<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) DECEMBER 5, 1997
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
----------------------------------------------------
(Exact name of registrant as specified in charter)
STATE OF WASHINGTON 0-16718 91-1366564
- ------------------------------- ----------- -------------------
(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 Royston/Toccoa
--------------------------------------
Cable Systems
-------------
For the Years Ended 1996 and 1995 and for the Nine
Months Ended September 30, 1997 and 1996 (unaudited)
Report of Independent Public 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 and 1995 and for the Nine Months
Ended September 30, 1997 and 1996 (unaudited)
Statement of Changes in Equity for the Years Ended
December 31, 1996 and 1995 and for the Nine Months
Ended September 30, 1997 (unaudited)
Statement of Cash Flows for the Years Ended
December 31, 1996 and 1995 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
(b)(2)(c) Exhibits
NONE
</TABLE>
7
<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 SEVEN LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: 2/18/1998 BY: /s/ GARY S. JONES
---------------------
Gary S. Jones
(Vice President)
8
<PAGE> 4
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To The Shareholder and Board of Directors of
Robin Media Group, Inc.
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 Royston/Toccoa Cable Systems, a
component of Robin Media Group, Inc., at December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the two years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of Robin Media
Group, Inc.'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
December 18, 1997
<PAGE> 6
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
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), $9 and $12 288 317 254
Receivables from related parties -- -- 8
Prepaid expenses 9 7 5
------ ------ ------
Total current assets 297 324 267
Intangible assets, net 18 888 2,176
Property and equipment, net 1,352 1,366 1,476
Deferred income taxes 372 86 --
Other assets 50 5 6
------ ------ ------
Total assets $2,089 $2,669 $3,925
====== ====== ======
LIABILITIES AND EQUITY
Accounts payable and accrued liabilities $ 465 $ 559 $ 520
Deferred revenue 234 192 219
Payables to related parties 4 12 --
------ ------ ------
Total current liabilities 703 763 739
Deferred income taxes -- -- 411
------ ------ ------
Total liabilities 703 763 1,150
------ ------ ------
Commitments and contingencies (Note 8)
Equity 1,386 1,906 2,775
------ ------ ------
Total liabilities and equity $2,089 $2,669 $3,925
====== ====== ======
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE> 7
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
STATEMENT OF OPERATIONS(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED FOR THE YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------- ----------------------
1997 1996 1996 1995
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Basic and cable services $ 1,569 $ 1,466 $ 1,950 $ 1,856
Pay services 183 213 282 261
Other services 217 256 348 340
------- ------- ------- -------
1,969 1,935 2,580 2,457
------- ------- ------- -------
OPERATING EXPENSES
Program fees 388 311 420 364
Other direct expenses 284 230 326 313
Depreciation and amortization 1,020 1,224 1,631 2,017
Selling, general and administrative
expenses 387 395 520 553
Management and consulting fees 5 6 8 14
------- ------- ------- -------
2,084 2,166 2,905 3,261
------- ------- ------- -------
Loss from operations (115) (231) (325) (804)
------- ------- ------- -------
OTHER INCOME (EXPENSE)
Other income 3 3 4 --
Other expense (1) -- -- (2)
------- ------- ------- -------
2 3 4 (2)
------- ------- ------- -------
Loss before income tax benefit (113) (228) (321) (806)
Income tax benefit 44 87 121 306
------- ------- ------- -------
NET LOSS $ (69) $ (141) $ (200) $ (500)
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
-3-
<PAGE> 8
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
STATEMENT OF CHANGES IN EQUITY(IN THOUSANDS)
<TABLE>
<CAPTION>
EQUITY
-------
<S> <C>
Balance at December 31, 1994 $ 4,190
Net loss (500)
Net distributions to parent (915)
-------
Balance at December 31, 1995 2,775
Net loss (200)
Net distributions to parent (669)
-------
Balance at December 31, 1996 1,906
Net loss (unaudited) (69)
Net distributions to parent (unaudited) (451)
-------
Balance at September 30, 1997 (unaudited) $ 1,386
=======
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE> 9
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
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
------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (69) $ (141) $ (200) $ (500)
Adjustments to reconcile net loss
to cash flows from operating
activities:
Depreciation and amortization 1,020 1,224 1,631 2,017
Loss on disposal of fixed assets -- -- -- 2
Changes in assets and liabilities:
Accounts receivable 29 1 (63) (33)
Receivables from related parties -- 8 8 (1)
Prepaid expenses (2) (7) (2) (3)
Deferred income taxes (286) (348) (497) (644)
Other assets (45) (24) 1 --
Accounts payable and
accrued liabilities (94) (84) 39 94
Deferred revenue 42 (1) (27) 44
Payables to related parties (8) 5 12 --
------- ------- ------- -------
Cash flows from operating activities 587 633 902 976
------- ------- ------- -------
CASH FLOWS USED BY INVESTING ACTIVITIES-
Purchases of property and equipment (136) (56) (233) (61)
------- ------- ------- -------
CASH FLOWS USED BY FINANCING ACTIVITIES-
Net distributions to parent (451) (577) (669) (915)
------- ------- ------- -------
Net change in cash -- -- -- --
Cash at beginning of period -- -- -- --
------- ------- ------- -------
Cash at end of period $ -- $ -- $ -- $ --
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE> 10
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
1. BASIS OF PRESENTATION
TRANSACTION
On August 27, 1997, Robin Media Group, Inc. ("RMG"), referred to as the
"Company", entered into an Asset Purchase and Sale Agreement (the
"Agreement") with Northland Cable Properties Seven Limited Partnership
("NCP Seven"), which provides for the sale of certain of the Company's
cable television systems ("Systems") located in Georgia. The sale was
consummated on December 2, 1997. None of the Systems, either individually
or collectively, comprise a separate legal entity, but rather are included
in one distinct operating unit referred to as the Gainsville Systems
within the Company. RMG is selling its cable television systems serving
subscribers located in Royston and Toccoa ("Royston/Toccoa Cable Systems").
RMG will retain the remaining assets of the Gainsville Systems serving
subscribers in Gainsville, Georgia ("Gainsville"). NCP Seven requires
separate financial statements for Royston/Toccoa Cable Systems.
Accordingly, these carve-out financial statements of the Royston/Toccoa
Cable Systems have been prepared.
PRESENTATION
The accompanying financial statements represent the results of operations
of the business associated with the Royston/Toccoa 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
Royston/Toccoa Cable Systems were conducted and accounted for as part of
the Gainesville Systems. These financial statements have been carved-out
from the historical accounting records of RMG.
CARVE-OUT METHODOLOGY
Service revenues, program fees, depreciation and amortization can be
directly attributed to the Royston/Toccoa Cable Systems, while other direct
expenses, selling, general and administrative expenses and management and
consulting fees have been allocated to the Royston/Toccoa Cable Systems as
described below. RMG 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 Royston/Toccoa
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 Gainesville Systems and have been allocated based
principally on relative basic subscriber percentages between the
Royston/Toccoa Cable Systems and Gainesville. Such expenses include
employee and related employee benefit costs, professional services,
supplies, occupancy costs, repair 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 IV, L.P. ("ICM IV"), a California
limited partnership and the former shareholder
-6-
<PAGE> 11
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
of RMG's parent company, InterMedia Capital Partners IV, L.P. ("ICPIV")
(see Note 11 - "Subsequent Events"). These fees are charged at a fixed
amount pursuant to a management agreement, initially determined by
reference to ICP IV's total contributed capital. These fees are allocated
based upon the allocated contributed capital of the Royston/Toccoa Cable
Systems as compared to total contributed capital of all of the RMG
systems (see Note 6-"Related Party Transactions").
Generally, assets and liabilities can be directly attributed to the
Royston/Toccoa Cable Systems. Certain prepaids, other assets and accrued
liabilities were allocated based on relative basic subscriber percentages;
such amounts will be retained by RMG.
CASH AND INTERCOMPANY ACCOUNTS
Under RMG's centralized cash management system, cash requirements of its
individual operating units were generally provided directly by RMG and the
cash generated or used by the Royston/Toccoa Cable Systems was transferred
to/from RMG, as appropriate, through intercompany accounts. The
intercompany account balances between RMG and the individual operating
units are not intended to be settled. Accordingly, the balances are
included in equity and all net cash generated from operations, investing
activities and financing activities have been included in the
Royston/Toccoa Cable Systems' "net distributions to parent" in the
statement of cash flows.
RMG 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 Royston/Toccoa
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 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:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Cable television plant 5 - 10
Buildings and improvements 10
Furniture and fixtures 3 - 7
Equipment and other 3 - 10
</TABLE>
-7-
<PAGE> 12
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
INTANGIBLE ASSETS
The Royston/Toccoa 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 twelve-year term of ICP IV. The remaining lives of the
franchises range from one to fifteen 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 twelve-year term of
ICP IV.
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 assets are
sufficient to recover the unamortized cost of these assets.
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Royston/Toccoa Cable Systems have 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
Royston/Toccoa Cable Systems account for income taxes as if it were a
separate entity using the asset and liability approach which requires the
recognition of deferred tax assets and liabilities for the tax
consequences of temporary differences by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities.
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.
-8-
<PAGE> 13
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
3. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
------- -------
<S> <C> <C>
Franchise fees $ 80 $ 80
Franchise rights 7,259 7,259
------- -------
Accumulated amortization 7,339 7,339
------- -------
(6,451) (5,163)
------- -------
$ 888 $ 2,176
======= =======
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
------- -------
<S> <C> <C>
Land $ 4 $ 4
Cable television plant 2,827 2,754
Building and improvements 15 8
Furniture and fixtures 86 80
Equipment and other 261 209
Construction-in-progress 95 --
------- -------
3,288 3,055
Accumulated depreciation (1,922) (1,579)
------- -------
$ 1,366 $ 1,476
======= =======
</TABLE>
-9-
<PAGE> 14
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
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>
Income taxes payable $376 $338
Accounts payable 21 --
Accrued program costs 40 31
Accrued franchise fees 33 30
Accrued copyright fees 21 22
Accrued payroll costs 22 23
Other accrued liabilities 46 76
---- ----
$559 $520
==== ====
</TABLE>
6. RELATED PARTY TRANSACTIONS
ICM IV provides certain management services to RMG (see Note 11 -
"Subsequent Events") for a per annum fixed fee, of which 20% per annum is
deferred and is payable in each following year. Prior to July 30, 1996
InterMedia Partners V, L.P., RMG's former parent company, managed the
business of RMG for an annual management fee paid in equal monthly
installments. Due to the fixed nature of the fee, changes in the operating
units' allocated contributed capital resulting from acquisitions or
dispositions within RMG result in changes in the allocation of the fee to
constituent operating units, including the Royston/Toccoa Cable Systems.
During 1996 and 1995, annual fees payable by RMG totaled $182 and $333,
respectively, of which $8 and $14 has been charged to the Royston/Toccoa
Cable Systems for those respective years.
InterMedia Management, Inc. ("IMI") is wholly-owned by the managing general
partner of ICM IV (see Note 11 - "Subsequent Events"). IMI entered into an
agreement with RMG to provide accounting and administrative services at
cost. Under the terms of the agreement, the expenses associated with
rendering these services are charged to RMG and other affiliates based upon
relative basic subscriber percentages. Management believes this method to
be reflective of the actual cost. The costs charged to RMG have been
charged to the Royston/Toccoa Cable Systems on the same basis. During 1996
and 1995, related IMI administrative fees charged to the Royston/Toccoa
Cable Systems totaled $85 and $90, respectively. The accounting and
administrative expenses charged are not necessarily indicative of the costs
that would have been incurred if the Royston/Toccoa Cable Systems had been
a separate entity.
RMG's parent is owned, in part, by Tele-Communications, Inc. ("TCI"). As an
affiliate of TCI, RMG 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 Royston/Toccoa
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
-10-
<PAGE> 15
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
necessarily indicative of the cost that would have been incurred if the
Royston/Toccoa Cable Systems had been a separate entity. During 1996 and
1995, program fees expense includes services purchased from the TCI
subsidiary of $406 and $310, respectively. Accounts payable and accrued
liabilities include programming fees payable to the TCI subsidiary of $31
and $26 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 RMG 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 Royston/Toccoa Cable System'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
Royston/Toccoa Cable Systems.
-11-
<PAGE> 16
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
8. COMMITMENTS AND CONTINGENCIES
The Royston/Toccoa Cable Systems are committed to provide cable television
services under franchise agreements with the State of Georgia 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. RMG has entered into long-term retransmission
agreements with all applicable stations in exchange for in-kind and/or
other consideration.
The Royston/Toccoa Cable Systems are 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 Royston/Toccoa Cable Systems' financial
position or results of operations.
RMG 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 Royston/Toccoa Cable Systems
are as follows:
<TABLE>
<S> <C>
1997 $ 24
1998 22
1999 15
2000 1
2001 1
Thereafter 6
-----
$ 69
=====
</TABLE>
Rent expense, including operating rentals under cancelable and short-term
lease arrangements, for the years ended December 31, 1996 and 1995 was $61
and $63, respectively.
-12-
<PAGE> 17
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
9. INCOME TAXES
The net benefit for income taxes consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1996 1995
----- -----
<S> <C> <C>
Current income tax expense $(376) $(338)
Deferred federal tax benefit 446 577
Deferred state tax benefit 51 67
----- -----
$ 121 $ 306
===== =====
</TABLE>
Deferred income taxes relate to temporary differences as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
----- -----
<S> <C> <C>
Property and equipment $(289) $(363)
Intangible assets 375 (48)
----- -----
$ 86 $(411)
===== =====
</TABLE>
RMG's management has not established a valuation allowance to reduce the
deferred tax assets because they believe it is more likely than not that
the deferred tax assets will be realized by RMG.
A reconciliation of the tax benefit computed at the statutory federal rate
and the tax benefit reported in the accompanying statements of operations
is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Tax benefit at federal statutory rate $109 $274
State taxes net of federal benefit 12 32
---- ----
$121 $306
==== ====
</TABLE>
10. EMPLOYEE BENEFIT PLANS
RMG 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. RMG's matching
-13-
<PAGE> 18
ROYSTON/TOCCOA CABLE SYSTEMS
(A COMPONENT OF ROBIN MEDIA GROUP, INC.)
NOTES TO FINANCIAL STATEMENTS (IN THOUSANDS)
contributions under the plan are at a rate of 50% of the employee's
contribution, up to a maximum of 3% of compensation. The Royston/Toccoa
Cable System's allocated portion is included in the statement of
operations.
11. SUBSEQUENT EVENTS
PARTNERSHIP MODIFICATIONS
Effective August 5, 1997, InterMedia Capital Management, LLC ("ICM-IV
LLC"), a newly formed limited liability company, became the general partner
of ICP IV, and ICM IV no longer holds a general partner interest in
ICP IV. ICM-IV LLC is owned by IMI, the 95% managing member, and Robert J.
Lewis, a 5% member, who is also the sole shareholder of IMI. ICM IV
continues to provide management services to RMG.
-14-
<PAGE> 19
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 acquisition of the Royston/Toccoa Systems, a component of Robin
Media Group, Inc., as if it 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 acquisition as if it had occurred on that date. The pro forma
information is based upon (i) the Company's and (ii) the Royston/Toccoa
Systems, a component of Robin Media Group, Inc., 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 Royston/Toccoa Systems, a component of Robing
Media Group, Inc., Balance Sheets as of September 30, 1997, after giving
effect to the acquisition 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 acquisition occurred as of the dates or for the periods
presented.
<PAGE> 20
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ROYSTON/TOCCOA PRO FORMA PRO FORMA
COMPANY SYSTEMS ADJUSTMENTS COMBINED
------- -------------- ----------- ------------
<S> <C> <C> <C> <C>
Service revenues............. $ 9,912 $1,969 $ -- $ 11,881
Operating expenses:
Operating.................. 3,408 672 -- 4,080
General and
administrative........... 1,858 387 -- 2,245
Management fees............ 496 5 93 (a) 594
Depreciation and
amortization............. 3,843 1,020 (141)(b) 4,722
------- ------- ------- --------
Total operating
expenses............... 9,605 2,084 (48) 11,641
------- ------- ------- --------
Income from operations....... 307 (115) 48 240
Interest expense........... (1,898) -- (801)(c) (2,699)
Other income (expense),
net...................... 4 46 -- 50
------- ------- ------- --------
Net loss..................... $(1,587) $ (69) $ (753) $ (2,409)
======= ======= ======= ========
</TABLE>
<PAGE> 21
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
PRO FORMA UNAUDITED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Royston/Toccoa Pro Forma Pro Forma
Company Systems Adjustments Combined
------- -------------- ----------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash............................... $ 176 $ -- $ 11,870 (c) $ 387
Accounts receivable................ 447 288 11,659 (d) 735
Prepaids and other................. 139 9 (9)(d) 139
------- -------- -------- --------
Total current assets........... 762 297 202 1,261
Property and equipment, net........ 10,290 1,352 2,051 (d) 13,693
Intangibles, net................... 13,874 18 8,184 (d) 22,076
Other assets....................... -- 422 (422)(d) --
------- -------- -------- --------
Total assets................... $24,926 $ 2,089 $ 10,015 $ 37,030
======= ======== ======== ========
Accounts payable and other current
liabilities...................... $ 1,718 $ 465 $ (465)(d) $ 1,718
Subscriber prepayments............. 179 234 -- 413
Due to affiliates.................. 112 4 (4)(d) 112
Current portion of notes payable... 2,480 -- (1,480)(c) 1,000
------- -------- -------- --------
Total current liabilities...... 4,489 703 (1,949) 3,243
Notes payable...................... 27,000 -- 13,350 (c) 40,350
------- -------- -------- --------
Total liabilities.............. 31,489 703 11,401 43,593
Equity (deficit)................... (6,563) 1,386 (1,386)(d) (6,563)
------- -------- -------- --------
Total liabilities and
equity....................... $24,926 $ 2,089 $ 10,015 $ 37,030
======= ======== ======== ========
</TABLE>
<PAGE> 22
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
PRO FORMA UNAUDITED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
ROYSTON/TOCCOA PRO FORMA PRO FORMA
COMPANY SYSTEMS ADJUSTMENTS COMBINED
----------- ---------------- --------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Service revenues.................. $11,310 $2,580 -- $13,890
Operating expenses:
Operating....................... 3,817 746 -- 4,563
General and
administrative................ 2,172 520 -- 2,692
Management fees................. 562 8 125 (e) 695
Depreciation and
amortization.................. 4,847 1,631 (459)(f) 6,019
------- ------ ------ -------
Total operating
expenses...................... 11,398 2,905 (334) 13,969
------- ------ ------ -------
Income (loss) from
operations...................... (88) (325) (334) (79)
Interest expense................ (2,137) -- (1,067)(g) (3,204)
Other income
(expenses), net............... 9 125 -- 134
------- ------ ------ -------
Net loss.......................... $(2,216) $ (200) $ (733) $(3,149)
======= ====== ====== =======
</TABLE>
<PAGE> 23
NOTES TO THE PRO FORMA UNAUDITED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(a) To eliminate historical management fees of the Royston/Toccoa Systems
and record management fees based on the Company's Management Agreement of 5.0%
of gross revenues.
(b) To eliminate the Royston/Toccoa 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 Royston/Toccoa Systems are as follows:
<TABLE>
<CAPTION>
ELIMINATE RECORD
--------- ------
<S> <C>
$ 1,020 $879
======= ====
</TABLE>
(c) To record borrowings under the Senior Credit Facility of $11,870 in
connection with the Acquisition and the related interest expense.
(d) To record the cost of the Royston/Toccoa Systems totaling $11,360,
including step-ups in historical property and equipment basis to $3,403, and
franchise and other intangible costs to $7,957, based upon the Company's
allocation of purchase price and loan fees of $245. An Escrow deposit of $145 is
released as partial payment for the Royston/Toccoa Systems. Net accounts
receivable over subscriber prepayments are assumed to be acquired for an
additional $54. The Royston/Toccoa Systems' historical basis in assets
acquired or liabilities assumed are eliminated including prepaids and other
assets, accounts payable and other current liabilities, due to affiliates and
equity.
(e) To eliminate historical management fees of the Royston/Toccoa
Systems and record management fees based on the Company's Management Agreement
of 5.0% of revenues.
(f) To eliminate the Royston/Toccoa 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
Royston/Toccoa Systems are as follows:
<TABLE>
<CAPTION>
ELIMINATE RECORD
--------- ------
<S> <C> <C>
$ 1,631 $1,172
======= ======
</TABLE>
(g) To record interest on borrowings under the Senior Credit Facility of
$11,870 in connection with the Acquisition.
