<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, 1999
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)
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<S> <C>
STATE OF WASHINGTON 91-1311836
- ---------------------------------------------- ------------------------------------
(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
- ---------------------------------------------- ------------------------------------
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
1201 THIRD AVENUE, SUITE 3600
SEATTLE, WASHINGTON 98101
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
</TABLE>
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,
1999 1998
---------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 3,747,776 $ 2,750,972
Due from affiliates 227,723 106,454
Accounts receivable 2,158,109 2,043,581
Prepaid expenses 610,805 285,591
------------- -------------
Total current assets 6,744,413 5,186,598
------------- -------------
Investment in Cable Television Properties:
Property and equipment, net of accumulated
depreciation of $38,466,101 and $33,113,526,
respectively 55,288,925 56,910,983
Franchise agreements, net of accumulated
amortization of $27,649,419 and $20,153,805,
respectively 73,076,334 80,571,948
Goodwill, net of accumulated
amortization of $2,177,105 and $2,047,272,
respectively 4,747,328 4,877,161
Other intangible assets, net of accumulated
amortization of $5,313,793 and $3,867,502,
respectively 7,718,912 9,039,564
------------- -------------
Total investment in cable television properties 140,831,499 151,399,656
------------- -------------
Total assets $ 147,575,912 $ 156,586,254
============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current Liabilities:
Accounts payable $ 93,461 $ 773,233
Accrued expenses 8,203,838 6,250,827
Converter deposits 110,302 109,311
Subscriber prepayments 1,810,436 1,846,362
Due to affiliates 545,111 246,244
Current portion of notes payable 2,812,500 2,250,000
------------- -------------
Total current liabilities 13,575,648 11,475,977
Notes payable 172,840,000 175,090,000
------------- -------------
Total liabilities 186,415,648 186,565,977
------------- -------------
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 (50,400,263) (41,540,250)
------------- -------------
Total shareholder's deficit (38,839,736) (29,979,723)
------------- -------------
Total liabilities and shareholder's deficit $ 147,575,912 $ 156,586,254
============= =============
</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 nine months ended
September 30,
---------------------------------
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Service revenues $ 43,434,372 $ 41,392,574
Programming and production revenues from affiliates 478,860 504,825
------------ ------------
Total Revenues 43,913,232 41,897,399
------------ ------------
Expenses:
Cable system operations (including
$188,939 and $88,662, net paid to affiliates
in 1999 and 1998, respectively) 14,486,333 14,033,724
General and administrative (including
$3,892,793 and $4,184,857, net paid to affiliates
in 1999 and 1998, respectively) 7,805,905 7,565,267
Management fees paid to parent 2,161,376 2,065,929
Depreciation and amortization 14,424,547 15,048,472
------------ ------------
Total operating expenses 38,878,161 38,713,392
------------ ------------
Income from operations 5,035,071 3,184,007
Other income (expense):
Interest expense (13,451,499) (13,331,131)
Interest income 157,655 82,572
Other expense (28,803) (17,937)
(Loss) gain on disposal of assets (572,437) 5,712,642
------------ ------------
(13,895,084) (7,553,854)
------------ ------------
Net loss $ (8,860,013) $ (4,369,847)
============ ============
</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 three months ended
September 30,
---------------------------------
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Service revenues $ 14,646,615 $ 13,706,162
Programming and production revenues from affiliates 150,874 156,735
------------ ------------
Total Revenues 14,797,489 13,862,897
------------ ------------
Expenses:
Cable system operations (including
$60,444 and $40,798, net paid to affiliates
in 1999 and 1998, respectively) 4,771,213 4,598,809
General and administrative (including
$1,431,260 and $1,404,440, net paid to affiliates
in 1999 and 1998, respectively) 2,836,432 2,588,253
Management fees paid to parent 727,417 683,505
Depreciation and amortization 4,827,404 4,980,701
------------ ------------
Total operating expenses 13,162,466 12,851,268
------------ ------------
Income from operations 1,635,023 1,011,629
Other income (expense):
Interest expense (4,514,464) (4,430,903)
Interest income 47,626 29,591
Other expense (3,088) (189)
Loss on disposal of assets (122,134) (287,764)
------------ ------------
(4,592,060) (4,689,265)
------------ ------------
Net loss $ (2,957,037) $ (3,677,636)
============ ============
</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
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<CAPTION>
For the nine months ended
September 30,
---------------------------------
1999 1998
------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (8,860,013) $ (4,369,847)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 14,424,546 15,048,473
Amortization of loan costs 684,024 680,819
Loss (gain) on disposal of assets 572,437 (5,712,642)
(Increase) decrease in operating assets:
Accounts receivable (114,528) (463,083)
Prepaid expenses (325,214) (306,030)
Due from affiliates (121,269) 309,281
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 1,273,239 3,741,984
Due to affiliates 298,867 602,417
Converter deposits 991 849
Subscriber prepayments (35,926) 592,981
------------ ------------
Net cash from operating activities 7,797,154 10,125,202
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of cable systems -- (69,951,327)
Investment in cable television properties (5,008,146) (3,936,712)
Proceeds from disposal of assets 20,935 --
Proceeds from sale of cable television system -- 7,107,871
Franchise fees and other intangibles (125,639) (83,459)
------------ ------------
Net cash used in investing activities (5,112,850) (66,863,627)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable -- 68,027,779
Principal payments on borrowings (1,687,500) (8,050,532)
Loan fees and other costs incurred -- (249,514)
------------ ------------
Net cash (used in) provided from financing activities (1,687,500) 5,972,733
------------ ------------
INCREASE IN CASH 996,804 2,989,308
CASH, beginning of period 2,750,972 1,238,581
------------ ------------
CASH, end of period $ 3,747,776 $ 4,227,889
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 10,205,334 $ 10,742,293
============ ============
Cash paid during the period for state income taxes $ 28,803 $ 17,936
============ ============
</TABLE>
The accompanying notes to unaudited financial statements is an integral part of
these statements
<PAGE> 6
NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(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, 1999, its statements of operations for the
nine and three months ended September 30, 1999 and 1998 and its statement of
cash flows for the nine months ended September 30, 1999 and 1998. 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, 1998.
(2) NORTHLAND CABLE NEWS:
Northland Cable News, Inc. ("NCN"), a wholly owned subsidiary of the Company,
develops and distributes 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, 1999, 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,
--------------------------------- ---------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
INCOME STATEMENT INFORMATION (Unaudited) (Unaudited) (Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues from affiliates $ 328,652 $ 335,365 $ 1,019,244 $ 1,082,559
Less:intercompany revenue (177,778) (178,630) (540,384) (577,734)
--------- --------- ----------- -----------
Total revenues 150,874 156,735 478,860 504,825
Operating expenses 246,519 260,823 745,809 828,826
Other, net 1,436 (309) 19,787 8,703
--------- --------- ----------- -----------
Net loss $ (97,081) $(103,779) $ (286,736) $ (332,704)
========= ========= =========== ===========
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
---------- -----------
BALANCE SHEET INFORMATION (Unaudited)
<S> <C> <C>
Current assets $ 2,132,005 $ 1,814,625
Less: intercompany elimination (1,924,621) (1,413,971)
----------- -----------
Total Assets 207,384 400,654
=========== ===========
Current liabilities 112,074 48,342
Other liabilities -- --
----------- -----------
Total liabilities $ 112,074 $ 48,342
=========== ===========
</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 approximately $800,000. 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 December 1, 1998, the Company acquired the operating assets and franchise
rights to cable systems serving approximately 5,100 basic subscribers in the
communities of Mt. Shasta, McCloud, Weed, and Dunsmuir, California, located in
Shasta and Siskiyou Counties (the "Mt. Shasta System") from MediaOne Group, Inc.
The purchase price of the systems was approximately $7.6 million and was
financed through borrowings under the Senior Credit Facility.
<PAGE> 8
Pro forma operating results of the Company for the three and nine months ending
September 30, 1998, assuming the acquisitions described above had been made as
of the beginning of the period, are as follows:
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<CAPTION>
THREE MONTH PERIOD ENDED SEPT 30, NINE MONTH PERIOD ENDED SEPT 30,
--------------------------------- --------------------------------
1998 1998
------------ ------------
<S> <C> <C>
Service revenues $ 14,300,000 $ 42,700,000
============ ============
Net loss $ (3,600,000) $(10,600,000)
============ ============
</TABLE>
(4) DISCLOSURE OF IMPACT OF RECENT ACCOUNTING STANDARDS ISSUED AND NOT YET
ADOPTED:
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") 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.
SFAS No. 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). SFAS
No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a)
derivative instruments and (b) certain derivative instruments embedded in hybrid
contracts that were issued, acquired, or substantively modified after December
31, 1997 (and, at the company's election, before January 1, 1998). SFAS No. 137
defers the effective date of SFAS No. 133 for fiscal years beginning after June
15, 2000.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on the
financial statements and has not determined the timing of or method of adoption
of SFAS No. 133. However, the statement could increase volatility in earnings
and other comprehensive income.
<PAGE> 9
PART I (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
As of September 30, 1999, the Company's cable systems served 126,990 basic
subscribers, 41,177 premium subscribers, 39,576 tier subscribers and passed
approximately 197,800 homes.
Revenues increased approximately $2.0 million or 4.8%, from $41.9 million to
$43.9 million for the nine months ended September 30, 1999. Of these revenues,
approximately $31.9 million (72.7%) was derived from basic service charges, $3.4
million (7.7%) from premium services, $3.3 million (7.4%) from tier services,
$1.0 million (2.3%) from installation charges, $800,000 (1.8%) from service
maintenance contracts, $1.6 million (3.6%) from advertising, and $1.9 million
(4.3%) from other sources. The increase in revenues was primarily attributable
to: (i) rate increases implemented in a majority of the Company's systems; and
(ii) revenue from the higher penetration of new product tiers; and (iii) the
acquisition of the Hamilton and Mount Shasta systems offset by the disposition
of the Woodburn system. Average monthly revenue per basic subscriber increased
$1.58 or 4.3%, from $36.63 to $38.21 for the nine months ended September 30,
1999. Average basic revenue per basic subscriber increased $1.33 or 5.0% from
$26.42 to $27.75 for the nine months ended September 30, 1999. On a pro forma
basis, adjusting for the aforementioned acquisitions and disposition, revenues
would have increased approximately $1.2 million or 2.8%, from $42.7 million to
$43.9 million. Average monthly revenue per basic subscriber would have increased
$1.77 or 4.9%, from $36.44 to $38.21 for the nine months ended September 30,
1999.
Operating expenses, which include costs related to programming, technical
personnel, repairs and maintenance and advertising sales, increased
approximately $500,000 or 3.6%, from $14.0 million to $14.5 million for the nine
months ended September 30, 1999. This increase is primarily 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. On a pro forma basis, operating
expenses would have increased $200,000 or 1.4%, from $14.3 million to $14.5
million for the nine months ended September 30, 1999 compared to the same period
in 1998.
General and administrative expenses, which include on-site office and customer
service personnel costs, customer billing, postage, and marketing expenses,
increased approximately $200,000 or 2.6%, from $7.6 million to $7.8 million for
the nine months ended September 30, 1999. On a pro forma basis, general and
administrative expenses would have no significant change for the nine months
ended September 30, 1999 compared to the same period in 1998.
<PAGE> 10
Management fee increases for the nine months ended September 30, 1999, are
directly attributable to the aforementioned revenue increases. Management fees
are calculated at 5.0% of gross revenues.
Depreciation and amortization expenses decreased approximately $600,000 or 4.0%,
from $15.0 million to $14.4 million for the nine months ended September 30,
1999. Such decrease was the result of certain assets becoming fully depreciated
offset by depreciation and amortization of recent purchases of plant and
equipment.
Interest expense increased approximately $200,000 or 1.5%, from $13.3 million to
$13.5 million for the nine months ended September 30, 1999. Average outstanding
indebtedness increased $4.4 million from $172.1 million to $176.5 million for
the nine months ended September 30, 1998 and 1999, respectively.
THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
Revenues increased approximately $900,000 or 6.5%, from $13.9 million to $14.8
million for the three months ended September 30, 1999. Of these revenues,
approximately $10.6 million (71.6%) was derived from basic service charges, $1.1
million (7.4%) from premium services, $1.1 million (7.4%) from tier services,
$400,000 (2.7%) from installation charges, $300,000 (2.0%) from service
maintenance contracts, $600,000 (4.1%) from advertising, and $700,000 (4.8%)
from other sources. The increase in revenues was primarily attributable to: (i)
rate increases implemented in a majority of the Company's systems; and (ii)
revenue from the higher penetration of new product tiers; (iii) the December
1998 acquisition of the Mount Shasta, California system. Average monthly revenue
per basic subscriber increased $1.81 or 4.9%, from $37.25 to $39.06 for the
three months ended September 30, 1999. Average basic revenue per basic
subscriber increased $1.48 or 5.6% from $26.64 to $28.12 for the three months
ended September 30, 1999. Excluding the impact of the Mount Shasta acquisition,
revenues would have increased approximately $500,000 or 3.5%, from $14.3 million
to $14.8 million. Average monthly revenue per basic subscriber would have
increased $1.92 or 5.2%, from $37.14 to $39.06 for the three months ended
September 30, 1999.
Operating expenses, which include costs related to programming, technical
personnel, repairs and maintenance and advertising sales, increased
approximately $200,000 or 4.3%, from $4.6 million to $4.8 million for the three
months ended September 30, 1999. Excluding the impact of the Mount Shasta
acquisition, operating expenses would have no significant change for the three
months ended September 30, 1999 compared to the same period in 1998.
General and administrative expenses, which include on-site office and customer
service personnel costs, customer billing, postage, marketing expenses and
franchise fees, increased $200,000 or 7.7%, from $2.6 million to $2.8 million
for the three months ended September 30, 1999 compared to the same period in
1998. Excluding the impact of the Mount Shasta acquistion, general and
administrative expenses would have increased $100,000 or 3.7%, from $2.7 million
to $2.8 million for the three months ended September 30, 1999 compared to the
same period in 1998.
<PAGE> 11
Management fee increases for the three months ended September 30, 1999, are
directly attributable to the aforementioned revenue increases. Management fees
are calculated at 5.0% of gross revenues.
Depreciation and amortization expenses decreased approximately $200,000 or 4.0%,
from $5.0 million to $4.8 million for the three months ended September 30, 1999.
Such decrease was the result of certain assets becoming fully depreciated offset
by depreciation and amortization of recent purchases of plant and equipment.
Interest expense increased approximately $100,000 or 2.3%, from $4.4 million to
$4.5 million for the three months ended September 30, 1999 compared to the same
period in 1998. Average outstanding indebtedness increased $7.8 million from
$168.1 million to $175.9 million for the three months ended September 30, 1998
and 1999, 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, 1999 are expected to be $19.1
million. The Company anticipates that cash flow from operations will be
sufficient to service its debt and to fund capital expenditures through December
31, 1999. The Company's debt service obligations for the year ended December 31,
2000 are anticipated to be $19.4 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 $7.8 million for the nine months
ended September 30, 1999. Adjustments to the $8.9 million net loss for the
period to reconcile to net cash provided by operating activities consisted
primarily of $15.1 million of depreciation and amortization, and increases in
current liabilities of $1.3 million.
Net cash used in investing activities was $5.1 million for the nine months ended
September 30, 1999, and substantially consisted of $5.0 million in capital
expenditures.
Net cash used by financing activities was approximately $1.7 million for the
nine months ended September 30, 1999. The Company made $1.7 million in principal
payments on notes payable.
Net income (loss) before charges for interest, taxes, depreciation and
amortization ("EBITDA") increased approximately $500,000 or 8.3%, from $6.0
million to $6.5 million for the three months ended September 30, 1999. EBITDA as
a percentage of revenues ("EBITDA Margin") increased from 43.2% to 43.9% for the
three months ended September 30, 1999. These changes were attributable primarily
to the aforementioned increases in revenues. On a pro forma basis, EBITDA would
have increased $400,000 or 6.6%, from $6.1 million to $6.5
<PAGE> 12
million and EBITDA Margin would have increased from 42.7% to 43.9% for the three
months ended September 30, 1999. 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 $9.5 million for the nine months
ended September 30, 1998. Adjustments to the $4.4 million 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 $70 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.
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.
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"). As of September 30, 1999, approximately $15.0 was available to
borrow by the Company under it's 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 1.00; (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 1.20 to 1.00; and (D) a
leverage ratio (the ratio of total Debt (as defined) to Annualized Operating
Cash Flow) of not more than 6.75 to 1.0, decreasing over time to 4.00 to 1.00.
As of September 30, 1999, the Company was in compliance with covenants of the
Senior Credit Facility.
At September 30, 1999, the outstanding balance under the Senior Credit Facility
was $75.7 million. As of the date of this filing, interest rates on the Senior
Credit Facility were as follows: $62.3 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; $7.0 million fixed at 7.73% under the terms of a
interest rate swap agreement with the Company's lender expiring December 4,
2000; $3.5 million at a LIBOR based rate of 8.31% expiring December 30, 1999;
$2.8 million at a LIBOR based rate of 8.31% expiring December 3, 1999. The
balance of $76,000 bears interest at the prime rate plus 1.50% (currently
9.75%). The above rates include
<PAGE> 13
a margin paid to the lender based on overall leverage and may increase or
decrease as the Company's overall leverage fluctuates.
CAPITAL EXPENDITURES
For the three months ended September 30, 1999, the Company incurred capital
expenditures of approximately $1.8 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 $2.7 million in capital expenditures
for the remainder of 1999 and approximately $6.5 million in 2000. 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 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 have
been modified to address year 2000 compliance issues. These modifications were
substantially complete at the end of 1998. Management has completed the process
of replacing Programs and Systems related to financial reporting which will
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.
Management is currently focusing its efforts on the impact of the year 2000
compliance issue on service delivery and has established an internal team to
address this issue. The internal team is identifying and testing all date
sensitive equipment involved in delivering service to its customers. In
addition, management will assess its options regarding repair or replacement of
affected equipment during this testing. The aggregate cost to the Company to
resolve year 2000 compliance issues related to service delivery equipment 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
<PAGE> 14
operations of the Company. As of the date of this filing no 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.
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 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 approximately $800,000. 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 December 1, 1998, the Company acquired the operating assets and franchise
rights to cable systems serving approximately 5,100 basic subscribers in the
communities of Mt. Shasta, McCloud, Weed, and Dunsmuir, California, located in
Shasta and Siskiyou Counties (the "Mt. Shasta System") from MediaOne Group, Inc.
The purchase price of the systems was approximately $7.6 million and was
financed through borrowings under the Senior Credit Facility.
Pro forma operating results of the Company for the three and nine months ending
September 30, 1998, assuming the acquisition of systems and the disposition of
assets described above had been made as of the beginning of the of 1998, are
disclosed in Note (3) to 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> 15
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, 1999.
<PAGE> 16
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 November 15, 1999
- ------------------------ Assistant Secretary
Richard I. Clark
/s/ Gary S. Jones Vice President and Chief Financial November 15, 1999
- ------------------------ Officer
Gary S. Jones
</TABLE>
<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>
Director, Vice President, Treasurer and
- ------------------------ Assistant Secretary ----------------
Richard I. Clark
Vice President and Chief Financial ----------------
- ------------------------ Officer
Gary S. Jones
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,747,776
<SECURITIES> 0
<RECEIVABLES> 2,158,109
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 93,755,026
<DEPRECIATION> 38,466,101
<TOTAL-ASSETS> 147,575,912
<CURRENT-LIABILITIES> 13,575,648
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (38,839,736)
<TOTAL-LIABILITY-AND-EQUITY> 147,575,912
<SALES> 43,913,232
<TOTAL-REVENUES> 43,913,232
<CGS> 0
<TOTAL-COSTS> 38,878,161
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,451,499
<INCOME-PRETAX> (8,860,013)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,860,013)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
