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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 SEPTEMBER 30, 1996
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from
____________________ to _____________________
Commission File Number: 0-16065
NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
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(Exact Name of Registrant as Specified in Charter)
Washington 91-1302403
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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
____ ____
________________________
This filing contains ____ pages. Exhibits index appears on page ____.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS - (Unaudited)
(Prepared by the Managing General Partner)
September 30, December 31,
1996 1995
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ASSETS
Cash $ 606,769 $ 241,713
Accounts receivable 516,024 411,862
Prepaid expenses 75,621 81,309
Property and equipment, net of accumulated
depreciation of $12,758,176 and $11,562,201,
respectively 10,281,094 10,663,580
Intangible assets, net of accumulated
amortization of $2,104,423 and $1,575,121,
respectively 6,049,837 6,552,786
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Total assets $17,529,345 $17,951,250
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LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,114,407 $ 574,311
Due to managing general partner and affiliates 270,882 190,853
Converter deposits 23,465 26,761
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Subscriber prepayments 152,303 178,238
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Notes payable 21,017,146 21,660,989
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Total liabilities 22,578,203 22,631,152
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Partners' equity:
General Partners:
Contributed capital, net (56,075) (55,331)
Accumulated deficit (96,341) (93,396)
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(152,416) (148,727)
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Limited Partners:
Contributed capital, net 593,326 667,021
Accumulated deficit (5,489,768) (5,198,196)
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(4,896,442) (4,531,175)
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Total partners' equity (5,048,858) (4,679,902)
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Total liabilities and partners' equity $17,529,345 $17,951,250
=========== ===========
The accompanying note to unaudited financial statements is an integral
part of these statements
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NORTHLAND CABLE PROPERTIES FIVE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
For the nine months ended September 30,
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1996 1995
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CABLE TELEVISION OPERATIONS:
Service revenues $ 6,610,201 $ 5,578,481
Expenses:
Operating 586,915 535,057
General and administrative (including
$936,818 and $819,312 to affiliates
in 1996 and 1995, respectively) 1,653,817 1,415,316
Programming 1,687,029 1,383,972
Depreciation and amortization 1,682,445 1,314,716
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Income from cable television operations 999,995 929,420
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RADIO STATION OPERATIONS:
Broadcast revenues 247,940 221,844
Operating expenses 5,521 15,899
Administrative expenses 78,912 59,794
Programming expenses 116,001 132,441
Depreciation and amortization 42,832 36,230
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Income (loss) from radio station operations 4,674 (22,520)
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Income from operations 1,004,669 906,900
Other income (expense):
Interest expense (1,302,565) (1,074,785)
Interest income 1,284 7,633
Loss on disposal of assets - (14,795)
Other income 2,095 7,149
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(1,299,186) (1,074,798)
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Loss before income taxes (294,517) (167,898)
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Income tax expense (benefit) - 1,389
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Net loss $ (294,517) (169,287)
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Allocation of net loss:
General Partners $ (2,945) $ (1,693)
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Limited Partners $ (291,571) $ (167,594)
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Net loss per limited partnership unit:
(14,739 units) $ (20) $ (11)
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Net loss per $1,000 investment $ (40) $ (22)
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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 FIVE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
For the three months ended September 30,
-------------------------------------
1996 1995
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CABLE TELEVISION OPERATIONS:
Service revenues $2,260,127 $1,900,703
Expenses:
Operating 207,630 201,732
General and administrative (including
$311,605 and $295,958 to affiliates
in 1996 and 1995, respectively) 576,171 499,888
Programming 575,747 465,947
Depreciation and amortization 501,370 441,727
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Income from cable television operations 399,209 291,409
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RADIO STATION OPERATIONS:
Broadcast Revenues 83,183 77,570
Operating expenses 2,537 6,009
Administrative expenses 28,073 22,933
Programming expenses 37,430 42,481
Depreciation and amortization 14,590 12,236
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Income from radio station operations 553 (6,089)
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Income from operations 399,762 285,320
Other income (expense):
Interest expense (433,461) (355,115)
Interest income 213 1,919
Loss on disposal of assets - -
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(433,248) (353,196)
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Loss before income taxes (33,486) (67,876)
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Income tax expense (benefit) - -
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Net loss $ (33,486) $ (67,876)
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Allocation of net loss:
General Partners $ (335) $ (679)
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Limited Partners $ (33,151) $ (67,197)
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Net loss per limited partnership unit:
(14,739 units) $ (2) $ (5)
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Net loss per $1,000 investment $ (4) $ (10)
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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 FIVE LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
(Prepared by the Managing General Partner)
For the nine months ended September 30,
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1996 1995
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (294,517) $ (169,287)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 1,725,277 1,350,945
Loss on disposal of assets - 6,044
(Increase) decrease in operating assets:
Accounts receivable (104,162) (144,077)
Prepaid expenses 5,688 (22,702)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 540,096 302,309
Due to managing general partner and affiliate 80,029 7,199
Converter deposits (3,296) (7,817)
Subscriber prepayments (25,935) (57,565)
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Net cash from operating activities 1,923,180 1,265,049
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (813,489) (404,888)
Purchase of radio station - (500,000)
Purchase of cable television system - (108,444)
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Net cash used in investing activities (813,489) (1,013,332)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings (643,843) (976,355)
Distributions to partners (74,439) (111,659)
Loan fees and other costs incurred (26,353) (62,480)
Repurchase of limited partner interest - -
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Net cash from (used in) financing activities (744,635) (1,150,494)
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DECREASE IN CASH (744,635) (898,777)
CASH, beginning of period 241,713 1,152,286
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CASH, end of period $ 606,769 $ 253,509
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 885,896 $ 1,009,174
=========== ============
The accompanying note to unaudited financial statements is an integral
part of these statements
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NORTHLAND CABLE PROPERTIES FIVE 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 September 30, 1996 and December
31, 1995, its Statements of Operations for the nine and three months ended
September 30, 1996 and 1995, and its Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995. 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
Cable television revenues totaled $2,260,127 for the three months ended
September 30, 1996, representing an increase of approximately 19% over the same
period in 1995. Of these revenues, $1,588,779 (70%) was derived from basic
service charges, $232,746 (10%) from premium services, $197,493 (9%) from tier
services, $44,737 (2%) from installation charges, $43,657 (2%) from service
maintenance contracts and $152,715 (7%) from other sources. The growth in
revenue is mainly attributable to the acquisition of the Ellenboro, NC and
Gilkey/Harris, NC systems and rate increases placed into effect the latter part
of 1995.
As of September 30, 1996, the Partnership's systems served approximately 22,900
basic subscribers, 8,600 premium subscribers and 9,800 tier subscribers.
Cable television operating expenses totaled $207,630 for the three months ended
September 30, 1996, an increase of 3% over the same period in 1995. This is
mainly due to the acquisition of the Ellenboro, NC and Gilkey/Harris, NC
systems offset by a portion of the operating expenses charged to an affiliated
entity as a result of shared operating personnel and expenses.
Cable television general and administrative expenses totaled $576,171 for the
three months ended September 30, 1996, representing an increase of
approximately 15% over the same period in 1995. This is due to the acquisition
of the Ellenboro, NC and Gilkey/Harris, NC systems and increases in revenue
based expenses (i.e., franchise fees, management fees, copyright fees) which is
consistent with the revenue growth noted above.
Cable television programming expenses totaled $575,747 for the three months
ended September 30, 1996, reflecting an increase of approximately 24% over the
same period in 1995. This is mainly due to the increased subscribers as a
result of the purchase of the Ellenboro, NC and Gilkey/Harris, NC systems,
higher costs charged by program suppliers and additional salary and benefit
costs related to local programming and advertising support.
The radio station operations included revenues of $83,183 derived primarily
from advertising sales. Radio operation expenses are primarily comprised of
programming and salary and benefit costs.
Cable television depreciation and amortization expense increased approximately
14% as compared to the same period in 1995. This is mainly due to depreciation
and amortization on plant, equipment and intangible assets acquired from the
purchase of the Ellenboro, NC and Gilkey/Harris, NC systems.
Interest expense for the three months ended September 30, 1996 increased
approximately 22% as compared to the same period in 1995. The average bank
debt outstanding increased from $16,848,000 during the third quarter of 1995 to
$21,182,000 during the third quarter of 1996 due to increased borrowings to
finance the acquisition of the Ellenboro, NC and Gilkey/Harris, NC systems. In
addition, the Partnership's effective interest rate decreased from
approximately 8.43% during the third quarter of 1995 to 8.22% during the third
quarter of 1996.
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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
5.75 to 1 and a minimum ratio of annualized operating cash flow to fixed
charges of 1.00 to 1. As of September 30, 1996 the Partnership was in
compliance with its required financial covenants.
The balance outstanding under the credit facility is $20,994,054. As of the
date of this filing, interest rates on the credit facility were as follows:
$16,250,000 fixed at 7.995% under the terms of an amortizing interest rate swap
agreement expiring December 8, 1997; and $4,700,000 fixed at 7.945% under the
terms of an interest rate swap agreement expiring January 13, 1997. The
balance of $44,054 bears interest at the prime rate plus 1 3/8% (currently
9.625%). The above rates include a margin paid to the lender based on overall
leverage, and may decrease if the Partnership's leverage decreases.
Capital Expenditures
During the third quarter of 1996, the Partnership incurred approximately
$398,000 in capital expenditures including the fiber optic interconnect of two
systems in the Forest City, NC area and purchase of land for a new office site
in the Corsicana, TX system.
Planned expenditures for the balance of 1996 include system upgrades in the
Cedar Creek, TX system; completion of the fiber optic interconnect of two
systems in the Forest City, NC area; and vehicle replacements and line
extensions in various systems.
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Effects of Regulation
Regulation Overview. The Partnership's business is subject to intensive
regulation at the federal and local levels, and to a lesser degree, at the
state level. The FCC, the principal federal regulatory agency with
jurisdiction over cable television, is responsible for implementing federal
policies such as rate regulation, cable system relations with other
communications media, cross-ownership, signal carriage, equal employment
opportunity and technical performance. Portions of the regulatory framework
that impact the Partnership's operations are summarized below.
The 1996 Act. On February 8, 1996, the Telecommunications Act of 1996 (the
"1996 Act") was enacted which dramatically changed federal telecommunications
laws and the future competitiveness of the telecommunications industry. Many
of the changes called for by the 1996 Act will not take effect until the FCC
issues new regulations which, in some cases, may not be completed for a few
years. Because of this, the full impact of the 1996 Act o the Partnership's
operations cannot be determined at this time. A summary of certain provisions
affecting the Partnership's operations follows:
Regulation of rates other than the basic service tier has been eliminated for
small cable systems served by small companies. Small cable systems are those
having 50,000 or fewer subscribers served by companies with fewer than one
percent of national cable subscribers (approximately 600,000). The Partnership
qualifies as a small company and all of the Partnership's cable systems qualify
as small cable systems. Basic service tier rates remain subject to regulation
by the local franchising authority under most circumstances until effective
competition exists. The 1996 Act expands the definition of effective
competition to include the offering of video programming services directly to
subscribers in a franchised area by the local exchange carrier, its affiliates,
or any multichannel video programming distributor which uses the facilities of
the local exchange carrier. No penetration criteria exists that triggers the
presence of effective competition under these circumstances.
The 1996 Act allows telephone companies to offer video programming directly to
customers in their service areas immediately upon enactment. They may provide
video programming as a cable operator fully subject to the 1996 Act, or a
radio-based multichannel programming distributor not subject to any provisions
of the 1996 Act, or through non-franchised "open video systems" offering
non-discriminatory capacity to unaffiliated programmers, subject to selected
provisions of the 1996 Act.
The 1996 Act also addresses various other aspects of providing cable television
service including prices for equipment, discounting of rates to multiple
dwelling units, lifting of anti-trafficking restrictions, cable-telephone cross
ownership provisions, pole attachment rate formulas, rate uniformity, program
access, scrambling and censoring of public, educational and governmental access
channels and leased access channels.
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Telephone Companies. The 1996 Act allows telephone companies to offer video
programming directly to customers in their service areas immediately upon
enactment. They may provide video programming as a cable operator fully
subject to any provisions of the 1996 Act, or a radio-based multichannel
programming distributor not subject to any provisions of the 1996 Act or
through non-franchised "open video systems" offering non-discriminatory
capacity to unaffiliated programmers, subject to selected provisions of the
1996 Act. Although Management's opinion is that the probability of competition
from telcos in rural areas is unlikely in the near future, there are no
assurances such competition will not materialize.
The 1996 Act encompasses various other aspects of providing cable television
service including prices for equipment, discounting of rates to multiple
dwelling units, lifting of anti-trafficking restrictions, cable-telephone cross
ownership provisions, pole attachment rate formulas, rate uniformity, program
access, scrambling and censoring of PEG and leased access channels.
As of the date of this filing, no local franchising authorities have elected to
certify but no requests for rate justifications have been received from
franchise authorities.
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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
27.0 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter
ended September 30, 1996.
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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 FIVE LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: 11/6/96 BY: /s/ RICHARD I. CLARK
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Richard I. Clark
(Vice President/Treasurer)
Dated: 11/6/96 BY: /s/ GARY S. JONES
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Gary S. Jones
(Vice President)
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