<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
served Act of 1934
For the period ended JUNE 30, 1996
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) (IRS 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 No X
--- ---
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>
June 30, December 31,
1996 1995
----------- -----------
ASSETS
<S> <C> <C>
Cash $ 627,048 $ 384,304
Accounts receivable 258,089 378,621
Prepaid expenses 124,412 86,313
Property and equipment, net of accumulated
depreciation of $14,057,886 and $13,265,067,
respectively 11,424,737 11,507,245
Intangible assets, net of accumulated
amortization of $1,578,178 and $1,396,035,
respectively 2,284,075 2,717,651
----------- -----------
Total assets $14,718,361 $15,074,134
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,123,955 $ 801,634
Due to managing general partner and affiliates 40,020 116,345
Converter deposits 40,399 44,184
Subscriber prepayments 97,939 185,835
Notes payable 19,571,164 19,789,175
----------- -----------
Total liabilities 20,873,477 20,937,173
----------- -----------
Partners' equity:
General Partners:
Contributed capital, net (51,616) (50,875)
Accumulated deficit (71,897) (69,717)
----------- -----------
(123,513) (120,592)
----------- -----------
Limited Partners:
Contributed capital, net 1,086,099 1,159,414
Accumulated deficit (7,117,702) (6,901,861)
----------- -----------
(6,031,603) (5,742,447)
----------- -----------
Total partners' equity (6,155,116) (5,863,039)
----------- -----------
Total liabilities and partners' equity $14,718,361 $15,074,134
=========== ===========
</TABLE>
The accompanying note to unaudited financial statements
is an integral part of these statements
<PAGE> 3
NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the six months ended June 30,
-----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Service revenues $4,326,394 $2,989,066
Expenses:
Operating 544,746 374,962
General and administrative (including
$601,843 and $363,774 to affiliates
in 1996 and 1995, respectively) 1,155,234 746,087
Programming 980,339 620,267
Depreciation and amortization 974,963 709,390
---------- ----------
3,655,282 2,450,706
---------- ----------
Income from operations 671,112 538,360
Other income (expense):
Interest expense (890,446) (365,087)
Interest income 1,313 2,394
Loss on disposal of assets - (4,240)
---------- ----------
(889,133) (366,933)
---------- ----------
Net income (loss) $ (218,021) 171,427
========== ==========
Allocation of net income (loss):
General Partners $ (2,180) $ 1,714
========== ==========
Limited Partners $ (215,841) $ 169,713
========== ==========
Net income (loss) per limited partnership unit:
(14,663 units) $ (15) $ 12
========== ==========
Net income (loss) per $1,000 investment $ (30) $ 23
========== ==========
</TABLE>
The accompanying note to unaudited financial statements
is an integral part of these statements
<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 June 30,
-----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Service revenues $2,185,603 $1,534,920
Expenses:
Operating 273,646 203,122
General and administrative (including
$345,564 and $182,880 to affiliates
in 1996 and 1995, respectively) 606,979 385,269
Programming 503,401 327,274
Depreciation and amortization 490,069 287,566
---------- ----------
1,874,095 1,203,231
---------- ----------
Income from operations 311,508 331,689
Other income (expense):
Interest expense (443,695) (177,805)
Interest income 1,313 1,567
Loss on disposal of assets - (4,515)
---------- ----------
(442,382) (180,753)
---------- ----------
Net income (loss) $ (130,874) $ 150,936
========== ==========
Allocation of net income (loss):
General Partners $ (1,309) $ 1,509
========== ==========
Limited Partners $ (129,565) $ 149,427
========== ==========
Net income (loss) per limited partnership unit:
(14,663 units) $ (9) $ 10
========== ==========
Net income (loss) per $1,000 investment $ (18) $ 20
========== ==========
</TABLE>
The accompanying note to unaudited financial statements
is an integral part of these statements
<PAGE> 5
NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the six months ended June 30,
--------------------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(218,021) $ 171,427
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation and amortization 974,963 709,390
Loss on disposal of assets - 4,515
(Increase) decrease in operating assets:
Accounts receivable 120,532 (8,468)
Prepaid expenses (38,099) (32,308)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 322,321 63,258
Due to managing general partner and affiliates (76,325) 29,645
Converter deposits (3,785) 512
Subscriber prepayments (87,896) (82,471)
--------- ---------
Net cash from operating activities 993,690 855,500
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (459,975) (204,627)
Purchase of cable television systems (268,750) -
--------- ---------
Net cash used in investing activities (728,725) (204,627)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from seller escrow 71,397 -
Principal payments on borrowings (289,408) (589,189)
Distributions to partners (74,056) (148,911)
Loan fees and other costs incurred 269,846 -
--------- ---------
Net cash used in financing activities (22,221) (738,100)
--------- ---------
INCREASE (DECREASE) IN CASH 242,744 (87,227)
CASH, beginning of period 384,304 350,892
--------- ---------
CASH, end of period $ 627,048 $ 263,665
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 583,519 $ 367,317
========= =========
</TABLE>
The accompanying note to unaudited financial statements
is an integral part of these statements
<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 June 30, 1996 and December 31, 1995, its Statements of
Operations for the six and three months ended June 30, 1996 and 1995, and its
Statements of Cash Flows for the six months ended June 30, 1996 and 1995.
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 $2,185,603 for the three months ended June 30, 1996,
representing an increase of approximately 42% over the same period in 1995. Of
these revenues, $1,613,178 (74%) was derived from basic service charges,
$245,557 (11%) from premium services, $82,759 (4%) from tier services, $41,419
(2%) from installation charges, $48,621 (2%) from service maintenance contracts
and $154,069 (7%) from other sources. The revenue growth is due to increased
advertising revenue, revenue related to the acquired SLT and Brookridge Systems,
as well as revenue generated from inflation based rate increases placed into
effect in the latter part of 1995.
As of June 30, 1996, the Partnership's systems served approximately 22,900 basic
subscribers, 8,000 premium subscribers and 4,300 tier subscribers.
Operating expenses totaled $273,646 for the three months ended June 30, 1996
representing an increase of approximately 35% over the same period in 1995. The
increase is mainly due to higher salary and benefit costs as a result of cost of
living adjustments and expenses related to the acquired SLT and Brookridge
Systems.
General and administrative expenses totaled $606,979 for the three months ended
June 30, 1996, representing an increase of approximately 58% over the same
period in 1995. The increase is attributable to expenses related to the acquired
SLT and Brookridge Systems, higher revenue based expenses, such as management
and franchise fees, and increased salary and benefit costs as a result of cost
of living adjustments.
Programming expenses totaled $503,401 for the three months ended June 30, 1996,
representing an increase of approximately 54% over the same period in. The
increase is mainly due to higher costs charged by various program suppliers, new
channel launches in the various systems, and increased subscribers as a result
of the purchases of the SLT and Brookridge Systems.
Depreciation and amortization expense increased 70% as compared to the same
period in 1995. This is mainly due to depreciation and amortization on plant,
equipment and intangible assets acquired from the purchase of the SLT and
Brookridge Systems.
Interest expense for the three months ended June 30, 1996 increased
approximately 150% as compared to the same period in 1995. The average bank debt
outstanding increased from $9,342,000 during the second quarter of 1995 to
$19,333,000 during the second quarter of 1996 and the Partnership's effective
interest rate increased from 7.61% in 1995 to 9.18% in 1996.
7
<PAGE> 8
Liquidity and Capital Resources
The Partnership's primary sources of liquidity are cash flow from operations and
$3,666,594 of unborrowed funds remaining under its $23,000,000 revolving credit
and term loan facility. The availability of unborrowed funds is dependent on the
Partnership's ratio of debt to analyzed operating cash flow. As of June 30, 1996
the Partnership had access to $126,000 of additional credit. The Partnership
expects that rate increases effective August 1, 1996 will increase future
borrowing capacity which will be required to complete currently planned capital
improvements. Based on management's analysis, the Partnership's cash flow from
operations is sufficient to cover future operating costs and debt service
requirements. The level of capital expenditures during the last six months of
1996 will be dependent on the borrowing capacity of the Partnership.
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
1.15 to 1. As of June 30, 1996 the Partnership was in compliance with its
required financial covenants.
The balance outstanding under the credit facility is $19,333,406. 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; and $5,300,000 fixed at a Libor rate of 8.5% expiring August
9, 1996. The balance of $33,406 bears interest at the prime rate plus 1.75%
(currently at 10.00%). 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 second quarter of 1996, the Partnership incurred approximately
$343,000 in capital expenditures, including line extensions in the Chowchilla,
CA, Tyler, TX and Prairie View, TX systems; a fiber upgrade of the distribution
plant in the New Caney, TX system; a vehicle replacement in the Whitewright, TX
system and channel additions in the New Caney, TX and Prairie View, TX systems.
Planned expenditures for the balance of 1996 will approximate $1,140,000 and
include fiber upgrades of the distribution plant in the Whitewright, TX, Tyler,
TX and New Caney, TX systems; line extensions in the Chowchilla, CA and Tyler,
TX systems; the launch of a new tier in the Chowchilla, CA system; the purchase
of advertising equipment in the Tyler, TX system and a vehicle replacement in
the New Caney, TX system.
8
<PAGE> 9
Effects of Regulation
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act") was
enacted which dramatically changed federal telecommunications laws and the
future competitiveness of the industry. Many of the changes called for by the
1996 Act will not take effect until the FCC issues new regulations which, in
some cases, may not be completed for a few years. Because of this, the full
impact of the 1996 Act on the Partnership's operations cannot be determined at
this time. A summary of the provisions impacting the cable television industry,
more specifically those impacting the Partnership's operations, follows:
Cable Programming Service Tier Rate Regulation. FCC regulation of rates for
cable programming service tiers has been eliminated for small cable systems by
small companies. Small cable systems are those having 50,000 or fewer
subscribers served by companies with fewer than one percent of national cable
subscribers (approximately 600,000). All of the Partnership's cable systems
qualify as small cable systems. Basic tier rates remain subject to regulation by
the local franchising authority under most circumstances until effective
competition exists. The 1996 Act expands the definition of effective competition
to include the offering of video programming services directly to subscribers in
a franchised area by the local exchange carrier, its affiliates, or any
multichannel video programming distributor which uses the facilities of the
local exchange carrier. No penetration criteria exists that triggers the
presence of effective competition under these circumstances.
Telephone Companies. The 1996 Act allows telephone companies to offer video
programming directly to customers in their service areas immediately upon
enactment. They may provide video programming as a cable operator fully subject
to any provisions of the 1996 Act, or a radio-based multichannel programming
distributor not subject to any provisions of the 1996 Act or through
non-franchised "open video systems" offering non-discriminatory capacity to
unaffiliated programmers, subject to selected provisions of the 1996 Act.
Although Management's opinion is that the probability of competition from telcos
in rural areas is unlikely in the near future, there are no assurances such
competition will not materialize.
The 1996 Act encompasses various other aspects of providing cable television
service including prices for equipment, discounting of rates to multiple
dwelling units, lifting of anti-trafficking restrictions, cable-telephone cross
ownership provisions, pole attachment rate formulas, rate uniformity, program
access, scrambling and censoring of PEG and leased access channels.
As of the date of this filing, the Partnership has received notification that
local franchising authorities with jurisdiction over approximately 8% of the
Partnership's subscribers have elected to certify. Based on management's
analysis, the rates charged by these systems are within the maximum rates
allowed under FCC rate regulations.
9
<PAGE> 10
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) No reports on Form 8-K have been filed during the quarter ended June 30,
1996
10
<PAGE> 11
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)
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 627048
<SECURITIES> 0
<RECEIVABLES> 258089
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1009549
<PP&E> 25482623
<DEPRECIATION> 14057886
<TOTAL-ASSETS> 14718361
<CURRENT-LIABILITIES> 1302313
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (6155116)
<TOTAL-LIABILITY-AND-EQUITY> 14718361
<SALES> 0
<TOTAL-REVENUES> 4326394
<CGS> 0
<TOTAL-COSTS> 544746
<OTHER-EXPENSES> 3110536
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 890446
<INCOME-PRETAX> (218021)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (218021)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
