<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 period ended SEPTEMBER 30, 1995
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: 0-16064
NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
(Exact Name of Registrant as Specified in Charter)
Washington 75-1998317
- --------------------------------------------------------------------------------
(State of Organization) (I.R.S. Employer Identification No.)
1201 Third Avenue, Suite 3600, Seattle, Washington 98101
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(206) 621-1351
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N/A
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 PROPERTIES FOUR LIMITED PARTNERSHIP
BALANCE SHEETS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
-------------- --------------
<S> <C> <C>
ASSETS
Cash $ 440,215 $ 350,892
Accounts receivable 206,689 135,960
Prepaid Expenses 83,823 56,210
Property and equipment, net of accumulated
depreciation of $12,932,707 and $12,415,608,
respectively 6,353,807 3,794,184
Intangible assets, net of accumulated
amortization of $1,278,966 and $1,260,062,
respectively 2,218,369 408,099
------------ ------------
Total assets $ 9,302,903 $ 4,745,345
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 526,173 $ 489,794
Due to managing general partner and affiliates 76,179 58,851
Converter deposits 47,103 31,995
Subscriber prepayments 73,220 138,196
Notes payable 14,235,731 9,784,068
------------ ------------
Total liabilities 14,958,406 10,502,904
------------ ------------
Partners' equity:
General Partners:
Contributed capital, net (50,135) (47,905)
Accumulated deficit (68,382) (71,632)
------------ ------------
(118,517) (119,537)
------------ ------------
Limited Partners:
Contributed capital, net 1,232,729 1,453,466
Accumulated deficit (6,769,715) (7,091,488)
------------ ------------
(5,536,986) (5,638,022)
------------ ------------
Total partners' equity (5,655,503) (5,757,559)
------------ ------------
Total liabilities and partners' equity $ 9,302,903 $ 4,745,345
============ ============
</TABLE>
The accompanying note to unaudited financial statements is an integral part
of these statements
2
<PAGE> 3
NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Service revenues $ 4,593,251 $ 4,210,908
Expenses:
Operating 594,740 596,252
General and administrative (including
$579,730 and $489,464 to affiliates
in 1995 and 1994, respectively) 1,166,740 1,094,292
Programming 957,805 794,176
Depreciation and amortization 968,595 1,239,423
----------- -----------
3,687,880 3,724,143
----------- -----------
Income from operations 905,371 486,765
Other income (expense):
Interest expense (579,667) (444,095)
Interest income 3,469 1,986
Loss on disposal of assets (4,150) -
----------- -----------
(580,348) (442,109)
----------- -----------
Net income $ 325,023 44,656
=========== ===========
Allocation of net income:
General Partners $ 3,250 $ 447
=========== ===========
Limited Partners $ 321,773 $ 44,209
=========== ===========
Net income per limited partnership unit:
(14,663 units) $ 22 $ 3
=========== ===========
Net income per $1,000 investment $ 44 $ 6
=========== ===========
</TABLE>
The accompanying note to unaudited financial statements is an integral part
of these statements
3
<PAGE> 4
NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Service revenues $ 1,604,185 $ 1,431,616
Expenses:
Operating 219,777 235,638
General and administrative (including
$215,957 and $174,611 to affiliates
in 1995 and 1994, respectively) 420,653 373,766
Programming 337,538 277,751
Depreciation and amortization 259,205 414,477
----------- -----------
1,237,173 1,301,632
----------- -----------
Income from operations 367,012 129,984
Other income (expense):
Interest expense (214,580) (151,241)
Interest income 1,074 752
Gain on disposal of assets 90 -
----------- -----------
(213,416) (150,489)
----------- -----------
Net income (loss) $ 153,596 $ (20,505)
=========== ===========
Allocation of net income (loss):
General Partners $ 1,536 $ (205)
=========== ===========
Limited Partners $ 152,060 $ (20,300)
=========== ===========
Net income (loss) per limited partnership unit:
(14,663 units) $ 10 $ (1)
=========== ===========
Net income (loss) per $1,000 investment $ 20 $ (2)
=========== ===========
</TABLE>
The accompanying note to unaudited financial statements is an integral part
of these statements
4
<PAGE> 5
NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the three months ended September 30,
----------------------------------------
1995 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 325,023 $ 44,656
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation and amortization 968,595 1,239,423
Loss on disposal of assets 4,425 -
(Increase) decrease in operating assets:
Accounts receivable (14,464) 16,517
Prepaid expenses (27,613) (20,536)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 36,379 117,445
Due to managing general partner and affiliates 17,328 41,149
Converter deposits (22,844) 30
Subscriber prepayments (64,976) (70,989)
------------ ------------
Net cash from operating activities 1,221,853 1,367,695
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (339,921) (309,230)
Purchase of cable television
systems (4,492,254) -
------------ ------------
Net cash used in investing activities (4,832,175) (309,230)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under long term debt, net 14,292,255 -
Principal payments on borrowings (9,840,592) (618,649)
Distributions to partners (222,967) (223,753)
Loan fees and other costs incurred (529,051) -
Repurchase of limited partner interest - (41,000)
------------ ------------
Net cash from (used in) financing activities 3,699,645 (883,402)
------------ ------------
INCREASE IN CASH 89,323 175,063
CASH, beginning of period 350,892 214,642
------------ ------------
CASH, end of period $ 440,215 $ 389,705
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 556,915 $ 485,660
============ ============
</TABLE>
The accompanying note to unaudited financial statements is an integral part
of these statements
5
<PAGE> 6
NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
NOTE TO UNAUDITED FINANCIAL STATEMENTS
(1) 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 Partnership's
financial position at September 30, 1995 and December 31, 1994, its Statements
of Operations for the nine and three months ended September 30, 1995 and 1994,
and its Statements of Cash Flows for the nine months ended September 30, 1995
and 1994. Results of operations for these periods are not necessarily indicative
of results to be expected for the full year.
6
<PAGE> 7
PART I (continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues totaled $1,604,185 for the three months ended September 30, 1995,
representing an increase of approximately 12% over the same period in 1994. Of
these revenues, $1,117,713 (70%) was derived from basic service charges,
$181,674 (11%) from premium services, $93,551 (6%) from tier services, $40,229
(3%) from installation charges, $51,478 (3%) from service maintenance contracts
and $119,540 (7%) from other sources. The revenue growth is due to increased
advertising revenue (excluding SLT System subscribers), an increase in basic
subscribers of approximately 2%, revenue related to the acquired SLT System, as
well as revenue generated from inflation based rate increases placed into effect
in the latter part of 1994.
As of September 30, 1995, the Partnership's systems served approximately 19,700
basic subscribers, 7,500 premium subscribers and 5,200 tier subscribers.
Operating expenses totaled $219,777 for the three months ended September 30,
1995 representing a decrease of approximately 7% over the same period in 1994.
The net decrease is primarily due to the reduction of pole rental charges from a
prior year pole attachment audit in the New Caney, TX system. The decrease was
offset by increased salary and benefit costs as a result of cost of living
adjustments and expenses related to the acquired SLT System.
General and administrative expenses totaled $420,653 for the three months ended
September 30, 1995, representing an increase of approximately 13% over the same
period in 1994. The net increase is attributable to higher management fees which
are based on partnership revenues, increased wage and benefit costs, travel
expenses and expenses associated with the acquired SLT System. The increase was
offset by a decrease in property insurance costs.
Programming expenses totaled $337,538 for the three months ended September 30,
1995 representing an increase of approximately 22% over the same period in 1994.
This is mainly due to additional payroll costs associated with the higher
advertising revenue, increased costs charged by various program suppliers,
increases in the subscriber base, new subscribers in the SLT System, as well as
new channel launches in various systems.
Depreciation and amortization expense decreased approximately 37% as compared to
the same period in 1994. This is mainly due to assets becoming fully depreciated
during the third quarter of 1995 offset by the addition of assets related to the
SLT System acquisition.
7
<PAGE> 8
Interest expense for the three months ended September 30, 1995 increased
approximately 42% as compared to the same period in 1994. The average bank debt
outstanding increased from $10,200,000 during the third quarter of 1994 to
$12,300,000 during the third quarter of 1995 and the Partnership's effective
interest rate increased from 6.24% in 1994 to 8.96% in 1995.
Liquidity and Capital Resources
The Partnership's primary sources of liquidity are cash flow from operations and
$8,973,104 of unborrowed funds remaining under its $23,000,000 revolving credit
and term loan facility. Based on management's analysis, the Partnership's cash
flow from operations is sufficient to cover future operating costs, debt service
and planned capital expenditures. The Partnership borrowed $5,306,510 on
November 1, 1995 to finance the acquisition of cable television systems as
discussed below.
Under the terms of the Partnership's loan agreement, the Partnership has agreed
to restrictive covenants which require the maintenance of certain ratios
including a maximum ratio of senior debt to annualized operating cash flow of
5.75 to 1 and a minimum ratio of annualized cash flow to interest expense of
1.75 to 1. As of September 30, 1995 the Partnership was in compliance with its
required financial covenants.
The balance outstanding under the credit facility is $14,026,896. As of the date
of this filing, interest rates on the credit facility were as follows:
$9,800,000 fixed at 8.95% under the terms of an interest rate swap agreement
with the Partnership's lender expiring September 29, 1997; $4,200,000 fixed at
8.99% under the terms of a self-amortizing interest rate swap expiring September
30, 1997. The balance of $26,896 bears interest at the prime rate plus 1.75%
(currently at 10.50%). The above rates include a margin paid to the lender based
on overall leverage, and may increase or decrease as the Partnership's leverage
fluctuates.
Capital Expenditures
During the third quarter of 1995, the Partnership incurred approximately
$135,000 in capital expenditures, including line extensions and mapping in the
New Caney, TX system and computer equipment purchases in the Tyler, TX and New
Caney, TX systems. Planned capital expenditures for the balance of 1995 include
line extensions to pass an additional 250 homes in various systems, vehicle
replacements in the Tyler, TX and New Caney, TX systems, initial phases of a
system upgrade to 450 MHz of the New Caney, TX system, initial phases of a fiber
interconnect of the New Caney and Huffman headends in the New Caney, TX system
and a possible fiber interconnect of the Flint and Lake Palestine headends in
the Tyler, TX system.
8
<PAGE> 9
Acquisition of Assets
On September 15, 1995, the Partnership acquired substantially all operating
assets and franchise rights of cable systems serving approximately 3,500
subscribers in or around the communities of Kaufman, Oak Grove, Hillsboro, New
Waverly and Waterwood, all in the state of Texas. The purchase price for these
systems was $4,492,254 of which $4,226,896 was paid at the closing date and the
balance of $265,358 will be paid May 15, 1996, net of any purchase price
adjustments, under the terms of an unsecured, subordinated, non-interest bearing
hold-back note.
On September 13, 1995, the Partnership entered into an agreement to acquire
substantially all operating assets and franchise rights of the cable television
systems in or around Huffman, Prairie View, Waller, Cut and Shoot, Brookshire,
Tarkenton, Ace, Simonton and Fulshear, all in the state of Texas (the
"Brookridge system"). The cable television systems were owned by Brookridge
Cable Special Purpose Partnership, Brookridge Cable Special Purpose
Partnership-II, Brookshire Cable TV, Limited Partnership, Carthage Cable TV,
L.P., and Hillsboro Cable TV, Limited Partnership.
On November 1, 1995, the assets of the Brookridge system were acquired by the
Partnership. The Brookridge system serves approximately 3,600 subscribers and
the purchase price was $5,585,900 of which $5,306,510 was paid at the closing
date and the balance of $279,390 will be paid April 29, 1996 net of any purchase
price adjustments, under the terms of an unsecured, subordinated, non-interest
bearing hold-back note. The purchase was financed by borrowings under the
Partnership's revolving credit and term loan facility.
Effects of Regulation
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Act"). The 1992 Act substantially
reregulated the cable television industry and imposed numerous requirements,
including provisions subjecting rates for certain services and equipment to
regulation by the applicable local franchising authority and by the Federal
Communications Commission ("FCC"), exclusive programming arrangements, the
carriage of broadcast signals, customer service standards, leased access
channels, customer premises equipment compatibility and various other matters.
On April 1, 1993, the FCC announced the adoption of rate regulations which
became effective September 1, 1993. Under those initial regulations, rates were
evaluated against "competitive benchmarks" and were generally subject to
rollbacks if they exceeded the benchmark levels. On February 22, 1994, the FCC
substantially revised the rate regulation rules to effect further rate
reductions effective May 15, 1994, or later in certain circumstances, based on
complex formulas and revised benchmarks.
All of the Partnership's cable systems are potentially subject to rate
regulation. The 1992 Act (i) requires the FCC to establish rate standards for
basic cable service rates which may be regulated by the applicable local
franchising authority, (ii) requires the FCC, upon
9
<PAGE> 10
receipt of a complaint, to review rates for additional tiers of cable service,
(iii) regulates rates for mandatorily offered commercial leased access channels
and (iv) eliminates the automatic five percent annual increase for basic rates
allowed under prior law. Rates for channels offered on a per-channel basis as
individual purchase options and pay-per-view events are excluded from rate
regulation.
Basic service rates, including the equipment used to receive basic service, may
be regulated by a local franchising authority once it has been "certified" by
the FCC. When the certification becomes effective, the local franchise authority
may request the cable operator to justify its existing rates charged for basic
service and related equipment ("request for justification" or "RFJ"). Rates
charged in excess of the maximum allowable rates determined under FCC
regulations are subject to refund for the period in which the excess rates were
charged or one year, whichever is shorter. Additional tiers of service are
subject to regulation only upon an appropriately filed complaint to the FCC by
any subscriber, franchising authority or other person ("subscriber complaints").
If no subscriber complaints are filed within 45 days of a change in the FCC
regulated rates, such rates are not subject to challenge unless and until the
cable operator seeks to modify them. Refund liability, if any, generally would
be limited to any incremental increase in rates. In late 1994, the FCC revised
its rules to permit cable operators to offer New Product Tiers at rates which
they elect so long as, among other conditions, other channels that are subject
to rate regulation are priced in conformity with applicable regulations and
cable operators do not remove programming services from existing service tiers
and offer them on the New Product Tier.
On May 5, 1995, the FCC announced the adoption of a simplified set of rate
regulation rules that will apply to "small" cable systems, defined as a system
serving 15,000 or fewer subscribers, that are owned by "small" companies,
defined as a company serving 400,000 or fewer subscribers. Under the FCC's
definition, the Partnership is a "small" company and each of the Partnership's
cable systems are "small" systems. Maximum permitted rates under these revised
rules is dependent on several factors including the number of regulated channels
offered, net asset basis of plant and equipment used to deliver regulated
services, the number of subscribers served and a reasonable rate of return.
As of the date of this filing, the Partnership has received notification that
local franchising authorities with jurisdiction over approximately 4% of the
Partnership's subscribers have elected to certify and subscriber complaints have
been filed in systems representing 2% of the Partnership's total subscribers.
Based on management's analysis, the rates charged by these systems are within
the maximum rates allowed under FCC rate regulations.
Future rate increases under this regulatory environment will be dependent on
several factors including the level of inflation as measured by the annual
change in the GNP-PI index, increases in "external costs" as defined by the FCC
and possible changes to the existing rules regarding rate increases associated
with the launch of new services on regulated tiers. Because of the uncertainties
associated with these factors the future impact of rate regulation on the
Partnership's results of operations cannot be determined at this time.
Management feels it is reasonably possible under the price cap mechanism that
operating margins will
10
<PAGE> 11
stabilize and perhaps increase in future periods as inflation and external cost
increases are allowed to be passed through to subscribers through rate
adjustments.
11
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 1 Legal proceedings
None
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) Form 8-K, dated September 15, 1995, was filed September 29, 1995 reporting
the acquisition of the SLT System and the refinance of the Partnership's bank
debt, all of which occurred on September 15, 1995.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: BY: /s/ RICHARD I. CLARK
-------------------- ----------------------------------
Richard I. Clark
(Vice President/Treasurer)
Dated: BY: /s/ GARY S. JONES
-------------------- ----------------------------------
Gary S. Jones
(Vice President)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 440,215
<SECURITIES> 0
<RECEIVABLES> 206,689
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 730,727
<PP&E> 19,286,514
<DEPRECIATION> 12,932,707
<TOTAL-ASSETS> 9,302,903
<CURRENT-LIABILITIES> 722,675
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (5,655,503)
<TOTAL-LIABILITY-AND-EQUITY> 9,302,903
<SALES> 0
<TOTAL-REVENUES> 4,593,251
<CGS> 0
<TOTAL-COSTS> 594,740
<OTHER-EXPENSES> 3,093,140
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 579,667
<INCOME-PRETAX> 325,023
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 325,023
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
