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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended June 30, 1995
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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Commission File Number: 0-16064
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Northland Cable Properties Four Limited Partnership
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(Exact Name of Registrant as Specified in Charter)
Washington 74-1998317
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(State of Organization) (I.R.S. Employer Identification No.)
1201 Third Avenue, Suite 3600, Seattle, Washington 98101
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(Address of Principal Executive Offices) (Zip Code)
(206) 621-1351
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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________________________
This filing contains __ pages. Exhibits index appears on page __.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
BALANCE SHEETS - (Unaudited)
(Prepared by the Managing General Partner)
June 30, December 31,
1995 1994
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ASSETS
Cash $ 263,665 $ 350,892
Accounts receivable 144,428 135,960
Prepaid expenses 88,518 56,210
Property and equipment, net of accumulated
depreciation of $12,754,050 and $12,415,608,
respectively 3,343,645 3,794,184
Intangible assets, net of accumulated
amortization of $1,318,802 and $1,260,062,
respectively 349,358 408,099
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Total assets $4,189,615 $4,745,345
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LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $553,052 $489,794
Due to managing general partner and affiliates 88,496 58,851
Converter deposits 32,507 31,995
Subscriber prepayments 55,725 138,196
Notes payable 9,194,878 9,784,068
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Total liabilities 9,924,658 10,502,904
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Partners' equity:
General Partners:
Contributed capital, net (49,394) (47,905)
Accumulated deficit (69,918) (71,632)
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(119,312) (119,537)
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Limited Partners:
Contributed capital, net 1,306,044 1,453,466
Accumulated deficit (6,921,775) (7,091,488)
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(5,615,731) (5,638,022)
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Total partners' equity (5,735,043) (5,757,559)
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Total liabilities and partners' equity $4,189,615 $4,745,345
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The accompanying note to unaudited financial statements is an integral part of
these statements.
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NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
For the six months ended June 30,
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1995 1994
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Service revenues $2,989,066 $2,779,292
Expenses:
Operating 374,962 360,614
General and administrative (including
$363,774 and $314,853 to affiliates
in 1995 and 1994, respectively) 745,087 720,526
Programming 620,267 516,425
Depreciation and amortization 709,390 824,946
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2,450,706 2,422,511
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Income from operations 538,360 356,781
Other income (expense):
Interest expense (365,087) (292,854)
Interest income 2,394 1,234
Loss on disposal of assets (4,240) -
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(366,933) (291,620)
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Net income $ 171,427 $ 65,161
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Allocation of net income:
General Partners $ 1,714 $ 652
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Limited Partners $ 169,713 $ 64,509
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Net income per limited partnership
unit: (14,663 units) $ 12 $ 4
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Net income per $1,000 investment $ 23 $ 9
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The accompanying note to unaudited financial statements is an integral part of
these statements.
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NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
For the three months ended June 30,
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1995 1994
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Service revenues $1,534,920 $1,402,528
Expenses:
Operating 203,122 192,335
General and administrative (including
$182,880 and $157,573 to affiliates
in 1995 and 1994, respectively) 385,269 352,976
Programming 327,274 259,145
Depreciation and amortization 287,566 412,784
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1,203,231 1,217,240
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Income from operations 331,689 185,288
Other income (expense):
Interest expense (177,805) (145,565)
Interest income 1,567 729
Loss on disposal of assets (4,515) -
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(180,753) (144,836)
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Net income $ 150,936 $ 40,452
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Allocation of net income:
General Partners $ 1,509 $ 405
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Limited Partners $ 149,427 $ 40,047
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Net income per limited partnership
unit: (14,663 units) $ 10 $ 3
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Net income per $1,000 investment $ 20 $ 5
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The accompanying note to unaudited financial statements is an integral part of
these statements.
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NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS - (Unaudited)
(Prepared by the Managing General Partner)
For the six months ended June 30,
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1995 1994
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $171,427 $ 65,161
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 709,390 824,946
Loss on disposition of assets 4,515 -
(Increase) decrease in operating assets:
Accounts receivable (8,468) 21,570
Prepaid expenses (32,308) 4,560
Increase (decrease) in operating liabilities:
Account payable and accrued expenses 63,258 176,441
Due to managing general partner and affiliates 29,645 30,703
Converter deposits 512 1,133
Subscriber prepayments (82,471) (66,602)
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Net cash from operating activities 855,500 1,057,912
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (204,627) (185,828)
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Net cash used in investing activities (204,627) (185,828)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings (589,189) (412,433)
Distributions to partners (148,911) (149,182)
Loan fees and other costs incurred - -
Repurchase of limited partner interest (31,000)
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Net cash used in financing activities (738,100) (592,615)
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INCREASE (DECREASE) IN CASH (87,227) 279,469
CASH, beginning of period 350,892 214,642
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CASH, end of period $263,665 $494,111
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $367,317 $322,356
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The accompanying note to unaudited financial statements is an integral part of
these statements.
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NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
NOTE TO UNAUDITED FINANCIAL STATEMENTS
(1) These unaudited financial statements are being filed in conformity with
Rule 10-01 of Regulation S-X regarding interim financial statement disclosure
and do not contain all of the necessary footnote disclosures required for a
fair presentation of the Balance Sheets, Statements of Operations and
Statements of Cash Flows in conformity with generally accepted accounting
principles. However, in the opinion of management, this data includes all
adjustments, consisting only of normal recurring accruals, necessary to present
fairly the Partnership's financial position at June 30, 1995 and December 31,
1994, its Statements of Operations for the six and three months ended June 30,
1995 and 1994, and its Statements of Cash Flows for the six months ended June
30, 1995 and 1994. Results of operations for these periods are not necessarily
indicative of results to be expected for the full year.
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PART I (continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Revenues totalled $1,534,920 for the three months ended June 30, 1995,
representing an increase of approximately 9% over the same period in 1994. Of
these revenues, $1,084,010 (71%) was derived from basic service charges,
$176,328 (12%) from premium services, $92,812 (6%) from tier services, $37,319
(2%) from installation charges, $51,704 (3%) from service maintenance contracts
and $92,747 (6%) from other sources. The revenue increase is due to an
increase in basic subscribers of approximately 4%, as well as revenue generated
from inflation based rate increases placed into effect in the latter part of
1994.
As of June 30, 1995, the Partnership's systems served approximately 16,300
basic subscribers, 6,000 premium subscribers and 5,100 tier subscribers.
Operating expenses totalled $203,122 for the three months ended June 30, 1995
representing an increase of approximately 6% over the same period in 1994. The
net increase is primarily due to increased salary and benefit costs as a result
of cost of living adjustments and the addition of two operating employees in
1995 offset by a decrease in overtime compensation.
General and administrative expenses totalled $385,269 for the three months
ended June 30, 1995, representing an increase of approximately 9% over the same
period in 1994. The increase is attributable to increased management,
franchise and copyright fees which are based on partnership revenues and
increases in wage and benefit costs.
Programming expenses totalled $327,274 for the three months ended June 30, 1995
representing an increase of approximately 26% over the same period in 1994.
This is mainly due to increased costs charged by various program suppliers,
increases in the subscriber base, as well as new channel launches in the
various systems.
Depreciation and amortization expense decreased approximately 30% as compared
to the same period in 1994. This is mainly due to assets becoming fully
depreciated during the second quarter of 1995.
Interest expense for the three months ended June 30, 1995 increased
approximately 22% as compared to the same period in 1994. The average bank
debt outstanding decreased from $10,402,718 during the second quarter of 1994
to $9,489,473 during the second quarter of 1995, however, the Partnership's
effective interest rate increased from 5.56% in 1994 to 7.24% in 1995.
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Liquidity and Capital Resources
The Partnership's primary source of liquidity is cash flow provided from
operations. Based on management's analysis, the Partnership's cash flow from
operations is sufficient to cover future operating costs, debt service and
planned capital expenditures.
Under the terms of the Partnership's loan agreement, the Partnership has agreed
to restrictive covenants which require the maintenance of certain ratios
including a maximum ratio of senior debt to annualized operating cash flow of
4.00 to 1 and a minimum ratio of annualized operating cash flow to pro forma
debt service of 1.25 to 1. As of June 30, 1995 the Partnership was in
compliance with its required financial covenants.
As of the date of this filing, the balance under the credit facility is
$9,194,876. Certain fixed rate agreements in place as of March 31, 1995
expired during the second quarter of 1995, and the Partnership entered into new
fixed rate agreements. As of the date of this filing, interest rates on the
credit facility were as follows: $4,200,000 at Libor based rate of 7.12%
expiring August 17, 1995; $1,898,376 fixed at 7.2% under the terms of a
self-amortizing interest rate swap agreement with the Partnership's lender
expiring September 6, 1995; and $3,000,000 fixed at 7.37% expiring August 8,
1995. The balance of $96,500 bears interest at the prime rate plus 1/4%
(currently 9.00%). The above rates include a margin paid to the lender based
on overall leverage, and may increase or decrease as the Partnership's leverage
fluctuates.
Capital Expenditures
During the second quarter of 1995, the Partnership incurred approximately
$155,000 in capital expenditures, including line extensions and channel
additions in the Chowchilla, CA system and the Tyler, TX system. Planned
capital expenditures for the balance of 1995 include line extensions to pass an
additional 400 homes in the various systems, vehicle replacements, the initial
phases of a system upgrade to 450 MHz and mapping of the New Caney, TX system,
and a possible fiber interconnect of the Flint and Lake Palestine headends in
the Tyler, TX system.
Acquisition of Assets
On April 10, 1995, Northland Telecommunications Corporation, an affiliate of
the Partnership entered into an agreement to acquire substantially all
operating assets and franchise rights of the cable television systems in or
around the communities of Kaufman, Oak Grove, Hillsboro, Mt. Calm, Rice,
Mildred/Eureka, Wortham, Mexia, Lake Mexia, Tehuacana, Coolidge, Groesbeck,
Jewett, New Waverly and Waterwood, all in the State of Texas. The cable
television systems are owned and operated by SLT TV Cable, Inc.
The Partnership will acquire approximately 3,400 subscribers in or around the
communities of Kaufman, Oak Grove, Hillsboro, New Waverly and Waterwood, Texas
(the "SLT System"), and the remaining cable television systems will be acquired
by an affiliate of the Partnership. The estimated purchase price of the
systems is $4,400,000 and the closing date is anticipated on or
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about August 31, 1995.
The Partnership has received terms from a bank to refinance its existing debt,
increasing the total facility to $23,000,000. The Partnership will use the
proceeds to repay the previous credit facility, finance the acquisition of the
SLT System and provide working capital.
Effects of Regulation
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Act"). The 1992 Act substantially
reregulated the cable television industry and imposed numerous requirements,
including provisions subjecting rates for certain services and equipment to
regulation by the applicable local franchising authority and by the Federal
Communications Commission ("FCC"), exclusive programming arrangements, the
carriage of broadcast signals, customer service standards, leased access
channels, customer premises equipment compatibility and various other matters.
On April 1, 1993, the FCC announced the adoption of rate regulations which
became effective September 1, 1993. Under those initial regulations, rates
were evaluated against "competitive benchmarks" and were generally subject to
rollbacks if they exceeded the benchmark levels. On February 22, 1994, the FCC
substantially revised the rate regulation rules to effect further rate
reductions effective May 15, 1994, or later in certain circumstances, based on
complex formulas and revised benchmarks.
All of the Partnership's cable systems are potentially subject to rate
regulation. The 1992 Act (i) requires the FCC to establish rate standards for
basic cable service rates which may be regulated by the applicable local
franchising authority, (ii) requires the FCC, upon receipt of a complaint, to
review rates for additional tiers of cable service, (iii) regulates rates for
mandatorily offered commercial leased access channels and (iv) eliminates the
automatic five percent annual increase for basic rates allowed under prior law.
Rates for channels offered on a per-channel basis as individual purchase
options and pay-per-view events are excluded from rate regulation.
Basic service rates, including the equipment used to receive basic service, may
be regulated by a local franchising authority once it has been "certified" by
the FCC. When the certification becomes effective, the local franchise
authority may request the cable operator to justify its existing rates charged
for basic service and related equipment ("request for justification" or "RFJ").
Rates charged in excess of the maximum allowable rates determined under FCC
regulations are subject to refund for the period in which the excess rates were
charged or one year, whichever is shorter. Additional tiers of service are
subject to regulation only upon an appropriately filed complaint to the FCC by
any subscriber, franchising authority or other person ("subscriber
complaints"). If no subscriber complaints are filed within 45 days of a change
in the FCC regulated rates, such rates are not subject to challenge unless and
until the cable operator seeks to modify them. Refund liability, if any,
generally would be limited to any incremental increase in rates. In late 1994,
the FCC revised its rules to permit cable operators to offer New Product Tiers
at rates which they elect so long as, among other conditions, other channels
that are subject to rate regulation are priced in conformity with applicable
regulations and cable operators do not remove programming services from
existing service tiers and offer
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them on the New Product Tier.
On May 5, 1995, the FCC announced the adoption of a simplified set of
rate regulation rules that will apply to "small" cable systems, defined as a
system serving 15,000 or fewer subscribers, that are owned by "small"
companies, defined as a company serving 400,000 or fewer subscribers. Under
the FCC's definition, the Partnership is a "small" company and each of the
Partnership's cable systems are "small" systems. As of the date of this
filing, the FCC has not released the text of its new rules so the Partnership
is unable to determine the ultimate effects of the regulatory change. Based on
the FCC's public comments, however, the new rules are anticipated to provide a
significant degree of relief from rate regulation for the Partnership's
systems.
As of the date of this filing, the Partnership has received
notification that local franchising authorities with jurisdiction over
approximately 4% of the Partnership's subscribers have elected to certify and
subscriber complaints have been filed in systems representing 2% of the
Partnership's total subscribers. Based on management's analysis, the rates
charged by these systems are within the maximum rates allowed under FCC rate
regulations.
Future rate increases under this regulatory environment will be
dependent on several factors including the level of inflation as measured by
the annual change in the GNP-PI index, increases in "external costs" as defined
by the FCC and possible changes to the existing rules regarding rate increases
associated with the launch of new services on regulated tiers. Because of the
uncertainties associated with these factors the future impact of rate
regulation on the Partnership's results of operations cannot be determined at
this time. Management feels it is reasonably possible under the price cap
mechanism that operating margins will stabilize and perhaps increase in future
periods as inflation and external cost increases are allowed to be passed
through to subscribers through rate adjustments.
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PART II - OTHER INFORMATION
ITEM 1 Legal proceedings
None
ITEM 2 Changes in securities
None
ITEM 3 Defaults upon senior securities
None
ITEM 4 Submission of matters to a vote of security holders
None
ITEM 5 Other information
None
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibit index
10.37 Asset Purchase Agreement between Northland Telecommunications
Corporation and SLT Cable TV, Inc., dated April 10, 1995.
27.0 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended
June 30, 1995.
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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.
NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: BY: /s/ RICHARD I. CLARK
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Richard I. Clark
(Vice President/Treasurer)
Dated: BY: /s/ GARY S. JONES
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Gary S. Jones
(Vice President)
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