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SEC Filings

10-Q
AVALON CABLE OF MICHIGAN INC/ filed this Form 10-Q on 08/16/1999
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Three months ended June 30, 1999 compared to the three months ended March 31,
1999
 
    Revenues for the three months ended June 30, 1999 were $27.2 million, an
increase of $2.6 million, or 11%, as compared to revenues of $24.6 million for
the three months ended March 31, 1999. This increase is primarily related to
10,000 seasonal subscribers beginning service throughout the quarter; a system
wide 8% rate increase on the tiered levels of service not including limited
basic service that was effective in May; and the full quarter effect of
additional revenues resulting from the following acquisitions: Traverse Internet
(acquired April 1, 1999), Novagate (acquired March 1, 1999), Nova Cable
(acquired March 1, 1999) and R/Com, L.C. (acquired March 26, 1999).

    Selling, general and administrative expenses were $5.3 million for the three
months ended June 30, 1999, an increase of $1.1 million, or 26%, as compared to
$4.2 million for the three months ended March 31, 1999. This increase was
primarily related to the additional operating costs resulting from the Traverse
Internet and Novagate acquisitions.

    Programming expenses were $7.1 million for the three months ended June 30,
1999, an increase of $0.3 million, or 4%, as compared to $6.8 million for the
three months ended March 31, 1999. This increase was primarily related to the
increased cost associated with the servicing of the additional subscribers as
discussed above, during the three months ended June 30, 1999.

    Technical expenses were $3.1 million for the three months ended June 30,
1999, an increase of $0.3 million, or 11%, as compared to $2.8 million for the
three months ended March 31, 1999. This increase was primarily due to additional
operating costs resulting from the Nova Cable and R/Com, L.C. acquisitions.

    Operating income before depreciation and amortization and non-recurring
expenses was $11.5 million for the three months ended June 30, 1999, an increase
of $0.7 million, or 6%, as compared to $10.8 million for the three months ended
March 31, 1999. This increase was primarily due to the increase in revenues for
the quarter offset by increases in selling, general and administrative expenses,
programming expenses and technical expenses as discussed above.

    Depreciation and amortization expense were $11.3 million for the three
months ended June 30, 1999, an increase of $0.5 million, or 5%, as compared to
$10.8 million for the three months ended March 31, 1999. This increase was
primarily due to the full quarter effect of depreciation and amortization costs
associated with the acquisitions made during the first and second quarters of
1999.

    Interest expense, net was $11.1 million for the three months ended June 30,
1999, a decrease of $0.3 million, or 3%, compared to $11.4 million for the three
months ended March 31, 1999. This decrease was primarily related to lower
interest rates on the variable rate debt.

    Net loss was $5.6 million for the three months ended June 30, 1999, an
increase of $1.4 million, or 33%, compared to a net loss of $4.2 million for the
three months ended March 31, 1999. This increase was primarily due to the
decline in tax benefit recognized in the second quarter compared to the first
quarter. The higher tax benefit recognized in the first quarter resulted
primarily from a write-off of deferred taxes of approximately $1.4 million
relating to Mercom, Inc. for the change in tax status.

Avalon Cable of Michigan, Inc
-----------------------------

    On November 6, 1998, Cable Michigan merged with and into Avalon Cable of
Michigan, Inc. and Avalon Cable of Michigan, Inc. commenced its operations.
Therefore, the financial and other data for Cable Michigan for the period
November 6, 1998 to December 31, 1998 is reflected in the financial and other
data for Avalon Cable of Michigan, Inc.

    On March 26, 1999 Avalon Cable of Michigan, Inc. acquired the remaining
minority interest of Mercom for approximately $21.9 million. During the quarter,
Avalon Cable of Michigan, Inc. also acquired the cable television systems of
Nova Cablevision and Cross Country Cable, LLC ("Cross Country Cable") for $10.7
million.

    In March 1999, after the acquisition of Mercom, Inc., Avalon Cable of
Michigan, Inc. and its affiliates completed a series of transactions to
facilitate certain aspects of its financing. As a result of these transactions:

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