10-Q 1 d556212d10q.htm FORM 10-Q FORM 10-Q
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 June 30, 2013

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      9   

ITEM 3.

  Quantitative and Qualitative Disclosures About Market Risk      12   

ITEM 4.

  Controls and Procedures      12   
PART II - OTHER INFORMATION      13   

ITEM 1

  Legal proceedings      13   

ITEM 1A

  Risk Factors      13   

ITEM 2

  Changes in securities      13   

ITEM 3

  Defaults upon senior securities      13   

ITEM 4

  Submission of matters to a vote of security holders      13   

ITEM 5

  Other information      13   

ITEM 6

  Exhibits      13   
SIGNATURES      14   
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   


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)

 

     June 30,
2013
    December 31,
2012
 

ASSETS

    

Cash

     579,367      $ 380,676   

Accounts receivable, net of allowance of $5,500 and $4,000 in 2013 and 2012, respectively

     120,669        96,069   

Due from affiliates

     6,087        43,135   

Prepaid expenses

     100,253        47,918   

Property and equipment, net of accumulated depreciation of $11,096,065, and $10,821,531, respectively

     2,676,605        2,628,604   

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

     2,292,704        2,292,704   

Loan fees, net of accumulated amortization of $105,380 and $104,373, respectively

     —          1,007   
  

 

 

   

 

 

 

Total assets

     5,775,685        5,490,113   
  

 

 

   

 

 

 

LIABILITIES AND PARTNERS’ CAPITAL

    

Accounts payable and accrued expenses

     324,452        293,542   

Due to General Partner and affiliates

     161,581        9,365   

Deposits

     9,990        11,215   

Subscriber prepayments

     166,622        184,140   

Term loan

     478,376        553,376   
  

 

 

   

 

 

 

Total liabilities

     1,141,021        1,051,638   
  

 

 

   

 

 

 

Partners’ capital (deficit):

    

General Partner:

    

Contributed capital, net

     1,000        1,000   

Accumulated deficit

     (34,643     (36,652
  

 

 

   

 

 

 
     (33,643     (35,652
  

 

 

   

 

 

 

Limited Partners:

    

Contributed capital, net (19,087 units)

     8,102,518        8,102,518   

Accumulated deficit

     (3,434,211     (3,628,391
  

 

 

   

 

 

 
     4,668,307        4,474,127   
  

 

 

   

 

 

 

Total partners’ capital

     4,634,664        4,438,475   
  

 

 

   

 

 

 

Total liabilities and partners’ capital

     5,775,685        5,490,113   
  

 

 

   

 

 

 

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 six months ended June 30,  
     2013     2012  

Service revenues

   $ 2,258,127      $ 2,131,118   

Expenses:

    

Cable system operations / cost of revenue (including $30,577 and $28,484 to affiliates in 2013 and 2012, respectively), excluding depreciation shown below

     257,144        237,003   

General and administrative (including $275,902 and $239,763 to affiliates in 2013 and 2012, respectively)

     631,514        582,874   

Programming / cost of revenue (including $24,356 and $17,129 to affiliates in 2013 and 2012, respectively)

     887,427        836,698   

Depreciation / cost of revenue

     274,534        262,132   

Loss on disposal of assets

     —          24,588   
  

 

 

   

 

 

 
     2,050,619        1,943,295   
  

 

 

   

 

 

 

Insurance proceeds

     2,564        —     

Income from operations

     210,072        187,823   

Other income (expense):

    

Interest expense and amortization of loan fees

     (9,310     (15,442

Interest income

     147        181   
  

 

 

   

 

 

 
     (9,163     (15,261
  

 

 

   

 

 

 

Net income

   $ 200,909      $ 172,562   
  

 

 

   

 

 

 

Allocation of net income:

    

General Partner (1%)

   $ 2,009      $ 1,726   
  

 

 

   

 

 

 

Limited Partners (99%)

   $ 198,900      $ 170,836   
  

 

 

   

 

 

 

Net income per limited partnership unit: (19,087 units)

   $ 10.42      $ 8.95   
  

 

 

   

 

 

 

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 June 30,  
     2013     2012  

Service revenues

   $ 1,143,396      $ 1,067,004   

Expenses:

    

Cable system operations / cost of revenue (including $14,300 and $12,619 to affiliates in 2013 and 2012, respectively), excluding depreciation shown below

     132,640        118,419   

General and administrative (including $138,062 and $118,094 to affiliates in 2013 and 2012, respectively)

     331,774        303,505   

Programming / cost of revenue (including $14,630 and $8,908 to affiliates in 2013 and 2012, respectively)

     452,816        424,742   

Depreciation / cost of revenue

     139,356        130,736   

Loss on disposal of assets

     —          24,393   
  

 

 

   

 

 

 
     1,056,586        1,001,795   
  

 

 

   

 

 

 

Income from operations

     86,810        65,209   

Other income (expense):

    

Interest expense and amortization of loan fees

     (3,868     (7,381

Interest income

     67        81   
  

 

 

   

 

 

 
     (3,801     (7,300
  

 

 

   

 

 

 

Net income

   $ 83,009      $ 57,909   
  

 

 

   

 

 

 

Allocation of net income:

    

General Partner (1%)

   $ 830      $ 579   
  

 

 

   

 

 

 

Limited Partners (99%)

   $ 82,179      $ 57,330   
  

 

 

   

 

 

 

Net income per limited partnership unit: (19,087 units)

   $ 4.31      $ 3.00   
  

 

 

   

 

 

 

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 six months ended June 30,  
     2013     2012  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income

   $ 200,909      $ 172,562   

Adjustments to reconcile net income to cash provided by operating activities:

    

Depreciation

     274,534        262,132   

Amortization of loan fees

     1,007        2,014   

Insurance proceeds

     (2,564     —     

Loss on disposal of assets

     —          4,588   

(Increase) decrease in operating assets:

    

Accounts receivable

     (24,600     23,172   

Due from affiliates

     37,048        (10,780

Prepaid expenses

     (52,335     (29,244

Increase (decrease) in operating liabilities:

    

Accounts payable and accrued expenses

     38,752        36,443   

Due to General Partner and affiliates

     152,216        (16,869

Subscriber prepayments and deposits

     (18,743     (6,616
  

 

 

   

 

 

 

Net cash provided by operating activities

     606,224        437,402   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Purchase of property and equipment

     (330,377     (222,413

Proceeds from sale of assets

     —          500   

Insurance proceeds

     2,564        —     

Franchises

     —          (500
  

 

 

   

 

 

 

Net cash used in investing activities

     (327,813     (222,413
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Principal payments on borrowings

     (75,000     (150,000

Distribution on behalf of limited partners for tax purposes

     (4,720     —     
  

 

 

   

 

 

 

Net cash used in financing activities

     (79,720     (150,000
  

 

 

   

 

 

 

INCREASE IN CASH

     198,691        64,989   

CASH, beginning of period

     380,676        367,788   
  

 

 

   

 

 

 

CASH, end of period

   $ 579,367      $ 432,777   
  

 

 

   

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

    

Cash paid during the period for interest

   $ 7,030      $ 13,934   
  

 

 

   

 

 

 

Capital expenditures in accounts payable at June 30, 2013 and 2012

   $ 25,120      $ —     
  

 

 

   

 

 

 

The accompanying notes are an integral part of these statements.

 

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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 June 30, 2013, its statements of operations for the three and six months ended June 30, 2013 and 2012, and its statements of cash flows for the six months ended June 30, 2013 and 2012. 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, 2012.

Northland Communications Corporation (the General Partner or Northland) manages the operations and is the General Partner of the Partnership under the terms of a Partnership Agreement which will expire on December 31, 2013. The General Partner intends to submit a proxy statement in 2013 that will include a request for an extension of the Partnership term. The extension of the Partnership’s life will require approval from a majority of its limited partners. No assurances can be given that a majority of the limited partners will approve an extension of the Partnership’s life. Given this fact, the Partnership’s ability to continue as a going concern is in substantial doubt at June 30, 2013. The financial statements do not include any adjustments that might result from the uncertainty regarding Northland’s ability to extend the life of the Partnership.

Failure to extend the term of the Partnership would result in dissolution of the Partnership at December 31, 2013. The Partnership continues after dissolution solely for the purpose of winding up its activities. In winding up its activities, the Partnership may preserve the business or property as a going concern for a reasonable time and perform other necessary acts; and shall discharge the Partnership’s liabilities, settle and close the Partnership’s activities, and marshal and distribute the assets of the Partnership.

(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’s test for impairment that was performed during the fourth quarter of 2012 indicated that the fair value of the assets exceeded their carrying value.

(3) Term Loan

In December 2012, the Partnership agreed to certain terms and conditions with its existing lender and amended its credit agreement. The terms of the amendment extend the maturity date to June 30, 2013. 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. As of June 30, 2013, the balance under the credit facility was $478,376 at a LIBOR based interest rate of 3.19%.

Principal payments are withdrawn by the lender from the Partnership’s bank account as of the last day of each quarter. As June 30, 2013, fell on a Sunday, the final principal payment of $478,376 was withdrawn on Monday, July 1, 2013, representing payment in full of its term loan.

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.

(4) Litigation

The Partnership is party to 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, prospects or debt service abilities.

 

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(5) 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, 2013.

 

     Total      Level 1      Level 2      Level 3  

Cash

   $ 579,367       $ 579,367       $ 0       $ 0  

The following table summarizes the balances of assets measured at fair value on a recurring basis at December 31, 2012.

 

     Total      Level 1      Level 2      Level 3  

Cash

   $ 380,676       $ 380,676       $ 0      $ 0  

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.

 

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Table of Contents

PART I (continued)

 

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

Results of Operations - Six months ended June 30, 2013 and 2012

Total video basic subscribers decreased from 3,954 as of June 30, 2012 to 3,764 as of June 30, 2013. 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 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 $2,258,127 for the six months ended June 30, 2013, an increase of 6% from $2,131,118 for the six months ended June 30, 2012. Revenues for the six months ended June 30, 2013 were comprised of the following sources:

 

   

$1,271,681 (56%) from basic and expanded video services

 

   

$597,382 (27%) from high speed internet services

 

   

$50,816 (2%) from premium video services

 

   

$156,718 (7%) from telephony services

 

   

$32,465 (1%) from advertising

 

   

$57,419 (3%) from late fees

 

   

$91,646 (4%) from other sources

Average monthly revenue per subscriber increased $10.27 or approximately 12% from $87.82 for six months ended June 30, 2012 to $98.09 for the six months ended June 30, 2013. This increase is attributable to rate increases implemented throughout the Partnership’s systems during the first quarter of 2013, 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 and loss on disposal of assets totaled $257,144 for the six months ended June 30, 2013, an increase of approximately 8% from the same period in 2012. The increase is primarily attributable to an increase in operating salaries offset by a decrease in pole rental expenses.

General and administrative expenses totaled $631,514 for the six months ended June 30, 2013, an increase of approximately 8% from $582,874 for the same period in 2012. This increase is primarily attributable to higher administrative services, audit fees and marketing expenses offset by decreased administrative salaries as a result of an open position.

Programming expenses totaled $887,427 for the six months ended June 30, 2013, an increase of approximately 6% over the same period in 2012. 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.

Depreciation expense totaled $274,534 for the six months ended June 30, 2013, an increase of approximately 5% over the same period in 2012. 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 $9,310 for the six months ended June 30, 2013, a decrease of approximately 40% over the same period in 2012. This decrease is attributable to loan fees becoming fully amortized in the first quarter 2013, along with lower average outstanding indebtedness as a result of required principal payments.

Results of Operations - Three months ended June 30, 2013 and 2012

Total video basic subscribers decreased from 3,954 as of June 30, 2012 to 3,764 as of June 30, 2013. 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 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.

 

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Revenue totaled $1,143,396 for the three months ended June 30, 2013, an increase of 7% from $1,067,004 for the three months ended June 30, 2012. Revenues for the three months ended June 30, 2013 were comprised of the following sources:

 

   

$630,159 (55%) from basic and expanded video services

 

   

$308,919 (27%) from high speed internet services

 

   

$25,467 (2%) from premium video services

 

   

$87,503 (8%) from telephony services

 

   

$16,426 (1%) from advertising

 

   

$28,779 (3%) from late fees

 

   

$46,143 (4%) from other sources

Average monthly revenue per subscriber increased $10.57 or approximately 12% from $88.76 for three months ended June 30, 2012 to $99.33 for the three months ended June 30, 2013. This increase is attributable to rate increases implemented throughout the Partnership’s systems during the first quarter of 2013, 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 and loss on disposal of assets totaled $132,640 for the three months ended June 30, 2013, an increase of approximately 12% from the same period in 2012. The increase is primarily attributable to an increase in operating salaries offset by a decrease in pole, duct, and site rental expenses.

General and administrative expenses totaled $331,774 for the three months ended June 30, 2013, an increase of approximately 9% from $303,505 for the same period in 2012. This increase is primarily attributable to higher administrative services, audit fees and marketing expenses offset by decreased administrative salaries as a result of an open position.

Programming expenses totaled $452,816 for the three months ended June 30, 2013, an increase of approximately 7% over the same period in 2012. 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.

Depreciation expense totaled $139,356 for the three months ended June 30, 2013, an increase of approximately 7% over the same period in 2012. 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 $3,868 for the three months ended June 30, 2013, a decrease of approximately 48% over the same period in 2012. This decrease is attributable to loan fees becoming fully amortized in first quarter 2013, along with lower average outstanding indebtedness as a result of required principal payments.

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 cable and other services. Based on management’s analysis, the Partnership’s cash flow from operations and cash on hand will be sufficient to cover future operating costs, planned capital expenditures, debt service and working capital needs over the next twelve-month period. On June 30, 2013, the Partnership’s term loan matured. Principal payments are withdrawn by the lender from the Partnership’s bank account as of the last day of each quarter. As June 30, 2013, fell on a Sunday, the final principal payment of $478,376 was withdrawn on Monday, July 1, 2013.

Net cash provided by operating activities totaled $606,224 for the six months ended June 30, 2013. Adjustments to the $200,909 net income for the period to reconcile to net cash provided by operating activities consisted primarily of depreciation of $274,534 and changes in other operating assets and liabilities of $132,338.

Net cash used in investing activities totaled $327,813 for the six months ended June 30, 2013 and consisted primarily of purchases of property and equipment.

Net cash used in financing activities for the six months ended June 30, 2013 consisted of a $75,000 scheduled principal payment and $4,720 in distribution on behalf of limited partners for tax purposes.

 

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Term Loan

In December 2012, the Partnership agreed to certain terms and conditions with its existing lender and amended its credit agreement. The terms of the amendment extend the maturity date to June 30, 2013. 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. As of June 30, 2013, the balance under the credit facility was $478,376 at a LIBOR based interest rate of 3.19%. Principal payments are withdrawn by the lender from the Partnership’s bank account as of the last day of each quarter. As June 30, 2013, fell on a Sunday, the final principal payment of $478,376 was withdrawn on Monday, July 1, 2013, representing payment in full of its term loan.

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.

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 Partnership’s contractual obligations as of June 30, 2013:

 

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

Term Loan

     478,376         478,376         0         0         0   

Minimum operating lease payments

     86,640         6,420         2,520         2,400         75,300   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 565,016       $ 484,796       $ 2,520       $ 2,400       $ 75,300   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

  (a) These contractual obligations do not include accounts payable and accrued liabilities, which are expected to be paid in 2013.

 

  (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 $121,902 in 2012.

Capital Expenditures

During the first six months of 2013, the Partnership paid $330,377 for capital expenditures. These expenditures included continued upgrades to both systems to expand and maintain the high speed data service capabilities, customer premise equipment to provide services and a new vehicle.

Management has estimated that the Partnership will spend approximately $320,000 on capital expenditures during the remainder of 2013. Planned expenditures include the continuation of the expansion of high speed data capacity in both systems, potential line extension opportunities, and customer premise equipment to provide services. The level of future capital spending will be dependent on the Partnership’s available cash on hand.

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.

 

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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 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 subject to market risks arising from changes in interest rates. The Partnership’s primary interest rate exposure results from changes in the LIBOR rate, which is used to determine the interest rate applicable to the Partnership’s debt facility. 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.

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 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 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

The Partnership is party to 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, prospects or debt service abilities.

ITEM 1A Risk Factors

There have been no material changes from the Partnership’s risk factors as disclosed in the 2012 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 2, 2013 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 2, 2013 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 2, 2013 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 2, 2013 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

 

SIGNATURES   CAPACITIES   DATE

/s/ RICHARD I, CLARK

Richard I. Clark

 

Executive Vice President, Treasurer and Assistant Secretary

  8-2-13
   

/s/ GARY S. JONES

  President   8-2-13
Gary S. Jones    

 

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