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 rates period ended September 30, 1997 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, 1997 1996 ------------ ------------ ASSETS Cash $ 129,963 $ 414,975 Accounts receivable 192,007 326,275 Prepaid expenses 70,545 80,941 Property and equipment, net of accumulated depreciation of $13,576,879 and $12,797,004, respectively 6,075,321 5,944,908 Intangible assets, net of accumulated amortization of $12,502,418 and $11,733,534, respectively 5,728,799 6,486,511 ------------ ------------ Total assets $ 12,196,635 $ 13,253,610 ============ ============ LIABILITIES AND PARTNERS' EQUITY Accounts payable and accrued expenses $ 760,078 $ 702,322 Due to managing general partner and affiliates 134,798 180,998 Converter deposits 97,889 114,199 Subscriber prepayments 283,252 415,670 Notes payable 10,139,421 11,952,321 ------------ ------------ Total liabilities 11,415,438 13,365,510 ------------ ------------ Partners' equity: General Partners: Contributed capital, net (37,565) (37,565) Accumulated deficit (81,778) (90,729) ------------ ------------ (119,343) (128,294) ------------ ------------ Limited Partners: Contributed capital, net 8,996,444 8,998,444 Accumulated deficit (8,095,904) (8,982,050) ------------ ------------ 900,540 16,394 ------------ ------------ Total partners' equity 781,197 (111,900) ------------ ------------ Total liabilities and partners' equity $ 12,196,635 $ 13,253,610 ============ ============ The accompanying note 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, --------------------------------------- 1997 1996 ----------- ----------- Service revenues $ 7,205,089 $ 6,898,503 Expenses: Operating 665,074 643,262 General and administrative (including $1,128,723 and $1,077,407 to affiliates in 1997 and 1996, respectively) 1,764,033 1,638,825 Programming 1,708,906 1,518,172 Depreciation and amortization 1,548,761 2,041,757 ----------- ----------- 5,686,774 5,842,016 ----------- ----------- Income from operations 1,518,315 1,056,487 Other income (expense): Interest expense (631,582) (829,786) Interest income 8,184 9,757 Gain on disposal of assets 180 ----------- ----------- (623,218) (820,029) ----------- ----------- Net income $ 895,097 236,458 =========== =========== Allocation of net income: General Partners $ 8,951 $ 2,365 =========== =========== Limited Partners $ 886,146 $ 234,093 =========== =========== Net income per limited partnership unit: (29,812 units) $ 30 $ 8 =========== =========== Net income per $1,000 investment $ 59 $ 16 =========== =========== The accompanying note 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, --------------------------------------- 1997 1996 ----------- ----------- Service revenues $ 2,466,068 $ 2,348,406 Expenses: Operating 227,160 215,063 General and administrative (including $409,670 and $362,783 to affiliates in 1997 and 1996, respectively) 590,470 572,324 Programming 580,365 507,045 Depreciation and amortization 516,254 725,856 ----------- ----------- 1,914,249 2,020,288 ----------- ----------- Income from operations 551,819 328,118 Other income (expense): Interest expense (207,543) (248,319) Interest income 2,944 3,860 Gain on disposal of assets -- ----------- ----------- (204,599) (244,459) ----------- ----------- Net income $ 347,220 $ 83,659 =========== =========== Allocation of net income General Partners $ 3,472 $ 837 =========== =========== Limited Partners $ 343,748 $ 82,822 =========== =========== Net income per limited partnership unit: (29,812 units) $ 12 $ 3 =========== =========== Net income per $1,000 investment $ 24 $ 6 =========== =========== The accompanying note 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, --------------------------------------- 1997 1996 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 895,097 $ 236,458 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 1,548,759 2,041,757 (Increase) decrease in operating assets: Accounts receivable 134,268 (10,654) Prepaid expenses 10,396 (20,187) Increase (decrease) in operating liabilities Accounts payable and accrued expenses 57,756 524,049 Due to managing general partner and affiliates (46,201) (15,927) Converter deposits (16,310) (13,879) Subscriber prepayments (132,417) (131,561) ----------- ----------- Net cash from operating activities 2,451,348 2,610,056 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment, net (910,288) (964,401) ----------- ----------- Net cash used in investing activities (910,288) (964,401) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on borrowings (1,812,900) (1,474,868) Distributions to partners -- (75,293) Loan fees and other costs incurred (11,172) (145,385) Repurchase of limited partner interest -- -- ----------- ----------- Net cash used in financing activities (1,824,072) (1,695,546) ----------- ----------- DECREASE IN CASH (283,012) (49,891) CASH, beginning of period 414,975 348,690 ----------- ----------- CASH, end of period $ 131,963 $ 298,799 =========== =========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 641,386 $ 818,544 =========== =========== The accompanying note 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, 1997 and December 31, 1996, its Statements of Operations for the three and nine months ended September 30, 1997 and 1996, and its Statements of Cash Flows for the nine months ended September 30, 1997 and 1996. Results of operations for these periods are not necessarily indicative of results to be expected for the full year. 6 7 PART I (continued) ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Revenues totaled $2,466,068 for the three months ended September 30, 1997, representing an increase of approximately 5% over the same period in 1996. Of these revenues, $1,738,059 (71%) was derived from basic service charges, $234,062 (10%) from premium services, $131,163 (5%) from tier services, $83,475 (3%) from installation charges, $80,818 (3%) from service maintenance contracts, $121,537 (5%) from advertising, and $76,954 (3%) from other sources. The revenue growth is primarily due to rate increases placed into effect during August 1997. As of September 30, 1997, the Partnership's systems served approximately 24,100 basic subscribers, 9,750 premium subscribers and 6,400 tier subscribers. Operating expenses totaled $227,160 for the three months ended September 30, 1997, representing an increase of approximately 5% over the same period in 1996. This is primarily due to increased salary and benefit costs as a result of cost of living adjustments. General and administrative expenses totaled $590,470 for the three months ended September 30, 1997, representing an increase of approximately 3% over the same period in 1996. This is the result of increases in copyright fees due to changes in the channel lineup in the Philadelphia, MS system. Programming expenses totaled $580,365 for the three months ended September 30, 1997, representing an increase of approximately 14% over the same period in 1996. This is mainly due to increases in programming costs and fees associated with new channel additions in various systems. Depreciation and amortization expenses totaled $516,254 for the three months ended September 30, 1997, representing a decrease of approximately 29% over the same period in 1996. This is mainly due to assets becoming fully depreciated during the first quarter of 1997. Interest expense for the three months ended September 30, 1997 decreased 20% from the same period in 1996. The average bank debt decreased from $12,895,821 during the third quarter of 1996 to $10,733,221 during the third quarter of 1997, and the Partnership's effective interest rate increased from 7.70% in 1996 to 7.73% in 1997. 7 8 Liquidity and Capital Resources The Partnership's primary sources of liquidity are cash flow provided from operations and a $2,000,000 revolving credit line, of which approximately $1,200,000 was outstanding as of September 30, 1997. 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 2.75 to 1. As of September 30, 1997 the Partnership was in compliance with its required financial covenants. As of the date of this filing, the balance under the credit facility is $10,139,421. Certain fixed rate agreements expired during the third quarter of 1997. As of the date of this filing, the interest rate on the credit facility is a Libor rate of 7.41% expiring October 31, 1997. 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 1997, the Partnership incurred approximately $378,000 in capital expenditures. These expenditures included a vehicle purchase in the Starkville, MS system, the purchase of an office building and continuation of a system upgrade to 330 MHz in the Kosciusko, MS system, and a system upgrade to 450 MHz in the Philadelphia, MS system. Planned expenditures for the balance of 1997 include line extensions in various systems, the construction of an office building and continuation of a system upgrade to 450 MHz in the Philadelphia, MS system, deployment of fiber in the Highlands, NC system, and the replacement of two vehicles in the Starkville, MS system. Acquisition The Partnership has entered into a purchase agreement to acquire cable television systems serving approximately 11,450 subscribers in and around the communities of Allendale, Bamberg, Barnwell and Bennettsville, all in the state of South Carolina. The estimated purchase price of these systems is $20,500,000. The Partnership has received terms from a bank to refinance its existing debt, increasing the total facility to $33,000,000. The Partnership will use the proceeds to repay the previous credit facility, finance the acquisition of the South Carolina cable systems and provide working capital. 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 8 9 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. of the regulatory framework that impact the Partnership's operations are summarized below. Effects of Regulation 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 industry. Many of the changes called for by the 1996 Act will not take effect until the Federal Communications Commission (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 on the Partnership's operations cannot be determined at this time. A summary of the provisions affecting the cable television industry, more specifically those affecting the Partnership's operations, follows. Cable Programming Service Tier Regulation. FCC regulation of rates for cable programming service tiers has been eliminated for small cable systems owned by small companies. Small cable systems are those having 50,000 or fewer subscribers which are owned by companies with fewer than 1% of national cable subscribers (approximately 600,000). The Partnership qualifies as a small cable company and all of the Partnership's cable systems qualify as small cable systems. Basic tier rates remain subject to regulations 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 served by a local telephone exchange carrier, its affiliates or any multichannel video programming distributor which uses the facilities of the local exchange carrier. The FCC has not yet determined the penetration criteria that will trigger the presence of effective competition under these circumstances. Telephone Companies. The 1996 Act allows telephone companies to offer video programming services directly to customers in their service areas immediately upon enactment. They may provide video programming as a cable operator fully subject to any provision of the 1996 Act, or a radio-based multichannel programming distributor not subject to any provisions of the 1996 Act, or through nonfranchised "open video systems" offering nondiscriminatory capacity to unaffiliated programmers, subject to select provisions of the 1996 Act. Although management's opinion is that the probability of competition from telephone companies in rural areas is unlikely in the near future, there are no assurances that such competition will not materialize. The 1996 Act encompasses many other aspects of providing cable television service including prices for equipment, discounting 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 and leased access channels. 9 10 As of the date of this filing, the Partnership has received notification that local franchising authorities with jurisdiction over approximately 36% of the Partnership's subscribers have elected to certify. Based on management's analysis, the rates charged by these systems are within the maximum rates allowed under FCC rate regulations. 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 September 30, 1997. 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: November 7, 1997 BY: /s/ RICHARD I. CLARK ---------------- -------------------------------- Richard I. Clark (Vice President/Treasurer) Dated: November 7, 1997 BY: /s/ GARY S. JONES ---------------- -------------------------------- Gary S. Jones (Vice President) 12 13 EXHIBIT INDEX ------------- 27.0 Financial Data Schedule