NORTHLAND CABLE TELEVISION INC - 10-Q Quarterly Report

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 June 30, 2002


[ ]		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.)

1201 THIRD AVENUE, SUITE 3600 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 [ ]

This filing contains 19 pages. Exhibits index appears on page 18.

TABLE OF CONTENTS


PART 1 — FINANCIAL INFORMATION
	ITEM 1. Financial Statements
		CONDENSED CONSOLIDATED BALANCE SHEETS — (UNAUDITED)
		CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) — (UNAUDITED)
		CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS — (UNAUDITED)
		NOTES TO UNAUDITED 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
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 99.(A)
EXHIBIT 99.(B)

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)


			June 30,			December 31,
			2002			2001

						(restated)
ASSETS
Current Assets:
	Cash		$	3,010,596		$	2,724,099
	Due from affiliates			311,438			295,650
	Accounts receivable			2,421,436			3,437,560
	Prepaid expenses			389,757			547,480

		Total current assets		6,133,227			7,004,789
Investment in Cable Television Properties:
Property and equipment, net of accumulated depreciation of $58,516,969 and $53,518,610, respectively				55,722,822			57,237,151
Franchise agreements and acquisition costs, net of accumulated amortization of $48,279,931				53,387,986			53,384,986
Goodwill, net of accumulated amortization of $2,407,104				3,937,329			3,937,329
Other intangible assets, net of accumulated amortization of $5,897,861 and $5,372,238, respectively				3,842,739			4,361,939

		Total investment in cable television properties		116,890,876			118,921,405

		Total assets	$	123,024,103		$	125,926,194

LIABILITIES AND SHAREHOLDER’S DEFICIT
Current Liabilities:
	Accounts payable		$	154,613		$	1,103,869
	Accrued expenses			5,665,778			6,395,484
	Converter deposits			152,181			157,534
	Subscriber prepayments			1,928,354			1,898,112
	Due to affiliates			616,529			242,741
	Interest rate swap agreements			747,931			1,919,587

		Total current liabilities		9,265,386			11,717,327
Notes payable				170,031,182			171,031,182

		Total liabilities		179,296,568			182,748,509

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 other comprehensive income			59,000			268,000
	Accumulated deficit			(68,690,842	)		(69,449,692	)

		Total shareholder’s deficit		(56,272,465	)		(56,822,315	)

Total liabilities and shareholder’s deficit			$	123,024,103		$	125,926,194

The accompanying notes are an integral part of these balance sheets.

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


				For the six months ended June 30,

				2002			2001

							(restated)
Service revenues				$	30,697,069		$	30,930,182
Expenses:
	Cable system operations (including $161,121 and $164,372, net paid to affiliates in 2002 and 2001, respectively), exclusive of depreciation and amortization shown below				11,532,667			10,843,322
	General and administrative (including $211,968 and $465,553 net paid to affiliates in 2002 and 2001, respectively)				4,519,364			4,908,848
	Management fees paid to parent				1,534,853			1,546,509
	Depreciation and amortization				5,298,394			10,199,118

			Total operating expenses		22,885,278			27,497,797

Income from operations					7,811,791			3,432,385
Other income (expense):
		Interest expense			(8,441,966	)		(9,281,286	)
		Interest income and other, net			24,244			64,837
		Unrealized gain (loss) on interest rate swap agreements			1,380,657			(2,163,529	)
		Loss on disposal of assets			(15,876	)		(15,383	)

					(7,052,941	)		(11,395,361	)

Net income (loss)					758,850			(7,962,976	)

Cumulative effect of change in accounting principle					—			689,000
Reclassification of accumulated other comprehensive income to unrealized gain on interest rate swaps					(209,000	)		(209,000	)

Other comprehensive income					(209,000	)		480,000

Total comprehensive income (loss)				$	549,850		$	(7,482,976	)

The accompanying notes are an integral part of these statements.


				For the three months ended June 30,

				2002			2001

							(restated)
Service revenues				$	15,482,261		$	15,524,527
Expenses:
	Cable system operations (including $88,958 and $79,357, net paid to affiliates in 2002 and 2001, respectively), exclusive of depreciation and amortization shown below				5,787,827			5,348,464
	General and administrative (including $266,086 and $339,210, net paid to affiliates in 2002 and 2001, respectively)				2,389,240			2,552,640
	Management fees paid to parent				774,182			776,860
	Depreciation and amortization				2,661,639			5,135,646

			Total operating expenses		11,612,888			13,813,610

Income from operations					3,869,373			1,710,917
Other income (expense):
		Interest expense			(4,021,660	)		(4,638,672	)
		Interest income and other, net			19,418			28,711
		Unrealized gain (loss) on interest rate swap agreements			412,482			(92,683	)
		Loss on disposal of assets			(10,052	)		(12,194	)

					(3,599,812	)		(4,714,838	)

Net income (loss)					269,561			(3,003,921	)

Reclassification of accumulated other comprehensive income to unrealized gain on interest rate swaps					(105,000	)		(105,000	)

Other comprehensive income					(105,000	)		(105,000	)

Total comprehensive income (loss)				$	164,561		$	(3,108,921	)

The accompanying notes are an integral part of these statements.

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


			For the six months ended June 30,

			2002			2001

						(restated)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)			$	758,850		$	(7,962,976	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
	Depreciation and amortization			5,298,394			10,199,118
	Unrealized (loss) gain on interest rate swap agreements			(1,380,657	)		2,163,529
	Amortization of loan costs			335,991			335,991
	Loss on disposal of assets			15,876			15,383
	(Increase) decrease in operating assets:
		Accounts receivable		(209,964	)		(106,187	)
		Prepaid expenses		157,723			(17,663	)
		Due from affiliates		(15,788	)		(154,636	)
	Increase (decrease) in operating liabilities			(1,678,962	)		(1,267,805	)
		Accounts payable and accrued expenses		(1,678,962	)		(1,267,805	)
		Due to affiliates		373,788			614,068
		Converter deposits		(5,353	)		3,670
		Subscriber prepayments		30,242			330,474

Net cash provided by operating activities				3,680,140			4,152,966

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in cable television properties				(3,623,858	)		(7,560,286	)
Proceeds from disposition of cable system				1,226,088			—
Proceeds from disposal of assets				13,550			14,420
Franchises and other intangibles				(9,423	)		(67,089	)

Net cash used in investing activities				(2,393,643	)		(7,612,955	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable				—			3,000,000
Principal payments on borrowings				(1,000,000	)		—

Net cash (used in) provided by financing activities				(1,000,000	)		3,000,000
INCREASE (DECREASE) IN CASH				286,497			(459,989	)
CASH, beginning of period				2,724,099			2,551,425

CASH, end of period			$	3,010,596		$	2,091,436

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid during the period for interest		$	8,268,429		$	9,029,838

	Cash paid during the period for state income taxes		$	4,881		$	12,604

The accompanying notes are an integral part of these statements.

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

NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2002
(Unaudited)

(1) BASIS OF PRESENTATION:

Interim Financial Reporting

These unaudited financial statements are being filed in conformity with Rule 10-01 of Regulation S-X regarding interim financial statements and do not contain all of the necessary footnote disclosures required for a fair presentation of the consolidated balance sheets, statements of operations 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 June 30, 2002, its consolidated statements of operations for the six and three months ended June 30, 2002 and 2001 and its consolidated statements of cash flows for the six months ended June 30, 2002 and 2001. 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, 2001. Certain amounts have been restated as described below.

Restated Financial Statements

In July, management of Northland Cable Television, Inc. and Subsidiary (the “Company”) became aware of a misclassification in the Company’s financial statements as of, and for the year ended December 31, 2001, the quarterly periods within 2001 and for the quarter ended March 31, 2002. The misclassification relates to the implementation of Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activity”, on January 1, 2001 for those interest rate swap agreements that existed at implementation. Correction of this misclassification results in the reclassification of a non-cash item from the Company’s statement of operations to other comprehensive income in 2001, and included as accumulated other comprehensive income, a component of shareholder’s deficit. This correction has no impact on income from operations, earnings before interest, taxes, depreciation and amortization (EBITDA) or the Company’s calculations of or compliance with the restrictive covenants under the terms of its loan agreement for the periods affected, nor does it affect total shareholder’s deficit at any date.

As of January 1, 2001 the Company had two interest rate swap agreements that expire in August of 2002. Upon implementation of SFAS No. 133, the Company recognized $689,000 as a non-cash, cumulative effect of change in accounting principle in its statement of operations, which represented the fair market value of these interest rate swap agreements at January 1, 2001. This amount should have been classified as a component of accumulated other comprehensive income on the balance sheet upon implementation, and then be amortized into earnings over the remaining term of the swap agreements. Other than the impact of this misclassification in the initial implementation of SFAS No. 133 management believes its ongoing accounting for interest rate swap agreements has been proper.

Management and the Board of Directors of the Company concluded that it was in the best interest of the Company to reissue the financial statements for the periods affected by this misclassification.

Upon completion of the audit of the restated 2001 financial statements, the company will be filing amendments to Form 10-K for the year ended December 31, 2001 and Form 10-Q for the quarterly periods ended March 31, 2001, June 30, 2001, September 30, 2001 and March 31, 2002. However, the financial statements presented in this filing as of December 31, 2001, and for the six and three months ended June 30, 2001 have been restated as follows to correct for this matter:


	As of December 31, 2001

	As Reported			As Restated

	(unaudited)
Balance Sheet Data:
Total assets	$	125,926,194		$	125,926,194
Total Liabilities		182,748,509			182,748,509
Accumulated deficit		(69,181,692	)		(69,449,692	)
Accumulated other comprehensive income		—			268,000
Shareholder’s deficit		(56,822,315	)		(56,822,315	)


	Six Months Ended June 30, 2001						Three Months Ended June 30, 2001

	As Reported			As Restated			As Reported			As Restated

	(unaudited)						(unaudited)
Statements of Operations Data:
Service revenues	$	30,930,182		$	30,930,182		$	15,524,527		$	15,524,527
Income from operations		3,432,385			3,432,385			1,710,917			1,710,917
Interest expense and other		(9,920,832	)		(9,231,832	)		(4,622,155	)		(4,622,155	)
Unrealized gain (loss) on interest rate swap agreements		(1,683,529	)		(2,163,529	)		(197,683	)		(92,683	)
Net loss before cumulative effect of change in accounting principle		(8,171,976	)		(7,962,976	)		(3,108,921	)		(3,003,921	)
Cumulative effect of change in accounting principle		689,000			—			—			—
Net loss		(7,482,976	)		(7,962,976	)		(3,108,921	)		(3,003,921	)
Cumulative effect of change in accounting principle		—			689,000			—			—
Reclassification of other comprehensive income to unrealized gain (loss) on interest rate swap agreements		—			(209,000	)		—			(105,000	)
Other comprehensive income (loss)		—			480,000			—			(105,000	)
Total comprehensive loss		(7,482,976	)		(7,482,976	)		(3,108,921	)		(3,108,921	)

(2) ACQUISITION OF SYSTEMS AND DISPOSITION OF ASSETS

On September 30, 2001 the Company acquired a cable system serving the areas in and around Highlands, North Carolina, serving approximately 3,200 basic subscribers, from an affiliated Limited Partnership. The system was acquired at a price of approximately $4,600,000 and was

financed with approximately $3,800,000 of cash on hand and an in-kind equity contribution from the Company’s parent of $798,850.

On December 21, 2001, the Company sold its cable system serving the areas of Bainbridge Island, Kingston and Hansville, Washington, which represented approximately 6,450 basic subscribers, to TCI Cable Partners’ of St. Louis, L.P. The systems were sold at a price of approximately $19,800,000. The Company recognized a gain of approximately $12,700,000 related to the transaction.

Pro forma operating results of the Company for 2001, assuming the acquisition and dispositions described above had been made at the beginning of 2001, follow:

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents