1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) DECEMBER 20, 1995
_________________
NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
___________________________________________________
(Exact name of registrant as specified in charter)
STATE OF WASHINGTON 0-16065 91-1302403
___________________ _______ __________
(State or other jurisdiction of (Commission (IRS Employer
of incorporation) File Number) Identification No.)
NORTHLAND COMMUNICATIONS CORPORATION
3600 WASHINGTON MUTUAL TOWER
1201 THIRD AVENUE, SEATTLE, WASHINGTON 98101
____________________________________________
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (206) 621-7244
______________
N.A.
____
(Former name or former address, if changed since last report)
This filing contains ______ pages. Exhibits Index appears on page ______.
2
NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
ITEM 2. ACQUISITION OF ASSETS
On August 15, 1995, Northland Cable Properties Five Limited Partnership
(the "Registrant") entered into separate agreements to acquire substantially all
operating assets and franchise rights of the cable television systems in or
around the communities of Ellenboro, Bostic, Gilkey and Harris, all in the State
of North Carolina (the "Phoenix system"). The cable television systems represent
approximately 2,400 basic subscribers and were owned by Phoenix Cable Income
Fund and PCI One Incorporated. The assets were acquired on December 20, 1995 for
the purchase prices of $2,932,000 and $1,301,000 for the Ellenboro, and the
Gilkey and Harris systems, respectively. Of the total purchase price of
$4,126,407 was paid at the closing date and the balance of $106,593 will be paid
120 days after the closing date, net of any purchase price adjustments, under
the terms of a subordinated, non-interest bearing hold-back note. The purchase
price is based on Seller's representations as to monthly revenues and the number
of basic subscribers as of the closing date. There is no material relationship
between the Registrant and the Seller or any of their affiliates, directors,
officers or associates.
The cable television system assets acquired were used by the Seller to
provide cable television service to the subscribers of the communities described
below. The Registrant intends to continue such use.
FINANCING
The purchase was financed by borrowings under the Registrant's
revolving credit and term loan facility. At the time of this filing, the balance
outstanding under the credit facility is $21,481,554. The interest rates on the
credit facility were as follows: $17,000,000 fixed at 8.00% under the terms of a
self-amortizing interest rate swap agreement with the Registrant's lender
expiring December 8, 1997. The balance of $4,481,554 bears interest at the prime
rate plus 1.38% (currently at 9.88%). The above rates include a margin paid to
the lender based on overall leverage, and may increase or decrease as the
Registrant's leverage fluctuates.
PROFILE OF THE PHOENIX SYSTEM
The Phoenix system serves the communities of Ellenboro, Bostic, Gilkey
and Harris, located in southwest North Carolina.
The communities are located in Rutherfordton County, North Carolina.
This region is known for its year-round moderate climate and agriculture is a
major contributor to the local economy.
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
2
3
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 Registrant'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 them on the New Product Tier.
On May 5, 1995, the FCC announced the adoption of a simplified set of
alternative 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 Registrant is a "small" company and each of the
Registrant's cable systems are "small" systems. Maximum permitted rates under
these revised rules is dependent on several factors including the number of
regulated channels offered, net asset basis of plant and equipment used to
deliver regulated services, the number of subscribers served and a reasonable
rate of return.
As of the date of this filing, no local franchising authorities have
elected to certify, no RFJ's have been received from franchise authorities, and
two subscriber complaints have been filed in a system representing 17% of the
Registrant's total subscribers. Based on management's analysis, the rates
charged by these systems are within the maximum rates allowed under FCC rate
regulations.
3
4
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 Registrant'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 adjustment.
4
5
SUBSCRIBER SUMMARY
(As of December 20, 1995)
Estimated Homes Passed: 3,700
Basic Subscribers:
Basic 2,414
Bulk Equivalent -
-----
Total 2,414
=====
% of Homes Passed 65%
CURRENT RATES
(excluding franchise fees, including sales tax)
Basic 22.13
HBO 9.95
Cinemax 9.95
Disney 9.95
Showtime 9.95
Installation 43.75
Reconnect fee 26.25
Transfer fee 26.25
Install extra outlet 26.25
5
6
CHANNEL LINE-UP - ELLENBORO, NORTH CAROLINA
CABLE OFF-AIR NETWORK
CHANNEL CHANNEL STATION (LOCATION)
- ------- ------- ------- ----------
2 Showtime
3 3 WBTV CBS (Charlotte, NC)
4 4 WYFF NBC (Greenville, SC)
5 Home Box Office
6 33 WUNF PBS (Asheville, NC)
7 7 WSPA CBS (Spartanburg, NC)
8 The Nashville Network
9 9 WGN IND (Chicago, IL)
10 CNN
11 21 WHNS FOX (Asheville, NC)
12 ESPN
13 13 WLOS ABC (Asheville, NC)
14 Local Origination
15 Local Origination
16 16 WGGS IND (Greensville, SC)
17 17 WTBS IND (Atlanta, GA)
18
19 Nickelodeon
20 MTV Networks
21 QVC Networks
22 USA Networks
23 Cinemax
24 The Discovery Channel
25 The Disney Channel
26 The Family Channel
27 46 WJZY IND (Charlotte, NC)
28 Country Music Television
29 29 WNTV PBS (Greenville, SC)
30 Arts & Entertainment
31 The Weather Channel
32 C-Span
33 CNBC
34 TNT
35 49 WRET PBS (Spartanburg, NC)
36 Lifetime Network
37 SportSouth
38 Turner Classic Movie
39 Sci Fi Channel
40 9 WOR IND (New York, NY)
41 Cartoon Network
42 The Learning Channel
6
7
CHANNEL LINE-UP - HARRIS, NORTH CAROLINA
CABLE OFF-AIR NETWORK
CHANNEL CHANNEL STATION (LOCATION)
- ------- ------- ------- ----------
2 Showtime
3 3 WBTV CBS (Charlotte, NC)
4 4 WYFF NBC (Greenville, SC)
5 Home Box Office
6 ESPN
7 7 WSPA CBS (Spartanburg, NC)
8 46 WJZY IND (Charlotte, NC)
9 21 WHNS FOX (Asheville, NC)
10 Lifetime
11 Nickelodeon
12 33 WUNF PBS (Asheville, NC)
13 13 WLOS ABC (Asheville, NC)
14 The Nashville Network
15 The Family Channel
16 The Weather Channel
17 9 WGN IND (Chicago, IL)
18 TNT
19 16 WGGS IND (Greenville, SC)
20 CNN
21 MTV Networks
22 Country Music Television
23 The Disney Channel
24 The Discovery Channel
25 SportSouth
26 17 WTBS IND (Atlanta, GA)
27 49 WRET PBS (Spartanburg, NC)
28 USA Network
29 29 WNTV PBS (Spartanburg, NC)
30 Turner Classic Movies
31 9 WOR IND (New York, NY)
32 Cartoon Network
33 The Learning Channel
34 QVC Network
7
8
CHANNEL LINE-UP - GILKEY, NORTH CAROLINA
CABLE OFF-AIR NETWORK
CHANNEL CHANNEL STATION (LOCATION)
- ------- ------- ------- ----------
2 Showtime
3 3 WBTV CBS (Charlotte, NC)
4 4 WYFF NBC (Greenville, SC)
5 Home Box Office
6 ESPN
7 7 WSPA CBS (Spartanburg, NC)
8 46 WJZY IND (Charlotte, NC)
9 33 WUNF PBS (Asheville, NC)
10 21 WHNS FOX (Asheville, NC)
11 Lifetime
12 13 WLOS ABC (Asheville, NC)
13 Nickelodeon
14 CNN
15 The Nashville Network
16
17 17 WTBS IND (Atlanta, GA)
18 USA Network
19 The Discovery Channel
20 MTV Networks
21 29 WNTV PBS (Greenville, SC)
22 9 WGN IND (Chicago, IL)
23 The Disney Channel
24 VH-1
25 TNT
26 Turner Classic Movies
27 9 WOR IND (Seaaucus, NJ)
28 Country Music Television
29 The Family Channel
30 QVC Network
8
9
FRANCHISE AGREEMENTS
The Systems operate under the terms of following franchise agreements:
FRANCHISE EXPIRATION DATE FRANCHISE FEE
Town of Ellenboro 07/12/2008 3%
Town of Bostic 11/09/2008 3%
Rutherford County 11/06/2014 3%
Rutherford County (Ellenboro, Bostic, 06/04/1999 3%
nearby unincorporated Rutherford
County)
Rutherford County ( Harris, Gilkey and 06/05/2008 5%
nearby unincorporated Rutherford
County)
9
10
Sequentially
Numbered
Page
------------
Item 7. Financial Statements, Pro Forma
Financial Statements and Exhibits
(a) Financial Statements of Friendship Cablevision
and Ellenboro Cablevision
For Years Ended 1995 and 1994
Report of Independent Public Accountants
Combined Balance Sheet as of June 30,
1995 and 1994
Combined Statements of Operations for Years
Ended June 30, 1995 and 1994
Combined Statements of Changes in Owner's
Equity (Deficit) for Years Ended June 30,
1995 and 1994
Combined Statements of Cash Flows for Years
Ended June 30, 1995 and 1994
Notes to Combined Financial Statements for the
Year Ended June 30, 1995
For the Three Months Ended September 30, 1995 and 1994
Unaudited Combined Balance Sheets as of
September 30, 1995 and 1994
Unaudited Combined Statements of Operations
for Three Months Ended September 30, 1995
and 1994
Combined Statements of Changes in Owner's
Equity (Deficit) for Year Ended June 30, 1995
and Three Months Ended September 30, 1995
Unaudited Combined Statements of Cash Flows
for the Three Months Ended September 30,
1995 and 1994
(b) Pro Forma Financial Statements
Introduction
Unaudited Pro Forma Balance Sheet at September 30,
1995
10
11
Unaudited Pro Forma Statement of Operations for
the Nine Months Ended September 30, 1995
Unaudited Pro Forma Statement of Operations for
the Year Ended December 31, 1994
Notes to Unaudited Financial Statements for the Year
Ended December 31, 1994
11
12
FRIENDSHIP CABLEVISION AND
ELLENBORO CABLEVISION
COMBINED FINANCIAL STATEMENTS
AS OF JUNE 30, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
13
[LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Phoenix Cable Incorporated:
We have audited the accompanying combined balance sheets of Friendship
Cablevision and Ellenboro Cablevision (cable television systems owned by Phoenix
Cable Incorporated) as of June 30, 1995 and 1994, and the related combined
statements of operations, changes in owner's deficit and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Friendship Cablevision and
Ellenboro Cablevision as of June 30, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN, LLP
San Francisco, California,
October 20, 1995
14
FRIENDSHIP CABLEVISION AND ELLENBORO CABLEVISION
COMBINED BALANCE SHEETS
June 30,
1995 1994
---------- ----------
Cash and cash equivalents $ 29,323 $ 29,666
Receivables:
Trade and other (net of allowance for doubtful accounts of $5,970 and
$2,739 at June 30, 1995 and 1994, respectively 23,150 23,403
Due from affiliates 161,090 229,821
Property, cable systems and equipment (net of accumulated depreciation of
$991,925 and $803,751 at June 30, 1995 and 1994, respectively) 1,455,716 1,547,991
Cable subscriber lists (net of accumulated amortization of $219,560 and
$191,851 at June 30, 1995 and 1994 respectively) -- 27,709
Cable franchise rights and other intangible assets (net of accumulated
amortization of $288,447 and $253,955 at June 30, 1995 and 1994
respectively) 267,044 301,536
Other Assets 1,312 10,779
---------- ----------
Total Assets $1,937,635 $2,170,905
========== ==========
LIABILITIES AND OWNER'S DEFICIT
Liabilities:
Accounts payable and accrued expenses $ 62,191 $ 107,010
Notes payable 1,942,813 2,081,437
Subscriber prepayments and deposits 20,823 24,902
---------- ----------
Total Liabilities 2,025,827 2,213,349
Owner's deficit (88,192) (42,444)
---------- ----------
Total Liabilities and Owner's deficit $1,937,635 $2,170,905
========== ==========
The accompanying notes are an integral
part of these financial statements.
15
FRIENDSHIP CABLEVISION AND ELLENBORO CABLEVISION
COMBINED STATEMENTS OF OPERATIONS
Years Ended
June 30,
1995 1994
--------- ---------
REVENUE $ 782,101 $ 743,395
(EXPENSE)
Program service (192,947) (173,006)
General and administrative (144,792) (163,234)
Home office (87,702) (87,364)
Depreciation and amortization (250,375) (242,249)
--------- ---------
Operating income 106,285 77,542
OTHER INCOME (EXPENSES)
Interest expense (155,437) (137,723)
Interest income 3,404 1,253
--------- ---------
Total other expenses (152,033) (136,470)
--------- ---------
Loss before benefit for income taxes (45,748) (58,928)
Benefit for income taxes 15,939 11,897
--------- ---------
Net loss $ (29,809) $ (47,031)
========= =========
The accompanying notes are an integral
part of these financial statements.
16
FRIENDSHIP CABLEVISION AND ELLENBORO CABLEVISION
COMBINED STATEMENTS OF CHANGES IN OWNER'S EQUITY (DEFICIT)
Retained Earnings (Deficit)
---------------------------
Balance, June 30, 1993 $ 16,484
Income tax benefit transferred to parent (11,897)
Net loss (47,031)
--------
Balance, June 30, 1994 (42,444)
Income tax benefit transferred to parent (15,939)
Net loss (29,809)
--------
Balance, June 30, 1995 $(88,192)
========
The accompanying notes are an integral
part of these financial statements.
17
FRIENDSHIP CABLEVISION AND ELLENBORO CABLEVISION
COMBINED STATEMENTS OF CASH FLOW
Year Ended
June 30,
1995 1994
--------- ---------
OPERATING ACTIVITIES:
Net loss $ (29,809) $ (47,031)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Depreciation and amortization 250,375 242,249
Decrease (increase) in trade receivables 253 (1,751)
Decrease (increase) in other assets 9,467 (10,068)
(Decrease) increase in accounts payable
and accrued expense (44,819) 9,131
(Decrease) increase in subscriber
prepayments and deposits (4,079) 3,509
Income tax benefit transferred to parent (15,939) (11,897)
--------- ---------
Net cash provided by operating activities 165,449 184,142
INVESTING ACTIVITIES:
Purchase of cable systems and equipment (95,899) (65,562)
--------- ---------
Net cash used in investing activities (95,899) (65,562)
--------- ---------
FINANCING ACTIVITIES:
Advances from affiliate 403,140 358,168
Payment to affiliates (334,409) (399,044)
Payment of notes payable (138,624) (140,867)
--------- ---------
Net cash used in financing activities (69,893) (181,743)
--------- ---------
Decrease in cash and cash equivalents (343) (63,163)
Cash and cash equivalents beginning of 29,666 92,829
period --------- ---------
Cash and cash equivalents end of period $ 29,323 $ 29,666
========= =========
The accompanying notes are an integral
part of these financial statements.
18
NOTES TO COMBINED FINANCIAL STATEMENTS
JUNE 30, 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Friendship Cablevision and Ellenboro Cablevision (the System) are
comprised of cable television systems located in the towns of Ellenboro, Bostic,
Gilkey, Harris and parts of Rutherford County, North Carolina. The System's
fiscal year end is June 30. The System is owned by Phoenix Cable Incorporated
(PCI) which is a wholly owned subsidiary of Phoenix American Incorporated (PAI).
Allocation of Certain Revenue and Expenses
The following revenue and expenses were allocated from their respective
systems based on subscriber counts as of June 30, 1995 and 1994:
REVENUES
ELLENBORO
June 30,
1995 1994
---- ----
Other Income $ 25 $ 24
Cable - Commission Income 2,602 2,062
Gain/Loss on Sale of Property 337 --
EXPENSES
June 30, 1995 June 30, 1994
Ellenboro Friendship Ellenboro Friendship
--------- ---------- --------- ----------
Program Service $125,183 $ -- $114,579 --
General and Administrative 118,717 -- 93,534 --
Home Office 61,824 25,878 61,318 26,046
Depreciation and Amortization 144,151 -- 140,728 --
PCI's management believes this method is a reasonable basis for
allocation.
19
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Income Taxes
For tax reporting purposes, the System uses the accrual method of
accounting and its results are included in the consolidated tax return filed by
PAI. PCI has a tax sharing agreement with PAI which stipulates that PAI will use
all tax losses generated by the System to offset taxable income generated by its
other business segments and will pay all tax liabilities as they arise.
The System adopted FAS 109 (Accounting for Income Taxes) on July 1,
1993. The adoption of FAS 109 did not have a material effect on the financial
position of the System.
Cable System Acquisition Purchase Price Allocation Method
The acquisition of the System was accounted for using the "purchase
method" of accounting. The purchase price was allocated in accordance with the
fair market value of the assets (including intangible assets) and liabilities.
Property Cable Systems and Equipment
Depreciation of property, cable systems and equipment is provided using
the straight-line method over the following estimated service lives:
Distribution systems 13 years
Plant and equipment 13 years
Headend equipment 13 years
Vehicles and other 5 years
Replacements, renewals and improvements are capitalized. Maintenance
and repairs are charged to expense as incurred.
Intangible Assets
Costs assigned to intangible assets are amortized using the
straight-line method over the following estimated useful lives:
Franchise rights 10 years
Subscriber lists 8 years
Non-competition agreements 5 years
Consulting agreement 2 years
Organizational costs 5 years
The cost assigned to non-competition and consulting agreements have
been fully amortized as of June 30, 1994. The cost assigned to subscriber list
have been fully amortized as of June 30, 1995.
PCI's management evaluates impairment of assets by reference to the
valuation on a per subscriber basis of unrelated cable sale transactions. That
evaluation is made at each balance sheet date.
Revenue Recognition
Services are billed monthly in advance. Revenue is deferred and
recognized as the services are provided.
Home Office Expense
Home office expense include charges from an affiliate for accounting,
personnel, tax and executive services.
20
NOTE 2. SUPPLEMENTAL DISCLOSURES TO THE COMBINED STATEMENTS OF CASH FLOWS:
For purposes of the statements of cash flows, cash and cash equivalents
includes investments in money market funds.
For the Years Ended
June 30, 1995 1994
- ----------------------------- ------ ------
Cash paid during the year for interest $155,722 $138,060
======== ========
NOTE 3. DUE FROM AFFILIATE:
The amount due from affiliate relates to excess cash amounts advanced
to PAI from the System.
NOTE 4. PROPERTY, CABLE SYSTEMS AND EQUIPMENT:
The cost of property, cable systems and equipment and the related
accumulated depreciation consist of the following at June 30:
1995 1994
---- ----
Distribution systems $ 2,196,960 $ 2,146,099
Plant installations 114,361 96,853
Headend equipment 80,000 70,000
Equipment and tools 8,525 8,257
Vehicles 39,736 23,289
Office furniture and fixtures 8,059 7,244
----------- -----------
2,447,641 2,351,742
Less: accumulated depreciation (991,925) (803,751)
----------- -----------
Net property, cable systems and
equipment $ 1,455,716 $ 1,547,991
=========== ===========
Depreciation expense totaled $188,174 and $180,038 for the years ended
June 30, 1995 and 1994, respectively.
NOTE 5. INTANGIBLE ASSETS:
Cable franchise rights and intangible assets include the following at
June 30:
1995 1994
---- ----
Subscriber lists $ 219,560 $ 219,560
Franchise rights 475,778 475,778
Organizational costs 39,477 39,477
Non-competition agreements 25,018 25,018
Consulting agreement 15,000 15,000
Other 218 218
--------- ---------
775,051 775,051
Less: accumulated amortization (508,007) (445,806)
--------- ---------
Net intangible assets $ 267,044 $ 329,245
========= =========
Amortization expense totaled $62,201 and $62,211 for the years ended
June 30, 1995 and 1994, respectively.
21
NOTE 6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:
Accounts payable and accrued expenses consist of the following at June
30:
1995 1994
------- --------
Trade $38,108 $ 84,211
Accrued interest 3,015 2,730
Franchise fees 21,068 20,069
------- --------
Total accounts payable and accrued
expenses $62,191 $107,010
======= ========
NOTE 7. NOTES PAYABLE:
Notes payable consist of the following at June 30:
1995 1994
---- ----
Loan with a bank, collateralized by all
the assets of the System with quarterly
interest at a varying interest rate tied
to the bank's prime rate or LIBOR rate.
Principal payments commenced on September
30, 1993 and are scheduled to be made in
32 consecutive quarterly
installments.................................... $1,942,813 $2,081,437
========= =========
The weighted average interest rate on the System's debt during the year
was 7.8% and 6.1% during 1995 and 1994, respectively.
In connection with the System's loan, various financial ratios and
other covenants must be maintained. As of September and June 30, 1995 PCI was in
violation of certain covenants. The lender has waived these violations.
PCI allocated the System its pro rata portion of the note payable to a
bank and the corresponding interest expense based upon its share of the original
amount borrowed.
Principal payments due for the years ended June 30 are as follows:
1996 ............................................. $ 177,754
1997 ............................................. 227,747
1998 ............................................. 283,295
1999 ............................................. 344,398
2000 ............................................. 422,165
Future............................................. 487,454
----------
$1,942,813
==========
NOTE 8. INCOME TAXES:
Deferred taxes arise from temporary differences between financial and
tax reporting for depreciation and amortization expense. The cumulative
temporary differences were $924,405 and $878,410 at June 30, 1995 and 1994
respectively. The System computes its tax provision based upon its tax
attributes and the related provision or benefit is transferred to PAI. The
resulting asset and liability have been transferred to PAI in accordance with
the tax sharing agreement.
22
The difference between the effective tax rate and statutory tax rate is
due to certain expenses deductible for financial reporting purposes but not for
tax purposes, primarily amortization of intangible assets, state tax expense net
of federal benefit, and other miscellaneous items.
The reconciliation of income tax expense at the statutory rate to
income tax expense at the effective rate is as follows:
1995 1994
-------- --------
Tax at statutory rate $(16,012) $(20,036)
State benefit net of federal effect (3,180) (5,439)
Non-deductible intangible
amortization 3,729 3,729
Other (476) 9,849
-------- --------
$(15,939) $(11,897)
======== ========
NOTE 9. SUBSEQUENT EVENTS:
On August 15, 1995, PCI entered into an agreement to sell the System
for an aggregate purchase price of $4,233,000. Payment will be in cash for
$4,129,000 at closing date and $104,000 in the form of non-negotiable,
non-assignable, non-interest bearing promissory notes due 120 days after the
date of closing.
The outstanding note payable of $1,942,813 will be paid off by PCI upon
closing of the above described transaction.
23
FRIENDSHIP CABLEVISION AND
ELLENBORO CABLEVISION
COMBINED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
AND 1994
(UNAUDITED)
24
FRIENDSHIP CABLEVISION AND ELLENBORO CABLEVISION
COMBINED FINANCIAL STATEMENTS
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
The accompanying unaudited financial statements contain all adjustments
(consisting of normal recurring adjustments) necessary to present the combined
financial position of Friendship Cablevision and Ellenboro Cablevision as of
September 30, 1995 and 1994 and the results of its operations and its cash flows
for the three month periods then ended.
The results for the three months ended September 30, 1995 and 1994 are not
necessarily indicative of the results to be expected for the full year.
These financial statements have been prepared without audit. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted. It
is suggested that these financial statements be read in conjunction with the
audited financial statements and notes thereto included elsewhere in this Form
8-K.
25
FRIENDSHIP CABLEVISION AND ELLENBORO CABLEVISION
COMBINED BALANCE SHEETS
September 30,
1995
(unaudited) June 30, 1995
----------- -------------
Cash and cash equivalents $ 24,039 $ 29,323
Receivables:
Trade and other (net of allowance for doubtful accounts of $7,924 and
$5,970 at September and June 30, 1995, respectively 29,428 23,150
Due from affiliates 138,639 161,090
Property, cable systems and equipment (net of accumulated depreciation of
$1,039,306 and $991,925 at September and June 30, 1995, respectively) 1,421,196 1,455,716
Cable franchise rights and other intangible assets (net of accumulated
amortization of $297,070 and $288,447 at September and June 30, 1995,
respectively) 258,422 267,044
Other Assets 1,224 1,312
----------- -----------
Total Assets $ 1,872,948 $ 1,937,635
=========== ===========
LIABILITIES AND OWNER'S DEFICIT
Liabilities:
Accounts payable and accrued expenses $ 58,349 $ 62,191
Notes payable 1,890,176 1,942,813
Subscriber prepayments and deposits 22,405 20,823
----------- -----------
Total Liabilities 1,970,930 2,025,827
Owner's deficit (97,982) (88,192)
----------- -----------
Total Liabilities and Owner's deficit $ 1,872,948 $ 1,937,635
=========== ===========
26
FRIENDSHIP CABLEVISION AND ELLENBORO CABLEVISION
COMBINED STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
1995 1994
(unaudited) (unaudited)
----------- -----------
REVENUE $ 196,914 $ 189,567
(EXPENSE)
Program service (51,412) (43,613)
General and administrative (49,619) (51,595)
Home office (19,809) (23,944)
Depreciation and amortization (56,327) (61,638)
--------- ---------
Operating income 19,747 8,777
OTHER INCOME (EXPENSES)
Interest expense (30,019) (28,375)
Interest income 482 534
--------- ---------
Total other expenses (29,537) (27,841)
--------- ---------
Loss before benefit for income taxes (9,790) (19,064)
Benefit for income taxes 3,427 6,673
--------- ---------
Net loss $ (6,363) $ (12,391)
========= =========
27
FRIENDSHIP CABLEVISION AND ELLENBORO CABLEVISION
COMBINED STATEMENTS OF CHANGES IN OWNER'S EQUITY (DEFICIT)
Retained Earnings (Deficit)
---------------------------
Balance, June 30, 1994 (42,444)
Income tax benefit transferred to parent (15,939)
Net loss (29,809)
--------
Balance, June 30, 1995 $(88,192)
Income tax benefit transferred to parent (3,427)
Net loss (6,363)
--------
Balance, September 30, 1995 (unaudited) (97,982)
========
28
FRIENDSHIP CABLEVISION AND ELLENBORO CABLEVISION
COMBINED STATEMENTS OF CASH FLOW
Three months ended
September 30,
1995 1994
(unaudited) (unaudited)
----------- -----------
OPERATING ACTIVITIES:
Net loss $ (6,363) $ (12,391)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 56,003 61,637
Increase in trade receivables (6,278) (198)
Decrease in other assets 88 3,808
Decrease in accounts payable and
accrued expense (3,842) (13,397)
Increase (decrease) in subscriber
prepayments and deposits 1,582 (2,458)
Income tax benefit transferred to parent (3,427) (6,673)
--------- ---------
Net cash provided by operating activities 37,763 30,328
INVESTING ACTIVITIES:
Purchase of cable systems and equipment (12,861) (53,565)
--------- ---------
Net cash used in investing activities (12,861) (53,565)
--------- ---------
FINANCING ACTIVITIES:
Advances from affiliate 114,442 111,713
Payment to affiliates (91,991) (15,057)
Payment of notes payable (52,637) (36,641)
--------- ---------
Net cash (used) provided in financing (30,186) 60,015
activities
Decrease in cash and cash equivalents (5,284) 36,778
Cash and cash equivalents beginning of 29,323 29,666
period
Cash and cash equivalents end of period $ 24,039 $ 66,444
========= =========
29
NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
(PREPARED BY MANAGING GENERAL PARTNER)
30
NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
(PREPARED BY MANAGING GENERAL PARTNER)
The accompanying unaudited pro forma financial statements for the year
ended December 31, 1994 and nine months ended September 30, 1995, have been
prepared to present the effect of the purchase by Northland Cable Properties
Five Limited Partnership ("the Partnership") of substantially all of the
operating assets and franchises of Friendship Cablevision and Ellenboro
Cablevision.
The pro forma statements reflect the acquisition as of September 30,
1995 for balance sheet purposes and as if such acquisition had occurred on
January 1, 1994 for income statement purposes. The income statements for
Friendship Cablevision and Ellenboro Cablevision have been adjusted to reflect
the year ended December 31, 1994 and the nine months ended September 30, 1995 in
order to conform to the reporting periods for the Partnership
The pro forma financial statements have been prepared by the Managing
General Partner of the Partnership based upon the historical financial
statements of the Partnership and Friendship Cablevision and Ellenboro
Cablevision. Pro forma adjustments are described in the accompanying notes. The
Pro Forma Statements of Operations may not be indicative of the results of
operations that actually would have occurred if the transactions had been in
effect as of the beginning of the respective periods nor do they purport to
indicate the results of future operations of the Partnership. The pro forma
financial statements should be read in conjunction with the audited and
unaudited financial statements and notes thereto of Northland Cable Properties
Five Limited Partnership, as previously reported in the Partnership's Form 10-K
for the year ended December 31, 1994 and Form 10-Q for the three and nine months
ended September 30, 1995, and Friendship Cablevision and Ellenboro Cablevision
included elsewhere in this Form 8-K.
31
NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1995
(PREPARED BY MANAGING GENERAL PARTNER)
As reported After purchase
----------------------------------------------------------------------------------
Friendship Northland
Cablevision and Cable
Ellenboro Properties Pro Forma Pro Forma
Cablevision Five Total Adjustments Combined
----------------------------------------------------------------------------------
ASSETS:
Cash and cash equivalents $ 24,039 $ 253,509 $ 277,548 $ (23,053) (1b) $ 734,402
479,907 (1c)
Accounts receivable 29,428 318,899 348,327 (8,009) (1b) 340,318
Due from affiliates 138,639 - 138,639 (138,639) (1b) -
Property and equipment, net 1,421,196 7,293,785 8,714,981 2,466,034 (1a) 11,181,015
Intangible assets 258,422 6,129,038 6,387,460 345,770 (1a) 6,435,808
(258,422) (1b)
50,000 (1c)
(89,000) (1d)
Other assets 1,224 90,982 92,206 (1,224) (1b) 90,982
----------------------------------------------------------------------------------
$1,872,948 $14,086,213 $15,959,161 $ 2,823,364 $18,782,525
==================================================================================
LIABILITIES:
Accounts payable and accrued expenses $ 58,349 $ 908,913 $ 967,262 $ (58,349) (1b) $ 824,079
(84,834) (1c)
Due to managing general partner and
affiliates - 103,778 103,778 103,778
Converter deposits - 15,288 15,288 15,288
Subscriber prepayments 22,405 111,537 133,942 133,942
Notes payable 1,890,176 16,769,287 18,659,463 (1,890,176) (1b) 31,474
(16,737,813) (1c)
Note payable to seller - 104,000 (1c) 104,000
Note payable to bank - 21,481,554 (1c) 21,481,554
----------------------------------------------------------------------------------
1,970,930 17,908,803 19,879,733 2,814,382 22,694,115
----------------------------------------------------------------------------------
PARTNERS' CAPITAL (DEFICIT) (97,982) (3,822,590) (3,920,572) 97,982 (1b) (3,911,590)
(89,000) (1d)
----------------------------------------------------------------------------------
$1,872,948 $14,086,213 $15,959,161 $ 2,823,364 $18,782,525
==================================================================================
See notes to pro forma financial statements
32
See notes to pro forma financial statements
NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1995
(PREPARED BY MANAGING GENERAL PARTNER)
As reported After purchase
-----------------------------------------------------------------------------
Friendship Northland
Cablevision and Cable
Ellenboro Properties Pro Forma Pro Forma
Cablevision Five Total Adjustments Combined
-----------------------------------------------------------------------------
SERVICE AND CONNECTION FEES $587,965 $5,578,481 $6,166,446 $6,166,446
OPERATING EXPENSES 333,561 3,334,346 3,667,907 35,278 (2) 3,703,185
DEPRECIATION AND AMORTIZATION 181,515 1,314,715 1,496,230 143,354 (1d) 1,639,584
-----------------------------------------------------------------------------
Income (Loss) from Cable Television Operations 72,889 929,420 1,002,309 (178,632) 823,677
Loss from radio station operations, net - (22,520) (22,520) (22,520)
-----------------------------------------------------------------------------
Income from operations 72,889 906,900 979,789 (178,632) 801,157
NONOPERATING INCOME (EXPENSE) 2,184 (13) 2,171 (2,184) (1b) (13)
INTEREST EXPENSE 107,738 1,074,785 1,182,523 (107,738) (1b) 1,707,539
632,754 (1e)
-----------------------------------------------------------------------------
Net Income (Loss) before benefit for income taxes (32,665) (167,898) (200,563) (705,832) (906,395)
INCOME TAX (EXPENSE) BENEFIT 11,397 (1,389) 10,008 (11,397) (1b) (1,389)
-----------------------------------------------------------------------------
Net Income (Loss) $(21,268) $ (169,287) $ (190,555) $(717,229) $(907,784)
=============================================================================
33
NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
PRO FORMA STATEMENT OF OPERATIONS
(UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
(PREPARED BY MANAGING GENERAL PARTNER)
As reported After purchase
----------------------------------------------------------------------------
Friendship Northland
Cablevision and Cable
Ellenboro Properties Pro Forma Pro Forma
Cablevision Five Total Adjustments Combined
----------------------------------------------------------------------------
SERVICE AND CONNECTION FEES $762,749 $5,598,494 $6,361,243 $ 6,361,243
OPERATING EXPENSES 424,523 3,209,440 3,633,963 45,765 (2) 3,679,728
DEPRECIATION AND AMORTIZATION 246,313 1,675,502 1,921,815 186,846 (1d) 2,197,661
----------------------------------------------------------------------------
Income (Loss) from Operations 91,913 713,552 805,465 (232,611) 483,854
NONOPERATING INCOME (EXPENSE) 2,329 9,848 12,177 (2,329) (1b) 9,848
INTEREST EXPENSE 146,581 761,186 907,767 (146,581) (1b) 1,916,929
1,155,743 (1e)
----------------------------------------------------------------------------
Net Income (Loss) before benefit for income taxes (52,339) (37,786) (90,125) (1,244,102) (1,423,227)
BENEFIT FOR INCOME TAXES 13,919 - 13,919 (13,919) (1b) -
----------------------------------------------------------------------------
Net Income (Loss) $(38,420) $ (37,786) $ (76,206) $(1,258,021) $(1,423,227)
============================================================================
34
NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
SEPTEMBER 30, 1995
1. The pro forma financial statements show the adjustments for the acquisition
of substantially all of the operating assets and franchises (which occurred on
December 20, 1995) of Phoenix Cable Income Fund and PCI One Incorporated. The
adjustments reflect the acquisition as of September 30, 1995 for balance sheet
purposes and as if such acquisition had occurred on January 1, 1994 for income
statement purposes. The sources of funds for this acquisition are assumed to
consist of bank debt and an unsecured noninterest bearing note payable to the
Seller.
The pro forma adjustments for the above transaction are as follows:
(a) To record the net increase in property and equipment, which
includes an adjustment for excluded assets from the purchase of the
system:
Purchase price $ 4,233,000
Less - book value of assets recorded
on Friendship Cablevision and
Ellenboro Cablevision (1,421,196)
Franchise Cost (345,770)
-----------
Net Increase to Property and Equipment $ 2,466,034
===========
(b) To eliminate nonassumed assets and liabilities of Friendship
Cablevision and Ellenboro Cablevision.
(c) To record the financing of the acquisition of Friendship
Cablevision and Ellenboro Cablevision and refinance of the
Partnership's existing debt.
Bank Debt $ 21,481,554
Seller Note 104,000
Repayment of Existing
Bank Debt (16,737,813)
Accrued Interest (84,834)
Loan Fees (50,000)
Purchase Price (4,233,000)
------------
Cash Provided $ 479,907
============
(d) To eliminate depreciation and amortization of the systems and
record depreciation and amortization of cable television property and
equipment and franchises in accordance with the Managing General
Partner's policies.
(e) To record interest expense for the new debt associated with the
acquisition. The interest rate on the debt is assumed at the bank's
prime rate (varies from 6.75% to 9.00%) plus 1.38% per annum. No draws
are assumed during the revolving credit period. For purposes of the
interest expense calculation, an additional $450,000 borrowing on the
Partnership's credit facility was assumed to occur 14 days after the
acquisition, to replenish working capital and provide for capital
expenditures.
2. To record the Partnership Management Fee payable to the Managing General
Partner (Northland Communications Corporation) of 6% of Gross Revenues.
35
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 FIVE LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: 1/5/96 BY: /s/ GARY S. JONES
------------- ------------------
Gary S. Jones
(Vice President)