Attached files
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EX-32.(A) - EX-32.(A) - NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP | v56669exv32wxay.htm |
EX-31.(A) - EX-31.(A) - NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP | v56669exv31wxay.htm |
EX-32.(B) - EX-32.(B) - NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP | v56669exv32wxby.htm |
EX-31.(B) - EX-31.(B) - NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP | v56669exv31wxby.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the period ended June 30, 2010
or
o | 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
(Registrants 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 þ No o
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 during the preceding 12 months (or for such shorter
period that the registrant was required to submit and post such
files).
Yes o No o
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 o | Accelerated filer o | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No þ
TABLE OF CONTENTS
Table of Contents
PART 1 FINANCIAL INFORMATION
ITEM 1. Financial Statements
NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS (UNAUDITED)
(Prepared by the Managing General Partner)
CONDENSED BALANCE SHEETS (UNAUDITED)
(Prepared by the Managing General Partner)
June 30, | December 31, | |||||||
2010 | 2009 | |||||||
ASSETS |
||||||||
Cash |
$ | 299,085 | $ | 447,488 | ||||
Accounts receivable, net of allowance of $4,000 |
91,878 | 89,501 | ||||||
Due from affiliates |
57,806 | 33,044 | ||||||
Prepaid expenses |
79,838 | 58,685 | ||||||
Property and equipment, net of accumulated
depreciation of $9,836,275 and $9,596,125,
respectively |
2,612,448 | 2,486,602 | ||||||
Franchise agreements, net of accumulated amortization
of $1,907,136 |
3,152,204 | 3,152,204 | ||||||
Loan fees, net of accumulated amortization of $94,303
and $92,182, respectively |
11,077 | 443 | ||||||
Total assets |
$ | 6,304,336 | $ | 6,267,967 | ||||
LIABILITIES AND PARTNERS CAPITAL (DEFICIT) |
||||||||
Accounts payable and accrued expenses |
$ | 280,789 | $ | 326,485 | ||||
Due to General Partner and affiliates |
21,160 | 18,173 | ||||||
Deposits |
9,850 | 6,400 | ||||||
Subscriber prepayments |
178,897 | 195,280 | ||||||
Term loan |
1,303,376 | 1,453,376 | ||||||
Total liabilities |
1,794,072 | 1,999,714 | ||||||
Partners capital (deficit): |
||||||||
General Partner: |
||||||||
Contributed capital, net |
1,000 | 1,000 | ||||||
Accumulated deficit |
(35,934 | ) | (38,354 | ) | ||||
(34,934 | ) | (37,354 | ) | |||||
Limited Partners: |
||||||||
Contributed capital, net (19,087 units) |
8,102,518 | 8,102,518 | ||||||
Accumulated deficit |
(3,557,320 | ) | (3,796,911 | ) | ||||
4,545,198 | 4,305,607 | |||||||
Total partners capital |
4,510,264 | 4,268,253 | ||||||
Total liabilities and partners capital |
$ | 6,304,336 | $ | 6,267,967 | ||||
The accompanying notes are an integral part of these statements.
Table of Contents
NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Prepared by the Managing General Partner)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Prepared by the Managing General Partner)
For the six months ended June 30, | ||||||||
2010 | 2009 | |||||||
Service revenues |
$ | 2,013,167 | $ | 1,981,727 | ||||
Expenses: |
||||||||
Cable system operations / cost of revenue (including
$20,297 and $21,364 to affiliates in 2010 and 2009,
respectively), excluding depreciation shown below |
208,197 | 197,075 | ||||||
General and administrative (including
$223,008 and $229,550 to affiliates
in 2010 and 2009, respectively) |
524,780 | 512,045 | ||||||
Programming / cost of revenue (including $11,329
and $8,877 to affiliates in 2010 and 2009, respectively) |
757,510 | 749,222 | ||||||
Depreciation / cost of revenue |
252,150 | 244,435 | ||||||
Gain on disposal of assets |
| (561 | ) | |||||
1,742,637 | 1,702,216 | |||||||
Income from operations |
270,530 | 279,511 | ||||||
Other income (expense): |
||||||||
Interest expense and amortization of loan fees |
(23,948 | ) | (22,016 | ) | ||||
Other (expenses) net of interest income |
(4,571 | ) | (9,063 | ) | ||||
(28,519 | ) | (31,079 | ) | |||||
Net income |
$ | 242,011 | $ | 248,432 | ||||
Allocation of net income: |
||||||||
General Partner (1%) |
$ | 2,420 | $ | 2,484 | ||||
Limited Partners (99%) |
$ | 239,591 | $ | 245,948 | ||||
Net income per limited partnership unit: |
||||||||
(19,087 units) |
$ | 12.55 | $ | 12.89 | ||||
The accompanying notes are an integral part of these statements.
Table of Contents
NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Prepared by the Managing General Partner)
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Prepared by the Managing General Partner)
For the three months ended June 30, | ||||||||
2010 | 2009 | |||||||
Service revenues |
$ | 1,001,799 | $ | 998,774 | ||||
Expenses: |
||||||||
Cable system operations / cost of revenue (including
$10,154 and $10,677 to affiliates in 2010 and 2009,
respectively), excluding depreciation shown below |
105,506 | 96,055 | ||||||
General and administrative (including
$111,773 and $119,309 to affiliates
in 2010 and 2009, respectively) |
270,673 | 273,434 | ||||||
Programming / cost of revenue (including $5,901
and $5,061 to affiliates in 2010 and 2009,
respectively) |
377,099 | 373,125 | ||||||
Depreciation / cost of revenue |
127,645 | 123,543 | ||||||
880,923 | 866,157 | |||||||
Income from operations |
120,876 | 132,617 | ||||||
Other income (expense): |
||||||||
Interest expense and amortization of loan fees |
(12,467 | ) | (10,675 | ) | ||||
Other (expenses) net of interest income |
(417 | ) | (5,924 | ) | ||||
(12,884 | ) | (16,599 | ) | |||||
Net income |
$ | 107,992 | $ | 116,018 | ||||
Allocation of net income: |
||||||||
General Partner (1%) |
$ | 1,080 | $ | 1,160 | ||||
Limited Partners (99%) |
$ | 106,912 | $ | 114,858 | ||||
Net income per limited partnership unit: |
||||||||
(19,087 units) |
$ | 5.60 | $ | 6.02 | ||||
The accompanying notes are an integral part of these statements.
Table of Contents
NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Prepared by the Managing General Partner)
CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Prepared by the Managing General Partner)
For the six months ended June 30, | ||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net income |
$ | 242,011 | $ | 248,432 | ||||
Adjustments to reconcile net income to
cash provided by operating activities: |
||||||||
Depreciation |
252,150 | 244,435 | ||||||
Amortization of loan fees |
2,121 | 886 | ||||||
Gain on sale of assets |
(561 | ) | ||||||
(Increase) decrease in operating assets: |
||||||||
Accounts receivable |
(2,377 | ) | (4,349 | ) | ||||
Due from affiliates |
(24,762 | ) | (5,043 | ) | ||||
Prepaid expenses |
(21,153 | ) | (592 | ) | ||||
Increase (decrease) in operating liabilities: |
||||||||
Accounts payable and accrued expenses |
(45,696 | ) | (7,720 | ) | ||||
Due to General Partner and affiliates |
2,987 | (1,136 | ) | |||||
Subscriber prepayments and deposits |
(12,933 | ) | (15,157 | ) | ||||
Net cash provided by operating activities |
392,348 | 459,195 | ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Purchase of property and equipment |
(377,996 | ) | (224,009 | ) | ||||
Proceeds from sale of assets |
| 1,000 | ||||||
Net cash used in investing activities |
(377,996 | ) | (223,009 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Principal payments on borrowings |
(150,000 | ) | (195,569 | ) | ||||
Loan fees |
(12,755 | ) | | |||||
Net cash used in financing activities |
(162,755 | ) | (195,569 | ) | ||||
(DECREASE) INCREASE IN CASH |
(148,403 | ) | 40,617 | |||||
CASH, beginning of period |
447,488 | 489,846 | ||||||
CASH, end of period |
$ | 299,085 | $ | 530,463 | ||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
Cash paid during the period for interest |
$ | 21,824 | $ | 21,130 | ||||
The accompanying notes are an integral part of these statements.
Table of Contents
NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
(1) Basis of Presentation
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 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
Partnerships financial position at June 30, 2010, its statements of operations for the three and
six months ended June 30, 2010 and 2009, and its statements of cash flows for the six months ended
June 30, 2010 and 2009. 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 Partnerships Annual Report on Form 10-K for the year ended December 31, 2009.
(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.
Loan fees are being amortized using the straight-line method, which approximates the effective
interest rate method. Future amortization of loan fees is expected to be approximately as follows:
2010 (6 months) |
2,014 | |||
2011 |
4,028 | |||
2012 |
4,028 | |||
2013 (3 Months) |
1,007 | |||
$ | 11,077 | |||
(3) Term Loan
On February 3, 2010, the Partnership and its existing lender agreed to amend its credit agreement
so as to extend the maturity date to March 31, 2013, modify the principal repayment schedule, and
modify certain other covenants and provisions of the credit agreement. Interest rates are based on
the Adjusted LIBOR Rate, plus a margin of 3.0 percent per annum. The term loan is collateralized by
a first lien position on all present and future assets of the Partnership. Principal payments plus
interest are due quarterly. In connection with the credit amendment, the Partnership paid $12,755
in additional loan fees, which are being amortized over the extended term of the loan. As of June
30, 2010, the balance of the term loan agreement was $1,303,376.
Annual maturities of the term loan after June 30, 2010 are as follows:
2010 |
150,000 | |||
2011 |
300,000 | |||
2012 |
300,000 | |||
2013 |
553,376 | |||
$ | 1,303,376 | |||
Under the terms of the amended loan agreement, the Partnership has agreed to restrictive
covenants which require the maintenance of certain ratios, including a Funded Debt to Cash Flow
Ratio of no more than 2.00 to 1 decreasing over time to 1.75 to 1 and a Cash Flow Coverage Ratio of
no less than 1.25 to 1, among other restrictions.
The General Partner submits quarterly debt compliance reports to the Partnerships creditor
under this agreement. As of June 30, 2010, the Partnership was in compliance with the terms of its
loan agreement.
Table of Contents
The Partnership follows general accounting standards that require disclosures about fair value of
financial instruments for interim reporting periods as well as in annual financial statements. Due
to the variable interest rate the carrying value of the term loan approximates fair value.
As of June 30, 2010, the balance under the credit facility was $1,303,376 at a LIBOR based interest
rate of 3.35%. This interest rate expires July 31, 2010, at which time a new rate will be
established.
(4) Litigation
The Partnership is party to ordinary and routine litigation proceedings that are incidental to the
Partnerships 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, prospects or debt service abilities.
(5) Potential Sale of Systems
On July 5, 2007, Northland Cable Properties Eight Limited Partnership (the Partnership) executed
a purchase and sale agreement to sell the operating assets and franchise rights of its remaining
cable systems serving the communities of Aliceville, Alabama and Swainsboro, Georgia to Green River
Media and Communications, LLC (Green River), an unaffiliated third party. The transaction was
expected to close by the end of March, 2008.
The terms of the purchase and sale agreement include a sales price of $8,100,000, which may be
adjusted based on subscription revenue generated prior to closing, and require that approximately
ten percent of the gross proceeds be placed in escrow to secure compliance with representations and
warranties, to be released to the Partnership eighteen months from the closing of the transaction.
Net proceeds to be received upon closing are to be used to pay all remaining liabilities of the
Partnership, including transaction costs and amounts outstanding under the Partnerships Term Loan
Agreement (with a balance of $1,303,376 as of June 30, 2010) and to make liquidating distributions
to the limited and general partners. Limited partners will receive a final distribution eighteen
months from the closing date when the escrow proceeds are released.
On December 19, 2007, the Partnership filed with the Security and Exchange Commission a definitive
proxy statement to solicit limited partner approval (i) to authorize the sale of substantially all
the assets of the Partnership to Green River, or its assignee with the Partnerships consent, (ii)
to authorize the alternative sale of substantially all of the Partnerships assets to Northland
Communications Corporation, its general partner, or one or more affiliates of Northland
Communications Corporation, if the Green River transaction was not consummated by March 31, 2008,
or such later date mutually agreed upon by the Partnership and Green River, or in the event that
the Green River transaction was otherwise terminated prior to such date (the Alternative Sale
Transaction), and (iii) to authorize an amendment to the Amended and Restated Agreement of Limited
Partnership of the Partnership dated August 10, 1989, to exclude the Alternative Sale Transaction
from the independent appraisal procedures that would otherwise be required by the partnership
agreement. The purchase agreement that would be entered into with respect to the Alternative Sale
Transaction would contain substantially the same terms and conditions as provided in the Green
River purchase agreement, except that the general partners obligation to close will be subject to
the general partners ability to secure satisfactory financing. If such condition has not been met
within 90 days after the agreement for the Alternative Sale Transaction becomes effective, the
general partner would have the right to terminate the alternative purchase agreement without
penalty. On February 27, 2008, at the special meeting of limited partners of the Partnership,
limited partners voted to approve the three matters discussed above.
On March 31, 2008, the Partnership notified Green River of its termination of the asset purchase
agreement dated as of July 5, 2007 between the Partnership and Green River (the Agreement). Green
River disputed the right of the Partnership to terminate the Agreement and filed a motion in the
District Court, City and County of Denver, seeking injunctive relief. Green Rivers motion for
preliminary injunction was granted by the court.
On September 9, 2008, the District Court, for the City and County of Denver upheld the preliminary
injunction enjoining the Partnership from terminating the Agreement. The Partnership appealed the
initial injunction order of the District Court as originally entered and as subsequently modified.
On May 13, 2010 the Colorado Court of Appeals reversed the opinion of the District Court and
remanded the case with instructions to vacate the preliminary injunction. The timing and ultimate
disposition of this litigation cannot be determined at this time.
Fees for legal and accounting activities in connection with the aforementioned purchase and sale
transaction amounted to $427 and $6,131 for the three months ended June 30, 2010 and 2009,
respectively, and have been expensed as incurred within interest income and other in the
accompanying statement of operations.
Table of Contents
(6) Fair Value of Assets
We measure certain financial assets at fair value in three levels, based on the markets in which
the assets are traded and the reliability of the inputs used to determine fair value. These levels
are:
| Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. | ||
| Level 2 quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active. | ||
| Level 3 significant inputs are unobservable for the asset or liability. |
The following table summarizes the balances of assets measured at fair value on a recurring basis
at June 30, 2010.
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Cash |
$ | 299,085 | $ | 299,085 | $ | | $ | |
The following table summarizes the balances of assets measured at fair value on a recurring basis
at December 31, 2009.
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Cash |
$ | 447,488 | $ | 447,488 | $ | | $ | |
The Partnership follows the provisions of FASB ASC 820 Fair Value Measurements and Disclosures.
The carrying values of cash and the variable rate term loan approximate fair value.
(7) Accounting Pronouncements Issued Not Yet Adopted
In September 2009, the FASB ratified Accounting Standards Update (ASU) 2009-13 (ASU 2009-13)
(previously Emerging Issues Task Force (EITF) Issue No. 08-1, Revenue Arrangements with Multiple
Deliverables (EITF 08-1)). ASU 2009-13 superseded EITF 00-21 and addresses criteria for separating
the consideration in multiple-element arrangements. ASU 2009-13 will require companies to allocate
the overall consideration to each deliverable by using a best estimate of the selling price of
individual deliverables in the arrangement in the absence of vendor-specific objective evidence or
other third-party evidence of the selling price. ASU 2009-13 will be effective prospectively for
revenue arrangements entered into or materially modified in fiscal years beginning on or after June
15, 2010 and early adoption will be permitted. The Partnership has not adopted ASU 2009-13.
Management is currently evaluating the potential impact, if any, of the adoption of ASU 2009-13 on
the Partnerships results of operations and financial condition.
Table of Contents
PART I (continued)
ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
Results of Continuing Operations Six months Ended June 30, 2010 and 2009
Total basic subscribers decreased from 4,710 as of June 30, 2009 to 4,452 as of June 30, 2010.
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 Partnerships markets and
regional and local economic conditions. To address this customer trend, the Partnership is
increasing its customer retention efforts and its emphasis on bundling its video, data and phone
products.
Revenue totaled $2,013,167 for the six months ended June 30, 2010, an increase of 2% from
$1,981,727 for the six months ended June 30, 2009. Revenues for the six months ended June 30, 2010
were comprised of the following sources:
| $1,427,467 (71%) from basic and expanded video services | ||
| $351,097 (18%) from high speed internet services | ||
| $67,688 (3%) from premium video services | ||
| $24,572 (1%) from telephony services | ||
| $26,537 (1%) from advertising | ||
| $36,409 (2%) from late fees | ||
| $79,397 (4%) from other sources |
Average monthly revenue per subscriber increased $5.19 or approximately 8% from $68.12 for six
months ended June 30, 2009 to $73.31 for the six months ended June 30, 2010. This increase is
attributable to rate increases implemented throughout the Partnerships systems during the first
quarter of 2010 and increased penetration of new products, specifically, high-speed Internet
services. This increase in average monthly revenue per subscriber was offset by the aforementioned
decrease in basic subscribers.
Operating expenses, excluding general and administrative, programming, depreciation expenses, and
gain on disposal of assets totaled $208,197 for the six months ended June 30, 2010, an increase of
approximately 6% from the same period in 2009. The increase is primarily attributable to higher
wages and pole, duct, and site rental. Employee wages, which represent the largest component of
operating expenses, are reviewed annually, and in most cases, increased based on cost of living
adjustments and other factors. Therefore, assuming the number of operating and regional employees
remains constant, management expects increases in operating expenses in the future.
General and administrative expenses totaled $524,780 for the six months ended June 30, 2010, an
increase of approximately 2% from $512,045 for the same period in 2009. This increase is primarily
attributable to higher audit fees.
Programming expenses totaled $757,510 for the six months ended June 30, 2010, representing an
increase of $8,288 or approximately 1% over the same period in 2009. 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, assuming that the number of subscribers
remains constant.
Depreciation expense totaled $252,150 for the six months ended June 30, 2010, an increase of
approximately 3% over the same period in 2009. 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 totaled $23,948 for the six months ended June 30,
2010, an increase of approximately 9% over the same period in 2009. The increase in interest
expense and amortization of loan fees is attributable to the amortization of additional loan fees
the Partnership incurred to amend its credit agreement.
Interest income and other, net totaled $4,571 and $9,063 for the six months ended June 30, 2010 and
2009, respectively, and consists primarily of costs incurred in connection with the litigation
associated with the proposed sale of the Partnerships assets.
Table of Contents
Results of Operations Three Months Ended June 30, 2010 and 2009
Total basic subscribers decreased from 4,710 as of June 30, 2009 to 4,452 as of June 30, 2010.
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 Partnerships markets and
regional and local economic conditions. To address this customer trend, the Partnership is
increasing its customer retention efforts and its emphasis on bundling its video, data and phone
products.
Revenue totaled $1,001,799 for the three months ended June 30, 2010, an increase of .3% from
$998,774 for the three months ended June 30, 2009. Revenues for the three months ended June 30,
2010 were comprised of the following sources:
| $709,124 (71%) from basic and expanded video services | ||
| $177,045 (18%) from high speed internet services | ||
| $32,613 (3%) from premium video services | ||
| $13,251 (1%) from telephony services | ||
| $15,942 (2%) from advertising | ||
| $18,323 (2%) from late fees | ||
| $35,501 (3%) from other sources |
Average monthly revenue per subscriber increased $4.36 or approximately 6% from $69.52 for three
months ended June 30, 2009 to $73.88 for the three months ended June 30, 2010. This increase is
attributable to rate increases implemented throughout the Partnerships systems during the first
quarter of 2010 and increased penetration of new products, specifically, high-speed Internet and
telephone services. 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 expenses,
totaled $105,506 for the three months ended June 30, 2010, an increase of $9,451 or approximately
10% from the same period in 2009. This increase is primarily attributable to an increase in
salaries and vehicle expense. Employee wages, which represent the largest component of operating
expenses, are reviewed annually, and in most cases, increased based on cost of living adjustments
and other factors. Therefore, assuming the number of operating and regional employees remain
constant, management expects increases in operating expenses in the future.
General and administrative expenses totaled $270,673 for the three months ended June 30, 2010, a
decrease of approximately 1% from $273,434 for the same period in 2009. The decrease is primarily
attributable to a decrease in copying and printing expenses, offset by an increase in bad debt
expense.
Programming expenses totaled $377,099 for the three months ended June 30, 2010, representing an
increase of $3,974 or approximately 1% over the same period in 2009. 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 and high-speed Internet and telephone services, will contribute
to the trend of increased programming costs in the future, assuming that the number of subscribers
remains constant.
Depreciation expense increased approximately 3% from $123,543 for the three months ended June 30,
2009 to $127,645 for the three months ended June 30, 2010. The increase is attributable to
depreciation of recent purchases related to the upgrade of plant and equipment.
Interest expense and amortization of loan fees increased approximately 17% from $10,675 for the
three months ended June 30, 2009 to $12,467 for the three months ended June 30, 2010. The increase
in interest expense and amortization of loan fees is attributable to higher interest rates in the
second quarter of 2010 as compared to the same period in 2009 and amortization of additional loan
fees the Partnership incurred to amend its credit agreement.
Interest income and other, net totaled $417 and $5,924 for the three months ended June 30, 2010 and
2009, respectively, and consists primarily of litigation costs incurred in connection with the
litigation associated with the proposed sale of the Partnerships assets.
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Liquidity and Capital Resources
The Partnerships primary source of liquidity is cash flow provided by operations. The Partnership
generates cash through the monthly billing of subscribers for cable and other services. Based on
managements analysis, the Partnerships 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.
Net cash provided by operating activities totaled $392,348 for the six months ended June 30,
2010. Adjustments to the $242,011 net income for the period to reconcile to net cash provided by
operating activities consisted primarily of depreciation of $252,150, offset by changes in other
operating assets and liabilities of $103,934.
Net cash used in investing activities totaled $377,996 for the six months ended June 30, 2010 and
consisted of purchases of property and equipment.
Net cash used in financing activities for the six months ended June 30, 2010 consisted of
$150,000 in principal payments on long-term debt and $12,755 in loan fees.
Term Loan
On February 3, 2010, the Partnership and its existing lender agreed to amend its credit agreement
so as to extend the maturity date to March 31, 2013, modify the principal repayment schedule, and
modify certain other covenants and provisions of the credit agreement. Interest rates are based on
the Adjusted LIBOR Rate, plus a margin of 3.0 percent per annum. The term loan is collateralized by
a first lien position on all present and future assets of the Partnership. Principal payments plus
interest are due quarterly. In connection with the credit amendment, the Partnership paid $12,755
in additional loan fees, which are being amortized over the extended term of the loan. As of June
30, 2010, the balance of the term loan agreement was $1,303,376.
Annual maturities of the term loan after June 30, 2010 are as follows:
2010 |
150,000 | |||
2011 |
300,000 | |||
2012 |
300,000 | |||
2013 |
553,376 | |||
$ | 1,303,376 | |||
Under the terms of the amended loan agreement, the Partnership has agreed to restrictive
covenants which require the maintenance of certain ratios, including a Funded Debt to Cash Flow
Ratio of no more than 2.00 to 1 decreasing over time to 1.75 to 1 and a Cash Flow Coverage Ratio of
no less than 1.25 to 1, among other restrictions.
As of the date of this filing, the balance under the credit facility is $1,303,376 at a LIBOR
based interest rate of 3.35%. This interest rate expires July 31, 2010, at which time a new rate
will be established.
Obligations and Commitments
In addition to working capital needs for ongoing operations, the Partnership has capital
requirements for annual maturities related to the refinanced credit facility and required minimum
operating lease payments. The following table summarizes the Partnerships contractual obligations
as of June 30, 2010:
Payments Due By Period | ||||||||||||||||||||
1 3 | 3 5 | More than | ||||||||||||||||||
Total | Less than 1 year | Years | years | 5 years | ||||||||||||||||
Notes payable |
1,303,376 | 150,000 | 1,153,376 | | | |||||||||||||||
Minimum operating lease payments |
86,040 | 3,880 | 2,120 | 2,320 | 77,720 | |||||||||||||||
Total |
$ | 1,389,416 | $ | 153,880 | $ | 1,155,496 | $ | 2,320 | $ | 77,720 | ||||||||||
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(a) | These contractual obligations do not include accounts payable and accrued liabilities, which are expected to be paid in 2010. | |
(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 $100,755 in 2009. | |
(c) | Note that obligations related to the Partnerships term loan exclude interest expense as it cannot be determined given the variable interest rate. Interest expense was $39,068 in 2009. |
Capital Expenditures
During the first six months of 2010, the Partnership paid approximately $378,000 for capital
expenditures. These expenditures include the launch of additional HD (high definition) channels in
the Swainsboro, GA system and the continued system upgrades to both the Aliceville, AL and
Swainsboro, GA systems expanding the channel capacity.
Management has estimated that the Partnership will spend approximately $430,000 on capital
expenditures during the remainder of 2010. Planned expenditures include the continuation of
distribution plant capacity upgrades in both systems, potential line extension opportunities,
customer premise equipment to provide services, and vehicle replacements.
Critical Accounting Policies
This discussion and analysis of financial condition and results of operations is based on the
Partnerships 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.
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
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granted, and management expects them to continue to be granted. This expectation is
supported by managements experience with the Partnerships franchising authorities and the
franchising authorities of the Partnerships affiliates.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is subject to market risks arising from changes in interest rates. The
Partnerships primary interest rate exposure results from changes in the LIBOR rate, which is used
to determine the interest rate applicable to the Partnerships debt facilities. The Partnership
has from time to time entered into interest rate swap agreements to partially hedge interest rate
exposure. Interest rate swaps have the effect of converting the applicable variable rate
obligations to fixed or other variable rate obligations. As of the date of this filing, the
Partnership is not involved in any interest rate swap agreements. The potential loss over one year
that would result from a hypothetical, instantaneous and unfavorable change of 100 basis points in
the interest rate of all of the Partnerships variable rate obligations would be approximately
$13,000.
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 Commissions rules and forms. The Chief Executive Officer and President (Principal
Financial and 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 Partnerships 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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PART II OTHER INFORMATION
ITEM 1 Legal proceedings
On March 31, 2008, the Partnership notified Green River of its termination of the asset purchase
agreement dated as of July 5, 2007 between the Partnership and Green River (the Agreement). Green
River disputed the right of the Partnership to terminate the Agreement and filed a motion in the
District Court, City and County of Denver, seeking injunctive relief. Green Rivers motion for
preliminary injunction was granted by the court.
On September 9, 2008, the District Court, for the City and County of Denver upheld a preliminary
injunction enjoining the Partnership from terminating the Agreement. Pursuant to the District
Courts preliminary injunction, the Agreement currently remains in full force and effect. The
Partnership appealed the initial injunction order of the District Court as originally entered and
as subsequently modified. On May 13, 2010 the Colorado Court of Appeals reversed the opinion of the
District Court and remanded the case with instructions to vacate the preliminary injunction. The
timing and ultimate disposition of this litigation cannot be determined at this time.
The Partnership is party to ordinary and routine litigation proceedings that are incidental to the
Partnerships 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, prospects or debt service abilities.
ITEM 1A Risk Factors
There have been no material changes from the Partnerships risk factors as disclosed in the
2009 Form 10-K.
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
(a) | Exhibit Index |
31 (a). | Certification of Chief Executive Officer of Northland Communications Corporation, the General Partner, dated August 13, 2010 pursuant to section 302 of the Sarbanes-Oxley Act | ||
31 (b). | Certification of President (Principal Financial and Accounting Officer) of Northland Communications Corporation, the General Partner, dated August 13, 2010 pursuant to section 302 of the Sarbanes-Oxley Act | ||
32 (a). | Certification of Chief Executive Officer of Northland Communications Corporation, the General Partner, dated August 13, 2010 pursuant to section 906 of the Sarbanes-Oxley Act | ||
32 (b). | Certification of President (Principal Financial and Accounting Officer) of Northland Communications Corporation, the General Partner, dated August 13, 2010 pursuant to section 906 of the Sarbanes-Oxley Act |
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SIGNATURES
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
General Partner
SIGNATURES | CAPACITIES | DATE | ||
/s/ RICHARD I. CLARK
|
Executive Vice President, Treasurer and Assistant Secretary | 08-13-10 | ||
/s/ GARY S. JONES
|
President | 08-13-10 |