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 MARCH 31, 2001
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
(Prepared by the Managing General Partner)
March 31, December 31,
2001 2000
---------- ----------
(unaudited)
ASSETS
Cash $ 1,105,672 $ 1,281,380
Due from affiliates 13,065 14,109
Accounts receivable 513,464 725,123
Prepaid expenses 152,104 85,506
Property and equipment, net of accumulated
depreciation of $16,814,546 and $16,325,363,
respectively 14,188,776 13,960,226
Intangible assets, net of accumulated
amortization of $17,313,965 and $16,661,387,
respectively 11,851,424 12,462,468
------------ ------------
Total assets $ 27,824,505 $ 28,528,812
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and accrued expenses $ 906,244 $ 1,297,584
Due to managing general partner and affiliates 50,363 35,458
Converter deposits 28,550 29,590
Subscriber prepayments 536,529 460,038
Notes payable 28,215,281 28,215,281
------------ ------------
Total liabilities $ 29,736,967 $ 30,037,951
============ ============
Partners' deficit:
General Partners:
Contributed capital, net (37,565) (37,565)
Accumulated deficit (108,574) (104,541)
------------ ------------
(146,139) (142,106)
Limited Partners:
Contributed capital, net 8,982,444 8,982,444
Accumulated deficit (10,748,767) (10,349,477)
------------ ------------
(1,766,323) (1,367,033)
------------ ------------
Total partners' deficit (1,912,462) (1,509,139)
------------ ------------
Total liabilities and partners' deficit $ 27,824,505 $ 28,528,812
============ ============
The accompanying notes are an integral part of these balance sheets.
3
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Prepared by the Managing General Partner)
For the three months ended
March 31,
2001 2000
----------- -----------
(unaudited)
Service revenues $ 3,766,902 $ 3,753,415
Expenses:
Operating (including $49,136
and $78,210 to affiliates, respectively) 285,081 304,646
General and administrative (including
$391,758 and $393,404 to affiliates,
respectively) 910,016 891,032
Programming (including $21,649
and $63,012 to affiliates, respectively) 1,052,623 985,622
Depreciation and amortization 1,132,085 1,116,401
----------- -----------
3,379,805 3,297,701
----------- -----------
Income from operations 387,097 455,714
Other income (expense):
Interest expense (690,463) (652,095)
Interest income and other (99,957) 12,288
----------- -----------
(790,420) (639,807)
Net loss $ (403,323) $ (184,093)
=========== ===========
Allocation of net loss:
General Partners $ (4,033) $ (1,841)
=========== ===========
Limited Partners $ (399,290) $ (182,252)
=========== ===========
Net loss per limited partnership unit:
(29,784 units) $ (13) $ (6)
=========== ===========
Net loss per $1,000 investment $ (27) $ (12)
=========== ===========
The accompanying notes are an integral part of these statements.
4
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS - (Unaudited)
(Prepared by the Managing General Partner)
For the three months ended
March 31,
2001 2000
----------- -----------
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (403,323) $ (184,093)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 1,132,085 1,116,401
Amortization of loan fees 59,675 50,655
Gain on sale of assets -- (4,708)
(Increase) decrease in certain operating
assets and liabilities:
Accounts receivable 211,659 16,336
Prepaid expenses (66,598) (45,424)
Accounts payable and accrued expenses (391,340) (518,926)
Due to managing general partner and affiliates 15,949 28,942
Converter deposits (1,040) (1,479)
Subscriber prepayments 76,491 185,518
----------- -----------
Net cash from operating activities 633,558 643,222
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (767,732) (192,319)
Proceeds from disposal of assets -- 7,000
Increase in intangibles (41,534) (12,454)
----------- -----------
Net cash used in investing activities (809,266) (197,773)
(DECREASE) INCREASE IN CASH (175,708) 445,449
CASH, beginning of period 1,281,380 556,962
----------- -----------
CASH, end of period $ 1,105,672 $ 1,002,411
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 648,438 $ 608,025
=========== ===========
The accompanying notes are an integral part of these statements.
5
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES 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 March 31, 2001, its statements of operations and cash
flows for the three months ended March 31, 2001 and 2000. Results of operations
for these periods are not necessarily indicative of results to be expected for
the full year. These financial statements and notes should be read in
conjunction with the Partnership's Annual Report on Form 10-K for the year ended
December 31, 2000.
(2) In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) and in
June 2000 issued SFAS No. 138, amendment of SFAS 133. These statements
establish accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the balance sheet as either an asset or liability
measured at its fair value. These statements require that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met.
Pursuant to SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB No. 133 -- an Amendment to
FASB Statement No. 133" the effective date of SFAS No. 133 has been deferred
until fiscal years beginning after January 15, 2000. SFAS No. 133 cannot be
applied retroactively. SFAS No. 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, 1998
(and, at the company's election, before January 1, 1999).
The Partnership has elected not to designate its derivatives as hedges under
SFAS 133. Accordingly, the Partnership will record an asset equal to the fair
value to settle the agreements and a corresponding credit in its statement of
operations. Each quarter, the change in the market value of the Partnership's
derivatives will be recorded as other income or expense. As of March 31, 2001,
the Partnership had no outstanding derivatives.
(3) Under the terms of the Partnership's revolving credit and term loan
agreement, all amounts outstanding under the note payable become due and payable
on June 30, 2001. The Partnership's continuing operations will not provide
sufficient liquidity to satisfy this obligation at its stated maturity.
Management believes an agreement by the lenders to extend
5
6
the maturity date would be contingent upon the approval of the limited partners
to extend the expiration of the Partnership's life, which currently expires on
December 31, 2001.
The Partnership has filed a preliminary Proxy Statement with the Securities and
Exchange Commission which solicits votes for two separate proposals. The first
proposal is to extend the term of the Partnership for six years until December
31, 2007. The second proposal, if approved, will provide authority to sell all
of the Partnership's existing assets to Northland Communications Corporation,
managing general partner, or its affiliates, for an aggregate purchase price of
$70,200,000. It is management's opinion that the likelihood that either of
these proposals would not be approved by the limited partners is remote.
6
7
PART I (continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2001 AND 2000
Revenues totaled $3,766,902 for the three months ended March 31, 2001,
representing an increase of less than 1% over the same period in 2000. Of these
revenues, $2,553,765 (68%) was derived from basic services, $333,796 (9%) from
premium services, $478,962 (13%) from expanded basic services, $101,595 (3%)
from service maintenance contracts, $93,993 (2%) from advertising, and $204,791
(5%) from other sources. The increase in revenue is attributable primarily to
rate increases implemented in the Partnership's systems during the first quarter
of 2001.
As of March 31, 2001, the Partnership's systems served approximately 31,828
basic subscribers, 14,567 premium subscribers and 17,904 expanded basic
subscribers.
Operating expenses totaled $285,081 for the three months ended March 31, 2001,
representing a decrease of approximately 6% over the same period in 2000. This
decrease is primarily due to decreases in operating salaries and payroll
benefits.
General and administrative expenses totaled $910,016 for the three months ended
March 31, 2001, representing an increase of approximately 2% over the same
period in 2000. This increase is primarily due to increased property taxes,
utilities and administrative services.
Programming expenses totaled $1,052,622 for the three months ended March 31,
2001, increasing approximately 7% from the same period in 2000. This increase is
mainly attributable to higher costs charged by various program suppliers as well
as costs incurred as the result of offering additional channels in some of the
Partnership's systems.
Depreciation and amortization expenses totaled $1,132,085 for the three months
ended March 31, 2001, representing an increase of approximately 1% over the same
period in 2000. Such increase is attributable to depreciation of recent
purchases related to upgrading plant and equipment offset by certain assets
becoming fully depreciated.
Interest expense for the three months ended March 31, 2001 increased
approximately 5% over the same period in 2000. The average bank debt decreased
from $28,965,281 during the first quarter of 2000 to $28,215,281 during the
first quarter of 2001, and the Partnership's effective interest rate increased
from 8.31% in the first quarter of 2000 to 9.2% for the same period in 2001.
7
8
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 $5,650,000 was outstanding as of March 31, 2001. 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 June
30, 2001, at which time all amounts outstanding under the revolving credit and
term loan become due. The Partnership's continuing operations will not provide
sufficient liquidity to satisfy this obligation at its stated maturity.
Alternatives available to the Partnership include a sale of a portion or all of
its assets to generate proceeds sufficient to repay the outstanding debt or to
re-negotiate the terms of the credit agreement with its lenders to extend the
maturity date. Management believes agreement by the lenders to extend the
maturity date would be contingent upon the approval of the limited partners to
extend the expiration of the Partnership's life, which currently expires on
December 31, 2001.
The Partnership has filed a Preliminary Proxy Statement with the Securities and
Exchange Commission which solicits votes for two separate proposals. The first
proposal, if approved, will extend the term of the Partnership for six years,
until December 31, 2007. The second proposal, if approved, will provide
authority to sell all of the Partnership's existing assets to Northland
Communications Corporation, or its affiliates, managing general partner of
NCP-Six, or its assigns, for an aggregate purchase price of $70,200,000. It is
management's opinion that the likelihood that either of these proposals would
not be approved by the limited partners is remote.
During the three months ended March 31, 2001, the Partnership's primary sources
of liquidity were cash provided from operations. 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
three months ended March 31, 2001, cash generated from monthly billings was
sufficient to meet the Partnership's needs for working capital and 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 1.00,
and an annual operating cash flow to interest expense ratio of not less than
2.50 to 1.00. As of March 31, 2001, the Partnership was in compliance with its
required financial covenants.
As of the date of this filing, the balance under the credit facility is
$28,215,281. Certain fixed rate agreements expired during the first quarter of
2001. As of the date of this filing, interest rates on the credit facility were
as follows: $27,815,281 fixed at a Libor based rate of 7.75% expiring May 29,
2001, $400,000 at prime (currently 9%). The above includes a margin paid to the
lender based on overall leverage, and may increase or decrease as the
Partnership's leverage fluctuates.
8
9
Capital Expenditures
During the first quarter of 2001, the Partnership incurred approximately
$768,000 in capital expenditures. These expenditures were mainly the result of
the digital service launch and a continuing system upgrade to 550 MHz in the
Starkville, MS system as well as various tap audits in some of the systems which
are designed to increase the number of basic subscribers through detecting
illegal hookups and converting these households to paying customers.
Planned expenditures for the balance of 2001 include specific digital service
launches, the continuation of the ongoing system upgrade to 550 MHz in the
Starkville, Mississippi system, ongoing deployment of fiber and system upgrades
in the Philadelphia, Mississippi and Highlands, North Carolina systems, an
ongoing system upgrade to 550 MHz in the Forest, Mississippi system and various
line extensions and channel additions in all of the systems.
Proposed Liquidation of the Partnership
The Partnership has filed a proxy statement with the SEC which describes a
proposal for the unaffiliated limited partners of NCP-Six to consider and vote
on an amendment to the NCP-Six Partnership Agreement that would extend the term
of NCP-Six from its current expiration date of December 31, 2001 until December
31, 2007. Without such amendment to the NCP-Six Partnership Agreement, NCP-Six
is currently scheduled to terminate on December 31, 2001, and upon such
termination, the General Partners will be required to initiate the winding up of
NCP-Six's affairs pursuant to the terms and conditions set forth in the NCP-Six
Partnership Agreement and Washington law. Even before December 31, 2001,
however, NCP-Six will face the maturity of its current credit facility. That
credit facility is currently scheduled to mature on June 30, 2001. Based on
discussions with NCP-Six's lenders, we do not believe the maturity date can be
extended significantly without first extending the term of the partnership for a
reasonable period of time. As of March 31, 2001, the balance owed on the NCP-Six
credit facility was $28,215,281.
The proxy statement also describes a proposal for the unaffiliated limited
partners of NCP-Six to consider and vote on an amendment to the NCP-Six
Partnership Agreement that would authorize the sale and distribution by NCP-Six
of its cable television systems and other assets owned by it to Northland
Communications Corporation (Northland), its affiliates or its assigns. The
proposed transaction is subject to the approval of holders of a majority in
interest of the units of limited partnership of NCP-Six (excluding the 30 units
held by Northland or its affiliates). If completed, the proposed transaction
will result in the following:
- All of NCP-Six's assets will be sold to Northland or an
affiliate thereof in a transaction valued at $70,200,000. The
assets that will be acquired by Northland or its affiliates will
include NCP-Six's cable television franchises and cable
television systems located in and around Starkville,
Mississippi; Philadelphia, Mississippi; Forest, Mississippi;
Highlands, North Carolina; Barnwell, South Carolina and
Bennettsville, South Carolina.
- At closing, Northland or its affiliates will assume some
partnership liabilities, which will result in a downward
adjustment to the purchase price, and NCP-Six will make an
9
10
in-kind distribution to Northland of assets equal in value to
Northland's partnership interest in NCP-Six.
- Northland or its affiliates will pay for the assets with cash
and an $11,825,000 promissory note. It is currently estimated
that the total amount of cash payable by Northland will be
approximately $52,461,000. The total value of the cash and
promissory note payable by Northland and the in-kind
distribution to Northland will be $70,200,000, as adjusted for
assumed liabilities and other matters.
- The promissory note will be due and payable in three equal
installments (on the first, second, and third anniversary of
closing the proposed transaction) and will be held by a
liquidating trust that will be established.
- The promissory note will bear interest at a fixed rate of 8
percent, will be full recourse and unsecured. The maker on the
note will be Northland or its affiliates and the note will be
subordinated to the maker's senior debt;
- NCP-Six will set aside appropriate amounts for payment of
liabilities not assumed by Northland or its affiliates in the
transaction and other Partnership obligations. This includes an
aggregate amount of $750,000 to be funded from cash paid by
Northland at closing which will also be retained by NCP-Six in
the liquidating trust. Amounts remaining in the liquidating
trust following the later of the third anniversary of closing
the proposed transaction, or resolution of any contingent
liabilities of NCP-Six, will be distributed to the unaffiliated
limited partners and the Administrative General Partner pursuant
to their respective ownership interests in NCP-Six.
- Net proceeds from the proposed transaction remaining after the
payment of NCP-Six's debt and provisions for requirements
associated with winding up the Partnership will be distributed
only to the unaffiliated limited partners and to the
Administrative General Partner of NCP-Six, pursuant to their
respective interests as set forth in the NCP-Six Partnership
Agreement.
- Northland, as the managing general partner of NCP-Six, will not
receive a cash distribution but will instead receive only an
in-kind distribution equal to its percentage interest of the
assets of NCP-Six.
Cautionary statement for purposes of the "Safe Harbor" provisions of the Private
Litigation Reform Act of 1995. Statements contained or incorporated by reference
in this document that are not based on historical fact are "forward-looking
statement" within the meaning of the Private Securities Reform Act of 1995.
Forward-looking statements may be identified by use of forward-looking
terminology such as "believe", "intends", "may", "will", "expect", "estimate",
"anticipate", "continue", or similar terms, variations of those terms or the
negative of those terms.
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) No reports on Form 8-K have been filed during the quarter ended March 31,
2001.
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: 5/15/01 BY: /s/ RICHARD I. CLARK
------- ------------------------------------
Richard I. Clark
(Executive Vice President/Treasurer)
Dated: 5/15/01 BY: /s/ GARY S. JONES
------- ------------------------------------
Gary S. Jones
(President)
12