<PAGE> 1
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, 1997
-------------------------
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 0-15686
----------
Enstar Income Program IV-3, L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1648320
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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> 2
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED BALANCE SHEETS
========================================
<TABLE>
<CAPTION>
December 31, June 30,
1996* 1997
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 450,900 $ 768,200
Accounts receivable, less allowance of $4,500 and
$3,900 for possible losses 61,800 23,900
Prepaid expenses and other assets 25,900 29,800
Equity in net assets of Joint Venture 601,700 645,400
Property, plant and equipment, less accumulated
depreciation and amortization of $4,087,200 and $4,217,800 1,642,100 1,606,100
Franchise cost, net of accumulated
amortization of $1,850,500 and $1,944,700 714,300 620,100
Deferred loan costs and other, net 7,600 7,100
----------- -----------
$ 3,504,300 $ 3,700,600
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 222,000 $ 188,600
Due to affiliates 158,300 217,900
----------- -----------
TOTAL LIABILITIES 380,300 406,500
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (52,000) (50,300)
Limited partners 3,176,000 3,344,400
----------- -----------
TOTAL PARTNERSHIP CAPITAL 3,124,000 3,294,100
----------- -----------
$ 3,504,300 $ 3,700,600
=========== ===========
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE> 3
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==========================================
<TABLE>
<CAPTION>
Unaudited
---------------------------
Three months ended
June 30,
---------------------------
1996 1997
--------- ---------
<S> <C> <C>
REVENUES $ 599,500 $ 660,400
--------- ---------
OPERATING EXPENSES:
Service costs 204,300 217,200
General and administrative expenses 108,800 105,300
General Partner management fees
and reimbursed expenses 81,700 82,900
Depreciation and amortization 186,800 109,200
--------- ---------
581,600 514,600
--------- ---------
OPERATING INCOME 17,900 145,800
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 6,300 8,300
Interest expense (5,300) (3,600)
Gain on sale of assets 1,000 45,000
--------- ---------
2,000 49,700
--------- ---------
INCOME BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE 19,900 195,500
EQUITY IN NET INCOME
OF JOINT VENTURE 18,600 20,400
--------- ---------
NET INCOME $ 38,500 $ 215,900
========= =========
Net income allocated to General Partners $ 400 $ 2,200
========= =========
Net income allocated to Limited Partners $ 38,100 $ 213,700
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 0.96 $ 5.36
========= =========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,900 39,900
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE> 4
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==========================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------
Six months ended
June 30,
-------------------------------
1996 1997
----------- -----------
<S> <C> <C>
REVENUES $ 1,183,800 $ 1,326,200
----------- -----------
OPERATING EXPENSES:
Service costs 391,300 419,300
General and administrative expenses 204,600 182,500
General Partner management fees
and reimbursed expenses 153,000 163,700
Depreciation and amortization 363,900 251,300
----------- -----------
1,112,800 1,016,800
----------- -----------
OPERATING INCOME 71,000 309,400
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 13,300 14,200
Interest expense (14,400) (5,300)
Gain on sale of assets 1,000 45,000
----------- -----------
(100) 53,900
----------- -----------
INCOME BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE 70,900 363,300
EQUITY IN NET INCOME
OF JOINT VENTURE 37,400 58,700
----------- -----------
NET INCOME $ 108,300 $ 422,000
=========== ===========
Net income allocated to General Partners $ 1,100 $ 4,200
=========== ===========
Net income allocated to Limited Partners $ 107,200 $ 417,800
=========== ===========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 2.69 $ 10.47
=========== ===========
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,900 39,900
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE> 5
ENSTAR INCOME PROGRAM IV-3, L.P.
STATEMENTS OF CASH FLOWS
========================================
<TABLE>
<CAPTION>
Unaudited
---------------------------
Six months ended
June 30,
---------------------------
1996 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 108,300 $ 422,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Joint Venture (37,400) (58,700)
Depreciation and amortization 363,900 251,300
Amortization of deferred loan costs 5,500 --
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other assets (1,800) 34,000
Accounts payable and due to affiliates (283,100) 26,200
--------- ---------
Net cash provided by operating activities 155,400 674,800
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (169,800) (114,900)
Increase in intangible assets (6,500) (5,700)
Distributions from Joint Venture 350,000 15,000
--------- ---------
Net cash provided by (used in) investing activities 173,700 (105,600)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt (383,200) --
Distributions to partners (251,900) (251,900)
--------- ---------
Net cash used in financing activities (635,100) (251,900)
--------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (306,000) 317,300
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 942,400 450,900
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 636,400 $ 768,200
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE> 6
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the three
and six months ended June 30, 1997 and 1996 are unaudited. These condensed
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Partnership's latest
Annual Report on Form 10-K. In the opinion of management, such statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of such periods. The results of
operations for the three and six months ended June 30, 1997 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 with a
wholly-owned subsidiary of the Corporate General Partner (the "Manager") for a
monthly management fee of 5% of revenues, excluding revenues from the sale of
cable television systems or franchises. Management fee expense approximated
$33,000 and $66,300 for the three and six months ended June 30, 1997.
In addition to the monthly management fees described above, the
Partnership reimburses the Manager for direct expenses incurred on behalf of the
Partnership and for the Partnership's allocable share of operational costs
associated with services provided by the Manager. All cable television
properties managed by the Corporate General Partner and its subsidiary are
charged a proportionate share of these expenses. Corporate office allocations
and district office expenses are charged to the properties served based
primarily on the respective percentage of basic subscribers or homes passed
(dwelling units within a system) within the designated service areas. The total
amount charged to the Partnership for these services approximated $49,900 and
$97,400 for the three and six months ended June 30, 1997.
The Manager has entered into an identical agreement with Enstar Cable
of Macoupin County, a Georgia general partnership, of which the Partnership is a
co-partner (the "Joint Venture"), except that the Joint Venture pays the Manager
only a 4% management fee. However, the Joint Venture is required to distribute
to Enstar Communications Corporation (which is the Corporate General Partner of
the 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 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 Venture, and there is no duplication of reimbursed expenses or
costs of the Manager. The Joint Venture paid the Manager management fees of
approximately $19,700 and $39,000 and reimbursement of expenses of approximately
$48,700 and $95,800 under its management agreement for the three and six months
ended June 30, 1997. In addition, the Joint Venture paid the Corporate General
Partner approximately $4,900 and $9,700 in respect of its 1% special interest
during the three and six months ended June 30, 1997. Management fees and
reimbursed expenses due the Corporate General Partner are non-interest bearing.
-6-
<PAGE> 7
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
=======================================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONCLUDED)
The Partnership and the Joint Venture 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 Partnership's and Joint Venture's cable systems. The
Partnership and the Joint Venture reimburse the affiliate for their allocable
share of the affiliate's operational costs. The total amount charged to the
Partnership and the Joint Venture approximated $9,400 and $18,000 for the three
and six months ended June 30, 1997. No management fee is payable to the
affiliate by the Partnership and the Joint Venture and there is no duplication
of reimbursed expenses and costs paid to the Manager.
Certain programming services have been purchased through an affiliate
of the Partnership and the Joint Venture. In turn, the affiliate charges the
Partnership and the Joint Venture for these costs based on an estimate of what
the Corporate General Partner could negotiate for such programming services for
the 15 partnerships managed by the Corporate General Partner as a group. The
Partnership and the Joint Venture recorded programming fee expense of $261,100
and $515,500 for the three and six months ended June 30, 1997. Programming fees
are included in service costs in the statements of operations.
3. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is based
on the average number of units outstanding during the periods presented. For
this purpose, earnings and losses have been allocated 99% to the Limited
Partners and 1% to the General Partners. The General Partners do not own units
of partnership interest in the Partnership, but rather hold a participation
interest in the income, losses and distributions of the Partnership.
-7-
<PAGE> 8
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(CONTINUED)
=======================================
5. EQUITY IN NET ASSETS OF JOINT VENTURE
Each of the Partnership and two affiliated partnerships (Enstar Income
Program IV-1, L.P. and Enstar Income Program IV-2, L.P.) owns one third (1/3) of
the Joint Venture. Each of the co-partners shares equally in the profits and
losses of the Joint Venture. The investment in the Joint Venture is accounted
for on the equity method. Summarized financial information for the Joint Venture
as of June 30, 1997 and December 31, 1996, and the results of its operations for
the three and six months ended June 30, 1997 and 1996, have been included. The
results of operations for the three and six months ended June 30, 1997 are not
necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, June 30,
1996* 1997
------------ ----------
(Unaudited)
<S> <C> <C>
Current assets $ 528,400 $ 860,500
Investment in cable television
properties, net 1,550,400 1,425,000
Other assets 5,600 4,300
---------- ----------
$2,084,400 $2,289,800
========== ==========
Current liabilities $ 279,300 $ 353,600
Venturers' capital 1,805,100 1,936,200
---------- ----------
$2,084,400 $2,289,800
========== ==========
</TABLE>
*As presented in the audited financial statements.
-8-
<PAGE> 9
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(CONCLUDED)
=======================================
5. EQUITY IN NET ASSETS OF JOINT VENTURE (CONCLUDED)
<TABLE>
<CAPTION>
Unaudited
---------------------------
Three months ended
June 30,
---------------------------
1996 1997
--------- ---------
<S> <C> <C>
REVENUES $ 444,800 $ 492,700
--------- ---------
OPERATING EXPENSES:
Service costs 142,100 139,400
General and administrative expenses 35,000 45,100
General Partner management fees and reimbursed expenses 60,500 73,300
Depreciation and amortization 153,200 179,200
--------- ---------
390,800 437,000
--------- ---------
OPERATING INCOME 54,000 55,700
OTHER INCOME (EXPENSE):
Interest income 3,700 8,400
Interest expense (2,700) (3,000)
Gain on sale of assets 600 --
--------- ---------
NET INCOME $ 55,600 $ 61,100
========= =========
</TABLE>
<TABLE>
<CAPTION>
Unaudited
---------------------------
Six months ended
June 30,
---------------------------
1996 1997
--------- ---------
<S> <C> <C>
REVENUES $ 870,000 $ 974,300
--------- ---------
OPERATING EXPENSES:
Service costs 271,700 269,400
General and administrative expenses 76,300 59,200
General Partner management fees and reimbursed expenses 114,800 144,500
Depreciation and amortization 305,000 333,800
--------- ---------
767,800 806,900
--------- ---------
OPERATING INCOME 102,200 167,400
OTHER INCOME (EXPENSE):
Interest income 13,100 14,100
Interest expense (3,800) (5,400)
Gain on sale of assets 600 --
--------- ---------
NET INCOME $ 112,100 $ 176,100
========= =========
</TABLE>
-9-
<PAGE> 10
ENSTAR INCOME PROGRAM IV-3, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
On February 8, 1996, President Clinton signed into law the
Telecommunications Act of 1996 (the "1996 Telecom Act"). This statute
substantially changed the competitive and regulatory environment for
telecommunications providers by significantly amending the Communications Act of
1934, including certain of the rate regulation provisions previously imposed by
the Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Cable Act"). Compliance with those rate regulations has had a negative impact on
the Partnership's revenues and cash flow. The 1996 Telecom Act provides that
certain of the rate regulations will be phased out altogether in 1999. Further,
the regulatory environment will continue to change pending, among other things,
the outcome of legal challenges and Federal Communications Commission (the
"FCC") rulemaking and enforcement activity in respect of the 1992 Cable Act and
the 1996 Telecom Act. 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, 1996 for additional information regarding
such matters and the effect thereof on the Partnership's business.
The Partnership conducts its cable television business operations both
(i) through the direct ownership and operation of certain cable television
systems and (ii) through its participation as a partner with a one-third (1/3)
interest in Enstar Cable of Macoupin County. The Partnership participates
equally with its two affiliated co-partners under the Joint Venture's
partnership agreement with respect to capital contributions, obligations and
commitments and results of operations. Accordingly, in considering the financial
condition and results of operations for the Partnership, consideration must also
be made of those matters as they relate to the Joint Venture. 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's revenues increased from $599,500 to $660,400, or by
10.2%, and from $1,183,800 to $1,326,200, or by 12.0%, for the three and six
months ended June 30, 1997 as compared to the corresponding periods in 1996. Of
the $60,900 increase in revenues for the three months ended June 30, 1997 as
compared to the corresponding period in 1996, $43,300 was due to increases in
regulated service rates
-10-
<PAGE> 11
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
that were implemented by the Partnership in the second and fourth quarters of
1996, $18,300 was due to the restructuring of The Disney Channel from a premium
channel to a tier channel effective July 1, 1996 and $3,400 was due to increases
in other revenue producing items. These increases were partially offset by a
$4,100 decrease in revenues due to decreases in the number of subscriptions for
services, primarily premium services. Of the $142,400 increase in revenues for
the six months ended June 30, 1997 as compared to the corresponding period in
1996, $100,200 was due to increases in regulated service rates, $36,000 was due
to the restructuring of The Disney Channel and $7,100 was due to increases in
other revenue producing items. These increases were partially offset by a $900
decrease in revenues due to decreases in the number of subscriptions for premium
and tier services. As of June 30, 1997, the Partnership had approximately 6,200
homes subscribing to cable service and 1,800 premium service units.
Service costs increased from $204,300 to $217,200, or by 6.3%, and from
$391,300 to $419,300, or by 7.2%, for the three and six months ended June 30,
1997 as compared to the corresponding periods in 1996. Service costs represent
costs directly attributable to providing cable services to customers.
Programming expense accounted for the majority of the increase in both periods.
Programming expense increased primarily as a result of higher rates charged by
program suppliers.
General and administrative expenses decreased from $108,800 to
$105,300, or by 3.2%, and from $204,600 to $182,500, or by 10.8%, for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996. The decreases were primarily due to lower insurance premiums.
Management fees and reimbursed expenses increased from $81,700 to
$82,900, or by 1.5%, and from $153,000 to $163,700, or by 7.0%, for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996. Management fees increased in direct relation to increased revenues as
described above. Partially offsetting the increase in management fees,
reimbursed expenses decreased for the three months ended June 30, 1997 due to
lower allocated telephone and marketing expenses. Reimbursed expenses increased
for the six months ended June 30, 1997, primarily due to higher allocated
personnel costs resulting from staff additions and wage increases.
Operating income before income taxes, depreciation and amortization
(EBITDA) is a commonly used financial analysis tool for measuring and comparing
cable television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA as a percentage of revenues increased from
34.1% to 38.6% and from 36.7% to 42.3% for the three and six months ended June
30, 1997 as compared to the corresponding periods in 1996. The change was
primarily due to increased revenues. EBITDA increased from $204,700 to $255,000,
or by 24.6%, and from $434,900 to $560,700, or by 28.9%, for the three and six
months ended June 30, 1997 as compared to the corresponding periods in 1996.
EBITDA should be considered in addition to and not as a substitute for net
income and cash flows determined in accordance with generally accepted
accounting principles as an indicator of financial performance and liquidity.
Depreciation and amortization expense decreased from $186,800 to
$109,200, or by 41.5%, and from $363,900 to $251,300, or by 30.9%, for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996, due to certain tangible assets becoming fully depreciated and certain
intangible assets becoming fully amortized.
-11-
<PAGE> 12
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Operating income increased from $17,900 to $145,800 and from $71,000 to
$309,400 for the three and six months ended June 30, 1997 as compared to the
corresponding periods in 1996, primarily due to increased revenues and decreased
depreciation and amortization as described above.
Interest income increased from $6,300 to $8,300, or by 31.7%, and from
$13,300 to $14,200, or by 6.8%, for the three and six months ended June 30, 1997
as compared to the corresponding periods in 1996, due to higher average cash
balances available for investment.
Interest expense decreased from $5,300 to $3,600, or by 32.1%, and from
$14,400 to $5,300, or by 63.2%, for the three and six months ended June 30, 1997
as compared to the corresponding periods in 1996, due to the repayment of the
Partnership's note payable in February 1996.
Gain on sale of assets increased from $1,000 to $45,000 for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996, due to the sale of a building owned by the Partnership.
Due to the factors described above, the Partnership's net income
increased from $38,500 to $215,900 and from $108,300 to $422,000 for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996.
DISTRIBUTIONS TO PARTNERS
The Partnership distributed $126,000 and $251,900 to its partners
during the three and six months ended June 30, 1997, respectively. The Joint
Venture distributed $10,000 and $15,000 to the Partnership during the three and
six months ended June 30, 1997, respectively.
THE MACOUPIN JOINT VENTURE
The Macoupin Joint Venture's revenues increased from $444,800 to
$492,700, or by 10.8%, and from $870,000 to $974,300, or by 12.0%, for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996. Of the $47,900 increase in revenues for the three months ended June
30,1997 as compared to the corresponding period in 1996, $40,800 was due to
increases in regulated service rates that were implemented by the Joint Venture
in the second and fourth quarters of 1996, $13,000 was due to the restructuring
of The Disney Channel from a premium channel to a tier channel effective July 1,
1996 and $1,600 was due to increases in other revenue producing items. These
increases were partially offset by a $7,500 decrease in revenues due to
decreases in the number of subscriptions for premium services. Of the $104,300
increase in revenues for the six months ended June 30,1997 as compared to the
corresponding period in 1996, $85,700 was due to increases in regulated service
rates, $25,500 was due to the restructuring of The Disney Channel and $5,900 was
due to increases in other revenue producing items. These increases were
partially offset by a $12,800 decrease in revenues due to decreases in the
number of subscriptions for premium services. As of June 30, 1997, the Macoupin
Joint Venture had approximately 4,500 homes subscribing to cable service and
1,600 premium service units.
-12-
<PAGE> 13
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs decreased from $142,100 to $139,400, or by 1.9%, for the
three months and remained relatively unchanged, decreasing from $271,700 to
$269,400 (less than one percent), for the six months ended June 30, 1997 as
compared to the corresponding periods in 1996. Service costs represent costs
directly attributable to providing cable services to customers.
The decrease was primarily due to lower personnel costs.
General and administrative expenses increased from $35,000 to $45,100,
or by 28.9%, for the quarter ended June 30, 1997 and decreased from $76,300 to
$59,200, or by 22.4%, for the six months ended June 30, 1997 as compared to the
corresponding periods in 1996. The increase in the quarter was primarily due to
an insurance premium adjustment and an increase in bad debt expense. The
decrease in the six months was primarily due to lower personnel costs.
Management fees and reimbursed expenses increased from $60,500 to
$73,300, or by 21.2%, and from $114,800 to $144,500, or by 25.9%, for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996. Management fees increased in direct relation to increased revenues as
described above. Reimbursed expenses increased primarily due to higher allocated
personnel costs resulting from staff additions and wage increases.
Operating income before income taxes, depreciation and amortization
(EBITDA) is a commonly used financial analysis tool for measuring and comparing
cable television companies in several areas, such as liquidity, operating
performance and leverage. EBITDA as a percentage of revenues increased from
46.6% to 47.7% and from 46.8% to 51.4% for the three and six months ended June
30, 1997 as compared to the corresponding periods in 1996. The change was
primarily due to increased revenues. EBITDA increased from $207,200 to $234,900,
or by 13.4%, and from $407,200 to $501,200, or by 23.1%, for the three and six
months ended June 30, 1997 as compared to the corresponding periods in 1996.
EBITDA should be considered in addition to and not as a substitute for net
income and cash flows determined in accordance with generally accepted
accounting principles as an indicator of financial performance and liquidity.
Depreciation and amortization expense increased from $153,200 to
$179,200, or by 17.0%, and from $305,000 to $333,800, or by 9.4%, for the three
and six months ended June 30, 1997 as compared to the corresponding periods in
1996, due to asset additions related to the upgrade of the Joint Venture's
plant.
Operating income increased from $54,000 to $55,700, or by 3.1%, and
from $102,200 to $167,400, or by 63.8%, for the three and six months ended June
30, 1997 as compared to the corresponding periods in 1996, primarily due to
increased revenues as described above.
Interest income, net of interest expense, increased from $1,000 to
$5,400 for the quarter ended June 30, 1997 and decreased from $9,300 to $8,700
for the six months ended June 30, 1997 as compared to the corresponding periods
in 1996. The increase for the quarter was due to higher average cash balances
available for investment in 1997 while additional interest expense incurred in
the six months ended June 30, 1997 offset increases in interest income for the
period.
-13-
<PAGE> 14
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONCLUDED)
Due to the factors described above, the Joint Venture's net income
increased from $55,600 to $61,100, or by 9.9%, and from $112,100 to $176,100, or
by 57.1%, for the three and six months ended June 30, 1997 as compared to the
corresponding periods in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net offering
proceeds in cable systems and the Joint Venture, is to distribute to its
partners all available cash flow from operations and proceeds from the sale of
cable systems, if any, after providing for expenses, debt service and capital
requirements relating to the expansion, improvement and upgrade of its cable
systems. The Partnership relies upon the availability of cash generated from
operations and possible borrowings to fund its ongoing expenses and capital
requirements. In general, these requirements involve expansion, improvement and
upgrade of the Partnership's existing cable television systems.
In March, the Partnership completed the initial construction phase of
the franchise-required rebuild of its Shelbyville, Illinois cable system and the
rebuild of its cable systems in surrounding communities. However, completion of
the entire project and the introduction of addressability will be delayed until
completion of rebuild projects in other nearby communities that involve
consolidating the Shelbyville headend. Rebuild expenditures totaled $73,100 in
the first six months of 1997. Total rebuild costs are expected to approximate
$419,000 in 1997.
Additionally, the Joint Venture is required to rebuild its Auburn,
Illinois cable system as a condition of its franchise agreement. Construction
began in July 1996 and is expected to be completed in the second half of 1997.
Capital expenditures related to the rebuild approximated $226,000 in 1996, with
additional construction costs of $153,000 projected for 1997. The Joint Venture
is also rebuilding portions of its cable systems in surrounding communities at
an estimated total additional cost of approximately $770,000, which includes
budgeted expenditures of approximately $310,000 in 1997 to complete the project.
Rebuild construction costs totaled approximately $184,000 in the six months
ended June 30, 1997. The Partnership and the Joint Venture have also budgeted
$285,200 and $217,700, respectively, to upgrade other assets in 1997. Management
believes that existing cash and cash generated by operations of the Partnership
and Joint Venture will be adequate to fund capital expenditures and the
continued payment of distributions in 1997.
The Partnership paid distributions totaling $126,000 and $251,900
during the three and six months ended June 30, 1997, respectively. However,
there can be no assurances regarding the level, timing or continuation of future
distributions.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
Operating activities provided $519,400 more cash during the six months
ended June 30, 1997 than in the corresponding period in 1996. The Partnership
used $309,300 less cash to pay liabilities owed to the Corporate General Partner
and third-party creditors due to timing differences of payments in the first
half of 1997 as compared with the prior year period. Partnership operations
generated $174,300 more cash in the six months ended June 30, 1997 after adding
back non-cash items consisting of depreciation and amortization
-14-
<PAGE> 15
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONCLUDED)
and equity in net income of Joint Venture. Changes in accounts receivable,
prepaid expenses and other assets provided $35,800 more cash in the six months
ended June 30, 1997 than in the corresponding prior year period, due to the
timing of receivable collections and the payment of prepaid expenses.
Investing activities used net cash of $105,600 in the six months ended
June 30, 1997 as compared with the prior year period when investing activities
provided net cash totaling $173,700. The change was primarily due to a $335,000
decrease in distributions received from the Joint Venture, partially offset by a
decrease of $54,900 in capital expenditures and an $800 decrease in expenditures
for intangible assets. The Partnership used $383,200 less cash in financing
activities during the first six months of 1997 as compared to the corresponding
1996 period due to the repayment of its note payable in February 1996.
INFLATION
Certain of the Partnership's and Joint Venture's 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.
-15-
<PAGE> 16
ENSTAR INCOME PROGRAM IV-3, L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) None
(b) No reports on Form 8-K were filed during the
quarter for which this Report is filed.
<PAGE> 17
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-3, L.P.
a GEORGIA LIMITED PARTNERSHIP
-----------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: August 12, 1997 By: /s/ Michael K. Menerey
----------------------------
Michael K. Menerey,
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT JUNE 30, 1997, AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 768,200
<SECURITIES> 0
<RECEIVABLES> 27,800
<ALLOWANCES> 3,900
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,823,900
<DEPRECIATION> 4,217,800
<TOTAL-ASSETS> 3,700,600
<CURRENT-LIABILITIES> 406,500
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,700,600
<SALES> 0
<TOTAL-REVENUES> 1,326,200
<CGS> 0
<TOTAL-COSTS> 1,016,800
<OTHER-EXPENSES> (59,200)
<LOSS-PROVISION> 22,300
<INTEREST-EXPENSE> 5,300
<INCOME-PRETAX> 422,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 422,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 422,000
<EPS-PRIMARY> 10.47
<EPS-DILUTED> 0
</TABLE>