<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) JANUARY 2, 1998
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
----------------------------------------------------
(Exact name of registrant as specified in charter)
STATE OF WASHINGTON 0-16063 91-1318471
- ------------------------------- ----------- -------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
NORTHLAND COMMUNICATIONS CORPORATION
3600 WASHINGTON MUTUAL TOWER
1201 THIRD AVENUE, SEATTLE, WASHINGTON 98101
-----------------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (206) 621-1351
--------------
N.A.
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(Former name or former address, if changed since last report)
This filing contains _________ pages. Exhibits Index appears on page _________.
<PAGE> 2
<TABLE>
<CAPTION>
Sequentially
Numbered
Page
------------
<S> <C> <C>
Item 7. Financial Statements and Exhibits
Financial Statements, Pro Forma
(a) Financial Statements of Aiken I
-------------------------------
Cable Systems (a component of Robin Cable Systems, L.P.)
--------------------------------------------------------------
For the Years Ended 1996, 1995 and 1994 and for the Nine
Months Ended September 30, 1997 and 1996 (unaudited)
Report of Independent Accountants
Balance Sheet as of December 31, 1996 and 1995
and as of September 30, 1997 (unaudited)
Statement of Operations for the Years Ended
December 31, 1996, 1995 and 1994 and for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)
Statement of Changes in Equity for the Years Ended
December 31, 1996, 1995 and 1994 and for the Nine Months
Ended September 30, 1997 (unaudited)
Statement of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 and for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)
Notes to Financial Statements
Financial Statements of Bennetsville
------------------------------------
Cable System (a component of InterMedia Partners of Carolina, L.P.)
--------------------------------------------------------------------
For the Years Ended 1996, 1995 and 1994 and for the Nine
Months Ended September 30, 1997 and 1996 (unaudited)
Report of Independent Accountants
Balance Sheet as of December 31, 1996 and 1995
and as of September 30, 1997 (unaudited)
Statement of Operations for the Years Ended
December 31, 1996, 1995 and 1994 and for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)
Statement of Changes in Equity for the Years Ended
December 31, 1996, 1995 and 1994 and for the Nine Months
Ended September 30, 1997 (unaudited)
Statement of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 and for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)
Notes to Financial Statements
(b) Pro Forma Financial Statements
------------------------------
Introduction
Pro Forma Unaudited Statement of Operations
for the Nine Months Ended September 30, 1997
Pro Forma Unaudited Balance Sheet as of
September 30, 1997
Pro Forma Unaudited Statement of Operations
for the Year Ended December 31, 1996
Notes to the Pro Forma Unaudited Financial
Statements
(c) Exhibits
NONE
</TABLE>
2
<PAGE> 3
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 SIX
LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: 3/13/1998 BY: /s/ GARY S. JONES
--------------------------------
Gary S. Jones
(Vice President)
3
<PAGE> 4
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To The Partners of
Robin Cable Systems, L.P.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in equity and of cash flows present fairly, in all
material respects, the financial position of Aiken I Cable Systems, a component
of Robin Cable Systems, L.P., at December 31, 1996 and 1995, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Robin Cable
Systems, L.P.'s management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits in accordance
with generally accepted auditing standards. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
San Francisco, California
October 24, 1997
<PAGE> 6
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
BALANCE SHEET (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 DECEMBER 31,
(UNAUDITED) 1996 1995
<S> <C> <C> <C>
ASSETS
Accounts receivable, net of allowance for doubtful
accounts of $11 (unaudited), $21 and $15 $ 123 $ 112 $ 102
Receivables from related parties -- -- 37
Prepaids and other current assets 4 5 1
------ ------ ------
Total current assets 127 117 140
Intangible assets, net 284 362 468
Property and equipment, net 3,286 2,875 2,548
Other assets 3 8 7
------ ------ ------
Total assets $3,700 $3,362 $3,163
====== ====== ======
LIABILITIES AND SYSTEMS' EQUITY
Accounts payable and accrued liabilities $ 334 $ 403 $ 336
Deferred revenue 65 51 44
Payables to related parties 2 11 --
------ ------ ------
Total current liabilities 401 465 380
Non-current liabilities 44 -- --
------ ------ ------
Total liabilities 445 465 380
------ ------ ------
Commitments and contingencies (Note 8)
Equity 3,255 2,897 2,783
------ ------ ------
Total liabilities and equity $3,700 $3,362 $3,163
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 7
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
STATEMENT OF OPERATIONS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996 1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Basic and cable services $ 1,416 $ 1,344 $ 1,795 $ 1,733 $ 1,579
Pay services 267 276 366 367 355
Other services 187 145 195 235 287
------- ------- ------- ------- -------
1,870 1,765 2,356 2,335 2,221
------- ------- ------- ------- -------
OPERATING EXPENSES
Program fees 309 338 461 431 352
Other direct expenses 191 148 190 285 298
Depreciation and amortization 345 432 559 593 879
Selling, general and administrative 461 487 601 727 584
expenses 76 75 101 98 68
------- ------- ------- ------- -------
Management and consulting fees
1,382 1,480 1,912 2,134 2,181
------- ------- ------- ------- -------
Income from operations 488 285 444 201 40
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE)
Other income 3 3 4 -- --
Other expense (2) (1) (17) (7) (7)
------- ------- ------- ------- -------
1 2 (13) (7) (7)
------- ------- ------- ------- -------
NET INCOME $ 489 $ 287 $ 431 $ 194 $ 33
------- ------- ------- ------- -------
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE> 8
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
STATEMENT OF CHANGES IN EQUITY (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY
<S> <C>
Balance at December 31, 1993 $ 3,320
Net income 33
Net distributions to parent (780)
-------
Balance at December 31, 1994 2,573
Net income 194
Net contributions from parent 16
-------
Balance at December 31, 1995 2,783
Net income 431
Net distributions to parent (317)
-------
Balance at December 31, 1996 2,897
Net income (unaudited) 489
Net distributions to parent (unaudited) (131)
-------
Balance at September 30, 1997 (unaudited) $ 3,255
-------
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE> 9
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
STATEMENT OF CASH FLOWS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996 1996 1995 1994
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 489 $ 287 $ 431 $ 194 $ 33
Adjustments to reconcile net income
to cash flows from operating
activities:
Depreciation and amortization 345 432 559 593 879
Loss on disposal of
fixed assets -- -- 15 -- --
Changes in assets and liabilities:
Accounts receivable (11) (14) (10) (30) 14
Receivables from related parties -- 31 37 (37) 2
Prepaids and other current
assets 1 (2) (4) 1 --
Other assets 5 (1) (1) -- 3
Accounts payable and
accrued liabilities (69) (9) 67 28 20
Deferred revenue 14 5 7 5 2
Payables to related parties (9) -- 11 (22) 22
Non-current liabilities 44 1 -- -- --
------- ------- ------- ------- -------
Cash flows from operating activities 809 730 1,112 732 975
------- ------- ------- ------- -------
CASH FLOWS USED BY INVESTING ACTIVITIES-
Purchases of property and equipment (678) (314) (795) (748) (195)
------- ------- ------- ------- -------
CASH FLOWS (USED BY)/PROVIDED BY FINANCING ACTIVITIES-
Net (distributions)/contributions to/from parent (131) (416) (317) 16 (780)
------- ------- ------- ------- -------
Net increase in cash -- -- -- -- --
Cash at beginning of period -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period $ -- $ -- $ -- $ -- $ --
------- ------- ------- ------- -------
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE> 10
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
TRANSACTION
On August 27, 1997, Robin Cable Systems, L.P. ("RCS") and InterMedia
Partners of Carolina, L.P. ("IP of Carolina"), together referred to as the
"Partnerships," entered into an Asset Purchase and Sale Agreement (the
"Agreement") with Northland Cable Television, Inc. ("NCTV"), which provides
for the sale of certain of the Partnerships' cable television systems
located in South Carolina. The sale is expected to be consummated in early
January 1998. The Partnerships are affiliated through common ownership by
the Partnerships' parent company, InterMedia Partners, a California limited
partnership ("IP"). None of the systems, either individually or
collectively, comprise a separate legal entity, but rather comprise three
distinct operating units within the Partnerships. RCS is selling its cable
television systems serving subscribers located in Allendale, Barnwell,
Bamberg, Aiken, Edgefield, McCormick, Saluda and Ware Shoals (the "Aiken
Systems"). IP of Carolina is selling its cable television systems serving
subscribers in Bennetsville (the "Bennetsville Cable System") and Greenwood
(the "Greenwood Cable System").
NCTV has entered into an assignment agreement (the "Assignment Agreement")
with an affiliate, Northland Cable Properties Six Limited Partnership ("NCP
Six"). The Assignment Agreement assigns, immediately upon the close of the
asset purchase described above, certain assets of the Aiken Systems serving
subscribers in Allendale, Barnwell and Bamberg (the "Aiken I Cable
Systems") and the Bennetsville Cable System to NCP Six. NCTV will retain
the remaining assets of the Aiken Systems serving subscribers in Aiken,
Edgefield, McCormick, Saluda and Ware Shoals (the "Aiken II Cable Systems")
and the Greenwood Cable System. NCTV and NCP Six require separate financial
statements for each of these businesses being acquired. Accordingly, these
carve-out financial statements of the Aiken I Cable Systems have been
prepared.
PRESENTATION
The accompanying financial statements represent the results of operations
of the business associated with the Aiken I Cable Systems and the related
assets used and liabilities incurred in the business. Throughout the
periods covered by the financial statements, the operations of the Aiken I
Cable Systems were conducted and accounted for as part of the Aiken
Systems. These financial statements have been carved-out from the
historical accounting records of RCS.
CARVE-OUT METHODOLOGY
Service revenues, program fees, depreciation and amortization can be
directly attributed to the Aiken I Cable Systems, while other direct
expenses, selling, general and administrative expenses and management and
consulting fees have been allocated to the Aiken I Cable Systems as
described below. RCS management believes the bases used for the allocations
are reasonable. However, these allocations are not necessarily indicative
of the costs and expenses that would have resulted if the Aiken I Cable
Systems had been operated as a separate entity and are not necessarily
indicative of future operating results.
Other direct expenses and selling, general and administrative expenses are
directly incurred by the Aiken Systems and have been allocated based
principally on relative basic subscriber percentages between the Aiken I
Cable Systems and the Aiken II Cable Systems. Such expenses include
employee and related employee benefit costs, professional services,
supplies, occupancy costs, repair
-6-
<PAGE> 11
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
and maintenance and other costs included in other direct expenses, and
marketing, communications, data processing, professional services and
overhead expenses included in selling, general and administrative expenses.
As more fully described in Note 6 - "Related Party Transactions", certain
administrative services are provided by a related party and are charged to
all affiliates based on relative basic subscriber percentages.
Management and consulting fees represent an allocation of management fees
charged by InterMedia Capital Management, a California limited partnership
("ICM"), the former general partner of IP, (see Note 10 - "Subsequent
Events"). These fees are charged at a fixed amount pursuant to a management
agreement, initially determined by reference to IP's total contributed
capital. These fees have been allocated based upon the allocated
contributed capital of the Aiken I Cable Systems as compared to total
contributed capital of all of the RCS systems. Also, as more fully
described in Note 6 - "Related Party Transactions," certain administrative
services are provided by a related party at cost and are charged to all
affiliates based on relative subscriber percentages.
Generally, assets and liabilities can be directly attributed to the Aiken I
Cable Systems. Certain prepaids, other assets and accrued liabilities were
allocated based on relative basic subscriber percentages; such amounts will
be retained by RCS.
CASH AND INTERCOMPANY ACCOUNTS
Under RCS's centralized cash management system, cash requirements of its
individual operating units were generally provided directly by RCS and the
cash generated or used by the Aiken I Cable Systems was transferred to/from
RCS, as appropriate, through intercompany accounts. The intercompany
account balances between RCS and the individual operating units are not
intended to be settled. Accordingly, the balances are included in equity
and all net cash generated from operating, investing and financing
activities have been included in the Aiken I Cable Systems' "net
(distributions) contributions to/from parent" in the statement of cash
flows.
RCS maintains all debt which is used to fund and manage all of its
operations on a centralized basis. Debt, unamortized debt issue costs and
related interest expense have not been allocated to the Aiken I Cable
Systems.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Cable television service revenue is recognized in the period in which
services are provided to customers. Deferred revenue represents revenue
billed in advance and deferred until cable service is provided.
PROPERTY AND EQUIPMENT
Additions to property and equipment, including new customer installations,
are recorded at cost. Self-constructed fixed assets include materials,
labor and overhead. Costs of disconnecting and reconnecting cable service
are expensed. Expenditures for maintenance and repairs are charged to
expense as incurred. Expenditures for major renewals and improvements are
capitalized. Gains and losses from disposals and retirements are included
in earnings. Capitalized fixed assets are written
-7-
<PAGE> 12
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
down to recoverable values whenever recoverability through operations or
sale of the systems becomes doubtful.
Depreciation is computed using the double-declining balance method over the
following estimated useful lives:
YEARS
Cable television plant 5 - 10
Buildings and improvements 10
Furniture and fixtures 3 - 7
Equipment and other 3 - 10
INTANGIBLE ASSETS
The Aiken I Cable Systems have franchise rights to operate cable television
systems in various towns and political subdivisions. Franchise rights are
being amortized over the lesser of the remaining franchise lives or the
base ten-year term of IP. The remaining lives of the franchises range from
one to four years.
Goodwill represents the excess of acquisition costs over the fair value of
net tangible and franchise assets acquired, and liabilities assumed, and is
being amortized on a straight-line basis over the base ten-year term of IP.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the systems assets becomes
doubtful. The recoverability of the carrying value of intangible assets is
reviewed on an annual basis to determine whether the projected cash flows,
including projected cash flows from sale of the systems are sufficient to
recover the unamortized cost of these assets.
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Aiken I Cable Systems has adopted Statement of Financial Accounting
Standard No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of." Property and equipment and
intangible assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. No impairment losses have been recognized for the years
presented.
INCOME TAXES
No provision or benefit for income taxes is reported in the accompanying
financial statements because the tax effects of the Aiken I Cable Systems'
results of operations accrue to the partners of RCS.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
-8-
<PAGE> 13
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of receivables, payables, deferred revenue and accrued
liabilities approximates fair value due to their short maturity.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data for the nine months ended September 30, 1997 and
1996 is unaudited; however, in the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Franchise rights $ 6,503 $ 6,503
Goodwill 976 976
======= =======
7,479 7,479
Accumulated amortization (7,117) (7,011)
------- -------
$ 362 $ 468
======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Land $ 20 $ 20
Cable television plant 4,646 4,476
Building and improvements 43 43
Furniture and fixtures 59 52
Equipment and other 230 224
Construction-in-progress 1,151 572
------- -------
6,149 5,387
Accumulated depreciation (3,274) (2,839)
------- -------
$ 2,875 $ 2,548
======= =======
</TABLE>
-9-
<PAGE> 14
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
---- ----
<S> <C> <C>
Accounts payable $ 48 $ 19
Accrued program costs 45 39
Accrued franchise fees 55 58
Accrued copyright fees 48 33
Accrued payroll costs 16 19
Accrued property and other taxes 117 92
Other accrued liabilities 74 76
---- ----
$403 $336
---- ----
</TABLE>
6. RELATED PARTY TRANSACTIONS
ICM provides certain management services to RCS (see Note 10 - "Subsequent
Events") for a per annum fixed fee, of which 20% per annum is deferred and
is payable in each following year. Due to the fixed nature of the fee,
changes in the operating units' allocated contributed capital resulting
from acquisitions or dispositions within RCS result in changes in the
allocation of the fee to constituent operating units, including the Aiken I
Cable Systems. The total fixed, annual fee payable by RCS is $863 of which
$101, $98 and $68 has been charged to Aiken I Cable Systems.
InterMedia Management, Inc. ("IMI") is wholly-owned by the managing general
partner of ICM (see Note 10 - "Subsequent Events"). IMI entered into an
agreement with RCS to provide accounting and administrative services at
cost. Under the terms of the agreement, the expenses associated with
rendering these services are charged to RCS and other affiliates based upon
relative basic subscriber percentages. Management believes this method to
be reflective of the actual cost. The costs charged to RCS have been
charged to the Aiken I Cable Systems on the same basis. During 1996, 1995
and 1994, related IMI administrative fees charged to the Aiken I Cable
Systems totaled $71, $73 and $63, respectively. The accounting and
administrative expenses charged are not necessarily indicative of the costs
that would have been incurred if the Aiken I Cable Systems had been a
separate entity.
RCS's parent is owned, in part, by Tele-Communications, Inc. ("TCI"). As an
affiliate of TCI, RCS is able to purchase programming services from a
subsidiary of TCI. Management believes that the overall programming rates
made available through this relationship are lower than the Aiken I Cable
Systems could obtain separately. The TCI subsidiary is under no obligation
to continue to offer such volume rates. Further, such rates are not
available to any entity in which TCI does not have a substantial
investment. Accordingly, program fees expense recognized is not necessarily
indicative
-10-
<PAGE> 15
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
of the cost that would have been incurred if the Aiken I Cable Systems had
been a separate entity. During 1996, 1995 and 1994, program fees expense
includes services purchased from the TCI subsidiary of $338, $321, and
$272, respectively. Accounts payable and accrued liabilities include
programming fees payable to the TCI subsidiary of $31 and $28 at December
31, 1996 and 1995, respectively.
7. CABLE TELEVISION REGULATION
Cable television legislation and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the
past, and may in the future, materially affect RCS and the cable television
industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 ("the 1992 Act"), the
Telecommunications Act of 1996 ("the 1996 Act") and regulations issued by
the Federal Communications Commission ("FCC") in response to the 1992 Act.
FCC regulations govern the determination of rates charged for basic,
expanded basic and certain ancillary services, and cover a number of other
areas including customer service and technical performance standards, the
required transmission of certain local broadcast stations and the
requirement to negotiate retransmission consent from major network and
certain local television stations. Among other provisions, the 1996 Act
will eliminate rate regulation on the expanded basic tier effective March
31, 1999.
Current regulations issued in conjunction with the 1992 Act empower the FCC
and/or local franchise authorities to order reductions of existing rates
which exceed the maximum permitted levels and to require refunds measured
from the date a complaint is filed in some circumstances or retroactively
for up to one year in other circumstances. Management believes it has made
a fair interpretation of the 1992 Act and related FCC regulations in
determining regulated cable television rates and other fees based on the
information currently available. However, complaints have been filed with
the FCC on rates for certain franchises and certain local franchise
authorities have challenged existing and prior rates. Further complaints
and challenges could be forthcoming, some of which could apply to revenue
recorded in 1996 and prior years. Management believes, however, that the
effect, if any, of these complaints and challenges will not be material to
the Aiken I Cable Systems' financial position or results of operations.
Many aspects of regulation at the federal and local levels are currently
the subject of judicial review and administrative proceedings. In addition,
the FCC is required to conduct rulemaking proceedings to implement various
provisions of the 1996 Act. It is not possible at this time to predict the
ultimate outcome of these reviews or proceedings or their effect on the
Aiken I Cable Systems.
8. COMMITMENTS AND CONTINGENCIES
The Aiken I Cable Systems is committed to provide cable television services
under franchise agreements with the State of South Carolina for the
remaining terms of the franchises. Franchise fees of up to 3% of gross
basic and cable service revenues are payable under these agreements.
-11-
<PAGE> 16
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
The 1992 Act and related FCC regulations require that cable television
operators obtain permission to retransmit major network and certain local
television station signals. RCS has entered into long-term retransmission
agreements with all applicable stations in exchange for in-kind and/or
other consideration.
The Aiken I Cable Systems is subject to litigation and other claims in the
ordinary course of business. In the opinion of management, the ultimate
outcome of any existing litigation or other claims will not have a material
adverse effect on the Aiken I Cable Systems' financial position or results
of operations.
RCS has entered into pole rental agreements and leases certain of its
facilities and equipment under non-cancelable operating leases. Minimum
rental commitments for the next five years and thereafter under
non-cancelable operating leases related to the Aiken I Cable Systems are as
follows:
<TABLE>
<S> <C>
1997 $ 2
1998 2
1999 1
2000 1
2001 1
Thereafter -
---
$ 7
===
</TABLE>
Rent expense, including operating rentals under cancelable and short-term
lease arrangements, for the years ended December 31, 1996, 1995 and 1994
was $13, $8 and $9, respectively.
9. EMPLOYEE BENEFIT PLANS
RCS participates in the InterMedia Partners Tax Deferred Savings Plan which
covers all full-time employees who have completed at least one year of
employment. The plan provides for a base employee contribution of 1% and a
maximum of 15% of compensation. RCS's matching contributions under the plan
are at the rate of 50% of the employee's contribution, up to a maximum of
3% of compensation. The Aiken I Cable Systems' allocated portion is
included in the statement of operations.
10. SUBSEQUENT EVENTS
NEW GENERAL PARTNER OF IP
Effective June 10, 1997, InterMedia Capital Management I, LLC ("ICM-I
LLC"), a newly formed limited liability company, became the general partner
of IP, and ICM no longer holds an equity interest in IP. ICM-I LLC is owned
by IMI, the 95% managing member, and Robert J. Lewis, a 5% member, who is
also the sole shareholder of IMI. Also effective June 10, 1997, InterMedia
Capital
-12-
<PAGE> 17
AIKEN I CABLE SYSTEMS
(A COMPONENT OF ROBIN CABLE SYSTEMS, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
Management, L.P. ("ICM-I"), a newly formed limited partnership, became a
1.1% limited partner in IP, and now provides to RCS the management services
that were previously provided by ICM for a per annum fixed fee of $863.
CHANNEL LAUNCH REVENUE (UNAUDITED)
During 1997, Aiken I Cable Systems was credited $70 representing its share
of payments received by IP from certain programmers to launch and promote
their channels. Of the total amount received, the Aiken I Cable Systems has
recognized advertising revenue of $17 during the nine months ended
September 30, 1997 for advertising provided to promote the new channels.
The remaining payments received from the programmers will be amortized over
the respective terms of the launch agreements which range between five and
ten years.
-13-
<PAGE> 18
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To The Partners of
InterMedia Partners of Carolina, L.P.
In our opinion, the accompanying balance sheet and the related statements of
operations, of changes in equity and of cash flows present fairly, in all
material respects, the financial position of the Bennetsville Cable System, a
component of InterMedia Partners of Carolina, L.P., at December 31, 1996 and
1995, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of InterMedia Partners of Carolina, L.P.'s management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
Price Waterhouse LLP
San Francisco, California
October 24, 1997
<PAGE> 20
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
BALANCE SHEET (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996 1995
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Accounts receivable, net of allowance for
doubtful accounts of $9 (unaudited),
$1 and $13 $ 179 $ 169 $ 156
Receivables from related parties -- -- 2
Prepaid expenses 4 -- 7
------ ------ ------
Total current assets 183 169 165
Intangible assets, net 1,035 1,367 1,820
Property and equipment, net 1,259 1,359 1,595
Other assets -- -- --
------ ------ ------
Total assets $2,477 $2,895 $3,580
====== ====== ======
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities $ 211 $ 240 $ 270
Deferred revenue 132 113 118
Payable to related parties 1 33 --
------ ------ ------
Total current liabilities 344 386 388
Non-current liabilities 60 18 18
------ ------ ------
Total liabilities 404 404 406
------ ------ ------
Commitments and contingencies (Note 8)
Equity 2,073 2,491 3,174
------ ------ ------
Total liabilities and equity $2,477 $2,895 $3,580
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 21
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
STATEMENT OF OPERATIONS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Basic and cable services $ 987 $ 859 $ 1,142 $ 1,064 $ 930
Pay services 244 250 332 306 274
Other services 152 136 180 199 159
------- ------- ------- ------- -------
1,383 1,245 1,654 1,569 1,363
------- ------- ------- ------- -------
OPERATING EXPENSES
Program fees 334 293 396 340 292
Other direct expenses 115 145 193 189 215
Depreciation and amortization 566 608 810 938 1,118
Selling, general and administrative
expenses 352 337 447 477 415
Management and consulting fees 76 76 102 102 102
------- ------- ------- ------- -------
1,443 1,459 1,948 2,046 2,142
------- ------- ------- ------- -------
Loss from operations (60) (214) (294) (477) (779)
------- ------- ------- ------- -------
Other expense (5) (6) (10) (9) (14)
------- ------- ------- ------- -------
NET LOSS $ (65) $ (220) $ (304) $ (486) $ (793)
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE> 22
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
STATEMENT OF CHANGES IN EQUITY (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
EQUITY
<S> <C>
Balance at December 31, 1993 $ 5,179
Net loss (793)
Net distributions to parent (274)
-------
Balance at December 31, 1994 4,112
Net loss (486)
Net distributions to parent (452)
-------
Balance at December 31, 1995 3,174
Net loss (304)
Net distributions to parent (379)
-------
Balance at December 31, 1996 2,491
Net loss (unaudited) (65)
Net distributions to parent (unaudited) (353)
-------
Balance at September 30, 1997 (unaudited) $ 2,073
-------
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE> 23
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
STATEMENT OF CASH FLOWS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (65) $ (220) $ (304) $ (486) $ (793)
Adjustments to reconcile net loss
to cash flows from operating
activities:
Depreciation and amortization 566 608 810 938 1,118
Loss on disposal of fixed
assets -- -- 3 3 12
Changes in assets and liabilities:
Accounts receivable (10) (2) (13) 6 (46)
Receivables from related parties -- 2 2 (1) (1)
Prepaid expenses (4) (10) 7 (1) --
Accounts payable and
accrued liabilities (29) (49) (30) 64 53
Deferred revenue 19 (2) (5) (2) 56
Payables to related parties (325) 6 33 -- (12)
Non-current liabilities 42 (1) -- (3) 16
------- ------- ------- ------- -------
Cash flows from operating activities 487 332 503 518 403
------- ------- ------- ------- -------
CASH FLOWS USED BY INVESTING ACTIVITIES-
Purchases of property and equipment (134) (81) (124) (66) (129)
------- ------- ------- ------- -------
CASH FLOWS USED BY FINANCING ACTIVITIES-
Net distributions to parent (353) (251) (379) (452) (274)
------- ------- ------- ------- -------
Net change in cash -- -- -- -- --
Cash at beginning of period -- -- -- -- --
------- ------- ------- ------- -------
Cash at end of period $ -- $ -- $ -- $ -- $ --
------- ------- ------- ------- -------
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE> 24
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
TRANSACTION
On August 27, 1997, Robin Cable Systems, L.P. ("RCS") and InterMedia
Partners of Carolina, L.P. ("IP of Carolina"), together referred to as the
"Partnerships," entered into an Asset Purchase and Sale Agreement (the
"Agreement") with Northland Cable Television, Inc. ("NCTV") which provides
for the sale of certain of the Partnerships' cable television systems
located in South Carolina. The sale is expected to be consummated in early
January 1998. The Partnerships are affiliated through common ownership by
the Partnerships' parent company InterMedia Partners, a California limited
partnership ("IP"). None of the systems, either individually or
collectively, comprise a separate legal entity, but rather comprise three
distinct operating units within the Partnerships. RCS is selling its cable
television systems serving subscribers located in Allendale, Barnwell,
Bamberg, Aiken, Edgefield, McCormick, Saluda and Ware Shoals, (the "Aiken
Systems"). IP of Carolina is selling its systems serving subscribers in
Bennetsville (the "Bennetsville Cable System" or "Bennetsville") and
Greenwood (the "Greenwood Cable System").
NCTV has entered into an assignment agreement (the "Assignment Agreement")
with an affiliate, Northland Cable Properties Six Limited Partnership ("NCP
Six"). The Assignment Agreement assigns immediately upon the close of the
asset purchase described above, certain assets of the Aiken Systems serving
subscribers in Allendale, Barnwell and Bamberg (the "Aiken I Cable
Systems") and the Bennetsville Cable System to NCP Six. NCTV will retain
the remaining assets of the Aiken Systems serving subscribers located in
Aiken, Edgefield, McCormick, Saluda and Ware Shoals (the "Aiken II Cable
Systems") and the Greenwood Cable System. NCTV and NCP Six require separate
financial statements for each of these businesses being acquired.
Accordingly, these carve-out financial statements of the Bennetsville Cable
System have been prepared.
CARVE-OUT METHODOLOGY
The accompanying financial statements represent the results of operations
of the business associated with the Bennetsville Cable System and the
related assets used and liabilities incurred in the business. Throughout
the periods covered, operating statements of the Bennetsville Cable System
were separately maintained. However, as the Bennetsville Cable System was
not a separate legal entity, these financial statements have been
carved-out from the historical accounting records of IP of Carolina.
Therefore, the results of operations are not necessarily indicative of the
costs and expenses which would have resulted if Bennetsville was a separate
legal entity and are not necessarily indicative of future operating
results.
Management and consulting fees primarily represent an allocation of
management fees charged by InterMedia Capital Management, a California
limited partnership ("ICM"), the former general partner of IP (see Note 10
- "Subsequent Events"). These fees are charged at a fixed amount pursuant
to a management agreement, initially determined by reference to IP's total
contributed capital. These fees are allocated based upon the allocated
contributed capital of Bennetsville as compared to total contributed
capital of all of the IP of Carolina systems. Also, as more fully described
in Note 6 "Related Party Transactions," certain administrative services are
provided by a related party at cost and are charged to all affiliates based
on relative basic subscriber percentages.
-6-
<PAGE> 25
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
CASH AND INTERCOMPANY ACCOUNTS
Under IP of Carolina's centralized cash management system, cash
requirements of its individual operating units were generally provided
directly by IP of Carolina and the cash generated or used by the
Bennetsville Cable System was transferred to/from IP of Carolina, as
appropriate, through intercompany accounts. The intercompany account
balances between IP of Carolina and the individual operating units are not
intended to be settled. Accordingly, the balances are included in equity
and all net cash generated from operating, investing and financing
activities have been included in Bennetsville's "net distributions to
parent" in the statement of cash flows.
IP of Carolina maintains all debt which is used to fund and manage all of
its operations on a centralized basis. Debt, unamortized debt issue costs
and related interest expense have not been allocated to Bennetsville.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION
Cable television service revenue is recognized in the period in which
services are provided to customers. Deferred revenue represents revenue
billed in advance and deferred until cable service is provided.
PROPERTY AND EQUIPMENT
Additions to property and equipment, including new customer installations,
are recorded at cost. Self-constructed fixed assets include materials,
labor and overhead. Costs of disconnecting and reconnecting cable service
are expensed. Expenditures for maintenance and repairs are charged to
expense as incurred. Expenditures for major renewals and improvements are
capitalized. Gains and losses from disposals and retirements are included
in earnings. Capitalized fixed assets are written down to recoverable
values whenever recoverability through operations or sale of the system
assets becomes doubtful.
Depreciation is computed using the double-declining balance method over the
following estimated useful lives:
YEARS
Cable television plant 5 - 10
Buildings and improvements 10
Furniture and fixtures 3 - 7
Equipment and other 3 - 10
INTANGIBLE ASSETS
Bennetsville has franchise rights granted to operate cable television
systems in various towns and political subdivisions. Franchise rights are
being amortized over the lesser of the remaining franchise lives or the
base ten-year term of IP. The remaining lives of the franchises range from
one to eleven years.
Capitalized intangibles are written down to recoverable values whenever
recoverability through operations or sale of the system assets becomes
doubtful. The recoverability of the carrying value of
-7-
<PAGE> 26
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
intangible assets is reviewed on an annual basis to determine whether the
projected cash flows, including projected cash flows from sale of the
system assets, are sufficient to recover the unamortized cost of these
assets.
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
Bennetsville has adopted Statement of Financial Accounting Standard No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." Property and equipment and intangible assets are
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. No
impairment losses have been recognized for the years presented.
INCOME TAXES
No provision or benefit for income taxes is reported in the accompanying
financial statements because the tax effects of Bennetsville's results of
operations accrue to the partners of IP of Carolina.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of receivables, payables, deferred revenue and accrued
liabilities approximates fair value due to their short maturity.
INTERIM FINANCIAL DATA (UNAUDITED)
The interim financial data for the nine months ended September 30, 1997 and
1996 is unaudited; however, in the opinion of management, the interim data
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of the results for the interim periods.
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Franchise fees $ 150 $ 150
Franchise rights 3,162 3,162
------- -------
3,312 3,312
Accumulated amortization (1,945) (1,492)
------- -------
$ 1,367 $ 1,820
======= =======
</TABLE>
-8-
<PAGE> 27
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Cable television plant $ 3,396 $ 3,327
Furniture and fixtures 26 25
Equipment and other 166 145
Construction-in-progress 73 50
------- -------
3,661 3,547
Accumulated depreciation (2,302) (1,952)
------- -------
$ 1,359 $ 1,595
======= =======
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
<S> <C> <C>
Accrued program costs $ 40 $ 34
Accrued franchise fees 55 60
Accrued copyright fees 28 21
Accrued property and other taxes 71 84
Other accrued liabilities 46 71
---- ----
$240 $270
==== ====
</TABLE>
6. RELATED PARTY TRANSACTIONS
ICM provides certain management services to IP of Carolina (see Note 10
"Subsequent Events") for a fixed fee of which 20% per annum is deferred and
is payable in each following year. The total fixed annual fee payable by IP
of Carolina is $930 of which $102 has been charged to Bennetsville, in each
of the years ended December 31, 1996, 1995, and 1994.
InterMedia Management, Inc. ("IMI") is wholly-owned by the managing general
partner of ICM (see Note 10 - "Subsequent Events"). IMI has entered into an
agreement with IP of Carolina to provide accounting and administrative
services at cost. Under the terms of the agreement, the expenses
-9-
<PAGE> 28
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
associated with rendering these services are charged to IP of Carolina and
other affiliates based upon relative basic subscriber percentages.
Management believes this method to be reflective of the actual cost. The
costs charged to IP of Carolina have been charged to Bennetsville on the
same basis. During 1996, 1995 and 1994, related IMI administrative fees
charged to Bennetsville totaled $62, $67 and $41, respectively. The
accounting and administrative expenses charged are not necessarily
indicative of the costs that would have been incurred if Bennetsville had
been a separate entity.
IP of Carolina's parent is owned, in part, by Tele-Communications, Inc.
("TCI"). As an affiliate of TCI, IP of Carolina is able to purchase
programming services from a subsidiary of TCI. Management believes that the
overall programming rates made available through this relationship are
lower than Bennetsville could obtain separately. The TCI subsidiary is
under no obligation to continue to offer such volume rates. Further, such
rates are not available to an entity in which TCI does not have a
substantial investment. Accordingly, program fees expense recognized is not
necessarily indicative of the cost that would have been incurred if
Bennetsville had been a separate entity. During 1996, 1995 and 1994,
program fees expense includes services purchased from the TCI subsidiary of
$314, $281, and $258, respectively. Accounts payable and accrued
liabilities include programming fees payable to the TCI subsidiary of $27
and $24 at December 31, 1996 and 1995, respectively.
7. CABLE TELEVISION REGULATION
Cable television legislation and regulatory proposals under consideration
from time to time by Congress and various federal agencies have in the
past, and may in the future, materially affect IP of Carolina and the cable
television industry.
The cable industry is currently regulated at the federal and local levels
under the Cable Act of 1984, the Cable Act of 1992 ("the 1992 Act"), the
Telecommunications Act of 1996 ("the 1996 Act") and regulations issued by
the Federal Communications Commission ("FCC") in response to the 1992 Act.
FCC regulations govern the determination of rates charged for basic,
expanded basic and certain ancillary services, and cover a number of other
areas including customer service and technical performance standards, the
required transmission of certain local broadcast stations and the
requirement to negotiate retransmission consent from major network and
certain local television stations. Among other provisions, the 1996 Act
will eliminate rate regulation on the expanded basic tier effective March
31, 1999.
Current regulations issued in conjunction with the 1992 Act empower the FCC
and/or local franchise authority to order reductions of existing rates
which exceed the maximum permitted levels and to require refunds measured
from the date a complaint is filed in some circumstances or retroactively
for up to one year in other circumstances. Management believes it has made
a fair interpretation of the 1992 Act and related FCC regulations in
determining regulated cable television rates and other fees based on the
information currently available. However, complaints have been filed with
the FCC on rates for certain franchises and certain local franchise
authorities have challenged existing and prior rates. Further complaints
and challenges could be forthcoming, some of which could apply to revenue
recorded in 1996 and prior years. Management believes, however, that the
effect, if any,
-10-
<PAGE> 29
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
of these complaints and challenges will not be material to Bennetsville's
financial position or results of operations.
Many aspects of regulation at the federal and local levels are currently
the subject of judicial review and administrative proceedings. In addition,
the FCC is required to conduct rulemaking proceedings to implement various
provisions of the 1996 Act. It is not possible at this time to predict the
ultimate outcome of these reviews or proceedings or their effect on
Bennetsville.
8. COMMITMENTS AND CONTINGENCIES
Bennetsville is committed to provide cable television services under
franchise agreements for the remaining terms of the franchises. Franchise
fees of up to 5% of gross basic and cable service revenues are payable
under these agreements.
The 1992 Act and related FCC regulations require that cable television
operators obtain permission to retransmit major network and certain local
television station signals. IP of Carolina has entered into long-term
retransmission agreements with all applicable stations in exchange for
in-kind and/or other consideration.
Bennetsville is subject to litigation and other claims in the ordinary
course of business. In the opinion of management, the ultimate outcome of
any existing litigation or other claims will not have a material adverse
effect on Bennetsville's financial position or results of operations.
IP of Carolina has entered into pole rental agreements and leases certain
of its facilities and equipment under non-cancelable operating leases.
Minimum rental commitments for the next five years and thereafter under
non-cancelable operating leases related to Bennetsville are as follows:
<TABLE>
<S> <C>
1997 $ 9
1998 9
1999 9
2000 9
2001 8
Thereafter 4
---
$48
===
</TABLE>
Rent expense, including operating rentals under cancelable and short-term
lease arrangements, for the years ended December 31, 1996, 1995 and 1994
was $32, $27 and $23, respectively.
9. EMPLOYEE BENEFIT PLANS
IP of Carolina participates in the InterMedia Partners Tax Deferred Savings
Plan which covers all full-time employees who have completed at least one
year of employment. The plan provides for a base employee contribution of
1% and a maximum of 15% of compensation. IP of Carolina's
-11-
<PAGE> 30
BENNETSVILLE CABLE SYSTEM
(A COMPONENT OF INTERMEDIA PARTNERS OF CAROLINA, L.P.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
- --------------------------------------------------------------------------------
matching contributions under the plan are at the rate of 50% of the
employee's contribution, up to a maximum of 3% of compensation.
Bennetsville's allocated portion is included in the statement of
operations.
10. SUBSEQUENT EVENTS
NEW GENERAL PARTNER OF IP
Effective June 10, 1997, InterMedia Capital Management I, LLC ("ICM-I
LLC"), a newly formed limited liability company, became the general partner
of IP, and ICM no longer holds an equity interest in IP. ICM-I LLC is owned
by IMI, the 95% managing member, and Robert J. Lewis, a 5% member, who is
also the sole shareholder of IMI. Also effective June 10, 1997, InterMedia
Capital Management, L.P. ("ICM-I"), a newly formed limited partnership,
became a 1.1% limited partner in IP, and now provides to IP of Carolina the
management services that were previously provided by ICM for a per annum
fixed fee of $930.
CHANNEL LAUNCH REVENUE (UNAUDITED)
During 1997, Bennetsville Cable Systems was credited $54 representing its
share of payments received by IP from certain programmers to launch and
promote their channels. The payments received from the programmers have
been deferred and will be amortized over the respective terms of the launch
agreements which range between five and ten years.
-12-
<PAGE> 31
PRO FORMA UNAUDITED
FINANCIAL STATEMENTS
The Pro Forma Unaudited Statements of Operations data for the nine months
ended September 30, 1997 and for the year ended December 31, 1996 give effect to
the acquisitions of the Aiken I Cable Systems (a component of Robin Cable
Systems,L.P.) and the Bennetsville Cable System (a component of InterMedia
Partners of Carolina, L.P.), (collectively the "Acquisition Systems") as if
they had occurred on the first day of such periods. The Pro Forma Unaudited
Balance Sheet data as of September 30, 1997 give effect to the acquisitions as
if they had occurred on that date. The pro forma information is based upon (i)
the Company's and (ii) the Acquisition Systems' Statements of Operations for the
year ended December 31, 1996 and for the nine months ended September 30, 1997,
and the Company's and the Acquisition System's Balance Sheets as of September
30, 1997, after giving effect to the acquisitions under the purchase method of
accounting and the assumptions and adjustments in the accompanying notes to the
Pro Forma Unaudited Financial Statements.
The Pro Forma Unaudited Financial Statements are intended for informational
purposes only and are not necessarily indicative of the future financial
position or future results of operations of the combined company that would have
been realized had the acquisitions occurred as of the dates or for the periods
presented.
<PAGE> 32
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
AIKEN I BENNETSVILLE
CABLE CABLE PRO FORMA PRO FORMA
COMPANY SYSTEMS SYSTEM ADJUSTMENTS COMBINED
------- ------- ------- ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service revenues............. $ 7,205 $1,870 $1,383 $ -- $ 10,458
Operating expenses:
Operating.................. 2,374 500 449 -- 3,323
General and
administrative........... 1,332 461 352 -- 2,145
Management fees............ 432 76 76 43 (a) 627
Depreciation and
amortization............. 1,549 345 566 668 (b) 3,128
------- ------- ------ ----- -------
Total operating
expenses............... 5,687 1,382 1,443 711 9,223
------- ------- ------ ----- -------
Income (loss) from operations. 1,518 488 (60) (711) 1,235
Interest expense........... (631) -- (1,274)(c) (1,905)
Other income (expense),
net...................... 8 1 (5) -- 4
------- ------- ------ ------ -------
Net income (loss)............ $ 895 $ 489 $ (65) $(1,985) $ (666)
======= ======= ====== ====== =======
</TABLE>
<PAGE> 33
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
PRO FORMA UNAUDITED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
AIKEN I BENNETSVILLE
CABLE CABLE PRO FORMA PRO FORMA
COMPANY SYSTEMS SYSTEM ADJUSTMENTS COMBINED
------- -------------- ------------ ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash............................... $ 130 $ -- $ -- $ 21,234 (c) $ 305
(21,059)(d)
Accounts receivable................ 192 123 179 -- 494
Prepaids and other................. 71 4 4 (8)(d) 71
------- -------- ------- -------- --------
Total current assets........... 393 127 183 167 870
Property and equipment, net........ 6,075 3,286 1,259 2,387 (d) 13,007
Intangibles, net................... 5,729 284 1,035 12,703 (d) 19,751
Other assets....................... -- 3 -- (3)(d) --
------- -------- ------- -------- --------
Total assets................... $12,197 $ 3,700 $ 2,477 $ 15,254 $ 33,628
======= ======== ======= ======== ========
Accounts payable and other current
liabilities...................... $ 859 $ 334 $ 211 $ (545)(d) $ 859
Subscriber prepayments............. 283 65 132 -- 480
Due to affiliates.................. 135 2 1 (3)(d) 135
Current portion of notes payable... 2,750 -- -- (2,750)(c) --
------- -------- ------- -------- --------
Total current liabilities...... 4,027 401 344 (3,298) 1,474
Notes payable...................... 7,389 -- -- 23,984 (c) 31,373
Other.............................. -- 44 60 (104)(d) --
------- -------- ------- -------- --------
Total liabilities.............. 11,416 445 404 20,582 32,847
Equity (deficit)................... 781 3,255 2,073 (5,328)(d) 781
------- -------- ------- -------- --------
Total liabilities and
equity....................... $12,197 $ 3,700 $ 2,477 $ 15,254 $ 33,628
======= ======== ======= ======== ========
</TABLE>
<PAGE> 34
NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP
PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
AIKEN I BENNETSVILLE
CABLE CABLE PRO FORMA PRO FORMA
COMPANY SYSTEMS SYSTEM ADJUSTMENTS COMBINED
----------- -------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service revenues.................. $ 9,263 $2,356 $1,654 $ -- $13,273
Operating expenses:
Operating....................... 2,922 651 589 -- 4,162
General and
administrative................ 1,694 601 447 -- 2,742
Management fees................. 556 101 102 37 (e) 796
Depreciation and
amortization.................. 2,712 559 810 736 (f) 4,817
------- ------ ------ ------- -------
Total operating
expenses...................... 7,884 1,912 1,948 773 12,517
------- ------ ------ ------- -------
Income (loss) from
operations...................... 1,379 444 (294) (773) 756
Interest expense................ (1,010) -- -- (1,699)(g) (2,709)
Other income
(expenses), net............... 12 (13) (10) -- (11)
------- ------ ------ ------- -------
Net income (loss)................. $ 381 $ 431 $ (304) $(2,472) $(1,964)
======= ====== ====== ======= =======
</TABLE>
<PAGE> 35
NOTES TO THE PRO FORMA UNAUDITED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(a) To eliminate historical management fees of the Acquisition Systems and
record management fees based on the Company's Management Agreement of 6.0% of
gross revenues.
(b) To eliminate the Acquisition Systems' historical depreciation and
amortization expense and record expense, for the nine months ended September 30,
1997, based upon the allocation of purchase price to various categories of
assets using methods and terms consistent with those utilized by the Company.
Adjustments for the Acquisition Systems are as follows:
<TABLE>
<CAPTION>
ELIMINATE RECORD
--------- --------
<S> <C> <C>
Aiken I Cable Systems $345 $ 874
Bennetsville Cable System 566 705
---- ------
$911 $1,579
==== ======
</TABLE>
(c) To record borrowings under the Senior Credit Facility of $21,234 in
connection with the Acquisition and the related interest expense.
(d) To record the cost of the Acquisition Systems totaling $20,500,
including step-ups in historical property and equipment basis to $6,932, and
franchise and other intangible costs to $13,568, based upon the Company's
allocation of purchase price and loan fees of $454. Net accounts receivable
over subscriber prepayments are assumed to be acquired for an additional $105.
The Acquisition Systems' historical basis in assets acquired or liabilities
assumed are eliminated including prepaids and other assets, accounts payable and
other liabilities, due to affiliates and equity.
(e) To eliminate historical management fees of the Acquisition Systems and
record management fees based on the Company's Management Agreement of 6.0% of
gross revenues.
(f) To eliminate the Acquisition Systems' historical depreciation and
amortization expense and record expense for 1996 based upon the allocation of
purchase price to various categories of assets using methods and terms
consistent with those utilized by the Company. Adjustments for the
Acquisition Systems are as follows:
<TABLE>
<CAPTION>
ELIMINATE RECORD
--------- -------
<S> <C> <C>
Aiken I Cable Systems $ 559 $1,165
Bennetsville Cable System 810 940
------ ------
$1,369 $2,105
====== ======
</TABLE>
(g) To record interest on borrowings under the Senior Credit Facility of
$21,234 in connection with the Acquisitions.
