10-Q 1 e10-q.txt FORM 10-Q FOR PERIOD ENDED JUNE 30, 2000 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended JUNE 30, 2000 ---------------------------------------- Or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ---------------------------------------- Commission File Number: 0-16063 ----------------------------------------------- NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Charter) Washington 91-1318471 -------------------------------------------------------------------------------- (State of Organization) (IRS Employer Identification No.) 1201 Third Avenue, Suite 3600, Seattle, Washington 98101 -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (206) 621-1351 -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) N/A -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- This filing contains ____ pages. Exhibits index appears on page ____. 2 PART 1 - FINANCIAL INFORMATION ITEM 1. Financial Statements NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP BALANCE SHEETS - (Unaudited) (Prepared by the Managing General Partner)

The accompanying notes to unaudited financial statements is an integral part of these statements 2 3 NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS - (Unaudited) (Prepared by the Managing General Partner)

The accompanying notes to unaudited financial statements is an integral part of these statements 3 4 NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS - (Unaudited) (Prepared by the Managing General Partner)

The accompanying notes to unaudited financial statements is an integral part of these statements 4 5 NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS - (Unaudited) (Prepared by the Managing General Partner)

The accompanying notes to unaudited financial statements is an integral part of these statements 5 6 NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP NOTES TO UNAUDITED FINANCIAL STATEMENTS (1) These unaudited financial statements are being filed in conformity with Rule 10-01 of Regulation S-X regarding interim financial statement disclosure and do not contain all of the necessary footnote disclosures required for a fair presentation of the balance sheets, statements of operations and statements of cash flows in conformity with generally accepted accounting principles. However, in the opinion of management, this data includes all adjustments, consisting only of normal recurring accruals, necessary to present fairly the Partnership's financial position at June 30, 2000, its statements of operations for the six and three months ended June 30, 2000 and 1999 and its statements of cash flows for the six months ended June 30, 2000 and 1999. Results of operations for these periods are not necessarily indicative of results to be expected for the full year. These financial statements and notes should be read in conjunction with the Partnership's Annual Report on Form 10-K for the year ended December 31, 1999. (2) In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." The statement establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the statement of operations, and requires that a company must formally document, designate, and assess the effectiveness of transactions that are subject to hedge accounting. Pursuant to SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133 - an Amendment to FASB Statement No. 133" the effective date of SFAS No. 133 has been deferred until fiscal years beginning after January 15, 2000. SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to (a) derivative instruments and (b) certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1998 (and, at the company's election, before January 1, 1999). The Partnership has not yet quantified the impacts of adopting SFAS No. 133 on the financial statements and has not determined the timing or method of adoption of SFAS No. 133. However, the statement could increase volatility in earnings and other comprehensive income. (3) In November of 1999, the SEC released SAB No. 101 "Revenue Recognition in Financial Statements." This bulletin become effective for the quarter ended December 31, 2000. This bulletin establishes more clearly defined revenue recognition criteria, than previously existing accounting pronouncements, and specifically addresses revenue recognition requirements for nonrefundable fees, such as installation fees, collected by a company upon entering into an arrangement with a customer. The Partnership believes that the effects of this bulletin will not have a material impact on the Partnership's financial position or results of operations. (4) Certain reclassifications have been made to conform prior years' financial statements with the current year presentation. (5) Under the terms of the Partnership's revolving credit and term loan agreement, all amounts outstanding under the note payable become due and payable on December 31, 2000. The Partnership's continuing operations will not provide sufficient liquidity to satisfy this 6 7 obligation at its stated maturity. Alternatives available to the Partnership include a sale of a portion or all of its assets to generate proceeds sufficient to repay the outstanding debt or to renegotiate the terms of the credit agreement with its lenders to extend the maturity date. Management believes agreement by the lenders to extend the maturity date would be contingent upon the approval of the limited partners to extend the expiration of the Partnership's life, which currently expires on December 31, 2001. The general partners are currently in the process of formulating a proposal to liquidate the assets of the partnership, which, in the opinion of the Managing General Partner, would provide sufficient proceeds to retire all the Partnership's obligations. Such a proposal would require approval by a majority in interest of limited partners. It is anticipated this liquidation would occur in the first quarter of 2001. Based on preliminary discussions with the lenders, management and the lenders believe it is not unreasonable that the Partnership could arrange financing to continue its operations if necessary, assuming no deterioration in its operations and the bank credit markets remain open. 7 8 PART I (continued) ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 2000 AND 1999 Revenues totaled $7,556,951 for the six months ended June 30, 2000, representing an increase of approximately 1% over the same period in 1999. Of these revenues, $5,469,439 (72%) was derived from basic service charges, $692,389 (9%) from premium services, $470,566 (6%) from tier services, $184,741 (2%) from installation charges, $198,048 (3%) from service maintenance contracts, $274,812 (4%) from advertising, and $266,956 (4%) from other sources. The April 1999 disposition of the Sandersville System decreased revenues approximately $189,000 or 2%. Assuming the Sandersville System was disposed of at the beginning of each of the respective periods, revenues would have increased approximately 3%. The increase in revenue is attributable primarily to rate increases placed into effect in August of 1999. Operating expenses totaled $583,121 for the six months ended June 30, 2000, representing a decrease of approximately 13% over the same period in 1999. Excluding the impact of the Sandersville System disposition, operating expenses would have decreased approximately 9% for the six months ended June 30, 2000. This is primarily due to decreased operating salaries, regional management expense, system maintenance and drop material costs offset by increased pole rental expense. General and administrative expenses totaled $1,847,340 for the six months ended June 30, 2000, remaining consistent with the same period in 1999. Excluding the impact of the Sandersville System disposition, general and administrative expenses for the six months ended June 30, 2000 would have increased approximately 2% for the six months ended June 30, 2000. This is due to higher revenue based expenses such as management fees and franchise fees as well as increased property taxes, bill processing expense and administrative services offset by reduced bad debt expense and telephone expense. Programming expenses totaled $1,972,111 for the six months ended June 30, 2000, representing a 1% increase over the same period in 1999. Adjusting for the Sandersville System disposition, programming expenses would have increased approximately 3% for the six months ended June 30, 2000 compared to the same period in 1999. This is mainly due to higher costs charged by various program suppliers offset by reduced local programming expense. Depreciation and amortization expenses totaled $2,233,020 for the six months ended June 30, 2000, remaining consistent with the same period in 1999. This is mainly due to assets 8 9 becoming fully depreciated offset by depreciation on plant and equipment acquired during the last year. Interest expense for the six months ended June 30, 2000 increased approximately 1% over the same period in 1999. The average bank debt decreased from $30,652,990 during the first half of 1999 to $28,965,281 during the first half of 2000, and the Partnership's effective interest rate increased from 7.94% in 1999 to 8.45% in 2000. THREE MONTHS ENDED JUNE 30, 2000 AND 1999 Revenues totaled $3,803,536 for the three months ended June 30, 2000, representing an increase of approximately 1% over the same period in 1999. Of these revenues, $2,749,085 (72%) was derived from basic service charges, $353,713 (9%) from premium services, $235,903 (6%) from tier services, $94,587 (2%) from installation charges, $100,081 (3%) from service maintenance contracts, $142,681 (4%) from advertising, and $127,486 (4%) from other sources. The April 1999 disposition of the Sandersville System decreased revenues approximately $47,000 or 1%. Assuming the Sandersville System was disposed of at the beginning of each of the respective periods, revenues would have increased approximately 2%. The increase in revenue is attributable primarily to rate increases placed into effect in August of 1999. Operating expenses totaled $278,475 for the three months ended June 30, 2000, representing a decrease of approximately 16% over the same period in 1999. Excluding the impact of the Sandersville System disposition, operating expenses would have decreased approximately 14% for the three months ended June 30, 2000. This is primarily due to decreased operating salaries, regional management expense, system maintenance and drop material costs offset by increased pole rental expense. General and administrative expenses totaled $956,308 for the three months ended June 30, 2000, representing an increase of approximately 2% over the same period in 1999. Excluding the impact of the Sandersville System disposition, general and administrative expenses for the three months ended June 30, 2000 would have increased approximately 3% for the three months ended June 30, 2000. This is due to higher revenue based expenses such as management fees and franchise fees as well as increased property taxes, bill processing expense and administrative services offset by reduced bad debt expense and telephone expense. Programming expenses totaled $986,489 for the three months ended June 30, 2000, remaining essentially unchanged from the same period in 1999. Adjusting for the Sandersville System disposition, programming expenses would have increased approximately 2% for the three months ended June 30, 2000 compared to the same period in 1999. This is mainly due to higher costs charged by various program suppliers offset by reduced local programming expense. Depreciation and amortization expenses totaled $1,116,619 for the three months ended June 30, 2000, representing an increase of approximately 4% over the same period in 1999. This is 9 10 mainly due to depreciation on plant and equipment acquired during the last year offset by assets becoming fully depreciated during the year. Interest expense for the three months ended June 30, 2000 increased approximately 4% over the same period in 1999. The average bank debt decreased from $29,933,133 during the second quarter of 1999 to $28,965,281 during the second quarter of 2000, and the Partnership's effective interest rate increased from 7.99% in 1999 to 8.6% in 2000. Liquidity and Capital Resources The Partnership's primary sources of liquidity are cash flow provided from operations and availability under an $8,000,000 revolving credit line, of which approximately $6,200,000 was outstanding as of June 30, 2000. Based on management's analysis, the Partnership's cash flow from operations and amounts available for borrowing under the Partnership's loan agreement are sufficient to cover operating costs, debt service and planned capital expenditures up to December 31, 2000. Under the terms of the Partnership's revolving credit and term loan agreement, all amounts outstanding under the note payable become due and payable on December 31, 2000. The Partnership's continuing operations will not provide sufficient liquidity to satisfy this obligation at its stated maturity. Alternatives available to the Partnership include a sale of a portion or all of its assets to generate proceeds sufficient to repay the outstanding debt or to renegotiate the terms of the credit agreement with its lenders to extend the maturity date. Management believes agreement by the lenders to extend the maturity date would be contingent upon the approval of the limited partners to extend the expiration of the Partnership's life, which currently expires on December 31, 2001. The general partners are currently in the process of formulating a proposal to liquidate the assets of the partnership, which, in the opinion of the Managing General Partner, would provide sufficient proceeds to retire all the Partnership's obligations. Such a proposal would require approval by a majority in interest of limited partners. It is anticipated this liquidation would occur in the first quarter of 2001. Based on preliminary discussions with the lenders, management and the lenders believe it is not unreasonable that the Partnership could arrange financing to continue its operations if necessary, assuming no deterioration in its operations and the bank credit markets remain open. During the three months ended June 30, 2000, the Partnership's primary sources of liquidity were cash provided from operations and credit available under its revolving credit and term loan agreement. The Partnership generates cash on a monthly basis through the monthly billing of subscribers for cable services. Losses from uncollectible accounts have not been material. During the three months ended June 30, 2000, cash generated from monthly billings was sufficient to meet the Partnership's needs for working capital, capital expenditures and scheduled debt service. Under the terms of the Partnership's loan agreement, the Partnership has agreed to restrictive covenants which require the maintenance of certain ratios including a senior debt to annualized operating cash flow ratio of 5.25 to 1, and an annual operating cash flow to interest expense 10 11 ratio of not less than 2.25 to 1. As of June 30, 2000, the Partnership was in compliance with its required financial covenants. As of the date of this filing, the balance under the credit facility is $28,965,281. Certain fixed rate agreements expired during the first quarter of 2000. As of the date of this filing, interest rates on the credit facility were as follows: $28,965,281 fixed at Libor based rate of 8.684% expiring July 31, 2000. The above includes a margin paid to the lender based on overall leverage, and may increase or decrease as the Partnership's leverage fluctuates. Capital Expenditures During the first quarter of 2000, the Partnership incurred approximately $609,000 in capital expenditures. These expenditures included the ongoing system upgrade to 550 MHz in the Starkville, MS system, the initial phase of a 550 MHz system upgrade in the Forest, MS system, a continued system upgrade to 450 MHz in the Barnwell, SC system and small line extensions in various systems. Planned expenditures for the balance of 2000 include continuation of construction on the system upgrade to 550 MHz in the Starkville, MS system, a continued system upgrade to 550 MHz in the Forest, MS system, the design for a system upgrade to 450 MHz in the city of Highlands, NC, a continued upgrade to 450 MHz in the Barnwell, SC system, and various line extensions in all of the systems. Disposition On April 30, 1999, the Partnership sold cable television systems serving approximately 1,400 subscribers in and around the communities of Sandersville, Heidelberg and Laurel, Mississippi. The sales price of these systems was $1,900,000. The Partnership used net proceeds of $1,540,000 to pay down existing bank debt. Cautionary statement for purposes of the "Safe Harbor" provisions of the Private Litigation Reform Act of 1995. Statements contained or incorporated by reference in this document that are not based on historical fact are "forward-looking statements" within the meaning of the Private Securities Reform Act of 1995. Forward-looking statements may be identified by use of forward-looking terminology such as "believe", "intends", "may", "will", "expect", "estimate", "anticipate", "continue", or similar terms, variations of those terms or the negative of those terms. 11 12 PART II - OTHER INFORMATION ITEM 1 Legal proceedings None ITEM 2 Changes in securities None ITEM 3 Defaults upon senior securities None ITEM 4 Submission of matters to a vote of security holders None ITEM 5 Other information None ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibit index 27.0 Financial Data Schedule (b) No reports on Form 8-K have been filed during the quarter ended June 30, 2000. 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NORTHLAND CABLE PROPERTIES SIX LIMITED PARTNERSHIP BY: Northland Communications Corporation, Managing General Partner Dated: 8/11/00 BY: /s/ RICHARD I. CLARK --------------------------------- Richard I. Clark (Vice President/Treasurer) Dated: 8/11/00 BY: /s/ GARY S. JONES --------------------------------- Gary S. Jones (Vice President) 13

NORTHLAND CABLE PROPERTIES SIX LTD PARTNERSHIP 10-Q