<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------
FORM 10-Q
(MARK ONE)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
----------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
-------------------- --------------------
Commission File Number 0-15686
-------------
Enstar Income Program IV-3, L.P.
- ------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Georgia 58-1648320
- --------------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
10900 Wilshire Boulevard - 15th Floor
Los Angeles, California 90024
- --------------------------------------- ---------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (310) 824-9990
-------------------------------------------
- ------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No ___
<PAGE>
PART I - FINANCIAL INFORMATION
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED BALANCE SHEETS
========================================
<TABLE>
<CAPTION>
December 31, September 30,
1998* 1999
----------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash $ 812,200 $ 827,000
Accounts receivable, less allowance of $3,300 and
$1,900 for possible losses 39,700 32,600
Prepaid expenses and other assets 150,900 205,400
Equity in net assets of Joint Venture 903,200 1,045,800
Property, plant and equipment, less accumulated
depreciation and amortization of $4,638,800 and $4,853,100 1,795,300 1,644,000
Franchise cost, net of accumulated
amortization of $2,227,900 and $2,369,600 344,100 204,700
Deferred charges, net 2,800 -
---------------- ----------------
$ 4,048,200 $ 3,959,500
================ ================
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 165,500 $ 166,300
Due to affiliates 246,000 54,500
---------------- ----------------
TOTAL LIABILITIES 411,500 220,800
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (46,800) (45,800)
Limited partners 3,683,500 3,784,500
---------------- ----------------
TOTAL PARTNERSHIP CAPITAL 3,636,700 3,738,700
---------------- ----------------
$ 4,048,200 $ 3,959,500
================ ================
</TABLE>
*As presented in the audited financial statements.
See accompanying notes to condensed financial statements.
-2-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED STATEMENTS OF OPERATIONS
========================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Three months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
REVENUES $ 659,900 $ 653,500
---------------- -----------------
OPERATING EXPENSES:
Service costs 232,600 198,800
General and administrative expenses 68,700 91,500
General Partner management fees
and reimbursed expenses 91,600 87,300
Depreciation and amortization 134,300 130,700
---------------- -----------------
527,200 508,300
---------------- -----------------
OPERATING INCOME 132,700 145,200
---------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 7,500 9,500
Interest expense (2,800) (1,900)
---------------- -----------------
4,700 7,600
---------------- -----------------
INCOME BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE 137,400 152,800
EQUITY IN NET INCOME OF JOINT VENTURE 52,800 59,500
---------------- -----------------
NET INCOME $ 190,200 $ 212,300
================ =================
Net income allocated to General Partners $ 1,900 $ 2,100
================ =================
Net income allocated to Limited Partners $ 188,300 $ 210,200
================ =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 4.72 $ 5.27
================ =================
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,900 39,900
================ =================
</TABLE>
See accompanying notes to condensed financial statements.
-3-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED STATEMENTS OF OPERATIONS
========================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
REVENUES $ 1,998,800 $ 1,945,700
---------------- -----------------
OPERATING EXPENSES:
Service costs 685,200 691,200
General and administrative expenses 233,400 318,300
General Partner management fees
and reimbursed expenses 273,200 259,800
Depreciation and amortization 402,100 391,000
---------------- -----------------
1,593,900 1,660,300
---------------- -----------------
OPERATING INCOME 404,900 285,400
---------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 20,600 25,200
Interest expense (9,600) (8,400)
Gain on sale of cable assets 200 -
---------------- -----------------
11,200 16,800
---------------- -----------------
INCOME BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE 416,100 302,200
EQUITY IN NET INCOME OF JOINT VENTURE 151,800 177,600
---------------- -----------------
NET INCOME $ 567,900 $ 479,800
================ =================
Net income allocated to General Partners $ 5,700 $ 4,800
================ =================
Net income allocated to Limited Partners $ 562,200 $ 475,000
================ =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 14.09 $ 11.90
================ =================
AVERAGE LIMITED PARTNERSHIP
UNITS OUTSTANDING DURING PERIOD 39,900 39,900
================ =================
</TABLE>
See accompanying notes to condensed financial statements.
-4-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
STATEMENTS OF CASH FLOWS
========================================
<TABLE>
<CAPTION>
Unaudited
-------------------------------------
Nine months ended
September 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 567,900 $ 479,800
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Joint Venture (151,800) (177,600)
Depreciation and amortization 402,100 391,000
Gain on sale of cable assets (200) -
Decrease from changes in:
Accounts receivable, prepaid expenses and other assets (2,000) (47,400)
Accounts payable and due to affiliates (407,300) (190,700)
---------------- -----------------
Net cash provided by operating activities 408,700 455,100
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (175,500) (95,100)
Proceeds from sale of property, plant and equipment 200 -
Increase in intangible assets (3,200) (2,400)
Distributions from Joint Venture 12,500 35,000
---------------- -----------------
Net cash used in investing activities (166,000) (62,500)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (377,800) (377,800)
---------------- -----------------
INCREASE (DECREASE) IN CASH (135,100) 14,800
CASH AT BEGINNING OF PERIOD 788,300 812,200
---------------- -----------------
CASH AT END OF PERIOD $ 653,200 $ 827,000
================ =================
</TABLE>
See accompanying notes to condensed financial statements.
-5-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
===========================================
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for the
three and nine months ended September 30, 1999 and 1998 are unaudited. These
condensed interim financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Partnership's
latest Annual Report on Form 10-K. In the opinion of management, such
statements reflect all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results of such
periods. The results of operations for the three and nine months ended
September 30, 1999 are not necessarily indicative of results for the entire
year.
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement with a
wholly-owned subsidiary of the Corporate General Partner (the "Manager") for
a monthly management fee of 5% of revenues, excluding revenues from the sale
of cable television systems or franchises. Management fee expense
approximated $32,700 and $97,300 for the three and nine months ended
September 30, 1999.
In addition to the monthly management fees described above, the
Partnership reimburses the Manager for direct expenses incurred on behalf of
the Partnership and for the Partnership's allocable share of operational
costs associated with services provided by the Manager. All cable television
properties managed by the Corporate General Partner and its subsidiary are
charged a proportionate share of these expenses. The Corporate General
Partner has contracted with Falcon Communications, L.P. ("FCLP"), an
affiliated partnership, to provide corporate management services for the
Partnership. Corporate office allocations and district office expenses are
charged to the properties served based primarily on the respective percentage
of basic subscribers or homes passed (dwelling units within a system) within
the designated service areas. The total amount charged to the Partnership for
these services approximated $54,600 and $162,500 for the three and nine
months ended September 30, 1999.
The Manager has entered into an identical agreement with Enstar
Cable of Macoupin County, a Georgia general partnership, of which the
Partnership is a co-partner (the "Joint Venture"), except that the Joint
Venture pays the Manager only a 4% management fee. However, the Joint Venture
is required to distribute to Enstar Communications Corporation (which is the
Corporate General Partner of the Joint Venture as well as of the Partnership)
an amount equal to 1% of the Joint Venture's gross revenues in respect of
Enstar Communications Corporation's interest as Corporate General Partner of
the Joint Venture. No management fee is payable by the Partnership in respect
of any amounts received by the Partnership from the Joint Venture, and there
is no duplication of reimbursed expenses or costs of the Manager. The Joint
Venture paid the Manager management fees of approximately $20,000 and $59,800
and reimbursement of expenses of approximately $52,900 and $147,400 under its
management agreement for the three and nine months ended September 30, 1999.
In addition, the Joint Venture paid the Corporate General Partner
approximately $5,000 and $15,000 in respect of its 1% special interest during
the three and nine months ended September 30, 1999. Management fees and
reimbursed expenses due the Corporate General Partner are non-interest
bearing.
The Partnership and the Joint Venture also receive certain system
operating management services from an affiliate of the Corporate General
Partner in addition to the Manager, due to the fact
-6-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
===========================================
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
that there are no such employees directly employed by the Partnership's and
Joint Venture's cable systems. The Partnership and the Joint Venture
reimburse the affiliate for their allocable share of the affiliate's
operational costs. The total amount charged to the Partnership and the Joint
Venture approximated $3,200 and $9,000 for the three and nine months ended
September 30, 1999. No management fee is payable to the affiliate by the
Partnership and the Joint Venture and there is no duplication of reimbursed
expenses and costs paid to the Manager.
Substantially all programming services have been purchased through
FCLP. FCLP, in the normal course of business, purchases cable programming
services from certain affiliated program suppliers. Such purchases of
programming services are made on behalf of the Partnership and Joint Venture
and the other partnerships managed by the Corporate General Partner as well
as for FCLP's own cable television operations. FCLP charges the Partnership
and the Joint Venture for these costs based on an estimate of what the
Corporate General Partner could negotiate for such programming services for
the 15 partnerships managed by the Corporate General Partner as a group. The
Partnership and the Joint Venture recorded programming fee expense of
$298,500 and $868,200 for the three and nine months ended September 30, 1999.
Programming fees are included in service costs in the statements of
operations.
3. EARNINGS PER UNIT OF LIMITED PARTNERSHIP INTEREST
Earnings and losses per unit of limited partnership interest is
based on the average number of units outstanding during the periods
presented. For this purpose, earnings and losses have been allocated 99% to
the Limited Partners and 1% to the General Partners. The General Partners do
not own units of partnership interest in the Partnership, but rather hold a
participation interest in the income, losses and distributions of the
Partnership.
-7-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
===========================================
4. EQUITY IN NET ASSETS OF JOINT VENTURE
Each of the Partnership and two affiliated partnerships (Enstar
Income Program IV-1, L.P. and Enstar Income Program IV-2, L.P.) owns
one-third (1/3) of the Joint Venture. Each of the co-partners shares equally
in the profits and losses of the Joint Venture. The investment in the Joint
Venture is accounted for on the equity method. Summarized financial
information for the Joint Venture as of September 30, 1999 and December 31,
1998, and the results of its operations for the three and nine months ended
September 30, 1999 and 1998, have been included. The results of operations
for the three and nine months ended September 30, 1999 are not necessarily
indicative of results for the entire year.
<TABLE>
<CAPTION>
December 31, September 30,
1998* 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
Current assets $ 1,522,900 $ 1,733,100
Investment in cable television properties, net 1,528,100 1,561,000
Other assets 2,500 1,700
------------------ -----------------
$ 3,053,500 $ 3,295,800
================== =================
Current liabilities $ 343,900 $ 158,500
Venturers' capital 2,709,600 3,137,300
------------------ -----------------
$ 3,053,500 $ 3,295,800
================== =================
</TABLE>
*As presented in the audited financial statements.
-8-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
===========================================
4. EQUITY IN NET ASSETS OF JOINT VENTURE (CONTINUED)
<TABLE>
<CAPTION>
Unaudited
---------------------------------------
Three months ended
September 30,
---------------------------------------
1998 1999
------------------ -----------------
<S> <C> <C>
REVENUES $ 500,200 $ 499,900
------------------ -----------------
OPERATING EXPENSES:
Service costs 162,900 174,700
General and administrative expenses 24,200 30,100
General Partner management fees and reimbursed expenses 80,600 77,900
Depreciation and amortization 82,200 54,000
------------------ -----------------
349,900 336,700
------------------ -----------------
OPERATING INCOME 150,300 163,200
OTHER INCOME (EXPENSE):
Interest income 11,200 16,600
Interest expense (3,100) (1,500)
------------------ -----------------
NET INCOME $ 158,400 $ 178,300
================== =================
Unaudited
---------------------------------------
Nine months ended
September 30,
---------------------------------------
1998 1999
------------------ -----------------
REVENUES $ 1,497,700 $ 1,495,800
------------------ -----------------
OPERATING EXPENSES:
Service costs 468,100 497,700
General and administrative expenses 96,800 117,400
General Partner management fees and reimbursed expenses 233,900 222,200
Depreciation and amortization 257,800 163,600
------------------ -----------------
1,056,600 1,000,900
------------------ -----------------
OPERATING INCOME 441,100 494,900
OTHER INCOME (EXPENSE):
Interest income 23,100 44,400
Interest expense (8,900) (6,600)
------------------ -----------------
NET INCOME $ 455,300 $ 532,700
================== =================
</TABLE>
-9-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
The Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act") required the Federal Communications Commission ("FCC")
to, among other things, implement extensive regulation of the rates charged
by cable television systems for basic and programming service tiers,
installation, and customer premises equipment leasing. Compliance with those
rate regulations has had a negative impact on the Partnership's revenues and
cash flow. The Telecommunications Act of 1996 (the "1996 Telecom Act")
substantially changed the competitive and regulatory environment for cable
television and telecommunications service providers. Among other changes, the
1996 Telecom Act ended the regulation of cable programming service tier rates
on March 31, 1999. There can be no assurance as to what, if any, further
action may be taken by the FCC, Congress or any other regulatory authority or
court, or the effect thereof on the Partnership's business. Accordingly, the
Partnership's historical financial results as described below are not
necessarily indicative of future performance.
This Report includes certain forward-looking statements regarding,
among other things, future results of operations, regulatory requirements,
competition, capital needs and general business conditions applicable to the
Partnership. Such forward-looking statements involve risks and uncertainties
including, without limitation, the uncertainty of legislative and regulatory
changes and the rapid developments in the competitive environment facing
cable television operators such as the Partnership. In addition to the
information provided herein, reference is made to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998 for additional
information regarding such matters and the effect thereof on the
Partnership's business.
The Partnership conducts its cable television business operations
both (i) through the direct ownership and operation of certain cable
television systems and (ii) through its participation as a partner with a
one-third (1/3) interest in the Joint Venture. The Partnership participates
equally with its two affiliated co-partners under the Joint Venture's
partnership agreement with respect to capital contributions, obligations and
commitments and results of operations. Accordingly, in considering the
financial condition and results of operations for the Partnership,
consideration must also be made of those matters as they relate to the Joint
Venture. The following discussion reflects such consideration, and with
respect to results of operations, a separate discussion is provided for each
entity.
RESULTS OF OPERATIONS
THE PARTNERSHIP
The Partnership's revenues decreased from $659,900 to $653,500, or
by 1.0%, and from $1,998,800 to $1,945,700, or by 2.7%, for the three and
nine months ended September 30, 1999 as compared to the corresponding periods
in 1998. Of the $6,400 decrease in revenues for the three months ended
September 30, 1999, $27,300 was due to decreases in the number of
subscriptions for basic, premium, tier and equipment rental services and $600
was due to decreases in other revenue producing items. The decrease was
partially offset by a $21,500 increase due to increases in regulated service
rates that were implemented by the Partnership in June 1999. Of the $53,100
decrease in
-10-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
revenues for the nine months ended September 30, 1999, $72,400 was due to
decreases in the number of subscriptions for basic, premium, tier and
equipment rental services and $11,100 was due to decreases in other revenue
producing items. The decrease was partially offset by a $30,400 increase due
to increases in regulated service rates that were implemented by the
Partnership in June 1999. As of September 30, 1999, the Partnership had
approximately 6,000 basic subscribers and 1,400 premium service units.
Service costs decreased from $232,600 to $198,800, or by 14.5%, and
increased from $685,200 to $691,200, or by less than 1.0%, for the three and
nine months ended September 30, 1999, respectively, as compared to the
corresponding periods in 1998. Service costs represent costs directly
attributable to providing cable services to customers. The quarterly decrease
was primarily due to decreases in personnel costs, pole rent expense and
system power costs, and increases in capitalization of labor and overhead
costs due to a reduction in rebuild construction activity in the
Partnership's Shelbyville, Illinois franchise area. The nine months' increase
was primarily due to increases in programming fees resulting from higher
rates charged by program suppliers.
General and administrative expenses increased from $68,700 to
$91,500, or by 33.2%, and from $233,400 to $318,300, or by 36.4%, for the
three and nine months ended September 30, 1999 as compared to the
corresponding periods in 1998. The increases were primarily due to increases
in insurance premiums, personnel costs and professional fees, including audit
fees.
Management fees and reimbursed expenses decreased from $91,600 to
$87,300, or by 4.7%, and from $273,200 to $259,800, or by 4.9%, for the three
and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. Management fees decreased in direct relation to decreases in
revenues as described above. Reimbursed expenses decreased primarily due to
lower personnel costs allocated by the Corporate General Partner resulting
from staff reductions, and due to decreases in allocated telephone expense.
Depreciation and amortization expense decreased from $134,300 to
$130,700, or by 2.7%, and from $402,100 to $391,000, or by 2.8%, for the
three and nine months ended September 30, 1999 as compared to the
corresponding periods in 1998. The decreases were due to the effect of
certain plant assets becoming fully depreciated and certain intangible assets
becoming fully amortized.
Operating income increased from $132,700 to $145,200, or by 9.4%,
and decreased from $404,900 to $285,400, or by 29.5%, for the three and nine
months ended September 30, 1999, respectively, as compared to the
corresponding periods in 1998. The quarterly increase was primarily due to
reductions in service costs as described above. The nine months' decrease was
primarily due to decreases in revenues and increases in programming fees,
insurance premiums and general and administrative personnel costs as
described above.
Interest income, net of interest expense, increased from $4,700 to
$7,600, or by 61.7%, and from $11,000 to $16,800, or by 52.7%, for the three
and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. The increases were due to higher average cash balances
available for investment.
-11-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Due to the factors described above, the Partnership's net income
increased from $190,200 to $212,300, or by 11.6%, and decreased from $567,900
to $479,800, or by 15.5%, for the three and nine months ended September 30,
1999, respectively, as compared to the corresponding periods in 1998.
Based on its experience in the cable television industry, the
Partnership believes that operating income before depreciation and
amortization ("EBITDA") and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television
companies in several areas such as liquidity, operating performance and
leverage. EBITDA is not a measurement determined under generally accepted
accounting principles ("GAAP") and does not represent cash generated from
operating activities in accordance with GAAP. EBITDA should not be considered
by the reader as an alternative to net income as an indicator of financial
performance or as an alternative to cash flows as a measure of liquidity. In
addition, the definition of EBITDA may not be identical to similarly titled
measures used by other companies. EBITDA as a percentage of revenues
increased from 40.5% to 42.2% and decreased from 40.4% to 34.8% during the
three and nine months ended September 30, 1999, respectively, as compared to
the corresponding periods in 1998. The quarterly increase was primarily due
to lower technical personnel costs, pole rent expenses and system power costs
as described above. The nine months' decrease was primarily due to lower
revenues and higher programming fees, insurance premiums and general and
administrative personnel costs as described above. EBITDA increased from
$267,000 to $275,900, or by 3.3%, and decreased from $807,000 to $676,400, or
by 16.2%, for the three and nine months ended September 30, 1999,
respectively, as compared to the corresponding periods in 1998.
DISTRIBUTIONS TO PARTNERS
The Partnership distributed $125,900 and $377,800 to its partners
during the three and nine months ended September 30, 1999. The Joint Venture
distributed $10,000 and $35,000 to the Partnership during the three and nine
months ended September 30, 1999, respectively.
THE JOINT VENTURE
The Joint Venture's revenues decreased from $500,200 to $499,900, or
by less than 1.0%, and decreased from $1,497,700 to $1,495,800, or by less
than 1.0%, for the three and nine months ended September 30, 1999 as compared
to the corresponding periods in 1998. Of the $300 decrease in revenues for
the three months ended September 30, 1999, $12,800 was due to reductions in
the number of subscriptions for premium, tier and equipment rental services.
The decrease was offset by a $12,000 increase due to increases in regulated
service rates that were implemented by the Joint Venture in June 1999 and a
$500 increase in other revenue producing items. Of the $1,900 decrease in
revenues for the nine months ended September 30, 1999, $21,400 was due to
reductions in the number of subscriptions for premium, tier and equipment
rental services. The decrease was largely offset by a $16,000 increase due to
increases in regulated service rates that were implemented by the Joint
Venture in June 1999 and a $3,500 increase in other revenue producing items.
As of September 30, 1999, the Joint Venture had approximately 4,700 basic
subscribers and 1,200 premium service units.
Service costs increased from $162,900 to $174,700, or by 7.2%, and
from $468,100 to $497,700, or by 6.3%, for the three and nine months ended
September 30, 1999 as compared to the
-12-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
corresponding periods in 1998. Service costs represent costs directly
attributable to providing cable services to customers. The increase was
primarily due to higher programming fees, which increased as a result of
higher rates charged by program suppliers.
General and administrative expenses increased from $24,200 to
$30,100, or by 24.4%, and from $96,800 to $117,400, or by 21.3%, for the
three and nine months ended September 30, 1999 as compared to the
corresponding periods in 1998. The increase was primarily due to higher
insurance premiums. The nine months' increase was also due to increases in
professional fees, including audit fees, and customer billing costs.
Management fees and reimbursed expenses decreased from $80,600 to
$77,900, or by 3.3%, and from $233,900 to $222,200, or by 5.0%, for the three
and nine months ended September 30, 1999 as compared to the corresponding
periods in 1998. Management fees decreased in direct relation to decreases in
revenues as discussed above. Reimbursed expenses decreased primarily due to
lower allocated personnel costs resulting from staff reductions, and due to
lower allocated telephone expense.
Depreciation and amortization expense decreased from $82,200 to
$54,000, or by 34.3%, and from $257,800 to $163,600, or by 36.5%, for the
three and nine months ended September 30, 1999 as compared to the
corresponding periods in 1998. The decrease was due to the effect of certain
tangible assets becoming fully depreciated and certain intangible assets
becoming fully amortized.
Operating income increased from $150,300 to $163,200, or by 8.6%,
and from $441,100 to $494,900, or by 12.2%, for the three and nine months
ended September 30, 1999 as compared to the corresponding periods in 1998.
The increase was primarily due to decreased depreciation and amortization
expense as described above.
Interest income, net of interest expense, increased from $8,100 to
$15,100 and from $14,200 to $37,800 for the three and nine months ended
September 30, 1999 as compared to the corresponding periods in 1998. The
increase was due to higher average cash balances available for investment in
the 1999 periods.
Due to the factors described above, the Joint Venture's net income
increased from $158,400 to $178,300, or by 12.6%, and from $455,300 to
$532,700, or by 17.0%, for the three and nine months ended September 30, 1999
as compared to the corresponding periods in 1998.
Based on its experience in the cable television industry, the Joint
Venture's management believes that operating income before depreciation and
amortization ("EBITDA") and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television
companies in several areas such as liquidity, operating performance and
leverage. EBITDA is not a measurement determined under generally accepted
accounting principles ("GAAP") and does not represent cash generated from
operating activities in accordance with GAAP. EBITDA should not be considered
by the reader as an alternative to net income as an indicator of financial
performance or as an alternative to cash flows as a measure of liquidity. In
addition, the definition of EBITDA may not be identical to similarly titled
measures used by other companies. EBITDA as a percentage of revenues
decreased from 46.5% to 43.4% and from 46.7% to 44.0% during the three and
nine months
-13-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
ended September 30, 1999, as compared to the corresponding periods in 1998.
The decrease was primarily due to higher programming fees and insurance
premiums as described above. EBITDA decreased from $232,500 to $217,200, or
by 6.6%, and from $698,900 to $658,500, or by 5.8%, for the three and nine
months ended September 30, 1999 as compared to the corresponding periods in
1998.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary objective, having invested its net
offering proceeds in cable systems and the Joint Venture, is to distribute to
its partners all available cash flow from operations and proceeds from the
sale of cable systems, if any, after providing for expenses, debt service and
capital requirements relating to the expansion, improvement and upgrade of
its cable systems.
Based on its belief that the market for cable systems has generally
improved, the Corporate General Partner had been evaluating strategies for
liquidating the Partnership and the Joint Venture. These strategies included
the potential sale of substantially all of the Partnership's and Joint
Venture's assets to third parties and/or affiliates of the Corporate General
Partner, and the subsequent liquidation of the Partnership. On May 26, 1999,
Charter Communications ("Charter") signed an agreement to acquire all of the
cable television assets of FCLP and to acquire Enstar Communications
Corporation, the Partnership's and Joint Venture's Corporate General Partner.
The Corporate General Partner and Charter have decided to implement a
strategy for liquidating the Partnership and Joint Venture that involves
selling their systems to third parties. Accordingly, the Corporate General
Partner has entered into agreements with cable brokers regarding the sale of
the systems, although no assurance can be given regarding the likelihood, if
any, of receiving appropriate offers to purchase the systems. Any such sale
and corresponding liquidation will not close before the sale of the Corporate
General Partner to Charter.
Following the close of all pending transactions, Charter will serve
approximately 6.2 million customers and will be the nation's fourth largest
cable operator. Headquartered in St. Louis, Missouri, Charter was acquired by
Paul G. Allen in 1998. More information about Charter can be accessed on the
Internet at www.chartercom.com.
The Partnership relies upon the availability of cash generated from
operations to fund its ongoing expenses and capital requirements. In general,
these requirements involve expansion, improvement and upgrade of the
Partnership's and Joint Venture's existing cable television systems.
In March 1997, the Partnership completed the initial construction
phase of the franchise-required rebuild of its Shelbyville, Illinois cable
system and the rebuild of its cable systems in surrounding communities.
However, completion of the entire project and the introduction of
addressability was delayed until the 1999 completion of rebuild projects in
other nearby communities that involve consolidating the Shelbyville headend.
Rebuild expenditures amounted to approximately $1,380,000 from inception of
the project to September 30, 1999. The headend consolidation is substantially
complete; however, the Partnership has budgeted expenditures of $100,000 to
launch new channels in the Shelbyville system in late 1999, none of which had
been incurred as of September 30, 1999.
-14-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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 $508,400 from inception through September 30,
1999. 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 September 30, 1999. Rebuild
construction in and around Auburn is substantially complete. During 1999, the
Joint Venture incurred rebuild expenditures of approximately $37,200 through
September 30.
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. Such expenditures by the Partnership
and the Joint Venture were approximately $95,100 and $125,600, respectively,
in the nine months ended September 30, 1999. Management believes that
existing cash and cash generated by operations of the Partnership and Joint
Venture will be adequate to fund capital expenditures and the continued
payment of distributions in 1999.
The Partnership paid distributions totaling $125,900 during the
quarter ended September 30, 1999. However, there can be no assurances
regarding the level, timing or continuation of future distributions.
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.
YEAR 2000
During the third quarter of 1999, FCLP, on behalf of the Corporate
General Partner, continued its identification, evaluation and remediation of
the Partnership's and Joint Venture's Year 2000 business risks associated
with operations directly under their control and those risks that are
dependent on third parties related to their exposure to computer systems, to
operating equipment which is date sensitive and to the interface systems of
their vendors and service providers. The evaluation has
-15-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
focused on identification, assessment and remediation 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. Most of the Partnership's and
Joint Venture's exposure to Year 2000 issues is dependent in large part on
third parties. Failure to identify and remediate a critical Year 2000 issue
could result in an interruption of services to customers or in the
interruption of critical business functions, either of which could result in
a material adverse impact on the Partnership's and Joint Venture's financial
results.
FCLP concluded that certain of the Partnership's and Joint Venture's
internal information systems were not Year 2000 compliant and elected to
replace such software and hardware with applications and equipment certified
by the vendors as Year 2000 compliant. FCLP installed the new systems in the
first quarter of 1999. The cost of the implementation, including replacement
software and hardware, has been borne by FCLP. FCLP is continuing to utilize
internal and external resources to extend the functionality of the new
systems. The Partnership does not believe that any other significant
information technology projects affecting the Partnership or Joint Venture
have been delayed due to efforts to identify or address Year 2000 issues.
Additionally, FCLP has continued to inventory the Partnership's and
Joint Venture's internal operating and revenue generating equipment to
identify items that need to be upgraded or replaced and has surveyed cable
equipment manufacturers to determine which of their models require upgrade or
replacement to become Year 2000 compliant. Identification and evaluation,
while ongoing, are substantially completed and a plan has been developed to
remediate or replace non-compliant equipment. Of the total number of
potentially non-compliant items identified in the inventory, all were
evaluated during the assessment stage, approximately 8.5% are in the
remediation planning phase and 91.5% are in the implementation stage. FCLP
conducted limited testing of systems, software and equipment in the third
quarter of 1999 and placed significant reliance on test results provided by
AT&T Broadband & Internet Services, an affiliate of FCLP. The cost of such
replacement or remediation to the Partnership and Joint Venture is currently
estimated to be $5,600, all of which had been incurred as of September 30,
1999. FCLP has also substantially completed the assessment and replacement or
remediation of the majority of the Partnership's and Joint Venture's internal
equipment containing embedded computer chips.
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 the Partnership's and Joint Venture's interface systems are
vulnerable should those third parties fail to solve their own Year 2000
problems on a timely basis. The Partnership and Joint Venture are heavily
dependent on third parties and these parties are themselves heavily dependent
on technology. For example, if a television broadcaster or cable programmer
encounters Year 2000 problems that impede its ability to deliver its
programming, the Partnership and Joint Venture will be unable to provide that
programming to cable customers, which would result in a loss of revenues,
although the Partnership and Joint Venture would attempt to provide customers
with alternative program services. Virtually all of the Partnership's and
Joint Venture's most critical equipment vendors have responded to the surveys
regarding the Year 2000 compliance of their products and indicated that they
are already compliant or have indicated their intent to be compliant.
Additional compliance information has been obtained for specific products
from vendor Web sites, interviews, on-site visits, system interface testing
and industry group participation.
-16-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Among the most significant third party service providers upon which the
Partnership and Joint Venture rely are programming suppliers, power and
telephone companies, various banking institutions and the Partnership's and
Joint Venture's customer billing service. The Partnership and Joint Venture
have taken steps to confirm that the third parties on which they are heavily
reliant are Year 2000 compliant and have developed satisfactory contingency
plans, or that alternative means of meeting their business requirements are
available. However, the Partnership can predict neither the likelihood of
successful compliance nor the direct or indirect costs to the Partnership and
Joint Venture of non-compliance by those third parties or of securing such
services from alternate compliant third parties.
FCLP believes that it has established an effective program to
resolve all significant Year 2000 issues in its control in a timely manner.
As noted above, however, while FCLP has substantially completed all phases of
the remediation program, it is dependent on third parties whose progress is
not within its control. Disruptions experienced by third parties with which
the Partnership and Joint Venture do business as well as by the economy
generally could also materially adversely affect the Partnership and Joint
Venture. The amount of potential liability and lost revenue cannot be
reasonably estimated at this time.
FCLP has focused its efforts on identification and remediation of
the Partnership's and Joint Venture's Year 2000 exposures and has developed
specific contingency plans in the event it does not successfully complete its
remaining remediation as anticipated or experiences unforeseen problems.
Considerable effort has been directed toward distinguishing between those
contingencies with a greater probability of occurring from those whose
occurrence is considered remote, and on those systems whose failure poses a
material risk to the Partnership's and Joint Venture's results of operations
and financial condition. FCLP has also examined the Partnership's and Joint
Venture's business interruption strategies to evaluate whether they would
satisfactorily meet the demands of failures arising from Year 2000 related
problems. FCLP intends to examine the Partnership's and Joint Venture's
status periodically to determine the necessity of establishing and
implementing such contingency plans or additional strategies, which could
involve, among other things, manual workarounds, adjusting staffing
strategies and sharing resources.
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Operating activities provided $46,400 more cash during the nine
months ended September 30, 1999 than in the corresponding prior year period.
The Partnership used $216,600 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 $45,400 more cash in the first nine months of 1999 than in
the comparable 1998 period due to differences in the timing of receivable
collections and in the payment of prepaid expenses.
Investing activities used $103,500 less cash in the nine months
ended September 30, 1999 than in the corresponding prior year period. The
change was primarily due to an $80,400 decrease in capital expenditures and
an $800 decrease in expenditures for intangible assets, partially offset by a
$22,500 increase in distributions from the Joint Venture.
-17-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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.
-18-
<PAGE>
ENSTAR INCOME PROGRAM IV-3,L.P.
PART II. OTHER INFORMATION
ITEMS 1-5. Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit 27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the
quarter for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INCOME PROGRAM IV-3, L.P.
A GEORGIA LIMITED PARTNERSHIP
--------------------------------
(Registrant)
By: ENSTAR COMMUNICATIONS CORPORATION
General Partner
Date: November 11, 1999 By: /s/ Michael K. Menerey
-------------------------
Michael K. Menerey,
Executive Vice President,
Chief Financial Officer and
Secretary
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AT SEPTEMBER 30, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE NINE
MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 827,000
<SECURITIES> 0
<RECEIVABLES> 34,500
<ALLOWANCES> 1,900
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,497,100
<DEPRECIATION> 4,853,100
<TOTAL-ASSETS> 3,959,500
<CURRENT-LIABILITIES> 220,800
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,959,500
<SALES> 0
<TOTAL-REVENUES> 1,945,700
<CGS> 0
<TOTAL-COSTS> 1,660,300
<OTHER-EXPENSES> (25,200)
<LOSS-PROVISION> 13,200
<INTEREST-EXPENSE> 8,400
<INCOME-PRETAX> 479,800
<INCOME-TAX> 0
<INCOME-CONTINUING> 479,800
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 479,800
<EPS-BASIC> 11.90
<EPS-DILUTED> 0
</TABLE>
