EXHIBIT 99.2
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Financial Statements
December 31, 2003 and 2002
(With Independent Auditors' Report Thereon)
INDEPENDENT AUDITORS' REPORT
The Partners
Northland Cable Properties Seven Limited Partnership:
We have audited the accompanying balance sheets of Northland Cable Properties
Seven Limited Partnership (a Washington limited partnership) as of December 31,
2003 and 2002, and the related statements of operations, changes in partners'
capital (deficit), and cash flows for each of the years in the three year period
ended December 31, 2003. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northland Cable Properties
Seven Limited Partnership as of December 31, 2003 and 2002, and the results of
its operations and its cash flows for each of the years in the three year period
ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.
As described in note 3(d) to the financial statements, the Partnership changed
its method of accounting for goodwill and intangible assets beginning January 1,
2002.
/s/ KPMG LLP
- -------------------
Seattle, Washington
February 6, 2004
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Balance Sheets
December 31, 2003 and 2002
ASSETS 2003 2002
- ---------------------------------------------------------------- ------------- -----------
Cash $ 758,694 677,536
Accounts receivable 450,978 727,991
Due from affiliates 67,242 34,376
Prepaid expenses 107,780 117,290
System sale receivable 1,120,494 --
Investment in cable television properties:
Property and equipment 26,588,140 41,728,964
Less accumulated depreciation (15,210,270) (23,931,717)
------------- -----------
11,377,870 17,797,247
Franchise agreements (net of accumulated amortization
of $10,321,249 and $10,849,665 in 2003 and 2002, 9,607,185 10,568,237
respectively)
Goodwill (net of accumulated amortization of $70,130 in 2002) -- 152,799
------------- -----------
Total investment in cable television properties 20,985,055 28,518,283
------------- -----------
Loan fees and other intangibles (net of accumulated amortization
of $714,987 and $1,104,455 in 2003 and 2002, respectively) 720,436 517,422
------------- -----------
Total assets $ 24,210,679 30,592,898
============= ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Accounts payable and accrued expenses $ 1,198,834 2,499,502
Due to General Partner and affiliates 51,793 973,023
Deposits 18,210 18,300
Subscriber prepayments 358,129 675,535
Notes payable 21,500,000 40,054,185
------------- -----------
Total liabilities 23,126,966 44,220,545
------------- -----------
Commitments and contingencies
Partners' capital (deficit):
General Partners:
Contributed capital (25,367) (25,367)
Accumulated deficit (176,264) (323,378)
------------- -----------
(201,631) (348,745)
------------- -----------
Limited Partners:
Contributed capital, net (49,656 units) 18,735,576 18,735,576
Accumulated deficit (17,450,232) (32,014,478)
------------- -----------
1,285,344 (13,278,902)
------------- -----------
Total liabilities and partners' capital (deficit) $ 24,210,679 30,592,898
============= ===========
See accompanying notes to financial statements.
2
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Statements of Operations
Years ended December 31, 2003, 2002, and 2001
2003 2002 2001
------------ ---------- ----------
Revenue $ 13,936,290 13,568,247 12,698,705
------------ ---------- ----------
Expenses:
Operating (including $138,030, $111,655,
and $108,822, net, paid to affiliates in 2003,
2002, and 2001, respectively), excluding
depreciation and amortization expense
recorded below 965,408 953,898 949,398
General and administrative (including
$1,354,122, $1,264,974, and $1,196,157, net,
paid to affiliates in 2003, 2002, and 2001,
respectively) 3,639,787 3,413,322 3,193,958
Programming (including $55,867, $65,657, net paid to
affiliates and $66,035, net, received from
affiliates in 2003, 2002, and 2001, 4,630,174 4,417,073 3,701,142
respectively)
Depreciation and amortization expense 2,150,636 2,229,021 4,042,573
Loss on disposal of assets 21,294 15,011 259,413
------------ ---------- ----------
11,407,299 11,028,325 12,146,484
------------ ---------- ----------
Operating income 2,528,991 2,539,922 552,221
Other income (expense):
Interest expense and amortization of loan fees (1,531,268) (1,896,952) (2,127,730)
Gain on extinguishment of debt 35,591 -- --
Interest income and other, net (1,471) (17,367) (37,951)
------------ ---------- ----------
Income (loss) from continuing operations 1,031,843 625,603 (1,613,460)
Discontinued operations (note 11)
Income (loss) from operations of Washington
Systems, net (including gain on sale of
systems of $14,027,857 in 2003) 13,679,517 (1,063,356) (264,620)
------------ ---------- ----------
Net income (loss) 14,711,360 (437,753) (1,878,080)
============ ========== ==========
Allocation of net income (loss):
General Partners $ 147,114 (4,378) (18,781)
Limited Partners 14,564,246 (433,375) (1,859,299)
Net income (loss) per limited partnership unit 296 (9) (38)
Net income (loss) from continuing operations per
limited partnership unit 21 13 (33)
Net income (loss) from discontinued operations per
limited partnership unit 275 (22) (5)
See accompanying notes to financial statements.
3
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Statements of Changes in Partners' Capital (Deficit)
Years ended December 31, 2003, 2002, and 2001
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
----------- ----------- -----------
Balance, December 31, 2000 $ (325,586) (10,986,228) (11,311,814)
Net loss (18,781) (1,859,299) (1,878,080)
----------- ----------- -----------
Balance, December 31, 2001 (344,367) (12,845,527) (13,189,894)
Net loss (4,378) (433,375) (437,753)
----------- ----------- -----------
Balance, December 31, 2002 (348,745) (13,278,902) (13,627,647)
Net income 147,114 14,564,246 14,711,360
----------- ----------- -----------
Balance, December 31, 2003 $ (201,631) 1,285,344 1,083,713
=========== =========== ===========
See accompanying notes to financial statements.
4
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Statements of Cash Flows
Years ended December 31, 2003, 2002, and 2001
2003 2002 2001
------------ ---------- ----------
Cash flows from operating activities:
Net income (loss) $ 14,711,360 (437,753) (1,878,080)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization expense 2,334,566 3,391,868 5,109,710
Loan fee amortization 743,198 1,219,055 128,590
Noncash interest expense -- 252,851 --
(Gain) loss on asset dispositions (14,006,563) 15,011 259,413
Gain on extinguishment of debt (35,589) -- --
Unrealized (gain) loss on interest rate
swap agreements -- (277,449) 277,449
Other 12,878 -- --
Changes in certain assets and liabilities:
Accounts receivable 420,688 (135,219) 4,813
Prepaid expenses 3,009 (27,991) 34,987
Accounts payable and accrued
expenses (1,968,519) 879,491 (427,226)
Due to/from General Partner and
affiliates (953,228) 670,747 151,730
Deposits (90) (53,430) 28,150
Subscriber prepayments (174,090) 80,178 (37,797)
------------ ---------- ----------
Net cash provided by operating
activities 1,087,620 5,577,359 3,651,739
------------ ---------- ----------
Cash flows from investing activities:
Purchase of property and equipment (992,861) (2,443,809) (5,139,491)
Proceeds from sale of systems 19,281,427 (8,200) --
Proceeds from sale of assets 2,500 14,348 4,900
------------ ---------- ----------
Net cash provided by (used in)
investing activities 18,291,066 (2,437,661) (5,134,591)
Cash flows from financing activities:
Proceeds from notes payable 21,500,000 -- 4,500,000
Principal payments on notes payable (40,054,185) (1,182,362) (3,279,776)
Loan fees and other (743,343) (1,404,860) (105,170)
------------ ---------- ----------
Net cash (used in) provided by
financing activities (19,297,528) (2,587,222) 1,115,054
------------ ---------- ----------
Increase (decrease) in cash 81,158 552,476 (367,798)
Cash, beginning of year 677,536 125,060 492,858
------------ ---------- ----------
Cash, end of year $ 758,694 677,536 125,060
============ ========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,532,108 2,233,830 3,247,730
See accompanying notes to financial statements.
5
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
(1) ORGANIZATION AND PARTNERS' INTERESTS
(a) FORMATION AND BUSINESS
Northland Cable Properties Seven Limited Partnership (the
Partnership), a Washington limited partnership, was formed on
April 17, 1987. The Partnership was formed to acquire,
develop, and operate cable television systems. The Partnership
began operations on September 1, 1987, by acquiring a cable
television system in Brenham, Texas. Additional acquisitions
include systems serving seven cities and three unincorporated
counties in southeast Texas; a system serving four cities in
or around Vidalia, Georgia; a system serving two cities in or
around Sandersville, Georgia; and two systems serving several
communities in and around Toccoa and Royston, Georgia. The
Partnership has 19 nonexclusive franchises to operate the
cable systems for periods, which will expire at various dates
through 2024.
On March 11, 2003, the Partnership sold the operating assets
and franchise rights of its cable systems in and around Sequim
and Camano Island, Washington (the "Washington Systems"). The
accompanying financial statements present the results of
operations and the sale of the Sequim and Camano Island
systems as discontinued operations.
Northland Communications Corporation is the General Partner
(the General Partner or Northland) of the Partnership. Certain
affiliates of the Partnership also own and operate other cable
television systems. In addition, Northland manages cable
television systems for other limited partnerships for which it
is General Partner.
FN Equities Joint Venture, a California joint venture, is the
Administrative General Partner of the Partnership.
Collectively, the General Partner and the Administrative
General Partner are referred to herein as the General
Partners.
The Partnership is subject to certain risks as a cable
television operator. These include competition from
alternative technologies (e.g., satellite), requirements to
renew its franchise agreements, availability of capital, and
compliance with note payable covenants.
(b) CONTRIBUTED CAPITAL, COMMISSIONS, AND OFFERING COSTS
The capitalization of the Partnership is set forth in the
accompanying statements of changes in partners' capital
(deficit). No Limited Partner is obligated to make any
additional contribution.
Northland contributed $1,000 to acquire its 1% interest in the
Partnership.
Pursuant to the Partnership Agreement, brokerage fees paid to
an affiliate of the Administrative General Partner and other
offering costs paid to the General Partner were recorded as a
reduction of Limited Partners' capital upon formation of the
Partnership. The Administrative General Partner received a fee
for providing certain administrative services to the
Partnership.
(Continued)
6
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
(2) BASIS OF PRESENTATION
Certain prior period amounts have been reclassified to conform to the
current period presentation. This includes reclassification of
unrealized gains and losses on interest rate swap agreements, which
were previously classified in a separate financial statement caption
within other income (expense), to the interest expense and amortization
of loan fees financial statement caption.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported
amount of assets and liabilities and the 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.
Actual results could differ from those estimates.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) ACQUISITION OF CABLE TELEVISION SYSTEMS
Cable television system acquisitions are accounted for as
purchase transactions and their cost is allocated to the
estimated fair market value of net tangible assets acquired
and identifiable intangible assets, including franchise
agreements. Any excess is allocated to goodwill.
(b) ACCOUNTS RECEIVABLE
Accounts receivable consist primarily of amounts due from
customers for cable television or advertising services
provided by the Partnership, and are stated at net realizable
value. Receivables are written-off when the Partnership deems
specific customer invoices to be uncollectible.
(c) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Costs of
additions and substantial improvements, which include
materials, labor and other indirect costs associated with the
construction of cable transmission and distribution
facilities, are capitalized. Indirect costs include employee
salaries and benefits, travel and other costs. These costs are
estimated based on historical information and analysis. The
Partnership periodically performs evaluations of these
estimates as warranted by events or changes in circumstances.
In accordance with Statement of Financial Accounting Standards
(SFAS) No. 51, Financial Reporting by Cable Television
Companies, the Partnership also capitalizes costs associated
with initial customer installations. The costs of
disconnecting service or reconnecting service to previously
installed locations are charged to operating expense in the
period incurred. Costs for repairs and maintenance are also
charged to operating expense, while equipment replacements,
including the replacement of drops, are capitalized.
At the time of retirements, sales or other dispositions of
property, the original cost and related accumulated
depreciation are removed from the respective accounts, and the
gains or losses are included in the statements of operations.
(Continued)
7
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
Depreciation of property and equipment is calculated using the
straight-line method over the following estimated service
lives:
Buildings 20 years
Distribution plant 10 years
Other equipment and leasehold improvements 5-20 years
The Partnership recorded depreciation expense within
continuing operations of $2,150,636, $2,175,253 and
$1,932,732, in 2003, 2002, and 2001, respectively, and
depreciation expense within discontinued operations of
$183,930, $1,162,847 and $1,004,180 in 2003, 2002 and 2001,
respectively.
The Partnership periodically evaluates the depreciation
periods of property and equipment to determine whether events
or circumstances warrant revised estimates of useful lives.
The Partnership also reviews the carrying value of its
property and equipment for impairment whenever events or
changes in circumstances indicate that the carrying value may
not be recoverable. As of December 31, 2003, there has been no
indication of such impairment.
(d) INTANGIBLE Assets
Effective January 1, 2002, the Partnership adopted SFAS No.
142, Goodwill and Other Intangible Assets. SFAS No. 142
required that the Partnership cease amortization of goodwill
and any other intangible assets determined to have indefinite
lives, and established a new method of testing these assets
for impairment on an annual basis or on an interim basis if an
event occurs or circumstances change that would reduce the
fair value of a reporting unit below its carrying value or if
the fair value of intangible assets with indefinite lives
falls below their carrying value on an annual basis. The
Partnership determined that its franchise agreements met the
definition of indefinite lived assets due to the history of
obtaining franchise renewals, among other considerations.
Accordingly, amortization of these assets also ceased on
December 31, 2001. The Partnership tested these intangibles
for impairment during the fourth quarter of 2003 and
determined that the fair value of the assets exceeded their
carrying value. The Partnership will continue to test these
assets for impairment annually, or more frequently as
warranted by events or changes in circumstances.
(Continued)
8
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
As required by SFAS No. 142, the statement has not been
retroactively applied to the results for the periods prior to
adoption. A reconciliation of net loss from continuing
operations for the year ended December 31, 2001, as if
amortization of goodwill and franchise agreements had not been
recorded is presented below:
CONTINUING DISCONTINUED
OPERATIONS OPERATIONS TOTAL
----------- ------------ ----------
Net income (loss):
Reported net loss $(1,613,460) (264,620) (1,878,080)
Add back:
Amortization of goodwill and
franchise agreements 1,970,595 62,948 2,033,543
----------- ------------ ----------
Adjusted net income $ 357,135 (201,672) 155,463
=========== ============ ==========
Net income (loss) per limited
partnership unit:
Reported net loss per limited
partnership unit $ (33) (5) (38)
Add back:
Amortization of goodwill and
franchise agreements 40 1 41
----------- ------------ ----------
Adjusted net income
(loss) per limited
partnership unit $ 7 (4) 3
=========== ============ ==========
(e) LOAN FEES AND OTHER INTANGIBLES
Loan fees and other intangibles are being amortized using the
straight-line method over periods of five to six years
(current weighted average remaining useful life of 5.25
years). The Partnership recorded amortization expense
attributable to continuing operations of $636,529, $713,015,
and $2,180,851 in 2003, 2002, and 2001, respectively.
Amortization expense attributable to discontinued operations
was $144,287, $559,808 and $57,580 in 2003, 2002 and 2001,
respectively. Amortization of loan fees and other intangibles
for each of the next five years and thereafter is expected to
be as follows:
2004 $ 139,439
2005 139,439
2006 139,439
2007 139,439
2008 139,439
Thereafter 23,241
-----------
$ 720,436
===========
(Continued)
9
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
(f) SELF INSURANCE
The Partnership began self-insuring for aerial and underground
plant in 1996. Beginning in 1997, the Partnership began making
quarterly contributions into an insurance fund maintained by
an affiliate which covers all Northland entities and would
defray a portion of any loss should the Partnership be faced
with a significant uninsured loss. To the extent the
Partnership's losses exceed the fund's balance, the
Partnership would absorb any such loss. If the Partnership
were to sustain a material uninsured loss, such reserves could
be insufficient to fully fund such a loss. The capital cost of
replacing such equipment and physical plant, could have a
material adverse effect on the Partnership, its financial
condition, prospects and debt service ability.
Amounts paid to the affiliate, which maintains the fund for
the Partnership and its affiliates, are expensed as incurred
and are included in the statements of operations. To the
extent a loss has been incurred related to risks that are
self-insured, the Partnership records an expense and an
associated liability for the amount of the loss, net of any
amounts to be drawn from the fund. During 2001, the
Partnership was charged $5,651 by the fund. Management
suspended contributions during 2001 and throughout 2002 based
on its assessment that the current balance would be sufficient
to meet potential claims. In 2003, the Partnership was
required to make contributions and was charged $3,025 by the
fund. As of December 31, 2003, the fund (related to all
Northland entities) had a balance of $560,350.
(g) REVENUE RECOGNITION
Cable television service revenue, including service and
maintenance, is recognized in the month service is provided to
customers. Advance payments on cable services to be rendered
are recorded as subscriber prepayments. Revenues resulting
from the sale of local spot advertising are recognized when
the related advertisements or commercials appear before the
public. Local spot advertising revenues earned in continuing
operations were $1,009,019, $910,320, and $717,752 in 2003,
2002, and 2001, respectively, and local spot advertising
revenues in discontinued operations were $111,874, $577,198
and $490,486 in 2003, 2002 and 2001, respectively.
(h) DERIVATIVES
The Partnership had only limited involvement with derivative
instruments and does not use them for trading purposes. They
are used to manage well-defined interest rate risks. The
Partnership periodically enters into interest rate swap
agreements with major banks or financial institutions
(typically its bank) in which the Partnership pays a fixed
rate and receives a floating rate with the interest payments
being calculated on a notional amount.
The Partnership can be exposed to credit related losses in the
event of nonperformance by counterparties to financial
instruments but does not expect any counterparties to fail to
meet their obligations, as the Partnership currently deals
only with its bank. The exposure in a derivative contract is
the net difference between what each party is required to pay
based on the contractual interest rate versus the notional
interest rate of the contract.
Effective January 1, 2001 the Partnership adopted Statement of
Financial Accounting Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended. The
adoption of SFAS No. 133 had no material effect on the
partnership's financial statements.
(Continued)
10
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
Accordingly, the Partnership records all derivative
instruments on the balance sheet at fair value. Depending on
the nature of the hedge, the changes in the fair value of
derivatives are either offset against the change in fair value
of the hedged assets or liabilities through earnings or are
recognized in other comprehensive income until the hedged item
is recognized in earnings.
The Partnership elected not to designate its interest rate
swap agreements as hedges under SFAS No. 133. Agreements in
place as of December 31, 2001 expired during 2002, and the
Partnership elected not to enter into any new agreements.
Included in interest expense and amortization of loan fees are
an unrealized gain of $277,449 and an unrealized loss of
$277,449 in 2002 and 2001, respectively, related to interest
rate swap agreements.
(I) ADVERTISING COSTS
The Partnership expenses advertising costs as they are
incurred. Advertising costs attributable to continuing
operations were $532,364, $465,078, and $435,843 in 2003,
2002, and 2001, respectively, and advertising costs
attributable to discontinued operations were $70,509, $363,155
and $296,344 in 2003, 2002 and 2001, respectively.
(j) SEGMENT INFORMATION
The Partnership follows SFAS No. 131, Disclosures About
Segments of an Enterprise and Related Information. The
Partnership manages its business and makes operating decisions
at the operating segment level. Following the operating
segment aggregation criteria in SFAS No. 131, the Partnership
reports business activities under a single reporting segment,
telecommunications services. Additionally, all of its
activities take place in the United States of America.
(k) CONCENTRATION OF CREDIT RISK
The Partnership is subject to concentrations of credit risk
from cash investments on deposit at various financial
institutions that at times exceed insured limits by the
Federal Deposit Insurance Corporation. This exposes the
Partnership to potential risk of loss in the event the
institution becomes insolvent.
(l) FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist of cash, interest rate swap
agreements and notes payable. The fair value of cash
approximates its carrying value. The fair value of interest
rate swap agreements is the estimated amount that a bank would
receive or pay to terminate the swap agreement at the
reporting date and is equal to their carrying value. The fair
value of the notes payable approximates their carrying value
because of their variable interest rate nature (note 8).
(m) RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS
In December 2003, the FASB revised FASB interpretation No. 46
(FIN 46R), Consolidation of Variable Interest Entities, which
addresses how a business enterprise should evaluate whether it
has a controlling financial interest in an entity through
means other than voting rights and accordingly should
consolidate the entity. FIN 46R requires that calendar year
public companies apply the unmodified or revised provisions of
FIN 46 to entities previously considered special purpose
entities
(Continued)
11
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
in the reporting period ended December 31, 2003. The
interpretation is applicable to all other entities not
previously considered special purpose entities in the quarter
ending March 31, 2004. The adoption of FIN 46R did not have an
impact on the Partnership's December 31, 2003 financial
statements. Further, management does not anticipate that the
adoption in 2004 as it relates to non-special purpose entities
will have an impact on the Partnership's financial statements.
In June 2001, SFAS No. 143, Accounting for Asset Retirement
Obligations, was issued. SFAS No. 143 requires the Partnership
to record the fair value of an asset retirement obligation as
a liability in the period in which it incurs a legal
obligation associated with the retirement of tangible
long-lived assets that result from the acquisition,
construction, development, and/or normal use of the assets.
The Partnership also would record a corresponding asset that
is depreciated over the life of the asset. Subsequent to the
initial measurement of the asset retirement obligation, the
obligation would be adjusted at the end of each period to
reflect the passage of time and changes in the estimated
future cash flows underlying the obligation. The Partnership
was required to adopt SFAS No. 143 on January 1, 2003. Under
the scope of this pronouncement, the Partnership has asset
retirement obligations associated with the removal of
equipment from poles and headend sites that are leased from
third parties. The adoption of SFAS No. 143 did not have a
material effect on the Partnership's financial statements.
In April 2002, SFAS No. 145, Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections, was issued. SFAS No. 145 amends
existing guidance on reporting gains and losses on the
extinguishment of debt to prohibit the classification of the
gain or loss as extraordinary, as the use of such
extinguishments have become part of the risk management
strategy of many companies. SFAS No. 145 also amends SFAS No.
13, Accounting for Leases, to require sale-leaseback
accounting for certain lease modifications that have economic
effects similar to sale-leaseback transactions. The provisions
of SFAS No. 145 related to the rescission of SFAS No. 4,
Reporting Gains and Losses from Extinguishment of Debt, were
applied in fiscal years beginning after May 15, 2002. The
provisions of SFAS No. 145 related to SFAS No. 13 were
effective for transactions occurring after May 15, 2002. The
adoption of SFAS No. 145 had no effect on the Partnership's
financial statements.
In November 2002, FASB Interpretation No. 45, Guarantor's
Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness to Others, an
interpretation of FASB Statements No. 5, 57 and 107 and a
Rescission of FASB Interpretation No. 34, was issued. This
interpretation enhances the disclosures to be made by a
guarantor in its interim and annual financial statements about
its obligations under guarantees issued. The Interpretation
also clarifies that a guarantor is required to recognize, at
inception of a guarantee, a liability for the fair value of
the obligation undertaken. The initial recognition and
measurement provisions of the Interpretation were applicable
to guarantees issued or modified after December 31, 2002 and
the disclosure requirements were effective for financial
statements of interim or annual periods ending after December
31, 2002. Application of this Interpretation had no effect on
the Partnership's financial statements.
(Continued)
12
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
(4) INCOME ALLOCATION
All items of income, loss, deduction, and credit are allocated 99% to
the Limited Partners and 1% to the General Partners until the Limited
Partners have received aggregate cash distributions in an amount equal
to aggregate capital contributions as defined in the limited
partnership agreement. Thereafter, the General Partners receive 25% and
the Limited Partners are allocated 75% of partnership income and
losses. Cash distributions from operations will be allocated in
accordance with the net income and net loss percentages then in effect.
Prior to the General Partners receiving cash distributions from
operations for any year, the Limited Partners must receive cash
distributions in an amount equal to the lesser of (i) 50% of the
Limited Partners' allocable share of net income for such year or (ii)
the federal income tax payable on the Limited Partners' allocable share
of net income using the then highest marginal federal income tax rate
applicable to such net income. Any distributions other than from cash
flow, such as from the sale or refinancing of a system or upon
dissolution of the Partnership, will be determined according to
contractual stipulations in the Partnership Agreement.
The Limited Partners' total initial contributions to capital were
$24,893,000 ($500 per partnership unit). As of December 31, 2003,
$3,108,554 ($62.50 per partnership unit) had been distributed to the
Limited Partners, and the Partnership has repurchased $65,000 of
limited partnership units (130 units at $500 per unit).
(5) TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES
(a) MANAGEMENT FEES
The General Partner receives a fee for managing the
Partnership equal to 5% of the gross revenues of the
Partnership, excluding revenues from the sale of cable
television systems or franchises. Management fees charged to
continuing operations by the General Partner were $696,815,
$678,414, and $634,936, for 2003, 2002, and 2001,
respectively. Management fees charged to discontinued
operations by the General Partner were $56,495, $289,107 and
$294,751 in 2003, 2002 and 2001, respectively. Management fees
are included as a component of general and administrative
expenses in the accompanying statements of operations.
(b) REIMBURSEMENTS
The General Partner provides or causes to be provided certain
centralized services to the Partnership and other affiliated
entities. The General Partner is entitled to reimbursement
from the Partnership for various expenses incurred by it or
its affiliates on behalf of the Partnership allocable to its
management of the Partnership, including travel expenses, pole
and site rental, lease payments, legal expenses, billing
expenses, insurance, governmental fees and licenses,
headquarters' supplies and expenses, pay television expenses,
equipment and vehicle charges, operating salaries and
expenses, administrative salaries and expenses, postage and
office maintenance.
The amounts billed to the Partnership are based on costs
incurred by the General Partner in rendering the services. The
costs of certain services are charged directly to the
Partnership, based upon the personnel time spent by the
employees rendering the service. The cost of other services is
allocated to the Partnership and affiliates based upon
relative size and revenue. Management believes that the
methods used to allocate services to the Partnership are
reasonable. Amounts charged to continuing
(Continued)
13
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
operations for these services were $857,809, $796,849, and
$657,363, for 2003, 2002, and 2001, respectively. Amounts
charged to discontinued operations for these services were
$65,802, $293,126 and $315,678 in 2003, 2002 and 2001,
respectively.
The Partnership has entered into operating management
agreements with certain affiliates managed by the General
Partner. Under the terms of these agreements, the Partnership
or an affiliate serves as the managing agent for certain cable
television systems and is reimbursed for certain operating,
programming, and administrative expenses. The Partnership's
continuing operations include $101,813, $107,689, and
$140,027, net of payment made, under the terms of these
agreements during 2003, 2002, and 2001, respectively. The
Partnership's discontinued operations include $10,936, $38,056
and $42,043 of costs, under the terms of these agreements
during 2003, 2002 and 2001, respectively.
Northland Cable Service Corporation (NCSC), an affiliate of
the General Partner, was formed to provide billing system
support to cable systems owned and managed by the General
Partner. In addition, NCSC provides technical support
associated with the build out and upgrade of Northland
affiliated cable systems. Cable Ad Concepts, a subsidiary of
NCSC, assists in the development of local advertising as well
as billing for video commercial advertisements to be cablecast
on Northland affiliated cable systems. In 2003, 2002, and
2001, the Partnership's continuing operations include
$103,464, $200,504, and $304,272, respectively, for these
services. Of this amount, $8,256 and $125,792 were capitalized
in 2003 and 2002, respectively, related to the build out and
upgrade of cable systems. The Partnership's discontinued
operations include $31,371, $158,427, and $127,132 in 2003,
2002 and 2001, respectively, for these services. None of these
amounts were capitalized.
(c) DUE FROM AFFILIATES
The receivable from the affiliates consists of the following:
DECEMBER 31
-----------------
2003 2002
------- ------
Reimbursable operating costs, net $28,670 30,104
Other amounts due from affiliates, net 38,572 4,272
------- ------
$67,242 34,376
======= ======
(d) DUE TO GENERAL PARTNER AND AFFILIATES
The payable to the General Partner and affiliates consists of
the following:
DECEMBER 31
----------------------
2003 2002
--------- -------
Management fees $ (27,100) 405,247
Reimbursable operating costs, net 68,403 518,750
Other amounts due to General Partner and affiliates, net 10,490 49,026
--------- -------
$ 51,793 973,023
========= =======
(Continued)
14
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
(6) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
DECEMBER 31
-------------------------
2003 2002
----------- ----------
Land and buildings $ 885,708 968,357
Distribution plant 23,444,488 37,863,988
Other equipment 2,107,671 2,844,071
Leasehold improvements 26,178 31,593
Construction in progress 124,095 20,955
----------- ----------
$26,588,140 41,728,964
=========== ==========
(7) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consists of the following:
DECEMBER 31
-----------------------
2003 2002
---------- ---------
Accounts payable $ 138,505 93,194
Program license fees 368,285 1,142,669
Interest 186,244 338,865
Franchise fees 205,942 333,318
Pole rental 109,656 223,645
Payroll 65,384 106,043
Taxes 88,788 184,071
Copyright fees 30,486 44,760
Other 5,544 32,937
---------- ---------
$1,198,834 2,499,502
========== =========
(8) NOTE PAYABLE
On November 6, 2003, the Partnership refinanced its existing credit
facility with a new lender, referred to herein as the Refinanced Credit
Facility. In connection with terminating the former credit facility,
the Partnership wrote off remaining loan fee assets and accrued
interest liabilities, which resulted in a gain on extinguishment of
debt of $35,591. The Refinanced Credit Facility establishes a term loan
in the amount of $21,500,000, the proceeds from which were used to
repay the Partnership's existing credit facilities, to provide working
capital and for other general purposes. The Refinanced Credit Facility
matures on March 31, 2009 and requires the Partnership to make
quarterly principal payments beginning March 31, 2004.
The interest rate per annum applicable to the Refinanced Credit
Facility is a fluctuating rate of interest measured by reference to
either: (i) the U.S. dollar prime commercial lending rate announced by
the lender ("Base Rate"), plus a borrowing margin; or (ii) the London
interbank offered rate ("LIBOR"), plus a borrowing margin. The
applicable borrowing margins vary, based on the Partnership's leverage
ratio from 2.75% to 3.50% for Base Rate loans and from 3.75% to 4.50%
for LIBOR loans.
(Continued)
15
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
In addition, in the event the Partnership prepays the Refinanced Credit Facility
in excess of $5,375,000 prior to the third anniversary of the closing of the
refinancing transaction, the Partnership would be required to pay a Prepayment
Fee to the lender, as defined by the terms of the Refinanced Credit Facility.
Details of the Partnership's note payable are as follows:
2003 2002
----------- ----------
Term loan, collateralized by a first lien position on all present
and future assets of the Partnership. Interest rates vary;
5.67% at December 31, 2003. Graduated principal payments
plus interest are due quarterly beginning March 31, 2004
until maturity on March 31, 2009. $21,500,000 39,800,000
Term loan, secured by parcel of land purchased with proceeds.
This loan was paid off in full upon completion of the
refinance transaction described above. -- 158,106
Term loan, secured by parcel of land purchased with proceeds.
This loan was paid off in full upon completion of
the refinance transaction described above -- 96,079
----------- ----------
$21,500,000 40,054,185
=========== ==========
Annual maturities of the note payable after December 31, 2003, are as follows:
2004 $ 3,225,000
2005 3,440,000
2006 3,655,000
2007 4,515,000
2008 5,375,000
2009 1,290,000
-----------
$21,500,000
===========
The Refinanced Credit Facility contains a number of covenants, which among other
things, require the Partnership to comply with specified financial ratios,
including maintenance, as tested on a quarterly basis, of: (A) a Maximum Total
Leverage Ratio (the ratio of Funded Debt to Annualized EBITDA (as defined)) of
not more than 4.75 to 1.00 initially, decreasing over time to 3.50 to 1.00; (B)
a Minimum Interest Coverage Ratio (the ratio of Annualized EBITDA (as defined)
to aggregate Interest Expense for the immediately preceding four consecutive
fiscal quarters) of not less than 2.50 to 1.00 initially, increasing over time
to 3.50 to 1.00; (C) a Minimum Total Debt Service Coverage Ratio (the ratio of
Annualized EBITDA (as defined) to the Partnership's debt service obligations for
the following twelve months) of not less than 1.00 to 1.00 initially, increasing
over time to 1.10 to 1.00; and (D) Maximum Capital Expenditures of not more than
$850,000 in the fourth quarter of 2003, and $2,500,000 in each subsequent fiscal
year. As of December 31, 2003, the Partnership was in compliance with the
covenants required by the Refinanced Credit Facility.
(Continued)
16
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
(9) INCOME TAXES
Income taxes have not been recorded in the accompanying financial
statements because they are obligations of the partners. The federal
and state income tax returns of the Partnership are prepared and filed
by the General Partner.
The tax returns, the qualification of the Partnership as such for tax
purposes, and the amount of distributable partnership income or loss
are subject to examination by federal and state taxing authorities. If
such examinations result in changes with respect to the Partnership's
qualification or in changes with respect to the income or loss, the tax
liability of the partners would likely be changed accordingly.
There was no taxable income to the Limited Partners in any of the three
years in the period ended December 31, 2003. Generally, subject to the
allocation procedures discussed in the following paragraph, taxable
income to the Limited Partners is different from that reported in the
statement of operations principally due to the differences in
depreciation and amortization expense allowed for tax purposes and that
amount recognized under accounting principles generally accepted in the
United States of America. Traditionally, there were no other
significant differences between taxable income and the net loss
reported in the statements of operations.
The Partnership agreement provides that tax losses may not be allocated
to the Limited Partners if such loss allocation would create a deficit
in the Limited Partners' Capital Account. Such excess losses are
reallocated to the General Partner (Reallocated Limited Partner
Losses). In subsequent years, 100% of the Partnership's net income is
allocated to the General Partner until the General Partner has been
allocated net income in amounts equal to the Reallocated Limited
Partner Losses.
Under current federal income tax laws, a partner's allocated share of
tax losses from a partnership is allowed as a deduction on his
individual income tax return only to the extent of the partner's
adjusted basis in his partnership interest at the end of the tax year.
Any excess losses over adjusted basis may be carried forward to future
tax years and are allowed as deductions to the extent the partner has
an increase in his adjusted basis in the Partnership through either an
allocation of partnership income or additional capital contributions to
the Partnership.
In addition, current tax law does not allow a taxpayer to use losses
from a business activity in which he does not materially participate (a
passive activity, e.g., a Limited Partner in a limited partnership) to
offset other income such as salary, active business income, dividends,
interest, royalties, and capital gains. However, such losses can be
used to offset other income from passive activities. Disallowed losses
can be carried forward indefinitely to offset future income from
passive activities. Disallowed losses can be used in full when the
taxpayer recognizes gain or loss upon the disposition of his entire
interest in the passive activity.
(Continued)
17
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
(10) COMMITMENTS AND CONTINGENCIES
(a) LEASE ARRANGEMENTS
The Partnership leases certain office facilities and other
sites under leases accounted for as operating leases. Rental
expense attributable to continuing operations, related to
these leases was $39,983, $38,365, and $38,374, in 2003, 2002,
and 2001, respectively. Rental expense attributable to
discontinued operations, related to these leases was $7,065,
$36,106, and $36,485, in 2003, 2002, and 2001, respectively.
Minimum lease payments through the end of the lease terms are
as follows:
2004 $49,104
2005 35,904
2006 13,038
2007 708
-------
$98,754
=======
The Partnership also rents utility poles in its operations.
Generally, pole rentals are cancelable on short notice, but
the Partnership anticipates that such rentals will recur. Rent
expense incurred for pole rentals attributable to continuing
operations for the years ended December 31, 2003, 2002 and
2001 was $172,742, $192,720 and $195,686. Rent expense
incurred for pole rentals attributable to discontinued
operations for the years ended December 31, 2003, 2002 and
2001 was $29,440, $137,536 and $141,242.
(b) EFFECTS OF REGULATIONS
The operation of a cable system is extensively regulated at
the federal, local, and, in some instances, state levels. The
Cable Communications Policy Act of 1984, the Cable Television
Consumer Protection and Competition Act of 1992 (the 1992
Cable Act), and the 1996 Telecommunications Act (the 1996
Telecom Act, and, collectively, the Cable Act) establish a
national policy to guide the development and regulations of
cable television systems. The Federal Communications
Commission (FCC) has principal responsibility for implementing
the policies of the Cable Act. Many aspects of such regulation
are currently the subject of judicial proceedings and
administrative or legislative proposals. Legislation and
regulations continue to change.
Cable Rate Regulation - Although the FCC established the rate
regulatory scheme pursuant to the 1992 Cable Act, local
municipalities, commonly referred to as local franchising
authorities, are primarily responsible for administering the
regulation of the lowest level of cable service called the
basic service tier. The basic service tier typically contains
local broadcast stations and public, educational, and
government access channels. Before a local franchising
authority begins basic service rate regulation, it must
certify to the FCC that it will follow applicable federal
rules. Many local franchising authorities have voluntarily
declined to exercise their authority to regulate basic service
rates.
(Continued)
18
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
In a particular effort to ease the regulatory burden on small cable systems, the
FCC created special rate rules applicable for systems with fewer than 15,000
subscribers owned by an operator with fewer than 400,000 subscribers. The
special rate rules allow for a simplified cost-of-service showing for basic
service tier programming. All of Northland's systems are eligible for these
simplified cost-of-service rules, and have calculated rates in accordance with
those rules.
Electric Utility Entry into Telecommunications and Cable Television - The 1996
Telecom Act provides that registered utility holding companies and subsidiaries
may provide telecommunications services, including cable television,
notwithstanding the Public Utility Holding Company Act. Electric utilities must
establish separate subsidiaries, known as "exempt telecommunications companies"
and must apply to the FCC for operating authority. Like telephone companies,
electric utilities have substantial resources at their disposal, and could be
formidable competitors to traditional cable systems. Several of these utilities
have been granted broad authority to engage in activities that could include the
provision of video programming.
Must Carry and Retransmission Consent - The 1992 Cable Act contains broadcast
signal carriage requirements. Broadcast signal carriage is the transmission of
broadcast television signals over a cable system to cable customers. These
requirements, among other things, allow local commercial television broadcast
stations to elect once every three years between "must carry" status or
"retransmission consent" status. Less popular stations typically elect must
carry, which is the broadcast signal carriage rule that allows local commercial
television broadcast stations to require a cable system to carry the station.
Must carry requests can dilute the appeal of a cable system's programming
offerings because a cable system with limited channel capacity may be required
to forego carriage of popular channels in favor of less popular broadcast
stations electing must carry. More popular stations, such as those affiliated
with a national network, typically elect retransmission consent, which is the
broadcast signal carriage rule that allows local commercial television broadcast
stations to negotiate terms (such as mandating carriage of an affiliated cable
network or a digital broadcast signal) for granting permission to the cable
operator to carry the stations. Retransmission consent demands may require
substantial payments or other concessions.
Access Channels - Local franchising authorities can include franchise provisions
requiring cable operators to set aside certain channels for public, educational
and governmental access programming. Federal law also requires cable systems to
designate a portion of their channel capacity, up to 15% in some cases, for
commercial leased access by unaffiliated third parties. The FCC has adopted
rules regulating the terms, conditions and maximum rates a cable operator may
charge for commercial leased access use.
Inside Wiring - In an order issued in 1997, the FCC established rules that
require an incumbent cable operator upon expiration of a multiple dwelling unit
service contract to sell, abandon or remove "home run" wiring that was installed
by the cable operator in a multiple dwelling unit building. These inside wiring
rules are expected to assist building owners in their attempts to replace
existing cable operators with new programming providers who are willing to pay
the building owner a fee, where this fee is permissible.
(Continued)
19
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
State and Local Regulation - Cable television systems generally are
operated pursuant to nonexclusive franchises granted by a municipality
or other state or local government entity in order to cross public
rights-of-way. Federal law now prohibits local franchising authorities
from granting exclusive franchises or from unreasonably refusing to
award additional or renew existing franchises.
Cable franchises generally are granted for fixed terms and in many
cases include monetary penalties for noncompliance and may be
terminable if the franchisee fails to comply with material provisions.
The specific terms and conditions of franchises vary materially among
jurisdictions. Each franchise generally contains provisions governing
cable operations, service rates, franchising fees, system construction
and maintenance obligations, system channel capacity, design and
technical performance, customer service standards, and indemnification
protections. A number of states subject cable systems to the
jurisdiction of centralized state governmental agencies, some of which
impose regulation of a character similar to that of a public utility.
Although local franchising authorities have considerable discretion in
establishing franchise terms, there are certain federal limitations.
For example, local franchising authorities cannot insist on franchise
fees exceeding 5% of the system's gross cable-related revenues, cannot
dictate the particular technology used by the system, and cannot
specify video programming other than identifying broad categories of
programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise
is renewed, the local franchising authority may seek to impose new and
more onerous requirements, such as significant upgrades in facilities
and service or increased franchise fees as a condition of renewal.
Historically, most franchises have been renewed and transfer consents
granted to cable operators that have provided satisfactory services and
have complied with the terms of their franchise.
(11) System Sale
On March 11, 2003, the Partnership sold the operating assets and
franchise rights of its Washington Systems. The Washington Systems were
sold at a price of approximately $20,340,000 of which the Partnership
received approximately $19,280,000 at closing. The sales price was
adjusted at closing for the proration of certain revenues and expenses
and approximately $1,060,000 will be held in escrow and released to the
Partnership one year from the closing of the transaction, subject to
general representations and warranties. As of December 31, 2003,
$1,120,494 related to this holdback and other amounts due were
reflected as system sale receivable in the accompanying balance sheet.
Historically, the Partnership has entered into similarly structured
transactions, and has collected the amount held in escrow.
Substantially all of the proceeds were used to pay down amounts
outstanding under the Partnership's credit agreement.
(Continued)
20
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
The sale was made pursuant to an offer by Wave Division Networks, LLC, which was
formalized in a Purchase and Sale Agreement dated October 28, 2002. Based on the
offer made by Wave Division Networks, LLC, management determined that acceptance
would be in the best economic interest of the Partnership, and that the sale was
not a result of declining or deteriorating operations nor was it necessary to
create liquidity or reduce outstanding debt. It is the opinion of management
that the Partnership could have continued existing operations and met all
obligations as they became due.
As of December 31, 2002, the transaction was subject to certain closing
conditions, including the prospective buyer obtaining and providing evidence of
financing sufficient to complete the transaction. As the sale of the assets was
not probable, the assets associated with the transaction were considered to be
held for use, as defined in SFAS No. 144, at December 31, 2002. In January 2003,
the prospective buyer provided the Partnership with the evidence of financing
and the transaction closed in March 2003 as discussed above.
The assets and liabilities attributable to the Washington Systems as of December
31, 2002 consist of the following:
Cash $ 157,838
Accounts receivable 242,211
Prepaid expense 15,819
Property and equipment (net of accumulated
depreciation of $10,816,079) 5,215,097
Franchise agreements (net of accumulated
amortization of $528,415) 961,053
Goodwill (net of accumulated amortization
of $70, 130) 152,799
----------
Total assets $6,744,817
==========
Accounts payable and accrued expenses 640,073
Deposits 2,025
Subscriber prepayments 356,192
----------
Total liabilities $ 998,290
==========
(Continued)
21
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
Notes to Financial Statements
December 31, 2003 and 2002
In addition, the revenue, expenses and other items attributable to the
operations of the Washington Systems for the period from January 1,
2003 to March 11, 2003 (the date of the sale of the Washington
Systems), and for the years ended December 31, 2002 and 2001 have been
reported as discontinued operations in the accompanying statements of
operations, and include the following:
2003 2002 2001
------------ ---------- ----------
Service revenues $ 1,129,917 5,782,162 5,895,024
Expenses:
Operating (including $16,803, $86,892
and $110,624 paid to affiliates in 2003,
2002 and 2001, respectively) 130,421 569,914 610,078
General and administrative (including
$121,130, $568,486 and $536,589
paid to affiliates in 2003, 2002 and
2001, respectively) 283,905 1,426,704 1,409,543
Programming (including $26,671,
$123,338 and $132,392 paid to affiliates
in 2003, 2002 and 2001, respectively) 388,584 1,839,631 1,572,563
Depreciation and amortization 183,930 1,162,847 1,067,137
------------ ---------- ----------
Income from operations 143,077 783,066 1,235,703
Other income (expense):
Interest expense and amortization of
loan fees (491,417) (1,846,422) (1,500,323)
Gain on sale of systems 14,027,857 -- -
------------ ---------- ----------
Income (loss) from operations of
Washington Systems, net $ 13,679,517 (1,063,356) (264,620)
============ ========== ==========
In accordance with EITF 87-24, "Allocation of Interest to Discontinued
Operations", the Partnership allocated interest expense to discontinued
operations using the historic weighted average interest rate applicable
to the Partnership's credit facility and approximately $18,713,000 in
principal payments, which were applied to the credit facility as a
result of the sale of the Washington Systems.
(12) SOLICITATION OF INTEREST FROM POTENTIAL BUYERS
The General Partner has been working with a nationally recognized
brokerage firm to solicit interest from potential buyers for the
Partnership's cable systems. In September 2003, the broker contacted
numerous potential purchasers and solicited their respective
expressions of interest. In response to that solicitation, several
qualified purchasers have expressed various degrees of interest in
purchasing one or more of the cable systems owned by the Partnership.
The General Partner is working to further clarify the level of interest
of each interested party, with a goal of determining which of those
parties is sufficiently committed to a possible purchase of the
systems. The General Partner will offer such parties a due diligence
review period, which will take place through April of 2004, and
anticipates that formal bids will be solicited and received once this
process is complete in May of 2004. Any bids received will then be
evaluated.
22