<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, 2000
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
----------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
</TABLE>
<TABLE>
<S> <C>
1201 THIRD AVENUE, SUITE 3600
SEATTLE, WASHINGTON 98101
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(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 - (Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
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<S> <C> <C>
ASSETS
Current Assets:
Cash $ 1,481,821 $ 1,366,050
Due from affiliates 122,422 127,790
Accounts receivable 2,013,887 2,226,257
Prepaid expenses 471,479 514,883
------------- -------------
Total current assets 4,089,609 4,234,980
------------- -------------
Investment in Cable Television Properties:
Property and equipment, net of accumulated
depreciation of $44,356,453 and $40,226,261,
respectively 55,165,787 55,094,450
Franchise agreements, net of accumulated
amortization of $34,968,991 and $29,899,513,
respectively 68,425,790 70,564,567
Goodwill, net of accumulated
amortization of $2,306,938 and $2,220,383,
respectively 4,617,495 4,704,050
Other intangible assets, net of accumulated
amortization of $6,579,783 and $5,706,249,
respectively 6,518,387 7,387,120
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Total investment in cable television properties 134,727,459 137,750,187
------------- -------------
Total assets $ 138,817,068 $ 141,985,167
============= =============
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current Liabilities:
Accounts payable $ 410,253 $ 620,403
Accrued expenses 5,218,751 6,040,163
Converter deposits 114,509 111,703
Subscriber prepayments 2,216,998 1,830,231
Due to affiliates 1,738,731 48,671
Current portion of notes payable 5,000,000 3,000,000
------------- -------------
Total current liabilities 14,699,242 11,651,171
Notes payable 171,690,000 172,090,000
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Total liabilities 186,389,242 183,741,171
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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 (59,132,701) (53,316,531)
------------- -------------
Total shareholder's deficit (47,572,174) (41,756,004)
------------- -------------
Total liabilities and shareholder's deficit $ 138,817,068 $ 141,985,167
============= =============
</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 - (Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
---------------------------------------
2000 1999
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<S> <C> <C>
Revenues:
Service revenues $ 29,785,925 $ 28,787,757
Programming and production revenues from affiliates 209,943 327,986
------------ ------------
Total Revenues 29,995,868 29,115,743
------------ ------------
Expenses:
Cable system operations (including
$141,617 and $119,281, net paid to affiliates
in 1999 and 1998, respectively) 10,276,487 9,715,120
General and administrative (including
$2,612,099 and $2,572,397, net paid to affiliates
in 1999 and 1998, respectively) 5,375,069 4,969,473
Management fees paid to parent 1,495,372 1,433,959
Depreciation and amortization 9,807,375 9,597,143
------------ ------------
Total operating expenses 26,954,303 25,715,695
------------ ------------
Income from operations 3,041,565 3,400,048
Other income (expense):
Interest expense (8,887,422) (8,937,035)
Interest income 101,123 110,028
Other expense (18,968) (25,714)
(Loss) gain on disposal of assets (52,467) (450,303)
------------ ------------
(8,857,734) (9,303,024)
------------ ------------
Net loss $ (5,816,169) $ (5,902,976)
============ ============
</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 - (Unaudited)
<TABLE>
<CAPTION>
For the three months ended June 30,
---------------------------------------
2000 1999
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<S> <C> <C>
Revenues:
Service revenues $ 15,053,825 $ 14,454,408
Programming and production revenues from affiliates 102,033 164,266
------------ ------------
Total Revenues 15,155,858 14,618,674
------------ ------------
Expenses:
Cable system operations (including
$64,006 and $49,575, net paid to affiliates
in 2000 and 1999, respectively) 5,131,452 4,864,601
General and administrative (including
$1,288,163 and $1,370,383, net paid to affiliates
in 2000 and 1999, respectively) 2,676,180 2,534,566
Management fees paid to parent 756,952 719,531
Depreciation and amortization 4,956,041 4,808,424
------------ ------------
Total operating expenses 13,520,625 12,927,122
------------ ------------
Income from operations 1,635,233 1,691,552
Other income (expense):
Interest expense (4,476,341) (4,482,250)
Interest income 45,780 53,699
Other expense (3,042) (10,593)
(Loss) gain on disposal of assets (57,834) (274,746)
------------ ------------
(4,491,437) (4,713,890)
------------ ------------
Net loss $ (2,856,204) $ (3,022,338)
============ ============
</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 - (Unaudited)
<TABLE>
<CAPTION>
For the six months ended June 30,
-------------------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(5,816,169) $(5,902,976)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 9,807,375 9,597,142
Amortization of loan costs 461,892 455,161
Loss (gain) on disposal of assets 52,467 450,303
(Increase) decrease in operating assets:
Accounts receivable 212,370 131,030
Prepaid expenses 43,404 (142,201)
Due from affiliates 5,369 (181,397)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses (1,031,562) (1,216,193)
Due to affiliates 1,690,059 759,713
Converter deposits 2,806 (3,127)
Subscriber prepayments 386,767 101,105
----------- -----------
Net cash from operating activities 5,814,778 4,048,560
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of cable systems (3,100,000) --
Investment in cable television properties (4,229,555) (3,175,342)
Proceeds from disposal of assets 35,050 16,261
Franchise fees and other intangibles (4,502) (107,966)
----------- -----------
Net cash used in investing activities (7,299,007) (3,267,047)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 3,100,000 --
Principal payments on borrowings (1,500,000) (1,125,000)
Loan fees and other costs incurred -- --
----------- -----------
Net cash provided by (used in) from financing activities 1,600,000 (1,125,000)
----------- -----------
INCREASE (DECREASE) IN CASH 115,771 (343,487)
CASH, beginning of period 1,366,050 2,750,972
----------- -----------
CASH, end of period $ 1,481,821 $ 2,407,485
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 8,373,840 $ 8,456,631
=========== ===========
Cash paid during the period for state income taxes $ 18,967 $ 25,714
=========== ===========
</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
JUNE 30, 2000
(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, 2000, its statements of operations for the six
and three months ended June 30, 2000 and 1999 and its statement of cash flows
for the six months ended June 30, 2000 and 1999. 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, 1999.
(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 June 30, 2000, 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,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT
INFORMATION:
Revenues from affiliates $ 194,805 $ 345,569 $ 408,239 $ 690,592
Less: intercompany revenue
(92,772) (181,303) (198,296) (362,606)
--------- --------- --------- ---------
Total revenues
102,033 164,266 209,943 327,986
Operating expenses
150,587 248,776 329,877 499,290
Other, net
3,043 10,237 13,925 18,351
--------- --------- --------- ---------
Net loss $ (51,597) $ (94,747) $(133,859) $(189,655)
========= ========= ========= =========
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
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<S> <C> <C>
BALANCE SHEET
INFORMATION:
Current assets $ 2,203,485 $ 2,141,332
Less: intercompany elimination (2,092,773) (2,032,390)
----------- -----------
Total Assets $ 110,712 $ 108,942
=========== ===========
Current liabilities $ 47,919 $ 50,204
Other liabilities -- --
----------- -----------
Total liabilities $ 47,919 $ 50,204
=========== ===========
</TABLE>
(3) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 133 - In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." 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 consolidated
statements of operations, and requires that a company must formally document,
designate, and assess the effectiveness of transactions that are subject to
hedge accounting.
Pursuant to SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB No. 133 - an Amendment to
FASB Statement No. 133," the effective date of SFAS No. 133 has been deferred
until fiscal years beginning after January 15, 2000. SFAS No. 133 cannot be
applied retroactively. SFAS No. 133 must be applied to (a) derivative
instruments and (b) certain derivative instruments embedded in hybrid contracts
that were issued, acquired, or substantively modified after December 31, 1998
(and, at the Company's election, before January 1, 1999).
The Company has not yet quantified the impacts of adopting SFAS No. 133 on the
financial statements and has not determined the timing or method of adoption of
SFAS No. 133. However, the statement could increase volatility in earnings and
other comprehensive income.
Staff Accounting Bulletin (SAB) No. 101 - In November of 1999, the SEC
released SAB No. 101 "Revenue Recognition in Financial Statements." This
bulletin become effective for the quarter ended December 31, 2000. This bulletin
establishes more clearly defined revenue recognition criteria, than previously
existing accounting pronouncements, and specifically addresses revenue
recognition requirements for nonrefundable fees, such as installation fees,
collected by a company upon entering into an arrangement with a customer. The
Partnership believes that the effects of this bulletin will not have a material
impact on the Partnership's financial position or results of operations.
<PAGE> 8
(4) ACQUISITION OF CABLE SYSTEM
On March 31, 2000, the Company acquired the operating assets and franchise
rights to cable systems serving approximately 1,600 basic subscribers in the
communities of Kingston and Hansville, Washington, located in Kitsap County from
North Star Cable, Inc. The systems were acquired at a purchase price of
$3,100,000 adjusted at closing for the proration of certain revenues and
expenses. Of the total purchase price, North Star Cable, Inc. received
$3,093,046 on March 31, 2000. The acquisition was financed through borrowings
under the Senior Credit Facility.
Pro forma operating results of the Company for the three and six months ending
June 30, 1999, assuming the acquisitions described above had been made as of the
beginning of the period, are as follows:
<TABLE>
<CAPTION>
THREE MONTH PERIOD ENDED JUNE 30, SIX MONTH PERIOD ENDED JUNE 30,
1999 2000 1999
------------ ------------ ------------
<S> <C> <C> <C>
Service revenues $ 14,750,000 $ 30,150,000 $ 29,400,000
============ ============ ============
Net loss $ (3,100,000) $ (5,900,000) $ (6,100,000)
============ ============ ============
</TABLE>
<PAGE> 9
PART I (continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
As of June 30, 2000, the Company's cable systems served 125,236 basic
subscribers, 37,879 premium subscribers, 39,176 tier subscribers and passed
approximately 200,320 homes.
Revenues increased approximately $900,000 or 3.1%, from $29.1 million to $30.0
million for the six months ended June 30, 2000. Of these revenues, approximately
$22.0 million (73.3%) was derived from basic service charges, $2.1 million
(7.0%) from premium services, $2.35 million (7.9%) from tier services, $550,000
(1.8%) from installation charges, $600,000 (2.0%) from service maintenance
contracts, $1.3 million (4.3%) from advertising, and $1.1 million (3.7%) from
other sources. The increase in revenues was primarily attributable to: (i) rate
increases implemented in a majority of the Company's systems; (ii) revenue from
the higher penetration of new product tiers; and (iii) the March 2000
acquisition of cable television systems serving approximately 1,600 basic
subscribers in and around Kingston, WA ("the Kingston System"). Average monthly
revenue per basic subscriber increased $1.86 or 4.9%, from $37.79 to $39.65 for
the six months ended June 30, 2000. Average basic revenue per basic subscriber
increased $1.51 or 5.5% from $27.57 to $29.08 for the six months ended June 30,
2000. On a pro forma basis, revenues would have increased approximately $750,000
or 2.6% from $29.4 million to $30.15 million. Average monthly revenue per basic
subscriber would have increased $2.14 or 5.7%, from $37.72 to $39.86 for the six
months ended June 30, 2000.
Cable system operations, which include costs related to programming, technical
personnel, repairs and maintenance and advertising sales, increased
approximately $600,000 or 6.2%, from $9.7 million to $10.3 million for the six
months ended June 30, 2000. This increase is primarily attributable to: (i)
annual wage and benefit increases; (ii) higher programming costs resulting from
rate increases by certain programming vendors and the launch of new programming
services in various systems; (iii) higher advertising sales commissions and
agency fee expenses resulting from increases in advertising revenues; and (iv)
expenses associated with the Kingston System acquisition. On a pro forma basis,
operating expenses would have increased approximately $550,000 or 5.6% from $9.8
million to $10.35 million for the six months ended June 30, 2000.
General and administrative expenses, which include on-site office and customer
service personnel costs, customer billing, postage, marketing expenses and
franchise fees, increased approximately $450,000 or 9.1%, from $4.95 million to
$5.4 million for the six months ended June 30, 2000. This increase is primarily
attributable to: (i) increased franchise fees due to rate increases on various
franchise renewals and increases in revenue as noted previously; (ii) increases
in salary and benefit costs due to cost of living adjustments; (iii) increases
in property tax expense due to higher assessments in property values; and (iv)
expenses associated with the Kingston
<PAGE> 10
System acquisition. On a pro forma basis, general and administrative expenses
would have increased approximately $350,000 or 6.9%, from $5.05 million to $5.4
million for the six months ended June 30, 2000 compared to the same period in
1999.
Management fee increases for the six months ended June 30, 2000, are directly
attributable to the aforementioned revenue increases. Management fees are
calculated at 5.0% of gross revenues.
Depreciation and amortization expenses increased approximately $200,000 or 2.1%,
from $9.6 million to $9.8 million for the six months ended June 30, 2000. Such
increase is attributable to depreciation of recent equipment purchases in
upgrading plant & equipment.
Interest expense had no significant change for the six months ended June 30,
2000 compared to the same period in 1999. Average outstanding indebtedness
decreased from $176.8 million to $175.9 million for the six months ended June
30, 1999 and 2000, respectively.
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Revenues increased approximately $550,000 or 3.8%, from $14.6 million to $15.15
million for the three months ended June 30, 2000. Of these revenues,
approximately $11.15 million (73.6%) was derived from basic service charges,
$1.05 million (6.9%) from premium services, $1.2 million (7.9%) from tier
services, $250,000 (1.7%) from installation charges, $300,000 (2.0%) from
service maintenance contracts, $650,000 (4.3%) from advertising, and $550,000
(3.6%) from other sources. The increase in revenues was primarily attributable
to: (i) rate increases implemented in a majority of the Company's systems; (ii)
revenue from the higher penetration of new product tiers; and (iii) the March
2000 acquisition of the Kingston System. Average monthly revenue per basic
subscriber increased $1.97 or 5.2%, from $38.08 to $40.05 for the three months
ended June 30, 2000. Average basic revenue per basic subscriber increased $1.58
or 5.7% from $27.84 to $29.42 for the three months ended June 30, 2000. On a pro
forma basis, revenues would have increased approximately $400,000 or 2.7% from
$14.75 million to $15.15 million. Average monthly revenue per basic subscriber
would have increased $2.03 or 5.3%, from $38.02 to $40.05 for the three months
ended June 30, 2000.
Cable system operations, which include costs related to programming, technical
personnel, repairs and maintenance and advertising sales, increased
approximately $300,000 or 6.2%, from $4.85 million to $5.15 million for the
three months ended June 30, 2000. This increase is primarily attributable to:
(i) annual wage and benefit increases; (ii) higher programming costs resulting
from rate increases by certain programming vendors and the launch of new
programming services in various systems; (iii) higher advertising sales
commissions and agency fee expenses resulting from increases in advertising
revenues; and (iv) expenses associated with the Kingston System acquisition. On
a pro forma basis, operating expenses would have increased approximately
$250,000 or 5.1% from $4.9 million to $5.15 million for the three months ended
June 30, 2000.
General and administrative expenses, which include on-site office and customer
service personnel costs, customer billing, postage, marketing expenses and
franchise fees, increased approximately $200,000 or 8.0%, from $2.5 million to
$2.7 million for the three months ended June 30, 2000. This increase is
primarily attributable to: (i) increased franchise fees due to rate
<PAGE> 11
increases on various franchise renewals and increases in revenue as noted
previously; (ii) increases in salary and benefit costs due to cost of living
adjustments; (iii) increases in property tax expense due to higher assessments
in property values; and (iv) expenses associated with the Kingston System
acquisition. On a pro forma basis, general and administrative expenses would
have increased approximately $100,000 or 3.9% from $2.55 million to $2.65
million for the three months ended June 30, 2000.
Management fee increases for the three months ended June 30, 2000, are directly
attributable to the aforementioned revenue increases. Management fees are
calculated at 5.0% of gross revenues.
Depreciation and amortization expenses increased approximately $200,000 or 4.2%,
from $4.8 million to $5.0 million for the three months ended June 30, 2000. Such
increase is attributable to depreciation of recent equipment purchases in
upgrading plant and equipment.
Interest expense had no significant change for the three months ended June 30,
2000 compared to the same period in 1999. Average outstanding indebtedness
increased from $176.5 million to $177.1 million for the three months ended June
30, 1999 and 2000, 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, 2000 are expected to be
approximately $17.8 million. The Company anticipates that cash flow from
operations will be sufficient to service its debt through December 31, 2000. The
Company's debt service obligations for the year ended December 31, 2001 are
anticipated to be approximately $19.5 million. The Company believes that cash
flow from operations will be adequate to meet the Company's long-term liquidity
requirements, excluding acquisitions and certain levels of capital expenditures,
prior to the maturity of its long-term indebtedness.
Net cash provided by operating activities was $5.8 million for the six months
ended June 30, 2000. Adjustments to the $5.8 million net loss for the period to
reconcile to net cash provided by operating activities consisted primarily of
$10.25 million of depreciation and amortization and increases in operating
liabilities of $1.05 million.
Net cash used in investing activities was $7.3 million for the six months ended
June 30, 2000, and consisted of $3.1 million used in the acquisition of the
Kingston System and approximately $4.25 million in capital expenditures.
Net cash provided by financing activities was approximately $1.6 million for the
six months ended June 30, 2000. The Company had $3.1 million in borrowings of
long term debt to finance
<PAGE> 12
the Kingston, Washington acquisition and made approximately $1.5 million of
principal payments on notes payable.
Earnings before charges for interest, taxes, depreciation and amortization
("EBITDA") increased approximately $100,000 or 1.5%, from $6.5 million to $6.6
million for the three months ended June 30, 2000. The increase in EBITDA was
attributable primarily to the Kingston System acquisition. EBITDA as a
percentage of revenues ("EBITDA Margin") decreased from 44.5% to 43.5% for the
three months ended June 30, 2000. This decrease in EBITDA margin was
attributable to: (i) the aforementioned increase in franchise fee expenses; and
(ii) the increase in programming expenses of 9.6% while revenues increased 3.8%
for the three months ended June 30, 2000. On a pro forma basis, EBITDA would
have increased approximately $50,000 or 0.8%, from $6.55 million to $6.6 million
for the three months ended June 30, 2000. 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 $4.05 million for the six months
ended June 30, 1999. Adjustments to the $5.9 million net loss for the period to
reconcile to net cash provided by operating activities consisted primarily of
$10.1 million of depreciation and amortization, and an decreases in current
liabilities of $1.2 million and increases in amounts due to affiliates of
approximately $750,000.
Net cash used in investing activities was $3.25 million for the six months ended
June 30, 1999, and consisted primarily of $3.2 million in capital expenditures.
Net cash used by financing activities was approximately $1.1 million for the six
months ended June 30, 1999. The Company made $1.1 million of principal payments
on notes payable.
On August 14, 2000, the Company refinanced its existing senior bank indebtedness
(the "Revised Senior Credit Facility"). The Revised Senior Credit Facility
establishes a 364-day revolving credit / term-out loan facility in the aggregate
principal amount of $35 million (the "364-Day / Term-out Facility"), a
seven-year revolving credit loan in the aggregate principal amount of $40
million (the "Revolving Credit Facility"), and a seven-year term loan in the
aggregate principal amount of $35 million (the "Term Loan Facility"). Amounts
outstanding under the Revised Senior Credit Facility mature on June 30, 2007.
The proceeds of the Senior Credit Facility will be used to repay existing senior
bank indebtedness, finance future acquisitions, finance capital expenditures,
provide working capital and for other general corporate purposes.
At the company's election, the interest rate per annum applicable to the Revised
Senior Credit Facility is a fluctuating rate of interest measured by reference
to either: (i) the U.S. dollar prime commercial lending rate announced by the
administrative agent of the lending group, plus a borrowing margin ("Base
Rate"); or (ii) the London interbank offered rate (`LIBOR"), plus a borrowing
margin. The applicable borrowing margins vary, based upon the Company's leverage
ratio, from 1.25% to 2.75% for LIBOR loans and from 0.25% to 1.75% for Base Rate
loans.
<PAGE> 13
The Revised 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)
a Total Leverage Ratio (the ratio of Total Debt to Annualized Operating Cash
Flow (as defined)) of not more than 6.75 to 1.00 initially, decreasing over time
to 4.50 to 1.00; (B) a Senior Leverage Ratio (the ratio of Total Debt (excluding
existing and/or future Senior Subordinated Notes) to Annualized Operating Cash
Flow) of not more than 3.50 to 1.00 initially, decreasing over time to 3.00 to
1.00; (C) a Interest Coverage Ratio (the ratio of Operating Cash Flow (as
defined) to Total Cash Interest Expense) of not more less 1.40 to 1.00
initially, increasing over time to 2.00 to 1.00; (D) a Pro Forma Debt Service
Ratio (the ratio of the Company's Operating Cash Flow (as defined) to the
Company's debt service obligations for the following twelve months) of 1.25 to
1.00; (E) a Capital Expenditure Limitation of not more than $14 million, $15
million, and $12.5 million, respectively, in 2000, 2001 and 2002; and (F)
beginning March 31, 2003, a Fixed Charge Coverage Ratio (the ratio of Operating
Cash Flow to Fixed Charges (as defined)) of 1.05 to 1.00. As of the date of this
filing, the Company was in compliance with the covenants of the Revised Senior
Credit Facility.
The Company is required to enter into interest rate hedge agreements no later
than the date occurring 90 days after closing covering at least 50% of the total
amount outstanding under the Revised Senior Credit Facility. As of the date of
this filing the Company had not entered into any such hedge agreements
As of the date of this filing, approximately $78.7 million was outstanding under
the Revised Senior Credit Facility bearing interest at the Base Rate of 11.25%.
The above rate includes a margin paid to the lender based on overall leverage
and may increase or decrease as the Company's overall leverage fluctuates. It is
anticipated that the rate of interest will decline as the Company converts
outstanding amounts to LIBOR loans from Base Rate loans.
CAPITAL EXPENDITURES
For the three months ended June 30, 2000, the Company incurred capital
expenditures of approximately $3.3 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 $7.4 million in capital expenditures
for the remainder of 2000 and approximately $12.5 million in 2001. This
represents anticipated expenditures for upgrading and rebuilding certain
distribution facilities, new product launches including digital programming,
extensions of distribution facilities to add new subscribers and general
maintenance. To fund planned 2000 capital expenditures aggregating $11.6 million
the Company plans to utilize approximately $7.7 million of cash flow from
operations and borrow approximately $3.9 million from its Revised Senior Credit
Facility.
<PAGE> 14
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
10.1 Credit Agreement with Bank of America, N.A. dated as of
August 14, 2000.
27.0 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended
June 30, 2000.
<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 8/14/00
-------------------------- Assistant Secretary
Richard I. Clark
/s/ Gary S. Jones Vice President and Chief Financial 8/14/00
-------------------------- Officer
Gary S. Jones
</TABLE>
