UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2003

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from to

Commission file number 333-43157

NORTHLAND CABLE TELEVISION, INC.

(Exact name of registrant as specified in its charter)


STATE OF WASHINGTON		91-1311836

(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

AND SUBSIDIARY GUARANTOR:

NORTHLAND CABLE NEWS, INC.

(Exact name of registrant as specified in its charter)


STATE OF WASHINGTON		91-1638891

(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)

101 STEWART STREET, SUITE 700 SEATTLE, WASHINGTON		98101

(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (206) 621-1351

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 [ ]

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.)

Yes [ ] No [X]

TABLE OF CONTENTS


PART 1 — FINANCIAL INFORMATION
	ITEM 1. Financial Statements
	ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
	ITEM 4. CONTROLS AND PROCEDURES
PART II — OTHER INFORMATION
	ITEM 1 Legal proceedings
	ITEM 2 Changes in securities
	ITEM 3 Defaults upon senior securities
	ITEM 4 Submission of matters to a vote of security holders
	ITEM 5 Other information
	ITEM 6 Exhibits and Reports on Form 8-K
SIGNATURES
EXHIBIT 31.(A)
EXHIBIT 31.(B)
EXHIBIT 32.(A)
EXHIBIT 32.2

PART 1 - FINANCIAL INFORMATION

ITEM 1. Financial Statements

NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
CONDENSED CONSOLIDATED BALANCE SHEETS - (UNAUDITED)


			September 30,			December 31,
			2003			2002

ASSETS
Current Assets:
	Cash and cash equivalents		$	4,290,861		$	1,538,002
	Due from Parent and affiliates			733,820			796,464
	System sale receivable			4,156,191			—
	Accounts receivable			1,709,115			2,047,900
	Prepaid expenses			659,062			392,271

		Total current assets		11,549,049			4,774,637
Investment in Cable Television Properties:
Property and equipment, net of accumulated depreciation of $58,280,163 and $52,255,286, respectively				42,239,321			44,152,208
Franchise agreements, net of accumulated amortization of $38,923,291				39,493,670			39,487,137
Goodwill, net of accumulated amortization of $2,407,104				3,937,329			3,937,329

		Total investment in cable television properties		85,670,320			87,576,674
Loan fees, net of accumulated amortization of $2,419,043 and $2,650,564, respectively				1,799,543			3,188,581
Other intangible assets, net of accumulated amortization of $3,192,816 and $3,140,381, respectively				84,174			136,608
Assets of discontinued operations				—			25,504,853

		Total assets	$	99,103,086		$	121,181,353

LIABILITIES AND SHAREHOLDER’S DEFICIT
Current Liabilities:
	Accounts payable		$	63,737		$	528,645
	Accrued expenses			7,619,816			4,705,722
	Converter deposits			123,516			116,027
	Subscriber prepayments			1,370,794			1,629,235
	Due to affiliates			73,813			228,220
	Current portion of notes payable			2,100,000			2,775,920
	Interest rate swap agreements			—			120,377
	Liabilities of discontinued operations			—			1,443,610

		Total current liabilities		11,351,676			11,547,756
Notes payable, net of current portion				113,251,534			165,255,262
Deferred tax liabilities				173,355			—

		Total liabilities		124,776,565			176,803,018

Shareholder’s Deficit:
	Common stock (par value $1.00 per share, authorized 50,000 shares; 10,000 shares issued and outstanding) and additional paid-in capital			12,359,377			12,359,377
	Accumulated deficit			(38,032,856	)		(67,981,042	)

		Total shareholder’s deficit		(25,673,479	)		(55,621,665	)

Total liabilities and shareholder’s deficit			$	99,103,086		$	121,181,353

The accompanying notes are an integral part of these condensed consolidated financial statements.

NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME - (UNAUDITED)


			For the nine months ended September 30,
			2003			2002

Service revenues			$	37,242,399		$	36,661,583
Expenses:
	Cable system operations (including $98,560 and $187,369, net paid to affiliates in 2003 and 2002, respectively), exclusive of depreciation and amortization shown below			14,332,665			13,956,781
	General and administrative (including $1,325,224, net paid to affiliates in 2003, and $59,234, net received from affiliates 2002)			6,891,779			5,271,495
	Management fees paid to Parent			1,862,452			1,833,078
	Depreciation and amortization			6,643,558			6,557,855

		Total operating expenses		29,730,454			27,619,209

Income from operations				7,511,945			9,042,374
Other income (expense):
	Interest expense, net			(8,396,406	)		(7,140,067	)
	Interest income and other, net			23,528			46,119
	Loss on disposal of assets			(50,079	)		(259,297	)

				(8,422,957	)		(7,353,245	)

(Loss) income from continuing operations before income tax expense				(911,012	)		1,689,129

	Income tax expense			(183,165	)		(8,142	)
(Loss) income from continuing operations				(1,094,177	)		1,680,987
Discontinued operations (note 4)
	Income (loss) from operations of Aiken and Port Angeles Systems, net of tax (including gain on sales of systems of $31,525,585 in 2003)			31,042,363			(613,219	)

Net income				29,948,186			1,067,768

Other comprehensive loss:
	Reclassification of accumulated other comprehensive income to unrealized gain on interest rate swaps			—			(268,000	)

		Other comprehensive loss		—			(268,000	)

Total comprehensive income			$	29,948,186		$	799,768

The accompanying notes are an integral part of these condensed consolidated financial statements.


			For the three months ended September 30,
			2003			2002

Service revenues			$	12,376,798		$	12,183,899
Expenses:
	Cable system operations (including $46,505 and $67,236, net paid to affiliates in 2003 and 2002, respectively), exclusive of depreciation and amortization shown below			4,741,599			4,720,248
	General and administrative (including $599,698 and $80,891 net paid to affiliates in 2003 and 2002, respectively)			2,507,646			1,703,561
	Management fees paid to Parent			618,840			609,195
	Depreciation and amortization			2,245,419			2,198,281

		Total operating expenses		10,113,504			9,231,285

Income from operations				2,263,294			2,952,614
Other income (expense):
	Interest expense, net			(2,860,527	)		(2,368,047	)
	Interest income and other, net			8,406			16,995
	Loss on disposal of assets			(27,452	)		(243,421	)

				(2,879,573	)		(2,594,473	)

(Loss) income from continuing operations before income tax expense				(616,279	)		358,141

	Income tax expense			(25,391	)		(3,262	)
(Loss) income from continuing operations				(641,670	)		354,879
Discontinued operations (note 4)
	Loss from operations of Aiken and Port Angeles Systems, net of tax			—			(45,960	)

Net (loss) income				(641,670	)		308,919

Other comprehensive loss:
	Reclassification of accumulated other comprehensive income to unrealized gain on interest rate swaps			—			(59,000	)

		Other comprehensive loss		—			(59,000	)

Total comprehensive (loss) income			$	(641,670	)	$	249,919

The accompanying notes are an integral part of these condensed consolidated financial statements.

NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)


			For the nine months ended September 30,
			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income			$	29,948,186		$	1,067,768
Adjustments to reconcile net income to cash provided by operating activities:
	Depreciation and amortization			7,061,356			7,973,371
	Unrealized gain on interest rate swap agreements			(120,377	)		(1,981,411	)
	Amortization of loan costs			393,273			503,987
	(Gain) loss on disposal of assets			(31,475,506	)		259,297
	Deferred income taxes			173,355			—
	(Increase) decrease in operating assets:
		Accounts receivable		326,869			(127,658	)
		Prepaid expenses		(267,792	)		(143,817	)
		Due from Parent and affiliates		61,822			(700,147	)
	Increase (decrease) in operating liabilities
		Accounts payable and accrued expenses		917,971			1,428,210
		Due to affiliates		(156,529	)		(80,313	)
		Converter deposits		7,489			(30,303	)
		Subscriber prepayments		(258,441	)		(152,642	)

Net cash provided by operating activities				6,611,676			8,016,342

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in cable television properties				(4,691,180	)		(5,753,630	)
Proceeds from sale of cable system, net				53,376,107			999,562
Proceeds from disposal of assets				14,342			5,588
Franchises and other intangibles				(6,533	)		(14,718	)

Net cash provided by (used in) investing activities				48,692,736			(4,763,198	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings				(52,679,648	)		(2,000,000	)

Net cash used in financing activities				(52,679,648	)		(2,000,000	)

INCREASE IN CASH				2,624,764			1,253,144
CASH, beginning of period				1,666,097			2,724,099

CASH, end of period			$	4,290,861		$	3,977,243

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid during the period for interest		$	6,458,094		$	9,700,616

	Cash paid during the period for state income taxes		$	9,810		$	9,363

The accompanying notes are an integral part of these condensed consolidated financial statements.

NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY
(A wholly owned subsidiary of Northland Telecommunications Corporation)

NOTES TO UNAUDITED FINANCIAL STATEMENTS
September 30, 2003
(Unaudited)

(1) Basis of Presentation

Interim Financial Reporting

These unaudited condensed consolidated financial statements are being filed in conformity with Rule 10-01 of Regulation S-X regarding interim financial statement disclosures and do not contain all of the necessary footnote disclosures required for a fair presentation of the consolidated balance sheets, statements of operations and comprehensive income and statements of cash flows in conformity with accounting principles generally accepted in the United States of America. However, in the opinion of management, this data includes all adjustments, consisting only of normal recurring accruals, necessary to present fairly the Company’s consolidated financial position at September 30, 2003, its consolidated statements of operations and comprehensive income for the nine and three months ended September 30, 2003 and 2002 and its consolidated statements of cash flows for the nine months ended September 30, 2003 and 2002. 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 Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

On March 11, 2003 and March 31, 2003, the Company sold the operating assets and franchise rights of its cable systems in and around Port Angeles, Washington and Aiken, South Carolina, respectively. The accompanying financial statements have been restated to report the discontinued operations of the Company, effected for this sale.

Effective January 1, 2003, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS No. 143”) which addresses financial accounting and reporting for obligations associated with the retirement of tangible long lived assets and associated asset retirement obligations (“ARO”). Under the scope of this pronouncement, the Company has ARO associated with the removal of equipment from poles and headend sites that are leased from third parties. Based on management’s analyses, the Company has concluded that for the reasons mentioned below, it is not able to reasonably estimate the fair values of the ARO. First to operate the cable television network, the Company will always need to have equipment deployed at these poles and headend sites. Additionally, the Company has not historically incurred any ARO and, given the length of time in the future when any potential obligations might exist, management believes that estimating any probability at this time is not practicable. As a result, upon adoption of SFAS No. 143 the Company did not record any ARO associated with the obligation to remove the equipment.

Certain prior period amounts have been reclassified to conform to the current period presentation. This includes reclassification of unrealized gains and losses on interest rate swap agreements, which were previously classified as a separate financial statement caption within other income (expense), to the interest expense financial statement caption.

(2) Intangible Assets

In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company does not amortize goodwill or any other intangible assets determined to have indefinite lives. The Company has determined that its franchises meet the definition of indefinite lived assets. The Company tests these assets for impairment on an annual basis during the fourth quarter, or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value. The book value of the Company’s intangible assets, effecting for the sale of the Aiken System and the Port Angeles System described in note 4, is presented in the following table:


		September 30, 2003							December 31, 2002

		Gross					Net		Gross					Net
		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
		Amount		Amortization			Amount		Amount		Amortization			Amount

Indefinite-lived intangible assets:
	Franchises	$	78,416,961	$	(38,923,291	)	$	39,493,670	$	78,410,428	$	(38,923,291	)	$	39,487,137
	Goodwill		6,344,433		(2,407,104	)		3,937,329		6,344,433		(2,407,104	)		3,937,329

			84,761,394		(41,330,395	)		43,430,999		84,754,861		(41,330,395	)		43,424,466
Definite-lived intangible assets:
	Loan fees		4,218,586		(2,419,043	)		1,799,543		5,839,145		(2,650,564	)		3,188,581
	Other intangible assets		3,276,990		(3,192,816	)		84,174		3,276,989		(3,140,381	)		136,608

		$	92,256,970	$	(46,942,254	)	$	45,314,716	$	93,870,995	$	(47,121,340	)	$	46,749,655

Amortization of loan fees and other intangibles for each of the next five years is expected to be approximately as follows:


2003	$	124,000
2004		468,000
2005		468,000
2006		462,000
2007		362,000

	$	1,884,000

(3) Amended and Restated Senior Credit Facility

On November 13, 2003, the Company amended and restated its existing senior credit facility (the “Amended and Restated Senior Credit Facility”). The Amended and Restated Senior Credit Facility establishes a term loan in the amount of $15,000,000 and a $2,000,000 revolving credit loan, under which the Company borrowed $1,000,000 upon amendment and restatement. The proceeds from the Amended and Restated Senior Credit Facility were used to repay the Company’s existing senior credit facility, with a balance of $15,351,534 at September 30, 2003, to provide working capital and for other general purposes. The Amended and Restated Senior Credit Facility matures on December 31, 2006 and requires the Company to make quarterly principal payments beginning March 31, 2004. The current portion of notes payable included in the accompanying balance sheet as of September 30, 2003 reflects the principal payment requirements of the Amended and Restated Senior Credit Facility. Annual maturities of the Amended and Restated Senior Credit Facility are as follows:


		Principal
		Payments

	2004	$	2,800,000
	2005		3,400,000
	2006		9,800,000

Total		$	16,000,000

The interest rate per annum applicable to the Amended and Restated Senior Credit Facility is a fluctuating rate of interest measured by reference to either: (i) the Index Rate, as defined, plus a borrowing margin of 2.50%; or (ii) the London interbank offered rate (LIBOR), plus a borrowing margin of 3.75%.

The Amended and Restated Senior Credit Facility contains a number of covenants, which among other things, require the Company to comply with specified financial ratios, including maintenance, as tested on a quarterly basis, of: (A) a Maximum Total Leverage Ratio (the ratio of Total Debt to Annualized Operating Cash Flow (as defined)) of not more than 6.50 to 1.00; (B) a Maximum Senior Leverage Ratio (the ratio of Senior Debt to Annualized Operating Cash Flow (as defined)) of not more than 1.00 to 1.00 (C) an Interest Coverage Ratio (the ratio of Operating Cash Flow (as defined) to Total Cash Interest Expense of not less than 1.50 to 1.00 initially; and (D) a Minimum Fixed Charge Coverage Ratio (the ratio of Annualized Operating Cash Flow (as defined) to the Company’s Fixed Charges (as defined) of not less than 1.00 to 1.00. As of September 30, 2003, the Company was in compliance with the covenants required by the Refinanced Credit Facility.

As of the date of this filling, the Amended and Restated Senior Credit Facility had an outstanding balance of $16,000,000 bearing interest at a LIBOR based interest rate of 4.93%. This interest rate expires in February of 2004, at which time a new rate will be established.

(4) System Sales

On March 11, 2003, the Company sold the operating assets and franchise rights of its cable system in and around the community of Port Angeles, Washington (the “Port Angeles System”). The Port Angeles System was sold at a price of approximately $11,375,000 of which the Company received approximately $10,800,000 at closing. The sales price was adjusted at closing for the proration of certain revenues and expenses and approximately $575,000 is being held in escrow and will be released to the Company one year from the closing of the transaction, subject to general representations and warranties. Historically, the Company has entered into similarly structured transactions, and collected the amount held in escrow. Substantially all of the proceeds were used to pay down amounts outstanding under the Company’s Senior Credit Facility.

On March 31, 2003, the Company sold the operating assets and franchise rights of its cable system in and around the community of Aiken, South Carolina (the “Aiken System”). The Aiken System was sold at a price of approximately $46.3 million of which the Company received approximately $42.6 million at closing. The sales price was adjusted at closing for the proration of certain revenues and expenses and approximately $3.7 million is being held in escrow and will be released to the Company one year from the closing of the transaction, subject to general representations and warranties. Historically, the Company has entered into similarly structured transactions, and collected the amount held in escrow. Substantially all of the proceeds were used to pay down amounts outstanding under the Company’s Senior Credit Facility.

The sales were made pursuant to offers by separate, independent third parties. Based on the offers made, management determined that acceptance of the offers would be in the best economic interest of the Company. The sales were not a result of declining or deteriorating operations nor was it necessary to create liquidity or reduce outstanding debt. It is the opinion of management that the Company could have continued existing operations and met all obligations as they became due.

The assets and liabilities attributable to the Aiken System and the Port Angeles System as of December 31, 2002 have been reported as assets and liabilities from discontinued operations in the accompanying balance sheet, and consist of the following:


		As of
		December 31, 2002

Cash and cash equivalents		$	128,095
Accounts receivable			636,648
Prepaid expenses			65,139
Property and equipment, net of accumulated depreciation of $10,905,201			10,768,828
Franchise agreements (net of accumulated amortization of $9,356,640)			13,906,143

	Total assets	$	25,504,853

Accounts payable			122,112
Accrued expenses			820,168
Converter deposits			9,152
Subscriber prepayments			492,178

	Total liabilities	$	1,443,610

In addition, the revenue, expenses and other items attributable to the operations of the Aiken System and the Port Angeles system during the periods presented in this filing have been reported as discontinued operations in the accompanying statements of operations and comprehensive income, and include the following:


		For the nine months ended September 30,
		2003			2002

Service Revenues		$	3,079,389		$	9,337,109
Expenses:
	Cable system operations (including $6,289 and $60,976, net paid to affiliates in 2003 and 2002, respectively)		1,205,573			3,472,334
	General and administrative (including $152,093 and $159,808, net paid to affiliates in 2003 and 2002, respectively)		573,781			1,398,602
	Management fees paid to Parent		153,637			466,856
	Depreciation and amortization		417,798			1,415,516

			2,350,789			6,753,308

Income from operations			728,600			2,583,801
Other income (expense):
	Interest expense		(711,822	)		(3,197,020	)
	Gain on sale of systems		31,525,585			—

Income (loss) from operation of Aiken and Port Angeles Systems, before income tax expense			31,542,363			(613,219	)
Income tax expense			(500,000	)		—

Income (loss) from operations of Aiken and Port Angeles Systems, net		$	31,042,363		$	(613,219	)


		For the three months
		ended September 30, 2002

Service Revenues		$	3,117,722
Expenses:
	Cable system operations (including $20,045, net paid to affiliates)		1,176,199
	General and administrative (including $146,876, net paid to affiliates)		447,172
	Management fees paid to Parent		155,886
	Depreciation and amortization		476,695

			2,255,952

Income from operations			861,770
Other income (expense):
	Interest expense		(907,730	)

Loss from operations of Aiken and Port Angeles Systems, net		$	(45,960	)

In accordance with EITF 87-24, Allocation of Interest to Discontinued Operations, the Company allocated interest expense to discontinued operations using the historic weighted average interest rate applicable to the Revised Senior Credit Facility and approximately $51.8 million in principal payments, which were applied to the Revised Senior Credit Facility as a result of the sale of the Aiken System and the Port Angeles System.

PART I (continued)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Results of Continuing Operations - Nine Months Ended September 30, 2003 and 2002

Revenues totaled $37.2 million for the nine months ended September 30, 2003, an increase of approximately $600,000 or 1.6% over the same period in 2002. Of these revenues, $25.5 million (68%) was derived from basic services, $2.5 million (7%) from premium services, $4.8 million (13%) from expanded basic services, $700,000 (2%) from digital services, $1.9 million (5%) from advertising and $1.8 million (5%) from other sources.

Average monthly revenue per subscriber increased $1.95 or 4.3% from $45.51 for the nine months ended September 30, 2002 to $47.46 for the nine months ended September 30, 2003. This increase is primarily attributable to rate increases implemented during the first quarter of 2003 and increases in advertising revenue.

Cable system operation expenses increased approximately $300,000 or 2.1% from $14.0 million to $14.3 million for the nine months ended September 30, 2003. Programming costs, which represent the primary component of cable system operation expenses, increased approximately $300,000 or 2.7% as a result of rate increases by certain programming vendors and additional costs that were incurred as a result of offering additional channels in some of the Company’s systems.

General and administrative expenses increased approximately $1.6 million or 30.2% from $5.3 million to $6.9 million for the nine months ended September 30, 2003. This increase is primarily attributable to increases in corporate overhead allocations by the Company’s Parent. These corporate overhead allocations had been reduced in prior periods, to the extent that allocation of these costs would have resulted in non-compliance with the Company’s debt covenants. Corporate overhead expenses represent actual costs incurred by the Company’s parent for the period that are attributable to the operations of the Company. The Company has no obligation or liability to its Parent for past reductions in corporate overhead charges.

Management fees for the nine months ended September 30, 2003 increased approximately 1.6% over the same period in the previous year. Management fees are calculated at 5.0% of gross revenues.

Depreciation and amortization expenses for the nine months ended September 30, 2003 remained relatively constant with the same period in 2002.

Interest expense allocated to continuing operations increased approximately $1.3 million, or 18.3% from $7.1 million to $8.4 million for the nine months ended September 30, 2003. This increase is primarily attributable to a $1.9 million reduction in the amount of gains recognized on the Company’s interest rate swap agreements, offset by a $600,000 reduction in interest expense on the Company’s Revised Senior Credit Facility due to lower average outstanding indebtedness as a result of required principal repayments and lower interest rates during 2003 as compared to 2002.

The Company has elected not to designate its interest rate swap agreements as hedges under SFAS No. 133. Interest rate swap agreements in place as of December 31, 2002 expired during the first quarter of 2003, and the Company has elected not to enter into any new agreements. Accordingly, the Company recorded a debit to eliminate the liability on its balance sheet, and a corresponding credit in its statement of operations of approximately $120,000.

Results of Continuing Operations - Three Months Ended September 30, 2003 and 2002

Revenues totaled $12.4 million for the three months ended September 30, 2003, an increase of approximately $200,000 or 1.6% over the same period in 2002. Of these revenues, $8.4 million (67%) was derived from basic services, $800,000 (6%) from premium services, $1.6 million (13%) from expanded basic services, $200,000 (2%) from digital services, $700,000 (6%) from advertising and $700,000 (6%) from other sources.

Average monthly revenue per subscriber increased $1.80 or 3.9% from $46.01 for the three months ended September 30, 2002 to $47.81 for the three months ended September 30, 2003. This increase is primarily attributable to rate increases implemented during the first quarter of 2003 and increased advertising revenue.

Cable system operation expenses for the three months ended September 30, 2003 remained relatively constant with the same period in 2002.

General and administrative expenses increased approximately $800,000 or 47.1% from $1.7 million to $2.5 million for the three months ended September 30, 2003. This increase is primarily attributable to increases in corporate overhead allocations by the Company’s Parent. These corporate overhead allocations had been reduced in prior periods, to the extent that allocation of these costs would have resulted in non-compliance with the Company’s debt covenants. Corporate overhead expenses represent actual costs incurred by the Company’s parent for the period that are attributable to the operations of the Company. The Company has no obligation or liability to its Parent for past reductions in corporate overhead charges.

Management fees for the three months ended September 30, 2003 increased approximately 1.6% over the same period in the previous year. Management fees are calculated at 5.0% of gross revenues.

Depreciation and amortization expenses for the three months ended September 30, 2003 remained relatively constant with the same period in 2002.

Interest expense allocated to continuing operations increased approximately $500,000, or 20.8% from $2.4 million to $2.9 million for the three months ended September 30, 2003. This increase is primarily attributable to a $600,000 gain recognized on the Company’s interest rate swap agreements in 2002, offset by a $100,000 reduction in interest expense on the Company’s Revised Senior Credit Facility due to lower average outstanding indebtedness as a result of required principal repayments and lower interest rates during 2003 as compared to 2002.

Liquidity and Capital Resources

The cable television business generally requires substantial capital for the construction, expansion and maintenance of the signal distribution system. In addition, the Company has pursued a business strategy, which includes selective acquisitions. The Company has financed these expenditures through a combination of cash flow from operations, borrowings under the revolving credit and term loan facility provided by a variety of banks and the issuance of senior subordinated notes. The Company does not have any required principal payments for the remainder of 2003. The Company anticipates that cash flow from operations will be sufficient to service its debt over the next twelve month period.

Net cash provided by operating activities was $6.6 million for the nine months ended September 30, 2003. Adjustments to the $29.9 million net income for the period to reconcile to net cash provided by operating activities consisted primarily of a gain of $31.5 million related primarily to the sales of the Aiken System and the Port Angeles System, offset by $7.0 million of depreciation and amortization and increases in operating liabilities of approximately $500,000.

Net cash provided by investing activities was $48.7 million for the nine months ended September 30, 2003, and consisted primarily of $53.4 million of net proceeds from the sales of the Aiken System and the Port Angeles System, offset by $4.7 million in capital expenditures.

Net cash used in financing activities consisted of $52.7 million in principal prepayments on the Revised Senior Credit Facility, as a result of the sale of the Aiken System and the Port Angeles System.

EBITDA decreased approximately $1.4 million or 9.0%, from $15.6 million to $14.2 million for the nine months ended September 30, 2003, and EBITDA margin decreased from 42.5% to 38.0%. The aforementioned increases in revenues were offset by increased administrative overhead charges and operating expenses as a result of rate increases by certain programming vendors and the launch of new programming services, discussed above.

Free cash flow increased $200,000, or 18.2%, from $1.1 million to $1.3 million for the nine months ended September 30, 2003. This increase is attributable to the aforementioned decline in EBITDA, offset by declining interest expense and capital expenditures.

EBITDA represents income from operations excluding the effect of depreciation and amortization expense. EBITDA margin represents EBITDA as a percentage of revenue. Free cash flow represents income from operations, excluding the effects of depreciation and amortization, less interest expense and capital expenditures. EBITDA and free cash flow are commonly used to analyze companies on the basis of leverage and liquidity. However, they are not measures determined under generally accepted accounting principles, or GAAP, in the United States and may not be comparable to similarly titled measures reported by other companies. EBITDA and free cash flow should not be construed as a substitute for operating income or as better measure of liquidity than cash flow from operating activities, which are determined in accordance with GAAP. We have presented EBITDA and free cash flow to provide additional information with respect to our ability to meet future debt service, capital expenditure and working capital requirements. A reconciliation of net cash provided by operating activities to EBITDA and free cash flow follows:


	For the nine months ended
	September 30,
	2003			2002

Net cash provided by operating activities		6,611,676			8,016,342
Interest expense, excluding amortization of loan fees		8,184,756			8,783,251
Changes in certain assets and liabilities, and other, net		(640,929	)		(1,199,364	)

EBITDA		14,155,503			15,600,229

Interest expense, excluding amortization of loan fees		(8,184,756	)		(8,783,251	)
Capital expenditures		(4,691,180	)		(5,753,630	)

Free cash flow		1,279,567			1,063,348

Amended and Restated Senior Credit Facility

On November 13, 2003, the Company amended and restated its existing senior credit facility (the “Amended and Restated Senior Credit Facility”). The Amended and Restated Senior Credit Facility establishes a term loan in the amount of $15,000,000 and a $2,000,000 revolving credit loan, under which the Company borrowed $1,000,000 upon amendment and restatement. The proceeds from The Amended and Restated Senior Credit Facility were used to repay the Company’s existing senior credit facility, with a balance of $15,351,534 at September 30, 2003, to provide working capital and for other general purposes. The Amended and Restated Senior Credit Facility matures on December 31, 2006 and requires the Company to make quarterly principal payments beginning March 31, 2004. The current portion of notes payable included in the accompanying balance sheet as of September 30, 2003 reflects the principal payment requirements of the Amended and Restated Senior Credit Facility. Annual maturities of the Amended and Restated Senior Credit Facility are as follows:


		Principal
		Payments

	2004	$	2,800,000
	2005		3,400,000
	2006		9,800,000

Total		$	16,000,000

1.00. As of September 30, 2003, the Company was in compliance with the covenants required by the Refinanced Credit Facility.

System Sale

On March 11, 2003, the Company sold the operating assets and franchise rights of its cable system in and around the community of Port Angeles, Washington (the “Port Angeles System”). The Port Angeles System was sold at a price of approximately $11,375,000 of which the Company received approximately $10,800,000 at closing. The sales price was adjusted at closing for the proration of certain revenues and expenses and approximately $575,000 is being held in escrow and will be released to the Company one year from the closing of the transaction, subject to general representations and warranties. Historically, the Company has entered into similarly structured transactions, and collected on the amount held in escrow. Substantially all of the proceeds were used to pay down amounts outstanding under the Company’s Senior Credit Facility.

On March 31, 2003, the Company sold the operating assets and franchise rights of its cable system in and around the community of Aiken, South Carolina (the “Aiken System”). The Aiken System was sold at a price of approximately $46.3 million of which the Company received approximately $42.6 million at closing. The sales price was adjusted at closing for the proration of certain revenues and expenses and approximately $3.7 million is being held in escrow and will be released to the Company one year from the closing of the transaction, subject to general representations and warranties. Historically, the Company has entered into similarly structured transactions, and collected on the amount held in escrow. Substantially all of the proceeds were used to pay down amounts outstanding under the Company’s Senior Credit Facility.

Obligations and Commitments

In addition to working capital needs for ongoing operations, the Company has capital requirements for (i) annual maturities and interest payments related to the term loan and (ii) required minimum operating lease payments. The following table summarizes the Company’s contractual obligations, after effecting for the additional borrowings of $648,466 and the revised payment terms of the Amended and Restated Senior Credit Facility and the sales of the Aiken System and the Port Angeles System for the remainder of 2003 and in future years:


	Expected Maturity Date

	2003		2004		2005		2006		2007		Thereafter		Total

Debt maturity	$	—	$	2,800,000	$	3,400,000	$	9,800,000	$	100,000,000	$	—	$	116,000,000
Interest payments (weighted average interest rate of 9.52% as of September 30, 2003)		5,326,582		10,969,780		10,816,950		10,491,570		10,250,000		—		47,854,882
Minimum operating lease payments		20,833		74,296		55,331		44,663		37,006		53,831		285,960

Total contractual cash obligations (a)	$	5,347,415	$	13,844,076	$	14,272,281	$	20,336,233	$	110,287,006	$	53,831	$	164,140,842

(a)

These contractual obligations do not include accounts payable and accrued liabilities, which are expected to be paid in 2003.

Capital Expenditures

For the nine months ended September 30, 2003, the Company incurred capital expenditures of approximately $4.7 million. Capital expenditures included: (i) the launch of high-speed data services, (ii) continued deployment of new product digital services; (iii) expansion and improvement of cable properties; (iv) additions to plant and equipment, and; (v) line drops, extensions and installations of cable plant facilities.

The Company plans to invest approximately $2.5 million in capital expenditures for the remainder of 2003. This represents anticipated expenditures for upgrading and rebuilding certain distribution facilities, which will allow for the continued deployment of new products, such as digital and high-speed data services in selected markets. Furthermore, capital expenditures will involve extensions of distribution facilities to add new subscribers and vehicle replacements.

Recently Issued Accounting Standards

Statement of Financial Accounting Standards No. 143 – Effective January 1, 2003, the Company adopted SFAS No. 143, “Accounting for Asset Retirement Obligations,” (“SFAS No. 143”) which addresses financial accounting and reporting for obligations associated with the retirement of tangible long lived assets and associated asset retirement obligations (“ARO”). Under the scope of this pronouncement, the Company has ARO associated with the removal of equipment from poles and headend sites that are leased from third parties. Based on management’s analyses, the Company has concluded that for the reasons mentioned below, it is not able to reasonably estimate the fair values of the ARO. First, to operate the cable television network, the Company will always need to have equipment deployed at these poles and headend sites. Additionally, the Company has not historically incurred any ARO and, given the length of time in the future when any potential obligations might exist, management believes that estimating any probability at this time is not practicable. As a result, upon adoption of SFAS No. 143, the Company did not record any ARO associated with the obligation to remove the equipment.

Statement of Financial Accounting Standards No. 149 – In April of 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts, and other hedging activities under SFAS No. 133. The adoption of SFAS No. 149 did not have a material impact on the Company’s financial statements.

Statement of Financial Accounting Standards No. 150 - In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which addresses financial accounting and reporting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in statements of financial position. Previously many of those financial instruments were classified as equity. The Statement is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of the Statement did not have a material impact on the Company’s operating results or financial position.

Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based on the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following critical accounting policies, which have been chosen among alternatives, require a more significant amount of management judgment than other accounting policies the Company employs.

Revenue Recognition - Cable television service revenue, including service and maintenance, is recognized in the month service is provided to customers. Advance payments on cable services to be rendered are recorded as subscriber prepayments. Revenues resulting from the sale of local spot advertising are recognized when the related advertisements or commercials appear before the public.

Property and Equipment - Property and equipment are recorded at cost. Costs of additions and substantial improvements, which include materials, labor, and other indirect costs associated with the construction of cable transmission and distribution facilities, are capitalized. Indirect costs include employee salaries and benefits, travel and other costs. These costs are estimated based on historical information and analysis. The Company periodically performs evaluations of these estimates as warranted by events or changes in circumstances.

In accordance with SFAS No. 51, “Financial Reporting by Cable Television Companies,” the Company also capitalizes costs associated with initial customer installations. The costs of disconnecting service or reconnecting service to previously installed locations is expensed in the period incurred. Costs for repairs and maintenance are also charged to operating expense, while equipment replacements, including the replacement of drops, are capitalized.

Intangible Assets - In accordance with the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company does not amortize goodwill or any other intangible assets determined to have indefinite lives. The Company has determined that its franchises meet the definition of indefinite lived assets. The Company tests these assets for impairment on an annual basis during the fourth quarter, or on an interim basis if an event occurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value.

Management believes the franchises have indefinite lives because the franchises are expected to be used by the Company for the foreseeable future and effects of obsolescence, competition and other factors are minimal. In addition, the level of maintenance expenditures required to obtain the future cash flows expected from the franchises are not material in relation to the carrying value of the franchises. While the franchises have defined lives based on the franchising authority, renewals are routinely granted, and management expects them to continue to be granted. This expectation is supported by management’s experience with the Company’s franchising authorities and the franchising authorities of the Company’s affiliates.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is subject to market risks arising from changes in interest rates. The Company’s primary interest rate exposure results from changes in LIBOR or the prime rate, which are used to determine the interest rate applicable to the Company’s debt facilities. The Company has from time to time entered into interest rate swap agreements to partially hedge interest rate exposure. Interest rate swaps have the effect of converting the applicable variable rate obligations to fixed or other variable rate obligations. As of the date of this filing, the Company is not involved in any interest rate swap agreements. The potential loss over one year that would result from a hypothetical, instantaneous and unfavorable change of 100 basis points in the interest rate of all of the Company’s variable rate obligations would be approximately $154,000.

The Company does not use financial instruments for trading or other speculative purposes.

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.

ITEM 4. CONTROLS AND PROCEDURES

Based on their evaluation as of the end of the period covered by this report, the Company’s Chief Executive Officer and President (Principal Financial and Accounting Officer) have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II - OTHER INFORMATION

ITEM 1 Legal proceedings

The Company is a party to ordinary and routine litigation proceedings that are incidental to the Company’s business. Management believes that the outcome of all pending legal proceedings will not, individually or in the aggregate, have a material adverse effect on the Company, its financial condition, prospects and debt service ability.

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


31(a).		Certification of Chief Executive Officer dated November 14, 2003 pursuant to section 302 of the Sarbanes-Oxley Act

31(b).		Certification of President (Principal Financial and Accounting Officer) dated November 14, 2003 pursuant to section 302 of the Sarbanes-Oxley Act

32(a).		Certification of Chief Executive Officer dated November 14, 2003 pursuant to section 906 of the Sarbanes-Oxley Act

32(b).		Certification of President (Principal Financial and Accounting Officer) dated November 14, 2003 pursuant to section 906 of the Sarbanes-Oxley Act

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY


SIGNATURES	CAPACITIES	DATE

/s/ RICHARD I. CLARK Richard I. Clark	Executive Vice President, Treasurer and Assistant Secretary	11-14-03

/s/ GARY S. JONES Gary S. Jones	President	11-14-03

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NORTHLAND CABLE TELEVISION INC 10-Q