1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended SEPTEMBER 30, 1998
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: 0-16063
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Washington 91-1318471
- --------------------------------------------------------------------------------
(State of Organization) (IRS Employer Identification No.)
1201 Third Avenue, Suite 3600, Seattle, Washington 98101
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(206) 621-1351
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(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 ____.
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS - (Unaudited)
(Prepared by the Managing General Partner)
September 30, December 31,
1998 1997
------------- -------------
ASSETS
Cash $ 772,666 $ 173,034
Accounts receivable 918,667 400,963
Prepaid expenses 136,990 262,758
Property and equipment, net of accumulated
depreciation of $14,723,686 and $13,328,036,
respectively 14,032,564 6,539,222
Intangible assets, net of accumulated
amortization of $11,051,489 and $12,692,683,
respectively 18,124,101 6,233,409
------------- -------------
Total assets $ 33,984,988 $ 13,609,386
============= =============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,683,055 $ 957,085
Due to managing general partner and affiliates 203,205 154,836
Converter deposits 69,685 92,093
Subscriber prepayments 281,212 409,952
Notes payable 31,372,848 10,899,421
------------- -------------
Total liabilities 33,610,005 12,513,387
------------- -------------
Partners' equity:
General Partners:
Contributed capital, net (37,565) (37,565)
Accumulated deficit (85,740) (78,570)
------------- -------------
(123,305) (116,135)
------------- -------------
Limited Partners:
Contributed capital, net 8,986,444 8,990,444
Accumulated deficit (8,488,156) (7,778,310)
------------- -------------
498,288 1,212,134
------------- -------------
Total partners' equity 374,983 1,095,999
------------- -------------
Total liabilities and partners' equity $ 33,984,988 $ 13,609,386
============= =============
The accompanying notes to unaudited financial statements is an integral part of
these statements
2
3
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
For the nine months ended September 30,
--------------------------------------
1998 1997
------------- -------------
Service revenues $ 11,030,316 $ 7,205,089
Expenses:
Operating 937,838 665,074
General and administrative (including
$1,491,188 and $1,134,187 to affiliates,
respectively) 2,727,639 1,764,033
Programming 2,906,921 1,708,907
Depreciation and amortization 3,157,410 1,548,761
------------- -------------
9,729,808 5,686,775
------------- -------------
Income from operations 1,300,508 1,518,314
Other income (expense):
Interest expense (1,937,455) (631,582)
Interest income 12,260 8,184
Other income -- --
Gain (loss) on sale of assets (92,330) 180
------------- -------------
(2,017,525) (623,218)
------------- -------------
Net income $ (717,017) 895,096
============= =============
Allocation of net income:
General Partners $ (7,170) $ 8,951
============= =============
Limited Partners $ (709,847) $ 886,145
============= =============
Net income per limited partnership unit:
(29,792 units and 29,812 units, respectively) $ (24) $ 30
============= =============
Net income per $1,000 investment $ (48) $ 59
============= =============
The accompanying notes to unaudited financial statements is an integral part of
these statements
3
4
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
For the three months ended September 30,
-----------------------------------------
1998 1997
-------------- --------------
Service revenues $ 3,742,801 $ 2,466,068
Expenses:
Operating 328,452 227,159
General and administrative (including
$517,571 and $412,391 to affiliates,
respectively) 940,239 590,471
Programming 967,987 580,365
Depreciation and amortization 1,272,723 516,254
-------------- --------------
3,509,401 1,914,249
-------------- --------------
Income from operations 233,400 551,819
Other income (expense):
Interest expense (641,871) (207,543)
Interest income 5,250 2,943
Other income -- --
Gain/loss on sale of assets -- --
-------------- --------------
(636,621) (204,600)
-------------- --------------
Net income $ (403,221) $ 347,219
============== ==============
Allocation of net income
General Partners $ (4,032) $ 3,472
============== ==============
Limited Partners $ (399,189) $ 343,747
============== ==============
Net income per limited partnership unit:
(29,792 units and 29,812 units, respectively) $ (13) $ 12
============== ==============
Net income per $1,000 investment $ (26) $ 24
============== ==============
The accompanying notes to unaudited financial statements is an integral part of
these statements
4
5
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS - (Unaudited)
(Prepared by the Managing General Partner)
For the nine months ended September 30,
-----------------------------------------
1998 1997
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ (717,017) $ 895,096
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 3,157,410 1,548,761
(Gain) loss on sale of assets 92,330 (180)
(Increase) decrease in operating assets:
Accounts receivable (517,704) 134,268
Prepaid expenses 125,768 10,396
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 725,970 57,756
Due to managing general partner and affiliates 48,369 (46,201)
Converter deposits (22,408) (16,310)
Subscriber prepayments (128,740) (132,417)
---------------- ----------------
Net cash from operating activities 2,763,978 2,451,169
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (2,065,511) (910,108)
Acquisition of cable systems (20,500,000) --
Increase in intangibles (42,662) --
---------------- ----------------
Net cash used in investing activities (22,608,173) (910,108)
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings 20,473,427 (1,812,900)
Loan fees and other costs incurred (25,600) (11,172)
Repurchase of limited partner interest (4,000) (2,000)
---------------- ----------------
Net cash from (used in) financing activities 20,443,827 (1,826,072)
---------------- ----------------
INCREASE (DECREASE) IN CASH 599,632 (285,011)
CASH, beginning of period 173,034 414,975
---------------- ----------------
CASH, end of period $ 772,666 $ 129,964
================ ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,272,756 $ 641,386
================ ================
The accompanying notes to unaudited financial statements is an integral part of
these statements
5
6
NORTHLAND CABLE PROPERTIES SIX 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, 1998 and December 31, 1997, its Statements
of Operations for the nine and three months ended September 30, 1998 and 1997,
and its Statements of Cash Flows for the nine months ended September 30, 1998
and 1997. Results of operations for these periods are not necessarily indicative
of results to be expected for the full year.
(2) In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998).
The Partnership has not yet quantified the impacts of adopting Statement 133 on
its financial statements and has not determined the timing of or method of
adoption of Statement 133. However, the Statement could increase volatility in
earnings and other comprehensive income.
6
7
PART I (continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues totaled $3,742,801 for the three months ended September 30, 1998,
representing an increase of approximately 52% over the same period in 1997. Of
these revenues, $2,736,310 (73%) was derived from basic service charges,
$390,871 (10%) from premium services, $178,882 (5%) from tier services, $109,234
(3%) from installation charges, $99,110 (3%) from service maintenance contracts,
$104,177 (3%) from advertising, and $124,217 (3%) from other sources. The
January 1998 purchase of the cable systems serving the communities of
Bennettsville, Barnwell, Bamberg and Allendale, South Carolina increased
revenues approximately 48%. The remaining 4% increase in revenue is attributable
primarily to rate increases placed into effect in August of 1998.
As of September 30, 1998, the Partnership's systems served approximately 34,900
basic subscribers, 16,700 premium subscribers and 7,900 tier subscribers.
Operating expenses totaled $328,452 for the three months ended September 30,
1998, representing an increase of approximately 45% over the same period in
1997. The acquisition of the Bennettsville, Barnwell, Bamberg and Allendale,
South Carolina systems increased expenses 45%. The expenses for the other
systems remained relatively unchanged.
General and administrative expenses totaled $940,239 for the three months ended
September 30, 1998, representing an increase of approximately 59% over the same
period in 1997. The acquisition of the Bennettsville, Barnwell, Bamberg and
Allendale, South Carolina systems increased expenses 57%. The expenses for the
remaining systems increased approximately 2% primarily due to higher revenue
based expenses such as management fees.
Programming expenses totaled $967,987 for the three months ended September 30,
1998, representing an increase of approximately 67% over the same period in
1997. Approximately 12% of the increase is due to increased costs charged by
various program suppliers, with the acquisition of the Bennettsville, Barnwell,
Bamberg and Allendale, South Carolina systems resulting in the remaining 55%
increase.
Depreciation and amortization expenses totaled $1,272,723 for the three months
ended September 30, 1998, representing an increase of approximately 147% over
the same period in 1997. Excluding the effects of the acquisition of the
Bennettsville, Barnwell, Bamberg and Allendale, South Carolina systems,
depreciation and amortization increased by 11%. Such increase is due to
depreciation and amortization on current year purchases of plant and equipment
offset by assets becoming fully depreciated during the year. The addition of
assets
7
8
acquired in the purchase of the Bennettsville, Barnwell, Bamberg and Allendale,
South Carolina systems increased depreciation and amortization expense 136%.
Interest expense for the three months ended September 30, 1998 increased 209%
from the same period in 1997. The average bank debt increased from $10,733,221
during the third quarter of 1997 to $31,372,848 during the third quarter of
1998, and the Partnership's effective interest rate increased from 7.73% in 1997
to 8.18% in 1998. The increase in average bank debt is reflective of borrowings
associated with the purchase of the Bennettsville, Barnwell, Bamberg and
Allendale, South Carolina systems.
Liquidity and Capital Resources
The Partnership's primary sources of liquidity are cash flow provided from
operations and an $8,000,000 revolving credit line, of which approximately
$6,200,000 was outstanding as of September 30, 1998. 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 senior debt to annualized operating cash flow ratio of 5.25 to 1, a
fixed charge ratio of 1.1 to 1, and an annual operating cash flow to interest
expense ratio of less than 2.0 to 1. As of September 30, 1998, the Partnership
was in compliance with its required financial covenants.
As of the date of this filing, the balance under the credit facility is
$31,372,848. Certain fixed rate agreements expired during the second quarter of
1998. As of the date of this filing, interest rates on the credit facility were
as follows: $23,000,000 fixed at 8.02% under the terms of an interest rate swap
agreement with the Partnership's lender expiring December 31, 1999; $6,200,000
fixed at 7.56%, expiring December 31, 1998; $2,000,000 fixed at 7.56%, expiring
December 31, 1998. The balance of $172,848 bears interest at prime plus 1.00%
(currently 9.00%). The above includes 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 third quarter of 1998, the Partnership incurred approximately
$728,000 in capital expenditures. These expenditures included the continued
installation of a fiber optic backbone in the Starkville, MS system, the ongoing
system upgrade to 450 MHz and channel additions in the Kosciusko, MS system, the
purchase of a bucket truck in the Forest, MS system, installation of a fiber
optic backbone in the Philadelphia, MS system, the purchase of a new office
building and the initial phase of a 450 MHz upgrade in the Barnwell, SC system
and a billing system conversion in the Bennettsville, SC system.
Planned expenditures for the balance of 1998 include line extensions in various
systems, the continuation of system upgrades to 450 MHz in the Kosciusko, MS and
Barnwell, SC systems, and the deployment of additional fiber in Philadelphia, MS
system.
8
9
Acquisition
On January 2, 1998, the Partnership purchased cable television systems serving
approximately 11,400 subscribers in and around the communities of Allendale,
Bamberg, Barnwell and Bennettsville, all in the state of South Carolina. The
purchase price of these systems was $20,500,000.
The Partnership borrowed $31,372,848 under an amended and restated revolving
credit and term loan agreement with its lender. The Partnership used the
proceeds to refinance existing bank debt and finance the acquisition of the
South Carolina cable systems.
Pro forma operating results of the Partnership for the nine and three months
ending September 30, 1997, assuming the acquisition of the Allendale, Bamberg,
Barnwell and Bennettsville, South Carolina systems had been completed as of the
beginning of the period, are as follows:
Three months ending Nine months ending
September 30, 1997 September 30, 1997
------------------ ------------------
Revenue $3,648,354 $10,735,965
========== ===========
Net income $ (810,805) $(2,142,450)
========== ===========
Net loss per limited
partnership unit $ (27) $ (72)
========== ===========
9
10
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, 1998.
10
11
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 SIX LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: BY: /s/ RICHARD I. CLARK
-------------- ----------------------------------
Richard I. Clark
(Vice President/Treasurer)
Dated: BY: /s/ GARY S. JONES
-------------- ----------------------------------
Gary S. Jones
(Vice President)
11