Northland Cable Properties Seven Limited Partnership 10-Q 2011 Q1 Quarterly report

UNITED STATES
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 endedMarch 31, 2011

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
(Registrant’s 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.

Yesþ     Noo

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). Yeso Noo

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).

Yeso     Noþ

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 1Legal proceedings
	ITEM 1ARisk Factors
	ITEM 2Changes in securities
	ITEM 3Defaults upon senior securities
	ITEM 4Submission of matters to a vote of security holders
	ITEM 5Other information
	ITEM 6Exhibits
SIGNATURES
EX-31.A
EX-31.B
EX-32.A
EX-32.B

PART 1 — FINANCIAL INFORMATION

ITEM 1. Financial Statements

NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS — (UNAUDITED)
(Prepared by the Managing General Partner)

	March 31,			December 31,
	2011			2010
ASSETS
Cash	$	1,224,312		$	882,786
Accounts receivable, net of allowance of $11,050		192,038			241,478
Due from affiliates		60,716			96,255
Prepaid expenses		183,003			70,077
Property and equipment, net of accumulated depreciation of $16,696,202 and $16,457,125, respectively		6,429,549			6,476,899
Franchise agreements, net of accumulated amortization of $9,995,974		8,991,966			8,991,966
Total assets	$	17,081,584		$	16,759,461
LIABILITIES AND PARTNERS’ CAPITAL
Accounts payable and accrued expenses	$	654,753		$	768,898
Due to Managing General Partner and affiliates		97,501			99,648
Deposits		27,711			23,970
Subscriber prepayments		292,474			239,304
Total liabilities		1,072,439			1,131,820
Partners’ capital (deficit):
General Partners:
Contributed capital, net		(25,367	)		(25,367	)
Accumulated deficit		(4,093	)		(7,908	)
		(29,460	)		(33,275	)
Limited Partners:
Contributed capital, net (49,656 units)		16,444,002			16,444,002
Accumulated deficit		(405,397	)		(783,086	)
		16,038,605			15,660,916
Total partners’ capital		16,009,145			15,627,641
Total liabilities and partners’ capital	$	17,081,584		$	16,759,461

The accompanying notes are an integral part of these statements.

NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS — (UNAUDITED)

	For the three months ended March 31,
	2011			2010
Service revenues	$	2,489,441		$	2,403,527
Expenses:
Cable system operations / cost of revenue (including $30,008 and $32,297 to affiliates in 2011 and 2010, respectively), excluding depreciation shown below		235,797			230,425
General and administrative (including $265,477 and $238,427 to affiliates in 2011 and 2010, respectively)		667,653			643,899
Programming / cost of revenue (including $15,185 and $11,874 to affiliates in 2011 and 2010, respectively)		1,021,589			931,882
Depreciation / cost of revenue		314,620			301,284
Gain on disposal of assets		(1,833	)		(377	)
		2,237,826			2,107,113
Income from operations		251,615			296,414
Other income (expense):
Interest income and other, net		(1,954	)		(10,171	)
Escrow proceeds		131,843			—
		129,889			(10,171	)
Net income	$	381,504		$	286,243
Allocation of net income:
General Partners (1%)	$	3,815		$	2,862
Limited Partners (99%)	$	377,689		$	283,381
Net income per limited partnership unit (49,656 units):		7.61			5.71

The accompanying notes are an integral part of these statements.

NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS — (UNAUDITED)

	For the three months ended March 31,
	2011			2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	381,504		$	286,243
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation		314,620			301,284
Gain on sale of assets		(1,833	)		(377	)
Escrow proceeds		(131,843	)		—
(Increase) decrease in operating assets:
Accounts receivable		49,440			136,337
Due from affiliates		35,539			(28,767	)
Prepaid expenses		(112,926	)		(150,012	)
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses		(55,831	)		(119,144	)
Due to Managing General Partner and affiliates		(2,147	)		51,284
Deposits		3,741			2,442
Subscriber prepayments		53,170			(11,649	)
Net cash provided by operating activities		533,434			467,641
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(326,251	)		(410,963	)
Proceeds from the sale of assets		2,500			2,500
Escrow proceeds		131,843			—
Net cash used in investing activities		(191,908	)		(408,463	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Distribution to limited partners		—			(868,980	)
Net cash used in financing activities		—			(868,980	)
INCREASE (DECREASE) IN CASH		341,526			(809,802	)
CASH, beginning of period		882,786			1,339,369
CASH, end of period	$	1,224,312		$	529,567

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

The accompanying notes are an integral part of these statements.

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 Partnership’s financial position at March 31, 2011, its statements of operations for the three months ended March 31, 2011 and 2010, and its statements of cash flows for the three months ended March 31, 2011 and 2010. 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 Partnership’s Annual Report on Form 10-K for the year ended December 31, 2010.

(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.

(3) Litigation

The Partnership is party to ordinary and routine litigation proceedings that are incidental to the Partnership’s 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.

(4) Potential Sale of Systems

On July 5, 2007, Northland Cable Properties Seven Limited Partnership executed a purchase and sale agreement (the “Agreement”) to sell the operating assets and franchise rights of its remaining cable systems serving the communities of Vidalia, Sandersville and Toccoa, 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. To secure their performance under the Agreement, Green River deposited $125,000 into escrow (the “Escrow Deposit”), which was intended to be credited to the purchase price at closing. Closing of this transaction would have resulted in the liquidation of the Partnership.

On March 31, 2008, the Partnership notified Green River of its termination of the Agreement. Green River disputed the right of the Partnership to terminate the Agreement. The parties reached a final settlement in the first quarter of 2011. As a result of the settlement, the Partnership received proceeds and accrued interest of $131,843 from the Escrow Deposit. The escrow proceeds were recorded as other income during the first quarter of 2011.

During the first quarter of 2011 the Partnership, with the assistance of an investment banking firm, commenced the process of soliciting bids for its systems from potential interested parties. Initial expressions of interest, if any, are expected to be received in late second quarter. No assurance can be given that the Partnership will receive any acceptable bids and no reasonable estimate of the timing of any asset sales can be given at this time.

Fees for legal and accounting activities in connection with the aforementioned purchase and sale transaction amounted to $2,300 and $10,550 for the three months ended March 31, 2011 and 2010, respectively, and have been expensed as incurred within interest income and other in the accompanying statements of operations.

(5) Fair Value of Assets

We measure certain financial assets at fair value in three levels, based on the markets in which the assets 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 measured at fair value on a recurring basis at March 31, 2011.

	Total		Level 1		Level 2		Level 3
Cash	$	1,224,312	$	1,224,312	$	—	$	—

The following table summarizes the balances of assets measured at fair value on a recurring basis at December 31, 2010.

	Total		Level 1		Level 2		Level 3
Cash	$	882,786	$	882,786	$	—	$	—

PART I (continued)

ITEM 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations — Three Months Ended March 31, 2011 and 2010

Total basic video subscribers decreased from 10,651 as of March 31, 2010 to 9,869 as of March 31, 2011. 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 Partnership’s 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, data and phone products.

Revenue totaled $2,489,441 for the three months ended March 31, 2011, an increase of $85,914 from $2,403,527 for the three months ended March 31, 2010. Revenue for the three months ended March 31, 2011, was comprised of the following sources:

• $1,645,824 (66%) from basic and expanded video services,

• $403,977 (16%) from high speed Internet services

• $187,877 (8%) from telephony services

• $76,722 (3%) from premium video services

• $34,287 (1%) from advertising

• $47,641 (2%) from late fees

• $93,113 (4% ) from other sources.

Average monthly revenue per subscriber increased $9.08 or approximately 12% from $75.61 for the three months ended March 31, 2010 to $84.69 for the three months ended March 31, 2011. This increase is attributable to increased penetration of new products to existing customers, specifically high-speed Internet and telephony services and rate increases implemented throughout the Partnership’s systems during the first quarter of 2011, and the bundling of products to new customers. 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 gain on disposal of assets totaled $235,797 for the three months ended March 31, 2011, representing an increase of approximately 2% from $230,425 for the three months ended March 31, 2010. This increase is primarily attributable to increased system

maintenance expenses, system utilities and vehicle operating expenses offset by a decrease in regional management expense.

General and administrative expenses totaled $667,653 for the three months ended March 31, 2011, representing an increase of approximately 4% from $643,899 for the three months ended March 31, 2010. This increase is primarily attributable to increased administrative salaries, administrative services, net bad debt expense and management fee expense.

Programming expenses totaled $1,021,589 for the three months ended March 31, 2011, an increase of approximately 10% from $931,882 for the three months ended March 31, 2010. 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 10,651 as of March 31, 2010 to 9,869 as of March 31, 2011. 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 $314,620 for the three months ended March 31, 2011, an increase of approximately 4% from $301,284 for the three months ended March 31, 2010. Depreciation of recent purchases related to the upgrade of plant and equipment was partially offset by certain assets becoming fully depreciated.

Interest income and other, net totaled ($1,954) and ($10,171) for the three months ended March 31, 2011 and 2010, respectively, and consists primarily of costs incurred in connection with the proposed sale of the Partnership assets.

The Partnership received escrow proceeds and accrued interest of $131,843 as a result of the termination of the purchase and sale agreement with Green River (see footnote 4). The escrow proceeds were recorded as other income during the first quarter of 2011.

Liquidity and Capital Resources

The Partnership’s 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 management’s analysis, the Partnership’s 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.

Net cash provided by operating activities totaled $533,434 for the three months ended March 31, 2011. Adjustments to the $381,504 net income for the period to reconcile to net cash provided by operating activities consisted primarily of depreciation of $314,620 offset by escrow proceeds of $131,843 and changes in other operating assets and liabilities of $29,014.

Net cash used in investing activities totaled $191,908 for the three months ended March 31, 2011 and consisted primarily of purchases of property and equipment of $323,751, offset by escrow proceeds of $131,843.

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 Partnership’s contractual obligations as of March 31, 2011:

			Payments Due By Period
			Less than 1		1 — 3		3 — 5		More than
	Total		year		Years		years		5 years
Minimum operating lease payments	$	17,733	$	11,200	$	6,533		—		—

(a)	These contractual obligations do not include accounts payable and accrued liabilities, which are expected to be paid in 2011.
(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 as pole rentals are based on pole usage and are cancelable on short notice. The Partnership does however anticipate that such rentals will recur. Pole rental expense was $176,835 in 2010.

Capital Expenditures

During the first three months of 2011, the Partnership paid approximately $326,000 for capital expenditures. These expenditures include the continued construction of fiber and quality assurance projects to upgrade the plant providing increased high speed data capacity in all systems, customer premise equipment to provide all communications services, channel additions in the Sandersville, GA system to provide more high-definition choices, and a vehicle replacement.

Management has estimated that the Partnership will spend approximately $1,151,000 on capital expenditures during the remainder of 2011. Planned expenditures include the continuation of distribution plant upgrades to increase high speed data capacity in all systems, potential line extension opportunities, vehicle replacements and the continued deployment of customer premise equipment concentrating on both high-speed Internet and digital telephone services in certain areas of the Partnership’s systems.

Critical Accounting Policies

This discussion and analysis of our financial condition and results of operations is based on the Partnership’s 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 Partnership’s franchises have indefinite lives because they 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 management’s experience with the Partnership’s franchising authorities and the franchising authorities of the Partnership’s affiliates.

ITEM 3.Quantitative and Qualitative Disclosures About Market Risk

The Partnership is not subject to market risks arising from changes in interest rates.

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 Commission’s 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 Partnership’s internal controls over financial reporting that has materially affected, or is reasonably likely to materially affect, the internal control over financial reporting.

PART II — OTHER INFORMATION

ITEM 1Legal proceedings

On March 31, 2008, the Partnership notified Green River of its termination the Agreement. Green River disputed the right of the Partnership to terminate the Agreement. The parties reached a final settlement in the first quarter of 2011. As a result of the settlement, the Partnership received proceeds and accrued interest of $131,843 of the Escrow Deposit. The escrow proceeds were recorded as other income during the first quarter of 2011. The Partnership will continue to operate its assets in a manner intended to maximize revenue and cash flow.

During the first quarter of 2011 the Partnership, with the assistance of an investment banking firm, commenced the process of soliciting bids for its systems from potential interested parties. Initial expressions of interest, if any, are expected to be received in late second quarter. No assurance can be given that the Partnership will receive any acceptable bids and no reasonable estimate of the timing of any asset sales can be given at this time.

The Partnership may be party to other ordinary and routine litigation proceedings that are incidental to the Partnership’s business. Management believes that the outcome of such legal proceedings will not, individually or in the aggregate, have a material adverse effect on the Partnership, its financial conditions and prospects.

ITEM 1ARisk Factors

There have been no material changes from the Partnership’s risk factors as disclosed in the 2010 Form 10-K.

ITEM 2Changes in securities

     None

ITEM 3Defaults upon senior securities

     None

ITEM 4Submission of matters to a vote of security holders

     None

ITEM 5Other information

     None

ITEM 6Exhibits

(a) Exhibit Index

31 (a). Certification of Chief Executive Officer of Northland Communications Corporation, the Managing General Partner, dated May 12, 2011 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 May 12, 2011 pursuant to section 302 of the Sarbanes-Oxley Act
32 (a).	Certification of Chief Executive Officer of Northland Communications Corporation, the Managing General Partner, dated May 12, 2011 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 May 12, 2011 pursuant to section 906 of the Sarbanes-Oxley Act

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

SIGNATURES	CAPACITIES	DATE
/S/ RICHARD I. CLARKRichard I. Clark	Executive Vice President, Treasurer and Assistant Secretary	5-12-11
/S/ GARY S. JONESGary S. Jones	President	5-12-11