The increases were
primarily due to decreased depreciation and amortization expense and lower
insurance premiums as described above.
Interest income, net of interest expense, increased from $5,100 to
$8,100, or by 58.8%, and from $13,800 to $14,200, or by 2.9%, for the three
and nine months ended September 30, 1998 as compared to the corresponding
periods in 1997. The increases were due to higher average cash balances
available for investment in the 1998 periods.
Due to the factors described above, the Macoupin Joint Venture's net
income increased from $104,400 to $158,400, or by 51.7% and from $280,500 to
$455,300, or by 62.3%, for the three and nine months ended September 30, 1998
as compared to the corresponding periods in 1997.
-15-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
EBITDA as a percentage of revenues decreased from 47.1% to 46.5% and
from 50.0% to 46.7% for the three and nine months ended September 30, 1998 as
compared to the corresponding periods in 1997. The decreases were primarily
due to decreases in capitalization of labor and overhead costs and increases
in programming fees as described above. EBITDA decreased from $236,200 to
$232,500, or by 1.6%, and from $737,400 to $698,900, or by 5.2%, for the
three and nine months ended September 30, 1998 as compared to the
corresponding periods in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net
offering proceeds in 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 under a
provision of its franchise agreement. Capital expenditures related to the
rebuild totaled approximately $430,900 as of December 31, 1997. 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. Expenditures related to the total rebuild were only
$94,500 in the first nine months of 1998 due to delays in obtaining certain
permits.
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 provided the franchise agreements are renewed. The
renewed franchise agreements are expected to require the Macoupin Joint
Venture to upgrade the cable systems in those franchise areas within two and
three years. 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, 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 and Macoupin Joint Venture spent
approximately $170,500 and $46,500, respectively, in the first nine months of
1998 to upgrade equipment and other assets.
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.
-16-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Partnership is party to a loan agreement with EFC which provides
for a revolving loan facility of $3,320,700 (the "Facility"). The Partnership
expects to use borrowings under the Facility for the rebuild and upgrade of
the Joint Ventures' systems. 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 (8.25% at September 30, 1998) 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 ratio of debt to cash flow is greater than 4
to 1.
The Partnership paid distributions totaling $125,800 and $377,400
during the three and nine months ended September 30, 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 made the election to self-insure for these
risks based upon a comparison of historical damage sustained over the
previous five years with the cost and amount of insurance currently
available, there can be no assurance that future self-insured losses will not
exceed prior costs of maintaining insurance for these risks. Approximately
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.
In October 1998, the Joint Ventures reinstated third party insurance
coverage against damage to their cable distribution plant and subscriber
connections and against business interruptions resulting from such damage.
Although this coverage is subject to a significant annual deductible, the
policy is intended to insure the Joint Ventures against catastrophic losses,
if any, in future periods.
During the third quarter, the Corporate General Partner continued
its identification and evaluation of the 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. The evaluation
-17-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
has focused on identification and assessment of systems and equipment that
may fail to distinguish between the year 1900 and the year 2000 and, as a
result, may cease to operate or may operate improperly when dates after
December 31, 1999 are introduced.
Based on a study conducted in 1997, the Corporate General Partner
concluded that certain of the Joint Ventures' information systems were not
Year 2000 compliant and elected to replace such software and hardware with
applications and equipment certified by the vendors as Year 2000 compliant.
The Corporate General Partner expects to install substantially all of the new
systems in the fourth quarter of 1998, with the remaining systems to be
installed in the first half of 1999. The total anticipated cost, including
replacement software and hardware, will be borne by FCLP. FCLP is utilizing
internal and external resources to install the new systems. The Partnership
does not believe that any other significant information technology ("IT")
projects affecting the Partnership have been delayed due to efforts to
identify and address Year 2000 issues.
Additionally, the Joint Ventures have inventoried their operating
and revenue generating equipment to identify items that need to be upgraded
or replaced and have surveyed cable equipment manufacturers to determine
which of their models require upgrade or replacement to become Year 2000
compliant. Identification and evaluation are essentially completed and a plan
is being developed to remediate non-compliant equipment prior to January 1,
2000. The Joint Ventures expect to complete their planning process by the end
of 1998. Upgrade or replacement, testing and implementation will be performed
in 1999. The cost of such replacement or remediation, currently estimated at
$63,000, is not expected to have a material effect on the Partnership's or
Joint Ventures' financial position or results of operations. The Joint
Ventures have not incurred any costs related to the Year 2000 project as of
September 30, 1998. The Joint Ventures plan to inventory, assess, replace and
test equipment with embedded computer chips in a separate segment of their
project, presently scheduled for 1999.
The Joint Ventures have continued to survey their 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. Among the most
significant 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. A majority of
these service suppliers either have not responded to the Joint Ventures'
inquiries regarding their Year 2000 compliance programs or have responded
that they are unsure if they will become compliant on a timely basis.
Consequently, there can be no assurance that the systems of other companies
on which the Joint Ventures must rely will be Year 2000 compliant on a timely
basis.
The Joint Ventures expect to develop a contingency plan in 1999 to
address possible situations in which various systems of the Joint Ventures,
or of third parties with which the Joint Ventures do business, are not
compliant prior to January 1, 2000. Considerable effort will be directed
toward distinguishing between those contingencies with a greater probability
of occurring from those whose occurrence is considered remote. Moreover, such
a plan will necessarily focus on systems whose failure poses a material risk
to the Joint Ventures' results of operations and financial condition.
-18-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Joint Ventures' most significant Year 2000 risk is an
interruption of service to subscribers, resulting in a potentially material
loss of revenues. Other risks include impairment of the Joint Ventures'
ability to bill and/or collect payment from their customers, which could
negatively impact their liquidity and cash flows. Such risks exist primarily
due to technological operations dependent upon third parties and to a much
lesser extent to those under the control of the Joint Ventures. Failure to
achieve Year 2000 readiness in either area could have a material adverse
impact on the Joint Ventures and consequently on the Partnership. The Joint
Ventures are unable to estimate the possible effect on their results of
operations, liquidity and financial condition should their significant
service suppliers fail to complete their readiness programs prior to the Year
2000. Depending on the supplier, equipment malfunction or type of service
provided, as well as the location and duration of the problem, the effect
could be material. For example, if a cable programming supplier encounters an
interruption of its signal due to a Year 2000 satellite malfunction, the
Joint Ventures will be unable to provide the signal to their cable
subscribers, which could result in a loss of revenues. Due to the number of
individually owned and operated channels the Joint Ventures carry for their
subscribers, and the packaging of those channels, the Joint Ventures are
unable to estimate any reasonable dollar impact of such interruption.
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Operating activities used $40,300 less cash during the nine months
ended September 30, 1998 than in the corresponding period in 1997. Changes in
prepaid expenses and liabilities owed to third-party creditors and the
Corporate General Partner used $6,400 more cash in the nine months ended
September 30, 1998 than in the comparable 1997 period due to differences in
the timing of payments.
Investing activities provided $1,052,800 less cash in the first nine
months of 1998 than in the corresponding prior year period due to a decrease
in distributions from the Joint Ventures. The Partnership used $1,044,000
more cash in financing activities in the nine months ended September 30, 1997
than in the corresponding period of 1998, including $1,000,000 for the
repayment of debt and $44,100 more cash for the payment of deferred loan
costs related to its Facility with EFC.
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.
-19-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) None.
(b) The Registrant filed a Form 8-K dated
September 18, 1998, in which it reported
under Item 5 that an unsolicited offer to
purchase partnership units had been made
without the consent of the Corporate General
Partner.
<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-2, L.P.
a GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 13, 1998 By: /s/ Michael K. Menerey
----------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE DONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1998, AND THE STATMENTS OF OPERATIONS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATMENTS.
</LEGEND>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 258,600
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<RECEIVABLES> 0
<ALLOWANCES> 0
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<OTHER-EXPENSES> (10,200)
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<INTEREST-EXPENSE> 24,100
<INCOME-PRETAX> 894,100
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