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 JUNE 30, 1999
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from____________________
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)
June 30, December 31,
1999 1998
------------ ------------
ASSETS
Cash $ 314,780 $ 706,907
Accounts receivable 681,723 722,919
Prepaid expenses 81,003 109,387
Property and equipment, net of accumulated
depreciation of $13,941,875 and $14,744,674,
respectively 14,088,070 14,090,676
Intangible assets, net of accumulated
amortization of $13,053,431 and $11,849,919,
respectively 16,082,630 17,342,080
------------ ------------
Total assets $ 31,248,206 $ 32,971,969
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 912,573 $ 1,181,743
Due to managing general partner and affiliates 170,798 142,746
Converter deposits 39,778 57,057
Subscriber prepayments 285,303 495,177
Notes payable 28,965,259 31,372,848
------------ ------------
Total liabilities 30,373,711 33,249,571
------------ ------------
Partners' equity:
General Partners:
Contributed capital, net (37,565) (37,565)
Accumulated deficit (80,705) (92,266)
------------ ------------
(118,270) (129,831)
------------ ------------
Limited Partners:
Contributed capital, net 8,982,444 8,986,444
Accumulated deficit (7,989,679) (9,134,215)
------------ ------------
992,765 (147,771)
------------ ------------
Total partners' equity 874,495 (277,602)
------------ ------------
Total liabilities and partners' equity $ 31,248,206 $ 32,971,969
============ ============
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 six months ended June 30,
--------------------------------
1999 1998
----------- -----------
Service revenues $ 7,497,999 $ 7,287,515
Expenses:
Operating 669,938 609,386
General and administrative (including
$1,074,886 and $995,469 to affiliates,
respectively) 1,844,762 1,787,400
Programming 1,960,954 1,938,934
Depreciation and amortization 2,324,295 1,884,687
----------- -----------
6,799,949 6,220,407
----------- -----------
Income from operations 698,050 1,067,108
Other income (expense):
Interest expense (1,216,787) (1,295,584)
Interest income 12,567 7,009
Other income -- (92,330)
Gain (loss) on sale of assets 1,662,267 --
----------- -----------
458,047 (1,380,905)
----------- -----------
Net income (loss) $ 1,156,097 (313,797)
=========== ===========
Allocation of net income (loss):
General Partners $ 11,561 $ (3,138)
=========== ===========
Limited Partners $ 1,144,536 $ (310,659)
=========== ===========
Net income (loss) per limited partnership unit:
(29,784 units and 29,792 units, respectively) $ 38 $ (10)
=========== ===========
Net income (loss) per $1,000 investment $ 77 $ (21)
=========== ===========
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 June 30,
-----------------------------------
1999 1998
----------- -----------
Service revenues $ 3,765,209 $ 3,715,515
Expenses:
Operating 330,551 331,801
General and administrative (including
$537,112 and $499,177 to affiliates,
respectively) 940,659 947,291
Programming 978,319 954,781
Depreciation and amortization 1,119,933 1,135,454
----------- -----------
3,369,462 3,369,327
----------- -----------
Income from operations 395,747 346,188
Other income (expense):
Interest expense (597,584) (674,620)
Interest income 6,826 5,675
1,071,509 (761,275)
----------- -----------
Net income (loss) $ 1,467,256 $ (415,087)
=========== ===========
Allocation of net income (loss)
General Partners $ 14,673 $ (4,151)
=========== ===========
Limited Partners $ 1,452,583 $ (410,936)
=========== ===========
Net income (loss) per limited partnership unit:
(29,784 units and 29,792 units, respectively) $ 49 $ (14)
=========== ===========
Net income (loss) per $1,000 investment $ 98 $ (28)
=========== ===========
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 six months ended June 30,
----------------------------------
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,156,097 $ (313,797)
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 2,324,295 1,884,687
(Gain) loss on sale of assets (1,662,267) 92,330
(Increase) decrease in operating assets:
Accounts receivable 41,196 (587,892)
Prepaid expenses (69,695) 112,160
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses (269,170) 824,592
Due to managing general partner and affiliates 28,052 53,435
Converter deposits (17,279) 2,631
Subscriber prepayments (209,874) 52,697
------------ ------------
Net cash from operating activities 1,321,355 2,120,843
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (1,197,831) (1,338,001)
Acquisition of cable systems -- (20,500,000)
Proceeds from disposition of cable system 1,900,000 (25,529)
Increase in intangibles (4,062) (25,529)
------------ ------------
Net cash from (used in) investing activities 698,107 (21,889,059)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings (2,407,589) 20,473,427
Loan fees and other costs incurred -- (25,600)
Repurchase of limited partner interest (4,000) (4,000)
------------ ------------
Net cash (used in) from financing activities (2,411,589) 20,443,827
------------ ------------
(DECREASE) INCREASE IN CASH (392,127) 675,611
CASH, beginning of period 706,907 173,034
------------ ------------
CASH, end of period $ 314,780 $ 848,645
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,217,243 $ 596,002
============ ============
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 June 30, 1999 and December 31, 1998, its Statements of
Operations for the six and three months ended June 30, 1999 and 1998, and its
Statements of Cash Flows for the six months ended June 30, 1999 and 1998.
Results of operations for these periods are not necessarily indicative of
results to be expected for the full year.
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 $3,765,209 for the three months ended June 30, 1999,
representing an increase of approximately 1% over the same period in 1998. Of
these revenues, $2,680,051 (72%) was derived from basic service charges,
$386,451 (10%) from premium services, $209,335 (5%) from tier services, $99,680
(3%) from installation charges, $96,873 (2%) from service maintenance contracts,
$121,073 (3%) from advertising, and $171,746 (5%) from other sources. The April
1999 disposition of approximately 1,400 subscribers in and around Sandersville,
Mississippi (the "Sandersville System") decreased revenues approximately
$100,000 or 3%. Assuming the Sandersville System was disposed of at the
beginning of each of the respective periods, revenues would have increased
approximately 4%. The increase in revenue is attributable primarily to rate
increases placed into effect in August of 1998.
As of June 30, 1999, the Partnership's systems served approximately 32,600 basic
subscribers, 15,800 premium subscribers and 8,000 tier subscribers.
Operating expenses totaled $330,551 for the three months ended June 30, 1999,
remaining consistent with the same period in 1998. Excluding the impact of the
Sandersville System disposition, operating expenses would have increased
approximately 3% for the three months ended June 30, 1999. This is primarily due
to increased operating salaries, pole and site rental and vehicle operating
expenses.
General and administrative expenses totaled $940,659 for the three months ended
June 30, 1999, representing a decrease of approximately 1% over the same period
in 1998. Excluding the impact of the Sandersville System disposition, general
and administrative expenses would have increased approximately 2% for the three
months ended June 30, 1999 compared to the same period in 1998. This is due to
higher revenue based expenses such as management fees and franchise fees as well
as increased utilities and property taxes offset by reduced billing expenses.
Programming expenses totaled $978,319 for the three months ended June 30, 1999,
representing an increase of approximately 2% over the same period in 1998.
Adjusting for the Sandersville System disposition, programming expenses would
have increased approximately 5% for the three months ended June 30, 1999
compared to the same period in 1998. This is mainly due to higher costs charged
by various program suppliers.
7
8
Depreciation and amortization expenses totaled $1,119,933 for the three months
ended June 30, 1999, representing a decrease of approximately 1% over the same
period in 1998. Such decrease is due to assets becoming fully depreciated offset
by depreciation and amortization on recent purchases of plant and equipment.
Interest expense for the three months ended June 30, 1999 decreased
approximately 11% over the same period in 1998. The average bank debt decreased
from $31,372,848 during the second quarter of 1998 to $30,169,065 during the
second quarter of 1999, and the Partnership's effective interest rate decreased
from 8.6% in 1998 to 7.92% in 1999.
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 June 30, 1999. Based on management's analysis,
the Partnership's cash flow from operations and amounts available for borrowing
under the Partnership's loan agreement are 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 not less than 2.0 to 1. As of June 30, 1999, the Partnership
was in compliance with its required financial covenants.
As of the date of this filing, the balance under the credit facility is
$28,965,281. Certain fixed rate agreements expired during the second quarter of
1999. As of the date of this filing, interest rates on the credit facility were
as follows: $22,375,000 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 7.5775%, expiring September 30, 1999; and $390,281 fixed at 7.5775%,
expiring September 30, 1999. 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 second quarter of 1999, the Partnership incurred approximately
$842,000 in capital expenditures. These expenditures included the ongoing system
upgrade to 550 MHz in the Starkville, MS system, the continued installation of
fiber in the Highlands, NC system, a continued system upgrade to 450 MHz and
channel additions in the Philadelphia, MS system, a continued system upgrade to
450 MHz in the Barnwell, SC system and a vehicle replacement in the
Bennettsville, SC system.
8
9
Planned expenditures for the balance of 1999 include the expansion of the fiber
network and continuation of the system upgrade construction to 550 MHz in the
Starkville System, the initial phase of a 450 MHz system upgrade in the Forest
System, the continued deployment of fiber in the Highlands System, a continued
system upgrade to 450 MHz in the Barnwell System and certain line extensions and
channel additions in various systems.
Year 2000 Issues
The efficient operation of the Partnership's business is dependent in part on
its computer software programs and operating systems (collectively, Programs and
Systems). These Programs and Systems are used in several key areas of the
Partnership's business, including subscriber billing and collections and
financial reporting. Management has evaluated the Programs and Systems utilized
in the conduct of the Partnership's business for the purpose of identifying year
2000 compliance problems. Failure to remedy these issues could impact the
ability of the Partnership to timely bill its subscribers for service provided
and properly report its financial condition and results of operations which
could have a material impact on its liquidity and capital resources.
The Programs and Systems utilized in subscriber billing and collections have
been modified to address year 2000 compliance issues. These modifications were
substantially complete at the end of 1998. Management has completed the process
of replacing Programs and Systems related to financial reporting which resolve
year 2000 compliance issues. The aggregate cost to the Partnership to address
year 2000 compliance issues is not expected to be material to its results of
operations, liquidity and capital resources.
Management is currently focusing its efforts on the impact of the year 2000
compliance issue on service delivery and has established an internal team to
address this issue. The internal team is identifying and testing all date
sensitive equipment involved in delivering service to its customers. In
addition, management will assess its options regarding repair or replacement of
affected equipment during this testing. The aggregate cost to the Partnership to
address year 2000 compliance issues is not expected to be material to its
results of operations, liquidity and capital resources.
9
10
The provision of cable television services is significantly dependent on the
Partnership's ability to adequately receive programming signals via satellite
distribution or off air reception from various programmers and broadcasters.
Management has inquired of certain significant programming vendors with respect
to their year 2000 issues and how they might impact the operations of the
Partnership. As of the date of this filing no significant programming vendor has
communicated a year 2000 issue that would affect materially the operations of
the Partnership. However, if significant programming vendors identify year 2000
issues in the future and are unable to resolve such issues in a timely manner,
it could result in a material financial risk.
Disposition
On April 30, 1999, the Partnership sold cable television systems serving
approximately 1,400 subscribers in and around the communities of Sandersville,
Heidelberg and Laurel, Mississippi. The sales price of these systems was
$1,900,000. The Partnership used net proceeds of $1,540,000 to pay down existing
bank debt.
10
11
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
June 30, 1999.
11
12
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: August 12, 1999 BY: /s/ RICHARD I. CLARK
----------------------------
Richard I. Clark
(Vice President/Treasurer)
Dated: August 12, 1999 BY: /s/ GARY S. JONES
----------------------------
Gary S. Jones
(Vice President)
12