<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 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
---------
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> 2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED BALANCE SHEETS
====================================
<TABLE>
<CAPTION>
December 31, June 30,
1997* 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 357,800 $ 252,100
Prepaid expenses 3,300 1,200
----------- -----------
Equity in net assets of Joint Ventures:
Enstar IV/PBD Systems Venture 1,415,500 1,766,900
Enstar Cable of Macoupin County 708,600 801,100
----------- -----------
2,124,100 2,568,000
----------- -----------
Deferred loan costs, net 45,000 41,500
----------- -----------
$ 2,530,200 $ 2,862,800
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 20,400 $ 11,100
Due to affiliates 10,700 12,000
----------- -----------
TOTAL LIABILITIES 31,100 23,100
----------- -----------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (58,100) (54,700)
Limited partners 2,557,200 2,894,400
----------- -----------
TOTAL PARTNERSHIP CAPITAL 2,499,100 2,839,700
----------- -----------
$ 2,530,200 $ 2,862,800
=========== ===========
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE> 3
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
====================================
<TABLE>
<CAPTION>
Unaudited
---------------------------
Three months ended
June 30,
---------------------------
1997 1998
--------- ---------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (9,400) $ (7,000)
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 6,000 3,200
Interest expense (29,800) (8,000)
--------- ---------
(23,800) (4,800)
--------- ---------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (33,200) (11,800)
--------- ---------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 279,400 260,800
Enstar Cable of Macoupin County 20,400 57,800
--------- ---------
299,800 318,600
--------- ---------
NET INCOME $ 266,600 $ 306,800
========= =========
NET INCOME ALLOCATED TO GENERAL PARTNERS $ 2,700 $ 3,100
========= =========
NET INCOME ALLOCATED TO LIMITED PARTNERS $ 263,900 $ 303,700
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 6.62 $ 7.62
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,848 39,848
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE> 4
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
====================================
<TABLE>
<CAPTION>
Unaudited
---------------------------
Six months ended
June 30,
---------------------------
1997 1998
--------- ---------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (15,900) $ (15,200)
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 12,400 7,000
Interest expense (55,700) (17,000)
--------- ---------
(43,300) (10,000)
--------- ---------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (59,200) (25,200)
--------- ---------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 514,100 518,400
Enstar Cable of Macoupin County 58,700 99,000
--------- ---------
572,800 617,400
--------- ---------
NET INCOME $ 513,600 $ 592,200
========= =========
NET INCOME ALLOCATED TO GENERAL PARTNERS $ 5,100 $ 5,900
========= =========
NET INCOME ALLOCATED TO LIMITED PARTNERS $ 508,500 $ 586,300
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 12.76 $ 14.71
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,848 39,848
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE> 5
ENSTAR INCOME PROGRAM IV-2, L.P.
STATEMENTS OF CASH FLOWS
====================================
<TABLE>
<CAPTION>
Unaudited
---------------------------
Six months ended
June 30,
---------------------------
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 513,600 $ 592,200
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Joint Ventures (572,800) (617,400)
Amortization of deferred loan costs 8,400 5,200
Increase (decrease) from changes in:
Prepaid expenses (200) 2,100
Accounts payable and due to affiliates 4,000 (8,000)
--------- ---------
Net cash used in operating activities (47,000) (25,900)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Ventures 270,000 173,500
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (251,600) (251,600)
Deferred loan costs -- (1,700)
--------- ---------
Net cash used in financing activities (251,600) (253,300)
--------- ---------
DECREASE IN CASH AND CASH EQUIVALENTS (28,600) (105,700)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 619,300 357,800
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 590,700 $ 252,100
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE> 6
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 six months ended June 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 six months ended June 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) for the Partnership's allocable share of the Manager's operational costs.
The Corporate General Partner has contracted with Falcon Holding Group, L.P.
("FHGLP"), an affiliated partnership, to provide corporate management services
for the Partnership 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, 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 $91,200 and
$181,400 and reimbursement of expenses of approximately $127,500 and $248,400
under the management agreements for the three and six months ended June 30,
1998. In addition, the Macoupin Joint Venture paid the Corporate General Partner
approximately $5,000 and $10,000 in respect of its 1% special interest during
the three and six months ended June 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 $48,700 and $85,000
in the three and six months ended June 30, 1998. No management
-6-
<PAGE> 7
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
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 charges the Joint Ventures for
these costs based on an estimate of what the Corporate General Partner could
negotiate for such programming services for the 15 partnerships managed by the
Corporate General Partner as a group. The Joint Ventures recorded programming
fee expense of $443,800 and $883,200 for the three and six months ended June 30,
1998. 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, 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> 8
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
June 30, 1998 and December 31, 1997, and the results of its operations for the
three and six months ended June 30, 1998 and 1997, have been included. The
results of operations for the three and six months ended June 30, 1998 are not
necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, June 30,
1997* 1998
---------- ----------
(Unaudited)
<S> <C> <C>
Current assets $1,864,600 $2,598,500
Investment in cable television properties, net 1,655,700 1,581,200
Other assets 38,100 22,400
---------- ----------
$3,558,400 $4,202,100
========== ==========
Current liabilities $ 727,400 $ 668,400
Venturers' capital 2,831,000 3,533,700
---------- ----------
$3,558,400 $4,202,100
========== ==========
</TABLE>
*As presented in the audited financial statements.
-8-
<PAGE> 9
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
ENSTAR IV/PBD SYSTEMS VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
-------------------------------
Three months ended
June 30,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
REVENUES $ 1,391,700 $ 1,423,300
----------- -----------
OPERATING EXPENSES:
Service costs 483,300 469,100
General and administrative expenses 157,100 193,600
General Partner management fees and reimbursed expenses 150,700 146,500
Depreciation and amortization 73,200 114,100
----------- -----------
864,300 923,300
----------- -----------
OPERATING INCOME 527,400 500,000
OTHER INCOME (EXPENSE):
Interest income 34,700 26,100
Interest expense (3,500) (4,600)
----------- -----------
NET INCOME $ 558,600 $ 521,500
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Unaudited
-------------------------------
Six months ended
June 30,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
REVENUES $ 2,775,100 $ 2,830,400
----------- -----------
OPERATING EXPENSES:
Service costs 948,300 939,900
General and administrative expenses 323,600 377,200
General Partner management fees and reimbursed expenses 298,600 286,500
Depreciation and amortization 236,100 227,100
----------- -----------
1,806,600 1,830,700
----------- -----------
OPERATING INCOME 968,500 999,700
OTHER INCOME (EXPENSE):
Interest income 63,100 47,000
Interest expense (3,500) (10,000)
----------- -----------
NET INCOME $ 1,028,100 $ 1,036,700
=========== ===========
</TABLE>
-9-
<PAGE> 10
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 June 30, 1998 and December 31,
1997, and the results of its operations for the three and six months ended June
30, 1998 and 1997, have been included. The results of operations for the three
and six months ended June 30, 1998 are not necessarily indicative of results for
the entire year.
<TABLE>
<CAPTION>
December 31, June 30,
1997* 1998
---------- ----------
(Unaudited)
<S> <C> <C>
Current assets $ 893,900 $1,077,200
Investment in cable television properties, net 1,667,100 1,607,700
Other assets 3,000 2,800
---------- ----------
$2,564,000 $2,687,700
========== ==========
Current liabilities $ 438,200 $ 284,500
Venturers' capital 2,125,800 2,403,200
---------- ----------
$2,564,000 $2,687,700
========== ==========
</TABLE>
*As presented in the audited financial statements.
-10-
<PAGE> 11
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
ENSTAR CABLE OF MACOUPIN COUNTY (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
---------------------------
Three months ended
June 30,
---------------------------
1997 1998
--------- ---------
<S> <C> <C>
REVENUES $ 492,700 $ 500,600
--------- ---------
OPERATING EXPENSES:
Service costs 139,400 143,900
General and administrative expenses 45,100 29,400
General Partner management fees and reimbursed expenses 73,300 77,200
Depreciation and amortization 179,200 80,800
--------- ---------
437,000 331,300
--------- ---------
OPERATING INCOME 55,700 169,300
OTHER INCOME (EXPENSE):
Interest income 8,400 7,100
Interest expense (3,000) (3,000)
--------- ---------
NET INCOME $ 61,100 $ 173,400
========= =========
</TABLE>
<TABLE>
<CAPTION>
Unaudited
---------------------------
Six months ended
June 30,
---------------------------
1997 1998
--------- ---------
<S> <C> <C>
REVENUES $ 974,300 $ 997,500
--------- ---------
OPERATING EXPENSES:
Service costs 269,400 305,200
General and administrative expenses 59,200 72,600
General Partner management fees and reimbursed expenses 144,500 153,300
Depreciation and amortization 333,800 175,600
--------- ---------
806,900 706,700
--------- ---------
OPERATING INCOME 167,400 290,800
OTHER INCOME (EXPENSE):
Interest income 14,100 11,900
Interest expense (5,400) (5,800)
--------- ---------
NET INCOME $ 176,100 $ 296,900
========= =========
</TABLE>
-11-
<PAGE> 12
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, the
Partnership expects Congress and the FCC to explore additional methods of
regulating cable service rate increases, including deferral or repeal of the
March 31, 1999 termination of CPST rate regulation. There can be no assurance as
to what, if any, further action may be taken by the FCC, Congress or any other
regulatory authority or court, or the effect thereof on the Partnership's
business. Accordingly, the Partnership's historical financial results as
described below are not necessarily indicative of future performance.
This Report includes certain forward looking statements regarding,
among other things, future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing cable
television operators such as the Partnership. In addition to the information
provided herein, reference is made to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1997 for additional information regarding
such matters and the effect thereof on the Partnership's business.
All of the Partnership's cable television business operations are
conducted through its participation as a general partner in both the PBD Joint
Venture and the Macoupin Joint Venture. The Partnership has a 50% interest in
the PBD Joint Venture and a one-third (1/3) interest in the Macoupin Joint
Venture. The PBD Joint Venture is owned equally by the Partnership and an
affiliated partnership (Enstar Income Program IV-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> 13
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 $123,500 and $173,500
to the Partnership and the Partnership distributed $125,800 and $251,600 to its
partners during the three and six months ended June 30, 1998.
THE PBD JOINT VENTURE
The PBD Joint Venture's revenues increased from $1,391,700 to
$1,423,300, or by 2.3%, and from $2,775,100 to $2,830,400, or by 2.0%, for the
three and six months ended June 30, 1998 as compared to the corresponding
periods in 1997. Of the $31,600 increase in revenues for the three months ended
June 30, 1998 as compared to the corresponding period in 1997, $28,900 was due
to increases in regulated service rates that were implemented by the Joint
Venture in 1997 and $9,300 was due to increases in other revenue producing
items. These increases were partially offset by a decrease of $6,600 due to
decreases in the number of subscriptions for premium, tier and equipment rental
services. Of the $55,300 increase in revenues for the six months ended June 30,
1998 as compared to the corresponding period in 1997, $76,900 was due to
increases in regulated service rates that were implemented by the Joint Venture
in 1997 and $20,200 was due to increases in other revenue producing items. These
increases were partially offset by a decrease of $41,800 due to decreases in the
number of subscriptions for basic, premium, tier and equipment rental services.
As of June 30, 1998, the PBD Joint Venture had approximately 13,600 basic
subscribers and 3,600 premium service units.
Service costs decreased from $483,300 to $469,100, or by 2.9%, and from
$948,300 to $939,900, or by less than one percent, for the three and six months
ended June 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 payments of copyright fees made
in the first half of 1998 which were lower than the estimates recorded for this
expense at December 31, 1997.
General and administrative expenses increased from $157,100 to
$193,600, or by 23.2%, and from $323,600 to $377,200, or by 16.6%, for the three
and six months ended June 30, 1998 as compared to the corresponding periods in
1997. The increases were primarily due to an increase in insurance expense
related to 1996 insurance estimates that exceeded the payments made in 1997.
This resulted in a decrease in insurance expense in 1997. Higher marketing costs
also contributed to the six months' increase.
Management fees and reimbursed expenses decreased from $150,700 to
$146,500, or by 2.8%, and from $298,600 to $286,500, or by 4.1%, for the three
and six months ended June 30, 1998 as compared to the corresponding periods in
1997. Management fees increased in direct relation to increased revenues as
described above. Reimbursed expenses decreased due to lower allocated personnel
costs resulting from staff reductions and due to lower office rental expense.
Depreciation and amortization expense increased from $73,200 to
$114,100, or by 55.9%, and decreased from $236,100 to $227,100, or by 3.8%, for
the three and six months ended June 30, 1998 as compared to the corresponding
periods in 1997. The three months' increase was primarily due to asset
-13-
<PAGE> 14
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
additions related to the upgrade of the PBD Joint Venture's cable systems and
the six months' decrease was due to the effect of certain intangible assets
becoming fully amortized in 1997.
Operating income decreased from $527,400 to $500,000, or by 5.2%, and
increased from $968,500 to $999,700, or by 3.2%, for the three and six months
ended June 30, 1998 as compared to the corresponding periods in 1997. The three
months' decrease was primarily due to increases in depreciation and amortization
expense and insurance premiums. The six months' increase was primarily due to
increased revenues as described above.
Interest income, net of interest expense, decreased from $31,200 to
$21,500, or by 31.1%, and from $59,600 to $37,000, or by 37.9%, for the three
and six months ended June 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
decreased from $558,600 to $521,500, or by 6.6%, and increased from $1,028,100
to $1,036,700, or by less than one percent, for the three and six months ended
June 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 decreased from 43.2% to 43.1% and from 43.4% to 43.3% for
the three and six months ended June 30, 1998 as compared to the corresponding
periods in 1997. EBITDA increased from $600,600 to $614,100, or by 2.2%, and
from $1,204,600 to $1,226,800, or by 1.8%, for the three and six months ended
June 30, 1998 as compared to the corresponding periods in 1997.
MACOUPIN JOINT VENTURE
The Macoupin Joint Venture's revenues increased from $492,700 to
$500,600, or by 1.6%, and from $974,300 to $997,500, or by 2.4%, for the three
and six months ended June 30, 1998 as compared to the corresponding periods in
1997. Of the $7,900 increase in revenues for the three months ended June 30,
1998 as compared to the corresponding period in 1997, $29,100 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 $2,400
due to decreases in other revenue producing items and $18,800 due to decreases
in the number of subscriptions for basic, premium, tier and equipment rental
services. Of the $23,200 increase in revenues for the six months ended June 30,
1998 as compared to the corresponding period in 1997, $61,700 was due to
increases in regulated service rates that were implemented by the Macoupin Joint
Venture in 1997 and $700
-14-
<PAGE> 15
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
was due to increases in other revenue producing items. These increases were
partially offset by a decrease of $39,200 due to decreases in the number of
subscriptions for basic, premium, tier and equipment rental services. As of June
30, 1998, the Macoupin Joint Venture had approximately 4,500 basic subscribers
and 1,300 premium service units.
Service costs increased from $139,400 to $143,900, or by 3.2%, and from
$269,400 to $305,200, or by 13.3%, for the three and six months ended June 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 personnel costs.
Programming expense increased as a result of higher rates charged by program
suppliers. Personnel costs increased due to staff additions.
General and administrative expenses decreased from $45,100 to $29,400,
or by 34.8%, and increased from $59,200 to $72,600, or by 22.6%, for the three
and six months ended June 30, 1998 as compared to the corresponding periods in
1997. The three months' decrease was principally due to lower insurance
premiums. The six months' increase was principally due to increases in bad debt
expense and professional fees, including audit expense.
Management fees and reimbursed expenses increased from $73,300 to
$77,200, or by 5.3%, and from $144,500 to $153,300, or by 6.1%, for the three
and six months ended June 30, 1998 as compared to the corresponding periods in
1997. Management fees increased in direct relation to increased revenues as
described above. Reimbursed expenses increased primarily due to higher allocated
personnel costs resulting from staff additions.
Depreciation and amortization expense decreased from $179,200 to
$80,800, or by 54.9%, and from $333,800 to $175,600, or by 47.4%, for the three
and six months ended June 30, 1998 as compared to the corresponding periods in
1997. The decreases were due to certain intangible assets becoming fully
amortized and certain tangible assets becoming fully depreciated.
Operating income increased from $55,700 to $169,300 and from $167,400
to $290,800 for the three and six months ended June 30, 1998 as compared to the
corresponding periods in 1997. The increases were primarily due to decreased
depreciation and amortization expense as described above.
Interest income, net of interest expense, decreased from $5,400 to
$4,100, or by 24.1%, and from $8,700 to $6,100, or by 29.9%, for the three and
six months ended June 30, 1998 as compared to the corresponding periods in 1997.
The decreases were due to lower 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 $61,100 to $173,400 and from $176,100 to $296,900 for the
three and six months ended June 30, 1998 as compared to the corresponding
periods in 1997.
-15-
<PAGE> 16
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Based on its experience in the cable television industry, the Macoupin
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 47.7% to 50.0% and
decreased from 51.4% to 46.8% for the three and six months ended June 30, 1998
as compared to the corresponding periods in 1997. The three months' increase was
primarily due to higher revenues and lower insurance premiums. The six months'
decrease was primarily due to higher programming expense and personnel costs as
described above. EBITDA increased from $234,900 to $250,100, or by 6.5%, and
decreased from $501,200 to $466,400, or by 6.9%, for the three and six months
ended June 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 as a condition of its franchise agreement. Capital expenditures
related to the rebuild totaled approximately $430,900 as of December 31, 1997.
The Macoupin Joint Venture has budgeted additional expenditures of $25,000 in
1998 to complete the rebuild. The Macoupin Joint Venture is also rebuilding
portions of its cable systems in surrounding communities at an estimated
additional cost of approximately $1,500,000. Capital expenditures in the
surrounding communities approximated $876,600 as of December 31, 1997. The
Macoupin Joint Venture has budgeted additional expenditures of $635,000 in 1998
to complete the rebuild. Expenditures related to the total rebuild approximated
$78,000 in the first six months of 1998.
The Macoupin Joint Venture also expects to upgrade its cable plant in
Girard and Carlinville, Illinois beginning in 1999 at an estimated cost of
approximately $2.4 million. The PBD Joint Venture postponed the upgrade of its
Mt. Carmel, Illinois cable system that had been budgeted for 1997 pending
renewal of the franchise agreement. The PBD Joint Venture has budgeted
approximately $1.2 million and $7.3 million to upgrade its Mt. Carmel, Illinois
and Poplar Bluff, Missouri cable systems, respectively, beginning in 1998,
provided franchise renewals are obtained and adequate funds are available. The
PBD Joint Venture and Macoupin Joint Venture have budgeted expenditures of
$180,000 and $75,000, respectively, to upgrade other assets in 1998. Such
expenditures approximated $123,600 and $20,000, respectively, in the first six
months of 1998.
-16-
<PAGE> 17
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
As discussed in prior reports, the Joint Ventures postponed a number of
rebuild and upgrade projects because of the uncertainty related to
implementation of the 1992 Cable Act and the negative impact thereof on the
Joint Ventures' businesses and access to capital. Although the Joint Ventures
are presently rebuilding a number of their cable systems, a majority of their
customers are served by systems that have not been rebuilt. As a result, these
systems are significantly less technically advanced than had been expected prior
to the implementation of reregulation. The Joint Ventures believe that the
delays in upgrading many of their systems have had an adverse effect on the
value of those systems compared to systems that have been rebuilt to a higher
technical standard.
On September 30, 1997, the Partnership entered into a loan agreement
with Enstar Finance Company, LLC ("EFC"), a subsidiary of the Corporate General
Partner, for a revolving loan facility of $3,320,700 (the "Facility"). The
Partnership expects to use borrowings under the Facility for the rebuild and
upgrade of the Joint Ventures' systems. The Partnership used available cash to
repay outstanding borrowings of $1,000,000 and related interest expense under
its previous credit facility. No advances had been made under the new Facility
as of the date of this Report.
The Partnership's Facility will terminate on August 31, 2001, at which
time all funds previously advanced will be due in full. Borrowings bear interest
at the lender's base rate (8.5% at June 30, 1998) plus 0.625%, or at an offshore
rate plus 1.875%. The Partnership is permitted to prepay amounts outstanding
under the Facility at any time without penalty, and is able to reborrow
throughout the term of the Facility up to the maximum commitment then available
so long as no event of default exists. If the Partnership has excess cash flow
and its ratio of debt to cash flow exceeds 4.25 to 1, or it receives proceeds
from sales of its assets in excess of a specified amount, the Partnership is
required to make mandatory prepayments under its Facility. Such prepayments
permanently reduce the maximum commitment under the Facility.
The Facility contains certain financial tests and other covenants
including, among others, restrictions on incurrence of indebtedness,
investments, sales of assets, acquisitions and other covenants, defaults and
conditions. The Facility does not restrict the payment of distributions to
partners unless an event of default exists thereunder or the ratio of debt to
cash flow is greater than 4 to 1.
The Partnership paid distributions totaling $125,800 and $251,600
during the three and six months ended June 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 have made the election to self-insure for
these risks based upon a comparison of historical damage sustained over the past
five years with the cost and amount of insurance currently available, there can
be no assurance that future self-insured losses will not exceed prior costs of
maintaining insurance for these risks. Approximately 85% of the Joint Ventures'
subscribers are served by
-17-
<PAGE> 18
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
their systems in Poplar Bluff, Missouri and Carlinville, Illinois and
neighboring communities. Significant damage to these systems due to seasonal
weather conditions or other events could have a material adverse effect on the
Joint Ventures' liquidity and cash flows. The Joint Ventures continue to
purchase insurance coverage in amounts their management views as appropriate for
all other property, liability, automobile, workers' compensation and other types
of insurable risks.
The "Year 2000" issue refers to certain contingencies that could result
from computer programs being written using two digits rather than four to define
the year. Many existing computer systems, including certain computer systems of
the Partnership and Joint Ventures, process transactions based on two digits for
the year of the transaction (for example, "98" for 1998). These computer systems
may not operate effectively when the last two digits become "00," as will occur
on January 1, 2000.
The Corporate General Partner has commenced an assessment of the
Partnership's and Joint Ventures' Year 2000 business risks and their exposure to
computer systems, to operating equipment which is date sensitive and to the
interface systems of their vendors and service providers. Based on a preliminary
study, the Corporate General Partner has concluded that certain of the
Partnership's and Joint Ventures' information systems were not Year 2000
compliant and has elected to replace such software and hardware with Year 2000
compliant applications and equipment, although the decision to replace major
portions of such software and hardware had previously been made without regard
to the Year 2000 issue. The Corporate General Partner expects to install
substantially all of the new systems in 1998, with the remaining systems to be
installed in the first half of 1999. The total anticipated cost, including
replacement software and hardware, will be borne by FHGLP.
In addition to evaluating internal systems, the Corporate General
Partner is currently assessing exposure to risks associated with operating and
revenue generating equipment and has also initiated communications with
significant third party vendors and service suppliers to determine the extent to
which the Partnership's and Joint Ventures' interface systems are vulnerable
should those third parties fail to solve their own Year 2000 problems on a
timely basis. The Joint Ventures currently expect that the cost to replace
non-compliant equipment will be determined during the third quarter of 1998.
Such costs will be borne by the Joint Ventures. There can be no assurance that
the systems of other companies on which the Partnership's and Joint Ventures'
systems rely will be timely converted and that the failure to do so would not
have an adverse impact on their business. The Partnership and Joint Ventures
continue to closely monitor developments with their vendors and service
suppliers.
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Operating activities used $21,100 less cash during the six months ended
June 30, 1998 than in the corresponding first half of 1997. Changes in prepaid
expenses and liabilities owed to third-party creditors and the Corporate General
Partner used $9,700 more cash in the six months ended June 30, 1998 due to
differences in the timing of payments.
-18-
<PAGE> 19
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Investing activities provided $96,500 less cash in the first half of
1998 than in the corresponding prior year period due to a decrease in
distributions from the Joint Ventures. The Partnership used $1,700 more cash in
financing activities 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> 20
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 May 8, 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> 21
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: August 13, 1998 By: /s/ Michael K. Menerey
-------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1998, AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 252,100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,862,800
<CURRENT-LIABILITIES> 23,100
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,862,800
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 15,200
<OTHER-EXPENSES> (7,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,000
<INCOME-PRETAX> 592,200
<INCOME-TAX> 0
<INCOME-CONTINUING> 592,200
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<NET-INCOME> 592,200
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