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FORM 10-K--ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No. 34-29354 eff. 7-1-91.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KA
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended DECEMBER 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the transition period from ________to________
Commission file number 0-16063
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
STATE OF WASHINGTON 91-1318471
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3600 WASHINGTON MUTUAL TOWER
1201 THIRD AVENUE, SEATTLE, WASHINGTON 98101
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 621-1351
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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(NONE) (NONE)
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of class)
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 [ ]
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DOCUMENTS INCORPORATED BY REFERENCE
(Partially Incorporated into Part IV)
(1) Form S-1 Registration Statement declared effective on July 10, 1986 (No.
33-2928).
(2) Form 10-K Annual Reports for fiscal years ended December 31, 1986,
December 31, 1988, December 31, 1989, December 31, 1990 and December 31,
1992, respectively.
(3) Form 8-A Registration Statement filed July 24, 1987.
(4) Form 10-Q Quarterly Report for period ended September 30, 1988 and
September 30, 1996, respectively.
(5) Form 8-K Registration Statement filed January 15, 1998.
This filing contains ______ pages. Exhibits Index appears on page _____.
Financial Statements/Schedules Index appears on page _____.
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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
statements" 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.
PART I
ITEM 1. BUSINESS
Northland Cable Properties Six Limited Partnership (the "Partnership")
is a Washington limited partnership consisting of two general partners (the
"General Partners") and approximately 1,807 limited partners as of December 31,
2000. Northland Communications Corporation, a Washington corporation, is the
Managing General Partner of the Partnership (referred to herein as "Northland"
or the "Managing General Partner"). FN Equities Joint Venture, a California
general partnership, is the Administrative General Partner of the Partnership
(the "Administrative General Partner").
Northland was formed in March 1981 and is principally involved in the
ownership and management of cable television systems. Northland currently
manages the operations and is the General Partner for cable television systems
owned by 4 limited partnerships. Northland is also the parent company of
Northland Cable Properties, Inc. which was formed in February 1995 and is
principally involved in direct ownership of cable television systems and is the
majority member and manager of Northland Cable Ventures, LLC. Northland is a
subsidiary of Northland Telecommunications Corporation ("NTC"). Other
subsidiaries of NTC include:
NORTHLAND CABLE TELEVISION, INC. - formed in October 1985 and
principally involved in the direct ownership of cable television
systems. Sole shareholder of Northland Cable News, Inc.
NORTHLAND CABLE NEWS, INC. - formed in May 1994 and principally
involved in the production and development of local news, sports
and informational programming for the Partnership and other
Northland affiliates.
NORTHLAND CABLE SERVICES CORPORATION - formed in August 1993 and
principally involved in the development and production of computer
software used in billing and financial record keeping for
Northland-affiliated cable systems. Sole shareholder of Cable
Ad-Concepts.
CABLE AD-CONCEPTS, INC. - formed in November 1993 and
principally involved in the sale, development and production of
video commercial advertisements that are cablecast on
Northland-affiliated cable systems.
NORTHLAND MEDIA, INC. - formed in April 1995 as a holding company. Sole
shareholder of the following two entities:
STATESBORO MEDIA, INC. - formed in April 1995 and principally
involved in operating an AM radio station serving the community
of Statesboro, Georgia and surrounding areas.
CORSICANA MEDIA, INC. - purchased in September 1998 and
principally involved in operating an AM radio station serving
the community of Corsicana, Texas and surrounding areas.
The Partnership was formed on January 22, 1986 and began operations in
1986. In January 1998, the Partnership purchased the cable television systems
serving the communities of Allendale, Bamberg, Barnwell and Bennettsville, all
in the state of South Carolina (the "Barnwell System" and "Bennettsville System"
). In April 1999, the Partnership sold the systems serving the communities of
Sandersville, Heidelberg and Laurel, Mississippi. As of December 31, 2000, the
total number of basic subscribers served by the Systems was 31,633, and the
partnership's penetration rate (basic subscribers as a percentage of homes
passed) was approximately 62%. The Partnership's properties are located in rural
areas which, to some extent, do not offer consistently acceptable off-air
network signals. This factor, combined with the existence of fewer entertainment
alternatives than in large markets contributes to a larger proportion of the
population subscribing to cable television (higher penetration).
The Partnership has 35 non-exclusive franchises to operate the Systems.
These franchises, which will expire at various dates through the year 2017, have
been granted by local, county, state and other governmental authorities in the
areas in which the Systems
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currently operate. Franchise fees are paid to the granting governmental
authorities. These fees vary between 2% and 5% of the respective gross revenues
of the system in a particular community. The franchises may be terminated for
failure to comply with their respective conditions.
The Partnership operates five groups of "clusters" of cable systems
serving the communities and surrounding areas of Starkville, Kosciusko,
Philadelphia and Forest, Mississippi; Highlands, North Carolina; and Barnwell
and Bennettsville, South Carolina. The following is a description of these
areas:
Starkville, MS: The Starkville operating group serves the communities
and surrounding areas of Starkville and Kosciusko, Mississippi. The City of
Starkville is the home of Mississippi State University with an enrollment of
approximately 12,000 students. The university's 10 colleges and schools comprise
58 departments that offer more than 120 majors. Mississippi State is also the
largest employer in Starkville, with nearly 1,300 faculty members or
professionals and 1,450 support staff. Also located in Starkville is the
Mississippi Research and Technology Park, which is a long-range economic
development project initiated through the joint efforts of the City of
Starkville, Oktibbeha County, Mississippi State University and the local
business community. The park is located on approximately 220 acres across from
the entrance to the university and will enhance high-technology research for
application to the economic sector. The developers and businesses that comprise
the park intend to work hand in hand with research efforts at the university,
and companies that locate in the park will have the benefit of university
facilities and faculty. Certain information regarding the Starkville, MS system
as of December 31, 2000 is as follows:
Basic Subscribers 11,961
Tier Subscribers 6,063
Premium Subscribers 4,010
Estimated Homes Passed 16,525
Philadelphia, MS: The Philadelphia operating group serves the
communities and surrounding areas of Philadelphia and Forest, Mississippi. The
systems are located in central Mississippi in an area where the local economies
are based primarily in manufacturing. The region has excellent highway and
railroad transportation, a year-round mild climate, and the availability of a
trained, cost-effective labor force. One of the main industries in the area is
poultry. Nearly two million birds are dressed weekly in the city of Forest,
which ranks as the second-largest producer of broilers in the nation. Other
industries in the area include apparel, ready mix concrete, frozen food
products, lumber, small appliances, electronic assembly, meat processing and
steel. Certain information regarding the Philadelphia, MS operating group as of
December 31, 2000 is as follows:
Basic Subscribers 6,677
Tier Subscriber 2,971
Premium Subscribers 2,690
Estimated Homes Passed 8,910
Highlands and Sapphire Valley, NC: Located on a high plateau of the Blue
Ridge Mountains where the corners of Georgia, North Carolina and South Carolina
meet, Highlands has long offered a cool and beautiful summer retreat for the
affluent families from such southern cities as Atlanta, New Orleans and Tampa.
The Highlands region is almost encircled by the 200,000 acres of the End
National Forest, and boasts a lush mixture of hardwoods and evergreens because
of an abundant rainfall. Highlands has an average altitude of over 4,000 feet,
and thus maintains a temperate summer climate. The influx of tourists increases
Highland's year-round population of approximately 2,000 to over 20,000 between
May and October.
The Highlands area is perhaps best known for its exclusive golf clubs.
There are three beautiful golf courses in the Highlands area, the oldest being
the Highlands Country Club. About half the land in the Highlands area is under
private ownership; the rest is part of the End National Forest, and is open for
hiking, fishing, hunting, camping and other outdoor activities. The private land
near the golf courses consists largely of exclusive housing developments, many
of which feature rambling, ranch-style vacation homes with values ranging from
$200,000 to a half million dollars. The Great Smokey Mountains National Park and
the Blue Ridge Parkway are within easy driving distance of Highlands. Several
lakes in the area offer swimming, boating, skiing, fishing and other water
sports. Rafting is also popular in the area due to the close proximity of the
Chattooga and Cullasaja Rivers. Certain information regarding the Highlands and
Sapphire Valley, NC Systems as of December 31, 2000 is as follows:
Basic Subscribers 2,664
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Premium Subscribers 582
Estimated Homes Passed 4,190
Barnwell, SC and Bennettsville, SC: Barnwell, Bamberg and Allendale are
located approximately sixty miles south of Columbia, South Carolina. The economy
is based primarily on agricultural and manufacturing activities. Certain
information regarding the Barnwell, SC system as of December 31, 2000 is as
follows:
Basic Subscribers 5,849
Premium Subscribers 3,767
Estimated Homes Passed 12,125
The City of Bennettsville is located approximately 100 miles northeast
of Columbia, South Carolina and serves as the county seat of Marlboro County.
The economy is primarily driven by agriculture and manufacturing, with three of
the largest employers being Mohawk Carpet, United Technologies Automotive and
Williamette Industries. Certain information regarding the Bennettsville, SC
Systems as of December 31, 2000 is as follows:
Basic Subscribers 4,482
Premium Subscribers 2,953
Estimated Homes Passed 9,090
The Partnership had 48 employees as of December 31, 2000. Management of
these systems is handled through offices located in the towns of Starkville,
Forest, Kosciusko and Philadelphia, Mississippi; Highlands, North Carolina; and
Barnwell and Bennettsville, South Carolina. Pursuant to the Agreement of Limited
Partnership, the Partnership reimburses the Managing General Partner for time
spent by the Managing General Partner's accounting staff on Partnership
accounting and bookkeeping matters. (See Item 13(a) below.)
The Partnership's cable television business is generally not considered
seasonal. The business of the Partnership is not dependent upon a single
customer or a few customers, the loss of any one or more of which would have a
material adverse effect on its business. No customer accounts for 10% or more of
revenues. No material portion of the Partnership's business is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of any governmental unit, except that franchise agreements may be
terminated or modified by the franchising authorities as noted above. During the
last year, the Partnership did not engage in any research and development
activities.
Partnership revenues are derived primarily from monthly payments
received from cable television subscribers. Subscribers are divided into four
categories: basic subscribers, expanded basic subscribers, premium subscribers,
and digital subscribers. "Basic subscribers" are households that subscribe to
the basic level of service, which generally provides access to the three major
television networks (ABC, NBC and CBS), a few independent local stations, PBS
(the Public Broadcasting System) and certain satellite programming services,
such as ESPN, CNN or The Discovery Channel. "Expanded basic subscribers" are
households that subscribe to an additional level of programming services the
content of which varies from system to system. "Premium subscribers" are
households that subscribe to one or more "pay channels" in addition to the basic
service. These pay channels include such services as Showtime, Home Box Office,
Cinemax, Disney or The Movie Channel. "Digital subscribers" are those who
subscribe to digitally delivered video and audio services where offered.
COMPETITION
Cable television systems currently experience competition from several
sources, including broadcast television, cable overbuilds, direct broadcast
satellite services, private cable and multichannel multipoint distribution
service systems. Cable television systems are also in competition in various
degrees with other communications and entertainment media, including motion
pictures, home video cassette recorders, internet data delivery and internet
video delivery. The following provides a summary description of these sources of
competition.
BROADCAST TELEVISION
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Cable television systems have traditionally competed with broadcast
television, which consists of television signals that the viewer is able to
receive directly on his television without charge using an "off-air" antenna.
The extent of this competition is dependent in part upon the quality and
quantity of signals available by antenna reception as compared to the services
provided by the local cable system. Accordingly, cable operators find it less
difficult to obtain higher penetration rates in rural areas (where signals
available off-air are limited) than in metropolitan areas where numerous, high
quality off-air signals are often available without the aid of cable television
systems. The recent licensing of digital spectrum by the FCC will provide
incumbent broadcast licenses with the ability to deliver high definition
television pictures and multiple digital-quality program streams, as well as
advanced digital services such as subscription video.
OVERBUILDS
Cable television franchises are not exclusive, so that more than one
cable television system may be built in the same area. This is known as an
"overbuild." Overbuilds have the potential to result in loss of revenues to the
operator of the original cable television system. Constructing and developing a
cable television system is a capital intensive process, and it is often
difficult for a new cable system operator to create a marketing edge over the
existing system. Generally, an overbuilder would be required to obtain
franchises from the local governmental authorities, although in some instances,
the overbuilder could be the local government itself. In any case, an
overbuilder would be required to obtain programming contracts from entertainment
programmers and, in most cases, would have to build a complete cable system such
as headends, trunk lines and drops to individual subscribers homes throughout
the franchise areas.
Federal cross-ownership restrictions historically limited entry by local
telephone companies into the cable television business. The 1996 Telecom Act
eliminated this cross-ownership restriction. See "Regulation and Legislation"
below. It is therefore possible for companies with considerable resources to
overbuild existing cable operators and enter the business. Several telephone
companies have begun seeking cable television franchises from local governmental
authorities and constructing cable television systems. The Partnership cannot
predict at this time the extent of telephone company competition that will
emerge in areas served by the Partnership's cable television systems. The entry
of telephone companies as direct competitors, however, is likely to continue
over the next several years and could adversely affect the profitability and
market value of the Partnership's systems. The entry of electric utility
companies into the cable television business, as now authorized by the 1996
Telecom Act, could have a similar adverse effect.
DIRECT BROADCAST SATELLITE SERVICE
High powered direct-to-home satellites have made possible the wide-scale
delivery of programming to individuals throughout the United States using small
roof-top or wall-mounted antennas. The two leading DBS providers have
experienced dramatic growth over the last several years and together now serve
over 10 million customers nationwide. Companies offering direct broadcast
satellite service use video compression technology to increase channel capacity
of their systems to more than 100 channels and to provide packages of movies,
satellite networks and other program services which are competitive to those of
cable television systems. DBS companies historically faced significant legal and
technological impediments to providing popular local broadcast programming to
their customers. Recent federal legislation reduced this competitive
disadvantage. Nevertheless, technological limitations still affect DBS
companies, and it is expected that DBS companies will offer local broadcast
programming only in the top 50 to 100 U.S. markets for the foreseeable future.
The same legislation reduced the compulsory copyright fees paid by DBS companies
and allowed them to continue offering distant network signals to rural
customers. The availability of low or no cost DBS equipment, delivery of local
signals in some markets and exclusivity with respect to certain sports
programming has increased DBS's market share over recent years. The impact of
DBS services on the Partnership's market share within its service areas cannot
be precisely determined but is estimated to have taken away between 2% and 6%
depending upon the specific area.
PRIVATE CABLE
Additional competition is provided by private cable television systems,
known as satellite master antenna television, serving multi-unit dwellings such
as condominiums, apartment complexes, and private residential communities. These
private cable systems may enter into exclusive agreements with apartment owners
and homeowners associations, which may preclude operators of franchised systems
from serving residents of these private complexes. Operators of private cable,
which do not cross public rights of way, are free from the federal, state and
local regulatory requirements imposed on franchised cable television operators.
MULTICHANNEL MULTIPOINT DISTRIBUTION SERVICE SYSTEMS
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Cable television systems also compete with wireless program distribution
services such as multichannel, multipoint distribution service systems, commonly
called wireless cable, which are licensed to serve specific areas. Multichannel,
multipoint distribution service systems use low-power microwave frequencies to
transmit television programming over-the-air to paying subscribers. This
industry is less capital intensive than the cable television industry, and it is
therefore more practical to construct systems using this technology in areas of
lower subscriber penetration.
REGULATION AND LEGISLATION
SUMMARY
The following summary addresses the key regulatory developments and
legislation affecting the cable television industry. Other existing federal
legislation and regulations, copyright licensing and, in many jurisdictions,
state and local franchise requirements are currently the subject of a variety of
judicial proceedings, legislative hearings and administrative and legislative
proposals which could change, in varying degrees, the manner in which cable
television systems operate. Neither the outcome of these proceedings nor their
impact upon the cable television industry or the Partnership can be predicted at
this time.
The Partnership expects to adapt its business to adjust to the changes
that may be required under any scenario of regulation. At this time, the
Partnership cannot assess the effects, if any, that present regulation may have
on the Partnership's operations and potential appreciation of its Systems. There
can be no assurance that the final form of regulation will not have a material
adverse impact on the Partnership's operations.
The operation of a cable system is extensively regulated at the federal,
local, and, in some instances, state levels. The Cable Communications Policy Act
of 1984, the Cable Television Consumer Protection and Competition Act of 1992
(the "1992 Cable Act"), and the 1996 Telecommunications Act (the "1996 Telecom
Act", and, collectively, the "Cable Act") establish a national policy to guide
the development and regulation of cable television systems. The Federal
Communications Commission ("FCC") has principal responsibility for implementing
the policies of the Cable Act. Many aspects of such regulation are currently the
subject of judicial proceedings and administrative or legislative proposals.
Legislation and regulations continue to change, and the Partnership cannot
predict the impact of future developments on the cable television industry.
Future regulatory and legislative changes could adversely affect the
Partnership's operations.
CABLE RATE REGULATION
The 1992 Cable Act imposed an extensive rate regulation regime on the
cable television industry, which limited the ability of cable companies to
increase subscriber fees. Under that regime, all cable systems were subject to
rate regulation, unless they face "effective competition" in their local
franchise area. Federal law now defines "effective competition" on a
community-specific basis as requiring satisfaction of conditions rarely
satisfied in the current marketplace.
Although the FCC established the underlying regulatory scheme, local
government units, commonly referred to as local franchising authorities, are
primarily responsible for administering the regulation of the lowest level of
cable service called the basic service tier. The basic service tier typically
contains local broadcast stations and public, educational, and government access
channels. Local franchising authorities also have primary responsibility for
regulating cable equipment rates. Under federal law, charges for various types
of cable equipment must be unbundled from each other and from monthly charges
for programming services. Before a local franchising authority begins basic
service rate regulations, it must certify to the FCC that it will follow
applicable federal rules. Many local franchising authorities have voluntarily
declined to exercise their authority to regulate basic service rates.
As of December 31, 2000, approximately 14% of the Partnership's local
franchising authorities were certified to regulate basic tier rates. The 1992
Cable Act permits communities to certify and regulate rates at any time, so that
it is possible that additional localities served by the systems may choose to
certify and regulate rates in the future.
The FCC itself historically administered rate regulation of cable
programming service tiers, which represent the expanded level of non-"basic" and
non-"premium", programming services. The 1996 Telecom Act, however, provided
special rate relief for small cable operators offering cable programming service
tiers. The elimination of cable programming service tier regulation afforded the
Partnership substantially greater pricing flexibility.
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Under the rate regulations of the FCC, most cable systems were required
to reduce their basic service tier and cable programming service tier rates in
1993 and 1994, and have since had their rate increases governed by a complicated
price cap scheme that allows for the recovery of inflation and certain increased
costs, as well as providing some incentive for expanding channel carriage. The
FCC has modified its rate adjustment regulations to allow for annual rate
increases and to minimize previous problems associated with regulatory lag.
Operators also have the opportunity to bypass this "benchmark" regulatory scheme
in favor of traditional "cost-of-service" regulation in cases where the latter
methodology appears favorable. Cost of service regulation is a traditional form
of rate regulation, under which a utility is allowed to recover its costs of
providing the regulated service, plus a reasonable profit.
In a particular effort to ease the regulatory burden on small cable
systems, the FCC created special rate rules applicable for systems with fewer
than 15,000 subscribers owned by an operator with fewer than 400,000
subscribers. The special rate rules allow for a simplified cost-of-service
showing. All of the Partnership's systems are eligible for these simplified
cost-of-service rules, and have calculated rates generally in accordance with
those rules.
Under the FCC's rate rules, premium cable services offered on a
per-channel or per-program basis remain unregulated, as do affirmatively
marketed packages consisting entirely of new programming product. However,
federal law requires that the basic service tier be offered to all cable
subscribers and limits the ability of operators to require purchase of any cable
programming service tier if a customer seeks to purchase premium services
offered on a per-channel or per-program basis, subject to a technology exception
which sunsets in 2002. The 1996 Telecom Act also relaxes existing "uniform rate"
requirements by specifying that uniform rate requirements do not apply where the
operator faces "effective competition," and by exempting bulk discounts to
multiple dwelling units, although complaints about predatory pricing still may
be made to the FCC.
Regulation by the FCC of cable programming service tier rates for all
systems, regardless of size, sunset pursuant to the 1996 Telecom Act on March
31, 1999. Certain legislators, however, have called for new rate regulations.
Should this occur, all rate deregulation, including that applicable to small
operators like the Partnership, could be jeopardized.
CABLE ENTRY INTO TELECOMMUNICATIONS
The 1996 Telecom Act creates a more favorable environment for the
Partnership to provide telecommunications services beyond traditional video
delivery. It provides that no state or local laws or regulations may prohibit or
have the effect of prohibiting any entity from providing any interstate or
intrastate telecommunications service. A cable operator is authorized under the
1996 Telecom Act to provide telecommunications services without obtaining a
separate local franchise. States are authorized, however, to impose
"competitively neutral" requirements regarding universal service, public safety
and welfare, service quality, and consumer protection. State and local
governments also retain their authority to manage the public rights-of-way and
may require reasonable, competitively neutral compensation for management of the
public rights-of-way when cable operators provide telecommunications service.
The favorable pole attachment rates afforded cable operators under
federal law can be gradually increased by utility companies owning the poles,
beginning in 2001, if the operator provides telecommunications service, as well
as cable service, over its plant. The FCC recently clarified that a cable
operator's favorable pole rates are not endangered by the provision of Internet
services, but the U.S. Court of Appeals for the 11th Circuit recently ruled in
Gulf Power Co. v. FCC, 208F.3d 1263 (11th Cir. 2000) ("Gulf Power") that the FCC
has no authority to regulate pole rents for cable systems providing Internet
services (because, the court ruled, Internet services are not telecommunications
services or cable services). The court subsequently stayed the issuance of the
mandate in Gulf Power pending the filing of and final action on a petition for
write of certiorari seeking review of the Gulf Power decision in the U.S.
Supreme Court. The stay allows for the orderly review of the decision in the
U.S. Supreme Court. In the interim, the FCC may continue to process pending pole
attachment complaints under its existing rules and procedures. If the 11th
Circuit decision goes into effect, it could significantly increase pole
attachment rates and adversely impact cable operators.
Cable entry into telecommunications will be affected by the regulatory
landscape now being fashioned by the FCC and state regulators. One critical
component of the 1996 Telecom Act to facilitate the entry of new
telecommunications providers (including cable operators) is the interconnection
obligation imposed on all telecommunications carriers. The Supreme Court
effectively upheld most of the FCC interconnection regulations, but recently the
8th Circuit Court of Appeals vacated other portions of the FCC's rules on
slightly different grounds. More recently, the 9th Circuit Court of Appeals
ruled in the FCC's favor on these same rules, creating a split in authority that
may be resolved by the Supreme Court. Although these regulations should enable
new telecommunications entrants to reach viable interconnection agreements with
incumbent carriers, many issues, including which specific network elements the
FCC can mandate that incumbent carriers make available to competitors, remain
unresolved.
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Similarly, if another FCC decision requiring that incumbent telephone
companies permit co-location of competitors' equipment on terms more favorable
to competitors is sustained on administrative and judicial appeal, this
decision, too, would make it easier for new entrants, including the Partnership,
to provide telecommunications service.
INTERNET SERVICE
There is at present no significant federal regulation of cable system
delivery of Internet services. Furthermore, the FCC recently issued several
reports finding no immediate need to impose this type of regulation. However,
this situation may change as cable systems expand their broadband delivery of
Internet services. In particular, proposals have been advanced at the federal
level that would require cable operators to provide access to unaffiliated
Internet-service providers and online service providers. In one instance, the
Federal Trade Commission is considering whether and to what extent to impose, as
a condition of Time Warner's merger with America Online, certain "open access"
requirements on Time Warner's cable systems, thereby allowing unaffiliated
Internet-service providers access to Time Warner's broadband distribution
infrastructure.
Some local franchising authorities unsuccessfully tried to impose
mandatory Internet access or "open access" requirements as part of cable
franchise renewals or transfers. In AT&T Corp v. City of Portland, No. 99-35609
(9th Cir., June 22, 2000), the federal Court of Appeals for the Ninth Circuit
overturned a federal district court in Portland, Oregon's ruling that local
franchising authorities have the lawful authority to impose these type of
conditions. The lower court had ruled that the City of Portland had inherent
authority to require, as a condition of the City's consent to the transfer of
TCI's cable franchise to AT&T, that AT&T provide "open access" to the "cable
modem platform" of the Excite@Home Internet service. On appeal, the Court of
Appeals rejected the City's attempt to impose "open access" conditions on AT&T
delivery of Internet service over the cable system because that service,
according to the Court, is not a cable service, but a "telecommunications
service." The potential regulatory state and federal implications of this
rationale are unclear, given the various regulatory requirements for the
provision of telecommunications services. There have been at least two
additional court rulings that have rejected local imposition of "open access"
conditions on cable-provided Internet access, but those ruling have employed
very different legal reasoning. A federal court in Virginia found that Internet
service was a cable service, but as such was exempt from local "open access"
regulation. Another federal court in Florida even more recently ruled that "open
access" could not be imposed on local operators because doing so would violate
the First Amendment. Other local authorities have imposed or may impose
mandatory Internet access requirements on cable operators. These developments
could, if they become widespread, burden the capacity of cable systems and
complicate any plans the Partnership may have to develop for providing Internet
service.
TELEPHONE COMPANY ENTRY INTO CABLE TELEVISION
The 1996 Telecom Act allows telephone companies to compete directly with
cable operators by repealing the historic telephone company/cable
cross-ownership ban. Local exchange carriers, including the regional telephone
companies, can now compete with cable operators both inside and outside their
telephone service areas with certain regulatory safeguards. Because of their
resources, local exchange carriers could be formidable competitors to
traditional cable operators. Various local exchange carriers currently are
providing video programming services within their telephone service areas
through a variety of distribution methods, including both the deployment of
broadband wire facilities and the use of wireless transmission.
Under the 1996 Telecom Act, local exchange carriers providing video
programming should be regulated as a traditional cable operator, subject to
local franchising and federal regulatory requirements, unless the local exchange
carrier elects to deploy its plant as an open video system. To qualify for
favorable open video system status, the competitor must reserve two-thirds of
the system's activated channels for unaffiliated entities. The Fifth Circuit
Court of Appeals reversed certain of the FCC's open video system rules,
including its preemption of local franchising. The FCC recently revised its OVS
rules to eliminate this general preemption, thereby leaving franchising
discretion to local and state authorities. It is unclear what effect this ruling
will have on the entities pursuing open video system operation.
Although local exchange carriers and cable operators can now expand
their offerings across traditional service boundaries, the general prohibition
remains on local exchange carrier buyouts of co-located cable systems. Cable
operator buyouts of co-located local exchange carrier systems, and joint
ventures between cable operators and local exchange carriers in the same market
also are prohibited. The 1996 Telecom Act provides a few limited exceptions to
this buyout prohibition, including a carefully circumscribed "rural exemption."
The 1996 Telecom Act also provides the FCC with the limited authority to grant
waivers of the buyout prohibition.
9
10
ELECTRIC UTILITY ENTRY INTO TELECOMMUNICATIONS/CABLE TELEVISION
The 1996 Telecom Act provides that registered utility holding companies
and subsidiaries may provide telecommunications services, including cable
television, notwithstanding the Public Utility Holding Company Act. Electric
utilities must establish separate subsidiaries, known as "exempt
telecommunications companies" and must apply to the FCC for operating authority.
Like telephone companies, electric utilities have substantial resources at their
disposal, and could be formidable competitors to traditional cable systems.
Several of these utilities have been granted broad authority by the FCC to
engage in activities which could include the provision of video programming.
ADDITIONAL OWNERSHIP RESTRICTIONS
The 1996 Telecom Act eliminates statutory restrictions on
broadcast/cable cross-ownership, including broadcast network/cable restrictions,
but leaves in place existing FCC regulations prohibiting local cross-ownership
between co-located television stations and cable systems. The 1996 Cable Act
leaves in place existing restrictions on cable cross-ownership with satellite
master antenna television and multichannel multipoint distribution service
facilities, but lifts those restrictions where the cable operator is subject to
effective competition. FCC regulations permit cable operators to own and operate
satellite master antenna television systems within their franchise area,
provided that their operation is consistent with local cable franchise
requirements.
MUST CARRY/RETRANSMISSION CONSENT
The 1992 Cable Act contains broadcast signal carriage requirements.
Broadcast signal carriage is the transmission of broadcast television signals
over a cable system to cable customers. These requirements, among other things,
allow local commercial television broadcast stations to elect once every three
years between a "must carry" status or a "retransmission consent" status. Less
popular stations typically elect must carry, which is the broadcast signal
carriage requirement that allows local commercial television broadcast stations
to require a cable system to carry the station. Must carry requests can dilute
the appeal of a cable system's programming offerings because a cable system with
limited channel capacity may be required to forego carriage of popular channels
in favor of less popular broadcast stations electing must carry. More popular
stations, such as those affiliated with a national network, typically elect
retransmission consent, which is the broadcast signal carriage rule that allows
local commercial television broadcast stations to negotiate terms (such as
mandating carriage of an affiliated cable network) for granting permission to
the cable operator to carry the stations. Retransmission consent demands may
require substantial payments or other concessions.
The Partnership has been able to reach agreements with all of the
broadcasters who elected retransmission consent. To date, compliance with the
"retransmission consent" and "must carry" provisions of the 1992 Cable Act has
not had a material effect on the Partnership, although these provisions may
affect the operations of the Partnership in the future, depending on factors as
market conditions, the introduction of digital broadcasts, channel capacity and
similar matters when these arrangements are negotiated or renegotiated.
The burden associated with must carry may increase substantially if
broadcasters proceed with planned conversion to digital transmission and the FCC
determines that cable systems must carry all analog and digital broadcasts in
their entirety. This burden would reduce capacity available for more popular
video programming and new Internet and telecommunication offerings. The
broadcast industry continues to press the FCC on the issue of digital must
carry. A rulemaking regarding must carry obligations during the transition from
analog to digital broadcasting remains pending at the FCC. It remains unclear
when a final decision will be released.
ACCESS CHANNELS
Local franchising authorities can include franchise provisions requiring
cable operators to set aside certain channels for public, educational and
governmental access programming. Federal law also requires cable systems to
designate a portion of their channel capacity, up to 15% in some cases, for
commercial leased access by unaffiliated third parties. The FCC has adopted
rules regulating the terms, conditions and maximum rates a cable operator may
charge for commercial leased access use. In the Partnership's experience to
date, requests for commercial leased access carriages have been relatively
limited.
ACCESS TO PROGRAMMING
10
11
To spur the development of independent cable programmers and competition
to incumbent cable operators, the 1992 Cable Act imposed restrictions on the
dealings between cable operators and cable programmers. Of special significance
from a competitive business posture, the 1992 Cable Act precludes video
programmers affiliated with cable companies from favoring their cable operators
over new competitors and requires these programmers to sell their programming to
other multichannel video distributors. This provision limits the ability of
vertically integrated cable programmers to offer exclusive programming
arrangements to cable companies. There also has been interest expressed in
further restricting the marketing practices of cable programmers, including
subjecting programmers who are not affiliated with cable operators or
programmers who deliver their service by terrestrial means (rather than by
satellite) to the program access requirements. These changes should not have a
dramatic impact on the Partnership, but would limit potential competitive
advantages the Partnership enjoys.
INSIDE WIRING; SUBSCRIBER ACCESS
In an order issued in 1997, the FCC established rules that require an
incumbent cable operator upon expiration of a multiple dwelling unit service
contract to sell, abandon, or remove "home run" wiring that was installed by the
cable operator in a multiple dwelling unit building. These inside wiring rules
are expected to assist building owners in their attempts to replace existing
cable operators with new programming providers who are willing to pay the
building owner a higher fee, where this fee is permissible. The FCC has also
proposed abrogating all exclusive multiple dwelling unit service agreements held
by incumbent operators.
With limited exceptions, existing FCC regulations prohibit any state or
local law or regulations, or private covenant, private contract, lease
provision, homeowners' association rule or similar restriction, impairing the
installation, maintenance or use of certain video reception antennas on property
within the exclusive control of a tenant or property owner.
OTHER REGULATIONS OF THE FEDERAL COMMUNICATIONS COMMISSION
In addition to the FCC regulations noted above, there are other FCC
regulations covering such areas as:
- equal employment opportunity,
- subscriber privacy,
- programming practices, including, among other things,
- syndicated program exclusivity
- network program nonduplication,
- local sports blackouts,
- indecent programming,
- lottery programming,
- political programming,
- sponsorship identification,
- children's programming advertisements, and
- closed captioning,
- registration of cable systems and facilities licensing,
- maintenance of various records and public inspection files,
11
12
- aeronautical frequency usage,
- lockbox availability,
- antenna structure notification,
- tower marking and lighting,
- consumer protection and customer service standards,
- technical standards,
- consumer electronics equipment compatibility, and
- emergency alert systems.
The FCC recently ruled that cable customers must be allowed to purchase
cable converters from third parties and established a multi-year phase-in during
which security functions, which would remain in the operator's exclusive
control, would be unbundled from basic converter functions, which could then be
satisfied by third party vendors.
The FCC has the authority to enforce its regulations through the
imposition of substantial fines, the issuance of cease and desist orders and/or
the imposition of other administrative sanctions, such as the revocation of FCC
licenses needed to operate certain transmission facilities used in connection
with cable operations.
COPYRIGHT
Cable television systems are subject to federal copyright licensing
covering carriage of television and radio broadcast signals. In exchange for
filing certain reports and contributing a percentage of their revenues to a
federal copyright royalty pool, cable operators can obtain blanket permission to
retransmit copyrighted material included in broadcast signals. Effective July 1,
2000, the federal Copyright Office increased the cable compulsory license rates
used to calculate cable systems' copyright payments under the cable compulsory
license. The possible modification or elimination of this compulsory copyright
license is the subject of continuing legislative review and could adversely
affect the Partnership's ability to obtain desired broadcast programming. The
outcome of this legislative activity cannot be predicted. Copyright clearances
for nonbroadcast programming services are arranged through private negotiations.
Cable operators distribute locally originated programming and
advertising that use music controlled by the two principal major governmental
agencies, some of which impose regulation of a character similar to that of a
public utility. Although local franchising authorities have considerable
discretion in establishing franchise terms, there are certain federal
limitations. For example, local franchising authorities cannot insist on
franchise fees exceeding 5% of the system's gross cable-related revenues, cannot
dictate the particular technology used by the system, and cannot specify video
programming other than identifying broad categories of programming.
Federal law contains renewal procedures designed to protect incumbent
franchisees against arbitrary denials of renewal. Even if a franchise is
renewed, the local franchising authority may seek to impose new and more onerous
requirements such as significant upgrades in facilities and service or increased
franchise fees as a condition of renewal. Similarly, if a local franchising
authority's consent is required for the purchase or sale of a cable system or
franchise, the local franchising authority may attempt to impose more burdensome
or onerous franchise requirements in connection with a request for consent. The
Cable Act requires franchising authorities to act on any franchise transfer
request within 120 days after receipt by the franchising authority of all
information required by FCC regulations. Approval is deemed to be granted if the
franchising authority fails to act within such 120-day period. Historically,
most of the Partnership's franchises have been renewed and transfer consents
granted.
12
13
Under the 1996 Telecom Act, local franchising authorities are prohibited
from limiting, restricting, or conditioning the provision of competitive
telecommunications services except for certain "competitively neutral"
requirements necessary to manage public rights of way. In addition, local
franchising authorities may not require the Partnership to provide any
telecommunications service or facilities, other than institutional networks
under certain circumstances, as a condition of an initial cable franchise grant,
franchise renewal, or franchise transfer. The 1996 Telecom Act also provides
that franchising fees are limited to an operator's cable-related revenues and do
not apply to revenues that the Partnership derives from providing new
telecommunications services.
ITEM 2. PROPERTIES
The Partnership's cable television systems are located in and around
Starkville, Philadelphia, Kosciusko, Carthage, Forest and Raleigh, Mississippi;
Highlands and Sapphire Valley, North Carolina; and Barnwell, Bamberg, Allendale
and Bennettsville, South Carolina. The principal physical properties of the
Systems consist of system components (including antennas, coaxial cable,
electronic amplification and distribution equipment), motor vehicles,
miscellaneous hardware, spare parts and real property, including office
buildings and land on which towers and antennas are located. The Partnership's
cable plant passed approximately 50,840 homes as of December 31, 2000.
Management believes that the Partnership's plant passes all areas which are
currently economically feasible to service. Future line extensions depend upon
the density of homes in the area as well as available capital resources for the
construction of new plant. (See Part II. Item 7. Liquidity and Capital
Resources.)
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
None.
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14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) There is no established public trading market for the
Partnership's units of limited partnership interest.
(b) The approximate number of equity holders as of December 31,
2000, is as follows:
Limited Partners: 1,807
General Partners: 2
(c) (C)The Partnership made no cash distributions during 2000, 1999
and 1998. The limited partners have received in the aggregate in
the form of cash distributions $3,817,997 on total initial
contributions of $15,000,000 as of December 31, 2000. As of
December 31, 2000, the Partnership had repurchased $100,475 of
limited partnership units (173 units at $500 per unit and 43
units at $325 per unit). Future distributions depend upon
results of operations, leverage ratios and compliance with
financial covenants required by the Partnership's lender, but
are expected to remain at their current level.
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ----------- -----------
SUMMARY OF OPERATIONS:
Revenue $ 15,221,887 $ 15,005,218 $ 14,746,766 $ 9,644,320 $ 9,262,702
Operating income 1,587,889 1,312,323 1,621,138 2,061,496 1,394,255
Gain/(Loss) on retirement
of assets (266,933) 1,330,533 (229,940) 7,095 (152,698)
Net income (loss) (1,326,393) 98,856 (1,369,601) 1,215,899 381,451
Net income (loss)per
limited partner unit
(weighted average) (44) 3 (46) 40 13
Cumulative tax losses
per limited partner
unit (342) (342) (342) (342) (342)
DECEMBER 31,
------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
BALANCE SHEET DATA:
Total assets $ 28,528,812 $ 30,603,533 $ 32,971,969 $ 13,609,386 $ 13,253,610
Notes payable 28,215,281 28,965,281 31,372,848 10,899,421 11,920,821
Total liabilities 30,037,951 30,786,279 33,249,571 12,513,387 13,365,510
General partners'
deficit (142,106) (128,842) (129,831) (116,135) (128,294)
Limited partners'
(deficit)capital (1,367,033) (53,904) (147,771) 1,212,134 16,394
Distributions per
limited partner unit 0 0 0 0 3
Cumulative distribu-
tions per limited
partner unit 128 128 128 128 128
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15
QUARTERS ENDED
----------------------------------------------------------------------------------------
DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31, DECEMBER 31,
2000 2000 2000 2000 1999
------------ ------------ ------------ ------------ ------------
Revenue $ 3,852,433 $ 3,812,503 $ 3,803,536 $ 3,753,415 $ 3,798,006
Operating income 188,724 477,807 465,645 455,714 144,431
Gain (loss)
on retirement
of assets (162,743) (108,898) -- 4,708 (273,689)
Net income (loss) $ (636,500) $ (309,847) $ (195,891) $ (184,093) $ (795,897)
Net income (loss) per
limited partner unit
(weighted average) $ (21) $ (10) $ (7) $ (6) $ (26)
Investment in cable
television properties $ 26,422,694 $ 27,009,267 $ 27,446,910 $ 28,197,268 $ 29,161,847
Book value per
partnership unit $ 897 $ 907 $ 922 $ 947 $ 979
QUARTERS ENDED
------------------------------------------------
SEPTEMBER 30, JUNE 30, MARCH 31,
1999 1999 1999
------------ ----------- ------------
Revenue $ 3,709,213 $ 3,765,209 $ 3,732,791
Operating income 429,065 487,176 302,304
Gain (loss)
on retirement
of assets (58,045) 1,662,267 --
Net income (loss) $ (261,347) $ 1,467,256 $ (311,159)
Net income (loss) per
limited partner unit
(weighted average) $ (9) $ 49 $ (10)
Investment in cable
television properties $ 29,907,660 $30,170,700 $ 30,583,736
Book value per
partnership unit $ 1,004 $ 1,013 $ 1,027
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL music performing rights organizations, the American Society of
Composers, Authors and Publishers (ASCAP) and Broadcast Music, Inc. (BMI). The
cable industry has had a long series of negotiations and adjudications with both
organizations. A prior voluntarily negotiated settlement with BMI has now
expired, and is subject to further proceedings. The governing rate court
recently set retroactive and prospective cable industry rates for ASCAP music
based on the previously negotiated BMI rate. Although the Partnership cannot
predict the ultimate outcome of these industry proceedings or the amount of any
license fees that they may be required to pay for past and future use of
association-controlled music, the Partnership does not currently believe these
license fees will be significant to their business and operations.
STATE AND LOCAL REGULATION
Cable television systems generally are operated pursuant to nonexclusive
franchises granted by a municipality or other state or local government entity
in order to cross public rights-of-way. Federal law now prohibits local
franchising authorities from granting exclusive franchises or from unreasonably
refusing to award additional franchises.
Cable franchises generally are granted for fixed terms and in many cases
include monetary penalties for non-compliance and may be terminable if the
franchisee fails to comply with material provisions. The specific terms and
conditions of franchises vary materially between jurisdictions. Each franchise
generally contains provisions governing cable operations, service rates,
franchising fees, system construction and maintenance obligations, system
channel capacity, design and technical performance, customer service standards,
and indemnification protections. A number of states subject cable systems to the
jurisdiction of centralized state
Under the terms of the Partnership's credit 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 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 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 its existing assets Northland Communications
Corporation, managing general partner of NCP-Six, or its assigns, for an
aggregate price of $70,200,000. It is management's opinion that the likelihood
that either of these proposals not be approved by the limited partners is
remote.
RESULTS OF OPERATIONS
2000 AND 1999
Total revenue reached $15,221,887 for the year ended December 31, 2000,
representing an increase of approximately 1% over 1999. Of the 2000 revenue,
$11,025,826 (72%) is derived from subscriptions to basic services, $1,379,913
(9%) from subscriptions to premium services, $948,969 (6%) from subscriptions to
tier services, $581,281 (4%) from advertising, $397,470 (3%) from service
15
16
maintenance revenue, $333,125 (2%) from installation charges and $555,303 (4%)
from other sources. The April 1999 disposition of the Sandersville, Mississippi
System decreased revenues approximately $200,000, or 2%. Assuming the
Sandersville System was disposed of at the beginning of each of the respective
periods, revenue would have increased approximately 3%. The growth in revenue is
attributable primarily to rate increases as well as new product services
introduced in 2000.
The following table displays historical average rate information for
various services offered by the Partnership's systems (amounts per subscriber
per month):
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
Basic Rate $ 28.50 $ 26.50 $ 24.20 $ 23.00 $ 22.24
Tier Rate 8.95 8.50 7.65 6.90 6.35
HBO Rate 10.30 10.25 10.50 11.35 11.25
Cinemax Rate 8.25 7.70 7.30 8.70 8.50
Showtime Rate 8.15 7.95 6.30 4.50 8.45
Movie Channel Rate 6.20 6.00 6.60 -- --
Disney Rate -- 6.50 6.20 5.10 6.00
Encore Rate 1.10 1.50 1.50 -- --
Starz Rate 6.25 8.50 8.50 -- --
Service Contract
Rate 2.25 2.30 2.35 2.60 2.65
Operating expenses totaled $1,161,419 for the year ended December 31,
2000, representing a decrease of approximately 12% over the same period in 1999.
Excluding the impact of the Sandersville System disposition, operating expenses
would have decreased approximately 10% for the year ended December 31, 2000.
This is primarily due to decreased operating salaries, regional management
expense, system maintenance costs offset by increased vehicle operating
expenses.
General and administrative expenses totaled $4,035,555 for the year
ended December 31, 2000, representing decrease of approximately 1% over the same
period in 1999. Excluding the impact of the Sandersville System disposition,
general and administrative expenses would have decreased less than 1% for the
year ended December 31, 2000.
Programming expenses totaled $3,968,492 for the year ended December 31,
2000, representing an increase of approximately 1% over 1999. Programming
expenses consist mainly of payments made to the suppliers of various cable
programming services. Adjusting for the Sandersville System disposition
programming expenses would have increased approximately 3% for the year ended
December 31, 2000 compared to the same period in 1999. This is mainly due to
higher costs charged by various program suppliers offset by reduced local
programming expense.
Depreciation and amortization expenses totaled $4,468,532 for the year
ended December 31, 2000, representing an increase of approximately 2% over the
same period in 1999. This increase is due to depreciation and amortization on
purchases of plant and equipment in 2000 offset by assets becoming fully
depreciated.
Interest expense for 2000 increased approximately 5% over 1999. The
average bank debt decreased from $30,169,000 during 1999 to $28,590,000 during
2000, offset by an increase to the Partnership's effective interest rate from
8.18% in 1999 to 8.50% in 2000.
1999 AND 1998
Total revenue reached $15,005,218 for the year ended December 31, 1999,
representing an increase of approximately 2% over 1998. Of the 1999 revenue,
$10,781,941 (72%) was derived from subscriptions to basic services, $1,509,949
(10%) from subscriptions to premium services, $846,215 (6%) from subscriptions
to tier services, $507,932 (3%) from advertising, $384,380 (3%) from service
maintenance revenue, $367,300 (2%) from installation charges and $607,501 (4%)
from other sources. The increase in revenue is attributable primarily to rate
increases placed into effect in August 1999 as well as new product services
introduced in 1999. In April 1999, the Partnership sold the cable television
system and assets relating to its Sandersville, Mississippi system, resulting in
the disposition of approximately 1,400 subscribers and decreased revenues
approximately $200,000 or 2%.
16
17
Assuming the Sandersville, Mississippi system was disposed of at the beginning
of each of the respective periods, revenues would have increased approximately
4%.
Operating expenses totaled $1,320,255 for the year ended December 31,
1999, representing an increase of approximately 5% as compared to 1998.
Excluding the impact of the disposition of the Sandersville, Mississippi system,
operating expenses would have increased approximately 9% for the year. This is
primarily due to increased operating salaries and pole rental expense offset by
decreased system maintenance expenses and drop materials. Salary and benefit
costs are a major component of operating expenses. Employee wages are reviewed
annually and, in most cases, increased based on cost of living adjustments and
other factors. Therefore, management expects operating expenses to increase in
future years.
General and administrative expenses totaled $4,064,866 for the year
ended December 31, 1999, representing an increase of approximately 7% over 1998.
Excluding the impact of the Sandersville, Mississippi system disposition,
general and administrative expenses would have increased approximately 10%
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, legal expenses, property taxes and bad debt expense offset by reduced
billing expenses, marketing expense and copyright fees. Significant general and
administrative expenses are based on revenues. As the Partnership's revenue
increases the trend of increased administrative expenses is expected to
continue.
Programming expenses totaled $3,915,701 for the year ended December 31,
1999, representing an increase of approximately 3% over 1998. Adjusting for the
Sandersville, Mississippi system disposition, programming expenses would have
increased approximately 6% 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. Programming expenses consist mainly
of payments made to the suppliers of various cable programming services. As
these costs are based on the number of subscribers served, future subscriber
increases will cause the trend of increasing programming costs to continue.
Additionally, rate increases from program suppliers, as well as new fees
associated with the launch of additional channels will also contribute to
increased programming costs.
Depreciation and amortization expenses totaled $4,392,073 for the year
ended December 31, 1999, representing an increase approximately 2% over 1998.
This increase is due to depreciation and amortization on purchases of plant and
equipment in 1999 offset by assets becoming fully depreciated.
Interest expense decreased from $2,566,743 in 1998 to $2,379,744 in 1999
(approximately 7%). The Partnership's average debt balance decreased from
approximately $31,373,000 during 1998 to $30,169,000 during 1999. The
Partnership's effective interest rate increased from approximately 7.88% in 1998
to 8.18% in 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's primary sources of liquidity are cash flow provided
from operations and availability under an $8 million revolving credit line, of
which approximately $5.65 million was outstanding as of December 31, 2000. Based
on management's analysis, the Partnership's cash flow from operations and
amounts available for borrowing under its 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 agreement become due. 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 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 its existing assets Northland
Communications Corporation, 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 not be approved by the limited
partners is remote.
During 2000, the Partnership's primary sources of liquidity was 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 2000, cash generated from
monthly billings was sufficient to meet the Partnership's needs for working
capital, capital expenditures and scheduled debt service.
17
18
On December 31, 1997, the Partnership amended and restated its credit
agreement with its current lender to finance the acquisition of the
Bennettsville, Barnwell, Bamberg and Allendale, 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. In July 1999, the
Partnership further amended its credit agreement to modify the amortization of
its term loan and certain financial covenants. In December 2000, the Partnership
further amended its credit agreement to extend the maturity of the credit
facility to June 2001.
Under the terms of the loan agreement, the Partnership has agreed to
restrictive covenants which require the maintenance of financial 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 2.25 to
1. As of December 31, 2000, the Partnership was in compliance with its required
financial covenants.
As of December 31, 2000, the balance under the credit facility was
$28,215,281 and $2.35 million was available for borrowing by the Partnership
subject to compliance with financial covenants. As of December 31, 2000,
interest rates on the credit facility were as follows: approximately $28,215,281
fixed at Libor based rate of 8.5 % expiring March 28, 2001. The above includes a
margin paid to the lender based on overall leverage, and may increase or
decrease as the Partnership's leverage fluctuates.
The Partnership has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks. The Partnership enters into interest rate swap
agreements with major banks or financial institutions (typically its bank) in
which the Partnership pays a fixed rate and receives a floating rate with the
interest payments being calculated on a notional amount. Gains or losses
associated with changes in fair values of these swaps and the underlying
notional principal amounts are deferred and recognized against interest expense
over the term of the agreements the Partnership's statements of operations. As
of December 31, 2000, the Partnership had no interest rate swap agreements
outstanding.
CAPITAL EXPENDITURES
During 2000, the Partnership incurred approximately $2,054,000 in
capital expenditures. These expenditures included the ongoing system upgrade to
550 MHz in the Starkville System, the continued deployment of fiber in the
Highlands System, the continued system upgrade to 450 MHz and channel additions
in the Philadelphia System, and the continued system upgrade to 450 MHz in the
Barnwell System, as well as various line extensions in all of the systems.
Management estimates that the Partnership will spend approximately
$3,115,000 on capital expenditures during 2001. These expenditures include
specific digital service launches, the continuation of the ongoing system
upgrade to 550 MHz in the Starkville System, ongoing deployment of fiber and
system upgrades in the Philadelphia and Highlands Systems, ongoing system
upgrade to 550 MHz in the Forest System, and various line extensions and channel
additions in all of the systems.
RECENT ACQUISITIONS AND DISPOSITIONS
On April 30, 1999, the Partnership sold the assets of its cable
television system serving approximately 1,400 subscribers in and around the
communities of Sandersville, Mississippi. The sales price for the system was
$1.9 million, and the net proceeds were utilized to reduce outstanding debt. The
Partnership determined to sell the Sandersville system due to the significant
overbuild situation facing the system and the surrounding geographic area. Due
to the overbuild and the lack of other interested purchasers for the system, the
Partnership sold the Sandersville system to the overbuilder.
On January 2, 1998, the Partnership purchased cable television systems
serving approximately 11,200 subscribers in and around the communities of
Allendale, Bamberg, Barnwell and Bennettsville, South Carolina. The purchase
price of these systems was $20.5 million. The Partnership borrowed approximately
$20.47 million under an amended and restated revolving credit and term loan
agreement with its lender to finance the acquisition of the South Carolina cable
systems.
Pro forma operating results of the Partnership for the year ending
December 31, 1999, assuming the disposition of the Sandersville system had been
completed as of the beginning of 1998, is as follows:
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1999 1998
------------ ------------
Revenue $ 14,183,800 $ 14,183,431
============ ============
Net loss $ (1,482,272) $ (1,271,034)
============ ============
Net loss per limited
partnership unit $ (50) $ (43)
============ ============
PROPOSED LIQUIDATION OF THE PARTNERSHIP
The Partnership has filed a proxy statement with the SEC relating to a
proposal to be made to 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
further extended without first extending the term of the partnership for a
reasonable period of time. As of December 31, 2000, the balance owed on the
NCP-Six credit facility was $28,215,281.
The proxy statement also contains a proposal to be made to 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, 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 Starkville, Mississippi;
Philadelphia, 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
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 a $11,025,000 promissory note. It is currently estimated
that the total amount of cash payable by Northland will be
approximately $53,200,000. 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 two equal
installments (the first installment on the first anniversary of
closing the proposed transaction and the second installment on
the second 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 per annum
of six and one-half percent, will be full recourse and
unsecured. The maker on the note will be Northland and the note
will be subordinated to Northland's senior debt, of which
Northland currently has senior debt in the aggregate amount of
$53,900,000.
- 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
19
20
trust following the later of the second 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.
YEAR 2000 READINESS DISCLOSURE
The efficient operation of the Partnership's business is dependent in
part on its computer software programs and operating 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. We
experienced no material issues or problems arising out of the Year 2000 issues,
either in connection with our internal operations, third-party relationships or
software products. We will continue to monitor our software products to ensure
no problems arise either with regard to leap year or Year 2000 issues. We
anticipate no material additional costs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The audited financial statements of the Partnership for the years ended
December 31, 2000, 1999 and 1998 are included as a part of this filing (see Item
14(a)(1) below).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
20
21
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or officers. The Managing General
Partner of the Partnership is Northland Communications Corporation, a Washington
corporation; the Administrative General Partner of the Partnership is FN
Equities Joint Venture, a California general partnership.
Certain information regarding the officers and directors of Northland is
set forth below.
JOHN S. WHETZELL (AGE 59). Mr. Whetzell is the founder of Northland
Communications Corporation and has been President since its inception and a
Director since March 1982. Mr. Whetzell became Chairman of the Board of
Directors in December 1984. He also serves as President and Chairman of the
Board of Northland Telecommunications Corporation and each of its subsidiaries.
He has been involved with the cable television industry for over 26 years.
Between March 1979 and February 1982 he was in charge of the Ernst & Whinney
national cable television consulting services. Mr. Whetzell first became
involved in the cable television industry when he served as the Chief Economist
of the Cable Television Bureau of the Federal Communications Commission (FCC)
from May 1974 to February 1979. He provided economic studies to support the
deregulation of cable television both in federal and state arenas. He
participated in the formulation of accounting standards for the industry and
assisted the FCC in negotiating and developing the pole attachment rate formula
for cable television. His undergraduate degree is in economics from George
Washington University, and he has an MBA degree from New York University.
JOHN E. IVERSON (AGE 64). Mr. Iverson is the Secretary of Northland
Communications Corporation and has served on the Board of Directors since
December 1984. He also is the Secretary and serves on the Board of Directors of
Northland Telecommunications Corporation and each of its subsidiaries. He is
currently a member in the law firm of Ryan, Swanson & Cleveland, P.L.L.C. He is
a member of the Washington State Bar Association and American Bar Association
and has been practicing law for more than 38 years. Mr. Iverson is the past
President and a Trustee of the Pacific Northwest Ballet Association. Mr. Iverson
has a Juris Doctor degree from the University of Washington.
RICHARD I. CLARK (AGE 43). Mr. Clark is an original incorporator of
Northland Communications Corporation and serves as Vice President, Assistant
Secretary and Assistant Treasurer of Northland Communications Corporation. He
also serves as Vice President, Assistant Secretary and Treasurer of Northland
Telecommunications Corporation. Mr. Clark has served on the Board of Directors
of both Northland Communications Corporation and Northland Telecommunications
Corporation since July 1985. In addition to his other responsibilities, Mr.
Clark is responsible for the administration and investor relations activities of
Northland, including financial planning and corporate development. From July
1979 to February 1982, Mr. Clark was employed by Ernst & Whinney in the area of
providing cable television consultation services and has been involved with the
cable television industry for nearly 22 years. He has directed cable television
feasibility studies and on-site market surveys. Mr. Clark has assisted in the
design and maintenance of financial and budget computer programs, and he has
prepared documents for major cable television companies in franchising and
budgeting projects through the application of these programs. In 1979, Mr. Clark
graduated cum alude from Pacific Lutheran University with a Bachelor of Arts
degree in accounting.
GARY S. JONES (AGE 43). Mr. Jones is Vice President and Chief Financial
Officer for Northland. Mr. Jones joined Northland in March 1986 as Controller
and has been Vice President of Northland Telecommunications Corporation and each
of its subsidiaries since October 1986. Mr. Jones is responsible for cash
management, financial reporting and banking relations for Northland and is
involved in the acquisition and financing of new cable systems. Prior to joining
Northland, Mr. Jones was employed as a Certified Public Accountant with
Laventhol & Horwath from 1980 to 1986. Mr. Jones received his Bachelor of Arts
degree in Business Administration with a major in accounting from the University
of Washington in 1979.
RICHARD J. DYSTE (AGE 55). Mr. Dyste has served as Vice
President-Technical Services of Northland Telecommunications Corporation and
each of its subsidiaries since April 1987. Mr. Dyste is responsible for planning
and advising all Northland cable systems with regard to technical performance as
well as system upgrades and rebuilds. He is a past president and current member
of the Mount Rainier Chapter of the Society of Cable Television Engineers, Inc.
Mr. Dyste joined Northland in 1986 as an engineer and served as Operations
Consultant to Northland Communications Corporation from August 1986 until April
1987. From 1977 to 1985, Mr. Dyste owned and operated Bainbridge TV Cable. He is
a graduate of Washington Technology Institute.
21
22
H. LEE JOHNSON (AGE 57). Mr. Johnson has served as Divisional Vice
President for Northland since March 1994. He is responsible for the management
of systems serving subscribers in Alabama, Georgia, Mississippi, North Carolina
and South Carolina. Prior to his association with Northland he served as
Regional Manager for Warner Communications, managing four cable systems in
Georgia from 1968 to 1973. Mr. Johnson has also served as President of Sunbelt
Finance Corporation and was employed as a System Manager for Statesboro CATV
when Northland purchased the system in 1986. Mr. Johnson has been involved in
the cable television industry for over 32 years and is a current member of the
Society of Cable Television Engineers. He is a graduate of Swainsboro Technical
Institute and has attended numerous training seminars, including courses
sponsored by Jerrold Electronics, Scientific Atlanta, The Society of Cable
Television Engineers and CATA.
R. GREGORY FERRER (AGE 45). Mr. Ferrer joined Northland in March 1984 as
Assistant Controller and currently serves as Vice President and Treasurer of
Northland Communications Corporation. Mr. Ferrer also serves as Vice President
and Assistant Treasurer of Northland Telecommunications Corporation. Mr. Ferrer
is responsible for coordinating all of Northland's property tax filing,
insurance requirements and system programming contracts as well as interest rate
management and other treasury functions. Prior to joining Northland, he was a
Certified Public Accountant at Benson & McLaughlin, a local public accounting
firm, from 1981 to 1984. Mr. Ferrer received his Bachelor of Arts in Business
Administration from Washington State University with majors in marketing in 1978
and accounting and finance in 1981.
MATTHEW J. CRYAN (AGE 36). Mr. Cryan is Vice President - Budgets and
Planning and has been with Northland since September 1990. Mr. Cryan is
responsible for the development of current and long-term operating budgets for
all Northland entities. Additional responsibilities include the development of
financial models used in support of acquisition financing, analytical support
for system and regional managers, financial performance monitoring and reporting
and programming analysis. Prior to joining Northland, Mr. Cryan was employed as
an analyst with NKV Corp., a securities litigation support firm located in
Redmond, Washington. Mr. Cryan graduated from the University of Montana in 1988
with honors and holds a Bachelor of Arts in Business Administration with a major
in finance.
LAURA N. WILLIAMS (age 34). Ms Williams is Vice President and Senior
Counsel for Northland and has served in this role since August 2000. Prior to
this time, she served as Associate Counsel for each of the Northland entities
from August 1995. She is a member of the Washington State Bar Association,
American Bar Association and Women in Telecommunications. Ms. Williams received
her Bachelor of Science in Business Administration with a major in finance and
an MBA degree from California State University, Long Beach, and has a Juris
Doctor degree from Seattle University School of Law.
Certain information regarding the officers and directors of FN Equities
Joint Venture is set forth below:
MILES Z. GORDON (AGE 54). Mr. Gordon is President of FNE and President
and Chief Executive Officer of Financial Network Investment Corporation (FNIC),
and has held those positions since 1983. From 1979 through April 1983 he was
President of University Securities Corporation. In 1978, Mr. Gordon was engaged
in the private practice of law, and from 1973 through 1978 he was employed by
the Securities and Exchange commission. He presently serves as Chairman of the
Securities Industry Association Independent Contractor Firms Committee. Mr.
Gordon was also Chairman and a member of the NASD District Business Conduct
Committee and a former member of the NASD Board of Governors. He is past
president of the California Syndication Forum and has also served on several
committees for the Securities Industry Association.
JOHN S. SIMMERS (AGE 51). Mr. Simmers is Vice President and Secretary of
FNE and Executive Vice President and Chief Operating Officer of FNIC and has
held those positions since 1983. From June 1980 through April 1983 he was
Executive Vice President of University Securities Corporation, Vice President of
University Capital Corporation, and Vice President of University Asset
Management Group. From 1974 through May 1980 he was employed by the National
Association of Securities Dealers.
ITEM 11. EXECUTIVE COMPENSATION
The Partnership does not have executive officers. However, compensation
was paid to the Managing General Partner during 2000 as indicated in Note 3 of
the Notes to Financial Statements--December 31, 2000 (see Items 13(a) and
14(a)(1) below).
22
23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. Security ownership of
management as of December 31, 2000 is as follows:
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT OF
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP CLASS
- -------------- ------------------- ----------------- ----------
General Partner's Northland Communications (See Note A) (See Note A)
Interest Corporation
1201 Third Avenue
Suite 3600
Seattle, Washington 98101
General Partner's FN Equities Joint Venture (See Note B) (See Note B)
Interest 2780 Skypark Dr.
Suite 300
Torrance, California 90505
Note A: Northland has a 1% interest in the Partnership, which increases
to a 20% interest in the Partnership at such time as the limited partners have
received 100% of their aggregate cash contributions. The natural person who
exercises voting and/or investment control over these interests is John S.
Whetzell.
Note B: FN Equities Joint Venture has no interest in the Partnership
until such time as the limited partners have received 100% of their aggregate
cash contributions, at which time FN Equities Joint Venture will have a 5%
interest in the Partnership. The natural person who exercises voting and/or
investment control over these interests is John S. Simmers.
(b) CHANGES IN CONTROL. Northland has pledged its ownership interest as
Managing General Partner of the Partnership to the Partnership's lender as
collateral pursuant to the terms of the term loan agreement between the
Partnership and its lender.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) TRANSACTIONS WITH MANAGEMENT AND OTHERS. The Managing General
Partner receives a management fee equal to 6% of the gross revenues of the
Partnership, not including revenues from any sale or refinancing of the
Partnership's Systems. The Managing General Partner also receives reimbursement
of normal operating and general and administrative expenses incurred on behalf
of the Partnership.
The Partnership entered into an operating agreement with Northland
Premier Cable Limited Partnership ("Premier"), an affiliated partnership
organized and managed by Northland. Under the terms of this agreement, Premier
serves as the exclusive managing agent for the Highlands NC system, and is
reimbursed for certain operating and administrative costs.
Northland Cable Services Corporation ("NCSC"), an affiliate of
Northland, provides software installation and billing services to the
Partnership's Systems.
Northland Cable News, Inc. ("NCN"), an affiliate of Northland, provides
programming to certain of the Partnership's systems.
Cable Ad-Concepts, Inc. ("CAC"), an affiliate of Northland, provides the
production and development of video commercial advertisements and advertising
sales support.
See Note 3 of the Notes to Financial Statements--December 31, 2000 for
disclosures regarding transactions with the General Partners and affiliates.
23
24
The following schedule summarizes these transactions:
FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------
2000 1999 1998
-------- -------- --------
Partnership management fees $913,313 $900,313 $884,806
Operating expense reimbursements 769,480 719,456 663,191
Software installation and
billing service fees to NCSC 75,798 73,965 79,590
Programming fees to NCN 0 178,797 165,147
Reimbursement to CAC for services 85,895 69,752 57,611
Reimbursements to Premier 25,788 160,722 290,147
Amounts due to General Partner
and affiliates at year end 35,458 46,388 142,746
Management believes that all of the above transactions are on terms as
favorable to the Partnership as could be obtained from unaffiliated parties for
comparable goods or services.
As disclosed in the Partnership's Prospectus (which has been
incorporated by reference), certain conflicts of interest may arise between the
Partnership and the General Partners and their affiliates. Certain conflicts may
arise due to the allocation of management time, services and functions between
the Partnership and existing and future partnerships as well as other business
ventures. The General Partners have sought to minimize these conflicts by
allocating costs between systems on a reasonable basis. Each limited partner may
have access to the books and non-confidential records of the Partnership. A
review of the books will allow a limited partner to assess the reasonableness of
these allocations. The Agreement of Limited Partnership provides that any
limited partner owning 10% or more of the Partnership units may call a special
meeting of the Limited Partners, by giving written notice to the General
Partners specifying in general terms the subjects to be considered. In the event
of a dispute between the General Partners and Limited Partners which cannot be
otherwise resolved, the Agreement of Limited Partnership provides steps for the
removal of a General Partner by the Limited Partners.
(b) CERTAIN BUSINESS RELATIONSHIPS. John E. Iverson, a Director and
Assistant Secretary of the Managing General Partner, is a member of the law firm
of Ryan, Swanson & Cleveland, PLLC, which has rendered and is expected to
continue to render legal services to the Managing General Partner and the
Partnership.
(c) INDEBTEDNESS OF MANAGEMENT. None.
24
25
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS A PART OF THIS REPORT:
SEQUENTIALLY
NUMBERED
PAGE
------------
(1) FINANCIAL STATEMENTS:
Report of Independent Public Accountants................................ 27
Balance Sheets--December 31, 2000 and 1999.............................. 28
Statements of Operations for the years ended December 31, 2000, 1999 and
1998.................................................................... 29
Statements of Changes in Partners' Capital (Deficit) for the years ended
December 31, 2000, 1999 and 1998........................................ 31
Statements of Cash Flows for the years ended December 31, 2000, 1999 and
1998.................................................................... 32
Notes to Financial Statements--December 31, 2000........................ 33
25
26
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
Financial Statements
As of December 31, 2000 and 1999
Together with Report of Independent Public Accountants
26
27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Northland Cable Properties Six Limited Partnership:
We have audited the accompanying balance sheets of Northland Cable Properties
Six Limited Partnership (a Washington limited partnership) as of December 31,
2000 and 1999, and the related statements of operations, changes in partners'
deficit and cash flows for each of the three years in the period ended December
31, 2000. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Northland Cable Properties Six
Limited Partnership as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2000, in conformity with accounting principles generally accepted
in the United States.
Seattle, Washington
January 26, 2001
27
28
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
ASSETS
2000 1999
------------ ------------
CASH $ 1,281,380 $ 556,962
ACCOUNTS RECEIVABLE, including $14,109 and
$24,885 due from affiliates in 2000 and
1999, respectively 739,232 806,712
PREPAID EXPENSES AND OTHER ASSETS 85,506 78,012
INVESTMENT IN CABLE TELEVISION PROPERTIES:
Property and equipment 30,285,589 28,912,812
Less- Accumulated depreciation (16,325,363) (14,639,656)
------------ ------------
13,960,226 14,273,156
Franchise agreements (net of accumulated
amortization of $15,438,907 and $13,309,803
in 2000 and 1999, respectively) 11,788,486 13,917,591
Acquisition costs (net of accumulated
amortization of $154,766 and $107,709 in
2000 and 1999, respectively) 82,806 129,862
Loan fees and other intangibles (net of accumulated
amortization of $1,067,714 and $911,862 in 2000
and 1999, respectively) 591,176 841,238
------------ ------------
Total investment in cable
television properties 26,422,694 29,161,847
------------ ------------
Total assets $ 28,528,812 $ 30,603,533
============ ============
LIABILITIES AND PARTNERS' DEFICIT
2000 1999
------------ ------------
LIABILITIES:
Accounts payable $ 188,372 $ 607,156
Other current liabilities 1,109,212 719,404
Due to general partner and affiliates 35,458 46,388
Deposits 29,590 35,422
Subscriber prepayments 460,038 412,628
Note payable 28,215,281 28,965,281
------------ ------------
Total liabilities 30,037,951 30,786,279
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' DEFICIT:
General partners-
Contributed capital, net (37,565) (37,565)
Accumulated deficit (104,541) (91,277)
------------ ------------
(142,106) (128,842)
------------ ------------
Limited partners-
Contributed capital, net -
29,784 units in 2000 and 1999 8,982,444 8,982,444
Accumulated deficit (10,349,477) (9,036,348)
------------ ------------
(1,367,033) (53,904)
------------ ------------
Total liabilities and partners'
deficit $ 28,528,812 $ 30,603,533
============ ============
The accompanying notes are an integral part of these balance sheets.
28
29
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
REVENUE $ 15,221,887 $ 15,005,218 $ 14,746,766
------------ ------------ ------------
EXPENSES:
Operating (including $270,067, $286,365 and
$285,212, net, paid to affiliates in 2000, 1999
and 1998, respectively) 1,161,419 1,320,255 1,262,672
General and administrative (including $1,505,136,
$1,575,500 and $1,632,936, net, paid to
affiliates in 2000, 1999 and 1998, respectively) 4,035,555 4,064,866 3,790,975
Programming (including $95,703, $233,163 and
$241,521, net, paid to affiliates in 2000, 1999
and 1998, respectively) 3,968,492 3,915,701 3,784,358
------------ ------------ ------------
9,165,466 9,300,822 8,838,005
------------ ------------ ------------
Operating income before other income
(expense), depreciation and
amortization expense 6,056,421 5,704,396 5,908,761
OTHER INCOME (EXPENSE):
Interest income 45,351 26,668 17,932
Interest expense (2,495,892) (2,379,744) (2,566,743)
(Loss) gain on disposal of assets (266,933) 1,330,533 (229,940)
Amortization of loan fees and other (196,808) (190,924) (211,988)
------------ ------------ ------------
Income before depreciation and
amortization expense 3,142,139 4,490,929 2,918,022
DEPRECIATION AND AMORTIZATION EXPENSE (4,468,532) (4,392,073) (4,287,623)
------------ ------------ ------------
Net (loss) income $ (1,326,393) $ 98,856 $ (1,369,601)
============ ============ ============
ALLOCATION OF NET (LOSS) INCOME:
General partners $ (13,264) $ 989 $ (13,696)
============ ============ ============
Limited partners $ (1,313,129) $ 97,867 $ (1,355,905)
============ ============ ============
NET (LOSS) INCOME PER LIMITED PARTNERSHIP UNIT $ (44) $ 3 $ (46)
============ ============ ============
The accompanying notes are an integral part of these statements.
29
30
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
------------ ------------ ------------
REVENUE $ 15,221,887 $ 15,005,218 $ 14,746,766
------------ ------------ ------------
EXPENSES:
Operating (including $270,067, $286,365 and
$285,212, net, paid to affiliates in 2000, 1999
and 1998, respectively) 1,161,419 1,320,255 1,262,672
General and administrative (including $1,505,136,
$1,575,500 and $1,632,936, net, paid to
affiliates in 2000, 1999 and 1998, respectively) 4,035,555 4,064,866 3,790,975
Programming (including $95,073, $233,163 and
$241,521, net, paid to affiliates in 2000, 1999
and 1998, respectively) 3,968,492 3,915,701 3,784,358
Depreciation and amortization 4,468,532 4,392,073 4,287,623
------------ ------------ ------------
13,633,998 13,692,895 13,125,628
------------ ------------ ------------
Operating income 1,587,889 1,312,323 1,621,138
OTHER INCOME (EXPENSE):
Interest income 45,351 26,668 17,932
Interest expense (2,495,892) (2,379,744) (2,566,743)
(Loss) gain on disposal of assets (266,933) 1,330,533 (229,940)
Amortization of loan fees and other (196,808) (190,924) (211,988)
------------ ------------ ------------
Net (loss) income $ (1,326,393) $ 98,856 $ (1,369,601)
============ ============ ============
ALLOCATION OF NET (LOSS) INCOME:
General partners $ (13,264) $ 989 $ (13,696)
============ ============ ============
Limited partners $ (1,313,129) $ 97,867 $ (1,355,905)
============ ============ ============
NET (LOSS) INCOME PER LIMITED PARTNERSHIP UNIT $ (44) $ 3 $ (46)
============ ============ ============
The accompanying notes are an integral part of these statements.
30
31
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 and 1998
General Limited
Partners Partners Total
--------- ----------- -----------
BALANCE, December 31, 1997 $(116,135) $ 1,212,134 $ 1,095,999
Repurchase of limited partnership units -- (4,000) (4,000)
Net loss (13,696) (1,355,905) (1,369,601)
--------- ----------- -----------
BALANCE, December 31, 1998 (129,831) (147,771) (277,602)
Repurchase of limited partnership units -- (4,000) (4,000)
Net income 989 97,867 98,856
--------- ----------- -----------
BALANCE, December 31, 1999 (128,842) (53,904) (182,746)
Net loss (13,264) (1,313,129) (1,326,393)
--------- ----------- -----------
BALANCE, December 31, 2000 $(142,106) $(1,367,033) $(1,509,139)
========= =========== ===========
The accompanying notes are an integral part of these statements.
31
32
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(1,326,393) $ 98,856 $ (1,369,601)
Adjustments to reconcile net (loss) income to net cash
provided by operating activities-
Depreciation and amortization expense 4,468,532 4,392,073 4,287,623
Amortization of loan costs 196,808 190,923 182,859
Loss (gain) on disposal of assets 266,933 (1,330,533) 229,940
Changes in certain assets and liabilities:
Accounts receivable (122,520) 131,092 (278,190)
Prepaid expenses and other assets (7,494) (120,998) 153,371
Accounts payable and other current liabilities (28,976) 144,817 224,658
Due to general partner and affiliates (10,930) (121,243) (12,090)
Deposits (5,832) (21,635) (35,036)
Subscriber prepayments 47,410 (82,549) 85,225
----------- ----------- ------------
Net cash provided by operating activities 3,477,538 3,280,803 3,468,759
----------- ----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (2,054,270) (2,659,141) (2,820,143)
Acquisition of cable system -- -- (20,500,000)
Proceeds from disposal of assets 202,700 1,726,026 500
Purchase of intangibles (151,550) (59,887) (77,199)
----------- ----------- ------------
Net cash used in investing activities (2,003,120) (993,002) (23,396,842)
----------- ----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- -- 20,473,427
Principal payments on notes payable (750,000) (2,407,567) --
Repurchase of limited partnership units -- (4,000) (4,000)
Loan fees and other costs -- (26,179) (7,471)
----------- ----------- ------------
Net cash (used in) provided by financing activities (750,000) (2,437,746) 20,461,956
----------- ----------- ------------
INCREASE (DECREASE) IN CASH 724,418 (149,945) 533,873
CASH, beginning of year 556,962 706,907 173,034
----------- ----------- ------------
CASH, end of year $ 1,281,380 $ 556,962 $ 706,907
=========== =========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $ 2,489,075 $ 2,373,440 $ 2,562,492
=========== =========== ============
The accompanying notes are an integral part of these statements.
32
33
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
1. ORGANIZATION AND PARTNERS' INTERESTS:
Formation and Business
Northland Cable Properties Six Limited Partnership (the Partnership), a
Washington limited partnership, was formed on January 22, 1986. The Partnership
was formed to acquire, develop and operate cable television systems. The
Partnership began operations on November 3, 1986 by acquiring a cable television
system in Mississippi. Subsequently, additional cable television systems were
acquired in Mississippi, North Carolina and South Carolina. The Partnership has
35 nonexclusive franchises to operate cable systems for periods, which will
expire at various dates through 2017.
Northland Communications Corporation is the Managing General Partner (the
General Partner or Northland) of the Partnership. Certain affiliates of the
Partnership also own and operate other cable television systems. In addition,
the General Partner manages cable television systems for other limited
partnerships for which it is General Partner.
FN Equities Joint Venture, a California joint venture, is the Administrative
General Partner of the Partnership.
Contributed Capital, Commissions and Offering Costs
The capitalization of the Partnership is set forth in the accompanying
statements of changes in partners' deficit. No limited partner is obligated to
make any additional contribution.
The general partners purchased their 1% interest in the Partnership by
contributing $1,000 to Partnership capital.
Pursuant to the Partnership Agreement, brokerage fees paid to an affiliate of
the Administrative General Partner and other offering costs paid to the General
Partner were recorded as a reduction of limited partners' capital. The
Administrative General Partner received a fee for providing certain
administrative services to the Partnership.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Property and Equipment
Property and equipment are stated at cost. Replacements, renewals and
improvements are capitalized. Maintenance and repairs are charged to expense as
incurred.
33
34
Depreciation of property and equipment is provided using the straight-line
method over the following estimated service lives:
Buildings 20 years
Distribution plant 10 years
Other equipment and leasehold
improvements 5-20 years
The Partnership periodically reviews the carrying value of its long-lived
assets, including property, equipment and intangible assets, whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable.
Allocation of Cost of Purchased Cable Television Systems
The Partnership allocated the total contract purchase price of cable television
systems acquired as follows: first, to the estimated fair value of net tangible
assets acquired; then, to the franchise and other determinable intangible costs;
then any excess is allocated to goodwill.
Intangible Assets
Costs assigned to franchise agreements, loan fees, acquisition costs and other
intangibles are being amortized using the straight-line method over the
following estimated useful lives:
Franchise agreements 10-20 years
Acquisition costs 5 years
Loan fees and other intangibles 1-10 years
Revenue Recognition
Cable television service revenue, including service maintenance, is recognized
in the month service is provided to customers. Installation revenue is
recognized to the extent of direct selling costs when the installation is
complete. Advance payments on cable services to be rendered are recorded as
subscriber prepayments. Revenues resulting from the sale of local spot
advertising are recognized when the related advertisements or commercials appear
before the public. Local spot advertising revenues earned were $581,280,
$507,932 and $456,007, respectively, in 2000, 1999 and 1998.
Derivatives
The Partnership has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks. The Partnership periodically enters into
interest rate swap agreements with major banks or financial institutions
(typically its bank) in which the Partnership pays a fixed rate and receives a
floating rate with the interest payments being calculated on a notional amount.
Gains or losses associated with changes in fair values of these swaps and the
underlying notional principal amounts are deferred and recognized against
interest expense over the term of the agreements in the Partnership's statements
of operations.
34
35
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 133 - 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, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities," an 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 in 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. Special accounting for qualifying hedges allows a derivative's gains
and losses to offset related results on the hedged item in the statement of
operations, and requires that a company must formally document, designate, and
assess the effectiveness of transactions that are subject to hedge accounting.
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 133 has been deferred until
fiscal years beginning after January 15, 2000. SFAS 133 cannot be applied
retroactively. SFAS 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 had no outstanding interest rate swaps or other derivative
financial instruments at December 31, 2000.
Estimates Used in Financial Statement Presentation
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. TRANSACTIONS WITH GENERAL PARTNER AND AFFILIATES:
Management Fees
The General Partner receives a fee for managing the Partnership equal to 6% of
the gross revenues of the Partnership, excluding revenues from the sale of cable
television systems or franchises. The amount of management fees charged by the
General Partner was $913,313, $900,313 and $884,806 in 2000, 1999 and 1998,
respectively.
35
36
Income Allocation
All items of income, loss, deduction and credit are allocated 99% to the limited
partners and 1% to the general partners until the limited partners have received
aggregate cash distributions in an amount equal to aggregate capital
contributions. Thereafter, the general partners receive 25% and the limited
partners are allocated 75% of partnership income and losses. Prior to the
general partners receiving a distribution in any year, the limited partners must
receive distributions equal to at least 50% of their allocable share of net
income for such year, based on projections by the Managing General Partner of
the net income of the Partnership for the year. If cash distributions to the
general partners are deferred because of this 50% limitation, those deferred
cash distributions will be paid to the general partners in subsequent years or
upon liquidation of the Partnership. Any distributions other than from cash
flow, such as from the sale or refinancing of a system or upon dissolution of
the Partnership, will be determined according to contractual stipulations in the
Partnership Agreement.
The limited partners' total initial contributions to capital were $15,000,000
($500 per partnership unit). As of December 31, 2000, $3,817,997 ($127.50 per
partnership unit) has been distributed to the limited partners, and the
Partnership has repurchased $100,475 of limited partnership units (173 units at
$500 per unit and 43 units at $325 per unit).
Reimbursements
The General Partner provides or causes to be provided certain centralized
services to the Partnership and other affiliated entities. The General Partner
is entitled to reimbursement from the Partnership for various expenses incurred
by it or its affiliates on behalf of the Partnership allocable to its management
of the Partnership, including travel expenses, pole and site rental, lease
payments, legal expenses, billing expenses, insurance, governmental fees and
licenses, headquarters' supplies and expenses, pay television expenses,
equipment and vehicle charges, operating salaries and expenses, administrative
salaries and expenses, postage and office maintenance.
The amounts billed to the Partnership are based on costs incurred by affiliates
in rendering the services. The costs of certain services are charged directly to
the Partnership, based upon the personnel time spent by the employees rendering
the service. The cost of other services is allocated to the Partnership and
affiliates based upon relative size and revenue. Management believes that the
methods used to allocate services to the Partnership are reasonable. Amounts
charged for these services were $769,480, $719,456 and $663,191 for 2000, 1999
and 1998, respectively.
In 2000, 1999 and 1998, the Partnership paid installation charges and
maintenance fees for billing system support provided by an affiliate, amounting
to $75,798, $73,965 and $79,590, respectively.
The Partnership has entered into operating management agreements with affiliates
managed by the General Partner. Under the terms of these agreements, the
Partnership or an affiliate serves as the executive managing agent for certain
cable television systems and is reimbursed for certain operating and
administrative expenses. The Partnership paid $25,788, $160,722 and $290,147,
net, under the terms of these agreements during 2000, 1999 and 1998,
respectively.
36
37
The Partnership pays monthly program license fees to Northland Cable News, Inc.
(NCN), an affiliate of the General Partner, for the rights to distribute
programming developed and produced by NCN. Total license fees paid to NCN during
2000, 1999 and 1998 were $0, $178,797 and $165,147, respectively.
Cable Ad Concepts, Inc. (CAC), an affiliate of the General Partner, was formed
in 1993 and began operations in 1994. CAC was organized to assist in the
development of local advertising markets and management and training of local
sales staff. CAC billed the Partnership $85,895, $69,752 and $57,611 in 2000,
1999 and 1998, respectively, for these services.
Due to General Partner and Affiliates
December 31,
--------------------------
2000 1999
------- -------
Reimbursable operating costs and other $25,534 $12,417
Other amounts due to affiliates, net 9,924 33,971
------- -------
$35,458 $46,388
======= =======
4. PROPERTY AND EQUIPMENT:
December 31,
----------------------------------
2000 1999
----------- -----------
Land and buildings $ 880,611 $ 858,198
Distribution plant 27,278,014 26,230,081
Other equipment 1,775,523 1,738,465
Leasehold improvements 43,020 40,550
Construction in progress 308,421 45,518
----------- -----------
$30,285,589 $28,912,812
=========== ===========
5. OTHER CURRENT LIABILITIES:
December 31,
------------------------------
2000 1999
---------- --------
Program license fees $ 317,339 $ 52,159
Accrued property taxes 263,174 133,728
Accrued franchise fees 261,775 253,003
Other 266,924 280,514
---------- --------
$1,109,212 $719,404
========== ========
37
38
6. NOTE PAYABLE:
The Partnership's note payable consists of a revolving credit and term loan
agreement, collateralized by a first lien position on all present and future
assets of the Partnership. The note's book value approximates its fair value.
Interest rates vary based on certain financial covenants; currently 8.50%. The
maturity of the note has been extended to June 30, 2001 at which time it is due
in full.
Under the terms of the revolving credit and term loan agreement, the Partnership
has agreed to restrictive covenants which require the maintenance of certain
ratios, including an Annual Operating Cash Flow to Interest Expense Ratio
greater than 2.25 to 1, and a Senior Debt to Annualized Operating Cash Flow
Ratio of no more than 5.25 to 1, amongst others. The General Partner submits
quarterly debt compliance reports to the Partnership's creditor under this
agreement. As of December 31, 2000, the Partnership was in compliance with the
terms of the loan agreement.
7. INCOME TAXES:
Income taxes payable have not been recorded in the accompanying financial
statements because they are obligations of the partners. The federal and state
income tax returns of the Partnership are prepared and filed by the General
Partner.
The tax returns, the qualification of the Partnership as such for tax purposes,
and the amount of distributable partnership income or loss are subject to
examination by federal and state taxing authorities. If such examinations result
in changes with respect to the Partnership's qualification or in changes with
respect to the income or loss, the tax liability of the partners would likely be
changed accordingly.
There was no taxable income to the limited partners in any of the three years in
the periods ended December 31, 2000. Generally, subject to the allocation
procedures discussed in the following paragraph, taxable income to the limited
partners is different from that reported in the statements of operations
principally due to differences in depreciation and amortization expense allowed
for tax purposes and the amount recognizable under generally accepted accounting
principles. Traditionally, there are no other significant differences between
taxable income and net income reported in the statements of operations.
The Partnership agreement provides that tax losses may not be allocated to the
Limited Partners if such loss allocation would create a deficit in the Limited
Partners' Capital Account. Such excess losses are reallocated to the General
Partner ("Reallocated Limited Partner Losses"). In general, in subsequent years,
100% of the Partnership's net income is allocated to the General Partner until
the General Partner has been allocated net income in amounts equal to the
Reallocated Limited Partner Losses.
In general, under current federal income tax laws, a partner's allocated share
of tax losses from a partnership is allowed as a deduction on their individual
income tax return only to the extent of the partner's adjusted basis in their
partnership interest at the end of the tax year. Any excess losses over adjusted
basis may be carried forward to future tax years and are allowed as a deduction
to the extent the partner has an increase in their adjusted basis in the
Partnership through either an allocation of partnership income or additional
capital contributions to the Partnership.
38
39
In addition, the current tax law does not allow a taxpayer to use losses from a
business activity in which they do not materially participate (a "passive
activity," e.g., a limited partner in a limited partnership) to offset other
income such as salary, active business income, dividends, interest, royalties
and capital gains. However, such losses can be used to offset income from other
passive activities. In addition, disallowed losses can be carried forward
indefinitely to offset future income from passive activities. Disallowed losses
can be used in full when the taxpayer recognizes gain or loss upon the
disposition of their entire interest in the passive activity.
8. COMMITMENTS AND CONTINGENCIES:
Lease Arrangements
The Partnership leases certain tower sites, office facilities and pole
attachments under leases accounted for as operating leases. Rental expense
included in operations amounted to $231,248, $214,581 and $209,627 in 2000, 1999
and 1998, respectively. Minimum lease payments through the end of the lease
terms are as follows:
2001 $12,431
2002 3,133
2003 1,083
2004 283
2005 283
Thereafter 1,671
-------
$18,884
=======
Effects of Regulation
On February 8, 1996, the Telecommunications Act of 1996 (the 1996 Act) was
enacted. This act 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) and having no more than $250 million in
annual revenue. 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.
39
40
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.
Self-Insurance
The Partnership began self-insuring for aerial and underground plant in 1996.
Beginning in 1997, the Partnership began making quarterly contributions into an
insurance fund maintained by an affiliate which covers all Northland entities
and defrays a portion of any loss should the Partnership be faced with a
significant uninsured loss. To the extent the Partnership's losses exceed the
fund's balance, the Partnership absorbs any such loss. If the Partnership were
to sustain a material uninsured loss, such reserves could be insufficient to
fully fund such a loss. The capital cost of replacing such equipment and
physical plant, could have a material adverse effect on the Partnership, its
financial condition, prospects and debt service ability.
Amounts paid to the affiliate, which maintains the fund for the Partnership and
its affiliates, are expensed as incurred and are included in the statements of
operations. To the extent a loss has been incurred related to risks that are
self-insured, the Partnership records an expense and an associated liability for
the amount of the loss, net of any amounts to be drawn from the fund. For 2000,
1999 and 1998, respectively, the Partnership was charged $19,456, $20,197 and
$20,878 by the fund. As of December 31, 2000, the fund had a balance of
$509,135.
9. ACQUISITION OF SYSTEMS AND DISPOSITION OF ASSETS:
On January 2, 1998, the Partnership purchased cable television systems located
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 systems are operated from four headends and serve 11,200
subscribers.
The Partnership borrowed an additional $20,473,427 under an amended and restated
revolving credit and term loan agreement with its lender to finance the
acquisition of the South Carolina cable systems.
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 system was sold at a sales price of
$1,900,000 of which the Partnership received $1,710,000. The remaining balance
of $190,000 was held in escrow for one year from the date of sale. The
Partnership used net proceeds of $1,540,000 to pay down the existing bank debt.
40
41
Pro Forma operating results of the Partnership for 1999 and 1998, assuming the
disposition described above had been completed as of the beginning of 1998
follows:
For the Year Ended
December 31,
-------------------------------------
1999 1998
------------ ------------
(unaudited) (unaudited)
Revenue $ 14,183,800 $ 14,183,431
============ ============
Net loss $ (1,482,272) $ (1,271,034)
============ ============
Net loss per limited partnership unit $ (50) $ (43)
============ ============
10. SUBSEQUENT EVENT:
The Partnership has filed a Preliminary Proxy Statement (Proxy) with the
Securities and Exchange Commission (SEC) which solicits votes for two separate
proposals. Upon clearance from the SEC, the Proxy will be delivered to the
limited partners for their vote. A vote of more than 50% of the outstanding
limited partnership units is required to approve each proposal. The first
proposal is to extend the term of the Partnership for six years until December
31, 2007. The second proposal will provide authority to sell all of its existing
assets, excluding the Bennettsville System, which is being sold to a third party
in a separate transaction, to the General Partner, or its affiliates, for an
aggregate price of $62,250,000. The Partnership's current revolving credit and
term loan facility matures on June 30, 2001. Should the Partnership continue its
operations beyond this date, an amendment to the existing loan agreement would
be required to extend the loan maturity and revise certain financial covenants.
In the event the sale is not approved, management believes it will be able to
renegotiate the terms of the note payable at a cost and on terms that would not
adversely affect the Partnership's ability to continue operating as a going
concern, as long as the limited partners have approved the extension of the
partnership term. It is management's opinion that the likelihood that both of
these proposals would not be approved by a majority of the limited partners is
remote.
Once the sale proposal is approved, the financial statement disclosure
thereafter will be on the liquidation basis.
41
42
(2) EXHIBITS:
4.1 Amended and Restated Certificate and Agreement of Limited
Partnership dated November 3, 1986(3)
10.1 Agreement of Purchase and Sale with Highlands Community Cable Television, Inc.(2)
10.2 Mississippi State University Contract(2)
10.3 Mathiston Franchise(2)
10.4 Maben Franchise(2)
10.5 Starkville Franchise(2)
10.6 Oktibbeha County Franchise(2)
10.7 Raleigh Franchise(2)
10.8 Philadelphia Franchise(2)
10.9 Neshoba Franchise(2)
10.10 Mississippi Band of Choctaw Indians Franchise(2)
10.11 Carthage Franchise(2)
10.12 Kosciusko Franchise(2)
10.13 Morton Franchise(2)
10.14 Forest Franchise(2)
10.15 Scott County Franchise(2)
42
43
10.16 Highlands Franchise(2)
10.17 Macon County Franchise(2)
10.18 Jackson County Franchise(2)
10.19 Heidelberg Franchise(2)
10.20 Jasper County Franchise(2)
10.21 Jones County Franchise(2)
10.22 Sandersville Franchise(2)
10.23 Golf Properties Franchise(2)
10.24 Management Agreement dated as of October 10, 1986(2)
10.25 Credit Agreement with National Westminster Bank USA dated as of October 31, 1986
("Credit Agreement")(1)
10.26 First Amendment to Credit Agreement dated as of December 12, 1986(5)
10.27 Second Amendment to Credit Agreement dated as of October 26, 1987(5)
10.28 Third Amendment to Credit Agreement dated as of September 26, 1988(5)
10.29 Agreement of Purchase and Sale with Starkville TV Cable Company(1)
10.30 Agreement of Purchase and Sale between Northland Telecommunications
Corporation and Seemore TV, Inc.(1)
10.31 Agreement of Purchase and Sale between Northland Telecommunications Corporation and
Central Cable TV, Inc.(1)
10.32 Agreement of Purchase and Sale between Northland Telecommunications Corporation and
Clear Vision TV Company of Kosciusko, A Corporation(1)
10.33 Agreement of Purchase and Sale between Northland Telecommunications Corporation and
Scott Cable TV, Inc.(1)
10.34 Agreement of Purchase and Sale with SCAN, Inc. and South Central Antenna Network Inc.
dated July 18, 1988(4)
10.35 Fourth Amendment to Credit Agreement dated as of March 31, 1989(6)
10.36 Fifth Amendment to Credit Agreement dated as of February 15, 1990(6)
10.37 Leake County Franchise(7)
10.38 Sixth Amendment to Credit Agreement dated as of May 28, 1992(8)
10.39 Loan Agreement with First Union Bank of North Carolina dated as of February 16, 1993(8)
10.40 Asset Purchase Agreement between TCI Cablevision of Georgia, Inc. and Northland Cable
Properties Six Limited Partnership, dated July 19, 1996(9)
43
44
10.41 Asset Purchase and Sale Agreement between InterMedia Partners of Carolina, L.P. and
Robin Cable Systems, L.P. as Sellers and Northland Cable Television, Inc. as Buyer,
dated August 27, 1997(10)
10.42 Assignment and Assumption of Asset Purchase and Sale Agreement between Northland Cable
Television, Inc. and Northland Cable Properties Six Limited Partnership, dated October
27, 1997(10)
10.43 Amended and Restated Credit Agreement with First Union National Bank, dated December 31,
1997(10)
10.44 First Amendment to the Asset Purchase and Sale Agreement between Northland Cable
Television, Inc. and InterMedia Partners of Carolina, L.P. and Robin Cable Systems,
L.P., dated December 31, 1997(10)
10.45 Amendment to Credit Agreement dated as of July 20, 1999
10.46 Amendment to Credit Agreement dated as of December 22, 2000
- ----------
(1) Incorporated by reference from the Partnership's Form S-1 Registration
Statement declared effective on July 10, 1986 (No. 33-2928).
(2) Incorporated by reference from the partnership's Form 10-K Annual Report
for the fiscal year ended December 31, 1986.
(3) Incorporated by reference from the partnership's Form 8-A Registration
Statement filed July 24, 1987.
(4) Incorporated by reference from the partnership's Form 10-Q Quarterly
Report for the period ended September 30, 1988.
(5) Incorporated by reference from the partnership's Form 10-K Annual Report
for the fiscal year ended December 31, 1988.
(6) Incorporated by reference from the partnership's Form 10-K Annual Report
for the fiscal year ended December 31, 1989.
(7) Incorporated by reference from the partnership's Form 10-K Annual Report
for the fiscal year ended December 31, 1990.
(8) Incorporated by reference from the partnership's Form 10-K Annual Report
for the fiscal year ended December 31, 1992.
(9) Incorporated by reference from the partnership's Form 10-Q Quarterly
Report for the period ended September 30, 1996.
(10) Incorporated by reference from the partnership's Form 8-K Registration
Statement filed January 15, 1998.
(b) REPORTS ON FORM 8-K. No Partnership reports on Form 8-K have been
filed for the fourth quarter of the fiscal year ended December 31, 1999.
44
45
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) 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)
By: /s/ Gary S. Jones Date: 8/3/01
---------------------------- -----------
Gary S. Jones, President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURES CAPACITIES DATE
---------- ---------- ----
/s/ John S. Whetzell Chief executive officer of registrant; chief executive 8/3/01
- ---------------------------- officer and chairman of the board of directors of Northland ------
John S. Whetzell Communications Corporation
/s/ Richard I. Clark Director of Northland Communications Corporation 8/3/01
- ---------------------------- ------
Richard I. Clark
/s/ John E. Iverson Secretary and Director of Northland Communications 8/3/01
- ---------------------------- Corporation ------
John E. Iverson
/s/ Gary S. Jones President and principal accounting officer of Northland 8/3/01
- ---------------------------- Communications Corporation ------
Gary S. Jones
45
46
EXHIBITS INDEX
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- ------------
10.45 Amendment to Credit Agreement dated as of July 20,
1999
46