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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 period ended March 31, 2014
or
| ¨ | 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: 0-18307
Northland Cable Properties Eight Limited Partnership
(Exact Name of Registrant as Specified in Charter)
| Washington | 91-1423516 | |
| (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) 623-1351
(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.
Yes x No ¨
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes x No ¨
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 | ¨ | Accelerated filer | ¨ | |||
| Non-accelerated filer | ¨ | Smaller Reporting Company | x | |||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ¨ No x
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk |
EX-31.A |
EX-31.B |
EX-32.A |
EX-32.B |
EX-101 INSTANCE DOCUMENT |
EX-101 SCHEMA DOCUMENT |
EX-101 CALCULATION LINKBASE DOCUMENT |
EX-101 DEFINITION LINKBASE DOCUMENT |
EX-101 LABELS LINKBASE DOCUMENT |
EX-101 PRESENTATION LINKBASE DOCUMENT |
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| ITEM 1. | Financial Statements |
NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS - (UNAUDITED)
(Prepared by the Managing General Partner)
| March 31, 2014 | December 31, 2013 | |||||||
ASSETS | ||||||||
Cash | $ | 102,423 | 144,373 | |||||
Accounts receivable, net of allowance of $7,500 and $8,000 in 2014 and 2013, respectively | 89,006 | 101,777 | ||||||
Due from affiliates | 4,762 | 16,613 | ||||||
Prepaid expenses | 161,496 | 44,586 | ||||||
Property and equipment, net of accumulated depreciation of $11,431,551, and $11,289,448, respectively | 2,629,635 | 2,629,551 | ||||||
Franchise agreements, net of accumulated amortization of $1,907,136 | $ | 2,292,704 | 2,292,704 | |||||
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Total assets | 5,280,026 | 5,229,604 | ||||||
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LIABILITIES AND PARTNERS’ CAPITAL | ||||||||
Accounts payable and accrued expenses | $ | 326,655 | 325,181 | |||||
Due to General Partner and affiliates | 54,980 | 53,163 | ||||||
Deposits | 9,540 | 9,465 | ||||||
Subscriber prepayments | 186,519 | 192,433 | ||||||
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Total liabilities | 577,694 | 580,242 | ||||||
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Partners’ capital (deficit): | ||||||||
General Partner: | ||||||||
Contributed capital, net | 1,000 | 1,000 | ||||||
Accumulated deficit | (33,966 | ) | (34,496 | ) | ||||
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| (32,966 | ) | (33,496 | ) | |||||
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Limited Partners: | ||||||||
Contributed capital, net (19,087 units) | 8,097,798 | 8,097,798 | ||||||
Accumulated deficit | (3,362,500 | ) | (3,414,940 | ) | ||||
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| 4,735,298 | 4,682,858 | |||||||
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Total partners’ capital | 4,702,332 | 4,649,362 | ||||||
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Total liabilities and partners’ capital | $ | 5,280,026 | 5,229,604 | |||||
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The accompanying notes are an integral part of these statements.
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NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS - (UNAUDITED)
(Prepared by the Managing General Partner)
| For the three months ended March 31, | ||||||||
| 2014 | 2013 | |||||||
Service revenues | $ | 1,147,210 | $ | 1,114,731 | ||||
Expenses: | ||||||||
Cable system operations / cost of revenue (including $17,044, and $16,276 to affiliates in 2014 and 2013, respectively), excluding depreciation shown below | 117,499 | 124,504 | ||||||
General and administrative (including $160,776, and $137,841 to affiliates in 2014 and 2013, respectively) | 347,499 | 299,740 | ||||||
Programming / cost of revenue (including $19,392 and $9,726 to affiliates in 2014 and 2013, respectively) | 487,144 | 434,610 | ||||||
Depreciation / cost of revenue | 142,103 | 135,179 | ||||||
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| 1,094,245 | 994,033 | |||||||
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Insurance proceeds | — | 2,564 | ||||||
Income from operations | 52,965 | 123,262 | ||||||
Other income (expense): | ||||||||
Interest expense and amortization of loan fees | — | (5,442 | ) | |||||
Other income (expenses) net of interest income | 5 | 81 | ||||||
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| 5 | (5,361 | ) | ||||||
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Net income | $ | 52,970 | $ | 117,901 | ||||
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Allocation of net income: | ||||||||
General Partner (1%) | $ | 530 | $ | 1,179 | ||||
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Limited Partners (99%) | $ | 52,440 | $ | 116,722 | ||||
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Net income per limited partnership unit: | ||||||||
(19,087 units) | $ | 3 | $ | 6 | ||||
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The accompanying notes are an integral part of these statements.
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NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(Prepared by the Managing General Partner)
| For the three months ended March 31, | ||||||||
| 2014 | 2013 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 52,970 | $ | 117,901 | ||||
Adjustments to reconcile net income to cash provided by operating activities: | ||||||||
Depreciation | 142,103 | 135,179 | ||||||
Amortization of loan fees | — | 1,007 | ||||||
Insurance proceeds | — | (2,564 | ) | |||||
(Increase) decrease in operating assets: | ||||||||
Accounts receivable | 12,771 | 4,128 | ||||||
Due from affiliates | 11,851 | 2,064 | ||||||
Prepaid expenses | (116,910 | ) | (31,409 | ) | ||||
Increase (decrease) in operating liabilities: | ||||||||
Accounts payable and accrued expenses | 16,325 | 19,832 | ||||||
Due to General Partner and affiliates | 23,381 | 32,086 | ||||||
Subscriber prepayments and deposits | (5,839 | ) | 10,544 | |||||
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Net cash provided by operating activities | 136,652 | 288,768 | ||||||
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CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | (178,602 | ) | (135,373 | ) | ||||
Insurance proceeds | — | 2,564 | ||||||
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Net cash used in investing activities | (178,602 | ) | (132,809 | ) | ||||
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CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Distribution on behalf of limited partners for tax purposes | — | (4,720 | ) | |||||
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Net cash used in financing activities | — | (4,720 | ) | |||||
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(DECREASE) INCREASE IN CASH | (41,950 | ) | 151,239 | |||||
CASH, beginning of period | 144,373 | 380,676 | ||||||
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CASH, end of period | $ | 102,423 | $ | 531,915 | ||||
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for interest | $ | — | $ | 2,908 | ||||
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Capital expenditures in accounts payable at March 31, 2014 and 2013 | $ | — | $ | 25,906 | ||||
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The accompanying notes are an integral part of these statements.
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NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
| (1) | Basis of Presentation |
These unaudited condensed 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, 2014, its statements of operations for the three months ended March 31, 2014 and 2013, and its statements of cash flows for the three months ended March 31, 2014 and 2013. 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, 2013.
| (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 the assets might be impaired. The Partnership’s test for impairment that was performed during the fourth quarter of 2013 indicated that the fair value of the assets exceeded their carrying value.
| (3) | Term Loan |
The Partnership’s term loan matured and was paid in full on July 1, 2013.
| (4) | 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, its financial statements or prospects.
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| ITEM 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Results of Operations - Three months ended March 31, 2014 and 2013
Total video basic subscribers decreased from 3,932 as of March 31, 2013 to 3,407 as of March 31, 2014. 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. In its efforts to address this customer trend, the Partnership is increasing its marketing and customer retention efforts and its emphasis on bundling its video, data and phone products.
Revenue totaled $1,147,210 for the three months ended March 31, 2014, an increase of 3% from $1,114,731 for the three months ended March 31, 2013. Revenues for the three months ended March 31, 2014 were comprised of the following sources:
| • | $585,310 (51%) from basic and expanded video services |
| • | $314,875 (28%) from high speed internet services |
| • | $107,764 (9%) from telephony services |
| • | $21,259 (2%) from premium video services |
| • | $13,299 (1%) from advertising |
| • | $24,883 (2%) from late fees |
| • | $79,820 (7%) from other sources |
Average monthly revenue per subscriber increased $15.92 or approximately 17% from $96.30 for three months ended March 31, 2013 to $112.22 for the three months ended March 31, 2014. This increase is attributable to rate increases implemented throughout the Partnership’s systems during the first quarter of 2014, increased penetration of new products to existing customers, specifically high-speed Internet and telephony services, and product bundling 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 and depreciation expense totaled $117,499 for the three months ended March 31, 2014, a decrease of approximately 6% from the same period in 2013. This decrease is primarily attributable to a decrease in operating salaries.
General and administrative expenses totaled $347,499 for the three months ended March 31, 2014, an increase of approximately 16% from $299,740 for the same period in 2013. This increase is primarily attributable to higher administrative salaries, administrative services, legal expense, marketing expenses, public filing and reporting expenses and management fees.
Programming expenses totaled $487,144 for the three months ended March 31, 2014, an increase of approximately 12% over the same period in 2013. The increase is primarily attributable to higher costs charged by various program suppliers and higher costs associated with the increase in high-speed Internet and telephone subscribers, offset by the aforementioned decrease in video subscribers. Rate increases from program suppliers, as well as new fees due to the launch of additional channels, high-speed Internet and telephone services, will contribute to the trend of increased programming costs in the future.
Depreciation expense totaled $142,103 for the three months ended March 31, 2014, an increase of approximately 5% over the same period in 2013. Depreciation of recent purchases related to the upgrade of plant and equipment was partially offset by certain assets becoming fully depreciated.
Interest expense and amortization of loan fees decreased from $5,442 for the three months ended March 31, 2013, to $0 for the three months ended March 31, 2014. The Partnership paid off the outstanding balance of its term loan on July 1, 2013.
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 video, Internet, telephone 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.
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Net cash provided by operating activities totaled $136,652 for the three months ended March 31, 2014. Adjustments to the $52,970 net income for the period to reconcile to net cash provided by operating activities consisted of depreciation of $142,103 and changes in other operating assets and liabilities of ($58,421).
Net cash used in investing activities totaled $178,602 for the three months ended March 31, 2014 and consisted of purchases of property and equipment.
Term Loan
The Partnership’s term loan matured and was paid in full on July 1, 2013.
Obligations and Commitments
In addition to working capital needs for ongoing operations, the Partnership has capital requirements for annual required minimum operating lease payments. The following table summarizes the Partnership’s contractual obligations as of March 31, 2014:
| Payments Due By Period | ||||||||||||||||||||
| Total | Less than 1 year | 1 – 3 Years | 3 – 5 years | More than 5 years | ||||||||||||||||
Minimum operating lease payments | $ | 80,700 | $ | 1,500 | $ | 2,400 | $ | 2,400 | $ | 74,400 | ||||||||||
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| (a) | These contractual obligations do not include accounts payable and accrued liabilities, which are expected to be paid in 2014. |
| (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 $107,336 in 2013. |
Capital Expenditures
During the first three months of 2014, the Partnership paid $178,602 for capital expenditures. These expenditures included continued upgrades to both systems to expand and maintain the high speed data service capabilities and customer premise equipment to provide services.
Management has estimated that the Partnership will spend approximately $608,000 on capital expenditures during the remainder of 2014. Planned expenditures include continued upgrade and quality assurance work to maintain reliable video signals and broadband speeds in both systems, vehicle replacement and customer premise equipment to provide services.
Critical Accounting Policies
This discussion and analysis of 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 revenue, including service and maintenance, is recognized in the month service is provided to customers. Advance payments on cable 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.
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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 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 as its cash balance is comprised of deposits at financial institutions.
Cautionary statement for purposes of the “Safe Harbor” provisions of the Private Litigation Reform Act of 1995: Statements contained or incorporated by reference in this document that are not based on historical fact are “forward-looking statements” within the meaning of the Private Securities Reform Act of 1995. Forward-looking statements may be identified by use of forward-looking terminology such as “believe”, “intends”, “may”, “will”, “expect”, “estimate”, “anticipate”, “continue”, or similar terms, variations of those terms or the negative of those terms.
| 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 Vice President and Controller (Chief 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.
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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, its financial statements or prospects.
There have been no material changes from the Partnership’s risk factors as disclosed in the 2013 Form 10-K.
| (a) | Exhibit Index |
| 31 (a). | Certification of Chief Executive Officer of Northland Communications Corporation, the General Partner, dated May 9, 2014 pursuant to section 302 of the Sarbanes-Oxley Act | |
| 31 (b). | Certification of Vice President, Controller (Chief Accounting Officer) of Northland Communications Corporation, the General Partner, dated May 9, 2014 pursuant to section 302 of the Sarbanes-Oxley Act | |
| 32 (a). | Certification of Chief Executive Officer of Northland Communications Corporation, the General Partner, dated May 9, 2014 pursuant to section 906 of the Sarbanes-Oxley Act | |
| 32 (b). | Certification of Vice President, Controller (Chief Accounting Officer) of Northland Communications Corporation, the General Partner, dated May 9, 2014 pursuant to section 906 of the Sarbanes-Oxley Act | |
| 101 | The following financial information from Northland Cable Properties Eight Limited Partnership Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 is formatted in XBRL: (i) the Unaudited Condensed Consolidated Balance Sheets, (ii) the Unaudited Condensed Consolidated Statements of Operations, (iii) the Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss), (iv) the Unaudited Condensed Consolidated Statements of Cash Flows and (iv) the Notes to Condensed Consolidated Financial Statements. | |
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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 EIGHT LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
General Partner
| SIGNATURES | CAPACITIES | DATE | ||
/s/ RICHARD I, CLARK | Executive Vice President, Treasurer and | 5-9-14 | ||
| Richard I. Clark | Assistant Secretary | |||
/s/ GARY S. JONES | Chief Executive Officer | 5-9-14 | ||
| Gary S. Jones | ||||