<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 MARCH 31, 1996
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or
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from to
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Commission File Number: 0-16718
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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
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(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
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(Address of Principal Executive Offices) (Zip Code)
(206) 621-1351
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(Registrant's telephone number, including area code)
N/A
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(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 No X
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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>
March 31, December 31,
1996 1995
------------ ------------
ASSETS
<S> <C> <C>
Cash $ 618,367 $ 309,737
Accounts receivable 254,824 227,249
Prepaid expenses 134,821 61,141
Property and equipment, net of accumulated
depreciation of $9,840,585 and $9,415,089,
respectively 10,636,255 8,055,009
Intangible assets, net of accumulated
amortization of $20,070,264 and $20,571,173,
respectively 13,343,237 5,867,833
------------ ------------
Total assets $ 24,987,504 $ 14,520,969
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 786,966 $ 733,096
Due to managing general partner and affiliates 268,584 80,387
Converter deposits 39,133 41,793
Subscriber prepayments 136,041 236,032
Notes payable 26,700,000 16,056,381
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Total liabilities 27,930,724 17,147,689
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Partners' equity:
General Partners:
Contributed capital, net (25,367) (24,113)
Accumulated deficit (216,614) (214,703)
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(241,981) (238,816)
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Limited Partners:
Contributed capital, net 18,743,576 18,867,756
Accumulated deficit (21,444,815) (21,255,660)
------------ ------------
(2,701,239) (2,387,904)
------------ ------------
Total partners' equity (2,943,220) (2,626,720)
------------ ------------
Total liabilities and partners' equity $ 24,987,504 $ 14,520,969
============ ============
</TABLE>
The accompanying note to unaudited financial statements is an integral part
of these statements
<PAGE> 3
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the three months ended March 31,
--------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
Service revenues $ 2,357,139 $ 2,000,867
Expenses:
Operating 216,976 187,628
General and administrative (including
$269,299 and $265,020 to affiliates
in 1996 and 1995, respectively) 550,234 465,943
Programming 559,411 460,381
Depreciation and amortization 926,392 921,181
----------- -----------
2,253,013 2,035,133
----------- -----------
Loss from operations 104,126 (34,266)
Other income (expense):
Interest expense (296,376) (322,061)
Interest income 1,185 1,071
Loss on disposal of assets -- (17,627)
----------- -----------
(295,191) (338,617)
----------- -----------
Net loss $ (191,065) (372,883)
=========== ===========
Allocation of net loss:
General Partners $ (1,911) $ (3,729)
=========== ===========
Limited Partners $ (189,154) $ (369,154)
=========== ===========
Net loss per limited partnership unit:
(49,672 units and 49,692 units, respectively) $ (4) $ (7)
=========== ===========
Net loss per $1,000 investment $ (8) $ (15)
=========== ===========
</TABLE>
The accompanying note to unaudited financial statements is an integral part
of these statements
2
<PAGE> 4
NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS - (Unaudited)
(Prepared by the Managing General Partner)
<TABLE>
<CAPTION>
For the three months ended March 31,
--------------------------------------
1996 1995
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (191,065) $(372,883)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 926,392 921,181
Loss on disposal of assets -- 17,627
(Increase) decrease in operating assets:
Accounts receivable (27,575) 6,745
Prepaid expenses (73,680) (94,678)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 53,870 (81,000)
Due to managing general partner and affiliates 188,197 15,685
Converter deposits (2,660) (3,725)
Subscriber prepayments (99,991) (133,372)
------------ ---------
Net cash from operating activities 773,488 275,580
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (94,691) (77,745)
Purchase of cable television systems (9,947,179)
------------ ---------
Net cash used in investing activities (10,041,870) (77,745)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on borrowings -- (370,078)
Distributions to partners (125,434) (125,486)
Proceeds from borrowings under long term debt, net 10,643,619 --
Loan fees and other costs incurred (941,173) (290)
------------ ---------
Net cash used in financing activities 9,577,012 (495,854)
------------ ---------
INCREASE IN CASH 308,630 (298,019)
CASH, beginning of period 309,737 263,051
------------ ---------
CASH, end of period $ 618,367 $ (34,968)
============ =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 305,561 $ 431,594
============ =========
</TABLE>
The accompanying note to unaudited financial statements is an integral part
of these statements
2
<PAGE> 5
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 March 31, 1996 and December 31, 1995, its Statements of
Operations for the three months ended March 31, 1996 and 1995, and its
Statements of Cash Flows for the three months ended March 31, 1996 and 1995.
Results of operations for these periods are not necessarily indicative of
results to be expected for the full year.
5
<PAGE> 6
PART I (continued)
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Revenues totaled $2,357,139 for the three months ended March 31, 1996
representing an increase of approximately 18% over the same period in 1995. Of
these revenues, $1,670,765 (71%) was derived from basic service charges,
$211,628 (9%) from premium services, $176,391 (7%) from tier services, $57,052
(2%) from installation charges, $72,234 (3%) from service maintenance contracts
and $169,069 (8%) from other sources. The revenue growth is attributable to rate
increases placed into effect in the latter part of 1995, and the acquisition of
approximately 6,500 subscribers in Vidalia, GA.
As of March 31, 1996, the Partnership's systems served approximately 29,400
basic subscribers, 10,400 premium subscribers and 11,600 tier subscribers.
Operating expenses totaled $216,976 for the three months ended March 31, 1996,
representing an increase of approximately 16% over the same period in 1995. This
is the result of increases in salary and benefit costs and the acquisition of
the Vidalia, GA systems.
General and administrative expenses totaled $550,234 for the three months ended
March 31, 1996, representing an increase of approximately 18% over the same
period in 1995. This is a result of increased salary and benefit costs and
increases in revenue based expenses such as management fees and franchise fees,
which coincide with the revenue growth noted above.
Programming expenses totaled $559,411 for the three months ended March 31, 1996,
representing an increase of approximately 22% over the same period in 1995. This
is due to increased costs charged by various program suppliers, and higher costs
associated with additional subscribers from the acquisition of systems in
Vidalia, GA.
Depreciation and amortization expense for the three months ended March 31, 1996
increased approximately 1% over the same period in 1995. The increase is
attributable to new assets acquired in the Vidalia, GA system, offset by assets
being fully depreciated in the first quarter of 1996.
Interest expense for the three months ended March 31, 1996 decreased
approximately 8% compared to the same period in 1995. The Partnership's average
bank debt outstanding increased from $17,348,000 in the first quarter of 1995 to
$21,228,000 in the first quarter of 1996, however, the Partnership's effective
interest rate decreased from 7.43% to 5.58%.
6
<PAGE> 7
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
5.75 to 1 and a minimum ratio of annualized operating cash flow to pro forma
debt service of 1.20 to 1. As of March 31, 1996 the Partnership was in
compliance with its required financial covenants.
As of the date of this filing, the balance under the credit facility is
$26,400,000. Certain fixed rate agreements in place as of December 31, 1995
expired during the fist quarter of 1996, 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: 7,300,000 fixed at 7.84% under the terms of an
interest rate swap agreement with the Partnership's lender expiring January 16,
1998; $7,835,250 fixed at 6.9% under the terms of an amortizing interest rate
swap agreement with the Partnership's lender expiring September 30, 1996;
$10,000,000 fixed at 7.92% under the terms of an interest rate swap agreement
with the Partnership's lender expiring March 6, 1998; and $1,000,000 fixed at a
Libor rate of 7.9375% expiring June 10, 1996. The balance of $264,750 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 first quarter of 1996, the Partnership incurred approximately $95,000
in capital expenditures. These included line extensions in various systems and
storm damage repairs in the Camano Island, WA system. Planned expenditures for
the balance of 1996 include initial efforts to upgrade the Sequim, WA system and
line extensions, advertising insertion equipment and vehicle replacements in
various systems.
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 and subsequent
revisions and rulemakings substantially re-regulated the cable television
industry. The regulatory aspects of the 1992 Act included giving the local
franchising authorities and the FCC the ability to regulate rates for basic
services, equipment charges and additional CPST's when certain conditions were
met. All of the Partnership's cable systems were potentially subject to rate
regulation. The most significant impact of rate regulation was the inability to
raise rates for regulated services as costs of operation rose during an FCC
imposed rate freeze from April 5, 1993 to May 15, 1994. This has contributed to
operating margins before depreciation and amortization declining from 48% for
the twelve months ended December 31, 1993 to 46% for the same period in 1994.
7
<PAGE> 8
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 is 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.
On February 8, 1996, the Telecommunications Act of 1996 (the 1996 Act) became
law. The 1996 Act will eliminate all rate controls on CPST's of small cable
systems, defined by the 1996 Act as systems serving fewer than 50,000
subscribers owned by operators serving fewer than 1% of all subscribers in the
United States (approximately 600,000 subscribers). All of the Partnership's
cable systems qualify as small cable systems. Many of the changes called for by
the 1996 Act will not take effect until the FCC issues new regulations, a
process that could take from several months to a few years depending on the
complexity of the required changes and the statutory time limits. Because of
this the full impact of the 1996 Act on the Partnership's operations cannot be
determined at this time.
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 and no RFJ's have been
received from franchise authorities. Based on management's analysis, the rates
charged by these systems are within the maximum rates allowed under FCC rate
regulations.
8
<PAGE> 9
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) Form 8-K, dated February 29, 1996 was filed March 15, 1996 reporting the
acquisition of the Vidalia, GA systems which occurred on February, 29 1996 and
March 1, 1996.
9
<PAGE> 10
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: 5-14-96 BY: /s/ RICHARD I. CLARK
--------------- ------------------------------------
Richard I. Clark
(Vice President/Treasurer)
Dated: 5-14-96 BY: /s/ GARY S. JONES
--------------- ------------------------------------
Gary S. Jones
(Vice President)
10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 618,367
<SECURITIES> 0
<RECEIVABLES> 254,824
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,008,012
<PP&E> 20,476,840
<DEPRECIATION> 9,840,585
<TOTAL-ASSETS> 24,987,504
<CURRENT-LIABILITIES> 1,230,724
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (2,943,220)
<TOTAL-LIABILITY-AND-EQUITY> 24,987,504
<SALES> 0
<TOTAL-REVENUES> 2,357,139
<CGS> 0
<TOTAL-COSTS> 216,976
<OTHER-EXPENSES> 2,036,037
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296,376
<INCOME-PRETAX> (191,065)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (191,065)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
