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Table of Contents

 

 

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, 2014

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: 0-18307

 

 

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

(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  ¨

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

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   ¨    Accelerated filer   ¨
Non-accelerated filer   ¨    Smaller Reporting Company   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART 1 — FINANCIAL INFORMATION

 

3

ITEM 1. Financial Statements (Unaudited)

  3

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

  8

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

  11

ITEM 4. Controls and Procedures

  11

PART II — OTHER INFORMATION

 

12

ITEM 1 Legal proceedings

  12

ITEM 1A Risk Factors

  12

ITEM 6 Exhibits

  12

SIGNATURES

 

13

EX-31.A

 

EX-31.B

 

EX-32.A

 

EX-32.B

 

EX-101 INSTANCE DOCUMENT

 

EX-101 SCHEMA DOCUMENT

 

EX-101 CALCULATION LINKBASE DOCUMENT

 

EX-101 DEFINITION LINKBASE DOCUMENT

 

EX-101 LABELS LINKBASE DOCUMENT

 

EX-101 PRESENTATION LINKBASE DOCUMENT

 

 

2


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)

 

     September 30,     December 31,  
     2014     2013  

ASSETS

    

Cash

   $ 78,364        144,373   

Accounts receivable, net of allowance of $5,500 and $8,000 in 2014 and 2013, respectively

     111,563        101,777   

Due from affiliates

     8,621        16,613   

Prepaid expenses

     124,130        44,586   

Property and equipment, net of accumulated depreciation of $11,649,462, and $11,289,448, respectively

     2,747,488        2,629,551   

Franchise agreements, net of accumulated amortization of $1,907,136

     394,311        2,292,704   
  

 

 

   

 

 

 

Total assets

   $ 3,464,477        5,229,604   
  

 

 

   

 

 

 

LIABILITIES AND PARTNERS’ CAPITAL

    

Accounts payable and accrued expenses

   $ 596,673        325,181   

Due to General Partner and affiliates

     190,707        53,163   

Deposits

     9,240        9,465   

Subscriber prepayments

     150,137        192,433   
  

 

 

   

 

 

 

Total liabilities

     946,757        580,242   
  

 

 

   

 

 

 

Partners’ capital (deficit):

    

General Partner:

    

Contributed capital, net

     1,000        1,000   

Accumulated deficit

     (55,746     (34,496
  

 

 

   

 

 

 
     (54,746     (33,496
  

 

 

   

 

 

 

Limited Partners:

    

Contributed capital, net (19,087 units)

     8,091,119        8,097,798   

Accumulated deficit

     (5,518,653     (3,414,940
  

 

 

   

 

 

 
     2,572,466        4,682,858   
  

 

 

   

 

 

 

Total partners’ capital

     2,517,720        4,649,362   
  

 

 

   

 

 

 

Total liabilities and partners’ capital

   $ 3,464,477        5,229,604   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP

CONDENSED STATEMENTS OF OPERATIONS - (UNAUDITED)

(Prepared by the Managing General Partner)

 

     For the three months ended September 30,  
     2014     2013  

Service revenues

   $ 1,062,196      $ 1,126,809   

Expenses:

    

Cable system operations / cost of revenue (including $12,551 and $17,228 to affiliates in 2014 and 2013, respectively), excluding depreciation shown below

     120,069        137,525   

General and administrative (including $169,549 and $135,142 to affiliates in 2014 and 2013, respectively)

     636,700        367,366   

Programming / cost of revenue (including $20,731 and $15,858 to affiliates in 2014 and 2013, respectively)

     469,344        461,335   

Depreciation / cost of revenue

     139,020        142,088   

Loss on impairment of franchise agreements

     1,898,393        —     

(Gain) loss on disposal of assets

     (3,323     210   
  

 

 

   

 

 

 
     3,260,203        1,108,524   
  

 

 

   

 

 

 

(Loss) income from operations

     (2,198,007     18,285   

Other income (expense):

    

Interest expense and amortization of loan fees

     —          —     

Other income (expenses) net of interest income

     101        5   
  

 

 

   

 

 

 
     101        5   
  

 

 

   

 

 

 

Net (loss) income

   $ (2,197,906   $ 18,290   
  

 

 

   

 

 

 

Allocation of net (loss) income:

    

General Partner (1%)

   $ (21,979   $ 183   
  

 

 

   

 

 

 

Limited Partners (99%)

   $ (2,175,927   $ 18,107   
  

 

 

   

 

 

 

Net (loss) income per limited partnership unit:

    

(19,087 units)

   $ (114   $ 1   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP

CONDENSED STATEMENTS OF OPERATIONS - (UNAUDITED)

(Prepared by the Managing General Partner)

 

     For the nine months ended September 30,  
     2014     2013  

Service revenues

   $ 3,339,411      $ 3,384,936   

Expenses:

    

Cable system operations / cost of revenue (including $42,017 and $47,804 to affiliates in 2014 and 2013, respectively), excluding depreciation shown below

     356,376        394,669   

General and administrative (including $502,350, and $411,044 to affiliates in 2014 and 2013, respectively)

     1,363,645        998,880   

Programming / cost of revenue (including $61,076 and $40,214 to affiliates in 2014 and 2013, respectively)

     1,428,217        1,348,763   

Depreciation / cost of revenue

     421,177        416,622   

Loss on impairment of franchise agreements

     1,898,393        —     

(Gain) loss on disposal of assets

     (3,323     210   
  

 

 

   

 

 

 
     5,464,485        3,159,144   
  

 

 

   

 

 

 

Insurance proceeds

     —          2,564   

(Loss) income from operations

     (2,125,074     228,356   

Other income (expense):

    

Interest expense and amortization of loan fees

     —          (9,310

Other income (expenses) net of interest income

     111        153   
  

 

 

   

 

 

 
     111        (9,157
  

 

 

   

 

 

 

Net (loss) income

   $ (2,124,963   $ 219,199   
  

 

 

   

 

 

 

Allocation of net (loss) income:

    

General Partner (1%)

   $ (21,250   $ 2,192   
  

 

 

   

 

 

 

Limited Partners (99%)

   $ (2,103,713   $ 217,007   
  

 

 

   

 

 

 

Net (loss) income per limited partnership unit:

    

(19,087 units)

   $ (110   $ 11   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP

CONDENSED STATEMENTS OF CASH FLOWS - (UNAUDITED)

(Prepared by the Managing General Partner)

 

     For the nine months ended September 30,  
     2014     2013  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net (loss) income

   $ (2,124,963   $ 219,199   

Adjustments to reconcile net (loss) income to cash provided by operating activities:

    

Depreciation

     421,177        416,622   

Loss on impairment of franchise agreements

     1,898,393        —     

(Gain) loss on disposal of assets

     (3,323     210   

Amortization of loan fees

     —          1,007   

Insurance proceeds

     —          (2,564

(Increase) decrease in operating assets:

    

Accounts receivable

     (9,786     (23,648

Due from affiliates

     7,992        31,006   

Prepaid expenses

     (79,544     (52,565

Increase (decrease) in operating liabilities:

    

Accounts payable and accrued expenses

     286,343        29,097   

Due to General Partner and affiliates

     16,541        138,373   

Subscriber prepayments and deposits

     (42,521     (15,252
  

 

 

   

 

 

 

Net cash provided by operating activities

     370,309        741,485   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchase of property and equipment

     (454,703     (505,361

Insurance proceeds

     —          2,564   

Proceeds from sale of assets

     25,064        —     
  

 

 

   

 

 

 

Net cash used in investing activities

     (429,639     (502,797
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Principal payments on borrowings

     —          (553,376

Distribution on behalf of limited partners for tax purposes

     (6,679     (4,720
  

 

 

   

 

 

 

Net cash used in financing activities

     (6,679     (558,096
  

 

 

   

 

 

 

DECREASE IN CASH

     (66,009     (319,408

CASH, beginning of period

     144,373        380,676   
  

 

 

   

 

 

 

CASH, end of period

   $ 78,364      $ 61,268   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

    

Cash paid during the period for interest

   $ —        $ 8,303   
  

 

 

   

 

 

 

Capital expenditures in accounts payable at September 30, 2014 and 2013

   $ —        $ 2,304   
  

 

 

   

 

 

 

Capital expenditures in due to General Partner and affiliates at September 30, 2014 and 2013

   $ 99,439      $ —     
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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Table of Contents

NORTHLAND CABLE PROPERTIES EIGHT LIMITED PARTNERSHIP

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

(1) Basis of Presentation

These unaudited condensed 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 Partnership’s financial position at September 30, 2014, its statements of operations for the three and nine months ended September 30, 2014 and 2013, and its statements of cash flows for the nine months ended September 30, 2014 and 2013. 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 Partnership’s Annual Report on Form 10-K for the year ended December 31, 2013.

(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.

The Partnership tested and determined that the carrying value of the franchise agreements associated with its Swainsboro, Georgia system exceeded such assets fair value as of September 30, 2014. Fair value was determined using discounted system cash flows net of contributory charges for the system’s property and equipment (a Level 3 measurement). The Partnership recognized an impairment loss of $1,898,393 as of September 30, 2014, which resulted in a total impairment of the franchises. This is primarily the result of a significant decrease in estimated future cash flows expected to be generated by the system, which is due to, among other factors, the decline in the number of video subscribers served by the system and increasing competition from providers in the market experienced in the third quarter.

(3) Term Loan

The Partnership’s term loan matured and was paid in full on July 1, 2013.

(4) Litigation

In September 2014, the Partnership settled a legal claim made by a former employee. Under the terms of the settlement, the Partnership will pay $150,000 in damages, fees and costs. Pursuant to the settlement agreement, the Partnership entered into a security agreement to grant a security interest in all of the assets of the Partnership to secure the obligations. In addition, the Partnership incurred approximately $187,768 in legal fees associated with the defense of this claim, of which approximately $118,276 and $147,978 was incurred for the three and nine months ended September 30, 2014, respectively. The Partnership has recorded both the settlement and the associated legal fees as general and administrative expenses in the accompanying financial statements.

The Partnership is party to other ordinary and routine litigation proceedings that are incidental to the Partnership’s 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 or prospects.

(5) Solicitation of Interest from Potential Buyers

In July 2014, the Partnership engaged a nationally recognized brokerage firm to assess and market the Partnership’s assets for a potential sale. Eight potential buyers expressed interest and were sent a Confidential Information Memorandum on the Partnership’s systems. In the end, all interested parties declined to submit bids. Accordingly, management expects to manage the Partnership’s systems for the remaining partnership duration with the possibility of again offering the systems for sale in 2015.

 

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(6) Recent Accounting Pronouncements

In May 2014, the FASB and the International Accounting Standards Board updated the accounting guidance related to revenue recognition. The updated accounting guidance provides a single, contract-based revenue recognition model to help improve financial reporting by providing guidance on when an entity should recognize revenue, and by reducing the number of standards to which entities have to refer. The updated accounting guidance will be effective for the Partnership on January 1, 2017, and early adoption is not permitted. The updated accounting guidance allows for either a full retrospective adoption or modified retrospective adoption. The Partnership is currently in the process of determining the impact that the updated accounting guidance will have on its financial statements and its method of adoption.

 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations - Nine months ended September 30, 2014 and 2013

Total video basic subscribers decreased from 3,553 as of September 30, 2013 and 3,245 as of June 30, 2014 to 2,971 as of September 30, 2014. The loss in subscribers is a result of several factors including competition from Direct Broadcast Satellite (DBS) and other competitive providers, availability of off-air signals in the Partnership’s markets and regional and local economic conditions. In its efforts to address this customer trend, the Partnership is increasing its marketing and customer retention efforts and its emphasis on bundling its video, data and phone products.

Revenue totaled $3,339,411 for the nine months ended September 30, 2014, a decrease of less than 1% from $3,384,936 for the nine months ended September 30, 2013. Revenues for the nine months ended September 30, 2014 were comprised of the following sources:

 

    $1,656,467 (50%) from basic and expanded video services

 

    $947,039 (28%) from high speed internet services

 

    $329,443 (10%) from telephony services

 

    $61,807 (2%) from premium video services

 

    $42,789 (1%) from advertising

 

    $77,873 (2%) from late fees

 

    $223,993 (7%) from other sources

Average monthly revenue per subscriber increased $14.49 or approximately 15% from $99.79 for nine months ended September 30, 2013 to $114.28 for the nine months ended September 30, 2014. This increase is attributable to rate increases implemented throughout the Partnership’s systems during the first quarter of 2014, increased penetration of new products to existing customers, specifically high-speed Internet and telephony services, and product bundling to new customers. 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 expense totaled $356,376 for the nine months ended September 30, 2014, a decrease of approximately 10% from the same period in 2013. This decrease is primarily attributable to a decrease in operating salaries, vehicle operating expenses, and operating overhead.

General and administrative expenses totaled $1,363,645 for the nine months ended September 30, 2014, an increase of approximately 37% from the same period in 2013. This increase is primarily attributable to the aforementioned settlement of a legal claim made by a former employee and higher administrative salaries, bad debt expenses, administrative services, call center fees, marketing expenses, public filing and reporting expenses and other administrative expenses.

Programming expenses totaled $1,428,217 for the nine months ended September 30, 2014, an increase of approximately 6% over the same period in 2013. 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 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.

Depreciation expense totaled $421,177 for the nine months ended September 30, 2014, an increase of approximately 1% over the same period in 2013. Depreciation of recent purchases related to the upgrade of plant and equipment was partially offset by certain assets becoming fully depreciated.

Loss on impairment of franchise agreements totaled $1,898,393 for the nine months ended September 30, 2014, and resulted from the write down of the carrying value of the Partnership’s franchise agreements to their fair value.

 

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Interest expense and amortization of loan fees decreased from $9,310 for the nine months ended September 30, 2013, to $0 for the nine months ended September 30, 2014. The Partnership paid off the outstanding balance of its term loan on July 1, 2013.

Results of Operations - Three months ended September 30, 2014 and 2013

Total video basic subscribers decreased from 3,553 as of September 30, 2013 and 3,245 as of June 30, 2014 to 2,971 as of September 30, 2014. The loss in subscribers is a result of several factors including competition from Direct Broadcast Satellite (DBS) and other competitive providers, availability of off-air signals in the Partnership’s markets and regional and local economic conditions. In its efforts to address this customer trend, the Partnership is increasing its marketing and customer retention efforts and its emphasis on bundling its video, data and phone products.

Revenue totaled $1,062,196 for the three months ended September 30, 2014, a decrease of 6% from $1,126,809 for the three months ended September 30, 2013. Revenues for the three months ended September 30, 2014 were comprised of the following sources:

 

    $508,269 (48%) from basic and expanded video services

 

    $314,347 (30%) from high speed internet services

 

    $109,133 (10%) from telephony services

 

    $18,724 (2%) from premium video services

 

    $13,097 (1%) from advertising

 

    $25,827 (2%) from late fees

 

    $72,799 (7%) from other sources

Average monthly revenue per subscriber increased $13.36 or approximately 13% from $104.02 for three months ended September 30, 2013 to $117.38 for the three months ended September 30, 2014. This increase is attributable to rate increases implemented throughout the Partnership’s systems during the first quarter of 2014, increased penetration of new products to existing customers, specifically high-speed Internet and telephony services, and product bundling to new customers. 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 expense totaled $120,069 for the three months ended September 30, 2014, a decrease of approximately 13% from the same period in 2013. This decrease is primarily attributable to a decrease in operating salaries and operating overhead.

General and administrative expenses totaled $636,700 for the three months ended September 30, 2014, an increase of approximately 73% from the same period in 2013. This increase is primarily attributable the aforementioned settlement of a legal claim made by a former employee and higher bad debt expenses, administrative services, call center fees, marketing expense, public filing and reporting expenses and other administrative expenses.

Programming expenses totaled $469,344 for the three months ended September 30, 2014, an increase of approximately 2% over the same period in 2013. 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 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.

Depreciation expense totaled $139,020 for the three months ended September 30, 2014, a decrease of approximately 2% over the same period in 2013. The decrease is primarily attributable to certain assets becoming fully depreciated partially offset by depreciation of recent purchases related to the upgrade of plant and equipment.

Loss on impairment of franchise agreements totaled $1,898,393 for the three months ended September 30, 2014, and resulted from the write down of the carrying value of the Partnership’s franchise agreements to their fair value.

Liquidity and Capital Resources

The Partnership’s primary source of liquidity is cash flow provided by operations. The Partnership generates cash through the monthly billing of subscribers for video, Internet, telephone and other services. As a result of the aforementioned legal settlement, the Partnership will actively reduce its capital expenditures for 2015 to satisfy these obligations and to cover future operating costs and working capital needs over the next twelve-month period.

Net cash provided by operating activities totaled $370,309 for the nine months ended September 30, 2014. Adjustments to the ($2,124,963) net loss for the period to reconcile to net cash provided by operating activities consisted of depreciation of $421,177, loss on impairment of franchise agreements of $1,898,393, gain on disposal of assets of ($3,323) and changes in other operating assets and liabilities of $179,025.

 

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Net cash used in investing activities totaled $429,639 for the nine months ended September 30, 2014 and consisted primarily of purchases of property and equipment.

Term Loan

The Partnership’s term loan matured and was paid in full on July 1, 2013.

Obligations and Commitments

In addition to working capital needs for ongoing operations, the Partnership has capital requirements for annual required minimum operating lease payments. The following table summarizes the Partnership’s contractual obligations as of September 30, 2014:

 

            Payments Due By Period  
     Total      Less than 1
year
     1 – 3
Years
     3 – 5
years
     More than 5
years
 

Minimum operating lease payments

   $ 124,800       $ 6,200       $ 12,400       $ 12,400       $ 93,800   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) These contractual obligations do not include accounts payable and accrued liabilities, which are expected to be paid in 2014.

 

  (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 $107,336 in 2013.

Capital Expenditures

During the first nine months of 2014, the Partnership paid $454,703 for capital expenditures. These expenditures included continued upgrades to both systems to expand and maintain the high speed data service capabilities, vehicle replacement and customer premise equipment to provide services.

Management has estimated that the Partnership will spend approximately $147,000 on capital expenditures during the remainder of 2014. Planned expenditures include quality assurance work to maintain reliable video signals and broadband speeds in both systems and customer premise equipment to provide services.

Critical Accounting Policies

This discussion and analysis of financial condition and results of operations is based on the Partnership’s 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.

 

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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 granted, and management expects them to continue to be granted. This expectation is supported by management’s experience with the Partnership’s franchising authorities and the franchising authorities of the Partnership’s affiliates.

 

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

The Partnership is not subject to market risks arising from changes in interest rates as its cash balance is comprised of deposits at financial institutions.

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 Commission’s rules and forms. The Chief Executive Officer and Vice President and Controller (Chief 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 as a result of the material weakness described below, such disclosure controls and procedures were not effective. Notwithstanding the material weakness described below, the Partnership has concluded that the financial statements for the periods included in this report are fairly stated in all material respects in accordance with U.S. generally accepted accounting principles for each of the periods presented herein.

During the quarter ended September 30, 2014, the Partnership identified a material weakness in the Partnership’s internal control over financial reporting as a result of a missing control to ensure all information relevant to financial reporting is being shared on a timely basis with individuals in financial reporting oversight roles.

There has been no change during the most recent quarter in the Partnership’s 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

In September 2014, the Partnership settled a legal claim made by a former employee. Under the terms of the settlement, the Partnership will pay $150,000 in damages, fees and costs. Pursuant to the settlement agreement, the Partnership entered into a security agreement to grant a security interest in all of the assets of the Partnership to secure the obligations. In addition, the Partnership incurred approximately $187,768 in legal fees associated with the defense of this claim, of which approximately $118,276 and $147,978 was incurred for the three and nine months ended September 30, 2014, respectively. The Partnership has recorded both the settlement and the associated legal fees as general and administrative expenses in the accompanying financial statements.

The Partnership is party to other ordinary and routine litigation proceedings that are incidental to the Partnership’s 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 or prospects.

 

ITEM 1A Risk Factors

There have been no material changes from the Partnership’s risk factors as disclosed in the 2013 Form 10-K.

 

ITEM 6 Exhibits

 

  (a) Exhibit Index

 

  31 (a).   Certification of Chief Executive Officer of Northland Communications Corporation, the General Partner, dated November 14, 2014 pursuant to section 302 of the Sarbanes-Oxley Act
  31(b).   Certification of Vice President, Controller (Chief Accounting Officer) of Northland Communications Corporation, the General Partner, dated November 14, 2014 pursuant to section 302 of the Sarbanes-Oxley Act
  32(a).   Certification of Chief Executive Officer of Northland Communications Corporation, the General Partner, dated November 14, 2014 pursuant to section 906 of the Sarbanes-Oxley Act
  32(b).   Certification of Vice President, Controller (Chief Accounting Officer) of Northland Communications Corporation, the General Partner, dated November 14, 2014 pursuant to section 906 of the Sarbanes-Oxley Act
101   The following financial information from Northland Cable Properties Eight Limited Partnership Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014 is formatted in XBRL: (i) the Unaudited Condensed Balance Sheets, (ii) the Unaudited Condensed Statements of Operations, (iii) the Unaudited Condensed Statements of Cash Flows and (iv) the Notes to Condensed Financial Statements.

 

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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

 

SIGNATURES

 

CAPACITIES

 

DATE

/s/    RICHARD I, CLARK

Richard I. Clark

  Executive Vice President, Treasurer and Assistant Secretary   11-14-14

/s/    GARY S. JONES

Gary S. Jones

  Chief Executive Officer   11-14-14

 

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