<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 March 31, 1998
-------------------------------
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, March 31,
1997* 1998
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 788,300 $ 566,200
Accounts receivable, less allowance of $5,100 and
$1,900 for possible losses 26,100 10,700
Prepaid expenses and other assets 155,100 171,100
Equity in net assets of Joint Venture 708,600 749,800
Property, plant and equipment, less accumulated
depreciation and amortization of $4,350,900 and $4,429,000 1,897,300 1,811,000
Franchise cost, net of accumulated
amortization of $2,039,000 and $2,086,200 533,000 485,800
Deferred charges, net 4,900 4,600
----------- -----------
$ 4,113,300 $ 3,799,200
=========== ===========
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 543,400 $ 168,300
Due to affiliates 177,700 173,500
----------- -----------
TOTAL LIABILITIES 721,100 341,800
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (49,300) (48,700)
Limited partners 3,441,500 3,506,100
----------- -----------
TOTAL PARTNERSHIP CAPITAL 3,392,200 3,457,400
----------- -----------
$ 4,113,300 $ 3,799,200
=========== ===========
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
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<PAGE> 3
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED STATEMENTS OF OPERATIONS
==================================
<TABLE>
<CAPTION>
Unaudited
----------------------------
Three months ended
March 31,
----------------------------
1997 1998
--------- ---------
<S> <C> <C>
REVENUES $ 665,800 $ 668,800
--------- ---------
OPERATING EXPENSES:
Service costs 202,100 216,100
General and administrative expenses 77,200 82,500
General Partner management fees
and reimbursed expenses 80,800 89,900
Depreciation and amortization 142,100 133,400
--------- ---------
502,200 521,900
--------- ---------
OPERATING INCOME 163,600 146,900
--------- ---------
OTHER INCOME (EXPENSE):
Interest income 5,900 6,500
Interest expense (1,700) (3,500)
--------- ---------
4,200 3,000
--------- ---------
INCOME BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE 167,800 149,900
EQUITY IN NET INCOME OF JOINT VENTURE
38,300 41,200
--------- ---------
NET INCOME $ 206,100 $ 191,100
========= =========
Net income allocated to General Partners $ 2,100 $ 1,900
========= =========
Net income allocated to Limited Partners $ 204,000 $ 189,200
========= =========
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 5.11 $ 4.74
========= =========
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.
STATEMENTS OF CASH FLOWS
================================
<TABLE>
<CAPTION>
Unaudited
----------------------------
Three months ended
March 31,
----------------------------
1997 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 206,100 $ 191,100
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Joint Venture (38,300) (41,200)
Depreciation and amortization 142,100 133,400
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other assets 3,600 (600)
Accounts payable and due to affiliates 42,700 (379,300)
--------- ---------
Net cash provided by (used in) operating activities 356,200 (96,600)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (49,200) 2,000
Increase in intangible assets (3,100) (1,600)
Distributions from Joint Venture 5,000 --
--------- ---------
Net cash provided by (used in) investing activities (47,300) 400
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (125,900) (125,900)
--------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 183,000 (222,100)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 450,900 788,300
--------- ---------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 633,900 $ 566,200
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE> 5
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 months ended March 31, 1998 and 1997 are unaudited. These condensed
interim financial statements should be read in conjunction with the audited
financial statements and notes thereto included in the Partnership's latest
Annual Report on Form 10-K. In the opinion of management, such statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the results of such periods. The results of
operations for the three months ended March 31, 1998 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
$33,400 for the three months ended March 31, 1998.
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. The Corporate General Partner
has contracted with Falcon Holding Group, L.P. ("FHGLP"), an affiliated
partnership, to provide corporate management services for the Partnership.
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 $56,500 for the three months ended March 31, 1998.
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 $19,800 and reimbursement of
expenses of approximately $51,300 under its management agreement for the three
months ended March 31, 1998. In addition, the Joint Venture paid the Corporate
General Partner approximately $5,000 in respect of its 1% special interest
during the three months ended March 31, 1998. Management fees and reimbursed
expenses due the Corporate General Partner are non-interest bearing.
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<PAGE> 6
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
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 $2,200 for the three months ended
March 31, 1998. 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 $267,600 for the three months ended March 31, 1998.
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.
4. RECLASSIFICATIONS
Certain 1997 amounts have been reclassified to conform to the 1998
presentation.
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<PAGE> 7
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
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 March 31, 1998 and December 31, 1997, and the results of its
operations for the three months ended March 31, 1998 and 1997, have been
included. The results of operations for the three months ended March 31, 1998
are not necessarily indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, March 31,
1997* 1998
------------ ----------
(Unaudited)
<S> <C> <C>
Current assets $ 893,900 $ 858,700
Investment in cable television properties, net 1,667,100 1,639,100
Other assets 3,000 3,200
---------- ----------
$2,564,000 $2,501,000
========== ==========
Current liabilities $ 438,200 $ 251,700
Venturers' capital 2,125,800 2,249,300
---------- ----------
$2,564,000 $2,501,000
========== ==========
</TABLE>
*As presented in the audited financial statements.
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<PAGE> 8
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
=======================================
4. EQUITY IN NET ASSETS OF JOINT VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
----------------------------
Three months ended
March 31,
----------------------------
1997 1998
--------- ---------
<S> <C> <C>
REVENUES $ 481,600 $ 496,900
--------- ---------
OPERATING EXPENSES:
Service costs 130,000 161,300
General and administrative expenses 14,100 43,200
General Partner management fees and reimbursed expenses 71,200 76,100
Depreciation and amortization 154,600 94,800
--------- ---------
369,900 375,400
--------- ---------
OPERATING INCOME 111,700 121,500
OTHER INCOME (EXPENSE):
Interest income 5,700 4,800
Interest expense (2,400) (2,800)
--------- ---------
NET INCOME $ 115,000 $ 123,500
========= =========
</TABLE>
-8-
<PAGE> 9
ENSTAR INCOME PROGRAM IV-3, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") required the Federal Communications Commission ("FCC")
to, among other things, implement extensive regulation of the rates charged by
cable television systems for basic and programming service tiers, installation,
and customer premises equipment leasing. Compliance with those rate regulations
has had a negative impact on the Partnership's revenues and cash flow. The
Telecommunications Act of 1996 (the "1996 Telecom Act") substantially changed
the competitive and regulatory environment for cable television and
telecommunications service providers. Among other changes, the 1996 Telecom Act
provides that the regulation of cable programming service tier ("CPST") rates
will be terminated on March 31, 1999. Because cable service rate increases have
continued to outpace inflation under the FCC's existing regulations, the
Partnership expects Congress and the FCC to explore additional methods of
regulating cable service rate increases, including deferral or repeal of the
March 31, 1999 termination of CPST rate regulation. 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, 1997 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 the Joint Venture. 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 $665,800 to $668,800, or
by less than one percent, for the three months ended March 31, 1998 as compared
to the corresponding period in 1997. Of the $3,000 increase, $32,000 was due to
increases in regulated service rates that were implemented by the Partnership in
-9-
<PAGE> 10
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
1997 and $6,000 was due to increases in other revenue producing items. These
increases were partially offset by a decrease of $35,000 due to decreases in the
number of subscriptions for basic, premium and tier services. As of March 31,
1998, the Partnership had approximately 6,000 basic subscribers and 1,600
premium service units.
Service costs increased from $202,100 to $216,100, or by 6.9%, for
the three months ended March 31, 1998 as compared to the corresponding period in
1997. Service costs represent costs directly attributable to providing cable
services to customers. The increase was due to increases in franchise fees and
programming expense. Programming expense increased primarily as a result of
higher rates charged by program suppliers and due to channel additions.
General and administrative expenses increased from $77,200 to
$82,500, or by 6.9%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. The increase for the quarter was primarily due
to increases in marketing expenses, certain insurance premiums and professional
fees.
Management fees and reimbursed expenses increased from $80,800 to
$89,900, or by 11.3%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. Management fees increased in direct relation
to increased revenues as described above. Reimbursed expenses increased 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 decreased from
45.9% to 41.9% for the three months ended March 31, 1998 as compared to the
corresponding period in 1997. The decrease for the quarter was primarily due to
increased reimbursed expenses and marketing expenses. EBITDA decreased from
$305,700 to $280,300, or by 8.3%, for the three months ended March 31, 1998 as
compared to the corresponding period in 1997. 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 $142,100 to
$133,400, or by 6.1%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997, due to certain plant assets becoming fully
depreciated.
Operating income decreased from $163,600 to $146,900, or by 10.2%,
for the three months ended March 31, 1998 as compared to the corresponding
period in 1997, primarily due to increased reimbursed expenses and marketing
related expenses as described above.
Interest income increased from $5,900 to $6,500, or by 10.2%, for
the three months ended March 31, 1998 as compared to the corresponding period in
1997, primarily due to higher average cash balances available for investment.
Due to the factors described above, the Partnership's net income
decreased from $206,100 to $191,100, or by 7.3%, for the three months ended
March 31, 1998 as compared to the corresponding period in 1997.
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<PAGE> 11
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
DISTRIBUTIONS TO PARTNERS
The Partnership distributed $125,900 to its partners during the
three months ended March 31, 1998. The Joint Venture did not make distributions
to the Partnership during the three months ended March 31, 1998.
THE MACOUPIN JOINT VENTURE
The Joint Venture's revenues increased from $481,600 to $496,900, or
by 3.2%, for the three months ended March 31, 1998 as compared to the
corresponding period in 1997. Of the $15,300 increase, $32,400 was due to
increases in regulated service rates that were implemented by the Joint Venture
in 1997 and $3,100 was due to increases in other revenue producing items. These
increases were partially offset by a decrease of $20,200 due to decreases in the
number of subscriptions for basic, premium and tier services. As of March 31,
1998, the Joint Venture had approximately 4,400 basic subscribers and 1,400
premium service units.
Service costs increased from $130,000 to $161,300, or by 24.1%, for
the three months ended March 31, 1998 as compared to the corresponding period in
1997. Service costs represent costs directly attributable to providing cable
services to customers. The increase was principally due to decreased
capitalization of labor and overhead costs due to fewer capital projects in the
1998 period and higher programming fees and personnel costs. Programming expense
increased as a result of higher rates charged by program suppliers. Personnel
costs increased due to staff additions.
General and administrative expenses increased from $14,100 to
$43,200 for the three months ended March 31, 1998 as compared to the
corresponding period in 1997. The increase was principally due to an increase of
$11,100 in bad debt expense and a decrease of $11,100 in capitalization of labor
and overhead costs resulting from reductions in rebuild construction activity in
the Auburn, Illinois franchise during the first quarter of 1998.
Management fees and reimbursed expenses increased from $71,200 to
$76,100, or by 6.9%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. Management fees increased in direct relation
to increased revenues as described above. Reimbursed expenses increased
primarily due to higher allocated personnel costs.
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 decreased from
55.3% to 43.5% for the three months ended March 31, 1998 as compared to the
corresponding period in 1997. The three months' decrease was primarily due to
lower capitalization of labor and overhead costs and higher bad debt expense as
described above. EBITDA decreased from $266,300 to $216,300, or by 18.8%, for
the three months ended March 31, 1998 as compared to the corresponding period in
1997. 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.
-11-
<PAGE> 12
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Depreciation and amortization expense decreased from $154,600 to
$94,800, or by 38.7%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. The decrease for the quarter was due to
certain intangible assets becoming fully amortized.
Operating income increased from $111,700 to $121,500, or by 8.8%,
for the three months ended March 31, 1998 as compared to the corresponding
period in 1997. The increase for the quarter was primarily due to increased
revenues and decreased depreciation and amortization expense.
Interest income, net of interest expense, decreased from $3,300 to
$2,000, or by 39.4%, for the three months ended March 31, 1998 as compared to
the corresponding period in 1997. The decrease was due to lower average cash
balances available for investment in 1998.
Due to the factors described above, the Joint Venture's net income
increased from $115,000 to $123,500, or by 7.4%, for the three months ended
March 31, 1998 as compared to the corresponding period in 1997.
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 and Joint Venture's existing cable television
systems.
In March 1997, 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 the 1998 completion of rebuild projects in other nearby
communities that involve consolidating the Shelbyville headend. Rebuild
expenditures totaled $426,100 in 1997. Total additional rebuild costs are
expected to approximate $190,000 in 1998.
Additionally, the Joint Venture is required to rebuild its Auburn,
Illinois cable system as a condition of its franchise agreement. Capital
expenditures related to the rebuild approximated $430,900 as of December 31,
1997, with additional construction costs of $25,000 budgeted for 1998. The Joint
Venture is also rebuilding portions of its cable systems in surrounding
communities at an estimated total additional cost of approximately $1,500,000.
Capital expenditures in the surrounding communities approximated $876,600 as of
December 31, 1997. The Joint Venture has budgeted additional expenditures of
$635,000 in 1998 to complete the rebuild. Expenditures related to the total
rebuild approximated $35,600 during the first quarter of 1998. In addition, the
Joint Venture is planning to upgrade its cable plant in Girard and Carlinville,
Illinois beginning in 1999 at an estimated cost of approximately $2.4 million.
The Partnership and the Joint Venture have budgeted capital expenditures of
$105,000 and $75,000, respectively, for the upgrade of other
-12-
<PAGE> 13
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
assets in 1998. 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 1998.
The Partnership paid distributions totaling $125,900 during the
three months ended March 31, 1998. However, there can be no assurances regarding
the level, timing or continuation of future distributions.
Beginning in August 1997, the Partnership and Joint Venture elected
to self-insure their cable distribution plant and subscriber connections against
property damage as well as possible business interruptions caused by such
damage. The decision to self-insure was made due to significant increases in the
cost of insurance coverage and decreases in the amount of insurance coverage
available.
While the Partnership and Joint Venture have made the election to
self-insure for these risks based upon a comparison of historical damage
sustained over the past five years with the cost and amount of insurance
currently available, there can be no assurance that future self-insured losses
will not exceed prior costs of maintaining insurance for these risks.
Approximately 71% of the Partnership's and Joint Venture's subscribers are
served by their systems in Shelbyville and Carlinville, Illinois and neighboring
communities. Significant damage to these systems due to seasonal weather
conditions or other events could have a material adverse effect on the
Partnership's and Joint Venture's liquidity and cash flows. The Partnership and
Joint Venture continue to purchase insurance coverage in amounts their
management views as appropriate for all other property, liability, automobile,
workers' compensation and other types of insurable risks.
The "Year 2000" issue refers to certain contingencies that could
result from computer programs being written using two digits rather than four to
define the year. Many existing computer systems, including certain computer
systems of the Partnership and Joint Venture, process transactions based on two
digits for the year of the transaction (for example, "98" for 1998). These
computer systems may not operate effectively when the last two digits become
"00," as will occur on January 1, 2000.
The Corporate General Partner has commenced an assessment of the
Partnership's and Joint Venture's Year 2000 business risks and their exposure to
computer systems, to operating equipment which is date sensitive and to the
interface systems of their vendors and service providers. Based on a preliminary
study, the Corporate General Partner has concluded that certain of the
Partnership's and Joint Venture's information systems were not Year 2000
compliant and has elected to replace such software and hardware with Year 2000
compliant applications and equipment, although the decision to replace major
portions of such software and hardware had previously been made without regard
to the Year 2000 issue. The Corporate General Partner expects to install
substantially all of the new systems in 1998, with the remaining systems to be
installed in the first half of 1999. The total anticipated cost, including
replacement software and hardware, will be borne by FHGLP.
In addition to evaluating internal systems, the Corporate General
Partner has also initiated communications with third party vendors and service
suppliers to determine the extent to which the Partnership's and Joint Venture's
interface systems are vulnerable should those third parties fail to solve their
own Year 2000 problems on a timely basis. There can be no assurance that the
systems of other companies
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<PAGE> 14
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
on which the Partnership's and Joint Venture's systems rely will be timely
converted and that the failure to do so would not have an adverse impact on the
Partnership's and Joint Venture's systems. The Corporate General Partner
continues to closely monitor Year 2000 developments with vendors and service
suppliers.
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
Operating activities provided $452,800 less cash during the three
months ended March 31, 1998 than in the corresponding prior year period. The
Partnership used $422,000 more cash to pay liabilities owed to the Corporate
General Partner and third-party creditors due to timing differences of payments
during the 1998 quarter as compared with the prior year period. Changes in
accounts receivable, prepaid expenses and other assets used $4,200 more cash in
the 1998 quarter due to the timing of receivable collections and the payment of
prepaid expenses.
Investing activities provided $47,700 more cash in the three months
ended March 31, 1998 than in the prior year period. The change was primarily due
to a $51,200 decrease in capital expenditures and a $1,500 decrease in
expenditures for intangible assets, partially offset by a $5,000 decrease in
distributions from the Joint Venture.
INFLATION
Certain of the Joint Ventures' expenses, such as those for wages and
benefits, equipment repair and replacement, and billing and marketing generally
increase with inflation. However, the Partnership does not believe that its
financial results have been, or will be, adversely affected by inflation in a
material way, provided that the Joint Ventures are able to increase their
service rates periodically, of which there can be no assurance.
-14-
<PAGE> 15
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> 16
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: May 14, 1998 By: /s/ Michael K. Menerey
--------------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 1998, AND THE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 566,200
<SECURITIES> 0
<RECEIVABLES> 12,600
<ALLOWANCES> 1,900
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,240,000
<DEPRECIATION> 4,429,000
<TOTAL-ASSETS> 3,799,200
<CURRENT-LIABILITIES> 341,800
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,799,200
<SALES> 0
<TOTAL-REVENUES> 668,800
<CGS> 0
<TOTAL-COSTS> 521,900
<OTHER-EXPENSES> (6,500)
<LOSS-PROVISION> 8,300
<INTEREST-EXPENSE> 3,500
<INCOME-PRETAX> 191,100
<INCOME-TAX> 0
<INCOME-CONTINUING> 191,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 191,100
<EPS-PRIMARY> 4.74
<EPS-DILUTED> 0
</TABLE>
