<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 MARCH 31, 1996
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or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from to
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Commission File Number: 0-16064
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NORTHLAND CABLE PROPERTIES FOUR LIMITED PARTNERSHIP
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(Exact Name of Registrant as Specified in Charter)
Washington 75-1998317
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(State of Organization) (IRS Employer Identification No.)
1201 Third Avenue, Suite 3600, Seattle, Washington 98101
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(Address of Principal Executive Offices) (Zip Code)
(206) 621-1351
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(Registrant's telephone number, including area code)
N/A
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(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
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This filing contains __ pages. Exhibits index appears on page __.
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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>
March 31, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 626,302 $ 384,304
Accounts receivable 237,020 378,621
Prepaid expenses 137,629 86,313
Property and equipment, net of accumulated
depreciation of $13,657,739 and $13,265,067,
respectively 11,481,658 11,507,245
Intangible assets, net of accumulated
amortization of $1,488,256 and $1,396,035,
respectively 2,658,356 2,717,651
------------ ------------
Total assets $ 15,140,965 $ 15,074,134
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,108,333 $ 801,634
Due to managing general partner and affiliates 71,359 116,345
Converter deposits 41,469 44,184
Subscriber prepayments 118,366 185,835
Notes payable 19,788,652 19,789,175
------------ ------------
Total liabilities 21,128,179 20,937,173
------------ ------------
Partners' equity:
General Partners:
Contributed capital, net (51,245) (50,875)
Accumulated deficit (70,588) (69,717)
------------ ------------
(121,833) (120,592)
------------ ------------
Limited Partners:
Contributed capital, net 1,122,757 1,159,414
Accumulated deficit (6,988,138) (6,901,861)
------------ ------------
(5,865,381) (5,742,447)
------------ ------------
Total partners' equity (5,987,214) (5,863,039)
------------ ------------
Total liabilities and partners' equity $ 15,140,965 $ 15,074,134
============ ============
</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 three months ended March 31,
------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Service revenues $ 2,140,791 $ 1,454,146
Expenses:
Operating 271,100 171,840
General and administrative (including
$298,768 and $180,894 to affiliates
in 1996 and 1995, respectively) 548,256 360,819
Programming 476,938 292,993
Depreciation and amortization 484,894 421,824
----------- -----------
1,781,188 1,247,476
----------- -----------
Income from operations 359,603 206,670
Other income (expense):
Interest expense (446,750) (187,281)
Interest income -- 827
Loss on disposal of assets -- 275
----------- -----------
(446,750) (186,179)
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Net income (loss) $ (87,147) 20,491
=========== ===========
Allocation of net income (loss):
General Partners $ (871) $ 205
=========== ===========
Limited Partners $ (86,275) $ 20,286
=========== ===========
Net income (loss) per limited partnership unit:
(14,663 units) $ (6) $ 1
=========== ===========
Net income (loss) per $1,000 investment $ (12) $ 3
=========== ===========
</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 CASH FLOWS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(87,147) $ 20,491
Adjustments to reconcile net income (loss) to
cash provided by operating activities:
Depreciation and amortization 484,894 421,824
Loss on disposal of assets -- 275
(Increase) decrease in operating assets:
Accounts receivable 141,601 381
Prepaid expenses (51,316) (38,208)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 306,699 86,819
Due to managing general partner and affiliates (44,986) 2,143
Converter deposits (2,715) 172
Subscriber prepayments (67,469) (75,007)
--------- ---------
Net cash from operating activities 679,561 418,890
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (116,749) (49,949)
Purchase of cable television systems (268,750) --
--------- ---------
Net cash used in investing activities (385,499) (49,949)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under long term debt, net --
Principal payments on borrowings (523) (294,594)
Distributions to partners (37,028) (74,056)
Loan fees and other costs incurred (14,513) --
--------- ---------
Net cash used in financing activities (52,064) (368,650)
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INCREASE IN CASH 241,998 291
CASH, beginning of period 384,304 350,892
--------- ---------
CASH, end of period $ 626,302 $ 351,183
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 84,291 $ 146,694
========= =========
</TABLE>
The accompanying note to unaudited financial statements is an
integral part of these statements
4
<PAGE> 5
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 March 31, 1996 and December 31, 1995, its Statements of
Operations for the three months ended March 31, 1996 and 1995, and its
Statements of Cash Flows for the three months ended March 31, 1996 and 1995.
Results of operations for these periods are not necessarily indicative of
results to be expected for the full year.
6
<PAGE> 6
PART I (continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues totaled $2,140,791 for the three months ended March 31, 1996,
representing an increase of approximately 47% over the same period in 1995. Of
these revenues, $1,578,871 (74%) was derived from basic service charges,
$235,611 (11%) from premium services, $93,725 (4%) from tier services, $53,238
(3%) from installation charges, $47,914 (2%) from service maintenance contracts
and $131,432 (6%) 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 March 31, 1996, the Partnership's systems served approximately 23,000
basic subscribers, 7,900 premium subscribers and 4,200 tier subscribers.
Operating expenses totaled $271,100 for the three months ended March 31, 1996
representing an increase of approximately 58% over the same period in 1995. The
increase is mainly attributable to expenses related to the acquired SLT and
Brookridge Systems, as well as increased salary and benefit costs stemming from
cost of living adjustments.
General and administrative expenses totaled $548,256 for the three months ended
March 31, 1996, representing an increase of approximately 52% over the same
period in 1995. The increase is mainly attributable to higher revenue based
expenses, such as management fees, copyright fees and franchise fees, which
coincide with the revenue growth noted above. Additionally, increase salary and
benefit costs stemming from cost of living adjustments contributed to the
increase.
Programming expenses totaled $476,938 for the three months ended March 31, 1996
representing an increase of approximately 62% over the same period in 1995. This
is mainly due to increased costs charged by various program suppliers, new
subscribers in the acquired SLT and Brookridge Systems, as well as new channel
launches in various systems.
Depreciation and amortization expense decreased approximately 15% as compared to
the same period in 1995. This is mainly due to assets becoming fully depreciated
during the first quarter of 1996 offset by the addition of assets related to the
SLT and Brookridge acquisitions.
Interest expense for the three months ended March 31, 1996 increased
approximately 139% as compared to the same period in 1995. The average bank debt
outstanding increased from
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<PAGE> 7
$9,637,000 during the first quarter of 1995 to $19,333,000 during the first
quarter of 1996 and the Partnership's effective interest rate increased from
7.77% in 1995 to 9.24% in 1996.
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. 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.
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 March 31, 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 first quarter of 1996, the Partnership incurred approximately
$117,000 in capital expenditures, including line extensions in the Tyler, TX
system, vehicle replacements in the New Caney, TX system and initial efforts to
upgrade the Hillsboro, TX system. Planned expenditures for the balance of 1996
include system upgrades in the Sherman, TX system, interconnection of two
systems, as well as a new tier launch in the San Joaquin, CA system, a fiber
interconnect of two systems in the Tyler, TX system and line extensions, tap
audits and advertising insertion equipment in various systems.
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 and subsequent
revisions and rulemakings substantially re-regulated the cable television
industry. The regulatory aspects of the 1992 Act included giving the local
franchising authorities and the FCC the ability to regulate rates for basic
services, equipment charges and additional CPST's when certain
8
<PAGE> 8
conditions were met. All of the Partnership's cable systems were potentially
subject to rate regulation. The most significant impact of rate regulation was
the inability to raise rates for regulated services as costs of operation rose
during an FCC imposed rate freeze from April 5, 1993 to May 15, 1994. This has
contributed to operating margins before depreciation and amortization declining
from 48% for the twelve months ended December 31, 1993 to 46% for the same
period in 1994.
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.
On February 8, 1996, the Telecommunications Act of 1996 (the 1996 Act) became
law. The 1996 Act will eliminate all rate controls on CPST's of small cable
systems, defined by the 1996 Act as systems serving fewer than 50,000
subscribers owned by operators serving fewer than 1% of all subscribers in the
United States (approximately 600,000 subscribers). All of the Partnership's
cable systems qualify as small cable systems. Many of the changes called for by
the 1996 Act will not take effect until the FCC issues new regulations, a
process that could take from several months to a few years depending on the
complexity of the required changes and the statutory time limits. Because of
this the full impact of the 1996 Act on the Partnership's operations cannot be
determined at this time.
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
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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
10
<PAGE> 10
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: 5/14/96 BY: /s/RICHARD I. CLARK
---------------- ----------------------------------
Richard I. Clark
(Vice President/Treasurer)
Dated: 5/14/96 BY: /s/GARY S. JONES
---------------- ----------------------------------
Gary S. Jones
(Vice President)
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 626,302
<SECURITIES> 0
<RECEIVABLES> 237,020
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,000,951
<PP&E> 25,139,397
<DEPRECIATION> 13,657,739
<TOTAL-ASSETS> 15,140,965
<CURRENT-LIABILITIES> 1,339,527
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (5,987,214)
<TOTAL-LIABILITY-AND-EQUITY> 15,140,965
<SALES> 0
<TOTAL-REVENUES> 2,140,791
<CGS> 0
<TOTAL-COSTS> 271,100
<OTHER-EXPENSES> 1,510,088
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 446,750
<INCOME-PRETAX> (87,147)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (87,147)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
