<PAGE> 1
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 SEPTEMBER 30, 1995
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 been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
- ------------------------
This filing contains __ pages. Exhibits index appears on page __.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
BALANCE SHEETS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- --------------
ASSETS
<S> <C> <C>
Cash $ 298,609 $ 263,051
Accounts receivable 195,224 195,505
Prepaid Expenses 107,173 48,576
Property and equipment, net of accumulated
depreciation of $8,991,147 and $7,789,802,
respectively 8,262,767 9,175,305
Intangible assets, net of accumulated
amortization of $20,070,264 and $18,567,597,
respectively 6,364,934 7,867,311
------------ ------------
Total assets $ 15,228,707 $ 17,549,748
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 808,301 $ 568,603
Due to managing general partner and affiliates 73,781 40,387
Converter deposits 43,570 53,285
Subscriber prepayments 136,528 261,621
Notes payable 16,426,011 17,537,318
------------ ------------
Total liabilities 17,488,190 18,461,214
------------ ------------
Partners' equity:
General Partners:
Contributed capital, net (27,928) (24,113)
Accumulated deficit (207,317) (197,651)
------------ ------------
(235,245) (221,764)
------------ ------------
Limited Partners:
Contributed capital, net 18,500,115 18,877,756
Accumulated deficit (20,524,354) (19,567,458)
------------ ------------
(2,024,239) (689,702)
------------ ------------
Total partners' equity (2,259,484) (911,466)
------------ ------------
Total liabilities and partners' equity $ 15,228,707 $ 17,549,748
============ ============
</TABLE>
The accompanying note to unaudited financial statements is an integral part of
these statements
2
<PAGE> 3
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the nine months ended September 30,
---------------------------------------
1995 1994
----------- -----------
<S> <C> <C>
Service revenues $ 6,273,125 $ 5,775,365
Expenses:
Operating 606,546 550,493
General and administrative (including
$823,649 and $727,069 to affiliates
in 1995 and 1994, respectively) 1,487,822 1,390,460
Programming 1,426,577 1,121,374
Depreciation and amortization 2,759,042 2,751,768
----------- -----------
6,279,987 5,814,095
----------- -----------
Loss from operations (6,862) (38,730)
Other income (expense):
Interest expense (946,115) (885,913)
Interest income 4,042 956
Loss on disposal of assets (17,627) --
----------- -----------
(959,700) (884,957)
----------- -----------
Net loss $ (966,562) (923,687)
=========== ===========
Allocation of net loss:
General Partners $ (9,666) $ (9,237)
=========== ===========
Limited Partners $ (956,896) $ (914,450)
=========== ===========
Net loss per limited partnership unit:
(49,687 units and 49,730 units, respectively) $ (19) $ (18)
=========== ===========
Net loss per $1,000 investment $ (39) $ (37)
=========== ===========
</TABLE>
The accompanying note to unaudited financial statements is an integral part of
these statements
3
<PAGE> 4
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the three months ended September 30,
---------------------------------------------
1995 1994
-------------- ---------------
<S> <C> <C>
Service revenues $ 2,156,475 $ 1,963,699
Expenses:
Operating 214,103 180,358
General and administrative (including
$204,339 and $255,405 to affiliates
in 1995 and 1994, respectively) 530,224 474,827
Programming 493,594 403,436
Depreciation and amortization 919,739 919,281
------------- -------------
2,157,661 1,977,902
------------- -------------
Loss from operations (1,186) (14,203)
Other income (expense):
Interest expense (304,990) (313,991)
Interest income 1,342 318
Gain on disposal of assets - -
------------- -------------
(303,648) (313,673)
------------- -------------
Net loss $ (304,834) $ (327,876)
============= =============
Allocation of net loss
General Partners $ (3,048) $ (3,279)
============= =============
Limited Partners $ (301,785) $ (324,597)
============= =============
Net loss per limited partnership unit:
(49,687 units and 49,730 units, respectively) $ (6) $ (7)
============= =============
Net loss per $1,000 investment $ (12) $ (13)
============= =============
</TABLE>
The accompanying note to unaudited financial statements is an integral part of
these statements
4
<PAGE> 5
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the nine months ended September 30,
--------------------------------------------
1995 1994
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (966,562) $ (923,687)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 2,759,042 2,751,768
Loss on disposal of assets 17,627 --
(Increase) decrease in operating assets:
Accounts receivable 281 (29,858)
Prepaid expenses (58,597) (1,922)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 239,698 159,540
Due to managing general partner and affiliates 33,394 28,675
Converter deposits (9,715) (13,515)
Subscriber prepayments (125,093) (112,633)
----------- -----------
Net cash from operating activities 1,890,075 1,858,368
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (361,466) (551,825)
----------- -----------
Net cash used in investing activities (361,466) (551,825)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings (1,111,307) (695,644)
Distributions to partners (376,454) (376,456)
Loan fees and other costs incurred (290) (5,022)
Repurchase of limited partner interest (5,000) --
----------- -----------
Net cash used in financing activities (1,493,051) (1,077,122)
----------- -----------
INCREASE IN CASH 35,558 229,421
CASH, beginning of period 263,051 98,899
----------- -----------
CASH, end of period $ 298,609 $ 328,320
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 756,393 $ 663,742
=========== ===========
</TABLE>
The accompanying note to unaudited financial statements is an integral part of
these statements
5
<PAGE> 6
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, 1995 and December 31, 1994, its Statements
of Operations for the nine and three months ended September 30, 1995 and 1994,
and its Statements of Cash Flows for the nine months ended September 30, 1995
and 1994. Results of operations for these periods are not necessarily indicative
of results to be expected for the full year.
6
<PAGE> 7
PART I (continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues totaled $2,156,475 for the three months ended September 30, 1995
representing an increase of approximately 10% over the same period in 1994. Of
these revenues, $1,502,818 (71%) was derived from basic service charges,
$188,236 (9%) from premium services, $161,406 (7%) from tier services, $66,935
(3%) from installation charges, $69,361 (3%) from service maintenance contracts
and $167,719 (7%) from other sources. The revenue growth is attributable to rate
increases placed into effect in the latter part of 1994, a 3% increase in basic
subscribers and the addition of tier service in the Camano, WA system.
As of September 30, 1995, the Partnership's systems served approximately 23,000
basic subscribers, 6,300 premium subscribers and 7,700 tier subscribers.
Operating expenses totaled $214,103 for the three months ended September 30,
1995, representing an increase of approximately 19% over the same period in
1994. This is the result of increased salary and benefit costs and system
maintenance expense.
General and administrative expenses totaled $530,224 for the three months ended
September 30, 1995, representing an increase of approximately 12% over the same
period in 1994. This is a result of increased salary and benefit costs and
increases in revenue based expenses such as management fees and franchise fees.
Programming expenses totaled $493,594 for the three months ended September 30,
1995, representing an increase of approximately 22% over the same period in
1994. This is due to increased costs charged by various program suppliers,
additional programming costs associated with the new tier in the Camano, WA
system and additional costs related to advertising support.
Depreciation and amortization expense was consistent with the same period in
1994. The slight increase is attributable to new assets placed into service
during the last quarter of 1994 and the first three quarters of 1995 offset by
assets being fully depreciated in the third quarter 1995.
Interest expense for the three months ended September 30, 1995 increased
approximately 3% compared to the same period in 1994. The Partnership's average
bank debt outstanding decreased from $17,879,000 in the third quarter of 1994 to
$16,610,000 in the third quarter of 1995, however, the Partnership's effective
interest rate increased from 6.70% To 7.09%.
7
<PAGE> 8
Liquidity and Capital Resources
The Partnership's primary source of liquidity is cash flow provided from
operations. 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
4.00 To 1 and a minimum ratio of annualized operating cash flow to pro forma
debt service of 1.15 To 1. As of September 30, 1995 the Partnership was in
compliance with its required financial covenants.
As of the date of this filing, the balance under the credit facility is
$16,425,494. Certain fixed rate agreements in place as of June 30, 1995 expired
during the third quarter of 1995, 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: $7,900,000 at Libor based rate of 7.75% expiring
January 16, 1996 and $8,277,000 fixed at 6.40% under the terms of a
self-amortizing interest rate swap agreement with the Partnership's lender
expiring September 30, 1996. The balance of $248,494 bears interest at the prime
rate plus 3/8% (currently 9.13%). 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 1995, the Partnership incurred approximately
$113,000 in capital expenditures. These include costs associated with the tier
launch in the Camano, WA system, plant extensions to serve new subscribers in
the Bay City, TX and Sequim, WA systems and the purchase of local programming
equipment in the Brenham, TX system. Planned capital expenditures for the
balance of 1995 include line extensions in various systems, channel additions,
initial phases of system upgrades to 450 MHz and vehicle replacements.
Effects of Regulation
On October 5, 1992, Congress enacted the Cable Television Consumer Protection
and Competition Act of 1992 (the "1992 Act"). The 1992 act substantially
reregulated the cable television industry and imposed numerous requirements,
including provisions subjecting rates for certain services and equipment to
regulation by the applicable local franchising authority and by the Federal
Communications Commission ("FCC"), exclusive programming arrangements, the
carriage of broadcast signals, customer service standards, leased access
channels, customer premises equipment compatibility and various other matters.
On April 1, 1993, the FCC announced the adoption of rate regulations which
became effective September 1, 1993. Under those initial regulations, rates were
evaluated against "competitive benchmarks" and were generally subject to
rollbacks if they exceeded the benchmark levels. On February 22, 1994, the FCC
substantially revised the rate regulation rules to effect further rate
reductions effective May 15, 1994, or later in certain circumstances, based on
complex formulas and revised benchmarks.
8
<PAGE> 9
All of the Partnership's cable systems are potentially subject to rate
regulation. The 1992 Act (i) requires the FCC to establish rate standards for
basic cable service rates which may be regulated by the applicable local
franchising authority, (ii) requires the FCC, upon receipt of a complaint, to
review rates for additional tiers of cable service, (iii) regulates rates for
mandatorily offered commercial leased access channels and (iv) eliminates the
automatic five percent annual increase for basic rates allowed under prior law.
Rates for channels offered on a per-channel basis as individual purchase options
and pay-per-view events are excluded from rate regulation.
Basic service rates, including the equipment used to receive basic service, may
be regulated by a local franchising authority once it has been "certified" by
the FCC. When the certification becomes effective, the local franchise authority
may request the cable operator to justify its existing rates charged for basic
service and related equipment ("request for justification" or "RFJ"). Rates
charged in excess of the maximum allowable rates determined under FCC
regulations are subject to refund for the period in which the excess rates were
charged or one year, whichever is shorter. Additional tiers of service are
subject to regulation only upon an appropriately filed complaint to the FCC by
any subscriber, franchising authority or other person ("subscriber complaints").
If no subscriber complaints are filed within 45 days of a change in the FCC
regulated rates, such rates are not subject to challenge unless and until the
cable operator seeks to modify them. Refund liability, if any, generally would
be limited to any incremental increase in rates. In late 1994, the FCC revised
its rules to permit cable operators to offer New Product Tiers at rates which
they elect so long as, among other conditions, other channels that are subject
to rate regulation are priced in conformity with applicable regulations and
cable operators do not remove programming services from existing service tiers
and offer them on the New Product Tier.
On May 5, 1995, The FCC announced the adoption of a simplified set of rate
regulation rules that will apply to "small" cable systems, defined as a system
serving 15,000 or fewer subscribers, that are owned by "small" companies,
defined as a company serving 400,000 or fewer subscribers. Under the FCC's
definition, the Partnership is a "small" company and each of the Partnership's
cable systems are "small" systems. Maximum permitted rates under these revised
rules are dependent on several factors including the number of regulated
channels offered, net asset basis of plant and equipment used to deliver
regulated services, the number of subscribers served and a reasonable rate of
return.
As of the date of this filing, the Partnership has received notification that
local franchising authorities with jurisdiction over approximately 23% of the
Partnership's subscribers have elected to certify, no RFJ's have been received
from franchise authorities, and three subscriber complaints have been filed by
systems representing 8% of the Partnership's total subscribers. Based on
management's analysis, the rates charged by these systems are within the maximum
rates allowed under FCC rate regulations.
Future rate increases under this regulatory environment will be dependent on
several factors including the level of inflation as measured by the annual
change in the GNP-PI index, increases in "external costs" as defined by the FCC
and possible changes to the existing rules regarding rate increases associated
with the launch of new services on regulated tiers. Because of the uncertainties
associated with these factors the future impact of rate regulation on the
Partnership's results of operations cannot be determined at this time.
Management feels it is reasonably possible under the
9
<PAGE> 10
price cap mechanism that operating margins will stabilize and perhaps increase
in future periods as inflation and external cost increases are allowed to be
passed through to subscribers through rate adjustments.
10
<PAGE> 11
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, 1995.
11
<PAGE> 12
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)
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 298,609
<SECURITIES> 0
<RECEIVABLES> 195,224
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 601,006
<PP&E> 17,253,914
<DEPRECIATION> 8,991,147
<TOTAL-ASSETS> 15,228,707
<CURRENT-LIABILITIES> 1,062,180
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (2,259,484)
<TOTAL-LIABILITY-AND-EQUITY> 15,228,707
<SALES> 0
<TOTAL-REVENUES> 6,273,125
<CGS> 0
<TOTAL-COSTS> 606,546
<OTHER-EXPENSES> 5,673,441
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 946,115
<INCOME-PRETAX> (966,562)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (966,562)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
