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FORM 10-K—ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended DECEMBER 31, 2002

For the transition period from       to

Commission file number 333-43157

NORTHLAND CABLE TELEVISION, INC.

AND SUBSIDIARY GUARANTOR:

NORTHLAND CABLE NEWS, INC.

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

Securities registered pursuant to including Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

10 1/4% Senior Subordinated Notes due 2007

     Indicate by check mark whether registrant 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, and has been subject to such filing requirements for the past 90 days.

Yes [X] No [   ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Yes [   ] No [ X ]

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

Yes [   ] No [ X ]

     As of December 31, 2002 the Company had 10,000 shares outstanding, all of which are held by an affiliate.

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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.

PART I

ITEM 1.    BUSINESS

Northland Cable Television, Inc. (the “Company”), a Washington Corporation, was formed in October 1985 and owns and operates 36 cable television systems serving small cities, towns, and rural communities in California, Georgia, South Carolina, North Carolina, Texas and Washington (collectively the “Systems”). The Company is a wholly owned subsidiary of Northland Telecommunications Corporation (“NTC”), which, together with the Company and its other affiliates, has specialized in providing cable television and related services in non-urban markets since 1981. Other subsidiaries of NTC include:

			NORTHLAND COMMUNICATIONS CORPORATION (“NCC”) - formed in March 1981 and principally involved in the ownership and management of cable television systems. NCC is the sole shareholder of Northland Cable Properties, Inc.

NORTHLAND CABLE PROPERTIES, INC. (“NCPI”) - formed in February 1995 and principally involved in the direct ownership of local cable television systems. NCPI is the majority member of Northland Cable Ventures LLC.

			NORTHLAND CABLE VENTURES LLC (“NCV”) - formed in June 1998 and principally involved in the direct ownership of local cable television systems. NCV’s minority member is an LLC principally owned by executives of the Company.

			NORTHLAND CABLE SERVICES CORPORATION (“NCSC”) - formed in August 1993 and principally involved in the development and production of computer software used in billing and financial record keeping for Northland-affiliated cable systems. Also provides technical support associated with the build out and upgrade of Northland affiliated cable systems. Sole shareholder of Cable Ad-Concepts.

CABLE AD-CONCEPTS, INC. (CAC) - formed in November 1993 and principally involved in the sale, development and production of video commercial advertisements that are cablecast on Northland- affiliated cable systems.

			NORTHLAND MEDIA, INC. - formed in April 1995 as a holding company. Sole shareholder of the two following entities:

			STATESBORO MEDIA, INC. - formed in April 1995 and principally involved in operating an AM radio station serving the community of Statesboro, Georgia and surrounding areas.

CORSICANA MEDIA, INC. - purchased in September 1998 from an affiliate and principally involved in operating an AM radio station serving the community of Corsicana, Texas and surrounding areas.

		Since closing its initial acquisition in 1986, the Company has continued to target, negotiate and complete acquisitions of cable systems and integrate the operation of such systems. The Company has increased its basic and premium subscribers through strategic acquisitions, selective system upgrades and extensions of its cable systems. As of December 31, 2002, the total number of basic subscribers served by the Systems was 108,269, and the Company’s penetration rate (basic subscribers as a percentage of homes passed) was approximately 56%.
		The Company has 88 non-exclusive franchises to operate the Systems. These franchises, which will expire at various dates through 2022, have been granted by local and county authorities in the areas in which the Systems operate. The Company has historically been able to renew its franchises without incurring significant costs, and management believes that any particular franchise will be renewed or that it can be renewed on commercially favorable terms, however, no assurances can be given.

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		Franchise fees are paid to the granting governmental authorities. These fees vary between 1% and 5% and are generally based on the respective gross revenues of the Systems in a particular community. The franchises may be terminated for failure to comply with their respective conditions.
		THE SYSTEMS
		The Company’s systems are divided into four geographical regions. Unless otherwise indicated, all operating statistical data set forth in the following table and the region-by-region description of the Systems, which follows, is as of December 31, 2002. The system serving the area of Port Angeles, Washington was sold to an unaffiliated third party on March 11, 2003.

	(1)	Homes passed refers to estimates of the number of dwelling units in a particular community that can be connected to the distribution system without any further extension of principal transmission lines. Such estimates are based upon a variety of sources, including billing records, house counts, city directories and other local sources.
	(2)	The number of basic subscribers has been computed by adding the actual number of subscribers for all non-bulk accounts and the equivalent subscribers for all bulk accounts. The number of such equivalent subscribers has been calculated by dividing aggregate basic service revenue for bulk accounts by the full basic service rate for the community in which the account is located.
	(3)	Percentage of all basic subscribers based on an aggregate of all Systems.
	(4)	Premium service units represent the number of subscriptions to premium channels.
	(5)	EBITDA represents income from operations excluding the effect of depreciation and amortization expense. EBITDA margin represents EBITDA as a percentage of revenue. EBITDA is commonly used to analyze companies on the basis of leverage and liquidity. However, EBITDA is not a measure 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 should not be construed as a substitute for operating income or as a better measure of liquidity than cash flow from operating activities, which are determined in accordance with GAAP. We have presented EBITDA to provide additional information with respect to our ability to meet future debt service, capital expenditure and working capital requirements (See reconciliation of EBITDA to cash flow from operations included in the Liquidity and Capital Resources section of Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations”).
		The South Carolina/North Carolina/Georgia Region. The South Carolina/North Carolina/Georgia Region consists of eight headends serving 58,022 subscribers. Four headends, located in Aiken, Greenwood and Clemson, South Carolina and Statesboro, Georgia, serve 53,507 subscribers or 92.2% of the total subscribers in the region. The region is currently operated from five primary local offices located in Aiken, Greenwood, Clemson, Statesboro and Highlands, North Carolina.
		Clemson, South Carolina. The Clemson area systems serve 13,119 subscribers from two headends. The Clemson system, which is home to Clemson University, is the largest system, serving 12,925 subscribers. Approximately 85% of the homes passed are served by plant with 450 MHz or better channel capacity. The Company began offering digital television service in the Clemson system during 2000. Additionally, the Clemson area systems have a strong advertising sales effort, and their principal office and headend sites are owned by the Company.
		Aiken, South Carolina. The Aiken area systems serve 17,955 subscribers from three headends. The Aiken headend serves 89.8% of the subscribers, has a 550 MHz channel capacity and is addressable. The Company began offering digital television service in the Aiken system during 2001. The Aiken area has a diversified industrial base consisting of local, national and foreign manufacturing companies covering such diverse industries such as pharmaceuticals, textiles, industrial

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		robotics, gardening seeds and prefabricated homes. The largest employer in the Aiken area is the Westinghouse Savannah River Company. The office and two of the headend sites are owned by the Company.
		Greenwood, South Carolina. The Greenwood system serves 15,932 subscribers from a single headend and has a minimum of 450 MHz channel capacity. The Company began the upgrade of the Greenwood system to 550 MHz channel capacity in 2000, with approximately 69% of the homes passed being served by plant with 550 MHz channel capacity by year-end 2002. Although this system employed fiber optic technology, the Company has constructed an expansion of the fiber optic backbone designed to support 860 MHz capacity. Additionally, a fiber optic backbone interconnect was constructed to the Saluda and Edgefield systems for system upgrades and connection, currently in process. The Company began offering digital television service in the Greenwood system during 2001. The Greenwood area has a diversified industrial base consisting of local, national and foreign manufacturing companies covering such diverse industries such as pharmaceuticals, photo film textiles, industrial robotics, gardening seeds and prefabricated homes. The Company owns its office and headend site.
		Statesboro, Georgia. The Statesboro system serves 8,526 subscribers from a single headend with approximately 95% of the subscribers served by 450 MHz channel capacity. The Company began offering digital television service in the Statesboro system during 2000. The Statesboro system has a strong advertising sales effort and its office and headend site are owned by the Company. Statesboro is home to Georgia Southern University.
		Highlands, North Carolina. The Highlands system serves 2,490 subscribers from a single headend with approximately 83% of the subscribers served by 330 MHz channel capacity and 17% served by 450 MHz capacity. The system currently utilizes and plans to expand a fiber backbone designed to ultimately support 860 MHz capacity. Highlands is located on a plateau of the Blue Ridge Mountains where Georgia, North Carolina and South Carolina meet. The Highlands area has long been a vacation destination for affluent families from many Southern cities. The area is encircled by 200,000 acres of the End National Forest. One of the main attractions of Highlands is the area’s exclusive golf clubs. The system experiences seasonality in its subscriber base, the area’s low season (winter) and high season (summer) fluctuate by approximately 700 basic subscribers.
		The Washington Region. The Washington Region serves 15,206 subscribers from four headends and is operated from two offices located in Port Angeles and Moses Lake, Washington. The two largest headends serve 11,656 subscribers, or 76.7% of the Company’s total subscribers in the region.
		Port Angeles, Washington. The Port Angeles system serves 5,718 subscribers from one headend. The system utilizes a fiber optic backbone designed to support a 750 MHz capacity with 63% of the subscribers served by 550 MHz capacity plant and 37% served by 450 MHz capacity plant. The Company began offering digital television service in the Port Angeles system during 2000. Port Angeles is located near the Olympic National Park and is the county seat for Clallam County. The system’s office and headend sites are owned by the Company.
		Moses Lake, Washington. The Moses Lake area systems serve 9,488 subscribers from three headends. The Moses Lake headend serves 62.6% of the subscribers and was recently upgraded to 450 MHz channel capacity, which included the expansion of the fiber optic backbone designed to support a 750 MHz capacity. The Company began offering digital television service in the Moses Lake system during 1999. The office, three headend sites and a microwave site are owned by the Company. The three headends are interconnected via microwave for the delivery of certain off-air broadcast signals imported from the Seattle and Spokane, Washington markets. Each system maintains a separate headend facility for reception and distribution of satellite signals. An upgrade of the Othello system to 450 MHz was recently completed. The Ephrata system is currently being upgraded to 550 MHz capacity with completion projected by the end of 2003.
		The Texas Region. The Texas Region is characterized by smaller systems, with 17 headends serving 24,141 subscribers. Eight headends currently serve 83.9% of the subscribers. Additionally, the Company’s management structure allows it to achieve operating efficiencies, as only five local offices are required to service the region.
		Stephenville, Texas. The Stephenville area systems serve 5,333 subscribers from a cluster of four headends. Stephenville is home to Tarleton State College, an affiliate of Texas A&M University. All of the subscribers are currently served by plant with 450 MHz or better channel capacity. The Company began offering digital television service in the Stephenville system during 2001. The office and three of the headend sites are owned by the Company.
		Mexia, Texas. The Mexia area systems serve 10,497 subscribers from a cluster of nine headends, with the two largest headends, Mexia and Crockett, serving 54.1% of the subscribers. Approximately 87.7% of subscribers currently are serviced by plant with 400 MHz capacity, with the Mexia headend utilizing a fiber optic backbone. The Company began

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		offering digital television service in the Mexia system during 2001. The Mexia area has a diversified economy with Nucor Steel, Inc. as a major employer.
		Marble Falls, Texas. The Marble Falls area systems serve 6,948 subscribers from a cluster of three headends. In June 2000 the Company completed a fiber optic interconnect of the Burnet system to the Marble Falls system, thereby eliminating an additional headend. With the completion of the Burnet interconnect, approximately 80.9% of the subscribers in the area are served from a single headend. The combination office and headend site in Marble Falls is owned by the Company. Over the next two to three years the remaining systems in the Marble Falls area are scheduled to be upgraded to 400 MHz or 550 MHz capacity. The Company began offering digital television service in the Marble Falls system during 2001. The Marble Falls region is a popular outdoor recreation and retirement area for families from nearby Austin and San Antonio.
		The remaining headend in the Texas region, located in the Navasota, serves 1,363 subscribers, with all of the subscribers served by plant with 400 MHz capacity or better.
		The California Region. The California Region serves 10,900 subscribers from seven headends, which are operated from three offices located in Yreka, Oakhurst and Mount Shasta, California. Three headends serve 9,530 subscribers or 87.4% of the total subscribers in the region.
		Oakhurst, California. The Oakhurst, California area is one of the entrances to Yosemite National Park. The Oakhurst area systems serve 3,874 subscribers from a cluster of five headends. The Oakhurst headend serves 64.6% of the subscribers in the area. An upgrade of the Oakhurst system to 450 MHz capacity with approximately 90.0% of the system’s subscribers served was recently completed. The Company began offering digital television service in the Oakhurst system during 2001.
		Yreka, California. The Yreka, California system, located near Mt. Shasta National Park, serves 2,918 subscribers from a single headend. Yreka is the county seat of Siskiyou County. The Yreka system currently has a plant capacity of 75% 450 MHz and 25% 400 MHz. An ongoing upgrade of the system to 450 MHz capacity is in process with completion projected by year-end 2004. The Company began offering digital television service in the Yreka system during 2001. The Yreka office and headend sites are owned by the Company.
		Mount Shasta, California. The Mount Shasta, California system, serves 4,108 subscribers from a primary headend and is located in close proximity to the Company’s Yreka system. The system sits at the base of 14,162 foot Mt. Shasta, which attracts tourists year round with skiing, hiking and golf courses nearby. The communities of Mount Shasta, Dunsmuir and Weed are connected by fiber optic backbone and the community of McCloud is connected via AML microwave. Portions of the system serving approximately 85% of the subscribers are currently at 330 MHz capacity with the remaining 15% at 550 MHz. The completion of an upgrade to 550 MHz is planned. The Company began offering digital television service in the Mount Shasta system in 2000. The Mount Shasta area has a strong economic base. Forestry, forest services and tourism are the major industries.
		As of December 31, 2002, the Company had approximately 171 full-time employees and 6 part-time employees. Nine of the Company’s employees at its Moses Lake, Washington system are represented by a labor union. The Company considers its relations with its employees to be good.
		The Company’s cable television business generally is not considered seasonal. Its business is not dependent upon a single customer or a few customers, the loss of any one or more of which would have a material adverse effect on its business. No customer accounts for 10% or more of revenues. No material portion of the Company’s business is subject to re-negotiation of profits or termination of contracts or subcontracts at the election of any governmental unit, except that franchise agreements may be terminated or modified by the franchising authorities as noted above. During the last year, the Company did not engage in any research and development activities.
		Company revenues are derived primarily from monthly payments received from cable television subscribers. Subscribers are divided into four categories: basic subscribers, expanded basic subscribers, premium subscribers, and digital subscribers. “Basic subscribers” are households that subscribe to the basic level of service, which generally provides access to the three major television networks (ABC, NBC and CBS), a few independent local stations, PBS (the Public Broadcasting System) and certain satellite programming services, such as ESPN, CNN or The Discovery Channel. “Expanded basic subscribers” are households that subscribe to an additional level of programming service, the content of which varies from system to system. “Premium subscribers” are households that subscribe to one or more “pay channels” in addition to the basic service. These pay channels include such services as Showtime, Home Box Office, Cinemax, The

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		Movie Channel, Encore and Starz. “Digital subscribers” are those who subscribe to digitally delivered video and audio services where offered.
		COMPETITION
		Cable television systems currently experience competition from several sources, including broadcast television, cable overbuilds, direct broadcast satellite services, private cable and multichannel multipoint distribution service systems. Cable television systems are also in competition in various degrees with other communications and entertainment media, including motion pictures, home video cassette recorders, Internet data delivery and Internet video delivery. The following provides a summary description of these sources of competition.
		Broadcast Television
		Cable television systems have traditionally competed with broadcast television, which consists of television signals that the viewer is able to receive directly on the viewer’s television without charge using an “off-air” antenna. The extent of this competition is dependent in part upon the quality and quantity of signals available by antenna reception as compared to the services provided by the local cable system. Accordingly, cable operators find it less difficult to obtain higher penetration rates in rural areas (where signals available off-air are limited) than in metropolitan areas where numerous, high quality off-air signals are often available without the aid of cable television systems. The recent licensing of digital spectrum by the FCC will provide incumbent broadcast licensees with the ability to deliver high definition television pictures and multiple digital-quality program streams, as well as advanced digital services such as subscription video.
		Overbuilds
		Cable television franchises are not exclusive, so that more than one cable television system may be built in the same area. This is known as an “overbuild.” Overbuilds have the potential to result in loss of revenues to the operator of the original cable television system. Constructing and developing a cable television system is a capital intensive process, and it is often difficult for a new cable system operator to create a marketing edge over the existing system. Generally, an overbuilder would be required to obtain franchises from the local governmental authorities, although in some instances, the overbuilder could be the local government itself. In any case, an overbuilder would be required to obtain programming contracts from entertainment programmers and, in most cases, would have to build a complete cable system such as headends, trunk lines and drops to individual subscribers homes throughout the franchise areas.
		Federal cross-ownership restrictions historically limited entry by local telephone companies into the cable television business. The 1996 Telecom Act eliminated this cross-ownership restriction. See “Regulation and Legislation” below. It is therefore possible for companies with considerable resources to overbuild existing cable operators and enter the business. Several telephone companies have begun seeking cable television franchises from local governmental authorities and constructing cable television systems. The Company cannot predict at this time the extent of telephone company competition that will emerge in areas served by the Company’s cable television systems. The entry of electric utility companies into the cable television business, as now authorized by the 1996 Telecom Act, could have a similar adverse effect.
		Direct Broadcast Satellite Service
		High powered direct-to-home satellites have made possible the wide-scale delivery of programming to individuals throughout the United States using small roof-top or wall-mounted antennas. The two leading DBS providers have experienced dramatic growth over the last several years and together now serve over 17 million customers nationwide. Companies offering direct broadcast satellite service use video compression technology to increase channel capacity of their systems to more than 200 channels and to provide packages of movies, satellite networks and other program services which are competitive to those of cable television systems. DBS companies historically faced significant legal and technological impediments to providing popular local broadcast programming to their customers. Recent federal legislation reduced this competitive disadvantage. Nevertheless, technological limitations still affect DBS companies, and it is expected that DBS companies will offer local broadcast programming only in the top 50 to 100 U.S. markets for the foreseeable future. The availability of DBS equipment at reasonable prices (often free with promotions), and the relative attractiveness of the programming options offered by the cable television industry and direct broadcast satellite competitors will impact the ability of providers of DBS service to compete successfully with the cable television industry. Recently, the two leading DBS providers announced their intent to merge into one DBS provider, which, according to the companies’ FCC filings, would enable the merged company to offer services such as local broadcast programming in all U.S. markets

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		and high-speed Internet access nationwide; if this merger is approved by both the FCC and Department of Justice, DBS may become a stronger competitor to the cable television industry.
		Private Cable
		Additional competition is provided by private cable television systems, known as satellite master antenna television, serving multi-unit dwellings such as condominiums, apartment complexes, and private residential communities. These private cable systems may enter into exclusive agreements with apartment owners and homeowners associations, which may preclude operators of franchised systems from serving residents of these private complexes. Operators of private cable, which do not cross public rights of way, are free from the federal, state and local regulatory requirements imposed on franchised cable television operators.
		Multichannel Multipoint Distribution Service Systems
		Cable television systems also compete with wireless program distribution services such as multichannel, multipoint distribution service systems, commonly called wireless cable, which are licensed to serve specific areas. Multichannel, multipoint distribution service systems use low-power microwave frequencies to transmit television programming over-the-air to paying subscribers. This industry is less capital intensive than the cable television industry, and it is therefore more practical to construct systems using this technology in areas of lower subscriber penetration.
		REGULATION AND LEGISLATION
		Summary
		The following summary addresses the key regulatory developments and legislation affecting the cable television industry. Other existing federal legislation and regulations, copyright licensing and, in many jurisdictions, state and local franchise requirements are currently the subject of a variety of judicial proceedings, legislative hearings and administrative and legislative proposals, which could change, in varying degrees, the manner in which cable television systems operate. Neither the outcome of these proceedings nor their impact upon the cable television industry or the Company can be predicted at this time.
		The Company expects to adapt its business to adjust to the changes that may be required under any scenario of regulation. At this time, the Company cannot assess the effects, if any, that present regulation may have on the Company’s operations and potential appreciation of its Systems. There can be no assurance that the final form of regulation will not have a material adverse impact on the Company’s operations.
		The operation of a cable system is extensively regulated by the FCC, some state governments and most local governments. The 1996 Telecommunications Act has altered the regulatory structure governing the nation’s communications providers. It removes barriers to competition in both the cable television market and the local telephone market. Among other things, it also reduces the scope of cable rate regulation and encourages additional competition in the video programming industry by allowing local telephone companies to provide video programming in their own telephone service areas.
		The 1996 Telecommunications Act requires the FCC to undertake a host of implementing rulemakings. Moreover, Congress and the FCC have frequently revisited the subject of cable regulation. Future legislative and regulatory changes could adversely affect the Company’s operations.
		Cable Rate Regulation
		The 1992 Cable Act imposed an extensive rate regulation regime on the cable television industry, which limited the ability of cable companies to increase subscriber fees. Under that regime, all cable systems were subject to rate regulation, unless they face “effective competition” in their local franchise area. Federal law now defines “effective competition” on a community-specific basis as requiring satisfaction of conditions rarely satisfied in the current marketplace, although this may change in light of emerging DBS competition.
		Although the FCC established the underlying regulatory scheme, local government units, commonly referred to as local franchising authorities, are primarily responsible for administering the regulation of the lowest level of cable service called the basic service tier. The basic service tier typically contains local broadcast stations and public, educational, and government access channels. Before a local franchising authority begins basic service rate regulation, it must certify to the FCC that it will follow applicable federal rules. Many local franchising authorities have voluntarily declined to exercise

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		their authority to regulate basic service rates. Local franchising authorities also have primary responsibility for regulating cable equipment rates. Under federal law, charges for various types of cable equipment must be unbundled from each other and from monthly charges for programming services.
		As of December 31, 2002, approximately 10% of the Company’s local franchising authorities were certified to regulate basic tier rates. The 1992 Cable Act permits communities to certify and regulate rates at any time, so that it is possible that additional localities served by the systems may choose to certify and regulate rates in the future.
		The FCC itself historically administered rate regulation of cable programming service tiers, which represent the expanded level of packaged, non-“premium”, programming services typically containing satellite-delivered programming. The FCC’s authority, however, with respect to smaller operators like the Company ended in 1996.
		Under the rate regulations of the FCC, most cable systems were required to reduce their basic service tier and cable programming service tier rates in 1993 and 1994, and have since had their rate increases governed by a complicated price cap scheme that allows for the recovery of inflation and certain increased costs, as well as providing some incentive for expanding channel carriage. The FCC has modified its rate adjustment regulations to allow for annual rate increases and to minimize previous problems associated with regulatory lag. Operators also have the opportunity to bypass this “benchmark” regulatory scheme in favor of traditional “cost-of-service” regulation in cases where the latter methodology appears favorable. Cost of service regulation is a traditional form of rate regulation, under which a utility is allowed to recover its costs of providing the regulated service, plus a reasonable profit. In a particular effort to ease the regulatory burden on small cable systems, the FCC created special rate rules applicable for systems with fewer than 15,000 subscribers owned by an operator with fewer than 400,000 subscribers. The special rate rules allow for a simplified cost-of-service showing. All of the Company’s systems are eligible for these simplified cost-of-service rules (two pursuant to waivers granted by the FCC), and have calculated rates generally in accordance with those rules. To the extent the Company’s systems remain rate regulated on the basic service tier, this regulatory option affords the Company significant regulatory options.
		The FCC and Congress have provided various forms of rate relief for smaller cable systems owned by smaller operators. Premium cable services offered on a per-channel or per-program basis remain unregulated, as do affirmatively marketed packages consisting entirely of new programming product. However, federal law requires that the basic service tier be offered to all cable subscribers and limits the ability of operators to require purchase of any cable programming service tier if a customer seeks to purchase premium services offered on a per-channel or per-program basis, subject to a technology exception which sunsets in October 2002.
		Regulation by the FCC of cable programming service tier rates for all systems, regardless of size, sunset pursuant to the 1996 Telecom Act on March 31, 1999. Certain legislators, however, have called for new rate regulations if unregulated cost rates increase dramatically. Should this occur, all rate deregulation including that applicable to small operators like the Company could be jeopardized. The 1996 Telecom Act also relaxes existing “uniform rate” requirements by specifying that uniform rate requirements do not apply where the operator faces “effective competition,” and by exempting bulk discounts to multiple dwelling units, although complaints about predatory pricing still may be made to the FCC.
		Cable Entry Into Telecommunication
		The 1996 Telecom Act creates a more favorable environment for us to provide telecommunications services beyond traditional video delivery. It provides that no state or local laws or regulations may prohibit or have the effect of prohibiting any entity from providing any interstate or intrastate telecommunications service. A cable operator is authorized under the 1996 Telecom Act to provide telecommunications services without obtaining a separate local franchise. States are authorized, however, to impose “competitively neutral” requirements regarding universal service, public safety and welfare, service quality, and consumer protection. State and local governments also retain their authority to manage the public rights-of-way and may require reasonable, competitively neutral compensation for management of the public rights-of-way when cable operators provide telecommunications service. The favorable pole attachment rates afforded cable operators under federal law can be gradually increased by utility companies owning the poles, beginning in 2001, if the operator provides telecommunications service, as well as cable service, over its plant.
		Internet Service
		There is at present no significant federal regulation of cable system delivery of Internet services. So far, cable operators are experiencing many victories where regulation is attempted. For example, many local franchising authorities were unsuccessful in their attempts to impose mandatory Internet access requirements as part of cable franchise renewals or transfers. A federal district court in Portland, Oregon upheld the legal ability of local franchising authority to impose these

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		types of conditions, but such ruling was reversed by the Ninth Circuit Court of Appeals. Additionally, In March 2002, the FCC adopted a Declaratory Ruling, concluding that cable modem service is properly classified as an interstate information service and is therefore subject to FCC jurisdiction. For now, this leaves cable modem service exempt from open access requirements. However, the FCC simultaneously adopted a Notice of Proposed Rulemaking to determine whether, in light of marketplace developments, it is necessary or appropriate at this time to require access over cable systems by multiple Internet service providers, and whether (and to what extent) cable modem service should be regulated by state and local franchising authorities. Any increased regulation could burden the capacity of cable systems and complicate any plans the Company may have or develop for providing Internet service.
		Many utilities were unsuccessful in attempting to impose unduly burdensome pole attachment rental fees for cable operator’s provision of Internet access services when the U.S. Supreme Court recently ruled that cable television systems may deliver high-speed Internet access and remain within the protections of Section 703 of the Telecommunications Act of 1996 (the “Pole Attachment Act”). National Cable & Telecommunications Assoc. v. Gulf Power Co., Nos. 00-832 and 00-843, 534 U.S. (January 16, 2002). The U.S. Supreme Court reversed the Eleventh Circuit’s decision to the contrary and sustained the FCC decision that applied the Pole Attachment Act’s rate formula and other regulatory protections to cable television systems’ attachments over which commingled cable television and cable modem services are provided.
		Telephone Entry Into Cable Television
		The 1996 Telecom Act allows telephone companies to compete directly with cable operators by repealing the historic telephone company/cable cross-ownership ban. Local exchange carriers, including the regional telephone companies, can now compete with cable operators both inside and outside their telephone service areas with certain regulatory safeguards. Because of their resources, local exchange carriers could be formidable competitors to traditional cable operators. Various local exchange carriers currently are providing video programming services within their telephone service areas through a variety of distribution methods, including both the deployment of broadband wire facilities and the use of wireless transmission.
		Under the 1996 Telecom Act, local exchange carriers or any other cable competitor providing video programming to subscribers through broadband wire should be regulated as a traditional cable operator, subject to local franchising and federal regulatory requirements, unless the local exchange carrier or other cable competitor elects to deploy its broadband plant as an open video system. To qualify for favorable open video system status, the competitor must reserve two-thirds of the system’s activated channels for unaffiliated entities. The Fifth Circuit Court of Appeals reversed certain of the FCC’s open video system rules, including its preemption of local franchising. The FCC revised its OVS rules to eliminate this general preemption, thereby leaving franchising discretion to local and state authorities. It is unclear what effect this ruling will have on entities pursuing open video system operation.
		Although local exchange carriers and cable operators can now expand their offerings across traditional service boundaries, the general prohibition remains on local exchange carrier buyouts of co-located cable systems. Co-located cable systems are cable systems serving an overlapping territory. Cable operator buyouts of co-located local exchange carrier systems, and joint ventures between cable operators and local exchange carriers in the same market also are prohibited. The 1996 Telecom Act provides a few limited exceptions to this buyout prohibition, including a carefully circumscribed “rural exemption.” The 1996 Telecom Act also provides the FCC with the limited authority to grant waivers of the buyout prohibition.
		Electric Utility Entry Into Telecommunications/Cable Television
		The 1996 Telecom Act provides that registered utility holding companies and subsidiaries may provide telecommunications services, including cable television, notwithstanding the Public Utility Holding Company Act. Electric utilities must establish separate subsidiaries, known as “exempt telecommunications companies” and must apply to the FCC for operating authority. Like telephone companies, electric utilities have substantial resources at their disposal, and could be formidable competitors to traditional cable systems. Several of these utilities have been granted broad authority by the FCC to engage in activities, which could include the provision of video programming.
		Additional Ownership Restrictions
		The 1996 Telecom Act eliminates statutory restrictions on broadcast/cable cross-ownership, including broadcast network/cable restrictions, but leaves in place existing FCC regulations prohibiting local cross-ownership between co-located television stations and cable systems. However, in February 2002, the U.S. Court of Appeals for the D.C. Circuit found such local cross-ownership rule to be unlawful and vacated such rule. The 1996 Telecommunications Act also eliminates the three year holding period required under the 1992 Cable Act’s “anti-trafficking” provision. The 1996 Cable

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		Act leaves in place existing restrictions on cable cross-ownership with satellite master antenna television and multichannel multipoint distribution service facilities, but lifts those restrictions where the cable operator is subject to effective competition. FCC regulations permit cable operators to own and operate satellite master antenna television systems within their franchise area, provided that their operation is consistent with local cable franchise requirements.
		Pursuant to the 1992 Cable Act, the FCC adopted rules precluding a cable system from devoting more than 40% of its activated channel capacity to the carriage of affiliated national video program services. Although the 1992 Cable Act also precluded any cable operator from serving more than 30% of all U.S. domestic cable subscribers, this provision was stayed pending further judicial review and FCC rulemaking. In May 2000, the U.S. Court of Appeals for the D.C. Circuit struck down both of these provisions. The FCC is now considering whether it can fashion new such laws to withstand judicial review.
		Must Carry/Retransmission Consent
		The 1992 Cable Act contains broadcast signal carriage requirements. Broadcast signal carriage is the transmission of broadcast television signals over a cable system to cable customers. These requirements, among other things, allow local commercial television broadcast stations to elect once every three years between a “must carry” status or a “retransmission consent” status; the next such three-year period commencing January 1, 2003 and ending December 31, 2005. Less popular stations typically elect must carry, which is the broadcast signal carriage requirement that allows local commercial television broadcast stations to require a cable system to carry the station. More popular stations, such as those affiliated with a national network, typically elect retransmission consent, which is the broadcast signal carriage requirement that allows local commercial television broadcast stations to negotiate for payments for granting permission to the cable operator to carry the stations. Must carry requests can dilute the appeal of a cable system’s programming offerings because a cable system with limited channel capacity may be required to forego carriage of popular channels in favor of less popular broadcast stations electing must carry. Retransmission consent demands may require substantial payments or other concessions. Either option has a potentially adverse effect on the Company’s business.
		To date, compliance with the “retransmission consent” and “must carry” provisions of the 1992 Cable Act has not had a material effect on the Company, although these provisions may affect the operations of the Company in the future, depending on factors as market conditions, the implementation of digital broadcasts, channel capacity and similar matters when these arrangements are renegotiated.
		The burden associated with must carry may increase substantially if broadcasters proceed with conversion to digital transmission and the FCC determines that cable systems must carry all analog and digital broadcasts in their entirety. This burden would reduce capacity available for more popular video programming and new Internet and telecommunication offerings. The FCC initially ruled against the imposition of dual digital and analog “must carry” rules, but is conducting a further factual inquiry into whether such rules should be promulgated.
		Access Channels
		Local franchising authorities can include franchise provisions requiring cable operators to set aside certain channels for public, educational and governmental access programming. Federal law also requires cable systems to designate a portion of their channel capacity, up to 15% in some cases, for commercial leased access by unaffiliated third parties. The FCC has adopted rules regulating the terms, conditions and maximum rates a cable operator may charge for commercial leased access use. We believe that requests for commercial leased access carriages have been relatively limited.
		Access to Programming
		To spur the development of independent cable programmers and competition to incumbent cable operators, the 1992 Cable Act imposed restrictions on the dealings between cable operators and cable programmers. Of special significance from a competitive business posture, the 1992 Cable Act precludes video programmers affiliated with cable companies from favoring their cable operators over new competitors and requires these programmers to sell their programming to other multichannel video distributors. This provision limits the ability of vertically integrated cable programmers to offer exclusive programming arrangements to cable companies. This prohibition is scheduled to sunset in October 2002, subject to FCC review. There also has been interest expressed in further restricting the marketing practices of cable programmers, including subjecting programmers who are not affiliated with cable operators to all of the existing program access requirements, and subjecting terrestrially delivered programming to the program access requirements. Terrestrially delivered programming is programming delivered other than by satellite. These changes should not have a dramatic impact on the Company, but would limit potential competitive advantages the Company enjoys.

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		Inside Wiring; Subscriber Access
		In an order issued in 1997, the FCC established rules that require an incumbent cable operator upon expiration of a multiple dwelling unit service contract to sell, abandon, or remove “home run” wiring that was installed by the cable operator in a multiple dwelling unit building. These inside wiring rules are expected to assist building owners in their attempts to replace existing cable operators with new programming providers who are willing to pay the building owner a higher fee, where this fee is permissible. The FCC has also proposed abrogating all exclusive multiple dwelling unit service agreements held by incumbent operators, but allowing such contracts when held by new entrants. In another proceeding, the FCC has preempted restrictions on the deployment of private antenna on rental property within the exclusive use of a tenant, such as balconies and patios. This ruling by the FCC may limit the extent to which we along with multiple dwelling unit owners may enforce certain aspects of multiple dwelling unit agreements which otherwise prohibit, for example, placement of digital broadcast satellite receiver antennae in multiple dwelling unit areas under the exclusive occupancy of a renter. These developments may make it even more difficult for us to provide service in multiple dwelling unit complexes.
		Other Regulations of the Federal Communications Commission
		In addition to the FCC regulations noted above, there are other FCC regulations covering such areas as:

		•	equal employment opportunity,
		•	subscriber privacy,
		•	programming practices, including, among other things,
		•	syndicated program exclusivity
		•	network program nonduplication,
		•	local sports blackouts,
		•	indecent programming,
		•	lottery programming,
		•	political programming,
		•	sponsorship identification,
		•	children’s programming advertisements, and
		•	closed captioning,
		•	registration of cable systems and facilities licensing,
		•	maintenance of various records and public inspection files,
		•	aeronautical frequency usage,
		•	lockbox availability,
		•	antenna structure notification,
		•	tower marking and lighting,
		•	consumer protection and customer service standards,
		•	technical standards,

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		•	consumer electronics equipment compatibility, and
		•	emergency alert systems.

		The FCC recently ruled that cable customers must be allowed to purchase cable converters from third parties and established a multi-year phase-in during which security functions, which would remain in the operator’s exclusive control, would be unbundled from basic converter functions, which could then be satisfied by third party vendors.
		The FCC has the authority to enforce its regulations through the imposition of substantial fines, the issuance of cease and desist orders and/or the imposition of other administrative sanctions, such as the revocation of FCC licenses needed to operate certain transmission facilities used in connection with cable operations.
		Copyright
		Cable television systems are subject to federal copyright licensing covering carriage of television and radio broadcast signals. In exchange for filing certain reports and contributing a percentage of their revenues to a federal copyright royalty pool, cable operators can obtain blanket permission to retransmit copyrighted material included in broadcast signals. The possible modification or elimination of this compulsory copyright license is the subject of continuing legislative review and could adversely affect the Company’s ability to obtain desired broadcast programming. We cannot predict the outcome of this legislative activity. Copyright clearances for nonbroadcast programming services are arranged through private negotiations.
		Cable operators distribute locally originated programming and advertising that use music controlled by major music performing rights organizations, such as Broadcast Music, Inc. (BMI). The cable industry has had a long series of negotiations and adjudications with certain of such organizations. The Company recently entered into an agreement with BMI setting forth, among other things, an agreed upon rate through 2004. Although we cannot predict the ultimate outcome of other industry proceedings or the amount of any license fees the Company may be required to pay for past and future use of association-controlled music, we do not believe these license fees will be significant to the Company’s business and operations.
		State and Local Regulation
		Cable television systems generally are operated pursuant to nonexclusive franchises granted by a municipality or other state or local government entity in order to cross public rights-of-way. Federal law now prohibits local franchising authorities from granting exclusive franchises or from unreasonably refusing to award additional franchises. Cable franchises generally are granted for fixed terms and in many cases include monetary penalties for non-compliance and may be terminable if the franchisee failed to comply with material provisions.
		The specific terms and conditions of franchises vary materially between jurisdictions. Each franchise generally contains provisions governing cable operations, service rates, franchising fees, system construction and maintenance obligations, system channel capacity, design and technical performance, customer service standards, and indemnification protections. A number of states, including Connecticut, subject cable systems to the jurisdiction of centralized state governmental agencies, some of which impose regulation of a character similar to that of a public utility. Although local franchising authorities have considerable discretion in establishing franchise terms, there are certain federal limitations. For example, local franchising authorities cannot insist on franchise fees exceeding 5% of the system’s gross cable-related revenues, cannot dictate the particular technology used by the system, and cannot specify video programming other than identifying broad categories of programming.
		Federal law contains renewal procedures designed to protect incumbent franchisees against arbitrary denials of renewal. Even if a franchise is renewed, the local franchising authority may seek to impose new and more onerous requirements such as significant upgrades in facilities and service or increased franchise fees as a condition of renewal. Similarly, if a local franchising authority’s consent is required for the purchase or sale of a cable system or franchise, the local franchising authority may attempt to impose more burdensome or onerous franchise requirements in connection with a request for consent. Historically, most franchises have been renewed for and consents granted to cable operators that have provided satisfactory services and have complied with the terms of their franchise.

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Under the 1996 Telecom Act, cable operators are not required to obtain franchises for the provision of telecommunications services, and local franchising authorities are prohibited from limiting, restricting, or conditioning the provision of these services. In addition, local franchising authorities may not require a cable operator to provide any telecommunications service or facilities, other than institutional networks under certain circumstances, as a condition of an initial franchise grant, a franchise renewal, or a franchise transfer. The 1996 Telecom Act also provides that franchising fees are limited to an operator’s cable-related revenues and do not apply to revenues that a cable operator derives from providing new telecommunications services.

		ITEM 2.     PROPERTIES
		The Company’s cable television systems are located in and around Stephenville, Marble Falls, Mexia and Navasota, Texas; Moses Lake and Port Angeles, Washington; Clemson, Aiken and Greenwood, South Carolina; Highlands, North Carolina; Statesboro, Georgia; and Yreka, Mount Shasta and Oakhurst, California.
		A cable television system consists of three principal operating components. The first component, known as the headend, receives television, radio and information signals generally by means of special antennas and satellite earth stations. The second component, the distribution network, which originates at the headend and extends throughout the system’s service area, consists of microwave relays, coaxial or fiber optic cables and associated electronic equipment placed on utility poles or buried underground. The third component of the system is a “drop cable,” which extends from the distribution network into each customer’s home and connects the distribution system to the customer’s television set. An additional component used in certain systems is the home terminal device, or converter, that expands channel capacity to permit reception of more than twelve channels of programming on a non-cable ready television set.
		The Company’s principal physical assets consist of cable television systems, including signal-receiving, encoding and decoding apparatus, headends, distribution systems and subscriber house drop equipment for each of its systems. The signal receiving apparatus typically includes a tower, antennas, ancillary electronic equipment and earth stations for reception of satellite signals. Headends, consisting of associated electronic equipment necessary for the reception, amplification and modulation of signals, typically are located near the receiving devices. The Company’s distribution systems consist primarily of coaxial cable and related electronic equipment. As upgrades are completed, the systems will generally incorporate fiber optic cable. Subscriber equipment consists of traps, house drops and, in some cases, c