Attached files
file | filename |
---|---|
EX-31.(A) - EX-31.(A) - NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP | v54071exv31wxay.htm |
EX-32.(B) - EX-32.(B) - NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP | v54071exv32wxby.htm |
EX-32.(A) - EX-32.(A) - NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP | v54071exv32wxay.htm |
EX-31.(B) - EX-31.(B) - NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP | v54071exv31wxby.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended September 30, 2009
or
o | 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: 0-16718
Northland Cable Properties Seven Limited Partnership
(Exact Name of Registrant as Specified in Charter)
Washington | 91-1366564 | |
(State of Organization) | (I.R.S. Employer Identification No.) | |
101 Stewart Street, Suite 700, Seattle, Washington | 98101 | |
(Address of Principal Executive Offices) | (Zip Code) |
(206) 621-1351 (Registrants telephone number, including area code)
N/A (Former name, former address and former fiscal year, if changed since last report)
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 þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer or a smaller reporting company. See definition of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
TABLE OF CONTENTS
Table of Contents
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS (UNAUDITED)
(Prepared by the Managing General Partner)
CONDENSED BALANCE SHEETS (UNAUDITED)
(Prepared by the Managing General Partner)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS |
||||||||
Cash |
$ | 1,060,667 | $ | 1,734,024 | ||||
Accounts receivable, net of allowance of
$11,000 and $8,500, respectively |
249,067 | 271,957 | ||||||
Due from affiliates |
99,011 | 27,626 | ||||||
Prepaid expenses |
100,787 | 61,900 | ||||||
Property and equipment, net of accumulated
depreciation of $15,189,459 and
$14,304,219, respectively |
5,851,116 | 5,570,163 | ||||||
Franchise agreements, net of accumulated
amortization of $9,995,974 |
9,606,966 | 9,606,966 | ||||||
Total assets |
$ | 16,967,614 | $ | 17,272,636 | ||||
LIABILITIES AND PARTNERS CAPITAL
(DEFICIT) |
||||||||
Accounts payable and accrued expenses |
$ | 788,806 | $ | 738,714 | ||||
Due to Managing General Partner and
affiliates |
97,712 | 89,119 | ||||||
Deposits |
24,708 | 24,595 | ||||||
Subscriber prepayments |
182,859 | 225,347 | ||||||
Total liabilities |
1,094,085 | 1,077,775 | ||||||
Partners capital (deficit): |
||||||||
General Partners: |
||||||||
Contributed capital, net |
(25,367 | ) | (25,367 | ) | ||||
Accumulated deficit |
(14,139 | ) | (23,340 | ) | ||||
(39,506 | ) | (48,707 | ) | |||||
Limited Partners: |
||||||||
Contributed capital, net |
17,312,982 | 18,554,382 | ||||||
Accumulated deficit |
(1,399,947 | ) | (2,310,814 | ) | ||||
15,913,035 | 16,243,568 | |||||||
Total partners capital |
15,873,529 | 16,194,861 | ||||||
Total liabilities and partners capital |
$ | 16,967,614 | $ | 17,272,636 | ||||
The accompanying notes are an integral part of these statements.
Table of Contents
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
For the three months ended September 30, | ||||||||
2009 | 2008 | |||||||
Service revenues |
$ | 2,375,112 | $ | 2,237,710 | ||||
Expenses: |
||||||||
Cable system operations / cost of revenue
(including $28,215 and $28,627 to affiliates
in 2009 and 2008, respectively), excluding
depreciation shown below |
233,085 | 256,911 | ||||||
General and administrative (including
$245,182 and $246,077 to affiliates
in 2009 and 2008, respectively) |
653,879 | 611,104 | ||||||
Programming / cost of revenue (including
$10,512 and $3,171 to affiliates in
2009 and 2008, respectively) |
892,247 | 794,474 | ||||||
Depreciation / cost of revenue |
306,052 | 306,828 | ||||||
Loss on disposal of assets |
3,150 | | ||||||
2,088,413 | 1,969,317 | |||||||
Income from operations |
286,699 | 268,393 | ||||||
Other income (expense): |
||||||||
Interest income and other, net |
(23,744 | ) | (44,086 | ) | ||||
(23,744 | ) | (44,086 | ) | |||||
Net income |
$ | 262,955 | $ | 224,307 | ||||
Allocation of net income: |
||||||||
General Partners (1%) |
$ | 2,630 | $ | 2,243 | ||||
Limited Partners (99%) |
$ | 260,325 | $ | 222,064 | ||||
Net income
per limited partnership unit (49,656 units): |
5.24 | 4.47 | ||||||
The accompanying notes are an integral part of these statements.
Table of Contents
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
For the nine months ended September 30, | ||||||||
2009 | 2008 | |||||||
Service revenues |
$ | 7,187,906 | $ | 6,710,584 | ||||
Expenses: |
||||||||
Cable system operations / cost of revenue
(including $97,788 and $91,496 to affiliates
in 2009 and 2008, respectively), excluding
depreciation shown below |
675,270 | 724,139 | ||||||
General and administrative (including
$752,277 and $721,767 to affiliates
in 2009 and 2008, respectively) |
1,945,895 | 1,776,497 | ||||||
Programming / cost of revenue (including
$27,419 and $9,149 to affiliates in
2009 and 2008, respectively) |
2,684,532 | 2,396,519 | ||||||
Depreciation / cost of revenue |
907,744 | 909,513 | ||||||
Loss (gain) on disposal of assets |
5,781 | (2,393 | ) | |||||
6,219,222 | 5,804,275 | |||||||
Income from operations |
968,684 | 906,309 | ||||||
Other income (expense): |
||||||||
Interest expense and amortization of loan fees |
| (63,970 | ) | |||||
Interest income and other, net |
(48,616 | ) | (170,221 | ) | ||||
(48,616 | ) | (234,191 | ) | |||||
Net income |
$ | 920,068 | $ | 672,118 | ||||
Allocation of net income: |
||||||||
General Partners (1%) |
$ | 9,201 | $ | 6,721 | ||||
Limited Partners (99%) |
$ | 910,867 | $ | 665,397 | ||||
Net income
per limited partnership unit (49,656 units): |
18.34 | 13.40 | ||||||
The accompanying notes are an integral part of these statements.
Table of Contents
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended September 30, | ||||||||
2009 | 2008 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 920,068 | $ | 672,118 | ||||
Adjustments to reconcile net income to
cash provided by operating activities: |
||||||||
Depreciation |
907,744 | 909,513 | ||||||
Loan fee amortization |
| 47,800 | ||||||
Loss (gain) on sale of assets |
5,781 | (2,393 | ) | |||||
(Increase) decrease in operating assets: |
||||||||
Accounts receivable |
22,890 | (3,577 | ) | |||||
Due from affiliates |
(71,385 | ) | 43,251 | |||||
Prepaid expenses |
(38,887 | ) | (14,238 | ) | ||||
Increase (decrease) in operating liabilities: |
||||||||
Accounts payable and accrued expenses |
50,092 | (76,901 | ) | |||||
Due to Managing General Partner and affiliates |
8,593 | 76,565 | ||||||
Deposits |
113 | 3,820 | ||||||
Subscriber prepayments |
(42,488 | ) | 13,744 | |||||
Net cash provided by operating activities |
1,762,521 | 1,669,702 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Purchase of property and equipment |
(1,194,478 | ) | (507,513 | ) | ||||
Proceeds from the sale of assets |
| 8,700 | ||||||
Net cash used in investing activities |
(1,194,478 | ) | (498,813 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Principal payments on borrowings |
| (663,299 | ) | |||||
Distribution to limited partners |
(1,241,400 | ) | | |||||
Net cash used in financing activities |
(1,241,400 | ) | (663,299 | ) | ||||
(DECREASE) INCREASE IN CASH |
(673,357 | ) | 507,590 | |||||
CASH, beginning of period |
1,734,024 | 928,495 | ||||||
CASH, end of period |
$ | 1,060,667 | $ | 1,436,085 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: |
||||||||
Cash paid during the period for interest |
$ | | $ | 16,170 | ||||
The accompanying notes are an integral part of these statements.
Table of Contents
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
These unaudited financial statements are being filed in conformity with Rule 10-01 of Regulation
S-X regarding interim financial statement disclosure and do not contain all of the necessary
footnote disclosures required for a full presentation of the balance sheets, statements of
operations and statements of cash flows in conformity with accounting principles generally accepted
in the United States of America. However, in the opinion of management, these statements include
all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the
Partnerships financial position at September 30, 2009, its statements of operations for the three
and nine months ended September 30, 2009 and 2008, and its statements of cash flows for the nine
months ended September 30, 2009 and 2008. 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 Partnerships Annual Report on Form 10-K for the year
ended December 31, 2008.
(2) Intangible Assets
The Partnership does not amortize intangible assets determined to have indefinite lives. The
Partnership has determined that its franchises meet the definition of indefinite lived assets. The
Partnership tests these assets for impairment on an annual basis during the fourth quarter using
financial information as of September 30th, or on an interim basis if an event occurs or
circumstances change that would indicate that the assets might be impaired.
Loan fees were being amortized using the straight-line method, which approximated the effective
interest rate method. The Partnership paid off the remaining balance on its credit facility in
April of 2008 at which time the unamortized loan fees were expensed.
(3) Notes Payable
On April 29, 2008, the Partnership paid off the outstanding balance of $529,575 on its credit
facility and expensed unamortized loan fees of $38,240.
(4) Litigation
The Partnership is party to ordinary and routine litigation proceedings that are incidental to the
Partnerships business. Management believes that the outcome of all pending legal proceedings will
not, individually or in the aggregate, have a material adverse effect on the Partnership and its
financial statements.
(5) Potential Sale of Systems
On July 5, 2007, Northland Cable Properties Seven Limited Partnership (the Partnership) executed
a purchase and sale agreement to sell the operating assets and franchise rights of its remaining
cable systems serving the communities of Vidalia, Sandersville, Toccoa and Royston, Georgia to
Green River Media and Communications, LLC (Green River), an unaffiliated third party. The
transaction was expected to close by the end of March 2008.
The terms of the purchase and sale agreement include a sales price of $19,950,000, which may be
adjusted based on subscription revenue generated prior to closing, and require that approximately
ten percent of the gross proceeds be placed in escrow to secure compliance with representations and
warranties, to be released to the Partnership eighteen months from the closing of the transaction.
Net proceeds to be received upon closing are to be used to pay all remaining liabilities of the
Partnership, including transaction costs and to make liquidating distributions to the limited and
general partners. Limited partners will receive a final distribution eighteen months from the
closing date when the escrow proceeds are released.
On December 19, 2007, the Partnership filed with the Security and Exchange Commission a definitive
proxy statement under Regulation 14A of the Exchange Act, pursuant to which the Partnership was to
solicit proxies from the limited partners in connection with the above described transactions. The
proxy statement called for a special meeting of the limited partners held on February 27, 2008, for
the following purposes: (i) to authorize the sale of substantially all the assets of the
Partnership to Green River or its assignee with the consent of the Partnership, and (ii) to
authorize the alternative sale of substantially all of the Partnerships assets to Northland
Communications Corporation, its managing general partner, or one or more affiliates of Northland
Communications Corporation, if
Table of Contents
the Green River transaction was not consummated by March 31, 2008,
or such later date mutually agreed upon by the Partnership and Green River, or in the event that
the Green River transaction was otherwise terminated prior to such date (the Alternative Sale
Transaction). The Alternative Sale Transaction agreement contains substantially the same terms and
conditions as provided in the Green River purchase agreement, except that the managing general
partners obligation to close will be subject to the managing general partners ability to secure
satisfactory financing. If such condition has not been met within 90 days after the agreement for
the Alternative Sale Transaction becomes effective, the managing general partner would have the
right to terminate the alternative purchase agreement without penalty. On February 27, 2008, at the
special meeting of limited partners of the Partnership, limited partners voted to approve the two
matters discussed above.
On March 31, 2008, the Partnership notified Green River of its termination of the asset purchase
agreement dated as of July 5, 2007 between the Partnership and Green River (the Agreement). Green
River disputed the right of the Partnership to terminate the Agreement and filed a motion in the
District Court, City and County of Denver, seeking injunctive relief. Green Rivers motion for
preliminary injunction was granted by the court.
On September 9, 2008, the District Court, for the City and County of Denver upheld a preliminary
injunction enjoining the Partnership from terminating the Agreement. Pursuant to the District
Courts preliminary injunction, the Agreement currently remains in full force and effect. The
Partnership has appealed the initial injunction order of the District Court and it is currently
unknown when the appellate court will rule on its appeal. The Partnership will diligently work
toward completing a transaction for the sale of its operating assets that are the subject of the
Agreement, although no assurance can be given that such a transaction will be consummated.
Fees for legal and accounting activities in connection with the aforementioned purchase and sale
transaction amounted to $24,228 and $51,177 for the three and nine months ended September 30, 2009,
respectively, and have been expensed as incurred within interest income and other in the
accompanying statement of operations.
(6) Fair Value of Assets and Liabilities
We measure certain financial assets and financial liabilities at fair value in three levels, based
on the markets in which the assets and liabilities are traded and the reliability of the inputs
used to determine fair value. These levels are:
| Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. | ||
| Level 2 quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active. | ||
| Level 3 significant inputs are unobservable for the asset or liability. |
The following table summarizes the balances of assets and liabilities measured at fair value on a
recurring basis at September 30, 2009.
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Cash |
$ | 1,060,667 | $ | 1,060,667 | $ | | $ | |
The Partnership adopted FASB ASC 820 (previously FSP SFAS 107-1 and APB 28-1, Interim Disclosures
About Fair Value of Financial Instruments) in second quarter 2009. FASB ASC 820 requires
disclosures about fair value of financial instruments for interim reporting periods as well as in
annual financial statements. The adoption did not have a material effect on our financial position,
results of operations or cash flows.
(7) Subsequent Events
The Partnership follows general standards of accounting for and the disclosure of events that occur
after the balance sheet date but before financial statements are issued or are available to be
issued. Specifically: (1) the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for potential recognition or
disclosure in the financial statements, (2) the circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its financial
statements, and (3) the disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. Management has reviewed events occurring through November
12, 2009, the date the financial statements were issued and no subsequent events occurred requiring
accrual or disclosure.
Table of Contents
PART I (continued)
ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
Results of Operations Nine Months Ended September 30, 2009 and 2008
Total basic subscribers decreased from 11,491 as of September 30, 2008 to 10,881 as of September
30, 2009. The loss in subscribers is a result of several factors including competition from Direct
Broadcast Satellite (DBS) providers, availability of off-air signals in the Partnerships markets
and regional and local economic conditions. To address this customer trend, the Partnership is
increasing its customer retention efforts and its emphasis on bundling its video and data products.
Revenue totaled $7,187,906 for the nine months ended September 30, 2009, an increase of
approximately 7% from $6,710,584 for the nine months ended September 30, 2008. Revenue for the
nine months ended September 30, 2009, were comprised of the following sources:
| $5,192,585 (72%) from basic and expanded services, | ||
| $299,321 (4%) from premium services | ||
| $871,296 (12%) from high speed Internet services | ||
| $218,903 (3%) from telephony services | ||
| $241,010 (4%) from advertising | ||
| $133,665 (2%) from late fees | ||
| $231,126 (3% ) from other sources. |
Average monthly revenue per subscriber increased $7.84 or approximately 12% from $62.94 for the
nine months ended September 30, 2008 to $70.78 for the nine months ended September 30, 2009. This
increase is attributable to increased penetration of new products, specifically, high-speed
Internet and telephony services and rate increases implemented on February 1, 2009. This increase
in average monthly revenue per subscriber was offset by the aforementioned decrease in basic
subscribers.
Operating expenses, excluding general and administrative, programming, depreciation expenses, and
loss (gain) on disposal of assets totaled $675,270 for the nine months ended September 30, 2009,
representing a decrease of approximately 7% from $724,139 for the nine months ended September 30,
2008. This decrease is primarily attributable to an increase in the capitalization of certain costs
as a result of increases in capital spending levels offset by increases in pole rent, system
utility and operating salary expenses. Employee wages, which
represent the primary component of operating expenses, are reviewed annually, and in most cases,
increased based on cost of living adjustments and other factors. Therefore, assuming the number of
operating and regional employees remains constant, management expects increases in operating
expenses in the future.
General and administrative expenses totaled $1,945,895 for the nine months ended September 30,
2009, representing an increase of approximately 10% from $1,776,497 for the nine months ended
September 30, 2008. This increase is primarily attributable to increased billing service fees,
property insurance, audit fees and management fees and a bad debt reserve for an advertising
receivable of which the collection is uncertain in the amount of $66,372.
Programming expenses totaled $2,684,532 for the nine months ended September 30, 2009, an increase
of approximately 12% from $2,396,519 for the nine months ended September 30, 2008. The increase is
attributable to higher costs charged by various program suppliers and increased costs associated
with the increased penetration of high-speed Internet and telephony services, offset by a decrease
in basic subscribers from 11,491 as of September 30, 2008 to 10,881 as of September 30, 2009. Rate
increases from program suppliers, as well as new fees due to the launch of additional channels and
high-speed Internet services, will contribute to the trend of increased programming costs in the
future, assuming that the number of subscribers remains constant.
Depreciation expense totaled $907,744 for the nine months ended September 30, 2009, consistent with
the same period in 2008. Depreciation of recent purchases related to the upgrade of plant and
equipment were offset by certain assets becoming fully depreciated.
Interest income and other, net totaled $48,616 and $170,221 for the nine months ended September 30,
2009 and 2008, respectively, and consists primarily of costs incurred in connection with the
proposed sale of the Partnerships assets.
Table of Contents
Results of Operations Three Months Ended September 30, 2009 and 2008
Total basic subscribers decreased from 11,491 as of September 30, 2008, to 10,881 as of September
30, 2009. The loss in subscribers is a result of several factors including competition from Direct
Broadcast Satellite (DBS) providers, availability of off-air signals in the Partnerships markets
and regional and local economic conditions. To address this customer trend, the Partnership is
increasing its customer retention efforts and its emphasis on bundling its video and data products.
Revenue from operations totaled $2,375,112 for the three months ended September 30, 2009, an
increase of approximately 6% from $2,237,710 for the three months ended September 30, 2008.
Revenues for the three months ended September 30, 2009 were comprised of the following sources:
| $1,690,652 (71%) from basic and expanded services, | ||
| $94,678 (4%) from premium services | ||
| $299,273 (13%) from high speed Internet services | ||
| $79,016 (3%) from telephony services | ||
| $91,650 (4%) from advertising | ||
| $44,774 (2%) from late fees | ||
| $75,069 (3% ) from other sources. |
Average monthly revenue per subscriber increased $8.04 or approximately 13% from $64.30 for three
months ended September 30, 2008, to $72.34 for the three months ended September 30, 2009. This
increase is attributable to increased penetration of new products, specifically, high-speed
Internet and telephony services and rate increases implemented on February 1, 2009. This increase
in average monthly revenue per subscriber was offset by the aforementioned decrease in basic
subscribers.
Operating expenses, excluding general and administrative, programming, depreciation expenses, and
loss on disposal of assets totaled $233,085 for the three months ended September 30, 2009,
representing a decrease of approximately 9% from $256,911 for the three months ended September 30,
2008. This decrease is primarily attributable to an increase in the capitalization of certain costs
as a result of increases in capital spending levels
and decreases in vehicle operating expenses offset by increases in pole rental expense. Employee
wages, which represent the primary component of operating expenses, are reviewed annually, and in
most cases, increase based on cost of living adjustments and other factors. Therefore, assuming
the number of operating and regional employees remains constant, management expects increases in
operating expenses in the future.
General and administrative expenses totaled $653,879 for the three months ended September 30, 2009,
representing an increase of approximately 7% from $611,104 for the three months ended September 30,
2008. This increase is primarily attributable to increases in billing service fees, bad debt
expense, and audit fees, as well as revenue based expenses such as management fees and franchise
fees and a bad debt reserve for an advertising receivable of which the collection is uncertain in
the amount of $12,600.
Programming expenses totaled $892,247 for the three months ended September 30, 2009, an increase of
approximately 12% from $794,474 for the three months ended September 30, 2008. The increase is
attributable to higher costs charged by various program suppliers and increased costs associated
with the increased penetration of high-speed Internet and telephony services, offset by the
aforementioned decrease in basic subscribers. Rate increases from program suppliers, as well as
new fees due to the launch of additional channels and high-speed Internet services, will contribute
to the trend of increased programming costs in the future, assuming that the number of subscribers
remains constant.
Depreciation expense totaled $306,052 for the three months ended September 30, 2009, consistent
with the same period in 2008. Depreciation of recent purchases related to the upgrade of plant and
equipment were offset by certain assets becoming fully depreciated.
Interest income and other, net totaled $23,744 and $44,086 for the three months ended September 30,
2009 and 2008, respectively, and consists primarily of costs incurred in connection with the
proposed sale of the Partnerships assets.
Table of Contents
Liquidity and Capital Resources
The Partnerships primary source of liquidity is cash flow provided by operations. The Partnership
generates cash through the monthly billing of subscribers for cable and other services. Based on
managements analysis, the Partnerships cash flow from operations and cash on hand will be
sufficient to cover future operating costs, planned capital expenditures and working capital needs
over the next twelve-month period. The Partnership agreement is currently set to expire on
December 31, 2010. Extension of the Partnerships life would need approval from a majority of its
limited partners.
Net cash provided by operating activities totaled $1,762,521 for the nine months ended September
30, 2009. Adjustments to the $920,068 net income for the period to reconcile to net cash
provided by operating activities consisted primarily of depreciation of $907,744, offset by
changes in other operating assets and liabilities of $71,072.
Net cash used in investing activities totaled $1,194,478 for the nine months ended September 30,
2009 and consisted of purchases of property and equipment.
Net cash used in financing activities for the nine months ended September 30, 2009 consisted of
$1,241,400 in cash distributions to limited partners.
Notes Payable
On April 29, 2008, the Partnership paid off the outstanding balance of $529,575 on its credit
facility and expensed unamortized loan fees of $38,240.
Obligations and Commitments
In addition to working capital needs for ongoing operations, the Partnership has capital
requirements related to minimum operating lease payments. The following table summarizes the
Partnerships contractual obligations as of September 30, 2009:
Payments Due By Period | ||||||||||||||||||||
Less than 1 | 1 - 3 | 3 - 5 | More than | |||||||||||||||||
Total | year | Years | years | 5 years | ||||||||||||||||
Minimum operating
lease payments |
$ | 38,121 | $ | 14,796 | $ | 22,392 | $ | 933 | | |||||||||||
(a) | These contractual obligations do not include accounts payable and accrued liabilities, which are expected to be paid in 2009. | ||
(b) | The Partnership also rents utility poles in its operations. Amounts due under these agreements are not included in the above minimum operating lease payments amounts as, generally, pole rentals are cancelable on short notice. The Partnership does however anticipate that such rentals will recur. Pole rental expense was $154,843 in 2008. |
Capital Expenditures
During the first nine months of 2009, the Partnership paid approximately $1,195,000 for capital
expenditures. These expenditures include the continued deployment of fiber and quality assurance
and construction projects to upgrade the plant providing increased channel capacity in all systems.
Due to the pending sale of the Partnerships assets, the level of capital expenditures that
may be incurred by the Partnership during the remainder of 2009 is uncertain. Capital expenditures
for the remainder of the year will be dependant on the timing of the sale however no assurances can
be given that such a sale will take place. Planned expenditures include the continuation of
distribution plant upgrades to increase channel capacity and two-way capability in all systems,
potential line extension opportunities, the possible launch of additional HD (high definition)
services in selected systems, vehicle replacements and the continued deployment of both high-speed
Internet and digital telephone services in certain areas of the Partnerships systems.
Table of Contents
Critical Accounting Policies
This discussion and analysis of our financial condition and results of operations is based on the
Partnerships financial statements, which have been prepared in accordance with accounting
principles generally accepted in the United States of America. The preparation of these financial
statements requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following critical accounting policies
require a more significant amount of management judgment than other accounting policies the
Partnership employs.
Revenue Recognition
Cable television service, internet and telephone revenue, including service and maintenance, is
recognized in the month service is provided to customers. Advance payments on services to be
rendered are recorded as subscriber prepayments and deferred. Revenues resulting from the sale of
local spot advertising are recognized when the related advertisements or commercials appear before
the public.
Property and Equipment
Property and equipment are recorded at cost. Costs of additions and substantial improvements, which
include materials, labor, and other indirect costs associated with the construction of cable
transmission and distribution facilities, are capitalized. Indirect costs include employee salaries
and benefits, travel and other costs. These costs are estimated based on historical information and
analysis. The Partnership performs evaluations of these estimates as warranted by events or changes
in circumstances.
The Partnership capitalizes costs associated with initial customer installations. The costs of
disconnecting service or reconnecting service to previously installed locations is expensed in the
period incurred. Costs for repairs and maintenance are also charged to operating expense, while
equipment replacements, including the replacement of drops, are capitalized.
Intangible Assets
The Partnership does not amortize intangible assets determined to have indefinite lives. The
Partnership has determined that its franchises meet the definition of indefinite lived assets. The
Partnership tests these assets for impairment on an annual basis during the fourth quarter using
financial information as of September 30th, or on an interim basis if an event occurs or
circumstances change that would indicate the assets might be impaired.
Management believes the franchises have indefinite lives because the franchises are expected to be
used by the Partnership for the foreseeable future as determined based on an analysis of all
pertinent factors, including changes in legal, regulatory or contractual provisions and effects of
obsolescence, demand and competition. In addition, the level of maintenance expenditures required
to obtain the future cash flows expected from the franchises is not material in relation to the
carrying value of the franchises. While the franchises have defined lives based on the franchising
authority, renewals are routinely granted, and management expects them to continue to be granted.
This expectation is supported by managements experience with the Partnerships franchising
authorities and the franchising authorities of the Partnerships affiliates.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is not subject to market risks arising from changes in interest rates as a
result of the Partnership paying off the outstanding balance of its credit facility on April 29,
2008.
Table of Contents
ITEM 4. Controls and Procedures
The Partnership maintains disclosure controls and procedures designed to ensure that
information required to be disclosed in our filings under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported within the time periods specified in the Securities
and Exchange Commissions rules and forms. The Chief Executive Officer and President (Principal
Financial and Accounting Officer) of the Managing General Partner have evaluated these disclosure
controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q
and have determined that such disclosure controls and procedures are effective.
There has been no change during the most recent quarter in the Partnerships internal controls over
financial reporting that has materially affected, or is reasonably likely to materially affect, the
internal control over financial reporting.
Table of Contents
PART II OTHER INFORMATION
ITEM 1 Legal proceedings
On March 31, 2008, the Partnership notified Green River of its termination of the asset purchase
agreement dated as of July 5, 2007 between the Partnership and Green River (the Agreement). Green
River disputed the right of the Partnership to terminate the Agreement and filed a motion in the
District Court, City and County of Denver, seeking injunctive relief. Green Rivers motion for
preliminary injunction was granted by the court.
On September 9, 2008, the District Court, for the City and County of Denver upheld a preliminary
injunction enjoining the Partnership from terminating the Agreement. Pursuant to the District
Courts preliminary injunction, the Agreement currently remains in full force and effect. The
Partnership has appealed the initial injunction order of the District Court and it is currently
unknown when the appellate court will rule on its appeal. The Partnership will diligently work
toward completing a transaction for the sale of its operating assets that are the subject of the
Agreement, although no assurance can be given that such a transaction will be consummated.
The Partnership is party to ordinary and routine litigation proceedings that are incidental to the
Partnerships business. Management believes that the outcome of all pending legal proceedings will
not, individually or in the aggregate, have a material adverse effect on the Partnership, its
financial statements or prospects.
ITEM 1A Risk Factors
There have been no material changes from the Partnerships risk factors as disclosed in the 2008
Form 10-K.
ITEM 2 Changes in securities
None
ITEM 3 Defaults upon senior securities
None
ITEM 4 Submission of matters to a vote of security holders
On September 25, 2009, a definitive proxy statement on Schedule 14A and an accompanying proxy
card were mailed to limited partners of record as of September 2, 2009, in connection with a
special meeting to be held on November 19, 2009. The special meeting is called for the purpose of
considering a proposal to amend the Partnership Agreement, to extend the term of the Partnership
from December 31, 2010 to December 31, 2013. Pursuant to the Partnership Agreement, the approval of
the limited partners who own a majority of all outstanding units of limited partnership interest in
the Partnership is required to approve the amendment. If the amendment is approved by the limited
partners, the amendment will become effective when the managing general partner executes the
amendment and it is filed with the Secretary of State of the State of Washington.
ITEM 5 Other information
None
ITEM 6 Exhibits
(a) | Exhibit Index |
31 | (a). | Certification of Chief Executive Officer of Northland Communications Corporation, the Managing General Partner, dated November 12, 2009 pursuant to section 302 of the Sarbanes-Oxley Act | |
31 | (b). | Certification of President (Principal Financial and Accounting Officer) of Northland Communications Corporation, the Managing General Partner, dated November 12, 2009 pursuant to section 302 of the Sarbanes-Oxley Act |
Table of Contents
32 | (a). | Certification of Chief Executive Officer of Northland Communications Corporation, the Managing General Partner, dated November 12, 2009 pursuant to section 906 of the Sarbanes-Oxley Act | |
32 | (b). | Certification of President (Principal Financial and Accounting Officer) of Northland Communications Corporation, the Managing General Partner, dated November 12, 2009 pursuant to section 906 of the Sarbanes-Oxley Act |
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the capacities and on the
dates indicated.
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Managing General Partner
SIGNATURES | CAPACITIES | DATE | ||
/S/ RICHARD I. CLARK
|
Executive Vice President, Treasurer and Assistant Secretary | 11-12-09 | ||
/S/ GARY S. JONES
|
President | 11-12-09 |