NORTHLAND CABLE TELEVISION INC - 10-Q Quarterly Report

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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

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