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 September 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 22 pages. Exhibits index appears on page 17.

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
	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
EX-99.(A)
EX-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)


			September 30,			December 31,
			2002			2001

ASSETS
Current Assets:
	Cash		$	3,977,243		$	2,724,099
	Due from affiliates			995,797			295,650
	Accounts receivable			2,339,130			3,437,560
	Prepaid expenses			691,297			547,480

		Total current assets		8,003,467			7,004,789
Investment in Cable Television Properties:
Property and equipment, net of accumulated depreciation of $60,938,128 and $54,580,070, respectively				55,259,839			57,237,151
Franchise agreements, net of accumulated amortization of $48,279,931				53,393,281			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 $6,157,012 and $5,372,238, respectively				3,583,588			4,361,939

		Total investment in cable television properties		116,174,037			118,921,405

		Total assets	$	124,177,504		$	125,926,194

LIABILITIES AND SHAREHOLDER’S DEFICIT
Current Liabilities:
	Accounts payable		$	268,784		$	1,103,869
	Accrued expenses			8,658,779			6,395,484
	Converter deposits			127,231			157,534
	Subscriber prepayments			1,745,470			1,898,112
	Due to affiliates			162,428			242,741
	Current portion of notes payable			1,387,959			—
	Interest rate swap agreements			206,177			1,919,587

		Total current liabilities		12,556,828			11,717,327
Notes payable				167,643,223			171,031,182

		Total liabilities		180,200,051			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			—			268,000
	Accumulated deficit			(68,381,924	)		(69,449,692	)

		Total shareholder’s deficit		(56,022,547	)		(56,822,315	)

Total liabilities and shareholder’s deficit			$	124,177,504		$	125,926,194

The accompanying notes are an integral part of these consolidated 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 nine months ended September 30,

				2002			2001

Service revenues				$	45,998,690		$	46,384,483
Expenses:
	Cable system operations (including $248,345 and $206,193, net paid to affiliates in 2002 and 2001, respectively), exclusive of depreciation and amortization shown below				17,429,116			16,333,213
	General and administrative (including $100,574 and $616,500 net paid to affiliates in 2002 and 2001, respectively)				6,670,094			7,426,397
	Management fees paid to parent				2,299,934			2,319,224
	Depreciation and amortization				7,973,371			15,370,850

			Total operating expenses		34,372,515			41,449,684

Income from operations					11,626,175			4,934,799
Other income (expense):
	Interest expense				(12,318,498	)		(13,790,081	)
	Interest income and other, net				37,977			95,578
	Unrealized gain (loss) on interest rate swap agreements				1,981,411			(2,470,568	)
	(Loss) gain on disposal of assets				(259,297	)		28,320

					(10,558,407	)		(16,136,751	)

Net income (loss)					1,067,768			(11,201,952	)

Other comprehensive income (loss):
		Cumulative effect of change in accounting principle			—			689,000
		Reclassification of accumulated other comprehensive income to unrealized gain (loss) on interest rate swaps			(268,000	)		(315,000	)

			Other comprehensive (loss) income		(268,000	)		374,000

Total comprehensive income (loss)				$	799,768		$	(10,827,952	)

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


				For the three months ended September 30,

				2002			2001

Service revenues				$	15,301,621		$	15,454,301
Expenses:
	Cable system operations (including $87,224 and $29,488, net paid to affiliates in 2002 and 2001, respectively), exclusive of depreciation and amortization shown below				5,896,448			5,489,892
	General and administrative (including $111,394, net received from affiliates in 2002, and $150,947, net paid to affiliates 2001)				2,150,732			2,517,549
	Management fees paid to parent				765,080			772,715
	Depreciation and amortization				2,674,976			5,171,732

			Total operating expenses		11,487,236			13,951,888

Income from operations					3,814,385			1,502,413
Other income (expense):
	Interest expense				(3,876,532	)		(4,508,795	)
	Interest income and other, net				13,733			30,741
	Unrealized gain (loss) on interest rate swap agreements				600,754			(307,039	)
	(Loss) gain on disposal of assets				(243,421	)		43,704

					(3,505,466	)		(4,741,389	)

Net income (loss)					308,919			(3,238,976	)

Other comprehensive loss:
		Reclassification of accumulated other comprehensive income to unrealized gain (loss) on interest rate swaps			(59,000	)		(106,000	)

			Other comprehensive loss		(59,000	)		(106,000	)

Total comprehensive income (loss)				$	249,919		$	(3,344,976	)

The accompanying notes are an integral part of these consolidated 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,

			2002			2001

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)			$	1,067,768		$	(11,201,952	)
Adjustments to reconcile net income (loss) to cash provided by operating activities:
	Depreciation and amortization			7,973,371			15,370,850
	Unrealized (gain) loss on interest rate swap agreements			(1,981,411	)		2,470,568
	Amortization of loan costs			503,987			503,987
	Loss (gain) on disposal of assets			259,297			(28,320	)
	(Increase) decrease in operating assets:
		Accounts receivable		(127,658	)		18,994
		Prepaid expenses		(143,817	)		(193,119	)
		Due from affiliates		(700,147	)		(127,300	)
	Increase (decrease) in operating liabilities
		Accounts payable and accrued expenses		1,428,210			1,943,563
		Due to affiliates		(80,313	)		720,859
		Converter deposits		(30,303	)		23,987
		Subscriber prepayments		(152,642	)		63,666

Net cash provided by operating activities				8,016,342			9,565,783

CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in cable television properties				(5,753,630	)		(9,604,380	)
Proceeds from December 2001 disposition of cable system				999,562			—
Proceeds from disposal of assets				5,588			210,888
Franchises and other intangibles				(14,718	)		(96,494	)

Net cash used in investing activities				(4,763,198	)		(9,489,986	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable				—			3,000,000
Principal payments on borrowings				(2,000,000	)		—
Loan fees and other costs incurred				—			(44,021	)

Net cash (used in) provided by financing activities				(2,000,000	)		2,955,979
INCREASE IN CASH				1,253,144			3,031,776
CASH, beginning of period				2,724,099			2,551,425

CASH, end of period			$	3,977,243		$	5,583,201

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
	Cash paid during the period for interest		$	9,700,616		$	10,716,151

	Cash paid during the period for state income taxes		$	9,363		$	13,051

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

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

NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2002
(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 (loss) 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, 2002, its consolidated statements of operations and comprehensive income (loss) for the nine and three months ended September 30, 2002 and 2001 and its consolidated statements of cash flows for the nine months ended September 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/A for the year ended December 31, 2001 filed on November 8, 2002.

(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 occurred at the beginning of 2001, follow:


	Nine Months Ended			Three Months Ended
	September 30, 2001			September 30, 2001

	(unaudited)
Service Revenues	$	44,700,000		$	15,000,000

Net Loss	$	(10,500,000	)	$	(3,000,000	)

(3) INTANGIBLE ASSETS — SFAS NO. 142

Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that the Company cease amortization of goodwill and other intangible assets determined to have indefinite lives, and establishes a new method of testing these assets for impairment on an annual basis 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 or if the fair values of intangible assets with indefinite lives falls below their carrying value on an annual basis. The amortization of existing goodwill ceased on December 31, 2001. The Company determined that its franchises met the definition of indefinite lived assets. Accordingly, amortization of these assets also ceased on December 31, 2001. The Company tested these intangibles for impairment upon adoption of the new standard and determined that the fair value of the assets exceeded their carrying value. The Company will continue to test these assets for impairment annually, or more frequently as warranted by events or changes in circumstances. The book value of the Company’s intangible assets is presented in the following table:


		September 30, 2002							December 31, 2001

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

Indefinite-lived intangible assets:
	Franchises	$	101,673,212	$	(48,279,931	)	$	53,393,281	$	101,664,917	$	(48,279,931	)	$	53,384,986
	Goodwill		6,344,433		(2,407,104	)		3,937,329		6,344,433		(2,407,104	)		3,937,329

			108,017,645		(50,687,035	)		57,330,610		108,009,350		(50,687,035	)		57,322,315
Definite-lived intangible assets:
	Other intangible assets		9,740,600		(6,157,012	)		3,583,588		9,734,177		(5,372,238	)		4,361,939

		$	117,758,245	$	(56,844,047	)	$	60,914,198	$	117,743,527	$	(56,059,273	)	$	61,684,254

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[X]		Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the quarterly period ended September 30, 2002

[ ]		Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
		For the transition period from ______ to ______