<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended SEPTEMBER 30, 1998.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _______to________.
Commission file number 333-43157
NORTHLAND CABLE TELEVISION, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF WASHINGTON 91-1311836
----------------------------- ---------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation ) Identification No.)
AND SUBSIDIARY GUARANTOR:
NORTHLAND CABLE NEWS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF WASHINGTON 91-1638891
---------------------------- --------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
1201 THIRD AVENUE, SUITE 3600
SEATTLE, WASHINGTON 98101
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 621-1351
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
This filing contains _____ pages. Exhibits index appears on page _____.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
-------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 4,227,889 $ 1,238,581
Due from limited partnerships - 20,545
Accounts receivable 1,818,088 1,355,005
Prepaid expenses 597,596 291,566
------------- -------------
Total current assets 6,643,573 2,905,697
------------- -------------
Investment in Cable Television Properties:
Property and equipment, net of accumulated
depreciation of $32,031,363 and $28,887,486,
respectively 55,057,732 39,382,223
Franchise agreements, net of accumulated
amortization of $30,730,812 and $29,467,711,
respectively 77,768,413 35,773,674
Goodwill, net of accumulated
amortization of $2,003,994 and $1,874,161,
respectively 4,920,439 5,050,272
Other intangible assets, net of accumulated
amortization of $3,394,228 and $2,142,891,
respectively 9,066,187 8,620,112
Fund deposited in escrow for purchase of cable
television system - 690,000
------------- -------------
Total investment in cable television properties 146,812,771 89,516,281
------------- -------------
Total assets $ 153,456,344 $ 92,421,978
============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current Liabilities:
Accounts payable $ 87,244 $ 662,141
Accrued expenses 8,908,491 4,591,610
Converter deposits 104,241 103,393
Subscriber prepayments 1,699,308 1,106,327
Due to affiliates 819,843 217,426
Due to limited partnerships 288,736 -
Current portion of notes payable 2,251,260 1,140,292
------------- -------------
Total current liabilities 14,159,123 7,821,189
Notes payable 165,888,500 106,822,221
------------- -------------
Total liabilities 180,047,623 114,643,410
------------- -------------
Shareholder's Deficit:
Common stock (par value $1.00 per share, authorized
50,000 shares; 10,000 shares issued and outstanding)
and additional paid-in capital 11,560,527 11,560,527
Accumulated deficit (38,151,806) (33,781,959)
------------- -------------
Total shareholder's deficit (26,591,279) (22,221,432)
------------- -------------
Total liabilities and shareholder's deficit $ 153,456,344 $ 92,421,978
============= =============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these statements
<PAGE> 3
NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the three months ended
September 30,
-------------------------------
1998 1997
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Service revenues $ 13,706,162 $ 9,841,956
Programming and production revenues from affiliates 156,735 193,548
------------ ------------
Total Revenues 13,862,897 10,035,504
------------ ------------
Expenses:
Cable system operations (including
$40,798 and $28,779, net paid to affiliates
in 1998 and 1997, respectively) 4,598,809 3,305,214
General and administrative (including
$1,404,440 and $599,811, net paid to affiliates
in 1998 and 1997, respectively) 2,588,253 1,823,482
Management fees paid to parent 683,505 490,975
Depreciation and amortization 4,980,701 3,284,742
------------ ------------
Total operating expenses 12,851,268 8,904,413
------------ ------------
Income from operations 1,011,629 1,131,091
------------ ------------
Other income (expense):
Interest expense (4,430,903) (2,463,116)
Interest income 29,591 10,852
Other expense (189) 477
Gain on sale of assets (287,764) 72,177
------------ ------------
(4,689,265) (2,379,610)
------------ ------------
Net loss $ (3,677,636) $ (1,248,519)
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these statements
<PAGE> 4
NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------------
1998 1997
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Service revenues $ 41,392,574 $ 28,700,196
Programming and production revenues from affiliates 504,825 559,026
------------ ------------
Total Revenues 41,897,399 29,259,222
------------ ------------
Expenses:
Cable system operations (including
$88,662 and $155,647, net paid to affiliates
in 1998 and 1997, respectively) 14,033,724 9,496,527
General and administrative (including
$4,184,857 and $1,701,082, net paid to affiliates
in 1998 and 1997, respectively) 7,565,267 5,331,900
Management fees paid to parent 2,065,929 1,432,783
Depreciation and amortization 15,048,472 9,652,832
------------ ------------
Total operating expenses 38,713,392 25,914,042
------------ ------------
Income from operations 3,184,007 3,345,180
------------ ------------
Other income (expense):
Interest expense (13,331,131) (7,377,783)
Interest income 82,572 17,038
Other expense (17,937) (17,750)
Gain on sale of assets 5,712,642 72,177
------------ ------------
(7,553,854) (7,306,318)
------------ ------------
Net loss $ (4,369,847) $ (3,961,138)
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these statements
<PAGE> 5
NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the nine months ended
September 30,
-------------------------------
1998 1997
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,369,847) $ (3,961,138)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 15,729,292 9,907,077
Gain on sale of assets (5,712,642) (72,177)
(Increase) decrease in operating assets:
Accounts receivable (463,083) 128,026
Prepaid expenses (306,030) (225,824)
Due from limited partnerships 309,281 15,195
Increase (decrease) in operating liabilities
Accounts payable (574,897) (246,561)
Other current liabilities 4,316,881 1,189,423
Converter deposits 849 3,849
Subscriber prepayments 592,981 160,968
------------ ------------
Net cash from operating activities 9,522,785 6,898,838
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of cable systems (69,951,327) (6,203,141)
Investment in cable television properties (3,936,712) (3,230,270)
Funds deposited in escrow for purchase of
cable television system - (690,000)
Franchise fees and other intangibles (83,459) -
Proceeds from sale of cable television system 7,107,871 -
Insurance proceeds - 72,177
------------ ------------
Net cash used in investing activities (66,863,627) (10,051,234)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 68,027,779 5,000,000
Principal payments on borrowings (8,050,532) (4,186,317)
Loan fees and other costs incurred (249,514) -
Advances from affiliates 602,417 1,008,599
------------ ------------
Net cash from financing activities 60,330,150 1,822,282
------------ ------------
INCREASE (DECREASE) IN CASH 2,989,308 (1,330,114)
CASH, beginning of period 1,238,581 2,486,237
------------ ------------
CASH, end of period $ 4,227,889 $ 1,156,123
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 10,742,293 $ 6,986,059
============ ============
Cash paid during the period for state income taxes $ 17,936 $ 10,601
============ ============
</TABLE>
The accompanying notes to unaudited financial statements
are an integral part of these statements
<PAGE> 6
NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S DEFICIT - (Unaudited)
<TABLE>
<CAPTION>
Common Stock and
Additional Paid-in Capital
------------------------------ Accumulated
Shares Amount Deficit Total
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, December 31, 1997 10,000 $ 11,560,527 $(33,781,959) $(22,221,432)
Net loss - - (4,369,847) (4,369,847)
------------ ------------ ------------ ------------
BALANCE, September 30, 1998 10,000 $ 11,560,527 $(38,151,806) $(26,591,279)
============ ============ ============ ============
</TABLE>
<PAGE> 7
NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
(1) BASIS OF PRESENTATION:
These unaudited financial statements are being filed in conformity with Rule
10-01 of Regulation S-X regarding interim financial statement disclosure and do
not contain all of the necessary footnote disclosures required for a fair
presentation of the balance sheets, statements of operations and statements of
cash flows in conformity with generally accepted accounting principles. However,
in the opinion of management, this data includes all adjustments, consisting
only of normal recurring accruals, necessary to present fairly the Company's
financial position at September 30, 1998, its statements of operations for the
nine and three months ended September 30, 1998 and 1997 and its statement of
cash flows for the nine months ended September 30, 1998 and 1997. Results of
operations for these periods are not necessarily indicative of results to be
expected for the full year. These financial statements and notes should be read
in conjunction with the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
(2) NORTHLAND CABLE NEWS:
Northland Cable News, Inc. ("NCN"), a wholly owned subsidiary of the Company,
was formed to develop and distribute local news, sports and information
programming to Northland Cable Television, Inc. and certain of the Company's
affiliates. The Company's payment obligations under the $100 million of senior
notes are fully and unconditionally, jointly and severally guaranteed on a
senior subordinated basis by NCN. The guarantee of NCN is subordinated to the
prior payment in full of all senior debt of NCN (as of September 30, 1998, NCN
had no senior debt outstanding) and the amounts for which NCN will be liable
under the guarantee issued from time to time with respect to senior debt.
Separate financial statements of NCN have not been presented because management
has determined that they would not be material to financial statement readers.
Summary financial information of NCN is presented below.
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SEPT 30, NINE MONTH PERIOD ENDED SEPT 30,
----------------------------------- --------------------------------
1998 1997 1998 1997
------------ ------------ ------------ ------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenues from affiliates $ 335,365 $ 383,099 $ 1,082,559 $ 1,130,958
Less:intercompany revenue (178,630) (189,551) (577,734) (571,932)
----------- ----------- ----------- -----------
Total revenues 156,735 193,548 504,825 559,026
Operating expenses 260,823 293,719 828,826 870,651
Other, net (309) (1,005) 8,703 7,244
----------- ----------- ----------- -----------
Net loss $ (103,779) $ (99,166) $ (332,704) $ (318,869)
=========== =========== =========== ===========
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
(Unaudited)
<S> <C> <C>
BALANCE SHEET INFORMATION:
Current assets $ 1,695,356 $ 1,483,466
Less: intercompany elimination (1,414,517) (1,362,693)
----------- -----------
Total current assets 280,839 120,773
Non-current assets 7,346 212
----------- -----------
Total Assets $ 288,185 $ 120,985
=========== ===========
Current liabilities $ 50,489 $ 50,619
Other liabilities -- --
----------- -----------
Total liabilities $ 50,489 $ 50,619
=========== ===========
</TABLE>
(3) ACQUISITION OF SYSTEMS AND DISPOSITION OF ASSETS:
On January 2, 1998 the Company acquired substantially all of the operating
assets and franchise rights of six cable television systems serving portions of
Aiken, Greenwood, McCormick, Laurens, Abbeville, Saluda and Edgefield Counties
in western South Carolina. The purchase price of the systems was approximately
$70 million, which was financed through borrowings on the Company's revolving
credit and term loan agreement (the "Senior Credit Facility"). The systems
passed approximately 59,200 homes and served approximately 35,700 basic
subscribers.
On May 15, 1998 the Company sold all of its cable operations in the state of
Oregon (the "Woodburn System") to North Willamette Telecom, Inc. The net
proceeds from the sale of the system were approximately $6.9 million. The
Woodburn System served approximately 4,300 basic subscribers. Approximately $6.4
million of the proceeds from the sale were utilized to reduce amounts
outstanding under the Senior Credit Facility.
On June 30, 1998 the Company acquired the operating assets and franchise rights
of the cable system serving Hamilton, Texas (the "Hamilton System"). The
purchase price of the system was $800,000, adjusted at closing for the proration
of certain revenue and expenses. Of the total purchase price, the Company paid
approximately $600,000 at closing. The remaining $200,000 is to paid be pursuant
to holdback provisions of the purchase agreement. The Hamilton System serves
approximately 1,100 basic subscribers from a single headend and is located in
close proximity to the Company's Stephenville, Texas system.
On August 7, 1998 the Company sold its operating assets of the cable television
system serving unincorporated areas of San Jacinto County, Texas known as
Waterwood (the "Waterwood System"), a headend within the Crockett, Texas
System, to WNW Communications, Inc. The net proceeds from the sale of the
system were approximately $225,000 at closing. The Waterwood System served
approximately 400 basic subscribers.
<PAGE> 9
Pro forma operating results of the Company for the three and nine months ending
September 30, 1997, assuming the acquisitions the South Carolina Systems and the
disposition the Woodburn System described above had been made as of the
beginning of the period, are as follows:
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED SEPT 30, NINE MONTH PERIOD ENDED SEPT 30,
--------------------------------- -------------------------------
1997 1997
---- -----
<S> <C> <C>
Service revenues $13,500,000 $39,700,000
=========== ===========
Net loss $(2,900,000) $(6,400,000)
=========== ===========
</TABLE>
(4) SUBSEQUENT TRANSACTION:
The Company has entered into an agreement to purchase the operating assets and
franchise rights to cable systems in the communities of Mt. Shasta, McCloud,
Weed, and Dunsmuir, California, located in Shasta and Siskiyou Counties (the
"Mt. Shasta System"). The Mt. Shasta System serves approximately 5,100
subscribers from a primary headend and is located in close proximity to the
Company's Yreka, California system. The communities of Mt. Shasta, Weed, and
Dunsmuir are connected by fiber optic backbone and McCloud is connected via AML
microwave. The purchase price is approximately $7.6 million and will be financed
through borrowings under the Senior Credit Facility. Closing is expected to
occur in the fourth quarter of 1998.
(5) DISCLOSURE OF IMPACT OF RECENT ACCOUNTING STANDARDS ISSUED AND NOT YET
ADOPTED:
STATEMENT OF POSITION 98-5
On April 9, 1998 the AICPA released Statement of Position 98-5, "Reporting on
Start-Up Activities" ("SOP 98-5"). The new standard requires that all entities
expense costs of start-up activities as those costs are incurred. SOP 98-5
defines "start-up costs" as those costs directly related to pre-operating,
pre-opening, and organization activities. This standard must be adopted in
fiscal years beginning after December 15, 1998.
The Company currently capitalizes pre-opening costs and amortizes such costs
over a sixty month period. The unamortized balance of capitalized pre-opening
costs as of September 30, 1998 is not material. The Company intends to adopt SOP
98-5 at the beginning of fiscal year 1999. The Company does not believe the
adoption of SOP 98-5 will have a material adverse effect on the Company's
financial position and results of operations.
<PAGE> 10
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998).
The Company has not yet quantified the impacts of adopting Statement 133 on the
financial statements and has not determined the timing of or method of adoption
of Statement 133. However, the Statement could increase volatility in earnings
and other comprehensive income.
STATEMENT OF FINANCIAL ACCOUTING STANDARDS NO. 130
The Company has adopted Statement of Financial Accounting Standards No. 130 -
"Reporting Comprehensive Income" (SFAS 130), which was effective for fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. Comprehensive income is the change in
the equity of a business enterprise during a period from transactions and the
events and circumstances from non-owner sources.
For the periods presented in the accompanying statement of operations,
comprehensive income equals the amounts reported on the accompanying statement
of operations.
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SEPTEMBER 30, 1998 AND 1997
As of September 30, 1998, the Company's cable systems served 124,000 basic
subscribers, 42,000 premium subscribers, 38,500 tier subscribers and passed
approximately 188,400 homes.
Revenues increased approximately $3.8 million or 38.0%, from $10.0 million to
$13.8 million for the three months ended September 30, 1998. Of these revenues,
approximately $9.9 million (71.7%) was derived from basic service charges, $1.1
million (8.0%) from premium services, $1.0 million (7.2%) from tier services,
$400,000 (2.9%) from installation charges, $300,000 (2.2%) from service
maintenance contracts, $500,000 (3.6%) from advertising, and $600,000 (4.4%)
from other sources. The January 1998 acquisition of cable television systems
serving approximately 35,700 basic subscribers in portions of Aiken, Greenwood,
McCormick, Laurens, Abbeville, Saluda and Edgefield Counties in western South
Carolina (the "South Carolina Acquisitions") increased revenues approximately
$3.9 million or 39.0%. The May 1998 disposition of cable television systems
serving approximately 4,300 basic subscribers in and around Woodburn, Oregon
(the "Woodburn System") decreased revenues approximately $400,000 or 4.0%.
Excluding the impact of the South Carolina Acquisitions and assuming the
Woodburn System was disposed of at the beginning of each of the respective
periods, revenues would have increased approximately $400,000 or 4.0%, from $9.6
million to $10.0 million. Average monthly revenue per basic subscriber would
have increased $1.11 or 3.1%, from $36.33 to $37.44 for the three months ended
September 30, 1998. Average basic revenue per basic subscriber would have
increased $.56 or 2.3% from $24.82 to $25.38 for the three months ended
September 30, 1998.
Operating expenses, which include costs related to programming, technical
personnel, repairs and maintenance and advertising sales, increased
approximately $1.3 million or 39.4%, from $3.3 million to $4.6 million for the
three months ended September 30, 1998. A substantial portion of this increase
was due to the South Carolina Acquisitions, offset by the disposition of the
Woodburn System. Excluding the impact of the South Carolina Acquisitions and the
Woodburn System disposition, operating expenses would have increased
approximately $200,000 or 6.5%, from $3.1 million to $3.3 million for the three
months ended September 30, 1998. This increase is attributable to: (i) annual
wage and benefit increases; and (ii) higher programming costs resulting from
rate increases by certain programming vendors and the launch of new programming
services in various systems.
General and administrative expenses, which include on-site office and customer
service personnel costs, customer billing, postage, marketing expenses and
franchise fees increased approximately $800,000 or 44.4%, from $1.8 million to
$2.6 million for the three months ended September 30, 1998. The increase in
general and administrative expenses was attributable primarily to the South
Carolina Acquisitions, offset by the disposition of the
<PAGE> 12
Woodburn System. Excluding the impact of the South Carolina Acquisitions and the
Woodburn System disposition, general and administrative expenses would have had
no significant change for the three months ended September 30, 1998 compared to
the same period in 1997.
Management fees increased approximately $193,000 or 39.3%, from $491,000 to
$684,000 for the three months ended September 30, 1998. This increase was
directly attributable to the aforementioned revenue increases. Management fees
are calculated at 5.0% of gross revenues.
Depreciation and amortization expenses increased approximately $1.7 million or
51.5%, from $3.3 million to $5.0 million for the three months ended September
30, 1998. Such increase was directly attributable to the South Carolina
Acquisitions and the Company's capital expenditures offset by the disposition of
the Woodburn System.
Interest expense increased by $1.9 million or 76.0%, from $2.5 million to $4.4
million for the three months ended September 30, 1998. This increase was
primarily attributable to borrowings incurred in connection with the South
Carolina Acquisitions which increased average outstanding indebtedness $64.7
million or 62.5%, from $103.6 million to $168.3 million for the three months
ended September 30, 1997 and 1998, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The cable television business generally requires substantial capital for the
construction, expansion and maintenance of the signal distribution system. In
addition, the Company has pursued, and intends to pursue, a business strategy
which includes selective acquisitions. The Company has financed these
expenditures through a combination of cash flow from operations, borrowings
under the revolving credit and term loan facility provided by a variety of banks
and the issuance of senior subordinated notes. The Company's debt service
obligations for the year ended December 31, 1998 are expected to be $17.9
million. The Company anticipates that cash flow from operations will be
sufficient to service its debt and to fund capital expenditures through December
31, 1998. The Company's debt service obligations for the year ended December 31,
1999 are anticipated to be $19.0 million. The Company believes that cash flow
from operations will be adequate to meet the Company's long-term liquidity
requirements, excluding acquisitions, prior to the maturity of its long-term
indebtedness, although no assurance can be given in this regard.
Net cash provided by operating activities was $9.5 million for the nine months
ended September 30, 1998. Adjustments to the $4.4 net loss for the period to
reconcile to net cash provided by operating activities consisted primarily of
$15.7 million of depreciation and amortization, gain on sale of assets of $5.7
million primarily due to the sale of the Woodburn System and increases in
current liabilities of $4.3 million.
Net cash used in investing activities was $66.9 million for the nine months
ended September 30, 1998. Net cash used consisted primarily of $69.9 million
used for the South Carolina Acquisitions and the Hamilton System Acquisition,
$3.9 million in capital expenditures and $7.1 million in proceeds primarily from
the sale of the Woodburn System.
<PAGE> 13
Net cash provided by financing activities was approximately $60.3 million for
the nine months ended September 30, 1998. The Company had $68.0 million in
additions to long term debt related to the South Carolina Acquisitions and made
$8.1 million of principal payments on notes payable.
Net income (loss) before charges for interest, taxes, depreciation and
amortization ("EBITDA") increased approximately $1.6 million or 36.4%, from $4.4
million to $6.0 million for the three months ended September 30, 1998. EBITDA as
a percentage of revenues ("EBITDA Margin") decreased from 44.0% to 43.2% for the
three months ended September 30, 1998. These changes were attributable primarily
to the aforementioned increases in operating expenses. The EBITDA Margin for the
South Carolina Acquisitions was 40.6% for the three months ended September 30,
1998. Excluding the effects of the South Carolina Acquisitions, the Woodburn
System disposition, EBITDA would have increased approximately $100,000 or 2.3%,
from $4.3 million to $4.4 million and EBITDA Margin would have decreased from
44.4% to 44.3% for the three months ended September 30, 1998. Industry analysts
generally consider EBITDA to be an appropriate measure of the performance of
multi-channel television operations. EBITDA is not presented in accordance with
generally accepted accounting principles and should not be considered an
alternative to, or more meaningful than, operating income or operating cash flow
as an indication of the Company's operating performance.
Net cash provided by operating activities was $6.9 million for the nine months
ended September 30, 1997. Adjustments to the $4.0 million net loss for such
period to reconcile to net cash provided by operating activities consisted
primarily of $9.9 million of depreciation and amortization and $1.2 million
increase in current liabilities.
Net cash used in investing activities was $10.1 million for the nine months
ended September 30, 1997. Net cash used in investing activities consisted
primarily of the $6.2 million for the acquisition of cable television systems in
Oconee County, South Carolina and the communities of Marlin, Madisonville,
Buffalo and Waterwood, all located in the state of Texas. Net cash used in
investing activities also consisted of $3.2 million of capital expenditures.
Net cash provided by financing activities was $1.8 million for the nine months
ended September 30, 1997. Net cash provided by financing activities consisted of
$5.0 million in additions to notes payable, offset by $4.2 million of principal
payments on notes payable and a $1 million of increases in advances from
affiliates.
The Company has a revolving credit and term loan agreement with a group of
lending banks (the "Senior Credit Facility"), providing a $75.0 million term
loan (the "Term Loan") and a $25.0 million revolving credit facility (the
"Revolver"). The Senior Credit Facility contains a number of covenants which,
among other things, require the Company to comply with specified financial
ratios and tests, including continuing maintenance, as tested on a quarterly
basis, of: (A) an interest coverage ratio (the ratio of Quarterly Operating Cash
Flow (as defined) to interest expense) of at least 1.25 to 1.00 initially,
increasing over time to 2.25 to 1.00; (B) a fixed charge coverage ratio (the
rate of the Company's Annual Operating Cash Flow (as defined) to capital
expenditures and principal and interest payments) of at least 1.05 to 1.0; (C) a
pro forma debt service ratio (the ratio of the Company's Annualized Operating
Cash Flow (as defined) to the Company's debt service obligations for the
following twelve months) of 1.15 to 1 through March 31, 1999 and 1.20 to 1
thereafter; and (D) a leverage ratio (the ratio of total
<PAGE> 14
Debt (as defined) to Annualized Operating Cash Flow) of not more than 7.0 to 1.0
initially, decreasing over time to 4.00 to 1.00. The Company was in compliance
with these ratios as of September 30, 1998.
As of the date of this filing, the balance under the Term Loan is $67.8 million
and no amounts were outstanding under the Revolver. Certain fixed rate
agreements expired during the second quarter of 1998. As of the date of this
filing, interest rates on the Senior Credit Facility were as follows: $64.2
million fixed at 8.53% under the terms of a self-amortizing interest rate swap
agreement with the Company's lender expiring December 31, 2000; $3.5 million at
a LIBOR based rate of 8.00% expiring November 30, 1998. The balance of $76,000
bears interest at the prime rate plus 1.50% (currently 9.50%). The above rates
include a margin paid to the lender based on overall leverage and may increase
or decrease as the Company's overall leverage fluctuates. Effective August 1,
1998 the Company's lenders agreed to reduce the margin on the Senior Credit
Facility by .25%.
CAPITAL EXPENDITURES
For the three months ended September 30, 1998, the Company incurred capital
expenditures of approximately $2.3 million. Capital expenditures included: (i)
expansion and improvements of cable properties; (ii) additions to plant and
equipment; and (iii) line drops, extensions and installations of cable plant
facilities.
The Company plans to invest approximately $2.2 million in capital expenditures
for the remainder of 1998 and approximately $6.5 million in 1999. This
represents anticipated expenditures for upgrading and rebuilding certain
distribution facilities, new product launches, extensions of distribution
facilities to add new subscribers and general maintenance. It is expected that
cash flow from operations will be sufficient to fund planned capital
expenditures.
YEAR 2000 ISSUES
The efficient operation of the Company's business is dependent in part on its
computer software programs and operating systems (collectively, Programs and
Systems). These Programs and Systems are used in several key areas of the
Company's business, including subscriber billing and collections and financial
reporting. Management has evaluated the Programs and Systems utilized in the
conduct of the Company's business for the purpose of identifying year 2000
compliance problems. Failure to remedy these issues could impact the ability of
the Company to timely bill its subscribers for service provided and properly
report its financial condition and results of operations which could have a
material impact on its liquidity and capital resources.
The Programs and Systems utilized in subscriber billing and collections has been
modified to address year 2000 compliance issues. These modifications are
currently in the process of being installed in the Company's various billing
sites. The Company expects this implementation to be completed by the end of
1998. Management has completed the process of replacing Programs and Systems
related to financial reporting which resolve year 2000 compliance issues. The
aggregate cost to the Company to address year 2000 compliance issues is not
expected to be material to its results of operations, liquidity and capital
resources.
The Provision of cable television services is significantly dependent on the
Company's ability to adequately receive programming signals via satellite
distribution or off air reception from various programmers and broadcasters.
The Company has inquired of certain significant programming vendors with
respect to their year 2000 issues and how they might impact the operations of
the Company. As of the date of this filing no significant programming vendor
has communicated a year 2000 issue that would affect materially the operations
of the Company. However, if significant programming vendors identify year 2000
issues in the future and are unable to resolve such issues in a timely manner,
it could result in a material financial risk.
<PAGE> 15
ACQUISITION OF SYSTEMS AND DISPOSITION OF ASSETS
On January 2, 1998 the Company acquired six cable television systems serving
portions of Aiken, Greenwood, McCormick, Laurens, Abbeville, Saluda and
Edgefield Counties in western South Carolina from InterMedia Partners of
Carolina, L.P. and Robin Cable Systems, L.P. The purchase price of the systems
was approximately $70 million and was financed through borrowings under the
Senior Credit Facility. The systems passed approximately 59,200 homes and served
approximately 35,700 basic subscribers.
On June 30, 1998 the Company acquired the operating assets and franchise rights
of a cable system serving Hamilton, Texas (the "Hamilton System"). The purchase
price of the system was $800,000, with $600,000 due at closing and the balance
due December 31, 1998. The Hamilton System serves approximately 1,100 basic
subscribers from a single headend and is located in close proximity to the
Company's Stephenville, Texas system.
On May 15, 1998 the Company sold all of its cable operations in the state of
Oregon (the "Woodburn System") to North Willamette Telecom, Inc. The net
proceeds from the sale of the system were approximately $6.9 million. The
Woodburn System served approximately 4,300 basic subscribers. Approximately $6.4
million of the proceeds from the sale were utilized to reduce amounts
outstanding under the Senior Credit Facility.
On August 7, 1998 the Company sold its operating assets of the cable television
system serving unincorporated areas of San Jacinto County, Texas known as
Waterwood (the "Waterwood System"), a headend within the Crockett, Texas
System, to WNW Communications, Inc. The net proceeds from the sale of the
system were approximately $225,000 at closing. The Waterwood System served
approximately 400 basic subscribers.
Pro forma operating results of the Company for the three and nine months ended
September 30, 1997, assuming the acquisition of the South Carolina Systems and
the disposition of the Woodburn System above had been made at the beginning of
1997, are disclosed in Note (3) to the financial statements.
The Company has entered into an agreement to purchase the operating assets and
franchise rights to cable systems in the communities of Mt. Shasta, McCloud,
Weed, and Dunsmuir, California, located in Shasta and Siskiyou Counties (the
"Mt. Shasta System"). The Mt. Shasta System serves approximately 5,100
subscribers from a primary headend and is located in close proximity to the
Company's Yreka, California system. The communities of Mt. Shasta, Weed, and
Dunsmuir are connected by fiber optic backbone and McCloud is connected via AML
microwave. The purchase price is approximately $7.6 million and will be financed
through borrowings under the Senior Credit Facility. Closing is expected to
occur in the fourth quarter of 1998.
<PAGE> 16
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 II - OTHER INFORMATION
ITEM 1. Legal proceedings
The Company is a party to ordinary and routine litigation proceedings that are
incidental to the Company's business. Management believes that the outcome of
all pending legal proceedings will not, individually or in the aggregate, have a
material adverse effect on the Company, its financial condition, prospects and
debt service ability.
ITEM 2. Changes in securities
None
ITEM 3. Defaults upon senior securities
None
ITEM 4. Submission of matters to a vote of security holders
None
ITEM 5. Other information
None
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit index
27.0 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended
September 30, 1998.
<PAGE> 17
SIGNATURES
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.
Northland Cable Television, Inc. and Subsidiary
<TABLE>
<CAPTION>
SIGNATURES CAPACITIES DATE
<S> <C> <C>
/s/ Richard I. Clark Director, Vice President, Treasurer and 11/13/98
- ---------------------------------- Assistant Secretary
Richard I. Clark
/s/ Gary S. Jones Vice President 11/13/98
- ----------------------------------
Gary S. Jones
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,227,889
<SECURITIES> 0
<RECEIVABLES> 1,818,088
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 87,089,095
<DEPRECIATION> 32,031,363
<TOTAL-ASSETS> 153,456,344
<CURRENT-LIABILITIES> 14,159,123
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (26,591,279)
<TOTAL-LIABILITY-AND-EQUITY> 153,456,344
<SALES> 41,897,399
<TOTAL-REVENUES> 41,897,399
<CGS> 0
<TOTAL-COSTS> 38,713,392
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,331,131
<INCOME-PRETAX> 4,369,846
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,369,846
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
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