<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission File Number 0-15706
----------
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 (310) 824-9990
area code: -------------------
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
<PAGE>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED BALANCE SHEETS
--------------------------------------
--------------------------------------
<TABLE>
<CAPTION>
December 31, June 30,
1998* 1999
----------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 265,300 $ 283,600
Prepaid expenses 3,300 1,100
----------------- -----------------
Equity in net assets of Joint Ventures:
Enstar IV/PBD Systems Venture 2,007,300 2,307,300
Enstar Cable of Macoupin County 903,200 996,300
----------------- -----------------
2,910,500 3,303,600
----------------- -----------------
Deferred loan costs, net 34,300 28,100
----------------- -----------------
$ 3,213,400 $ 3,616,400
----------------- -----------------
----------------- -----------------
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 5,900 $ 1,000
Due to affiliates 18,700 149,700
----------------- -----------------
TOTAL LIABILITIES 24,600 150,700
----------------- -----------------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (51,200) (48,400)
Limited partners 3,240,000 3,514,100
----------------- -----------------
TOTAL PARTNERSHIP CAPITAL 3,188,800 3,465,700
----------------- -----------------
$ 3,213,400 $ 3,616,400
----------------- -----------------
----------------- -----------------
</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
June 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (7,000) $ (8,400)
---------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 3,200 2,600
Interest expense (8,000) (9,200)
---------------- -----------------
(4,800) (6,600)
---------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (11,800) (15,000)
---------------- -----------------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 260,800 204,500
Enstar Cable of Macoupin County 57,800 65,100
---------------- -----------------
318,600 269,600
---------------- -----------------
NET INCOME $ 306,800 $ 254,600
---------------- -----------------
---------------- -----------------
Net income allocated to General Partners $ 3,100 $ 2,500
---------------- -----------------
---------------- -----------------
Net income allocated to Limited Partners $ 303,700 $ 252,100
---------------- -----------------
---------------- -----------------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 7.62 $ 6.33
---------------- -----------------
---------------- -----------------
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
-------------------------------------
Six months ended
June 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (15,200) $ (19,800)
---------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 7,000 4,500
Interest expense (17,000) (18,300)
---------------- -----------------
(10,000) (13,800)
---------------- -----------------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (25,200) (33,600)
---------------- -----------------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 518,400 444,000
Enstar Cable of Macoupin County 99,000 118,100
---------------- -----------------
617,400 562,100
---------------- -----------------
NET INCOME $ 592,200 $ 528,500
---------------- -----------------
---------------- -----------------
Net income allocated to General Partners $ 5,900 $ 5,300
---------------- -----------------
---------------- -----------------
Net income allocated to Limited Partners $ 586,300 $ 523,200
---------------- -----------------
---------------- -----------------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 14.71 $ 13.13
---------------- -----------------
---------------- -----------------
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
-------------------------------------
Six months ended
June 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 592,200 $ 528,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Joint Ventures (617,400) (562,100)
Amortization of deferred loan costs 5,200 6,200
Increase (decrease) from changes in:
Prepaid expenses 2,100 2,200
Accounts payable and due to affiliates (8,000) 126,100
---------------- -----------------
Net cash provided by (used in) operating activities (25,900) 100,900
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Ventures 173,500 169,000
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (251,600) (251,600)
Deferred loan costs (1,700) -
---------------- -----------------
Net cash used in financing activities (253,300) (251,600)
---------------- -----------------
INCREASE (DECREASE) IN CASH (105,700) 18,300
CASH AT BEGINNING OF PERIOD 357,800 265,300
---------------- -----------------
CASH AT END OF PERIOD $ 252,100 $ 283,600
---------------- -----------------
---------------- -----------------
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
--------------------------------------
--------------------------------------
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the
three and six months ended June 30, 1999 and 1998 are unaudited. These
condensed interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Partnership's
latest Annual Report on Form 10-K. In the opinion of management, such
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of such
periods. The results of operations for the three and six months ended June
30, 1999 are not necessarily indicative of results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (the
"Agreement") with a wholly-owned subsidiary of the Corporate General Partner
(the "Manager") pursuant to which it pays a monthly management fee of 5% of
gross revenues. The Agreement also provides that the Partnership will
reimburse the Manager for (i) direct expenses incurred on behalf of the
Partnership and (ii) the Partnership's allocable share of the Manager's
operational costs. The Corporate General Partner has contracted with Falcon
Communications, L.P. ("FCLP"), successor to Falcon Holding Group, L.P.
("FHGLP"), an affiliated partnership, to provide corporate management
services for the Partnership as well as Enstar IV/PBD Systems Venture and
Enstar Cable of Macoupin County (both Georgia general partnerships, of which
the Partnership is a co-general partner - herein referred to as the "Joint
Ventures"). Corporate office allocations and district office expenses are
charged to the properties served based primarily on the respective percentage
of basic subscribers within the designated service areas. No such costs and
expenses were incurred or charged to the Partnership for these services
during the three and six months ended June 30, 1999. The Manager has entered
into identical agreements with the Joint Ventures, except that Enstar Cable
of Macoupin County (the "Macoupin Joint Venture") pays the Manager only a 4%
management fee. However, the Macoupin Joint Venture is required to distribute
to Enstar Communications Corporation (which is the Corporate General Partner
of the Macoupin Joint Venture as well as of the Partnership) an amount equal
to 1% of the Joint Venture's gross revenues in respect of Enstar
Communications Corporation's interest as the Corporate General Partner of the
Joint Venture. No management fee is payable by the Partnership in respect of
any amounts received by the Partnership from the Joint Ventures, and there is
no duplication of reimbursed expenses or costs of the Manager. The Joint
Ventures paid the Manager management fees of approximately $89,300 and
$176,900 and reimbursement of expenses of approximately $122,500 and $239,600
under the management agreements for the three and six months ended June 30,
1999. In addition, the Macoupin Joint Venture paid the Corporate General
Partner approximately $5,100 and $10,000 in respect of its 1% special
interest during the three and six months ended June 30, 1999. Management fees
and reimbursed expenses due the Corporate General Partner are non-interest
bearing.
The Joint Ventures also receive certain system operating management
services from an affiliate of the Corporate General Partner in addition to
the Manager, due to the fact that there are no such employees directly
employed by the Joint Ventures' cable systems. The Joint Ventures reimburse
the affiliate for their allocable share of the affiliate's operational costs.
The total amount charged to the Joint Ventures for these costs approximated
$72,000 and $98,500 in the three and six months ended
-6-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
--------------------------------------
--------------------------------------
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
June 30, 1999. No management fee is payable to the affiliate by the Joint
Ventures and there is no duplication of reimbursed expenses and costs paid to
the Manager.
Substantially all programming services have been purchased through
FCLP. FCLP, in the normal course of business, purchases cable programming
services from certain affiliated program suppliers. Such purchases of
programming services are made on behalf of the Joint Ventures and the other
partnerships managed by the Corporate General Partner as well as for FCLP's
own cable television operations. FCLP charges the Joint Ventures for these
services based on an estimate of what the Corporate General Partner could
negotiate for such programming services for the 15 partnerships managed by
the Corporate General Partner as a group. The Joint Ventures recorded
programming fee expense of $464,100 and $914,300 for the three and six months
ended June 30, 1999. Programming fees are included in service costs in the
statements of operations.
In the normal course of business, the Partnership pays a commitment fee
to Enstar Finance Company, LLC ("EFC"), its primary lender and subsidiary of the
Corporate General Partner.
3. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is
based on the average number of units outstanding during the periods
presented. For this purpose, earnings and losses have been allocated 99% to
the Limited Partners and 1% to the General Partners. The General Partners do
not own units of partnership interest in the Partnership, but rather hold a
participation interest in the income, losses and distributions of the
Partnership.
-7-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
--------------------------------------
--------------------------------------
4. EQUITY IN NET ASSETS OF JOINT VENTURES
ENSTAR IV/PBD SYSTEMS VENTURE
Each of the Partnership and an affiliated partnership (Enstar Income
Program IV-1, L.P.) owns 50% of Enstar IV/PBD Systems Venture (the "PBD Joint
Venture"). Each partnership shares equally in the profits and losses of the
PBD Joint Venture. The investment in the PBD Joint Venture is accounted for
on the equity method. Summarized financial information for the PBD Joint
Venture as of June 30, 1999 and December 31, 1998, and the results of its
operations for the six months ended June 30, 1999 and 1998, have been
included. The results of operations for the three and six months ended June 30,
1999 are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, June 30,
1998* 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
Current assets $ 3,143,900 $ 3,615,100
Investment in cable television properties, net 1,578,900 1,554,500
Other assets 14,100 6,700
------------------ -----------------
$ 4,736,900 $ 5,176,300
------------------ -----------------
------------------ -----------------
Current liabilities $ 722,300 $ 561,700
Venturers' capital 4,014,600 4,614,600
------------------ -----------------
$ 4,736,900 $ 5,176,300
------------------ -----------------
------------------ -----------------
</TABLE>
*As presented in the audited financial statements.
-8-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
--------------------------------------
--------------------------------------
ENSTAR IV/PBD SYSTEMS VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
---------------------------------------
Three months ended
June 30,
---------------------------------------
1998 1999
------------------ -----------------
<S> <C> <C>
REVENUES $ 1,423,300 $ 1,398,200
------------------ -----------------
OPERATING EXPENSES:
Service costs 469,100 451,400
General and administrative expenses 193,600 268,000
General Partner management fees and reimbursed expenses 146,500 142,900
Depreciation and amortization 114,100 159,100
------------------ -----------------
923,300 1,021,400
------------------ -----------------
OPERATING INCOME 500,000 376,800
OTHER INCOME (EXPENSE):
Interest income 26,100 29,600
Interest expense (4,600) (4,700)
Gain on sale of cable assets - 3,500
------------------ -----------------
NET INCOME $ 521,500 $ 405,200
------------------ -----------------
------------------ -----------------
</TABLE>
<TABLE>
<CAPTION>
Unaudited
---------------------------------------
Six months ended
June 30,
---------------------------------------
1998 1999
------------------ -----------------
<S> <C> <C>
REVENUES $ 2,830,400 $ 2,758,400
------------------ -----------------
OPERATING EXPENSES:
Service costs 939,900 876,800
General and administrative expenses 377,200 492,500
General Partner management fees and reimbursed expenses 286,500 282,200
Depreciation and amortization 227,100 273,000
------------------ -----------------
1,830,700 1,924,500
------------------ -----------------
OPERATING INCOME 999,700 833,900
OTHER INCOME (EXPENSE):
Interest income 47,000 60,600
Interest expense (10,000) (10,000)
Gain on sale of cable assets - 3,500
------------------ -----------------
NET INCOME $ 1,036,700 $ 888,000
------------------ -----------------
------------------ -----------------
</TABLE>
-9-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
--------------------------------------
--------------------------------------
ENSTAR CABLE OF MACOUPIN COUNTY
Each of the Partnership and two affiliated partnerships (Enstar
Income Program IV-1, L.P. and Enstar Income Program IV-3, L.P.) owns
one-third (1/3) of the Macoupin Joint Venture. Each of the co-partners shares
equally in the profits and losses of the Macoupin Joint Venture. The
investment in the Macoupin Joint Venture is accounted for on the equity
method. Summarized financial information for the Macoupin Joint Venture as of
June 30, 1999 and December 31, 1998, and the results of its operations for
the three months ended June 30, 1999 and 1998, have been included. The
results of operations for the three and six months ended June 30, 1999 are
not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, June 30,
1998* 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
Current assets $ 1,522,900 $ 1,823,900
Investment in cable television properties, net 1,528,100 1,524,800
Other assets 2,500 2,400
------------------ -----------------
$ 3,053,500 $ 3,351,100
------------------ -----------------
------------------ -----------------
Current liabilities $ 343,900 $ 362,100
Venturers' capital 2,709,600 2,989,000
------------------ -----------------
$ 3,053,500 $ 3,351,100
------------------ -----------------
------------------ -----------------
</TABLE>
*As presented in the audited financial statements.
-10-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
--------------------------------------
--------------------------------------
ENSTAR CABLE OF MACOUPIN COUNTY (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
---------------------------------------
Three months ended
June 30,
---------------------------------------
1998 1999
------------------ -----------------
<S> <C> <C>
REVENUES $ 500,600 $ 505,400
------------------ -----------------
OPERATING EXPENSES:
Service costs 143,900 158,200
General and administrative expenses 29,400 34,000
General Partner management fees and reimbursed expenses 77,200 74,000
Depreciation and amortization 80,800 55,200
------------------ -----------------
331,300 321,400
------------------ -----------------
OPERATING INCOME 169,300 184,000
OTHER INCOME (EXPENSE):
Interest income 7,100 13,800
Interest expense (3,000) (2,500)
------------------ -----------------
NET INCOME $ 173,400 $ 195,300
------------------ -----------------
------------------ -----------------
</TABLE>
<TABLE>
<CAPTION>
Unaudited
---------------------------------------
Six months ended
June 30,
---------------------------------------
1998 1999
<S> <C> <C>
------------------ -----------------
REVENUES $ 997,500 $ 995,900
------------------ -----------------
OPERATING EXPENSES:
Service costs 305,200 323,000
General and administrative expenses 72,600 87,300
General Partner management fees and reimbursed expenses 153,300 144,300
Depreciation and amortization 175,600 109,600
------------------ -----------------
706,700 664,200
------------------ -----------------
OPERATING INCOME 290,800 331,700
OTHER INCOME (EXPENSE):
Interest income 11,900 27,800
Interest expense (5,800) (5,100)
------------------ -----------------
NET INCOME $ 296,900 $ 354,400
------------------ -----------------
------------------ -----------------
</TABLE>
-11-
<PAGE>
ENSTAR INCOME PROGRAM IV-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 $155,000
and $169,000 to the Partnership and the Partnership distributed $125,800 and
$251,600 to its partners during the three and six months ended June 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 $1,423,300 to
$1,398,200, or by 1.8%, and from $2,830,400 to $2,758,400, or by 2.5%, for
the three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. Of the $25,100 decrease in revenues for the three months
ended June 30, 1999, $67,300 was due to decreases in the number of
subscriptions for basic, premium, tier and equipment rental services. The
decrease was partially offset by a $15,500 increase due to increases in
regulated service rates that were implemented by the PBD Joint Venture in
June 1999 and a $26,700 increase in other revenue producing items. Of the
$72,000 decrease in revenues for the six months ended June 30, 1999, $111,700
was due to decreases in the number of subscriptions for basic, premium, tier
and equipment rental services. The decrease was partially offset by a $15,500
increase due to increases in regulated service rates that were implemented by
the PBD Joint Venture in June 1999 and a $24,200 increase in other revenue
producing items. As of June 30, 1999, the PBD Joint Venture had approximately
12,900 basic subscribers and 3,500 premium service units.
Service costs decreased from $469,100 to $451,400, or by 3.8%, and
from $939,900 to $876,800, or by 6.7%, for the three and six months ended
June 30, 1999 as compared to the corresponding periods in 1998. Service costs
represent costs directly attributable to providing cable services to
customers. The decrease was primarily due to increased capitalization of
labor and overhead costs resulting from more capital projects in the 1999
periods and due to decreased franchise fees.
General and administrative expenses increased from $193,600 to
$268,000, or by 38.4%, and from $377,200 to $492,500, or by 30.6%, for the
three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. The increases were primarily due to increases in insurance
premiums, professional fees and personnel costs.
Management fees and reimbursed expenses decreased from $146,500 to
$142,900, or by 2.5%, and from $286,500 to $282,200, or by 1.5%, for the
three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. Management fees decreased in direct relation to the
decreased revenues as described above. Reimbursed expenses increased for the
three months ended June 30, 1999 due to higher allocated personnel costs
resulting from staff additions, and due to higher telephone and rent expense.
Reimbursed expenses remained relatively unchanged for the six months ended
June 30, 1999.
Depreciation and amortization expense increased from $114,100 to
$159,100, or by 39.4%, and from $227,100 to $273,000, or by 20.2%, for the
three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. The increase was primarily due to depreciation of plant
asset additions.
Operating income decreased from $500,000 to $376,800, or by 24.6%,
and from $999,700 to $833,900, or by 16.6%, for the three and six months
ended June 30, 1999 as compared to the corresponding periods in 1998. The
decrease was primarily due to decreases in revenues and increases in
insurance premiums, professional fees and depreciation and amortization as
described above.
-13-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Interest income, net of interest expense, increased from $21,500 to
$24,900, or by 15.8%, and from $37,000 to $50,600, or by 36.8%, for the three
and six months ended June 30, 1999 as compared to the corresponding periods
in 1998. The increase was primarily due to higher average cash balances
available for investment in the 1999 periods.
The PBD Joint Venture recognized a $3,500 gain on the sale of certain
equipment during the second quarter of 1999.
Due to the factors described above, the PBD Joint Venture's net
income decreased from $521,500 to $405,200, or by 22.3%, and from $1,036,700
to $888,000, or by 14.3%, for the three and six months ended June 30, 1999 as
compared to the corresponding periods in 1998.
Based on its experience in the cable television industry, the PBD
Joint Venture's management believes that operating income before depreciation
and amortization ("EBITDA") and related measures of cash flow serve as
important financial analysis tools for measuring and comparing cable
television companies in several areas such as liquidity, operating
performance and leverage. EBITDA is not a measurement determined under
generally accepted accounting principles ("GAAP") and does not represent cash
generated from operating activities in accordance with GAAP. EBITDA should
not be considered by the reader as an alternative to net income as an
indicator of financial performance or as an alternative to cash flows as a
measure of liquidity. In addition, the definition of EBITDA may not be
identical to similarly titled measures used by other companies. EBITDA as a
percentage of revenues decreased from 43.1% to 38.3% and from 43.3% to 40.1%
during the three and six months ended June 30, 1999, as compared to the
corresponding periods in 1998. The decrease was primarily caused by lower
revenues and higher insurance premiums and professional fees as described
above. EBITDA decreased from $614,100 to $535,900, or by 12.7%, and from
$1,226,800 to $1,106,900, or by 9.8%, for the three and six months ended June
30, 1999 as compared to the corresponding periods in 1998.
MACOUPIN JOINT VENTURE
The Macoupin Joint Venture's revenues increased from $500,600 to
$505,400, or by 1.0%, and decreased from $997,500 to $995,900, or by less
than 1.0%, for the three and six months ended June 30, 1999 as compared to
the corresponding periods in 1998. Of the $4,800 increase in revenues for the
three months ended June 30, 1999, $4,300 was due to increases in regulated
service rates that were implemented by the Macoupin Joint Venture in June
1999 and $7,900 was due to increases in other revenue producing items. The
increase was offset by a $7,400 decrease due to reductions in the number of
subscriptions for premium, tier and equipment rental services. Of the $1,600
decrease in revenues for the six months ended June 30, 1999, $8,900 was due
to reductions in the number of subscriptions for premium, tier and equipment
rental services. The decrease was offset by a $4,300 increase due to
increases in regulated service rates that were implemented by the Macoupin
Joint Venture in June 1999 and a $3,000 increase in other revenue producing
items. As of June 30, 1999, the Macoupin Joint Venture had approximately
4,700 basic subscribers and 1,300 premium service units.
Service costs increased from $143,900 to $158,200, or by 9.9%, and
from $305,200 to $323,000, or by 5.8%, for the three and six months ended
June 30, 1999 as compared to the corresponding periods in 1998. Service costs
represent costs directly attributable to providing cable
-14-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
services to customers. The increase was primarily due to higher programming
fees, which increased as a result of higher rates charged by program
suppliers.
General and administrative expenses increased from $29,400 to
$34,000, or by 15.6%, and from $72,600 to $87,300, or by 20.2%, for the three
and six months ended June 30, 1999 as compared to the corresponding periods
in 1998. The increase was primarily due to increases in insurance premiums.
The six months' increase was also due to increases in professional fees,
including audit fees.
Management fees and reimbursed expenses decreased from $77,200 to
$74,000, or by 4.1%, and from $153,300 to $144,300, or by 5.9%, for the three
months and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. Management fees increased for the three months and decreased
for the six months ended June 30, 1999 in direct relation to changes in
revenues as discussed above. Reimbursed expenses decreased primarily due to
lower allocated personnel costs resulting from staff reductions, and due to
decreased telephone expense.
Depreciation and amortization expense decreased from $80,800 to
$55,200, or by 31.7%, and from $175,600 to $109,600, or by 37.6%, for the
three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. The decrease was due to the effect of certain tangible
assets becoming fully depreciated and certain intangible assets becoming
fully amortized.
Operating income increased from $169,300 to $184,000, or by 8.7%,
and from $290,800 to $331,700, or by 14.1%, for the three and six months
ended June 30, 1999 as compared to the corresponding periods in 1998. The
increase was primarily due to decreased depreciation and amortization expense
as described above.
Interest income, net of interest expense, increased from $4,100 to
$11,300 and from $6,100 to $22,700 for the three and six months ended June
30, 1999 as compared to the corresponding periods in 1998. The increase was
due to higher average cash balances available for investment in the 1999
periods.
Due to the factors described above, the Macoupin Joint Venture's net
income increased from $173,400 to $195,300, or by 12.6%, and from $296,900 to
$354,400, or by 19.4%, for the three and six months ended June 30, 1999 as
compared to the corresponding periods in 1998.
Based on its experience in the cable television industry, the
Macoupin Joint Venture's management believes that operating income before
depreciation and amortization ("EBITDA") and related measures of cash flow
serve as important financial analysis tools for measuring and comparing cable
television companies in several areas such as liquidity, operating
performance and leverage. EBITDA is not a measurement determined under
generally accepted accounting principles ("GAAP") and does not represent cash
generated from operating activities in accordance with GAAP. EBITDA should
not be considered by the reader as an alternative to net income as an
indicator of financial performance or as an alternative to cash flows as a
measure of liquidity. In addition, the definition of EBITDA may not be
identical to similarly titled measures used by other companies. EBITDA as a
percentage of revenues decreased from 50.0% to 47.3% and from 46.8% to 44.3%
during the three and six months ended June 30, 1999, as compared to the
corresponding periods in 1998. The decrease
-15-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
was primarily caused by higher programming fees and insurance premiums as
described above. EBITDA decreased from $250,100 to $239,200, or by 4.4%, and
from $466,400 to $441,300, or by 5.4%, for the three and six months ended
June 30, 1999 as compared to the corresponding periods in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net
offering proceeds in the Joint Ventures, is to distribute to its partners all
available cash flow from operations and proceeds from the sale of cable
systems, after providing for expenses, debt service and capital requirements
relating to the expansion, improvement and upgrade of the Joint Ventures'
cable systems.
Based on its belief that the market for cable systems has generally
improved, the Corporate General Partner has been evaluating strategies for
liquidating the Joint Venture and the Partnership. These strategies included
the potential sale of substantially all of the Joint Venture's and
Partnership's assets to third parties and/or affiliates of the Corporate
General Partner, and the subsequent liquidation of the Partnership. The
Corporate General Partner expected to complete its evaluation within the next
several months and intended to advise unitholders promptly if it believed
that commencing a liquidating transaction would be in the best interests of
unitholders. On May 26, 1999, however, Charter Communications ("Charter")
signed an agreement to acquire all of the cable television assets of FCLP and
to acquire Enstar Communications Corporation, the Partnership's and Joint
Ventures' Corporate General Partner. The Corporate General Partner and
Charter have decided to implement a strategy for liquidating the Partnership
that involves selling the Joint Ventures' systems to third parties.
Accordingly, the Corporate General Partner will commence discussions with
cable brokers regarding the sale of the systems, although no assurance can be
given regarding the likelihood, if any, of receiving appropriate offers to
purchase the systems. Any such sale and corresponding liquidation is unlikely
to close before the sale of the Corporate General Partner to Charter.
Following the close of all pending transactions, Charter will serve
approximately 6.2 million customers and will be the nation's fourth largest
cable operator. Headquartered in St. Louis, Missouri, Charter was acquired by
Paul G. Allen in 1998. More information about Charter can be accessed on the
Internet at www.chartercom.com.
The Joint Ventures rely upon the availability of cash generated from
operations and possible borrowings to fund their ongoing capital
requirements. In general, these requirements involve expansion, improvement
and upgrade of the Joint Ventures' existing cable television systems. The
Macoupin Joint Venture is required to rebuild its Auburn, Illinois cable
system at an estimated total cost of approximately $630,000 under a provision
of its franchise agreement. Capital expenditures related to the rebuild
totaled approximately $508,400 from inception through June 30, 1999. The
Macoupin Joint Venture is also rebuilding portions of its cable systems in
surrounding communities at an estimated additional cost of approximately
$1,280,000. Project expenditures in the surrounding communities approximated
$957,900 from inception through June 30, 1999. Rebuild construction in and
around Auburn is substantially complete. During 1999, the Macoupin Joint
Venture incurred rebuild expenditures of approximately $37,200 through June 30.
-16-
<PAGE>
ENSTAR INCOME PROGRAM IV-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 $48,400 as of June 30, 1999. The PBD Joint
Venture has budgeted approximately $1.3 million and $6.2 million to upgrade
its Mt. Carmel, Illinois and Poplar Bluff, Missouri cable systems,
respectively, provided franchise renewals are obtained and adequate funds are
available. Although both franchise agreements are still under negotiation,
the PBD Joint Venture anticipates that each will require an upgrade. The
franchise agreement with Mt. Carmel, Illinois is expected to require
completion of the upgrade within 24 months. The agreement under negotiation
with Poplar Bluff, Missouri may include a similar requirement. The PBD Joint
Venture has budgeted capital expenditures of $520,200 in 1999 to upgrade
other assets. In the first six months of 1999, capital expenditures by the
PBD Joint Venture were approximately $238,600.
As discussed in prior reports, the Joint Ventures postponed a number
of rebuild and upgrade projects because of the uncertainty related to
implementation of the 1992 Cable Act and the negative impact thereof on the
Joint Ventures' businesses and access to capital. Although the Joint Ventures
are presently rebuilding a number of their cable systems, a majority of their
customers are served by systems that have not been rebuilt. As a result,
these systems are significantly less technically advanced than had been
expected prior to the implementation of reregulation. The Joint Ventures
believe that the delays in upgrading many of their systems have had an
adverse effect on the value of those systems compared to systems that have
been rebuilt to a higher technical standard.
The Partnership is party to a loan agreement with EFC. The loan
agreement provides for a revolving loan facility of $3,320,700 (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 (7.75% at June 30, 1999) plus 0.625%, or at an offshore
rate plus 1.875%. Under certain circumstances, the Partnership is required to
make mandatory prepayments, which permanently reduce the maximum commitment
under the Facility. The Facility contains certain financial tests and other
covenants including, among others, restrictions on incurrence of
indebtedness, investments, sales of assets, acquisitions and other covenants,
defaults and conditions. The Facility does not restrict the payment of
distributions to partners unless an event of default exists thereunder or the
Partnership's ratio of debt to cash flow is greater than 4 to 1.
The Partnership paid distributions totaling $125,800 and $251,600
during the three and six months ended June 30, 1999. However, there can be no
assurance regarding the level, timing or continuation of future distributions.
-17-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In October 1998, FCLP reinstated third party insurance coverage for
all of the cable television properties owned or managed by FCLP to cover
damage to cable distribution plant and subscriber connections and against
business interruptions resulting from such damage. This coverage is subject
to a significant annual deductible which applies to all of the cable
television properties owned or managed by FCLP.
Approximately 85% of the Joint Ventures' subscribers are served by
their systems in Poplar Bluff, Missouri and Carlinville, Illinois and
neighboring communities. Significant damage to these systems due to seasonal
weather conditions or other events could have a material adverse effect on
the Joint Ventures' liquidity and cash flows. The Joint Ventures continue to
purchase insurance coverage in amounts their management views as appropriate
for all other property, liability, automobile, workers' compensation and
other types of insurable risks.
YEAR 2000
During the second quarter of 1999, FCLP, on behalf of the Corporate
General Partner, continued its identification, evaluation and remediation of
the Joint Ventures' Year 2000 business risks associated with operations
directly under the control of the Joint Ventures and those risks that are
dependent on third parties related to its exposure to computer systems, to
operating equipment which is date sensitive and to the interface systems of
its vendors and service providers. The evaluation has focused on
identification, assessment and remediation of systems and equipment that may
fail to distinguish between the year 1900 and the year 2000 and, as a result,
may cease to operate or may operate improperly when dates after December 31,
1999 are introduced. Most of the Joint Ventures' exposure to Year 2000 issues
is dependent in large part on third parties. Failure to identify and
remediate a critical Year 2000 issue could result in an interruption of
services to customers or in the interruption of critical business functions,
either of which could result in a material adverse impact on the Joint
Ventures' and Partnership's financial results.
FCLP concluded that certain of the Joint Ventures' internal
information systems were not Year 2000 compliant and elected to replace such
software and hardware with applications and equipment certified by the
vendors as Year 2000 compliant. FCLP installed the new systems in the first
quarter of 1999. The cost of the implementation, including replacement
software and hardware, has been borne by FCLP. FCLP is continuing to utilize
internal and external resources to extend the functionality of the new
systems. The Partnership does not believe that any other significant
information technology projects affecting the Partnership or Joint Ventures
have been delayed due to efforts to identify or address Year 2000 issues.
Additionally, FCLP has continued to inventory the Joint Ventures'
internal operating and revenue generating equipment to identify items that
need to be upgraded or replaced and has surveyed cable equipment
manufacturers to determine which of their models require upgrade or
replacement to become Year 2000 compliant. Identification and evaluation,
while ongoing, are substantially completed and a plan has been developed to
remediate or replace non-compliant equipment. Of the total number of
potentially non-compliant items identified in the inventory, approximately
1.5% are in the assessment stage. Approximately 14.4% of non-compliant items
are in the remediation planning phase and 85.6% are in the implementation
stage. FCLP plans to conduct limited testing of systems, software and
equipment in the third quarter of 1999 and place significant reliance on test
results
-18-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
provided by AT&T Broadband & Internet Services, an affiliate of FCLP. The
cost of such replacement or remediation to the Joint Ventures is currently
estimated to be $7,600, of which $6,100 had been incurred as of June 30,
1999. FCLP has also substantially completed the assessment and replacement or
remediation of the majority of the Joint Ventures' internal equipment
containing embedded computer chips.
FCLP has continued to survey the Joint Ventures' significant third
party vendors and service suppliers to determine the extent to which the
Joint Ventures' interface systems are vulnerable should those third parties
fail to solve their own Year 2000 problems on a timely basis. The Joint
Ventures are heavily dependent on third parties and these parties are
themselves heavily dependent on technology. For example, if a television
broadcaster or cable programmer encounters Year 2000 problems that impede its
ability to deliver its programming, the Joint Ventures will be unable to
provide that programming to their cable customers, which would result in a
loss of revenues, although the Joint Ventures would attempt to provide their
customers with alternative program services. Virtually all of the Joint
Ventures' most critical equipment vendors have responded to the surveys
regarding the Year 2000 compliance of their products and indicated that they
are already compliant or have indicated their intent to be compliant.
Additional compliance information has been obtained for specific products
from vendor Web sites, interviews, on-site visits, system interface testing
and industry group participation. Among the most significant third party
service providers upon which the Joint Ventures rely are programming
suppliers, power and telephone companies, various banking institutions and
the Joint Ventures' customer billing service. The Joint Ventures are taking
steps to confirm that the third parties on which they are heavily reliant are
Year 2000 compliant and are developing satisfactory contingency plans, or
that alternative means of meeting the Joint Ventures' business requirements
are available, but cannot predict the likelihood of such compliance nor the
direct or indirect costs to the Joint Ventures of non-compliance by those
third parties or of securing such services from alternate compliant third
parties. In areas in which the Joint Ventures are uncertain about the
anticipated Year 2000 readiness of a significant third party, FCLP is
investigating available alternatives, if any.
FCLP believes that it has established an effective program to
resolve all significant Year 2000 issues in its control in a timely manner.
As noted above, however, FCLP has not yet completed all phases of the Joint
Ventures' remediation program and is dependent on third parties whose
progress is not within its control. In the event that FCLP does not complete
the Joint Ventures' currently planned additional remediation prior to the
year 2000, management believes that the Joint Ventures could experience
significant difficulty in producing and delivering products and services and
conducting business in the year 2000. In addition, disruptions experienced by
third parties with which the Joint Ventures do business as well as by the
economy generally could also materially adversely affect the Joint Ventures.
The amount of potential liability and lost revenue cannot be reasonably
estimated at this time.
FCLP has focused its efforts on identification and remediation of
the Joint Ventures' Year 2000 exposures and is beginning to develop specific
contingency plans in the event it does not successfully complete the
remaining remediation as anticipated or experiences unforeseen problems.
Considerable effort has been directed toward distinguishing between those
contingencies with a greater probability of occurring from those whose
occurrence is considered remote, and on those systems whose failure poses a
material risk to the Joint Ventures' results of operations and financial
condition. FCLP is also examining the Joint Ventures' business interruption
strategies to evaluate whether they would
-19-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
satisfactorily meet the demands of failures arising from Year 2000 related
problems. FCLP intends to examine the Joint Ventures' status periodically to
determine the necessity of establishing and implementing such contingency
plans or additional strategies, which could involve, among other things,
manual workarounds, adjusting staffing strategies and sharing resources.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Operating activities provided $126,800 more cash during the six
months ended June 30, 1999 than in the corresponding period in 1998. Changes
in liabilities owed to third-party creditors and affiliates provided $134,100
more cash in the six months ended June 30, 1999 than in the comparable 1998
period due to differences in the timing of payments.
Investing activities provided $4,500 less cash in the first six
months of 1999 than in the corresponding prior year period due to a decrease
in distributions from the Joint Ventures.
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: August 13, 1999 By: /s/ Michael K. Menerey
-------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 283,600
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,616,400
<CURRENT-LIABILITIES> 150,700
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0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 3,616,400
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 19,800
<OTHER-EXPENSES> (4,500)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,300
<INCOME-PRETAX> 528,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 528,500
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