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, 2003
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: 000-15705
ENSTAR INCOME PROGRAM IV-1, L.P.
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12405 Powerscourt Drive
St. Louis, Missouri 63131
(314) 965-0555
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 reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
ENSTAR INCOME PROGRAM IV-1, L.P.
Quarterly Report on Form 10-Q for the Period ended June 30, 2003
Table of Contents
| PART I. FINANCIAL INFORMATION | Page No. |
| Item 1. Financial Statements - Enstar Income Program IV-1, L.P. |
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| Condensed Statements of Net Assets in Liquidation as of June 30, 2003 and December 31, 2002 |
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| Condensed Statements of Changes in Net Assets in Liquidation for the three and six months ended June 30, 2003. |
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| Condensed Statements of Operations for the three and six months ended June 30, 2002 |
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| Condensed Statement of Cash Flows for the six months ended June 30, 2002 |
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| Notes to Condensed Financial Statements |
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| Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 4. Controls and Procedures |
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| PART II. OTHER INFORMATION |
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| Item 4. Submission of Matters to a Vote of Security Holders |
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| Item 6. Exhibits and Reports on Form 8-K |
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| SIGNATURES |
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| EXHIBIT INDEX |
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PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
ENSTAR INCOME PROGRAM IV-1, L.P.
CONDENSED STATEMENTS OF NET ASSETS IN LIQUIDATION
(See Note 2)
June 30, December 31,
2003 2002
------------ ------------
(Unaudited)
ASSETS:
Cash.................................................................... $ 3,200 $ 208,400
Prepaid expenses........................................................ 11,500 --
Equity in net assets of PBD Joint Venture............................... 2,346,500 2,837,300
Equity in net assets of Macoupin Joint Venture.......................... -- 42,000
------------ ------------
Total assets...................................................... 2,361,200 3,087,700
------------ ------------
LIABILITIES:
Accounts payable and accrued liabilities................................ 51,700 340,400
Due to affiliates....................................................... 8,200 580,200
------------ ------------
Total liabilities................................................ 59,900 920,600
------------ ------------
NET ASSETS IN LIQUIDATION:
General Partners........................................................ (15,900) (17,200)
Limited Partners........................................................ 2,317,200 2,184,300
------------ ------------
$ 2,301,300 $ 2,167,100
============ ============
See accompanying notes to condensed financial statements.
ENSTAR INCOME PROGRAM IV-1, L.P.
CONDENSED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(See Note 2)
(Unaudited)
Three Months Ended Six Months Ended
June 30, 2003 June 30, 2003
------------------ ----------------
Additions:
Distribution from PBD Joint Venture....................................... $ 300,000 $ 650,000
Distribution from Macoupin Joint Venture.................................. -- 42,000
Interest income........................................................... 200 500
------------------ ----------------
Total additions....................................................... 300,200 692,500
------------------ ----------------
Deductions:
General and administrative expenses....................................... 2,500 14,800
Equity in changes in net assets in liquidation of PBD Joint Venture....... 199,200 490,800
Equity in changes in net assets in liquidation of Macoupin Joint Venture.. -- 42,000
Other..................................................................... 10,700 10,700
------------------ ----------------
Total deductions...................................................... 212,400 558,300
------------------ ----------------
Net increase in net assets in liquidation................................... 87,800 134,200
NET ASSETS IN LIQUIDATION, beginning of period.............................. 2,213,500 2,167,100
------------------ ----------------
NET ASSETS IN LIQUIDATION, end of period.................................... $ 2,301,300 $ 2,301,300
================== ================
See accompanying notes to condensed financial statements.
ENSTAR INCOME PROGRAM IV-1, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
------------------ -----------------
EQUITY IN NET INCOME OF JOINT VENTURES:
Enstar IV/PBD Systems Venture........................... $ 2,496,600 $ 3,189,700
Enstar Cable of Macoupin County......................... 2,304,800 2,344,900
------------------ -----------------
4,801,400 5,534,600
------------------ -----------------
OPERATING EXPENSES:
General and administrative expenses...................... 20,900 32,800
------------------ -----------------
20,900 32,800
------------------ -----------------
OTHER INCOME (EXPENSE):
Interest income......................................... 600 1,300
Other expense........................................... (164,300) (231,100)
------------------ -----------------
(163,700) (229,800)
------------------ -----------------
NET INCOME................................................. $ 4,616,800 $ 5,272,000
================== =================
Net income allocated to General Partners................... $ 91,300 $ 97,900
================== =================
Net income allocated to Limited Partners................... $ 4,525,500 $ 5,174,100
================== =================
NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST........ $ 113.19 $ 129.41
================== =================
LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD........ 39,982 39,982
================== =================
See accompanying notes to condensed financial statements.
ENSTAR INCOME PROGRAM IV-1, L.P.
CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 5,272,000
Adjustments to reconcile net loss to net cash from operating activities:
Equity in net income of joint ventures....................................... (5,534,600)
Changes in:
Accounts payable and due to affiliates...................................... (123,000)
-----------
Net cash flows from operating activities................................. (385,600)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from Joint Ventures............................................... 5,456,500
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Net cash flows from investing activities................................. 5,456,500
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to General Partners................................................ (52,300)
Distribution to Limited Partners................................................ (5,179,600)
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Net cash flows from financing activities................................. (5,231,900)
-----------
Net decrease in cash .............................................................. (161,000)
CASH, beginning of period.......................................................... 288,200
-----------
CASH, end of period................................................................ $ 127,200
===========
See accompanying notes to condensed financial statements.
ENSTAR INCOME PROGRAM IV-1, L.P.
1. INTERIM FINANCIAL STATEMENTS
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying condensed interim financial statements for Enstar Income Program IV-1, L.P. (the Partnership) as of June 30, 2003, and for the three and six months ended June 30, 2003 and 2002, 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 Annual Report on Form 10-K for the year ended December 31, 2002. In the opinion of management, the condensed interim financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of such periods. The changes in net assets in liquidation for the three and six months ended June 30, 2003 are not necessarily indicative of results for the entire year.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates include useful lives of property, plant and equipment, valuation of long-lived assets and allocated operating costs. Actual results could differ from those estimates.
As discussed in Note 2, the financial statements as of June 30, 2003 and December 31, 2002 are presented on a liquidation basis of accounting. Accordingly, the financial information in the condensed statements of changes in net assets in liquidation for the three and six months ended June 30, 2003 is presented on a different basis of accounting than the financial statements for the three and six months ended June 30, 2002, which is prepared on the historical cost basis of accounting. As a result, depreciation and amortization ceased upon conversion to liquidation accounting and capital expenditures are expensed as incurred.
Certain reclassifications have been made to conform to current period presentation.
2. LIQUIDATION BASIS ACCOUNTING AND SALES OF CABLE SYSTEMS
Enstar Communications Corporation, the Corporate General Partner, continues to operate the Joint Venture's Dexter, Missouri cable television system, the Partnership's only remaining cable system, during the divestiture transactions for the benefit of the unit holders.
On April 10, 2002, pursuant to an asset purchase agreement dated August 29, 2001, the Partnership, together with its affiliates, Enstar Income Program IV-2, L.P. ("Enstar IV-2"), collectively with the Partnership, the "Ventures", and Enstar Income Program IV-3, L.P. ("Enstar IV-3"), completed the sale of the Enstar Cable of Macoupin County's (Macoupin Joint Venture) systems to Charter Communications Entertainment I, LLC ("CI"), an affiliate of the Corporate General Partner and an indirect subsidiary of Charter Communications, Inc. ("Charter"), for a total sale price of approximately $9.1 million, the Partnership's one-third share of which is approximately $3.0 million, and, together with Enstar IV-2, the sale to Interlink Communications Partners, LLC of the Enstar IV/PBD Systems Venture's (the "PBD Joint Venture") (collectively with the Macoupin Joint Venture, "the Joint Ventures") Mt. Caramel system for a total sale price of approximately $5.0 million, the Partnership's one-half share of which is approximately $2.5 million (the "Charter Sale"). The Charter Sale was part of a larger transaction in which the Partnership and five other affiliated partnerships (which, together with the Partnership are collectively referred to as the "Charter Selling Partnerships") sold all of their assets used in the operation of their respective Illinois cable television systems to CCE-I and two of its affiliates (also referred to, with CCE-I, as the "Purchasers") for a total cash sale price of $63.0 million. Each Charter Selling Partnership received the same value per customer. In addition, the Limited Partners of each of the Charter Selling Partnerships approved an amendment to their respective partnership agreement to allow the sale of assets to an affiliate of such partnership's General Partner. The Purchasers are each indirect subsidiaries of the Corporate General Partner's ultimate parent company, Charter, and, therefore, are affiliates of the Partnership and each of the other Charter Selling Partnerships.
In addition, on March 21, 2002, pursuant to an asset purchase agreement dated September 4, 2001, the Partnership, together with Enstar IV-2, completed the sale of the Poplar Bluff franchise area with the City of Poplar Bluff, Missouri for a sale price of approximately $8.0 million (the "Poplar Bluff Sale"), the Partnership's one-half share of which is approximately $4.0 million.
The Charter Sale and Poplar Bluff Sale resulted from a sale process actively pursued since 1999, when the Corporate General Partner sought purchasers for all of the cable television systems of the Selling Partnerships, as well as eight other affiliated limited partnership cable operators of which the Corporate General Partner is also the general partner. This effort was undertaken primarily because, based on the Corporate General Partner's experience in the cable television industry, it was concluded that generally applicable market conditions and competitive factors were making (and would increasingly make) it extremely difficult for smaller operators of rural cable systems (such as the Joint Ventures and the other affiliated Enstar partnerships) to effectively compete and be financially successful. This determination was based on the anticipated cost of electronics and additional equipment to enable the Joint Ventures' systems to operate on a two-way basis with improved technical capacity, insufficiency of Joint Ventures cash reserves and cash flows from operations to finance such expenditures, limited customer growth potential due to the Joint Ventures' systems' rural location, and a general inability of a small cable system operator such as the Joint Ventures to benefit from economies of scale and the ability to combine and integrate systems that large cable operators have. In addition, the City of Poplar Bluff sold bonds to raise money and constructed a competing cable system within the city limits. Although limited plant upgrades have been made, the Corporate General Partner projected that if the Joint Ventures made the comprehensive additional upgrades deemed necessary to enable enhanced and competitive services, particularly two-way capability, the Joint Ventures would not recoup the costs or regain its ability to operate profitably within the remaining term of its franchises, and as a result, making these upgrades would not be economically prudent.
On November 8, 2002, the Venturers entered into an asset purchase agreement providing for the sale of the PBD Joint Venture's remaining cable system in Dexter, Missouri to Telecommunications Management, LLC (Telecommunications Management) for a total sale price of approximately $3,148,000, (approximately $825 per customer acquired). This sale is a part of a larger transaction in which the Venturers and eight other affiliated partnerships (which, together with the Venturers are collectively referred to as the "Telecommunications Management Selling Partnerships") would sell all of their remaining assets used in the operation of their respective cable systems to Telecommunications Management for a total cash sale price of approximately $15,341,600 (before adjustments) (the Telecommunications Management Sale). The Telecommunications Management Sale is subject to the approval of a majority of the holders of the Partnerships' units and approval of the holders of the other Telecommunications Management Selling Partnerships. In addition, the transaction is subject to certain closing conditions, including regulatory and franchise approvals. In March and April 2003, a majority of the Limited Partners of the Venturers approved the Telecommunications Management Sale and a plan of liquidation.
On February 6, 2003, the Partnership entered into a side letter amending the asset purchase agreement providing for the sale of all of its cable systems to Telecommunications Management. The February 6, 2003 side letter amends the asset purchase agreement and Deposit Escrow Agreement to extend the date of the second installment of the deposit and the Outside Closing Date each by 60 days. On April 7, 2003, the second installment of the escrow deposit was due and was not made.
On April 24, 2003, the Partnership entered into another side letter amending the asset purchase agreement providing for the sale of all of its cable systems to Telecommunications Management. The April 24, 2003 side letter amends the asset purchase agreement and Deposit Escrow Agreement to extend the date of the second installment of the deposit to May 15, 2003 and the Outside Closing Date to September 30, 2003.
On June 6, 2003, the Partnership entered into a third side letter amending the asset purchase agreement providing for the sale of all of its cable systems to Telecommunications Management. The June 6, 2003 side letter amends the asset purchase agreement to reduce the purchase price of the remaining cable systems in the Selling Partnerships to approximately $14,487,200, subject to closing sale price adjustments, of which approximately $3,052,800 relates to the remaining cable system in the Partnership. In addition, $250,000 was deposited in the Deposit Escrow Account concurrent with the execution of the side letter.
The Partnership finalized its proposed plan of liquidation in December 2002 in connection with the filing of a proxy to obtain partner approval for the sale of the PBD Joint Venture's final cable system and the subsequent liquidation and dissolution of the PBD Joint Venture and the Partnership. In April 2003, the required number of votes necessary to implement the plan of liquidation were obtained. As a result, the Partnership changed its basis of accounting to the liquidation basis as of December 31, 2002. Upon changing to the liquidation basis of accounting, the Partnership recorded $25,000 of accrued costs of liquidation in accounts payable and accrued liabilities representing an estimate of the costs to be incurred after the sale of the PBD Joint Venture's final cable system but prior to dissolution of the Partnership. In addition, the Partnership's equity in net assets of the PBD Joint Venture decreased by $15,300 as a result of the accrued costs of liquidation recorded at the PBD Joint Venture. No further adjustments have been recorded to reflect the Partnership's equity in net assets of the PBD Joint Venture at estimated realizable value. Distributions ultimately made to the partners upon liquidation will differ from the net assets in liquidation recorded in the accompanying statements of net assets in liquidation of the Partnership as a result of adjustments recorded to the realizable value of the assets of the PBD Joint Venture and adjustments if any to estimated costs of liquidation. No adjustments were made to estimated costs of liquidation during the three and six months ended June 30, 2003.
The Corporate General Partner's intention is to settle the outstanding obligations of the Partnership and terminate the Partnership as expeditiously as possible. Final dissolution of the Partnership and related cash distributions to the partners will occur upon obtaining final resolution of all liquidation issues.
3. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (the Management Agreement) with Enstar Cable Corporation ("Enstar Cable"), a wholly owned subsidiary of the Corporate General Partner, for a monthly management fee of 5% of gross revenues. No management fees were paid by the Partnership during 2003 and 2002
.Enstar Cable has entered into identical agreements with the PBD Joint Venture and the Macoupin Joint Venture, of which the Partnership is a joint venturer and co-general partner, except that the Macoupin Joint Venture pays Enstar Cable a 4% management fee. The PBD Joint Venture's management fee expense approximated $24,400 and $19,500 for the three months ended June 30, 2003 and 2002, respectively, and $41,800 and $71,900 for the six months ended June 30, 2003 and 2002, respectively. The Macoupin Joint Venture's management fee expense approximated $2,100 for the period from April 1, 2002 to April 10, 2002 and $21,000 for the period from January 1, 2002 to April 10, 2002. In addition, the Macoupin Joint Venture is also required to pay the Corporate General Partner an amount equal to 1% of the Macoupin Joint Venture's gross revenues. The Macoupin Joint Venture's management fee expense to the Corporate General Partner approximated $500 for the period from April 1, 2002 to April 10, 2002 and $5,300 for the period from January 1, 2002 to April 10, 2002. No management fee is payable to Enstar Cable by the Partnership with respect to any amounts received by the Partnership from the Joint Ventures. Management fees are non-interest bearing.
The Management Agreement also provides that the Partnership reimburse Enstar Cable for direct expenses incurred on behalf of the Partnership and the Partnership's allocable share of Enstar Cable's operational costs. Additionally, Charter and its affiliates provide other management and operational services for the Partnership and the Joint Ventures. These expenses are charged to the properties served based primarily on the Partnership's allocable share of operational costs associated with the services provided. The total amount charged to the PBD Joint Venture for these services was $82,300 and $30,300 for the three months ended June 30, 2003 and 2002, respectively, and $101,000 and $179,600 for the six months ended June 30, 2003 and 2002, respectively. The total amount charged to the Macoupin Joint Venture for these costs approximated $14,800 for the period from April 1, 2002 to April 10, 2002 and $63,900 for the period from January 1, 2002 to April 10, 2002.
Substantially all programming services are purchased through Charter. Charter charges the Joint Ventures for these costs based on an allocation of its costs. The PBD Joint Venture recorded programming fee expense of $109,600 and $105,700 for the three months ended June 30, 2003 and 2002, respectively, and $219,000 and $390,400 for the six months ended June 30, 2003 and 2002, respectively. The Macoupin Joint Venture recorded programming fee expense of $12,500 for the period from April 1, 2002 to April 10, 2002 and $119,500 for the period from January 1, 2002 to April 10, 2002. Programming fees are included in service costs in the accompanying condensed statements of changes in net assets in liquidation and statements of operations.
As disclosed in Charter's Quarterly Report on Form 10-Q, the parent of the Corporate General Partner and the Manager is the defendant in twenty-two class action and shareholder lawsuits and is the subject of a grand jury investigation being conducted by the United States Attorney's Office for the Eastern District of Missouri and an SEC investigation. The United States Attorney's office has publicly stated that Charter is not currently a target of the investigation. Charter has also been advised by the United States Attorney's office that no member of its board of directors, including its Chief Executive Officer, is a target of the investigation. On July 24, 2003, a federal grand jury charged four former officers of Charter with conspiracy and mail and wire fraud, alleging improper accounting and reporting practices focusing on revenue from digital set-top terminal suppliers and inflated subscriber account numbers. On July 25, 2003, one of the former officers who was indicted entered a guilty plea. Charter has informed the Corporate General Partner that they are fully cooperating with the investigation.
Charter is unable to predict the outcome of the class action lawsuits and government investigations at this time. An unfavorable outcome of these matters could have a material adverse effect on Charter's results of operations and financial condition which could in turn have a material adverse effect on the Partnership.
4. NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST
Net income per unit of limited partnership interest is based on the average number of units outstanding during the periods presented. For this purpose, net income excluding gain on sale of cable systems has been allocated 99% to the Limited Partners and 1% to the General Partners. Gain on sale of cable systems has been allocated in accordance with the partnership agreement, first to the Limited Partners and then to the General Partners to eliminate any negative equity balance on the date of sale, and then in the amount of 99% to the Limited Partners and 1% to the General Partners. Gains and losses will be allocated in this manner until the Limited Partners have received an amount equal to their adjusted subscription amount and liquidation preference, as defined, and thereafter 80% to the Limited Partners and 20% 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. Upon dissolution of the Partnership, any negative capital account balances remaining after all allocation and distributions are made must be funded by the respective partners.
Distributions have been allocated in accordance with the partnership agreement, 99% to the Limited Partners and 1% to the General Partners. Distributions will be allocated in this manner until the Limited Partners have received an amount equal to their adjusted subscription amount and liquidation preference, as defined, and thereafter 80% to the Limited Partners and 20% to the General Partners.
5. EQUITY IN NET ASSETS OF JOINT VENTURES
ENSTAR IV/PBD SYSTEMS VENTURE
The Partnership and an affiliated partnership, Enstar IV- 2 each own 50% of the PBD Joint Venture. Each joint venturer 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. Condensed financial information for the PBD Joint Venture as of June 30, 2003 and December 31, 2002 and the three and six months ended June 30, 2003 are presented in the following statement of net assets in liquidation and statement of changes in net assets in liquidation. The condensed results of operations is also presented for the three and six months ended June 30, 2002.
The PBD Joint Venture finalized its proposed plan of liquidation in December 2002 in connection with the Partnership's filing of a proxy to obtain the approval of the Limited Partners for the sale of the PBD Joint Venture's final cable system and the subsequent liquidation and dissolution of the PBD Joint Venture and the Partnerships. In March and April 2003, the required number of votes necessary to implement the plan of liquidation were obtained. As a result, the PBD Joint Venture changed its basis of accounting to the liquidation basis as of December 31, 2002. Upon changing to liquidation basis accounting, the PBD Joint Venture recorded $30,600 of accrued costs of liquidation in accounts payable and accrued liabilities representing an estimate of the costs to be incurred after the sale of the final cable system but prior to dissolution of the PBD Joint Venture. Because management is unable to develop reliable estimates of future operating results or the ultimate realizable value of property, plant and equipment due to the current uncertainties surrounding the final dissolution of the PBD Joint Venture, no adjustments have been recorded to reflect assets at estimated realizable values or to reflect estimates of future operating results. These adjustments will be reflected once a sale is imminent and the net sales proceeds are reasonably estimable. Accordingly, the assets in the accompanying statement of net assets in liquidation of the PBD Joint Venture as of June 30, 2003 and December 31, 2002 have been stated at historical book values. Distributions ultimately made to the Venturers upon liquidation will differ from the net assets in liquidation recorded in the accompanying statement of net assets in liquidation as a result of future operations, the sale proceeds ultimately received by the PBD Joint Venture and adjustments if any to estimated costs of liquidation. No adjustments were made to estimated costs of liquidation during the three and six months ended June 30, 2003.
The Corporate General Partner's intention is to settle the outstanding obligations of the PBD Joint Venture and terminate the PBD Joint Venture as expeditiously as possible. Final dissolution of the PBD Joint Venture and related cash distributions to the partners will occur upon obtaining final resolution of all liquidation issues.
Distributions from the PBD Joint Venture to the Partnership were $650,000 and $4,126,500 during the six months ended June 30, 2003 and 2002, respectively.
ENSTAR IV/PBD SYSTEMS VENTURE
CONDENSED STATEMENTS OF NET ASSETS IN LIQUIDATION
(See Note 2)
June 30, December 31,
2003 2002
----------- -----------
(Unaudited)
ASSETS:
Cash and cash equivalents.............................. $ 3,917,600 $ 5,788,900
Due from affiliates.................................... 69,100 --
Prepaid expenses....................................... 4,800 5,200
Property, plant and equipment.......................... 818,400 818,400
Franchise cost......................................... 3,500 3,500
----------- ------------
Total assets........................................... 4,813,400 6,616,000
=========== ============
LIABILITIES:
Accounts payable....................................... 41,900 21,400
Accrued liabilities.................................... 78,500 106,800
Due to affiliates...................................... -- 813,200
----------- ------------
Total liabilities...................................... 120,400 941,400
----------- ------------
NET ASSETS IN LIQUIDATION:
Enstar Income Program IV-1, L.P....................... 2,346,500 2,837,300
Enstar Income Program IV-2, L.P....................... 2,346,500 2,837,300
----------- ------------
$ 4,693,000 $ 5,674,600
=========== ============
ENSTAR IV/PBD SYSTEMS VENTURE
CONDENSED STATEMENTS OF CHANGES IN NET ASSETS IN
LIQUIDATION
(See Note 2)
(Unaudited)
Three Months Ended Six Months Ended
June 30, 2003 June 30, 2003
------------------ ----------------
Additions:
Revenues................................................... $ 488,400 $ 836,800
Interest income............................................ 13,200 24,000
------------------ ----------------
Total additions......................................... 501,600 860,800
------------------ ----------------
Deductions:
Service costs.............................................. 155,100 314,100
General and administrative expenses........................ 24,600 58,700
General partner management fees and reimbursed expenses.... 106,700 142,800
Distributions to venturers................................. 600,000 1,300,000
Capital expenditures....................................... 10,500 16,100
Other...................................................... 3,100 10,700
------------------ ----------------
Total deductions........................................ 900,000 1,842,400
------------------ ----------------
Net decrease in net assets in liquidation..................... (398,400) (981,600)
NET ASSETS IN LIQUIDATION, beginning of period................ 5,091,400 5,674,600
------------------ ----------------
NET ASSETS IN LIQUIDATION, end of period...................... $ 4,693,000 $ 4,693,000
================== ================
ENSTAR IV/PBD SYSTEMS VENTURE
Three Months Ended Six Months Ended
June 30, 2002 June 30, 2002
------------------ ----------------
REVENUES................................................................ $ 390,800 $ 1,438,400
------------------ ----------------
OPERATING EXPENSES:
Service costs........................................................ 160,900 571,000
General and administrative expenses.................................. 74,200 187,900
General partner management fees and reimbursed expenses.............. 49,900 251,500
Depreciation and amortization........................................ 20,200 293,700
------------------ ----------------
305,200 1,304,100
------------------ ----------------
Operating income.................................................. 85,600 134,300
------------------ ----------------
OTHER INCOME:
Interest income...................................................... 22,000 24,300
Gain on sale of cable systems........................................ 4,885,600 6,220,800
------------------ ----------------
4,907,600 6,245,100
------------------ ----------------
NET INCOME.............................................................. $ 4,993,200 $ 6,379,400
================== ================
The Partnership and two affiliated partnerships, Enstar IV-2 and Enstar IV-3 (collectively referred to as the "Joint Venturers")
each own one-third of the Macoupin Joint Venture. Each of the Joint Venturers share 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.As a result of the Charter sale, the Macoupin Joint Venture changed its basis of accounting to the liquidation basis on April 10, 2002. Accordingly, the assets in the accompanying statement of net assets in liquidation as of December 31, 2002 are stated at estimated realizable values and the liabilities are reflected at estimated settlement amounts. There were no significant adjustments recorded upon changing to liquidation basis accounting. Net assets in liquidation as of December 31, 2002 represent the estimated distribution to the Venturers. The Joint Venture distributed $3,990,000 for the period from April 11, 2002 to June 30, 2002. In January 2003, all remaining assets of the Macoupin Joint Venture were distributed including a final distribution of $126,000 made to the Joint Venturers of which the Partnership's portion is $42,000.
Condensed financial information for the Macoupin Joint Venture as of December 31, 2002 and for the six months ended June 30, 2003 are presented in the following statement of net assets in liquidation and statement of changes in net assets in liquidation. The condensed results of operations are also presented for the period from April 1, 2002 to April 11, 2002 and from January 1, 2002 to April 10, 2002. As all remaining assets of the Macoupin Joint Venture have been distributed, the statement of net assets in liquidation is not presented as of June 30, 2003.
ENSTAR CABLE OF MACOUPIN COUNTY
CONDENSED STATEMENT OF NET ASSETS IN LIQUIDATION
DECEMBER 31, 2002
ASSETS:
Cash and cash equivalents................................. $ 171,700
---------
Total assets.............................................. 171,700
---------
LIABILITIES:
Due to affiliates......................................... 45,700
---------
Total liabilities......................................... 45,700
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NET ASSETS IN LIQUIDATION:
Enstar Income Program IV-1, L.P........................... 42,000
Enstar Income Program IV-2, L.P........................... 42,000
Enstar Income Program IV-3, L.P........................... 42,000
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$ 126,000
=========
ENSTAR CABLE OF MACOUPIN COUNTY
CONDENSED STATEMENTS OF CHANGES IN NET ASSETS IN
LIQUIDATION
(Unaudited)
Period from
Six Months Ended April 11, 2002
June 30, 2003 to June 30, 2002
----------------- ----------------
Additions:
Interest income.............................................. $ -- $ 24,400
----------------- ----------------
-- 24,400
----------------- ----------------
Deductions:
Distribution to joint venturers............................... (126,000) (3,990,000)
----------------- ----------------
(126,000) (3,990,000)
----------------- ----------------
Net change in net assets in liquidation......................... (126,000) (3,965,600)
NET ASSETS IN LIQUIDATION, beginning of period.................. 126,000 9,589,900
----------------- ----------------
NET ASSETS IN LIQUIDATION, end of period........................ $ -- $ 5,624,300
================= ================
ENSTAR CABLE OF MACOUPIN COUNTY
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
Period from Period from
April 1, 2002 January 1, 2002
to April 10, 2002 to April 10, 2002
----------------- -----------------
REVENUES................................................... $ 52,000 $ 526,000
----------------- -----------------
OPERATING EXPENSES:
Service costs........................................... 14,400 172,300
General and administrative expenses..................... 38,200 87,400
General partner management fees and reimbursed expenses. 17,400 90,200
Depreciation and amortization........................... 10,800 86,600
----------------- -----------------
80,800 436,500
----------------- -----------------
OPERATING INCOME (LOSS) ................................... (28,800) 89,500
----------------- -----------------
OTHER INCOME:
Interest income......................................... 200 2,200
Gain on sale of cable systems............................ 6,918,500 6,918,500
----------------- -----------------
6,918,700 6,920,700
----------------- -----------------
NET INCOME................................................. $ 6,889,900 $ 7,010,200
================= =================
6. RECENTLY ISSUED ACCOUNTING STANDARDS
In April of 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 will not have an impact on the Partnership's financial condition or results of operations.
In May of 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 will not have an impact on the Partnership's financial condition or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
This report includes certain forward-looking statements regarding, among other things, our future results of operations, regulatory requirements, competition, capital needs and general business conditions applicable to us. 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 us. In addition to the information provided herein, reference is made to our Annual Report on Form 10-K for the year ended December 31, 2002, for additional information regarding such matters and the effect thereof on our business.
All of our cable television business operations are conducted through participation as a partner with a 50% and a one-third interest in Enstar IV/PBD Systems Venture (the PBD Joint Venture) and Enstar Cable of Macoupin County (the Macoupin Joint Venture), (collectively, the Joint Ventures), respectively. Our participation in the Joint Ventures is equal to our affiliated partner, Enstar Income Program IV-2, L.P. (Enstar IV-2), of the PBD Joint Venture, and partners, Enstar IV-2 and Enstar Income Program IV-3, L.P. (Enstar IV-3), of the Macoupin Joint Venture, with respect to capital contributions, obligations and commitments, and results of operations. Accordingly, in considering our financial condition and results of operations, 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
The Partnership finalized its proposed plan of liquidation in December 2002 in connection with the filing of a proxy to obtain partner approval for the sale of the PBD Joint Venture's final cable system and the subsequent liquidation and dissolution of the PBD Joint Venture and the Partnership. In April 2003, the required number of votes necessary to implement the plan of liquidation were obtained. As a result, the Partnership changed its basis of accounting to the liquidation basis as of December 31, 2002. Upon changing to the liquidation basis of accounting, the Partnership recorded $25,000 of accrued costs of liquidation in accounts payable and accrued liabilities representing an estimate of the costs to be incurred after the sale of the PBD Joint Venture's final cable system but prior to dissolution of the Partnership. In addition, the Partnership's equity in net assets of the PBD Joint Venture decreased by $15,300 as a result of the accrued costs of liquidation recorded at the PBD Joint Venture. No further adjustments have been recorded to reflect the Partnership's equity in net assets of the PBD Joint Venture at estimated realizable value. Distributions ultimately made to the partners upon liquidation will differ from the net assets in liquidation recorded in the accompanying statement of net assets in liquidation of the Partnership as a result of adjustments recorded to the realizable value of the assets of the PBD Joint Venture and adjustments if any to estimated costs of liquidation. No adjustments were made to estimated costs of liquidation during the three and six months ended June 30, 2003.
General and administrative expenses decreased $18,400 from $20,900 to $2,500, or 88.0%, and $18,000 from $32,800 to $14,800, or 54.9%, for the three and six months ended June 30, 2003, respectively, compared to the corresponding periods in 2002. This decrease for the three and six month period was due to a decline in professional fees.
Interest income decreased $400 from $600 to $200, or 66.7%, and $800 from $1,300 to $500, or 61.5%, for the three and six months ended June 30, 2003, respectively, compared to the corresponding period in 2002. The fluctuation was due to lower average cash balances available for investment as a result of the distribution in May 2002.
Other expense of $164,300 and $231,100 for the three and six months ended June 30, 2002, respectively, represents estimated transaction costs and taxes and related adjustments associated with the sale of certain of the Joint Ventures' cable systems. Other expense of $10,700 for both the three and six months ended June 30, 2003 represents costs associated with the proposed sale of the PBD Joint Venture's remaining cable system.
THE ENSTAR IV/PBD SYSTEMS VENTURE
The PBD Joint Venture finalized its proposed plan of liquidation in December 2002 in connection with the Partnership's filing of a proxy to obtain the approval of the Limited Partners for the sale of the PBD Joint Venture's final cable system and the subsequent liquidation and dissolution of the PBD Joint Venture and the Partnerships. In March and April 2003, the required number of votes necessary to implement the plan of liquidation were obtained. As a result, the PBD Joint Venture changed its basis of accounting to the liquidation basis as of December 31, 2002. Upon changing to liquidation basis accounting, the PBD Joint Venture recorded $30,600 of accrued costs of liquidation in accounts payable and accrued liabilities representing an estimate of the costs to be incurred after the sale of the final cable system but prior to dissolution of the PBD Joint Venture. Because management is unable to develop reliable estimates of future operating results or the ultimate realizable value of property, plant and equipment due to the current uncertainties surrounding the final dissolution of the PBD Joint Venture, no adjustments have been recorded to reflect assets at estimated realizable values or to reflect estimates of future operating results. These adjustments will be reflected once a sale is imminent and the net sales proceeds are reasonably estimable. Accordingly, the assets in the accompanying statements of net assets in liquidation of the PBD Joint Venture as of June 30, 2003 and December 31, 2002 have been stated at historical book values. Distributions ultimately made to the joint venturers upon liquidation will differ from the net assets in liquidation recorded in the accompanying statements of net assets in liquidation as a result of future operations, the sale proceeds ultimately received by the PBD Joint Venture and adjustments if any to estimated costs of liquidation. No adjustments were made to estimated costs of liquidation during the three and six months ended June 30, 2003.
On March 21, 2002 and April 10, 2002, the PBD Joint Venture completed the sales of the Poplar Bluff and the Mt. Carmel cable television systems, respectively. Accordingly, results of operations for the three and six months ended June 30, 2003 are not comparable to and are on a different basis of accounting than the three and six months ended June 30, 2002.
The PBD Joint Venture's revenues increased $97,600 from $390,800 to $488,400, or 25.0%, and decreased $601,600 from $1,438,400 to $836,800, or 41.8%, for the three and six months ended June 30, 2003 compared to the corresponding periods in 2002. The increase in revenues for the three months ended June 30, 2003 is primarily a result of a $146,200 adjustment to advertising revenue to true up estimates of advertising revenues recorded in prior years based on a review of finalized data offset by a decrease in revenue as a result of the decrease in the number of basic and premium customers and as a result of the sale of the PBD Joint Venture's cable system in March and April 2002. The decrease for the six months ended June 30, 2003 was primarily due to a decline in the number of basic and premium service customers primarily as a result of the sale of the PBD Joint Venture's cable systems in March and April 2002 offset by the advertising revenue adjustment discussed above. As of June 30, 2003 and 2002, the PBD Joint Venture had approximately 3,500 and 3,700 basic service customers, respectively, and 500 and 600 premium service customers, respectively. The Poplar Bluff and Mt. Carmel systems sold in March and April 2002 had revenues of $28,700 and $697,000 for the three and six months ended June 30, 2002, respectively.
Service costs decreased $5,800 from $160,900 to $155,100, or 3.6%, and $256,900 from $571,000 to $314,100, or 45.0%, for the three and six months June 30, 2003 compared to the corresponding periods in 2002. Service costs represent programming costs and other costs directly attributable to providing cable services to customers. The decreases for the three and six months ended June 30, 2003 are primarily due to the sale of the PBD Joint Venture's cable systems in March and April 2002.
General and administrative expenses decreased $49,600 from $74,200 to $24,600, or 66.8%, and $129,200 from $187,900 to $58,700, or 68.8%, for the three and six months ended June 30, 2003 compared to the corresponding periods in 2002. The decrease was primarily due to the sale of the PBD Joint Venture's cable systems in March and April 2002 and decreases in billing costs, insurance costs and utilities.
General partner management fees and reimbursed expenses increased $56,800 from $49,900 to $106,700 and decreased $108,700 from $251,500 to $142,800, or 43.2%, for the three and six months ended June 30, 2003 compared to the corresponding periods in 2002. These costs represent administrative costs reimbursed to Charter by the PBD Joint Venture based on Charter's actual costs incurred. The increase for the three months ended June 30, 2003 was primarily a result of a $66,200 adjustment to true up estimates of expenses associated with the revenue adjustment discussed above offset by decreases as a result of the sale of the PBD Joint Venture's cable system in March and April 2002. The decrease for the six months ended June 30, 2003 was primarily due to a decrease in management fees and reimbursable costs as a result of the sale of the PBD Joint Venture's cable systems offset by the adjustment to expenses discussed above.
Depreciation and amortization expense decreased from $20,200 to $0 and $293,700 to $0 for the three and six months ended June 30, 2003 compared to the corresponding periods in 2002, primarily due to the sale of the PBD Joint Venture's cable systems. Depreciation and amortization ceased upon the adoption of liquidation basis accounting.
Interest income decreased $8,800 from $22,000 to $13,200, or 40%, and $300 from $24,300 to $24,000, or 1.2%, for the three and six months ended June 30, 2003 compared to the corresponding periods in 2002. The decrease was primarily due to lower average cash balances available for investment as a result of the distributions in May and September 2002.
Gain on sale of cable systems totaled $4,885,600 and $6,220,800 for the three and six months ended June 30, 2002, respectively. Gain on sale of cable systems represents the difference between the net sale proceeds and the net book value of investment related to the Poplar Bluff and Mt. Carmel sales.
ENSTAR CABLE OF MACOUPIN COUNTY
On April 10, 2002, the Macoupin Joint Venture completed the sale of its cable systems and accordingly had no results of operations for the three or six months ended June 30, 2003.
Final dissolution of the Macoupin Joint Venture occurred in January 2003 with the final cash distribution to the joint venturers of $126,000.
LIQUIDITY AND CAPITAL RESOURCES
Our primary objective, having invested net offering proceeds in the Joint Ventures, is to distribute to our partners all available cash from the sale of the Joint Ventures' cable systems and all cash flow, if any, from operations after providing for expenses and any planned capital requirements relating to the expansion, improvement and upgrade of such cable television systems.
All of our cable television business operations are conducted through our participation as a partner in the Joint Ventures. We distributed $5,231,900 during the six months ended June 30, 2002. Distributions from the Joint Ventures to the Partnership were $692,000 and $5,456,500 during the six months June 30, 2003 and 2002, respectively.
Cash and cash equivalents decreased $205,200 from $208,400 at December 31, 2002 to $3,200 at June 30, 2003 primarily due to repayments of $586,000 on the amounts due to affiliates and remittance of $282,300 in withholding taxes related to the April 2002 sale of the Partnership's Illinois cable systems which had been recorded in accounts payable and accrued expenses offset by distributions of $692,000 received from the Joint Ventures. Amounts due to affiliates at December 31, 2002 primarily represent accrued and unpaid management fees and other allocated expenses accrued since the fourth quarter of 2000. Cash and cash equivalents decreased $161,000 from $288,200 at December 31, 2001 to $127,200 at June 30, 2002 primarily as a result of $385,600 of cash used by operating activities and $5,231,900 distribution to partners offset by a $5,456,500 distribution from Joint Ventures.
We believe that cash generated by operations of the PBD Joint Venture will be adequate to fund any required capital expenditures as required by franchise authorities and other liquidity requirements in 2003 and through the proposed sale. At this time, the PBD Joint Venture does not anticipate making significant additional upgrades to the Dexter, Missouri cable plant or headend electronics.
Cash generated by operations of the Joint Venture, together with available cash balances will be used to fund any capital expenditures as required by franchise authorities. However, our cash reserves will be insufficient to fund a comprehensive upgrade program. If our system is not sold, we will need to rely on increased cash flow from operations or new sources of financing in order to meet our future liquidity requirements. There can be no assurance that such cash flow increases can be attained, or that additional future financing will be available on terms acceptable to us. If we are not able to attain such cash flow increases, or obtain new sources of borrowings, we will not be able to upgrade our cable system. As a result, the value of our system would likely be lower than that of systems built to a higher technical standard.
The estimated cost of upgrading the PBD Joint Venture's system to two-way capability in order to be able to offer high-speed Internet service from the Dexter, Missouri headend, as well as to increase channel capacity and allow additional video services, would be approximately $2.4 million (for an upgrade to 550 megahertz (MHz) capacity) to $2.8 million (for an upgrade to 870 MHz capacity). Given the high cost of such a comprehensive upgrade effort, the limited funds available to us, the pending sale and the belief that a comprehensive plan is not economically prudent, the Corporate General Partner does not presently anticipate that it will proceed with a comprehensive upgrade plan. Provided there are available funds, the Corporate General Partner will, however, continue to evaluate alternative, cost-effective solutions to increase channel capacity, pay-per-view services, and digital services which would enhance the value of our system, maintain compliance with franchise agreements and be economically prudent.
LIQUIDATION BASIS ACCOUNTING AND SALES OF CABLE SYSTEMS
On April 10, 2002, pursuant to an asset purchase agreement dated August 29, 2001, the Partnership, together with its affiliates, Enstar Income Program IV-2, L.P. ("Enstar IV-2"), collectively with the Partnership, the "Venturers", and Enstar Income Program IV-3, L.P., completed the sale of the Macoupin Joint Venture's systems to Charter Communications Entertainment I, LLC ("CCE-I"), an affiliate of the Corporate General Partner and an indirect subsidiary of Charter Communications, Inc. ("Charter"), for a total sale price of approximately $9.1 million, the Partnership's one-third share of which is approximately $3.0 million, and, together with Enstar IV-2, the sale to Interlink Communications Partners, LLC of the PBD Joint Venture's (collectively with the Macoupin Joint Venture, "the Joint Ventures") Mt. Carmel system for a total sale price of approximately $5.0 million, the Partnership's one-half share of which is approximately $2.5 million (the "Charter Sale"). The Charter Sale is part of a larger transaction in which the Partnership and five other affiliated partnerships (which, together with the Partnership are collectively referred to as the "Charter Selling Partnerships") sold all of their assets used in the operation of their respective Illinois cable television systems to CCE-I and two of its affiliates (also referred to, with CCE-I, as the "Purchasers") for a total cash sale price of $63.0 million. Each Charter Selling Partnership received the same value per customer. In addition, the Limited Partners of each of the Charter Selling Partnerships approved an amendment to their respective partnership agreement to allow the sale of assets to an affiliate of such partnership's General Partner. The Purchasers are each indirect subsidiaries of the Corporate General Partner's ultimate parent company, Charter, and, therefore, are affiliates of the Partnership and each of the other Charter Selling Partnerships.
In addition, on March 21, 2002, pursuant to an asset purchase agreement dated September 4, 2001, the Partnership, together with Enstar IV-2, completed the sale of the Poplar Bluff franchise area with the City of Poplar Bluff, Missouri for a sale price of approximately $8.0 million (the "Poplar Bluff Sale"), the Partnership's one-half share of which is approximately $4.0 million.
The Charter Sale and Poplar Bluff Sale resulted from a sale process actively pursued since 1999, when the Corporate General Partner sought purchasers for all of the cable television systems of the Selling Partnerships, as well as eight other affiliated limited partnership cable operators of which the Corporate General Partner is also the general partner. This effort was undertaken primarily because, based on the Corporate General Partner's experience in the cable television industry, it was concluded that generally applicable market conditions and competitive factors were making (and would increasingly make) it extremely difficult for smaller operators of rural cable systems (such as the Joint Ventures and the other affiliated partnerships) to effectively compete and be financially successful. This determination was based on the anticipated cost of electronics and additional equipment to enable the Joint Ventures' systems to operate on a two-way basis with improved technical capacity, insufficiency of Joint Ventures cash reserves and cash flows from operations to finance such expenditures, limited customer growth potential due to the Joint Ventures' systems' rural location, and a general inability of a small cable system operator such as the Joint Ventures to benefit from economies of scale and the ability to combine and integrate systems that large cable operators have. In addition, the City of Poplar Bluff sold bonds to raise money to construct a competing cable system. Although limited plant upgrades have been made, the Corporate General Partner projected that if the Joint Ventures made the comprehensive additional upgrades deemed necessary to enable enhanced and competitive services, particularly two-way capability, the Joint Ventures would not recoup the costs or regain its ability to operate profitably within the remaining term of its franchises, and as a result, making these upgrades would not be economically prudent.
On November 8, 2002, the joint venturers entered into an asset purchase agreement providing for the sale of the PBD Joint Venture's remaining cable system in Dexter, Missouri to Telecommunications Management, LLC (Telecommunications Management) for a total sale price of approximately $3,148,000, (approximately $825 per customer acquired). This sale is a part of a larger transaction in which the Venturers and eight other affiliated partnerships (which, together with the Venturers are collectively referred to as the "Telecommunications Management Selling Partnerships") would sell all of their remaining assets used in the operation of their respective cable systems to Telecommunications Management for a total cash sale price of approximately $15,341,600 (before adjustments) (the Telecommunications Management Sale). The Telecommunications Management Sale is subject to the approval of a majority of the holders of the Partnerships' units and approval of the holders of the other Telecommunications Management Selling Partnerships. In addition, the transaction is subject to certain closing conditions, including regulatory and franchise approvals. In March and April 2003, a majority of the Limited Partners of the Venturers approved the Telecommunications Management Sale and a plan of liquidation.
On February 6, 2003, the Partnership entered into a side letter amending the asset purchase agreement providing for the sale of all of its cable systems to Telecommunications Management. The February 6, 2003 side letter amends the asset purchase agreement and Deposit Escrow Agreement to extend the date of the second installment of the deposit and the Outside Closing Date each by 60 days. On April 7, 2003, the second installment of the escrow deposit was due and was not made.
On April 24, 2003, the Partnership entered into another side letter amending the asset purchase agreement providing for the sale of all of its cable systems to Telecommunications Management. The April 24, 2003 side letter amends the asset purchase agreement and Deposit Escrow Agreement to extend the date of the second installment of the deposit to May 15, 2003 and the Outside Closing Date to September 30, 2003.
On June 6, 2003, the Partnership entered into a third side letter amending the asset purchase agreement providing for the sale of all of its cable systems to Telecommunications Management. The June 6, 2003 side letter amends the asset purchase agreement to reduce the purchase price of the remaining cable systems in the Selling Partnerships to approximately $14,487,200, subject to closing sale price adjustments, of which approximately $3,052,800 relates to the remaining cable system in the Partnership. In addition, $250,000 was deposited in the Deposit Escrow Account concurrent with the execution of the side letter.
The Partnership finalized its proposed plan of liquidation in December 2002 in connection with the filing of a proxy to obtain partner approval for the sale of the PBD Joint Venture's final cable system and the subsequent liquidation and dissolution of the PBD Joint Venture and the Partnership. In April 2003, the required number of votes necessary to implement the plan of liquidation were obtained. As a result, the Partnership changed its basis of accounting to the liquidation basis as of December 31, 2002. Upon changing to the liquidation basis of accounting, the Partnership recorded $25,000 of accrued costs of liquidation in accounts payable and accrued liabilities representing an estimate of the costs to be incurred after the sale of the PBD Joint Venture's final cable system but prior to dissolution of the Partnership. In addition, the Partnership's equity in net assets of the PBD Joint Venture decreased by $15,300 as a result of the accrued costs of liquidation recorded at the PBD Joint Venture. No further adjustments have been recorded to reflect the Partnership's equity in net assets of the PBD Joint Venture at estimated realizable value. Distributions ultimately made to the partners upon liquidation will differ from the net assets in liquidation recorded in the accompanying statements of net assets in liquidation of the Partnership as a result of adjustments recorded to the realizable value of the assets of the PBD Joint Venture and adjustments if any to estimated costs of liquidation. No adjustments were made to estimated costs of liquidation during the three and six months ended June 30, 2003.
The Corporate General Partner's intention is to settle the outstanding obligations of the Partnership and terminate the Partnership as expeditiously as possible. Final dissolution of the Partnership and related cash distributions to the partners will occur upon obtaining final resolution of all liquidation issues.
CERTAIN TRENDS AND UNCERTAINTIES
Insurance coverage is maintained for all of the cable television properties owned or managed by Charter to cover damage to cable distribution systems, customer 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 Charter, including those of the Joint Venture.
All of the PBD Joint Venture's customers from continuing operations are served by its system in Dexter, Missouri, and neighboring communities. Significant damage to this system due to seasonal weather conditions or other events could have a material adverse effect on the Joint Venture's liquidity and cash flows. The PBD Joint Venture continues to purchase insurance coverage in amounts its management views as appropriate for all other property, liability, automobile, workers' compensation and other insurable risks.
As disclosed in Charter's Quarterly Report on Form 10-Q, the parent of our Corporate General Partner and our Manager is the defendant in twenty-two class action and shareholder lawsuits and is the subject of a grand jury investigation being conducted by the United States Attorney's Office for the Eastern District of Missouri and an SEC investigation. The United States Attorney's office has publicly stated that Charter is not currently a target of the investigation. Charter has also been advised by the United States Attorney's office that no member of its board of directors, including its Chief Executive Officer, is a target of the investigation. On July 24, 2003, a federal grand jury charged four former officers of Charter with conspiracy and mail and wire fraud, alleging improper accounting and reporting practices focusing on revenue from digital set-top terminal suppliers and inflated subscriber account numbers. On July 25, 2003, one of the former officers who was indicted entered a guilty plea. Charter has informed the Corporate General partner that they are fully cooperating with the investigation.
Charter is unable to predict the outcome of the class action lawsuits and government investigations at this time. An unfavorable outcome of these matters could have a material adverse effect on Charter's results of operations and financial condition which could in turn have a material adverse effect on us.
It is difficult to assess the impact that the general economic slowdown will have on future operations. This could result in reduced spending by customers and advertisers, which could reduce the Joint Venture's revenues and operating cash flow as well as the collectibility of accounts receivable.
INFLATION
Certain of our expenses, including the Joint Venture, such as those for wages and benefits, equipment repair and replacement, and billing and marketing generally increase with inflation. However, the Joint Ventures do not believe that their financial results have been, or will be, adversely affected by inflation in a material manner, provided that the Joint Venture is able to increase our service prices periodically, of which there can be no assurance.
RECENTLY ISSUED ACCOUNTING STANDARDS
In April of 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 will not have an impact on our financial condition or results of operations.
In May of 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity." SFAS No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 will not have an impact on our financial condition or results of operations.
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, our Corporate General Partner, including our Chief Administrative Officer and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures with respect to the information generated for use in this Quarterly Report. The evaluation was based in part upon reports and affidavits provided by a number of executives. Based upon, and as of the date of that evaluation, our Chief Administrative Officer and Principal Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurances that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms.
There was no change in our internal control over financial reporting during the quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon the above evaluation, we believe that our controls do provide such reasonable assurances.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
SALES PROPOSAL. The holders of limited partnership units voted to approve the sale of the PBD Joint Venture's remaining cable system and the subsequent liquidation and dissolution of the PBD Joint Venture and the Partnership to Telecommunications Management, LLC.
The voting results to approve the sale are:
|
FOR |
|
AGAINST |
|
ABSTAIN |
|
|
|
|
|
|
|
22,302 |
|
821 |
|
164 |
The voting results to approve the plan to liquidate the PBD Joint Venture and Partnership are:
|
FOR |
|
AGAINST |
|
ABSTAIN |
|
|
|
|
|
|
|
22,310 |
|
813 |
|
164 |
There are 39,982 shares outstanding with 1,251 total holders. 625 total holders voted on this matter. The proxy process expired on May 16, 2003.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
|
Exhibit Number |
Description of Document |
|
|
|
|
2.1a |
Asset Purchase Agreement, dated November 8, 2002, by and among Telecommunications Management, LLC and Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar VII, L.P., Enstar VIII, L.P., Enstar X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and Enstar Cable of Cumberland Valley (Incorporated by reference to Exhibit 2.1 to the quarterly report of Form 10-Q of Enstar Income Program II-2, L.P. filed on November 12, 2002 (File No. 000-14505)). |
|
2.1b |
Letter of Amendment, dated as of February 6, 2003, between Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and Enstar Cable of Cumberland Valley and Telecommunications Management, LLC (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K of Enstar Income/Growth Program Five-A, L.P. filed on February 14, 2003 (File No. 000-16779)). |
|
2.1c |
Letter of Amendment, dated as of April 24, 2003, between Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and Enstar Cable of Cumberland Valley and Telecommunications Management, LLC (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K of Enstar Income/Growth Program Five-A, L.P. filed on April 25, 2003 (File No. 000-16779)). |
|
2.1d |
Letter of Amendment, dated as of November 8, 2002, between Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and Enstar Cable of Cumberland Valley and Telecommunications Management, LLC (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K of Enstar Income/Growth Program Five-A, L.P. filed on May 9, 2003 (File No. 000-16779)). |
|
31.1 |
Certificate of Chief Administrative Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. * |
|
31.2 |
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. * |
|
32.1 |
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Administrative Officer). * |
|
32.2 |
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Financial Officer). * |
* filed herewith
On April 25, 2003 the registrant filed a current report on Form 8-K dated April 24, 2003 to announce it had entered into a side letter amending an asset purchase agreement.
On June 9, 2003 the registrant filed a current report on Form 8-K dated November 8, 2002 to announce it had entered into a side letter amending an asset purchase agreement.
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-1, L.P.
By: ENSTAR COMMUNICATIONS CORPORATION
Corporate General Partner
Date: August 14, 2003
By: /s/ Paul E. Martin
Name: Paul E. Martin
Title: Senior Vice President and Corporate
Controller (Principal Financial Officer and
Principal Accounting Officer)
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Exhibit Number |
Description of Document |
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2.1a |
Asset Purchase Agreement, dated November 8, 2002, by and among Telecommunications Management, LLC and Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar VII, L.P., Enstar VIII, L.P., Enstar X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and Enstar Cable of Cumberland Valley (Incorporated by reference to Exhibit 2.1 to the quarterly report of Form 10-Q of Enstar Income Program II-2, L.P. filed on November 12, 2002 (File No. 000-14505)). |
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2.1b |
Letter of Amendment, dated as of February 6, 2003, between Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and Enstar Cable of Cumberland Valley and Telecommunications Management, LLC (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K of Enstar Income/Growth Program Five-A, L.P. filed on February 14, 2003 (File No. 000-16779)). |
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2.1c |
Letter of Amendment, dated as of April 24, 2003, between Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and Enstar Cable of Cumberland Valley and Telecommunications Management, LLC (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K of Enstar Income/Growth Program Five-A, L.P. filed on April 25, 2003 (File No. 000-16779)). |
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2.1d |
Letter of Amendment, dated as of November 8, 2002, between Enstar Income Program II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth Program Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and Enstar Cable of Cumberland Valley and Telecommunications Management, LLC (Incorporated by reference to Exhibit 2.1 to the current report on Form 8-K of Enstar Income/Growth Program Five-A, L.P. filed on May 9, 2003 (File No. 000-16779)). |
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31.1 |
Certificate of Chief Administrative Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. * |
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31.2 |
Certificate of Chief Financial Officer pursuant to Rule 13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of 1934. * |
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32.1 |
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Administrative Officer). * |
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32.2 |
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Principal Financial Officer). * |
* filed herewith