<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 JUNE 30, 1996
--------------------------------------
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 No X
----- -----
________________________
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>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 1,139,247 $ 309,737
Accounts receivable 285,347 227,249
Prepaid expenses 134,625 61,141
Property and equipment, net of accumulated
depreciation of $10,368,941 and $9,415,089,
respectively 10,380,943 8,055,009
Intangible assets, net of accumulated
amortization of $21,572,963 and $20,571,173,
respectively 12,931,980 5,867,833
------------ ------------
Total assets $ 24,872,142 $ 14,520,969
============ ============
LIABILITIES AND PARTNERS' EQUITY
Accounts payable and accrued expenses $ 1,220,259 $ 733,096
Due to managing general partner and affiliates 166,882 80,387
Converter deposits 38,164 41,793
Subscriber prepayments 137,248 236,032
Notes payable 26,697,949 16,056,381
------------ ------------
Total liabilities 28,260,502 17,147,689
------------ ------------
Partners' equity:
General Partners:
Contributed capital, net (25,367) (24,113)
Accumulated deficit (220,985) (214,703)
------------ ------------
(246,352) (238,816)
------------ ------------
Limited Partners:
Contributed capital, net 18,735,576 18,867,756
Accumulated deficit (21,877,584) (21,255,660)
------------ ------------
(3,142,008) (2,387,904)
------------ ------------
Total partners' equity (3,388,360) (2,626,720)
------------ ------------
Total liabilities and partners' equity $ 24,872,142 $ 14,520,969
============ ============
</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 six months ended June 30,
---------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Service revenues $5,144,170 $4,116,650
Expenses:
Operating 494,610 392,443
General and administrative (including
$581,913 and $528,951 to affiliates
in 1996 and 1995, respectively) 1,239,957 957,598
Programming 1,263,156 932,983
Depreciation and amortization 1,955,678 1,839,303
---------- ----------
4,953,401 4,122,327
---------- ----------
Income (loss) from operations 190,769 (5,677)
Other income (expense):
Interest expense (823,759) (641,124)
Interest income 4,750 2,700
Other income 707 0
Loss on disposal of assets (672) (17,627)
---------- ----------
(818,974) (656,051)
---------- ----------
Net loss $ (628,205) (661,728)
========== ==========
Allocation of net loss:
General Partners $ (6,282) $ (6,617)
========== ==========
Limited Partners $ (621,923) $ (655,111)
========== ==========
Net loss per limited partnership unit:
(49,656 units and 49,692 units, respectively) $ (13) $ (13)
========== ==========
Net loss per $1,000 investment $ (25) $ (26)
========== ==========
</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 June 30,
-----------------------------------
1996 1995
---------- ----------
<S> <C> <C>
Service revenues $2,787,032 $2,115,782
Expenses:
Operating 277,634 204,815
General and administrative (including
$312,614and $263,931 to affiliates
in 1996 and 1995, respectively) 689,723 491,655
Programming 703,746 472,601
Depreciation and amortization 1,029,286 918,122
---------- ----------
2,700,389 2,087,193
---------- ----------
Income from operations 86,643 28,589
Other income (expense):
Interest expense (527,383) (319,064)
Interest income 3,565 1,630
Other income 707 0
Loss on disposal of assets (672) 0
---------- ----------
(523,783) (317,434)
---------- ----------
Net loss $ (437,140) $ (288,845)
========== ==========
Allocation of net loss
General Partners $ (4,371) $ (2,888)
========== ==========
Limited Partners $ (432,769) $ (285,957)
========== ==========
Net loss per limited partnership unit:
(49,656 units and 49,692 units, respectively) $ (9) $ (6)
========== ==========
Net loss per $1,000 investment $ (17) $ (12)
========== ==========
</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 six months ended June 30,
----------------------------------
1996 1995
------------ ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (628,205) $ (661,728)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation and amortization 1,955,678 1,839,303
Loss on disposal of assets 672 17,627
(Increase) decrease in operating assets:
Accounts receivable (58,098) 6,503
Prepaid expenses (73,484) (38,887)
Increase (decrease) in operating liabilities
Accounts payable and accrued expenses 487,163 45,274
Due to managing general partner and affiliates 86,495 62,325
Converter deposits (3,629) (6,220)
Subscriber prepayments (98,784) (138,956)
------------ ----------
Net cash from operating activities 1,667,808 1,125,241
------------ ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment, net (368,442) (248,316)
Purchase of cable television systems (10,237,530) -
------------ ----------
Net cash used in investing activities (10,605,972) (248,316)
------------ ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under long term debt, net 10,641,568
Principal payments on borrowings - (740,672)
Distributions to partners (125,434) (250,970)
Loan fees and other costs incurred (740,460) (290)
Repurchase of limited partner interest (8,000) -
------------ ----------
Net cash from (used in) financing activities 9,767,674 (991,932)
------------ ----------
INCREASE (DECREASE) IN CASH 829,510 (115,007)
CASH, beginning of period 309,737 263,051
------------ ----------
CASH, end of period $ 1,139,247 $ 148,044
============ ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 670,388 $ 699,153
============ ==========
</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 June 30, 1996 and December 31,
1995, its Statements of Operations for the six and three months ended June 30,
1996 and 1995, and its Statements of Cash Flows for the six months ended June
30, 1996 and 1995. 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 $2,787,032 for the three months ended June 30, 1996
representing an increase of approximately 32% over the same period in 1995. Of
these revenues, $1,993,420 (71%) was derived from basic service charges,
$256,434 (9%) from premium services, $188,208 (7%) from tier services, $72,533
(3%) from installation charges, $72,350 (3%) from service maintenance contracts
and $204,087 (7%) from other sources. The revenue growth is attributable to
rate increases placed into effect in the latter part of 1995, increases in
advertising sales and the acquisition of approximately 6,500 subscribers in
Vidalia, GA.
As of June 30, 1996, the Partnership's systems served approximately 29,100
basic subscribers, 9,800 premium subscribers and 8,700 tier subscribers.
Operating expenses totaled $277,634 for the three months ended June 30, 1996,
representing an increase of approximately 36% over the same period in 1995.
This is primarily the result of increases in salary and benefit costs due to
cost of living adjustments and the acquisition of the Vidalia, GA systems.
General and administrative expenses totaled $689,723 for the three months ended
June 30, 1996, representing an increase of approximately 40% over the same
period in 1995. The increase is attributable to increases in salary and
benefit costs due to cost of living adjustments; the acquisition of the
Vidalia, GA systems and increases in revenue based expenses, such as,
management and franchise fees as a result of increased revenue as noted
previously.
Programming expenses totaled $703,746 for the three months ended June 30, 1996,
representing an increase of approximately 49% over the same period in 1995.
This is mainly due to increased costs charged by various program suppliers and
the addition of the Vidalia, GA subscribers. In addition, costs of advertising
increased as a result of higher advertising revenues.
Depreciation and amortization expense for the three months ended June 30, 1996
increased approximately 12% over the same period in 1995. This is mainly due
to depreciation and amortization on plant, equipment and intangible assets
acquired from the purchase of the Vidalia, GA systems.
Interest expense for the three months ended June 30, 1996 increased
approximately 65% compared to the same period in 1995. The Partnership's
average bank debt outstanding increased from $18,225,000 in the second quarter
of 1995 to $26,400,000 in the second quarter of 1996, and the Partnership's
effective interest rate increased from 7.52% during the second quarter of 1995
to 7.99% during the second quarter of 1996.
7
<PAGE> 8
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. The extent to which the Partnership can borrow is dependent
on certain financial ratios. Based on these ratios at June 30, 1996, the
Partnership had access to approximately $2,550,000 of unused borrowing
capacity. 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 June 30, 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 March 31, 1996
expired during the second 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 6.90% 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 8.19% expiring September 30, 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 second quarter of 1996, the Partnership incurred approximately
$274,000 in capital expenditures. These included vehicle replacements in the
Brenham, TX and Camano, WA systems; purchases of computers and advertising
equipment in the Vidalia, GA system; line extensions in the Camano, WA and
Sequim, WA systems; and security trapping of certain program services in the
Vidalia, GA system.
Planned expenditures for the balance of 1996 include the initial phase of a
system upgrade to 450 MHz in the Sequim, WA system; line extensions and a fiber
design of a portion of the Camano, WA system; and the purchase of advertising
equipment in the Brenham, TX system.
8
<PAGE> 9
Acquisition
The Partnership has entered into a purchase agreement to acquire the cable
television system servicing approximately 3,300 subscribers in and around
Sandersville, GA. The purchase price of the system is $5,600,000 and will be
financed through borrowings under the Partnership's $35,000,000 revolving
credit and term loan facility. The purchase is expected to close in September
1996.
Effects of Regulation
On February 8, 1996, the Telecommunications Act of 1996 (the "1996 Act") was
enacted which dramatically changed federal telecommunications laws and the
future competitiveness of the industry. Many of the changes called for by the
1996 Act will not take effect until the FCC issues new regulations which, in
some cases, may not be completed for a few years. Because of this, the full
impact of the 1996 Act on the Partnership's operations cannot be determined at
this time. A summary of the provisions impacting the cable television
industry, more specifically those impacting the Partnership's operations,
follows:
Cable Programming Service Tier Rate Regulation. FCC regulation of rates for
cable programming service tiers has been eliminated for small cable systems by
small companies. Small cable systems are those having 50,000 or fewer
subscribers served by companies with fewer than one percent of national cable
subscribers (approximately 600,000). All of the Partnership's cable systems
qualify as small cable systems. Basic tier rates remain subject to regulation
by the local franchising authority under most circumstances until effective
competition exists. The 1996 Act expands the definition of effective
competition to include the offering of video programming services directly to
subscribers in a franchised area by the local exchange carrier, its affiliates,
or any multichannel video programming distributor which uses the facilities of
the local exchange carrier. No penetration criteria exists that triggers the
presence of effective competition under these circumstances.
Telephone Companies. The 1996 Act allows telephone companies to offer video
programming directly to customers in their service areas immediately upon
enactment. They may provide video programming as a cable operator fully
subject to any provisions of the 1996 Act, or a radio-based multichannel
programming distributor not subject to any provisions of the 1996 Act or
through non-franchised "open video systems" offering non-discriminatory
capacity to unaffiliated programmers, subject to selected provisions of the
1996 Act. Although Management's opinion is that the probability of competition
from telcos in rural areas is unlikely in the near future, there are no
assurances such competition will not materialize.
The 1996 Act encompasses various other aspects of providing cable television
service including prices for equipment, discounting of rates to multiple
dwelling units, lifting of anti-trafficking restrictions, cable-telephone cross
ownership provisions, pole attachment rate formulas, rate uniformity, program
access, scrambling and censoring of PEG and leased access channels.
9
<PAGE> 10
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.
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 June 30,
1996.
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
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,139,247
<SECURITIES> 0
<RECEIVABLES> 285,347
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,559,219
<PP&E> 20,749,884
<DEPRECIATION> 10,368,941
<TOTAL-ASSETS> 24,872,142
<CURRENT-LIABILITIES> 1,562,553
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> (3,388,360)
<TOTAL-LIABILITY-AND-EQUITY> 24,872,142
<SALES> 0
<TOTAL-REVENUES> 5,144,170
<CGS> 0
<TOTAL-COSTS> 494,610
<OTHER-EXPENSES> 4,458,791
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 823,759
<INCOME-PRETAX> (628,205)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (628,205)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
