<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
-----------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission File Number 0-15706
-------------
Enstar Income Program IV-2, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1648318
- ----------------------------------- ---------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
- ----------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (310) 824-9990
----------------------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
<PAGE>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED BALANCE SHEETS
=================================================
<TABLE>
<CAPTION>
December 31, September 30,
1998* 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 265,300 $ 282,800
Prepaid expenses 3,300 3,800
----------------- -----------------
Equity in net assets of Joint Ventures:
Enstar IV/PBD Systems Venture 2,007,300 2,436,800
Enstar Cable of Macoupin County 903,200 1,045,800
----------------- -----------------
2,910,500 3,482,600
----------------- -----------------
Deferred loan costs, net 34,300 25,000
----------------- -----------------
$ 3,213,400 $3,794,200
================= =================
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 5,900 $ 1,200
Due to affiliates 18,700 150,800
----------------- -----------------
TOTAL LIABILITIES 24,600 152,000
----------------- -----------------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (51,200) (46,700)
Limited partners 3,240,000 3,688,900
----------------- -----------------
TOTAL PARTNERSHIP CAPITAL 3,188,800 3,642,200
----------------- -----------------
$ 3,213,400 $3,794,200
================= =================
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
=================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Three months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $(11,900) $(10,100)
---------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 3,200 3,700
Interest expense (7,100) (8,300)
---------------- -----------------
(3,900) (4,600)
---------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (15,800) (14,700)
---------------- -----------------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 264,900 257,500
Enstar Cable of Macoupin County 52,800 59,500
---------------- -----------------
317,700 317,000
---------------- -----------------
NET INCOME $301,900 $302,300
================ =================
Net income allocated to General Partners $ 3,000 $ 3,000
================ =================
Net income allocated to Limited Partners $298,900 $299,300
================ =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 7.50 $ 7.51
================ =================
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,848 39,848
================ =================
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
=================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $(27,100) $(29,900)
---------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 10,200 8,200
Interest expense (24,100) (26,600)
---------------- -----------------
(13,900) (18,400)
---------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (41,000) (48,300)
---------------- -----------------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 783,300 701,500
Enstar Cable of Macoupin County 151,800 177,600
---------------- -----------------
935,100 879,100
---------------- -----------------
NET INCOME $894,100 $830,800
================ =================
Net income allocated to General Partners $ 8,900 $ 8,300
================ =================
Net income allocated to Limited Partners $885,200 $822,500
================ =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 22.21 $ 20.64
================ =================
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,848 39,848
================ =================
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
STATEMENTS OF CASH FLOWS
=================================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 894,100 $ 830,800
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in net income of Joint Ventures (935,100) (879,100)
Amortization of deferred loan costs 6,200 9,300
Increase (decrease) from changes in:
Prepaid expenses (600) (500)
Accounts payable and due to affiliates (11,800) 127,400
---------------- -----------------
Net cash provided by (used in) operating activities (47,200) 87,900
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Ventures 327,200 307,000
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (377,400) (377,400)
Deferred loan costs (1,800) -
---------------- -----------------
Net cash used in financing activities (379,200) (377,400)
---------------- -----------------
INCREASE (DECREASE) IN CASH (99,200) 17,500
CASH AT BEGINNING OF PERIOD 357,800 265,300
---------------- -----------------
CASH AT END OF PERIOD $ 258,600 $ 282,800
================ =================
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
============================================
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the
three and nine months ended September 30, 1999 and 1998 are unaudited. These
condensed interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Partnership's
latest Annual Report on Form 10-K. In the opinion of management, such
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of such
periods. The results of operations for the three and nine months ended
September 30, 1999 are not necessarily indicative of results for the entire
year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (the
"Agreement") with a wholly-owned subsidiary of the Corporate General Partner
(the "Manager") pursuant to which it pays a monthly management fee of 5% of
gross revenues. The Agreement also provides that the Partnership will
reimburse the Manager for (i) direct expenses incurred on behalf of the
Partnership and (ii) the Partnership's allocable share of the Manager's
operational costs. The Corporate General Partner has contracted with Falcon
Communications, L.P. ("FCLP"), an affiliated partnership, to provide
corporate management services for the Partnership as well as Enstar IV/PBD
Systems Venture and Enstar Cable of Macoupin County (both Georgia general
partnerships, of which the Partnership is a co-general partner - herein
referred to as the "Joint Ventures"). Corporate office allocations and
district office expenses are charged to the properties served based primarily
on the respective percentage of basic subscribers within the designated
service areas. No such costs and expenses were incurred or charged to the
Partnership for these services during the three and nine months ended
September 30, 1999. The Manager has entered into identical agreements with
the Joint Ventures, except that Enstar Cable of Macoupin County (the
"Macoupin Joint Venture") pays the Manager only a 4% management fee. However,
the Macoupin Joint Venture is required to distribute to Enstar Communications
Corporation (which is the Corporate General Partner of the Macoupin Joint
Venture as well as of the Partnership) an amount equal to 1% of the Joint
Venture's gross revenues in respect of Enstar Communications Corporation's
interest as the Corporate General Partner of the Joint Venture. No management
fee is payable by the Partnership in respect of any amounts received by the
Partnership from the Joint Ventures, and there is no duplication of
reimbursed expenses or costs of the Manager. The Joint Ventures paid the
Manager management fees of approximately $88,800 and $265,700 and
reimbursement of expenses of approximately $126,400 and $366,000 under the
management agreements for the three and nine months ended September 30, 1999.
In addition, the Macoupin Joint Venture paid the Corporate General Partner
approximately $5,000 and $15,000 in respect of its 1% special interest during
the three and nine months ended September 30, 1999. Management fees and
reimbursed expenses due the Corporate General Partner are non-interest
bearing.
The Joint Ventures also receive certain system operating management
services from an affiliate of the Corporate General Partner in addition to
the Manager, due to the fact that there are no such employees directly
employed by the Joint Ventures' cable systems. The Joint Ventures reimburse
the affiliate for their allocable share of the affiliate's operational costs.
The total amount charged to the Joint Ventures for these costs approximated
$51,300 and $149,800 in the three and nine months ended
-6-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
============================================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
September 30, 1999. No management fee is payable to the affiliate by the
Joint Ventures and there is no duplication of reimbursed expenses and costs
paid to the Manager.
Substantially all programming services have been purchased through
FCLP. FCLP, in the normal course of business, purchases cable programming
services from certain affiliated program suppliers. Such purchases of
programming services are made on behalf of the Joint Ventures and the other
partnerships managed by the Corporate General Partner as well as for FCLP's
own cable television operations. FCLP charges the Joint Ventures for these
services based on an estimate of what the Corporate General Partner could
negotiate for such programming services for the 15 partnerships managed by
the Corporate General Partner as a group. The Joint Ventures recorded
programming fee expense of $496,600 and $1,410,900 for the three and nine
months ended September 30, 1999. Programming fees are included in service
costs in the statements of operations.
In the normal course of business, the Partnership pays a commitment
fee to Enstar Finance Company, LLC ("EFC"), its primary lender and subsidiary
of the Corporate General Partner.
3. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is
based on the average number of units outstanding during the periods
presented. For this purpose, earnings and losses have been allocated 99% to
the Limited Partners and 1% to the General Partners. The General Partners do
not own units of partnership interest in the Partnership, but rather hold a
participation interest in the income, losses and distributions of the
Partnership.
-7-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
============================================
4. EQUITY IN NET ASSETS OF JOINT VENTURES
ENSTAR IV/PBD SYSTEMS VENTURE
Each of the Partnership and an affiliated partnership (Enstar Income
Program IV-1, L.P.) owns 50% of Enstar IV/PBD Systems Venture (the "PBD Joint
Venture"). Each partnership shares equally in the profits and losses of the
PBD Joint Venture. The investment in the PBD Joint Venture is accounted for
on the equity method. Summarized financial information for the PBD Joint
Venture as of September 30, 1999 and December 31, 1998, and the results of
its operations for the three and nine months ended September 30, 1999 and
1998, have been included. The results of operations for the three and nine
months ended September 30, 1999 are not necessarily indicative of results for
the entire year.
<TABLE>
<CAPTION>
December 31, September 30,
1998* 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
Current assets $ 3,143,900 $ 3,181,400
Investment in cable television properties, net 1,578,900 1,696,100
Other assets 14,100 4,200
------------------ -----------------
$ 4,736,900 $ 4,881,700
================== =================
Current liabilities $ 722,300 $ 8,200
Venturers' capital 4,014,600 4,873,500
------------------ -----------------
$ 4,736,900 $ 4,881,700
================== =================
</TABLE>
*As presented in the audited financial statements.
-8-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
============================================
ENSTAR IV/PBD SYSTEMS VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
---------------------------------------
Three months ended
September 30,
---------------------------------------
1998 1999
------------------ -----------------
<S> <C> <C>
REVENUES $ 1,377,800 $ 1,359,600
------------------ -----------------
OPERATING EXPENSES:
Service costs 451,600 486,300
General and administrative expenses 170,400 143,800
General Partner management fees and reimbursed expenses 138,300 142,300
Depreciation and amortization 113,300 100,500
------------------ -----------------
873,600 872,900
------------------ -----------------
OPERATING INCOME 504,200 486,700
OTHER INCOME (EXPENSE):
Interest income 29,800 34,500
Interest expense (4,100) (2,800)
Loss on sale of cable assets - (3,500)
------------------ -----------------
NET INCOME $ 529,900 $ 514,900
================== =================
Unaudited
---------------------------------------
Nine months ended
September 30,
---------------------------------------
1998 1999
------------------ -----------------
REVENUES $ 4,208,200 $ 4,118,000
------------------ -----------------
OPERATING EXPENSES:
Service costs 1,391,500 1,363,100
General and administrative expenses 547,600 636,300
General Partner management fees and reimbursed expenses 424,800 424,500
Depreciation and amortization 340,400 373,500
------------------ -----------------
2,704,300 2,797,400
------------------ -----------------
OPERATING INCOME 1,503,900 1,320,600
OTHER INCOME (EXPENSE):
Interest income 76,800 95,100
Interest expense (14,100) (12,800)
------------------ -----------------
NET INCOME $ 1,566,600 $ 1,402,900
================== =================
</TABLE>
-9-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
============================================
ENSTAR CABLE OF MACOUPIN COUNTY
Each of the Partnership and two affiliated partnerships (Enstar
Income Program IV-1, L.P. and Enstar Income Program IV-3, L.P.) owns
one-third (1/3) of the Macoupin Joint Venture. Each of the co-partners shares
equally in the profits and losses of the Macoupin Joint Venture. The
investment in the Macoupin Joint Venture is accounted for on the equity
method. Summarized financial information for the Macoupin Joint Venture as of
September 30, 1999 and December 31, 1998, and the results of its operations
for the three and nine months ended September 30, 1999 and 1998, have been
included. The results of operations for the three and nine months ended
September 30, 1999 are not necessarily indicative of results for the entire
year.
<TABLE>
<CAPTION>
December 31, September 30,
1998* 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
Current assets $ 1,522,900 $ 1,733,100
Investment in cable television properties, net 1,528,100 1,561,000
Other assets 2,500 1,700
------------------ -----------------
$ 3,053,500 $ 3,295,800
================== =================
Current liabilities $ 343,900 $ 158,500
Venturers' capital 2,709,600 3,137,300
------------------ -----------------
$ 3,053,500 $ 3,295,800
================== =================
</TABLE>
*As presented in the audited financial statements.
-10-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
================================
ENSTAR CABLE OF MACOUPIN COUNTY (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
---------------------------------------
Three months ended
September 30,
---------------------------------------
1998 1999
------------------ -----------------
<S> <C> <C>
REVENUES $ 500,200 $ 499,900
------------------ -----------------
OPERATING EXPENSES:
Service costs 162,900 174,700
General and administrative expenses 24,200 30,100
General Partner management fees and reimbursed expenses 80,600 77,900
Depreciation and amortization 82,200 54,000
------------------ -----------------
349,900 336,700
------------------ -----------------
OPERATING INCOME 150,300 163,200
OTHER INCOME (EXPENSE):
Interest income 11,200 16,600
Interest expense (3,100) (1,500)
------------------ -----------------
NET INCOME $ 158,400 $ 178,300
================== =================
Unaudited
---------------------------------------
Nine months ended
September 30,
---------------------------------------
1998 1999
------------------ -----------------
REVENUES $ 1,497,700 $ 1,495,800
------------------ -----------------
OPERATING EXPENSES:
Service costs 468,100 497,700
General and administrative expenses 96,800 117,400
General Partner management fees and reimbursed expenses 233,900 222,200
Depreciation and amortization 257,800 163,600
------------------ -----------------
1,056,600 1,000,900
------------------ -----------------
OPERATING INCOME 441,100 494,900
OTHER INCOME (EXPENSE):
Interest income 23,100 44,400
Interest expense (8,900) (6,600)
------------------ -----------------
NET INCOME $ 455,300 $ 532,700
================== =================
</TABLE>
-11-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") required the Federal Communications Commission ("FCC")
to, among other things, implement extensive regulation of the rates charged by
cable television systems for basic and programming service tiers, installation,
and customer premises equipment leasing. Compliance with those rate regulations
has had a negative impact on the Partnership's revenues and cash flow. The
Telecommunications Act of 1996 (the "1996 Telecom Act") substantially changed
the competitive and regulatory environment for cable television and
telecommunications service providers. Among other changes, the 1996 Telecom Act
ended the regulation of cable programming service tier rates on March 31, 1999.
There can be no assurance as to what, if any, further action may be taken by the
FCC, Congress or any other regulatory authority or court, or the effect thereof
on the Partnership's business. Accordingly, the Partnership's historical
financial results as described below are not necessarily indicative of future
performance.
This Report includes certain forward-looking statements regarding,
among other things, future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward-looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing cable
television operators such as the Partnership. In addition to the information
provided herein, reference is made to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1998 for additional information regarding
such matters and the effect thereof on the Partnership's business.
All of the Partnership's cable television business operations are
conducted through its participation as a general partner in both the PBD Joint
Venture and the Macoupin Joint Venture. The Partnership has a 50% interest in
the PBD Joint Venture and a one-third (1/3) interest in the Macoupin Joint
Venture. The PBD Joint Venture is owned equally by the Partnership and an
affiliated partnership (Enstar Income Program IV-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 made distributions totaling $138,000 and $307,000
to the Partnership and the Partnership distributed $125,800 and $377,400 to its
partners during the three and nine months ended September 30, 1999.
-12-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
THE PBD JOINT VENTURE
The PBD Joint Venture's revenues decreased from $1,377,800 to
$1,359,600, or by 1.3%, and from $4,208,200 to $4,118,000, or by 2.1%, for the
three and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. Of the $18,200 decrease in revenues for the three months ended
September 30, 1999, $65,100 was due to decreases in the number of subscriptions
for basic, premium, tier and equipment rental services. The decrease was
partially offset by a $45,600 increase due to increases in regulated service
rates that were implemented by the PBD Joint Venture in June 1999 and a $1,300
increase in other revenue producing items. Of the $90,200 decrease in revenues
for the nine months ended September 30, 1999, $176,500 was due to decreases in
the number of subscriptions for basic, premium, tier and equipment rental
services. The decrease was partially offset by a $60,700 increase due to
increases in regulated service rates that were implemented by the PBD Joint
Venture in June 1999 and a $25,600 increase in other revenue producing items. As
of September 30, 1999, the PBD Joint Venture had approximately 12,700 basic
subscribers and 3,300 premium service units.
Service costs increased from $451,600 to $486,300, or by 7.7%, and
decreased from $1,391,500 to $1,363,100, or by 2.0%, respectively, for the three
and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. Service costs represent costs directly attributable to
providing cable services to customers. The quarterly increase was primarily due
to higher programming fees resulting from higher rates charged by program
suppliers. The nine months' decrease was primarily due to decreases in franchise
and copyright fees and increases in capitalization of labor and overhead costs
resulting from more capital projects in the 1999 periods. The decrease during
the nine months' period was partially offset by an increase in programming fees.
General and administrative expenses decreased from $170,400 to
$143,800, or by 15.6%, and increased from $547,600 to $636,300, or by 16.2%,
respectively, for the three and nine months ended September 30, 1999 as compared
to the corresponding periods in 1998. The quarterly decrease was primarily due
to decreases in telephone and bad debt expenses. The nine months' increase was
primarily due to increases in professional fees, including audit fees, insurance
premiums and personnel costs, which resulted from staff additions and wage
increases.
Management fees and reimbursed expenses increased from $138,300 to
$142,300, or by 2.9%, and decreased from $424,800 to $424,500, or by less than
1.0%, for the three and nine months ended September 30, 1999 as compared to the
corresponding periods in 1998. Management fees decreased in direct relation to
decreased revenues as described above. Reimbursed expenses increased primarily
due to higher allocated personnel costs resulting from staff additions, and due
to higher allocated telephone expense.
Depreciation and amortization expense decreased from $113,300 to
$100,500, or by 11.3%, and increased from $340,400 to $373,500, or by 9.7%, for
the three and nine months ended September 30, 1999, respectively, as compared to
the corresponding periods in 1998. The quarterly decrease was primarily due to
certain tangible assets becoming fully depreciated and certain intangible assets
becoming fully amortized. The nine months' increase was primarily due to
depreciation of plant asset additions.
-13-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Operating income decreased from $504,200 to $486,700, or by 3.5%, and
from $1,503,900 to $1,320,600, or by 12.2%, for the three and nine months ended
September 30, 1999 as compared to the corresponding periods in 1998. The
decreases were primarily due to lower revenues and higher programming expense
and professional fees. The nine months' decrease was also due to increases in
depreciation and amortization as described.
Interest income, net of interest expense, increased from $25,700 to
$31,700, or by 23.3%, and from $62,700 to $82,300, or by 31.3%, for the three
and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. The increase was primarily due to higher average cash balances
available for investment in the 1999 periods.
Due to the factors described above, the PBD Joint Venture's net income
decreased from $529,900 to $514,900, or by 2.8%, and from $1,566,600 to
$1,402,900, or by 10.4%, for the three and nine months ended September 30, 1999
as compared to the corresponding periods in 1998.
Based on its experience in the cable television industry, the PBD Joint
Venture's management believes that operating income before depreciation and
amortization ("EBITDA") and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television companies
in several areas such as liquidity, operating performance and leverage. EBITDA
is not a measurement determined under generally accepted accounting principles
("GAAP") and does not represent cash generated from operating activities in
accordance with GAAP. EBITDA should not be considered by the reader as an
alternative to net income as an indicator of financial performance or as an
alternative to cash flows as a measure of liquidity. In addition, the definition
of EBITDA may not be identical to similarly titled measures used by other
companies. EBITDA as a percentage of revenues decreased from 44.8% to 43.2% and
from 43.8% to 41.1% during the three and nine months ended September 30, 1999,
respectively, as compared to the corresponding periods in 1998. The decrease was
primarily due to lower revenues and higher programming expense and professional
fees as described above. EBITDA decreased from $617,500 to $587,200, or by 4.9%,
and from $1,844,300 to $1,694,100, or by 8.1%, for the three and nine months
ended September 30, 1999 as compared to the corresponding periods in 1998.
MACOUPIN JOINT VENTURE
The Macoupin Joint Venture's revenues decreased from $500,200 to
$499,900, or by less than 1.0%, and decreased from $1,497,700 to $1,495,800, or
by less than 1.0%, for the three and nine months ended September 30, 1999 as
compared to the corresponding periods in 1998. Of the $300 decrease in revenues
for the three months ended September 30, 1999, $12,800 was due to reductions in
the number of subscriptions for premium, tier and equipment rental services. The
decrease was offset by a $12,000 increase due to increases in regulated service
rates that were implemented by the Macoupin Joint Venture in June 1999 and a
$500 increase in other revenue producing items. Of the $1,900 decrease in
revenues for the nine months ended September 30, 1999, $21,400 was due to
reductions in the number of subscriptions for premium, tier and equipment rental
services. The decrease was largely offset by a $16,000 increase due to increases
in regulated service rates that were implemented by the Macoupin Joint Venture
in June 1999 and a $3,500 increase in other revenue producing items. As of
September 30, 1999, the Macoupin Joint Venture had approximately 4,700 basic
subscribers and 1,200 premium service units.
-14-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs increased from $162,900 to $174,700, or by 7.2%, and from
$468,100 to $497,700, or by 6.3%, for the three and nine months ended September
30, 1999 as compared to the corresponding periods in 1998. Service costs
represent costs directly attributable to providing cable services to customers.
The increase was primarily due to higher programming fees, which increased as a
result of higher rates charged by program suppliers.
General and administrative expenses increased from $24,200 to $30,100,
or by 24.4%, and from $96,800 to $117,400, or by 21.3%, for the three and nine
months ended September 30, 1999 as compared to the corresponding periods in
1998. The increase was primarily due to higher insurance premiums. The nine
months' increase was also due to increases in professional fees, including audit
fees, and customer billing costs.
Management fees and reimbursed expenses decreased from $80,600 to
$77,900, or by 3.3%, and from $233,900 to $222,200, or by 5.0%, for the three
and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. Management fees decreased in direct relation to decreases in
revenues as discussed above. Reimbursed expenses decreased primarily due to
lower allocated personnel costs resulting from staff reductions, and due to
lower allocated telephone expense.
Depreciation and amortization expense decreased from $82,200 to
$54,000, or by 34.3%, and from $257,800 to $163,600, or by 36.5%, for the three
and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. The decrease was due to the effect of certain tangible assets
becoming fully depreciated and certain intangible assets becoming fully
amortized.
Operating income increased from $150,300 to $163,200, or by 8.6%, and
from $441,100 to $494,900, or by 12.2%, for the three and nine months ended
September 30, 1999 as compared to the corresponding periods in 1998. The
increase was primarily due to decreased depreciation and amortization expense as
described above.
Interest income, net of interest expense, increased from $8,100 to
$15,100 and from $14,200 to $37,800 for the three and nine months ended
September 30, 1999 as compared to the corresponding periods in 1998. The
increase was due to higher average cash balances available for investment in the
1999 periods.
Due to the factors described above, the Macoupin Joint Venture's net
income increased from $158,400 to $178,300, or by 12.6%, and from $455,300 to
$532,700, or by 17.0%, for the three and nine months ended September 30, 1999 as
compared to the corresponding periods in 1998.
Based on its experience in the cable television industry, the Macoupin
Joint Venture's management believes that operating income before depreciation
and amortization ("EBITDA") and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television companies
in several areas such as liquidity, operating performance and leverage. EBITDA
is not a measurement determined under generally accepted accounting principles
("GAAP") and does not represent cash generated from operating activities in
accordance with GAAP. EBITDA should not be considered by the reader as an
alternative to net income as an indicator of financial performance or as an
alternative to cash flows as a measure of liquidity. In addition, the definition
of
-15-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
EBITDA may not be identical to similarly titled measures used by other
companies. EBITDA as a percentage of revenues decreased from 46.5% to 43.4% and
from 46.7% to 44.0% during the three and nine months ended September 30, 1999,
as compared to the corresponding periods in 1998. The decrease was primarily due
to higher programming fees and insurance premiums as described above. EBITDA
decreased from $232,500 to $217,200, or by 6.6%, and from $698,900 to $658,500,
or by 5.8%, for the three and nine months ended September 30, 1999 as compared
to the corresponding periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net offering
proceeds in the Joint Ventures, is to distribute to its partners all available
cash flow from operations and proceeds from the sale of cable systems, after
providing for expenses, debt service and capital requirements relating to the
expansion, improvement and upgrade of the Joint Ventures' cable systems.
Based on its belief that the market for cable systems has generally
improved, the Corporate General Partner had been evaluating strategies for
liquidating the Joint Venture and the Partnership. These strategies included the
potential sale of substantially all of the Joint Venture's and Partnership's
assets to third parties and/or affiliates of the Corporate General Partner, and
the subsequent liquidation of the Partnership. On May 26, 1999, Charter
Communications ("Charter") signed an agreement to acquire all of the cable
television assets of FCLP and to acquire Enstar Communications Corporation, the
Partnership's and Joint Ventures' Corporate General Partner. The Corporate
General Partner and Charter have decided to implement a strategy for liquidating
the Partnership that involves selling the Joint Ventures' systems to third
parties. Accordingly, the Corporate General Partner has entered into an
agreement with a cable broker regarding the sale of the systems, although no
assurance can be given regarding the likelihood, if any, of receiving
appropriate offers to purchase the systems. Any such sale and corresponding
liquidation will not close before the sale of the Corporate General Partner to
Charter.
Following the close of all pending transactions, Charter will serve
approximately 6.2 million customers and will be the nation's fourth largest
cable operator. Headquartered in St. Louis, Missouri, Charter was acquired by
Paul G. Allen in 1998. More information about Charter can be accessed on the
Internet at www.chartercom.com.
The Joint Ventures rely upon the availability of cash generated from
operations and possible borrowings to fund their ongoing capital requirements.
In general, these requirements involve expansion, improvement and upgrade of the
Joint Ventures' existing cable television systems. The Macoupin Joint Venture is
required to rebuild its Auburn, Illinois cable system at an estimated total cost
of approximately $630,000 under a provision of its franchise agreement. Capital
expenditures related to the rebuild totaled approximately $508,400 from
inception through September 30, 1999. The Macoupin Joint Venture is also
rebuilding portions of its cable systems in surrounding communities at an
estimated additional cost of approximately $1,280,000. Project expenditures in
the surrounding communities approximated $957,900 from inception through
September 30, 1999. Rebuild construction in and around Auburn is substantially
complete. The Macoupin Joint Venture incurred rebuild expenditures of
approximately $37,200 through September 30, 1999.
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<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Macoupin Joint Venture is also required by a provision of its
franchise agreement with the city of Carlinville, Illinois to upgrade its cable
system in the community by December 2001 at an estimated cost of $875,000, and
plans to upgrade its cable plant in Girard, Illinois beginning in 1999 at an
estimated cost of approximately $1.0 million provided the franchise agreement is
renewed. The franchise agreement under negotiation with Girard is expected to
require completion of a plant upgrade in the franchise area within two years.
The Macoupin Joint Venture is budgeted to spend approximately $217,200 in 1999
for the upgrade and replacement of other assets. Such expenditures totaled
$125,600 as of September 30, 1999. The PBD Joint Venture has budgeted
approximately $1.3 million and $6.2 million to upgrade its Mt. Carmel, Illinois
and Poplar Bluff, Missouri cable systems, respectively, provided franchise
renewals are obtained and adequate funds are available. Although both franchise
agreements are still under negotiation, the PBD Joint Venture anticipates that
each will require an upgrade. The franchise agreement with Mt. Carmel, Illinois
is expected to require completion of the upgrade within 24 months. The agreement
under negotiation with Poplar Bluff, Missouri may include a similar requirement.
The PBD Joint Venture has budgeted capital expenditures of $520,200 in 1999 to
upgrade other assets. In the first nine months of 1999, capital expenditures by
the PBD Joint Venture were approximately $475,000.
The Partnership is party to a loan agreement with EFC. The loan
agreement provides for a revolving loan facility of $3,320,700 (the "Facility").
The Partnership and its co-partners expect to use borrowings under their
respective facilities along with cash flow from operations of the Joint Ventures
for the rebuild and upgrade of the Joint Ventures' systems. No advances had been
made under the Partnership's Facility as of the date of this Report.
The Partnership's Facility matures on August 31, 2001, at which time
all amounts then outstanding are due in full. Borrowings bear interest at the
lender's base rate (8.25% at September 30, 1999) plus 0.625%, or at an offshore
rate plus 1.875%. Under certain circumstances, the Partnership is required to
make mandatory prepayments, which permanently reduce the maximum commitment
under the Facility. The Facility contains certain financial tests and other
covenants including, among others, restrictions on incurrence of indebtedness,
investments, sales of assets, acquisitions and other covenants, defaults and
conditions. The Facility does not restrict the payment of distributions to
partners unless an event of default exists thereunder or the Partnership's ratio
of debt to cash flow is greater than 4 to 1.
The Partnership paid distributions totaling $125,800 and $377,400
during the three and nine months ended September 30, 1999. However, there can be
no assurance regarding the level, timing or continuation of future
distributions.
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
-17-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
systems due to seasonal weather conditions or other events could have a material
adverse effect on the Joint Ventures' liquidity and cash flows. The Joint
Ventures continue to purchase insurance coverage in amounts their management
views as appropriate for all other property, liability, automobile, workers'
compensation and other types of insurable risks.
YEAR 2000
During the third quarter of 1999, FCLP, on behalf of the Corporate
General Partner, continued its identification, evaluation and remediation of the
Joint Ventures' Year 2000 business risks associated with operations directly
under the control of the Joint Ventures and those risks that are dependent on
third parties related to its exposure to computer systems, to operating
equipment which is date sensitive and to the interface systems of its vendors
and service providers. The evaluation has focused on identification, assessment
and remediation of systems and equipment that may fail to distinguish between
the year 1900 and the year 2000 and, as a result, may cease to operate or may
operate improperly when dates after December 31, 1999 are introduced. Most of
the Joint Ventures' exposure to Year 2000 issues is dependent in large part on
third parties. Failure to identify and remediate a critical Year 2000 issue
could result in an interruption of services to customers or in the interruption
of critical business functions, either of which could result in a material
adverse impact on the Joint Ventures' and Partnership's financial results.
FCLP concluded that certain of the Joint Ventures' internal information
systems were not Year 2000 compliant and elected to replace such software and
hardware with applications and equipment certified by the vendors as Year 2000
compliant. FCLP installed the new systems in the first quarter of 1999. The cost
of the implementation, including replacement software and hardware, has been
borne by FCLP. FCLP is continuing to utilize internal and external resources to
extend the functionality of the new systems. The Partnership does not believe
that any other significant information technology projects affecting the
Partnership or Joint Ventures have been delayed due to efforts to identify or
address Year 2000 issues.
Additionally, FCLP has continued to inventory the Joint Ventures'
internal operating and revenue generating equipment to identify items that need
to be upgraded or replaced and has surveyed cable equipment manufacturers to
determine which of their models require upgrade or replacement to become Year
2000 compliant. Identification and evaluation, while ongoing, are substantially
completed and a plan has been developed to remediate or replace non-compliant
equipment. Of the total number of potentially non-compliant items identified in
the inventory, all were evaluated during the assessment stage, approximately
8.5% are in the remediation planning phase and 91.5% are in the implementation
stage. FCLP conducted limited testing of systems, software and equipment in the
third quarter of 1999 and placed significant reliance on test results provided
by AT&T Broadband & Internet Services, an affiliate of FCLP. The cost of such
replacement or remediation to the Joint Ventures is currently estimated to be
$14,100, all of which had been incurred as of September 30, 1999. FCLP has also
substantially completed the assessment and replacement or remediation of the
majority of the Joint Ventures' internal equipment containing embedded computer
chips.
FCLP has continued to survey the Joint Ventures' significant third
party vendors and service suppliers to determine the extent to which the Joint
Ventures' interface systems are vulnerable should
-18-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
those third parties fail to solve their own Year 2000 problems on a timely
basis. The Joint Ventures are heavily dependent on third parties and these
parties are themselves heavily dependent on technology. For example, if a
television broadcaster or cable programmer encounters Year 2000 problems that
impede its ability to deliver its programming, the Joint Ventures will be
unable to provide that programming to their cable customers, which would
result in a loss of revenues, although the Joint Ventures would attempt to
provide their customers with alternative program services. Virtually all of
the Joint Ventures' most critical equipment vendors have responded to the
surveys regarding the Year 2000 compliance of their products and indicated
that they are already compliant or have indicated their intent to be
compliant. Additional compliance information has been obtained for specific
products from vendor Web sites, interviews, on-site visits, system interface
testing and industry group participation. Among the most significant third
party service providers upon which the Joint Ventures rely are programming
suppliers, power and telephone companies, various banking institutions and
the Joint Ventures' customer billing service. The Joint Ventures have taken
steps to confirm that the third parties on which they are heavily reliant are
Year 2000 compliant and have developed satisfactory contingency plans, or
that alternative means of meeting the Joint Ventures' business requirements
are available. However, the Joint Ventures can predict neither the likelihood
of successful compliance nor the direct or indirect costs to the Joint
Ventures of non-compliance by those third parties or of securing such
services from alternate compliant third parties.
FCLP believes that it has established an effective program to resolve
all significant Year 2000 issues in its control in a timely manner. As noted
above, however, while FCLP has substantially completed all phases of the Joint
Ventures' remediation program, it is dependent on third parties whose progress
is not within its control. Disruptions experienced by third parties with which
the Joint Ventures do business as well as by the economy generally could also
materially adversely affect the Joint Ventures. The amount of potential
liability and lost revenue cannot be reasonably estimated at this time.
FCLP has focused its efforts on identification and remediation of the
Joint Ventures' Year 2000 exposures and has developed specific contingency plans
in the event it does not successfully complete the remaining remediation as
anticipated or experiences unforeseen problems. Considerable effort has been
directed toward distinguishing between those contingencies with a greater
probability of occurring from those whose occurrence is considered remote, and
on those systems whose failure poses a material risk to the Joint Ventures'
results of operations and financial condition. FCLP has also examined the Joint
Ventures' business interruption strategies to evaluate whether they would
satisfactorily meet the demands of failures arising from Year 2000 related
problems. FCLP intends to examine the Joint Ventures' status periodically to
determine the necessity of establishing and implementing such contingency plans
or additional strategies, which could involve, among other things, manual
workarounds, adjusting staffing strategies and sharing resources.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Operating activities provided $135,100 more cash during the nine months
ended September 30, 1999 than in the corresponding period in 1998. Changes in
liabilities owed to third-party creditors and affiliates provided $139,200 more
cash in the nine months ended September 30, 1999 than in the comparable 1998
period due to differences in the timing of payments.
-19-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Investing activities provided $20,200 less cash in the first nine
months of 1999 than in the corresponding prior year period due to a decrease in
distributions from the Joint Ventures. The Partnership used $1,800 less cash in
financing activities due to reductions in amounts paid for deferred loan costs
related to the Partnership's Facility.
INFLATION
Certain of the Joint Ventures' expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, the Partnership does not believe that its
financial results have been, or will be, adversely affected by inflation in a
material way, provided that the Joint Ventures are able to increase their
service rates periodically, of which there can be no assurance.
-20-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the
quarter for which this report was filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME PROGRAM IV-2, L.P.
A GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 11, 1999 By: /S/ MICHAEL K. MENEREY
-------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 282,800
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
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<TOTAL-ASSETS> 3,794,200
<CURRENT-LIABILITIES> 152,000
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0
0
<COMMON> 0
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<TOTAL-COSTS> 29,900
<OTHER-EXPENSES> (8,200)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,600
<INCOME-PRETAX> 830,800
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