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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, 1999
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from
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Commission File Number: 0-16063
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in Charter)
Washington 91-1318471
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(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
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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 SIX LIMITED PARTNERSHIP
BALANCE SHEETS -- (Unaudited)
(Prepared by the Managing General Partner)
September 30, December 31,
1999 1998
------------ ------------
ASSETS
Cash $ 290,737 $ 706,907
Accounts receivable 708,961 722,919
Prepaid expenses 109,823 109,387
Property and equipment, net of accumulated
depreciation of $14,399,293 and $14,744,674,
respectively 14,431,034 14,090,676
Intangible assets, net of accumulated
amortization of $13,684,435 and $11,849,919,
respectively 15,476,626 17,342,080
------------ ------------
Total assets $ 31,017,181 $ 32,971,969
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,000,988 $ 1,181,743
Due to managing general partner and affiliates 97,267 142,746
Converter deposits 37,077 57,057
Subscriber prepayments 303,420 495,177
Notes payable 28,965,281 31,372,848
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Total liabilities 30,404,033 33,249,571
------------ ------------
Partners' equity:
General Partners:
Contributed capital, net (37,565) (37,565)
Accumulated deficit (83,319) (92,266)
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(120,884) (129,831)
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Limited Partners:
Contributed capital, net 8,982,444 8,986,444
Accumulated deficit (8,248,412) (9,134,215)
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734,032 (147,771)
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Total partners' equity 613,148 (277,602)
------------ ------------
Total liabilities and partners' equity $ 31,017,181 $ 32,971,969
============ ============
The accompanying notes to unaudited financial statements is an integral part of
these statements
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS -- (Unaudited)
(Prepared by the Managing General Partner)
For the nine months ended September 30,
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1999 1998
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Service revenues $ 11,207,212 $ 11,030,316
Expenses:
Operating 995,578 937,838
General and administrative (including
$1,594,241 and $1,494,712 to affiliates,
respectively) 2,767,836 2,727,639
Programming 2,933,546 2,906,921
Depreciation and amortization 3,291,708 3,019,411
------------ ------------
9,988,668 9,591,809
------------ ------------
Income from operations 1,218,544 1,438,507
Other income (expense):
Interest expense (1,945,531) (2,075,454)
Interest income 17,515 12,260
Other income -- --
Gain (loss) on sale of assets 1,604,222 (92,330)
------------ ------------
(323,794) (2,155,524)
------------ ------------
Net income (loss) $ 894,750 (717,017)
============ ============
Allocation of net income (loss):
General Partners $ 8,948 $ (7,170)
============ ============
Limited Partners $ 885,803 $ (709,847)
============ ============
Net income (loss) per limited partnership unit:
(29,784 units and 29,792 units, respectively) $ 30 $ (24)
============ ============
Net income (loss) per $1,000 investment $ 59 $ (48)
============ ============
The accompanying notes to unaudited financial statements is an integral part of
these statements
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS -- (Unaudited)
(Prepared by the Managing General Partner)
For the three months ended September 30,
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1999 1998
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Service revenues $ 3,709,213 $ 3,742,801
Expenses:
Operating 325,640 328,452
General and administrative (including
$519,355 and $499,243 to affiliates,
respectively) 923,074 940,240
Programming 972,592 967,986
Depreciation and amortization 1,058,842 1,226,724
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3,280,148 3,463,402
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Income from operations 429,065 279,399
Other income (expense):
Interest expense (637,315) (687,871)
Interest income 4,948 5,251
(690,412) (682,620)
----------- -----------
Net income (loss) $ (261,347) $ (403,221)
=========== ===========
Allocation of net income (loss)
General Partners $ (2,613) $ (4,032)
=========== ===========
Limited Partners $ (258,734) $ (399,189)
=========== ===========
Net income (loss) per limited partnership unit:
(29,784 units and 29,792 units, respectively) $ (9) $ (13)
=========== ===========
Net income (loss) per $1,000 investment $ (18) $ (26)
=========== ===========
The accompanying notes to unaudited financial statements is an integral part of
these statements
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NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS -- (Unaudited)
(Prepared by the Managing General Partner)
For the nine months ended September 30,
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1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 894,750 $ (717,017)
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 3,431,977 3,157,410
(Gain) loss on sale of assets (1,604,222) 92,330
(Increase) decrease in operating assets:
Accounts receivable 203,958 (517,704)
Prepaid expenses (152,809) 125,768
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses (180,755) 725,970
Due to managing general partner and affiliates (45,479) 48,369
Converter deposits (19,980) (22,408)
Subscriber prepayments (191,757) (128,740)
----------- ------------
Net cash from operating activities 2,335,683 2,763,978
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (2,029,503) (2,065,511)
Acquisition of cable systems -- (20,500,000)
Proceeds from disposition of cable system 1,718,279 --
Increase in intangibles (29,062) (42,662)
----------- ------------
Net cash from (used in) investing activities (340,286) (22,608,173)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings (2,407,567) 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 (2,411,567) 20,443,827
----------- ------------
(DECREASE) INCREASE IN CASH (416,170) 599,632
CASH, beginning of period 706,907 173,034
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CASH, end of period $ 290,737 $ 772,666
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 1,805,719 $ 1,272,756
=========== ============
The accompanying notes to unaudited financial statements is an integral part of
these statements
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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, 1999 and December 31, 1998, its Statements
of Operations for the nine and three months ended September 30, 1999 and 1998,
and its Statements of Cash Flows for the nine months ended September 30, 1999
and 1998. 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.
(3) Under the terms of the Partnership's revolving credit and term loan
agreement all amounts outstanding at December 31, 2000 become due and payable as
of that date. It is expected that this balance will approximate $28,965,000.
The Partnership could satisfy this obligation through a sale of all or a
significant portion its assets or alternatively, renegotiate the maturity of
its debt with its lenders. Based on discussions with the lenders an extension
of the debt maturity is unlikely unless the Partnership Agreement is amended to
extend the life of the Partnership which currently expires on December 31, 2001.
If a sale of a sufficient amount of assets does not occur or if the Partnership
is unable to renegotiate the terms of its debt it could materially affect the
Partnership's ability to continue as a going concern.
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PART I (continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues totaled $11,207,212 for the nine months ended September 30, 1999,
representing an increase of approximately 2% over the same period in 1998. Of
these revenues, $8,062,936 (72%) was derived from basic service charges,
$1,140,673 (10%) from premium services, $619,864 (6%) from tier services,
$299,579 (3%) from installation charges, $288,624 (2%) from service maintenance
contracts, $340,732 (3%) from advertising, and $454,804 (4%) from other sources.
The April 1999 disposition of approximately 1,400 subscribers in and around
Sandersville, Mississippi (the "Sandersville System") decreased revenues
approximately $200,000 or 2%. 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 1999 and 1998 as well as new
product services introduced in 1999.
As of September 30, 1999, the Partnership's systems served approximately 33,000
basic subscribers, 15,300 premium subscribers and 8,300 tier subscribers.
Operating expenses totaled $995,578 for the nine months ended September 30,
1999, representing an increase of approximately 6% over the same period in 1998.
Excluding the impact of the Sandersville System disposition, operating expenses
would have increased approximately 10% for the nine months ended September 30,
1999. This is primarily due to increased operating salaries and pole rental
expense offset by decreased system maintenance expenses and drop materials.
General and administrative expenses totaled $2,767,836 for the nine months ended
September 30, 1999, representing an increase 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 4% for
the nine months ended September 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, property taxes and bad debt
expense offset by reduced billing expenses and legal expenses.
Programming expenses totaled $2,933,546 for the nine months ended September 30,
1999, representing an increase of approximately 1% over the same period in 1998.
Adjusting for the Sandersville System disposition, programming expenses would
have
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increased approximately 3% for the nine months ended September 30, 1999
compared to the same period in 1998. This is mainly due to higher costs charged
by various program suppliers as well as increased advertising expenses and
production expense.
Depreciation and amortization expenses totaled $3,291,708 for the nine
months ended September 30, 1999, representing an increase of approximately 9%
over the same period in 1998. Such increase is due to depreciation and
amortization on 1999 purchases of plant and equipment offset by assets becoming
fully depreciated.
Interest expense for the nine months ended September 30, 1999 decreased
approximately 6% over the same period in 1998. The average bank debt decreased
from $31,372,848 during the first nine months of 1998 to $30,169,065 during the
first nine months of 1999, and the Partnership's effective interest rate
decreased from 8.82% in 1998 to 8.6% in 1999.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues totaled $3,709,213 for the three months ended September 30, 1999,
representing a decrease of approximately 1% over the same period in 1998. Of
these revenues, $2,667,788 (72%) was derived from basic service charges,
$371,638 (10%) from premium services, $206,991 (6%) from tier services, $103,493
(3%) from installation charges, $94,545 (2%) from service maintenance contracts,
$123,641 (3%) from advertising, and $141,117 (4%) from other sources. The April
1999 disposition of the Sandersville System decreased revenues approximately
$140,000 or 4%. Assuming the Sandersville System was disposed of at the
beginning of each of the respective periods, revenues would have increased
approximately 3%. The increase in revenue is attributable primarily to rate
increases placed into effect in August of 1999.
Operating expenses totaled $325,640 for the three months ended September 30,
1999, representing a decrease of approximately 1% over the same period in 1998.
Excluding the impact of the Sandersville System disposition, operating expenses
would have increased approximately 1% for the three months ended September 30,
1999. This is primarily due to increased operating salaries offset by decreased
system maintenance expenses.
General and administrative expenses totaled $923,074 for the three months ended
September 30, 1999, representing a decrease of approximately 2% over the same
period in 1998. Excluding the impact of the Sandersville System disposition,
general and administrative expenses for the three months ended September 30,
1999 would have remained constant with the same period in 1998. This is due to
higher revenue based expenses such as management fees and franchise fees as well
as increased bad debt expense and property taxes offset by reduced billing
expenses, postage and legal expenses.
Programming expenses totaled $972,592 for the three months ended September 30,
1999, remaining essentially unchanged from the same period in 1998. Adjusting
for the
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Sandersville System disposition, programming expenses would have increased
approximately 4% for the three months ended September 30, 1999 compared to the
same period in 1998. This is mainly due to higher costs charged by various
program suppliers.
Depreciation and amortization expenses totaled $1,058,842 for the three months
ended September 30, 1999, representing a decrease of approximately 14% over the
same period in 1998. This is primarily due to a restatement of first quarter
1998 amortization expense. Excluding the impact of the amortization restatement,
depreciation and amortization expense for the three months ended September 30,
1999 would have remained constant with the same period in 1998.
Interest expense for the three months ended September 30, 1999 decreased
approximately 7% over the same period in 1998. The average bank debt decreased
from $31,372,848 during the third quarter of 1998 to $28,965,281 during the
third quarter of 1999, and the Partnership's effective interest rate increased
from 8.77% in 1998 to 8.8% in 1999.
Liquidity and Capital Resources
The Partnership's primary sources of liquidity are cash flow provided from
operations and availability under an $8,000,000 revolving credit line, of which
approximately $6,200,000 was outstanding as of September 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 operating costs, debt service and planned capital expenditures up to
December 31, 2000, at which time all amounts outstanding under the revolving
credit and term loan agreement become due. Total amounts outstanding at December
31, 2000 are expected to be approximately $28,965,000. This obligation can be
satisfied by a sale of all or a significant portion of the Partnership's assets
or through an amendment to the loan agreement to extend the maturity of these
amounts. Based on discussions with the lenders it is unlikely that any
significant extension of maturity would be approved unless the Partnership
agreement was amended to extend the life of the Partnership which currently
expires on December 31, 2001. If the Partnership is unable to sell a sufficient
amount of assets or renegotiate the terms of its debt it could materially
affect the Partnership's ability to continue as a going concern.
During the nine months ended September 30, 1999, the Partnership's primary
sources of liquidity were cash provided from operations, credit available under
its revolving credit and term loan agreement and proceeds received from the sale
of the Sandersville System. The Partnership generates cash on a monthly basis
through the monthly billing of subscribers for cable services. Losses from
uncollectible accounts have not been material. During the nine months ended
September 30, 1999, cash generated from monthly billings was sufficient to meet
the Partnership's needs for working capital, capital expenditures and scheduled
debt service.
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On December 31, 1997, the Partnership amended and restated its credit agreement
with its current lender to finance the acquisition of the Barnwell, Bamberg,
Allendale and Bennettsville, South Carolina systems. This credit facility
provides for borrowings up to $33 million, including a $25 million term loan and
an $8 million revolving credit facility which mature December 31, 2000. In July,
1999 the Partnership further amended its credit agreement to modify the
amortization of its term loan and certain financial covenants.
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,
and an annual operating cash flow to interest expense ratio of not less than 2.0
to 1 increasing to 2.25 to 1 beginning October 1, 1999. As of September 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 third quarter of
1999. As of the date of this filing, interest rates on the credit facility were
as follows: $22,062,500 fixed at 7.77% under the terms of an interest rate swap
agreement with the Partnership's lender expiring December 31, 1999; and
$6,902,781 fixed at 7.50875%, expiring December 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.
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Capital Expenditures
During the third quarter of 1999, the Partnership incurred approximately
$830,000 in capital expenditures. These expenditures included the ongoing system
upgrade to 550 MHz in the Starkville, MS system, the initial phase of a 550 MHz
upgrade in the Forest, MS system, a vehicle replacement and the continued system
upgrade to 450 MHz in the Philadelphia, MS system, channel additions and a
continued system upgrade to 450 MHz in the Barnwell, SC system and a headend
standby generator in the Bennettsville, SC system.
The Partnership plans to invest approximately $400,000 in capital expenditures
for the remainder of 1999. This represents anticipated expenditures for the
expansion of the fiber network and continuation of the system upgrade
construction to 550 MHz in the Starkville 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
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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.
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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, 1999.
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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 SIX LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: 11/12/99 BY: /s/ RICHARD I. CLARK
-------- ----------------------------------------
Richard I. Clark
(Vice President/Treasurer)
Dated: 11/12/99 BY: /s/ GARY S. JONES
-------- ----------------------------------------
Gary S. Jones
(Vice President)
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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 SIX LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: BY:
-------- ----------------------------------------
Richard I. Clark
(Vice President/Treasurer)
Dated: BY:
-------- ----------------------------------------
Gary S. Jones
(Vice President)
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