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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 quarterly period ended September 30, 1999
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: 0-16718
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.)
1201 Third Avenue, Suite 3600, 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 subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
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This filing contains __ pages. Exhibits index appears on page __.
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PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
BALANCE SHEETS - (Unaudited)
(Prepared by the Managing General Partner)
September 30, December 31,
1999 1998
------------ ------------
ASSETS
Cash $ 605,540 $ 1,476,227
Accounts receivable 169,325 428,526
Prepaid expenses 138,150 105,118
Property and equipment, net of accumulated
depreciation of $16,796,000 and $15,279,030,
respectively 14,772,358 14,284,696
Intangible assets, net of accumulated
amortization of $8,352,736 and $6,552,976,
respectively 16,281,828 18,076,588
------------ ------------
Total assets $ 31,967,201 $ 34,371,155
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,340,771 $ 1,691,205
Due to managing general partner and affiliates 38,117 237,048
Converter deposits 37,295 35,304
Subscriber prepayments 483,129 643,184
Notes payable 40,262,721 41,217,445
------------ ------------
Total liabilities 42,162,033 43,824,186
------------ ------------
Partners' equity:
General Partners:
Contributed capital, net (25,367) (25,367)
Accumulated deficit (289,050) (281,632)
------------ ------------
(314,417) (306,999)
------------ ------------
Limited Partners:
Contributed capital, net 18,735,576 18,735,576
Accumulated deficit (28,615,991) (27,881,608)
------------ ------------
(9,880,415) (9,146,032)
------------ ------------
Total partners' equity (10,194,832) (9,453,031)
------------ ------------
Total liabilities and partners' equity $ 31,967,201 $ 34,371,155
============ ============
The accompanying notes to unaudited financial statements are an integral part of
these statements
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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
For the nine months ended September 30,
---------------------------------------
1999 1998
------------ ------------
Service revenues $ 13,067,750 $ 12,543,646
Expenses:
Operating 1,187,823 1,093,338
General and administrative (including
$1,506,372 and $1,422,096 to affiliates
in 1999 and 1998, respectively) 3,027,338 2,918,270
Programming 3,522,302 3,322,807
Depreciation and amortization 3,265,235 3,808,483
------------ ------------
11,002,698 11,142,898
------------ ------------
Income from operations 2,065,052 1,400,748
Other income (expense):
Interest expense (2,751,581) (2,804,839)
Interest income 23,149 21,293
Other income (expense) -- (2,240)
Gain (loss) on disposal of assets (78,422) (70,741)
------------ ------------
(2,806,854) (2,856,527)
------------ ------------
Net loss $ (741,802) (1,455,779)
============ ============
Allocation of net loss:
General Partners $ (7,418) $ (14,558)
============ ============
Limited Partners $ (734,384) $ (1,441,221)
============ ============
Net loss per limited partnership unit:
(49,656 units) $ (15) $ (29)
============ ============
Net loss per $1,000 investment $ (30) $ (58)
============ ============
The accompanying notes to unaudited financial statements are an integral part of
these statements
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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
For the three months ended September 30,
----------------------------------------
1999 1998
----------- -----------
Service revenues $ 4,459,266 $ 4,308,231
Expenses:
Operating 398,655 379,844
General and administrative (including
$499,796 and $485,321 to affiliates
in 1999 and 1998, respectively) 1,044,808 1,030,973
Programming 1,191,968 1,157,063
Depreciation and amortization 1,063,030 1,271,719
----------- -----------
3,698,461 3,839,599
----------- -----------
Income from operations 760,805 468,632
Other income (expense):
Interest expense (920,629) (943,052)
Interest income 5,840 13,104
Other income (expense) -- --
Gain (loss) on sale of assets (85,792) (2,240)
----------- -----------
(1,000,581) (932,188)
----------- -----------
Net loss $ (239,776) $ (463,556)
=========== ===========
Allocation of net loss:
General Partners $ (2,398) $ (4,636)
=========== ===========
Limited Partners $ (237,378) $ (458,920)
=========== ===========
Net loss per limited partnership unit:
(49,656 units) $ (5) $ (9)
=========== ===========
Net loss per $1,000 investment $ (10) $ (18)
=========== ===========
The accompanying notes to unaudited financial statements are an integral part of
these statements
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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS - (Unaudited)
(Prepared by the Managing General Partner)
For the nine months ended September 30,
---------------------------------------
1999 1998
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (741,802) $(1,455,779)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 3,378,987 3,808,483
Loss on disposal of assets 78,422 70,741
(Increase) decrease in operating assets:
Accounts receivable 259,201 417,303
Prepaid expenses (33,032) (42,446)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses (350,434) 689,829
Due to managing general partner and affiliates (198,931) 13,896
Converter deposits 1,991 2,705
Subscriber prepayments (160,055) (455,955)
----------- -----------
Net cash from operating activities 2,234,347 3,048,777
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (2,173,091) (792,756)
Proceeds from sale of assets 27,780 (4,924)
Increase in intangibles (5,000) 1,000
----------- -----------
Net cash used in investing activities (2,150,311) (796,680)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under long term debt, net -- 190,000
Principal payments on borrowings (954,723) (252,828)
Distributions to partners -- --
Loan fees and other costs incurred -- --
Repurchase of limited partner interest -- --
----------- -----------
Net cash used in financing activities (954,723) (62,828)
----------- -----------
(DECREASE) INCREASE IN CASH (870,687) 2,189,269
CASH, beginning of period 1,476,227 586,000
----------- -----------
CASH, end of period $ 605,540 $ 2,775,269
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 2,642,352 $ 2,262,277
=========== ===========
The accompanying notes to unaudited financial statements are an integral part of
these statements
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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
NOTE TO UNAUDITED FINANCIAL STATEMENTS
(1) 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 fair
presentation of the Balance Sheets, Statements of Operations and Statements of
Cash Flows in conformity with generally accepted accounting principles. However,
in the opinion of management, this data includes all adjustments, consisting
only of normal recurring accruals, necessary to present fairly the Partnership's
financial position at September 30, 1999 and December 31, 1998, its Statements
of Operations for nine and three months ended September 30, 1999 and 1998, and
its Statements of Cash Flows for the nine months ended September 30, 1999 and
1998. Results of operations for these periods are not necessarily indicative of
results to be expected for the full year.
(2) In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities. The Statement establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. The Statement
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting.
Statement 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance (that is, fiscal quarters beginning June 16, 1998 and
thereafter). Statement 133 cannot be applied retroactively. Statement 133 must
be applied to (a) derivative instruments and (b) certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997 (and, at the company's election, before January
1, 1998).
The Partnership has not yet quantified the impacts of adopting Statement 133 on
its financial statements and has not determined the timing of or method of
adoption of Statement 133. However, the Statement could increase volatility in
earnings and other comprehensive income.
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PART I (continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Nine Months Ended September 30, 1999 and 1998
Revenues totaled $13,067,750 for the nine months ended September 30, 1999
representing an increase of approximately 4% over the same period in 1998. Of
these revenues, $9,337,567 (72%) was derived from basic service charges,
$1,081,463 (8%) from premium services, $1,018,904 (8%) from tier services,
$292,272 (2%) from installation charges, $295,221 (2%) from service maintenance
contracts, $620,011 (5%) from advertising and $422,312 (3%) from other sources.
The growth in revenue is attributable to rate increases implemented in the
Partnership's systems and a 6% increase in the number of tier subscribers.
As of September 30, 1999, the Partnership's systems served approximately 39,600
basic subscribers, 15,900 premium subscribers and 13,600 tier subscribers.
Operating expenses totaled $1,187,823 for the nine months ended September 30,
1999, representing an increase of approximately 9% over the same period in 1998.
This increase is primarily attributable to: (i) increases in salary and benefit
costs due to cost of living adjustments; and (ii) increases to pole, duct and
site rental costs.
General and administrative expenses totaled $3,027,338 for the nine months ended
September 30, 1999, representing an increase of approximately 4% over the same
period in 1998. This increase is primarily attributable to: (i) increases in
salary and benefit costs due to cost of living adjustments; and (ii) increases
in revenue based expenses such as management and franchise fees due to increased
revenue as noted previously.
Programming expenses totaled $3,522,302 for the nine months ended September 30,
1999, representing an increase of approximately 6% over the same period in 1998.
This increase is primarily attributable to: (i) higher programming costs
resulting from rate increases charged by various program suppliers; and (ii)
higher advertising sales commissions and agency fee expenses resulting from
increases in advertising revenues.
Depreciation and amortization expense for the nine months ended September 30,
1999 decreased approximately 14% over the same period in 1998. Such decrease was
the result of certain assets becoming fully depreciated and amortized in 1998.
Interest expense for the nine months ended September 30, 1999 decreased
approximately 2% over the same period in 1998. The Partnership's average bank
debt outstanding decreased from $41,466,757 during the first nine months of 1998
to $40,740,083 during the first nine months of 1999.
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Three Months Ended September 30, 1999 and 1998
Revenues totaled $4,459,266 for the three months ended September 30, 1999
representing an increase of approximately 4% over the same period in 1999. Of
these revenues, $3,167,577 (72%) was derived from basic service charges,
$358,641 (8%) from premium services, $357,404 (8%) from tier services, $97,114
(2%) from installation charges, $100,163 (2%) from service maintenance
contracts, $236,192 (5%) from advertising and $142,175 (3%) from other sources.
The growth in revenue is attributable to rate increases implemented in the
Partnership's systems during 1999.
Operating expenses totaled $398,655 for the three months ended September 30,
1999, representing an increase of approximately 5% over the same period in 1998.
This increase is primarily attributable to: (i) increases in salary and benefit
costs due to cost of living adjustments; and (ii) increases to pole, duct and
site rental costs.
General and administrative expenses totaled $1,044,808 for the three months
ended September 30, 1999, representing an increase of approximately 1% over the
same period in 1998. This increase is primarily attributable to: (i) increases
in salary and benefit costs due to cost of living adjustments; and (ii)
increases in revenue based expenses such as management and franchise fees,
offset by a one time adjustment to copyright fees.
Programming expenses totaled $1,191,968 for the three months ended September 30,
1999, representing an increase of approximately 3% over the same period in 1998.
This increase is primarily attributable to higher programming costs resulting
from rate increases charged by various program suppliers
Depreciation and amortization expense for the three months ended September 30,
1999 decreased approximately 22% over the same period in 1998. Such decrease was
the result of certain assets becoming fully depreciated and amortized in 1998.
Interest expense for the three months ended September 30, 1999 decreased
approximately 2% over the same period in 1998. The Partnership's average bank
debt outstanding decreased from $41,415,343 in the third quarter of 1998 to
$40,422,155 in the third quarter of 1999.
Liquidity and Capital Resources
The Partnership's primary sources of liquidity are cash flow provided from
operations and borrowing capacity under the Partnership's existing revolving
credit facility. Based on management's analysis, the Partnership's cash flow
from operations is sufficient to cover future operating costs, debt service and
planned capital expenditures.
Under the terms of the Partnership's loan agreement, the Partnership has agreed
to restrictive covenants which require the maintenance of certain ratios
including a maximum ratio of senior debt to annualized operating cash flow of
5.50 to 1.00 and a minimum ratio of annualized
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operating cash flow to pro forma debt service of 1.20 to 1.00. As of September
30, 1999 the Partnership was in compliance with its required financial
covenants.
As of the date of this filing, the balance under the credit facility is
$39,912,500. Certain fixed rate agreements in place as of June 30, 1999 expired
during the third quarter of 1999, and the Partnership entered into new fixed
rate agreements. As of the date of this filing, interest rates on the credit
facility were as follows: $19,562,500 fixed at 8.635% under the terms of a self
amortizing interest rate swap agreement with the Partnership's lender expiring
December 29, 2000; $9,000,000 fixed at 8.315% under the terms of an interest
rate swap agreement with the Partnership's lender expiring June 15, 2000;
$6,000,000 fixed at 8.335% under the terms of an interest rate swap agreement
with the Partnership's lender expiring March 12, 2001; $4,100,000 fixed at
8.335% under the terms of an interest rate swap agreement with the Partnership's
lender expiring March 12, 2001; and $1,000,000 at a Libor based rate of 7.885%
expiring December 15, 1999. The balance of $250,000 bears interest at prime plus
1.25% (currently 9.50%). The above rates include a margin paid to the lender
based on overall leverage, and may increase or decrease as the Partnership's
leverage fluctuates.
Capital Expenditures
During the third quarter of 1999, the Partnership incurred approximately
$819,000 in capital expenditures, including the continuation of an upgrade of
the distribution plant to 400 MHz in the Camano, WA system; the initial
construction phase of a fiber optic backbone in the Sandersville, GA system; the
ongoing upgrade of the distribution plant to 450 MHz in the Bay City, TX system;
the continuation of an upgrade of the distribution plant to 550 MHz in the
Toccoa, GA system; as well as various line extensions and vehicle replacements
in all of the systems.
Planned expenditures for the balance of 1999 include the continuation of an
upgrade of the distribution plant to 400 MHz in the Camano, WA system;
continuation of an upgrade of the distribution plant to 450 MHz in the Bay City,
TX system; continuation of the upgrade of the Toccoa, GA system to 550 MHz; and
various line extensions in all of the systems.
Year 2000 Issues
The efficient operation of the Partnership's business is dependent in part on
its computer software programs and operating systems (collectively, Programs and
Systems). These Programs and Systems are used in several key areas of the
Partnership's business, including subscriber billing and collections and
financial reporting. Management has evaluated the Programs and Systems utilized
in the conduct of the Partnership's business for the purpose of identifying year
2000 compliance problems. Failure to remedy these issues could impact the
ability of the Partnership to timely bill its subscribers for service provided
and properly report its financial condition and results of operations which
could have a material impact on its liquidity and capital resources.
The Programs and Systems utilized in subscriber billing and collections have
been modified to address year 2000 compliance issues. These modifications were
substantially complete at the
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end of 1998. Management has completed the process of replacing Programs and
Systems related to financial reporting which resolve year 2000 compliance
issues. The aggregate cost to the Partnership to address year 2000 compliance
issues is not expected to be material to its results of operations, liquidity
and capital resources.
Management is currently focusing its efforts on the impact of the year 2000
compliance issue on service delivery and has established an internal team to
address this issue. The internal team is identifying and testing all date
sensitive equipment involved in delivering service to its customers. In
addition, management will assess its options regarding repair or replacement of
affected equipment during this testing. The aggregate cost to the Partnership to
address year 2000 compliance issues is not expected to be material to its
results of operations, liquidity and capital resources.
The provision of cable television services is significantly dependent on the
Partnership's ability to adequately receive programming signals via satellite
distribution or off air reception from various programmers and broadcasters. The
Partnership has inquired of certain significant programming vendors with respect
to their year 2000 issues and how they might impact the operations of the
Partnership. As of the date of this filing no significant programming vendor has
communicated a year 2000 issue that would affect materially the operations of
the Partnership. However, if significant programming vendors identify year 2000
issues in the future and are unable to resolve such issues in a timely manner,
it could result in a material financial risk.
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PART II - OTHER INFORMATION
ITEM 1 Legal proceedings
None
ITEM 2 Changes in securities
None
ITEM 3 Defaults upon senior securities
None
ITEM 4 Submission of matters to a vote of security holders
None
ITEM 5 Other information
None
ITEM 6 Exhibits and Reports on Form 8-K
(a) Exhibit index
27.0 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter ended September
30, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: BY: /s/ RICHARD I. CLARK
---------------------------
Richard I. Clark
(Vice President/Treasurer)
Dated: BY: /s/ GARY S. JONES
---------------------------
Gary S. Jones
(Vice President)
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
BY: Northland Communications Corporation,
Managing General Partner
Dated: BY:
------------------------------
Richard I. Clark
(Vice President/Treasurer)
Dated: BY:
------------------------------
Gary S. Jones
(Vice President)
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