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Table of ContentsNORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY(A wholly owned subsidiary of Northland Telecommunications Corporation)NOTES TO UNAUDITED FINANCIAL STATEMENTSMarch 31, 2003(Unaudited)(1)Basis of PresentationInterim Financial ReportingThese unaudited condensed consolidated financial statements are being filed in conformity with Rule 10-01 of Regulation S-X regardinginterim financial statement disclosures and do not contain all of the necessary footnote disclosures required for a fair presentation of theconsolidated balance sheets, statements of operations and comprehensive income and statements of cash flows in conformity with accountingprinciples 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 March 31, 2003, itsconsolidated statements of operations and comprehensive income for the three months ended March 31, 2003 and 2002 and its consolidatedstatements of cash flows for the three months ended March 31, 2003 and 2002. Results of operations for these periods are not necessarilyindicative of results to be expected for the full year. These financial statements and notes should be read in conjunction with the Company sAnnual 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 PortAngeles, Washington and Aiken, South Carolina, respectively. The accompanying financial statements have been restated to report thediscontinued 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 ) whichaddresses financial accounting and reporting for obligations associated with the reporting of obligations associated with the retirement oftangible long-lived assets and associated asset retirement obligations ( ARO ). Under the scope of this pronouncement, the Company hasARO associated with 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, tooperate 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 obligationsmight exist, management believes that estimating any probability at this time is not practicable. As a result, upon adoption of SFAS No. 143the Company did not record any ARO associated with the obligation to remove the equipment.(2)Intangible AssetsIn accordance with the provisions of SFAS No. 142, Goodwill and Other Intangible Assets, the Company does not amortize goodwill or anyother intangible assets determined to have indefinite lives. The Company has determined that its franchises meet the definition of indefinitelived assets. The Company tests these assets for impairment on an annual basis during the fourth quarter, or on an interim basis if an eventoccurs or circumstances change that would reduce the fair value of a reporting unit below its carrying value or if the fair value of intangibleassets with indefinite lives falls below their carrying value on an annual basis. The book value of the Company s intangible assets, effectingfor the sale of the Aiken System and the Port Angeles System described in note 4, is presented in the following table:March 31, 2003December 31, pyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document

odwillDefinite-livedintangibleassets:Loan feesOtherintangibleassets 78,410,4286,344,433Amount(38,923,291)(2,407,104 ) 39,487,1373,937,329 64,218,586(2,195,910 )3,276,989 92,250,436 Amount Amount(38,923,291)(2,407,104 ) 62,022,6765,839,145(2,650,564 )3,188,581(3,158,865 )118,1243,276,989(3,140,381 )136,608(46,685,170) 45,565,266(47,121,340) 46,749,655 93,870,995Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document

Table of ContentsAmortization of loan fees and other intangibles for each of the next five years is expected to be approximately as follows:20032004200520062007(3) 570,000472,000472,000466,000349,000 2,329,000Notes PayableIn August of 2000, the Company refinanced its existing senior bank indebtedness. The original indebtedness was repaid with borrowingsunder the Revised Senior Credit Facility. Amounts outstanding under the Revised Senior Credit Facility mature on September 30, 2007. TheRevised Senior Credit Facility is collateralized by a first lien position on all present and future assets and stock of the Company. Interest ratesvary based on certain financial covenants; currently 3.58%. Graduated principal and interest payments are due quarterly, beginningSeptember 30, 2003, until maturity on September 30, 2007. The estimated fair value of the revolving credit and term loan facility is equal toits carrying value because of its variable interest rate nature.Under the revolving credit and term loan agreement, the Company has agreed to restrictive covenants which require the maintenance ofcertain ratios, including a Pro Forma Debt Service ratio of not less than 1.25 to 1.0 and a Leverage Ratio of no greater than 6.00 to 1.0, amongother restrictions. The Company submits quarterly debt compliance reports to its creditor under this arrangement. As of March 31, 2003, theCompany was in compliance with the terms of the loan agreement.As of the date of this filing, the balance under the credit facility is 16,226,534, and applicable interest rates are as follows: 15,726,534 at aLIBOR based interest rate of 3.58%, which expires July 22, 2003 and 500,000 at a LIBOR based rate of 3.58%, which expires May 22, 2003.The above rates include a margin paid to the lender based on overall leverage, and may increase or decrease as the Company s leveragefluctuates.(4)System SalesOn March 11, 2003, the Company sold the operating assets and franchise rights of its cable system in and around the community of PortAngeles, Washington (the Port Angeles System ). The Port Angeles System was sold at a price of approximately 11,375,000 of which theCompany received approximately 10,800,000 at closing. The sales price was adjusted at closing for the proration of certain revenues andexpenses and approximately 575,000 is being held in escrow and will be released to the Company one year from the closing of thetransaction, subject to general representations and warranties. Historically, the Company has entered into similarly structured transactions, andcollected the amount held in escrow. Substantially all of the proceeds were used to pay down amounts outstanding under the Company sSenior Credit Facility.On March 31, 2003, the Company sold the operating assets and franchise rights of its cable system in and around the community of Aiken,South Carolina (the Aiken System ). The Aiken System was sold at a price of approximately 46.3 million of which the Company receivedapproximately 42.6 million at closing. The sales price was adjusted at closing for the proration of certain revenues and expenses andapproximately 3.7 million is being held in escrow and will be released to the Company one year from the closing of the transaction, subjectto general representations and warranties. Historically, the Company has entered into similarly structured transactions, and collected theamount held in escrow. Substantially all of the proceeds were used to pay down amounts outstanding under the Company s Senior CreditFacility.Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document

The sales were made pursuant to offers by separate, independent third parties. Based on the offers made, management determined thatacceptance of the offers would be in the best economic interest of the Company. The sales were not a result of declining or deterioratingoperations nor was it necessary to create liquidity or reduce outstanding debt. It is the opinion of management that the Company could havecontinued existing operations and met all obligations as they became due.Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document

Table of ContentsThe assets and liabilities attributable to the Aiken System and the Port Angeles System as of December 31, 2002 have been reported as assetsand liabilities from discontinued operations in the accompanying balance sheets, and consist of the following:As ofDecember 31, 2002Cash and cash equivalentsAccounts receivablePrepaid expensesProperty and equipment, net of accumulated depreciation of 10,905,201Franchise agreements (net of accumulated amortization of 9,356,640)Total assets 10,768,82813,906,143 Accounts payableAccrued expensesConverter depositsSubscriber prepaymentsTotal 0,1689,152492,178 1,443,610In addition, the revenue, expenses and other items attributable to the operations of the Aiken System for the three months ended March 31,2003 (the date of sale of the system) and 2002 and to the operations of the Port Angeles System for the period from January 1, 2003 toMarch 11, 2003 (the date of sale of the system) and for the three months ended March 31, 2002 have been reported as discontinued operationsin the accompanying statements of operations and comprehensive income, and include the following:Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document

Table of Contents2003Service revenuesExpenses:Cable systems operations (including 6,289and 20,943, net paid to affiliates in 2003and 2002, respectively)General and administrative (including 152,093, net paid to affiliates in 2003 and 17,571, net received from affiliates in 2002)Management fees paid to ParentDepreciation and amortizationIncome from operations Other income (expense):Interest expenseGain on sale of systemIncome from operation of Aiken and Port AngelesSystems, before income tax expenseIncome tax expenseIncome from operations of Aiken and Port AngelesSystem, net 728,600 860,719(1,130,636 )31,525,585(1,287,346) 31,123,549(426,627 )(500,000 ) 30,623,549 (426,627 )In accordance with EITF 87-24, Allocation of Interest to Discontinued Operations, the Company allocated interest expense based on thehistorical weighted average effective interest rate.Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document

Table of ContentsPART I (continued)ITEM 2. MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSResults of Continuing Operations Three Months Ended March 31, 2003 and 2002Revenues totaled 12.4 million for the three months ended March 31, 2003 an increase of approximately 300,000 or 2.5% over the sameperiod in 2002. Of these revenues, 8.5 million (68%) was derived from basic services, 900,000 (7%) from premium services, 1.6 million(13%) from expanded basic services, 200,000 (2%) from digital services, 600,000 (5%) from advertising and 600,000 (5%) from othersources.Average monthly revenue per subscriber increased 2.33 or 5.2% from 44.64 for the three months ended March 31, 2002 to 46.97 for thethree months ended March 31, 2003. This increase is primarily attributable to rate increases implemented during the first quarter of 2002,increased revenue from higher penetration of new product tiers and a 10% increase in advertising revenue.Cable system operation expenses increased approximately 200,000 or 4.3% from 4.6 million to 4.8 million for the three months endedMarch 31, 2003. Programming costs, which represent the primary component of cable system operation expenses, increased 200,000 or 5.9%as a result of rate increases by certain programming vendors as well as the launch of new analog programming services and the launch ofdigital programming services.General and administrative expenses increased approximately 500,000 or 29.4% from 1.7 million to 2.2 million for the three months endedMarch 31, 2003. This increase is primarily attributable to increases in corporate overhead allocations by the Company s Parent, which hadbeen reduced in prior periods, to the extent that allocation of these costs would have resulted in non-compliance with the Company s debtcovenants. Corporate overhead expenses for the quarter represent actual costs incurred by the Company s parent for the period that areattributable to the operations of the Company. The Company has no obligation or liability to its Parent for past reductions in corporateoverhead charges.Management fees for the three months ended March 31, 2003 increased approximately 2.3% over the same period in the previous year.Management fees are calculated at 5.0% of gross revenues.Depreciation and amortization expenses for the three months ended March 31, 2003 remained relatively constant with the same period in2002.Interest expense decreased approximately 700,000 or 22.6%, from 3.1 million to 2.4 million for the three months ended March 31, 2003.Average outstanding indebtedness decreased 16.0 million from 171.1 million to 155.1 million for the three months ended March 31, 2002and 2003, respectively. This is primarily attributable to the fact that the proceeds from the sale of the Aiken System and the Port AngelesSystem were used to pay down amounts outstanding under the Company s revised Senior Credit Facility in March of 2003.In accordance with EITF 87-24, Allocation of Interest to Discontinued Operations, the Company allocated interest expense based on thehistorical weighted average effective interest rate.The Company has elected not to designate its interest rate swap agreements as hedges under SFAS No. 133. Interest rate swap agreements inplace as of December 31, 2002 expired during the first quarter of 2003, and the Company has elected not to enter into any new agreements.Accordingly, the Company recorded a debit to eliminate the liability on its balance sheet, and a corresponding credit in its statement ofoperations of approximately 120,000.Liquidity and Capital ResourcesCopyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document

The cable television business generally requires substantial capital for the construction, expansion and maintenance of the signal distributionsystem. In addition, the Company has pursued a business strategy, which includes selective acquisitions. The Company has financed theseexpenditures through a combination of cash flow from operations, borrowings under the revolving credit and term loan facility provided by avariety of banks andCopyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document

Table of Contentsthe issuance of senior subordinated notes. The Company s required principal payments for the remainder of 2003 are approximately 1.75million. The Company anticipates that cash flow from operations will be sufficient to service its debt through December 31, 2003. TheCompany believes that cash flow from operations will be adequate to meet the Company s long-term liquidity requirements prior to thematurity of its long-term indebtedness, although no assurance can be given in this regard.Net cash provided by operating activities was 3.4 million for the three months ended March 31, 2003. Adjustments to the 30.9 million netincome for the period to reconcile to net cash provided by operating activities consisted primarily of a gain of 31.5 million related to the salesof the Aiken System and the Port Angeles System, offset by 2.6 million of depreciation and amortization and increases in operating liabilitiesof approximately 900,000.Net cash used in investing activities was 52.4 million for the three months ended March 31, 2003, and consisted of 53.4 million of proceedsfrom the sales of the Aiken System and the Port Angeles System, offset by 1.1 million in capital expenditures.Net cash used in financing activities consisted of 51.8 million in principal prepayments on the Revised Senior Credit Facility, as a result ofthe sale of the Aiken System and the Port Angeles System.EBITDA decreased approximately 500,000 or 9.4%, from 5.3 million to 4.8 million for the three months ended March 31, 2003, andEBITDA margin decreased from 43.2% to 38.7%. The aforementioned increases in revenues were offset by increased administrative overheadcharges and operating expenses as a result of rate increases by certain programming vendors and the launch of new programming services,discussed above.Free cash flow increased 776,000, or 248%, from 524,000 to 1.3 million for the three months ended March 31, 2003. This increase isattributable to declining interest expense and capital expenditures, offset by the aforementioned decline in EBITDA.EBITDA represents income from operations excluding the effect of depreciation and amortization expense. EBITDA margin representsEBITDA as a percentage of revenue. Free cash flow represents income from operations, excluding the effects of depreciation andamortization, less interest expense and capital expenditures. EBITDA and free cash flow are commonly used to analyze companies on thebasis of leverage and liquidity. However, they are not measures determined under generally accepted accounting principles, or GAAP, in theUnited States and may not be comparable to similarly titled measures reported by other companies. EBITDA and free cash flow should not beconstrued as a substitute for operating income or as better measure of liquidity than cash flow from operating activities, which are determinedin accordance with GAAP. We have presented EBITDA and free cash flow to provide additional information with respect to our ability tomeet future debt service, capital expenditure and working capital requirements. A reconciliation of net cash provided by operating activities toEBITDA and free cash flow follows:For the three monthsended March 31,20032002Net cash provided by operating activitiesInterest expense, excluding amortization of loanfeesChanges in certain assets and liabilities, net ofacquisition and other, (1,689,302)EBITDAInterest expense, excluding amortization of pyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document

Capital expenditures(1,073,540)(1,594,614)Free cash flow1,308,482523,518Copyright 2012 www.secdatabase.com. All Rights Reserved.Please Consider the Environment Before Printing This Document

Table of ContentsRevised Senior Credit FacilityIn August of 2000, the Company refinanced its existing senior bank indebtedness. The original indebtedness was repaid with borrowingsunder the Revised Senior Credit Facility. Amounts outstanding under the Revised Senior Credit Facility mature on September 30, 2007. TheRevised Senior Credit Facility is collateralized by a first lien position on all present and future assets and stock of the Company. Interest ratesvary based on certain financial covenants; currently 3.58%. Graduated principal and interest payments are due quarterly, beginningSeptember 30, 2003, until maturity on September 30, 2007. The estimated fair value of the revolving credit and term loan facility is equal toits car

NORTHLAND CABLE TELEVISION, INC. AND SUBSIDIARY (A wholly owned subsidiary of Northland Telecommunications Corporation) CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) March 31, December 31, 2003 2002 ASSETS Current Assets: Cash and cash equivalents 5,646,898 1,538,002 Due from Parent and affiliates 1,045,845 796,464