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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE
FISCAL YEAR ENDED DECEMBER 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
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Commission File Number 0-15686
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
incorporation or organization) Identification Number)
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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Securities registered pursuant to Section 12 (b) of the Act:
Securities registered pursuant to Section 12 (g) of the Act: NONE
Name of each exchange
Title of each Class on which registered
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UNITS OF LIMITED PARTNERSHIP INTEREST NONE
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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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting equity securities held
by non-affiliates of the registrant - all of the registrant's 39,900 units of
limited partnership interests, its only class of equity securities, are held by
non-affiliates. There is no public trading market for the units, and transfers
of units are subject to certain restrictions; accordingly, the registrant is
unable to state the market value of the units held by non-affiliates.
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The Exhibit Index is located at Page E-1.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Enstar Income Program IV-3, L.P., a Georgia limited partnership
(the "Partnership"), is engaged in the ownership, operation and development,
and, when appropriate, sale or other disposition, of cable television systems in
small to medium-sized communities. The Partnership was formed on November 4,
1985. The general partners of the Partnership are Enstar Communications
Corporation, a Georgia corporation (the "Corporate General Partner"), and Robert
T. Graff, Jr. (the "Individual General Partner" and, together with the Corporate
General Partner, the "General Partners"). On September 30, 1988, ownership of
the Corporate General Partner was acquired by Falcon Cablevision, a California
limited partnership that has been engaged in the ownership and operation of
cable television systems since 1984 ("Falcon Cablevision"). The general partner
of Falcon Cablevision was Falcon Holding Group, L.P., a Delaware limited
partnership ("FHGLP"), until September 1998. On September 30, 1998, FHGLP
acquired ownership of the Corporate General Partner from Falcon Cablevision.
Simultaneously with the closing of that transaction, FHGLP contributed all of
its existing cable television system operations to Falcon Communications, L.P.
("FCLP"), a California limited partnership and successor to FHGLP. FHGLP serves
as the managing partner of FCLP, and the general partner of FHGLP is Falcon
Holding Group, Inc., a California corporation ("FHGI"). The Corporate General
Partner has contracted with FCLP and its affiliates to provide management
services for the Partnership. See Item 13., "Certain Relationships and Related
Transactions." The General Partner, FCLP and affiliated companies are
responsible for the day to day management of the Partnership and its operations.
See "Employees" below.
Based on its belief that the market for cable systems has
generally improved, the Corporate General Partner is evaluating strategies for
liquidating the Partnership. These strategies include the potential sale of
substantially all of the 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.
A cable television system receives television, radio and data
signals at the system's "headend" site by means of over-the-air antennas,
microwave relay systems and satellite earth stations. These signals are then
modulated, amplified and distributed, primarily through coaxial and fiber optic
distribution systems, to customers who pay a fee for this service. Cable
television systems may also originate their own television programming and other
information services for distribution through the system. Cable television
systems generally are constructed and operated pursuant to non-exclusive
franchises or similar licenses granted by local governmental authorities for a
specified term of years.
The Partnership's cable television systems (the "systems") offer
customers various levels (or "tiers") of cable services consisting of broadcast
television signals of local network, independent and educational stations, a
limited number of television signals from so-called "super stations" originating
from distant cities (such as WGN), various satellite-delivered, non-broadcast
channels (such as Cable News Network ("CNN"), MTV: Music Television ("MTV"), the
USA Network ("USA"), ESPN, Turner Network Television ("TNT") and The Disney
Channel), programming originated locally by the cable television system (such as
public, educational and governmental access programs) and informational displays
featuring news, weather, stock market and financial reports, and public service
announcements. A number of the satellite services are also offered in certain
packages. For an extra monthly charge, the systems also offer "premium"
television services to their customers. These services (such as Home Box Office
("HBO") and Showtime) are satellite channels that consist principally of feature
films, live sporting events, concerts and other special entertainment features,
usually presented without commercial interruption. See "Legislation and
Regulation."
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A customer generally pays an initial installation charge and fixed
monthly fees for basic, expanded basic, other tiers of satellite services and
premium programming services. Such monthly service fees constitute the primary
source of revenues for the systems. In addition to customer revenues, the
systems receive revenue from additional fees paid by customers for pay-per-view
programming of movies and special events and from the sale of available
advertising spots on advertiser-supported programming. The systems also offer to
their customers home shopping services, which pay the systems a share of
revenues from sales of products in the systems' service areas, in addition to
paying the systems a separate fee in return for carrying their shopping service.
Certain other channels have also offered the cable systems managed by FCLP,
including those of the Partnership, fees in return for carrying their service.
Due to a general lack of channel capacity available for adding new channels, the
Partnership's management cannot predict the impact of such potential payments on
the Partnership's business. See Item 7., "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources."
The Partnership began its cable television business operations in
January 1987 with the acquisition of three cable television systems that provide
service to customers in and around the municipalities of Fairfield and
Shelbyville, Illinois and Fulton, Kentucky.
In 1988 The Partnership entered into a general partnership
agreement with two affiliated partnerships (which are also cable television
limited partnerships sponsored by the General Partners) to form Enstar Cable of
Macoupin County (the "Joint Venture"). The Joint Venture was formed in order to
enable each of its partners to participate in the acquisition and ownership of a
more diverse pool of systems by combining certain of their financial resources.
The Joint Venture began its cable television business operations in January 1988
with the acquisition of a cable television system providing service in and
around the municipalities of Carlinville, Virden, Girard, Thayer and Auburn,
Illinois. As of December 31, 1998, cable systems owned by the Partnership and
the Joint Venture served approximately 6,200 and 4,400 basic subscribers,
respectively. Statements made in the remainder of this report regarding the
Partnership's operations and cable systems also apply to the Joint Venture's
operations and cable systems unless a separate discussion is provided.
FCLP receives a management fee and reimbursement of expenses from
the Corporate General Partner for managing the Partnership's cable television
operations. See Item 11., "Executive Compensation."
The Chief Executive Officer of FHGI is Marc B. Nathanson. Mr.
Nathanson has managed FCLP or its predecessors since 1975. Mr. Nathanson is a
veteran of more than 30 years in the cable industry and, prior to forming FCLP's
predecessors, held several key executive positions with some of the nation's
largest cable television companies. The principal executive offices of the
Partnership, the Corporate General Partner and FCLP are located at 10900
Wilshire Boulevard, 15th Floor, Los Angeles, California 90024, and their
telephone number is (310) 824-9990. See Item 10., "Directors and Executive
Officers of the Registrant."
BUSINESS STRATEGY
Historically, the Partnership has followed a systematic approach
to acquiring, operating and developing cable television systems based on the
primary goal of increasing operating cash flow while maintaining the quality of
services offered by its cable television systems. The Partnership's business
strategy has focused on serving small to medium-sized communities. The
Partnership believes that given a similar rate, technical, and channel
capacity/utilization profile, its cable television systems generally involve
less risk of increased competition than systems in large urban cities. Cable
television service is necessary in many of the Partnership's markets to receive
a wide variety of television signals. In addition, these markets typically offer
fewer competing entertainment alternatives than large cities. The Partnership
believes that, in comparison to urban systems, its cable television systems also
generally have lower labor, operating and system construction costs. See
"Competition."
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Adoption of rules implementing certain provisions of the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act") by the Federal Communications Commission (the "FCC") has had a negative
impact on the Partnership's revenues and cash flow. These rules are subject to
further amendment to give effect to the Telecommunications Act of 1996 (the
"1996 Telecom Act"). Among other changes, the 1996 Telecom Act provides that the
regulation of certain cable programming service tier ("CPST") rates will
terminate 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 and Joint
Venture's business. See "Legislation and Regulation" and Item 7., "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
CLUSTERING
The Partnership has sought to acquire cable television operations
in communities that are proximate to other system in order to achieve the
economies of scale and operating efficiencies associated with regional
"clusters." The Partnership believes clustering can reduce marketing and
personnel costs and can also reduce capital expenditures in cases where cable
service can be delivered through a central headend reception facility.
CAPITAL EXPENDITURES
As noted in "Technological Developments," a number of the
Partnership's systems and all of the Joint Venture's systems have no available
channel capacity with which to add new channels or to further expand their use
of pay-per-view offerings to customers. As a result, significant amounts of
capital for future upgrades will be required in order to increase available
channel capacity, improve quality of service and facilitate the expansion of new
services such as advertising, pay-per-view, new unregulated tiers of
satellite-delivered services and home shopping, as well as possible new services
such as video games, video-on-demand and other interactive applications, so that
the systems remain competitive within the industry. In addition to these
potential revenue opportunities, plant upgrades will enhance picture quality and
system reliability, reduce operating costs and improve overall customer
satisfaction.
The Partnership's systems have an average channel capacity of 60
and 43 with 70% and 100% of the channel capacity utilized at December 31, 1998,
respectively. The Joint Venture's system had an average channel capacity of 43
which was fully utilized at December 31, 1998.
The Partnership's and Joint Venture's management have selected a
technical standard that incorporates the use of fiber optic technology where
applicable in its engineering design for the majority of their systems that are
to be rebuilt. A system built with this type of architecture can provide for
future channels of analog service as well as new digital services. Such a system
will also permit the introduction of high speed data transmission/Internet
access and telephony services in the future after incurring incremental capital
expenditures related to these services. The Partnership and Joint Venture are
also evaluating the use of digital compression technology in their systems. See
"Technological Developments" and "Digital Compression."
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 1999 completion of rebuild projects in other nearby
communities that involve consolidating the Shelbyville headend. The entire
project is estimated to cost approximately $1,480,000, which includes
approximately $100,000 budgeted for 1999 to complete the project.
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Additionally, the Joint Venture is rebuilding its cable system in
Auburn, Illinois and surrounding communities at an estimated total cost of
approximately $1,910,000, including $480,000 in 1999 to complete the project.
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. Construction is
scheduled to begin in 2000. Additionally, the Joint Venture expects 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. Other capital expenditures budgeted in 1999 for the
Partnership and Joint Venture include approximately $230,400 and $217,200,
respectively, to upgrade other assets. Management believes that existing cash
and cash generated by the operations of the Partnership and Joint Venture will
be adequate to fund capital expenditures and the continued payment of
distributions in 1999.
As discussed in prior reports, the Partnership and Joint Venture
postponed a number of rebuild and upgrade projects because of the uncertainty
related to implementation of the 1992 Cable Act and the negative impact thereof
on the Partnership's business and access to capital. As a result, the
Partnership's and Joint Venture's systems are significantly less technically
advanced than had been expected prior to the implementation of reregulation. The
Partnership believes that the delays in upgrading its and the Joint Venture's
systems have had an adverse effect on the value of those systems compared to
systems that have been rebuilt to a higher technical standard. See "Legislation
and Regulation" and Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
DECENTRALIZED MANAGEMENT
The Corporate General Partner manages the Partnership's and Joint
Venture's systems on a decentralized basis. The Corporate General Partner
believes that its decentralized management structure, by enhancing management
presence at the system level, increases its sensitivity to the needs of its
customers, enhances the effectiveness of its customer service efforts,
eliminates the need for maintaining a large centralized corporate staff and
facilitates the maintenance of good relations with local governmental
authorities.
MARKETING
The Partnership's marketing strategy is to provide added value to
increasing levels of subscription services through "packaging." In addition to
the basic service package, customers in substantially all of the systems may
purchase an expanded group of regulated services, additional unregulated
packages of satellite-delivered services, and premium services. The Partnership
has employed a variety of targeted marketing techniques to attract new customers
by focusing on delivering value, choice, convenience and quality. The
Partnership employs direct mail, radio and local newspaper advertising,
telemarketing and door-to-door selling utilizing demographic "cluster codes" to
target specific messages to target audiences. In certain systems, the
Partnership offers discounts to customers who purchase premium services on a
limited trial basis in order to encourage a higher level of service
subscription. The Partnership also has a coordinated strategy for retaining
customers that includes televised retention advertising to reinforce the initial
decision to subscribe and encourage customers to purchase higher service levels.
CUSTOMER SERVICE AND COMMUNITY RELATIONS
The Partnership places a strong emphasis on customer service and
community relations and believes that success in these areas is critical to its
business. The Partnership has developed and implemented a wide range of monthly
internal training programs for its employees, including its regional managers,
that focus on the Partnership's operations and employee interaction with
customers. The effectiveness of the Partnership's training program as it relates
to the employees' interaction with customers is monitored on an
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ongoing basis, and a portion of the regional managers' compensation is tied to
achieving customer service targets. The Partnership conducts an extensive
customer survey on a periodic basis and uses the information in its efforts to
enhance service and better address the needs of its customers. A quarterly
newsletter keeps customers up to date on new service offerings, special events
and company information. In addition, the Partnership is participating in the
industry's Customer Service Initiative which emphasizes an on-time guarantee
program for service and installation appointments. The Partnership's corporate
executives and regional managers lead the Partnership's involvement in a number
of programs benefiting the communities the Partnership serves, including, among
others, Cable in the Classroom, Drug Awareness, Holiday Toy Drive and the Cystic
Fibrosis Foundation. Cable in the Classroom is the cable television industry's
public service initiative to enrich education through the use of commercial-free
cable programming. In addition, a monthly publication, CABLE IN THE CLASSROOM
magazine provides educational program listings by curriculum area, as well as
feature articles on how teachers across the country use the programs.
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DESCRIPTION OF THE PARTNERSHIP'S SYSTEMS
The table below sets forth certain operating statistics for the
Partnership's and the Joint Venture's cable systems as of December 31, 1998.
<TABLE>
<CAPTION>
Average
Monthly
Premium Revenue
Homes Basic Basic Service Premium Per Basic
System Passed(1) Subscribers Penetration(2) Units(3) Penetration(4) Subscriber(5)
------ --------- ----------- -------------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Enstar Income
Program IV-3, L.P.:
Shelbyville, IL 4,504 4,090 90.8% 1,040 25.4% $35.85
Fulton, KY 4,184 2,110 50.4% 509 24.1% $36.47
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Total 8,688 6,200 71.4% 1,549 25.0% $36.07
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Enstar Cable of
Macoupin County:
Macoupin, IL 6,633 4,423 66.7% 1,250 28.3% $37.72
</TABLE>
(1) Homes passed refers to estimates by the Partnership and Joint
Venture of the approximate number of dwelling units in a particular community
that can be connected to the distribution system without any further
extension of principal transmission lines. Such estimates are based upon a
variety of sources, including billing records, house counts, city directories
and other local sources.
(2) Basic subscribers as a percentage of homes passed by cable.
(3) Premium service units include only single channel services
offered for a monthly fee per channel and do not include tiers of channels
offered as a package for a single monthly fee.
(4) Premium service units as a percentage of homes subscribing to
cable service. A customer may purchase more than one premium service, each
of which is counted as a separate premium service unit. This ratio may be
greater than 100% if the average customer subscribes for more than one
premium service.
(5) Average monthly revenue per basic subscriber has been computed
based on revenue for the year ended December 31, 1998.
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CUSTOMER RATES AND SERVICES
The Partnership's cable television systems offer customers
packages of services that include the local area network, independent and
educational television stations, a limited number of television signals from
distant cities, numerous satellite-delivered, non-broadcast channels (such as
CNN, MTV, USA, ESPN, TNT and The Disney Channel) and certain informational and
public access channels. For an extra monthly charge, the systems provide certain
premium television services, such as HBO and Showtime. The Partnership also
offers other cable television services to its customers, including pay-per-view
programming. For additional charges, in most of the systems, the Partnership
also rents remote control devices and VCR compatible devices (devices that make
it easier for a customer to tape a program from one channel while watching a
program on another).
The service options offered by the Partnership and Joint Venture
vary from system to system, depending upon a system's channel capacity and
viewer interests. Rates for services also vary from market to market and
according to the type of services selected.
Pursuant to the 1992 Cable Act, most cable television systems are
subject to rate regulation of the basic service tier, the non-basic service
tiers other than premium (per channel or program) services, the charges for
installation of cable service, and the rental rates for customer premises
equipment such as converter boxes and remote control devices. These rate
regulation provisions affect all of the Partnership's and Joint Venture's
systems not deemed to be subject to effective competition under the FCC's
definition. Currently, none of the Partnership's or Joint Venture's systems are
subject to effective competition. See "Legislation and Regulation."
At December 31, 1998, the Partnership's and Joint Venture's
monthly rates for basic cable service for residential customers, including
certain discounted rates, ranged from $18.06 to $25.67 and their premium service
rate was $11.95, excluding special promotions offered periodically in
conjunction with the Partnership's and Joint Venture's marketing programs. A
one-time installation fee, which the Partnership and Joint Venture may wholly or
partially waive during a promotional period, is usually charged to new
customers. Commercial customers, such as hotels, motels and hospitals, are
charged a negotiated, non-recurring fee for installation of service and monthly
fees based upon a standard discounting procedure. Most multi-unit dwellings are
offered a negotiated bulk rate in exchange for single-point billing and basic
service to all units. These rates are also subject to regulation.
EMPLOYEES
The various personnel required to operate the Partnership's and
Joint Venture's business operations are employed by the Partnership, the Joint
Venture, the Corporate General Partner, its subsidiary corporation and FCLP. As
of February 12, 1999, the Partnership had five employees and the Joint Venture
had one employee, the cost of which is charged directly to the Partnership and
Joint Venture. The employment costs incurred by the Corporate General Partner,
its subsidiary corporation and FCLP are allocated and charged to the Partnership
and the Joint Venture for reimbursement pursuant to the partnership agreement
and management agreement. Other personnel required to operate the Partnership's
and Joint Venture's business operations are employed by affiliates of the
Corporate General Partner. The cost of such employment is allocated and charged
to the Partnership and Joint Venture. The amounts of these reimbursable costs
are set forth below in Item 11., "Executive Compensation."
TECHNOLOGICAL DEVELOPMENTS
As part of its commitment to customer service, the Partnership
seeks to apply technological advances in the cable television industry to its
cable television systems on the basis of cost effectiveness, enhancement of
product quality and service delivery and industry-wide acceptance. The
Partnership
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continues to upgrade the technical quality of its systems' cable plant and to
increase channel capacity for the delivery of additional programming and new
services. Currently, the Partnership's systems have an average channel capacity
of 60 in systems that serve 34% of its customers and an average channel capacity
of 43 in systems that serve 66% of the customers and, on average, utilize 70%
and 100% of their channel capacity. The Joint Venture's systems have an average
channel capacity of 43 in systems that serve substantially all of the Joint
Venture's customers and utilize 100% of their channel capacity. The Partnership
believes that system upgrades would enable it and the Joint Venture to provide
customers with greater programming diversity, better picture quality and
alternative communications delivery systems made possible by the introduction of
fiber optic technology and by the possible future application of digital
compression. The implementation of the Partnership's and Joint Venture's capital
expenditure plans is, however, dependent in part on the availability of adequate
capital on terms satisfactory to the Partnership, of which there can be no
assurance. See "Business Strategy - Capital Expenditures," "Legislation and
Regulation" and Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The use of fiber optic cable as an alternative to coaxial cable is
playing a major role in expanding channel capacity and improving the performance
of cable television systems. Fiber optic cable is capable of carrying hundreds
of video, data and voice channels and, accordingly, its utilization is essential
to the enhancement of a cable television system's technical capabilities. The
Partnership's current policy is to utilize fiber optic technology where
applicable in rebuild projects which it undertakes. The benefits of fiber optic
technology over traditional coaxial cable distribution plant include lower
ongoing maintenance and power costs and improved picture quality and
reliability.
DIGITAL COMPRESSION
The Partnership has been closely monitoring developments in the
area of digital compression, a technology that will enable cable operators to
increase the channel capacity of cable television systems by permitting a
significantly increased number of video signals to fit in a cable television
system's existing bandwidth. Depending on the technical characteristics of the
existing system, the Partnership believes that the utilization of digital
compression technology will enable its systems to increase channel capacity in
certain systems in a manner that could, in the short term, be more cost
efficient than rebuilding such systems with higher capacity distribution plant.
However, the Partnership believes that unless the system has sufficient unused
channel capacity and bandwidth, the use of digital compression to increase
channel offerings is not a substitute for the rebuild of the system, which will
improve picture quality, system reliability and quality of service. The use of
digital compression will expand the number and types of services these systems
offer and enhance the development of current and future revenue sources. This
technology is under frequent management review.
PROGRAMMING
The Partnership and the Joint Venture purchase basic and
premium programming for their systems from FCLP. In turn, FCLP charges the
Partnership and Joint Venture for these costs based on an estimate of what
the Corporate General Partner could negotiate for such services for the 15
partnerships managed by the Corporate General Partner as a group
(approximately 91,000 basic subscribers at December 31, 1998), which is
generally based on a fixed fee per customer or a percentage of the gross
receipts for the particular service. Certain other channels have also offered
FCLP and the Partnership's and Joint Venture's systems fees in return for
carrying their service. Due to a lack of channel capacity available for
adding new channels, the Partnership's management cannot predict the impact
of such potential payments on its business. In addition, the FCC may require
that such payments from programmers be offset against the programming fee
increases which can be passed through to subscribers under the FCC's rate
regulations. FCLP's programming contracts are generally for a fixed period of
time and are subject to negotiated renewal. FCLP does not have long-term
programming contracts for the supply of a substantial amount of its
programming. Accordingly, no assurance can be given that its, and
correspondingly the Partnership's and Joint Venture's,
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programming costs will not continue to increase substantially in the near
future, or that other materially adverse terms will not be added to FCLP's
programming contracts. Management believes, however, that FCLP's relations with
its programming suppliers generally are good.
The Partnership's and Joint Venture's cable programming costs have
increased in recent years and are expected to continue to increase due to
additional programming being provided to basic customers, requirements to carry
channels under retransmission carriage agreements entered into with certain
programming sources, increased costs to produce or purchase cable programming
generally (including sports programming), inflationary increases and other
factors. The 1996 retransmission carriage agreement negotiations were completed
with essentially no change to the previous agreements. Under the FCC's rate
regulations, increases in programming costs for regulated cable services
occurring after the earlier of March 1, 1994, or the date a system's basic cable
service became regulated, may be passed through to customers. See "Legislation
and Regulation - Federal Regulation - Carriage of Broadcast Television Signals."
Generally, programming costs are charged among systems on a per customer basis.
FRANCHISES
Cable television systems are generally constructed and operated
under non-exclusive franchises granted by local governmental authorities. These
franchises typically contain many conditions, such as time limitations on
commencement and completion of construction; conditions of service, including
number of channels, types of programming and the provision of free service to
schools and certain other public institutions; and the maintenance of insurance
and indemnity bonds. The provisions of local franchises are subject to federal
regulation under the Cable Communications Policy Act of 1984 (the "1984 Cable
Act"), the 1992 Cable Act and the 1996 Telecom Act. See "Legislation and
Regulation."
As of December 31, 1998, the Partnership held seven franchises.
These franchises, all of which are non-exclusive, provide for the payment of
fees to the issuing authority. Annual franchise fees imposed on the Partnership
systems range up to 5% of the gross revenues generated by a system. The 1984
Cable Act prohibits franchising authorities from imposing franchise fees in
excess of 5% of gross revenues and also permits the cable system operator to
seek renegotiation and modification of franchise requirements if warranted by
changed circumstances.
The following table groups the franchises of the Partnership's
cable television systems by date of expiration and presents the number of
franchises for each group of franchises and the approximate number and
percentage of homes subscribing to cable service for each group as of December
31, 1997.
<TABLE>
<CAPTION>
Number of Percentage of
Year of Number of Basic Basic
Franchise Expiration Franchises Subscribers Subscribers
-------------------- ---------- ----------- -----------
<S> <C> <C> <C>
2000 - 2004 6 5,816 93.8%
2005 and after 1 146 2.4%
-- ----- ----
Total 7 5,962 96.2%
-- ----- ----
-- ----- ----
</TABLE>
The Partnership operates cable television systems which serve
multiple communities and, in some circumstances, portions of such systems extend
into jurisdictions for which the Partnership believes no franchise is necessary.
In the aggregate, approximately 238 customers, comprising approximately 3.8% of
the Partnership's customers, are served by unfranchised portions of such
systems. In certain instances, where a single franchise comprises a large
percentage of the customers in an operating region, the loss of such franchise
could decrease the economies of scale achieved by the Partnership's clustering
strategy. The
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Partnership has never had a franchise revoked for any of its systems and
believes that it has satisfactory relationships with substantially all of its
franchising authorities.
MACOUPIN JOINT VENTURE
As of December 31, 1998, the Joint Venture held seven franchises.
These franchises, all of which are non-exclusive, provide for the payment of
fees to the issuing authority. Annual franchise fees imposed on the Joint
Venture's systems range up to 5% of the gross revenues generated by a system.
The 1984 Cable Act prohibits franchising authorities from imposing franchise
fees in excess of 5% of gross revenues and also permits the cable system
operator to seek renegotiation and modification of franchise requirements if
warranted by changed circumstances.
The following table groups the franchises of the Joint Venture's
cable television systems by date of expiration and presents the number of
franchises for each group of franchises and the approximate number and
percentage of homes subscribing to cable service for each group as of December
31, 1998.
<TABLE>
<CAPTION>
Number of Percentage of
Year of Number of Basic Basic
Franchise Expiration Franchises Subscribers Subscribers
-------------------- ---------- ----------- -----------
<S> <C> <C> <C>
Prior to 2000 4 3,209 72.6%
2000-2004 3 1,214 27.4%
--- ----- -----
Total 7 4,423 100.0%
--- ----- -----
--- ----- -----
</TABLE>
In certain instances, where a single franchise comprises a large
percentage of the customers in an operating region, the loss of such franchise
could decrease the economies of scale achieved by the Joint Venture's clustering
strategy. The Joint Venture has never had a franchise revoked for any of its
systems and believes that it has satisfactory relationships with its franchising
authorities.
The 1984 Cable Act provides, among other things, for an orderly
franchise renewal process in which franchise renewal will not be unreasonably
withheld or, if renewal is denied and the franchising authority acquires
ownership of the system or effects a transfer of the system to another person,
the operator generally is entitled to the "fair market value" for the system
covered by such franchise, but no value may be attributed to the franchise
itself. In addition, the 1984 Cable Act, as amended by the 1992 Cable Act,
establishes comprehensive renewal procedures which require that an incumbent
franchisee's renewal application be assessed on its own merit and not as part of
a comparative process with competing applications. See "Legislation and
Regulation."
COMPETITION
Cable television systems compete with other communications and
entertainment media, including over-the-air television broadcast signals which a
viewer is able to receive directly using the viewer's own television set and
antenna. The extent to which a cable system competes with over-the-air
broadcasting depends upon the quality and quantity of the broadcast signals
available by direct antenna reception compared to the quality and quantity of
such signals and alternative services offered by a cable system. Cable systems
also face competition from alternative methods of distributing and receiving
television signals and from other sources of entertainment such as live sporting
events, movie theaters and home video products, including videotape recorders
and videodisc players. In recent years, the FCC has adopted policies providing
for authorization of new technologies and a more favorable operating environment
for certain existing
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technologies that provide, or may provide, substantial additional competition
for cable television systems. The extent to which cable television service is
competitive depends in significant part upon the cable television system's
ability to provide an even greater variety of programming than that available
over the air or through competitive alternative delivery sources.
Individuals presently have the option to purchase home satellite
dishes, which allow the direct reception of satellite-delivered broadcast and
nonbroadcast program services formerly available only to cable television
subscribers. Most satellite-distributed program signals are being electronically
scrambled to permit reception only with authorized decoding equipment for which
the consumer must pay a fee. The 1992 Cable Act enhances the right of cable
competitors to purchase nonbroadcast satellite-delivered programming. See
"Legislation and Regulation-Federal Regulation."
Television programming is now also being delivered to individuals
by high-powered direct broadcast satellites ("DBS") utilizing video compression
technology. This technology has the capability of providing more than 100
channels of programming over a single high-powered DBS satellite with
significantly higher capacity available if, as is the case with DIRECTV,
multiple satellites are placed in the same orbital position. Unlike cable
television systems, however, DBS satellites are limited by law in their ability
to deliver local broadcast signals. One DBS provider, EchoStar, has announced
plans to deliver a limited number of local broadcast signals in a limited number
of markets and has initiated efforts to have the practice legalized. Legislation
has been introduced in Congress which would permit DBS operators to elect to
provide local broadcast signals to their customers under the Copyright Act. If
DBS providers are ultimately permitted to deliver local broadcast signals, cable
television systems would lose a significant competitive advantage. DBS service
can be received virtually anywhere in the continental United States through the
installation of a small rooftop or side-mounted antenna, and it is more
accessible than cable television service where cable plant has not been
constructed or where it is not cost effective to construct cable television
facilities. DBS service is being heavily marketed on a nationwide basis by
several service providers. In addition, medium-power fixed-service satellites
can be used to deliver direct-to-home satellite services over small home
satellite dishes, and one provider, PrimeStar, currently provides service to
subscribers using such a satellite. DIRECTV has recently agreed to purchase
PrimeStar.
Multichannel multipoint distribution systems ("wireless cable")
deliver programming services over microwave channels licensed by the FCC and
received by subscribers with special antennas. Wireless cable systems are less
capital intensive, are not required to obtain local franchises or to pay
franchise fees, and are subject to fewer regulatory requirements than cable
television systems. To date, the ability of wireless cable services to compete
with cable television systems has been limited by channel capacity (35-channel
maximum) and the need for unobstructed line-of-sight over-the-air transmission.
Although relatively few wireless cable systems in the United States are
currently in operation or under construction, virtually all markets have been
licensed or tentatively licensed. The use of digital compression technology, and
the FCC's recent amendment to its rules, which permits reverse path or two-way
transmission over wireless facilities, may enable wireless cable systems to
deliver more channels and additional services.
Private cable television systems compete to service condominiums,
apartment complexes and certain other multiple unit residential developments.
The operators of these private systems, known as satellite master antenna
television ("SMATV") systems, often enter into exclusive agreements with
apartment building owners or homeowners' associations which preclude franchised
cable television operators from serving residents of such private complexes.
However, the 1984 Cable Act gives franchised cable operators the right to use
existing compatible easements within their franchise areas upon
nondiscriminatory terms and conditions. Accordingly, where there are preexisting
compatible easements, cable operators may not be unfairly denied access or
discriminated against with respect to the terms and conditions of access to
those easements. There have been conflicting judicial decisions interpreting the
scope of the access right granted by the 1984 Cable Act, particularly with
respect to easements located entirely on private property. Under the 1996
Telecom Act, SMATV systems can interconnect non-commonly owned buildings without
having to
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comply with local, state and federal regulatory requirements that are imposed
upon cable systems providing similar services, as long as they do not use public
rights of way.
The FCC has initiated a new interactive television service which
will permit non-video transmission of information between an individual's home
and entertainment and information service providers. This service, which can be
used by DBS systems, television stations and other video programming
distributors (including cable television systems), is an alternative technology
for the delivery of interactive video services. It does not appear at the
present time that this service will have a material impact on the operations of
cable television systems.
The FCC has allocated spectrum in the 28 GHz range for a new
multichannel wireless service that can be used to provide video and
telecommunications services. The FCC recently completed the process of awarding
licenses to use this spectrum via a market-by-market auction. It cannot be
predicted at this time whether such a service will have a material impact on the
operations of cable television systems.
Cable systems generally operate pursuant to franchises granted on
a non-exclusive basis. In addition, the 1992 Cable Act prohibits franchising
authorities from unreasonably denying requests for additional franchises and
permits franchising authorities to build and operate their own cable systems.
Municipally-owned cable systems enjoy certain competitive advantages such as
lower-cost financing and exemption from the payment of franchise fees.
The 1996 Telecom Act eliminates the restriction against ownership
(subject to certain exceptions) and operation of cable systems by local
telephone companies within their local exchange service areas. Telephone
companies are now free to enter the retail video distribution business through
any means, such as DBS, wireless cable, SMATV or as traditional franchised cable
system operators. Alternatively, the 1996 Telecom Act authorizes local telephone
companies to operate "open video systems" (a facilities-based distribution
system, like a cable system, but which is "open," i.e., also available for use
by programmers other than the owner of the facility) without obtaining a local
cable franchise, although telephone companies operating such systems can be
required to make payments to local governmental bodies in lieu of cable
franchise fees. Up to two-thirds of the channel capacity on an "open video
system" must be available to programmers unaffiliated with the local telephone
company. As a result of the foregoing changes, well financed businesses from
outside the cable television industry (such as public utilities that own the
poles to which cable is attached) may become competitors for franchises or
providers of competing services. The 1996 Telecom Act, however, also includes
numerous provisions designed to make it easier for cable operators and others to
compete directly with local exchange telephone carriers in the provision of
traditional telephone service and other telecommunications services.
Other new technologies, including Internet-based services, may
become competitive with services that cable television systems can offer. The
1996 Telecom Act directed the FCC to establish, and the FCC has adopted,
regulations and policies for the issuance of licenses for digital television
("DTV") to incumbent television broadcast licensees. DTV is expected to deliver
high definition television pictures, multiple digital-quality program streams,
as well as CD-quality audio programming and advanced digital services, such as
data transfer or subscription video. The FCC also has authorized television
broadcast stations to transmit textual and graphic information useful both to
consumers and businesses. The FCC also permits commercial and noncommercial FM
stations to use their subcarrier frequencies to provide nonbroadcast services
including data transmission. The cable television industry competes with radio,
television, print media and the Internet for advertising revenues. As the cable
television industry continues to offer more of its own programming channels,
e.g., Discovery and USA Network, income from advertising revenues can be
expected to increase.
Recently a number of Internet service providers, commonly known as
ISPs, have requested local authorities and the FCC to provide rights of access
to cable television systems' broadband infrastructure
-13-
<PAGE>
in order that they be permitted to deliver their services directly to cable
television systems' customers. In a recent report, the FCC declined to institute
a proceeding to examine this issue, and concluded that alternative means of
access are or soon will be made to a broad range of ISPs. The FCC declined to
take action on ISP access to broadband cable facilities, and the FCC indicated
that it would continue to monitor this issue. Several local jurisdictions also
are reviewing this issue.
Telephone companies are accelerating the deployment of Asymmetric
Digital Subscriber Line technology, known as ADSL. These companies report that
ADSL technology will allow Internet access to subscribers at peak data
transmission speeds equal or greater than that of modems over conventional
telephone lines. Several of the Regional Bell Operating Companies have requested
the FCC to fully deregulate packet-switched networks (a type of data
communication in which small blocks of data are independently transmitted and
reassembled at their destination) to allow them to provide high-speed broadband
services, including interactive online services, without regard to present
service boundaries and other regulatory restrictions. The Partnership cannot
predict the likelihood of success of the online services offered by these
competitors, (ISP attempts to gain access to the cable industry's broadband
facilities), or the impact on the Partnership's or Joint Venture's business.
Premium programming provided by cable systems is subject to the
same competitive factors which exist for other programming discussed above. The
continued profitability of premium services may depend largely upon the
continued availability of attractive programming at competitive prices.
Advances in communications technology, as well as changes in the
marketplace and the regulatory and legislative environment, are constantly
occurring. Thus, it is not possible to predict the competitive effect that
ongoing or future developments might have on the cable industry. See
"Legislation and Regulation."
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<PAGE>
LEGISLATION AND REGULATION
The cable television industry is regulated by the FCC, some state
governments and substantially all local governments. In addition, various
legislative and regulatory proposals under consideration from time to time by
Congress and various federal agencies have in the past materially affected, and
may in the future materially affect, the Partnership and the cable television
industry. The following is a summary of federal laws and regulations affecting
the growth and operation of the cable television industry and a description of
certain state and local laws. The Partnership believes that the regulation of
its industry remains a matter of interest to Congress, the FCC and other
regulatory authorities. There can be no assurance as to what, if any, future
actions such legislative and regulatory authorities may take or the effect
thereof on the Partnership and Joint Venture.
FEDERAL REGULATION
The primary federal statute dealing with the regulation of the
cable television industry is the Communications Act of 1934 (the "Communications
Act"), as amended. The three principal amendments to the Communications Act that
shaped the existing regulatory framework for the cable television industry were
the 1984 Cable Act, the 1992 Cable Act and the 1996 Telecom Act.
The FCC, the principal federal regulatory agency with jurisdiction
over cable television, has promulgated regulations to implement the provisions
contained in the Communications Act. The FCC has the authority to enforce these
regulations through the imposition of substantial fines, the issuance of cease
and desist orders and/or the imposition of other administrative sanctions, such
as the revocation of FCC licenses needed to operate certain transmission
facilities often used in connection with cable operations. A brief summary of
certain of these federal regulations as adopted to date follows.
RATE REGULATION
The 1992 Cable Act replaced the FCC's previous standard for
determining "effective competition," under which most cable systems were not
subject to local rate regulation, with a statutory provision that resulted in
nearly all cable television systems becoming subject to local rate regulation of
basic service. The 1996 Telecom Act, however, expanded the definition of
effective competition to include situations where a local telephone company or
an affiliate, or any multichannel video provider using telephone company
facilities, offers comparable video service by any means except DBS. A finding
of effective competition exempts both basic and nonbasic tiers from regulation.
Additionally, the 1992 Cable Act required the FCC to adopt a formula,
enforceable by franchising authorities, to assure that basic cable rates are
reasonable; allowed the FCC to review rates for nonbasic service tiers (other
than per-channel or per-program services) in response to complaints filed by
franchising authorities and/or cable customers; prohibited cable television
systems from requiring subscribers to purchase service tiers above basic service
in order to purchase premium services if the system is technically capable of
doing so; required the FCC to adopt regulations to establish, on the basis of
actual costs, the price for installation of cable service, remote controls,
converter boxes and additional outlets; and allowed the FCC to impose
restrictions on the retiering and rearrangement of cable services under certain
limited circumstances. The 1996 Telecom Act limits the class of complainants
regarding nonbasic tier rates to franchising authorities only and ends FCC
regulation of nonbasic tier rates on March 31, 1999.
The FCC's regulations contain standards for the regulation of
basic and nonbasic cable service rates (other than per-channel or per-program
services). Local franchising authorities and/or the FCC are empowered to order a
reduction of existing rates which exceed the maximum permitted level for either
basic and/or nonbasic cable services and associated equipment, and refunds can
be required. The rate regulations adopt a benchmark price cap system for
measuring the reasonableness of existing basic and nonbasic service rates.
Alternatively, cable operators have the opportunity to make cost-of-service
showings which, in some cases, may justify rates above the applicable
benchmarks. The rules also require that charges for cable-related equipment
(E.G., converter boxes and remote control devices) and installation services be
unbundled from the provision of
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<PAGE>
cable service and based upon actual costs plus a reasonable profit. The
regulations also provide that future rate increases may not exceed an
inflation-indexed amount, plus increases in certain costs beyond the cable
operator's control, such as taxes, franchise fees and increased programming
costs. Cost-based adjustments to these capped rates can also be made in the
event a cable operator adds or deletes channels. In addition, new product tiers
consisting of services new to the cable system can be created free of rate
regulation as long as certain conditions are met, such as not moving services
from existing tiers to the new tier. These provisions currently provide limited
benefit to the Partnership's and Joint Venture's systems due to the lack of
channel capacity previously discussed. There is also a streamlined
cost-of-service methodology available to justify a rate increase on basic and
regulated nonbasic tiers for "significant" system rebuilds or upgrades.
Franchising authorities have become certified by the FCC to
regulate the rates charged by the Partnership and Joint Venture for basic cable
service and for installation charges and equipment rental. The Partnership and
Joint Venture have had to bring its rates and charges into compliance with the
applicable benchmark or equipment and installation cost levels in its service
areas. This has had a negative impact on the Partnership's and Joint Venture's
revenues and cash flow.
FCC regulations adopted pursuant to the 1992 Cable Act require
cable systems to permit customers to purchase video programming on a per channel
or a per program basis without the necessity of subscribing to any tier of
service, other than the basic service tier, unless the cable system is
technically incapable of doing so. Generally, an exemption from compliance with
this requirement for cable systems that do not have such technical capability is
available until a cable system obtains the capability, but not later than
December 2002. At the present time, the Partnership's and Joint Venture's
service areas are unable to comply with this requirement.
CARRIAGE OF BROADCAST TELEVISION SIGNALS
The 1992 Cable Act adopted new television station carriage
requirements. These rules allow commercial television broadcast stations which
are "local" to a cable system, I.E., the system is located in the station's Area
of Dominant Influence, to elect every three years whether to require the cable
system to carry the station, subject to certain exceptions, or whether the cable
system will have to negotiate for "retransmission consent" to carry the station.
Local non-commercial television stations are also given mandatory carriage
rights, subject to certain exceptions, within the larger of: (i) a 50-mile
radius from the station's city of license; or (ii) the station's Grade B contour
(a measure of signal strength). Unlike commercial stations, noncommercial
stations are not given the option to negotiate retransmission consent for the
carriage of their signal. In addition, cable systems must obtain retransmission
consent for the carriage of all "distant" commercial broadcast stations, except
for certain "superstations," I.E., commercial satellite-delivered independent
stations, such as WGN. The Partnership and Joint Venture have thus far not been
required to pay cash compensation to broadcasters for retransmission consent or
been required by broadcasters to remove broadcast stations from the cable
television channel line-ups. The Partnership has, however, agreed to carry some
services in specified markets pursuant to retransmission consent arrangements
which it believes are comparable to those entered into by most other large cable
operators, and for which it pays monthly fees to the service providers, as it
does with other satellite providers. The second election between must-carry and
retransmission consent for local commercial television broadcast stations was
October 1, 1996, and the Partnership and Joint Venture were once again able to
complete negotiations with broadcasters with essentially no change to the
previous agreements. The next election between must-carry and retransmission
consent for local commercial television broadcast stations will be October 1,
1999.
The FCC is currently conducting a rulemaking proceeding regarding
the carriage responsibilities of cable television systems during the transition
of broadcast television from analog to digital transmission. Specifically, the
FCC is exploring whether to amend the signal carriage rules to accommodate the
carriage of digital broadcast television signals. The Partnership and Joint
Venture are unable to predict the ultimate outcome of this proceeding or the
impact of new carriage requirements on the operations of their cable systems.
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NONDUPLICATION OF NETWORK PROGRAMMING
Cable television systems that have 1,000 or more customers must,
upon the appropriate request of a local television station, delete the
simultaneous or nonsimultaneous network programming of certain lower priority
distant stations affiliated with the same network as the local station.
DELETION OF SYNDICATED PROGRAMMING
FCC regulations enable television broadcast stations that have
obtained exclusive distribution rights for syndicated programming in their
market to require a cable system to delete or "black out" such programming from
certain other television stations which are carried by the cable system. The
extent of such deletions will vary from market to market and cannot be predicted
with certainty. However, it is possible that such deletions could be substantial
and could lead the cable operator to drop a distant signal in its entirety.
PROGRAM ACCESS
The 1992 Cable Act contains provisions that are intended to foster
the development of competition to traditional cable systems by regulating the
access of competing multichannel video providers to vertically integrated,
satellite-distributed cable programming services. Consequently, with certain
limitations, the federal law generally precludes any satellite distributed
programming service affiliated with a cable company from favoring an affiliated
company over competitors; requires such programmers to sell their programming to
other multichannel video providers; and limits the ability of such satellite
program services to offer exclusive programming arrangements to their
affiliates.
FRANCHISE FEES
Franchising authorities may impose franchise fees, but such
payments cannot exceed 5% of a cable system's annual gross revenues. Under the
1996 Telecom Act, franchising authorities may not exact franchise fees from
revenues derived from telecommunications services.
RENEWAL OF FRANCHISES
The 1984 Cable Act established renewal procedures and criteria
designed to protect incumbent franchisees against arbitrary denials of renewal.
While these formal procedures are not mandatory unless timely invoked by either
the cable operator or the franchising authority, they can provide substantial
protection to incumbent franchisees. Even after the formal renewal procedures
are invoked, franchising authorities and cable operators remain free to
negotiate a renewal outside the formal process. Nevertheless, renewal is by no
means assured, as the franchisee must meet certain statutory standards. Even if
a franchise is renewed, a franchising authority may impose new and more onerous
requirements such as upgrading facilities and equipment, although the
municipality must take into account the cost of meeting such requirements.
The 1992 Cable Act makes several changes to the process under
which a cable operator seeks to enforce his renewal rights, which could make it
easier in some cases for a franchising authority to deny renewal. While a cable
operator must still submit its request to commence renewal proceedings within
thirty to thirty-six months prior to franchise expiration to invoke the formal
renewal process, the request must be in writing and the franchising authority
must commence renewal proceedings not later than six months after receipt of
such notice. The four-month period for the franchising authority to grant or
deny the renewal now runs from the submission of the renewal proposal, not the
completion of the public proceeding. Franchising authorities may consider the
"level" of programming service provided by a cable operator in deciding whether
to renew. For alleged franchise violations occurring after December 29, 1984,
franchising authorities are no longer precluded from denying renewal based on
failure to substantially comply with the material terms of the franchise where
the franchising authority has "effectively acquiesced" to such past violations.
Rather, the franchising authority is estopped if,
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after giving the cable operator notice and opportunity to cure, it fails to
respond to a written notice from the cable operator of its failure or inability
to cure. Courts may not reverse a denial of renewal based on procedural
violations found to be "harmless error."
CHANNEL SET-ASIDES
The 1984 Cable Act permits local franchising authorities to
require cable operators to set aside certain channels for public, educational
and governmental access programming. The 1984 Cable Act further requires cable
television systems with thirty-six or more activated channels to designate a
portion of their channel capacity for commercial leased access by unaffiliated
third parties. While the 1984 Cable Act allowed cable operators substantial
latitude in setting leased access rates, the 1992 Cable Act requires leased
access rates to be set according to a formula determined by the FCC.
COMPETING FRANCHISES
The 1992 Cable Act prohibits franchising authorities from
unreasonably refusing to grant franchises to competing cable television systems
and permits franchising authorities to operate their own cable television
systems without franchises.
OWNERSHIP
The 1996 Telecom Act repealed the 1984 Cable Act's prohibition
against local exchange telephone companies ("LECs") providing video programming
directly to customers within their local telephone exchange service areas.
However, with certain limited exceptions, a LEC may not acquire more than a 10%
equity interest in an existing cable system operating within the LEC's service
area. The 1996 Telecom Act also authorized LECs and others to operate "open
video systems". A recent judicial decision overturned various parts of the FCC's
open video rules, including the FCC's restriction preventing local governmental
authorities from requiring open video system operators to obtain a franchise.
The Partnership expects the FCC to modify its open video rules to comply with
the federal court's decision, but is unable to predict the impact any rule
modifications may have on the Partnership's or Joint Venture's business and
operations. See "Business-Competition."
The 1984 Cable Act and the FCC's rules prohibit the common
ownership, operation, control or interest in a cable system and a local
television broadcast station whose predicted grade B contour (a measure of a
television station's signal strength as defined by the FCC's rules) covers any
portion of the community served by the cable system. The 1996 Telecom Act
eliminates the statutory ban and directs the FCC to review its rule within two
years. Such a review is presently pending. Finally, in order to encourage
competition in the provision of video programming, the FCC adopted a rule
prohibiting the common ownership, affiliation, control or interest in cable
television systems and wireless cable facilities having overlapping service
areas, except in very limited circumstances. The 1992 Cable Act codified this
restriction and extended it to co-located SMATV systems. Permitted arrangements
in effect as of October 5, 1992 are grandfathered. The 1996 Telecom Act exempts
cable systems facing effective competition from the wireless cable and SMATV
restriction. In addition, a cable operator can purchase a SMATV system serving
the same area and technically integrate it into the cable system. The 1992 Cable
Act permits states or local franchising authorities to adopt certain additional
restrictions on the ownership of cable television systems.
Pursuant to the 1992 Cable Act, the FCC has imposed limits on the
number of cable systems which a single cable operator can own. In general, no
cable operator can have an attributable interest in cable systems which pass
more than 30% of all homes nationwide. Attributable interests for these purposes
include voting interests of 5% or more (unless there is another single holder of
more than 50% of the voting stock), officerships, directorships, general
partnership interests and limited partnership interests (unless the limited
partners have no material involvement in the limited partnership's business).
These rules are under review by the
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FCC. The FCC has stayed the effectiveness of these rules pending the outcome of
the appeal from a U.S. District Court decision holding the multiple ownership
limit provision of the 1992 Cable Act unconstitutional.
The FCC has also adopted rules which limit the number of channels
on a cable system which can be occupied by programming in which the entity which
owns the cable system has an attributable interest. The limit is 40% of the
first 75 activated channels.
The FCC also recently commenced a rulemaking proceeding to
examine, among other issues, whether any limitations on cable-DBS
cross-ownership are warranted in order to prevent anticompetitive conduct in the
video services market.
FRANCHISE TRANSFERS
The 1992 Cable Act requires franchising authorities to act on any
franchise transfer request submitted after December 4, 1992 within 120 days
after receipt of all information required by FCC regulations and by the
franchising authority. Approval is deemed to be granted if the franchising
authority fails to act within such period.
TECHNICAL REQUIREMENTS
The FCC has imposed technical standards applicable to the cable
channels on which broadcast stations are carried, and has prohibited franchising
authorities from adopting standards which are in conflict with or more
restrictive than those established by the FCC. Those standards are applicable to
all classes of channels which carry downstream National Television System
Committee (the "NTSC") video programming. The FCC also has adopted additional
standards applicable to cable television systems using frequencies in the
108-137 MHz and 225-400 MHz bands in order to prevent harmful interference with
aeronautical navigation and safety radio services and has also established
limits on cable system signal leakage. Periodic testing by cable operators for
compliance with the technical standards and signal leakage limits is required
and an annual filing of the results of these measurements is required. The 1992
Cable Act requires the FCC to periodically update its technical standards to
take into account changes in technology. Under the 1996 Telecom Act, local
franchising authorities may not prohibit, condition or restrict a cable system's
use of any type of subscriber equipment or transmission technology.
The FCC has adopted regulations to implement the requirements of
the 1992 Cable Act designed to improve the compatibility of cable systems and
consumer electronics equipment. Among other things, these regulations generally
prohibit cable operators from scrambling their basic service tier. The 1996
Telecom Act directs the FCC to set only minimal standards to assure
compatibility between television sets, VCRs and cable systems, and to rely on
marketplace competition to best determine which features, functions, protocols,
and product and service options meet the needs of consumers.
Pursuant to the 1992 Cable Act, the FCC has adopted rules to
assure the competitive availability to consumers of customers premises
equipment, such as converters, used to access the services offered by cable
television systems and other multichannel video programming distributions
("MVPD"). Pursuant to those rules, consumers are given the right to attach
compatible equipment to the facilities of their MVPD so long as the equipment
does not harm the network, does not interfere with the services purchased by
other customers, and is not used to receive unauthorized services. As of July 1,
2000, MVPDs (other than DBS operators) are required to separate security from
non-security functions in the customer premises equipment which they sell or
lease to their customers and offer their customers the option of using component
security modules obtained from the MVPD with set-top units purchased or leased
from retail outlets. As of January 1, 2005, MVPDs will be prohibited from
distributing new set -top equipment integrating both security and non-security
functions to their customers.
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POLE ATTACHMENTS
The FCC currently regulates the rates and conditions imposed by
certain public utilities for use of their poles unless state public service
commissions are able to demonstrate that they regulate the rates, terms and
conditions of cable television pole attachments. The states of Illinois and
Kentucky, in which the Partnership and Joint Venture operate cable systems, have
certified to the FCC that they regulate the rates, terms and conditions for pole
attachments. In the absence of state regulation, the FCC administers such pole
attachment rates through use of a formula which it has devised. The 1996
amendments to the Communications Act modified the FCC's pole attachment
regulatory scheme by requiring the FCC to adopt new regulations. These
regulations become effective in 2001 and govern the charges for pole attachments
used by companies, including cable operators, that provide telecommunications
services by immediately permitting certain providers of telecommunications
services to rely upon the protections of the current law until the new rate
formula becomes effective in 2001, and by requiring that utilities provide cable
systems and telecommunications carriers with nondiscriminatory access to any
pole, conduit or right-of-way controlled by the utility. In adopting its new
attachment regulations, the FCC concluded, in part, that a cable operator
providing Internet service on its cable system is not providing a
telecommunications service for purposes of the new rules.
The new rate formula adopted by the FCC and which is applicable
for any party, including cable systems, which offer telecommunications services
will result in significantly higher attachment rates for cable systems which
choose to offer such services. Any resulting increase in attachment rates as a
result of the FCC's new rate formula will be phased in over a five-year period
in equal annual increments, beginning in February 2001. Several parties have
requested the FCC to reconsider its new regulations and several parties have
challenged the new rules in court. A federal district court recently upheld the
constitutionality of the new statutory provision, and the utilities involved in
that litigation have appealed the lower court's decision. The FCC also has
initiated a proceeding to determine whether it should adjust certain elements of
the current rate formula. If adopted, these adjustments could increase rates for
pole attachments and conduit space. The Partnership and Joint Venture are unable
to predict the outcome of this current litigation or the ultimate impact of any
revised FCC rate formula or of any new pole attachment rate regulations on their
business and operations.
OTHER MATTERS
Other matters subject to FCC regulation include certain
restrictions on a cable system's carriage of local sports programming; rules
governing political broadcasts; customer service standards; obscenity and
indecency; home wiring; equal employment opportunity; privacy; closed
captioning; sponsorship identification; system registration; and limitations on
advertising contained in nonbroadcast children's programming.
COPYRIGHT
Cable television systems are subject to federal copyright
licensing covering carriage of broadcast signals. In exchange for making
semi-annual payments to a federal copyright royalty pool and meeting certain
other obligations, cable operators obtain a statutory license to retransmit
broadcast signals. The amount of this royalty payment varies, depending on the
amount of system revenues from certain sources, the number of distant signals
carried, and the location of the cable system with respect to over-the-air
television stations. Any future adjustment to the copyright royalty rates will
be done through an arbitration process supervised by the U.S. Copyright Office.
Cable operators are liable for interest on underpaid and unpaid
royalty fees, but are not entitled to collect interest on refunds received for
overpayment of copyright fees.
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Copyrighted music performed in programming supplied to cable
television systems by pay cable networks (such as HBO) and basic cable networks
(such as USA Network) is licensed by the networks through private agreements
with the American Society of Composers and Publishers ("ASCAP") and BMI, Inc.
("BMI"), the two major performing rights organizations in the United States. As
a result of extensive litigation, both ASCAP and BMI now offer "through to the
viewer" licenses to the cable networks which cover the retransmission of the
cable networks' programming by cable systems to their customers. Payment for
music performed in programming offered on a per program basis remains unsettled.
The Partnership and Joint Venture recently participated in a settlement with BMI
for payment of fees in connection with the Request pay-per-view network.
Industry litigation of this issue with ASCAP is likely.
Copyrighted music transmitted by cable systems themselves, E.G.,
on local origination channels or in advertisements inserted locally on cable
networks, must also be licensed. Cable industry negotiations with ASCAP, BMI and
SESAC, Inc. (a third and smaller performing rights organization) are in
progress.
LOCAL REGULATION
Because a cable television system uses local streets and
rights-of-way, cable television systems generally are operated pursuant to
nonexclusive franchises, permits or licenses granted by a municipality or other
state or local government entity. Franchises generally are granted for fixed
terms and in many cases are terminable if the franchise operator fails to comply
with material provisions. Although the 1984 Cable Act provides for certain
procedural protections, there can be no assurance that renewals will be granted
or that renewals will be made on similar terms and conditions. Upon receipt of a
franchise, the cable system owner usually is subject to a broad range of
obligations to the issuing authority directly affecting the business of the
system. The terms and conditions of franchises vary materially from jurisdiction
to jurisdiction, and even from city to city within the same state, historically
ranging from reasonable to highly restrictive or burdensome. The specific terms
and conditions of a franchise and the laws and regulations under which it was
granted directly affect the profitability of the cable television system. Cable
franchises generally contain provisions governing charges for basic cable
television services, fees to be paid to the franchising authority, length of the
franchise term, renewal, sale or transfer of the franchise, territory of the
franchise, design and technical performance of the system, use and occupancy of
public streets and the number and types of cable services provided. The 1996
Telecom Act prohibits a franchising authority from either requiring or limiting
a cable operator's provision of telecommunications services.
The 1984 Cable Act places certain limitations on a franchising
authority's ability to control the operation of a cable system operator, and the
courts have from time to time reviewed the constitutionality of several general
franchise requirements, including franchise fees and access channel
requirements, often with inconsistent results. On the other hand, the 1992 Cable
Act prohibits exclusive franchises, and allows franchising authorities to
exercise greater control over the operation of franchised cable television
systems, especially in the area of customer service and rate regulation.
Moreover, franchising authorities are immunized from monetary damage awards
arising from regulation of cable television systems or decisions made on
franchise grants, renewals, transfers and amendments.
Existing federal regulations, copyright licensing and, in many
jurisdictions, state and local franchise requirements, currently are the subject
of a variety of judicial proceedings, legislative hearings and administrative
and legislative proposals which could change, in varying degrees, the manner in
which cable television systems operate. Neither the outcome of these proceedings
nor their impact upon the cable television industry can be predicted at this
time.
ITEM 2. PROPERTIES
The Partnership and Joint Venture own or lease parcels of real
property for signal reception sites (antenna towers and headends), microwave
facilities and business offices, and own or lease their service
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vehicles. The Partnership and Joint Venture believe that their properties, both
owned and leased, are in good condition and are suitable and adequate for the
their business operations.
The Partnership and Joint Venture own substantially all of the
assets related to their cable television operations, including their program
production equipment, headend (towers, antennas, electronic equipment and
satellite earth stations), cable plant (distribution equipment, amplifiers,
customer drops and hardware), converters, test equipment and tools and
maintenance equipment.
ITEM 3. LEGAL PROCEEDINGS
The Partnership and Joint Venture are periodically parties to
various legal proceedings. Such legal proceedings are ordinary and routine
litigation proceedings that are incidental to the Partnership's and Joint
Venture's businesses and management believes that the outcome of all pending
legal proceedings will not, in the aggregate, have a material adverse effect on
the financial condition of the Partnership or Joint Venture.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S EQUITY SECURITIES AND RELATED SECURITY
HOLDER MATTERS
LIQUIDITY
While the Partnership's equity securities, which consist of units
of limited partnership interests, are publicly held, there is no established
public trading market for the units and it is not expected that a market will
develop in the future. The approximate number of equity security holders of
record was 961 as of December 31, 1998. In addition to restrictions on the
transferability of units contained in the Partnership Agreement, the
transferability of units may be affected by restrictions on resales imposed by
federal or state law.
Pursuant to documents filed with the Securities and Exchange
Commission on February 12, 1999, Madison Liquidity Investors 104, LLC
("Madison") initiated a tender offer to purchase up to approximately 9.9% of the
outstanding units for $161 per unit. On February 25, 1999, the Partnership filed
a Recommendation Statement on Schedule 14D-9 and distributed a letter to
unitholders recommending that unitholders reject Madison's offer.
DISTRIBUTIONS
The amended partnership agreement generally provides that all cash
distributions (as defined) be allocated 1% to the general partners and 99% to
the limited partners until the limited partners have received aggregate cash
distributions equal to their original capital contributions ("Capital Payback").
The partnership agreement also provides that all partnership profits, gains,
operational losses, and credits (all as defined) be allocated 1% to the general
partners and 99% to the limited partners until the limited partners have been
allocated net profits equal to the amount of cash flow required for Capital
Payback. After the limited partners have received cash flow equal to their
initial investments, the general partners will only receive a 1% allocation of
cash flow from sale or liquidation of a system until the limited partners have
received an annual simple interest return of at least 12% of their initial
investments less any distributions from previous system sales and cash
distributions from operations after Capital Payback. Thereafter, the respective
allocations will be made 20% to the general partners and 80% to the limited
partners. Any losses from system sales or exchanges shall be allocated first to
all partners having positive capital account balances (based on their respective
capital accounts) until all such accounts are reduced to zero and thereafter to
the Corporate General Partner. All allocations to individual limited partners
will be based on their respective limited partnership ownership interests.
Upon the disposition of substantially all of the Partnership's
assets, gain shall be allocated first to the limited partners having negative
capital account balances until their capital accounts are increased to zero,
next equally among the general partners until their capital accounts are
increased to zero, and thereafter as outlined in the preceding paragraph. Upon
dissolution of the Partnership, any negative capital account balances remaining
after all allocations and distributions are made must be funded by the
respective partners.
The policy of the Corporate General Partner (although there is no
contractual obligation to do so) is to cause the Partnership to make cash
distributions on a monthly basis throughout the operational life of the
Partnership, assuming the availability of sufficient cash flow from Partnership
operations. The amount of such distributions, if any, will vary from month to
month depending upon the Partnership's results of operations and the Corporate
General Partner's determination of whether otherwise available funds are needed
for the Partnership's ongoing working capital and liquidity requirements.
However, on February 22, 1994, the
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FCC announced significant amendments to its rules implementing certain
provisions of the 1992 Cable Act. Compliance with these rules has had a negative
impact on the Partnership's revenues and cash flow.
The Partnership began making periodic cash distributions to
limited partners from operations during 1987 and distributed $498,800 ($12.50
per unit) in each of 1996, 1997 and 1998. The Partnership will continue to
determine the Partnership's ability to pay distributions on a quarter-by-quarter
basis. See "Liquidity and Capital Resources."
The Partnership's ability to pay distributions, the actual level
of distribution, and the continuance of distributions, if any, will depend on a
number of factors, including the amount of cash flow from operations, projected
capital expenditures, provision for contingent liabilities, availability of bank
refinancing, regulatory or legislative developments governing the cable
television industry, and growth in customers. Some of these factors are beyond
the control of the Partnership, and consequently, no assurances can be given
regarding the level or timing of future distributions.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is selected financial data of the Partnership and
the Joint Venture for the five years ended December 31, 1998. This data should
be read in conjunction with the Partnership's and Joint Venture's financial
statements included in Item 8 hereof and "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in Item 7.
I. THE PARTNERSHIP
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------------
OPERATIONS STATEMENT DATA 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $ 2,241,600 $ 2,311,800 $ 2,489,000 $ 2,658,100 $ 2,649,700
Costs and expenses (1,448,800) (1,442,700) (1,428,700) (1,582,900) (1,591,700)
Depreciation and amortization (712,500) (689,100) (703,600) (499,700) (532,000)
-------------- -------------- -------------- -------------- --------------
Operating income 80,300 180,000 356,700 575,500 526,000
Interest expense (58,500) (61,800) (30,500) (12,900) (13,000)
Interest income 9,600 32,000 23,400 32,500 28,000
Gain (loss) on sale of assets - - (4,700) 45,000 200
Equity in net income of Joint Venture 11,900 28,000 123,500 131,900 207,100
-------------- -------------- -------------- -------------- --------------
Net income $ 43,300 $ 178,200 $ 468,400 $ 772,000 $ 748,300
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Distributions paid to partners $ 503,800 $ 503,800 $ 503,800 $ 503,800 $ 503,800
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
PER UNIT OF LIMITED
PARTNERSHIP INTEREST:
Net income $ 1.07 $ 4.42 $ 11.62 $ 19.16 $ 18.57
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Distributions $ 12.50 $ 12.50 $ 12.50 $ 12.50 $ 12.50
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
OTHER OPERATING DATA
Net cash provided by operating
activities $ 752,400 $ 1,174,100 $ 661,300 $ 1,342,100 $ 754,000
Net cash provided by (used in)
investing activities 179,700 (392,800) (265,800) (500,900) (226,300)
Net cash used in financing activities (509,400) (503,800) (887,000) (503,800) (503,800)
EBITDA(1) 792,800 869,100 1,060,300 1,075,200 1,058,000
EBITDA to revenues 35.4% 37.6% 42.6% 40.4% 39.9%
Total debt to EBITDA 0.5x 0.4x - - -
Capital expenditures $ 122,700 $ 373,700 $ 608,900 $ 556,000 $ 234,500
<CAPTION>
As of December 31,
----------------------------------------------------------------------------------
BALANCE SHEET DATA 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total assets $ 4,275,600 $ 4,293,800 $ 3,504,300 $ 4,113,300 $ 4,048,200
Total debt 383,200 383,200 - - -
General partners' deficit (48,500) (51,700) (52,000) (49,300) (46,800)
Limited partners' capital 3,533,500 3,211,100 3,176,000 3,441,500 3,683,500
</TABLE>
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<PAGE>
II. ENSTAR CABLE OF MACOUPIN COUNTY
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
OPERATIONS STATEMENT DATA 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,590,800 $ 1,646,000 $ 1,870,600 $ 1,975,900 $ 2,003,000
Costs and expenses (876,900) (959,200) (898,300) (1,020,900) (1,060,500)
Depreciation and amortization (703,900) (634,800) (614,400) (575,400) (344,500)
-------------- -------------- -------------- -------------- --------------
Operating income 10,000 52,000 357,900 379,600 598,000
Interest income, net 25,700 32,000 12,000 16,100 23,300
Gain on sale of cable assets - - 600 - -
-------------- -------------- -------------- -------------- --------------
Net income $ 35,700 $ 84,000 $ 370,500 $ 395,700 $ 621,300
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
Distributions to venturers $ 1,050,000 $ - $ 1,050,000 $ 75,000 $ 37,500
-------------- -------------- -------------- -------------- --------------
-------------- -------------- -------------- -------------- --------------
OTHER OPERATING DATA
Net cash provided by operating activities $ 750,300 $ 799,900 $ 860,200 $ 838,000 $ 1,010,200
Net cash used in investing activities (134,700) (340,000) (439,800) (689,400) (205,100)
Net cash used in financing activities (1,050,000) - (1,050,000) (75,000) (37,500)
EBITDA(1) 713,900 686,800 972,300 955,000 942,500
EBITDA to revenues 44.9% 41.7% 52.0% 48.3% 47.1%
Capital expenditures $ 126,900 $ 325,500 $ 411,200 $ 677,900 $ 170,900
<CAPTION>
As of December 31,
---------------------------------------------------------------------------------
BALANCE SHEET DATA 1994 1995 1996 1997 1998
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Total assets $ 2,647,600 $ 2,840,100 $ 2,084,400 $ 2,564,000 $ 3,053,500
Venturers' capital 2,400,600 2,484,600 1,805,100 2,125,800 2,709,600
</TABLE>
- ------------------------
(1) EBITDA is calculated as operating income before depreciation and
amortization. Based on their experience in the cable television industry, the
Partnership and Joint Venture believe that 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 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 the Partnership's or Joint Venture's financial
performance or as an alternative to cash flows as a measure of liquidity. In
addition, the Partnership's and Joint Venture's definition of EBITDA may not be
identical to similarly titled measures used by other companies.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The 1992 Cable Act required the 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 and Joint Venture's revenues and cash flow. 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 CPST rates will terminate
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 and Joint Venture's business.
Accordingly, the Partnership's and Joint Venture'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 and Joint Venture. 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 and the Joint Venture,
as discussed more fully elsewhere in this Report.
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 Joint Venture is owned equally
by the Partnership and two affiliated partnerships (Enstar Income Program IV-1,
L.P. and Enstar Income Program IV-2, L.P.). The Partnership participates equally
with its 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
1998 COMPARED TO 1997
The Partnership's revenues decreased from $2,658,100 to
$2,649,700, or by less than 1.0%, for the year ended December 31, 1998 as
compared to 1997. Of the $8,400 decrease, $58,200 was due to decreases in the
number of subscriptions for basic, premium, tier and equipment rental services.
The decrease was partially offset by a $39,300 increase in regulated service
rates that were implemented by the Partnership in 1997 and a $10,500 increase in
other revenue producing items. As of December 31, 1998, the Partnership had
approximately 6,200 basic subscribers and 1,500 premium service units.
Service costs increased from $876,900 to $919,300, or by 4.8%, for
the year ended December 31, 1998 as compared to 1997. Service costs represent
costs directly attributable to providing cable services to customers. The
increase was primarily due to increases in franchise fees, programming expenses
and decreases in capitalization of labor and overhead costs. Programming expense
increased primarily as a result of higher rates charged by program suppliers and
due to channel additions. Decreases in capitalization of
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<PAGE>
labor and overhead costs resulted from reductions in construction activity
related to the rebuild of the Partnership's Shelbyville, Illinois cable system.
General and administrative expenses decreased from $364,100 to
$310,400, or by 14.7%, for the year ended December 31, 1998 as compared to 1997,
primarily due to decreases in insurance premiums, customer billing expense and
bad debt expense.
Management fees and reimbursed expenses increased from $341,900 to
$362,000, or by 5.9%, for the year ended December 31, 1998 as compared to 1997.
Management fees decreased in direct relation to decreased revenues as discussed
above. Reimbursed expenses increased due to the transfer of system operating
management from an affiliate to the General Partner.
Depreciation and amortization expense increased from $499,700 to
$532,000, or by 6.5%, for the year ended December 31, 1998 as compared to 1997,
due to asset additions and system upgrades.
Operating income decreased from $575,500 to $526,000, or by 8.6%,
for the year ended December 31, 1998 as compared to 1997, primarily due to
increases in reimbursed expenses and depreciation and amortization expense as
discussed above.
Interest income, net of interest expense, decreased from $19,600
to $15,000, or by 23.5%, for the year ended December 31, 1998 as compared to
1997. The decrease was primarily due to lower average cash balances available
for investment in 1998 than in 1997
Due to the factors described above, the Partnership's net income
decreased from $772,000 to $748,300, or by 3.1%, for the year ended December 31,
1998 as compared to 1997.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues decreased from 40.4% during 1997 to 39.9% in 1998. The
decrease was primarily due to higher franchise fees, programming fees and
reimbursed expenses as described above. EBITDA decreased from $1,075,200 to
$1,058,000, or by 1.6%, as a result.
1997 COMPARED TO 1996
The Partnership's revenues increased from $2,489,000 to
$2,658,100, or by 6.8%, for the year ended December 31, 1997 as compared to
1996. Of the $169,100 increase, $207,700 was due to increases in regulated
service rates that were implemented by the Partnership in the second and fourth
quarters of 1996 and the fourth quarter of 1997, and $33,600 was due to the July
1, 1996 restructuring of The Disney Channel from a premium channel to a tier
channel. These increases were partially offset by a decrease of $45,300 due to
decreases in the number of subscriptions for basic, premium and tier services
and by a $26,900 decrease in other revenue producing items including advertising
sales revenue. As of December 31, 1997, the Partnership had approximately 6,000
basic subscribers and 1,600 premium service units.
Service costs increased from $771,100 to $876,900, or by 13.7%,
for the year ended December 31, 1997 as compared to 1996. Service costs
represent costs directly attributable to providing cable services to customers.
The increase was primarily due to increases in programming expense and decreases
in capitalization of labor and overhead costs. Programming expense increased
primarily as a result of higher rates charged by program suppliers and due to
channel additions. Decreases in capitalization of labor and overhead costs
resulted from reductions in construction activity related to the rebuild of the
Partnership's Shelbyville, Illinois cable system.
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<PAGE>
General and administrative expenses increased from $341,200 to
$364,100, or by 6.7%, for the year ended December 31, 1997 as compared to 1996,
primarily due to an increase in bad debt expense and professional fees.
Management fees and reimbursed expenses increased from $316,400 to
$341,900, or by 8.1%, for the year ended December 31, 1997 as compared to 1996.
Management fees increased in direct relation to increased revenues as discussed
above. Reimbursed expenses increased due to higher allocated personnel costs
resulting from staff additions and wage increases.
Depreciation and amortization expense decreased from $703,600 to
$499,700, or by 29.0%, for the year ended December 31, 1997 as compared to 1996,
due to certain plant assets becoming fully depreciated and certain intangible
assets becoming fully amortized.
Operating income increased from $356,700 to $575,500, or by 61.3%,
for the year ended December 31, 1997 as compared to 1996, primarily due to
increased revenues and decreased depreciation and amortization as discussed
above.
Interest expense decreased from $30,500 to $12,900, or by 57.7%,
for the year ended December 31, 1997 as compared to 1996 due to the repayment of
the Partnership's note payable in February 1996.
Interest income increased by $23,400 to $32,500, or by 38.9%, for
the year ended December 31, 1997 as compared to 1996. The increase was primarily
due to higher average cash balances available for investment and due to a change
in investment policy that yielded a greater return on invested cash.
The Partnership sold a building in June 1997 and recognized a
$45,000 gain on the sale.
Due to the factors described above, the Partnership's net income
increased from $468,400 to $772,000 for the year ended December 31, 1997 as
compared to 1996.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues decreased from 42.6% during 1996 to 40.4% in 1997. The
decrease was primarily caused by increased programming expense. EBITDA increased
from $1,060,300 to $1,075,200, or by 1.4%, as a result.
DISTRIBUTIONS TO PARTNERS
The Partnership received distributions totaling $350,000, $25,000
and $12,500 from the Joint Venture during 1996, 1997 and 1998, respectively. The
Partnership distributed $503,800 to its partners in each of 1996, 1997 and 1998.
THE MACOUPIN JOINT VENTURE
1998 COMPARED TO 1997
The Joint Venture's revenues increased from $1,975,900 to
$2,003,000, or by 1.4%, for the year ended December 31, 1998 as compared to
1997. Of the $27,100 increase, $93,800 was due to increases in regulated service
rates that were implemented by the Joint Venture in 1997 and $1,100 was due to
an increase in other revenue producing items. These increases were partially
offset by a $67,800 decrease in the number of subscriptions for basic, premium,
tier and equipment rental services. As of December 31, 1998, the Joint Venture
had approximately 4,400 basic subscribers and 1,300 premium service units.
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<PAGE>
Service costs increased from $573,000 to $626,000, or by 9.2%, for
the year ended December 31, 1998 as compared to 1997. Service costs represent
costs directly attributable to providing cable services to customers. The
increase was primarily due to higher programming expense and lower
capitalization of labor and overhead costs resulting from reductions in 1998
construction activity in the Auburn, Illinois franchise area. Programming
expense increased as a result of higher rates charged by program suppliers.
General and administrative expenses decreased from $149,200 to
$124,700, or by 16.4%, for the year ended December 31, 1998 as compared to 1997.
The decrease was primarily due to lower insurance costs.
Management fees and reimbursed expenses increased from $298,700 to
$309,800, or by 3.7%, for the year ended December 31, 1998 as compared to 1997.
Management fees increased in direct relation to increased revenues as discussed
above. Reimbursed expenses increased in 1998 due to higher allocated personnel
costs resulting from staff additions.
Depreciation and amortization expense decreased from $575,400 to
$344,500, or by 40.1%, for the year ended December 31, 1998 as compared to 1997,
due to the effect of certain tangible assets becoming fully depreciated and
certain intangible assets becoming fully amortized.
Operating income increased from $379,600 to $598,000, or by 57.5%,
for the year ended December 31, 1998 as compared to 1997, primarily due to
decreased depreciation and amortization as discussed above.
Interest income, net of interest expense, increased from $16,100
to $23,300, or by 44.7%, for the year ended December 31, 1998 as compared to
1997. The increase was primarily due to higher average cash balances available
for investment.
Due to the factors described above, the Joint Venture's net income
increased from $395,700 to $621,300, or by 57.0%, for the year ended December
31, 1998 as compared to 1997.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues decreased from 48.3% in 1997 to 47.1% in 1998. The
decrease was primarily due to higher programming fees as described above. EBITDA
decreased from $955,000 to $942,500, or by 1.3%, as a result.
1997 COMPARED TO 1996
The Joint Venture's revenues increased from $1,870,600 to
$1,975,900, or by 5.6%, for the year ended December 31, 1997 as compared to
1996. Of the $105,300 increase, $156,500 was due to increases in regulated
service rates that were implemented by the Joint Venture in the second and
fourth quarters of 1996 and the fourth quarter of 1997, and $24,100 was due to
the July 1, 1996 restructuring of The Disney Channel from a premium channel to a
tier channel. These increases were partially offset by a $46,500 decrease in
other revenue producing items including advertising sales revenue, and by a
$28,800 decrease in revenues due to decreases in the number of subscriptions for
premium, tier and equipment rental services. As of December 31, 1997, the Joint
Venture had approximately 4,400 basic subscribers and 1,400 premium service
units.
Service costs increased from $532,500 to $573,000, or by 7.6%, for
the year ended December 31, 1997 as compared to 1996. Service costs represent
costs directly attributable to providing cable services to customers. The
increase was primarily due to higher programming expense. Programming expense
increased as a result of higher rates charged by program suppliers.
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<PAGE>
General and administrative expenses increased from $109,500 to
$149,200, or by 36.3%, for the year ended December 31, 1997 as compared to 1996.
The increase was primarily due to increased insurance costs.
Management fees and reimbursed expenses increased from $256,300 to
$298,700, or by 16.5%, for the year ended December 31, 1997 as compared to 1996.
Management fees increased in direct relation to increased revenues as discussed
above. Reimbursed expenses increased in 1997 due to higher allocated personnel
costs resulting from staff additions and wage increases.
Depreciation and amortization expense decreased from $614,400 to
$575,400, or by 6.3%, for the year ended December 31, 1997 as compared to 1996,
due to the effect of certain intangible assets becoming fully amortized.
Operating income increased from $357,900 to $379,600, or by 6.1%,
for the year ended December 31, 1997 as compared to 1996, primarily due to
increased revenues as discussed above.
Interest income, net of interest expense, increased from $12,000
to $16,100, or by 34.2%, for the year ended December 31, 1997 as compared to
1996. The increase was primarily due to higher average cash balances available
for investment and due to a change in investment policy that yielded a greater
return on invested cash.
Due to the factors described above, the Joint Venture's net income
increased from $370,500 to $395,700, or by 6.8%, for the year ended December 31,
1997 as compared to 1996.
EBITDA is calculated as operating income before depreciation and
amortization. See footnote 1 to "Selected Financial Data." EBITDA as a
percentage of revenues decreased from 52.0% during 1996 to 48.3% in 1997. The
decrease was primarily caused by higher programming expense and insurance costs.
EBITDA decreased from $972,300 to $955,000, or by 1.8%, as a result.
DISTRIBUTIONS TO PARTNERS
The Macoupin Joint Venture distributed $1,050,000, $75,000 and
$37,500 equally among its three partners in 1996, 1997 and 1998, respectively.
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 Partnership. These strategies include the potential sale of
substantially all of the 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.
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<PAGE>
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 1999 completion of rebuild projects in other nearby
communities that involve consolidating the Shelbyville headend. Rebuild
expenditures approximated $141,600 during the year ended December 31, 1998 and
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. Expenditures related to the total rebuild
were only $122,000 during the year ended December 31, 1998 due to delays in
obtaining certain permits. The Joint Venture is budgeted to spend approximately
$480,000 in 1999 to complete the rebuilds in and around Auburn. The Partnership
and the Joint Venture spent approximately $92,900 and $48,900, respectively, to
upgrade other assets in the year ended December 31, 1998. 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 $503,800 during the
year ended December 31, 1998. 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.
During the fourth quarter of 1998, 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
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<PAGE>
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 a
number of the new systems in January 1999. The remaining systems are expected to
be installed by mid-1999. The total anticipated cost, including replacement
software and hardware, will be borne by FCLP. FCLP is utilizing internal and
external resources to install the new systems. FCLP does not believe that any
other significant information technology ("IT") 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 is being developed to remediate non-compliant
equipment prior to January 1, 2000. FCLP expects to complete its planning
process by May 1999. Upgrade or replacement, testing and implementation will be
performed thereafter. The cost of such replacement or remediation, currently
estimated at $16,000, 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 December 31, 1998. 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. 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 expects to develop 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 not compliant
prior to January 1, 2000. Considerable effort will be directed toward
distinguishing between those contingencies with a greater probability of
occurring from those whose occurrence is considered remote. Moreover, such a
plan will necessarily focus 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
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<PAGE>
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.
1998 VS. 1997
Operating activities provided $588,100 less cash during 1998 than
in 1997. The Partnership used $650,400 more 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 $84,100 less cash in 1998 than in the prior year, due to differences
in the timing of receivable collections and the payment of prepaid expenses.
Investing activities used $274,600 less cash in 1998 than in 1997.
The change was primarily due to a $321,500 decrease in capital expenditures and
a $44,800 decrease in proceeds from the sale of certain Partnership assets. The
Partnership received $12,500 less cash in the form of distributions from the
Joint Venture and used $10,400 less cash for intangible assets.
1997 VS. 1996
Operating activities provided $680,800 more cash during 1997 than
in 1996. The Partnership used $711,700 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 $55,200 more cash in 1997 than in the prior year, due to differences
in the timing of receivable collections and the payment of prepaid expenses.
Investing activities used $235,100 more cash in 1997 than in 1996.
The change was primarily due to a $325,000 decrease in distributions received
from the Joint Venture and a $6,500 increase in expenditures for intangible
assets, partially offset by a $52,900 decrease in capital expenditures, and a
$43,500 increase in proceeds from the sale of certain Partnership assets. The
Partnership used $383,200 less cash in financing activities during 1997 due to
the repayment of its note payable in February 1996.
NEW ACCOUNTING PRONOUNCEMENT
In 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on Costs of Start-Up Activities."
The new standard, which becomes effective for the Partnership and Joint Venture
on January 1, 1999, requires costs of start-up activities to be expensed as
incurred. The Partnership believes that adoption of this standard will not have
an impact on the Partnership's or Joint Venture's financial position or results
of operations.
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, provided that the Partnership and Joint Venture are
able to increase their service rates periodically, of which there can be no
assurance. See "Legislation and Regulation."
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<PAGE>
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Partnership is not exposed to material market risks associated
with its financial instruments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and related financial information
required to be filed hereunder are indexed on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partners of the Partnership may be considered, for
certain purposes, the functional equivalents of directors and executive
officers. The Corporate General Partner is Enstar Communications Corporation,
and Robert T. Graff, Jr. is the Individual General Partner. As part of Falcon
Cablevision's September 30, 1988 acquisition of the Corporate General Partner,
Falcon Cablevision received an option to acquire Mr. Graff's interest as
Individual General Partner of the Partnership and other affiliated cable limited
partnerships that he previously co-sponsored with the Corporate General Partner,
and Mr. Graff received the right to cause Falcon Cablevision to acquire such
interests. These arrangements were modified and extended in an amendment dated
September 10, 1993 pursuant to which, among other things, the Corporate General
Partner obtained the option to acquire Mr. Graff's interest in lieu of the
purchase right described above which had been previously granted to Falcon
Cablevision. Since its incorporation in Georgia in 1982, the Corporate General
Partner has been engaged in the cable/telecommunications business, both as a
general partner of 15 limited partnerships formed to own and operate cable
television systems and through a wholly-owned operating subsidiary. As of
December 31, 1998, the Corporate General Partner managed cable television
systems serving approximately 91,000 basic subscribers.
On September 30, 1998, FHGLP acquired ownership of the Corporate
General Partner from Falcon Cablevision. FHGI is the sole general partner of
FHGLP. FHGLP controls the general partners of the 15 limited partnerships which
operate under the Enstar name (including the Partnership). Although these
limited partnerships are affiliated with FHGLP, their assets are owned by legal
entities separate from the Partnership.
Set forth below is certain general information about the Directors
and Executive Officers of the Corporate General Partner:
<TABLE>
<CAPTION>
NAME POSITION
- ---- --------
<C> <S>
Marc B. Nathanson Director, Chairman of the Board and Chief Executive Officer
Frank J. Intiso Director, President and Chief Operating Officer
Stanley S. Itskowitch Director, Executive Vice President and General Counsel
Michael K. Menerey Director, Executive Vice President, Chief Financial Officer and Secretary
Joe A. Johnson Executive Vice President - Operations
Thomas J. Hatchell Executive Vice President - Operations
Abel C. Crespo Vice President, Corporate Controller
</TABLE>
MARC B. NATHANSON, 53, has been Chairman of the Board and Chief Executive
Officer of FHGI and its predecessors since 1975, and prior to September 19, 1995
also served as President. He has been Chairman of the Board and Chief Executive
Officer of Enstar Communications Corporation since October 1988, and also served
as its President prior to September 1995. Prior to 1975, Mr. Nathanson was Vice
President of Marketing for Teleprompter Corporation, then the largest cable
operator in the United States. He also held executive positions with Warner
Cable and Cypress Communications Corporation. He is a former President of the
California Cable Television Association and a member of Cable Pioneers. He is
currently a director of the National Cable Television Association ("NCTA") and
will Chair its 1999 National Convention. At the 1986 NCTA convention, Mr.
Nathanson was honored by being named the recipient of the Vanguard Award for
outstanding contributions to the growth and development of the cable television
industry. Mr. Nathanson is a 30-year veteran of the cable television industry.
He is a founder of the Cable Television Administration and Marketing Society
("CTAM") and the Southern California Cable Television Association. Mr. Nathanson
is an Advisory Board member of
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<PAGE>
TVA, (Brazil) and also Chairman of the Board and Chief Executive Officer of
Falcon International Communications, LLC. Mr. Nathanson was appointed by
President Clinton on November 1, 1998 as Chair of the Board of Governors for the
International Bureau of Broadcasting which oversees Voice of America, Radio/TV
Marti, Radio Free Asia, Radio Free Europe and Radio Liberty. Mr. Nathanson is a
trustee of the Annenburg School of Communications at the University of Southern
California and a member of the Board of Visitors of the Anderson School of
Management at UCLA. In addition, he serves on the Board of the UCLA Foundation
and the UCLA Center for Communications Policy and is on the Board of Governors
of AIDS Project Los Angeles and Cable Positive.
FRANK J. INTISO, 52, was appointed President and Chief Operating Officer of FHGI
in September 1995. Between 1982 and September 1995, Mr. Intiso held the
positions of Executive Vice President and Chief Operating Officer, with
responsibility for the day-to-day operations of all cable television systems
under the management of Falcon. He has been President and Chief Operating
Officer of Enstar Communications Corporation since September 1995, and between
October 1988 and September 1995 held the positions of Executive Vice President
and Chief Operating Officer. Mr. Intiso has a Masters Degree in Business
Administration from UCLA and is a Certified Public Accountant. He currently
serves as Immediate Past Chair of the California Cable Television Association
and is on the boards of the Cable Advertising Bureau, Cable in the Classroom,
and the California Cable Television Association. He is a member of the American
Institute of Certified Public Accountants, the American Marketing Association,
the American Management Association and the Southern California Cable Television
Association.
STANLEY S. ITSKOWITCH, 60, has been a Director of FHGI and its predecessors
since 1975. He served as Senior Vice President and General Counsel of FHGI from
1987 to 1990 and has been Executive Vice President and General Counsel since
February 1990. Mr. Itskowitch has been Executive Vice President and General
Counsel of Enstar Communications Corporation since October 1988. He has been
President and Chief Executive Officer of F.C. Funding, Inc. (formerly Fallek
Chemical Company), which is a marketer of chemical products, since 1980. He is a
Certified Public Accountant and a former tax partner in the New York office of
Touche Ross & Co. (now Deloitte & Touche LLP). He has a J.D. Degree and an
L.L.M. Degree in Tax from New York University School of Law. Mr. Itskowitch is
also Executive Vice President and General Counsel of Falcon International
Communications, LLC.
MICHAEL K. MENEREY, 47, has been Executive Vice President, Chief Financial
Officer and Secretary of FHGI and Enstar Communications Corporation since
February 1998 and was Chief Financial Officer and Secretary of FHGI and its
predecessors between 1984 and 1998 and of Enstar Communications Corporation
since October 1988. Mr. Menerey is a Certified Public Accountant and is a member
of the American Institute of Certified Public Accountants and the California
Society of Certified Public Accountants, and he was formerly associated with BDO
Seidman.
JOE A. JOHNSON, 54, has been Executive Vice President of Operations of FHGI
since September 1995, and was a Divisional Vice President of FHGI between 1989
and 1992. He has been Executive Vice President-Operations of Enstar
Communications Corporation since January 1996. From 1982 to 1989, he held the
positions of Vice President and Director of Operations for Sacramento Cable
Television, Group W Cable of Chicago and Warner Amex. From 1975 to 1982, Mr.
Johnson held Cable System and Regional Manager positions with Warner Amex and
Teleprompter. Mr. Johnson is also a member of the Cable Pioneers.
THOMAS J. HATCHELL, 49, has been Executive Vice President of Operations of FHGI
and Enstar Communications Corporation since February 1998. From October 1995 to
February 1998, he was Senior Vice President of Operations of Falcon
International Communications, L.P. and its predecessor company and was a Senior
Vice President of FHGI from January 1992 to September 1995. Mr. Hatchell was a
Divisional Vice President of FHGI between 1989 and 1992. From 1981 to 1989, he
served as Vice President and Regional Manager for the San Luis Obispo,
California region owned by an affiliate of FHGI. He was Vice President of
Construction of an affiliate of FHGI from June 1980 to June 1981.
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<PAGE>
ABEL C. CRESPO, 39, has been Vice President, Corporate Controller of FHGI and
Enstar Communications Corporation since March 1999. He previously had served as
Controller since January 1997. Mr. Crespo joined Falcon in December 1984, and
has held various accounting positions during that time. Mr. Crespo holds a
Bachelor of Science degree in Business Administration from California State
University, Los Angeles.
OTHER OFFICERS OF FALCON
The following sets forth certain biographical information with
respect to certain additional members of FHGI management.
LYNNE A. BUENING, 45, has been Vice President of Programming of FHGI since
November 1993. From 1989 to 1993, she served as Director of Programming for
Viacom Cable, a division of Viacom International Inc. Prior to that, Ms. Buening
held programming and marketing positions in the cable, broadcast and newspaper
industries.
OVANDO COWLES, 45, has been Vice President of Advertising Sales and Production
of FHGI since January 1992. From 1988 to 1991, he served as Director of
Advertising Sales and Production at Cencom Cable Television in Pasadena,
California. From 1985 to 1988, he was an Advertising Sales Account Executive at
Choice TV, an affiliate of FHGI.
HOWARD J. GAN, 52, has been Vice President of Regulatory Affairs of FHGI and its
predecessors since 1988. Prior to joining FHGI, he was General Counsel at
Malarkey-Taylor Associates, a Washington, D.C.-based telecommunications
consulting firm, from 1986 to 1988, and was Vice President and General Counsel
at CTIC Associates from 1978 to 1983. In addition, he was an attorney and an
acting Branch Chief of the Federal Communications Commission's Cable Television
Bureau from 1973 to 1978.
R.W. ("SKIP") HARRIS, 51, has been Vice President of Marketing of FHGI since
June 1991. Mr. Harris was National Director of Affiliate Marketing for The
Disney Channel from 1985 to 1991. He was also a sales manager, regional
marketing manager and director of marketing for Cox Cable Communications from
1978 to 1985.
MARTIN B. SCHWARTZ, 39, has been Vice President of Corporate Development of FHGI
since March 1999. Mr. Schwartz joined Falcon in November 1989 and has held
various finance, planning and corporate development positions during that time,
most recently that of Director of Corporate Development. Mr. Schwartz has a
Masters Degree in Business Administration from UCLA.
JOAN SCULLY, 63, has been Vice President of Human Resources of FHGI and its
predecessors since May 1988. From 1987 to May 1988, she was self-employed as a
management consultant to cable and transportation companies. She served as
Director of Human Resources of a Los Angeles-based cable company from 1985
through 1987. Prior to that time, she served as a human resource executive in
the entertainment and aerospace industries. Ms. Scully holds a Masters Degree in
Human Resources Management from Pepperdine University.
RAYMOND J. TYNDALL, 51, has been Vice President of Engineering of FHGI since
October 1989. From 1975 to September 1989, he held various technical positions
with Choice TV and its predecessors. From 1967 to 1975, he held various
technical positions with Sammons Communications. He is a certified National
Association of Radio and Television Engineering ("NARTE") engineer in lightwave,
microwave, satellite and broadband and is a member of the Cable Pioneers.
In addition, FHGI has six Divisional Vice Presidents who are based
in the field. They are G. William Booher, Daniel H. DeLaney, Ron L. Hall, Ronald
S. Hren, Michael E. Kemph and Michael D. Singpiel.
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<PAGE>
Each director of the Corporate General Partner is elected to a
one-year term at the annual shareholder meeting to serve until the next annual
shareholder meeting and thereafter until his respective successor is elected and
qualified. Officers are appointed by and serve at the discretion of the
directors of the Corporate General Partner.
ITEM 11. EXECUTIVE COMPENSATION
MANAGEMENT FEE
The Partnership and Joint Venture have management agreements (the
"Management Agreements") with Enstar Cable Corporation, a wholly owned
subsidiary of the Corporate General Partner (the "Manager"), pursuant to which
Enstar Cable Corporation manages the Partnership's and Joint Venture's systems
and provides all operational support for the activities of the Partnership and
the Joint Venture. For these services, the Manager receives a management fee of
5% of the Partnership's gross revenues and 4% of the Joint Venture's gross
revenues, excluding revenues from the sale of cable television systems or
franchises, calculated and paid monthly. The Joint Venture also is required to
distribute 1% of its gross revenues to the Corporate General Partner in respect
of its interest as the Corporate General Partner of the Partnership. In
addition, the Partnership and Joint Venture reimburse the Manager for certain
operating expenses incurred by the Manager in the day-to-day operation of their
cable systems. The Management Agreement also requires the Partnership and Joint
Venture to indemnify the Manager (including its officers, employees, agents and
shareholders) against loss or expense, absent negligence or deliberate breach by
the Manager of the Management Agreements. The Management Agreements are
terminable by the Partnership upon sixty (60) days written notice to the
Manager. The Manager has engaged FCLP to provide certain management services for
the Partnership and Joint Venture and pays FCLP a portion of the management fees
it receives in consideration of such services and reimburses FCLP for expenses
incurred by FCLP on its behalf. Additionally, the Partnership and Joint Venture
receive certain system operating management services from affiliates of the
Manager in lieu of directly employing personnel to perform such services. The
Partnership and Joint Venture reimburse the affiliates for their allocable share
of the affiliates' operating costs. The Corporate General Partner also performs
certain supervisory and administrative services for the Partnership and Joint
Venture, for which it is reimbursed.
For the fiscal year ended December 31, 1998, the Partnership
together with the Joint Venture paid approximately $212,700 of management fees
and $439,100 of reimbursed expenses. In addition, the Joint Venture paid the
Corporate General Partner approximately $20,000 in respect of its 1% special
interest. The Partnership and Joint Venture reimbursed affiliates approximately
$9,100 for system operating management services. Certain programming services
are purchased through FCLP. The Partnership, together with the Joint Venture,
paid FCLP approximately $1,093,200 for these programming services for fiscal
year 1998.
PARTICIPATION IN DISTRIBUTIONS
The General Partners are entitled to share in distributions from,
and profit and losses in, the Partnership. See Item 5., "Market for Registrant's
Equity Securities and Related Security Holder Matters."
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<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
As of March 1, 1999, the only persons known by the Partnership to
own beneficially or that may be deemed to own beneficially more than 5% of the
units were:
<TABLE>
<CAPTION>
Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- ------------------------------------- ------------------------------------- --------------------------- ---------------
<S> <C> <C> <C>
Units of Limited Partnership Everest Cable Investors LLC 2,223(1) 5.6%
Interest 199 South Los Robles Ave.,
Suite 440
Pasadena, CA 91101
</TABLE>
(1) As reported to the Partnership by its transfer agent, Gemisys Corporation.
The Corporate General Partner is a wholly-owned subsidiary of
FHGLP. FHGI owns a 10.6% interest in, and is the general partner of, FHGLP. As
of March 3, 1999, the common stock of FHGI was owned as follows: 78.5% by Falcon
Cable Trust, a grantor trust of which Marc B. Nathanson is trustee and he and
members of his family are beneficiaries; 20% by Greg A. Nathanson; and 1.5% by
Stanley S. Itskowitch. Greg A. Nathanson is Marc B. Nathanson's brother.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONFLICTS OF INTEREST
On September 30, 1998, FHGLP acquired ownership of Enstar
Communications Corporation from Falcon Cablevision and FCLP assumed the
management services operations of FHGLP. FCLP now manages the operations of the
partnerships of which Enstar Communications Corporation is the Corporate General
Partner, including the Partnership. FCLP began receiving management fees and
reimbursed expenses which had previously been paid by the Partnership, as well
as other affiliated entities, to FHGLP. The day-to-day management of FCLP is
substantially the same as that of FHGLP, which serves as the managing partner of
FCLP.
Certain members of management of the Corporate General Partner
have also been involved in the management of other cable ventures. FCLP may
enter into other cable ventures, including ventures similar to the Partnership.
The Partnership and the Joint Venture rely upon the Corporate
General Partner and certain of its affiliates to provide general management
services, system operating services, supervisory and administrative services and
programming. See Item 11., "Executive Compensation."
Conflicts of interest involving acquisitions and dispositions of
cable television systems could adversely affect Unitholders. For instance, the
economic interests of management in other affiliated partnerships are different
from those in the Partnership and this may create conflicts relating to which
acquisition opportunities are preserved for which entities.
These affiliations subject FCLP, FHGLP and the Corporate General
Partner and their management to certain conflicts of interest. Such conflicts of
interest relate to the time and services management will devote to the
Partnership's affairs and to the acquisition and disposition of cable television
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<PAGE>
systems. Management or its affiliates may establish and manage other entities
which could impose additional conflicts of interest.
FCLP, FHGLP and the Corporate General Partner will resolve all
conflicts of interest in accordance with their fiduciary duties.
FIDUCIARY RESPONSIBILITY AND INDEMNIFICATION OF THE GENERAL PARTNERS
A general partner is accountable to a limited partnership as a
fiduciary and consequently must exercise good faith and integrity in handling
partnership affairs. Where the question has arisen, some courts have held that a
limited partner may institute legal action on his own behalf and on behalf of
all other similarly situated limited partners (a class action) to recover
damages for a breach of fiduciary duty by a general partner, or on behalf of the
partnership (a partnership derivative action) to recover damages from third
parties. Section 14-9-1001 of the Georgia Revised Uniform Limited Partnership
Act also allows a partner to maintain a partnership derivative action if general
partners with authority to do so have refused to bring the action or if an
effort to cause those general partners to bring the action is not likely to
succeed. Certain cases decided by federal courts have recognized the right of a
limited partner to bring such actions under the Securities and Exchange
Commission's Rule 10b-5 for recovery of damages resulting from a breach of
fiduciary duty by a general partner involving fraud, deception or manipulation
in connection with the limited partner's purchase or sale of partnership units.
The partnership agreement provides that the General Partners will
be indemnified by the Partnership for acts performed within the scope of their
authority under the partnership agreement if such general partners (i) acted in
good faith and in a manner that it reasonably believed to be in, or not opposed
to, the best interests of the Partnership and the partners, and (ii) had no
reasonable grounds to believe that their conduct was negligent. In addition, the
partnership agreement provides that the General Partners will not be liable to
the Partnership or its limited partners for errors in judgment or other acts or
omissions not amounting to negligence or misconduct. Therefore, limited partners
will have a more limited right of action than they would have absent such
provisions. In addition, the Partnership maintains, at its expense and in such
reasonable amounts as the Corporate General Partner shall determine, a liability
insurance policy which insures the Corporate General Partner, FHGI and its
affiliates (which include FCLP), officers and directors and such other persons
as the Corporate General Partner shall determine, against liabilities which they
may incur with respect to claims made against them for certain wrongful or
allegedly wrongful acts, including certain errors, misstatements, misleading
statements, omissions, neglect or breaches of duty. To the extent that the
exculpatory provisions purport to include indemnification for liabilities
arising under the Securities Act of 1933, it is the opinion of the Securities
and Exchange Commission that such indemnification is contrary to public policy
and therefore unenforceable.
-41-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements
Reference is made to the Index to Financial Statements on
page F-1.
(a) 2. Financial Statement Schedules
Reference is made to the Index to Financial Statements on
page F-1.
(a) 3. Exhibits
Reference is made to the Index to Exhibits on Page E-1.
(b) Reports on Form 8-K
The Registrant filed a Form 8-K dated December 16, 1998, in
which it reported under Item 5 that an unsolicited offer to
purchase partnership units had been made without the consent
of the Corporate General Partner.
-42-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on March
30, 1999.
ENSTAR INCOME PROGRAM IV-3, L.P.
By: Enstar Communications Corporation,
Corporate General Partner
By: /s/ Marc B. Nathanson
----------------------
Marc B. Nathanson
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed by the following persons on behalf of the
Registrant and in the capacities indicated on the 30th day of March 1999.
<TABLE>
<CAPTION>
Signatures Title(*)
------------------------- -------------------------------------------------
<C> <S>
/s/ Marc B. Nathanson Chairman of the Board and Chief Executive Officer
--------------------- (Principal Executive Officer)
Marc B. Nathanson
/s/ Michael K. Menerey Executive Vice President, Chief Financial Officer,
---------------------- Secretary and Director
Michael K. Menerey (Principal Financial and Accounting Officer)
/s/ Frank J. Intiso President, Chief Operating Officer
------------------- and Director
Frank J. Intiso
/s/ Stanley S. Itskowitch Executive Vice President, General Counsel
------------------------- and Director
Stanley S. Itskowitch
</TABLE>
(*) Indicates position(s) held with Enstar Communications Corporation, the
Corporate General Partner of the registrant.
-43-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------------------------------------
Enstar Income Enstar Cable
Program of Macoupin
IV-3, L.P. County
------------------ ----------------
<S> <C> <C>
Reports of Independent Auditors F-2 F-14
Balance Sheets - December 31, 1997 and 1998 F-3 F-15
Financial Statement for each of
the three years in the period
ended December 31, 1998:
Statements of Operations F-4 F-16
Statements of Partnership/
Venturers' Capital (Deficit) F-5 F-17
Statements of Cash Flows F-6 F-18
Notes to Financial Statements F-7 F-19
</TABLE>
All schedules have been omitted because they are either not required, not
applicable or the information has otherwise been supplied.
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Partners
Enstar Income Program IV-3, L.P. (A Georgia Limited Partnership)
We have audited the accompanying balance sheets of Enstar Income Program IV-3,
L.P. (A Georgia Limited Partnership) as of December 31, 1997 and 1998, and the
related statements of operations, partnership capital (deficit), and cash flows
for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar Income Program IV-3,
L.P. at December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 12, 1999
F-2
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
BALANCE SHEETS
------------------------------------
------------------------------------
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1997 1998
----------------- ------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 788,300 $ 812,200
Accounts receivable, less allowance of $5,100 and
$3,300 for possible losses 26,100 39,700
Prepaid expenses and other assets 155,100 150,900
Equity in net assets of joint venture 708,600 903,200
Property, plant and equipment, less accumulated
depreciation and amortization 1,897,300 1,795,300
Franchise cost, net of accumulated
amortization of $2,039,000 and $2,227,900 533,000 344,100
Deferred charges, net 4,900 2,800
----------------- ------------------
$ 4,113,300 $ 4,048,200
----------------- ------------------
----------------- ------------------
LIABILITIES AND PARTNERSHIP CAPITAL
-----------------------------------
LIABILITIES:
Accounts payable $ 543,400 $ 165,500
Due to affiliates 177,700 246,000
----------------- ------------------
TOTAL LIABILITIES 721,100 411,500
----------------- ------------------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (49,300) (46,800)
Limited partners 3,441,500 3,683,500
----------------- ------------------
TOTAL PARTNERSHIP CAPITAL 3,392,200 3,636,700
----------------- ------------------
$ 4,113,300 $ 4,048,200
----------------- ------------------
----------------- ------------------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
STATEMENTS OF OPERATIONS
------------------------------------
------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1996 1997 1998
--------------- -------------- ---------------
<S> <C> <C> <C>
REVENUES $ 2,489,000 $ 2,658,100 $ 2,649,700
--------------- -------------- ---------------
OPERATING EXPENSES:
Service costs 771,100 876,900 919,300
General and administrative expenses 341,200 364,100 310,400
General Partner management fees
and reimbursed expenses 316,400 341,900 362,000
Depreciation and amortization 703,600 499,700 532,000
--------------- -------------- ---------------
2,132,300 2,082,600 2,123,700
--------------- -------------- ---------------
Operating income 356,700 575,500 526,000
--------------- -------------- ---------------
OTHER INCOME (EXPENSE):
Interest expense (30,500) (12,900) (13,000)
Interest income 23,400 32,500 28,000
Gain (loss) on sale of assets (4,700) 45,000 200
--------------- -------------- ---------------
(11,800) 64,600 15,200
--------------- -------------- ---------------
Income before equity
in net income of joint venture 344,900 640,100 541,200
EQUITY IN NET INCOME OF JOINT VENTURE 123,500 131,900 207,100
--------------- -------------- ---------------
NET INCOME $ 468,400 $ 772,000 $ 748,300
--------------- -------------- ---------------
--------------- -------------- ---------------
Net income allocated to General Partners $ 4,700 $ 7,700 $ 7,500
--------------- -------------- ---------------
--------------- -------------- ---------------
Net income allocated to Limited Partners $ 463,700 $ 764,300 $ 740,800
--------------- -------------- ---------------
--------------- -------------- ---------------
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 11.62 $ 19.16 $ 18.57
--------------- -------------- ---------------
--------------- -------------- ---------------
WEIGHTED AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING THE YEAR 39,900 39,900 39,900
--------------- -------------- ---------------
--------------- -------------- ---------------
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
STATEMENTS OF PARTNERSHIP CAPITAL (DEFICIT)
------------------------------------
------------------------------------
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
-------------- -------------- --------------
<S> <C> <C> <C>
PARTNERSHIP CAPITAL (DEFICIT),
January 1, 1996 $ (51,700) $ 3,211,100 $ 3,159,400
Distributions to partners (5,000) (498,800) (503,800)
Net income for year 4,700 463,700 468,400
-------------- -------------- --------------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1996 (52,000) 3,176,000 3,124,000
Distributions to partners (5,000) (498,800) (503,800)
Net income for year 7,700 764,300 772,000
-------------- -------------- --------------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1997 (49,300) 3,441,500 3,392,200
Distributions to partners (5,000) (498,800) (503,800)
Net income for year 7,500 740,800 748,300
-------------- -------------- --------------
PARTNERSHIP CAPITAL (DEFICIT),
December 31, 1998 $ (46,800) $ 3,683,500 $ 3,636,700
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
STATEMENTS OF CASH FLOWS
------------------------------------
------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------
1996 1997 1998
-------------- -------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 468,400 $ 772,000 $ 748,300
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 703,600 499,700 532,000
Amortization of deferred loan costs 17,300 - -
(Gain) loss on sale of assets 4,700 (45,000) (200)
Equity in net income of joint venture (123,500) (131,900) (207,100)
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses
and other assets (38,300) (93,500) (9,400)
Accounts payable and due to affiliates (370,900) 340,800 (309,600)
-------------- -------------- --------------
Net cash provided by operating activities 661,300 1,342,100 754,000
-------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures (608,900) (556,000) (234,500)
Proceeds from sale of property, plant and equipment 1,500 45,000 200
Increase in intangible assets (8,400) (14,900) (4,500)
Distributions from joint venture 350,000 25,000 12,500
-------------- -------------- --------------
Net cash used in investing activities (265,800) (500,900) (226,300)
-------------- -------------- --------------
Cash flows from financing activities:
Distributions to partners (503,800) (503,800) (503,800)
Repayment of debt (383,200) - -
-------------- -------------- --------------
Net cash used in financing activities (887,000) (503,800) (503,800)
-------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents (491,500) 337,400 23,900
Cash and cash equivalents at beginning of year 942,400 450,900 788,300
-------------- -------------- --------------
Cash and cash equivalents at end of year $ 450,900 $ 788,300 $ 812,200
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar Income Program IV-3, L.P., a Georgia limited partnership
(the "Partnership"), owns and operates cable television systems in rural areas
of Illinois and Kentucky. The Partnership also participates as a co-general
partner in Enstar Cable of Macoupin County, a Georgia general partnership (the
"Joint Venture").
The financial statements do not give effect to any assets that the
partners may have outside of their interest in the Partnership, nor to any
obligations, including income taxes, of the partners.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Partnership
considers all highly liquid debt instruments purchased with an initial maturity
of three months or less to be cash equivalents. The carrying value of cash and
cash equivalents approximates fair value due to the short maturity of these
instruments.
Cash equivalents at December 31, 1996 include $388,000 of
short-term investments in commercial paper.
INVESTMENT IN JOINT VENTURE
The Partnership's investment and share of the income or loss in
the Joint Venture is accounted for on the equity method of accounting.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Direct costs
associated with installations in homes not previously served by cable are
capitalized as part of the distribution system, and reconnects are expensed as
incurred. For financial reporting, depreciation and amortization is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television systems 5-15 years
Vehicles 3 years
Furniture and equipment 5-7 years
Leasehold improvements Life of lease
</TABLE>
FRANCHISE COST
The excess of cost over the fair values of tangible assets and
customer lists of cable television systems acquired represents the cost of
franchises. In addition, franchise cost includes capitalized costs incurred in
obtaining new franchises and the renewal of existing franchises. These costs are
amortized using the straight-line method over the lives of the franchises,
ranging up to 15 years. The Partnership periodically evaluates the amortization
periods of these intangible assets to determine whether events or circumstances
warrant revised estimates of useful lives. Costs relating to unsuccessful
franchise applications are charged to expense when it is determined that the
efforts to obtain the franchise will not be successful.
F-7
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
DEFERRED CHARGES
Deferred charges are amortized using the straight-line method over
two years.
RECOVERABILITY OF ASSETS
The Partnership assesses on an ongoing basis the recoverability of
intangible and capitalized plant assets based on estimates of future
undiscounted cash flows compared to net book value. If the future undiscounted
cash flow estimate were less than net book value, net book value would then be
reduced to estimated fair value, which would generally approximate discounted
cash flows. The Partnership also evaluates the amortization periods of assets,
including franchise costs and other intangible assets, to determine whether
events or circumstances warrant revised estimates of useful lives.
REVENUE RECOGNITION
Revenues from customer fees, equipment rental and advertising are
recognized in the period that services are delivered. Installation revenue is
recognized in the period the installation services are provided to the extent of
direct selling costs. Any remaining amount is deferred and recognized over the
estimated average period that customers are expected to remain connected to the
cable television system.
INCOME TAXES
The Partnership pays no income taxes. All of the income, gains,
losses, deductions and credits of the Partnership are passed through to its
partners. Nominal taxes are assessed by certain state jurisdictions. The basis
in the Partnership's assets and liabilities differs for financial and tax
reporting purposes. At December 31, 1998, the book basis of the Partnership's
net assets exceeds its tax basis by $869,000.
The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, differ from the
financial statements prepared for tax purposes due to the different treatment of
various items as specified in the Internal Revenue Code. The net effect of these
accounting differences is that net income for 1998 in the financial statements
is $416,000 more than tax income of the Partnership for the same period, caused
principally by timing differences in depreciation and amortization expense
reported by the Partnership and the Joint Venture.
COSTS OF START-UP ACTIVITIES
In 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on Costs of Start-Up Activities."
The new standard, which becomes effective for the Partnership on January 1,
1999, requires costs of start-up activities to be expensed as incurred. The
Partnership believes that adoption of this standard will not have an impact on
the Partnership's financial position or results of operations.
F-8
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
All advertising costs are expensed as incurred.
EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses have been allocated 99% to the limited
partners and 1% to the general partners. Earnings and losses per unit of limited
partnership interest are based on the weighted average number of units
outstanding during the year. 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.
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - PARTNERSHIP MATTERS
The Partnership was formed on November 4, 1985 to acquire,
construct or improve, develop and operate cable television systems in various
locations in the United States. The partnership agreement provides for Enstar
Communications Corporation (the "Corporate General Partner") and Robert T.
Graff, Jr. to be the general partners and for the admission of limited partners
through the sale of interests in the Partnership.
On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of the Corporate
General Partner. On September 30, 1998, Falcon Holding Group, L.P., a Delaware
limited partnership ("FHGLP'), acquired ownership of the Corporate General
Partner from Falcon Cablevision. Simultaneously with the closing of that
transaction, FHGLP contributed all of its existing cable television system
operations to Falcon Communications, L.P. ("FCLP"), a California limited
partnership and successor to FHGLP. FHGLP serves as the managing partner of
FCLP. The Corporate General Partner has contracted with FCLP and its affiliates
to provide management services for the Partnership.
The Partnership was formed with an initial capital contribution of
$1,100 comprising $1,000 from the Corporate General Partner and $100 from the
initial limited partner. Sale of interests in the Partnership began in January
1986, and the initial closing took place by November 1986. The Partnership
continued to raise capital until $10,000,000 (the maximum) was sold by January
1987.
The amended partnership agreement generally provides that all cash
distributions (as defined) be allocated 1% to the general partners and 99% to
the limited partners until the limited partners have received aggregate cash
distributions equal to their original capital contributions ("Capital Payback").
The amended partnership agreement also provides that all partnership profits,
gains, operational losses, and credits (all as defined) be allocated 1% to the
general partners and 99% to the limited partners until the limited
F-9
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 2 - PARTNERSHIP MATTERS (CONTINUED)
partners have been allocated net profits equal to the amount of cash flow
required for Capital Payback. After the limited partners have received cash flow
equal to their initial investments, the general partners will only receive a 1%
allocation of cash flow from sale or liquidation of a system until the limited
partners have received an annual simple interest return of at least 12% of their
initial investments less any distributions from previous system sales and cash
distributions from operations after Capital Payback. Thereafter, the respective
allocations will be made 20% to the general partners and 80% to the limited
partners. Any losses from system sales or exchanges shall be allocated first to
all partners having positive capital account balances (based on their respective
capital accounts) until all such accounts are reduced to zero and thereafter to
the Corporate General Partner. All allocations to individual limited partners
will be based on their respective limited partnership ownership interests.
Upon the disposition of substantially all of the Partnership's
assets, gains shall be allocated first to the limited partners having negative
capital account balances until their capital accounts are increased to zero,
next equally among the general partners until their capital accounts are
increased to zero, and thereafter as outlined in the preceding paragraph. Upon
dissolution of the Partnership, any negative capital account balances remaining
after all allocations and distributions are made must be funded by the
respective partners.
A portion of the Partnership's distributions to partners is funded
from distributions received from the Joint Venture.
The amended partnership agreement limits the amount of debt the
Partnership may incur.
NOTE 3 - EQUITY IN NET ASSETS OF JOINT VENTURE
The Partnership and two affiliated partnerships (Enstar Income
Program IV-1, L.P. and Enstar Income Program IV-2, L.P.) each owns one third of
the Joint Venture. The Joint Venture was initially funded through capital
contributions made by each venturer during 1988 of $2,199,700 in cash and
$40,000 in capitalized system acquisition and related costs. In 1988, the Joint
Venture acquired certain cable television systems in Illinois from the
Partnership's Corporate General Partner. Each venturer shares equally in the
profits and losses of the Joint Venture. The Joint Venture generated income of
$370,500, $395,700 and $621,300 for 1996, 1997 and 1998, respectively, of which
$123,500, $131,900 and $207,100 was allocated to the Partnership for the
respective years. The operations of the Joint Venture are significant to the
Partnership and should be reviewed in conjunction with these financial
statements. Reference is made to the accompanying financial statements of the
Joint Venture on pages F-14 to F-24 of this Form 10-K.
F-10
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 4 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1997 1998
--------------- ---------------
<S> <C> <C>
Cable television systems $ 6,014,400 $ 6,172,900
Vehicles, furniture and equipment
and leasehold improvements 233,800 261,200
--------------- ---------------
6,248,200 6,434,100
Less accumulated depreciation
and amortization (4,350,900) (4,638,800)
--------------- ---------------
$ 1,897,300 $ 1,795,300
--------------- ---------------
--------------- ---------------
</TABLE>
NOTE 5 - NOTE PAYABLE
During 1993, the Partnership entered into a $1,000,000 reducing
revolving line of credit agreement (the "Agreement") with a final maturity of
June 30, 1997. The note, which bore interest at the lender's base rate, was
repaid on February 9, 1996.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Partnership leases buildings and tower sites associated with
the systems under operating leases expiring in various years through 2009.
Future minimum rental payments under noncancelable operating
leases that have remaining terms in excess of one year as of December 31, 1998
are as follows:
<TABLE>
<CAPTION>
Year Amount
---- -------------
<S> <C>
1999 $ 13,500
2000 10,900
2001 10,900
2002 10,900
2003 3,600
Thereafter 20,700
-------------
$ 70,500
-------------
-------------
</TABLE>
Rentals, other than pole rentals, charged to operations amounted
to $17,000, $17,300 and $17,500 in 1996, 1997 and 1998, respectively. Pole
rentals were $31,200, $32,700 and $31,700 in 1996, 1997 and 1998, respectively.
F-11
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Other commitments include approximately $100,000 at December 31,
1998 to complete the rebuild of the Partnership's Shelbyville, Illinois cable
system.
The Partnership is subject to regulation by various federal, state
and local government entities. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") provides for, among other things,
federal and local regulation of rates charged for basic cable service, cable
programming service tiers ("CPSTs") and equipment and installation services.
Regulations issued in 1993 and significantly amended in 1994 by the Federal
Communications Commission (the "FCC") have resulted in changes in the rates
charged for the Partnership's cable services. The Partnership believes that
compliance with the 1992 Cable Act has had a significant negative impact on its
operations and cash flow. It also believes that any potential future liabilities
for refund claims or other related actions would not be material. The
Telecommunications Act of 1996 (the "1996 Telecom Act") was signed into law on
February 8, 1996. As it pertains to cable television, the 1996 Telecom Act,
among other things, (i) ends the regulation of certain CPSTs in 1999; (ii)
expands the definition of effective competition, the existence of which
displaces rate regulation; (iii) eliminates the restriction against the
ownership and operation of cable systems by telephone companies within their
local exchange service areas; and (iv) liberalizes certain of the FCC's
cross-ownership restrictions.
Beginning in August 1997, the Corporate General Partner elected to
self-insure the Partnership'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 66% of the Partnership's subscribers are served by
its system in Shelbyville, Illinois and neighboring communities. Significant
damage to the system due to seasonal weather conditions or other events could
have a material adverse effect on the Partnership's liquidity and cash flows.
The Partnership continues to purchase insurance coverage in amounts its
management views as appropriate for all other property, liability, automobile,
workers' compensation and other types of insurable risks.
NOTE 7- EMPLOYEE BENEFIT PLAN
The Partnership has a cash or deferred profit sharing plan (the
"Profit Sharing Plan") covering substantially all of its employees. The Profit
Sharing Plan provides that each participant may elect to make a contribution in
an amount up to 15% of the participant's annual compensation which otherwise
would have been payable to the participant as salary. The Partnership's
contribution to the Profit Sharing Plan, as determined by management, is
discretionary but may not exceed 15% of the annual aggregate compensation (as
defined) paid to all participating employees. There were no contributions
charged against operations of the Partnership for the Profit Sharing Plan in
1996, 1997 or 1998.
F-12
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 8 - 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 gross receipts, as defined, from the operations
of the Partnership. Management fee expense was $124,500, $132,900 and $132,500
in 1996, 1997 and 1998, respectively.
In addition to the monthly fee 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 Manager
and its subsidiaries are charged a proportionate share of these expenses. The
Corporate General Partner has contracted with FCLP and its affiliates to provide
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 customers or homes passed (dwelling units
within a system) within the designated service areas. The total amount charged
to the Partnership for these services approximated $191,900, $209,000 and
$229,500 in 1996, 1997 and 1998, respectively.
The Partnership also receives 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
one of the Partnership's cable systems. The Partnership reimburses the affiliate
for its allocable share of the affiliate's operational costs. The total amount
charged to the Partnership approximated $34,700, $23,700 and $4,500 in 1996,
1997 and 1998, respectively. No management fee is payable to the affiliate by
the Partnership 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 the
other partnerships managed by the Corporate General Partner as well as for
FCLP's own cable television operations. FCLP charges the Partnership 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 recorded programming fee expense of
$359,200, $603,400 and $618,700 in 1996, 1997 and 1998, respectively.
Programming fees are included in service costs in the statements of operations.
NOTE 9 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest amounted to $30,800, $12,900 and $13,000 in
1996, 1997 and 1998, respectively.
F-13
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Venturers of
Enstar Cable of Macoupin County (A Georgia General Partnership)
We have audited the accompanying balance sheets of Enstar Cable of Macoupin
County (A Georgia General Partnership) as of December 31, 1997 and 1998, and the
related statements of operations, venturers' capital, and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Venture's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Enstar Cable of Macoupin County
at December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Los Angeles, California
March 12, 1999
F-14
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
BALANCE SHEETS
------------------------------------
------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1998
----------------- ----------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 515,800 $ 1,283,400
Accounts receivable, less allowance of $10,000 and
$3,800 for possible losses 45,100 37,600
Prepaid expenses and other assets 333,100 201,900
Property, plant and equipment, less accumulated
depreciation and amortization 1,523,200 1,470,700
Franchise cost, net of accumulated
amortization of $3,242,100 and $17,800 143,900 57,400
Deferred charges, net 2,900 2,500
----------------- ----------------
$ 2,564,000 $ 3,053,500
----------------- ----------------
----------------- ----------------
LIABILITIES AND VENTURERS' CAPITAL
LIABILITIES:
Accounts payable $ 324,600 $ 174,000
Due to affiliates 113,600 169,900
----------------- ----------------
TOTAL LIABILITIES 438,200 343,900
----------------- ----------------
COMMITMENTS AND CONTINGENCIES
VENTURERS' CAPITAL:
Enstar Income Program IV-1, L.P. 708,600 903,200
Enstar Income Program IV-2, L.P. 708,600 903,200
Enstar Income Program IV-3, L.P. 708,600 903,200
----------------- ----------------
TOTAL VENTURERS' CAPITAL 2,125,800 2,709,600
----------------- ----------------
$ 2,564,000 $ 3,053,500
----------------- ----------------
----------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
STATEMENTS OF OPERATIONS
------------------------------------
------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1996 1997 1998
---------------- ----------------- ----------------
<S> <C> <C> <C>
REVENUES $ 1,870,600 $ 1,975,900 $ 2,003,000
---------------- ----------------- ----------------
OPERATING EXPENSES:
Service costs 532,500 573,000 626,000
General and administrative expenses 109,500 149,200 124,700
General Partner management fees
and reimbursed expenses 256,300 298,700 309,800
Depreciation and amortization 614,400 575,400 344,500
---------------- ----------------- ----------------
1,512,700 1,596,300 1,405,000
---------------- ----------------- ----------------
Operating income 357,900 379,600 598,000
---------------- ----------------- ----------------
INTEREST INCOME, net 12,000 16,100 23,300
GAIN ON SALE OF CABLE ASSETS 600 - -
---------------- ----------------- ----------------
NET INCOME $ 370,500 $ 395,700 $ 621,300
---------------- ----------------- ----------------
---------------- ----------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-16
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
STATEMENTS OF VENTURERS' CAPITAL
------------------------------------
------------------------------------
<TABLE>
<CAPTION>
Enstar Enstar Enstar
Income Income Income
Program Program Program
IV-1, L.P. IV-2, L.P. IV-3, L.P. Total
-------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
BALANCE, January 1, 1996 $ 828,200 $ 828,200 $ 828,200 $ 2,484,600
Distributions to venturers (350,000) (350,000) (350,000) (1,050,000)
Net income for year 123,500 123,500 123,500 370,500
-------------- -------------- -------------- ----------------
BALANCE, December 31, 1996 601,700 601,700 601,700 1,805,100
Distributions to venturers (25,000) (25,000) (25,000) (75,000)
Net income for year 131,900 131,900 131,900 395,700
-------------- -------------- -------------- ----------------
BALANCE, December 31, 1997 708,600 708,600 708,600 2,125,800
Distributions to venturers (12,500) (12,500) (12,500) (37,500)
Net income for year 207,100 207,100 207,100 621,300
-------------- -------------- -------------- ----------------
BALANCE, December 31, 1998 $ 903,200 $ 903,200 $ 903,200 $ 2,709,600
-------------- -------------- -------------- ----------------
-------------- -------------- -------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
STATEMENTS OF CASH FLOWS
------------------------------------
------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1996 1997 1998
---------------- --------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 370,500 $ 395,700 $ 621,300
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 614,400 575,400 344,500
Gain on sale of cable assets (600) - -
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses
and other assets (47,900) (292,000) 138,700
Accounts payable and due to affiliates (76,200) 158,900 (94,300)
---------------- --------------- ----------------
Net cash provided by operating activities 860,200 838,000 1,010,200
---------------- --------------- ----------------
Cash flows from investing activities:
Capital expenditures (411,200) (677,900) (170,900)
Increase in intangible assets (37,700) (11,500) (34,200)
Proceeds from sale of property, plant and
equipment 9,100 - -
---------------- --------------- ----------------
Net cash used in investing activities (439,800) (689,400) (205,100)
---------------- --------------- ----------------
Cash flows from financing activities:
Distributions to venturers (1,050,000) (75,000) (37,500)
---------------- --------------- ----------------
Net increase (decrease) in cash and cash equivalents (629,600) 73,600 767,600
Cash and cash equivalents at beginning of year 1,071,800 442,200 515,800
---------------- --------------- ----------------
Cash and cash equivalents at end of year $ 442,200 $ 515,800 $ 1,283,400
---------------- --------------- ----------------
---------------- --------------- ----------------
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
FORM OF PRESENTATION
Enstar Cable of Macoupin County, a Georgia general partnership
(the "Venture"), owns and operates cable television systems in rural areas of
Illinois.
The financial statements do not give effect to any assets that
Enstar Income Program IV-1, L.P., Enstar Income Program IV-2, L.P. and Enstar
Income Program IV-3, L.P. (the "Venturers") may have outside of their interest
in the Venture, nor to any obligations, including income taxes, of the
Venturers.
CASH EQUIVALENTS
For purposes of the statements of cash flows, the Venture
considers all highly liquid debt instruments purchased with an initial maturity
of three months or less to be cash equivalents. The carrying value of cash and
cash equivalents approximates fair value due to the short maturity of these
instruments.
Cash equivalents at December 31, 1996 include $385,000 of
short-term investments in commercial paper.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Direct costs
associated with installations in homes not previously served by cable are
capitalized as part of the distribution system, and reconnects are expensed as
incurred. For financial reporting, depreciation and amortization is computed
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Cable television systems 5-15 years
Vehicles 3 years
Furniture and equipment 5-7 years
Leasehold improvements Life of lease
</TABLE>
FRANCHISE COST
The excess of cost over the fair values of tangible assets and
customer lists of cable television systems acquired represents the cost of
franchises. In addition, franchise cost includes capitalized costs incurred in
obtaining new franchises and the renewal of existing franchises. These costs are
amortized using the straight-line method over the lives of the franchises,
ranging up to 15 years. The Venture periodically evaluates the amortization
periods of these intangible assets to determine whether events or circumstances
warrant revised estimates of useful lives. Costs relating to unsuccessful
franchise applications are charged to expense when it is determined that the
efforts to obtain the franchise will not be successful. The Venture is in the
process of negotiating the renewal of expired franchise agreements for four of
the Venture's seven franchises.
DEFERRED CHARGES
Deferred charges are amortized using the straight-line method over
two years.
F-19
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
RECOVERABILITY OF ASSETS
The Venture assesses on an ongoing basis the recoverability of
intangible and capitalized plant assets based on estimates of future
undiscounted cash flows compared to net book value. If the future undiscounted
cash flow estimate were less than net book value, net book value would then be
reduced to estimated fair value, which would generally approximate discounted
cash flows. The Venture also evaluates the amortization periods of assets,
including franchise costs and other intangible assets, to determine whether
events or circumstances warrant revised estimates of useful lives.
REVENUE RECOGNITION
Revenues from customer fees, equipment rental and advertising are
recognized in the period that services are delivered. Installation revenue is
recognized in the period the installation services are provided to the extent of
direct selling costs. Any remaining amount is deferred and recognized over the
estimated average period that customers are expected to remain connected to the
cable television system.
INCOME TAXES
As a partnership, the Venture pays no income taxes. All of the
income, gains, losses, deductions and credits of the Venture are passed through
to its Venturers. The basis in the Venture's assets and liabilities differs for
financial and tax reporting purposes. At December 31, 1998, the book basis of
the Venture's net assets exceeds its tax basis by $618,400.
The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, differ from the
financial statements prepared for tax purposes due to the different treatment of
various items as specified in the Internal Revenue Code. The net effect of these
accounting differences is that net income for 1998 in the financial statements
is $278,700 more than tax income of the Venture for the same period, caused
principally by timing differences in depreciation and amortization expense.
COSTS OF START-UP ACTIVITIES
In 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, "Reporting on Costs of Start-Up Activities."
The new standard, which becomes effective for the Venture on January 1, 1999,
requires costs of start-up activities to be expensed as incurred. The Venture
believes that adoption of this standard will not have an impact on the Venture's
financial position or results of operations.
ADVERTISING COSTS
All advertising costs are expensed as incurred.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to
the 1998 presentation.
F-20
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2 - JOINT VENTURE MATTERS
The Venture was formed under the terms of a joint venture
agreement effective December 30, 1987 among the Venturers, three limited
partnerships sponsored by Enstar Communications Corporation as their corporate
general partner. The Venture was formed to pool the resources of the three
limited partnerships to acquire, own, operate, and dispose of certain cable
television systems. In 1988, the Venture acquired two cable television systems
in Illinois.
Under the terms of the agreement, the Venturers share equally in
profits, losses, allocations, and assets. Capital contributions, as required,
are also made equally.
On September 30, 1988, Falcon Cablevision, a California limited
partnership, purchased all of the outstanding capital stock of the Enstar
Communications Corporation. On September 30, 1998, Falcon Holding Group, L.P., a
Delaware limited partnership ("FHGLP"), acquired ownership of the Corporate
General Partner from Falcon Cablevision. Simultaneously with the closing of that
transaction, FHGLP contributed all of its existing cable television system
operations to Falcon Communications, L.P. ("FCLP"), a California limited
partnership and successor to FHGLP. FHGLP serves as the managing partner of
FCLP. The Corporate General Partner has contracted with FCLP and its affiliates
to provide management services for the Venture.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1997 1998
--------------- ---------------
<S> <C> <C>
Cable television systems $ 3,514,500 $ 3,665,800
Vehicles, furniture and equipment
and leasehold improvements 213,300 216,500
--------------- ---------------
3,727,800 3,882,300
Less accumulated depreciation
and amortization (2,204,600) (2,411,600)
--------------- ---------------
$ 1,523,200 $ 1,470,700
--------------- ---------------
--------------- ---------------
</TABLE>
F-21
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 4 - COMMITMENTS AND CONTINGENCIES
The Venture leases buildings and tower sites associated with the
systems under operating leases expiring in 2004.
Future minimum rental payments under non-cancelable operating
leases that have remaining terms in excess of one year as of December 31, 1998
are as follows:
<TABLE>
<CAPTION>
Year Amount
---- -------------
<S> <C>
1999 $ 6,000
2000 5,800
2001 5,900
2002 5,900
2003 6,000
Thereafter 2,700
-------------
$ 32,300
-------------
-------------
</TABLE>
Rentals, other than pole rentals, charged to operations
approximated $8,300, $7,700 and $8,600 in 1996, 1997 and 1998, respectively,
while pole rental expense approximated $13,600, $16,900 and $18,100 in 1996,
1997 and 1998, respectively.
Other commitments include approximately $480,000 at December 31,
1998 to complete the rebuild of the Venture's Auburn, Illinois cable system that
was commenced in 1996. The Venture also is required to upgrade its system in the
community of Carlinville, Illinois by December 2001 at an estimated cost of
$875,000.
The Venture is subject to regulation by various federal, state and
local government entities. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") provides for, among other things,
federal and local regulation of rates charged for basic cable service, cable
programming service tiers ("CPSTs") and equipment and installation services.
Regulations issued in 1993 and significantly amended in 1994 by the Federal
Communications Commission (the "FCC") have resulted in changes in the rates
charged for the Venture's cable services. The Venture believes that compliance
with the 1992 Cable Act has had a significant negative impact on its operations
and cash flow. It also believes that any potential future liabilities for refund
claims or other related actions would not be material. The Telecommunications
Act of 1996 (the "1996 Telecom Act") was signed into law on February 8, 1996. As
it pertains to cable television, the 1996 Telecom Act, among other things, (i)
ends the regulation of certain CPSTs in 1999; (ii) expands the definition of
effective competition, the existence of which displaces rate regulation; (iii)
eliminates the restriction against the ownership and operation of cable systems
by telephone companies within their local exchange service areas; and (iv)
liberalizes certain of the FCC's cross-ownership restrictions.
Beginning in August 1997, the Corporate General Partner elected to
self-insure the 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.
F-22
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 4 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
All of the Venture's subscribers are served by its system in
Carlinville, Illinois and neighboring communities. Significant damage to the
system due to seasonal weather conditions or other events could have a material
adverse effect on the Venture's liquidity and cash flows. The Venture continues
to purchase insurance coverage in amounts its management views as appropriate
for all other property, liability, automobile, workers' compensation and other
types of insurable risks.
NOTE 5 - EMPLOYEE BENEFIT PLAN
The Venture has a cash or deferred profit sharing plan (the
"Profit Sharing Plan") covering substantially all of its employees. The Profit
Sharing Plan provides that each participant may elect to make a contribution in
an amount up to 15% of the participant's annual compensation which otherwise
would have been payable to the participant as salary. The Venture's contribution
to the Profit Sharing Plan, as determined by management, is discretionary but
may not exceed 15% of the annual aggregate compensation (as defined) paid to all
participating employees. There were no contributions charged against operations
of the Venture for the Profit Sharing Plan in 1996, 1997 or 1998.
NOTE 6 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Venture has a management and service agreement with a wholly
owned subsidiary of the Corporate General Partner (the "Manager") for a monthly
management fee of 4% of gross receipts, as defined, from the operations of the
Venture. Management fees approximated $74,800, $79,000 and $80,200 in 1996, 1997
and 1998, respectively. In addition, the Venture is required to distribute 1% of
its gross revenues to the Corporate General Partner in respect of its interest
as the Corporate General Partner of the Partnership. This fee approximated
$18,700, $19,800 and $20,000 in 1996, 1997 and 1998, respectively.
The Venture also reimburses the Manager for direct expenses
incurred on behalf of the Venture and for the Venture'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
subsidiaries are charged a proportionate share of these expenses. The Corporate
General Partner has contracted with FCLP and its affiliates to provide
management services for the Venture. Corporate office allocations and district
office expenses are charged to the properties served based primarily on the
respective percentage of basic customers or homes passed (dwelling units within
a system) within the designated service areas. The total amounts charged to the
Venture for these services approximated $162,800, $199,900 and $209,600 during
1996, 1997 and 1998, respectively.
The Venture also receives certain system operating management
services from affiliates of the Corporate General Partner in addition to the
Manager, due to the fact that there are no such employees directly employed by
the Venture's cable system. The Venture reimburses the affiliates for its
allocable share of the affiliates' operational costs. The total amount charged
to the Venture for these costs approximated
F-23
<PAGE>
ENSTAR CABLE OF MACOUPIN COUNTY
NOTES TO FINANCIAL STATEMENTS
------------------------------------
------------------------------------
NOTE 6 - TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
$12,600, $20,000 and $4,600 in 1996, 1997 and 1998, respectively. No management
fee is payable to the affiliates by the 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 Venture and the
other partnerships managed by the Corporate General Partner as well as for
FCLP's own cable television operations. FCLP charges the 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 Venture recorded programming fee expense of
$388,900, $433,300 and $474,500 in 1996, 1997 and 1998, respectively.
Programming fees are included in service costs in the statements of operations.
F-24
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3 Second Amended and Restated Agreement of Limited Partnership of
Enstar Income Program IV-3, L.P., as of August 1, 1988(3)
10.1 Management Agreement between Enstar Income Program IV-3 and Enstar
Cable Corporation(1)
10.2 Management Agreement between Enstar Cable of Macoupin County and
Enstar Cable Corporation(2)
10.3 Revolving Credit and Term Note dated December 31, 1987 between Enstar
Income Program IV-3 and Rhode Island Hospital Trust National Bank(2)
10.4 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Fairfield, IL(2)
10.5 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Shelbyville, IL(2)
10.6 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Fulton, KY(2)
10.7 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of South Fulton, Tennessee(2)
10.8 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Carlinville, IL(2)
10.9 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Virden, IL(2)
10.10 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Thayer, IL(2)
10.11 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Auburn, IL(2)
10.12 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Girard, IL(2)
10.13 Service agreement between Enstar Communications Corporation, Enstar
Cable Corporation and Falcon Holding Group, Inc. dated as of October
1, 1988(4)
10.14 Amendment No. 2 to Revolving Credit and Term Loan Agreement dated
December 31, 1987 between Enstar Income Program IV-3 and Rhode Island
Hospital Trust National Bank, dated August 3, 1990.(5)
10.15 Resolution No. 92-16 of the City Council of Shelbyville, Illinois
Extending the Cable Television Franchise of Enstar Income Program
IV-3. Passed and adopted January 4, 1993.(6)
</TABLE>
E-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.16 Loan Agreement between Enstar Income Program IV-3 and
Kansallis-Osake-Pankki dated December 9, 1993.(8)
10.17 Amended and Restated Partnership Agreement of Enstar Cable of
Macoupin County, as of October 1, 1993.(9)
10.18 Franchise Agreement and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Shelbyville, Illinois.(9)
10.19 Franchise Ordinance and related documents thereto granting a
non-exclusive community antenna television system franchise for the
City of Auburn, Illinois.(9)
10.20 A resolution of the City of Carlinville, Illinois extending the Cable
Television Franchise of Enstar Cable of Macoupin County. Adopted
December 1, 1997. (10)
10.21 Franchise Ordinance granting a non-exclusive community antenna
television system franchise for the City of Carlinville, Illinois.
21.1 Subsidiaries: Enstar Cable of Macoupin County
</TABLE>
E-2
<PAGE>
EXHIBIT INDEX
FOOTNOTES REFERENCES
(1) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-15686 for the fiscal year ended
December 31, 1986.
(2) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-15686 for the fiscal year ended
December 31, 1987.
(3) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-15686 for the fiscal year ended
December 31, 1988.
(4) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-15686 for the fiscal year ended
December 31, 1989.
(5) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-15686 for the fiscal year ended
December 31, 1990.
(6) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-15686 for the fiscal year ended
December 31, 1992.
(7) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-15686 for the fiscal year ended
December 31, 1993.
(8) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q, File No. 0-15686 for the quarter ended
March 31, 1995
(9) Incorporated by reference to the exhibits to the Registrant's
Quarterly Report on Form 10-Q, File No. 0-15686 for the quarter ended
September 30, 1997.
(10) Incorporated by reference to the exhibits to the Registrant's Annual
Report on Form 10-K, File No. 0-15686 for the fiscal year ended
December 31, 1997.
E-3
<PAGE>
EXHIBIT 10.21
CARLINVILLE, IL
CABLE TELEVISION FRANCHISE ORDINANCE
AN ORDINANCE SETTING FORTH REGULATIONS, TERMS AND CONDITIONS UNDER
WHICH CABLE TELEVISION SYSTEMS SHALL OPERATE IN CARLINVILLE, IL AND
GRANTING TO ENSTAR CABLE MACOUPIN COUNTY A FRANCHISE TO CONSTRUCT,
OPERATE AND MAINTAIN A CABLE TELEVISION SYSTEM WITHIN THE CITY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
TITLE AND PURPOSES OF ORDINANCE. . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
FRANCHISE TO OPERATE REQUIRED. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
GRANT OF FRANCHISE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
FRANCHISE FEES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUBSCRIBER RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
CUSTOMER SERVICE AND CONSUMER PROTECTION . . . . . . . . . . . . . . . . . . . . . 5
INFORMATION PROVIDED BY GRANTEE TO SUBSCRIBERS . . . . . . . . . . . . . . . . . . 6
TECHNICAL STANDARDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
EXTENSION OF CABLE SERVICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
FREE BASIC CABLE SERVICE TO PUBLIC BUILDINGS . . . . . . . . . . . . . . . . . . . 9
SYSTEM UPGRADE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
FRANCHISE VIOLATIONS: PROCEDURES, NOTICE, AND CURE . . . . . . . . . . . . . . . . 10
FRANCHISE TERMINATION AND CONTINUITY OF SERVICE. . . . . . . . . . . . . . . . . . 11
FORCE MAJEUR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
GRANT OF ADDITIONAL FRANCHISE AND COMPETING SERVICE PROVIDERS. . . . . . . . . . . 12
TRANSFER OR ASSIGNMENT OF FRANCHISE. . . . . . . . . . . . . . . . . . . . . . . . 13
COMPLIANCE WITH STATE AND FEDERAL LAW. . . . . . . . . . . . . . . . . . . . . . . 14
NOTICE TO THE GRANTEE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
STREET OCCUPANCY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ACCESS TO PUBLIC AND PRIVATE PROPERTY. . . . . . . . . . . . . . . . . . . . . . . 15
NONDISCRIMINATION IN EMPLOYMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 15
GRANTEE MAY ISSUE RULES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SEVERABILITY OF ORDINANCE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 16
EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
<PAGE>
AN ORDINANCE SETTING FORTH THE REGULATIONS, TERMS AND CONDITIONS UNDER WHICH
CABLE TELEVISION SYSTEMS SHALL OPERATE IN CARLINVILLE, IL AND GRANTING A
FRANCHISE TO ENSTAR CABLE MACOUPIN COUNTY, ITS SUCCESSORS AND ASSIGNS TO
CONSTRUCT, OPERATE AND MAINTAIN A CABLE TELEVISION SYSTEM IN THE CITY
BE IT ORDAINED BY THE CITY COUNCIL OF CARLINVILLE, IL AS FOLLOWS:
1 TITLE AND PURPOSES OF ORDINANCE
This Ordinance shall be known as the Carlinville Cable Television Franchise
Ordinance. The purposes of this Ordinance are: a) to establish the terms
and conditions under which a cable television system must operate within
Carlinville, IL (which may hereafter be referred to as "City", "Franchising
Authority", or "Grantor"); b) to provide for the payment of a franchise fee
to the City for costs associated with administering and regulating the
system; and c) to grant a cable television franchise to Enstar Cable Macoupin
County (hereafter referred to as Enstar" or "Grantee").
2 DEFINITIONS
For the purposes of this Ordinance the following terms, phrases, words and
their derivations shall have the meaning defined herein, unless the context
clearly indicates that another meaning is intended. Words used in the
present tense include the future, words in the plural number include the
singular number, and words in the singular number include the plural number.
2.1 "CABLE ACT" means THE CABLE COMMUNICATIONS POLICY ACT OF 1984 as
modified by THE CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION
ACT OF 1992, AND THE TELECOMMUNICATIONS ACT OF 1996.
2.2 "CABLE TELEVISION SYSTEM" means any non-broadcast facility consisting
of a set of transmission paths and associated signal reception,
transmission and control equipment, that is designed to distribute to
subscribers or other users audio, video and other forms of communications
services via electronic or electrical signals.
2.3 "CHANNEL" is a band of frequencies in the electromagnetic spectrum,
capable of carrying one audio-visual television signal.
2.4 "CITY" means Carlinville, IL in its present form or in any later
reorganized, consolidated, enlarged or reincorporated form, which is
legally authorized to grant a cable
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
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television franchise under state and federal law. The City may also be
referred to as "Franchising Authority" or "Grantor".
2.5 "ENSTAR" means Enstar Cable Macoupin County, which may also be
referred to as "Grantee".
2.6 "FCC" means the Federal Communications Commission.
2.7 "FRANCHISE" means the rights granted pursuant to this Ordinance to
construct, own and operate a cable television system along the public ways
in the City, or within specified areas in the City.
2.8 "FRANCHISE AREA" means that portion of the City for which a franchise
is granted under the authority of this Ordinance. If not otherwise stated
in an exhibit to this Ordinance, the Franchise Area shall be the legal and
geographic limits of the City, including all territory which may be
hereafter annexed to the City.
2.9 "FRANCHISING AUTHORITY" means Carlinville, IL, its City Council acting
as the City's duly elected governing body, its lawful successor or such
other person or body duly authorized by the City to grant a cable
television franchise.
2.10 "GRANTEE" means a person or business entity, or its lawful successor
or Assignee, which has been granted a franchise by the City pursuant to
this Ordinance.
2.11 "GROSS SUBSCRIBER RECEIPTS" as the term is used in calculating
franchise fees means revenues actually received by the Grantee from
television services it provides to its subscribers in Carlinville after
deducting the following: a) any fees or assessments levied on subscribers
or users of the system which are collected by the Grantee for payment to a
governmental entity; b) state or local sales or property taxes imposed on
the Grantee and paid to a governmental entity; and c) federal copyright
fees paid by the Grantee to the Copyright Tribunal in Washington, DC.
2.12 "NORMAL BUSINESS HOURS" means those hours during which most similar
businesses in the community are open to serve customers.
2.13 "NORMAL OPERATING CONDITIONS" means those service conditions which are
within the control of the Grantee. Those conditions which are not within
the control of the Grantee include, but are not limited to, natural
disasters, civil disturbances, power outages, telephone network outages,
and severe or unusual weather conditions. Those conditions which are
ordinarily within the control of the Grantee include, but are not limited
to, special promotions, pay-per-view events rate increases, regular peak or
seasonal demand periods, and maintenance or upgrade of the cable system.
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
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2.14 "PUBLIC WAY" OR "RIGHT-OF-WAY" means the surface, the air space above
the surface and the area below the surface of any public street, highway,
lane, path, alley, sidewalk, boulevard, drive, bridge, tunnel, park,
parkways, waterways, or other public right-of-way including public utility
easements or rights-of-way and any temporary or permanent fixtures or
improvements located thereon now or hereafter held by the City which shall
entitle the City and the Grantee to the use thereof for the purpose of
installing and maintaining the Grantee's cable television system.
2.15 "SCHOOL" means any public elementary or secondary school.
2.16 "SERVICE INTERRUPTION" means the loss of picture or sound on one or
more cable channels.
2.17 "SUBSCRIBER" means any person who receives monthly cable television
service provided by the Grantee's cable television system.
3 FRANCHISE TO OPERATE REQUIRED
It shall be unlawful to operate a cable television system within the City
unless a valid franchise has first been obtained from the City pursuant to
the terms of this Ordinance. A franchise granted pursuant to this Ordinance
shall authorize the Grantee to provide cable television services within the
City and to charge subscribers for such services. It shall also authorize
and permit the Grantee to traverse any portion of the City in order to
provide service outside the City. Unless otherwise specified, the Franchise
Area shall be the legal boundaries of the City.
4 GRANT OF FRANCHISE
A franchise is hereby granted to Enstar Cable Macoupin County (which may be
referred to herein as "Enstar" or "Grantee") to operate and maintain a cable
television system in the City for a period of seven years (7) years
commencing on the date of adoption of this Ordinance. However, if Grantee
complies with the upgrade requirements contained in Section 12 of this
Ordinance, this Agreement/Ordinance shall be automatically extended for an
additional period of five (5) years for a total term of twelve (12) years.
For purposes of this Section, Grantee shall be deemed to have "complied" if -
consistent with the requirements of Section 12 - Grantee has completed the
upgrade within 36 months from the adoption of this Ordinance. The Grantor
and the Grantee agree that at such time as this Franchise may expire by its
terms, the parties will adhere to the Franchise renewal procedures contained
in 47 U.S.C. 546, as that provision may exist at the time of renewal. If the
Ordinance/Franchise is not automatically extended after seven (7) years for
an additional five (5) years pursuant to this Section, Grantee shall be
deemed to have submitted on a timely basis the renewal notification required
under 47 U.S.C. 546 so as to guarantee all of Grantee's legal and procedural
rights to which it is entitled under 47 U.S.C. 546.
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 3
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5 FRANCHISE FEES
5.1 The Grantee shall pay a franchise fee which is intended to compensate
the City for all costs which may be associated with administering or
regulating Grantee's cable system. The amount of the franchise fee shall
be five (5) percent of the Grantee's annual Gross Subscriber Receipts, as
defined herein. Such fee shall be paid on a quarterly basis, within 45
days from the end of each quarter. Grantee shall be entitled to list the
franchise fee as a separate line item on monthly bills.
5.2 At the City's request, the Grantee shall file a report showing
Grantee's Gross Subscriber Receipts for the calendar year and the amount of
franchise fees due to the City. Such reports may be requested once per
calendar year. The Grantee shall have an obligation to maintain financial
records of its Gross Subscriber Receipts and Grantee fee payments for audit
purposes for a period of three years, and the City shall have the right to
audit the Grantee's books at the offices where such books are maintained.
6 SUBSCRIBER RATES
6.1 All charges to subscribers shall be consistent with a schedule of fees
for services offered and established by the Grantee. Rates shall be
nondiscriminatory in nature and uniform to persons of like classes under
similar circumstances and conditions.
6.2 The Grantee will provide the City with thirty (30) days advance
written notice of any change in rates and charges whenever possible.
6.3 Grantee may offer different or discounted rates at its discretion for
promotional purposes and may establish different rates for different
classes of subscribers where appropriate, such as offering discounted rates
to low income individuals or groups or bulk rates to multiple unit
dwellings.
6.4 Grantee shall inform each new subscriber of all applicable fees and
charges for providing cable television service.
6.5 Grantee may, at its own discretion and in a non-discriminatory manner,
waive, reduce or suspend connection fees, monthly service fees or other
charges on a one time or monthly basis for promotional purposes.
6.6 Grantee may refuse to provide service to any person because a prior
account with that person remains due and owing.
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
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6.7 A Grantee may offer service which requires advance payment of periodic
service charges.
6.8 The Grantee shall provide refunds to subscribers in the following
cases:
6.8(a) If the Grantee fails within a reasonable time to commence
service requested by a subscriber, it will refund all deposits or
advance charges that the subscriber has paid in connection with the
request for such service at the request of the subscriber.
6.8(b) If a subscriber terminates any service at any time and has a
credit balance for deposits or unused services, upon request from the
subscriber and upon return of all of Grantee's equipment, the Grantee
will refund the appropriate credit balance to the subscriber. The
subscriber will be responsible for furnishing the Grantee a proper
address to which to mail the refund.
6.8(c) If any subscriber's cable service is out of order for more
than 48 consecutive hours during the month due to technical failure,
damage, or circumstances within the control of the Grantee, the
Grantee will credit the account of that subscriber on a PRO RATA basis
upon the subscriber's written request. The credit will be calculated
using the number of twenty-four (24) hour periods that service is
impaired and the number of channels on which service is impaired as a
fraction of the total number of days in the month that the service
impairment occurs and the total number of channels provided by the
system in the absence of an impairment.
7 CUSTOMER SERVICE AND CONSUMER PROTECTION
7.1 CABLE SYSTEM OFFICE HOURS AND TELEPHONE AVAILABILITY
The Grantee will maintain a local, toll-free or collect call telephone
access line which will be available to its subscribers 24 hours per day,
seven days per week. Trained company representatives will be available to
respond to customer telephone inquiries during normal business hours.
After normal business hours, the access line may be answered by a service
or an automated response system, including an answering machine. Inquiries
received after normal business hours must be responded to by a trained
company representative on the next business day. Customer service center
and bill payment locations will be open at least during normal business
hours.
7.2 INSTALLATION, OUTAGES AND SERVICE CALLS
7.2(a) Standard installations will be performed within seven (7)
business days after an order has been placed. "Standard"
installations are those that are located up to 125 feet from the
existing distribution system.
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December 3, 1998
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7.2(b) Excluding conditions beyond the control of the Grantee, the
Grantee will begin working on "service interruptions" promptly and in
no event later than 24 hours after the interruption becomes known.
The Grantee must begin actions to correct other service problems the
next business day after notification of the service problem.
7.2(c) The "appointment window" alternatives for installations,
service calls, and other installation activities will be either a
specific time or a four-hour time block during normal business hours.
The Grantee may schedule service calls and other installation
activities outside of normal business hours for the express
convenience of the customer.
7.2(d) If Grantee's representative is running late for an
appointment with a customer and will not be able to keep the
appointment as scheduled, the customer will be contacted. The
appointment will be rescheduled, as necessary, at a time which is
convenient for the customer.
7.2(e) If the Grantee's service representative appears for an
appointment scheduled by a customer within the time period promised
and no one is present at the customer's dwelling to permit necessary
physical access to the dwelling unit, then Grantee may charge the
customer for the service call, up to a maximum of $25.
8 INFORMATION PROVIDED BY GRANTEE TO SUBSCRIBERS
8.1 The Grantee shall provide written information on each of the following
areas at the time of installation of service, at least annually to all
subscribers, and at any time upon request: products and services offered;
prices and options for programming services and conditions of subscription to
programming and other services; installation and services maintenance policies;
instructions on how to use the cable service; channel positions of programming
carried on the system; and billing and complaint procedures, including the
address and telephone number of the local franchise authority's cable office.
8.2 Customers will be notified of any changes in rates, programming
services or channel positions thirty (30) days in advance of such changes
if the change is within the control of the Grantee. In addition, the
Grantee shall notify subscribers thirty (30) days in advance of any
significant changes in the other information required by paragraph
(c)(3)(i)(A) of this section. Notwithstanding any other provision of Part
76, Grantee shall not be required to provide prior notice of any rate
change that is the result of a regulatory fee, franchise fee, or any other
fee, tax, assessment, or charge of any kind imposed by any Federal agency,
State, or Franchising Authority on the transaction between the Grantee and
the subscriber.
8.3 Bills will be clear, concise and understandable. Bills will be
itemized, with
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
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<PAGE>
itemizations including basic and premium service charges and equipment
charges. Bills will also clearly delineate all activity during the
billing period, including optional charges, rebates and credits. In
case of a billing dispute, the Grantee must respond to a written complaint
from a subscriber within thirty (30) days.
8.4 Refund checks will be issued promptly, but no later than either: the
customer's next billing cycle following resolution of the request or sixty
(60) days, or the return of the equipment supplied by the Grantee if
service is terminated.
8.5 Credits for services will be issued no later than the customer's next
billing cycle following the determination that a credit is warranted.
9 TECHNICAL STANDARDS
9.1 Grantee shall be responsible for insuring that the cable system is
designed, installed, and operated in a manner that fully complies with
Federal Communications Commission (FCC) rules regarding cable television
technical standards. Grantee shall be prepared to show, on request by an
authorized representative of the Commission or the Franchising Authority,
that the system does, in fact, comply with the rules.
9.2 Grantee shall conduct complete performance tests of the system at
least twice each calendar year (at intervals not to exceed seven months),
and shall maintain the resulting test data on file at the Grantee's local
business office for at least five (5) years. The test data shall be made
available for inspection by the Commission or the local franchiser, upon
request. The performance test shall be directed at determining the extent
to which the system complies with all the technical standards set forth in
Section 76.605(a) of the Commission's rules.
10 EXTENSION OF CABLE SERVICE
10.1 A Grantee which is not already serving the entire franchise area shall
provide service to all portions of the franchise area reaching a minimum
density of thirty (30) dwelling units per linear strand mile, as measured
from the nearest coaxial cable line, within twelve (12) months after the
grant of a franchise.
10.2 Grantee shall provide aerial or buried drop lines to new subdivisions
within the franchise area at the request of the developer provided that the
developer contracts and agrees with the Grantee to pay the cost of the
extension of the service.
10.3 Grantee shall extend and make cable television service available to
any resident within the franchise area who requests connection at the
standard connection charge if the connection to the resident would require
no more than a standard one hundred and fifty (150) foot aerial
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
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<PAGE>
drop or a seventy-five (75) foot buried drop line or extension from the
nearest coaxial feeder cable. With respect to requests for connection
requiring an aerial or buried drop line in excess of the maximum standard
distance, Grantee shall extend and make available cable television service
to such residents at a connection charge not to exceed its actual costs
for the distance exceeding the standard one hundred and fifty (150) feet
of aerial or seventy-five (75) feet of underground cable respectively.
10.4 In areas with fewer than thirty (30) residential units per proposed
cable bearing strand mile, Grantee shall offer a cost-sharing arrangement
with residents. A dwelling unit will be counted for this purpose if its
lot fronts a street. The cost-sharing arrangement shall consist of the
following:
10.4(a)At the request of a resident desiring service, Grantee shall
determine the cost of the plant extension required to provide service
to the potential subscriber from the closest point on the cable system
where it is technically feasible. The cost of construction shall be
allocated based on the following formula:
10.4(a)(1)If a request for extension of service into a
residential area requires the construction of cable plant which
does not pass at least thirty (30) potential subscribers per
proposed cable bearing strand mile, Grantee and residents who
agree to subscribe to cable service will each bear their
proportionate share of construction costs. For example, if there
are five (5) dwelling units per proposed cable bearing strand
mile, Grantee's share will equal 5/30ths or one sixth (1/6) of
the construction cost. The remaining cost will be shared equally
by each subscriber.
10.4(a)(2)Should additional residents actually subscribe to
cable television service in areas where subscribers have already
paid a proportionate share under the extension cost sharing
formula, subscribers who have previously paid a proportionate
share under the extension formula shall be reimbursed PRO RATA
for their contribution or a proportional share thereof. In such
case, the PRO RATA shares shall be recalculated and each new
subscriber shall pay the new PRO RATA share, and all subscribers
who previously paid a proportionate share shall receive PRO RATA
refunds. In the event such subscribers (or prior subscribers)
have been disconnected or have moved and owe the Grantee money
which has not been recovered, Grantee shall have the right to
first apply the refund to amounts owed the Grantee and give the
balance, if any to the subscriber. At such time as there are
thirty (30) potential subscribers per cable bearing strand mile,
the subscribers shall receive their PRO RATA share of
construction costs. In any event, one (1) year after the
completion of a project, subscribers who have paid a share of
line extension costs are no longer eligible for refunds, and the
amounts paid in construction costs will be credited to the plant
account of Grantee.
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 8
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10.4(a)(3)Where the density of residential dwelling and
occupied commercial or industrial structures, adverse terrain, or
other factors render extension of the system and offering of
cable service impractical, technically infeasible or would create
an economic hardship, the City may, upon petition of the Grantee,
either waive the extension of the system into such areas, or
allow the extension and offer of service on special terms or
conditions which are reasonable and fair to the City , the
Grantee and potential subscribers in such areas.
11 FREE BASIC CABLE SERVICE TO PUBLIC BUILDINGS
Grantee shall provide, without charge, one service outlet activated for basic
subscriber service to each police station, fire station, public school, public
library and the City office. If it is necessary to extend Grantee's trunk or
feeder lines more than two hundred (200) feet solely to provide service to any
such school or public building, the City or the building owner or occupants
shall have the option of either paying Grantee's direct costs for line
extensions in excess of two hundred (200) feet or releasing the Grantee from the
obligation to provide service to such building. Furthermore, Grantee shall be
permitted to recover the direct cost of installing cable service, when requested
to do so, in order to provide: a) more than one outlet, b) inside wiring, or
c) a service outlet requiring more than two hundred (200) feet of drop cable to
any public building.
12 SYSTEM UPGRADE
Grantee agrees to upgrade the existing Carlinville cable TV system within
thirty-six (36) months of the adoption of this Franchise Agreement. The
upgraded system will be constructed so as to provide the capability of passing a
minimum of 83 channels on an analog and/or digital basis through its trunk and
feeder lines.
13 INSURANCE
Within ninety (90) days following the grant of a franchise the Grantee shall
obtain the following insurance policies:
13.1 A general comprehensive liability policy indemnifying, defending and
saving harmless the City, its officers, boards, commissions, agents or
employees from any and all claims by any person whatsoever on account of
injury to or death of a person or persons occasioned by the operations of
the Grantee under the franchise herein granted, or alleged to have been so
caused or occurred, with a minimum liability of Five Hundred thousand
Dollars ($500,000) per personal injury, death of any one person or damage
to property and One Million Dollars
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 9
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($1,000,000) for personal injury, death of any two or more persons in
any one occurrence or damage to property.
13.2 All insurance policies called for herein shall be in a form
satisfactory to the City and shall require thirty (30) days written notice
of any cancellation to both the City and the Grantee. The Grantee shall,
in the event of any such cancellation notice, obtain, pay all premiums for,
and file with the City , written evidence of the issuance of replacement
policies within thirty (30) days following receipt by the City or the
Grantee of any notice of cancellation. In recognition of the foregoing
each party agrees to cause their respective insurance carriers to waive any
rights of subrogation.
14 INDEMNIFICATION
The Grantee, by its acceptance of a franchise granted pursuant to this
Ordinance, shall indemnify and hold harmless the City, its officials, boards,
commissions and employees against any and all claims, suits, causes of action,
proceedings, and judgments for damage arising out of the award of a franchise to
the Grantee and its operation of the cable television system under the
franchise. These damages shall include, but not be limited to, penalties
arising out of copyright infringements and damages arising out of any failure by
Grantee to secure consents from the owners, authorized distributors or licensees
of programs to be delivered by the Grantee's cable television system whether or
not any act or omission complained of is authorized, allowed, or prohibited by
the franchise.
15 FRANCHISE VIOLATIONS: PROCEDURES, NOTICE, AND CURE
Before exercising any right of redress available to it under the terms of this
Ordinance, including determination of any penalty assessable under
applicable law, the City shall follow the procedures set forth in this
Section.
15.1 The City shall notify Grantee in writing, by Certified Mail, of any
alleged violation, ("Violation Notice") which notice shall include a
detailed description of any alleged violation and a request for cure
of such violation.
15.2 Except in the case of a safety hazard posing an imminent danger to
public health and safety, Grantee shall have thirty (30) days from
the date of receipt of such notice to respond in writing,
indicating: (1) that Grantee has cured the alleged violation,
providing reasonable documentation demonstrating that the alleged
violation has been cured; (2) that Grantee has commenced or will
commence actions to cure the alleged violation, but that the alleged
violation cannot reasonably be cured immediately, describing the
steps taken to be taken to cure the alleged violation; or (3) that
grantee disagrees with the allegation that a violation has occurred
and contests the Violation
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
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Notice, stating the reasons therefor. Pending the completion of an
administrative hearing which may be held, the City shall not impose
penalties upon Grantee.
15.3 Upon receipt of Grantee's response to the Violation Notice, the City
may determine (a) that the alleged violation has been corrected, or
is in the process of being corrected by Grantee, and that no further
action is required; (b) that an extension of the time or other
appropriate relief should be granted until the cure can be completed;
(c) that the problem is beyond Grantee's direct control and that
Grantee is not at fault; or (c) that Grantee has violated one or more
provisions of its franchise and that appropriate action should be
taken by the City.
15.4 In case of an alleged violation(s) of applicable system technical
standards, construction standards, or safety codes, if the alleged
violation does not pose a substantial and immediate safety hazard,
Grantee shall be allowed a reasonable and sufficient time to complete
any required corrections or repairs to the system. So long as Grantee
demonstrates that it is working diligently and in good faith to
correct any alleged technical violations, the City shall not assess
penalties against the Grantee. A "substantial and immediate safety
hazard" shall be defined as one posing an imminent likelihood of
causing significant bodily injury if not repaired immediately.
Grantee shall not be penalized for other minor violations of the
Franchise or applicable codes, so long as Grantee makes its best
efforts to correct any problem or violation within a reasonable
period of time of the discovery of alleged violation.
15.5 Nothing in this section shall be construed to restrict Grantee's
right to appeal the City's actions to a court of competent
jurisdiction.
16 FRANCHISE TERMINATION AND CONTINUITY OF SERVICE
16.1 In the event of a formal denial of renewal or revocation of a
franchise, which denial or revocation is upheld by final judicial
adjudication of any appeal(s) which may be filed, the Grantee shall be have
a minimum period of at least six (6) months from such final adjudication
within which to transfer or convey the assets of the cable system to
another owner. Approval of such proposed transfer or assignment shall not
be unreasonably withheld by the City.
17 FORCE MAJEUR
In the event the Grantee is prevented or delayed in the performance of any of
its obligations under this Ordinance by reason of flood, fires, hurricanes,
tornadoes, earthquakes or other acts of God, unavoidable casualty,
insurrections, war, riot, sabotage, unavailability of materials or supplies,
vandalism, strikes, boycotts, lockouts, labor disputes, shortage of labor,
unusually severe weather
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 11
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conditions, acts or omissions or delays by utility companies upon whom
Grantee is dependent for pole attachments or easement use, or any other event
which is beyond the reasonable control of the Grantee, the Grantee shall have
a reasonable time under the circumstances to perform its obligations under
this Ordinance or to procure a reasonable and comparable substitute for such
obligations. Under such circumstances the Grantee shall not be held in
default or noncompliance with the provisions of the Ordinance nor shall it
suffer any penalty relating thereto.
18 GRANT OF ADDITIONAL FRANCHISE AND COMPETING SERVICE PROVIDERS
18.1 APPLICATION PROCEDURES
18.1(a)An application for a new cable television franchise shall be
submitted to the City in a form specified by or acceptable to the
City, and in accordance with procedures and schedules established by
the City. The City may request such facts and information as it
deems appropriate.
18.1(b)Upon request, any applicant shall furnish to the City a map
of suitable scale, showing all roads and public buildings, which
indicates the areas to be served and the proposed dates of
commencement of service for each area. The proposed service area
shall be subject to approval by the City. If approved, the service
area shall be incorporated into any franchise granted pursuant to
this Ordinance. If no service area is specifically delineated in a
franchise, it shall be considered to be coterminous with the
boundaries of the City.
18.1(c)After receiving an application for a franchise, the City
shall examine the legal, financial, technical and character
qualifications of the applicant. The City may grant one or more
non-exclusive franchises creating a right to construct and operate
a cable television system within the public ways of the City, subject
to the provisions of this Section.
18.1(d)In the event an application is filed proposing to serve a
franchise area which overlaps, in whole or in part, an existing
Grantee's franchise area, a copy of such application shall be served
upon any existing Grantee by the City by registered or certified
mail. Such notice shall be considered a condition precedent to
consideration of the application for a franchise by the City.
18.2 COMPETING SERVICE PROVIDERS
Any franchise granted by the City shall be non-exclusive. However, nothing
in this ordinance shall be construed to require it to grant more than one
franchise if the City determines,
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 12
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pursuant to the procedures established in this Ordinance, that granting
additional franchises would be detrimental to the public interest.
18.3 PERMITS FOR NON-FRANCHISED ENTITIES
The City may issue a license, easement or other permit to a person other
than the Grantee to permit that person to traverse any portion of the
Grantee's franchise area within the City in order to provide service
outside, but not within the City. Such license or easement, absent a grant
of a franchise in accordance with this Ordinance, shall not authorize nor
permit said person to provide cable television service of any type to any
home or place of business within the City nor render any other service
within the City.
19 TRANSFER OR ASSIGNMENT OF FRANCHISE
19.1 A Grantee may transfer or assign its franchise to another entity (the
"Assignee") upon thirty (30) days notice to the City . The Grantee shall
provide to the City a reasonable showing that the proposed Assignee or
Transferee possesses the technical and financial qualifications to operate
the cable TV system properly. The proposed Transferee or Assignee shall
provide the City with a written statement that it agrees to comply with all
material terms of the franchise to be transferred. The City shall not
unreasonably delay or deny the assignment or transfer of a franchise. The
reasonableness of the City's actions shall be subject to judicial review by
a court of appropriate jurisdiction. The proposed transfer or assignment
shall be deemed approved if no action is taken by the City within sixty
(60) days of the written request for transfer by the Grantee.
19.2 The Grantee may secure financing or an indebtedness by trust,
mortgage, or other instrument of hypothecation of the franchise, in whole
or in part, without requiring the consent of the City. Consent shall not
be required to assign a franchise from one business entity to another which
is operated or managed by the Grantee or any affiliated entity. In
addition, so long as the manager and/or general partner of the Grantee
remains the same, consent shall not be required to transfer the interests
of any limited partner of the Grantee, who has no day to day operational
control of the Grantee or the system.
19.3 A Grantee may transfer or assign its franchise to an affiliated
entity upon thirty (30) days notice to the City. Consent of the City shall
not be required for such an assignment, provided that; a) the City is
provided with a reasonable showing that the proposed Assignee possesses the
technical and financial qualifications to operate the cable TV system and,
b) that the Assignee agrees to comply with the terms of this Ordinance.
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 13
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20 COMPLIANCE WITH STATE AND FEDERAL LAW
The Grantee and the City shall at all times comply with all applicable State
and Federal laws and the applicable rules and regulations of administrative
agencies. If the Federal Communications Commission (FCC) or any other
federal or state governmental body or agency enacts any law or regulation or
exercises any paramount jurisdiction over the subject matter of this
Ordinance or any franchise granted hereunder, the jurisdiction of the City
shall cease and no longer exist to the extent such superseding jurisdiction
shall preempt or preclude the exercise of like jurisdiction by the City. The
City and the Grantee reserve all rights they each may possess under law,
unless expressly waived herein.
21 NOTICE TO GRANTEE
Except as otherwise provided in this Ordinance, the City shall not meet to
take any action involving the Grantee's franchise unless the City has
notified the Grantee by certified mail at least thirty (30) days prior to
such meeting, as to its time, place and purpose. The notice provided for in
this section shall be in addition to, and not in lieu of, any other notice to
the Grantee provided for in this Ordinance. All notices, requests, demands
and other communications required or permitted hereunder shall be in writing
and shall be deemed to have been duly given if mailed by certified mail
return receipt requested, addressed to the Grantee's corporate office as
follows:
Enstar Cable Macoupin County
10900 Wilshire Boulevard, 15th Floor
Los Angeles, California 90024
Attn: Howard Gan
22 STREET OCCUPANCY
22.1 Grantee shall utilize existing poles, conduits and other facilities
whenever possible, but may construct or install new, different, or
additional poles, conduits, or other facilities whether on the public way
or on privately-owned property with the written approval of the appropriate
government authority, and, if necessary the property owner. Such approval
shall not be unreasonably withheld by the governmental agency.
22.2 All transmission lines, equipment and structures shall be so
installed and located as to cause minimum interference with the rights and
appearance and reasonable convenience of property owners who adjoin on any
public way and at all times shall be kept and maintained in a safe
condition and in good order and repair. The Grantee shall at all times
employ reasonable care and shall use commonly accepted methods and devices
for preventing failures and accidents which are likely to cause damage,
injuries or nuisances to the public.
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 14
<PAGE>
22.3 Grantee shall have the authority to trim trees on public property at
its own expense as may be necessary to protect its wires and facilities,
subject to the direction of the City or other appropriate governmental
authority.
23 ACCESS TO PUBLIC AND PRIVATE PROPERTY
23.1 Grantee shall have the right to enter and have access to the property
and premises of the City or that of any subscriber for purposes of
installing cable TV service or recovering and removing Grantee's property
and equipment when a subscriber's service is terminated and a subscriber
refuses to return such equipment to the Grantee.
23.2 The City shall not permit any person who owns or controls a
residential multiple unit dwelling, trailer park, condominium, apartment
complex, subdivision or other property to interfere with the right of any
tenant, resident or lawful occupant thereof to receive cable installation,
service or maintenance from Grantee, except as federal or state law shall
otherwise require.
23.3 Upon request by Grantee, the City shall promptly exercise any rights
it may have to permit or enable Grantee to obtain or utilize easements with
respect to any residential multiple unit dwelling, trailer park,
condominium, apartment complex, subdivision or other property as required
to facilitate Grantee's use thereof for purposes of providing system
service to the tenants, residents or lawful occupants thereof. In any such
proceeding, the restitution to the Owner for the amount of space utilized
by the system, considering the enhanced value to the premises resulting
from the installation of cable television facilities, shall be a one-time
charge of $1.00 per dwelling unit.
24 NONDISCRIMINATION IN EMPLOYMENT
The Grantee shall neither refuse to hire nor discharge from employment nor
discriminate against any person in compensation, terms, conditions, or
privileges of employment because of age, sex, race, color, creed, or national
origin. The Grantee shall insure that employees are treated without regard to
their age, sex, race, color, creed or national origin.
25 GRANTEE MAY ISSUE RULES
The Grantee shall have the authority to issue such rules, regulations, terms and
conditions of its business as shall be reasonably necessary to enable it to
exercise its rights and perform its services under this Ordinance and the Rules
of the FCC, and to assure uninterrupted service to each and all of its
subscribers. Such rules and regulations shall not be deemed to have the force
of law.
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 15
<PAGE>
26 SEVERABILITY OF ORDINANCE PROVISIONS
If any section of this Ordinance or the franchise, or any portion thereof, is
held invalid or unconstitutional by any court of competent jurisdiction or
administrative agency, such decision shall not affect the validity of the
remaining portions of the Ordinance or franchise.
27 EFFECTIVE DATE
This ordinance shall become effective upon the date of its adoption by the City.
Any failure by the City to follow proper procedures under state or local law in
adopting this Ordinance or granting a franchise shall not abrogate the rights or
obligations of either the Grantee or the City under this Ordinance. If,
following adoption of this Ordinance it is subsequently determined that proper
legal procedures have not been followed by the City, it shall be the
responsibility of the City to rectify any procedural defects and ratify the
terms of this Ordinance.
PASSED AND APPROVED by the City Council of Carlinville this 21st day of
December, 1998.
BY: /S/ BRAD DEMUZIO
-----------------------------
Title:
ATTEST: MAYOR
-----------------------
Title:
ACCEPTED BY Enstar Cable Macoupin County.
BY: /S/ HOWARD GAN
---------------------------
Title: Vice President
ATTEST: /S/ LAURA DAINKO
-------------------------
Title: Administrative Assistant
Carlinville, IL Cable TV Franchise Ordinance
December 3, 1998
Page 16
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
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<DEPRECIATION> 4,638,800
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<COMMON> 0
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<LOSS-PROVISION> 34,000
<INTEREST-EXPENSE> 13,000
<INCOME-PRETAX> 748,300
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