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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(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, 2003
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: 000-15686
ENSTAR INCOME PROGRAM IV-3, L.P.
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(Exact name of registrant as specified in its charter)
GEORGIA 58-1648320
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
12405 POWERSCOURT DRIVE
ST. LOUIS, MISSOURI 63131
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(Address of principal executive offices including zip code)
(314) 965-0555
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(Registrant's telephone number, including area code)
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 reports), and (2) has been subject to such filing requirements
for the past 90 days. YES [X] NO [ ]
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ENSTAR INCOME PROGRAM IV-3, L.P.
QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2003
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements - Enstar Income Program IV-3, L.P.
Condensed Statements of Net Assets in Liquidation as of September 30, 2003 3
and December 31, 2002
Condensed Statements of Changes in Net Assets in Liquidation for the three and nine months 4
ended September 30, 2003
Condensed Statements of Operations for the three and nine months ended September 30, 2002 5
Condensed Statement of Cash Flows for the nine months ended September 30, 2002 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
Item 4. Controls and Procedures 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
EXHIBIT INDEX 19
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PART I. FINANCIAL INFORMATION.
ITEM 1. FINANCIAL STATEMENTS.
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ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED STATEMENTS OF NET ASSETS IN LIQUIDATION
(SEE NOTE 2)
SEPTEMBER 30, DECEMBER 31,
2003 2002
------------- ------------
(UNAUDITED)
ASSETS:
Cash and cash equivalents................... $ 2,502,000 $ 2,597,700
Accounts receivable, net.................... -- 8,700
Prepaid expenses and other assets........... -- 6,800
Property, plant and equipment............... -- 454,600
Franchise cost.............................. -- 2,800
Equity in net assets of Joint Venture....... -- 42,000
Escrow deposits............................. 45,000 --
----------- -----------
Total assets.............................. 2,547,000 3,112,600
----------- -----------
LIABILITIES:
Accounts payable and accrued liabilities.... 36,900 293,100
Due to purchaser............................ 45,000 --
Due to affiliates........................... 63,400 1,227,900
----------- -----------
Total liabilities......................... 145,300 1,521,000
----------- -----------
NET ASSETS IN LIQUIDATION:
General Partners............................ 6,700 (28,400)
Limited Partners............................ 2,395,000 1,620,000
----------- -----------
$ 2,401,700 $ 1,591,600
=========== ===========
See accompanying notes to condensed financial statements.
3
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(SEE NOTE 2)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2003
------------------ ------------------
Additions:
Revenues ........................................................... $ 119,300 $ 502,600
Distribution from Joint Venture .................................... -- 42,000
Interest income .................................................... 1,000 7,200
Excess of net proceeds over net book value of cable systems ........ 707,200 692,900
------------------ ------------------
Total additions .................................................. 827,500 1,244,700
------------------ ------------------
Deductions:
Service costs ...................................................... 15,300 175,500
General and administrative expenses ................................ 27,200 116,800
General partner management fees and reimbursed expenses ............ 17,400 76,900
Capital expenditures ............................................... 3,800 23,400
Equity in changes in net assets in liquidation of Joint Venture .... -- 42,000
------------------ ------------------
Total deductions ................................................. 63,700 434,600
------------------ ------------------
Net increase in net assets in liquidation ............................ 763,800 810,100
NET ASSETS IN LIQUIDATION, beginning of period ....................... 1,637,900 1,591,600
------------------ ------------------
NET ASSETS IN LIQUIDATION, end of period ............................. $ 2,401,700 $ 2,401,700
================== ==================
See accompanying notes to condensed financial statements.
4
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2002 SEPTEMBER 30, 2002
------------------ ------------------
REVENUES ...................................................... $ 193,600 $ 1,017,600
------------------ ------------------
OPERATING EXPENSES:
Service costs ............................................... 68,800 409,300
General and administrative expenses ......................... 23,600 162,900
General partner management fees and reimbursed expenses ..... 33,800 172,000
Depreciation and amortization ............................... 23,100 135,500
------------------ ------------------
149,300 879,700
------------------ ------------------
Operating income .............................................. 44,300 137,900
------------------ ------------------
OTHER INCOME:
Interest income ............................................. 12,800 45,800
Gain (loss) on sale of cable systems ........................ (6,800) 5,878,800
------------------ ------------------
6,000 5,924,600
------------------ ------------------
Income before equity in net income of joint venture ........... 50,300 6,062,500
EQUITY IN NET INCOME OF JOINT VENTURE ......................... 15,700 2,360,800
------------------ ------------------
NET INCOME .................................................... $ 66,000 $ 8,423,300
================== ==================
NET INCOME ALLOCATED TO GENERAL PARTNERS ...................... $ 700 $ 123,000
================== ==================
NET INCOME ALLOCATED TO LIMITED PARTNERS ...................... $ 65,300 $ 8,300,300
================== ==================
NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST ........... $ 1.64 $ 208.03
================== ==================
LIMITED PARTNERSHIP UNITS OUTSTANDING DURING PERIOD ........... 39,900 39,900
================== ==================
See accompanying notes to condensed financial statements.
5
ENSTAR INCOME PROGRAM IV-3, L.P.
CONDENSED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2002
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................................................... $ 8,423,300
Adjustments to reconcile net income to net cash flows from operating activities:
Equity in net income of joint venture ............................................. (2,360,800)
Depreciation and amortization ..................................................... 135,500
Gain on sale of cable systems ..................................................... (5,878,800)
Changes in:
Accounts receivable, prepaid expenses and other assets ............................ 94,500
Accounts payable, accrued liabilities and due to affiliates ....................... 300,700
------------
Net cash flows from operating activities ........................................ 714,400
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures .............................................................. (74,900)
Distributions from Joint Venture .................................................. 3,179,100
Proceeds from sale of cable systems ............................................... 7,333,300
Other investing activities ........................................................ 225,800
------------
Net cash flows from investing activities ........................................ 10,663,300
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to General Partners ................................................. (110,900)
Distributions to Limited Partners ................................................. (10,976,800)
------------
Net cash flows from financing activities ........................................ (11,087,700)
------------
NET INCREASE IN CASH ................................................................ 290,000
CASH, beginning of period ........................................................... 2,698,500
------------
CASH, end of period ................................................................. $ 2,988,500
============
See accompanying notes to condensed financial statements.
6
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM FINANCIAL STATEMENTS
The accompanying condensed interim financial statements for Enstar Income
Program IV-3, L.P. (the Partnership) as of September 30, 2003, and for the three
and nine months ended September 30, 2003 and 2002, 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
Annual Report on Form 10-K for the year ended December 31, 2002. In the opinion
of management, the condensed interim financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the results of such periods. The changes in net assets in
liquidation for the three and nine months ended September 30, 2003 are not
necessarily indicative of results for the entire year.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. These estimates include useful lives of property, plant and
equipment, valuation of long-lived assets and allocated operating costs. Actual
results could differ from those estimates.
As discussed in Note 2, the financial statements as of September 30, 2003 and
December 31, 2002 are presented on a liquidation basis of accounting.
Accordingly, the financial information in the condensed statements of changes in
net assets in liquidation for the three and nine months ended September 30, 2003
is presented on a different basis of accounting than the financial statements
for the three and nine months ended September 30, 2002, which were prepared on
the historical cost basis of accounting. As a result, depreciation and
amortization ceased upon conversion to liquidation accounting and capital
expenditures are expensed as incurred.
Certain reclassifications have been made to conform to current period
presentation.
2. LIQUIDATION BASIS ACCOUNTING AND SALES OF CABLE SYSTEMS
Effective August 31, 2003, pursuant to an asset purchase agreement dated
November 8, 2002 as amended, the Partnership completed the sale of its only
remaining cable system to Telecommunications Management, LLC (Telecommunications
Management) for a total adjusted sales price of approximately $1,170,900
(approximately $800 per customer acquired), subject to post closing adjustments
(the Telecommunications Management Sale). The Telecommunications Management Sale
was part of a larger transaction in which the Partnership and eight other
affiliated partnerships sold all of their remaining assets used in the
operations of their respective cable systems to Telecommunications Management
for a total cash sales price of $12,354,600 after closing adjustments. Excess of
net proceeds over net book value of cable systems represents the cash proceeds
net of transaction costs received from the Telecommunications Management Sale in
excess of the net book value of the cable system assets sold.
The Partnership finalized its proposed plan of liquidation in December 2002 in
connection with the filing of a proxy to obtain partner approval for the
Telecommunications Management Sale and the subsequent liquidation and
dissolution of the Partnership. In April 2003, the required number of votes
necessary to implement the plan of liquidation were obtained. As a result, the
Partnership changed its basis of accounting to the liquidation basis as of
December 31, 2002. Upon changing to liquidation basis accounting, the
Partnership recorded $23,700 of accrued costs of liquidation in accounts payable
and accrued liabilities on the accompanying statement of net assets in
liquidation representing an estimate of the costs to be incurred after the sale
of the final cable system but prior to dissolution of the Partnership. Because
reliable estimates of future operating results or the ultimate realizable value
of property, plant and equipment could not be developed due to uncertainties
surrounding the final dissolution of the Partnership, no adjustments were
recorded, prior to the sale of the assets, to reflect assets at estimated
realizable values or to reflect estimates of future operating results.
Accordingly, the assets in the accompanying statements of net assets in
liquidation as of December 31, 2002 have been stated at historical book values.
Net assets in liquidation as of September 30, 2003 represent the estimated
distributions to the Limited Partners and the General Partners. Distributions
ultimately made to the partners upon liquidation will differ from the net assets
in liquidation recorded in the accompanying statements of net assets in
liquidation as of September 30, 2003 as a result of post
7
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
closing purchase price adjustments and adjustments to estimated costs of
liquidation. No adjustments were made to accrued costs of liquidation during the
three and nine months ended September 30, 2003.
The Corporate General Partner's intention is to terminate the Partnership as
expeditiously as possible. After paying or providing for the payment of the
expenses of the sale, the Corporate General Partner will make one or more
distributions of the Partnership's allocable share of the remaining net sale
proceeds, in accordance with its partnership agreement. In November 2003 the
Partnership intends to make an initial distribution payment of $1.9 million to
the Limited Partners. A final liquidating distribution will occur on or after
approximately 13 months following the close of the transaction upon the release
of the indemnity escrow and the receipt of the remaining proceeds of such escrow
if any.
On April 10, 2002, pursuant to an asset purchase agreement dated August 29,
2001, the Partnership completed the sale of all of the Partnership's Illinois
cable television systems in and around Fairfield and Shelbyville, Illinois to
Charter Communications Entertainment I, LLC ("CCE-I"), an affiliate of the
Corporate General Partner and an indirect subsidiary of Charter Communications,
Inc. ("Charter") for a total sale price of approximately $7.3 million and,
together with Enstar Income Program IV-2, L.P. and Enstar Income Program IV-1,
L.P. (collectively with the Partnership the "Joint Venturers"), completed the
sale of the Enstar Cable of Macoupin County's (the "Joint Venture") systems to
CCE-I, an affiliate of the Corporate General Partner and an indirect subsidiary
of Charter for a total sale price of approximately $9.1 million, the
Partnership's one-third share of which is approximately $3.0 million (the
"Charter Sale"). The Charter Sale was part of a larger transaction in which the
Partnership and five other affiliated partnerships (which, together with the
Partnership are collectively referred to as the "Selling Partnerships") sold all
of their assets used in the operation of their respective Illinois cable
television systems to CCE-I and two of its affiliates (also referred to, with
CCE-I, as the "Purchasers") for a total cash sale price of $63.0 million. Each
Selling Partnership received the same value per customer. In addition, the
Limited Partners of each of the Selling Partnerships approved an amendment to
their respective partnership agreement to allow the sale of assets to an
affiliate of such partnership's General Partner. The Purchasers are each
indirect subsidiaries of the Corporate General Partner's ultimate parent
company, Charter, and, therefore, are affiliates of the Partnership and each of
the other Selling Partnerships.
After setting aside $1.4 million to fund the Fulton, Kentucky system's working
capital needs and paying or providing for the payment of the expenses of the
Charter Sale, the Corporate General Partner made distributions from the Joint
Venture to the Partnership of their allocable share of the remaining net sale
proceeds, in accordance with its partnership agreement. The Partnership made an
initial distribution on or about May 15, 2002 of $9.0 million, with a second
distribution of approximately $2.1 million made on or about September 24, 2002
from the Charter Sale.
The Telecommunications Management Sale and Charter Sale resulted from a sale
process actively pursued since 1999, when the Corporate General Partner sought
purchasers for all of the cable television systems of the Selling Partnerships,
as well as eight other affiliated limited partnership cable operators of which
the Corporate General Partner is also the general partner. This effort was
undertaken primarily because, based on the Corporate General Partner's
experience in the cable television industry, it was concluded that generally
applicable market conditions and competitive factors were making (and would
increasingly make) it extremely difficult for smaller operators of rural cable
systems (such as the Partnership and the other affiliated Enstar partnerships)
to effectively compete and be financially successful. This determination was
based on the anticipated cost of electronics and additional equipment to enable
the Partnership's and the Joint Venture's systems to operate on a two-way basis
with improved technical capacity, insufficiency of the Partnership's and Joint
Venture's cash reserves and cash flows from operations to finance such
expenditures, limited customer growth potential due to the Partnership's and
Joint Venture's systems' rural location, and a general inability of a small
cable system operator such as the Partnership to benefit from economies of scale
and the ability to combine and integrate systems that large cable operators
have. Although limited plant upgrades have been made, the Corporate General
Partner projected that if the Partnership and Joint Venture made the
comprehensive additional upgrades deemed necessary to enable enhanced and
competitive services, particularly activation of two-way capability, the
Partnership and Joint Venture would not recoup the costs or regain its ability
to operate profitably within the remaining term of its franchises, and as a
result, making these upgrades would not be economically prudent.
8
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
3. TRANSACTIONS WITH THE GENERAL PARTNERS AND AFFILIATES
The Partnership has a management and service agreement (the Management
Agreement) with Enstar Cable Corporation ("Enstar Cable"), a wholly owned
subsidiary of the Corporate General Partner, for a monthly management fee of 5%
of gross revenues. The Partnership's management fee expense was $6,000 and
$9,700 for the three months ended September 30, 2003 and 2002, respectively, and
$25,100 and $50,900 for the nine months ended September 30, 2003 and 2002,
respectively. Management fees are non-interest bearing.
Enstar Cable has entered into an identical agreement with the Joint Venture of
which the Partnership is a joint venturer and co-general partner, except that
the Joint Venture pays Enstar Cable a 4% management fee. The Joint Venture's
management fee expense to Enstar Cable approximated $2,100 and $21,000 for the
periods from April 1, 2002 to April 10, 2002 and January 1 to April 10, 2002,
respectively. In addition, the Joint Venture is also required to pay the
Corporate General Partner an amount equal to 1% of the Joint Venture's gross
revenues. The Joint Venture's management fee expense to the Corporate General
Partner approximated $500 and $5,300 for the periods from April 1, 2002 to April
10, 2002 and January 1 to April 10, 2002, respectively. No management fee is
payable to Enstar Cable by the Partnership with respect to any amounts received
by the Partnership from the Joint Venture.
The Management Agreement also provides that the Partnership reimburse Enstar
Cable for direct expenses incurred on behalf of the Partnership and the
Partnership's allocable share of Enstar Cable's operational costs. Additionally,
Charter and its affiliates provide other management and operational services for
the Partnership and the Joint Venture. These expenses are charged to the
properties served based primarily on the Partnership's or Joint Venture's
allocable share of operational costs associated with the services provided. The
total amount charged to the Partnership for these services was $11,400 and
$24,100 for the three months ended September 30, 2003 and 2002, respectively,
and $51,800 and $121,100 for the nine months ended September 30, 2003 and 2002,
respectively.
Substantially all programming services are purchased through Charter. Charter
charges the Partnership for these costs based on its costs. The Partnership
recorded programming fee expense of $29,500 and $43,200 for the three months
ended September 30, 2003 and 2002, respectively, and $117,900 and $236,800 for
the nine months ended September 30, 2003 and 2002, respectively. Programming
fees are included in service costs in the accompanying condensed statements of
changes in net assets in liquidation and statements of operations.
As disclosed in Charter's Quarterly Report on Form 10-Q, the parent of the
Corporate General Partner and the Manager is the defendant in twenty-two class
action and shareholder lawsuits and is the subject of a grand jury investigation
being conducted by the United States Attorney's Office for the Eastern District
of Missouri into certain of its accounting and reporting practices, focusing on
how Charter reported customer numbers and its reporting of amounts received from
digital set-top terminal suppliers for advertising. The United States Attorney's
Office has publicly stated that Charter is not currently a target of the
investigation. Charter has also been advised by the United States Attorney's
Office that no member of its board of directors, including its Chief Executive
Officer, is a target of the investigation. On July 24, 2003, a federal grand
jury charged four former officers of Charter with conspiracy and mail and wire
fraud, alleging improper accounting and reporting practices focusing on revenue
from digital set-top terminal suppliers and inflated subscriber account numbers.
On July 25, 2003, one of the former officers who was indicted entered a guilty
plea. Charter has informed the Corporate General Partner that they are fully
cooperating with the investigation.
Charter is unable to predict the outcome of the class action lawsuits and
government investigations at this time. An unfavorable outcome of these matters
could have a material adverse effect on Charter's results of operations and
financial condition which could in turn have a material adverse effect on the
Partnership.
4. NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST
Net income per unit of limited partnership interest is based on the average
number of units outstanding during the periods presented. For this purpose, net
income excluding gain on sale of cable systems has been allocated 99% to the
Limited Partners and 1% to the General Partners. Gain on sale of cable systems
has been allocated in
9
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
accordance with the partnership agreement, first to the Limited Partners and
then to the General Partners to eliminate any negative equity balance on the
date of sale, and then in the amount of 99% to the Limited Partners and 1% to
the General Partners. Gains and losses will be allocated in this manner until
the Limited Partners have received an amount equal to their adjusted
subscription amount and liquidation preference, as defined, and thereafter 80%
to the Limited Partners and 20% 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.
Distributions have been allocated in accordance with the partnership agreement,
99% to the Limited Partners and 1% to the General Partners. Distributions will
be allocated in this manner until the Limited Partners have received an amount
equal to their adjusted subscription amount and liquidation preference, as
defined, and thereafter 80% to the Limited Partners and 20% to the General
Partners. Upon dissolution of the Partnership, distributions will be made in
amounts equal to the respective partners remaining capital account balances. Any
negative capital account balances remaining after all allocation and
distributions are made must be funded by the respective partners.
5. EQUITY IN NET ASSETS OF ENSTAR CABLE OF MACOUPIN COUNTY (JOINT VENTURE)
The Partnership and two affiliated partnerships, Enstar Income Program IV-1,
L.P. (Enstar IV-1) and Enstar Income Program IV-2, L.P. (Enstar IV-2), each own
one-third of the Joint Venture. Each of the Venturers share equally in the
profits and losses of the Joint Venture. The investment in the Joint Venture is
accounted for on the equity method.
As a result of the Charter sale, the Joint Venture changed its basis of
accounting to the liquidation basis on April 10, 2002. Accordingly, the assets
in the accompanying statement of net assets in liquidation as of December 31,
2002 are stated at estimated realizable values and the liabilities are reflected
at estimated settlement amounts. There were no significant adjustments recorded
upon changing to liquidation basis accounting. Net assets in liquidation as of
December 31, 2002 represent the estimated distribution to the joint venturers.
The Joint Venture distributed $3,990,000 for the period from April 11, 2002 to
September 30, 2002. In January 2003, all remaining assets of the Joint Venture
were distributed including a final distribution of $126,000 made to the
Venturers of which the Partnership's portion was $42,000.
Condensed financial information for the Joint Venture as of December 31, 2002,
for the nine months ended September 30, 2003 and for the period from April 11,
2002 to September 30, 2002 are presented in the following statement of net
assets in liquidation and condensed statement of changes in net assets in
liquidation. The condensed results of operations is also presented for the
period from April 1, 2002 to April 10, 2002 and from January 1, 2002 to April
10, 2002. As all remaining assets of the Joint Venture have been distributed,
the statement of net assets in liquidation is not presented as of September 30,
2003.
10
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ENSTAR CABLE OF MACOUPIN COUNTY
CONDENSED STATEMENT OF NET ASSETS IN LIQUIDATION
DECEMBER 31, 2002
ASSETS:
Cash and cash equivalents ..................................... $171,700
--------
Total assets .................................................. 171,700
--------
LIABILITIES:
Due to affiliates ............................................. 45,700
--------
Total liabilities ............................................. 45,700
--------
NET ASSETS IN LIQUIDATION:
Enstar Income Program IV-1, L.P ............................... 42,000
Enstar Income Program IV-2, L.P ............................... 42,000
Enstar Income Program IV-3, L.P ............................... 42,000
--------
$126,000
========
11
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ENSTAR CABLE OF MACOUPIN COUNTY
CONDENSED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(UNAUDITED)
NINE MONTHS PERIOD FROM
ENDED APRIL 11, 2002 TO
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------
Additions:
Reduction in accrued costs of liquidation ............ $ -- $ 22,400
Interest income ...................................... -- 49,500
------------------ ------------------
-- 71,900
------------------ ------------------
Deductions:
Distribution to joint venturers ...................... (126,000) (9,537,300)
------------------ ------------------
(126,000) (9,537,300)
------------------ ------------------
Net change in net assets in liquidation ................ (126,000) 9,609,200
NET ASSETS IN LIQUIDATION, beginning of period ......... 126,000 9,589,900
------------------ ------------------
NET ASSETS IN LIQUIDATION, end of period ............... $ -- $ 19,199,100
================== ==================
12
ENSTAR INCOME PROGRAM IV-3, L.P.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ENSTAR CABLE OF MACOUPIN COUNTY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
PERIOD FROM PERIOD FROM
APRIL 1, 2002 TO JANUARY 1, 2002
APRIL 10, 2002 TO APRIL 10, 2002
---------------- -----------------
REVENUES ........................................................ $ 52,000 $ 526,000
-------------- -----------------
OPERATING EXPENSES:
Service costs ................................................. 14,400 172,300
General and administrative expenses ........................... 38,200 87,400
General partner management fees and reimbursed expenses ....... 17,400 90,200
Depreciation and amortization ................................. 10,800 86,600
-------------- -----------------
80,800 436,500
-------------- -----------------
OPERATING INCOME (LOSS) ......................................... (28,800) 89,500
-------------- -----------------
OTHER INCOME:
Interest income ............................................... 200 2,200
Gain on sale of cable systems ................................. 6,918,500 6,918,500
-------------- -----------------
6,918,700 6,920,700
-------------- -----------------
NET INCOME ...................................................... $ 6,889,900 $ 7,010,200
============== =================
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
This report includes certain forward-looking statements regarding, among other
things, our future costs of liquidation, legal requirements, and our estimated
future distributions. Such forward-looking statements involve risks and
uncertainties including, without limitation, the uncertainty of legislative and
regulatory changes and the costs required to liquidate the partnership. In
addition to the information provided herein, reference is made to our Annual
Report on Form 10-K for the year ended December 31, 2002 for additional
information regarding such matters and the effect thereof on our business.
Effective August 31, 2003, pursuant to an asset purchase agreement dated
November 8, 2002 as amended, the Partnership completed the sale of its only
remaining cable system to Telecommunications Management, LLC (Telecommunications
Management) for a total adjusted sales price of approximately $1,170,900
(approximately $800 per customer acquired), subject to post closing adjustments
(the Telecommunications Management Sale). The Telecommunications Management
Sales was part of a larger transaction in which the Partnership and eight other
affiliated partnerships sold all of their remaining assets used in the
operations of their respective cable systems to Telecommunications Management
for a total cash sales price of $12,354,600 after closing adjustments. Excess of
net proceeds over net book value of cable systems represents the cash proceeds
net of transaction costs received from the Telecommunications Management Sale in
excess of the net book value of the cable system assets sold.
The Partnership finalized its proposed plan of liquidation in December 2002 in
connection with the filing of a proxy to obtain partner approval for the
Telecommunications Management Sale and the subsequent liquidation and
dissolution of the Partnership. In April 2003, the required number of votes
necessary to implement the plan of liquidation were obtained. As a result, the
Partnership changed its basis of accounting to the liquidation basis as of
December 31, 2002. Upon changing to liquidation basis accounting, the
Partnership recorded $23,700 of accrued costs of liquidation in accounts payable
and accrued liabilities on the accompanying statement of net assets in
liquidation representing an estimate of the costs to be incurred after the sale
of the final cable system but prior to dissolution of the Partnership. Because
reliable estimates of future operating results or the ultimate realizable value
of property, plant and equipment could not be developed due to uncertainties
surrounding the final dissolution of the Partnership, no adjustments were
recorded, prior to the sale of the assets, to reflect assets at estimated
realizable values or to reflect estimates of future operating results.
Accordingly, the assets in the accompanying statements of net assets in
liquidation as of December 31, 2002 have been stated at historical book values.
Net assets in liquidation as of September 30, 2003 represent the estimated
distributions of the Limited Partners and the General Partners. Distributions
ultimately made to the partners upon liquidation will differ from the net assets
in liquidation recorded in the accompanying statements of net assets in
liquidation as of September 30, 2003 as a result of post closing purchase price
adjustments and adjustments to estimated costs of liquidation. No adjustments
were made to accrued costs of liquidation during the three and nine months ended
September 30, 2003.
We have conducted our cable television business operations both (i) through the
direct ownership and operation of certain cable television systems and (ii)
through our participation as a partner with a one-third interest in Enstar Cable
of Macoupin County (the Joint Venture). Our participation is equal to our
affiliated partners, Enstar Income Program IV-1, L.P. (Enstar IV-1) and Enstar
Income Program IV-2, L.P. (Enstar IV-2), with respect to capital contributions,
obligations and commitments, and results of operations. Accordingly, in
considering the financial condition and results of operations for us,
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 operated its properties through August 31, 2003 but had no
operations for the period subsequent to that date as a result of the
Telecommunications Management Sale discussed above. Accordingly, no discussion
of operating results for the period from July 1, 2003 to September 30, 2003 and
the three months ended September 30, 2002, as well as the period from January 1,
2003 to September 30, 2003 and the nine months ended September 30, 2002, has
been provided as such analysis is not relevant.
14
Net assets in liquidation at September 30, 2003 were $2,401,700, consisting of
current assets of $2,547,000, offset by current liabilities of $145,300. The net
change in net assets in liquidation for the three and nine months ended
September 30, 2003 was an increase of $763,800 and $810,100, respectively, which
was primarily due to the excess of net proceeds over the net book value of cable
systems.
THE JOINT VENTURE
On April 10, 2002, the Joint Venture completed the sale of its cable systems and
accordingly had no operations for the three or nine months ended September 30,
2003.
Final dissolution of the Joint Venture occurred in January 2003 with the final
cash distribution to the joint venturers of $126,000.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $95,700 from $2,597,700 at December 31, 2002
to $2,502,000 at September 30, 2003 primarily due to repayments of $1,343,000 on
the amounts due to affiliates and remittance of $127,000 in withholding taxes
related to the April 2002 sale of the Partnership's Illinois cable systems which
had been recorded in accounts payable and accrued expenses offset by $1,170,900
of proceeds from the Telecommunications Management Sale. Amounts due to
affiliates at December 31, 2002 primarily represent accrued and unpaid
management fees and other allocated expenses accrued since the fourth quarter of
2000. Cash and cash equivalents increased $290,000 from $2,698,500 at December
31, 2001 to $2,988,500 at September 30, 2002 as a result of $714,400 of cash
provided by operating activities, $7,333,300 proceeds from sale of cable system
and $3,179,100 distributions from Joint Venture offset by capital expenditures
of $74,900 and $11,087,700 distributions to partners. Capital expenditures,
which are expensed as incurred in the nine months ended September 30, 2003, were
$23,400.
The Corporate General Partner's intention is to terminate the Partnership as
expeditiously as possible. After paying or providing for the payment of the
expenses of the sale, the Corporate General Partner will make one or more
distributions of the Partnership's allocable share of the remaining net sale
proceeds, in accordance with its partnership agreement. In November 2003 we
intend to make an initial distribution payment of $1.9 million to the Limited
Partners. A final liquidating distribution will occur on or after approximately
13 months following the close of the transaction upon the release of the
indemnity escrow and the receipt of the remaining proceeds of such escrow if
any.
CERTAIN TRENDS AND UNCERTAINTIES
Charter and our Corporate General Partner have had communications and
correspondence with representatives of certain limited partners, and others,
concerning certain Enstar partnerships of which our Corporate General Partner is
also the Corporate General Partner. While we are not aware of any formal
litigation which has been filed relating to the communications and
correspondence, or the subject matter referred to therein, it is impossible to
predict what actions may be taken in the future or what loss contingencies may
result therefrom.
As disclosed in Charter's Quarterly Report on Form 10-Q, the parent of the
Corporate General Partner and the Manager is the defendant in twenty-two class
action and shareholder lawsuits and is the subject of a grand jury investigation
being conducted by the United States Attorney's Office for the Eastern District
of Missouri into certain of its accounting and reporting practices, focusing on
how Charter reported customer numbers and its reporting of amounts received from
digital set-top terminal suppliers for advertising. The United States Attorney's
Office has publicly stated that Charter is not currently a target of the
investigation. Charter has also been advised by the United States Attorney's
Office that no member of its board of directors, including its Chief Executive
Officer, is a target of the investigation. On July 24, 2003, a federal grand
jury charged four former officers of Charter with conspiracy and mail and wire
fraud, alleging improper accounting and reporting practices focusing on revenue
from digital set-top terminal suppliers and inflated subscriber account numbers.
On July 25, 2003, one of the former officers who was indicted entered a guilty
plea. Charter has informed the Corporate General Partner that they are fully
cooperating with the investigation.
Charter is unable to predict the outcome of the class action lawsuits and
government investigations at this time. An unfavorable outcome of these matters
could have a material adverse effect on Charter's results of operations and
financial condition which could in turn have a material adverse effect on us.
15
ITEM 4. CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, our Corporate General
Partner, including our Chief Administrative Officer and Principal Financial
Officer, evaluated the effectiveness of the design and operation of our
disclosure controls and procedures with respect to the information generated for
use in this Quarterly Report. The evaluation was based in part upon reports and
affidavits provided by a number of executives. Based upon, and as of the date of
that evaluation, our Chief Administrative Officer and Principal Financial
Officer concluded that the disclosure controls and procedures were effective to
provide reasonable assurances that information required to be disclosed in the
reports we file or submit under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Commission's rules and forms.
There was no change in our internal control over financial reporting during the
quarter ended September 30, 2003 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
In designing and evaluating the disclosure controls and procedures, our
management recognized that any controls and procedures, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance of
achieving the desired control objectives and management necessarily was required
to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based upon the above evaluation, we believe that our
controls do provide such reasonable assurances.
16
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
Exhibit
Number Description of Document
------ -----------------------
2.1a Asset Purchase Agreement, dated November 8, 2002, by and among
Telecommunications Management, LLC and Enstar Income Program
II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income
Program 1984-1, L.P., Enstar Income/Growth Program Six-A, L.P.,
Enstar VII, L.P., Enstar VIII, L.P., Enstar X, L.P., Enstar XI,
L.P., Enstar IV/PBD Systems Venture and Enstar Cable of
Cumberland Valley (Incorporated by reference to Exhibit 2.1 to
the quarterly report of Form 10-Q of Enstar Income Program II-2,
L.P. filed on November 12, 2002 (File No. 000-14505)).
2.1b Letter of Amendment, dated as of February 6, 2003, between
Enstar Income Program II-2, L.P., Enstar Income Program IV-3,
L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth
Program Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar
X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and
Enstar Cable of Cumberland Valley and Telecommunications
Management, LLC (Incorporated by reference to Exhibit 2.1 to the
current report on Form 8-K of Enstar Income/Growth Program
Five-A, L.P. filed on February 14, 2003 (File No. 000-16779)).
2.1c Letter of Amendment, dated as of April 24, 2003, between Enstar
Income Program II-2, L.P., Enstar Income Program IV-3, L.P.,
Enstar Income Program 1984-1, L.P., Enstar Income/Growth Program
Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar X,
L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and Enstar
Cable of Cumberland Valley and Telecommunications Management,
LLC (Incorporated by reference to Exhibit 2.1 to the current
report on Form 8-K of Enstar Income/Growth Program Five-A, L.P.
filed on April 25, 2003 (File No. 000-16779)).
2.1d Letter of Amendment, dated as of November 8, 2002, between
Enstar Income Program II-2, L.P., Enstar Income Program IV-3,
L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth
Program Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar
X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and
Enstar Cable of Cumberland Valley and Telecommunications
Management, LLC (Incorporated by reference to Exhibit 2.1 to the
current report on Form 8-K of Enstar Income/Growth Program
Five-A, L.P. filed on June 9, 2003 (File No. 000-16779)).
2.1e Close of Asset Purchase Agreement, dated as of September 11,
2003, between Enstar Income Program II-2, L.P., Enstar Income
Program IV-3, L.P., Enstar Income Program 1984-1, L.P., Enstar
Income/Growth Program Six-A, L.P., Enstar VII, L.P., Enstar
VIII. L.P., Enstar X, L.P., Enstar XI, L.P., Enstar IV/PBD
Systems Venture and Enstar Cable of Cumberland Valley and
Telecommunications Management, LLC (Incorporated by reference to
Exhibit 2.1 to the current report on Form 8-K of Enstar
Income/Growth Program Five-A, L.P. filed on September 16, 2003
(File No. 000-16779)).
31.1 Certificate of Chief Administrative Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of
1934. *
31.2 Certificate of Chief Financial Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of
1934. *
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
Administrative Officer). *
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Principal Financial Officer). *
* filed herewith
(B) REPORTS ON FORM 8-K
On September 16, 2003 the registrant filed a current report on Form 8-K
dated September 11, 2003 to announce the close of the asset purchase
agreement dated November 8, 2002.
17
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.
By: ENSTAR COMMUNICATIONS CORPORATION
-------------------------------------------
Corporate General Partner
Date: November 14, 2003 By: /s/ Paul E. Martin
-------------------------------------------
Name: Paul E. Martin
Title: Senior Vice President and Corporate
Controller (Principal Financial Officer and
Principal Accounting Officer)
18
EXHIBIT INDEX
Exhibit
Number Description of Document
------- -----------------------
2.1a Asset Purchase Agreement, dated November 8, 2002, by and among
Telecommunications Management, LLC and Enstar Income Program
II-2, L.P., Enstar Income Program IV-3, L.P., Enstar Income
Program 1984-1, L.P., Enstar Income/Growth Program Six-A, L.P.,
Enstar VII, L.P., Enstar VIII, L.P., Enstar X, L.P., Enstar XI,
L.P., Enstar IV/PBD Systems Venture and Enstar Cable of
Cumberland Valley (Incorporated by reference to Exhibit 2.1 to
the quarterly report of Form 10-Q of Enstar Income Program II-2,
L.P. filed on November 12, 2002 (File No. 000-14505)).
2.1b Letter of Amendment, dated as of February 6, 2003, between
Enstar Income Program II-2, L.P., Enstar Income Program IV-3,
L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth
Program Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar
X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and
Enstar Cable of Cumberland Valley and Telecommunications
Management, LLC (Incorporated by reference to Exhibit 2.1 to the
current report on Form 8-K of Enstar Income/Growth Program
Five-A, L.P. filed on February 14, 2003 (File No. 000-16779)).
2.1c Letter of Amendment, dated as of April 24, 2003, between Enstar
Income Program II-2, L.P., Enstar Income Program IV-3, L.P.,
Enstar Income Program 1984-1, L.P., Enstar Income/Growth Program
Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar X,
L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and Enstar
Cable of Cumberland Valley and Telecommunications Management,
LLC (Incorporated by reference to Exhibit 2.1 to the current
report on Form 8-K of Enstar Income/Growth Program Five-A, L.P.
filed on April 25, 2003 (File No. 000-16779)).
2.1d Letter of Amendment, dated as of November 8, 2002, between
Enstar Income Program II-2, L.P., Enstar Income Program IV-3,
L.P., Enstar Income Program 1984-1, L.P., Enstar Income/Growth
Program Six-A, L.P., Enstar VII, L.P., Enstar VIII. L.P., Enstar
X, L.P., Enstar XI, L.P., Enstar IV/PBD Systems Venture and
Enstar Cable of Cumberland Valley and Telecommunications
Management, LLC (Incorporated by reference to Exhibit 2.1 to the
current report on Form 8-K of Enstar Income/Growth Program
Five-A, L.P. filed on June 9, 2003 (File No. 000-16779)).
2.1e Close of Asset Purchase Agreement, dated as of September 11,
2003, between Enstar Income Program II-2, L.P., Enstar Income
Program IV-3, L.P., Enstar Income Program 1984-1, L.P., Enstar
Income/Growth Program Six-A, L.P., Enstar VII, L.P., Enstar
VIII. L.P., Enstar X, L.P., Enstar XI, L.P., Enstar IV/PBD
Systems Venture and Enstar Cable of Cumberland Valley and
Telecommunications Management, LLC (Incorporated by reference to
Exhibit 2.1 to the current report on Form 8-K of Enstar
Income/Growth Program Five-A, L.P. filed on September 16, 2003
(File No. 000-16779)).
31.1 Certificate of Chief Administrative Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of
1934. *
31.2 Certificate of Chief Financial Officer pursuant to Rule
13a-14(a)/Rule 15d-14(a) under the Securities Exchange Act of
1934.*
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
Administrative Officer). *
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Principal Financial Officer). *
* filed herewith
19