<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 June 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 (310) 824-9990
code: --------------------------------
- ------------------------------------------------------------------------------
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, June 30,
1998* 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash $ 812,200 $ 957,800
Accounts receivable, less allowance of $3,300 and
$2,100 for possible losses 39,700 54,500
Prepaid expenses and other assets 150,900 238,900
Equity in net assets of Joint Venture 903,200 996,300
Property, plant and equipment, less accumulated
depreciation and amortization of $4,638,800 and $4,780,000 1,795,300 1,666,100
Franchise cost, net of accumulated
amortization of $2,227,900 and $2,322,300 344,100 249,700
Deferred charges, net 2,800 300
------------ ------------
$ 4,048,200 $ 4,163,600
============ ============
LIABILITIES AND PARTNERSHIP CAPITAL
LIABILITIES:
Accounts payable $ 165,500 $ 205,800
Due to affiliates 246,000 305,500
------------ ------------
TOTAL LIABILITIES 411,500 511,300
------------ ------------
COMMITMENTS AND CONTINGENCIES
PARTNERSHIP CAPITAL (DEFICIT):
General partners (46,800) (46,600)
Limited partners 3,683,500 3,698,900
------------ ------------
TOTAL PARTNERSHIP CAPITAL 3,636,700 3,652,300
------------ ------------
$ 4,048,200 $ 4,163,600
============ ============
</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
June 30,
---------------------------------
1998 1999
------------ -------------
<S> <C> <C>
REVENUES $ 670,100 $ 647,300
------------ -------------
OPERATING EXPENSES:
Service costs 236,500 250,100
General and administrative expenses 82,200 125,800
General Partner management fees
and reimbursed expenses 91,700 86,700
Depreciation and amortization 134,400 130,400
------------ -------------
544,800 593,000
------------ -------------
OPERATING INCOME 125,300 54,300
------------ -------------
OTHER INCOME (EXPENSE):
Interest income 6,600 7,300
Interest expense (3,300) (3,300)
Gain on sale of cable assets 200 -
------------ -------------
3,500 4,000
------------ -------------
INCOME BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE 128,800 58,300
EQUITY IN NET INCOME OF JOINT VENTURE 57,800 65,100
------------ -------------
NET INCOME $ 186,600 $ 123,400
============ =============
Net income allocated to General Partners $ 1,900 $ 1,200
============ =============
Net income allocated to Limited Partners $ 184,700 $ 122,200
============ =============
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 4.63 $ 3.06
============ =============
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
-------------------------------------
Six months ended
June 30,
-------------------------------------
1998 1999
---------------- -----------------
REVENUES $ 1,338,900 $ 1,292,200
---------------- -----------------
<S> <C> <C>
OPERATING EXPENSES:
Service costs 452,600 492,400
General and administrative expenses 164,700 226,800
General Partner management fees
and reimbursed expenses 181,600 172,500
Depreciation and amortization 267,800 260,300
---------------- -----------------
1,066,700 1,152,000
---------------- -----------------
OPERATING INCOME 272,200 140,200
---------------- -----------------
OTHER INCOME (EXPENSE):
Interest income 13,100 15,700
Interest expense (6,800) (6,500)
Gain on sale of cable assets 200 -
---------------- -----------------
6,500 9,200
---------------- -----------------
INCOME BEFORE EQUITY IN NET INCOME
OF JOINT VENTURE 278,700 149,400
EQUITY IN NET INCOME OF JOINT VENTURE 99,000 118,100
---------------- -----------------
NET INCOME $ 377,700 $ 267,500
================ =================
Net income allocated to General Partners $ 3,800 $ 2,700
================ =================
Net income allocated to Limited Partners $ 373,900 $ 264,800
================ =================
NET INCOME PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 9.37 $ 6.64
================ =================
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
-------------------------------------
Six months ended
June 30,
-------------------------------------
1998 1999
---------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 377,700 $ 267,500
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in net income of Joint Venture (99,000) (118,100)
Depreciation and amortization 267,800 260,300
Increase (decrease) from changes in:
Accounts receivable, prepaid expenses and other assets (8,600) (102,800)
Accounts payable and due to affiliates (365,000) 99,800
---------------- -----------------
Net cash provided by operating activities 172,900 406,700
---------------- -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (59,100) (34,200)
Increase in intangible assets (2,300) -
Distributions from Joint Venture 6,500 25,000
---------------- -----------------
Net cash used in investing activities (54,900) (9,200)
---------------- -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (251,900) (251,900)
---------------- -----------------
INCREASE (DECREASE) IN CASH (133,900) 145,600
CASH AT BEGINNING OF PERIOD 788,300 812,200
---------------- -----------------
CASH AT END OF PERIOD $ 654,400 $ 957,800
================ =================
</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 six months ended June 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 six months ended June
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 $32,400 and $64,600 for the three and six months ended June 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"), successor
to Falcon Holding Group, L.P. ("FHGLP"), an affiliated partnership, to
provide corporate management services for the Partnership. Corporate office
allocations and district office expenses are charged to the properties served
based primarily on the respective percentage of basic subscribers or homes
passed (dwelling units within a system) within the designated service areas.
The total amount charged to the Partnership for these services approximated
$54,300 and $107,900 for the three and six months ended June 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 $20,200 and $39,800
and reimbursement of expenses of approximately $48,700 and $94,500 under its
management agreement for the three and six months ended June 30, 1999. In
addition, the Joint Venture paid the Corporate General Partner approximately
$5,100 and $10,000 in respect of its 1% special interest during the three and
six months ended June 30, 1999. Management fees and reimbursed expenses due
the Corporate General Partner are non-interest bearing.
-6-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
2. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES (CONTINUED)
The Partnership and the Joint Venture also receive certain system
operating management services from an affiliate of the Corporate General
Partner in addition to the Manager, due to the fact that there are no such
employees directly employed by the Partnership's and Joint Venture's cable
systems. The Partnership and the Joint Venture reimburse the affiliate for
their allocable share of the affiliate's operational costs. The total amount
charged to the Partnership and the Joint Venture approximated $3,700 and
$5,800 for the three and six months ended June 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
$287,100 and $569,700 for the three and six months ended June 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 June 30, 1999 and December 31, 1998,
and the results of its operations for the three months ended June 30, 1999
and 1998, have been included. The results of operations for the three and six
months ended June 30, 1999 are not necessarily indicative of results for the
entire year.
<TABLE>
<CAPTION>
December 31, June 30,
1998* 1999
------------------ -----------------
(Unaudited)
<S> <C> <C>
Current assets $ 1,522,900 $ 1,823,900
Investment in cable television properties, net 1,528,100 1,524,800
Other assets 2,500 2,400
------------------ -----------------
$ 3,053,500 $ 3,351,100
================== =================
Current liabilities $ 343,900 $ 362,100
Venturers' capital 2,709,600 2,989,000
------------------ -----------------
$ 3,053,500 $ 3,351,100
================== =================
</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
June 30,
---------------------------------------
1998 1999
------------------ -----------------
<S> <C> <C>
REVENUES $ 500,600 $ 505,400
------------------ -----------------
OPERATING EXPENSES:
Service costs 143,900 158,200
General and administrative expenses 29,400 34,000
General Partner management fees and reimbursed expenses 77,200 74,000
Depreciation and amortization 80,800 55,200
------------------ -----------------
331,300 321,400
------------------ -----------------
OPERATING INCOME 169,300 184,000
OTHER INCOME (EXPENSE):
Interest income 7,100 13,800
Interest expense (3,000) (2,500)
------------------ -----------------
NET INCOME $ 173,400 $ 195,300
================== =================
</TABLE>
<TABLE>
<CAPTION>
Unaudited
---------------------------------------
Six months ended
June 30,
---------------------------------------
1998 1999
------------------ -----------------
<S> <C> <C>
REVENUES $ 997,500 $ 995,900
------------------ -----------------
OPERATING EXPENSES:
Service costs 305,200 323,000
General and administrative expenses 72,600 87,300
General Partner management fees and reimbursed expenses 153,300 144,300
Depreciation and amortization 175,600 109,600
------------------ -----------------
706,700 664,200
------------------ -----------------
OPERATING INCOME 290,800 331,700
OTHER INCOME (EXPENSE):
Interest income 11,900 27,800
Interest expense (5,800) (5,100)
------------------ -----------------
NET INCOME $ 296,900 $ 354,400
================== =================
</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 $670,100 to $647,300, or
by 3.4%, and from $1,338,900 to $1,292,200, or by 3.5%, for the three and six
months ended June 30, 1999 as compared to the corresponding periods in 1998.
Of the $22,800 decrease in revenues for the three months ended June 30, 1999,
$30,300 was due to decreases in the number of subscriptions for basic,
premium, tier and equipment rental services and $1,400 was due to decreases
in other revenue producing items. The decrease was partially offset by an
$8,900 increase due to increases in regulated service rates that were
implemented by the Partnership in June 1999. Of the $46,700 decrease in
revenues for the six months ended June 30, 1999, $45,200 was due to decreases
in the number of subscriptions for basic, premium,
-10-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
tier and equipment rental services and $10,400 was due to decreases in other
revenue producing items. The decrease was partially offset by an $8,900
increase in regulated service rates that were implemented by the Partnership
in June 1999. As of June 30, 1999, the Partnership had approximately 6,100
basic subscribers and 1,400 premium service units.
Service costs increased from $236,500 to $250,100, or by 5.8%, and
from $452,600 to $492,400, or by 8.8%, for the three and six months ended
June 30, 1999 as compared to the corresponding periods in 1998. Service costs
represent costs directly attributable to providing cable services to
customers. The quarterly increase was primarily due to higher pole rent
expense and programming fees, which increased due to higher rates charged by
program suppliers. The increase for the six months was principally
attributable to decreases in capitalization of labor and overhead costs due
to a reduction in rebuild construction activity in the Partnership's
Shelbyville, Illinois franchise area. The increase for the six months was
also due to higher pole rent and programming expense.
General and administrative expenses increased from $82,200 to
$125,800, or by 53.0%, and from $164,700 to $226,800, or by 37.7%, for the
three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. The increases were primarily due to increases in insurance
premiums, personnel costs and telephone expense.
Management fees and reimbursed expenses decreased from $91,700 to
$86,700, or by 5.5%, and from $181,600 to $172,500, or by 5.0%, for the three
and six months ended June 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 decreased telephone expense.
Depreciation and amortization expense decreased from $134,400 to
$130,400, or by 3.0%, and from $267,800 to $260,300, or by 2.8%, for the
three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. The decreases were due to certain plant assets becoming
fully depreciated and certain intangible assets becoming fully amortized.
Operating income decreased from $125,300 to $54,300, or by 56.7%,
and from $272,200 to $140,200, or by 48.5%, for the three and six months
ended June 30, 1999 as compared to the corresponding periods in 1998. The
decreases were primarily due to reductions in revenues and increases in
insurance premiums as described above.
Interest income, net of interest expense, increased from $3,300 to
$4,000, or by 21.2%, and from $6,300 to $9,200, or by 46.0%, for the three
and six months ended June 30, 1999 as compared to the corresponding periods
in 1998. The increases were due to higher average cash balances available for
investment.
Due to the factors described above, the Partnership's net income
decreased from $186,600 to $123,400, or by 33.9%, and from $377,700 to
$267,500, or by 29.2%, for the three and six months ended June 30, 1999 as
compared to the corresponding periods in 1998.
-11-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
Based on its experience in the cable television industry, the
Partnership believes that operating income before depreciation and
amortization ("EBITDA") and related measures of cash flow serve as important
financial analysis tools for measuring and comparing cable television
companies in several areas such as liquidity, operating performance and
leverage. EBITDA is not a measurement determined under generally accepted
accounting principles ("GAAP") and does not represent cash generated from
operating activities in accordance with GAAP. EBITDA should not be considered
by the reader as an alternative to net income as an indicator of financial
performance or as an alternative to cash flows as a measure of liquidity. In
addition, the definition of EBITDA may not be identical to similarly titled
measures used by other companies. EBITDA as a percentage of revenues
decreased from 38.8% to 28.5% and 40.3% to 31.0% during the three and six
months ended June 30, 1999, as compared to the corresponding periods in 1998.
The decrease was primarily caused by lower revenues and higher insurance
premiums, personnel costs and pole rent as described above. EBITDA decreased
from $259,700 to $184,700, or by 28.9%, from $540,000 to $400,500, or by
25.8%, for the three and six months ended June 30, 1999 as compared to the
corresponding periods in 1998.
DISTRIBUTIONS TO PARTNERS
The Partnership distributed $125,900 and $251,900 to its partners
during the three and six months ended June 30, 1999. The Joint Venture
distributed $25,000 to the Partnership during the three and six months ended
June 30, 1999.
THE JOINT VENTURE
The Joint Venture's revenues increased from $500,600 to $505,400, or
by 1.0%, and decreased from $997,500 to $995,900, or by less than 1.0%, for
the three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. Of the $4,800 increase in revenues for the three months
ended June 30, 1999, $4,300 was due to increases in regulated service rates
that were implemented by the Joint Venture in June 1999 and $7,900 was due to
increases in other revenue producing items. The increase was offset by a
$7,400 decrease due to reductions in the number of subscriptions for premium,
tier and equipment rental services. Of the $1,600 decrease in revenues for
the six months ended June 30, 1999, $8,900 was due to reductions in the
number of subscriptions for premium, tier and equipment rental services. The
decrease was offset by a $4,300 increase due to increases in regulated
service rates that were implemented by the Joint Venture in June 1999 and a
$3,000 increase in other revenue producing items. As of June 30, 1999, the
Joint Venture had approximately 4,700 basic subscribers and 1,300 premium
service units.
Service costs increased from $143,900 to $158,200, or by 9.9%, and
from $305,200 to $323,000, or by 5.8%, for the three and six months ended
June 30, 1999 as compared to the 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 $29,400 to
$34,000, or by 15.6%, and from $72,600 to $87,300, or by 20.2%, for the three
and six months ended June 30, 1999 as compared
-12-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
RESULTS OF OPERATIONS (CONTINUED)
to the corresponding periods in 1998. The increase was primarily due to
increases in insurance premiums. The six months' increase was also due to
increases in professional fees, including audit fees.
Management fees and reimbursed expenses decreased from $77,200 to
$74,000, or by 4.1%, and from $153,300 to $144,300, or by 5.9%, for the three
months and six months ended June 30, 1999 as compared to the corresponding
periods in 1998. Management fees increased for the three months and decreased
for the six months ended June 30, 1999 in direct relation to changes in
revenues as discussed above. Reimbursed expenses decreased primarily due to
lower allocated personnel costs resulting from staff reductions, and due to
decreased telephone expense.
Depreciation and amortization expense decreased from $80,800 to
$55,200, or by 31.7%, and from $175,600 to $109,600, or by 37.6%, for the
three and six months ended June 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 $169,300 to $184,000, or by 8.7%,
and from $290,800 to $331,700, or by 14.1%, for the three and six months
ended June 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 $4,100 to
$11,300 and from $6,100 to $22,700 for the three and six months ended June
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 $173,400 to $195,300, or by 12.6%, and from $296,900 to
$354,400, or by 19.4%, for the three and six months ended June 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 50.0% to 47.3% and from 46.8% to 44.3% during the three and
six months ended June 30, 1999, as compared to the corresponding periods in
1998. The decrease was primarily caused by higher programming fees and
insurance premiums as described above. EBITDA decreased from $250,100 to
$239,200, or by 4.4%, and from $466,400 to $441,300, or by 5.4%, for the
three and six months ended June 30, 1999 as compared to the corresponding
periods in 1998.
-13-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
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 has 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. The Corporate
General Partner expected to complete its evaluation within the next several
months and intended to advise unitholders promptly if it believed that
commencing a liquidating transaction would be in the best interests of
unitholders. On May 26, 1999, however, 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 will commence discussions 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 is unlikely
to 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 and possible borrowings to fund its ongoing expenses and capital
requirements. In general, these requirements involve expansion, improvement
and upgrade of the Partnership's and Joint Venture's existing cable
television systems.
In March 1997, the Partnership completed the initial construction
phase of the franchise-required rebuild of its Shelbyville, Illinois cable
system and the rebuild of its cable systems in surrounding communities.
However, completion of the entire project and the introduction of
addressability 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 June 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 June 30, 1999.
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 June 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
-14-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
surrounding communities approximated $957,900 from inception through June 30,
1999. Rebuild construction in and around Auburn is substantially complete.
During 1999, the Joint Venture incurred rebuild expenditures of approximately
$37,200 through June 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 $34,200 and $48,400, respectively,
in the six months ended June 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 June 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 second 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 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
-15-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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, approximately
1.5% are in the assessment stage. Approximately 14.4% of non-compliant items
are in the remediation planning phase and 85.6% are in the implementation
stage. FCLP plans to conduct limited testing of systems, software and
equipment in the third quarter of 1999 and place 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 $7,400, of which $6,400 had been
incurred as of June 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. 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 are taking steps to confirm that
the third parties on which they are heavily reliant are Year 2000 compliant
and are developing satisfactory contingency plans, or that alternative means
of meeting their business
-16-
<PAGE>
ENSTAR INCOME PROGRAM IV-3, L.P.
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
requirements are available, but cannot predict the likelihood of such
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. In areas in which the Partnership and
Joint Venture are uncertain about the anticipated Year 2000 readiness of a
significant third party, FCLP is investigating available alternatives, if any.
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, FCLP has not yet completed all phases of the
remediation program and is dependent on third parties whose progress is not
within its control. In the event that FCLP does not complete the currently
planned additional remediation prior to the year 2000, management believes
that the Partnership and Joint Venture could experience significant
difficulty in producing and delivering products and services and conducting
business in the year 2000. In addition, 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 is beginning to
develop 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 is also examining 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.
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Operating activities provided $233,800 more cash during the six
months ended June 30, 1999 than in the corresponding prior year period. The
Partnership used $464,800 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 $94,200 more cash in the first six 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 $45,700 less cash in the six months ended
June 30, 1999 than in the corresponding prior year period. The change was
primarily due to a $24,900 decrease in capital expenditures and a $2,300
decrease in expenditures for intangible assets, partially offset by an
$18,500 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: August 13, 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 JUNE 30, 1999, AND THE STATEMENTS OF OPERATIONS FOR THE SIX MONTHS
ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 957,800
<SECURITIES> 0
<RECEIVABLES> 56,600
<ALLOWANCES> 2,100
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 6,446,100
<DEPRECIATION> 4,780,000
<TOTAL-ASSETS> 4,163,600
<CURRENT-LIABILITIES> 511,300
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,163,600
<SALES> 0
<TOTAL-REVENUES> 1,292,200
<CGS> 0
<TOTAL-COSTS> 1,152,000
<OTHER-EXPENSES> (15,700)
<LOSS-PROVISION> 13,200
<INTEREST-EXPENSE> 6,500
<INCOME-PRETAX> 267,500
<INCOME-TAX> 0
<INCOME-CONTINUING> 267,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 267,500
<EPS-BASIC> 6.64
<EPS-DILUTED> 0
</TABLE>
