<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 JUNE 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)
<TABLE>
<S> <C>
STATE OF WASHINGTON 91-1311836
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(State or other jurisdiction of incorporation ) (I.R.S. Employer Identification No.)
</TABLE>
AND SUBSIDIARY GUARANTOR:
NORTHLAND CABLE NEWS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
STATE OF WASHINGTON 91-1638891
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(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
</TABLE>
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
NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 1998
(unaudited)
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>
June 30, December 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,869,708 $ 1,238,581
Due from limited partnerships 56,224 20,545
Accounts receivable 2,214,400 1,355,005
Prepaid expenses 555,750 291,566
------------- -------------
Total current assets 4,696,082 2,905,697
------------- -------------
Investment in Cable Television Properties:
Property and equipment, net of accumulated
depreciation of $30,227,468 and $28,887,486,
respectively 55,255,179 39,382,223
Franchise agreements, net of accumulated
amortization of $28,039,219 and $29,467,711,
respectively 80,512,800 35,773,674
Goodwill, net of accumulated
amortization of $1,960,716 and $1,874,161,
respectively 4,963,716 5,050,272
Other intangible assets, net of accumulated
amortization of $2,932,311 and $2,142,891,
respectively 9,501,352 8,620,112
Fund deposited in escrow for purchase of cable
television system -- 690,000
------------- -------------
Total investment in cable television properties 150,233,047 89,516,281
------------- -------------
Total assets $ 154,929,129 $ 92,421,978
============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current Liabilities:
Accounts payable $ 1,598,375 $ 662,141
Accrued expenses 5,653,340 4,591,610
Converter deposits 103,063 103,393
Subscriber prepayments 1,650,070 1,106,327
Due to affiliates 441,636 217,426
Current portion of notes payable 1,945,287 1,140,292
------------- -------------
Total current liabilities 11,391,771 7,821,189
Notes payable 166,451,000 106,822,221
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Total liabilities 177,842,771 114,643,410
------------- -------------
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 (34,474,169) (33,781,959)
------------- -------------
Total shareholder's deficit (22,913,642) (22,221,432)
------------- -------------
Total liabilities and shareholder's deficit $ 154,929,129 $ 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 June 30,
------------------------------------
1998 1997
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Service revenues $ 13,761,713 $ 9,669,216
Programming and production revenues from affiliates 162,578 185,348
------------- -------------
Total Revenues 13,924,291 9,854,564
------------- -------------
Expenses:
Cable system operations (including
$9,926 and $60,767, net paid to affiliates
in 1998 and 1997, respectively) 4,685,968 3,094,979
General and administrative (including
$1,415,652 and $568,804, net paid to affiliates
in 1998 and 1997, respectively) 2,559,377 1,804,991
Management fees paid to parent 686,931 483,099
Depreciation and amortization 4,904,051 3,340,105
------------- -------------
Total operating expenses 12,836,327 8,723,174
------------- -------------
Income from operations 1,087,964 1,131,390
------------- -------------
Other income (expense):
Interest expense (4,429,126) (2,609,004)
Interest income 38,607 5,711
Other expense (276) (5,900)
Gain on sale of assets 6,000,406 --
------------- -------------
1,609,611 (2,609,193)
------------- -------------
Net income ( loss) $ 2,697,575 $ (1,477,803)
============= =============
</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 six months ended June 30,
------------------------------------
1998 1997
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Service revenues $ 27,686,413 $ 18,858,240
Programming and production revenues from affiliates 348,090 365,478
------------- -------------
Total Revenues 28,034,503 19,223,718
------------- -------------
Expenses:
Cable system operations (including
$43,864 and $126,868, net paid to affiliates
in 1998 and 1997, respectively) 9,434,917 6,191,313
General and administrative (including
$2,780,417 and $1,101,271, net paid to affiliates
in 1998 and 1997, respectively) 4,977,014 3,508,418
Management fees paid to parent 1,382,424 941,808
Depreciation and amortization 10,067,771 6,368,090
------------- -------------
Total operating expenses 25,862,126 17,009,629
------------- -------------
Income from operations 2,172,377 2,214,089
------------- -------------
Other income (expense):
Interest expense (8,900,228) (4,914,667)
Interest income 52,982 6,186
Other expense (17,747) (18,227)
Gain on sale of assets 6,000,406 --
------------- -------------
(2,864,587) (4,926,708)
------------- -------------
Net income (loss) $ (692,210) $ (2,712,619)
============= =============
</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 six months ended June 30,
------------------------------------
1998 1997
------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (692,210) $ (2,712,619)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 10,521,651 6,537,587
Gain on sale of assets (6,000,406) --
(Increase) decrease in operating assets:
Accounts receivable (859,395) 30,177
Prepaid expenses (264,184) (153,808)
Due from limited partnerships (35,679) 21,136
Increase (decrease) in operating liabilities
Accounts payable 936,234 (226,801)
Other current liabilities 1,061,730 573,663
Converter deposits (330) (6,181)
Subscriber prepayments 543,743 89,419
------------- -------------
Net cash from operating activities 5,211,154 4,152,573
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of cable systems (69,884,999) (6,203,141)
Investment in cable television properties (1,675,996) (2,259,403)
Franchise fees and other intangibles (104,173) --
Proceeds from sale of cable television system 6,876,671 --
------------- -------------
Net cash used in investing activities (64,788,497) (8,462,544)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 68,027,779 5,000,000
Principal payments on borrowings (7,794,005) (2,823,957)
Loan fees and other costs incurred (249,514) --
Advances from affiliates 224,210 350,413
------------- -------------
Net cash from financing activities 60,208,470 2,526,456
------------- -------------
INCREASE (DECREASE) IN CASH 631,127 (1,783,515)
CASH, beginning of period 1,238,581 2,486,237
------------- -------------
CASH, end of period $ 1,869,708 $ 702,722
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 8,537,151 $ 4,638,215
============= =============
Cash paid during the period for state income taxes $ 17,747 $ 9,493
============= =============
</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 -- -- (692,210) (692,210)
------------ ------------ ------------ ------------
BALANCE, June 30, 1998 10,000 $ 11,560,527 $(34,474,169) $(22,913,642)
============ ============ ============ ============
</TABLE>
<PAGE> 7
NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 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 June 30, 1998, its statements of operations for the six
and three months ended June 30, 1998 and 1997 and its statements of cash flows
for the six months ended June 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 June 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 JUNE 30, SIX MONTH PERIOD ENDED JUNE 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
INCOME STATEMENT INFORMATION:
Revenues from affiliates $ 357,683 $ 376,309 $ 747,194 $ 747,859
Less:intercompany revenue (195,105) (190,961) (399,104) (382,381)
------------- ------------- ------------- -------------
Total revenues 162,578 185,348 348,090 365,478
Operating expenses 272,869 293,672 568,002 576,932
Other, net (861) (408) 9,013 8,249
------------- ------------- ------------- -------------
Net loss $ (109,430) $ (107,916) $ (228,925) $ (219,703)
============= ============= ============= =============
</TABLE>
<PAGE> 8
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
------------- -------------
(Unaudited)
<S> <C> <C>
BALANCE SHEET
INFORMATION:
Current assets $ 1,643,399 $ 1,483,466
Less: intercompany elimination (1,418,799) (1,362,693)
------------- -------------
Total current assets 224,600 120,773
Non-current assets 12,535 212
------------- -------------
Total Assets $ 237,135 $ 120,985
============= =============
Current liabilities $ 52,696 $ 50,619
Other liabilities -- --
------------- -------------
Total liabilities $ 52,696 $ 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 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 and generated
revenues of approximately $235,000 for the three months ended June 30, 1998.
Approximately $6.4 million of the proceeds from the sale was 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.
<PAGE> 9
Pro forma operating results of the Company for the three and six months ending
June 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 JUNE 30, 1997 SIX MONTH PERIOD ENDED JUNE 30, 1997
-------------------------------------- ------------------------------------
<S> <C> <C>
Service revenues $13,400,000 $26,600,000
=========== ===========
Net loss $(3,200,000) $(6,100,000)
=========== ===========
</TABLE>
(4) DISCLOSURE OF IMPACT OF RECENT ACCOUNTING STANDARDS ISSUED 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 June 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.
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.
<PAGE> 10
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.
<PAGE> 11
PART I (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
JUNE 30, 1998 AND 1997
As of June 30, 1998, the Company's cable systems served 123,769 basic
subscribers, 44,202 premium subscribers, 38,094 tier subscribers and passed
approximately 188,400 homes.
Revenues increased approximately $4.0 million or 40.4%, from $9.9 million to
$13.9 million for the three months ended June 30, 1998. Of these revenues,
approximately $10.1 million (72.7%) was derived from basic service charges, $1.2
million (8.6%) from premium services, $1.0 million (7.2%) from tier services,
$300,000 (2.2%) from installation charges, $200,000 (1.4%) from service
maintenance contracts, $500,000 (3.6%) from advertising, and $600,000 (4.3%)
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 39.4%. 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 $200,000 or 2.0%.
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 $300,000 or 3.2%. Average
monthly revenue per basic subscriber would have increased $1.35 or 3.8%, from
$35.13 to $36.48 for the three months ended June 30, 1998. Average basic revenue
per basic subscriber would have increased $.52 or 2.1% from $24.70 to $25.22 for
the three months ended June 30, 1998.
Operating expenses, which include costs related to programming, technical
personnel, repairs and maintenance and advertising sales, increased
approximately $1.6 million or 51.6%, from $3.1 million to $4.7 million for the
three months ended June 30, 1998. Operating expenses as a percentage of revenues
increased from 31.3% to 33.8% for the three months ended June 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 $300,000 or 10.3%, from $2.9 million
to $3.2 million for the three months ended June 30, 1998. Operating expenses for
the three months ended June 30, 1997, were reduced by certain launch incentive
fees received from programmers of approximately $100,000 or 3.4%. Excluding the
impact of
<PAGE> 12
programmer incentive fees, operating expenses would have increased approximately
$200,000 or 6.7%. 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 $700,000 or 38.9%, from $1.8 million to
$2.5 million for the three months ended June 30, 1998. The increase in general
and administrative expenses was attributable primarily 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,
general and administrative expenses would have had no significant change for the
three months ended June 30, 1998 compared to the same period in 1997.
Management fees increased approximately $204,000 or 42.2%, from $483,000 to
$687,000 for the three months ended June 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 $1.6 million or
48.5%, from $3.3 million to $4.9 million for the three months ended June 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 $1.8 million or 69.2%, from $2.6 million to $4.4
million for the three months ended June 30, 1998. This increase was primarily
attributable to borrowings incurred in connection with the South Carolina
Acquisitions which increased average outstanding indebtedness $66.6 million or
63.4%, from $105.0 million to $171.6 million for the three months ended June 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 $17.8
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 $18.5 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.
<PAGE> 13
Net cash provided by operating activities was $5.2 million for the six months
ended June 30, 1998. Adjustments to the $690,000 net loss for the period to
reconcile to net cash provided by operating activities consisted primarily of
$10.5 million of depreciation and amortization, gain on sale of assets of $6.0
million due to the sale of the Woodburn System and increases in current
liabilities.
Net cash used in investing activities was $64.8 million for the six months ended
June 30, 1998. Net cash used consisted primarily of $69.9 million used for the
South Carolina Acquisitions and the Hamilton System Acquisition, $1.7 million in
capital expenditures and $6.9 million in proceeds from the sale of the Woodburn
System.
Net cash provided by financing activities was approximately $60.2 million for
the six months ended June 30, 1998. The Company had $68.0 million in additions
to long term debt related to the South Carolina Acquisitions and made $7.8
million of principal payments on notes payable.
Net income (loss) before charges for interest, taxes, depreciation and
amortization ("EBITDA") increased approximately $1.5 million or 33.3%, from $4.5
million to $6.0 million for the three months ended June 30, 1998. EBITDA as a
percentage of revenues ("EBITDA Margin") decreased from 45.5% to 43.2% for the
three months ended June 30, 1998. These changes were attributable primarily to
the aforementioned increases in operating expenses. The EBITDA Margin for the
South Carolina Acquisitions was 41.0% for the three months ended June 30, 1998.
Excluding the effects of the South Carolina Acquisitions, the aforementioned
programmer incentive fees and Woodburn System disposition, EBITDA would have
increased approximately $100,000 or 2.4%, from $4.2 million to $4.3 million and
EBITDA Margin would have decreased from 44.7% to 43.9% for the three months
ended June 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 $4.2 million for the six months
ended June 30, 1997. Adjustments to the $2.7 million net loss for such period to
reconcile to net cash provided by operating activities consisted primarily of
$6.5 million of depreciation and amortization.
Net cash used in investing activities was $8.5 million for the six months ended
June 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 $2.3 million of capital expenditures.
Net cash provided by financing activities was $2.5 million for the six months
ended June 30, 1997. Net cash provided by financing activities consisted
primarily of $5.0 million in additions to notes payable, offset by $2.8 million
of principal payments on notes payable.
<PAGE> 14
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 Annualized 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 current 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 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 June 30,
1998.
As of the date of this filing, the balance under the Term Loan is $68.1 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: $64.5
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; $3.4 million at
a LIBOR based rate of 8.44% expiring August 31, 1998. The balance of $176,000
bears interest at the prime rate plus 1.50% (currently 10.00%). 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 June 30, 1998, the Company incurred capital
expenditures of approximately $1.2 million. Capital expenditures included: (i)
expansion and improvements of cable properties; (ii) additions to plant and
equipment; (iii) maintenance of existing equipment; and (iv) line drops,
extensions and installations of cable plant facilities.
The Company plans to invest approximately $3.3 million in capital expenditures
for the remainder 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.
<PAGE> 15
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 Program 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 is currently in the process of replacing Programs and Systems
related to financial reporting which will resolve year 2000 compliance issues
and is expected to be completed by the end of 1998. 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.
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 and generated
revenues of approximately $235,000 for the three months ended June 30, 1998.
Approximately $6.4 million of the proceeds from the sale was utilized to reduce
amounts outstanding under the Senior Credit Facility.
<PAGE> 16
Pro forma operating results of the Company for the three and six months ended
June 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 (4) of the financial statements.
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.
<PAGE> 17
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 June 30,
1998.
<PAGE> 18
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 August 14, 1998
- ------------------------------ Assistant Secretary
Richard I. Clark
/s/ Gary S. Jones Vice President August 14, 1998
- ------------------------------
Gary S. Jones
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,869,708
<SECURITIES> 0
<RECEIVABLES> 2,214,400
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 85,482,647
<DEPRECIATION> 30,227,468
<TOTAL-ASSETS> 154,929,129
<CURRENT-LIABILITIES> 11,391,771
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (22,913,642)
<TOTAL-LIABILITY-AND-EQUITY> 154,929,129
<SALES> 13,924,291
<TOTAL-REVENUES> 13,924,291
<CGS> 0
<TOTAL-COSTS> 12,836,327
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,429,126
<INCOME-PRETAX> 2,697,575
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,697,575
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
