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UNITED STATES
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 September 30, 2004
 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:0-16718 Northland Cable Properties Seven Limited Partnership  Washington
    
    91-1366564(State of Organization)
    
    (I.R.S. Employer Identification No.)
 101 Stewart Street, Seattle, Washington
    
    98065(Address of Principal Executive Offices)
    
    (Zip Code)
 (206) 621-1351   N/A   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 subject to such
filing requirements for the past 90 days. Yes þ    No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act.) Yes o    No þ




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TABLE OF CONTENTS  NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTSPART I (continued)ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Continuing OperationsITEM 3. Quantitative and Qualitative Disclosures About Market RiskITEM 4. Controls and proceduresPART II  OTHER INFORMATIONITEM 1 Legal proceedingsITEM 2 Changes in securitiesITEM 3 Defaults upon senior securitiesITEM 4 Submission of matters to a vote of security holdersITEM 5 Other informationITEM 6 Exhibits and Reports on Form 8-KSIGNATURESEXHIBIT 31.(A)EXHIBIT 31.(B)EXHIBIT 32.(A)EXHIBIT 32.(B) PART 1  FINANCIAL INFORMATION ITEM 1. Financial Statements NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS  (UNAUDITED) September 30,
    
    December 31,2004
    
    2003ASSETSCash
    
    $
    304,945
    
    
    $
    758,694Accounts receivable
    
    
    361,527
    
    
    
    450,978Due from affiliates
    
    
    98,865
    
    
    
    67,242Prepaid expenses
    
    
    271,960
    
    
    
    107,780System sale receivable
    
    
    411,600
    
    
    
    1,120,494Property and equipment, net of accumulated
depreciation of $16,772,178 and $15,210,270,
respectively
    
    
    10,833,240
    
    
    
    11,377,870Franchise agreements, net of accumulated
amortization of $10,321,249
    
    
    9,607,185
    
    
    
    9,607,185Loan fees and other intangibles, net of accumulated
amortization of $820,081 and $714,987, respectively
    
    
    618,994
    
    
    
    720,436Total assets
    
    $
    22,508,316
    
    
    $
    24,210,679LIABILITIES AND PARTNERS CAPITALAccounts payable and accrued expenses
    
    $
    1,178,292
    
    
    $
    1,198,834Due to Managing General Partner and affiliates
    
    
    10,319
    
    
    
    51,793Deposits
    
    
    20,522
    
    
    
    18,210Subscriber prepayments
    
    
    344,099
    
    
    
    358,129Notes payable
    
    
    19,081,250
    
    
    
    21,500,000Total liabilities
    
    
    20,634,482
    
    
    
    23,126,966Partners capital:General Partners:Contributed capital, net
    
    
    (25,367
    )
    
    
    (25,367
    )Accumulated deficit
    
    
    (168,363
    )
    
    
    (176,264
    )(193,730
    )
    
    
    (201,631
    )Limited Partners:Contributed capital, net
    
    
    18,735,576
    
    
    
    18,735,576Accumulated deficit
    
    
    (16,668,012
    )
    
    
    (17,450,232
    )2,067,564
    
    
    
    1,285,344Total
partners capital
    
    
    1,873,834
    
    
    
    1,083,713Total liabilities and partners capital
    
    $
    22,508,316
    
    
    $
    24,210,679
 The accompanying notes are an integral part of these statements.




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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS  (UNAUDITED) For the three months ended September 30,2004
    
    2003Service revenues
    
    $
    3,443,454
    
    
    $
    3,462,148Expenses:Cable system operations (including
$21,722 and $35,718 to affiliates in
2004 and 2003, respectively), excluding
depreciation and amortization shown below
    
    
    297,020
    
    
    
    291,177General and administrative (including
$325,441 and $325,238 to affiliates
in 2004 and 2003, respectively)
    
    
    872,882
    
    
    
    885,731Programming (including $167 from affiliates and
$3,663 to affiliates in 2004 and 2003,
respectively)
    
    
    1,147,559
    
    
    
    1,119,003Depreciation and amortization
    
    
    550,931
    
    
    
    537,701Loss on disposal of assets
    
    
    2,492
    
    
    
    1,6162,870,884
    
    
    
    2,835,228Income from operations
    
    
    572,570
    
    
    
    626,920Other income (expense):Interest expense and amortization of loan fees
    
    
    (339,532
    )
    
    
    (403,282
    )Interest income and other, net
    
    
    755
    
    
    
    523(338,777
    )
    
    
    (402,759
    )Net income
    
    $
    233,793
    
    
    $
    224,161Allocation of net income:General Partners
    
    $
    2,338
    
    
    $
    2,242Limited Partners
    
    $
    231,455
    
    
    $
    221,919Net income per limited partnership unit:(49,656 units)
    
    $
    5
    
    
    $
    5
 The accompanying notes are an integral part of these statements.




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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS  (UNAUDITED) For the nine months ended September 30,2004
    
    2003Service revenues
    
    $
    10,475,990
    
    
    $
    10,463,105Expenses:Cable system operations (including
$71,519 and $108,334 to affiliates in
2004 and 2003, respectively), excluding
depreciation and amortization shown below
    
    
    866,109
    
    
    
    831,663General and administrative (including
$991,857 and $1,023,686 to affiliates
in 2004 and 2003, respectively)
    
    
    2,632,346
    
    
    
    2,546,005Programming (including $2,246 and
$29,477 to affiliates in 2004 and 2003,
respectively)
    
    
    3,521,707
    
    
    
    3,523,411Depreciation and amortization
    
    
    1,645,803
    
    
    
    1,609,749Loss on disposal of assets
    
    
    12,296
    
    
    
    18,3488,678,261
    
    
    
    8,529,176Income from operations
    
    
    1,797,729
    
    
    
    1,933,929Other income (expense):Interest expense and amortization of loan fees
    
    
    (1,011,887
    )
    
    
    (1,238,037
    )Interest income and other, net
    
    
    4,279
    
    
    
    1,747(1,007,608
    )
    
    
    (1,236,290
    )Income from continuing operations
    
    
    790,121
    
    
    
    697,639Discontinued operations (Note 3)Income from operations of Washington
Systems, net (including gain on sale of systems
of $14,113,294 in 2003)
    
    
    
    
    
    
    13,764,954Net income
    
    $
    790,121
    
    
    $
    14,462,593Allocation of net income:General Partners
    
    $
    7,901
    
    
    $
    144,626Limited Partners
    
    $
    782,220
    
    
    $
    14,317,967Income from continuing operations per limited
partnership unit (49,656 units):
    
    $
    16
    
    
    $
    14Income from discontinued operations per limited
partnership unit (49,656 units):
    
    $
    
    
    
    $
    277Net income
per limited partnership unit: (49,656 units)
    
    $
    16
    
    
    $
    291
 The accompanying notes are an integral part of these statements.




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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS  (UNAUDITED) For the nine months ended September 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    790,121
    
    
    $
    14,462,593Adjustments to reconcile net income to
cash provided by operating activities:Depreciation and amortization
    
    
    1,645,803
    
    
    
    1,793,679Loan fee amortization
    
    
    105,094
    
    
    
    541,557Loss (gain) on sale of assets
    
    
    12,296
    
    
    
    (14,094,946
    )Other
    
    
    29,817
    
    
    
    (Increase) decrease in operating assets:Accounts receivable
    
    
    89,451
    
    
    
    28,870Due from affiliates
    
    
    (31,623
    )
    
    
    29,875Prepaid expenses
    
    
    (164,180
    )
    
    
    (136,732
    )Increase (decrease) in operating liabilities:Accounts payable and accrued expenses
    
    
    (20,911
    )
    
    
    (1,004,465
    )Due to Managing General Partner and affiliates
    
    
    (41,474
    )
    
    
    (62,083
    )Deposits
    
    
    2,312
    
    
    
    2,238Subscriber prepayments
    
    
    (14,030
    )
    
    
    51,060Net cash provided by operating activities
    
    
    2,402,676
    
    
    
    1,611,646CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (1,144,517
    )
    
    
    (652,944
    )Proceeds from sale of systems
    
    
    708,894
    
    
    
    19,281,427Proceeds from disposal of assets
    
    
    1,600
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (434,023
    )
    
    
    18,628,483CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on borrowings
    
    
    (2,418,750
    )
    
    
    (20,340,000
    )Loan fees
    
    
    (3,652
    )
    
    
    (423,853
    )Net cash used in financing activities
    
    
    (2,422,402
    )
    
    
    (20,763,853
    )DECREASE IN CASH
    
    
    (453,749
    )
    
    
    (523,724
    )CASH, beginning of period
    
    
    758,694
    
    
    
    677,536CASH, end of period
    
    $
    304,945
    
    
    $
    153,812SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    936,745
    
    
    $
    1,458,516
 The accompanying notes are an integral part of these statements.




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NORTHLAND CABLE PROPERTIES SEVEN LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS  (UNAUDITED) For the three months ended September 30,2004
    
    2003CASH FLOWS FROM OPERATING ACTIVITIES:Net income
    
    $
    233,793
    
    
    $
    224,161Adjustments to reconcile net income to
cash provided by operating activities:Depreciation and amortization
    
    
    550,931
    
    
    
    537,701Loan fee amortization
    
    
    35,034
    
    
    
    59,181Loss on sale of assets
    
    
    2,492
    
    
    
    1,616Other
    
    
    16,444
    
    
    
    (Increase) decrease in operating assets:Accounts receivable
    
    
    12,004
    
    
    
    101,623Due from affiliates
    
    
    18,660
    
    
    
    (751
    )Prepaid expenses
    
    
    (87,517
    )
    
    
    3,361Increase (decrease) in operating liabilities
Accounts payable and accrued expenses
    
    
    22,800
    
    
    
    83,004Due to Managing General Partner and affiliates
    
    
    (53,677
    )
    
    
    (105,542
    )Deposits
    
    
    365
    
    
    
    (212
    )Subscriber prepayments
    
    
    (37,295
    )
    
    
    37,124Net cash provided by operating activities
    
    
    714,034
    
    
    
    941,266CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
    
    
    (373,479
    )
    
    
    (186,091
    )Proceeds from sale of systems
    
    
    
    
    
    
    Proceeds from sale of assets
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (373,479
    )
    
    
    (186,091
    )CASH FLOWS FROM FINANCING ACTIVITIES:Principal payments on borrowings
    
    
    (806,250
    )
    
    
    (609,281
    )Loan fees
    
    
    
    
    
    
    (105,962
    )Net cash used in financing activities
    
    
    (806,250
    )
    
    
    (715,243
    )(DECREASE) INCREASE IN CASH
    
    
    (465,695
    )
    
    
    39,932CASH, beginning of period
    
    
    770,640
    
    
    
    113,880CASH, end of period
    
    $
    304,945
    
    
    $
    153,812SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid during the period for interest
    
    $
    292,195
    
    
    $
    175,861




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NORTHLAND CABLE PROPERTIES SEVEN 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 Partnerships financial position
at September 30, 2004, its statements of operations for the nine and three
months ended September 30, 2004 and 2003, and its statements of cash flows for
the nine months ended September 30, 2004 and 2003. 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, 2003. On March 11, 2003, the Partnership sold the operating assets and franchise
rights of its cable systems in and around Sequim and Camano Island, Washington
(the Washington Systems), which served approximately 10,300 subscribers.
This filing and the accompanying financial statements present the results of
operations and the sale of the Washington Systems as discontinued operations. Certain prior period amounts have been reclassified to conform to the current
period presentation. (2) Intangible Assets In accordance with the provisions of SFAS No. 142, Goodwill and Other
Intangible Assets, the Partnership does not amortize goodwill or any other
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, or on an interim basis if an event occurs or circumstances
change that would reduce the fair value of a reporting unit below its carrying
value. 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: 2004 (3 months)
    
    $
    34,0002005
    
    
    138,0002006
    
    
    138,0002007
    
    
    138,0002008
    
    
    138,000Thereafter
    
    
    33,000$
    619,000




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(3) System Sale On March 11, 2003, the Partnership sold the operating assets and franchise
rights of its Washington Systems. The Washington Systems were sold at a price
of approximately $20,340,000 of which the Partnership received approximately
$19,280,000 at closing. Substantially all of the proceeds were used to pay
down amounts outstanding under the Partnerships credit agreement. The sales
price was adjusted at closing for the proration of certain revenues and
expenses and approximately $1,060,000 was to be held in escrow and released to
the Partnership one year from the closing of the transaction, subject to
general representations and warranties. In March of 2004, the Partnership
received notice from the buyer of the Washington Systems of certain claims,
which were made under the holdback agreement provisions of the purchase and
sale agreement. Management believes that such claims are unsubstantiated and
intends to vigorously contest such claims. However, approximately $412,000 of
the original escrow proceeds will remain in escrow until such claims are
resolved. The Partnership has filed a lawsuit against the buyer of the
Washington Systems for recovery of the remaining escrow proceeds and
unspecified damages. The escrow proceeds in excess of the claims were released
to the Partnership in March of 2004. The revenue, expenses and other items attributable to the operations of the
Washington Systems for the period from January 1, 2003 to March 11, 2003 (the
date of the sale of the Washington Systems) have been reported as discontinued
operations in the accompanying statements of operations, and include the
following: For the nine months endedSeptember 30, 2003Service revenues
    
    $
    1,129,917Expenses (income):Operating (including $13,642, net paid to affiliates)
    
    
    143,762General and administrative (including $144,476, net paid to affiliates)
    
    
    270,781Programming (including $32,896, net paid to affiliates)
    
    
    388,367Depreciation and amortization
    
    
    183,930Gain on disposal of assets
    
    
    (14,113,294
    )Total operating expenses (income), net
    
    
    (13,126,454
    )Income from operations
    
    
    14,256,371Other expense:Interest expense and amortization of loan fees
    
    
    (491,417
    )Income from operations of Washington Systems
    
    $
    13,764,954
 In accordance with EITF 87-24, Allocation of Interest to Discontinued
Operations, the Partnership allocated interest expense to discontinued
operations using the historic weighted average interest rate applicable to the
Partnerships credit facility and approximately $18,713,000 in principal
payments, which were applied to the credit facility as a result of the sale of
the Washington Systems.




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(4) Notes Payable On November 6, 2003, the Partnership refinanced its existing credit facility
(the Refinanced Credit Facility). The Refinanced Credit Facility establishes
a term loan in the amount of $21,500,000, the proceeds from which were used to
repay the Partnerships existing credit facilities, to provide working capital
and for other general purposes. The Refinanced Credit Facility matures on March
31, 2009 and requires the Partnership to make quarterly principal payments
beginning March 31, 2004. Remaining annual maturities of the Refinanced Credit
Facility are as follows: PrincipalPayments2004 (3 months)
    
    $
    806,2502005
    
    
    3,440,0002006
    
    
    3,655,0002007
    
    
    4,515,0002008
    
    
    5,375,0002009
    
    
    1,290,000Total
    
    $
    19,081,250
 The interest rate per annum applicable to the Refinanced Credit Facility is a
fluctuating rate of interest measured by reference to either: (i) the U.S.
dollar prime commercial lending rate announced by the lender (Base Rate),
plus a borrowing margin; or (ii) the London interbank offered rate (LIBOR),
plus a borrowing margin. The applicable borrowing margins vary, based on the
Partnerships leverage ratio, from 2.75% to 3.50% for Base Rate loans and from
3.75% to 4.50% for LIBOR loans. The Refinanced Credit Facility contains a number of covenants, which among
other things require the Partnership to comply with specified financial ratios,
including maintenance, as tested on a quarterly basis, of: (A) a Maximum Total
Leverage Ratio (the ratio of Funded Debt to Annualized EBITDA (as defined)) of
not more than 4.75 to 1.00 initially, decreasing over time to 3.50 to 1.00; (B)
a Minimum Interest Coverage Ratio (the ratio of Annualized EBITDA (as defined)
to aggregate Interest Expense for the immediately preceding four consecutive
fiscal quarters) of not less than 2.50 to 1.00 initially, increasing over time
to 3.50 to 1.00; (C) a Minimum Total Debt Service Coverage Ratio (the ratio of
Annualized EBITDA (as defined) to the Partnerships debt service obligations
for the following twelve months) of not less than 1.00 to 1.00 initially,
increasing over time to 1.10 to 1.00; and (D) Maximum Capital Expenditures of
not more than $2,500,000 in each fiscal year. As of September 30, 2004, the
Partnership was in compliance with the covenants required by the Refinanced
Credit Facility. In addition, in the event the Partnership prepays the Refinanced Credit
Facility in excess of $5,375,000 prior to the third anniversary of the closing
of the refinancing transaction, the Partnership would be required to pay a
Prepayment Fee to the lender, as defined by the terms of the Refinanced Credit
Facility. As of the date of this filing, the Refinanced Credit Facility had an
outstanding balance of $19,081,250, and applicable interest rates are as
follows; $16,500,000 at a LIBOR based interest rate of 6.56% and $2,581,250 at
a LIBOR based interest rate of 6.40%. These interest rates expire during the
fourth quarter of 2004, at which time, new rates will be established. These
rates also include a margin to be paid to the Partnerships lender based on
overall leverage, and may increase or decrease as the Partnerships leverage
fluctuates.




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PART I (continued) 
 ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Continuing Operations Results of Continuing Operations  Nine Months Ended September 30, 2004 and
2003 Revenues from continuing operations totaled $10,475,990 for the nine months
ended September 30, 2004, representing a slight increase over the same period
in 2003. Of these revenues, $7,302,950 (70%) was derived from basic services,
$723,164 (7%) from premium services, $1,192,297 (11%) from expanded basic
services, $122,687 (1%) from digital services, $593,721 (6%) from advertising,
$64,185 (1%) from high-speed Internet services, $187,035 (2%) from late fees,
and $289,951 (2%) from other sources. This slight increase in revenues is
attributable to rate increases implemented throughout the Partnerships systems
during the first quarter of 2004, and increased revenue from the Partnerships
high-speed Internet product offering, offset by decreased premium, expanded
basic and advertising revenue. Cable system operating expenses attributable to continuing operations totaled
$866,109 for the nine months ended September 30, 2004, an increase of $34,446,
or approximately 4%, over the same period in 2003. Such increase is primarily
attributable to increased operating salaries and employee benefit costs and
increased pole and site rental costs, offset by decreased regional management
costs. General and administrative expenses attributable to continuing operations
totaled $2,632,346 for the nine months ended September 30, 2004, an increase of
$86,341, or approximately 3%, over the same period in 2003. This increase is
primarily attributable to increases in salary and employee benefit costs,
increased franchise fees related to certain of the Partnerships systems and
increased administrative overhead costs. Programming expenses attributable to continuing operations totaled $3,521,707
for the nine months ended September 30, 2004, representing a slight decrease
over the same period in 2003. Such decrease is primarily attributable to a
decrease in premium programming costs, which is a result of decreased
subscribers receiving this level of service, and decreased advertising costs,
offset by an increase in the costs associated with the Partnerships high-speed
Internet product. Depreciation and amortization expense attributable to continuing operations for
the nine months ended September 30, 2004 increased $36,054, or approximately
2%, over the same period in 2003. Such increase is primarily attributable to
depreciation of recent purchases related to the upgrade of plant and equipment,
offset by certain assets becoming fully depreciated. Interest expense and amortization of loan fees allocated to continuing
operations decreased $226,150, or approximately 18%, from $1,238,037 to
$1,011,887 for the nine months ended September 30, 2004. This decrease is
attributable to lower average outstanding indebtedness as a result of required
principal repayments and lower interest rates during 2004 as compared to 2003. In accordance with EITF 87-24, Allocation of Interest to Discontinued
Operations, the Partnership allocated interest expense to discontinued
operations using the historic weighted average interest rate applicable to the
Partnerships credit facility and approximately $18,713,000 in principal
payments, which were applied to the credit facility as a result of the sale of
the Washington Systems. Results of Operations  Three Months Ended September 30, 2004 and 2003 Revenues totaled $3,443,454 for the three months ended September 30, 2004,
representing a slight decrease from the same period in 2003. Of these
revenues, $2,396,983 (70%) was derived from basic services, $229,786 (7%) from
premium services, $393,411 (11%) from expanded basic services, $38,666 (1%)
from digital services, $200,077 (6%) from advertising, $31,215 (1%) from
high-speed Internet services, $62,104 (2%) from late fees, and $91,212 (2%)
from other sources. This slight decrease in revenues is attributable to
decreased premium and advertising revenue, offset by rate increases implemented
throughout the Partnerships systems during the first quarter of 2004, and
increased revenue from the Partnerships high-speed Internet product offering. Cable system operating expenses totaled $297,020 for the three months ended
September 30, 2004, representing an increase of $5,843, or approximately 2%,
over the same period in 2003. This is primarily attributable to increased




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operating salaries and employee benefit costs and increased pole and site
rental costs, offset by a decrease in regional management costs. General and administrative expenses totaled $872,882 for the three months ended
September 30, 2004, representing a decrease of $12,849, or approximately 1%,
from the same period in 2003. This is primarily attributable to decreased
property tax and bad debt expenses, offset by increases in salary and employee
benefit costs, and increased administrative overhead costs. Programming expenses totaled $1,147,559 for the three months ended September
30, 2004, representing an increase of $28,556, or approximately 3%, over the
same period in 2003. Such increase is primarily attributable to higher costs
charged by various program suppliers, and increased costs associated with the
Partnerships high-speed Internet product, offset by decreased advertising
costs. Depreciation and amortization expense for the three months ended September 30,
2004 increased slightly over the same period in 2003. Such increase is
primarily attributable to depreciation of recent purchases related to the
upgrade of plant and equipment, offset by certain assets becoming fully
depreciated. Interest expense and amortization of loan fees decreased $63,750, or
approximately 16%, from $403,282 to $339,532 for the three months ended
September 30, 2004. This decrease is attributable to lower average outstanding
indebtedness as a result of required principal repayments and lower interest
rates during 2004 as compared to 2003. 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 Internet services. Losses from uncollectible
accounts have not been material. Based on managements analysis, the
Partnerships cash flow from operations and cash on hand will be sufficient to
cover future operating costs, debt service, planned capital expenditures and
working capital needs over the next twelve-month period. Net cash provided by operating activities totaled $2,402,540 for the nine
months ended September 30, 2004. Adjustments to the $790,121 net income for
the period to reconcile to net cash provided by operating activities
consisted primarily of depreciation and amortization of $1,645,803 and loan
fee amortization of $105,094, offset by increases in operating assets of
$106,352 and decreases in operating liabilities of $74,103. Net cash used in investing activities consisted primarily of proceeds from
the sale of the Washington Systems of $708,894, offset by $1,144,517 in
capital expenditures for the nine months ended September 30, 2004. Net cash used in financing activities for the nine months ended September 30,
2004, consisted of $2,418,750 in scheduled principal payments on long-term
debt, and additional loan fee payments of $3,652 related to the refinance
transaction, which occurred during the fourth quarter of 2003. Notes Payable On November 6, 2003, the Partnership refinanced its existing credit facility
(the Refinanced Credit Facility). The Refinanced Credit Facility establishes
a term loan in the amount of $21,500,000, the proceeds from which were used to
repay the Partnerships existing credit facilities, to provide working capital
and for other general purposes. The Refinanced Credit Facility matures on March
31, 2009 and requires the Partnership to make quarterly principal payments
beginning March 31, 2004. Remaining annual maturities of the Refinanced Credit
Facility are as follows:




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##### Table of Contents



PrincipalPayments2004 (3 months)
    
    $
    806,2502005
    
    
    3,440,0002006
    
    
    3,655,0002007
    
    
    4,515,0002008
    
    
    5,375,0002009
    
    
    1,290,000Total
    
    $
    19,081,250
 The interest rate per annum applicable to the Refinanced Credit Facility is a
fluctuating rate of interest measured by reference to either: (i) the U.S.
dollar prime commercial lending rate announced by the lender (Base Rate),
plus a borrowing margin; or (ii) the London interbank offered rate (LIBOR),
plus a borrowing margin. The applicable borrowing margins vary, based on the
Partnerships leverage ratio, from 2.75% to 3.50% for Base Rate loans and from
3.75% to 4.50% for LIBOR loans. The Refinanced Credit Facility contains a number of covenants, which among
other things require the Partnership to comply with specified financial ratios,
including maintenance, as tested on a quarterly basis, of: (A) a Maximum Total
Leverage Ratio (the ratio of Funded Debt to Annualized EBITDA (as defined)) of
not more than 4.75 to 1.00 initially, decreasing over time to 3.50 to 1.00; (B)
a Minimum Interest Coverage Ratio (the ratio of Annualized EBITDA (as defined)
to aggregate Interest Expense for the immediately preceding four consecutive
fiscal quarters) of not less than 2.50 to 1.00 initially, increasing over time
to 3.50 to 1.00; (C) a Minimum Total Debt Service Coverage Ratio (the ratio of
Annualized EBITDA (as defined) to the Partnerships debt service obligations
for the following twelve months) of not less than 1.00 to 1.00 initially,
increasing over time to 1.10 to 1.00; and (D) Maximum Capital Expenditures of
not more than $2,500,000 in each fiscal year. As of September 30, 2004, the
Partnership was in compliance with the covenants required by the Refinanced
Credit Facility. In addition, in the event the Partnership prepays the Refinanced Credit
Facility in excess of $5,375,000 prior to the third anniversary of the closing
of the refinancing transaction, the Partnership would be required to pay a
Prepayment Fee to the lender, as defined by the terms of the Refinanced Credit
Facility. As of the date of this filing, the Refinanced Credit Facility had an
outstanding balance of $19,081,250, and applicable interest rates are as
follows; $16,500,000 at a LIBOR based interest rate of 6.56% and $2,581,250 at
a LIBOR based interest rate of 6.40%. These interest rates expire during the
fourth quarter of 2004, at which time, new rates will be established. These
rates also include a margin to be paid to the Partnerships lender based on
overall leverage, and may increase or decrease as the Partnerships leverage
fluctuates. System Sale On March 11, 2003, the Partnership sold the operating assets and franchise
rights of its Washington Systems. The Washington Systems were sold at a price
of approximately $20,340,000 of which the Partnership received approximately
$19,280,000 at closing. Substantially all of the proceeds were used to pay
down amounts outstanding under the Partnerships credit agreement. The sales
price was adjusted at closing for the proration of certain revenues and
expenses and approximately $1,060,000 was to be held in escrow and released to
the Partnership one year from the closing of the transaction, subject to
general representations and warranties. In March of 2004, the Partnership
received notice from the buyer of the Washington Systems of certain claims,
which were made under the holdback agreement provisions of the purchase and
sale agreement. Management believes that such claims are unsubstantiated and
intends to vigorously contest such claims. However, approximately $412,000 of
the original escrow proceeds will remain in escrow until such claims are
resolved. The Partnership has filed a lawsuit against the buyer of the
Washington Systems for recovery of the remaining escrow proceeds and
unspecified damages. The escrow proceeds in excess of the claims were released
to the Partnership in March of 2004.




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##### Table of Contents



The sale was made pursuant to an offer by Wave Division Networks, LLC, which
was formalized in a Purchase and Sale Agreement dated October 28, 2002. Based
on the offer made by Wave Division Networks, LLC, management determined that
acceptance would be in the best economic interest of the Partnership, and that
the sale was not a result of declining or deteriorating operations nor was it
necessary to create liquidity or reduce outstanding debt. The revenue, expenses and other items attributable to the operations of the
Washington Systems for the period from January 1, 2003 to March 11, 2003 (the
date of the sale of the Washington Systems) have been reported as discontinued
operations in the accompanying statements of operations, and include the
following: For the nine months endedSeptember 30, 2003Service revenues
    
    $
    1,129,917Expenses (income):Operating (including $13,642, net paid to affiliates)
    
    
    143,762General and administrative (including $144,476, net paid to affiliates)
    
    
    270,781Programming (including $32,896, net paid to affiliates)
    
    
    388,367Depreciation and amortization
    
    
    183,930Gain on disposal of assets
    
    
    (14,113,294
    )Total operating expenses (income), net
    
    
    (13,126,454
    )Income from operations
    
    
    14,256,371Other expense:Interest expense and amortization of loan fees
    
    
    (491,417
    )Income from operations of Washington Systems
    
    $
    13,764,954
 In accordance with EITF 87-24, Allocation of Interest to Discontinued
Operations, the Partnership allocated interest expense to discontinued
operations using the historic weighted average interest rate applicable to the
Partnerships credit facility and approximately $18,713,000 in principal
payments, which were applied to the credit facility as a result of the sale of
the Washington Systems. Obligations and Commitments In addition to working capital needs for ongoing operations, the Partnership
has capital requirements for (i) annual maturities related to the Refinanced
Credit Facility and (ii) required minimum operating lease payments. The
following table summarizes the Partnerships contractual obligations as of
September 30, 2004, and the anticipated effect of these obligations on the
Partnerships liquidity for the remainder of 2004 and in future years:




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##### Table of Contents



Payments Due By PeriodTotal
    
    Less than 1year
    
    
    1  3years
    
    
    
    3  5years
    
    
    More than5 yearsNotes payable
    
    $
    19,081,250
    
    
    $
    3,386,250
    
    
    $
    7,632,500
    
    
    $
    8,062,500
    
    
    $
    Minimum operating lease payments
    
    
    49,332
    
    
    
    9,882
    
    
    
    39,450
    
    
    
    
    
    
    
    Total
    
    $
    19,130,582
    
    
    $
    3,396,132
    
    
    $
    7,671,950
    
    
    $
    8,062,500
    
    
    $
    
  (a)
    
    These contractual obligations do not include accounts payable and
accrued liabilities, which are expected to be paid in 2004.  (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 amounts as, generally, pole rentals
are cancelable on short notice. The Partnership does however anticipate
that such rentals will recur. Capital Expenditures During the first nine months of 2004, the Partnership incurred approximately
$1.1 million in capital expenditures. These expenditures included the initial
phases of two-way plant upgrades in Bay City and Brenham, Texas and Toccoa
Georgia, which have allowed high-speed Internet services to be launched in
these systems. In addition, maintenance of existing plant equipment for all
systems, including cable line drops, is an ongoing expenditure. The Partnership does not anticipate spending a significant amount of cash on
capital expenditures during the 4th quarter of 2004. Planned expenditures
during 2005 include the continuation of distribution plant upgrades in Toccoa,
Georgia, potential line extension opportunities and the continued deployment of
high-speed Internet services in various systems. Solicitation of Interest From Potential Purchasers In previous filings, the Managing General Partner disclosed that they were
working with Daniels and Associates to solicit offers from potential
purchasers, to clarify the terms of certain offers received with the hope of
being able to reach agreement with purchasers for the sale of the Partnerships
assets for fair value. Despite ongoing efforts, the Managing General Partner has been unable to secure
suitable agreements for the sale of all the Partnerships assets. Offers for
what we considered to be fair value were received for all of the Partnerships
assets. However, due to the lack of available financing, certain offers were
withdrawn and the Managing General Partner is continuing to negotiate with
purchasers for the sale of some of the Partnerships cable systems. If these
sales are consummated, they will not result in an early liquidation of the
Partnership, but they will allow the Partnership to significantly pay down its
existing bank debt, thereby providing greater flexibility for future operations
while continuing to explore additional opportunities to market the remaining
assets. Management does not feel that the lack of viable purchase offers for
the Partnerships remaining cable systems reflect a lack of value in those
systems or a concern over the operational capabilities of those systems.
Instead, based on our experience, many factors affect the market for cable
television systems over time, including whether the various companies
participating in the cable television industry are generally in an acquisition
mode, the availability of financing through lenders or investors and the number
of other systems that are either on the market or forecasted to soon be offered
for sale. It is managements experience, after many years in the cable television
industry, that it is difficult to forecast the likelihood of receiving a solid
purchase offer from a financially viable purchaser at any specific time.
Notwithstanding, in the middle of 2005 the Managing General Partner will aim to
revisit soliciting offers from potential purchasers for the Partnerships
remaining assets, however, we are unable at this time to forecast the ultimate
outcome of these activities. 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




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reporting period. Actual results could differ from those estimates. The
following critical accounting policies, which have been chosen among
alternatives, 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. 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 periodically performs
evaluations of these estimates as warranted by events or changes in
circumstances. In accordance with SFAS No. 51, Financial Reporting by Cable Television
Companies, the Partnership also 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- In accordance with the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets, the Partnership does not amortize
goodwill or any other 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, or on an interim basis if an event
occurs or circumstances change that would reduce the fair value of a reporting
unit below its carrying value. Management believes the franchises have indefinite lives because the franchises
are expected to be used by the Partnership for the foreseeable future and
effects of obsolescence, competition and other factors are minimal. In
addition, the level of maintenance expenditures required to obtain the future
cash flows expected from the franchises are 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.




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##### Table of Contents



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
LIBOR or the prime rate, which are used to determine the interest rate
applicable to the Partnerships 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 Partnerships variable rate
obligations would be approximately $191,000. 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 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 in the Partnerships internal controls over financial
reporting that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.




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##### Table of Contents



PART II  OTHER INFORMATION 
 ITEM 1 Legal proceedings The Partnership has filed a lawsuit against the buyer of the Washington Systems
for recovery of the remaining escrow proceeds and unspecified damages. 
 ITEM 2 Changes in securities None 
 ITEM 3 Defaults upon senior securities None 
 ITEM 4 Submission of matters to a vote of security holders None 
 ITEM 5 Other information None 
 ITEM 6 Exhibits and Reports on Form 8-K (a)
    
    Exhibit Index31 (a).
    
    Certification of Chief Executive Officer of
Northland Communications Corporation, the Managing General
Partner, dated November 12, 2004 pursuant to section 302 of
the Sarbanes-Oxley Act31 (b).
    
    Certification of President (Principal Financial
and Accounting Officer) of Northland Communications
Corporation, the Managing General Partner, dated November 12,
2004 pursuant to section 302 of the Sarbanes-Oxley Act32 (a).
    
    Certification of Chief Executive Officer of
Northland Communications Corporation, the Managing General
Partner, dated November 12, 2004 pursuant to section 906 of
the Sarbanes-Oxley Act32 (b).
    
    Certification of President (Principal
Financial and Accounting Officer) of Northland
Communications Corporation, the Managing General Partner,
dated November 12, 2004 pursuant to section 906 of the
Sarbanes-Oxley Act(b)
    
    Reports on Form 8-KForm 8-K filed November 4, 2004 regarding solicitation of interest
from potential purchasers.




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##### Table of Contents



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 SEVEN LIMITED PARTNERSHIP BY: Northland Communications Corporation,
Managing General Partner SIGNATURES
    
    CAPACITIES
    
    DATE/s/ RICHARD I. CLARK
    
    Executive Vice President, Treasurer and
    
    11-12-04Assistant SecretaryRichard I. Clark/s/ GARY S. JONES
    
    President
    
    11-12-04Gary S. Jones