<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
March 31, 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 of (I.R.S. Employer Identification Number)
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, March 31,
1998* 1999
---------- ----------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 265,300 $ 265,700
Prepaid expenses 3,300 2,200
---------- ----------
Equity in net assets of Joint Ventures:
Enstar IV/PBD Systems Venture 2,007,300 2,232,800
Enstar Cable of Macoupin County 903,200 956,200
---------- ----------
2,910,500 3,189,000
---------- ----------
Deferred loan costs, net 34,300 31,200
---------- ----------
$3,213,400 $3,488,100
---------- ----------
---------- ----------
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 5,900 $ 500
Due to affiliates 18,700 150,700
---------- ----------
TOTAL LIABILITIES 24,600 151,200
---------- ----------
PARTNERSHIP CAPITAL (DEFICIT):
General partners (51,200) (49,800)
Limited partners 3,240,000 3,386,700
---------- ----------
TOTAL PARTNERSHIP CAPITAL 3,188,800 3,336,900
---------- ----------
$3,213,400 $3,488,100
---------- ----------
---------- ----------
</TABLE>
* As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
CONDENSED STATEMENTS OF OPERATIONS
========================
<TABLE>
<CAPTION>
Unaudited
--------------------------
Three months ended
March 31,
--------------------------
1998 1999
---------- ----------
<S> <C> <C>
OPERATING EXPENSES:
General and administrative expenses $ (8,200) $ (11,400)
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 3,800 1,900
Interest expense (9,000) (9,100)
---------- ----------
(5,200) (7,200)
---------- ----------
LOSS BEFORE EQUITY IN NET INCOME
OF JOINT VENTURES (13,400) (18,600)
---------- ----------
EQUITY IN NET INCOME
OF JOINT VENTURES:
Enstar IV/PBD Systems Venture 257,600 239,500
Enstar Cable of Macoupin County 41,200 53,000
---------- ----------
298,800 292,500
---------- ----------
NET INCOME $ 285,400 $ 273,900
---------- ----------
---------- ----------
Net income allocated to General Partners $ 2,900 $ 2,700
---------- ----------
---------- ----------
Net income allocated to Limited Partners $ 282,500 $ 271,200
---------- ----------
---------- ----------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 7.09 $ 6.81
---------- ----------
---------- ----------
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.
STATEMENTS OF CASH FLOWS
========================
<TABLE>
<CAPTION>
Unaudited
--------------------------
Three months ended
March 31,
--------------------------
1998 1999
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 285,400 $ 273,900
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Joint Ventures (298,800) (292,500)
Amortization of deferred loan costs 3,100 3,100
Increase (decrease) from changes in:
Prepaid expenses 1,000 1,100
Accounts payable and due to affiliates (11,400) 126,600
---------- ----------
Net cash provided by (used in) operating
activities (20,700) 112,200
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Ventures 50,000 14,000
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (125,800) (125,800)
Deferred loan costs (600) -
---------- ----------
Net cash used in financing activities (126,400) (125,800)
---------- ----------
INCREASE (DECREASE) IN CASH (97,100) 400
CASH AT BEGINNING OF PERIOD 357,800 265,300
---------- ----------
CASH AT END OF PERIOD $ 260,700 $ 265,700
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<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
months ended March 31, 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 months ended March 31, 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 months ended
March 31, 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 $87,600 and reimbursement of
expenses of approximately $117,100 under the management agreements for the
three months ended March 31, 1999. In addition, the Macoupin Joint Venture
paid the Corporate General Partner approximately $4,900 in respect of its 1%
special interest during the three months ended March 31, 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
$26,500 in the three months ended March 31, 1999. No
-5-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
========================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
management fee is payable to the affiliate by the Joint Ventures and there is
no duplication of reimbursed expenses and costs paid to the Manager.
Substantially all programming services have been purchased through FCLP.
FCLP, in the normal course of business, purchases cable programming services
from certain program suppliers owned in whole or in part by affiliates of an
entity that became a general partner of FCLP on September 30, 1998. Such
purchases of programming services are made on behalf of the 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 $450,200 for the three months
ended March 31, 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.
-6-
<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 March 31, 1999 and December 31, 1998, and the results of its
operations for the three months ended March 31, 1999 and 1998, have been
included. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, March 31,
1998* 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets $ 3,143,900 $ 3,555,000
Investment in cable television properties, net 1,578,900 1,531,000
Other assets 14,100 9,800
------------ ------------
$ 4,736,900 $ 5,095,800
------------ ------------
------------ ------------
Current liabilities $ 722,300 $ 626,400
Venturers' capital 4,014,600 4,469,400
------------ ------------
$ 4,736,900 $ 5,095,800
------------ ------------
------------ ------------
</TABLE>
*As presented in the audited financial statements.
-7-
<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
March 31,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES $ 1,407,100 $ 1,360,200
------------ ------------
OPERATING EXPENSES:
Service costs 470,800 425,400
General and administrative expenses 183,600 224,500
General Partner management fees and
reimbursed expenses 140,000 139,300
Depreciation and amortization 113,000 113,900
------------ ------------
907,400 903,100
------------ ------------
OPERATING INCOME 499,700 457,100
OTHER INCOME (EXPENSE):
Interest income 20,900 31,000
Interest expense (5,400) (5,300)
------------ ------------
NET INCOME $ 515,200 $ 482,800
------------ ------------
------------ ------------
</TABLE>
-8-
<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 March 31, 1999 and
December 31, 1998, and the results of its operations for the three months ended
March 31, 1999 and 1998, have been included. The results of operations for the
three months ended March 31, 1999 are not necessarily indicative of results for
the entire year.
<TABLE>
<CAPTION>
December 31, March 31,
1998* 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets $ 1,522,900 $ 1,741,100
Investment in cable television properties, net 1,528,100 1,494,400
Other assets 2,500 1,700
------------ ------------
$ 3,053,500 $ 3,237,200
------------ ------------
------------ ------------
Current liabilities $ 343,900 $ 368,500
Venturers' capital 2,709,600 2,868,700
$ 3,053,500 $ 3,237,200
------------ ------------
------------ ------------
</TABLE>
*As presented in the audited financial statements.
-9-
<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
March 31,
-----------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES $ 496,900 $ 490,500
------------ ------------
OPERATING EXPENSES:
Service costs 161,300 164,800
General and administrative expenses 43,200 53,300
General Partner management fees and
reimbursed expenses 76,100 70,300
Depreciation and amortization 94,800 54,400
------------ ------------
375,400 342,800
------------ ------------
OPERATING INCOME 121,500 147,700
OTHER INCOME (EXPENSE):
Interest income 4,800 14,000
Interest expense (2,800) (2,600)
------------ ------------
NET INCOME $ 123,500 $ 159,100
------------ ------------
------------ ------------
</TABLE>
-10-
<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 $14,000 to the
Partnership and the Partnership distributed $125,800 to its partners during
the three months ended March 31, 1999.
-11-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
THE PBD JOINT VENTURE
The PBD Joint Venture's revenues decreased from $1,407,100 to
$1,360,200, or by 3.3%, for the three months ended March 31, 1999 as compared
to the corresponding period in 1998. Of the $46,900 decrease, $44,300 was
due to decreases in the number of subscriptions for basic, premium, tier and
equipment rental services and $2,600 was due to decreases in other revenue
producing items. As of March 31, 1999, the PBD Joint Venture had
approximately 13,100 basic subscribers and 3,800 premium service units.
Service costs decreased from $470,800 to $425,400, or by 9.6%, for the
three months ended March 31, 1999 as compared to the corresponding period in
1998. Service costs represent costs directly attributable to providing cable
services to customers. The decrease was primarily due to lower franchise and
copyright fees and due to increased capitalization of labor and overhead
costs resulting from more capital projects in the 1999 period.
General and administrative expenses increased from $183,600 to $224,500,
or by 22.3%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. The increase was primarily due to increases in
insurance premiums, telephone expense, customer billing expense and personnel
costs.
Management fees and reimbursed expenses decreased from $140,000 to
$139,300, or by less than 1.0%, for the three months ended March 31, 1999 as
compared to the corresponding period in 1998. Management fees decreased in
direct relation to the decreased revenues as described above. Reimbursed
expenses increased due to higher allocated personnel costs resulting from
staff additions, and due to higher telephone and rent expense.
Depreciation and amortization expense increased from $113,000 to
$113,900, or by less than 1.0%, for the three months ended March 31, 1999 as
compared to the corresponding period in 1998. The increase was primarily due
to the effect of plant asset additions.
Operating income decreased from $499,700 to $457,100, or by 8.5%, for
the three months ended March 31, 1999 as compared to the corresponding period
in 1998. The decrease was primarily due to decreases in revenues and
increases in service costs as described above.
Interest income, net of interest expense, increased from $15,500 to
$25,700, or by 65.8%, for the three months ended March 31, 1999 as compared
to the corresponding period in 1998. The increase was primarily due to
higher average cash balances available for investment.
Due to the factors described above, the PBD Joint Venture's net income
decreased from $515,200 to $482,800, or by 6.3%, for the three months ended
March 31, 1999 as compared to the corresponding period in 1998.
Based on its experience in the cable television industry, the
Partnership 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
-12-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
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 43.5% to 42.0% during the
three months ended March 31, 1999, as compared to the corresponding period in
1998. The decrease was primarily caused by lower revenues and higher service
costs as described above. EBITDA decreased from $612,700 to $571,000, or by
6.8%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998.
MACOUPIN JOINT VENTURE
The Macoupin Joint Venture's revenues decreased from $496,900 to
$490,500, or by 1.3%, for the three months ended March 31, 1999 as compared
to the corresponding period in 1998. Of the $6,400 decrease in revenues,
$1,500 was due to decreases in the number of subscriptions for premium and
equipment rental services and $4,900 was due to decreases in other revenue
producing items. As of March 31, 1999, the Macoupin Joint Venture had
approximately 4,400 basic subscribers and 1,300 premium service units.
Service costs increased from $161,300 to $164,800, or by 2.2%, for the
three months ended March 31, 1999 as compared to the corresponding period in
1998. Service costs represent costs directly attributable to providing cable
services to customers. The increase was primarily due to higher programming
fees. Programming expense increased as a result of higher rates charged by
program suppliers.
General and administrative expenses increased from $43,200 to $53,300,
or by 23.4%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. The increase was primarily due to increases in
insurance premiums and professional fees, including audit fees.
Management fees and reimbursed expenses decreased from $76,100 to
$70,300, or by 7.6%, for the three months ended March 31, 1999 as compared to
the corresponding period in 1998. Management fees decreased in direct
relation to decreases in revenues as described 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 $94,800 to $54,400,
or by 42.6%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. The decrease was due to certain tangible
assets becoming fully depreciated and certain intangible assets becoming
fully amortized.
Operating income increased from $121,500 to $147,700, or by 21.6%, for
the three months ended March 31, 1999 as compared to the corresponding period
in 1998. The increase was primarily due to decreased depreciation and
amortization expense as described above.
-13-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Interest income, net of interest expense, increased from $2,000 to
$11,400 for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. The increase was due to higher average cash
balances available for investment.
Due to the factors described above, the Macoupin Joint Venture's net
income increased from $123,500 to $159,100, or by 28.8%, for the three months
ended March 31, 1999 as compared to the corresponding period in 1998.
Based on its experience in the cable television industry, the
Partnership 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 43.5% to 41.2% during the three months ended March 31, 1999,
as compared to the corresponding period in 1998. The decrease was primarily
caused by lower revenues and higher programming fees and insurance premiums
as described above. EBITDA decreased from $216,300 to $202,100, or by 6.6%,
for the three months ended March 31, 1999 as compared to the corresponding
period 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 is evaluating strategies for
liquidating the Joint Ventures and the Partnership. These strategies include
the potential sale of substantially all of the Joint Ventures' assets to
third parties and/or affiliates of the Corporate General Partner, and the
subsequent liquidation of the Partnership. The Corporate General Partner
expects to complete its evaluation within the next several months and intends
to advise unitholders promptly if it believes that commencing a liquidating
transaction would be in the best interests of unitholders.
The Joint Ventures rely upon the availability of cash generated from
operations and possible borrowings to fund their ongoing capital
requirements. In general, these requirements involve expansion, improvement
and upgrade of the Joint Ventures' existing cable television systems. The
Macoupin Joint Venture is required to rebuild its Auburn, Illinois cable
system at an estimated total cost of approximately $630,000 under a provision
of its franchise agreement. Capital expenditures related to the rebuild
totaled approximately $471,200 from inception through December 31, 1998. The
Macoupin Joint Venture is also rebuilding portions of its cable systems in
surrounding communities at an estimated additional cost of approximately
$1,280,000. Project expenditures in the surrounding
-14-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
communities approximated $957,900 from inception through December 31, 1998.
The Macoupin Joint Venture is budgeted to spend approximately $480,000 in
1999 to complete the rebuilds in and around Auburn.
The Macoupin Joint Venture is also required by a provision of its
franchise agreement with the city of Carlinville, Illinois to upgrade its
cable system in 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. 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 three months of 1999, capital
expenditures by the Macoupin Joint Venture and PBD Joint Venture were
approximately $6,600 and $61,700, respectively.
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 March 31, 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.
-15-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The Partnership paid distributions totaling $125,800 during the three
months ended March 31, 1999. However, there can be no assurance regarding
the level, timing or continuation of future distributions.
Beginning in August 1997, the Corporate General Partner elected to
self-insure the Joint Ventures' cable distribution plant and subscriber
connections against property damage as well as possible business
interruptions caused by such damage. The decision to self-insure was made
due to significant increases in the cost of insurance coverage and decreases
in the amount of insurance coverage available.
In October 1998, FCLP reinstated third party insurance coverage for all
of the cable television properties owned or managed by FCLP to cover damage
to cable distribution plant and subscriber connections and against business
interruptions resulting from such damage. This coverage is subject to a
significant annual deductible which applies to all of the cable television
properties owned or managed by FCLP.
Approximately 85% of the Joint Ventures' subscribers are served by their
systems in Poplar Bluff, Missouri and Carlinville, Illinois and neighboring
communities. Significant damage to these systems due to seasonal weather
conditions or other events could have a material adverse effect on the Joint
Ventures' liquidity and cash flows. The Joint Ventures continue to purchase
insurance coverage in amounts their management views as appropriate for all
other property, liability, automobile, workers' compensation and other types
of insurable risks.
During the first quarter of 1999, FCLP, on behalf of the Corporate
General Partner, continued its identification and evaluation of the Joint
Ventures' Year 2000 business risks and their exposure to computer systems, to
operating equipment which is date sensitive and to the interface systems of
their vendors and service providers. The evaluation has focused on
identification and assessment of systems and equipment that may fail to
distinguish between the year 1900 and the year 2000 and, as a result, may
cease to operate or may operate improperly when dates after December 31, 1999
are introduced.
Based on a study conducted in 1997, FCLP concluded that certain of the
Joint Ventures' information systems were not Year 2000 compliant and elected
to replace such software and hardware with applications and equipment
certified by the vendors as Year 2000 compliant. FCLP installed the new
systems in the first quarter of 1999. The total anticipated cost, including
replacement software and hardware, will be borne by FCLP. FCLP is utilizing
internal and external resources to install the new systems. FCLP does not
believe that any other significant information technology projects affecting
the Partnership have been delayed due to efforts to identify and address Year
2000 issues.
Additionally, FCLP has continued to inventory the Joint Ventures'
operating and revenue generating equipment to identify items that need to be
upgraded or replaced and has surveyed cable equipment manufacturers to
determine which of their models require upgrade or replacement to become Year
2000 compliant. Identification and evaluation, while ongoing, are
substantially completed and a plan has been developed to remediate
non-compliant equipment prior to January 1, 2000. Upgrade or replacement,
testing and implementation will be performed over the remaining months of
1999. The cost of such replacement or remediation, currently estimated at
$116,800, is not expected to have a material effect on the Partnership's or
Joint Ventures' financial position or results of operations. The Joint
Ventures had not incurred any costs related to the Year 2000 project as of
March
-16-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
31, 1999. FCLP plans to inventory, assess, replace and test equipment with
embedded computer chips in a separate segment of its project, presently
scheduled for the second half of 1999.
FCLP has continued to survey the Joint Ventures' significant third party
vendors and service suppliers to determine the extent to which the Joint
Ventures' interface systems are vulnerable should those third parties fail to
solve their own Year 2000 problems on a timely basis. Approximately 80% of
the Joint Ventures' most critical equipment vendors have responded to the
surveys regarding the Year 2000 compliance of their products. Additional
compliance information has been obtained for specific products from vendor
Web sites. Among the most significant service providers upon which the Joint
Ventures rely are programming suppliers, power and telephone companies,
various banking institutions and the Joint Ventures' customer billing
service. A majority of these service suppliers either have not responded to
FCLP's inquiries regarding their Year 2000 compliance programs or have
responded that they are unsure if they will become compliant on a timely
basis. Consequently, there can be no assurance that the systems of other
companies on which the Joint Ventures must rely will be Year 2000 compliant
on a timely basis.
FCLP is developing a contingency plan in 1999 to address possible
situations in which various systems of the Joint Ventures, or of third
parties with which the Joint Ventures do business, are not compliant prior to
January 1, 2000. Considerable effort has been directed toward distinguishing
between those contingencies with a greater probability of occurring from
those whose occurrence is considered remote. Moreover, such a plan has
focused on systems whose failure poses a material risk to the Joint Ventures'
results of operations and financial condition.
The Joint Ventures' most significant Year 2000 risk is an interruption
of service to subscribers, resulting in a potentially material loss of
revenues. Other risks include impairment of the Joint Ventures' ability to
bill and/or collect payment from their customers, which could negatively
impact their liquidity and cash flows. Such risks exist primarily due to
technological operations dependent upon third parties and to a much lesser
extent to those under the control of the Joint Ventures. Failure to achieve
Year 2000 readiness in either area could have a material adverse impact on
the Joint Ventures and consequently on the Partnership. The Joint Ventures
are unable to estimate the possible effect on their results of operations,
liquidity and financial condition should their significant service suppliers
fail to complete their readiness programs prior to the Year 2000. Depending
on the supplier, equipment malfunction or type of service provided, as well
as the location and duration of the problem, the effect could be material.
For example, if a cable programming supplier encounters an interruption of
its signal due to a Year 2000 satellite malfunction, the Joint Ventures will
be unable to provide the signal to their cable subscribers, which could
result in a loss of revenues, although the Joint Ventures would attempt to
provide their customers with alternative program services for the period
during which they could not provide the original signal. Due to the number of
individually owned and operated channels the Joint Ventures carry for their
subscribers, and the packaging of those channels, the Joint Ventures are
unable to estimate any reasonable dollar impact of such interruption.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Operating activities provided $132,900 more cash during the three months
ended March 31, 1999 than in the corresponding period in 1998. Changes in
liabilities owed to third-party creditors and
-17-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
affiliates provided $138,000 more cash in the three months ended March 31,
1999 than in the comparable 1998 period due to differences in the timing of
payments.
Investing activities provided $36,000 less cash in the first three
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.
-18-
<PAGE>
ENSTAR INCOME PROGRAM IV-2, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) None.
(b) The registrant filed a Form 8-K dated February 24, 1999, in
which it reported under Item 5 that an unsolicited offer to
purchase partnership units had been made without the consent
of the Corporate General Partner.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME PROGRAM IV-2, L.P.
a GEORGIA LIMITED PARTNERSHIP
------------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: May 14, 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 MARCH 31, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 265,700
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,488,100
<CURRENT-LIABILITIES> 151,200
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,488,100
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 11,400
<OTHER-EXPENSES> (1,900)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,100
<INCOME-PRETAX> 273,900
<INCOME-TAX> 0
<INCOME-CONTINUING> 273,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 273,900
<EPS-PRIMARY> 6.81
<EPS-DILUTED> 0
</TABLE>
