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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-15706
ENSTAR INCOME PROGRAM IV-2, L.P.
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(Exact name of Registrant as specified in its charter)
GEORGIA 58-1648318
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10900 WILSHIRE BOULEVARD - 15TH FLOOR
LOS ANGELES, CALIFORNIA 90024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 824-9990
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Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
<TABLE>
<CAPTION>
Name of each exchange
Title of each Class on which registered
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<S> <C>
UNITS OF LIMITED PARTNERSHIP INTEREST NONE
</TABLE>
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
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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting equity securities
held by non-affiliates of the registrant - all of the registrant's 39,848
units of limited partnership interests, its only class of equity securities,
are held by non-affiliates. There is no public trading market for the units,
and transfers of units are subject to certain restrictions; accordingly, the
registrant is unable to state the market value of the units held by
non-affiliates.
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The Exhibit Index is located at Page E-1.
<PAGE>
PART I
ITEM 1. BUSINESS
INTRODUCTION
Enstar Income Program IV-2, L.P., a Georgia limited partnership
(the "Partnership"), is engaged in the ownership, operation and development,
and, when appropriate, sale or other disposition, of cable television systems
in small to medium-sized communities. The Partnership was formed on October
16, 1985. The general partners of the Partnership are Enstar Communications
Corporation, a Georgia corporation (the "Corporate General Partner"), and
Robert T. Graff, Jr. (the "Individual General Partner" and, together with the
Corporate General Partner, the "General Partners"). On September 30, 1988,
ownership of the Corporate General Partner was acquired by Falcon
Cablevision, a California limited partnership that has been engaged in the
ownership and operation of cable television systems since 1984 ("Falcon
Cablevision"). The general partner of Falcon Cablevision was Falcon Holding
Group, L.P., a Delaware limited partnership ("FHGLP"), until September 1998.
On September 30, 1998, FHGLP acquired ownership of the Corporate General
Partner from Falcon Cablevision. Simultaneously with the closing of that
transaction, FHGLP contributed all of its existing cable television system
operations to Falcon Communications, L.P. ("FCLP"), a California limited
partnership and successor to FHGLP. FHGLP serves as the managing partner of
FCLP, and the general partner of FHGLP is Falcon Holding Group, Inc., a
California corporation ("FHGI"). The Corporate General Partner has
contracted with FCLP and its affiliates to provide management services for
the Partnership. See Item 13., "Certain Relationships and Related
Transactions." The General Partner, FCLP and affiliated companies are
responsible for the day to day management of the Partnership and its
operations. See "Employees" below.
Based on its belief that the market for cable systems has generally
improved, the Corporate General Partner is evaluating strategies for liquidating
the Partnership. These strategies include the potential sale of substantially
all of the Partnership's assets to third parties and/or affiliates of the
Corporate General Partner, and the subsequent liquidation of the Partnership.
The Corporate General Partner expects to complete its evaluation within the next
several months and intends to advise unitholders promptly if it believes that
commencing a liquidating transaction would be in the best interests of
unitholders.
A cable television system receives television, radio and data
signals at the system's "headend" site by means of over-the-air antennas,
microwave relay systems and satellite earth stations. These signals are then
modulated, amplified and distributed, primarily through coaxial and fiber optic
distribution systems, to customers who pay a fee for this service. Cable
television systems may also originate their own television programming and other
information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to non-exclusive
franchises or similar licenses granted by local governmental authorities for a
specified term of years.
The systems offer customers various levels (or "tiers") of cable
services consisting of broadcast television signals of local network,
independent and educational stations, a limited number of television signals
from so-called "super stations" originating from distant cities (such as WGN),
various satellite-delivered, non-broadcast channels (such as Cable News Network
("CNN"), MTV: Music Television ("MTV"), the USA Network ("USA"), ESPN, Turner
Network Television ("TNT") and The Disney Channel), programming originated
locally by the cable television system (such as public, educational and
governmental access programs) and informational displays featuring news,
weather, stock market and financial reports, and public service announcements.
A number of the satellite services are also offered in certain packages. For an
extra monthly charge, the systems also offer "premium" television services to
their customers. These services (such as Home Box Office ("HBO") and Showtime)
are satellite channels that consist principally of feature films, live sporting
events, concerts and other special entertainment features, usually presented
without commercial interruption. See "Legislation and Regulation."
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A customer generally pays an initial installation charge and fixed
monthly fees for basic, expanded basic, other tiers of satellite services and
premium programming services. Such monthly service fees constitute the primary
source of revenues for the systems. In addition to customer revenues, the
systems receive revenue from additional fees paid by customers for pay-per-view
programming of movies and special events and from the sale of available
advertising spots on advertiser-supported programming. The systems also offer
to their customers home shopping services, which pay the systems a share of
revenues from sales of products in the systems' service areas, in addition to
paying the systems a separate fee in return for carrying their shopping service.
Certain other channels have also offered the cable systems managed by FCLP,
including those of the Partnership, fees in return for carrying their service.
Due to a general lack of channel capacity available for adding new channels, the
Partnership's management cannot predict the impact of such potential payments on
the Partnership's business. See Item 7., "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."
All of the Partnership's cable television business operations are
conducted through its participation as a co-general partner in both Enstar
IV/PBD Systems Venture and Enstar Cable of Macoupin County (collectively the
"Joint Ventures"), the other general partners of which are also cable television
limited partnerships sponsored by the General Partners of the Partnership. The
Joint Ventures were formed in order to enable each of their partners to
participate in the acquisition and ownership of a more diverse pool of systems
by combining certain of their financial resources. Because all of the
Partnership's operations are conducted through its participation in the Joint
Ventures, much of the discussion in this report relates to the Joint Ventures
and their activities.
Enstar IV/PBD Systems Venture (the "PBD Joint Venture") began its
cable television business operations in 1986 with the acquisition of three cable
television systems providing service in and around the cities of Poplar Bluff,
Missouri, Dexter and Bloomfield, Missouri and Mount Carmel, Illinois. Enstar
Cable of Macoupin County (the "Macoupin Joint Venture") began its cable
television business operations in 1988 with the acquisition of a cable
television system providing service in and around the cities of Carlinville,
Virden, Girard, Thayer and Auburn, Illinois. As of December 31, 1998, cable
systems owned by the Joint Ventures served approximately 13,000 and 4,400 basic
subscribers, respectively. The Joint Ventures do not expect to make any
additional material acquisitions during the remaining terms of the Joint
Ventures.
FCLP receives a management fee and reimbursement of expenses from
the Corporate General Partner for managing the Joint Ventures' cable television
operations. See Item 11., "Executive Compensation."
The Chief Executive Officer of FHGI is Marc B. Nathanson. Mr.
Nathanson has managed FCLP or its predecessors since 1975. Mr. Nathanson is a
veteran of more than 30 years in the cable industry and, prior to forming FCLP's
predecessors, held several key executive positions with some of the nation's
largest cable television companies. The principal executive offices of the
Partnership, the Corporate General Partner and FCLP are located at 10900
Wilshire Boulevard, 15th Floor, Los Angeles, California 90024, and their
telephone number is (310) 824-9990. See Item 10., "Directors and Executive
Officers of the Registrant."
BUSINESS STRATEGY
Historically, the Joint Ventures have followed a systematic
approach to acquiring, operating and developing cable television systems based
on the primary goal of increasing operating cash flow while maintaining the
quality of services offered by their cable television systems. The Joint
Ventures' business strategy has focused on serving small to medium-sized
communities. The Joint Ventures believe that given a similar rate, technical,
and channel capacity/utilization profile, their cable television systems
generally involve less risk of increased competition than systems in large urban
cities. Cable television service is
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necessary in many of the Joint Ventures' markets to receive a wide variety of
broadcast and other television signals. In addition, these markets typically
offer fewer competing entertainment alternatives than large cities.
Nonetheless, the Joint Ventures believe that all cable operations will face
increased competition in the future from alternative providers of
multi-channel video programming services. See "Competition."
Adoption of rules implementing certain provisions of the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") by the Federal Communications Commission (the "FCC") has had a negative
impact on the Joint Ventures' revenues and cash flow. These rules are subject
to further amendment to give effect to the Telecommunications Act of 1996 (the
"1996 Telecom Act"). Among other changes, the 1996 Telecom Act provides that
the regulation of certain cable programming service tier ("CPST") rates will
terminate on March 31, 1999. There can be no assurance as to what, if any,
further action may be taken by the FCC, Congress or any other regulatory
authority or court, or the effect thereof on the Joint Ventures' business. See
"Legislation and Regulation" and Item 7., "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
CLUSTERING
The Joint Ventures have sought to acquire cable television
operations in communities that are proximate to other owned or affiliated
systems in order to achieve the economies of scale and operating efficiencies
associated with regional "clusters." The Joint Ventures believe clustering can
reduce marketing and personnel costs and can also reduce capital expenditures in
cases where cable service can be delivered through a central headend reception
facility.
CAPITAL EXPENDITURES
As noted in "Technological Developments", the Joint Ventures'
systems have no available channel capacity with which to add new channels or to
further expand their use of pay-per-view offerings to customers. As a result,
significant amounts of capital for future upgrades will be required in order to
increase available channel capacity, improve quality of service and facilitate
the expansion of new services such as advertising, pay-per-view, new unregulated
tiers of satellite-delivered services and home shopping, as well as possible new
services such as video games, video-on-demand and other interactive
applications, so that the systems remain competitive within the industry. In
addition to these potential revenue opportunities, plant upgrades will enhance
picture quality and system reliability, reduce operating costs and improve
overall customer satisfaction.
The Joint Ventures' management has selected a technical standard
that incorporates the use of fiber optic technology where applicable in its
engineering design for the majority of its systems that are to be rebuilt. A
system built with this type of architecture can provide for future channels of
analog service as well as new digital services. Such a system will also permit
the introduction of high speed data transmission/Internet access and telephony
services in the future after incurring incremental capital expenditures related
to these services. The Joint Ventures are also evaluating the use of digital
compression technology in their systems. See "Technological Developments" and
"Digital Compression."
The Macoupin Joint Venture is rebuilding its cable system in
Auburn, Illinois and surrounding communities at an estimated total cost of
approximately $1,910,000, including approximately $480,000 in 1999 to complete
the project. The Macoupin Joint Venture also is required by a provision of its
franchise agreement with the city of Carlinville, Illinois to upgrade its cable
system in the community by December 2001 at an estimated cost of $875,000.
Construction is scheduled to begin in 2000. Additionally, the Macoupin Joint
Venture expects to upgrade its cable plant in Girard, Illinois beginning in 1999
at an estimated cost of approximately $1.0 million provided the franchise
agreement is renewed. The franchise agreement under negotiation with Girard may
require completion of the upgrade within two years. The PBD Joint Venture
expects to upgrade its Mt. Carmel, Illinois and Poplar Bluff, Missouri cable
systems beginning
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in 2000 for approximately $1.3 million and $6.2 million, 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. Other capital expenditures
budgeted for 1999 by the Macoupin Joint Venture and PBD Joint Venture include
approximately $217,200 and $520,200, respectively, to upgrade 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' business and access to capital. As a result, a majority of
the Joint Ventures' systems are significantly less technically advanced than
had been expected prior to the implementation of reregulation. The
Partnership is party to a loan agreement with an affiliate which provides for
a revolving loan facility of $3,331,800 (the "Facility"). The Partnership
expects to use cash flow from the operations of the Joint Ventures and
borrowings of the co-general partners for the rebuild and upgrade of the
Joint Ventures' systems. See "Legislation and Regulation" and Item 7.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
DECENTRALIZED MANAGEMENT
The Corporate General Partner manages the Joint Ventures' systems
on a decentralized basis. The Corporate General Partner believes that its
decentralized management structure, by enhancing management presence at the
system level, increases its sensitivity to the needs of its customers, enhances
the effectiveness of its customer service efforts, eliminates the need for
maintaining a large centralized corporate staff and facilitates the maintenance
of good relations with local governmental authorities.
MARKETING
The Joint Ventures' marketing strategy is to provide added value to
increasing levels of subscription services through "packaging." In addition to
the basic service package, customers in substantially all of the systems may
purchase an expanded group of regulated services, additional unregulated
packages of satellite-delivered services, and premium services. The Joint
Ventures have employed a variety of targeted marketing techniques to attract new
customers by focusing on delivering value, choice, convenience and quality. The
Joint Ventures employ direct mail, radio and local newspaper advertising,
telemarketing and door-to-door selling utilizing demographic "cluster codes" to
target specific messages to target audiences. In certain systems, the Joint
Ventures offer discounts to customers who purchase premium services on a limited
trial basis in order to encourage a higher level of service subscription. The
Joint Ventures also have a coordinated strategy for retaining customers that
includes televised retention advertising that reinforces the value associated
with the initial decision to subscribe and that encourages customers to purchase
higher service levels.
CUSTOMER SERVICE AND COMMUNITY RELATIONS
The Joint Ventures place a strong emphasis on customer service and
community relations and believe that success in these areas is critical to their
business. The Joint Ventures have developed and implemented a wide range of
monthly internal training programs for their employees, including their regional
managers, that focus on the Joint Venture's operations and employee interaction
with customers. The effectiveness of the Joint Ventures' training programs as
they relate to the employees' interaction with customers are monitored on an
ongoing basis, and a portion of the regional managers' compensation is tied to
achieving customer service targets. The Joint Ventures conduct an extensive
customer survey on a periodic basis and use the information in their efforts to
enhance service and better address the needs of their customers. A quarterly
newsletter keeps customers up to date on new service offerings, special events
and company information. In addition, the Joint Ventures are participating in
the industry's Customer Service Initiative which emphasizes an on-time guarantee
program for service and installation appointments. The
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Joint Ventures' corporate executives and regional managers lead the Joint
Ventures' involvement in a number of programs benefiting the communities the
Joint Ventures serve, including, among others, Cable in the Classroom, Drug
Awareness, Holiday Toy Drive and the Cystic Fibrosis Foundation. Cable in
the Classroom is the cable television industry's public service initiative to
enrich education through the use of commercial-free cable programming. In
addition, a monthly publication, CABLE IN THE CLASSROOM magazine provides
educational program listings by curriculum area, as well as feature articles
on how teachers across the country use the programs.
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DESCRIPTION OF THE JOINT VENTURES' SYSTEMS
The table below sets forth certain operating statistics for the
Joint Ventures' cable systems as of December 31, 1998.
<TABLE>
<CAPTION>
Average
Monthly
Premium Revenue
Homes Basic Basic Service Premium Per Basic
System Passed(1) Subscribers Penetration(2) Units(3) Penetration(4) Subscriber(5)
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<S> <C> <C> <C> <C> <C> <C>
Enstar IV/PBD
Systems Venture:
Poplar Bluff, MO 15,582 10,422 66.9% 2,811 27.0% $35.59
Mt. Carmel, IL 3,327 2,590 77.8% 611 23.6% $35.54
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Total 18,909 13,012 68.8% 3,422 26.3% $35.58
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Enstar Cable of
Macoupin County:
Macoupin, IL 6,633 4,423 66.7% 1,250 28.3% $37.72
</TABLE>
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(1) Homes passed refers to estimates by the Joint Ventures of the
approximate number of dwelling units in a particular community that can be
connected to the distribution system without any further extension of
principal transmission lines. Such estimates are based upon a variety of
sources, including billing records, house counts, city directories and other
local sources.
(2) Basic subscribers as a percentage of homes passed by cable.
(3) Premium service units include only single channel services
offered for a monthly fee per channel and do not include tiers of channels
offered as a package for a single monthly fee.
(4) Premium service units as a percentage of homes subscribing to
cable service. A customer may purchase more than one premium service, each of
which is counted as a separate premium service unit. This ratio may be
greater than 100% if the average customer subscribes for more than one
premium service.
(5) Average monthly revenue per basic subscriber has been computed
based on revenue for the year ended December 31, 1998.
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CUSTOMER RATES AND SERVICES
The Joint Ventures' cable television systems offer customers
packages of services that include the local area network, independent and
educational television stations, a limited number of television signals from
distant cities, numerous satellite-delivered, non-broadcast channels (such as
CNN, MTV, USA, ESPN, TNT and The Disney Channel) and certain informational and
public access channels. For an extra monthly charge, the systems provide
certain premium television services, such as HBO and Showtime. The Joint
Ventures also offer other cable television services to their customers,
including pay-per-view programming. For additional charges, in most of the
systems, the Joint Ventures also rent remote control devices and VCR compatible
devices (devices that make it easier for a customer to tape a program from one
channel while watching a program on another).
The service options offered by the Joint Ventures vary from system
to system, depending upon a system's channel capacity and viewer interests.
Rates for services also vary from market to market and according to the type of
services selected.
Pursuant to the 1992 Cable Act, most cable television systems are
subject to rate regulation of the basic service tier, the non-basic service
tiers other than premium (per channel or program) services, the charges for
installation of cable service, and the rental rates for customer premises
equipment such as converter boxes and remote control devices. These rate
regulation provisions affect all of the Joint Ventures' systems not deemed to
be subject to effective competition under the FCC's definition. Currently,
none of the Joint Ventures' systems are subject to effective competition.
See "Legislation and Regulation."
At December 31, 1998, the Joint Ventures' monthly rates for basic
cable service for residential customers, including certain discounted rates,
ranged from $16.96 to $23.95 and their premium service rate was $11.95,
excluding special promotions offered periodically in conjunction with the
Joint Ventures' marketing programs. A one-time installation fee, which the
Joint Ventures may wholly or partially waive during a promotional period, is
usually charged to new customers. Commercial customers, such as hotels,
motels and hospitals, are charged a negotiated, non-recurring fee for
installation of service and monthly fees based upon a standard discounting
procedure. Most multi-unit dwellings are offered a negotiated bulk rate in
exchange for single-point billing and basic service to all units. These
rates are also subject to regulation.
EMPLOYEES
The various personnel required to operate the Joint Ventures'
businesses are employed by the Joint Ventures, the Corporate General Partner,
its subsidiary corporation and FCLP. As of February 12, 1999, the PBD Joint
Venture had 12 employees and the Macoupin Joint Venture had one employee, the
cost of which is charged directly to the Joint Ventures. The employment
costs incurred by the Corporate General Partner, its subsidiary corporation
and FCLP are allocated and charged to the Joint Ventures for reimbursement
pursuant to the respective Joint Venture agreements and management
agreements. Other personnel required to operate the Joint Ventures' business
are employed by an affiliate of the Corporate General Partner. The cost of
such employment is allocated and charged to the Joint Ventures. The amounts
of these reimbursable costs are set forth below in Item 11., "Executive
Compensation."
TECHNOLOGICAL DEVELOPMENTS
As part of their commitment to customer service, the Joint
Ventures emphasize the highest technical standards and prudently seek to
apply technological advances in the cable television industry to their cable
television systems on the basis of cost effectiveness. The PBD Joint
Venture's systems have an average channel capacity of 37 and the Macoupin
Joint Venture's system has an average channel capacity of 43, all of which
was fully utilized at December 31, 1998. The Joint Ventures believe that
system upgrades would
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enable them to provide customers with greater programming diversity, better
picture quality and alternative communications delivery systems made possible
by the introduction of fiber optic technology and by the possible future
application of digital compression. See "Business Strategy - Capital
Expenditures," "Legislation and Regulation" and Item 7., "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
The use of fiber optic cable as an alternative to coaxial cable
is playing a major role in expanding channel capacity and improving the
performance of cable television systems. Fiber optic cable is capable of
carrying hundreds of video, data and voice channels and, accordingly, its
utilization is essential to the enhancement of a cable television system's
technical capabilities. The Joint Ventures' current policy is to utilize
fiber optic technology where applicable in rebuild projects which they
undertake. The benefits of fiber optic technology over traditional coaxial
cable distribution plant include lower ongoing maintenance and power costs
and improved picture quality and reliability.
As of December 31, 1998, approximately 60% of the Joint Ventures'
customers were served by systems that utilize addressable technology.
Addressable technology permits the cable operator to activate from a central
control point the cable television services to be delivered to a customer if
that customer has also been supplied with an addressable converter box. To
date, the Joint Ventures have supplied addressable converter boxes to
customers of the systems utilizing addressable technology who subscribe to
one or more premium services and, in selected systems, to customers who
subscribe to certain new product tiers. As a result, if the system utilizes
addressable technology and the customer has been supplied with an addressable
converter box, the Joint Ventures can upgrade or downgrade services
immediately, without the delay or expense associated with dispatching a
technician to the home. Addressable technology also reduces pay service
theft, is an effective enforcement tool in collecting delinquent payments and
allows the Joint Ventures to offer pay-per-view services. See "Customer Rates
and Services."
DIGITAL COMPRESSION
The Joint Ventures have been closely monitoring developments in
the area of digital compression, a technology that will enable cable
operators to increase the channel capacity of cable television systems by
permitting a significantly increased number of video signals to fit in a
cable television system's existing bandwidth. Depending on the technical
characteristics of the existing system, the Joint Ventures believe that the
utilization of digital compression technology will enable their systems to
increase channel capacity in certain systems in a manner that could, in the
short term, be more cost efficient than rebuilding such systems with higher
capacity distribution plant. However, the Joint Ventures believe that unless
the system has sufficient unused channel capacity and bandwidth, the use of
digital compression to increase channel offerings is not a substitute for the
rebuild of the system, which will improve picture quality, system reliability
and quality of service. The use of digital compression will expand the
number and types of services these systems offer and enhance the development
of current and future revenue sources. This technology is under frequent
management review.
PROGRAMMING
The Joint Ventures purchase basic and premium programming for their
systems from FCLP. In turn, FCLP charges the Joint Ventures for these costs
based on an estimate of what the Corporate General Partner could negotiate for
such services for the 15 partnerships managed by the Corporate General Partner
as a group (approximately 91,000 basic subscribers at December 31, 1998), which
is generally based on a fixed fee per customer or a percentage of the gross
receipts for the particular service. Certain other channels have also offered
FCLP and the Joint Ventures' systems fees in return for carrying their service.
Due to a lack of channel capacity available for adding new channels, the Joint
Ventures' management cannot predict the impact of such potential payments on
their business. In addition, the FCC may require that such payments from
programmers be offset against the programming fee increases which can be passed
through to
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subscribers under the FCC's rate regulations. FCLP's programming contracts
are generally for a fixed period of time and are subject to negotiated
renewal. FCLP does not have long-term programming contracts for the supply
of a substantial amount of its programming. Accordingly, no assurance can be
given that its, and correspondingly the Joint Ventures', programming costs
will not continue to increase substantially in the near future, or that other
materially adverse terms will not be added to FCLP's programming contracts.
Management believes, however, that FCLP's relations with its programming
suppliers generally are good.
The Joint Ventures' cable programming costs have increased in
recent years and are expected to continue to increase due to additional
programming being provided to basic customers, the requirements to carry
channels under retransmission carriage agreements entered into with certain
programming sources, increased costs to produce or purchase cable programming
generally (including sports programming), inflationary increases and other
factors. The 1996 retransmission carriage agreement negotiations were
completed with essentially no change to the previous agreements. Under the
FCC's rate regulations, increases in programming costs for regulated cable
services occurring after the earlier of March 1, 1994, or the date a system's
basic cable service became regulated, may be passed through to customers.
See "Legislation and Regulation" - "Carriage of Broadcast Television
Signals." Generally, programming costs are charged among systems on a per
customer basis.
FRANCHISES
Cable television systems are generally constructed and operated
under non-exclusive franchises granted by local governmental authorities.
These franchises typically contain many conditions, such as time limitations
on commencement and completion of construction; conditions of service,
including number of channels, types of programming and the provision of free
service to schools and certain other public institutions; and the maintenance
of insurance and indemnity bonds. The provisions of local franchises are
subject to federal regulation under the Cable Communications Policy Act of
1984 (the "1984 Cable Act"), the 1992 Cable Act and the 1996 Telecom Act.
See "Legislation and Regulation."
PBD JOINT VENTURE
As of December 31, 1998, the Joint Venture held four franchises.
These franchises, all of which are non-exclusive, provide for the payment of
fees to the issuing authority. Annual franchise fees imposed on the Joint
Venture's systems range up to 5% of the gross revenues generated by a system.
The 1984 Cable Act prohibits franchising authorities from imposing franchise
fees in excess of 5% of gross revenues and also permits the cable system
operator to seek renegotiation and modification of franchise requirements if
warranted by changed circumstances.
The following table groups the franchises of the Joint Venture's
cable television systems by date of expiration and presents the number of
franchises for each group of franchises and the approximate number and
percentage of homes subscribing to cable service for each group as of
December 31, 1998.
<TABLE>
<CAPTION>
Number of Percentage of
Year of Number of Basic Basic
Franchise Expiration Franchises Subscribers Subscribers
-------------------- ---------- ----------- --------------
<S> <C> <C> <C>
Prior to 2000 3 8,219 63.2%
2000 - 2004 - - -
2005 and after 1 2,563 19.7%
--- ------ -----
Total 4 10,782 82.9%
--- ------ -----
--- ------ -----
</TABLE>
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The Joint Venture operates cable television systems which serve
multiple communities and, in some circumstances, portions of such systems
extend into jurisdictions for which the Joint Venture believes no franchise
is necessary. In the aggregate, approximately 2,230 customers, comprising
approximately 17.1% of the Joint Venture's customers, are served by
unfranchised portions of such systems. In certain instances, where a single
franchise comprises a large percentage of the customers in an operating
region, the loss of such franchise could decrease the economies of scale
achieved by the Joint Venture's clustering strategy. The Joint Venture has
never had a franchise revoked for any of its systems and believes that it has
satisfactory relationships with substantially all of its franchising
authorities.
MACOUPIN JOINT VENTURE
As of December 31, 1998, the Joint Venture held seven franchises.
These franchises, all of which are non-exclusive, provide for the payment of
fees to the issuing authority. Annual franchise fees imposed on the Joint
Venture's systems range up to 5% of the gross revenues generated by a system.
The 1984 Cable Act prohibits franchising authorities from imposing franchise
fees in excess of 5% of gross revenues and also permits the cable system
operator to seek renegotiation and modification of franchise requirements if
warranted by changed circumstances.
The following table groups the franchises of the Joint Venture's
cable television systems by date of expiration and presents the number of
franchises for each group of franchises and the approximate number and
percentage of homes subscribing to cable service for each group as of December
31, 1998.
<TABLE>
<CAPTION>
Number of Percentage of
Year of Number of Basic Basic
Franchise Expiration Franchises Subscribers Subscribers
-------------------- ---------- ----------- -------------
<S> <C> <C> <C>
Prior to 2000 4 3,209 72.6%
2000-2004 3 1,214 27.4%
--- ------ ------
Total 7 4,423 100.0%
--- ------ ------
--- ------ ------
</TABLE>
In certain instances, where a single franchise comprises a large
percentage of the customers in an operating region, the loss of such
franchise could decrease the economies of scale achieved by the Joint
Venture's clustering strategy. The Joint Venture has never had a franchise
revoked for any of its systems and believes that it has satisfactory
relationships with its franchising authorities.
The 1984 Cable Act provides, among other things, for an orderly
franchise renewal process in which franchise renewal will not be unreasonably
withheld or, if renewal is denied and the franchising authority acquires
ownership of the system or effects a transfer of the system to another
person, the operator generally is entitled to the "fair market value" for the
system covered by such franchise, but no value may be attributed to the
franchise itself. In addition, the 1984 Cable Act, as amended by the 1992
Cable Act, establishes comprehensive renewal procedures which require that an
incumbent franchisee's renewal application be assessed on its own merit and
not as part of a comparative process with competing applications. See
"Legislation and Regulation."
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COMPETITION
Cable television systems compete with other communications and
entertainment media, including over-the-air television broadcast signals
which a viewer is able to receive directly using the viewer's own television
set and antenna. The extent to which a cable system competes with
over-the-air broadcasting depends upon the quality and quantity of the
broadcast signals available by direct antenna reception compared to the
quality and quantity of such signals and alternative services offered by a
cable system. Cable systems also face competition from alternative methods
of distributing and receiving television signals and from other sources of
entertainment such as live sporting events, movie theaters and home video
products, including videotape recorders and videodisc players. In recent
years, the FCC has adopted policies providing for authorization of new
technologies and a more favorable operating environment for certain existing
technologies that provide, or may provide, substantial additional competition
for cable television systems. The extent to which cable television service
is competitive depends in significant part upon the cable television system's
ability to provide an even greater variety of programming than that available
over the air or through competitive alternative delivery sources.
Individuals presently have the option to purchase home satellite
dishes, which allow the direct reception of satellite-delivered broadcast and
nonbroadcast program services formerly available only to cable television
subscribers. Most satellite-distributed program signals are being
electronically scrambled to permit reception only with authorized decoding
equipment for which the consumer must pay a fee. The 1992 Cable Act enhances
the right of cable competitors to purchase nonbroadcast satellite-delivered
programming. See "Legislation and Regulation-Federal Regulation."
Television programming is now also being delivered to individuals
by high-powered direct broadcast satellites ("DBS") utilizing video
compression technology. This technology has the capability of providing more
than 100 channels of programming over a single high-powered DBS satellite
with significantly higher capacity available if, as is the case with DIRECTV,
multiple satellites are placed in the same orbital position. Unlike cable
television systems, however, DBS satellites are limited by law in their
ability to deliver local broadcast signals. One DBS provider, EchoStar, has
announced plans to deliver a limited number of local broadcast signals in a
limited number of markets and has initiated efforts to have the practice
legalized. Legislation has been introduced in Congress which would permit DBS
operators to elect to provide local broadcast signals to their customers
under the Copyright Act. If DBS providers are ultimately permitted to
deliver local broadcast signals, cable television systems would lose a
significant competitive advantage. DBS service can be received virtually
anywhere in the continental United States through the installation of a small
rooftop or side-mounted antenna, and it is more accessible than cable
television service where cable plant has not been constructed or where it is
not cost effective to construct cable television facilities. DBS service is
being heavily marketed on a nationwide basis by several service providers.
In addition, medium-power fixed-service satellites can be used to deliver
direct-to-home satellite services over small home satellite dishes, and one
provider, PrimeStar, currently provides service to subscribers using such a
satellite. DIRECTV has recently agreed to purchase PrimeStar.
Multichannel multipoint distribution systems ("wireless cable")
deliver programming services over microwave channels licensed by the FCC and
received by subscribers with special antennas. Wireless cable systems are
less capital intensive, are not required to obtain local franchises or to pay
franchise fees, and are subject to fewer regulatory requirements than cable
television systems. To date, the ability of wireless cable services to
compete with cable television systems has been limited by channel capacity
(35-channel maximum) and the need for unobstructed line-of-sight over-the-air
transmission. Although relatively few wireless cable systems in the United
States are currently in operation or under construction, virtually all
markets have been licensed or tentatively licensed. The use of digital
compression technology, and the FCC's recent amendment to its rules, which
permits reverse path or two-way transmission over wireless facilities, may
enable wireless cable systems to deliver more channels and additional
services.
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Private cable television systems compete to service condominiums,
apartment complexes and certain other multiple unit residential developments.
The operators of these private systems, known as satellite master antenna
television ("SMATV") systems, often enter into exclusive agreements with
apartment building owners or homeowners' associations which preclude
franchised cable television operators from serving residents of such private
complexes. However, the 1984 Cable Act gives franchised cable operators the
right to use existing compatible easements within their franchise areas upon
nondiscriminatory terms and conditions. Accordingly, where there are
preexisting compatible easements, cable operators may not be unfairly denied
access or discriminated against with respect to the terms and conditions of
access to those easements. There have been conflicting judicial decisions
interpreting the scope of the access right granted by the 1984 Cable Act,
particularly with respect to easements located entirely on private property.
Under the 1996 Telecom Act, SMATV systems can interconnect non-commonly owned
buildings without having to comply with local, state and federal regulatory
requirements that are imposed upon cable systems providing similar services,
as long as they do not use public rights of way.
The FCC has initiated a new interactive television service which
will permit non-video transmission of information between an individual's
home and entertainment and information service providers. This service, which
can be used by DBS systems, television stations and other video programming
distributors (including cable television systems), is an alternative
technology for the delivery of interactive video services. It does not
appear at the present time that this service will have a material impact on
the operations of cable television systems.
The FCC has allocated spectrum in the 28 GHz range for a new
multichannel wireless service that can be used to provide video and
telecommunications services. The FCC recently completed the process of
awarding licenses to use this spectrum via a market-by-market auction. It
cannot be predicted at this time whether such a service will have a material
impact on the operations of cable television systems.
Cable systems generally operate pursuant to franchises granted on
a non-exclusive basis. In addition, the 1992 Cable Act prohibits franchising
authorities from unreasonably denying requests for additional franchises and
permits franchising authorities to build and operate their own cable systems.
Municipally-owned cable systems enjoy certain competitive advantages such as
lower-cost financing and exemption from the payment of franchise fees.
The 1996 Telecom Act eliminates the restriction against ownership
(subject to certain exceptions) and operation of cable systems by local
telephone companies within their local exchange service areas. Telephone
companies are now free to enter the retail video distribution business
through any means, such as DBS, wireless cable, SMATV or as traditional
franchised cable system operators. Alternatively, the 1996 Telecom Act
authorizes local telephone companies to operate "open video systems" (a
facilities-based distribution system, like a cable system, but which is
"open," i.e., also available for use by programmers other than the owner of
the facility) without obtaining a local cable franchise, although telephone
companies operating such systems can be required to make payments to local
governmental bodies in lieu of cable franchise fees. Up to two-thirds of the
channel capacity on an "open video system" must be available to programmers
unaffiliated with the local telephone company. As a result of the foregoing
changes, well financed businesses from outside the cable television industry
(such as public utilities that own the poles to which cable is attached) may
become competitors for franchises or providers of competing services. The
1996 Telecom Act, however, also includes numerous provisions designed to make
it easier for cable operators and others to compete directly with local
exchange telephone carriers in the provision of traditional telephone service
and other telecommunications services.
Other new technologies, including Internet-based services, may
become competitive with services that cable television systems can offer.
The 1996 Telecom Act directed the FCC to establish, and the FCC has adopted,
regulations and policies for the issuance of licenses for digital television
("DTV") to incumbent television broadcast licensees. DTV is expected to
deliver high definition television pictures,
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<PAGE>
multiple digital-quality program streams, as well as CD-quality audio
programming and advanced digital services, such as data transfer or
subscription video. The FCC also has authorized television broadcast
stations to transmit textual and graphic information useful both to consumers
and businesses. The FCC also permits commercial and noncommercial FM
stations to use their subcarrier frequencies to provide nonbroadcast services
including data transmission. The cable television industry competes with
radio, television, print media and the Internet for advertising revenues. As
the cable television industry continues to offer more of its own programming
channels, e.g., Discovery and USA Network, income from advertising revenues
can be expected to increase.
Recently a number of Internet service providers, commonly known
as ISPs, have requested local authorities and the FCC to provide rights of
access to cable television systems' broadband infrastructure in order that
they be permitted to deliver their services directly to cable television
systems' customers. In a recent report, the FCC declined to institute a
proceeding to examine this issue, and concluded that alternative means of
access are or soon will be made to a broad range of ISPs. The FCC declined
to take action on ISP access to broadband cable facilities, and the FCC
indicated that it would continue to monitor this issue. Several local
jurisdictions also are reviewing this issue.
Telephone companies are accelerating the deployment of Asymmetric
Digital Subscriber Line technology, known as ADSL. These companies report
that ADSL technology will allow Internet access to subscribers at peak data
transmission speeds equal or greater than that of modems over conventional
telephone lines. Several of the Regional Bell Operating Companies have
requested the FCC to fully deregulate packet-switched networks (a type of
data communication in which small blocks of data are independently
transmitted and reassembled at their destination) to allow them to provide
high-speed broadband services, including interactive online services, without
regard to present service boundaries and other regulatory restrictions. The
Joint Ventures cannot predict the likelihood of success of the online
services offered by these competitors, (ISP attempts to gain access to the
cable industry's broadband facilities), or the impact on the Joint Ventures'
business.
Premium programming provided by cable systems is subject to the
same competitive factors which exist for other programming discussed above.
The continued profitability of premium services may depend largely upon the
continued availability of attractive programming at competitive prices.
Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the competitive effect that
ongoing or future developments might have on the cable industry. See
"Legislation and Regulation."
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LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past materially affected,
and may in the future materially affect, the Partnership and the cable
television industry. The following is a summary of federal laws and
regulations affecting the growth and operation of the cable television
industry and a description of certain state and local laws. The Partnership
believes that the regulation of its industry remains a matter of interest to
Congress, the FCC and other regulatory authorities. There can be no assurance
as to what, if any, future actions such legislative and regulatory
authorities may take or the effect thereof on the Partnership and Joint
Ventures.
FEDERAL REGULATION
The primary federal statute dealing with the regulation of the
cable television industry is the Communications Act of 1934 (the
"Communications Act"), as amended. The three principal amendments to the
Communications Act that shaped the existing regulatory framework for the
cable television industry were the 1984 Cable Act, the 1992 Cable Act and the
1996 Telecom Act.
The FCC, the principal federal regulatory agency with
jurisdiction over cable television, has promulgated regulations to implement
the provisions contained in the Communications Act. The FCC has the authority
to enforce these regulations through the imposition of substantial fines, the
issuance of cease and desist orders and/or the imposition of other
administrative sanctions, such as the revocation of FCC licenses needed to
operate certain transmission facilities often used in connection with cable
operations. A brief summary of certain of these federal regulations as
adopted to date follows.
RATE REGULATION
The 1992 Cable Act replaced the FCC's previous standard for
determining "effective competition," under which most cable systems were not
subject to local rate regulation, with a statutory provision that resulted in
nearly all cable television systems becoming subject to local rate regulation
of basic service. The 1996 Telecom Act, however, expanded the definition of
effective competition to include situations where a local telephone company
or an affiliate, or any multichannel video provider using telephone company
facilities, offers comparable video service by any means except DBS. A
finding of effective competition exempts both basic and nonbasic tiers from
regulation. Additionally, the 1992 Cable Act required the FCC to adopt a
formula, enforceable by franchising authorities, to assure that basic cable
rates are reasonable; allowed the FCC to review rates for nonbasic service
tiers (other than per-channel or per-program services) in response to
complaints filed by franchising authorities and/or cable customers;
prohibited cable television systems from requiring subscribers to purchase
service tiers above basic service in order to purchase premium services if
the system is technically capable of doing so; required the FCC to adopt
regulations to establish, on the basis of actual costs, the price for
installation of cable service, remote controls, converter boxes and
additional outlets; and allowed the FCC to impose restrictions on the
retiering and rearrangement of cable services under certain limited
circumstances. The 1996 Telecom Act limits the class of complainants
regarding nonbasic tier rates to franchising authorities only and ends FCC
regulation of nonbasic tier rates on March 31, 1999.
The FCC's regulations contain standards for the regulation of
basic and nonbasic cable service rates (other than per-channel or per-program
services). Local franchising authorities and/or the FCC are empowered to
order a reduction of existing rates which exceed the maximum permitted level
for either basic and/or nonbasic cable services and associated equipment, and
refunds can be required. The rate regulations adopt a benchmark price cap
system for measuring the reasonableness of existing basic and nonbasic
service rates. Alternatively, cable operators have the opportunity to make
cost-of-service showings which, in some cases, may justify rates above the
applicable benchmarks. The rules also require that charges for cable-related
equipment (E.G., converter boxes and remote control devices) and installation
services be unbundled from the provision of
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cable service and based upon actual costs plus a reasonable profit. The
regulations also provide that future rate increases may not exceed an
inflation-indexed amount, plus increases in certain costs beyond the cable
operator's control, such as taxes, franchise fees and increased programming
costs. Cost-based adjustments to these capped rates can also be made in the
event a cable operator adds or deletes channels. In addition, new product
tiers consisting of services new to the cable system can be created free of
rate regulation as long as certain conditions are met, such as not moving
services from existing tiers to the new tier. These provisions currently
provide limited benefit to the Joint Ventures' systems due to the lack of
channel capacity previously discussed. There is also a streamlined
cost-of-service methodology available to justify a rate increase on basic and
regulated nonbasic tiers for "significant" system rebuilds or upgrades.
Franchising authorities have become certified by the FCC to
regulate the rates charged by the Joint Ventures for basic cable service and
for installation charges and equipment rental. The Joint Ventures have had
to bring their rates and charges into compliance with the applicable
benchmark or equipment and installation cost levels in substantially all of
its systems. This has had a negative impact on the Joint Ventures' revenues
and cash flow.
FCC regulations adopted pursuant to the 1992 Cable Act require
cable systems to permit customers to purchase video programming on a per
channel or a per program basis without the necessity of subscribing to any
tier of service, other than the basic service tier, unless the cable system
is technically incapable of doing so. Generally, an exemption from compliance
with this requirement for cable systems that do not have such technical
capability is available until a cable system obtains the capability, but not
later than December 2002. At the present time, a number of the Joint
Ventures' systems are unable to comply with this requirement.
CARRIAGE OF BROADCAST TELEVISION SIGNALS
The 1992 Cable Act adopted new television station carriage
requirements. These rules allow commercial television broadcast stations
which are "local" to a cable system, I.E., the system is located in the
station's Area of Dominant Influence, to elect every three years whether to
require the cable system to carry the station, subject to certain exceptions,
or whether the cable system will have to negotiate for "retransmission
consent" to carry the station. Local non-commercial television stations are
also given mandatory carriage rights, subject to certain exceptions, within
the larger of: (i) a 50-mile radius from the station's city of license; or
(ii) the station's Grade B contour (a measure of signal strength). Unlike
commercial stations, noncommercial stations are not given the option to
negotiate retransmission consent for the carriage of their signal. In
addition, cable systems must obtain retransmission consent for the carriage
of all "distant" commercial broadcast stations, except for certain
"superstations," I.E., commercial satellite-delivered independent stations,
such as WGN. The Joint Ventures have thus far not been required to pay cash
compensation to broadcasters for retransmission consent or been required by
broadcasters to remove broadcast stations from the cable television channel
line-ups. The Joint Ventures have, however, agreed to carry some services in
specified markets pursuant to retransmission consent arrangements which they
believe are comparable to those entered into by most other large cable
operators, and for which they pay monthly fees to the service providers, as
they do with other satellite providers. The second election between
must-carry and retransmission consent for local commercial television
broadcast stations was October 1, 1996. The Joint Ventures were once again
able to reach agreements with broadcasters who elected retransmission consent
to negotiate extensions to the December 31, 1996 deadline and have therefore
continued not to have been required to pay cash compensation to broadcasters
for retransmission consent or been required by broadcasters to remove
broadcast stations from the cable television channel line-ups. The next
election between must-carry and retransmission consent for local commercial
television broadcast stations will be October 1, 1999.
The FCC is currently conducting a rulemaking proceeding regarding
the carriage responsibilities of cable television systems during the
transition of broadcast television from analog to digital transmission.
Specifically, the FCC is exploring whether to amend the signal carriage rules
to accommodate the carriage of
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digital broadcast television signals. The Joint Ventures are unable to
predict the ultimate outcome of this proceeding or the impact of new carriage
requirements on the operations of their cable systems.
NONDUPLICATION OF NETWORK PROGRAMMING
Cable television systems that have 1,000 or more customers must,
upon the appropriate request of a local television station, delete the
simultaneous or nonsimultaneous network programming of certain lower priority
distant stations affiliated with the same network as the local station.
DELETION OF SYNDICATED PROGRAMMING
FCC regulations enable television broadcast stations that have
obtained exclusive distribution rights for syndicated programming in their
market to require a cable system to delete or "black out" such programming
from certain other television stations which are carried by the cable system.
The extent of such deletions will vary from market to market and cannot be
predicted with certainty. However, it is possible that such deletions could
be substantial and could lead the cable operator to drop a distant signal in
its entirety.
PROGRAM ACCESS
The 1992 Cable Act contains provisions that are intended to
foster the development of competition to traditional cable systems by
regulating the access of competing multichannel video providers to vertically
integrated, satellite-distributed cable programming services. Consequently,
with certain limitations, the federal law generally precludes any satellite
distributed programming service affiliated with a cable company from favoring
an affiliated company over competitors; requires such programmers to sell
their programming to other multichannel video providers; and limits the
ability of such satellite program services to offer exclusive programming
arrangements to their affiliates.
FRANCHISE FEES
Franchising authorities may impose franchise fees, but such
payments cannot exceed 5% of a cable system's annual gross revenues. Under
the 1996 Telecom Act, franchising authorities may not exact franchise fees
from revenues derived from telecommunications services.
RENEWAL OF FRANCHISES
The 1984 Cable Act established renewal procedures and criteria
designed to protect incumbent franchisees against arbitrary denials of
renewal. While these formal procedures are not mandatory unless timely
invoked by either the cable operator or the franchising authority, they can
provide substantial protection to incumbent franchisees. Even after the
formal renewal procedures are invoked, franchising authorities and cable
operators remain free to negotiate a renewal outside the formal process.
Nevertheless, renewal is by no means assured, as the franchisee must meet
certain statutory standards. Even if a franchise is renewed, a franchising
authority may impose new and more onerous requirements such as upgrading
facilities and equipment, although the municipality must take into account
the cost of meeting such requirements.
The 1992 Cable Act makes several changes to the process under
which a cable operator seeks to enforce his renewal rights, which could make
it easier in some cases for a franchising authority to deny renewal. While a
cable operator must still submit its request to commence renewal proceedings
within thirty to thirty-six months prior to franchise expiration to invoke
the formal renewal process, the request must be in writing and the
franchising authority must commence renewal proceedings not later than six
months after receipt of such notice. The four-month period for the
franchising authority to grant or deny the renewal now runs from the
submission of the renewal proposal, not the completion of the public
proceeding. Franchising authorities may consider the "level" of programming
service provided by a cable operator in deciding whether to renew. For
alleged franchise
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violations occurring after December 29, 1984, franchising authorities are no
longer precluded from denying renewal based on failure to substantially
comply with the material terms of the franchise where the franchising
authority has "effectively acquiesced" to such past violations. Rather, the
franchising authority is estopped if, after giving the cable operator notice
and opportunity to cure, it fails to respond to a written notice from the
cable operator of its failure or inability to cure. Courts may not reverse a
denial of renewal based on procedural violations found to be "harmless
error."
CHANNEL SET-ASIDES
The 1984 Cable Act permits local franchising authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. The 1984 Cable Act further requires
cable television systems with thirty-six or more activated channels to
designate a portion of their channel capacity for commercial leased access by
unaffiliated third parties. While the 1984 Cable Act allowed cable operators
substantial latitude in setting leased access rates, the 1992 Cable Act
requires leased access rates to be set according to a formula determined by
the FCC.
COMPETING FRANCHISES
The 1992 Cable Act prohibits franchising authorities from
unreasonably refusing to grant franchises to competing cable television
systems and permits franchising authorities to operate their own cable
television systems without franchises.
OWNERSHIP
The 1996 Telecom Act repealed the 1984 Cable Act's prohibition
against local exchange telephone companies ("LECs") providing video
programming directly to customers within their local telephone exchange
service areas. However, with certain limited exceptions, a LEC may not
acquire more than a 10% equity interest in an existing cable system operating
within the LEC's service area. The 1996 Telecom Act also authorized LECs and
others to operate "open video systems". A recent judicial decision
overturned various parts of the FCC's open video rules, including the FCC's
restriction preventing local governmental authorities from requiring open
video system operators to obtain a franchise. The Joint Ventures expect the
FCC to modify its open video rules to comply with the federal court's
decision, but are unable to predict the impact any rule modifications may
have on their business and operations. See "Business-Competition."
The 1984 Cable Act and the FCC's rules prohibit the common
ownership, operation, control or interest in a cable system and a local
television broadcast station whose predicted grade B contour (a measure of a
television station's signal strength as defined by the FCC's rules) covers
any portion of the community served by the cable system. The 1996 Telecom Act
eliminates the statutory ban and directs the FCC to review its rule within
two years. Such a review is presently pending. Finally, in order to
encourage competition in the provision of video programming, the FCC adopted
a rule prohibiting the common ownership, affiliation, control or interest in
cable television systems and wireless cable facilities having overlapping
service areas, except in very limited circumstances. The 1992 Cable Act
codified this restriction and extended it to co-located SMATV systems.
Permitted arrangements in effect as of October 5, 1992 are grandfathered. The
1996 Telecom Act exempts cable systems facing effective competition from the
wireless cable and SMATV restriction. In addition, a cable operator can
purchase a SMATV system serving the same area and technically integrate it
into the cable system. The 1992 Cable Act permits states or local franchising
authorities to adopt certain additional restrictions on the ownership of
cable television systems.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the
number of cable systems which a single cable operator can own. In general, no
cable operator can have an attributable interest in cable systems which pass
more than 30% of all homes nationwide. Attributable interests for these
purposes include voting interests of 5% or more (unless there is another
single holder of more than 50% of the voting stock),
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officerships, directorships, general partnership interests and limited
partnership interests (unless the limited partners have no material
involvement in the limited partnership's business). These rules are under
review by the FCC. The FCC has stayed the effectiveness of these rules
pending the outcome of the appeal from a U.S. District Court decision holding
the multiple ownership limit provision of the 1992 Cable Act unconstitutional.
The FCC has also adopted rules which limit the number of channels
on a cable system which can be occupied by programming in which the entity
which owns the cable system has an attributable interest. The limit is 40% of
the first 75 activated channels.
The FCC also recently commenced a rulemaking proceeding to
examine, among other issues, whether any limitations on cable-DBS
cross-ownership are warranted in order to prevent anticompetitive conduct in
the video services market.
FRANCHISE TRANSFERS
The 1992 Cable Act requires franchising authorities to act on any
franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.
TECHNICAL REQUIREMENTS
The FCC has imposed technical standards applicable to the cable
channels on which broadcast stations are carried, and has prohibited
franchising authorities from adopting standards which are in conflict with or
more restrictive than those established by the FCC. Those standards are
applicable to all classes of channels which carry downstream National
Television System Committee (the "NTSC") video programming. The FCC also has
adopted additional standards applicable to cable television systems using
frequencies in the 108-137 MHz and 225-400 MHz bands in order to prevent
harmful interference with aeronautical navigation and safety radio services
and has also established limits on cable system signal leakage. Periodic
testing by cable operators for compliance with the technical standards and
signal leakage limits is required and an annual filing of the results of
these measurements is required. The 1992 Cable Act requires the FCC to
periodically update its technical standards to take into account changes in
technology. Under the 1996 Telecom Act, local franchising authorities may not
prohibit, condition or restrict a cable system's use of any type of
subscriber equipment or transmission technology.
The FCC has adopted regulations to implement the requirements of
the 1992 Cable Act designed to improve the compatibility of cable systems and
consumer electronics equipment. Among other things, these regulations
generally prohibit cable operators from scrambling their basic service tier.
The 1996 Telecom Act directs the FCC to set only minimal standards to assure
compatibility between television sets, VCRs and cable systems, and to rely on
marketplace competition to best determine which features, functions,
protocols, and product and service options meet the needs of consumers.
Pursuant to the 1992 Cable Act, the FCC has adopted rules to
assure the competitive availability to consumers of customers premises
equipment, such as converters, used to access the services offered by cable
television systems and other multichannel video programming distributions
("MVPD"). Pursuant to those rules, consumers are given the right to attach
compatible equipment to the facilities of their MVPD so long as the equipment
does not harm the network, does not interfere with the services purchased by
other customers, and is not used to receive unauthorized services. As of July
1, 2000, MVPDs (other than DBS operators) are required to separate security
from non-security functions in the customer premises equipment which they
sell or lease to their customers and offer their customers the option of
using component security modules obtained from the MVPD with set-top units
purchased or leased from retail outlets. As of January 1, 2005, MVPDs will be
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prohibited from distributing new set -top equipment integrating both security
and non-security functions to their customers.
POLE ATTACHMENTS
The FCC currently regulates the rates and conditions imposed by
certain public utilities for use of their poles unless state public service
commissions are able to demonstrate that they regulate the rates, terms and
conditions of cable television pole attachments. The state of Illinois, in
which the Joint Ventures operate cable systems, has certified to the FCC that
it regulates the rates, terms and conditions for pole attachments. In the
absence of state regulation, the FCC administers such pole attachment rates
through use of a formula which it has devised. The 1996 amendments to the
Communications Act modified the FCC's pole attachment regulatory scheme by
requiring the FCC to adopt new regulations. These regulations become
effective in 2001 and govern the charges for pole attachments used by
companies, including cable operators, that provide telecommunications
services by immediately permitting certain providers of telecommunications
services to rely upon the protections of the current law until the new rate
formula becomes effective in 2001, and by requiring that utilities provide
cable systems and telecommunications carriers with nondiscriminatory access
to any pole, conduit or right-of-way controlled by the utility. In adopting
its new attachment regulations, the FCC concluded, in part, that a cable
operator providing Internet service on its cable system is not providing a
telecommunications service for purposes of the new rules.
The new rate formula adopted by the FCC and which is applicable
for any party, including cable systems, which offer telecommunications
services will result in significantly higher attachment rates for cable
systems which choose to offer such services. Any resulting increase in
attachment rates as a result of the FCC's new rate formula will be phased in
over a five-year period in equal annual increments, beginning in February
2001. Several parties have requested the FCC to reconsider its new
regulations and several parties have challenged the new rules in court. A
federal district court recently upheld the constitutionality of the new
statutory provision, and the utilities involved in that litigation have
appealed the lower court's decision. The FCC also has initiated a proceeding
to determine whether it should adjust certain elements of the current rate
formula. If adopted, these adjustments could increase rates for pole
attachments and conduit space. The Joint Ventures are unable to predict the
outcome of this current litigation or the ultimate impact of any revised FCC
rate formula or of any new pole attachment rate regulations on its business
and operations.
OTHER MATTERS
Other matters subject to FCC regulation include certain
restrictions on a cable system's carriage of local sports programming; rules
governing political broadcasts; customer service standards; obscenity and
indecency; home wiring; equal employment opportunity; privacy; closed
captioning; sponsorship identification; system registration; and limitations
on advertising contained in nonbroadcast children's programming.
COPYRIGHT
Cable television systems are subject to federal copyright
licensing covering carriage of broadcast signals. In exchange for making
semi-annual payments to a federal copyright royalty pool and meeting certain
other obligations, cable operators obtain a statutory license to retransmit
broadcast signals. The amount of this royalty payment varies, depending on
the amount of system revenues from certain sources, the number of distant
signals carried, and the location of the cable system with respect to
over-the-air television stations. Any future adjustment to the copyright
royalty rates will be done through an arbitration process supervised by the
U.S. Copyright Office.
Cable operators are liable for interest on underpaid and unpaid
royalty fees, but are not entitled to collect interest on refunds received
for overpayment of copyright fees.
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<PAGE>
Copyrighted music performed in programming supplied to cable
television systems by pay cable networks (such as HBO) and basic cable
networks (such as USA Network) is licensed by the networks through private
agreements with the American Society of Composers and Publishers ("ASCAP")
and BMI, Inc. ("BMI"), the two major performing rights organizations in the
United States. As a result of extensive litigation, both ASCAP and BMI now
offer "through to the viewer" licenses to the cable networks which cover the
retransmission of the cable networks' programming by cable systems to their
customers. Payment for music performed in programming offered on a per
program basis remains unsettled. The Joint Ventures recently participated in
a settlement with BMI for payment of fees in connection with the Request
pay-per-view network. Industry litigation of this issue with ASCAP is likely.
Copyrighted music transmitted by cable systems themselves, E.G.,
on local origination channels or in advertisements inserted locally on cable
networks, must also be licensed. Cable industry negotiations with ASCAP, BMI
and SESAC, Inc. (a third and smaller performing rights organization) are in
progress.
LOCAL REGULATION
Because a cable television system uses local streets and
rights-of-way, cable television systems generally are operated pursuant to
nonexclusive franchises, permits or licenses granted by a municipality or
other state or local government entity. Franchises generally are granted for
fixed terms and in many cases are terminable if the franchise operator fails
to comply with material provisions. Although the 1984 Cable Act provides for
certain procedural protections, there can be no assurance that renewals will
be granted or that renewals will be made on similar terms and conditions.
Upon receipt of a franchise, the cable system owner usually is subject to a
broad range of obligations to the issuing authority directly affecting the
business of the system. The terms and conditions of franchises vary
materially from jurisdiction to jurisdiction, and even from city to city
within the same state, historically ranging from reasonable to highly
restrictive or burdensome. The specific terms and conditions of a franchise
and the laws and regulations under which it was granted directly affect the
profitability of the cable television system. Cable franchises generally
contain provisions governing charges for basic cable television services,
fees to be paid to the franchising authority, length of the franchise term,
renewal, sale or transfer of the franchise, territory of the franchise,
design and technical performance of the system, use and occupancy of public
streets and the number and types of cable services provided. The 1996 Telecom
Act prohibits a franchising authority from either requiring or limiting a
cable operator's provision of telecommunications services.
The 1984 Cable Act places certain limitations on a franchising
authority's ability to control the operation of a cable system operator, and
the courts have from time to time reviewed the constitutionality of several
general franchise requirements, including franchise fees and access channel
requirements, often with inconsistent results. On the other hand, the 1992
Cable Act prohibits exclusive franchises, and allows franchising authorities
to exercise greater control over the operation of franchised cable television
systems, especially in the area of customer service and rate regulation.
Moreover, franchising authorities are immunized from monetary damage awards
arising from regulation of cable television systems or decisions made on
franchise grants, renewals, transfers and amendments.
Existing federal regulations, copyright licensing and, in many
jurisdictions, state and local franchise requirements, currently are the
subject of a variety of judicial proceedings, legislative hearings and
administrative and legislative proposals which could change, in varying
degrees, the manner in which cable television systems operate. Neither the
outcome of these proceedings nor their impact upon the cable television
industry can be predicted at this time.
ITEM 2. PROPERTIES
The Joint Ventures own or lease parcels of real property for
signal reception sites (antenna towers and headends), microwave facilities
and business offices, and own or lease their service vehicles. The
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Joint Ventures believe that their properties, both owned and leased, are in
good condition and are suitable and adequate for the Joint Ventures' business
operations.
The Joint Ventures own substantially all of the assets related to
their cable television operations, including their program production
equipment, headend (towers, antennas, electronic equipment and satellite
earth stations), cable plant (distribution equipment, amplifiers, customer
drops and hardware), converters, test equipment and tools and maintenance
equipment.
ITEM 3. LEGAL PROCEEDINGS
The Partnership and Joint Ventures are periodically a party to
various legal proceedings. Such legal proceedings are ordinary and routine
litigation proceedings that are incidental to the Partnership's and Joint
Ventures' business and management believes that the outcome of all pending
legal proceedings will not, in the aggregate, have a material adverse effect
on the financial condition of the Partnership and Joint Ventures.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY SECURITIES AND RELATED SECURITY
HOLDER MATTERS
LIQUIDITY
While the Partnership's equity securities, which consist of units
of limited partnership interests, are publicly held, there is no established
public trading market for the units and it is not expected that a market will
develop in the future. The approximate number of equity security holders of
record was 1,013 as of December 31, 1998. In addition to restrictions on the
transferability of units contained in the partnership agreement, the
transferability of units may be affected by restrictions on resales imposed by
federal or state law.
DISTRIBUTIONS
The amended partnership agreement generally provides that all
cash distributions (as defined) be allocated 1% to the general partners and
99% to the limited partners until the limited partners have received
aggregate cash distributions equal to their original capital contributions
("Capital Payback"). The partnership agreement also provides that all
partnership profits, gains, operational losses, and credits (all as defined)
be allocated 1% to the general partners and 99% to the limited partners until
the limited partners have been allocated net profits equal to the amount of
cash flow required for Capital Payback. After the limited partners have
received cash flow equal to their initial investments, the general partners
will only receive a 1% allocation of cash flow from sale or liquidation of a
system until the limited partners have received an annual simple interest
return of at least 12% of their initial investments less any distributions
from previous system sales and cash distributions from operations after
Capital Payback. Thereafter, the respective allocations will be made 20% to
the general partners and 80% to the limited partners. Any losses from system
sales or exchanges shall be allocated first to all partners having positive
capital account balances (based on their respective capital accounts) until
all such accounts are reduced to zero and thereafter to the Corporate General
Partner. All allocations to individual limited partners will be based on
their respective limited partnership ownership interests.
Upon the disposition of substantially all of the Partnership's
assets, gain shall be allocated first to the limited partners having negative
capital account balances until their capital accounts are increased to zero,
next equally among the general partners until their capital accounts are
increased to zero, and thereafter as outlined in the preceding paragraph.
Upon dissolution of the Partnership, any negative capital account balances
remaining after all allocations and distributions are made must be funded by
the respective partners.
The policy of the Corporate General Partner (although there is no
contractual obligation to do so) is to cause the Partnership to make cash
distributions on a monthly basis throughout the operational life of the
Partnership, assuming the availability of sufficient cash flow from
partnership operations. The amount of such distributions, if any, will vary
from month to month depending upon the Partnership's results of operations
and the Corporate General Partner's determination of whether otherwise
available funds are needed for the Partnership's ongoing working capital and
liquidity requirements. However, on February 22, 1994, the FCC announced
significant amendments to its rules implementing certain provisions of the
1992 Cable Act. Compliance with these rules has had a negative impact on the
Partnership's revenues and cash flow.
The Partnership began making periodic cash distributions to
limited partners from operations during 1986 and distributed $498,100 ($12.50
per unit) in each of 1996, 1997 and 1998. The distributions were primarily
funded from cash flow generated by Partnership operations, which consisted of
cash flow distributions received by the Partnership from the Joint Ventures.
The Partnership will continue to determine
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<PAGE>
its ability to pay distributions on a quarter-by-quarter basis. See Item 7.,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
The Partnership's ability to pay distributions, the actual level of
distribution, and the continuance of distributions, if any, will depend on a
number of factors, including the amount of cash flow from operations, projected
capital expenditures, provision for contingent liabilities, availability of bank
refinancing, regulatory or legislative developments governing the cable
television industry, and growth in customers. Some of these factors are beyond
the control of the Partnership, and consequently, no assurances can be given
regarding the level or timing of future distributions. The current Facility
does not restrict the payment of distributions to partners unless an event of
default exists thereunder or the Partnership's ratio of debt to cash flow is
greater than 4 to 1.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected financial data of the Partnership,
Enstar IV/PBD Systems Venture and Enstar Cable of Macoupin County. This data
should be read in conjunction with the Partnership's and Joint Ventures'
financial statements included in Item 8 hereof and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in
Item 7.
I. THE PARTNERSHIP
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
OPERATIONS STATEMENT DATA 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Costs and expenses $ (42,700) $ (28,100) $ (29,000) $ (39,200) $ (30,600)
Interest expense (111,100) (125,200) (118,500) (108,800) (36,400)
Interest income 8,200 12,500 29,300 24,800 13,200
Equity in net income of
Enstar IV/PBD Systems Venture 20,600 216,200 627,400 1,001,100 1,039,500
Equity in net income of Enstar
Cable of Macoupin County 11,900 28,000 123,500 131,900 207,100
-------------- -------------- -------------- -------------- --------------
Net income (loss) $ (113,100) $ 103,400 $ 632,700 $ 1,009,800 $ 1,192,800
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Distributions to partners $ 503,100 $ 503,100 $ 503,100 $ 503,100 $ 503,100
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
PER UNIT OF LIMITED PARTNERSHIP INTEREST:
Net income (loss) $ (2.81) $ 2.57 $ 15.72 $ 25.09 $ 29.64
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Distributions $ 12.50 $ 12.50 $ 12.50 $ 12.50 $ 12.50
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
OTHER OPERATING DATA
Net cash used in operating activities $ (142,100) $ (117,300) $ (95,800) $ (90,300) $ (47,800)
Net cash provided by investing activities 974,500 333,000 980,000 1,380,000 460,200
Net cash used in financing activities (515,700) (503,100) (503,100) (1,551,200) (504,900)
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------------
BALANCE SHEET DATA 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total assets $ 3,274,700 $ 2,881,800 $ 3,016,800 $ 2,530,200 $ 3,213,400
Total debt 1,000,000 1,000,000 1,000,000 - -
General partners' deficit (60,500) (64,500) (63,200) (58,100) (51,200)
Limited partners' capital 2,323,000 1,927,300 2,055,600 2,557,200 3,240,000
</TABLE>
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<PAGE>
II. ENSTAR IV/PBD SYSTEMS VENTURE
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
OPERATIONS STATEMENT DATA 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $ 4,857,600 $ 5,075,500 $ 5,428,600 $ 5,584,600 $ 5,589,000
Costs and expenses (2,989,000) (2,992,300) (3,194,100) (3,210,100) (3,152,000)
Depreciation and amortization (1,835,100) (1,692,800) (1,013,000) (475,500) (449,700)
-------------- -------------- -------------- -------------- --------------
Operating income 33,500 390,400 1,221,500 1,899,000 1,987,300
Interest income, net 6,900 42,000 34,800 103,200 88,000
Gain (loss) on sale of cable assets 800 - (1,500) - 3,700
-------------- -------------- -------------- -------------- --------------
Net income $ 41,200 $ 432,400 $ 1,254,800 $ 2,002,200 $ 2,079,000
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Distributions to venturers $ 1,249,000 $ 666,000 $ 1,260,000 $ 2,710,000 $ 895,400
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
OTHER OPERATING DATA
Net cash provided by operating activities $ 2,120,400 $ 2,006,100 $ 2,180,800 $ 2,644,200 $ 2,517,400
Net cash used in investing activities (358,200) (878,400) (265,800) (255,800) (349,000)
Net cash used in financing activities (1,249,000) (666,000) (1,260,000) (2,710,000) (895,400)
EBITDA(1) 1,868,600 2,083,200 2,234,500 2,374,500 2,437,000
EBITDA to revenues 38.5% 41.0% 41.2% 42.5% 43.6%
Capital expenditures $ 286,800 $ 791,600 $ 190,300 $ 215,600 $ 326,300
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------------
BALANCE SHEET DATA 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total assets $ 4,593,500 $ 4,188,300 $ 4,224,300 $ 3,558,400 $ 4,736,900
Venturers' capital 3,777,600 3,544,000 3,538,800 2,831,000 4,014,600
</TABLE>
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<PAGE>
III. ENSTAR CABLE OF MACOUPIN COUNTY
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
OPERATIONS STATEMENT DATA 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,590,800 $ 1,646,000 $ 1,870,600 $ 1,975,900 $ 2,003,000
Costs and expenses (876,900) (959,200) (898,300) (1,020,900) (1,060,500)
Depreciation and amortization (703,900) (634,800) (614,400) (575,400) (344,500)
-------------- -------------- -------------- -------------- --------------
Operating income 10,000 52,000 357,900 379,600 598,000
Interest income, net 25,700 32,000 12,000 16,100 23,300
Gain on sale of cable assets - - 600 - -
-------------- -------------- -------------- -------------- --------------
Net income $ 35,700 $ 84,000 $ 370,500 $ 395,700 $ 621,300
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Distributions to venturers $ 1,050,000 $ - $ 1,050,000 $ 75,000 $ 37,500
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
OTHER OPERATING DATA
Net cash provided by operating activities $ 750,300 $ 799,900 $ 860,200 $ 838,000 $ 1,010,200
Net cash used in investing activities (134,700) (340,000) (439,800) (689,400) (205,100)
Net cash used in financing activities (1,050,000) - (1,050,000) (75,000) (37,500)
EBITDA(1) 713,900 686,800 972,300 955,000 942,500
EBITDA to revenues 44.9% 41.7% 52.0% 48.3% 47.1%
Capital expenditures $ 126,900 $ 325,500 $ 411,200 $ 677,900 $ 170,900
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
---------------------------------------------------------------------------------
BALANCE SHEET DATA 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total assets $ 2,647,600 $ 2,840,100 $ 2,084,400 $ 2,564,000 $ 3,053,500
Venturers' capital 2,400,600 2,484,600 1,805,100 2,125,800 2,709,600
</TABLE>
- --------------------
(1) EBITDA is calculated as operating income before depreciation and
amortization. Based on their experience in the cable television industry, the
Joint Ventures believe that 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. In addition, the covenants in the primary debt instrument of the
Partnership use EBITDA-derived calculations as a measure of financial
performance. EBITDA is not a measurement determined under 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 the Joint Ventures' financial performance or as an alternative
to cash flows as a measure of liquidity. In addition, the Joint Ventures'
definition of EBITDA may not be identical to similarly titled measures used by
other companies.
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The 1992 Cable Act required the 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 Joint Ventures' revenues and cash flow. 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 CPST rates will terminate on
March 31, 1999. There can be no assurance as to what, if any, further action
may be taken by the FCC, Congress or any other regulatory authority or court, or
the effect thereof on the Joint Ventures' business. Accordingly, the Joint
Ventures' 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 and Joint Ventures. 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 Joint Ventures, as discussed more
fully elsewhere in this Report.
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.
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 distributed $980,000, $1,380,000 and
$460,200 to the Partnership, representing the Partnership's pro rata share of
the cash flow distributed from the Joint Ventures' respective operations, during
1996, 1997 and 1998, respectively. The Partnership distributed $503,100 to its
partners in each of 1996, 1997 and 1998.
Interest expense decreased from $108,800 to $36,400, or by 66.5%,
for the year ended December 31, 1998 compared to 1997 and decreased from
$118,500 to $108,800, or by 8.2%, for the year ended December 31, 1997 compared
to 1996. The decreases were primarily due to the repayment of the Partnership's
outstanding borrowings under its previous credit facility on September 30, 1997.
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<PAGE>
THE PBD JOINT VENTURE
1998 COMPARED TO 1997
The Joint Venture's revenues increased from $5,584,600 to
$5,589,000, or by less than 1.0%, for the year ended December 31, 1998 as
compared to 1997. Of the $4,400 increase, $80,700 was due to increases in
regulated service rates that were implemented by the Joint Venture in 1997 and
$21,400 was due to increases in other revenue producing items. These increases
were substantially offset by a $97,700 decrease due to decreases in the number
of subscriptions for basic, premium, tier and equipment rental services. As of
December 31, 1998, the Joint Venture had approximately 13,000 basic subscribers
and 3,400 premium service units.
Service costs decreased from $1,917,400 to $1,848,000, or by 3.6%,
for the year ended December 31, 1998 as compared to 1997. Service costs
represent costs directly attributable to providing cable services to customers.
The decrease was primarily due to decreases in copyright fees, partially offset
by an increase in programming expense. The decrease in copyright fees was
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. Programming fees increased as a result
of higher rates charged by program suppliers.
General and administrative expenses increased from $699,600 to
$737,000, or by 5.3%, for the year ended December 31, 1998 as compared to 1997.
The increase was primarily due to increases in telephone expense and insurance
premiums paid in 1998.
Management fees and reimbursed expenses decreased from $593,100 to
$567,000, or by 4.4%, for the year ended December 31, 1998 as compared to 1997.
Management fees increased in direct relation to increased revenues as discussed
above. Reimbursed expenses decreased in 1998 due to lower allocated personnel
costs resulting from a reduction in staff and office rental expense.
Depreciation and amortization expense decreased from $475,500 to
$449,700, or by 5.4%, for the year ended December 31, 1998 as compared to 1997,
due to the effect of certain intangible assets becoming fully amortized.
Operating income increased from $1,899,000 to $1,987,300, or by
4.6%, for the year ended December 31, 1998 as compared to 1997, primarily due to
decreased copyright fees and depreciation and amortization expense as discussed
above.
Interest income, net of interest expense, decreased from $103,200
to $88,000, or by 14.7%, for the year ended December 31, 1998 as compared to
1997. The decrease was primarily due to lower average cash balances available
for investment.
Due to the factors described above, the Joint Venture's net income
increased from $2,002,200 to $2,079,000, or by 3.8%, for the year ended December
31, 1998 as compared to 1997.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues increased from 42.5% during 1997 to 43.6% in 1998. The
increase was primarily caused by lower copyright fees as described above.
EBITDA increased from $2,374,500 to $2,437,000, or by 2.6%, as a result.
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<PAGE>
1997 COMPARED TO 1996
The Joint Venture's revenues increased from $5,428,600 to
$5,584,600, or by 2.9%, for the year ended December 31, 1997 as compared to
1996. Of the $156,000 increase, $369,000 was due to increases in regulated
service rates that were implemented by the Joint Venture in the second and
fourth quarters of 1996 and the fourth quarter of 1997, and $14,000 was due to
the July 1, 1996 restructuring of The Disney Channel from a premium channel to a
tier channel. These increases were partially offset by a $147,000 decrease due
to decreases in the number of subscriptions for basic, premium, tier and
equipment rental services and by an $80,000 decrease in other revenue producing
items including advertising sales revenue. As of December 31, 1997, the Joint
Venture had approximately 13,200 basic subscribers and 3,700 premium service
units.
Service costs increased from $1,866,800 to $1,917,400, or by 2.7%,
for the year ended December 31, 1997 as compared to 1996. Service costs
represent costs directly attributable to providing cable services to customers.
The increase was primarily due to decreased capitalization of labor and overhead
costs resulting from fewer capital projects in 1997. The increase was also due
to increased programming expense attributable to higher rates charged by program
suppliers.
General and administrative expenses decreased from $739,600 to
$699,600, or by 5.4%, for the year ended December 31, 1997 as compared to 1996.
The decrease was primarily due to the partial reversal of an insurance expense
estimate that was larger than the actual premiums paid in 1997.
Management fees and reimbursed expenses increased from $587,700 to
$593,100, or by less than one percent, for the year ended December 31, 1997 as
compared to 1996. Management fees increased in direct relation to increased
revenues as discussed above. Reimbursed expenses decreased in 1997 due to lower
allocated personnel costs by the Corporate General Partner resulting from staff
reductions.
Depreciation and amortization expense decreased from $1,013,000 to
$475,500, or by 53.1%, for the year ended December 31, 1997 as compared to 1996,
due to the effect of certain tangible assets becoming fully depreciated and
certain intangible assets becoming fully amortized.
Operating income increased from $1,221,500 to $1,899,000, or by
55.5%, for the year ended December 31, 1997 as compared to 1996, primarily due
to decreased depreciation and amortization expense and increased revenues as
discussed above.
Interest income, net of interest expense, increased from $34,800 to
$103,200 for the year ended December 31, 1997 as compared to 1996. The increase
was primarily due to higher average cash balances available for investment and
due to a change in investment policy that yielded a greater return on invested
cash.
Due to the factors described above, the Joint Venture's net income
increased from $1,254,800 to $2,002,200, or by 60.0%, for the year ended
December 31, 1997 as compared to 1996.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues increased from 41.2% during 1996 to 42.5% in 1997. The
increase was primarily caused by increased revenues. EBITDA increased from
$2,234,500 to $2,374,500, or by 6.3%, as a result.
DISTRIBUTIONS MADE BY THE PBD JOINT VENTURE
The PBD Joint Venture distributed $1,260,000, $2,710,000 and
$895,400 equally between its two partners during 1996, 1997 and 1998,
respectively.
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<PAGE>
THE MACOUPIN JOINT VENTURE
1998 COMPARED TO 1997
The Joint Venture's revenues increased from $1,975,900 to
$2,003,000, or by 1.4%, for the year ended December 31, 1998 as compared to
1997. Of the $27,100 increase, $93,800 was due to increases in regulated
service rates that were implemented by the Joint Venture in 1997 and $1,100 was
due to an increase in other revenue producing items. These increases were
partially offset by a $67,800 decrease in the number of subscriptions for basic,
premium, tier and equipment rental services. As of December 31, 1998, the Joint
Venture had approximately 4,400 basic subscribers and 1,300 premium service
units.
Service costs increased from $573,000 to $626,000, or by 9.2%, for
the year ended December 31, 1998 as compared to 1997. Service costs represent
costs directly attributable to providing cable services to customers. The
increase was primarily due to higher programming expense 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 $149,200 to
$124,700, or by 16.4%, for the year ended December 31, 1998 as compared to 1997.
The decrease was primarily due to lower insurance costs.
Management fees and reimbursed expenses increased from $298,700 to
$309,800, or by 3.7%, for the year ended December 31, 1998 as compared to 1997.
Management fees increased in direct relation to increased revenues as discussed
above. Reimbursed expenses increased in 1998 due to higher allocated personnel
costs resulting from staff additions.
Depreciation and amortization expense decreased from $575,400 to
$344,500, or by 40.1%, for the year ended December 31, 1998 as compared to 1997,
due to the effect of certain tangible assets becoming fully depreciated and
certain intangible assets becoming fully amortized.
Operating income increased from $379,600 to $598,000, or by 57.5%,
for the year ended December 31, 1998 as compared to 1997, primarily due to
decreased depreciation and amortization as discussed above.
Interest income, net of interest expense, increased from $16,100 to
$23,300, or by 44.7%, for the year ended December 31, 1998 as compared to 1997.
The increase was primarily due to higher average cash balances available for
investment.
Due to the factors described above, the Joint Venture's net income
increased from $395,700 to $621,300, or by 57.0%, for the year ended December
31, 1998 as compared to 1997.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues decreased from 48.3% in 1997 to 47.1% in 1998. The
decrease was primarily due to higher programming fees as described above.
EBITDA decreased from $955,000 to $942,500, or by 1.3%, as a result.
1997 COMPARED TO 1996
The Joint Venture's revenues increased from $1,870,600 to
$1,975,900, or by 5.6%, for the year ended December 31, 1997 as compared to
1996. Of the $105,300 increase, $156,500 was due to increases in regulated
service rates that were implemented by the Joint Venture in the second and
fourth quarters of 1996 and the fourth quarter of 1997, and $24,100 was due to
the July 1, 1996 restructuring of The
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<PAGE>
Disney Channel from a premium channel to a tier channel. These increases
were partially offset by a $46,500 decrease in other revenue producing items
including advertising sales revenue, and by a $28,800 decrease in revenues
due to decreases in the number of subscriptions for premium, tier and
equipment rental services. As of December 31, 1997, the Joint Venture had
approximately 4,400 basic subscribers and 1,400 premium service units.
Service costs increased from $532,500 to $573,000, or by 7.6%,
for the year ended December 31, 1997 as compared to 1996. Service costs
represent costs directly attributable to providing cable services to
customers. The increase was primarily due to higher programming expense.
Programming expense increased as a result of higher rates charged by program
suppliers.
General and administrative expenses increased from $109,500 to
$149,200, or by 36.3%, for the year ended December 31, 1997 as compared to
1996. The increase was primarily due to increased insurance costs.
Management fees and reimbursed expenses increased from $256,300
to $298,700, or by 16.5%, for the year ended December 31, 1997 as compared
to 1996. Management fees increased in direct relation to increased revenues
as discussed above. Reimbursed expenses increased in 1997 due to higher
allocated personnel costs resulting from staff additions and wage increases.
Depreciation and amortization expense decreased from $614,400 to
$575,400, or by 6.3%, for the year ended December 31, 1997 as compared to
1996, due to the effect of certain intangible assets becoming fully amortized.
Operating income increased from $357,900 to $379,600, or by 6.1%,
for the year ended December 31, 1997 as compared to 1996, primarily due to
increased revenues as discussed above.
Interest income, net of interest expense, increased from $12,000
to $16,100, or by 34.2%, for the year ended December 31, 1997 as compared to
1996. The increase was primarily due to higher average cash balances
available for investment and due to a change in investment policy that
yielded a greater return on invested cash.
Due to the factors described above, the Joint Venture's net
income increased from $370,500 to $395,700, or by 6.8%, for the year ended
December 31, 1997 as compared to 1996.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues decreased from 52.0% during 1996 to 48.3% in 1997.
The decrease was primarily caused by higher programming expense and insurance
costs. EBITDA decreased from $972,300 to $955,000, or by 1.8%, as a result.
DISTRIBUTIONS TO PARTNERS
The Macoupin Joint Venture distributed $1,050,000, $75,000 and
$37,500 equally among its three partners in 1996, 1997 and 1998,
respectively.
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<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net
offering proceeds in the Joint Ventures, is to distribute to its partners all
available cash flow from operations and proceeds from the sale of cable
systems, after providing for expenses, debt service and capital requirements
relating to the expansion, improvement and upgrade of the Joint Ventures'
cable systems.
Based on its belief that the market for cable systems has
generally improved, the Corporate General Partner is evaluating strategies
for liquidating the Partnership. These strategies include the potential sale
of substantially all of the Partnership's assets to third parties and/or
affiliates of the Corporate General Partner, and the subsequent liquidation
of the Partnership. The Corporate General Partner expects to complete its
evaluation within the next several months and intends to advise unitholders
promptly if it believes that commencing a liquidating transaction would be in
the best interests of unitholders.
The Joint Ventures rely upon the availability of cash generated
from operations and possible borrowings to fund their ongoing capital
requirements. In general, these requirements involve expansion, improvement
and upgrade of the Joint Ventures' existing cable television systems. The
Macoupin Joint Venture is required to rebuild its Auburn, Illinois cable
system at an estimated total cost of approximately $630,000 under a provision
of its franchise agreement. Capital expenditures related to the rebuild
totaled approximately $471,200 from inception through December 31, 1998. The
Macoupin Joint Venture is also rebuilding portions of its cable systems in
surrounding communities at an estimated additional cost of approximately
$1,280,000. Project expenditures in the surrounding communities approximated
$957,900 from inception through December 31, 1998. Expenditures related to
the total rebuild were only $122,000 in the year ended December 31, 1998 due
to delays in obtaining certain permits. The Macoupin Joint Venture is
budgeted to spend approximately $480,000 in 1999 to complete the rebuilds in
and around Auburn.
The Macoupin Joint Venture is also required by a provision of its
franchise agreement with the city of Carlinville, Illinois to upgrade its
cable system in that community by December 2001 at an estimated cost of
$875,000, and plans to upgrade its cable plant in Girard, Illinois beginning
in 1999 at an estimated cost of approximately $1.0 million provided the
franchise agreement is renewed. The franchise agreement under negotiation
with Girard is expected to require completion of a plant upgrade in the
franchise area within two years. The Macoupin Joint Venture is budgeted to
spend approximately $217,200 in 1999 for the upgrade and replacement of other
assets. The PBD Joint Venture has budgeted approximately $1.3 million and
$6.2 million to upgrade its Mt. Carmel, Illinois and Poplar Bluff, Missouri
cable systems, respectively, provided franchise renewals are obtained and
adequate funds are available. Although both franchise agreements are still
under negotiation, the PBD Joint Venture anticipates that each will require
an upgrade. The franchise agreement with Mt. Carmel, Illinois is expected to
require completion of the upgrade within 24 months. The agreement under
negotiation with Poplar Bluff, Missouri may include a similar requirement.
The PBD Joint Venture has budgeted capital expenditures of $520,200 in 1999
to upgrade other assets. The Macoupin Joint Venture and PBD Joint Venture
spent approximately $48,900 and $326,300, respectively, in the year ended
December 31, 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.
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<PAGE>
The Partnership is party to a loan agreement with Enstar Finance
Company, LLC ("EFC"), a subsidiary of the Corporate General Partner. The
loan agreement 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 matures on August 31, 2001, at which
time all amounts then outstanding are due in full. Borrowings bear interest
at the lender's base rate (7.75% at December 31, 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
Partnership's ratio of debt to cash flow is greater than 4 to 1.
The Partnership paid distributions totaling $503,100 during the
year ended December 31, 1998. However, there can be no assurance regarding
the level, timing or continuation of future distributions.
Beginning in August 1997, the Corporate General Partner elected
to self-insure the Joint Ventures' 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.
In October 1998, FCLP reinstated third party insurance coverage
for all of the cable television properties owned or managed by FCLP to cover
damage to cable distribution plant and subscriber connections and against
business interruptions resulting from such damage. This coverage is subject
to a significant annual deductible which applies to all of the cable
television properties owned or managed by FCLP.
Approximately 85% of the Joint Ventures' subscribers are served
by their systems in Poplar Bluff, Missouri and Carlinville, Illinois and
neighboring communities. Significant damage to these systems due to seasonal
weather conditions or other events could have a material adverse effect on
the Joint Ventures' liquidity and cash flows. The Joint Ventures continue to
purchase insurance coverage in amounts their management views as appropriate
for all other property, liability, automobile, workers' compensation and
other types of insurable risks.
During the fourth quarter of 1998, FCLP, on behalf of 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 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, FCLP 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. FCLP installed a number of
the new systems in January 1999. The remaining systems are expected to be
installed by mid-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. FCLP 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.
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<PAGE>
Additionally, FCLP has continued to inventory the Joint Ventures'
operating and revenue generating equipment to identify items that need to be
upgraded or replaced and has surveyed cable equipment manufacturers to
determine which of their models require upgrade or replacement to become Year
2000 compliant. Identification and evaluation, while ongoing, are
substantially completed and a plan is being developed to remediate
non-compliant equipment prior to January 1, 2000. FCLP expects to complete
its planning process by May 1999. Upgrade or replacement, testing and
implementation will be performed thereafter. 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 had not incurred any costs related
to the Year 2000 project as of December 31, 1998. FCLP plans to inventory,
assess, replace and test equipment with embedded computer chips in a separate
segment of its project, presently scheduled for the second half of 1999.
FCLP has continued to survey the Joint Ventures' significant
third party vendors and service suppliers to determine the extent to which
the Joint Ventures' interface systems are vulnerable should those third
parties fail to solve their own Year 2000 problems on a timely basis. 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 FCLP's 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.
FCLP expects 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.
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, although the Joint
Ventures would attempt to provide their customers with alternative program
services for the period during which they could not provide the original
signal. 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.
1998 VS. 1997
Operating activities used $42,500 less cash during 1998 than in
1997. Changes in prepaid expenses and liabilities owed to affiliates and
third-party creditors provided $9,900 less cash in 1998 due to differences in
the timing of payments.
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<PAGE>
Investing activities provided $919,800 less cash in 1998 than in
1997 due to a decrease in distributions from the Joint Ventures. The
Partnership used $1,046,300 less cash in financing activities during 1998
than in 1997, primarily due to the repayment of the Partnership's previous
$1.0 million note payable in 1997. The Partnership used $46,300 less cash in
1998 for the payment of deferred loan costs related to its Facility.
1997 VS. 1996
Operating activities used $5,500 less cash during 1997 than in
1996. Changes in prepaid expenses and liabilities owed to affiliates and
third-party creditors provided $2,000 less cash in 1997 due to differences in
the timing of payments.
Investing activities provided $400,000 more cash in 1997 than in
1996 due to an increase in distributions from the Joint Ventures. The
Partnership used $1,048,100 more cash in financing activities during 1997
than in 1996 due to the repayment of the Partnership's previous $1 million
note payable and the payment of $48,100 for deferred loan costs related to
the new Facility.
NEW ACCOUNTING PRONOUNCEMENT
In 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on Costs of Start-Up
Activities." The new standard, which becomes effective for the Partnership
and Joint Ventures on January 1, 1999, requires costs of start-up activities
to be expensed as incurred. The Partnership and Joint Ventures believe that
adoption of this standard will not have an impact on their financial position
or results of operations.
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. See "Legislation and Regulation."
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is not currently exposed to material market risks
associated with its financial instruments, although the Partnership would be
subject to interest rate risk were it to borrow under its Facility with EFC.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information
required to be filed hereunder are indexed on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partners of the Partnership may be considered, for
certain purposes, the functional equivalents of directors and executive
officers. The Corporate General Partner is Enstar Communications
Corporation, and Robert T. Graff, Jr. is the Individual General Partner. As
part of Falcon Cablevision's September 30, 1988 acquisition of the Corporate
General Partner, Falcon Cablevision received an option to acquire Mr. Graff's
interest as Individual General Partner of the Partnership and other
affiliated cable limited partnerships that he previously co-sponsored with
the Corporate General Partner, and Mr. Graff received the right to cause
Falcon Cablevision to acquire such interests. These arrangements were
modified and extended in an amendment dated September 10, 1993 pursuant to
which, among other things, the Corporate General Partner obtained the option
to acquire Mr. Graff's interest in lieu of the purchase right described above
which was originally granted to Falcon Cablevision. Since its incorporation
in Georgia in 1982, the Corporate General Partner has been engaged in the
cable/telecommunications business, both as a general partner of 15 limited
partnerships formed to own and operate cable television systems and through a
wholly-owned operating subsidiary. As of December 31, 1998 the Corporate
General Partner managed cable television systems with approximately 91,000
basic subscribers.
On September 30, 1998, FHGLP acquired ownership of the Corporate
General Partner from Falcon Cablevision. FHGI is the sole general partner of
FHGLP. FHGLP controls the general partners of 15 limited partnerships which
operate under the Enstar name (including the Partnership). Although these
limited partnerships are affiliated with FHGLP, their assets are owned by
legal entities separate from the Partnership.
Set forth below is certain general information about the
Directors and Executive Officers of the Corporate General Partner:
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<S> <C>
Marc B. Nathanson Director, Chairman of the Board and Chief Executive Officer
Frank J. Intiso Director, President and Chief Operating Officer
Stanley S. Itskowitch Director, Executive Vice President and General Counsel
Michael K. Menerey Director, Executive Vice President, Chief Financial Officer and Secretary
Joe A. Johnson Executive Vice President - Operations
Thomas J. Hatchell Executive Vice President - Operations
Abel C. Crespo Vice President, Corporate Controller
</TABLE>
MARC B. NATHANSON, 53, has been Chairman of the Board and Chief Executive
Officer of FHGI and its predecessors since 1975, and prior to September 19, 1995
also served as President. He has been Chairman of the Board and Chief Executive
Officer of Enstar Communications Corporation since October 1988, and also served
as its President prior to September 1995. Prior to 1975, Mr. Nathanson was Vice
President of Marketing for Teleprompter Corporation, then the largest cable
operator in the United States. He also held executive positions with Warner
Cable and Cypress Communications Corporation. He is a former President of the
California Cable Television Association and a member of Cable Pioneers. He is
currently a director of the National Cable Television Association ("NCTA") and
will Chair its 1999 National Convention. At the 1986 NCTA convention, Mr.
Nathanson was honored by being named the recipient of the Vanguard Award for
outstanding contributions to the growth and development of the cable television
industry. Mr. Nathanson is a 30-year veteran of the cable television industry.
He is a founder of the Cable Television Administration and Marketing Society
("CTAM") and the Southern California Cable Television Association. Mr. Nathanson
is an Advisory Board member of TVA, (Brazil) and also Chairman of the Board and
Chief Executive Officer of Falcon International
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<PAGE>
Communications, LLC. Mr. Nathanson was appointed by President Clinton on
November 1, 1998 as Chair of the Board of Governors for the International
Bureau of Broadcasting which oversees Voice of America, Radio/TV Marti, Radio
Free Asia, Radio Free Europe and Radio Liberty. Mr. Nathanson is a trustee of
the Annenburg School of Communications at the University of Southern
California and a member of the Board of Visitors of the Anderson School of
Management at UCLA. In addition, he serves on the Board of the UCLA
Foundation and the UCLA Center for Communications Policy and is on the Board
of Governors of AIDS Project Los Angeles and Cable Positive.
FRANK J. INTISO, 52, was appointed President and Chief Operating Officer of
FHGI in September 1995. Between 1982 and September 1995, Mr. Intiso held the
positions of Executive Vice President and Chief Operating Officer, with
responsibility for the day-to-day operations of all cable television systems
under the management of Falcon. He has been President and Chief Operating
Officer of Enstar Communications Corporation since September 1995, and
between October 1988 and September 1995 held the positions of Executive Vice
President and Chief Operating Officer. Mr. Intiso has a Masters Degree in
Business Administration from UCLA and is a Certified Public Accountant. He
currently serves as Immediate Past Chair of the California Cable Television
Association and is on the boards of the Cable Advertising Bureau, Cable in
the Classroom, and the California Cable Television Association. He is a
member of the American Institute of Certified Public Accountants, the
American Marketing Association, the American Management Association and the
Southern California Cable Television Association.
STANLEY S. ITSKOWITCH, 60, has been a Director of FHGI and its predecessors
since 1975. He served as Senior Vice President and General Counsel of FHGI
from 1987 to 1990 and has been Executive Vice President and General Counsel
since February 1990. Mr. Itskowitch has been Executive Vice President and
General Counsel of Enstar Communications Corporation since October 1988. He
has been President and Chief Executive Officer of F.C. Funding, Inc.
(formerly Fallek Chemical Company), which is a marketer of chemical products,
since 1980. He is a Certified Public Accountant and a former tax partner in
the New York office of Touche Ross & Co. (now Deloitte & Touche LLP). He has
a J.D. Degree and an L.L.M. Degree in Tax from New York University School of
Law. Mr. Itskowitch is also Executive Vice President and General Counsel of
Falcon International Communications, LLC.
MICHAEL K. MENEREY, 47, has been Executive Vice President, Chief Financial
Officer and Secretary of FHGI and Enstar Communications Corporation since
February 1998 and was Chief Financial Officer and Secretary of FHGI and its
predecessors between 1984 and 1998 and of Enstar Communications Corporation
since October 1988. Mr. Menerey is a Certified Public Accountant and is a
member of the American Institute of Certified Public Accountants and the
California Society of Certified Public Accountants, and he was formerly
associated with BDO Seidman.
JOE A. JOHNSON, 54, has been Executive Vice President of Operations of FHGI
since September 1995, and was a Divisional Vice President of FHGI between
1989 and 1992. He has been Executive Vice President-Operations of Enstar
Communications Corporation since January 1996. From 1982 to 1989, he held the
positions of Vice President and Director of Operations for Sacramento Cable
Television, Group W Cable of Chicago and Warner Amex. From 1975 to 1982, Mr.
Johnson held Cable System and Regional Manager positions with Warner Amex and
Teleprompter. Mr. Johnson is also a member of the Cable Pioneers.
THOMAS J. HATCHELL, 49, has been Executive Vice President of Operations of
FHGI and Enstar Communications Corporation since February 1998. From October
1995 to February 1998, he was Senior Vice President of Operations of Falcon
International Communications, L.P. and its predecessor company and was a
Senior Vice President of FHGI from January 1992 to September 1995. Mr.
Hatchell was a Divisional Vice President of FHGI between 1989 and 1992. From
1981 to 1989, he served as Vice President and Regional Manager for the San
Luis Obispo, California region owned by an affiliate of FHGI. He was Vice
President of Construction of an affiliate of FHGI from June 1980 to June 1981.
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<PAGE>
ABEL C. CRESPO, 39, has been Vice President, Corporate Controller of FHGI and
Enstar Communications Corporation since March 1999. He previously had served
as Controller since January 1997. Mr. Crespo joined Falcon in December 1984,
and has held various accounting positions during that time. Mr. Crespo holds
a Bachelor of Science degree in Business Administration from California State
University, Los Angeles.
OTHER OFFICERS OF FALCON
The following sets forth certain biographical information with
respect to certain additional members of FHGI management.
LYNNE A. BUENING, 45, has been Vice President of Programming of FHGI since
November 1993. From 1989 to 1993, she served as Director of Programming for
Viacom Cable, a division of Viacom International Inc. Prior to that, Ms.
Buening held programming and marketing positions in the cable, broadcast and
newspaper industries.
OVANDO COWLES, 45, has been Vice President of Advertising Sales and
Production of FHGI since January 1992. From 1988 to 1991, he served as
Director of Advertising Sales and Production at Cencom Cable Television in
Pasadena, California. From 1985 to 1988, he was an Advertising Sales Account
Executive at Choice TV, an affiliate of FHGI.
HOWARD J. GAN, 52, has been Vice President of Regulatory Affairs of FHGI and
its predecessors since 1988. Prior to joining FHGI, he was General Counsel at
Malarkey-Taylor Associates, a Washington, D.C.-based telecommunications
consulting firm, from 1986 to 1988, and was Vice President and General
Counsel at CTIC Associates from 1978 to 1983. In addition, he was an attorney
and an acting Branch Chief of the Federal Communications Commission's Cable
Television Bureau from 1973 to 1978.
R.W. ("SKIP") HARRIS, 51, has been Vice President of Marketing of FHGI since
June 1991. Mr. Harris was National Director of Affiliate Marketing for The
Disney Channel from 1985 to 1991. He was also a sales manager, regional
marketing manager and director of marketing for Cox Cable Communications from
1978 to 1985.
MARTIN B. SCHWARTZ, 39, has been Vice President of Corporate Development of
FHGI since March 1999. Mr. Schwartz joined Falcon in November 1989 and has
held various finance, planning and corporate development positions during
that time, most recently that of Director of Corporate Development. Mr.
Schwartz has a Masters Degree in Business Administration from UCLA.
JOAN SCULLY, 63, has been Vice President of Human Resources of FHGI and its
predecessors since May 1988. From 1987 to May 1988, she was self-employed as
a management consultant to cable and transportation companies. She served as
Director of Human Resources of a Los Angeles-based cable company from 1985
through 1987. Prior to that time, she served as a human resource executive in
the entertainment and aerospace industries. Ms. Scully holds a Masters Degree
in Human Resources Management from Pepperdine University.
RAYMOND J. TYNDALL, 51, has been Vice President of Engineering of FHGI since
October 1989. From 1975 to September 1989, he held various technical
positions with Choice TV and its predecessors. From 1967 to 1975, he held
various technical positions with Sammons Communications. He is a certified
National Association of Radio and Television Engineering ("NARTE") engineer
in lightwave, microwave, satellite and broadband and is a member of the Cable
Pioneers.
In addition, FHGI has six Divisional Vice Presidents who are
based in the field. They are G. William Booher, Daniel H. DeLaney, Ron L.
Hall, Ronald S. Hren, Michael E. Kemph and Michael D. Singpiel.
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<PAGE>
Each director of the Corporate General Partner is elected to a
one-year term at the annual shareholder meeting to serve until the next
annual shareholder meeting and thereafter until his respective successor is
elected and qualified. Officers are appointed by and serve at the discretion
of the directors of the Corporate General Partner.
ITEM 11. EXECUTIVE COMPENSATION
MANAGEMENT FEE
The Partnership has a management agreement (the "Management
Agreement") with Enstar Cable Corporation, a wholly owned subsidiary of the
Corporate General Partner (the "Manager"), pursuant to which Enstar Cable
Corporation manages the Joint Ventures' systems and provides all operational
support for the activities of the Joint Ventures. For these services, the
Manager receives a management fee of 5% of the PBD Joint Venture's gross
revenues and 4% of the Macoupin Joint Venture's gross revenues, excluding
revenues from the sale of cable television systems or franchises, calculated
and paid monthly. The Macoupin Joint Venture also is required to distribute
1% of its gross revenues to the Corporate General Partner in respect of its
interest as the Corporate General Partner of the Partnership. In addition,
the Partnership reimburses the Manager for certain operating expenses
incurred by the Manager in the day-to-day operation of the Joint Ventures'
cable systems. The Management Agreement also requires the Joint Ventures to
indemnify the Manager (including its officers, employees, agents and
shareholders) against loss or expense, absent negligence or deliberate breach
by the Manager of the Management Agreement. The Management Agreement is
terminable by the Joint Ventures upon sixty (60) days written notice to the
Manager. The Manager has engaged FCLP to provide certain management services
for the Joint Ventures and pays FCLP a portion of the management fees it
receives in consideration of such services and reimburses FCLP for expenses
incurred by FCLP on its behalf. Additionally, the Joint Ventures receive
certain system operating management services from affiliates of the Manager
in lieu of directly employing personnel to perform such services. The Joint
Ventures reimburse the affiliates for their allocable share of the
affiliates' operating costs. The Corporate General Partner also performs
certain supervisory and administrative services for the Joint Ventures, for
which it is reimbursed.
For the fiscal year ended December 31, 1998, the Manager charged
the Joint Ventures management fees of approximately $359,700 and reimbursed
expenses of $497,100. In addition, the Macoupin Joint Venture paid the
Corporate General Partner approximately $20,000 in respect of its 1% special
interest. The Joint Ventures also reimbursed affiliates approximately
$173,100 for system operating management services. Certain programming
services are purchased through FCLP. The Joint Ventures paid FCLP
approximately $1,776,300 for these programming services for fiscal year 1998.
PARTICIPATION IN DISTRIBUTIONS
The General Partners are entitled to share in distributions from,
and profit and losses in, the Partnership. See Item 5., "Market for Registrant's
Equity Securities and Related Security Holder Matters."
-40-
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of March 1, 1999, the only persons known by the Partnership to
own beneficially or that may be deemed to own beneficially more than 5% of the
units were:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- ------------------------------------- ------------------------------------- --------------------------- -----------
<S> <C> <C> <C>
Units of Limited Partnership JJJ Group LLC 2,213(1) 5.6%
Interest 7463 East Beryl
Scottsdale, AZ 85258
</TABLE>
(1) As reported to the Partnership by its transfer agent, Gemisys Corporation.
The Corporate General Partner is a wholly-owned subsidiary of
FHGLP. FHGI owns a 10.6% interest in, and is the general partner of, FHGLP.
As of March 3, 1999, the common stock of FHGI was owned as follows: 78.5% by
Falcon Cable Trust, a grantor trust of which Marc B. Nathanson is trustee and
he and members of his family are beneficiaries; 20% by Greg A. Nathanson; and
1.5% by Stanley S. Itskowitch. Greg A. Nathanson is Marc B. Nathanson's
brother.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONFLICTS OF INTEREST
On September 30, 1998, FHGLP acquired ownership of Enstar
Communications Corporation from Falcon Cablevision and FCLP assumed the
management services operations of FHGLP. FCLP now manages the operations of
the partnerships of which Enstar Communications Corporation is the Corporate
General Partner, including the Partnership. FCLP began receiving management
fees and reimbursed expenses which had previously been paid by the
Partnership, as well as other affiliated entities, to FHGLP. The day-to-day
management of FCLP is substantially the same as that of FHGLP, which serves
as the managing partner of FCLP.
Certain members of management of the Corporate General Partner
have also been involved in the management of other cable ventures. FCLP may
enter into other cable ventures, including ventures similar to the
Partnership.
The Partnership and the Joint Ventures rely upon the Corporate
General Partner and certain of its affiliates to provide general management
services, system operating services, supervisory and administrative services
and programming. See Item 11., "Executive Compensation." The Partnership is
also party to a loan agreement with a subsidiary of the Corporate General
Partner. See Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
Conflicts of interest involving acquisitions and dispositions of
cable television systems could adversely affect Unitholders. For instance,
the economic interests of management in other affiliated partnerships are
different from those in the Partnership and this may create conflicts
relating to which acquisition opportunities are preserved for which entities.
These affiliations subject FCLP, FHGLP and the Corporate General
Partner and their management to certain conflicts of interest. Such
conflicts of interest relate to the time and services
-41-
<PAGE>
management will devote to the Partnership's affairs and to the acquisition
and disposition of cable television systems. Management or its affiliates
may establish and manage other entities which could impose additional
conflicts of interest.
FCLP, FHGLP and the Corporate General Partner will resolve all
conflicts of interest in accordance with their fiduciary duties.
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION OF THE GENERAL PARTNERS
A general partner is accountable to a limited partnership as a
fiduciary and consequently must exercise good faith and integrity in handling
partnership affairs. Where the question has arisen, some courts have held
that a limited partner may institute legal action on his own behalf and on
behalf of all other similarly situated limited partners (a class action) to
recover damages for a breach of fiduciary duty by a general partner, or on
behalf of the partnership (a partnership derivative action) to recover
damages from third parties. Section 14-9-1001 of The Georgia Revised Uniform
Limited Partnership Act also allows a partner to maintain a partnership
derivative action if general partners with authority to do so have refused to
bring the action or if an effort to cause those general partners to bring the
action is not likely to succeed. Certain cases decided by federal courts have
recognized the right of a limited partner to bring such actions under the
Securities and Exchange Commission's Rule 10b-5 for recovery of damages
resulting from a breach of fiduciary duty by a general partner involving
fraud, deception or manipulation in connection with the limited partner's
purchase or sale of partnership units.
The partnership agreement provides that the General Partners will
be indemnified by the Partnership for acts performed within the scope of
their authority under the partnership agreement if such general partners (i)
acted in good faith and in a manner that it reasonably believed to be in, or
not opposed to, the best interests of the Partnership and the partners, and
(ii) had no reasonable grounds to believe that their conduct was negligent.
In addition, the partnership agreement provides that the General Partners
will not be liable to the Partnership or its limited partners for errors in
judgment or other acts or omissions not amounting to negligence or
misconduct. Therefore, limited partners will have a more limited right of
action than they would have absent such provisions. In addition, the
Partnership maintains, at its expense and in such reasonable amounts as the
Corporate General Partner shall determine, a liability insurance policy which
insures the Corporate General Partner, FHGI and its affiliates (which include
FCLP), officers and directors and such other persons as the Corporate General
Partner shall determine, against liabilities which they may incur with
respect to claims made against them for certain wrongful or allegedly
wrongful acts, including certain errors, misstatements, misleading
statements, omissions, neglect or breaches of duty. To the extent that the
exculpatory provisions purport to include indemnification for liabilities
arising under the Securities Act of 1933, it is the opinion of the Securities
and Exchange Commission that such indemnification is contrary to public
policy and therefore unenforceable.
-42-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
Reference is made to the Index to Financial
Statements on page F-1.
(a) 2. Financial Statement Schedules
Reference is made to the Index to Financial
Statements on page F-1.
(a) 3. Exhibits
Reference is made to the Index to Exhibits
on Page E-1.
(b) Reports on Form 8-K
The Registrant filed a Form 8-K dated December 17, 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.
-43-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on March
29, 1999.
ENSTAR INCOME PROGRAM IV-2, L.P.
By: Enstar Communications Corporation,
Corporate General Partner
By: /s/ Marc B. Nathanson
-------------------------
Marc B. Nathanson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated on the 29th day of March 1999.
<TABLE>
<CAPTION>
Signatures Title(*)
----------------------------- --------------------------------------------------
<S> <C>
/s/ Marc B. Nathanson Chairman of the Board and Chief Executive Officer
--------------------- (Principal Executive Officer)
Marc B. Nathanson
/s/ Michael K. Menerey Executive Vice President, Chief Financial Officer, Secretary
---------------------- and Director
Michael K. Menerey (Principal Financial and Accounting Officer)
/s/ Frank J. Intiso President, Chief Operating Officer
------------------- and Director
Frank J. Intiso
/s/ Stanley S. Itskowitch Executive Vice President, General Counsel
------------------------- and Director
Stanley S. Itskowitch
</TABLE>
(*) Indicates position(s) held with Enstar Communications Corporation, the
Corporate General Partner of the Registrant.
-44-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------------------------------------------------------------------
Enstar Income Enstar IV/PBD Enstar Cable
Program Systems of Macoupin
IV-2, L.P. Venture County
------------------ ------------------- ------------------
<S> <C> <C> <C>
Reports of Independent Auditors F-2 F-12 F-23
Balance Sheets - December 31, 1997 and 1998 F-3 F-13 F-24
Financial Statements for each of the
three years in the period ended
December 31, 1998:
Statements of Operations F-4 F-14 F-25
Statements of Partnership/
Venturers' Capital (Deficit) F-5 F-15 F-26
Statements of Cash Flows F-6 F-16 F-27
Notes to Financial Statements F-7 F-17 F-28
</TABLE>
All schedules have been omitted because they are either not required, not
applicable or the information has otherwise been supplied.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Enstar Income Program IV-2, L.P. (A Georgia Limited Partnership)
We have audited the accompanying balance sheets of Enstar Income Program IV-2,
L.P. (A Georgia Limited Partnership) as of December 31, 1997 and 1998, and the
related statements of operations, partnership capital (deficit), and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar Income Program IV-2,
L.P. at December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 12, 1999
F-2
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
BALANCE SHEETS
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1998
------------------ ------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 357,800 $ 265,300
Prepaid expenses 3,300 3,300
------------------ ------------------
Equity in net assets of Joint Ventures:
Enstar IV/PBD Systems Venture 1,415,500 2,007,300
Enstar Cable of Macoupin County 708,600 903,200
------------------ ------------------
2,124,100 2,910,500
------------------ ------------------
Deferred loan costs, net 45,000 34,300
------------------ ------------------
$ 2,530,200 $ 3,213,400
------------------ ------------------
------------------ ------------------
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 20,400 $ 5,900
Due to affiliates 10,700 18,700
------------------ ------------------
TOTAL LIABILITIES 31,100 24,600
------------------ ------------------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (58,100) (51,200)
Limited partners 2,557,200 3,240,000
------------------ ------------------
TOTAL PARTNERSHIP CAPITAL 2,499,100 3,188,800
------------------ ------------------
$ 2,530,200 $ 3,213,400
------------------ ------------------
------------------ ------------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
STATEMENTS OF OPERATIONS
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1996 1997 1998
-------------- --------------- --------------
<S> <C> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (29,000) $ (39,200) $ (30,600)
-------------- --------------- --------------
OTHER INCOME (EXPENSE):
Interest expense (118,500) (108,800) (36,400)
Interest income 29,300 24,800 13,200
-------------- --------------- --------------
(89,200) (84,000) (23,200)
-------------- --------------- --------------
Loss before equity in net income of joint ventures (118,200) (123,200) (53,800)
-------------- --------------- --------------
EQUITY IN NET INCOME OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 627,400 1,001,100 1,039,500
Enstar Cable of Macoupin County 123,500 131,900 207,100
-------------- --------------- --------------
750,900 1,133,000 1,246,600
-------------- --------------- --------------
NET INCOME $ 632,700 $ 1,009,800 $ 1,192,800
-------------- --------------- --------------
-------------- --------------- --------------
Net income allocated to General Partners $ 6,300 $ 10,100 $ 11,900
-------------- --------------- --------------
-------------- --------------- --------------
Net income allocated to Limited Partners $ 626,400 $ 999,700 $ 1,180,900
-------------- --------------- --------------
-------------- --------------- --------------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 15.72 $ 25.09 $ 29.64
-------------- --------------- --------------
-------------- --------------- --------------
WEIGHTED AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING THE YEAR 39,848 39,848 39,848
-------------- --------------- --------------
-------------- --------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
STATEMENTS OF PARTNERSHIP CAPITAL (DEFICIT)
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
------------- ------------- -------------
<S> <C> <C> <C>
PARTNERSHIP CAPITAL (DEFICIT),
January 1, 1996 $ (64,500) $ 1,927,300 $ 1,862,800
Distributions to partners (5,000) (498,100) (503,100)
Net income for year 6,300 626,400 632,700
------------- ------------- -------------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1996 (63,200) 2,055,600 1,992,400
Distributions to partners (5,000) (498,100) (503,100)
Net income for year 10,100 999,700 1,009,800
------------- ------------- -------------
PARTNERSHIP CAPITAL (DEFICIT)
December 31,1997 (58,100) 2,557,200 2,499,100
Distributions to partners (5,000) (498,100) (503,100)
Net income for year 11,900 1,180,900 1,192,800
------------- ------------- -------------
PARTNERSHIP CAPITAL (DEFICIT)
December 31, 1998 $ (51,200) $ 3,240,000 $ 3,188,800
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
STATEMENTS OF CASH FLOWS
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1996 1997 1998
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 632,700 $ 1,009,800 $ 1,192,800
Adjustments to reconcile net income to net
cash used in operating activities:
Equity in net income of joint ventures (750,900) (1,133,000) (1,246,600)
Amortization of deferred loan costs 17,000 29,500 12,500
Increase (decrease) from changes in:
Prepaid expenses - (3,300) -
Accounts payable and due to affiliates 5,400 6,700 (6,500)
---------------- ---------------- ----------------
Net cash used in operating activities (95,800) (90,300) (47,800)
---------------- ---------------- ----------------
Cash flows from investing activities:
Distributions from joint ventures 980,000 1,380,000 460,200
---------------- ---------------- ----------------
Cash flows from financing activities:
Distributions to partners (503,100) (503,100) (503,100)
Deferred loan costs - (48,100) (1,800)
Repayment of debt - (1,000,000) -
---------------- ---------------- ----------------
Net cash used in financing activities (503,100) (1,551,200) (504,900)
---------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 381,100 (261,500) (92,500)
Cash and cash equivalents at beginning of year 238,200 619,300 357,800
---------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 619,300 $ 357,800 $ 265,300
---------------- ---------------- ----------------
---------------- ---------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar Income Program IV-2, L.P. is a Georgia limited partnership
(the "Partnership") whose cable television operations are conducted through its
participation as a co-general partner in both Enstar IV/PBD Systems Venture and
Enstar Cable of Macoupin County (the "Joint Ventures").
The financial statements do not give effect to any assets that the
partners may have outside of their interest in the Partnership, nor to any
obligations, including income taxes, of the partners.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Partnership
considers all highly liquid debt instruments purchased with an initial maturity
of three months or less to be cash equivalents. The carrying value of cash and
cash equivalents approximates fair value due to the short maturity of these
instruments.
Cash equivalents at December 31, 1996 include $618,000 of
short-term investments in commercial paper.
INVESTMENT IN JOINT VENTURES
The Partnership's investment and share of the income or loss in the
Joint Ventures is accounted for on the equity method of accounting.
DEFERRED LOAN COSTS
Costs related to obtaining new loan agreements are capitalized and
amortized to interest expense over the life of the related loan.
INCOME TAXES
As a partnership, Enstar Income Program IV-2, L.P., pays no income
taxes. All of the income, gains, losses, deductions and credits of the
Partnership are passed through to its partners. Nominal taxes are assessed by
certain state jurisdictions. The basis in the Partnership's assets and
liabilities differs for financial and tax reporting purposes. At December 31,
1998, the book basis of the Partnership's investment in the Joint Ventures
exceeds its tax basis by $387,800.
The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, differ from the
financial statements prepared for tax purposes due to the different treatment of
various items as specified in the Internal Revenue Code. The net effect of
these accounting differences is that net income for 1998 in the financial
statements is $136,300 more than tax income of the Partnership for the same
period, caused principally by timing differences in depreciation and
amortization expense reported by the Joint Ventures.
F-7
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
COSTS OF START-UP ACTIVITIES
In 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on Costs of Start-Up Activities."
The new standard, which becomes effective for the Partnership on January 1,
1999, requires costs of start-up activities to be expensed as incurred. The
Partnership believes that adoption of this standard will not have an impact on
the Partnership's financial position or results of operations.
EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses have been allocated 99% to the limited partners
and 1% to the general partners. Earnings and losses per unit of limited
partnership interest are based on the weighted average number of units
outstanding during the year. 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - PARTNERSHIP MATTERS
The Partnership was formed on October 16, 1985 to acquire,
construct or improve, develop and operate cable television systems in various
locations in the United States. The partnership agreement provides for Enstar
Communications Corporation (the "Corporate General Partner") and Robert T.
Graff, Jr. to be the general partners and for the admission of limited partners
through the sale of interests in the Partnership.
On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of the Corporate
General Partner. On September 30, 1998, Falcon Holding Group, L.P., a Delaware
limited partnership ("FHGLP"), acquired ownership of the Corporate General
Partner from Falcon Cablevision. Simultaneously with the closing of that
transaction, FHGLP contributed all of its existing cable television system
operations to Falcon Communications, L.P. ("FCLP"), a California limited
partnership and successor to FHGLP. FHGLP serves as the managing partner of
FCLP. The Corporate General Partner has contracted with FCLP to provide
corporate management services for the Partnership.
The Partnership was formed with an initial capital contribution of
$1,100 comprising $1,000 from the Corporate General Partner and $100 from the
initial limited partner. Sale of interests in the Partnership began in July
1986, and the initial closing took place in August 1986. The Partnership
continued to raise capital until $10,000,000 (the maximum) was sold in November
1986.
F-8
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 2 - PARTNERSHIP MATTERS (Continued)
The amended partnership agreement generally provides that all cash
distributions (as defined) be allocated 1% to the general partners and 99% to
the limited partners until the limited partners have received aggregate cash
distributions equal to their original capital contributions ("Capital Payback").
The amended partnership agreement also provides that all partnership profits,
gains, operational losses, and credits (all as defined) be allocated 1% to the
general partners and 99% to the limited partners until the limited partners have
been allocated net profits equal to the amount of cash flow required for Capital
Payback. After the limited partners have received cash flow equal to their
initial investments, the general partners will only receive a 1% allocation of
cash flow from sale or liquidation of a system until the limited partners have
received an annual simple interest return of at least 12% of their initial
investments less any distributions from previous system sales and cash
distributions from operations after Capital Payback. Thereafter, the respective
allocations will be made 20% to the general partners and 80% to the limited
partners. Any losses from system sales or exchanges shall be allocated first to
all partners having positive capital account balances (based on their respective
capital accounts) until all such accounts are reduced to zero and thereafter to
the Corporate General Partner. All allocations to individual limited partners
will be based on their respective limited partnership ownership interests.
Upon the disposition of substantially all of the Partnership's
assets, gains shall be allocated first to the limited partners having negative
capital account balances until their capital accounts are increased to zero,
next equally among the general partners until their capital accounts are
increased to zero, and thereafter as outlined in the preceding paragraph. Upon
dissolution of the Partnership, any negative capital account balances remaining
after all allocations and distributions are made must be funded by the
respective partners.
The Partnership's operating expenses, interest expense and
distributions to partners are funded primarily from distributions received from
the Joint Ventures.
The amended partnership agreement limits the amount of debt the
Partnership may incur.
NOTE 3 - EQUITY IN NET ASSETS OF JOINT VENTURES
ENSTAR IV/PBD SYSTEMS VENTURE
The Partnership and an affiliate partnership (Enstar Income Program
IV-1, L.P.) each own 50% of Enstar IV/PBD Systems Venture, a Georgia general
partnership (the "PBD Joint Venture"). The PBD Joint Venture was initially
funded through capital contributions made by each venturer during 1986 of
$7,270,000 in cash and $460,000 in capitalized system acquisition and related
costs. In 1986, the PBD Joint Venture acquired cable television systems in
Missouri and Illinois. Each venturer shares equally in the profits and losses of
the PBD Joint Venture. The PBD Joint Venture generated income of $1,254,800,
$2,002,200 and $2,079,000 for 1996, 1997 and 1998, respectively, of which
$627,400, $1,001,100 and $1,039,500 was allocated to the Partnership. The
operations of the PBD Joint Venture are significant to the Partnership and
should be read in conjunction with these financial statements. Reference is made
to the accompanying financial statements of the PBD Joint Venture on pages F-12
to F-22 of this Form 10-K.
F-9
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 3 - EQUITY IN NET ASSETS OF JOINT VENTURES (Continued)
ENSTAR CABLE OF MACOUPIN COUNTY
The Partnership and two affiliate partnerships (Enstar Income
Program IV-1, L.P. and Enstar Income Program IV-3, L.P.) each own one third of
Enstar Cable of Macoupin County, a Georgia general partnership (the "Macoupin
Joint Venture"). The Macoupin Joint Venture was initially funded through
capital contributions made by each venturer during 1988 of $2,199,700 in cash
and $40,000 in capitalized system acquisition and related costs. In 1988, the
Macoupin Joint Venture acquired cable television systems in Illinois. Each
venturer shares equally in the profits and losses of the Macoupin Joint Venture.
The Macoupin Joint Venture generated income of $370,500, $395,700 and $621,300
for 1996, 1997 and 1998, respectively, of which $123,500, $131,900 and $207,100
was allocated to the Partnership for the respective years. The operations of
the Macoupin Joint Venture are significant to the Partnership and should be read
in conjunction with these financial statements. Reference is made to the
accompanying financial statements of the Macoupin Joint Venture on pages F-23 to
F-33 of this Form 10-K.
NOTE 4 - NOTE PAYABLE
On September 30, 1997, the Partnership completed new financing
arrangements with a subsidiary of the Corporate General Partner, Enstar Finance
Company, LLC ("EFC"). EFC obtained a secured bank facility of $35 million from
two agent banks in order to obtain funds that would in turn be advanced to the
Partnership and certain of the other partnerships managed by the Corporate
General Partner. The Partnership entered into a loan agreement with EFC for a
revolving loan facility (the "Facility") of $3,320,700. The Partnership used
available cash to repay outstanding borrowings of $1,000,000 and related accrued
interest under its previous credit facility. No advances had been made under
the new Facility as of December 31, 1998.
The Partnership's Facility matures on August 31, 2001, at which
time all amounts then outstanding are due in full. Borrowings bear interest at
the lender's base rate (7.75% at December 31, 1998) plus 0.625%, or at an
offshore rate plus 1.875%. The Partnership is permitted to prepay amounts
outstanding under the Facility at any time without penalty, and is able to
reborrow throughout the term of the Facility up to the maximum commitment then
available so long as no event of default exists. If the Partnership has "excess
cash flow" (as defined in its loan agreement) and has leverage, as defined, in
excess of 4.25 to 1, or receives proceeds from sales of its assets in excess of
a specified amount, the Partnership is required to make mandatory prepayments
under the Facility. Such prepayments permanently reduce the maximum commitment
under the Facility. The Partnership is also required to pay a commitment fee of
0.5% per annum on the unused portion of its Facility, and an annual
administrative fee. Advances by EFC under its partnership loan facilities are
independently collateralized by individual partnership borrowers so that no
partnership is liable for advances made to other partnerships. Borrowings under
the Partnership's Facility are collateralized by substantially all assets of the
Partnership and a security interest in the assets of the PBD Joint Venture. At
closing, the Partnership paid to EFC a $33,800 facility fee. This represented
the Partnership's pro rata portion of a similar fee paid by EFC to its lenders.
In connection with this refinancing, the Partnership wrote off $15,400 in
deferred loan costs during 1997 relating to the former bank credit agreement.
F-10
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 4 - NOTE PAYABLE (Continued)
The Facility contains certain financial tests and other covenants
including, among others, restrictions on incurrence of indebtedness,
investments, sales of assets, acquisitions and other covenants, defaults and
conditions. The Facility does not restrict the payment of distributions to
partners unless an event of default exists thereunder or the Partnership's ratio
of debt to cash flow is greater than 4 to 1.
NOTE 5 - 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") for a monthly management fee of 5% of gross receipts, as
defined, from the operations of the Partnership. The Partnership did not own or
operate any cable television operations in 1996, 1997 or 1998 other than through
its investment in the Joint Ventures. Accordingly, no management fees were paid
by the Partnership during 1996, 1997 and 1998.
The Agreement also provides that the Partnership will reimburse the
Manager for direct expenses incurred on behalf of the Partnership and for the
Partnership's allocable share of operational costs associated with services
provided by the Manager. No reimbursable expenses were incurred on behalf of
the Partnership during 1996, 1997 or 1998.
In the normal course of business, the Partnership pays commitment
fees to EFC.
NOTE 6 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest amounted to $119,100, $109,000 and $32,200
in 1996, 1997 and 1998, respectively.
F-11
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Venturers of
Enstar IV/PBD Systems Venture (A Georgia General Partnership)
We have audited the accompanying balance sheets of Enstar IV/PBD Systems Venture
(A Georgia General Partnership) as of December 31, 1997 and 1998, and the
related statements of operations, venturers' capital, and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Venture's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar IV/PBD Systems Venture
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 12, 1999
F-12
<PAGE>
ENSTAR IV/PBD SYSTEMS VENTURE
BALANCE SHEETS
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1998
------------------ -----------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 1,631,300 $ 2,904,300
Accounts receivable, less allowance of $4,200 and
$2,800 for possible losses 101,500 119,500
Prepaid expenses and other assets 131,900 120,100
Property, plant and equipment, less accumulated
depreciation and amortization 1,624,200 1,540,300
Franchise cost, net of accumulated
amortization of $16,700 and $13,100 31,500 38,600
Deferred charges, net 38,000 14,100
------------------ -----------------
$ 3,558,400 $ 4,736,900
------------------ -----------------
------------------ -----------------
LIABILITIES AND VENTURERS' CAPITAL
LIABILITIES:
Accounts payable $ 320,300 $ 192,400
Due to affiliates 407,100 529,900
------------------ -----------------
TOTAL LIABILITIES 727,400 722,300
------------------ -----------------
COMMITMENTS AND CONTINGENCIES
VENTURERS' CAPITAL:
Enstar Income Program IV-1, L.P. 1,415,500 2,007,300
Enstar Income Program IV-2, L.P. 1,415,500 2,007,300
------------------ -----------------
TOTAL VENTURERS' CAPITAL 2,831,000 4,014,600
------------------ -----------------
$ 3,558,400 $ 4,736,900
------------------ -----------------
------------------ -----------------
</TABLE>
See accompanying notes to financial statements.
F-13
<PAGE>
ENSTAR IV/PBD SYSTEMS VENTURE
STATEMENTS OF OPERATIONS
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUES $ 5,428,600 $ 5,584,600 $ 5,589,000
-------------- -------------- --------------
OPERATING EXPENSES:
Service costs 1,866,800 1,917,400 1,848,000
General and administrative expenses 739,600 699,600 737,000
General Partner management fees
and reimbursed expenses 587,700 593,100 567,000
Depreciation and amortization 1,013,000 475,500 449,700
-------------- -------------- --------------
4,207,100 3,685,600 3,601,700
-------------- -------------- --------------
Operating income 1,221,500 1,899,000 1,987,300
-------------- -------------- --------------
INTEREST INCOME, net 34,800 103,200 88,000
GAIN (LOSS) ON SALE OF CABLE ASSETS (1,500) - 3,700
-------------- -------------- --------------
NET INCOME $ 1,254,800 $ 2,002,200 $ 2,079,000
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-14
<PAGE>
ENSTAR IV/PBD SYSTEMS VENTURE
STATEMENTS OF VENTURERS' CAPITAL
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
Enstar Income Enstar Income
Program Program
IV-1, L.P. IV-2, L.P. Total
------------------ ------------------ -----------------
<S> <C> <C> <C>
BALANCE, January 1, 1996 $ 1,772,000 $ 1,772,000 $ 3,544,000
Distributions to venturers (630,000) (630,000) (1,260,000)
Net income for year 627,400 627,400 1,254,800
------------------ ------------------ -----------------
BALANCE, December 31, 1996 1,769,400 1,769,400 3,538,800
Distributions to venturers (1,355,000) (1,355,000) (2,710,000)
Net income for year 1,001,100 1,001,100 2,002,200
------------------ ------------------ -----------------
BALANCE, December 31, 1997 1,415,500 1,415,500 2,831,000
Distributions to venturers (447,700) (447,700) (895,400)
Net income for year 1,039,500 1,039,500 2,079,000
------------------ ------------------ -----------------
BALANCE, December 31, 1998 $ 2,007,300 $ 2,007,300 $ 4,014,600
================== ================== =================
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
ENSTAR IV/PBD SYSTEMS VENTURE
STATEMENTS OF CASH FLOWS
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1996 1997 1998
----------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,254,800 $ 2,002,200 $ 2,079,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 1,013,000 475,500 449,700
Loss on sale of cable assets 1,500 - -
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses
and other assets (129,700) 124,600 (6,200)
Accounts payable and due to affiliates 41,200 41,900 (5,100)
----------------- ---------------- ----------------
Net cash provided by operating activities 2,180,800 2,644,200 2,517,400
----------------- ---------------- ----------------
Cash flows from investing activities:
Capital expenditures (190,300) (215,600) (326,300)
Increase in intangible assets (75,600) (40,200) (22,700)
Proceeds from sale of property, plant and
equipment 100 - -
----------------- ---------------- ----------------
Net cash used in investing activities (265,800) (255,800) (349,000)
----------------- ---------------- ----------------
Cash flows from financing activities:
Distributions to venturers (1,260,000) (2,710,000) (895,400)
----------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents 655,000 (321,600) 1,273,000
Cash and cash equivalents at beginning of year 1,297,900 1,952,900 1,631,300
----------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 1,952,900 $ 1,631,300 $ 2,904,300
----------------- ---------------- ----------------
----------------- ---------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
ENSTAR IV/PBD SYSTEMS VENTURE
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar IV/PBD Systems Venture, a Georgia general partnership (the
"Venture"), owns and operates cable television systems in rural areas of
Illinois and Missouri.
The financial statements do not give effect to any assets that
Enstar Income Program IV-1, L.P. and Enstar Income Program IV-2, L.P. (the
"Venturers") may have outside of their interest in the Venture, nor to any
obligations, including income taxes, of the Venturers.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Venture considers
all highly liquid debt instruments purchased with an initial maturity of three
months or less to be cash equivalents. The carrying value of cash and cash
equivalents approximates fair value due to the short maturity of these
instruments.
Cash equivalents at December 31, 1996 include $1,814,000 of
short-term investments in commercial paper.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Direct costs
associated with installations in homes not previously served by cable are
capitalized as part of the distribution system, and reconnects are expensed as
incurred. For financial reporting, depreciation and amortization is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television systems 5-15 years
Vehicles 3 years
Furniture and equipment 5-7 years
Leasehold improvements Life of lease
</TABLE>
FRANCHISE COST
The excess of cost over the fair values of tangible assets and
customer lists of cable television systems acquired represents the cost of
franchises. In addition, franchise cost includes capitalized costs incurred in
obtaining new franchises and the renewal of existing franchises. These costs
are amortized using the straight-line method over the lives of the franchises,
ranging up to 15 years. The Venture periodically evaluates the amortization
periods of these intangible assets to determine whether events or circumstances
warrant revised estimates of useful lives. Costs relating to unsuccessful
franchise applications are charged to expense when it is determined that the
efforts to obtain the franchise will not be successful. The Venture is in the
process of negotiating the renewal of expired franchise agreements for two of
the Venture's four franchises.
DEFERRED CHARGES
Deferred charges are amortized using the straight-line method over
two years.
F-17
<PAGE>
ENSTAR IV/PBD SYSTEMS VENTURE
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
RECOVERABILITY OF ASSETS
The Venture assesses on an ongoing basis the recoverability of
intangible and capitalized plant assets based on estimates of future
undiscounted cash flows compared to net book value. If the future undiscounted
cash flow estimate were less than net book value, net book value would then be
reduced to estimated fair value, which would generally approximate discounted
cash flows. The Venture also evaluates the amortization periods of assets,
including franchise costs and other intangible assets, to determine whether
events or circumstances warrant revised estimates of useful lives.
REVENUE RECOGNITION
Revenues from customer fees, equipment rental and advertising are
recognized in the period that services are delivered. Installation revenue is
recognized in the period the installation services are provided to the extent of
direct selling costs. Any remaining amount is deferred and recognized over the
estimated average period that customers are expected to remain connected to the
cable television system.
INCOME TAXES
As a partnership, the Venture pays no income taxes. All of the
income, gains, losses, deductions and credits of the Venture are passed through
to the Venturers. The basis in the Venture's assets and liabilities differs for
financial and tax reporting purposes. At December 31, 1998, the book basis of
the Venture's net assets exceeds its tax basis by $363,400.
The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, differ from the
financial statements prepared for tax purposes due to the different treatment of
various items as specified in the Internal Revenue Code. The net effect of
these accounting differences is that net income for 1998 in the financial
statements is $86,800 more than tax income of the Venture for the same period,
caused principally by timing differences in depreciation and amortization
expense.
COSTS OF START-UP ACTIVITIES
In 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on Costs of Start-Up Activities."
The new standard, which becomes effective for the Venture on January 1, 1999,
requires costs of start-up activities to be expensed as incurred. The Venture
believes that adoption of this standard will not have an impact on the Venture's
financial position or results of operations.
ADVERTISING COSTS
All advertising costs are expensed as incurred.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1998 presentation.
F-18
<PAGE>
ENSTAR IV/PBD SYSTEMS VENTURE
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - JOINT VENTURE MATTERS
The Venture was formed under the terms of a general partnership
agreement effective July 23, 1986 between the Venturers, two limited
partnerships sponsored by Enstar Communications Corporation as their corporate
general partner. The Venture was formed to pool the resources of the two
limited partnerships to acquire, own, operate, and dispose of certain cable
television systems. In 1986, the Venture acquired cable television systems in
Missouri and Illinois.
Under the terms of the agreement, the Venturers share equally in
profits, losses, allocations, and assets. Capital contributions, as required,
are also made equally.
On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of Enstar
Communications Corporation. On September 30, 1998, Falcon Holding Group, L.P.,
a Delaware limited partnership ("FHGLP"), acquired ownership of the Corporate
General Partner from Falcon Cablevision. Simultaneously with the closing of
that transaction, FHGLP contributed all of its existing cable television system
operations to Falcon Communications, L.P. ("FCLP"), a California limited
partnership and successor to FHGLP. FHGLP serves as the managing partner of
FCLP. The Corporate General Partner has contracted with FCLP and its affiliates
to provide management services for the Venture.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1998
-------------- ---------------
<S> <C> <C>
Cable television systems $ 10,572,600 $ 10,704,100
Vehicles, furniture and equipment,
and leasehold improvements 681,600 718,500
-------------- ---------------
11,254,200 11,422,600
Less accumulated depreciation
and amortization (9,630,000) (9,882,300)
-------------- ---------------
$ 1,624,200 $ 1,540,300
-------------- ---------------
-------------- ---------------
</TABLE>
F-19
<PAGE>
ENSTAR IV/PBD SYSTEMS VENTURE
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Venture leases buildings and tower sites associated with the
systems under operating leases expiring in 2005.
Future minimum rental payments under noncancelable operating leases
that have remaining terms in excess of one year as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- -----------------
<S> <C>
1999 $ 2,200
2000 2,200
2001 2,200
2002 2,200
2003 2,200
Thereafter 3,900
-----------------
$ 14,900
-----------------
-----------------
</TABLE>
Rentals, other than pole rentals, charged to operations amounted to
$22,000, $21,100 and $23,200 in 1996, 1997 and 1998, respectively, while pole
rental expense approximated $44,400, $43,600 and $44,600 in 1996, 1997 and 1998,
respectively.
The Venture has granted to Enstar Finance Company, LLC, a
subsidiary of the Corporate General Partner and a lender to the Venturers, a
security interest in its assets to collateralize the debt of Enstar Income
Program IV-1, L.P. and Enstar Income Program IV-2, L.P.
The Venture is subject to regulation by various federal, state and
local government entities. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") provides for, among other things,
federal and local regulation of rates charged for basic cable service, cable
programming service tiers ("CPSTs") and equipment and installation services.
Regulations issued in 1993 and significantly amended in 1994 by the Federal
Communications Commission (the "FCC") have resulted in changes in the rates
charged for the Venture's cable services. The Venture believes that compliance
with the 1992 Cable Act has had a significant negative impact on its operations
and cash flow. It also believes that any potential future liabilities for
refund claims or other related actions would not be material. The
Telecommunications Act of 1996 (the "1996 Telecom Act") was signed into law on
February 8, 1996. As it pertains to cable television, the 1996 Telecom Act,
among other things, (i) ends the regulation of certain CPSTs in 1999; (ii)
expands the definition of effective competition, the existence of which
displaces rate regulation; (iii) eliminates the restriction against the
ownership and operation of cable systems by telephone companies within their
local exchange service areas; and (iv) liberalizes certain of the FCC's
cross-ownership restrictions.
Beginning in August 1997, the Corporate General Partner elected to
self-insure the Venture's 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.
F-20
<PAGE>
ENSTAR IV/PBD SYSTEMS VENTURE
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
In October 1998, FCLP reinstated third party insurance coverage for
all of the cable television properties owned or managed by FCLP to cover damage
to cable distribution plant and subscriber connections and against business
interruptions resulting from such damage. This coverage is subject to a
significant annual deductible which applies to all of the cable television
properties owned or managed by FCLP.
Approximately 80% of the Venture's subscribers are served by its
system in Poplar Bluff, Missouri and neighboring communities. Significant
damage to the system due to seasonal weather conditions or other events could
have a material adverse effect on the Venture's liquidity and cash flows. The
Venture continues to purchase insurance coverage in amounts its management views
as appropriate for all other property, liability, automobile, workers'
compensation and other types of insurable risks.
NOTE 5 - EMPLOYEE BENEFIT PLAN
The Venture has a cash or deferred profit sharing plan (the "Profit
Sharing Plan") covering substantially all of its employees. The Profit Sharing
Plan provides that each participant may elect to make a contribution in an
amount up to 15% of the participant's annual compensation which otherwise would
have been payable to the participant as salary. The Venture's contribution to
the Profit Sharing Plan, as determined by management, is discretionary but may
not exceed 15% of the annual aggregate compensation (as defined) paid to all
participating employees. There were no contributions charged against operations
of the Venture for the Profit Sharing Plan in 1996, 1997 or 1998.
NOTE 6 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Venture has a management and service agreement with a wholly
owned subsidiary of the Corporate General Partner (the "Manager") for a monthly
management fee of 5% of gross receipts, as defined, from the operations of the
Venture. Management fee expense was $271,400, $279,200 and $279,500 in 1996,
1997 and 1998, respectively.
In addition to the monthly management fee, the Venture reimburses
the Manager for direct expenses incurred on behalf of the Venture and for the
Venture's allocable share of operational costs associated with services provided
by the Manager. All cable television properties managed by the affiliate and
its subsidiaries are charged a proportionate share of these expenses. The
Corporate General Partner has contracted with FCLP and its affiliates to provide
management services for the Venture. Corporate office allocations and district
office expenses are charged to the properties served based primarily on the
respective percentage of basic customers or homes passed (dwelling units within
a system) within the designated service areas. The total amounts charged to the
Venture for these services approximated $316,300, $313,900 and $287,500 during
1996, 1997 and 1998, respectively.
The Venture also receives 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 Venture's cable systems. The Venture reimburses the affiliate for its
allocable share of the affiliate's operational costs. The total amount charged
to the Venture for these costs approximated $135,900, $151,400 and $168,500 in
1996, 1997 and 1998, respectively. No management fee is payable to the
affiliate by the Venture and there is no duplication of reimbursed expenses and
costs paid to the Manager.
F-21
<PAGE>
ENSTAR IV/PBD SYSTEMS VENTURE
NOTES TO FINANCIAL STATEMENTS
--------------------------------
--------------------------------
NOTE 6 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
Substantially all programming services have been purchased through
FCLP. FCLP, in the normal course of business, purchases cable programming
services from certain program suppliers owned in whole or in part by affiliates
of an entity that became a general partner of FCLP on September 30, 1998. Such
purchases of programming services are made on behalf of the Venture and the
other partnerships managed by the Corporate General Partner as well as for
FCLP's own cable television operations. FCLP charges the Venture 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 Venture recorded programming fee expense of
$1,241,500, $1,262,700 and $1,301,800 in 1996, 1997 and 1998, respectively.
Programming fees are included in service costs in the statements of operations.
F-22
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Venturers of
Enstar Cable of Macoupin County (A Georgia General Partnership)
We have audited the accompanying balance sheets of Enstar Cable of Macoupin
County (A Georgia General Partnership) as of December 31, 1997 and 1998, and the
related statements of operations, venturers' capital, and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Venture's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar Cable of Macoupin County
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 12, 1999
F-23
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
BALANCE SHEETS
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1998
----------------- ----------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 515,800 $ 1,283,400
Accounts receivable, less allowance of $10,000 and
$3,800 for possible losses 45,100 37,600
Prepaid expenses and other assets 333,100 201,900
Property, plant and equipment, less accumulated
depreciation and amortization 1,523,200 1,470,700
Franchise cost, net of accumulated
amortization of $3,242,100 and $17,800 143,900 57,400
Deferred charges, net 2,900 2,500
----------------- ----------------
$ 2,564,000 $ 3,053,500
----------------- ----------------
----------------- ----------------
LIABILITIES AND VENTURERS' CAPITAL
LIABILITIES:
Accounts payable $ 324,600 $ 174,000
Due to affiliates 113,600 169,900
----------------- ----------------
TOTAL LIABILITIES 438,200 343,900
----------------- ----------------
COMMITMENTS AND CONTINGENCIES
VENTURERS' CAPITAL:
Enstar Income Program IV-1, L.P. 708,600 903,200
Enstar Income Program IV-2, L.P. 708,600 903,200
Enstar Income Program IV-3, L.P. 708,600 903,200
----------------- ----------------
TOTAL VENTURERS' CAPITAL 2,125,800 2,709,600
----------------- ----------------
$ 2,564,000 $ 3,053,500
----------------- ----------------
----------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
STATEMENTS OF OPERATIONS
-------------------------------
-------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1997 1998
---------------- ----------------- ----------------
<S> <C> <C> <C>
REVENUES $ 1,870,600 $ 1,975,900 $ 2,003,000
---------------- ----------------- ----------------
OPERATING EXPENSES:
Service costs 532,500 573,000 626,000
General and administrative expenses 109,500 149,200 124,700
General Partner management fees
and reimbursed expenses 256,300 298,700 309,800
Depreciation and amortization 614,400 575,400 344,500
---------------- ----------------- ----------------
1,512,700 1,596,300 1,405,000
---------------- ----------------- ----------------
Operating income 357,900 379,600 598,000
---------------- ----------------- ----------------
INTEREST INCOME, net 12,000 16,100 23,300
GAIN ON SALE OF CABLE ASSETS 600 - -
---------------- ----------------- ----------------
NET INCOME $ 370,500 $ 395,700 $ 621,300
---------------- ----------------- ----------------
---------------- ----------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
STATEMENTS OF VENTURERS' CAPITAL
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
Enstar Enstar Enstar
Income Income Income
Program Program Program
IV-1, L.P. IV-2, L.P. IV-3, L.P. Total
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1996 $ 828,200 $ 828,200 $ 828,200 $ 2,484,600
Distributions to venturers (350,000) (350,000) (350,000) (1,050,000)
Net income for year 123,500 123,500 123,500 370,500
-------------- -------------- -------------- ----------------
BALANCE, December 31, 1996 601,700 601,700 601,700 1,805,100
Distributions to venturers (25,000) (25,000) (25,000) (75,000)
Net income for year 131,900 131,900 131,900 395,700
-------------- -------------- -------------- ----------------
BALANCE, December 31, 1997 708,600 708,600 708,600 2,125,800
Distributions to venturers (12,500) (12,500) (12,500) (37,500)
Net income for year 207,100 207,100 207,100 621,300
-------------- -------------- -------------- ----------------
BALANCE, December 31, 1998 $ 903,200 $ 903,200 $ 903,200 $ 2,709,600
-------------- -------------- -------------- ----------------
-------------- -------------- -------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
STATEMENTS OF CASH FLOWS
-------------------------------
-------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1996 1997 1998
---------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 370,500 $ 395,700 $ 621,300
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 614,400 575,400 344,500
Gain on sale of cable assets (600) - -
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses
and other assets (47,900) (292,000) 138,700
Accounts payable and due to affiliates (76,200) 158,900 (94,300)
---------------- --------------- ----------------
Net cash provided by operating activities 860,200 838,000 1,010,200
---------------- --------------- ----------------
Cash flows from investing activities:
Capital expenditures (411,200) (677,900) (170,900)
Increase in intangible assets (37,700) (11,500) (34,200)
Proceeds from sale of property, plant and
equipment 9,100 - -
---------------- --------------- ----------------
Net cash used in investing activities (439,800) (689,400) (205,100)
---------------- --------------- ----------------
Cash flows from financing activities:
Distributions to venturers (1,050,000) (75,000) (37,500)
---------------- --------------- ----------------
Net increase (decrease) in cash and cash equivalents (629,600) 73,600 767,600
Cash and cash equivalents at beginning of year 1,071,800 442,200 515,800
---------------- --------------- ----------------
Cash and cash equivalents at end of year $ 442,200 $ 515,800 $ 1,283,400
---------------- --------------- ----------------
---------------- --------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-27
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
-------------------------------
-------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar Cable of Macoupin County, a Georgia general partnership (the
"Venture"), owns and operates cable television systems in rural areas of
Illinois.
The financial statements do not give effect to any assets that
Enstar Income Program IV-1, L.P., Enstar Income Program IV-2, L.P. and Enstar
Income Program IV-3, L.P. (the "Venturers") may have outside of their interest
in the Venture, nor to any obligations, including income taxes, of the
Venturers.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Venture considers
all highly liquid debt instruments purchased with an initial maturity of three
months or less to be cash equivalents. The carrying value of cash and cash
equivalents approximates fair value due to the short maturity of these
instruments.
Cash equivalents at December 31, 1996 include $385,000 of
short-term investments in commercial paper.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Direct costs
associated with installations in homes not previously served by cable are
capitalized as part of the distribution system, and reconnects are expensed as
incurred. For financial reporting, depreciation and amortization is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television systems 5-15 years
Vehicles 3 years
Furniture and equipment 5-7 years
Leasehold improvements Life of lease
</TABLE>
FRANCHISE COST
The excess of cost over the fair values of tangible assets and
customer lists of cable television systems acquired represents the cost of
franchises. In addition, franchise cost includes capitalized costs incurred in
obtaining new franchises and the renewal of existing franchises. These costs
are amortized using the straight-line method over the lives of the franchises,
ranging up to 15 years. The Venture periodically evaluates the amortization
periods of these intangible assets to determine whether events or circumstances
warrant revised estimates of useful lives. Costs relating to unsuccessful
franchise applications are charged to expense when it is determined that the
efforts to obtain the franchise will not be successful. The Venture is in the
process of negotiating the renewal of expired franchise agreements for four of
the Venture's seven franchises.
DEFERRED CHARGES
Deferred charges are amortized using the straight-line method over
two years.
F-28
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
-------------------------------
-------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
RECOVERABILITY OF ASSETS
The Venture assesses on an ongoing basis the recoverability of
intangible and capitalized plant assets based on estimates of future
undiscounted cash flows compared to net book value. If the future undiscounted
cash flow estimate were less than net book value, net book value would then be
reduced to estimated fair value, which would generally approximate discounted
cash flows. The Venture also evaluates the amortization periods of assets,
including franchise costs and other intangible assets, to determine whether
events or circumstances warrant revised estimates of useful lives.
REVENUE RECOGNITION
Revenues from customer fees, equipment rental and advertising are
recognized in the period that services are delivered. Installation revenue is
recognized in the period the installation services are provided to the extent of
direct selling costs. Any remaining amount is deferred and recognized over the
estimated average period that customers are expected to remain connected to the
cable television system.
INCOME TAXES
As a partnership, the Venture pays no income taxes. All of the
income, gains, losses, deductions and credits of the Venture are passed through
to its Venturers. The basis in the Venture's assets and liabilities differs for
financial and tax reporting purposes. At December 31, 1998, the book basis of
the Venture's net assets exceeds its tax basis by $618,400.
The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, differ from the
financial statements prepared for tax purposes due to the different treatment of
various items as specified in the Internal Revenue Code. The net effect of
these accounting differences is that net income for 1998 in the financial
statements is $278,700 more than tax income of the Venture for the same period,
caused principally by timing differences in depreciation and amortization
expense.
COSTS OF START-UP ACTIVITIES
In 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on Costs of Start-Up Activities."
The new standard, which becomes effective for the Venture on January 1, 1999,
requires costs of start-up activities to be expensed as incurred. The Venture
believes that adoption of this standard will not have an impact on the Venture's
financial position or results of operations.
ADVERTISING COSTS
All advertising costs are expensed as incurred.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the
1998 presentation.
F-29
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
-------------------------------
-------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - JOINT VENTURE MATTERS
The Venture was formed under the terms of a joint venture agreement
effective December 30, 1987 among the Venturers, three limited partnerships
sponsored by Enstar Communications Corporation as their corporate general
partner. The Venture was formed to pool the resources of the three limited
partnerships to acquire, own, operate, and dispose of certain cable television
systems. In 1988, the Venture acquired two cable television systems in
Illinois.
Under the terms of the agreement, the Venturers share equally in
profits, losses, allocations, and assets. Capital contributions, as required,
are also made equally.
On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of the Enstar
Communications Corporation. On September 30, 1998, Falcon Holding Group, L.P.,
a Delaware limited partnership ("FHGLP"), acquired ownership of the Corporate
General Partner from Falcon Cablevision. Simultaneously with the closing of
that transaction, FHGLP contributed all of its existing cable television system
operations to Falcon Communications, L.P. ("FCLP"), a California limited
partnership and successor to FHGLP. FHGLP serves as the managing partner of
FCLP. The Corporate General Partner has contracted with FCLP and its affiliates
to provide management services for the Venture.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1998
--------------- ---------------
<S> <C> <C>
Cable television systems $ 3,514,500 $ 3,665,800
Vehicles, furniture and equipment
and leasehold improvements 213,300 216,500
--------------- ---------------
3,727,800 3,882,300
Less accumulated depreciation
and amortization (2,204,600) (2,411,600)
--------------- ---------------
$ 1,523,200 $ 1,470,700
--------------- ---------------
--------------- ---------------
</TABLE>
F-30
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
-------------------------------
-------------------------------
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Venture leases buildings and tower sites associated with the
systems under operating leases expiring in 2004.
Future minimum rental payments under non-cancelable operating
leases that have remaining terms in excess of one year as of December 31, 1998
are as follows:
<TABLE>
<CAPTION>
Year Amount
---- -------------
<S> <C>
1999 $ 6,000
2000 5,800
2001 5,900
2002 5,900
2003 6,000
Thereafter 2,700
-------------
$ 32,300
-------------
-------------
</TABLE>
Rentals, other than pole rentals, charged to operations
approximated $8,300, $7,700 and $8,600 in 1996, 1997 and 1998, respectively,
while pole rental expense approximated $13,600, $16,900 and $18,100 in 1996,
1997 and 1998, respectively.
Other commitments include approximately $480,000 at December 31,
1998 to complete the rebuild of the Venture's Auburn, Illinois cable system that
was commenced in 1996. The Venture also is required to upgrade its system in
the community of Carlinville, Illinois by December 2001 at an estimated cost of
$875,000.
The Venture is subject to regulation by various federal, state and
local government entities. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") provides for, among other things,
federal and local regulation of rates charged for basic cable service, cable
programming service tiers ("CPSTs") and equipment and installation services.
Regulations issued in 1993 and significantly amended in 1994 by the Federal
Communications Commission (the "FCC") have resulted in changes in the rates
charged for the Venture's cable services. The Venture believes that compliance
with the 1992 Cable Act has had a significant negative impact on its operations
and cash flow. It also believes that any potential future liabilities for
refund claims or other related actions would not be material. The
Telecommunications Act of 1996 (the "1996 Telecom Act") was signed into law on
February 8, 1996. As it pertains to cable television, the 1996 Telecom Act,
among other things, (i) ends the regulation of certain CPSTs in 1999; (ii)
expands the definition of effective competition, the existence of which
displaces rate regulation; (iii) eliminates the restriction against the
ownership and operation of cable systems by telephone companies within their
local exchange service areas; and (iv) liberalizes certain of the FCC's
cross-ownership restrictions.
Beginning in August 1997, the Corporate General Partner elected to
self-insure the Venture's 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.
F-31
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
-------------------------------
-------------------------------
NOTE 4 - COMMITMENTS AND CONTINGENCIES (Continued)
In October 1998, FCLP reinstated third party insurance coverage for
all of the cable television properties owned or managed by FCLP to cover damage
to cable distribution plant and subscriber connections and against business
interruptions resulting from such damage. This coverage is subject to a
significant annual deductible which applies to all of the cable television
properties owned or managed by FCLP.
All of the Venture's subscribers are served by its system in
Carlinville, Illinois and neighboring communities. Significant damage to the
system due to seasonal weather conditions or other events could have a material
adverse effect on the Venture's liquidity and cash flows. The Venture continues
to purchase insurance coverage in amounts its management views as appropriate
for all other property, liability, automobile, workers' compensation and other
types of insurable risks.
NOTE 5 - EMPLOYEE BENEFIT PLAN
The Venture has a cash or deferred profit sharing plan (the "Profit
Sharing Plan") covering substantially all of its employees. The Profit Sharing
Plan provides that each participant may elect to make a contribution in an
amount up to 15% of the participant's annual compensation which otherwise would
have been payable to the participant as salary. The Venture's contribution to
the Profit Sharing Plan, as determined by management, is discretionary but may
not exceed 15% of the annual aggregate compensation (as defined) paid to all
participating employees. There were no contributions charged against operations
of the Venture for the Profit Sharing Plan in 1996, 1997 or 1998.
NOTE 6 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Venture has a management and service agreement with a wholly
owned subsidiary of the Corporate General Partner (the "Manager") for a monthly
management fee of 4% of gross receipts, as defined, from the operations of the
Venture. Management fees approximated $74,800, $79,000 and $80,200 in 1996,
1997 and 1998, respectively. In addition, the Venture is required to distribute
1% of its gross revenues to the Corporate General Partner in respect of its
interest as the Corporate General Partner of the Partnership. This fee
approximated $18,700, $19,800 and $20,000 in 1996, 1997 and 1998, respectively.
The Venture also reimburses the Manager for direct expenses
incurred on behalf of the Venture and for the Venture's allocable share of
operational costs associated with services provided by the Manager. All cable
television properties managed by the Corporate General Partner and its
subsidiaries are charged a proportionate share of these expenses. The Corporate
General Partner has contracted with FCLP and its affiliates to provide
management services for the Venture. Corporate office allocations and district
office expenses are charged to the properties served based primarily on the
respective percentage of basic customers or homes passed (dwelling units within
a system) within the designated service areas. The total amounts charged to the
Venture for these services approximated $162,800, $199,900 and $209,600 during
1996, 1997 and 1998, respectively.
F-32
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
-------------------------------
-------------------------------
NOTE 6 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
The Venture also receives certain system operating management
services from affiliates of the Corporate General Partner in addition to the
Manager, due to the fact that there are no such employees directly employed by
the Venture's cable system. The Venture reimburses the affiliates for its
allocable share of the affiliates' operational costs. The total amount charged
to the Venture for these costs approximated $12,600, $20,000 and $4,600 in 1996,
1997 and 1998, respectively. No management fee is payable to the affiliates by
the Venture and there is no duplication of reimbursed expenses and costs paid to
the Manager.
Substantially all programming services have been purchased through
FCLP. FCLP, in the normal course of business, purchases cable programming
services from certain program suppliers owned in whole or in part by affiliates
of an entity that became a general partner of FCLP on September 30, 1998. Such
purchases of programming services are made on behalf of the Venture and the
other partnerships managed by the Corporate General Partner as well as for
FCLP's own cable television operations. FCLP charges the Venture 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 Venture recorded programming fee expense of
$388,900, $433,300 and $474,500 in 1996, 1997 and 1998, respectively.
Programming fees are included in service costs in the statements of operations.
F-33
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
3 Second Amended and Restated Agreement of Limited Partnership of
Enstar Income Program IV-2, L.P., dated as of August 1, 1988.(3)
10.1 Amended and Restated Partnership Agreement of Enstar IV/PBD Systems
Venture, as of December 15, 1986.(1)
10.2 Management Agreement between Enstar IV/PBD Systems Venture and
Enstar Cable Corporation.(1)
10.3 Management Agreement between Enstar Income Program IV-2, L.P. and
Enstar Cable Corporation.(1)
10.4 Partnership Agreement of Enstar Cable of Macoupin County, dated as
of December 30, 1987.(2)
10.5 Management Agreement between Enstar Cable of Macoupin County and
Enstar Cable Corporation.(3)
10.6 Revolving Credit and Term Note Agreement dated September 23, 1986
between Enstar Income Program IV-2 and Rhode Island Hospital Trust
National Bank, as amended.(3)
10.7 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Poplar Bluff, MO.(3)
10.8 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Dexter, MO.(3)
10.9 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Bloomfield, MO.(2)
10.10 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Mt. Carmel, IL.(2)
10.11 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Carlinville, IL.(2)
10.12 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Virden, IL.(2)
10.13 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Girard, IL.(2)
10.14 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Thayer, IL.(2)
10.15 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Auburn, IL.(2)
E-1
<PAGE>
10.16 Service agreement between Enstar Communications Corporation, Enstar
Cable Corporation and Falcon Holding Group, Inc. dated as of
October 1, 1988.(4)
10.17 Amendment No. 2 to Revolving Credit and Term Loan Agreement dated
September 23, 1986 between Enstar Income Program IV-2 and Rhode
Island Hospital Trust National Bank, dated January 18, 1989.(5)
10.18 Amendment No. 3 to Revolving Credit and Term Loan Agreement dated
September 23, 1986 between Enstar Income Program IV-2 and Rhode
Island Hospital Trust National Bank, dated June 15, 1990.(5)
10.19 Loan Agreement between Enstar Income Program IV-2, L.P. and
Kansallis-Osake-Pankki dated December 9, 1993.(6)
10.20 Amended and Restated Partnership Agreement of Enstar Cable of
Macoupin County, as of October 1, 1993. (7)
10.21 Loan Agreement between Enstar Income Program IV-2, L.P. and Enstar
Finance Company, LLC dated September 30, 1997.(8)
10.22 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Auburn, IL.(8)
10.23 A resolution of the City of Carlinville, Illinois extending the
Cable Television Franchise of Enstar Cable of Macoupin County.
Adopted December 1, 1997.(9)
10.24 An agreement by the City of Mt. Carmel, Illinois extending the
Cable Television Franchise of Enstar IV/PBD Systems Venture, dated
December 8, 1997.(9)
10.25 Franchise Ordinance granting a non-exclusive community antenna
television system franchise for the City of Carlinville, Illinois.
21.1 Subsidiaries: Enstar IV/PBD Systems Venture and Enstar Cable of
Macoupin County
</TABLE>
E-2
<PAGE>
EXHIBIT INDEX
FOOTNOTE REFERENCES
(1) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-15706 for the fiscal year
ended December 31, 1986.
(2) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-15706 for the fiscal year
ended December 31, 1987.
(3) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-15706 for the fiscal year
ended December 31, 1988.
(4) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-15706 for the fiscal year
ended December 31, 1989.
(5) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-15706 for the fiscal year
ended December 31, 1990.
(6) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-15706 for the fiscal year
ended December 31, 1993.
(7) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q, File No. 0-15706 for the quarter
ended March 31, 1995.
(8) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q, File No. 0-15706 for the quarter
ended September 30, 1997.
(9) Incorporated by reference to the exhibits to the Registrant's
Annual Report on Form 10-K, File No. 0-15706 for the fiscal year
ended December 31, 1997.
E-3
<PAGE>
EXHIBIT 10.25
CARLINVILLE, IL
CABLE TELEVISION FRANCHISE ORDINANCE
AN ORDINANCE SETTING FORTH REGULATIONS, TERMS AND CONDITIONS UNDER
WHICH CABLE TELEVISION SYSTEMS SHALL OPERATE IN CARLINVILLE, IL AND
GRANTING TO ENSTAR CABLE MACOUPIN COUNTY A FRANCHISE TO CONSTRUCT,
OPERATE AND MAINTAIN A CABLE TELEVISION SYSTEM WITHIN THE CITY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
TITLE AND PURPOSES OF ORDINANCE. . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FRANCHISE TO OPERATE REQUIRED. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GRANT OF FRANCHISE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FRANCHISE FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUBSCRIBER RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CUSTOMER SERVICE AND CONSUMER PROTECTION . . . . . . . . . . . . . . . . . . . . . 5
INFORMATION PROVIDED BY GRANTEE TO SUBSCRIBERS . . . . . . . . . . . . . . . . . . 6
TECHNICAL STANDARDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
EXTENSION OF CABLE SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
FREE BASIC CABLE SERVICE TO PUBLIC BUILDINGS . . . . . . . . . . . . . . . . . . . 9
SYSTEM UPGRADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FRANCHISE VIOLATIONS: PROCEDURES, NOTICE, AND CURE . . . . . . . . . . . . . . . . 10
FRANCHISE TERMINATION AND CONTINUITY OF SERVICE. . . . . . . . . . . . . . . . . . 11
FORCE MAJEUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
GRANT OF ADDITIONAL FRANCHISE AND COMPETING SERVICE PROVIDERS. . . . . . . . . . . 12
TRANSFER OR ASSIGNMENT OF FRANCHISE. . . . . . . . . . . . . . . . . . . . . . . . 13
COMPLIANCE WITH STATE AND FEDERAL LAW. . . . . . . . . . . . . . . . . . . . . . . 14
NOTICE TO THE GRANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
STREET OCCUPANCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ACCESS TO PUBLIC AND PRIVATE PROPERTY. . . . . . . . . . . . . . . . . . . . . . . 15
NONDISCRIMINATION IN EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 15
GRANTEE MAY ISSUE RULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SEVERABILITY OF ORDINANCE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 16
EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE>
AN ORDINANCE SETTING FORTH THE REGULATIONS, TERMS AND CONDITIONS UNDER WHICH
CABLE TELEVISION SYSTEMS SHALL OPERATE IN CARLINVILLE, IL AND GRANTING A
FRANCHISE TO ENSTAR CABLE MACOUPIN COUNTY, ITS SUCCESSORS AND ASSIGNS TO
CONSTRUCT, OPERATE AND MAINTAIN A CABLE TELEVISION SYSTEM IN THE CITY
BE IT ORDAINED BY THE CITY COUNCIL OF CARLINVILLE, IL AS FOLLOWS:
1 TITLE AND PURPOSES OF ORDINANCE
This Ordinance shall be known as the Carlinville Cable Television Franchise
Ordinance. The purposes of this Ordinance are: a) to establish the terms
and conditions under which a cable television system must operate within
Carlinville, IL (which may hereafter be referred to as "City", "Franchising
Authority", or "Grantor"); b) to provide for the payment of a franchise fee
to the City for costs associated with administering and regulating the
system; and c) to grant a cable television franchise to Enstar Cable Macoupin
County (hereafter referred to as Enstar" or "Grantee").
2 DEFINITIONS
For the purposes of this Ordinance the following terms, phrases, words and
their derivations shall have the meaning defined herein, unless the context
clearly indicates that another meaning is intended. Words used in the
present tense include the future, words in the plural number include the
singular number, and words in the singular number include the plural number.
2.1 "CABLE ACT" means THE CABLE COMMUNICATIONS POLICY ACT OF 1984 as
modified by THE CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION
ACT OF 1992, AND THE TELECOMMUNICATIONS ACT OF 1996.
2.2 "CABLE TELEVISION SYSTEM" means any non-broadcast facility consisting
of a set of transmission paths and associated signal reception,
transmission and control equipment, that is designed to distribute to
subscribers or other users audio, video and other forms of communications
services via electronic or electrical signals.
2.3 "CHANNEL" is a band of frequencies in the electromagnetic spectrum,
capable of carrying one audio-visual television signal.
2.4 "CITY" means Carlinville, IL in its present form or in any later
reorganized, consolidated, enlarged or reincorporated form, which is
legally authorized to grant a cable
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 1
<PAGE>
television franchise under state and federal law. The City may also be
referred to as "Franchising Authority" or "Grantor".
2.5 "ENSTAR" means Enstar Cable Macoupin County, which may also be
referred to as "Grantee".
2.6 "FCC" means the Federal Communications Commission.
2.7 "FRANCHISE" means the rights granted pursuant to this Ordinance to
construct, own and operate a cable television system along the public ways
in the City, or within specified areas in the City.
2.8 "FRANCHISE AREA" means that portion of the City for which a franchise
is granted under the authority of this Ordinance. If not otherwise stated
in an exhibit to this Ordinance, the Franchise Area shall be the legal and
geographic limits of the City, including all territory which may be
hereafter annexed to the City.
2.9 "FRANCHISING AUTHORITY" means Carlinville, IL, its City Council acting
as the City's duly elected governing body, its lawful successor or such
other person or body duly authorized by the City to grant a cable
television franchise.
2.10 "GRANTEE" means a person or business entity, or its lawful successor
or Assignee, which has been granted a franchise by the City pursuant to
this Ordinance.
2.11 "GROSS SUBSCRIBER RECEIPTS" as the term is used in calculating
franchise fees means revenues actually received by the Grantee from
television services it provides to its subscribers in Carlinville after
deducting the following: a) any fees or assessments levied on subscribers
or users of the system which are collected by the Grantee for payment to a
governmental entity; b) state or local sales or property taxes imposed on
the Grantee and paid to a governmental entity; and c) federal copyright
fees paid by the Grantee to the Copyright Tribunal in Washington, DC.
2.12 "NORMAL BUSINESS HOURS" means those hours during which most similar
businesses in the community are open to serve customers.
2.13 "NORMAL OPERATING CONDITIONS" means those service conditions which are
within the control of the Grantee. Those conditions which are not within
the control of the Grantee include, but are not limited to, natural
disasters, civil disturbances, power outages, telephone network outages,
and severe or unusual weather conditions. Those conditions which are
ordinarily within the control of the Grantee include, but are not limited
to, special promotions, pay-per-view events rate increases, regular peak or
seasonal demand periods, and maintenance or upgrade of the cable system.
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 2
<PAGE>
2.14 "PUBLIC WAY" OR "RIGHT-OF-WAY" means the surface, the air space above
the surface and the area below the surface of any public street, highway,
lane, path, alley, sidewalk, boulevard, drive, bridge, tunnel, park,
parkways, waterways, or other public right-of-way including public utility
easements or rights-of-way and any temporary or permanent fixtures or
improvements located thereon now or hereafter held by the City which shall
entitle the City and the Grantee to the use thereof for the purpose of
installing and maintaining the Grantee's cable television system.
2.15 "SCHOOL" means any public elementary or secondary school.
2.16 "SERVICE INTERRUPTION" means the loss of picture or sound on one or
more cable channels.
2.17 "SUBSCRIBER" means any person who receives monthly cable television
service provided by the Grantee's cable television system.
3 FRANCHISE TO OPERATE REQUIRED
It shall be unlawful to operate a cable television system within the City
unless a valid franchise has first been obtained from the City pursuant to
the terms of this Ordinance. A franchise granted pursuant to this Ordinance
shall authorize the Grantee to provide cable television services within the
City and to charge subscribers for such services. It shall also authorize
and permit the Grantee to traverse any portion of the City in order to
provide service outside the City. Unless otherwise specified, the Franchise
Area shall be the legal boundaries of the City.
4 GRANT OF FRANCHISE
A franchise is hereby granted to Enstar Cable Macoupin County (which may be
referred to herein as "Enstar" or "Grantee") to operate and maintain a cable
television system in the City for a period of seven years (7) years
commencing on the date of adoption of this Ordinance. However, if Grantee
complies with the upgrade requirements contained in Section 12 of this
Ordinance, this Agreement/Ordinance shall be automatically extended for an
additional period of five (5) years for a total term of twelve (12) years.
For purposes of this Section, Grantee shall be deemed to have "complied" if -
consistent with the requirements of Section 12 - Grantee has completed the
upgrade within 36 months from the adoption of this Ordinance. The Grantor
and the Grantee agree that at such time as this Franchise may expire by its
terms, the parties will adhere to the Franchise renewal procedures contained
in 47 U.S.C. 546, as that provision may exist at the time of renewal. If the
Ordinance/Franchise is not automatically extended after seven (7) years for
an additional five (5) years pursuant to this Section, Grantee shall be
deemed to have submitted on a timely basis the renewal notification required
under 47 U.S.C. 546 so as to guarantee all of Grantee's legal and procedural
rights to which it is entitled under 47 U.S.C. 546.
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5 FRANCHISE FEES
5.1 The Grantee shall pay a franchise fee which is intended to compensate
the City for all costs which may be associated with administering or
regulating Grantee's cable system. The amount of the franchise fee shall
be five (5) percent of the Grantee's annual Gross Subscriber Receipts, as
defined herein. Such fee shall be paid on a quarterly basis, within 45
days from the end of each quarter. Grantee shall be entitled to list the
franchise fee as a separate line item on monthly bills.
5.2 At the City's request, the Grantee shall file a report showing
Grantee's Gross Subscriber Receipts for the calendar year and the amount of
franchise fees due to the City. Such reports may be requested once per
calendar year. The Grantee shall have an obligation to maintain financial
records of its Gross Subscriber Receipts and Grantee fee payments for audit
purposes for a period of three years, and the City shall have the right to
audit the Grantee's books at the offices where such books are maintained.
6 SUBSCRIBER RATES
6.1 All charges to subscribers shall be consistent with a schedule of fees
for services offered and established by the Grantee. Rates shall be
nondiscriminatory in nature and uniform to persons of like classes under
similar circumstances and conditions.
6.2 The Grantee will provide the City with thirty (30) days advance
written notice of any change in rates and charges whenever possible.
6.3 Grantee may offer different or discounted rates at its discretion for
promotional purposes and may establish different rates for different
classes of subscribers where appropriate, such as offering discounted rates
to low income individuals or groups or bulk rates to multiple unit
dwellings.
6.4 Grantee shall inform each new subscriber of all applicable fees and
charges for providing cable television service.
6.5 Grantee may, at its own discretion and in a non-discriminatory manner,
waive, reduce or suspend connection fees, monthly service fees or other
charges on a one time or monthly basis for promotional purposes.
6.6 Grantee may refuse to provide service to any person because a prior
account with that person remains due and owing.
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6.7 A Grantee may offer service which requires advance payment of periodic
service charges.
6.8 The Grantee shall provide refunds to subscribers in the following
cases:
6.8(a) If the Grantee fails within a reasonable time to commence
service requested by a subscriber, it will refund all deposits or
advance charges that the subscriber has paid in connection with the
request for such service at the request of the subscriber.
6.8(b) If a subscriber terminates any service at any time and has a
credit balance for deposits or unused services, upon request from the
subscriber and upon return of all of Grantee's equipment, the Grantee
will refund the appropriate credit balance to the subscriber. The
subscriber will be responsible for furnishing the Grantee a proper
address to which to mail the refund.
6.8(c) If any subscriber's cable service is out of order for more
than 48 consecutive hours during the month due to technical failure,
damage, or circumstances within the control of the Grantee, the
Grantee will credit the account of that subscriber on a PRO RATA basis
upon the subscriber's written request. The credit will be calculated
using the number of twenty-four (24) hour periods that service is
impaired and the number of channels on which service is impaired as a
fraction of the total number of days in the month that the service
impairment occurs and the total number of channels provided by the
system in the absence of an impairment.
7 CUSTOMER SERVICE AND CONSUMER PROTECTION
7.1 CABLE SYSTEM OFFICE HOURS AND TELEPHONE AVAILABILITY
The Grantee will maintain a local, toll-free or collect call telephone
access line which will be available to its subscribers 24 hours per day,
seven days per week. Trained company representatives will be available to
respond to customer telephone inquiries during normal business hours.
After normal business hours, the access line may be answered by a service
or an automated response system, including an answering machine. Inquiries
received after normal business hours must be responded to by a trained
company representative on the next business day. Customer service center
and bill payment locations will be open at least during normal business
hours.
7.2 INSTALLATION, OUTAGES AND SERVICE CALLS
7.2(a) Standard installations will be performed within seven (7)
business days after an order has been placed. "Standard"
installations are those that are located up to 125 feet from the
existing distribution system.
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7.2(b) Excluding conditions beyond the control of the Grantee, the
Grantee will begin working on "service interruptions" promptly and in
no event later than 24 hours after the interruption becomes known.
The Grantee must begin actions to correct other service problems the
next business day after notification of the service problem.
7.2(c) The "appointment window" alternatives for installations,
service calls, and other installation activities will be either a
specific time or a four-hour time block during normal business hours.
The Grantee may schedule service calls and other installation
activities outside of normal business hours for the express
convenience of the customer.
7.2(d) If Grantee's representative is running late for an
appointment with a customer and will not be able to keep the
appointment as scheduled, the customer will be contacted. The
appointment will be rescheduled, as necessary, at a time which is
convenient for the customer.
7.2(e) If the Grantee's service representative appears for an
appointment scheduled by a customer within the time period promised
and no one is present at the customer's dwelling to permit necessary
physical access to the dwelling unit, then Grantee may charge the
customer for the service call, up to a maximum of $25.
8 INFORMATION PROVIDED BY GRANTEE TO SUBSCRIBERS
8.1 The Grantee shall provide written information on each of the following
areas at the time of installation of service, at least annually to all
subscribers, and at any time upon request: products and services offered;
prices and options for programming services and conditions of subscription to
programming and other services; installation and services maintenance policies;
instructions on how to use the cable service; channel positions of programming
carried on the system; and billing and complaint procedures, including the
address and telephone number of the local franchise authority's cable office.
8.2 Customers will be notified of any changes in rates, programming
services or channel positions thirty (30) days in advance of such changes
if the change is within the control of the Grantee. In addition, the
Grantee shall notify subscribers thirty (30) days in advance of any
significant changes in the other information required by paragraph
(c)(3)(i)(A) of this section. Notwithstanding any other provision of Part
76, Grantee shall not be required to provide prior notice of any rate
change that is the result of a regulatory fee, franchise fee, or any other
fee, tax, assessment, or charge of any kind imposed by any Federal agency,
State, or Franchising Authority on the transaction between the Grantee and
the subscriber.
8.3 Bills will be clear, concise and understandable. Bills will be
itemized, with
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itemizations including basic and premium service charges and equipment
charges. Bills will also clearly delineate all activity during the
billing period, including optional charges, rebates and credits. In
case of a billing dispute, the Grantee must respond to a written complaint
from a subscriber within thirty (30) days.
8.4 Refund checks will be issued promptly, but no later than either: the
customer's next billing cycle following resolution of the request or sixty
(60) days, or the return of the equipment supplied by the Grantee if
service is terminated.
8.5 Credits for services will be issued no later than the customer's next
billing cycle following the determination that a credit is warranted.
9 TECHNICAL STANDARDS
9.1 Grantee shall be responsible for insuring that the cable system is
designed, installed, and operated in a manner that fully complies with
Federal Communications Commission (FCC) rules regarding cable television
technical standards. Grantee shall be prepared to show, on request by an
authorized representative of the Commission or the Franchising Authority,
that the system does, in fact, comply with the rules.
9.2 Grantee shall conduct complete performance tests of the system at
least twice each calendar year (at intervals not to exceed seven months),
and shall maintain the resulting test data on file at the Grantee's local
business office for at least five (5) years. The test data shall be made
available for inspection by the Commission or the local franchiser, upon
request. The performance test shall be directed at determining the extent
to which the system complies with all the technical standards set forth in
Section 76.605(a) of the Commission's rules.
10 EXTENSION OF CABLE SERVICE
10.1 A Grantee which is not already serving the entire franchise area shall
provide service to all portions of the franchise area reaching a minimum
density of thirty (30) dwelling units per linear strand mile, as measured
from the nearest coaxial cable line, within twelve (12) months after the
grant of a franchise.
10.2 Grantee shall provide aerial or buried drop lines to new subdivisions
within the franchise area at the request of the developer provided that the
developer contracts and agrees with the Grantee to pay the cost of the
extension of the service.
10.3 Grantee shall extend and make cable television service available to
any resident within the franchise area who requests connection at the
standard connection charge if the connection to the resident would require
no more than a standard one hundred and fifty (150) foot aerial
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drop or a seventy-five (75) foot buried drop line or extension from the
nearest coaxial feeder cable. With respect to requests for connection
requiring an aerial or buried drop line in excess of the maximum standard
distance, Grantee shall extend and make available cable television service
to such residents at a connection charge not to exceed its actual costs
for the distance exceeding the standard one hundred and fifty (150) feet
of aerial or seventy-five (75) feet of underground cable respectively.
10.4 In areas with fewer than thirty (30) residential units per proposed
cable bearing strand mile, Grantee shall offer a cost-sharing arrangement
with residents. A dwelling unit will be counted for this purpose if its
lot fronts a street. The cost-sharing arrangement shall consist of the
following:
10.4(a)At the request of a resident desiring service, Grantee shall
determine the cost of the plant extension required to provide service
to the potential subscriber from the closest point on the cable system
where it is technically feasible. The cost of construction shall be
allocated based on the following formula:
10.4(a)(1)If a request for extension of service into a
residential area requires the construction of cable plant which
does not pass at least thirty (30) potential subscribers per
proposed cable bearing strand mile, Grantee and residents who
agree to subscribe to cable service will each bear their
proportionate share of construction costs. For example, if there
are five (5) dwelling units per proposed cable bearing strand
mile, Grantee's share will equal 5/30ths or one sixth (1/6) of
the construction cost. The remaining cost will be shared equally
by each subscriber.
10.4(a)(2)Should additional residents actually subscribe to
cable television service in areas where subscribers have already
paid a proportionate share under the extension cost sharing
formula, subscribers who have previously paid a proportionate
share under the extension formula shall be reimbursed PRO RATA
for their contribution or a proportional share thereof. In such
case, the PRO RATA shares shall be recalculated and each new
subscriber shall pay the new PRO RATA share, and all subscribers
who previously paid a proportionate share shall receive PRO RATA
refunds. In the event such subscribers (or prior subscribers)
have been disconnected or have moved and owe the Grantee money
which has not been recovered, Grantee shall have the right to
first apply the refund to amounts owed the Grantee and give the
balance, if any to the subscriber. At such time as there are
thirty (30) potential subscribers per cable bearing strand mile,
the subscribers shall receive their PRO RATA share of
construction costs. In any event, one (1) year after the
completion of a project, subscribers who have paid a share of
line extension costs are no longer eligible for refunds, and the
amounts paid in construction costs will be credited to the plant
account of Grantee.
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10.4(a)(3)Where the density of residential dwelling and
occupied commercial or industrial structures, adverse terrain, or
other factors render extension of the system and offering of
cable service impractical, technically infeasible or would create
an economic hardship, the City may, upon petition of the Grantee,
either waive the extension of the system into such areas, or
allow the extension and offer of service on special terms or
conditions which are reasonable and fair to the City , the
Grantee and potential subscribers in such areas.
11 FREE BASIC CABLE SERVICE TO PUBLIC BUILDINGS
Grantee shall provide, without charge, one service outlet activated for basic
subscriber service to each police station, fire station, public school, public
library and the City office. If it is necessary to extend Grantee's trunk or
feeder lines more than two hundred (200) feet solely to provide service to any
such school or public building, the City or the building owner or occupants
shall have the option of either paying Grantee's direct costs for line
extensions in excess of two hundred (200) feet or releasing the Grantee from the
obligation to provide service to such building. Furthermore, Grantee shall be
permitted to recover the direct cost of installing cable service, when requested
to do so, in order to provide: a) more than one outlet, b) inside wiring, or
c) a service outlet requiring more than two hundred (200) feet of drop cable to
any public building.
12 SYSTEM UPGRADE
Grantee agrees to upgrade the existing Carlinville cable TV system within
thirty-six (36) months of the adoption of this Franchise Agreement. The
upgraded system will be constructed so as to provide the capability of passing a
minimum of 83 channels on an analog and/or digital basis through its trunk and
feeder lines.
13 INSURANCE
Within ninety (90) days following the grant of a franchise the Grantee shall
obtain the following insurance policies:
13.1 A general comprehensive liability policy indemnifying, defending and
saving harmless the City, its officers, boards, commissions, agents or
employees from any and all claims by any person whatsoever on account of
injury to or death of a person or persons occasioned by the operations of
the Grantee under the franchise herein granted, or alleged to have been so
caused or occurred, with a minimum liability of Five Hundred thousand
Dollars ($500,000) per personal injury, death of any one person or damage
to property and One Million Dollars
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($1,000,000) for personal injury, death of any two or more persons in
any one occurrence or damage to property.
13.2 All insurance policies called for herein shall be in a form
satisfactory to the City and shall require thirty (30) days written notice
of any cancellation to both the City and the Grantee. The Grantee shall,
in the event of any such cancellation notice, obtain, pay all premiums for,
and file with the City , written evidence of the issuance of replacement
policies within thirty (30) days following receipt by the City or the
Grantee of any notice of cancellation. In recognition of the foregoing
each party agrees to cause their respective insurance carriers to waive any
rights of subrogation.
14 INDEMNIFICATION
The Grantee, by its acceptance of a franchise granted pursuant to this
Ordinance, shall indemnify and hold harmless the City, its officials, boards,
commissions and employees against any and all claims, suits, causes of action,
proceedings, and judgments for damage arising out of the award of a franchise to
the Grantee and its operation of the cable television system under the
franchise. These damages shall include, but not be limited to, penalties
arising out of copyright infringements and damages arising out of any failure by
Grantee to secure consents from the owners, authorized distributors or licensees
of programs to be delivered by the Grantee's cable television system whether or
not any act or omission complained of is authorized, allowed, or prohibited by
the franchise.
15 FRANCHISE VIOLATIONS: PROCEDURES, NOTICE, AND CURE
Before exercising any right of redress available to it under the terms of this
Ordinance, including determination of any penalty assessable under
applicable law, the City shall follow the procedures set forth in this
Section.
15.1 The City shall notify Grantee in writing, by Certified Mail, of any
alleged violation, ("Violation Notice") which notice shall include a
detailed description of any alleged violation and a request for cure
of such violation.
15.2 Except in the case of a safety hazard posing an imminent danger to
public health and safety, Grantee shall have thirty (30) days from
the date of receipt of such notice to respond in writing,
indicating: (1) that Grantee has cured the alleged violation,
providing reasonable documentation demonstrating that the alleged
violation has been cured; (2) that Grantee has commenced or will
commence actions to cure the alleged violation, but that the alleged
violation cannot reasonably be cured immediately, describing the
steps taken to be taken to cure the alleged violation; or (3) that
grantee disagrees with the allegation that a violation has occurred
and contests the Violation
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Notice, stating the reasons therefor. Pending the completion of an
administrative hearing which may be held, the City shall not impose
penalties upon Grantee.
15.3 Upon receipt of Grantee's response to the Violation Notice, the City
may determine (a) that the alleged violation has been corrected, or
is in the process of being corrected by Grantee, and that no further
action is required; (b) that an extension of the time or other
appropriate relief should be granted until the cure can be completed;
(c) that the problem is beyond Grantee's direct control and that
Grantee is not at fault; or (c) that Grantee has violated one or more
provisions of its franchise and that appropriate action should be
taken by the City.
15.4 In case of an alleged violation(s) of applicable system technical
standards, construction standards, or safety codes, if the alleged
violation does not pose a substantial and immediate safety hazard,
Grantee shall be allowed a reasonable and sufficient time to complete
any required corrections or repairs to the system. So long as Grantee
demonstrates that it is working diligently and in good faith to
correct any alleged technical violations, the City shall not assess
penalties against the Grantee. A "substantial and immediate safety
hazard" shall be defined as one posing an imminent likelihood of
causing significant bodily injury if not repaired immediately.
Grantee shall not be penalized for other minor violations of the
Franchise or applicable codes, so long as Grantee makes its best
efforts to correct any problem or violation within a reasonable
period of time of the discovery of alleged violation.
15.5 Nothing in this section shall be construed to restrict Grantee's
right to appeal the City's actions to a court of competent
jurisdiction.
16 FRANCHISE TERMINATION AND CONTINUITY OF SERVICE
16.1 In the event of a formal denial of renewal or revocation of a
franchise, which denial or revocation is upheld by final judicial
adjudication of any appeal(s) which may be filed, the Grantee shall be have
a minimum period of at least six (6) months from such final adjudication
within which to transfer or convey the assets of the cable system to
another owner. Approval of such proposed transfer or assignment shall not
be unreasonably withheld by the City.
17 FORCE MAJEUR
In the event the Grantee is prevented or delayed in the performance of any of
its obligations under this Ordinance by reason of flood, fires, hurricanes,
tornadoes, earthquakes or other acts of God, unavoidable casualty,
insurrections, war, riot, sabotage, unavailability of materials or supplies,
vandalism, strikes, boycotts, lockouts, labor disputes, shortage of labor,
unusually severe weather
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conditions, acts or omissions or delays by utility companies upon whom
Grantee is dependent for pole attachments or easement use, or any other event
which is beyond the reasonable control of the Grantee, the Grantee shall have
a reasonable time under the circumstances to perform its obligations under
this Ordinance or to procure a reasonable and comparable substitute for such
obligations. Under such circumstances the Grantee shall not be held in
default or noncompliance with the provisions of the Ordinance nor shall it
suffer any penalty relating thereto.
18 GRANT OF ADDITIONAL FRANCHISE AND COMPETING SERVICE PROVIDERS
18.1 APPLICATION PROCEDURES
18.1(a)An application for a new cable television franchise shall be
submitted to the City in a form specified by or acceptable to the
City, and in accordance with procedures and schedules established by
the City. The City may request such facts and information as it
deems appropriate.
18.1(b)Upon request, any applicant shall furnish to the City a map
of suitable scale, showing all roads and public buildings, which
indicates the areas to be served and the proposed dates of
commencement of service for each area. The proposed service area
shall be subject to approval by the City. If approved, the service
area shall be incorporated into any franchise granted pursuant to
this Ordinance. If no service area is specifically delineated in a
franchise, it shall be considered to be coterminous with the
boundaries of the City.
18.1(c)After receiving an application for a franchise, the City
shall examine the legal, financial, technical and character
qualifications of the applicant. The City may grant one or more
non-exclusive franchises creating a right to construct and operate
a cable television system within the public ways of the City, subject
to the provisions of this Section.
18.1(d)In the event an application is filed proposing to serve a
franchise area which overlaps, in whole or in part, an existing
Grantee's franchise area, a copy of such application shall be served
upon any existing Grantee by the City by registered or certified
mail. Such notice shall be considered a condition precedent to
consideration of the application for a franchise by the City.
18.2 COMPETING SERVICE PROVIDERS
Any franchise granted by the City shall be non-exclusive. However, nothing
in this ordinance shall be construed to require it to grant more than one
franchise if the City determines,
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pursuant to the procedures established in this Ordinance, that granting
additional franchises would be detrimental to the public interest.
18.3 PERMITS FOR NON-FRANCHISED ENTITIES
The City may issue a license, easement or other permit to a person other
than the Grantee to permit that person to traverse any portion of the
Grantee's franchise area within the City in order to provide service
outside, but not within the City. Such license or easement, absent a grant
of a franchise in accordance with this Ordinance, shall not authorize nor
permit said person to provide cable television service of any type to any
home or place of business within the City nor render any other service
within the City.
19 TRANSFER OR ASSIGNMENT OF FRANCHISE
19.1 A Grantee may transfer or assign its franchise to another entity (the
"Assignee") upon thirty (30) days notice to the City . The Grantee shall
provide to the City a reasonable showing that the proposed Assignee or
Transferee possesses the technical and financial qualifications to operate
the cable TV system properly. The proposed Transferee or Assignee shall
provide the City with a written statement that it agrees to comply with all
material terms of the franchise to be transferred. The City shall not
unreasonably delay or deny the assignment or transfer of a franchise. The
reasonableness of the City's actions shall be subject to judicial review by
a court of appropriate jurisdiction. The proposed transfer or assignment
shall be deemed approved if no action is taken by the City within sixty
(60) days of the written request for transfer by the Grantee.
19.2 The Grantee may secure financing or an indebtedness by trust,
mortgage, or other instrument of hypothecation of the franchise, in whole
or in part, without requiring the consent of the City. Consent shall not
be required to assign a franchise from one business entity to another which
is operated or managed by the Grantee or any affiliated entity. In
addition, so long as the manager and/or general partner of the Grantee
remains the same, consent shall not be required to transfer the interests
of any limited partner of the Grantee, who has no day to day operational
control of the Grantee or the system.
19.3 A Grantee may transfer or assign its franchise to an affiliated
entity upon thirty (30) days notice to the City. Consent of the City shall
not be required for such an assignment, provided that; a) the City is
provided with a reasonable showing that the proposed Assignee possesses the
technical and financial qualifications to operate the cable TV system and,
b) that the Assignee agrees to comply with the terms of this Ordinance.
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20 COMPLIANCE WITH STATE AND FEDERAL LAW
The Grantee and the City shall at all times comply with all applicable State
and Federal laws and the applicable rules and regulations of administrative
agencies. If the Federal Communications Commission (FCC) or any other
federal or state governmental body or agency enacts any law or regulation or
exercises any paramount jurisdiction over the subject matter of this
Ordinance or any franchise granted hereunder, the jurisdiction of the City
shall cease and no longer exist to the extent such superseding jurisdiction
shall preempt or preclude the exercise of like jurisdiction by the City. The
City and the Grantee reserve all rights they each may possess under law,
unless expressly waived herein.
21 NOTICE TO GRANTEE
Except as otherwise provided in this Ordinance, the City shall not meet to
take any action involving the Grantee's franchise unless the City has
notified the Grantee by certified mail at least thirty (30) days prior to
such meeting, as to its time, place and purpose. The notice provided for in
this section shall be in addition to, and not in lieu of, any other notice to
the Grantee provided for in this Ordinance. All notices, requests, demands
and other communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given if mailed by certified mail
return receipt requested, addressed to the Grantee's corporate office as
follows:
Enstar Cable Macoupin County
10900 Wilshire Boulevard, 15th Floor
Los Angeles, California 90024
Attn: Howard Gan
22 STREET OCCUPANCY
22.1 Grantee shall utilize existing poles, conduits and other facilities
whenever possible, but may construct or install new, different, or
additional poles, conduits, or other facilities whether on the public way
or on privately-owned property with the written approval of the appropriate
government authority, and, if necessary the property owner. Such approval
shall not be unreasonably withheld by the governmental agency.
22.2 All transmission lines, equipment and structures shall be so
installed and located as to cause minimum interference with the rights and
appearance and reasonable convenience of property owners who adjoin on any
public way and at all times shall be kept and maintained in a safe
condition and in good order and repair. The Grantee shall at all times
employ reasonable care and shall use commonly accepted methods and devices
for preventing failures and accidents which are likely to cause damage,
injuries or nuisances to the public.
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22.3 Grantee shall have the authority to trim trees on public property at
its own expense as may be necessary to protect its wires and facilities,
subject to the direction of the City or other appropriate governmental
authority.
23 ACCESS TO PUBLIC AND PRIVATE PROPERTY
23.1 Grantee shall have the right to enter and have access to the property
and premises of the City or that of any subscriber for purposes of
installing cable TV service or recovering and removing Grantee's property
and equipment when a subscriber's service is terminated and a subscriber
refuses to return such equipment to the Grantee.
23.2 The City shall not permit any person who owns or controls a
residential multiple unit dwelling, trailer park, condominium, apartment
complex, subdivision or other property to interfere with the right of any
tenant, resident or lawful occupant thereof to receive cable installation,
service or maintenance from Grantee, except as federal or state law shall
otherwise require.
23.3 Upon request by Grantee, the City shall promptly exercise any rights
it may have to permit or enable Grantee to obtain or utilize easements with
respect to any residential multiple unit dwelling, trailer park,
condominium, apartment complex, subdivision or other property as required
to facilitate Grantee's use thereof for purposes of providing system
service to the tenants, residents or lawful occupants thereof. In any such
proceeding, the restitution to the Owner for the amount of space utilized
by the system, considering the enhanced value to the premises resulting
from the installation of cable television facilities, shall be a one-time
charge of $1.00 per dwelling unit.
24 NONDISCRIMINATION IN EMPLOYMENT
The Grantee shall neither refuse to hire nor discharge from employment nor
discriminate against any person in compensation, terms, conditions, or
privileges of employment because of age, sex, race, color, creed, or national
origin. The Grantee shall insure that employees are treated without regard to
their age, sex, race, color, creed or national origin.
25 GRANTEE MAY ISSUE RULES
The Grantee shall have the authority to issue such rules, regulations, terms and
conditions of its business as shall be reasonably necessary to enable it to
exercise its rights and perform its services under this Ordinance and the Rules
of the FCC, and to assure uninterrupted service to each and all of its
subscribers. Such rules and regulations shall not be deemed to have the force
of law.
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 15
<PAGE>
26 SEVERABILITY OF ORDINANCE PROVISIONS
If any section of this Ordinance or the franchise, or any portion thereof, is
held invalid or unconstitutional by any court of competent jurisdiction or
administrative agency, such decision shall not affect the validity of the
remaining portions of the Ordinance or franchise.
27 EFFECTIVE DATE
This ordinance shall become effective upon the date of its adoption by the City.
Any failure by the City to follow proper procedures under state or local law in
adopting this Ordinance or granting a franchise shall not abrogate the rights or
obligations of either the Grantee or the City under this Ordinance. If,
following adoption of this Ordinance it is subsequently determined that proper
legal procedures have not been followed by the City, it shall be the
responsibility of the City to rectify any procedural defects and ratify the
terms of this Ordinance.
PASSED AND APPROVED by the City Council of Carlinville this 21st day of
December, 1998.
BY: /S/ BRAD DEMUZIO
-----------------------------
Title:
ATTEST: MAYOR
-----------------------
Title:
ACCEPTED BY Enstar Cable Macoupin County.
BY: /S/ HOWARD GAN
---------------------------
Title: Vice President
ATTEST: /S/ LAURA DAINKO
-------------------------
Title: Administrative Assistant
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT DECEMBER 31, 1998, AND THE STATEMENTS OF OPERATIONS FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 265,300
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,213,400
<CURRENT-LIABILITIES> 24,600
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,213,400
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 30,600
<OTHER-EXPENSES> (13,200)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,400
<INCOME-PRETAX> 1,192,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,192,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,192,800
<EPS-PRIMARY> 29.64
<EPS-DILUTED> 0
</TABLE>
