<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-15686
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Enstar Income Program IV-3, L.P.
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(Exact name of Registrant as specified in its charter)
Georgia 58-1648320
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 824-9990
--------------------------
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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
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<PAGE>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED BALANCE SHEETS
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
December 31, March 31,
1998* 1999
------------ -----------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 812,200 $ 879,300
Accounts receivable, less allowance of
$3,300 and $2,300 for possible losses 39,700 41,100
Prepaid expenses and other assets 150,900 251,000
Equity in net assets of Joint Venture 903,200 956,200
Property, plant and equipment, less
accumulated depreciation and
amortization of $4,638,800 and $4,720,100 1,795,300 1,726,300
Franchise cost, net of accumulated
amortization of $2,227,900 and $2,275,100 344,100 296,900
Deferred charges, net 2,800 1,400
------------ -----------
$ 4,048,200 $ 4,152,200
------------ -----------
------------ -----------
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 165,500 $ 148,700
Due to affiliates 246,000 348,600
------------ -----------
TOTAL LIABILITIES 411,500 497,300
------------ -----------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (46,800) (46,700)
Limited partners 3,683,500 3,701,600
------------ -----------
TOTAL PARTNERSHIP CAPITAL 3,636,700 3,654,900
------------ -----------
$ 4,048,200 $ 4,152,200
------------ -----------
------------ -----------
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statement.
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<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED STATEMENTS OF OPERATIONS
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
Unaudited
-------------------------
Three months ended
March 31,
-------------------------
1998 1999
---------- ----------
<S> <C> <C>
REVENUES $ 668,800 $ 644,900
---------- ----------
OPERATING EXPENSES:
Service costs 216,100 242,300
General and administrative expenses 82,500 101,000
General Partner management fees
and reimbursed expenses 89,900 85,800
Depreciation and amortization 133,400 129,900
---------- ----------
521,900 559,000
---------- ----------
OPERATING INCOME 146,900 85,900
---------- ----------
OTHER INCOME (EXPENSE):
Interest income 6,500 8,400
Interest expense (3,500) (3,200)
---------- ----------
3,000 5,200
---------- ----------
INCOME BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE 149,900 91,100
EQUITY IN NET INCOME OF JOINT VENTURE 41,200 53,000
---------- ----------
NET INCOME $ 191,100 $ 144,100
---------- ----------
---------- ----------
Net income allocated to General Partners $ 1,900 $ 1,400
---------- ----------
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Net income allocated to Limited Partners $ 189,200 $ 142,700
---------- ----------
---------- ----------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 4.74 $ 3.58
---------- ----------
---------- ----------
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,900 39,900
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
STATEMENTS OF CASH FLOWS
--------------------------------
--------------------------------
<TABLE>
<CAPTION>
Unaudited
-------------------------
Three months ended
March 31,
-------------------------
1998 1999
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 191,100 $ 144,100
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in net income of Joint Venture (41,200) (53,000)
Depreciation and amortization 133,400 129,900
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses
and other assets (600) (101,500)
Accounts payable and due to affiliates (379,300) 85,800
----------- ----------
Net cash provided by (used in)
operating activities (96,600) 205,300
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures 2,000 (12,300)
Increase in intangible assets (1,600) -
----------- ----------
Net cash provided by (used in)
investing activities 400 (12,300)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (125,900) (125,900)
----------- ----------
INCREASE (DECREASE) IN CASH (222,100) 67,100
CASH AT BEGINNING OF PERIOD 788,300 812,200
----------- ----------
CASH AT END OF PERIOD $ 566,200 $ 879,300
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
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, 1999 and 1998 are unaudited. These condensed interim
financial statements should be read in conjunction with the audited financial
statements and notes thereto included in the Partnership's latest Annual
Report on Form 10-K. In the opinion of management, such statements reflect
all adjustments (consisting only of normal recurring adjustments) necessary
for a fair presentation of the results of such periods. The results of
operations for the three months ended March 31, 1999 are not necessarily
indicative of results for the entire year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement 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 $32,200 for the three months ended March 31, 1999.
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 Communications, L.P. ("FCLP"), successor
to 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
$53,600 for the three months ended March 31, 1999.
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 $19,600 and
reimbursement of expenses of approximately $45,800 under its management
agreement for the three months ended March 31, 1999. In addition, the Joint
Venture paid the Corporate General Partner approximately $4,900 in respect of
its 1% special interest during the three months ended March 31, 1999.
Management fees and reimbursed expenses due the Corporate General Partner are
non-interest bearing.
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<PAGE>
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 $2,100 for the
three months ended March 31, 1999. 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.
Substantially all programming services have been purchased through FCLP.
FCLP, in the normal course of business, purchases cable programming services
from certain program suppliers owned in whole or in part by affiliates of an
entity that became a general partner of FCLP on September 30, 1998. Such
purchases of programming services are made on behalf of the Partnership and
Joint Venture and the other partnerships managed by the Corporate General
Partner as well as for FCLP's own cable television operations. FCLP 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 $282,600 for the three months ended March 31, 1999. 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.
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<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
--------------------------------
--------------------------------
4. 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, 1999 and December 31, 1998, and the results of
its operations for the three months ended March 31, 1999 and 1998, have been
included. The results of operations for the three months ended March 31,
1999 are not necessarily indicative of results for the entire year.
<TABLE>
December 31, March 31,
1998* 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets $ 1,522,900 $ 1,741,100
Investment in cable television properties, net 1,528,100 1,494,400
Other assets 2,500 1,700
------------ ------------
$ 3,053,500 $ 3,237,200
------------ ------------
------------ ------------
Current liabilities $ 343,900 $ 368,500
Venturers' capital 2,709,600 2,868,700
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$ 3,053,500 $ 3,237,200
------------ ------------
------------ ------------
</TABLE>
*As presented in the audited financial statements.
-7-
<PAGE>
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,
---------------------------
1998 1999
------------ ------------
<S> <C> <C>
REVENUES $ 496,900 $ 490,500
------------ ------------
OPERATING EXPENSES:
Service costs 161,300 164,800
General and administrative expenses 43,200 53,300
General Partner management fees and
reimbursed expenses 76,100 70,300
Depreciation and amortization 94,800 54,400
------------ ------------
375,400 342,800
------------ ------------
OPERATING INCOME 121,500 147,700
OTHER INCOME (EXPENSE):
Interest income 4,800 14,000
Interest expense (2,800) (2,600)
------------ ------------
NET INCOME $ 123,500 $ 159,100
------------ ------------
------------ ------------
</TABLE>
-8-
<PAGE>
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 ended the regulation of cable programming service tier rates
on March 31, 1999. There can be no assurance as to what, if any, further
action may be taken by the FCC, Congress or any other regulatory authority or
court, or the effect thereof on the Partnership's business. Accordingly, the
Partnership's historical financial results as described below are not
necessarily indicative of future performance.
This Report includes certain forward looking statements regarding, among
other things, future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing
cable television operators such as the Partnership. In addition to the
information provided herein, reference is made to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 for additional
information regarding such matters and the effect thereof on the
Partnership's business.
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 decreased from $668,800 to $644,900, or by
3.6%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. Of the $23,900 decrease, $14,900 was due to
decreases in the number of subscriptions for basic, premium, tier and
equipment rental services and $9,000 was due to decreases in other revenue
producing items. As of March 31, 1998, the Partnership had approximately
6,200 basic subscribers and 1,600 premium service units.
-9-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Service costs increased from $216,100 to $242,300, or by 12.1%, for the
three months ended March 31, 1999 as compared to the corresponding period in
1998. Service costs represent costs directly attributable to providing cable
services to customers. The increase was primarily due to decreases in the
capitalization of labor and overhead costs due to a reduction in rebuild
construction activity in the Partnership's Shelbyville franchise area. The
increase was also attributable to higher pole rent and programming expense,
which increased as a result of higher rates.
General and administrative expenses increased from $82,500 to $101,000,
or by 22.4%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. The increase was primarily due to increases in
insurance premiums and personnel costs.
Management fees and reimbursed expenses decreased from $89,900 to
$85,800, or by 4.6%, for the three months ended March 31, 1999 as compared to
the corresponding period in 1998. Management fees decreased in direct
relation to decreases in revenues as described above. Reimbursed expenses
decreased primarily due to lower allocated personnel costs resulting from
staff reductions, and due to decreased telephone expenses.
Depreciation and amortization expense decreased from $133,400 to
$129,900, or by 2.6%, for the three months ended March 31, 1999 as compared
to the corresponding period in 1998. The decrease was due to certain plant
assets becoming fully depreciated and certain intangible assets becoming
fully amortized.
Operating income decreased from $146,900 to $85,900, or by 41.5%, for
the three months ended March 31, 1999 as compared to the corresponding period
in 1998. The decrease was primarily due to decreases in revenues and
capitalization of labor and overhead costs, and increases in insurance
premiums as described above.
Interest income, net of interest expense, increased from $3,000 to
$5,200, or by 73.3%, for the three months ended March 31, 1999 as compared to
the corresponding period in 1998. The increase was due to higher average
cash balances available for investment.
Due to the factors described above, the Partnership's net income
decreased from $191,100 to $144,100, or by 24.6%, for the three months ended
March 31, 1999 as compared to the corresponding period in 1998.
Based on its experience in the cable television industry, the
Partnership believes that operating income before depreciation and
amortization ("EBITDA") and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage. EBITDA is not a measurement determined under generally accepted
accounting principles ("GAAP") and does not represent cash generated from
operating activities in accordance with GAAP. EBITDA should not be considered
by the reader as an alternative to net income as an indicator of financial
performance or as an alternative to cash flows as a measure of liquidity. In
addition, the definition of EBITDA may not be identical to similarly titled
measures used by other companies. EBITDA as a percentage of revenues
decreased from 41.9% to 33.5% during the three months ended March 31, 1999,
as compared to the
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<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
corresponding period in 1998. The decrease was primarily caused by lower
revenues and higher programming fees and insurance premiums as described
above. EBITDA decreased from $280,300 to $215,800, or by 23.0%, for the three
months ended March 31, 1999 as compared to the corresponding period in 1998.
DISTRIBUTIONS TO PARTNERS
The Partnership distributed $125,900 to its partners during the three
months ended March 31, 1999. The Joint Venture did not make distributions to
the Partnership during the three months ended March 31, 1999.
THE JOINT VENTURE
The Joint Venture's revenues decreased from $496,900 to $490,500, or by
1.3%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. Of the $6,400 decrease in revenues, $1,500 was
due to decreases in the number of subscriptions for premium and equipment
rental services and $4,900 was due to decreases in other revenue producing
items. As of March 31, 1999, the Joint Venture had approximately 4,400 basic
subscribers and 1,300 premium service units.
Service costs increased from $161,300 to $164,800, or by 2.2%, for the
three months ended March 31, 1999 as compared to the corresponding period in
1998. Service costs represent costs directly attributable to providing cable
services to customers. The increase was primarily due to higher programming
fees. Programming expense increased as a result of higher rates charged by
program suppliers.
General and administrative expenses increased from $43,200 to $53,300,
or by 23.4%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. The increase was primarily due to increases in
insurance premiums and professional fees, including audit fees.
Management fees and reimbursed expenses decreased from $76,100 to
$70,300, or by 7.6%, for the three months ended March 31, 1999 as compared to
the corresponding period in 1998. Management fees decreased in direct
relation to decreases in revenues as described above. Reimbursed expenses
decreased primarily due to lower allocated personnel costs resulting from
staff reductions, and due to decreased telephone expense.
Depreciation and amortization expense decreased from $94,800 to $54,400,
or by 42.6%, for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. The decrease was due to certain tangible
assets becoming fully depreciated and certain intangible assets becoming
fully amortized.
Operating income increased from $121,500 to $147,700, or by 21.6%, for
the three months ended March 31, 1999 as compared to the corresponding period
in 1998. The increase was primarily due to decreased depreciation and
amortization expense as described above.
-11-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Interest income, net of interest expense, increased from $2,000 to
$11,400 for the three months ended March 31, 1999 as compared to the
corresponding period in 1998. The increase was due to higher average cash
balances available for investment.
Due to the factors described above, the Macoupin Joint Venture's net
income increased from $123,500 to $159,100, or by 28.8%, for the three months
ended March 31, 1999 as compared to the corresponding period in 1998.
Based on its experience in the cable television industry, the
Partnership believes that operating income before depreciation and
amortization ("EBITDA") and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television
companies in several areas, such as liquidity, operating performance and
leverage. EBITDA is not a measurement determined under generally accepted
accounting principles ("GAAP") and does not represent cash generated from
operating activities in accordance with GAAP. EBITDA should not be considered
by the reader as an alternative to net income as an indicator of financial
performance or as an alternative to cash flows as a measure of liquidity. In
addition, the definition of EBITDA may not be identical to similarly titled
measures used by other companies. EBITDA as a percentage of revenues
decreased from 43.5% to 41.2% during the three months ended March 31, 1999,
as compared to the corresponding period in 1998. The decrease was primarily
caused by lower revenues and higher programming fees and insurance premiums
as described above. EBITDA decreased from $216,300 to $202,100, or by 6.6%,
for the three months ended March 31, 1999 as compared to the corresponding
period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net offering
proceeds in 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.
Based on its belief that the market for cable systems has generally
improved, the Corporate General Partner is evaluating strategies for
liquidating the Joint Venture and the Partnership. These strategies include
the potential sale of substantially all of the Joint Venture's and
Partnership's assets to third parties and/or affiliates of the Corporate
General Partner, and the subsequent liquidation of the Partnership. The
Corporate General Partner expects to complete its evaluation within the next
several months and intends to advise unitholders promptly if it believes that
commencing a liquidating transaction would be in the best interests of
unitholders.
The 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
-12-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
addressability will be delayed until the 1999 completion of rebuild projects
in other nearby communities that involve consolidating the Shelbyville
headend. Rebuild expenditures amounted to approximately $1,380,000 from
inception of the project to December 31, 1998. Additional rebuild costs in
1999 are expected to approximate $100,000.
Additionally, the Joint Venture is required to rebuild its Auburn,
Illinois cable system at an estimated cost of $630,000 under a provision of
its franchise agreement with the city of Auburn. Capital expenditures
related to the rebuild approximated $471,200 from inception through December
31, 1998. The Joint Venture is also rebuilding portions of its cable systems
in surrounding communities at an estimated total additional cost of
approximately $1,280,000. Project expenditures in the surrounding communities
approximated $957,900 from inception through December 31, 1998. The Joint
Venture is budgeted to spend approximately $480,000 in 1999 to complete the
rebuilds in and around Auburn. Capital expenditures by the Partnership and
the Joint Venture were approximately $12,300 and $6,600, respectively, in the
three months ended March 31, 1999. The Joint Venture is also required by a
provision of its franchise agreement with the city of Carlinville, Illinois
to upgrade its cable system in the community by December 2001 at an estimated
cost of $875,000, and plans to upgrade its cable plant in Girard, Illinois
beginning in 2000 at an estimated cost of approximately $1.0 million provided
the franchise agreement is renewed. The franchise agreement under
negotiation with Girard may require completion of the upgrade within two
years. The Partnership and Joint Venture have budgeted capital expenditures
in 1999 of $230,400 and $217,200, respectively, to upgrade other assets.
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 1999.
The Partnership paid distributions totaling $125,900 during the quarter
ended March 31, 1999. However, there can be no assurances regarding the
level, timing or continuation of future distributions.
Beginning in August 1997, the Corporate General Partner elected to
self-insure the Partnership's and Joint Venture's cable distribution plant
and subscriber connections against property damage as well as possible
business interruptions caused by such damage. The decision to self-insure
was made due to significant increases in the cost of insurance coverage and
decreases in the amount of insurance coverage available.
In October 1998, FCLP reinstated third party insurance coverage for all
of the cable television properties owned or managed by FCLP to cover damage
to cable distribution plant and subscriber connections and against business
interruptions resulting from such damage. This coverage is subject to a
significant annual deductible which applies to all of the cable television
properties owned or managed by FCLP.
Approximately 80% 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.
-13-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
During the first quarter of 1999, FCLP, on behalf of the Corporate
General Partner, continued its identification and evaluation 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. The evaluation
has focused on identification and assessment of systems and equipment that
may fail to distinguish between the year 1900 and the year 2000 and, as a
result, may cease to operate or may operate improperly when dates after
December 31, 1999 are introduced.
Based on a study conducted in 1997, FCLP concluded that certain of the
Partnership's and Joint Venture's information systems were not Year 2000
compliant and elected to replace such software and hardware with applications
and equipment certified by the vendors as Year 2000 compliant. FCLP
installed the new systems in the first quarter of 1999. The total
anticipated cost, including replacement software and hardware, will be borne
by FCLP. FCLP is continuing to utilize internal and external resources to
extend the functionality of the new systems. FCLP does not believe that any
other significant information technology projects affecting the Partnership
and Joint Venture have been delayed due to efforts to identify and address
Year 2000 issues.
Additionally, FCLP has continued to inventory the Partnership's and
Joint Venture's operating and revenue generating equipment to identify items
that need to be upgraded or replaced and have surveyed cable equipment
manufacturers to determine which of their models require upgrade or
replacement to become Year 2000 compliant. Identification and evaluation,
while ongoing, are substantially completed and a plan has been developed to
remediate non-compliant equipment prior to January 1, 2000. Upgrade or
replacement, testing and implementation will be performed over the remaining
months of 1999. The cost of such replacement or remediation, currently
estimated at $43,200, is not expected to have a material effect on the
Partnership's or Joint Venture's financial position or results of operations.
The Partnership and Joint Venture had not incurred any costs related to the
Year 2000 project as of March 31, 1999. FCLP plans to inventory, assess,
replace and test equipment with embedded computer chips in a separate segment
of its project, presently scheduled for the second half of 1999.
FCLP has continued to survey the Partnership's and Joint Venture's
significant third party vendors and service suppliers to determine the extent
to which their interface systems are vulnerable should those third parties
fail to solve their own Year 2000 problems on a timely basis. Approximately
80% of the Partnership's and Joint Venture's most critical equipment vendors
have responded to the surveys regarding the Year 2000 compliance of their
products. Additional compliance information has been obtained for specific
products from vendor Web sites. Among the most significant service providers
upon which the Partnership and Joint Venture rely are programming suppliers,
power and telephone companies, various banking institutions and a customer
billing service. A majority of these service suppliers either have not
responded to inquiries regarding their Year 2000 compliance programs or have
responded that they are unsure if they will become compliant on a timely
basis. Consequently, there can be no assurance that the systems of other
companies on which the Partnership and Joint Venture must rely will be Year
2000 compliant on a timely basis.
FCLP is developing a contingency plan in 1999 to address possible
situations in which the Partnership's and Joint Venture's various systems, or of
third parties with which they do business, are
-14-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
not compliant prior to January 1, 2000. Considerable effort has been
directed toward distinguishing between those contingencies with a greater
probability of occurring from those whose occurrence is considered remote.
Moreover, such a plan has focused on systems whose failure poses a material
risk to the Partnership's and Joint Venture's results of operations and
financial condition.
The Partnership's and Joint Venture's most significant Year 2000 risk is
an interruption of service to subscribers, resulting in a potentially
material loss of revenues. Other risks include impairment of the
Partnership's and Joint Venture's ability to bill and/or collect payment from
their customers, which could negatively impact their liquidity and cash
flows. Such risks exist primarily due to technological operations dependent
upon third parties and to a much lesser extent to those under the control of
the Partnership and Joint Venture. Failure to achieve Year 2000 readiness in
either area could have a material adverse impact on the Partnership and Joint
Venture. The Partnership and Joint Venture are unable to estimate the
possible effect on their results of operations, liquidity and financial
condition should their significant service suppliers fail to complete their
readiness programs prior to the Year 2000. Depending on the supplier,
equipment malfunction or type of service provided, as well as the location
and duration of the problem, the effect could be material. For example, if a
cable programming supplier encounters an interruption of its signal due to a
Year 2000 satellite malfunction, the Partnership and Joint Venture will be
unable to provide the signal to their cable subscribers, which could result
in a loss of revenues, although they would attempt to provide their customers
with alternative program services for the period during which they could not
provide the original signal. Due to the number of individually owned and
operated channels the Partnership and Joint Venture carry for their
subscribers, and the packaging of those channels, the Partnership and Joint
Venture are unable to estimate any reasonable dollar impact of such
interruption.
THREE MONTHS ENDED MARCH 31, 1999 AND 1998
Operating activities provided $301,900 more cash during the three months
ended March 31, 1999 than in the corresponding prior year period. The
Partnership used $465,100 less cash to pay liabilities owed to the Corporate
General Partner and third party creditors due to differences in the timing of
payments. Changes in accounts receivable, prepaid expenses and other assets
used $100,900 more cash in the first three months of 1999 than in the
comparable 1998 period due to differences in the timing of receivable
collections and in the payment of prepaid expenses.
Investing activities used $12,700 more cash in the three months ended
March 31, 1999 than in the corresponding prior year period. The change was
primarily due to a $14,300 increase in capital expenditures, partially offset
by a $1,600 decrease in expenditures for intangible assets.
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.
-15-
<PAGE>
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>
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, 1999 By: /s/ Michael K. Menerey
-------------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT MARCH 31, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 879,300
<SECURITIES> 0
<RECEIVABLES> 43,400
<ALLOWANCES> 2,300
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,446,400
<DEPRECIATION> 4,720,100
<TOTAL-ASSETS> 4,152,200
<CURRENT-LIABILITIES> 497,300
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,152,200
<SALES> 0
<TOTAL-REVENUES> 644,900
<CGS> 0
<TOTAL-COSTS> 559,000
<OTHER-EXPENSES> (8,400)
<LOSS-PROVISION> 5,300
<INTEREST-EXPENSE> 3,200
<INCOME-PRETAX> 144,100
<INCOME-TAX> 0
<INCOME-CONTINUING> 144,100
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,100
<EPS-PRIMARY> 3.58
<EPS-DILUTED> 0
</TABLE>
